Byline Bancorp(BY) - 2022 Q4 - Annual Report

PART I Business The company is a bank holding company pursuing growth via organic expansion, acquisitions, and specialized lending services Consolidated Financial Highlights (as of December 31, 2022) | Metric | Value (USD) | | :--- | :--- | | Total Assets | $7.4 billion | | Total Gross Loans and Leases | $5.5 billion | | Total Deposits | $5.7 billion | | Total Stockholders' Equity | $765.8 million | - The company's strategic growth plan involves both organic expansion and acquisitions, with a significant pending acquisition of Inland Bancorp, Inc[11][17] - Byline Bank is a prominent U.S. government guaranteed lender, ranked as the fifth most active SBA loan originator in the U.S. for fiscal year 2022[21][73] - The company operates as a single reportable segment, with performance evaluated on a consolidated basis[14][137] - Human capital management is a key focus, with initiatives in diversity, equity, and inclusion (DEI) and a minimum starting wage of $18/hour[28][29][31] - The company is subject to extensive regulation by the Federal Reserve Board (FRB), FDIC, and IDFPR[51][52] Risk Factors The company faces material risks including credit and interest rate fluctuations, liquidity, operational challenges, and cybersecurity threats - The company's business is highly dependent on managing credit risk, as underestimating the allowance for credit losses, a risk amplified by the CECL standard, could materially affect financial results[300][314] - Fluctuations in interest rates pose a significant risk to net interest income, and the company is managing the transition from LIBOR to alternative rates like SOFR[293][315][316] - Liquidity risk is a key concern, as the company relies heavily on customer deposits for funding and dividends from its bank subsidiary[319][321][367] - The business has significant exposure to real estate markets, particularly in the Chicago metropolitan area, where a large portion of its loan portfolio is secured[312][344] - Cybersecurity threats and reliance on third-party technology systems present major operational risks that could lead to financial loss and reputational damage[313][345][346] - The government guaranteed lending program is vital to the business and dependent on the U.S. federal government; changes to the SBA program could materially harm financial results[327][328][348] Unresolved Staff Comments The company reports that there are no unresolved staff comments from the SEC - There are no unresolved staff comments as of the report date[383] Properties The company operates 38 branches, primarily in the Chicago area, with a mix of owned and leased properties - The company's corporate headquarters is located at 180 North LaSalle Street, Suite 300, Chicago, IL 60601[372] - The network consists of 38 branch offices, with 37 in the Chicago metropolitan area and one in Wisconsin; ten properties are leased and the rest are owned[372][401] Legal Proceedings The company is not party to any legal proceedings expected to have a material adverse effect on its business - The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business or financial condition[373] Mine Safety Disclosures This item is not applicable to the company - Not applicable[373] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, it paid quarterly dividends in 2022, and manages share repurchases via authorized programs - The company's common stock is listed on the New York Stock Exchange under the ticker symbol "BY"[385] - In 2022, the company paid a quarterly cash dividend of $0.09 per common share[387] - A stock repurchase program expired on December 31, 2022, after repurchasing 689,068 shares for $17.3 million in 2022; a new program for up to 1,250,000 shares is effective for 2023[388] Stock Performance Comparison (Cumulative Total Return) | Index | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Byline Bancorp, Inc. | $100.00 | $72.53 | $85.33 | $68.07 | $122.05 | $104.05 | | Russel 2000 | $100.00 | $88.99 | $111.70 | $134.00 | $153.85 | $122.41 | | S&P U.S. Small Cap Bank | $100.00 | $83.44 | $104.69 | $95.08 | $132.36 | $116.69 | | KRX | $100.00 | $80.63 | $97.07 | $85.33 | $113.65 | $102.90 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income declined in 2022 due to higher credit loss provisions, despite growth in net interest income, assets, and deposits Key Performance Indicators (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $88.0 million | $92.8 million | | Diluted EPS | $2.34 | $2.40 | | Net Interest Income | $265.3 million | $236.4 million | | Provision for Credit Losses | $23.9 million | $0.97 million | | Non-interest Income | $57.3 million | $74.3 million | | Return on Average Assets | 1.25% | 1.40% | | Return on Average Equity | 11.33% | 11.31% | - The company adopted the CECL accounting standard on December 31, 2022, resulting in a $12.2 million cumulative effective adjustment to the allowance for credit losses[314][573] - Net interest margin increased by 16 basis points to 4.00% in 2022, driven by higher yields on interest-earning assets[436] - Total assets grew by 10.0% to $7.4 billion, primarily due to a $884.1 million (19.5%) increase in the loan and lease portfolio[473] - The allowance for credit losses to total loans increased to 1.51% at year-end 2022, reflecting loan growth and increased economic uncertainty[85][449] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is actively managed using simulation models and derivatives Net Interest Income Sensitivity to Immediate Rate Shifts (Year 1) | Rate Change (basis points) | % Change in NII | Dollar Amount (in thousands) | | :--- | :--- | :--- | | +300 | 20.0% | $394,141 | | +200 | 13.7% | $373,466 | | +100 | 6.9% | $350,860 | | -100 | (5.1)% | $311,543 | | -200 | (13.4)% | $284,510 | | -300 | (22.8)% | $253,536 | - The company's primary market risk is interest rate risk, managed by the Board of Directors and management's asset liability committees[506] - As of December 31, 2022, the company had an outstanding notional amount of $1.1 billion in interest rate derivatives to manage interest rate exposure[506] Financial Statements and Supplementary Data This section includes audited financial statements with an unqualified opinion and notes the adoption of CECL as a Critical Audit Matter - The independent auditor, Moss Adams LLP, issued an unqualified opinion on the consolidated financial statements and internal controls as of December 31, 2022[513] - The auditor identified the adoption of the CECL standard and the related estimation of the allowance for credit losses as a Critical Audit Matter[101][102] Consolidated Statements of Financial Condition (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Total loans and leases, net | $5,339,334 | $4,482,116 | | Securities | $1,185,125 | $1,469,005 | | Goodwill | $148,353 | $148,353 | | Total Assets | $7,362,941 | $6,696,172 | | Liabilities & Equity | | | | Total deposits | $5,695,121 | $5,155,047 | | Borrowings | $751,428 | $630,146 | | Total Liabilities | $6,597,125 | $5,859,790 | | Total Stockholders' Equity | $765,816 | $836,382 | Consolidated Statements of Operations (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Interest Income | $265,330 | $236,387 | $214,978 | | Provision for Credit Losses | $23,879 | $973 | $56,677 | | Non-interest Income | $57,314 | $74,253 | $62,060 | | Non-interest Expense | $184,082 | $185,455 | $168,694 | | Net Income | $87,954 | $92,785 | $37,467 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - There were no disagreements with accountants on accounting and financial disclosure[542][789] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal controls over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[557] - Based on the COSO framework, management determined that the company maintained effective internal control over financial reporting as of December 31, 2022[790] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2022[558] Other Information The company reports no other information for this item - None[558] PART III Directors, Executive Officers and Corporate Governance Information on directors, officers, and governance is incorporated by reference from the 2023 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's upcoming 2023 Proxy Statement[746] Executive Compensation Details on executive compensation are incorporated by reference from the company's 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the company's upcoming 2023 Proxy Statement[779] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2023 Proxy Statement - Information regarding security ownership is incorporated by reference from the company's upcoming 2023 Proxy Statement[546] Equity Compensation Plan Information as of December 31, 2022 | Plan Category | Securities to be issued upon exercise/vesting | Weighted-average exercise price of options | Securities remaining for future issuance | | :--- | :--- | :--- | :--- | | Plans approved by stockholders | 581,337 | N/A | 416,065 | | Plans not approved by stockholders | 930,852 | $11.40 (approx.) | — | | Total | 1,512,189 | | 416,065 | Certain Relationships and Related Transactions, and Director Independence Details on related party transactions and director independence are incorporated by reference from the 2023 Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the company's upcoming 2023 Proxy Statement[547] Principal Accounting Fees and Services Information on fees paid to the independent auditor is incorporated by reference from the 2023 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the company's upcoming 2023 Proxy Statement[562] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the report, noting that financial schedules are omitted as they are not applicable - This item lists the financial statements and exhibits filed with the annual report; financial statement schedules have been omitted as they are not applicable or the information is included elsewhere[782] Form 10-K Summary The company reports no summary for this item - None[798]