Horizon Bancorp Inc /In/ Q4 FY2022 Earnings Call

Good morning, everyone, and welcome to the Horizon Bancorp Conference Call to discuss Financial Results for the Fourth Quarter and Full Year of 2022. There will be a question-and-answer session after today's remarks. Please note, this event is being recorded. Before turning the call over to the management, please remember that today’s call may contain statements that are forward-looking in nature. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed, including factors noted in the slide presentation. Additional information about the factors that could cause actual results to differ materially is contained in the Horizon’s current 10-K and later filings. In addition, management may refer to certain non-GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, you can access it at the company’s website, www.horizonbank.com. Representing Horizon today are Chairman and Chief Executive Officer, Craig Dwight; President, Thomas Prame; EVP and Chief Financial Officer, Mark Secor; EVP and Chief Commercial Banking Officer, Lynn Kerber; and EVP and Senior Retail and Mortgage Lending Officer, Noe Najera. At this time, I would like to turn the call over to Mr. Craig Dwight, Chairman and Chief Executive Officer. Thank you, and over to you, sir.

Thank you, Rocco, and good morning. And thank you for participating in Horizon Bancorp's fourth quarter earnings conference call. Our comments today will follow the investor presentation and press release that we published yesterday, January 25. Horizon is pleased to report record earnings for 2022 in the fourth quarter that continues our momentum into 2023 with strong commercial and consumer loan growth, efficiencies gained from closing seven offices, and effective expense control. The challenges during the quarter were the magnitude and velocity of the short-term interest rate increases by the Federal Reserve's Open Market Committee and the corresponding increased competition for deposits, which drove our cost of deposits up at a faster rate in the fourth quarter. The outlook for 2023 calls for the Federal Reserve Bank to slow the pace and magnitude of raising the Fed's targeted interest rate with an expectation that our deposit betas will also moderate during the year. In addition, we see 2023 as a transition year as we continue to focus on reinvesting cash flows and maturing loans into higher-yielding assets. Now, starting on our presentation slide deck of number four. Horizon met or exceeded most of our 2022 goals as announced in the fourth quarter of 2021 and revised upward in the second quarter of 2022. Total loans, excluding PPP and sold commercial loan participations, increased 14.6% for the year, led by consumer and commercial loan growth of 30.6% and 11.4%, respectively. Thomas Prame, our President, will provide more detail on Horizon's loan growth in a few minutes. Other notable Horizon financial measures for the year include return on average assets of 1.24% and return on average equity of 13.66%. Given the size of our balance sheet, efficient operations, talented workforce, and solid additions to our team, Horizon is well-positioned to capitalize on significant organic loan growth as we focus on shifting our balance sheet to higher-yielding assets and continue our disciplined approach to expense control. So why invest in Horizon? Horizon continues to report solid returns to the low credit risk profile due to our diversified balance sheet, excess liquidity, and low-cost core deposits. Horizon's historical credit metrics, even during the Great Recession, have outperformed the U.S. commercial banks as a result of consistent underwriting and active portfolio management. Horizon's deposit mix has improved compared to our pre-pandemic deposit mix as a result of stabilizing the prior year's 14 branch acquisition and good organic growth. We are located in attractive Midwest growth markets where real estate values are not as volatile as in others in the country and where our manufacturing outlook calls for continued expansion. Regional infrastructure improvements are attracting record inflows of private investment to Indiana and Michigan and include the commuter rail expansion in Northwest Indiana, known as Double Track, and West Lake County extensions, which are forecasted to have a multi-billion dollar positive economic impact into Northwest Indiana. The investment in quantum communication lines between Chicago, Lafayette, and South Bend, Indiana, along with Indiana’s $6 billion state surplus with plans to increase infrastructure spending. The continued outbound migration by Illinois businesses and residents as they move into our attractive markets due to our quality of life, affordability, and lower taxes. Horizon has a proven history of organic growth, supplemented by strategic acquisitions as evidenced by our compounded annual growth rate for 2002 through 2022 for average assets at 12.7% and net income at 15.2%. In addition, Horizon has historically outpaced the change in GDP, which clearly demonstrates our ability to add market share, attract talent, and grow organically. This is further supported in reviewing Horizon's top 10 deposit market; five were entered into via acquisitions and five represent our legacy or de novo markets. In the acquired markets, we increased market share over time through the hiring and retaining of local talent in our disciplined approach to market development. Since 2010, our legacy and de novo markets have also demonstrated our ability to increase market share. A key long-term focus for Horizon is digital transformation. Horizon’s advantages in technology over other community banks include our in-house CRM and core platforms, resulting in a lower cost per transaction than our peers, and the ability to expedite the onboarding of new fintech partners and flexibility in data management by not relying on a core service provider. Horizon is able to select technology partners based on best-in-class who can deliver strategic products and services at the best price with optimum flexibility. Our in-house core strategy has also proven to be very attractive for integrating acquisitions, including our most recent 14 branch deal. As a result of our investments in technology, our digital transactions increased from 44% in 2018 to 70% of total transactions in 2022. We increased online consumer deposit account openings to 19% in 2022, and 84% of our online chats are answered by our programmed bots. Horizon manages and deploys capital efficiently, as evidenced by our most recent completed integration of 14 acquired branches and continuing focus on organic growth in 2022. Through the fourth quarter end, Horizon Bank continues to report strong regulatory capital ratios which exceed the regulatory definition for well-capitalized banks. In addition, Horizon has a consistent dividend policy as we fully expect to continue our 30 years plus of uninterrupted quarterly cash dividends. We last increased our dividend in the second quarter of 2022, reporting a 6.3% increase from $0.15 to $0.16 per common share, which represents our tenth dividend increase in the past 11 years. Horizon's historical dividend increases are aligned with earnings growth, sound capital management and as of December 31, 2022, our dividend yield was attractive at 4.2%. Now I'd like to congratulate Thomas Prame on his recent appointment to Chief Executive Officer of Horizon Bancorp Inc. and Horizon Bank, effective June 1, 2023. We're delighted with his addition to the team, with big bank experience and a passion for strategic planning, technology, and focus to move the company forward. Thomas Prame and our senior leadership team have what it takes to continue the bank's success. It's now my pleasure to introduce Thomas Prame. Thomas?

Thank you, Craig, and appreciate the comments. As mentioned previously, it was another solid quarter with total loan growth of $145 million or just over 12% annualized, that's excluding our PPP and sold loan participations. Highlighting the quarter was our commercial balances, which increased by $63 million or just over 10% annualized. Net commercial loan fundings of $98 million were well balanced across our commercial asset classes and our markets. The commercial loan pipeline is positioned at $134 million and continues to provide confidence in our ability to generate mid to high single-digit growth in 2023 with yields continuing to increase as new production replaces our paydowns and payoffs. As we transition to slide 16, consumer loan balances increased by $49 million or 21% annualized. As we discussed in Q3, the short-term nature of the consumer portfolio creates opportunities to shift loan growth to higher-yielding assets. In Q4, we enhanced the pricing structure of our indirect lending, increasing production yields and slowing the historical portfolio growth. This strategy was coupled with an acquisition of high-quality variable rate home equity loans that provided over 300 basis points in improved yield when compared to the indirect portfolio. These loans are also well-positioned with higher floors to protect against potential downturn rate environments. We anticipate having similar opportunities throughout 2023 as we leverage the diversity of our loan platform and manage new origination yields. Looking at slide 17 with mortgage. Our Q4 production and fee income results aligned with industry trends and the team also completed proactive steps to further reduce staffing levels and overall costs relative to volumes. Mortgage warehouse balances also reflected current industry trends at $69 million, down slightly by $4 million from Q3. In concert with the consumer portfolio, we continue to be prudent in our balance sheet deployment with mortgage balances growing about $18 million in Q4 with higher new production yields compared to payoffs and paydowns. Looking at slide 18, our credit metrics remain strong as evidenced by our 0.01% charge-offs and low non-performing loans in the quarter and also the last several quarters. Additionally, our allowance for credit losses is well-positioned at 1.21% of total loans. This is down from 1.27% in the third quarter, primarily due to low historical charge-off levels and improvements in specific segments adjustments, such as hotels, that were offset by an increased allocation for consumer loans in indirect auto. As we look at slide 19, Horizon's historical credit metrics display our ability to outperform the market during the previous economic cycle. We attribute this to our consistent and conservative underwriting practices. As Craig mentioned earlier, the strength of the markets we serve and the talent within our local bankers and credit teams. As this graph shows, the performance of our credit metrics lessens the impact from credit cycles, and we exit the cycle at a faster pace. As we move into a fluid economic environment, we feel confident our current credit profile will produce very similar results. At this time, I'll transition to Mark for highlights into our financial highlights.

Thank you, Thomas. Horizon had a strong quarter in terms of net income and loan growth even as interest rates have risen in a more competitive funding environment. In the fourth quarter, net income was mostly affected by a decline in net interest income, though this was partially mitigated by improvements in non-interest income and expenses when compared to the third quarter. The annualized total loan growth was 13%, excluding PPP loans and sold commercial participations, which significantly contributed to our quarter's performance. The company's diversified business model has consistently delivered strong returns over different time frames. Over the past decade, Horizon has achieved a return on average tangible common equity that exceeds its peers 71% of the time, with 35% less volatility during various economic cycles, such as the recovery from the Great Recession and the pandemic. In addition, during the last three years up to September 30, 2022, Horizon outperformed the KRX Index in return on average tangible common equity and return on average assets 92% and 85% of the time, respectively. As deposit betas went up during the quarter, our deposit balances remained stable. However, we have observed a shift from low-cost deposit products to higher-yielding money markets and CDs, which has resulted in a liability-sensitive balance sheet. Consequently, we anticipate a decrease in net interest income of around $5.1 million or 2.48% over the next 12 months from a 100-basis-point parallel shock as of December 31. Core net interest income fell by approximately $900,000 during the quarter, which aligns with our third-quarter projections when we exclude changes to loan fees, purchase accounting, and dealer reserve amortization. The expected deposit betas for rising rates currently range from 6.5% for consumer deposits to 60% for public funds, with an average beta for non-maturity interest-bearing deposits around 31%. The actual beta for the fourth quarter was 24% for these deposits, compared to 23% in the third quarter. When including CDs, the beta for this interest rate cycle stands at 24%, and we project interest rates to peak in the first quarter of 2023, with the full interest rate cycle beta expected around 28%. We also have approximately $2.2 million in assets, accounting for 30% of our earning assets, that are set to reprice within the next year. This includes $90 million in adjustable-rate loans that adjust immediately with short-term rate changes, an additional $400 million adjusting within 90 days, and $60 million that will adjust throughout the year. The remaining $840 million in repricing assets comprises investment cash flows, principal loan payments, prepayments, and loan maturities, which we expect to fuel growth in higher-yielding originations and boost the overall portfolio yields. In the fourth quarter, we decided to revise how we treat the indirect dealer reserve asset and related amortization expense for prior periods. This revision does not affect net income or total assets and is considered immaterial. The changes decrease other assets for the dealer reserve asset on the balance sheet and increase total loans. The amortization expense is now reflected as a reduction to loan interest income rather than non-interest expense, which lowers net interest income and net interest margin. All previous periods have been adjusted accordingly, and details can be found in our press release and presentation. During the fourth quarter, the adjusted net interest margin fell by 16 basis points, while adjusted net interest income dropped by $2.6 million, mainly due to a $1.2 million decrease in loan fee income and a $490,000 increase in dealer reserve asset amortization compared to the third quarter. The remaining $900,000 decline was attributed to rising funding costs. There is some volatility in how purchase accounting loan fees and dealer reserve amortization will impact net interest income and margin. Given the expected slowdown in rate hikes and potential stabilization or decline towards the end of 2023, we believe Horizon is approaching the lower end of its margin and anticipates beginning to stabilize over the next two quarters. This stabilization will stem from assets continuing to reprice, transitioning asset cash flows into higher-yielding assets, ongoing growth in interest-earning assets, and stabilization of short-term borrowing costs. Our stable deposit base continues to serve as core funding amidst rapidly rising rates. The increasing betas and some deposits flowing from lower-cost to higher-cost products have driven funding costs higher; however, the spread to the earning asset yield was still a strong 3.88% for the quarter, with a total cost of deposits at 71 basis points. By adhering to disciplined deposit pricing, the total cost of deposits rose by 43 basis points during the quarter, while the average Fed fund rate increased by 147 basis points, and we maintained strong deposit account retention. The core funding mix, which includes non-interest and interest-bearing deposits, has remained stable and slightly improved compared to pre-pandemic levels. At the close of 2019, core funding accounted for 65% of total funding; by the end of 2022, it rose to 68%, reflecting a 3% increase. Factors such as stimulus funds, the 2021 branch acquisition, and long-standing customer relationships have all played a role in maintaining consistent core funding. A reduced unrealized loss on available-for-sale securities in the fourth quarter contributed to an increase in tangible common equity from 6.25% on September 30 to 6.56% by December 31. This change results from the yield curve inversion, which has lessened unrealized losses on longer-duration AFS investments. Given our ability and intent to hold all investments to maturity, we anticipate that these unrealized losses will decline over time as investments amortize and mature. The bank's regulatory capital is robust and exceeds the standards for well-capitalized institutions, positioning us well to support growth without hindering our ability to utilize capital for future organic expansion. Non-interest expenses totaled 1.84% of average assets for the quarter, compared to 1.91% in the previous quarter, thanks in part to decreased direct expenses due to the evolving business cycle, including mortgage and indirect lending. These percentages account for the revision relating to the dealer reserve expense. We will continue to prioritize expense management in 2023 to balance out lower revenues. As competition for funding has grown sharply towards the end of 2022 and is expected to persist into 2023, there is heightened emphasis on maintaining balance sheet liquidity. Given the structure of our balance sheet, with most of our investment portfolio unpledged, we possess approximately $2.7 billion in available liquidity sourced from borrowings, brokered CDs, and unpledged investments. In uncertain times, our robust liquidity enhances our balance sheet's resilience. Now, Craig will share some concluding thoughts.

Thank you, Mark. To summarize Horizon Bancorp's key franchise highlights. Horizon is a growth company as evidenced by 20 years of compounded annual growth rates for net income and total assets of 15.2% and 12.7%, respectively. Our balance sheet has a diversified loan portfolio with a product mix and geography, with ample liquidity and cash flows to fund future growth into higher-yielding assets. Horizon's asset quality has historically outperformed the industry in varying economic cycles. The combination of Horizon's historical solid returns in average assets and average equity, our ability to increase market share in our top ten markets and weather varying economic cycles, our diversified balance sheet and current high dividend yield offer support that we have an attractive long-term investment. This concludes our prepared remarks today. And now, I'll ask the operator to please open it up for questions. Thank you.

Thank you. We will now begin the question and answer session. Today's first question comes from Terry McEvoy with Stephens. Please go ahead.

Hi, good morning everyone.

Hi, Terry. Good morning.

Craig, just maybe a question for you. In your prepared remarks, you talked about 2023 being a transition year, and were you just specifically talking about the margin outlook and the interest rate sensitivity, or should we read into that more than just the margin?

No, it's focused on the margin sensitivity as well as the transition to a new CEO.

Okay, great. And then maybe you talked about, Mark, the margin kind of bottoming out. I was wondering if you could maybe frame some expectations about the first quarter based on the interest rate environment and the forward curve? And maybe specifically net interest income, when do you think that is positioned to bottom based on kind of the loan growth and the outlook you just ran through?

Yes, Terry. Thank you for your question. As we enter the first quarter, we expect to experience additional pressure from some of the traditional rate increases, although they may be smaller. The short-term impact from borrowing is significant; most of this was felt with the rate increases we experienced in the fourth quarter. Our highly sensitive deposits changed during the quarter as well. Therefore, we anticipate a reduction in this pressure. However, at the beginning of a new cycle, the response to rate increases is typically higher, which is reflected in our current cycle beta of about 24%, projected to rise to around 28% for the full cycle, assuming interest rate increases stabilize in the first quarter. Consequently, the first quarter presents challenges, but as our assets reprice throughout the year, we expect to see stabilization and eventual improvement.

And then maybe just one last quick one. The CET1 is really strong at 13.6% and nice to see some recovery in the TCE ratio. And when the stock hit 1.3% of book, is the buyback being discussed at all?

Yes, I think as we see stabilization in the economic factors, that is a discussion to have. But we want to ensure that we have a positive outlook for credit and the economic issues.

Great. And I should have said welcome to the call, Thomas, and thanks for taking my questions.

Thank you. Thank you, Terry.

And our next question today comes from David Long of Raymond James. Please go ahead.

Good morning, everyone. And let me say congratulations, Craig, as well on the fine retirement and Thomas to adding the CEO role. So congratulations to both of you. My question is, looking at the deposit base here and you're at 22% non-interest bearing. Where do you see this going over the course of the next couple of quarters when you think about a couple more rate hikes baked in?

Thanks for the question, David. This is Thomas. We anticipate that our non-interest bearing portfolio directly will be relatively stable quarter-over-quarter. That's a very granular portfolio on the consumer side, specifically as we brought in some of the new assets or the new teams from TCF. It does have a little bit of volatility with some seasonality around the public funds, but I'd say on an average quarter basis, it should be relatively consistent.

Great. Thanks, Thomas. And then thinking about the borrowings, obviously, up year-over-year loan growth, it sounds like, or loan demand still seems like it's prevalent. If you do have a flat environment, how are you going to fund that? Will your use of FHLB increase? And where do you see overall the borrowings as a percentage as you move through the year this year?

Yes, it's twofold. The cash flows from the investment portfolio flowing into higher-yielding assets into the loan portfolio. We won funding source to help keep borrowings steady through loan volume growth. The other is, we have been successful and continue to look at retail CD opportunities to be able to use CDs to fund the growth and to help maintain the borrowing. Our goal would be to try to keep the borrowings fairly stable if we can succeed in getting those deposit flows.

Thanks, Mark. As a follow-up, do you have a specific number in mind for the expected cash flows in 2023?

From the investment portfolio, it currently appears to be between $130 million and $150 million, and this range has decreased due to slower prepayment speeds compared to what we observed last year and in the early part of this year. This figure represents the cash flows. Furthermore, as mentioned, we have $840 million in loans that will reprice, including those in the investment portfolio that can be adjusted to yield higher returns.

Got it. Thank you very much. Appreciate it.

And our next question today comes from Nathan Race with Piper Sandler. Please go ahead.

Yes. Hi, everyone. Good morning, and appreciate taking the questions. I just want to echo David's comments and congratulating Craig on your upcoming retirement and Thomas, as well on the promotion of CEO. I guess first question, just as we kind of zoom out on the margin outlook perhaps into the back half of this year, just given the liability-sensitive nature of the balance sheet, if we were to get one or two Fed rate cuts, do you think that would drive some margin expansion under that scenario, or how you guys kind of think about the margin trajectory with perhaps more uncertainty ahead?

Yes, Nate. Thank you for the question. I believe the configuration of our balance sheet, along with the lag in repricing on the asset side compared to the loan portfolio, will continue to improve. Additionally, the immediate repricing of short-term borrowings is something we are considering. We aim to lower rates as aggressively as the market permits, particularly given the recent increase in deposits, especially those that are more sensitive to rate changes. So yes.

Okay. Great. And is the kind of loan growth environment or the loan growth environment were to soften to some degree, what potential is there to maybe unwind some of the higher cost borrowings that you guys have brought on balance sheet? Just to maybe kind of reduce the overall liability-sensitive nature of the balance sheet. Again assuming kind of overall loan growth kind of slows to some degree in 2023?

Yes, I believe the loan growth projection will likely need some funding. As mentioned, we prefer that funding to come from the retail side of CDs. However, if we find opportunities, we will definitely look to replace those short-term liabilities or borrowings.

Okay, great. And then just one last one from me, just on the kind of reserve outlook from here. Obviously credit metrics continue to improve generally in the quarter. How do you guys kind of think about where you can expect the reserves to kind of settle out maybe as a percentage of loans or on an absolute dollar basis as 2023 progresses and kind of absent any meaningful seasonal adjustments relative to the two factors?

Good morning, Nathan. This is Lynn Kerber. How are you?

Hi, Lynn. Good.

So as far as the allowance goes, we continue to work within our model. And as you know, there are different components to that and drivers. We are seeing some change in mix as far as outlook for possible recession. So you see some increase related to some of the econometrics. And as Thomas mentioned earlier, just overall consumer area and watchful in that. Meanwhile, we've seen some reduction in some of the commercial sectors that we had heavier allocations on, because they've been performing really well. And so, personally, I think the outlook is pretty stable. But some of that's going to depend on the economic conditions, of course.

And is that stable outlook percent, the economic conditions on an absolute dollar basis on the reserve or as a percentage of loans?

I would say percentage of loans.

Okay, great. Thanks again.

And our next question today comes from Damon DelMonte with KBW. Please go ahead.

Hello everybody. This is Matt Ryan filling in for Damon DelMonte. Congrats to Craig and Tom. Most of my questions have been asked and answered, but just as a follow-up to Nate's questions on credit. Could you provide a little color on your office segment and what types of exposures do you have there?

Yes. Thank you. We have both medical and general office exposure. To provide some context, there has been significant focus on office exposure, especially in metropolitan areas. Horizon primarily operates in midsize cities like Grand Rapids, which have performed well for us. Overall, there has been no deterioration in credit metrics, and lease rates have been maintained. We typically engage with strong sponsors and maintain conservative loan-to-values in that space, leading to good performance. On page 35, we have our office metrics. As of December 31, 2022, we reported $164 million, representing 6.6% of our commercial portfolio and 3.9% of the total bank portfolio, indicating that our exposure is not significant.

Great. Thank you very much. I'll step back.

Our next question comes from Brian Martin with Janney Montgomery. Please go ahead.

Hey, good morning guys.

Good morning, Brian.

Good morning.

I wanted to discuss the expense side of things and see if I missed anything. What are your thoughts on managing expenses? I know you've mentioned that you met your goals regarding expense assets. As we move into 2023, is there a new target for expenses, or how are you planning to approach this? Any insights you can share on your expense guidance would be helpful.

Yes, Brian, we still expect expenses to be under 2% and possibly in the range of $185 million to $195 million. We have kept expenses lower this quarter, partly due to reduced staffing in slower business cycles. This will carry into the first quarter. A significant portion of the reductions occurred right at the end of the year, which will assist with expense control. Overall, we are taking a careful look at controllable expenses and aiming to be cautious about our spending. Therefore, we anticipate that expenses will remain within that range as we head into 2023.

Thank you, Mark. Could you provide some details on the loan pipelines? Specifically, I would like to know about the different categories: consumer, commercial, and residential. How are you planning for growth in 2023, and what is the current status of these pipelines?

Thank you for the questions. This is Thomas, and I'll pass it over to Noe or Lynn to give some color on the individual lines of business. Overall, as we exited the fourth quarter, our pipelines were strong. Quite a bit stronger in the commercial side. The consumer side has seen the cyclical portion of the fourth quarter and also the adjustments that everyone has seen across the marketplace in mortgage. But our pipelines overall look like they're well positioned and continue the mid upper single digit loan growth throughout 2023, but I'll pass over to Noe to give some additional color.

Yes, good morning, everyone. This is Noe Najera. Yes, our consumer pipeline has remained consistent. We are at a cyclical as well. In direct, we expect to remain flat for the most part. We are going to see some single-digit growth in direct consumer, primarily in the HELOC portion of our portfolio. On mortgage, we will again remain in low to single-digit growth expected in the first quarter as well. And we will mimic really the industry standards that's being published in the forecast as well.

This is Lynn again. Regarding our commercial segment, we have a pipeline of $134 million heading into the first quarter of 2023. This is an increase from $126 million in our gross pipeline for the fourth quarter, which is slightly better than we had anticipated given the interest rate increases. Overall demand has been strong, although some developers are finding new projects a bit more challenging due to the rate hikes. Nevertheless, the metrics are favorable, and we are experiencing continued demand. In the fourth quarter, we saw a little over 10% annualized growth. For 2023, we expect growth in the high single or mid-single digits, which may moderate somewhat due to the current economic conditions and interest rates, but there remains a positive trend in growth and demand as we pursue new opportunities.

Perfect. Thank you for the added color and maybe just the last one or two for me. Just on the mortgage side, I don't know if it's Noe or who, but just kind of the dollar amount that we saw on the gain on sale this quarter. I know the expectations relative to the peers is likely to outperform, but just kind of in dollars how we should be thinking about the mortgage operation this year? I mean, is this kind of a base to build off of in the fourth quarter, I think it's just over a little over $1 million or just any thoughts on your outlook on mortgage?

Thank you for the question. The outlook for the first quarter will closely resemble what we experienced in the fourth quarter. Regarding the pipeline, we did witness a decline towards the end of the year due to the rising rate environment, although the pricing forecasts have stabilized somewhat. We anticipate a few more rate hikes, but we expect performance to be quite similar to the fourth quarter in terms of dollar amounts.

Okay, perfect. And the last question is for Mark regarding the margin. I think you mentioned it would be slightly lower in the second quarter. Is that the inflection point, Mark? Do you believe the third quarter will reflect that as assets begin to reprice and trend higher, or did I misunderstand your previous comments?

No, I think that's the trend as we have a lag in the asset repricing and we see with the anticipation that rate increases will stop here in the first quarter and let the assets start to catch up. That would be the trajectory, Brian.

Yes. Okay, perfect. Thanks for taking the questions and congratulations to Craig and Tom. Thanks.

Thank you, Brian.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Dwight for any closing remarks.

Thank you, Rocco. In closing, we'd like to invite you to join us for our 2023 Virtual Investor Analyst Day on Tuesday, February 21st, starting at noon Eastern Time. Registration information will be sent out next week and we will post on the Investor Relations section of our website. Thank you for participating in today's earnings call. And we look forward to speaking to you again at our Investor Day conference. Now I'll turn the call back over to Rocco to close out the conference. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.