News Details

Third Quarter 2018 Highlights

• Third quarter of 2018 net income of $14.5 million, or $0.39 per diluted share, a record high since our initial public offering
• Net interest margin increases to 4.73% compared to 4.43% for the second quarter of 2018
• Originated loans and leases grew to $2.1 billion, an increase of $261.4 million, or 14.6%, from the second quarter of 2018, and $592.2 million, or 40.2%, from the third quarter of 2017
• Efficiency ratio improves to 56.57% for the third quarter of 2018, compared to 83.35% for the second quarter of 2018, and 69.92% for the third quarter of 2017
• Return on average assets improves to 1.20% for the third quarter of 2018, compared to 0.29% for the second quarter of 2018, and 1.17% for the third quarter of 2017
• Return on stockholders’ equity improves to 9.22% for the third quarter of 2018, compared to 2.14% for the second quarter of 2018, and 8.44% for the third quarter of 2017

CHICAGO--(BUSINESS WIRE)-- Byline Bancorp, Inc. (the “Company” or “Byline”) (NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $14.5 million, or $0.39 per diluted share, for the third quarter of 2018, compared with net income of $2.8 million, or $0.08 per diluted share, for the second quarter of 2018, and net income of $9.8 million, or $0.32 per diluted share, for the third quarter of 2017. The Company’s financial results during 2018 include certain costs associated with its acquisition and integration of First Evanston Bancorp, Inc. (“First Evanston”) and its bank subsidiary First Bank & Trust, including merger-related and core system conversion expenses. The acquisition closed on May 31, 2018. Excluding these costs and impairment charges on assets held for sale for each quarter, adjusted net income¹ was $14.9 million, or $0.40 per adjusted diluted share, for the third quarter of 2018, compared with $10.6 million, or $0.32 per adjusted diluted share, for the second quarter of 2018. A reconciliation of adjusted net income and adjusted diluted earnings per share to net income and diluted earnings per share, respectively, according to accounting principles generally accepted in the United States of America (“GAAP”) is provided in the financial tables at the end of this release.

Alberto J. Paracchini, President and Chief Executive Officer of Byline, commented, “Our performance for the quarter was strong and characterized by solid organic growth, continued improvements in our operating performance, and focused execution of our strategy. The third quarter represented the first full quarter of operations subsequent to the closing of the First Evanston acquisition, which has benefited our financial performance. We continue to remain focused on ensuring a smooth transition for customers and colleagues, and expect to see continued benefits as we capture the synergies projected for this transaction.

"We are very pleased to report to you that we recently signed a definitive agreement to acquire Oak Park River Forest Bankshares, Inc. We believe this acquisition will enhance our position in an attractive Chicago metropolitan market, while also providing an important source of low-cost deposits. We believe the synergies from this combination will further enhance the value of the Byline franchise,” 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:

The Company previously completed its acquisition of First Evanston in the second quarter of 2018. All references to this transaction in the following narrative are referred to as “the acquisition” or “our recent acquisition.”

Net interest income for the third quarter of 2018 was $52.6 million, an increase of $13.5 million, or 34.7%, from $39.1 million for the second quarter of 2018.

The increase in net interest income was primarily due to:

• An increase of $15.4 million in interest and fees on loans and leases, primarily due to loans acquired in the acquisition and growth in loan and lease originations; and
• An increase of $612,000 in interest income on securities, primarily due to additional purchases and securities acquired in the acquisition during the second quarter of 2018.

Partially offset by:

• An increase of $2.2 million in interest expense on deposits, partially due to deposits assumed as a result of the acquisition, an increase in time deposits driven by promotional campaigns during the quarter, and an increase in average rates on deposits; and
• An increase of $363,000 in interest expense on Federal Home Loan Bank advances, primarily due to an increase in average advances outstanding during the quarter.

Net interest margin for the third quarter of 2018 was 4.73%, an increase of 30 basis points compared to 4.43% for the second quarter of 2018. Total net accretion on acquired loans contributed 74 basis points to the net interest margin for the third quarter of 2018 compared to 41 basis points for the second quarter of 2018. The net interest margin increase was primarily driven by increased interest income due to an increase in earning assets as a result of the acquisition.

The average cost of total deposits was 0.64% for the third quarter of 2018, an increase of 12 basis points compared to the second quarter of 2018, primarily due to increased rates on interest bearing deposits and a full quarter of the inclusion of First Evanston deposits. Additionally, there was growth in average time deposits of $220.2 million and money market accounts of $149.1 million, partially offset by growth in average non-interest bearing demand deposits of $284.3 million.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $5.8 million for the third quarter of 2018, an increase of $1.8 million compared to $4.0 million for the second quarter of 2018. The third quarter provision included allocations of $3.6 million for originated loans and leases, $2.0 million for acquired non-impaired loans, and $313,000 for acquired impaired loans. The increased provision during the third quarter of 2018 was mainly due to additional specific impairment in the unguaranteed portion of the government guaranteed portfolio and increases to the general reserve driven by originated loan and lease portfolio growth.

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 2018 was $11.1 million, a decrease of $3.4 million compared to $14.5 million for the second quarter of 2018.

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

• A decrease of $4.7 million in net gains on sales of loans, primarily due to a decrease in loans sold coupled with a slight decrease in average premiums; and
• A decrease of $283,000 in net servicing fees, primarily due to the change in fair value of the servicing asset as a result of changes to valuation assumptions on government guaranteed loans based on a higher interest rate environment and stronger economic growth.

Partially offset by:

• An increase of $640,000 in ATM and interchange fees, primarily due to increased interchange fees resulting from a credit card vendor agreement signing bonus; and
• An increase of $482,000 in wealth management and trust income, a new business line added as a result of the acquisition, in which the third quarter was the first full quarter of operations.

During the third quarter of 2018, the Company sold $59.6 million of government guaranteed loans compared to $95.0 million during the second quarter of 2018, contributing to the decrease in net gains on sale of loans for the quarter. The decrease in sales is primarily due to the timing of loans closed becoming fully funded, decreased premiums in the market, and the seasonality of our origination business.

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 2018 was $38.0 million, a decrease of $7.8 million from $45.8 million for the second quarter of 2018.

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

• A decrease of $7.6 million in data processing expense, primarily due to a one-time contract termination expense incurred during the second quarter related to the Bank’s upcoming core system conversion;
• A decrease of $2.1 million in legal, audit and other professional fees, primarily due to professional services previously incurred related to the acquisition and system conversion; and
• A decrease of $756,000 in net loss (gain) recognized on other real estate owned and other related expenses, primarily due to net gains recorded on two other real estate owned property sales during the quarter, compared to a net loss of $472,000 incurred during the second quarter of 2018, primarily due to net losses recorded on two property sales.

Partially offset by:

• An increase of $2.1 million in salaries and employee benefits, primarily due to additional salary and employee benefit expenses resulting from the acquisition and incentive payments for targeted achievements; and
• An increase of $768,000 in other intangible assets amortization expense, due to a full quarter of amortization of intangible assets as a result of the acquisition.

The Company’s efficiency ratio was 56.57% for the third quarter of 2018, compared with 83.35% for the second quarter of 2018. Approximately $9.0 million of expenses were previously recognized during the second quarter of 2018 relating to the Bank’s planned core system conversion, including consulting fees and contract termination expense. Excluding merger-related expenses, core system conversion expenses, and impairment charges on assets held for sale, the Company’s adjusted efficiency ratio¹ was 55.79% for the third quarter of 2018, compared with 63.48% for the second quarter of 2018.

INCOME TAXES

The Company recorded income tax expense of $5.4 million during the third quarter of 2018, an effective tax rate of 27.1%, compared to $1.1 million during the second quarter of 2018, an effective tax rate of 27.8%, an increase of $4.3 million. The increase was primarily due to the increase in net income recorded during the quarter.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $4.9 billion at September 30, 2018, an increase of $112.1 million compared to $4.8 billion at June 30, 2018, and an increase of $1.6 billion compared to $3.4 billion at December 31, 2017.

The current quarter increase was primarily due to:

• An increase in loans and leases of $107.1 million, primarily due to an increase of $261.4 million in our originated loan portfolio, partially offset by a decrease of $154.3 million in our acquired loan portfolio; and
• An increase in securities of $33.7 million mainly due to additional purchases during the quarter, which included U.S.Treasury securities of $15.0 million and government guaranteed mortgage-backed securities of $19.9 million.

Partially offset by:

• A decrease in due from counterparty of $11.1 million due to the timing of the settlement of loans sold at September 30, 2018; and
• A decrease in deferred tax assets, net of $6.6 million, primarily due to utilization of net operating loss carryforwards.

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 non-performing assets:

• Non-performing loans and leases were $30.2 million at September 30, 2018, an increase of $3.0 million from $27.2 million at June 30, 2018; and
• Other real estate owned was $4.9 million at September 30, 2018, a decrease of $1.5 million from $6.4 million at June 30, 2018, primarily due to sales of properties during the third quarter of 2018.

Non-performing assets included $7.3 million of government guaranteed balances at September 30, 2018 and June 30, 2018.

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 0.59% at June 30, 2018 to 0.68% at September 30, 2018, primarily due to loan and lease production and additional credit deterioration in the government guaranteed portfolio.

Net Charge-Offs

Net charge-offs during the third quarter of 2018 were $2.1 million, or 0.25% of average loans and leases, on an annualized basis, an increase of $196,000 compared to $1.9 million, or 0.29% of average loans, during the second quarter of 2018, and a decrease from 0.34% for the comparable quarter one year ago. The decrease as a percentage of average loans and leases was primarily due to higher loan and lease average balances during the third quarter.

Net charge-offs for the third quarter of 2018 included $1.5 million in the unguaranteed portion of government guaranteed loans while net charge-offs for the second quarter of 2018 included $1.7 million in the unguaranteed portion of government guaranteed loans.

Deposits and Other Liabilities

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

Total deposits were $3.7 billion at September 30, 2018, an increase of $95.9 million compared to June 30, 2018, and an increase of $1.3 billion compared to December 31, 2017, primarily due to continued deposit promotions and assumed deposits from the acquisition. Non-interest bearing deposits to total deposits decreased from 32.7% at June 30, 2018 to 31.4% at September 30, 2018.

The increase in the current quarter was primarily due to:

• An increase in time deposits of $50.0 million, to $1.1 billion at September 30, 2018, primarily driven by continuing promotional campaigns; and
• An increase in money market demand deposits of $44.2 million, from $617.1 million at June 30, 2018 to $661.3 million at September 30, 2018, primarily driven by an ongoing promotional campaign.

Partially offset by:

• A decrease in non-interest bearing demand deposits of $17.8 million, to $1.2 billion at September 30, 2018, primarily driven by a seasonal outflow from commercial customers expected to return in the fourth quarter.

Total borrowings and other liabilities were $546.8 million at September 30, 2018, an increase of $2.8 million from $544.0 million at June 30, 2018, primarily due to an increase in Federal Home Loan Bank advances slightly offset by a decrease in accrued expenses and other liabilities.

Stockholders’ Equity

Total stockholders’ equity was $629.9 million at September 30, 2018, an increase of $13.5 million from $616.4 million at June 30, 2018, primarily due to net income during the quarter. Stockholders’ equity increased $171.3 million from $458.6 million at December 31, 2017, primarily due to an increase from the acquisition.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of September 30, 2018:

Capital ratios for the period presented are based on the Basel III regulatory capital framework as applied to the Company’s current business and operations, and are subject to, among other things, completion and filing of the Company’s regulatory reports and ongoing regulatory review and implementation guidance.

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 26, 2018 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 (877) 512-8755. A recorded replay can be accessed through November 9, 2018 by dialing (877) 344-7529; passcode: 10124727.

A slide presentation relating to the third quarter 2018 results will be accessible prior to the scheduled conference call. The slide presentation and webcast of the conference call can be accessed on the News and Events 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 $4.9 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 adjusted net income, adjusted diluted earnings per share, adjusted efficiency ratio, adjusted non-interest expense to average assets, non-interest income to total revenues, adjusted return on average stockholders’ equity, adjusted return on average assets, pre-tax pre-provision return on average assets, adjusted pre-tax pre-provision return on average assets, tangible book value per share, tangible common equity to tangible assets, and net interest margin excluding loan accretion. 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.

Adjusted net income and adjusted diluted earnings per share exclude certain significant items, which include incremental income tax benefit related to Illinois corporate income tax rate increases, incremental income tax expense or benefit related to federal corporate income tax reductions, impairment charges on assets held for sale, merger related expenses, and core system conversion expenses adjusted for applicable income tax. Management believes the significant items are not indicative of or useful to measure the Company’s operating performance on an ongoing basis.

Adjusted non-interest expense is non-interest expense excluding certain significant items, which include impairment charges on assets held for sale, merger-related expenses, and core system conversion expenses.

Adjusted efficiency ratio is adjusted non-interest expense less amortization of intangible assets divided by net interest income and non-interest income. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted non-interest expense to average assets is adjusted non-interest expense divided by average assets. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted return on average stockholders’ equity is adjusted net income divided by average stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted return on average assets is adjusted net income divided by average assets. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

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 income is pre-tax income plus the provision for loan and lease losses. Management believes this metric is important due to the tax benefit resulting from the reversal of the deferred tax asset valuation allowance, the decrease in the federal corporate income tax rate, and the increase in the Illinois state corporate income tax rate. The metric demonstrates income excluding the tax provision or benefit and excludes the provision for loan and lease losses.

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 change in tax expense or benefit resulting from the recent decrease in the federal corporate income tax rate and the recent increase in the Illinois state income tax rate. The ratio demonstrates profitability excluding the tax provision or benefit and excludes the provision for loan and lease losses. Adjusted pre-tax pre-provision return on average assets excludes certain significant items, which include impairment charges on assets held for sale, merger related expenses, and core system conversion expenses.

Tangible common equity is defined as total stockholders’ equity reduced by preferred stock and goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.

Tangible assets is defined as total assets reduced by goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.

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.

Tangible net income available to common stockholders is net income available to common stockholders excluding after-tax intangible asset amortization.

Return on average tangible common stockholders’ equity is tangible net income available to common stockholders divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted return on average tangible common stockholders’ equity is adjusted tangible net income available to common stockholders divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Net interest margin excluding loan accretion is calculated as reported net interest margin less the effect of accretion income net of contractual interest collected on acquired loans. Management believes that this metric is important as it illustrates the impact of net accretion income from acquired loans on the net interest margin.

Forward-Looking Statements

This press release may contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements about Byline’s expectations, beliefs, plans, strategies, predictions, forecasts, objectives or assumptions of future events or performance are not historical facts and may be forward-looking. These statements include, but are not limited to, the expected completion date, financial benefits and other effects of the proposed merger of Byline and Oak Park River Forest Bankshares, Inc. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “expects,” “can,” “could,” “may,” “predicts,” “potential,” “opportunity,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “seeks,” “intends” and similar words or phrases. Accordingly, these statements involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual strategies, actions or results to differ materially from those expressed in them, and are not guarantees of timing, future results or other events or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions or results, based on management’s current expectations, assumptions and estimates on the date hereof, and there can be no assurance that actual strategies, actions or results will not differ materially from expectations, readers are cautioned not to place undue reliance on such statements. Factors that may cause such a difference include, but are not limited to, the reaction to the transaction of the companies’ customers, employees and counterparties; customer disintermediation; inflation; expected synergies, cost savings and other financial benefits of the proposed transaction might not be realized within the expected timeframes or might be less than projected; the requisite stockholder and regulatory approvals for the proposed transaction might not be obtained; credit and interest rate risks associated with Byline’s and Oak Park River Forest Bankshares, Inc.’s respective businesses, customers, borrowings, repayment, investment, and deposit practices; general economic conditions, either nationally or in the market areas in which Byline and Oak Park River Forest Bankshares, Inc. operate or anticipate doing business, are less favorable than expected; new regulatory or legal requirements or obligations; and other risks. Certain risks and important factors that could affect Byline’s future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2017 and other reports filed with the Securities and Exchange Commission, including among other things, under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Byline undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise.