News Details

Fourth Quarter 2018 Highlights

• Net income of $17.1 million, or $0.46 per diluted share, a record high since our initial public offering
• Net interest margin of 4.69% for the fourth quarter of 2018, compared to 4.73% for the third quarter of 2018, and 4.26% for the fourth quarter of 2017
  • Net interest margin excluding accretion income¹ improves to 4.13% for the fourth quarter of 2018, compared to 3.99% for the third quarter of 2018, and 3.96% for the fourth quarter of 2017
• Originated loans and leases grew to $2.2 billion at December 31, 2018, an increase of $171.6 million, or 8.3%, from September 30, 2018
• Efficiency ratio of 56.81% for the fourth quarter of 2018, compared to 56.57% for the third quarter of 2018, and 66.06% for the fourth quarter of 2017
  • Adjusted efficiency ratio¹ improves to 54.95% for the fourth quarter of 2018, compared to 55.78% for the third quarter of 2018, and 63.23% for the fourth quarter of 2017
• Return on average assets improves to 1.39% for the fourth quarter of 2018, compared to 1.20% for the third quarter of 2018, and (0.09)% for the fourth quarter of 2017
• Return on average stockholders’ equity improves to 10.61% for the fourth quarter of 2018, compared to 9.22% for the third quarter of 2018, and (0.66)% for the fourth quarter of 2017

Full Year 2018 Highlights

• 2018 net income of $41.2 million, or $1.18 per diluted share, compared to 2017 net income of $21.7 million, or $0.38 per diluted share
• Net interest margin improves to 4.60% for 2018, compared to 4.11% for 2017
  • Net interest margin excluding accretion income¹ improves to 4.07% for 2018, compared to 3.82% for 2017
• Originated loans and leases grew to $2.2 billion at December 31, 2018, an increase of $664.4 million, or 42.2%, from December 31, 2017
• Efficiency ratio improves to 65.31% for 2018, compared to 67.32% for 2017
  • Adjusted efficiency ratio¹ improves to 59.87% for 2018, compared to 66.04% for 2017
• Return on average assets improves to 0.97% for 2018, compared to 0.66% for 2017
• Return on average stockholders’ equity improves to 7.34% for 2018, compared to 5.08% for 2017

CHICAGO--(BUSINESS WIRE)-- Byline Bancorp, Inc. (the “Company” or “Byline”)(NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $17.1 million, or $0.46 per diluted share, for the fourth quarter of 2018, compared with net income of $14.5 million, or $0.39 per diluted share, for the third quarter of 2018, and a net loss of $766,000, or $0.03 per diluted share, for the fourth quarter of 2017. The Company’s financial results during 2018 include certain costs associated with its acquisition and integration of First Evanston Bancorp, Inc. (“First Evanston”) and its bank subsidiary First Bank & Trust, which closed on May 31, 2018, as well as its previously announced pending acquisition of Oak Park River Forest Bankshares, Inc. Excluding these merger-related expenses, planned core system conversion expenses, and impairment charges on assets held for sale, adjusted net income¹ was $18.1 million, or $0.49 per adjusted diluted share, for the fourth quarter of 2018, compared with $14.9 million, or $0.40 per adjusted diluted share, for the third quarter of 2018, and $7.3 million, or $0.24 per adjusted diluted share, for the fourth quarter of 2017. A reconciliation of adjusted net income and adjusted diluted earnings per share to net income and diluted earnings per share, respectively, according to accounting principles generally accepted in the United States of America (“GAAP”) is provided in the financial tables at the end of this release.

Alberto J. Paracchini, President and Chief Executive Officer of Byline, commented, “We delivered a very strong quarter, characterized by a strong net interest margin, improved operating performance, lower credit costs and solid organic growth, with contributions coming from our diversified commercial lending platform, branch network and government guaranteed lending business. Earnings for the quarter were the highest since our IPO, and reflect the hard work of our employees in serving customers and the successful integration of First Evanston.

“We remain focused on executing our strategy of pursuing disciplined organic growth and improving operating efficiencies in 2019. We believe our pending acquisition of Oak Park River Forest Bankshares, Inc. will enhance our position in an attractive Chicago metropolitan market, provide an important source of low-cost deposits, and further enhance the value of the Byline franchise. Completing the acquisition and ensuring a smooth transition for customers and colleagues is a top priority for 2019,” said Mr. Paracchini.

⁽¹⁾ Represents a non-GAAP financial measure. See “Reconciliation of non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

STATEMENTS OF OPERATIONS

Net Interest Income

The following table presents net interest income for the periods indicated:

The following table presents the quarter-to-date schedule of average interest-earning assets and average interest-bearing liabilities for the periods indicated:

Net interest income for the fourth quarter of 2018 was $53.3 million, an increase of $668,000, or 1.3%, from $52.6 million for the third quarter of 2018.

The increase in net interest income was primarily due to:

• An increase of $1.6 million in interest and fees on loans and leases, primarily due to growth in loan and lease originations and the rising interest rate environment; and
• An increase of $258,000 in interest income on securities, primarily due to additional purchases during the fourth quarter of 2018.

Partially offset by:

• An increase of $1.1 million in interest expense on deposits, primarily due to the rising interest rate environment.

Net interest margin for the fourth quarter of 2018 was 4.69%, a decrease of four basis points compared to 4.73% for the third quarter of 2018. Total net accretion income on acquired loans contributed 56 basis points to the net interest margin for the fourth quarter of 2018 compared to 74 basis points for the third quarter of 2018, a decrease of 18 basis points. Net interest margin excluding loan accretion increased 14 basis points to 4.13% during the fourth quarter of 2018, compared to 3.99% for the third quarter of 2018. Despite a $1.9 million decrease in net loan accretion, interest and fees on loans and leases increased $1.6 million for the fourth quarter of 2018 compared to the third quarter of 2018.

The average cost of total deposits was 0.75% for the fourth quarter of 2018, an increase of 11 basis points compared to the third quarter of 2018, primarily due to increased rates on interest bearing deposits. Additionally, there was growth in average time deposits of $45.8 million and money market accounts of $34.9 million, partially offset by growth in average non-interest bearing demand deposits of $18.9 million.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $3.9 million for the fourth quarter of 2018, a decrease of $1.9 million compared to $5.8 million for the third quarter of 2018. The fourth quarter provision included allocations of $2.5 million for originated loans and leases, $1.6 million for acquired non-impaired loans, and a $152,000 release for acquired impaired loans. The decreased provision during the fourth quarter of 2018 was primarily due to a reduction in specific impairment in the unguaranteed portion of the government guaranteed portfolio offset by increases to the general reserve driven by originated loan and lease portfolio growth.

Non-interest Income

The following table presents the components of non-interest income for the periods indicated:

Non-interest income for the fourth quarter of 2018 was $14.6 million, an increase of $3.4 million compared to $11.1 million for the third quarter of 2018.

The increase in total non-interest income was primarily due to:

• An increase of $4.3 million in net gains on sales of loans, primarily due to an increase in government guaranteed loans sold, coupled with a slight increase in average premiums as a result of the mix of loans sold; and
• An increase of $160,000 in net gains on sales of securities available-for-sale due to calls of securities during the quarter.

Partially offset by:

• A decrease of $495,000 in ATM and interchange fees, primarily due to a credit card vendor agreement signing bonus in the prior quarter; and
• An additional $416,000 in loan servicing asset revaluation, primarily due to the change in fair value of the servicing asset as a result of increased prepayment rates and a higher interest rate environment.

During the fourth quarter of 2018, the Company sold $87.4 million of government guaranteed loans compared to $59.6 million during the third quarter of 2018, contributing to the increase in net gains on sale of loans for the quarter. The increase in sales is primarily due to the timing of loans closed becoming fully funded and mix of loans sold. While the current government shutdown may impact our level of originations and government guaranteed loan sales during the first quarter of 2019, as a Small Business Administration (“SBA”) preferred lender with an experienced team, we continue to source new transactions and remain ready to resume normal operations after the shutdown ends.

Non-interest Expense

The following table presents the components of non-interest expense for the periods indicated:

Non-interest expense for the fourth quarter of 2018 was $40.4 million, an increase of $2.4 million from $38.0 million for the third quarter of 2018.

The increase in total non-interest expense was primarily due to:

• An increase of $1.2 million in loan and lease related expenses, primarily due to increased broker fee expenses due to an increase in government guaranteed loan sales;
• An increase of $479,000 in occupancy expense, net, primarily due to costs associated with our prior branch consolidations and seasonal increases; and
• An increase of $388,000 in legal, audit and other professional fees, primarily due to professional services incurred related to the pending acquisition of Oak Park River Forest Bankshares, Inc. and our core system conversion.

Partially offset by:

• A decrease of $213,000 in regulatory assessments, primarily due to an improved risk profile as a result of improved financial ratios and performance.

The Company’s efficiency ratio was 56.81% for the fourth quarter of 2018, compared with 56.57% for the third quarter of 2018. Excluding merger-related expenses, planned core system conversion expenses, and impairment charges on assets held for sale, the Company’s adjusted efficiency ratio¹ was 54.95% for the fourth quarter of 2018, compared with 55.78% for the third quarter of 2018.

⁽¹⁾ Represents a non-GAAP financial measure. See “Reconciliation of non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

INCOME TAXES

The Company recorded income tax expense of $6.5 million during the fourth quarter of 2018, an effective tax rate of 27.4%, compared to $5.4 million during the third quarter of 2018, an effective tax rate of 27.1%, an increase of $1.1 million. The increase was primarily due to the increase in net income recorded during the quarter.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $4.9 billion at December 31, 2018, an increase of $25.2 million compared to $4.9 billion at September 30, 2018, and an increase of $1.6 billion compared to $3.4 billion at December 31, 2017.

The current quarter increase was primarily due to:

• An increase in loans and leases of $45.8 million, primarily due to an increase of $171.6 million in our originated loan portfolio, partially offset by a decrease of $125.8 million in our acquired loan portfolio;
• An increase in securities of $18.8 million, primarily due to additional purchases of mortgage-backed and government guaranteed mortgage-backed securities during the quarter; and
• An increase in loans held for sale of $11.1 million, primarily due to the timing of loan closings at December 31, 2018.

Partially offset by:

• A decrease in interest bearing deposits with other banks of $27.9 million, primarily due to lower reserve and cash management requirements;
• A decrease in due from counterparty of $9.1 million due to the timing of the settlement of loans sold at December 31, 2018;
• A decrease in deferred tax assets, net of $6.9 million, primarily due to utilization of operating loss carryforwards; and
• A decrease in other assets of $4.8 million, primarily due to a reduction in the fair value of interest rate swaps resulting from lower interest rates.

The following table shows our allocation of the originated, acquired impaired and acquired non-impaired loans and leases at the dates indicated:

ASSET QUALITY

Non-Performing Assets

The following table sets forth the amounts of non-performing loans and leases, non-performing assets, and other real estate owned at the dates indicated:

Variances in non-performing assets:

• Non-performing loans and leases were $27.6 million at December 31, 2018, a decrease of $2.6 million from $30.2 million at September 30, 2018; and
• Other real estate owned was $5.3 million at December 31, 2018, an increase of $423,000 from $4.9 million at September 30, 2018, primarily due to properties added during the fourth quarter of 2018.

Non-performing assets included $4.6 million of government guaranteed balances at December 31, 2018 and $7.3 million at September 30, 2018, a decrease of $2.7 million primarily due to guarantee collections from the SBA.

Allowance for Loan and Lease Losses

The following table presents the balance and activity within the allowance for loan and lease losses for the periods indicated:

The allowance for loan and lease losses as a percentage of total loans and leases held for investment decreased from 0.73% at December 31, 2017, and increased from 0.68% at September 30, 2018, compared to 0.72% at December 31, 2018.

Net Charge-Offs

Net charge-offs during the fourth quarter of 2018 were $2.1 million, or 0.24% of average loans and leases, on an annualized basis, consistent with $2.1 million, or 0.25% of average loans, during the third quarter of 2018, and a decrease from 0.46% for the comparable quarter one year ago. The decrease in net charge-offs as a percentage of average loans and leases was primarily due to higher loan and lease average balances during the fourth quarter.

Net charge-offs for the fourth quarter of 2018 included $1.8 million in the unguaranteed portion of government guaranteed loans while net charge-offs for the third quarter of 2018 included $1.5 million in the unguaranteed portion of government guaranteed loans.

Deposits and Other Liabilities

The following table presents the composition of deposits at the dates indicated:

Total deposits were $3.7 billion at December 31, 2018, an increase of $9.1 million compared to September 30, 2018, primarily due to continued deposit promotions. Non-interest bearing deposits to total deposits increased slightly from 31.4% at September 30, 2018 to 31.8% at December 31, 2018.

The increase in the current quarter was primarily due to:

• An increase in time deposits of $33.6 million, to $1.1 billion at December 31, 2018, primarily driven by continued promotional campaigns and additional brokered certificates of deposit of $40.0 million offset by lower public funds; and
• An increase in non-interest bearing demand deposits of $17.7 million, to $1.2 billion at December 31, 2018, primarily driven by a seasonal inflow from commercial customers.

Partially offset by:

• A decrease in money market demand deposits of $20.9 million, from $661.3 million at September 30, 2018 to $640.4 million at December 31, 2018, primarily driven by a seasonal decrease of $18.9 million in personal money market deposits; and
• A decrease in interest bearing checking deposits of $20.8 million, from $317.1 million at September 30, 2018 to $296.3 million at December 31, 2018, primarily driven by a decrease in public funds.

Total borrowings and other liabilities were $542.0 million at December 31, 2018, a decrease of $4.8 million from $546.8 million at September 30, 2018, primarily due to a decrease in accrued expenses and other liabilities partially offset by an increase in securities sold under agreements to repurchase.

Stockholders’ Equity

Total stockholders’ equity was $650.7 million at December 31, 2018, an increase of $20.8 million from $629.9 million at September 30, 2018, primarily due to net income generated during the quarter. Stockholders’ equity increased $192.1 million from $458.6 million at December 31, 2017, primarily due to the $152.1 million in stock consideration issued in connection with the First Evanston acquisition.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of December 31, 2018:

Capital ratios for the period presented are based on the Basel III regulatory capital framework as applied to the Company’s current business and operations, and are subject to, among other things, completion and filing of the Company’s regulatory reports and ongoing regulatory review and implementation guidance.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call and webcast at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) on Friday, January 25, 2019 to discuss its quarterly financial results. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (877) 512-8755. A recorded replay can be accessed through February 8, 2019 by dialing (877) 344-7529; passcode: 10127801.

A slide presentation relating to the fourth quarter 2018 results will be accessible prior to the scheduled conference call. The slide presentation and webcast of the conference call can be accessed on the News and Events page of the Company’s investor relations website at www.bylinebancorp.com.

About Byline Bancorp, Inc.

Headquartered in Chicago, Byline Bancorp, Inc. is the parent company for Byline Bank, a full service commercial bank serving small- and medium-sized businesses, financial sponsors, and consumers. Byline Bank has approximately $4.9 billion in assets and operates more than 50 full service branch locations throughout the Chicago and Milwaukee metropolitan areas. Byline Bank offers a broad range of commercial and retail banking products and services including small ticket equipment leasing solutions and is one of the top 10 Small Business Administration lenders in the United States.

Non-GAAP Financial Measures

This release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These measures include adjusted net income, adjusted diluted earnings per share, adjusted efficiency ratio, adjusted non-interest expense to average assets, non-interest income to total revenues, adjusted return on average stockholders’ equity, adjusted return on average assets, pre-tax pre-provision return on average assets, adjusted pre-tax pre-provision return on average assets, tangible book value per share, tangible common equity to tangible assets, return on average tangible common stockholders' equity, adjusted return on average tangible common stockholders' equity, and net interest margin excluding loan accretion. Management believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company’s financial condition, results of operations and cash flows computed in accordance with GAAP; however, management acknowledges that our non-GAAP financial measures have a number of limitations. As such, these disclosures should not be viewed as a substitute for results determined in accordance with GAAP financial measures that we and other companies use. Management also uses these measures for peer comparison. See “Reconciliation of Non-GAAP Financial Measures” in the financial schedules included in this press release for a reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures.

Adjusted net income and adjusted diluted earnings per share exclude certain significant items, which include incremental income tax benefit related to the Company’s reversal of its valuation allowance on its net deferred tax assets, incremental income tax benefit related to Illinois corporate income tax rate increases, incremental income tax expense or benefit related to federal corporate income tax reductions, impairment charges on assets held for sale, merger-related expenses, and core system conversion expenses adjusted for applicable income tax. Management believes the significant items are not indicative of or useful to measure the Company’s operating performance on an ongoing basis.

Adjusted non-interest expense is non-interest expense excluding certain significant items, which include impairment charges on assets held for sale, merger-related expenses, and core system conversion expenses.

Adjusted efficiency ratio is adjusted non-interest expense less amortization of intangible assets divided by net interest income and non-interest income. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted non-interest expense to average assets is adjusted non-interest expense divided by average assets. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted return on average stockholders’ equity is adjusted net income divided by average stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted return on average assets is adjusted net income divided by average assets. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Non-interest income to total revenues is non-interest income divided by net interest income plus non-interest income. Management believes that it is standard practice in the industry to present non-interest income as a percentage of total revenue. Accordingly, management believes providing these measures may be useful for peer comparison.

Pre-tax pre-provision net income is pre-tax income plus the provision for loan and lease losses. Management believes this metric is important due to the tax benefit resulting from the reversal of the net deferred tax asset valuation allowance, the decrease in the federal corporate income tax rate, and the increase in the Illinois state corporate income tax rate. The metric demonstrates income excluding the tax provision or benefit and excludes the provision for loan and lease losses.

Adjusted pre-tax pre-provision net income is pre-tax pre-provision net income excluding certain significant items, which include impairment charges on assets held for sale, merger-related expenses, and core system conversion expenses. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Pre-tax pre-provision return on average assets is pre-tax income plus the provision for loan and lease losses, divided by average assets. Management believes this metric is important due to the change in tax expense or benefit resulting from the recent decrease in the federal corporate income tax rate and the recent increase in the Illinois state income tax rate. The ratio demonstrates profitability excluding the tax provision or benefit and excludes the provision for loan and lease losses.

Adjusted pre-tax pre-provision return on average assets excludes certain significant items, which include impairment charges on assets held for sale, merger related expenses, and core system conversion expenses.

Tangible common equity is defined as total stockholders’ equity reduced by preferred stock and goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.

Tangible assets is defined as total assets reduced by goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.

Tangible book value per share is calculated as tangible common equity, which is stockholders’ equity reduced by preferred stock and goodwill and other intangible assets, divided by total shares of common stock outstanding. Management believes this metric is important due to the relative changes in the book value per share exclusive of changes in intangible assets.

Tangible common equity to tangible assets is calculated as tangible common equity divided by tangible assets, which is total assets reduced by goodwill and other intangible assets. Management believes this metric is important to investors and analysts interested in relative changes in the ratio of total stockholders’ equity to total assets, each exclusive of changes in intangible assets.

Tangible net income available to common stockholders is net income available to common stockholders excluding after-tax intangible asset amortization.

Adjusted tangible net income is tangible net income available to common stockholders excluding certain significant items, which include incremental income tax benefit related to Byline’s reversal of its valuation allowance on its net deferred tax assets, incremental income tax benefit related to Illinois corporate income tax rate increases, incremental income tax expense or benefit related to federal corporate income tax reductions, impairment charges on assets held for sale, merger-related expenses, and core system conversion expenses adjusted for applicable income tax. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Return on average tangible common stockholders’ equity is tangible net income available to common stockholders divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Adjusted return on average tangible common stockholders’ equity is adjusted tangible net income available to common stockholders divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of the Company’s operating performance on an ongoing basis.

Net interest margin excluding loan accretion is calculated as reported net interest margin less the effect of accretion income net of contractual interest collected on acquired loans. Management believes that this metric is important as it illustrates the impact of net accretion income from acquired loans on the net interest margin.

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, made through the use of words or phrases such as ‘‘may’’, ‘‘might’’, ‘‘should’’, ‘‘could’’, ‘‘predict’’, ‘‘potential’’, ‘‘believe’’, ‘‘expect’’, ‘‘continue’’, ‘‘will’’, ‘‘anticipate’’, ‘‘seek’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’, ‘‘projection’’, ‘‘would’’, ‘‘annualized’’, “target” and ‘‘outlook’’, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Forward-looking statements involve estimates and known and unknown risks, and reflect various assumptions and involve elements of subjective judgement and analysis, which may or may not prove to be correct, and which are subject to uncertainties and contingencies outside the control of Byline and its respective affiliates, directors, employees and other representatives, which could cause actual results to differ materially from those presented in this communication. No representations, warranties or guarantees are or will be made by Byline as to the reliability, accuracy or completeness of any forward-looking statements contained in this communication or that such forward-looking statements are or will remain based on reasonable assumptions. You should not place undue reliance on any forward-looking statements contained in this communication.

In addition, this communication contains forward-looking statements related to the pending merger of Byline and Oak Park River Forest Bankshares, Inc., including, but not limited to, with respect to the expected completion date, financial benefits and other effects of the transaction. Factors that could cause actual results to differ materially from those presented in this communication regarding the pending merger may include, but are not limited to, the reaction to the transaction of the companies’ customers, employees, and counterparties; customer disintermediation; inflation; expected synergies, costs savings, and other financial benefits of the proposed transaction that might not be realized within the expected timeframes or might be less than projected; the requisite Oak Park River Forest Bankshares, Inc. stockholder approval for the proposed transaction might not be obtained; credit and interest rate risks associated with Byline’s and Oak Park River Forest Bankshares, Inc.’s respective businesses, customers, borrowings, repayment, investment, and deposit practices; general economic conditions, either nationally or in the market areas in which Byline and Oak Park River Forest Bankshares, Inc. operate or anticipate doing business, are less favorable than expected; new regulatory or legal requirements or obligations, and other risks.

Certain risks and important factors that could affect Byline’s future results are identified in its Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Byline undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise unless required under the federal securities laws.