Byline Bancorp, Inc. Q4 FY2024 Earnings Call

Good morning and welcome to Byline Bancorp Fourth Quarter 2024 Earnings Call. My name is Emily and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. Please note the conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations for Byline Bancorp to begin the conference call.

Thank you, Emily. Good morning, everyone, and thank you for joining us today for the Byline Bancorp Fourth Quarter and Full Year 2024 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. As part of today's call, management may make certain statements that constitute projections, beliefs, 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, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures. Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure 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 disclosures in the earnings release. As a reminder for investors, this quarter, we plan on attending the KBW Winter Financial Services Conference and the RBC Global Financial Institutions Conference. With that, I'd now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp.

Thank you, Brooks. Happy New Year to all of you and thank you for joining the call this morning to review our fourth quarter and full year 2024 results. As always, joining me this morning are Chairman and CEO, Roberto Herencia; Tom Bell, our CFO and Treasurer; and Mark Fucinato, our Chief Credit Officer. I'd also like to welcome Brian Doran, who's on the call this morning as well. Brian joined Byline this week as our new General Counsel. Before we get into results, I want to pass the call on to Roberto to comment on a few items. Roberto?

Thank you, Alberto. Good morning to all and best wishes for a healthy and successful New Year 2025. I can't think of a better way to conclude last year, with another strong top quartile performance for the final quarter of 2024, with steady and healthy asset quality and record profitability for the full year 2024. We were also happy to approve, a few days ago, another $0.01 increase to our quarterly dividend, which represents an 11.1% increase from the previous dividend. Alberto and Tom will distill these numbers for you in a minute. For 2025, we continue to feel excited and optimistic about our ability to build out the preeminent commercial bank in Chicago. A softer approach to the bank regulatory environment and the expectation of higher M&A activity will continue to create disruption in our local market. We have thrived under those conditions as we're able to attract banking talent and execute on smaller tuck-in acquisitions. I am a firm believer that the consistency of our results, coupled with the uniqueness of our commercial banking franchise and the opportunity, is the serving of a premium valuation. The market is recognizing it, albeit slower than I would like. Much of our success has been driven by our commercial banking strategy and the teams who make up those teams. Our C&I lending strategy and teams specifically got supercharged following the acquisition of First Bank & Trust in Evanston in 2018. The core leadership we have in place today in this area was part of First Bank & Trust. The Co-Founder and CEO of that bank was Bob Yohanan, who passed away peacefully last November. Bob became a Director of Byline after the acquisition, serving at the highest level in our trust and ALCO committees, and he retired in 2021. Bob was an extraordinary human being with a gentle kindness recognized by many, coupled with a soft voice that I can still hear in my mind. He took hard work to heart, and you would rarely find him resting as he was very active in the greater Chicago community, specifically in Evanston. Bob's banking career spanned over 50 years, and he served two terms as a Director of the Federal Reserve Bank of Chicago, was a member of the Economic Club of Chicago, the University Club of Chicago, and served as an advisor to DePaul University Financial Services Center. I first met Bob at the First National Bank of Chicago when I started my banking career, and through a mutual friend, we kept in touch throughout the years, leading to us putting together our banks. Joan and Bob's two boys worked at Byline, and one of them still has an important position with us today. Bob, our friend, will always be remembered, and we remain grateful for his contribution and guidance. With that, I'm happy to pass the call back to you, Alberto.

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 deck we're using for today's call on our Investor Relations website. And as always, please refer to the disclaimer at the front. Turning to our performance on Slide 3 of the deck. Byline 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 for their hard work in serving clients daily. I'd also like to congratulate them on their performance. At this time last year, I shared with you that I thought we were entering the year with good momentum and in solid footing to profitably grow the franchise and deliver value for our shareholders. I'm happy to report that our company accomplished that in 2024. We managed 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. Against that backdrop, we executed our commercial banking strategy well. We grew relationships, had balanced growth, maintained profitability, built capital, and grew tangible book value per share by 12%. We continued to invest in the business, announced a 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. 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 a pre-tax pre-provision ROA of 205 basis points, ROA of 131 basis points, and ROTCE of just under 15%. Year-on-year loan growth, inclusive of managed runoff of the Inland portfolio, came in at 3%, and all that growth was funded by deposits, which grew 4%. 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 remained strong, with TCE ending the year at 9.61%, CET1 at just under 12%, 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 allowed for the early repayment of balances in our line tied to the transaction with Inland ahead of schedule. Turning to Slide 4. Results for the quarter were also strong, with net income of $30.3 million or $0.69 per diluted share on revenue of $105 million. Profitability and returns continue to be solid with a pre-tax pre-provision income of $47.2 million, pre-tax pre-provision ROA of 204 basis points, which marks the ninth consecutive quarter above 200 basis points. ROA came in at 131 basis points and ROTCE of just under 14% given a growing capital base. Revenue was up 3% from the prior quarter and up 4% year-on-year, notwithstanding the lower rate environment. 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. 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 leasing businesses. Payoff activity came in a bit higher than anticipated at $288 million, and line utilization inched up to 60%. Our government guaranteed business had solid originations for the quarter with $127.5 million in closed loans, which was consistent with the seasonality we tend to see at the end of the year. Moving on to deposits. Noninterest-bearing stood at 23.5% of total deposits, and we saw an inflection in overall deposit costs, which decreased 28 basis points quarter-on-quarter. Tom will provide you with additional color on deposit trends, cost, the margin as well as our sensitivity to rates in the current environment.

Thank you, Alberto, and good morning, everyone. Our strong earnings this quarter capped off a successful 2024. 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. As a result, we continue to deliver pre-tax pre-provision greater than 2%, and we grew capital nicely again this quarter, which drove CET1 and all other regulatory capital ratios higher. Starting on Slide 5 with our loan and lease portfolio. Total loans stood at $6.9 billion at December 31st, flat from the prior quarter. We originated $297 million in new loans, with the strongest growth coming from our commercial and leasing teams. Payoff activity increased for the third consecutive quarter coming in at $288 million, up $21 million linked quarter. The increase was largely due to runoff in noncore portfolios, which was offset by growth in new business relationships. Line utilization grew for the sixth consecutive quarter, up 1% to 60%. Our loan pipelines remain strong, and we expect loan growth to continue in the mid-single-digits for 2025. Turning to Slide 6. Total deposits were flat for the quarter at $7.5 billion and up 4% for the year. Consistent with the decline in short-term rates, we saw balances decrease in time deposits, offset by increases in money market accounts. Noninterest-bearing demand deposits grew for Q3, and accounted for 23% of total deposits. We lowered our overall cost of deposits in the quarter by 28 basis points to 2.48%, driven by higher DDA balances and disciplined deposit pricing. Turning to Slide 7. 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. This was the third consecutive quarter of solid NII growth and reflects a 3% increase on a year-over-year basis. Our net interest margin grew to 4.01%, up 13 basis points linked quarter. The change in NIM was driven by a 37 basis point decrease in the cost of interest-bearing liabilities, offset by lower rates on earning assets. 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. This implies a net interest income range of $86 million to $88 million for the first quarter, which is partially driven by day count. Turning to Slide 8. Noninterest income totaled $16.1 million in the fourth quarter, up 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. The increase was due to higher volumes and higher premiums on loans sold, partially driven by the mix. Our gain on sale forecast for 2025 is on average, $5 million per quarter, with lower Q1 expectations due to typical seasonality. Turning to Slide 9. Our noninterest expense stood at $57.4 million, which came in higher end of our Q4 guidance. The primary drivers of the expense increase were salary and benefits, largely comprised of higher revenue-driven compensation, other benefit-related expenses, and higher advertising spend. Having said that, we remain disciplined on expense management and continue to manage our expenses prudently. As we look ahead for 2025, we expect our quarterly noninterest expense to trend between $55 million and $57 million. Turning to Slide 10. 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. Net charge-off trends down by 8% this quarter to $7.8 million compared to $8.5 million in the previous quarter. On a year-over-year basis, net charge-offs were down by 36%. The ACL at the end of Q4 was $98 million, down slightly from the end of the prior quarter. Nonperforming loans to total loans decreased by 12 basis points to 90 basis points in Q4. Excluding government-guaranteed loans, nonperforming loans stood at 76 basis points, down 10 basis points from the previous quarter, and nonperforming assets to total assets stood at 71 basis points in Q4. Turning to Slide 11. During the quarter, our cash and securities stood at $1.8 billion. The yield on our securities continued to increase nicely and was up 17 basis points to 3.17%, driven by higher rates on new purchases and runoff of lower-yielding securities. Moving on to capital on Slide 12. For the fifth consecutive quarter, we grew capital ratios and increased our tangible book value per share by 12% compared to last year. CET1 came in a strong 11.7%, up 35 basis points linked quarter and up 135 basis points year-over-year. Additionally, the TCE to TA ratio stood at 9.61%, up 55 basis points from last year. Again, we had another solid quarter and strong performance metrics, resulting in an excellent year. As a result, our Board authorized an 11% increase in our quarterly dividend payable in the first quarter. With that, Alberto, back to you.

Thank you, Tom. And moving on to Slides 13 and 14 of the deck. Our approach to the business and strategy remains consistent as we enter 2025. Over the past decade, we built a 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 clients on a daily basis. We've also developed a strong culture that enables us to attract and retain talented bankers, which in turn continues to fuel our growth. As we start this new year, we're 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 risk of the business and the ever-changing operating environment. 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 of First Security to Byline. With that, operator, let's open the call up for questions.

Thank you. Our first question comes from the line of Nathan Race with Piper Sandler. Nathan, please go ahead.

Hey, guys. Good morning.

Good morning, Nate.

Hey, good morning, Nate.

Alberto, I would like to start on SBA. Obviously, we saw some issues with some other notable SBA lenders that reported this week. So I would just be curious to hear in terms of what you're seeing in terms of delinquencies and just overall credit quality within that portfolio. It was obviously great to see charge-offs largely remain near expectations this quarter. And I think it would also be helpful just to remind everyone, just in terms of some of the initiatives you guys have undertaken over the last several years to kind of derisk that portfolio.

Thank you for your question, Nate. I want to start by saying that we are observing consistent trends in that book of business. We have been actively monitoring this portfolio since right after the COVID pandemic ended, particularly due to the support that SBA borrowers received. We've paid close attention to how these borrowers have been recovering post-pandemic and, more importantly, how they are performing now that that support has ended. We anticipated a quicker deterioration in that portfolio than we actually witnessed. What we've seen is more gradual deterioration, and we've been prepared for it. Our results reflect our ongoing efforts to work with these borrowers and be proactive in identifying issues, especially in a challenging rate environment. We aim to help these borrowers successfully navigate their circumstances. Overall, we've been attentive to this portfolio since late 2021 into 2022 and 2023. Regarding your second question, we track our unguaranteed exposure on the book. Back in 2016, the government guaranteed the unguaranteed portion at just under 15% of our loan portfolio. Today, that figure stands at about 6.1%. This exposure has decreased proportionately as our balance sheet has expanded over the years, and we expect it to remain in that range for the foreseeable future. I hope this addresses your question, Nate.

Yes, that's really helpful. Thank you, Alberto. And changing gears and thinking about the margin and NII outlook, on the next quarter or two, it seems like you guys kind of outperformed the kind of NII guidance that you provided in terms of the impact of rate cuts here in the fourth quarter. So just curious, if we have maybe the Fed on pause for this year, maybe just one cut in July, perhaps how you think NII can trend this year absent the impact of the acquisition and just what that implies for the margin assuming loan growth remains or reverts back to that kind of 4% to 5% range at least going forward?

Hi, Nate, it's Tom. I think generally, it's going to be flat to slightly up. Again, subject to what happens with the balance sheet, we have First Security coming in here in the second quarter. But generally speaking, if there's no more rate changes, we still have a lag in the SBA that will get us here this quarter for the 50 basis points that happened in the fourth quarter. But generally speaking, flat to slightly up.

I think to add to that, Nate, just big picture. Naturally, as you know, we are an institution that is naturally asset-sensitive. So certainly, to the degree that rates remain higher or that fewer cost cuts materialize over the course of the coming year, to Tom's point, I think we would expect net interest income to be up in that type of scenario.

I would also like to mention that although it wasn't part of my prepared remarks, we managed to reduce our sensitivity this quarter compared to last quarter. This is something we aim to continue doing. At this time, it is somewhat more appealing to hedge that risk than it was in early fourth quarter.

Got you. And 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 non-CD side of the book?

Sure. Just to remind you, our interest rate risk profile reflects that combination. On average, CDs are yielding about 4.39, and we're repricing at around 360 at this point, which is definitely an improvement. On the asset side, we have nearly $900 million in loans with a yield of 5.26, which should increase by about 200 basis points or slightly more in the reset. The securities portfolio is approximately $200 million at a yield of 2.64, so that will contribute another 2.5% gain as well.

Yes. One trend that we're observing is the shift towards more attractive liquid accounts compared to CDs, particularly with the normalized yield curve we've seen this quarter. We noticed a movement of funds from CDs into more liquid options like money markets. If the yield curve remains positively sloped, we anticipate this trend could continue, potentially allowing for lower repricing of liabilities. However, it's important to remember that one quarter's data isn't definitive. We'll need to monitor if this behavior persists, but it's worth noting due to the current shape of the yield curve.

Very helpful. I appreciate you guys. I'll step back. Thank you. Congrats on a great quarter.

Thank you.

Thanks, Nate.

Thanks, Nate.

Hey, good morning, everybody. Hope you're staying warm.

Yes. Likewise, Brandon.

Hi, Brandon.

Maybe just to start off here on asset quality. It's certainly nice to see the charge-off rate come down again sequentially, but it didn't look like there were any PCD charge-offs in the number this quarter. So maybe just spend a minute on where loss content originated from during the fourth quarter. Thanks.

Yes. I mean, I think consistent with our commentary in the last several quarters, where we're seeing loss content from is the SBA portfolio, which is largely where losses have been centered, Brendan. And that goes to the earlier comments in terms of making sure that we identify that early, that we provisioned and reserved appropriately, and then we work through those credits. And then what you're seeing is just the ultimate resolution of those loans.

Okay. Perfect. That's helpful. Then maybe one on kind of the $10 billion question. Just kind of curious, one, what's left on the punch list to wrap up internal prep to that threshold? And then two, the asset base is a little bit larger than I was thinking for the quarter. So I'm just wondering how much flex do you have across 2025 to keep the balance sheet below $10 billion at year-end?

Yes. Maybe let's take on the latter question and then we'll talk a little bit about prep. So I think as far as guidance is concerned, we still think that from a timeline perspective, in terms of crossing the $10 billion asset mark is still kind of broadly speaking, in the latter half of '25 to really kind of the first to now moving into kind of the third quarter of 2026, if not really, frankly, 2026 at this point. The other thing I would tell you, Brendan, is remember that once you cross, we're looking at four consecutive quarters above that $10 billion mark before the actual 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 2027. So just to put that in context. As far as the prep is concerned, so we have a project team. We've obviously performed an assessment of the things that we wanted to do, not just for purposes of complying with or planning to cross that $10 billion mark. But really, the things that we need to have in place to go beyond that $10 billion, both things that are actual regulations that would apply as well as leading regulatory expectations. So we're well on our way with that. As I commented right at the beginning, making sure that we have in place a General Counsel was one of those steps. And we're fortunate that Brian came on board early this week. So I think in summary, I think the prep work 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 institution.

This is Tom. I would also add at the end of the quarter, we had 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 to sort of shrink the balance sheet if we need to and call that $400 million of flexibility. So that could be loans so to speak.

Yes, Brendan. And just to add one last comment to that. The guidance we just gave is consistent with the closing of the First Security transaction. So we're factoring that into the comments we just made.

That's super helpful color. And, Tom, you answered my question on the higher cash balances for the quarter as well. So thank you very much.

Our next question comes from the line of Terry McEvoy with Stephens. Terry, please go ahead.

Thanks. Good morning, everyone.

Good morning, Terry.

Maybe, Tom, a question for you. 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 step back, what markets or portfolios are positioned to generate that growth in 2025?

As Alberto mentioned, we definitely experienced payoff activity from the Inland transaction and some legacy syndication loans. We're pleased that some noncore loans have been paid off, allowing us to redeploy that cash into customer relationships where we can attract deposits. This amounted to around $100 million for the quarter. While the Inland transaction is expected to slow down over time, the syndications group has notably decreased and seems to have stabilized at this point.

Yes. I want to emphasize the Inland transaction, which involved approximately $1.1 billion in assets. This past year, we successfully implemented a strategy tied to that acquisition by recycling cash flows from our loan book into our own originations. In 2024, we managed to handle $321 million in runoff from that portfolio, which we redeployed into various lending businesses while still achieving year-over-year growth in the portfolio. This demonstrates our capability to generate assets and redeploy cash effectively, allowing us to maintain growth on our balance sheet. Additionally, we benefit from having a diverse range of businesses. We expect commercial banking to perform well in 2025, given the current market conditions. Our leasing business remains strong, and we are cautiously optimistic about our real estate sector, as we are noticing an increase in activity. However, we are also seeing heightened competition, which will depend on whether transaction volumes increase. Overall, I hope this provides clarity on where we anticipate growth in our portfolio.

Thank you, both. And maybe as a follow-up. Tom, could you just run through your expense outlook one more time? I'm sorry, I was writing something else. Was that for the first quarter or particularly interested in kind of your thoughts on full year 2025?

Sure. I mean, we gave guidance for the full year, and the guidance was $55 million to $57 million per quarter, Terry.

Okay. So that was more than just the first quarter. Thanks for clearing that up. Thanks.

We aim to provide a full year outlook for everything. We prefer to set lower expectations and then exceed them. In the first quarter, we typically incur some expenses related to payroll, HR compensation, benefits, and taxes. Currently, our range is $55 million to $57 million.

Great. Thanks again. Have a nice weekend.

Thanks, Terry.

Likewise, Terry.

Our next question comes from Brian Martin with Janney Montgomery. Brian, please go ahead.

Hey, good morning, everyone.

Hey, Brian.

Hi, Brian.

Hey, Tom, I have a question about the margin. Can you share where the margin ended the year compared to the quarter? Was it trending higher before the end of the quarter? Also, could you remind us about the impact on the SBA considering the recent 50 basis point cut as we approach the first quarter?

Yes, the margin is around 4% for December. Regarding the SBA, the Federal Reserve reduced rates by 50 basis points in the fourth quarter, which will lower the prime rate starting January 1st. This affects both the SBA and USDA balances by 50 basis points.

Okay. In terms of capital and the current opportunities, are you noticing more chances today due to market disruption for talent acquisition? Or do you think about this year and 2025 regarding adding talent, or are there greater opportunities right now for potential inorganic growth through mergers and acquisitions? I’m just considering the overall opportunity landscape in 2025 as you reflect on it.

I think there are two key points to consider. First, I agree with Roberto's comment from the start of the call about how disruptions can create opportunities. It seems likely that activity could increase, which we welcome, especially during times of disruption. Whether we're discussing regional or super-regional institutions, any M&A transaction typically influences the environment. Historically, we've managed to take advantage of these situations effectively, and we're optimistic about future opportunities in this area. Regarding M&A activity, there’s a lot of anticipation for a more favorable regulatory environment that could encourage these transactions. Fortunately, this hasn't limited us; we've conducted several successful transactions over the past few years and enjoyed a generally swift regulatory approval process. The main factors driving M&A have remained consistent. Many institutions struggle with succession planning, their Boards are aging, and their shareholders are often seeking liquidity as they transition through generations. We believe we are well-positioned, particularly in Chicago, to actively engage in this space and serve as an excellent partner for institutions that need to provide liquidity for their shareholders.

Thank you for that, Alberto. I have just one more question. Tom, I believe I might have overlooked a point in the prepared remarks regarding the government guaranteed business, which seems to be around a $5 million range each quarter. As we consider fee income and opportunities in 2025, if we're looking at a $5 million run rate, that's significantly lower than what we achieved in 2024. I'm trying to understand the outlook for fee income in 2025. If there is a decline on the fee side from the government guarantee business, do we still have pathways to grow fee income in 2025, or how should we approach that?

Yes. I mean our goal is to obviously grow fee income. And I think we have some other categories. Customer swaps, for example, will help offset some of the potential decline in the SBA gain on sale. But again, SBA gain on sale premiums are still very strong. If we get the rate cuts, we could see some pickup as well in that side of the market too.

I think, Brian, to add to what Tom just mentioned, when we provide guidance for the SBA business, particularly regarding gain on sale, we are giving you an idea of what to expect on a quarterly basis. However, we do not focus too much on quarterly volatility; instead, we look at this more on a year-over-year basis. In that regard, we are primarily focused on the variables we can control, such as originations and pricing. We do not control how the market values these assets. Therefore, we aim to be conservative in our assumptions. That said, if the market values these assets higher than what we anticipate, which has happened in the past, or if the asset mix we produce is more favorable to higher premiums due to the rate environment, this could result in positive variance to our estimate. So please keep that in mind.

No, that's helpful. I was thinking more about the full year, trying to understand if there is a trajectory for an increase in fee income. It seems like there is, considering some of the other opportunities and the potential for better-than-expected performance in the government guarantee business to assist. Thank you for addressing the questions.

Yep. You bet.

The next question comes from Damon DelMonte with KBW. Please go ahead.

Hey, good morning, guys. Hope everybody is doing well today.

Good morning, Damon.

Likewise, Damon.

Thank you. Just want to ask a little bit about fee income. Tom, I appreciate the guidance on the SBA gain on sale 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 gear up in the coming year?

I think just broadly speaking, Damon, we're a 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 a fair amount in the past. We continue to invest in that area. So we want to continue to see growth in treasury management fees. So that's an example. Another area that we have new leadership, we have a new team in is our wealth management business. That's coming off a very low base. I think over time, we want to see wealth management be a higher contributor to fees. So that's an area that we're paying close attention to. As you know, that doesn't happen overnight. We're really focused on that business and serving our commercial client base. But that's an area where we want to obviously grow and proportionately have that be a more meaningful part of the fee category and overall revenues. And like Tom said, I think, the rate environment is also today probably more conducive to doing derivatives with customers in terms of fixing rates and doing swaps, et cetera. So I think those are our general categories where we see drivers to inch that fee income category in total up.

Got it. That's helpful. I appreciate that information. Secondly, as we consider provisioning and net charge-offs for the upcoming year, net charge-offs were 47 basis points in 2024. Do you believe that you've reached a peak and we should expect lower levels, perhaps in the upper 30 basis point range, or do you think there are still some loans to process that would lead to higher net charge-offs?

I believe, in line with our previous guidance, we still anticipate that on a normalized basis, the range will fall between 30 to 40 basis points. However, expect some volatility associated with the resolution of PCD loans from earlier transactions. We will continue to provide updates to clarify the situation and where charge-offs are originating from each quarter. Normalized, meaning excluding resolutions of loans we acquired and worked through the system, I think that 30 to 40 basis point estimate remains reasonable.

Got it. Okay. That's helpful. Thank you. And then just lastly, Tom, any update on the tax rate outlook for '25?

Very consistent for us right now, Damon.

Thanks. All right. Okay. That's all I had. Thank you very much. Have a great weekend.

Thanks, Damon.

Thank you, Damon. You do as well.

Our next question comes from Brendan Nosal with Hovde Group. Please go ahead.

Hey, just one follow-up and point of clarification on the expense guide. Does that quarterly outlook for $55 million to $57 million include First Security or is that on a stand-alone basis?

It's stand-alone at this point.

Got it. Okay. So take that and layer on First Security. Fantastic. Thank you.

Thank you for your questions today. I will now turn the call back over to Mr. Alberto Paracchini for any closing remarks.

Great. Thank you, operator, and thank you all for joining the call today and for your interest in Byline, and we look forward to speaking to you again in April. Thank you again.

Thank you, everyone, for joining us today. This concludes our call and you may now disconnect your lines.