Regulatory Changes And First Security Bank Acquisition Will Present Opportunities Despite Risks

Key Takeaways

• Strategic acquisitions and talent recruitment in a favorable regulatory climate could boost Byline Bancorp's growth and future revenue potential.
  
• Recycling cash flows and enriching loan portfolios, alongside service expansion, is poised to enhance profitability and revenue growth.
  
• Byline Bancorp faces risks from reliance on specific strategies, leadership changes, asset quality issues, regulatory competition, and uncertain interest rates affecting earnings.

Catalysts

Operates as the bank holding company for Byline Bank that provides various banking products and services for small and medium sized businesses, commercial real estate and financial sponsors, and consumers in the United States.

• The expectation of a more benign regulatory environment and higher M&A activity could create market disruptions, allowing Byline Bancorp to capitalize on growth through talent acquisition and strategic acquisitions, likely boosting future revenue.
  
• Byline Bancorp's strategy to recycle cash flows from runoff in the inland portfolio into new loans has shown success in the past; continuing to redeploy such cash could enhance revenue growth and profitability in the future.
  
• The addition of First Security Bank in the second quarter of 2025 is anticipated to increase assets and revenue, contributing to overall growth in earnings.
  
• A potential for reduced deposit costs due to a positively sloping yield curve could strengthen net interest margins, improving net margins and profitability.
  
• Continued investment in treasury management and wealth management services is anticipated to increase fee income, thus boosting overall revenue growth.

Byline Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Byline Bancorp's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 31.8% today to 26.3% in 3 years time.
• Analysts expect earnings to reach $124.4 million (and earnings per share of $2.68) by about January 2028, up from $120.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, up from 10.8x today. This future PE is greater than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 1.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.32%, as per the Simply Wall St company report.

Byline Bancorp Future Earnings Per Share Growth

Risks

• Byline Bancorp's reliance on a specific commercial banking strategy and teams, coupled with the recent leadership changes, could pose execution risks impacting future earnings and profitability.
  
• The bank's growth plans and future results could be adversely affected by a moderation in asset quality, as evidenced by ongoing credit costs and charge-offs, which can pressure net margins.
  
• The ongoing exposure to government-guaranteed loans and the management of its related portfolios suggest a potential risk of asset quality deterioration, impacting revenue from this segment.
  
• A softer bank regulatory environment, while seen as an opportunity, could also introduce competition and disrupt the local market, potentially affecting Byline's ability to sustain revenue growth.
  
• The assumption of mid-single-digit loan growth amidst an uncertain interest rate environment, with potential rate cuts, presents a risk to net interest income projections, potentially impacting overall earnings.

Valuation

• The analysts have a consensus price target of $34.0 for Byline Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $472.9 million, earnings will come to $124.4 million, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of $29.27, the analyst's price target of $34.0 is 13.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.