Byline Bancorp, Inc. Reports Third Quarter 2020 Financial Results

·10 min read

Third Quarter 2020 Highlights

  • Net income of $13.1 million, or $0.34 per diluted share

  • Net interest margin of 3.60%, compared to 3.71% at June 30, 2020

  • Return on average assets of 0.81%

    • Pre-tax pre-provision return on average assets1 of 2.12%

  • Efficiency ratio of 52.47%, lower by 123 basis points from the second quarter

  • Originated loans and leases increased $41.0 million, or 1.1%, from June 30, 2020

    • Third quarter total loan and lease production of $213.4 million

  • Common Equity Tier 1 to risk weighted assets of 12.55%

  • Completed an additional public offering of $25.0 million of subordinated notes

  • Announced consolidation of approximately 20% of branch network

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.

Byline Bancorp, Inc. (the "Company" or "Byline")(NYSE: BY), the parent company of Byline Bank (the "Bank"), today reported net income of $13.1 million, or $0.34 per diluted share, for the third quarter of 2020, compared with net income of $9.1 million, or $0.24 per diluted share, for the second quarter of 2020, and net income of $15.3 million, or $0.39 per diluted share, for the third quarter of 2019.

Alberto J. Paracchini, President and Chief Executive Officer of Byline, commented, "Our results for the quarter continues to show solid performance in a challenging operating environment. We saw strong growth in pre-tax, pre-provision income driven by improved business activity, strong fee income and disciplined expense management. This allowed us to continue to build our allowance for loan and lease losses and add to our capital base.

"This quarter we also announced the additional consolidation of 11 branch locations in order to better align our spending with current customer behaviors and continue investing in our digital capabilities and franchise. Looking forward, our focus remains on supporting new and existing customers, executing our strategy and growing the value of our franchise," said Mr. Paracchini.

Third Quarter 2020 Updates

Branch Consolidations

On September 18, 2020, we announced plans to optimize our branch network as part of efforts to accommodate changing customer behaviors while also recognizing operating efficiencies. Byline Bank plans to consolidate 11 of its 57 full-service offices, or approximately 20% of its branch network. Most of the impacted branches are located within two miles of another Byline Bank branch that will continue to operate within the respective market. These branch consolidations are scheduled to commence on December 31, 2020 and will result in a one-time charge of approximately $5.9 million, including $696,000 recognized during the third quarter 2020 related to salaries and employee benefit expenses. We anticipate annualized cost savings of approximately $4.3 million beginning in 2021, an estimated 25% of which will be utilized to increase investment in our digital banking platform and the continued renovation and upgrading of other retail branches.

Deferrals and Paycheck Protection Program

We continue working with our customers and borrowers impacted by the pandemic through deferrals and PPP loans. During the third quarter 2020:

  • Active deferrals on loans and leases decreased to $27.9 million, or 0.7%2 of loans and leases at September 30, 2020, from $204.1 million or 5.4%2 of loans and leases at June 30, 2020.

    • Active second deferrals on loans and leases decreased in the quarter to $19.5 million at September 30, 2020 from $34.4 million at June 30, 2020.

  • Continued processing PPP loans efficiently through our SBA platform and funded over 165 loans totaling $8.9 million in the third quarter 2020.

  • Over $160 million of PPP loans in various stages of the SBA forgiveness process as of October 20, 2020.

2

Excludes PPP loans.

The following table presents information regarding the net PPP loans as of September 30, 2020:

PPP Loan Size

(dollars in thousands)

$0 - $50,000

$50,001 - $150,000

$150,001 -

$2,000,000

Over $2,000,000

Total

Principal outstanding

$

37,993

$

84,385

$

428,361

$

84,639

$

635,378

Unearned processing fee

(1,479

)

(3,254

)

(12,157

)

(653

)

(17,543

)

Deferred cost

2,138

1,089

1,098

31

4,356

PPP loans, net

$

38,652

$

82,220

$

417,302

$

84,017

$

622,191

Number of loans

1,831

951

958

27

3,767

STATEMENTS OF OPERATIONS

Net Interest Income

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

Three Months Ended

Nine Months Ended

(dollars in thousands)

September 30,

June 30,

March 31,

December 31,

September 30,

September 30,

September 30,

2020

2020

2020

2019

2019

2020

2019

INTEREST AND DIVIDEND INCOME

Interest and fees on loans and

leases

$

51,036

$

50,153

$

54,158

$

58,203

$

63,391

$

155,347

$

177,298

Interest on securities

7,070

7,530

8,016

7,212

7,040

22,616

19,807

Other interest and dividend

income

128

222

992

500

598

1,342

1,794

Total interest and dividend

income

58,234

57,905

63,166

65,915

71,029

179,305

198,899

INTEREST EXPENSE

Deposits

2,760

4,246

7,804

9,325

9,618

14,810

27,000

Other borrowings

465

476

1,897

1,989

2,835

2,838

7,266

Subordinated notes and

debentures

1,485

574

640

687

738

2,699

2,262

Total interest expense

4,710

5,296

10,341

12,001

13,191

20,347

36,528

Net interest income

$

53,524

$

52,609

$

52,825

$

53,914

$

57,838

$

158,958

$

162,371

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

For the Three Months Ended

September 30, 2020

June 30, 2020

(dollars in thousands)

Average

Balance(5)

Interest

Inc / Exp

Average

Yield /

Rate

Average

Balance(5)

Interest

Inc / Exp

Average

Yield /

Rate

ASSETS

Cash and cash equivalents

$

48,678

$

25

0.20

%

$

58,971

$

25

0.17

%

Loans and leases(1)

4,360,203

51,036

4.66

%

4,283,654

50,153

4.71

%

Taxable securities

1,364,516

6,341

1.85

%

1,243,604

7,021

2.27

%

Tax-exempt securities(2)

143,157

832

2.31

%

117,340

706

2.42

%

Total interest-earning assets

$

5,916,554

$

58,234

3.92

%

$

5,703,569

$

57,905

4.08

%

Allowance for loan and lease losses

(53,964

)

(43,009

)

All other assets

538,700

526,414

TOTAL ASSETS

$

6,401,290

$

6,186,974

LIABILITIES AND STOCKHOLDERS’

EQUITY

Deposits

Interest checking

$

565,917

$

226

0.16

%

$

392,070

$

165

0.17

%

Money market accounts

1,202,016

634

0.21

%

1,214,713

946

0.31

%

Savings

535,396

64

0.05

%

511,049

61

0.05

%

Time deposits

870,227

1,836

0.84

%

976,710

3,074

1.27

%

Total interest-bearing

deposits

3,173,556

2,760

0.35

%

3,094,542

4,246

0.55

%

Other borrowings

538,237

465

0.34

%

534,766

476

0.36

%

Subordinated notes and debentures

100,756

1,485

5.86

%

40,180

574

5.75

%

Total borrowings

638,993

1,950

1.21

%

574,946

1,050

0.73

%

Total interest-bearing liabilities

$

3,812,549

$

4,710

0.49

%

$

3,669,488

$

5,296

0.58

%

Non-interest-bearing demand deposits

1,742,787

1,692,723

Other liabilities

54,843

48,884

Total stockholders’ equity

791,111

775,879

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY

$

6,401,290

$

6,186,974

Net interest spread(3)

3.43

%

3.50

%

Net interest income

$

53,524

$

52,609

Net interest margin(4)

3.60

%

3.71

%

Net loan accretion impact on margin

$

3,911

0.26

%

$

3,172

0.22

(1)

Loan and lease balances are net of deferred origination fees and costs and initial indirect costs. Non-accrual loans and leases are included in total loan and lease balances.

(2)

Interest income and rates exclude the effects of a tax equivalent adjustment to adjust tax exempt investment income on tax exempt investment securities to a fully taxable basis due to immateriality.

(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 earning assets.

(5)

Average balances are average daily balances.

Net interest income for the third quarter of 2020 was $53.5 million, an increase of $915,000, or 1.7%, from the second quarter of 2020.

The increase in net interest income was primarily due to:

  • A decrease of $1.5 million in interest expense on deposits, due to maturities of higher-rate time deposits and lower rates paid on money market accounts;

  • An increase of $883,000 in interest income on loans and leases, due to higher accretion on acquired loans resulting from cash recoveries;

Offset by:

  • An increase of $900,000 in interest expense on total borrowings, primarily driven by a full quarter of interest expense on subordinated notes; and,

  • A decrease of $680,000 in interest income on taxable securities, due to increased prepayments on securities and lower yields.

Net interest margin for the third quarter of 2020 was 3.60%, a decrease of 11 basis points compared to 3.71% for the second quarter of 2020. Total net accretion income on acquired loans contributed 26 basis points to the net interest margin for the third quarter of 2020 compared to 22 basis points for the second quarter of 2020, an increase of 4 basis points. The net interest margin decrease during the third quarter of 2020 was primarily driven by decreased loan and lease yields largely resulting from the impact of decreases in short-term rates and lower-yielding PPP loan balances. Net interest margin was also impacted by an increase in borrowed funds costs due to the full quarter impact of interest accrual on the subordinated notes. These decreases were partly offset by a decrease in the cost of funds and higher average non-interest-bearing demand deposit balances.

The average cost of total deposits was 0.22% for the third quarter of 2020, a decrease of 14 basis points compared to the second quarter of 2020, mainly due to a lower average cost of money market accounts and time deposits as well as a favorable change in deposit mix. Average non-interest-bearing demand deposits grew by $50.1 million, while average time deposits decreased by $106.5 million. Average non-interest-bearing demand deposits were 35.4% of average total deposits for the third quarter of 2020 unchanged compared to the second quarter of 2020.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $15.7 million for the third quarter of 2020, an increase of $222,000 compared to $15.5 million for the second quarter of 2020. The third quarter included allocations of $14.8 million for originated loans and leases, $1.0 million for acquired impaired loans, and a credit of $118,000 for acquired non-impaired loans. The provision during the third quarter of 2020 included $6.4 million in specific impairments, including $3.3 million related to the unguaranteed portion of government guaranteed loans. The third quarter provision included $8.4 million to address the continued economic uncertainty caused by the COVID-19 pandemic and the uncertainty around additional government relief.

Non-interest Income

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

Three Months Ended

Nine Months Ended

(dollars in thousands)

September 30,

June 30,

March 31,

December 31,

September 30,

September 30,

September 30,

2020

2020

2020

2019

2019

2020

2019

NON-INTEREST INCOME

Fees and service charges on

deposits

$

1,603

$

1,455

$

1,673

$

1,635

$

1,612

$

4,731

$

4,823

Loan servicing revenue

2,936

2,980

2,758

2,834

2,692

8,674

7,861

Loan servicing asset revaluation

1,122

(711

)

(3,064

)

(2,545

)

(1,610

)

(2,653

)

(4,094

)

ATM and interchange fees

1,028

845

1,216

1,150

973

3,089

2,635

Net gains on sales of securities

available-for-sale

1,037

1,375

178

...

2,412

1,151

Change in fair value of equity securities, net

154

766

(619

)

381

(15

)

301

1,035

Net gains on sales of loans

12,671

6,456

4,773

8,735

9,405

23,900

23,110

Wealth management and trust income

693

608

669

704

653

1,970

1,874

Other non-interest income

1,008

389

392

1,622

918

1,789

2,582

Total non-interest income

$

22,252

$

12,788

$

9,173

$

14,516

$

14,806

$

44,213

$

40,977

Non-interest income for the third quarter of 2020 was $22.3 million, an increase of $9.5 million, or 74.0% compared to $12.8 million for the second quarter of 2020.

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

  • An increase of $6.2 million in net gains on sales of loans, mainly due to an increase in volume of sales of government guaranteed loans and higher premiums received on loans sold;

  • A $1.8 million increase in loan servicing asset revaluation due to lower prepayments speeds and higher premiums on government guaranteed loans; and,

  • An increase of $1.0 million in net gains on sales of securities available-for-sale as a result of sales during the third quarter of 2020 compared to no sales during the second quarter of 2020.

During the third quarter of 2020, we sold $121.2 million of U.S. government guaranteed loans compared to $78.7 million during the second quarter of 2020. The increase in sales was driven by increased SBA 7(a) origination volumes and higher demand for U.S. government guaranteed loans.

Non-interest Expense

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

Three Months Ended

Nine Months Ended

(dollars in thousands)

September 30,

June 30,

March 31,

December 31,

September 30,

September 30,

September 30,

2020

2020

2020

2019

2019

2020

2019

NON-INTEREST EXPENSE

Salaries and employee benefits

$

23,126

$

19,405

$

24,666

$

24,228

$

24,537

$

67,197

$

71,081

Occupancy and equipment expense, net

5,220

5,359

5,524

5,241

4,512

16,103

14,530

Loan and lease related expenses

2,053

1,260

1,311

2,648

1,949

4,624

5,367

Legal, audit and other professional fees

2,390

2,078

2,334

2,340

4,066

6,802

9,113

Data processing

2,661

2,826

2,665

2,678

4,062

8,152

11,055

Net loss recognized on other real estate owned and other related expenses

349

456

519

122

95

1,324

543

Other intangible assets amortization expense

1,947

1,892

1,893

2,002

2,003

5,732

5,735

Other non-interest expense

3,959

3,736

4,615

4,435

4,224

12,310

12,657

Total non-interest expense

$

41,705

$

37,012

$

43,527

$

43,694

$

45,448

$

122,244

$

130,081

Non-interest expense for the third quarter of 2020 was $41.7 million, an increase of $4.7 million, or 12.7%, from $37.0 million for the second quarter of 2020.

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

  • An increase of $3.7 million in salaries and employee benefits, mainly due to costs deferred as a result of PPP loan originations during the second quarter of 2020; and

  • An increase of $793,000 in loan and lease related expenses mostly due to higher expenses associated with government guaranteed loan originations.

Our efficiency ratio was 52.47% for the third quarter of 2020 compared to 53.70% for the second quarter of 2020.

INCOME TAXES

We recorded income tax expense of $5.3 million during the third quarter of 2020, an effective tax rate of 28.7% compared to $3.7 million during the second quarter of 2020, an effective tax rate of 29.0%.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $6.5 billion at September 30, 2020, an increase of $103.8 million compared to $6.4 billion at June 30, 2020, and an increase of $1.1 billion compared to $5.4 billion at September 30, 2019.

The current quarter increase was primarily due to:

  • An increase in securities of $82.5 million, principally a result of purchases of mortgage-backed securities during the quarter;

  • An increase in loans held for sale of $46.0 million, due to the timing of government guaranteed loans sold during the quarter; and,

  • An increase in accrued interest receivable and other assets of $38.0 million due to timing of settlement of government guaranteed loans during the quarter.

Partially offset by:

  • A decrease in cash and cash equivalents of $38.9 million, due to the increase in securities for the quarter;

  • A decrease in loans and leases of $16.6 million, due to decreases in the real estate portfolios offset by increases to lease financing receivables; and,

  • An increase in allowance for loan and lease losses of $10.0 million, due to continued economic uncertainty from the COVID-19 pandemic.

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

September 30, 2020

June 30, 2020

September 30, 2019

(dollars in thousands)

Amount

% of Total

Amount

% of Total

Amount

% of Total

Originated loans and leases

Commercial real estate

$

919,862

21.0

%

$

919,510

20.9

%

$

772,559

20.2

%

Residential real estate

458,364

10.5

%

480,692

10.9

%

497,839

13.0

%

Construction, land development, and other land

234,017

5.3

%

219,261

5.0

%

236,780

6.2

%

Commercial and industrial

1,214,099

27.8

%

1,200,996

27.4

%

1,096,400

28.6

%

Paycheck protection program

622,191

14.2

%

611,664

13.9

%

0.0

%

Installment and other

2,346

0.1

%

2,714

0.1

%

7,818

0.2

%

Leasing financing receivables

185,700

4.2

%

160,741

3.7

%

156,758

4.1

%

Total originated loans and leases

$

3,636,579

83.1

%

$

3,595,578

81.9

%

$

2,768,154

72.3

%

Acquired impaired loans

Commercial real estate

$

117,114

2.7

%

$

126,405

2.9

%

$

142,435

3.7

%

Residential real estate

84,197

1.9

%

90,784

2.1

%

109,409

2.9

%

Construction, land development, and other land

4,804

0.1

%

4,784

0.1

%

4,562

0.1

%

Commercial and industrial

10,489

0.3

%

13,485

0.3

%

18,349

0.5

%

Installment and other

214

0.0

%

226

0.0

%

267

0.0

%

Total acquired impaired loans

$

216,818

5.0

%

$

235,684

5.4

%

$

275,022

7.2

%

Acquired non-impaired loans and leases

Commercial real estate

$

310,879

7.1

%

$

305,041

6.9

%

$

391,294

10.2

%

Residential real estate

90,835

2.1

%

99,288

2.2

%

141,855

3.7

%

Construction, land development, and

other land

213

0.0

%

21,958

0.5

%

39,657

1.0

%

Commercial and industrial

104,221

2.4

%

116,668

2.7

%

187,413

4.9

%

Installment and other

583

0.0

%

818

0.0

%

1,269

0.0

%

Leasing financing receivables

14,389

0.3

%

16,087

0.4

%

26,426

0.7

%

Total acquired non-impaired loans and leases

$

521,120

11.9

%

$

559,860

12.7

%

$

787,914

20.5

%

Total loans and leases

$

4,374,517

100.0

%

$

4,391,122

100.0

%

$

3,831,090

100.0

%

Allowance for loan and lease losses

(61,258

)

(51,300

)

(31,585

)

Total loans and leases, net of allowance for loan and lease losses

$

4,313,259

$

4,339,822

$

3,799,505

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:

September 30,

June 30,

March 31,

December 31,

September 30,

(dollars in thousands)

2020

2020

2020

2019

2019

Non-performing assets:

Non-accrual loans and leases

$

43,196

$

40,505

$

48,964

$

36,272

$

39,528

Past due loans and leases 90 days or more and still accruing interest

Total non-performing loans and leases

$

43,196

$

40,505

$

48,964

$

36,272

$

39,528

Other real estate owned

8,150

8,652

9,273

9,896

6,502

Total non-performing assets

$

51,346

$

49,157

$

58,237

$

46,168

$

46,030

Total non-performing loans and leases as a percentage of total loans and leases

0.99

%

0.92

%

1.27

%

0.96

%

1.03

%

Total non-performing assets as a percentage of total assets

0.79

%

0.77

%

1.02

%

0.84

%

0.85

%

Allowance for loan and lease losses as a percentage of non-performing loans and

leases

141.81

%

126.65

%

85.45

%

88.05

%

79.91

%

Accruing troubled debt restructured loans (1)

$

2,293

$

3,151

$

1,725

$

1,771

$

2,204

Non-performing assets guaranteed by U.S. government:

Non-accrual loans guaranteed

$

3,749

$

3,755

$

4,957

$

4,232

$

4,167

Past due loans 90 days or more and still accruing interest guaranteed

Total non-performing loans guaranteed

$

3,749

$

3,755

$

4,957

$

4,232

$

4,167

Total non-performing loans and leases not guaranteed as a percentage of total loans and leases

0.90

%

0.84

%

1.14

%

0.85

%

0.92

%

Total non-performing assets not guaranteed as a percentage of total assets

0.73

%

0.71

%

0.93

%

0.76

%

0.77

%

Accruing troubled debt restructured loans guaranteed (1)

$

$

$

$

$

(1)

Accruing troubled debt restructured loans are not included in total non-performing loans and leases or in non-performing assets.

Variances in non-performing assets were:

  • Non-performing loans and leases were $43.2 million at September 30, 2020, an increase of $2.7 million from $40.5 million at June 30, 2020.

  • Other real estate owned was $8.2 million at September 30, 2020, a decrease of $502,000 from $8.7 million at June 30, 2020 due to sales and valuation adjustments.

U.S. government guaranteed balances of non-performing loans were $3.7 million at September 30, 2020 and $3.8 million at June 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:

Three Months Ended

Nine Months Ended

(dollars in thousands)

September 30,

June 30,

March 31,

December 31,

September 30,

September 30,

September 30,

2020

2020

2020

2019

2019

2020

2019

Allowance for loan and lease losses, beginning of period

$

51,300

$

41,840

$

31,936

$

31,585

$

31,132

$

31,936

$

25,201

Provision for loan and lease losses

15,740

15,518

14,455

4,387

5,931

45,713

16,321

Net charge-offs of loans and leases

(5,782

)

(6,058

)

(4,551

)

(4,036

)

(5,478

)

(16,391

)

(9,937

)

Allowance for loan and lease losses,

end of period

$

61,258

$

51,300

$

41,840

$

31,936

$

31,585

$

61,258

$

31,585

Allowance for loan and lease losses

to period end total loans and

leases held for investment

1.40

%

1.17

%

1.08

%

0.84

%

0.82

%

1.40

%

0.82

%

Net charge-offs (annualized) to

average loans and leases

outstanding during the period

0.53

%

0.57

%

0.48

%

0.42

%

0.56

%

0.53

%

0.36

%

Provision for loan and lease losses to

net charge-offs during the period

2.72x

2.56x

3.18x

1.09x

1.08x

2.79

x

1.64x

The allowance for loan and lease losses as a percentage of total loans and leases held for investment increased to 1.40% at September 30, 2020 compared to 1.17% at June 30, 2020 and 0.82% at September 30, 2019. The allowance for loan and lease losses as a percentage of total loans and leases held for investment excluding PPP loans increased to 1.63% at September 30, 2020 from 1.36% at June 20, 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 third quarter of 2020 were $5.8 million, or 0.53% of average loans and leases, on an annualized basis, a decrease of $276,000 compared to $6.1 million, or 0.57% of average loans and leases, during the second quarter of 2020, and an increase of $304,000 from $5.5 million, or 0.56% of average loans and leases, for the comparable quarter one year ago.

Net charge-offs for the third quarter of 2020 included $4.1 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the second quarter of 2020 included $2.0 million and for the third quarter of 2019 included $4.8 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:

September 30,

June 30,

March 31,

December 31,

September 30,

(dollars in thousands)

2020

2020

2020

2019

2019

Non-interest-bearing demand deposits

$

1,718,682

$

1,768,675

$

1,290,896

$

1,279,641

$

1,221,431

Interest-bearing checking accounts

584,682

503,909

355,678

338,185

372,049

Money market demand accounts

1,153,433

1,233,748

1,104,276

881,387

745,154

Other savings

542,741

525,043

486,131

475,839

471,878

Time deposits (below $250,000)

622,328

710,429

800,759

916,723

966,866

Time deposits ($250,000 and above)

188,379

216,541

201,096

255,802

302,936

Total deposits

$

4,810,245

$

4,958,345

$

4,238,836

$

4,147,577

$

4,080,314

Total deposits were $4.8 billion at September 30, 2020, a decrease of $148.1 million, or 3.0% compared to June 30, 2020. Non-interest-bearing deposits were 35.7% of total deposits at September 30, 2020 and June 30, 2020.

The decrease in the current quarter was primarily due to:

  • A decrease in non-interest-bearing deposits of $50.0 million, mostly due to seasonality;

  • A decrease in money market demand deposits of $80.3 million, due to a decrease in purchased money market deposits that were replaced by lower-cost funding sources; and,

  • A decrease in time deposits of $116.3 million, principally driven by decreases in personal certificates.

Partially offset by:

  • An increase in interest-bearing checking accounts of $80.8 million, mostly due to increases in public funds in interest bearing checking accounts.

Total borrowings and other liabilities were $891.6 million at September 30, 2020, an increase of $237.3 million from $654.2 million at June 30, 2020, primarily driven by an increase in Federal Home Loan Bank advances and the additional subordinated notes offering during the quarter, as described in more detail below.

Stockholders’ Equity

Total stockholders’ equity was $794.7 million at September 30, 2020, an increase of $13.8 million from $780.9 million at June 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 September 30, 2020:

Actual

Minimum Capital

Required

Required to be

Considered

Well Capitalized

September 30, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total capital to risk weighted assets:

Company

$

757,133

16.67

%

$

363,274

8.00

%

N/A

N/A

Bank

656,395

14.50

%

362,063

8.00

%

$

452,579

10.00

%

Tier 1 capital to risk weighted assets:

Company

$

625,287

13.77

%

$

272,456

6.00

%

N/A

N/A

Bank

599,736

13.25

%

271,547

6.00

%

$

362,063

8.00

%

Common Equity Tier 1 (CET1) to

risk weighted assets:

Company

$

569,849

12.55

%

$

204,342

4.50

%

N/A

N/A

Bank

599,736

13.25

%

203,661

4.50

%

$

294,176

6.50

%

Tier 1 capital to average assets:

Company

$

625,287

10.93

%

$

228,874

4.00

%

N/A

N/A

Bank

599,736

10.49

%

228,729

4.00

%

$

285,912

5.00

%

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

On August 3, 2020, we completed a public offering of an additional $25.0 million aggregate principal amount of 6.00% fixed-to-floating rate subordinated notes due July 1, 2030. The subordinated notes are part of the same series of notes as the $50.0 million in aggregate principal amount of subordinated notes issued on June 26, 2020. The notes bear a fixed interest rate of 6.00% until July 1, 2025 or earlier redemption, and a floating interest rate equal to a benchmark rate, which is expected to be three-month term SOFR plus 588 basis points thereafter until maturity or earlier redemption. The subordinated notes are intended to qualify as Tier 2 capital for regulatory capital purposes.

Conference Call, Webcast and Slide Presentation

We will host a conference call and webcast at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) on Friday, October 23, 2020 to discuss our 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 November 7, 2020 by dialing (877) 344-7529; passcode: 10146069.

A slide presentation relating to the third 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 $6.5 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.

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 its Annual Report on Form 10-K for the year ended December 31, 2019, and its Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020. 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.

BYLINE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

September 30,

June 30,

March 31,

December 31,

September 30,

(dollars in thousands)

2020

2020

2020

2019

2019

ASSETS

Cash and due from banks

$

47,433

$

51,818

$

45,233

$

48,228

$

75,275

Interest bearing deposits with other banks

53,645

88,113

74,386

32,509

33,564

Cash and cash equivalents

101,078

139,931

119,619

80,737

108,839

Equity and other securities, at fair value

8,335

8,181

7,413

8,031

7,648

Securities available-for-sale, at fair value

1,509,211

1,426,871

1,299,483

1,186,292

1,031,933

Securities held-to-maturity, at amortized cost

4,400

4,404

4,408

4,412

4,417

Restricted stock, at cost

9,652

6,232

24,197

22,127

24,331

Loans held for sale

49,049

3,031

13,299

11,732

7,176

Loans and leases:

Loans and leases

4,374,517

4,391,122

3,860,259

3,785,661

3,831,090

Allowance for loan and lease losses

(61,258

)

(51,300

)

(41,840

)

(31,936

)

(31,585

)

Net loans and leases

4,313,259

4,339,822

3,818,419

3,753,725

3,799,505

Servicing assets, at fair value

21,267

18,351

17,800

19,471

19,939

Premises and equipment, net

94,638

95,546

96,446

96,140

96,006

Other real estate owned, net

8,150

8,652

9,273

9,896

6,502

Goodwill and other intangible assets, net

174,523

176,470

178,362

180,255

179,543

Bank-owned life insurance

9,952

9,896

9,898

9,750

9,699

Deferred tax assets, net

35,945

37,082

33,845

38,315

33,388

Accrued interest receivable and other assets

157,054

119,049

102,292

100,926

109,352

Total assets

$

6,496,513

$

6,393,518

$

5,734,754

$

5,521,809

$

5,438,278

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Non-interest-bearing demand deposits

$

1,718,682

$

1,768,675

$

1,290,896

$

1,279,641

$

1,221,431

Interest-bearing deposits

3,091,563

3,189,670

2,947,940

2,867,936

2,858,883

Total deposits

4,810,245

4,958,345

4,238,836

4,147,577

4,080,314

Other borrowings

710,560

510,414

640,647

539,638

538,290

Subordinated notes, net

73,299

48,777

Junior subordinated debentures issued to capital trusts, net

36,331

36,206

37,462

37,334

37,207

Accrued expenses and other liabilities

71,382

58,841

55,142

47,145

46,601

Total liabilities

5,701,817

5,612,583

4,972,087

4,771,694

4,702,412

STOCKHOLDERS’ EQUITY

Preferred stock

10,438

10,438

10,438

10,438

10,438

Common stock

383

381

380

379

378

Additional paid-in capital

586,057

583,307

582,517

580,965

579,564

Retained earnings

180,162

168,444

160,652

159,033

144,525

Treasury stock

(1,668

)

(1,668

)

(1,668

)

Accumulated other comprehensive income (loss), net of tax

19,324

20,033

10,348

(700

)

961

Total stockholders’ equity

794,696

780,935

762,667

750,115

735,866

Total liabilities and stockholders’ equity

$

6,496,513

$

6,393,518

$

5,734,754

$

5,521,809

$

5,438,278

BYLINE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Three Months Ended

Nine Months Ended

(dollars in thousands, except per share data)

September 30,

June 30,

March 31,

December 31,

September 30,

September 30,

September 30,

2020

2020

2020

2019

2019

2020

2019

INTEREST AND DIVIDEND INCOME

Interest and fees on loans and leases

$

51,036

$

50,153

$

54,158

$

58,203

$

63,391

$

155,347

$

177,298

Interest on securities

7,070

7,530

8,016

7,212

7,040

22,616

19,807

Other interest and dividend income

128

222

992

500

598

1,342

1,794

Total interest and dividend income

58,234

57,905

63,166

65,915

71,029

179,305

198,899

INTEREST EXPENSE

Deposits

2,760

4,246

7,804

9,325

9,618

14,810

27,000

Other borrowings

465

476

1,897

1,989

2,835

2,838

7,266

Subordinated notes and debentures

1,485

574

640

687

738

2,699

2,262

Total interest expense

4,710

5,296

10,341

12,001

13,191

20,347

36,528

Net interest income

53,524

52,609

52,825

53,914

57,838

158,958

162,371

PROVISION FOR LOAN AND LEASE LOSSES

15,740

15,518

14,455

4,387

5,931

45,713

16,321

Net interest income after provision

for loan and lease losses

37,784

37,091

38,370

49,527

51,907

113,245

146,050

NON-INTEREST INCOME

Fees and service charges on deposits

1,603

1,455

1,673

1,635

1,612

4,731

4,823

Loan servicing revenue

2,936

2,980

2,758

2,834

2,692

8,674

7,861

Loan servicing asset revaluation

1,122

(711

)

(3,064

)

(2,545

)

(1,610

)

(2,653

)

(4,094

)

ATM and interchange fees

1,028

845

1,216

1,150

973

3,089

2,635

Net gains on sales of securities

available-for-sale

1,037

1,375

178

2,412

1,151

Change in fair value of equity securities, net

154

766

(619

)

381

(15

)

301

1,035

Net gains on sales of loans

12,671

6,456

4,773

8,735

9,405

23,900

23,110

Wealth management and trust income

693

608

669

704

653

1,970

1,874

Other non-interest income

1,008

389

392

1,622

918

1,789

2,582

Total non-interest income

22,252

12,788

9,173

14,516

14,806

44,213

40,977

NON-INTEREST EXPENSE

Salaries and employee benefits

23,126

19,405

24,666

24,228

24,537

67,197

71,081

Occupancy and equipment expense, net

5,220

5,359

5,524

5,241

4,512

16,103

14,530

Loan and lease related expenses

2,053

1,260

1,311

2,648

1,949

4,624

5,367

Legal, audit, and other professional fees

2,390

2,078

2,334

2,340

4,066

6,802

9,113

Data processing

2,661

2,826

2,665

2,678

4,062

8,152

11,055

Net loss recognized on other real

estate owned and other related

expenses

349

456

519

122

95

1,324

543

Other intangible assets amortization expense

1,947

1,892

1,893

2,002

2,003

5,732

5,735

Other non-interest expense

3,959

3,736

4,615

4,435

4,224

12,310

12,657

Total non-interest expense

41,705

37,012

43,527

43,694

45,448

122,244

130,081

INCOME BEFORE PROVISION FOR INCOME TAXES

18,331

12,867

4,016

20,349

21,265

35,214

56,946

PROVISION FOR INCOME TAXES

5,260

3,728

1,050

4,497

5,923

10,038

15,796

NET INCOME

13,071

9,139

2,966

15,852

15,342

25,176

41,150

Dividends on preferred shares

196

195

196

196

196

587

587

INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

12,875

$

8,944

$

2,770

$

15,656

$

15,146

$

24,589

$

40,563

EARNINGS PER COMMON SHARE

Basic

$

0.34

$

0.24

$

0.07

$

0.41

$

0.40

$

0.65

$

1.09

Diluted

$

0.34

$

0.24

$

0.07

$

0.41

$

0.39

$

0.64

$

1.07

BYLINE BANCORP, INC. AND SUBSIDIARIES

SELECTED FINANCIAL DATA (unaudited)

As of or For the Three Months Ended

As of or For the Nine Months Ended

(dollars in thousands, except share and per share data)

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

September 30,
2020

September 30,
2019

Common Share Data

Basic earnings per common share

$

0.34

$

0.24

$

0.07

$

0.41

$

0.40

$

0.65

$

1.09

Diluted earnings per common share

$

0.34

$

0.24

$

0.07

$

0.41

$

0.39

$

0.64

$

1.07

Adjusted diluted earnings per common share(2)(3)(4)

$

0.34

$

0.24

$

0.09

$

0.42

$

0.41

$

0.65

$

1.20

Weighted average common shares

outstanding (basic)

38,057,350

37,919,480

37,943,333

37,872,835

37,831,356

37,973,694

37,094,083

Weighted average common shares

outstanding (diluted)

38,249,335

38,027,289

38,663,658

38,537,899

38,487,180

38,251,963

37,818,868

Common shares outstanding

38,568,916

38,383,217

38,383,021