Byline Bancorp, Inc. Reports Full Year and Fourth Quarter 2020 Financial Results

Select Full Year 2020 Highlights

• Net income of $37.5 million, or $0.96 per diluted share
• Net interest margin of 3.80%
• Pre-tax pre-provision return on average assets1 of 1.75%, as adjusted1 1.83%
• Efficiency ratio of 58.40%
• Originated loans and leases increased $832.8 million
• Non-interest-bearing deposits increased $483.0 million or 37.7%
• Top SBA lender for Illinois and Wisconsin for seven consecutive years

Select Fourth Quarter 2020 Highlights

• Net income of $12.3 million, or $0.31 per diluted share
• Net interest margin of 3.77%
• Pre-tax pre-provision return on average assets1 of 1.66%, as adjusted1 1.91%
• Efficiency ratio of 61.22%
• Originated loans and leases increased $31.9 million, total production of $230.5 million
• Common Equity Tier 1 to risk weighted assets of 12.20%

1 Represents a non-GAAP financial measure. See “Reconciliation of non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

CHICAGO--(BUSINESS WIRE)-- Byline Bancorp, Inc. (the “Company” or “Byline”)(NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $12.3 million, or $0.31 per diluted share, for the fourth quarter of 2020, compared with net income of $13.1 million, or $0.34 per diluted share, for the third quarter of 2020. The Company's financial results for 2020 include impairment charges on assets held for sale. Excluding these charges, adjusted net income1 was $15.2 million, or $0.38 per adjusted diluted share, for the fourth quarter of 2020, compared with $13.1 million, or $0.34 per adjusted diluted share1, for the third quarter of 2020.

Alberto J. Paracchini, President and Chief Executive Officer of Byline, commented, “We continued to see an improvement in business activity during the fourth quarter, resulting in an increase in loan and lease growth excluding runoff of PPP loans, strong inflows of commercial noninterest-bearing deposits, and higher net interest income. Combined with our continued expense discipline, we produced a strong quarter of earnings and pre-tax, pre-provision income. Importantly, asset quality remains strong as we saw a decline in non-performing assets during the quarter, although we remain conservative with respect to our reserves and further increased our allowance to 1.53% of total loans.

“Since the recap in 2013, we have consistently executed well on our strategies to enhance the value of the Byline franchise and we believe we are well positioned to deliver another strong year in 2021. Our loan pipeline continues to build as the banking teams we added over the past two years gain traction and overall loan demand improves. With a more efficient and productive retail branch network following our recent branch consolidations, we believe that we can effectively manage expenses and realize more operating leverage as we continue to grow our balance sheet. We believe that the actions we have taken to enhance efficiencies combined with the investments we have made to improve our ability to serve existing customers and attract new customers to Byline will continue to result in a higher level of earnings and profitability in the years to come. Given our strong financial performance and healthy outlook, we are well positioned to increase the amount of capital that we return to shareholders through our quarterly dividend, doubling to $0.06 per share, along with the resumption on our stock repurchase program as market conditions permit,” said Mr. Paracchini.

On January 28, 2021, the Board approved the appointment of the Company’s Chairman, Roberto R. Herencia, as executive Chairman and Chief Executive Officer of Byline Bancorp, Inc., effective February 12, 2021. Alberto J. Paracchini will continue in his role as President of Byline Bancorp, Inc. Mr. Paracchini will also continue in his role as President and Chief Executive Officer of Byline Bank, reporting directly to Mr. Herencia, and remains a director of Byline Bancorp, Inc. and Byline Bank. Mr. Herencia is a founder of the Company and has been Chairman of the Board since 2013. In his role as non-executive Chairman, he has been closely involved with overseeing management execution of the Company’s long-term strategy.

The changes are intended to accelerate and support the execution of the Company’s strategic plan, specifically its growth strategy, as a leading commercial bank in the Chicago MSA.

"Having Roberto and Alberto work together in this capacity doubles up on their considerable talents and close relationship for the benefit of the Company,” said Antonio Del Valle Perochena, director and chair of the Governance and Nominating Committee of Byline Bancorp and Byline Bank. “I welcome the continued support and close collaboration with Roberto, as we work to accelerate our growth strategy,” said Alberto Paracchini. “Alberto and I have worked together for almost 30 years and I am delighted to continue to do so,” added Herencia.

Board Declares Cash Dividend of $0.06 per Share

On January 26, 2021, the Company’s Board of Directors declared a cash dividend of $0.06 per share, payable on February 23, 2021, to stockholders of record of the Company’s common stock as of February 9, 2021.

Fourth Quarter 2020 Updates

Branch Update

On December 31, 2020, as previously announced, we closed 11 branches. The branch consolidations resulted in one‐time charges of approximately $6.2 million, of which $5.1 million was recorded during the fourth quarter of 2020 related to premises and equipment.

Byline Bank currently operates 46 branch locations: 45 located in the Chicagoland area and one in the Milwaukee area. In response to COVID-19 safety concerns, 22 branches are operating as drive-thru only locations and 24 branches are offering full lobby service.

Paycheck Protection Program (PPP)

As of December 31, 2020, over $366.9 million of PPP loans were in various stages of the SBA forgiveness process, with over $110.1 million approved for forgiveness by the SBA. Byline Bank began accepting applications for the second round of PPP financing on January 11, 2021 and on January 19, 2021, the SBA opened its portal for all participating lenders to submit PPP applications. As of January 26, 2021, we have received over 1,900 applications and approved the funding of $166.1 million.

The following table presents the net PPP loans outstanding as of December 31, 2020:

Loan and Lease Deferrals

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. Under the CARES Act the SBA was authorized to pay principal and interest on covered 7(a) loans. Beginning in the fourth quarter, this payment subsidy expired for some borrowers, and we began offering payment deferrals on SBA 7(a) loans. Under the Economic Aid Act enacted on December 27, 2020, the SBA will again make payments on covered loans for three months beginning with the first payment due on the loan on or after February 1, 2021. We estimate that approximately 95% of our active government guaranteed deferrals as of December 31, 2020 will receive this subsidy. Certain borrowers in the most impacted industries, including accommodation and food service, will receive three months plus an addition five months of principal and interest payments. We estimate that approximately 60% of our active government guaranteed deferrals as of December 31, 2020 will receive this additional five months of subsidy.

The following table shows active deferrals by category at the dates indicated (dollars in thousands):

STATEMENTS OF OPERATIONS

Net Interest Income

The following table presents net interest income for the periods indicated:

The following table presents the average interest-earning assets and average interest-bearing liabilities for the periods indicated. Net interest income and margin 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:

Net interest income for the fourth quarter of 2020 was $56.0 million, an increase of $2.5 million, or 4.7%, from the third quarter of 2020.

The increase in net interest income was primarily due to:

• An increase of $2.4 million in interest income on loans and leases, due to the recognition of net fee income related to PPP loan forgiveness; and
• A decrease of $946,000 in interest expense on deposits, due to maturities of higher-rate time deposits and lower rates paid on money market accounts;

Partially offset by:

• A decrease of $818,000 in interest income on securities, due to elevated prepayment speeds and runoff of higher yielding securities resulting in lower yields.

Tax-equivalent net interest margin for the fourth quarter of 2020 was 3.78%, an increase of 17 basis points compared to 3.61% for the third quarter of 2020. Total net accretion income on acquired loans contributed 16 basis points to the net interest margin for the fourth quarter of 2020 compared to 26 basis points for the third quarter of 2020, a decrease of 10 basis points. PPP interest and net fees combined were $5.5 million, for the fourth quarter 2020 compared to $3.5 million for the third quarter 2020.

The average cost of total deposits was 0.15% for the fourth quarter of 2020, a decrease of seven basis points compared to the third quarter of 2020, mainly due to a lower average cost of time deposits and money market accounts, as well as a favorable change in deposit mix. Average non-interest-bearing demand deposits increased $19.1 million, while average time deposits decreased by $67.8 million. Average non-interest-bearing demand deposits were 36.3% of average total deposits for the fourth quarter of 2020 compared to 35.4% the third quarter of 2020.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $10.2 million for the fourth quarter of 2020, a decrease of $5.5 million compared to $15.7 million for the third quarter of 2020. The fourth quarter included allocations of $5.4 million for originated loans and leases, $1.4 million for acquired impaired loans, and $3.4 million for acquired non-impaired loans. The provision during the fourth quarter of 2020 included net specific impairments of $5.0 million primarily driven by the unguaranteed portion of government guaranteed loans.

Non-interest Income

The following table presents the components of non-interest income for the periods indicated:

Non-interest income for the fourth quarter of 2020 was $17.7 million, a decrease of $4.5 million, or 20.4%, compared to $22.2 million for the third quarter of 2020.

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

• A decrease of $3.2 million in net gains on sales of loans, mainly due to a decrease in volume of sales of government guaranteed loans and lower premiums received on loans sold;
• A loan servicing asset revaluation charge of $2.3 million compared to an upward adjustment of $1.1 million in the prior quarter; and

Partially offset by:

• An increase of $1.9 million in net gains on sales of securities available-for-sale resulting from increased volume of sales.

During the fourth quarter of 2020, we sold $108.1 million of U.S. government guaranteed loans compared to $121.2 million during the third quarter of 2020. The decrease in sales was driven by lower inventory of U.S. government guaranteed loans.

Non-interest Expense

The following table presents the components of non-interest expense for the periods indicated:

Non-interest expense for the fourth quarter of 2020 was $47.0 million, an increase of $5.3 million, or 12.8%, from $41.7 million for the third quarter of 2020.

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

• An increase of $5.9 million in other non-interest expense, mainly due to $4.0 million for impairment charges on assets held for sale and $2.8 million for branch consolidations; and
• An increase of $1.6 million in occupancy and equipment expense, net, which includes $1.4 million of lease obligations related to branch consolidations;

Partially offset by:

• A decrease of $1.1 million in legal, audit and other professional fees due to decreased legal expenses; and
• A decrease of $729,000 in loan and lease related expenses due to decreases in the volume of, and broker fees on, U.S. Government guaranteed loan originations.

Our efficiency ratio was 61.22% for the fourth quarter of 2020 compared to 52.46% for the third quarter of 2020. Excluding impairment charges on assets held for sale, the Company's adjusted efficiency ratio1 was 55.77% for the fourth quarter of 2020, compared with 52.42% for the third quarter of 2020.

INCOME TAXES

We recorded income tax expense of $4.2 million during the fourth quarter of 2020, an effective tax rate of 25.3%, reflecting a benefit from tax exempt income, compared to $5.3 million during the third quarter of 2020, an effective tax rate of 28.7%.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $6.4 billion at December 31, 2020, a decrease of $105.9 million compared to $6.5 billion at September 30, 2020.

The current quarter decrease was primarily due to:

• A decrease in securities of $61.6 million, principally a result of sales of mortgage backed securities during the quarter;
• A decrease in loans held for sale of $41.1 million, due to the timing of government guaranteed loans sold during the previous quarter; and
• A decrease in loans and leases of $34.0 million, due to $104.4 million decrease in the PPP portfolio offset by increases to new originations;
  • Loans and leases excluding PPP increased $70.4 million during the quarter;

Partially offset by:

• An increase in other assets of $59.2 million due to the timing of settlement of government guaranteed loans and securities sold during the quarter and not yet settled.

The following table shows our allocation of the originated, acquired impaired, and acquired non-impaired loans and leases at the dates indicated:

ASSET QUALITY

Non-Performing Assets

The following table sets forth the amounts of non-performing loans and leases (excluding acquired impaired), other real estate owned, and accruing troubled debt restructured loans at the dates indicated:

Variances in non-performing assets were:

• Non-performing loans and leases were $41.1 million at December 31, 2020, a decrease of $2.1 million from $43.2 million at September 30, 2020; and
• Other real estate owned was $6.4 million at December 31, 2020, a decrease of $1.8 million from $8.2 million at September 30, 2020 mainly due to sales.

U.S. government guaranteed balances of non-performing loans were $3.6 million at December 31, 2020 and $3.7 million at September 30, 2020.

Allowance for Loan and Lease Losses

The following table presents the balance and activity within the allowance for loan and lease losses for the periods indicated:

The allowance for loan and lease losses as a percentage of total loans and leases held for investment increased to 1.53% at December 31, 2020 compared to 1.40% at September 30, 2020. The allowance for loan and lease losses as a percentage of total loans and leases held for investment excluding PPP loans increased to 1.74% at December 31, 2020 from 1.63% at September 30, 2020.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition of credit losses, which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses. In November 2019, the FASB delayed the effective date of the standard for smaller reporting companies, which includes emerging growth companies. Assuming we remain an emerging growth company, the standard is effective for fiscal years beginning after December 15, 2022. We are in the process of implementation and determining the impact that this new authoritative guidance will have on our consolidated financial statements.

Net Charge-Offs

Net charge-offs during the fourth quarter of 2020 were $5.1 million, or 0.47% of average loans and leases, on an annualized basis, a decrease of $635,000 compared to $5.8 million, or 0.53% of average loans and leases, during the third quarter of 2020.

Net charge-offs for the fourth quarter of 2020 included $5.0 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the third quarter of 2020 included $4.1 million in the unguaranteed portion of U.S. government guaranteed loans.

Deposits and Other Liabilities

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

Total deposits were $4.8 billion at December 31, 2020, a decrease of $58.2 million, or 1.2%, compared to September 30, 2020. Non-interest-bearing deposits were 37.1% and 35.7% of total deposits at December 31, 2020 and September 30, 2020, respectively.

The decrease in the current quarter was primarily due to:

• A decrease in interest-bearing checking accounts of $90.3 million, mostly due to seasonal decreases in public funds; and
• A decrease in time deposits of $23.2 million, principally driven by decreases in personal certificates;

Partially offset by:

• An increase in non-interest-bearing deposits of $44.0 million, mostly due to increases in business deposits.

Total borrowings and other liabilities were $833.2 million at December 31, 2020, a decrease of $58.4 million from $891.6 million at September 30, 2020, primarily driven by a $77.7 million decrease in the Paycheck Protection Program Liquidity Facility resulting from forgiveness of loans.

Stockholders’ Equity

Total stockholders’ equity was $805.5 million at December 31, 2020, an increase of $10.8 million from $794.7 million at September 30, 2020. The increase was primarily due to net income generated during the quarter less dividends declared.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of December 31, 2020: