Byline Bancorp, Inc. Reports Second Quarter 2021 Financial Results

Select Second Quarter 2021 Highlights

• Net income of $28.5 million, or $0.73 per diluted share
• Net interest margin of 3.74%
• Return on average assets of 1.70%, as adjusted¹ 1.78%
• Efficiency ratio of 51.95%
• Non-interest bearing deposits 41.0% of total deposits
• Originated loans and leases increased $63.8 million, total production of $365.4 million
• Common Equity Tier 1 to risk weighted assets of 11.97%

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 $28.5 million, or $0.73 per diluted share, for the second quarter of 2021, compared with net income of $21.8 million, or $0.56 per diluted share, for the first quarter of 2021 and net income of $9.1 million, or $0.24 per diluted share for the second quarter 2020. Adjusted net income¹ was $29.9 million, or $0.77 per adjusted diluted share, for the second quarter of 2021, compared with $22.2 million, or $0.57 per adjusted diluted share¹, for the first quarter of 2021 and $9.1 million, or $0.24 per adjusted diluted share for the second quarter of 2020.

Roberto R. Herencia, Executive Chairman and Chief Executive Officer of Byline Bancorp, commented, “Our second quarter results were indicative of the improving economic environment and continued execution of our strategic plan to generate a higher level of profitability. With the strong returns we are generating, we have increased the amount of capital we are returning to shareholders by increasing our quarterly cash dividend and expanding our current stock repurchase program. We have now increased our quarterly cash dividend by 200% since it was first initiated at the end of 2019. As we head into the second half of 2021, we remain well positioned to support our continued organic and acquisitive growth in the future. I want to thank our employees for their continued dedication to help our clients, communities, and shareholders.”

Alberto J. Paracchini, President of Byline Bancorp, added, “We believe increasing economic activity is driving strong inflows of commercial deposits, a higher level of loan growth, and improved asset quality. Excluding PPP loans, our total loans increased at a 16.3% annualized growth rate in the second quarter with balanced contributions coming from nearly all areas of lending. We also continue to see strong demand for government-guaranteed loans, which resulted in another quarter of significant gain on loan sale income. We continue to have a healthy loan pipeline, which is benefiting from the contributions of new banking talent we have added over the past couple of years, which should lead to continued growth and a favorable shift in our mix of earning assets going forward.”

Board Declares Cash Dividend of $0.09 per Share

On July 27, 2021, the Company's Board of Directors declared a cash dividend of $0.09 per share, payable on August 24, 2021, to stockholders of record of the Company's common stock as of August 10, 2021.

Board Authorizes Expansion of Share Repurchase Program

On July 27, 2021, the Company's Board of Directors authorized an expansion of its current stock repurchase program. Under the extended program, the Company is authorized to repurchase up to an additional 1,250,000 shares of the Company's outstanding common stock and will be in effect until December 31, 2022. The extended stock repurchase program does not require the Company to repurchase any specified number of shares of its common stock, and it may be discontinued, suspended, or restarted at any time at the Company’s discretion.

As of June 30, 2021, the Company has approximately 39.1 million shares of common stock issued and 38.1 million shares of common stock outstanding. The additional shares authorized for repurchase under the extended program represent approximately 3.2% of the Company’s issued shares and 3.3% of the Company’s outstanding shares of common stock. In connection with the previously announced stock repurchase program, the Company has repurchased 989,974 shares of common stock through June 30, 2021.

STATEMENTS OF OPERATIONS

Net Interest Income

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

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:

Net interest income for the second quarter of 2021 was $58.2 million, an increase of $1.5 million, or 2.7%, from the first quarter of 2021.

The increase in net interest income was primarily due to:

• An increase of $516,000 in interest income on loans and leases, due to higher lease income and loan fees;
• An increase of $270,000 in interest income on securities, due to higher yields; and
• A decrease of $363,000 in interest expense on deposits, due to favorable changes in deposit mix.

Tax-equivalent net interest margin for the second quarter of 2021 was 3.76%, down two basis points compared to the first quarter of 2021. Total net accretion income on acquired loans contributed nine basis points to the net interest margin for the second quarter of 2021 compared to 13 basis points for the first quarter of 2021, a decrease of four basis points. Paycheck Protection Program ("PPP") interest income and net fee income combined contributed $4.5 million to net interest income for the second quarter of 2021 compared to $7.0 million for the first quarter of 2021 due to the timing of forgiveness of loans and the passing of the application deadline for the second round of PPP on May 4, 2021.

The average cost of total deposits was 0.08% for the second quarter of 2021, a decrease of four basis points compared to the first quarter of 2021, mainly due to a lower average cost of time deposits and money market accounts. Average non-interest-bearing demand deposits increased $161.2 million, while average time deposits decreased by $59.5 million. Average non-interest-bearing demand deposits were 41.0% of average total deposits for the second quarter of 2021 compared to 38.9% the first quarter of 2021, mainly due to increases in commercial non-interest bearing deposits.

Provision for Loan and Lease Losses

The provision for loan and lease losses was a release of $2.0 million for the second quarter of 2021, a decrease of $6.3 million compared to a $4.4 million provision for the first quarter of 2021. The release of provision during the second quarter of 2021 was mainly impacted by an improvement in the outlook related to COVID-19.

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 2021 was $21.0 million, an increase of $5.3 million, or 33.4%, compared to $15.7 million for the first quarter of 2021.

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

• An increase of $4.0 million in net gains on sales of loans, mainly due to higher volume of loans sold and premiums received; and
• A decrease of $1.5 million for loan servicing asset revaluation charges, which was a $7,000 upward valuation for the current quarter compared to a charge of $1.5 million in the prior quarter due to favorable fair value adjustments based on decreased discount rates and lower prepayment speeds.

During the second quarter of 2021, we sold $100.6 million of U.S. government guaranteed loans compared to $73.9 million during the first quarter of 2021.

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 2021 was $43.0 million, an increase of $4.1 million, or 10.7%, from $38.8 million for the first quarter of 2021.

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

• An increase of $2.8 million in salaries and employee benefits, primarily due to higher deferred costs related to the second round of PPP loans during the first quarter of 2021; and
• An increase of $1.1 million in other non-interest expense, mainly due to impairment charges on assets held for sale.

Partially offset by:

• A decrease of $923,000 in occupancy and equipment expense, net, mainly due to lower seasonal maintenance expense.

Our efficiency ratio was 51.95% for the second quarter of 2021 compared to 51.25% for the first quarter of 2021. Excluding impairment charges on assets held for sale, our adjusted efficiency ratio¹ was 49.50% for the second quarter of 2021, compared with 50.41% for the first quarter of 2021.

INCOME TAXES

We recorded income tax expense of $9.7 million during the second quarter of 2021, compared to $7.4 million during the first quarter of 2021. The effective tax rate for both periods was 25.3%.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $6.5 billion at June 30, 2021, a decrease of $209.5 million compared to $6.8 billion at March 31, 2021.

The current quarter decrease was primarily due to:

• A decrease in securities of $178.1 million, as a result of sales of mortgage-backed securities and maturities and calls during the quarter; and
• A decrease in other assets of $18.3 million mainly due to the timing of settlement of government guaranteed loans and securities sold during the prior quarter.

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

Loan and Lease Deferrals

In support of customers impacted by COVID-19 and keeping with regulatory guidance, we began offering relief through payment deferrals during the first quarter of 2020. The following table shows active deferrals by category at the dates indicated:

Paycheck Protection Program

The following table presents the net PPP loans outstanding as of June 30, 2021:

PPP loans decreased by $140.7 million in the second quarter of 2021 primarily as a result of forgiveness of PPP loans originated during the first round of PPP funding. As of June 30, 2021, approximately 75.1% of first round PPP loans have been forgiven, 10.2% of first round PPP loans are in the forgiveness review or submission process, and approximately 14.7% first round PPP loans have not applied for forgiveness.

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 $35.5 million at June 30, 2021, a decrease of $1.6 million from $37.1 million at March 31, 2021; and
• Other real estate owned was $4.4 million at June 30, 2021, a decrease of $1.5 million from $5.9 million at March 31, 2021 mainly due to sales.

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 1.38% at June 30, 2021 compared to 1.47% at March 31, 2021. The allowance for loan and lease losses as a percentage of total loans and leases held for investment excluding PPP loans decreased to 1.55% at June 30, 2021 from 1.71% at March 31, 2021.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition of credit losses, which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses. In November 2019, the FASB delayed the effective date of the standard for smaller reporting companies, which includes emerging growth companies. Assuming we remain an emerging growth company, the standard is effective for fiscal years beginning after December 15, 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 2021 were $1.9 million, or 0.17% of average loans and leases, on an annualized basis, a decrease of $3.2 million compared to $5.1 million or 0.47% of average loans and leases, during the first quarter of 2021, and a decrease of $4.2 million from $6.1 million or 0.57% of average loans and leases from the comparable period a year ago.

Net charge-offs for the second quarter of 2021 included $1.6 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the first quarter of 2021 and second quarter of 2020 included $3.3 million and $2.0 million in the unguaranteed portion of U.S. government guaranteed loans, respectively.

Deposits and Other Liabilities

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

Total deposits were $5.1 billion at June 30, 2021, an increase of $67.7 million, or 1.3%, compared to $5.0 billion at March 31, 2021. Non-interest-bearing deposits were 41.0% and 40.1% of total deposits at June 30, 2021 and March 31, 2021, respectively.

The increase in the current quarter was primarily due to:

• An increase in non-interest-bearing deposits of $73.8 million, due to increases in commercial deposits; and
• An increase in interest-bearing checking accounts of $85.9 million, mostly due to increases in personal accounts.

Partially offset by:

• A decrease in money market demand accounts of $51.7 million, principally driven by decreases in public funds and in money market deposits; and
• A decrease in time deposits ($250,000 and above) of $40.6 million, primarily consisting of brokered deposits.

Total borrowings and other liabilities were $631.3 million at June 30, 2021, a decrease of $300.5 million from $931.8 million at March 31, 2021, primarily driven by a decrease in Federal Home Loan Bank advances of $217.0 million. The Paycheck Protection Program Liquidity Facility decreased $82.9 million to $304.7 million at June 30, 2021 from $387.6 million at March 31, 2021.

Stockholders’ Equity

Total stockholders’ equity was $817.1 million at June 30, 2021, an increase of $23.3 million from $793.8 million at March 31, 2021. The increase was primarily due to an increase in retained earnings and an increase in the fair value of available-for-sale securities, offset by repurchases of common stock.

Under its stock repurchase program announced in the fourth quarter of 2020, the Company repurchased an aggregate of 538,744 shares at an average price per share of $22.45 during the second quarter, and 871,488 shares at an average price of $21.18 year-to-date.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of June 30, 2021:

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 30, 2021 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 (877) 512-8755. A recorded replay can be accessed through August 13, 2021 by dialing (877) 344-7529; passcode: 10158447.

A slide presentation relating to our second quarter 2021 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 $6.5 billion in assets and operates more than 40 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.

The COVID-19 pandemic is adversely affecting us, our employees, customers, counterparties and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Deterioration in general business and economic conditions, including increases in unemployment rates or turbulence in U.S. or global financial markets, could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, and lead to a tightening of credit and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways.

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, 2020. 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.