Byline Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023 unless noted. Byline Bancorp is a Chicago-based bank holding company operating through Byline Bank. The results include Inland Bancorp, acquired July 1, 2023, so year-over-year comparisons are affected by the acquisition; Q1 2023 did not include Inland for the full quarter.
Financial performance and position
- Earnings and revenue: Net income was $30.4 million, up from $23.9 million in Q1 2023; diluted EPS was $0.70 versus $0.64. Net interest income increased 13.0% to $85.5 million. Non-interest income was $15.5 million, up 2.2%; total revenue, defined as net interest income plus non-interest income, was $101.0 million.
- Margins and expenses: Net interest margin was 4.00%, down from 4.38% in Q1 2023; fully taxable-equivalent margin was 4.01% versus 4.39%. Average deposit cost rose to 2.56% from 1.15%. Non-interest expense increased 10.3% to $53.8 million. The efficiency ratio improved slightly to 51.94% from 52.10%.
- Credit costs and quality: Provision for credit losses was $6.6 million, compared with $9.8 million. The loan and lease allowance was $102.4 million, or 1.51% of loans and leases before allowance. Net charge-offs were $6.2 million; the annualized net charge-off ratio was 0.37%, compared with 0.09% in Q1 2023. Non-performing loans and leases were $67.9 million, or 1.00% of loans, versus 0.84% a year earlier; non-performing assets were $68.7 million, or 0.73% of assets.
- Balance sheet: Total assets were $9.41 billion; gross loans and leases were $6.78 billion, up 1.4% from year-end; deposits were $7.35 billion, up 2.4%; and stockholders’ equity was $1.01 billion. Commercial real estate represented 33.5% of the loan and lease portfolio; non-owner-occupied office exposure was $205.5 million, or 3.0% of the portfolio.
- Liquidity, funding and debt: Cash and cash equivalents were $636.8 million, up from $226.1 million. Non-interest-bearing deposits were 25.2% of deposits, down from 26.6% at year-end; estimated uninsured deposits were $2.1 billion. Other borrowings rose to $721.2 million, including $470 million of FHLB advances, a $200 million BTFP advance and a $16.7 million term loan. The BTFP advance bears 4.91% and matures January 22, 2025; FHLB advances outstanding at quarter-end matured April–June 2024. Available aggregate borrowing capacity was reported at $1.4 billion, based on pledged collateral and securities.
- Cash flow: Operating activities provided $62.3 million; investing activities used $146.7 million; financing activities provided $495.0 million. Cash and cash equivalents increased $410.7 million during the quarter.
- Capital and shareholder returns: The Bank was classified as well-capitalized. At the company level, CET1 was 10.59%, Tier 1 capital 11.62%, total capital 13.66% and the leverage ratio 10.91%. The quarterly dividend was $0.09 per share; the board declared another $0.09 dividend payable May 21, 2024. No shares were repurchased under the 2024 buyback program during Q1.
Material changes and unusual items
- Net interest income rose $9.8 million, driven by higher loan yields, organic loan growth and Inland-related balances. Interest expense also rose $28.5 million, mainly due to higher deposit costs, deposit mix and larger deposit balances. The company attributed the lower margin primarily to the rising-rate environment.
- Loan accretion from acquired loans was $4.3 million, compared with $0.7 million in Q1 2023, adding 20 basis points to margin versus 4 basis points. Management provided projected remaining accretion of $35.3 million, including $6.5 million for the remainder of 2024; projections assume no prepayments and may change.
- Non-interest expense increased $5.0 million, primarily reflecting higher staffing and occupancy costs following the Inland acquisition. Other non-interest expense included approximately $1.3 million of charges for planned branch consolidations in Q2 2024; the quarter also included $194,000 of impairment related to two branch facilities expected to close at the end of Q2.
- Available-for-sale securities had a $185.7 million gross unrealized loss at March 31, 2024; accumulated other comprehensive loss was $106.9 million, compared with $100.1 million at year-end. Management reported no identified credit losses on the securities and said it did not intend, and was not likely required, to sell them before recovery of amortized cost.
- Management’s 2024 effective tax-rate estimate is approximately 25%–27%. It stated that available resources are expected to meet liquidity and capital requirements for at least the next 12 months. The filing provides no specific earnings or revenue guidance.
Outlook, risks and contingencies
Key disclosed risks include borrower and collateral deterioration, especially commercial real estate conditions in the Chicago area and southern Wisconsin; deposit flows and funding costs; interest-rate changes and Federal Reserve policy; availability of cost-effective liquidity; and execution and integration risks from acquisitions. Other cited risks include competition, regulatory and SBA/USDA program changes, technology or cybersecurity incidents, and higher operating or compliance costs. The company reported $2.28 billion of commitments to extend credit and letters of credit; it does not expect material losses from these commitments. Management stated that ordinary-course legal matters are not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Investor verification priorities
- Assess whether net interest margin can stabilize as deposit costs rise, and how much earnings depend on acquired-loan accretion.
- Track non-performing loans, charge-offs, criticized or classified credits, and the adequacy of the allowance—particularly in commercial real estate and commercial and industrial lending.
- Review uninsured-deposit trends, deposit mix and pricing, near-term FHLB maturities, BTFP repayment, and the availability of collateral-backed borrowing capacity.
- Evaluate the scale and execution of Q2 branch consolidations and whether the related charges produce sustainable expense savings.
- Confirm the impact of accumulated unrealized securities losses on capital and liquidity under changing rates, alongside reported regulatory capital ratios.
- Reconcile share-count disclosures: the filing reports no program repurchases, while its issuer-purchases table lists 224,782 shares acquired under the compensation plan for option exercise, award settlement or tax withholding.