10-K: Byline Bancorp Reports Strong 2024 Results, Plans First Security Acquisition

Sentiment:

Annual Results 28 February 2025 4:49 PM

Byline Bancorp announces a net income increase of 11.9% for 2024 and details its strategic growth initiatives, including the acquisition of First Security Bancorp expected in the first half of 2025.

Summary

Byline Bancorp reported a consolidated net income of $120.8 million for the year ended December 31, 2024, an increase of $12.9 million compared to 2023.
The increase in net income was attributed to a $17.4 million increase in net interest income, a $4.6 million decrease in provision for credit losses, and a $2.5 million increase in non-interest income.
These increases were partially offset by a $9.2 million increase in non-interest expense and a $2.5 million increase in provision for income taxes.
As of December 31, 2024, consolidated total assets were $9.5 billion, total gross loans and leases outstanding were $6.9 billion, total deposits were $7.5 billion, and total stockholders equity was $1.1 billion.
The company completed its acquisition of Inland Bancorp on July 1, 2023.
Byline Bancorp announced the execution of an agreement to acquire First Security Bancorp, with the transaction expected to close in the first half of 2025.
As of September 30, 2024, First Security Bancorp reported total assets of approximately $361.2 million, total loans of approximately $199.7 million, and total deposits of approximately $325.5 million.
The company's 45 branch network in the Chicago metropolitan area is its core distribution channel.
Since June 2013, the branch network has been reduced from 88 to 46, including 23 branches added through acquisition.
The company offers a broad range of banking products and services to small and medium sized businesses, commercial real estate and financial sponsors, and consumers.
Byline Bank was the twelfth most active originator of SBA loans in the country and the most active SBA lender in Illinois, as reported by the SBA its the fiscal year ended September 30, 2024.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with strong financial results and strategic growth initiatives. However, there are also risks and challenges that need to be considered.

Positives

Net income increased by 11.9% to $120.8 million for the year ended December 31, 2024.
Total assets reached $9.5 billion as of December 31, 2024.
The company expects to close the acquisition of First Security Bancorp in the first half of 2025.
Byline Bank was the most active SBA lender in Illinois and twelfth most active in the U.S. in SBA lending for the fiscal year ended September 30, 2024.
Commercial deposits accounted for 45.0% of total deposits and were 80.8% of non-interest bearing deposits as of December 31, 2024.
The company conducts an annual employee engagement survey with over 94% participation and continues to see improvements in employee engagement and satisfaction year-over-year.

Negatives

The net interest margin for the year ended December 31, 2024 was 3.97%, a decrease of 34 basis points compared to 4.31% for the year ended December 31, 2023.
Non-interest-bearing deposits decreased by $149.8 million, or 7.9%, compared to 2023.
The company relies on customer deposits to meet a considerable portion of our funding needs, and we continue to seek customer deposits to maintain this funding base.
The loss of customer deposits for any reason could increase our funding costs, and negatively affect our liquidity.

Risks

The company's business depends on its ability to successfully manage credit risk.
The company may underestimate the credit losses inherent in its loan and lease portfolio and have credit losses in excess of the amount it provides for loan and lease losses.
The company's business is subject to interest rate risk and fluctuations in interest rates may adversely affect its earnings.
A lack of liquidity could affect operations and jeopardize the company's business, financial condition, and results of operations.
The company may need to raise additional capital in the future, and such capital may not be available when needed or at all.
The occurrence of fraudulent activity, breaches or failures of the company's information security controls, or cybersecurity-related incidents could have a material adverse effect on its business, financial condition, or results of operations.
The company's government guaranteed lending programs are dependent upon the U.S. federal government, and the company faces specific risks associated with originating SBA and other government guaranteed loans.
The company is subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The company may be adversely affected by risks associated with completed and potential acquisitions, including execution risks, failure to realize anticipated transaction benefits, and failure to overcome integration risks, which could adversely affect its growth and profitability.

Future Outlook

The company expects to close the acquisition of First Security Bancorp in the first half of 2025. The company expects its effective tax rate for 2025 to be approximately 25% to 27%.

Management Comments

Our aspiration to be the preeminent commercial bank in Chicago drives our focus on market expansion, deepening client relationships, and fostering a strong-cross sell culture to enhance retention and revenue diversification.
We also prioritize process improvement and productivity enhancements, leveraging technology and best practices to improve efficiency, scalability, and the overall customer experience, all with commitment to disciplined oversight and aligned risk practices.

Industry Context

The financial services industry is highly competitive, with increasing competition from internet banks, FinTech companies, and other non-bank financial service providers. Byline Bancorp is focused on organic growth and strategic acquisitions to expand its market presence and enhance its product and service offerings.

Comparison to Industry Standards

Byline Bank's capital ratios are considered 'well capitalized' under Basel III standards, exceeding the minimum requirements.
The company's efficiency ratio of 52.45% is comparable to regional banks, but there is room for improvement through process improvement and technology enhancements.
The company's return on average assets of 1.31% is in line with industry averages for regional banks.
The company's return on average equity of 11.61% is in line with industry averages for regional banks.
The company's net interest margin of 3.97% is in line with industry averages for regional banks.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Executive Vice President and General Counsel	NA	Brian Doran	January 2025	New Hire

Legal Proceedings

The company operates in a highly regulated environment and is subject to increased litigation and regulatory risks.

Related Party Transactions

Loans that may be made to the Banks executive officers, as defined in 12 CFR 215 (Regulation O), directors, principal stockholders and their affiliates are on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectability.
As of December 31, 2024 and 2023, there were no material loans made to the related parties as described.
Deposits from related parties were not material as of December 31, 2024 and 2023.
As of December 31, 2024 and 2023, there were no receivables outstanding from related parties.

Stakeholder Impact

Shareholders: Positive impact due to increased net income and potential for future growth.
Employees: Positive impact due to competitive compensation packages and opportunities for career growth.
Customers: Positive impact due to a diverse range of products and services and a focus on customer experience.
Communities: Positive impact due to community outreach efforts and a commitment to meeting the credit needs of lowand moderate-income areas.

Next Steps

Complete the acquisition of First Security Bancorp in the first half of 2025.
Continue to focus on organic growth and strategic acquisitions.
Continue to prioritize process improvement and productivity enhancements.
Continue to leverage technology and best practices to improve efficiency, scalability, and the overall customer experience.
Continue to manage credit risk and interest rate risk.
Continue to comply with regulatory requirements.

Key Dates

Date	Description
June 2013	Recapitalization of Byline Bancorp.
May 19, 2010	Date before which qualifying trust preferred securities could be included as Additional Tier 1 capital for certain bank holding companies.
1995	U.S. Private Securities Litigation Reform Act of 1995.
1977	Community Reinvestment Act of 1977.
1956	Bank Holding Company Act of 1956.
September 30, 2024	Announcement of the execution of an Agreement and Plan of Merger in connection with a proposed acquisition of First Security Bancorp, Inc.
September 17, 2024	FDIC approved a final Statement of Policy on Bank Merger Transactions.
September 17, 2019	Federal banking regulators issued a final rule meant to simplify the capital rules for community banks.
October 24, 2023	The Office of the Comptroller of the Currency, the FDIC and the FRB jointly issued a final rule to revise the CRAs implementing regulations.
October 24, 2022	FDIC published a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points.
October 25, 2023	The FRB proposed rules that would reduce the maximum permissible interchange fee cap and would adopt an approach for future adjustments to such cap.
October 1, 2024	Initial compliance date for the small business lending rule for covered financial institutions that originate the most covered credit transactions for small businesses.
October 1, 2022	Compliance with new CFPB rules modifying qualified mortgage loan requirements was required.
July 30, 2024	The FDIC proposed a rule that would amend the current rules governing brokered deposits.
July 9, 2019	Federal banking regulators issued a final rule to exempt community banks from the Volcker Rule.
July 1, 2023	Completion of the acquisition of Inland Bancorp, Inc.
July 2015	The Volcker Rule became effective.
July 18, 2025	New compliance date for the small business lending rule for Byline Bank.
July 1, 2030	Maturity date of the $75.0 million in fixed-to-floating subordinated notes.
July 1, 2025	Date from which the Company may redeem the subordinated notes.
January 1, 2026	Compliance date for the small business lending rule for institutions with the lowest transaction volume.
January 1, 2025	Full phase-in of the capital impact of the adoption of CECL.
January 1, 2020	Community bank leverage ratio framework became available to qualified community banks.
January 1, 2015	Implementation of deductions and other adjustments to CET1 began.
January 1, 2025	New stock repurchase program authorizing the purchase of up to an aggregate of 1,250,000 shares of the Companys outstanding common stock.
January 1, 2022	The Company elected to opt into the regulators joint current expected credit losses (CECL) transition provision.
January 1, 2025	Compliance was initially required as of January 1, 2025 for reporting companies created or registered prior to January 1, 2024.
January 1, 2026	The majority of the provisions set out in these CRA regulations have a compliance date of January 1, 2026, and additional requirements will be applicable on January 1, 2027.
January 22, 2024	The Company opened an advance of $200.0 million from the FRB as part of the BTFP.
January 17, 2024	The Company entered into a Letter Agreement with the Federal Reserve Bank of Chicago that allows the bank to access the Bank Term Funding Program (BTFP).
June 3, 2025	Scheduled date for the 2025 Annual Meeting of Stockholders.
June 25, 2024	The CFPB issued an interim final rule to extend compliance deadlines.
March 2023	Byline Bank received a rating of 'Satisfactory' in its most recently completed CRA examination.
March 2022	The Cyber Incident Reporting for Critical Infrastructure Act of 2022 (CIRCIA) was signed into law.
March 21, 2025	FINCEN announced that the BOI reporting requirements under the Corporate Transparency Act are now back in effect, with a new deadline of March 21, 2025 for most reporting companies.
May 1, 2024	IDFPRs proposed rules to implement the IL-CRA, which generally mirror the federal CRA regulations applicable to state-chartered institutions, were adopted and filed with the Illinois Secretary of State.
May 1, 2022	Compliance was required by May 1, 2022.
May 19, 2010	Bank holding companies such as us who had less than $15 billion in assets as of December 31, 2009 (and who continue to have less than $15 billion in assets) are permitted to include qualifying trust preferred securities issued prior to May 19, 2010 as Additional Tier 1 capital under the Capital Rules, however.
May 24, 2024	The Company entered into the First Amendment to the Second Amended and Restated Term Loan and Revolving Credit Agreement (the 'Amendment') with the lender, which is effective May 26, 2024.
September 19, 2024	The Company repaid the BTFP advance in full.
September 29, 2022	FinCEN finalized the first of three proposed rules to implement changes to the beneficial ownership requirements and related amendments set forth in the Corporate Transparency Act.
February 18, 2025	Following a decision by a federal district court on February 18, 2025, FINCEN announced that the BOI reporting requirements under the Corporate Transparency Act are now back in effect, with a new deadline of March 21, 2025 for most reporting companies.
February 20, 2024	The second final rule is effective as of February 20, 2024.
December 5, 2024	The Company announced that its Board of Directors approved a new stock repurchase program authorizing the purchase of up to an aggregate of 1,250,000 shares of its outstanding common stock.
December 6, 2023	The Company announced that its Board of Directors approved a new stock repurchase program authorizing the purchase of up to an aggregate of 1,250,000 shares of its outstanding common stock.
December 21, 2023	FinCEN finalized the second of the three proposed rules which allows for FinCEN, upon request, to disclose BOI to a statutorily defined group of governmental authorities and financial institutions.
December 26, 2024	A federal appeals court issued a nationwide injunction halting enforcement of BOI reporting requirements.

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