Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 for Chicago, Illinois-based Byline Bancorp, Inc. (NYSE: BY) ("Byline" or "the company") In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for its subsidiary, Byline Bank. The Outlook for all long-term ratings is Stable.
Byline’s knowledgeable management team and Board of Directors are a credit positive, many of whom have had experience at larger institutions. Together, they have a vested interest in the company’s success—with a significant level of insider ownership (37% as of 1Q 2020). Since the turnover of management in 2013, they have executed their strategy by building scale within footprint and developing a strong deposit franchise. The deposit base is centered around the growth and maintenance of noninterest-bearing deposits (30% of total), which helps facilitate below average deposit costs and, in turn, strong margins. KBRA also views the management team’s conservative stance with liquidity and capital as a strength. BY’s balance sheet is comparatively liquid compared to its rated peer average (25% in liquid assets) and the company maintains a favorable capital position—with a TCE ratio above 10%. Additionally, Byline’s earning streams are relatively diverse compared to peers, although admittedly reliant on SBA loan originations/gain on sales.
The management team has constructed the commercial loan book to be granular/diverse, which has resulted in a below average concentration in COVID-19 Phase-1 exposures. However, KBRA views the overall credit risk profile as moderately elevated given the focus on SBA lending (16% of loans at YE 2019). This concentration has been on the decline in recent years and the downward trend should continue as the remainder of the conventional loan portfolio grows at a quicker pace. KBRA recognizes the higher NPA/NCO levels as a constraint, although this is generally attributable to the SBA business. Moreover, the risk-adjusted returns are adequate, despite the higher credit costs the core ROA has tracked near 1.20% over the past two years. BY’s sponsor finance business presents higher credit risks as well, although the performance within that division has been favorable given the expertise of that particular lending team.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus on banking and other sectors. Please refer to our publication U.S. Bank 1Q 2020 Ratings Compendium for our latest thoughts.
The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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