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spk02: Good morning and welcome to the SB Financial third quarter 2022 conference call webcast. I'd like to inform you that this conference call is being recorded and all participants are in listen-only mode. We'll begin with remarks by management and open the conference to the investment community for questions and answers. I'll turn the conference over to Sarah Mekas with SB Financial. Please go ahead, Sarah.
spk05: Good morning, everyone. I'd like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our website at ir.yourstatebank.com. Joining me today are Mark Klein, Chairman, President, and CEO, and Tony Cosentino, Chief Financial Officer. This call may contain forward-looking statements regarding SBC Financial's performance, anticipated plans, operational results, and objectives. Forward-looking statements are based on management expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed on our call today. We have identified a number of different factors within the forward-looking statements at the end of our earnings release, which you are encouraged to review. SB Financial undertakes no obligation to update any forward-looking statement, except as required by law, after the date of this call. In addition to the financial results presented in accordance with GAAP, this call will also contain certain non-GAAP financial measures. The reconciliation of GAAP to non-GAAP measures is included in our earnings release.
spk01: I will now turn the call over to Mr. Klein. Thank you, Sarah, and good morning, everyone.
spk00: Thanks for joining Tony Costantino and me for our third quarter 2022 conference call and webcast. At a high level, highlights for the quarter include net income 3.3 million, down 761,019% off from the prior year quarter, but would be up 9% when you exclude the PPP program and small OMSR recapture. On a year-to-date base, net income 9 million, Zillow DPS, $1.27, down from $2.08 EPS last year, or a decline of $0.81 per share. Assuming the effects of mortgage lending in both this year and last, EPS would have been up $0.14 per share year over year. Return on avid assets, 1.03%. Return on equity, nearly 11%. Net interest income, $10.4 million, with up 8.7% from the wind quarter and 4.1% from the prior year. Loan growth and interest rate increases have offset our higher funding costs. Loan balances from the linked quarter rose $30 million. When we adjust for PPP balances, loans were up $81.5 million, or nearly 10% compared to the prior year. Annualized, our loan growth for the first nine months of the year was a healthy 16.6%. Deposit grew from the linked quarter by $14.1 million, but we're down nearly $26 million from the prior year. Expenses were down from both the winter quarter by 3.9% and prior year by 7.7%. Mortgage resignation behind for the quarter was nearly $69 million, and for the trading 12 months, it now originated $388 million, despite the effects of the headwinds of this rapidly rising weight environment. The mortgage business line contributed $6.1 million in total revenue for the first nine months of this year compared to $16.4 million same period last year. The reduction is 63%. Asset quality metrics remain strong with non-performing onsets at just 40 basis points. And net loan losses for the year now stand at a net recovery of 19,000. We continue to attribute our success to our continued commitment to our five key strategic initiatives that we've talked about for a number of quarters. And let's continue to diversify our revenue, balancing net interest income with fee-based business clients, more scale, which for us is organic growth, more products and services, more scope, which is more households and more services and cross-sales and products in those households. And, of course, excellent center operations through better deployment of technology. And, of course, lastly, asset quality. First, revenue diversity. This quarter, mortgage volume and loan sale gains were down from the prior year, 55% on volume to nearly $69 million and 78% on gains to $876,000. The impact of higher rates is evident. The percentage of mix of volume for the quarter with refinance at just 11% and purchase and construction of 89%. This compares to the third quarter of last year when the split between refinance volume was 52% and purchase business, 48%, and obviously significantly more balanced. The relationships we have built with realtors over the past decade plus are paying dividends in this pivot to the purchase market. Monarch's income decreased to $4 million from the prior year quarter of $6.6 million. The current quarter includes a mortgage servicing recapture of $65,000 compared to a recapture of $248,000 in the third quarter of last year. Non-news income, the total revenue for the year still remains strong at 33%, but well below our traditional level of near 40%. Our wealth management team continued to provide stable and consistent revenue in the quarter of $930,000 and continues on pace to deliver annual revenue of $4 million. Despite our wealth assets under management now down $80 million year-to-date, we have still performed better than the NASDAQ index and in line with the S&P 500 index. Clearly different risk profiles, but our baseline and our decline was 15.4%, and the S&P 500 index down 15.3%, MADDAC index down nearly 29%. Second initiative, more scale. Loan growth in the quarter was quite strong as we were up $30 million from the link quarter and up $81 million out of PPP from the prior year quarter. All of our regional markets have solid pipelines and we continue to prospect and call aggressively. With this quarterly growth noted, we have now grown five of our last six quarters of over 100 million from 815 million in balances to over 925 million or 13.4%. We intend to continue to drive organic growth as we enter the commercial arena of one of our newer markets in Indianapolis, Indiana. We feel confident this market is going to be complementary to our higher touch relationship-based model and has been similar potential to that of our growth markets like Columbus, Fort Wayne, and Findlay. The linked quarter growth in our deposit portfolio was welcome and reflective of the hard work our bankers have executed in reaching out to our current clients and prospects proactively. We continue to see strong competition for funding in each of our markets, both bank and non-bank competition. But we clearly intend to remain relevant in this retail agreement space as we continue to seek lower-cost funding to grow our loan book. Our loan-to-deposit ratio was up, again, this quarter to 85%, and as we enter a bit closer to our historical levels, which would be somewhere in the 90s. The increase of 1.6 percentage points was a result of the increased deposits and loans I just mentioned. Third is our strategy to develop deeper relationships, more scope, more services in those households. As we discussed in prior quarters, the success we garnered in the PPP program enabled us to capture over 200 new relationships and expand on 920 existing ones, each driving more scope. And our SBA strategy, post-pandemic, is accelerating. This quarter, our SBA business line contributed $125,000 in revenue as we have begun to witness more traction in the demand for 7A enhancements. We continue to have high expectations for SBA originations this year and beyond, and ones that will drive us to the top quartile of nationwide producers of SBA loans. Although our transition from PPP program to 7A program Origination this year has been slower than we expected. We have originated over 6 million this year to date until the buy-in. I'm happy to report that our pipeline stands at $15 million and is strong as we've ever seen since the onset of the pandemic. All business lines benefited this quarter from continuing to work interdependently by making proactive referrals to one another in different business lines. In fact, today our bankers have now made over 1,100 referrals to another teammate, leading to nearly 600 closed referrals for an incremental additional $57 million in new business. To ensure our culture remains a collaborative one, we recently hired a corporate sales champion to expand key sales initiatives and drive best practices to complement impending sales strategies associated with our new CRM platform, Salesforce. Operational excellence, our core theme, Our mortgage business line is able to drive non-interest income to peer leading metrics with an average of 40% of total revenue over the last seven years. This success is also reflected in the growth of our servicing portfolio that now stands at nearly 9,000 households and approximately 1.4 billion and generates 3.4 million in servicing revenue annually. With a reduction in originated residential saleable products and lower gain on sale. We continue to supplement our net income with net-use margin on portfolio products, albeit with some mild duration risk, as we mentioned in prior quarters. However, as the market eventually normalizes, we feel we are well-positioned to capitalize on potentially the next wave of refinancing opportunities, should they appear. As such, we are expanding our pay for performance variable-based pay MLO staff to deliver something annually near that 460 million average production per year. With individual MLO production declining from an average of approximately 30 million to 15 million today, we continue on our path to identify more producers to deliver that 500 million. From 22 producers at the end of 2021, the 25 last quarter to 27 today. Our retail staff will continue to complement our first mortgage producer by delivering consumer second mortgages and home equity lines to continue to improve scale. Once again, as I mentioned, expense levels year over year and compared to the link quarter declined principally from lower mortgage loan volume and expenses related to that production. With reduced operational expenses, In the business line we discussed last quarter, we continue to have the processing capacity to deliver something near our historical average. Plus, when we consider the cross-selling opportunities associated with those $90,000 households through our new CRM platform, we identify a clearer path to potentially greater organic balance sheet growth. Retail office walk-in activity continues to moderate in the face of a fairly strong commitment to a more efficient digital delivery channel. As we reported last quarter, we are consolidating much of our daily digital and telephonic client transaction into our new contact center. When we deliver greater clarity on our service level commitments by optimizing our new CRM, Salesforce, as I mentioned, we stand to improve both client intimacy and organic growth potential. And finally, asset quality. We understand there are a number of uncertainties associated with the economy. However, we have yet to identify any deteriorating in our customer's finance position. While we have not set aside any provision thus far in this year, despite our over $100 million in loan growth, we remain comfortable with our current reserve level due in part to that $5.5 million that we set aside the last couple of years. Coverage of non-performing loans, which we feel is a key metric that demonstrates the strength of our portfolio stood at 313% at the end of the quarter. Our strong underwriting process should continue to pay dividends as we prepare to pivot as the credit cycle matures. And now Tony will give us a little more detail on our quarterly performance.
spk03: Thanks, Mark, and good morning, everyone. Again, for the quarter, we had a gap net income of $3.3 million and then $9 million for the first nine months. Some highlights of the quarter. Total operating revenue was up 1.5% from the late quarter, but was down 13.2% from the third quarter of 21, as headwinds in the mortgage business have been offset by loan growth and improved margins. Loan sales delivered gains of $1 million from mortgage and small business, and for the nine months, total loan sale gains have been $4.2 million. Margin revenue was up $837,000, or 8.7% from the late quarter, And when we adjust for PPP, loan interest income was higher by $1.3 million from the prior year, or 14.7%. In addition, if we adjust operating revenue to remove the impact of PPP and the entire mortgage business line, we have positive revenue growth of 19.2% and 16.1% from the length in prior year quarters, respectively. As we break down further the third quarter income statement, Looking at margin first, the impact of the PPP initiative was minimal in the quarter, as we were down to just one remaining credit. However, the year-over-year comparison is still material for our results. While adding just 114,000 to margin in the 2022 first nine months, PPP added 3.3 million for the prior year of similar periods. Adjusting average loan yields for both periods would result in a 21 basis point improvement from the prior year, and up 36 basis points from the linked quarter. The improvement in loan yields and the shifted mix out of cash and securities drove a similar improvement in earning asset yields. With our loan growth of low double digits, funding needs have accelerated in 2022. We have needed to fund that growth with retail deposit offerings at the margin and selective wholesale funding options. While we plan to allow our investment portfolio to decline over time with scheduled amortization, Our expected loan growth will continue to require higher deposits and borrowing for funding. As we look at that funding cost in the third quarter, our deposit cost of funds came in at 31 basis points, with the cost of interest-bearing liabilities at 58. This compares to 21 and 39 basis points, respectively, for the linked quarter. From the linked quarter, the beta on our earning asset yields was 32 basis points, and the interest-bearing liability data was 13. Clearly, competition has intensified for funding, and we expect that deposit and overall funding costs will continue to rise in the coming quarters. The interest margin at 3.46 expanded 30 basis points through the link quarter and compared to the prior year was up 25 basis points and would be up 55 basis points when PPP is excluded. The significant NIM improvement from the link quarter was driven by a positive change in mix on the asset side of the balance sheet as interest-bearing cash with allocated loans and deposit levels would have declined. Year-over-year comparisons for total non-interest income, which was down over 39%, are compromised by the expected decline in mortgage revenue and the impact of the servicing rights for cash. If we look at the quarter and exclude the mortgage gain on sale and the OMSR recapture, non-interest income is up over 26% for the prior year, with the adjusted growth driven by better customer service fees higher servicing income, and better slot activity. Our fee income to average assets was still a strong 1.2% for the quarter and 1.5% for the first nine months of 2022. While down from both the prior year and our historical average, we are still above the 75th percentile of our 65 bank peer group, which as Mark indicated earlier, revenue diversity is one of our strengths and a key initiative with not only mortgage, As I discussed last quarter, residential gain on sale yield continued to stabilize. It came at 2.24% in the quarter for the year, or at 2.32%. This quarter, our sale percentage originated loans with just 57%. And 62% for the year, as we've done much more portfolio and private client loan origination. These levels continue to be well off from our traditional 85% sale percentage. Market value of our mortgage servicing rights improved slightly this quarter with a calculated fair value of 114 basis points. This fair value was up three basis points for the late quarter and up 30 basis points for the prior year. We now have a servicing rights balance of $13.5 million and a small remaining temporary impairment of $262,000. Expenses of $10.4 million were down for both the late quarter and the prior year. As our volume of business declined, expense levels moved in concert. our revenue reduction of 13.2% from the prior year was nearly double our expense decline of 7.7%. But if we compare that in length, revenue growth was 1.5%, while expenses declined 3.9%. We expect that revenue growth will continue to improve quarter over quarter with better margins, while expenses will be half or slightly lower than the $10.4 million level from this quarter. As we turn to the balance sheet, loan outstandings at September 30th stood at $925 million, or 71% of total assets, which compares to 63% at the prior year. The third quarter saw another significant mixture within our earning assets, as cash and securities declined by over $24 million from the late quarter, while loans grew $30 million and deposits grew $14 million. Our loan-to-deposit ratio ended the quarter up over 90 percentage points from the prior year. Historically, we have limited our investment portfolio to allow for higher loan growth, but we have moved from less than 10% of our assets and bonds in December of 2019 to the current 19% as our excess cash was invested. We were cognizant to remain shorter in duration and focus on cash flow instead of yield, but that has subjected us to higher market value deterioration. We are comfortable now with a portfolio at an average duration of just over five years and should provide ample cash flow to fund the expected loan growth. Looking at our capital position, we finished the quarter at $114.6 million, down 29.7% or 20.6% from the prior year, with our equity at asset ratio standing at 8.8%. However, when we exclude the OCCI temporary valuation adjustment of 33.1%, our equity grew 2.1% for the prior year and would be 11.4% on an equity-to-asset basis, even after over $6 million in stock buyback and $3.3 million in dividends. We continue to buy back shares in the quarter with 77,326 repurchased, and year-to-date we have repurchased over 300,000 shares, or 4.4% of total shares outstanding. We expect to continue our buyback of our shares at these current prices, funded with organic net income. Finally, all of our asset quality metrics are stable or positive, and charge-ups continue to be well-controlled for both the quarter and year-to-date. Total delinquency levels are just 31 basis points in the quarter and went down from both the linked quarter and the prior year. Currently, our level of allowance to loans is 1.49%, which is better than the major exchange-traded banks from 1 to 100 billion buyers, or ECBs. I will now turn the call back over to Mark.
spk00: Thank you, Tony. I want to conclude, as we've done in prior quarters, acknowledging the dividend announcement we made last week of 12.5 cents per share, which represents a 27% payout ratio and a dividend yield of 2.94%. Through nine months, our loan growth and higher rates have helped to offset the expected decline that we've certainly realized in the residential mortgage arena. Additionally, we continue to feel good about our markets. The pipeline we generated, the product lineup we have, and the prospects for continued balance sheet growth. Consumer households are strong with lower cost leverage, resulting in lower overall debt-to-income ratios, and robust disposable income fueled by that 3.5% unemployment market. We continue to see positive economic growth absent much stronger Fed resistance should inflation persist. Now I'll turn the call back over to Sarah Fordham. Any questions?
spk05: Thank you, and we're now ready for our first question.
spk01: Thank you. Now begin the question and answer session. Ask a question and press star then one on your touch-tone phone.
spk02: If using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.
spk01: This time we'll pause momentarily to assemble the roster. First question comes from Brian Martin, Janie Montgomery. Please go ahead.
spk04: Hey, good morning, guys.
spk02: Hey, Brian. Hey, Brian.
spk04: Hey, just a couple for me, just a high level, just on the mortgage. I guess whomever, maybe Mark or Tony, just on just your outlook here. I know you talked about kind of the dynamics and some of the lenders you're looking, the MLOs you're looking to bring on. But just as far as how to think about kind of the shift we've seen with rates and just the general outlook as far as kind of the volume outlook you're thinking about here over the next couple quarters and the gain on sale margins and just kind of sale percentages. Any commentary that you can offer on the forward look here as far as just how to think about mortgage given the changes we've seen?
spk00: Yeah, just a couple comments, Brian. Obviously, remain bullish on it. We like the 9,000 households. We probably have one and a half to maybe 1.6 services per household. So we're pretty excited about utilizing Salesforce to deepen that relationship. That said, as Tony and I both have indicated, the saleable market at seven is substantially higher than where we were. So we're doing some of that five and a half to six, six and a quarter kind of mortgage portfolio product, which is keeping it on our books and positions for potential refinancing. But I've gone on record a number of quarters that the variable is not the number, it's the number of producers. And we just hired two high-level producers in the Indianapolis market, which is going to support our efforts down there. And that 500 is the number that we've concentrated on, albeit substantially less sold in the secondary market because of the product. But that's where we've landed. Again, dropping to $15 million per quarter. A producer would, you know, you do the math, that would have us near probably 30 producers, plus or minus. So that's where we're headed. And we seem to be finding some of those people because other ones have begun to exit the business line. And Tony, I don't know what numbers we have in there.
spk03: Yeah, so, Brian, you know, we've got about $260 million through the nine months of origination. You know, we're going to end up somewhere between $300 to $320 for the full year, depending on how things roll out here in Q4. I would say our 2.25 gain on sale yield is going to be pretty static here in Q4, maybe slightly up in 23. And we're certainly looking in 23 to improve on that 325 total number by some 6% to 10%. We'll see how that goes. We think we picked that up from competition falling away as opposed to the overall market improving. We just think we're going to get a bigger to slightly down market. Clearly, refinance is going to remain in about that 10% to 15% of total volume, we think, through the end of 23 to we maybe see some moderation rate.
spk04: Okay. And I guess your sale percentage, Tony, I guess, are you still comfortable, I guess, continuing to put it on the books for now? I guess I don't know where that kind of peaks out as far as how much appetite you have to continue to do that just with the ARM products versus, you know, the the fixed rate, but is that just generally how to think about we should continue to see that grow?
spk03: Yeah, I think that's really the one unopened question. I think we're still getting quality clients. I think the ARM product is attractive now because of, I think, the shock impact of a 7% Freddie Mac fixed rate. I do think those rates will come down a bit, and I think people will get more used to it. So do I think we're going to get back to an 85% to 90% sale percentage? No, I wouldn't think so. In 23, we're probably going to inch towards that 70 to 75 because we're currently tied in that 60% range, which I think is an anomaly that would be that low long-term.
spk04: Okay, that's perfect. That's helpful. And so it sounds like there's plans to hire, you know, do a fair amount of hiring potentially in 23 is how to think about that mortgage number. You've hired a couple recently, but this is, it seems like there's good opportunity to continue to add those folks.
spk00: Well, when I read about Quicken and what's going on in some of these places that have capitalized on the refinance market, we're really happy that we've got the relationships we have, Ryan, with the realtors we have, because as we pivot to this purchase market, I think that's going to play well into our cards of what we've done with the strong lenders that we have. We're just going to go after the purchase market, and we're going to hire good producers in good markets, and again, we're going to get back to the average that we're built for. Health-wise, we continue to cut expenses and potentially FTE.
spk04: yeah okay perfect and then just two i guess kind of two others here just on the loan growth outlook i mean it's been really good as you guys have outlined your particular year to date um just how should we think about that with you know just rates being up seems like concerns in the market is it is the outlook you know kind of the pipeline for loan growth are you seeing kind of leading indicators suggest that flowing is it still pretty active and you know your outlook is you know still very positive just Kind of curious how the Fed actions are impacting your outlook there.
spk00: Yeah, I think some of it, Brian, is the fact that we have taken some duration risks in the last year, year and a half, and those lower rates have kept people in the deals, albeit with lower cap rates, which some people have begun to take a little profit off the table with lower cap rates. But that said, that seems to have stabilized, and we continue to make a lot of calls, as I mentioned, aggressively. As I mentioned, we just hired a corporate sales champion that's going to get in the weeds more with all of our salespeople and all of our business lines and just get a little more intentional with the digital platform we have and the new CRM platform we have so we can take those 9,000 households and take them from 1.6 services per household because they largely came because of the mortgage business line and hopefully expand them into two and three. That's what we're going to build organically. But I'm bullish on what we've done. Again, we're now in Indianapolis market. We started to gain some traction in the commercial arena down there, albeit slow. Again, with the slowdown in the economy, the Fed stepped on the brakes a number of times, including today. But generally speaking, we're still seeing good opportunities. And the nice thing is that we've got some nice, diverse markets that we're in. I think it's all playing well into our overall model.
spk04: Okay. In the pipelines today, so it sounds like you're still pretty optimistic about growth for 2023. I mean, maybe not at the pace obviously put up this year, but still pretty, pretty positive on the potential there.
spk00: I think generally again, I think you know the fifth moves are going to be data dependent and if if they can ease off of the breaks here going into 23, I think that will be positive. I think it really depends on how the economy reacts. You know, car sales are down still. We've still got 3.5% unemployment. I don't know where the people are going to come from to work. But they've got some work to do. And if the economy responds well, I think we're going to continue to find clients that want to lever up a little bit, albeit with a little duration risk on our side.
spk04: Yeah. Okay. That's helpful. And maybe for Tony on the margin, Tony, just in the margin expansion, can you talk about if I guess maybe how the margin reacts over the next quarter or so, and just if we do see a pause by the Fed, do the deposit betas continue to kind of catch up, or maybe you've got a couple more quarters of expansion, and then you start to see maybe a little bit of a decline in the margin just as those deposit betas catch up and kind of overtake the loan beta, but just trying to think about how the margin trends here over the next two to four quarters.
spk03: Yeah, I think that's I think that's spot on. You know, I think, you know, we're, you know, loan beta has kind of improved by, you know, three times what deposit betas did in the quarter. I would expect we'll be kind of one-to-one in Q4. You know, we fully expect there to be, you know, 75 basis points here, you know, this afternoon and maybe one more here of some number and then somewhat of a pause. You know, I think it's, Really, most of our, you know, margin expansion is driven obviously by, you know, the loan growth expectation. I would think in Q4, you know, loans, we're going to have a few payoffs that are going to kind of keep us maybe leveled slightly up here in Q4. You know, we did call it $100 million on a year-over-year basis with maybe half of that on residential mortgage. I certainly expect as But the pipelines are good. So I think margin is going to continue to improve in Q4 and in Q1. And then it's going to be, I think, relatively stable as deposit costs catch up and funding costs, you know, cut into that asset margin improvement.
spk04: Okay. And most of the improvement, Tony, is it's a combination of, you know, just the assets repricing upward and then just the remix you're talking about. If you're funding, sounds like you're funding most of the growth from the cash flows on the securities portfolio, that's That's the plan at this point?
spk03: Yeah, I mean, we're going to have, you know, call it $10, $12 million of cash flow and $2.4 from the bond portfolio, which we won't, you know, roll over. We'll just have that to fund loan growth. You know, I still feel fairly good that we can be stable and slightly up on the deposit side, be it maybe a little bit higher, obviously, than what we're currently paying. But I think that mix and the overall growth is a big function in driving market.
spk04: Gotcha. Okay. Um, perfect. And maybe just one last one, just on the, uh, on the expense side. I mean, the trends were, you know, very favorable this quarter. Just, you know, if you just given the actions you took on, I just come from the efficiency standpoint and just being a little bit less production on mortgage, but just sounds like this, uh, you know, the rate of expenses this quarter level of expenses, this quarter appeals appears like a, you know, kind of a baseline level where you're not expecting a lot of growth off that. Is that fair or just, you know, when you think about next year, the inflationary pressures, if we just, what's the best way to think about how to capture some of those drags, if you will, from the inflationary standpoint into the expense base as we look at next year?
spk00: Brian, from the personnel side, we've seen a bit of a change in narrative. We've filled some open slots, but as you might expect, we're going to be fairly deliberate as we have eliminated all overtime. We're going to be looking hard at all positions that open up as to whether we refill them, which obviously is the biggest expense on our expense side, which would be personnel. So we're looking at everything as we speak. We know we need to be more efficient. Our efficiency ratio is not where it needs to be. We try to improve it by improving our scale, which we're okay with. growing median to the upper quartile on growth, which I think we've done a nice job on growing the balance sheet. We certainly need to continue to have a concentration on not only the commercial loans, but the CI and the deposits that come with it through our trade management. That's going to be a critical piece of our growth because that's how we're going to make the margins. We need to incrementally expand the average is adding the incremental higher, which is what we're going to concentrate on. But that said, we continue to remain fairly bullish on where we find ourselves.
spk04: Gotcha. Okay. No, that's helpful. And I guess just the last one really was just on just the provision line or just reserving going forward with the growth, I guess, is it because it had a handful of quarters here with no provision given the strength of the credit quality and kind of growing into the reserve. As we think about going forward, I guess, should we start to
spk00: expect some I guess is the reserve level now at a level you feel like is sustainable and we're just provisioning for growth at this point is that kind of how to think about it or is there still a little bit more recapture on that on the reserve well again we're pretty bullish on our underwriting process we've had great results of course everybody has in this market depending on what the fed does and how the economy reacts I think will dictate a little bit of the path forward that said I think we need to continue to consider intimately what we intend to do in 2023, which is probably going to beg some increase. We're pretty content at the 148.15, you know, down from the 16 or so where we were before. But I would say in 23, it's going to beg a little bit of contribution to the reserve. We've never released any, but I'm really pleased that we took 5.5 million from the goodwill that we realized on the PPP program and suck it into reserve. That's paying dividends as we speak today. But I do think there'll need to be some addressing of the reserve size going into 2023 because we intend to continue to grow.
spk04: Yeah. Okay. That makes sense. And just you, Mark, you mentioned just your outlook on SBA. It seems a bit more bullish maybe than it has been. Is that, you know, I guess that's your expectation. We should see a little bit more, you know, revenue growth next year out of that business, given kind of the trends you're seeing now? It sounds like the pipeline was as strong as it's been, and maybe I misunderstood your comments, but it seemed like you're pretty optimistic there.
spk00: Well, again, we had great traction. As you know, Brian, six years ago, seven years ago, we developed a strategy in SBA. We wanted to be in the top 100 of the U.S. We did probably 50 million in five years, and then PPP, we hit the pause button, did 112 million in PPP. Now we're back at 7A. We love the 7A program. As I mentioned, we've had a decent year of $6 million so far this year. But we want to get back to the top quartile of banks that do produce SBA in the country. And we think we've got the right people out in the market. We think we're in the right market. And again, in this environment where the economy is teetering a little bit, as I mentioned before, we love replacing equity with debt. And we love the enhancements they can give us. The yields are marginally higher. We're kind of in the driver's seat on gathering those deposits. We're on project-based financing. We don't get deposits. This is project financing. CRE, which doesn't do anything for the liability side of the balance sheet. So yes, we're bullish on SBA. We can make great things happen on that. And we take good care of our producers that do them. So I'd like to get us back to, in 2023, you know, more of that 15 to 20 million at least in our markets because we've got great markets and now Indy gives us even more potential.
spk04: Right. Okay. Perfect. Thank you guys for taking the questions in that nice quarter.
spk02: Yep. Thanks for having me. Talk to you. Thank you. And again, if you have a question, please press star then 1. This time we have no further questions. We'll turn the call back over to Mr. Mark Klein for closing remarks. Please go ahead.
spk00: Thank you again. Thanks for joining us. We look forward to joining you all again in January with our fourth quarter of 2022 results. Thanks again for joining. Have a good day. Take care. Conference is now concluded.
spk02: Thank you for attending today's presentation.
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