Byline Bancorp(BY) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents Byline Bancorp, Inc.'s unaudited interim condensed consolidated financial statements and notes for the period ended September 30, 2020 Item 1. Financial Statements This section presents Byline Bancorp, Inc.'s unaudited interim condensed consolidated financial statements and notes for the period ended September 30, 2020 Condensed Consolidated Statements of Financial Condition As of September 30, 2020, total assets grew to $6.5 billion from $5.5 billion at year-end 2019, primarily driven by a significant increase in net loans and leases to $4.3 billion, funded by a rise in total deposits to $4.8 billion and increased other borrowings Condensed Consolidated Statements of Financial Condition (in thousands) | Account | September 30, 2020 | December 31, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $6,496,513 | $5,521,809 | +17.7% | | Net loans and leases | $4,313,259 | $3,753,725 | +14.9% | | Securities available-for-sale | $1,509,211 | $1,186,292 | +27.2% | | Goodwill and other intangible assets, net | $174,523 | $180,255 | -3.2% | | Total Liabilities | $5,701,817 | $4,771,694 | +19.5% | | Total deposits | $4,810,245 | $4,147,577 | +16.0% | | Other borrowings | $710,560 | $539,638 | +31.7% | | Total Stockholders' Equity | $794,696 | $750,115 | +5.9% | Condensed Consolidated Statements of Operations For Q3 2020, net income was $13.1 million, down from $15.3 million in Q3 2019, primarily due to a significantly higher provision for loan and lease losses, while diluted EPS for Q3 2020 was $0.34 compared to $0.39 in Q3 2019 Key Performance Indicators (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $53,524 | $57,838 | $158,958 | $162,371 | | Provision for Loan and Lease Losses | $15,740 | $5,931 | $45,713 | $16,321 | | Non-interest Income | $22,252 | $14,806 | $44,213 | $40,977 | | Non-interest Expense | $41,705 | $45,448 | $122,244 | $130,081 | | Net Income | $13,071 | $15,342 | $25,176 | $41,150 | | Diluted EPS | $0.34 | $0.39 | $0.64 | $1.07 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, the 2019 acquisition, and breakdowns of financial statement line items, including loan portfolios, allowances, and capital initiatives - On April 30, 2019, the Company acquired Oak Park River Forest Bankshares, Inc. for a total consideration of $35.5 million, resulting in $20.2 million of goodwill, and adding approximately $321.2 million in assets and $305.9 million in liabilities[43][44][48] - The loan and lease portfolio grew to $4.4 billion as of September 30, 2020, up from $3.8 billion at year-end 2019, including $635.4 million in Paycheck Protection Program (PPP) loans originated in 2020[66][232] - The allowance for loan and lease losses (ALLL) increased significantly to $61.3 million at September 30, 2020, from $31.9 million at December 31, 2019, with the provision for loan and lease losses for the first nine months of 2020 being $45.7 million, a substantial increase from $16.3 million in the same period of 2019, reflecting impacts from the COVID-19 pandemic[80][85] - In June and August 2020, the Company issued a total of $75.0 million in 6.00% fixed-to-floating subordinated notes, intended to qualify as Tier 2 capital[131] - The Company's stock repurchase program, authorizing the purchase of up to 1,250,000 shares, was paused in March 2020, with 118,486 shares repurchased at a cost of $1.7 million in the first quarter of 2020[218][219] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting the impacts of the COVID-19 pandemic, changes in net income and margin, and balance sheet composition Response to COVID-19 Pandemic The company actively participated in the Paycheck Protection Program (PPP), originating over 3,700 loans totaling $635.4 million and earning approximately $22.7 million in fees, while approving approximately $631.8 million in COVID-19 related payment deferrals - Originated over 3,700 Paycheck Protection Program (PPP) loans totaling $635.4 million, receiving approximately $22.7 million in fee income[232] - Approved approximately $631.8 million in COVID-19 related payment deferrals, representing 16.8% of the loan portfolio (excluding PPP loans), with active deferrals decreasing to $27.9 million (0.74% of loans excluding PPP) as of September 30, 2020[233] Results of Operations Analysis Net income for Q3 2020 decreased to $13.1 million from $15.3 million in Q3 2019, driven by a $9.8 million increase in the provision for loan losses, while net interest income fell by $4.3 million due to lower asset yields - Net interest margin for Q3 2020 was 3.60%, a decrease of 102 basis points from 4.62% in Q3 2019, primarily due to lower loan yields from decreased market rates and lower-yielding PPP loans[307] - The provision for loan and lease losses increased by $9.8 million in Q3 2020 compared to Q3 2019, reflecting specific impairments and qualitative allocations of $8.4 million to address the impact of the COVID-19 pandemic[312][284] - Non-interest income increased by 50.3% in Q3 2020 year-over-year, driven by a $3.3 million increase in net gains on sales of loans and a $2.7 million positive swing in loan servicing asset revaluation[313][317][321] - Non-interest expense decreased by 8.2% in Q3 2020 year-over-year, mainly due to lower legal, audit, and professional fees, and reduced data processing expenses following the prior year's system conversion costs[325][329][331] Financial Condition Analysis Total assets grew 17.7% to $6.5 billion at September 30, 2020, from year-end 2019, fueled by a $588.9 million increase in loans and leases, including PPP originations, while total deposits increased by $662.7 million - The loan and lease portfolio increased by 15.6% to $4.4 billion at September 30, 2020, from $3.8 billion at December 31, 2019, with originated loans growing by $800.9 million, largely due to PPP loans[338][352] - Total deposits grew 16.0% to $4.8 billion, with non-interest-bearing deposits increasing by 34.3% to $1.7 billion, representing 35.7% of total deposits[380] - Non-performing assets increased to $51.3 million, or 0.79% of total assets, at September 30, 2020, compared to $46.2 million, or 0.84% of total assets, at December 31, 2019[376] Regulatory Capital Ratios | Ratio | Company (Sep 30, 2020) | Bank (Sep 30, 2020) | Well-Capitalized Minimum (Bank) | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 12.55% | 13.25% | 6.50% | | Tier 1 Capital | 13.77% | 13.25% | 8.00% | | Total Capital | 16.67% | 14.50% | 10.00% | | Leverage Ratio | 10.93% | 10.49% | 5.00% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by the Asset Liability Committee, with an immediate 100 basis point increase in rates estimated to increase net interest income by 4.7% over the next twelve months Net Interest Income Sensitivity Analysis (Immediate Shifts) | Change in Market Interest Rates | Estimated Change in NII (Next 12 Months) | | :--- | :--- | | +300 basis points | +16.2% | | +200 basis points | +10.6% | | +100 basis points | +4.7% | | -100 basis points | -2.6% | - The company manages interest rate risk through its Asset Liability Committee, using net interest income simulations and interest rate swaps to hedge exposure, with the notional amount of interest rate swaps being $373.8 million as of September 30, 2020[432] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal control over financial reporting during the third quarter - The President and Chief Executive Officer and the Chief Financial Officer concluded that as of September 30, 2020, the Company's disclosure controls and procedures were effective[440] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[441] PART II – OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, and details on unregistered sales of equity securities and use of proceeds Item 1. Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not presently party to any legal proceedings the resolution of which would have a material adverse effect on its business[445] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2019, or subsequent quarterly reports - No material changes to the risk factors previously disclosed in the Form 10-K for the fiscal year ended December 31, 2019, or subsequent Form 10-Q reports, were reported[446] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's stock repurchase program, approved in November 2019, was paused in March 2020, resulting in no shares repurchased during the third quarter of 2020, with 1,131,514 shares remaining authorized - The stock repurchase program was paused in March 2020, and no shares were repurchased during the third quarter of 2020[447]