BYLINE BANCORP, INC. The following is a discussion and analysis ofByline Bancorp, Inc.'s financial condition and results of operations and should be read in conjunction with our Unaudited Interim Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report. The words "the Company," "we," "Byline," "management," "our" and "us" refer toByline Bancorp, Inc. and its consolidated subsidiaries, unless we indicate otherwise. In addition to historical information, this discussion contains forward looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections entitled "Special Note Regarding Forward Looking Statements" and "Risk Factors". Byline assumes no obligation to update any of these forward looking statements.
Overview
Our business
We are a bank holding company headquartered inChicago, Illinois and conduct all our business activities through our subsidiary,Byline Bank , a full service commercial bank, andByline Bank's subsidiaries. ThroughByline Bank , we offer a broad range of banking products and services to small and medium sized businesses, commercial real estate and financial sponsors and to consumers who generally live or work near our branches. We also provide trust and wealth management services to our customers. In addition to our traditional commercial banking business, we provide small ticket equipment leasing solutions throughByline Financial Group , a wholly-owned subsidiary ofByline Bank , headquartered inBannockburn, Illinois , with sales offices inIllinois andNew York , and sales representatives inIllinois ,Michigan ,New Jersey , andNew York . We also participate inU.S. government guaranteed lending programs and originateU.S. government guaranteed loans.Byline Bank was the fourth most active originator ofSmall Business Administration ("SBA") loans in the country and the most active SBA lender inIllinois andWisconsin , as reported by the SBA for the quarter endedJune 30, 2021 . Additionally, we provide trust and wealth management services to our customers. As ofJune 30, 2021 , we had consolidated total assets of$6.5 billion , total gross loans and leases outstanding of$4.5 billion , total deposits of$5.1 billion , and total stockholders' equity of$817.1 million .
Response to COVID-19 Pandemic
The coronavirus ("COVID-19") pandemic has caused health and economic concerns in
the United States and globally. In response to this economic disruption, federal
and state governments enacted laws intending to stimulate the economy during
this time, including the $2.0 trillion Coronavirus Relief and Economic Security
Act (the "CARES Act"), from which the PPP under the SBA was created. PPP loans
originated before June 5, 2020 have a two-year term and bear an interest rate of
1.0%, however borrowers can request an extension to five years. PPP loans
originated after June 5, 2020 have a five-year term and bear an interest rate of
1.0%.
As of June 30, 2021 , over $500.0 million of PPP loans were in various stages of
the SBA forgiveness process, with over $283.7 million approved for forgiveness
by the SBA. On May 4, 2021 , the SBA announced that the second round of PPP
funding had been exhausted and new applications are no longer being accepted.
The following table presents net PPP as of June 30, 2021 :
PPP Loan Size
(dollars in thousands) First Round Second Round Total
Principal outstanding $ 150,646 $ 337,523 $ 488,169
Unearned processing fee (2,162 ) (13,785 ) (15,947 )
Deferred cost 552 3,508 4,060
PPP loans, net $ 149,036 $ 327,246 $ 476,282
Number of loans 914 2,552 3,466
The CARES Act also temporarily eases the guidance applicable to loan
modifications and the effect on assessing TDRs related to the COVID-19 pandemic.
Modifications within the scope of this relief include arrangements that defer or
delay payments of principal and/or interest and extend until the earlier of the
following: 1) 60 days after the date on which the national emergency related to
the COVID-19 outbreak is terminated; or 2) January 1, 2022 . At June 30, 2021 , we
had $3.7 million in active COVID-19 related payment deferrals, or 0.09% of loans
and leases, excluding PPP loans.
Critical Accounting Policies and Significant Estimates
Our accounting and reporting policies conform to accounting principles generally accepted inthe United States ("GAAP") and to general practices within the Banking industry. To prepare financial statements and interim financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes; and are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgements inherent in those policies, are critical in understanding our financial statements. These critical accounting policies and estimates include (i) acquisitionrelated fair value computations, (ii) the carrying value of loans and leases, (iii) determining the provision and allowance for loan and lease losses, (iv) the valuation of intangible assets such as goodwill, servicing assets and core deposit intangibles, (v) the determination of fair value for financial instruments, including 44 -------------------------------------------------------------------------------- other-than-temporary-impairment losses, (vi) the valuation of real estate held for sale, and (vii) the valuation of or recognition of deferred tax assets and liabilities. An increase was made to the provision for loan and lease losses as a result of increases in qualitative factors relative to the COVID-19 pandemic. The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the financial statements included in this report, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period provided for under the JOBS Act. The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. Additional information about these policies can be found in Note 1 of our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , that we filed with theSecurities and Exchange Commission ("SEC") onMarch 4, 2021 .
Business Combinations
We account for business combinations under the acquisition method of accounting in accordance with ASC 805. We recognize the fair value of the assets acquired and liabilities assumed as of the date of acquisition, with any excess of the fair value of consideration provided over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Transaction costs are expensed as incurred. Application of the acquisition method requires extensive use of accounting estimates and judgements to determine the fair values of the identifiable assets acquired and liabilities assumed at the acquisition date. In accordance with ASC 805, the acquiring company retains the right to make appropriate adjustments to the assets and liabilities of the acquired entity for information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. The measurement period ends as of the earlier of (i) one year from the acquisition date or (ii) the date when the acquirer receives the information necessary to complete the business combination accounting.
Carrying Value of Loans and Leases
Our accounting methods for loans and leases differ depending on whether they are new or acquired loans and leases; and for acquired loans, whether the loans were acquired at a discount as a result of credit deterioration since the date of origination. Originated Loans and Leases We account for originated loans and leases and purchased loans and leases not acquired through business combinations as originated loans and leases. The new loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any allowance for loan and lease losses, unamortized deferred fees and costs and unamortized premiums or discounts. The net amount of non-refundable loan origination fees and certain direct costs associated with the lending process are deferred and amortized to interest income over the contractual lives of the new loans using methods that approximate the level yield method. Discounts and premiums are amortized or accreted to interest income over the estimated term of the new loans using methods that approximate the effective yield method. Interest income on new loans is accrued based on the unpaid principal balance outstanding. Additionally, once an acquired non-impaired loan reaches its contractual maturity date, it is re-underwritten, and if renewed, it is classified as an originated loan. Acquired Loans and Leases Acquired loans and leases are recorded at fair value as of the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either acquired impaired or acquired nonimpaired. Acquired impaired loans reflect evidence of credit deterioration since origination for which it is probable that all contractually required principal and interest will not be collected by us. Subsequent to acquisition, we periodically update for changes in cash flow expectations, which are reflected in interest income over the life of the loan as accretable yield. Any subsequent decreases in expected cash flow attributable to credit deterioration are recognized by recording a provision for loan losses. For acquired nonimpaired loans and leases, the excess or deficit of the loan and lease principal balance over the fair value is recorded as a discount or premium at acquisition and is accreted through interest income over the life of the loan or lease. Subsequent to acquisition, these loans and leases are evaluated for credit deterioration and a provision for loan and lease losses would be recorded when probable loss is incurred. These loans and leases are evaluated for impairment consistent with originated loans and leases.
Provision and Allowance for Loan and Lease Losses
The provision for loan and lease losses reflects the amount required to maintain
the allowance for loan and lease losses ("ALLL") at an appropriate level based
upon management's evaluation of the adequacy of general and specific loss
reserves.
The ALLL is maintained at a level that management believes is appropriate to
provide for known and inherent incurred loan and lease losses as of the dates of
the Consolidated Statements of Financial Condition, and we have established
methodologies for the
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determination of its adequacy. The methodologies are set forth in a formal
policy and take into consideration the need for an overall general valuation
allowance as well as specific allowances that are determined on an individual
loan basis. We increase our ALLL by charging provisions for probable losses
against our income and decreased by chargeoffs, net of recoveries.
The evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as more information becomes available. While
management uses available information to recognize losses on loans and leases,
changes in economic or other conditions may necessitate revision of the estimate
in future periods.
The ALLL is maintained at a level management believes is sufficient to provide
for probable losses based upon an ongoing review of the originated and acquired
nonimpaired loan and lease portfolios by portfolio category, which include
consideration of actual loss experience, peer loss experience, changes in the
size and risk profile of the portfolio, identification of individual problem
loan and lease situations which may affect a borrower's ability to repay, and
evaluation of prevailing economic conditions.
For acquired impaired loans, a specific valuation allowance is established when
it is probable that we will be unable to collect all of the cash flows expected
at acquisition, plus the additional cash flows expected to be collected arising
from changes in estimates after acquisition.
The originated and nonimpaired acquired loans have limited delinquency and
credit loss history and have not yet exhibited an observable loss trend. The
credit quality of loans in these loan portfolios are impacted by delinquency
status and debt service coverage generated by the borrowers' businesses and
fluctuations in the value of real estate collateral.
Acquired nonimpaired loans and originated loans are considered impaired when,
based on current information and events, it is probable that we will be unable
to collect the scheduled payments of principal or interest when due, according
to the contractual terms of the loan agreements. All acquired nonimpaired loans
and originated loans of $100,000 or greater with an internal risk rating of
substandard or below and on non-accrual, as well as loans classified as troubled
debt restructurings ("TDR"), are reviewed individually for impairment on a
quarterly basis.
In March 2020 , CARES Act was signed into law. Section 4013 of the CARES Act
temporarily eases the guidance applicable to loan modifications and the effect
on assessing TDRs related to the COVID-19 pandemic. Modifications within the
scope of this relief include arrangements that defer or delay payments of
principal or interest and extend until the earlier of the following: 1) sixty
days after the date on which the national emergency related to the COVID-19
outbreak is terminated; or 2) January 1, 2022 .
Goodwill .Goodwill represents the excess of the purchase consideration over the fair value of net assets acquired in connection with our recapitalization and acquisitions using the acquisition method of accounting.Goodwill is not amortized but is periodically evaluated for impairment under the provisions of ASC Topic 350, Intangibles-Goodwill and Other ("ASC 350"). Impairment testing is performed using either a qualitative or quantitative approach at the reporting unit level. Our goodwill is allocated toByline Bank , which is our only applicable reporting unit for the purposes of testing goodwill for impairment. We have selectedNovember 30 as the date to perform the annual goodwill impairment test. Additionally, we perform a goodwill impairment evaluation on an interim basis when events or circumstances indicate impairment potentially exists. Servicing Assets. Servicing assets are recognized separately when they are acquired through sales of loans or when the rights to service loans are purchased. When loans are sold with servicing rights retained, servicing assets are recorded at fair value in accordance with ASC Topic 860, Transfers and Servicing ("ASC 860"). Fair value is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Changes in secondary market premiums and prepayment speed assumptions have the most significant impact on the fair value of servicing rights. See Note 6 and Note 15 of our Unaudited Interim Condensed Consolidated Financial Statements as ofJune 30, 2021 , included in this report, for additional information. Core Deposit Intangible Assets. Other intangible assets primarily consist of core deposit intangible assets. In valuing core deposit intangibles, we consider variables such as deposit servicing costs, attrition rates and market discount rates. Core deposit intangibles are reviewed annually, or more frequently when events or changes in circumstances occur that indicate that their carrying values may not be recoverable. If the recoverable amount of the core deposit intangibles is determined to be less than its carrying value, we would then measure the amount of impairment based on an estimate of the fair value at that time. We also evaluate whether the events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts of the intangible assets are amortized over the revised remaining useful life. Core deposit intangibles are currently amortized over an approximate ten-year period. 46 -------------------------------------------------------------------------------- Customer Relationship Intangible. Other intangible assets also include our customer relationship intangible asset. In valuing our customer relationship intangibles, we consider variables such as assets under management, attrition rates, and fee structure. Customer relationship intangibles are currently amortized over a 12-year period.
Fair value of Financial Instruments
ASC Topic 820, Fair Value Measurement defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. See Note 15 of our Unaudited Interim Condensed Consolidated Financial Statements as ofJune 30, 2021 , included in this report, for a complete discussion of our use of fair value of financial assets and liabilities and their related measurement practices.
Valuation of Real Estate Held for Sale
Other Real Estate Owned ("OREO"). OREO includes real estate assets that have
been acquired through, or in lieu of, loan foreclosure or repossession and are
to be sold. OREO assets are initially recorded at fair value, less estimated
costs to sell, of the collateral of the loan, on the date of foreclosure or
repossession, establishing a new cost basis. Adjustments that reduce loan
balances to fair value at the time of foreclosure or repossession are recognized
as chargeoffs in the allowance for loan and lease losses. Positive adjustments,
if any, at the time of foreclosure or repossession are recognized in
noninterest expense. After foreclosure or repossession, management periodically
obtains new valuations and real estate or other assets may be adjusted to a
lower carrying amount, determined by the fair value of the asset, less estimated
costs to sell. Any subsequent writedowns are recorded as a decrease in the
asset and charged against other real estate owned valuation adjustments,
included within non-interest expense. Operating expenses of such properties, net
of related income, are included in noninterest expense, and gains and losses on
their disposition are included in noninterest expense. Gains on internally
financed other real estate owned sales are accounted for in accordance with the
methods stated in ASC Topic 36020, Real Estate Sales ("ASC 36020"). Any losses
on the sales of other real estate owned properties are recognized immediately.
Assets Held for Sale. Assets held for sale consist of former branch locations
and real estate purchased for expansion. Assets are considered held for sale
when management has approved a plan to sell the assets following a branch
closure or other events. The properties are being actively marketed and
transferred to assets held for sale based at the lower of its carrying value or
its fair value, less estimated costs to sell. Adjustments to reduce the asset
balances to fair value are recorded at the time of transfer and are recognized
through a charge against income. An assessment of the recoverability of other
long-lived assets associated with all branches is periodically performed,
resulting in impairment losses which are reflected in other non-interest
expense.
Income Taxes
We use the asset and liability method to account for income taxes. The objective
of the asset and liability method is to establish deferred tax assets and
liabilities for the temporary differences between the financial reporting basis
and the income tax basis of our assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled. Our annual
tax rate is based on our income, statutory tax rates and available tax planning
opportunities. Tax laws are complex and subject to different interpretations by
the taxpayer and respective governmental taxing authorities. Significant
judgment is required in determining tax expense and in evaluating tax positions,
including evaluating uncertainties.
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Deferred income tax assets represent amounts available to reduce income taxes
payable on taxable income in future years. Such assets arise because of
temporary differences between the financial reporting and tax bases of assets
and liabilities, as well as from net operating loss carryforwards. We review our
deferred tax positions quarterly for changes which may impact realizability. We
evaluate the recoverability of these future tax deductions by assessing the
adequacy of future expected taxable income from all sources, including reversal
of taxable temporary differences, forecasted operating earnings and available
tax planning strategies. We use short and longrange business forecasts to
provide additional information for its evaluation of the recoverability of
deferred tax assets. It is our policy to recognize interest and penalties
associated with uncertain tax positions, if applicable, as components of
noninterest expense.
A deferred tax valuation allowance is established to reduce the net carrying
amount of deferred tax assets if it is determined to be more likely than not
that all or some of the deferred tax asset will not be realized. See Note 11 of
the notes to our Consolidated Financial Statements included in our Annual Report
on Form 10-K for the year ended December 31, 2020 , for further information on
income taxes.
Recently Issued Accounting Pronouncements
Refer to Note 2 of our Unaudited Interim Condensed Consolidated Financial Statements as ofJune 30, 2021 , included in this report, for a description of recent accounting pronouncements, including the effective dates of adoption and anticipated effects on our results of operations and financial condition.
Primary Factors Used to Evaluate Our Business
As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our consolidated balance sheet and income statement as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our own historical performance, our budgeted performance and the final condition and performance of comparable financial institutions in our region. Comparison of our financial performance against other financial institutions is impacted by the accounting for acquired nonimpaired and acquired impaired loans. These factors and metrics described in this report may not provide an appropriate basis to compare our results or financial condition to the results or financial condition of other financial services companies, given our limited operating history and strategic acquisitions since our recapitalization.
Results of Operations
Overview
Our results of operations depend substantially on net interest income, which is
the difference between interest income on interest-earning assets, consisting
primarily of interest income on loans and lease receivables, including accretion
income on loans, investment securities and other short-term investments, and
interest expense on interest-bearing liabilities, consisting primarily of
deposits and borrowings. Our results of operations are also dependent upon our
generation of non-interest income, consisting primarily of income from fees and
service charges on deposits, loan servicing revenue, wealth management and trust
income, ATM and interchange fees, and net gains on sales of investment
securities and loans. Other factors contributing to our results of operations
include our provisions for loan and lease losses, provision for income taxes,
and non-interest expenses, such as salaries and employee benefits, occupancy and
equipment expenses, and other miscellaneous operating costs.
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As of or For the Three Months Ended As of or For the Six Months Ended
June 30, June 30,
(dollars in thousands, except share
and per share data) 2021 2020 2021 2020
Summary of Operations
Net interest income $ 58,174 $ 52,609 $ 114,814 $ 105,434
Provision for (release of) loan and
lease losses (1,969 ) 15,518 2,398 29,973
Non-interest income 21,002 12,829 36,744 22,136
Non-interest expense 42,981 37,053 81,823 80,714
Income before provision for income
taxes 38,164 12,867 67,337 16,883
Provision for income taxes 9,672 3,728 17,047 4,778
Net income 28,492 9,139 50,290 12,105
Dividends on preferred shares 195 195 391 391
Income available to common
stockholders $ 28,297 $ 8,944 $ 49,899 $ 11,714 Common Share Data Basic earnings per common share $
0.75 $ 0.24 $ 1.31 $ 0.31
Diluted earnings per common share $ 0.73 $ 0.24 $ 1.29 $ 0.31
Adjusted diluted earnings per
share(1)(3) $ 0.77 $ 0.24 $ 1.34 $ 0.32
Weighted-average common shares
outstanding (basic) 37,965,658 37,919,480 38,064,381 37,931,406
Weighted-average common shares
outstanding (diluted) 38,696,036 38,027,289 38,773,018 38,350,064
Common shares outstanding 38,094,972 38,388,217 38,094,972 38,388,217
Cash dividends per common share $ 0.06 $ 0.03 $ 0.12 $ 0.06
Dividend payout ratio on common
stock 8.22 % 12.50 % 9.30 % 19.35 %
Tangible book value per common
share(1) $ 16.74 $ 15.47 $ 16.74 $ 15.47
Key Ratios and Performance Metrics
(annualized where applicable)
Net interest margin 3.74 % 3.71 % 3.76 % 3.93 %
Average cost of deposits 0.08 % 0.36 % 0.10 % 0.54 %
Efficiency ratio(2) 51.95 % 53.73 % 51.61 % 60.30 %
Adjusted efficiency ratio(1)(2)(3) 49.50 % 53.73 % 49.93 % 59.74 %
Non-interest expense to average
assets 2.57 % 2.41 % 2.48 % 2.76 %
Adjusted non-interest expense to
average assets(1)(3) 2.45 % 2.41 % 2.40 % 2.74 %
Return on average stockholders'
equity 14.10 % 4.74 % 12.54 % 3.16 %
Adjusted return on average
stockholders' equity(1)(3) 14.80 % 4.74 % 13.01 % 3.29 %
Return on average assets 1.70 % 0.59 % 1.52 % 0.41 %
Adjusted return on average
assets(1)(3) 1.78 % 0.59 % 1.58 % 0.43 %
Non-interest income to total
revenues(1) 26.53 % 19.61 % 24.24 % 17.35 %
Pre-tax pre-provision return on
average assets(1) 2.16 % 1.85 % 2.11 % 1.60 %
Adjusted pre-tax pre-provision
return on average assets(1) 2.28 % 1.85 % 2.19 % 1.63 %
Return on average tangible common
stockholders' equity(1) 18.87 % 7.05 % 16.88 % 4.99 %
Adjusted return on average tangible
common stockholders' equity(1)(3) 19.77 % 7.05 % 17.48 % 5.17 %
Non-interest-bearing deposits to
total deposits 41.03 % 35.67 % 41.03 % 35.67 %
Loans and leases held for sale and
loans and leases
held for investment to total
deposits 88.26 % 88.62 % 88.26 % 88.62 %
Deposits to total liabilities 88.97 % 88.34 % 88.97 % 88.34 %
Deposits per branch $ 115,732 $ 86,989 $ 115,732 $ 86,989
Asset Quality Ratios
Non-performing loans and leases to
total loans and leases
held for investment 0.79 % 0.99 % 0.79 % 0.99 %
ALLL to total loans and leases held
for investment 1.38 % 1.17 % 1.38 % 1.17 %
Net charge-offs to average total
loans and leases held for
investment 0.17 % 0.57 % 0.32 % 0.53 %
Acquisition accounting
adjustments(4) $ 9,393 $ 19,324 $ 9,393 $ 19,324
Capital Ratios
Common equity to total assets 12.33 % 12.05 % 12.33 % 12.05 %
Tangible common equity to tangible
assets(1) 10.01 % 9.55 % 10.01 % 9.55 %
Leverage ratio 10.82 % 10.29 % 10.82 % 10.29 %
Common equity tier 1 capital ratio 11.97 % 12.33 % 11.97 % 12.33 %
Tier 1 capital ratio 13.05 % 13.56 % 13.05 % 13.56 %
Total capital ratio 15.74 % 15.86 % 15.74 % 15.86 %
(1)
Represents a non-GAAP financial measure. See "Reconciliations of non-GAAP
Financial Measures" for a reconciliation of our non-GAAP measures to the most
directly comparable GAAP financial measure.
(2)
Represents non-interest expense less amortization of intangible assets divided
by net interest income and non-interest income.
(3)
Calculation excludes impairment charges on assets held for sale.
(4)
Represents the remaining net unaccreted discount as a result of applying the
fair value acquisition accounting adjustment at the time of the business
combination on acquired loans.
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We reported consolidated net income of $28.5 million for the three months ended
June 30, 2021 compared to net income of $9.1 million for the three months ended
June 30, 2020 , an increase of $19.4 million . The increase in net income was
primarily attributable to a $17.5 million decrease in provision for loan and
lease losses, a $5.6 million increase in net interest income, and an $8.2
million increase in non-interest income. These were offset by a $5.9 million
increase in non-interest expense, and a $5.9 million increase in provision for
income taxes.
The increase in net interest income during the three months ended June 30, 2021
was mainly a result of increased average loan and leases balances and decreased
cost of funds. The decrease in provision for loan and lease losses reflects
improving qualitative factors from the continued recovery from the COVID-19
pandemic. The increase in non-interest income was principally driven by an
increase in net gains on sale of loans and an upward revaluation adjustments to
the servicing asset. The increase in non-interest expense was mostly due to an
increase in salaries and employee benefits. The increase in provision for income
taxes was driven by an increase in net income before provision for income taxes
during the period.
Net income available to common stockholders was $28.3 million , or $0.75 per
basic and $0.73 per diluted common share, for the three months ended June 30,
2021 compared to $8.9 million , or $0.24 per basic and diluted common share, for
the three months ended June 30, 2020 . Dividends on preferred shares were
$195,000 for the three months ended June 30, 2021 and 2020.
Our annualized return on average assets was 1.70% for the three months ended
June 30, 2021 compared to 0.59% for the three months ended June 30, 2020 . Our
annualized return on average stockholders' equity was 14.10% for the three
months ended June 30, 2021 compared to 4.74% for the three months ended June 30,
2020 . Our efficiency ratio was 51.95% for the three months ended June 30, 2021
compared to 53.73% for the three months ended June 30, 2020 .
We reported consolidated net income of $50.3 million for the six months ended
June 30, 2021 compared to net income of $12.1 million for the six months ended
June 30, 2020 , an increase of $38.2 million . The increase in net income was
primarily attributable to a $27.6 million decrease in provision for loan and
lease losses, a $9.4 million increase in net interest income, and an $14.6
million increase in non-interest income. These were offset by a $1.1 million
increase in non-interest expense, and a $12.3 million increase in provision for
income taxes.
The increase in net interest income during the six months ended June 30, 2021
was mainly a result of increased average loan and leases balances and decreased
cost of funds. The decrease in provision for loan and lease losses reflects
improving qualitative factors from the continued recovery from the COVID-19
pandemic. The increase in non-interest income was principally driven by an
increase in net gains on sale of loans and a reduction in downward revaluation
adjustments to the servicing asset. The increase in non-interest expense was
mostly due to an increase in salaries and employee benefits. The increase in
provision for income taxes was driven by an increase in net income before
provision for income taxes during the period.
Net income available to common stockholders was $49.9 million , or $1.31 per
basic common share and $1.29 per diluted common share, for the six months ended
June 30, 2021 compared to $11.7 million , or $0.31 per basic and diluted common
share, for the six months ended June 30, 2020 . Dividends on preferred shares
were $391,000 for the six months ended June 30 , 2021and 2020.
Our annualized return on average assets was 1.52% for the six months ended
June 30, 2021 compared to 0.41% for the six months ended June 30, 2020 . Our
annualized return on average stockholders' equity was 12.54% for the six months
ended June 30, 2021 compared to 3.16% for the six months ended June 30, 2020 .
Our efficiency ratio was 51.61% for the six months ended June 30, 2021 compared
to 60.30% for the six months ended June 30, 2020 Net Interest Income
Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest and dividends on interest-earning assets, which include loans, leases and investment securities we own. We incur interest expense from interest paid on interest-bearing liabilities, which include interest-bearing deposits, subordinated debt,Federal Home Loan Bank advances, Paycheck Protection Program Liquidity Facility, junior subordinated debentures and other borrowings. To evaluate net interest income, we measure and monitor (i) yields on our loans and other interest-earning assets, (ii) the costs of our deposits and other funding sources, (iii) our net interest spread, and (iv) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets. Because non-interest-bearing sources of funds, such as non-interest-bearing deposits and stockholders' equity, also fund interest-earning assets, net interest margin includes the benefit of these non-interest-bearing sources. We also recognize income from the accretable discounts associated with the purchase of interest-earning assets. Because of our recapitalization and bank acquisitions, we derive a portion of our interest income from the accretable discounts on acquired loans. The accretion is generally recognized over the life of the loan and is impacted by changes in expected cash flows on the loan. This accretion will continue to have an impact on our net interest income as long as loans acquired with a discount at acquisition represent a meaningful portion of our interest-earning assets. As ofJune 30, 2021 , acquired loans with evidence of credit deterioration accounted for under ASC Topic 310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, represented 3.7% of our total loan portfolio compared to 4.7% atDecember 31, 2020 . 50 -------------------------------------------------------------------------------- Changes in the market interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. In addition, our interest income includes the accretion of the discounts on our acquired loans, which will also affect our net interest spread, net interest margin and net interest income. The following tables present, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis (dollars in thousands). Three Months Ended June 30, 2021 2020 Average Average Average Interest Yield / Average Interest Yield / Balance(5) Inc / Exp Rate Balance(5) Inc / Exp Rate ASSETS Cash and cash equivalents$ 75,382 $ 28 0.15 %$ 58,971 $ 25 0.17 % Loans and leases(1) 4,491,197 54,324 4.85 % 4,283,654 50,153 4.71 % Taxable securities 1,477,070 5,947 1.62 % 1,243,604 7,021 2.27 % Tax-exempt securities(2) 187,967 1,281 2.73 % 117,340 894 3.06 % Total interest-earning assets$ 6,231,616 $ 61,580 3.96 %$ 5,703,569 $ 58,093 4.10 % Allowance for loan and lease losses (65,848 ) (43,009 ) All other assets 554,724 526,414 TOTAL ASSETS$ 6,720,492 $ 6,186,974 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Interest checking$ 626,886 $ 220 0.14 %$ 392,070 $ 165 0.17 % Money market accounts 1,052,223 279 0.11 % 1,214,713 946 0.31 % Savings 607,035 72 0.05 % 511,049 61 0.05 % Time deposits 717,795 487 0.27 % 976,710 3,074 1.27 % Total interest-bearing deposits 3,003,939 1,058 0.14 % 3,094,542 4,246 0.55 % Other borrowings 642,586 482 0.30 % 534,766 476 0.36 % Subordinated notes and debentures 110,030 1,597 5.82 % 40,180 574 5.75 % Total borrowings 752,616 2,079 1.11 % 574,946 1,050 0.73 % Total interest-bearing liabilities$ 3,756,555 $ 3,137 0.33 %$ 3,669,488 $ 5,296 0.58 %
Non-interest-bearing demand deposits 2,085,358 1,692,723 Other liabilities 68,089 48,884 Total stockholders' equity 810,490 775,879 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$ 6,720,492 $ 6,186,974 Net interest spread(3) 3.63 % 3.52 % Net interest income, fully taxable equivalent$ 58,443 $ 52,797 Net interest margin, fully taxable equivalent(2)(4) 3.76 % 3.72 % Tax-equivalent adjustment (269 ) 0.02 % (188 ) 0.01 % Net interest income$ 58,174 $ 52,609 Net interest margin(4) 3.74 % 3.71 % Net loan accretion impact on margin$ 1,395 0.09 %$ 3,172 0.22 % (1) Loan and lease balances are net of deferred origination fees and costs and initial direct costs. Non-accrual loans and leases are included in total loan and lease balances. (2) Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt investment income on tax-exempt investment securities to a fully taxable basis, assuming a federal income tax rate of 21%. (3) Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. (4) Represents net interest income (annualized) divided by total average interest-earning assets. (5) Average balances are average daily balances. 51 --------------------------------------------------------------------------------
Six Months Ended June 30,
2021 2020
Average Average
Average Interest Yield / Average Interest Yield /
Balance(5) Inc / Exp Rate Balance(5) Inc / Exp Rate
ASSETS
Cash and cash equivalents $ 65,484 $ 56 0.17 % $ 48,952 $ 182 0.75 %
Loans and leases(1) 4,461,884 108,132 4.89 % 4,041,433 104,311 5.19 %
Taxable securities 1,453,976 11,326 1.57 % 1,209,362 15,337 2.55 % Tax-exempt securities(2)
183,689 2,475 2.72 % 101,010 1,571 3.13 %
Total interest-earning assets $ 6,165,033 $ 121,989 3.99 % $ 5,400,757 $ 121,401 4.52 %
Allowance for loan and lease
losses (66,415 ) (38,336 )
All other assets 555,877 514,042
TOTAL ASSETS $ 6,654,495 $ 5,876,463
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits
Interest checking $ 587,030 $ 419 0.14 % $ 365,487 $ 425 0.23 %
Money market accounts 1,087,964 660 0.12 % 1,088,459 3,160 0.58 %
Savings 592,350 139 0.05 % 495,660 122 0.05 %
Time deposits 747,366 1,261 0.34 % 1,045,153 8,343 1.61 % Total interest-bearing deposits 3,014,710 2,479 0.17 % 2,994,759 12,050 0.81 % Other borrowings
646,093 984 0.31 % 527,937 2,373 0.90 % Subordinated notes and debentures 109,945 3,193 5.86 % 38,782 1,214 6.30 % Total borrowings
756,038 4,177 1.11 % 566,719 3,587 1.27 %
Total interest-bearing liabilities $ 3,770,748 $ 6,656 0.36 % $ 3,561,478 $ 15,637 0.88 %
Non-interest-bearing demand
deposits 2,005,213 1,495,761
Other liabilities 70,052 48,571
Total stockholders' equity 808,482 770,653
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY $ 6,654,495 $ 5,876,463
Net interest spread(3) 3.63 % 3.64 %
Net interest income, fully taxable
equivalent $ 115,333 $ 105,764
Net interest margin, fully taxable
equivalent(2)(4) 3.77 % 3.94 %
Tax-equivalent adjustment (519 ) 0.01 % (330 ) 0.01 %
Net interest income $ 114,814 $ 105,434
Net interest margin(4) 3.76 % 3.93 %
Net loan accretion impact on
margin $ 3,363 0.11 % $ 6,843 0.25 %
(1)
Loan and lease balances are net of deferred origination fees and costs and
initial direct costs. Non-accrual loans and leases are included in total loan
and lease balances.
(2)
Interest income and rates include the effects of a tax equivalent adjustment to
adjust tax-exempt investment income on tax-exempt investment securities to a
fully taxable basis, assuming a federal income tax rate of 21%.
(3)
Represents the average rate earned on interest-earning assets minus the average
rate paid on interest-bearing liabilities.
(4)
Represents net interest income (annualized) divided by total average
interest-earning assets.
(5)
Average balances are average daily balances.
52
--------------------------------------------------------------------------------
Increases and decreases in interest income and interest expense result from
changes in average balances (volume) of interest-earning assets and
interest-bearing liabilities, as well as changes in average interest rates. The
following table sets forth the effects of changing rates and volumes on our net
interest income during the periods shown. Information is provided with respect
to (i) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate) and (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume).
Changes applicable to both volume and rate have been allocated to volume. Yields
have been calculated on a pre-tax basis. The table below is a summary of
increases and decreases in interest income and interest expense resulting from
changes in average balances (volume) and changes in average interest rates
(dollars in thousands):
Three Months Ended June 30, 2021
compared to Three Months Ended June 30, 2020
Increase (Decrease) Due to
Volume Rate Total
Interest income
Cash and cash equivalents $ 6 $ (3 ) $ 3
Loans and leases(1) 2,676 1,495 4,171
Taxable securities 941 (2,015 ) (1,074 )
Tax-exempt securities 484 (97 ) 387
Total interest income $ 4,107 $ (620 ) $ 3,487
Interest expense
Deposits
Interest checking $ 84 $ (29 ) $ 55
Money market accounts (61 ) (606 ) (667 )
Savings 11 - 11
Time deposits (152 ) (2,435 ) (2,587 )
Total interest-bearing deposits (118 ) (3,070 ) (3,188 )
Other borrowings 86 (80 ) 6
Subordinated notes and debentures 1,016 7 1,023
Total borrowings 1,102 (73 ) 1,029
Total interest expense $ 984 $ (3,143 ) $ (2,159 )
Net interest income, fully taxable equivalent $ 3,123 $ 2,523 $ 5,646
(1)Includes loans and leases on non-accrual status.
Net interest income for the three months endedJune 30, 2021 was$58.2 million compared to$52.6 million during the same period in 2020, an increase of$5.6 million , or 10.6%. Interest income increased$3.4 million for the three months endedJune 30, 2021 compared to the same period in 2020 primarily a result of increased average balance on loans and leases, offset by lower market interest rates. Interest expense decreased by$2.2 million for the three months endedJune 30, 2021 compared to the same period in 2020 mostly due to decreases in the average rates paid on deposits and other borrowings. 53 --------------------------------------------------------------------------------
Six Months Ended June 30, 2021
compared to Six Months Ended June 30, 2020
Increase (Decrease) Due to
Volume Rate Total
Interest income
Cash and cash equivalents $ 15 $ (141 ) $ (126 )
Loans and leases(1) 9,833 (6,012 ) 3,821
Taxable securities 1,866 (5,877 ) (4,011 )
Tax-exempt securities 1,109 (205 ) 904
Total interest income $ 12,823 $ (12,235 ) $ 588
Interest expense
Deposits
Interest checking $ 157 $ (163 ) $ (6 )
Money market accounts (17 ) (2,483 ) (2,500 )
Savings 17 - 17
Time deposits (500 ) (6,582 ) (7,082 )
Total interest-bearing deposits (343 ) (9,228 ) (9,571 )
Other borrowings 156 (1,545 ) (1,389 )
Subordinated notes and debentures 2,064 (85 ) 1,979
Total borrowings 2,220 (1,630 ) 590
Total interest expense $ 1,877 $ (10,858 ) $ (8,981 )
Net interest income, fully taxable equivalent $ 10,946 $
(1,377 )
(1)
Includes loans and leases on non-accrual status.
Net interest income for the six months endedJune 30, 2021 was$114.8 million compared to$105.4 million during the same period in 2020, an increase of$9.4 million , or 8.9%. Interest income increased$399,000 for the six months endedJune 30, 2021 compared to the same period in 2020 primarily a result of decreased average yields on loans and leases as market interest rates decreased from a year ago and the onset of PPP loans, partly offset by loan and lease growth through originations. Interest expense decreased by$9.0 million for the six months endedJune 30, 2021 compared to the same period in 2020 mostly due to decreases in the average rates paid on deposits and other borrowings as well as a change in deposit mix. The net interest margin for the three months endedJune 30, 2021 was 3.74%, a decrease of three basis points compared to 3.71% for the three months endedJune 30, 2020 . The primary drivers of the decrease for the three month period was a decrease in average loan and lease yields and lower securities yields resulting from decreased market interest rates, lower-yielding PPP loan balances, and decreased loan accretion. Those decreases were partly offset by a lower cost of funds resulting from decreased market interest rates and the access of funds available to borrow at a lower cost as well as higher non-interest-bearing demand deposit balances. The net interest margin for the six months endedJune 30, 2021 was 3.76% a decrease of 17 basis points compared to 3.93% for the six months endedJune 30, 2020 . The primary drivers of the decrease for the six month period was a decrease in average loan and lease yields and lower securities yields resulting from decreased market interest rates, lower-yielding PPP loan balances, and decreased loan accretion. Those decreases were partly offset by a lower cost of funds resulting from decreased market interest rates and the access of funds available to borrow at a lower cost as well as higher non-interest-bearing demand deposit balances. 54 -------------------------------------------------------------------------------- Net loan accretion income was$1.4 million for the three months endedJune 30, 2021 compared to$3.2 million for the three months endedJune 30, 2020 , a decrease of$1.7 million , or 46.4%. Net loan accretion income was$3.4 million for the six months endedJune 30, 2021 compared to$6.8 million for the six months endedJune 30, 2020 , a decrease of$3.5 million or 50.9%. Total net loan accretion on acquired loans contributed 9 basis points to the net interest margin for the three months endedJune 30, 2021 compared to 22 basis points for the three months endedJune 30, 2020 . Total net loan accretion on acquired loans contributed 11 basis points to the net interest margin for the six months endedJune 30, 2021 compared to 25 basis points for the six months endedJune 30, 2020 . Projected accretion income as ofJune 30, 2021 is summarized as follows: Estimated Projected Accretion(1)(2) Last six months of 2021 $ 1,971 2022 3,598 2023 1,711 2024 613 2025 135 Thereafter 1,364 Total $ 9,393 (1) Estimated projected accretion excludes contractual interest income on ASC 310-310 loans. (2) Projections are updated quarterly, assume no prepayments, and are subject to change; including the Company's expected adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. 55 --------------------------------------------------------------------------------
Provision for Loan and Lease Losses
The provision for loan and lease losses represents a charge to earnings necessary to establish an allowance for loan and lease losses that, in management's evaluation, is appropriate to provide coverage for probable losses incurred in the loan and lease portfolio. The allowance for loan and lease losses is increased by the provision for loan and lease losses and is decreased by charge-offs, net of recoveries on prior charge-offs. Provisions for loan and lease losses was a release of$2.0 million and a provision increase of$15.5 million for the three months endedJune 30, 2021 and 2020, respectively, a decrease of$17.5 million , or 112.7%. Provisions for loan and lease losses was$2.4 million and$30.0 million for the six months endedJune 30, 2021 and 2020, respectively, a decrease of$27.6 million , or 92.0%. The ALLL as a percentage of loans and leases decreased from 1.53% atDecember 31, 2020 to 1.38% atJune 30, 2021 . The ALLL as a percentage of loans and leases excluding PPP loans was 1.55% and 1.73% atJune 30, 2021 andDecember 31, 2020 , respectively. Non-Interest Income Non-interest income was$21.0 million for the three months endedJune 30, 2021 compared to$12.8 million for the three months endedJune 30, 2020 , an increase of$8.2 million , or 63.7%. The increase was primarily due to an increase in net gains on sale of loans, an upward revaluation of loan servicing assets and higher other non-interest income. QTD 2021 YTD 2021 Three Months Ended June 30, Six Months Ended June 30, Compared to 2020 Compared to 2020 2021 2020 2021 2020 $ Change % Change $ Change % Change Fees and service charges on deposits$ 1,768 $ 1,455 $ 3,432 $ 3,128 $ 313 21.5 %$ 304 9.7 % Loan servicing revenue 3,188 2,980 5,957 5,738 208 7.0 % 219 3.8 % Loan servicing asset revaluation 7 (711 ) (1,498 ) (3,775 ) 718 NM 2,277 (60.3 )% ATM and interchange fees 1,044 845 2,056 2,061 199 23.6 % (5 ) (0.2 )% Net gain (loss) on sales of securities available-for-sale (136 ) - 1,326 1,375 (136 ) NM (49 ) (3.6 )% Change in fair value of equity securities, net 517 766 311 147 (249 ) (32.5 )% 164 111.6 % Net gains on sales of loans 12,270 6,456 20,589 11,229 5,814 90.1 % 9,360 83.4 % Wealth management and trust income 722 608 1,490 1,277 114 18.8 % 213 16.7 % Other non-interest income 1,622 430 3,081 956 1,192 277.2 % 2,125 222.3 % Total non-interest income$ 21,002 $ 12,829 $ 36,744 $ 22,136 $ 8,173 63.7 %$ 14,608 66.0 % Fees and service charges on deposits represent amounts charged to customers for banking services, such as fees on deposit accounts, and include, but are not limited to, maintenance fees, insufficient fund fees, overdraft protection fees, wire transfer fees, and other charges. Fees and service charges on deposits were$1.8 million and$1.5 million for the three months endedJune 30, 2021 and 2020, respectively. Fees and service charges on deposits were$3.4 million and$3.1 million for the six months endedJune 30, 2021 and 2020, respectively. While portions of the loans that we originate are sold and generate gains on sale revenue, servicing rights for the majority of loans that we sell are retained by us. In exchange for continuing to service loans that have been sold, we receive servicing revenue from a portion of the interest cash flow of the loan. We generated$3.2 million and$3.0 million in loan servicing revenue on the sold portion of theU.S. government guaranteed loans for the three months endedJune 30, 2021 and 2020, respectively. We generated$6.0 million and$5.7 million in loan servicing revenue on the sold portion of theU.S. government guaranteed loans for the six months endedJune 30, 2021 and 2020, respectively. AtJune 30, 2021 and 2020, the outstanding balance of guaranteed loans serviced was$1.6 billion and$1.4 billion , respectively. Loan servicing asset revaluation represents net changes in the fair value of our servicing assets. Loan servicing asset revaluation had a upward adjustment of$7,000 for the three months endedJune 30, 2021 compared to a downward adjustment of$711,00 for the three months endedJune 30, 2020 , an increase of$718,000 , or 101.0% due to changes in discount rates and prepayment speeds]. Loan servicing asset revaluation had a downward adjustment of$1.5 million for the six months endedJune 30, 2021 compared to a downward adjustment of$3.8 million for the six months endedJune 30, 2020 , a decrease of$2.3 million , or (60.3)% due to changes in market premiums and prepayment speeds. ATM and interchange fees were$1.0 million for the three months endedJune 30, 2021 compared to$845,00 for the three months endedJune 30, 2020 , an increase of$199,000 , or 23.6%. The increase was primarily driven by increased transactional account volume and higher interchange income. 56 -------------------------------------------------------------------------------- Change in fair value of equity securities, net, were increases of$517,000 and$766,000 for the three months endedJune 30, 2021 and 2020, respectively. Changes in fair value of equity securities, net, were an increase of$311,000 and an increase of$147,000 for the six months endedJune 30, 2021 and 2020, respectively. The amounts recorded during the periods were driven by market conditions. Net gains on sales of loans were$12.3 million for the three months endedJune 30, 2021 compared to$6.5 million for the three months endedJune 30, 2020 , an increase of$5.8 million , or 90.1%. We sold$100.3 million ofU.S. government guaranteed loans during the three months endedJune 30, 2021 compared to$78.7 million during the three months endedJune 30, 2020 . Net gains on sales of loans were$20.6 million for the six months endedJune 30, 2021 compared to$11.3 million for the six months endedJune 30, 2020 , an increase of$9.4 million , or 83.4%. We sold$174.7 million ofU.S. government guaranteed loans during the six months endedJune 30, 2021 compared to$139.7 million during the six months endedJune 30, 2020 . Wealth management and trust income represents fees charged to customers for investment, trust, or wealth management services and are primarily determined by total assets under management. Wealth management and trust income was$722,000 for the three months endedJune 30, 2021 compared to$608,000 for the three months endedJune 30, 2020 . Wealth management and trust income was$1.5 million for the six months endedJune 30, 2021 compared to$1.3 million for the six months endedJune 30, 2020 . The variances were mostly driven by market conditions. Other non-interest income was$1.6 million for the three months endedJune 30, 2021 compared to$430,000 for the three months endedJune 30, 2020 , an increase of$1.2 million or 277.5%. The primary driver of the increase in the period was increased customer derivative products income and bank-owned life insurance income. Other non-interest income was$3.1 million for the six months endedJune 30, 2021 compared to$956,000 for the six months endedJune 30, 2020 , an increase of$2.1 million or 222.3%. The primary driver of the increase in the period was increased customer derivative products income and bank-owned life insurance income. Non-Interest Expense Non-interest expense was$43.0 million for the three months endedJune 30, 2021 compared to$37.1 million for the three months endedJune 30, 2020 , an increase of$5.9 million , or 16.0%. The increase was primarily due to an increase in salaries and employee benefits. Non-interest expense was$81.8 million for the six months endedJune 30, 2021 compared to$80.7 million for the six months endedJune 30, 2020 , an increase of$1.1 million , or 1.4%. The increase was primarily due to a decrease in salaries and employee benefits offset by decreases in other non-interest expense.
The following table presents the major components of our non-interest expense for the periods indicated (dollars in thousands):
QTD 2021 YTD 2021
Three Months Ended June 30, Six Months Ended June 30, Compared to 2020 Compared to 2020
2021 2020 2021 2020 $ Change % Change $ Change % Change
Salaries and
employee benefits $ 24,588 $ 19,405 $ 46,394 $ 44,071 $ 5,183 26.7 % $ 2,323 5.3 %
Occupancy and
equipment
expense, net 4,856 5,359 10,635 10,883 (503 ) (9.4 )% (248 ) (2.3 )%
Loan and lease
related expenses 1,503 1,260 2,454 2,578 243 19.3 % (124 ) (4.8 )%
Legal, audit and
other
professional
fees 2,898 2,078 5,112 4,412 820 39.5 % 700 15.9 %
Data processing 2,847 2,826 5,602 5,491 21 0.7 % 111 2.0 %
Net loss
recognized on
other real
estate owned and
other related
expenses 389 456 1,010 975 (67 ) (14.7 )% 35 3.6 %
Other intangible
assets
amortization
expense 1,848 1,892 3,597 3,785 (44 ) (2.3 )% (188 ) (5.0 )%
Other non-interest
expense 4,052 3,777 7,019 8,519 275 7.3 % (1,500 ) (17.6 )%
Total non-interest
expense $ 42,981 $ 37,053 $ 81,823 $ 80,714 $ 5,928 16.0 % $ 1,109 1.4 %
Salaries and employee benefits, the single largest component of our non-interest
expense, totaled $24.6 million for the three months ended June 30, 2021 compared
to $19.4 million for the three months ended June 30, 2020 , an increase of $5.2
million , or 26.7%. The increase was primarily a result of deferrals associated
with PPP originations during the second quarter of 2020. Salaries and employee
benefits, totaled $46.4 million for the six months ended June 30, 2021 , compared
to $44.1 million for the six months ended June 30, 2020 , an increase of $2.3
million , or 5.3%. The increase resulted from an increases in incentive
compensation.
Occupancy and equipment expense was $4.9 million for the three months ended
June 30, 2021 compared to $5.4 million for the three months ended June 30, 2020 ,
a decrease of $503,000 , or 9.4%. The decrease was result of decreased
maintenance fees. Occupancy and equipment expense was $10.6 million for the six
months ended June 30, 2021 compared to $10.9 million for the six months ended
June 30, 2020 , a decrease of $248,000 , or 2.3%. The decrease was result of lower
lease obligation expense.
57
-------------------------------------------------------------------------------- Loan and lease related expenses were$1.5 million for the three months endedJune 30, 2021 compared to$1.3 million for the three months endedJune 30, 2020 , an increase of$243,000 , or 19.3%. The increase was principally driven by higher reimbursable expenses associated with government guaranteed loan originations. Loan and lease related expenses were$2.5 million for the six months endedJune 30, 2021 compared to$2.6 million for the six months endedJune 30, 2020 , a decrease of$124,000 , or 4.8%. The decrease was principally driven by lower broker fees. Legal, audit, and other professional fees were$2.9 million for the three months endedJune 30, 2021 compared to$2.1 million for the three months endedJune 30, 2020 , an increase of$818,000 , or 39.5%. The increase was mainly driven by increases in consulting fees. Legal, audit, and other professional fees were$5.1 million for the six months endedJune 30, 2021 compared to$4.4 million for the six months endedJune 30, 2020 , an increase of$700,000 , or 15.9%. The increase was mainly driven by increases in legal fees. Other non-interest expense was$4.1 million for the three months endedJune 30, 2021 compared to$3.8 million for the three months endedJune 30, 2020 , an increase of$275,000 or 7.3%. The increase was mostly due to higher impairment charges. Other non-interest expense was$7.0 million for the six months endedJune 30, 2021 compared to$8.5 million for the six months endedJune 30, 2020 , a decrease of$1.5 million or 17.6%. The decrease was driven by lower regulatory, advertising and promotion, and telecommunications expenses offset by higher asset impairment charges. Our efficiency ratio was 51.95% for the three months endedJune 30, 2021 compared to 53.73% for the three months endedJune 30, 2020 . The improvement in our efficiency ratio for the three months endedJune 30, 2021 was driven by both a decrease in our non-interest expense and an increase in our non-interest income. Our adjusted efficiency ratio was 49.50% for the three months endedJune 30, 2021 compared to 53.73% for the three months endedJune 30, 2020 . Please refer to the "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Income Taxes Our provision for income taxes for the three months endedJune 30, 2021 totaled$9.7 million compared to$3.7 million for the three months endedJune 30, 2020 . The increase in income tax expense was principally due to increased income before provision for income taxes during the period. Our effective tax rate was 25.3% for the three months endedJune 30, 2021 and 29.0% for the three months endedJune 30, 2020 . Our provision for income taxes for the six months endedJune 30, 2021 totaled$17.0 million compared to$4.8 million for the six months endedJune 30, 2020 . The increase in income tax expense was principally due to increased income before provision for income taxes during the period. Our effective tax rate was 25.3% for the six months endedJune 30, 2021 and 28.3% for the six months endedJune 30, 2020 . Financial Condition Balance Sheet Analysis Our total assets increased by$150.0 million , or 2.3%, to$6.5 billion atJune 30, 2021 compared to$6.4 billion atDecember 31, 2020 . The increase in total assets includes an increase of$128.9 million , or 3.0%, in loans and leases from$4.3 billion atDecember 31, 2020 to$4.5 billion atJune 30, 2021 . Our originated loan and lease portfolio increased by$244.9 million and our acquired loan and lease portfolio decreased by$115.9 million . The increase in our originated portfolio was primarily attributed to organic loan and lease growth, mostly PPP loans, and renewals of acquired non-impaired loans that are now reflected with originated loans. The decrease in our acquired portfolio was attributed to renewals reflected in originated loans, payoffs, and pay downs during the period. Total liabilities increased by$138.3 million , or 2.5%, to$5.7 billion atJune 30, 2021 compared to$5.6 billion atDecember 31, 2020 . Total deposits increased by$340.2 million , or 7.2%, driven by growth in non-interest-bearing deposits, money market demand deposits, and interest-bearing checking accounts, partly offset by a decrease in time deposits. Borrowings decreased by$201.1 million , or 31.0%, mainly due to an decrease in FHLB advances.
Investment Portfolio
Our investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity. There were no securities classified as trading in our investment portfolio as ofJune 30, 2021 orDecember 31, 2020 . All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest. Securities available-for-sale consist primarily of residential mortgage-backed securities, commercial mortgage- backed securities andU.S. government agencies securities.
Securities available-for-sale increased
58
--------------------------------------------------------------------------------
At June 30, 2021 , our held-to-maturity securities portfolio consists of
obligations of states, municipalities and political subdivisions. We carry these
securities at amortized cost. Securities held-to-maturity were $3.9 million at
June 30, 2021 and $4.4 million at December 31, 2020 .
We had no securities that were classified as having
other-than-temporary-impairment ("OTTI") as of
The following table summarizes the fair value of the available-for-sale and
held-to-maturity securities portfolio as of the dates presented (dollars in
thousands):
June 30, 2021 December 31, 2020
Amortized Fair Amortized Fair
Cost Value Cost Value
Available-for-sale
U.S. Treasury Notes $ 13,481 $ 13,639 $ 23,468 $ 23,812
U.S. Government agencies 130,724 130,710 113,088 113,551
Obligations of states,
municipalities, and
political subdivisions 101,695 106,090 135,513 142,419
Residential mortgage-backed
securities
Agency 828,898 823,192 764,951 778,391
Non-agency 60,718 60,470 32,654 32,981
Commercial mortgage-backed
securities
Agency 254,073 256,164 244,496 250,152
Corporate securities 62,977 65,245 59,020 60,768
Asset-backed securities 40,201 40,279 45,255 45,156
Total $ 1,492,767 $ 1,495,789 $ 1,418,445 $ 1,447,230
June 30, 2021 December 31, 2020
Amortized Fair Amortized Fair
Cost Value Cost Value
Held-to-maturity
Obligations of states,
municipalities, and
political subdivisions $ 3,890 $ 4,047 $ 4,395 $ 4,573
Total $ 3,890 $ 4,047 $ 4,395 $ 4,573
59
-------------------------------------------------------------------------------- Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. AtJune 30, 2021 , we evaluated the securities which had an unrealized loss for OTTI and determined all declines in value to be temporary. There were 83 investment securities with unrealized losses atJune 30, 2021 . We anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not more likely than not that we will be required to sell them before recovery of their amortized cost basis, which may be at maturity.
The following tables (dollars in thousands) set forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the dates presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Maturity as of
Due from One to Due from Five to
Due in One Year or Less Five Years Ten Years Due after Ten Years
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield(1) Cost Yield(1) Cost Yield(1) Cost Yield(1)
Available-for-sale
U.S. Treasury Notes $ 13,481 2.62 % $ - 0.00 % $ - 0.00 % $ - 0.00 %
U.S. government agencies 2,486 2.73 % - 0.00 % 109,138 1.17 % 19,100 1.32 %
Obligations of states,
municipalities, and political
subdivisions 10,739 2.37 % 17,965 2.48 % 21,328 2.84 % 51,663 2.34 % Residential mortgage-backed securities Agency - 0.00 % 702 1.34 % 92,585 1.47 % 735,611 1.20 % Non-agency - 0.00 % - 0.00 % - 0.00 % 60,718 1.99 % Commercial mortgage- backed securities Agency - 0.00 % 7,552 3.35 % 13,181 1.58 % 233,340 2.04 % Corporate securities 2,004 3.53 % 9,132 2.43 % 51,841 4.15 % - 0.00 % Asset-backed securities - 0.00 % - 0.00 % 20,644 1.77 % 19,557 1.47 % Total$ 28,710 2.60 %$ 35,351 2.63 %$ 308,717 1.94 %$ 1,119,989 1.48 % Maturity as of June 30, 2021 Due from One to Due from Five to Due in One Year or Less Five Years Ten Years Due after Ten Years Weighted Weighted Weighted Weighted Amortized Average Amortized Average Amortized Average Amortized Average Cost Yield(1) Cost Yield(1) Cost Yield(1) Cost Yield(1) Held-to-maturity
Obligations of states,
municipalities, and political
subdivisions $ - 0.00 %$ 3,890 2.62 % $ - 0.00 % $ - 0.00 % Total $ - 0.00 %$ 3,890 2.62 % $ - 0.00 % $ - 0.00 % (1)
The weighted average yields are based on amortized cost.
60
--------------------------------------------------------------------------------
Maturity as of December 31, 2020
Due from One to Due from Five to
Due in One Year or Less Five Years Ten Years Due after Ten Years
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield(1) Cost Yield(1) Cost Yield(1) Cost Yield(1)
Available-for-sale
U.S. Treasury Notes$ 14,998 2.52 %$ 8,470 2.51 % $ - 0.00 % $ - 0.00 % U.S. government agencies 498 2.42 % 1,977 2.80 % 91,430 1.26 % 19,183 1.32 % Obligations of states,
municipalities, and political
subdivisions 8,944 2.47 % 22,208 2.45 % 22,101 2.79 % 82,260 2.39 % Residential mortgage-backed securities Agency - 0.00 % 975 1.35 % 85,519 1.37 % 678,457 1.40 % Non-agency - 0.00 % - 0.00 % - 0.00 % 32,654 2.72 % Commercial mortgage- backed securities Agency - 0.00 % 7,504 3.35 % 13,198 1.56 % 223,794 2.02 % Corporate securities 2,500 3.25 % 8,703 3.08 % 47,817 4.05 % - 0.00 % Asset-backed securities - 0.00 % - 0.00 % 10,753 2.28 % 34,502 1.42 % Total$ 26,940 2.57 %$ 49,837 2.70 %$ 270,818 1.97 %$ 1,070,850 1.64 % Maturity as of December 31, 2020 Due from One to Due from Five to Due in One Year or Less Five Years Ten Years Due after Ten Years Weighted Weighted Weighted Weighted Amortized Average Amortized Average Amortized Average Amortized Average Cost Yield(1) Cost Yield(1) Cost Yield(1) Cost Yield(1) Held-to-maturity Obligations of states,
municipalities, and political
subdivisions$ 501 1.50 %$ 3,894 2.62 % $ - 0.00 % $ - 0.00 % Total$ 501 1.50 %$ 3,894 2.62 % $ - 0.00 % $ - 0.00 % (1)
The weighted average yields are based on amortized cost.
As of
Total non-taxable securities classified as obligations of states, municipalities and political subdivisions were$76.4 million atJune 30, 2021 , an decrease of$1.1 million fromDecember 31, 2020 .
There were no holdings of securities of any one issuer, other than
Restricted Stock As a member of theFederal Home Loan Bank system,Byline Bank is required to maintain an investment in the capital stock of the FHLB. No market exists for this stock, and it has no quoted market value. The stock is redeemable at par by the FHLB and is, therefore, carried at cost. In addition,Byline Bank owns stock ofBankers' Bank that was acquired as part of a bank acquisition. The stock is redeemable at par and carried at cost. As ofJune 30, 2021 andDecember 31, 2020 , we held$11.9 million and$10.5 million , respectively, inFHLB andBankers' Bank stock. We evaluate impairment of our investment inFHLB andBankers' Bank based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. We did not identify any indicators of impairment ofFHLB andBankers' Bank stock as ofJune 30, 2021 andDecember 31, 2020 .
Loan and Lease Portfolio
Lending-related income is the most important component of our net interest income and is the main driver of the results of our operations. Total loans and leases atJune 30, 2021 andDecember 31, 2020 were$4.5 billion and$4.3 billion , respectively, an increase of$128.9 million , or 3.0%. Originated loans were$3.9 billion atJune 30, 2021 , an increase of$244.9 million , or 6.7%, compared to$3.7 billion atDecember 31, 2020 . Acquired impaired loans and acquired non-impaired loans and leases were$556.1 million atJune 30, 2021 , a decrease of$115.9 million , or 17.3%, compared to$672.1 million atDecember 31, 2020 . The increase in our originated portfolio was primarily attributed to organic loan and lease growth, primarily PPP loans, and renewals of acquired non-impaired loans that are now reflected with originated loans. The decrease in our acquired portfolio is attributed to renewals reflected in originated loans, payoffs, and pay downs during the period. 61 -------------------------------------------------------------------------------- We strive to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral. Loans, excluding leases, are typically made to real estate, manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and operations. The Company's exposure to certain industries as ofJune 30, 2021 represents the following percentages of the portfolio: 29.3% real estate, 15.0% manufacturing, 7.8% retail trade, 6.7% wholesale trade, 6.0% accommodation and food service, 5.9% consumer, and all other industries individually represent less than 5% of the portfolio or 29.3% of the total loan portfolio. As ofJune 30, 2021 , the loan portfolio included$433.8 million of unguaranteed 7(a) SBA andUSDA loans with exposure to the following top three industries: 17.2% food services, 15.1% retail trade, and 12.7% manufacturing. The following table shows our allocation of originated, acquired impaired and acquired non-impaired loans and leases as of the dates presented (dollars in thousands):June 30, 2021
Amount % of Total Amount % of Total
Originated loans and leases
Commercial real estate $ 1,156,824 25.9 % $ 1,017,587 23.5 %
Residential real estate 389,758 8.7 % 414,220 9.6 %
Construction, land development, and
other land 271,710 6.1 % 226,408 5.2 %
Commercial and industrial 1,350,471 30.2 % 1,276,527 29.4 %
Paycheck Protection Program 476,282 13.8 % 517,815 11.9 %
Installment and other 982 0.0 % 1,267 0.0 %
Leasing financing receivables 267,300 6.0 % 214,636 4.9 %
Total originated loans and leases $ 3,913,327 87.6 % $ 3,668,460 84.5 %
Acquired impaired loans
Commercial real estate $ 91,313 2.0 % $ 108,484 2.5 %
Residential real estate 67,401 1.5 % 78,840 1.9 %
Construction, land development, and
other land 2,008 0.0 % 4,113 0.1 %
Commercial and industrial 7,444 0.2 % 10,178 0.2 %
Installment and other 180 0.0 % 202 0.0 %
Total acquired impaired loans $ 168,346 3.7 % $ 201,817 4.7 %
Acquired non-impaired loans and leases
Commercial real estate $ 254,739 6.0 % $ 295,599 6.8 %
Residential real estate 65,119 1.5 % 79,211 1.8 %
Construction, land development, and
other land 208 0.0 % 212 0.0 %
Commercial and industrial 58,320 1.3 % 82,195 1.9 %
Installment and other 311 0.0 % 536 0.0 %
Leasing financing receivables 9,087 0.3 % 12,505 0.3 %
Total acquired non-impaired loans and
leases $ 387,784 8.7 % $ 470,258 10.8 %
Total loans and leases $ 4,469,457 100.0 % $ 4,340,535 100.0 %
Allowance for loan and lease losses (61,719 ) (66,347 )
Total loans and leases, net of allowance
for loan and lease
losses $ 4,407,738 $ 4,274,188
Loans collateralized by real estate comprised 51.4% and 51.3% of the loan and
lease portfolio at June 30, 2021 and December 31, 2020 , respectively. Commercial
real estate loans comprised the largest portion of the real estate loan
portfolio as of June 30, 2021 and December 31, 2020 and totaled $1.5 billion , or
65.4% of real estate loans and 33.6% of the total loan and lease portfolio at
June 30, 2021 . At December 31, 2020 , commercial real estate loans totaled $1.4
billion and comprised 63.9% of real estate loans and 32.8% of the total loan and
lease portfolio. Acquired impaired commercial real estate loans decreased from
$108.5 million as of December 31, 2020 to $91.3 million as of June 30, 2021 , or
15.8%. At June 30, 2021 and December 31, 2020 , commercial real estate loans,
including both owner-occupied and non-owner occupied, as a percentage of total
capital were 241.1% and 282.5%, respectively. Non-owner occupied commercial real
estate loans were $568.3 million and $533.9 million , or 78.1% and 79.0% of total
capital, at June 30, 2021 and December 31, 2020 , respectively.
Residential real estate loans totaled $522.3 million at June 30, 2021 compared
to $572.3 million at December 31, 2020 , a decrease of $50.0 million , or 8.7%.
The residential real estate loan portfolio comprised 22.7% and 25.7% of real
estate loans as of June 30, 2021 and December 31, 2020 , respectively, and 11.7%
and 13.2% of total loans and leases at June 30, 2021 and December 31, 2020 ,
respectively, respectively. Acquired impaired residential real estate loans
decreased from $78.8 million at December 31, 2020 to $67.4 million at June 30,
2021 , or 14.5%.
62
-------------------------------------------------------------------------------- Construction, land development, and other land loans totaled$273.9 million atJune 30, 2021 compared to$230.7 million atDecember 31, 2020 , an increase of$43.2 million , or 18.7%. The construction, land development and other land loan portfolio comprised 11.9% and 10.4% of real estate loans atJune 30, 2021 andDecember 31, 2020 , respectively, and 5.4% and 5.2% of the total loan and lease portfolio atJune 30, 2021 andDecember 31, 2020 , respectively. Commercial and industrial loans totaled$1.4 billion and$1.4 billion atJune 30, 2021 andDecember 31, 2020 , respectively, an increase of$47.3 million , or 3.5%. The commercial and industrial loan portfolio comprised 31.7% and 31.5% of the total loan and lease portfolio atJune 30, 2021 andDecember 31, 2020 , respectively.
Lease financing receivables comprised 6.2% and 5.2% of the loan and lease
portfolio at
In support of our customers impacted by the COVID-19 pandemic and keeping with regulatory guidance, we began offering relief through payment deferrals during the first quarter of 2020. As ofJune 30, 2021 we had$2.5 million in active deferrals, or 0.06% of loans and leases excluding PPP loans. The following table shows active deferrals by bucket and category atJune 30, 2021 (dollars in thousands): Percentage of Count Balance Total Loans and Leases(1) Commercial banking 2$ 2,167 0.05% Consumer loans - - 0.00% Leasing 3 118 0.00% Government guaranteed lending 7 1,436 0.04% Total deferrals$ 12 3,721 0.09% (1) Excludes PPP loans 63
--------------------------------------------------------------------------------
Loan and Lease Portfolio Maturities and Interest Rate Sensitivity
The following table shows our loan and lease portfolio by scheduled maturity at
Due after One Year
Due in One Year or Less Through Five Years Due after Five Years
Floating Fixed Floating Floating
Fixed Rate Rate Rate Rate Fixed Rate Rate Total
Originated loans and
leases
Commercial real estate $ 53,931 $ 117,505 $ 391,068 $ 175,734 $ 183,078 $ 235,508 $ 1,156,824
Residential real estate 17,665 18,388 57,987 68,569 137,457 89,692 389,758
Construction, land
development,
and other land 27 79,767 19,192 166,382 - 6,342 271,710
Commercial and
industrial 150,663 268,582 10,139 513,089 113,844 296,442 1,352,759
Paycheck protection
program - - 473,994 - - - 473,994
Installment and other 102 13 574 10 283 - 982
Leasing financing
receivables 10,674 - 228,538 - 28,088 - 267,300
Total originated loans
and
leases $ 233,062 $ 484,255 $ 1,181,492 $ 923,784 $ 462,750 $ 627,984 $ 3,913,327
Acquired impaired loans
Commercial real estate $ 30,241 $ 2,363 $ 50,386 $ 1,395 $ 3,520 $ 3,408 $ 91,313
Residential real estate 21,601 2,063 26,104 104 14,002 3,527 67,401
Construction, land
development,
and other land 864 112 1,032 - - - 2,008
Commercial and
industrial 2,701 103 2,980 92 1,161 407 7,444
Installment and other 1 - 51 - 128 - 180
Total acquired impaired
loans $ 55,408 $ 4,641 $ 80,553 $ 1,591 $ 18,811 $ 7,342 $ 168,346
Acquired non-impaired
loans and
leases
Commercial real estate $ 25,449 $ 2,133 $ 102,007 $ 23,831 $ 31,469 $ 69,850 $ 254,739
Residential real estate 5,512 12,883 17,726 16,797 3,000 9,201 65,119
Construction, land
development,
and other land - - 208 - - - 208
Commercial and
industrial 4,924 709 20,280 20,308 2,027 10,072 58,320
Installment and other 28 12 189 82 - - 311
Leasing financing
receivables 769 - 8,318 - - - 9,087
Total acquired
non-impaired
loans and leases $ 36,682 $ 15,737 $ 148,728 $ 61,018 $ 36,496 $ 89,123 $ 387,784
Total loans and leases $ 325,152 $ 504,633 $ 1,410,773 $ 986,393 $ 518,057 $ 724,449 $ 4,469,457
At June 30, 2021 , 50.4% of the loan and lease portfolio bears interest at fixed
rates and 49.6% at floating rates. In addition, $1.3 billion , or 28.4%, of the
loan and lease portfolio has interest rate floors of which $1.0 billion were at
the interest rate floor as of June 30, 2021 . The expected life of our loan
portfolio will differ from contractual maturities because borrowers may have the
right to curtail or prepay their loans with or without penalties. Because a
portion of the portfolio is accounted for under ASC 310-30, the carrying value
is significantly affected by estimates and it is impracticable to allocate
scheduled payments for those loans based on those estimates. Consequently, the
tables presented include information limited to contractual maturities of the
underlying loans. As of June 30, 2021 we had $1.1 billion in loans indexed to
LIBOR.
Allowance for Loan and Lease Losses
The ALLL is determined by us on a quarterly basis, although we are engaged in monitoring the appropriate level of the allowance on a more frequent basis. The ALLL reflects management's estimate of probable incurred credit losses inherent in the loan and lease portfolios. The computation includes elements of judgement and high levels of subjectivity.
Factors considered by us include, but are not limited to, actual loss experience, peer loss experience, changes in size and risk profile of the portfolio, identification of individual problem loan and lease situations which may affect a borrower's ability to repay, and evaluation of the prevailing economic conditions. Changes in conditions may necessitate revision of the estimate in future periods.
We assess the ALLL based on three categories: (i) originated loans and leases, (ii) acquired non-impaired loans and leases, and (iii) acquired impaired loans with further credit deterioration after the acquisitions or our recapitalization.
Total ALLL was
Total ALLL to total loans and leases held for investment, net before ALLL, was 1.38% and 1.53% of total loans and leases atJune 30, 2021 andDecember 31, 2020 , respectively. The decrease was primarily driven by an increase in loans and leases, primarily as a result of additional PPP loans originated and net charge-offs exceeding provision during the quarter. 64 --------------------------------------------------------------------------------
The following tables present an analysis of the allowance of the loan and lease losses for the periods presented (dollars in thousands):
Residential Construction, Commercial Paycheck Lease
Commercial Real Land Development, and Protection Installment Financing
Real Estate Estate and Other Land Industrial Program and Other Receivables Total
Balance at March 31,
2021 $ 20,498 $ 2,091 $ 785 $ 40,302 $ - $ 12 $ 1,902 $ 51,300
Provision for
(release of) acquired
impaired loans (22 ) (198 ) 3 (97 ) - - - (314 )
Provision for
(release of) acquired
non-impaired loans
and leases 78 (1 ) - 585 - - (50 ) 612
Provision for
(release of)
originated loans (879 ) (531 ) (169 ) (990 ) - (3 ) 305 (2,267 )
Total provision
(release) $ (823 ) $ (730 ) $ (166 ) $ (502 ) $ - $ (3 ) $ 255 $ (1,969 )
Charge-offs for
acquired
impaired loans - - - - - - - -
Charge-offs for
acquired
non-impaired loans
and leases (41 ) - - (228 ) - - - (269 )
Charge-offs for
originated loans
and leases (161 ) - - (1,601 ) - - (385 ) (2,147 )
Total charge-offs $ (202 ) $ - $ - $ (1,829 ) $ - $ - $ (385 ) $ (2,416 )
Recoveries for
acquired
impaired loans 5 2 - 22 - - - 29
Recoveries for
acquired
non-impaired loans
and leases 59 1 - 97 - - 30 187
Recoveries for
originated
loans and leases 4 - - 194 - - 100 298
Total recoveries $ 68 $ 3 $ - $ 313 $ - $ - $ 130 $ 514
Less: Net charge-offs 134 (3 ) - 1,516 - - 255 1,902
Acquired impaired
loans 2,191 334 8 1,337 - - - 3,870
Acquired non-impaired
loans and leases 4,290 91 - 3,200 - 2 62 7,645
Originated loans and
leases 13,060 939 611 33,747 - 7 1,840 50,204
Balance at June 30,
2021 $ 19,541 $ 1,364 $ 619 $ 38,284 $ - $ 9 $ 1,902 $ 61,719
Ending ALLL balance
Acquired impaired
loans $ 2,191 $ 334 $ 8 $ 1,337 $ - $ - $ - $ 3,870
Acquired non-impaired
loans
and leases and
originated
loans individually
evaluated
for impairment 7,607 52 - 17,931 - - - 25,590
Acquired non-impaired
loans
and leases and
originated loans
and leases
collectively
evaluated
for impairment 9,743 978 611 19,016 - 9 1,902 32,259
Balance at June 30,
2021 $ 19,541 $ 1,364 $ 619 $ 38,284 $ - $ 9 $ 1,902 $ 61,719
Loans and leases
ending balance
Acquired impaired
loans $ 91,313 $ 67,401 $ 2,008 $ 7,444 $ - $ 180 $ - $ 168,346
Acquired non-impaired
loans
and leases and
originated loans
individually
evaluated for
impairment 54,182 1,421 - 39,516 - - - 95,119
Acquired non-impaired
loans
and leases and
originated loans
and leases
collectively
evaluated
for impairment 1,357,381 453,456 271,918 1,369,275 476,282 1,293 276,387 4,205,992
Total loans and
leases at
June 30, 2021, gross $ 1,502,876 $ 522,278 $ 273,926 $ 1,416,235 $ 476,282 $ 1,473 $ 276,387 $ 4,469,457
Ratio of net
charge-offs
to average loans and
leases
outstanding during
the
period (annualized)
Acquired impaired
loans 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
Acquired non-impaired
loans
and leases 0.00 % 0.00 % 0.00 % 0.01 % 0.00 % 0.00 % 0.00 % 0.01 %
Originated loans and
leases 0.01 % 0.00 % 0.00 % 0.13 % 0.00 % 0.00 % 0.03 % 0.17 %
Loans and leases
ending balance
as a percentage of
total loans
and leases, gross
Acquired impaired
loans 2.04 % 1.51 % 0.04 % 0.17 % 0.00 % 0.00 % 0.00 % 3.77 %
Acquired non-impaired
loans
and leases and
originated loans
individually
evaluated for
impairment 1.21 % 0.03 % 0.00 % 0.88 % 0.00 % 0.00 % 0.00 % 2.13 %
Acquired non-impaired
loans
and leases and
originated loans
and leases
collectively
evaluated
for impairment 30.37 % 10.15 % 6.08 % 30.64 % 10.66 % 0.03 % 6.18 % 94.11 %
65
--------------------------------------------------------------------------------
Construction,
Land
Residential Development, Commercial Paycheck Lease
Commercial Real and Other and Protection Installment Financing
Real Estate Estate Land Industrial Program and Other Receivables Total
Balance at December 31,
2020 $ 19,584 $ 2,400 $
1,352
$ 66,347 Provision for (release of) acquired impaired loans (438 ) (145 ) (31 ) (335 ) - - - (949 ) Provision for (release of) acquired non-impaired loans and leases 863 (14 ) - 1,413 - (1 ) (48 )
2,213
Provision for (release of) originated loans 1,358 (873 ) (376 ) 366 - (5 ) 664 1,134 Total provision (release)$ 1,783 $ (1,032 ) $ (407 ) $ - $ - $ (6 ) $ 616$ 2,398 Charge-offs for acquired impaired loans (1,255 ) (11 ) (326 ) (88 ) - - - (1,680 ) Charge-offs for acquired non-impaired loans and leases (80 ) - - (1,748 ) - - (59 ) (1,887 ) Charge-offs for originated loans and leases (745 ) - - (2,880 ) - - (690 ) (4,315 ) Total charge-offs$ (2,080 ) $ (11 ) $ (326 ) $ - $ - $ -$ (749 ) $ (7,882 ) Recoveries for acquired impaired loans 10 4 - 23 - - -
37
Recoveries for acquired
non-impaired loans and leases 119 2 - 135 - - 69 325 Recoveries for originated loans and leases 125 1 - 215 - - 153 494 Total recoveries$ 254 $ 7 $ - $ - $ - $ - $ 222$ 856 Less: Net charge-offs 1,826 4 326 - - - 527
7,026
Acquired impaired loans 2,191 334 8 1,337 - - - 3,870 Acquired non-impaired loans and leases 4,290 91 - 3,200 - 2 62 7,645 Originated loans and leases 13,060 939 611 33,747 - 7 1,840 50,204 Balance at June 30, 2021$ 19,541 $ 1,364 $ 619$ 38,284 $ - $ 9$ 1,902 $ 61,719 Ending ALLL balance Acquired impaired loans$ 2,191 $ 334 $ 8$ 1,337 $ - $ - $ -$ 3,870 Acquired non-impaired loans and leases and originated loans individually evaluated for impairment 7,607 52 - 17,931 - - - 25,590 Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment 9,743 978 611 19,016 - 9 1,902 32,259 Balance at June 30, 2021$ 19,541 $ 1,364 $ 619$ 38,284 $ - $ 9$ 1,902 $ 61,719 Loans and leases ending balance Acquired impaired loans$ 91,313 $ 67,401 $ 2,008$ 7,444 $ - $ 180 $ -$ 168,346 Acquired non-impaired loans and leases and originated loans individually evaluated for impairment 54,182 1,421 - 39,516 - - -
95,119
Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment 1,357,381 453,456 271,918 1,369,275 476,282 1,293 276,387 4,205,992 Total loans and leases at June 30, 2021, gross$ 1,502,876 $ 522,278 $ 273,926 $ 1,416,235 $ 476,282 $ 1,473 $ 276,387 $ 4,469,457 Ratio of net charge-offs to average loans and leases outstanding during the period (annualized) Acquired impaired loans 0.06 % 0.00 % 0.01 % 0.00 % 0.00 % 0.00 % 0.00 % 0.07 % Acquired non-impaired loans and leases 0.00 % 0.00 % 0.00 % 0.07 % 0.00 % 0.00 % 0.00 % 0.07 % Originated loans and leases 0.03 % 0.00 % 0.00 % 0.12 % 0.00 % 0.00 % 0.02 % 0.17 % Loans and leases ending balance as a percentage of total loans and leases, gross Acquired impaired loans 2.04 % 1.51 % 0.04 % 0.17 % 0.00 % 0.00 % 0.00 % 3.77 % Acquired non-impaired loans and leases and originated loans individually evaluated for impairment 1.21 % 0.03 % 0.00 % 0.88 % 0.00 % 0.00 % 0.00 % 2.13 % Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment 30.37 % 10.15 % 6.08 % 30.64 % 10.66 % 0.03 % 6.18 % 94.11 % 66
--------------------------------------------------------------------------------
Construction,
Land
Residential Development, Commercial Paycheck Lease
Commercial Real and Other and Protection Installment Financing
Real Estate Estate Land Industrial Program and Other Receivables Total
Balance at
$ 41,840 Provision for (release of) acquired impaired loans (94 ) (242 ) (2 ) 816 - - -
478
Provision for (release of) acquired non-impaired loans and leases 706 74 19 121 - - (25 ) 895 Provision for (release of) originated loans 2,694 1,124 470 9,758 - (17 ) 116
14,145
Total provision (release)
487
$ 15,518 Charge-offs for acquired impaired loans (15 ) - - (78 ) - - - (93 ) Charge-offs for acquired non-impaired loans and leases (682 ) - - (419 ) - - (63 ) (1,164 ) Charge-offs for originated loans and leases (391 ) (4 ) - (4,348 ) - - (498 ) (5,241 ) Total charge-offs$ (1,088 ) $ (4 ) $ -$ (4,845 ) $ - $ -$ (561 ) $ (6,498 ) Recoveries for acquired impaired loans 16 4 - 29 - - - 49 Recoveries for acquired non-impaired loans and leases 22 - - 10 - - 31 63
Recoveries for originated
loans and leases 3 7 - 80 - - 238 328 Total recoveries $ 41 $ 11 $ -$ 119 $ - $ - $ 269$ 440 Less: Net charge-offs 1,047 (7 ) - 4,726 - - 292 6,058 Acquired impaired loans 2,009 763 87 1,877 - 0 0 4,736 Acquired non-impaired loans and leases 2,411 106 43 3,902 - 3 165 6,630 Originated loans and leases 9,690 2,872 1,361 24,329 - 33 1,649
39,934
Balance at
$ 51,300 Ending ALLL balance Acquired impaired loans$ 2,009 $ 763 $ 87$ 1,877 $ - $ - $ -$ 4,736 Acquired non-impaired loans
and leases and originated
loans individually evaluated for impairment 3,525 80 - 10,409 - - - 14,014
Acquired non-impaired loans
and leases and originated loans and leases collectively evaluated for impairment 8,576 2,898 1,404 17,822 - 36 1,814 32,550 Balance at June 30, 2020$ 14,110 $ 3,741 $ 1,491$ 30,108 $ - $ 36$ 1,814 $ 51,300 Loans and leases ending balance Acquired impaired loans$ 126,405 $ 90,784 $ 4,784$ 13,485 $ - $ 226 $ -$ 235,684 Acquired non-impaired loans and leases and originated loans
individually evaluated for
impairment 36,751 1,805 4,189 35,545 - - -
78,290
Acquired non-impaired loans
and leases and originated loans and leases collectively evaluated for impairment 1,187,800 578,175 237,030 1,282,119 611,664 3,532 176,828 4,077,148 Total loans and leases at
to average loans and leases
outstanding during the
period (annualized)
Acquired impaired loans 0.00 % 0.00 % 0.00 % 0.00 % 0.03 % 0.00 % 0.00 % 0.00 %
Acquired non-impaired loans
and leases 0.06 % 0.00 % 0.00 % 0.04 % 0.00 % 0.00 % 0.00 % 0.10 %
Originated loans and leases 0.04 % 0.00 % 0.00 % 0.40 % 0.35 % 0.00 % 0.02 % 0.46 %
Loans and leases ending
balance
as a percentage of total
loans
and leases, gross
Acquired impaired loans 2.88 % 2.07 % 0.11 % 0.31 % 0.00 % 0.01 % 0.00 % 5.37 %
Acquired non-impaired loans
and leases and originated
loans
individually evaluated for
impairment 0.84 % 0.04 % 0.10 % 0.81 % 0.00 % 0.00 % 0.00 % 1.78 %
Acquired non-impaired loans
and leases and originated
loans
and leases collectively
evaluated
for impairment 27.05 % 13.17 % 5.40 % 29.20 % 13.93 % 0.08 % 4.03 % 92.85 %
67
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Construction,
Land
Residential Development, Commercial Paycheck Lease
Commercial Real and Other and Protection Installment Financing
Real Estate Estate Land Industrial Program and Other Receivables Total
Balance at December 31,
2019 $ 7,965 $ 1,990 $ 610 $ 19,377 $ - $ 50 $ 1,944 $ 31,936
Provision for (release of)
acquired
impaired loans 1,068 83 61 782 - - - 1,994
Provision for (release of) acquired non-impaired loans and leases 1,492 91 27 1,779 - 1 (22 ) 3,368 Provision for (release of) originated loans 5,168 1,566 793 16,680 - (15 ) 419
24,611
Total provision (release)
$ 29,973 Charge-offs for acquired impaired loans (15 ) - - (78 ) - - - (93 ) Charge-offs for acquired non-impaired loans and leases (1,027 ) - - (547 ) - - (220 ) (1,794 ) Charge-offs for originated loans and leases (598 ) (9 ) - (8,178 ) - - (798 ) (9,583 ) Total charge-offs$ (1,640 ) $ (9 ) $ -$ (8,803 ) $ - $ -$ (1,018 ) $ (11,470 ) Recoveries for acquired impaired loans 19 5 - 35 - - - 59 Recoveries for acquired non-impaired loans and leases 22 - - 10 - - 67 99
Recoveries for originated
loans and leases 16 15 - 248 - - 424 703 Total recoveries $ 57 $ 20 $ -$ 293 $ - $ - $ 491$ 861 Less: Net charge-offs 1,583 (11 ) - 8,510 - - 527 10,609 Acquired impaired loans 2,009 763 87 1,877 - - -
4,736
Acquired non-impaired
loans and leases 2,411 106 43 3,902 - 3 165
6,630
Originated loans and leases 9,690 2,872 1,361 24,329 - 33 1,649
39,934
Balance at
$ 51,300 Ending ALLL balance Acquired impaired loans$ 2,009 $ 763 $ 87$ 1,877 $ - $ - $ -$ 4,736 Acquired non-impaired loans
and leases and originated
loans individually evaluated for impairment 3,525 80 - 10,409 - - - 14,014 Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment 8,576 2,898 1,404 17,822 - 36 1,814 32,550 Balance at June 30, 2020$ 14,110 $ 3,741 $ 1,491$ 30,108 $ - $ 36$ 1,814 $ 51,300 Loans and leases ending balance Acquired impaired loans$ 126,405 $ 90,784 $ 4,784$ 13,485 $ - $ 226 $ -$ 235,684 Acquired non-impaired loans and leases and originated loans individually evaluated for impairment 36,751 1,805 4,189 35,545 - - - 78,290 Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment 1,187,800 578,175 237,030 1,282,119 611,664 3,532 176,828 4,077,148 Total loans and leases at
to average loans and leases
outstanding during the
period (annualized) Acquired impaired loans 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Acquired non-impaired loans and leases 0.05 % 0.00 % 0.00 % 0.03 % 0.00 % 0.00 % 0.01 % 0.09 % Originated loans and leases 0.03 % 0.00 % 0.00 % 0.39 % 0.00 % 0.00 % 0.02 % 0.44 % Loans and leases ending balance as a percentage of total loans and leases, gross Acquired impaired loans 2.88 % 2.07 % 0.11 % 0.31 % 0.00 % 0.01 % 0.00 % 5.37 % Acquired non-impaired loans and leases and originated loans individually evaluated for impairment 0.84 % 0.04 % 0.10 % 0.81 % 0.00 % 0.00 % 0.00 % 1.78 % Acquired non-impaired loans and leases and originated loans and leases collectively evaluated for impairment 27.05 % 13.17 % 5.40 % 29.20 % 13.93 % 0.08 % 4.03
% 92.85 %
Non-Performing Assets
Non-performing loans and leases include loans and leases 90 days past due and still accruing and loans and leases accounted for on a non-accrual basis. Non-performing assets consist of non-performing loans and leases plus other real estate owned. Non-performing assets atJune 30, 2021 andDecember 31, 2020 totaled$39.9 million and$47.5 million , respectively, a decrease of$7.5 million , or 15.9%, due to the decrease in non-accrual loans and a decrease in other real estate owned of$1.9 million . Total non-accrual loans and leases decreased by$5.6 million , or 13.6%, betweenDecember 31, 2020 andJune 30, 2021 . TheU.S. government guaranteed portion of non-performing loans totaled$5.8 million atJune 30, 2021 and$3.6 million atDecember 31, 2020 .
Total OREO decreased from
68
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Total accruing loans past due decreased from $14.6 million at December 31, 2020
to $11.8 million at June 30, 2021 . This represents an increase of $2.8 million ,
or 19.3%, and can be attributed to increases in commercial and industrial loans.
See Note 5 of our Unaudited Interim Condensed Consolidated Financial Statements,
included in this report, for further information.
The following table sets forth the amounts of non-performing loans and leases,
non-performing assets, and OREO at the dates indicated (dollars in thousands):
June 30, December 31,
2021 2020
Non-performing assets:
Non-accrual loans and leases(1)(2)(3) $ 35,514 $ 41,103
Past due loans and leases 90 days or more and still accruing interest
- -
Total non-performing loans and leases 35,514 41,103 Other real estate owned 4,417 6,350 Total non-performing assets$ 39,931 $ 47,453 Accruing troubled debt restructured loans 2,396
2,495
Total non-performing loans and leases as a percentage of total loans and leases 0.79 %
0.95 % Total non-performing assets as a percentage of total assets
0.61 % 0.74 % Allowance for loan and lease losses as a percentage of non-performing
loans and leases 173.79 %
161.42 %
Non-performing assets guaranteed by
$ 5,847 $
3,645
Past due loans 90 days or more and still accruing interest guaranteed -
-
Total non-performing loans guaranteed$ 5,847 $
3,645
Accruing troubled debt restructured loans guaranteed -
-
Total non-performing loans and leases not guaranteed as a percentage of
total loans and leases 0.66 % 0.86 % Total non-performing assets not guaranteed as a percentage of total assets 0.52 % 0.69 % (1) Includes$4.4 million and$5.6 million of non-accrual restructured loans atJune 30, 2021 andDecember 31, 2020 , respectively. (2) For the six months endedJune 30, 2021 ,$1.0 million in interest income would have been recorded had non-accrual loans been current. (3) For the six months endedJune 30, 2021 ,$139,000 in interest income would have been recorded had troubled debt restructurings included within non-accrual loans been current. Acquired impaired loans (accounted for under ASC 310-30) that are delinquent and/or on non-accrual status continue to accrue income provided the respective pool in which those assets reside maintains a discount and recognizes accretion income. The aforementioned loans are characterized as performing loans based on contractual delinquency. If the pool no longer has a discount and accretion income can no longer be recognized, any loan within that pool on non-accrual status will be classified as non-accrual for presentation purposes.
Deposits
Our loan and lease growth is funded primarily through core deposits. We gather deposits primarily through each of our 45 branch locations in theChicago metropolitan area and one branch inBrookfield, Wisconsin . Through our branch network, online, mobile and direct banking channels, we offer a variety of deposit products including demand deposit accounts, interest-bearing products, savings accounts, and certificates of deposit. We offer competitive online, mobile, and direct banking channels. Small businesses are a significant source of low cost deposits as they value convenience, flexibility, and access to local decision makers that are responsive to their needs. 69 -------------------------------------------------------------------------------- Total deposits atJune 30, 2021 were$5.1 billion , representing an increase of$340.2 million , or 7.2%, compared to$4.8 billion atDecember 31, 2020 , driven by an increase in non-interest bearing deposits. Non-interest-bearing deposits were$2.1 billion , or 41.0% of total deposits, atJune 30, 2021 , an increase of$326.8 million , or 18.5%, compared to$1.8 billion atDecember 31, 2020 , or 37.1% of total deposits. Core deposits were 91.5% and 89.9% of total deposits atJune 30, 2021 andDecember 31, 2020 , respectively.
The following table shows the average balance amounts and the average contractual rates paid on our deposits for the periods indicated (dollars in thousands):
For the Three Months For the Three Months
Ended June 30, 2021 Ended June 30, 2020
Average Average Average Average
Balance Rate Balance Rate
Non-interest-bearing demand deposits $ 2,085,358 0.00 % $ 1,692,723 0.00 %
Interest checking 626,886 0.14 % 392,070 0.17 %
Money market accounts 1,052,223 0.11 % 1,214,713 0.31 %
Savings 607,035 0.05 % 511,049 0.05 %
Time deposits (below $100,000 ) 287,113 0.62 % 393,838 1.08 %
Time deposits ($100,000 and above) 430,682 1.00 % 582,872 1.39 %
Total $ 5,089,296 0.08 % $ 4,787,265 0.36 %
For the Six Months For the Six Months
Ended June 30, 2021 Ended June 30, 2020
Average Average Average Average
Balance Rate Balance Rate
Non-interest-bearing demand deposits $ 2,005,213 0.00 % $ 1,495,761 0.00 %
Interest checking 587,030 0.14 % 365,487 0.23 %
Money market accounts 1,087,964 0.12 % 1,088,459 0.58 %
Savings 592,351 0.05 % 495,660 0.05 %
Time deposits (below $100,000 ) 294,791 0.22 % 427,087 0.00 %
Time deposits ($100,000 and above) 452,575 0.42 % 618,066 0.00 %
Total $ 5,019,924 0.10 % $ 4,490,520 0.54 %
Our average cost of deposits was 0.08% during the second quarter of 2021
compared to 0.36% during the second quarter of 2020. Our average cost of
deposits was 0.10% during the six months ended June 30, 2021 compared to 0.54%
during the six months ended June 30, 2020 . These decreases were principally
attributed to lower rates on interest-bearing deposits as a result the interest
rate environment and an improved deposit mix. Our average non-interest bearing
deposits to total deposits ratios were 41.0% during the second quarter of 2021
compared to 35.4% during the second quarter of 2020. Our average non-interest
bearing deposits to total deposits ratios were 39.9% during the six months ended
June 30, 2021 compared to 33.3% during the six months ended June 30, 2020 . We
had no brokered time deposits and $35.0 million of brokered time deposits at
June 30, 2021 and December 31, 2020 , respectively. Our loan and lease to deposit
ratio was 88.26% at June 30, 2021 compared to 91.51% at December 31, 2020 .
The following table shows time deposits and other time deposits of
At June 30,
2021
Time Deposits
Three months or less $ 115,871 Over three months through six months 133,259 Over six months through 12 months
136,194
Over 12 months 46,319
Total $ 431,643
70
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Borrowed Funds
In 2020, the Company issued$75.0 million in 6.00% fixed-to-floating subordinated notes that mature onJuly 1, 2030 . The subordinated notes bear a fixed interest rate of 6.00% untilJuly 1, 2025 and a floating interest rate equal to a benchmark rate, which is expected to be three-month Secured Overnight Financing Rate plus 588 basis points thereafter until maturity (or earlier redemption). The transaction resulted in debt issuance costs of approximately$1.7 million that are currently amortized over 10 years. In addition to deposits, we also utilize FHLB advances as a supplementary funding source to finance our operations. The bank's advances from the FHLB are collateralized by residential and multi-family real estate loans and securities. AtJune 30, 2021 andDecember 31, 2020 , we had maximum borrowing capacity from the FHLB of$2.2 billion and$2.0 billion subject to the availability of collateral, respectively. AtJune 30, 2021 , the Company had$112.0 million of FHLB advances with a maturities ranging fromJuly 2021 toMay 2022 . OnApril 21, 2020 , the Bank entered into a Letter Agreement with theFederal Reserve Bank of Chicago that allows the Bank to access the PPPLF. Under the terms of the PPPLF, the Bank will pledge loans originated under the PPP to theFederal Reserve Bank of Chicago as collateral for available advances under the PPPLF. Advances under the PPPLF will be an amount equal to the aggregate principal amount of PPP loans pledged byByline Bank , carry an interest rate of 35 basis points and mature on the maturity date of the PPP loans pledged as collateral for the advance. As ofJune 30, 2021 , the PPPLF balance was$304.7 million with an interest rate of 0.35% with various maturity dates fromApril 2022 toFebruary 2026 . The Company has the capacity to borrow funds from the discount window of theFederal Reserve System . The Company utilized the discount window to lower its cost of funds during the three months endedJune 30, 2021 . There were no borrowings outstanding under theFederal Reserve Bank discount window line as ofJune 30, 2021 andDecember 31, 2020 . The Company pledges loans as collateral for any borrowings under theFederal Reserve Bank discount window. The following table sets forth certain information regarding our short-term borrowings at the dates and for the periods indicated (dollars in thousands): Six Months Ended June 30, 2021 2020Federal Reserve Bank discount window borrowing: Average balance outstanding $ - $
99,121
Maximum outstanding at any month-end period during the year
- 350,000
Balance outstanding at end of period -
-
Weighted average interest rate during period N/A 0.25 % Weighted average interest rate at end of period N/A
N/A
Federal Home Loan Bank advances: Average balance outstanding$ 252,105 $
349,209
Maximum outstanding at any month-end period during the year
329,000 499,000
Balance outstanding at end of period 112,000
4,000
Weighted average interest rate during period 0.21 % 2.00 % Weighted average interest rate at end of period 0.22 % 0.00 % Paycheck Protection Program Liquidity Facility Average balance outstanding$ 358,912 $
-
Maximum outstanding at any month-end period during the year
439,066 -
Balance outstanding at end of period 304,657
-
Weighted average interest rate during period 0.35 % 0.00 % Weighted average interest rate at end of period 0.35 % 0.00 % Line of credit: Average balance outstanding $ - $
82
Maximum outstanding at any month-end period during the year
- 1,550
Balance outstanding at end of period -
-
Weighted average interest rate during period 0.00 % 18.55 % Weighted average interest rate at end of period(1) N/A N/A (1) Our credit agreement with a third-party lender matures onOctober 2021 . The line of credit bears interest at either the LIBOR Rate plus 195 basis points or the Prime Rate minus 75 basis points, based on our election, which is required to be communicate to the lender at least three business days prior to the commencement of an interest period. If we fail to provide timely notification, the interest rate will be Prime Rate minus 75 basis points.
Customer Repurchase Agreements (Sweeps)
Securities sold under agreements to repurchase represent a demand deposit product offered to customers that sweep balances in excess of theFDIC insurance limit into overnight repurchase agreements. We pledge securities as collateral for the repurchase agreements. 71 --------------------------------------------------------------------------------
Securities sold under agreements to repurchase decreased by
Liquidity
We manage liquidity based upon factors that include the amount of core deposits as a percentage of total deposits, the level of diversification of our funding sources, the amount of non-deposit funding used to fund assets, the availability of unused funding sources, off-balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash and liquid securities we hold and the re-pricing characteristics and maturities of our assets when compared to the re-pricing characteristics of our liabilities, the ability to securitize and sell certain pools of assets and other factors. Our liquidity needs are primarily met by cash and investment securities positions, growth in deposits, cash flow from amortizing loan portfolios, and borrowings from the FHLB. For additional information regarding our operating, investing, and financing cash flows, see Consolidated Statements of Cash Flows in our Unaudited Interim Condensed Consolidated Financial Statements included elsewhere in this report. As ofJune 30, 2021 ,Byline Bank had maximum borrowing capacity from the FHLB of$2.2 billion and$826.1 million from theFederal Reserve Bank ("FRB"). As ofJune 30, 2021 ,Byline Bank had open FHLB advances of$112.0 million and open letters of credit of$20.5 million , leaving us with available aggregate borrowing capacity of$501.8 million . In addition,Byline Bank had uncommitted federal funds lines available of$115.0 million atJune 30, 2021 . As ofDecember 31, 2020 ,Byline Bank had maximum borrowing capacity from the FHLB of$2.0 billion and$874.7 million from the FRB. As ofDecember 31, 2020 ,Byline Bank had open advances of$234.0 million and open letters of credit of$21.3 million , leaving us with available aggregate borrowing capacity of$751.9 million . In addition,Byline Bank had an uncommitted federal funds line available of$115.0 million atDecember 31, 2020 . OnOctober 13, 2016 , the Company entered into a$30.0 million revolving credit agreement with a correspondent bank. Through subsequent amendments, the revolving credit agreement was reduced to$15.0 million and the maturity was extended toOctober 8, 2021 . The amended revolving line of credit bears interest at either the London Interbank Offered Rate ("LIBOR") plus 195 basis points or the Prime Rate minus 75 basis points, based on the Company's election, which is required to be communicated at least three business days prior to the commencement of an interest period. If the Company fails to provide timely notification, the interest rate will be Prime Rate minus 75 basis points. AtJune 30, 2021 andDecember 31, 2020 , the line of credit had no outstanding balance. There are regulatory limitations that affect the ability ofByline Bank to pay dividends to the Company. See Note 21 of our Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for additional information. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations.
We expect that our cash and liquidity resources will be generated by the
operations of
Capital Resources
Stockholders' equity atJune 30, 2021 was$817.1 million compared to$805.5 million atDecember 31, 2020 , an increase of$11.6 million , or 1.4%. The increase was primarily driven by the increase in net income generated during the six months endedJune 30, 2021 , offset by a decrease in accumulated other comprehensive income reflecting the unrealized losses in our available-for-sale securities portfolio and by purchase of treasury shares under the share repurchase program. The Company andByline Bank are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on our financial statements. Under applicable bank regulatory capital requirements, each of the Company andByline Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.Byline Bank must also meet certain specific capital guidelines under the prompt corrective action framework. The capital amounts and classification are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company andByline Bank to maintain minimum amounts and ratios ofCET1 Capital , Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, (referred to as the "leverage ratio"), as defined under these capital requirements.
As of
72
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The regulatory capital ratios for the Company and Byline Bank to meet the
minimum capital adequacy standards and for Byline Bank to be considered well
capitalized under the prompt corrective action framework and the Company's and
Byline Bank's actual capital amounts and ratios are set forth in the following
tables as of the periods indicated (dollars in thousands):
Required to be
Minimum Capital Considered
Actual Required Well Capitalized
June 30, 2021 Amount Ratio Amount Ratio Amount Ratio
Total capital to risk weighted
assets:
Company $ 808,088 15.74 % $ 410,628 8.00 % N/A N/A
Bank 727,418 14.22 % 409,099 8.00 % $ 511,374 10.00 %
Tier 1 capital to risk weighted
assets:
Company $ 669,765 13.05 % $ 307,971 6.00 % N/A N/A
Bank 664,095 12.99 % 306,824 6.00 % $ 409,099 8.00 %
Common Equity Tier 1 (CET1) to
risk weighted assets:
Company $ 614,327 11.97 % $ 230,978 4.50 % N/A N/A
Bank 664,095 12.99 % 230,118 4.50 % $ 332,393 6.50 %
Tier 1 capital to average
assets:
Company $ 669,765 10.82 % $ 247,646 4.00 % N/A N/A
Bank 664,095 10.73 % 247,596 4.00 % $ 309,495 5.00 %
Required to be
Minimum Capital Considered
Actual Required Well Capitalized
December 31, 2020 Amount Ratio Amount Ratio Amount Ratio
Total capital to risk weighted
assets:
Company $ 774,522 16.18 % $ 383,069 8.00 % N/A N/A
Bank 675,977 14.16 % 381,775 8.00 % $ 477,219 10.00 %
Tier 1 capital to risk weighted
assets:
Company $ 639,564 13.36 % $ 287,302 6.00 % N/A N/A
Bank 616,219 12.91 % 286,331 6.00 % $ 381,775 8.00 %
Common Equity Tier 1 (CET1) to
risk weighted assets:
Company $ 584,126 12.20 % $ 215,476 4.50 % N/A N/A
Bank 616,219 12.91 % 214,748 4.50 % $ 310,192 6.50 %
Tier 1 capital to average
assets:
Company $ 639,564 11.12 % $ 230,056 4.00 % N/A N/A
Bank 616,219 10.72 % 229,870 4.00 % $ 287,337 5.00 %
The Company and Byline Bank must maintain a capital conservation buffer
consisting of CET1 capital greater than 2.5% of risk-weighted assets above the
required minimum risk-based capital levels in order to avoid limitations on
paying dividends, repurchasing shares, and paying discretionary bonuses. The
conservation buffers for the Company and Byline Bank exceed the minimum capital
requirement as of June 30, 2021 .
Provisions of state and federal banking regulations may limit, by statute, the
amount of dividends that may be paid to the Company by Byline Bank without prior
approval of Byline Bank's regulatory agencies. The Company is economically
dependent on the cash dividends received from Byline Bank . These dividends
represent the primary cash flow from operating activities used to service
obligations. For the six months ended June 30, 2021 the Company received $8.0
million in cash dividends from Byline Bank . For the year ended December 31,
2020 , the Company received $7.5 million in cash dividends from Byline Bank in
order to pay the required interest on its outstanding junior subordinated
debentures in connection with its trust preferred securities interest, dividends
on the Series B preferred stock outstanding, and to fund other Company-related
activities.
Under the Company's board approved stock repurchase program announced in the
fourth quarter of 2020, the Company repurchased an aggregate of 538,744 shares
at an average price per share of $22.45 for the three months ended June 30, 2021
and 871,488 shares at an average price per share of $21.18 for the six months
ended June 30, 2021 . The Company is authorized to purchase up to an aggregate of
1,250,000 shares of the Company's outstanding common stock. The program is in
effect until December 31, 2022 , unless terminated earlier. On July 27, 2021 , the
Company's board approved an additional 1,250,000 shares of the Company's
outstanding common stock for repurchase.
73
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On July 29, 2021 , the Company announced that its Board of Directors declared a
cash dividend on its common stock of $0.09 per share. The dividend will paid on
August 24, 2021 to stockholders of record on August 10, 2021 .
Contractual Obligations
FHLB and PPPLF advances are fully described in Note 12 of our Unaudited Interim Condensed Consolidated Financial Statements, included elsewhere in this report. Operating lease obligations are in place for facilities and land on which banking facilities are located. See Note 8 of our Unaudited Interim Condensed Consolidated Financial Statements, included elsewhere in this report for additional information.
Off-Balance Sheet Items and Other Financing Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary byByline Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral is primarily obtained in the form of commercial and residential real estate (including income producing commercial properties). Letters of credit are conditional commitments issued byByline Bank to guarantee the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 2.5% to 18.00% and maturities up to 2050. Variable rate loan commitments have interest rates ranging from 1.25% to 8.25% and maturities up to 2048. Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for funded instruments. We do not anticipate any material losses as a result of the commitments and standby letters of credit. We enter into interest rate swaps that are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. We also enter into interest rate swaps with certain qualified borrowers to facilitate the borrowers' risk management strategies and concurrently entered into mirror-image derivatives with a third party counterparty. We recognize derivative financial instruments at fair value regardless of the purpose or intent for holding the instrument. We record derivative assets and derivative liabilities on the Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. Because the derivative assets and liabilities recorded on the balance sheet atJune 30, 2021 do not represent the amounts that may ultimately be paid under these contracts, these assets and liabilities are listed in the table below (dollars in thousands): June 30, 2021 Fair Value Notional Asset Liability Interest rate swaps designated as cash flow hedges-pay fixed, receive floating$ 400,000 $ 1,240 $ (285 ) Other interest rate swaps-pay fixed, receive floating 465,512 12,785 (13,367 ) Other credit derivatives 8,004 - (10 ) 74
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GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures
Some of the financial measures included in our "Selected Financial Data" are not measures of financial performance in accordance with GAAP. Our management uses the nonGAAP financial measures set forth below in its analysis of our performance: ? "Adjusted net income" and "adjusted diluted earnings per share" exclude certain significant items, which include incremental income tax benefit related to the reversal of the valuation allowance on our net deferred tax assets, incremental income tax benefit related toIllinois 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. ? "Net interest income, fully taxable-equivalent" and "net interest margin, fully taxable-equivalent" are adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. Management believes the metric provides useful comparable information to investors and that these measures may be useful for peer comparison. ? "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. ? "Pretax preprovision net income" is pretax 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 net deferred tax asset valuation allowance, the decrease in the federal corporate income tax rate, and the increase in theIllinois state corporate income tax rate. The metric demonstrates income excluding the tax provision or benefit and the provision for loan and lease losses, and enables investors and others to assess the Company's ability to generate capital to cover credit losses through a credit cycle. ? "Adjusted pre-tax pre-provision net income" is pre-tax pre-provision net income excluding certain significant items, which include impairment charges on assets held for sale, merger-related expenses, and core system conversion expenses. Management believes the metric is an important measure of the Company's operating performance on an ongoing basis. ? "Pretax preprovision 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 theIllinois 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. 75 -------------------------------------------------------------------------------- ? "Tangible book value per common 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 metric 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. ? "Adjusted tangible net income available to common stockholders" is tangible net income available to common stockholders excluding certain significant items. Management believes the metric is an important measure of the Company's operating performance on an ongoing basis. ? "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. We believe that these nonGAAP financial measures provide useful information to its management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our nonGAAP financial measures have a number of limitations. As such, you should not view these disclosures 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.
Reconciliations of Non-GAAP Financial Measures
As of or For the Six Months
As of or For the Three Months Ended Ended
June 30, June 30,
(dollars in thousands, except per
share data) 2021 2020 2021 2020
Net income and earnings per share
excluding significant items
Reported Net Income $ 28,492 $ 9,139 $ 50,290 $ 12,105
Significant items:
Impairment charges on assets held for
sale 1,942 - 2,546 715
Tax benefit (529 ) - (694 ) (199 )
Adjusted Net Income $ 29,905 $ 9,139 $ 52,142 $ 12,621
Reported Diluted Earnings per Share $ 0.73 $ 0.24 $ 1.29 $ 0.31
Significant items:
Impairment charges on assets held for
sale 0.05 - 0.07 0.02
Tax benefit (0.01 ) - (0.02 ) (0.01 )
Adjusted Diluted Earnings per Share
76
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As of or For the Three Months
Ended Asof or For the Six Months Ended
June 30, June 30,
(dollars in thousands, except
per share data) 2021 2020 2021 2020
Adjusted non-interest
expense:
Non-interest expense $ 42,981 $ 37,053 $ 81,823 $ 80,714
Less significant items:
Impairment charges on assets
held for sale 1,942 - 2,546 715
Adjusted non-interest expense
79,277 $ 79,999
Adjusted non-interest expense
excluding amortization of
intangible assets:
Adjusted non-interest expense $ 41,039 $ 37,053 $ 79,277 $ 79,999
Less: Amortization of
intangible assets 1,848 1,892 3,597 3,785
Adjusted non-interest expense
excluding amortization of
intangible assets $ 39,191 $ 35,161 $ 75,680 $ 76,214
Pre-tax pre-provision net
income:
Pre-tax income $ 38,164 $ 12,867 $ 67,337 $ 16,883
Add: Provision for loan and
lease losses (1,969 ) 15,518 2,398 29,973
Pre-tax pre-provision net
income $ 36,195 $ 28,385 $ 69,735 $ 46,856
Adjusted pre-tax
pre-provision net income:
Pre-tax pre-provision net
income $ 36,195 $ 28,385 $ 69,735 $ 46,856
Impairment charges on assets
held for sale 1,942 - 2,546 715
Adjusted pre-tax
pre-provision net income $ 38,137 $ 28,385 $ 72,281 $ 47,571
Tax Equivalent Net Interest
Income
Net interest income $ 58,174 $ 52,609 $ 114,814 $ 105,434
Add: Tax-equivalent
adjustment 269 188 519 330
Net interest income, fully
taxable equivalent $ 58,443 $ 52,797 $ 115,333 $ 105,764
Total revenues:
Net interest income $ 58,174 $ 52,609 $ 114,814 $ 105,434
Add: non-interest income 21,002 12,829 36,744 22,136
Total revenues $ 79,176 $ 65,438 $ 151,558 $ 127,570
Tangible common stockholders'
equity:
Total stockholders' equity $ 817,073 780,935 $ 817,073 $ 780,935
Less: Preferred stock 10,438 10,438 10,438 10,438
Less: Goodwill and other
intangibles 169,034 176,470 169,034 176,470
Tangible common stockholders'
equity $ 637,601 $ 594,027 $ 637,601 $ 594,027
Tangible assets:
Total assets $ 6,540,602 $ 6,393,518 $ 6,540,602 $ 6,393,518
Less: Goodwill and other
intangibles 169,034 176,470 169,034 176,470
Tangible assets $ 6,371,568 $ 6,217,048 $ 6,371,568 $ 6,217,048
Average tangible common
stockholders' equity:
Average total stockholders'
equity $ 810,490 $ 775,879 $ 808,482 $ 770,653
Less: Average preferred stock 10,438 10,438 10,438 10,438
Less: Average goodwill and
other intangibles 169,906 177,440 170,845 178,428
Average tangible common
stockholders' equity $ 630,146 $ 588,001 $ 627,199 $ 581,787
Average tangible assets:
Average total assets $ 6,720,492 $ 6,186,974 $ 6,654,495 $ 5,876,463
Less: Average goodwill and
other intangibles 169,906 177,440 170,845 178,428
Average tangible assets $ 6,550,586 $ 6,009,534 $ 6,483,650 $ 5,698,035
Tangible net income available
to common stockholders:
Net income available to
common stockholders $ 28,297 $ 8,944 $ 49,899 $ 11,714
Add: After-tax intangible
asset amortization 1,344 1,365 2,616 2,731
Tangible net income available
to common stockholders $ 29,641 $ 10,309 $ 52,515 $ 14,445
Adjusted Tangible net income
available to common
stockholders:
Tangible net income available
to common stockholders $ 29,641 $ 10,309 $ 52,515 $ 14,445
Impairment charges on assets
held for sale 1,942 - 2,546 715
Tax benefit on significant
items (529 ) - (694 ) (199 )
Adjusted tangible net income
available to common
stockholders $ 31,054 $ 10,309 $ 54,367 $ 14,961
77
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As of or For the Three Months Ended As of or For the Six Months Ended
June 30, June 30,
(dollars in thousands, except
share and per share data) 2021 2020 2021 2020
Pre-tax pre-provision return
on average assets:
Pre-tax pre-provision net
income $ 36,195 $ 28,385 $ 69,735 $ 46,856
Average total assets 6,720,492 6,186,974 6,654,495 5,876,463
Pre-tax pre-provision return
on average assets 2.16 % 1.85 % 2.11 % 1.60 %
Adjusted pre-tax
pre-provision return on
average assets:
Adjusted pre-tax
pre-provision net income $ 38,137 $ 28,385 $ 72,281 $ 47,571
Average total assets 6,720,492 6,186,974 6,654,495 5,876,463
Adjusted pre-tax
pre-provision return on
average assets: 2.28 % 1.85 % 2.19 % 1.63 %
Net interest margin, fully
taxable equivalent
Net interest income, fully
taxable equivalent $ 58,443 $ 52,797 $ 115,333 $ 105,764
Total average
interest-earning assets 6,231,616 5,703,569 6,165,033 5,400,757
Net interest margin, fully
taxable equivalent 3.76 % 3.72 % 3.77 % 3.94 %
Non-interest income to total
revenues:
Non-interest income $ 21,002 $ 12,829 $ 36,744 $ 22,136
Total revenues 79,176 65,438 151,558 127,570
Non-interest income to total
revenues 26.53 % 19.61 % 24.24 % 17.35 %
Adjusted non-interest expense
to average assets:
Adjusted non-interest expense $ 41,039 $ 37,053 $ 79,277 $ 79,999
Average total assets 6,720,492 6,186,974 6,654,495 5,876,463
Adjusted non-interest expense
to average assets 2.45 % 2.41 % 2.40 % 2.74 %
Adjusted efficiency ratio:
Adjusted non-interest expense
excluding amortization of
intangible assets $ 39,191 $ 35,161 $ 75,680 $ 76,214
Total revenues 79,176 65,438 151,558 127,570
Adjusted efficiency ratio 49.50 % 53.73 % 49.93 % 59.74 %
Adjusted return on average
assets:
Adjusted net income $ 29,905 $ 9,139 $ 52,142 $ 12,621
Average total assets 6,720,492 6,186,974 6,654,495 5,876,463
Adjusted return on average
assets 1.78 % 0.59 % 1.58 % 0.43 %
Adjusted return on average
stockholders' equity:
Adjusted net income $ 29,905 $ 9,139 $ 52,142 $ 12,621
Average stockholders' equity 810,490 775,879 808,482 770,653
Adjusted return on average
stockholders' equity 14.80 % 4.74 % 13.01 % 3.29 %
Tangible common equity to
tangible assets:
Tangible common equity $ 637,601 $ 594,027 $ 637,601 $ 594,027
Tangible assets 6,371,568 6,217,048 6,371,568 6,217,048
Tangible common equity to
tangible assets 10.01 % 9.55 % 10.01 % 9.55 %
Return on average tangible
common stockholders' equity:
Tangible net income available
to common stockholders $ 29,641 $ 10,309 $ 52,515 $ 14,445
Average tangible common
stockholders' equity 630,146 588,001 627,199 581,787
Return on average tangible
common stockholders' equity: 18.87 % 7.05 % 16.88 % 4.99 %
Adjusted return on average
tangible common stockholders'
equity:
Adjusted tangible net income
available to common
stockholders $ 31,054 $ 10,309 $ 54,367 $ 14,961
Average tangible common
stockholders' equity 630,146 588,001 627,199 581,787
Adjusted return on average
tangible common stockholders'
equity 19.77 % 7.05 % 17.48 % 5.17 %
Tangible book value per
share:
Tangible common equity $ 637,601 $ 594,027 $ 637,601 $ 594,027
Common shares outstanding 38,094,972 38,383,217 38,094,972 38,388,217
Tangible book value per share $ 16.74 $ 15.47 $ 16.74 $ 15.47
78
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Forward-Looking Statements
Statements contained in this Annual Report on Form 10-K and in other documents we file with or furnish to theSecurities and Exchange Commission ("SEC") that are not historical facts may constitute "forward-looking statements" within the meaning of theU.S. Private Securities Litigation Reform Act of 1995. Any statements about our 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 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 such statements, and are not guarantees of 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. Our ability to predict results or the actual effects of future plans, strategies or events is inherently uncertain. Factors which could cause actual results or conditions to differ materially from those reflected in forward-looking statements include: ? the current and potential disruption to and impact on our business, capital, employees, financial condition, liquidity, operations, prospects and results of operations, including a decrease in revenue and an increase in expenses, as well as the trading price of our common stock as a result of the economic and other consequences, including the severity and duration, of the COVID-19 pandemic; ? uncertainty regarding domestic and geopolitical developments andthe United States and global economic outlook that may impact market conditions or affect demand for certain banking products and services, including as a result of the disruption of global, national, state and local economies associated with the COVID-19 pandemic, as well as federal, state and local government responses thereto, and the impact on our customers, which could impair the ability of our borrowers to repay outstanding loans and leases, impair collateral values and further increase our allowance for loan and lease losses, as well as result in possible asset impairment charges ? unforeseen credit quality problems or changing economic conditions that could result in charge-offs greater than we have anticipated in our allowance for loan and lease losses or changes in the value of our investments; ? commercial real estate market conditions in theChicago metropolitan area and southernWisconsin ; ? deterioration in the financial condition of our borrowers resulting in significant increases in our loan and lease losses and provisions for those losses and other related adverse impacts to our results of operations and financial condition, including as a result of the COVID-19 pandemic; ? estimates of fair value of certain of our assets and liabilities, which could change in value significantly from period to period; ? competitive pressures in the financial services industry relating to both pricing and loan and lease structures, which may impact our growth rate; ? unanticipated developments in pending or prospective loan and/or lease transactions or greater-than-expected pay downs or payoffs of existing loans and leases; ? inaccurate information and assumptions in our analytical and forecasting models used to manage our balance sheet; ? unanticipated changes in monetary policies of theFederal Reserve or significant adjustments in the pace of, or market expectations for, future interest rate changes, including changes in response to the COVID-19 pandemic or otherwise; ? availability of sufficient and cost-effective sources of liquidity, funding, and capital as and when needed; ? our ability to attract, retain or the loss of key personnel or an inability to recruit appropriate talent cost-effectively; ? adverse effects on our information technology systems resulting from failures, human error or cyberattack, including the potential impact of disruptions or security breaches at our third-party service providers, any of which could result in an information or security breach, the disclosure or misuse of confidential or proprietary information, significant legal and financial losses and reputational harm; ? greater-than-anticipated costs to support the growth of our business, including investments in new lines of business, products and services, or technology, process improvements or other infrastructure enhancements, or greater-than-anticipated compliance or regulatory costs and burdens; ? the impact of possible future acquisitions, if any, including the costs and burdens of integration efforts; ? the ability of the Company to receive dividends fromByline Bank ; ? legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those changes that are in response to the COVID-19 pandemic, including without limitation the CARES Act and the rules and regulations that have been and may be promulgated thereunder; ? changes inSmall Business Administration ("SBA") andU.S. Department of Agriculture ("USDA")U.S. government guaranteed lending rules, regulations, loan and lease products and funding limits, including specifically the SBA Section 7(a) 79
-------------------------------------------------------------------------------- ? program, including as a result of the COVID-19 pandemic, as well as, changes in SBA orUSDA standard operating procedures or changes to the status ofByline Bank as an SBA Preferred Lender; ? changes in accounting principles, policies and guidelines applicable to bank holding companies and banking generally; ? the impact of a possible change in the federal or state income tax rate on our deferred tax assets and provision for income tax expense; ? our ability to implement our growth strategy, including via acquisitions; ? the possibility that any of the anticipated benefits of acquisitions will not be realized or will not be realized within the expected time period; ? the risk that the integration of acquisition operations will be materially delayed or will be more costly or difficult than expected; ? the effect of mergers on customer relationships and operating results; and ? other risks detailed from time to time in filings we make with theSEC . These risks and uncertainties should be considered in evaluating any forward-looking statements, and undue reliance should not be placed on such statements. Forward looking statements speak only as of the date they are made. You should also consider the risks, assumptions and uncertainties set forth in the "Risk Factors" section of this Form 10-Q, in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , that was filed with theSEC onMarch 4, 2021 , as well as those set forth in the reports we file with theSEC . 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. 80
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