KBRA Assigns Ratings to Byline Bancorp, Inc.
Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 for Chicago, Illinois-based Byline Bancorp, Inc. (NYSE: BY) ("Byline" or "the company") In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for its subsidiary, Byline Bank. The Outlook for all long-term ratings is Stable.
Byline's knowledgeable management team and Board of Directors are a credit positive, many of whom have had experience at larger institutions. Together, they have a vested interest in the company's success-with a significant level of insider ownership (37% as of 1Q 2020). Since the turnover of management in 2013, they have executed their strategy by building scale within footprint and developing a strong deposit franchise. The deposit base is centered around the growth and maintenance of noninterest-bearing deposits (30% of total), which helps facilitate below average deposit costs and, in turn, strong margins. KBRA also views the management team's conservative stance with liquidity and capital as a strength. BY's balance sheet is comparatively liquid compared to its rated peer average (25% in liquid assets) and the company maintains a favorable capital position-with a TCE ratio above 10%. Additionally, Byline's earning streams are relatively diverse compared to peers, although admittedly reliant on SBA loan originations/gain on sales.
The management team has constructed the commercial loan book to be granular/diverse, which has resulted in a below average concentration in COVID-19 Phase-1 exposures. However, KBRA views the overall credit risk profile as moderately elevated given the focus on SBA lending (16% of loans at YE 2019). This concentration has been on the decline in recent years and the downward trend should continue as the remainder of the conventional loan portfolio grows at a quicker pace. KBRA recognizes the higher NPA (News - Alert)/NCO levels as a constraint, although this is generally attributable to the SBA business. Moreover, the risk-adjusted returns are adequate, despite the higher credit costs the core ROA has tracked near 1.20% over the past two years. BY's sponsor finance business presents higher credit risks as well, although the performance within that division has been favorable given the expertise of that particular lending team.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus on banking and other sectors. Please refer to our publication U.S. Bank 1Q 2020 Ratings Compendium for our latest thoughts.
The ratings are based on KBRA's Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.
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