- Net Income: $29.7 million, or $0.68 per diluted share.
- Revenue: Approximately $100 million, up 10% year-on-year.
- Pretax Pre-Provision Net Income: $46.2 million.
- Pretax Pre-Provision ROA: Above 200 basis points for the seventh consecutive quarter.
- Return on Assets (ROA): 131 basis points.
- Return on Tangible Common Equity (ROTCE): 15.27%.
- Expenses: Approximately $53 million.
- Efficiency Ratio: 52% for the quarter.
- Cost-to-Asset Ratio: 230 basis points, reflecting a 33 basis points decline from the year-ago period.
- Loan Growth: $103 million or 6.1% annualized.
- Deposits: $7.3 billion, essentially flat quarter on quarter.
- Net Interest Margin (NIM): 3.98%, down slightly from 4% in the previous quarter.
- Net Interest Income: $86.5 million, up $1 million quarter on quarter.
- Fee Income: Stable, excluding a $2.5 million fair value mark on servicing asset.
- Nonperforming Loans (NPLs): Declined 7 basis points to 93 basis points as of quarter end.
- Charge-offs: 56 basis points for the quarter.
- Provision Expense: $6 million.
- Allowance for Credit Losses: 1.45% of total loans.
- Capital Ratios: CET1 approaching 11%, total capital approaching 14%, TCE at 8.82%.
- Branch Count: Consolidated two branches, total branch count now 46.
- Average Deposits per Branch: About $160 million as of quarter end.
Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Byline Bancorp Inc (BY, Financial) reported strong profitability metrics, ranking in the top quartile among peers.
- Net income for the quarter was $29.7 million, or $0.68 per diluted share, with revenue up 10% year-on-year.
- The company experienced good loan growth of $103 million or 6.1% annualized, driven by commercial and leasing loan books.
- Return on assets remained solid at 131 basis points, and ROTCE was comfortably above the equity cost of capital at 15.27%.
- Capital ratios increased during the quarter, with CET1 and total capital approaching 11% and 14%, respectively.
Negative Points
- The efficiency ratio increased slightly to 52% for the quarter, indicating higher operational costs.
- Net charge-offs increased to $9.5 million compared to $6.2 million in the previous quarter, driven by one acquired C&I loan relationship.
- Non-interest income was down approximately $2.6 million linked quarter, primarily due to a $2.5 million negative fair value mark on the loan servicing asset.
- The margin declined slightly to 3.98% from 4% in the previous quarter, reflecting a slight decrease in net interest income.
- Provision expenses for the quarter were $6 million, indicating ongoing credit risk management challenges.
Q & A Highlights
Q: It was great to see some improvement in the office commercial portfolio. Can you share more about what you're seeing in the Chicagoland office commercial real estate arena and any residual impacts?
A: On the office side, we feel good about upcoming maturities and the pipeline of assets. We have identified and classified assets with specific reserves and feel confident about renewals and extensions. The office market is challenging, especially for dated Class B properties in the Central Business District. However, suburban areas and newer urban buildings with more amenities are faring better. We are not lenders in the most challenging segments, which positions us well.
Q: Can you provide more details on the impact of a 25 basis points rate cut by the Fed on net interest income (NII)?
A: The impact of a 25 basis points rate cut is roughly $700,000 per quarter or $2.7 million annually. This analysis is static, and there will be some lag in repricing, especially in the CD book, which has an average maturity of about 4.70% for the rest of the year.
Q: What are your updated perspectives on M&A opportunities given your current asset size just under $10 billion?
A: Market activity is likely to pick up due to the recent rally in rates. We suspect that the headwinds from the Fed's rate hikes and AOCI challenges will lessen, making M&A more feasible. We are well-positioned to take advantage of opportunities, especially given our asset size and lack of significant regulatory headwinds.
Q: How do you see the margin trends for the next few quarters given the current funding cost metrics?
A: We expect the margin to remain relatively stable. Liability costs have peaked unless there's a mix change. The margin ex-accretion should be stable, and we feel confident that earning asset growth will offset any minor fluctuations in the margin.
Q: How much more cleanup do you anticipate in the next few quarters, and what are your expectations for charge-offs?
A: We aim to return to pre-Inland acquisition levels in terms of criticized loans. This quarter's charge-offs were 56 basis points, but excluding an acquisition-related loan, it would have been closer to 32 basis points. We expect to continue reducing criticized loans and redeploying cash into new loans.
Q: What are your thoughts on capital management, especially given your TCE ratio is at the higher end of your target range?
A: Our priorities are to fund organic growth, participate in M&A opportunities, and return capital through dividends and buybacks. We aim to maintain flexibility to capitalize on growth opportunities while managing our capital efficiently.
Q: Can you provide more details on the increase in interest checking balances and rates this quarter?
A: We had several commercial clients who wanted to earn a higher rate on their deposits, leading to a mix shift from DDA to interest-bearing accounts. The rate paid on these accounts is higher than zero, contributing to the increase.
Q: What is the competitive landscape like in the Chicago market, and are you seeing opportunities from competitors pulling back?
A: We continue to see the same primary competitors actively competing for business. However, some institutions are focusing on larger companies, creating opportunities for us in the mid-market segment. Additionally, our ability to attract talent and provide a platform for bankers to serve their clients effectively has contributed to our positive commercial pipelines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
