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Bank OZK (NASDAQ:OZK)
Q3 2019 Earnings Call
Oct 18, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Bank OZK Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder today's program is being recorded.

I would now like to introduce your host for today's program Tim Hicks. Please go ahead, sir.

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

Good morning, I'm Tim Hicks, Chief Administrative Officer and Executive Director of Investor Relations for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. In today's Q&A discussion, 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 and Greg McKinney, Chief Financial Officer and Chief Accounting Officer. We will now open up the lines for your questions. Let me ask our operator Jonathan to remind our listeners how to queue in for questions. Jonathan?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Ken Zerbe from Morgan Stanley. Your question, please.

Ken Zerbe -- Morgan Stanley -- Analyst

Excellent. Good morning. I was hoping if you could just start off in terms of RESG, very good origination. Can you just talk a little bit about what drove the higher origination volume in RESG? Was it a lot of loans? Was it a couple of large loans? Thanks.

George Gleason -- Chairman and Chief Executive Officer

Thank you, Ken. I'll address that. Yes, we did have our best origination quarter in RESG since 2017. We had loans of all sizes. We originated our largest loan ever in the quarter. We originated a lot of small loans. I believe the -- I'm not sure of this number, but I think, the number of closings in the quarter were 30-something, I believe. Don't hold me to that. But it was a good job that our team did. We're being very disciplined in our credit quality, continuing to hold very diligently to our long-established and consistent credit quality standards.

We have been very protective of our return on investment on those loans and are not doing transactions that are just so cheap that they are not generating a good return for us. So I'm very pleased with the job that our team did in originating the diversity of credits and diversity of our market, holding to our credit standards. And we're just going to have to continue to work hard and find those good opportunities that fit our credit and profitability profile.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay. Great. And then in terms of the margin, obviously it came down about 19 basis point this quarter and that's on one rate hike. And I get LIBOR has been coming down too. But if we end up giving two rate cuts, one in September, then one in October, how should we think about margin? I mean, is there any reason to think it wouldn't be down twice as much as the 19 basis points? Were there any offsets?

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

Hey, Ken, this is Tim. Yeah, we had two rate cuts in Q3, so July and September. I believe one month LIBOR was down 40 basis points during the quarter. So with 75% of our loans variable and 82% of those variably based on one month or three-month LIBOR, we got a chart in here that explains that. We're going to be really variable, very sensitive to that moving in one and three-month LIBOR, specifically one month LIBOR until we have the chance for our floors to catch up, and we got a chart in here on floors as well.

You can see that on figure 14, Page 13 of management comments that we have total commitment 27% of our current loan is our asset floor, that was 15% a quarter ago, another down 50 basis points. Half of our loans, total commitments will be at a floor, 47% specifically. So that will help eventually alleviate some of the decline in loan yields, which would help alleviate the decline in net interest margin.

On the other hand, deposit cost should continue to benefit and continue to go down. We had a good decrease in deposit cost during the quarter, down 6 basis points during the quarter. We'd expect that to continue in the fourth quarter and the size and magnitude of that would have been on how many rate cuts we get and win.

George Gleason -- Chairman and Chief Executive Officer

Ken, we added also, I might refer you to figure 13 on Page 12 of the management comments. We added a box at the bottom of that, that just showed our quarter-over-quarter change in core spread over the fed increasing cycle in the last several quarters. And as you can see there, going back to when the Fed started increasing rates because of our LIBOR heavy book, loan yields increased faster than deposit cost, and then ultimately deposit cost caught up. So over the upcycle, our change in yield on loans and change in yield on deposits -- cost of deposits was fairly equal and obviously with LIBOR plummeting really quickly with fed cutting rates two times in a quarter and the expectation of further Fed cut, LIBOR is outrunning our ability to adjust our deposit cost.

We think over the full downcycle in a couple quarters or three quarters or something after the Fed has moved cutting rates, then our deposit cost changes will largely catch up with our loan yield changes. But just as deposit cost lagged coming up, they're going to lag going down. So we would have certainly preferred the Fed have not started cutting rates when they did and given us a few more quarters to cycle our floor rates could have been helpful, but they didn't do that.

Ken Zerbe -- Morgan Stanley -- Analyst

Of course. And if we do get an October cut, where do you envision NIM falling out in fourth quarter?

George Gleason -- Chairman and Chief Executive Officer

We're not giving a specific guidance on that as you can obviously imagine if LIBOR drops, our loan yields will drop. Tim mentioned we expect deposit costs to continue to come down and get better quarter-to-quarter, but there will be a lag effect in that probably.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay, and then one last question, if I may. You mentioned in the release that you expect expenses to continue to move higher. What pace of expense growth are you envisioning going forward?

Greg McKinney -- Chief Financial Officer and Chief Accounting Officer

Hi, Ken, this is Greg. I think comment in response to that question will be similar to how we responded a quarter ago. I think we're -- toward the end, but still continuing to build some of the infrastructures, specifically we had some expenditures over the last quarter or two related to our CECL [Indecipherable]. So those have continued to keep our expense increases a little bit on the elevated side. That probably continues for another quarter or two, although we're certainly working toward trying to get that much more moderated. We'll still grow, but much more moderated as we get into 2020. We do have the new headquarters coming on, so that will begin the depreciation of that building and -- so we'll get at some point during -- probably the second quarter of 2020. But that's -- have bumped off around trends in non-interest expense are very similar to our comments last quarter.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Thank you very much.

Operator

Thank you. Our next question comes from the line of Catherine Mealor from KBW. Your question, please.

Catherine Mealor -- KBW -- Analyst

Thanks. Good morning.

George Gleason -- Chairman and Chief Executive Officer

Hi, good morning.

Catherine Mealor -- KBW -- Analyst

Maybe one follow-up on the deposit side. Is there any way to give us some color around what deposit costed on a monthly basis, so we can kind of see where deposit costs ended just for the -- maybe the month of September as a gauge for what we may see in the fourth quarter?

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

Yeah, I mean I think Catherine, this is Tim. Obviously, September was below where our quarter number was a few basis points. So that's going to help us for the quarter give us a kind of the good head start. Obviously, there is a lag effect obviously to the two moves that we had in Q3 on the Fed funds target rate. I would also mention our CD book, our CD book in Q3, I would say it was probably a head -- a headwind to the overall decrease, but should improve as time goes on. And be less of a headwind to overall decrease. So we're not giving a specific range, but we've got things moving in our direction that should help us for Q4.

Catherine Mealor -- KBW -- Analyst

Okay, that's helpful. So may be just on big picture growth, we saw a little bit with the origination volume and we saw better kind of bottom line growth this past quarter. Any thoughts on just kind of as you look forward to the level of repayments that you may expect in the near-term, do you feel like next quarter or kind of into early '20, you'll still be able to net grow the balance sheet or is your forecast for repayment still to where we -- the end of balance sheet may be relatively kind of stable to flat?

George Gleason -- Chairman and Chief Executive Officer

Catherine, let me, this is George, let me address that. I think we generally expect moderate growth in the balance sheet next year. Certainly not anything it's going to rise probably to the level of robust. We still will be contending with the pay downs from our purchase loan portfolio as everyone has known and seen for several years.

We will still be contending with a high level of our RESG loan payoffs. We would hope that our RESG team would be able to do what they did this quarter and that is work hard, find good opportunities that fit our credit and profitability profile to continue to replace the payoffs and achieve some net growth in the RESG book.

The other two big loan components, community banking, we think we will do better in growth in community banking next year. One of the reasons that salary cost have been going up as we've been adding staff and will continue to add staff in those community bank lending verticals. We feel like we're really getting well positioned to achieve a bit of accelerated growth in the community banking area that I suspect will be offset by more modest growth in the Indirect Marine and RV business. Those of you who monitor that sector from a dealer point of view will know and a manufacturer point of view will know that sales of marine and RV equipment is down. And that's resulting in less consumer paper, which is where we are in the space. And yet the competition for that paper is pretty robust.

So we are just like we've done in RESG as we faced a declining volume of opportunities and increased competition. We're holding very rigidly to our very strong credit standards on that paper. We underwrite that in a very specific way so that we believe we'll achieve outcomes from that portfolio far better than the typical marine or RV portfolio outcome.

We're going to hold those credit standards tight. We will not go below a certain pricing point. So I think we'll see a reduction in our growth in indirect marine and RV next year. I think we'll have mass growth, but well off the pace of growth we've had there. I think you'll see that largely to some degree, plus or minus some degree offset by increased growth in the community banking side. So we're not giving any specific growth guidance for next year. We would expect overall loan growth to be moderate.

And I'll leave it at that for now for next year.

Catherine Mealor -- KBW -- Analyst

Great. That's really helpful color. Thank you, George.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Timur Braziler from Wells Fargo Securities. Your question, please.

Timur Braziler -- Wells Fargo Securities -- Analyst

Hi, good morning.

George Gleason -- Chairman and Chief Executive Officer

Good morning.

Timur Braziler -- Wells Fargo Securities -- Analyst

Maybe just circling back to prior comments on the largest loan book to date at RESG, can you give us a little bit more color on that credit?

George Gleason -- Chairman and Chief Executive Officer

Well, I will tell you it was a loan in the Tampa area, in Florida. It meets all of our standards for a really large credit. It has outstanding sponsorship. It is an incredibly exciting and well thought out and well -- to be well executed project based on what we've seen. So it meets our standards of being a high quality project with truly great sponsorship and a great market, and we're very excited about it. It's very defensive structure you can see the loan to value and loan to cost numbers in our tables.

You will notice that on the aggregate, most of the loans we originated or most of our volume in the quarter just ended was at even lower loan to value and loan to cost numbers than the portfolios. We actually had a slight down trend in our average loan to cost number for the portfolio last quarter because the things that paid off were slightly higher than the things that went out. So, very conservative, high quality project with great sponsorship.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay. And it was a condo or a hotel or...

George Gleason -- Chairman and Chief Executive Officer

It is actually a multiple of buildings that will include office condo, apartment retail, parking facility and various other components. So it's a very mixed use multi-building project.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay, that's helpful. And then I appreciate all the color around margin in the deposit side. Maybe just looking at the asset mix, what type of origination yields are you getting on the indirect RV, marine, paper, on the community paper and RESG?

George Gleason -- Chairman and Chief Executive Officer

Well, it varies quite a bit from loan-to-loan on the RESG side. Those are complex credits in some cases and straightforward and simple credits in others. And depending on the different credit cap, the different market and the complexity, the value we bring with our expertise to, we get different pricing on different loans, but I'll tell you that really hasn't significantly changed this year.

The pricing that we were getting early in the year is very similar to the pricing we're getting now. They are -- obviously the marine and RV pricing has come down over the course of the year that is heavily affected by five-year and 10-year type yields and as the yield curve is flattened and dropped this year that paper has come down. I think probably the typical paper we're getting is a mid-5s coupon, of course, we're paying a premium for that to the dealer or the correspondent on that. So we are looking at a probably low-5s, high-4s, very high-4s net yield on that paper.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay, that's helpful and then just one last one from me. It's now been a couple of years since Dan's departure from the Bank. Just wondering if you can provide an update on how that transition has gone? Any or how has the clients reacted? Any kind of meaningful attrition there? Or anything else worth noting?

George Gleason -- Chairman and Chief Executive Officer

I would tell you, I think our RESG team is -- today is the best, most capable RESG team working in most collaborative effective manner than we've ever had. So we're thrilled to death with our team there and Dan's departure was long ago and that was an issue that was in the rear view mirror for us the day after he left.

Timur Braziler -- Wells Fargo Securities -- Analyst

Understood. Thank you.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Michael Rose from Raymond James. Your question, please.

Michael Rose -- Raymond James -- Analyst

Hey, good morning. In the management comments, you guys talked about a four-pronged approach to turnarounds, what has been, I think, three quarters in a row of net interest income decline. Can you elaborate on those a little bit more, and then as we move into 2020, you talked about some modest balance sheet growth. Do you actually think with the margin headwinds, and I know it depends on rates obviously, but do you actually think you can grow net interest income next year? Thanks.

George Gleason -- Chairman and Chief Executive Officer

That's a good question, Michael, and Tom will tell on that obviously how many LIBOR, how many Fed funds cuts we get, what the expectations reflected in forward LIBOR rates become as the rate scenario evolves, we'll have a big impact on that. We are working hard to get our deposit cost down, but we're doing that also in the context of really trying to achieve some qualitative shifts and adjustments in our deposit book as well. And we did that in the quarter just ended and will continue to do that. We think we'll get deposit cost down.

I pretty much responded to the growth thing in response to Catherine's question. RESG is going to have to continue to stay disciplined and work really hard. And as I said earlier, I'm super proud of our team for the job they did originating the volume they did in a very competitive environment, where there are fewer loan opportunities out there that meet our high standards than there probably were two or three years ago. So they did a great job looking good quality business at a good yield in the quarter just ended.

If we can continue to do that and offset or more than offset the pay downs that will come from the RESG portfolio and have a decent margin and growth in RESG that will certainly be helpful. We expect less growth as I already detailed probably in the marine, RV space next year than this year, we expect more growth in the community bank space. So obviously there are a lot of variables, the future of interest rates being a big one there and the rate of decline and the interest rate, all those factors play in.

If the Fed cuts rates one or two more times and stops, and we have an environment in 2020, where our loan yields are not dropping cost, Feds not dropping rates and our deposit cost are declining and catching up with the decline in loan yields already that would make for an improving picture, if the Fed continues to lower rates throughout next year or through much of next year and our deposit cost reductions are always lagging the Fed action after starting out in a liked position here this quarter, then that will be a more difficult position.

So we'll see how it plays out.

Michael Rose -- Raymond James -- Analyst

Okay. And then maybe just one follow-up for me. In the comments again no share repurchase program at this point, yet capital continues to build, probably will continue to build. What -- as we think about it in a post CECL world, I mean, where do you kind of see optimal capital levels. I would assume that this is too high and then you think at some point in the future, you'll deploy some of that capital, but I think consistently you guys have gotten the question about a buyback and return of capital, and how should we think about all that? Thanks.

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

Hey, Michael, it's Tim, I would think about it as an active conversation the management and the Board have at each quarterly Board meeting. Obviously, we've got very strong capital levels. We've never done a buyback. Our 22-year history as a public company, we saw a lot of tremendous opportunities during the last downturn. We were able to capitalize on those, because we had such strong earnings and capital levels. We want to position ourselves to be able to capitalize on those opportunities, if another downturn occurs.

But as you pointed out, our capital levels continue to grow and we'll continue to have conversation at the Board level and we'll update you when we change if we do change, they may come to the same answer every meeting. But as you said, we do have very strong capital levels and I think that's a great position to be in right now. It allows us to have a lot of flexibility in our strategic planning going forward and we're satisfied with our capital levels being at an elevated level right now.

George Gleason -- Chairman and Chief Executive Officer

And Michael, I would add to that, there is a diversity of opinion probably everywhere on what the right strategy is there and I'll -- to give an example of that, one of our substantial shareholders, they had been a very strong advocate for stock repurchases for several quarters, called me after the last earnings call, and I was expecting him to once again articulate his belief we ought to quickly pursue a stock buyback.

And I was very surprised when he said he wanted to tell me that he had been thinking about it and in light of the growing geopolitical tensions and political tensions in the US and economic uncertainty he had decided that we were taking the right approach and that accumulating more excess capital he felt was prudent in light of the fact that we have a demonstrated ability in economic downturns from the past to capitalize on the significant opportunities and he thought we would have that opportunity again.

Nobody can be sure about that, but that was an interesting indicator to me from one of our shareholders, who have been strongly in favor of it that he has now come around to the other side of the equation based on the geopolitical uncertainty around the economic environment.

Michael Rose -- Raymond James -- Analyst

Great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from the line of Matt Olney from Stephens. Your question, please.

Matt Olney -- Stephens -- Analyst

Yes. Thank you. Good morning and I guess I want to go back to the RESG discussion a few years ago following the restructuring. I thought there was a focus to look at some loans and newer markets, markets that maybe we're not top five in the country. At the time, I thought this would result in the average loan size and our RESG would be decreasing, but we're not seeing that, we're just seeing RESG do larger loans of record size. So I'm curious what your expectations are as far as the average size of the RESG loans going forward?

George Gleason -- Chairman and Chief Executive Officer

Yeah, that's a good question, Matt, and I would tell you both scenarios that you described there are playing out. We are originating loans, for example, our market presence in Philadelphia has increased. Washington where three or four years ago, we had zero presence, has become an important market for us. Boston, we've got several significant transactions on the board there. We've only occasionally had one or two there in the past. We've got some nice transactions in Minneapolis. We've got a transaction, we're actually looking at in Detroit, which I've spent a day in Detroit not long ago and was quite impressed with the resurgence that's going on in certain parts of the city there. And there are diversity of other markets that we are doing transactions in and those do tend on average in the more secondary or smaller markets tend to be smaller transactions.

On the other hand, in a market where competition is intense and pricing is aggressive on a lot of middle-sized transactions where we add a lot of value is on very complex transactions that our expertise and ability to execute really makes it worth our customer paying our rates and our pricing and putting up with our low leverage deal structure to have us in the transaction, because we bring value with our expertise and the ability to execute.

So the other side of that is, we are doing a lot of larger transactions and that's because we get great assets and really world-class sponsorship on those big transactions, because only big companies with great track record and big balance sheets and so forth can do those. So you get great sponsorship on a great transaction. You get paid well for it, because they are paying for your expertise and execution abilities. So I think it continues to be a mixture of both of those things.

We did a transaction that was our largest ever in the quarter just ended. At the same time, we had a $15 million RESG transaction in a smaller market and loan committee this last week. So I think it really does reflect the fact that we are going into some markets doing transaction -- smaller transactions in some secondary markets. At the same time, we're continuing to harvest on good opportunities, really primo opportunities that we get because of our expertise and execution ability.

Matt Olney -- Stephens -- Analyst

Okay. That's great, George. Thank you. And then can you just give us an update on the South Carolina and North Carolina loans that we've discussed previous earnings calls?

George Gleason -- Chairman and Chief Executive Officer

Yes, of course. They are both in OREO as they were last quarter. We are working to liquidate those. We think we're making some good progress toward them. We don't have either one of them fully liquidated. We've got several pieces of the North Carolina property under contract to sale. We've got some very serious interest in the South Carolina property, which we hope will result in a closing of the sale of that property. So we're working on them. Nothing adverse new, but we don't have them liquidated yet either.

Matt Olney -- Stephens -- Analyst

Thank you.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Arren Cyganovich from Citi. Your question, please.

Arren Cyganovich -- Citi -- Analyst

Thanks. I guess, just getting back to the deposit discussion, I think in your management commentary, there is a section where it basically kind of makes the point that over time these changes in loan pricing and deposit pricing will kind of even out. Do you think that as we head into the fourth quarter, you have some of that benefit, right because your -- you had your loan change in 3Q and you'll get a bit of a catch up in 4Q. Is it going to be a longer lag than that? Or I'm just trying to understand the pace of how that catch up might work?

George Gleason -- Chairman and Chief Executive Officer

Well, Arren, I think that really depends on expectations and what the Fed does on rates. If the expectation is the Fed's going to cut rates, then that's going to keep LIBOR trending down. If the Fed actually does cut rates, that's going to submit that decline in LIBOR the future expectations further down. So we could have a situation for a while, particularly Fed's cutting two quarters at a time where the decline in our loan yields continues to be lagged by our decline in deposit costs. If on the other hand, the Fed cuts one or two more times and stops, then our deposit cost will catch up more quickly.

We, I don't know, had a 13 or 15 or 17 quarter period where the Fed raised rates nine times and over that period of time, I think there was a 4 basis point difference between our change in cost of interest-bearing deposits and our change in non-purchased loan yields. We would expect a similar very close correlation between the change in our cost of interest-bearing deposits non-purchased loan yields over the full gamut of a Fed loosening period, and including a couple of quarters or three quarters or so after the end to allow everything to catch up and normalize.

So I don't know when the Fed -- when the deposit cost catch up with the loan yields, but that's going to depend as I said earlier on the number of Fed cuts, the period for all of that and how quickly they do that.

Arren Cyganovich -- Citi -- Analyst

Okay. That's helpful. Thanks. And we've heard that there has been a little bit more interest from smaller banks in terms of M&A, a little bit more discussion from some other banks. Are you seeing that? And I know you don't have much of the currency these days, but you are building capital and you might be able to do a little bit more cash. What's your view on the M&A environment currently?

George Gleason -- Chairman and Chief Executive Officer

Our focus really is internal and organic and really trying to improve and enhance -- advance the quality of what we're doing at company every day. That's not to say that where you're going to -- wouldn't look at an M&A opportunity, but I think it would have to be something extremely compelling. And I think the better M&A opportunities will -- for us will be after the next downturn, when the quality of our loan portfolio is fully demonstrated and that's reflected the quality of what we're doing is reflected in our stock price more significantly.

And the aggressive lending that some of our other banks out there are doing is fully reflected in their results and their stock prices down and they are much more motivated sellers. So I don't see us engaging in M&A activity certainly the remainder of this year and probably not in next year and maybe not even the year following that. I think that's a longer-term proposition.

We feel that the quality of our portfolio as it's reflected in our stock price today is greatly under-appreciated and the quality of some other banks that we see is greatly over-appreciated because they are not concentrated, but we see what they're doing and we think that's not very sound. We would never do that and we think in due time that -- though realization of reality on both sides will make it an opportunity for us to make acquisitions that make sense.

Arren Cyganovich -- Citi -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Brock Vandervliet from UBS. Your question, please.

Brock Vandervliet -- UBS -- Analyst

Hi, good morning. I was -- and most of my questions have been addressed, but in looking at your deposit composition, we're still -- you get the cost down, which was great, but it's still kind of driven by the higher cost deposits and I know you've hired -- the deposits are something similar. But I'm wondering when you're going to able to show more growth and kind of the lower cost categories?

George Gleason -- Chairman and Chief Executive Officer

Brock, I would tell you that's a significant 2020 goal and there was a lot of effort being expended in that regard. And yes, we've not only hired a Chief Deposit Officer and built out a team of analyst and people in support of him. We've been significantly reevaluating how we greatly improve and position our community banking team and products and so forth for the future.

So, Cindy Wolfe who's our Chief Banking Officer and Carmen McClennon, who has taken a significant role in our retail banking deposit side, operational side for the future. The way we do digital services, call center, our online banking products, our existing portfolio of banking products, all of that is undergoing a significant revamping that you'll see in the first half of 2020 and we think that we've got a great plan there that will significantly improve the quality and quantity, and cost of our deposit base in future year.

Steps are being taken incrementally to make adjustments every -- really probably every month and every quarter, but the real significant revamp and redesign of all of that is going to appear in and be implemented in 2020 and then you'll start seeing as 2020 rolls on some benefits from that.

In support of that, Cindy Wolfe, our Chief Banking Officer and Alan Jessup, our Director of community banking. Cindy is on the deposit and operational side, Alan is on the loan side and a number of other people. And I have visited every one of our 260 branches -- 260 offices loan operations, deposit operation centers, LPO since -- between late November of last year and mid September of this year.

And we've asked our staff to recommend how we can improve our Company, we've gotten hundreds and hundreds of recommendations on that. We really implemented already hundreds of those recommendations. And we've got from that and from visiting all of our markets and really getting down in the deepest leads and understanding that I think we've got a plan that's not just a quick fix effort to improve our deposit mix, but really a fundamental long-term strategy to have to really position ourselves for the next decade very well on the deposit side.

So we're making some progress. We're going to make a lot more progress. But we're going to do that in the context of a really strategic long-term plan for our retail banking operations. And that's all going forward at a very brisk clip. There is a lot of work being done on it, but it's a big project.

Brock Vandervliet -- UBS -- Analyst

Excellent. Okay. Great. More than I bargained for. Are you -- in the meantime, are you opening any branches or really focusing on the network that you have?

George Gleason -- Chairman and Chief Executive Officer

We opened a branch in South Fort Worth last quarter. We are opening a branch in South Dallas area this quarter, I think.

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

Already have opened it.

George Gleason -- Chairman and Chief Executive Officer

Already have opened it this quarter. Thank you. We've got three branches we are opening in the Metro Atlanta area. I think there's one more some place, Tim.

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

Yeah, that's it.

George Gleason -- Chairman and Chief Executive Officer

Okay, and then we've closed a few branches. We closed a redundant branch in Mobile, Alabama that was underperforming and similarly closed branches in Clarksville, Arkansas and...

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

Magnolia.

George Gleason -- Chairman and Chief Executive Officer

Magnolia, Arkansas. And so we are, as part of a review of all of our retail banking infrastructure, we've identified a few needs we have for opening branches. We've identified a few branches that we think are underperforming and not needed. I think we'll probably identify few more along the way that will -- we're rationalizing get our structure where it will serve our customers.

Brock Vandervliet -- UBS -- Analyst

Excellent. Okay. It's impressive. Thank you.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Brian Martin from Janney Montgomery. Your question, please.

George Gleason -- Chairman and Chief Executive Officer

Good morning.

Operator

You might have your phone on mute.

Brian Martin -- Janney Montgomery -- Analyst

Can you hear me now?

Operator

Yes.

George Gleason -- Chairman and Chief Executive Officer

Yes.

Brian Martin -- Janney Montgomery -- Analyst

Okay, sorry about that, George. So I wonder George, can you just comment at all, I know you talked about the -- your opportunistic ability in the community bank, your optimism, I should say in the community banking environment next year just to kind of really see that ramp up. Can you just talk at all about some of the hires you've made or just any more you're -- I guess, you're kind of looking to beef up on and how that may contribute to the growth outlook you have with the optimism? And then maybe just geographically or by division or segment you're kind of focused on or you've seen a ramp up in?

George Gleason -- Chairman and Chief Executive Officer

Yes, we are adding folks in a variety of space. We've added a couple of folks in our business aviation group in the last six months or so. We're adding team members in our GG&L, our government guaranteed SBA lending group. We're adding a person or two in affordable housing and charter school finance. We've reallocated some internal resources to get a little more horsepower in our -- manpower in our subscription finance business.

We are continuing to increasingly integrate our middle market CRE group that is our community banking CRE group that handles CRE loans in an RESG like [Phonetic] sort of fashion, but it's not a miniature RESG. It's really an arm that is intended to facilitate and make sure that the quality of CRE we originate in our community bank is similar to the quality of real estate, commercial real estate, we do in RESG group. We're adding a few generalist lenders around in different markets and a lot of these specialty lending vertical guys around in different markets.

We've added a couple of guys in homebuilder finance, and that business continues to be good. We are trimming some customers whose leverage ratios and inventory numbers are not meeting our standards. We're adding customers that have strong balance sheets and really good business models and good margins and are doing a good job managing their inventory and in markets where there's good growth. So it's just a broad-based continuous adjustment of trying to add people where we see opportunity in different lines of business and curtail or reduce resources in areas where we see the opportunities lining.

Brian Martin -- Janney Montgomery -- Analyst

Okay. I appreciate the color, George. Thanks so much.

George Gleason -- Chairman and Chief Executive Officer

Yeah. I would add, Brian, that after visiting all of our offices in the last 11 months, taking a full inventory and understanding every market in the Company and our ability to meet the needs and the opportunities in those markets has really helped us fine tune our plan for allocating resources going forward where we think we'll get the maximum effect from that.

Brian Martin -- Janney Montgomery -- Analyst

Okay. Thank you so much.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] We have a follow-up from the line of Matt Olney from Stephens. Your question, please.

Matt Olney -- Stephens -- Analyst

Yeah. Thanks for taking the follow-up. I want to ask about your CECL disclosures. It sounds like you gave it to us in two parts in the management commentary. The first part seems pretty straightforward with the general allowance. But the second part of the CECL disclosure, I guess is the liability for the unfunded commitments. That seems to be more unique to Bank OZK. Can you help us understand how this is going to work? And will that allowance set -- will that be separate from the overall allowance?

George Gleason -- Chairman and Chief Executive Officer

Brian I don't think that is -- or Matt, I don't think that is unique to us. It's just more evident in our numbers because with our construction and development portfolio, we have a much bigger number of unfunded commitments and lot of buying. So Greg, do you want to?

Greg McKinney -- Chief Financial Officer and Chief Accounting Officer

Yeah. So, Matt, obviously, with the $11-plus billion of unfunded under CECL, we have to evaluate that. We have to over our projected period forecast, the funding of that and then run that through our model for purposes of allowance. From a balance sheet standpoint, that will revive in the liability section, not in the allowance section. So we broke those disclosures out.

And evaluating that, Matt, we really kind of ran multiple scenarios, looking at a reasonable optimistic, real -- pessimistic-type scenario, weighting of scenario to try to set bands around our expectations on where that lands on day one and that's what we provided. That should tighten up somewhat as we move throughout Q4 and get ready to go live first quarter of 2020. But, yes, that will reside in the liability section.

From an income statement standpoint, it all runs through provision, but depending on whether you're talking about whether its funded balance is on balance sheet or whether you're talking about unfunded, it can land at a different spot on the balance sheet.

George Gleason -- Chairman and Chief Executive Officer

And I would -- Greg, let me clarify, as far as running through provision, the adoption of CECL day one adjustment is all a...

Greg McKinney -- Chief Financial Officer and Chief Accounting Officer

It's a capital adjustment.

George Gleason -- Chairman and Chief Executive Officer

It's a capital adjustment and the running through provision going forward is a go forward.

Matt Olney -- Stephens -- Analyst

Got it. Okay. Thank you.

Operator

Thank you. And I'm not showing any further questions in the queue at this time. I would like to hand the program back to Mr. Gleason for any further remarks.

George Gleason -- Chairman and Chief Executive Officer

All right. Thank you, guys, very much. We appreciate you joining the call today. Thank you. We look forward to talking with you in about three months. Thank you. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Tim Hicks -- Chief Administrative Officer and Executive Director of Investor Relations

George Gleason -- Chairman and Chief Executive Officer

Greg McKinney -- Chief Financial Officer and Chief Accounting Officer

Ken Zerbe -- Morgan Stanley -- Analyst

Catherine Mealor -- KBW -- Analyst

Timur Braziler -- Wells Fargo Securities -- Analyst

Michael Rose -- Raymond James -- Analyst

Matt Olney -- Stephens -- Analyst

Arren Cyganovich -- Citi -- Analyst

Brock Vandervliet -- UBS -- Analyst

Brian Martin -- Janney Montgomery -- Analyst

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