Byline Bancorp, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing includes unaudited quarterly results; the filing is not a standalone fourth-quarter report. Byline is a Chicago-area commercial bank holding company with one reportable segment. Amounts below are in U.S. dollars.
Financial performance
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Net interest income | $215.0 million | $216.3 million |
| Provision for loan and lease losses | $55.9 million | $20.7 million |
| Non-interest income | $62.1 million | $55.5 million |
| Non-interest expense | $169.4 million | $173.8 million |
| Net income | $37.5 million | $57.0 million |
| Diluted earnings per share | $0.96 | $1.48 |
| Net interest margin | 3.80% | 4.47% |
| Efficiency ratio | 58.40% | 61.10% |
Net income fell $19.5 million, principally because loan-loss provision rose $35.2 million amid portfolio growth and COVID-19 uncertainty. Lower asset yields reduced net interest income, while lower deposit and borrowing costs partly offset the decline. Non-interest income benefited from securities-sale gains; reported loan-sale gains were $33.3 million. Adjusted diluted EPS, a non-GAAP measure, was $1.05 versus $1.62 in 2019.
Fourth quarter: Net income was $12.3 million, or $0.31 diluted EPS, versus $15.9 million and $0.41 in fourth-quarter 2019. Net interest income rose to $56.0 million from $53.9 million, but provision increased to $10.2 million from $4.4 million.
Financial position, credit and liquidity
- At year-end, total assets were $6.39 billion, gross loans and leases were $4.34 billion, deposits were $4.75 billion, and stockholders’ equity was $805.5 million. Assets grew 15.7% and deposits 14.6% year over year.
- Allowance for loan and lease losses rose to $66.3 million, or 1.53% of loans and leases, from $31.9 million, or 0.84%. Net charge-offs were $21.5 million; nonperforming loans and leases were $41.1 million, or 0.95% of loans, compared with $36.3 million and 0.96% a year earlier.
- COVID-related active payment deferrals totaled $100.6 million, 2.63% of loans and leases excluding PPP loans. The filing reports $517.8 million in net PPP loans outstanding at year-end.
- Non-interest-bearing deposits were $1.76 billion, 37.1% of deposits, and core deposits were 89.9% of deposits. Average deposit cost declined to 0.35% from 0.91%.
- Year-end cash and cash equivalents were $83.4 million. Cash from operating activities was $109.0 million; investing activities used $886.4 million and financing activities provided $780.0 million. Cash increased $2.7 million during the year.
- Borrowings included $371.9 million under the PPP Liquidity Facility, $234.0 million of FHLB advances, $73.3 million of subordinated notes and $36.5 million of junior subordinated debentures. The bank reported $751.9 million of available aggregate borrowing capacity after outstanding FHLB advances and letters of credit, plus separate stated Federal Reserve and federal-funds access.
- Byline Bank was well capitalized: CET1 was 12.91%, total capital 14.16%, and Tier 1 leverage 10.72%. Management said liquidity resources were expected to meet requirements for at least the next 12 months.
Material changes and management commentary
- Loan and lease balances increased 14.7%, including $517.8 million of net PPP loans. Deposit growth was attributed primarily to government stimulus programs. Securities available-for-sale grew to $1.45 billion from $1.19 billion.
- The net interest margin contracted 67 basis points, reflecting lower market rates, PPP balances at low yields and reduced acquired-loan accretion. Loan and lease accretion was $13.1 million, down from $23.2 million.
- The company consolidated 15 branches during 2020 and recorded $4.8 million of impairment charges on assets held for sale. Management expects the consolidations to produce more than $4.0 million in annual cost savings, with some savings intended for digital banking investment.
- Byline originated more than 3,700 PPP loans totaling $635.4 million during 2020. It recognized approximately $22.7 million of government PPP fee income, deferred over loan lives. As of March 1, 2021, it had approved $270.2 million in a new PPP round.
- Management estimated a 2021 effective tax rate of approximately 25%–27%. No broader earnings or revenue guidance is provided. Management also said rate simulations indicated higher net interest income under rising-rate scenarios and lower income under a 100-basis-point decline; these are model estimates, not forecasts.
- COVID-19, borrower repayment capacity, Chicago-area commercial real estate and local economic conditions remain important risks. The filing also highlights interest-rate exposure, LIBOR transition, SBA program and PPP compliance risks, deposit funding, cyber and third-party technology risks, and subjective credit-loss, servicing-asset and goodwill valuations. Management reported no material pending legal proceeding and no goodwill impairment in 2020.
Investor verification priorities
- Review subsequent credit performance, deferrals and forgiveness outcomes for PPP and other COVID-affected borrowers; assess whether the $66.3 million allowance adequately reflects remaining risks.
- Check whether margin and earnings hold up as PPP loans are forgiven or repaid, acquired-loan accretion declines, and interest rates or deposit costs change.
- Verify the sustainability of government-guaranteed loan-sale gains and assumptions underlying servicing-asset valuations.
- Monitor liquidity and funding composition, including PPP Liquidity Facility repayment, FHLB maturities, subordinated debt costs and the parent company’s reliance on bank dividends.
- Assess delivery of branch-consolidation savings and digital investment, and consider that dividends and share repurchases remain subject to regulatory, capital and management discretion.