Byline Bancorp, Inc. Reports First Quarter 2023 Financial Results

Select First Quarter 2023 Financial Highlights

• Net income of $23.9 million, or $0.64 per diluted share
• Pre-tax pre-provision return on average assets of 2.32%¹
• Return on average assets of 1.32%; Return on average tangible common equity of 16.20%¹
• Net interest margin of 4.38%; down one bp from the previous quarter
• Efficiency ratio of 52.10%
• Total loans and leases of $5.5 billion, quarterly increase of $74.6 million
• Total deposits of $5.8 billion, quarterly increase of $117.5 million
• Tangible Common Equity to Tangible Assets of 8.66%¹
• Common Equity Tier 1 to Risk Weighted Assets of 10.27%

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 $23.9 million, or $0.64 per diluted share, for the first quarter of 2023 compared with net income of $24.4 million, or $0.65 per diluted share, for the fourth quarter of 2022, and net income of $21.4 million², or $0.56 per diluted share, for the first quarter 2022.

Roberto R. Herencia, Executive Chairman and Chief Executive Officer of Byline Bancorp, Inc., commented, “Our first quarter results reflect the resiliency of our diversified business model and prudent management, notwithstanding continued rate increases and a challenging operating environment. We remain focused on executing our strategy, supporting new and existing customers and growing the value of our franchise. I am proud of the way our bankers navigated the recent turmoil within our industry, with a focus on serving our customers and communities.”

Alberto J. Paracchini, President of Byline Bancorp, Inc. added, “We delivered solid financial results for the first quarter as our performance was both balanced and strong during a period of heightened volatility and uncertainty. During the quarter, we increased our capital position and we believe we continue to maintain a high level of liquidity given the environment. At the same time, we grew revenue by 17% year-over-year, controlled non-interest expenses, achieved positive operating leverage, maintained credit quality and delivered strong profitability. Looking forward, we believe our diversified franchise, and strong capital and liquidity, position us well for the remainder of 2023.”

Board Declares Cash Dividend of $0.09 per Share

On April 25, 2023, the Company's Board of Directors declared a cash dividend of $0.09 per share, payable on May 23, 2023, to stockholders of record of the Company's common stock as of May 9, 2023.

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 first quarter of 2023 was $75.7 million, a decrease of $886,000, or 1.2%, from the fourth quarter of 2022. The decrease was driven by day count and rising interest rates.

The decrease in net interest income was primarily due to:

• An increase of $5.7 million in deposit interest expense mainly due to higher average balances and higher rates paid on time deposits and money market accounts; and
• An increase of $1.3 million in interest expense on other borrowings due to higher rates paid and average balances on borrowings.

Partially offset by:

• An increase of $6.6 million in interest income and fees on loans and leases due to higher yields on loans and leases.

Tax-equivalent net interest margin for the first quarter of 2023 was 4.39%, a decrease of one basis point compared to the fourth quarter of 2022. Total net loan accretion income impact on margin contributed four basis points to the net interest margin for the first quarter of 2023 compared to two basis points for the fourth quarter of 2022.

The average cost of total deposits was 1.15% for the first quarter of 2023, an increase of 42 basis points compared to the fourth quarter of 2022. Average non-interest-bearing demand deposits were 36.3% of average total deposits for the first quarter of 2023 compared to 38.9% during the fourth quarter of 2022.

Provision for Credit Losses

The provision for credit losses was $9.8 million for the first quarter of 2023, an increase of $4.0 million compared to $5.8 million for the fourth quarter of 2022. The provision for credit losses is comprised of a provision for loan and lease losses of $9.7 million and a provision for unfunded commitments of $113,000. The increase in provision during the first quarter of 2023 was primarily driven by increases in specific reserves on loans that were individually evaluated for impairment, changes in expected losses driven by macro-economic factors, and 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 first quarter of 2023 was $15.1 million, an increase of $3.7 million, or 32.2%, compared to $11.5 million for the fourth quarter of 2022.

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

• An increase of $4.2 million in the valuation of the loan servicing asset from favorable fair value adjustments due to improvements in market conditions.

Partially offset by:

• A decrease of $361,000 in the net gain on sales of loans, due to lower volume of loan sales.

During the first quarter of 2023, we sold $72.2 million of U.S. government guaranteed loans compared to $86.0 million during the fourth 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 first quarter of 2023 was $48.8 million, a decrease of $1.7 million, or 3.4%, from $50.5 million for the fourth quarter of 2022.

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

• A decrease of $1.4 million in salaries and employee benefits mainly due to decreases in incentive compensation, offset by increases in payroll taxes; and
• A decrease of $505,000 in other non-interest expense, as the prior quarter included net losses of $480,000 in leasehold improvements.

Partially offset by:

• An increase of $912,000 in occupancy and equipment expense, net, primarily due to increases in real estate taxes and building maintenance; and
• An increase of $377,000 in data processing mainly due to merger related expenses.

Our efficiency ratio was 52.10% for the first quarter of 2023 compared to 55.53% for the fourth quarter of 2022.

INCOME TAXES

We recorded income tax expense of $8.3 million during the first quarter of 2023, compared to $7.4 million during the fourth quarter of 2022. The effective tax rate was 25.7% and 23.2% for the first quarter of 2023 and fourth quarter of 2022, respectively. The increase in the effective tax rate is primarily due to the effect of a prior quarter tax benefit related to share-based compensation.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $7.5 billion at March 31, 2023, an increase of $167.4 million compared to $7.4 billion at December 31, 2022.

The current quarter increase was primarily due to:

• An increase in cash and cash equivalents of $104.9 million primarily to augment liquidity levels given the environment and support customer activities; and
• An increase in net loans and leases of $85.5 million primarily due to growth in the originated loan and lease portfolio.

Partially offset by:

• A decrease in loans held for sale of $19.4 million, driven mainly by lower volume of government guaranteed loans.

The following table shows our allocation of the originated, purchase credit deteriorated, and non-credit deteriorated loans and leases at the dates indicated:

ASSET QUALITY

Non-Performing Assets

The following table sets forth the amounts of non-performing loans and leases and other real estate owned at the dates indicated:

Variances in non-performing assets were:

• Non-performing loans and leases were $46.5 million at March 31, 2023, an increase of $10.5 million from $36.0 million at December 31, 2022, primarily due to an increase in impaired loans.
• Other real estate owned was $3.7 million at March 31, 2023, a decrease of $1.0 million from $4.7 million at December 31, 2022, primarily due to sales of properties.

Allowance for Credit Losses ("ACL") - Loans and Leases

The following table presents the balance and activity within the allowance for credit losses - loans and leases for the periods indicated:

Net charge-offs of loans and leases during the first quarter of 2023 were $1.2 million, or 0.09% of average loans and leases, on an annualized basis, a decrease of $2.0 million compared to $3.2 million, or 0.24% of average loans and leases, during the fourth quarter of 2022, and an increase of $375,000 from $796,000 or 0.07% of average loans and leases from the comparable period a year ago.

Net charge-offs for the first quarter of 2023 included $1.1 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the fourth quarter of 2022 and first quarter of 2022 included $645,000 and $362,000, 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 increased to $5.8 billion at March 31, 2023 compared to $5.7 billion at December 31, 2022. Non-interest-bearing deposits were 33.6% and 37.6% of total deposits at March 31, 2023 and December 31, 2022, respectively. Estimated total uninsured deposits were $1.6 billion as of March 31, 2023 and December 31, 2022, and represented 27.9% and 28.2% of total deposits, respectively.

The increase in deposits in the current quarter was due to:

• An increase in time deposits of $332.9 million, principally due to deposit mix changes, including migration of deposits from other core deposit accounts to time deposits; and
• An increase in money market demand accounts of $38.0 million, mainly due to inflows of public funds.

Partially offset by:

• A decrease in non-interest-bearing demand deposits of $186.6 million, primarily due to seasonal fluctuations in balances and a competitive interest rate environment.

Total borrowings and other liabilities were $922.0 million at March 31, 2023, an increase of $20.0 million from $902.0 million at December 31, 2022, primarily driven by increases to securities sold under agreements to repurchase due to prevailing market conditions.

Stockholders’ Equity

Total stockholders’ equity was $795.7 million at March 31, 2023, an increase of $29.8 million from $765.8 million at December 31, 2022. The increase was primarily due to increased retained earnings due to net income and decreased accumulated other comprehensive loss due to decreased unrealized losses on AFS securities.

The following table presents actual regulatory capital dollar amounts and ratios of the Company and the Bank as of March 31, 2023:

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. The ratios above reflect the Company’s election to opt into the regulators’ joint current expected credit losses ("CECL") transition provision, which allows the Company to phase in the capital impact of the adoption of CECL over the next three years beginning January 1, 2022. Accordingly, capital ratios as of March 31, 2023 reflect 50% of the CECL impact.

CECL Adoption

On December 31, 2022, the Company adopted CECL and applied it retrospectively to the period beginning January 1, 2022 using the modified retrospective method of accounting. Results for reporting periods beginning after September 30, 2022 are presented under the new standard, while prior quarters previously reported are recast as if the new standard had been applied since January 1, 2022. Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on the adoption of the standard.

Conference Call, Webcast and Slide Presentation

We will host a conference call and webcast at 9:00 a.m. Central Time on Friday, April 28, 2023 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 (833) 470-1428; passcode 370613. A recorded replay can be accessed through May 12, 2023 by dialing (866) 813-9403; passcode: 354719

A slide presentation relating to our first quarter 2023 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 of Byline Bank, a full service commercial bank serving small- and medium-sized businesses, financial sponsors, and consumers. Byline Bank has approximately $7.5 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 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 judgment 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, 2022. 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.