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spk09: Good morning and welcome to Byline Bancorp's fourth quarter 2022 earnings call. My name is Forum and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question, simply press the star followed by the number one on your telephone. If you would like to withdraw your question, press star and two. If you are listening via speakerphone, please lift your headset prior to asking your question. If you require operator assistance, please press star then zero. 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.
spk08: Thank you, Forum. Good morning, everyone, and thank you for joining us today for the Byline Bancorp fourth quarter and full year 2022 earnings call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Best Relations website, along with the 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 a company. We caution that such statements are subject to certain risk uncertainties, and other forward factors that could cause actual results to differ materially from those discussed. The company's risk factors are disclosed and discussed in SEPC's slides. In addition, certain slides contain and we 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 an appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement in non-GAAP financial metrics disclosure in the earnings release. Please note, the company adopted the current expected credit loss standard, also referred to as CETL, during the fourth quarter. Results for the reporting periods beginning after September 30, 2022, are presented under the new standard, while prior quarters previously reported have been recast, as if the new standard had been applied since January 1, 2022. Please refer to Appendix A in 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 Parchini, President of Vineland Bank Corp.
spk04: Thank you, Brooks. Good morning, everyone, and thank you for joining the 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 Varencia, our CFO and Treasurer Tom Bell, and our Chief Credit Officer Mark Fusinato. 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 off 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 delivered consistently strong loan and deposit growth throughout the year. Our capital position remained strong, which allowed us to return $30.8 million in capital to shareholders in the form of dividends and buybacks. Turning to slide four. Results for the fourth quarter remained strong with net income of $24.4 million or $0.65 per share, which was up $0.10 from the prior quarter. This translated to strong pre-tax preparation income of $37.6 million, up 8% quarter over quarter, pre-tax preparation ROA of 205 basis points, ROA of 133 basis points, and ROTCE of 17.2%. We had one significant item this quarter, which was the adoption of CECL. Tom will cover the financial impact in a moment, but related to that, we added slides 13 and 14 on the deck to give you additional detail on the adoption and provide you with more disclosure on the allocation of the allowance. Moving on to 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% link quarter reflective of growth in earning assets along with an expanding net interest margin, which was up 36 basis points to a strong 4.4%. Non-interest income was slightly softer than last quarter, driven by, as expected, 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 sold, we had quarterly originations of $269 million, primarily from our C&I and leasing businesses. Notwithstanding, overall business activity was solid across all lending units. Our government-guaranteed lending business had solid production with $121 million in closed loans, which, as expected, 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 continued 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 cost. 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-to-year basis, 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 costs, they came in at 73 basis points, an increase of 30 basis points from the prior quarter. Cycle-to-date betas for both total deposits and interest-bearing deposits at 15% and 25% respectively are heretofore slightly better than expectations. Going forward, an outlook for rates follows the forward curve. If we combine the hike in December, the hikes expected here at the start of the year, and cuts expected 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 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 remained stable with both NPLs and NPAs declining from the third quarter, and net charges increased from very low levels last quarter to $3.2 million, or 23 basis points. Overall, credit costs for the quarter measured by the provision were $5.4 million and reflected charge-offs, reserve bills driven by growth in the portfolio, and changes to our macroeconomic outlook. The allowance for credit losses now under CECL stood at $81.9 million, or 151 basis points of loans as of December 31st. Capital levels remain strong with a CET one ratio of 10.2%, total capital 13% and TCE of 8.4% as of quarter end, consistent with our targeted TCE range of eight 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 detail on our results.
spk07: Thank you, Alberto, and good morning, everyone. I will start with some additional information on our pre-tax, pre-provision net income. Slide 5 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 levels. We remain committed to our long track record of managing positive operating leverage, even as we continue 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 31st, an increase from the end of the prior quarter. Of note, excluding loan sales, we originated $1.3 billion or 14% in new loans 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 business. At December 31st, the on-balance sheet SBA 7A 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 is guaranteed. Our allowance for credit losses as a percentage of the unguaranteed loan balance increased to just under 9% compared to 8% Q3 CECL recap. The increase was driven by qualitative factors to the allowance to account for economic uncertainty. Turning to slide 8, total deposits stood at $5.7 billion, increasing by 6% annualized from the end of the prior quarter. Non-interest-bearing DDA represents 38% of total deposits, demonstrating our core deposit strength. In addition, we had good deposit growth from CD campaigns that we ran in the fourth quarter to support balance sheet growth. We also saw some 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 costs at 73 basis points for the quarter. Our deposit data and increase in deposit costs 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 is approximately 25%. We expect deposit rates to continue to trend higher from here and 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. Our net interest income increased to a quarterly record $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 remaining in the top quartile for peer banks. On a GAAP basis, our net interest margin was 4.39% of 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 in loan yields to 6.31%. The NIM performed better than expected in Q4 as the margin expansion was primarily driven by higher rates, and a well-managed cost of funds. With rates rising, we continue to see margin benefits. Looking forward, assuming higher short-term rates, we believe the non-interest margin will expand in the first half of the year. Turning to non-interest income on slide 10. Non-interest income decreased from the prior quarter primarily due to a negative $3.5 million loan servicing asset revaluation expense due to higher discount rates and lower premiums on government guaranteed loan sales. We sold $86 million in government guaranteed loans in the fourth quarter, compared to $75 million during the third quarter. The net average premium was approximately 8% for Q4, lower than the third quarter as expected. Our pipeline and fully funded government guaranteed loans forecast to be consistent with Q4 results. We expect gain on sale premiums in Q1 to be consistent with Q4. turning the non-interest expense trends on slide 11. Our non-interest expense was $50.5 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 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 managed expense, which includes the disposition of leasehold improvements. Third, we saw an increase in loan and lease-related expenses. And lastly, we saw costs related to the Inland Bancorp merger. We continue to remain disciplined on our expense management and maintain our guidance of $49 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 bylines, diverse loans, and lease portfolios. Our non-performing 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 31st, a $9.6 million increase in each quarter. We remain focused on our capital discipline and monitoring our portfolios. Turning to slide 13, the allowance for credit losses at the end of the quarter under CECL were $81.9 million compared to $55 million at the close of the previous year. The chart on the top left of the page shows the ACL component bill, a majority of which was CECL 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 phase-in approach. Turning to slide 14. Our coverage ratio on loans under CECL was 1.51% 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 and liquidity position. 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.
spk04: 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 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 optimistic about 2023. We expect long 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 $1 billion in 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-4 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 is a trust top priority for this year. In closing, I'd like to thank and give a huge shout out to our employees as well as those inland and soon to be byline employees for their hard work, commitment, and dedication to serving customers this past year. We remain well-positioned as we enter 2023 and look forward to delivering another year of strong results. With that forum, let's open the call up for questions.
spk09: Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, if you ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question today comes from the line of Ben Gerlinger with Hubby Group. Ben, your line is now open.
spk03: 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 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 have had loan growth that exceeded your 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 for deposits? You have a good deposit base. Are you willing to tap the brakes intentionally to defend the margin or is it just to grow NII? I'm kind of curious how you guys are looking at that growth.
spk04: So Ben, a couple of things on that. So let's just unpack it into 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 we are seeing attractive opportunities to grow the business, to add relationships, Mike Valdes, 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 Mike Valdes, 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 and That is going to drive that decision over and above any type of short-term kind of margin management implication. On the first part of your questions, 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, to the 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. um i i think in summary i think what we're saying there is first opportunities really drive us in terms of what we think is is attractive business long term and we will manage the margin accordingly gotcha that's fair and like you said there's different pockets within the bank that have different yields have you seen competitive banks
spk03: pulling back on any certain pockets that might give you an opportunity to garner even more market share. Um, or just kind of thinking holistically here, when you, when you think of the areas to expect growth, especially at a risk adjusted yield for kind of the economic outlook, what, where do you think the growth could happen or potentially new lender ads? What kind of silos within lending do you think there'll be adding to?
spk04: I would say, so you asked the question from a competitive standpoint first. So I don't know that we're 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 business is 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 payoffs. Certainly rising interest rates, causes, 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 that's impacting originations. And certainly on the back end in terms of payoff and 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, you know, competitive lending, you know, matter. So hopefully that gives you some clarity on your question.
spk03: Gotcha. And if I could sneak one more in, you guys have always been technology focused and leaning into that, not to say bleeding edge, but you're better technology than, than most banks your size. So when you think the England deal gets you closer to 10, but you're not there, if someone were to just walk up to your door and give you the bump in terms of loans and deposits to get you over 10 on an organic basis, are you ready to cross that threshold or is there more investment needed?
spk04: I think we've always run the business in the context of thinking that at some point we would get to this kind of $10 billion level and go beyond it. 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 that's hovering between $9.9 billion and $10.1 billion. But we are also not particularly that concerned about crossing that barrier. Certainly the example that you give, if there was the perfect situation where you could cross it and cross it with some heft in terms of assets and liabilities coming with it, that would be terrific. But if it's not and we just simply cross it on the basis of organic growth, I think we're certainly prepared to do that.
spk03: Great. Great color and a fantastic way to end the year. Congrats. Great. Thank you, Ben. Thank you. Thank you.
spk09: Our next question comes from the line of Terry McEvoy with Stevens Inc. Terry, your line is now open.
spk05: Hi. Good morning, everyone. First off, thanks for, I guess, slide 14 and all the CECL adoption data, particularly that table on the bottom left. And I guess my question is just to help us ask smarter questions in the future as it relates to CECL. Could you just talk about kind of who are you using for the economic assumptions? You've got your Midwest core business, but you've also got some national businesses that And maybe just from a high level, what is your economic outlook with CECL now?
spk07: We're using Moody's analytics for our forecasting, Kerry. And obviously, given the economic uncertainty out there right now, it's appropriate to be concerned about slower growth and potential risk of recession. I mean, we're just really using their forecast based on the inputs from the economists there.
spk05: Okay. 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 their trajectory on NII mimic that of the margin?
spk07: Well, I mean, we expect NAI to, you know, grow, you know, 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.
spk05: And maybe one last question. That sponsor finance portfolio, which I don't think was in the presentation, but it's kind of called $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, or as the economy softens here?
spk04: Mark, you want to take that one?
spk02: Yeah, I'd say the sponsor finance portfolios is performing pretty well. We review that portfolio every single month, so keep in good touch with our sponsors, our companies, 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'm 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.
spk05: That's great to hear. Appreciate the insight and the commentary. Have a nice weekend, everyone. Great.
spk04: Thank you, Derek.
spk09: As a brief reminder, if you would like to register a question, Please press star one on your telephone keypad. Our next question comes from the line of Nathan Race with Piper Sandler. Nathan, your line is now open.
spk01: Thank you for taking the questions, and good morning, everyone. Good morning, Nate. 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 costs, 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 expect the margin to get north of 460, maybe 465? Hi, 2Q. Hi.
spk07: Yeah, thanks for the question, Nate. I think, yes, you'll see margin expansion, but remember, as Alberto pointed out in my comments, we are still in the top quartile for margin, you know, our margin relative to peers. So, and we don't give guidance on actual margins. Sorry about that, but I think in general you'd expect some growth in the margin. Again, subject to rates, subject to competition in the marketplace.
spk04: Okay. I think, Nate, what... Just to add a little bit to Tom's color, I think what Tom is saying is, look, we have a pretty healthy margin. We're likely to see some additional expansion here given the outlook on rates and the factors now with the BOSIC costs. Certainly, I think everybody in the market waking up to the fact that rates are much higher with liquidity draining. I think you've seen all the other banks you know, now realizing that, you know, we can only hold back, you know, the busted pricing only so much. I think that's now I think you're seeing kind of more normal competitive dynamics relative to what you had seen in the past. And, you know, we're likely to see the margin here expand, you know, during the first half. But I think we're giving you our best guess at this point, given the outlook and obviously given what we think is likely to happen here with the faucet pricing.
spk01: Got it. That's helpful. And if we kind of think about the back half margin, assuming the Fed is on pause, do you see that as maybe resulting in more of a static or 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, even under that scenario.
spk04: Hopefully, the one caveat is, and you heard it in our comments, sentiment certainly for some type of slowdown, potentially a recession in the second half of the year seems to be the consensus. You know, 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, you know, even in situations where we would see a decline in the margin, two things. One, the margin is still very, very healthy. And two, hopefully we can continue to push net interest income higher as a result of of higher growth and earning assets.
spk01: Okay, got it. And Tom, can you just remind us how much cash flow you have coming off the securities book each quarter or over the course of 2023 to help fund loan growth? Yeah.
spk07: 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. You know, unless we, you know, buy some short-term T-bills or something like that, obviously that would change.
spk01: Gotcha. So it sounds like, you know, the focus, you know, 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 Act in 2013, but I imagine we can still expect some organic deposit gathering to help fund that loan growth trajectory into 2023. Correct, Nate.
spk04: And 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 The key, just philosophically from a business standpoint, our ability to continue to grow consistently the faucets over time is really, really important. So I think that still is and will be the case going forward. And then secondly, I would also add to that hopefully the closing of the merger with Inland here in the second half. really adding more to our core deposit base.
spk01: Yep, definitely. And if I could just ask one more on kind of the Chicagoland deposit pricing environment. We've heard from another Chicago bank that 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 is running maybe a little bit below what you anticipated going into it?
spk04: I think the way I would probably answer that question, Nate, would be the market is more rational from a pricing standpoint. So I would maybe break up your question in two points. One is, is the market today, do we find it more rational because of the fact that there's been consolidation, because of the fact that there's been less new entrants in the form of the Novos and smaller community banks into the market. I think that's a fair statement. The second point, which is really the competitive dynamics today regarding the faucet pricing in the market, putting aside everybody wants to price the faucets rationally, but how are the competitive dynamics evolving? 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 and some of the other players in the market, I think you're seeing loan to deposit ratios an inch higher as they basically shed perhaps some excess liquidity that they were carrying. And I think correspondingly with that, I think you're seeing the competitive pressures now being reflected on everybody's results. So I think that's our two cents on that.
spk01: Okay. That's great perspective. Appreciate that. And I apologize, one last one. Excluding the impact of Inland, which I imagine should bring down your low to positive ratio, remind us kind of what your comfort level is in terms of the upper bound on that ratio.
spk07: Guidance has been in the high 80s to low 90s. 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 90s.
spk01: Okay, great. I appreciate all the color. Thank you, guys. Thanks, Nate.
spk09: As a brief reminder, it is star 1 on your telephone keypad to register a question. Our next question comes from the line of Brian Martin with Jannie. Brian, your line is now open.
spk06: Hey, good morning, guys.
spk05: Morning, Brian. Hi, Brian.
spk06: Maybe can 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, you know, with the deposit mix and maintaining that and obviously the core strength. Just as you, as we kind of get what's, you know, the rate environment changing here and people, as you said, Alberta waking up to where rates are. Is your expectation that it sounds like you can fund the loan growth with deposits, but as far as maintaining the mix that you've seen improve, you know, in recent years, you know, how much change do you expect in that mix as you, kind of go through the year or next year just in general as you look forward?
spk04: I think that's a really good question, Brian. And I think our sense is that there'll be some degree, particularly at the margin, there'll be some degree of change in the mix for the reasons that you just stated. And I think that's consistent with what I think as an industry we're seeing, meaning Consumers, businesses, you could buy one-month bills or three-month bills probably with a handle in the 4% range. And if you want to maintain the faucets and if you want to attract the faucets, you're going to have to be competitive with that. So at the margin, I do think that there's likely to be some changes in the mix. I don't... I don't think that's an unreasonable expectation to have.
spk06: Got you. Okay. And as far as just the government guaranteed business, you know, I guess given where the average premiums are today, I mean, I know you guys talked about, you know, finding that line of where you, you know, maintain them on the balance sheet versus selling. Just sounds like next quarter is pretty stable. But just in general, how should we think about that business, you know, in 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 in that business, is that the expectation? Or just maybe frame up just how you're thinking about 23N on the government-guaranteed business would be helpful.
spk04: Yeah, I think for now, I think I would say that's the expectation. You know, this past quarter, we saw, I would say, a little bit of premium improvement from last quarter. And also, you know, I should comment, you know, premiums are still attractive. I think we are, we view premiums kind of where they are today as still attractive. You know, certainly they're not as attractive as they were, call it, a year and a half ago and certainly before that for they were very, I mean, completely different rate environment and very different dynamics at that point in time. I would call that period probably the exception rather than the norm. It just so happens that we benefited, you know, from being in that period seems to be for an extended period of time.
spk06: Okay. So I guess the, just in general, you know, a more favorable outlook in terms of revenue year over year, if we look at, you know, kind of full year in that business, despite, you know, the premiums kind of maybe where they're, where they're at, if they settle in.
spk04: So, you know, Yes. The 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, what you would see is going to be probably a slowdown in aggregate. I think we'll just wait and see what kind of what transpires in that regard, Brian.
spk06: Got you. Okay, that's helpful, Alberto. And maybe this last one, just I think Tom talked about the 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's even with the NII trajectory kind of trending up each quarter in 23, that the expectation would be that you'd be able to improve full-year operating leverage or efficiency as you get into 23 over 22. Is that? kind of the expectation today?
spk04: Hope so. We hope so. Certainly hope so. Gotcha.
spk06: 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 to be a bit more assertive going forward, you know, based or maybe not assertive, but more opportunistic based on, you know, depending on where the pricing is at?
spk04: It's always a consideration and it's just one of the, One of the call it the tools in the in the toolbox. Brian. So we tend to look at capital management in the context of, you know, certainly dividends buybacks and then opportunities for growth organically and through acquisition. So it's something that we revisit frequently given what's in front of us. And I think the plan is to continue doing that, you know, going forward.
spk06: Okay. Perfect. Thank you for taking the questions and great quarter and great year.
spk04: Great. Thank you, Brian.
spk09: This concludes our question and answer session for today's call. I will now pass back to Mr. Perrettini for closing remarks. Thank you.
spk04: So thank you for, 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.
spk09: This concludes today's conference call. Thank you for your participation. You may now disconnect your line.
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