Byline Bancorp, Inc. Reports First Quarter 2020 Financial Results

Byline Bancorp, Inc. (the “Company” or “Byline”)(NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $3.0 million, or $0.07 per diluted share, for the first quarter of 2020, compared with net income of $15.9 million, or $0.41 per diluted share, for the fourth quarter of 2019, and net income of $12.6 million, or $0.34 per diluted share, for the first quarter of 2019.

Adjusted net income, which is net income excluding merger-related expenses, core system conversion expenses, and impairment charges on assets held for sale, net of tax, was $3.5 million, or $0.09 per adjusted diluted share1, for the first quarter of 2020, compared with $16.1 million, or $0.42 per adjusted diluted share, for the fourth quarter of 2019, and $14.0 million, or $0.38 per adjusted diluted share, for the first quarter of 2019. 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, “Since the emergence of the COVID-19 pandemic, we have been focused on protecting the health and safety of our employees and clients, while constructively working with our borrowers to identify the best solutions for helping them manage through this crisis. We have put in place a number of relief programs to support our clients, including participating in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). As one of the largest SBA lenders in the country, we were able to provide our clients with access to the PPP, and through April 29th, we have received approvals on $716.4 million in PPP loans with $385.8 million funded to date. I’m proud of the work our team did during this challenging time to establish our PPP process and support our clients."

“Although the duration and severity of the COVID-19 pandemic is uncertain, we are well positioned from a capital and liquidity standpoint to support our clients and the communities we serve during this unprecedented period. Byline is committed to being a source of strength to our customers, employees, and communities during this uncertain time,” said Mr. Paracchini.

Byline’s Preparations and Response to Pandemic

As part of our ongoing business continuity and risk management efforts, we had previously developed a detailed plan and action measures related to a possible pandemic scenario. Our incident response team was activated on February 29, 2020 and began implementing our plan. We initiated a series of measures to ensure the safety of employees, customers, and communities, to support customer needs, and to limit operational disruptions. Our Board of Directors and management teams continue to monitor and, when appropriate, make changes to our planned response. To date we have:

• Maximized social distancing protocols by augmenting business hours and the locations of employee teams.
  • 100% of our non-retail employees have the ability to work from home.
  • Drive-thru only locations for 25 branches, 16 full service branches with lobby hours by appointment, and 19 branches temporarily closed.
• Refreshed and analyzed our liquidity, funding, and capital stress forecasts including updated risk assumptions.
• Proactively engaged our customers and borrowers to identify short-term cash flow and other financial needs.
  • Approved approximately $395.7 million in payment deferrals to date, or 10.3% of loans and leases at March 31, 2020.
  • Established customer strategy to process PPP loans efficiently through our existing SBA platform.
    • Registered over 1,400 loans totaling $372.7 million during phase one.
    • Phase two began on April 27, 2020, with over 2,150 loans registered representing $343.7 million.
  • Waived or refunded certain fees, including early withdrawal fees on time deposits.
• Took action to pause common share repurchase activities amid the uncertainty of the pandemic.
• Continued to serve our customers through our call center, online, and mobile banking platforms.

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 for the first quarter of 2020 was $52.8 million, a decrease of $1.1 million, or 2.0%, from $53.9 million for the fourth quarter of 2019.

The decrease in net interest income was primarily due to:

• A decrease of $4.0 million in interest and fees on loans and leases, mainly due to a $1.7 million decrease in accretion income on acquired loans.

Partially offset by:

• A decrease of $1.5 million in interest expense on deposits, as a result of lower average time deposit balances and cost attributable to maturities of higher-rate time deposits; and
• An increase of $1.3 million in interest income on securities principally as a result of purchases of mortgage-backed securities during the quarter.

Net interest margin for the first quarter of 2020 was 4.17%, a decrease of 15 basis points compared to 4.32% for the fourth quarter of 2019. Total net accretion income on acquired loans contributed 29 basis points to the net interest margin for the first quarter of 2020 compared to 43 basis points for the fourth quarter of 2019, a decrease of 14 basis points. The net interest margin decrease during the first quarter of 2020 was primarily driven by decreased loan and lease yields largely resulting from decreased loan accretion income partly offset by a decrease in the cost of funds as a result of decreases in short-term rates.

The average cost of total deposits was 0.75% for the first quarter of 2020, a decrease of 13 basis points compared to the fourth quarter of 2019, mainly due to a lower average cost of time deposits and interest-bearing checking accounts as well as a favorable change in deposit mix. Average money market accounts grew by $171.6 million while average time deposits decreased by $118.0 million.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $14.5 million for the first quarter of 2020, an increase of $10.1 million compared to $4.4 million for the fourth quarter of 2019. The first quarter included allocations of $10.3 million for originated loans and leases, $2.7 million for acquired non-impaired loans, and $1.5 million for acquired impaired loans. The provision during the first quarter of 2020 for originated loans reflects increased impairments on commercial and industrial and commercial real estate loans, growth in the commercial and industrial portfolio during the quarter, and allocations of $6.3 million made to address the impact of the COVID-19 pandemic.

Non-interest Income

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

Non-interest income for the first quarter of 2020 was $9.2 million, a decrease of $5.3 million, or 36.8%, compared to $14.5 million for the fourth quarter of 2019.

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

• A decrease of $4.0 million in net gains on sales of loans, mainly due to a decrease in volume of sales of government guaranteed loans;
• A decrease of $1.2 million in other non-interest income, mostly due to a decline in the fair value of non-designated swaps; and
• A decrease in the change in fair value of equity securities, net, of $1.0 million due to a decrease in the fair value of those securities.

Partially offset by:

• An increase of $1.4 million in net gains on sales of securities available-for-sale as a result of sales during the quarter compared to no sales in the prior quarter.

During the first quarter of 2020, the Company sold $61.0 million of U.S. government guaranteed loans compared to $101.5 million during the fourth quarter of 2019. The decrease in sales is principally driven by a decrease in originations as well as a decrease in premiums as a result of the COVID-19 pandemic.

Non-interest Expense

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

Non-interest expense for the first quarter of 2020 was $43.5 million, a decrease of $167,000, or 0.4%, from $43.7 million for the fourth quarter of 2019.

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

• A decrease of $1.3 million in loan and lease related expenses due to lower loan expenses on government guaranteed loans and lower loan collection expense.

Partially offset by:

• An increase of $438,000 in salaries and employee benefits, mainly due to higher payroll taxes and increased employer costs related to benefits, partially offset by a decrease in commissions; and
• An increase of $397,000 in net loss recognized on other real estate owned and other related expenses mostly due to a decrease in gains recognized on other real estate owned, partially offset by lower real estate tax expenses.

The Company’s efficiency ratio was 67.16% for the first quarter of 2020, compared with 60.93% for the fourth 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 66.00% for the first quarter of 2020, compared with 60.51% for the fourth quarter of 2019. The increase in the efficiency ratio was primarily driven by the decline in non-interest income.

INCOME TAXES

The Company recorded income tax expense of $1.1 million during the first quarter of 2020, an effective tax rate of 26.1%, compared to $4.5 million during the fourth quarter of 2019, an effective tax rate of 22.1%. The effective tax rate during the fourth quarter of 2019 benefited from the recognition of tax assets associated with other real estate owned.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $5.7 billion at March 31, 2020, an increase of $212.9 million compared to $5.5 billion at December 31, 2019, and an increase of $724.8 million compared to $5.0 billion at March 31, 2019. The increase from March 31, 2019 was mostly due to the assets acquired through the Oak Park River Forest acquisition.

The current quarter increase was primarily due to:

• An increase in securities of $112.6 million, reflecting purchases of securities during the quarter; and
• An increase in loans and leases of $74.6 million, mostly due to an increase of $149.0 million in our originated loan portfolio, partially offset by a decrease of $74.4 million in our acquired loan portfolios as a result of paydowns.

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 were:

• Non-performing loans and leases were $50.7 million at March 31, 2020, an increase of $12.7 million from $38.0 million at December 31, 2019, principally due to increases, as follows:
  • $5.1 million in commercial and industrial loans,
  • $3.8 million in commercial real estate loans, and
  • $2.6 million in construction, land development and other land loans; and
• Other real estate owned was $9.3 million at March 31, 2020, a decrease of $623,000 from $9.9 million at December 31, 2019 due to sales and valuation adjustments.

U.S. government guaranteed balances of non-performing loans were $5.0 million at March 31, 2020 and $4.2 million at December 31, 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 1.08% at March 31, 2020 compared to 0.84% at December 31, 2019 and 0.76% at March 31, 2019.

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 the Company remains an emerging growth company, the standard 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 first quarter of 2020 were $4.6 million, or 0.48% of average loans and leases, on an annualized basis, an increase of $515,000 compared to $4.0 million, or 0.42% of average loans and leases, during the fourth quarter of 2019, and an increase of $2.5 million 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 first quarter of 2020 included $3.4 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the fourth quarter of 2019 included $3.6 million and first quarter of 2019 included $1.7 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 $4.2 billion at March 31, 2020, an increase of $91.3 million compared to December 31, 2019, an increase of 2.2%. Non-interest-bearing deposits were 30.5% of total deposits at March 31, 2020 compared to 30.9% at December 31, 2019.

The increase in the current quarter was primarily due to:

• An increase in money market demand deposits of $222.9 million, from $881.4 million at December 31, 2019 to $1.1 billion at March 31, 2020, largely driven by growth in business and brokered account balances.

Partially offset by:

• A decrease in time deposits of $170.7 million, from $1.2 billion at December 31, 2019 to $1.0 billion at March 31, 2020, principally driven by decreases in personal and brokered certificates.

Total borrowings and other liabilities were $733.3 million at March 31, 2020, an increase of $109.1 million from $624.1 million at December 31, 2019, driven by an increase in short-term borrowings of $101.0 million as a result of the Company testing liquidity resources.

Stockholders’ Equity

Total stockholders’ equity was $762.7 million at March 31, 2020, an increase of $12.6 million from $750.1 million at December 31, 2019. The increase was due to the increase in accumulated other comprehensive income reflecting the unrealized gains in our available-for-sale securities portfolio in addition to net income generated during the quarter less dividends declared.

Stockholders’ equity increased $93.9 million from $668.7 million at March 31, 2019. The increase was mainly due to the stock consideration issued in connection with the Oak Park River Forest acquisition as well as net income generated during the period.

The Company repurchased 118,486 shares of its common stock at an average price of $14.08 per share during the first quarter of 2020 under its board approved stock repurchase program announced in the fourth quarter of 2019. The Company is authorized to purchase 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 program was paused in March 2020.

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

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, May 1, 2020 to discuss its 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 May 15, 2020 by dialing (877) 344-7529; passcode: 10142538.

A slide presentation relating to the first quarter 2020 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 $5.7 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.

The COVID-19 pandemic is adversely affecting us, our employees, customers, counterparties and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in U.S. or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways.

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.