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 Mekus with SB Financial. Please go ahead, Sarah.
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 SB Financial's performance, anticipated plans, operational results, and objectives. Forward-looking statements are based on management's expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied 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. A reconciliation of GAAP to non-GAAP measures is included in our earnings release. I will now turn the call over to Mr. Klein.
Thank you, Sarah, and good morning, everyone. Thanks for joining Tony Cosentino 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, 000, 19% off from the prior year quarter, but would be up 9% when you exclude the PPP program and a small OMSR recapture. On a year-to-date basis, net income $9 million, diluted EPS $1.27, down from $2.08 EPS last year, or a decline of $0.81 per share. Excluding 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 average assets 1.03%. Return on equity nearly 11%.
Net interest income, $10.4 million, was up 80.7% from the linked 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%. Deposits grew from the linked quarter by $14.1 million, but were down nearly $26 million from the prior year. Expenses were down from both the linked quarter by 3.9% and prior year by 7.7%.
Mortgage origination volume for the quarter was nearly $69 million, and for the trailing twelve months, we've now originated $388 million, despite the effects of the headwinds of this rapidly rising rate 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, a reduction of 63%. Asset quality metrics remain strong with non-performing assets at just 40 basis points. Net loan loss 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 that's continuing to diversify our revenue, balancing net interest income with fee-based business lines. 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. Of course, excellence in our operations through better deployment of technology. 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. Non-interest 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-interest 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%, Nasdaq Index down nearly 29%.
Second initiative, more scale. Loan growth in the quarter was quite strong as we were up $30 million from the linked quarter and up $81 million net 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, up 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.
We clearly intend to remain relevant in this retail-driven 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 inch 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. 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 7(a) 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 7(a) program origination this year has been slower than we expected, we have originated over $6 million this year to date in total volume. I'm happy to report that our pipeline stands at $15 million and as strong as we've ever seen since the onset of the pandemic. All business lines benefited this quarter from continued work interdependently by making proactive referrals to one another in different business lines. In fact, to date, 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 fourth theme. Our mortgage business line has enabled us 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 non-interest income with net interest margin on portfolio products, albeit with some mild duration risk, as we've 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 base 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 identifying more producers to deliver that $500 million. From 22 producers at the end of 2021, to 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 linked 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 9,000 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 transactions 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.
Finally, asset quality. We understand there are a number of uncertainties associated with the economy. However, we have yet to identify any deterioration in our customers' financial 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. Now Tony will give us a little more detail on our quarterly performance. Tony?
Thanks, Mark, and good morning, everyone. Again, for the quarter, we had GAAP net income of $3.3 million and then $9 million for the first nine months. Some highlights for the quarter. Total operating revenue was up 1.5% from the linked quarter, but was down 13.2% for the third quarter of 2021 as headwinds in the mortgage business have been offset by loan growth and improved margins. Loan sales delivered gains of $1 million from mortgage to 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% for the linked quarter. 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% for the linked and 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 are down to just one remaining credit. However, the year-over-year comparison is still material to our results. While adding just $114,000 to margin in the 2022 first nine months, PPP added $3.3 million for the prior year similar period. 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 the loan yields and the shift in 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 borrowings 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 beta 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. Net interest margin at 3.46% expanded 30 basis points from the linked quarter, and compared to the prior year, was up 25 basis points and would be up 55 basis points when PPP is excluded. This significant NIM improvement from the linked quarter was driven by a positive change in mix on the asset side of the balance sheet as interest-bearing cash was allocated to 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 declines in mortgage revenue and the impact of the servicing rights recapture.
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 swap 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 75% 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, but wealth, swaps, and that servicing income we discussed.
As I discussed last quarter, residential gain on sale yields continue to stabilize and came in at 2.24% in the quarter and for the year are at 2.32%. This quarter, our sale percentage of originated loans was just 57%. 62% for the year, 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 3 basis points for the linked 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 from both the linked quarter and the prior year. As our volume business declined, expense levels moved in concert. However, our revenue reduction of 13.2% from the prior year was nearly double our expense decline of 7.7%. If we compare that to the linked quarter, 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 at or slightly lower than the $10.4 million level from this quarter. As we turn to the balance sheet, loans outstanding 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 mix shift within our earning assets as cash and securities declined by over $24 million from the linked quarter, while loans grew $30 million and deposits grew $14 million. Our loan-to-deposit ratio ended the quarter up over 9 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 in bonds in December of 2019 to the current 19% as our excess cash was invested. We were cognizant to remain shorter duration and focus on cash flow instead of yield, but that has subjected us to higher market value deterioration. We are comfortable now with portfolio as an average duration just over five years and should provide ample cash flow to fund expected loan growth.
Looking at our capital position, we finished the quarter at $114.6 million, down $29.7 million or 20.6% from the prior year, with our equity to asset ratio staying at 8.8%. However, when we exclude the AOCI temporary valuation adjustment of $33.4 million, our equity grew 2.1% over 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 continued to buy back shares in the quarter with 77,326 repurchased. In 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 and positive, and charge-offs 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 were 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 billion-$100 billion by 32%. I will now turn the call back over to Mark.
Thank you, Tony. I want to conclude, as we've done in prior quarters, acknowledging the dividend announcement we made last week of $0.125 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 pipelines we've 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 for any questions. Sarah.
Thank you. We're now ready for our first question.
Thank you. I'll begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble the roster.
First question comes from Brian Martin, Janney Montgomery Scott. Please go ahead.
Hey, good morning, guys.
Hey, Brian.
Morning, Brian.
Hey, just a couple for me, just high level, just on the mortgage. I guess whomever, maybe Mark, or Tony, just on your outlook here. I know you talked about kind of the dynamics and some of 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 of 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?
Yeah, just a couple of comments, Brian. Obviously, we remain bullish on it. You know, we like the 9,000 households. We probably have 1.5 to maybe 1.6 services per household. You know, we're pretty excited about utilizing Salesforce to deepen that relationship. That said, as Tony and I both have indicated, the saleable market at 7% is substantially higher than where we were. We're doing some of that 5.5%-6%, 6.25% kind of mortgage portfolio product, which is keeping it on our books, and this is for potential refinancing. I've gone on record a number of quarters that the variable is not the number, it's the number of producers.
We just hired two high-level producers in the Indianapolis market, which is going to support our efforts down there. That $500 million is the number that we concentrate on, albeit substantially less sold in the secondary market because of the product. That's where we've landed. Again, dropping to $15 million per producer would, y ou know, you do the math, that would have us near probably 30 +/- producers . 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. Tony, I don't know what numbers we have in there for the quarter.
Yeah. Brian, you know, we've done about $260 million through the nine months of originations. You know, we're gonna end up somewhere between $300 million and $320 million 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 2023. Certainly looking in 2023 to improve on that $325 million total number by some, you know, 6%-10%. We'll see how that goes. We think we pick that up from competition falling away as opposed to, you know, the overall market improving. We just think we're gonna get a bigger share of what is going to be a kind of flat to slightly down market.
Clearly, refinance is going to remain in about that 10%-15% of total volume, we think, through the end of 2023 till we maybe see some moderation in rates.
Okay. I guess your sale percentage, Tony, I guess, are you still comfortable, I guess, just continuing to put it on the books for now? Or 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 fixed rate. But is that just generally how to think about we should continue to see that grow?
Yeah, I think that's, you know, 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%, you know, Freddie Mac fixed rate. I do think those rates will come down a bit, and I think people will get more used to it. Do I think we're going to get back to an 85%-90% sale percentage? No, I wouldn't think so. In 2023, we're probably going to inch towards that 70%-75% because we're currently kind of in that 60% range, which I think is an anomaly that would be that low long term.
Yeah. Okay. That's perfect. That's helpful. It sounds like there's plans to hire, you know, do a fair amount of hiring potentially in 2023, 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.
Well, when I read about Quicken and, you know, 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, Brian, with the realtors we have. Because as we pivot to this purchase market, I think that's gonna play well into our cards of what we've done with the strong lenders that we have. We're just gonna go after the purchase market, and we're gonna hire good producers in good markets. Again, we're gonna get back to the average that we're built for. Otherwise, we continue to cut expenses and potentially FTE.
Yeah. Okay. Perfect. Just two, I guess, kind of two other issues. Just, on the loan growth outlook, I mean, it's been really good as you guys have outlined, you know, particularly year to date. Just, how should we think about that with, you know, just rates being up, seems like concerns in the market. Is the outlook, you know, kind of the pipeline for loan growth, are you seeing kind of leading indicators suggest that's slowing? Is it still pretty active, and, you know, your outlook is, you know, still very positive? Just kinda curious how, you know, the Fed actions are impacting, you know, your outlook there.
Yeah. I think some of it, Brian, is the fact that, you know, we have taken some duration risk in the last 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. 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 sales people 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.
We can take those 9,000 households and take them from 1.6 serviced per household because they largely came because of the mortgage business line and hopefully expand them into two and three. That's where we're gonna build organically. I'm bullish on what we've done. Again, we're now in the Indianapolis market. We've started to gain some traction in the commercial arena down there, albeit slow, you know, again, with the slowdown in the economy and the Fed stepped on the brakes a number of times, including today. Generally speaking, we're still seeing good opportunities. 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.
Okay. In the pipeline today, it sounds like you're still pretty optimistic about growth for 2023. I mean, maybe not at the pace obviously you've put up this year, but still pretty positive on the potential there.
I think generally, again, I think, you know, the Fed's moves are gonna be data dependent. If they can ease off of the brakes here going into 2023, I think that'll be positive. I think it really depends on how the economy reacts. Car sales are down still. We still got 3.5% unemployment. Don't know where the people are gonna come from to work. But they got some work to do. If the economy responds well, I think we're gonna continue to find clients that wanna lever up a little bit, albeit with a little duration risk on our side.
Yeah. Okay. That's helpful. Maybe just, maybe for Tony on the margin. Tony, just maybe the margin expansion. Just, can you just talk about if I guess maybe how the, how the margin reacts over the next quarter or so, and just if we do see a pause by the Fed, does it do the betas continue to kind of 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 a maybe a little bit of a decline in the margin just as those betas, 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, you know, two to four quarters.
Yeah. I think that's spot on. You know, I think, you know, we're, you know, loan betas kind of improved by, you know, 3 x what deposit betas did in the quarter. I would expect we'll be kind of 1 -to -1 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 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 gonna have a few payoffs that are gonna kind of keep us maybe level to slightly up here in Q4.
You know, we did call it $100 million on a year-over-year basis, with maybe 1/2 of that on residential mortgage. I certainly expect as we go forward, residential mortgage as a percentage of our growth is going to drop to, you know, call it 25%-30%. I don't think we'll do as much on portfolio as we have. The pipelines are good. I think margin's gonna continue to improve in Q4 and in Q1, and then it's gonna be a, I think, relatively stable as deposit costs catch up and funding costs, you know, cut into that asset margin improvement.
Okay. 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. Sounds like you're funding most of the growth from the cash flows on the securities portfolio. That's the plan at this point?
Yeah. I mean, we're gonna have, you know, call it $10 million-$12 million of cash flow in Q4 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 to slightly up on the deposit side, be it maybe a little bit higher, obviously, than what we're currently paying. I think that mix and the overall growth is a big function in driving margin.
Gotcha. Okay. Perfect. Maybe just one last one. Just on the expense side, I mean, the trends were, you know, very favorable this quarter. Just, you know, if you just given the any actions you took on, I guess just from an efficiency standpoint and just being a little bit less production on mortgage, but just sounds like this, you know, the rate of expenses this quarter or level of expenses this quarter appears like a, you know, kind of a baseline level, where you're not expecting a lot of growth off that. Is that fair?
Just as, you know, when you think about next year, the inflationary pressures, 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?
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, you know, the biggest expense on our expense side, which would be personnel. 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, you know, we're okay with growing median to, you know, 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 C&I and the deposits that come with it through our trade management side. That's gonna be a critical piece of our growth, because that's how we're gonna make the margins. We need to incrementally expand the average is adding the incremental higher, which is what we're gonna concentrate on. That said, we continue to remain fairly bullish on where we find ourselves.
Gotcha. Okay. No, that's helpful. I guess just the last one really was just on the provision line or just reserving going forward with the growth, I guess, is it. You guys have had, you know, a handful of quarters here with no provision given the strength of the credit quality and, you know, kind of growing into the reserve. As we think about going forward, I guess, should we start to 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 intently what we intend to do in 2023, which is probably going to be some increase. We're pretty content at the 1.48%-1.5%, you know, down from the 1.6% or so, where we were before. I would say in 2023, it's going to make 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 stuck it into reserve.
That's paying dividends as we speak today. I do think there will need to be some addressing of the reserve size going into 2023 because we intend to continue to grow.
Yeah. Okay. That makes sense. Just you, Mark, you mentioned just your outlook on SBA. It seems a, you know, a bit more bullish maybe than it has been. Is that, you know, I guess kinda. I guess that's your expectation that 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 sounded 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.
Well, again, we had great traction. As you know, Brian, you know, six years ago, seven years ago, we developed a strategy in SBA. We wanted to be in the top 100 in the U.S. We did probably $50 million in five years. Then PPP hit. We hit the pause button and did $112 million in PPP. Now we're back at 7(a). We love the 7(a) program, as I mentioned, that we've had a decent year, $6 million so far this year. We want to get back to the top quartile of banks that do produce SBA in the country, and that we think we've got the, you know, the right people out in the market. We think we're in the right market.
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 enhancement 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. You know, this is project financing. CRE, which doesn't do anything for the liability side of the balance sheet. Yes, we're bullish on SBA. We can make great things happen on that. We take good care of our producers that do them. I'd like to get us back to, in 2023, you know, more of that $15 milion-$20 million at least, in our markets, because we've got great markets, and now Indy gives us even more potential.
Right. Okay. Perfect. Thank you guys for taking the questions and that nice quarter.
Yeah. Thanks, Brian.
Talk to you.
Thank you. Again, if you have a question, please press star then one. At this time, we have no further questions. We'll turn the call back over to Mr. Mark Klein for closing remarks. Please go ahead.
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.