Categories Earnings Call Transcripts, Finance

Bank OZK (OZK) Q4 2022 Earnings Call Transcript

OZK Earnings Call - Final Transcript

Bank OZK (NASDAQ: OZK) Q4 2022 earnings call dated Jan. 20, 2023

Corporate Participants:

Jay Staley — Director of Investor Relations and Corporate Development

George G. Gleason — Chief Executive Officer

Brannon Hamblen — President

Tim D. Hicks — Chief Financial Officer

Cindy Wolfe — Chief Operating Officer

Analysts:

Stephen Scouten — Piper Sandler — Analyst

Manan Gosalia — Morgan Stanley — Analyst

Timur Braziler — Wells Fargo — Analyst

Catherine Mealor — KBW — Analyst

Matt Olney — Stephens — Analyst

Jennifer Demba — Truist Securities — Analyst

Michael Rose — Raymond James — Analyst

Brian Martin — Janney Montgomery — Analyst

Presentation:

Operator

Good day and thank you for standing by, all to the Bank OZK Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your host today, Jay Staley. Please go ahead.

Jay Staley — Director of Investor Relations & Corporate Development

Good morning, I’m Jay Staley, Director of Investor Relations and Corporate Development for Bank OZK. 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; Brannon Hamblen, President; Tim Hicks, Chief Financial Officer; and Cindy Wolfe, Chief Operating Officer.

We will now open up the line for your questions. Let me now ask our operator Victor to remind our listeners how to queue in for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Stephen Scouten from Piper Sandler. Your line is open.

Stephen Scouten — Piper Sandler — Analyst

Hey, good morning guys, congratulations on a great quarter first of all. I guess when you all are thinking about originations, I mean I think it was 2.81, it’s still extremely high relative to what we saw in you know ’21 or early ’22. What’s the reason maybe for the thinking it will be a little slower? 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?

George G. Gleason — Chief Executive Officer

Good morning, Stephen. I’m going to let Brannon Hamblen take that question if if he will. Brannon?

Brannon Hamblen — President

Absolutely. Stephen, 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 impacting deal flow, you know costs have continued to increase although I would say that we are hearing and seeing anecdotal evidence that the velocity of those cost increases is coming in, so it’s still up, but at a slower pace, but obviously, interest rates have not slowed down. So that piece of the puzzle still pressing against new deals, but we are still seeing new deals, we are still signing up new opportunities and — but given that the pie is a bit smaller, we will probably take a little bit less in 2023. I mean, competition is really not a piece of that answer, we’ve had really good success in pushing into and getting our fair share or more given where the competition is. And as I’ve said in the past, the quality of what we’re able to originate today in light of less competition is lower leverage and better spreads on the deals that we are quoting and winning.

Stephen Scouten — Piper Sandler — Analyst

Okay, great. And this question, Maybe a little early, but I think it starts to become interesting, if rates begin to roll over in the back-half of the year, how do your floors play into that?

George G. Gleason — Chief Executive Officer

Yeah, Stephen, let me tell you that, obviously, the longer the Fed stays at whatever their terminal rate is, the better that works for our floors because loans that we originated two years ago had a floor near the origination rate on those loans were obviously way off — way away from those floors before they would become active.

The loans we originated last quarter, you know, may be at or very near their floor rate. So, the longer the Fed stays 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.

This scenario where the Fed slows their rate increases and maybe has you know one, two or three more quarter point increases and then stays at that rate for, you know, a year or longer, the longer they stay there, the better it is for our floors and more defensive it is for our margin.

Stephen Scouten — Piper Sandler — Analyst

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 you’re saying George is this — these 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 protection from those floors, is that kind of roughly how we can think about it?

George G. Gleason — Chief Executive Officer

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 had to rise 50 or 100 or 150 or 200 basis points before we got above those floors in those loans activated. The Fed kept there from being a big issue by raising rates a lot in big chunks and quickly in big chunks. So we quickly got over those floors and you can see the benefit of that and our record levels of net interest margin and core spread that we’ve been achieving. So yes, the flip side of that is true and Stephen that’s why we’ve made the comment you know that we will when the Fed stops raising rates in deposit cost catch-up, we will see a reversal of of some of this significant improvement in net interest margin and core spread that we’ve had over the past year.

It’s possible that Q4 was the peak in our net interest margin and core spread, 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 Fed is going, it seems like the quarter point increases and the number of those as you know legitimate question is it one, is it two, is it three, is it four, but those quarter point increase, we’re going to see a catch-up in our deposit costs.

So we’re — if we didn’t hit peak NIM and core spread in Q4, we’d probably you know would eke out some small incremental gain in Q1, I can’t even — you know I hopefully will have a gain in Q1, but that’s questionable, but at a slower rate of Fed increases with deposit costs which lie beginning to catch-up will see some erosion of those recent gains probably in Q2 at least.

Stephen Scouten — Piper Sandler — Analyst

Yeah, well, the NIM peaks of 550 range, you’re gonna be doing better than 99% of banks, 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 they’re not, how do you think about that kind of lagged pressure in the back-half of the year on deposit costs?

George G. Gleason — Chief Executive Officer

Well, you know, our — the way we’re thinking about it is doing everything we can do to grow floors up and make sure that the deposits that we put on are not too longer duration, now we padded some duration to the deposit base last year because — 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 weren’t going to see rates coming down much at least in the front-half of 2023 and maybe not at all in 2023, so — but we are — we’re beginning to shorten the duration on new CDs we’re adding and still doing a bit out longer, but we’re pulling in some of those in, in some categories of deposits just to get ready to have deposits repricing late ’23 and early ’24 as we think that’s probably the likely timing that the Fed might be in cutting mode if they are.

Stephen Scouten — Piper Sandler — Analyst

Yeah, perfect. Great color, George. I appreciate it and congrats again on all the record results.

George G. Gleason — Chief Executive Officer

Thank you, Stephen. I will — I want to give a shout-out to our Cindy Wolfe and Ottie Kerley, our Chief Deposit Officer, Drew Harper, who manages our wholesale funding that deposit team and all the guys who work for Ottie and Drew and Cindy, they have done a really good job of making adjustments to what we thought our interest-rate risk profile is, you know we’ve had a a really nice expansion in our net interest margin, core spread net interest income and that just didn’t happen, they have been very strategic in the way they have managed that on the liability side as our asset guys have in and the team deserves a lot of credit for how well they’ve managed that.

Jay Staley — Director of Investor Relations & Corporate Development

Thank you, Stephen.

Operator

We’ll move on to our next question. Our next question comes from the line Manan Gosalia of Morgan Stanley. Your line is open.

Manan Gosalia — Morgan Stanley — Analyst

Hey, good morning guys, thanks for taking my questions.

George G. Gleason — Chief Executive Officer

Good morning, Manan.

Manan Gosalia — Morgan Stanley — Analyst

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 of those CDs, should a large chunk of the CDs come due for repricing towards the mid to end of 2023, did. I hear you right there?

George G. Gleason — Chief Executive Officer

Manan, I would say that they’re more laddered out throughout ’23 and into early ’24, so it’s a pretty well-managed ladder, We’ve got CDs maturing every day and we’ve kept a considerable focus on some keeping that distributed fairly even, so we can. Just manage that effectively instead of having big chunky pieces of it maturing here and buyer.

So it’s very well diversified on a day-to day basis throughout ’23 and into ’24.

Manan Gosalia — Morgan Stanley — Analyst

Got it, perfect. And then maybe just a big picture question on repayments. You know, just given that the refi market takes out a larger portion of your loans. I guess just based on your conversations, given how close we are to peak Fed rates, how quickly do you think that the capital markets going to open up and push sponsors to move to more permanent financing? And maybe you can just add, based on what — how you’ve seen this play out before, I guess what’s the best estimate in terms of how high repayments can go this year?

George G. Gleason — Chief Executive Officer

Well, again, we’ve said that we think our RESG repayments will be in the range that we achieved during 2021 and 2022, so that’s USD6.22 billion to USD5.65 billion is the likely number there, you know it could be a little more than that, it could be a little less than that, but we’re thinking that that is the range for repayments next year.

And you know, I would tell you that capital markets are not closed, transactions are getting done, sponsors are just you know not as excited about rates they’re getting as they would have been on rates a year ago. One phenomenon that we’ve seen and I want Brannon to comment on this, but one phenomenon that we’ve seen in the past, Manan, in response to your question is, if 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’ll stay in our mortgage expensive construction loan a little longer if they think they’re going to exit today at a 7% long-term rate, and they think they can get a 6% if they right now [indecipherable], they’ll tend to stay in our loan a little longer to get that better exit, sometimes they do that, sometimes are just ready to put the permanent bed and go on down the road.

But Brannon, you want to comment on refinance activity next year or this year in —

Brannon Hamblen — President

Sure, no, you characterized it correctly, George. I think one of — we will likely have a number of those short-term extensions, six, nine, 12 months, just as you said and really there’s so much we don’t know about exactly where longer term rates are going go, as 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 you know back-half of the year is likely to be higher than the front-half of the year. But as we know [indecipherable] benefit certainly from an average earning assets point of view and we’re –when we make those those loan extensions a lot times we’ll obviously get more — little more fee income, perhaps little more minimum interest and — but they’re not long-term in nature and so when the capital markets come back, they’ll move on, our rates are not as attractive, obviously as the long-term rates.

George G. Gleason — Chief Executive Officer

And. I would emphasize Brannon’s point that we are — we view loans staying on the book, 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.

Manan Gosalia — Morgan Stanley — Analyst

Right, but I think that was going to be my follow-up. I mean, if it stays on the books for longer, you have higher earning assets that helps your NII even if NIM is declining. But as you run your scenarios on the different macro assumptions, is there — are there any situations in which NII peaks and starts to decline or should we just continue to see this NII ramp-up and you get the peak NIMs in the next couple of quarters and then move down from there?

George G. Gleason — Chief Executive Officer

Well, that’s a good question, Manan. I would tell you that our prevailing thought is that you know we will see some compression in NIM and core spread. In the coming quarters. But that that’s going to be more than offset by growth in average earning assets, we alluded to this in our management comments specifically and I have referred to it internally as as a 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 occurred in 2022, that will drive loan growth in 2023 and 2024 and the continued increasing diversification of our portfolio should also help us drive loan growth in 2023 and 2024, so we are cautiously optimistic about a positive net interest income story.

Manan Gosalia — Morgan Stanley — Analyst

Appreciate it, Thanks so much.

George G. Gleason — Chief Executive Officer

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Timur Braziler from Wells Fargo. Your line is open.

Timur Braziler — Wells Fargo — Analyst

Hi, good morning.

George G. Gleason — Chief Executive Officer

Good morning.

Timur Braziler — Wells Fargo — Analyst

Just following-up on that last line of commentary, you know 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’re expecting from a funding standpoint or could that too slow?

George G. Gleason — Chief Executive Officer

Tim, you want to address that?

Tim D. Hicks — Chief Financial Officer

Hey, good morning, Tim here, you know given the level of origination volume we’ve had over the last four to six quarters, you know that given our construction loans, and the fact that in many of these loans were funding later in the construction phase. We do have 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 $2.47 [billion we achieved in 2022. So a lot of that is just the delayed funding sequence we have and as our ESG loans and combination with the growth profile that we have from some of our other business lines like asset-based lending and our community bank.

We’ve got pretty good visibility into that front for the 2023 year.

Timur Braziler — Wells Fargo — Analyst

Okay, great and then maybe just a follow-up for you Brannon, and looking at the national market some kind of asset classes within our ASG, Where are you seeing the most amount of resiliency right now and then conversely, are there any geographies or asset classes that are seeing any kind of marked slowdown in either activity or valuations?

Brannon Hamblen — President

Great question.

George G. Gleason — Chief Executive Officer

Brannon, you take that.

Brannon Hamblen — President

Yeah, yeah, so it’s interesting the book that we see coming to us, continues to be a fairly diverse book, both geographically and from a property type perspective. 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 and that continues to be the case, we’re still looking at the 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 the close, it hasn’t a pretty similar mix historically less office probably than we’ve seen. But we are still seeing office opportunities with pre-leasing frequently available in those opportunities and as I’ve said before, really great position to achieve the low leverage that is our standard and really improvement on that. But you know the Southeast continues to be south southeast southwest, those states where we’ve seen so much good origination historically remain sort of the feature I would say little slower on the coast, But we’re still doing deals on both coasts as well.

Timur Braziler — Wells Fargo — Analyst

Okay, great and then just last from me looking at the comments made around net charge-offs for the coming year, recognizing that ’22 was a record year you know how, 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 provisioning trajectory here in ’23 given the broader uncertainty?

George G. Gleason — Chief Executive Officer

Tim, you want to take that?

Tim D. Hicks — Chief Financial Officer

Sure. Yeah. I mean, I think you can look on figure 15 and our net charge-off history obviously. What a great year in ’22 to be able to record a four basis-point net charge-off ratio, which is 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 lot of uncertainty with the pandemic going on that year and six basis points in 2021 and 11 basis-points in 2019, it’s 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, 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 macroeconomic factors that we get from Moody’s and use for Moody’s go into that. But those factors, the scenarios, became a little bit more adverse compared to what they were as of 9/30 and so you saw us shift our weighting slightly although we still are weighted to the downside through our combined weightings on Moody’s S4 and S6 scenarios. The provision in the last two quarters of has greatly been influenced by the growth that we’ve had in our funded balance and unfunded balance, so 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 and so as you get towards the end of 2023, the two years ahead of where you are are the scenarios that we’re looking at and so obviously 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 that 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 and the last — both for the last two quarters, reflective of that growth and really the economic forecast, you’re seeing from Moody’s in our selection of those. Hopefully that helps.

Timur Braziler — Wells Fargo — Analyst

Thank you.

George G. Gleason — Chief Executive Officer

Hey, Tim. I’m going to add a comment here on something there, comment has been made that our ACL for unfunded loans is a lower percentage than our ACL for funded loans and the question has come up previously, as funded loans move to or unfunded loans fund and move to the funded category. Does that mean we’re going to put up more ACL on it, if that doesn’t follow, that’s not connect. The reason that our unfunded percentage is lower than our funded percentages because RESG has a much higher mix it’s 90% roughly of the unfunded, it’s low 60’s percent of the funded and our RESG loans are lower leverage. So they have lower-risk associated with them and lower loss exposure, if you have a default on one of those loans. So the ACL for those loans is lower, the other loans, the typical community bank loans, consumer loans, RB and marine loans, all 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 the allowance allocation really for that loan in any meaningful way. So I thought I might clarify that because I think there is some confusion out there about that.

Timur Braziler — Wells Fargo — Analyst

Great. Thanks George.

George G. Gleason — Chief Executive Officer

Thank you.

Operator

Thank you. One moment for our next question. Our next question from the line of Catherine Mealor from KBW. Your line is open.

Catherine Mealor — KBW — Analyst

Thanks, good morning.

George G. Gleason — Chief Executive Officer

Good morning.

Catherine Mealor — KBW — Analyst

Why don’t we talk about maybe the asset portfolio which you give a little bit of disclosure on in your management comments. Can you walk us through how much of that [Indecipherable] billion is funded versus unfunded and what’s the leasing looks like for some of these newer projects?

Brannon Hamblen — President

Yeah I’ll jump into that, Catherine. I don’t know exactly the funded versus unfunded dollars off the top my head, but with respect to leasing that you know, as we said, some of the projects we originate have pre-leasing when we originate some or spec — and but when we look at you know projects that are complete, we are seeing continued green on the screen moving forward with improved leasing.

Obviously, there’s a 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, we’ve — as we’ve noted numerous times, the flight to quality thesis, we are seeing that continue to play out both in the loans that we have in our portfolio and in the markets generally in terms of lease activity that we see out there. Again, there is a range of that success across the portfolio, some slower than others, some knocking it out of the par, but on the whole, we’re pleased with what we see there.

Catherine Mealor — KBW — Analyst

Great, And then on back to the margin conversation. Can 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 cost might be coming in as we reach the peak Fed?

George G. Gleason — Chief Executive Officer

Cindy?

Cindy Wolfe — Chief Operating Officer

Yes, Catherine. This is Cindy, December was$1.66 on cost of interest-bearing deposits.

Catherine Mealor — KBW — Analyst

And I know your CD rates kind of range in different markets, but on average where are new CDs coming on?

Cindy Wolfe — Chief Operating Officer

I don’t have that information. I don’t have an average and you’re right, it varies depending on the market.

Catherine Mealor — KBW — Analyst

Okay. And back to your previous comment George 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 you’ve 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 we’ve seen throughout the year, but is it fair to say we could see just from this quarter’s annualized run-rate, a little bit of a compression just NII at that margin falls as funding cost increase?

George G. Gleason — Chief Executive Officer

Tim, why wont you take that one>

Tim D. Hicks — Chief Financial Officer

Yeah, Catherine. Yes, you’re correct year-over-year obviously we have up the potential to have a really, really strong Year-over-Year comparison. If you’re comparing it to just each quarter compared to the 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.

Catherine Mealor — KBW — Analyst

Great, okay, that’s very helpful. All right. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from Matt Olney from Stephens. Your line is open.

Matt Olney — Stephens — Analyst

Hey, thanks, good morning. I wanted to ask more about capital and specifically the CET1 ratio. It’s come down a little bit over the last few quarters from the strong loan growth. I’m just curious what you think about further capital deployment and what you consider the floor for the CET1 ratio? Thanks.

George G. Gleason — Chief Executive Officer

Tim.

Tim D. Hicks — Chief Financial Officer

Yeah, 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 and and a little bit of share repurchases.

So we’re comfortable where we are on CET1, I don’t know that you’ll see that much risk-weighted asset growth that we have, obviously, the funded growth, we’ve outlined our thoughts there. On the unfunded, as we approach the end-of-the year, the unfunded balances is likely to decline some which will give us some relief on the risk-weighted assets side.

So we’ve got some internal targets on CET1, we’re well ahead of those and expect to continue to be well ahead of those as we go throughout the year.

Matt Olney — Stephens — Analyst

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. The loan yields are particularly impressive in 4Q, I think those loan betas moved up higher than 4Q versus 3Q, any color you can give us as far as the higher betas we’re seeing in 4Q. I know Brannon mentioned some potential extension fees in 2023 in the future, did we see any of that in the fourth quarter? Thanks.

George G. Gleason — Chief Executive Officer

I would say, Matt, that was a fairly typical run-rate for minimum interest extension phase and so forth 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 that’s going to be a huge factor in 2023. I think we’ll 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.

Matt Olney — Stephens — Analyst

And George, if it wasn’t the fees in the fourth-quarter, any other color on the stronger loan betas we saw in 4Q versus 3Q?

George G. Gleason — Chief Executive Officer

Everything that was variable was off its floor essentially and the Fed was moving quickly, so we — those translates through into higher 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 to the magnitude of Fed rate increases.

Matt Olney — Stephens — Analyst

Okay. And then just lastly around thinking about liquidity and funding the growth in ’23, clearly, deposit growth is going to be a big factor this year, but on the securities portfolio, you disclosed kind of what cash-flow, you expect this year from that, will that be a source of funding for loan growth. I’m just curious if you think you could work down that portfolio in terms of size this year. And if so, how much?

George G. Gleason — Chief Executive Officer

Matt, that’s going to depend, purely on what we see as reinvestment opportunities with the inverted yield curve and steeply inverted as it is and assuming a likely Fed pivot seems to be priced into the yield curve faster than what we would think the Fed’s kind of pivot there’s not much attractive for us to buyout buyers.

So we’re pretty much on the sidelines and letting that portfolio run-off, If there is a reversal in that sentiment and we get some higher yields and a better entry point, we would buy bonds and Matt buy a lot of bonds if it what we thought was a very attractive entry point, but the 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 we’re sidelined and we’re not going to chase it, So if we missed that and that portfolio just gets smaller and we’re okay with that.

Matt Olney — Stephens — Analyst

Okay. All right, that’s all from me. Thanks and congrats on the quarter.

Tim D. Hicks — Chief Financial Officer

Thank you so much.

Operator

One moment for next question. Our next question will come from the line of Jennifer Demba from Truist Securities. Your line is open.

Jennifer Demba — Truist Securities — Analyst

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?

George G. Gleason — Chief Executive Officer

Yeah, we’re working on the technology, we’ve got our three senior members of the mortgage team on board and they’re doing all their process build and governance and risk build-out around that, we are in testing on the technology product that’s going to drive that business when we get the technology product fully bedded and tested we’ll start adding some origination teams and begin doing business that probably Jennifer is third-quarter before we actually start that business.

So and we’ll start it in a small-scale way and ramp it up slowly. So that really is probably a 2024 matter that you know you’ll begin to see a little bit of trickle of results and therein late 2023, but nothing that’s going to move the needle till possibly sometime into 2024.

Jennifer Demba — Truist Securities — Analyst

Great, thank you.

Operator

Thank you. One moment for our next question. Our next question will come. Michael Rose from Raymond James. Your line is open.

Michael Rose — Raymond James — Analyst

Hey, good morning guys, thanks for taking my questions. I wanted to start on the expense side of the house. You guys have done a bunch of different initiatives and projects, kind of over the years. Just wanted to see if you had anything on tap for for 2023, and then how should we think about different components, whether it’d be kind of wage inflation, annual merit increases, healthcare costs, FDIC costs going up, if you can just kind of contextualize the expense outlook. I would appreciate it. Thanks.

George G. Gleason — Chief Executive Officer

Tim, go ahead.

Tim D. Hicks — Chief Financial Officer

Yeah Michael, yes you rattled off a long laundry list and we’ve got probably more that we can add to that list, but we added a chart on page 28, which was figure 31, which shows you the headcount increase that we had throughout last year and you can see that we’ve really from our low-point on June 30th through the back-half of the year, we added 172 people, which is a 7.5% increase in the headcount.

We also gave a lot of good raises throughout the year and some additional raises that go into effect one-one, we’ll continue to add headcount as we go through this year, we’ve already gotten started in January with additional headcount so that headcount will continue. I mean, we were really at a pandemic diminished level what we said there at our headcount, So we needed to add add back staff to support our growth initiatives. You mentioned wage pressures, those are real, those will continue throughout this year. You mentioned the deposit insurance assessment that’s gone up and if the balances didn’t change, would go up $1.2 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 you know really 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 items, some of which are probably delayed a little bit when you think about vendor contracts that they come up for renewal one year or two year or three year contract, 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 2022, we would expect kind of in that low double-digit range increase and not an total noninterest expense.

Michael Rose — Raymond James — Analyst

Great. Helpful. Yeah, go ahead, George.

George G. Gleason — Chief Executive Officer

Well, I’m sure you are about to point this out, but I wanted to at least 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.

Michael Rose — Raymond James — Analyst

Yes, exactly. Just one follow-up separate question, figure 25 on page 23, the RESG chart. So, I noticed that the LTV on the Tahoe credit was up from 79% to about 84%, 85%. Any sort of updates there on that particular credit and any sort of resolution opportunities at some point. I know it’s a longer-term kind of credit, but just looking for any updates.

George G. Gleason — Chief Executive Officer

Brannon?

Brannon Hamblen — President

Yeah, we have to take that Michael. As it relates to the the bubble floating, you know that has to do more with the asset mix in any given point in time, we have a few remaining on single-family lots at the project and a club, and then we’ve got roughly. well, there are 17 town homes under construction and 34 to construct and sell beyond that.

So — and those town homes 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 are not as high, 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 and six of those are under contract.

We still feel-good about the project, I would tell you that it’s you know COVID created sort of a frothy pace of transactions in that market as 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 and work-from-home, if you will, and so, we definitely saw the benefit of that, it’s pulled back a bit, as rates have increased and that has affected things.

But still — still good market, you know resale prices in the community doing well, that one sale we had was sort a very-very nice price point, so as you said, it’s a long-term sort of resolution, but now certainly — certainly made a lot of good progress in the last couple of years and and expect that to continue, albeit at perhaps somewhat reduced pace.

Michael Rose — Raymond James — Analyst

Okay and then just finally, the special mentioned rated credit. I think that’s a new kind of addition just wanted to get any sort of details there. If there’s any concerns on your end. Thanks.

Brannon Hamblen — President

Yeah sure now, that credits aside, that was planned for a very-high end development and construction costs have escalated materially over the last couple of years and ultimately the borrower decided not to proceed with his vertical development there and in light of his abandoning the development plan, we obtained a new appraisal dated December 22nd, actually December 2022 which concluded to an as-is value of $100,4 million that compares to the original 2021 appraisal of $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 that the aborted development plan and their decision to liquidate the property, we concluded that the special mentioned rating was appropriate for that credit.

Michael Rose — Raymond James — Analyst

Great, thanks for taking my questions.

Brannon Hamblen — President

You bet.

Operator

Thank you. [Operator Instructions] One moment for our next question. Our next question comes from the line Brian Martin from Janney Montgomery. Your line is open.

Brian Martin — Janney Montgomery — Analyst

Hey, good morning guys.

George G. Gleason — Chief Executive Officer

Hey Brian.

Tim D. Hicks — Chief Financial Officer

Hey Brian.

Brian Martin — Janney Montgomery — Analyst

Maybe just one on the loan side for a second, just 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 you’re thinking about the different buckets of where that growth comes from both from the RESG standpoint, I think you also called out kind of the community opportunities on the community banking and the ABL franchise, just kind of trying to understand where the growth might be coming from this year?

George G. Gleason — Chief Executive Officer

Brian, I would tell you, I think it’s going to be diversified again obviously with the high-level of RESG originations, the record level of originations in 2022. A lot of those loans will start funding up in 2023 and finish funding up in 2024, so RESG’s funded balances will undoubtedly grow and should grow in a decent manner because of the big originations last year. But at the same time, we are getting good traction as shown in the little waterfalls there on growth in the portfolio this last year we’re getting good traction in our ABL group and various elements of our community banking group as well as some positive momentum in indirect marine and RV.

The corporate and business specialties group that shows slight reduction in funded balances at a couple of quarters this last year has actually had nice growth in their commitments outstanding for funding. So even that group is growing in total commitments. So we think we’re going to see good diversification and probably better contributions from some of those community banking units in the next year than we saw in the last year and that was positive.

So we’re constructive on the continued trend toward diversification in the portfolio.

Brian Martin — Janney Montgomery — Analyst

Got you. And in the pipeline of the ABL portfolio, it’s pretty healthy at this point?

Brannon Hamblen — President

Yeah.

George G. Gleason — Chief Executive Officer

Brannon, you want to comment on that?

Brannon Hamblen — President

Yeah, no, it is, as George said, they had a good year last year, they’ve got some great credits on the book and looking at some others here early in the year and one of the things I would note about that particular portfolio, those credits have a very nice sort of accordion characteristic to it, if you will, defensively you know as sales volume pulls in you know our credit’s way ahead of that with the formulaic structure, but also as these businesses you know experience great health and expansion opportunities. You don’t have to necessarily book of new credit to realize some good pipeline there.

We actually had three different credits expand during Q4 and it was more last night with another credit that customer that is contemplating expansion as well, so really-really encouraged about you know the growth opportunities for that portfolio.

Brian Martin — Janney Montgomery — Analyst

Got you, okay. Now, that’s helpful. And maybe Tim, I might have missed it, we said earlier on the expenses, but just given that ramp-up and kind of hiring and what you guys talked about even the increase starting this year, just kind of the growth rate or you know how should we think about that ramp-up in expense growth from kind of this fourth-quarter level, which is obviously a peak.

You know, as we get into 2023 for the year-over-year quarterly just did you provide Tim that and maybe I missed what you said there.

Tim D. Hicks — Chief Financial Officer

Yeah, now year-over-year we’re expecting low-double-digit increase you know if you’re starting with fourth-quarter Q1 is always seasonally tough, you got a full load of the FICA, you’ve got health insurance increases, you’ve got a good amount of raises that come in, so you know and then you’ve got the FDIC insurance, that’s kicking in, the increase there is kicking-in one-one. And then advertising and marketing we’re 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.

Brian Martin — Janney Montgomery — Analyst

Got you, that’s helpful and then just one other one was on the either repurchases just kind of your outlook there and then just on the deposit front, just the brokered deposits were up a bit, just kind of wondering what the appetite is there, just kind of where you want to see that trend is you kind of go throughout the year, just over the next couple of years.

George G. Gleason — Chief Executive Officer

Tim, you want to take the repurchases part.

Tim D. Hicks — Chief Financial Officer

Let me take the repurchases. Obviously, we grew a lot in our funded and unfunded balance in Q4, we purchased some and 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, so 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 are below that number.

So we’ll be opportunistic and try to find opportunities to to see where we use that authorization.

Cindy Wolfe — Chief Operating Officer

And this is Cindy on the brokered, I’m gonna [indecipherable] Tim’s words and completely parent that and say we’re going to continue to be up opportunistic and disciplined and look for the opportunities that Ottie and Drew and the teams are finding for the brokered. We had worked it way down as you know and as we get back into that space we’re being very surgical and focused on finding the best possible opportunities we can. So we’re pleased with the way we’re managing our increase in our brokered book.

Tim D. Hicks — Chief Financial Officer

And the percentage of brokered is probably not going to — you’re not going to see any material increase in that percentage going forward you know we’re in our target zone for what’s acceptable loan lap and our internal standards and we’re not going to materially increase.

So you’re not going to see that it 12% or 13% or 14% of deposits, it would be our expectation we’re not going there, so probably sub 10 or around the 10 sort of percent range is probably about the max you’ll see on that.

Brian Martin — Janney Montgomery — Analyst

Got you, okay, thanks for taking the questions and great quarter guys.

Operator

Thank you. And I’m not showing any further questions in the queue, I’d like to turn the call back over to Gleason for any closing remarks.

George G. Gleason — Chief Executive Officer

All right, thank you guys very much for joining the call today, We’re glad to celebrate a really great quarter and a great year with you, we appreciate your interest in our company and we’ll see you in about 90 days. Thank you so much. Have a great day.

Jay Staley — Director of Investor Relations & Corporate Development

Concludes our call.

Operator

[Operator Closing Remarks]

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