Acquisition And CD Repricing Will Strengthen Chicago Banking Position

Key Takeaways

• Strong capital and asset quality with strategic acquisitions and deposit management could enhance net interest margins and support earnings growth.
  
• By targeting Chicago's commercial banking market and focusing on risk management, the company aims for substantial asset and earnings growth.
  
• Economic volatility and integration risks may impact Byline Bancorp's earnings through slower loan growth, compressed margins, and potential operational inefficiencies.

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.

• Byline Bancorp has strong capital and improving asset quality ratios, with credit ratings upgraded by Kroll, which could lead to better net margins and support future earnings growth.
  
• The acquisition and integration of First Security is expected to improve profitability, as Byline Bancorp reported successful transaction completion within 207 days, which could positively impact net interest income and earnings.
  
• Byline's focus on deposit cost management and repricing of CDs could lead to a more favorable net interest margin, supporting revenue growth and potential earnings increase despite rate cuts.
  
• The company is positioned to become the preeminent commercial bank in Chicago, facilitating future revenue growth by increasing market share in a strategic metropolitan area.
  
• Continued emphasis on risk management and strategic planning for the $10 billion asset threshold indicates further growth in assets and earnings, with potential benefits from bank M&A activity in a volatile market.

Byline Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Byline Bancorp's revenue will grow by 10.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 31.3% today to 24.9% in 3 years time.
• Analysts expect earnings to reach $127.4 million (and earnings per share of $2.67) by about May 2028, up from $118.6 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 14.1x on those 2028 earnings, up from 10.1x today. This future PE is greater than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 1.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Byline Bancorp Future Earnings Per Share Growth

Risks

• Byline Bancorp's business environment faces heightened uncertainty and volatility, with evolving trade policies and mixed macroeconomic signals, which may impact revenue and earnings.
  
• With clients taking a wait-and-see approach due to economic uncertainties, particularly regarding CapEx and investments, Byline may experience slower loan growth, affecting net interest income.
  
• The company's reliance on small to mid-sized commercial clients in Chicago makes them vulnerable to local economic downturns, possibly impacting overall loan performance and credit quality.
  
• In spite of strong financial metrics, potential further interest rate cuts could compress net interest margins, affecting the company’s net income and bottom line.
  
• The integration of First Security poses execution risks; if synergies and efficiencies are not realized as planned, it could inflate expenses or disrupt operations, impacting net margins and overall earnings.

Valuation

• The analysts have a consensus price target of $31.8 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 $511.1 million, earnings will come to $127.4 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $25.95, the analyst price target of $31.8 is 18.4% higher.
  
• 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.