Byline Bancorp, Inc. Reports Full Year and Fourth Quarter 2019 Financial Results

Byline Bancorp, Inc. (the “Company” or “Byline”)(NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $15.9 million, or $0.41 per diluted share, for the fourth quarter of 2019, compared with net income of $15.3 million, or $0.39 per diluted share, for the third quarter of 2019, and net income of $17.1 million, or $0.46 per diluted share, for the fourth quarter of 2018. The Company’s financial results include certain costs associated with its integration of First Evanston Bancorp, Inc. and its bank subsidiary First Bank & Trust, and its acquisition and integration of Oak Park River Forest Bankshares, Inc. (“Oak Park River Forest”) and its bank subsidiary Community Bank of Oak Park River Forest. Excluding these merger-related expenses, core system conversion expenses, and impairment charges on assets held for sale, adjusted net income1 was $16.1 million, or $0.42 per adjusted diluted share1, for the fourth quarter of 2019, compared with $16.2 million, or $0.41 per adjusted diluted share, for the third quarter of 2019, and $18.1 million, or $0.49 per adjusted diluted share, for the fourth quarter of 2018. A reconciliation of adjusted net income and adjusted diluted earnings per share to net income and diluted earnings per share, respectively, according to accounting principles generally accepted in the United States of America (“GAAP”) is provided in the financial tables at the end of this release.

Alberto J. Paracchini, President and Chief Executive Officer of Byline, commented, “Our fourth quarter performance completed another strong year for the Byline franchise. In 2019, we completed another accretive acquisition with the addition of Oak Park River Forest Bankshares, capitalized on disruption in the Chicago marketplace to add significant new banking talent to our organization, and continued to attract new commercial clients to the Bank. As we moved through the year, we also made steady progress on improving our deposit mix and better managing our funding costs. Our improving profitability enabled us to initiate a cash dividend in the fourth quarter and deliver additional value to our shareholders. With the strong foundation we have built and our unique positioning in the Chicago market, we believe we have good opportunities to continue enhancing the value of our franchise in the coming years.”

STATEMENTS OF OPERATIONS

Net Interest Income

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

The following table presents the quarter-to-date schedule of average interest-earning assets and average interest-bearing liabilities for the periods indicated:

Net interest income for the fourth quarter of 2019 was $53.9 million, a decrease of $3.9 million, or 6.8%, from $57.8 million for the third quarter of 2019.

The decrease in net interest income was primarily due to:

• A decrease of $5.2 million in interest and fees on loans and leases, mainly due to a $2.3 million decrease in accretion income on acquired loans and lower average yields on loans as a result of decreases in short-term rates in September and October 2019.

Partially offset by:

• A decrease of $854,000 in interest expense on Federal Home Loan Bank advances, mostly due to a decrease in average advances during the quarter as average lower-cost deposits grew; and
• A decrease of $293,000 in interest expense on deposits, as a result of lower average time deposit balances and cost attributable to maturities of higher-rate time deposits.

Net interest margin for the fourth quarter of 2019 was 4.32%, a decrease of 30 basis points compared to 4.62% for the third quarter of 2019. Total net accretion income on acquired loans contributed 43 basis points to the net interest margin for the fourth quarter of 2019 compared to 62 basis points for the third quarter of 2019, a decrease of 19 basis points. The net interest margin decrease during the fourth quarter of 2019 was primarily driven by decreased loan and lease yields largely resulting from decreased loan accretion income and decreases in short-term rates.

The average cost of total deposits was 0.88% for the fourth quarter of 2019, a decrease of six basis points compared to the third quarter of 2019, mainly due to a favorable change in deposit mix and a lower average cost of time deposits. Average non-interest-bearing demand deposits, money market accounts, and interest-bearing checking accounts grew by $65.4 million, $54.8 million, and $40.9 million, respectively, while average time deposits decreased by $38.4 million.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $4.4 million for the fourth quarter of 2019, a decrease of $1.5 million compared to $5.9 million for the third quarter of 2019. The fourth quarter included allocations of $3.2 million for originated loans and leases, $524,000 for acquired non-impaired loans, and $694,000 for acquired impaired loans. The provision during the fourth quarter of 2019 for originated loans reflects growth in that portfolio, particularly 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 2019 was $14.5 million, a decrease of $290,000, or 2.0%, compared to $14.8 million for the third quarter of 2019.

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

• An increase of $935,000 in loan servicing asset revaluation, reflecting an unfavorable change in fair value of the servicing asset as a result of increased prepayments and discount rates; and
• A decrease of $670,000 in net gains on sales of loans, mainly due to a decrease in average premium on sales of government guaranteed loans.

Partially offset by:

• An increase of $704,000 in other non-interest income, mostly due to a favorable swap valuation adjustment and increased swap activity; and
• An increase in the change in fair value of equity securities, net, of $396,000 due to an increase in the fair value of those securities.

During the fourth quarter of 2019, the Company sold $101.5 million of U.S. government guaranteed loans compared to $93.3 million during the third quarter of 2019. The increase in sales is principally due to the timing of loans closed becoming fully funded.

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 2019 was $43.7 million, a decrease of $1.8 million, or 3.9%, from $45.4 million for the third quarter of 2019.

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

• A decrease of $1.7 million in legal, audit and other professional fees, as the prior quarter reflected $1.5 million of non-recurring professional services costs;
• A decrease of $1.4 million in data processing expense, mostly due to expenses associated with our Oak Park River Forest core system conversion during the prior quarter; and
• A decrease of $309,000 in salaries and employee benefits, as the prior quarter included acquisition related salary and employee benefit costs.

Partially offset by:

• An increase of $699,000 in loan and lease related expenses due to higher loan expenses on government guaranteed loans;
• An increase of $561,000 in occupancy expense, net, largely due to a favorable accrual adjustment to property tax expense in the prior quarter as well as an increase in rental expense related to office expansion; and
• An increase of $271,000 in advertising and promotions expense due to additional media advertisement during the quarter.

The Company’s efficiency ratio was 60.93% for the fourth quarter of 2019, compared with 59.81% for the third quarter of 2019. Excluding merger-related expenses, core system conversion expenses, and impairment charges on assets held for sale, the Company’s adjusted efficiency ratio1 was 60.51% for the fourth quarter of 2019, compared with 58.17% for the third quarter of 2019.

INCOME TAXES

The Company recorded income tax expense of $4.5 million during the fourth quarter of 2019, an effective tax rate of 22.1%, compared to $5.9 million during the third quarter of 2019, an effective tax rate of 27.9%. The decrease in the effective tax rate was due to tax benefits recorded as a result of the recognition of tax assets associated with other real estate owned.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $5.5 billion at December 31, 2019, an increase of $83.5 million compared to $5.4 billion at September 30, 2019, and an increase of $579.2 million compared to $4.9 billion at December 31, 2018.

The current quarter increase was primarily due to:

• An increase in securities of $154.7 million, reflecting purchases of mortgage-backed securities during the quarter;
• An increase in loans held for sale of $4.6 million, largely due to the timing of loan originations during the quarter; and
• An increase in other real estate owned of $3.4 million due to the volume of transfers in exceeding sales.

Partially offset by:

• A decrease in loans and leases of $45.4 million, mostly due to a decrease of $112.9 million in our acquired loan portfolio, partially offset by an increase of $67.5 million in our originated loan portfolio; and
• A decrease in cash and cash equivalents of $28.1 million due to the redeployment of cash into earning assets.

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), non-performing assets, and other real estate owned at the dates indicated:

Variances in non-performing assets:

• Non-performing loans and leases were $38.0 million at December 31, 2019, a decrease of $3.6 million from $41.7 million at September 30, 2019, principally due to loan resolutions; and
• Other real estate owned was $9.9 million at December 31, 2019, an increase of $3.4 million from $6.5 million at September 30, 2019 due to higher volume of transfers from loans exceeding sales.

U.S. government guaranteed balances of non-performing loans were consistent at $4.2 million at December 31, 2019 and September 30, 2019.

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 0.84% at December 31, 2019, compared to 0.82% at September 30, 2019 and 0.72% at December 31, 2018.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued new authoritative guidance on the recognition of credit losses which replaces the incurred loss impairment methodology in current authoritative guidance with a methodology that reflects expected credit losses. In November 2019, the FASB delayed the effective date of the new authoritative guidance for entities, like the Company, that are not classified as Public Business Entities. Assuming the Company remains an emerging growth company, the new authoritative guidance is effective for fiscal years beginning after December 15, 2022. The Company is in process of implementation and determining the impact that this new authoritative guidance will have on the Company’s consolidated financial statements.

Net Charge-Offs

Net charge-offs during the fourth quarter of 2019 were $4.0 million, or 0.42% of average loans and leases, on an annualized basis, a decrease of $1.4 million compared to $5.5 million, or 0.56% of average loans and leases, during the third quarter of 2019, and an increase from $2.1 million, or 0.24%, for the comparable quarter one year ago.

The net charge-offs during the quarter were primarily attributed to the unguaranteed portion of U.S. government guaranteed loans. Net charge-offs for the fourth quarter of 2019 included $3.6 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the third quarter of 2019 included $4.8 million and fourth quarter of 2018 included $1.8 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 $4.1 billion at December 31, 2019, an increase of $67.3 million compared to September 30, 2019, an increase of 1.6%. Non-interest-bearing deposits rose to 30.9% of total deposits at December 31, 2019 from 29.9% at September 30, 2019.

The increase in the current quarter was primarily due to:

• An increase in money market demand deposits of $136.2 million, from $745.2 million at September 30, 2019 to $881.4 million at December 31, 2019, largely driven by growth in business account balances; and
• An increase in non-interest-bearing demand deposits of $58.2 million, from $1.2 billion at September 30, 2019 to $1.3 billion at December 31, 2019, also driven by increases in business account balances.

Partially offset by:

• A decrease in time deposits of $97.3 million, from $1.3 billion at September 30, 2019 to $1.2 billion at December 31, 2019, principally driven by decreases in brokered certificates; and
• A decrease in interest-bearing checking deposits of $33.9 million, from $372.0 million at September 30, 2019 to $338.2 million at December 31, 2019, mainly driven by NOW business account balances.

Total borrowings and other liabilities were $624.1 million at December 31, 2019, an increase of $2.0 million from $622.1 million at September 30, 2019, mainly due to an increase in securities sold under agreements to repurchase partially offset by a decrease in FHLB advances.

Stockholders’ Equity

Total stockholders’ equity was $750.1 million at December 31, 2019, an increase of $14.2 million from $735.9 million at September 30, 2019. The increase was due to net income generated during the quarter less dividends declared. On December 12, 2019, the Company announced that its Board of Directors declared the first cash dividend on its common stock of $0.03 per share for the fourth quarter of 2019.

Stockholders’ equity increased $99.4 million from $650.7 million at December 31, 2018. The increase was mainly due to net income generated during the year and the stock consideration issued in connection with the acquisition.

On November 1, 2019, the Company announced that its Board of Directors approved a stock repurchase program authorizing the purchase of up to an aggregate of 1,250,000 shares of the Company’s outstanding common stock. The program will be in effect until December 31, 2020, unless terminated earlier. The Company has not made any stock repurchases under this program.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of December 31, 2019:

Capital ratios for the period presented are based on the Basel III regulatory capital framework as applied to the Company’s current business and operations, and are subject to, among other things, completion and filing of the Company’s regulatory reports and ongoing regulatory review and implementation guidance.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call and webcast at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) on Friday, January 24, 2020 to discuss its full year and quarterly financial results. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (877) 512-8755. A recorded replay can be accessed through February 7, 2020 by dialing (877) 344-7529; passcode: 10138134.

A slide presentation relating to the fourth quarter 2019 results will be accessible prior to the scheduled conference call. The slide presentation and webcast of the conference call can be accessed on the News and Events page of the Company’s investor relations website at www.bylinebancorp.com.

About Byline Bancorp, Inc.

Headquartered in Chicago, Byline Bancorp, Inc. is the parent company for Byline Bank, a full service commercial bank serving small- and medium-sized businesses, financial sponsors, and consumers. Byline Bank has approximately $5.5 billion in assets and operates more than 50 full service branch locations throughout the Chicago and Milwaukee metropolitan areas. Byline Bank offers a broad range of commercial and retail banking products and services including small ticket equipment leasing solutions and is one of the top five Small Business Administration lenders in the United States.

Non-GAAP Financial Measures

This release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These measures include adjusted net income, adjusted diluted earnings per share, adjusted efficiency ratio, adjusted non-interest expense to average assets, non-interest income to total revenues, adjusted return on average stockholders’ equity, adjusted return on average assets, pre-tax pre-provision return on average assets, adjusted pre-tax pre-provision return on average assets, tangible book value per common share, tangible common equity to tangible assets, return on average tangible common stockholders' equity, and adjusted return on average tangible common stockholders' equity. Management believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company’s financial condition, results of operations and cash flows computed in accordance with GAAP; however, management acknowledges that our non-GAAP financial measures have a number of limitations. As such, these disclosures should not be viewed 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. See “Reconciliation of Non-GAAP Financial Measures” in the financial schedules included in this press release for a reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures. Additionally, please refer to the Company’s Annual Report on Form 10-K for the detailed definitions of these non-GAAP financial measures.

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, made through the use of words or phrases such as ‘‘may’’, ‘‘might’’, ‘‘should’’, ‘‘could’’, ‘‘predict’’, ‘‘potential’’, ‘‘believe’’, ‘‘expect’’, ‘‘continue’’, ‘‘will’’, ‘‘anticipate’’, ‘‘seek’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’, ‘‘projection’’, ‘‘would’’, ‘‘annualized’’, “target” and ‘‘outlook’’, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Forward-looking statements involve estimates and known and unknown risks, and reflect various assumptions and involve elements of subjective judgement and analysis, which may or may not prove to be correct, and which are subject to uncertainties and contingencies outside the control of Byline and its respective affiliates, directors, employees and other representatives, which could cause actual results to differ materially from those presented in this communication. No representations, warranties or guarantees are or will be made by Byline as to the reliability, accuracy or completeness of any forward-looking statements contained in this communication or that such forward-looking statements are or will remain based on reasonable assumptions. You should not place undue reliance on any forward-looking statements contained in this communication.

Certain risks and important factors that could affect Byline’s future results are identified in its Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Byline undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise unless required under the federal securities laws.