Q3 2022 SmartFinancial Inc Earnings Call
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[music].
Hi, Thanks for joining today's conference call I'm pleased to have the spelling of your first and last name.
Sure that's David D. A b I D Brown B R O W N.
Thank you and your company affiliation.
Era, that's a I E R.
Thank you so much I'll go ahead and place you due to the call.
Thank you.
Page two of our deck that we filed yesterday evening for the normal and customary disclaimers and forward looking statements comments. Please take a minute to review.
Q3 was a fantastic quarter for our company and we're very proud of what we've been able to accomplish to date this year.
Our year over year increase in earnings for the bank has been strong.
Growth in our fountain equipment Finance company has been incredible and our addition of the Sunbelt insurance team to or to our organization is truly exciting.
Proud of the team for the focus execution and continued improvements we've made to date with that I'm going to turn it over to Billy for a few additional comments and details. Thanks Miller and good morning, everyone. We had another really solid quarter here at smart financial as Youll see from the results. We continue our focus on growing both.
And earnings per share we've discussed our plan for 2022 on prior calls and are executing on transitioning this company into one that is both core earnings and core funded.
We're also like others in our industry watching air economy closely.
Given the fact that we are in some of the best markets in the southeast we still feel optimistic Arizona will perform well even with some recessionary pressure.
That's one of the reasons, we've always liked healthy college town type markets, They have limited peaks and valleys.
So while not necessarily tightening air standards as we're always conservative underwriters, we are scrutinizing and watching sectors closely.
The loans, we are seeing in adding to our balance sheet are coming from season clots and we feel very good about the businesses, we're moving to the bank.
We're watching this market and continually getting real time anecdotal feedback from our regional credit teams.
Our team is also doing a nice job executing our individual market strategies as evidenced in the recently released FDIC market share report.
We continue to gain share and or move up in market position in almost all markets, where we're operating.
<unk> always felt this is an important barometer and one of the key objectives. We have is gaining market share we are executing well on that goal as we had really nice share gains as last year.
As we look into the quarter here are some highlights.
We did $11 $6 million and operating earnings were <unk> 69 per share we have a record revenue for the quarter and strong EPS growth.
And our operating revenue was approximately $43 million at a six 5% increase quarter over quarter and EPS grew 13% for that same period.
We also had nice organic growth for the quarter, we saw 15% annualized on loans and we also had nice growth in non maturity deposits of 4% annualized overall deposits were flat as we let some time role wall, but we continue to improve our mix.
Our loan to deposit ratio was 72% given our great work on growing core funding competitive pressures caused us to push deposit rates up a little quicker than we wanted but we're still positioned well given our liquidity.
We continue to gain operating leverage from our recent expansions as their efficiency ratio ticked down to 63%.
We are still maintaining our focus on expenses, while investing for our future.
Our credit quality remained strong with no movement in our NPA ratio actually dropping down to 10 basis points.
And I also wanted to welcome as Miller said, our newest team members from Sunbelt insurance.
We acquired this Chattanooga based insurance agency during the quarter and are very excited to merge it into our existing platform. This agency has a great business line focused on the trucking and transportation insurance business.
As many of you all know we have some great ties into that industry, particularly with Miller as background and experience and were very excited to create some synergies to grow this fee generating business lines.
Before I turn it over just a couple of other notes both new markets and legacy markets are all performing very well, we just opened our Birmingham, Alabama office and our Brentwood Franklin office in the Nashville, MSA is slated to open in Q4.
A team from fountain equipment finance is having an outstanding year, we've almost doubled the size of that balance sheet. Since acquiring this equipment finance group a couple of years ago, and we have some great momentum there.
A number of things going very well and their company. So let me go ahead and turn it over to Brett to walk through the balance sheet and credit and Ron will then provide some additional details on the income and expense side rep.
Thank you Billy Billy.
Billy mentioned earlier solid loan growth continued through the third quarter with period over period, net organic loans and leases growing at a 15% annualized pace, excluding PPP loans.
As you can see on slide six loan and lease balances outstanding grew over $105 million for the quarter, putting the portfolio totaled just over $3 billion.
Quarterly production was very evenly spread across our footprint markets well diversified toward our target portfolio segments and evenly split between fixed and variable rate products.
Deposits were flat quarter over quarter with no balances at just over $4 billion and average deposit costs of 45 basis points combination of these factors resulted in a 72% loan to deposit ratio.
Loan portfolio mix has continued to be very stable as shown on slide seven.
While most economic outlooks in market guidance continues to indicate a higher probability of recession, driven by inflationary pressure in corresponding interest rate increases over the next several quarters our market areas continue to show some solid economic results and our business clients are continuing to really positive outlooks to our lending teams further near term guidance.
Interest rates on loan production and renewables are beginning to see some gradual increases as Billy mentioned earlier with market based rates continuing to move upward due to fed funds direction and corresponding term rates responding accordingly.
Given that near term directional expectation, we're still cautiously optimistic for continued growth opportunities in the loan portfolio over the next couple of quarters.
As the next slide indicates our portfolio credit quality continues to be extremely strong as it has been all year, but given challenging economic outlooks. We've taken some additional steps over the last few months to refresh our lending teams on those key conservative underwriting factors that have allowed us to maintain these extremely strong portfolio performance results for such an extended timeframe.
Of interest rate stress analysis strong cash equity requirements and limited exposure.
Gross two industry segments with weaker economic outlooks have always been core central components of our lending approach and there are central in this challenging time to protect our historically talked to your credit quality performance.
Noted previously looking at slide eight it shows third quarter, reflecting continued strong and stable performance across our core asset quality metrics nonperforming assets total assets past due loans to total loans and classified loans to total loans are all improved quarter over quarter.
Our CRE ratios were stable.
Two prior quarter end as well with total theory holding at 303% of capital. We did have a slight 9% increase in the CRE construction ratio that ended the quarter right at the regulatory guidance target due predominantly to continued funding one active construction projects as noted in prior calls we've historically managed our CRE portfolio.
Upper end of the ratio guidance and continue to feel very comfortable doing so given the credit profiles of our CRE book and our historically conservative underwriting in that space.
Our loan pipeline continues to be solid and evenly distributed across all of our market areas with a significant portion of these opportunities being non CRE in nature overall, our 2022 year to date loan production and credit quality have been strong results and we are still cautiously optimistic in our outlook as we close out the year.
Now I'll turn it over to Ron to walk you through our allowance positioning Ron.
Thanks, Brett and good morning, everyone.
Let's move forward to slide nine our loan loss reserve.
As Rick covered much of our credit stats I would like to add that during the quarter. We recorded a 974000 provision related to strong loan growth with minimal credit related provisioning at quarter end, our allowance to originated loans and leases was at 75 basis points and our total reserves to total loans and leases was at one 2%.
Onto slide 10.
We utilized over $100 million of excess cash to fund our new loan production as previously mentioned our loan to deposit ratio increased to 72% and our overall liquidity position, which includes cash and securities represented approximately 28% of total assets, giving us much flexibility to fund future loan growth.
Our third quarter net interest margin was 329% at 21 basis point quarter over quarter expansion, despite having a reduction of 580000 related to PPP and acquired loan accretion.
During the period, our interest, earning asset yield increased by 40 basis points outpacing the 28 basis point increase in our funding costs.
Rising rates of these pressure on our margin, we still experienced approximately 12 basis points of compression as a result of our strong liquidity position.
For the quarter, our yield on our loan portfolio less loan accretion and PPP fees increased 28 basis points to 455% with a September loan portfolio yield of 466%.
Our interest bearing deposit costs for the quarter increased 29 basis points to six 2% with September deposit cost of 76%.
Noteworthy this quarter was a significant increase in deposit competition across our footprint, which also contributed to our deposit beta acceleration.
As of September 30th our deposit beta was roughly 15% since March and we are estimating our deposit beta to be around 25% for the fourth quarter.
As mentioned during our last earnings call.
We will be judicious in our approach to raising deposit pricing however, not at the expense of losing good relationships.
For the fourth quarter, we are forecasting our margin to be in a 3.40% range included in our margin forecast is estimated loan accretion of four basis points or approximately 320000.
Further our operating revenue increased $2 7 million for an annualized quarter over quarter increase of over 26% in spite of the revenue headwind space related to reduced acquired loan PPP fee and mortgage banking income.
Which in aggregate totaled 481000 compared to $5 6 million for the same prior year period.
We're extremely proud of our smart bank associates to not only offset these differences, but grow our quarterly revenue to a company record of approximately $43 million.
On slide 11, you'll find some eventual some of our interest rate sensitivity information.
With the sharp rise in interest rates and the deployment of some of our cash liquidity during the quarter. Our balance sheet has shifted from a modestly asset sensitive to slightly asset sensitive position.
We are expecting further increases in short term rates to have a positive impact in our net interest margin and net income, but will be more muted as we approach a more neutral asset sensitivity position.
Currently we have $1 2 billion of variable rate loans with $606 million to $8 million resetting almost immediately.
The remainder of the floating rate loans would reset over a specified time period with 77 million resetting ratably over 2023.
On slide 12 non.
Noninterest income was $6 3 million a decrease from the $7 2 million reported from the prior quarter.
We continued focusing on our stated goals of building core reoccurring fee income streams to that end service charges increased over 165000, primarily as a result of an enhanced treasury management fee structure, which was implemented during the quarter.
We also saw positive momentum in our wealth insurance and equipment leasing divisions, which collectively generated almost $2 2 million of noninterest income for the quarter.
We will further enhance our noninterest income generation going forward with our Sun belt acquisition.
We did face expected challenges during the quarter recording 800000, less revenue from our capital markets team and weaker gain on sale income from our mortgage banking department.
While our mortgage banking production has remained relatively consistent over the past several quarters, our production of secondary market loans has significantly declined for.
For the quarter, we had only 9% of our volume sold into the secondary market compared to 66% for the same prior year period.
As rates continue to rise.
And adjustable rate products become more attractive we expect this trend to persist as we journey through this rate environment.
Our noninterest income forecast for the fourth quarter is in the $6 $7 million range.
Onto slide 13.
Currently our operating efficiency ratio was at 63% representing our continued efforts in creating operating efficiencies while focusing on expense management, we expect our efficiency ratio to continue its steady decline as we further leverage our platform and further scale our business.
Our operating noninterest expenses were $27 1 million, an increase of $1 3 million from the prior quarter.
The majority of this increase was related to higher incentive accruals as our production team members continue to outpace expectations and to a lesser extent the additional salary expense related to the acquisition of Sunbelt insurance.
But you also experienced an increase in occupancy and equipment driven by higher utility expense and new market branch expansion initiatives.
We will continue to experience ebbs and flows in various expense categories as we invest in our people and platform for.
For the fourth quarter, we are forecasting an expense run rate of $27 3 million range, which salary and benefit expense and approximately $16 5 million.
Onto slide 14 capital.
Although our capital benefited from our strong earnings and we're able to accommodate a majority of our current loan growth. We did experience a slight downward movement in our capital ratios, primarily attributable to our sunbelt insurance purchase and the associated goodwill created from the transaction.
Moving forward, given our loan pipeline and earnings momentum, we anticipate building capital at a rate sufficient to fund future growth and build capital ratios.
At quarter end, our tangible book value was $18 <unk> per share. However, excluding the temporary impact of our unrealized security losses, our tangible book value was $20 43 per share representing a quarter over quarter increase of five 6% and a five year compound annualized growth rate of almost 9%.
With that said I'll turn it back over to Billy.
Thank you Brian .
As you can hear we're really starting to hit a nice stride in this company Ron had mentioned some of our guidance and we continue to feel that we're positioned very well, even with some possible slowing due to rate increases.
We can continue to grow by capitalizing on the investment we've made recently in new markets, new business lines and technology.
Our loan growth outlook is still solid.
Our Q4 pipeline is good.
And I do feel like even though I do feel loan growth will ease a little moving forward, we should still be able to grow at a nice pace.
Yes.
We grew at 15% pace this quarter.
Definitely look into somewhere in the higher single digits, maybe maybe a little better than that over the next couple of quarters.
We are continuing conversations that tower <unk>.
Adding several folks in recent weeks and we are in discussion with several others. So the hiring the hiring momentum that we picked up last year, we see that continuing as we look ahead into the coming quarters.
We also want to just say a quick thank you as we close out today to our SMB, our whole SMB <unk> many of those folks listen to these calls.
We always talk about the numbers on these calls and I don't want to overlook the phenomenal culture.
We're building I do think we.
We will continue to differentiate with that culture and in our markets. It's our team members that make that happen.
It continues to be a great time to be involved in this company and we will stop there and open it up for questions.
Their issue there.
Questions.
Darius you on there.
Hello, operator.
Okay.
Miller I can hear you I'm still here.
Alright, well just wait a minute maybe this operator will come up in queue up the questions for us.
Listen just bear with us.
But it looks like your first in the queue, but I don't.
Correct can you hear me.
Is that fair you got 30.
Yeah. This is study can you hear me.
Yes go ahead. Thank you.
Okay. Okay I wasn't sure if if the acuity up or not how are you guys doing this morning.
We had good thank you.
Oh I was just curious.
We talked a little bit about the opportunities.
Nashville, I know you guys have an LBO. There I was just wondering if you could speak to how much opportunity.
You think you have in Nashville, and whether there's any plans to expand your presence in that market.
Yeah.
It is is that as I said.
We are we're opening.
Our Brentwood Franklin office.
Here this quarter.
<unk> added about what we've seen with the team that we have on the ground that we added this over this last year.
Just to start to get some momentum and get some momentum going we do.
We think theres obviously.
What are the best markets in the country.
I don't think theres any doubt about that.
Obviously competitive.
As all good markets are.
But we do feel like again kind of going back to my commentary on culture.
We have demonstrated our ability to add some really good.
Revenue producers to our company over the last little bit. We think we can do that again, we wanted this year to really digest, what we bit off at the end of last year first part of this year.
As we are doing that now we're really starting to look a little harder.
Excited about the opportunities to expand that market and I think that's something that we can do over the next year and we played around with it for the last couple of years in Murphy's Borough and that's been an incredibly strong market for us great people, there and we think we can lean in on it a little bit further.
Got it that makes sense.
And just I think already know the answer to this but I'll ask anyway.
We look towards future growth.
That's going to primarily come from building out market share in existing markets right Youre not really looking at expanding.
Beyond your current footprint right now.
That's correct.
Not looking to go to any other.
Markets outside of the kind of the regions that we're in.
You always look for we're always opportunistic.
But really there's nothing strategically that we're looking at now kind of outside the zones, where we are we think there is between Nashville Birmingham.
And in other markets and these great. These great New Alabama, Msas that we entered as well last year. There is there is a ton of opportunity. There. So that's probably where focused one a is going to be.
But always opportunistic if something comes up but that's our focus is going to be existing zone. Yeah. We always look upstream and downstream I will say, it's interesting we've talked a little bit about this potential OCI impact on these banks that are $1 billion and lower.
I do think the potential negative impact of capital in some of these guys.
And deploy that liquidity into the securities portfolios and if that comes to hone them here, hopefully not but if there could be some negative impact in some some certainly some M&A opportunity.
Gotcha.
And just one last one for me and I'll step back in the queue.
It sounds like margin given your guidance margins should come up in the fourth quarter.
Does it seem like there can be some incremental margin growth going into early 2023, if we get a couple of additional rate hikes. It seems like that's what.
<unk> was alluding to earlier.
Yeah, and let me ask let me, let me add a little color and then Ron you jump in and I do think Betty I do think that's probably been a little bit of a gap may be between some of the analyst numbers in some of ours I do think our loan loan yields are coming along really well I do think.
The first couple of rate hikes.
We still had loan to the pipeline at slightly lower rates slightly below where the market was at the time that had to get on the books. So I think.
Loan yields were at were lagging a little bit for a few months, but youre really starting to see those catch up now and as we reset our Ron alluded to <unk>.
<unk> REIT loans, where have more of those as those reset at different quarters. We do think that the loan yields will continue to show positive.
Minimal.
Over the next little bit.
Do think that's I think that's a really important piece of our equation right now and something odd.
You picked up on it I think it's something important to note.
Further that as long as we can.
Deposit competition as we alluded to has been pretty significant as long as we keep our loan Bay, our deposit betas down in that high.
Higher 20 range 20 range, yes, well, we definitely will have a margin expansion going into 2023.
Got it thanks, so much for taking my questions and just to the other analysts it doesn't say anything so just saved.
If it works.
Okay.
So we're seeing a queue up some.
We have next Kevin Fitzsimmons, Kevin are you on the phone.
Kevin is on the line I will open his line now.
Alright.
Hey, guys good morning.
Good morning, gentlemen, tableau.
Okay. Good morning go ahead. Thanks.
Good good.
No no.
Deposit levels as you know that's obviously.
Something that's changing here in the environment for banks in.
We've seen deposit levels come down for the banks somewhat.
Some of it deliberately and some but not so much.
Just.
Maybe if you can give your outlook.
Looking over the next several quarters of what you think that loan to deposit ratio will do I mean, it seems like you still have a lot of flexibility with it being at 72%.
But as we look.
I don't know what kind of timeframe you want to look at but if you look out over the course of the next call it four or five quarters, where where can you see that.
Going in does that.
Assuming you keep manage to keep deposits flat flattish like you did this quarter or do you let.
Should we expect deposit levels to bleed lower.
Going forward. Thanks, Yeah.
I'll start and then guys feel free to chime in.
Yeah I think.
I feel like.
That youll see that deposit ratio edged up a little bit.
And really just because given the flexibility that we do have.
With the liquidity, we're going to continue to.
As Ron alluded to stay aggressive enough in our markets that we're keeping core business, but if we need to let a little bit of noncore run out because it's the right thing to do from a margin standpoint.
Well, we'll be we'll be open to that so Kevin.
I think youll see that number probably continue to continue to probably maybe slowly.
Over the next little bit.
And I think that's I think that's the right approach for us.
The great thing about it Ron and I were talking about the adjusted as we're diving into the numbers.
The new teams that we've added over the course of the last year.
The growth that they've had on the deposit side has been outstanding.
On one side, it's been really good but deposits have been probably better than we had anticipated and I think you can see that continuing.
We put a lot of efforts into our Treasury program.
So our our recruitment of more deposit base, especially checking business is something that's really important to us. So I think youre going to see our deposit generation work continue.
But we'll also probably evolve that's adding we'll probably let some higher rate stuff roll. So I think at the end of the day, we probably still kind of have a flattish forecast for deposits.
But continuing to try to hold that number down as far as rate increases so Ron any colored Nike guys Y'all have anything yeah. We.
We will incrementally go higher but we.
As Billy had said right from the beginning with a lift outs, we knew they were deposit gatherers and it.
It did shine in the third quarter for us showing that yes, indeed, they can gather deposits and good deposits and good deposits and.
We expect that.
We have modeled.
Little slight decrease in our deposits.
One or two 3% I'm not sure we will have that but we did model it.
But again, yes that that loan to deposit ratio will incrementally creep up as we go.
Okay. Thank you.
And maybe this is more kind of a top level question I believe in the last quarter or two.
Bill you talked about that you guys have been very active in adding talent and so obviously that has some expenses attached to it immediately and then the revenues come later and that the the near term priority is really going to be about.
Demonstrating.
Profitability.
So it had the kind of <unk>.
Location that you guys, while always being opportunistic you work not so much the investing mode, but the delivering bottom line profitability mode.
Where where do you say you are on that front today.
Kevin I'd say, we're probably in middle innings.
On that.
We have I mean, you look at the results I mean, we've demonstrated I think if you look at the revenue growth look at the EPS growth efficiency ratio continuing to tick down again, our focus is more again kind of another baseball analogy since we're in the middle of the playoffs were singles and doubles and just continuing to grind. This thing are higher so.
I Love, where we're sitting I do think we're in kind of middle innings I do think there's upside to the investments that we've made but we're also going to continue to.
Invest in talent, if Bob if those opportunities pop up so that's kind of my take I don't know if you guys have any any any other comments Ron anything from you yeah.
One thing that's happened over the last several quarters that we truly have core revenue, we've lost our PPP fee and the accretion has dwindled down.
We really are core revenue shop at this point in the growth than it's been.
Pretty amazing for us so yeah, I think some more good things to come as we go forward and I think that is.
Kevin I think that's a great point that our audience needs to know when you really look at our numbers, we've always figured out a way to to make a decent return, but a lot some of thats been been various different different income item. Some of it not this cohort. This thing is really starting to get a really strong core engine going so that's the reason I love, where we're going.
I think we can continue to incrementally move move better from a metric standpoint from here.
And I.
I think we've got some great great upside.
Lovely.
Thank you we take our next question is from Katherine Miller, Okay D. W. Catherine Your line is now open. Please go ahead.
Thanks, I just had a.
Follow up question on the margin when you mentioned, the 25% beta for <unk>, you're seeing that.
Quarterly data is that on.
Total deposits not just interest bearing deposit.
They would be.
The non maturity deposits not the total deposits and I think our debate itself in total will wind up to 25%.
Throughout I think I think the model what were expecting through the models probably closer to 30 for the quarter, but the whole from beginning of March we should be in that 20% 25% range.
Got it I'm more of a more of a cumulative basis.
Yes, yes.
Okay that makes sense.
Want to make sure that we were Atlanta that guidance, Okay. That's great and then.
And then on the.
Millennial too.
You said you said your loan yields were 466 at the end of September but for me to get to this kind of four 340 number for the margin.
I kind of see an acceleration in.
Your linear this is early in this quarter more so than kind of a next year thing or is that a fair.
Fair.
<unk>.
Yes.
Probably you know put in 340 margin, where I think our loan yields probably should be in the $4 90.
Range.
Again, we look at our pipeline going out a lot of.
Yeah. So yeah, we're on yes, you're good.
Okay that makes sense, okay, great. So let me kind of think about that right.
And then it should be.
<unk> growth for next year, how are you kind of thinking about the pace.
Which will be expensive grab maybe kind of relative to their revenue.
Positive operating leverage that will season and into next year.
Well at this point.
We haven't we haven't we're still in the middle of our forecasted for next year and has lost a lot of moving pieces obviously.
<unk> probably see.
Middle.
Our mid single digit expense growth range, and probably an upper single digit revenue.
Net interest income range and that again, we're not really giving guidance on that we're still working through the pieces of that Kathryn.
Great.
Environment, where you think you can grow total revenue at a faster pace than you congrats sensors.
Oh, yes, so definitely yes.
Great great. Okay, great. That's all I got thanks, so much.
Thanks Kathleen.
Thank you Kathryn as a reminder, if you would like to ask a question on todays call. Please press star followed by one on your telephone keypad.
Next question is from Stephen station of Piper Sandler Steven Your line is now open. Please go ahead.
Yeah. Thanks, guys I just wanted to dig in on Catherine last question. There a little earlier you talk about positive operating leverage in 'twenty three.
Is that possibly you think even after rate hikes are finished yesterday, we get to 'twenty three and beyond.
You can deliver positive operating leverage even without the help of.
Alright.
Steven I think for US a lot of it's just going to be a factor of growth again.
You know Ron as we've talked Ron said, it because we've talked about it.
We run models I guess the.
The question is is growth what does what this growth do with us with it an environment, where you might have a five or 5% or higher fed terminal right.
I do think if giving given where we see rates are today kind of where the forecast is today.
We do think we can we can see that even when rates settle down a little bit obviously, we need to grow but that's the reason, we're really putting a lot of emphasis on some of these other fee lines things that are not as rate sensitive.
And obviously, if we get a little bit of a slowdown in the top line I think we can actually we can slow the expense side down a little bit if needed to so I think we are building in some some room for some additional hires and some additional team members as we look into next year to add more revenue producers.
But even in an environment, where we do think the bed set settles out.
We can still gain some leverage.
Okay. That's helpful. And then you guys gave great color on the deposit beta is there how should we think about like a loan beta if you will relative to the 22% variable rate loan book and just kind of how we should how we should think about the upside there other than the 490 member on your game.
Yeah.
Going forward your loan betas seem to be a little bit more trickier to figure out the deposit betas, I think where we're running debate is around 19% to 20%. So I would say.
That's to date I think it would probably I would I would probably keep that I don't I don't know, what's going to accelerate more but again, we are getting higher rates. So maybe Mike maybe I'm backtracking, we probably should see a little bit higher beta as our new production pipeline, which we're getting now we're seeing now in the six handle.
We will accelerate that so I would probably go to mid twenty's with that.
Okay, Great and then just last thing for me kind of how Youre thinking about the loan loss reserve moving forward.
And a potential recessionary scenarios seasonal.
You know kind of what that could do to your reserve and where you think it could be most.
Sensitive to is that going to be like an unemployment factor are aware of the sensitivity would be the reserve level meaningful.
Yes, great question.
As you know we were on the we're on the incurred loss model, we will be adopting seasonal at one one.
To date.
We completed our third parallel run.
Our <unk> model has been validated so we are ready to implement on one one.
<unk>.
For day, one we're expecting to really have an immaterial day. One event, we are carrying a lot of fair value marks that will help with the build of the acos.
Not knowing what the future brings because it's so uncertain.
We think maybe 30% increase in provisioning going forward with the CSO model going into 2023 other than that I really and Thats just not guidance just kind of an update at this point theres too many moving pieces.
We implement to kind of get a number in hand of where we think we're going to be.
As we know every every couple of weeks something else changes, but that's kind of where we're at at this point, so roughly around 30% ish area of the provisioning should increase.
The new loan growth.
Got it okay. Thanks for all the color and ability as far as I'm concerned the baseball playoffs ended about a week and are happening so I'm not sure about that.
Yeah.
Uh huh.
Uh huh.
Okay.
Thank you Stephen our next question comes from Matt Olney of Stephens, Inc. Max Your line is now open. Please go ahead.
Hey, guys. This is actually Jordan on for Matt All my questions have been answered except I was wondering if you could give a little bit more color on the security balances kind of what are your expectations for <unk>, maybe in 2023 kind of and maybe what.
The new purchases and the yields are coming on it. Thanks.
Yes, I'll get that yes at this point, where we're not doing any any new security purchases were kind of just taking advantage of the cash position.
We don't we were getting back $3 million to $4 million of principal amount and.
We probably want to wean ourselves back down to target.
We want to be at the cash and security level around 20%.
We're currently at 28% so I think over time, we'll win that back down but the short answer is we're not purchasing any securities at this point of time.
New new securities to the book.
Perfect. Thank you.
Thanks, Jordan Thanks, Jordan.
We have no further questions in the case of I'll hand, it that Pete Miller.
Thank you very much again, thanks to each of you for joining us today as always if you have any additional questions reach out to US directly. We appreciate your interest in the bank and thanks for joining us today have a great day.
This concludes today's conference call, ladies and gentlemen, thank you for joining US you may now disconnect your lines.
Uh huh.
Okay.
Uh huh.