First Financial Bancorp (FFBC) 2022 Q4 法說會逐字稿

Hello, and welcome to the First Financial Bancorp Fourth Quarter 2022 Earnings Conference Call and Webcast. My name is Glenn, and I'll be the moderator for today's call. (Operator Instructions) I will now hand you over to your host, Scott Crawley, Corporate Controller. Scott, please go ahead.

Thank you, Glenn. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bancorp's fourth quarter and full year 2022 financial results. Participating on today's call will be Archie Brown, President and Chief Executive Officer; Jamie Anderson, Chief Financial Officer; and Bill Harrod, Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section.

We'll make reference to the slides contained in the accompanying presentation during today's call. Additionally, please refer to the forward-looking statement disclosure contained in the fourth quarter 2022 earnings release as well as our SEC filings for a full discussion of the company's risk factors. The information we will provide today is accurate as of December 31, 2022, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I'll now turn it over to Archie Brown.

Thank you, Scott. Good morning, everyone, and thank you for joining us for today's call. Yesterday afternoon, we announced our financial results for the fourth quarter and full year of 2022. Before I turn the call over to Jamie, I would like to provide some highlights from the most recent quarter and recap of this year's outstanding performance. I'm extremely pleased with our fourth quarter, which was exceptional on many levels.

Earnings per diluted share was $0.73. Return on assets was 1.63%, and our adjusted efficiency ratio improved to 55%. Diluted earnings per common share increased 24% from the third quarter, and we achieved record operating revenue of $214 million, driven by a 15% increase in net interest income and a 32% increase in fee income. Rate increases continue to positively impact our asset sensitive balance sheet with our net interest margin expanding by 49 basis points to 4.47% as increasing asset yields outpaced deposit costs.

The growth in noninterest income was due to record quarters from Bannockburn and Summit, which more than offset softness in mortgage, client derivative fees and service charge income. We were also very pleased with $502 million of broad-based loan growth in the quarter, which is a 20.3% on an increase on an annualized basis and included $130 million increase at Summit. We expect loan growth to moderate in the first quarter of 2023 due to seasonality and economic uncertainty. During the quarter, we experienced modest outflows in personal interest-bearing transaction accounts. However, this was offset by seasonal inflows in our public funded business deposits.

The result was a stable core deposit base and a loan-to-deposit ratio of 81%. Loan quality remained strong across our portfolio with nonperforming assets declining by 16% to 23 basis points of total assets and 1 basis point of net recoveries for the period. Our ACL to total loan coverage increased slightly during the fourth quarter due to slowing prepayments and the general outlook for the U.S. economy. 2022 was a great year for First Financial. Adjusted earnings per share of $2.36 was a record and increased 3% compared to 2021, resulting in a 1.36% adjusted return on assets and adjusted efficiency ratio of 60%.

Revenue increased 14% compared to the prior year to $709 million, which was a record for our company. Net interest income grew by 15% with short-term rate increases providing a catalyst, while record fee income increased by 11% for the year as our acquisition of Summit funding drove new fees and Bannockburn revenue grew by 23% to a record $55 million. Our recent acquisitions have diversified our income sources as we intended, and we are very pleased that they effectively insulated the company from much of the fee pressure that impacted the broader industry in 2022.

Loan growth exceeded $1 billion for the year, representing an 11% increase from 2021. We are pleased that the growth was broad-based and included strong contributions from Summit Funding, which we acquired at the end of 2021. Summit's originations exceeded $400 million for the year, which is an all-time high for them and surpass our expectations, contributing to over 20% of the company's overall loan growth.

Asset quality was very strong for the year. Net charge-offs were 6 basis points of total loans, which was a 20 basis point decline compared to 26 basis points in 2021. And lastly, nonperforming assets declined $20 million or 34%, to 23 basis points of total assets. With that, I'll now turn the call over to Jamie to discuss these results in more detail. After Jamie's discussion, I will wrap up with some additional forward-looking commentary. Jamie?

Thank you, Archie. Good morning, everyone. Slides 4, 5 and 6 provide a summary of our fourth quarter financial results. As Archie stated, fourth quarter financial performance was excellent, driven by expanding net interest margin, strong loan growth, elevated fee income, and stable asset quality. Our asset-sensitive balance sheet continued to react positively to additional rate hikes with our net interest margin increasing 49 basis points.

We anticipate stable to slight expansion of the net interest margin in the near term due to fewer rate hikes and expected deposit pricing pressures. We were once again pleased with strong loan growth during the quarter. Total loans grew 20% on an annualized basis with the growth widespread across the portfolio. Fee income was particularly robust in the fourth quarter with record results from multiple business lines. Bannockburn and Summit both posted the best quarter in their history. When we acquired these 2 companies, the goal was to effectively diversify our fee income sources. So it is particularly satisfying to see that come to fruition during the fourth quarter.

As expected, mortgage banking income continued to decline as higher interest rates impacted mortgage activity. Our wealth business had another solid quarter and overdraft income stabilized following program changes implemented earlier in the year. Noninterest expenses were slightly higher than our expectations due primarily to incentive compensation tied to elevated foreign exchange income and the company's overall performance. Additionally, we made a $2.5 million contribution to the First Financial Foundation during the period. We were pleased on the credit front with 1 basis point of net recoveries and nonperforming assets declined to 23 basis points of total assets.

While asset quality remained strong, we recorded $10 million of provision expense during the period, which was driven by loan growth and slower prepayment rates. As a result, our ACL coverage ratio increased by 2 basis points. From a capital standpoint, our regulatory ratios remain in excess of both internal and regulatory targets. Accumulated other comprehensive income was relatively stable during the period. Therefore, tangible book value increased $0.49 and our tangible common equity ratio improved by 16 basis points.

Slide 7 reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $68.9 million or $0.73 per share for the quarter. As depicted on Slide 8, these adjusted earnings equate to a return on average assets of 1.63% and a return on average tangible common equity of 30% and an efficiency ratio of 55%. Turning to Slides 9 and 10, net interest margin increased 49 basis points from the linked quarter to 4.47%. Once again, this increase was primarily driven by an increase in asset yields resulting from rising interest rates.

The increase in asset yields was partially offset by higher funding costs. As a result of rising rates, asset yields surged during the period with loan yields increasing 96 basis points. In addition, investment yields increased 57 basis points due to higher reinvestment rates and slower prepayments on mortgage-backed securities. Our cost of deposits increased 31 basis points compared to the third quarter and we expect these costs to increase further in reaction to competitive pressures from an increasing rate environment.

Slide 11 details the asset sensitivity of our balance sheet. We remain well positioned for expected rate increases and approximately 2/3 of our loan portfolio reprices fairly quickly. Slide 12 details the betas utilized in our net interest income modeling. Although deposit costs increased with greater velocity in the fourth quarter, our modeling remains relatively unchanged over the full cycle. Slide 13 outlines our various sources of liquidity and borrowing capacity.

We continue to believe we have the flexibility required to manage the balance sheet through the expected economic environment. Slide 14 illustrates our current loan mix and balance changes compared to the linked quarter. As I mentioned before, loan balances increased 20% on an annualized basis with every portfolio growing compared to the linked quarter, except for franchise. The largest areas of growth were in the C&I, ICRE and Summit portfolios, while Oak Street and Mortgage also increased. Slide 16 shows our deposit mix as well as the progression of average deposits from the linked quarter.

In total, average deposit balances increased $261 million during the quarter, primarily driven by a $319 million increase in brokered CDs. Outside of this increase, deposit balances were relatively stable, which we view positively given the competitive landscape. Slide 17 highlights our noninterest income for the quarter, which surpassed our expectations. Both Bannockburn and Summit had the best quarter in the history of those businesses and Wealth Management posted another solid quarter.

Deposit service charge income was relatively flat compared to the third quarter which reflected a bit of a normalization as the impact from program changes implemented early in the year have now fully materialized. Consistent with the third quarter, mortgage demand was soft due to higher rates, and we continue to expect further pressure on this business for 2023. Noninterest expense for the quarter is outlined on Slide 18. On an operating basis, and excluding Summit, expenses increased $11.2 million compared to the linked quarter, due primarily to incentive compensation tied to the record quarterly performance from Bannockburn as well as the company's overall performance.

In addition, we made a $2.5 million contribution to the First Financial Foundation in the fourth quarter. Operating adjustments include $6.4 million of tax credit investment write-downs and $700,000 of other costs not expected to recur, such as acquisition, branch consolidation and severance costs.

Turning now to Slide 19. Our ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $151.4 million and $10 million in total provision expense during the period.

This resulted in an ACL that was 1.29% of total loans at the end of the year which was a 2 basis point increase from the third quarter. Similar to the third quarter, provision expense was driven by our strong loan growth and slower prepayment speeds, which increased the duration of the portfolio. Despite the increase in provision expense, asset quality remains stable. We had one basis point of net recoveries on an annualized basis, while nonperforming assets declined to 23 basis points of total assets.

We expect our ACL coverage to remain stable or increase slightly in the coming periods as our model responds to changes in the macroeconomic environment. Finally, as shown on Slides 21 and 22, regulatory capital ratios remain in excess of regulatory minimums and internal targets. During the fourth quarter, tangible book value increased $0.49 and the TCE ratio increased 16 basis points due to our strong earnings. Accumulated other comprehensive income was relatively stable compared to the linked quarter but remains a drag on our TCE ratio.

Absent the impact from AOCI, the TCE ratio would have been 8.2% at year-end compared to 6% as reported. Our total shareholder return remains robust, with approximately 30% of our earnings returned to our shareholders during the period through the common dividend. We believe our dividend provides an attractive return to our shareholders and do not anticipate any near-term changes. However, we will continue to evaluate various capital actions as the year progresses. I'll now turn it back over to Archie for some comments on our outlook going forward. Archie?

Thank you, Jamie. Before we end our prepared remarks, I want to comment on our forward-looking guidance, which can be found on Slide 23. Our asset-sensitive balance sheet continues to benefit from rising rates. And although there are many variables that impact magnitude and timing, we expect more moderated expansion in the first quarter to a range of 4.5% to 4.6% based upon anticipated remaining interest rate increases.

The competition for deposits is increasing, and we expect the margin to peak this quarter. We will continue to be dependent upon the Fed. Regarding credit, much uncertainty remains regarding inflation and the impact of rate hikes to the economy and our customers. Over the first quarter, we expect continued stability in our credit quality trends and ACL coverage to be slightly higher. We expect fee income to be between $45 million and $47 million in the first quarter with more normalized level of foreign exchange and leasing income after our exceptional fourth quarter.

Specific to expenses, we expect to be between $109 million and $111 million, with lower incentive expenses given fee income performance. As our operating lease portfolio grows, we'll see corresponding depreciation expense growth, which is included in our range. Lastly, our capital ratios remain strong, and we expect to maintain our dividend at current levels. The outstanding performance we achieved this year is a direct result of our associates executing at a very high level. I want to thank them for their commitment to our clients, our communities and to each other. While we're proud of our 2022 financial results, we believe we have further opportunities to improve execution, and we're committed to doing so.

As we look forward to 2023, we remain focused on delivering consistent, sustained, industry-leading results. We'll now open up the call for questions, Glenn?

Thank you. (Operator Instructions) We have our first question comes from Scott Siefers from Piper Sandler.

So -- I mean the margin performance has just been extraordinary. It sounds like it will sort of peak out at a higher rate than you might have anticipated previously. I think you were saying 4.40% to 4.50% previously, now 4.50% to 4.60% but then will come down thereafter. I guess Jamie, do you have a sense for maybe the trajectory after the first quarter, maybe a thought on like what the margin floor might look like given any actions you've taken, protected, and sort of how long it might take to get there?

Yes. Yes, on the margins. So yes, definitely, it is peaking a little higher than what we had originally anticipated. So -- but I think we end up settling at a spot that we -- where we kind of thought we would be in the beginning maybe before the fourth quarter, maybe even a little bit higher than that, Scott.

So we are -- we have that outlook, the projection of the margin there. Really, I would say that's really the first quarter margin. Then as deposit costs start to catch up, we will see a little bit of deterioration in the margin as we move forward. And then as we get -- I think that really kind of stabilizes towards the back end of 2023, and we think that stabilizes somewhere in that 4.10% to 4.20% range.

All right. That's perfect. That's great. And then separately, when we talked about Bannockburn returning to more historic levels, I guess, what does that mean -- and your guys view anymore? It feels like I might have said somewhere around $10 million a quarter previously, but I mean that thing has just been -- just really, really strong. So it's too low and do you feel like that's something that can still grow year-over-year, just given how strong 2022 was?

Yes, Scott, this is Archie. It was an incredible quarter for Bannockburn, record quarter. And their business can be a little bit lumpy. What they've done a nice job of is continuing to add new customers to their role and that is helping sort of lift the base of clients in terms of revenue.

So we would tell you Q1 is probably more in line of $12 million to $14 million. And if you think about that compared to the last few years, that is stepping up in terms of kind of the base level of revenue. As far as the full year, I'm not sure that it's going to just be a straight trajectory up. But if they did, what, $54, $55 at the end of this year, we certainly would expect them to be at least in that range, maybe a hair more. Their business is probably more when I -- as we continue to get deeper in the business and talk with the Mark Wendling who runs it, their business has got more of a stair-step approach to it.

So it will go through a [big gross birds,] then it will level off a little bit for a period, then it will grow again. And so they grew a lot faster last year than we were even thinking. We think we'll hold that this year, maybe just a hair more.

And Scott, this is Jamie. Just another thing to add on that. I mean that -- so essentially, when you look at that acquisition, we acquired that back in the fall of '19. So just a little bit more than 3 years ago, and it's essentially doubled in revenue from the time that we bought it. They were doing in that -- roughly in that $28 million to $30 million range of revenue. So this past year, obviously, in the mid-50s in revenue.

So it's essentially doubled, so we've been really happy with that acquisition.

We have other questions from Daniel Tamayo from Raymond James.

Just want to take a little bit deeper dive into Bannockburn if you don't mind. Just curious kind of -- you mentioned adding customers, and obviously, it was a strong quarter there, but just -- I'm just curious how -- what might drive another strong quarter like this going forward, an outsized quarter, if you will?

I mean is it got to be more than just adding new customers? Or is that the primary driver? Just curious how to think about what might create surprises on the upside going forward.

Danny, this is Archie. What we're very pleased with is they continue to add net customers and grow the kind of what we call the core base that continues to move higher. And then they still have a number of transactions that will occur in a quarter that would be larger and they're just lumpy.

And its sort of hard to predict the timing. I think traditionally, their fourth quarter -- we thought there's a little more seasonality where they have a little more activity that happens in that quarter. You think about things -- you're getting close to your end. There's a lot of companies wanting to get some things done and that leads to a little bit of a surge in activity. And then you combine that with just the economic environment we're in, this is a little more volatile, inflation concerns, interest rate concerns and all that again is catalyst for activity for Bannockburn.

So it's kind of a just a perfect quarter for adding new clients, a lot of activity heading into their seasonal, the best seasonal quarter combined with the economic activity or the interest rates and inflation issues. So all those things combined, they'll have -- I think it was probably back in, I can't remember if it was Q2, they had -- they had one month, I remember in Q2 that was probably $7 million. So they have other months like that. It's just -- this quarter was spectacular.

Okay. Helpful. And then the other major fee income business was -- leasing was also very strong in the quarter as you touched on. Just curious if that kind of outstripped expectations in the fourth quarter? And if there's any kind of -- what the outlook looks like maybe for 2023 in the leasing business?

Yes. I would -- I think we talked about it in our color that these will come back to more normalized levels in Q1 from Q4. Summit certainly has significant activity in the fourth quarter and which we were expecting, they contributed a lot to our growth. Additionally, they wound down a customer relationship where there were some additional fees, we got for those leases that wound out of the program.

So that added a little bit to the quarter. So we won't have that going forward. So that's why we say it, it sort of normalizes. But as it normalizes, as their volume continues to grow, you're just going to see that line item move up fairly steady. A little more ramp up in the back half of the year. That's when their volume is heaviest. Of course, as we said, the depreciation costs will go up as well on the expense side. So it will be more normalized with seasonal list in the back half of the year. And again, we had just a little bit of extra fees because of winding down one customer in Q4.

And Danny, this is Jamie. So in the outlook that we presented with the fee income of $45 million to $47 million for the first quarter. That takes into account the normalization of both Summit and Bannockburn in there. So that would have those coming back down to kind of what a more normalized trend level.

Understood. Yes. I appreciate it. So obviously, a big normalization in FX and then somewhat more modest on the leasing side. It's probably what we're looking for...

Yes. And correspondingly for the Bannockburn fees that also normalizes the expenses as well because we have a lot of variable expenses related to Bannockburn. So -- and that -- and we included that as well, obviously, in the $109 million to $111 million of expenses.

Yes. Perfect. You got my last question there. Maybe just a little more detail, but just curious on the timing of the expenses in those 2 businesses, if there's any kind of lag, I appreciate you gave us the range expected in the first quarter. But I guess the biggest question is, is there anything that's like an annual kind of comp that -- just because it was the fourth quarter played out for those businesses? Or do those really get recognized on a quarterly basis mostly?

Yes. So we have -- so it's a good question. On -- for the foreign exchange piece of the business, we did have an annual expense that hit because of them reaching a certain revenue threshold which kicks in some additional incentive compensation, almost like an earn-out that you would have in an acquisition.

So them hitting a certain bogey triggered an annual expense and then so -- both the normalization of the ongoing revenue in the first quarter and the elimination of that annual piece is -- that's part of the reason you've seen the expenses coming back down in the first quarter in that, call it, [$110 million] range.

Our next question comes from Terry McEvoy from Stephens.

Maybe just a follow-up on that last question between the -- connection between revenue and expenses. When the leasing business income goes from [$7 million to $11 million] does that -- how does that impact quarterly expenses? Or is all the volatility really related to FX?

All of the volatility was really related to the FX Yes. Those were -- the fees that we received on the leasing business in Summit was more end-of-term type of leasing fees and really didn't have any variable cost related to it. That was a small amount, maybe $0.5 million, small, but it was not -- $400,000 or $500,000, but not really a lot in that number.

So it was all -- all of the variability really in the -- on the expense side was related to -- well, 2 things, Terry, it was related to -- it was related to FX and the revenue that we received there. And then we also had some additional incentive compensation kind of at the corporate level related to just overall corporate bonuses and the strong performance that we had in the fourth quarter, but primarily Bannockburn.

Okay. And then maybe any comments on the office CRE, retail CRE and some of the portfolios that some feel are at risk, given macro conditions and higher interest rates, et cetera?

Yes. This is Bill. We've been monitoring the office portfolio very diligently over the last year or so, making sure we're out ahead of lease expiries, et cetera. So we've established additional operating on that. We feel pretty good about where we're at today. But with some of the change in the landscape, we're being very, very mindful of getting ahead of the risk.

And a lot of our office portfolio is more suburban in nature as opposed to city center-business center type office properties, a lot is medical. So that will have less of an impact as folks reduce office space. But we are watching it very closely and get through. The retail side -- yes, on the real estate, we've really kept our portfolio into more grocery-anchored or grocery near anchored centers with smaller bays, allowing for the half to go to type of operations and that performed very well.

We haven't added a lot to that book over the last couple of years, just really sticking to the name, and really the same thing on office since COVID really put a tamp down on that.

Our next question comes from Chris McGratty from KBW.

Jamie, I wanted to start with the margin comments, dig into a little bit more. You talked about peak margins, which is pretty consistent with what most banks are saying. You're coming from a higher point. The 4.10% to 4.20% that you kind of referenced where you would settle like, I guess, number one, when -- maybe I missed it, when would that be? And then can you remind us what your deposit beta assumptions and any steps you might be doing to lock in the higher rate with some derivatives?

Yes. Good. I won the pool on you asking about deposit betas, so...

You are welcome.

Yes, I will send it out. Yes, so -- yes, so we think that, that 4.10% to 4.20% margin is in the back half of the year, really in the fourth quarter of '23. And again, I would tell you that, that is maybe a little bit different from maybe 90 to 120 days ago, I would have said our margin was maybe going to stabilize in the back half of '23 a little bit lower than that, maybe in that 3.90% to 4% range.

So it still is a little bit higher than what we had originally anticipated in that 4.10% to 4.20%. And then in terms of the deposit beta, we are still modeling in that -- in the low 30s, so call it 30% to 33% deposit beta for the -- again, for the overall cycle and when you kind of look at what we have realized at this point, depending on -- if you're looking at the fourth quarter, you're looking at just maybe December, you're talking in that 10% to 15% type range. So there's obviously still more to come. And then -- but again, we look like right now -- and then there's a lot of variables involved in this, obviously. But stabilizing somewhere in that 4.10% to 4.20% range.

Okay. And if I could. The -- anything you're doing to kind of preserve this if -- now the futures market is calling for potential cuts?

Yes. I would say preserving is maybe a little bit -- might be a little bit of a stretch. I mean by some insurance on the severe downside, I mean, that's really more what our strategy is at this point. And when you think about what happened to our margin, back in the beginning of the pandemic and, call it, March of '20 when rates decline so rapidly, we saw our margin do the same.

So we are building in some protection, I would say, more on buying some floor -- getting some floor protection, but it is more, I would say, in the extreme case as LIBOR SOFR would move in that -- maybe below 2%, so it's more of that kind of, I don't know, call it, catastrophic insurance but more along those lines of what our strategy is at this point.

Okay. And if I could just sneak one more in. You've got a ton of cash coming off the bond book, like $800 million plus for the next year. If you map to the mid-single-digit loan growth that you're talking about, that's $500 million. So it would feel like you could run in place with the earning assets from Q4 levels. Is that kind of the expectation?

Correct. Yes. So our plan is obviously -- and everybody is seeing it, pressure on the deposit side, especially on the -- we're seeing some pressure on personal account balances on the consumer side. And so with that pressure, our plan is to let cash flows off of the securities portfolio fund at mid-single-digit growth. And so yes, we could definitely from our ending earning asset level being relatively -- be relatively flat from an earning asset base.

So that -- and so the other thing, though, Chris, that, that does, is that also -- if you think about it, that also helps the margin a little bit just because of that -- a little richer mix that rotation between security and the loans.

(Operator Instructions) Our next question comes from Jon Arfstrom from RBC Capital Markets.

Okay. Good. Good. Is there a pool on who's going to ask about the [Bengals] first?

Yes.

No. Okay. I just -- I wanted to ask a couple of questions on lending, Archie. What are you guys seeing in the pipeline? You talked about a little bit of a seasonal slowdown, and I think we all understand that. But -- what do you think that Slide 14 looks like throughout the year, where are you seeing the growth opportunities in lending?

Jon, first, a great quarter for the company, and it -- as we said, it was broad-based. We saw a nice rebound in the fourth quarter in ICRE that's been a little slower growing in the first 3 quarters, and that really rebounded for them. We talked about Summit because of their back half of the year, especially Q4 was the strongest quarter of the year, typically is -- Commercial had a really solid quarter. Mortgage grew and some of that's -- little bit more on balance sheet, mortgages were holding in, and just much lower payoffs on the mortgage book as well.

And then our Oak Street business did well. I don't -- we're fairly confident in that mid-single digits, maybe a little bit stronger than that type of growth for the year. As I look into maybe the next quarter, it's still pretty balanced. It's just -- it's smaller levels. Commercial will be part of the growth story for the coming quarter. ICRE is probably where we're seeing some softness in the pipeline as we approach Q1. We see that maybe flat to slightly down. Our Commercial Finance Group will continue to bring some growth. Mortgage will continue to provide some growth and Summit had a really strong end of the year that is carrying over into the first part of the year.

Normally, that slows down a lot for them. It will be slower, but they'll be contributing to that growth here in the first quarter. So commercial -- our Commercial Finance Group, Mortgage, Summit being the drivers for Q1 with ICRE pulling back to being kind of more flattish for the quarter.

Scott kind of touched on credit, I guess. But Jamie, any thoughts on provisioning and just overall, how you expect that to track through the year?

Yes. So I mean, when we're looking at it, we did $10 million in the quarter. A lot of that was driven by the $500 million of loan growth that we saw. So in terms of a little bit more moderate loan growth. If it's in that $100 million to $200 million, $250 million range a quarter, you could see the provision come down a little bit, maybe in the short term.

But obviously, depending on -- we also had a basis point of net recoveries for the quarter as well, so -- which we normally would not see. So I think the way to look at it, if charge-offs come back a little bit, I mean, we're not seeing any real deterioration in the portfolio at this point. But if charge-offs come back to 10 or 15 basis points even you would see -- and then -- but kind of offset by a little bit of the growth -- of the loan growth kind of normalizing.

You could see -- what we really look at is the coverage ratio. We're at [129] now. We would like to see that as we kind of head into the predicted recession to see that still start to -- still continue to move up. I don't think it's going to move up a lot but continue to move up as we head into that, I think, is what you'll see. So kind of back into the provision from that -- from all of that - all of the inputs. But in that kind of level that we saw here in the quarter or potentially maybe even a little bit lower if growth is lower.

Yes. Okay. But you're not seeing the erosion in the portfolio at this point. It's just.

We are not. No.

Okay. Okay .Just 2 more. Archie, you referenced some seasonal deposit flows, typical seasonal deposit flows. And I only ask that because people are a little more sensitive to deposit trends at this point. But what does the deposit flow number look like in the first quarter in terms of composition?

Sorry, what was the last one -- deposit.

Just -- yes, yes, how big was -- yes, seasonal deposit for -- yes.

Yes. So we see -- in Q4, we see a pretty big buildup of our public funds for tax payments that starts to bleed out mid-December, but it's not all finished by the end of the year. So there's a little more of that -- it exits in Q1, the seasonal aspect of that does.

And then we saw a nice buildup in business balances. I was looking at our -- just our business transaction accounts, I mean December was our 5th highest month in average balances ever, all 5 of those months have come in 2022. So it's holding up really strong, but some of that, we see a little bit of a surge in Q4, and then that starts to come back out in the first quarter. Those are probably the 2 bigger trend changes. The consumer has already been spending down their excess deposits.

We just think that trend continues as we go into the quarter. Some of that -- and some of that also they're trading out into higher rate products. But I'd say the big difference is probably the business surge in Q4 that -- that somewhat seasonal start to lead back out along with the public funds, seasonal part leads back out.

Okay. All right. And just one more on Bannockburn. You've answered a lot of questions on it. But why do you think they've been able to double under your ownership, what has allowed them to do that?

Well, when they were independent, it's more difficult. It was more difficult when they're independent, not having kind of the -- if you will, just the wherewithal, the capacity of a bank behind them. And I think Mark Wendling who runs it always thought that to be able to get back with a bank in time, and that's what we're able to do.

And that having bank capability, we can provide other services to clients, lines of credit, things like that, that didn't give us opportunities to get into the FX. He didn't have those other ancillary things that he could offer as an independent.

So I'd say that's probably the single biggest thing. Just -- again, we've got the size, we've got the balance sheet. We've got everything that allows him to grow and then offer more to clients that then gives him opportunities. Plus, we've been able -- we've not done -- say, a great job of penetrating our own middle market book yet where we've made some headway, but we have a couple of bankers assigned and working with the Bannockburn clients around the country, and they've been able to cover more opportunities as well. And they're just really good at what they do.

Yes. I mean the other thing, Jon, this is Jamie. I mean the acquisition also gives them the opportunity to focus primarily on sales as opposed to having to run an independent company.

(Operator Instructions) We have no more further questions on the line. I will now hand the floor back to Archie to make closing remarks.

Thank you, Glenn. I want to thank everyone for joining us on today's call and hearing more about our great Q4 in 2022. We look forward to talking to you again at the end of the first quarter. Have a great day. Bye.

Thank you, ladies and gentlemen. This concludes today's call. Thank you for joining. You may now disconnect your lines.