News Details

Third Quarter 2017 Summary

• Net income of $9.8 million
• Net interest margin improves to 4.18%
• Loan originations of $135.8 million
• Return on average assets improves to 1.17%
• Loan to deposit ratio increases to 88.01%

CHICAGO--(BUSINESS WIRE)-- Byline Bancorp, Inc. (NYSE: BY), the parent company of Byline Bank, today reported net income of $9.8 million, or $0.32 per diluted share, for the third quarter of 2017, compared with net income of $6.1 million, or $(0.18) per diluted share, for the second quarter of 2017, and net income of $1.6 million, or $0.08 per diluted share, for the third quarter of 2016.

“We delivered a strong quarter driven by solid loan and lease growth and an expanding net interest margin,” said Alberto J. Paracchini, President and Chief Executive Officer of Byline Bancorp, Inc. “We are gaining more traction with our business development efforts as we’ve moved through the year. We had $135.8 million in gross loan originations during the third quarter, which resulted in double-digit annualized loan and lease growth despite consistent elevated pay-off activity. Our net interest margin is benefiting from a better mix of earning assets, higher loan yields and relatively stable funding costs. As a result, we are seeing a positive impact on our margin and a higher level of net interest income,” said Mr. Paracchini.

STATEMENTS OF OPERATIONS

Net Interest Income

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

The following table presents the quarter-to-date schedule of average interest-earning assets and average interest-bearing liabilities for the periods indicated:

Net interest income for the third quarter of 2017 was $31.4 million, an increase of $1.6 million from $29.8 million for the second quarter of 2017.

The increase in net interest income was primarily due to:

• An increase of $1.8 million in interest and fees on loans and leases, primarily due to the growth in the originated loan and lease portfolio and increased average yields; and
• A decrease of $139,000 in interest expense on other borrowings, primarily due to the repayment of the outstanding balance of $16.2 million under the Company’s line of credit during the quarter.

Partially offset by:

• An increase of $189,000 in interest expense on deposits, primarily due to higher rates on interest-bearing deposit accounts; and
• An increase of $78,000 in interest expense on Federal Home Loan Bank advances, primarily due to higher rates.

Net interest margin for the third quarter of 2017 was 4.18%, an increase of 16 basis points from the second quarter of 2017. The primary driver of the increase in the net interest margin was due to the mix of earning assets, driven by the increased volume of, and related yields on, loans and leases during the quarter.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $3.9 million for the third quarter of 2017, an increase of $385,000 compared to $3.5 million for the second quarter of 2017. This increase was primarily driven by the growth in the loan and lease portfolio.

Non-interest Income

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

Non-interest income for the third quarter of 2017 was $11.9 million, a decrease of $1.3 million from $13.2 million for the second quarter of 2017, primarily due to:

• A decrease of $946,000 in net gains on sales of loans; and
• A decrease of $117,000 in servicing fees, primarily due to loan prepayments.

During the third quarter of 2017, the Company sold $71.8 million of government guaranteed loans compared to $75.1 million during the second quarter of 2017, contributing to the decline in net gains on sale of loans for the quarter.

Non-interest Expense

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

Non-interest expense for the third quarter of 2017 was $31.1 million, an increase of $1.8 million from $29.2 million for the second quarter of 2017.

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

• Impairment charges, included in other non-interest expense, of $951,000 during the third quarter of 2017, primarily related to the planned disposition of the former headquarters of Byline Bank;
• An increase of $518,000 in legal, audit and other professional fees, primarily due to the increased costs associated with being a public company;
• An increase of $424,000 in net loss recognized on other real estate owned and other related expenses, primarily due to lower gains on sales of other real estate owned properties; and
• An increase of $376,000 in provision for unfunded commitments, included in other non-interest expense, primarily due to growth in unfunded loan and lease commitments.

Partially offset by:

• A decrease of $903,000 in salaries and employee benefits, primarily due to decreased recruitment costs and increased deferred loan origination costs, mainly salary expense, due to increased loan and lease originations; and
• A decrease of $184,000 in occupancy expense, net, primarily due to reductions in real estate tax expenses.

The Company’s efficiency ratio was 69.92% for the third quarter of 2017, compared with 66.23% for the second quarter of 2017 and 84.38% for the third quarter of 2016.

INCOME TAXES

The Company recorded an income tax benefit of $1.4 million during the third quarter of 2017 compared to a provision of $4.1 million during the second quarter of 2017, a decrease of $5.5 million. As part of a budget package passed by the Legislature of the State of Illinois, the corporate income tax rate increased from 5.25% to 7.00% effective July 1, 2017. The Company recorded a state income tax benefit of $4.6 million, or $0.16 per diluted share during the quarter ended September 30, 2017, as a result of increased value to the deferred tax asset related to the Company’s Illinois net loss deduction.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $3.3 billion at September 30, 2017, a decrease of $54.7 million from $3.4 billion at June 30, 2017, and stable compared to $3.3 billion at December 31, 2016.

The decrease in the current quarter was primarily due to:

• The receipt of net proceeds due of $82.7 million in connection with the Company’s initial public offering;
• The completion of the repurchase of all of the Company’s Series A Preferred Stock for $25.5 million; and
• The repayment, in full, of the amount outstanding under the Company’s line of credit of $16.2 million.

Partially offset by:

• An increase in loans and leases of $67.1 million from $2.1 billion at June 30, 2017 to $2.2 billion at September 30, 2017.

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

ASSET QUALITY

Non-Performing Assets

The following table sets forth the amounts of non-performing loans and leases, non-performing assets, and other real estate owned at the dates indicated:

Variances in credit quality metrics:

• Non-performing assets were $30.6 million at September 30, 2017, an increase of $1.7 million from $29.0 million at June 30, 2017;
• Non-performing loans and leases were $16.8 million at September 30, 2017, an increase of $480,000 from $16.3 million at June 30, 2017; and
• Other real estate owned was $13.9 million at September 30, 2017, an increase of $1.2 million from $12.7 million at June 30, 2017.

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:

The allowance for loan and lease losses as a percentage of total loans and leases held for investment increased from 0.65% at June 30, 2017 to 0.72% at September 30, 2017. This increase was primarily driven by the growth in the loan and lease portfolio.

Net Charge-Offs

Net charge-offs during the third quarter of 2017 were $1.9 million, or 0.34% of average loans and leases, on an annualized basis, an increase of $526,000 compared to $1.4 million, or 0.26%, during the second quarter of 2017, primarily due to increased Small Business Administration loan charge-off activity.

Deposits and Other Liabilities

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

Total deposits were $2.5 billion at September 30, 2017, a decrease of $19.7 million compared to the previous quarter but an increase of $30.5 million compared to December 31, 2016.

The decrease in the current quarter was primarily due to:

• A decrease in total time deposits of $51.6 million, from $778.1 million at June 30, 2017 to $726.5 million at September 30, 2017, primarily due to run-off of higher priced time deposits;
• A decrease in non-interest bearing demand deposits of $28.0 million, from $781.6 million at June 30, 2017 to $753.7 million at September 30, 2017, primarily due to the settlement of a new deposit relationship related to a new loan funding that occurred at the end of the prior quarter, as previously disclosed; and
• A decrease in other savings deposits of $9.7 million, from $445.2 million at June 30, 2017 to $435.5 million at September 30, 2017, primarily related to seasonal fluctuations.

Partially offset by:

• An increase in money market demand accounts of $64.7 million, from $353.3 million at June 30, 2017 to $418.0 million at September 30, 2017, primarily due to seasonal fluctuations from a deposit relationship; and
• An increase in interest bearing checking deposits of $4.9 million, from $182.4 million at June 30, 2017 to $187.2 million at September 30, 2017.

Total borrowings and other liabilities were $325.0 million at September 30, 2017, a decrease of $46.8 million from $371.8 million at June 30, 2017, and a decrease of $97.8 million from $422.8 million at December 31, 2016.

The decrease was primarily due to:

• The settlement of the repurchase of all of the Company’s Series A Preferred Stock for $25.5 million; and
• The repayment, in full, of the amount outstanding under the Company’s line of credit of $16.2 million.

Partially offset by:

• An increase in Federal Home Loan Bank advances of $14.9 million, primarily due to the Bank’s ongoing funding needs as a result of increased loan demand.

Stockholders’ Equity

Total stockholders’ equity was $459.5 million at September 30, 2017, an increase of $11.8 million from $447.7 million at June 30, 2017, and an increase of $76.9 million from $382.7 million at December 31, 2016.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of September 30, 2017:

Conference Call, Webcast and Slide Presentation

The Company will host a conference call and webcast at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) on Friday, October 27, 2017 to discuss its quarterly financial results. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (888) 317-6016. A recorded replay can be accessed through November 10, 2017 by dialing (877) 344-7529; passcode: 10113038.

A slide presentation relating to the third quarter 2017 results will be accessible prior to the scheduled conference call. The slide presentation and webcast of the conference call can be accessed on the Events and Presentations page of the Company’s investor relations website at www.bylinebancorp.com.

About Byline Bancorp, Inc.

Headquartered in Chicago, Byline Bancorp, Inc. is the parent company for Byline Bank, a full service commercial bank serving small- and medium-sized businesses, financial sponsors, and consumers. Byline Bank has approximately $3.3 billion in assets and operates more than 50 full service branch locations throughout the Chicago and Milwaukee metropolitan areas. Byline Bank offers a broad range of commercial and retail banking products and services including small ticket equipment leasing solutions and is one of the top 10 Small Business Administration lenders in the United States.

Non-GAAP Financial Measures

This release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These measures include non-interest income to total revenues, pre-tax pre-provision return on average assets, tangible book value per share and tangible common equity to tangible assets. Management believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company’s financial condition, results of operations and cash flows computed in accordance with GAAP; however, management acknowledges that our non-GAAP financial measures have a number of limitations. As such, these disclosures should not be viewed as a substitute for results determined in accordance with GAAP financial measures that we and other companies use. Management also uses these measures for peer comparison. See “Reconciliation of Non-GAAP Financial Measures” in the financial schedules included in this press release for a reconciliation of the non- GAAP financial measures to the comparable GAAP financial measures.

Non-interest income to total revenues is non-interest income divided by net interest income plus non-interest income. Management believes that it is standard practice in the industry to present non-interest income as a percentage of total revenue. Accordingly, management believes providing these measures may be useful for peer comparison.

Pre-tax pre-provision return on average assets is pre-tax income plus the provision for loan and lease losses, divided by average assets. Management believes this metric is important due to the tax benefit resulting from the reversal of the net deferred tax asset valuation allowance and demonstrates profitability excluding the tax benefit and excludes the provision for loan and lease losses.

Tangible book value per share is calculated as tangible common equity, which is stockholders’ equity reduced by preferred stock and goodwill and other intangible assets, divided by total shares of common stock outstanding. Management believes this metric is important due to the relative changes in the book value per share exclusive of changes in intangible assets.

Tangible common equity to tangible assets is calculated as tangible common equity divided by tangible assets, which is total assets reduced by goodwill and other intangible assets. Management believes this measure is important to investors and analysts interested in relative changes in the ratio of total stockholders’ equity to total assets, each exclusive of changes in intangible assets.

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, made through the use of words or phrases such as ‘‘may’’, ‘‘might’’, ‘‘should’’, ‘‘could’’, ‘‘predict’’, ‘‘potential’’, ‘‘believe’’, ‘‘expect’’, ‘‘continue’’, ‘‘will’’, ‘‘anticipate’’, ‘‘seek’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’, ‘‘projection’’, ‘‘would’’, ‘‘annualized’’, “target” and ‘‘outlook’’, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Forward-looking statements reflect various assumptions and involve elements of subjective judgement and analysis, which may or may not prove to be correct, and which are subject to uncertainties and contingencies outside the control of Byline and its respective affiliates, directors, employees and other representatives, which could cause actual results to differ materially from those presented in this communication. No representations, warranties or guarantees are or will be made by Byline as to the reliability, accuracy or completeness of any forward-looking statements contained in this communication or that such forward-looking statements are or will remain based on reasonable assumptions. You should not place undue reliance on any forward-looking statements contained in this communication. Forward-looking statements speak only as of the date they are made, and we assume no obligation to update any of these statements in light of new information, future events or otherwise unless required under the federal securities laws.