Byline Bancorp, Inc. (BY) Q4 2021 Earnings Report, Transcript and Summary

Good morning and welcome to the Byline Bancorp, Fourth Quarter 2021 Earnings Call. My name is Melissa and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions] If you are listening by a speakerphone, please lift your headset prior to asking your question. [Operator Instructions] Please note the conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations, to begin the conference call.

Thank you, Melissa. Good morning, everyone. And thank you for joining us today for the Byline Bancorp Fourth Quarter 2021 Earnings Call. In accordance with Regulation FD, this call is being recorded, and is available via webcast on our Investor Relations website along with our earnings release in the corresponding presentation slides. Management would like to remind everyone that certain statements made on today's call involve projections or other forward-looking statements regarding future events or the future financial performance of the Company. We caution that such statements are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. The Company's risk factors are disclosed and discussed in its SEC filings. In addition, certain slides contain and we may refer to non-GAAP measures which are intended to supplement but not substitute for the most directly comparable GAAP measures. Reconciliation for these numbers can be found within the appendix of the earnings release. For GAAP, additional about risks and uncertainties, please see the forward-looking statements and non-GAAP financial measures disclosures in our earnings release. I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp.

Thank you, Brooks. Good morning, everyone and thank you for joining us on the call today to review our fourth quarter and year-end results. As always, joining me on the call this morning are our Chairman and CEO, Roberto Herencia, our CFO, Lindsay Corby, and Mark Fucinato, our Chief Credit Officer. For our practice, I will walk you through the highlights for the quarter and then pass the call over to Lindsay, who will provide you with the detail on our results. But first I want to start by making some brief comments about our full-year 2021 results. Turning to Slide 3 of the deck. The last two years have certainly been unprecedented. On the one hand, we experienced the fastest and deepest contraction in economic activity in recent memory, followed by the quickest and fastest snap back in economic activity in the backdrop of ultra-low interest rates and massive stimulus from both the Federal Reserve and the Federal Government. In the context of this backdrop, the value of our diversified business model was evident. And we saw that in our full-year results, which reflected record performance for the Company and delivered strong results for our shareholders. Net Income for the year was $92.8 million or $2.40 per diluted share. Revenue grew 12%. The loan portfolio, inclusive of PPP loans grew 6% and average deposits 9%, while bottom-line results and EPS were very strong for the year. Our profitability continued to improve with ROA, ROE and ROPCE increasing over 2021 and our efficiency ratio also improved on a year-over-year basis. Credit quality improved consistent with the recovery and robust economic growth and we took advantage of ample capital availability in the market to exit certain relationships. Overall, credit costs declined with net charge-offs going from 51 basis points in 2020 to 28 basis points in 2021. And credit metrics showed improvement across the board, which allowed our allowance to decline by $11.3 million on a year-over-year basis. The capital return was also an important part of the story in 2021, as we returned a significant amount of capital to our shareholders. Dividends paid to shareholders increased by 150% over the prior year. And we expanded our share repurchase program. In summary, we repurchased $28.9 million of common stock, predominantly in the first half of the year, which when coupled with our dividend resulted in us returning $40.3 million in capital to shareholders. Moving on to the fourth-quarter results. Net income for the quarter came in at $17.2 million or $0.45 per diluted share. This was a decline when compared to the previous quarter, but these results include $13 million in aggregate charges related to the consolidation of six branches and an impairment charge taken in order to reduce our real estate footprint and cost operating expenses. Collectively, this cost us about $0.34 per diluted share. Adjusting for these charges, our pre -tax pre -provision revenue was at $34.2 million for the quarter, which puts our pre -tax pre -provision ROA at a healthy 203 basis points. Revenue for the quarter was a record for the Company coming in at $80.7 million and was driven by an increase in net interest income up by 3.1% from the prior quarter and strong non-interest income of $90 million. Moving onto the balance sheet. Loans and leases, excluding PPP, increased by $72.3 million or 7% annualized and stood at $4.5 billion as of the end of the quarter. This was the third consecutive quarter of solid loan growth ex.PPP. Year-over-year loans, again, excluding PPP, grew by $648 million or 17%. We saw growth across our C&I, Commercial Real Estate and leasing businesses, which helped offset the runoff in our residential mortgage loan portfolio. Demand for credit remains solid for the quarter with loan production of 280 million, which helped offset the impact of an expected offset in sale activity from the prior quarter. An important goal for us this year was the replacement of PPP loans with traditional commercial loans. We're proud to say we've largely achieved that goal. Line utilization saw another increase in the quarter to 53.4% up 1% from the prior quarter, which helped drive some additional growth in C&I balances. Our government guaranteed lending business had strong production with $160 million in closed loans, up 36.8% on a year-over-year basis. We ended the fiscal year as the fifth largest 7(a) dollar lender in the United States, and for the first time became the number one third-party lender for 504 loans in the state of Illinois. We're proud of our performance and remain committed to supporting small businesses by providing needed access to capital for them to succeed. Moving over to Liabilities. Deposits came in at $5.2 billion as of quarter end, and we're essentially flat from the third quarter, with growth coming primarily from money market accounts. Last quarter, I mentioned that we had begun opening consumer deposit accounts online and that our early results were encouraging. We ended the year with approximately $50 million in core deposits from this activity, and we'll be rolling out the same capability for commercial accounts early in the second quarter. Our deposit mix remains strong with non-interest-bearing DDA representing 42% of total deposits. Deposit costs overall, we're flat quarter-over-quarter and continue to be at a cycle low. With respect to profitability, our margin expanded by five basis points to 3.97% up from 3.92% last quarter, excluding accretion income and reflect higher yields on loans. The margin also expanded if you exclude the seven basis point drag from PPP loans, and we remain well-positioned for expected increases in short-term rates. On the expense and efficiency front, we continue to make headway towards our objectives in this area and took actions to reduce expenses in order to continue investing in the business. Our adjusted efficiency ratio was just about 55% and improved on a year-over-year basis by 31 basis points. Asset quality continued to show improvement and our overall results in this area were excellent. We saw declines in both NPLs and NPAs during the quarter in both dollar and percentage terms. We do not take these results for granted as they reflect a benign credit environment coupled with ample liquidity in the market. Despite having a positive outlook on credit, we remain vigilant with our portfolio and continue to actively monitor borrowers to identify potential issues as they continue to emerge from the pandemic environment. Our capital position remains strong with the CET1 ratio of 11.4% and total capital of 14.7% as of quarter end. We did not repurchase shares during the quarter but continue to have ample room to do so under our existing share repurchase authorization. Yesterday, we announced that our Board had approved the redemption of the Company's Series B preferred stock, which is expected to occur on March 31st. We believe our balance sheet strength positions as well to support organic growth, continue investing in our franchise, and pursue accretive opportunities while returning capital to shareholders. With that, I'd like to turn it over the call to Lindsay, who will provide you more detail on our results. Lindsay.

Thanks, Alberto. Good morning, everyone. Starting with loans and leases on Slide 5. Our total Loans & Leases were $4.6 billion at December 31st, a net decrease of $56 million primarily driven by PPP forgiveness. Excluding PPP, Loans & Leases increased by $72.3 million, from the prior quarter. As we expected, payoffs were elevated in the fourth quarter and came in at $307 million compared to a $140 million in the third quarter. Our Originated Loan Portfolio, excluding PPP, increased approximately a $135.9 billion net for the quarter. When PPP loans and the Residential Mortgage Loan Portfolio are excluded, our originated loan and lease portfolio increased 31.2% over the past year, which reflects the core growth and our core commercial client base. In terms of loans and lease growth, we believe we will see mid to high single-digit loan growth for the year, assuming some normalization and payoff activity. Turning to Slide six, we'll look at our government-guaranteed lending business. As Alberto discussed earlier, we had another very strong quarter of production. The December 31st on-balance sheet SBA 7(a) exposure was $464 million, approximately $4 million lower than the end of the prior quarter, with $77 million being guaranteed by the SBA. The USDA on balance sheet exposure was $65 million, down $11 million from the end of the prior quarter of which $26 million is guaranteed. We continue to see improving trends in this portfolio. As a result, we've slightly decreased our allowances, as percentage of the unguaranteed loan balance to 7.6% from just above 8% at the end of the prior quarter. Moving over to Deposits on slide 7, we saw growth in our lower cost deposit categories as we continue to see inflows of commercial transaction deposits that are replacing higher cost time deposits. Commercial deposits represent about half of our total deposits, and 76% of non-interest-bearing deposits. As expected, our total cost of deposits remains flat at eight basis points. Moving on to net interest income and margin on Slide eight. Our net interest income was $61.7 million for the quarter, an increase of $1.9 million or 3.1% from the prior quarter. This was primarily due to higher average balances of Loans & Leases and lower funding costs. On a GAAP basis, our net interest margin was 396 for the fourth quarter, up 5 basis points from last quarter. Accretion Income on Acquired Loan, contributed 9 basis points for the margin for the fourth quarter, down from 11 basis points in the last quarter. PPP interest and net fee income combined, contributed $4.5 million to net interest income for the fourth quarter, compared to $5.4 million last quarter. The Q4 margin also benefited from the 4 basis point improvement in the average yield on earning assets, as a result of the robust loan release production during the end of the third quarter and into the fourth quarter. Looking forward, our GAAP margin will be impacted by the $3.5 million of remaining net processing fees from PPP loans, which we expect to be recognized during the first half of 2022. We believe our net interest margin, excluding Accretion of PPP, should be relatively flat from the fourth quarter, and then start to increase as rates begin to rise over the course of the year. We believe our asset-sensitive balance sheet remains well positioned to take advantage of higher interest rates in the future. We estimate that a 100 basis point increase in interest rates, will result in an additional 5% to 6% increase, in net interest income dollars on an annualized basis. The asset sensitivity is principally driven by our loan portfolio. Up wedge 60% of loans excluding PPP, are variable rate. More than half of these loans have interest rate floors and approximately 85% of those are currently priced at the floor. Turning to Non-Interest Income on Slide 9. In the fourth quarter, our Non-Interest Income increased 2.8% from the prior quarter. The increase was primarily attributed to net gains on sales of loans due to higher volumes of loans sold. An additional [Indiscernible] income of $134,000 during the quarter. We sold $113.9 million of loans in the fourth quarter, up from $104.2 million in the prior quarter. The net average premium continued to be strong at 12.6% during the quarter. Looking forward, our pipeline and investor appetite for government guaranteed loans remains strong but we anticipate premium decrease in 2022 and return to pre -pandemic averages. Moving to non-interest expense trends on Slide 10. Our non-interest expense was $59 million in the fourth quarter, up from $44.2 million in the prior quarter. As Alberto previously mentioned, our fourth-quarter expenses included charges related to branch consolidations and impairment charges on assets held for sale. The increase was primarily attributed to three factors. First, we saw an increase of $11.1 million and other non-interest expense, mainly due to $8.4 million of impairment charges on assets held for sale and $4.1 million on branch consolidation charges. Second, we saw an increase of $2.9 million in salaries and benefits due to $1.5 million of increases from commissions and incentive expense and $573,000 related to branch consolidation charges. Third, we saw an increase of $1.2 million in loan and lease-related expenses, mainly related to higher expenses associated with originations of government-guaranteed loans. Our non-interest expense run rate for the fourth quarter, excluding one-time items that include impairment charges, branch consolidation, and salaries and benefits expenses was $45.9 million up $3.2 million compared to the prior quarter. Going forward, we believe that the quarterly Non-Interest Expense run rate, will trend between $44 million and $47 million. As a reminder, the first quarter tends to be more elevated with the result of payroll taxes and other seasonal expenses. It's been a cold start to the year here in the Midwest. In addition, the previously announced branch consolidations won't occur until the second quarter. And the cost saves associated with that will be realized beginning in the second half of 2022. We continue to prudently manage our expenses and find opportunities to lower our costs throughout the organization. Turning to Slide 11 next, we'll take a look at asset quality. We continue to see positive trends during the quarter. Our non-performing assets declined 18 basis points to 38 basis points of total assets. OREO decreased by $921,000, and excluding government-guaranteed loans, our non-performing loans declined 22 basis points to 44 basis points of total loans and leases. Net charge-offs increased to 37 basis points from 13 basis points of average loans and leases in the prior quarter, and a decrease from 47 basis points of average loans and leases from a year ago. The increase in net charge-offs this quarter was primarily due to non-performing loan resolutions during the quarter. We took advantage of market opportunities, and saw all criticized and classified care -- categories improved for the quarter. We had a negative provision of $1.3 million during the quarter, which despite this release, we continue to have a high level of total loss observancy, as measured by our allowance plus our acquisition accounting adjustments, which represented a 135 basis points of total loans and leases, excluding PPP loans at December 31. Turning to slide 12. As Alberto discussed, our strong capital position and financial performance have enabled us to accelerate the return of capital to shareholders this year, through increasing our dividend and expanding our share repurchase program. Our tangible book value per share increased 9% while returning 44% of capital to stockholders in 2021. With that, Alberto back to you.

Thank you, Lindsay. Turning to Slide 13, I would like to wrap up today with a few comments about the outlook and our priorities for 2022. We remain constructive on the outlook for this year. The economy will remain open and grow strongly in 2022. That said it is likely to slow down from the levels seen this past year. But that is likely to increase rates gradually to tackle higher than anticipated inflation and gradually tighten policy from the levels required due to the pandemic. Notwithstanding, overall conditions remain favorable for investment with ample supply of both debt and equity capital available in the market. In terms of our strategy and priorities, they remain consistent from prior years. We want to continue to grow our franchise while creating value for shareholders. We do this by growing and expanding customer relationships, pursuing disciplined loan growth, improving efficiencies to allow for continued reinvestment and capitalizing on market opportunities to both add talent and pursue M&A. In closing, I'd like to thank our employees for all they do, for the resilience during this challenging period and for supporting our clients on a daily basis. With that, Operator, let's open the call up for questions.

Thank you. [Operator Instructions] If you're listening via speakerphone, please lift your handset prior to asking a question. [Operator Instructions]. We'll move to our first question today, which is coming from Nate Race of Piper Sandler. Nate, please go ahead.

Yes. Hi, everyone. Good morning

Good morning, Nathan.

Maybe to start on just the -- maybe just to start on the core margin outlook ex. PPP and accretion for the first half of this year. I imagine there are maybe some elevated prepayment penalties in the loan yields this quarter just given the elevated payoffs that we saw. So maybe what's the good starting point for the margin in the first quarter of this year as you guys look to remix some assets and redeploy some excess liquidity with the mid-to-high single-digit loan growth outlook out there?

Great question, Nate. In terms of the NIM and what happened this quarter, just looking back. With there really weren't any one-time prepayment penalties flowing through there that were outside by any means, most of the prepayments -- we didn't see those penalties coming through. So in terms of looking for a way, the guidance that we gave is that, it should be relatively flat here in the beginning of 2022, and then increasing throughout the course of the year as rates rise. So and the numbers that I gave you in my prepared remarks we're assuming free interest rate increases, ending at 1% at the end of the year.

Okay. Got it. Maybe changing gears a little bit. Just thinking about credit, charge-offs were a little higher than what we were looking for this quarter. And it looks like these were not necessarily driven by your government guaranteed lending portfolio, versus maybe what we've seen historically from you guys. So I guess as you guys look out over this year, is it fair to expect charge-offs are likely going to be in that historical range that we've seen from you guys pre -pandemic, anywhere between 30 to 40 bps? And what does that imply for needs to add to the reserve or just provide for growth within that mid to high single-digit growth outlook for this year?

Good question, Nate. So let's kind of unpack that. Charge-offs this quarter, you are correct, were a little higher. I think a portion of that was driven by the fact and we commented on the prepared remarks about taking advantage of some market environment to move on some. We moved on some legacy old credit and we decided to take advantage of what the market gave us to accelerate essentially the disposition of those assets. So charge-offs were a little bit elevated. Partly is just simply you're annualizing the charge-offs for the quarter. So I would say that has to do a bit with that. We would view that as essentially like a one-time item during the quarter. The other question on the second and third parts of your questions in terms of the outlook, I think the outlook remains the same to what you stipulated in that 25 to 40 basis point range. I think that's fair. Obviously, the environment at this point continues to look very benign. That being said, as you well know, things can change but at this point I think that's what we're comfortable with stipulating. And lastly to your last point related to growth. Yes. We're obviously seeing good demand for credit. We want to continue to grow our portfolio. So to the degree that we're able to achieve that, I think it's fair to say that you're going to see provisioning consistent with the growth in the portfolio.

Okay. Great. If I could just ask one more on just updated capital deployment priorities. Now you guys still sit with a very strong capital levels. You returned a strong amount of net income to shareholders this year. Stocks pulled back a little bit recently along with the broader group. So just curious to get a sense for how you guys are thinking about how much net income you guys want to return to shareholders this year relative to last. And within that context, are acquisition opportunities more feasible today than maybe 90 or so days ago?

I think Nate, the answer to that question is, we'll continue to remain disciplined in looking at opportunities to deploy capital. Returning capital to shareholders for the reasons that you mentioned, is a priority. And I -- we [Indiscernible] on that, in terms of the outlook. That being said, it's some balance between the opportunities that we see in the marketplace to be able to take advantage of. And if we -- if those opportunities don't materialize and we find ourselves with more capital than we anticipated, then we have all the flexibility in the world to either look at the dividend, and I think our Board has been very disciplined in terms of looking at our dividend relative to our capital needs, and then certainly have flexibility also with our repurchase authorization to buy back shares. So I think the good news is we want to continue to support the organic growth of the institution and continue to support the growth in the balance sheet, first and foremost, continue to investing in the business. And then dependent on opportunities that become available to us in the market, I think we'll evaluate where the order of priorities for returning capital to shareholders if we don't have a use for it.

Got it. Very helpful --

If I may --

Sorry. Go ahead, Roberto.

Sorry. No, if I may add returning capital to shareholders as you know, the way we look at it is long term does not increase franchise value so -- and as Alberto says, our priority with capital has been to support organic growth and support any M&A opportunities that could surface and then will surface as has been the case in the past few years. But we've been very constructive in returning capital. But when you compare us to our peers, we still have returned capital at a much slower rate and that has to do with the opportunities that we see both organically and non-organically.

Understood. Makes sense. I appreciate all the color and you guys taking the questions, I'll step back. Thanks.

Thank you Nate. We'll move on to our next question today, that will be from Ben Gerlinger of Hovde Group. Ben, please go ahead.

Hi. Good morning, everyone.

Good morning, Ben.

Good morning, Ben.

If we could start a little bit to dig a little deeper into that, that loan growth guidance, I think mid-to-high-single-digits, within that, is there any area of the loan growth that could kind of take the lead position and from there, kind of juxtapose. Is there anything on the yield aspect that you could see higher average earning assets without the assistance of rate fix?

You're right to say that. Ben, in terms of the growth and the guidance that we provided, it's really a pretty balanced outlook in terms of what we're seeing across the various business units just as we disclosed in the last couple of quarters. So that's really what's contributing there. And there's not really any one particular area I'd say that's outside. In terms of the yield, I do think from an earning asset standpoint, we can continue to remix that and get a little bit of pickup potentially as we -- this last quarter we had a higher level of cash than we've had in the past. And you could see some remixing that can help depending on how we are able to deploy that and what loan growth looks like in the first and second quarter as rates start to rise.

Okay, that's helpful. And then, when we -- I think this is your guidance was 44 to 47 and then you caveated in saying 47 year-to-year, the parts of the year are always a little bit higher. Is the increase relative to wage inflation that you're combating or how are you guys thinking about it in the sense of wages relative to potentially adding talent in the Chicago market disruption and embedding all of that into expense, you get that as a big range that gives you some optionality. But because of your overarching thoughts on --

Yeah.

-- investment of talent.

Yeah, that's a great question. And in terms of the range, yes, there are inflationary pressures across the board on expenses, and that led to that range. And in terms of talent and what we're seeing and what's embedded in those numbers, we do anticipate adding talent here as we go forward. We don't have any teams of bankers in there in terms of that debt expense guidance. We do look at teams of bankers opportunistically, and we'll give you those numbers as time progresses. But we do have some ads in there. We talked about adding talent in digital and some other places throughout the bank. So we will be adding over the course of the year, and those ads are reflected in the numbers.

Got you. And then if I can just follow-up --

And Ben, If I could add. Go ahead.

Alberto, I was just going to say we've really on the -- you talked about talent. And in this year, the unsung heroes have been really the HR apartment. They have had to deal with the branch closures, turnover, COVID. It's just been amazing that's why Alberto you've heard him thank all of our employees and a lot of the blunt has gone to the people who deal with people, the HR group. And as part of that we've done a really good job staying in touch with how our employees feel. And in the results for this year, there were some expenses there, adjustments that we made in particular parts of the organization to make sure that we were reflecting the reality of the marketplace and for some talent retention. So we've been very proactive in this war for talent, right? And its great resignation theme that everyone has seen. But we feel really good about where we are with our people and the steps that we have taken to be the coolest place to work for Commercial Bankers in the Chicago area.

Yeah. That is helpful. It's pretty evident that you guys have done a pretty solid job throughout the pandemic. And the last question more philosophical in nature is, your capital levels where you are, your strong loan growth, would you think to do something that's not lending in deposits type of an acquisition, or would you go to the next 10 deals, so to speak, be more banking oriented?

I think the priorities spend would be in the first two categories. Would we consider something outside of that? For example, in the areas of wealth management or some other fee related business? I think the short answer is yes, but we would approach that carefully. And in general, I would say more opportunistically. The first two categories are really where our focus lies. Now, that doesn't mean, for instance, that it's just directly related to banks. What we consider something in the specialty finance side, of course. But very much those two kind of categories of lending and deposits, really are -- are really the two priorities, with the distant third being some other opportunities, particularly in fee generating lines of business.

Okay. Sounds good. I appreciate it. Congrats on the great year, especially finishing the year.

Great.

Thank s, Ben.

Thank you, Ben.

Thank you Ben. We'll be taking on next question from Terry McEvoy of Stephens. Terry, please go ahead.

Good morning, everyone.

Hey, Terry.

Hey, Terry.

Hi. Maybe just a little question. Just looking back over the events of 2020, '21 in the pandemic, did that change your view with all of having call it 9% of your loan portfolio and guaranteed SBA loans? I mean, had the government not stepped in and provided some support, the outcome would have been much different, and you do have outsize exposure, specifically to that borrower.

I think Terry I think it's fair to say I think it's not just on the government guaranteed side, but I think the credit environment, absent the amount of stimulus to deal with the pandemic, I think certainly we were preparing at the start of the pandemic for a very different credit environment than what we have experienced over the last couple of years. In terms of your comment regarding outsized exposure, I think maybe the way that we think about that is if you look at that exposure over time, I mean, the size of our balance sheet today is larger than when we were initially got into that business and data acquisition. As Lindsay pointed out, if you look at the breakdown that we have now in terms of data guaranteed exposure, both on SBA side as well as on the USDA side, I mean, that exposure actually went down this year. So I think proportionately and we've provided guidance on that proportionately we would -- we expect that proportionately, relative to the size of the balance sheet, it's fair to say that that's the trend, is likely to continue in that direction. That being said, we like the business and we want to continue to grow that business. We think that there are solid opportunities both on the SBA front, as well as in the USDA front, to continue to expand. Even though we're the fifth largest player in the market today in the U.S., as measured by dollars. As you well know, there's a big gap between the fifth largest and the folks that are certainly above us.

Appreciate that. Then the follow-up just to clarify. Maybe the $44 million to $47 million of quarterly expenses does not take into consideration the potential for team left out in additional lender hires.

Correct. It does not include teams of lenders. So if we come across those, we look at them opportunistically, and we'll update our guidance based upon that both on the expense item and revenue side.

Yes, Terry, that's consistent with -- as you well know, that's consistent with our approach. When opportunities come about, we'll certainly take advantage of those opportunities. We're actively looking for that. We want to continue as Roberto touched on. We feel like our platform here is just an outstanding platform for commercial banking. So we're actively looking to continue to add to that, but we will certainly report back to you when and if those opportunities arise.

It appears that you will be in the best position to find that talent relative to every other bank within 250 miles of where you're sitting that keeps talking about Chicago as a great growth opportunity so great. I appreciate that. Thanks, everyone.

Alright.

Thanks Terry.

Thank you, Terry. Our next question today will be from Damon DelMonte of KBW. Damon, please go ahead.

Good morning, everyone. Thanks for taking my call this morning. So pretty much -- most of my questions have been asked and answered, but just wanted to get a little bit more color around the outlook on the SBA gain on sale loans. Lindsay, I think you've referenced that where volumes should still remain favorable, margins will be coming down a bit off of historic highs and you could see pre -pandemic levels. So as you look at the results for last year for over $46 million, are you suggesting that that's going to trend back down towards the pre -pandemic levels of like in the mid-30s or do you think the pullback will be less than that?

Great question, Damon. In terms of the gain on sale, it's really a function of two things; one Is the volume in terms of what we originate and the second are the premiums. So my guidance is related to the premiums, not to the volume. So we want to continue to grow that business, as Alberto discussed, and we continue to see good pipelines there and we feel that the volume will continue to grow. Where my guidance was anchored was around the premiums. And if you look back at our fourth-quarter deck of 2019, you'll see the premiums than where they hovered around and that should give you a pretty good guidance. Damon, in terms of what you assume on the premium side.

Okay. That's helpful. Thanks for pointing that out. And then just to clarify on the outlook and the provision going forward. With the commentary that you would expect between 25 and 40 basis points of provision for the year. Is that what I heard?

No, I think the question had been related to charge-offs, Damon.

Okay.

If we were guiding essentially to what our previous historical pattern had been and I think we commented that that's our expectation. And then the other comments that we made related to that, is really just driven by growth in the portfolio. And we'll continue to -- we've agreed that the portfolio continues to grow at the rate that it's been growing. I think you should expect provisioning consistent with that growth.

Okay. All right that's helpful. That's all that I had. Thank you very much.

Thank you, David. [Operator Instructions] Final question is from Brian Martin of Janney Montgomery, Brian, [Indiscernible].

Good morning, everyone. Thanks for taking the questions. Just wanted to get a sense -- just going back I did want to cover the SBA but Damon just covered. But just the investment in talent if you -- if the premiums do come down, can you talk a little bit about, I guess, where you're investing the talent in that business to grow that production?

You're talking specifically SBA?

Yeah, and I think that's the --

The comment, I would say more general, across our lending businesses. So both in, call it the commercial banking space to C&I space. I mean, we think there's some verticals there that are very attractive and we would want to look to add talent there. On the SBA front, we have a lot of room both in our traditional business. And as we've commented over the years, our model today is very much a BDO centric model. If we find talented people irrespective of where necessarily geographically they are, we look for that first then we look to support those people and try to build a hub in order to kind of grow the business. And given our geographic reach today, we still have ample opportunity if the right talent became available to expand that way and also to look for ways to continue to generate more loan opportunities outside of that traditional model, whether that be different referral sources, whether that would be from a digital kind of lead generation standpoint. I think we have some interesting opportunities on that end, but going back to your point in terms of talent, it's broad based and across the board, across all of our lending units.

Got you. Okay. That's helpful. Thanks, Alberto. And then maybe just on the -- Lindsay, the size of the balance sheet with deposits, the growth, and what occurred this quarter, just how do we think about they've been stickier than you guys had thought initially would stick around for a while, but how do we think about the size of the balance sheet this year as you guys progress given the outlook for loan growth?

So Brian, I think in terms of the size of the balance sheet, we want to continue to grow long, and we gave you guidance around there. I'd say the securities portfolio is -- we've kept it pretty flat, and we remain prudent and cautious around the securities portfolio. So hopefully, that should help you in terms of luck events and overall size of the balance sheet. And most important is going to be the mix and looking at the mix over time and supply. The cash and securities to say, as they come off in the loans and trying to grow that loan portfolio as we've outlined.

Great. In deposit growth in general, Lindsay, how are you guys thinking about that this year?

Sure. So yeah, we've really seen great growth in commercial deposit base in particular. So we continue to see a great outlook and we're continuing to add new relationships. And if we bring on new lending relationships, we're looking to get that whole pizza business both on the lending and the deposit side. So we see we see a good outlook. We obviously are not projecting, are predicting stimulus funds like we saw with CPP coming into the bags as they have in the past, but we're seeing good opportunities there.

Okay. All right. And maybe just the last one for me if I could. Just on the -- your comments, Lindsay, on the asset sensitivity and just the impact of the rate increases. Can you just run back through that? I guess I missed that, but then just the -- and then also just the level of floors and how that plays and it sounds like maybe the first couple rate increase has maybe a less impact versus a little further.

Yeah. So the guidance that I gave was for 100 basis point increase in rates going to result in about 5% to 6% increase in net interest income dollars on an annualized basis. So that was the guidance that I gave. In terms of the variable rate loans, I gave percentages and I think Brian, just to help you to give you some numbers here, we have $2.5 billion of variable rate loans, 1.5 million of those have floors, and 1.3 million of those are at the floor. So that gives you a sense in terms of the floors and what we're seeing. And you're right, there will be some lag in RPO. I'd say almost all of the loans will reset in the first 100 basis points, movement higher.

Okay. And then just from a deposit beta standpoint, I guess what's your outlook is something the first couple of rates will hikes would be paid minimums on the betas and then maybe pick up. Is that fair assumption on how you're thinking about it in your outlook?

Yeah, I think that's fair, assuming natural liquidity stays where it's at and competition remains at status quo. Again, I think that those are the two biggest drivers that could change that, but I do think we'll see a lag.

To add a little bit to Lindsay 's comment, I think, in the context here of Chicago and the market here. One thing that is helpful I think and I think would help you guys in terms of how to think about betas and so forth is historically, just look to the loan-to-deposit ratios of where institutions in the market area are and what their growth outlooks are as far as wanting to grow their loan portfolios. Today that seems -- Brian to your point, that seems pretty modest at this point because there's ample room from a loan-to-deposit ratio for institutions to move that higher without feeling the pressure to have to go out and at the margin, go and get fun. So just keep an eye on that because that tends to be a pretty good predictor of where beta is on the faucets go and the timing of that move.

Okay. Perfect. That's helpful. Thank you for taking the questions and congrats on a great year.

Thanks, Brian.

Terrific.

Thank you, Brian. That was our final question. And thank you all for your questions today. And I'll now hand the call back over to Mr. Alberto Paracchini for any closing remarks.

Great. Thank you, Melissa. That concludes our call this morning on behalf of all of us here, thank you for your time today, your interest in Byline, and we look forward to speaking to you next quarter.

This concludes today's call. Thank you all for joining, and have a great rest of your day.