Q4 2022 Bank Ozk Earnings Call
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Today Chase Daily. Please go ahead.
Good morning, I'm, James Bailey director of Investor Relations and corporate development for <unk>.
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 Hamblin, President, Tim Hicks, Chief Financial Officer, and Cindy Wolfe Chief operating officer.
We will now open up the line for your questions.
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Your first question comes from line of.
Stuffs gotten from Piper Sandler Your line is open.
Hey, good morning, guys. Congratulations on a great quarter first of all I guess when you all are thinking about it.
Originations I mean, I think it was $2 eight one it's still extremely high relative to what we saw in.
'twenty one early 'twenty two.
What's the the reason maybe for the thinking it'll be a little slower or is it just overall economic slowdown are you seeing more construction projects kind of get tabled today than you were maybe 90 days ago or how can we think about those trends that you're seeing from customers in that space.
Good morning, Stephen I'm going to let brannon hamblen take that question here.
Well Brandon absolutely Stephen Great Great to hear from you. This morning, Yeah, we actually.
Last quarter.
We had the same question and the answer is similar you hit on a couple of the items that are that are impacting deal flow.
Costs have have continued to increase although I would say that we are hearing.
Hearing and seeing anecdotal evidence that the velocity of those cost increases is coming and so there's still a lot, but at a slower pace, but obviously interest rates have not slowed down so that that piece of the puzzle still pressing against new deals, but you know we are still seeing new deals.
We are still signing up new opportunities.
But but given given that the pie is a bit smaller.
We will probably take a little bit less in 2023, I mean competition is.
It's really not.
A piece of that answer.
We've had really good.
Success in pushing into and getting our fair share or more given given where the competition is and as I've said in the past the quality of what were.
Able to originate today in light of of less.
Less competition as lower leverage and better spreads on the deals that we are quoting and winning.
Okay, Great and this question maybe.
Maybe a little early but I think it starts to become interesting.
If rates begin to rollover in the back half of the year.
How do your floors play into that.
Yes, Steven let me tell you that obviously the longer the fed stays.
At whatever their terminal rate is.
Better that works for our floors because.
Loans that we originated two years ago out of floor near the origination right on those launch, where obviously Y O Y O Y from those floors before they would become active there.
The loans, we originated last quarter.
Maybe at or very near their floor right. So the longer the fed stays at a at whatever their peak rate is the more we roll off older loans that are far from the floor and replace those with new loans that are at or near the floor at the time of origination.
So.
Uh huh.
The scenario, where the fed slows there right increases and maybe has you know.
One two or three more quarter Paul.
<unk> increases and then stays at that rate for a year or longer.
Longer they study they are the better it is for our floors and the more defensive it is for our margin.
Yeah. That's helpful. I mean like at a very high level is it fair to just kind of think about the and I understand what youre, saying, Georgia. This many numbers are improving every quarter, but almost the inverse of the charts. You were showing previously as rates went higher and just how the percentage of loans that would fall into.
And to protection from those floors is that kind of roughly how we could think about it.
Yes, exactly and you know.
If you think back a year or two we had a lot of loans at the floor rate was way above what the formula rate was at the time and rates have to rise 50, or 100, or a 150 or 200 basis points before we got above those floors and those loans activated.
The fad kept that from being a big issue about rising rates a lot in big chunks and quickly in big chunks are we quickly got over those floors.
You can see the benefit of that in our record levels of net interest margin and core spread.
<unk> been achieving.
So yes, the flip side of that is true.
And Stephen that's why we've made.
Comment.
<unk>.
We will when the fed stops raising rates and deposit cost catch up we will see a reversal of <unk>.
Some of this significant improvement in net interest margin and core spread that we've had over the <unk>.
Last year it.
It's possible that Q4 was the peak in our net interest margin and core spread.
It's it's likewise possible that we could.
Have another quarter, where we have some improvement in NIM and core spread but based on the fact that the pad is going it seems like the quarter point increases in the number of those areas.
Legitimate question is it one or is it too is it three is it four but that was quarter point increases we're going to see a catch up in our deposit costs, So where if we didn't hit peak NIM and core spread in Q4 would probably.
What eke out some small incremental gain in Q1 I can't even.
I hope, we will have a gain in Q1, but that is questionable but.
At a slower rate of fed increases with deposit costs, which lag beginning to catch up we will see some erosion of those recent gains probably.
And.
Q2 at least.
Yes, well the NIM peaks at $5 50 range youre going to be doing better than 99% of bank's anyway. So we're fine with that I guess the one follow up is just when you think about that deposit lag in the back half of the year.
How do we try to frame that up at all because that to me is the hardest thing to try to anticipate we can think about betas when rates are rising, but when theyre not how do you think about that kind of lagged pressure in the back half of the year on deposit costs.
Well, yes.
The way, we're thinking about it is doing everything we can do to ROE floors up and make sure of that.
The deposits if we put on are not too longer duration now.
Added some duration to the deposit base last year.
And you saw that with an increase in the volume of Cds that was intentional to put some duration in that but knowing that we were going to have strong loan growth in 2023, and probably werent going to say rates coming down much at least in the front half of 'twenty, three and maybe not at all.
All in 2023, so, but where we are beginning to shorten the duration on new Cds were adding in.
Sure.
Okay.
Bad out longer but.
We're pulling some of those and.
In some categories of deposits just too.
Get ready to have deposits repricing.
Right.
<unk> three in early 'twenty four.
As we think thats, probably the likely timing that that might be.
Cutting mode. If they are.
Yeah, perfect Great color George I appreciate it and congrats again on all the record results.
Steven and I will I want to give a shot.
<unk> two are Cindy Wolfe and <unk> currently our chief deposit Officer Emily.
Jerry Harper, who manages our wholesale funding.
That deposits team and all the guys at work for Audi and drew and Sandy there have done a really good job of.
Making adjustments to.
What we thought our interest rate risk profile as well.
We've had a.
A really nice expansion in our in our.
Net interest margin core spread net interest income and.
That just didn't happen they have been very strategic in the way that you manage that on the liability side as our asset guys here and and the team deserves.
A lot of credit for how well they've managed that.
Thank you Steven.
Our next question.
Okay.
Yes.
Our next question comes from the line of <unk> <unk>.
Morgan Stanley Your line is open.
Hey, good morning, guys. Thanks for taking my questions.
Good morning.
Hey, good morning.
So.
I just wanted to follow up quickly on that last line of questioning so.
I guess with the new Cds that you're putting on and the fact that you're reducing the tail of those Cds.
Should a large chunk.
No.
Is.
Q4 repricing to Whatsapp.
At the end of 2023 did I hear you right there.
Manav I would say that theyre more ladder it out throughout 2003 and into early 'twenty four.
It's a pretty well managed ladder.
We've got <unk>.
It is maturing every day and we've kept a.
Considerable focus on keeping that distributed fairly even so we can.
Just manage that effectively instead of having big chunky pieces of it maturing here and there so it's very.
Well diversified on a day to day basis throughout 'twenty, three and then into 'twenty four.
Got it perfect and then maybe.
Maybe just a big picture question.
On repayments.
Given that the refi market takes out a larger portion of your dawn.
Just based on your conversations given how close we are debt peak fed rates.
Quickly do you think that the capital markets can open up and push sponsors to move to more permanent financing.
And then maybe you can just add based on what you've seen this play out before.
I guess, what's the best estimate in terms of how high repayments can go this year.
Well again, we've said that we think are our ESG repayments will be in the range that we achieved during 2021.
20.
20.
Two.
So that's six point to two to $5 65 billion is the likely number of buyer.
It could be a little more than that it could be a little less than that but.
We're thinking that that is.
<unk>.
I would tell you that the capital markets are not closed transactions are getting done.
Sponsors are just.
Not as excited about rates, they're getting as I would've been on rates a year ago.
One phenomenon that we've seen that I went brannon to comment on this but one phenomena that we've seen in the past manat in response to your question is.
Sponsors tend to think that.
They're going to get a much better exit.
Six months or 12 months down the road than they are today a lot of times they will stay in our more.
Expensive construction loan a little longer.
I think they're going to exit.
Today.
A 7% long term rate and I think I can get a 6% right now more months.
We will tend to stay.
<unk> alone a little longer to get that better exit.
Sometimes they do that sometimes they are just ready to put the permanent bed and go on down the road, but Bryan and you want to comment on refinance activity next year or this year.
Sure Noah you characterized it correctly, George I think one of them.
We will likely have a number of those short term extensions six 912 months just as you said.
And really there is so much we don't know about exactly where we're longer term rates are going to go.
George said the market is still open but.
As those rates move back to a more normal place we would expect the repayments to accelerate I think.
Back half of the year is likely to be higher than.
Than the front half of the year, but.
As we know our neurostar benefits certainly from a <unk>.
Average, earning assets point of view.
<unk>.
And.
When we when we make those those loan extensions a lot of times, we'll obviously get more little more fee income, perhaps a little more minimum interest in.
But but they're not long term in nature and so when the capital markets come back they'll they'll move on.
Our rates are not as attractive obviously as a long term rates.
Yes.
Emphasize brandon's point that where you are.
We view loans staying on the books six months longer 12 months longer as a very positive thing it greatly improves our.
Return on equity on those loans to have them sit on the books longer.
Right perfect, Yes that was going to be my follow ups.
On the.
On the books for longer or you have higher earning assets that helps your NII, even if you.
Even if the name is declining.
But as you as you run your scenarios.
Different macro assumptions is there any are there any situations in which NII peaks and starts to decline or should.
Should we just continue to see this NII ramp up and.
Get to peak in the next couple of quarters.
And then move down from there.
Well that's a good question Ronan I would tell you that are providing thought is is that.
We will see some compression in NIM and core spread.
In the coming quarters.
But that's going to be more than offset by growth in average earning assets.
We alluded to this in our management comments specifically.
Average hard to it internally as baton handoff, where that growth in net interest income is ceases to be driven by NIM that actually becomes a little headwind.
But we've got.
Great originations that have.
Kurt.
In 2022 that will drive loan growth in 2023 and 2024.
The continued increasing diversification of our portfolio should also help us drive loan growth in 2020, a very in 2024. So we are cautiously optimistic about a positive net interest income story.
I appreciate it thanks, so much.
Thank you.
Thank you one moment for our next question.
Yeah.
Yes.
Our next question comes from the line of Tim or Brazil, or from Wells Fargo. Your line is open.
Hi, good morning.
Morning.
Just following up on that last line of commentary how should we be thinking about balance sheet loan growth in 2023, given the expectation for slowing originations is that pretty much scheduled and you know what you are expecting from a funding standpoint arc without too slow.
Pam you want to address that.
Hey, good morning, Jim your.
Given the level of origination volume we've had over the last four to six quarters.
<unk>.
Given our construction loans and the fact that many of these loans were funding later in the construction phase.
We do kind of know the schedule.
To a great extent of the funding for those loans and so that gives us confidence and you saw on page five that we said we thought for 2023 that loan growth.
2023 would meet or exceed the $2 $7 billion, we achieved in 2022.
And a lot of that is just the delayed funding sequence, we have and as our ESG loans in combination with the growth profile that we have some from some of our other business lines like asset based lending and our community bank.
We've got pretty good visibility into that for the 2023 a year.
Okay, Great and then maybe just a follow up for you Brendan.
And looking at the national markets and kind of asset classes within our ESG.
Where are you seeing the most amount of resiliency right now and then Conversely are there any geographies or asset classes that matter.
We're seeing any kind of march slowdown in either activity or evaluations.
Great question.
Yeah, Yeah. So.
It's interesting.
Book that we see coming to us continues to be a fairly diverse book, both geographically and from a property type perspective, I think I think one that stands out and we've talked about it before.
The upper Midwest, which include Chicago has been a little.
Slower.
The past several quarters.
<unk> to be the case, we're still looking at deals there, but just on a relative basis to our history a bit slower there, but when I look at what we've got signed up in the pipeline to close it.
It has.
Pretty similar.
Mix has historically.
Less office probably.
Then we have seen but we are still.
Seeing office opportunities with pre leasing frequently.
Available in those opportunities and as I said before really great position to achieve the low leverage that is our standard and really improving on that but the southeast continues to be south southeast southwest.
Those those states, where we've seen so much.
Good origination historically remain.
The feature I would say.
Little slower on the coast, but we're still doing deals.
On both coasts as well.
Okay, Great and then just last for me looking at the comments made around net charge offs for the coming year.
Recognizing that 22 was a record year.
How can we start thinking about normalized charge offs and then as we're looking at provisioning levels, if maybe talk us through your thoughts on.
Provision of trajectory here in 'twenty, three given the broader uncertainty.
Yes.
Jeremy you want to take that sure.
Yes, you can look I'll take your 2015.
Net charge off history, obviously.
What a great year in 'twenty, two to be able to record a four basis point net charge off ratio, which was an all time low.
The range that we've had over the last three or four years in 2020, we had a 16 basis points, obviously, there's a lot of.
Uncertainty with the pandemic going on that year and six basis points in <unk>.
2021, and 11 basis points in 2019 at its hard for us to know.
What the net charge off number is going to be for 2023.
It's likely to be somewhere in that range.
Could be would be our best guess based on what we know today.
As it relates to provisioning, obviously, a lot a lot goes into that.
The macro economic factors that we get from Moody's and used for Moody's go into that.
They did those factors the scenarios became a little bit more adverse compared to what they were as of 930, and so you saw us shift our weighting slightly.
We still are.
Weighted to the downside.
There are combined waiting on Moody's is $4 six scenarios.
The provision in the last two quarters of <unk>.
Greatly been influenced by the growth that we've had in our funded balance in unfunded.
The balance.
So the.
The impact of our growth in funded and unfunded, obviously will impact the level of provision we have from quarter to quarter and then as we get through 2023, obviously Moody's economic scenarios.
We look at those during a two year forward projection.
So as you get towards the end of 2023 to two years ahead of where you are.
Are the scenarios that we're looking at and so obviously there is there is a lot of uncertainty of what 2023 brings and so when we get more clarity.
That may influence the Moody's forecast too in our weightings related to those as well. So a lot of factors go into that obviously the last two quarters.
Related to the growth.
We had in both our funded and unfunded balance and you did see our overall total ACL to total commitments move up a couple of basis points.
Both of the last two quarters reflective of that growth and really the economic forecast, you're saying from Moody's in our selection of those.
That helps.
That does thank you.
Hey, Tim.
To add a comment here on something there.
Comment has been made that are.
ACL for unfunded loans as a lower percentage than our ACL for funded loans in the.
The question has come up previously.
<unk> funded loans move to or is unfunded loans fund and move to the funded category does that mean, we're going to put up more ICL on it that doesn't follow that's not a connect the reason that R. R.
<unk> percentage is lower than our funding percentages, because our ESG is a much higher mix hits, 90% roughly of the unfunded 60, low <unk> percent of the funded and our our ESG loans are lower leverage so they have lower risk.
With lower loss exposure, if you have a follow up on one of those loans. So the ACL for those loans is lower.
The other loans that typical community bank loans consumer loans.
RV and marine loans all of the other stuff that is mostly funded.
Has higher ACL allocations part so the movement of a loan from unfunded to funded doesn't change.
Allowance allocation really for that alone in any meaningful way.
I thought I might clarify that because I think there is some confusion out there about that.
Okay. Thanks George.
Okay.
Thank you.
One moment for our next question.
Our next.
<unk> comes from the line of Catherine Mealor from K B W.
Sure.
Thanks, Good morning.
Good morning, Kevin.
One can you talk about maybe the office portfolio.
Get a lot of disclosure on your management comment can you walk us through how much of that.
At $4 9 billion is funded versus unfunded.
And how much of leasing looks like for some of these newer projects.
Okay.
Yes, great.
I'll jump into that Kathryn.
The I don't know exactly the funded versus unfunded dollars up top of my head but.
With respect to leasing that.
As we've said some of the some of the projects. We we originate have pre leasing when we originated them some are spec.
But when we look at.
Projects that.
<unk> are complete.
We are seeing continued green on the screen moving forward with improved leasing obviously theres a range.
Range of results across that portfolio, but.
We are still seeing positive leasing momentum in those projects.
And as I've said, the newer stuff that we're putting on the book is predominantly going to have pre leasing involved with it.
So on the whole.
Noted numerous times.
The flight to quality thesis.
We're seeing that continue to play out both in the loan.
The loans that we have in our portfolio and in the markets generally in terms of the lease activity that we see out there again, there is a range of of.
Our success across the portfolio some.
Slower than others, some knocking it out of the park, but on the whole we're pleased with what we see there.
Okay.
Alright, and then on back to the margin conversation.
You talk to us about where your deposit rates were towards the end of the quarter just to get a sense as to where funding costs might be coming.
As they reach.
<unk>.
Yes, Catherine this is Cindy.
Timber was 166 on cost of interest bearing deposits.
Okay.
No your CD rates kind of range and different market.
Bridge, where new Cds coming on.
I don't have that information.
I don't have an average and youre right it varies depending on the market.
Okay.
And then after your previous comments yours about NII growing from here should we think about that.
On a year over year basis, or should we think about that from a fourth quarter annualized basis, because <unk> seen such a big increase in your NII growth over the course of the year. So just trying to think about obviously as the margin peaks and then fall.
I think.
Year over year growth is for sure going to happen just given the ramp throughout the year, but is it fair to say, we could see from this quarter's annualized run rate a little bit at that compression.
Is that margin follow up is as funding cost increase.
Why don't you take that one yes Catherine.
Yes, youre correct year over year.
Have.
Lined up the potential to have a really really strong year over year comparison.
If you're comparing it to just each quarter compared to fourth quarter, I think there'll be one or more quarters in which we have higher net interest income than we did in the fourth quarter.
Okay. That's very helpful. Thank you.
Okay.
A moment for our next question.
Our next question from.
Matt Olney from Stephens Your line is open.
Hey, Thanks, Good morning, I wanted to ask more about capital and specifically the CET one ratio.
Come down a little bit of last few quarters from the <unk>.
Strong loan growth I'm, just curious what you think about.
Further capital deployment and what you consider the floor for the CET one ratio.
Yes.
Tim.
Yes, Matt.
Obviously, our growth in both funded and unfunded has contributed to our risk weighted asset growth over the last several quarters.
We've got a lot of earnings power, obviously, as we've demonstrated over the last quarter or two.
And we have the ability to do multiple capital deployments. What you saw in the fourth quarter, we had good growth in it.
A little bit of share repurchases.
So we're comfortable where we are in CET one.
No that youll see that much risk weighted asset growth that that.
We have obviously the funded growth.
We've outlined our thoughts there on the unfunded.
We approach the end of the year, the unfunded balances likely to.
Declined some which will give us some some relief on the risk weighted asset side. So we've got some internal targets on CET. One we're well ahead of those and expect to continue to be well ahead of those as we go throughout the year.
Okay perfect. Thank you for that Tim I appreciate it.
And then going back to the core spread discussion obviously impressive in the fourth quarter.
Loan yields were particularly impressive in <unk> and I think the loan beta is moved up higher in <unk> versus <unk>.
Any color you can give us as far as the higher beta as we're seeing in <unk>.
And then you mentioned some potential extension fees in 2023, and the future do we see any of that in the fourth quarter.
I would say, Matt that was a fairly typical run rate for.
Minimum interest extension phase and so forth and in Q4, it wasn't particularly low it wasn't particularly high it was kind of in the range of what we would have.
Considered to be a normal range and I don't think we have the expectation thats going to be a huge factor in 2023, I think we will see a fairly typical run rate on that I mean, it will vary up and down a few million dollars from quarter to quarter, but.
That's not going to have a big impact on our margin over the course of the year or probably more than a few basis points in any particular quarter.
And George if it wasn't the fees in the fourth quarter any other color on the stronger loan beta as we saw in <unk> versus <unk>.
Everything that was variable was off its floor essentially and the fed was moving quickly so those translates through into higher our loan yields obviously.
Loan yields will go up less rapidly with the fed moving 25 basis points instead of 75 and 50 so.
There is what we can do there on increasing loan yields is definitely.
Tied to a large extent the magnitude of fed rate increases.
Okay.
And then just lastly around thinking about liquidity and funding the growth in 'twenty three.
Clearly deposit growth is going to be a big factor this year, but.
On the Securities portfolio, you disclosed kind of what the cash flow you expect this year from that will that be a source of.
For loan growth just curious if you think you could work down that portfolio in terms of in terms of size this year and if so how much.
Matt Thats going to Japan purely what we say is reinvestment opportunities.
With the inverted yield curve.
<unk>.
And steeply inverted as it is and assuming.
A likely fed pivot seems to be priced into the yield curves faster than what we would think the fed's kind of pivot.
There is not much attractive for us to buy out there. So we're pretty much on the sidelines and letting that portfolio run off if there is.
A reversal.
And that sentiment and we get some higher yields and a better entry point, we would we would.
Buy bonds and not by a lot of bonds. If it were what we thought was a very attractive entry point, but.
The market seems the bond market seems to be a little ahead of itself right now with that steep inversion in the yield curve. So were sidelined and we're not going to chase. It sorry, if we missed that in that portfolio just gets smaller and we're okay with that.
Okay.
Alright, that's all from me, thanks, and congrats on the quarter.
Thanks, so much.
One moment for our next question.
Our next question comes from the line of Jennifer Denver from true.
Open.
Thank you good morning, just curious how the new mortgage lending operation is going and if you have any interest in starting any other new.
Business lines anytime in the next several quarters.
Yes, we're working on the technology, we've got our three senior members of the mortgage team onboard and Theyre doing all their process build in governance and.
Risk build out around that.
Sure.
In testing on the technology product Thats going to.
Drive that business, when we get the technology product fully vetted and tested we'll start adding some <unk>.
Our origination teams and began doing business that probably Jennifer is third quarter before we actually start that business. So and we will start it in a small scale way in.
Ramp it up slowly so that really is probably <unk>.
<unk> 2024.
Matter that.
We began to see a little bit of trickle of results and they're in late 'twenty, three but nothing thats going to move the needle until possibly sometime into 2024.
Okay. Thank you.
Thank you one moment for our next question.
Our next question will come and Michael Rose from Raymond James Your line is open.
Hey, good morning, guys. Thanks for taking my questions I wanted to start on the expense side of the house you.
You guys have done a bunch of different initiatives and projects kind of over the years I just wanted to see if you had anything on tap for 2023, and then how should we think about different components, whether it be kind of wage inflation and annual merit increases.
<unk> care cost FDIC costs going up if you can just kind of contextualize the <unk>.
Outlook I would appreciate it thanks Pam.
Sam go ahead, Hey, Michael Yes, you rattled off a long laundry list and we've got probably more that we could add to that list but.
We added a chart on page 28, which was.
31, which shows you the head count increase that we had throughout last year and you can see that we've got really from our low point on June 30.
Through the back half of the year, we added 172 people.
Which is a seven 5% increase in the head count.
Also gave a lot of good raises throughout the year and some additional raises that go into effect one one.
We will continue to add head count as we go through this year, we've already gotten started.
In January with with additional head count.
So that head count.
Pandemic diminished level as we said there at our at our head count So we needed to.
We needed to add add back staff to support our growth initiatives.
You mentioned wage pressures those are those are real and will continue throughout this year you mentioned the deposit insurance assessment, that's going up.
And if the balances didn't change it would go up 1.2.
$1 million a quarter, but you also have to take into account the.
The increase in assessments that we'll get from our growth in average assets as well.
Really we will have increased advertising and marketing as we go throughout this year similar to really probably similar to Q3 and Q4 levels to support our deposit growth initiatives and then you've got the inflationary pressures and all the other kind of line item some of which are probably.
Laid a little bit when you think about vendor contracts that.
They come up for renewal.
One year or two year or three year contracts. So all of that kind of adds up to.
Our expectation for low double digit increase year over year full year 2023, compared to full year 'twenty. Two we would expect kind of in that low double digit range increase in total noninterest expense.
Oh, yes, sorry.
Well I am sure you are about the point this out but I wanted to point out that that would still put us at a mid 30% efficiency ratio for the year, which would still be among the industry's best.
Yes exactly.
Just one follow up separate question.
Page 25 on page 23.
<unk> chart, so I noticed that the LTV on the Tahoe credit was up from 79% to about 80%, 84% 85%.
Any sort of updates there on that on that particular credit in any sort of resolution opportunities at some point I know, it's a longer term kind of.
Credit, but just looking for any update.
Brandon Yes.
Be happy to take that Michael.
Yes.
As it relates to the the bubble floating that has to do more with the asset mix at any given point in time, we have.
Few remaining single family lots at the project.
And our club.
And then we've got.
<unk>.
Roughly that while there are 17 town homes under construction and 34 to construct and sell beyond that so and those townhomes have had because of the price appreciation they've had over time when we originate those loans they have a pretty attractive LTV on them and then when you sell them.
And start you've got others that.
That are not as high as it has a slight impact on your LTV, but we did close one town home sale.
In the quarter.
At a very nice price, we've got as I've said 17 under construction in six of those are under contract.
Still feel good about the project I would tell you that it's.
Covid created sort of a frothy pace of transactions in that market.
People were really focused on getting out of town and being in a better place. If they were going to have to sort of hunker down work from.
From home, if you will and so we definitely saw the benefit of that.
It's pulled back a bit as rates have increased net debt.
The fact that things but.
We'll still use it mark.
Resale prices and the community doing well.
Sale, we had was at a very very nice price point so.
As you said, it's a long term.
Sort of resolutions, but.
Certainly certainly made a lot of good progress in the last couple of years and expect it to continue, albeit at perhaps somewhat reduced pace.
Okay and then just finally, the special mentioned rated credit I think Thats, a new kind of addition, I just wanted to get any sort of details there.
If there's any concerns on your own. Thanks, Yes, sure now that credit is a site that was planned for a very high end development and construction costs.
Escalated materially over the last couple of years and.
Ultimately the borrower decided not to proceed with it as vertical developments there.
In light of his abandoning the development plan, we obtained a new appraisal dated December 22nd actually December 'twenty two.
Which concluded to an as is value of 104.
104 million that compares to the original 2021 appraisal of the $139 1 million and results in a current LTV on the new appraisal at 63%. So the loan's current sponsors actively marketing working to liquidate the property, but given the.
Aboard a development plan and their decision to liquidate the property. We concluded that a special mention rating was appropriate for that.
For that credit.
Great. Thanks for taking my questions you bet.
Thank you.
And as a reminder, that star one one for questions.
One moment for our next question.
Our next question comes from the line of.
Brian Martin from Janney Montgomery.
Awesome.
Hey, good morning, guys.
Hey, Brian and Brian maybe just one on the loan loan side for a second.
I appreciate the commentary about the growth outlook. This year, just kind of wondering if you can provide any perspective on just where that growth how youre thinking about the different buckets of where that growth comes from both from the ISG standpoint, I think you also called out kind of the <unk>.
Many opportunities on the community banking and the ABL front, just kind of trying to understand where the growth might be.
From this year.
Brian I would tell you.
<unk>.
It's going to be diversified again, obviously with a high level of our ESG originations the record level of originations in 2022.
A lot of those loans will start funding up in 2023 and finished funding up in 2024 so.
Our ESG funded balances will undoubtedly grow and should grow in our NII.
Decent manner.
Because of the bigger originations last year.
But at the same time.
Are getting good traction as shown in the blue.
Waterfalls, there on growth in the portfolio.
This last year, we're getting good traction in our ABL group.
Great.
And various elements of our community banking group as well as some positive momentum and indirect marine and RV.
The corporate business specialties group that shows.
Sure.
That reduction in funded balances at a couple of quarters as last year's actual you had nice growth in their commitments outstanding for funding. So even that group is growing in total commitments. So we think we think we're going to see good diversification and probably better contributions.
<unk>.
Some of those community bank units in the next year than we saw in the last year and that was that was positive so.
<unk>.
Constructive on the continued trend toward diversification in the portfolio.
That's in the pipeline and the ABL portfolio is pretty healthy at this point.
Yes, Brandon you want to comment on yes, yes. It is.
As in <unk>.
George said they had a good year last year, they've got some some great credits on the book.
And looking at some others.
Early in the year and one of the things I would note.
That particular portfolio.
Those credits have a very nice sort of accordion characteristic to it if you will that defensively.
The sales volume pulls in.
Our credits way ahead of that with the formulaic structure, but also as these businesses.
Experience.
Great health and expansion opportunities.
You don't have to necessarily book of new credit two to realize some good pipeline. There we actually had three different credits expand during Q4 and was it more last night with another credit.
Customer that is.
Is contemplating expansion as well so.
Really really encouraged about the growth opportunities for that that portfolio.
Gotcha, Okay no that's helpful.
And maybe Tim I might have missed what you said earlier on the expenses, but just given that ramp up in kind of the hiring and what you guys talked about and even the increase in starting this year just kind of the growth rate or how should we think about that ramp up in expense growth from kind of this fourth quarter level, which is obviously a peak.
As we get into 2023 and the year over year quarterly just did you provide anything on that or maybe I missed what you said there.
Yes, no year over year, we're expecting low double digit increase.
If you are starting with fourth quarter.
Q1 is always seasonally tough you got a full load of FICA.
Health insurance increases you've got.
A good amount of raises that come in so.
And then you've got the FDIC insurance that's kicking in.
Increase there is kicking in one one.
And then.
Advertising and marketing.
We're doing a lot of that right now so I would expect.
Another healthy level of increase in Q1, and maybe not as much increase as we get throughout the year.
But overall year over year low double digit low double digits.
Okay. That's helpful. And then just one other one was on the repurchases just kind of your outlook. There and then just on the deposit front just the broker deposits were up a bit just kind of wondering what the appetite is there just kind of where you want to see that trend as you kind of go throughout the year or just.
Over the next couple of years.
Tim you want to take the Repowering.
Let me take the repurchases obviously, we grew a lot.
And our funded and unfunded balance in Q4, we purchased.
As much as we had in previous quarters, we've got really good capital levels and a good earnings profile I think we can do multiple things at the same time.
We will look to be opportunistic on the share repurchase and find opportunities, where we may have quarters that are above that fourth quarter number and there may be quarters, where we're below that number so it.
We'll be we'll be opportunistic and try to find opportunities to.
Sure.
To see.
Where we use that authorization and this is cindy on the brokered im going to borrow large and.
<unk> at that and say, we're going to continue to be opportunistic and disciplined and look for the opportunities that Audi and drew and the teams are finding for the brokered. We had worked its way down as you know and and as we get back into that space, where we're being very surgical and.
And focused on finding the best possible opportunities. We can so we're pleased with the way we're managing our <unk>.
Our increase in our brokered book.
And the percentage of brokered probably not going to you're not going to say any material increase in that percentage going forward.
We are in a.
And.
And our.
Target zone for what's acceptable on that and our internal standards.
We're not going to materially increases so youre not going to say, you've added 12 or 13 or 14% of deposits.
Our expectation, we're not going there, so probably sub 10 or around but Dan sort of percent range is probably about the Max you'll see on that.
Gotcha, Okay. Thanks for taking the questions and great quarter guys.
Yes.
Thank you.
And I'm not showing any further questions in the queue I'd like to turn the call back over to you.
Gleason for any closing remarks, alright. Thank you guys very much for joining the call. Today, we are glad to celebrate a really great quarter and a great year with you. We appreciate your interest in our company and mostly in about 90 days. Thank you so much and have a great day.
Concludes our call.
This concludes today's call. Thank you for participating you may now disconnect everyone have a great day.
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The conference will begin shortly to raise Johan during Q&A you can dial one one.
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