Bank OZK - Earnings Call - Q4 2024
January 17, 2025
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the Bank OZK Q4 2024 Earnings Conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jay Staley, Managing Director of Investor Relations. Please go ahead.
Jay Staley (Managing Director of Investor Relations)
Good morning. I'm Jay Staley, Managing 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, Cindy Wolfe, Chief Operating Officer, and Jake Munn, President, Corporate and Institutional Banking. We will now open up the lines for your questions. Let me now ask our operator, Marvin, to remind our listeners how to queue in for questions.
Operator (participant)
Thank you. At this time, we will conduct a question-and-answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster, and our first question comes from the line of Stephen Scouten of Piper Sandler. Your line is now open.
Stephen Scouten (Managing Director)
Yeah, good morning, everyone, so I wanted to talk a little bit about growth trends and kind of how you guys are thinking about this, the results of the handoff kind of more to the CIB and Marine and RV and the growth diversification kind of plan. It feels like you guys are a little bit ahead of schedule, at least as I was kind of thinking about it, and as I look at figures three and four, it looks like the trends in CIB in particular are pretty good, so I just wondered if you could talk more about that. I know your growth kind of guidance for 2025 is the same as it was last quarter, but just, again, just kind of how you're feeling and how you think those trends could play out through the next couple of years as you continue to build out those teams.
George Gleason (Chairman and CEO)
Hey, Stephen, thanks for the question. I will tell you that, you know, we're pretty much on plan and in line with where we had hoped we would be. With that intro and that very executive summary, let me ask Jake Munn to comment on the CIB group. That's probably gonna be the largest contributor to our growth in 2025 and 2026. So Jake, talk about that.
Jake Munn (President, Corporate and Institutional Banking)
Steven, good to hear from you, and George, I appreciate that. CIB really took off this last quarter. It wasn't necessarily a surprise to us by any means. We're happy with the results that came through, but you know, 2024 for CIB was really laying the foundation, getting the policy procedures, the underwriting templates, really our portfolio management operations foundation in place to start to really build and scale CIB as a whole across all those various originating business units, and so we were successful in doing so, partnering with our credit and risk partners and getting everything up and running. With that, we saw some great originations in Q4. We had a number of strong deals that actually slipped into Q1 that we're excited about here on the horizon as well.
We view this as being relatively on target for what we were planning, and we're excited about the future, and we're optimistic about continued growth across those respective CIB business lines. We've got plans next year to really, you know, look out into the market and continue to grow. We're well-positioned in our existing footprint from Arkansas, Texas, to Florida and Georgia and the Carolinas. We view the bank's true footprint to be home to a myriad of strong manufacturing and distribution and industrial banking opportunities, driven really by a growing workforce there and favorable economic and pro-business tailwinds. You tie that to our rifled approach of prospecting and our focus on finding the best and the brightest talent from across the region. We feel very optimistic going into 2025 about continued growth across the CIB. George, Brannon, anything to add there?
George Gleason (Chairman and CEO)
Think you covered it well. Brannon, you have any comments?
Brannon Hamblen (President)
No, I would just say that, I would agree with George and Jake that we are on target. And just tell you that, Jake and the guys that he's brought over are really top-shelf individuals, a phenomenal fit with our culture and the way that they've dovetailed in, I think is part of the reason we've been so successful. But they're very well-connected in the marketplace. The bank has been very focused on adding all the top talent that we can.
We're, you know, as we've guided, you'll see expense growth next year around a lot of different areas, you know, whether it be Cindy in the world of raising deposits, you know, additional retail branches to fund what will be growth that Jake achieves with a good number of additional employees and additional business lines. So we're extremely excited about the handoff that we have achieved and where it's gonna go in the future.
Stephen Scouten (Managing Director)
Got it. Really helpful. And then just 'cause I'm thinking about the accounting of this handoff, isn't it kind of natural what we saw this quarter as the unfunded book becomes, I think it was like 12% CIB and RESG, the unfunded book percentage goes down, that could have kind of a benefit on the loan loss reserves from an unfunded perspective? And we could continue to see that dynamic play out just kind of from an accounting perspective.
Tim Hicks (CFO)
I mean, Stephen, this is Tim. I mean, certainly that's one component of the ACL build that we've had, our growth in both funded and unfunded over the last, say, 10 quarters. Our view on, you know, the macro conditions is also a very, very big component of that as well. So, multifactor, many factors go into the, to the ACL provision and build. That, you know, that's, that, that is one of them.
George Gleason (Chairman and CEO)
I would, I would add the comment that our CIB group, our community banking group, our indirect RV and marine group, all of our business lines have the same intense focus on credit quality that has been a hallmark of RESG. And, and all of them operate under the philosophy, credit is the top priority, non-negotiable. Profitability is the secondary consideration, and growth is a tertiary consideration.
Jake and his team parrot that all the time back to us in their pipeline calls and their credit meetings and so forth. And they completely embrace that concept that credit quality is paramount. Profitability is an important secondary. And if we get growth, great. And if we don't. With that said, you know, the goal of CIB over the next number of years is to build a unit comparable in the non-real estate space to what we've built in RESG, both in quality, profitability, and size. So, you know, you commented, wow, we had a really good quarter of growth in CIB. Yes, we did. But these guys, they're just on the first steps of the journey of building that unit to be an equal partner with RESG in our company. We expect RESG to continue to grow in future years. That means these guys have got a long runway, and they're just getting started.
Stephen Scouten (Managing Director)
Yeah, that's great. That's helpful, George. And that kind of points me to my other question here, is the focus on credit. I mean, you had some really good updates kind of quarter-over-quarter on special mentions, substandard. And one of the things I like that you guys lay out is this Figure 11, kind of where you're talking about the modifications and extensions and some of the enhancements that you've gotten. I mean, I know, look, in a perfect world, you probably would love to not have to modify any loans, but that's just the reality of it. So can you kind of talk about that mindset and why that's just a good business practice and kind of how that process works with your equity and capital partners there?
George Gleason (Chairman and CEO)
We, you know, modifications we view as a positive. If you're modifying the loan, you're collecting fees. We're not modifying the loans in a negative sense in that we're not lowering spreads. We're not advancing additional credit. We're not expanding our commitments. We're not lowering our floors. You know, we don't do any of those negative things that are concessions to customers. Our modifications are the customers replenish reserves. The customers make a paydown if we believe that's absolutely essential to the loan. The customers pay a fee for those modifications. So we view modifications as a positive thing, not a negative thing. And you can see in the little tables that accompany that, you know, we had significant unscheduled paydowns in Q4, $52 million plus.
In connection with modifications, we reduced $41.8 million in unfunded commitments, collected $8.4 million in fees. Some of those fees were on short-term modifications that went straight to income. Some of those fees were on one-year or longer modifications that are deferred over the life of the loan. We collected $38.8 million of additional reserves, all that on 58 modifications. We view those as very positive. The numbers as far as additional reserves and so forth will look even better probably this quarter from this quarter's crop of modifications in Q1. We view that as positive. You know, there's been a lot of effort and guys that are taking a negative thesis on our story to go out and try to do a map of projects that have been completed and study the leasing on those projects.
That is certainly, you know, a valid piece of information, but it's not the most controlling, most important piece of information. We've been super clear on this since the first time the Fed started raising rates in this cycle that, you know, we have made the statement that we expect our RESG sponsors and our capital partners will continue to support their properties if needed, through times of economic stress. That includes higher interest rate until business and economic conditions and property performance normalized. That's certainly been the case. The question is not, guys, did the building get built and do you have leases or not? That's relevant information, but that's not the important consideration.
The important consideration is will your sponsors continue to support that project, pay the interest, pay the carry cost, work the leasing, work the sales, whatever, and get that project to a successful conclusion? You know, we just had hundreds of examples of that in the portfolio and, you know, a relative handful of examples where the customers have not done that. So, we're very happy with the performance of our portfolio. We continue to expect in the vast majority of credits the sponsor's gonna do what they need to do to get to a successful outcome. And our business model is designed to make that happen. The low leverage, and you know, there we've reappraised the vast majority of the portfolio now in the current interest rate or higher interest rate environment. So we've taken into account higher cap rates and so forth.
You know, some folks make a big deal out of the fact that, wow, our loan to value is on a lot of those loans when we reappraise them have gone up. Yes, but like, you know, a comment was made, our life science portfolio went up 10% or something. Well, it went from 45% loan-to-value to 55% loan-to-value. Big deal. That's why we do these low leverage loans is we allow for adverse scenarios to occur that could affect valuations and us still be super deep in the money, super well covered, by the value of the collateral. That fact that we're deep in the money means that the sponsor and their capital partners are still well in the money, and they're gonna continue to defend these assets. It's a very simple element that if you apply it with discipline has a very beneficial effect for the portfolio, and we're continuing to see the benefits of that strategy. Our strategy is certainly proven out in this cycle.
Stephen Scouten (Managing Director)
Yeah. That's great color, George. Thanks so much. And congrats to you and the team on a great 2024. Appreciate it. Thank you.
Operator (participant)
Thank you. One moment for our next question, and our next question comes from the line of Catherine Mealor of KBW. Your line is now open.
Catherine Mealor (Managing Director - Equity Research)
Thanks. Good morning.
George Gleason (Chairman and CEO)
Good morning.
Catherine Mealor (Managing Director - Equity Research)
So as we think about the current rate environment, I mean, clearly, George, less rate cuts is better for you in terms of the margin and potentially less paydowns. And I think you just answered the question on what the incremental credit risk is. It still feels like you feel really comfortable with that even in kind of a higher rate environment. But can you maybe comment a little bit on that, on just what higher rates could mean for credit risk? And then secondly is just on some new origination volume. If rates we don't get any more rate cuts this year, how do you think that might impact origination volume at RESG and then some of your new initiatives at CIB?
George Gleason (Chairman and CEO)
Okay. Well, Jake, let's take those in reverse order. If we don't get any more rate cuts, what does that do to CIB's volume?
Jake Munn (President, Corporate and Institutional Banking)
Yeah. The beauty of, of the position that we're in, Catherine, it's a good question is that, you know, we're, we are absorbing and cherry-picking new clients in the current environment. So we don't necessarily have a, a large amount of baggage or what have you from, from clients that haven't gone through the ups and downs of the current market environment. And so, as we look out and, and we start to cherry-pick and move forward across ABLG and CBSF and EFCS and our Fund Finance groups and, and other potential expansion groups that we're toying with, you know, overall from an impact on the, the interest rate, you know, we, we believe we'll be in a good position there. Pricing we're getting across the board still remains pretty good from a spread standpoint. Our CBSF group, which is our fastest growing group, continues to kind of carry the flag with the best spread across those business units too. So, we feel like we're in a pretty good position. George, any thoughts there?
George Gleason (Chairman and CEO)
Brannon, you wanna talk about what no cuts or higher rates does for RESG's volume?
Brannon Hamblen (President)
Sure, Catherine. Happy to answer the question. So, you know, from where we stand today, and we noted that in the environment we are in, we are cautiously optimistic that we can achieve a higher or more typical level of originations in 2024. You've noted that our mindset's been around, you know, zero-to-two cuts during the year. But if they stick where they are, what we're seeing is, even with the two that we've had, you know, in September and December, an increase in the deal flow. So, you know, these, you know, our guys have done a great job staying in touch with the market and watching what deals are out there and staying in touch with the developers. And what they're seeing is the incremental benefit that they're getting from the recent cuts.
Really beyond that, I mean, these high rates have, you know, halted or provided substantial headwinds to deal flow. That flows down into, you know, the other inputs of the process, land being one of them. We're starting to see those valuations push down. One of the inputs in the project is at a more attractive place. You get incremental impact or benefit from declining land values, get benefit from interest rates being off a little bit. We've seen that start to induce more of the deals coming off the shelf and moving forward. You know, we're seeing the market adjust to what could be, as we all know, a longer-term elevated rate environment. Cap rates are adjusting. We're seeing valuations bottom out and come back up.
So, we obviously love the benefit to our bottom line, to the revenue we generate on these loans that we have on book, in a flat-up environment. But we think the market is adjusting to. I don't know if this is new normal, but if it is, we think we could still see strong deal flow. Now, again, if it's massive moves up, that could change the needle. But we are seeing an adjustment that would tell us that even where we are, we're gonna see more volume in the pipeline for RESG. We certainly you know, in the quarters extended saw improved volume. We saw improved conversion, in terms of our guys getting executed term sheets. So going you know, going into the year here, we've got a good pipeline for the quarter. Still have to close them, but we come into the year with that thought that, even if things sort of stick where they are, we ought to be able to improve over last year.
George Gleason (Chairman and CEO)
Catherine, let me provide one other comment, and Brannon, correct me if I'm wrong, but I think our RESG originations in the Q4 were our lowest originations in 27 quarters.
Brannon Hamblen (President)
You named it.
George Gleason (Chairman and CEO)
You could look at that and say, "Wow, gosh, that's a horrible origination quarter," and says that there's not a lot of new deals percolating. You know, you sort of have to factor in the lag effect though on projects. It takes a long time to conceive a project and get it to closing. So that really low, you know, Q4 origination volume probably reflects the mindset of sponsors two or three quarters below before that. At the same time, we had the lowest origination volume in 27 quarters. Our RESG pipeline of signed term sheets at year end was, Brannon described that. I don't wanna misstate it, so you describe it. Brannon, you're on mute.
Brannon Hamblen (President)
It was actually one of our best in maybe I wanna say four to six quarters of term sheets executed. So it was, it definitely stood out on the map.
George Gleason (Chairman and CEO)
And I think what you're seeing is the fact that 100 basis points lower rates have sponsors excited about dusting off some projects, signing a term sheet, and getting ready to move forward. And frankly, I think the election has stimulated enthusiasm and excitement about the U.S. economy with the expectation that we're headed into a more pro-business, constructive environment that's going to be good for economic growth. So we're getting those vibes from our customers and seeing that. So we're feeling cautiously optimistic about loan growth in 2025, even knowing we're gonna still be dealing with a big bunch of headwinds from RESG payoffs because, you know, 2025 is the third year following the record 2022 origination year in RESG. So CIB's momentum, the fact that we're getting some new term sheets and a higher volume term sheets coming through RESG makes us pretty optimistic about our ability to grow next year. Now, your question on margin. And. Yeah, go ahead.
Catherine Mealor (Managing Director - Equity Research)
Yeah. I just wanted, let me just ask one thing on the paydowns. Do you think even if rates are higher, we still, I mean, to your point, you're on the third year, so that's when you naturally see it. But do you still think you see as many extensions as we've been seeing in the past or because we're kind of in a more normalized rate environment and maybe there's not the belief that we'll get so many cuts, you see a lot of these loans just go ahead and go into permanent financing? I guess the question is, it's probably fair to believe that no matter what with rates, paydowns should still be pretty high this year.
George Gleason (Chairman and CEO)
Yeah. You know, we've the last three quarters, we've seen elevated levels of prepayments or repayments, not prepayments, but elevated levels of repayments on our RESG loans. I think that reflects the fact that sponsors are dialing in on the fact that we're probably in the right environment. We're gonna be more or less going forward, and the waiting for rates to go back to zero is no longer a reality in people's minds. And they're going ahead and dealing with the reality of where we are today or where they think we're gonna be next quarter and making plans and actions to move these projects to, you know, more permanent or bridge financing away from our construction loan, because they think we're getting where we are. I think that's been one factor in the elevated level of repayments the last three quarters.
I think that continues in the coming year. Now, you know, will that result in a lower level of modifications? You know, I don't know that it will. We may still see a high level of modifications. For example, we've got a sponsor on a project who's got a term sheet lined up from a bridge lender to take them out of our project, to give them more time. That was approved in committee, but they needed a 90-day extension on that to get that closed. Our guess is that it will take them. It's the complexity of the project. It'll take them more than 90 days. So we've pre-approved a second 90-day extension if they need it. So we could see that loan payoff go to a bridge lender in the Q2, maybe the Q1 of this year, and see one or two extensions booked on that as a result. So I think you're gonna see a high level of extensions this year, but I also think you're gonna continue to see a high level of repayments as we've seen over the last four quarters.
Catherine Mealor (Managing Director - Equity Research)
Awesome. Very helpful. Thank you.
George Gleason (Chairman and CEO)
All right. Thank you.
Operator (participant)
Thank you. One moment for our next question. And our next question comes from line of Manan Gosalia of Morgan Stanley. Your line is now open.
Manan Gosalia (Executive Director and Senior Equity Analyst)
Hi. Good morning, all.
George Gleason (Chairman and CEO)
Good morning.
Manan Gosalia (Executive Director and Senior Equity Analyst)
I wanted to ask about, on the appraisal front, it looks like the number of loans you're getting appraisals for has gone up quite meaningfully over the past couple of quarters. I wanted to ask what's driving that? You know, is it more normal costs or is that part of a more, concerted effort to go through the book and see where you need sponsors to bring in more equity?
George Gleason (Chairman and CEO)
It really, I think, is a reflection of the fact that, you know, there's been a lot of questions, "Gosh, should you reappraise the portfolio? What are those appraisals gonna look like?" We have pretty good ideas on that ourselves. So, we're not as concerned about that as perhaps some of the folks sitting in your chair or your investors' chairs are. So we just made a decision to kind of go at the max pace that our appraisal services function can engage, review, and validate the third-party appraisals, we guess. We're going as fast as we can. I think, Brannon, you were telling me recently we have, I can't remember the number of RESG.
Manan Gosalia (Executive Director and Senior Equity Analyst)
Right.
George Gleason (Chairman and CEO)
Loans that are pre-2020 December 2022 appraisals.
Brannon Hamblen (President)
Yeah. We've got, I think 68 of those left that were predated December 15th, 2022. And of that 68, we're probably gonna have between 40 and 45 of those reappraised this quarter. And then we'll have others beyond that. So our count, our total count this quarter will be probably in and around where it was last quarter. But then we'll have some loans that, you know, in that vintage we're talking about that'll pay off as well. So we've made a lot of progress there, but getting close to the end of those older appraisals, getting them updated.
George Gleason (Chairman and CEO)
Yeah. By the end of Q1, we should have just a handful of loans in RESG that have not been reappraised in the current interest rate environment or a higher interest rate environment, starting from December 2022 forward. So, you know, we wanted to. We're not terribly concerned about these reappraisals. I mean, we know that a property's probably gonna appraise in many cases for a little higher loan to value, a little lower valuation than it did three years ago. We all know where cap rates have gone and time periods to stabilize. So that has an impact on appraised values, and we're seeing that. But we wanted to get essentially the full portfolio reappraised as quickly as we could so that everyone that's interested in our numbers would understand where those numbers are.
What we're really proud about and expected to occur is even though we've reappraised 80% or 90-something% of the portfolio, our loan-to-value in the last year on the portfolio only went from 43%-44%. Now, lots said, "Oh gosh, you had a few loans that went up 20% or 30% loan-to-value or more," and you had a bunch that went up 10% loan-to-value or more, but our portfolio, at the portfolio level, and I'm managing a portfolio, our weighted average loan-to-value is 44%, and that reflects the fact that even though, as we're reappraising, a majority of the appraisals are showing a higher loan-to-value, the new product that we are originating is below-average loan-to-value, so new originations are working that down.
We continue to get a lot of paydowns on previous loans, both at modifications and subsequent to modifications. We're getting some very accretive partial releases on projects where, you know, one part of it is sold and the other part's retained, and we get an accretive paydown on that. You know, on our condo projects, we have pretty big projects, condos. As those things sell out, those loan-to-values go down because every, every unit sale is highly accretive to our loan-to-value. The result of all those moving parts is that we've continued to keep the portfolio at a very, very conservative 44% weighted average loan-to-value.
Manan Gosalia (Executive Director and Senior Equity Analyst)
Got it. Very, very helpful. And maybe pivoting over to NIM and the loan floors, what behavior have you seen from clients who have hit their floors now that we're 100 basis points lower than where we started? You know, have they been looking to replace their loans or has there been any trends that you've noticed on those loans?
George Gleason (Chairman and CEO)
Brannon, I'm not aware of any. You wanna comment on that?
Brannon Hamblen (President)
No, you know, the only trend I can positively identify is they pay their debt service. But you know, in all seriousness, there really hasn't been. I mean, look, the other trend is in these modifications, we've noted that we haven't lowered any of those floors. We've increased quite a number of those floors. It's a negotiated, heavily negotiated item, both on the front end of deals we're closing and the mods that we're negotiating. But you know, our guys do a great job there. And the evidence of that's very clear in our report. But no, we don't typically see an exit based on the floor. Again, that's part of the picture. But the bigger picture is, you know, in terms of the project and the takeout markets is a much bigger piece of that.
Manan Gosalia (Executive Director and Senior Equity Analyst)
So as we think about loan yields from here, I think that there's been about a 60% beta on loan yields so far. And I think part of that is also just coming from the loan mix changing. So now as more loans hit their floors, is it fair to expect that the loan yield betas on the downside will be slower from here? Or just how should we think about that from here?
George Gleason (Chairman and CEO)
That's a good question. I would point you to Figure 27 in our management comments. You know, 14% of our loans were at their floor rate. 14% of our variable rate loans were at their floor rate at December 31, 2024. And I emphasize that 14% because one of our commentators got that wrong and said we had 7% of our loans at the floor rate. That was only half right. You see if you go down 50 basis points, you're at 42% of loans at their floor rate. So the guidance that we've given and the assumptions that we've used, well, I think they're the most likely case, no rate cuts to two rate cuts this year. Obviously, one rate cut, you know, we're gonna be at 26% or more of our loans at their floor rate. Two rate cuts, 42%.
So if we had three or four or five rate cuts, once you get into that 40%, your loan beta really slows down. Our deposit beta's gonna, of course, continue to speed up if we pre-price loans. So both our provision expense would benefit from three or four or five cuts, and our NIM would have a significant expansion opportunity from three or four or five or six cuts because we would benefit from those floor rates kicking in. And as Brannon said, you know, we just don't get paid off usually because of floor rates. That's a rare issue. 'Cause negotiated customers know it. They hit the floor, they hit the floor, they live with it because that was part of the deal.
The flip side of that is if we went higher, our variable rate loan portfolio would generate significantly more net interest income. We would give back part of that with higher provision expense because of the elevated stress that a rising rate environment would put on our customers. So the guidance we've given and the assumptions we've made are actually the worst-case scenario. Zero rate cuts to 50 basis points and rate cuts this year is the worst-case scenario for us. And yet we're coming out with some pretty darn good results, even in that worst-case scenario. So more rate cuts is better. Rate increases, net-net are better even though our higher margins would be partially given back by higher provision expense. But the worst-case scenario is where we are, which is 0-50 basis points. So we've given you guidance based on that.
Manan Gosalia (Executive Director and Senior Equity Analyst)
Great. Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Matt Olney of Stephens. Your line is now open.
Matt Olney (Managing Director)
Hey, thanks for taking the question, guys. Want to ask more of a bigger picture question. And it's more around the, the longer-term aspirations of the company with respect to both loan growth and the investment spend. And for 2025, you've been clear about the loan growth expectations, mid to high single digits with that handoff from RESG to the other growth segments. And you've also talked about the expense growth of around 10% because of these various growth initiatives and all these new hires. I guess if we look beyond 2025, just trying to appreciate the longer-term loan growth aspirations of the company and what type of investments you think will be required to maintain those aspirations.
George Gleason (Chairman and CEO)
Let me take that, Matt, and then I'll give Jake and Brannon a chance to comment on that. You know, we have traditionally been a very growth-oriented company and have had a lot of success. In a couple of months, I'll celebrate my 46th year here. And the balance sheet is about 1,400 times the size of the balance sheet that we were when we started. I expect to be here into the future and expect to continue to see solid growth. As far as the expenses to achieve that growth, you know, there'll be incremental expenses as we, you know, add more lenders, add more loans, add more customers.
But I think we have incurred a huge amount of the expense this year and last year to achieve some really important growth elements for us. And obviously, CIB's getting a lot of attention because it's become the dominant engine for loan growth. But Jake mentioned, you know, they came in and started building CIB and built the credit and the servicing and the risk and the compliance and all the governance things around that really rock solid, to have a foundation to originate, you know, their first loans. And they took the ABLG and equipment finance and Fund Finance businesses that we had, wrapped them into a much more rigorous servicing asset management governance structure that has already been created and is clearly in the run rate of our numbers. So CIB's growth going forward, which I think it will rival RESG in future years, whether that's three or five or seven years, who knows.
But I think it will be in 5-10 years as big a part of our company as RESG. And the structure for that is in place, and it's paid for. It's in our run rate of expenses. Now, incremental growth, you'll have incremental expenses. But that unit is gonna get more and more efficient as they go forward because the foundational expenses are late. Same thing with our Mortgage Division. You know, we've been losing money in mortgage all year long in 2024 as we built that and ramped it up. But it's been built right. That infrastructure is there. Those monthly and quarterly negative numbers are getting smaller and smaller. And I think that unit becomes a positive contributor next year. The same thing in our consumer elements of our book.
We've ramped up in tandem the partnership between Cindy's Retail Banking Units and Alan Jessup's Community Banking Units, originating consumer and small business loans and so forth. We put a lot of the infrastructure in place over the last two years, and those guys are just beginning to hit some meaningful strides in growth. Our Trust and Wealth Unit, we've really built up a much more significant infrastructure there. That infrastructure's in place. We're getting some real positive growth there, and I think you'll really see that next year. So you know, I think we will have expenses ramp, but I would expect to maintain you know an industry-leading efficiency ratio as we have seen, because we expect revenue's gonna ramp faster than expenses. You know, I would expect us to continue to be in that sort of mid-30s, low-30s sort of efficiency ratio going forward.
Brannon Hamblen (President)
And I'll just piggyback off that quickly, off of George's guidance there, you know, specific to the CIB. You know, efficiency's a key factor. And so if you look at 2024, to his point, it was really the foundational build of our portfolio management and operations team to ensure that, you know, we maintain a very healthy and clean book of business and we're best in class across our peers in that aspect. And so when you look at as it relates to the future build, it's really gonna be a little bit more focused on the origination side. And again, we take a little bit different view here, you know, between George and Brannon and I.
You know, a lot of our competitors might go out and start a market or get in and launch a CBSF team in Nashville or Atlanta or wherever it might be and hire 10, 15 people out of the gate and then just hope the business comes and hope that thing repays itself within a decent timeline, and it's really not the approach we take. We take a much more level-headed, pragmatic approach where we challenge our business head leads within CIB. So whether that's Mark over CBSF or Parul over our Fund Finance or Jim over our EFCS, Tim over our Loan Syndication and Corporate Services, or Mr. Sheff over our ABLG group, we really ask them to prepay for the next person before we bring the next person on. And so to George's point, before we're hiring this high-quality talent, we're actively challenging that team to generate additional new business so that when that person comes on, even if they were not to contribute in the worst-case scenario, the business is already there and the revenue's already there to have prepaid for that person so that we can keep our efficiency ratios really, best in class.
Matt Olney (Managing Director)
Okay. Thanks for the commentary. Very comprehensive. I guess I wanna switch gears, also ask about any potential regulatory changes. We've got the new administration coming to the White House. The market has some anticipation there could be more favorable changes for the industry. Would love to hear your perspective about any potential regulatory changes for the industry and how this could impact the bank.
George Gleason (Chairman and CEO)
Yeah. We're very hopeful that the change in administration is going to lead to a more constructive regulatory environment. I mean, certainly the banking industry and because of FDIC insurance, there's a level of safety and soundness regulation and other regulation that is appropriate. But the regulatory environment has just gotten increasingly more and more and more challenging for the industry. I'm not telling anybody here anything. It's not widely known. And you're seeing that push lots of business that the banking industry used to do out to private credit and non-bank financial firms. And there's a lot of risk to the economy and to consumers and business customers with that private credit and non-bank financial firms.
I think what we would hope to see, or we do hope to see, is a right-sizing of regulatory restraint on the industry, which lets more and more of the credit needs of the country be met by the banking industry as opposed to non-regulated, non-controlled sources of credit that I think pose a lot more risk to the economy and customers. We are hopeful and we're advocating fiercely for that. To the people we're advocating that to, that seems to be being met with a very favorable response. You know, the President-elect, soon-to-be President on next week, has declared that he wants to extend the existing tax regime and maybe even cut that tax regime and get the federal deficit down.
To achieve that combination of lower taxes and a reduced deficit, the U.S. economy has got to grow, and I don't think the president, the administration incoming, are going to be able to achieve the needed growth in the U.S. economy without removing the unnecessary regulatory burdens on the U.S. banking industry. The industry has the capital and has the skill and the ability to contribute to this next golden age of American economic growth as it's been called, but the industry's got to be unfettered from the excesses of regulation. And we're making that point repeatedly to people in Washington, and again, I think that's being well received, so it's a big job, and there's gonna be a lot of resistance from entrenched bureaucracy to you know giving up some of those unnecessary regulations and restraints on the industry. But if we're going to have the economy the President envisions, it's got to be done.
Matt Olney (Managing Director)
Okay. I appreciate hearing your perspective. Congrats on a great year.
George Gleason (Chairman and CEO)
All right. Thank you.
Operator (participant)
Thank you. One moment for our next question, and our next question comes from the line of Nick Holowko of UBS. Your line is now open.
Nick Holowko (Director and Equity Research Analyst)
Hi. Good morning.
George Gleason (Chairman and CEO)
Good morning.
Nick Holowko (Director and Equity Research Analyst)
Thanks for all the updates this morning. You know, in thinking about your commentary around potential for greater originations as we're progressing from here, you know, are there any specific types of properties or geographies that you'd highlight as somewhere you'd highlight for a potential pickup in activity? Maybe on the other side of that, obviously everything is kind of on a case-by-case basis, but are there any either property types or regions of the country that you're specifically looking to avoid adding exposure at this point?
George Gleason (Chairman and CEO)
Brannon, you want to take that?
Brannon Hamblen (President)
Yeah. Absolutely. And, Nicholas, appreciate the question. So I would tell you that, most recently our origination volume, which is obviously an indicator of where we see opportunity, has been fairly heavily weighted towards multifamily and industrial, but also condominium developments are a significant part of our current pipeline. You know, a lot of that has some regional emphasis as well. You know, our highest geographic concentration continues to be in Miami. And the team there, I mean, obviously the economic activity in that realm of the world has been phenomenal. You know, the in-migration driving demand. We have a long history of successful lending there, and that continues to be the case. So we still are very bullish on that particular property type and that particular geography.
We're fortunate to have a lot of experience and a lot of great originating firepower in some of the healthier markets across the South, Southeast, Southwest. But also, you know, and you know, New York continues to be active, perhaps not as active as it has been, you know, earlier in RESG's history. But that economy continues to move up and to the right, if you will, post-COVID and the ensuing sort of challenges that came out of that. So we would like some good opportunities there as well. You know, geographically, we continue to diversify our guys. You know, focus on the more household name markets, but some of the others that don't get mentioned as much.
It's, you know, if you refer to our geographic diversity, Figure 14, you'll know some or notice some new adds to that list. You know, and it, for example, we've increased our presence in Utah. Mason Ross out of our San Francisco office. You know, there's been a lot of not-so-great press about San Francisco and Seattle. Those are markets that Mason covers. So he's been working very diligently to uncover opportunities in other markets within his regions and successfully so. So, you know, we have always said that quality is job number one. And so our guys, you know, are working to unearth those quality opportunities with new sponsorship, you know, adding to the fold in terms of customers that we have not yet done business with.
And we're seeing success there in some of these markets that you wouldn't have seen previously. You know, there's been a lot of, and will continue to be, a lot of industrial development along our border with Mexico. And Victor Hinojosa here in our Dallas office has done a great job originating some industrial along the border and in different markets there. So those are just some examples where we're seeing some good economic activity, some good sponsorship that in some cases we've done business with in other markets or we've not yet done business with before and have great track record. But more again, what continues to be a good bit of multifamily. You know, we're picking our spots there, because there has been a fair amount of construction.
But you have to remember when we originate a multifamily loan today, that's gonna open in three years. And there, there's you know the supply build-up that we saw you know especially sort of coming into 2022 has dropped off significantly. Absorption continues to sort of mop up that excess supply. And when you look three years out, when we'll actually deliver some of that multifamily product, there looks to be a real opportunity for our sponsors to capitalize on favorable market conditions. So yeah that's sort of the what and the where around RESG's originations currently.
Nick Holowko (Director and Equity Research Analyst)
Perfect. Thank you for that. And then just thinking a little bit more about the handoff strategy for this year and unpacking some of the growth there. In the quarter, it just looked like Fund Finance was a big part of the growth. I'm curious if that's an area where you think you took advantage of some resurgence in activity levels or if it was more just idiosyncratic as you're starting to win new business there.
George Gleason (Chairman and CEO)
Jake, that's yours.
Jake Munn (President, Corporate and Institutional Banking)
Yeah. That's a good question. I appreciate it. You know, some of it is just timing, right? And as we've reshaped the CIB and brought fund finance in, and we're blessed to have Parul join us and Mark Asis too there. We've really been able to kind of turn up the heat in that book. The beauty of OZK as a whole is the connectivity to some really good sponsors around the country, a lot of which were rather untapped, previously. And so, under this kind of, you know, reworked CIB organization, it's allowing us to kind of hone in and really kickstart that fund finance group once again and improve originations as a whole.
From an actual deal count, CBSF, our Corporate Banking and Sponsor Finance, which you can view as more of our general C&I team, which also achieved the average highest yield for the book, Q4. From the actual loan count, they surpass the other business units. It's just typically smaller loan sizes. Great question. We expect CBSF, fund finance, EFCS, ABLG all to continue to grow in the coming quarter. We're excited about that. We're excited to look at other opportunities that might be in the market for additional kind of a bolt-on business lines that could also benefit our growth in the future.
And then we're equally as happy with Tim Newhouse and and Rachel and Derek and everyone else on our and Ryan and our our Loan Syndications and Corporate Services team as they've really picked things up and started our desk, which allowed us to lead deals and generate additional fee income, our interest rate hedging solutions. We've been blessed where we have that up and running, and we've actually executed on some caps and swaps to generate some additional fee income, as well as our real estate capital markets and and other like business services under LSCS. So we're on a roll, and we're looking forward to the next year, and we're we're optimistic.
Nick Holowko (Director and Equity Research Analyst)
Perfect. Thanks for taking my questions.
George Gleason (Chairman and CEO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. And our next question comes from the line of Michael Rose of Raymond James. The line is now open.
Michael Rose (Managing Director)
Hey. Good morning, guys. Thanks for taking my questions. Just first one, I don't think it's been asked about the buyback. I guess the way the management comments read looks like, you know, the way I read it is looks like you're gonna see an increase in repurchase. Just wanted to get a sense for, you know, what the updated parameters, you know, could look like that would cause, you know, yourself to buy back some more stock. Thanks.
George Gleason (Chairman and CEO)
Tim, that's yours.
Tim Hicks (CFO)
Yeah. Michael, you know, as we said in the comments, we are planning on increasing the parameters in which, or tranches as we have them, for which we buy back. Now, how many we buy back is dependent on our stock price. So that may or not result in more share repurchases as well, but we were really close to buying some in Q4. We just didn't quite hit our tranche and even early January, same thing, but we do plan to increase the parameters, which may or may not result in more repurchases.
Michael Rose (Managing Director)
All right. Maybe just one follow-up. A lot of questions today about the handoff between RESG and CIB. George, as you think about the kind of intermediate to long-term interplay, can the company be as profitable as it's been? I mean, 'cause CIB loans are gonna inherently have, you know, lower yields than RESG loans, but also will come with deposits, which should be an offset. So just trying to get a sense for, you know, is like a 2% ROI or above where you've historically operated, is that still on the cards, or should we kind of level-set expectations as the mix of business shifts? Thanks.
George Gleason (Chairman and CEO)
Yeah. That's a good question. And, you know, there are elements within our CIB group that generate comparable coupon rates to RESG loans. And Jake mentioned, you know, possibly bolting on an additional business line or two to that unit where he mentioned we were toying with it. Toying's probably a little weak word. We're pretty deep in looking at that. And some of these additions could also generate comparable or even better yields, you know, with the low-risk profile we're looking for. So I would tell you across the board in the CIB, yes, the premise is correct, even though some units will have higher yield. The premise is correct that the average coupon is probably gonna be less than the average coupon we get on loans in RESG.
We do get treasury management fees and collateral inspection fees and unused fees and various other fee elements, both loan and treasury function-related fees that will come from the CIB portfolio. We will get a higher volume of deposits as a percent of loans coming from that. I think when you factor all that in, the overall return on assets, return on equity is pretty comparable. You know, we hold extra capital today because of our CRE concentration. As CIB grows and RESG grows but becomes less of a concentrated part of our balance sheet than it is today, over time we can begin to work those capital ratios to a little more typical for the industry sort of capital ratio level.
That should actually allow us to maintain or even enhance our return on equity as a result of CIB diluting the concentration of RESG. So I think that ROA, not too much difference. I think in the short run, not too much difference in ROE. But as we get two, three, five years out and can be more efficient with our capital allocations, because of the diversity of our balance sheet, I think it will actually improve our ROE. That's the, that's the working premise in any event.
Michael Rose (Managing Director)
Got it. Maybe just one quick follow-up, just as it relates to kind of what a typical CIB credit looks like, you know, in terms of size. 'Cause when you started out in RESG, right, you were doing, you know, smaller loans, and you eventually scaled up, and now you're doing the largest, you know, some of the largest construction projects in the country. Is that a similar goal with CIB? Because as you would get larger in CIB, though, the coupon would inherently be less. And I think we see that with, you know, kind of large corporate lending versus, you know, small and mid-sized corporate lending. Thanks.
George Gleason (Chairman and CEO)
Well, I would say no, but I'm gonna let Jake give you the real color on that. So Jake, to talk about what you think our loan size diversification profile within CIB will be.
Jake Munn (President, Corporate and Institutional Banking)
Yeah. No, that, that and it's a great question too. As a whole, our loans are gonna be, you know, noticeably smaller than, than RESG on the average. You know, on average, if you look at Q4 average loan size varied between, call it, $30 million-$60 million on the, on the CIB side versus RESG, which, can be a little bit more sizable. I think the key element, though, to think about in the CIB is we're relationship-focused banking. So we're following in the footsteps of RESG and all the other legacy business lines of OZK.
And so with that, within the CIB, we're gonna commit the dollars necessary to have the relationship with the customer where we've got a seat at the table, where we're helping to design the structure and the terms of the deal, where we can cross-sell some of those needed products as George alluded to, whether that's treasury or interest rate services, our fantastic private banking and private client services, whatever in that might be that our customers need. We're relationship-focused, and so that dollar amount per deal is really gonna depend on that. And so if you look at the broader book, 92%-95%+ of our deals are gonna be single lender. They're gonna be two-bank club deals with 100% voting rights and direct access to management. We're at their broader syndications.
They're opportunities where we're either leading or with a JLA or another strong and named title. And so we're not here, within the CIB to just buy paper. That's not what we're doing. That's not what we're going to do. We're relationship-focused. And so those dollars that we'll commit are gonna be dictated by the overall relationship. And so, you know, as a whole, most of the CIB loans are gonna be well under $200 million, most likely well under $150-$100 million holds. But at the end of the day, we're gonna do what's needed to lead those opportunities to harvest the best economics for us, but also provide the best services, products, and customer service for our clients and end users.
George Gleason (Chairman and CEO)
Michael, I would remind you also that we announced a quarter or two ago, in connection with the activation of our capital markets desk in CIB and our ability to syndicate loans, buy and sell, and so forth, that we've announced that going forward, our single project hold limit in RESG is $500 million. We've only originated a handful of loans ever over that. We only have two over that threshold now and don't really consider that to be a restraint to our business, but actually an opportunity to do even larger transactions in RESG, but to do them on a syndicated basis. So that capability of our capital markets desk within CIB is really gonna help us achieve, I think, greater growth in RESG, even though we've put that fairly unrestrictive size limit on RESG single credit transactions.
Michael Rose (Managing Director)
Perfect. I appreciate the color. Thanks, guys.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Brian Martin of Janney. Your line is now open.
Brian Martin (Director, Banks and Thrifts)
Hey. Good morning, everyone.
George Gleason (Chairman and CEO)
Good morning, Brian.
Brian Martin (Director, Banks and Thrifts)
Hey. Most of my things have been answered, George. Just maybe a couple minor things. Just the, your comments about the yields within, you know, the RESG and the CIB group. In this quarter, can you give any commentary on just, we've, you know, now that we've got a nice quarter under our belt, just kind of what the, the just, you know, between the, the yield difference between those two this quarter? I know it's general given, you know, all the different types, particularly in the, in both units. But just any kind of commentary on just how to think about what those yields look like this quarter?
George Gleason (Chairman and CEO)
Yeah. Brian, I would tell you that, you know, I'm not gonna get specific in the numbers there. And honestly, I don't have those weighted average origination yields for each portfolio in front of me. But it's been consistent with our commentary. CIB's been a little lower spread than RESG, but augmented with various fees and deposit opportunities. So, you know, I think that general direction has certainly been borne out in the most recent quarter's results.
Brian Martin (Director, Banks and Thrifts)
Gotcha. Okay. And then should we expect any, you know, lumpiness, if you will, within, you know, the CIB group as you kind of look forward? I mean, should it be pretty consistent by quarter? Is there lumpiness we should expect as, you know, with the different business units within CIB?
George Gleason (Chairman and CEO)
Yeah. I think it will be less lumpy than RESG has been. You know, RESG, you're dealing with, you know, a single sector of the economy. CIB's dealing with multiple teams working across multiple sectors of the economy. And you in RESG, you've got a bigger average deal sizes. Jake did a good job of describing probably by a multiple of two versus CIB. So the smaller deal size, the more significant number of originations that probably, you know, will have more originations in CIB than RESG, I would think, in time as they get their full momentum going. So all of that, I think, leads to less lumpiness and more kind of things leveling and averaging out with the CIB portfolio.
Brian Martin (Director, Banks and Thrifts)
Gotcha. Okay. And then just the other last two for me were just the, the opportunities on the, on the fee income side. Can you give any? I mean, it looks like the, the fees have kind of stepped up a little bit here the last couple quarters. Just should we be thinking about, you know, continued, you know, gradual ramp, as you, as you get more traction on the CIB group and kind of the initiatives there and as we think into 2025?
George Gleason (Chairman and CEO)
Yeah. That's certainly our hope and expectation. And, you know, as Jake sort of alluded to, he didn't say it this way, but I think you can draw the conclusion from his comments that those guys are just getting started. And, so yeah, I would expect the fee elements from that to steadily ramp up, you know, at a slow rate but steadily climbing as they grow their business.
Brian Martin (Director, Banks and Thrifts)
Gotcha. Okay. And then the last one, I don't know if anyone asked the OREO property and just kind of the lay there. Can you give any, you know, commentary on how you're thinking about that? Is it likely, you know, just go back to remarketing at this point, or is there still hope that, you know, the purchaser is back?
George Gleason (Chairman and CEO)
You know, our prospective buyer on that property has paid us $6 million in either fees or non-refundable earnest money that now we've captured when we canceled that contract and applied after the end of the quarter. We applied to capture that $3 million of non-refundable money and applied it to the loan. This sponsor's a busy guy. This prospective purchaser's a busy guy, and he's got his focus on a lot of different things, and you know, they sort of seem to casually sort of wander past the December 31, 2024 deadline to make their payments on our loan. We're not folks who deal with things casually. So we notified them of that. They said, "We'll deal with it. We're working on this, this, and this," and they didn't deal with it.
So we just sent them a notice to the title company to close the escrow and send us the earnest money. We're continuing to have discussions with them about reinstating that contract. You know, we're open to that. We're obviously gonna get equal or better economics than we had. And they're gonna have to demonstrate to us they're gonna be respectful and serious about the timelines and the obligations they're staking on if they do that. If that happens, that's fine. If it doesn't, we'll remarket the property. Too soon to know exactly which way that's gonna go.
Brian Martin (Director, Banks and Thrifts)
Yeah. Okay. Understood. Thanks for taking the questions, and, congrats on a, on a great year.
George Gleason (Chairman and CEO)
Thank you so much. Appreciate it.
Operator (participant)
Thank you. This concludes our question-and-answer session. I'll now turn it back to George Gleason for closing remarks.
George Gleason (Chairman and CEO)
Let me close with one closing remark. As we noted at the end of our management comments, next quarter, we're gonna change the time of our quarterly earnings call so that it is outside of market trading hours. We think, you know, we're, as we get to be a bigger company and have more shareholders and so forth, we just think we probably need to get the call outside of trading hours. So we're gonna do that. I don't wanna we're telling you about it now so no one reads anything into that, for next quarter. We're just that's gonna become our regular normal time to be outside of trading hours. And we'll announce the details of that when we announce the earnings call and time to release earnings next quarter. Thank you so much. Have a great day. Thanks for joining today's call. That concludes our call.
Operator (participant)
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.