Thank you for standing by, and welcome to the Bank OZK Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded.
I would now like to
hand the conference over to your host, Tim Hicks. Please go ahead.
Good morning. I'm Tim Hicks, Chief Credit and Administrative Officer for BancoZK. Thank you for joining our call this morning and participating in our question and answer session. In today's Q and 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 Gleeson, Chairman and CEO Brandon Hamlin, President Greg McKinney, Chief Financial Officer and Cindy Wolfe, Chief Banking Officer. To make the most efficient use of the time we have for this call, We will now open up the lines for your questions. Let me ask our operator to remind our listeners how to queue in for questions.
Our first question comes from the line of Ken Zerbe of Morgan Stanley. Please go ahead.
All right. Thank you. Good morning.
Good morning, Cam.
I was hoping we could start off, George, I think in your sort of prepared written remarks, You talked about total loan growth and RESG potentially starting to grow again in 4th quarter. I know payoffs have been Just such a headwind over the last several years. Are is the comments designed to say that or suggest that payoffs Could actually start to slow in Q4. I mean, could we really be seeing a turnaround that those are starting to end in a big way?
Ken, no, I don't think that's the proper interpretation. I think payoffs will continue to be high. And I think the more appropriate interpretation is to think about origination volumes Beginning to increase in a meaningful way. I spent 6 weeks on the road During the Q2, visiting the vast majority of our major RESG markets and Almost all of our origination team members out there, we had scores of Customer meetings and interactions and looking at projects. So we're pretty optimistic About our ability to begin to achieve higher origination volumes that will offset The elevated repayments that we are experiencing now because we're getting repayments that Naturally would have occurred last year, but for delays from the COVID pandemic plus repayments that would We've occurred this year.
I think we originate construction and development loans, so repayments are going to be A common part of the business. Now obviously, we've got a higher level of Accumulated prepayments this year than normal just because of the COVID related delays in Project completion, construction, sales, leasing, refinancing last year. But we're going to continue to have to Construction and development book pay off. So we're focused on growth. We've got a great franchise.
Our franchise has proven itself now through the Great Recession, proven itself through the pandemic. Our customers know they can count on us and rely on us. We're always going to be there for them. And I think we've got a chance to really grow our business over The next several years and the 6 weeks on the road during this last quarter that I spent with our origination team out there certainly Yes, suggest that late 2021, 2022, 2023, we can Take our RESG business to a more significant level than we've taken it in the past Because the opportunity seemed to be there. And of course, Brannen's going to go on the road and do a lot of the same sort of The networking that I did in coming quarters and I think all of that work with our origination team is going to help produce an increasing volume of business certainly next year and hopefully we'll see some of that begin to filter through in Q4.
Got it. Okay. No, that's perfect. And then just one follow-up question. In terms of the net interest Obviously, we had a you saw you had a very good increase there.
And it seems that some of it may have been driven by unusually high minimum interest collections, etcetera, but also lower deposit costs. When you think about the NIM on a go forward basis from here, should we Expect the lower deposit cost to continue to drive the NIM higher or how should we think about the trajectory of margin? Thank you.
I would suggest that we're at or near peak on the NIM probably in the near term. We commented in our management comments that we're originating loans at lower rates And the rates that were earned on loans last quarter, that is unfortunately a part of this very Liquid low rate environment in which we find ourselves yields on all sorts of Financial instruments and loans are lower than they were and probably lower than they should be, but it's part of the environment. So As loans roll off, we're not able to replace those yields with equal yields. We are being diligent to not sacrifice our credit standards and structure standards that we've adhered to for a long time that are the hallmark of our great asset quality. But we are having to get more aggressive on price to not only replace assets that are rolling off, but also grow assets.
So growth is important, pricing is a bit negotiable in here. So Loan yields are probably almost certainly headed lower. We've got room Cindy can talk about this later in detail. We've got room to continue to lower our deposit costs for a while to some extent. And I think there'll be some pressure on core spread and some pressure on NIM.
We did benefit and the quarter just ended from a very good level of minimum interest and loan fees, and I noted Several of the research reports on our results Noted that we didn't quantify that, and the reason we didn't quantify that is it's hard to know what's normal. Some quarters, that's $9,000,000 or $10,000,000 some quarters, it's $3,000,000 or $4,000,000 and it bounces around all over the place. We were on the high end of the range. This quarter, we could be On the low, the middle or the high end of the range for the next few quarters, it just depends on a lot of things that are hard to know when Particular loans pay off and is it this quarter or next quarter and so forth. So we didn't quantify, but we were on the high end of that.
So that naturally alone will have some pressure on loan yields In Q3, the key is going to be our ability to Continue to offset that pressure with reducing deposit cost and the guys are doing a real math.
All right, perfect. Thank you very much.
Long term can growth is the key.
Understood. All right. Thanks.
Thank you. Our next question comes from Timur Braziler of Wells Fargo. Your question please.
Hi, good morning. George, maybe just following up on your last comment that long term growth is the key. It seems like RESG and direct RV Marine, ABL, CBSE all converge in 'twenty two. I guess what does the near term growth rate look like in 2022? And then once our ASV is fully normalized with Payoffs kind of stabilizing and origination starting to pick up again, what does that growth rate look like?
Tomorrow, I think I'll let Brandon Hamlin address that because Brandon is our President, but he Overseas RESG and our Corporate and Business Specialties Group and our new asset based lending group. So He's got a pretty good perspective firsthand on most of that. So Brandon, you want to take that?
Absolutely. Absolutely. Thanks for the question and good morning. Picking a normalized growth rate is a little bit fine point to make, but what I would tell you is from RESG's And George alluded to this, we're seeing very good pipeline activity. We're very Strong there and our conversion, our wins of what's available out there is starting to pick up.
So I'm expecting the back half of the year for originations in RESG to be definitely moving in the right direction And back toward and beyond, what we've historically done. You guys know it's a construction loan portfolio and what you close today, When you've got 50% average loan to cost, it takes a while to get those dollars out. So while we will have We've included again the graph on Page 7 of the comments. It really gives you a sense of what's left from the legacy portfolio that's outstanding And therefore, what's left to pay down. So back to Ken's earlier question, you get a real sense of what that cycle is going to look like.
So we'll still have some payoffs, but I'm seeing really good growth opportunities on the origination side that will start to and we've obviously weren't On our hands in 2019 2020, so some of those loans starting to hit with funding will help as well to offset or at least in part these payoffs that will keep coming in the velocity that you see on Page 7 following the originations in the natural life cycle in our new asset based lending group. Excited again, as I mentioned last quarter about the addition of that team and that team Is growing or adding incrementally, and look forward to having, we think, some really solid Players in our probably Texas and Georgia markets first is what we think is going to happen there. And Mike Sheff, who leads that group, in addition to building the team and the infrastructure toward originating his first loan, is Very active in the market as well, and I expect that those guys will Start to originate probably the first closings in Q4 or early Q4, possibly get one in the Q3, But the opportunities that they're seeing out there and the geography that they're covering, I'm feeling good about those guys really Contributing to our growth.
They'll start at a moderate pace, but I think gather steam Pretty good towards the back half of twenty twenty two and keep going in 2023. I think there's Good potential for originating some really solid credits in that world. And our CBSG Ruth is, as we noted, going to have some headwinds early on, but they're building a base and Getting competitive and originating some new stuff with new borrowers there. So We'll see that accelerate as well. So, Tamara, it's hard to circle a number, but I can tell you that the outlook It's positive across all three of those groups.
And I think RESG is the big driver there. We're looking forward to getting back to what we've seen in previous years there. We think that the volume is there And we're out there trying to haul it in and having some good success now.
Okay, Michael, thank you.
I would add that we are gaining in a very steady and consistent manner traction with our Indirect Lending Group and the new business model that we rolled out about a year ago now or almost a year ago there In that unit and we really like the way that's performing. We're going to, we think, be able to protect our asset quality while Paying lower premiums and getting better spreads now given where rates are, we may get better spreads, but that might not translate into better rates Right now just because of how low everything is. And our community bank is also Getting some traction, I think. So growth will continue to be a challenge And outstanding certainly through Q3. I hope that we'll have a positive growth number in Q4.
And I think as Brandon said, there's a lead time between getting these things closed and beginning to get funding on them. But I think we ought to See a steady progression in our total outstanding balances And earning assets from the loan side throughout 2022 and into the future. And I think we've got all these units Going the right direction, the business model has certainly been proven, and I think we've got really good prospects of stepping up to a higher level of origination volume across Company more diversified also than it's ever been before.
Okay. I appreciate the color. And then my follow-up, And really you had indicated that you're seeing fewer origination opportunities in large urban markets such as New York that are meeting your standard. Is that still a few number of deals that are coming online or are you starting to see some deals come online that aren't necessarily checking your credit box or other
Well, we always see a lot of bills that don't fit our credit box. But I will tell you, I was in a lot of our major markets. I was in New York. I was in Boston. I was in Chicago.
I was in Miami. I was in the Tampa, St. Pete area, I was in Phoenix, I was in Los Angeles, San Francisco, Denver. I've been in a lot of our markets in this last quarter and larger mixed use projects that We've missed the origination on those for the last several quarters just because a lot of those projects got put on hold In the pandemic, there are a lot of those opportunities that look really good, that make a lot of sense, that are coming back to the market now and we're working a good portfolio of those and we're seeing quite a few other opportunities begin to emerge in those More urban markets that were more significantly impacted by the COVID pandemic shutdowns and work from home phenomena. So, I think things are normalizing and that bodes well for future origination volume.
Thank you for the questions.
Thank you. Our next question comes from Brock Vanderflye of UBS, your line is open.
Hey, good morning, everyone. Just on the deposit dynamics, George, it's great to see what Seems to be something you've talked about for a couple of quarters now really in motion with a tangible remix, Declining time deposits in both categories, and as a result, Lower funding costs, could you talk basically
top of
the house what inning are we in, in that process And more granularly, where you think, your total deposit costs or interest costs could settle out by, you say, year end?
Brock, I want to give credit where credit is due on that. Cindy Wolf, our Chief Banking Officer is on the phone. So I'm going to let Cindy I'll answer that question, but Cindy has built a great team under her that includes Carmen McLennan, our Chief Retail Banking Officer and Adi Kerley, our Chief Deposit Officer and a number of other Key players and they are doing really a good job. I'm going to advise Cindy to not try to tell you what inning we're in, but just give you color on Where she thinks we are and are going in our process of transforming our deposit base. So Cindy, take that one if you would.
Sure. Yes. And further, I won't guess what our cost of funds will be at year end. But As you can see on Page 14, we have runway left in our CD maturities. So I can talk about how that's been going so There are indications that those trends will continue and that's that when we went into this We expected to retain a certain amount of them based on our historical Performance around retention of CDs and the industry and we actually retained more this go round than we Thought we would, which we're happy about that.
And of course, obviously, they're being repriced much lower. So you can see that in Figure 16. And so we'll continue to take advantage of that not only in lowering cost of funds, but changing our mix of deposits and Placing with
Core. Got it. And just as a follow-up, I noted the comments closing, selling a branch or 2 here and there, taking out some headcount. What's kind of going on in that process behind the scenes? Is that sort of An interest in kind of stack ranking the profitability of the various branches?
Well, it is that. It's really no different than the way we've Always run our branch network planning. We look at a number of different factors, but I will say that A lot of it is client driven. We want to be a client centric bank. So we have all these various consumer channels where our clients Prefer to interact with us, whether it's over the phone, over a mobile device, online and of course in branches.
So As long as our clients want our branches and they're keeping them busy, then we want them to have that option. So we're really Responding to the market with our branch network.
Got you. Okay. Thanks for the color.
And I or Brock, I would add a little The COVID pandemic, Cindy and our team responded Really aggressively and updated our mobile banking apps a couple of times and accelerated some plans we had to improve The look, feel, functionality, performance of those apps, they worked closely with our technology team You know improved the speed and reliability metrics of that as well. And the all those things were on the drawing board, but the pandemic, which meant that Our branches were interacting with customers in a different way by appointment only or drive in only or whatever, pushed those mobile channels out much faster and encourage customers who might have been slow adopters to be more rapid aggressive adopters of that technology and that has changed the dynamics of how customers are interacting with these branches. So that changing customer interaction, And increased reliance and utilization of mobile online and other non face to face technologies has accelerated the closure of some of these branches, and most of these are branches situations where we had 2 or 3 branches in an area and we concluded that based on changing customer utilization patterns and increased Technology utilization, we could serve our customers effectively with 2 instead of 3 or 1 instead of Two branches in an area.
So it is helping to offset cost and you've seen that in our fairly muted Non interest expense growth, those cost saves are going to be very important because we're in an environment now where A lot of people have changed their working plans and patterns and behaviors following the pandemic and The experience they had for a year or so during the pandemic. So we're experiencing labor cost, as we mentioned in the management comments, and Closing these branches that are no longer needed and eliminating other redundant inefficient costs in our structure are going to be critically important in our effort to maintain or even improve our best in class efficiency ratio.
Great. Thank you for the color, George.
Thank you.
Thank you. Our next question comes from Catherine Mealor of KBW. Please go ahead.
Thanks. Good morning.
Good morning, Catherine.
I was excited to see the buyback authorization. Just wanted to get your sense as to how active you intend to be? And is it more opportunistic? Or is The plan initially is to go ahead and use that whole $300,000,000
Tim, you want to take that one?
Yes, happy to. Catherine, good morning. Good to hear from you.
Good morning. Thanks for taking the
question. Yes, obviously, this is our first Share repurchase authorization that we've done in our company's history. It is an authorization that has a 1 year Expiration, so it does go through July of next year. I think we'll be having moderate pace there. I mean, We will be opportunistic.
Obviously, if our stock price were to go down, we're probably going to be more active. When our stock price goes up, we will be less active. So I think we'll look for opportunities, to be opportunistic at a moderate pace.
I like the win there. That was sneaky, Tim. And then my other question is just on the growth outlook. This is more just kind of an industry question. Just to Think about how we keep hearing about supply chain issues and construction costs that are impacting new construction projects.
How much of that Is impacting originations today and what's your sense as to how that kind of moves along as we move through the back half of the year How that kind of impacts your growth outlook?
Brandon, would you like to address that?
Absolutely. Absolutely. And thanks for the question, Catherine. I think, decreasingly so is the short way to
As we
have moved through the year, there have been Situations where there are really some impact, but nothing outside of the realm of what we're used dealing with in our 18 year history on construction projects. And it's as to affecting originations, as George alluded to in his travels thus far this year and week in, week out over the past Quarter, you have seen opportunities increasingly come to market. So it really doesn't Feel as though or any data present itself that would say that there is any material impact there. There is a cost impact to projects, and so there is a fine tooth pencil that's there right after the closing projects. And from a pure closing the loan perspective, it may delay that a bit.
But as we've alluded to, the liquidity in the market And some of the lowered expectations on the yield of some of that money is helping those capital stacks To absorb the cost impact and that cost impact seems to be moderating in certain cases. So In short, deal flow is moving much better as we've moved Through the year, so to the extent that it's been an issue, it's not keeping the market from bringing increasing Increasing number of deals and deals that are RESG type deals that came up earlier. I think We're definitely looking at more of those larger mixed use projects that have been slow out of the box, Out of COVID, so I would expect, I mean, my expectation would be anything can happen, but that we'll start to see on average Larger loan amounts as we close into the back half of this year and into 2022. There There are
a lot of projects out there, a lot
of large projects out there yet to come to the market and of course our capital puts us in a great position to be able to bid on those large projects. So, hopefully that answers your question.
Yes. No, it does. That's great.
And then maybe one follow-up if I could just on the follow-up on the loan yield conversation. I know it's hard to pinpoint The fees or the accelerated fees this quarter, but could you maybe give us a sense or maybe anecdotes about where new production
Absolutely. It's sort of the same story in terms of the product type. There's been a lot of residential, whether multifamily or condo origination going on, But we continue to have really good diversification across the other product types as well. Our footprint geographically is very well situated to enjoy the benefit of a lot of Migration trends into, in particular, the Southeast, but also Southwest, West. Our guys there was a question earlier on New York, While we haven't seen yet the origination pick back up there, the opportunities that we're looking at definitely are and I think we'll be doing more business there.
But we've while that's been slow, the guys have done a great job of Penetrating in the Boston market, good activity there, the DC market. So it's We have a lot of ways that we slice and dice our portfolio for you in our comments and what we're seeing is not all that different from in the future origination pipeline from what we We said in our comments this quarter, while we haven't been closing the big ones in some of the big markets, they're coming to the market. In the meantime, we've done a lot of stuff And some of the other smaller markets. So keeping busy closing a lot of loans across a lot of different markets, and the same general Product types that we've been active in, in the last couple of quarters.
Great. And then pricing on those new loans?
Catherine, let me take that one. Yes, let me take that one. It's all over the board and we're trying to diversify more into industrial and life sciences because we think that Further diversification of that RESG portfolio is helpful. That tends to be things that gets Done at a lower margin tighter pricing. So it really is all over the board.
I think the loans that we've probably Hiding committee in the last 6 weeks or so, we probably had a 300 basis point Differential between the lowest approved yields and the highest approved yields. And it just reflects The product type, the market, the complexity of the transaction, a variety of things. We get to Start doing more really complex transactions that are not as commodity type transactions That require our expertise and sophistication to execute, we get better pricing on those than we do a Plain vanilla apartment deal that pretty much any lender can compete for. So It's hard to nail down pricing. I would tell you on average, the loan yields we're getting on new originations or less than the yields on the book and that if that is surprising to anybody that have been under a rock for the last couple of years because The Fed has got the market so liquid that there's just not the yield out there that there was.
So clearly, as we said, A downward pressure on loan yields, we've got to offset that with volume. We've got to offset that with Controlling deposit cost and keeping our efficiency ratio really low. So we understand our game plan on how to address An environment where there is pressure on loan pricing and I Like our plan and I like our prospects of being successful with that.
Got it. Understood. Thanks for all the color.
Thank you.
Thank you. Our next question comes from Stephen Scouten of Piper Sandler, please go ahead.
Good morning, Steven. Steven, you might be on mute.
Our next question comes from the line of Michael Rose of Raymond James. Your line is open.
Hey, good morning, everyone. Thanks for taking my questions. One area that hasn't been hit on yet, George, is technology. It's becoming a big issue. I know you guys have spent a lot of money Over the years, moving to new headquarters, systems investments, things like that, but the tax spend continues to move higher for the industry.
Just wanted to get an update on maybe some things that you're working on and maybe how you would expect to fund them. You guys have been really good on the expense ControlFront after some of those larger investments a couple of years ago. So just wanted to get a broad update on the technology efforts and where we stand? Thanks.
Hey, Brannen, do you want to take that? Obviously, Data Innovation and Technology now reports To Brandon, and has been for a couple of quarters. So Brandon, you want to talk about that? Absolutely. And I'll
Say that a lot of the efforts have been, and I think we talked about this last quarter, around the efficiency of the way we run the And George and Cindy alluded to the outward facing side as well. So it's a two front war. It's focused on our efficiency internally and preparation. Everything that we do today is Focused on what we want to be tomorrow and that's bigger, better and faster. So We're working on an initiative that is focused on bringing some Application that was developed initially at RESG and bringing that into the rest of the organization and Moody's platform at the same time and both working together to just make give us the opportunity to be more efficient in the delivery of data from one end of the process to the other, Give up our management better insight into what's going on from beginning to end of the process.
So there's a lot of and then just managing our data in new data marks and new platforms. So efficiency is a big word as it relates to the internal side. And then Cindy and Carmen I've been working with our labs team, as George alluded to, on a number of fronts to move with the market As the needs and desires and technology change, we want to stay at the leading edge of that To ensure that we are putting Cindy and her team in the best possible position to move the deposit World where it needs to go. So, we have said many times that we're committed to Excellence in not just our credit, but also our efficiency in the way we serve both customers and Our employees with the opportunity to do their jobs. So that will be something we're always focused on.
I think everyone on the call understands the speed at which Technology is changing and it's our desire to stay up with and ahead of that at all times.
Okay, Craig. Let me
add a little bit to that. And we really are fortunate to have an excellent Technology team and that whole group now, Technology, Data and Innovation reports up to Malcolm Hicks, who reports directly to Brandon. And we've been very effective in the last year, as Brandon said in delivering quick technology enhancements, upgrades and solutions, Our labs unit has been very instrumental in that. Those guys I think are doing the best work they've ever done. We've gotten a very pragmatic, practical get things done, accomplish improvements sort of focus throughout that group That makes them really effective in helping our company, and we continue to advance on a lot of fronts.
So I'm pleased with where we are. I think your question probably was aimed at were we going to see huge Increases in expenditures regarding technology, I think we will see increasing Spend but at a fairly moderate rate of growth because I think our guys are being very efficient And very pragmatic in how they're approaching this, but we are at the same time advancing our technology capabilities consistently and And I think pretty materially, I feel real good about the progress we're making and the cost that we're incurring to make that progress seems very efficient to me.
Okay, great. Maybe just as a quick follow-up. The service charges were up this quarter. There's been some headlines out there, some self imposed, but also some external pressure on NSF I know it's not a big line for you guys, but is this what A, what drove the increase? And then B, What steps do you plan to take as it relates to NSF for those customers that have it?
Again, I know it's a small proportion for you, but it
Well, we are monitoring what Political and regulatory conversations are going on about that subject. It does Seemed likely that some changes are in the wind ahead. We don't have any Significant plans to change anything in the short run, increase or decrease in that regard. We have seen, particularly the last month or 2, as economies have more fully reopened and People are out spending and so forth. We have seen an improvement in service charge activity, and part of that is just the Philosophical approach that Cindy and her team are taking on deposits and getting more core customers and less Interest rate driven customers and those core customers tend to engage in activities that create more service Charge revenues.
So I would tell you the biggest impact and the improvement in the last quarter was just the normalization of economic activity and reopening. 2nd To that is improvement that Cindy and her team are making in the quality and value and profitability of our deposit base.
Great. Thanks for taking my questions.
Thank you.
Thank you. Our next question comes from Matt Olney of Stephens, Inc, your line is open.
Thank you. I'll start on the interest bearing deposit costs. It sounds like there's More room to bring that down in the near term. But I guess from a strategic standpoint with all the liquidity in the system, I'm just curious if the bank is yet considering locking in longer term funding in anticipation of higher rates in the future?
Sandy, you want to take that?
Would you repeat the question, please?
Yes, Cindy. I was just asking if the bank is considering locking in longer term funding in anticipation of higher interest rates?
We are. So, Adi and our Chief Deposit Officer, Drew Harper, our Managing Director of Wholesale Deposits have been working on that and are doing some relatively conservative steps
And Matt, we're doing that in a cost effective manner if you I think Cindy pointed out that chart at the bottom of the Page there on deposit cost figure 16, I think it was. And if you look at our new and renewed time deposits In Q2, they were a fraction of 1 basis point. It actually rounded up instead of down this quarter. They were a fraction of a basis point higher in Q2 than in Q1, and that differential really reflected
Okay. Thank you. And then I guess I want to circle back on the discussion around loan fees. And as you said, George, it's not easy to predict where that's going to land any given quarter. But it does feel like these fees have been elevated for a few consecutive quarters.
Is that fair? And then for the short term extension fees in particular, I think that was one of the fees that was mentioned in the management comments. My working assumption has been that some of those extension fees are associated with RESG project delays that were Driven by the pandemic last year, is that right? And if so, can we assume that some of those projects are That were delayed or not coming back online and getting back to a normal schedule. And so should we assume that those extension fees will be Lower next year compared to this year.
Thanks.
That's probably a fair assumption, Matt. And again, these kind of extraordinary extension fees, minimum interest and so forth, I mean, we're talking a range in a Low quarter $3,000,000 or $4,000,000 a quarter and a high quarter $8,000,000 or $9,000,000 and More typically somewhere in between there, but it does just bounce around a lot. So yes, you're correct That a lot of projects that were delayed for 3 to 6 months by COVID need another 3 months or 6 months 4 months to get the project completed and sold units Closed and the loan paid off or to refinance to the permanent market and that has been And I think we'll continue to see some level of that in the last two quarters of the year and diminishing somewhat next year. And The other fees just tend to even in normal times tend to minimum interest and acceleration of deferred Loan origination fees from faster than expected payoffs, those things tend to just bounce Acceleration of deferred loan origination fees and minimum interest can have a greater impact in periods where things are going much faster Then when, refinances and sales are going slow because your projects typically tend to Earn up those fees and earn up that minimum interest before they pay off and when things are going slow.
So it's a very dynamic situation and it's hard to generalize and that's why we always are hard pressed to give really good guidance on it because it just Bounces around a lot from quarter to quarter. We're thankful for them when we earned them though. Let me be clear on that. Sure.
Thanks for the color.
All right. Thank you.
Thank you.
Our next question comes from Brian Martin of Janney Montgomery. Please go ahead.
Hey, good morning, everyone.
Good morning, Brian.
Hey, George, just one whomever, just maybe it's more Tim, just on the you talked about The deployment of capital, I mean, obviously the growth and the buyback you've mentioned, just kind of any update on just how you're incorporating in the M and A Your commentary just how that's trending today, the opportunities or what you're seeing maybe seems less likely with the growth that's in front of you that you've already articulated.
Tim, do you want to talk about that?
Yes, happy to. Thanks, Brian, for the question. Certainly, as we outlined in the management comments, organic growth is our number one growth priority. Clearly, we've got a lot of things moving in a positive way there between RESG, Asset Based Lending team, our If you exclude the PPP loans, our community banking team actually grew this quarter. I think No surprise, our Florida and Texas markets did really well in community banking.
Indirect lending seems to be Certainly, on a positive trend there as well. So we're focused very heavily on organic growth And the opportunities there, obviously, we announced the share repurchase authorization along with our earnings as well. So our appetite is back for M and A. We are looking at opportunities. It is a secondary growth opportunity for us to our organic growth opportunity.
We don't want to do anything that would be of a size that would disrupt The momentum that we have organically, but we are actively looking and Looking for opportunities, clearly, our we still believe our stock price is undervalued compared to some of the peers and Compared to some of the valuations of some of the acquisitions that have occurred recently, obviously, the M and A market Very active right now. We would look probably to do something of a size where we could do it for cash or some combination of stock And cash, so a lot of things moving there, but that is a One of our primary focus areas is just how do we deploy our capital in the best interest of our shareholders and we're looking at all avenues to do that.
Got you.
Okay, that's helpful. Thanks, Tim. And then maybe just the How do we think about the kind of the mix of the balance? I mean, I know the securities were up a little bit this quarter, but just given the growth that's in front of you, just kind of how That mix may change as you go over the next 12 months to 18 months. How should we think about that?
I think securities are maybe up to 18% or so Of assets, maybe I'm not sure if I had that exactly right, but just up a little bit relative to the past.
Fran, I would say, We've typically maintained our loan to deposit ratio in that 89% to 99% range. We've been comfortable. We've got all sorts of stress testing and secondary source of liquidity and other things that You know, it's given us comfort being at that level. We're a little below that right now. I would think that as we get the loan growth Going where we want, we'll return back into that 89% to 99% range in the future.
Okay. And I just sneak one in, just last one for Greg, maybe on the like you said earlier, George, there's some commentary about the wage inflation. Just How that may impact expenses as we go forward here? Just how we should think about that? Thanks.
Greg, you want to take a shot at that?
Yes. I will. Brian, thank you for the question. As we mentioned in our management comments, we have experienced Your pressure really broad based pressure across the U. S.
From wages And being able to find workers to fill all the We want to have and retain our teams and make sure that our teams are getting appropriately compensated. So Yes, I think there is going to be pressure from that as we look into the next quarter or 2. How long that continues, that's probably still to be determined. But Some of the things that Cindy in her comments in response to a question about our branches, some of those things we're trying to Make sure that we look at all of our operations when and make sure we are eliminating any sort of redundancies or inefficiencies, Utilizing technology to really help us to the extent we can offset those wage pressures. Hopefully, we can effectively offset that.
But as we mentioned in our prepared comments, that's certainly going to be a challenge and it's going to be Probably a driver of increasing, salary and benefit costs for us over the next couple of quarters.
Hey, Brian. Brian, this is Tim. And just we have it in our commentary, but just as a reminder for noninterest expense for Q3 specifically, we do have a couple of one time type items that are going to impact Q3 non interest expense, The $2,000,000 of charges we are going to expect to incur from the closure of a few branches that we have and scheduled to close in Q3. And then We did redeem our sub debt on July 1 that had about $800,000 of Costs that deferred issuance costs that were not amortized yet, that's going to come in Q3 as well. So just A reminder from that perspective, but that will impact Q3
and not future quarters.
Got you. Okay. Thanks for taking the questions, guys.
Thank you. Our next question comes from Stephen Scouten of Piper Sandler, your line is open.
Yes, thank you very much. Appreciate it. Good morning. Good morning. So I wanted to follow-up On the capital and just kind of how to think about capital deployment in light of kind of your legal lending limit.
And I The buyback is a part of it, maybe you're able to find a deal that's cash or predominantly cash. And so is the right inference there that You don't need your legal lending limit theoretically to be as high and we might not see the bigger commitments, the $400,000,000 $500,000,000 $600,000,000 Return anytime soon or am I reading too much into that?
You're reading too much into that. Our legal loan limit now, which we've grown by accumulating a lot of capital in recent years, is a very important part of our strategy to significantly increase our RESG and other portfolios longer term. So I think what you're seeing through our increased dividend rate and the stock repurchase program is not a situation that's going to take our aggregate dollars of capital down. I would expect that Our strong earnings to pay for the dividends and the stock repurchase and let us maintain or even increase our aggregate level of capital. Now Tim mentioned that and our management comments mentioned that our $225,000,000 more or less So sub debt we redeemed on July 1.
We will probably be back in the market mid quarter to replace that Sub that with somewhat more or somewhat less depending on market conditions. We'll replace that, we think, at a Significantly reduced cost, but that sub debt will come back on refilling that part of the capital bucket that temporarily has gone away from July 1 to whenever we replace that sub debt. But We expect our legal limit to go back up. And as Brannen mentioned in his comments, we are seeing A number of really large complex mixed use projects that have Phenomenal top of the universe best in class sponsorship on best in class projects. So I hope you're going to see us doing more of those transactions going forward and not less.
And I think our legal loan limit, even with the stock buyback and the dividend increase history that we've had, We'll continue to grow Bison's strong earnings.
Okay. That's extremely helpful. Thanks, George. And then my follow-up question, I guess, somewhat related. And if I look at Figure 44, it looks like some of those larger commitments have been funding up.
And then I kind of pair that with The origination levels that have remained strong in Figure 7 where it looks like the headwind of prepayment Should normalize as you look at 2019 2020 production. So I'm trying to think about How the prepayments don't slow down more precipitously. I know you said they shouldn't necessarily, but I'm trying to reconcile that with figure 7 and then think about if growth Could really return to like the 7% level we saw in 2020 or is that too aggressive, but it seems like everything's moving really strongly in the right direction.
Yes. I think everything is moving really strong in the right direction. Of course, typically, most of our deals are sort of 2 to 4 years on the books, 3 year average. So we've still got some carryover From 2016, 2017 2018, all of the 2014 and 2015 originations have paid off now and almost everything pre 2014 is paid off. Several more of those played up in the most recent quarter, so we're down to just a handful of pre-fourteen deals.
The 2016, 2017 2018 stuff is all right Stuff to pay off over the next several quarters. And we're getting into the point where that 2019 origination volume is Going to start seeing some sizable pay downs next year. We'll be kind of hitting the 3 year mark on that and That's kind of the prime time for deals to be moving out. So we've got to grow origination volume To offset the payoffs and if you look at our total origination volume, we were doing that from 14 to 15 to 16 to We're hopeful that when you see 'twenty two, 'twenty three and 'twenty You'll see a nice upward trend in total annual originations and that's what it's going to take to actually grow our outstanding balances is an increasing volume of originations plus contributions from a variety of other business units. And I'm pretty optimistic about how we're positioned to accomplish that at RESG and elsewhere.
Yes. I think that makes a lot of sense. So that's great. Congrats on the record quarter.
All right. Thank you so much, David.
Thank you. At this time, I'd like to turn the call back over to CEO, George Gleason, for closing remarks. Sir?
All right. Thank you very much. If there are no other questions, that will conclude our call today. We appreciate all of you being on the call and we look forward to being with you in about 90 days or so. So thanks.
Have a great day. That concludes our call.
And this concludes today's conference call. Thank you for participating. You may now disconnect.