Byline Bancorp, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Byline is a Chicago-based bank holding company operating through Byline Bank and subsidiaries, with commercial banking, SBA/USDA lending, equipment leasing, retail deposits, and wealth management businesses. It reports one operating segment.
Financial performance and position
| Metric | FY2022 / Dec. 31, 2022 | Comparison |
|---|---|---|
| Net interest income | $265.3 million | Up 12.2% from $236.4 million in 2021 |
| Net interest margin | 4.00% | Up 16 basis points from 3.84% |
| Net income | $88.0 million; diluted EPS $2.34 | Net income down from $92.8 million; diluted EPS was $2.40 |
| Non-interest income | $57.3 million | Down 22.8%, mainly reflecting lower gains on loan sales |
| Provision for credit losses | $23.9 million | Up from $1.0 million; includes portfolio growth, economic-risk adjustments, and CECL effects |
| Operating cash flow | $220.3 million | Investing cash outflow $819.9 million; financing cash inflow $620.9 million; cash increased $21.4 million |
| Total assets | $7.36 billion | Up 10.0% |
| Loans and leases | $5.42 billion gross; $5.34 billion net of allowance | Gross portfolio up 19.5% |
| Deposits | $5.70 billion | Up 10.5%; core deposits were 92.7% of deposits |
| Average deposit cost | 0.36% | Up from 0.09%; non-interest-bearing deposits were 37.6% of year-end deposits versus 41.9% |
| Stockholders’ equity | $765.8 million | Down $70.6 million, principally from lower securities values reflected in accumulated other comprehensive loss |
FY2022 return on average assets was 1.25%, versus 1.40% in 2021; return on average equity was 11.33%, versus 11.31%. The GAAP efficiency ratio improved to 54.99% from 57.42%; the adjusted ratio was 54.70%, versus 52.14%. These adjusted measures are non-GAAP.
Cash and cash equivalents were $179.4 million at year-end. Borrowings included $625.0 million of FHLB advances, $73.7 million of subordinated notes, $37.3 million of junior subordinated debentures, and $15.4 million of customer repurchase agreements. The bank reported $1.0 billion of available aggregate FHLB borrowing capacity after outstanding advances and letters of credit, plus $804.6 million available through the Federal Reserve discount window and a $135.0 million uncommitted federal funds line. These facilities are subject to collateral and other conditions.
At year-end, the bank’s regulatory capital ratios were 11.27% CET1, 11.27% Tier 1, 12.34% total capital, and 10.67% Tier 1 leverage; it was classified as well-capitalized. The company’s corresponding reported ratios were 10.20%, 10.85%, 13.00%, and 10.29%. Reported 2022 capital ratios reflect the regulatory phase-in of CECL’s capital impact.
Material changes and unusual items
- Net interest income rose with loan growth and higher asset yields, while higher deposit and borrowing rates increased interest expense. Net interest spread narrowed 10 basis points even as net interest margin increased.
- Net gains on loan sales fell 31.1% to $31.9 million; guaranteed-loan sale volume and market premiums declined. Loan servicing asset revaluation was a negative $11.7 million, compared with negative $6.7 million in 2021.
- Salary and benefit expense increased 16.6% to $118.1 million, primarily due to incentive compensation. Total non-interest expense was nearly flat, partly because 2021 included larger branch and real-estate impairment charges.
- CECL adoption was recorded using the modified retrospective method. The January 1, 2022 adoption adjustment increased the loan allowance by $12.2 million and reduced retained earnings by $10.1 million net of tax. The company also reported a $1.7 million after-tax fourth-quarter earnings adjustment related to applying CECL to the first three quarters.
- Available-for-sale securities had $204.0 million of gross unrealized losses at year-end; fair value was $1.17 billion against $1.38 billion amortized cost. Management reported no credit-loss allowance on these securities and said it did not intend, and was not more likely than not required, to sell them before recovery.
- The company redeemed all Series B preferred shares in March 2022 for approximately $10.6 million. It paid $0.36 per common share in dividends during 2022 and repurchased 689,068 shares for $17.3 million.
Credit, liquidity, outlook, and other disclosures
- The allowance for credit losses was $81.9 million, or 1.51% of loans and leases, versus $55.0 million, or 1.21%, a year earlier. Net charge-offs were 0.16% of average loans and leases. Non-accrual loans and leases increased to $36.0 million from $23.1 million; non-performing assets were $40.7 million, or 0.55% of assets.
- Real-estate-secured loans represented 52.4% of the loan and lease portfolio. Commercial real estate loans, including owner-occupied and non-owner-occupied, equaled 313.4% of total capital; non-owner-occupied CRE alone was 86.6% of capital. Management identifies Chicago-area real estate and borrower credit quality as material risks.
- Estimated uninsured deposits were $1.6 billion. The filing reports $251.5 million of brokered deposits at year-end, included in time deposits below $250,000. Competition for deposits and higher market rates could raise funding costs or cause deposit outflows.
- Management said cash and liquidity resources were expected to meet liquidity and capital requirements for at least the next 12 months. Outstanding commitments to extend credit were $2.08 billion, with an additional $61.9 million of letters of credit; many commitments may expire undrawn.
- Management projected a 2023 effective tax rate of approximately 25%–27%. The filing does not provide broader earnings or growth guidance. A new authorization permits repurchase of up to 1.25 million shares through December 31, 2023; repurchases are discretionary.
- Byline announced an agreement to acquire Inland Bancorp, which had $1.2 billion in assets and $997.1 million in deposits at December 31, 2022. Closing was expected in the first half of 2023, subject to approvals and other conditions.
- Key risks include interest-rate and deposit repricing, credit and Chicago-area CRE exposure, securities valuation, loan-sale and servicing assumptions, liquidity and funding access, SBA program changes, LIBOR transition, cyber and third-party technology risks, and acquisition integration. The filing reports no legal proceedings expected to have a material adverse effect.
- Moss Adams LLP issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified CECL and the loan-loss allowance as a critical audit matter.
Investor verification priorities
- Track non-accrual loans, classified and individually evaluated credits, charge-offs, and allowance adequacy as the portfolio grows and CECL estimates evolve.
- Review CRE concentration and borrower/property exposure, particularly in the Chicago market, alongside changing property values and refinancing conditions.
- Monitor deposit retention, uninsured and brokered deposit levels, deposit pricing, and the cost and maturity of FHLB advances.
- Assess the securities portfolio’s unrealized losses, capital and tangible-equity effects, and whether management’s liquidity assumptions remain valid.
- Verify the Inland Bancorp acquisition’s closing, integration costs, funding, and realized benefits; also assess the sustainability of loan-sale gains and servicing-asset valuations.