Bank of the Ozarks (OZK) Q2 2022 Earnings Call Transcript

Bank of the Ozarks (OZK 0.63%)
Q2 2022 Earnings Call
Jul 22, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by and welcome to the Bank OZK second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator instructions] As a reminder, today's program may be recorded.

And now I'd like to introduce your host for today's program, Jay Staley, director of investor relations. Please go ahead, sir.

Jay Staley -- Director of Investor Relations and Corporate Development

Good morning. I'm Jay Staley, director of investor relations and corporate development for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. In today's Q&A session, we may make forward-looking statements about our expectations, estimates, and outlook for the future.

Please refer to our earnings release, management comments, and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements. Joining me on the call to take your questions are George Gleason, chairman and CEO; Brannon Hamblen, president; Tim Hicks, chief financial officer; and Cindy Wolfe, chief operating officer. We will now open up the lines for your questions. Let me now ask our operator, Jonathan, to remind our listeners how to queue in for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Timur Braziler from Wells Fargo. Your question, please.

Timur Braziler -- Wells Fargo Securities -- Analyst

Hi. Good morning, everyone.

George Gleason -- Chairman and Chief Executive Officer

Good morning, Timur.

Timur Braziler -- Wells Fargo Securities -- Analyst

Maybe just looking at the pace of origination activity in RESG, that was quite impressive. Was that consistent throughout the quarter? Was that front-loaded? And then I'm just trying to gauge what the broader kind of uncertainty has done for demand within that product more recently.

George Gleason -- Chairman and Chief Executive Officer

All right. Well, Timur, with your permission, I'm going to let Brannon Hamblen, our president, take that question. So, Brannon, go ahead.

Brannon Hamblen -- President

All right. Timur, good morning. Thanks for the question and happy to answer. We did have very good originations in Q2.

And as to front-loaded, back-loaded, middle-loaded, it was really consistent through the quarter. We are very pleased that that growth is still very diverse in terms of its location. We continue to achieve a strong diversity across the country and a strong diversity with respect to product type as well. So there's consistency in that story, and the pipeline as we look forward remain strong.

We acknowledge some of the macroeconomic factors and events that are being watched and reported, geopolitical events, etc., etc. But here in our business, the pipeline continues to be very strong with the type of product that we continue to see great sponsors, great projects across a number of markets.

Timur Braziler -- Wells Fargo Securities -- Analyst

OK. Thank you for that. And then the commentary for the expectation of continued record repayments, paydowns in 2022, but for positive loan growth, is that pertaining specifically to RESG that you think that fundings can outpace paydowns for the remainder of the year? Or is that for the portfolio as a whole?

George Gleason -- Chairman and Chief Executive Officer

Let me take that, and Brannon, you may want to add some color. I think we expect, as we've said, a record year of paydowns in RESG and we'll have substantial paydowns in Q3 and Q4. RESG is going to be net-net over the next couple of quarters of push to probably I think we're leaning toward slightly positive growth in the RESG portfolio over the next couple of quarters in regard to funded balances. We've got pretty good momentum, as you guys saw on the other lines of business.

Our asset-based lending group has gotten good traction. Our indirect lending group has had positive growth several quarters in a row, and our community banking group and our corporate and business specialties group, while they've had negative growth, very slightly negative, and funded balances has actually been increasing their unfunded book. So that unit is growing even though it's not translating through into funding balances. So we -- the guidance we gave is that total loans we expect to grow over the remainder of second half of the year.

I think RESG may be a small contributor to that on a net funding basis, but a likely positive contributor. If paydowns accelerate a chunky loan or two get some there imposed down, that could not materialize on the RESG side, but we expect positive growth in the aggregate over the second half of the year.

Timur Braziler -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Michael Rose from Raymond James. Your question, please.

Michael Rose -- Raymond James -- Analyst

Hey, good morning, guys. Thanks for taking my question. Just following up on the loan growth, yeah, you guys did have really nice growth in some of the other businesses, but how should we think about pulse? What the market will give you and then your desire to continue to grow those businesses should the economic backdrop deteriorate and we do move closer to a recession? I would think that some of those businesses you would want to slow down potentially the growth, and just wanted to get some just broader contextual thoughts on how we should think about the non-RESG businesses. Thanks.

George Gleason -- Chairman and Chief Executive Officer

Well, Michael we have a long term commitment to conservative underwriting. And while we don't really change our underwriting standards from quarter to quarter and year to year and add up cycles and down cycles, macroeconomic conditions do affect the ability of borrowers to qualify for our underwriting standards, so an adverse environment will lead to a slowdown. Brannon's already mentioned that our RESG pipeline is good and really strong at this point going forward. Obviously, the more severe the macroeconomic downturn and the higher interest rates go, that will longer term in future quarters weigh against that forward pipeline.

But even with that, even in the most severe times we've been through in the 19 years that RESG has been a better business unit, we've found opportunities that make sense every quarter throughout that and quality sponsor, quality projects that make economic sense. So I think, yes, that could lead to a lower level of pipeline strength if the economy got in a very adversely affected condition but the portfolio is strong now. As far as other lines of business that varies a lot from line of business to line of business. Our asset base lending group is dealing with really high quality customers who have strong earnings and EBITDA, but need the additional capital that monetization of their inventory and receivables allow them.

So there'll be people that will do less well and won't qualify in the future, but they'll still be business opportunities, I would think, given the skill and experience of that group. The indirect lending group may be the most impacted because if we do get in a situation where the Fed destroys enough demand in the economy that it really is affecting the job markets significantly, that is a consumer line of business. And obviously, RV is a big part of our business and higher gas prices do have some impact on consumer's desire to buy RV. So I could see a combination of higher gas prices and weakening job market conditions and weakening financial market conditions that would affect consumer balance sheets, the valuation of consumer balance sheets weighing against us.

So it wouldn't surprise me if our positive growth number in the indirect portfolio got compressed as the economy gets worse. But generally, we feel pretty good about the prospects for continued growth. And the bottom line of that is with $17.3 billion in unfunded loans, we've got significant growth potential for 2023 and 2024 in the can, already booked and moving toward funding as the equity and other capital structure and components of those loans are funded in front of us. So we feel very positive about our ability to book funded growth in 2023 and 2024 under a wide range of macroeconomic scenarios.

Michael Rose -- Raymond James -- Analyst

That's great color, George. And maybe just a follow up on RESG itself, the growth in unfunded commitments this quarter was really strong. And I know historically during times of concern or stress, competitors in that space that you compete against have historically pulled back and you've been able to get better spreads, better risk-adjusted returns. I understand the credit box is very, very tight, but are you starting to see that dynamic unfold? And in that environment, even if the pie of available potential loan opportunities continues to shrink, should we expect to see a similar dynamic, where you would get an increasing share of that pie just because the competitors pull back? Thanks.

George Gleason -- Chairman and Chief Executive Officer

Yeah. Brannon, you're closer to that on a day to day, minute to minute basis than I am, so please take that one.

Brannon Hamblen -- President

You bet. Michael, you, I think, hit the nail on the head there. We are starting to see some of that. And there are different institutions pull back for different reasons.

I think a lot of institutions have had pretty good loan volume and some maybe reaching sort of their -- the top of their allocation. I think there -- in the bank world, maybe in the debt fund world, it's more around their leverage lenders reaching allocations but for different reasons and different places, we are seeing some pullback. And our guys do a phenomenal job of knowing where the market is and we're always pushing the lower limits on leverage and upper limits on spread. And here in the last couple of months, we are making good progress in that area.

And seeing situations where we might have bid for a particular project and lost it to another party, higher leverage and lower pricing. And those -- some of those deals are not closing. Good deals, absolutely makes sense to do but we're getting revisited and, of course, we do our best to capital and capitalize on those opportunities to get the most attractive leverage and spread that we can. So I don't want to overstate massive pullback, but we are seeing evidence of that in the market.

And to George's point, structure every deal in the portfolio to make sure we're in a position to know that our credit's good and that we can stay in the market and find those great sponsors with great deals that we can continue to make good loans to.

Michael Rose -- Raymond James -- Analyst

Appreciate it. Maybe just one final one for me. Just on the buyback, you got about $170 million left. Is there the desire to continue to use that as kind of a go-forward tool beyond the current authorization? Meaning should we think about buyback as just one of the proverbial arrows in the quiver for Ozark, for OZK moving forward, whereas historically we did not.

I know it was a big step for you guys to initially authorize it after seemingly years of contemplation. But is this something that we should consider as part of the toolbox moving forward? Thanks.

George Gleason -- Chairman and Chief Executive Officer

That's a chief financial officer question. So, Tim Hicks, please take that one.

Tim Hicks -- Chief Credit and Administrative Officer

Yeah. Hey, Michael. Yeah, I appreciate the question. I think we will have conversations with our board regarding that as we approach or get into the fourth quarter.

As you know, a lot goes into that consideration. Current macro environment, growth potential, organically or through M&A. So a lot of factors go into that. As you pointed out, we've made good use of our authorization so far and we've got strong earnings, strong capital.

So we've got a lot of opportunities to use our earnings and capital going forward. And we'll just have to have that conversation at the right time with our board.

Michael Rose -- Raymond James -- Analyst

Understood. Thanks for taking my questions.

Operator

[Operator instructions] Our next question comes from the line of Matt Olney from Stephens. One moment. Your line is now open.

Matt Olney -- Stephens, Inc. -- Analyst

Hey. Thanks, guys. Can you hear me?

George Gleason -- Chairman and Chief Executive Officer

Yes, we can. Thanks for joining.

Matt Olney -- Stephens, Inc. -- Analyst

All right, good. Well, thanks for taking the question. I want to ask more about funding the back half the year and to the extent that the bank achieves loan growth, how are you thinking about the funding aspect of it and what do you expect this to come from? It seems like the reliance on wholesale borrowings is pretty low. Is that something you would consider the back half of the year or you think you can fund this growth with core deposits?

George Gleason -- Chairman and Chief Executive Officer

Chief banking officer, Cindy Wolfe. Cindy, take that one.

Cindy Wolfe -- Chief Banking Officer

Great. Thank you. Well, first of all, we always have large unfunded RESG. And of course, they overlap with our RESG payoffs, so you have to look at both.

So the question isn't so much how we're going to fund it because we'll fund it using the same channels we've used in the past, but rather how well are we going to be able to optimize the funding for timing and pricing and duration and mix. So we have the benefit of a really seasoned deposits team at this point. Ottie Kerley, chief deposit officer; Carmen McClennon, chief retail banking officer; Drew Harpe, managing director of wholesale deposits, all of us have been working together for years now to position ourselves to meet really the demands of any economic rate cycle. So we've been working on our fundamentals, our core deposit growth.

Of course, you can see our growth in non-CD deposits this quarter. And we -- I want to point out, we hit an all time high. And our number of personal checking accounts, we have more savings account growth than we've ever had in our history. And so we expect a positive momentum with growing core to continue.

We have reduced our concentrations, as we've talked about in the past. We've improved our composition. And RESG is very diligent about projecting fundings and payoffs, but we've improved on our agility and our ability to be precise and react to that as part of that team. All that said, we do plan to increase CD volume as we need to.

And we've added, for example, some brokered deposits toward the beginning of the quarter that just happened to be very good pricing and locked in some decent pricing there. So I expect that we'll need to supplement our deposit growth with CDs and other deposit sources over time as needed as we have in the past.

Matt Olney -- Stephens, Inc. -- Analyst

OK. Thank you for that, Cindy. And then, I guess, switching gears over to the operating expense side. I think the commentary last night said that it's been a little bit slower to fill some of the open positions in 2Q, but we'd love to hear about kind of the outlook for expenses in the back half of the year.

George Gleason -- Chairman and Chief Executive Officer

Yeah, I'm pleased to report we really have had good momentum in the last five or six weeks. And adding staff and probably added net 100 plus positions over that last six week period of time. So we're finally getting this logjam of unfilled positions flowing at a really nice rate. But Tim, I'll let you address the overhead parts of that.

Tim Hicks -- Chief Credit and Administrative Officer

Yeah, you're right, George. I mean, we pretty much kept a fairly stable headcount number throughout Q2. And we're already with the progress that George is mentioning. We're already seeing an increase in the number of teammates that we have on staff and are looking to continue to fill those positions, really to support our future growth, which we certainly view as a positive.

But we'd certainly expect non-interest expense, total non-interest expense to increase probably several million dollars each quarter for the next few quarters as we fill those positions, as we give raises to our teammates and continue to grow our bank.

Matt Olney -- Stephens, Inc. -- Analyst

OK, guys. Thank you.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Brian Martin from Janney. Your question, please.

Brian Martin -- Janney Montgomery Scott -- Analyst

Hey, guys.

George Gleason -- Chairman and Chief Executive Officer

Good morning, Brian.

Brian Martin -- Janney Montgomery Scott -- Analyst

Say, just a quick comment or just some commentary. I'd love to hear some thoughts on just kind of the margin outlook. I see that obviously a number of loans have moved through their floors, will continue to move through the floors if we get the rate hikes that we're expecting. But also know that some of the pricing on the new production is a little bit less than it was on the old stuff.

So just kind of the really nice expansion this quarter, just kind of looking at the follow through in the next couple of quarters, how I think about that or some commentary there would be helpful.

George Gleason -- Chairman and Chief Executive Officer

Yeah. A lot of moving parts there. And Brian, you mentioned that you remembered from our last several press releases that we commented that the new loans we're originating, particularly in RESG, were on a little tighter spreads than loans we might have originated a year or two years ago. And Brannon alluded to that in the comment that he made earlier.

And you saw that I think that comment probably disappeared from this edition of our management comments document. And that comment disappeared because, as Brannon indicated earlier, competitors have dropped out of the space. Those competitors who were unlike us, not here all the time in the space, some of them have dropped out. We're getting better margins on deals we're quoting today, even deals we've quoted, a quarter or two quarters ago.

So that comment disappeared purposefully from the management comments document, and that's helpful. As you saw in the quarter just ended, our non-purchased loan yields were up 18 basis points. Obviously, the Fed, three Fed rate increases so far, skewed light toward the quarter with that 75-basis-point increase later in the quarter. We're getting the impact of that.

Our loans are getting off their floors. And most of them, it seems like, will be off their floors this month after the next Fed meeting next week. So the loan yields are going up. And as we said in our management comments, we expect those will continue to go up.

Most of our variable rate loans are tied to SOFR and LIBOR. So those are sort of forward-looking indexes. We use 30-day LIBOR. One month LIBOR and one month term SOFR for those.

So those rate increases tend to get the right price down on a daily basis on a ratable basis, starting about 30 days in advance of the expected increase. So that translates into our loan yields going up a little bit on the fast side. Most of our interest-bearing deposits, or CDs, so they tend to like going up, hence. You had an 18-basis-point increase in deposit or in loan yields, non-purchased loan yields and a six-basis-point increase in deposits.

We would expect, and Cindy referenced that lag in her comments, we would expect to most likely continue to see loan yields outrun deposit cost early in the cycle and then late in the cycle when the loan pricing changes are pretty much all priced in. Fed's about to stop or has stopped deposit cost of CD's rollover will tend to catch up. So probably late in the cycle we may have a quarter or two where deposit costs go up more than loan yields. And if that coincides to the point where we're really growing deposits more aggressively to fund a lot of this growth that's already loaded into our balance sheet, we can certainly see a quarter or two where deposit cost accelerate faster than loan growth.

But obviously we've got a great net interest margin, a great core spread and we expect that to continue. And we've got a short duration securities portfolio and get that really short over the last couple of years. And we're getting good cash flows, as we alluded to in the management comments documents, from that securities portfolio. And that's given us an opportunity to either use that cash flow to fund loans or reinvest that in securities.

And last quarter, we found some pretty decent reinvestment opportunities we like. We're finding some this quarter being very particular and very careful and trying to get real value when we purchase securities. But the guys are doing a really good job of that and being patient and that has some favorable implications for that yield on that securities portfolio as well. So cautiously optimistic about our ability to really keep a great NIM throughout the tightening cycle.

Brian Martin -- Janney Montgomery Scott -- Analyst

Gotcha. That's helpful, George. And just the -- as far as have you changed your outlook on just kind of through the cycle deposit beta or just how you're thinking that will play out as it picks up over time?

George Gleason -- Chairman and Chief Executive Officer

I think we'll do a lot better than we did in the last cycle for all the reasons that Cindy enumerated. Our deposit team and our retail banking team have been doing a great job growing core deposits and they continue to grow core deposits nicely. This last quarter, they've got good momentum, I think, on that going forward. We feel we do.

So they're doing the right fundamental things day in, day out to grow core deposits. Now we will -- we let some expensive CDs go this quarter because we didn't need the deposits. We can get those back or replace them with other CDs when we need them later. So I think they've done a really good job of positioning us.

Will our deposit costs go up? Absolutely. And I think Cindy mentioned they probably go up more in Q3 than they did in Q2, the quarter just ended. They certainly will go up more, but we think the deposit betas are going to be very tolerable and our deposit guys are doing a really good job in managing that process.

Brian Martin -- Janney Montgomery Scott -- Analyst

Gotcha. OK. That's really helpful. And maybe just one last one for Tim was just on -- I think Michael already asked about the buyback.

But just as far as M&A goes, given kind of the market conditions and there's might be opportunities going forward, is that something that's still being considered? I know you had some good activity or conversations in the past, but just wondering if that's changed with the market dynamics here.

Tim Hicks -- Chief Credit and Administrative Officer

Yeah. I would say that the conversations are few and far between right now, just given the macroenvironment and the rate cycle. And certainly when you start to think about mark to markets on loan books in this type of cycle and investment portfolios, you can get some pretty meaningful purchase accounting type marks that will impact pricing from a buyer perspective that may not be fully reflected in seller expectations. So I think there's just too much uncertainty in the macroenvironment right now for much for very much M&A to happen for the foreseeable future.

Brian Martin -- Janney Montgomery Scott -- Analyst

Yeah. OK, perfect. That makes sense. That's what I thought.

Just confirm it, but thanks for taking the questions and nice quarter, guys.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator instructions] And our next question comes from the line of Catherine Mealor from KBW. Your question, please.

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

Thanks. Good morning, everyone.

George Gleason -- Chairman and Chief Executive Officer

Good morning, Catherine.

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

Wanted to go back on the margin on just on loan yields. Were there any -- was there any level of elevated loan fees this quarter? Maybe what did that look like relative to last quarter, just given the level of payoffs we saw?

George Gleason -- Chairman and Chief Executive Officer

It's hard to say what's normal, but we consider this certainly to be a normal quarter. Now, we had a comment and our management comments document that was noting that our net interest income this quarter was almost exactly in line with our fourth quarter of last year when we did have significant fees on prepayments and short-term extensions or renewals. And I think probably shouldn't put that comment in there in retrospect, because I think it might have been confusing to some people, but this most recent quarter was what we would consider a very typical quarter. So thank you for the question, Catherine, and letting me clear that misunderstanding.

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

OK. Great. And then on just the deposit rates, you would certainly expect deposit costs to come up this quarter. Is there any indication of maybe what June deposit costs look like? Just to kind of give us a sense as to where those moves to the quarter.

And then on that comment, in CDs, it's interesting that you've continued to see CDs decline. Is it fair to say that we could see kind of some of these higher cost CDs decline again, maybe next quarter and then really the CD growth is kind of a more of a 2023 event? Or how do you think about the timing of when we'll see the CD portfolio bottom?

George Gleason -- Chairman and Chief Executive Officer

Catherine, I don't know. And I don't think Cindy and her team know that yet. They're going to monitor week to week, day to day, probably hour to hour sometimes as expectations regarding findings and prepayments get updated continuously in our world. So I think that's one factor, just the changes and expectations literally day to day on what our prepayments and fundings are going to look like on a weekly and daily basis, in monthly basis over the remaining part of the year.

And then the other thing Cindy mentioned, we did add some brokered deposits in Q2. And that really wasn't because we needed those deposits, but our wholesale funding guys were monitoring the market and they got an opportunity to add several hundred million dollars at -- that have some term to them and that had relatively favorable rates. And they looked at it and thought it was an opportunistic time to take advantage, capitalize on an opportunity there in the market. So they added that.

So if we find similar opportunities where we feel like those deposits are a bargain and we're going to need them in Q1 or Q2 or Q3 of next year, and we want to go ahead and lock up some funding for that, they might do that. Otherwise, it will just be a day to day pricing decision based on the day to day adjustments and our expectation for funding needs going forward. We could have kept the deposits that -- the time deposits that we let roll out in Q2 had we been willing to pay a little bit higher rate for them, but we didn't need them. And it's a present value analysis.

If you buy them today at one rate or you buy them six months later when you need them at 100 basis points higher rate, what's the net present value in the best long term lap of cycle outcome for the bank? So they're doing very careful decisions on that. And I think they did a great job managing our deposit cost and keeping us with plenty of deposits, and I think they'll continue to do that going forward.

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

OK. That's helpful. And then I was a little bit ways. If you talked about this already, I apologize.

But just on the originations, it looked like when I looked at one of your charts that kind of showed the number of loans, it was interesting because it looked like a lot of the new originations this quarter were on the -- kind of more on the smaller end of the range. Is that -- would you say that's more of what's available or is there any kind of intentional shift there?

George Gleason -- Chairman and Chief Executive Officer

No kind of intentional shift and I think you'll see quarters where the average loan size originated is down. I think you'll see quarters where the average loan size originated is really high. I think it's just the randomness of it. And Brannon, you might want to comment on what you guys are saying size wise.

And you may also want to comment on the fact that we are doing more business in secondary markets now, and those tend to be smaller deal size and that's just to diversify the portfolio geographically. So Brannon, add any comment you want on that.

Brannon Hamblen -- President

No, you're exactly right, George. And I think one thing I would say is I'm just incredibly proud of the team, both in terms of the where, the what, and the how many. I mean, it wasn't just a record in terms of dollars originated, but it was a record in terms of number of loans originated. So that does, obviously, a higher number, ways that average down we had.

I think it was 82 million average loan size closed in the quarter, which was probably a little lighter than Q1. I think we're doing a great job at both ends of the spectrum, Catherine. We're seeing opportunities with -- that we have and increasing volume with larger loans, new sponsors, great projects. But to George's point, our guys just keep hammering away at some of these tertiary markets and we continue to grab a new one here and there, it seems like every quarter or so.

And so it's all of the above. It's not a particular focus other than just on quality. And the guys are doing a great job of digging up quality and across the size spectrum.

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

Great. And then maybe my last question is just on the reserve. It was interesting that you've got more weighting toward the adverse scenario, which makes sense, so you can be conservative there. But is it fair to say that as we move through -- all the baselines change, I feel like, on a daily basis.

And so as we move through the next couple of months, as the baseline changes, does the baseline perhaps kind of move a little bit closer to the adverse or worsens a little bit? Is it -- does that mean there's less risk for you to have a larger CECL reserve build because you've already got so much weighted toward an adverse scenario that likely won't change? Or if we do kind of start to see more recessionary signs, naturally, we're still going to see reserve building for you?

George Gleason -- Chairman and Chief Executive Officer

Yeah. For the last couple of quarters, we had the -- up until this most recent quarter in, we had the heaviest weight on the stagflation scenario and secondary whites on the -- what was then known as the protracted slump and the least rate on the baseline scenario because the baseline scenario when you dug into all the assumptions and it looked like a pretty much an upside scenario to us, and as we looked at the political, geopolitical, fiscal policy, monetary policy macroeconomic environment in all its forms, we just didn't -- we thought that was too positive a scenario. The stagflation scenario has become a more benign scenario. The baseline has gotten a little more realistic, but still looks like an upside scenario, so we shifted our waiting to the protracted slump.

We're conservative people. So we tend to look at that adverse range of outcomes and think about running our business constantly in terms of what can happen and prepare for that. So I think we've tended to be on the more conservative side in our scenario selection. Obviously, if we get in a situation where the baseline assumes an economic downturn, then the baseline probably becomes more heavily weighted.

But right now, the baseline scenario on Moody's seems to be pretty positive and not saying they're wrong, but it's just not consistent with our conservative view of the world. Tim, you might want to comment on that too.

Tim Hicks -- Chief Credit and Administrative Officer

No. George, you summarized it very well. And Catherine, I think you put a note out earlier this month on the July baseline for Moody's has already gotten a little bit more negative than the June version. And we were utilizing the June version of all these scenarios.

And so it's a matter of us really digging into the details of each scenario, evaluating those at quarter end and selecting the weightings that we think is appropriate, given our view of what the macroeconomic trends are showing us at the time.

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

Got it. And it feels like a lot of your reserve builds is actually more coming from your unfunded commitments versus what's on balance sheet. And so is there -- does the CECL model -- how does that shift when you're moving from unfunded to kind of funded? Is there -- is that just the move from one bucket to the next or do you get -- is there more provision when you're actually moving from unfunded to funded that could drive provisions higher as we kind of work through the unfunded commitment bucket?

Tim Hicks -- Chief Credit and Administrative Officer

No. I mean, a lot of dynamics underlying that question, Catherine. On the funded balance, if you just looked at the funded balance and looked at our asset quality on balance sheet asset quality, over the last several quarters, it's improved tremendously. Our non-performing loans, non-performing assets are down, our sub standards are down, our special mentions are down quarter over quarter.

Our pass through ratio is really favorably low. And then if you looked -- really, if you looked at the bubble chart, you would have seen some of the higher LTV loans in the bubble chart paid off this quarter. So the funded balance and some of the older vintage loans that are see have paid off over the previous quarters. So the funded balance asset quality is continuing to improve.

So that's part of that dynamic. And then --

George Gleason -- Chairman and Chief Executive Officer

From -- improving from an already really good level, yeah.

Tim Hicks -- Chief Credit and Administrative Officer

A very low level. And then it's just how the models are working through the scenario selections and the mix of loans that we have and the unfunded balance changes that a little bit and that's grown a little bit, a few basis points quarter over quarter.

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

Got it. OK. Very helpful. Thank you so much.

Operator

Thank you. [Operator instructions] Our next question is a follow up from Timur Braziler from Wells Fargo. Your question, please.

Timur Braziler -- Wells Fargo Securities -- Analyst

Hi. Thanks for the follow up. Just a couple points of clarification. In the release, you had mentioned that 20 million of additional buyback was completed during the first 20 days of July, but the third quarter repurchases wouldn't exceed 100 million.

I'm just wondering why kind of the pause off of the current run rate. Is that just keeping dry powder for opportunities later on or is there visibility for other uses of that capital? Just any color around that statement would be appreciated.

George Gleason -- Chairman and Chief Executive Officer

Well, our authorization goes through the first part of Q4. So the expectation that we would limit Q3 buybacks to probably not more than 100 million is just to keep some powder dry for Q4.

Timur Braziler -- Wells Fargo Securities -- Analyst

OK. And then just lastly, on the commentary around job openings and accelerating, getting through some of the logjam, as you put it. What's the remaining level of vacancies? And is the expectation that you keep on hiring through the rest of the year or are these 100-plus positions that you added over the last couple of months, does that primarily fill up the open positions you're looking to fill?

George Gleason -- Chairman and Chief Executive Officer

We've got about probably after those positions, those people show up and start working, most some have, some haven't. But after those positions with those positions that we've probably got, I don't know, 225 to 250 other open positions. Now we normally will have 3% or 4% of our staff positions open because we're looking for candidates to a specific deal. So I would say we're 125 to 150 positions remaining to be filled that would need to be filled to get us to what we would consider a normal level of open positions.

So fairly significant hiring still to go. And as Tim mentioned in his remarks, a lot of those newly created positions, some are refill existing positions but there are quite a few newly created positions in there. And those positions are there because we expect to continue to grow and actually see an acceleration in our balance sheet growth in '23 and '24. And we're glad to have our business in a position where we feel confident enough about growth over the next couple of years to still be adding new positions to manage that growth.

Timur Braziler -- Wells Fargo Securities -- Analyst

Great. Thank you, George.

George Gleason -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Mr. George Gleason, chairman and CEO, for any further remarks.

George Gleason -- Chairman and Chief Executive Officer

Thank you guys for being on the call today. We appreciate it and we look forward to those results. Thank you. Have a good one.

[Inaudible] 92 days, whenever, on our next quarter's results. So thank you. Have a good quarter. Have a good day.

That concludes our call.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Jay Staley -- Director of Investor Relations and Corporate Development

Timur Braziler -- Wells Fargo Securities -- Analyst

George Gleason -- Chairman and Chief Executive Officer

Brannon Hamblen -- President

Michael Rose -- Raymond James -- Analyst

Tim Hicks -- Chief Credit and Administrative Officer

Matt Olney -- Stephens, Inc. -- Analyst

Cindy Wolfe -- Chief Banking Officer

Brian Martin -- Janney Montgomery Scott -- Analyst

Catherine Mealor -- Keefe, Bruyette and Woods -- Analyst

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