Byline Bancorp, Inc. (BY) Q4 2022 Earnings Call Transcript

Byline Bancorp, Inc. (NYSE:BY) Q4 2022 Earnings Conference Call January 27, 2023 10:00 AM ET

Company Participants

Brooks Rennie – Director, Investor Relations

Alberto Paracchini – President

Tom Bell – Chief Financial Officer and Treasurer

Mark Fucinato – Executive Vice President, Chief Credit Officer

Conference Call Participants

Ben Gerlinger – Hovde Group

Terry McEvoy – Stephens

Nathan Race – Piper Sandler

Brian Martin – Janney

Operator

Good morning and welcome to the Byline Bancorp’s Fourth Quarter 2022 Earnings Call. My name is Forem 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, Forem. 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 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 forward 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. Please note the company adopted the current expected credit loss standard also refer to as CECL during the fourth quarter. Results for 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 now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp.

Alberto Paracchini

Thank you, Brooks. Good morning, everyone. And thank you for joining the call to review our fourth quarter and yearend results. You can find the presentation that we will be referencing on our website, please refer to disclaimer at the front.

Joining me on the call this morning are our Chairman and CEO, Roberto Herencia; our CFO and Treasurer, Tom Bell; and our Chief Credit Officer, Mark Fucinato. 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 and our merger with Inland Bancorp and provide some closing remarks before opening the call up for questions.

Starting on page 3 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. Profitability remained solid across the board while our diversified model delivered consistently strong loan and deposit growth throughout the year. Our capital position remains strong which allowed us to return $30.8 8 million in capital shareholders in the form of dividends and buybacks.

Turning to slide 4, 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 pretax pre-provision income of $37.6 million, up 8% quarter-over-quarter, pretax pre-provision ROA of 205 basis points, ROA of 133 basis points an 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% linked 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%. Noninterest 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 have 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 close loans, which, as expected was slower than the third quarter. Pay off 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 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 here through for slightly better than expectations.

Going forward, our outlook for rates follows the forward curve. If we combine the hike in the summer, 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 assets 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 remains stable with both MPLs and MPAs 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 reflect that charge-offs reserve build 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 31.

Capital levels remain strong, with a CET1 ratio of 10.2%, total capital of 13% and TCE of 8.4% as of quarter end, consistent with our targeted TCE range of 8% to 9%. Given our announced merger of within 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 1.25 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.

Tom Bell

Thank you, Alberto. And good morning, everyone. I will start with some additional information on our pretax pre-provision net income. Slide 5 highlights earnings power of the franchise, which has consistently improved over the years. Pretax 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 continue to invest in the business.

Turning to slide 6. During the fourth quarter, we had solid loan growth as total loans and leases were $5.5 billion on December 31 and increased from the end of the prior quarter. Of note excluding loan sales we originated $1.3 billion or 40% in new loan for 2022. Payoff 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 7, touching on our government-guaranteed lending business. At December 31, the on-balance sheet SBA 7(a) 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 unguaranteed loan balances increased to just under 9% compared to 8% Q3 CECL recap, the increase is driven by qualitative factors to the allowance to counter economic uncertainty.

Turning to slide 8, loan total deposits stood at $5.7 billion increasing by 6% annualized at the end of the prior quarter. Noninterest-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 of 73 basis points for the quarter. Our deposit betas and increase in deposit costs to date are better than our expectations. For the current cycle to date, our beta and total cost of deposits was 15%. The beta on our interest-bearing deposits is approximately 25%. We expect deposit rates continue to trend higher from here and track with our previous guidance of 40% for the cycle.

Turning to slide 9, we reported another quarter of sequential expansion of both net interest income and net interest margin. Our net 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 4.39%, 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 assets yields increased to healthy 70 basis points driven by an increase of 79 basis points and 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 benefit.

Looking forward assuming higher short-term rate, 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 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 to noninterest expense trends on slide 11. Our noninterest expense was $50.5 million in the fourth quarter, an increase from the prior quarter. The increase was attributed to several factors. First, we saw an increase a $2.2 million in salary, 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 noninterest 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 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 Byline’s diverse loan and lease portfolios. Our nonperforming assets to total assets declined to 55 basis points inQq4 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, a $9.6 million increased linked quarter. We remain focused on our capital discipline, and monitoring our portfolio.

Turning the 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 built 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 Basel 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 sheets.

Turning to slide 15, which recaps our strong capital 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.

Alberto Paracchini

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 carries 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 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 $1 billion in core deposits as well as attractive synergy opportunities. We’re making excellent progress and 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 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 is a 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 position as we enter 2023 and look forward to delivering another year of strong results. With that Forem, let’s open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question today comes from the line of Ben Gerlinger with Hovde Group.

Ben Gerlinger

Good morning. I know in the guidance you guy gave, I think you said continued margin expansion for the next six months or so. 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 exceeding your own expectations. So if we were to do that, again, how do you manage the margin or NII assuming that you need to go-to-market for deposits. And you have a good deposit base. Are you willing to tap the brakes intentionally to defend the margin or just to grow NII, I am curious how you guys are looking at that growth?

Alberto Paracchini

So Ben, a couple of things on that. So let’s just on bracket 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, 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. 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 our mark, we’re 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 and 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. 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.

Ben Gerlinger

Got you. That’s fair. And you earlier said, there’s different pockets within the bank have 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? Or just kind of thinking holistically here, when you think of the areas to expect growth, especially at a risk adjusted yield for kind of the economic outlook? Where do you think the growth could happen or potentially new lender adds, what kind of silos within lending do you think would be adding to?

Alberto Paracchini

I would say, so do I could, you ask the question if 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, there’s, 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 competitive lending matter. So hopefully, that gives you some clarity on your question.

Ben Gerlinger

Got you. 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 your better technology than most banks of your size. So when you think the Inland deal gets you closer to $10 billion, but not there, if someone were to just walk up to your door and give you hit the bump, in terms of loans and deposits to get you over $10 billion on an organic basis? Are you ready to cross that threshold? Or is there more investment needed?

Alberto Paracchini

I think we’ve always run — ran the business in the context of thinking that at some point, we would get to the, 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.

Operator

Our next question comes from a line of Terry McEvoy with Stephens Inc.

Terry McEvoy

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 that, your Midwest core business, but you’ve also had some national businesses. And maybe just from a high level, what are — what is your economic outlook with CECL now?

Tom Bell

We’re using Moody’s Analytics for our forecasting, Terry. And obviously, given the economic uncertainty out there right now. It’s appropriate to be concerned about slower growth and potential risk of recession. So, I mean, we’re just really using their forecasts based on the inputs from the economists there.

Terry McEvoy

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?

Tom Bell

Well, I mean, we expect NII to grow as well because we do expect loan growth throughout the year. So that will be some offset to potentially lower rates in the second half.

Terry McEvoy

And then maybe one last question that sponsor finance portfolio which I don’t think was in the presentation but it’s kind of a caught $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?

Alberto Paracchini

Mark, do you want to take that one?

Mark Fucinato

Yes, I’d say the sponsor finance portfolios, who’s performing pretty well. We review that portfolio every single month. So keep in good touch with our sponsors our 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’m satisfied with what they’re doing. And again, we keep a very close eye on that portfolio given our, the nature of our reviews with them every month.

Operator

[Operator Instructions]

Our next question comes from the line of Nathan Race with Piper Sandler.

Nathan Race

Thanks for taking the questions. And good morning, everyone. Maybe just two kinds of think about the trajectory of the margins in the first half of this year, I know there’s a number of dynamics at play, including continuing accelerate 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 by 2Q?

Tom Bell

Yes, 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, our margin relative to peers. So 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.

Alberto Paracchini

I think just to add a little bit to Tom’s caller, 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 deposit 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 now realizing that we can only hold back deposit 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 we’re likely to see the margin here expand 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 deposit pricing.

Nathan Race

Got it, it’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 imagine would be a tailwind to loan yields even under that scenario.

Alberto Paracchini

Hopefully, the one caveat is, and you heard it in our comments, sentiment certainly for some type of slowdown, potentially a recession latter, kind of second half of the year seems to be the consensus. So 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, and two, hopefully, we can push continue to push net interest income higher as a result of higher growth in earning assets.

Nathan Race

Okay, got it. And, Tom, can you just remind us how much cash flow you have coming off the securities book, each quarter over the course of 2023 sale for loan growth?

Tom Bell

Yes. It’s roughly about $10 million or so a quarter, Nate, I mean, it’s just — 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.

Nathan Race

Got you. So it sounds like 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. But I imagine we can still expect some organic deposit gathering to help on that loan growth trajectory into 2023.

Alberto Paracchini

Correct, Nate. And I would say, that’s 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 that 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 that’s still is and will be the case going forward. And then secondly, I would also add into — add to that the, hopefully the closing of the merger with Inland here in the second half, really adding more to our core deposit base.

Nathan Race

Yes, definitely. And if I could just ask one more on kind of the Chicago land deposit pricing environment. we’ve heard from another Chicago bank, that new 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.

Alberto Paracchini

I think the rational, I would have, 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 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 no walls and smaller community banks into the market. I think that’s a fair statement.

The second point, which is really the competitive dynamics today, with regards — regarding the deposit pricing in the market putting aside everybody wants to price deposit 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 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 entire 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 that’s, I think that’s our two senses on that.

Nathan Race

Okay, that’s great perspective. Appreciate that. And I apologize, one last one, excluding the impact of Inland which I imagined should bring down your loan deposit ratio, remind us kind of what your comfort level is, in terms of the upper bound on that ratio?

Tom Bell

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 in our goal is to be closer to 90.

Operator

[Operator Instructions]

Our next question comes from the line of Brian Martin with Janney.

Brian Martin

Hey, good morning, guys. Maybe can you just comment a little bit, either, I guess, I’m not sure who just done 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, just as you as we kind of get, what’s the rate environment changing here and people, you said Alberto 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 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?

Alberto Paracchini

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 it’s consumers, businesses you could buy one month bills or three month’s bills that probably with a handle in the 4% range, and if you want to maintain deposits and if you want to attract deposits, you have to, 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 think that’s an unreasonable expectation to have.

Brian Martin

Got you. Okay. And as far as just the government-guaranteed business, I guess, given where the average premiums are today, I mean, you guys have talked about finding that line of where you 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 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, more revenue perspective in that business? Is that something — is that the expectation or just maybe frame up just how you’re thinking about ’23 and from the government-guarantee business would be helpful?

Alberto Paracchini

Yes, I think for now, I think I would say that’s the expectation, I would with 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, kind of where they are today is still attractive, certainly they’re not as attractive as they were call it a year and a half ago, and certainly before that for they are very, I mean, 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’ve benefited from being in that period seems to be for an extended period of time.

Brian Martin

Okay, so I guess the, just in general, a 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’re at if they settle in so?

Alberto Paracchini

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, you would, what you would see is going to be probably a slowdown in the — in aggregate. So I think we’ll just wait and see what kind of what transpires in that regard, Brian.

Brian Martin

Got you. Okay, that’s helpful, Alberto. 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 expectation, it sounds as though that’s even with the NII trajectory, kind of trending up each quarter in ‘23. The expectation would be that 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?

Alberto Paracchini

Hope so. We hope so. I certainly hope so.

Brian Martin

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 being real closing in the capital levels where they are, I mean, would your expectation be a bit more assertive going forward based or maybe not assertive, but more opportunistic based on depending on where the pricings at.

Alberto Paracchini

It’s always a consideration, and it’s just one of the, call it the tools in the toolbox, Brian, 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 it’s something that we revisit frequently, given what’s in front of us, and I think the plan is to continue to doing that going forward.

This concludes our question-and-answer session for today’s call. I will now pass back to Mr. Paracchini for closing remarks. Thank you.

Alberto Paracchini

So thank you, Forem. 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.

Operator

This concludes today’s conference call. Thank you for your participation. You may now disconnect your line.