Q4 2022 Byline Bancorp Inc Earnings Call
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At this time I would like to introduce Brooks for any head of Investor Relations for byline Bancorp to begin the conference call.
Thank you Paul Good morning, everyone and thank you for joining us today for the filing Thanks Corp, fourth quarter and full year 2022 earnings call.
With regulation FD. This call is being recorded and is available via webcast on our Investor Relations website, along with the earnings release and of course, then there's a 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 future financial performance of the company. We caution that such statements are subject to certain risks uncertainties and other forward factors that could cause actual results to differ materially from those discussed.
These risk factors are disclosed in discussions.
Filings.
In addition, certain slides can change and we remain referred 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.
The earnings release for additional information about risks and uncertainties. Please see the forward looking statements and non-GAAP financial metrics disclosure and furnace release. Please note. The company adopted the current expected credit loss standard also referred to as CFO during the fourth quarter.
Results for reporting periods beginning after September 32022 are presented under the new standard.
While prior quarters previous report have been recast as if the new standard had been applied since January one 2022.
Please refer to our next day and the earnings release for recast prior quarter financial information as a result of the adoption of the new standard.
With that I'd now like to turn the conference call over to Alberto Bertolini. Finally, thanks Mark Thank.
Thank you Brooks good morning, everyone and thank you for joining our call to review our fourth quarter and year end results you can find the presentation that we'll be referencing on our website. Please refer to the disclaimer at the front joining me on the call. This morning are chairman and CEO Roberto for NCR, our CFO and Treasurer, Tom Bell on our Chief Credit Officer.
The remarks as Donato as usual I'll walk you through the highlights for the full year and quarter and then pass the call over to Tom who will provide you with more detail on our results.
Following that I'll come back with some comments on our merger with inland Bancorp and provide some closing remarks before opening the call up for questions.
Starting on page three of the deck since becoming a public company in the summer of 2017, our focus has been centered on executing our commercial banking strategy, improving our efficiency and investing in people and technology to grow customers and produce consistent results for our shareholders.
This past quarter and year proved to be no exception as we delivered strong financial results for the year, we reported net income of $88 million or $2 34 per share on revenue of $322 6 million profitability remained solid across the board, while our diversified model deliberate.
<unk> strong loan and deposit growth throughout the year, our capital position remains strong which allowed us to return $30 8 million in capital to shareholders in the form of dividends and buybacks turning.
Turning to slide four.
Results for the fourth quarter remained strong with net income of $24 4 million or <unk> 65 per share, which was up 10% from the prior quarter. This translated to strong pre tax pre provision income of $37 6 million up 8% quarter over quarter pre tax.
Preparation, an ROA of 205 basis points ROA of 133 basis points in our OTC up 17, 2%. We had one significant item this quarter, which was the adoption of seasonal Tom will cover the financial impact in a moment, but related to that we added slides 13 and 14.
On the DAC to give you additional detail on the adoption and provide you with more disclosure on the allocation of the allowance moving onto the income statement total revenue came in at 88 million a record for the company and up 9% quarter over quarter. The increase in revenue was driven by higher net interest income which was up 12.
That linked quarter reflective of growth in earning assets along with an expanding net interest margin, which was up 36 basis points to a strong four 4% noninterest income was slightly softer than last quarter, driven by us expect that flat gain on sale income.
From a balance sheet perspective, we saw continued growth in both loans and deposits during the quarter loans increased by $160 million or 12% annualized and stood at $5 5 billion as of quarter end. This was the seventh consecutive quarter of solid growth, which contributed to loans growing by $867 million or.
19% year over year.
Net of loans. So we have quarterly originations of $269 million, primarily from our C&I and leasing businesses. Notwithstanding overall business activity was solid across all lending unit, our government guaranteed lending business had solid production with $121 million in closed loans, which as expected.
<unk> was lower than the third quarter payoff activity moderated as anticipated and line utilization remained flat quarter over quarter at 55, 8% moving on to liabilities. We saw continued we continue to actively manage our deposit base.
The key is striking the right balance between doing right by the customer deposit retention growth competitive pressures and costs for the quarter and the full year. We did a good job total deposits grew by $83 million or 6% annualized and stood at $5 7 billion as of quarter end on a year over year base.
Deposits grew by $540 million or 10, 5%, which was excellent considering the rapid rise in rates changes in customer preferences and lower liquidity in the system stemming from quantitative tightening.
Regarding deposit cost they came in at 73 basis points, an increase of 30 basis points from the prior quarter cycle to date beta is for both total deposits and interest bearing deposits at 15% and 25% respectively. Our tier two four slightly better than expectations going forward on outlook.
For rate follows the forward curve, if we combine the hike in December the highest expected here at the start of the year and cuts expect that later in the year. It should present, a favorable backdrop for us offsetting that is the impact of deposit repricing, which has our best estimate of where things go from here at.
At this juncture in the cycle, given our asset sensitive position, we expect earning asset yields will continue to exceed the change in the cost of liabilities.
On the expense side the management of expenses remains an area of focus our efficiency ratio remained steady over the course of the year and ended flat for the quarter at 55% that said on an adjusted basis, our efficiency improved by about one percentage point on a year over year basis asset quality.
<unk> remained stable with both NPL and NPA is declining from the third quarter and net charge offs increased from very low levels last quarter to $3 2 million or 23 basis points overall credit cost for the quarter measured by the provision were $5 4 million and reflected charge offs reserve build driven.
By growth in the portfolio and changes to our macroeconomic outlook.
Allowance for credit losses, now under Cecil stood at $81 9 million or 151 basis points of loans as of December 31.
Capital levels remained strong with a CET one ratio of 10, 2% total capital of 13% and TCE of eight 4% as of quarter end consistent with our targeted TCE range of 8% to 9%.
Given our announced merger with inland Bancorp, we did not repurchase shares during the fourth quarter. However, our board approved a new stock repurchase program that authorizes the company to repurchase up to one and a quarter million shares of the company's outstanding common stock with that I'd like to turn over the call to Tom who will provide you with more.
On our results.
Thank you Alberto and good morning, everyone.
I'll start with some additional information on our pre tax pre provision net income.
Slide five highlights the earnings power of the franchise, which has consistently improved over the years.
Pre tax pre provision net income ended the year at $139 million a record level for the company, which is over 80% higher than the average full year pre pandemic level.
We remain committed to our long track record of managing positive operating leverage even as we continued to invest in the business.
Turning to slide six.
During the fourth quarter, we had solid loan growth as total loans and leases were $5 $5 billion on December 31, an increase from the end of the prior quarter.
Of note excluding loan sales, we originated $1 3 billion or 14% in new law for 2022.
Payoffs were lower than we expected in the fourth quarter and came in at $174 million compared to $216 million in the third quarter.
Looking ahead to this year, we believe.
Loan growth will be in the mid to high single digits, turning to slide seven touching on our government guaranteed lending verticals.
At December 31, the on balance sheet, SBA 700 exposure was $479 million down $2 $6 million from the prior quarter.
With approximately $100 million being guaranteed by the SBA.
The USDA on balance sheet exposure was $63 million up $2 million from the end of the prior quarter of which $22 million of guarantee.
Our allowance for credit losses, as a percentage globally on guaranteed loan balances increased to just under 9% compared to 8% Q3 seasonal recap.
The increase was driven by qualitative factors to the allowance to a proper economic uncertainty.
Turning to slide eight.
Total deposits stood at $5 7 billion, increasing by 6% annualized from the end of the prior quarter.
Non interest bearing DDA represents 48% of total deposits demonstrating our core deposit strength.
In addition, we had good deposit growth from CD campaign that we ran in the fourth quarter to support balance sheet growth.
We also saw seasonal commercial outflows at the end of the quarter that we expect to return in Q1.
Overall, we are pleased with our deposit gathering efforts for the full year, while managing our total deposit cost of 73 basis points for the quarter.
Our deposit beta is an increase in deposit cost to date are better than our expectations.
For the current cycle to date, our beta on total cost of deposits was 15% the beta on our interest bearing deposits of approximately 25%.
We expect deposit rates to continue to trend higher from here on track with our previous guidance of 40% for the cycle.
Turning to slide nine.
We reported another quarter of sequential expansion of both net interest income and net interest margin.
Net interest income increased to a quarterly record of $77 million, an increase of 12% from the prior quarter.
Primarily due to loan and lease growth higher rates, which more than offset the impact of higher interest expense on deposits and other borrowings.
Net interest income on a year over year basis increased 24% driven by a combination of net interest margin expansion and strong organic loan growth and remains in the top quartile for peer banks.
On a GAAP basis, our net interest margin was four three license set up 36 basis points from the prior quarter accretion income on acquired loans contributed two basis points to the net interest margin down six basis points from the prior quarter.
Earning asset yields increased a healthy 70 basis points, driven by an increase of 79 basis points and loan yields to 631%.
The NIM performed better than expected in Q4 as the margin expansion was primarily driven by higher rates and a well managed cost default.
With rates rising we continue to see margin benefit looking forward, assuming higher short term rates. We believe the net interest margin will expand in the first half of the year.
Turning to noninterest income on slide 10.
Noninterest income decreased from the prior quarter, primarily due to a negative $3 $5 million loan servicing asset revaluation expense due to higher discount rate and lower premiums on government guaranteed loan sale.
We sold $86 million in government guaranteed loans in the fourth quarter compared to $75 million during the third quarter the.
And that average premium was approximately 8% for Q4 lower than the third quarter as expected.
Our pipeline is fully funded government guaranteed loan forecasts to be consistent with Q4 results.
We expect gain on sale premiums in Q1, the mutual assistant with Q4.
Turning to manage expense trends on slide 11.
Non interest expense was $55 million in the fourth quarter, an increase from the prior quarter.
The increase was attributable to several factors first we saw an increase of $2 $2 million in Sally salary and employee benefits, mainly due to higher incentive compensation and lower loan deferral costs due to lower originations during the quarter.
Second we saw an increase of $1 $2 million in other non interest expense, which includes the disposition of lease hold improvements.
Third we saw an increase in loan and lease related expenses and lastly, we saw costs related to the <unk> Bancorp merger.
We continue to remain disciplined on our expense management and maintain our guidance of $49 million to $51 million consistent with last quarter.
Turning to slide 12, we take a closer look at credit quality.
Overall asset quality remains solid and continues to reflect <unk> diverse loan and lease portfolio. Our nonperforming assets total assets declined to 55 basis points in Q4 from 64 basis points in Q3.
Net charge offs were $3 2 million in the fourth quarter and total delinquencies were $15 4 million on December 31, and $9 $6 million increased linked quarter.
We remain focused on our capital discipline and monitoring our portfolio.
Turning to slide 13.
The allowance for credit losses at the end of the quarter undersea so were $81 9 million.
Paired to $55 million at the close of the previous year.
Chart on the top left of the page shows the ACL component built a majority of which was seasonal related.
Provision for credit losses on loans for Q4 was $5 4 million driven by portfolio growth and increased allocation for economic uncertainty.
Of note, we elected to apply the three year regulatory capital phased in approach.
Turning to slide 14.
Our coverage ratio on loans on their seasonal was 151% in Q4 flat when compared to Q3.
Our allowance compared with.
Our disciplined approach to credit through the cycle underpins the overall strength of our balance sheet.
Turning to slide 15, which recaps, our strong capital liquidity position for.
For the fourth quarter capital ratios were stable to up slightly and remain appropriate given our risk profile, we continue to deliver on our plan to drive shareholder value.
We returned approximately 35% of earnings to stockholders through the common stock dividend and our share repurchase program for 2022 with that Alberto back to you. Thanks.
Thanks, Tom turning over to slide 16, I want to spend a few minutes talking about our outlook and strategic priorities for the coming year. We ended at 2022 strongly and carried good momentum at the start of the year, our strategy and priorities are and remain consistent over time looking ahead, we're cautiously cautiously opt.
Domestic about 2023, we expect loan growth to continue, albeit not at the rate we experienced in 2022 and expect to organically grow the franchise add additional banking talent and complete the merger with inland.
That said, we're cognizant that current sentiment reflects concerns about a potential recession, and therefore remain vigilant in our credit underwriting and portfolio monitoring activities to identify any credit weaknesses early if the economy turns for the worse.
With respect to our pending merger with inland we're excited about the opportunities this brings and the potential to further enhance the value of the franchise inland gives us access to attractive markets in the Chicago Metro area with little to no overlap that improve our market coverage. It also gives us approximately one <unk>.
<unk> and core deposits as well as attractive synergy opportunities, we're making excellent progress in moving the merger forward and have begun executing our integration playbook all regulatory applications have been submitted and we will be filing the S. Four in connection with the merger in short order, we expect the closing to.
Occur during the second quarter, and completing the integration and ensuring a smooth transition for customers and colleagues as a top priority for this year in closing I'd like to think and give a huge shout out to our employees as well as those inland and soon to be by line employees for their hard work commitment and dedication to serving.
<unk> this past year, we remain well position as we enter.
2023, and look forward to delivering another year of strong results with that forum lets helping to open the call up for questions.
And Lee if you would like to ask a question. Please press star followed by one on your telephone keypad.
And for any reason you would like to remove that a question. Please press star followed by Steve again, you ask your question with Starwood.
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Asking your questions. Our first question today comes from the line of Ben Garlinger with has decreased.
Your line is now open.
Hey, good morning, guys.
Hey, Ben Good morning, Good morning, Ben.
I know in the guidance you guys gave.
I think you said continued margin expansion for the next six months or so.
And then obviously the loan growth is going to be a little bit slower as you take a more measured approach.
When you think I don't know operationally you guys are a HUD loan growth that exceeded our own expectations. So if we were to do that again.
How do you manage the margin or NII.
Assuming that you would need to go to market core deposits, but do you have a good deposit base or.
Are you willing to tap the brakes intentionally to defend the margin or is it just to grow NII.
Curious how you guys are looking at that growth.
So Ben a couple of things on that so, let's just unpack it into and through two questions. One is.
Really kind of the latter part of your question, which is kind of how we view opportunities on the market and I think provided.
Provided that we are seeing attractive opportunities to grow the business to add relationships.
Long term relationships in particular, I think the opportunity is going to drive that first and foremost over and above any type of short term margin consideration. So it's.
We have an opportunity to add a high quality relationship that's likely to be in the bank long term, there's going to be a cost to acquire that opportunity in <unk>.
That is going to drive that decision over and above any type of short term kind of margin management.
Implication on the on the first part of your question as it relates to the margin and.
Protecting the margin I think I would start with saying.
We are fortunate that our margin is very very strong.
We have good diversity in our business.
Each one of our businesses has different margin implications to it.
But we're also realistic in knowing that at the margin who a degree that we see good opportunities that fit the credit profile of the things that we want to do.
At the margin rates are obviously much higher than our cost of funds would indicate so.
I think in summary, I think what we're saying there is first opportunities really drive us in terms of what we think is attractive business long term and we will manage the margin accordingly.
Gotcha that's fair.
You said there is different pockets within the bank does different yields have you seen competitive banks.
Pulling back on any certain pockets that might give you an opportunity to garner.
Even more market share.
Are you just kind of thinking holistically here when you think of the areas to expect growth, especially on a risk adjusted yield for kind of the economic outlook.
Where do you think the growth could happen or potentially a new lender ads.
Kind of style.
Silos within lending, we think could be adding to.
I would say.
So to.
You asked the question from a competitive standpoint first so I don't know that were seeing anything out of the ordinary from a competitive standpoint.
The one comment we would make is in terms of the current rate environment in terms of which businesses impacted at least.
Initially much quicker I think I would say would be real estate.
Both from the standpoint of new originations as well as pay offs, certainly rising interest rates courses new projects.
I think the market is still adjusting to that.
Higher cap rates higher equity requirements, the cost of equity going up so you throw in there also for new construction higher input costs that have just now started to subside. So I think thats impacting <unk>.
Originations and certainly on the on the backend in terms of.
Payoff in velocity in terms of projects being completed and people immediately selling those projects I think the market is still adjusting so I would say probably in real estate is where we're seeing more of a market dynamic as opposed to any particular.
Competitive lending matter.
So hopefully that gives you some clarity on your question.
Gotcha, and then if I could just sneak one more in you guys have always been.
Technology focused and leaning into that.
That is the bleeding edge, but youre better technology than than most banks of your size. So when you think.
The inland deal that gets you closer to 10, but not there if someone were to just walk them to your door and give you the bump in terms of loans and deposits to get you over time on an organic basis are you ready to cross that threshold or is there more investment.
I think we've always run ran the business in the context of thinking that at some point, we would we were.
<unk> got through that.
This kind of $10 billion level and go beyond that and we've been building the company over time to be able to accomplish that I don't know that I would tell you that we want to be a bank thats hovering between $9.9 billion and $10 $1 billion.
But.
We are also not particularly that concerned about crossing that barriers certainly.
Example, that you gave.
Was the perfect situation, where you could cross it and cross it.
With with some half in terms of.
Assets and liabilities coming with it that would be that would be terrific, but if it if its not and we just simply process on the basis of organic growth I think we're certainly prepared to do that.
Great great color.
Plastics were to end the year congrats.
Congrats.
Great. Thank you back in the queue.
Our next question comes from the line of Terry Mcevoy with Stephens, Inc.
Your line is now open.
Hi, good morning, everyone.
Good morning, Larry Good morning, Terry.
First off thanks for I guess slide 14, and all of the seasonal adoption data, particularly that table on the bottom left.
And I guess my question is just to help us smarter questions in the future as it relates to see so could you just talk about kind of who are you using for the economic assumptions you have got your Midwest core business, but you have also some national businesses.
And maybe just from a high level what are what is your economic outlook.
With seasonal amount.
We're using Moody's analytics for our forecasting Terry.
And.
Obviously with given the economic uncertainty out there right now.
It's appropriate to be concerned about slower growth and potential risk of recession. So.
We're just really using their forecast based on.
The inputs from the economists there.
Okay.
Yes.
And I appreciate the commentary on the NIM performance in the first half of this year.
Based on your outlook for loans on a standalone basis do you think NII continues to grow in the second half of the year or does the trajectory on NII mimic that at the margin.
Well I mean, we expect NII to grow as well because we do expect loan growth throughout the year.
So that would be some offset to potentially lower rates in the second half.
Yeah.
And then maybe one last question that sponsor finance portfolio, which I don't think it was in the presentation, but it's kind of a call at $450 million could you just talk about how those borrowers perform when rates were rising and how do you manage the risk in that portfolio should the economy soften here, whereas the economy softens here.
Mark do you want to take that one.
Yes, I'd say the sponsor finance.
Portfolios.
Warming pretty well.
We review that portfolio every single month so.
Keep in good touch with our sponsors are companies and so we know what they're going through the rates have not been a problem for them. So far in terms of managing.
We have to keep an eye on some of the macro effects that are going on in their particular niche.
But I am satisfied with what they're doing and again, we keep a very close eye on that portfolio.
Given the nature of our reviews with them every month.
Yes.
Okay.
Great to hear I appreciate the insight and the commentary having this weekend everyone.
Great. Thank you Derrick.
Yes.
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Our next question comes from the line of.
With Piper Sandler Nathan Your line is now open.
Thank you for taking my questions and good morning, everyone.
Hi, good morning, maybe.
Just to kind of think about the trajectory of the margin in the first half of this year I know, there's a number of dynamics at play including.
Continuing accelerated upward deposit cost pressures and perhaps slowing loan growth as well but.
Tom is it fair to expect that the margin.
Pace of expansion is going to slow as you alluded to but we can still maybe you expect the margin to get north of $4 60, maybe $4 65.
Thanks <unk>.
Yes. Thanks for the question Nate I think yes, you will see margin expansion, but remember as Alberto pointed out in my comments, we are still in the top quartile for margin or margin relative to peers. So.
And we don't give guidance on actual margins.
Sorry about that but I think in general you would expect some growth in the margin again subject to rates subject to competition in the marketplace.
Okay, I think could work.
So just to add a little bit.
<unk> color I think what Tom is saying is look we have a pretty healthy margin, we're likely to see some.
Some additional expansion here given the outlook on rates in the fab.
Factors now with.
Deposit costs, certainly I think everybody in the market waking up to the fact that that rates are much higher.
With liquidity draining I think you've seen all the other banks.
Now realizing that.
We can all be only hold back deposit pricing only so much I think that that's now I think youre seeing kind of more normal competitive dynamics relative to what you had seen in the past.
We're likely to see the margin here expand.
During the first half.
But.
I think we're giving you our best.
Yes at this point given the outlook and obviously given what we think.
Is likely to happen here with deposit pricing.
Got it that's helpful and if we kind of think about the back half margin assuming the fed does.
Pause do you see that maybe resulted in more of a static or a stable margin assuming funding costs continue to creep higher but you also have some lagging asset repricing as well, which I would imagine would be a tailwind to loan yields.
Hopefully.
Hopefully the one caveat is.
And you heard it in our comments.
Sentiment certainly for some type of slowdown potentially a recession on the latter.
Second half of the year seems to be the consensus.
No.
With that with that caveat I think your comments are accurate I mean at some point, we'll expect to see some stability in the margin hopefully a little bit higher than where it is today.
And then even in situations, where we would see a decline in the margin two things one the margin is still very very healthy in two <unk>.
Hopefully we can push continue to push net interest net interest income higher as a result of higher.
Higher growth in earning assets.
Okay got it and Tom can you just remind us how much cash will you have coming off the securities book each quarter.
Okay.
Over the course of 2023 self fund loan growth.
Yes.
Yes.
It's roughly about $10 million or so a quarter Nate I mean, it's subject to obviously rates have rallied a little bit so it's picking up a little bit but it's in that range.
Unless we buy some short term T bills or something like that obviously that would change.
Mhm.
Got you so it sounds like the.
The focus just given maybe a more measured loan growth approach for 2023 is to really kind of step up on the deposit gathering efforts I know you guys have always been focused on deposits.
Since the recap back in 2013.
I imagine we can still expect some organic deposit gathering to help fund that loan growth.
Injectors.
Correct, Nathan I would say, that's always always going to be the case really irrespective of the rate environment I think.
You've known us long enough to know that we think.
The key.
Just philosophically from a business standpoint, our ability to continue to grow consistently deposits over time is really really important.
So I think thats.
Still is and will be the case going forward and then secondly, I would also.
Added to add to that.
Hopefully the closing of the merger with inland here in the second half really adding adding more to our core deposit base.
Yes, definitely and if I could just ask one more on kind of the.
Chicago in.
Pricing environment.
Heard from another Chicago Bank.
Pricing competition is less this cycle than what we saw last cycle just in the wake of all the consolidation that we've seen are you guys seeing that as well to some degree because I believe you made a comment earlier that.
Your deposit beta thus far this cycle running maybe a little bit below what you anticipated going into it.
I think the ration I would.
I would probably answer that question would be the market. The market is more rational from a pricing standpoint, so I would maybe break up your question and two points. One is the market today, we find it more rational because of the fact that there has been consolidation because of the fact that there has been.
Less new entrants in the form of de Novo's and smaller community banks into our market.
That's a fair statement.
The second point, which is really the competitive dynamics today with regard regarding the phosphate pricing in the market.
Putting aside everybody wants to price deposits rationally, but how how are the competitive dynamics evolving I think.
I think we've always been of the belief that loan to deposit ratios.
Particularly when the market participants are publicly stating that they want to have their loan growth be funded by core deposits. That's really a really important driver to determine kind of the level of competition in the market just observing some of our competitors in some of the other.
Players in the market I think youre seeing loan to deposit ratios and higher as they are.
Basically shad, perhaps some excess liquidity that they were carrying and I think.
Correspondingly with that I think youre seeing the competitive pressures now being being reflect that on everybody's results. So thats I think thats, our two cents on that.
Okay.
Perspective, I appreciate that.
I apologize one last one.
Excluding the impact of inland, which.
And should bring down your loan deposit ratio.
This is kind of what's your comfort level is in terms of the upper bound on that ratio.
Guidance has been in the high <unk> to low nineties.
That's where we'd like to be long run and again, there's ebbs and flows. So our goal is to be closer to 90.
Okay, Great I appreciate all the color. Thank you guys.
Thanks Nate.
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One on your telephone keypad to register a question.
Our next question comes from the line of Brian Martin with Janney.
Brian Your line is now open.
Hey, good morning, guys.
Good morning, Brian Hi, Brian .
Maybe could you just comment a little bit either I guess I'm not sure who just on the outlook on deposits. I mean, you guys have done a great job with the deposit mix and maintaining that and obviously the core strength.
As you as we kind of get with the rate environment changing here and people said Alberto waking up to where rates are and is your expectation. It sounds like you can fund the loan growth with deposits, but as far as maintaining the mix that <unk> seen improved in recent years.
How much change do you expect in that mix as you kind of go through the year and next year just in general as you look forward.
I think that's a really good question Brian .
Brian and.
I think.
Our sense is that there'll be some some degree, particularly at the margin there'll be some degree of change in the mix for the reasons that you just state and I think thats consistent with what.
I think as an industry, we're seeing meaning.
Consumers businesses, you could buy one month's bill or three month bills.
Probably with a handle in the 4%.
Range and if you want to maintain the process and if you want to attract deposits you have to.
Youre going to have to be competitive with that so so at the margin I do think that there is likely to be some.
Some changes in the mix.
I don't.
I don't think Thats.
That's an unreasonable expectation to have.
Gotcha Okay.
As far as just the government guaranteed business.
Even with the average premiums are today and I know you guys have talked about.
That line of where you maintain them on the balance sheet versus sell in.
It sounds like next quarter is pretty stable, but just in general how should we think about that business 23, just as you guys kind of look at the world and what your expectations may be as far as we see growth wise.
From a revenue perspective and that business is that something is that the expectation or just maybe frame up just how you're thinking about 'twenty three and on the government guaranteed business it would be helpful.
Yes, I think for now I think I would say that's the expectation.
This past quarter, we saw I would say a little bit of premium improvement from last quarter.
And also I should comment premiums are still attractive I think we are we view premiums.
Where they are today, it's still attractive certainly they're not as attractive as.
They were call it a year and a half ago and certainly before that for their very completely different rate environment and very different dynamics at that point in time, but I would call that period, probably the exception rather than the norm. It just so happens that we benefited from.
Being in that period seems to be for an extended period of time.
Okay.
Just in general.
More favorable outlook in terms of revenue year over year, if we look at kind of full year in that business. Despite the premiums kind of maybe where they are where theyre at if they settle in so.
Okay.
<unk>.
Yes.
Yes.
One caveat again, though is.
If we do see a slowdown in the economy, if we do see the economy.
Go into perhaps a mild recession.
That obviously hopefully you would what you would see is going to be probably a slowdown in the in aggregate. So I think we will just wait and.
And see what kind of what transpires in that regard Bryan.
Got you Okay. That's helpful and maybe just last one.
I think Tom talked about.
Ability to improve operating leverage even with investing in the bank I mean, I guess, given where you're at today and the expectations. It sounds as though that even with the NII trajectory kind of trending up each quarter and 'twenty three.
The expectation would be that that you'd be able to improve full year.
Operating leverage our efficiency as you get into 'twenty three over 'twenty, two is that kind of the expectation today.
Hope so we hope so certainly hope so.
Got you, Okay, and then maybe the last one just was on the buyback given you didn't do much in the fourth quarter inland deal closing and the capital levels, where they are I mean would your expectation be in a bit more sort of going forward basically or maybe not assertive, but more opportunistic based on depending on where the pricing is at.
So always a consideration and it's just one of the.
One of the call it the tools in the toolbox Bryan So we tend to look at capital management in the context of.
Certainly dividends buybacks, and then opportunities for growth organically and through acquisition. So.
Something that we rebase it frequently.
Given what's in front of us and I think the <unk>.
Plan is to continue doing that going forward.
Okay perfect. Thank you for taking the questions and great quarter and great year.
Great. Thank you Brian .
This concludes our question and answer session for today's call I will now pass back to Mr. <unk> for closing remarks. Thank you.
So thank you for them. So that concludes our call. This morning on behalf of all of US here. Thank you for your time today and your interest in byline and we look forward to speaking to you next quarter Goodbye.
This concludes today's conference call. Thank you for your participation you may now disconnect your lines.