Byline Bancorp, Inc. Reports Second Quarter 2022 Financial Results

Select Second Quarter 2022 Financial Highlights

• Net income of $20.3 million, or $0.54 per diluted share
• Net interest income of $61.6 million and $14.2 million of non-interest income
  • Total revenue¹ of $75.8 million
• Net interest margin of 3.76%
• Return on average assets of 1.17%
• Efficiency ratio of 55.29%
• Non-interest bearing deposits totaled 40.5% of total deposits
• Originated loans and leases increased $425.1 million, loan and lease production, net of loan sales of $443.0 million
• Common Equity Tier 1 to risk weighted assets of 10.26%

Byline Bancorp, Inc. ("Byline", the “Company”, "we", "our", or "us")(NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $20.3 million, or $0.54 per diluted share, for the second quarter of 2022, compared with net income of $22.3 million, or $0.58 per diluted share, for the first quarter of 2022, and net income of $28.5 million, or $0.73 per diluted share, for the second quarter 2021.

Roberto R. Herencia, Executive Chairman and Chief Executive Officer of Byline Bancorp, Inc., commented, “We are pleased with our second quarter results as our team continued to move with agility and execute well in a highly dynamic environment. We continued to experience healthy growth in our loan and lease portfolio as we eclipsed $5.0 billion in loans and leases and surpassed $7.0 billion total assets. I want to thank our employees for their hard work and unwavering dedication to our business.”

Alberto J. Paracchini, President of Byline Bancorp, Inc. added, “Our second quarter results reflect the strength and durability of our business model as we posted strong growth in net interest income. Loan and lease growth exceeded our expectations with annualized growth of 34.2%, excluding PPP loans. Credit quality remains solid, and we continue to manage our operating expenses prudently. As we head into the second half of the year we face an uncertain economic environment. However, we believe we are well positioned for the range of possible outcomes given our strong liquidity and capital ratios, our diversified business mix, and our well-established risk management track record.”

Board Declares Cash Dividend of $0.09 per Share

On July 26, 2022, the Company's Board of Directors declared a cash dividend of $0.09 per share, payable on August 23, 2022, to stockholders of record of the Company's common stock as of August 9, 2022.

Company Completes Branch Consolidations

The Company continued to execute on its previously announced strategic efforts to optimize its branch network by consolidating six branches during the second quarter 2022, which resulted in a one-time charge of $267,000 during the quarter. These consolidations conclude the Company’s branch consolidation and real estate reduction strategic efforts announced on December 10, 2021.

STATEMENTS OF OPERATIONS

Net Interest Income

The following table presents the average interest-earning assets and average interest-bearing liabilities for the periods indicated. Net interest income and margin are adjusted to reflect tax-exempt interest income on a tax-equivalent basis using tax rates effective as of the end of the period:

The following table presents net interest income for the periods indicated:

Net interest income for the second quarter of 2022 was $61.6 million, an increase of $2.9 million, or 4.9%, from the first quarter of 2022.

The increase in net interest income was primarily due to:

• An increase of $4.2 million in interest income on loans and leases, primarily due to loan and lease growth.

Partially offset by:

• An increase of $1.0 million in interest expense on deposits due to the rising interest rate environment.

Tax-equivalent net interest margin for the second quarter of 2022 was 3.77%, a decrease of five basis points compared to the first quarter of 2022. Total net accretion income on acquired loans contributed eight basis points to the net interest margin for the second quarter of 2022 compared to 10 basis points for the first quarter of 2022, a decrease of two basis points. PPP loan interest income and net fee income combined, contributed $746,000 to net interest income for the second quarter of 2022 compared to $2.7 million for the first quarter of 2022, a decrease of $1.9 million.

The average cost of total deposits was 0.16% for the second quarter of 2022, an increase of eight basis points compared to the first quarter of 2022. Average non-interest-bearing demand deposits were 41.3% of average total deposits for the second quarter of 2022 compared to 41.7% during the first quarter of 2022.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $5.9 million for the second quarter of 2022, an increase of $913,000 compared to $5.0 million for the first quarter of 2022. The increase in provision during the second quarter of 2022 was mainly driven by changes to qualitative factors surrounding macroeconomic environment and rising interest rates, as well as growth in the loan and lease portfolio.

Non-interest Income

The following table presents the components of non-interest income for the periods indicated:

Non-interest income for the second quarter of 2022 was $14.2 million, a decrease of $5.3 million or 27.1%, compared to $19.4 million for the first quarter of 2022

The decrease in total non-interest income was primarily due to:

• An increase of $3.4 million in loan servicing asset revaluation charges due to higher downward asset revaluation adjustment resulting from unfavorable fair value adjustments due to increased discount rates; and
• A decrease of $844,000 in net gains on sales of loans due to lower premiums on government guaranteed loan sales.

During the second quarter of 2022, we sold $118.5 million of U.S. government guaranteed loans compared to $102.3 million during the first quarter of 2022.

Non-interest Expense

The following table presents the components of non-interest expense for the periods indicated:

Non-interest expense for the second quarter of 2022 was $43.8 million, a decrease of $782,000, or 1.8%, from $44.6 million for the first quarter of 2022.

The decrease in total non-interest expense was primarily due to:

• A decrease of $1.3 million in salaries and employee benefits primarily due to lower payroll taxes and higher deferred salary costs related to loan and lease originations; and
• A decrease of $780,000 in legal, audit and other professional fees due to higher reimbursements of legal fees; and
• A decrease of $719,000 in occupancy and equipment expense due to the net effects of our branch consolidation and real estate strategy.

Partially offset by:

• An increase of $1.8 million in loan and lease related expenses due to second quarter loan and lease growth and recapture of government guaranteed loan expenses during the first quarter of 2022.

Our efficiency ratio was 55.29% for the second quarter of 2022 compared to 54.96% for the first quarter of 2022.

INCOME TAXES

We recorded income tax expense of $5.8 million during the second quarter of 2022, compared to $6.3 million during the first quarter of 2022. The effective tax rate was 22.3% and 22.0% for the second quarter of 2022 and first quarter of 2022, respectively. The effective tax rate is a result of tax benefits related to share-based compensation.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $7.1 billion at June 30, 2022, an increase of $297.1 million compared to $6.8 billion at March 31, 2022.

The current quarter increase was primarily due to:

• An increase in net loans and leases of $376.0 million primarily due to growth in originated commercial real estate and commercial and industrial loans.

Partially offset by:

• A decrease in securities available-for-sale of $96.2 million primarily due to changes in market values.

The following table shows our allocation of the originated, acquired impaired, and acquired non-impaired loans and leases at the dates indicated:

PPP loans outstanding were $10.4 million as of June 30, 2022, compared with $36.3 million as of March 31, 2022. The decreased was as a result of forgiveness of PPP loans. Forgiveness for the second quarter 2022 was $25.9 million compared to $73.7 million for the first quarter of 2022. As of June 30, 2022, 115 PPP loans remain outstanding, and more than 97% of PPP loan balances have been forgiven.

ASSET QUALITY

Non-Performing Assets

The following table sets forth the amounts of non-performing loans and leases (excluding acquired impaired), other real estate owned, and accruing troubled debt restructured loans at the dates indicated:

Variances in non-performing assets were:

• Non-performing loans and leases were $33.9 million at June 30, 2022, an increase of $13.7 million from $20.3 million at March 31, 2022 primarily due to one conventional non-performing relationship.
• Other real estate owned was $4.7 million at June 30, 2022, an increase of $2.5 million from $2.2 million at March 31, 2022, primarily due to the transfer of one property into other real estate owned.

Allowance for Loan and Lease Losses

The following table presents the balance and activity within the allowance for loan and lease losses for the periods indicated:

The allowance for loan and lease losses as a percentage of total loans and leases held for investment decreased to 1.21% at June 30, 2022 compared to 1.24% at March 31, 2022, primarily due to growth in the loan and lease portfolio, as well as the change in the mix of the portfolio.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition of credit losses, otherwise known as "CECL", which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses. In November 2019, the FASB delayed the effective date of the standard for smaller reporting companies, which includes emerging growth companies. The Company anticipates adopting the standard on December 31, 2022. We are in the process of implementation and determining the impact that this new authoritative guidance will have on our consolidated financial statements.

Net Charge-Offs

Net charge-offs during the second quarter of 2022 were $2.9 million, or 0.23% of average loans and leases, on an annualized basis, an increase of $2.4 million compared to $549,000, or 0.05% of average loans and leases, during the first quarter of 2022, and an increase of $1.0 million from $1.9 million or 0.17% of average loans and leases from the comparable period a year ago.

Net charge-offs for the second quarter of 2022 included $2.7 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the first quarter of 2022 and second quarter of 2021 included $362,000 and $1.6 million, respectively, in the unguaranteed portion of U.S. government guaranteed loans.

Deposits and Other Liabilities

The following table presents the composition of deposits at the dates indicated:

Total deposits decreased to $5.4 billion at June 30, 2022 compared to $5.5 billion at March 31, 2022. Non-interest-bearing deposits were 40.5% and 41.3% of total deposits at June 30, 2022 and March 31, 2022, respectively.

The decrease in the current quarter was primarily due to:

• A decrease in non-interest-bearing deposits of $100.7 million, primarily due to decreases in commercial deposits; and
• A decrease in interest-bearing checking accounts of $60.6 million, driven primarily by decreases in business accounts.

Partially offset by:

• An increase in time deposits of $44.0 million, principally driven by an increase in brokered deposits.

Total borrowings and other liabilities were $978.2 million at June 30, 2022, an increase of $462.3 million from $515.9 million at March 31, 2022, primarily driven by a $370.0 million increase in FHLB advances and a $45.0 million increase in federal funds purchased.

Stockholders’ Equity

Total stockholders’ equity was $765.2 million at June 30, 2022, a decrease of $23.5 million from $788.7 million at March 31, 2022. The decrease was primarily due to an increase in accumulated other comprehensive loss, and the repurchase of shares of our common stock under the Company's stock repurchase program. These were offset by an increase to retained earnings.

Under its stock repurchase program, the Company repurchased an aggregate 232,000 shares of its common stock at an average price of $23.84 per share during the second quarter of 2022.

The following table presents actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of June 30, 2022:

Capital ratios for the period presented are based on the Basel III regulatory capital framework as applied to our current business and operations, and are subject to, among other things, completion and filing of our regulatory reports and ongoing regulatory review and implementation guidance.

Conference Call, Webcast and Slide Presentation

We will host a conference call and webcast at 9:00 a.m. Central Time on Friday, July 29, 2022 to discuss our quarterly financial results. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (844) 200-6205; passcode 761227. A recorded replay can be accessed through August 12, 2022 by dialing (866) 813-9403; passcode: 015913.

A slide presentation relating to our second quarter 2022 results will be accessible prior to the conference call. The slide presentation and webcast of the conference call can be accessed on our investor relations website at www.bylinebancorp.com.

About Byline Bancorp, Inc.

Headquartered in Chicago, Byline Bancorp, Inc. is the parent company for Byline Bank, a full service commercial bank serving small- and medium-sized businesses, financial sponsors, and consumers. Byline Bank has approximately $7.1 billion in assets and operates more than 30 full service branch locations throughout the Chicago and Milwaukee metropolitan areas. Byline Bank offers a broad range of commercial and retail banking products and services including small ticket equipment leasing solutions and is one of the top five Small Business Administration lenders in the United States.

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, made through the use of words or phrases such as ‘‘may’’, ‘‘might’’, ‘‘should’’, ‘‘could’’, ‘‘predict’’, ‘‘potential’’, ‘‘believe’’, ‘‘expect’’, ‘‘continue’’, ‘‘will’’, ‘‘anticipate’’, ‘‘seek’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’, ‘‘projection’’, ‘‘would’’, ‘‘annualized’’, “target” and ‘‘outlook’’, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Forward-looking statements involve estimates and known and unknown risks, and reflect various assumptions and involve elements of subjective judgement and analysis, which may or may not prove to be correct, and which are subject to uncertainties and contingencies outside the control of Byline and its respective affiliates, directors, employees and other representatives, which could cause actual results to differ materially from those presented in this communication.

No representations, warranties or guarantees are or will be made by Byline as to the reliability, accuracy or completeness of any forward-looking statements contained in this communication or that such forward-looking statements are or will remain based on reasonable assumptions. You should not place undue reliance on any forward-looking statements contained in this communication.

Certain risks and important factors that could affect Byline’s future results are identified in our Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission, including among other things under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. Any forward-looking statement speaks only as of the date on which it is made, and Byline undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise unless required under the federal securities laws.