by-10q_20180630.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value, 36,218,955 shares outstanding as of August 10, 2018

	(Unaudited)
(dollars in thousands, except share and per share data)	June 30, 2018			December 31, 2017
ASSETS
Cash and due from banks	$	25,299		$	19,404
Interest bearing deposits with other banks		127,417			38,945
Cash and cash equivalents		152,716			58,349
Securities available-for-sale, at fair value		757,825			583,236
Securities held-to-maturity, at amortized cost (fair value June 30, 2018—$104,411, December 31, 2017—$117,277)		106,613			117,163
Restricted stock, at cost		18,977			16,343
Loans held for sale		5,822			5,212
Loans and leases:
Loans and leases		3,348,692			2,277,492
Allowance for loan and lease losses		(19,687	)		(16,706	)
Net loans and leases		3,329,005			2,260,786
Servicing assets, at fair value		21,587			21,400
Accrued interest receivable		10,670			7,670
Premises and equipment, net		107,300			95,224
Assets held for sale		11,428			9,779
Other real estate owned, net		6,402			10,626
Goodwill		127,536			54,562
Other intangible assets, net		37,139			16,756
Bank-owned life insurance		5,886			5,718
Deferred tax assets, net		48,936			47,376
Due from counterparty		25,569			39,824
Other assets		31,869			16,106
Total assets	$	4,805,280		$	3,366,130
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Non-interest bearing demand deposits	$	1,193,057		$	760,887
Interest bearing deposits:
NOW, savings accounts, and money market accounts		1,391,568			973,685
Time deposits		1,060,252			708,757
Total deposits		3,644,877			2,443,329
Accrued interest payable		2,562			1,306
Line of credit		—			—
Federal Home Loan Bank advances		420,000			361,506
Securities sold under agreements to repurchase		24,653			31,187
Junior subordinated debentures issued to capital trusts, net		36,452			27,647
Accrued expenses and other liabilities		60,330			42,577
Total liabilities		4,188,874			2,907,552
STOCKHOLDERS’ EQUITY
Preferred stock		10,438			10,438
Common stock, voting $0.01 par value at June 30, 2018 and December 31, 2017; 150,000,000 shares authorized at June 30, 2018 and December 31, 2017; 36,218,955 shares issued and outstanding at June 30, 2018 and 29,317,298 issued and outstanding at December 31, 2017		360			292
Additional paid-in capital		544,686			391,586
Retained earnings		71,257			61,349
Accumulated other comprehensive loss, net of tax		(10,335	)		(5,087	)
Total stockholders’ equity		616,406			458,578
Total liabilities and stockholders’ equity	$	4,805,280		$	3,366,130

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(dollars in thousands, except share and per share data)	2018		2017			2018		2017
INTEREST AND DIVIDEND INCOME
Interest and fees on loans and leases	$	39,627	$	29,181		$	73,281	$	57,577
Interest on taxable securities		4,572		3,703			8,627		7,493
Interest on tax-exempt securities		229		151			403		284
Other interest and dividend income		413		280			672		449
Total interest and dividend income		44,841		33,315			82,983		65,803
INTEREST EXPENSE
Deposits		3,745		1,923			6,243		3,406
Federal Home Loan Bank advances		1,360		772			2,718		1,432
Subordinated debentures and other borrowings		680		809			1,271		1,616
Total interest expense		5,785		3,504			10,232		6,454
Net interest income		39,056		29,811			72,751		59,349
PROVISION FOR LOAN AND LEASE LOSSES		3,956		3,515			9,071		5,406
Net interest income after provision for loan and lease losses		35,100		26,296			63,680		53,943
NON-INTEREST INCOME
Fees and service charges on deposits		1,456		1,348			2,768		2,567
Net servicing fees		459		1,076			1,022		1,995
ATM and interchange fees		1,141		1,499			2,359		2,847
Net gains on sales of securities available-for-sale		4		—			4		8
Net gains on sales of loans		9,723		8,445			17,199		16,527
Wealth management and trust income		192		—			192		—
Other non-interest income		1,527		825			2,386		1,557
Total non-interest income		14,502		13,193			25,930		25,501
NON-INTEREST EXPENSE
Salaries and employee benefits		19,244		17,226			37,522		33,828
Occupancy expense, net		4,499		3,485			8,254		7,224
Equipment expense		558		616			1,161		1,179
Loan and lease related expenses		1,471		801			2,871		1,678
Legal, audit and other professional fees		4,418		1,090			6,269		2,761
Data processing		10,371		2,447			12,672		4,856
Net loss (gain) recognized on other real estate owned and other related expenses		472		141			471		(429	)
Regulatory assessments		366		384			607		568
Other intangible assets amortization expense		1,130		769			1,897		1,538
Advertising and promotions		347		318			596		607
Telecommunications		466		396			884		814
Other non-interest expense		2,428		1,576			4,485		3,476
Total non-interest expense		45,770		29,249			77,689		58,100
INCOME BEFORE PROVISION FOR INCOME TAXES		3,832		10,240			11,921		21,344
PROVISION FOR INCOME TAXES		1,064		4,094			2,385		8,638
NET INCOME		2,768		6,146			9,536		12,706
Dividends on preferred shares		198		10,697			391		10,886
INCOME AVAILABLE (LOSS ATTRIBUTABLE) TO COMMON STOCKHOLDERS	$	2,570	$	(4,551	)	$	9,145	$	1,820
EARNINGS (LOSS) PER COMMON SHARE
Basic	$	0.08	$	(0.18	)	$	0.30	$	0.07
Diluted	$	0.08	$	(0.18	)	$	0.29	$	0.07

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2018			2017			2018			2017
Net income	$	2,768		$	6,146		$	9,536		$	12,706
Securities available-for-sale
Unrealized holding gains (losses) arising during the period		(2,556	)		2,427			(11,408	)		3,447
Reclassification adjustments for net gains included in net income		(4	)		—			(4	)		(8	)
Tax effect		782			(1,264	)		3,177			(1,890	)
Net of tax		(1,778	)		1,163			(8,235	)		1,549
Cash flow hedges
Unrealized holding gains (losses) arising during the period		1,562			(1,343	)		5,632			(1,425	)
Reclassification adjustments for net gains (losses) included in net income		(374	)		214			(435	)		267
Tax effect		(331	)		454			(1,447	)		465
Net of tax		857			(675	)		3,750			(693	)
Total other comprehensive income (loss)		(921	)		488			(4,485	)		856
Comprehensive income	$	1,847		$	6,634		$	5,051		$	13,562

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

												Additional						Accumulated Other			Total
	Preferred Stock						Common Stock					Paid-In						Comprehensive			Stockholders’
(dollars in thousands, except share data)	Shares			Amount			Shares			Amount		Capital			Retained Earnings			Income (Loss)			Equity
Balance, January 1, 2017		25,441		$	25,441			24,616,706		$	—	$	313,552		$	50,933		$	(7,268	)	$	382,658
Net income		—			—			—			—		—			12,706			—			12,706
Other comprehensive income, net of tax		—			—			—			—		—			—			856			856
Issuance of common stock in connection with merger		—			—			—			246		(246	)		—			—			—
Repurchase of preferred stock		(15,003	)		(15,003	)		—			—		—			—			—			(15,003	)
Issuance of common stock, net of issuance costs		—			—			4,630,194			46		76,783			—			—			76,829
Cash dividends declared on preferred stock		—			—			—			—		—			(10,886	)		—			(10,886	)
Share-based compensation expense		—			—			—			—		571			—			—			571
Balance, June 30, 2017		10,438		$	10,438			29,246,900		$	292	$	390,660		$	52,753		$	(6,412	)	$	447,731
Balance, January 1, 2018		10,438		$	10,438			29,317,298		$	292	$	391,586		$	61,349		$	(5,087	)	$	458,578
Net income		—			—			—			—		—			9,536			—			9,536
Other comprehensive loss, net of tax		—			—			—			—		—			—			(4,485	)		(4,485	)
Issuance of common stock upon exercise of stock options		—			—			94,750			1		1,134			—			—			1,135
Issuance of common stock and stock options due to business combination, net of issuance costs		—			—			6,682,850			67		151,208			—			—			151,275
Issuance of common stock in connection with restricted stock awards		—			—			126,157			—		—			—			—			—
Forfeiture of restricted stock awards		—			—			(2,100	)		—		—			—			—			—
Reclassification of certain income tax effects from accumulated other comprehensive income		—			—			—			—		—			763			(763	)		—
Cash dividends declared on preferred stock		—			—			—			—		—			(391	)		—			(391	)
Share-based compensation expense		—			—			—			—		758			—			—			758
Balance, June 30, 2018		10,438		$	10,438			36,218,955		$	360	$	544,686		$	71,257		$	(10,335	)	$	616,406

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

	Six Months Ended
	June 30,
(dollars in thousands)	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,536		$	12,706
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan and lease losses		9,071			5,406
Impairment loss on assets held for sale		117			—
Depreciation and amortization of premises and equipment		2,608			2,608
Net amortization of securities		1,876			2,361
Net gains on sales of securities available-for-sale		(4	)		(8	)
Net gains on sales of assets held for sale		(162	)		(162	)
Net gains on sales of loans		(17,199	)		(16,527	)
Net proceeds from mortgage loans sold		—			151
Originations of government guaranteed loans		(175,120	)		(134,333	)
Proceeds from government guaranteed loans sold		204,807			150,688
Accretion of premiums and discounts on acquired loans, net		(13,660	)		(12,421	)
Net change in servicing assets		(187	)		(333	)
Net valuation adjustments on other real estate owned		60			320
Net losses (gains) on sales of other real estate owned		109			(1,464	)
Amortization of intangible assets		1,897			1,538
Amortization of time deposit premium		(84	)		(680	)
Amortization of Federal Home Loan Bank advances premium		(19	)		(104	)
Accretion of junior subordinated debentures discount		308			383
Share-based compensation expense		758			571
Deferred tax provision		2,225			7,547
Increase in cash surrender value of bank owned life insurance		(168	)		(172	)
Net gain on death benefit of bank owned life insurance		—			(313	)
Changes in assets and liabilities:
Accrued interest receivable		(77	)		(107	)
Other assets		(3,803	)		1,165
Accrued interest payable		686			(865	)
Accrued expenses and other liabilities		22,530			10,895
Net cash provided by operating activities		46,105			28,850
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-sale		(96,086	)		(17,499	)
Proceeds from maturities and calls of securities available-for-sale		6,630			1,182
Proceeds from paydowns of securities available-for-sale		29,462			34,562
Proceeds from sales of securities available-for-sale		544			8
Proceeds from paydowns of securities held-to-maturity		9,601			10,112
Purchases of Federal Home Loan Bank stock		(13,998	)		(5,760	)
Federal Home Loan Bank stock repurchases		12,724			8,775
Proceeds from other loans sold		—			9,984
Net change in loans and leases		(158,258	)		(13,823	)
Purchases of premises and equipment		(537	)		(1,604	)
Proceeds from sales of assets held for sale		1,041			2,752
Proceeds from sales of other real estate owned		4,678			7,520
Net cash received in acquisition of business		20,374			—
Net cash (used in) provided by investing activities		(183,825	)		36,209

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

	Six Months Ended
	June 30,
(dollars in thousands)	2018			2017
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	$	179,364		$	50,884
Proceeds from Federal Home Loan Bank advances		2,941,900			1,290,000
Repayments of Federal Home Loan Bank advances		(2,883,387	)		(1,384,000	)
Repayments of line of credit		—			(4,500	)
Net (decrease) increase in securities sold under agreements to repurchase		(6,534	)		15,180
Dividends paid on preferred stock		(391	)		(385	)
Proceeds from issuance of common stock upon exercise of stock options		1,135			—
Proceeds from issuance of preferred stock		—			1,050
Net cash provided by (used in) financing activities		232,087			(31,771	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		94,367			33,288
CASH AND CASH EQUIVALENTS, beginning of period		58,349			46,533
CASH AND CASH EQUIVALENTS, end of period	$	152,716		$	79,821
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	9,081		$	7,720
Cash payments during the period for taxes	$	2,752		$	1,100
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in fair value of available-for-sale securities, net of tax	$	(8,235	)	$	1,549
Change in fair value of cash flow hedges, net of tax	$	3,750		$	(693	)
Delayed payments of mortgage-backed securities	$	621		$	834
Transfers of loans to loans held for sale	$	—		$	10,061
Transfers of loans to other real estate owned	$	1,067		$	2,490
Internally financed sale of other real estate owned	$	444		$	—
Transfers of land and premises to assets held for sale	$	2,531		$	1,508
Transfers of premises and equipment to other assets	$	2		$	671
Transfers of other assets to assets held for sale	$	16		$	—
Due from carrier for payment of life insurance death benefit	$	—		$	1,399
Due from counterparty	$	5,582		$	19,257
Due from broker for issuance of common stock, net of underwriters' discount	$	—		$	82,699
Due to preferred stockholders for repurchase of Series A preferred stock	$	—		$	(25,504	)
Due to broker	$	10,029		$	10,059
Total assets acquired from acquisition	$	1,142,766		$	—
Total liabilities assumed from acquisition	$	1,036,609		$	—
Common stock and stock options issued due to acquisition of business	$	152,127		$	—

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

These unaudited interim condensed consolidated financial statements include the accounts of Byline Bancorp, Inc., a Delaware corporation (the “Company,” “we,” “us,” “our”), a bank holding company whose principal activity is the ownership and management of its Illinois state chartered subsidiary bank, Byline Bank (the “Bank”), based in Chicago, Illinois.

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). In preparing these financial statements, the Company has evaluated events and transactions subsequent to June 30, 2018 for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Consolidated Financial Statements for the years ended December 31, 2017, 2016, and 2015.

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 855, “Subsequent Events,” the Company’s management has evaluated subsequent events for potential recognition or disclosure through the date of the issuance of these consolidated financial statements. No subsequent events were identified that would have required a change to the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications did not result in any changes to previously reported net income or stockholders’ equity.

During the three months ended March 31, 2018, we revised our previously issued 2017 consolidated financial statements to properly record a deferred tax liability associated with the bad debt recapture assumed from the acquisition of Ridgestone Financial Services, Inc. (“Ridgestone”) and its subsidiaries on October 14, 2016. The acquisition of Ridgestone was accounted for using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations (“ASC Topic 805”). Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities involves significant judgment regarding methods and assumptions used to calculate estimated fair values. The fair value adjustments associated with this transaction were finalized during the fourth quarter of 2017.

We evaluated the effect of the error to our previously issued consolidated financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99 and No. 108, and, based upon quantitative and qualitative factors, determined that the error was not material to our previously issued consolidated financial statements. Accordingly, we have reflected the change in 2017 and revised our Consolidated Statements of Financial Condition disclosed herein. Consolidated financial statements for periods not presented herein will be revised, as applicable, as they are included in future filings.

All financial information presented in the accompanying notes to these consolidated financial statements was revised to reflect the change. The change did not affect net income or stockholders’ equity for the periods impacted.

The following table presents the effect of the aforementioned revisions to our Consolidated Statements of Financial Condition as of December 31, 2017:

The following reflect recent accounting pronouncements that have been adopted or are pending adoption by the Company. As the Company qualifies as an emerging growth company and has elected the extended transition period for complying with new or revised accounting pronouncements, it is not subject to new or revised accounting standards applicable to public companies during the extended transition period. The accounting pronouncements pending adoption below reflect effective dates for the Company as an emerging growth company with the extended transition period.

Revenue from Contracts with Customers In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, deferred by ASU No. 2015-14 and clarifying standards, Revenue from Contracts with Customers, which creates Topics 606 and 610 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Under the terms of ASU No. 2015-14 the standard is effective for interim and annual periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company is currently evaluating the provisions of ASU No. 2014-09 to determine the potential impact the standard will have on the Company’s Consolidated Financial Statements. As a financial institution, the Company’s largest component of revenue, interest income, is excluded from the scope of this ASU. The Company is currently evaluating which, if any, of its sources of non-interest income will be impacted by this ASU. Assuming the Company remains an emerging growth company, the Company expects to adopt this new guidance on January 1, 2019, with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant. In April 2016, FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing. The amendments in this ASU do not change the core principle of the guidance in Topic 606. Rather, the amendments in this ASU clarify the following two aspects of Topic 606: (1) identifying performance obligations and (2) licensing implementation guidance, while retaining the related principles for those areas. The amendments in this ASU affect the guidance in ASU 2014-09, discussed above, which is not yet effective. The effective date and transition requirements for the amendments in this ASU are the same as the effective date and transition requirements in Topic 606, Revenues from Contracts with Customers. The Company is evaluating the provisions of this ASU in conjunction with ASU No. 2014-09 to determine the potential impact Topic 606 and its amendments will have on the Company’s Consolidated Financial Statements.

In May 2016, FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, amending ASC Topic 606, Revenue from Contracts with Customers. The amendments in this ASU do not change the core principle of the guidance in Topic 606. Rather, the amendments in this ASU affect only several narrow aspects of Topic 606. The amendments in this ASU affect the guidance in ASU 2014-09, discussed above, which is not yet effective. The effective date and transition requirements for the amendments in this ASU are the same as the effective date and transition requirements in Topic 606. The Company is evaluating the provisions of this ASU in conjunction with ASU No. 2014-09 to determine the potential impact Topic 606 and its amendments will have on the Company’s Consolidated Financial Statements.

In November 2017, FASB issued ASU No. 2017-14, amending ASC Topic 606, Revenue from Contracts with Customers. The ASU amends the codification to incorporate additional previously issued guidance from the SEC. The SEC issued SAB 116 to bring existing SEC staff guidance into conformity with the FASB’s adoption of and amendments to ASC Topic 606, Revenue from Contracts with Customers. The SAB modified SAB Topic 13, Revenue Recognition. ASU 2017-14 supersedes various SEC paragraphs and amends an SEC paragraph pursuant to the issuance of SAB 116. The Company is evaluating the provisions of this ASU in conjunction with ASU No. 2014‑09 to determine the potential impact Topic 606 and its amendments will have on the Company’s Consolidated Financial Statements.

Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value under certain circumstances and require enhanced disclosures about those investments. The amendments simplify the impairment assessment of equity investments without readily determinable fair values. The amendments also eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendments require entities to adjust fair value disclosures for financial instruments to be reflected at an exit price. The amendments in this ASU require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This amendment excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity. The amendments in this ASU require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the provisions of ASU No. 2016-01 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods beginning January 1, 2019 and is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

In March 2018, FASB issued ASU No. 2018-03, Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU clarifies the guidance in ASU No. 2016-01. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years beginning after June 15, 2018. The Company is currently evaluating the provisions of ASU No. 2018-03 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods beginning January 1, 2019 and is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

Leases (Topic 842) In February 2016, FASB issued ASU No. 2016-02, Leases. The amendments in this ASU require lessees to recognize the following for all leases (with the exception of short-term) at the commencement date; a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The amendments in this ASU leave lessor accounting largely unchanged, although certain targeted improvements were made to align lessor accounting with the lessee accounting model. This ASU simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is evaluating the new guidance and its impact on the Company’s Consolidated Statements of Operations and Consolidated Statements of Financial Condition. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2020. The Company expects an increase in assets and liabilities as a result of recognizing additional lease contracts where the Company is a lessee.

Derivatives and Hedging (Topic 815) In August 2017, FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The new authoritative guidance will be effective for reporting periods after January 1, 2019 with early adoption permitted. The Company is evaluating the new guidance and its impact on the Company’s Consolidated Statements of Operations and Consolidated Statements of Financial Condition.

Compensation—Stock Compensation (Topic 718) In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting. The amendments in the ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all of the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) or the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. (3) The classification of the modified award is an equity instrument or liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The amendments should be applied prospectively to an award modified on or after the adoption date. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company is evaluating the new guidance and its impact on the Company’s Consolidated Statements of Operations and Consolidated Statements of Financial Condition.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-based Payment Accounting. The amendments in the ASU expands the scope of Topic 718 to include share-based payments issued to nonemployees for goods and services, in order to align the accounting for share-based payments to employees and nonemployees to reduce cost and complexity to improve financial reporting. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued, but no earlier than the Company’s adoption date of Topic 606, Revenue from Contracts with Customers. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company is evaluating the new guidance and its impact on the Company’s Consolidated Statements of Operations and Consolidated Statements of Financial Condition.

Financial Instruments—Credit Losses (Topic 326) In June 2016, FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU require a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this ASU broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2021. The Company is still evaluating the effects this ASU will have on the Company’s Consolidated Financial Statements. While the Company has not quantified the

impact of this ASU, it does expect changing from the current incurred loss model to an expected loss model will result in an earlier recognition of losses.

Statement of Cash Flows (Topic 230) In August 2016, FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. There is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230 and other Topics. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. Those eight issues are (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP either is unclear or does not include specific guidance on these eight cash flow classification issues. These amendments provide guidance for each of the eight issues, thereby reducing current and potential future diversity in practice. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company is currently evaluating the provisions of ASU No. 2016-15 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (230), Restricted Cash. The ASU will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendment is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption of the update is permitted. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company does not expect this ASU to have a material impact on the Company’s Consolidated Financial Statements.

Income Taxes (Topic 740) In October 2016, the FASB issued ASU No. 2016-16, Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory. The ASU was issued to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party; this update clarifies that an entity should recognize the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. The amendment is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption of the update is permitted. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company does not expect this ASU to have a material impact on the Company’s Consolidated Financial Statements.

Business Combinations (Topic 805) In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business. The guidance clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company does not expect a material impact of this ASU on the Company’s Consolidated Financial Statements.

Intangibles—Goodwill and Other (Topic 350) In January 2017, FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The amendments in this ASU are intended to reduce the cost and complexity of the goodwill impairment test by eliminating step two from the impairment test. The amendments modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Under the amendments in this ASU, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. An impairment charge should be recognized for the amount which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments in this ASU are effective for the Company’s annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted these amendments in 2017, which did not have a material impact on the Company’s Consolidated Financial Statements.

Other Income (Subtopic 610-20) In February 2017, the FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets. This ASU will clarify the scope of Subtopic 610-20 and add guidance for partial sales of nonfinancial assets. The amendments should be applied either on retrospectively to each period presented or with a modified retrospective approach. The amendment is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company is currently evaluating the provisions of ASU No. 2017-05 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

Nonrefundable Fees and Other Costs (Subtopic 310-20) In March 2017, FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs. The amendments in the ASU shorten the amortization period for certain callable debt securities held at a premium at the earliest call date. Under current GAAP, the Company amortizes the premium as an adjustment of yield over the contractual life of the instrument. As a result, upon exercise of a call on a callable debt security held at a premium, the unamortized premium is charged to earnings. The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. However, the amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments are effective for annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2020. The Company is currently evaluating the provisions of ASU No. 2017-08 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) In July 2017, FASB issued ASU No. 2017-11, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The ASU simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. Down round features are common in warrants, convertible preferred shares, and convertible debt instruments. The ASU requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity. The amendments are effective for annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted. Assuming the Company remains an emerging growth company, the new authoritative guidance will be effective for reporting periods after January 1, 2020. The Company is currently evaluating the provisions of ASU No. 2017‑11 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

Income Statement—Reporting Comprehensive Income (Topic 220) In February 2018, FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU helps organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act. The ASU provides reporting entities with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The ASU requires reporting entities to disclose: a description of the accounting policy for releasing income tax effects from AOCI; whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and information about the other income tax effects that are reclassified. The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting

Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments are effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company early adopted the new guidance on January 1, 2018. The adoption did not impact the Company’s Statements of Operations, and resulted in a reclassification of $763,000 from accumulated other comprehensive income to retained earnings.

Financial Services—Depository and Lending (Topic 942) In May 2018, FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Depository and Lending—Income Taxes. The amendments in this ASU supersede the guidance within Subtopic 942-741 that has been rescinded by the OCC and no longer relevant. A cross-reference between Subtopic 740-30, Income Taxes—Other Considerations or Special Areas, and Subtopic 942-740 is being added to the remaining guidance in Subtopic 740-30 to improve the usefulness of the codification. The amendments in this Update are effective upon issuance, as no accounting requirements are affected. The amendments in this ASU do not have a material impact on the Company’s Consolidated Financial Statements.

On May 31, 2018, the Company acquired all common stock of First Evanston Bancorp, Inc. (“First Evanston”) and its subsidiaries pursuant to an Agreement and Plan of Merger, dated as of November 27, 2017 (the “Merger Agreement”). First Evanston operated two wholly owned subsidiaries, First Bank & Trust and First Evanston Bancorp Trust I. First Evanston was merged with and into Byline. As a result of the merger, First Evanston’s subsidiary bank, First Bank & Trust, was merged with and into Byline Bank, with Byline Bank as the surviving bank. The acquisition improves the Company’s footprint in the Chicagoland market, diversifies its commercial banking business, and strengthens the core deposit base.

At the effective time of the merger (the “Effective Time”), each share of First Evanston’s common stock was converted into the right to receive: (1) 3.994 shares of Byline’s common stock, and (2) an amount in cash equal to $27.0 million divided by the number of outstanding shares of First Evanston common stock as of the closing date, with cash paid in lieu of any fractional shares. The per share cash consideration was based on the total $27.0 million divided by the outstanding shares of First Evanston common stock, or $16.136 per outstanding share. Based on the closing price of shares of the Company’s common stock of $21.62, as reported by the New York Stock Exchange, and 6,682,850 shares of common stock issued with respect to the outstanding shares of First Evanston common stock, the stock consideration was valued at $144.5 million. Options to acquire 144,090 shares of First Evanston common stock that were outstanding at the Effective Time were converted into options to acquire 680,787 shares of Byline common stock, resulting in a consideration value of $7.6 million. The value of the total merger consideration at closing was $179.1 million before the issuance costs of $852,000.

The transaction resulted in goodwill of $73.0 million, which is nondeductible for tax purposes, as this acquisition was a nontaxable transaction. Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired and reflects related synergies expected from the combined operations. Merger-related expenses, including acquisition advisory expenses of $1.6 million and core system conversion expenses of $9.0 million related to the First Evanston acquisition, are reflected in non-interest expense on the Consolidated Statements of Operations for the six months ended June 30, 2018.

The acquisition of First Evanston was accounted for using the acquisition method of accounting in accordance with ASC Topic 805. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities involves significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values become available.

The following table presents a summary of the preliminary estimates of fair values of assets acquired and liabilities assumed as of the acquisition date:

The following table presents the acquired non-impaired loans as of the acquisition date:

The discount on the acquired non-impaired loans is being accreted into income over the life of the loans on an effective yield basis.

The following table provides the unaudited pro forma information for the results of operations for the three and six months ended June 30, 2018 and 2017, as if the acquisition had occurred on January 1, 2017. The pro forma results combine the historical results of First Evanston into the Company’s Consolidated Statements of Operations, including the impact of certain acquisition accounting adjustments, which includes security discount accretion, loan discount accretion, intangible assets amortization, deposit premium accretion, fixed assets amortization, and borrowing discount amortization. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2017. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, provision for loan and lease losses, expense efficiencies or asset dispositions. The acquisition-related expenses that have been recognized are included in net income in the following table.

The operating results of the Company include the operating results produced by the acquired assets and assumed liabilities of First Evanston for the period beginning June 1, 2018 through June 30, 2018. Revenues and earnings of the acquired company since the acquisition date have not been disclosed as it is not practicable as First Evanston was merged into the Company and separate financial information is not readily available.

The following tables summarize the amortized cost and fair values of securities available-for-sale and securities held-to-maturity as of the dates shown and the corresponding amounts of gross unrealized gains and losses:

June 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale
U.S. Treasury Notes	$	44,683	$	4	$	(264	)	$	44,423
U.S. Government agencies		146,887		26		(1,904	)		145,009
Obligations of states, municipalities, and political subdivisions		59,995		110		(812	)		59,293
Residential mortgage-backed securities
Agency		313,823		—		(14,289	)		299,534
Non-agency		63,519		—		(1,556	)		61,963
Commercial mortgage-backed securities
Agency		76,332		72		(3,151	)		73,253
Non-agency		31,612		—		(1,508	)		30,104
Corporate securities		37,707		227		(344	)		37,590
Other securities		4,610		2,176		(130	)		6,656
Total	$	779,168	$	2,615	$	(23,958	)	$	757,825

December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale
U.S. Treasury Notes	$	14,999	$	—	$	(136	)	$	14,863
U.S. Government agencies		54,248		—		(1,290	)		52,958
Obligations of states, municipalities, and political subdivisions		33,405		100		(335	)		33,170
Residential mortgage-backed securities
Agency		315,103		—		(7,646	)		307,457
Non-agency		39,485		104		(75	)		39,514
Commercial mortgage-backed securities
Agency		70,964		45		(1,966	)		69,043
Non-agency		31,763		—		(792	)		30,971
Corporate securities		29,573		507		(104	)		29,976
Other securities		3,627		1,730		(73	)		5,284
Total	$	593,167	$	2,486	$	(12,417	)	$	583,236

The Company did not classify securities as trading during the six months ended June 30, 2018 or during 2017.

Gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2018 and December 31, 2017 are summarized as follows:

			Less than 12 Months					12 Months or Longer					Total
June 30, 2018	# of Securities		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale
U.S. Treasury Notes		18	$	24,695	$	(76	)	$	9,813	$	(188	)	$	34,508	$	(264	)
U.S. Government agencies		36		62,216		(92	)		51,471		(1,812	)		113,687		(1,904	)
Obligations of states, municipalities and political subdivisions		40		24,271		(564	)		4,396		(248	)		28,667		(812	)
Residential mortgage-backed securities
Agency		44		30,404		(604	)		269,131		(13,685	)		299,535		(14,289	)
Non-agency		7		57,749		(1,350	)		4,213		(206	)		61,962		(1,556	)
Commercial mortgage-backed securities
Agency		8		7,228		(46	)		54,473		(3,105	)		61,701		(3,151	)
Non-agency		5		—		—			30,104		(1,508	)		30,104		(1,508	)
Corporate securities		11		16,946		(133	)		4,744		(211	)		21,690		(344	)
Other securities		1		—		—			2,844		(130	)		2,844		(130	)
Total		170	$	223,509	$	(2,865	)	$	431,189	$	(21,093	)	$	654,698	$	(23,958	)

			Less than 12 Months					12 Months or Longer					Total
June 30, 2018	# of Securities		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Held-to-maturity
Obligations of states, municipalities, and political subdivisions		27	$	18,166	$	(327	)	$	1,538	$	(46	)	$	19,704	$	(373	)
Residential mortgage-backed securities
Agency		20		37,755		(558	)		6,824		(285	)		44,579		(843	)
Non-agency		7		32,173		(847	)		4,070		(167	)		36,243		(1,014	)
Total		54	$	88,094	$	(1,732	)	$	12,432	$	(498	)	$	100,526	$	(2,230	)

			Less than 12 Months					12 Months or Longer					Total
December 31, 2017	# of Securities		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale
U.S. Treasury Notes		5	$	4,998	$	(2	)	$	9,865	$	(134	)	$	14,863	$	(136	)
U.S. Government agencies		9		992		(7	)		51,966		(1,283	)		52,958		(1,290	)
Obligations of states, municipalities and political subdivisions		29		16,059		(137	)		4,453		(198	)		20,512		(335	)
Residential mortgage-backed securities
Agency		41		15,441		(181	)		292,016		(7,465	)		307,457		(7,646	)
Non-agency		1		—		—			4,565		(75	)		4,565		(75	)
Commercial mortgage-backed securities
Agency		7		—		—			57,442		(1,966	)		57,442		(1,966	)
Non-agency		5		—		—			30,971		(792	)		30,971		(792	)
Corporate securities		3		2,406		(80	)		2,489		(24	)		4,895		(104	)
Other securities		1		—		—			1,921		(73	)		1,921		(73	)
Total		101	$	39,896	$	(407	)	$	455,688	$	(12,010	)	$	495,584	$	(12,417	)

			Less than 12 Months					12 Months or Longer					Total
December 31, 2017	# of Securities		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Held-to-maturity
Obligations of states, municipalities, and political subdivisions		12	$	7,409	$	(38	)	$	1,548	$	(44	)	$	8,957	$	(82	)
Residential mortgage-backed securities
Agency		13		24,344		(107	)		7,935		(96	)		32,279		(203	)
Non-agency		3		10,458		(10	)		4,382		(41	)		14,840		(51	)
Total		28	$	42,211	$	(155	)	$	13,865	$	(181	)	$	56,076	$	(336	)

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At June 30, 2018, the Company evaluated the securities which had an unrealized loss for other than temporary impairment and determined all declines in value to be temporary. There were 170 securities available-for-sale with unrealized losses at June 30, 2018. There were 54 securities held-to-maturity with unrealized losses at June 30, 2018. The Company anticipates 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. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

The proceeds from all sales of securities available-for-sale, and the associated gains and losses for the three and six months ended June 30, 2018 and 2017 are listed below:

There were $4,000 gains reclassified from accumulated other comprehensive income into earnings for the three months ended June 30, 2018. There were no gains or losses reclassified for the three months ended June 30, 2017. There were $4,000 gains reclassified from accumulated other comprehensive income into earnings for the six months ended June 30, 2018 and $8,000 for the six months ended June 30, 2017.

Securities pledged at June 30, 2018 and December 31, 2017 had carrying amounts of $221.4 million and $262.5 million, respectively. At June 30, 2018 and December 31, 2017, of those pledged, the carrying amounts of securities pledged as collateral for public fund deposits were $186.5 million and $99.3 million, respectively, and for customer repurchase agreements of $34.9 million and $34.8 million, respectively. At June 30, 2018, there were no securities pledged for advances from the Federal Home Loan Bank. At December 31, 2017, securities pledged for advances from the Federal Home Loan Bank were $128.4 million. Other securities were pledged for purposes required or permitted by law. At June 30, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

At June 30, 2018, the amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

Outstanding loan and lease receivables as of the dates shown were categorized as follows:

Total loans and leases consist of originated loans and leases, acquired impaired loans and acquired non-impaired loans and leases. At June 30, 2018 and December 31, 2017, total loans and leases included the guaranteed amount of U.S.

Government guaranteed loans of $95.1 million and $77.0 million, respectively. At June 30, 2018 and December 31, 2017, installment and other loans included overdraft deposits of $1.3 million and $617,000, respectively, which were reclassified as loans. At June 30, 2018 and December 31, 2017, loans and loans held for sale pledged as security for borrowings were $1.4 billion and $516.9 million, respectively.

The minimum annual lease payments for lease financing receivables as of June 30, 2018 are summarized as follows:

Originated loans and leases represent originations or purchases other than those from a business combination. Acquired impaired loans are loans acquired from a business combination with evidence of credit quality deterioration and are accounted for under ASC Topic 310-30. Acquired non-impaired loans and leases represent loans and leases acquired from a business combination without evidence of significant credit quality deterioration and are accounted for under ASC Topic 310-20. Leases and revolving loans are accounted for under ASC Topic 310-20. The following tables summarize the balances for each respective loan and lease category as of June 30, 2018 and December 31, 2017:

Acquired impaired loans—As part of the First Evanston acquisition, the Bank acquired impaired loans that are accounted for under ASC 310-30 in the amount of $25.0 million. Refer to Note 3—Acquisition of a Business for additional information regarding the transaction. There were no other acquired impaired loans purchased during 2018 or 2017. The following table presents a reconciliation of the undiscounted contractual cash flows, non-accretable difference, accretable yield, and fair value of acquired impaired loans as of the acquisition date of May 31, 2018:

The outstanding balance and carrying amount of all acquired impaired loans are summarized below. The balances do not include an allowance for loan and lease losses of $2.8 million and $3.9 million, at June 30, 2018 and December 31, 2017, respectively.

The following table summarizes the changes in accretable yield for acquired impaired loans for the three and six months ended June 30, 2018 and 2017:

Acquired non-impaired loans and leases—The Company acquired non-impaired loans as part of the First Evanston acquisition in the amount of $889.1 million. Refer to Note 3—Acquisition of a Business for additional information regarding the transaction.

The unpaid principal balance and carrying value for acquired non-impaired loans and leases at June 30, 2018 and December 31, 2017 were as follows:

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

Loans and leases considered for inclusion in the allowance for loan and lease losses include acquired non-impaired loans and leases, those acquired impaired loans with credit deterioration after acquisition, and originated loans and leases. Although all acquired loans and leases are included in the following table, only those with credit deterioration subsequent to acquisition date are actually included in the allowance for loan and lease losses.

The following tables summarize the balance and activity within the allowance for loan and lease losses, the components of the allowance for loan and lease losses in terms of loans and leases individually and collectively evaluated for impairment, and corresponding loan and lease balances by type for the three and six months ended June 30, 2018 and 2017 are as follows:

June 30, 2018	Commercial Real Estate			Residential Real Estate		Construction, Land Development, and Other Land			Commercial and Industrial			Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Three months ended
Beginning balance	$	5,319		$	1,564	$	201		$	7,763		$	61		$	2,732		$	17,640
Provisions		1,336			84		131			1,956			1			448			3,956
Charge-offs		(202	)		—		—			(1,596	)		(32	)		(555	)		(2,385	)
Recoveries		—			—		—			246			—			230			476
Ending balance	$	6,453		$	1,648	$	332		$	8,369		$	30		$	2,855		$	19,687

Six months ended
Beginning balance	$	4,794		$	1,638	$	222		$	7,418		$	41		$	2,593		$	16,706
Provisions		2,270			10		528			5,380			21			862			9,071
Charge-offs		(611	)		—		(418	)		(4,681	)		(32	)		(1,065	)		(6,807	)
Recoveries		—			—		—			252			—			465			717
Ending balance	$	6,453		$	1,648	$	332		$	8,369		$	30		$	2,855		$	19,687
Ending balance:
Individually evaluated for impairment	$	2,199		$	127	$	—		$	2,555		$	14		$	—		$	4,895
Collectively evaluated for impairment		2,752			1,171		310			4,940			13			2,855			12,041
Loans acquired with deteriorated credit quality		1,502			350		22			874			3			—			2,751
Total allowance for loan and lease losses	$	6,453		$	1,648	$	332		$	8,369		$	30		$	2,855		$	19,687

June 30, 2017	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land			Commercial and Industrial			Installment and Other		Lease Financing Receivables			Total
Allowance for loan and lease losses
Three months ended
Beginning balance	$	2,047		$	2,417		$	417		$	4,836		$	331	$	1,769		$	11,817
Provisions (releases)		1,674			(453	)		(90	)		1,637			13		734			3,515
Charge-offs		(53	)		(129	)		—			(784	)		—		(767	)		(1,733	)
Recoveries		—			—			—			—			—		370			370
Ending balance	$	3,668		$	1,835		$	327		$	5,689		$	344	$	2,106		$	13,969

Six months ended
Beginning balance	$	1,945		$	2,483		$	742		$	4,196		$	334	$	1,223		$	10,923
Provisions (releases)		2,014			(452	)		(415	)		2,492			10		1,757			5,406
Charge-offs		(291	)		(196	)		—			(999	)		—		(1,537	)		(3,023	)
Recoveries		—			—			—			—			—		663			663
Ending balance	$	3,668		$	1,835		$	327		$	5,689		$	344	$	2,106		$	13,969
Ending balance:
Individually evaluated for impairment	$	396		$	275		$	—		$	1,638		$	326	$	—		$	2,635
Collectively evaluated for impairment		1,550			1,219			302			2,898			5		2,106			8,080
Loans acquired with deteriorated credit quality		1,722			341			25			1,153			13		—			3,254
Total allowance for loan and lease losses	$	3,668		$	1,835		$	327		$	5,689		$	344	$	2,106		$	13,969

The Company increased the allowance for loan and lease losses by $2.0 million and $3.0 million for the three and six months ended June 30, 2018, respectively. The Company increased the allowance for loan and lease losses by $2.2 million and $3.0 million for the three and six months ended June 30, 2017, respectively. For acquired impaired loans, the Company decreased the allowance for loan and lease losses by $778,000 and $1.1 million for the three and six months ended June 30, 2018, respectively. The Company increased the allowance for loan and lease losses for acquired impaired loans by $1.5 million and $1.6 million for the three and six months ended June 30, 2017, respectively.

The following tables summarize the recorded investment, unpaid principal balance, and related allowance for loans and leases considered impaired as of June 30, 2018 and December 31, 2017, which excludes acquired impaired loans:

The following tables summarize the average recorded investment and interest income recognized for loans and leases considered impaired, which excludes acquired impaired loans, for the six months ended as follows:

For purposes of these tables, the unpaid principal balance represents the outstanding contractual balance. Impaired loans include loans that are individually evaluated for impairment as well as troubled debt restructurings for all loan categories. The sum of non-accrual loans and loans past due 90 days still on accrual will differ from the total impaired loan amount.

The following tables summarize the risk rating categories of the loans and leases considered for inclusion in the allowance for loan and lease losses calculation, excluding acquired impaired loans, as of June 30, 2018 and December 31, 2017:

June 30, 2018	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Pass	$	938,889	$	533,937	$	151,868	$	840,647	$	12,253	$	184,166	$	2,661,760
Watch		96,967		30,482		28,762		118,385		3		140		274,739
Special Mention		22,353		2,815		3,126		31,955		15		964		61,228
Substandard		14,157		2,617		—		19,486		14		1,289		37,563
Doubtful		—		—		—		—		—		316		316
Loss		—		—		—		—		—		—		—
Total	$	1,072,366	$	569,851	$	183,756	$	1,010,473	$	12,285	$	186,875	$	3,035,606

December 31, 2017	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Pass	$	638,066	$	398,743	$	73,935	$	415,163	$	3,732	$	174,672	$	1,704,311
Watch		58,217		29,165		22,380		67,024		20		190		176,996
Special Mention		14,645		2,251		3,168		13,535		—		1,293		34,892
Substandard		14,053		2,497		—		15,508		14		1,259		33,331
Doubtful		—		—		—		—		—		272		272
Loss		—		—		—		—		—		—		—
Total	$	724,981	$	432,656	$	99,483	$	511,230	$	3,766	$	177,686	$	1,949,802

The following tables summarize contractual delinquency information for acquired non-impaired and originated loans and leases by category at June 30, 2018 and December 31, 2017:

June 30, 2018	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Non- accrual		Total Past Due		Current		Total
Commercial real estate	$	544	$	636	$	—	$	11,534	$	12,714	$	1,059,652	$	1,072,366
Residential real estate		492		15		—		1,619		2,126		567,725		569,851
Construction, land development, and other land		—		—		—		—		—		183,756		183,756
Commercial and industrial		560		4,244		197		11,861		16,862		993,611		1,010,473
Installment and other		635		—		—		14		649		11,636		12,285
Lease financing receivables		518		462		—		714		1,694		185,181		186,875
Total	$	2,749	$	5,357	$	197	$	25,742	$	34,045	$	3,001,561	$	3,035,606

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Non- accrual		Total Past Due		Current		Total
Commercial real estate	$	4,783	$	968	$	—	$	8,459	$	14,210	$	710,771	$	724,981
Residential real estate		148		—		—		2,092		2,240		430,416		432,656
Construction, land development, and other land		—		—		—		—		—		99,483		99,483
Commercial and industrial		6,667		967		—		4,348		11,982		499,248		511,230
Installment and other		18		—		—		14		32		3,734		3,766
Lease financing receivables		997		638		—		851		2,486		175,200		177,686
Total	$	12,613	$	2,573	$	—	$	15,764	$	30,950	$	1,918,852	$	1,949,802

At June 30, 2018 and December 31, 2017, the Company had a recorded investment in troubled debt restructurings of $7.0 million and $2.6 million, respectively. The restructurings were granted due to borrower financial difficulty and provide for a modification of loan repayment terms. The Company has allocated a specific allowance of $1.1 million and $357,000 for these loans at June 30, 2018 and December 31, 2017, respectively. In addition, there was a $500,000 commitment outstanding on troubled debt restructurings at June 30, 2018 and no commitments outstanding on troubled debt restructurings at December 31, 2017.

Loans modified as troubled debt restructurings that occurred during the three and six months ended June 30, 2018 and year ended December 31, 2017 resulted in $144,000 and $487,000 of charge-offs or permanent reductions of the recorded investments in the loans, respectively. There were five commercial loans totaling $4.8 million and two commercial real estate loan totaling $545,000 that were modified as a troubled debt restructuring during the three months ended June 30, 2018. There were five commercial loans totaling $4.8 million and three commercial real estate loans totaling $670,000 that were modified as a troubled debt restructuring during the six months ended June 30, 2018. Troubled debt restructurings that subsequently defaulted within twelve months of the restructure date during the year ended December 31, 2017 had a recorded investment of $144,000. Troubled debt restructurings that subsequently defaulted within twelve months of the restructure date during the three and six months ended June 30, 2018 had a recorded investment of $340,000.

At June 30, 2018 and December 31, 2017, the reserve for unfunded commitments was $1.0 million and $923,000, respectively. During the three months ended June 30, 2018 and 2017, the credits for unfunded commitments were $92,000 and $77,000, respectively. During the six months ended June 30, 2018 and 2017, the provisions for and credits to unfunded commitments were $84,000 and $27,000, respectively. There were no charge-offs or recoveries related to the reserve for unfunded commitments during the periods.

Activity for servicing assets and the related changes in fair value for the six months ended June 30, 2018 and 2017 is as follows:

Loans serviced for others are not included in the Consolidated Statements of Financial Condition. The unpaid principal balances of these loans serviced for others were as follows as of June 30, 2018 and December 31, 2017:

Loan servicing income, net of changes in fair value of servicing assets, totaled $459,000 and $1.0 million for the three and six months ended June 30, 2018, respectively. Loan servicing income totaled $1.1 million and $2.0 million for the three and six months ended June 30, 2017, respectively.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Changes in prepayment speed assumptions have the most significant impact on the fair value of servicing rights.

Generally, as interest rates rise on variable rate loans, loan prepayments increase due to an increase in refinance activity, which may result in a decrease in the fair value of servicing assets. Measurement of fair value is limited to the condition existing and the assumptions used as of a particular point in time, and those assumptions may change over time. Refer to Note 16—Fair Value Measurement for further details.

The following table presents the change in other real estate owned (“OREO”) for the six months ended June 30, 2018 and 2017.

At June 30, 2018 and December 31, 2017, the balance of real estate owned included $843,000 and $3.6 million, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property.

At June 30, 2018 and December 31, 2017, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process is $4.3 million and $1.9 million, respectively.

The following table summarizes the changes in the Company’s goodwill, core deposit intangible assets, and customer relationship intangible assets for the six months ended June 30, 2018 and 2017:

The Company added additional goodwill, core deposit intangible assets, and customer relationship intangible assets in conjunction with the First Evanston acquisition. Please refer to Note 3-Acquisition of a Business for further detail.

Additionally, the Company had other intangible assets of $29,000 and $36,000 as of June 30, 2018 and December 31, 2017, respectively, associated with trademark-related transactions.

The following table presents the estimated amortization expense for core deposit intangible, customer relationship intangible, and other intangible assets recognized at June 30, 2018:

The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates.

The effective tax rates for the six months ended June 30, 2018 and 2017 were 20.0% and 40.5%, respectively. The reduction in the effective tax rate is primarily a result of the passage of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017. Among other things, the Tax Act reduces the corporate federal income tax rate from 35% to 21%, effective January 1, 2018. Also on December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, not to extend beyond one year from the date of enactment during which a company, acting in good faith, may complete the accounting for the impacts of the Tax Act. The Company recorded an additional discrete income tax benefit of $724,000 during the first quarter of 2018. This adjustment includes the impact of the federal income tax rate decrease due to the TCJ Act (enacted on December 22, 2017) on our net deferred tax assets. The re-measurement of our net deferred tax assets due to the TCJ Act was determined to be provisional at March 31, 2018.

Net deferred tax assets increased to $48.9 million at June 30, 2018 compared to $47.4 million at December 31, 2017. The net increase in the total net deferred tax assets recorded as of June 30, 2018 was a result of an increase related to the acquisition of First Evanston, offset with a reduction due to the utilization of net operating loss carryforward deferred tax assets.

The composition of deposits was as follows as of June 30, 2018 and December 31, 2017:

The following table summarizes the FHLB advances as of June 30, 2018 and December 31, 2017:

At June 30, 2018, fixed-rate advances totaled $260.0 million with interest rates of 2.03% and 2.13% and maturities of July 2018 and September 2018. Total floating rate advances were $160.0 million at June 30, 2018, with interest rates ranging from 1.82% to 1.84% and maturities ranging from July 2018 to August 2018. The Company’s advances from the FHLB are collateralized by residential real estate loans and securities. The Company’s required investment in FHLB stock is $1 for every $20 in advances. Refer to Note 4—Securities for additional discussion. At June 30, 2018 and December 31, 2017, the Bank has additional borrowing capacity from the FHLB of $749.6 million and $795.0 million, respectively, subject to the availability of proper collateral. The Bank’s maximum borrowing capacity is limited to 35% of total assets.

The Company hedges interest rates on borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. Refer to Note 17—Derivative Instruments and Hedge Activities for additional information.

The following is a summary of the Company’s other borrowings as of June 30, 2018 and December 31, 2017:

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. The Company pledges securities as collateral for the repurchase agreements. Refer to Note 4—Securities for additional discussion.

On October 13, 2016, the Company entered into a $30.0 million credit agreement with a correspondent bank. In April 2017, the revolving line of credit was amended to a non-revolving line of credit as long as the outstanding balance exceeds $5.0 million. When the outstanding balance is reduced to $5.0 million, the line of credit will be converted to a revolving line of credit with credit availability up to $5.0 million until maturity. In July 2017, the Company repaid the outstanding balance, in full, under this line of credit of $16.2 million with proceeds from its initial public offering (“IPO”). The line of credit matured on October 12, 2017 and carried an interest rate equal to the Prime Rate. On October 12, 2017, the Company amended the credit agreement, which extended the maturity date to October 11, 2018. The amended revolving line of credit bears interest at either the London Interbank Offered Rate (“LIBOR”) Rate plus 250 basis points or the Prime Rate minus 25 basis points, based on the Company’s election, which is required to be communicated at least three business days prior to the commencement of an interest period. If the Company fails to provide timely notification, the interest rate will be Prime Rate minus 25 basis points. At June 30, 2018 and December 31, 2017, the line of credit has not been drawn upon, so an interest rate option has not been selected.

The following table presents short-term credit lines available for use, for which the Company did not have an outstanding balance as of June 30, 2018 and December 31, 2017:

At June 30, 2018 and December 31, 2017, the Company’s junior subordinated debentures by issuance were as follows:

In 2004, the Company’s predecessor, Metropolitan Bank Group, Inc., issued $35.0 million floating rate junior subordinated debentures to Metropolitan Statutory Trust 1, which was formed for the issuance of trust preferred securities. The debentures bear interest at three LIBOR plus 2.79% (5.12% and 4.39% at June 30, 2018 and December 31, 2017, respectively). Interest is payable quarterly. The Company has the right to redeem the debentures, in whole or in part, on any interest payment date on or after March 2009. Accrued interest payable was $67,000 and $62,000 as of June 30, 2018 and December 31, 2017, respectively.

As part of the Ridgestone acquisition, the Company assumed the obligations to RidgeStone Capital Trust I of $1.5 million in principal amount, which was formed for the issuance of trust preferred securities. Beginning on June 30, 2008, the interest rate reset to the five-year LIBOR plus 3.50% (6.38% and 5.09% at June 30, 2018 and December 31, 2017, respectively), which is in effect until June 30, 2023 and updated every five years. Interest is paid on a quarterly basis. The Company has the right to redeem the debentures, in whole or in part, on any interest payment date on or after June 30, 2008. There was no accrued interest payable as of June 30, 2018 or December 31, 2017.

As part of the First Evanston acquisition, the Company assumed the obligations to First Evanston Bancorp Trust I of $10.0 million in principal amount, which was formed for the issuance of trust preferred securities. Refer to Note 3—Acquisition of a Business for additional information. Beginning on March 15, 2010, the interest rate reset to the three-month LIBOR plus 1.78% (4.12% at June 30, 2018), which is in effect until the debentures mature in 2035. Interest is paid on a quarterly basis. The Company has the right to redeem the debentures, in whole or in part, on any interest payment date on or after March, 2010. The Company has the option to defer interest payments on the debentures from time to time for a period not to exceed five consecutive years. Accrued interest payable was $17,000 as of June 30, 2018.

The Trusts are not consolidated with the Company. Accordingly, the Company reports the subordinated debentures held by the Trusts as liabilities. The Company owns all of the common securities of each trust. The junior subordinated debentures qualify, and are treated as, Tier 1 regulatory capital of the Company subject to regulatory limitations. The trust preferred securities issued by each trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the notes has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment.

Legal contingencies—In the ordinary course of business, the Company and Bank have various outstanding commitments and contingent liabilities that are not recognized in the accompanying consolidated financial statements. In addition, the Company may be a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is currently not expected to have a material adverse effect on the Company’s Consolidated Statements of Financial Condition.

Operating lease commitments—The Company has entered into various operating lease agreements primarily for facilities and land on which banking facilities are located. Certain lease agreements have renewal options at the end of the original lease term and certain lease agreements have escalation clauses in the rent payments.

The minimum annual rental commitments for operating leases subsequent to June 30, 2018, exclusive of taxes and other charges, are summarized as follows:

The Company’s rental expenses for the six months ended June 30, 2018 and 2017 were $2.8 million and $2.3 million, respectively. Rental expenses for the three months ended June 30, 2018 and 2017 were $1.6 million and $1.2 million, respectively. During the six months ended June 30, 2018 and 2017, the Company received $346,000 and $360,000, respectively, in sublease income which is included in the Consolidated Statements of Operations as a reduction of occupancy expense. Sublease income for the three months ended June 30, 2018 and 2017 was $175,000 and $170,000, respectively. The total amount of minimum rentals to be received in the future on these subleases is approximately $1.6 million, and the leases have contractual lives extending through 2025. In addition to the above required lease payments, the Company has contractual obligations related primarily to information technology contracts and other maintenance contracts. In June 2018, the Company accrued $8.1 million in data processing expense primarily related to contract termination with its core service provider in anticipation of a future system conversion.

Commitments to extend credit—The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend 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 Consolidated Statements of Financial Condition. The contractual or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Company’s 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. The Bank uses the same credit policies in making commitments and conditional obligations as it does for funded instruments. The Bank does not anticipate any material losses as a result of the commitments and standby letters of credit.

The following table summarizes the contract or notional amount of outstanding loan and lease commitments at June 30, 2018 and December 31, 2017:

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. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the 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).

Standby letters of credit are conditional commitments issued by the Bank to guarantee to a third-party the performance of a customer. 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 2.50% to 20.00% and maturities up to 2024. Variable rate loan commitments have interest rates ranging from 0.75% to 12.00% and maturities up to 2040.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In addition, the Company has the ability to obtain fair values for markets that are not accessible.

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available. The Company’s own data used to develop unobservable inputs may be adjusted for market considerations when reasonably available.

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to assets and liabilities.

The Company used the following methods and significant assumptions to estimate fair value for certain assets measured and carried at fair value on a recurring basis:

Securities available-for-sale—The Company obtains fair value measurements from an independent pricing service. Management reviews the procedures used by the third party, including significant inputs used in the fair value calculations. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. When market quotes are not readily accessible or available, alternative approaches are utilized, such as matrix or model pricing.

The Company’s methodology for pricing non-rated bonds focuses on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated municipal bond, the Company references a publicly issued bond by the same issuer if available as well as other additional key metrics to support the credit worthiness. Typically, pricing for these types of bonds would require a higher yield than a similar rated bond from the same issuer. A reduction in price is applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one notch lower (i.e. a “AA” rating for a comparable bond would be reduced to “AA-” for the Company’s valuation). In 2018 and 2017, all of the ratings derived by the Company were “BBB” or better with and without comparable bond proxies. The fair value measurement of municipal bonds is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs used in the bond valuation are observable. Based on the rating determined, the Company obtains a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date, redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets.

Servicing assets—Fair value is based on a loan-by-loan basis taking into consideration the original term to maturity, the current age of the loan and the remaining term to maturity. The valuation methodology utilized for the servicing assets begins with generating future cash flows for each servicing asset, based on their unique characteristics and market-based assumptions for prepayment speeds. The present value of the future cash flows are then calculated utilizing market-based discount rate assumptions.

Derivative instruments—Interest rate swaps are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are validated by comparison with valuations provided by the respective counterparties. Derivative financial instruments are included in other assets and other liabilities in the Consolidated Statements of Financial Condition.

The following tables summarize the Company’s financial assets and liabilities that were measured at fair value on a recurring basis at June 30, 2018 and December 31, 2017:

			Fair Value Measurements Using
June 30, 2018	Fair Value		Level 1		Level 2		Level 3
Financial assets
Securities available-for-sale
U.S. Treasury Notes	$	44,423	$	44,423	$	—	$	—
U.S. Government agencies		145,009		—		145,009		—
Obligations of states, municipalities, and political subdivisions		59,293		—		58,604		689
Residential mortgage-backed securities
Agency		299,534		—		299,534		—
Non-agency		61,963		—		61,963		—
Commercial mortgage-backed securities
Agency		73,253		—		73,253		—
Non-agency		30,104		—		30,104		—
Corporate securities		37,590		—		37,590		—
Other securities		6,656		2,844		3,121		691
Servicing assets		21,587		—		—		21,587
Derivative assets		13,063		—		13,063		—
Financial liabilities
Derivative liabilities		2,869		—		2,867		2

			Fair Value Measurements Using
December 31, 2017	Fair Value		Level 1		Level 2		Level 3
Financial assets
Securities available-for-sale
U.S. Treasury Notes	$	14,863	$	14,863	$	—	$	—
U.S. Government agencies		52,958		—		52,958		—
Obligations of states, municipalities, and political subdivisions		33,170		—		32,795		375
Residential mortgage-backed securities
Agency		307,457		—		307,457		—
Non-agency		39,514		—		39,514		—
Commercial mortgage-backed securities
Agency		69,043		—		69,043		—
Non-agency		30,971		—		30,971		—
Corporate securities		29,976		—		29,976		—
Other securities		5,284		1,921		2,686		677
Servicing assets		21,400		—		—		21,400
Derivative assets		5,981		—		5,981		—
Financial liabilities
Derivative liabilities		994		—		994		—

The Company has originated, and acquired through a business combination, servicing assets classified as Level 3 of the fair value hierarchy. The Company acquired single-issuer trust preferred securities included in other securities categorized as Level 3 of the fair value hierarchy.

The Company has purchased, and acquired through a business combination, privately-issued municipal securities that are categorized as Level 3. These municipal securities are bonds issued for municipal government entities located in the Chicago metropolitan area and are privately placed, non-rated bonds without Committee on Uniform Security Identification Procedures numbers.

The Company did not have any transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the six months ended June 30, 2018 or the year ended December 31, 2017. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.

The following table presents additional information about financial assets measured at fair value on recurring basis for which the Company used significant unobservable inputs (Level 3):

The following table presents additional information about the unobservable inputs used in the fair value measurements on recurring basis that were categorized within Level 3 of the fair value hierarchy as of June 30, 2018:

The Company used the following methods and significant assumptions to estimate fair value for certain assets measured and carried at fair value on a non-recurring basis:

Impaired loans (excluding acquired impaired loans)—Impaired loans, other than those existing on the date of a business acquisition, are primarily carried at the fair value of the underlying collateral, less estimated costs to sell, if the loan is collateral dependent. Valuations of impaired loans that are collateral dependent are supported by third party appraisals in accordance with the Bank’s credit policy. Impaired loans that are not collateral dependent are not material.

Assets held for sale—Assets held for sale consist of former branch locations and real estate previously purchased for expansion. Assets are considered held for sale when management has approved to sell the assets following a branch closure or other events. The properties are being actively marketed and transferred to assets held for sale based on the lower of carrying value or its fair value, less estimated costs to sell.

Other real estate owned—Certain assets held within other real estate owned represent real estate or other collateral that has been adjusted to its estimated fair value, less cost to sell, as a result of transferring from the loan portfolio at the time of foreclosure or repossession and based on management’s periodic impairment evaluation. From time to time, non-recurring

fair value adjustments to other real estate owned are recorded to reflect partial write-downs based on an observable market price or current appraised value of property.

Adjustments to fair value based on such non-recurring transactions generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment. The following tables summarize the Company’s assets that were measured at fair value on a non-recurring basis, excluding acquired impaired loans, as of June 30, 2018 and December 31, 2017:

The following table provides a description of the valuation technique, unobservable inputs and qualitative information about the Company’s assets and liabilities classified as Level 3 and measured at fair value on a non-recurring basis as of June 30, 2018:

The following methods and assumptions were used by the Company in estimating fair values of other assets and liabilities for disclosure purposes:

Cash and cash equivalents—For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities held-to-maturity—The Company obtains fair value measurements from an independent pricing service. Management reviews the procedures used by the third party, including significant inputs used in the fair value calculations. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. When market quotes are not readily accessible or available, alternative approaches are utilized, such as matrix or model pricing.

Loans held for sale—The fair value of loans held for sale are based on quoted market prices, where available, and determined by discounted estimated cash flows using interest rates approximating the Company’s current origination rates for similar loans adjusted to reflect the inherent credit risk.

Loan and lease receivables, net—For certain variable rate loans that reprice frequently and with no significant changes in credit risk, fair value is estimated at carrying value. The fair value of other types of loans is estimated by discounting future cash flows, using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits—The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows, using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank advances—The fair value of FHLB advances is estimated by discounting the agreements based on maturities using rates currently offered for FHLB advances of similar remaining maturities adjusted for prepayment penalties that would be incurred if the borrowings were paid off on the measurement date.

Securities sold under agreements to repurchase—The carrying amount approximates fair value due to maturities of less than ninety days.

Junior subordinated debentures—The fair value of junior subordinated debentures, in the form of trust preferred securities, is determined using rates currently available to the Company for debt with similar terms and remaining maturities.

Accrued interest receivable and payable—The carrying amount approximates fair value.

Commitments to extend credit and commercial and standby letters of credit—The fair values of these off-balance sheet commitments to extend credit and commercial and standby letters of credit are not considered practicable to estimate because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs.

The estimated fair values of financial instruments and levels within the fair value hierarchy are as follows:

			June 30,				December 31,
	Fair Value		2018				2017
	Hierarchy Level		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Cash and due from banks		1	$	25,299	$	25,299	$	19,404	$	19,404
Interest bearing deposits with other banks		2		127,417		127,417		38,945		38,945
Securities held-to-maturity		2		106,613		104,411		117,163		117,277
Other restricted stock		2		18,977		18,977		16,343		16,343
Loans held for sale		3		5,822		6,494		5,212		5,851
Loans and lease receivables, net		3		3,329,005		3,288,358		2,260,786		2,240,235
Accrued interest receivable		3		10,670		10,670		7,670		7,670
Financial liabilities
Non-interest bearing deposits		2		1,193,057		1,193,057		760,887		760,887
Interest bearing deposits		2		2,451,820		2,447,100		1,682,442		1,678,535
Accrued interest payable		2		2,562		2,562		1,306		1,306
Line of credit		2		—		—		—		—
Federal Home Loan Bank advances		2		420,000		420,000		361,506		361,500
Securities sold under repurchase agreement		2		24,653		24,653		31,187		31,187
Junior subordinated debentures		3		36,452		42,475		27,647		33,907

The Company recognizes derivative financial instruments at fair value regardless of the purpose or intent for holding the instrument. The Company records derivative assets and derivative liabilities on the Consolidated Statements of Financial Condition within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively. The following tables present the fair value of the Company’s derivative financial instruments and classification on the Consolidated Statements of Financial Condition as of June 30, 2018 and December 31, 2017:

Interest rate swaps designated as cash flow hedges—Cash flow hedges of interest payments associated with certain FHLB advances had notional amounts totaling $250.0 million as of June 30, 2018 and December 31, 2017. The aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in fair value recorded in other comprehensive income (loss), net of taxes, to the extent effective. The amount included in accumulated other comprehensive income (loss) would be reclassified to current interest incurred from the hedged FHLB advances when it affects earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value of the derivative hedging instrument with the changes in fair value of the designated hedged transactions. The Company expects the hedges to remain highly effective during the remaining terms of the swaps and did not recognize any hedge ineffectiveness in current earnings during the three or six months ended June 30, 2018 and 2017.

Interest recorded on these swap transactions reduced FHLB interest expense by $374,000 and increased FHLB interest expense by $213,000 during the three months ended June 30, 2018 and 2017, respectively, and is reported as a component of interest expense on FHLB advances. Interest recorded on swap transactions reduced FHLB interest expense by $435,000 and increased FHLB interest expense by $267,000 during the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, the Company estimates $2.3 million of the unrealized gain to be reclassified as a decrease to interest expense during the next twelve months.

The following table reflects the net gains (losses) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Operations relating to the cash flow derivative instruments for the six months ended:

Other interest rate swaps—The total combined notional amount was $214.0 million as of June 30, 2018 with maturities ranging from December 2018 to April 2028. The fair values of the interest rate swap agreements are reflected in other assets and other liabilities with corresponding gains or losses reflected in non-interest income. During the three and six months ended June 30, 2018, there were $946,000 of transaction fees, included in other non-interest income, related to these derivative instruments. During the three and six months ended June 30, 2017, transaction fees were $65,000 and $179,000, respectively.

Other credit derivative—The total notional amount was $1.3 million as of June 30, 2018. There were no credit derivatives as of December 31, 2017. The fair value of the other credit derivative is reflected in other liabilities with corresponding gains or losses reflected in non-interest income. The credit valuation adjustment (“CVA”) related to the other credit derivative resulted in an increase to other non-interest income during the three and six months ended June 30, 2018, of $1,000 and $24,000, respectively.

Credit risk—Derivative instruments are inherently subject to market risk and credit risk. Market risk is associated with changes in interest rates and credit risk relates to the Company’s risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Market and credit risks are managed and monitored as part of the Company’s overall asset-liability management process. The credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company’s loan underwriting process. The Company’s loan underwriting process also approves the Bank’s swap counterparty used to mirror the borrowers’ swap. The Company has a bilateral agreement with each swap counterparty that provides that fluctuations in derivative values are to be fully collateralized with either cash or securities. The CVA is a fair value adjustment to the derivative to account for this risk. During the three and six months ended June 30, 2018, the CVA resulted in a decrease to non-interest income of $65,000 and $38,000, respectively. During the three and six months ended June 30, 2017, the CVA resulted in a decrease to non-interest income of $17,000 and $30,000, respectively.

The Company has entered into a risk participation agreement with a counterparty bank to assume a portion of the credit risk related to borrower transactions. The credit risk related to this derivative is managed through the Company’s loan underwriting process.

The Company has agreements with its derivative counterparties that contain a cross-default provision under which if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company

also has agreements with certain derivative counterparties that contain a provision where if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations resulted in a net asset position.

The Company records interest rate derivatives subject to master netting agreements at their gross value and does not offset derivative asset and liabilities on the Consolidated Statements of Financial Condition. The table below summarizes the Company’s interest rate derivatives and offsetting positions as of:

As of June 30, 2018, the counterparties posted collateral of $12.1 million, which resulted in no excess collateral with the Company. For purposes of this disclosure, the amount of posted collateral by the counterparties is limited to the amount offsetting the derivatives asset.

In June 2017, the Company adopted the 2017 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) in connection with our initial public offering (“IPO”). The Omnibus Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights and other equity-based, equity-related or cash-based awards. A total of 1,550,000 shares of our common stock have been reserved and are available for issuance under the Omnibus Plan.

On July 6, 2017, in conjunction with the completion of the IPO, the Company granted 58,900 restricted shares of the Company’s common stock to certain key employees, pursuant to the Omnibus Plan. The restricted shares will cliff vest on the third anniversary of the grant date, subject to continued employment. A total of 11,898 restricted shares were also granted during 2017 in connection with the recruitment of employees. These restricted shares vest over a four year period.

During 2018, the Company granted 126,157 shares of restricted common stock, par value $0.01 per share. Of this total, 101,559 restricted shares will vest ratably over four years on each anniversary of the grant date, 11,165 restricted shares will vest ratably over three years on each anniversary of the grant date, and 2,268 restricted shares will vest on the first anniversary of the grant date, all subject to continued employment.

In addition, 11,165 performance-based restricted shares were included in the 2018 grant. The number of shares which may be earned under the award is dependent upon the Company’s return on average assets over a three-year period ending December 31, 2020, measured in 2018 against the Company’s internal targets and for 2019 and 2020 against a peer group consisting of publicly-traded bank holding companies ranging in asset size from 50% to 200% of the Company’s total assets. Under the award, 25% of the shares will be earned at threshold performance, 100% will be earned at target and 50th percentile performance, and up to 125% of the shares with above target and 75th percentile performance. Any earned shares will vest on the third anniversary of the grant date. As of June 30, 2018, there were 1,355,545 shares available for future grants under the Omnibus Plan.

The following table discloses the changes in restricted shares for the six months ended June 30, 2018:

The Company recognizes share-based compensation based on the estimated fair value of the restricted stock at the grant date. Share-based compensation expense is included in non-interest expense in the Consolidated Statements of Operations.

The following table summarizes restricted stock compensation expense for the six months ended June 30, 2018 and 2017:

The fair value of the unvested restricted stock awards at June 30, 2018 was $4.3 million.

The Company maintained a nonqualified, share-based, stock option plan adopted prior to recapitalization (“MBG Plan”). There were no options granted or exercised under this plan during the year ended December 31, 2017. At the time of the Company’s reincorporation in Delaware in June 2017, the Board of Directors cancelled the MBG Plan and all the respective outstanding options were cancelled.

In October 2014, the Company adopted the Byline Bancorp, Inc. Equity Incentive Plan (“BYB Plan”). The maximum number of shares available for grants under this plan was 2,476,122 shares. During 2016 and 2015, the Company granted options to purchase 212,400 and 1,634,568 shares, respectively, under this plan. The Company did not grant any stock options during the year ended December 31, 2017. In June 2017, the Board of Directors terminated the BYB Plan and no future grants can be made under this plan. Options to purchase a total of 1,683,270 shares remain outstanding under the BYB Plan at June 30, 2018.

The types of stock options granted under the BYB Plan were Time Options and Performance Options. The exercise price of each option is equal to the fair value of the stock as of the date of grant. These option awards have vesting periods ranging from one to five years and have 10-year contractual terms. Stock volatility was computed as the average of the volatilities of peer group companies.

The vesting of Time Options is conditional based on completion of service. Performance Options have conditional vesting based on either performance targets or market performance. Certain Performance Options’ performance goals will be satisfied (in whole or in part) if the Bank achieves various performance targets such as profitability, asset quality, and conditional based on market performance, as outlined in the BYB Plan. Each of the performance goals identified are measured for achievement (or failure to achieve) independent of each other. In October 2017, the Board of Directors

determined that the Performance Option goals were satisfied, in whole, and these Performance Options converted to Time Options. As a result of the previous completion of service, 414,894 performance options vested on October 3, 2017.

The fair values of the stock options were determined using the Black-Scholes-Merton model for Time Options and a Monte Carlo simulation model for Performance Options. The fair values of options under the BYB Plan were determined using the following assumptions as of the grant dates:

The following table discloses the activity in shares subject to options and the weighted average exercise prices, in actual dollars, for the six months ended June 30, 2018:

A total of 94,750 stock options were exercised during the six months ended June 30, 2018. During the six months ended June 30, 2018, proceeds from the exercise of stock options were $1.1 million and related tax benefit was $275,000. There were no stock options exercised during the year ended December 31, 2017. A total of 307,163 stock options vested during the six months ended June 30, 2018.

The Company recognizes share-based compensation based on the estimated fair value of the option at the grant date. Forfeitures are estimated based upon industry standards. Share-based compensation expense is included in non-interest expense in the Consolidated Statements of Operations. The following table summarizes stock option compensation expense for the six months ended June 30, 2018 and 2017:

Pursuant to the terms of the Merger Agreement, upon the Effective Time, each outstanding First Evanston Option held by a participant (a “Participant”) in the First Evanston Bancorp, Inc. Stock Incentive Plan (the “FEB Plan”) ceased to represent a right to acquire shares of First Evanston common stock and was assumed and converted automatically into a fully vested and exercisable adjusted option to purchase shares of Byline common stock (each an “Adjusted Option”, and collectively, the “Adjusted Options”). In accordance with the Merger Agreement, the number of shares of Byline common stock to which each such Adjusted Option relates is equal to the product (rounded down to the nearest whole share of Byline common stock) of: (a) the number of shares of First Evanston common stock subject to the First Evanston Option immediately prior to May 31, 2018, multiplied by (ii) 4.725. Each Adjusted Option has an exercise price per share of Byline common stock equal to the quotient (rounded up to the nearest whole cent) of (x) the per share exercise price of such First Evanston Option immediately prior to May 31, 2018, divided by (y) 4.725 (the “Conversion Calculation”). The description of the conversion process is based on, and qualified by, the Merger Agreement.

The following table discloses the activity in shares subject to options under the FEB Plan and the weighted average exercise prices, in actual dollars, for the six months ended June 30, 2018:

All shares of restricted performance shares of First Evanston common stock (“restricted stock”) that were previously issued under and held by Participants in the FEB Plan prior to the Merger were converted into the right to receive the per share merger consideration in connection with the Merger and pursuant to the Merger Agreement. Accordingly, no shares of First Evanston restricted stock remain outstanding under the FEB Plan.

A reconciliation of the numerators and denominators for earnings per common share computations is presented below. Incremental shares represent outstanding stock options for which the exercise price is less than the average market price of the Company’s common stock during the periods presented. Options to purchase 2,364,057 and 1,798,223 shares of common stock were outstanding as of June 30, 2018 and 2017, respectively. There were 194,455 restricted stock awards outstanding at June 30, 2018. There were no restricted stock awards outstanding at June 30, 2017.

The following represent the calculation of basic and diluted earnings per share for the periods presented:

A summary of the Company’s preferred and common stock at June 30, 2018 and December 31, 2017 is as follows:

During 2016, the Company authorized and issued Series B 7.50% fixed-to-floating non-voting, noncumulative perpetual preferred stock with a liquidation preference of $1,000 per share, plus the amount of unpaid dividends, if any, which is redeemable at the Company’s option on or after March 31, 2022. Holders of Series B preferred stock do not have any rights to convert such stock into shares of any other class of capital stock of the Company.

For the three months ended June 30, 2018, the Company declared and paid dividends on the Series B preferred stock of $198,000, compared to $196,000 for the three months ended June 30, 2017. For the six months ended June 30, 2018, the Company declared and paid dividends on the Series B preferred stock of $391,000, compared to $385,000 for the six months ended June 30, 2017.

Note 21—Consolidated Statements of Changes in Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) for the six months ended June 30, 2018 and June 30, 2017:

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 consolidated financial statements and notes thereto included elsewhere in this report. The words “the Company,” “we,” “our” and “us” refer to Byline Bancorp, Inc. and its consolidated subsidiaries, unless we indicate otherwise.

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. 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 Texas, North Carolina and New York, and sales representatives in Florida, New Jersey, and Arizona. Following our acquisition of Ridgestone Financial Services, Inc. (“Ridgestone”) in October 2016, we also participate in U.S. government guaranteed lending programs and originate U.S. government guaranteed loans. Byline Bank was the fifth most active originator of SBA loans in the country and the most active SBA lender in Illinois and Wisconsin, as reported by the SBA for the quarter ended June 30, 2018. Following our recent acquisition of First Evanston Bancorp, Inc. (“First Evanston”) and its subsidiary bank, First Bank & Trust, at the end of May 2018, we also provide trust and wealth management services to our customers. As of June 30, 2018, we had consolidated total assets of $4.8 billion, total gross loans and leases outstanding of $3.3 billion, total deposits of $3.6 billion, and total stockholders’ equity of $616.4 million.

On October 10, 2014, Byline Bank acquired certain assets and liabilities related to the small ticket leasing operation of Baytree National Bank and Trust Company and Baytree Leasing Company LLC (collectively, “Baytree”). In a separate but related transaction, on September 3, 2014, Byline Bank purchased approximately $55.7 million of direct finance leases that Baytree had sold to a third party. We have grown our leasing portfolio to $186.9 million as of June 30, 2018.

On October 14, 2016, we completed the acquisition of Ridgestone Financial Services, Inc. and its subsidiary bank, Ridgestone Bank, under the terms of a definitive merger agreement (the “Ridgestone Agreement”). As of the acquisition date, Ridgestone had $447.4 million in assets, including $347.3 million of loans, $14.7 million of loans held for sale, $27.2 million of securities, $21.5 million of servicing assets and total deposits of $358.7 million. Ridgestone’s loan portfolio was primarily comprised of the retained unguaranteed portion of U.S. government guaranteed loans as a participant in the SBA and USDA lending programs.

On May 31, 2018, we completed the acquisition of First Evanston Bancorp, Inc., under the terms of a definitive merger agreement (the “First Evanston Agreement”). As a result of the merger, First Evanston’s wholly owned bank subsidiary, First Bank & Trust, was merged with and into Byline Bank. As of the acquisition date, First Evanston had $1.1 billion in assets, including $931.6 million of loans, $127.1 million of securities, and total deposits of $1.0 billion.

At the effective time of the merger (the “Effective Time”), each share of First Evanston’s common stock (the “First Evanston Common Stock”) was converted into the right to receive: (1) 3.994 shares of Byline’s common stock, and (2) an amount in cash equal to $27.0 million divided by the number of outstanding shares of First Evanston Common Stock as of the closing date, with cash paid in lieu of any fractional shares. Options to acquire First Evanston Common Stock that were outstanding at the Effective Time were converted into options of substantially equivalent value to acquire Byline common stock. In the aggregate, Byline paid $27.0 million in cash and issued 6,682,850 shares of its common stock in respect of the outstanding shares of First Evanston Common Stock. The value of the total merger consideration at closing was approximately $179.1 million.

We determined that the First Evanston acquisition constituted a business combination as defined by ASC 805. Accordingly, the assets acquired and liabilities assumed were recorded at their fair value amount on the date of acquisition. Fair value was determined in accordance with the guidance provided in ASC 820. The fair values may be adjusted through the end of the measurement period, which closes at the earlier of the Company receiving all necessary information to complete the acquisition or one year from the date of acquisition. The transaction qualified for federal income tax purposes as a recapitalization under Section 368(a)(1)(E) of the Code and resulted in carryover treatment of the existing tax bases and tax loss carryforwards, although the utilization of tax attributes (including net operating loss carryforwards and tax credits) became subject to limitations under Sections 382 and 383 of the Code.

We continually perform strategic reviews of our existing banking footprint. With technology improvements and changes to customers’ banking preferences, we examine branch growth potential, customer usage, branch profitability, services provided, markets served and proximity to other locations with a goal of minimizing customer impact and deposit runoff. Since the Recapitalization, our branch network has been reduced from 88 to 59, including the additional nine branches added through the First Evanston acquisition. During June 2018, we consolidated six branches and two other facilities within our current network that had a minimal impact on our customer service levels, convenience, and business development capabilities. We will continue to strategically evaluate our locations based on our growth and profitability standards.

Our accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”) and conform to general practices within the industry in which we operate. 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. These estimates, assumptions and judgements are based on information available as of the date of the financial statements and, 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 judgements 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 loan and lease 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, including other-than-temporary-impairment losses, (vi) the valuation of real estate held for sale and (vii) the valuation of or recognition of deferred tax assets and liabilities.

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the financial statements included in this report, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.

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 as of December 31, 2017, 2016, and 2015, included in our Annual Report on Form 10-K that we filed with the Securities and Exchange Commission (“SEC”) on March 30, 2018.

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 judgements 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.

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.

We account for originated loans and leases and purchased loans and leases not acquired through business combinations as originated loans and leases. The new 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 loan and lease 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 lending process are deferred and amortized to interest income over the contractual lives of the new loans using methods which 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.

Acquired loans and leases are recorded at fair value as of the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either acquired impaired or acquired non‑impaired. Acquired impaired loans reflect evidence of credit deterioration since origination for which it is probable that all contractually required principal and interest will not be collected by us. Subsequent to acquisition, we periodically update for changes in cash flow expectations, which is reflected in interest income over the life of the loan as accretable yield. Any subsequent decreases in expected cash flow attributable to credit deterioration are recognized by recording a provision for loan losses.

For acquired non‑impaired loans and leases, the excess or deficit of the loan and lease principal balance over the fair value is recorded as a discount or premium at acquisition and is accreted through interest income over the life of the loan or lease. Subsequent to acquisition, these loans and leases are evaluated for credit deterioration and a provision for loan and lease losses would be recorded when probable loss is incurred. These loans and leases are evaluated for impairment consistent with originated loans and leases.

The provision for loan and lease losses reflects the amount required to maintain the allowance for loan and lease losses (“ALLL”) at an appropriate level based upon management’s evaluation of the adequacy of general and specific loss reserves.

The ALLL is maintained at a level that management believes is appropriate to provide for known and inherent incurred loan and lease losses as of the date 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 the need for an overall general valuation allowance as well as specific allowances that are determined on an individual loan basis. We increase our ALLL by charging provisions for probable losses against our income and decreased 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 ALLL is maintained at a level sufficient to provide for probable losses based upon an ongoing review of the originated and acquired non‑impaired loan and lease portfolios by portfolio category, which include 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 which may affect a borrower’s ability to repay, and evaluation of prevailing economic conditions.

For acquired impaired loans, a specific valuation allowance is established when it is probable that we will be unable to collect all of the cash flows expected at acquisition, plus the additional cash flows expected to be collected arising from changes in estimates after acquisition.

The originated and non‑impaired acquired loans have limited delinquency and credit loss history and have not yet exhibited an observable loss trend. The credit quality of loans in these loan portfolios are impacted by delinquency status and debt service coverage generated by the borrowers’ businesses and fluctuations in the value of real estate collateral.

Acquired non‑impaired loans and originated loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreements. All acquired non‑impaired loans and originated loans of $100,000 or greater with an internal risk rating of substandard or below and on nonaccrual, as well as loans classified as troubled debt restructurings (“TDR”), are reviewed individually for impairment on a quarterly basis.

Goodwill represents the excess of the purchase consideration over the fair value of net assets acquired in connection with the 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 are recognized separately when they are acquired through sales of loans or when the rights to service loans are purchased. When loans are sold, 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 the prepayment speed and discount rate assumptions have the most significant impact on the fair value of servicing rights. See Note 7 and Note 16 of our Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2018, included in this report, for additional information.

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.

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

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 18 of Byline’s Consolidated Financial Statements as of December 31, 2017, 2016, and 2015, included in our Form 10-K, for a complete discussion of our use of fair value of financial assets and liabilities and their related measurement practices.

OREO includes real estate assets that have been acquired through, or in lieu of, loan foreclosure or repossession and are to be sold. OREO assets are initially recorded at fair value, less estimated costs to sell, of the collateral of the loan, on the date of foreclosure or repossession, establishing a new cost basis. Adjustments that reduce loan balances to fair value at the time of foreclosure or repossession are recognized as charge‑offs in the allowance for loan and lease losses. Positive adjustments, if any, at the time of foreclosure or repossession are recognized in non‑interest expense. After foreclosure or repossession, management periodically obtains new valuations and real estate or other assets may be adjusted to a lower carrying amount, determined by the fair value of the asset, less estimated costs to sell. Any subsequent write‑downs are recorded as a decrease in the asset and charged against other real estate owned valuation adjustments. Operating expenses of such properties, net of related income, are included in non‑interest expense, and gains and losses on their disposition are included in non‑interest expense. Gains on internally financed other real estate owned sales are accounted for in accordance with the methods stated in ASC Topic 360‑20, Real Estate Sales (“ASC 360‑20”). Any losses on the sales of other real estate owned properties are recognized immediately.

Assets held for sale consist of former branch locations and real estate purchased for expansion. Assets are considered held for sale when management has approved a plan to sell the assets following a branch closure or other events. The properties are being actively marketed and transferred to assets held for sale based at the lower of its carrying value or its fair value, less estimated costs to sell. Adjustments to reduce the asset balances to fair value are recorded at the time of transfer and are recognized through a charge against income. An assessment of the recoverability of other long-lived assets associated with all branches is periodically performed, resulting in impairment losses which are reflected in non-interest expense.

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 which 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 our Consolidated Financial Statements as of December 31, 2017, 2016, and 2015, included in our Annual Report on Form 10-K for the year ended December 31, 2017, for further information on income taxes.

Refer to Note 2 of our Interim Unaudited Condensed Consolidated Financial Statements as of June 30, 2018, 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.

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 balance sheet and income statement 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‑impaired and acquired impaired loans.

These factors and metrics described in this prospectus may not provide an appropriate basis to compare our results or financial condition to the results or financial condition of other financial services companies, given our limited operating history and strategic acquisitions since the Recapitalization.

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 and leases, 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, servicing fees, 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 loan and lease losses, provision for income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy and equipment expenses and other miscellaneous operating costs.

Our second quarter 2018 results reflect solid growth in net interest income, primarily driven by the First Evanston acquisition. Net interest margin improved to 4.43% for the second quarter of 2018, compared to 4.02% for the second quarter of 2017, primarily due to strong loan and lease growth and an increase in interest rates on variable rate loans during the quarter. Our total revenues increased by approximately $10.6 million, or 24.7%, compared to the second quarter of 2017, primarily driven by loan originations and increased loan and lease yields. Additionally, our adjusted efficiency ratio improved from 66.23% at June 30, 2017 to 63.48% at June 30, 2018. 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.

	As of or For the Three Months Ended June 30,						As of or For the Six Months Ended June 30,
(dollars in thousands, except share and per share data)	2018			2017			2018			2017
Summary of Operations
Net interest income	$	39,056		$	29,811		$	72,751		$	59,349
Provision for loan and lease losses		3,956			3,515			9,071			5,406
Non-interest income		14,502			13,193			25,930			25,501
Non-interest expense		45,770			29,249			77,689			58,100
Income before provision for income taxes		3,832			10,240			11,921			21,344
Provision for income taxes		1,064			4,094			2,385			8,638
Net income		2,768			6,146			9,536			12,706
Dividends on preferred shares		198			10,697			391			10,886
Income available (loss attributable) to common stockholders	$	2,570		$	(4,551	)	$	9,145		$	1,820
Earnings per Common Share
Basic earnings (loss) per common share	$	0.08		$	(0.18	)	$	0.30		$	0.07
Diluted earnings (loss) per common share	$	0.08		$	(0.18	)	$	0.29		$	0.07
Adjusted diluted earnings (loss) per share⁽²⁾⁽³⁾	$	0.32		$	(0.18	)	$	0.52		$	0.07
Weighted average common shares outstanding (basic)		31,614,973			24,667,587			30,459,495			24,642,287
Weighted average common shares outstanding (diluted)		32,568,396			24,667,587			31,448,320			25,106,887
Common shares outstanding		36,218,955			29,246,900			36,218,955			29,246,900
Key Ratios and Performance Metrics (annualized where applicable)
Net interest margin		4.43	%		4.02	%		4.44	%		4.01	%
Cost of deposits		0.52	%		0.30	%		0.47	%		0.27	%
Efficiency ratio⁽¹⁾		83.35	%		66.23	%		76.81	%		66.66	%
Adjusted Efficiency ratio^(1)(2)(3)		63.48	%		66.23	%		65.90	%		66.66	%
Non-interest expense to average assets		4.75	%		3.57	%		4.34	%		3.55	%
Adjusted non-interest expense to average assets⁽²⁾⁽³⁾		3.65	%		3.57	%		3.73	%		3.55	%
Return on average stockholders' equity		2.14	%		6.21	%		3.93	%		6.52	%
Adjusted return on average stockholders' equity⁽²⁾⁽³⁾		8.18	%		6.21	%		6.89	%		6.52	%
Return on average assets		0.29	%		0.75	%		0.53	%		0.78	%
Adjusted return on average assets⁽²⁾⁽³⁾		1.10	%		0.75	%		0.93	%		0.78	%
Non-interest income to total revenues⁽²⁾		27.08	%		30.68	%		26.28	%		30.05	%
Pre-tax pre-provision return on average assets⁽²⁾		0.81	%		1.68	%		1.17	%		1.63	%
Adjusted Pre-tax pre-provision return on average assets⁽²⁾		1.91	%		1.68	%		1.77	%		1.63	%
Non-interest bearing deposits to total deposits		32.73	%		30.77	%		32.73	%		30.77	%
Deposits per branch	$	61,778		$	44,572		$	61,778		$	44,572
Loans and leases held for sale and loans and leases held for investment to total deposits		92.03	%		84.87	%		92.03	%		84.87	%
Deposits to total liabilities		87.01	%		87.23	%		87.01	%		87.23	%
Tangible book value per common share⁽²⁾	$	12.18		$	12.55		$	12.18		$	12.55
Asset Quality Ratios
Non-performing loans and leases to total loan and leases held for investment, net before ALLL		0.81	%		0.76	%		0.81	%		0.76	%
ALLL to total loans and leases held for investment, net before ALLL		0.59	%		0.65	%		0.59	%		0.65	%
Net charge-offs to average total loans and leases held for investment, net before ALLL		0.29	%		0.26	%		0.50	%		0.22	%
Acquisition accounting adjustments⁽⁴⁾	$	52,090		$	37,713		$	52,090		$	37,713
Capital Ratios
Common equity to assets		12.63	%		13.01	%		12.63	%		13.01	%
Tangible common equity to tangible assets⁽²⁾		9.51	%		11.16	%		9.51	%		11.16	%
Leverage ratio		10.57	%		11.73	%		10.57	%		11.73	%
Common equity tier 1 capital ratio		10.88	%		13.61	%		10.88	%		13.61	%
Tier 1 capital ratio		12.36	%		15.06	%		12.36	%		15.06	%
Total capital ratio		12.92	%		15.68	%		12.92	%		15.68	%

We reported consolidated net income for the three months ended June 30, 2018 of $2.8 million compared to net income of $6.1 million for the three months ended June 30, 2017, a decrease of $3.3 million. The decrease in net income was primarily attributable to a $16.6 million increase in non-interest expense and a $441,000 increase in provision for loan and lease losses, offset by a $9.3 million increase in net interest income, a $1.3 million increase in non-interest income, and a $3.0 million decrease in provision for income taxes. The increase in non-interest expense was primarily due to an increase in data processing of $7.9 million due to expenses regarding the upcoming core system conversion, an increase in legal, audit and other professional fees of $3.3 million due to acquisition related expenses, and an increase in salaries and employee benefits of $2.0 million due to organizational growth as a result of the First Evanston acquisition. The increase in provision for loan and lease losses was mainly due to an increase to the general reserve driven by new loan and lease originations. The increase in net interest margin during the three months ended June 30, 2018 was primarily driven by increased loan and lease yields as a result of recent rate increases, slightly offset by increased interest-bearing deposit yields during the quarter. The increase in non-interest income was driven by additional loan sales during the quarter. The decrease in provision for income taxes was primarily driven by a decrease in the federal corporate income tax rate as a result of federal tax reform.

Net income available to common stockholders was $2.6 million or $0.08 per basic and diluted common share for the three months ended June 30, 2018, compared to a $4.6 million net loss or $(0.18) per basic and diluted common share for the three months ended June 30, 2017. Dividends on preferred shares were $198,000 for the three months ended June 30, 2018 compared to $10.7 million for the three months ended June 30, 2017, as a result of the Series A preferred stock redemption at the time of the IPO.

Our annualized return on average assets for the three months ended June 30, 2018 was 0.29% compared to 0.75% for the three months ended June 30, 2017. Our annualized return on stockholders’ equity was 2.14% for the three months ended June 30, 2018 compared to 6.21% for the three months ended June 30, 2017.

We reported consolidated net income for the six months ended June 30, 2018 of $9.5 million compared to net income of $12.7 million for the six months ended June 30, 2017, a decrease of $3.2 million. The decrease in net income was primarily attributable to a $19.6 million increase in non-interest expense and a $3.7 million increase in provision for loan and lease losses, offset by a $13.5 million increase in net interest income, a $6.2 million decrease in provision for income taxes, and a $429,000 increase in non-interest income. The increase in non-interest expense was primarily due to an increase in data processing of $7.8 million due to expenses regarding the upcoming core system conversion, an increase in salaries and employee benefits of $3.7 million due to organizational growth as a result of the First Evanston acquisition, and an increase in legal, audit and other professional fees of $3.5 million due to acquisition related expenses. The increase in provision for loan and lease losses was primarily driven by new loan and lease originations. The increase in net interest margin during the six months ended June 30, 2018 was primarily driven by increased loan and lease yields and increased securities yields, slightly offset by increased interest-bearing deposits yields during the period. The decrease in provision for income taxes was primarily driven by a decrease in the federal corporate income tax rate as a result of federal tax reform and the increase in non-interest income was driven by additional swap fee income during the period.

Net income available to common stockholders was $9.1 million or $0.30 per basic and $0.29 per diluted common share for the six months ended June 30, 2018, compared to $1.8 million or $0.07 per basic and diluted common share for the six months ended June 30, 2017. Dividends on preferred shares were $391,000 for the six months ended June 30, 2018 compared to $10.9 million for the six months ended June 30, 2017.

Our annualized return on average assets for the six months ended June 30, 2018 was 0.53% compared to 0.78% for the six months ended June 30, 2017. Our annualized return on stockholders’ equity was 3.93% for the six months ended June 30, 2018 compared to 6.52% for the six months ended June 30, 2017.

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, FHLB 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 the Recapitalization and the acquisitions of Ridgestone and First Evanston, we derive a portion of our interest income from the accretable discounts on acquired loans. The accretion is 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 evidence of credit deterioration at acquisition represent a meaningful portion of our interest-earning assets. As of June 30, 2018, acquired loans with evidence of credit deterioration accounted for under ASC Topic 310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, represented 9.3% of our total loan portfolio.

Changes in the market interest rates and 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 table presents, 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).

	Three Months Ended June 30,
	2018								2017
	Average Balance⁽⁵⁾			Interest Inc / Exp		Average Yield / Rate			Average Balance⁽⁵⁾			Interest Inc / Exp		Average Yield / Rate
ASSETS
Cash and cash equivalents	$	68,019		$	199		1.17	%	$	80,327		$	174		0.87	%
Loans and leases⁽¹⁾		2,638,757			39,627		6.02	%		2,153,482			29,181		5.44	%
Securities available-for-sale		694,154			4,203		2.43	%		605,688			3,134		2.08	%
Securities held-to-maturity		96,414			583		2.42	%		116,931			675		2.32	%
Tax-exempt securities⁽²⁾		36,749			229		2.50	%		21,413			151		2.83	%
Total interest-earning assets	$	3,534,093		$	44,841		5.09	%	$	2,977,841		$	33,315		4.49	%
Allowance for loan and lease losses		(18,292	)							(12,377	)
All other assets		347,383								319,201
TOTAL ASSETS	$	3,863,184							$	3,284,665
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Interest checking	$	227,760		$	124		0.22	%	$	187,825		$	31		0.07	%
Money market accounts		469,066			781		0.67	%		374,383			226		0.24	%
Savings		454,295			83		0.07	%		447,324			79		0.07	%
Time deposits		864,348			2,757		1.28	%		799,285			1,587		0.80	%
Total interest-bearing deposits		2,015,469			3,745		0.75	%		1,808,817			1,923		0.43	%
Federal Home Loan Bank advances		342,825			1,360		1.59	%		225,579			772		1.37	%
Other borrowed funds		57,644			680		4.73	%		76,255			809		4.26	%
Total borrowings		400,469			2,040		2.04	%		301,834			1,581		2.10	%
Total interest-bearing liabilities	$	2,415,938		$	5,785		0.96	%	$	2,110,651		$	3,504		0.67	%
Non-interest bearing demand deposits		891,175								745,907
Other liabilities		37,524								31,290
Total stockholders’ equity		518,547								396,817
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,863,184							$	3,284,665
Net interest spread⁽³⁾							4.13	%							3.82	%
Net interest income				$	39,056							$	29,811
Net interest margin⁽⁴⁾							4.43	%							4.02	%

Net loan accretion impact on margin				$	3,604		0.41	%				$	2,471		0.33	%
Net interest margin excluding accretion⁽⁶⁾							4.02	%							3.69	%

	Six Months Ended June 30,
	2018								2017
	Average Balance⁽⁵⁾			Interest Inc / Exp		Average Yield / Rate			Average Balance⁽⁵⁾			Interest Inc / Exp		Average Yield / Rate
ASSETS
Cash and cash equivalents	$	53,337		$	281		1.06	%	$	58,218		$	222		0.77	%
Loans and leases⁽¹⁾		2,458,019			73,281		6.01	%		2,174,118			57,577		5.34	%
Securities available-for-sale		661,697			7,825		2.38	%		614,367			6,344		2.08	%
Securities held-to-maturity		99,109			1,193		2.43	%		119,518			1,376		2.32	%
Tax-exempt securities⁽²⁾		32,140			403		2.53	%		19,933			284		2.87	%
Total interest-earning assets	$	3,304,302		$	82,983		5.06	%	$	2,986,154		$	65,803		4.44	%
Allowance for loan and lease losses		(17,828	)							(11,772	)
All other assets		327,357								325,075
TOTAL ASSETS	$	3,613,831							$	3,299,457
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Interest checking	$	207,337		$	162		0.16	%	$	184,881		$	58		0.06	%
Money market accounts		407,647			1,152		0.57	%		370,848			438		0.24	%
Savings		445,663			159		0.07	%		447,107			158		0.07	%
Time deposits		799,410			4,770		1.20	%		794,950			2,752		0.70	%
Total interest bearing deposits		1,860,057			6,243		0.68	%		1,797,786			3,406		0.38	%
Federal Home Loan Bank advances		353,125			2,718		1.55	%		263,268			1,432		1.10	%
Other borrowed funds		57,061			1,271		4.49	%		73,065			1,616		4.46	%
Total borrowings		410,186			3,989		1.96	%		336,333			3,048		1.83	%
Total interest bearing liabilities	$	2,270,243		$	10,232		0.91	%	$	2,134,119		$	6,454		0.61	%
Non-interest checking		817,908								731,117
Other liabilities		36,476								40,972
Total stockholders’ equity		489,204								393,249
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,613,831							$	3,299,457
Net interest spread⁽³⁾							4.15	%							3.83	%
Net interest income				$	72,751							$	59,349
Net interest margin⁽⁴⁾							4.44	%							4.01	%

Net loan accretion impact on margin				$	5,941		0.36	%				$	4,181		0.28	%
Net interest margin excluding loan accretion⁽⁶⁾							4.08	%							3.73	%

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):

	Three Months Ended June 30, 2018 compared to Three Months Ended June 30, 2017
	Increase (Decrease) Due to
	Volume			Rate			Total
Interest income
Cash and cash equivalents	$	(35	)	$	60		$	25
Loans and leases⁽¹⁾		7,287			3,159			10,446
Securities available-for-sale		536			533			1,069
Securities held-to-maturity		(124	)		32			(92	)
Tax-exempt securities		96			(18	)		78
Total interest income	$	7,760		$	3,766		$	11,526
Interest expense
Deposits
Interest checking	$	22		$	71		$	93
Money market accounts		158			397			555
Savings		1			3			4
Time deposits		207			963			1,170
Total interest-bearing deposits		388			1,434			1,822
Federal Home Loan Bank advances		465			123			588
Other borrowed funds		(219	)		90			(129	)
Total borrowings		246			213			459
Total interest expense	$	634		$	1,647		$	2,281
Net interest income	$	7,126		$	2,119		$	9,245

Net interest income for the three months ended June 30, 2018 was $39.1 million compared to $29.8 million during the same period in 2017, an increase of $9.2 million, or 31.2%. The increase in interest income of $11.5 million was primarily a result of loans and securities assumed as a result of the First Evanston acquisition and an increase in average yield on loans and leases. Interest expense increased by $2.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, primarily due to deposits assumed as a result of the acquisition, an increase in time deposits and money market demand deposits driven by continued promotional campaigns during the quarter, and a slight increase in average yield on interest-bearing deposits due to increased interest rates.

	Six Months Ended June 30, 2018 compared to Six Months Ended June 30, 2017
	Increase (Decrease) Due to
	Volume			Rate			Total
Interest income
Cash and cash equivalents	$	(25	)	$	84		$	59
Loans and leases⁽¹⁾		8,464			7,240			15,704
Securities available for sale		560			921			1,481
Securities held to maturity		(246	)		63			(183	)
Tax-exempt securities		153			(34	)		119
Total interest income	$	8,906		$	8,274		$	17,180
Interest expense
Deposits
Interest checking	$	17		$	87		$	104
Money market accounts		104			610			714
Savings		(1	)		2			1
Time deposits		27			1,991			2,018
Total interest-bearing deposits		147			2,690			2,837
Federal Home Loan Bank advances		692			594			1,286
Other borrowed funds		(357	)		12			(345	)
Total borrowings		335			606			941
Total interest expense	$	482		$	3,296		$	3,778
Net interest income	$	8,424		$	4,978		$	13,402

Net interest income for the six months ended June 30, 2018 was $72.8 million compared to $59.3 million during the same period in 2017, an increase of $13.4 million, or 22.8%. The increase in interest income of $17.2 million was primarily a result of an increase in average yield on loans and leases, loan growth as a result of the First Evanston acquisition, and an increase in average yield on securities available-for-sale. Interest expense increased by $3.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily due to an increase in average yield on interest-bearing deposits and deposit growth as a result of acquired time deposits.

The net interest margin for the three months ended June 30, 2018 was 4.43%, an increase of 41 basis points compared to 4.02% for the three months ended June 30, 2017. The net interest margin for the six months ended June 30, 2018 was 4.44%, an increase of 43 basis points compared to 4.01% for the six months ended June 30, 2017. The primary driver of the increase for the three and six month periods was due to an increase in average loan and lease yields and an increase in loan accretion income, partially offset by an increase in average interest-bearing deposit yields. Net loan accretion income was $3.6 million for the three months ended June 30, 2018 compared to $2.5 million for the three months ended June 30, 2017. Net loan accretion income was $5.9 for the six months ended June 30, 2018 compared to $4.2 million for the six months ended June 30, 2017. Total net loan accretion on acquired loans contributed 41 basis points to the net interest margin for the three months ended June 30, 2018, compared to 33 basis points for the three months ended June 30, 2017. Total net loan accretion on acquired loans contributed 36 basis points to the net interest margin for the six months ended June 30, 2018, compared to 28 basis points for the six months ended June 30, 2017.

The provision for loan and lease losses represents a charge to earnings necessary to establish an allowance for loan and lease losses that, in management’s evaluation, is appropriate to provide coverage for probable losses incurred in the loan and lease portfolio. The allowance for loan and lease losses is increased by the provision for loan and lease losses and is decreased by charge-offs, net of recoveries on prior charge-offs.

Provisions for loan and lease losses totaled $4.0 million and $3.5 million for the three months ended June 30, 2018 and 2017, respectively, an increase of $441,000. Provisions for loan and lease losses totaled $9.1 million and $5.4 million for the six months ended June 30, 2018 and 2017, respectively, an increase of $3.7 million. These increases were mainly due to an increase in a specific reserve on a commercial loan relationship during the first quarter of 2018, slight credit deterioration in the government guaranteed acquired non-credit impaired portfolio, and an increase to the general reserve driven by growth in the originated loan and lease portfolio.

The ALLL as a percentage of loans and leases, net of acquisition accounting adjustments, decreased from 0.72% at December 31, 2017, to 0.59% at June 30, 2018. The decrease was primarily due to an increase in the loan portfolio from the First Evanston acquisition, which has been adjusted to fair value under ACS Topic 805, Business Combinations.

We reported non-interest income of $14.5 million and $13.2 million for the three months ended June 30, 2018 and 2017, respectively. The increase of $1.3 million was primarily due to an increase in gains on sales of government guaranteed loans through our Small Business Capital operations of $1.3 million for the three months ended June 30, 2018 compared to the same period in 2017. The gains on sale of loans were $9.7 million for the three months ended June 30, 2018, compared to $8.4 million for the three months ended June 30, 2017. The increase is also attributed to an increase in other non-interest income of $852,000 primarily due to an increase in customer derivative products fee income partially offset by a net loss on sale of an asset held for sale for the three months ended June 30, 2018. These increases were partially offset by a decrease in net servicing fees of $617,000 for the three months ended June 30, 2018, primarily due to a change in fair value of the servicing asset as a result of increases in prepayment speed assumptions on government guaranteed loans.

We reported non-interest income of $25.9 million and $25.5 million for the six months ended June 30, 2018 and 2017, respectively. The increase of $429,000 was primarily due to gains on sales of government guaranteed loans through our Small Business Capital operation of $17.2 million compared to $16.5 million during the six months ended June 30, 2017, and an increase in other non-interest income of $829,000 primarily due an increase in swap fee income. These increases were partially offset by a decrease in net servicing fees of $973,000 for the six months ended June 30, 2017.

Service charges and fees represent fees 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 fees. Fees and service charges on deposits increased $108,000 for the three months ended June 30, 2018 compared to the same period in 2017. Fees and service charges on deposits increased $201,000 for the six months ended June 30, 2018 compared to the same period in 2017. The increases were primarily driven by additional deposits from the First Evanston acquisition.

While portions of the loans that we originate are sold and generate gain on sale revenue, servicing rights for the majority of loans that we sell are retained by Byline Bank. In exchange for continuing to service loans that have been sold,

Byline Bank receives a servicing fee paid from a portion of the interest cash flow of the loan. Small Business Capital generated $459,000 in net servicing fees on the sold portion of the government guaranteed portfolio for the three months ended June 30, 2018, compared to $1.1 million for the three months ended June 30, 2017, a decrease of $617,000. Net servicing fees decreased $973,000 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The decreases were primarily driven by the change in fair value of the servicing asset as a result of increases in prepayment speed assumptions on government guaranteed loans.

ATM and interchange fee income decreased by $358,000 for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. ATM and interchange fees increased $488,000 for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily driven by additional accounts from the First Evanston acquisition offset by a revision to our assessment schedule.

Gains on sales of securities during the three months ended June 30, 2018 were $4,000 and there were no security sales for the three months ended June 30, 2017. Gains on sales of securities during the six months ended June 30, 2018 were $4,000 compared to $8,000 for the six months ended June 30, 2017.

Net gains on sales of loans increased by $1.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and increased $672,000 for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily driven by a higher volume of loans sold.

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 management. Wealth management and trust income was $192,000 for the three and six months ended June 30, 2018, which represents one month of operations subsequent to the acquisition closing. There was no income prior to the First Evanston acquisition in the second quarter of 2018, as we did not offer these services prior to the acquisition. The Company has $610.9 million of assets under management as of June 30, 2017.

Other non-interest income was $1.5 million for the three months ended June 30, 2018, which is an increase of 85.1% compared to $825,000 for the three months ended June 30, 2017. Other non-interest income was $2.4 million compared to $1.6 million for the six months ended June 30, 2018 and 2017, respectively. The primary driver of the increases was an increase in customer swap fee income of $767,000 due to additional customer swaps executed during the first and second quarters partially offset by a $313,000 decrease in gain on death benefit for bank owned life insurance regarding a gain recorded in the first quarter of 2017.

Non-interest expense for the three months ended June 30, 2018 was $45.8 million compared to $29.2 million for the three months ended June 30, 2017, an increase of $16.5 million or 56.8%. Non-interest expense for the six months ended June 30, 2018 was $77.7 million compared to $58.1 million for the six months ended June 30, 2017, an increase of $19.6 million or 33.7%.

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Salaries and employee benefits	$	19,244	$	17,226	$	37,522	$	33,828
Occupancy expense, net		4,499		3,485		8,254		7,224
Equipment expense		558		616		1,161		1,179
Loan and lease related expenses		1,471		801		2,871		1,678
Legal, audit and other professional fees		4,418		1,090		6,269		2,761
Data processing		10,371		2,447		12,672		4,856
Net loss (gain) recognized on other real estate owned and other related expenses		472		141		471		(429	)
Regulatory assessments		366		384		607		568
Other intangible assets amortization expense		1,130		769		1,897		1,538
Advertising and promotions		347		318		596		607
Telecommunications		466		396		884		814
Other non-interest expense		2,428		1,576		4,485		3,476
Total non-interest expense	$	45,770	$	29,249	$	77,689	$	58,100

Salaries and employee benefits, the single largest component of our non-interest expense, totaled $19.2 million for the three months ended June 30, 2018 compared to $17.2 million for the three months ended June 30, 2017, an increase of $2.0 million or 11.6%. Salaries and employee benefits totaled $37.5 million for the six months ended June 30, 2018, an increase of $3.7 million compared to the six months ended June 30, 2017. The increases were primarily driven by an addition in the number of employees as a result of the First Evanston acquisition. Our staffing increased from 833 full-time equivalent employees as of June 30, 2017 to 950 as of June 30, 2018.

Occupancy expense for the three months ended June 30, 2018 was $4.5 million compared to $3.5 million for the three months ended June 30, 2017, an increase of $1.0 million or 28.6%. Occupancy expense increased $1.0 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The increases were primarily a result of lease termination costs and building maintenance expenses associated with branch consolidations during the second quarter of 2018.

Equipment expense for three months ended June 30, 2018 was $558,000 compared to $616,000 for the three months ended June 30, 2017, a decrease of $58,000 or 9.4%. Equipment expense for the six months ended June 30, 2018 was $1.2 million compared to $1.2 million for the six months ended June 30, 2017, a decrease of $18,000. The decreases were primarily due to branch consolidations during the second quarter of 2018.

Loan and lease related expenses for the three months ended June 30, 2018 were $1.5 million compared to $801,000 for the three months ended June 30, 2017, an increase of $670,000 or 83.6%. Loan and lease related expenses for the six months ended June 30, 2018 were $2.9 million compared to $1.7 million for the six months ended June 30, 2017, an increase of $1.2 million. The increases were primarily driven by loan originations during the quarter and additional loans from the First Evanston acquisition, partially offset by lower collection expenses for problem loans.

Legal, audit and other professional fees for the three months ended June 30, 2018 were $4.4 million compared to $1.1 million for the three months ended June 30, 2017, an increase of $3.3 million or 300.0%. Legal, audit and other professional fees for the six months ended June 30, 2018 were $6.3 million compared to $2.8 million for the six months ended June 30, 2017, an increase of $3.5 million. The increases were primarily driven by increased legal and professional services incurred related to the First Evanston acquisition and upcoming core system conversion.

Data processing expense for the three months ended June 30, 2018 was $10.4 million compared to $2.4 million for the three months ended June 30, 2017, an increase of $7.9, or 333.3%. Data processing expense was $12.7 million for the six months ended June 30, 2018 compared to $4.9 million for the six months ended June 30, 2017. The increases were primarily due to contract termination expenses regarding the upcoming core system conversion.

Net loss recognized on other real estate owned and other related expenses were $472,000 for the three months ended June 30, 2018 compared to $141,000 for three months ended June 30, 2017, an increase of $331,000 or 234.8%. The increase was primarily due to an increased volume of sales of other real estate owned properties. Net loss recognized on other real estate owned and other related expenses for the six months ended June 30, 2018 were $471,000 compared to a net gain of $429,000 for the six months ended June 30, 2017. The increase in net loss recognized on other real estate owned and other related expenses was primarily attributed to increased OREO related expenses and volume of sales of other real estate owned properties.

Regulatory assessments for the three months ended June 30, 2018 were $366,000 compared to $384,000 for the three months ended June 30, 2017, a decrease of $18,000 or 4.7%. The decrease is a result of our improved risk profile as a result of improved financial ratios and performance. Regulatory assessments for the six months ended June 30, 2018 were $607,000 compared to $568,000 for the same period in 2017, an increase of $39,000 or 6.9%. The increase was primarily due to our increased asset size, offset by our improved risk profile as a result of improved financial ratios and performance.

Advertising and promotions for the three months ended June 30, 2018 were $347,000 compared to $318,000 for the three months ended June 30, 2017, an increase of $29,000 or 9.1%. Advertising and promotions were $596,000 for the six months ended June 30, 2018 compared to $607,000 for the same period in 2017, a decrease of $11,000, primarily due to a decrease in advertising and promotions attributable to our Small Business Capital operations.

Telecommunications expense was $466,000 for the three months ended June 30, 2018 compared to $396,000 for the three months ended June 30, 2017, an increase of $70,000. Telecommunications expense was $884,000 for the six months ended June 30, 2018, an increase of $70,000 or 8.6% compared to the same period in 2017. The increases were primarily due to additional wireless services.

Other non-interest expense for the three months ended June 30, 2018 was $2.4 million compared to $1.6 million for the three months ended June 30, 2017, an increase of $852,000 or 54.1%. The increase includes impairment charges on assets held for sale of $117,000 for the three months ended June 30, 2018 compared to no charges over the comparable period in 2017. Director’s fees increased $152,000 for the three months ended June 30, 2018 as a result of adding directors.

Other non-interest expense was $4.5 million for the six months ended June 30, 2018 compared to $3.5 million for the six months ended June 30, 2017. During the six months ended June 30, 2018, we incurred impairment charges on assets held for sale of $117,000 compared to no charges over the comparable period in 2017. Our provision for unfunded commitments was $84,000 for the six months ended June 30, 2018 compared to a benefit $27,000 for the six months ended June 30, 2017, an increase of $111,000, primarily due to growth in our unfunded loan and lease commitments. Director’s fees increased $151,000 for the six months ended June 30, 2018 compared to the comparable period in 2017 as a result of adding directors.

Our efficiency ratio was 83.35% for the three months ended June 30, 2018, compared to 66.23% for the three months ended June 30, 2017. Our efficiency ratio was 76.81% for the six months ended June 30, 2018, compared to 66.66% for the comparable period in 2017. The changes in our efficiency ratio are primarily attributable to increased non-interest expense resulting from our acquisition and integration of First Evanston, including merger related expenses and core system conversion expenses. Our adjusted efficiency ratio was 63.48% for the three months ended June 30, 2018, compared to 66.23% for the three months ended June 30, 2017. Our adjusted efficiency ratio was 65.90% for the six months ended June 30, 2018, compared to 66.66% for the comparable period in 2017. 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 tax expense was $1.1 million for the three months ended June 30, 2018 compared to $4.1 million for the three months ended June 30, 2017. The decrease in income tax expense was primarily due to the “H.R. 1”, commonly known as the “Tax Cuts and Jobs Act” (“Tax Act”), which was signed into law on December 22, 2017. Among other items, the law reduced the federal corporate income tax rate to 21% effective January 1, 2018. As a result of the new 21% corporate federal tax rate, the Company expects its effective tax rate for 2018 to be between approximately 27% and 29%.

Our provision for income taxes for the six months ended June 30, 2018 totaled $2.4 million compared to $8.6 million for the six months ended June 30, 2017. The decrease in income tax expense is primarily attributable to the federal tax reform discussed above. Our effective tax rate was 20.0% for the six months ended June 30, 2018.

Also on December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, not to extend beyond one year from the date of enactment during which a company, acting in good faith, may complete the accounting for the impacts of the Tax Act. At June 30, 2018, the Company’s accounting for the impact of the Tax Act on its net deferred tax assets is based upon reasonable estimates of the tax effects of the Tax Act; however, these estimates may change as additional information and interpretive guidance regarding the provisions of the Tax Act become available. As a result of the rate change, the Company’s net deferred tax assets were required to be revalued, and we recorded net income tax benefit of $724,000 during the first quarter of 2018.

Our total assets increased by $1.4 billion, or 42.8%, to $4.8 billion at June 30, 2018, compared to December 31, 2017. The increase in total assets includes an increase of $1.1 billion, or 47.0%, in loans and, an increase in investment securities of $164.0 million, and an increase in interest bearing deposits with other banks of $88.5 million. These increases are primarily attributed to the First Evanston acquisition and organic loan growth. These increases were partially offset by a decrease in due from counterparty, which decreased $14.3 million.

The investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity. There were no trading securities in our investment portfolio as of June 30, 2018 or December 31, 2017. 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 increased $174.6 million, from $583.2 million at December 31, 2017 to $757.8 million at June 30, 2018. The increase was primarily due to the acquisition of the First Evanston securities portfolio, as well as additional purchases of agency, mortgage-backed, and U.S. Treasury securities during the year.

Our held-to-maturity securities portfolio consists of mortgage-backed securities and obligations of states, municipalities and political subdivisions. We carry these securities at amortized cost, and at June 30, 2018 totaled $106.6 million compared to $117.2 million at December 31, 2017, a decrease of $10.6 million, or 9.0%, primarily due to principal paydowns received during the year.

We had no securities that were classified as having other-than-temporary-impairment at June 30, 2018 or December 31, 2017.

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):

	June 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale
U.S. Treasury Notes	$	44,683	$	44,423	$	14,999	$	14,863
U.S. Government agencies		146,887		145,009		54,248		52,958
Obligations of states, municipalities, and political subdivisions		59,995		59,293		33,405		33,170
Residential mortgage-backed securities
Agency		313,823		299,534		315,103		307,457
Non-agency		63,519		61,963		39,485		39,514
Commercial mortgage-backed securities
Agency		76,332		73,253		70,964		69,043
Non-agency		31,612		30,104		31,763		30,971
Corporate securities		37,707		37,590		29,573		29,976
Other securities		4,610		6,656		3,627		5,284
Total	$	779,168	$	757,825	$	593,167	$	583,236

The Company did not classify securities as trading during six months ended June 30, 2018 or during 2017.

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At June 30, 2018, we evaluated the securities which had an unrealized loss for other than temporary impairment and determined all declines in value to be temporary. There were 224 investment securities with unrealized losses at June 30, 2018. 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) sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the dates presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Maturity as of June 30, 2018
	Due in One Year or Less					Due from One to Five Years					Due from Five to Ten Years					Due after Ten Years
	Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾
Available-for-sale
U.S. Treasury Notes	$	14,904		2.22	%	$	29,779		2.01	%	$	—		0.00	%	$	—		0.00	%
U.S. government agencies		18,924		2.05	%		112,926		2.27	%		15,037		2.26	%		—		0.00	%
Obligations of states, municipalities, and political subdivisions		2,951		1.88	%		27,544		2.35	%		18,001		2.56	%		11,499		3.13	%
Residential mortgage-backed securities
Agency		—		0.00	%		—		0.00	%		30,512		1.89	%		283,311		2.18	%
Non-agency		—		0.00	%		—		0.00	%		—		0.00	%		63,519		3.34	%
Commercial mortgage-backed securities
Agency		—		0.00	%		—		0.00	%		18,754		2.92	%		57,578		2.21	%
Non-agency		—		0.00	%		—		0.00	%		—		0.00	%		31,612		2.61	%
Corporate securities		3,700		3.33	%		17,492		4.41	%		16,515		4.08	%		—		0.00	%
Other securities		—		0.00	%		—		0.00	%		—		0.00	%		4,610		3.45	%
Total	$	40,479				$	187,741				$	98,819				$	452,129

	Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾
Held-to-maturity
Obligations of states, municipalities, and political subdivisions	$	—		0.00	%	$	4,060		2.21	%	$	11,646		2.61	%	$	8,228		2.81	%
Residential mortgage-backed securities
Agency		—		0.00	%		—		0.00	%		—		0.00	%		45,422		2.27	%
Non-agency		—		0.00	%		—		0.00	%		—		0.00	%		37,257		3.35	%
Total	$	—		0.00	%	$	4,060		2.21	%	$	11,646		2.61	%	$	90,907		2.76	%

	Maturity as of December 31, 2017
	Due in One Year or Less					Due from One to Five Years					Due from Five to Ten Years					Due after Ten Years
	Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾
Available-for-sale
U.S. Treasury Notes	$	4,999		1.04	%	$	10,000		1.21	%	$	—		0.00	%	$	—		0.00	%
U.S. government agencies		3,001		1.06	%		41,247		1.50	%		10,000		1.74	%		—		0.00	%
Obligations of states, municipalities, and political subdivisions		285		3.30	%		4,902		2.92	%		17,149		2.48	%		11,069		3.18	%
Residential mortgage-backed securities
Agency		—		0.00	%		—		0.00	%		15,855		1.62	%		299,248		2.01	%
Non-agency		—		0.00	%		—		0.00	%		—		0.00	%		39,485		3.12	%
Commercial mortgage-backed securities
Agency		—		0.00	%		—		0.00	%		11,557		1.98	%		59,407		2.19	%
Non-agency		—		0.00	%		—		0.00	%		—		0.00	%		31,763		2.61	%
Corporate securities		—		0.00	%		16,283		4.44	%		13,290		3.67	%		—		0.00	%
Other securities		—		0.00	%		—		0.00	%		—		0.00	%		3,627		3.63	%
Total	$	8,285		1.13	%	$	72,432		2.22	%	$	67,851		2.32	%	$	444,599		2.22	%

	Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾			Amortized Cost		Weighted Average Yield⁽¹⁾
Held-to-maturity
Obligations of states, municipalities, and political subdivisions	$	—		0.00	%	$	1,719		2.20	%	$	13,532		2.53	%	$	8,779		2.82	%
Residential mortgage-backed securities
Agency		—		0.00	%		—		0.00	%		—		0.00	%		53,731		2.20	%
Non-agency		—		0.00	%		—		0.00	%		—		0.00	%		39,402		3.29	%
Total	$	—		0.00	%	$	1,719		2.20	%	$	13,532		2.53	%	$	101,912		2.67	%

Total non-taxable securities classified as obligations of states, municipalities and political subdivisions were $53.1 million at June 30, 2018, an increase of $26.4 million from December 31, 2017.

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, 2018 or December 31, 2017.

As a member of the Federal Home Loan Bank system, our 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, our bank owns stock of Bankers’ Bank that was acquired as part of the Ridgestone acquisition. The stock is redeemable at par and carried at cost. As of June 30, 2018 and December 31, 2017, we held approximately $19.0 million and $16.3 million, respectively, in FHLB and Bankers’ Bank stocks. 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, 2018 and December 31, 2017.

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, 2018 were $3.3 billion, an increase of $1.1 billion compared to December 31, 2017. Our originated loan and lease portfolio increased $231.4 million and our acquired loan and lease portfolio increased $839.8 million during the first six months of 2018. The growth in the originated loan and lease portfolio was primarily driven by increases in commercial and industrial loans and leases. The growth in the acquired loan and lease portfolio was driven by the First Evanston acquisition.

We strive to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral. The following table shows our allocation of originated, acquired impaired and acquired non-impaired loans as of the dates presented (dollars in thousands):

	June 30, 2018						December 31, 2017
	Amount			% of Total			Amount			% of Total
Originated loans
Commercial real estate	$	539,529			16.1	%	$	513,622			22.5	%
Residential real estate		413,956			12.4	%		400,571			17.6	%
Construction, land development, and other land		134,004			4.0	%		97,638			4.3	%
Commercial and industrial		556,340			16.6	%		416,499			18.3	%
Installment and other		4,898			0.1	%		3,724			0.2	%
Leasing financing receivables		156,017			4.7	%		141,329			6.2	%
Total originated loans	$	1,804,744			53.9	%	$	1,573,383			69.1	%
Acquired impaired loans
Commercial real estate	$	162,621			4.9	%	$	166,712			7.3	%
Residential real estate		129,737			3.9	%		144,562			6.4	%
Construction, land development, and other land		4,860			0.1	%		5,946			0.3	%
Commercial and industrial		15,347			0.4	%		10,008			0.4	%
Installment and other		521			0.0	%		462			0.0	%
Total acquired impaired loans	$	313,086			9.3	%	$	327,690			14.4	%
Acquired non-impaired loans
Commercial real estate	$	532,837			15.9	%	$	211,359			9.3	%
Residential real estate		155,895			4.7	%		32,085			1.4	%
Construction, land development, and other land		49,752			1.5	%		1,845			0.1	%
Commercial and industrial		454,133			13.6	%		94,731			4.1	%
Installment and other		7,387			0.2	%		42			0.0	%
Leasing financing receivables		30,858			0.9	%		36,357			1.6	%
Total acquired non-impaired loans	$	1,230,862			36.8	%	$	376,419			16.5	%
Total loans and leases	$	3,348,692			100.0	%	$	2,277,492			100.0	%
Allowance for loan and lease losses		(19,687	)					(16,706	)
Total loans, net allowance for loan losses	$	3,329,005					$	2,260,786

Loans collateralized by real estate comprised 63.4% and 69.1% of the loan and lease portfolio at June 30, 2018 and December 31, 2017, respectively. Commercial real estate loans comprised the largest portion of the real estate loan portfolio as of June 30, 2018 and December 31, 2017 and totaled $1.2 billion, or 58.2%, of real estate loans and 36.9% of the total loan and lease portfolio at June 30, 2018. At December 31, 2017, commercial real estate loans totaled $891.7 million and comprised 56.6% of real estate loans and 39.2% of the total loan and lease portfolio. Acquired impaired commercial real estate loans continue to decrease from $166.7 million as of December 31, 2017 to $162.6 million as of June 30, 2018, or 2.5%. At June 30, 2018 and December 31, 2017, commercial real estate loans, including both owner-occupied and non-owner occupied, as a percentage of total capital were 364.7% and 346.2%, respectively. Non-owner occupied commercial real estate loans were $1.2 billion, or 261.1% of total capital, at June 30, 2018.

Residential real estate loans totaled $699.6 million at June 30, 2018 compared to $577.2 million at December 31, 2017, an increase of $122.4 million or 21.2%. The residential real estate loan portfolio comprised 32.9% and 36.7% of real estate loans as of June 30, 2018 and December 31, 2017, respectively, and 20.9% and 25.3% of total loans and leases at June 30, 2018 and December 31, 2017, respectively. Acquired impaired residential real estate loans continue to decrease from $144.6 million as of December 31, 2017 to $129.7 million as of June 30, 2018, or 10.3%.

Construction, land development and other land loans totaled $188.6 million at June 30, 2018 compared to $105.4 million at December 31, 2017, an increase of $83.2 million or 78.9%. The construction, land development and other land loan portfolio comprised 8.9% and 6.7% of real estate loans as of June 30, 2018 and December 31, 2017, respectively, and 5.6% and 4.6% of the total loan and lease portfolio as of June 30, 2018 and December 31, 2017, respectively.

Commercial and industrial loans totaled $1.0 billion and $521.2 million at June 30, 2018 and December 31, 2017, respectively, an increase of $504.6 million or 96.8% primarily due to organic growth. The commercial and industrial loan portfolio comprised 30.6% and 22.9% of the total loan and lease portfolio as of June 30, 2018 and December 31, 2017, respectively.

Lease financing receivables comprised 5.6% and 7.8% of the loan and lease portfolio as of June 30, 2018 and December 31, 2017, respectively. Total lease financing receivables were $186.9 million and $177.7 million at June 30, 2018 and December 31, 2017, respectively, an increase of $9.2 million, or 5.2%, due to continued growth in our small-ticket vendor sales channels, and our increased origination activities.

The following table shows our loan and lease portfolio by scheduled maturity at June 30, 2018 (dollars in thousands):

	Due in One Year or Less				Due after One Year Through Five Years				Due after Five Years
	Fixed Rate		Floating Rate		Fixed Rate		Floating Rate		Fixed Rate		Floating Rate		Total
Originated loans
Commercial real estate	$	18,184	$	97,283	$	114,606	$	140,959	$	27,005	$	141,492	$	539,529
Residential real estate		9,552		18,931		80,401		58,149		224,515		22,408		413,956
Construction, land development, and other land		1,174		30,864		21,708		63,235		435		16,588		134,004
Commercial and industrial		7,998		65,663		34,074		255,569		14,371		178,665		556,340
Installment and other		52		3,825		576		—		445		—		4,898
Leasing financing receivables		3,801		—		140,085		—		12,131		—		156,017
Total originated loans	$	40,761	$	216,566	$	391,450	$	517,912	$	278,902	$	359,153	$	1,804,744
Acquired impaired loans
Commercial real estate	$	43,555	$	2,899	$	95,399	$	2,230	$	9,266	$	9,272	$	162,621
Residential real estate		27,088		1,011		76,922		4,325		19,823		568		129,737
Construction, land development, and other land		1,524		164		3,055		—		117		—		4,860
Commercial and industrial		237		3,939		3,217		2,172		2,528		3,254		15,347
Installment and other		93		—		201		—		227		—		521
Total acquired impaired loans	$	72,497	$	8,013	$	178,794	$	8,727	$	31,961	$	13,094	$	313,086
Acquired non-impaired loans
Commercial real estate	$	39,259	$	25,169	$	261,253	$	33,832	$	34,194	$	139,130	$	532,837
Residential real estate		11,946		17,528		50,170		64,199		5,761		6,291		155,895
Construction, land development, and other land		1,393		16,304		6,536		19,039		6,480		-		49,752
Commercial and industrial		11,645		190,283		110,402		57,805		12,552		71,446		454,133
Installment and other		832		4,714		1,505		217		119		—		7,387
Leasing financing receivables		2,611		—		26,706		—		1,541		—		30,858
Total acquired non- impaired loans	$	67,686	$	253,998	$	456,572	$	175,092	$	60,647	$	216,867	$	1,230,862
Total loans	$	180,944	$	478,577	$	1,026,816	$	701,731	$	371,510	$	589,114	$	3,348,692

At June 30, 2018, 47.2% of the loan and lease portfolio bears interest at fixed rates and 52.8% 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.

The ALLL 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 ALLL reflects management’s estimate of probable incurred credit losses inherent in the loan and lease portfolios. The computation includes element of judgement 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 which may affect a borrower’s ability to repay, and evaluation of the prevailing economic conditions. Changes in conditions may necessitate revision of the estimate in future periods.

We assess the ALLL based on three categories: (i) originated loans and leases, (ii) acquired non-impaired loans and leases, and (iii) acquired impaired loans with further credit deterioration after the acquisition or recapitalization.

Total ALLL was $19.7 million at June 30, 2018 compared to $16.7 million at December 31, 2017, an increase of $3.0, or 17.8%. The increase was primarily due to an increase in specific reserve on a commercial loan relationship, slight credit deterioration in the government guaranteed acquired non-credit impaired portfolio, and an increase to the general reserve driven by new loan and lease originations.

Total ALLL was 0.59% and 0.73% of total loans and leases at June 30, 2018 and December 31, 2017, respectively. The decrease was primarily driven by the acquisition of the First Evanston loan portfolio. This ratio is generally below the median of our peer banks, as we valued significant amounts of acquired loans at fair value at acquisition date as a result of the Recapitalization, the Ridgestone acquisition, and the First Evanston acquisition, which, management believes, limits the amount of reserves needed to cover these loans as of June 30, 2018 and December 31, 2017, in accordance with applicable accounting guidance. Acquisition accounting adjustments remaining on loans from the Recapitalization, the Ridgestone acquisition, and the First Evanston acquisition totaled $52.1 million and $31.7 million as of June 30, 2018 and December 31, 2017, respectively.

The following table presents 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, 2018	$	5,318		$	1,564		$	202		$	7,763		$	61		$	2,732		$	17,640
Provision for acquired impaired loans		(259	)		(25	)		(2	)		(242	)		(1	)		—			(529	)
Provision for acquired non-impaired loans and leases		672			(17	)		-			1,055			—			66			1,776
Provision for originated loans		924			126			132			1,143			2			382			2,709
Total provision	$	1,337		$	84		$	130		$	1,956		$	1		$	448		$	3,956
Charge-offs for acquired impaired loans		(159	)		—			—			(58	)		(32	)		—			(249	)
Charge-offs for acquired non-impaired loans and leases		—			—			—			(1,167	)		—			(126	)		(1,293	)
Charge-offs for originated loans and leases		(43	)		—			—			(371	)		—			(429	)		(843	)
Total charge-offs	$	(202	)	$	—		$	—		$	(1,596	)	$	(32	)	$	(555	)	$	(2,385	)
Recoveries for acquired impaired loans		—			—			—			—			—			—			—
Recoveries for acquired non-impaired loans and leases		—			—			—			—			—			79			79
Recoveries for originated loans and leases		—			—			—			246			—			151			397
Total recoveries	$	—		$	—		$	—		$	246		$	—		$	230		$	476
Net charge-offs		202			—			—			1,350			32			325			1,909
Acquired impaired loans		1,502			350			22			874			3			—			2,751
Acquired non-impaired loans and leases		2,424			174			3			1,713			—			472			4,786
Originated loans and leases		2,527			1,124			307			5,782			27			2,383			12,150
Balance at June 30, 2018	$	6,453		$	1,648		$	332		$	8,369		$	30		$	2,855		$	19,687
Ending ALLL balance
Acquired impaired loans	$	1,502		$	350		$	22		$	874		$	3		$	—		$	2,751
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		2,199			127			—			2,555			14			—			4,895
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		2,752			1,171			310			4,940			13			2,855			12,041
Loans and leases ending balance
Acquired impaired loans	$	162,621		$	129,737		$	4,860		$	15,347		$	521		$	—		$	313,086
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		16,397			2,273			—			14,889			14			—			33,573
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		1,055,969			567,578			183,756			995,584			12,271			186,875			3,002,033
Total loans and leases at June 30, 2018, gross	$	1,234,987		$	699,588		$	188,616		$	1,025,820		$	12,806		$	186,875		$	3,348,692
Ratio of net charge-offs to average loans and leases outstanding during the period
Acquired impaired loans		0.03	%		0.00	%		0.00	%		0.01	%		0.01	%		0.00	%		0.05	%
Acquired non-impaired loans and leases		0.00	%		0.00	%		0.00	%		0.21	%		0.00	%		0.01	%		0.22	%
Originated loans and leases		0.01	%		0.00	%		0.00	%		0.02	%		0.00	%		0.05	%		0.08	%
Loans and leases ending balance as a percentage of total loans and leases, gross
Acquired impaired loans		4.86	%		3.87	%		0.15	%		0.46	%		0.02	%		0.00	%		9.35	%
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		0.49	%		0.07	%		0.00	%		0.44	%		0.00	%		0.00	%		1.00	%
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		31.53	%		16.95	%		5.49	%		29.73	%		0.37	%		5.58	%		89.65	%

	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, 2017	$	4,794		$	1,638		$	222		$	7,418		$	41		$	2,593		$	16,706
Provision for acquired impaired loans		(33	)		(83	)		363			(343	)		17			—			(79	)
Provision for acquired non-impaired loans and leases		1,159			(17	)		1			1,703			—			(67	)		2,779
Provision for originated loans		1,144			110			164			4,020			4			929			6,371
Total provision	$	2,270		$	10		$	528		$	5,380		$	21		$	862		$	9,071
Charge-offs for acquired impaired loans		(393	)		—			(418	)		(201	)		(32	)		—			(1,044	)
Charge-offs for acquired non-impaired loans and leases		(78	)		—			—			(1,985	)		—			(137	)		(2,200	)
Charge-offs for originated loans and leases		(140	)		—			—			(2,495	)		—			(928	)		(3,563	)
Total charge-offs	$	(611	)	$	—		$	(418	)	$	(4,681	)	$	(32	)	$	(1,065	)	$	(6,807	)
Recoveries for acquired impaired loans		—			—			—			—			—			—			—
Recoveries for acquired non-impaired loans and leases		—			—			—			6			—			160			166
Recoveries for originated loans and leases		—			—			—			246			—			305			551
Total recoveries	$	—		$	—		$	—		$	252		$	—		$	465		$	717
Net charge-offs		611			—			418			4,429			32			600			6,090
Acquired impaired loans		1,502			350			22			874			3			—			2,751
Acquired non-impaired loans and leases		2,424			174			3			1,713			—			472			4,786
Originated loans and leases		2,527			1,124			307			5,782			27			2,383			12,150
Balance at June 30, 2018	$	6,453		$	1,648		$	332		$	8,369		$	30		$	2,855		$	19,687
Ending ALLL balance
Acquired impaired loans	$	1,502		$	350		$	22		$	874		$	3		$	—		$	2,751
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		2,199			127			—			2,555			14			—			4,895
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		2,752			1,171			310			4,940			13			2,855			12,041
Loans and leases ending balance
Acquired impaired loans	$	162,621		$	129,737		$	4,860		$	15,347		$	521		$	—		$	313,086
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		16,397			2,273			—			14,889			14			—			33,573
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		1,055,969			567,578			183,756			995,584			12,271			186,875			3,002,033
Total loans and leases at June 30, 2018, gross	$	1,234,987		$	699,588		$	188,616		$	1,025,820		$	12,806		$	186,875		$	3,348,692
Ratio of net charge-offs to average loans and leases outstanding during the period (annualized)
Acquired impaired loans		0.07	%		0.00	%		0.07	%		0.04	%		0.01	%		0.00	%		0.19	%
Acquired non-impaired loans and leases		0.01	%		0.00	%		0.00	%		0.35	%		0.00	%		0.00	%		0.36	%
Originated loans and leases		0.02	%		0.00	%		0.00	%		0.40	%		0.00	%		0.11	%		0.54	%
Loans and leases ending balance as a percentage of total loans and leases, gross
Acquired impaired loans		4.86	%		3.87	%		0.15	%		0.46	%		0.02	%		0.00	%		9.35	%
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		0.49	%		0.07	%		0.00	%		0.44	%		0.00	%		0.00	%		1.00	%
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		31.53	%		16.95	%		5.49	%		29.73	%		0.37	%		5.58	%		89.65	%

	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, 2017	$	2,047		$	2,417		$	417		$	4,836		$	331		$	1,769		$	11,817
Provision for acquired impaired loans		1,349			(225	)		25			618			12			—			1,779
Provision for acquired non-impaired loans and leases		22			90			(12	)		1,159			—			1,468			2,727
Provision for originated loans		302			(318	)		(103	)		(140	)		1			(733	)		(991	)
Total provision	$	1,673		$	(453	)	$	(90	)	$	1,637		$	13		$	735		$	3,515
Charge-offs for acquired impaired loans		(52	)		(99	)		—			(125	)		—			—			(276	)
Charge-offs for acquired non-impaired loans and leases		—			(30	)		—			(177	)		—			(183	)		(390	)
Charge-offs for originated loans and leases		—			—			—			(482	)		—			(584	)		(1,066	)
Total charge-offs	$	(52	)	$	(129	)	$	—		$	(784	)	$	—		$	(767	)	$	(1,732	)
Recoveries for acquired impaired loans		—			—			—			—			—			—			—
Recoveries for acquired non-impaired loans and leases		—			—			—			—			—			91			91
Recoveries for originated loans and leases		—			—			—			—			—			278			278
Total recoveries	$	—		$	—		$	—		$	—		$	—		$	369		$	369
Net charge-offs (recoveries)		52			129			—			784			—			398			1,363
Acquired impaired loans		1,722			341			25			1,153			13			—			3,254
Acquired non-impaired loans and leases		124			392			21			1,629			326			1,595			4,087
Originated loans and leases		1,822			1,102			281			2,907			5			511			6,628
Balance at June 30, 2017	$	3,668		$	1,835		$	327		$	5,689		$	344		$	2,106		$	13,969
Ending ALLL balance
Acquired impaired loans	$	1,722		$	341		$	25		$	1,153		$	13		$	—		$	3,254
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		396			275			—			1,638			326			—			2,635
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		1,550			1,219			302			2,898			5			2,106			8,080
Loans and leases ending balance
Acquired impaired loans	$	188,161		$	162,349		$	5,830		$	12,400		$	555		$	—		$	369,295
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		8,675			1,271			565			3,081			327			—			13,919
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		632,353			421,096			86,240			452,693			2,633			171,161			1,766,176
Total loans and leases at June 30, 2017, gross	$	829,189		$	584,716		$	92,635		$	468,174		$	3,515		$	171,161		$	2,149,390
Ratio of net charge-offs to average loans and leases outstanding during the period
Acquired impaired loans		0.01	%		0.02	%		0.00	%		0.02	%		0.00	%		0.00	%		0.05	%
Acquired non-impaired loans and leases		0.00	%		0.01	%		0.00	%		0.03	%		0.00	%		0.02	%		0.06	%
Originated loans and leases		0.00	%		0.00	%		0.00	%		0.09	%		0.00	%		0.06	%		0.15	%
Loans and leases ending balance as a percentage of total loans and leases, gross
Acquired impaired loans		8.75	%		7.55	%		0.27	%		0.58	%		0.03	%		0.00	%		17.18	%
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		0.40	%		0.06	%		0.03	%		0.14	%		0.02	%		0.00	%		0.65	%
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		29.42	%		19.59	%		4.01	%		21.06	%		0.12	%		7.96	%		82.17	%

	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, 2016	$	1,945		$	2,483		$	742		$	4,196		$	334		$	1,223		$	10,923
Provision for acquired impaired loans		1,524			50			25			664			12			—			2,275
Provision for acquired non-impaired loans and leases		9			88			11			1,887			(2	)		1,525			3,518
Provision for originated loans		481			(590	)		(451	)		(59	)		—			232			(387	)
Total provision	$	2,014		$	(452	)	$	(415	)	$	2,492		$	10		$	1,757		$	5,406
Charge-offs for acquired impaired loans		(291	)		(156	)		—			(185	)		—			—			(632	)
Charge-offs for acquired non-impaired loans and leases		—			(40	)		—			(332	)		—			(467	)		(839	)
Charge-offs for originated loans and leases		—			—			—			(482	)		—			(1,070	)		(1,552	)
Total charge-offs	$	(291	)	$	(196	)	$	—		$	(999	)	$	—		$	(1,537	)	$	(3,023	)
Recoveries for acquired impaired loans		—			—			—			—			—			—			—
Recoveries for acquired non-impaired loans and leases		—			—			—			—			—			259			259
Recoveries for originated loans and leases		—			—			—			—			—			404			404
Total recoveries	$	—		$	—		$	—		$	—		$	—		$	663		$	663
Net charge-offs		291			196			—			999			—			874			2,360
Acquired impaired loans		1,722			341			25			1,153			13			—			3,254
Acquired non-impaired loans and leases		124			392			21			1,629			326			1,595			4,087
Originated loans and leases		1,822			1,102			281			2,907			5			511			6,628
Balance at June 30, 2017	$	3,668		$	1,835		$	327		$	5,689		$	344		$	2,106		$	13,969
Ending ALLL balance
Acquired impaired loans	$	1,722		$	341		$	25		$	1,153		$	13		$	—		$	3,254
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		396			275			—			1,638			326			—			2,635
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		1,550			1,219			302			2,898			5			2,106			8,080
Loans and leases ending balance
Acquired impaired loans	$	188,161		$	162,349		$	5,830		$	12,400		$	555		$	—		$	369,295
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		8,675			1,271			565			3,081			327			—			13,919
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		632,353			421,096			86,240			452,693			2,633			171,161			1,766,176
Total loans and leases at June 30, 2017, gross	$	829,189		$	584,716		$	92,635		$	468,174		$	3,515		$	171,161		$	2,149,390
Ratio of net charge-offs to average loans and leases outstanding during the period (annualized)
Acquired impaired loans		0.03	%		0.01	%		0.00	%		0.02	%		0.00	%		0.00	%		0.06	%
Acquired non-impaired loans and leases		0.00	%		0.00	%		0.00	%		0.03	%		0.00	%		0.02	%		0.05	%
Originated loans and leases		0.00	%		0.00	%		0.00	%		0.04	%		0.00	%		0.06	%		0.10	%
Loans and leases ending balance as a percentage of total loans and leases, gross
Acquired impaired loans		8.75	%		7.55	%		0.27	%		0.58	%		0.03	%		0.00	%		17.18	%
Acquired non-impaired loans and leases and originated loans individually evaluated for impairment		0.40	%		0.06	%		0.03	%		0.14	%		0.02	%		0.00	%		0.65	%
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment		29.42	%		19.59	%		4.01	%		21.06	%		0.12	%		7.96	%		82.17	%

Non-performing loans and leases include loans and leases 90 days past due and still accruing, loans and leases accounted for on a non-accrual basis and accruing restructured loans. Non-performing assets consist of non-performing loans and leases plus other real estate owned. Non-accrual loans and leases as of June 30, 2018 and December 31, 2017 totaled $25.7 million and $15.8 million, respectively. The increase of non-performing assets from December 31, 2017 to June 30, 2018 was primarily driven by one downgraded commercial loan relationship and downgraded government guaranteed loans, partially offset by a decrease in other real estate owned of $4.2 million. Non-performing assets consisted of $7.3 million and $4.5 million of government guaranteed balances at June 30, 2018 and December 31, 2017, respectively.

Total OREO held by us was $6.4 million as of June 30, 2018, a decrease of $4.2 million from December 31, 2017. The decrease in OREO resulted from dispositions of $5.2 million, offset by net additions to OREO through loan foreclosures totaling $1.2 million.

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):

Acquired impaired loans (accounted for under ASC 310-30) that are delinquent and/or on non-accrual status continue to accrue income provided the respective pool in which those assets reside maintains a discount and recognizes accretion income. The aforementioned loans are characterized as performing loans based on contractual delinquency. If the pool no longer has a discount and accretion income can no longer be recognized, any loan within that pool on non-accrual status will be classified as non-accrual for presentation purposes.

Total non-accrual loans increased by $10.0 million between December 31, 2017 and June 30, 2018 due to additional non-accrual loans primarily driven by one commercial loan relationship and one government guaranteed loan. The government guaranteed portion of non-accrual loans totaled $7.0 million at June 30, 2018 and $4.5 million at December 31, 2017.

Total accruing loans past due decreased from $15.2 million at December 31, 2017 to $8.3 million at June 30, 2018. This represents a decrease of $6.9 million, or 45.3%, and can be attributed to delinquent loans migrating to nonaccrual during the quarter. The increase was primarily in the 30-59 days past due category.

The following table summarizes the recorded investment, unpaid principal balance, related allowance, average recorded investment, and interest income recognized for loans and leases considered impaired as of the periods indicated (dollars in thousands):

	June 30, 2018
	Unpaid Principal Balance of Impaired Loans		Impaired ASC 310-30 Pools with Specific Allowance Recorded		Impaired Non-ASC 310-30 Loans with a Specific Allowance		Impaired Non-ASC 310-30 Loans with no Specific Allowance Recorded		Specific Allowance Allocated to Impaired Loans		Average Recorded Investment in Impaired Loans		Interest Income Recognized on Impaired Loans
Commercial real estate	$	18,186	$	16,421	$	5,662	$	10,735	$	2,199	$	14,600	$	675
Residential real estate		2,244		2,725		338		1,935		127		2,306		29
Construction, land development, and other land		—		80		—		—		—		—		—
Commercial and industrial		16,885		3,777		10,498		4,391		2,555		16,067		393
Installment and other		14		3		14		—		14		14		—
Total impaired loans held in portfolio, net	$	37,329	$	23,006	$	16,512	$	17,061	$	4,895	$	32,987	$	1,097

	December 31, 2017
	Unpaid Principal Balance of Impaired Loans		Impaired ASC 310-30 Pools with Specific Allowance Recorded		Impaired Non-ASC 310-30 Loans with a Specific Allowance		Impaired Non-ASC 310-30 Loans with no Specific Allowance Recorded		Specific Allowance Allocated to Impaired Loans		Average Recorded Investment in Impaired Loans		Interest Income Recognized on Impaired Loans
Commercial real estate	$	15,570	$	14,786	$	2,459	$	11,425	$	1,101	$	12,470	$	712
Residential real estate		2,397		2,386		354		2,075		158		2,203		78
Construction, land development, and other land	—			404	—		—		—			309		2
Commercial and industrial		16,498		8,776		9,314		5,470		2,692		6,335		751
Installment and other		14		41		14	—			14		162		12
Total impaired loans held in portfolio, net	$	34,479	$	26,393	$	12,141	$	18,970	$	3,965	$	21,479	$	1,555

Total deposits at June 30, 2018 were $3.6 billion, representing an increase of $1.2 billion, or 49.2%, compared to December 31, 2017. Non-interest bearing deposits were $1.2 billion or 32.7% of total deposits, at June 30, 2018, an increase of $432.2 million or 56.8% compared to $760.9 million at December 31, 2017 or 31.1% of total deposits. Interest bearing transaction accounts increased $417.9 million for the first quarter of 2018. Time deposits increased $351.5 million, or 49.6%, from $708.8 million at December 31, 2017 to $1.1 billion at June 30, 2018. Core deposits remained stable at 83.1% of total deposits at June 30, 2018 as a result of the First Evanston acquisition.

The increase in time deposits was primarily driven by the implementation of promotional campaigns during the first quarter of 2018. Our cost of average deposits was 52 basis points during the second quarter of 2018 compared to 41 basis points during the first quarter of 2018. These increases are primarily attributed to slightly higher rates on interest bearing deposits and growth in deposits from the First Evanston acquisition, slightly offset by an increase in non-interest bearing demand deposits. We had no brokered time deposits as of June 30, 2018 or December 31, 2017. Deposits assumed from the First Evanston acquisition were recorded at fair value using the acquisition method of accounting in accordance with ASC Topic 805.

We gather deposits primarily through each of our 58 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.

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

The following table shows time deposits and other time deposits of $100,000 or more by time remaining until maturity:

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 residential and multi-family real estate loans and securities. At June 30, 2018 and December 31, 2017, our bank had maximum borrowing capacity from the FHLB of $749.6 million and $1.2 billion, respectively, subject to the availability of collateral. During the six months ended June 30, 2018, outstanding FHLB advances increased to $420.0 million, from $361.5 million at December 31, 2017.

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

The Bank’s FHLB advances at June 30, 2018 have maturities ranging from July 2018 to August 2018.

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 totaled $24.7 million at June 30, 2018, a decrease of $6.5 million compared to December 31, 2017.

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, please see “Consolidated Statements of Cash Flows” in our Unaudited Interim Condensed Consolidated Financial Statements included elsewhere in this report.

As of June 30, 2018, we held $152.7 million in cash and cash equivalents. We maintain an investment securities portfolio of various holdings, types and maturities. We had securities available-for-sale of $757.8 million and securities held-to-maturity of $106.6 million as of June 30, 2018, including total unpledged securities of $633.9 million.

As of June 30, 2018, Byline Bank had maximum borrowing capacity from the FHLB of $749.6 million and from the Federal Reserve Bank of $329.6 million. As of June 30, 2018, Byline Bank had open advances of $420.0 million and open letters of credit of $41.5 million, leaving us with available aggregate borrowing capacity of $994.7 million. In addition, Byline Bank had uncommitted federal funds lines available of $55.0 million.

As of December 31, 2017, Byline Bank had maximum borrowing capacity from the FHLB of $1.2 billion and from the Federal Reserve Bank of $144.2 million. As of December 31, 2017, Byline Bank had open advances of $361.5 million and no open letters of credit, leaving us with available aggregate borrowing capacity of $637.2 million. In addition, Byline Bank had an uncommitted federal funds line available of $55.0 million.

On October 13, 2016, we entered into a $30.0 million revolving credit agreement with a correspondent bank. As of December 31, 2017, this revolving line of credit had no outstanding balance. In April 2017, the revolving line of credit was amended to a non-revolving line of credit as long as the outstanding balance exceeds $5.0 million. When the outstanding balance is reduced to $5.0 million, the line of credit will be converted to a revolving line of credit with credit availability up to $5.0 million until maturity. In July 2017, we repaid the outstanding balance, in full, under this line of credit of $16.2 million with proceeds from our initial public offering. On October 12, 2017, the line of credit was amended to extend the maturity date to October 11, 2018. As of June 30, 2018, the Company had no balance outstanding on the line of credit.

There are regulatory limitations that affect the ability of Byline Bank to pay dividends to the Company. See Note 21 of Byline’s Consolidated Financial Statements as of December 31, 2017 and 2016, included in our Form 10-K for the fiscal year ended December 31, 2017 for additional information. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations.

Stockholders’ equity at June 30, 2018 was $616.4 million compared to $458.6 million at December 31, 2017, an increase of $157.8 million, or 34.4%. The increase was primarily driven by the acquisition of First Evanston, the issuance of common stock upon the exercise of stock options as well as retained earnings, offset by the other comprehensive loss.

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, 2018, Byline Bank exceeded all applicable regulatory capital requirements and was considered “well-capitalized”. There have been no conditions or events since June 30, 2018 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):

	Actual					Minimum Capital Required					Required for the Bank to be Considered Well Capitalized
June 30, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk weighted assets:
Company	$	496,926		12.92	%	$	307,793		8.00	%	N/A		N/A
Bank		474,663		12.32	%		308,217		8.00	%	$	385,272		10.00	%
Tier 1 capital to risk weighted assets:
Company	$	475,381		12.36	%	$	230,845		6.00	%	N/A		N/A
Bank		453,118		11.76	%		231,163		6.00	%	$	308,217		8.00	%
Common Equity Tier 1 (CET1) to risk weighted assets:
Company	$	418,443		10.88	%	$	173,134		4.50	%	N/A		N/A
Bank		453,118		11.76	%		173,372		4.50	%	$	250,427		6.50	%
Tier 1 capital to average assets:
Company	$	475,381		10.57	%	$	179,841		4.00	%	N/A		N/A
Bank		453,118		10.07	%		180,066		4.00	%	$	225,083		5.00	%

	Actual					Minimum Capital Required					Required for the Bank to be Considered Well Capitalized
December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk weighted assets:
Company	$	410,831		15.98	%	$	205,661		8.00	%	N/A		N/A
Bank		367,972		14.28	%		206,083		8.00	%	$	257,604		10.00	%
Tier 1 capital to risk weighted assets:
Company	$	392,520		15.27	%	$	154,246		6.00	%	N/A		N/A
Bank		349,662		13.57	%		154,562		6.00	%	$	206,083		8.00	%
Common Equity Tier 1 (CET1) to risk weighted assets:
Company	$	353,995		13.77	%	$	115,684		4.50	%	N/A		N/A
Bank		349,662		13.57	%		115,922		4.50	%	$	167,442		6.50	%
Tier 1 capital to average assets:
Company	$	392,520		12.25	%	$	128,178		4.00	%	N/A		N/A
Bank		349,662		10.89	%		128,409		4.00	%	$	160,511		5.00	%

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 capital conservation buffer requirement began to be phased in on January 1, 2016 when a buffer greater than 0.625% of risk-weighted assets was required, which amount increases each year until the buffer requirement is fully implemented on January 1, 2019. As of January 1, 2018 the capital conservation buffer requirement was 1.875%. The conservation buffers for the Company and Byline Bank exceed the fully phased in minimum capital requirement as of June 30, 2018.

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, 2018, the Company received $1.3 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, dividends on the Series B preferred stock outstanding, and other Company activities. For the year ended December 31, 2017, the Company received $2.8 million in cash dividends from Byline Bank to pay interest on the line of credit, interest payments on its trust preferred securities, and dividends on its preferred stock.

FHLB advances are fully described in Note 12 of our Unaudited Interim Condensed Consolidated Financial Statements, included elsewhere in this report. Operating lease obligations are in place for facilities and land on which banking facilities are located. See Note 15 of our Interim Unaudited Condensed Consolidated Financial Statements for additional information.

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 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).

Standby letters of credit are conditional commitments issued by Byline Bank to guarantee to a third-party the performance of a customer. 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.

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.

During the six months ended June 30, 2018 and for the year ended December 31, 2017, we entered 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 borrowings. We also entered 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 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, 2018 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):

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:

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.

	As of or for the Three Months Ended June 30,						As of or for the Six Months Ended June 30,
(dollars in thousands, except share and per share data)	2018			2017			2018			2017
Net income and earnings per share excluding significant items
Reported Net Income	$	2,768		$	6,146		$	9,536		$	12,706
Significant items:
Incremental income tax benefit of state tax rate change		—			—			—			—
Incremental income tax benefit attributed to federal income tax reform		—			—			(724	)		—
Impairment charges on assets held for sale		117			—			117			—
Merger-related expense		1,517			—			1,640			—
Core system conversion expense		9,009			—			9,009			—
Tax benefit on significant items		(2,832	)		—			(2,866	)		—
Adjusted Net Income	$	10,579		$	6,146		$	16,712		$	12,706
Reported Diluted Earnings per Share	$	0.08		$	(0.18	)	$	0.29		$	0.07
Significant items:
Incremental income tax benefit of state tax rate change		—			—			—			—
Incremental income tax benefit attributed to federal income tax reform		—			—			(0.02	)		—
Impairment charges on assets held for sale		—			—			—			—
Merger-related expense		0.05			—			0.06			—
Core system conversion expense		0.28			—			0.28			—
Tax benefit on significant items		(0.09	)		—			(0.09	)		—
Adjusted Diluted Earnings per Share	$	0.32		$	(0.18	)	$	0.52		$	0.07

	As of or For the Three Months Ended June 30,						As of or For the Six Months Ended June 30,
(dollars in thousands, except share and per share data)	2018			2017			2018			2017
Net interest margin:
Reported net interest margin		4.43	%		4.02	%		4.44	%		4.01	%
Effect of accretion income on acquired loans		(0.41	)%		(0.33	)%		(0.36	)%		(0.28	)%
Net interest margin excluding accretion		4.02	%		3.69	%		4.08	%		3.73	%
Total revenues:
Net interest income	$	39,056		$	29,811		$	72,751		$	59,349
Add: non-interest income		14,502			13,193			25,930			25,501
Total revenues	$	53,558		$	43,004		$	98,681		$	84,850
Adjusted efficiency ratio:
Non-interest expense excluding amortization of intangible assets	$	44,640		$	28,480		$	75,792		$	56,562
Total revenues		53,558			43,004			98,681			84,850
Efficiency ratio		83.35	%		66.23	%		76.81	%		66.66	%
Less: significant adjusted items		10,643			—			10,766			—
Adjusted efficiency ratio		63.48	%		66.23	%		65.90	%		66.66	%
Adjusted non-interest expense to average assets:
Total average assets	$	3,863,184		$	3,284,665		$	3,613,831		$	3,299,457
Non-interest expense		45,770		$	29,249		$	77,689		$	58,100
Less: significant adjusted items		10,643			—			10,766			—
Adjusted non-interest expense to average assets		3.65	%		3.57	%		3.73	%		3.55	%
Adjusted return on average stockholders' equity:
Average stockholders' equity	$	518,547		$	396,818		$	489,204		$	393,249
Net income		2,768		$	6,146			9,536			12,706
Less: significant adjusted items		7,811			—			7,176		—
Adjusted return on average stockholders' equity		8.18	%		6.21	%		6.89	%		6.52	%
Adjusted return on average assets:
Total average assets	$	3,863,184		$	3,284,665		$	3,613,831		$	3,299,457
Net income		2,768		$	6,146		$	9,536		$	12,706
Less: significant adjusted items		7,811			—			7,176		—
Adjusted return on average assets		1.10	%		0.75	%		0.93	%		0.78	%
Non-interest income to total revenues:
Non-interest income	$	14,502		$	13,193		$	25,930		$	25,501
Total revenues		53,558			43,004			98,681			84,850
Non-interest income to total revenues		27.08	%		30.68	%		26.28	%		30.05	%
Pre-tax pre-provision net income:
Pre-tax income	$	3,832		$	10,240		$	11,921		$	21,344
Add: Provision for loan and lease losses		3,956			3,515			9,071			5,406
Pre-tax pre-provision net income	$	7,788		$	13,755		$	20,992		$	26,750

	As of or For the Three Months Ended June 30,						As of or For the Six Months Ended June 30,
(dollars in thousands, except share and per share data)	2018			2017			2018			2017
Pre-tax pre-provision return on average assets:
Total average assets	$	3,863,184		$	3,284,665		$	3,613,831		$	3,299,457
Pre-tax pre-provision net income		7,788			13,755			20,992			26,750
Pre-tax pre-provision return on average assets		0.81	%		1.68	%		1.17	%		1.63	%
Adjusted Pre-tax pre-provision return on average assets:
Total average assets	$	3,863,184		$	3,284,665		$	3,613,831		$	3,299,457
Pre-tax pre-provision net income		7,788			13,755			20,992			26,750
Less: significant adjusted items		10,643			—			10,766			—
Adjusted Pre-tax pre-provision return on average assets:		1.91	%		1.68	%		1.77	%		1.63	%
Tangible common equity:
Total stockholders' equity	$	616,406		$	447,731		$	616,406		$	447,731
Less: Preferred stock		10,438			10,438			10,438			10,438
Less: Goodwill		127,536			51,975			127,536			51,975
Less: Core deposit intangibles and other intangibles		37,139			18,290			37,139			18,290
Tangible common equity	$	441,293		$	367,028		$	441,293		$	367,028
Tangible assets:
Total assets	$	4,805,280		$	3,360,122		$	4,805,280		$	3,360,122
Less: Goodwill		127,536			51,975			127,536			51,975
Less: Core deposit intangibles and other intangibles		37,139			18,290			37,139			18,290
Tangible assets	$	4,640,605		$	3,289,857		$	4,640,605		$	3,289,857
Tangible book value per share:
Tangible common equity	$	441,293		$	367,028		$	441,293		$	367,028
Shares of common stock outstanding		36,218,955			29,246,900			36,218,955			29,246,900
Tangible book value per share	$	12.18		$	12.55		$	12.18		$	12.55
Tangible common equity to tangible assets:
Tangible common equity	$	441,293		$	367,028		$	441,293		$	367,028
Tangible assets		4,640,605			3,289,857			4,640,605			3,289,857
Tangible common equity to tangible assets		9.51	%		11.16	%		9.51	%		11.16	%

Statements contained in this Quarterly Report on Form 10-Q 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 federal securities laws. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company and our business. These statements are often, but not always, made through the use of words or phrases such as ‘‘may’’, ‘‘might’’, ‘‘should’’, ‘‘could’’, ‘‘predict’’, ‘‘potential’’, ‘‘believe’’, ‘‘expect’’, ‘‘continue’’, ‘‘will’’, ‘‘anticipate’’, ‘‘seek’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’, ‘‘projection’’, ‘‘would’’, ‘‘annualized’’, “target” and ‘‘outlook’’, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Forward-looking statements represent management’s current beliefs and expectations regarding future events, such as our anticipated future financial results, credit quality, liquidity, revenues, expenses, or other financial items, and the impact of business plans and strategies or legislative or regulatory actions.

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:

These factors should be considered in evaluating forward-looking statements, and you should not place undue reliance on any forward-looking statements, which 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 of this Form 10-Q and in our Form 10-K, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q, as well as those set forth in our subsequent periodic and current reports filed 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.

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. The two primary examples of such provisions that we are exposed to are the duration and rate sensitivity associated with indeterminate-maturity deposits (e.g., non-interest-bearing checking accounts, negotiable order of withdrawal accounts, savings accounts and money market deposits accounts and the rate of prepayment associated with fixed-rate lending and mortgage-backed securities. Interest rates may also affect loan demand, credit losses, mortgage origination volume and other items affecting earnings.

We are also exposed to interest rate risk through the retained portion of the government guaranteed loans we make and the related servicing rights. Our 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 Byline Bank’s asset liability committee, and is chaired by its Treasurer, based on a risk management infrastructure approved by our board of directors that outlines reporting and measurement requirements. In particular, this infrastructure sets limits and management targets, calculated monthly, for various metrics, including our economic value sensitivity, our economic value of equity and net interest income simulations involving parallel shifts in interest rate curves, steepening and flattening yield curves, and various prepayment and deposit duration assumptions. 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 durations based on historical analysis and the targeted investment term of capital.

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. In particular, from time to time we use special offers on deposits to alter the interest rates and tenors associated with our interest-bearing liabilities. 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 and selling residential mortgage loans in the secondary market.

We utilize interest rate swaps to hedge our interest rate exposure on commercial loans when it meets our customers’ and Byline Bank’s needs. Typically, customer interest rate swaps are for terms of more than 5 years. As of June 30, 2018, we had a notional amount of $464.0 million 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.

We are also subject to credit risk. Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Written credit policies document underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the obligor, industry, product and/or geographic location levels is actively managed to mitigate concentration risk. In addition, credit risk management also includes an independent credit review process that assesses compliance with commercial, real estate and other credit policies, risk ratings, SBA requirements, and other critical credit information. In addition to implementing risk management practices that are based upon established and sound lending practices, we adhere to sound credit principles. We understand and evaluate our customers’ borrowing needs and capacity to repay, in conjunction with their character and history.

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 monthly 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.

The potential change to our net interest income in hypothetical rising and declining rate scenarios calculated as of June 30, 2018 is presented in the following table. The projections assume (1) immediate, parallel shifts downward of the yield curve of 100 basis points and immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points and (2) gradual shifts downward of 100 basis points over 12 months and gradual shifts upward of 100 and 200 basis points over 12 months. In the current interest rate environment, a downward shift of the yield curve of 200, 300 and 400 basis points does not provide meaningful results. In a downward parallel shift of the yield curve, interest rates at the short-end of the yield curve are not modeled to decline below 0%. 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 twelve months.

The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads, would also cause our net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, if we experience a net outflow of deposit liabilities or if our mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if we experience substantially different repayment speeds in our loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies.

The Company’s management, including our President and 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 President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2018, 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 President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting during the quarter ended June 30, 2018, 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.

We operate in a highly regulated environment. From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

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, 2017 that was filed with the SEC on March 30, 2018, except as noted below.

We may be adversely affected by risks associated with our planned core banking system conversion, including failure to realize anticipated benefits and to overcome integration risks, which could adversely affect our growth, profitability, and customer experience.

In order to support our continued growth and to continue to provide first-rate banking products and services to our customers, we have decided to convert our core bank processing platform to FIS’s Integrated Banking Services. We anticipate that the final conversion will occur during 2019. There can be no assurance that we will be able to realize the full anticipated benefits of the conversion and overcome associated integration risks.

On June 29, 2017, the Company sold 4,630,194 shares of its common stock in its initial public offering, including 855,000 shares of common stock pursuant to the underwriters’ exercise of their option to purchase additional shares to cover over-allotments. The aggregate offering price for the shares sold by the Company was $88.0 million, and after deducting $6.2

million of underwriting discounts and $5.0 million of offering expenses paid to third parties, the Company received total net proceeds of $76.8 million. In addition, certain selling stockholders participated in the offering and sold an aggregate of 1,924,806 shares of our common stock at an aggregate offering price of $36.6 million. All of the shares were sold pursuant to our Registration Statement on Form S-1, as amended (File No. 333- 218362) (the “Registration Statement”), which was declared effective by the SEC on June 29, 2017 and registered shares of our common stock with a maximum aggregate offering price of $137.7 million. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Keefe, Bruyette & Woods, Inc. acted as joint book-running managers for the offering, and Piper Jaffray & Co., Sandler O’Neill + Partners, L.P. and Stephens Inc. acted as co-managers. Our common stock is currently traded on the New York Stock Exchange under the symbol “BY”.

There has been no material change in the planned use of proceeds from our initial public offering as described in our prospectus dated June 29, 2017 that was filed with the SEC on July 3, 2017 pursuant to Rule 424(b)(4) under the Securities Act. From the effective date of the Registration Statement through the date of the filing of this report, the Company used $25.5 million to repurchase all of its outstanding Noncumulative Perpetual Preferred Stock, Series A, on July 14, 2017, $16.2 million to pay down its line of credit on July 6, 2017, and $27.0 million as the cash consideration portion of the merger consideration paid in connection with its acquisition of First Evanston on May 31, 2018.

We previously disclosed in a free writing prospectus issued June 29, 2017 in connection with our initial public offering that, on June 28, 2017, we received a subpoena from the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) for documents related to Ridgestone Bank, a subsidiary of Ridgestone (which we acquired in October 2016), during the period from March 31, 2008 through December 31, 2012. During the second quarter of 2018, we received notice from SIGTARP that this matter is now closed.

(a) This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements. The Interim Condensed Consolidated Financial Statements of Byline Bancorp, Inc. filed as part of the report are as follows:	3
	Consolidated Statements of Financial Condition at June 30, 2018 (unaudited) and December 31, 2017	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Six Months Ended June 30, 2018 and 2017 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2018 and 2017 (unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)	7
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	92
Item 4.	Controls and Procedures	94

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	94
Item 1A.	Risk Factors	94
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94
Item 3.	Defaults Upon Senior Securities	95
Item 4.	Mine Safety Disclosures	95
Item 5.	Other Information	95
Item 6.	Exhibits	95

Fair value	$	889,115
Gross contractual amounts receivable		1,055,502
Estimate of contractual cash flows not expected to be collected⁽¹⁾		36,544
Estimate of contractual cash flows expected to be collected		1,018,958

	Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	40,479	$	40,475
Due from one to five years		187,741		186,169
Due from five to ten years		49,553		48,404
Due after ten years		12,036		11,958
Mortgage-backed securities		485,286		464,854
Other securities with no defined maturity		4,073		5,965
Total	$	779,168	$	757,825
Held-to-maturity
Due from one to five years	$	4,060	$	4,031
Due from five to ten years		11,646		11,442
Due after ten years		8,228		8,116
Mortgage-backed securities		82,679		80,822
Total	$	106,613	$	104,411

	June 30,			December 31,
	2018			2017
Commercial real estate	$	1,235,158		$	891,971
Residential real estate		699,482			577,123
Construction, land development, and other land		189,490			105,996
Commercial and industrial		1,026,371			522,254
Installment and other		12,758			4,182
Lease financing receivables		183,304			174,165
Total loans and leases		3,346,563			2,275,691
Net unamortized deferred fees and costs		(1,442	)		(1,720	)
Initial direct costs		3,571			3,521
Allowance for loan and lease losses		(19,687	)		(16,706	)
Net loans and leases	$	3,329,005		$	2,260,786

	December 31, 2017
	(dollars in thousands)
	As Reported		Adjustment			As Revised
Goodwill	$	51,975	$	2,587		$	54,562
Deferred tax assets, net		49,963		(2,587	)		47,376
Total assets		3,366,130		—			3,366,130

Assets
Cash and cash equivalents	$	47,378
Securities available-for-sale		128,063
Restricted stock		1,360
Loans		916,011
Premises and equipment		16,778
Other intangible assets		22,276
Deferred tax assets, net		2,055
Other assets		8,845
Total assets acquired		1,142,766
Liabilities
Deposits		1,022,268
Junior subordinated debentures		8,497
Accrued expenses and other liabilities		5,844
Total liabilities assumed		1,036,609
Net assets acquired	$	106,157
Consideration paid
Common stock (6,682,850 shares issued at $21.62 per share)		144,483
Outstanding stock options converted to Byline stock options		7,644
Cash paid		27,004
Total consideration paid		179,131
Goodwill	$	72,974

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
Total revenues (net interest income and non-interest income)	$	61,775	$	55,995		$	119,828	$	111,641
Net income	$	10,709	$	9,075		$	21,166	$	19,073
Earnings (loss) per share—basic	$	0.29	$	(0.05	)	$	0.58	$	0.26
Earnings (loss) per share—diluted	$	0.28	$	(0.05	)	$	0.56	$	0.26

	Minimum Lease Payments
2018	$	35,976
2019		64,945
2020		48,587
2021		30,122
2022		15,850
Thereafter		3,766
Total	$	199,246

June 30, 2018	Originated		Acquired Impaired		Acquired Non- Impaired		Total
Commercial real estate	$	539,529	$	162,621	$	532,837	$	1,234,987
Residential real estate		413,956		129,737		155,895		699,588
Construction, land development, and other land		134,004		4,860		49,752		188,616
Commercial and industrial		556,340		15,347		454,133		1,025,820
Installment and other		4,898		521		7,387		12,806
Lease financing receivables		156,017		—		30,858		186,875
Total loans and leases	$	1,804,744	$	313,086	$	1,230,862	$	3,348,692

Undiscounted contractual cash flows	$	33,594
Undiscounted cash flows not expected to be collected (non-accretable difference)		5,003
Undiscounted cash flows expected to be collected		28,591
Accretable yield at acquisition		(3,566	)
Estimated fair value of impaired loans acquired at acquisition	$	25,025

	June 30, 2018				December 31, 2017
	Outstanding Balance		Carrying Value		Outstanding Balance		Carrying Value
Commercial real estate	$	233,680	$	162,621	$	235,898	$	166,712
Residential real estate		189,463		129,737		207,660		144,562
Construction, land development, and other land		12,955		4,860		13,270		5,946
Commercial and industrial		24,275		15,347		18,333		10,008
Installment and other		1,925		521		1,819		462
Total acquired impaired loans	$	462,298	$	313,086	$	476,980	$	327,690

	June 30, 2018				December 31, 2017
	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
Commercial real estate	$	545,840	$	532,837	$	221,710	$	211,359
Residential real estate		159,824		155,895		32,605		32,085
Construction, land development, and other land		51,270		49,752		1,926		1,845
Commercial and industrial		475,924		454,133		105,529		94,731
Installment and other		7,813		7,387		355		42
Lease financing receivables		32,524		30,858		37,476		36,357
Total acquired non-impaired loans and leases	$	1,273,195	$	1,230,862	$	399,601	$	376,419

June 30, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Commercial real estate	$	10,735	$	12,211	$	—
Residential real estate		1,935		1,910		—
Commercial and industrial		4,391		5,438		—
With an allowance recorded
Commercial real estate		5,662		5,975		2,199
Residential real estate		338		334		127
Commercial and industrial		10,498		11,447		2,555
Installment and other		14		14		14
Total impaired loans	$	33,573	$	37,329	$	4,895

June 30, 2018	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	10,013	$	436
Residential real estate		1,959		25
Commercial and industrial		7,283		99
With an allowance recorded
Commercial real estate		4,587		183
Residential real estate		347		3
Commercial and industrial		8,784		233
Installment and other		14		979
Total impaired loans	$	32,987	$	1,958

	Estimated Amortization
2018	$	3,644
2019		6,942
2020		6,478
2021		6,026
2022		5,578
Thereafter		8,472
Total	$	37,140

Name of Trust	Aggregate Principal Amount June 30, 2018			Aggregate Principal Amount December 31, 2017			Stated Maturity	Contractual Rate at June 30, 2018			Interest Rate Spread
Metropolitan Statutory Trust 1	$	35,000		$	35,000		March 17, 2034		5.12	%	Three-month LIBOR + 2.79%
RidgeStone Capital Trust I		1,500			1,500		June 30, 2033		6.38	%	Five-year LIBOR + 3.50%
First Evanston Bancorp Trust I		10,000			—		March 15, 2035		4.12	%	Three-month LIBOR + 1.78%
Total liability, at par		46,500			36,500
Discount		(10,048	)		(8,853	)
Total liability, at carrying value	$	36,452		$	27,647

	Minimum Rental Commitments
2018	$	1,823
2019		3,183
2020		2,652
2021		2,321
2022		1,355
Thereafter		2,870
Total	$	14,204

Financial Instruments	Valuation Technique	Unobservable Inputs	Range of Inputs	Impact to Valuation from an Increased or Higher Input Value
Impaired loans (excluding acquired impaired loans)	Appraisals	Appraisal adjustments, sales costs and other discount adjustments for market conditions	6% - 10%	Decrease
Assets held for sale	List price, contract price	Sales costs and other discount adjustments for market conditions	7%	Decrease
Other real estate owned	Appraisals	Appraisal adjustments, sales costs and other discount adjustments for market conditions	7% - 20%	Decrease

Notional amounts	$	250,000
Derivative assets fair value		10,238
Derivative liabilities fair value		—
Weighted average pay rates		1.67	%
Weighted average receive rates		1.63	%
Weighted average maturity	4.2 years

Notional amounts	$	214,015
Derivative assets fair value		2,825
Derivative liabilities fair value		2,867
Weighted average pay rates		4.66	%
Weighted average receive rates		4.04	%
Weighted average maturity	5.8 years

	June 30, 2018						December 31, 2017
	Derivative Assets Fair Value			Derivative Liabilities Fair Value			Derivative Assets Fair Value			Derivative Liabilities Fair Value
Gross amounts recognized	$	13,063		$	2,869		$	5,981		$	994
Less: Amounts offset in the Consolidated Statements of Financial Condition		—			—			—			—
Net amount presented in the Consolidated Statements of Financial Condition	$	13,063		$	2,869		$	5,981		$	994
Gross amounts not offset in the Consolidated Statements of Financial Condition
Offsetting derivative positions		(1,091	)		(1,091	)		(232	)		(232	)
Collateral posted		(11,972	)		(1,775	)		(5,371	)		(745	)
Net credit exposure	$	—		$	3		$	378		$	17

	Omnibus Plan
	Number of Shares			Weighted Average Grant Date Fair Value
Beginning balance, January 1, 2018		70,398		$	20.31
Granted		126,157		$	22.38
Vested		—		$	—
Forfeited		(2,100	)	$	20.84
Ending balance outstanding at June 30, 2018		194,455		$	21.65

	Time Options Grants
	2016			2015
Risk-free interest rate	1.34% - 1.40%			1.68% - 1.85%
Expected term (years)	5.2 - 5.6			5.7 - 6.3
Expected stock price volatility		20.39	%	16.18%-16.55%
Expected dividend yield		0.00	%		0.00	%
Weighted average grant date fair value	$	3.55		$	2.25

	Performance Options Grants
	2016			2015
Risk-free interest rate	Implied forward rates			Implied forward rates
Expected term (years)	Variable			Variable
Expected stock price volatility	20.34% - 20.39%			16.18%-16.55%
Expected dividend yield		0.00	%		0.00	%
Weighted average grant date fair value	$	3.75		$	1.65

	BYB Plan
	Number of Shares			Weighted Average Exercise Price		Intrinsic Value		Weighted Average Remaining Contractual Term (in Years)
Beginning balance, January 1, 2018		1,783,020		$	11.91	$	19,718		7.6
Granted		—
Expired		—
Exercised		(94,750	)		11.98	$	988
Forfeited		(5,000	)		16.25
Ending balance outstanding at June 30, 2018		1,683,270		$	11.89	$	17,583		7.1
Exercisable at June 30, 2018		1,516,670		$	11.42	$	16,568		7.0

	FEB Plan
	Number of Shares		Weighted Average Exercise Price		Intrinsic Value		Weighted Average Remaining Contractual Term (in Years)
Beginning balance, January 1, 2018		—	$	—	$	—		—
Granted		680,787		11.26	$	7,544
Expired		—
Exercised		—
Forfeited		—
Ending balance outstanding at June 30, 2018		680,787	$	11.26	$	7,544		5.3
Exercisable at June 30, 2018		680,787	$	11.26	$	7,544		5.3

(dollars in thousands)	Unrealized Gains (Losses) on Cash Flow Hedges			Unrealized Gains (Losses) on Available-for -Sale Securities			Total Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2017	$	2,233		$	(9,501	)	$	(7,268	)
Other comprehensive (loss) income, net of tax		(693	)		1,549			856
Balance, June 30, 2017	$	1,540		$	(7,952	)	$	(6,412	)

Balance, January 1, 2018	$	2,913		$	(8,000	)	$	(5,087	)
Reclassification of certain income tax effects from accumulated other comprehensive income		687			(1,450	)		(763	)
Other comprehensive income (loss), net of tax		3,750			(8,235	)		(4,485	)
Balance, June 30, 2018	$	7,350		$	(17,685	)	$	(10,335	)

	June 30, 2018			December 31, 2017
Nonperforming assets:
Non-accrual loans and leases^(1)(2)(3)	$	25,742		$	15,763
Past due loans and leases 90 days or more and still accruing interest		197			—
Accruing troubled debt restructured loans		1,238			1,061
Total non-performing loans and leases		27,177			16,824
Other real estate owned		6,402			10,626
Total non-performing assets	$	33,579		$	27,450
Total non-performing loans as a percentage of total loans and leases		0.81	%		0.74	%
Total non-performing assets as a percentage of total assets		0.70	%		0.82	%
Allowance for loan and lease losses as a percentage of non-performing loans and leases		72.44	%		99.30	%

Nonperforming assets guaranteed by U.S. government:
Non-accrual loans guaranteed	$	6,810		$	4,543
Past due loans 90 days or more and still accruing interest guaranteed		152			—
Accruing troubled debt restructured loans guaranteed		—			—
Total non-performing loans and leases guaranteed		6,962			4,543
Other real estate owned guaranteed		298		—
Total non-performing assets guaranteed	$	7,260		$	4,543
Total non-performing loans and leases not guaranteed as a percentage of total loans and leases		0.60	%		0.54	%
Total non-performing assets not guaranteed as a percentage of total assets		0.55	%		0.68	%

	For the Three Months Ended June 30, 2018					For the Three Months Ended June 30, 2017
	Average Balance		Average Rate			Average Balance		Average Rate
Non-interest-bearing deposits	$	891,175		0.00	%	$	745,907		0.00	%
Interest-bearing checking accounts		227,760		0.22	%		187,825		0.07	%
Money market demand accounts		469,066		0.67	%		374,383		0.24	%
Other savings		454,295		0.07	%		447,324		0.07	%
Time deposits (below $100,000)		403,964		1.12	%		407,681		0.82	%
Time deposits ($100,000 and above)		460,384		1.42	%		391,604		0.77	%
Total	$	2,906,644		0.52	%	$	2,554,724		0.30	%

	For the Six Months Ended June 30, 2018					For the Six Months Ended June 30, 2017
	Average Balance		Average Rate			Average Balance		Average Rate
Non-interest-bearing deposits		817,908		0.00	%		731,117		0.00	%
Interest-bearing checking accounts		207,337		0.16	%		184,881		0.06	%
Money market demand accounts		407,647		0.57	%		370,848		0.24	%
Other savings		445,663		0.07	%		447,107		0.07	%
Time deposits (below $100,000)		388,048		1.07	%		403,949		0.66	%
Time deposits ($100,000 and above)		411,362		1.33	%		391,001		0.74	%
Total	$	2,677,965		0.47	%	$	2,528,903		0.27	%

	At June 30, 2018
	Time Deposits
Three months or less	$	117,773
Over three months through six months		96,420
Over six months through 12 months		258,993
Over 12 months		141,941
Total	$	615,127

	June 30, 2018
			Fair Value
	Notional		Asset		Liability
Interest rate contracts—pay fixed, receive floating	$	250,000	$	10,238	$	—
Other interest rate swaps—pay fixed, receive floating		214,016		2,825		2,867
Other credit derivatives		—		—		—

	Estimated Increase (Decrease) in Net Interest Income
	Twelve Months Ending			Twelve Months Ending
Change in Market Interest Rates as of June 30, 2018	June 30, 2019			June 30, 2020
Immediate Shifts
+400 basis points		15.2	%		16.8	%
+300 basis points		11.4	%		12.5	%
+200 basis points		7.5	%		8.2	%
+100 basis points		3.4	%		3.8	%
-100 basis points		(7.0	)%		(8.6	)%

Dynamic Balance Sheet and Rate Shifts
+200 basis points		5.8	%
+100 basis points		2.9	%
-100 basis points		(3.1	)%


		EXHIBIT
Number		Description
3.1		Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-218362) filed on June 19, 2017 and incorporated herein by reference)
3.2		Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-218362) filed on June 19, 2017 and incorporated herein by reference)
3.3		Certificate of Designations of Noncumulative Perpetual Preferred Stock, Series A (filed as Exhibit 3.3 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-218362) filed on June 19, 2017 and incorporated herein by reference)
3.4		Form of Repurchase Agreement for Noncumulative Perpetual Preferred Stock, Series A (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-38139) filed on July 17, 2017 and incorporated herein by reference)
3.5		Certificate of Elimination of Noncumulative Perpetual Preferred Stock, Series A