Byline Bancorp, Inc. (NYSE:BY) Q3 2022 Earnings Conference Call October 28, 2022 10:00 AM ET
Company Participants
Brooks Rennie – Head, IR
Alberto Paracchini – President
Roberto Herencia – Chairman and CEO
Tom Bell – CFO and Treasurer
Mark Fucinato – Chief Credit Officer
Conference Call Participants
Terry McEvoy – Stephens
Nathan Race – Piper Sandler
David Long – Raymond James
Brian Martin – Janney
Operator
Good morning and welcome to the Byline Bancorp’s Third Quarter 2022 Earnings Call. My name is Amber and I will be your conference operator today. [Operator Instructions] Please note the conference call is being recorded.
At this time, I would like to introduce Brooks Rennie, Head of Investor Relations for Byline Bancorp to begin the conference call.
Brooks Rennie
Thank you, Amber. Good morning, everyone and thank you for joining us today for the Byline Bancorp Third Quarter 2022 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website along with our earnings release and the corresponding presentation slides.
Management would like to remind everyone that certain statements made on today’s call involve projections or other forward-looking statements regarding future events or the future financial performance of the Company. We caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. The Company’s risk factors are disclosed and discussed in its SEC filings.
In addition, certain slides contain and we may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures, reconciliation for these numbers can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statements and non-GAAP financial measures disclosures in the earnings release.
I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp.
Alberto Paracchini
Thanks, Brooks and good morning to everyone on the call.
Joining me this morning our Chairman and CEO, Roberto Herencia; our CFO and Treasurer Tom Bell; and our Chief Credit Officer, Mark Fucinato. Before we get going here, I’d like to welcome Tom to his first earnings call as CFO of Byline. Welcome, Tom.
Starting with financial highlights on Slide 3 of the deck, as you’ve seen by now, we delivered another strong quarter, highlighted by higher earnings, strong loan growth, positive operating leverage, solid profitability and stable asset quality. For the quarter, we generated net income of $22.7 million or $0.61 per diluted share, which compared favorably to the $0.54 we earned last quarter.
These results continue to show the strength of our diversified model, commercial focus on the hard work of our employees. Our return metrics continue to be solid across the board with pre-tax preparation income of $34.7 million, up 8.9% quarter-over-quarter and pre-tax preparation ROA of 1.93%, again up 9 basis points from last quarter.
Return on assets came in at a solid 1.26%, while ROTCE was 15.4%. Total revenue came in at $81 million, up 7% quarter-over-quarter. The combination of continued growth in our Commercial loan book coupled with higher rates boosted net interest income by 12% and our margin increased by 28 basis points to 4.05%. We continue to remain well positioned to benefit from additional rate increases.
Non-interest income was $12 million, which was down $2 million from last quarter, the decline was driven by lower gain on sale income stemming from lower volume of loans sold for the quarter. Expenses were up by $2.4 million, primarily due to higher incentive compensation accruals and lower deferred loan origination costs. Notwithstanding expenses were well managed as we achieved positive operating leverage for the quarter and our efficiency ratio remained essentially flat at 55%.
Moving onto the balance sheet. The third quarter saw growth in both loans and deposits. Loans increased by $107 million or 8% annualized and stood at $5.3 billion as of quarter end. This was the sixth consecutive quarter of solid growth and consistent with our guidance last quarter. Net of loan sales, we originated $303 million in loans coming primarily from our C&I and leasing businesses. Payoff activity increased this quarter as expected, in line utilization remained relatively stable at 55.8%.
Our government-guaranteed lending business had strong production with $151 million in closed loans, up 21% from the prior quarter. We remain a market leader in this business and as of the government’s fiscal year-end on September 30, we are the fifth largest 7A lender in the U.S.
Moving on to the liability side. Total deposits stood at $5.6 billion as of quarter end, up about 17% on a linked quarter basis, with the growth coming primarily from money market and other interest-bearing accounts. The mix remained solid, despite the higher absolute level of rates with DDAs representing 38% of total deposits.
Deposit costs increased 27 basis points to 43 basis points this quarter and we’re in line with expectations. Deposit betas continue to track with our previous guidance of 40% for the cycle for interest-bearing accounts. And we are currently operating below that level.
We added some additional detail on deposit betas for your benefit on Page 6 of the deck. Tom will cover this shortly, but we expect that continued target rate increases by the Fed will obviously impact loan and deposit rate. At this point in the cycle given our asset-sensitive position, we expect loan yields will continue to exceed the change in deposit costs. Asset quality remained stable with NPAs and nonperforming loans basically flat to last quarter and charge-offs coming in at 15 basis points, which was 9 basis points lower than the previous quarter.
Our reserves increased consistent with growth in the growth in the portfolio and uncertainty in the outlook. While our portfolio metrics remained stable, we are cognizant of the impact that recession coupled with rapid increases and borrowing costs can have on our portfolio.
To that end, we are proactively conducting targeted reviews of different portfolio segments, closely monitoring past dues and communicating with customers to get a street-level perspective on current performance and the outlook going forward. To date, we have not found much in terms of weakness but we’ll continue to remain vigilant given the uncertainty in the environment.
Moving on to capital, capital levels remained strong with a CET1 ratio of 10.3%, total capital ratio of 13% and TCE inclusive of AOCI of 8.25% as of quarter end, which is consistent with our targeted TCE range of 8% to 9%.This past quarter we return capital to shareholders with the repurchase of approximately 174,000 shares of our common stock, along with our quarterly dividend of $0.09 per share. We remain focused on executing our strategy, invest in the business and continue to look for opportunities to grow the franchise, while delivering value to shareholders.
With that, I’d like to turn over the call to Tom, who will provide you with more details on our results.
Tom Bell
Thank you, Alberto and good morning, everyone.
I will start with some additional information on our loan and lease portfolio on Slide 4. Total loans and leases were $5.3 billion at September 30, an increase from the end of the prior quarter. Of note, our year-to-date originations surpassed $1billion. Payoffs were elevated in the third quarter as we expected and came in at $216 million compared to $128 million in the second quarter. Furthermore, our outlook for the full year on loan and lease growth guidance is unchanged. For the fourth quarter, we believe loan and lease growth will be in the mid-single digits.
Turning to Slide 5, we look at our government-guaranteed lending business. At September 30, the on-balance sheet SBA 7a exposure was $482 million of $3 million from the prior quarter with $107 million being guaranteed by the SBA.
The USDA on balance sheet exposure was $61 million, down $3 million from the end of the prior quarter, of which $22 million is guaranteed. We continue to see stable credit trends in this portfolio, as a result, our allowance as a percentage of unguaranteed loan balances remains at 6.6%.
Turning to Slide 6, total deposits increased by $224 million or 17% annualized from the end of the prior quarter. We saw growth in our money market and interest-bearing checking accounts. We remain disciplined on deposit pricing with our total cost of deposits coming in at 43 basis points from the third quarter. We gave guidance last quarter that we anticipated interest-bearing deposit betas of approximately 40% over the full cycle. Currently, we are operating below that level. Our deposit composition and ability to generate core deposits continues to be a strength of our franchise.
Turning to Slide 7, our net interest income increased to a quarterly record $69 million, an increase of 12% from the prior quarter. This is primarily due to higher interest rates, loan and lease growth, which more than offset the impact of higher interest expense on deposits and borrowings.
Net interest income on a year-over-year basis increased 15%, driven by a combination of net interest margin expansion and strong organic loan growth. On a GAAP basis, our net interest margin was 4.04% of 28 basis points from the prior quarter. Accretion income on acquired loans contributed 9 basis points to the NIM of 1 basis point from last quarter.
Earning yield assets increased a healthy 63 basis points, driven by an increase of 76 basis points and our loan yields to 5.5%. The NIM performed as we expected in Q3, as the margin expansion was primarily driven by higher rates and a well-managed cost of funds. Our margin remains in the top quartile for banks our size.
Looking forward, as a result of the rising rate environment, our asset sensitive profile and organic growth, we believe the net interest margin will continue to expand in the fourth quarter. Furthermore, our net interest income guidance is unchanged, which to reiterate for every 25 basis point increase in rates would result in approximately $4 million to $5 million of additional net interest income on an annualized basis.
Turning to non-interest income on Slide 8. Non-interest income decreased from the prior quarter, primarily driven by lower net gain on sale, due to lower volumes of loan sales and lower average premiums. We sold $75.4 million of government-guaranteed loans in the third quarter compared to $118 million during the second quarter. The net average premium was approximately 9.1% for Q3, lower than the second quarter as expected. We saw an increase in originated SBA loans that were not fully funded, as a result, they were not available for sale.
We anticipate that these loans will be available for sale in the future and during this holding period, we will benefit from the additional net interest income. With all that said, our pipeline and fully funded government-guaranteed loans is forecasted to be consistent with Q3 results. We believe the net premiums next quarter will stabilize, albeit at a lower level when compared to Q3.
Turning to non-interest expense trends on Slide 9. Our non-interest expense was $46.2 million in the third quarter, an increase of 5% from the prior quarter. The increase was primarily attributable to two factors. First, we saw an increase of $1.9 million in salary and employee benefits, mainly due to higher incentive accruals and compensations paid. The decrease in deferred costs related to lower production along with the increasing of our minimum wage rate to $18 an hour.
And second, we saw an increase of other non-interest expense due to increased marketing costs and higher FDIC insurance. We are focused on expense management and continue to look for opportunities to gain efficiencies to offset expense pressures as a result of inflation. Going forward, we believe our quarterly non-interest expense run rate will trend between $49 million and $51 million.
Turning to Slide 10, asset quality continues to remain stable, reflecting our diverse portfolio and disciplined credit culture. Our non-performing assets to total assets stood at 54 basis points, flat from the prior quarter. Net charge-offs were $2 million in the third quarter and total delinquencies were $5.6 million on September 30, a $10 million or 65% decline linked-quarter, reflecting lower commercial loan delinquencies.
Our third quarter allowance increase to $64.7 million from $62.4 million at the end of June and represents a 123 basis points of total loans. Reserve build was primarily due to conventional loan and lease growth, higher uncertainty in the environment and specific reserves on impaired loans. As a reminder, we are still accounting for our reserve under the incurred loss model and we will be adopting CECL on December 31, 2022.
Turning to Slide 11. We display our strong capital and liquidity position. We have $2 billion of available on balance sheet liquidity. Through the first nine months of the year, we returned approximately 42% of our earnings to stockholders through the common stock dividend, and our share repurchase program. We believe our capital levels and robust liquidity positions us well for a solid foundation to take advantage of both organic and strategic opportunities.
With that, Alberto, back to you.
Alberto Paracchini
Thank you, Tom.
And moving on to Slide 12. So going forward, our strategy remains consistent. We want to continue to grow our business while maintaining credit and pricing discipline. Given the level of uncertainty in the environment, we want to pay particular attention to credit and capital in order to continue to invest in the business and take advantage of opportunities that arise, both on the talent front and with respect to M&A.
In closing, we were pleased with our performance for the quarter and our position in the market. Our pipelines remain healthy and we’re in a strong position, as we look to the end of the year. As always, I want to thank our employees for their hard work in the third quarter and for all they do to deliver for customers, our communities and shareholders.
With that Amber, let’s open the call up for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Terry McEvoy with Stephens. Terry, your line is now open.
Terry McEvoy
Tom, can you maybe just talk about the fourth quarter expense outlook? You reported $46 million last quarter and I think you said $49 million to $51 million. What’s kind of driving that growth? How much of it is maybe a seasonal issue? And then I guess as you think about 2023, how much more opportunities do you have on the branch and kind of real estate side to control inflation? And then I know, investing in digital capabilities and automation right here on Slide 12 remains a priority as well.
Tom Bell
Yes. Thanks, Terry. Our guidance on expenses are driven by higher costs related to compensation. And then we have, as I mentioned in my comments, regulatory FDIC assessments are higher going forward. So obviously a larger bank is causing some additional expense there. But other things related to that are incentive compensation.
As it relates to branch optimization savings, I think we’re towards the end of that. I mean, we’ll continue to look at that and we’re prudent in managing that, but as you know we’ve come a long way there, and we’ll continue to look for opportunities, but the pace will definitely be much slower.
Alberto Paracchini
Yes. Terry, just to add to what Tom said, so for the quarter, some of it and you saw a little bit this quarter in the sense that we had to boost accruals for incentive compensation. We’re clearly expecting to have to do some of that here in the fourth quarter. We instituted an increase in our minimum wage. So now our minimum wage is $18, that went into effect in the latter part of the third quarter. So we’ll see the effect of that in the fourth quarter. Obviously, we’re operating in a bit higher inflationary environment.
So we just want to be cautious as we give guidance out and we’re also continue to grow. So we’re investing in that. So I think from a guidance perspective, I think it’s pretty fair, as we look out that I think we need to be consistent with that view, incorporating these factors and taking them into account to give guidance at this point of kind of the $49 million to $51 million range.
One thing I would say with respect to the first quarter is, I think we kind of highlight this every year, the first quarter is usually high, because you have all of the traditional kind of tax components of payroll that essentially subside over the latter part of the year. So that’s going to happen again. So we just want to be, make sure that we give you guidance that’s consistent to that view into 2023 at this point.
Terry McEvoy
Appreciate that. And then as a follow-up, how are you thinking about the credit performance of the SBA portfolio in a rising rate environment as those rates go higher. And maybe the same question the CRE portfolio, have you stress tested that portfolio as these loans roll into a higher rate. Thank you.
Alberto Paracchini
Sure. Mark, do you want to take that one?
Mark Fucinato
The SBA book still is pretty stable. You can see it from our statistics there. And the portfolio management is very kind of thorough and consistent. I expect that to be moving, obviously maybe in a different direction as these rates kick in, but so far the borrowers, the customers are hanging in there.
On the real estate front, again, our commercial real estate folks are in really good shape from a credit perspective, very few issues. We don’t have a lot of exposure in some of the areas of real estate you might be concerned with like office or hotel or even retail.
So again it’s an area we’re focused on, we target those areas in our portfolio reviews as part of our normal situation here in the fourth quarter, but so far everything is holding together very nicely and our outlook is positive.
Alberto Paracchini
Terry, if I could add, just one comment there and it’s more from an origination standpoint. One area where you mentioned real estate, Mark covered the existing portfolio, but one area where we are seeing and I think you saw a little bit this past quarter, when you look at just the originations. I think the Fed is having the effect that intended in terms of slowing down, particularly the rate-sensitive sectors and I think real estate is one of those, particularly as it pertains to new projects. The market is going through an adjustment.
And I think in terms of probably originations and that part of the book, we’re definitely seeing a slowdown there, because people are just simply having a harder time with rates, with cap rates perhaps moving higher with higher expectations as far as the equity component, moving higher, people are having a hard time penciling in new transactions.
Operator
Our next question comes from the line of Nathan Race with Piper Sandler. Nathan, your line is now open.
Nathan Race
Just thinking about kind of the deposit growth outlook going forward, obviously it’s nice to see some core deposits come back on balance sheet, as discussed last quarter. Are you guys kind of thinking about the runway for deposit growth going forward? Is it going to be a function of just a lot of the hires that you guys have made over the last several years, just point market share versus maybe you guys needing to be somewhat price leaders from a deposit pricing perspective to drive core deposit growth commensurate loans to kind of keep that loan deposit ratio and a comfortable range going forward.
Alberto Paracchini
Yes, Nate. So a complex question there that you threw at us. So let’s just unpack it and just kind of go one by one. So when it comes to kind of the traditional commercial banking business, it’s full relationship. So to answer your question is yes, we want to continue to see our bankers focus on that and bringing relationships that maybe they’ve had in the past, continuing to prospect for additional opportunities to grow both loans and deposits. So the short answer on that one is, yes.
To your second question about having to become kind of price leaders, I don’t necessarily think that we will be the absolute price leader in this space, that being said, and I think you guys have seen this quarter is a lot of the institutions that had seemed to have a lot of flexibility last quarter, having loan to deposit ratios in excess liquidity, liquidity has been drained from the system.
So I think you’re seeing broadly speaking loan to deposit ratio has moved higher. As far as the competitive environment here, we’ve definitely noticed an uptick, institutions that were not necessarily very active prior quarter now are very active this quarter.
So that’s just part and parcel where we are in the environment to the degree that, and this goes to our comments on the prepared remarks, to the degree that the Fed continues to increase rates, I think you can expect both loans and deposit rates to increase accordingly. Given our position, we feel pretty good about our ability to continue to see margin expansion at this point given where we are in the cycle. So hopefully that gives you some color into our thinking here.
Nathan Race
Yes, very helpful. And maybe just within that context in terms of thinking about the margin going forward in the fourth quarter, early next year. If we strip out the accretion and PPP fees from the last couple of quarters, it looks like the margin was up about 30 basis points versus the second quarter. It sounds like that pace is going to slow, just given the deposit pricing pressures that exist, particularly in Chicago and industry-wide. So maybe, Tom, any thoughts, just in terms of kind of the pace of future margin expansion in 4Q and into the first half of next year as well, assuming the Fed remains on its current path, with Fed funds approaching $475 million or so.
Tom Bell
Yes. Nate, it really depends on what the Fed does here and the market’s expecting 75 here in the next month and then obviously, we’ll have to see what happens with December. But I think if you have the 125 basis point increase, given the composition of the assets and liabilities, we would expect margin expansion to continue.
I would also remind you again that the SBA loans are on a lag, so we’ll get the benefit of that in the next quarter for anything that happens in Q3 and anything that happened in, I’m sorry, anything that happened in Q3 is effective in Q4 and then same thing goes for Q1 of next year. So, that will definitely happen.
And then it just comes down to balance sheet growth. We continue to operate in the mid-single-digits, then we won’t have as much funding pressure to go out and raise deposits. And I think, Alberto touched on, competition is moving up, but it’s not — it’s nowhere near where it was before in the last cycle.
Nathan Race
Okay, great. And if I could ask one more… sorry.
Alberto Paracchini
Yes, go ahead, Nate. I just was going to add something to what Tom said, because it’s — when rate increase — when the Fed moves rates matters, so obviously as you, if you — we’re potentially getting a rate increase here in November and potentially another one in December, so kind of factor that in, as you’re thinking about the margin expanding, we do think that we’re positioned for that here in the fourth quarter. And as Tom said, because of the lag with the SBA book, you’ll see that catch up further in the first quarter of next year. So, we think we’re pretty well positioned here to see the margin expand over the next couple of quarters.
Nathan Race
Okay, great, very helpful. Maybe just one last one, just thinking about kind of the SBA gain on sale framework between retention and selling project in the secondary market look like you guys — your commitments are up nicely versus second quarter, yet you opted to sell less loans in the secondary market. Is that just a function of premiums being below palatable level these days? And as long as premiums remain near these levels, does that kind of the methodology or approach going forward as it relates to how you guys want to manage that product growth going forward?
Alberto Paracchini
Good question. And so, a couple of things there. I think there’s a couple of things at play. So you’re spot on with the first one, as you know, for us the buy versus — the hold versus sell decision is economics. So economics did play a role in whether or not we decided to sell more or less this past quarter, so that certainly was a factor.
Another factor was the fact that — and this is the nice thing of our franchise, we have flexibility. We want to see the gain on sale component of our revenues come down over time, some of that is going to come from growth in other revenue sources, be it fees or be it higher net interest income. Obviously, we saw some of that this quarter.
So think of it as we had a fair amount of flexibility to really make purely economic decisions on buy versus hold or sell versus hold. And the last thing is the rate increases do play a role here in the pricing of loans in the short run because of the lag. So we want to make sure that when we’re executing and we’re looking to sell loans, we can get absolutely the best execution possible put differently. We don’t want to sell loans that just because, we wanted to sell them this month as opposed to arbitrarily in two months or so, or three months, we could get better execution, because the rates would reflect the repricing on those loans.
So all of that and then the last thing, I would say, we do a fair amount of loans where the loans are not 100% fully funded. These are construction loans in some cases, construction loans with equipment. I think this past quarter, we saw some of the effects of just what you’re seeing in our conventional book which is projects in some cases are taking longer, deliveries of equipment are taking longer. So the nice thing is the fact that the loan did not fully fund simply means that we’re basically earning the carry-on on the portfolio. So all in all, I think, Nate, that’s probably our best take on that going forward.
Nathan Race
Understood. It is very helpful. And if I could just sneak one last one, within that context on SBA and just going back to Terry’s last question. In the event that you guys continue to maybe portfolio more SBA production versus sell in the secondary market, are you guys maybe tightening your underwriting boxes on the SBA front these days or any notable adjustments expected along those lines?
Alberto Paracchini
I think we’re being cautious about certain industries again that you would you expect, those are going to be more sensitive to what’s going on within the current environment in the country and the economic forces that are at work here. So we’re being more cautious, I would say. But again we’re being consistent to the underwriting practices we’ve had in place for some time, at the same time
Operator
Our next question comes from the line of David Long with Raymond James. David, your line is now open.
David Long
Good morning, everyone. I wanted to take a closer look at the investment securities portfolio. Yield was up a few basis points quarter-to-quarter. What are your expectations with the securities portfolio yield and what is the current portfolio duration? And then finally, how much is cash flowing out of that each month or quarter? Thanks.
Tom Bell
Yes. Hi, David, it’s Tom. The duration is 5.6 years and currently, we’ve been letting all the cash flows run down to the bottom line to support loan growth. And the estimated cash flows are roughly in that $20 million to $25 million a month range.
David Long
Got it. Thank you. And then just as a follow-up, just thinking about the loan growth and your appetite for lending, deposit growth is not keeping up. Does that change your appetite to land or change higher pricing and even loans? Thank you.
Alberto Paracchini
Pricing and — sorry, I think Dave, credit and pricing discipline in this environment is paramount, given the broad outlook that we have. That being said, we’re still continuing to see really good opportunities.
Our pipelines are healthy. I think in the past several quarters, we’ve had a run and I think, I know this is your first call formally covering us, but for all the other analysts on the call, it’s, we finally kind of got the growth rate down in the loan portfolio to that mid-single-digit number that we’ve been providing guidance. I still think that’s a good number. I think it’s probably in the kind of the mid-single-digit range and that range as opposed to the upper end of mid to high, and we remain comfortable with that.
I think it’s — we want to obviously continue to see a balanced approach, meaning, our philosophy is we want to fund the loan portfolio with deposits and having multiple strategies and multiple ways in which we can continue to sustain solid growth and quarter process as part of our strategy and part of what we do to continue to grow the bank accordingly.
So at this point, we’re pretty comfortable where we are. I mean obviously, you saw the loan to deposit ratio took a downtick this quarter from the previous quarter. We want to kind of continue to see that, but we also know that it’s not perfect, right. If we could time the inflows and the outflows perfectly, we would have little to do in terms of managing the bulk and managing the Company, but philosophically, we want to kind of target that kind of 90% range from a loan- to-deposit standpoint, on a long-term basis. So hopefully that gives you some color and answers the question.
Nathan Race
Definitely, no, I do appreciate it, Alberto and Tom, both thanks for the color.
Alberto Paracchini
You bet.
Operator
[Operator Instructions] Our next question comes from Brian Martin with Janney. Brian, your line is now open.
Brian Martin
I just wanted to circle back, one follow-up on the margin that was asked earlier, just Tom, as far as our Alberto, just as far as if we do appreciate the color around the next couple of quarters, but I guess if we look beyond and get the rate increases, our expected out there today and the Fed does pause for a bit. How do you expect the margin to behave, when that pause occurs? I guess, should the margin compress a bit then? Is the deposit betas continue to catch up and get to your kind of your 40% level? Is that how to think about the world today?
Alberto Paracchini
I think that’s a fair view. Brian, I think it’s obviously going to be Fed-dependent. We’ll see if the Fed stops here in December and what’s pauses and make some assessment before deciding what to do next or if they continue to raise into the fourth, the first quarter of next year, so obviously Fed dependent, but at some point, what you’re describing is probably the right way to think about it at some point the margin will peak for us probably and again Fed dependent. So it’s — we don’t want to, but probably in the second quarter is probably where we’ll see that.
And then I think what you mentioned, is there some effect of lags with the pause at costs that happen, and then we’ll see kind of where we are from an outlook on rates at that point and kind of the Fed is going to be on hold or given where the economy is the outlook changes. But I think what you’re saying is a fair way to think about it.
Brian Martin
Got you. Okay. No, that’s helpful and maybe just one, just on the deposit side. I mean, obviously a very strong quarter and like you’re saying the core franchises is very strong, but I guess how much — if you kind of talk about that goal of the 90% level and the growth you’re expecting, how much migration, do you expect in the portfolio and the deposit side? I mean you saw a little bit of a dropdown in the non-interest bearing this quarter. I guess, what’s kind of a normalized level as we look out over the next couple of quarters, given what’s happened with rates and the growth you’re expecting. Is there more migration to come there I think is beginning to stabilize, do you think as kind of this 38% level on the DDA side or just big…
Alberto Paracchini
We are patient with that. We realize that — look, if to my comment earlier, if we could match everything perfectly, we can match loan demand with deposit growth perfectly, then we’d always be trying to optimize but we realize that we don’t necessarily control that, we want to do it in a measured way in which we’re ensuring that we’re doing very — we’re doing it prudently. So the nice thing is we have ample liquidity, our capital levels are very, very strong, so this is going to be a measured approach as opposed to having to necessarily, we want to get there next quarter, so we need to really drive rates really, really high.
I mean, we’re not going to do that. So we will — it’s a target that we will reach, but it’s not a target that we necessarily want to achieve next month or by the end of the quarter.
Brian Martin
Got you. No, I wasn’t expecting that just I got you’re saying so. Okay. And maybe just a last one for me was, just on the loan outlook and just the payoffs. The payoffs were up a little bit as you guys talked about. I mean, with rates where they are, I guess, is your sense that the payoffs may slow a little bit or just be at a lower level than they were this quarter? Is this pretty indicative more normal today? I know they had been very low, the previous quarters, but just given the rate environment. And then just on the other side of it, the origination side was strong this quarter, just beyond this quarter you beginning to see any cautiousness on your borrowers, as you look at the visibility of that origination pipeline beyond fourth quarter?
Alberto Paracchini
The pipelines remain pretty healthy, Brian. I think with respect to the payoffs, we were expecting that. I think in prior quarters, as you well know, payoff activity was much lower than we expected. Some of it was timing, transactions that were to happen on a particular date, got pushed over into the following quarter, etcetera, and I think we saw some of that here in the third quarter. I think we have a pretty good view in terms of kind of where payoff activity is going to be.
Obviously it’s a holiday season coming up, so things do slow down a bit, but our sense is probably in the and we don’t give guidance, but you were asking for some color, probably in the kind of a low $200 million range is kind of what we’re expecting as far as payoffs are concerned and should still translate into kind of that mid-single-digit kind of range for loan growth at this point is our best take on it as things stand today.
Brian Martin
Yes. No, I appreciate the color, Alberto. Tough question. So, thank you guys for taking the questions. I appreciate it.
Alberto Paracchini
Anytime.
Operator
Thank you all for your questions today. I will now turn the call back over to Mr. Alberto Paracchini for any closing remarks.
Alberto Paracchini
Great. Thank you, Amber. 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. We also want to wish you a happy and safe holiday season and look forward to speaking to you again in the New Year. Thank you.
Operator
This concludes the Byline Corp third quarter 2022 earnings conference call. Thank you for your participation, you may now disconnect your line.
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