Byline Bancorp(BY) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited interim condensed consolidated financial statements and management's discussion and analysis for Byline Bancorp, Inc Item 1. Financial Statements This section presents the unaudited interim condensed consolidated financial statements of Byline Bancorp, Inc. and its subsidiaries for the period ended March 31, 2022, including the statements of financial condition, operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details Condensed Consolidated Statements of Financial Condition This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Statements of Financial Condition (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | ASSETS | | | | Cash and cash equivalents | $153,579 | $157,931 | | Securities available-for-sale | $1,369,368 | $1,454,542 | | Net loans and leases | $4,729,610 | $4,482,116 | | Total assets | $6,834,636 | $6,696,172 | | LIABILITIES | | | | Total deposits | $5,530,102 | $5,155,047 | | Other borrowings | $311,450 | $519,723 | | Total liabilities | $6,045,965 | $5,859,790 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | $788,671 | $836,382 | - Total assets increased by $138.5 million (2.1%) from December 31, 2021, to March 31, 2022, primarily driven by an increase in net loans and leases[11][271] - Total liabilities increased by $186.2 million (3.2%), mainly due to a $375.1 million (7.3%) increase in total deposits, partially offset by a $208.3 million (40.1%) decrease in other borrowings[11][272] - Total stockholders' equity decreased by $47.7 million (5.7%), primarily due to increased accumulated other comprehensive loss, preferred stock redemption, and share repurchases, partially offset by an increase in retained earnings[11][323] Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Operations (dollars in thousands, except share and per share data) | (dollars in thousands, except share and per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:--------------------------------------------------------|:----------------------------------|:----------------------------------| | Total interest and dividend income | $61,818 | $60,159 | | Total interest expense | $3,082 | $3,519 | | Net interest income | $58,736 | $56,640 | | Provision for loan and lease losses | $4,995 | $4,367 | | Total non-interest income | $19,426 | $15,742 | | Total non-interest expense | $44,555 | $38,842 | | Net income | $22,311 | $21,798 | | Income available to common stockholders | $22,115 | $21,602 | | Basic earnings per common share | $0.60 | $0.57 | | Diluted earnings per common share | $0.58 | $0.56 | - Net income increased by $513,000 (2.4%) to $22.3 million for the three months ended March 31, 2022, compared to $21.8 million in the prior year, driven by higher net interest income and non-interest income, partially offset by increased non-interest expense and provision for loan losses[14][205][234] - Diluted EPS increased to $0.58 in Q1 2022 from $0.56 in Q1 2021[14][206] Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents net income and other comprehensive income (loss) components, reflecting changes in equity not from owners Condensed Consolidated Statements of Comprehensive Income (Loss) (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Net income | $22,311 | $21,798 | | Total other comprehensive loss | $(48,086) | $(26,394) | | Comprehensive loss | $(25,775) | $(4,596) | - The company reported a comprehensive loss of $25.8 million for the three months ended March 31, 2022, significantly higher than the $4.6 million loss in the prior year, primarily due to increased unrealized holding losses on securities available-for-sale[16] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in each component of stockholders' equity over the reporting period - Stockholders' equity decreased from $836.4 million at January 1, 2022, to $788.7 million at March 31, 2022, primarily due to a significant other comprehensive loss of $48.1 million, redemption of preferred stock ($10.4 million), and common stock repurchases ($7.6 million), partially offset by net income of $22.3 million[21][323] Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Net cash provided by operating activities | $92,768 | $15,000 | | Net cash used in investing activities | $(242,803) | $(351,797) |\n| Net cash provided by financing activities | $145,683 | $366,516 | | Net change in cash and cash equivalents | $(4,352) | $29,719 | | Cash and cash equivalents, end of period | $153,579 | $113,139 | - Net cash provided by operating activities significantly increased to $92.8 million in Q1 2022 from $15.0 million in Q1 2021, largely due to changes in accrued interest receivable and payable[26] - Net cash used in investing activities decreased to $242.8 million in Q1 2022 from $351.8 million in Q1 2021, primarily due to lower purchases of available-for-sale securities and a higher net change in loans and leases[26] - Net cash provided by financing activities decreased to $145.7 million in Q1 2022 from $366.5 million in Q1 2021, mainly due to lower proceeds from short-term borrowings and the redemption of preferred stock[29] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1—Basis of Presentation This note describes the company's structure, accounting principles, and compliance with financial reporting standards - Byline Bancorp, Inc. operates as a bank holding company, with Byline Bank as its primary subsidiary, and presents unaudited interim condensed consolidated financial statements in accordance with GAAP and SEC regulations[32][33] - The Company operates as a single reportable segment, and no subsequent events requiring recognition or disclosure were identified through the issuance date of these financial statements[34][35] Note 2—Accounting Pronouncements Recently Adopted or Issued This note details the impact of new accounting standards on the company's financial reporting and future adoption plans - The Company adopted ASU No. 2019-12, Simplifying the Accounting for Income Taxes, on January 1, 2022, which did not impact its financial results for the three months ended March 31, 2022[38] - The Company, as an emerging growth company, will adopt ASU No. 2016-13 (CECL) on December 31, 2022, which may increase the allowance for loan losses by requiring expected credit losses on purchased credit-impaired loans[41] - The Company approved Term Secured Overnight Financing Rate (SOFR) as an alternative reference rate to LIBOR, with $1.1 billion of loans, $475.8 million in derivatives, and $58.3 million in available-for-sale securities tied to LIBOR at March 31, 2022[41] Note 3—Securities This note provides details on the company's investment securities, including their fair values and unrealized gains or losses Securities (dollars in thousands) | (dollars in thousands) | March 31, 2022 Fair Value | December 31, 2021 Fair Value | |:-----------------------|:--------------------------|:-----------------------------| | Securities available-for-sale | $1,369,368 | $1,454,542 | | Securities held-to-maturity | $3,906 | $3,992 | - Securities available-for-sale decreased by $85.2 million (5.9%) from December 31, 2021, to March 31, 2022, primarily due to decreases in fair value[45][274] - At March 31, 2022, gross unrealized losses on available-for-sale securities totaled $97.2 million, up from $22.4 million at December 31, 2021, with 223 securities in an unrealized loss position, though all declines were deemed temporary[45][48][279] - Securities pledged as collateral increased to $463.6 million at March 31, 2022, from $332.3 million at December 31, 2021[51] Note 4—Loan and Lease Receivables This note details the composition and changes in the company's loan and lease portfolio, including various categories and pledged amounts Loan and Lease Receivables (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Commercial real estate | $1,776,483 | $1,663,256 | | Commercial and industrial | $1,738,379 | $1,580,235 | | Paycheck Protection Program | $37,248 | $127,184 | | Lease financing receivables | $380,313 | $354,135 | | Total loans and leases | $4,782,717 | $4,533,511 | | Net loans and leases | $4,729,610 | $4,482,116 | - Total loans and leases increased by $251.9 million (5.6%) to $4.8 billion at March 31, 2022, driven by organic growth and renewals of acquired non-impaired loans, despite an $87.5 million decrease in PPP loans[54][271][285] - Originated loans and leases increased by $299.5 million (7.3%) to $4.4 billion, while acquired impaired and non-impaired loans decreased by $47.6 million (10.7%) to $395.2 million[58][60][285] - Loans and leases pledged as security for borrowings increased to $2.2 billion at March 31, 2022, from $1.9 billion at December 31, 2021[56] Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments This note explains the methodology and changes in the allowance for loan and lease losses and the reserve for unfunded commitments Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Total allowance for loan and lease losses | $59,458 | $55,012 | | Total impaired loans | $71,452 | $72,923 | | Related allowance for impaired loans | $20,739 | $21,038 | - The allowance for loan and lease losses (ALLL) increased by $4.4 million (8.1%) to $59.5 million at March 31, 2022, primarily due to an increase in general reserves driven by loan and lease growth[66][299] - The provision for loan and lease losses increased by $628,000 (14.4%) to $5.0 million for the three months ended March 31, 2022, compared to $4.4 million in the prior year[66][251] - Total impaired loans (excluding acquired impaired loans) decreased slightly to $71.5 million at March 31, 2022, from $72.9 million at December 31, 2021[75] - The reserve for unfunded commitments increased to $2.0 million at March 31, 2022, from $1.4 million at December 31, 2021[83] Note 6—Servicing Assets This note details the changes in servicing assets, including additions, revaluations, and related revenue Servicing Assets (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Beginning balance | $23,744 | $22,042 | | Additions, net | $1,984 | $1,603 | | Changes in fair value | $(1,231) | $(1,505) | | Ending balance | $24,497 | $22,140 | - Servicing assets increased to $24.5 million at March 31, 2022, from $23.7 million at December 31, 2021, despite a downward revaluation of $1.2 million for the quarter[86][255] - Loan servicing revenue increased to $3.4 million for Q1 2022 from $2.8 million for Q1 2021, with the total unpaid principal balance of loans serviced for others reaching $1.7 billion[86] Note 7—Other Real Estate Owned This note provides information on the company's other real estate owned (OREO), including additions, sales, and balances Other Real Estate Owned (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Beginning balance | $2,112 | $6,350 | | Net additions to OREO | $309 | $436 | | Proceeds from sales of OREO | $(225) | $(370) | | Ending balance | $2,221 | $5,952 | - Other real estate owned (OREO) increased to $2.2 million at March 31, 2022, from $2.1 million at December 31, 2021, primarily due to net additions[89][303] - The recorded investment of consumer mortgage loans in formal foreclosure proceedings increased to $3.2 million at March 31, 2022, from $2.5 million at December 31, 2021[92] Note 8—Leases This note outlines the company's lease arrangements, including right-of-use assets, discount rates, and lease costs - The Company's operating lease right-of-use asset was $11.8 million at March 31, 2022, with a weighted-average discount rate of 1.19% and a remaining life of 5.9 years[96] Leases (dollars in thousands) | (dollars in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:-----------------------|:----------------------------------|:----------------------------------| | Operating lease cost | $858 | $865 | | Short-term lease cost | $37 | $96 | | Variable lease cost | $469 | $466 | | Total lease cost, net | $1,237 | $1,273 | - Total net lease cost for Q1 2022 was $1.2 million, slightly down from $1.3 million in Q1 2021[97] Note 9—Goodwill, Core Deposit Intangible and Other Intangible Assets This note details the company's intangible assets, including goodwill, core deposit intangibles, and their amortization Goodwill, Core Deposit Intangible and Other Intangible Assets (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Goodwill | $148,353 | $148,353 | | Core Deposit Intangible | $13,475 | $15,004 | | Customer Relationship Intangible | $2,134 | $2,201 | | Total Intangible Assets | $163,962 | $165,558 | - Goodwill remained stable at $148.4 million, while core deposit intangible and customer relationship intangible assets decreased due to amortization[100] - Estimated amortization expense for core deposit and customer relationship intangible assets for the remainder of 2022 is $4.8 million[100] Note 10—Income Taxes This note explains the company's effective tax rate and deferred tax assets, including factors influencing changes - The effective tax rate decreased to 22.0% for Q1 2022 from 25.3% for Q1 2021, primarily due to income tax benefits related to share-based compensation ($1.1 million in Q1 2022)[104] - Net deferred tax assets increased to $67.3 million at March 31, 2022, from $50.3 million at December 31, 2021, mainly due to unrealized losses on available-for-sale securities[104] Note 11—Deposits This note provides a breakdown of the company's deposit base, including interest-bearing and non-interest-bearing categories Deposits (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Non-interest-bearing demand deposits | $2,281,612 | $2,158,420 | | Interest-bearing deposits | $3,248,490 | $2,996,627 | | Total deposits | $5,530,102 | $5,155,047 | - Total deposits increased by $375.1 million (7.3%) to $5.5 billion at March 31, 2022, driven by growth in non-interest-bearing demand deposits and money market accounts[105][272][307] - Non-interest-bearing demand deposits constituted 41.3% of total deposits at March 31, 2022, an increase of $123.2 million (5.7%) from December 31, 2021[105][307] - The scheduled maturity for time deposits in 2022 is $493.5 million[106] Note 12—Other Borrowings This note details the company's other borrowing sources, including Federal Home Loan Bank advances and repurchase agreements Other Borrowings (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Federal Home Loan Bank advances | $280,000 | $490,000 | | Securities sold under agreements to repurchase | $31,450 | $29,723 | | Total | $311,450 | $519,723 | - Other borrowings decreased by $208.3 million (40.1%) to $311.5 million at March 31, 2022, primarily due to a reduction in FHLB advances[107][272] - The Company had $2.0 billion in FHLB borrowing capacity and $748.0 million from the Federal Reserve Bank at March 31, 2022[112][318] Note 13—Subordinated Notes and Junior Subordinated Debentures This note describes the company's subordinated debt instruments, their terms, and regulatory capital classifications - The Company has $75.0 million in fixed-to-floating subordinated notes maturing July 1, 2030, with a net liability of $73.6 million at March 31, 2022, qualifying as Tier 2 capital[113] Junior Subordinated Debentures (dollars in thousands) | (dollars in thousands) | March 31, 2022 Carrying Value | December 31, 2021 Carrying Value | |:-----------------------|:------------------------------|:---------------------------------| | Junior subordinated debentures | $37,011 | $36,906 | - Junior subordinated debentures, totaling $37.0 million at March 31, 2022, are tied to LIBOR and qualify as Tier 1 regulatory capital[114][119] Note 14—Commitments and Contingent Liabilities This note outlines the company's off-balance sheet commitments, including credit extensions and letters of credit, and legal contingencies - The Company is involved in various legal proceedings, but management does not expect a material adverse effect on its financial statements[120] Commitments and Contingent Liabilities (dollars in thousands) | (dollars in thousands) | March 31, 2022 Total | December 31, 2021 Total | |:-----------------------|:---------------------|:------------------------| | Commitments to extend credit | $1,914,474 | $1,754,419 | | Letters of credit | $58,324 | $59,142 | | Total | $1,972,798 | $1,813,561 | - Total outstanding loan and lease commitments increased to $1.97 billion at March 31, 2022, from $1.81 billion at December 31, 2021[124] Note 15—Fair Value Measurement This note explains the company's fair value measurement hierarchy and the valuation techniques used for financial instruments - The Company categorizes financial instruments into Level 1, 2, or 3 based on the observability of inputs used in fair value measurements[128] Fair Value Measurement (dollars in thousands) | (dollars in thousands) | March 31, 2022 Fair Value | December 31, 2021 Fair Value | |:-----------------------|:--------------------------|:-----------------------------| | Securities available-for-sale | $1,369,368 | $1,454,542 | | Equity and other securities, at fair value | $10,677 | $10,578 | | Servicing assets | $24,497 | $23,744 | | Derivative assets | $29,113 | $13,375 | | Derivative liabilities | $7,475 | $9,665 | - Servicing assets and certain equity securities are measured using significant unobservable inputs (Level 3), with prepayment speeds and discount rates being key unobservable inputs for servicing assets[134] - Impaired loans, assets held for sale, and other real estate owned are measured at fair value on a non-recurring basis, primarily based on collateral valuations or market prices less costs to sell[134][135][136] Note 16—Derivative Instruments and Hedge Activities This note details the company's use of derivative instruments for risk management, including their notional amounts and fair values Derivative Instruments and Hedge Activities (dollars in thousands) | (dollars in thousands) | March 31, 2022 Notional Amount | March 31, 2022 Fair Value (Asset) | March 31, 2022 Fair Value (Liability) | |:-----------------------|:-------------------------------|:----------------------------------|:--------------------------------------| | Interest rate swaps designated as cash flow hedges | $450,000 | $21,782 | $— | | Other interest rate derivatives | $488,064 | $7,331 | $(7,474) | | Other credit derivatives | $7,350 | $— | $(1) | | Total derivatives | $945,414 | $29,113 | $(7,475) | - The total notional amount of derivatives increased to $945.4 million at March 31, 2022, from $847.4 million at December 31, 2021[153] - Cash flow hedges (interest rate swaps) had a notional amount of $450.0 million at March 31, 2022, with an unrealized gain of $1.2 million expected to be reclassified as a decrease to interest expense over the next twelve months[153] - Other interest rate derivatives, not designated as hedges, generated $1.1 million in net transaction fees for Q1 2022, with a total notional amount of $488.1 million[157] Note 17 – Share-Based Compensation This note describes the company's share-based compensation plans, including grants, vesting, and related expenses - The Company granted 289,277 restricted common shares in 2022, with various vesting schedules, and recognized $1.3 million in share-based compensation expense for Q1 2022[169][173] - A total of 256,494 stock options were exercised in Q1 2022, generating $470,000 in proceeds and $1.1 million in tax benefits[176] - As of March 31, 2022, 1,080,554 stock options remained outstanding under the BYB Plan, all fully vested and exercisable[174][175][176] Note 18—Earnings per Share This note provides the calculation of basic and diluted earnings per share, including the components used Earnings per Share (dollars in thousands, except share and per share data) | (dollars in thousands, except share and per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:--------------------------------------------------------|:----------------------------------|:----------------------------------| | Net income available to common stockholders | $22,115 | $21,602 | | Weighted-average common stock outstanding (basic) | 37,123,161 | 38,164,201 | | Weighted-average common stock outstanding (dilutive) | 38,042,822 | 38,915,482 | | Basic earnings per common share | $0.60 | $0.57 | | Diluted earnings per common share | $0.58 | $0.56 | - Diluted EPS increased to $0.58 for Q1 2022 from $0.56 for Q1 2021, reflecting higher net income available to common stockholders and a decrease in weighted-average common shares outstanding[185] Note 19—Stockholders' Equity This note details changes in stockholders' equity, including preferred stock redemptions, share repurchases, and dividends - The Company redeemed all 10,438 outstanding shares of its Series B Preferred Stock on March 31, 2022, for $10.6 million[187][331] - Under its stock repurchase program, the Company repurchased 282,819 common shares at a cost of $7.6 million during Q1 2022[192][332] - Cash dividends declared and paid on common stock were $0.09 per share for Q1 2022, up from $0.06 per share in Q1 2021[193] Note 20—Consolidated Statements of Changes in Accumulated Other Comprehensive Income (Loss) This note presents the changes in accumulated other comprehensive income (loss), primarily due to unrealized gains or losses on securities Consolidated Statements of Changes in Accumulated Other Comprehensive Income (Loss) (dollars in thousands) | (dollars in thousands) | March 31, 2022 | March 31, 2021 | |:-----------------------|:---------------|:---------------| | Balance, January 1 | $(8,302) | $18,047 | | Other comprehensive income (loss), net of tax | $(48,086) | $(26,394) | | Balance, March 31 | $(56,388) | $(8,347) | - Accumulated other comprehensive loss significantly increased to $56.4 million at March 31, 2022, from $8.3 million at January 1, 2022, primarily due to $61.1 million in unrealized holding losses on available-for-sale securities[194] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of Byline Bancorp, Inc.'s financial condition and results of operations for the three months ended March 31, 2022, compared to the same period in 2021, covering key financial performance metrics, balance sheet changes, loan portfolio composition, asset quality, funding sources, liquidity, capital resources, and a reconciliation of non-GAAP financial measures Forward-Looking Statements This section highlights the inherent uncertainties and risks associated with forward-looking statements within the report - The report contains forward-looking statements subject to various risks and uncertainties, including those related to the COVID-19 pandemic, economic outlook, credit quality, market conditions, interest rate changes, and regulatory developments[197][198] Overview This section introduces Byline Bancorp, Inc.'s business model, key financial highlights, and critical accounting policies - Byline Bancorp, Inc. is a bank holding company operating through Byline Bank, offering a range of banking products and services to businesses and consumers, including small ticket equipment leasing and U.S. government guaranteed lending programs (e.g., SBA loans)[201] - Net income for Q1 2022 was $22.3 million, an increase of $513,000 from Q1 2021, driven by higher net interest income and non-interest income, partially offset by increased non-interest expense[205] Overview Metrics (annualized) | Metric (annualized) | Q1 2022 | Q1 2021 | |:--------------------|:--------|:--------| | Return on average assets | 1.35% | 1.34% | | Return on average stockholders' equity | 10.87% | 10.96% | | Diluted EPS | $0.58 | $0.56 | - Critical accounting policies include acquisition-related fair value computations, carrying value of loans and leases, ALLL determination, intangible asset valuation, fair value of financial instruments, and deferred tax assets[209] Results of Operations This section analyzes the company's financial performance, focusing on net interest income, non-interest income, and expenses Net Interest Income This section examines the factors influencing the company's net interest income and margin, including loan balances and funding costs - Net interest income increased by $2.1 million (3.7%) to $58.7 million for Q1 2022, primarily due to increased average loan and lease balances and a decrease in borrowed funds[246] Net Interest Income Metrics (annualized) | Metric (annualized) | Q1 2022 | Q1 2021 | |:--------------------|:--------|:--------| | Net interest margin (FTE) | 3.82% | 3.78% | | Average cost of deposits | 0.08% | 0.12% | - Net loan accretion income decreased by $492,000 (25.0%) to $1.5 million for Q1 2022, contributing 10 basis points to net interest margin[249] Provision for Loan and Lease Losses This section discusses the changes in the provision for loan and lease losses and its impact on the allowance for loan losses - Provision for loan and lease losses increased by $628,000 (14.4%) to $5.0 million for Q1 2022, mainly due to increases in qualitative factors and loan and lease portfolio growth[251] - The ALLL as a percentage of loans and leases increased from 1.21% at December 31, 2021, to 1.24% at March 31, 2022[252] Non-Interest Income This section analyzes the components of non-interest income, including gains on loan sales and servicing revenue Non-Interest Income (dollars in thousands) | (dollars in thousands) | Q1 2022 | Q1 2021 | Change ($) | Change (%) | |:-----------------------|:--------|:--------|:-----------|:-----------| | Total non-interest income | $19,426 | $15,742 | $3,684 | 23.4% | | Net gains on sales of loans | $10,827 | $8,319 | $2,508 | 30.1% | | Loan servicing revenue | $3,380 | $2,769 | $611 | 22.1% | | Other non-interest income | $2,620 | $1,459 | $1,161 | 79.6% | - The increase in non-interest income was primarily driven by higher net gains on sales of loans ($2.5 million increase) and increased customer derivative products income and bank-owned life insurance income ($1.1 million increase in other non-interest income)[253][257][260] - Loan servicing asset revaluation resulted in a downward adjustment of $1.2 million for Q1 2022, an improvement from the $1.5 million downward adjustment in Q1 2021[255] Non-Interest Expense This section examines the trends in non-interest expenses, particularly salaries and employee benefits, and their effect on the efficiency ratio Non-Interest Expense (dollars in thousands) | (dollars in thousands) | Q1 2022 | Q1 2021 | Change ($) | Change (%) | |:-----------------------|:--------|:--------|:-----------|:-----------| | Total non-interest expense | $44,555 | $38,842 | $5,713 | 14.7% | | Salaries and employee benefits | $28,959 | $21,806 | $7,153 | 32.8% | | Loan and lease related expenses | $(891) | $951 | $(1,842) | NM | | Other non-interest expense | $3,923 | $2,363 | $1,560 | 66.0% | - Total non-interest expense increased by $5.7 million (14.7%) for Q1 2022, primarily due to a $7.2 million increase in salaries and employee benefits from new hires[261][262] - The efficiency ratio worsened to 54.96% for Q1 2022 from 51.25% for Q1 2021, driven by the increase in non-interest expense[268] Income Taxes This section details the provision for income taxes and the effective tax rate, including factors influencing changes - Provision for income taxes decreased by $1.1 million (14.6%) to $6.3 million for Q1 2022, with the effective tax rate falling to 22.0% from 25.3% in Q1 2021, mainly due to share-based compensation benefits[270] Financial Condition This section provides an in-depth analysis of the company's balance sheet, including assets, liabilities, and capital Condensed Consolidated Statements of Financial Condition Analysis This section analyzes the key changes in the company's total assets and liabilities over the reporting period - Total assets increased by $138.5 million (2.1%) to $6.8 billion at March 31, 2022, primarily due to a $251.9 million (5.6%) increase in loans and leases[271] - Total liabilities increased by $186.2 million (3.2%) to $6.0 billion, driven by a $375.1 million (7.3%) increase in deposits, partially offset by a $208.3 million (40.1%) decrease in other borrowings[272] Investment Portfolio This section details the composition and performance of the company's investment securities, including available-for-sale and held-to-maturity portfolios - Securities available-for-sale decreased by $85.2 million (5.9%) to $1.4 billion at March 31, 2022, mainly due to decreases in fair value[274] - The held-to-maturity securities portfolio remained stable at $3.9 million[275] - At March 31, 2022, 223 investment securities had unrealized losses, but all declines were determined to be temporary, with full recovery of amortized cost anticipated[279] Restricted Stock This section provides information on the company's restricted stock holdings, primarily FHLB and Bankers' Bank stock - Restricted stock, primarily FHLB and Bankers' Bank stock, decreased to $14.0 million at March 31, 2022, from $22.0 million at December 31, 2021[284] Loan and Lease Portfolio This section analyzes the growth, composition, and interest rate characteristics of the company's loan and lease portfolio - Total loans and leases increased by $251.9 million (5.6%) to $4.8 billion at March 31, 2022[285] Loan and Lease Portfolio (dollars in thousands) | Loan Type | March 31, 2022 Amount | March 31, 2022 % of Total | December 31, 2021 Amount | December 31, 2021 % of Total | |:-----------------------|:----------------------|:--------------------------|:-------------------------|:-----------------------------| | Originated loans and leases | $4,393,834 | 91.7% | $4,094,326 | 90.2% | | Acquired impaired loans | $119,751 | 2.5% | $127,051 | 2.8% | | Acquired non-impaired loans and leases | $275,483 | 5.8% | $315,751 | 7.0% | | Total loans and leases | $4,789,068 | 100.0% | $4,537,128 | 100.0% | - Commercial and industrial loans comprised the largest portion of originated loans at 35.5%, while commercial real estate was 31.9%[286] - At March 31, 2022, 44.8% of the loan portfolio bore fixed interest rates and 55.2% bore floating rates, with $1.1 billion indexed to LIBOR[295] Allowance for Loan and Lease Losses This section details the changes in the allowance for loan and lease losses and its coverage ratio relative to total loans - Total ALLL increased by $4.4 million (8.1%) to $59.5 million at March 31, 2022, primarily due to an increase in general reserves driven by loan and lease growth[299] - The ALLL to total loans and leases held for investment ratio increased to 1.24% at March 31, 2022, from 1.21% at December 31, 2021[299] Non-Performing Assets This section provides an overview of non-performing assets, including non-accrual loans and their trends Non-Performing Assets (dollars in thousands) | (dollars in thousands) | March 31, 2022 | December 31, 2021 | |:-----------------------|:---------------|:------------------| | Total non-performing assets | $22,498 | $25,242 | | Non-accrual loans and leases | $20,277 | $23,130 | | Total non-performing loans and leases as a percentage of total loans and leases | 0.42% | 0.51% | | ALLL as a percentage of non-performing loans and leases | 293.23% | 237.84% | - Total non-performing assets decreased to $22.5 million at March 31, 2022, from $25.2 million at December 31, 2021, primarily due to a $2.9 million decrease in non-accrual loans[303][305] - The U.S. government guaranteed portion of non-performing loans decreased to $1.8 million at March 31, 2022, from $3.3 million at December 31, 2021[303] Deposits This section analyzes the growth, composition, and cost of the company's deposit base - Total deposits increased by $375.1 million (7.3%) to $5.5 billion at March 31, 2022, driven by growth in non-interest-bearing deposits and money market accounts[307] - Non-interest-bearing deposits were 41.3% of total deposits at March 31, 2022, and core deposits were 93.1% of total deposits[307] - The average cost of deposits decreased to 0.08% for Q1 2022 from 0.12% for Q1 2021, attributed to lower rates on interest-bearing deposits and an improved deposit mix[308] Borrowed Funds This section describes the company's borrowed funds, including subordinated notes and FHLB advances, and available borrowing capacity - The Company has $75.0 million in subordinated notes maturing in 2030 and utilizes FHLB advances as a supplementary funding source[311] - At March 31, 2022, FHLB advances totaled $280.0 million, with an available borrowing capacity of $2.0 billion[311] - The Paycheck Protection Program Liquidity Facility (PPPLF) had no outstanding amount at March 31, 2022, after being fully repaid in 2021[311] Customer Repurchase Agreements (Sweeps) This section provides information on the company's customer repurchase agreements and their changes over the period - Securities sold under agreements to repurchase increased by $1.7 million to $31.4 million at March 31, 2022[315] Liquidity This section outlines the company's liquidity management strategies and available funding sources to meet obligations - Liquidity needs are met by cash, investment securities, deposit growth, loan portfolio cash flow, and FHLB borrowings[317] - At March 31, 2022, Byline Bank had an available aggregate borrowing capacity of $354.4 million from FHLB and FRB, in addition to $115.0 million in uncommitted federal funds lines[318] Capital Resources This section analyzes the company's capital structure, regulatory capital ratios, and capital management activities - Stockholders' equity decreased by $47.7 million (5.7%) to $788.7 million at March 31, 2022, primarily due to increased accumulated other comprehensive loss, preferred stock redemption, and share repurchases[323] Capital Ratios (Company) | Capital Ratio (Company) | March 31, 2022 | December 31, 2021 | |:------------------------|:---------------|:------------------| | Total capital to risk weighted assets | 13.72% | 14.70% | | Tier 1 capital to risk weighted assets | 11.49% | 12.37% | | Common Equity Tier 1 (CET1) to risk weighted assets | 10.75% | 11.39% | | Tier 1 capital to average assets (Leverage ratio) | 10.70% | 10.89% | - Byline Bank exceeded all applicable regulatory capital requirements and was considered 'well-capitalized' at March 31, 2022[326] - The Company redeemed all outstanding Series B Preferred Stock for $10.6 million on March 31, 2022, and repurchased $7.6 million of common stock during Q1 2022[331][332] Off-Balance Sheet Items and Other Financing Arrangements This section discusses the company's off-balance sheet financial instruments, including commitments and derivative contracts, and their associated risks - The Company uses financial instruments with off-balance sheet risk, including commitments to extend credit and letters of credit, which involve credit and interest rate risk[335] Off-Balance Sheet Items and Other Financing Arrangements (dollars in thousands) | (dollars in thousands) | Notional | Fair Value (Asset) | Fair Value (Liability) | |:-----------------------|:---------|:-------------------|:-----------------------| | Interest rate swaps designated as cash flow hedges | $450,000 | $21,782 | $— | | Other interest rate swaps | $488,064 | $7,331 | $(7,474) | | Other credit derivatives | $7,350 | $— | $(1) | - Interest rate swaps are used to manage interest rate exposure on commercial loans and variable rate borrowings, with a total notional amount of $938.1 million at March 31, 2022[340][353] GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, along with management's rationale for their use - The Company uses several non-GAAP financial measures, such as 'Adjusted net income,' 'Net interest income, fully taxable-equivalent,' 'Adjusted efficiency ratio,' and 'Tangible common equity,' to provide supplementary information for management and investors[343] GAAP Reconciliation and Non-GAAP Financial Measures (dollars in thousands) | (dollars in thousands) | Q1 2022 | Q1 2021 | |:-----------------------|:--------|:--------| | Reported Net Income | $22,311 | $21,798 | | Adjusted Net Income | $22,311 | $22,237 | | Pre-tax pre-provision net income | $33,607 | $33,540 | | Tangible common stockholders' equity | $624,709 | $612,475 | | Tangible assets | $6,670,674 | $6,579,243 | | Adjusted efficiency ratio | 54.96% | 50.41% | Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section discusses the Company's primary market risk, which is interest rate risk, and how it is measured and managed, outlining the impact of interest rate changes on net interest income and the use of simulation models and derivative instruments to mitigate this risk - The Company's primary market risk is interest rate risk, managed through monitoring interest sensitivity exposure, asset and liability allocation, and using interest rate derivatives[353] - A net interest income simulation model is used quarterly to evaluate potential changes in net interest income under various hypothetical interest rate scenarios[355] Net Interest Income Sensitivity Analysis | Scenario (Immediate Shifts) | Year 1 Percentage Change | Year 2 Percentage Change | |:----------------------------|:-------------------------|:-------------------------| | +300 basis points | 25.5% | 34.8% | | +200 basis points | 17.4% | 23.6% | | +100 basis points | 8.5% | 11.7% | | -100 basis points | -5.2% | -9.0% | - A gradual upward shift of 100 and 200 basis points would result in 1.6% and 3.1% increases to net interest income, respectively, over the next 12 months[356] Item 4. Controls and Procedures. This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2022, and states that there were no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were effective as of March 31, 2022, providing reasonable assurance for timely and accurate financial reporting[358] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[359] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings. The Company is not currently party to any legal proceedings that are expected to have a material adverse effect on its business or financial condition - The Company is not involved in any legal proceedings expected to have a material adverse effect on its business or financial condition[363] Item 1A. Risk Factors. There have been no material changes to the risk factors previously disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2021 - No material changes to the risk factors previously disclosed in the Form 10-K for the fiscal year ended December 31, 2021[364] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section details the Company's stock repurchase program, including the number of shares purchased and the remaining authorization under the program for the quarter ended March 31, 2022 - The Board of Directors authorized a stock repurchase program for up to 2,500,000 shares of common stock, effective until December 31, 2022[365] Stock Repurchase Program | Period | Total Number of Shares Purchased | Average Price Paid per Share | |:-----------------------|:---------------------------------|:-----------------------------| | January 1 - January 31, 2022 | — | $— | | February 1 - February 28, 2022 | 344,493 | $26.88 | | March 1 - March 31, 2022 | 103,391 | $26.89 | | Total | 447,884 | $26.88 | - As of March 31, 2022, 885,473 shares remained authorized for repurchase under the program[366] Item 3. Defaults Upon Senior Securities. The Company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[367] Item 4. Mine Safety Disclosures. This item is not applicable to the Company - This item is not applicable[368] Item 5. Other Information. No other information was reported under this item - No other information was reported[369] Item 6. Exhibits. This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, certifications, and interactive data files - The exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Certificate of Designations of Preferred Stock, officer certifications, and Inline XBRL interactive data files[372]