Byline Bancorp, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Unaudited results for the quarter and six months ended June 30, 2021. Byline is a Chicago-based bank holding company operating through Byline Bank, serving businesses, real estate borrowers and consumers, with equipment leasing, government-guaranteed lending, and wealth-management businesses. Dollar figures below are in USD; financial amounts are rounded to millions unless otherwise noted.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net interest income | $58.2m | $52.6m | $114.8m | $105.4m |
| Provision for (release of) loan losses | ($2.0m) | $15.5m | $2.4m | $30.0m |
| Non-interest income | $21.0m | $12.8m | $36.7m | $22.1m |
| Non-interest expense | $43.0m | $37.1m | $81.8m | $80.7m |
| Net income | $28.5m | $9.1m | $50.3m | $12.1m |
| Diluted EPS | $0.73 | $0.24 | $1.29 | $0.31 |
- Revenue and earnings: Q2 net interest income rose 10.6% year over year; non-interest income rose 63.7%, principally on higher gains from loan sales. First-half increases were 8.9% and 66.0%, respectively. Net gains on loan sales were $12.3m in Q2 and $20.6m for the first half.
- Margins and operating performance: Reported net interest margin was 3.74% for Q2 and 3.76% for the first half, versus 3.71% and 3.93% in the comparable 2020 periods. The efficiency ratio was 51.95% and 51.61%, respectively, compared with 53.73% and 60.30%. Q2 return on average assets was 1.70%; return on average equity was 14.10%.
- Balance sheet and liquidity: At June 30, assets were $6.54bn, gross loans and leases $4.47bn, deposits $5.09bn, and stockholders’ equity $817.1m. Compared with December 31, 2020, assets increased 2.3%, loans and leases 3.0%, and deposits 7.2%; other borrowings fell 31.0% to $446.8m. Cash and cash equivalents were $102.7m. Management stated available aggregate borrowing capacity was $501.8m, plus $115m in uncommitted federal funds lines.
- Cash flow, first half: Operating activities provided $67.8m; investing used $165.4m; financing provided $116.9m. Cash and cash equivalents increased $19.3m to $102.7m. Investing included a $50m investment in bank-owned life insurance.
- Credit and capital: Allowance for loan and lease losses was $61.7m, or 1.38% of loans and leases, down from $66.3m and 1.53% at year-end. Non-performing assets were $39.9m (0.61% of assets), versus $47.5m (0.74%). Byline Bank was reported well-capitalized; its CET1 ratio was 12.99%, total capital ratio 14.22%, and leverage ratio 10.73%.
Material changes and notable items
- Net income improved substantially year over year, largely reflecting lower credit-loss provisions, higher net interest income, and stronger non-interest income. Management attributed the lower provision to improving qualitative factors amid recovery from COVID-19.
- Q2 expenses rose 16.0%, mainly from salaries and employee benefits, which increased 26.7%; first-half expenses rose 1.4%. The filing identifies $1.9m of Q2 and $2.5m of first-half impairment charges on assets held for sale; adjusted results exclude these charges.
- Loan and lease balances increased, with growth in originated lending and leasing; PPP loans outstanding were $488.2m before deferred fees and costs. The company reported that the SBA had approved more than $283.7m of PPP loans for forgiveness by June 30.
- Non-interest-bearing deposits grew to $2.09bn, or 41.0% of deposits; the average deposit cost was 0.08% in Q2 versus 0.36% a year earlier. The company had no brokered time deposits at June 30.
- The company repurchased 871,488 shares for $18.5m in the first half. After quarter-end, the board authorized an additional 1.25m-share repurchase authorization and declared a $0.09-per-share dividend payable August 24, 2021.
- Accumulated other comprehensive income fell from $18.0m at year-end to $0.2m, primarily reflecting unrealized losses on available-for-sale securities. Management considered the securities’ declines temporary and stated it did not intend, and was not likely required, to sell them before recovery.
Outlook, risks and contingencies
The filing provides no formal earnings or operating guidance. Management expects cash and liquidity resources to be sufficient for short-term needs over at least the next 12 months. It describes interest-rate exposure, credit quality, commercial real estate conditions in Chicago and southern Wisconsin, COVID-19 effects, funding availability, cybersecurity, and regulatory or SBA program changes as risks. Its interest-rate simulation estimated that an immediate 100-basis-point rise could increase net interest income by 4.2% over the modeled year, while a 100-basis-point decline could reduce it by 3.8%; management cautioned that actual results may differ materially from these hypothetical estimates.
At June 30, active COVID-related payment deferrals were reported as $3.7m in one section and $2.5m in another; the detailed table totals $3.721m. Off-balance-sheet commitments to extend credit and letters of credit totaled $1.67bn. Management did not expect material losses from these commitments. Management reported no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors. CECL adoption was pending; assuming continued emerging-growth-company status, the expected effective date was fiscal years beginning after December 15, 2022.
Important facts for investors to verify
- Reconcile the Q2 net interest margin comparison: the selected-data table gives 3.74% in 2021 versus 3.71% in 2020, but one MD&A sentence describes this as a three-basis-point decrease.
- Confirm the reported active COVID-19 deferral balance; the filing cites both $3.7m and $2.5m, while its supporting table totals $3.721m.
- Assess sustainability of earnings given the meaningful contributions from loan-sale gains and the Q2 credit-loss release, and review the trend in salaries and employee benefits.
- Review credit exposure and collateral quality, including commercial real estate and the unguaranteed government-guaranteed loan portfolio, as well as PPP forgiveness and repayment trends.
- Monitor securities valuation and interest-rate sensitivity, liquidity capacity and collateral availability, the continuing share repurchases, and the planned dividend.