Q3 2022 Bank Ozk Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and walk through the Bank Osee K third quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone.
I would now like to turn the call over to your host Jay Staley you may begin.
Good morning, I'm, Jay Staley director of Investor Relations and corporate development for bankers Okay.
Thank you for joining our call this morning and participating in our question and answer session.
In today's Q&A session. We may make forward looking statements about our expectations estimates and outlook for the future.
Please refer to our earnings release management comments and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward looking statements.
Joining me on the call to take your questions are George Gleason, Chairman and CEO .
Brandon Hamblen, President, Tim Hicks, Chief Financial Officer, and Cindy Wolfe Chief operating officer.
We will now open the lines for your questions.
Let me now ask our operator to remind our listeners how to queue in for questions.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile the Q&A roster.
Yeah.
Our first question comes from Stephen Scouten with Piper Sandler Your line is open.
Yes, good morning, everyone. Thank you.
David I guess, maybe if we could start with the repayments seen this quarter, obviously down about 1 billion quarter over quarter, and I know that can be somewhat episodic and hard to predict but I took the commentary in the in the management comments, there's somewhat of a positive that you you don't think it will necessarily be the highest.
Year on record. So can you tell me what you guys are seeing there and what might be driving the reduction in repayments as it is it less opportunity for your customers to refinance out or what kind of dynamics are going on there.
Brandon do you want to take that.
Absolutely absolutely Stephen Thanks, good to talk to you.
Certainly you identified one of the one of the issues obviously, the the finance markets whether it be.
Bridge or are permanent lending markets or are affected as the interest rates have moved to the degree that they have.
So I would say that while we have repayments from a number of directions, including.
Now that the sale of for sale product condos, and Oh, no lesser level, obviously lots of single family homes.
The refinance market is a big part of what what takes out our loans. So that has slowed down we are still seeing those are obviously.
It was it was a material pay off quarter.
But not perhaps as heavy as we'd expected and I think as we stated in our comments, we would expect and at least for the foreseeable future that that.
It may not be as heavy it's hard to say as you know these loans are a quarter to quarter, a little bit lumpy, but.
You never know Q4, we could still have a a heavy one that hits record. We just can't say for sure at this point in time, but in general I think a little bit slower.
And Kevin you're right Steve in your assumption there that we view. This generally is a positive was accurate.
Yes.
Okay, great Great and then.
Biggest positive I thought in the quarter to me at least was was the relatively low deposit beta I think that's a testament to that.
Changes in.
Mix changes that you've seen over the years, how are you thinking about deposit betas moving forward, even as you had to start tapping back a little bit into the broker deposit realm and kind of what are you seeing on new CD.
CD yields where we could see that.
I'm, saying that you want to take that sure. Thank you.
We were relatively pleased also if you look at <unk>.
First quarter.
Low 23 Bips and.
Even though we've had 300 bip increases since then.
We were at 36.
So we're pleased with that but we don't think that's sustainable we think that our cost of interest bearing deposits will go up just like we said on page 14.
We're going to continue to be very opportunistic and disciplined in our approach to how we fund the balance sheet and I'll.
I will just reiterate what we've said before that this is early in the cycle and towards the end of the cycle. This go down.
This ability to avoid.
Pacing around yield increases late may start to lessen that.
We're just going to continue to stay the course and be very disciplined and opportunistic.
And Stephen I would I would add to that you know I think our view is that.
Uh huh.
Pocket cost as Sandy said will rise faster than the current quarter and may ultimately rise faster than loan yields towards the end of the fed tightening cycle. All as we've said for a couple of quarters in my comments we are.
Cautiously optimistic that we'll see another quarter of positive.
Core spread and NIM expansion this quarter before we see that sort of pattern down and catch up but the real key and what I thought was the highlight of the quarter was the strong growth in our outstanding balance of loans almost $800 million.
<unk>.
Our record growth in our unfunded loan commitments.
<unk> 20 billion because.
As margins.
Normalized some degree toward the year following the fed tightening cycle, the key to us putting out.
Continuously improving net interest income as growth in this quarter was a strong growth quarter on top of three.
<unk> previous strong growth quarters in that unfunded number.
A little abatement and pay downs were beginning to see that translate into funded balance growth.
Prospects for meaningful loan growth in 'twenty three 'twenty four look very good and where I think that was the highlight of the quarter now that caused us to have an EPS math from the consensus number because we had to build reserve for that growth, but we would take back.
Kind of a mess every single quarter.
Absolutely, yes, it's a great story and just one last clarifier, if I could sneak it in do you guys have a number for.
How like what percentage of your resi loans.
Have required to put caps on.
Their side of the structure I know, we've got to move past the floor story for right now so just kind of thinking about how you guys are protected.
From them experiencing too much of an impact from higher rates. If you have those numbers.
Yes, we have.
We have no loans that have.
Caps on our interest rates, but we do require our customers to purchase caps on their interest rate.
Brandon you might comment on that.
Yes, Stephen I don't know the percentage off the top of my head. It is it's definitely a majority and we have been.
You know very busy.
Making sure those are documented as these rates have risen and obviously we have those in place we have an assignment of that as collateral so.
<unk> issue that we have been focused on in the in the past so that we're prepared for the present and as it relates to these rate rises again.
Exact percentage for you, but it's the majority of our of our loans.
Great that's fantastic congrats on delivering on the great quarter.
Thanks, Dave.
One moment for our next question.
Our next question comes from Tim Your browser with Wells Fargo. Your line is open.
Hi, good morning.
Good morning.
Starting bigger picture, we heard from some other company that they are increasing caution on spaces like office.
Clearly seeing record originations in new office projects are we are entering an environment, where you're starting to see some competition falling off and it seems like that's the time when OSB K typically done Beth maybe just talk a little bit about the broader CRE markets today.
Brandon why don't you take that B.
Be happy to thanks for the question.
I would say that's an accurate depiction there.
Even last quarter.
We discussed the same topic and noted that there are.
Increasingly fewer competitors and again I will I will note and you guys have noted our loan sizes on average.
Our strong and growing and our ability to do some of the larger loans.
As we do gives us a pretty good competitive advantage in any environment, but more specifically in the in the environment. We're in so.
Now we're not.
We're we're we're capitalizing on that opportunity, but not only to to perhaps do some some deals that we wouldn't have been able to otherwise.
With tremendous sponsorship worse, we're still as I said in the past doing deals with sponsors we've not previously transacted with but also.
In an environment like this improving our leverage improving our pricing.
As as we are.
Operate in what is to your point.
What less competitive environment.
Okay. That's helpful. And then maybe on the expense front as we look for accelerating pace of our ESG balances to kind of fund up over the next two years is that infrastructure already in place or does the personal nature of the lending vertical one kind of accelerated hiring through the.
Next couple of years.
Let me take that as well George.
I would say and we've talked about this quarter to quarter obviously.
Our job in keeping retaining and attracting new talent has been harder.
This year than ever but I, just wanted to give a tip of the cap to my team that has done an absolutely phenomenal job and actually improving the infrastructure.
At our ESG, we've we've.
Move some things around strengthen certain key departments and and I would say that this year, we're in better shape than we've ever been.
And to your <unk>.
Underlying question, our ability to scale that is better than it's ever been I mean, we we have yet another quarter of record number of loans that we've closed in the quarter. So.
We have been historically and continue to look for ways to adjust and build the teams such that it can continue to scale to deploy this capital build that we've had over the years.
Okay, and then maybe just lastly for me how are valuations holding up for projects that are coming up for renewal. It seems like the pages in the management comments that kind of highlight that information that were not included in this iteration.
Yes.
Got out tomorrow because.
We just didn't feel like it was that material.
Anymore as it was in the pandemic.
We had that commentary in the management comments for period of time.
You know you solved.
As we have seen in the past values going up and down on properties is there where you're prized and Brandon you might want to provide a little more color on that.
Yes, yes, no I mean, it's.
As every quarter, we have re appraisals conducted you have some that are up some that are down.
I think.
For the most part those movements were in the range that we've seen historically.
There.
Our hospitality.
World is the world that we continue to watch the closest but across the other categories are really very similar results as you have been seeing in the past where most were within an absolute loan to value change of call it 5% one way or the other.
We did we did have one if you look at the bubble chart, we did have one.
Hospitality loan that popped up into the low eighty's percentage loan to value, which is our highest loan to value loan.
At the same time just to give you the.
The flip side of that we had.
Three hotel loans that were cross collateralized there were and are.
Chart last time that we are among our highest loan to values might sort of disappear down into the mass of loans because on reappraisal based on improving performance in those properties by just in price or price significantly better so it's reflecting individual property perform.
<unk>.
As Brian had said most of these results are kind of plus or minus 5%.
From where they were originally apprise you do have particularly in the hotel sector or some more extreme results because some hotel properties are recovering really quickly.
Business oriented hotel properties that are dependent upon business travel are recovering more slowly toward what you would think would be a normalized level.
But.
Nothing material on my front.
Great. Thank you for the color I appreciate it. Thank you one moment for our next.
Justin.
Okay.
Our next question comes from Catherine Mealor with <unk>. Your line is open.
Thanks, Good morning.
Good morning.
Just wanted to follow up on the prepayment conversation here and Steven earlier, and just think about Big picture, how do you think about the risk.
Around the balance sheet, whereas paydowns really slow from here.
And then you've got this big ramp in origination volumes that you could see your balance sheet and not really worry about that from a capital perspective, the more capital than any other funding perspective.
Put more pressure on your knee.
Our deposit beta across our franchise.
How you manage that funding.
Your balance sheet does end up getting a lot better than expected next year.
Well Catherine first I would comment that I don't think we're going to see a.
Huge drop off in prepayments.
Obviously, it was a billion something this quarter versus 2 billion something but.
I think we're going to stay a pretty regular.
Stream.
Prepayments on loans secondly.
I think we're very comfortable.
With our ability to fund our.
Expected loan growth, even variations and cushions on that expected loan growth.
From deposits and thirdly.
We've got about almost $10 billion in Unpledged securities FHL be borrowing capacity.
And <unk>.
Various other miscellaneous secondary sources of liquidity to tap into so.
We've got.
A lot of.
Liquidity sources, our deposit guys are doing an excellent job in.
Repayments, we will continue to be a source of cash flow.
It will vary from quarter to quarter, but I think those are going to continue to be pretty pretty meaningful.
Okay, and then just on the cost of deposits.
Cindy can you give us any.
Discussing our color around where any new Cds are coming on today.
What are you seeing kind of specialty I know typically you do your spin up strategy, where you have different rates in different markets and you kind of give it a different time, just generally where when you're standing with coming on management, we ended the quarter.
Just kind of give us a little.
Deposit beta for the next.
Thanks.
Oh, that's tough Graham and I will jump in percent D on that and just say, it's all it's all over the board.
Catherine So we are.
Getting more aggressive on deposits, obviously, which.
As in line with our comment that we expect deposit cost to rise more in Q3.
And we're adding some duration and they have been adding some duration in there that is helping.
The management of those costs.
Right.
We are going to see higher deposit betas than the.
Whatever it is 21.
Beta we've seen over the last two quarters and years that Ryan is that a two quarter numbers third quarter map.
So.
That's that's coming there and you also might have noted in our noninterest expense.
An increase in advertising cost.
We've got good momentum in adding core counts and.
We are.
Putting some money in the AD budget and expect to continue to hammer.
That in its brand awareness advertising it.
Deposit specific.
<unk> and pricing and advertising as well as.
We've done a lot of advertising designed to enhance our ability to increase employment and the gas did some great work on that.
And that has really helped us reduce our unfilled positions and get our retail branch infrastructure.
Close to fully staffed.
We're poised staff, but we're a lot closer than we were.
Less than half the number of openings that we had a couple of quarters ago.
That is.
Really helping us serve our customers.
And open new accounts and bring in deposits.
Yeah.
And then one more if you don't mind, just moving over to loan yield the loan data with very high that there are.
Thank you for your variable rate portfolio, but is this a good barometer for the pace it was supposed to be.
On yields perhaps increase with future hikes, and just kind of wanted to confirm that.
There arent any outsized prepayment fees or anything in that number just to be aware of.
Sam you want to take that.
Yes, Kathryn to your point on the minimum interest and other fees that we get from time to time for pay off that was a fairly average number.
Within our range for the for the quarter, So nothing outsized there.
And to your point, we've got 78% of our loans that are variable and the vast majority of those are off their floor. So it depends on the timing of when we get fed increases the timing of when.
LIBOR moves and so for moves and the timing of when our loans reprice most of our ESG loans reprice.
And the first 10 or 11 days of each month.
So all those kind of go into that into the equation of what would result in an increase in the loan yields but.
There was nothing outsized from a from a mineral interest or any other type of fee that was in this quarter.
Okay, great very helpful. Thanks.
One moment for our next question.
Our next question comes from Matt Olney with Stephens. Your line is open.
Hey, Thanks, Good morning, and I guess my question similar to Catherine's question around.
Loan yields and loan betas might get a different perspective, it seems like we're probably now sitting.
Above and beyond all the floors that we had.
A few months ago. So it seems like we could see even stronger loan betas and <unk> and <unk> than we saw in the third quarter any thoughts on kind of where we sit today versus perhaps earlier in the third quarter.
Matt I would comment Tim can weigh in on this most of our.
As Tim mentioned most of our.
Loans in our ESG.
Have there have monthly rate pricing and they reprice on either the first 10th or the 11th month predominantly now their loans throughout there, but most of them.
Price on the burst 10th or 11th.
So.
When we disclosed Q2 data as of June 30, we still had a.
Smidgen of loans there were at their floor as at June 30.
But lifted above those floors with loan re pricing on <unk>.
July .
110, or 11 and again there were some <unk>.
Miscellaneous exceptions, but the vast majority.
Buyer. So really is about the 11th of July I think we could have said the vast majority.
Our loans were off their floors and.
Bye.
August we would have said essentially all of them are off their floors for all practical purposes. So I think you had pretty much a.
A full quarter's impact in Q3 of the floors not.
Constraining, the adjustability and variability of that portfolio. So the.
Q3 loan betas are probably pretty indicative.
Q4 loan betas Tam would you agree with that yes.
Okay.
Okay. That's helpful and then.
I guess on the stock buyback plan.
Mentioned in the comments section that expires here in a few weeks and I'm sure there's going to be.
Board discussion around the buyback.
Any commentary George about what youll be recommending to the board with respect to the buyback next time.
I'm going to defer that to Tam.
As CFO he is in charge of capital so our Tam high chairs.
Yes, Thanks, Matt.
And as we said in our management comments, we've we've been.
Fairly active over this program, we've had over $12 million 12 million shares.
Repurchased over the over the program, which was.
Really over 9% of the outstanding shares will be when we began the program. So we've been.
It's been very active.
So far this quarter, we've not been very very active had some share repurchases, but fairly minimal amounts.
The <unk>.
Program does expire in November November 4th.
And we'll have to have that conversation with our board later in the quarter, we've not had that conversation.
And we will.
We'll have a conversation with them and decide what the what they would like to do.
As we've said in management comments in many quarters organic growth is our primary.
<unk>.
Our priority for use of capital and you saw this quarter. Obviously, we had great funded loan balance we had great unfunded loan balance.
And that was a way to use some of the capital during the quarter. So.
We will continue to evaluate our our program and our thoughts around that with our board as we get into later into the quarter.
Yes, I would just echo tim's emphasis on organic growth.
The good thing about our growth at this point is our ESG is obvious like man hitting on all cell orders over the last four quarters with.
Four consecutive record quarters originations.
And I don't know.
Say more records or not but the pipeline looks relatively good there and more importantly, as you saw in the.
Management comments all of our other lending teams are contributing positive slate of loan growth.
We think those guys.
Gain momentum.
We go forward they seem to be gaining momentum now and we expect that will continue. So we are we are very pleased with the.
Success in the traction that we're finally getting on our efforts to get more.
Diversified contributions to our loan growth in addition to our ESG.
And George just following up on your commentary on loan growth. It seems like in the past the bank's been hesitant to give specific loan growth guidance.
Given the variability of the Paydowns originations.
And suddenly it can be quite large obviously.
As you move into 2023, and you feel better about the loan growth pipelines.
Do you expect to be able to provide more.
Guidance around around loan growth.
Matt I don't know again.
We want to make sure the information, we give us good information and accurate information.
We can do speak more in terms of direction and so forth going to give specific numbers and certainly.
We go into 2023.
This is <unk>.
I don't know and I've been doing this 43 years I don't know that in my 43 years.
<unk>.
Company about.
Ever seen an environment that has more variables and uncertainties from.
Political geopolitical interest rate economic.
<unk> so.
I certainly don't think it is time to step out and start giving specific growth guidance in <unk>.
And then precedented environment of uncertainty.
We do feel really good about.
What are our ESG team has done in.
The near term future, we can usually say about.
Three or four months down the road or six months down the road.
Their pipeline.
And we feel very positive about.
Traction that our other lending teams are getting in and they're big.
Beginning to contribute more and more of that growth.
Wasn't but a couple of years ago that rguest.
A few years ago that <unk> was 70 plus percent of.
Our non purchased loans at 60% now and that's that.
So that's a good credit to the other guys that are began in carrying more and more of the load.
Okay.
Thank you.
Thank you.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone one moment for our next question.
Our next question comes from Jennifer Denver with <unk>. Your line is open.
Thank you good morning, everyone.
Good morning, Jennifer.
Interesting comment you just made George about you don't believe you've done an environment, where there's more uncertainty so I'm curious.
Banking industry is expecting more normal charge offs in the next couple of years, what do you think a normal range of charge offs is for SDK.
With your current business model and business mix.
Yes.
With one year's exception I think we've sort of been in that high single digits to very low double digit annualized net charge off ratio for gosh down seven or eight nine years something like that so.
Certainly if you if you just look at that chart that we gave on what is that tied 16 figure.
Plus remember figure <unk> figure 15 in the management comments I think you can that sort of.
They are a regression analysis on the last decade, and decide where you think card net charge off ratio normalized.
Do you think the recession that we face in 'twenty three is going to be a garden variety recession or do you think it's going to be worse than many think.
Jennifer.
I studied economics, but I don't consider myself to a practicing the economists but.
Uh huh.
It is hard to see.
How we get into an extreme.
Its hard recession, when you have employment levels.
As high as as you have.
We've got an indirect marine and RV business. So it's about 12% of our non purchase loan book.
I keep watching the past due and charge off numbers from.
That portfolio and.
It is it is barely.
Bumping and any sort of way up or down has been pretty pretty darn stable within a normal.
Brian you have variability.
Sure.
Certainly.
Other banks, who have reported earnings already and had commented on the conditions of their consumer portfolio suggests that the consumers is very strong and holding up very well in.
We don't see any reason to think that's not the case from our perspective.
And.
Our rguest ski portfolio.
It continues to be very well there was.
A question earlier about office and.
I get a lot of information from that portfolio in yesterday.
One of our prop.
Projects that we pay enhancing closed just a few months ago is purely expect project right.
We got a notice that they had signed their second large lasers for 108000 square feet.
Business continues to get done in <unk>.
People are.
Hiring people people are.
Expanding and taking new office space and probably a lot of that is reflective of the.
State of the art quality modern ground up construction office space that we're billing the financing thats the best in the markets sort of space.
Im not sure I would want to have a bunch of billion say great office space in this environment, but.
Business is still getting done so.
It is it is hard to see from those sort of perspectives from consumer and business perspective.
How you have.
Particularly severe downturn.
The fed is raising rates.
But in the last few decades are unprecedented levels and they're doing it at a velocity that is.
It is really quick.
And obviously, you've got food and energy supply chain issues.
Yes.
Geopolitical issues all around the World Warren Ukraine, you've got so many things going on it seems like there is a ton of risk out layer.
But at the same time.
U S economy looks like it is humming along pretty well and the beds seems bound and determined raised rates to have a break something and all of us are.
Or curious what that is.
I'm hopeful that the fed will.
Completed a couple of more rate increases get to next year and stopped because of the lag effect.
Monetary policy is well documented.
And I think that I need to pause and.
Early next year and let the impacts of their actions.
Resonate through the economy and be measured in same.
On the Friday, they keep going and we get.
Six and 7% Reits because inflation hasnt come to buy.
They're going to break stuff unnecessarily.
Honestly I don't know what that is so we'll see how this plays out.
Thanks George.
One moment for our next question.
Our next question comes from Brian Martin with Janney. Your line is open.
Hey, good morning, guys.
Good morning, Brian .
Hey, just wanted to touch on maybe for Brandon or I guess, you George just on <unk> you talked about.
Obviously firing on all cylinders here the last four quarters, but I mean, I guess with the unfunded growth where it's at I guess, how is how are the pipelines. There today. It sounds like there is still pretty good and maybe not at record levels. Like you are saying, but you I guess, you're still optimistic on that ability to continue to grow.
<unk> given kind of the conditions, we're seeing and what youre looking forward out here.
Some perspective, there given how strong it's been the last couple of quarters.
Yes, Brian I'll give you my comment and then Brandon can give you give you the details but the pipelines are all there there are peaks and clearly.
Inflation is driving up cost of <unk>.
Struction and materials cost.
We have seen some sponsors putting projects on hold because they believe that materials costs will come back down next year.
Obviously interest rates are.
Adding the project cost and eating into.
Cap rates and valuations. So I think there are projects that are getting put on hold just because of that but.
Not with.
Notwithstanding that the pipelines I wouldn't say are as robust as they were but I would say there is still good by historical standards now Brandon is pipeline calls every week in our melanoma occasionally so Brandon give some additional color Brian on that Im sure sure Brian and John .
Georgia is.
Broadly.
<unk> hit the nail on the head I think.
It depends.
Pins on market I keep bringing up.
Our ability to to do I think somewhat larger loans and a lot of our competitors want to do.
And that is often paired with a more substantial and desirable sponsorship to do a deal with <unk>.
They've kind of got the staying power in the long term approach.
And the capital that allows us to do very attractive leverage loan and.
Not a leverage loan to allow me to speak here, but attractive leverage on our loans.
And so while it.
Honestly week to week and these pipeline calls.
One week I'll be like while it's just going to keep dropping off and then the next next pipeline call we have with the <unk>.
<unk> pulled in.
More.
Tractive opportunities that have just sort of reached that stage, where they're ready to move forward. It does take longer for deals to move forward. These days.
Sponsors are measuring two and three and four and five times with respect to cost and value engineering, and all that sort of thing and as George said during that whole process interest rates have been moving up so.
Again, we're off our peaks, but there are still a lot of.
I think really good opportunities to do some really nice loans.
Across the country.
Again, it's a it's a good pipeline, it's not as strong as it was in the past but.
We're taking it a quarter at a time a deal at a time and.
I think we will see some some some nice origination opportunities out there.
Okay perfect. That's helpful and maybe just one on not on our ESG, but just the other diversification benefits you've gotten from these other segments can you just talk about maybe just where you're most bullish as you look over the next maybe 12 months on.
All of the other businesses if they continue to have momentum are there certain.
And that's where you see more upside depending on how things play out here.
Going forward.
Our corporate investment specialties group and asset based lending groups.
Our.
Areas, where we've got some good traction we've made some good progress this year, we expect that to continue.
Our indirect and marine business I think probably grows but.
And I.
At a fairly slow right I would guess that it kind of stays in that 10% to 15% target range of our total loans and.
Probably.
Stays in that kind of 11% to 13% range I could be wrong, giving such tack guidance on that but.
Replace four rolls off and add some.
More or less grow in tandem with our balance sheet.
Community banking business, we've got a lot of different teams buyer, obviously are our homebuilder finance team is probably going to see less volume or.
Some of our other lending teams there.
Seem to be seeing more activity and some growth.
Thank all of these units contribute to our growth and contribute.
Ed.
Greater percentage to our growth starting in about 25 26 in 2007.
Sure.
Kathryn Miller.
In our comments ask about future.
Payments from the wave of Rex's two your originations we've had and I think we will have in <unk>.
From from this year's originations in <unk>.
Late 'twenty four 'twenty, five and 26, a lot of our ESG repayments, but we believe and our.
Executing our strategy with the belief that.
Over the next two years. These non <unk> units are going to contribute more and more.
Originations and that there'll be a bit of a handoff on momentum not that our ESG will not ever be our largest.
Pace of business probably in.
Largest team and most effective team but.
I would think as we catch that next wave of <unk>.
Our ESG repayments that muted growth for a year or two.
These other business units will we're really shine as our engines for growth in that period of time now I'm talking three and four years out Tim.
Yes, it's nervous when I talk three and four years out because lots of things can change, but that is our strategic plan.
On how we're going to handle that next wave of our ESG repayments is have these other diversified business units continue to grow as they have done this year and contribute more and more to growth going forward I think that balances out.
The growth trends of our portfolio and I. Thank all of our investors would.
I would like to see a more diversified.
Steady sort of growth rate to the portfolio.
Yes, that's helpful.
And then maybe just one last one for me and maybe for Tim just on the expenses I know you kind of gave a little bit color on just kind of.
How that trends look over the near term, but just broadly as you look to next year on the expenses.
How should we be thinking about the growth and the inflation impact in additional hires just kind of high level.
Just kind of the outlook there.
Yes, Brian . Thanks, Thanks for the question and yes, we were pleased with being able to increase our noninterest expense during the quarter, but also show a decreasing or improving efficiency ratio.
So that was that was a highlight.
As George mentioned, we did have good momentum in hiring people during the quarter, we hired just over 120 people throughout the quarter.
That was good momentum we still have some good momentum into this this fourth quarter as well and some more open positions that we need to fill and are hopeful well Phil Phil.
Bill this quarter. So I do think our noninterest expense in total will continue to increase several million.
At quarter.
You really went back to our comments back in our January call.
<unk> been saying that all year that we thought depending on the pace of hiring.
That we would continue to increase our noninterest expense several million dollars a quarter.
For the for the near term.
That obviously didn't come in the first half of the year, where we were not able to be successful in increasing our head count, but we've got that momentum in the third quarter and continues in the fourth quarter.
So.
I believe that.
That will continue to increase noninterest expense in total several million dollars a quarter again, we're investing in our business, we're a growing bank so.
Investing in our people, we mentioned, we would expect advertising and marketing to continue to stay at the elevated level that we saw in.
In the third quarter to support our growth and our brand recognition.
So we.
Our expense growth is to support the growth of the business is also which we view as very very positive.
Okay, that's helpful and I guess the key.
Key point is it.
Yes, youre not expecting outsized growth per se in 'twenty three.
Kind of normal growth to support the business nothing out of the ordinary on that front as I was getting at so thanks for the commentary and great quarter guys.
Thank you Brian . Thank you one number for our next question.
Our next question comes from Sameer <unk> with Wells Fargo. Your line is open.
Alright. Thank you for the follow up just maybe a couple of modeling questions. I was wondering if you have the spot rate on deposits exiting the quarter.
Okay.
I'm not sure I understand your question Tomorrow.
The cost of deposits at quarter end versus the.
The average that was provided.
Youre talking about for the month of September .
Yes, just for the month of September end of September .
Yes, I think we were 20 something basis points higher.
The month of September than we were for the quarter as a whole I can't remember if it was 20 or 22.
Somewhere in that in that range.
Okay.
Okay got it and then just lastly.
As we think about the allowance level for the funded our ESG balances to start kind of growing in the next couple of years. It looks at the reserve on the unfunded loans, there's a little bit lower than what the total reserve is kind of a reported basis. So as those loans fund up is the expectation that additional reserves are added or are they.
Kind of evaluated at that time of funding.
Youre right that our ESG funded allowance percentage is lower than the overall allowance percentage of unfunded funded balances. So it depends on the mix it depends on the mix of growth of whether that comes down or not and also to.
And on the economic environment, we're in.
As well.
But as we as we said in our comments.
The provision expense that we had.
During the quarter was primarily due to the growth in the funded balance and unfunded balance.
And the view that.
Yes, the environment macro and economic environment.
It has a lot of <unk>.
Risks and uncertainties in it right now so as the environment improves.
That would be helpful to our reserve levels as well.
And I would comment that our ESG is the vast majority of the unfunded what's do we what's the percentage we disclose it of the unfunded loans.
60% of the.
Funded loans so part of.
87% of our.
<unk> is 87% of the unfunded loan balances and.
60% of the funded loan balances our allowance allocations on our ESG loans, because they're so much lower on average loan to value than other loans from other lending teams in our portfolio tends to be.
Quite a bit lower so that's part of that differential.
And the ratios there tomorrow.
Got it. Thank you appreciate it.
Okay.
And I'm not showing any further questions. This time I'd like to turn the call back over to management for any closing remarks.
Alright. Thank you guys for glad you're with US today, we enjoyed getting to report on what we thought was an excellent quarter. We look forward to talking with you in about 90 days. Thank you that concludes our call ladies.
Ladies and gentlemen, this does conclude.
You may now disconnect and have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Yeah.
[music].
Okay.
[music].
Yes.
Sure.