Byline Bancorp, Inc. Reports Third Quarter 2021 Financial Results

Select Third Quarter 2021 Highlights

Net income of $25.3 million, or $0.66 per diluted share
Net interest margin of 3.91%
Return on average assets of 1.53%, as adjusted¹ 1.59%
Efficiency ratio of 54.18%
Non-interest bearing deposits 41.1% of total deposits
Originated loans and leases increased $189.5 million, total production of $410.3 million
Common Equity Tier 1 to risk weighted assets of 11.32%

CHICAGO–(BUSINESS WIRE)–Byline Bancorp, Inc. (“Byline”, the “Company”, “we”, “our”, or “us”)(NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $25.3 million, or $0.66 per diluted share, for the third quarter of 2021, compared with net income of $28.5 million, or $0.73 per diluted share, for the second quarter of 2021 and net income of $13.1 million, or $0.34 per diluted share for the third quarter 2020. Adjusted net income¹ was $26.4 million, or $0.69 per adjusted diluted share, for the third quarter of 2021, compared with $29.9 million, or $0.77 per adjusted diluted share¹, for the second quarter of 2021 and $13.1 million, or $0.34 per adjusted diluted share for the third quarter of 2020.

Roberto R. Herencia, Executive Chairman and Chief Executive Officer of Byline Bancorp, commented, “We reported strong third quarter results highlighted by robust balance sheet growth as our teams remained focused on taking care of our customers, while the economy continued to improve. We executed well on our commercial banking strategy during the quarter driven by solid loan and lease growth, net interest margin expansion while continuing to deploy excess capital through share repurchases and dividends. We remain optimistic about our opportunities to execute on our strategy in the future to further enhance the value of our franchise. I want to thank all of our employees for their continued hard work and dedication to serving all of our stakeholders.”

Alberto J. Paracchini, President of Byline Bancorp, added, “Our strong results were supported by continued momentum across our businesses resulting in loan and lease growth, strong inflows of commercial noninterest-bearing deposits, and higher net interest income. Excluding PPP loans, our total loans and leases grew at a 34.9% annualized rate during the third quarter and more than offset the decline in our PPP portfolio. Growth was particularly strong in the commercial, sponsor finance, leasing and government guaranteed loan portfolios. Thanks to the efforts of all of our bankers and team members, we continue to have a healthy loan pipeline, which we believe will result in continued growth of our business while benefiting the mix of earning assets.”

Board Declares Cash Dividend of $0.09 per Share

On October 26, 2021, the Company’s Board of Directors declared a cash dividend of $0.09 per share, payable on November 23, 2021, to stockholders of record of the Company’s common stock as of November 9, 2021.

(1)	Represents non-GAAP financial measures. See “Reconciliation of non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

STATEMENTS OF OPERATIONS

Net Interest Income

The following table presents net interest income for the periods indicated:

							September 30, 2021
	Three Months Ended						Change from
	September 30,		June 30,		September 30,		June 30,			September 30,
(dollars in thousands)	2021		2021		2020		2021			2020
INTEREST AND DIVIDEND INCOME
Interest and fees on loans and leases	$	56,291	$	54,324	$	51,036		3.6	%		10.3	%
Interest on securities		5,534		6,359		7,070		(13.0	)%		(21.7	)%
Other interest and dividend income		947		628		128		50.6	%		644.4	%
Total interest and dividend income		62,772		61,311		58,234		2.4	%		7.8	%
INTEREST EXPENSE
Deposits		986		1,058		2,760		(6.8	)%		(64.3	)%
Other borrowings		349		482		465		(27.4	)%		(24.8	)%
Subordinated notes and debentures		1,592		1,597		1,485		(0.4	)%		7.2	%
Total interest expense		2,927		3,137		4,710		(6.7	)%		(37.8	)%
Net interest income	$	59,845	$	58,174	$	53,524		2.9	%		11.8	%

The following table presents the average interest-earning assets and average interest-bearing liabilities for the periods indicated. Net interest income and margin are adjusted to reflect tax-exempt interest income on a tax-equivalent basis using tax rates effective as of the end of the period:

	For the Three Months Ended
	September 30, 2021									June 30, 2021
(dollars in thousands)	Average Balance⁽⁵⁾			Interest Inc / Exp			Average Yield / Rate			Average Balance⁽⁵⁾			Interest Inc / Exp			Average Yield / Rate
ASSETS
Cash and cash equivalents	$	40,088		$	19			0.19	%	$	75,382		$	28			0.15	%
Loans and leases⁽¹⁾		4,539,111			56,291			4.92	%		4,491,197			54,324			4.85	%
Taxable securities		1,309,802			5,472			1.66	%		1,477,070			5,947			1.62	%
Tax-exempt securities⁽²⁾		187,064			1,254			2.66	%		187,967			1,281			2.73	%
Total interest-earning assets	$	6,076,065		$	63,036			4.12	%	$	6,231,616		$	61,580			3.96	%
Allowance for loan and lease losses		(61,528	)								(65,848	)
All other assets		546,331									554,724
TOTAL ASSETS	$	6,560,868								$	6,720,492
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Interest checking	$	653,543		$	228			0.14	%	$	626,886		$	220			0.14	%
Money market accounts		1,031,009			280			0.11	%		1,052,223			279			0.11	%
Savings		625,037			75			0.05	%		607,035			72			0.05	%
Time deposits		709,805			403			0.23	%		717,795			487			0.27	%
Total interest-bearing deposits		3,019,394			986			0.13	%		3,003,939			1,058			0.14	%
Other borrowings		426,284			349			0.33	%		642,586			482			0.30	%
Subordinated notes and debentures		110,195			1,592			5.73	%		110,030			1,597			5.82	%
Total borrowings		536,479			1,941			1.44	%		752,616			2,079			1.11	%
Total interest-bearing liabilities	$	3,555,873		$	2,927			0.33	%	$	3,756,555		$	3,137			0.33	%
Non-interest-bearing demand deposits		2,106,189									2,085,358
Other liabilities		75,052									68,089
Total stockholders’ equity		823,754									810,490
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,560,868								$	6,720,492
Net interest spread⁽³⁾								3.79	%								3.63	%
Net interest income, fully taxable equivalent				$	60,109								$	58,443
Net interest margin, fully taxable equivalent⁽²⁾⁽⁴⁾								3.92	%								3.76	%
Tax-equivalent adjustment					(264	)		0.01	%					(269	)		0.02	%
Net interest income				$	59,845								$	58,174
Net interest margin⁽⁴⁾								3.91	%								3.74	%

Net loan accretion impact on margin				$	1,638			0.11	%				$	1,395			0.09	%

(1)	Loan and lease balances are net of deferred origination fees and costs and initial indirect costs. Non-accrual loans and leases are included in total loan and lease balances.
(2)	Interest income and rates include the effects of a tax equivalent adjustment to adjust tax exempt investment income on tax exempt investment securities to a fully taxable basis, assuming a federal income tax rate of 21%.
(3)	Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
(4)	Represents net interest income (annualized) divided by total average earning assets.
(5)	Average balances are average daily balances.

Net interest income for the third quarter of 2021 was $59.8 million, an increase of $1.7 million, or 2.9%, from the second quarter of 2021.

The increase in net interest income was primarily due to:

An increase of $2.0 million in interest income on loans and leases, due to higher balances and yields on loans and leases and increased Paycheck Protection Program (“PPP”) servicing fees resulting from a higher volume of loan forgiveness.

Partially offset by:

A decrease of $825,000 in interest income on securities, due to lower average balances of securities.

Tax-equivalent net interest margin for the third quarter of 2021 was 3.92%, an increase of 16 basis points compared to the second quarter of 2021. Total net accretion income on acquired loans contributed 11 basis points to the net interest margin for the third quarter of 2021 compared to nine basis points for the second quarter of 2021, an increase of two basis points. PPP loan interest income and net fee income combined contributed $5.4 million to net interest income for the third quarter of 2021 compared to $4.5 million for the second quarter of 2021 due to the timing of forgiveness of loans.

The average cost of total deposits was 0.08% for the third quarter of 2021, flat compared to the second quarter of 2021. Average non-interest-bearing demand deposits increased $20.8 million, while average money market account deposits decreased by $21.2 million. Average non-interest-bearing demand deposits were 41.1% of average total deposits for the third quarter of 2021 compared to 41.0% during the second quarter of 2021.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $352,000 for the third quarter of 2021, an increase of $2.3 million compared to a recapture of provision of $2.0 million for the second quarter of 2021. The provision during the third quarter of 2021 was mainly driven by new loan and lease originations during the quarter, offset by a recapture of $1.7 million as a result of improved qualitative factors resulting from continued economic improvement.

Non-interest Income

The following table presents the components of non-interest income for the periods indicated:

	Three Months Ended								September 30, 2021 Change from
	September 30,			June 30,			September 30,		June 30,			September 30,
(dollars in thousands)	2021			2021			2020		2021			2020
NON-INTEREST INCOME
Fees and service charges on deposits	$	1,867		$	1,768		$	1,603		5.6	%		16.4	%
Loan servicing revenue		3,344			3,188			2,936		4.9	%		13.9	%
Loan servicing asset revaluation		(2,650	)		7			1,122	NM			NM
ATM and interchange fees		1,201			1,044			1,028		15.0	%		16.7	%
Net realized gains (losses) on securities available-for-sale		130			(136	)		1,037	NM				(87.4	)%
Change in fair value of equity securities, net		(275	)		517			154	NM			NM
Net gains on sales of loans		12,761			12,270			12,671		4.0	%		0.7	%
Wealth management and trust income		815			722			693		12.8	%		17.7	%
Other non-interest income		1,302			1,622			990		(19.7	)%		31.7	%
Total non-interest income	$	18,495		$	21,002		$	22,234		(11.9	)%		(16.8	)%

Non-interest income for the third quarter of 2021 was $18.5 million, a decrease of $2.5 million, or 11.9%, compared to $21.0 million for the second quarter of 2021.

The decrease in total non-interest income was primarily due to:

A $2.7 million loan servicing asset revaluation charge, which was a $2.7 million downward valuation adjustment for the current quarter compared to a $7,000 upward valuation adjustment in the prior quarter, due to changes in the fair value of the servicing asset; and
A $793,000 decrease in the fair value of equity securities.

Partially offset by:

An increase of $491,000 in net gains on sales of loans due to higher volume of loan sales.

During the third quarter of 2021, we sold $104.2 million of U.S. government guaranteed loans compared to $100.6 million during the second quarter of 2021.

Non-interest Expense

The following table presents the components of non-interest expense for the periods indicated:

	Three Months Ended						September 30, 2021 Change from
	September 30,		June 30,		September 30,		June 30,			September 30,
(dollars in thousands)	2021		2021		2020		2021			2020
NON-INTEREST EXPENSE
Salaries and employee benefits	$	25,978	$	24,588	$	23,126		5.7	%		12.3	%
Occupancy and equipment expense, net		4,982		4,856		5,220		2.6	%		(4.6	)%
Loan and lease related expenses		1,175		1,503		2,053		(21.7	)%		(42.7	)%
Legal, audit and other professional fees		2,710		2,898		2,390		(6.5	)%		13.4	%
Data processing		3,108		2,847		2,661		9.1	%		16.8	%
Net loss recognized on other real estate owned and other related expenses		42		389		349		(89.1	)%		(87.8	)%
Other intangible assets amortization expense		1,738		1,848		1,947		(6.0	)%		(10.7	)%
Other non-interest expense		4,447		4,052		3,941		9.7	%		12.8	%
Total non-interest expense	$	44,180	$	42,981	$	41,687		2.8	%		6.0	%

Non-interest expense for the third quarter of 2021 was $44.2 million, an increase of $1.2 million, or 2.8%, from $43.0 million for the second quarter of 2021.

The increase in total non-interest expense was primarily due to:

An increase of $1.4 million in salaries and employee benefits, primarily due to new hires during the quarter and increased commission expense; and
An increase of $395,000 in other non-interest expense, mainly due to advertising campaigns launched during the quarter.

Partially offset by:

A decrease of $328,000 in loan and leases related expenses, mainly due to decreases in government guaranteed loan expenses; and
A decrease of $347,000 in net loss recognized on other real estate owned and other related expenses, due to decreases in write-downs.

Our efficiency ratio was 54.18% for the third quarter of 2021 compared to 51.95% for the second quarter of 2021. Excluding impairment charges on assets held for sale, our adjusted efficiency ratio¹ was 52.35% for the third quarter of 2021, compared with 49.50% for the second quarter of 2021.

INCOME TAXES

We recorded income tax expense of $8.5 million during the third quarter of 2021, compared to $9.7 million during the second quarter of 2021. The effective tax rate was 25.1%, and 25.3%, for the third quarter and second quarter of 2021, respectively.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $6.7 billion at September 30, 2021, an increase of $163.8 million compared to $6.5 billion at June 30, 2021.

The current quarter increase was primarily due to:

An increase in loans and leases of $139.8 million, as a result of new originations, primarily driven by commercial real estate and commercial and industrial loans.

Partially offset by:

A decreases of $68.2 million in securities available-for-sale, at fair value, due to principal paydowns used to fund loan and lease growth.

The following table shows our allocation of the originated, acquired impaired, and acquired non-impaired loans and leases at the dates indicated:

	September 30, 2021						June 30, 2021						September 30, 2020
(dollars in thousands)	Amount			% of Total			Amount			% of Total			Amount			% of Total
Originated loans and leases
Commercial real estate	$	1,298,454			28.2	%	$	1,156,824			25.9	%	$	919,862			21.0	%
Residential real estate		387,578			8.4	%		389,758			8.7	%		458,364			10.5	%
Construction, land development, and other land		336,460			7.3	%		271,710			6.1	%		234,017			5.3	%
Commercial and industrial		1,480,076			32.1	%		1,350,471			30.2	%		1,214,099			27.8	%
Paycheck Protection Program		268,081			5.8	%		476,282			10.7	%		622,191			14.2	%
Installment and other		998			0.0	%		982			0.0	%		2,346			0.1	%
Leasing financing receivables		331,149			7.2	%		267,300			6.0	%		185,700			4.2	%
Total originated loans and leases	$	4,102,796			89.0	%	$	3,913,327			87.6	%	$	3,636,579			83.1	%
Acquired impaired loans
Commercial real estate	$	84,821			1.8	%	$	91,313			2.0	%	$	117,114			2.7	%
Residential real estate		61,893			1.3	%		67,401			1.5	%		84,197			1.9	%
Construction, land development, and other land		1,746			0.1	%		2,008			0.0	%		4,804			0.1	%
Commercial and industrial		6,651			0.1	%		7,444			0.2	%		10,489			0.3	%
Installment and other		169			0.0	%		180			0.0	%		214			0.0	%
Total acquired impaired loans	$	155,280			3.3	%	$	168,346			3.7	%	$	216,818			5.0	%
Acquired non-impaired loans and leases
Commercial real estate	$	235,103			5.1	%	$	254,739			5.6	%	$	310,879			7.1	%
Residential real estate		58,283			1.3	%		65,119			1.5	%		90,835			2.1	%
Construction, land development, and other land		206			0.0	%		208			0.0	%		213			0.0	%
Commercial and industrial		49,678			1.1	%		58,320			1.3	%		104,221			2.4	%
Installment and other		275			0.0	%		311			0.0	%		583			0.0	%
Leasing financing receivables		7,607			0.2	%		9,087			0.3	%		14,389			0.3	%
Total acquired non-impaired loans and leases	$	351,152			7.7	%	$	387,784			8.7	%	$	521,120			11.9	%
Total loans and leases	$	4,609,228			100.0	%	$	4,469,457			100.0	%	$	4,374,517			100.0	%
Allowance for loan and lease losses		(60,598	)					(61,719	)					(61,258	)
Total loans and leases, net of allowance for loan and lease losses	$	4,548,630					$	4,407,738					$	4,313,259

Paycheck Protection Program

The following table presents the net PPP loans outstanding as of September 30, 2021:

	PPP Loans Outstanding
(dollars in thousands)	First Round			Second Round			Total
Principal outstanding	$	12,561		$	263,058		$	275,619
Unearned processing fee		(176	)		(9,503	)		(9,679	)
Deferred cost		47			2,094			2,141
PPP loans, net	$	12,432		$	255,649		$	268,081
Number of loans outstanding		128			1,624			1,752

Forgiven		95.9	%		22.3	%		70.7	%
In review or submission process		0.9	%		10.9	%		4.3	%
Not applied for forgiveness		3.2	%		66.8	%		25.0	%

PPP loans decreased by $208.2 million in the third quarter of 2021 primarily as a result of forgiveness of PPP loans. Forgiveness for the third quarter 2021 was $202.4 million compared to $180.7 million for the second quarter of 2021.

ASSET QUALITY

Non-Performing Assets

The following table sets forth the amounts of non-performing loans and leases (excluding acquired impaired), other real estate owned, and accruing troubled debt restructured loans at the dates indicated:

										% Change from
(dollars in thousands)	September 30, 2021			June 30, 2021			September 30, 2020			June 30, 2021			September 30, 2020
Non-performing assets:
Non-accrual loans and leases	$	34,465		$	35,514		$	43,196			(3.0	)%		(20.2	)%
Past due loans and leases 90 days or more and still accruing interest		—			—			—		—%			—%
Total non-performing loans and leases	$	34,465		$	35,514		$	43,196			(3.0	)%		(20.2	)%
Other real estate owned		3,033			4,417			8,150			(31.3	)%		(62.8	)%
Total non-performing assets	$	37,498		$	39,931		$	51,346			(6.1	)%		(27.0	)%
Accruing troubled debt restructured loans ⁽¹⁾	$	2,366		$	2,395		$	2,293			(1.3	)%		3.2	%
Total non-performing loans and leases as a percentage of total loans and leases		0.75	%		0.79	%		0.99	%
Total non-performing assets as a percentage of total assets		0.56	%		0.61	%		0.79	%
Allowance for loan and lease losses as a percentage of non-performing loans and leases		175.82	%		173.79	%		141.81	%

Non-performing assets guaranteed by U.S. government:
Non-accrual loans guaranteed	$	6,326		$	5,847		$	3,749			8.2	%		68.8	%
Past due loans 90 days or more and still accruing interest guaranteed		—			—			—		—%			—%
Total non-performing loans guaranteed	$	6,326		$	5,847		$	3,749			8.2	%		68.8	%
Accruing troubled debt restructured loans guaranteed ⁽¹⁾	$	—		$	—		$	—		—%			—%
Total non-performing loans and leases not guaranteed as a percentage of total loans and leases		0.61	%		0.66	%		0.90	%
Total non-performing assets not guaranteed as a percentage of total assets		0.46	%		0.52	%		0.73	%

Variances in non-performing assets were:

Non-performing loans and leases were $34.5 million at September 30, 2021, a decrease of $1.0 million from $35.5 million at June 30, 2021; and
Other real estate owned was $3.0 million at September 30, 2021, a decrease of $1.4 million from $4.4 million at June 30, 2021 due to sales.

Allowance for Loan and Lease Losses

The following table presents the balance and activity within the allowance for loan and lease losses for the periods indicated:

	Three Months Ended
	September 30,			June 30,			September 30,
(dollars in thousands)	2021			2021			2020
Allowance for loan and lease losses, beginning of period	$	61,719		$	65,590		$	51,300
Provision/(recapture) for loan and lease losses		352			(1,969	)		15,740
Net charge-offs of loans and leases		(1,473	)		(1,902	)		(5,782	)
Allowance for loan and lease losses, end of period	$	60,598		$	61,719		$	61,258

Allowance for loan and lease losses to period end total loans and leases held for investment		1.31	%		1.38	%		1.40	%
Net charge-offs (annualized) to average loans and leases outstanding during the period		0.13	%		0.17	%		0.53	%
Provision/(recapture) for loan and lease losses to net charge-offs during the period		0.24	x	(1.04)x				2.72	x

The allowance for loan and lease losses as a percentage of total loans and leases held for investment decreased to 1.31% at September 30, 2021 compared to 1.38% at June 30, 2021. The allowance for loan and lease losses as a percentage of total loans and leases held for investment excluding PPP loans decreased to 1.40% at September 30, 2021 from 1.55% at June 30, 2021.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition of credit losses, which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses. In November 2019, the FASB delayed the effective date of the standard for smaller reporting companies, which includes emerging growth companies. Assuming we remain an emerging growth company, the Company anticipates adopting the standard on December 31, 2022. We are in the process of implementation and determining the impact that this new authoritative guidance will have on our consolidated financial statements.

Net Charge-Offs

Net charge-offs during the third quarter of 2021 were $1.5 million, or 0.13% of average loans and leases, on an annualized basis, a decrease of $429,000 compared to $1.9 million or 0.17% of average loans and leases, during the second quarter of 2021, and a decrease of $4.3 million from $5.8 million or 0.53% of average loans and leases from the comparable period a year ago.

Net charge-offs for the third quarter of 2021 included $1.3 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the second quarter of 2021 and third quarter of 2020 included $1.6 million and $4.1 million, respectively, in the unguaranteed portion of U.S. government guaranteed loans.

Deposits and Other Liabilities

The following table presents the composition of deposits at the dates indicated:

							Change from
(dollars in thousands)	September 30, 2021		June 30, 2021		September 30, 2020		June 30, 2021			September 30, 2020
Non-interest-bearing demand deposits	$	2,117,749	$	2,089,455	$	1,718,682		1.4	%		23.2	%
Interest-bearing checking accounts		652,824		653,558		584,682		(0.1	)%		11.7	%
Money market demand accounts		1,057,419		1,023,675		1,153,433		3.3	%		(8.3	)%
Other savings		627,294		613,136		542,741		2.3	%		15.6	%
Time deposits (below $250,000)		553,364		567,469		622,328		(2.5	)%		(11.1	)%
Time deposits ($250,000 and above)		149,628		144,902		188,379		3.3	%		(20.6	)%
Total deposits	$	5,158,278	$	5,092,195	$	4,810,245		1.3	%		7.2	%