Byline Bancorp, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. This is an annual filing, and the supplied text does not provide separate fourth-quarter results. Byline is a Chicago-based bank holding company operating through Byline Bank and its subsidiaries, with commercial, CRE, small-business/SBA, equipment-leasing, retail-deposit, and wealth-management businesses.
Financial performance and condition
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Net interest income | $236.4 million | $215.0 million |
| Non-interest income | $74.3 million | $62.1 million |
| Net income | $92.8 million | $37.5 million |
| Diluted EPS | $2.40 | $0.96 |
| Net interest margin | 3.84% | 3.80% |
| Return on average assets | 1.40% | 0.61% |
| Efficiency ratio | 57.27% | 58.40% |
| Total assets | $6.70 billion | $6.39 billion |
| Gross loans and leases | $4.54 billion | $4.34 billion |
| Deposits | $5.16 billion | $4.75 billion |
| Stockholders’ equity | $836.4 million | $805.5 million |
Net income rose $55.3 million, reflecting higher net interest income, a $54.5 million reduction in loan-loss provision, and increased non-interest income, partly offset by higher taxes and operating expenses. Net gains on loan sales were $46.3 million, up 38.8%, principally from higher government-guaranteed loan sales and premiums. FY2021 net cash from operating activities was $74.4 million, compared with $109.0 million in FY2020; investing activities used $236.0 million and financing activities provided $236.1 million. Cash and cash equivalents ended the year at $157.9 million.
Average cost of deposits fell to 0.09% from 0.35%; non-interest-bearing deposits were 41.9% of year-end deposits. The allowance for loan and lease losses was $55.0 million, or 1.21% of loans held for investment, versus $66.3 million, or 1.53%, a year earlier. Non-performing loans were 0.51% of loans, down from 0.95%; net charge-offs were 0.28% of average loans. The securities portfolio had a $22.4 million gross unrealized loss at year-end, which management judged temporary.
Byline Bank was classified as well-capitalized: CET1 ratio 12.38%, total capital ratio 13.38%, and leverage ratio 10.87%. The company reported $490 million of FHLB advances and $73.5 million of subordinated notes, net, at year-end; the $371.9 million PPPLF balance outstanding at year-end 2020 had been repaid. Management said liquidity was expected to meet needs for at least the next 12 months. Available borrowing capacity was subject to collateral and other conditions.
Material changes and notable items
- Loans and leases grew 4.5%; originated loans increased $425.9 million, while acquired loans declined $229.3 million. PPP loans fell to $123.7 million from $517.8 million, largely through SBA forgiveness.
- Deposits increased 8.5%, led by non-interest-bearing balances. Commercial and industrial, CRE, and equipment-leasing balances grew; residential real estate loans declined.
- Provision for loan losses fell to $1.5 million from $55.9 million as management reduced pandemic-related general reserves. Credit outcomes remain sensitive to economic conditions and the judgment underlying reserve estimates.
- Non-interest expense increased 9.2% to $185.0 million. Salaries and benefits rose 12.8% with hiring and incentive compensation; $12.3 million of asset-held-for-sale impairments reflected branch and real-estate strategy. Reported adjusted net income, a non-GAAP measure, was $104.8 million versus $40.9 million.
- Available-for-sale securities’ unrealized losses drove FY2021 other comprehensive loss of $26.3 million and year-end accumulated other comprehensive loss of $8.3 million.
- The company repurchased 1.33 million shares for $28.9 million in 2021. Common dividends declared were $0.30 per share, versus $0.12 in 2020.
Outlook, risks, and contingencies
No specific earnings or revenue guidance is provided. Management estimated FY2022 loan accretion of $1.7 million, down from $6.5 million in 2021, and expected an effective tax rate of approximately 25%–27%. Six branch consolidations planned for Q2 2022 were expected to yield more than $5.3 million in annual cost savings, with about 70% reinvested in talent and technology. The repurchase authorization runs through December 31, 2022, subject to management discretion.
Key risks include credit deterioration and CRE concentration in the Chicago area; interest-rate and deposit-pricing sensitivity; dependence on SBA programs and loan-sale premiums; liquidity and reliance on bank dividends to fund the parent; cyber and third-party technology risks; and continuing effects of COVID-19. The company was transitioning legacy LIBOR exposures to Term SOFR; $1.2 billion of loans and related derivatives, securities, and debentures had LIBOR exposure or fallback provisions. CECL adoption was scheduled for December 31, 2022, and could increase the allowance, but the amount was not yet determined. Management reported no legal proceedings expected to have a material adverse effect. The auditor issued an unqualified opinion; the auditor did not attest to internal control effectiveness because Byline was an emerging growth company.
Important facts for investors to verify
- Whether lower credit-loss provisions and improving non-performing-asset ratios persist as pandemic-related support recedes.
- CRE concentration, collateral performance, and the effect of Chicago-area economic and property-market conditions.
- Sustainability of SBA loan-sale gains, servicing income, and associated servicing-asset valuations.
- Deposit retention, funding costs, borrowing availability, and the parent company’s capacity to receive dividends from Byline Bank.
- Actual savings and reinvestment from branch closures, and the effects of rate changes and LIBOR-to-SOFR transition on earnings.
- CECL adoption impact, capital after dividends and repurchases, and the redemption of Series B preferred stock announced for March 31, 2022.