Byline Bancorp(BY)2022-07-31 11:41Financial Data and Key Metrics Changes - For Q2 2022, Byline Bancorp reported a net income of $20.3 million or $0.54 per diluted share, slightly lower than the previous quarter due to a $4.6 million mark on servicing assets, impacting earnings by approximately $0.12 per diluted share [16][18] - Pre-tax pre-provision revenue was $32 million, resulting in a pre-tax pre-provision return on assets (ROA) of 184 basis points, while return on assets came in at 117 basis points and return on tangible common equity (ROTC) was 14.1% [18] - Total assets grew by over $300 million, exceeding $7 billion for the first time, driven by strong loan growth [18][30] Business Line Data and Key Metrics Changes - Loans excluding PPP grew by $405 million or 34% linked quarter annualized, crossing the $5 billion mark for the portfolio, reflecting a 29% year-over-year growth [19] - The government guaranteed lending business closed $125 million in loans, remaining a market leader as the fifth largest 7(a) lender in the U.S. [21] - Non-interest income decreased to $14.2 million, primarily due to the mark on servicing assets, while net interest income increased by 5% from the prior quarter [23][47] Market Data and Key Metrics Changes - Total deposits stood at $5.4 billion, down 2.6% linked quarter but up 5.8% year-over-year, with demand deposits representing 40.5% of total balances [22] - Deposit costs increased by eight basis points to 16 basis points for the quarter, reflecting the impact of rising interest rates [22][39] - The loan-to-deposit ratio increased to 96% due to fluctuations in commercial customer deposits, expected to trend back down to the lower 90s [46] Company Strategy and Development Direction - The company emphasized a diversified business model and disciplined expense management as key to navigating the changing economic environment [15][56] - Byline Bancorp is focused on organic growth and maintaining strong capital ratios while returning capital to shareholders through dividends and share repurchases [30][54] - The management expressed optimism about future growth opportunities despite economic uncertainties, highlighting a healthy pipeline [56] Management's Comments on Operating Environment and Future Outlook - Management noted that while clients remain financially stable with good liquidity, economic activity is expected to slow, and inflation poses challenges [15][56] - The company is vigilant regarding credit quality, monitoring potential impacts from rising interest rates and inflation on clients [72][73] - Management anticipates a slower rate of loan growth in the second half of the year compared to the first half, adjusting guidance to low to mid-teens growth [34] Other Important Information - The company announced a CFO transition, with Tom Bell appointed as the new CFO effective August 16, 2022, following Lindsay Corby's departure [9][10] - The efficiency ratio remained in the 55% range, reflecting ongoing efforts to manage expenses amid inflationary pressures [26][50] - The allowance for loan losses increased to $62.4 million, driven by portfolio growth and macroeconomic uncertainties [52] Q&A Session Summary Question: Margin outlook and deposit composition - Management expects a shift towards higher-yielding deposit products due to rising interest rates, modeling about 40% for interest-bearing deposit betas in the second half of the year [60][61] Question: Impact of branch closures on customer deposits - Management noted a slight runoff in higher-yielding deposits post-branch closures, but performance has met expectations [63][64] Question: Loan growth strategy for the latter half of the year - Management emphasized focusing on market opportunities and customer relationships rather than solely targeting net interest income or margin [68] Question: Concerns regarding client pressure points - Management indicated that clients are generally performing well, but they are monitoring the potential impact of inflation and economic slowdown on credit quality [72][73] Question: Dynamics of deposit flows and funding costs - Management expects deposit costs to continue rising due to competitive pressures and the loan-to-deposit ratio fluctuations [78][80] Question: SBA loan credit quality and underwriting standards - Management reported stable credit quality in the SBA portfolio but is closely monitoring the impact of rate increases on borrowers [114]