# Byline Bancorp, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Byline Bancorp, Inc.](/companies/by.md) (CIK 1702750)
- Form: 10-Q
- Filed: 2023-08-03
- Accepted by EDGAR: Aug 3, 2023, 16:27 ET
- Period: 2023-06-30
- Accession: 0000950170-23-038065
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1702750/000095017023038065/by-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1702750/000095017023038065/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $31.1m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $55.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $9.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $17.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $26.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $50.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.70 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.34 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.70 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 37,337,906 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 37,444,381 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $92.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $1.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $6.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $320.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $7.58bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $6.76bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $813.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 145,350 characters.

*The following is a discussion and analysis of Byline Bancorp, Inc.’s financial condition and results of operations and should be read in conjunction with our Unaudited Interim Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report. The words “the Company,” “we,” “Byline,” “management,” “our” and “us” refer to Byline Bancorp, Inc. and its consolidated subsidiaries, unless we indicate otherwise. In addition to historical information, this discussion contains forward looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Special Note Regarding Forward Looking Statements” and “Risk Factors”. Byline assumes no obligation to update any of these forward looking statements.*

### Forward-Looking Statements

Statements contained in this report and in other documents we file with or furnish to the Securities and Exchange Commission (“SEC”) that are not historical facts may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, strategies, predictions, forecasts, objectives or assumptions of future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “expects,” “can,” “could,” “may,” “predicts,” “potential,” “opportunity,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “seeks,” “intends” and similar words or phrases. Accordingly, these statements involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual strategies, actions or results to differ materially from those expressed in such statements, and are not guarantees of future results or other events or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions or results, based on management’s current expectations, assumptions and estimates on the date hereof, and there can be no assurance that actual strategies, actions or results will not differ materially from expectations, readers are cautioned not to place undue reliance on such statements.

Our ability to predict results or the actual effects of future plans, strategies or events is inherently uncertain. Factors which could cause actual results or conditions to differ materially from those reflected in forward-looking statements include:

- uncertainty regarding domestic, foreign, and geopolitical developments and the United States and global economic outlook that may impact market conditions or affect demand for certain banking products and services, and the impact on our customers, which could impair the ability of our borrowers to repay outstanding loans and leases, impair collateral values and further increase our allowance for credit losses - loans and leases, as well as result in possible asset impairment charges;
- unforeseen credit quality problems or changing economic conditions that could result in charge-offs greater than we have anticipated in our allowance for credit losses - loans and leases or changes in the value of our investments;
- commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;
- deterioration in the financial condition of our borrowers resulting in significant increases in our loan and lease losses and provisions for those losses and other related adverse impacts to our results of operations and financial condition;
- estimates of fair value of certain of our assets and liabilities, which could change in value significantly from period to period;
- competitive pressures in the financial services industry in our market areas relating to both pricing and loan and lease structures, which may impact our growth rate;
- demand for loan products and deposit flows;
- unanticipated developments in pending or prospective loan and/or lease transactions or greater-than-expected paydowns or payoffs of existing loans and leases;
- inaccurate information and assumptions in our analytical and forecasting models used to manage our balance sheet;
- unanticipated changes in monetary policies of the Federal Reserve or significant adjustments in the pace of, or market expectations for, future interest rate changes;
- availability of sufficient and cost-effective sources of liquidity, funding, and capital as and when needed;
- our ability to attract, retain or the loss of key personnel or an inability to recruit appropriate talent cost-effectively;
- adverse effects on our information technology systems resulting from failures, human error or cyberattack, including the potential impact of disruptions or security breaches at our third-party service providers, any of which could result in an information or security breach, the disclosure or misuse of confidential or proprietary information, significant legal and financial losses and reputational harm;
- greater-than-anticipated costs to support the growth of our business, including investments in new lines of business, products and services, or technology, process improvements or other infrastructure enhancements, or greater-than-anticipated compliance or regulatory costs and burdens;
- the impact of possible future acquisitions, if any, including the costs and burdens of integration efforts;
- the ability of the Company to receive dividends from Byline Bank;
- legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies;
- changes in Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) U.S. government guaranteed lending rules, regulations, loan and lease products and funding limits, including specifically the SBA Section 7(a) program, as well as changes in SBA or USDA standard operating procedures or changes to the status of Byline Bank as an SBA Preferred Lender;
- changes in accounting principles, policies and guidelines applicable to bank holding companies and banking generally;
- the impact of a possible change in the federal or state income tax rates on our deferred tax assets and provision for income tax expense;
- our ability to implement our growth strategy, including via acquisitions;
- the possibility that any of the anticipated benefits of acquisitions will not be realized or will not be realized within the expected time period;
- the risk that the integration of acquisition operations will be materially delayed or will be more costly or difficult than expected;
- the effect of mergers on customer relationships and operating results; and
- other risks detailed from time to time in filings we make with the SEC.

These risks and uncertainties should be considered in evaluating any forward-looking statements, and undue reliance should not be placed on such statements. Forward looking statements speak only as of the date they are made. You should also consider the risks, assumptions and uncertainties set forth in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2022, that was filed with the SEC on March 7, 2023 as well as those set forth in the reports we file with the SEC. We assume no obligation to update any of these statements in light of new information, future events or otherwise unless required under the federal securities laws.

### Overview

### Our Business

We are a bank holding company headquartered in Chicago, Illinois, and conduct all our business activities through our subsidiary, Byline Bank, a full service commercial bank, and Byline Bank’s subsidiaries. Through Byline Bank, we offer a broad range of banking products and services to small and medium sized businesses, commercial real estate and financial sponsors and to consumers who generally live or work near our branches. We also offer online account opening to consumer and business customers through our website and provide trust and wealth management services to our customers. In addition to our traditional commercial banking business, we provide small ticket equipment leasing solutions through Byline Financial Group, a wholly-owned subsidiary of Byline Bank, headquartered in Bannockburn, Illinois, with sales offices in Illinois, and sales representatives in Illinois, Michigan, New Jersey, and New York. We participate in U.S. government guaranteed lending programs and originate U.S. government guaranteed loans. Byline Bank is a leading originator of Small Business Administration (“SBA”) loans as of June 30, 2023.

Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and lease receivables, including accretion income on loans, investment securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent upon our generation of non-interest income, consisting primarily of income from fees and service charges on deposits, loan servicing revenue, wealth management and trust income, ATM and interchange fees, and net gains on sales of investment securities and loans. Other factors contributing to our results of operations include our provision for credit losses, provision for income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy and equipment expenses, and other miscellaneous operating costs.

We reported consolidated net income of $26.1 million and $50.1 million for the three and six months ended June 30, 2023, compared to net income of $20.3 million and $42.6 million for the three and six months ended June 30, 2022, an increase of $5.8 million and $7.5 million, respectively, for each comparable period. The increase in net income was attributable to a $14.5 million and $31.5 million increase in net interest income. The increase in net interest income during the three and six months ended June 30, 2023 was primarily driven by higher yields on loans and leases, and growth in the loan and lease portfolio.

Dividends declared and paid on preferred shares were $196,000 for the six months ended June 30, 2022. Dividends declared on common shares were $3.4 million for each of the three months ended June 30, 2023 and 2022. Dividends paid on common shares were $3.3 million and $3.4 million for each of the three months ended June 30, 2023 and 2022, respectively. Dividends declared on common shares were $6.8 million for each of the six months ended June 30, 2023 and 2022. Dividends paid on common shares were $6.7 million and $6.8 million for each of the six months ended June 30, 2023 and 2022, respectively.

For the three months ended June 30, 2023 and 2022, net income available to common stockholders was $26.1 million, or $0.70 per basic and diluted common share, and $20.3 million, or $0.55 per basic and $0.54 per diluted common share, respectively. For the six months ended June 30, 2023 and 2022, net income available to common stockholders was $50.1 million, or $1.35 per basic and $1.34 per diluted common share, and $42.4 million, or $1.14 per basic and $1.12 per diluted common share, respectively.

Our results of operations for the three months ended June 30, 2023 and 2022 yielded an annual return on average assets of 1.41% and 1.17% and a return on average stockholders’ equity of 12.99% and 10.42% respectively. Our results of operations for the six months ended June 30, 2023 and 2022 yielded an annual return on average assets of 1.37% and 1.26% and a return on average stockholders’ equity of 12.69% and 10.65%, respectively.

As of June 30, 2023, we had consolidated total assets of $7.6 billion, total gross loans and leases outstanding of $5.6 billion, total deposits of $5.9 billion, and total stockholders’ equity of $813.9 million.

### Inland Bancorp, Inc. Acquisition

On July 1, 2023, we completed our acquisition of Inland Bancorp, Inc., ("Inland") under the terms of a definitive merger agreement. As a result of the merger, Inland's wholly owned bank subsidiary, Inland Bank and Trust, was merged with and into Byline Bank. As of June 30, 2023, Inland had approximately $1.2 billion in total assets, $861.5 million of loans, and $967.6 million of total deposits. Refer to Note 3—Acquisition of a Business for additional information.

### Critical Accounting Policies and Significant Estimates

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the Banking industry. To prepare financial statements and interim financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes; and are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

These critical accounting policies and estimates include (i) acquisition-related fair value computations, (ii) the carrying value of loans and leases, (iii) determining the provision and allowance for credit losses, (iv) the valuation of intangible assets such as goodwill, servicing assets and core deposit intangibles, (v) the determination of fair value for financial instruments and (vi) the valuation of or recognition of deferred tax assets and liabilities.

The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. Additional information about these policies can be found in Note 1 of our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, that we filed with the SEC on March 7, 2023.

### Business Combinations

We account for business combinations under the acquisition method of accounting in accordance with ASC 805. We recognize the fair value of the assets acquired and liabilities assumed as of the date of acquisition, with any excess of the fair value of consideration provided over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Transaction costs are expensed as incurred. Application of the acquisition method requires extensive use of accounting estimates and judgments to determine the fair values of the identifiable assets acquired and liabilities assumed at the acquisition date.

In accordance with ASC 805, the acquiring company retains the right to make appropriate adjustments to the assets and liabilities of the acquired entity for information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. The measurement period ends as of the earlier of (i) one year from the acquisition date or (ii) the date when the acquirer receives the information necessary to complete the business combination accounting.

### Carrying Value of Loans and Leases

Our accounting methods for loans and leases differ depending on whether they are new or acquired loans and leases; and for acquired loans, whether the loans were acquired at a discount as a result of credit deterioration since the date of origination.

### Originated Loans and Leases

We account for originated loans and leases and purchased loans and leases not acquired through business combinations as originated loans and leases. Newly originated loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any allowance for credit losses, unamortized deferred fees and costs, and unamortized premiums or discounts. The net amount of nonrefundable loan origination fees and certain direct costs associated with the loan origination process are deferred and amortized to interest income over the contractual lives of the new loans using methods that approximate the level yield method. Discounts and premiums are amortized or accreted to interest income over the estimated term of the new loans using methods that approximate the effective yield method. Interest income on new loans is accrued based on the unpaid principal balance outstanding. Additionally, once an acquired loan reaches its contractual maturity date, it is re-underwritten, and if renewed, it is classified as an originated loan.

### Purchased credit deteriorated loans and leases

Purchased credit deteriorated ("PCD") loans are loans that have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The difference between the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through credit loss expense.

### Acquired non-credit-deteriorated loans and leases

For acquired non‑credit-deteriorated loans and leases, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loan. While credit discounts are included in the determination of the fair value for non-credit-deteriorated loans, since these discounts are expected to be accreted over the life of the loans, they cannot be used to offset the allowance for credit losses that must be recorded at the acquisition date. As a result, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment and is recognized as a provision for credit losses in the consolidated statements of operations. Any subsequent deterioration (improvement) in credit quality is recognized by recording a provision (recapture) for credit losses.

### Provision and allowance for credit losses

The provision for credit losses reflects the amount required to maintain the allowance for credit losses (“ACL”) at an appropriate level based upon management’s evaluation of the adequacy of collectively and individually evaluated loss reserves.

The ACL is maintained at a level that management believes is appropriate to provide for current expected credit losses as of the dates of the Consolidated Statements of Financial Condition, and we have established methodologies for the determination of its adequacy. The methodologies are set forth in a formal policy and take into consideration relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We increase our ACL by recording provisions for current expected credit losses against our income and decrease by charge‑offs, net of recoveries.

The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses available information to recognize losses on loans and leases, changes in economic or other conditions may necessitate revision of the estimate in future periods.

The ACL is maintained at a level management believes is sufficient to provide for current expected credit losses based upon an ongoing review of the loan and lease portfolios by portfolio category, which includes consideration of actual loss experience, peer loss experience, changes in the size and risk profile of the portfolio, identification of individual problem loan and lease situations that may affect a borrower’s ability to repay, reasonable and supportable forecasts, and evaluation of prevailing economic conditions. We use risk ratings as credit indicators to classify loans and leases into pools and to estimate loss rates for each of the loan and lease pools. Additional information about these policies can be found in Note 4 of our Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2023, included in this report.

For each portfolio, management estimates expected credit losses over the life of each loan and lease utilizing lifetime or cumulative loss rate methodology, which identifies macroeconomic factors and asset-specific characteristics that are correlated with credit loss experience including loan age, loan type, and leverage. The lifetime loss rate is applied to the amortized cost of the loan or lease. This methodology builds on default and loss probabilities by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for a forecast of certain macroeconomic variables, and other factors such as differences in underwriting standards, or portfolio mix. Each time we measure expected credit losses, management assesses the relevancy of historical loss information and considers any necessary adjustments to address any differences in asset-specific characteristics.

The lifetime loss rates are estimated by analyzing a combination of internal and external data related to historical performance of each loan and lease pool over a complete economic cycle. Loss rates are based on historical averages for each loan and lease pool, adjusted to reflect the impact of a forward-looking forecast of certain macroeconomic variables such as unemployment rates, gross domestic product, or commercial property values, which management considers to be both reasonable and supportable. Various economic scenarios are considered and weighted to arrive at the forecast that most reflects management’s expectation of future conditions. After a one-year forecast period, a one-year reversion period adjusts loss experience to the historical average on a straight-line basis.

Management also considers qualitative risk factor adjustments that are intended to capture internal and external trends not reflected in historical loss history. Each risk factor is assigned an allowance level based on management’s judgment as to the expected impact of each risk factor on each loan portfolio and is monitored quarterly. All acquired loans and leases and originated loans and leases of $500,000 or greater with an internal risk rating of substandard or below, or on nonaccrual, as well as loans classified as Troubled Debt Restructurings, are reviewed individually for impairment on a quarterly basis.

The Company also maintains an allowance for credit losses on off-balance sheet credit exposures for unfunded loan commitments. This allowance is reflected as a component of other liabilities that represents management’s current estimate of expected losses in the unfunded loan commitments. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life based on management’s consideration of past events, current conditions, and reasonable and supportable economic forecasts. Management tracks the level and trends in unused commitments and takes into consideration the same factors as those considered for purposes of the allowance for credit losses on outstanding loans. The Company also evaluates its held-to-maturity debt securities for current expected credit losses.

### Goodwill and Other Intangible Assets

*Goodwill.* Goodwill represents the excess of the purchase consideration over the fair value of net assets acquired in connection with our recapitalization and acquisitions using the acquisition method of accounting. Goodwill is not amortized but is periodically evaluated for impairment under the provisions of ASC Topic 350, Intangibles—Goodwill and Other (“ASC 350”).

Impairment testing is performed using either a qualitative or quantitative approach at the reporting unit level. Our goodwill is allocated to Byline Bank, which is our only applicable reporting unit for the purposes of testing goodwill for impairment. We have selected November 30 as the date to perform the annual goodwill impairment test. Additionally, we perform a goodwill impairment evaluation on an interim basis when events or circumstances indicate impairment potentially exists.

*Servicing Assets.* Servicing assets are recognized separately when they are acquired through sales of loans or when the rights to service loans are purchased. When loans are sold with servicing rights retained, servicing assets are recorded at fair value in accordance with ASC Topic 860, Transfers and Servicing (“ASC 860”). Fair value is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Changes in secondary market premiums and prepayment speed assumptions have the most significant impact on the fair value of servicing rights. See Note 6 and Note 15 of our Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2023, included in this report, for additional information.

*Core Deposit Intangible Assets.* Other intangible assets primarily consist of core deposit intangible assets. In valuing core deposit intangibles, we consider variables such as deposit servicing costs, attrition rates and market discount rates. Core deposit intangibles are reviewed annually, or more frequently when events or changes in circumstances occur that indicate that their carrying values may not be recoverable. If the recoverable amount of the core deposit intangibles is determined to be less than its carrying value, we would then measure the amount of impairment based on an estimate of the fair value at that time. We also evaluate whether the events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts of the intangible assets are amortized over the revised remaining useful life. Core deposit intangibles are currently amortized over an approximate ten-year period.

*Customer Relationship Intangible.* Other intangible assets also include our customer relationship intangible asset. In valuing our customer relationship intangibles, we consider variables such as assets under administration, attrition rates, and fee structure. Customer relationship intangibles are currently amortized over a 12-year period.

### Fair value of Financial Instruments

ASC Topic 820, Fair Value Measurement defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date.

The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement.

See Note 15 of our Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2023, included in this report, for a complete discussion of our use of fair value of financial assets and liabilities and their related measurement practices.

### Income Taxes

We use the asset and liability method to account for income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the income tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. Our annual tax rate is based on our income, statutory tax rates and available tax planning opportunities. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties.

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss carryforwards. We review our deferred tax positions quarterly for changes that may impact realizability. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. We use short and long‑range business forecasts to provide additional information for its evaluation of the recoverability of deferred tax assets. It is our policy to recognize interest and penalties associated with uncertain tax positions, if applicable, as components of non‑interest expense.

A deferred tax valuation allowance is established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some of the deferred tax asset will not be realized. See Note 11 of the notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, for further information on income taxes.

### Recently Issued Accounting Pronouncements

Refer to Note 2 of our Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2023, which are included in this report, for a description of recent accounting pronouncements, including the effective dates of adoption and anticipated effects on our results of operations and financial condition.

### Primary Factors Used to Evaluate Our Business

As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our consolidated financial statements as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our own historical performance, our budgeted performance, and the final condition and performance of comparable financial institutions in our region. Comparison of our financial performance against other financial institutions is impacted by the accounting for acquired non‑credit-deteriorated and purchased credit deteriorated loans.

### Results of Operations

### Overview

Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and lease receivables, including accretion income on loans, investment securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent upon our generation of non-interest income, consisting primarily of income from fees and service charges on deposits, loan servicing revenue, wealth management and trust income, ATM and interchange fees, and net gains on sales of investment securities and loans. Other factors contributing to our results of operations include our provisions for credit losses, provision for income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy and equipment expenses, and other miscellaneous operating costs.

### Selected Financial Data

*(dollars in thousands, except share and per share data)*

| Summary of Operations Common Share Data | As of or for the Three Months Ended June 30, 2023 | 2022 | As of or For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Basic earnings per common share | $0.70 | $0.55 | $1.35 | $1.14 |
| Diluted earnings per common share | $0.70 | $0.54 | $1.34 | $1.12 |
| Adjusted diluted earnings per share(1)(3) | $0.73 | $0.54 | $1.38 | $1.12 |
| Weighted-average common shares outstanding (basic) | 37,034,626 | 37,064,795 | 36,995,075 | 37,093,816 |
| Weighted-average common shares outstanding (diluted) | 37,337,906 | 37,612,268 | 37,444,381 | 37,740,682 |
| Common shares outstanding | 37,752,002 | 37,669,102 | 37,752,002 | 37,669,102 |
| Cash dividends per common share | $0.09 | $0.09 | $0.18 | $0.18 |
| Dividend payout ratio on common stock | 12.86% | 16.67% | 13.43% | 16.07% |
| Tangible book value per common share(1) | $17.43 | $16.01 | $17.43 | $16.01 |
| **Key Ratios and Performance Metrics (annualized where applicable)** |  |  |  |  |
| Net interest margin, fully taxable equivalent (1)(4) | 4.33% | 3.77% | 4.36% | 3.80% |
| Average cost of deposits | 1.70% | 0.16% | 1.43% | 0.12% |
| Efficiency ratio(2) | 52.92% | 55.29% | 52.51% | 55.12% |
| Adjusted efficiency ratio(1)(2)(3) | 51.39% | 55.29% | 51.47% | 55.12% |
| Non-interest income to total revenues(1) | 15.80% | 18.69% | 16.23% | 21.82% |
| Non-interest expense to average assets | 2.67% | 2.52% | 2.68% | 2.60% |
| Adjusted non-interest expense to average assets(1)(3) | 2.60% | 2.52% | 2.63% | 2.60% |
| Return on average stockholders' equity | 12.99% | 10.42% | 12.69% | 10.65% |
| Adjusted return on average stockholders' equity(1)(3) | 13.56% | 10.42% | 13.10% | 10.65% |
| Return on average assets | 1.41% | 1.17% | 1.37% | 1.26% |
| Adjusted return on average assets(1)(3) | 1.48% | 1.17% | 1.41% | 1.26% |
| Pre-tax pre-provision return on average assets(1) | 2.23% | 1.84% | 2.27% | 1.93% |
| Adjusted pre-tax pre-provision return on average assets(1)(3) | 2.30% | 1.84% | 2.33% | 1.93% |
| Return on average tangible common stockholders' equity(1) | 16.78% | 14.06% | 16.50% | 14.21% |
| Adjusted return on average tangible common stockholders' equity(1)(3) | 17.50% | 14.06% | 17.01% | 14.21% |
| Non-interest-bearing deposits to total deposits | 30.31% | 40.47% | 30.31% | 40.47% |
| Loans and leases held for sale and loans and leases held for investment to total deposits | 94.58% | 96.23% | 94.58% | 96.23% |
| Deposits to total liabilities | 87.51% | 84.64% | 87.51% | 84.64% |
| Deposits per branch | $155,713 | $141,799 | $155,713 | $141,799 |
| **Asset Quality Ratios** |  |  |  |  |
| Non-performing loans and leases to total loans and leases held for investment | 0.69% | 0.66% | 0.69% | 0.66% |
| ACL to total loans and leases held for investment, net before ACL | 1.66% | 1.21% | 1.66% | 1.21% |
| Net charge-offs to average total loans and leases held for investment, net before ACL - loans and leases | 0.31% | 0.24% | 0.20% | 0.15% |
| **Capital Ratios** |  |  |  |  |
| Common equity to total assets | 10.74% | 10.73% | 10.74% | 10.73% |
| Tangible common equity to tangible assets(1) | 8.87% | 8.65% | 8.87% | 8.65% |
| Leverage ratio | 10.74% | 10.34% | 10.74% | 10.34% |
| Common equity tier 1 capital ratio | 10.58% | 10.26% | 10.58% | 10.26% |
| Tier 1 capital ratio | 11.22% | 10.95% | 11.22% | 10.95% |
| Total capital ratio | 13.52% | 13.09% | 13.52% | 13.09% |

(1) Represents a non-GAAP financial measure. See “Reconciliations of non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

(2) Represents non-interest expense less amortization of intangible assets divided by net interest income and non-interest income.

(3) Calculation excludes impairment charges on assets held for sale.

(4) Represents the remaining net unaccreted discount as a result of applying the fair value acquisition accounting adjustment at the time of the business combination on acquired loans.

(5) Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt investment income on tax-exempt investment securities to a fully taxable basis, assuming a federal income tax rate of 21%.

We reported consolidated net income of $26.1 million for the three months ended June 30, 2023 compared to net income of $20.3 million for the three months ended June 30, 2022, an increase of $5.8 million. The increase in net income was primarily attributable to a $14.5 million increase in net interest income, offset by an increase in non-interest expense of $5.6 million and an increase in the provision of income taxes of $3.4 million.

The increase in net interest income during the three months ended June 30, 2023 was mainly a result of higher yields and increased average loan and leases balances. The increase in non-interest expense was primarily due to increases in legal, audit and other professional fees due to merger-related activities, and other non-interest expenses due to increased general expenses. The increase in the provision for income taxes is due to higher income before taxes.

Net income available to common stockholders was $26.1 million, or $0.70 per basic and diluted common share, for the three months ended June 30, 2023 compared to $20.3 million, or $0.55 per basic and $0.54 per diluted common share, for the three months ended June 30, 2022.

Our annualized return on average assets was 1.41% for the three months ended June 30, 2023 compared to 1.17% for the three months ended June 30, 2022. Our annualized return on average stockholders’ equity was 12.99% for the three months ended June 30, 2023 compared to 10.42% for the three months ended June 30, 2022. Our efficiency ratio was 52.92% for the three months ended June 30, 2023 compared to 55.29% for the three months ended June 30, 2022.

We reported consolidated net income of $50.1 million for the six months ended June 30, 2023 compared to net income of $42.6 million for the six months ended June 30, 2022, an increase of $7.5 million. The increase in net income was primarily attributable to a $31.5 million increase in net interest income, offset by a $9.8 million increase in non-interest expense, a $5.4 million increase in the provision for income taxes, a $4.7 million increase in the provision for credit losses, and a $4.2 million decrease in non-interest income.

The increase in net interest income during the six months ended June 30, 2023 was mainly a result of higher yields on loans and leases and increased average balances. The increase in non-interest expense was mostly due to an increase in salaries and employee benefits. The increase in provision for income taxes was due to higher income before taxes. The increase in provision for credit losses was mainly attributable to increases in specific reserves on individually evaluated loans, and loan and lease portfolio growth. The decrease in non-interest income was primarily due to decrease in net gains on sales of loans due to lower volume and average premiums.

Net income available to common stockholders was $50.1 million, or $1.35 per basic and $1.34 per diluted common share, for the six months ended June 30, 2023 compared to $42.4 million, or $1.14 per basic and $1.12 per diluted common share, for the six months ended June 30, 2022. Dividends on preferred shares were $196,000 for the six months ended June 30, 2022.

Our annualized return on average assets was 1.37% for the six months ended June 30, 2023 compared to 1.26% for the six months ended June 30, 2022. Our annualized return on average stockholders’ equity was 12.69% for the six months ended June 30, 2023 compared to 10.65% for the six months ended June 30, 2022. Our efficiency ratio was 52.51% for the six months ended June 30, 2023 compared to 55.12% for the six months ended June 30, 2022.

### Net Interest Income

Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest and dividends on interest-earning assets, which include loans, leases and investment securities we own. We incur interest expense from interest paid on interest-bearing liabilities, which include interest-bearing deposits, subordinated debt, Federal Home Loan Bank advances, junior subordinated debentures and other borrowings. To evaluate net interest income, we measure and monitor (i) yields on our loans and other interest-earning assets, (ii) the costs of our deposits and other funding sources, (iii) our net interest spread, and (iv) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets. Because non-interest-bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these non-interest-bearing sources.

We also recognize income from the accretable discounts associated with the purchase of interest-earning assets. Because of our recapitalization and acquisitions, we derive a portion of our interest income from the accretable discounts on purchase credit deteriorated and acquired non-credit-deteriorated loans. The accretion is generally recognized over the life of the loan and is impacted by changes in expected cash flows on the loan. This accretion will continue to have an impact on our net interest income as long as loans acquired with a discount at acquisition represent a meaningful portion of our interest-earning assets. As of June 30, 2023, purchased credit deteriorated loans accounted for under ASC Topic 326 represented 1.1% of our total loan and lease portfolio compared to 1.4% at December 31, 2022.

Changes in the market interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. In addition, our interest income includes the accretion of the discounts on our acquired loans, which will also affect our net interest spread, net interest margin and net interest income.

The following tables present, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis (dollars in thousands).

| ASSETS | Three Months Ended June 30, 2023 Average Balance(5) | Interest Inc / Exp | Average Yield / Rate | 2022 Average Balance(5) | Interest Inc / Exp | Average Yield / Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $135,003 | $1,041 | 3.09% | $66,034 | $74 | 0.45% |
| Loans and leases(1) | 5,535,593 | 99,134 | 7.18% | 5,009,077 | 59,674 | 4.78% |
| Taxable securities | 1,250,780 | 6,324 | 2.03% | 1,330,200 | 5,904 | 1.78% |
| Tax-exempt securities(2) | 151,205 | 980 | 2.60% | 168,567 | 1,131 | 2.69% |
| Total interest-earning assets | $7,072,581 | $107,479 | 6.10% | $6,573,878 | $66,783 | 4.07% |
| Allowance for credit losses - loans and leases | (92,804) |  |  | (59,883) |  |  |
| All other assets | 424,122 |  |  | 461,730 |  |  |
| TOTAL ASSETS | $7,403,899 |  |  | $6,975,725 |  |  |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |
| Deposits |  |  |  |  |  |  |
| Interest checking | $541,036 | $2,175 | 1.61% | 615,831 | $415 | 0.27% |
| Money market accounts | 1,534,463 | 10,799 | 2.82% | 1,307,320 | 1,194 | 0.37% |
| Savings | 575,254 | 220 | 0.15% | 664,954 | 83 | 0.05% |
| Time deposits | 1,328,679 | 11,529 | 3.48% | 627,199 | 436 | 0.28% |
| Total interest-bearing deposits | 3,979,432 | 24,723 | 2.49% | 3,215,304 | 2,128 | 0.27% |
| Other borrowings | 509,419 | 4,241 | 3.34% | 497,082 | 1,083 | 0.87% |
| Federal funds purchased | — | — | 0.00% | 2,527 | 14 | 2.32% |
| Subordinated notes and debentures | 111,255 | 2,142 | 7.72% | 110,649 | 1,694 | 6.14% |
| Total borrowings | 620,674 | 6,383 | 4.12% | 610,258 | 2,791 | 1.83% |
| Total interest-bearing liabilities | $4,600,106 | $31,106 | 2.71% | $3,825,562 | $4,919 | 0.52% |
| Non-interest-bearing demand deposits | 1,848,538 |  |  | 2,265,426 |  |  |
| Other liabilities | 148,983 |  |  | 104,085 |  |  |
| Total stockholders’ equity | 806,272 |  |  | 780,652 |  |  |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $7,403,899 |  |  | $6,975,725 |  |  |
| Net interest spread(3) |  |  | 3.39% |  |  | 3.55% |
| Net interest income, fully taxable equivalent |  | $76,373 |  |  | $61,864 |  |
| Net interest margin, fully taxable equivalent(2)(4) |  |  | 4.33% |  |  | 3.77% |
| Reconciliation to reported net interest income: |  |  |  |  |  |  |
| Less: Tax-equivalent adjustment |  | 207 | 0.01% |  | 237 | 0.01% |
| Net interest income |  | $76,166 |  |  | $61,627 |  |
| Net interest margin(4) |  |  | 4.32% |  |  | 3.76% |
| Net loan accretion impact on margin |  | $611 | 0.03% |  | $1,383 | 0.08% |

(1) Loan and lease balances are net of deferred origination fees and costs and initial direct costs. Non-accrual loans and leases are included in total loan and lease balances.

(2) Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt investment income on tax-exempt investment securities to a fully taxable basis, assuming a federal income tax rate of 21%.

(3) Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

(4) Represents net interest income (annualized) divided by total average interest-earning assets.

(5) Average balances are average daily balances.

| ASSETS | For the Six Months Ended June 30, 2023 Average Balance(5) | Interest Inc / Exp | Average Yield / Rate | 2022 Average Balance(5) | Interest Inc / Exp | Average Yield / Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $116,394 | $1,483 | 2.57% | $70,404 | $103 | 0.29% |
| Loans and leases(1) | 5,510,124 | 191,477 | 7.01% | 4,840,510 | 115,100 | 4.80% |
| Taxable securities | 1,263,010 | 12,755 | 2.04% | 1,334,747 | 11,379 | 1.72% |
| Tax-exempt securities(2) | 151,509 | 1,974 | 2.63% | 169,107 | 2,255 | 2.69% |
| Total interest-earning assets | $7,041,037 | $207,689 | 5.95% | $6,414,768 | $128,837 | 4.05% |
| Allowance for credit losses - loans and leases | (88,586) |  |  | (57,895) |  |  |
| All other assets | 422,236 |  |  | 484,728 |  |  |
| TOTAL ASSETS | $7,374,687 |  |  | $6,841,601 |  |  |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |
| Deposits |  |  |  |  |  |  |
| Interest checking | $573,342 | $4,669 | 1.64% | $597,665 | $593 | 0.20% |
| Money market accounts | 1,500,260 | 18,527 | 2.49% | 1,281,519 | 1,668 | 0.26% |
| Savings | 594,316 | 447 | 0.15% | 657,155 | 159 | 0.05% |
| Time deposits | 1,148,545 | 17,378 | 3.05% | 644,543 | 795 | 0.25% |
| Total interest-bearing deposits | 3,816,463 | 41,021 | 2.17% | 3,180,882 | 3,215 | 0.20% |
| Other borrowings | 541,249 | 10,093 | 3.76% | 394,385 | 1,478 | 0.76% |
| Federal funds purchased | 1,381 | 36 | 5.30% | 1,271 | 14 | 2.32% |
| Subordinated notes and debentures | 111,178 | 4,240 | 7.69% | 110,570 | 3,294 | 6.01% |
| Total borrowings | 653,808 | 14,369 | 4.43% | 506,226 | 4,786 | 1.91% |
| Total interest-bearing liabilities | $4,470,271 | $55,390 | 2.50% | $3,687,108 | $8,001 | 0.44% |
| Non-interest-bearing demand deposits | 1,961,945 |  |  | 2,256,778 |  |  |
| Other liabilities | 147,130 |  |  | 91,451 |  |  |
| Total stockholders’ equity | 795,341 |  |  | 806,264 |  |  |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $7,374,687 |  |  | $6,841,601 |  |  |
| Net interest spread(3) |  |  | 3.45% |  |  | 3.61% |
| Net interest income, fully taxable equivalent |  | $152,299 |  |  | $120,836 |  |
| Net interest margin, fully taxable equivalent(2)(4) |  |  | 4.36% |  |  | 3.80% |
| Reconciliation to reported net interest income: |  |  |  |  |  |  |
| Less: Tax-equivalent adjustment |  | 415 | 0.01% |  | 473 | 0.02% |
| Net interest income |  | $151,884 |  |  | $120,363 |  |
| Net interest margin(4) |  |  | 4.35% |  |  | 3.78% |
| Net loan accretion impact on margin |  | $1,340 | 0.04% |  | $2,859 | 0.09% |

(1) Loan and lease balances are net of deferred origination fees and costs and initial direct costs. Non-accrual loans and leases are included in total loan and lease balances.

(2) Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt investment income on tax-exempt investment securities to a fully taxable basis, assuming a federal income tax rate of 21%.

(3) Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

(4) Represents net interest income (annualized) divided by total average interest-earning assets.

(5) Average balances are average daily balances.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume. Yields have been calculated on a pre-tax basis. The table below is a summary of increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates (dollars in thousands):

| Interest income | Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 Increase (Decrease) Due to Volume | Rate | Total |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $532 | $435 | $967 |
| Loans and leases(1) | 9,488 | 29,972 | 39,460 |
| Taxable securities | (409) | 829 | 420 |
| Tax-exempt securities | (113) | (38) | (151) |
| Total interest income | $9,498 | $31,198 | $40,696 |
| Interest expense |  |  |  |
| Deposits |  |  |  |
| Interest checking | $(297) | $2,057 | $1,760 |
| Money market accounts | 1,620 | 7,985 | 9,605 |
| Savings | (29) | 166 | 137 |
| Time deposits | 6,089 | 5,004 | 11,093 |
| Total interest-bearing deposits | 7,383 | 15,212 | 22,595 |
| Other borrowings | 98 | 3,060 | 3,158 |
| Federal funds purchased | 1 | (15) | (14) |
| Subordinated notes and debentures | 12 | 436 | 448 |
| Total borrowings | 111 | 3,481 | 3,592 |
| Total interest expense | $7,494 | $18,693 | $26,187 |
| Net interest income, fully taxable equivalent | $2,004 | $12,505 | $14,509 |

(1) Includes loans and leases on non-accrual status.

| Interest income | Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 Increase (Decrease) Due to Volume | Rate | Total |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $584 | $796 | $1,380 |
| Loans and leases(1) | 23,329 | 53,048 | 76,377 |
| Taxable securities | (742) | 2,118 | 1,376 |
| Tax-exempt securities | (231) | (50) | (281) |
| Total interest income | $22,940 | $55,912 | $78,852 |
| Interest expense |  |  |  |
| Deposits |  |  |  |
| Interest checking | $(192) | $4,268 | $4,076 |
| Money market accounts | 2,688 | 14,171 | 16,859 |
| Savings | (38) | 326 | 288 |
| Time deposits | 7,634 | 8,949 | 16,583 |
| Total interest-bearing deposits | 10,092 | 27,714 | 37,806 |
| Other borrowings | 2,747 | 5,868 | 8,615 |
| Federal funds purchased | 3 | 19 | 22 |
| Subordinated notes and debentures | 25 | 921 | 946 |
| Total borrowings | 2,775 | 6,808 | 9,583 |
| Total interest expense | $12,867 | $34,522 | $47,389 |
| Net interest income, fully taxable equivalent | $10,073 | $21,390 | $31,463 |

(1) Includes loans and leases on non-accrual status.

Net interest income for the three months ended June 30, 2023 was $76.2 million compared to $61.6 million during the same period in 2022, an increase of $14.5 million, or 23.6%. Interest income increased $40.7 million for the three months ended June 30, 2023 compared to the same period in 2022 primarily a result of higher yields and increased average balances on loans and leases. Interest expense increased by $26.2 million for the three months ended June 30, 2023 compared to the same period in 2022 mostly due to increases in the average rates paid on deposits, change in deposit mix, and growth of deposits.

Net interest income for the six months ended June 30, 2023 was $151.9 million compared to $120.4 million during the same period in 2022, an increase of $31.5 million, or 26.2%. Interest income increased $78.9 million for six months ended June 30, 2023 compared to the same period in 2022 primarily a result of higher yields and increased average balance on loans and leases. Interest expense increased by $47.4 million for the six months ended June 30, 2023 compared to the same period in 2022 mostly due to increases in the average rates paid on deposits, change in deposit mix, and growth of deposits.

The net interest margin for the three months ended June 30, 2023 was 4.32%, an increase of 56 basis points compared to 3.76% for the three months ended June 30, 2022. The primary drivers of the increase for the three month period was an increase yields due to the rising interest rate environment, and the increase in average interest earning assets was driven by organic loan and lease growth. The net interest margin for the six months ended June 30, 2023 and 2022 was 4.35% and 3.78%, respectively.

### Provision for Credit Losses

The provision for credit losses reflects the amount required to maintain the allowance for credit losses at an appropriate level based upon management’s evaluation of the adequacy of collectively and individually evaluated loss reserves. The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management’s evaluation, is appropriate to provide coverage for current expected credit losses in the loan and lease portfolio. The ACL is increased by the provision for credit losses and is decreased by charge-offs, net of recoveries on prior charge-offs.

Provision for credit losses - loans and leases was $5.8 million for the three months ended June 30, 2023, compared to $5.9 for the three months ended June 30, 2022, a decrease of $118,000. Provision for credit losses - loans and leases was $15.6 million and $10.9 million for the six months ended June 30, 2023 and 2022, respectively, an increase of $4.7 million. The increase in provision for the comparable six month periods was driven by an increase in specific reserves related to loans individually evaluated for impairment and loan and lease growth.

### Non-Interest Income

Non-interest income was $14.3 million for the three months ended June 30, 2023 compared to $14.2 million for the three months ended June 30, 2022, an increase of $130,000, or 0.9%. The increase was primarily due to the change in the loan servicing asset revaluation and in the fair value of equity securities, offset by decrease in net gains on sales of loans. Non-interest income was $29.4 million for the six months ended June 30, 2023 compared to $33.6 million for the six months ended June 30, 2022, a decrease of $4.2 million or 12.4%. The decrease was primarily due to decreases in net gains on sales of loans.

|  | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 | QTD 2023 Compared to 2022 $ Change | % Change | YTD 2023 Compared to 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fees and service charges on deposits | $2,233 | $2,059 | $4,353 | $3,943 | $174 | 8.5% | $410 | 10.4% |
| Loan servicing revenue | 3,377 | 3,384 | 6,757 | 6,764 | (7) | (0.2)% | (7) | (0.1)% |
| Loan servicing asset revaluation | (865) | (4,636) | (209) | (5,867) | 3,771 | (81.3)% | 5,658 | (96.4)% |
| ATM and interchange fees | 1,112 | 1,131 | 2,175 | 2,180 | (19) | (1.7)% | (5) | (0.2)% |
| Net realized gains on securities available-for-sale | — | 52 | — | 52 | (52) | 0.0% | (52) | (100.0)% |
| Change in fair value of equity securities, net | 193 | (697) | 543 | (732) | 890 | NM | 1,275 | NM |
| Net gains on sales of loans | 5,704 | 9,983 | 10,852 | 20,810 | (4,279) | (42.9)% | (9,958) | (47.9)% |
| Wealth management and trust income | 1,039 | 900 | 1,963 | 1,948 | 139 | 15.4% | 15 | 0.8% |
| Other non-interest income | 1,498 | 1,985 | 3,002 | 4,489 | (487) | (24.5)% | (1,487) | (33.1)% |
| Total non-interest income | $14,291 | $14,161 | $29,436 | $33,587 | $130 | 0.9% | $(4,151) | (12.4)% |

Fees and service charges on deposits represent amounts charged to customers for banking services, such as fees on deposit accounts, and include, but are not limited to, maintenance fees, insufficient fund fees, overdraft protection fees, wire transfer fees, and other charges. Fees and service charges on deposits were $2.2 million and $2.1 million for the three months ended June 30, 2023 and 2022, respectively. Fees and service charges on deposits were $4.4 million and $3.9 million for the six months ended June 30, 2023 and 2022, respectively. Increases are due to increases in deposit balances and changes in fee structure.

While portions of the loans that we originate are sold and generate gains on sale revenue, servicing rights for the majority of loans that we sell are retained by us. In exchange for continuing to service loans that have been sold, we receive servicing revenue from a portion of the interest cash flow of the loan. We generated $3.4 million in loan servicing revenue on the sold portion of the U.S. government guaranteed loans for the three months ended June 30, 2023 and 2022. We generated $6.8 million in loan servicing revenue on the sold portion of the U.S. government guaranteed loans for the six months ended June 30, 2023 and 2022. At June 30, 2023 and 2022, the outstanding balance of guaranteed loans serviced was $1.7 billion.

Loan servicing asset revaluation represents net changes in the fair value of our servicing assets. Loan servicing asset revaluation had a downward adjustment of $865,000 and $4.6 million for the three months ended June 30, 2023 and 2022, respectively, a change of $3.8 million. Loan servicing asset revaluation had a downward adjustment of $209,000, and $5.9 million for the six months ended June 30, 2023 and 2022, respectively, a change of $5.7 million. Changes in the revaluations were mainly due to decreases in discount rates prompted by current market interest rates and premiums.

Net gains on sales of loans were $5.7 million for the three months ended June 30, 2023 compared to $10.0 million for the three months ended June 30, 2022, a decrease of $4.3 million, or 42.9%, driven by lower volume and reduced premiums in the secondary market. We sold $85.9 million of U.S. government guaranteed loans during the three months ended June 30, 2023 compared to $118.5 million during the three months ended June 30, 2022. Net gains on sales of loans were $10.9 million for the six months ended June 30, 2023 compared to $20.8 million for the six months ended June 30, 2022, a decrease of $10.0 million or 47.9%, driven by reduced premiums in the secondary market. We sold $158.1 million of U.S. government guaranteed loans during the six months ended June 30, 2023 compared to $220.8 million during the six months ended June 30, 2022.

Wealth management and trust income represents fees charged to customers for investment, trust, or wealth management services and are primarily determined by total assets under administration. Wealth management and trust income was $1.0 million for the three months ended June 30, 2023 compared to $900,000 for the three months ended June 30, 2022, an increase of $139,000 or 15.4%. Wealth management and trust income was $2.0 million for the six months ended June 30, 2023 compared to $1.9 million for the six months ended June 30, 2022, an increase of $15,000 or 0.8%. Assets under administration were $636.0 million and $502.6 million as of June 30, 2023 and 2022, respectively.

Other non-interest income was $1.5 million for the three months ended June 30, 2023 compared to $2.0 million for the three months ended June 30, 2022, a decrease of $487,000 or 24.5%. Other non-interest income was $3.0 million for the six months ended June 30, 2023 compared to $4.5 million for the six months ended June 30, 2022, a decrease of $1.5 million or 33.1%. The primary driver of the decrease was decreased interest rate swap fee income.

### Non-Interest Expense

Non-interest expense was $49.3 million for the three months ended June 30, 2023 compared to $43.8 million for the three months ended June 30, 2022, an increase of $5.6 million, or 12.7%. Non-interest expense was $98.1 million for the six months ended June 30, 2023 compared to $88.3 million for the six months ended June 30, 2022, an increase of $9.8 million, or 11.1%. These increases were primarily due to an increase in salaries and employee benefits, legal, audit and other professional fees, and other non-interest expense.

The following table presents the major components of our non-interest expense for the periods indicated (dollars in thousands):

|  | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 | QTD 2023 Compared to 2022 $ Change | % Change | YTD 2023 Compared to 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $29,642 | $27,697 | $60,036 | $56,656 | $1,945 | 7.0% | $3,380 | 6.0% |
| Occupancy and equipment expense, net | 4,404 | 4,409 | 8,848 | 9,537 | (5) | (0.1)% | (689) | (7.2)% |
| Impairment charge on assets held for sale | — | — | 20 | — | — | 0.0% | 20 | NM |
| Loan and lease related expenses | 488 | 942 | 1,451 | 51 | (454) | (48.2)% | 1,400 | NM |
| Legal, audit and other professional fees | 3,675 | 1,820 | 6,789 | 4,420 | 1,855 | 101.9% | 2,369 | 53.6% |
| Data processing | 4,272 | 3,396 | 8,055 | 6,582 | 876 | 25.8% | 1,473 | 22.4% |
| Net loss recognized on other real estate owned and other related expenses | 288 | 158 | 185 | 212 | 130 | 82.3% | (27) | (12.7)% |
| Other intangible assets amortization expense | 1,455 | 1,868 | 2,910 | 3,464 | (413) | (22.1)% | (554) | (16.0)% |
| Other non-interest expense | 5,104 | 3,483 | 9,834 | 7,406 | 1,621 | 46.5% | 2,428 | 32.8% |
| Total non-interest expense | $49,328 | $43,773 | $98,128 | $88,328 | $5,555 | 12.7% | $9,800 | 11.1% |

58

Salaries and employee benefits, the single largest component of our non-interest expense, totaled $29.6 million for the three months ended June 30, 2023 compared to $27.7 million for the three months ended June 30, 2022, an increase of $1.9 million, or 7.0%. Salaries and employee benefits, totaled $60.0 million for the six months ended June 30, 2023 compared to $56.7 million for the six months ended June 30, 2022, an increase of $3.4 million, or 6.0%. The increases were primarily a result of merit increases, lower deferred costs and increased incentive compensation.

Loan and lease related expenses were $488,000 for the three months ended June 30, 2023 compared to $942,000 for the three months ended June 30, 2022, a decrease of $454,000, or 48.2%. The decrease was primarily driven by lower reimbursable expenses associated with government guaranteed loan originations. Loan and lease related expenses were $1.5 million for the six months ended June 30, 2023, compared to $51,000 for the six months ended June 30, 2022, an increase of $1.4 million. The increase was mainly related to the recapture of government guaranteed loan expenses during the first six months of 2022.

Legal, audit, and other professional fees were $3.7 million for the three months ended June 30, 2023 compared to $1.8 million for the three months ended June 30, 2022, an increase of $1.9 million, or 101.9%. Legal, audit, and other professional fees were $6.8 million for the six months ended June 30, 2023 compared to $4.4 million for the six months ended June 30, 2022, an increase of $2.4 million or 53.6%. The increase was driven by increased legal fees for merger-related expenses.

Data processing was $4.3 million for the three months ended June 30, 2023, compared to $3.4 million for the three months ended June 30, 2022, an increase of $876,000 or 25.8%. Data processing was $8.1 million for the six months ended June 30, 2023, compared to $6.6 million for the six months ended June 30, 2022, an increase of $1.5 million or 22.4%. The increases were driven by increased software licensing costs and merger-related expenses.

Net loss recognized on other real estate owned and other related expenses was $288,000 for the three months ended June 30, 2023, compared to $158,000 for the three months ended June 30, 2022, an increase of $130,000. Net loss recognized on other real estate owned and other related expenses was $185,000 for the six months ended June 30, 2023, compared to $212,000 for the six months ended June 30, 2022, an increase of $27,000, or 12.7%. These changes were primarily due to sales and transfers of certain properties.

Other non-interest expense was $5.1 million for the three months ended June 30, 2023 compared to $3.5 million for the three months ended June 30, 2022, an increase of $1.6 million or 46.5%. Other non-interest expense was $9.8 million for the six months ended June 30, 2023 compared to $7.4 million for the six months ended June 30, 2022, an increase of $2.4 million or 32.8%. These increases were mostly due to increases in other general expenses.

Our efficiency ratio was 52.92% for the three months ended June 30, 2023 compared to 55.29% for the three months ended June 30, 2022. The change in our efficiency ratio for the three months ended June 30, 2023 was driven by an increase in our net interest income. Our adjusted efficiency ratio was 51.39% for the three months ended June 30, 2023 compared to 55.29% for the three months ended June 30, 2022. Our efficiency ratio was 52.51% for the six months ended June 30, 2023, compared to 55.12% for the six months ended June 30, 2022. The change in our efficiency ratio was due to higher net interest income. Our adjusted efficiency ratio was 51.47% for the six months ended June 30, 2023, compared to 55.12% for the six months ended June 30, 2022.

Please refer to the “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

### Income Taxes

Our provision for income taxes for the three months ended June 30, 2023 totaled $9.2 million compared to $5.8 million for the three months ended June 30, 2022, an increase of $3.4 million, or 58.5%. The increase in income tax expense was principally due to increases in net income before provision for income taxes. Our effective tax rate was 26.1% for the three months ended June 30, 2023 and 22.3% for the three months ended June 30, 2022.

Our provision for income taxes for the six months ended June 30, 2023 totaled $17.5 million compared to $12.1 million for the six months ended June 30, 2022, an increase of $5.4 million or 44.5%. The increase in income tax expense was principally due to increases in net income before provision for income taxes. Our effective tax rate was 25.9% for the six months ended June 30, 2023 and 22.2% for the six months ended June 30, 2022.

We expect our effective tax rate for 2023 to be approximately 25-27%.

### Financial Condition

### Condensed Consolidated Statements of Financial Condition Analysis

Our total assets increased by $212.7 million, or 2.9%, to $7.6 billion at June 30, 2023 compared to $7.4 billion at December 31, 2022. The increase in total assets includes an increase of $149.3 million in loans and leases, or 2.8%, from $5.4 billion at December 31, 2022 to $5.6 billion at June 30, 2023. Our originated loan and lease portfolio increased by $211.6 million and our our purchased credit deteriorated loans and acquired non-credit-deteriorated loans and leases portfolio decreased by $62.4 million. The increase in our originated portfolio was primarily attributed to growth in commercial real estate, leasing financing receivables and commercial and industrial loans. The decrease in our purchased credit deteriorated loans and acquired non-credit-deteriorated loans and leases portfolio was attributed to decreases in commercial real estate.

Total liabilities increased by $164.6 million, or 2.5%, to $6.8 billion at June 30, 2023 compared to $6.6 billion at December 31, 2022. Total deposits increased by $222.0 million, or 3.9%, driven by growth in time deposits and money market accounts, offset by a decrease in non-interest bearing deposits. Other borrowings decreased by $65.5 million, or 10.2%, mainly due to a decrease in FHLB advances.

### Investment Portfolio

Our investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity. There were no securities classified as trading in our investment portfolio as of June 30, 2023 or December 31, 2022. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest. Securities available-for-sale consist primarily of residential mortgage-backed securities, commercial mortgage-backed securities and U.S. government agencies securities.

Securities available-for-sale decreased by $48.7 million, or 4.1%, from $1.2 billion at December 31, 2022 to $1.1 billion at June 30, 2023. The decrease was mainly attributed to decreases in the fair value of available-for-sale securities and paydowns made during the six months ended June 30, 2023.

At June 30, 2023, our held-to-maturity securities portfolio consists of obligations of states, municipalities and political subdivisions. We carry these securities at amortized cost. Securities held-to-maturity were $2.2 million and $2.7 million at June 30, 2023 and at December 31, 2022, respectively.

We had no securities that had evidence of material credit losses as of June 30, 2023 or December 31, 2022.

The following table summarizes the fair value of the available-for-sale and held-to-maturity securities portfolio as of the dates presented (dollars in thousands):

| Available-for-sale | June 30, 2023 Amortized Cost | Fair Value | December 31, 2022 Amortized Cost | Fair Value |
| --- | ---: | ---: | ---: | ---: |
| U.S. Treasury Notes | $42,516 | $40,718 | $42,430 | $40,723 |
| U.S. Government agencies | 148,297 | 128,518 | 150,524 | 130,364 |
| Obligations of states, municipalities, and political subdivisions | 67,922 | 62,730 | 68,019 | 61,876 |
| Residential mortgage-backed securities |  |  |  |  |
| Agency | 673,096 | 565,680 | 707,157 | 595,796 |
| Non-agency | 126,144 | 101,880 | 130,654 | 106,249 |
| Commercial mortgage-backed securities |  |  |  |  |
| Agency | 188,308 | 152,240 | 191,172 | 157,030 |
| Corporate securities | 42,767 | 35,943 | 45,302 | 41,436 |
| Asset-backed securities | 39,785 | 37,991 | 43,085 | 40,957 |
| **Total available-for-sale** | **$1,328,835** | **$1,125,700** | **$1,378,343** | **$1,174,431** |
| **Held-to-maturity** |  |  |  |  |
| Obligations of states, municipalities, and political subdivisions | $2,158 | $2,132 | $2,705 | $2,672 |
| **Total held-to-maturity** | **$2,158** | **$2,132** | **$2,705** | **$2,672** |

60

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At June 30, 2023, we evaluated the securities which had an unrealized loss for credit losses and determined there were none. There were 286 investment securities with unrealized losses at June 30, 2023. We anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not more likely than not that we will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

The following table (dollars in thousands) set forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of June 30, 2023. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

| Available-for-sale | Maturity as of June 30, 2023 Due in One Year or Less Amortized Cost | Weighted Average Yield(1) | Due from One to Five Years Amortized Cost | Weighted Average Yield(1) | Due from Five to Ten Years Amortized Cost | Weighted Average Yield(1) | Due after Ten Years Amortized Cost | Weighted Average Yield(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. Treasury Notes | $— | 0.00% | $42,516 | 2.35% | $— | 0.00% | $— | 0.00% |
| U.S. government agencies | — | 0.00% | 47,623 | 1.41% | 93,627 | 1.91% | 7,047 | 3.97% |
| Obligations of states, municipalities, and political subdivisions | 2,954 | 2.55% | 16,650 | 2.85% | 9,965 | 3.17% | 38,353 | 2.28% |
| Residential mortgage- backed securities |  |  |  |  |  |  |  |  |
| Agency | 18 | 1.35% | 18,422 | 1.78% | 72,937 | 1.54% | 581,719 | 1.48% |
| Non-agency | — | 0.00% | — | 0.00% | — | 0.00% | 126,144 | 2.14% |
| Commercial mortgage- backed securities |  |  |  |  |  |  |  |  |
| Agency | — | 0.00% | — | 0.00% | 13,515 | 1.63% | 174,793 | 2.07% |
| Corporate securities | — | 0.00% | 11,713 | 4.60% | 31,054 | 3.70% | — | 0.00% |
| Asset-backed securities | — | 0.00% | — | 0.00% | 39,785 | 5.29% | — | 0.00% |
| **Total available-for-sale** | **$2,972** | **2.54%** | **$136,924** | **2.20%** | **$260,883** | **2.57%** | **$928,056** | **1.73%** |
| **Held-to-maturity** |  |  |  |  |  |  |  |  |
| Obligations of states, municipalities, and political subdivisions | $1,551 | 2.67% | $607 | 2.75% | $— | 0.00% | $— | 0.00% |
| **Total held-to-maturity** | **$1,551** | **2.67%** | **$607** | **2.75%** | **$—** | **0.00%** | **$—** | **0.00%** |

(1) The weighted average yields are based on amortized cost.

As of June 30, 2023, and December 31, 2022, investment securities indexed to LIBOR were $36.1 million and $43.5 million, respectively.

Total non-taxable securities classified as obligations of states, municipalities and political subdivisions were $43.7 million at June 30, 2023, a decrease of $190,000 from December 31, 2022.

There were no holdings of securities of any one issuer, other than U.S. government-sponsored entities and agencies, with total outstanding balances greater than 10% of our stockholders’ equity as of June 30, 2023 or December 31, 2022.

### Restricted Stock

As a member of the Federal Home Loan Bank system, Byline Bank is required to maintain an investment in the capital stock of the FHLB. No market exists for this stock, and it has no quoted market value. The stock is redeemable at par by the FHLB and is, therefore, carried at cost. In addition, Byline Bank owns stock of Bankers’ Bank that was acquired as part of a bank acquisition. The stock is redeemable at par and carried at cost. As of June 30, 2023 and December 31, 2022, we held $24.4 million and $28.2 million, respectively, in FHLB and Bankers’ Bank stock. We evaluate impairment of our investment in FHLB and Bankers’ Bank based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. We did not identify any indicators of impairment of FHLB and Bankers’ Bank stock as of June 30, 2023 and December 31, 2022.

### Loan and Lease Portfolio

Lending-related income is the most important component of our net interest income and is the main driver of the results of our operations. Total loans and leases at June 30, 2023 and December 31, 2022 were $5.6 billion and $5.4 billion, respectively, an increase of $149.3 million, or 2.8%. Originated loans and leases were $5.3 billion at June 30, 2023, an increase of $211.6 million, or 4.1%, compared to $5.1 billion at December 31, 2022. Purchased credit deteriorated loans and acquired non-credit-deteriorated loans and leases were $228.2 million at June 30, 2023, a decrease of $62.4 million, or 21.5%, compared to $290.5 million at December 31, 2022. The increase in our originated portfolio was primarily attributed to organic loan and lease growth, and renewals of acquired non-credit-deteriorate loans and leases that are now reflected with originated loans. The decrease in the purchased credit deteriorated and acquired non-credit-deteriorated loan and lease portfolio was driven by renewals that are reflected within originated loans, payoffs, and maturities during the period.

We strive to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral. Loans, excluding leases, are typically made to real estate, manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and operations. As of June 30, 2023, the loan portfolio included $420.7 million of unguaranteed 7(a) SBA and USDA loans with exposure to the following top three industries: 17.1% retail trade, 15.4% accommodation and food services, and 11.4% manufacturing. The following table shows our allocation of originated, purchase credit deteriorated and acquired non-credit-deteriorated loans and leases as of the dates presented (dollars in thousands):

| Originated loans and leases | June 30, 2023 Amount | % of Total | December 31, 2022 Amount | % of Total |
| --- | ---: | ---: | ---: | ---: |
| Commercial real estate | $1,806,531 | 32.4% | $1,712,152 | 31.6% |
| Residential real estate | 453,880 | 8.1% | 426,226 | 7.9% |
| Construction, land development, and other land | 387,623 | 7.0% | 438,617 | 8.1% |
| Commercial and industrial | 2,086,274 | 37.5% | 2,030,616 | 37.5% |
| Installment and other | 3,582 | 0.1% | 1,410 | 0.0% |
| Leasing financing receivables | 604,437 | 10.9% | 521,689 | 9.6% |
| Total originated loans and leases | $5,342,327 | 95.9% | $5,130,710 | 94.7% |
| **Purchased credit deteriorated loans** |  |  |  |  |
| Commercial real estate | $30,724 | 0.6% | $45,143 | 0.8% |
| Residential real estate | 26,012 | 0.5% | 32,228 | 0.6% |
| Construction, land development, and other land | 320 | 0.0% | 372 | 0.0% |
| Commercial and industrial | 1,726 | 0.0% | 2,192 | 0.0% |
| Installment and other | 129 | 0.0% | 140 | 0.0% |
| Total purchased credit deteriorated loans | $58,911 | 1.1% | $80,075 | 1.4% |
| **Acquired non-credit-deteriorated loans and leases** |  |  |  |  |
| Commercial real estate | $126,191 | 2.4% | $152,193 | 2.8% |
| Residential real estate | 25,055 | 0.4% | 31,508 | 0.6% |
| Commercial and industrial | 16,750 | 0.3% | 24,266 | 0.5% |
| Installment and other | 25 | 0.0% | 209 | 0.0% |
| Leasing financing receivables | 1,258 | 0.0% | 2,297 | 0.0% |
| Total acquired non-credit-deteriorated loans and leases | $169,279 | 3.0% | $210,473 | 3.9% |
| Total loans and leases | $5,570,517 | 100.0% | $5,421,258 | 100.0% |
| Allowance for credit losses - loans and leases | (92,665) |  | (81,924) |  |
| Total loans and leases, net of allowance for credit losses - loans and leases | $5,477,852 |  | $5,339,334 |  |

62

Loans collateralized by real estate comprised 51.3% and 52.4% of the loan and lease portfolio at June 30, 2023 and December 31, 2022, respectively. Commercial real estate loans comprised the largest portion of the real estate loan portfolio as of June 30, 2023 and December 31, 2022 and totaled $2.0 billion, or 68.7% of real estate loans and 35.2% of the total loan and lease portfolio at June 30, 2023. At December 31, 2022, commercial real estate loans totaled $1.9 billion and comprised 67.3% of real estate loans and 35.2% of the total loan and lease portfolio. Purchased credit deteriorated commercial real estate loans decreased from $45.1 million as of December 31, 2022 to $30.7 million as of June 30, 2023, a decrease of $14.4 million, or 31.9%. At June 30, 2023 and December 31, 2022, commercial real estate loans, including both owner-occupied and non-owner occupied, as a percentage of total capital were 293.3% and 313.4%, respectively. Non-owner occupied commercial real estate loans were $791.2 million and $736.7 million, or 86.8% and 86.6% of total capital, at June 30, 2023 and December 31, 2022, respectively.

Residential real estate loans totaled $504.9 million at June 30, 2023 compared to $490.0 million at December 31, 2022, an increase of $14.9 million, or 3.1%. The residential real estate loan portfolio comprised 17.7% and 17.3% of real estate loans as of June 30, 2023 and December 31, 2022, respectively, and 9.1% and 9.0% of total loans and leases at June 30, 2023 and December 31, 2022, respectively. Purchased credit deteriorated residential real estate loans decreased from $32.2 million at December 31, 2022 to $26.0 million at June 30, 2023, a decrease of $6.2 million, or 19.3%. Multifamily real estate loans were $321.5 million at and $304.2 million, or 33.5% and 35.6% of total capital, at June 30, 2023 and December 31, 2022, respectively.

Construction, land development, and other land loans totaled $387.9 million at June 30, 2023 compared to $439.0 million at December 31, 2022, an decrease of $51.0 million, or 11.6%. The construction, land development and other land loan portfolio comprised 13.6% and 15.5% of real estate loans at June 30, 2023 and December 31, 2022, respectively, and 7.0% and 8.1% of the total loan and lease portfolio at June 30, 2023 and December 31, 2022, respectively. The construction, land development and other land loan portfolio was 40.3% and 51.2% of total capital, at June 30, 2023 and December 31, 2022, respectively.

Commercial and industrial loans totaled $2.1 billion at June 30, 2023 and December 31, 2022, an increase of $47.7 million, or 2.3%. The commercial and industrial loan portfolio comprised 37.8% and 37.9% of the total loan and lease portfolio at June 30, 2023 and December 31, 2022, respectively.

Lease financing receivables comprised 10.9% and 9.7% of the loan and lease portfolio at June 30, 2023 and December 31, 2022, respectively. Total lease financing receivables were $605.7 million and $524.0 million at June 30, 2023 and December 31, 2022, respectively, an increase of $81.7 million, or 15.6%.

### Loan and Lease Portfolio Maturities and Interest Rate Sensitivity

The following table shows our loan and lease portfolio by scheduled maturity at June 30, 2023 (dollars in thousands):

| Originated loans and leases | Due in One Year or Less Fixed Rate | Floating Rate | Due after One Year Through Five Years Fixed Rate | Floating Rate | Due after Five Years Through Fifteen Years Fixed Rate | Floating Rate | Due after Fifteen Years Fixed Rate | Floating Rate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial real estate | $73,329 | $194,422 | $670,514 | $265,646 | $301,569 | $122,356 | $10,288 | $168,407 | $1,806,531 |
| Residential real estate | 13,732 | 34,940 | 122,653 | 69,208 | 42,010 | 105,293 | 63,219 | 2,825 | 453,880 |
| Construction, land development, and other land | 3,639 | 132,172 | 11,389 | 205,970 | 28,755 | 5,698 | — | — | 387,623 |
| Commercial and industrial | 30,728 | 380,616 | 312,624 | 908,941 | 155,714 | 256,706 | 32,674 | 8,271 | 2,086,274 |
| Installment and other | 304 | 700 | 730 | 1,633 | 215 | — | — | — | 3,582 |
| Leasing financing receivables | 15,570 | — | 522,488 | — | 66,379 | — | — | — | 604,437 |
| Total originated loans and leases | $137,302 | $742,850 | $1,640,398 | $1,451,398 | $594,642 | $490,053 | $106,181 | $179,503 | $5,342,327 |
| **Purchased credit deteriorated loans** |  |  |  |  |  |  |  |  |  |
| Commercial real estate | $11,524 | $- | $15,350 | $2,156 | $721 | $563 | $135 | $275 | $30,724 |
| Residential real estate | 3,323 | 48 | 9,939 | 548 | 5,933 | 470 | 4,329 | 1,422 | 26,012 |
| Construction, land development, and other land | 283 | — | 37 | — | — | — | — | — | 320 |
| Commercial and industrial | — | 78 | 1,644 | 4 | — | — | — | — | 1,726 |
| Installment and other | — | — | 24 | — | 105 | — | — | — | 129 |
| Total purchased credit deteriorated loans | $15,130 | $126 | $26,994 | $2,708 | $6,759 | $1,033 | $4,464 | $1,697 | $58,911 |
| **Acquired non-credit-deteriorated loans and leases** |  |  |  |  |  |  |  |  |  |
| Commercial real estate | 5,763 | 279 | 65,118 | 13,168 | 12,422 | 8,916 | 2,496 | 18,029 | $126,191 |
| Residential real estate | 6,261 | 2,044 | 6,967 | 737 | 128 | 4,376 | 729 | 3,813 | 25,055 |
| Commercial and industrial | 882 | 107 | 6,025 | 8,315 | 288 | 817 | — | 316 | 16,750 |
| Installment and other | 18 | — | 7 | — | — | — | — | — | 25 |
| Leasing financing receivables | 406 | — | 852 | — | — | — | — | — | 1,258 |
| Total acquired non-credit-deteriorated loans and leases | $13,330 | $2,430 | $78,969 | $22,220 | $12,838 | $14,109 | $3,225 | $22,158 | $169,279 |
| **Total loans and leases** | $165,762 | $745,406 | $1,746,361 | $1,476,326 | $614,239 | $505,195 | $113,870 | $203,358 | $5,570,517 |

At June 30, 2023, 47.4% of the loan and lease portfolio bears interest at fixed rates and 52.6% at floating rates. The expected life of our loan portfolio will differ from contractual maturities because borrowers may have the right to curtail or prepay their loans with or without penalties. Because a portion of the portfolio is accounted for under ASC 310-30, the carrying value is significantly affected by estimates and it is impracticable to allocate scheduled payments for those loans based on those estimates. Consequently, the tables presented include information limited to contractual maturities of the underlying loans. As of June 30, 2023, we had $252.9 million in loans indexed to LIBOR and $1.4 billion in loans indexed to SOFR.

### Allowance for Credit Losses - Loans and Leases

The ACL is determined by us on a quarterly basis, although we are engaged in monitoring the appropriate level of the allowance on a more frequent basis. The ACL reflects management’s estimate of current expected credit losses inherent in the loan and lease portfolios. The computation includes elements of judgment and high levels of subjectivity.

Factors considered by us include, but are not limited to, actual loss experience, peer loss experience, changes in size and risk profile of the portfolio, identification of individual problem loan and lease situations that may affect a borrower’s ability to repay, application of a reasonable and supportable forecast, and evaluation of the prevailing economic conditions. Changes in conditions may necessitate revision of the estimate in future periods.

We assess the ACL based on three categories: (i) originated loans and leases, (ii) acquired non-credit-deteriorated loans and leases, and (iii) purchased credit deteriorated loans.

Total ACL was $92.7 million at June 30, 2023 compared to $81.9 million at December 31, 2022, an increase of $10.7 million, or 13.1%. The increase was primarily due to an increase in specific reserves related to loans individually evaluated for impairment. Total ACL to total loans and leases held for investment, net before ACL, was 1.66% and 1.51% of total loans and leases at June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, approximately $38.0 million of the ACL was allocated to unguaranteed portion of SBA 7(a) and USDA loans.

The following tables present an analysis of the allowance of the loan and lease losses for the periods presented (dollars in thousands):

|  | Commercial Real Estate | Residential Real Estate | Construction, Land Development, and Other Land | Commercial and Industrial | Installment and Other | Lease Financing Receivables | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Balance at March 31, 2023 | $24,738 | $2,679 | $3,498 | $51,849 | $25 | $7,676 | $90,465 |
| Provision/(recapture) for PCD loans | 142 | (55) | (3) | 3 | — | — | 87 |
| Provision/(recapture) for acquired non-credit-deteriorated loans | 190 | (42) | — | (199) | — | (7) | (58) |
| Provision/(recapture) for originated loans | 4,027 | (101) | (1,560) | 3,357 | 17 | 698 | 6,438 |
| Total provision/(recapture) | $4,359 | $(198) | $(1,563) | $3,161 | $17 | $691 | $6,467 |
| Charge-offs for PCD loans | — | — | — | — | — | — | — |
| Charge-offs for acquired non-credit deteriorated loans | — | — | — | — | — | — | — |
| Charge-offs for originated loans | (2,945) | — | — | (2,097) | — | (462) | (5,504) |
| Total charge-offs | $(2,945) | $— | $— | $(2,097) | $— | $(462) | $(5,504) |
| Recoveries for PCD loans | — | — | — | — | — | — | — |
| Recoveries for acquired non-credit deteriorated loans | — | — | — |  | — | — | — |
| Recoveries for originated loans | 225 | 63 | — | 727 | 1 | 221 | 1,237 |
| Total recoveries | $225 | $63 | $— | $727 | $1 | $221 | $1,237 |
| Net (charge-offs) recoveries | (2,720) | 63 | — | (1,370) | 1 | (241) | (4,267) |
| **Balance at June 30, 2023** | 26,377 | 2,544 | 1,935 | 53,640 | 43 | 8,126 | 92,665 |
| **Ending ACL Balances** |  |  |  |  |  |  |  |
| PCD loans | 733 | 341 | 7 | 39 | 2 | — | 1,122 |
| Acquired non-credit-deteriorated loans | 3,061 | 96 | — | 684 | 1 | 17 | 3,859 |
| Originated loans | 22,583 | 2,107 | 1,928 | 52,917 | 40 | 8,109 | 87,684 |
| Balance at June 30, 2023 | $26,377 | $2,544 | $1,935 | $53,640 | $43 | $8,126 | $92,665 |
| Loans individually evaluated for impairment | $8,555 | $— | $— | $17,399 | $— | $— | $25,954 |
| Loans collectively evaluated for impairment | 17,822 | 2,544 | 1,935 | 36,241 | 43 | 8,126 | 66,711 |
| Balance at June 30, 2023 | $26,377 | $2,544 | $1,935 | $53,640 | $43 | $8,126 | $92,665 |
| **Loans and leases ending balance** |  |  |  |  |  |  |  |
| Loans individually evaluated for impairment | $30,750 | $— | $— | $38,485 | $— | $— | $69,235 |
| Loans collectively evaluated for impairment | 1,932,696 | 504,947 | 387,943 | 2,066,265 | 3,736 | 605,695 | 5,501,282 |
| **Total loans and leases at June 30, 2023, gross** | $1,963,446 | $504,947 | $387,943 | $2,104,750 | $3,736 | $605,695 | $5,570,517 |
| **Ratio of net charge-offs to average loans outstanding during the year** |  |  |  |  |  |  |  |
| PCD loans | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Acquired non-credit-deteriorated loans | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Originated loans | 0.19% | 0.00% | 0.00% | 0.10% | 0.00% | 0.02% | 0.31% |
| **Loans ending balance as a percentage of total loans, gross** |  |  |  |  |  |  |  |
| Loans individually evaluated for impairment | 0.55% | 0.00% | 0.00% | 0.69% | 0.00% | 0.00% | 1.24% |
| Loans collectively evaluated for impairment | 34.70% | 9.06% | 6.96% | 37.09% | 0.07% | 10.87% | 98.76% |

66

|  | Commercial Real Estate | Residential Real Estate | Construction, Land Development, and Other Land | Commercial and Industrial | Installment and Other | Lease Financing Receivables | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Balance at December 31, 2022 | $26,062 | $3,140 | $3,134 | $41,888 | $24 | $7,676 | $81,924 |
| Provision/(recapture) for PCD loans | (418) | (333) | (6) | (7) | — | — | (764) |
| Provision/(recapture) for acquired non-credit-deteriorated loans and leases | (675) | (200) | (1) | (545) | — | (17) | (1,438) |
| Provision/(recapture) for originated loans | 4,331 | (118) | (1,192) | 14,518 | 14 | 828 | 18,381 |
| Total provision/(recapture) | $3,238 | $(651) | $(1,199) | $13,966 | $14 | $811 | $16,179 |
| Charge-offs for PCD loans | — | — | — | — | — | — | — |
| Charge-offs for acquired non-credit deteriorated loans | — | — | — | — | — | — | — |
| Charge-offs for originated loans | (3,910) | (9) | — | (3,887) | — | (767) | (8,573) |
| Total charge-offs | $(3,910) | $(9) | $— | $(3,887) | $— | $(767) | $(8,573) |
| Recoveries for PCD loans | — | — | — | — | — | — | — |
| Recoveries for acquired non-credit deteriorated loans | — | — | — | — | — | — | — |
| Recoveries for originated loans | 987 | 64 | — | 1,673 | 5 | 406 | 3,135 |
| Total recoveries | $987 | $64 | $— | $1,673 | $5 | $406 | $3,135 |
| Net (charge-offs) recoveries | 2,923 | (55) | — | 2,214 | (5) | 361 | 5,438 |
| **Balance at June 30, 2023** | 26,377 | 2,544 | 1,935 | 53,640 | 43 | 8,126 | 92,665 |
| **Ending ACL Balances** |  |  |  |  |  |  |  |
| PCD loans | 733 | 341 | 7 | 39 | 2 | — | 1,122 |
| Acquired non-credit-deteriorated loans | 3,061 | 96 | — | 684 | 1 | 17 | 3,859 |
| Originated loans | 22,583 | 2,107 | 1,928 | 52,917 | 40 | 8,109 | 87,684 |
| Balance at June 30, 2023 | $26,377 | $2,544 | $1,935 | $53,640 | $43 | $8,126 | $92,665 |
| Loans individually evaluated for impairment | 8,555 | — | — | 17,399 | — | — | 25,954 |
| Loans collectively evaluated for impairment | 17,822 | 2,544 | 1,935 | 36,241 | 43 | 8,126 | 66,711 |
| Balance at June 30, 2023 | $26,377 | $2,544 | $1,935 | $53,640 | $43 | $8,126 | $92,665 |
| **Loans and leases ending balance** |  |  |  |  |  |  |  |
| Loans individually evaluated for impairment | $30,750 | $— | $— | $38,485 | $— | $— | $69,235 |
| Loans collectively evaluated for impairment | 1,932,696 | 504,947 | 387,943 | 2,066,265 | 3,736 | 605,695 | 5,501,282 |
| **Total loans and leases at June 30, 2023, gross** | $1,963,446 | $504,947 | $387,943 | $2,104,750 | $3,736 | $605,695 | $5,570,517 |
| **Ratio of net charge-offs to average loans outstanding during the year** |  |  |  |  |  |  |  |
| PCD loans | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Acquired non-credit-deteriorated loans | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Originated loans | 0.11% | 0.00% | 0.00% | 0.08% | 0.00% | 0.01% | 0.20% |
| **Loans ending balance as a percentage of total loans, gross** |  |  |  |  |  |  |  |
| Loans individually evaluated for impairment | 0.55% | 0.00% | 0.00% | 0.69% | 0.00% | 0.00% | 1.24% |
| Loans collectively evaluated for impairment | 34.70% | 9.06% | 6.96% | 37.09% | 0.07% | 10.87% | 98.76% |

67

|  | Commercial Real Estate | Residential Real Estate | Construction, Land Development, and Other Land | Commercial and Industrial | Installment and Other | Lease Financing Receivables | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Balance at March 31, 2022 | $19,706 | $2,145 | $1,116 | $33,244 | $10 | $3,237 | $59,458 |
| Provision/(recapture) for acquired impaired loans | (382) | (196) | 27 | (18) | 1 | — | (568) |
| Provision/(recapture) for acquired non-impaired loans and leases | (740) | 14 | — | (514) | — | (32) | (1,272) |
| Provision for originated loans | 1,688 | 521 | 649 | 4,384 | — | 506 | 7,748 |
| Total provision | $566 | $339 | $676 | $3,852 | $1 | $474 | $5,908 |
| Charge-offs for acquired impaired loans | (34) | — | — | (1) | — | — | (35) |
| Charge-offs for acquired non-impaired loans and leases | — | — | — | - | — | — | — |
| Charge-offs for originated loans and leases | (463) | — | — | (2,653) | — | (324) | (3,440) |
| Total charge-offs | $(497) | $— | $— | $(2,654) | $— | $(324) | $(3,475) |
| Recoveries for acquired impaired loans | 1 | 4 | — | 18 | — | — | 23 |
| Recoveries for acquired non-impaired loans and leases | — | — | — | — | — | 21 | 21 |
| Recoveries for originated loans and leases | 42 | 1 | — | 275 | — | 183 | 501 |
| Total recoveries | $43 | $5 | $— | $293 | $— | $204 | $545 |
| Less: Net charge-offs (recoveries) | 454 | (5) | — | 2,361 | — | 120 | 2,930 |
| Balance at June 30, 2022 |  |  |  |  |  |  |  |
| Acquired impaired loans | 1,240 | 809 | 28 | 386 | 3 | — | 2,466 |
| Acquired non-impaired loans and leases | 1,461 | 50 | - | 1,347 | 1 | 32 | 2,891 |
| Originated loans and leases | 17,117 | 1,630 | 1,764 | 33,002 | 7 | 3,559 | 57,079 |
| Balance at June 30, 2022 | $19,818 | $2,489 | $1,792 | $34,735 | $11 | $3,591 | $62,436 |
| **Ending ALLL balance** |  |  |  |  |  |  |  |
| **Acquired impaired loans** | $1,240 | $809 | $28 | $386 | $3 | $— | $2,466 |
| Acquired non-impaired loans and leases and originated loans individually evaluated for impairment | 6,002 | — | — | 11,337 | — | — | 17,339 |
| Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment | 12,576 | 1,680 | 1,764 | 23,012 | 8 | 3,591 | 42,631 |
| Balance at June 30, 2022 | $19,818 | $2,489 | $1,792 | $34,735 | $11 | $3,591 | $62,436 |
| **Loans and leases ending balance** |  |  |  |  |  |  |  |
| Acquired impaired loans | $60,075 | $39,902 | $1,184 | $3,232 | $157 | $— | $104,550 |
| Acquired non-impaired loans and leases and originated loans individually evaluated for impairment | 45,200 | 5,188 | 5,541 | 27,770 | — | — | 83,699 |
| **Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment** | 1,794,663 | 436,081 | 428,782 | 1,876,772 | 1,153 | 442,371 | 4,979,822 |
| **Total loans and leases at June 30, 2022, gross** | $1,899,938 | $481,171 | $435,507 | $1,907,774 | $1,310 | $442,371 | $5,168,071 |
| **Ratio of net charge-offs to average loans and leases outstanding during the period (annualized)** |  |  |  |  |  |  |  |
| Acquired impaired loans | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Acquired non-impaired loans and leases | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Originated loans and leases | 0.03% | 0.00% | 0.00% | 0.19% | 0.00% | 0.01% | 0.24% |
| **Loans and leases ending balance as a percentage of total loans and leases, gross** |  |  |  |  |  |  |  |
| Acquired impaired loans | 1.16% | 0.77% | 0.02% | 0.06% | 0.01% | 0.00% | 2.02% |
| Acquired non-impaired loans and leases and originated loans individually evaluated for impairment | 0.87% | 0.10% | 0.11% | 0.54% | 0.00% | 0.00% | 1.62% |
| Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment | 34.73% | 8.44% | 8.30% | 36.31% | 0.02% | 8.56% | 96.36% |

68

|  | Commercial Real Estate | Residential Real Estate | Construction, Land Development, and Other Land | Commercial and Industrial | Installment and Other | Lease Financing Receivables | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Balance at December 31, 2021 | $16,918 | $1,628 | $522 | $33,129 | $9 | $2,806 | $55,012 |
| Provision/(recapture) for acquired impaired loans | (537) | (203) | 25 | (21) | 1 | — | (735) |
| Provision/(recapture) for acquired non-impaired loans and leases | (1,889) | 25 | — | (1,476) | — | (53) | (3,393) |
| Provision for originated loans | 5,776 | 1,030 | 1,245 | 5,807 | 1 | 1,172 | 15,031 |
| Total provision | $3,350 | $852 | $1,270 | $4,310 | $2 | $1,119 | $10,903 |
| Charge-offs for acquired impaired loans | (34) | — | — | (1) | — | — | (35) |
| Charge-offs for acquired non-impaired loans and leases | — | — | — | — | — | — | - |
| Charge-offs for originated loans and leases | (703) | — | — | (3,116) | — | (687) | (4,506) |
| Total charge-offs | $(737) | $— | $— | $(3,117) | $— | $(687) | $(4,541) |
| Recoveries for acquired impaired loans | 1 | 6 | — | 44 | — | - | 51 |
| Recoveries for acquired non-impaired loans and leases | — | — | — | — | — | 37 | 37 |
| Recoveries for originated loans and leases | 286 | 3 | — | 369 | — | 316 | 974 |
| Total recoveries | $287 | $9 | $— | $413 | $— | $353 | $1,062 |
| Less: Net charge-offs (recoveries) | 450 | (9) | — | 2,704 | — | 334 | 3,479 |
| Acquired impaired loans | 1,240 | 809 | 28 | 386 | 3 | — | 2,466 |
| Acquired non-impaired loans and leases | 1,461 | 50 | — | 1,347 | 1 | 32 | 2,891 |
| Originated loans and leases | 17,117 | 1,630 | 1,764 | 33,002 | 7 | 3,559 | 57,079 |
| Balance at June 30, 2022 | $19,818 | $2,489 | $1,792 | $34,735 | $11 | $3,591 | $62,436 |
| **Ending ALLL balance** |  |  |  |  |  |  |  |
| Acquired impaired loans | $1,240 | $809 | $28 | $386 | $3 | $— | $2,466 |
| Acquired non-impaired loans and leases and originated loans individually evaluated for impairment | 6,002 | — | — | 11,337 | — | — | 17,339 |
| Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment | 12,576 | 1,680 | 1,764 | 23,012 | 8 | 3,591 | 42,631 |
| Balance at June 30, 2022 | $19,818 | $2,489 | $1,792 | $34,735 | $11 | $3,591 | $62,436 |
| **Loans and leases ending balance** |  |  |  |  |  |  |  |
| Acquired impaired loans | $60,075 | $39,902 | $1,184 | $3,232 | $157 | $— | $104,550 |
| Acquired non-impaired loans and leases and originated loans individually evaluated for impairment | 45,200 | 5,188 | 5,541 | 27,770 | — | — | 83,699 |
| Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment | 1,794,663 | 436,081 | 428,782 | 1,876,772 | 1,153 | 442,371 | 4,979,822 |
| Total loans and leases at June 30, 2022, gross | $1,899,938 | $481,171 | $435,507 | $1,907,774 | $1,310 | $442,371 | $5,168,071 |
| **Ratio of net charge-offs to average loans and leases outstanding during the period (annualized)** |  |  |  |  |  |  |  |
| Acquired impaired loans | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Acquired non-impaired loans and leases | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Originated loans and leases | 0.02% | 0.00% | 0.00% | 0.11% | 0.00% | 0.02% | 0.15% |
| **Loans and leases ending balance as a percentage of total loans and leases, gross** |  |  |  |  |  |  |  |
| Acquired impaired loans | 1.16% | 0.77% | 0.02% | 0.06% | 0.01% | 0.00% | 2.02% |
| Acquired non-impaired loans and leases and originated loans individually evaluated for impairment | 0.87% | 0.10% | 0.11% | 0.54% | 0.00% | 0.00% | 1.62% |
| Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment | 34.73% | 8.44% | 8.30% | 36.31% | 0.02% | 8.56% | 96.36% |

69

### Non-Performing Assets

Non-performing loans and leases include loans and leases 90 days past due and still accruing and loans and leases accounted for on a non-accrual basis. Non-performing assets consist of non-performing loans and leases plus other real estate owned. Non-performing assets at June 30, 2023 and December 31, 2022 totaled $40.5 million and $40.7 million, with the decrease driven mainly by decreases to other real estate owned. The U.S. government guaranteed portion of non-performing loans totaled $2.4 million at June 30, 2023 and $2.2 million at December 31, 2022.

Total OREO decreased from $4.7 million at December 31, 2022 to $2.3 million at June 30, 2023. The $2.4 million decrease in OREO resulted mostly from sales.

The following table sets forth the amounts of non-performing loans and leases, non-performing assets, and OREO at the dates indicated (dollars in thousands):

| Non-performing assets: | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Non-accrual loans and leases(1)(2) | $38,273 | $36,027 |
| Past due loans and leases 90 days or more and still accruing interest | — | — |
| Total non-performing loans and leases | 38,273 | 36,027 |
| Other real estate owned | 2,265 | 4,717 |
| Total non-performing assets | $40,538 | $40,744 |
| Total non-performing loans and leases as a percentage of total loans and leases | 0.69% | 0.66% |
| Total non-accrual loans and leases as a percentage of total loans and leases | 0.69% | 0.66% |
| Total non-performing assets as a percentage of total assets | 0.54% | 0.55% |
| Allowance for credit losses - loans and leases, as a percentage of non-performing loans and leases | 242.12% | 227.40% |
| Allowance for credit losses - loans and leases, as a percentage of non-accrual loans and leases | 242.12% | 227.40% |
| **Non-performing assets guaranteed by U.S. government:** |  |  |
| Non-accrual loans guaranteed | $2,472 | $2,225 |
| Past due loans 90 days or more and still accruing interest guaranteed | — | — |
| Total non-performing loans guaranteed | $2,472 | $2,225 |
| Total non-performing loans and leases not guaranteed as a percentage of total loans and leases | 0.64% | 0.62% |
| Total non-accrual loans and leases not guaranteed as a percentage of total loans and leases | 0.64% | 0.62% |
| Total non-performing assets not guaranteed as a percentage of total assets | 0.50% | 0.52% |

(1) Includes $4.0 million of non-accrual loan modifications at June 30, 2023 and $1.6 million of non-accrual restructured loans at December 31, 2022, respectively.

(2) For the six months ended June 30, 2023, $1.9 million in interest income would have been recorded had non-accrual loans been current.

### Deposits

Our loan and lease growth is funded primarily through core deposits. We gather deposits primarily through each of our 37 branch locations in the Chicago metropolitan area and one branch in Brookfield, Wisconsin. Through our branch network, online, mobile and direct banking channels, we offer a variety of deposit products including demand deposit accounts, interest-bearing products, savings accounts, and certificates of deposit. We offer competitive online, mobile, and direct banking channels. Small businesses are a significant source of low cost deposits as they value convenience, flexibility, and access to local decision makers that are responsive to their needs.

Total deposits at June 30, 2023 were $5.9 billion, representing an increase of $222.0 million, or 3.9%, compared to $5.7 billion at December 31, 2022, driven by an increase in time deposits and money market demand accounts. Non-interest-bearing deposits were $1.8 billion, or 30.3% of total deposits, at June 30, 2023, a decrease of $344.9 million, or 16.1%, compared to $2.1 billion at December 31, 2022, or 37.6% of total deposits. Core deposits were 90.3% and 92.7% of total deposits at June 30, 2023 and December 31, 2022, respectively.

The following table shows the average balance amounts and the average contractual rates paid on our deposits for the periods indicated (dollars in thousands):

|  | For Three Months Ended June 30, 2023 Average Balance | Average Rate | For Three Months Ended June 30, 2022 Average Balance | Average Rate |
| --- | ---: | ---: | ---: | ---: |
| Non-interest-bearing demand deposits | $1,848,538 | 0.00% | $2,265,426 | 0.00% |
| Interest checking | 541,036 | 1.61% | 615,831 | 0.27% |
| Money market accounts | 1,534,463 | 2.82% | 1,307,320 | 0.37% |
| Savings | 575,254 | 0.15% | 664,954 | 0.05% |
| Time deposits (below $100,000) | 797,241 | 3.82% | 254,419 | 0.21% |
| Time deposits ($100,000 and above) | 531,438 | 2.96% | 372,780 | 0.32% |
| Total | $5,827,970 | 1.70% | $5,480,730 | 0.16% |

|  | For the Six Months Ended June 30, 2023 Average Balance | Average Rate | For the Six Months Ended June 30, 2022 Average Balance | Average Rate |
| --- | ---: | ---: | ---: | ---: |
| Non-interest-bearing demand deposits | $1,961,945 | 0.00% | $2,256,778 | 0.00% |
| Interest checking | 573,342 | 1.64% | 597,665 | 0.20% |
| Money market accounts | 1,500,260 | 2.49% | 1,281,519 | 0.26% |
| Savings | 594,316 | 0.15% | 657,155 | 0.05% |
| Time deposits (below $100,000) | 663,900 | 3.35% | 260,635 | 0.19% |
| Time deposits ($100,000 and above) | 484,645 | 2.64% | 383,908 | 0.29% |
| Total | $5,778,408 | 1.43% | $5,437,660 | 0.12% |

Our average cost of deposits was 1.70% during the three months ended June 30, 2023, compared to 0.16% for the three months ended June 30, 2022. Our average cost of deposits was 1.43% during the six months ended June 30, 2023 compared to 0.12% during the six months ended June 30, 2022. This increase was principally attributed to higher rates on interest-bearing deposits as a result of the rising interest rate environment and an increase in interest bearing deposits and corresponding decrease in non-interest bearing deposits. The ratio of our average non-interest bearing deposits to total average deposits ratios was 31.7% during the three months ended June 30, 2023, compared to 41.3% during the three months ended June 30, 2022. The ratio of our average non-interest bearing deposits to total average deposits ratios was 34.0% during the six months ended June 30, 2023 compared to 41.55% during the six months ended June 30, 2022. We had $551.4 million in brokered time deposits at June 30, 2023 and $251.5 million at December 31, 2022, which represented 9.3% and 4.4% of total deposits, respectively. The increase in brokered deposits was due to increases in funding requirements. Our loan and lease to deposit ratio was 94.6% at June 30, 2023 compared to 96.0% at December 31, 2022.

The following table shows time deposits and other time deposits of $250,000 or more by time remaining until maturity as of June 30, 2023 (dollars in thousands):

|  | Less than $250,000 | $250,000 or Greater | Total | Uninsured Portion |
| --- | ---: | ---: | ---: | ---: |
| Three months or less | $228,848 | $25,904 | $254,752 | $5,903 |
| Over three months through six months | 430,216 | 82,552 | 512,768 | 34,552 |
| Over six months through 12 months | 529,140 | 94,771 | 623,911 | 27,021 |
| Over 12 months | 26,513 | 11,875 | 38,388 | 7,875 |
| Total | $1,214,717 | $215,102 | $1,429,819 | $75,351 |

71

Total estimated uninsured deposits, were $1.5 billion and $1.6 billion as of June 30, 2023 and December 31, 2022, and represented 25.9% and 28.2% of total deposits, respectively.

### Short Term Borrowings

In addition to deposits, we also utilize FHLB advances as a supplementary funding source to finance our operations. The Bank’s advances from the FHLB are collateralized by commercial, residential and multi-family real estate loans and securities. At June 30, 2023 and December 31, 2022, we had an available borrowing capacity from the FHLB of $1.9 billion, subject to the availability of collateral.

At June 30, 2023, the Company had $540.0 million of FHLB advances outstanding with a maturities ranging from July 2023 to September 2023.

The Company has the capacity to borrow funds from the discount window of the Federal Reserve System. There were no borrowings outstanding under the Federal Reserve Bank discount window line as of June 30, 2023 and December 31, 2022. The Company pledges loans as collateral for any borrowings under the Federal Reserve Bank discount window.

The following table sets forth certain information regarding our short-term borrowings at the dates and for the periods indicated (dollars in thousands):

| Federal Reserve Bank discount window borrowing: | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Average balance outstanding | $— | $— |
| Maximum outstanding at any month-end period during the year | — | — |
| Balance outstanding at end of period | — | — |
| Weighted average interest rate during period | N/A | N/A |
| Weighted average interest rate at end of period | N/A | N/A |
| **Federal Home Loan Bank advances:** |  |  |
| Average balance outstanding | $511,929 | $358,083 |
| Maximum outstanding at any month-end period during the year | 675,000 | 735,000 |
| Balance outstanding at end of period | 540,000 | 650,000 |
| Weighted average interest rate during period | 3.87% | 0.80% |
| Weighted average interest rate at end of period | 5.24% | 1.59% |
| **Federal funds purchased:** |  |  |
| Average balance outstanding | $1,381 | $1,271 |
| Maximum outstanding at any month-end period during the year | — | 45,000 |
| Balance outstanding at end of period | — | 45,000 |
| Weighted average interest rate during period | 5.30% | 2.32% |
| Weighted average interest rate at end of period | 0.00% | 2.07% |
| **Bank Term Funding Program:** |  |  |
| Average balance outstanding | $— | $— |
| Maximum outstanding at any month-end period during the year | — | — |
| Balance outstanding at end of period | — | — |
| Weighted average interest rate during period | N/A | N/A |
| Weighted average interest rate at end of period | N/A | N/A |
| **Revolving Line of Credit:** |  |  |
| Average balance outstanding | $— | $— |
| Maximum outstanding at any month-end period during the year | — | — |
| Balance outstanding at end of period | — | — |
| Weighted average interest rate during period | N/A | N/A |
| Weighted average interest rate at end of period | N/A | N/A |

72

### Customer Repurchase Agreements (Sweeps)

Securities sold under agreements to repurchase represent a demand deposit product offered to customers that sweep balances in excess of the FDIC insurance limit into overnight repurchase agreements. We pledge securities as collateral for the repurchase agreements. Securities sold under agreements to repurchase increased by $19.5 million, from $15.4 million at December 31, 2022 to $34.9 million at June 30, 2023.

### Liquidity

We manage liquidity based upon factors that include the amount of core deposits as a percentage of total deposits, the level of diversification of our funding sources, the amount of non-deposit funding used to fund assets, the availability of unused funding sources, off-balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash and liquid securities we hold and the re-pricing characteristics and maturities of our assets when compared to the re-pricing characteristics of our liabilities, the ability to securitize and sell certain pools of assets and other factors.

Our liquidity needs are primarily met by cash and investment securities positions, growth in deposits, cash flow from amortizing loan portfolios, and borrowings from the FHLB. For additional information regarding our operating, investing, and financing cash flows, see Consolidated Statements of Cash Flows in our Unaudited Interim Condensed Consolidated Financial Statements included elsewhere in this report.

As of June 30, 2023, Byline Bank had maximum borrowing capacity from the FHLB of $2.6 billion and $760.6 million from the Federal Reserve Bank (“FRB”). As of June 30, 2023, Byline Bank had open FHLB advances of $540.0 million and open letters of credit of $13.5 million, leaving us with available aggregate borrowing capacity of $1.0 billion based on collateral pledged. In addition, Byline Bank had uncommitted federal funds lines available of $135.0 million and $760.6 million available under the FRB discount window line at June 30, 2023.

As of December 31, 2022, Byline Bank had maximum borrowing capacity from the FHLB of $2.5 billion and $804.6 million from the FRB. As of December 31, 2022, Byline Bank had open advances of $625.0 million and open letters of credit of $13.5 million, leaving us with available aggregate borrowing capacity of $1.0 billion based on collateral pledged. In addition, Byline Bank had an uncommitted federal funds line available of $135.0 million and $804.6 million available under the FRB discount window line at December 31, 2022.

On October 13, 2016, we entered into a $30.0 million revolving credit agreement with a correspondent bank. Through subsequent amendments, the revolving credit agreement was reduced to $15.0 million. The amended revolving line of credit bears interest at either the SOFR plus 195 basis points or the Prime Rate minus 75 basis points, based on our election, which is required to be communicated at least three business days prior to the commencement of an interest period. If we fail to provide timely notification, the interest rate will be Prime Rate minus 75 basis points. On May 26, 2023, the Company amended the agreement with the lender, which provides for: i) the renewal of the revolving line-of-credit facility of up to $15.0 million extending its maturity date to May 26, 2024; and ii) a new term loan facility in the principal amount of up to $20.0 million with a maturity date of May 26, 2026. At June 30, 2023 and December 31, 2022, the line of credit had no outstanding balance.

There are regulatory limitations that affect the ability of Byline Bank to pay dividends to the Company. See Note 21 of our Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations.

We expect that our cash and liquidity resources will be generated by the operations of Byline Bank, which we expect to be sufficient to satisfy our liquidity and capital requirements for at least the next twelve months.

### Capital Resources

Stockholders’ equity at June 30, 2023 was $813.9 million compared to $765.8 million at December 31, 2022, an increase of $48.1 million, or 6.3%. The decrease was primarily driven by the increase in accumulated other comprehensive loss during the six months ended June 30, 2023, reflecting the unrealized losses in our available-for-sale securities portfolio; the redemption of preferred stock; and the increase of treasury shares under the share repurchase program. These were offset by an increase in retained earnings.

The Company and Byline Bank are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on our financial statements.

Under applicable bank regulatory capital requirements, each of the Company and Byline Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Byline Bank must also meet certain specific capital guidelines under the prompt corrective action framework. The capital amounts and classification are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Byline Bank to maintain minimum amounts and ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, (referred to as the “leverage ratio”), as defined under these capital requirements.

As of June 30, 2023, Byline Bank exceeded all applicable regulatory capital requirements and was considered “well-capitalized.” There have been no conditions or events since June 30, 2023 that management believes have changed Byline Bank’s classifications.

The regulatory capital ratios for the Company and Byline Bank to meet the minimum capital adequacy standards and for Byline Bank to be considered well capitalized under the prompt corrective action framework and the Company’s and Byline Bank’s actual capital amounts and ratios are set forth in the following tables as of the periods indicated (dollars in thousands):

| June 30, 2023 Total capital to risk weighted assets: | Actual Amount | Ratio | Minimum Capital Required Amount | Ratio | Required to be Considered Well Capitalized Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Company | $959,688 | 13.52% | $567,924 | 8.00% | N/A | N/A |
| Bank | 911,331 | 12.89% | 565,528 | 8.00% | $706,910 | 10.00% |
| Tier 1 capital to risk weighted assets: |  |  |  |  |  |  |
| Company | $796,359 | 11.22% | $425,943 | 6.00% | N/A | N/A |
| Bank | 823,002 | 11.64% | 424,146 | 6.00% | $565,528 | 8.00% |
| Common Equity Tier 1 (CET1) to risk weighted assets: |  |  |  |  |  |  |
| Company | $751,359 | 10.58% | $319,457 | 4.50% | N/A | N/A |
| Bank | 823,002 | 11.64% | 318,110 | 4.50% | $459,492 | 6.50% |
| Tier 1 capital to average assets: |  |  |  |  |  |  |
| Company | $796,359 | 10.74% | $296,702 | 4.00% | N/A | N/A |
| Bank | 823,002 | 11.12% | 296,100 | 4.00% | $370,125 | 5.00% |

| December 31, 2022 Total capital to risk weighted assets: | Actual Amount | Ratio | Minimum Capital Required Amount | Ratio | Required to be Considered Well Capitalized Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Company | $900,806 | 13.00% | $554,436 | 8.00% | N/A | N/A |
| Bank | 852,047 | 12.34% | 552,507 | 8.00% | $690,633 | 10.00% |
| Tier 1 capital to risk weighted assets: |  |  |  |  |  |  |
| Company | $751,887 | 10.85% | $415,827 | 6.00% | N/A | N/A |
| Bank | 778,128 | 11.27% | 414,380 | 6.00% | $552,507 | 8.00% |
| Common Equity Tier 1 (CET1) to risk weighted assets: |  |  |  |  |  |  |
| Company | $706,887 | 10.20% | $311,870 | 4.50% | N/A | N/A |
| Bank | 778,128 | 11.27% | 310,785 | 4.50% | $448,912 | 6.50% |
| Tier 1 capital to average assets: |  |  |  |  |  |  |
| Company | $751,887 | 10.29% | $292,258 | 4.00% | N/A | N/A |
| Bank | 778,128 | 10.67% | 291,741 | 4.00% | $364,676 | 5.00% |

The ratios above reflect the Company’s election to opt into the regulators’ joint 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 June 30, 2023 reflect 50% of the CECL impact and December 31, 2022 reflect 25% of the CECL impact.

The Company and Byline Bank must maintain a capital conservation buffer consisting of CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. The conservation buffers for the Company and Byline Bank exceed the minimum capital requirement as of June 30, 2023.

Provisions of state and federal banking regulations may limit, by statute, the amount of dividends that may be paid to the Company by Byline Bank without prior approval of Byline Bank’s regulatory agencies. The Company is economically dependent on the cash dividends received from Byline Bank. These dividends represent the primary cash flow from operating activities used to service obligations. For the six months ended June 30, 2023 the Company received $12.0 million in cash dividends from Byline Bank. For the year ended December 31, 2022, the Company received $24.0 million in cash dividends from Byline Bank in order to pay the required interest on its outstanding junior subordinated debentures in connection with its trust preferred securities interest, redemption of the Series B preferred stock outstanding, and to fund other Company-related activities.

On March 31, 2022, the Company redeemed all 10,438 outstanding shares of its 7.5% fixed-to-floating noncumulative perpetual preferred stock, Series B. The redemption totaled $10.6 million, including the quarterly dividend payment.

On December 12, 2022, we announced that our Board of Directors approved a new stock repurchase program authorizing the purchase of up to an aggregate of 1,250,000 shares of our common stock. The program is in effect from January 1, 2023 until December 31, 2023, unless terminated earlier. We did not purchase any shares under the stock repurchase program during the three and six months ended June 30, 2023. We purchased 232,000 shares at a cost of $5.5 million under our previously authorized stock repurchase program during the three months ended June 30, 2022, and repurchased 514,819 shares at a cost of $13.1 million during the six months ended June 30, 2022.

On July 25, 2023, the Company's Board of Directors declared a cash dividend of $0.09 per share, payable on August 22, 2023, to stockholders of record of the Company's common stock as of August 8, 2023.

### Off-Balance Sheet Items and Other Financing Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Condensed Consolidated Statements of Financial Condition. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Byline Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral is primarily obtained in the form of commercial and residential real estate (including income producing commercial properties).

Letters of credit are conditional commitments issued by Byline Bank to guarantee the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 1.00% to 18.25% and maturities up to 2050. Variable rate loan commitments have interest rates ranging from 1.75% to 14.00% and maturities up to 2048.

Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for funded instruments. We do not anticipate any material losses as a result of the commitments and standby letters of credit.

We enter into interest rate swaps that are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and its known or expected cash payments principally related to certain variable rate loans, money market accounts and variable rate borrowings. We also enter into interest rate swaps with certain qualified borrowers to facilitate the borrowers’ risk management strategies and concurrently entered into mirror-image derivatives with a third party counterparty.

We recognize derivative financial instruments at fair value regardless of the purpose or intent for holding the instrument. We record derivative assets and derivative liabilities on the Condensed Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. Because the derivative assets and liabilities recorded on the balance sheet at June 30, 2023 do not represent the amounts that may ultimately be paid under these contracts, these assets and liabilities are listed in the table below (dollars in thousands):

|  | June 30, 2023 Notional | Fair Value Asset | Liability |
| --- | ---: | ---: | ---: |
| Interest rate swaps designated as cash flow hedges | $550,000 | $45,303 | $— |
| Other interest rate derivatives | 558,316 | 18,856 | (18,773) |
| Other credit derivatives | 1,206 | — | — |

See Note 16 of our Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2023, included in this report, and Note 21 of our Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on derivatives.

### GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Some of the financial measures included in our “Selected Financial Data” are not measures of financial performance in accordance with GAAP. Our management uses the non‑GAAP financial measures set forth below in its analysis of our performance:

- “Adjusted net income” and “adjusted diluted earnings per share” exclude certain significant items, which include impairment charges on assets held for sale and merger-related expenses, adjusted for applicable income tax. Management believes the significant items are not indicative of or useful to measure the Company’s operating performance on an ongoing basis.
- “Net interest income, fully taxable-equivalent” and “net interest margin, fully taxable-equivalent” are adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. Management believes the metric provides useful comparable information to investors and that these measures may be useful for peer comparison.
- “Total revenue” is the combination of net interest income and non-interest income. Management believes the metric is an important measure of the Company's operating performance on an ongoing basis.
- “Adjusted non-interest expense” is non-interest expense excluding certain significant items, which include impairment charges on assets held for sale, and merger-related expenses.
- “Adjusted efficiency ratio” is adjusted non-interest expense less amortization of intangible assets divided by net interest income and non-interest income. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.
- “Adjusted non-interest expense to average assets” is adjusted non-interest expense divided by average assets. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.
- “Adjusted return on average stockholders’ equity” is adjusted net income divided by average stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.
- “Adjusted return on average assets” is adjusted net income divided by average assets. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.
- “Non-interest income to total revenues” is non-interest income divided by net interest income plus non-interest income. Management believes that it is standard practice in the industry to present non-interest income as a percentage of total revenue. Accordingly, management believes providing these measures may be useful for peer comparison.
- “Pre‑tax pre‑provision net income” is pre‑tax income plus the provision for credit losses. Management believes this metric demonstrates income excluding the tax provision or benefit and the provision for credit losses, and enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.
- “Adjusted pre-tax pre-provision net income” is pre-tax pre-provision net income excluding certain significant items, which include impairment charges on assets held for sale, and merger-related expenses. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.
- “Pre‑tax pre‑provision return on average assets” is pre-tax income plus the provision for credit losses, divided by average assets. Management believes this ratio demonstrates profitability excluding the tax provision or benefit and excludes the provision for credit losses. “Adjusted pre-tax pre-provision return on average assets” excludes certain significant items, which include impairment charges on assets held for sale.
- “Tangible common equity” is defined as total stockholders’ equity reduced by preferred stock and goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.
- “Tangible assets” is defined as total assets reduced by goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.
- “Tangible book value per common share” is calculated as tangible common equity, which is stockholders’ equity reduced by preferred stock and goodwill and other intangible assets, divided by total shares of common stock outstanding. Management believes this metric is important due to the relative changes in the book value per share exclusive of changes in intangible assets.
- “Tangible common equity to tangible assets” is calculated as tangible common equity divided by tangible assets, which is total assets reduced by goodwill and other intangible assets. Management believes this metric is important to investors and analysts interested in relative changes in the ratio of total stockholders’ equity to total assets, each exclusive of changes in intangible assets.
- “Tangible net income available to common stockholders” is net income available to common stockholders excluding after-tax intangible asset amortization.
- “Adjusted tangible net income available to common stockholders” is tangible net income available to common stockholders excluding certain significant items. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.
- “Return on average tangible common stockholders’ equity” is tangible net income available to common stockholders divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.
- “Adjusted return on average tangible common stockholders’ equity” is adjusted tangible net income available to common stockholders divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

We believe that these non‑GAAP financial measures provide useful information to its management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non‑GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP financial measures that we and other companies use. Management also uses these measures for peer comparison.

### Reconciliations of Non-GAAP Financial Measures

*(dollars in thousands, except per share data)*

| Net income and earnings per share excluding significant items | As of or For the Three Months Ended June 30, 2023 | 2022 | As of or For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Reported Net Income** | $26,107 | $20,283 | $50,052 | $42,594 |
| Significant items: |  |  |  |  |
| Impairment charges on assets held for sale | — | — | 20 | — |
| Merger-related expense | 1,391 | — | 1,880 | — |
| Tax benefit | (230) | — | (286) | — |
| **Adjusted Net Income** | $27,268 | $20,283 | $51,666 | $42,594 |
| **Reported Diluted Earnings per Share** | $0.70 | $0.54 | $1.34 | $1.12 |
| Significant items: |  |  |  |  |
| Impairment charges on assets held for sale | — | — | — | — |
| Merger-related expense | 0.04 | — | 0.05 | — |
| Tax benefit | (0.01) | — | (0.01) | — |
| **Adjusted Diluted Earnings per Share** | $0.73 | $0.54 | $1.38 | $1.12 |

77

*(dollars in thousands, except per share data)*

| Adjusted non-interest expense: | As of or For the Three Months Ended June 30, 2023 | 2022 | As of or For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Non-interest expense | $49,328 | $43,773 | $98,128 | $88,328 |
| Less: Impairment charges on assets held for sale | — | — | 20 | — |
| Less: Merger-related expenses | 1,391 | — | 1,880 | — |
| Adjusted non-interest expense | $47,937 | $43,773 | $96,228 | $88,328 |
| **Adjusted non-interest expense excluding amortization of intangible assets:** |  |  |  |  |
| Adjusted non-interest expense | $47,937 | $43,773 | $96,228 | $88,328 |
| Less: Amortization of intangible assets | 1,455 | 1,868 | 2,910 | 3,464 |
| Adjusted non-interest expense excluding amortization of intangible assets | $46,482 | $41,905 | $93,318 | $84,864 |
| **Pre-tax pre-provision net income:** |  |  |  |  |
| Pre-tax income | $35,339 | $26,107 | $67,577 | $54,719 |
| Add: Provision for credit losses | 5,790 | 5,908 | 15,615 | 10,903 |
| Pre-tax pre-provision net income | $41,129 | $32,015 | $83,192 | $65,622 |
| **Adjusted pre-tax pre-provision net income:** |  |  |  |  |
| Pre-tax pre-provision net income | $41,129 | $32,015 | $83,192 | $65,622 |
| Impairment charges on assets held for sale | — | — | 20 | — |
| Merger-related expenses | 1,391 | — | 1,880 | — |
| Adjusted pre-tax pre-provision net income | $42,520 | $32,015 | $85,092 | $65,622 |
| **Taxable equivalent net interest income:** |  |  |  |  |
| Net interest income | $76,166 | $61,627 | $151,884 | $120,363 |
| Add: Tax-equivalent adjustment | 207 | 237 | 415 | 473 |
| Net interest income, fully taxable equivalent | $76,373 | $61,864 | $152,299 | $120,836 |
| **Total revenues:** |  |  |  |  |
| Net interest income | $76,166 | $61,627 | $151,884 | $120,363 |
| Add: non-interest income | 14,291 | 14,161 | 29,436 | 33,587 |
| Total revenues | $90,457 | $75,788 | $181,320 | $153,950 |
| **Tangible common stockholders' equity:** |  |  |  |  |
| Total stockholders' equity | $813,942 | $765,161 | $813,942 | $765,161 |
| Less: Preferred stock | — | — | — | — |
| Less: Goodwill and other intangibles | 155,977 | 162,094 | 155,977 | 162,094 |
| Tangible common stockholders' equity | $657,965 | $603,067 | $657,965 | $603,067 |
| **Tangible assets:** |  |  |  |  |
| Total assets | $7,575,690 | $7,131,717 | $7,575,690 | $7,131,717 |
| Less: Goodwill and other intangibles | 155,977 | 162,094 | 155,977 | 162,094 |
| Tangible assets | $7,419,713 | $6,969,623 | $7,419,713 | $6,969,623 |
| **Average tangible common stockholders' equity:** |  |  |  |  |
| Average total stockholders' equity | $806,272 | $780,652 | $795,341 | $806,264 |
| Less: Average preferred stock | — | — | — | 4,959 |
| Less: Average goodwill and other intangibles | 156,766 | 163,068 | 157,469 | 163,948 |
| Average tangible common stockholders' equity | $649,506 | $617,584 | $637,872 | $637,357 |
| **Average tangible assets:** |  |  |  |  |
| Average total assets | $7,403,899 | $6,975,725 | $7,374,687 | $6,841,601 |
| Less: Average goodwill and other intangibles | 156,766 | 163,068 | 157,469 | 163,948 |
| Average tangible assets | $7,247,133 | $6,812,657 | $7,217,218 | $6,677,653 |
| **Tangible net income available to common stockholders:** |  |  |  |  |
| Net income available to common stockholders | $26,107 | $20,283 | $50,052 | $42,398 |
| Add: After-tax intangible asset amortization | 1,067 | 1,361 | 2,133 | 2,524 |
| Tangible net income available to common stockholders | $27,174 | $21,644 | $52,185 | $44,922 |
| **Adjusted tangible net income available to common stockholders:** |  |  |  |  |
| Tangible net income available to common stockholders | $27,174 | $21,644 | $52,185 | $44,922 |
| Impairment charges on assets held for sale | — | — | 20 | — |
| Merger-related expenses | 1,391 | — | 1,880 | — |
| Tax benefit on significant items | (230) | — | (286) | — |
| Adjusted tangible net income available to common stockholders | $28,335 | $21,644 | $53,799 | $44,922 |

78

*(dollars in thousands, except share and per share data)*

| Pre-tax pre-provision return on average assets: | As of or For the Three Months Ended June 30, 2023 | 2022 | As of or For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Pre-tax pre-provision net income | $41,129 | $32,015 | $83,192 | $65,622 |
| Average total assets | 7,403,899 | 6,975,725 | 7,374,687 | 6,841,601 |
| Pre-tax pre-provision return on average assets | 2.23% | 1.84% | 2.27% | 1.93% |
| **Adjusted pre-tax pre-provision return on average assets:** |  |  |  |  |
| Adjusted pre-tax pre-provision net income | $42,520 | $32,015 | $85,092 | $65,622 |
| Average total assets | 7,403,899 | 6,975,725 | 7,374,687 | 6,841,601 |
| Adjusted pre-tax pre-provision return on average assets: | 2.30% | 1.84% | 2.33% | 1.93% |
| **Net interest margin, fully taxable equivalent** |  |  |  |  |
| Net interest income, fully taxable equivalent | $76,373 | $61,864 | $152,299 | $120,836 |
| Total average interest-earning assets | 7,072,581 | 6,573,878 | 7,041,037 | 6,414,768 |
| Net interest margin, fully taxable equivalent | 4.33% | 3.77% | 4.36% | 3.80% |
| **Non-interest income to total revenues:** |  |  |  |  |
| Non-interest income | $14,291 | $14,161 | $29,436 | $33,587 |
| Total revenues | 90,457 | 75,788 | 181,320 | 153,950 |
| Non-interest income to total revenues | 15.80% | 18.69% | 16.23% | 21.82% |
| **Adjusted non-interest expense to average assets:** |  |  |  |  |
| Adjusted non-interest expense | $47,937 | $43,773 | $96,228 | $88,328 |
| Average total assets | 7,403,899 | 6,975,725 | 7,374,687 | 6,841,601 |
| Adjusted non-interest expense to average assets | 2.60% | 2.52% | 2.63% | 2.60% |
| **Adjusted efficiency ratio:** |  |  |  |  |
| Adjusted non-interest expense excluding amortization of intangible assets | $46,482 | $41,905 | $93,318 | $84,864 |
| Total revenues | 90,457 | 75,788 | 181,320 | 153,950 |
| Adjusted efficiency ratio | 51.39% | 55.29% | 51.47% | 55.12% |
| **Adjusted return on average assets:** |  |  |  |  |
| Adjusted net income | $27,268 | $20,283 | $51,666 | $42,594 |
| Average total assets | 7,403,899 | 6,975,725 | 7,374,687 | 6,841,601 |
| Adjusted return on average assets | 1.48% | 1.17% | 1.41% | 1.26% |
| **Adjusted return on average stockholders' equity:** |  |  |  |  |
| Adjusted net income | $27,268 | $20,283 | $51,666 | $42,594 |
| Average stockholders' equity | 806,272 | 780,652 | 795,341 | 806,264 |
| Adjusted return on average stockholders' equity | 13.56% | 10.42% | 13.10% | 10.65% |
| **Tangible common equity to tangible assets:** |  |  |  |  |
| Tangible common equity | $657,965 | $603,067 | $657,965 | $603,067 |
| Tangible assets | 7,419,713 | 6,969,623 | 7,419,713 | 6,969,623 |
| Tangible common equity to tangible assets | 8.87% | 8.65% | 8.87% | 8.65% |
| **Return on average tangible common stockholders' equity:** |  |  |  |  |
| Tangible net income available to common stockholders | $27,174 | $21,644 | $52,185 | $44,922 |
| Average tangible common stockholders' equity | 649,506 | 617,584 | 637,872 | 637,357 |
| Return on average tangible common stockholders' equity | 16.78% | 14.06% | 16.50% | 14.21% |
| **Adjusted return on average tangible common stockholders' equity:** |  |  |  |  |
| Adjusted tangible net income available to common stockholders | $28,335 | $21,644 | $53,799 | $44,922 |
| Average tangible common stockholders' equity | 649,506 | 617,584 | 637,872 | 637,357 |
| Adjusted return on average tangible common stockholders' equity | 17.50% | 14.06% | 17.01% | 14.21% |
| **Tangible book value per share:** |  |  |  |  |
| Tangible common equity | $657,965 | $603,067 | $657,965 | $603,067 |
| Common shares outstanding | 37,752,002 | 37,669,102 | 37,752,002 | 37,669,102 |
| Tangible book value per share | $17.43 | $16.01 | $17.43 | $16.01 |

79

## Market risk

As filed, 6,432 characters.

Our primary market risk is interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates.

We seek to measure and manage the potential impact of interest rate risk. Interest rate risk occurs when interest-earning assets and interest-bearing liabilities mature or re-price at different times, on a different basis or in unequal amounts. Interest rate risk also arises when our assets, liabilities and off-balance sheet contracts each respond differently to changes in interest rates, including as a result of explicit and implicit provisions in agreements related to such assets and liabilities and in off-balance sheet contracts that alter the applicable interest rate and cash flow characteristics as interest rates change.

We are also exposed to interest rate risk through the retained portion of the U.S. government guaranteed loans we make and the related servicing rights. Our U.S. government guaranteed loan portfolio is comprised primarily of SBA 7(a) loans, virtually all of which are quarterly or monthly adjustable with the prime rate. The SBA portfolio reacts differently in a rising rate environment than our other non-guaranteed portfolios. Generally, when interest rates rise, the prepayments in the SBA portfolio tend to increase.

Our management of interest rate risk is overseen by our Board of Directors and management asset liability committees based on a risk management infrastructure approved by our Board of Directors that outlines reporting and measurement requirements. Our risk management infrastructure also requires a periodic review of all key assumptions used, such as identifying appropriate interest rate scenarios, setting loan prepayment rates based on historical analysis, non-interest-bearing and interest-bearing demand deposit lives based on historical analysis and the targeted investment term of capital. The committees closely monitor our interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions and attempts to structure the loan and investment portfolios and funding sources to maximize earnings within acceptable risk tolerances.

We manage the interest rate risk associated with our interest-bearing liabilities by managing the interest rates and tenors associated with our borrowings from the FHLB, and deposits from our customers that we rely on for funding. We manage the interest rate risk associated with our interest-earning assets by managing the interest rates and tenors associated with our investment and loan portfolios, from time to time purchasing and selling investment securities.

We utilize interest rate derivatives to hedge our interest rate exposure on commercial loans when it meets our clients’ and Byline Bank’s needs. Typically, customer interest rate swaps are for terms of more than five years. As of June 30, 2023, we had a notional amount of $1.1 billion of interest rate swaps outstanding, which includes customer swaps and those on Byline Bank’s balance sheet. The overall effectiveness of our hedging strategies is subject to market conditions, the quality of our execution, the accuracy of our valuation assumptions, the associated counterparty credit risk and changes in interest rates.

We do not engage in speculative trading activities relating to interest rates, foreign exchange rates, commodity prices, equities or credit.

### Evaluation of Interest Rate Risk

We use a net interest income simulation model to measure and evaluate potential changes in our net interest income. We run various hypothetical interest rate scenarios at least quarterly and compare these results against a scenario with no changes in interest rates. Our net interest income simulation model incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results such as: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market-rate-sensitive instruments on and off balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) the effect of interest rate limitations in our assets, such as floors and caps, (6) the effect of our interest rate swaps and (7) overall growth and repayment rates and product mix of assets and liabilities. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.

Potential changes to our net interest income in hypothetical rising and declining rate scenarios calculated as of June 30, 2023 is presented below (dollars in thousands). For the dynamic balance sheet and rate shift scenarios, we assume interest rates follow a forward yield curve and then increase it by 1/12th of the total change in rates each month for 12 months.

| Twelve Months Ending Year 1 | Immediate Shifts +300 basis points | +200 basis points | +100 basis points | -100 basis points | -200 basis points | -300 basis points |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Percentage change | 16.9% | 11.7% | 5.8% | (4.1)% | (10.4)% | (16.9)% |
| Dollar amount | $395,733 | $377,986 | $358,154 | $324,617 | $303,178 | $281,213 |
| **Year 2** |  |  |  |  |  |  |
| Percentage change | 19.9% | 13.6% | 6.7% | (5.2)% | (13.2)% | (21.2)% |
| Dollar amount | $447,307 | $423,624 | $398,025 | $353,439 | $323,721 | $293,754 |

80

For dynamic balance sheet and rate shifts, a gradual shift downward of 100 basis points would result in a 3.0% decrease in net interest income, and a gradual shift upwards of 100 and 200 basis points would result in 3.3% and 6.5% increases to net interest income, respectively, over the next 12 months.

The Bank's aggregate interest rate risk exposure is monitored and managed within board-approved policy limits. The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted including the timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

## Controls and procedures

As filed, 1,576 characters.

The Company’s management, including our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2023, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

## Risk factors

As filed, 222 characters.

There have been no material changes to the risk factors previously disclosed in the “Risk Factors” section included in our Form 10-K for our fiscal year ended December 31, 2022 that was filed with the SEC on March 7, 2023.

Filed Aug 3, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-038065. Last ingested by Listed: Nov 2, 2026, 14:56 ET. No prices; not investment advice.