Q4 2022 Community Bank System Inc Earnings Call
Okay.
Welcome to the community Bank system fourth quarter, and full year 2022 earnings conference call.
Please note that this presentation contains forward looking statements within the provisions of the private Securities Litigation Reform Act of 1995 that are based on current expectations estimates and projections about the industry markets and economic environment in which the company operates.
Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements.
These risks are detailed in the Companys annual report and Form 10-K filed with the Securities and Exchange Commission.
During this call should you need any assistance. Please are going conference specialist by pressing the star key followed by zero.
Please also note that this call is being recorded today.
Today's call presenters are Mark Czarnecki, President and Chief Executive Officer, and Joseph C terrorists Executive Vice President and Chief Financial Officer. They will also be joined by Dimitar corrosive enough Executive Vice President and Chief operating officer for the question and answer session gentlemen, you may begin the call.
Thank you Joe Good morning, everyone and thank you for joining our year end conference call. We hope everyone is well.
Earnings for the quarter were very good in fact, our best quarter ever ex reserve releases last year, we reported record revenues record <unk> and record GAAP EPS ex acquisition expenses.
Loan growth was very strong across all our portfolio is up 12% annualized over the third quarter and the deposit base remains sound with respect to retention and rate Joe will comment further on the quarter, but it was a good one.
Looking at the whole of 2022, we likewise had a record year not just financially, but for our commercial mortgage installment lending businesses as well.
The investments we've made over the past 18 months, particularly in our commercial and mortgage businesses have proven fruitful. The commercial business grew organically, 18% in 2020 to the mortgage business was up 7% and installment business grew at a 28%.
Our non banking businesses also had significant organic growth, but were negatively impacted by the market declines with the exception of one group our insurance business, whose revenues were up 17%.
Our wealth business, which is entirely levered to the market was only down 4% against the market that was down 19, 5% and our benefits business, which is about half lever to the market actually grew 1%. So these businesses had a fabulous year, despite the market and at this point.
Or a coiled spring for the future.
Looking ahead to the remainder of the year, we expect to execute well across all of our businesses a significant focus will be on funding we.
We have $800 million of overnight borrowings, which is not ideally where we wanted to be when we also have $5 billion in lower yielding securities.
So we have some thoughts on addressing that going forward into 2023 and beyond some of which Joe will touch on further.
We will continue to invest in digital and rationalize analog as we did this past year with the consolidation of 12 retail branches, bringing the total over the past three years to 15% of our total network.
Excluding acquisitions, we have fewer ftes than we did in 2021, we implemented new commercial and cash management platforms. Our operations teams are working to implement workflow automation that is expected to save up to 60000 hours of manual effort.
So we our focus across the company on technology solutions for our customers and for our operating efficiency.
Lastly, and most important we have the best talent in this company, we've ever had and so we'll continue to get better in everything we do.
Particularly as we also now have the products technology and service capacity to compete very effectively with the larger banks across our markets. This has created significant new organic market opportunity for us that we have not previously possessed in summary, it was a great quarter. It was a great year, we're exceptionally well positioned and we look forward to 2020.
Three Joe.
Thank you Mark and good morning, everyone as Mark noted the company's fourth quarter earnings results were solid with fully diluted GAAP earnings per share of <unk> 97 cents in fully diluted operating earnings per share of <unk> 96.
GAAP earnings per share were up 17, or 21, 3% over the fourth quarter of 2021, while operating earnings per share were up 15.
Or 18, 5% over the same period the improvement in operating results was largely driven by significant improvement in the company's net interest income.
And a decrease in weighted average shares outstanding between the periods offset in part by a small decrease in noninterest revenues and increases in operating expenses the provision for credit losses and income taxes on a full year basis fully diluted GAAP earnings per share were down <unk> <unk> per share or less than 1%, while operating earnings per share were up nine.
Our two 6%, despite a $23 $6 million or <unk> 34.
34, <unk> per share increase in the provision for credit losses, and a $15 $4 million or 22 cent per share decrease in PPP related revenues adjusted pre tax pre provision net revenue or adjusted <unk> per share, which excludes from net income the provision for credit losses acquisition related.
Expenses other non operating revenues and expenses and income taxes was $1 29 in the fourth quarter of 2022 up 20 or 18, 3% over the prior year's fourth quarter. Adjusted <unk> per share was also up four cents or three 2% over the linked third quarter result of $1 25 on a full year.
Our basis adjusted pre tax pre provision net revenue was up 50.
Our 11, 7% from $4 28, and 2021 to $4 78 and 2022 the.
The company reported total revenues of $175 $9 million in the fourth quarter of 2022. This was up $16 $3 million or 10, 2% over the prior year's fourth quarter and established a new quarterly record for the company net interest income increased $16 5 million or 17, 2% over the prior year's fourth quarter.
Due to market interest related tailwind strong loan growth and investment security purchases purchases between the periods, while noninterest revenues decreased <unk> $2 million of 0.4%. The Companys average interest, earning assets increased $905 5 million.
Six 5%, while the tax equivalent net interest margin increased 28 basis worse 28 basis points from $2 seven 4% in the fourth quarter of 2021% to 3.0% to 2% in the fourth quarter of 2022.
Net interest income was also up $1 $8 million or one 7% over the linked third quarter result results, while the tax equivalent net interest margin decreased one basis point.
Although interest expense was up $8 $8 million over the prior year's fourth quarter. The company's average cost of funds was up just 24 basis points from nine basis points in the fourth quarter of 2021% to 33 basis points in the fourth quarter of 2022, given our 425 basis point cycle to date increase in the federal funds rate federal funds rate.
This represents a total funding beta of 6% Similarly, the company's average cost of deposits for the quarter remained low at 18 basis points, representing a cycle to date deposit beta of 2%.
Zero point $2 million Euro, 4% decrease in noninterest revenues between comparable annual quarters was driven by a $2 $6 million or five 6% decrease in the financial services business revenues offset in part by a $2 $4 million or 14, 5% increase in banking noninterest revenues, despite organic customer growth.
In 2022 employee benefit services revenues were down $1 4 million or four 5% due to a decrease in asset base.
For your benefit trusting custodial fees wealth management insurance services revenues were down $1 $2 million or seven 5% due to primarily to challenging investment market conditions. The increase in banking noninterest revenues was driven by an increase in deposit service fees.
The company reported $2 $8 million in the provision for credit losses in the fourth quarter reflective of strong loan growth and a weaker economic forecast. This compares to a $2 $2 million provision for credit losses recorded in the fourth quarter of 2021 on a full year basis, the company reported $14 $8 million in the provision for credit losses reflective of.
$144 billion of loan growth in 2022, Yes, Mira savings bank acquisition and weaker economic forecast by comparison, the company reported an $8 $8 million net benefit in the provision for credit losses in 2021 due to two due to an improving economic outlook as the country rebounded from the pandemic.
The company reported $105 $9 million in total operating expenses in the fourth quarter of 2022 compared to $100 9 million total operating expenses in the prior year's fourth quarter, the $4 $9 million or four 9% increase in operating expenses was driven by increases in salaries and employee benefits data processing and communication expenses actually.
Been seeing equipment expenses and other expenses offset in.
Part by lower acquisition related expenses, the $1 million of one 6% increase in salaries and employee benefits expense was driven by increases in merit related employee wages acquisition related additions to staff and higher payroll taxes offset in part by lower incentive compensation and employee benefit related expenses.
0.8 million 585, 9% increase in data processing and communication expenses was due to the company's continued investment in customer facing and back office digital technology between the comparable periods.
PNC and equipment expense increased $9 million or eight 9% due to inflationary pressures the Meyer acquisition in the second quarter of 2022 offset in part by branch consolidation activities between the periods. Other expenses were up $3 4 million or 31, 7% due to the acquisitions in general increasing level of business activity.
Between the periods, including business development marketing expenses and travel related expenses in comparison, the company reported $108 $2 million of total operating expenses in the third quarter of 2022, the $2 $3 million to 2% sequential decrease in quarterly operating expenses was largely attributable to a $2 $1 million decrease in salaries and employee.
It benefits the effective tax rate for the fourth quarter of 2022 was 22%.
The company's average earnings assets increased $905 5 million or six 5% over the prior year from $13 $96 billion in the fourth quarter of 2021% to $14 $87 billion in the fourth quarter of 2022. This included a $1 $2 $9 billion or 26.
5% increase in the average book value of the investment Securities and.
And a one for $1 billion or 19, 3% increase in average loans outstanding partially offset by a $1 $79 billion decrease in average cash equivalents average deposit balances were up $348 4 million or two 7% over the same period, which included $522 $3 million of the pause.
<unk> acquired in the <unk> acquisition.
Inc quarter basis average, earning assets increased $254 $6 million or one 7%, while average deposits decreased $154 4 million or one 2%.
Ending loans increased $265 8 million or three 1% during the fourth quarter, and 144 billion or 19, 5% over the prior 12 months period exclusive of $437 million of loans acquired in connection with the second quarter acquisition of Elmira, ending loans outstanding increased $998 seven.
13, 5% over the prior 12 month period.
During the fourth quarter the company originated almost $560 million of new loans at a weighted average rate of just under 6% comparatively the book yield on the company's loan portfolio was $4 three 9% during the fourth quarter.
Asset quality remained strong in the fourth quarter at December 31, 2022, nonperforming loans were $33 $4 million or 0.38% of total loans outstanding. This compares to $32 5 million or 0.38% of total loans outstanding at the end of the linked quarter, 2022, and $45 $5 million or zero.
Six 2% of total loans outstanding one year earlier, the decrease in nonperforming loans as compared to the prior year's fourth quarter was primarily due to the reclassification reclassification of certain pandemic impacted hotel loans from non accruals satisfactorily accruing status.
Loans 30 to 89 days delinquent were 0.51% of total loans outstanding at December 31, 2022 up from 33 basis points at the end of the third quarter of 2022 of 38 basis points. One year earlier, the company reported $3 3 million or four basis points annualized net charge offs.
During 2022.
The Companys regulatory capital ratios remained strong in the fourth quarter, the company's tier one leverage ratio was $8 seven 9%.
Which significantly exceeded the well capitalized regulatory standard of 5% and.
In addition, the company's net tangible equity and net tangible assets ratio increased 56 basis points in the quarter from 4.08% at the end of the third quarter to $4, 64% at the end of the fourth quarter.
During the fourth quarter the company reclassified certain U S Treasury securities with a book value of $1 four $2 billion in a market value of $1.08 billion from its available for sale investment securities portfolio towards held to maturity investment securities portfolio, while the reclassification had no economic earnings or regulatory impact.
<unk> enables the company to be more to more effectively manage overall capital levels, if interest rates rise above year end levels in the coming quarters. The company continues to maintain a strong liquidity profile the COO.
Combination of the Companys cash and cash equivalents borrowing capacity at the Federal Reserve bank borrowing availability at the federal home loan Bank and Unpledged investment Securities provided something with approximately $4 $9 billion.
Immediately available sources of liquidity at the end of the fourth quarter. The Companys loan to deposit ratio at the end of the fourth quarter was 67, 7%, 7%, providing future opportunity to migrate lower yield investment security balances into higher yield loans.
During 2023, the company anticipates, receiving over $600 million of investment security principal cash flows to support its funding needs.
Going forward, we are encouraged by the momentum in our business the company generates strong organic loan growth over the prior six quarters asset quality remains solid and loan pipeline is robust. In addition, new business opportunities in the financial services businesses remained strong in 2023, we remain focused on new loan generation managing the company.
Funding strategies in a rapidly changing interest rate environment, while continuing to pursue accretive low risk and strategic is strategically valuable merger and acquisition opportunities. Thank you now I'll turn it back to Joe to open the line for questions.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Yeah.
And our first question here will come from Alex portal with Piper Sandler. Please go ahead.
Hey, good morning, guys.
Good morning.
First off just wanted to ask about <unk>.
You guys are seeing.
Or maybe expect to see over the next couple of months with respect to deposits I know the first quarter typically see some inflows from municipal deposits I'm just curious if you're expecting a similar levels to what we saw last year and kind of if you have any sort of line of sight line of sight.
The other expected deposit flows so we can sort of manage expectations for that relative to borrowings and long ago with et cetera.
Sure Alex it's Dimitar.
You're right typically in the first quarter, we get some seasonal inflows.
Our deposit base, it's usually a couple hundred million Bucks.
With that said I think we are.
Kind of in an unprecedented time on the funding side and we started seeing that kind.
Kind of late in the summer early in the fourth quarter and it's accelerated I think for everybody in the industry. When you are.
Europe games at the Federal reserve with an independent balance sheet, who has decided to take out liquidity, we all got to take take notice of that.
So with that said.
I think.
I'm not sure we're going to be netting up in the first quarter.
Hope, we will but we're putting in place our strategy is to make sure that we are able to.
Manage our funding so as we sit here today.
Personally I would probably bet on.
Closer to flat than up.
In terms of our deposit base.
Okay, and then you know within the deposit base in the last tightening cycle you guys did a spectacular job keeping.
Cost of deposits lower I'm, just curious if there's a change in customer mentality, just given how quickly rates have risen and I think certainly many of us have noticed it and they're doing it in a personal accounts I'm just curious if.
How we should think about the deposit costs and sort of the customer behavior that you guys are seeing you know over the next couple of quarters.
Alex This is Joe I would just say that when you look at our the composition of our deposit base about 75% of our deposit base is in.
Deposits that are not typically rate sensitive.
It's not to suggest that some of that some of those funds could not be drawn out into higher yielding type assets, but.
Relative to the rest of the industry I think that our our deposit base as is very core.
But there is kind of a.
Larger sort of picture here with respect to what Dimitar referenced on the fed and what's happening to the money supply.
But generally speaking I think we will outperform but yes, I would expect that our.
Funding beta will will increase over the next couple of quarters.
There is always a bit of a delay between the fed changes and then ultimately changes in the funding cost for for financial institutions, including us.
Some of the rate moves that the fed made.
We're in in the fourth quarter.
And those fully haven't been haven't been fully baked into.
All of the.
The financial institutions cost of funds. So I think there will be some increase in the funding beta over the over the coming quarters.
Got it and then always kind of.
Alright.
Yes, it's mark the only thing I would add just as it relates to funding overall.
In the first quarter, the first half of the year, we'll have four or $500 million of the securities portfolio maturing.
Fairly low yields, which we will likely use to pay down.
Our overnight borrowings.
Probably 300 basis point Delta on costs. So just so.
That's reason.
Reasonably significant in the context of what the funding side of our balance sheet will look like.
Here over the next.
Two quarters.
Okay, and then I think in your prepared remarks, Marc or maybe it was Joe you talked about managing the company's funding strategies is that what youre, referring to is that the $600 million of securities that are coming due.
Yes, I think there is two pieces, which is that.
Maturing securities, but also just generally trying to be strategic in terms of.
Identifying markets where.
Where we can pick up deposits.
It's really deposit strategies.
We've got $5 billion of securities.
Are there any strategies around that which makes sense for us to think about.
So there is.
A number of elements to our thought process around funding strategies here, which.
We're thinking about.
Okay.
And then just the other question that I had is you guys talked about.
During economic macroeconomic outlook, yet the ACL dropped by two basis points I was hoping maybe you could just.
Put that in context and explain the moving parts of the ACL and why it actually declined given given the commentary that the macro outlook is deteriorating.
Yes, Alex this is Joe I can I can take that question. So.
There's a couple of components in our seasonal model one is kind of the loss history and the other is the economic outlook, which we referred to in the press release. The third piece is also what's been trending internally in terms of nonperforming assets.
<unk>.
Classified and criticized assets and delinquency and we tend to look at a kind of a four quarter trailing average on those noneconomic qualitative factors simply smooth out if you will any sort of seasonal aspects around the portfolio and effectively as we rolled to call quarter forward.
<unk>.
Four quarter trailing metrics improved we dropped effectively the fourth quarter of 2021, where they're a little higher NPA as an and risk.
Risk ratings were a little bit a little bit.
IRA on the classified and criticized and effectively that improved so that was the offset to the.
The economic outlook.
Thank you for taking my questions.
Thanks, Alex.
Yeah.
And our next question will come from menu out in Nevada with D. A Davidson. Please go ahead.
Good morning, gentlemen, my name is milkshed filling in for Manuel.
I have a few questions to ask what are your loan growth expectations for next year and in.
In terms of mix would it be more commercial weighted.
Just wanted some color on that.
It's dimitar. So I think we've been talking about mid single digit growth rate for our business.
Kind of on a go forward basis, which is higher for us than historical averages because of all the investments and the retooling of the company in a way.
Clearly, it's going to be a slower economic environment with that is the expectation at least so maybe were a tad below mid single digits rather than at that up.
But we're still kind of in that probably 4% to 6% range expectation in terms of loan growth.
As it relates to mix.
Right now the commercial pipeline is pretty good.
The car business is doing well.
Mortgages slowing down the same way with everybody else so.
If we've been kind of running at a 50 50 mix in general.
Maybe it's a little bit more commercial this year, but that's our view.
Regarding the order to guess so.
It could easily be kind of 50 50.
Yep. Thank you for that and in terms of NIM trajectory near term given the pressures on funding what's your outlook going forward.
So and we did flatten a bit in Q4 versus Q3. However, the net interest income did increase.
We just kind of in line with our with our expectations.
When we talked on the third quarter conference call. However, as we look forward I think in the first quarter, you could see potentially slow a bit backwards in terms of the NIM.
I've, just because of the increase in funding costs.
We potentially go backwards, we lose effectively two days of net interest income on a short quarter in the first quarter with that said as Mark was referring to in the second quarter, we start to see some significant cash flows off the securities portfolio.
And so the expectation then we would also typically have some seasonal loan growth kicking in the second quarter. So based on what we can see now assuming funding is somewhat stabilized we would expect some some expansion and kind of through the second and third quarters of next year.
Obviously, the fourth quarters away is a ways out, but the expectations that we see increasing net interest income kind of in the back half of the year.
Okay.
Thanks for that and one last question and then I'll hand it over.
And you talked about the securities books, what is the duration of the security books at the end of the quarter and does that timeframe correlate with the recapture of the LCR.
Yeah. So the duration is just under seven years on a combined basis. When you look at the total securities portfolio.
Which is kind of in line with where it was.
Talked about it in the prior quarter and what was I'm sorry, the second part of the question.
Does that timeframe correlate with the recapture of let's see I.
Hum.
Yes to an extent and if I'm if I'm following the question, but in fact, what we did and we reclassified the securities that roughly $1 billion in market value of securities into HTM as related to reduce volatility if you will around our.
Tangible equity and tangible book value.
We also have about $1 billion $1 $3 billion in municipal deposits that require pledging.
Required securities and so we're effectively required to hold securities for a long period of time to secure those secure those deposits.
The amounts that we reclassified are similar to the amounts that we typically carry them usable municipal securities and maybe if it's helpful. Just to add to that the duration of deep NFS portfolio. Today is just about five years.
Which is what we're going to predominantly use.
For our balance sheet Remixing going forward as we transition from securities into loans. So we've got those five year duration cash flows.
<unk> been building about $4 billion of securities in that bucket.
Yeah.
Okay. Thank you for that.
And our next question will come from Matthew Breese with Stephens. Please go ahead.
Good morning.
Hey, Matthew Matt.
I wanted to continue on the securities discussion you.
You had mentioned that you expect I think 400 to 500 million of securities maturing in the first half of the year. What is what does that schedule look like for the back half of the year and could you give us some frame of reference for on that mix shift.
Over the next call. It 12 to 24 months, where do you want to bring that securities portfolio down to as a percentage of assets.
Yeah.
Yeah well.
Matt This is Joe.
The expectations for the full year on the Securities is about 600 million, we just yet in the half.
A significant amount of that about $350 million or so coming off kind of in the middle of the second second quarter 400 in the first half of the year.
But the total is about 600 $600 million in.
In the full year I think over time.
We certainly would like to see.
Our transition from a securities largely securities concentrated.
Average, earning assets base to one of loans.
The.
I think we now have the organic.
Growth components that we need we tooled up and so over time, we'd like to see that roughly $5 billion portfolio to move down to <unk>.
On a relative basis to move down we'd like to see a loan deposit and loan to deposit ratio that trends up.
Right now I think about 67% you know ideally we'd be down more balance at 75% to 80% loan to deposit ratio.
I think that will trend over time, and you'll see kind of on a relative basis the securities book drop.
Okay understood and how much of the securities portfolio.
Is is unencumbered or tied to municipal deposits, where you have to keep some portion and securities.
Yes, just bear with me one second Matt.
Have those numbers here.
So I think.
Would you like me to go on well yet you look for that matter.
I actually have those available to.
Take them out.
Perfect. So.
Just would love a sense for indirect auto.
Obviously theres a lot of.
Inbound questions and scuttle around deteriorating consumer health could.
Could you just remind us of all FICO is there and whether or not you're seeing any sort of deterioration in underneath the.
The hood pardon the pun.
Sure Matt This is MSR, so our portfolio from the on the car businesses average FICO of 750 roughly.
And Thats, where the originations continue to be.
We're writing business now kind of in the 7% range on a gross basis. So that's kind of six net so it's two pretty good business.
We have seen in terms of credit.
Normalization I will call it still I would call it normalization towards the lower end of that historical averages. So we've been averaging losses. They are kind of between 25% to 35 basis points. Historically, we're kind of right at the lower end of that.
Again, the FICO theyre very strong debt to income of <unk>.
The portfolio and your originations is 27%.
So we feel pretty good about the credit profile I think as we've disclosed previously 80% as used cars.
Our loan to values are less.
Less than than the average for the industry.
We write based on.
On the actual dealer invoice now based on the inflated, sometimes markups and that we've seen over the past couple of years.
So we feel pretty good about that they are we got a normalize a little bit more towards the midpoint of the 25 to 30 basis points 35 basis points and losses, probably is still a great business at the rates. We're writing it yes. It is so that's kind of how we look at it right now.
Okay understood. Thank you next one was just in regards to fee income Joe I'm, sorry, Mark I think you had mentioned that.
There's some new business opportunities within financial services. So I was curious.
Wholesale just kind of thoughts on fee income in 'twenty three.
More specific commentary unemployed benefits wealth insurance and then for those opportunities just curious what you meant in terms of you know or is there more robust pipeline in terms of deals or organic opportunities that you could talk about.
Yes, I'll, just kind of briefly let let dermatitis jump into it further but.
If you look at the summary financial results. It doesn't look like those businesses had a tremendous year with the exception of insurance as I said that was up 17% and revenues.
The wealth business was down.
Down a little bit against a market that's down almost 20 and the benefits business, which is halfway through the March as I said was up even though the market was down 20. So the organic performance of those businesses in 2022 might have been the best year, we've ever had.
They all grew organically and some of them grow a lot, but it got clouded by this by the market because they're on different levels levered to the market. So.
There's a lot of momentum in those businesses right now, which I think is going to continue.
I'll, let dimitar provide any further commentary you might want.
I want to add to that.
That's a pretty good summary, I would just say if you kind of think about historical growth rates in those businesses in the high single digits.
If the market recovers, we will feel very confident we're going to get there.
If the market kind of stays where it is.
Think we're still going to have a pretty decent year, but it'll be high single digits, but low to mid single digits is definitely achievable.
Because again, we've put on a lot of a lot of new units and.
And clients, especially in the second half of the year.
And we did not get the benefit of most of those so.
We feel pretty good about the outlook barring the market going down about 20%.
Got it and Matt Matt. This is Joe with respect to your prior question about Unpledged Securities is about $3 2 billion at the end of the year. We also have blanket.
<unk>.
Availability at the federal home loan bank debt secured by our mortgage portfolio, which is about another $1 1 billion and then we also have some securities.
Securities pledged at the FRP, which creates another.
$500 million. So that's how we get there kind of a four 9% to $3 two of which is the.
The other place got it okay.
Last one was.
I saw this the the calculated tangible book value and the earnings release are a bit higher and the one component I don't have is the deferred tax liability. So I was curious what that updated balance was and if there was any meaningful change quarter over quarter.
So I'll break it down at the end of the end of the year, Matt. So on a book book value basis the available for.
For sales securities portfolio about $4 7 billion about $500 million.
Market value adjustment for about.
For two is kind of the carrying value.
And the held to maturity portfolio about one point.
$1 billion.
At the time, we did the transport transfer excuse me the book value was about 142 billion.
There's about $340 million effectively in gross.
Market value adjustment on that held to maturity portfolio and about 24, 25% of that is effectively in a deferred tax asset of about $80 million, so leaving behind effectively net Aoc I have about $250 million.
Got it okay.
That's all I had thank you so much.
Thank you.
Our next question will come from Chris O'connell with BW. Please go ahead.
Hey, good morning.
Chris.
I may have missed it in the opening comments, but.
Was there any commentary regarding the overall expense outlook for 2023, and I guess, if not can you guys talk a little bit about that.
Yes, Chris we've had this is Joe we've had a history of kind of low single digits in I'll call. It 3% on operating expense increases year over year, obviously, the market has changed there's been stronger kind of wage.
Wage related inflation and other inflationary elements that do make their way into.
So our expense base, our operating expense base. So we kind of think that mid single digits as a more realistic expectation excluding acquisitions on a going forward basis.
Just because of those kind of wage and other sort of inflationary pressures with that said mark alluded to in his comments all of the.
Couple of back office type.
<unk> sees that we're investing in that will take a while for that to catch it to really get the efficiencies from all of those.
Automation activities and the back office, so more of a kind of shorter term basis, we think mid single digits, but our.
Our efforts here are to kind of control those operating expenses on a longer term basis through through automation and efficiency.
Got it that's helpful.
Sure.
And circling back to some of the deposit discussion from earlier, Oh, I think if I read your commentary right.
You know near term expectations.
You know we're we're.
For deposits to remain somewhat flat versus up.
Is that inclusive of the Muni flows or do you expect kind of ex U.
Miscible deposit.
You know fluctuations that there could still be.
Some downward pressure in the near term on the overall deposits.
At Christmas Dimitar.
I think we would expect in the first quarter to be net up on municipal deposits and net down.
Personal deposits and commercial deposits.
Where that ultimately ends up on a net basis is as a guess funding is the biggest question for everybody. This year. So we.
We don't know we're planning for certainly lower than historical experience on the deposit side, probably lower than some of our bottom quartile experience frankly, if you look over 10 years.
Where we've been so.
With that in mind, how does the comment that historically, we would have been up in the first quarter and this quarter were.
Unlikely to be up as we sit here today.
Great.
All of that for now thanks for taking my questions.
Thank you Chris.
Yeah.
Again, if you have a question you May press Star then one to join the queue.
Our next question here will come from Erik Zwick with the Hefty group. Please go ahead.
Thank you and good morning, guys.
Good morning, Eric Good morning.
Just one more topic here on my list that wasn't discussed in an earlier questions or comments just looking at the tax rate. My notes are right from last year are about a year ago, you were expecting a tax rate of 22, and a half to 23, 5% and it looks like you came in.
Below that this year. So one first question just curious if you utilize any kind of tax strategies.
Drop it and lower the mix of revenue with just different in the second part of that question would be you know what's a good expectation for for 'twenty three at this point.
Yeah, Chris excuse me.
Eric with respect to.
On a going forward basis, I still think that.
Plus or minus a half a point around 'twenty two is probably a reasonable.
Expectation as we as we look ahead.
We do we do occasionally by tax credits and other items that are helpful. For the overall rate and we do have a municipal securities book of municipal loans that.
Keep the effective.
Tax rate down a bit so I wouldn't expect much change over 2023 are really the future of where our current tax rate unless there's a change in the tax code.
Great. Thanks, I appreciate it that's all for me.
Okay. Thank you.
So with no remaining questions. This will conclude our question and answer session.
I'd like to turn the conference back over to Mr. Czarnecki Chronicity for any closing remarks.
Thank you Joe and thanks, everyone for joining the call and we will talk to you again after the end of the first quarter. Thank you.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.
Okay.