Q4 2024 Byline Bancorp Inc Earnings Call
Thank you.
Speaker Change: Good morning and welcome to Byline Bancorp's fourth quarter 2024 earnings call.
Emily: My name is Emily and I'll be your conference operator today.
Emily: All lines have been placed on mute to prevent any background noise.
Emily: After the speaker's remarks, there will be a question and answer period.
Emily: If you would like to ask a question, simply press the star followed by the number 1 on your telephone.
Emily: If you would like to withdraw your question, press star and then 2.
Emily: <unk> became a director of borrowing after the acquisition serving at the highest level in our trust.
Emily: And Alco committee's and he retired in 2021.
Emily: Bob with an extraordinary human being and had a gentle kindness to him.
Emily: That was recognized by many cut.
Emily: Coupled with a soft voice that I can still.
Emily: Here.
Emily: In my mind.
Emily: We took hard work too hard and you would rarely finding investing as he was very active in the greater Chicago community specifically in evidence.
Bob banking career spanned over 50 years.
Emily: And he served two terms so as a director of the Federal Reserve Bank of Chicago.
Emily: It was a member of the economic club Chicago University of Chicago, Chicago and served as an advisor to the Depaul University Financial Services Center.
Speaker Change: I first met Bob the first National Bank of Chicago, When I started.
Emily: Banking career.
Emily: And through a mutual friend, we kept in touch throughout the years leading to.
Emily: It was putting together our banks.
Emily: Joan.
Emily: Bob's two boys worked at violin and one of them still has an important position with us today.
Emily: Bob our friend will always be remembered and we remain grateful for his contribution.
Emily: Items.
Emily: With that I'm happy to pass the call back to you over time.
Speaker Change: Thank you Roberto in terms of the agenda for today I'll start and give you the highlights for the full year and the quarter.
Followed by Tom who will speak to the financial results and then I'll come back to wrap up with some closing comments as well as our outlook for 2025 before opening the call up for questions. As a reminder, you can find the that we're using for today's call on our Investor Relations website and as always please refer to the disclaimer.
Speaker Change: At the front.
Speaker Change: Turning to our performance on slide three of the deck <unk> again reported strong results for the fourth quarter and full year 2024, I'd like to start by thanking our employees for their contributions this past year and further hard work in serving clients on a daily basis I'd also like to congratulate them.
Speaker Change: Under performance at this time last year I shared with you that I thought we were entering the year with good momentum and a solid footing to profitably grow the franchise and deliver value for our shareholders I am happy to report that our company accomplish that in 2024.
Speaker Change: We manage through an environment characterized by a moderate decline in short term rates when compared to market expectations, a normalization of the yield curve and an economy that continues to prove resilient. Despite the inherent uncertainty of an election year.
Speaker Change: Against that backdrop, we execute our commercial banking strategy well, we grew relationships had balanced growth maintained profitability build capital and grew tangible book value per share by 12%.
We continue to invest in the business announced the transaction with first security and rewarded shareholders with an 11% increase in our quarterly dividend in summary, 2024 proved to be another productive and successful year for the company.
Speaker Change: For the year net income was $121 million or $2 75 per diluted share on revenue of $407 million, which was up 5% year on year returns and profitability metrics remained strong with pre tax preparation, an ROA of 205 basis points.
Speaker Change: ROA of 131 basis points, and our OTC up just under 15% year on year loan growth inclusive of managed runoff of the inland portfolio came in at 3% and all of that growth was funded by deposits, which grew 4%.
Speaker Change: Operating leverage was positive for the year, which helped drive our cost to asset ratio down by 22 basis points to 238 basis points for the year Lastly, all capital levels remains strong with TCE ending the year at 961% CET one at just under 12.
Speaker Change: 5% and total capital at roughly 15% all these ratios reflect increases for the year and are now higher than prior to the inland transaction our balance sheet strength allows for the early repayment of balances in our lines tied to the transaction with inland ahead of schedule.
Speaker Change: Turning to slide four results for the quarter were also strong with net income of $33 million or <unk> 69 per diluted share on revenue of $105 million.
Speaker Change: Profitability and returns continue to be solid with pretax pre provision income of $47 2 million pre tax preparation ROA of 204 basis points, which marks the ninth consecutive quarter above 200 basis points.
Speaker Change: ROA came in at 131 basis points in our OTC of just under 14% given our growing capital base revenue was up 3% from the prior quarter and up 4% year on year, notwithstanding the lower rate environment.
Speaker Change: The revenue increase was driven by higher net interest income stemming from a 13 basis point increase in the margin and higher gain on sale income.
Speaker Change: From a balance sheet standpoint loans and deposits remained flat and stood at $6 9 billion and $7 5 billion, respectively as of quarter end, notwithstanding and net of loan sales origination activity was strong at almost $300 million for the quarter with the increase coming primarily from our commercial banking and <unk>.
Speaker Change: Leasing businesses.
Speaker Change: Pay off activity came in a bit higher than anticipated at $288 million and line utilization inched up to 60% are government guaranteed business had solid originations for the quarter with 127 $5 million and close loans, which was consistent with the seasonality we tend to see.
Speaker Change: At the end of the year.
Speaker Change: Moving on to deposits noninterest bearing stood at 23, 5% of total deposits and we saw an inflection and overall deposit costs, which decreased 28 basis points quarter on quarter.
Tom: Tom will provide you with additional color on the deposit trends cost the margin as well as our sensitivity to rates in the current environment expenses continue to remain a focus and increased to $57 4 billion largely due to higher incentive accruals correspondingly our efficiency ratio increased to 53 six.
Tom: Percent for the quarter and our cost to asset ratio moved up to 248 basis points as of quarter end.
Tom: Asset quality continued to moderate with overall credit cost coming in at $6 9 million down $600000 from last quarter net charge offs also declined and came in at $7 8 million down 700000 compared to last quarter. The.
Tom: The allowance remains strong and ended the quarter essentially flat at 142% of total loans non performers decreased 12 basis points to 90 basis points and criticized loans declined both on a linked quarter and year on year basis with that I'd like to turn over the call to Tom who will provide you with more detail on our results.
Tom: Thank you Alberto and good morning, everyone. Our strong earnings this quarter capped off a successful 2024.
Tom: Despite a different rate environment than the one we anticipated at the start of the year, we had higher net interest income solid fee revenue growth and continued to have well controlled expenses.
Tom: As a result, we continue to deliver pretax pre provision greater than 2% and we grew capital nicely again, this quarter, which drove CET, one and all other regulatory capital ratios higher.
Speaker Change: Starting on slide five with our loan and lease portfolio.
Tom: Yes.
Tom: Total loans stood at $6 9 billion at December 31.
Tom: That from the prior quarter, we originated $297 million in new loans with the strongest growth coming from our commercial and leasing teams.
Tom: Payoff activity increase for the third consecutive quarter coming in at $288 million up $21 million linked quarter.
Tom: The increase was largely due to run off and noncore portfolios, which was offset by growth in new business relationships.
Tom: Line utilization grew for the sixth consecutive quarter up 1% to 50%.
Tom: Our loan pipelines remain strong and we expect loan growth to continue in the mid single digits for 2025.
Turning to slide six.
Tom: Total deposits were flat for the quarter at $7 5 billion and up 4% for the year.
Tom: Consistent with the decline in short term rates, we saw balances decrease in time deposits offset by increases in money market accounts.
Tom: Noninterest bearing demand deposits grew for Q3 and accounted for 23% of total deposits.
Tom: We lowered our overall cost of deposits in the quarter by 28 basis points to 248% driven by higher DDA balances and disciplined deposit pricing.
Tom: Turning to slide seven.
Tom: Net interest income was $88 5 million for Q4 up 1% from the prior quarter higher than guidance, primarily due to lower interest expense on deposits.
Tom: This was the third consecutive quarter of solid NII growth and reflects a 3% increase on a year over year basis.
Tom: Our net interest margin grew to four 1% up 13 basis points linked quarter.
The change in NIM was driven by 37 basis point decrease in the cost of interest bearing liabilities offset by lower rates on earning assets.
Tom: Our outlook for net interest income is based on the forward curve that currently assumes a 50 basis point decline in the fed funds rate for 2025.
Tom: This implies a net interest income range of $86 million to $88 million for the first quarter, which is partially driven by day count.
Tom: Turning to slide eight.
Tom: Non interest income totaled $16 1 million in the fourth quarter of 12, 3% linked quarter, primarily driven by a $7 $1 million gain on sale of loans, which increased by $1 2 million or 21% higher than Q3.
Tom: The increase was due to higher volumes and higher premiums on loan sold partially driven by the mix.
Our gain on sale forecast for 2025, as an average $5 million per quarter.
Tom: With lower Q1 expectations due to typical seasonality.
Tom: Turning to slide nine.
Tom: Our non interest expense stood at $557 $4 million, which came in higher end of our Q4 guidance.
Tom: The primary drivers of the expense increase was salary and benefits largely comprised of higher revenue driven compensation other benefit related expenses and higher advertising expense.
Tom: Having said that we remain disciplined on expense management and continuing to manage our expenses prudently.
Tom: As we look ahead for 2025, we expect our quarterly non interest expense to trend between 55% and $57 million.
Tom: Turning to slide 10.
Tom: Credit quality continues to improve provision expense for the quarter came in at $6 $9 million down from $7 5 million in Q3, primarily due to a decrease in nonperforming loans.
Tom: Net charge off trends.
Tom: <unk> by 8% this quarter to $7 8 million compared to $8 5 million in the previous quarter.
Tom: On a year over year basis, Npls were down by 36%.
The ACL at the end of Q4 was $98 million.
Tom: Down slightly from the end of the prior quarter.
Tom: Npls to total loans decreased by 12 basis points to 90 basis points in Q4.
Tom: Excluding government guaranteed loans.
Tom: Npls stood at 76 basis points down 10 basis points from the previous quarter and NPA to total assets stood at 71 basis points in Q4.
Tom: Turning to slide 11.
Tom: During the quarter, our cash and securities stood at $1 8 billion.
Tom: Yield on our securities continued to increase nicely.
Tom: And was up 17 basis points to three 7% driven by higher rates on new purchases and run off of lower yielding securities.
Moving on to capital on Slide 12.
Tom: For the fifth consecutive quarter, we grew capital ratios and increased our tangible book value per share by 12% compared to last year.
Tom: CET one came in as strong 11, 7% up 35 basis points linked quarter and up 135 basis points year over year. Additionally.
Tom: Additionally, the TCE to Ta ratio stood at $9, 61% up 55 basis points from last year.
Tom: Again, we had another solid quarter and strong performance metrics, resulting in an excellent year.
Tom: As a result, our board authorized an 11% increase in our quarterly dividend payable in the first quarter.
Alberto: With that Alberto back to you.
Alberto: Thank you, Tom and moving on to slides 13, and 14 of this act.
Speaker Change: Our approach to the business and strategy remains consistent as we entered 2025.
Speaker Change: Over the past decade, we felt our banking franchise capable of consistently delivering solid organic growth and strong profitability. This is made possible by having a great team who do their part and deliver for our clients on a daily basis. We've also developed a strong culture that enables us to attract and retain.
Pain talented bankers, which in turn continues to fuel our growth.
Speaker Change: As we start this new year.
Speaker Change: Optimistic about the opportunities we see in front of us and remain well positioned to win new clients continue to grow deposits and loans and manage both the inherent risks of the business and the ever changing operating environment.
Speaker Change: With respect to the first security transaction, we remain on track with our timeline and consistent with prior guidance expect the transaction to close early in the second quarter. We look forward to welcoming the customers and employees are first security <unk> with that operator, let's open the call up for questions.
Speaker Change: Thank you.
A reminder, if you would like to ask a question today. Please do so now.
Speaker Change: Followed by the number one on your telephone keypad.
Speaker Change: If you change your mind or you feel like your question has already been answered. Please press star followed by Jay with Julian So from Mckinney.
Speaker Change: Okay.
Speaker Change: Our first question comes from the line of Nathan race with Piper Sandler.
Speaker Change: Nathan Please go ahead.
Nathan: Hey, guys good morning morning.
Speaker Change: Hey, good morning.
Speaker Change: Alberto.
Speaker Change: I'd like to start on.
Speaker Change: SBA, obviously, we saw some issues with some other notable SBA lenders that reported this week. So we're just be curious to your in terms of what youre seeing in terms of delinquencies and just overall credit quality within the portfolio.
Speaker Change: Absolutely great too.
Speaker Change: See charge offs largely remain near expectations this quarter and I think it also will also be helpful. Just to remind everyone. Just in terms of some of the initiatives you guys have undertaken over the last several years.
Speaker Change: De risked that portfolio.
Speaker Change: Of course.
Speaker Change: Great question, Nate and I think I would start by just saying I think we are we continue to see consistent trends.
Speaker Change: And that book of business as as you know and I think we've mentioned this in prior calls going back to right. After.
The Covid pandemic ended.
Speaker Change: We we have been actively monitoring that portfolio, particularly given the amount of support.
Speaker Change: SBA borrowers received so we've been monitoring how those borrowers work coming out of the pandemic how their business was resuming and then more importantly, how.
Speaker Change: Once that support and that how those companies were beginning to perform.
Speaker Change: Without really having that support in place. So I think what we have seen is we've seen we expected deterioration in that portfolio to be frankly quicker than what we saw we have seen gradual deterioration in have been prepared for that.
Speaker Change: I think what you've seen in our results is just continuing to work with those borrowers continuing to be proactive in terms of identifying problems.
Speaker Change: And managing.
Speaker Change: A through up through a rate environment that frankly was difficult for a lot of them.
Speaker Change: Just managing the book.
Speaker Change: As best as we can to help essentially those borrowers get through the other side. So.
Speaker Change: I think I would summarize that by just saying, it's something that we.
Speaker Change: Identified early on we were very proactive.
Speaker Change: With that portfolio and we continue to essentially.
Speaker Change: Actively manage that really since probably the end of 2021 going into 2022 and 2023 with respect to the second part of your question just as a reminder.
We track the UN guaranteed.
<unk> exposure on our on our book so to speak.
Speaker Change: So if we go back to $1 16 that government guaranteed the guaranteed portion of that.
Speaker Change: Look.
<unk> was around just under 15% of our loan portfolio today that bulk represents just around six 1% of the auto portfolio. So that exposure has come down proportionally as the balance sheet has grown over the years.
Speaker Change: In absolute terms is an exposure that frankly, we see continuing to remain in that range for the foreseeable future. So hopefully that answers your question.
Nate: Question Nate.
Nate: Yes, that's really helpful. Thank you Alberto.
Nate: Changing gears and thinking about the margin.
Nate: NII outlook, Lisa next quarter or two it seems like you guys kind of outperformed the guidance that.
Nate: <unk> provided in terms of the impact of rate cuts.
Nate: In the fourth quarter.
Nate: So just curious if you have maybe the fed on pause for this year and maybe just one cut in July Cripps, how do you think.
Nate: NII can trend this year absent the impact of the acquisition and just what that implies for the margin assuming loan growth.
Nate: It remains a reverse back to the kind of 4% to 5% range and lease going forward.
Tom: Hi, Neal it's Tom.
Neal: I think generally it's going to be flat to slightly up.
Neal: Again subject to what happens with the balance sheet, we have for security coming in here in the second quarter, but generally speaking if theres no more rate changes.
Neal: We still have a lag in the SBA that'll hit US here this quarter for the 50 basis points that happened in the fourth quarter, but generally speaking flat to slightly up.
Neal: I think to add to that made just big picture.
Neal: Naturally as you know we are an institution that naturally is asset sensitive.
Neal: Certainly to the degree that rates remain higher or that fewer cost cuts materialized over the course of the coming year to Toms point I think we would expect net interest income to be up.
Neal: No.
Neal: And that type of scenario.
Neal: And I would also just add I didnt really have it in my prepared remarks, but we were able to reduce our sensitivity this quarter from last quarter. So that's still something we'd like to do and at this point, it's a little bit more attractive to hedge that risk than it was say in the early fourth quarter.
Neal: Gotcha.
Neal: Just maybe one last one if the fed does remain on pause. This year. Just curious if you can speak to kind of the repricing gap within the CD portfolio and how much additional funding cost leverage you guys may have on the CD side of the book.
Neal: Sure and just to remind you I think are our interest rate risk profile kind of shares the combination of that but generally speaking.
Neal: We have.
Neal: On average.
Neal: Cds are roughly yielding like $4 39 in total.
Neal: We're repricing at roughly $3 60 ish call. It at this point, so definitely an improvement there on the asset side, we have probably about <unk> <unk>.
Neal: Almost $900 million in loans kind of at a $5 96 yield.
Neal: Which should go up about 200 basis points call, it or slightly more than that and reset and then the securities portfolio is roughly $200 million in late $2 64, So that's going to get you. Another two 5% pick up there as well.
Neal: Yes.
Neal: <unk> trend.
Neal: Also on eight that were we're paying close attention to and actually we saw a bit of that this quarter is we have a normalized yield curve now.
Neal: As making frankly kind of liquid.
Neal: Accounts a bit more attractive.
Neal: Then Cds. So we actually saw flows moving out of Cds and into more liquid accounts such as money markets.
Neal: To the degree that the curve continues to remain.
Neal: And its current shape so to speak so in other words positively sloping yield curve I think we would expect that to continue which may give.
Neal: May give a little bit more upside in terms of repricing liabilities, a little bit lower but one quarter does not make a trend we will see how behavior. If behavior continues to trend in that direction, but thats just something to keep in mind given.
Neal: <unk>.
Neal: The shape of the yield curve today.
Neal: Very helpful. I appreciate it guys I'll step back. Thank you congrats on a great quarter.
Neal: Thank you.
Neal: Sure.
Speaker Change: Our next question comes from the line of Brendan Nosal with Husky Great. Please go ahead.
Brendan Nosal: Hey, good morning, everybody hope youre staying warm.
Speaker Change: Likewise Brendan Brennan.
Speaker Change: And maybe just to start off here on asset quality.
Speaker Change: Certainly nice to see the the charge off rate come down again sequentially, but it didn't look like there were any PCB charge offs in the number this quarter. So maybe just spend a minute on where loss content originating from during the fourth quarter. Thanks.
Speaker Change: Yes, I mean, I think consistent with our commentary the last several quarters, where were seeing loss content from as the SBA portfolio.
Speaker Change: Which is largely where where losses have been centered Brenda and that goes to the earlier comments in terms of.
Speaker Change: Making sure that we identify that early that'd be provision in reserved appropriately and then we work through those credits and then what Youre seeing is just the.
Speaker Change: The ultimate resolution of those loans.
Speaker Change: Okay perfect that's helpful.
Speaker Change: Then any one on kind of the $10 billion question.
Speaker Change: Kind of curious one what's left on the punch list to wrap up internal prep to that threshold and then to the.
The asset base is a little bit larger than I was thinking for the quarter. So just wondering how much flex you have across $2025 to keep the balance sheet below 10 at year end.
Speaker Change: Yes, maybe let's take on the latter question and then we'll talk a little bit about <unk>. So I think as far as guidance is concerned we still think that from a timeline perspective.
Speaker Change: In terms of crossing.
Speaker Change: The 10 billion asset Mark is still kind of broadly speaking latter half of 'twenty five to really kind of the first two now moving into kind of the third quarter of 2026, if not really frankly 2026 at this point.
Speaker Change: The other thing I would I would tell you brand known as.
Speaker Change: Remember that once you cross we're looking at four consecutive quarters above that $10 billion remarks before the actual.
Speaker Change: Call It set of regulations and expectations formally apply so we're probably looking at the very much. The latter part of 2026, if not really the beginning of 2020, so just to put that in context.
Speaker Change: As far as the proper is concerned so we have a project team we have we.
Speaker Change: Obviously performed.
Speaker Change: And assessment of the things that we wanted to do not just for purposes of complying with.
Speaker Change: Our planning to cross that $10 billion, Mark, but really the things that we need to have in place to go.
Speaker Change: Beyond that that $10 billion, both things that are.
Speaker Change: Actual regulations that would apply as well as leading regulatory expectations. So we're well on our way with that.
Speaker Change: As I commented right at the beginning.
Speaker Change: Making sure that we have in place our general Counsel is was one of those steps and.
Speaker Change: We're fortunate that that Brian was.
Speaker Change: Came on board early this week. So I think in summary, I think the prep work and and the work that we have to do is well on its way and we are very confident that we will not only be able to meet but will exceed the expectations of being a larger.
Speaker Change: Sure.
Speaker Change: At this time I would also add at.
Speaker Change: At the end of the quarter, we had a.
Speaker Change: A little bit more excess cash than we would normally carry just because of commercial activities that happened on the last day of the year. So we have room there too.
Speaker Change: So to shrink the balance sheet, if we need to call that $400 million of flexibility.
Speaker Change: So that could be loans so to speak.
Brendan Nosal: Yes, Brendan just to add one last comment to that.
Speaker Change: The <unk>.
Speaker Change: Guidance. We just gave is consistent with the closing of the first security transactions. So we're factoring that into the comments, we just made.
Speaker Change: That's super helpful color and then Tom you answered my question on.
Speaker Change: The higher cash balances for the quarter as well so thank you very much.
Speaker Change: You bet.
Terry Mcevoy: Our next question comes from the line of Terry Mcevoy with Stephens.
Speaker Change: Please go ahead.
Terry Mcevoy: Thanks, Good morning, everyone.
Speaker Change: Maybe Tom a question for you Tom.
Speaker Change: Tom you talked about mid single digit loan growth what are your thoughts on the payoffs, which you noted earlier picked up in the fourth quarter. What are your assumptions there and then when you take a take a step back with markets. Our portfolios are positioned to generate that growth in 2025.
Speaker Change: As Alberto mentioned in his comments I mean, we definitely saw payoff activity from the inland transaction and some legacy syndication loans that we had so we're really happy with that.
The fact that some noncore.
Speaker Change: Loans were paid off and we can.
Speaker Change: <unk>.
Speaker Change: Cash if you will into customer relationships, where we get in deposit so.
Speaker Change: That was around $100 million for the quarter and that will the inland transaction will slow down over time, but the syndications group is certainly much lower than.
Speaker Change: It probably stabilizes at this point.
Speaker Change: Yes, one thing.
Terry Mcevoy: To add there Terry is as you recall the inland transaction just to put that in context that was about a $1 billion one or so in terms of assets.
Terry Mcevoy: This past year and this was very much part of the strategy that came with that acquisition was to be able to essentially recycle.
Terry Mcevoy: Cash flows coming from that loan book into loans that fall into our own originations.
Terry Mcevoy: So I thought we did an excellent job in 2024, just to put it in context and perspective. This past year, we had $321 million of runoff in that portfolio that we were able to redeploy into our lending different lending businesses and still show year over year growth.
Terry Mcevoy: And the portfolio, which speaks to our asset generation capabilities and our ability to redeploy that cash.
Terry Mcevoy: On a measured basis.
Terry Mcevoy: And continue to show.
Terry Mcevoy: Growth on the on the balance sheet. So just to put that in context and in terms of the businesses, we benefit from having a diversified.
Terry Mcevoy: Group of businesses, So certainly we anticipate commercial banking.
Terry Mcevoy: For all the reasons that you're seeing in the market today to have a good year again in 2025, our leasing business continues to be strong.
Terry Mcevoy: We're cautiously more optimistic with our real estate business in the sense that we're seeing an uptick in activity. There. We're also seeing more competition coming into the market.
Terry Mcevoy: That's going to be driven by whether or not we see transaction volume.
Terry Mcevoy: But we're cautiously optimistic there so I think hopefully that gives you.
Terry Mcevoy: Color in terms of.
Terry Mcevoy: Where we anticipate seeing growth in the portfolio.
Speaker Change: Thank you. Thank you both so maybe as a follow up Tom could you just run through your expense outlook, one more time I'm, sorry I was.
Speaker Change: Writing something else or was that for the first quarter were particularly interested in kind of your thoughts on full year 2025.
Speaker Change: Sure I mean, we.
Speaker Change: We gave guidance for the full year end.
Speaker Change: The guidance was 55% to $57 million per quarter Gary.
Speaker Change: Okay. So that was more than just the first quarter. Thanks for thanks for clearing that up thanks.
Speaker Change: To give full year for everything.
Speaker Change: Obviously, we're always trying to air on the lower side, if we can beat expectations, but.
Speaker Change: First quarter, you typically have some payroll and HR related compensation and benefits et cetera in taxes. So.
Speaker Change: But 55% to 50 Sevens our range right now.
Speaker Change: Okay.
Speaker Change: Again have a nice weekend.
Speaker Change: Thank you Eric.
As a reminder, if you would like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad.
Speaker Change: Our next question comes from Brian Martin with Janney Montgomery.
Speaker Change: Brian. Please go ahead.
Brian Martin: Hey, good morning, everyone.
Speaker Change: Hey, Bryan Bryan Bryan.
Speaker Change: Hey, Tom just one question the margin.
Speaker Change: Where did the margin can you give any thought on where the margin exited the year versus kind of the quarter. It was it I guess, assuming it was trending higher than them.
In the quarter, and then just remind us the drag on the.
Speaker Change: The SBA and get into that.
Speaker Change: Most recent 50 basis point cut because we look at the <unk>.
Speaker Change: Yes, I mean, the margin is really in that 4% range for the quarter.
Speaker Change: Yes.
Speaker Change: For December sorry for December U S for December.
Speaker Change: Yes.
Speaker Change: And as it relates to the SBA.
Speaker Change: The fed cut 50 basis points in the fourth quarter.
Speaker Change: And.
Speaker Change: That is effective as a reset lower.
Speaker Change: Crime for them at January 1st So that's 50 basis points on the SBA balances and the USDA.
Speaker Change: Okay.
Speaker Change: Then.
Speaker Change: Just in terms of the capital and kind of worth at any opportunities.
Speaker Change: Are you seeing more opportunities today in terms of <unk>.
Speaker Change: Given the disruption in the market in terms of adding.
Speaker Change: Think about this year and 25% as far as adding talent or is it are there more opportunities today in terms of potential.
Speaker Change: Inorganic growth in terms of M&A.
Speaker Change: Full M&A opportunities acquisition.
Brian Martin: Thank you Brian.
Brian Martin: While opportunities, yes, the opportunity set at 25 as you kind of look at it.
Brian Martin: I think two things I think it goes to overdose comment really right at the beginning of the call anytime that there is.
Brian Martin: Disruption and I think.
Brian Martin: Certainly the expectations are that.
Brian Martin: Activity is likely to pick up which we welcome.
Brian Martin: Sure.
Brian Martin: Because any type anytime that we see disruption so when you think about.
Brian Martin: Whether it's regional or Super regionals.
Brian Martin: Anytime that we see an M&A transaction is going to have.
Brian Martin: Some degree of effect.
Brian Martin: <unk>.
Brian Martin: In the past, we've been able to capitalize.
Brian Martin: Very nicely on that so.
Brian Martin: So I think we look forward to that as far as <unk>.
Brian Martin: M&A picking up I mean, certainly conversations there is a lot of talk in.
Brian Martin: In anticipation of perhaps a more benign regulatory environment that is conducive to M&A.
For us it really hasn't.
Brian Martin: That really hasn't been a limitation, we have always been able to do transactions over the past several years and pursue those and have frankly, a very favorable and quick regulatory.
Brian Martin: Lori approval process.
Brian Martin: What we stick our neck with is really the drivers of M&A and those have not changed there is plenty of institutions that.
No lack succession plans for our board of directors are getting up in age their shareholder base.
Brian Martin: Is now in the second if not third generation and ultimately wants liquidity, which are really the factors that drive M&A and I think we think.
Brian Martin: At least here in Chicago, we are super well positioned to continue to be active participants on that.
Brian Martin: And we think we're a great partner for four institutions that are looking to partner with somebody and provide liquidity to their shareholders.
Speaker Change: Perfect. Thank you for that Alberto.
Speaker Change: Maybe just the last one from me I think Tom maybe I forget some of it in the prepared remarks I thought there was some commentary about kind of the government guaranteed business kind of being in that.
Speaker Change: $5 million ish range, a quarter, just kind of wondering as we think about.
Speaker Change: Fee income in the opportunity set in 2025, I mean, if you're if you are at.
Speaker Change: $5 million run rate.
A fair amount lower than what you produced in 2000 and for US. It just kind of trying to think about the outlook for fee income and 25%. If you can give up a bit on.
Speaker Change: On the fee side from the government guaranteed business, if there's opportunity to grow fee income in 2025, or how we should be thinking about that.
Speaker Change: Yes, I mean, our goal is to obviously grow fee income and I think we have some other categories.
Speaker Change: Customer swaps for example will help.
Speaker Change: Offsetting some of the potential decline in the SBA gain on sale, but again SBA gain on sale premiums are still very strong.
Speaker Change: If we get the rate cuts, we could see some pickup as well in that in that side of the market too.
Speaker Change: Yes.
Speaker Change: I think.
Speaker Change: Brian maybe just to add to what Tom just said is what we're trying to do is really.
Speaker Change: We give guidance as far as the SBA business and particularly gain on sale is concern.
Speaker Change: We're not I mean, we're we're giving you a sense on a on a quarterly basis or we would expected, but as you know.
Speaker Change: We're really not paying attention to kind of quarterly volatility we tend to look at this more on a year over year basis.
Speaker Change: In that regard what we are keenly focused on are the variables that we control the originations the pricing.
Speaker Change: We really don't control what the market thinks these assets are worth so we try to be conservative in that regard, but certainly to a degree that the market.
Speaker Change: <unk> these assets at a higher level than what we're assuming.
Speaker Change: Which.
Speaker Change: Has it been the case in the past and or the mix of assets, we originate because of the rate environment is more favorable through higher premiums that can create.
Speaker Change: Some variance to the positive in that estimate so just keep that in mind.
Speaker Change: No thats helpful.
Speaker Change: And like I said I was thinking more full year, just trying to understand if there's a trajectory to see some increase in fee income. It sounds like there is given some of the other opportunities elsewhere and maybe some potential.
Speaker Change: Other than expected performance on that on the government guaranteed business.
Speaker Change: So thank you for taking the questions.
Speaker Change: You bet.
Speaker Change: The next question comes from Damon Delmonte with <unk>.
Speaker Change: Please go ahead.
Damon Delmonte: Hey, Good morning, guys hope everybody is doing well today.
Speaker Change: My question.
Speaker Change: But about <unk>.
Speaker Change: Thank you.
Speaker Change: Just wanted to ask a little bit about fee income Tom I appreciate the guidance on the SBA gain on sale of loan outlook could you guys just talk a little bit more about some of the other fee generating categories, you have and maybe some opportunities that you see here in the coming year.
I think just broadly speaking Damon we're pretty traditional commercial bank. So the things that we're paying attention to when you think about like service charges Treasury management fees like this past year.
That's an area that we've invested.
Speaker Change: A fair amount in the past we continue to invest in that area. So we want to continue to see.
Speaker Change: Growth in Treasury management fees.
Speaker Change: So thats, an example, and other area of that.
Speaker Change: We have new leadership, we have a new team in as our wealth management business, that's coming off a very low base I think over time, we want to see wealth management fee.
Speaker Change: A higher contributor to fees. So that's an area that we're paying.
Speaker Change: Close attention to as you know that doesn't happen overnight.
Speaker Change: We're really focused on that business and serving our commercial client base.
Speaker Change: But that's an area, where we want to.
Speaker Change: Obviously grow and proportionally half that would be a more meaningful part.
Speaker Change: Of the fee category in overall revenues and like Tom said.
The rate environment has also.
Speaker Change: Today, probably more conducive to doing.
Speaker Change: Derivatives with customers in terms of fixing rates and doing swaps et cetera. So I think those are our general categories were.
Speaker Change: Where we see drivers.
Speaker Change: Two inch that fee income category in total up.
Speaker Change: Got it that's helpful. I appreciate that color.
Speaker Change: And then I guess just secondly.
Speaker Change: As we think about provisioning and net charge offs for the upcoming year net charge offs were 47 basis points.
Speaker Change: In 2024.
Speaker Change: You feel like you've kind of peaked and we should start to see a more a lower level kind of something in the 30% Upper 30 basis point range or do you think that theres still some.
Speaker Change: Loans to move through that wood.
Speaker Change: Rate elevated net charge offs.
Speaker Change: I think.
I think consistent with our guidance in the past day money I think we still see kind of like that on a normalized basis the range being somewhere between 30 to 40 basis points somewhere in there just know that youre going to have some volatility up to some degree they're tied to <unk>.
Resolution of PCV loans that came from from prior transactions. So we will try to continue to provide disclosure around that to give you clarity in terms of what happens in and where charge offs are coming from on a quarterly basis, but I think on a on a normalized meaning excluding.
Speaker Change: Resolutions of loans that are marked that we've acquired that we basically flushed through the system. So to speak as we work it out of the bank I think that 30 to 40 basis point number is still reasonable.
Speaker Change: Got it Okay. That's helpful. Thank you and then just lastly, Tom any update on the tax rate outlook for 'twenty five.
Speaker Change: Very consistent for us right now David.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you very much have a great weekend.
Speaker Change: Thank you Damien <unk> statement, you do as well.
Speaker Change: Okay.
Speaker Change: Our next question comes from Brendan Nosal with Husky, Greg. Please go ahead.
Speaker Change: Hey, just one follow up and point of clarification on the expense guide does that quarterly outlook for 55% to $57 million include for security or is that on a standalone basis.
Speaker Change: Its standalone at this point.
Speaker Change: Got it okay. So just take that and then later on for security.
Speaker Change: Thank you.
Speaker Change: I think what what.
Speaker Change: Tom will do and certainly.
Speaker Change: Probably at the end of the second by the time of the second quarter call, but once we have the transaction closes.
Speaker Change: And we have a quarter under our belt I'm sure Tom will give you a bit more clarity in terms of that run rate on a go forward basis.
Speaker Change: Yes, that's perfect I appreciate the clarification.
Okay.
Speaker Change: Thank you for your questions today, I will now turn the call back over to Mr. Alberto <unk> for any closing remarks.
Speaker Change: Great. Thank you operator and.
Speaker Change: And thank you all for joining the call today and for your interest in byline and we look forward to speaking to you again.
Speaker Change: April Thank you again.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.