Byline Bancorp, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited consolidated results; monetary amounts below are in millions unless stated otherwise. Byline is a Chicago-based bank holding company serving businesses and consumers, with commercial lending, equipment leasing, government-guaranteed lending, and wealth management operations.
Financial performance and condition
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net interest income | $53.5 | $57.8 | $159.0 | $162.4 |
| Provision for loan and lease losses | $15.7 | $5.9 | $45.7 | $16.3 |
| Non-interest income | $22.3 | $14.8 | $44.2 | $41.0 |
| Non-interest expense | $41.7 | $45.4 | $122.2 | $130.1 |
| Net income | $13.1 | $15.3 | $25.2 | $41.2 |
| Diluted EPS | $0.34 | $0.39 | $0.64 | $1.07 |
| Net interest margin | 3.60% | 4.62% | 3.81% | 4.52% |
- Balance sheet at September 30: Assets $6.50 billion; gross loans and leases $4.37 billion; deposits $4.81 billion; stockholders’ equity $794.7 million; cash and cash equivalents $101.1 million.
- Loans and leases rose 15.6% from year-end 2019, including $622.2 million of PPP loans. Deposits grew 16.0% to $4.81 billion; non-interest-bearing deposits were $1.72 billion, or 35.7% of deposits.
- Allowance for loan and lease losses was $61.3 million, up from $31.9 million at year-end 2019, equal to 1.40% of loans and leases (1.63% excluding PPP loans). Non-performing loans and leases were $43.2 million, or 0.99% of loans; non-performing assets totaled $51.3 million.
- Funding and capital: Other borrowings were $710.6 million, including $449.6 million under the PPP Liquidity Facility and $215.0 million of FHLB advances. The company issued $75 million of 6.00% subordinated notes in 2020; $73.3 million was reported net of issuance costs. Bank regulatory capital ratios remained above well-capitalized thresholds; the bank’s total capital ratio was 14.50% and CET1 ratio was 13.25%.
- Cash flows, nine months: Operating activities provided $3.1 million versus $12.2 million in 2019; investing used $885.5 million versus $136.1 million; financing provided $902.8 million versus $110.9 million. Cash and cash equivalents increased $20.3 million to $101.1 million.
Material changes versus comparable periods
- Q3 net income fell 14.8%; nine-month net income fell 38.8%. The principal pressure was materially higher credit-loss provisioning, reflecting specific impaired loans and COVID-related qualitative reserves.
- Net interest margin declined 102 basis points in Q3 and 71 basis points for the nine-month period, primarily as lower market rates and PPP balances reduced asset yields and acquired-loan accretion. Lower deposit and borrowing costs partly offset the decline.
- Q3 non-interest income increased 50.3%, chiefly from loan-sale gains and a positive servicing-asset revaluation. Nine-month non-interest income rose 7.9%. Loan-sale gains were $12.7 million in Q3 and $23.9 million year to date.
- Non-interest expense decreased 8.2% in Q3 and 6.0% year to date, mainly reflecting lower professional fees, data-processing expense, and PPP origination costs deferred. The efficiency ratio improved to 52.47% in Q3 from 59.81%.
- Available-for-sale securities increased to $1.51 billion from $1.19 billion at year-end 2019. Stockholders’ equity rose 5.9%, supported by earnings and unrealized securities gains.
Outlook, commentary, risks, and unusual items
- Management attributed elevated credit provisioning to COVID-19 uncertainty, including $22.0 million of additional general reserves for the nine months. It cautioned that deteriorating borrower conditions, collateral values, or economic forecasts could lead to further losses or goodwill impairment.
- Byline originated more than 3,700 PPP loans totaling $635.4 million through September 30 and reported approximately $22.7 million of government fee income, deferred over the loan lives. Active COVID-related payment deferrals were $27.9 million, or 0.74% of loans and leases excluding PPP; cumulative approved deferrals were approximately $631.8 million.
- Byline announced plans to consolidate 11 of 57 full-service offices beginning December 31, 2020. It expects a one-time charge of approximately $5.9 million, including $696,000 recognized in Q3, and annualized savings of approximately $4.3 million beginning in 2021; a portion is expected to fund digital and branch investment.
- Management stated available liquidity and resources should meet requirements for at least the next 12 months. At September 30, the bank reported $930.9 million of aggregate available borrowing capacity, plus $115 million in federal funds lines and $968.7 million available under the Federal Reserve discount window line.
- Interest-rate simulation estimated net interest income would increase 4.7% under an immediate +100 bp shift over the 12 months ending September 30, 2021, and decrease 2.6% under an immediate -100 bp shift. Management emphasized these are hypothetical estimates sensitive to deposit behavior, prepayments, and rate movements.
- Other notable items: the common dividend was $0.03 per share for Q3; the share-repurchase program was paused in March after 118,486 shares were repurchased for $1.7 million. Management reported no legal proceedings expected to have a material adverse effect and no material change in previously disclosed risk factors.
Most important facts for investors to verify
- Whether COVID-related credit quality, deferrals, criticized/watch loans, and the allowance remain adequate as relief programs expire and borrower conditions evolve.
- PPP loan forgiveness and repayment timing, recognition of deferred government fees, and the effect of PPP balances and yields on future net interest income and margin.
- Execution, costs, timing, and realized savings from the 11-branch consolidation plan.
- Deposit stability and funding mix, maturities and refinancing of borrowings, and the availability of stated contingent borrowing capacity.
- Interest-rate sensitivity and assumptions underlying servicing-asset valuations, acquired-loan accretion, and goodwill impairment assessments.