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Bank OZK (NASDAQ:OZK)
Q4 2019 Earnings Call
Jan 17, 2020, 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 Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conferrence over to your speaker today Mr. Tim Hicks, Chief Administrative Officer. 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.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Ken Zerbe with Morgan Stanley. Your line is now open.

Ken Zerbe -- Morgan Stanley -- Analyst

Great, thanks, good morning. I guess maybe you can start off in terms of that substandard credit that was formerly watchlist. Do you just have a size, the potential losses on that and also the timing of any potential resolution around that? Thanks.

George Gleason -- Chairman and Chief Executive Officer

Good question, Ken. Thank you. We do not have any thoughts on what a loss might be. Obviously, the loan is still performing as an accruing loan, the fact that it's a performing accruing loan is a result of our analysis that projects our future cash flows, interest, principal, payments and so forth on the loan. And while the margins are very thin, we currently project that there will be enough cash flow from the project to repay all of the principal and all of the interest on our loan and of course, we're projecting interest into the future on that using a forward yield curve as a proxy for what interest rates will be in the future.

So based on that there is no present loss in it now. If you look at the appraised value in our bubble chart and our management comments, it is more than 100% loan to value, but obviously the appraisal uses a higher discount rate then the effective rate on our loan. So if you use the effective rate on our loan on a forward yield curve there is no present loss exposure. What would cause there to be loss exposure and would causes credit to move from substandard accruing [Phonetic] to a non-accrual status, would be a change in sales process projected sales velocity interest rates that in some combination of those calls that forward projection of net present value to become negative instead of positive differential over the loan amount. So it's certainly sensors, no present evidence that the loan is impaired, it's premature to talk about what the loss would be.

The timing for resolution, your other question. I think this loan will be with us quite a while. The sponsors are working the project very effectively. And while their fourth quarter sales and signing of sales contracts were a little bit below what we would have hoped for which cause the -- are contributed to the downgrade. The reality is they're still selling townhomes and selling lots, they're still starting new townhomes and working toward development of additional small phase of lots. So I think the expectation we have with us can be a long-term deal and they're going to continue to work it hopefully successfully. And hopefully their sales process and sales velocities will be stable to improving and that will lead the profile of this credit to improve if their sales velocity and sales prices decline that will leave the profile of those credit to decline. So that's about all I can say about it.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. But I guess, in the release you talked about -- so the reason why it was downgraded was because projects are being delayed or canceled, which I guess I kind of think about as being synonymous with sort of deterioration in that sort of the cash flow outlook. I mean is that the right way of interpreting it that that there was a deterioration in this credit, which led it to be downgraded or it was downgraded for some other reason?

George Gleason -- Chairman and Chief Executive Officer

Yes, you're exactly right. We had several, or they had, the sponsor had several contracts fall out some of those were for lots, some for townhomes and they were either fell out or delayed in closing and that resulted in several million dollars less in sales in Q4 than we had previously expected. And we mentioned in our management comments that the sales volume of lots under contract that would have near-term closings was very low. I think there was one at the end of the year and I think they've signed up one since the end of the year on the lot side. The townhome sales are better than the lot sales. So that having a few contracts fall out in Q4, lowered the receipt of cash layer and pushed out the time frame for the development sales and the margins got thinner, the margin for error got thinner as a result of that elongation of the sell-out expectations. So you're exactly right, it's a cash flow issue.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it, OK. And then maybe switching gears just a little bit. In terms of the RESG portfolio. So, I noticed that you did say that both pay-offs and originations should be a little bit higher in 2020. It seems that net-net you should still have positive growth in RESG but just kind of want to get a sense like, is it possible that these balances could be either relatively flat or even down for the -- on sort of on a point-to-point basis in 2020 given payoffs?

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

Hey, Ken, this is Tim. I think I'd point you to Figure 8 on our management comments, which is on Page 9, there we show the trends of our originations by year and the trends of the remaining loans outstanding by year. So you can see in 2016, originations, we had $8 billion of loans originated in 2016, $2.08 billion are still outstanding. And then you can see in 2017, we had $9.1 billion of originations, we're -- at the end of the year, we had $6.06 billion of those balances remaining. Those as we've talked about before, our construction loans typically average about three years in life, somewhere two to four years is the span typically, but the average is around three years.

So if you look at our 2017 origination volume, most of those loans have come -- will come to completion this year and as we've seen in many of our RESG loans is once the project is complete, we get paid off pretty soon after completion. So it's just the cycle of origination volume that we had from three years ago coming through, but the total funded balance will move up. We may have a quarter or two throughout the year, where it's like it was in Q4, which it was down in Q4. And there will be quarters where it's up, but I think our good origination volume that we saw in 2019 and are expected good origination volume that we're expecting in 2020 should help alleviate some of those payoffs that are coming from our previous origination years.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. Okay, all right. Thank you very much.

Operator

Our next question comes from Stephen Scouten with Piper Sandler. Your line is now open.

Stephen Scouten -- Piper Sandler -- Analyst

Hey, good morning, everyone.

George Gleason -- Chairman and Chief Executive Officer

Good morning, Stephen.

Stephen Scouten -- Piper Sandler -- Analyst

So, appreciate obviously all the details you guys gave in Figure 8 is kind of where I wanted to focus as well. It's kind of -- I'm thinking about the forward growth and I get why paydowns will be higher with the '16 and '17 originations, but it seems like those paydowns would start to abate in the back half of 2020 as we move further through that pipeline is that at all possible? And do you think there is some likelihood you could see growth in RESG pick up in the back half of 2020 or 2021? Or is that just too early to say?

George Gleason -- Chairman and Chief Executive Officer

Stephen, I would add a little additional color. And again, I think, Tim took the last question to the right figure which is Figure 8. The majority, probably the remaining originations from 2016, a large percentage of that will pay off a big chunk, although we wouldn't expect near all of the 2017 originations to pay off in 2020. And then we'll have a little bit of the '18 originations that have paid off. One of those loans is already paid off. So you will see will see a high level of payoffs we expect in 2020. And those results will be fairly variable from quarter to quarter. If you look at the first quarter of this year, I think RESG at net funded growth of about if I'm right, $442 million. But it shrunk in Q2, $228 million. It had funded growth in Q3 of $256 million but shrunk in Q4, roughly $157 million. So we had two quarters of positive growth, two quarters of negative growth for the year, RESG's funded balances grew about $314 million. It's kind of go back on Ken's question. It is -- you could paint a scenario where we would have negative RESG growth for the year. We don't paint that necessarily the likely scenario you could also paint scenarios where we had better growth in RESG in 2020 then we did in 2019. But I think the kind of center line of that growth is probably somewhere plus or minus, not terribly far from what we saw in 2019, because again, we're going to have a big wave of payoffs and we should have better originations in 2020. But we're also expecting bigger payoffs. So it probably is pretty much offsetting.

Stephen Scouten -- Piper Sandler -- Analyst

Okay, very helpful color. And then on the NIM commentary, I guess from Page 15, I was a little bit surprised to see that it sounds like even in a unchanged rate environment that you would see additional downside to the NIM, just maybe not the same magnitude. So can you help me with that? And are you guys given any kind of numerical guidance around what you think the magnitude of the incremental compression could be even in a flat rate environment?

George Gleason -- Chairman and Chief Executive Officer

Do you want to take that, Tim?

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

Yes, Stephen, we gave you some comments around our expected increase in deposit costs on our commentary you had referenced Page 15, which is a good reference as well. On Page 17, we talked about our cost of interest bearing deposits. It was down 12 basis points in Q4, which followed a 6 basis point decline in Q3. We did indicate that we didn't think Q1 decline would be as great as the Q4 decline, but we do expect it to decline in Q1. So that, on the deposit funding side that will help. We'll continue to work on our deposit mix and hopefully continue to improve our deposit costs as we go throughout the year on the loan side, obviously, if the Fed doesn't move rates in 2020 and LIBOR stays fairly stable. The impact that we would be dealing with on the loan yield side would come from competitive factors, and obviously we're in a very competitive environment for loans right now. So, the competitive factors for loans and then a slight change in mix, obviously our RESG loan yields are higher than the average in our Community Banking and indirect lending our loan yields are below the average. So I think that's what we're dealing with on the loan yield side, but mostly on from competitive factors from that perspective.

Stephen Scouten -- Piper Sandler -- Analyst

Okay, helpful. And then one last clarify for me this substandard obviously you gave good color that feels pretty well contained. I'm wondering if you could give any insights into any new credit migration, if there is any like where you guys lift the moderate bucket, maybe in your 10-Q. Can you give us any visibility into any early stage migrations that may or may not be occurring.

George Gleason -- Chairman and Chief Executive Officer

I'm not aware, Steve, I'm not aware of any other than our watch credit category went down by a comparable amount that our substandard category went up. So that will show a positive migration in what I mean decline in that balance. I'm not sure of any major changes between our other categories moderate category or any of our other categories.

Stephen Scouten -- Piper Sandler -- Analyst

Okay, perfect. Very helpful. Thanks for the time guys.

Operator

Our next question comes from the line of Daniel Mannix with Raymond James. Your line is now open.

Daniel Mannix -- Raymond James -- Analyst

Yes. Hey guys, good morning.

George Gleason -- Chairman and Chief Executive Officer

Good morning.

I wanted to dig a little deeper into loan dynamics specifically on originations. Have you seen any change in the approval rate on your loan pipeline recently? I think it's been about 5% in the past. Just trying to get a better sense on whether or not you're passing on more loans due to competition or maybe some other factors.

Daniel, I don't -- we don't track that the same way we're used to in regard to flow coming in. So I can't really address that percentage number. I would tell you we are, as Tim alluded to earlier in a very competitive environment, and that seems to be true for all types of loans RESG loans, indirect loans, Community Banking loans of various types. It's just -- it's an environment out there, where volume is desired by a lot of lenders. We're seeing a lot of lenders get very aggressive on credit and very aggressive on rate to get that volume. As we have commented repeatedly and consistently, we're non-negotiable on our credit standards. We will give a certain degree on right but not beyond a point. So our giving [Phonetic] somewhat on right has contributed to declining loan yields are not giving it all on credit, not giving beyond a certain point on right has contributed to our declining loan volume. We continue to believe that that discipline is definitely the right approach. We're not going to waver from that discipline. And we think we'll get rewarded for that when economic conditions reach a point where guys who are being too aggressive get punished for we think we'll be in a great position to shine and grow in a meaningful way at that point in time.

Stephen Scouten -- Piper Sandler -- Analyst

Got it. Thanks, George. So in terms of loan demand, you guided to slightly stronger originations in 2020, but still off from peak levels from a few years ago. Can you tell us what's driving that? Is it increased loan demand in major metros, or is this a case of gaining share of a smaller pie, if you will?

George Gleason -- Chairman and Chief Executive Officer

I would tell you that we're seeing less origination volume in certain markets where you've got an adequate amount of supply, New York would be the poster child for that probably. The New York market is just there is a need for less new product there because there's been a lot of product built and tax and other issues there have diminished the need for a lot of new product. We continue to originate some new volume in New York, but our total commitments in New York at the end of the quarter just ended we're the lowest that they've been since the first quarter of 2018, so lowest in eight quarters. And I would expect that our total commitments funded and unfunded to New York will continue to decline, not because we wouldn't originate good new loans there, we will, but our payoffs there will exceed originations. So in the quarter just ended, we originated loans and a lot of markets Boston, DC area and New York, markets such as Dallas was I think our second largest volume of originations in the quarter just ended; Boston was the largest; Chicago was third; San Francisco was fourth; Atlanta was fifth; you get down and you've got Sacramento, Phoenix Savannah, Philadelphia in the Top 10. And markets that we got a lot of volume in the '16, '17 time frame, Miami and New York are farther down the less. So you've got to go to the markets where the supply demand metrics make sense in their projects that are getting done that make sense. So that is -- in a lot of cases, more secondary markets, or at least not your traditional kind of Top 5 markets in some cases.

So we are finding the volume. My compliments to our loan team for the -- what I think is incredible work that they they did in 2019 originating $6.48 billion of loan originations in RESG up about $1 billion in three quarters from the prior year and still holding very steadfast to our discipline and pricing standards. And to accomplish that, they had to borrow a lot of shoe leather and make a lot of calves [Phonetic] and really study and explore and understand a lot of markets that we got some volume out of that was very helpful to us, high quality, good yielding volume. So it's a good outcome. When you look at the results that our teams achieved and the context of the competitive environment in which we're operating. And the fact that some of the major markets where we've -- in recent years, has gotten a lot of volume just didn't have as much new development that created new demand.

Stephen Scouten -- Piper Sandler -- Analyst

Great color. Thanks, George. That's it for me, gentlemen.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Catherine Mealor with KBW. Your line is now open.

Catherine Mealor -- KBW -- Analyst

Thanks, good morning.

George Gleason -- Chairman and Chief Executive Officer

Hey, good morning.

Catherine Mealor -- KBW -- Analyst

Once, if we could circle back to loan yields and can you provide us just generally where current loan yields are in the Community Banking segment and then the Indirect RV and Marine. As we kind of think about how that mix -- if we're in a flat rate environment, how does that mix change may impact loan yields this year?

George Gleason -- Chairman and Chief Executive Officer

Well, in the Community Banking environment, we've got so many different verticals layer. In Community Banking, so many different types of loans and specialty types of loans we do. Those yields tend to be all over the board depending on that type of loan. I would comment in the Indirect area that you guys noted, I'm sure that our volume of growth in Indirect was probably the lowest in the quarter just ended, that is probably been in a number of quarters. And that reflects the fact that market has gotten very competitive. If you follow the Marine and RV manufacturers at all, you'll get the impression that a lot of those manufacturers are shipping less product because there's less product being sold at retail.

So the fact that there is less consumer paper being originated on fewer Marine and RV sales and there were a year ago is resulting in less [Piper] for lenders to the retail customers such as us and a host of competitors. And some of our competitors have gotten pretty aggressive on both credit and rate. And once again, we're having to be very disciplined on the credit to make sure we get what we want. And we're having to give a little ground on rate to stay in the game. So that is an area where competition has hurt our margins a bit.

Catherine Mealor -- KBW -- Analyst

And is it fair to assume that the Indirect RV and Marine growth will kind of remain around the level you saw this quarter? And if so, is Community Banking momentum enough to offset that. So those two pieces are kind of offsetting.

George Gleason -- Chairman and Chief Executive Officer

That's a really good question Catherine, and it's, number one, we do expect our Community Banking units to be a bit of strength to us in origination volumes, those guys seem to be gaining traction, and it's been slow elevation of their production but they seem to be continuing that trend. The Indirect Marine and RV space is very competitive.

Now one thing that we are doing is we have in conjunction with Cecil implementation, which of course occurred on January 1 of this year. We have built out a series of scorecards over the last couple of years for all of our different loan types. And where we used to have a dozen or fewer risk ratings for loans, we now have 72 risk ratings for loans and all that has been implemented in connection with Cecil. So it lets us grade and refine our credit assessments of loans much more precisely than we have with our models and tools in the past. In addition to that we've been building up large pools of data that we're using in those loan risk ratings and grading assessments. And we're beginning to use a lot of that enhanced data that we've built over the last couple of years, and particularly the last year into our credit analysis and our Indirect Lending and I think that -- as well as other other categories of lending.

But I think that part of our growth equation for Indirect Lending for 2020 will depend on how effective we are and utilizing our enhanced data and modeling and analytics capabilities in that area, which we had a lot of data already and we used a lot of analytics layer previously but we've refined and enhanced all that. And I think our ability to grow that unit equal to or slightly more, slightly less than last year will depend on a combination of one, competitive conditions and two, our ability to use these enhanced tools to be a little more surgical in SaaS [Phonetic] and our pricing and approval of credit. So we're doing things that we think will help us continue to keep the volume up without sacrificing quality at all and without sacrificing our yield on those loans very much at all.

Catherine Mealor -- KBW -- Analyst

Great. And you mentioned Cecil, I could just ask one more on Cecil. Is there any thought that you can give us on how you're thinking about what the potential impact could be to the provision this year. I mean, appreciate it, it will be volatile and you mentioned that in your prepared remarks but anything that we should be thinking about as we model the provision in a post CECL world?

George Gleason -- Chairman and Chief Executive Officer

Well, of course. Essentially reserving for life of loans and for commitments, which you previously not provided for in the past in the form commitments. When you have large origination quarters, you'll have a disproportionate hit to income from CECL. So we'll all be saying hooray, we originated a lot of loans in this quarter and will be trying about the fact that it harmed earnings because you put up a big provision and then in quarters where you have low originations, you will have the opposite impact. So yes. Provision expenses with CECL, because you'll be providing for unfunded commitments and to the extent those grow that will require more provision and you will be providing for life of loan estimated losses not just incurred losses as existed in 2019 and before.

Catherine Mealor -- KBW -- Analyst

Great. Thank you for all the color.

Operator

Our next question comes from the line of Timur Braziler with Wells Fargo Securities. Your line is now open.

Timur Braziler -- Wells Fargo Securities -- Analyst

Hi, good morning. Thank you. If we can circle back to the substandard loan, can you provide an update on the outstanding balance and what the current reserve level is?

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

Yes, Timur. This is Tim. On the outstanding balance, the total commitment is $57.5 million at year-end. I think it was pretty close to that. I mean, within each quarter it goes up and down. But at some quarter ends it's been $50 million or $52 million but throughout the quarter, it will go up and down. And it's fairly close to that $57.5 million at year end. With the migration from watch status to substandard accrual status, it does have a 5% reserve associated with that which is greater than the 2.5% we had allocated to it under the watch rating.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay, thank you. And then maybe just circling back to some of Georgia's recent commentary in the Indirect portfolio, can you provide an example of what some of the competition is doing and being aggressive on the structuring of these credits?

George Gleason -- Chairman and Chief Executive Officer

I'm always reluctant to talk about our competitors. But again, we've seen some competitors get very aggressive on price, which has forced us to adjust our pricing to a degree. And we've seen some competitors get very aggressive on credit, which we've not responded to at all. And typically in the business, your credit is really driven by your credit of your borrower combined with how much you're willing to loan against that. And I think in recent quarters our average -- weighted average loan has been somewhere from about 99% to 104% of dealer wholesale invoice priced, which means our customers, our borrowers, the consumers have a fair amount of down payment either from cash or trade-in or some combination of those in the transaction that provides us some protection and assurance of their commitment to the credit. We've seen some of our competitors being much more aggressive in that regard and allowing a lot of back in and soft cost to be financed and in the loan. So their wide differences and how you approach credit quality in that space and we've always been on the very conservative end of the spectrum there.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay. Maybe switching gears, the cash position continues to grow $1.5 billion here at year-end. It sounds like loan growth is going to be a little bit slower in 2020 than 2019. How should we think about the cash position? Is there any willingness to park some of that in the securities portfolio or is the shape of the yield curve still prohibitive in that front?

George Gleason -- Chairman and Chief Executive Officer

Well, it's -- there is not a lot in the securities world that is very exciting right now. I apologize to our shareholders that earlier in the year late last year, I feel to recognize the tenure at 194 was the screaming back that wasn't immediately obvious to me. But it's just -- it's hard to get excited about much in the securities world and we have had a big focus over the last year of increasing liquidity as measured by various ratios and keeping more cash on balance sheet. That cash position will vary from quarter to quarter, but I think in general we would expect over the next four quarters to see our liquidity ratios continue to improve and our cash position be strong -- stronger at some quarter ends and others, but generally strong. Our philosophy has been to grow capital and increase liquidity and get ourselves in a position to take advantage of opportunities caused by economic turbulence dislocations or whatever when and if those situations arises. So I think we're continuing to pursue that philosophy.

Unidentified Participant

Okay, and one last one from me. Just speaking of capital or the TCE here in north of 15%. I guess what's the main prohibiting factor from starting, or at least announcing a buyback. Are you waiting to see the impact of CECL, is there something else coming down the pipe that we might not be unaware of here I guess -- what's the internal conversation as to why not at least announce a buyback here?

George Gleason -- Chairman and Chief Executive Officer

Well, I think we've given patent estimates on CECL, and those are included in our management comments and obviously there is extra provision, an extra reserve cost associated with CECL. But those are very manageable cost and probably not outside of anybody's expectations for a bank of our size with our level of unfunded commitments. Those are estimated, day one impact of CECL actually came down from the earlier guidance we given a quarter ago. So that's not an issue, and there are no things that I think to use your term or payer pressure terms [Phonetic] that we're aware of that would cause us to hold more capital, it simply reflects the fact that we believe in the long-term ability of our company to grow organically and at the right time through acquisitions. We believe that, that capital will be very useful and important to us in achieving those longer-term objectives and we've for those reasons because we believe in our business model elected to not pursue a share repurchase up to this point. That will be something that our Board will continue to monitor, but we've not pursued it to this point.

Unidentified Participant

Understood. Thank you.

Operator

Our next question comes from the line of Arren Cyganovich with Citi. Your line is now open.

Arren Cyganovich -- Citi -- Analyst

Thanks. With the top line growth somewhat challenged, it sounds like in 2020 you still have operating expenses got it to the high-single digits or are there any levers that you can pull from your expense side to better match the top line growth that you have for 2020 and maybe even forward as well?

George Gleason -- Chairman and Chief Executive Officer

Arren. There are a lot of levers that we could pull. But our focus is on really improving our company and preparing for the future. So we could do what a lot of banks have done and will do in these situations in past and that's why off a lot of people can cut cost and just hunker down [Phonetic]. We are very forward thinking and we really believe intensely in the future prospect and power of our business model and the various business units we've built. So we are continuing to invest significant sums. We're trying to do it is as prudently as we can. But we're continuing to invest significant sums to build our human infrastructure, our technology, our risk systems and all of the other systems controls and things that you need to grow and be a larger bank than we are today and to really deploy and optimize our experience for our customers as well as our results for our shareholders.

And now we could be very short term oriented and say while -- I'm hyper-focused on driving every penny of EPS I can in 2020 and I'm going to cut a bunch of cost and I'm going to be very stingy in paying our people, even the higher performance and risk losing some of those people and whatever, or you can take the approach that we're taking and we believe that when we get pass this wave of payoffs and get a lot of this infrastructure build really finalized in 2020, then we will be in a very strong position to grow and advance our company in 2021 and 2022 and 2023 and we can spend some money investing now so that we've got the people and the processes and the customer relationship and all the things that we need to do to grow in those years and do it in a very meaningful and favorable way for shareholders. We feel like we're very much in a short-term versus long-term decision moved [Phonetic] here. I certainly want our 2020 results to be good, but frankly I'm much more concerned about building the infrastructure and improving our company so that in '21 and '22 and '23, we can do great things. So that's the focus.

In 2019 I've visited every office in our company and spent 45 minutes to 3.5 hours with every team in our Company and I asked two questions repeatedly in every meeting and those questions were, what can we do to improve the experience for our customers every day, every way and what can we do to improve our efficiency and your work environment and make you more efficient, more productive, and as an employee of our company have a more enjoyable work experience because of our -- staff is feeling good about our company and highly motivated that comes across to our customers and in fact comes across to our customers, we have more success growing our business and expanding and building the kind of profitable relationships with customers that we want to have.

So we got literally hundreds and hundreds, I think over 1,100 recommendations for improvement for our staff that we have elected to adopt. We've already implemented somewhere close to 700 or 800 of those improvements over the course of this year. We spent some money doing that and we'll continue to spend some money doing that in the next year. But we think in the world of banking where there are going to be fewer banks every year, that the banks that are going to be successful five years, 10 years and 15 years from now and they're not going to be nearly as many of them. We think that those banks are going to be banks that build exceptional experiences for their customers and we're working really hard on doing that. So we're spending money on that and a lot of other infrastructure development. I can pull back on that, improve EPS a penny or two [Phonetic] a quarter, but I think that would be silly and foolish because I think the long-term potential of what we can achieve if we really take advantage of this slower growth period in which we find ourselves right now to really fundamentally enhance and build and improve the capabilities of our company in a significant way. I think we get paid back for that massively in future years. So I'll ask our shareholders to be a little bit patient, think long term as opposed to short-term and I think if we do that we get a good reward out there for that patients.

Arren Cyganovich -- Citi -- Analyst

Thank you. Very helpful.

Operator

Our next question comes from Matt Olney with Stephens. Your line is now open.

Matt Olney -- Stephens -- Analyst

Hi, thanks, good morning guys.

George Gleason -- Chairman and Chief Executive Officer

Hi, good morning, Matt.

Matt Olney -- Stephens -- Analyst

George I want to stick with this discussion on expenses and I appreciate the long-term focus for shareholders and now looking for shortcuts with layoffs and it also sounds like you're working on ways to become more efficient in the future, but I think we previously thought that the larger infrastructure build out was going to wind down and slow the first part of 2020 and now with the new guidance it seems like the infrastructure build out will continue throughout the year. So I guess the question is that we're wondering is, what's changed over the last few months?

George Gleason -- Chairman and Chief Executive Officer

Well, Matt I'll tell you, we talked about, you know, early in last year that I was really hopeful that we could get a lot of these consulting costs that we were paying out of the company and that we were building a lot of staff members and house to do a lot of that work. And that would allow us to get rid of the consultant with this loan scorecard risk grading projects CECL, a lot of the data building initiatives that we have pursued to really accumulate, manage and get a lot more control over data and some further enhancements that we've made to credit risk and analytics and modeling capabilities and internal audit and so forth. We've continued to spend a little more money probably every quarter than I expected to spend to get to what was fully developed in state of a lot of those initiatives, and we've been slower to get rid of the consulting cost then I had hoped we would be. We're taking another hard run at that and 2020 cautiously optimistic that we will be much more successful in reducing consulting cost in 2020 then we were in 2019. That could help us time some of that expense growth. We also because -- I've visited every office in the company last year and didn't do that. Cello did that with a pretty sizable entourage of community banking people that went with me to really get a much better grassroots view of what's going on in every market and company and so forth. We're trying to really mitigate travel expenses this year. We not only did I go to those markets, but then after I went identified specific issues in the markets and so forth we had a lot of other people go back to work on improving, enhancing whether it was technology process, procedures training whatever, work on various things that we identified, which improved. So we hope to get some of those costs down, but at the same time, we also realized we've got to continue to grow our pool of talented people and that includes people who can originate and produce new business. So we are spending a little more money than I've expected to spend or hope to spend, but sometimes things cost more to get to the end state than you originally expected. So we've continued to experience a little bit out of that. We are trying to cut out unproductive and inefficient expenditures and get more efficient and for example, doing things with our internal team, which we could do less expensively than we can with the consultants. So we're working on it.

Matt Olney -- Stephens -- Analyst

Okay, that's great commentary. Thanks for that. And then switching gears on the deposit side, we've seen a pretty big shift of deposit mix over last two quarters, I think CDs now represent around 40% of overall deposits and it's trending higher. Should we expect an additional shift from here, and if so, what's driving that mix shift of deposits?

George Gleason -- Chairman and Chief Executive Officer

Yes, I think we're seeing a couple of things there. Number one is when rates were very low, a lot of people parked in money market accounts and savings accounts because there was not much yield difference between money market and savings and CDs and you've seen a steady migration that continues even now as rates went up and CD rates got higher, people began to be a little more judicious about how they manage that money and we've seen a lot of that trend, and we're seeing that trend continue. And then secondly, we had some wholesale sources of deposits that were in money market accounts or other non-CD accounts. We are making a concerted effort to improve the quality of our deposit base. And this is part and part of our tour of all the branches and so forth. So in a lot of our rural markets, one of the keys to attracting new deposits and new relationships and building core customers is driven from the CD side of the business. So we're replacing in a lot of cases wholesale non-CD deposits that were chunkier and probably more volatile with local market CD deposits that are much, much smaller more granular and much less volatile and have the additional benefit of giving us cross-sell opportunities for core count relationships and so forth. So this is a conscious decision. And while they -- you would normally look at it and say the mix, the shift in mix from non-CD to CD is an adverse shift. We actually view that as a positive shift when you get down and you really drill into the part of it that is due to wholesale non-CD funding sources being reduced and deference [Phonetic] or preference for retail CD funding sources. So there is a bigger strategy at work here. We think that strategy will be very beneficial to us longer term.

Matt Olney -- Stephens -- Analyst

Thank you.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Brock Vandervliet with UBS. Your line is now open.

Brock Vandervliet -- UBS -- Analyst

Great, thank you. The problem, the downgraded credit, this is the Tahoe credit that we've talked about in the past, yes?

George Gleason -- Chairman and Chief Executive Officer

Yes, yes near Tahoe, it's in -- near Truckee.

Brock Vandervliet -- UBS -- Analyst

Got it. At this point, are all the proceeds from lot and home sales are those going directly to repay the loan or pay the interest on the loan or is only a portion of that?

George Gleason -- Chairman and Chief Executive Officer

Brock, there is a revolver in the facility for home construction and a revolver in the facility for lot development. So the the proceeds basically come and pay the loan down and then they're building new townhomes, developing new lots from that. So these are revolving, principally revolving facilities that the money does come in and pay it down, but it gets redeployed to build the next phase of the project or the next units in the project?

Brock Vandervliet -- UBS -- Analyst

Has there been discussion of just locking down the principles in terms of, hi guys, let's not pursue the next phase, let's wrap it up and take our lumps and move on?

George Gleason -- Chairman and Chief Executive Officer

I think the much more prudent approach is to these guys have decent to good sales velocity and pricing momentum. I think the much more prudent course Brock is to -- as long as they are having good success doing it let them continue to develop this thing out. This is a very nice project and it's a very viable project. The simple reality is this project started right before the Great Recession. It got severely revalued as a result of the Great Recession and never -- has never gotten a much higher valuation somewhat higher, but not fully recovered, what were the original expectations on it. As a result, you just got too much debt. So you have an overleveraged project, is clearly evident from the loan to value on it and it's a excellent real estate asset that is being well received by consumers and townhomes are selling, lots were selling, homes are being built on many of the lots that are selling. So it's a very viable project. It just has too much debt in it and we think the way to maximize our credit and hopefully avoid any loss in the credit is to continue to let these guys execute the business plan and get this thing worked through. Now there will reach a point in a couple of years where they, there will be no more lots to develop, there will be no more -- fewer townhomes to build and the loan will begin to amortize as a result of that and the revolvers will go down because you're not replacing existing product with new products. So it's a working project.

Brock Vandervliet -- UBS -- Analyst

How far, where are we from that point, where it's just paying down, would you say?

George Gleason -- Chairman and Chief Executive Officer

A couple of years into the future, and I don't know the exact date Brock, but it's going to be here for a while.

Brock Vandervliet -- UBS -- Analyst

Got it, OK. Thanks, George.

Operator

Our next question comes from Jennifer Demba with SunTrust. Your line is now open.

Jennifer Demba -- SunTrust -- Analyst

Thank you. Good morning.

George Gleason -- Chairman and Chief Executive Officer

Good morning.

Jennifer Demba -- SunTrust -- Analyst

Question about deposit. You brought in a Chief Deposit Officer about a year ago. You talked a little bit about a few minutes ago about CDs and getting some more retail CDs versus wholesale, what other strategies have been implemented or do you plan to implement in terms of gathering or improving the funding mix?

George Gleason -- Chairman and Chief Executive Officer

An excellent question. We're approaching that from all sorts of different directions. And I think making some progress but, we're clearly looking at our deposit products set and we are in the process of redesigning all of that deposit products set and we will roll those products out probably in the second quarter of this year there is possibility we might roll those out, some of them like first quarter, but I think more likely it's a second quarter 2020 rollout. At that point the -- most of the existing deposit products will become back BackWerk [Phonetic] products and we will be selling totally new products that we think that is going to include a number of features that will be very much desired and appreciated by our customers that will have us in a situation where we're selling our products based on the, the quality and convenience and the philosophy of those products as opposed to solely on price. So we think that helps us both in customer acquisition and and cost of funds. We are also working to make sure that our commercial products are much more desirable and we're a much more effective competitor for that, we will be rolling out tentatively schedule April [Phonetic] and major revamp of our Marshall products and how our customers interact with -- I'm sorry, August. said April, August. The other item -- and that is a very technology based evolution of our commercial products.

We think that will again be very well received. We're working on an evolution of our technology for our customers, interact with us on wire transfers that we will roll out in early 2021. We are working on a -- and have implemented really a total redesign of our retail banking staff as a result of having visited every office in the company, our Chief Banking Officer and Chief Retail Banking Officer have redesigned the job descriptions and job titles where we employee in the company. We made 15 acquisitions. We slotted people from those acquisitions and to job descriptions that fed in our former legacy Bank OZK world but didn't necessarily match up with the cultures and staffing of some of the banks we acquired. And as we visited every office, Cindy Wolfe and Carmen McClennon, Cindy is our Chief Banking Officer and Carmen is our Head of Retail Banking, Chief Retail Banking Officer and Alan Jessup who is our Head of Community Banking on the lending side and all of our specialty lending verticals and community banking realized that we really had a lot of people somewhat miscast and we're not maximizing the potential. So, after going through every branch, investing in every branch and really understanding at a very detailed level, what's going on in the branches, the four of us and several other people went through every single employee in the company.

And talked about those employees with their supervisors, managers and their managers managers and supervisors and reassigned job descriptions and titles for every person on the retail side of the company that we think will allow us to maximize the individual potential to contribute to our success and our customers in the company. We also revamped our and the process of revamping our call center and digital services, we've revamped over the last year marketing and we've revamped what used to be training, which is now organizational learning and development all with the goal of helping us be a much more potent force in retail banking and deposit gathering. So, we're taking a very broad and holistic approach to this as well as a digging down into the details at very point of attack. So I'm very excited about where I believe our company is going to go and evolve to has been a highly competitive retail bank. We've also taken all of our online apps. We went through a very significant conversion, which required us to write a lot of code to do it and got all of those consolidated into a single app that allows us the functionality and flexibility to add various features along the way without having to burden our customers with having five apps on their mobile device or seven apps on their mobile device it at all integrates to one single app and you can move very fluidly and very quickly from one function to the other. This was a huge undertaking and puts us in a good foundational position to really begin the rollout a much more effective and desirable mobile banking platform going forward. So we've been working on a lot of things and we spend a lot of money on these things, but I'm convinced there is a great pay back that will ultimately come from this work.

Jennifer Demba -- SunTrust -- Analyst

Thanks, George.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Brian Martin with Janney Montgomery Scott. Your line is now open.

Brian Martin -- Janney Montgomery Scott -- Analyst

Hi, good afternoon.

George Gleason -- Chairman and Chief Executive Officer

Hi, good afternoon, Brian.

Brian Martin -- Janney Montgomery Scott -- Analyst

Hi, just one question, George. Just, I appreciate all the color on the infrastructure build. Just kind of thinking about kind of the efficiency and how trends play out, it sounds as though the expenses, expense growth rate could moderate some in 2021, so I guess the way to think about it the efficiency should trend a bit higher as you continue to do, continue to execute on what you've outlined, and then maybe moderate some back in 2021. Is that kind of fair how to think about it, or how much impact efficiency could have this year with the, with the change in kind of the build out?

George Gleason -- Chairman and Chief Executive Officer

Brian, I think, given the fact that we've got very conservative growth expectations for 2020 given the payoffs that we've already talked about and the competitive environment, I think you're probably thinking about that correctly that the, the trend and the efficiency ratio in 2020 is probably up not down, if we can begin to moderate that right -- expense growth in 2021 and we can get more in line with our historical growth rates in 2021 and 2022, then I think we can begin to see that efficiency ratio get better. So you're exactly right.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay, and then just one back to the loan yield. I think you talked about the community banking in the indirect, but just on the RESG, are you seeing yields there on new production kind of stabilize, are you still feeling pressure to kind of give a little bit on the rate there for the right credit you're looking at?

George Gleason -- Chairman and Chief Executive Officer

Well, I think you always in any environment, you find yourself that for particular credit and particular relationship you give a little bit on pricing. You know, one of the challenges that we've had in RESG is in 2016 and 2017, we were in a much less competitive environment for construction and development loan origination. So we got wider margins and we talked about that in that period of time that a lot of banks have pulled back from the space and we were getting wider margins and then as the binds came back into this space those margins got back toward more normal margins and with the Trump tax cuts we tried to hold the margins, but a lot of banks just begin and debt funds and others began to sort of blade those margins, lower taking advantage of lower tax rates to get more competitive on the, on the loan side. I don't think our margins versus LIBOR or in a prime rate, I don't think we've seen much degradation in our margins over the last year versus that. But clearly the margins that we were working within that team or less than the margins we were achieving in '16 and '17. So as those older loans have rolled off and the newer loans have rolled down, we've probably been replacing those at a lower margin but I don't think that's particularly changed over the course of '19. I think it's more of a '19 versus '16 and '17. So phenomenon that it is a Q1 of '19 versus Q4 of '19.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay, that's helpful. And just last thing for me is just going back to that figure 8, when you talked about the outsized payoffs this year, I guess, it seems like the messages if that two to three year, two to four year window on these loans funding up I guess is that suggested 2021 could see a healthy decline in the payoffs given that normal cycle, is that the right way to think about it?

George Gleason -- Chairman and Chief Executive Officer

I think that's the most logical interpretation of the data. 2018 was $4.74 billion in originations [Phonetic] that is going to be 2020, mostly 2021 lesser extent 2022 set of payoffs. And that compares to the 2017 $9.1 billion. So when we originated the 2016 and 2017 large numbers, we knew that we're going to pay off at some point in time, and the hope was we would be able to continue to find an ever-growing world of opportunities and keep out running that payoff wave and obviously when construction and development activity slowed down and competition got very aggressive in '18 and we originated less volume, we began understand as time has gone on that the differential in originations payoff wise was going to create what happened to us and that team and will probably happen in '20 and that will have some pretty slow growth years till we get through that. So I do think you're right that we ought to have less payoff headwinds in '21 and '22 than we've had in '19 and '20.

Brian Martin -- Janney Montgomery Scott -- Analyst

Got you. Okay. I appreciate all the color. Thanks.

George Gleason -- Chairman and Chief Executive Officer

All right, thank you.

Operator

Our next question comes from the line of Stephen Scouten with Piper Sandler. Your line is now open.

Stephen Scouten -- Piper Sandler -- Analyst

I'm sorry, I didn't have any further questions. Apologies.

George Gleason -- Chairman and Chief Executive Officer

All right, thank you.

Operator

With that, I'm showing no further questions in queue, I'd like to turn the call back to Mr. Gleason for closing remarks.

George Gleason -- Chairman and Chief Executive Officer

All right, well thank you all very much for joining the call today. We greatly appreciate your time and attention and we look forward to talking with you again in about 90 days. Have a great first quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

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

George Gleason -- Chairman and Chief Executive Officer

Ken Zerbe -- Morgan Stanley -- Analyst

Stephen Scouten -- Piper Sandler -- Analyst

Daniel Mannix -- Raymond James -- Analyst

Catherine Mealor -- KBW -- Analyst

Timur Braziler -- Wells Fargo Securities -- Analyst

Unidentified Participant

Arren Cyganovich -- Citi -- Analyst

Matt Olney -- Stephens -- Analyst

Brock Vandervliet -- UBS -- Analyst

Jennifer Demba -- SunTrust -- Analyst

Brian Martin -- Janney Montgomery Scott -- Analyst

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