Byline Bancorp, Inc. (NYSE:BY) Q4 2022 Earnings Conference Call January 27, 2023 10:00 AM ET Company Participants Brooks Rennie - Director, Investor Relations Alberto Paracchini - President Tom Bell - Chief Financial Officer and Treasurer Mark Fucinato - Executive Vice President, Chief Credit Officer Conference Call Participants Ben Gerlinger - Hovde Group Terry McEvoy - Stephens Nathan Race - Piper Sandler Brian Martin - Janney Operator Good morning and welcome to the Byline Bancorp's Fourth Quarter 2022 E ...

January 26, 2023 | --- | --- | --- | |----------------|------------------------|------------------------| | Revenue | EPS | Efficiency ratio | | $322.6 million | $2.34 | 54.99% | | 4% Y/Y | 3% Y/Y | Improved 228 bps Y/Y | | Total Assets | Total Loans and Leases | Total Deposits | | $7.4 billion | $5.4 billion | $5.7 billion | | 10% Y/Y | 19% Y/Y | 10% Y/Y | In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) on the recognition ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to ______ Commission File Number 001-38139 Byline Bancorp, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 36-3012593 (State or Other Juri ...

Byline Bancorp, Inc. (NYSE:BY) Q3 2022 Earnings Conference Call October 28, 2022 10:00 AM ET Company Participants Brooks Rennie - Head, IR Alberto Paracchini - President Roberto Herencia - Chairman and CEO Tom Bell - CFO and Treasurer Mark Fucinato - Chief Credit Officer Conference Call Participants Terry McEvoy - Stephens Nathan Race - Piper Sandler David Long - Raymond James Brian Martin - Janney Operator Good morning and welcome to the Byline Bancorp's Third Quarter 2022 Earnings Call. My name is Amber a ...

Financial Performance - Byline Bancorp reported consolidated net income of $20.3 million for the three months ended June 30, 2022, a decrease of $8.2 million compared to $28.5 million for the same period in 2021[219]. - Consolidated net income for the three months ended June 30, 2022, was $20.3 million, a decrease of $8.2 million from $28.5 million for the same period in 2021[252]. - Net income available to common stockholders for the three months ended June 30, 2022, was $20.3 million, or $0.55 per basic share[223]. - Basic earnings per common share for the three months ended June 30, 2022, was $0.55, down from $0.75 in the same period of 2021[254]. - Consolidated net income for the six months ended June 30, 2022, was $42.6 million, a decrease of $7.7 million from $50.3 million for the same period in 2021[256]. - Net income available to common stockholders for the six months ended June 30, 2022, was $42.4 million, or $1.14 per basic share, down from $1.31 in the same period in 2021[258]. - Adjusted diluted earnings per share for the three months ended June 30, 2022, was $0.54, compared to $0.73 for the same period in 2021[381]. - Net income available to common stockholders for the three months ended June 2022 was $20,283, down from $28,297 in the same period last year, indicating a decrease of 28.3%[383]. Asset and Liability Overview - Total assets as of June 30, 2022, were $7.1 billion, with total gross loans and leases outstanding at $5.2 billion and total deposits at $5.4 billion[225]. - Total stockholders' equity as of June 30, 2022, was $765.2 million[225]. - Total liabilities increased by $506.8 million, or 8.6%, to $6.4 billion at June 30, 2022 compared to $5.9 billion at December 31, 2021[307]. - Total stockholders' equity decreased to $780,652 thousand from $810,490 thousand[266]. - Total estimated uninsured deposits were $1.6 billion as of June 30, 2022[348]. Loan and Lease Performance - Total loans and leases increased to $5.2 billion as of June 30, 2022, up $630.9 million or 13.9% from $4.5 billion at December 31, 2021[320]. - Originated loans and leases reached $4.8 billion, reflecting an increase of $724.6 million or 17.7% compared to $4.1 billion at December 31, 2021[320]. - The allowance for loan and lease losses was $62.4 million as of June 30, 2022, compared to $55.0 million at December 31, 2021[321]. - The loan and lease portfolio includes $2.0 billion with interest rate floors, with $108.7 million at the floor or with no floor[331]. - The loan and lease to deposit ratio was 96.2% at June 30, 2022, compared to 89.3% at December 31, 2021, indicating a tighter funding environment[346]. Income and Expense Analysis - Net interest income increased by $3.5 million for the three months ended June 30, 2022, driven by growth in the loan and lease portfolio[219]. - Non-interest income decreased to $14.2 million for the three months ended June 30, 2022, a decline of $6.8 million, or 32.6%, compared to the same period in 2021[281]. - Non-interest expense was $43.8 million for Q2 2022, an increase of 1.8% from $43.0 million in Q2 2021[290]. - Salaries and employee benefits totaled $27.7 million for Q2 2022, up 12.6% from $24.6 million in Q2 2021[290]. - The efficiency ratio for the six months ended June 30, 2022, was 55.12%, up from 51.61% for the same period in 2021[259]. Provision for Loan and Lease Losses - The provision for loan and lease losses increased by $7.9 million for the three months ended June 30, 2022, primarily due to loan and lease growth[219]. - Provision for loan and lease losses was $5.9 million for the three months ended June 30, 2022, compared to a recapture of $2.0 million for the same period in 2021, an increase of $7.9 million[279]. - The allowance for loan and lease losses as a percentage of loans and leases was 1.21% at June 30, 2022[280]. - The total provision for originated loans was $15,031 million, a decrease from $10,903 million[338]. Market and Economic Conditions - The company evaluates the recoverability of deferred tax assets based on expected taxable income and establishes a valuation allowance if realization is deemed unlikely[245]. - The company monitors the appropriate level of ALLL on a quarterly basis, with more frequent assessments as needed[332]. - The bank's interest rate risk exposure is managed within board-approved policy limits, with results being hypothetical and subject to various influencing factors[391]. Capital and Dividends - Stockholders' equity at June 30, 2022 was $765.2 million, a decrease of $71.2 million or 8.5% from December 31, 2021[358]. - The Company received $12.0 million in cash dividends from Byline Bank for the six months ended June 30, 2022, and $24.0 million for the year ended December 31, 2021[364]. - A cash dividend of $0.09 per share was declared on July 26, 2022, payable on August 23, 2022[368]. Interest Rate Management - The company had a notional amount of $1.1 billion in interest rate swaps outstanding as of June 30, 2022, to manage interest rate risk[387]. - The simulation model indicates that a 300 basis point increase in interest rates could lead to a 22.8% increase in net interest income, amounting to $313,099[389]. - A gradual upward shift of 100 basis points would increase net interest income by 1.3%, while a 200 basis point increase would result in a 2.8% increase[390].

Financial Data and Key Metrics Changes - For Q2 2022, Byline Bancorp reported a net income of $20.3 million or $0.54 per diluted share, slightly lower than the previous quarter due to a $4.6 million mark on servicing assets, impacting earnings by approximately $0.12 per diluted share [16][18] - Pre-tax pre-provision revenue was $32 million, resulting in a pre-tax pre-provision return on assets (ROA) of 184 basis points, while return on assets came in at 117 basis points and return on tangible common equity (ROTC) was 14.1% [18] - Total assets grew by over $300 million, exceeding $7 billion for the first time, driven by strong loan growth [18][30] Business Line Data and Key Metrics Changes - Loans excluding PPP grew by $405 million or 34% linked quarter annualized, crossing the $5 billion mark for the portfolio, reflecting a 29% year-over-year growth [19] - The government guaranteed lending business closed $125 million in loans, remaining a market leader as the fifth largest 7(a) lender in the U.S. [21] - Non-interest income decreased to $14.2 million, primarily due to the mark on servicing assets, while net interest income increased by 5% from the prior quarter [23][47] Market Data and Key Metrics Changes - Total deposits stood at $5.4 billion, down 2.6% linked quarter but up 5.8% year-over-year, with demand deposits representing 40.5% of total balances [22] - Deposit costs increased by eight basis points to 16 basis points for the quarter, reflecting the impact of rising interest rates [22][39] - The loan-to-deposit ratio increased to 96% due to fluctuations in commercial customer deposits, expected to trend back down to the lower 90s [46] Company Strategy and Development Direction - The company emphasized a diversified business model and disciplined expense management as key to navigating the changing economic environment [15][56] - Byline Bancorp is focused on organic growth and maintaining strong capital ratios while returning capital to shareholders through dividends and share repurchases [30][54] - The management expressed optimism about future growth opportunities despite economic uncertainties, highlighting a healthy pipeline [56] Management's Comments on Operating Environment and Future Outlook - Management noted that while clients remain financially stable with good liquidity, economic activity is expected to slow, and inflation poses challenges [15][56] - The company is vigilant regarding credit quality, monitoring potential impacts from rising interest rates and inflation on clients [72][73] - Management anticipates a slower rate of loan growth in the second half of the year compared to the first half, adjusting guidance to low to mid-teens growth [34] Other Important Information - The company announced a CFO transition, with Tom Bell appointed as the new CFO effective August 16, 2022, following Lindsay Corby's departure [9][10] - The efficiency ratio remained in the 55% range, reflecting ongoing efforts to manage expenses amid inflationary pressures [26][50] - The allowance for loan losses increased to $62.4 million, driven by portfolio growth and macroeconomic uncertainties [52] Q&A Session Summary Question: Margin outlook and deposit composition - Management expects a shift towards higher-yielding deposit products due to rising interest rates, modeling about 40% for interest-bearing deposit betas in the second half of the year [60][61] Question: Impact of branch closures on customer deposits - Management noted a slight runoff in higher-yielding deposits post-branch closures, but performance has met expectations [63][64] Question: Loan growth strategy for the latter half of the year - Management emphasized focusing on market opportunities and customer relationships rather than solely targeting net interest income or margin [68] Question: Concerns regarding client pressure points - Management indicated that clients are generally performing well, but they are monitoring the potential impact of inflation and economic slowdown on credit quality [72][73] Question: Dynamics of deposit flows and funding costs - Management expects deposit costs to continue rising due to competitive pressures and the loan-to-deposit ratio fluctuations [78][80] Question: SBA loan credit quality and underwriting standards - Management reported stable credit quality in the SBA portfolio but is closely monitoring the impact of rate increases on borrowers [114]

Q2 2022 Conference Call BY Byline Bancorp, Inc. BY LISTED NYSE 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'', ''migh ...

Financial Performance - Net income was $223 million, or $058 per diluted share, compared to $172 million, or $045 per diluted share, in 4Q21[5] - Pre-Tax Pre-Provision was $336 million, with a Pre-Tax Pre-Provision ROAA of 203%, improved 74 bps from 129% in 4Q21[5] - ROAA was 135% and ROTCE was 1436%[5] Balance Sheet Trends - Total loans and leases ex PPP increased $3394 million, or 312% annualized, linked quarter and increased 238% YoY[5] - Total deposits increased $3751 million, or 295% annualized, to $55 billion[16] - Non-interest bearing deposits represented 413% of total deposits[6, 16] Net Interest Margin - Net interest margin (FTE) decreased 15 bps to 382% from 397% in 4Q21[5] - NIM excluding accretion decreased 16 bps to 371% from 4Q21, primarily due to lower loan fees and lower volume of PPP forgiveness[5] - Net interest income was $587 million, down 48% from 4Q21[20] Asset Quality - NPLs (ex gov gtd) declined from 044% to 039% in 1Q22[5] - NCOs declined to 5 bps in 1Q22 from 37 bps in 4Q21[5] - ALLL increased 3 bps to 124% in 1Q22 from 121% in 4Q21 to support growth in the portfolio[5] Government-Guaranteed Lending - Closed $1291 million loan commitments in 1Q22, up 157% YoY[10] - SBA 7(a) portfolio up $146 million to $4782 million from 4Q21; ALLL/Unguaranteed loan balance ~ 74%[10] Capital and Return - CET1 and Total Capital ratios remained solid at 1075% and 1372%[5] - Repurchased 282819 shares of stock during 1Q22[6]

PART I. FINANCIAL INFORMATION This section provides the unaudited interim condensed consolidated financial statements and management's discussion and analysis for Byline Bancorp, Inc [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited interim condensed consolidated financial statements of Byline Bancorp, Inc. and its subsidiaries for the period ended March 31, 2022, including the statements of financial condition, operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details [Condensed Consolidated Statements of Financial Condition](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20FINANCIAL%20CONDITION) This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Statements of Financial Condition (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | **ASSETS** | | | | Cash and cash equivalents | $153,579 | $157,931 | | Securities available-for-sale | $1,369,368 | $1,454,542 | | Net loans and leases | $4,729,610 | $4,482,116 | | Total assets | $6,834,636 | $6,696,172 | | **LIABILITIES** | | | | Total deposits | $5,530,102 | $5,155,047 | | Other borrowings | $311,450 | $519,723 | | Total liabilities | $6,045,965 | $5,859,790 | | **STOCKHOLDERS' EQUITY** | | | | Total stockholders' equity | $788,671 | $836,382 | - Total assets increased by **$138.5 million (2.1%)** from December 31, 2021, to March 31, 2022, primarily driven by an increase in net loans and leases[11](index=11&type=chunk)[271](index=271&type=chunk) - Total liabilities increased by **$186.2 million (3.2%)**, mainly due to a **$375.1 million (7.3%)** increase in total deposits, partially offset by a **$208.3 million (40.1%)** decrease in other borrowings[11](index=11&type=chunk)[272](index=272&type=chunk) - Total stockholders' equity decreased by **$47.7 million (5.7%)**, primarily due to increased accumulated other comprehensive loss, preferred stock redemption, and share repurchases, partially offset by an increase in retained earnings[11](index=11&type=chunk)[323](index=323&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This statement details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Operations (dollars in thousands, except share and per share data) | (dollars in thousands, except share and per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:--------------------------------------------------------|:----------------------------------|:----------------------------------| | Total interest and dividend income | $61,818 | $60,159 | | Total interest expense | $3,082 | $3,519 | | Net interest income | $58,736 | $56,640 | | Provision for loan and lease losses | $4,995 | $4,367 | | Total non-interest income | $19,426 | $15,742 | | Total non-interest expense | $44,555 | $38,842 | | Net income | $22,311 | $21,798 | | Income available to common stockholders | $22,115 | $21,602 | | Basic earnings per common share | $0.60 | $0.57 | | Diluted earnings per common share | $0.58 | $0.56 | - Net income increased by **$513,000 (2.4%)** to **$22.3 million** for the three months ended March 31, 2022, compared to **$21.8 million** in the prior year, driven by higher net interest income and non-interest income, partially offset by increased non-interest expense and provision for loan losses[14](index=14&type=chunk)[205](index=205&type=chunk)[234](index=234&type=chunk) - Diluted EPS increased to **$0.58** in Q1 2022 from **$0.56** in Q1 2021[14](index=14&type=chunk)[206](index=206&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) This statement presents net income and other comprehensive income (loss) components, reflecting changes in equity not from owners Condensed Consolidated Statements of Comprehensive Income (Loss) (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Net income | $22,311 | $21,798 | | Total other comprehensive loss | $(48,086) | $(26,394) | | Comprehensive loss | $(25,775) | $(4,596) | - The company reported a comprehensive loss of **$25.8 million** for the three months ended March 31, 2022, significantly higher than the **$4.6 million** loss in the prior year, primarily due to increased unrealized holding losses on securities available-for-sale[16](index=16&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS'%20EQUITY) This statement outlines the changes in each component of stockholders' equity over the reporting period - Stockholders' equity decreased from **$836.4 million** at January 1, 2022, to **$788.7 million** at March 31, 2022, primarily due to a significant other comprehensive loss of **$48.1 million**, redemption of preferred stock (**$10.4 million**), and common stock repurchases (**$7.6 million**), partially offset by net income of **$22.3 million**[21](index=21&type=chunk)[323](index=323&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This statement categorizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Net cash provided by operating activities | $92,768 | $15,000 | | Net cash used in investing activities | $(242,803) | $(351,797) |\n| Net cash provided by financing activities | $145,683 | $366,516 | | Net change in cash and cash equivalents | $(4,352) | $29,719 | | Cash and cash equivalents, end of period | $153,579 | $113,139 | - Net cash provided by operating activities significantly increased to **$92.8 million** in Q1 2022 from **$15.0 million** in Q1 2021, largely due to changes in accrued interest receivable and payable[26](index=26&type=chunk) - Net cash used in investing activities decreased to **$242.8 million** in Q1 2022 from **$351.8 million** in Q1 2021, primarily due to lower purchases of available-for-sale securities and a higher net change in loans and leases[26](index=26&type=chunk) - Net cash provided by financing activities decreased to **$145.7 million** in Q1 2022 from **$366.5 million** in Q1 2021, mainly due to lower proceeds from short-term borrowings and the redemption of preferred stock[29](index=29&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1—Basis of Presentation](index=10&type=section&id=Note%201%E2%80%94Basis%20of%20Presentation) This note describes the company's structure, accounting principles, and compliance with financial reporting standards - Byline Bancorp, Inc. operates as a bank holding company, with Byline Bank as its primary subsidiary, and presents unaudited interim condensed consolidated financial statements in accordance with GAAP and SEC regulations[32](index=32&type=chunk)[33](index=33&type=chunk) - The Company operates as a single reportable segment, and no subsequent events requiring recognition or disclosure were identified through the issuance date of these financial statements[34](index=34&type=chunk)[35](index=35&type=chunk) [Note 2—Accounting Pronouncements Recently Adopted or Issued](index=10&type=section&id=Note%202%E2%80%94Accounting%20Pronouncements%20Recently%20Adopted%20or%20Issued) This note details the impact of new accounting standards on the company's financial reporting and future adoption plans - The Company adopted ASU No. 2019-12, Simplifying the Accounting for Income Taxes, on January 1, 2022, which did not impact its financial results for the three months ended March 31, 2022[38](index=38&type=chunk) - The Company, as an emerging growth company, will adopt ASU No. 2016-13 (CECL) on December 31, 2022, which may increase the allowance for loan losses by requiring expected credit losses on purchased credit-impaired loans[41](index=41&type=chunk) - The Company approved Term Secured Overnight Financing Rate (SOFR) as an alternative reference rate to LIBOR, with **$1.1 billion** of loans, **$475.8 million** in derivatives, and **$58.3 million** in available-for-sale securities tied to LIBOR at March 31, 2022[41](index=41&type=chunk) [Note 3—Securities](index=12&type=section&id=Note%203%E2%80%94Securities) This note provides details on the company's investment securities, including their fair values and unrealized gains or losses Securities (dollars in thousands) | (dollars in thousands) | March 31, 2022 Fair Value | December 31, 2021 Fair Value | |:-----------------------|:--------------------------|:-----------------------------| | Securities available-for-sale | $1,369,368 | $1,454,542 | | Securities held-to-maturity | $3,906 | $3,992 | - Securities available-for-sale decreased by **$85.2 million (5.9%)** from December 31, 2021, to March 31, 2022, primarily due to decreases in fair value[45](index=45&type=chunk)[274](index=274&type=chunk) - At March 31, 2022, gross unrealized losses on available-for-sale securities totaled **$97.2 million**, up from **$22.4 million** at December 31, 2021, with 223 securities in an unrealized loss position, though all declines were deemed temporary[45](index=45&type=chunk)[48](index=48&type=chunk)[279](index=279&type=chunk) - Securities pledged as collateral increased to **$463.6 million** at March 31, 2022, from **$332.3 million** at December 31, 2021[51](index=51&type=chunk) [Note 4—Loan and Lease Receivables](index=14&type=section&id=Note%204%E2%80%94Loan%20and%20Lease%20Receivables) This note details the composition and changes in the company's loan and lease portfolio, including various categories and pledged amounts Loan and Lease Receivables (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Commercial real estate | $1,776,483 | $1,663,256 | | Commercial and industrial | $1,738,379 | $1,580,235 | | Paycheck Protection Program | $37,248 | $127,184 | | Lease financing receivables | $380,313 | $354,135 | | Total loans and leases | $4,782,717 | $4,533,511 | | Net loans and leases | $4,729,610 | $4,482,116 | - Total loans and leases increased by **$251.9 million (5.6%)** to **$4.8 billion** at March 31, 2022, driven by organic growth and renewals of acquired non-impaired loans, despite an **$87.5 million** decrease in PPP loans[54](index=54&type=chunk)[271](index=271&type=chunk)[285](index=285&type=chunk) - Originated loans and leases increased by **$299.5 million (7.3%)** to **$4.4 billion**, while acquired impaired and non-impaired loans decreased by **$47.6 million (10.7%)** to **$395.2 million**[58](index=58&type=chunk)[60](index=60&type=chunk)[285](index=285&type=chunk) - Loans and leases pledged as security for borrowings increased to **$2.2 billion** at March 31, 2022, from **$1.9 billion** at December 31, 2021[56](index=56&type=chunk) [Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments](index=17&type=section&id=Note%205%E2%80%94Allowance%20for%20Loan%20and%20Lease%20Losses%20and%20Reserve%20for%20Unfunded%20Commitments) This note explains the methodology and changes in the allowance for loan and lease losses and the reserve for unfunded commitments Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Total allowance for loan and lease losses | $59,458 | $55,012 | | Total impaired loans | $71,452 | $72,923 | | Related allowance for impaired loans | $20,739 | $21,038 | - The allowance for loan and lease losses (ALLL) increased by **$4.4 million (8.1%)** to **$59.5 million** at March 31, 2022, primarily due to an increase in general reserves driven by loan and lease growth[66](index=66&type=chunk)[299](index=299&type=chunk) - The provision for loan and lease losses increased by **$628,000 (14.4%)** to **$5.0 million** for the three months ended March 31, 2022, compared to **$4.4 million** in the prior year[66](index=66&type=chunk)[251](index=251&type=chunk) - Total impaired loans (excluding acquired impaired loans) decreased slightly to **$71.5 million** at March 31, 2022, from **$72.9 million** at December 31, 2021[75](index=75&type=chunk) - The reserve for unfunded commitments increased to **$2.0 million** at March 31, 2022, from **$1.4 million** at December 31, 2021[83](index=83&type=chunk) [Note 6—Servicing Assets](index=23&type=section&id=Note%206%E2%80%94Servicing%20Assets) This note details the changes in servicing assets, including additions, revaluations, and related revenue Servicing Assets (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Beginning balance | $23,744 | $22,042 | | Additions, net | $1,984 | $1,603 | | Changes in fair value | $(1,231) | $(1,505) | | Ending balance | $24,497 | $22,140 | - Servicing assets increased to **$24.5 million** at March 31, 2022, from **$23.7 million** at December 31, 2021, despite a downward revaluation of **$1.2 million** for the quarter[86](index=86&type=chunk)[255](index=255&type=chunk) - Loan servicing revenue increased to **$3.4 million** for Q1 2022 from **$2.8 million** for Q1 2021, with the total unpaid principal balance of loans serviced for others reaching **$1.7 billion**[86](index=86&type=chunk) [Note 7—Other Real Estate Owned](index=23&type=section&id=Note%207%E2%80%94Other%20Real%20Estate%20Owned) This note provides information on the company's other real estate owned (OREO), including additions, sales, and balances Other Real Estate Owned (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Beginning balance | $2,112 | $6,350 | | Net additions to OREO | $309 | $436 | | Proceeds from sales of OREO | $(225) | $(370) | | Ending balance | $2,221 | $5,952 | - Other real estate owned (OREO) increased to **$2.2 million** at March 31, 2022, from **$2.1 million** at December 31, 2021, primarily due to net additions[89](index=89&type=chunk)[303](index=303&type=chunk) - The recorded investment of consumer mortgage loans in formal foreclosure proceedings increased to **$3.2 million** at March 31, 2022, from **$2.5 million** at December 31, 2021[92](index=92&type=chunk) [Note 8—Leases](index=24&type=section&id=Note%208%E2%80%94Leases) This note outlines the company's lease arrangements, including right-of-use assets, discount rates, and lease costs - The Company's operating lease right-of-use asset was **$11.8 million** at March 31, 2022, with a weighted-average discount rate of **1.19%** and a remaining life of **5.9 years**[96](index=96&type=chunk) Leases (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Operating lease cost | $858 | $865 | | Short-term lease cost | $37 | $96 | | Variable lease cost | $469 | $466 | | Total lease cost, net | $1,237 | $1,273 | - Total net lease cost for Q1 2022 was **$1.2 million**, slightly down from **$1.3 million** in Q1 2021[97](index=97&type=chunk) [Note 9—Goodwill, Core Deposit Intangible and Other Intangible Assets](index=25&type=section&id=Note%209%E2%80%94Goodwill,%20Core%20Deposit%20Intangible%20and%20Other%20Intangible%20Assets) This note details the company's intangible assets, including goodwill, core deposit intangibles, and their amortization Goodwill, Core Deposit Intangible and Other Intangible Assets (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Goodwill | $148,353 | $148,353 | | Core Deposit Intangible | $13,475 | $15,004 | | Customer Relationship Intangible | $2,134 | $2,201 | | Total Intangible Assets | $163,962 | $165,558 | - Goodwill remained stable at **$148.4 million**, while core deposit intangible and customer relationship intangible assets decreased due to amortization[100](index=100&type=chunk) - Estimated amortization expense for core deposit and customer relationship intangible assets for the remainder of 2022 is **$4.8 million**[100](index=100&type=chunk) [Note 10—Income Taxes](index=25&type=section&id=Note%2010%E2%80%94Income%20Taxes) This note explains the company's effective tax rate and deferred tax assets, including factors influencing changes - The effective tax rate decreased to **22.0%** for Q1 2022 from **25.3%** for Q1 2021, primarily due to income tax benefits related to share-based compensation (**$1.1 million** in Q1 2022)[104](index=104&type=chunk) - Net deferred tax assets increased to **$67.3 million** at March 31, 2022, from **$50.3 million** at December 31, 2021, mainly due to unrealized losses on available-for-sale securities[104](index=104&type=chunk) [Note 11—Deposits](index=26&type=section&id=Note%2011%E2%80%94Deposits) This note provides a breakdown of the company's deposit base, including interest-bearing and non-interest-bearing categories Deposits (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Non-interest-bearing demand deposits | $2,281,612 | $2,158,420 | | Interest-bearing deposits | $3,248,490 | $2,996,627 | | Total deposits | $5,530,102 | $5,155,047 | - Total deposits increased by **$375.1 million (7.3%)** to **$5.5 billion** at March 31, 2022, driven by growth in non-interest-bearing demand deposits and money market accounts[105](index=105&type=chunk)[272](index=272&type=chunk)[307](index=307&type=chunk) - Non-interest-bearing demand deposits constituted **41.3%** of total deposits at March 31, 2022, an increase of **$123.2 million (5.7%)** from December 31, 2021[105](index=105&type=chunk)[307](index=307&type=chunk) - The scheduled maturity for time deposits in 2022 is **$493.5 million**[106](index=106&type=chunk) [Note 12—Other Borrowings](index=26&type=section&id=Note%2012%E2%80%94Other%20Borrowings) This note details the company's other borrowing sources, including Federal Home Loan Bank advances and repurchase agreements Other Borrowings (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Federal Home Loan Bank advances | $280,000 | $490,000 | | Securities sold under agreements to repurchase | $31,450 | $29,723 | | Total | $311,450 | $519,723 | - Other borrowings decreased by **$208.3 million (40.1%)** to **$311.5 million** at March 31, 2022, primarily due to a reduction in FHLB advances[107](index=107&type=chunk)[272](index=272&type=chunk) - The Company had **$2.0 billion** in FHLB borrowing capacity and **$748.0 million** from the Federal Reserve Bank at March 31, 2022[112](index=112&type=chunk)[318](index=318&type=chunk) [Note 13—Subordinated Notes and Junior Subordinated Debentures](index=27&type=section&id=Note%2013%E2%80%94Subordinated%20Notes%20and%20Junior%20Subordinated%20Debentures) This note describes the company's subordinated debt instruments, their terms, and regulatory capital classifications - The Company has **$75.0 million** in fixed-to-floating subordinated notes maturing July 1, 2030, with a net liability of **$73.6 million** at March 31, 2022, qualifying as Tier 2 capital[113](index=113&type=chunk) Junior Subordinated Debentures (dollars in thousands) | (dollars in thousands) | March 31, 2022 Carrying Value | December 31, 2021 Carrying Value | |:-----------------------|:------------------------------|:---------------------------------| | Junior subordinated debentures | $37,011 | $36,906 | - Junior subordinated debentures, totaling **$37.0 million** at March 31, 2022, are tied to LIBOR and qualify as Tier 1 regulatory capital[114](index=114&type=chunk)[119](index=119&type=chunk) [Note 14—Commitments and Contingent Liabilities](index=28&type=section&id=Note%2014%E2%80%94Commitments%20and%20Contingent%20Liabilities) This note outlines the company's off-balance sheet commitments, including credit extensions and letters of credit, and legal contingencies - The Company is involved in various legal proceedings, but management does not expect a material adverse effect on its financial statements[120](index=120&type=chunk) Commitments and Contingent Liabilities (dollars in thousands) | (dollars in thousands) | March 31, 2022 Total | December 31, 2021 Total | |:-----------------------|:---------------------|:------------------------| | Commitments to extend credit | $1,914,474 | $1,754,419 | | Letters of credit | $58,324 | $59,142 | | Total | $1,972,798 | $1,813,561 | - Total outstanding loan and lease commitments increased to **$1.97 billion** at March 31, 2022, from **$1.81 billion** at December 31, 2021[124](index=124&type=chunk) [Note 15—Fair Value Measurement](index=29&type=section&id=Note%2015%E2%80%94Fair%20Value%20Measurement) This note explains the company's fair value measurement hierarchy and the valuation techniques used for financial instruments - The Company categorizes financial instruments into Level 1, 2, or 3 based on the observability of inputs used in fair value measurements[128](index=128&type=chunk) Fair Value Measurement (dollars in thousands) | (dollars in thousands) | March 31, 2022 Fair Value | December 31, 2021 Fair Value | |:-----------------------|:--------------------------|:-----------------------------| | Securities available-for-sale | $1,369,368 | $1,454,542 | | Equity and other securities, at fair value | $10,677 | $10,578 | | Servicing assets | $24,497 | $23,744 | | Derivative assets | $29,113 | $13,375 | | Derivative liabilities | $7,475 | $9,665 | - Servicing assets and certain equity securities are measured using significant unobservable inputs (Level 3), with prepayment speeds and discount rates being key unobservable inputs for servicing assets[134](index=134&type=chunk) - Impaired loans, assets held for sale, and other real estate owned are measured at fair value on a non-recurring basis, primarily based on collateral valuations or market prices less costs to sell[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) [Note 16—Derivative Instruments and Hedge Activities](index=34&type=section&id=Note%2016%E2%80%94Derivative%20Instruments%20and%20Hedge%20Activities) This note details the company's use of derivative instruments for risk management, including their notional amounts and fair values Derivative Instruments and Hedge Activities (dollars in thousands) | (dollars in thousands) | March 31, 2022 Notional Amount | March 31, 2022 Fair Value (Asset) | March 31, 2022 Fair Value (Liability) | |:-----------------------|:-------------------------------|:----------------------------------|:--------------------------------------| | Interest rate swaps designated as cash flow hedges | $450,000 | $21,782 | $— | | Other interest rate derivatives | $488,064 | $7,331 | $(7,474) | | Other credit derivatives | $7,350 | $— | $(1) | | Total derivatives | $945,414 | $29,113 | $(7,475) | - The total notional amount of derivatives increased to **$945.4 million** at March 31, 2022, from **$847.4 million** at December 31, 2021[153](index=153&type=chunk) - Cash flow hedges (interest rate swaps) had a notional amount of **$450.0 million** at March 31, 2022, with an unrealized gain of **$1.2 million** expected to be reclassified as a decrease to interest expense over the next twelve months[153](index=153&type=chunk) - Other interest rate derivatives, not designated as hedges, generated **$1.1 million** in net transaction fees for Q1 2022, with a total notional amount of **$488.1 million**[157](index=157&type=chunk) [Note 17 – Share-Based Compensation](index=37&type=section&id=Note%2017%20%E2%80%93%20Share-Based%20Compensation) This note describes the company's share-based compensation plans, including grants, vesting, and related expenses - The Company granted **289,277** restricted common shares in 2022, with various vesting schedules, and recognized **$1.3 million** in share-based compensation expense for Q1 2022[169](index=169&type=chunk)[173](index=173&type=chunk) - A total of **256,494** stock options were exercised in Q1 2022, generating **$470,000** in proceeds and **$1.1 million** in tax benefits[176](index=176&type=chunk) - As of March 31, 2022, **1,080,554** stock options remained outstanding under the BYB Plan, all fully vested and exercisable[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) [Note 18—Earnings per Share](index=40&type=section&id=Note%2018%E2%80%94Earnings%20per%20Share) This note provides the calculation of basic and diluted earnings per share, including the components used Earnings per Share (dollars in thousands, except share and per share data) | (dollars in thousands, except share and per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:--------------------------------------------------------|:----------------------------------|:----------------------------------| | Net income available to common stockholders | $22,115 | $21,602 | | Weighted-average common stock outstanding (basic) | 37,123,161 | 38,164,201 | | Weighted-average common stock outstanding (dilutive) | 38,042,822 | 38,915,482 | | Basic earnings per common share | $0.60 | $0.57 | | Diluted earnings per common share | $0.58 | $0.56 | - Diluted EPS increased to **$0.58** for Q1 2022 from **$0.56** for Q1 2021, reflecting higher net income available to common stockholders and a decrease in weighted-average common shares outstanding[185](index=185&type=chunk) [Note 19—Stockholders' Equity](index=40&type=section&id=Note%2019%E2%80%94Stockholders'%20Equity) This note details changes in stockholders' equity, including preferred stock redemptions, share repurchases, and dividends - The Company redeemed all **10,438** outstanding shares of its Series B Preferred Stock on March 31, 2022, for **$10.6 million**[187](index=187&type=chunk)[331](index=331&type=chunk) - Under its stock repurchase program, the Company repurchased **282,819** common shares at a cost of **$7.6 million** during Q1 2022[192](index=192&type=chunk)[332](index=332&type=chunk) - Cash dividends declared and paid on common stock were **$0.09** per share for Q1 2022, up from **$0.06** per share in Q1 2021[193](index=193&type=chunk) [Note 20—Consolidated Statements of Changes in Accumulated Other Comprehensive Income (Loss)](index=41&type=section&id=Note%2020%E2%80%94Consolidated%20Statements%20of%20Changes%20in%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note presents the changes in accumulated other comprehensive income (loss), primarily due to unrealized gains or losses on securities Consolidated Statements of Changes in Accumulated Other Comprehensive Income (Loss) (dollars in thousands) | (dollars in thousands) | March 31, 2022 | March 31, 2021 | |:-----------------------|:---------------|:---------------| | Balance, January 1 | $(8,302) | $18,047 | | Other comprehensive income (loss), net of tax | $(48,086) | $(26,394) | | Balance, March 31 | $(56,388) | $(8,347) | - Accumulated other comprehensive loss significantly increased to **$56.4 million** at March 31, 2022, from **$8.3 million** at January 1, 2022, primarily due to **$61.1 million** in unrealized holding losses on available-for-sale securities[194](index=194&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion and analysis of Byline Bancorp, Inc.'s financial condition and results of operations for the three months ended March 31, 2022, compared to the same period in 2021, covering key financial performance metrics, balance sheet changes, loan portfolio composition, asset quality, funding sources, liquidity, capital resources, and a reconciliation of non-GAAP financial measures [Forward-Looking Statements](index=42&type=section&id=Forward-Looking%20Statements) This section highlights the inherent uncertainties and risks associated with forward-looking statements within the report - The report contains forward-looking statements subject to various risks and uncertainties, including those related to the COVID-19 pandemic, economic outlook, credit quality, market conditions, interest rate changes, and regulatory developments[197](index=197&type=chunk)[198](index=198&type=chunk) [Overview](index=43&type=section&id=Overview) This section introduces Byline Bancorp, Inc.'s business model, key financial highlights, and critical accounting policies - Byline Bancorp, Inc. is a bank holding company operating through Byline Bank, offering a range of banking products and services to businesses and consumers, including small ticket equipment leasing and U.S. government guaranteed lending programs (e.g., SBA loans)[201](index=201&type=chunk) - Net income for Q1 2022 was **$22.3 million**, an increase of **$513,000** from Q1 2021, driven by higher net interest income and non-interest income, partially offset by increased non-interest expense[205](index=205&type=chunk) Overview Metrics (annualized) | Metric (annualized) | Q1 2022 | Q1 2021 | |:--------------------|:--------|:--------| | Return on average assets | 1.35% | 1.34% | | Return on average stockholders' equity | 10.87% | 10.96% | | Diluted EPS | $0.58 | $0.56 | - Critical accounting policies include acquisition-related fair value computations, carrying value of loans and leases, ALLL determination, intangible asset valuation, fair value of financial instruments, and deferred tax assets[209](index=209&type=chunk) [Results of Operations](index=47&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, focusing on net interest income, non-interest income, and expenses [Net Interest Income](index=49&type=section&id=Net%20Interest%20Income) This section examines the factors influencing the company's net interest income and margin, including loan balances and funding costs - Net interest income increased by **$2.1 million (3.7%)** to **$58.7 million** for Q1 2022, primarily due to increased average loan and lease balances and a decrease in borrowed funds[246](index=246&type=chunk) Net Interest Income Metrics (annualized) | Metric (annualized) | Q1 2022 | Q1 2021 | |:--------------------|:--------|:--------| | Net interest margin (FTE) | 3.82% | 3.78% | | Average cost of deposits | 0.08% | 0.12% | - Net loan accretion income decreased by **$492,000 (25.0%)** to **$1.5 million** for Q1 2022, contributing **10 basis points** to net interest margin[249](index=249&type=chunk) [Provision for Loan and Lease Losses](index=52&type=section&id=Provision%20for%20Loan%20and%20Lease%20Losses) This section discusses the changes in the provision for loan and lease losses and its impact on the allowance for loan losses - Provision for loan and lease losses increased by **$628,000 (14.4%)** to **$5.0 million** for Q1 2022, mainly due to increases in qualitative factors and loan and lease portfolio growth[251](index=251&type=chunk) - The ALLL as a percentage of loans and leases increased from **1.21%** at December 31, 2021, to **1.24%** at March 31, 2022[252](index=252&type=chunk) [Non-Interest Income](index=52&type=section&id=Non-Interest%20Income) This section analyzes the components of non-interest income, including gains on loan sales and servicing revenue Non-Interest Income (dollars in thousands) | (dollars in thousands) | Q1 2022 | Q1 2021 | Change ($) | Change (%) | |:-----------------------|:--------|:--------|:-----------|:-----------| | Total non-interest income | $19,426 | $15,742 | $3,684 | 23.4% | | Net gains on sales of loans | $10,827 | $8,319 | $2,508 | 30.1% | | Loan servicing revenue | $3,380 | $2,769 | $611 | 22.1% | | Other non-interest income | $2,620 | $1,459 | $1,161 | 79.6% | - The increase in non-interest income was primarily driven by higher net gains on sales of loans (**$2.5 million** increase) and increased customer derivative products income and bank-owned life insurance income (**$1.1 million** increase in other non-interest income)[253](index=253&type=chunk)[257](index=257&type=chunk)[260](index=260&type=chunk) - Loan servicing asset revaluation resulted in a downward adjustment of **$1.2 million** for Q1 2022, an improvement from the **$1.5 million** downward adjustment in Q1 2021[255](index=255&type=chunk) [Non-Interest Expense](index=53&type=section&id=Non-Interest%20Expense) This section examines the trends in non-interest expenses, particularly salaries and employee benefits, and their effect on the efficiency ratio Non-Interest Expense (dollars in thousands) | (dollars in thousands) | Q1 2022 | Q1 2021 | Change ($) | Change (%) | |:-----------------------|:--------|:--------|:-----------|:-----------| | Total non-interest expense | $44,555 | $38,842 | $5,713 | 14.7% | | Salaries and employee benefits | $28,959 | $21,806 | $7,153 | 32.8% | | Loan and lease related expenses | $(891) | $951 | $(1,842) | NM | | Other non-interest expense | $3,923 | $2,363 | $1,560 | 66.0% | - Total non-interest expense increased by **$5.7 million (14.7%)** for Q1 2022, primarily due to a **$7.2 million** increase in salaries and employee benefits from new hires[261](index=261&type=chunk)[262](index=262&type=chunk) - The efficiency ratio worsened to **54.96%** for Q1 2022 from **51.25%** for Q1 2021, driven by the increase in non-interest expense[268](index=268&type=chunk) [Income Taxes](index=54&type=section&id=Income%20Taxes) This section details the provision for income taxes and the effective tax rate, including factors influencing changes - Provision for income taxes decreased by **$1.1 million (14.6%)** to **$6.3 million** for Q1 2022, with the effective tax rate falling to **22.0%** from **25.3%** in Q1 2021, mainly due to share-based compensation benefits[270](index=270&type=chunk) [Financial Condition](index=54&type=section&id=Financial%20Condition) This section provides an in-depth analysis of the company's balance sheet, including assets, liabilities, and capital [Condensed Consolidated Statements of Financial Condition Analysis](index=54&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Condition%20Analysis) This section analyzes the key changes in the company's total assets and liabilities over the reporting period - Total assets increased by **$138.5 million (2.1%)** to **$6.8 billion** at March 31, 2022, primarily due to a **$251.9 million (5.6%)** increase in loans and leases[271](index=271&type=chunk) - Total liabilities increased by **$186.2 million (3.2%)** to **$6.0 billion**, driven by a **$375.1 million (7.3%)** increase in deposits, partially offset by a **$208.3 million (40.1%)** decrease in other borrowings[272](index=272&type=chunk) [Investment Portfolio](index=54&type=section&id=Investment%20Portfolio) This section details the composition and performance of the company's investment securities, including available-for-sale and held-to-maturity portfolios - Securities available-for-sale decreased by **$85.2 million (5.9%)** to **$1.4 billion** at March 31, 2022, mainly due to decreases in fair value[274](index=274&type=chunk) - The held-to-maturity securities portfolio remained stable at **$3.9 million**[275](index=275&type=chunk) - At March 31, 2022, **223** investment securities had unrealized losses, but all declines were determined to be temporary, with full recovery of amortized cost anticipated[279](index=279&type=chunk) [Restricted Stock](index=56&type=section&id=Restricted%20Stock) This section provides information on the company's restricted stock holdings, primarily FHLB and Bankers' Bank stock - Restricted stock, primarily FHLB and Bankers' Bank stock, decreased to **$14.0 million** at March 31, 2022, from **$22.0 million** at December 31, 2021[284](index=284&type=chunk) [Loan and Lease Portfolio](index=56&type=section&id=Loan%20and%20Lease%20Portfolio) This section analyzes the growth, composition, and interest rate characteristics of the company's loan and lease portfolio - Total loans and leases increased by **$251.9 million (5.6%)** to **$4.8 billion** at March 31, 2022[285](index=285&type=chunk) Loan and Lease Portfolio (dollars in thousands) | Loan Type | March 31, 2022 Amount | March 31, 2022 % of Total | December 31, 2021 Amount | December 31, 2021 % of Total | |:-----------------------|:----------------------|:--------------------------|:-------------------------|:-----------------------------| | Originated loans and leases | $4,393,834 | 91.7% | $4,094,326 | 90.2% | | Acquired impaired loans | $119,751 | 2.5% | $127,051 | 2.8% | | Acquired non-impaired loans and leases | $275,483 | 5.8% | $315,751 | 7.0% | | Total loans and leases | $4,789,068 | 100.0% | $4,537,128 | 100.0% | - Commercial and industrial loans comprised the largest portion of originated loans at **35.5%**, while commercial real estate was **31.9%**[286](index=286&type=chunk) - At March 31, 2022, **44.8%** of the loan portfolio bore fixed interest rates and **55.2%** bore floating rates, with **$1.1 billion** indexed to LIBOR[295](index=295&type=chunk) [Allowance for Loan and Lease Losses](index=58&type=section&id=Allowance%20for%20Loan%20and%20Lease%20Losses) This section details the changes in the allowance for loan and lease losses and its coverage ratio relative to total loans - Total ALLL increased by **$4.4 million (8.1%)** to **$59.5 million** at March 31, 2022, primarily due to an increase in general reserves driven by loan and lease growth[299](index=299&type=chunk) - The ALLL to total loans and leases held for investment ratio increased to **1.24%** at March 31, 2022, from **1.21%** at December 31, 2021[299](index=299&type=chunk) [Non-Performing Assets](index=61&type=section&id=Non-Performing%20Assets) This section provides an overview of non-performing assets, including non-accrual loans and their trends Non-Performing Assets (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Total non-performing assets | $22,498 | $25,242 | | Non-accrual loans and leases | $20,277 | $23,130 | | Total non-performing loans and leases as a percentage of total loans and leases | 0.42% | 0.51% | | ALLL as a percentage of non-performing loans and leases | 293.23% | 237.84% | - Total non-performing assets decreased to **$22.5 million** at March 31, 2022, from **$25.2 million** at December 31, 2021, primarily due to a **$2.9 million** decrease in non-accrual loans[303](index=303&type=chunk)[305](index=305&type=chunk) - The U.S. government guaranteed portion of non-performing loans decreased to **$1.8 million** at March 31, 2022, from **$3.3 million** at December 31, 2021[303](index=303&type=chunk) [Deposits](index=62&type=section&id=Deposits) This section analyzes the growth, composition, and cost of the company's deposit base - Total deposits increased by **$375.1 million (7.3%)** to **$5.5 billion** at March 31, 2022, driven by growth in non-interest-bearing deposits and money market accounts[307](index=307&type=chunk) - Non-interest-bearing deposits were **41.3%** of total deposits at March 31, 2022, and core deposits were **93.1%** of total deposits[307](index=307&type=chunk) - The average cost of deposits decreased to **0.08%** for Q1 2022 from **0.12%** for Q1 2021, attributed to lower rates on interest-bearing deposits and an improved deposit mix[308](index=308&type=chunk) [Borrowed Funds](index=63&type=section&id=Borrowed%20Funds) This section describes the company's borrowed funds, including subordinated notes and FHLB advances, and available borrowing capacity - The Company has **$75.0 million** in subordinated notes maturing in 2030 and utilizes FHLB advances as a supplementary funding source[311](index=311&type=chunk) - At March 31, 2022, FHLB advances totaled **$280.0 million**, with an available borrowing capacity of **$2.0 billion**[311](index=311&type=chunk) - The Paycheck Protection Program Liquidity Facility (PPPLF) had no outstanding amount at March 31, 2022, after being fully repaid in 2021[311](index=311&type=chunk) [Customer Repurchase Agreements (Sweeps)](index=63&type=section&id=Customer%20Repurchase%20Agreements%20(Sweeps)) This section provides information on the company's customer repurchase agreements and their changes over the period - Securities sold under agreements to repurchase increased by **$1.7 million** to **$31.4 million** at March 31, 2022[315](index=315&type=chunk) [Liquidity](index=64&type=section&id=Liquidity) This section outlines the company's liquidity management strategies and available funding sources to meet obligations - Liquidity needs are met by cash, investment securities, deposit growth, loan portfolio cash flow, and FHLB borrowings[317](index=317&type=chunk) - At March 31, 2022, Byline Bank had an available aggregate borrowing capacity of **$354.4 million** from FHLB and FRB, in addition to **$115.0 million** in uncommitted federal funds lines[318](index=318&type=chunk) [Capital Resources](index=64&type=section&id=Capital%20Resources) This section analyzes the company's capital structure, regulatory capital ratios, and capital management activities - Stockholders' equity decreased by **$47.7 million (5.7%)** to **$788.7 million** at March 31, 2022, primarily due to increased accumulated other comprehensive loss, preferred stock redemption, and share repurchases[323](index=323&type=chunk) Capital Ratios (Company) | Capital Ratio (Company) | March 31, 2022 | December 31, 2021 | |:------------------------|:---------------|:------------------| | Total capital to risk weighted assets | 13.72% | 14.70% | | Tier 1 capital to risk weighted assets | 11.49% | 12.37% | | Common Equity Tier 1 (CET1) to risk weighted assets | 10.75% | 11.39% | | Tier 1 capital to average assets (Leverage ratio) | 10.70% | 10.89% | - Byline Bank exceeded all applicable regulatory capital requirements and was considered 'well-capitalized' at March 31, 2022[326](index=326&type=chunk) - The Company redeemed all outstanding Series B Preferred Stock for **$10.6 million** on March 31, 2022, and repurchased **$7.6 million** of common stock during Q1 2022[331](index=331&type=chunk)[332](index=332&type=chunk) [Off-Balance Sheet Items and Other Financing Arrangements](index=66&type=section&id=Off-Balance%20Sheet%20Items%20and%20Other%20Financing%20Arrangements) This section discusses the company's off-balance sheet financial instruments, including commitments and derivative contracts, and their associated risks - The Company uses financial instruments with off-balance sheet risk, including commitments to extend credit and letters of credit, which involve credit and interest rate risk[335](index=335&type=chunk) Off-Balance Sheet Items and Other Financing Arrangements (dollars in thousands) | (dollars in thousands) | Notional | Fair Value (Asset) | Fair Value (Liability) | |:-----------------------|:---------|:-------------------|:-----------------------| | Interest rate swaps designated as cash flow hedges | $450,000 | $21,782 | $— | | Other interest rate swaps | $488,064 | $7,331 | $(7,474) | | Other credit derivatives | $7,350 | $— | $(1) | - Interest rate swaps are used to manage interest rate exposure on commercial loans and variable rate borrowings, with a total notional amount of **$938.1 million** at March 31, 2022[340](index=340&type=chunk)[353](index=353&type=chunk) [GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures](index=67&type=section&id=GAAP%20Reconciliation%20and%20Management%20Explanation%20of%20Non-GAAP%20Financial%20Measures) This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, along with management's rationale for their use - The Company uses several non-GAAP financial measures, such as 'Adjusted net income,' 'Net interest income, fully taxable-equivalent,' 'Adjusted efficiency ratio,' and 'Tangible common equity,' to provide supplementary information for management and investors[343](index=343&type=chunk) GAAP Reconciliation and Non-GAAP Financial Measures (dollars in thousands) | (dollars in thousands) | Q1 2022 | Q1 2021 | |:-----------------------|:--------|:--------| | Reported Net Income | $22,311 | $21,798 | | Adjusted Net Income | $22,311 | $22,237 | | Pre-tax pre-provision net income | $33,607 | $33,540 | | Tangible common stockholders' equity | $624,709 | $612,475 | | Tangible assets | $6,670,674 | $6,579,243 | | Adjusted efficiency ratio | 54.96% | 50.41% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section discusses the Company's primary market risk, which is interest rate risk, and how it is measured and managed, outlining the impact of interest rate changes on net interest income and the use of simulation models and derivative instruments to mitigate this risk - The Company's primary market risk is interest rate risk, managed through monitoring interest sensitivity exposure, asset and liability allocation, and using interest rate derivatives[353](index=353&type=chunk) - A net interest income simulation model is used quarterly to evaluate potential changes in net interest income under various hypothetical interest rate scenarios[355](index=355&type=chunk) Net Interest Income Sensitivity Analysis | Scenario (Immediate Shifts) | Year 1 Percentage Change | Year 2 Percentage Change | |:----------------------------|:-------------------------|:-------------------------| | +300 basis points | 25.5% | 34.8% | | +200 basis points | 17.4% | 23.6% | | +100 basis points | 8.5% | 11.7% | | -100 basis points | -5.2% | -9.0% | - A gradual upward shift of **100** and **200 basis points** would result in **1.6%** and **3.1%** increases to net interest income, respectively, over the next 12 months[356](index=356&type=chunk) [Item 4. Controls and Procedures.](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2022, and states that there were no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were effective as of March 31, 2022, providing reasonable assurance for timely and accurate financial reporting[358](index=358&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[359](index=359&type=chunk) PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings.](index=73&type=section&id=Item%201.%20Legal%20Proceedings.) The Company is not currently party to any legal proceedings that are expected to have a material adverse effect on its business or financial condition - The Company is not involved in any legal proceedings expected to have a material adverse effect on its business or financial condition[363](index=363&type=chunk) [Item 1A. Risk Factors.](index=73&type=section&id=Item%201A.%20Risk%20Factors.) There have been no material changes to the risk factors previously disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2021 - No material changes to the risk factors previously disclosed in the Form 10-K for the fiscal year ended December 31, 2021[364](index=364&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=73&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This section details the Company's stock repurchase program, including the number of shares purchased and the remaining authorization under the program for the quarter ended March 31, 2022 - The Board of Directors authorized a stock repurchase program for up to **2,500,000** shares of common stock, effective until December 31, 2022[365](index=365&type=chunk) Stock Repurchase Program | Period | Total Number of Shares Purchased | Average Price Paid per Share | |:-----------------------|:---------------------------------|:-----------------------------| | January 1 - January 31, 2022 | — | $— | | February 1 - February 28, 2022 | 344,493 | $26.88 | | March 1 - March 31, 2022 | 103,391 | $26.89 | | Total | 447,884 | $26.88 | - As of March 31, 2022, **885,473** shares remained authorized for repurchase under the program[366](index=366&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=73&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) The Company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[367](index=367&type=chunk) [Item 4. Mine Safety Disclosures.](index=73&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the Company - This item is not applicable[368](index=368&type=chunk) [Item 5. Other Information.](index=73&type=section&id=Item%205.%20Other%20Information.) No other information was reported under this item - No other information was reported[369](index=369&type=chunk) [Item 6. Exhibits.](index=74&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, certifications, and interactive data files - The exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Certificate of Designations of Preferred Stock, officer certifications, and Inline XBRL interactive data files[372](index=372&type=chunk)

Financial Data and Key Metrics Changes - Net income for Q1 2022 was $22.3 million or $0.58 per diluted share, an increase compared to the previous quarter and year-ago period [11] - Revenue for the quarter was $78.2 million, slightly lower than the linked quarter but up 8% year-over-year [11] - Return on average assets (ROAA) was 1.35% and return on tangible common equity (ROTCE) was 14.4% [11] - Pre-tax pre-provision revenue was $33.6 million, with a pre-tax pre-provision ROAA of 2.03% [11] Business Line Data and Key Metrics Changes - Loans excluding PPP increased by $339 million or 31% annualized, totaling $4.8 billion at quarter-end [12] - The company originated $325 million in loans for the quarter, up from $280 million in the prior quarter [13] - Government guaranteed lending closed $129 million in loans, up 16% year-over-year [14] - Total deposits grew by $375 million or 30% annualized, reaching a record level of $5.5 billion [15] Market Data and Key Metrics Changes - Deposit costs remained flat at a cycle low of 8 basis points [15] - The mix of deposits remained strong, with demand deposit accounts (DDAs) representing 41% of balances [15] - Net interest income was $19.4 million, up 2% from the last quarter and 23% year-over-year [17] Company Strategy and Development Direction - The company remains focused on executing its strategy despite geopolitical uncertainty and high inflation [34] - There is optimism about growth opportunities both organically and through M&A [35] - The company aims to continue returning capital to shareholders while supporting organic growth [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the current volatile environment but expressed confidence in the company's strong performance and credit quality [8][10] - The outlook for the rest of the year is optimistic, with strong pipelines and diversified business [35] - Management remains vigilant regarding credit quality and potential macroeconomic impacts [61] Other Important Information - The efficiency ratio improved to just under 55% for the quarter [18] - Capital ratios remained strong, with CET1 and total capital ratios just under 11% and 14% respectively [19] - The company returned 50% of its earnings to shareholders through dividends and share repurchases [33] Q&A Session Summary Question: Drivers of deposit growth in the quarter - Management indicated that deposit growth was a combination of share gains, existing relationships, and increased liquidity in the system [39] Question: Margin outlook going forward - Management expects net interest margin to expand, with guidance on additional net interest income from rate increases [41][42] Question: Government guaranteed lending segment origination capabilities - Management expressed confidence in the team's ability to execute and maintain a robust pipeline despite market dynamics [44] Question: Loan growth guidance and potential slowdowns - Management reaffirmed high single-digit growth guidance, attributing strong performance to muted payoffs and increased line utilization [47][49] Question: Key expense guidance and hiring plans - Management confirmed that the expense guidance includes room for new hires due to active market conditions [51] Question: Expectations for deposit costs and competition - Management noted that while competition is currently low, they anticipate deposit costs to rise as rates increase [54] Question: Outlook on credit quality and provisions - Management remains vigilant regarding credit quality, expecting to provision as loan growth continues [61] Question: M&A environment and dialogue - Management indicated that dialogue around M&A remains strong despite market adjustments [72]