8-K: Byline Bancorp to Acquire First Security Bancorp in $41 Million Deal

Byline Bancorp has announced a definitive agreement to acquire First Security Bancorp in a cash and stock transaction valued at approximately $41 million.

Summary

• Byline Bancorp has agreed to acquire First Security Bancorp and its subsidiary, First Security Trust and Savings Bank.
• The transaction is valued at approximately $41 million, based on Byline's stock price as of September 27, 2024.
• First Security Bancorp has total assets of $354.8 million, total loans of $201.4 million, and total deposits of $321.8 million as of June 30, 2024.
• Byline will issue 2.1794 shares of its common stock for each outstanding share of First Security Bancorp common stock, totaling approximately 1.5 million shares.
• The deal is expected to close in the second quarter of 2025, pending regulatory and shareholder approvals.
• First Security Bancorp preferred shares will be redeemed in cash at closing for an estimated $2.6 million.
• The merger is expected to strengthen Byline's position as the largest community bank in Chicago with assets under $10 billion.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook on the merger, highlighting strategic benefits, financial attractiveness, and minimal risks. The management commentary is also optimistic, suggesting a high level of confidence in the deal's success.

Positives

• The merger is expected to strengthen Byline's position as the preeminent commercial bank in Chicago.
• First Security brings a solid core deposit base, enhancing Byline's balance sheet flexibility.
• First Security's loan mix adds valuable diversification to Byline's portfolio.
• The transaction is expected to be accretive to Byline's earnings per share (EPS) in the mid-single digits.
• The deal is expected to result in minimal tangible book value dilution with a short earn-back period.
• There are ample cost savings opportunities expected from the merger.
• The internal rate of return (IRR) is projected to exceed Byline's cost of capital hurdles.
• Pro forma capital levels are expected to remain strong after the merger.

Negatives

• The transaction is subject to regulatory and shareholder approvals, which could delay or prevent the merger.
• There are risks associated with integrating the two companies, including potential customer and employee reactions.
• Expected synergies and cost savings might not be realized within the expected timeframes or might be less than projected.
• There are credit and interest rate risks associated with both companies' businesses.
• General economic conditions could be less favorable than expected, impacting the combined entity.
• New regulatory or legal requirements could pose challenges.

Risks

• The reaction of customers, employees, and counterparties to the transaction could impact the merger's success.
• Customer disintermediation could occur as a result of the merger.
• Inflation could affect the financial performance of the combined entity.
• Expected synergies and cost savings may not be fully realized or may take longer than anticipated.
• The required regulatory and stockholder approvals might not be obtained.
• Credit and interest rate risks associated with both companies' businesses could impact the combined entity.
• General economic conditions could be less favorable than expected.
• New regulatory or legal requirements could pose challenges.

Future Outlook

The merger is expected to close in the second quarter of 2025, pending regulatory and shareholder approvals, and is anticipated to strengthen Byline's position in the Chicago market while providing financial benefits and growth opportunities.

Management Comments

• Roberto R. Herencia, Executive Chairman and CEO of Byline Bancorp, stated that First Security Trust and Savings Bank shares their core values of exceptional customer service and building lasting relationships.
• Alberto J. Paracchini, President of Byline Bancorp, Inc., said that First Security brings a solid core deposit base and diversifies their loan portfolio.
• Danny Wirtz, Chairman and CEO of First Security Bancorp, Inc., believes that joining forces with Byline will further their principles of offering tailored products and services.

Industry Context

This merger reflects a trend of consolidation within the community banking sector, where smaller banks are combining to achieve greater scale, efficiency, and market presence. Byline's acquisition of First Security is a strategic move to solidify its position as a leading community bank in the Chicago metropolitan area.

Comparison to Industry Standards

• The price-to-tangible book value multiple of 1.31x is within the typical range for community bank acquisitions, although the adjusted multiple of 1.06x is more favorable.
• The core deposit premium of 2.9% is also within the typical range, with the adjusted premium of 0.8% being more attractive.
• The price-to-earnings multiple of 7.7x is relatively low, suggesting a potentially good value for Byline.
• The expected mid-single digit EPS accretion is a positive sign, indicating the deal is financially beneficial.
• The earn-back period of less than one year for tangible book value dilution is considered very short and favorable.
• Comparable acquisitions in the community banking space often see similar cost savings targets of 70% in the first year and 100% in the second year.

Stakeholder Impact

• Shareholders of First Security Bancorp will receive Byline stock and cash for preferred shares.
• Customers of First Security will become customers of Byline.
• Employees of both companies may experience changes in their roles and responsibilities.
• The merger is expected to create long-term value for Byline's stockholders.
• The combined entity will continue to serve the communities in the Chicago metropolitan area.

Next Steps

• Byline will file a registration statement on Form S-4 with the SEC.
• A definitive proxy statement/prospectus will be sent to First Security Bancorp stockholders.
• The transaction is subject to regulatory approvals.
• The transaction is subject to First Security Bancorp stockholder approval.
• The merger is expected to close in the second quarter of 2025.

Key Dates

Keywords

Merger, Acquisition, Byline Bancorp, First Security Bancorp, Community Bank, Chicago, Financial Institution, Banking, M&A