Business context and reporting period
Byline Bancorp, Inc. is a Chicago-based bank holding company operating through Byline Bank. It serves small and midsize businesses, commercial real estate clients and consumers, and also provides equipment leasing, government-guaranteed lending, and wealth-management services. This unaudited Form 10-Q covers the quarter ended March 31, 2023; amounts below are in millions unless noted.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior year-end |
|---|---|---|
| Interest and dividend income | $100.0 | $61.8 in Q1 2022 |
| Net interest income | $75.7 | $58.7 in Q1 2022 |
| Net interest margin | 4.38%; 4.39% fully taxable-equivalent | 3.81%; 3.82% fully taxable-equivalent in Q1 2022 |
| Provision for credit losses | $9.8 | $5.0 in Q1 2022 |
| Non-interest income | $15.1 | $19.4 in Q1 2022 |
| Non-interest expense | $48.8 | $44.6 in Q1 2022 |
| Net income | $23.9; diluted EPS $0.64 | $22.3; diluted EPS $0.58 in Q1 2022 |
| Return on average assets / equity | 1.32% / 12.38% | 1.35% / 10.87% in Q1 2022 |
| Efficiency ratio | 52.10% | 54.96% in Q1 2022 |
| Total assets | $7,530 | $7,363 at Dec. 31, 2022 |
| Loans and leases, gross | $5,515 | $5,421 at Dec. 31, 2022 |
| Deposits | $5,813 | $5,695 at Dec. 31, 2022 |
| Cash and cash equivalents | $284 | $179 at Dec. 31, 2022 |
| Other borrowings | $663, including $625 of FHLB advances | $640 at Dec. 31, 2022 |
| Stockholders’ equity | $796 | $766 at Dec. 31, 2022 |
Operating cash flow was $49.1 million, investing cash flow was a use of $80.9 million, and financing cash flow provided $136.6 million. Cash and cash equivalents increased by $104.9 million during the quarter.
Material changes and credit quality
- Net interest income increased 28.9% year over year, primarily from higher loan yields and loan growth. Interest expense also rose substantially as deposit and borrowing costs increased; average deposit cost was 1.15%, versus 0.08% in Q1 2022.
- Net gains on loan sales fell 52.5% to $5.1 million as government-guaranteed loan sale volume declined. Loans sold were $72.2 million versus $102.3 million.
- Loans and leases grew 1.7% from year-end, led by originated commercial real estate, commercial and industrial, and lease balances. Non-interest-bearing deposits declined $186.6 million; their share of deposits fell to 33.6% from 37.6% at year-end. Brokered deposits rose to $537.6 million from $251.5 million.
- The allowance for credit losses rose to $90.5 million from $81.9 million, or 1.64% of loans and leases from 1.51%. Nonperforming loans and leases increased to $46.5 million, or 0.84% of loans, from $36.0 million and 0.66% at year-end. Net charge-offs were 0.09% of average loans, versus 0.05% in Q1 2022.
- Available-for-sale securities had a $189.6 million gross unrealized loss at quarter-end; accumulated other comprehensive loss was $108.1 million. Management reported no identified credit losses in the securities portfolio, stated it did not intend to sell the securities, and did not consider a forced sale before cost recovery likely.
Outlook, risks and unusual items
- Management expects its effective tax rate for 2023 to be approximately 25%–27%. It stated available cash and liquidity resources should be sufficient to meet liquidity and capital needs for at least the next 12 months. No earnings or revenue guidance is provided.
- Liquidity resources included $1.4 billion of available FHLB borrowing capacity, $786 million available at the Federal Reserve discount window, $221.7 million of BTFP capacity, and $135 million of uncommitted federal funds lines. The Bank had pledged $221.7 million of securities to the BTFP but had not borrowed under the program. Cash plus secured borrowing capacity equaled 121.4% of estimated uninsured deposits, down from 124.8% at year-end.
- Management identified economic uncertainty, borrower repayment and collateral risk, Chicago-area commercial real estate conditions, deposit flows and funding costs, interest-rate changes, and liquidity availability among key risks. It also cited operational, cybersecurity, regulatory, and merger-integration risks.
- The announced Inland Bancorp acquisition was expected to close on or about June 1, 2023, subject to final completion. Byline had received required approvals. Inland reported $1.2 billion in assets, $881.8 million in loans, and $967.4 million in deposits at March 31; stated consideration was approximately $22.9 million in cash plus an estimated 6.4 million Byline shares.
- Off-balance-sheet commitments to extend credit and letters of credit totaled $2.26 billion. Management did not anticipate material losses from these commitments. Management reported no legal proceeding expected to have a material adverse effect and no material change to previously disclosed risk factors.
- Q1 2022 comparisons require care: Byline adopted CECL for periods beginning after September 30, 2022, while Q1 2022 was originally reported under the prior incurred-loss method. The filing provides CECL-recast historical figures for Q1–Q3 2022 in a separate table; those differ from the originally reported Q1 2022 net income.
- Q1 merger-related expense was $489,000; adjusted non-GAAP figures exclude it and a $20,000 asset impairment charge. The company declared a $0.09-per-share common dividend and announced a further $0.09 dividend payable in May.
Important facts for investors to verify
- Deposit stability and funding mix, including the growth in brokered time deposits, declining non-interest-bearing balances, uninsured deposits, and future deposit pricing.
- Subsequent nonperforming-loan, criticized-credit, charge-off, and allowance trends, particularly in commercial real estate and commercial and industrial exposures.
- Execution and final terms of the Inland Bancorp acquisition, including share issuance, integration costs, and realized synergies.
- Actual liquidity and borrowing availability, collateral requirements, and the maturity or repricing of the $600 million of variable-rate FHLB advances due May–June 2023.
- Interest-rate sensitivity and whether modeled outcomes hold as rates, deposit behavior, loan prepayments, and the securities portfolio change.
- CECL-consistent comparisons when evaluating year-over-year results; reported and adjusted non-GAAP measures should also be distinguished.