Community Financial System Inc (CBU) 2022 Q4 法說會逐字稿

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 company's annual report and Form 10-K filed with the Securities and Exchange Commission. (Operator Instructions) Please also note that this call is being recorded today. Today's call presenters are Mark Tryniski, President and Chief Executive Officer; and Joseph Sutaris, Executive Vice President and Chief Financial Officer. They will also be joined by Dimitar Karaivanov 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 PPNR and record GAAP EPS ex acquisition expenses. Loan growth was very strong across all our portfolios, 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 and installment lending businesses as well. The investments we made over the past 18 months, particularly in our commercial and mortgage businesses have proven fruitful. The commercial business grew organically 18% in 2022. The mortgage business was up 7%, and the installment business grew at 28%. Our nonbanking 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 levered to the market actually grew 1% so these businesses had a fabulous year despite the market and at this point, are 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 have $800 million of overnight borrowings, which is not ideally where we want 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 3 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 60,000 hours of manual effort. So we are focused 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 have 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 a 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 2023. 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 $0.97 and fully diluted operating earnings per share of $0.96. GAAP earnings per share were up $0.17 or 21.3% over the fourth quarter of 2021, while operating earnings per share were up $0.15 or 18.5% over the same period.

The improvement in operating results was largely driven by a 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 $0.02 per share or less than 1%, while operating earnings per share were up $0.09 or 2.6% despite a $23.6 million or $0.34 per share increase in the provision for credit losses and a $15.4 million or $0.22 per share decrease in PPP-related revenues.

Adjusted pretax, pre-provision net revenue or adjusted PPNR per share which excludes from net income the provision for credit losses, acquisition-related expenses, other nonoperating revenues and expenses and income taxes, was $1.29 in the fourth quarter of 2022, up $0.20 or 18.3% over the prior year's fourth quarter. Adjusted PPNR per share was also up $0.04 or 3.2% over the linked third quarter result of $1.25. On a full year basis, adjusted pretax pre-provision net revenue was up $0.50 or 11.7% from $4.28 in 2021 to $4.78 in 2022.

The company recorded 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 tailwinds, strong loan growth and investment security purchases between the periods, while noninterest revenues decreased $0.2 million or 0.4%.

The company's average interest-earning assets increased $905.5 million or 6.5%, while the tax equivalent net interest margin increased 28 basis points from 2.74% in the fourth quarter of 2021 to 3.02% in the fourth quarter of 2022. Net interest income was also up $1.8 million or 1.7% over the linked third quarter results, while the tax equivalent net interest margin decreased 1 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 9 basis points in the fourth quarter of 2021 to 33 basis points in the fourth quarter of 2022.

Given a 425 basis point cycle-to-date increase in the federal funds rate, this represents a total funding beta of 6% and 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%. The $0.2 million, 0.4% decrease in noninterest revenues between the comparable annual quarters was driven by a $2.6 million or 5.6% 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 4.5% due to a decrease in asset-based employee benefit trust and custodial fees. Wealth management insurance services revenues were down $1.2 million or 7.5% due to primarily the challenging investment market conditions. The increase in banking noninterest revenues was driven by an increase in deposit service fees. The company recorded $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 $1.44 billion of loan growth in 2022, the Elmira Savings Bank acquisition and weaker economic forecast. By comparison, the company recorded an $8.8 million net benefit in the provision for credit losses in 2021 due to an improving economic outlook as the country rebounded from the pandemic.

The company recorded $105.9 million in total operating expenses in the fourth quarter of 2022 compared to $100.9 million of total operating expenses in the prior year's fourth quarter. The $4.9 million or 4.9% increase in operating expenses was driven by increases in salaries and employee benefits, data processing and communication expenses occupancy and equipment expenses and other expenses, offset in part by lower acquisition-related expenses. The $1 million, 1.6% 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.

The $0.8 million 5.9% increase in data processing, communication expenses with the company's continued investment in customer-facing and back office digital technology between the comparable periods. Occupancy and equipment expense increased $0.9 million or 8.9% due to inflationary pressures, the Elmira 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 and general increase in the level of business activities 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, or 2.2% sequential decrease in quarterly operating expenses was largely attributable to a $2.1 million decrease in salaries and employee benefits. The effective tax rate for the fourth quarter of 2022 was 22%. The company's average earnings assets increased $905.5 million or 6.5% 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 $1.29 billion, or 26.5% increase in the average book value of the investment securities and a $1.41 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 2.7% over the same period, which included $522.3 million of deposits acquired in the Elmira acquisition. On a linked quarter basis, average earning assets increased $254.6 million, or 1.7%, while average deposits decreased $154.4 million, or 1.2%. Ending loans increased $265.8 million, or 3.1% during the fourth quarter and $1.44 billion, or 19.5% over the prior 12-month period.

Exclusive of $437 million of loans acquired in connection with the second quarter acquisition of Elmira ending loans outstanding increased $998.7 million or 13.5% over the prior 12-month period. During the fourth quarter, the company originated over $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 4.39% 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 0.62% 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 of certain pandemic impacted hotel loans from nonaccrual status back to 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 and 38 basis points one year earlier.

The company recorded $3.3 million, or 4 basis points annualized of net charge-offs during 2022. The company's regulatory capital ratios remained strong in the fourth quarter. The company's Tier 1 leverage ratio was 8.79%, which significantly exceeded the well-capitalized regulatory standard of 5%. In addition, the company's net tangible equity and net tangible assets ratio increased 56 basis points during the quarter from 4.8% 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 $1.42 billion and a market value of $1.08 billion from its available-for-sale investment securities portfolio to its held-to-maturity investment securities portfolio, while the reclassification had no economic earnings or regulatory impact, 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 combination of the company's cash and cash equivalents, borrowing capacity at the Federal Reserve Bank, borrowing availability at the Federal Home Loan Bank and unpledged investment securities provides the company with approximately $4.9 billion of immediately available source of liquidity at the end of the fourth quarter. The company's loan-to-deposit ratio at the end of the fourth quarter was 67.7% and providing future opportunity to migrate lower yield investment security balances into higher yield loans.

During 2023, the company anticipates receiving over $600 million in investment security principal cash flows to support its funding needs. Looking forward, we are encouraged by the momentum in our business. The company generates strong organic loan growth over the prior 6 quarters. Asset quality remains solid and the 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's funding strategies in a rapidly changing interest rate environment, while continuing to pursue accretive low-risk and 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. (Operator Instructions) Our first question here will come from Alex Twerdahl with Piper Sandler.

First off, I just wanted to ask about what 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 similar levels to what we saw last year. Any kind of if you have any sort of line in sight -- line of sight onto other expected deposit flows so we can sort of manage expectations for that relative to borrowings and loan growth, et cetera.

Sure. Alex, it's Dimitar. You're right. Typically, in the first quarter, we get some seasonal inflows in our deposit base. It's usually a couple of hundred million bucks. With that said, I think we're kind of in an unprecedented time on the funding side, and we started seeing that kind of late in the summer, early in the fourth quarter, and it's accelerated, I think, for everybody in the industry.

When you're at the end of the Federal Reserve with an infinite balance sheet who has decided to take out liquidity. We all got to 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. We hope we will, but we're putting in place our strategies to make sure that we are able to manage our funding. So as we sit here today, I would personally probably bet on closer to flat than up in terms of our deposit base.

Okay. And then within the deposit base, last tightening cycle, you guys did a spectacular job keeping your 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 are doing it in our 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 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. That'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 deposit base is very core but there's 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'll outperform. But yes, I would expect that our funding beta will increase over the next couple of quarters. There's always a bit of a delay between the Fed changes and then ultimately, changes in the funding costs for financial institutions, including us. And some of the rate moves that the Fed made we're in the fourth quarter, and those fully -- haven't been fully baked into all of the financial institutions cost of funds. So I think there will be some increase in the funding beta over the coming quarters.

Got it. And then it was kind of -- sorry, go on.

No, it's Mark. The only thing I would add just as it relates to funding overall, in the first quarter to first half of the year, we'll have $400 million or $500 million of the securities portfolio maturing at fairly low yields, which we will likely use to pay down our overnight borrowings with a probably 300 basis point delta on cost. So just -- so that's reasonably significant in the context of what the funding side of our balance sheet will look like headed here over the next 2 quarters.

Okay. And then I think in your prepared remarks, Mark, or maybe just Joe, you talked about managing the company's funding strategies. Is that what you're referring to, just the $600 million of securities that are coming due?

Yes. I think there's 2 pieces, which is that, the maturing securities, but also just generally trying to be strategic in terms of identifying markets where we could 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's a number of elements to our thought process around funding strategies here, which we're thinking about.

And then just the other question that I had is you guys talked about deteriorating economic or macroeconomic outlook, yet the ACL dropped by 2 basis points. So I was hoping maybe you could just put that into context and explain the moving parts of the ACL and why it actually declined given the commentary that the macro outlook is deteriorating.

Yes, Alex, this is Joe. I can take that question. So there's a couple of components in our CECL model. One is kind of the loss history. The other is the economic outlook, which we referred to in the press please. The third piece is also what's been trending internally in terms of nonperforming assets and classified and criticized assets and delinquency and we tend to look at a kind of a 4-quarter trailing average on those non-economic qualitative factors simply to smooth out, if you will, any sort of seasonal aspects around the portfolio.

And effectively, as we roll the quarter forward, those fourth quarter trailing metrics improved. We dropped effectively the fourth quarter of 2021, where they're a little higher NPAs and risk ratings were a little bit higher on the classified and criticized and effectively that improved. So that was the offset to the economic outlook.

Our next question will come from Manuel Navas with D.A. Davidson.

My name is Mark (inaudible) filling in for Manuel. I have a few questions to ask. What are your loan growth expectations for next year? And 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. So that is the expectation, at least. So maybe we're a tad below mid-single digits rather than a tad 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 very early guess. So it could easily be kind of 50-50.

Yes. In terms of NIM trajectory near term, given there's pressures on funding, what's your outlook going forward?

We did flatten a bit in Q4 versus Q3. However, the net interest income did increase, which is kind of in line 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 us go a bit backwards in terms of the NIM just because of the increase in funding costs.

And on NII, we potentially go backwards. We lose effectively 2 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 expansion in kind of through the second and third quarters of next year.

And obviously, the fourth quarter is a ways out, but the expectations we see increasing net interest income kind of in the back half of the year.

One last question and then I'll hand it over. You talked about the securities books. What is the duration of the security books at the end of the quarter? And does that time frame correlate with the recapture of AOCI?

Yes. So the duration is just under 7 years on a combined basis when you look at the total securities portfolio which is kind of in line with where it was when we talked about it in the prior quarter. And what was the -- I'm sorry, the second part of the question?

Does that time frame correlate with the recapture of AOCI?

Yes, to an extend if I'm following the question. But in fact, what we did when we reclassified the securities, the roughly $1 billion in market value of securities into HTM is really to reduce volatility, if you will, around our tangible equity and tangible book value.

We also have about a billion -- $1.3 billion in municipal deposits that require pledging require securities. And so we're effectively required to hold securities for a long period of time to secure those deposits. And in effect, the amounts that we reclassify are similar to the amounts that we typically carry in municipal securities.

Yes. And maybe if it's helpful, just to add to that, the duration of the AFS portfolio today is just about 5 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 5-year duration cash flows and, I believe, about [$4 billion] of securities in that bucket.

And our next question will come from Matthew Breese with Stevens.

I wanted to continue on the securities discussion. You had mentioned that you expect, I think, $400 million to $500 million of securities maturing in the first half of the year. 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 you want to bring that securities portfolio down to as a percentage of assets?

Yes. Well, Matt, this is Joe. So the expectations for the full year on the securities is about $600 million. We just definitely have significant amount of about $350 million or so coming off kind of in the middle of the second quarter, $400 million in the first half of the year. But the total is about $600 million in the full year. I think over time, we certainly would like to see our transition from a securities -- largely securities concentrated average or earning assets base to one of loans.

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 on a relative basis to move down. We'd like to see a loan-to-deposit ratio that trends up. Right now, I think about 67%, ideally, we'd be down more balanced at 75% to 80% loan-to-deposit ratio. So I think that will just trend over time, you'll see kind of on a relative basis, the securities book drop.

Okay. Understood. And how much of the securities portfolio is unencumbered or tied to municipal deposits where you have to keep some portion in securities?

Yes. Just bear with me one second, Matt. I have those numbers here. I think.

Would you like me to go on while you look for that?

Yes. Go ahead, Matt. Yes, I actually have those available, just need to take them out.

Perfect. So just would love a sense for indirect auto. Obviously, there's a lot of just inbound questions and scuttle around deteriorating consumer health. Could you just remind us of FICOs there and whether or not you're seeing any sort of deterioration underneath the hood part and the pond?

Sure. Matt, it's Dimitar. So our portfolio on the car business is average FICO of 750 roughly. And that's 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 6 net. So it's still pretty good business.

We have seen in terms of credit normalization, I would call it, still, I would call it, normalization towards the lower end of the historical averages. So we've been averaging losses there kind of between 25 and 35 basis points. historically, we're kind of right about the lower end of that. Again, the FICOs are very strong. Debt to income of the portfolio and new originations is 27%. So we feel pretty good about the credit profile.

I think as we've disclosed previously, 80% is used cars, our loan to values are less than the average for the industry. We write based on actual dealer invoice, not based on the inflated sometimes markups. That we've seen over the past couple of years. So we feel pretty good about that. We're going to normalize a little bit more towards the midpoint of the 25 to 30 basis points, 35 basis points in losses probably. Is still great business, the rates we're riding it, yes, it is. So that's kind of how we look at it right now.

Okay. Understood. Next one is 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 '23, more specific commentary on employee benefits, wealth insurance.

And then for those opportunities. Just curious what you meant in terms of -- is there a more robust pipeline in terms of deals or organic opportunities that you could talk about?

Yes. I'll just kind of brief and let Dimitar jump into it further. But -- if you look at the summary of 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% in revenues. The wealth business was down a little bit against a market that's down almost 20%. The benefits business, which is half lever the market, 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 grew a lot. But it got clouded 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 and I'll let Dimitar provide any further commentary he might want to add to that.

I think 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 feel very confident we're going to get there. If the market kind of stays where it is, we think we're still going to have a pretty decent tier, may not be high single digits, but low to mid-single digits is definitely achievable because, again, we put on a lot of new units 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 another 20%.

Matt, this is Joe. With respect to your prior question about unpledged securities, about $3.2 billion at the end of the year. We also have a blanket availability at the Federal Home Loan Bank that's secured by our mortgage portfolio, which is about another $1.1 billion. And then we also have some securities pledged at the FRB, which just creates another $500 million. So that's how we get to kind of $4.9 billion, but $3.2 billion which is the unpledged.

Got it. Okay. Last 1 was I saw this the calculated tangible book value in the earnings release, a bit higher. And the one component I don't have is the deferred tax liabilities. 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 year, Matt. So on a book value basis, the available for sale securities portfolio about $4.7 billion, about $500 million of market value adjustment for about $4.2 billion is kind of the carrying value. And the held-to-maturity portfolio, about $1.1 billion. At the time we did the transfer -- excuse me, the book value is about $1.42 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 AOCI of about $250 million.

Our next question will come from Chris O'Connell with KBW.

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, call it, 3% on operating expense increases year-over-year. Obviously, the market has changed. There's been stronger kind of, call it, wage-related inflation and other inflationary elements that do make their way into our expense base -- our operating expense base.

So we kind of think that mid-single digits is 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 back office-type efficiencies that we're investing in. That will take a while for that to really get the efficiencies from all of those automation activities in the back office.

So on a more of a kind of shorter-term basis, we think mid-single digits, but our efforts here are to kind of control those operating expenses on a longer-term basis through automation and efficiency.

Got it. That's helpful. And circling back to some of the deposit discussion from earlier. I think if I read your commentary right, near-term expectations, where for deposits to remain somewhat flat versus up. Is that inclusive of the muni flows? Or do you expect kind of ex the municipal deposit fluctuations that there could still be some downward pressure in the near term on the overall deposits.

Chris, it's Dimitar. I think we would expect in the first quarter to be net up on municipal deposits and net down on personal deposits and commercial deposits. Where that ultimately ends up on a net basis is a guess. Funding is the biggest question for everybody this year. So 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, and the comment that historically, we would have been up in the first quarter, and this quarter we're unlikely to be up as we sit here today.

(Operator Instructions) Our next question here will come from Erik Zwick wick with the Hovde Group.

Just one more topic here on my list that wasn't discussed in earlier questions or comments. Just looking at the tax rate. My notes are right from last year. About a year ago, you were expecting a tax rate of kind of 22.5% to 23.5%. It looks like you came in below that this year. So one first question, just curious if you utilize any kind of tax strategies throughout the year that brought it in lower, the mix of revenue was just different. And the second part of the question would be, what's a good expectation for '23 at this point?

Yes. Chris -- excuse me. Erik, with respect to on a going-forward basis, I still think that plus or minus 0.5 point around 22% is probably a reasonable expectation as we look ahead. We do occasionally buy tax credits and other items that are helpful for the overall rate, and we do have a municipal securities booked, municipal loans that keep the effective tax rate down a bit.

So I wouldn't expect much change over 2023 or really in the future over our current tax rate unless there's a change in the tax code.

With no remaining questions, this will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Tryniski for any closing remarks.

Thank you, Joe. 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 line.