Byline Bancorp Inc (BY) 2021 Q4 法說會逐字稿

Good morning, and welcome to Byline Bancorp's Fourth Quarter 2021 Earnings Call. My name is Melissa, and I'll be your conference operator today. (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 and 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 for those discussed. The company's risk factors are disclosed and discussed within 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 additional information about risks and uncertainties, please see the forward-looking statements and non-GAAP financial measures disclosed in the 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 2 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 snapback 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 ROTCE 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.

Capital return was also an important part of the story in 2021 as we return 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 6 branches and an impairment charge taken in order to reduce our real estate footprint and cut operating expenses. Collectively, this cost us about $0.34 per diluted share. Adjusting for these charges, our pretax pre-provision revenue was at $34.2 million for the quarter, which puts our pretax 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 noninterest income of $19 million.

Moving on to 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 run-up in our residential mortgage loan portfolio. Demand for credit remained solid for the quarter with loan production of $280 million, which helped offset the impact of an expected uptick in payoff activity from the prior quarter.

An important goal for us this year was the replacement of PPP loans with traditional commercial loans. And 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 #1 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 were 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 noninterest-bearing DDAs representing 42% of total deposits. Deposit costs overall were flat quarter-over-quarter and continue to be at a cycle low.

With respect to profitability, our margin expanded by 5 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 7 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 action 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 a CET 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 31. We believe our balance sheet strength positions us 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 over the call to Lindsay, who will provide you more detail on our results. Linz?

Thanks, Alberto. Good morning, everyone. Starting with loans and leases on Slide 5. Our total loans and leases were $4.6 billion at December 31, a net decrease of $56 million primarily driven by PPP forgiveness. Excluding PPP, loans and 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 $140 million in the third quarter. Our originated loan portfolio, excluding PPP, increased approximately $135.9 million net for the quarter. With 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 in our core commercial client base. In terms of loan 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 6. We'll look at our government-guaranteed lending business. As Alberto discussed earlier, we had another very strong quarter of production. At December 31, the 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 FDA. 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 slightly decreased our allowance as a 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 noninterest-bearing deposits. As expected, our total cost of deposits remained flat at 8 basis points.

Moving on to net interest income and margin on Slide 8. 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 and leases and lower funding costs. On a GAAP basis, our net interest margin was 3.96% for the fourth quarter, up 5 basis points from last quarter. Accretion income on acquired loans contributed 9 basis points to 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 loss-to-lease 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 and 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, of which 60% of loans, excluding PPP, are variable rates. More than half of these loans have interest rate floors and approximately 85% of those are currently priced at the floor.

Turning to noninterest income on Slide 9. In the fourth quarter, our noninterest 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 and additional full 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 guarantees loans remain strong, but we anticipate premiums to decrease in 2022 and return to prepandemic averages.

Moving to noninterest expense trends on Slide 10. Our noninterest 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 3 factors:

First, we saw an increase of $11.1 million in 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. On non-interest expense run rate for the fourth quarter, excluding onetime 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 and $47 million.

As a reminder, the first quarter tends to be more elevated as a 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 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 nonperforming assets declined 18 basis points to 38 basis points of total assets. OREO decreased by $921,000 and excluding government-guaranteed loans, our nonperforming 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 nonperforming loan resolutions during the quarter. We took advantage of market opportunities and saw all criticized and classified 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 absorbency as measured by our allowance plus our acquisition accounting adjustments, which represented 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'd 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. The [Fed] 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 their 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.

(Operator Instructions) We'll move to our first question today, which is coming from Nathan Race of Piper Sandler.

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

In terms of the NIM and what happened this quarter, just looking back, there really weren't any onetime prepayment penalties going through there that were outsized by any means most of the prepayment just we didn't see those penalties coming through. So in terms of looking forward, 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 were assuming 3 interest rate increases and they have 1% at the end of the year.

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 kind of 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 kind of imply for needs to kind of add to the reserve or just provide for growth within that mid-to-high single-digit growth outlook for this year?

So let's kind of unpack that. So charge-offs this quarter, you are correct, we're 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 the market environment to move on some. We moved on some legacy old credits, 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 it's just simply you're annualizing the charge-off for the quarter. So I would say that has to do a bit with that. We would view that as essentially kind of like a onetime 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 kind of the same to what you stipulated in that kind of 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.

And if I could just ask one more on just updated capital deployment priorities, you guys still sit with very strong capital level, 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?

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 we touched on that in terms of the outlook. That being said, it's a 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.

Returning capital to shareholders, as you know, I mean, 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 that 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 lower rate, and that has to do with the opportunities that we see both organically and nonorganically.

We'll move on to our next question today that will be from Ben Gerlinger of Hovde Group.

If we could start a little bit to dig a little deeper into 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 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]?

Sure. I can take 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've 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 outsized. 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 could help depending on how we're able to deploy that and what loan growth looks like in the first and second quarter as rates start to rise.

And then Lindsay, I think you said your guidance was 44 to 47 and then you caveat in saying 47 (inaudible) the first part of the year is always typically a little bit higher. Is the increase relative to wage inflation that you're kind of combating or is -- how are you guys thinking about it in a sense the wages relative to potentially adding talent from the Chicago market disruption embedding all of that into the expense. I get that it's a big range. It gives you some optionality. But is it your overarching thoughts on the investment of talent?

In terms of the range, yes, there are inflationary pressures across the board on expenses, and that led to that range. 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 -- that 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.

We've really on the -- you talked about talent. And in this year, the unsung heroes have been really the HR department. They have had to deal with branch closures, turnover, COVID. I mean it's just been amazing the job holder to you heard him thank all of our employees. And a lot of the brunt 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 their 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, and this great resignation theme that everyone is seeing. But we feel really good about where we are with our people and the steps that we have taken to be the choice place to work for commercial bankers in the scrubber area.

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 and your strong loan growth, would you think to do something that's not kind of lending and deposits type of an acquisition? Or would you -- would the next kind of deal so to speak be more banking-oriented?

I think the priorities, Ben, would be in the first 2 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 I would say -- in general, I would say, more opportunistically, the first 2 categories are really where our focus lies. Now that doesn't mean, for instance, that it's just strictly related to banks, what we consider something in the specialty finance side, of course. But very much those 2 kind of categories of lending and deposits really are -- are really the 2 priorities with the distant third being some other opportunities, particularly in speed generating lines of business.

Congrats on a great year, especially finishing the year.

We'll be taking our next question from Terry McEvoy of Stephens.

Maybe just one question. Just looking back over the events of 2020 and '21 in the pandemic, did that change your view at all of having, call it, 9% of your loan portfolio and unguaranteed 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 outsized exposure specifically to that borrower?

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 did that acquisition. As Lindsay pointed out, if you look at the breakdown that we have now in terms of that unguaranteed exposure both on an SBA side as well as on the USDA side, I mean that exposure actually went down this year.

So I think proportionately, and we have provided guidance on that, proportionately, we expect that proportionately relative to the size of the balance sheet, it's fair to say that 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're solid opportunities, both on the SBA front as well as on 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.

There is a follow-up. Just to clarify, will be the $44 million to $47 million of quarterly expenses does not take into consideration the potential for team lift-outs and 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 side and on the revenue side.

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 those opportunities arise.

It appears that you'd 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.

Our next question today will be from Damon DelMonte of KBW.

So pretty much -- most of my questions have been asked and answered, but I just wanted to get a little bit more color around the outlook on the SBA gain on sale of loans. Lindsay, I think you referenced that while volumes should still remain favorable, margins will be coming down a bit off of historical highs and you could see kind of prepandemic levels. So as you look at the results from last year, over $46 million, are you suggesting that, that's going to trend back down towards the prepandemic levels of like in the mid-30s or you think about the pullback would be less than that?

In terms of the gain on sale, it's really a function of 2 things. One is the volume in terms of what we originate and the second are the premiums. So my guidance is related to the premium, 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 and where they hovered around, and that should give you a pretty good guidance, Damon, in terms of what to assume on the premium side.

And then, just to clarify on the outlook on the provision going forward, with the commentary that you 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 if we were guiding essentially to what our previous kind of historical pattern had been, and I think we commented that. That's our expectation. And then, the other comment that we made related to that is really just driven by growth in the portfolio, and we'll continue to the degree that the portfolio continues to grow at the rate that it's been growing. I think you should expect provisioning consistent with that growth.

(Operator Instructions) Our final question is from Brian Martin of Janney Montgomery.

Just wanted to get a sense -- just going back, I did want to cover the SBA that Damon just covered, but just the investment in talent, if you -- if the premiums do come down, I mean, can you talk a little bit about, I guess, where you're investing in talent in that business to kind of grow that production?

You're talking specifically SBA?

Yes. It's just about…

I think the comment is more (inaudible) Yes, the comment is more, I would say, more general across our lending businesses. So both in, call it, the commercial banking space, the 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.

And then maybe just on the -- Lindsay, the size of the balance sheet with deposits, the growth and what kind of what occurred this quarter, just how do we think about -- they've been stickier than you guys had thought initially or 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 kind of the outlook for the loan growth?

I think in terms of the size of the balance sheet, we want to continue to grow loans, and we gave you guidance around there. I'd say the securities portfolio, 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 looking at the overall size of the balance sheet. And most important is going to be the mix and looking at the mix over time and deploying the cash and securities as they come off in the loans and trying to grow that loan portfolio as we've outlined.

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

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

And maybe just the last one for me, if I could. Just on the -- your comments, Lindsay, on the asset sensitivity and just kind of 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 in? It sounds like maybe the first couple rate increases may be less impact versus getting a little further…

The guidance that I gave was for a 100 basis point increase in rates is going to result in about a 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. And in our view, it's -- I'd say almost all of the loans will reset in the first 100 basis point movement higher.

And then just from a deposit beta standpoint, I guess kind of what's in your outlook, it sounds like the first couple of rates will hike would be pretty de minimis on the betas and then maybe pick up? Is that a fair assumption or how you're thinking about it in your outlook?

I think that's fair, assuming that the liquidity stays where it's at and competition remains at a close. So again, I think those are the 2 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 bond. So just keep an eye on that because that tends to be a pretty good predictor of kind of where betas on deposits go and the timing of that move.

Congrats on a great year.

That was our final question. 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. Goodbye.

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