Stellar Bancorp(STEL)

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Stellar Bancorp(STEL) - 2023 Q2 - Earnings Call Presentation
2023-07-29 20:04
Second Quarter 2023 Earnings Presentation Forward-Looking Statements and Non-GAAP Financial Measures Certain statements in this press release which are not historical in nature are intended to be, and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements about the benefits of the me ...
Stellar Bancorp(STEL) - 2023 Q2 - Earnings Call Transcript
2023-07-29 20:04
Financial Data and Key Metrics Changes - The company reported a net income of $35.2 million for Q2 2023, with diluted earnings per share of $0.66, a slight decrease from $37.1 million or $0.70 in Q1 2023, primarily due to rising funding costs [7][9] - The annualized return on average assets (ROAA) was 1.31% and return on tangible common equity was 17.05% [7] - Net interest margin (NIM) contracted from 4.80% in Q1 to 4.49% in Q2, and from 4.38% to 3.97% when excluding purchase accounting accretion [9] Business Line Data and Key Metrics Changes - The company experienced modest loan growth of just over $182 million, with an allowance for credit losses to total loans at 1.24% [11] - Non-interest income normalized to a lower level, while non-interest expenses decreased due to lower merger expenses [20] Market Data and Key Metrics Changes - The company maintained a strong base of non-interest bearing deposits at around 43% of total deposits, which helped manage funding costs [8] - Wholesale funding sources increased significantly, with FHLB advances rising from $239 million to $370 million and brokered CDs from $203 million to $538 million in Q2 [21] Company Strategy and Development Direction - The company aims to concentrate on capital, liquidity, and credit management, tightening credit underwriting while still achieving modest loan growth [5] - The management believes the industry will continue to consolidate, and the company intends to position itself to benefit from this trend [19] Management's Comments on Operating Environment and Future Outlook - The management acknowledged challenges from rising interest rates and economic uncertainty but expressed optimism about stabilizing deposit costs and attracting new deposits [4][5] - The company is focused on efficiencies through technology and expense control as it integrates operations post-merger [17] Other Important Information - Total risk-based capital increased from 12.39% at year-end 2022 to 13.03% at June 30 [10] - The company is optimistic about its future prospects, citing a strong team and successful rebranding efforts [12] Q&A Session Summary Question: Trends in deposits and stabilization - Management noted that most deposit migration occurred earlier in the quarter, with encouraging signs of net new core deposits being attracted [33] Question: Loan growth outlook - The company expects moderate loan growth, focusing on good margins and safe loans, with a cautious approach to commercial real estate [68][70] Question: Capital priorities and M&A - The management indicated a focus on building capital for potential M&A opportunities while balancing dividends and share repurchases [113][114] Question: Tax rate expectations - The weighted average tax rate year-to-date is expected to be more reflective of future performance [122]
Stellar Bancorp(STEL) - 2023 Q2 - Quarterly Report
2023-07-28 20:30
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________________ FORM 10-Q _______________________________________________ S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023 OR £ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 001-38280 ____________________ ...
Stellar Bancorp(STEL) - 2023 Q1 - Quarterly Report
2023-05-04 20:06
```markdown PART I—FINANCIAL INFORMATION [Interim Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Interim%20Consolidated%20Financial%20Statements) The interim consolidated financial statements present the financial position, results of operations, and cash flows of Stellar Bancorp, Inc. for the periods ended March 31, 2023, reflecting the significant impact of the October 1, 2022 merger with CBTX, Inc., with Allegiance Bancshares, Inc. as the accounting acquirer, making post-merger results not directly comparable to prior periods - On October 1, 2022, Allegiance Bancshares, Inc. and CBTX, Inc. completed a merger of equals, with CBTX as the legal acquirer and Allegiance as the accounting acquirer. The combined company was renamed Stellar Bancorp, Inc. Financials for periods after this date are **not comparable** to prior periods[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets were $10.60 billion, a decrease from $10.90 billion at December 31, 2022, primarily driven by a reduction in deposits from $9.27 billion to $8.74 billion, while total loans, net, increased to $7.79 billion from $7.66 billion, and total shareholders' equity increased to $1.45 billion from $1.38 billion Consolidated Balance Sheets (Unaudited) | (In thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$10,604,718** | **$10,900,437** | | Total cash and cash equivalents | $263,333 | $371,705 | | Available for sale securities, at fair value | $1,519,175 | $1,807,586 | | Loans, net | $7,789,856 | $7,661,571 | | Goodwill | $497,260 | $497,260 | | **Total Liabilities** | **$9,158,502** | **$9,517,261** | | Total deposits | $8,738,875 | $9,267,632 | | Borrowed funds | $238,944 | $63,925 | | **Total Shareholders' Equity** | **$1,446,216** | **$1,383,176** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) For the three months ended March 31, 2023, the company reported net income of $37.1 million, a significant increase from $18.7 million in the same period of 2022, driven by a substantial rise in net interest income to $115.8 million from $55.2 million, primarily due to the merger, while diluted EPS was $0.70, up from $0.64 year-over-year Consolidated Statements of Income (Unaudited) | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Interest Income | $115,827 | $55,172 | | Provision for credit losses | $3,666 | $1,814 | | Total noninterest income | $7,498 | $4,018 | | Total noninterest expense | $72,598 | $34,517 | | Income Before Income Taxes | $47,061 | $22,859 | | **Net Income** | **$37,148** | **$18,657** | | **Diluted EPS** | **$0.70** | **$0.64** | | Dividends Per Share | $0.13 | $0.10 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) For the first quarter of 2023, comprehensive income was $67.1 million, a significant turnaround from a comprehensive loss of $63.2 million in Q1 2022, driven by net income of $37.1 million and other comprehensive income (net of tax) of $30.0 million from a favorable change in unrealized gains on available for sale securities Consolidated Statements of Comprehensive Income (Unaudited) | (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income | $37,148 | $18,657 | | Other comprehensive income (loss), net of tax | $29,980 | $(81,860) | | **Comprehensive income (loss)** | **$67,128** | **$(63,203)** | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity increased from $1.38 billion at year-end 2022 to $1.45 billion at March 31, 2023, primarily due to **$37.1 million** in net income and a **$30.0 million** positive change in other comprehensive income, partially offset by **$6.9 million** in cash dividends declared - Total shareholders' equity increased by **$63.0 million** during Q1 2023, reaching **$1,446.2 million**. Key drivers were net income of **$37.1 million** and other comprehensive income of **$30.0 million**[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first quarter of 2023, cash and cash equivalents decreased by $108.4 million, with net cash provided by operating activities at $49.0 million, net cash provided by investing activities at $203.0 million largely from securities sales and maturities, and net cash used in financing activities at $360.4 million primarily due to a net decrease in deposits Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Three Months Ended March 31, 2023 | | :--- | :--- | | Net cash provided by operating activities | $49,017 | | Net cash provided by (used in) investing activities | $203,026 | | Net cash (used in) provided by financing activities | $(360,415) | | **Net Change in Cash and Cash Equivalents** | **$(108,372)** | | Cash and Cash Equivalents, Beginning of Period | $371,705 | | **Cash and Cash Equivalents, End of Period** | **$263,333** | [Condensed Notes to Interim Consolidated Financial Statements](index=8&type=section&id=Condensed%20Notes%20to%20Interim%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies and financial data, covering reverse merger accounting for the CBTX transaction, loan and securities portfolio composition, allowance for credit losses, fair value measurements, derivative instruments, borrowings, regulatory capital, and stock-based compensation [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Q1 2023 financial results, highlighting the significant impact of the CBTX merger, which led to net income rising to $37.1 million driven by a 109.9% increase in net interest income, covering loan portfolio growth, deposit decreases, asset quality, and the company's strong liquidity and capital positions, with an efficiency ratio of 58.96% [Overview and Merger Impact](index=35&type=section&id=Overview%20and%20Merger%20Impact) The report details the October 1, 2022 merger of equals between Allegiance Bancshares, Inc. and CBTX, Inc., forming Stellar Bancorp, Inc., accounted for as a reverse merger with Allegiance as the accounting acquirer, resulting in historical financial statements prior to the merger reflecting only Allegiance's results and making direct period-over-period comparisons challenging - The merger was accounted for as a reverse merger, with Allegiance as the accounting acquirer and CBTX as the legal acquirer. Consequently, historical financial statements of Allegiance became the historical statements of the combined company for all periods prior to **October 1, 2022**[146](index=146&type=chunk) - Financial results for periods after the merger are **not comparable** to periods prior to the merger due to the significant impact on all aspects of the company's financial statements[147](index=147&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) For Q1 2023, net income increased to $37.1 million from $18.7 million in Q1 2022, primarily due to the merger, with net interest income growing **109.9%** to **$115.8 million** driven by higher asset balances and yields, expanding the tax-equivalent net interest margin to **4.80%** from **3.30%**, while noninterest expense increased **110.3%** to **$72.6 million** including **$6.2 million** in merger-related costs, resulting in an efficiency ratio of **58.96%** Key Performance Metrics (Q1 2023 vs Q1 2022) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Income | $37.1M | $18.7M | | Diluted EPS | $0.70 | $0.64 | | Net Interest Income | $115.8M | $55.2M | | Annualized ROA | 1.38% | 1.04% | | Annualized ROE | 10.62% | 9.40% | | Efficiency Ratio | 58.96% | 58.32% | Net Interest Margin Analysis (Q1 2023 vs Q1 2022) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Average Yield on Interest-Earning Assets | 5.80% | 3.56% | | Average Rate on Interest-Bearing Liabilities | 1.91% | 0.51% | | Net Interest Rate Spread | 3.89% | 3.05% | | Net Interest Margin (Tax Equivalent) | 4.80% | 3.30% | - Noninterest expense increased by **$38.1 million** YoY, primarily due to a **$17.0 million** increase in salaries, a **$6.1 million** increase in amortization of intangibles, and **$5.7 million** in additional acquisition and merger-related expenses[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) [Financial Condition](index=41&type=section&id=Financial%20Condition) As of March 31, 2023, total assets stood at $10.6 billion, with total loans growing by **1.7%** during the quarter to **$7.89 billion**, commercial real estate comprising **51.0%** of the portfolio, while total deposits decreased by **5.7%** to **$8.74 billion** due to seasonality and market pressures, and nonperforming assets remained stable at **0.41%** of total assets Loan Portfolio Composition (March 31, 2023) | Loan Type | Amount (in thousands) | Percent | | :--- | :--- | :--- | | Commercial real estate (including multi-family) | $4,014,609 | 51.0% | | Commercial and industrial | $1,477,340 | 18.7% | | Commercial real estate construction and land dev. | $1,034,538 | 13.1% | | 1-4 family residential (including home equity) | $1,008,362 | 12.8% | | Other | $351,195 | 4.4% | | **Total loans** | **$7,886,044** | **100.0%** | Asset Quality Metrics | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Nonperforming Assets (NPA) | $43.5M | $45.0M | | NPA to Total Assets | 0.41% | 0.41% | | Nonperforming Loans to Total Loans | 0.55% | 0.58% | | Allowance for Credit Losses to Total Loans | 1.22% | 1.20% | - Total deposits decreased by **$528.8 million** (**5.7%**) to **$8.74 billion** at March 31, 2023, from **$9.27 billion** at December 31, 2022. Noninterest-bearing deposits decreased by **$352.3 million** (**8.3%**)[226](index=226&type=chunk) - Estimated uninsured deposits, excluding collateralized deposits, totaled **$4.06 billion**, or **46.4%** of total deposits at March 31, 2023[226](index=226&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position, with primary sources being deposits, borrowed funds, and asset maturities, with total immediate contingent funding sources at **$4.46 billion**, or **51.1%** of total deposits at March 31, 2023, and capital levels remaining robust and well above regulatory requirements, categorizing Stellar Bank as '**well-capitalized**' - Total immediate contingent funding sources, including unrestricted cash, unpledged securities, and total borrowing capacity, amounted to **$4.46 billion**, representing **51.1%** of total deposits at March 31, 2023[247](index=247&type=chunk) Consolidated Capital Ratios (March 31, 2023) | Ratio | Actual | Minimum Required + Buffer | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 10.39% | 7.00% | | Tier 1 Capital | 10.50% | 8.50% | | Total Capital | 12.72% | 10.50% | | Tier 1 Leverage | 9.01% | 4.00% | - As of March 31, 2023, Stellar Bank was categorized as '**well-capitalized**' under all regulatory measures[253](index=253&type=chunk)[255](index=255&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate volatility, managed by the Balance Sheet Risk Committee (BSRC) using simulation models to test the sensitivity of net interest income (NII) and economic value of equity (EVE) to interest rate shocks, with the balance sheet positioned to be slightly liability-sensitive in the short term, and the transition away from LIBOR substantially complete Interest Rate Sensitivity Analysis (As of March 31, 2023) | Change in Interest Rates (Basis Points) | Percent Change in Net Interest Income | Percent Change in Economic Value of Equity | | :--- | :--- | :--- | | +300 | (3.6)% | 0.0% | | +200 | (2.7)% | 2.7% | | +100 | (1.8)% | 4.4% | | -100 | (0.9)% | 0.0% | | -200 | (2.8)% | (7.5)% | - The company's transition away from LIBOR is **substantially complete**, with less than **1%** of loans indexed to LIBOR as of March 31, 2023[264](index=264&type=chunk) [Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2023, concluding that these controls were **effective** at a reasonable assurance level, with **no material changes** to the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were **effective** as of the end of the period covered by the report[265](index=265&type=chunk) - **No changes** in internal control over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[266](index=266&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to claims and litigation arising in the ordinary course of business, but management believes that the resolution of these matters will **not have a material adverse effect** on the company's financial condition or results of operations - The company is **not party to any legal proceedings** that management believes would have a material adverse effect on its business, financial condition, or results of operation[267](index=267&type=chunk) [Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) The company highlights adverse developments affecting the financial services industry, specifically citing recent bank failures in Q1 and Q2 2023, which have caused market volatility and concern over liquidity and soundness, posing potential risks including reputational damage, deposit outflows, increased FDIC assessment costs from special assessments, and heightened credit risk with counterparties - Recent bank failures (Silicon Valley Bank, Signature Bank, First Republic Bank) have caused significant market volatility and uncertainty, which could adversely affect the company's financial condition and stock price[268](index=268&type=chunk)[269](index=269&type=chunk) - Potential losses to the FDIC's Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, which could increase the company's FDIC insurance costs and adversely affect earnings[272](index=272&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a share repurchase program authorized in 2022, allowing for the repurchase of up to **$40.0 million** of its common stock through September 30, 2023, with **no shares repurchased** under this program during the three months ended March 31, 2023 - The company has a **$40.0 million** share repurchase program, which is effective through **September 30, 2023**[274](index=274&type=chunk) - There were **no stock repurchases** made by the company during the three months ended March 31, 2023[276](index=276&type=chunk) [Defaults upon Senior Securities](index=54&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) There were **no defaults** upon senior securities during the reporting period - **None**[277](index=277&type=chunk) [Mine Safety Disclosures](index=54&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is **not applicable** to the company - **Not applicable**[278](index=278&type=chunk) [Other Information](index=54&type=section&id=Item%205.%20Other%20Information) There was **no other information** to report for the period - **None**[279](index=279&type=chunk) [Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as Inline XBRL documents[281](index=281&type=chunk) ```
Stellar Bancorp(STEL) - 2023 Q1 - Earnings Call Presentation
2023-04-28 18:33
First Quarter 2023 Earnings Presentation These statements include, but are not limited to, statements about the benefits of the merger of equals (the "Merger") between Allegiance Bancshares, Inc. and CBTX, Inc. which became effective on October 1, 2022, including future financial performance and operating results, the Company's plans, business and growth strategies, objectives, expectations and intentions, and other statements that are not historical facts, including projections of macroeconomic and industr ...
Stellar Bancorp(STEL) - 2023 Q1 - Earnings Call Transcript
2023-04-28 18:31
Financial Data and Key Metrics Changes - The net income for Q1 2023 was $37.1 million, with diluted earnings per share of $0.70, an annualized return on assets (ROA) of 1.38%, and a return on tangible common equity of 19.32% [11] - The adjusted net interest margin (NIM) was stable at 4.38%, consistent with the previous quarter, despite industry pressures [12] - Tangible book value per share increased by 8.7% from $14.02 to $15.24, and tangible equity to tangible assets rose to 8.15% from 7.24% in the previous quarter [25] Business Line Data and Key Metrics Changes - Deposits decreased by $529 million or 5.8% from $9.3 billion at year-end to $8.7 billion, with a significant portion attributed to seasonal factors and government banking group activities [14] - The bank originated approximately $530 million in loans at an average rate of 7.59%, up nearly 100 basis points from the previous quarter [35] - The average account balance was $81,000, excluding government deposits, with uninsured deposits net of collateralized deposits at about $4.1 billion, representing 46.4% of total deposits [22] Market Data and Key Metrics Changes - The bank's liquidity position is strong, with immediate liquidity sources of $4.5 billion covering about 110% of uninsured deposits [23] - The bank's strategy has focused on maintaining core funding and managing liquidity effectively in a competitive deposit market [20][21] Company Strategy and Development Direction - The company aims to maintain strong margins and pre-tax pre-provision earnings power while prudently managing the liability side of the balance sheet [13] - The management emphasized a cautious approach to new credit, particularly in the commercial real estate sector, while seeking strategic opportunities [37][38] - The company is positioned to take advantage of opportunities as the Federal Reserve concludes its rate hikes, with a focus on building capital and maintaining liquidity [15][27] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by the failures of Silicon Valley Bank and Signature Bank, but expressed confidence in their strong customer relationships [7][9] - The management believes that the current operating environment, characterized by rising interest rates, presents both challenges and opportunities for the bank [10][27] - The future outlook for Stellar Bancorp is positive, with expectations of continued growth and stability in a robust market [15][27] Other Important Information - The company completed a successful system conversion of merged banks, enhancing operational efficiency [6] - The management highlighted the importance of maintaining a favorable mix of non-interest bearing deposits, which accounted for 44.4% of total deposits [21] Q&A Session Summary Question: Deposit trends in the quarter - Management noted that outflows were primarily driven by rate peaking and seasonal factors, with no significant increase in account closures [33][34] Question: Loan pricing dynamics - The bank originated loans at higher rates, with new loans averaging 7.59% and renewed loans at 7.63%, indicating successful repricing opportunities [35][36] Question: Risk-adjusted returns and cautious areas - Management is cautious about new credit in commercial real estate but sees opportunities in C&I loans and residential construction [39][40] Question: Liquidity profile and securities sales - The bank is open to opportunistic sales of securities to improve liquidity but does not feel pressured to do so at this time [45][46] Question: Cost savings and expense management - Management is on track with cost savings from the merger and expects to maintain a stable expense base moving forward [47][48] Question: Capital accretion and buyback considerations - The management is considering buybacks but wants to navigate current uncertainties before making decisions [83]
Stellar Bancorp(STEL) - 2022 Q4 - Annual Report
2023-03-15 20:06
Table of Contents 21 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 001-38280 | Stellar Bancorp, Inc. | | --- | (Exact name of registrant as specified in its charter) (State or other jurisdiction ...
Stellar Bancorp(STEL) - 2022 Q4 - Earnings Call Transcript
2023-01-27 18:51
Financial Data and Key Metrics Changes - The company ended Q4 2022 with $10.9 billion in assets, reflecting the impact of the merger and purchase accounting adjustments [16] - Net income for the quarter was $2.1 million, translating to $0.04 in EPS, significantly impacted by merger-related and nonrecurring items [23] - The net interest margin (NIM) was reported at 4.71%, with an adjusted NIM of 4.38% after excluding purchase accounting accretion [24] Business Line Data and Key Metrics Changes - Loans increased by approximately $200 million over the quarter, ending at $7.75 billion [20] - Deposits decreased by $116.9 million, with a notable decline in interest-bearing deposits [21] - The cost of interest-bearing deposits has risen due to competitive market conditions [22] Market Data and Key Metrics Changes - The economic backdrop in Houston remains strong, with job growth expected to be around 150,000 for the year [39] - The company anticipates loan growth in 2023 to be in the low to mid-single digits, reflecting a cautious approach to lending [35] Company Strategy and Development Direction - The company is focused on solidifying the merger and enhancing its operational efficiency while navigating a challenging economic environment [6][12] - Management emphasized the importance of maintaining liquidity, capital, and credit quality as strategic priorities [8][12] - The merger is seen as a significant opportunity to enhance shareholder value and operational capabilities [11][13] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the economic environment and the Federal Reserve's actions to control inflation [12] - The company is optimistic about its long-term prospects, citing a robust economic backdrop and a strong franchise position [13] - There is a focus on protecting net interest income and margin while being prepared for potential economic challenges [81][95] Other Important Information - The company recognized $11.5 million in merger-related expenses during the quarter, impacting overall expenses [29] - The allowance for credit losses ended the year at $93.2 million, or 1.2% of loans, reflecting a conservative approach to credit risk [27] Q&A Session Summary Question: What is the outlook for loan growth given the economic backdrop? - Management indicated that while the economic environment is strong, loan growth is expected to be cautious, with a focus on maintaining credit quality [39][41] Question: Are there any updates on the timing of synergies from the merger? - Management confirmed that synergy targets remain unchanged and are on track to be realized by mid-year [43] Question: How is the company managing its interest margin in the current environment? - The company is focused on protecting its net interest margin while being optimistic about potential upside from loan repricing opportunities [80][81] Question: What are the expectations for capital actions moving forward? - Management emphasized the importance of capital build and flexibility, with no immediate plans for buybacks but valuing it as a future option [87][75]
Stellar Bancorp(STEL) - 2022 Q4 - Earnings Call Presentation
2023-01-27 13:10
Forward-Looking Statements and Non-GAAP Financial Measures Certain statements in this presentation which are not historical in nature are intended to be, and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors th ...
Stellar Bancorp(STEL) - 2022 Q3 - Quarterly Report
2022-10-28 20:31
[PART I — FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements – (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%E2%80%93%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements of Stellar Bancorp, Inc. and its subsidiary for the three and nine months ended September 30, 2022 and 2021, and as of September 30, 2022 and December 31, 2021 - The financial statements are unaudited and prepared in accordance with GAAP, but do not include all information and footnotes required for complete consolidated financial statements[28](index=28&type=chunk) - Interim accounting measurements rely more on estimates and are not necessarily indicative of full-year results due to global economic conditions, interest rates, liquidity, and market competition[29](index=29&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total Assets | $4,271,831 | $4,486,001 | $(214,170) | (4.8%) | | Total Liabilities | $3,770,406 | $3,923,876 | $(153,470) | (3.9%) | | Total Shareholders' Equity | $501,425 | $562,125 | $(60,700) | (10.8%) | | Cash and due from banks | $41,219 | $27,689 | $13,530 | 48.9% | | Interest-bearing deposits | $329,229 | $922,457 | $(593,228) | (64.3%) | | Total cash and cash equivalents | $370,448 | $950,146 | $(579,698) | (61.0%) | | Loans, net | $3,093,844 | $2,836,179 | $257,665 | 9.1% | | Securities | $511,282 | $425,046 | $86,236 | 20.3% | | Total Deposits | $3,723,774 | $3,831,284 | $(107,510) | (2.8%) | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | % Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total Interest Income | $44,673 | $32,697 | $11,976 | 36.6% | $114,789 | $99,864 | $14,925 | 14.9% | | Total Interest Expense| $1,661 | $1,448 | $213 | 14.7% | $4,275 | $4,507 | $(232) | (5.1%) | | Net Interest Income | $43,012 | $31,249 | $11,763 | 37.6% | $110,514 | $95,357 | $15,157 | 15.9% | | Provision (recapture) for credit losses | $1,012 | $(4,895) | $5,907 | 120.7% | $1,573 | $(9,566) | $11,139 | 116.4% | | Total Noninterest Income | $3,449 | $5,562 | $(2,113)| (38.0%) | $12,324 | $12,164 | $160 | 1.3% | | Total Noninterest Expense | $29,321 | $24,372 | $4,949 | 20.3% | $77,731 | $72,854 | $4,877 | 6.7% | | Net Income | $12,747 | $14,421 | $(1,674)| (11.6%) | $35,049 | $36,143 | $(1,094)| (3.0%) | | Basic EPS | $0.52 | $0.59 | | | $1.43 | $1.48 | | | | Diluted EPS | $0.52 | $0.59 | | | $1.43 | $1.47 | | | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | :-------------------------- | :-------------------------- | :----- | | Net income | $12,747 | $14,421 | $(1,674)| $35,049 | $36,143 | $(1,094)| | Change in unrealized gains (losses) on securities available for sale | $(29,119) | $(3,446) | $(25,673)| $(92,244) | $(5,493) | $(86,751)| | Other comprehensive loss, net of tax | $(23,004) | $(2,723) | $(20,281)| $(72,873) | $(4,339) | $(68,534)| | Total comprehensive income (loss) | $(10,257) | $11,698 | $(21,955)| $(37,824) | $31,804 | $(69,628)| [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) | Metric (in thousands) | Dec 31, 2021 Balance | Sep 30, 2022 Balance | Change | | :-------------------- | :------------------- | :------------------- | :----- | | Common Stock | $253 | $240 | $(13) | | Additional Paid-In Capital | $335,846 | $308,197 | $(27,649)| | Retained Earnings | $237,165 | $262,804 | $25,639 | | Treasury Stock | $(14,196) | $0 | $14,196 | | Accumulated Other Comprehensive Income (Loss) | $3,057 | $(69,816) | $(72,873)| | Total Shareholders' Equity | $562,125 | $501,425 | $(60,700)| - During the nine months ended September 30, 2022, the Company retired **826,995 treasury shares** with a cost basis of **$14.0 million** and repurchased **510,161 shares** at an average price of **$29.48**[30](index=30&type=chunk)[31](index=31&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $39,723 | $54,980 | $(15,257)| | Net cash (used in) provided by investing activities | $(437,330) | $190,678 | $(628,008)| | Net cash (used in) provided by financing activities | $(182,091) | $215,120 | $(397,211)| | Net increase (decrease) in cash, cash equivalents and restricted cash | $(579,698) | $460,778 | $(1,040,476)| | Cash, cash equivalents and restricted cash, ending | $370,448 | $998,785 | $(628,337)| - Purchases of securities increased to **$662.6 million** in 2022 from **$630.2 million** in 2021[24](index=24&type=chunk) - Net increase in loans was **$204.9 million** in 2022, a significant shift from a net decrease of **$312.7 million** in 2021[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=13&type=section&id=NOTE%201:%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and practices applied in preparing the financial statements, including details on the recent merger and new accounting standards - Stellar Bancorp, Inc. (formerly CBTX, Inc.) operates **34 branches in Texas** and completed a merger of equals with Allegiance Bancshares, Inc. on October 1, 2022[25](index=25&type=chunk)[26](index=26&type=chunk) - The Company retired **826,995 treasury shares** (**$14.0 million** cost basis) and repurchased **510,161 shares** (**$29.48** average price) during the nine months ended September 30, 2022[30](index=30&type=chunk)[31](index=31&type=chunk) - ASU 2022-02, effective after December 31, 2022, eliminates the troubled debt receivable (TDR) accounting model for CECL adopters and is not expected to significantly impact the Company's financial statements[32](index=32&type=chunk)[36](index=36&type=chunk) [NOTE 2: SECURITIES](index=15&type=section&id=NOTE%202:%20SECURITIES) This note details the Company's securities portfolio, including amortized cost, fair value, and unrealized gains and losses | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Amortized Cost | $599,813 | $421,193 | $178,620 | | Total Fair Value | $511,282 | $425,046 | $86,236 | | Gross Unrealized Gains| $0 | $6,371 | $(6,371) | | Gross Unrealized Losses| $(88,531) | $(2,518) | $(86,013)| - The shift to net unrealized losses of **$88.5 million** at September 30, 2022, from net unrealized gains of **$3.9 million** at December 31, 2021, is primarily due to increases in market interest rates[42](index=42&type=chunk)[252](index=252&type=chunk) - Management does not believe any securities were impaired due to credit quality, as issuers continue timely payments and unrealized losses are expected to recover as securities approach maturity or repricing[42](index=42&type=chunk) [NOTE 3: EQUITY INVESTMENTS](index=20&type=section&id=NOTE%203:%20EQUITY%20INVESTMENTS) This note provides information on the Company's equity investments, including Federal Reserve Bank stock, Federal Home Loan Bank stock, and CRA investments | Investment (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------ | :----------- | :----------- | | Federal Reserve Bank stock| $9,271 | $9,271 | | Federal Home Loan Bank stock| $3,991 | $3,967 | | CRA investments | $4,432 | $4,348 | | Total Equity Investments | $17,835 | $17,727 | - Unfunded commitments to investment funds increased from **$6.3 million** at December 31, 2021, to **$7.9 million** at September 30, 2022[48](index=48&type=chunk) - A total gain of **$1.4 million** from the sale of underlying investments by two funds was recorded during the nine months ended September 30, 2022[49](index=49&type=chunk) [NOTE 4: LOANS](index=21&type=section&id=NOTE%204:%20LOANS) This note details the composition of the Company's loan portfolio by class, including changes in commercial, real estate, and multi-family residential loans | Loan Class (in thousands) | Sep 30, 2022 | % of Total | Dec 31, 2021 | % of Total | Change | % Change | | :------------------------ | :----------- | :--------- | :----------- | :--------- | :----- | :------- | | Commercial and industrial | $568,071 | 18.1% | $634,384 | 22.0% | $(66,313)| (10.5%) | | Commercial real estate | $1,242,118 | 39.6% | $1,091,969 | 38.0% | $150,149 | 13.8% | | Construction and development | $507,570 | 16.2% | $460,719 | 16.0% | $46,851 | 10.2% | | Multi-family residential | $370,391 | 11.8% | $286,396 | 10.0% | $83,995 | 29.3% | | Total gross loans | $3,135,891 | 100.0% | $2,876,427 | 100.0% | $259,464 | 9.0% | - PPP loans decreased significantly from **$54.3 million** at December 31, 2021, to **$2.3 million** at September 30, 2022[234](index=234&type=chunk) - Loan participations purchased increased to **$59.9 million** in the nine months ended September 30, 2022, from **$1.9 million** in the same period of 2021[52](index=52&type=chunk) [NOTE 5: LOAN PERFORMANCE](index=22&type=section&id=NOTE%205:%20LOAN%20PERFORMANCE) This note provides an overview of loan performance, including past due loans, nonaccrual loans, and troubled debt restructurings | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Past Due Loans | $22,153 | $1,136 | $21,017| | Nonaccrual Loans | $22,410 | $22,568 | $(158) | | Total Nonaccrual Loans| $22,410 | $22,568 | $(158) | | Total Troubled Debt Restructurings | $50,609 | $50,728 | $(119) | - Interest income that would have been earned on nonaccrual loans increased from **$568,000** in 2021 to **$809,000** in 2022 for the nine-month period[53](index=53&type=chunk) - The number of troubled debt restructurings increased from **6 loans** in 2021 to **12 loans** in 2022 for the nine-month period, with a post-modification recorded investment of **$6.6 million** in 2022[55](index=55&type=chunk) [NOTE 6: ALLOWANCE FOR CREDIT LOSSES](index=25&type=section&id=NOTE%206:%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) This note details the allowance for credit losses (ACL) for loans, reflecting changes due to loan growth and economic conditions | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total ACL for loans | $32,577 | $31,345 | $1,232 | | ACL for loans to loans excluding loans held for sale | 1.04% | 1.09% | (0.05%)| - The provision for credit losses for loans was **$1.0 million** for the nine months ended September 30, 2022, compared to a recapture of **$8.96 million** in the prior year, reflecting loan growth and changes in economic conditions[79](index=79&type=chunk) - The Company had no loans graded loss or doubtful at September 30, 2022, or December 31, 2021[67](index=67&type=chunk) [NOTE 7: PREMISES AND EQUIPMENT](index=35&type=section&id=NOTE%207:%20PREMISES%20AND%20EQUIPMENT) This note provides information on the Company's premises and equipment, including net book value, depreciation expense, and losses from disposals | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Premises and equipment, net | $55,594 | $58,417 | $(2,823)| - Depreciation expense was **$2.5 million** for the nine months ended September 30, 2022, similar to **$2.6 million** in 2021[88](index=88&type=chunk) - A **$1.2 million loss** was recorded from disposals of buildings and equipment due to an early land lease termination during the nine months ended September 30, 2022[89](index=89&type=chunk) [NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS](index=35&type=section&id=NOTE%208:%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This note details the Company's goodwill and other intangible assets, including changes in core deposits, customer relationships, and servicing assets | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Goodwill | $80,950 | $80,950 | $0 | | Total other intangible assets, net | $3,188 | $3,658 | $(470) | - Core deposits intangible assets decreased from **$212,000** to **$97,000**, while customer relationships decreased from **$3.09 million** to **$2.76 million**[90](index=90&type=chunk) - Servicing assets increased from **$190,000** to **$328,000** due to loan sales, partially offset by amortization[91](index=91&type=chunk) [NOTE 9: BANK-OWNED LIFE INSURANCE](index=37&type=section&id=NOTE%209:%20BANK-OWNED%20LIFE%20INSURANCE) This note provides information on the Company's bank-owned life insurance (BOLI) policies, including balance and net change in cash surrender value | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Balance at end of period | $74,274 | $72,771 | $1,503 | | Net change in cash surrender value | $1,118 | $3,103 | $(1,985)| - In the nine months ended September 30, 2021, the Company received **$2.7 million** in proceeds from a bank-owned insurance policy claim, resulting in a **$1.9 million gain**[92](index=92&type=chunk) [NOTE 10: DEPOSITS](index=37&type=section&id=NOTE%2010:%20DEPOSITS) This note details the composition of the Company's deposits, including noninterest-bearing, interest-bearing, and time deposits | Deposit Type (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Noninterest-bearing deposits | $1,780,473 | $1,784,981 | $(4,508)| (0.3%) | | Interest-bearing deposits | $1,943,301 | $2,046,303 | $(103,002)| (5.0%) | | Total deposits | $3,723,774 | $3,831,284 | $(107,510)| (2.8%) | | Certificates and other time deposits, $100,000 or greater | $161,975 | $134,775 | $27,200 | 20.2% | - Uninsured certificates of deposits or other time deposits totaled **$101.9 million** at September 30, 2022[93](index=93&type=chunk) [NOTE 11: LINES OF CREDIT](index=39&type=section&id=NOTE%2011:%20LINES%20OF%20CREDIT) This note describes the Company's available lines of credit, including revolving lines and Federal Home Loan Bank advances - The Company has a **$30.0 million** revolving line of credit with no outstanding borrowings at September 30, 2022[94](index=94&type=chunk) - Federal Home Loan Bank advances of **$50.0 million** outstanding at December 31, 2021, were fully repaid during the nine months ended September 30, 2022[97](index=97&type=chunk) - Net capacity available under the Federal Home Loan Bank facility increased to **$1.2 billion** at September 30, 2022, from **$923.3 million** at December 31, 2021[97](index=97&type=chunk) [NOTE 12: RELATED PARTY TRANSACTIONS](index=39&type=section&id=NOTE%2012:%20RELATED%20PARTY%20TRANSACTIONS) This note provides details on transactions with related parties, including loans, unfunded commitments, and deposits | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :-------------------- | :----------- | :----------- | :----- | :------- | | Loans to related parties | $109,600 | $138,100 | $(28,500)| (20.6%) | | Unfunded loan commitments to related parties | $101,100 | $55,600 | $45,500 | 81.8% | | Related party deposits | $243,400 | $249,900 | $(6,500) | (2.6%) | - No loans to related parties were nonaccrual, past due, restructured, or classified as potential problem loans[101](index=101&type=chunk) [NOTE 13: FAIR VALUE DISCLOSURES](index=41&type=section&id=NOTE%2013:%20FAIR%20VALUE%20DISCLOSURES) This note explains the fair value hierarchy and provides fair value measurements for financial assets and liabilities - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) | Financial Instrument (in thousands) | Sep 30, 2022 Fair Value | Dec 31, 2021 Fair Value | Change | | :---------------------------------- | :---------------------- | :---------------------- | :----- | | Total fair value of financial assets | $521,253 | $428,604 | $92,649| | Total fair value of financial liabilities | $9,944 | $3,543 | $6,401 | - Individually evaluated loans measured at fair value on a non-recurring basis decreased from **$12.4 million** to **$10.1 million**, with specific ACL decreasing from **$4.7 million** to **$2.7 million**[116](index=116&type=chunk) [NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS](index=45&type=section&id=NOTE%2014:%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note describes the Company's use of derivative financial instruments, primarily interest rate swaps, and their notional amounts and fair values - The Company had **14 interest rate swap agreements** outstanding at September 30, 2022, compared to **19** at December 31, 2021[123](index=123&type=chunk) | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Notional Amounts| $252,206 | $270,025 | $(17,819)| | Total Derivatives Fair Value | $27 | $15 | $12 | - The Company also had **three credit risk participation agreements** at September 30, 2022, providing credit protection for interest rate swaps[125](index=125&type=chunk) [NOTE 15: OPERATING LEASES](index=47&type=section&id=NOTE%2015:%20OPERATING%20LEASES) This note provides information on the Company's operating leases, including total lease cost and details on lease terms and discount rates | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Total lease cost | $790 | $977 | $(187) | - The Company received a **$1.5 million payment** for early termination of a land lease, recorded as other noninterest income[131](index=131&type=chunk) - The weighted-average remaining lease term was **10.1 years** with a weighted-average discount rate of **2.63%** at September 30, 2022[131](index=131&type=chunk) [NOTE 16: COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK](index=49&type=section&id=NOTE%2016:%20COMMITMENTS%20AND%20CONTINGENCIES%20AND%20FINANCIAL%20INSTRUMENTS%20WITH%20OFF-BALANCE-SHEET%20RISK) This note outlines the Company's commitments, contingencies, and off-balance-sheet risks, including credit extensions and standby letters of credit | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :-------------------- | :----------- | :----------- | :----- | :------- | | Total commitments to extend credit | $989,048 | $774,960 | $214,088 | 27.6% | | Standby letters of credit | $11,611 | $18,109 | $(6,498) | (35.9%) | - Management believes the disposition of claims and lawsuits will not have a material adverse effect on the Company's financial position or results of operations[137](index=137&type=chunk) [NOTE 17: EMPLOYEE BENEFIT PLANS AND DEFERRED COMPENSATION ARRANGEMENTS](index=51&type=section&id=NOTE%2017:%20EMPLOYEE%20BENEFIT%20PLANS%20AND%20DEFERRED%20COMPENSATION%20ARRANGEMENTS) This note describes the Company's employee benefit plans, including 401(k) contributions and deferred compensation liabilities - Company contributions to the 401(k) plan were **$1.7 million** for both the nine months ended September 30, 2022 and 2021[138](index=138&type=chunk) | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Executive deferred compensation payable | $1,400 | $1,700 | $(300) | | Salary continuation liability (2008 plan) | $82 | $153 | $(71) | | Salary continuation liability (2017 plan) | $1,500 | $900 | $600 | - The liability for the 2017 salary continuation arrangement was paid in full as a result of the Merger[141](index=141&type=chunk) [NOTE 18: STOCK-BASED COMPENSATION](index=51&type=section&id=NOTE%2018:%20STOCK-BASED%20COMPENSATION) This note provides information on the Company's stock-based compensation plans, including the impact of the merger on equity awards and compensation expense - Upon the October 1, 2022 merger, all outstanding equity awards under prior plans fully vested, except for certain non-employee director restricted stock awards which were prorated[146](index=146&type=chunk)[171](index=171&type=chunk)[190](index=190&type=chunk) | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Stock compensation expense | $1,500 | $1,800 | $(300) | - As of September 30, 2022, there was approximately **$962,000** of total unrecognized compensation expense related to unvested restricted stock awards[151](index=151&type=chunk) [NOTE 19: REGULATORY MATTERS](index=56&type=section&id=NOTE%2019:%20REGULATORY%20MATTERS) This note discusses the Company's compliance with regulatory capital requirements and other regulatory actions - The Company and the Bank were 'well capitalized' at September 30, 2022, and December 31, 2021, exceeding all minimum Basel III capital requirements[161](index=161&type=chunk)[163](index=163&type=chunk) | Capital Ratio | Sep 30, 2022 (Consolidated) | Dec 31, 2021 (Consolidated) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Common Equity Tier 1 to Risk Weighted Assets | 14.05% | 15.31% | | Tier 1 Capital to Risk-Weighted Assets | 14.05% | 15.31% | | Total Capital to Risk-Weighted Assets | 15.09% | 16.42% | | Tier 1 Leverage Capital to Average Assets | 11.42% | 11.22% | - In December 2021, the Bank paid an aggregate civil money penalty of **$8.0 million** to resolve BSA/AML compliance matters with the OCC and FinCEN[162](index=162&type=chunk) [NOTE 20: INCOME TAXES](index=60&type=section&id=NOTE%2020:%20INCOME%20TAXES) This note provides details on income tax expense and the effective tax rate, explaining differences from the federal statutory rate | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense | $3,381 | $2,913 | $8,485 | $8,090 | | Effective tax rate | 20.96% | 16.81% | 19.49% | 18.29% | - Differences from the federal statutory rate of **21%** were mainly due to tax-exempt interest income, bank-owned life insurance earnings, and merger-related costs[166](index=166&type=chunk) [NOTE 21: EARNINGS PER SHARE](index=60&type=section&id=NOTE%2021:%20EARNINGS%20PER%20SHARE) This note presents basic and diluted earnings per share (EPS) and the dilutive effect of outstanding equity awards | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.52 | $0.59 | $1.43 | $1.48 | | Diluted EPS | $0.52 | $0.59 | $1.43 | $1.47 | - Dilutive effect of outstanding stock options and unvested restricted stock awards was **119 thousand shares** for the three months and **107 thousand shares** for the nine months ended September 30, 2022[167](index=167&type=chunk) [NOTE 22: SUBSEQUENT EVENTS](index=62&type=section&id=NOTE%2022:%20SUBSEQUENT%20EVENTS) This note discloses significant events occurring after the reporting period, primarily the completion of the merger of equals with Allegiance Bancshares, Inc - The merger of equals with Allegiance Bancshares, Inc. was completed on October 1, 2022, with Stellar Bancorp, Inc. as the surviving entity[168](index=168&type=chunk) - Allegiance shareholders now hold approximately **53.9%** of outstanding Company common stock[170](index=170&type=chunk) - The merger is accounted for as a reverse acquisition, and the fair value determination of assets and liabilities is ongoing, meaning initial accounting is incomplete[172](index=172&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=64&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, including an overview of its business, the impact of the recent merger, and an uncertain economic outlook - The Company's operating results depend primarily on net interest income, influenced by market interest rates and the volume/types of interest-earning assets and liabilities[193](index=193&type=chunk) - The Company completed its merger of equals with Allegiance Bancshares, Inc. on October 1, 2022, changing its name to Stellar Bancorp, Inc.[184](index=184&type=chunk) - Geopolitical instabilities, inflation, rising interest rates, and supply disruptions continue to create an uncertain economic outlook, which could negatively impact net income through increased provisions for credit losses[196](index=196&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=64&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This note advises that forward-looking statements are subject to risks and uncertainties, including those related to economic conditions and the recent merger - Forward-looking statements are not guarantees of future performance and are subject to difficult-to-predict risks, assumptions, and uncertainties[179](index=179&type=chunk) - Key risk factors include natural disasters, COVID-19 impact, geographic concentration, management personnel changes, asset quality deterioration, interest rate risk, and regulatory changes[180](index=180&type=chunk) - Risks related to the merger include integration delays, higher costs, unrealized synergies, personnel retention, increased indebtedness, and stock dilution[188](index=188&type=chunk) [Merger](index=66&type=section&id=Merger) This section details the merger of equals with Allegiance Bancshares, Inc., including the name change and share exchange ratio - The merger of equals with Allegiance Bancshares, Inc. was effective October 1, 2022, with CBTX, Inc. changing its name to Stellar Bancorp, Inc.[184](index=184&type=chunk) - Allegiance Bank merged into CommunityBank of Texas, N.A., with Allegiance Bank as the surviving entity[185](index=185&type=chunk) - Allegiance shareholders received **1.4184 shares** of Company common stock for each Allegiance share, now holding approximately **53.9%** of the combined company[186](index=186&type=chunk) [Overview](index=68&type=section&id=Overview) This section provides a general overview of the Company's business model, focusing on deposits as a primary fund source and loans as a primary fund use - The Company's primary source of funds is deposits, and its primary use of funds is loans[192](index=192&type=chunk) - Net interest income is the largest driver of periodic changes in net interest spread, net interest margin, and net interest income[193](index=193&type=chunk) - The Company focuses on relationship-driven commercial banking for small to medium-sized businesses and professionals in its Texas markets[26](index=26&type=chunk) [Uncertain Economic Outlook](index=68&type=section&id=Uncertain%20Economic%20Outlook) This section discusses the current economic environment, highlighting geopolitical instabilities, inflation, and rising interest rates as factors influencing the Company's financial outlook - Geopolitical instabilities, inflation, rising interest rates, and supply disruptions continue to create an uncertain economic outlook[196](index=196&type=chunk) - These factors are considered in the forecasts and qualitative factors used to determine the Company's ACL[196](index=196&type=chunk) - Worsening economic conditions could lead to increases in the ACL through additional provisions for credit losses, negatively impacting net income[196](index=196&type=chunk) [Results of Operations](index=70&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance, focusing on net interest income, provision for credit losses, noninterest income, noninterest expense, and net income | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | % Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | Net Interest Income | $43,012 | $31,249 | $11,763 | 37.6% | $110,514 | $95,357 | $15,157 | 15.9% | | Provision (recapture) for credit losses | $1,012 | $(4,895) | $5,907 | 120.7% | $1,573 | $(9,566) | $11,139 | 116.4% | | Noninterest Income | $3,449 | $5,562 | $(2,113)| (38.0%) | $12,324 | $12,164 | $160 | 1.3% | | Noninterest Expense | $29,321 | $24,372 | $4,949 | 20.3% | $77,731 | $72,854 | $4,877 | 6.7% | | Net Income | $12,747 | $14,421 | $(1,674)| (11.6%) | $35,049 | $36,143 | $(1,094)| (3.0%) | - Net interest income increased due to higher average balances and rates on loans and securities, and higher rates on interest-bearing deposits at other financial institutions[203](index=203&type=chunk) - Noninterest income decreased in Q3 2022 due to lower earnings on bank-owned life insurance, but increased for the nine-month period due to a **$1.5 million payment** for early land lease termination and a **$1.4 million gain** on equity investment sales[223](index=223&type=chunk)[224](index=224&type=chunk) [Financial Condition](index=80&type=section&id=Financial%20Condition) This section analyzes the Company's balance sheet, including total assets, loans, cash and cash equivalents, securities, deposits, and nonperforming assets | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :-------------------- | :----------- | :----------- | :----- | :------- | | Total Assets | $4,271,831 | $4,486,001 | $(214,170)| (4.8%) | | Loans excluding loans held for sale | $3,126,421 | $2,867,524 | $258,897 | 9.0% | | Cash and cash equivalents | $370,448 | $950,146 | $(579,698)| (61.0%) | | Securities | $511,282 | $425,046 | $86,236 | 20.3% | | Total Deposits | $3,723,774 | $3,831,284 | $(107,510)| (2.8%) | | Federal Home Loan Bank advances | $0 | $50,000 | $(50,000)| (100.0%) | - Nonperforming assets remained stable at **$22.4 million** (**0.52% of total assets**) at September 30, 2022, compared to **$22.6 million** (**0.50%**) at December 31, 2021[240](index=240&type=chunk) - The ACL for loans increased to **$32.6 million** (**1.04% of loans**) at September 30, 2022, from **$31.3 million** (**1.09% of loans**) at December 31, 2021, primarily due to loan portfolio growth[247](index=247&type=chunk) [Liquidity and Capital Resources](index=93&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's liquidity position and capital adequacy, including liquid assets, borrowing arrangements, and deposit composition - Liquid assets (cash and equivalents, securities) decreased by **$493.4 million** to **$881.7 million** at September 30, 2022, from **$1.375 billion** at December 31, 2021[261](index=261&type=chunk) - Available funds under borrowing arrangements increased to **$1.3 billion** at September 30, 2022, from **$1.0 billion** at December 31, 2021[265](index=265&type=chunk) - The ratio of average noninterest-bearing deposits to average total deposits increased to **47.8%** for the nine months ended September 30, 2022, from **46.2%** for the year ended December 31, 2021[264](index=264&type=chunk) [Interest Rate Sensitivity and Market Risk](index=97&type=section&id=Interest%20Rate%20Sensitivity%20and%20Market%20Risk) This section describes how the Company manages interest rate risk and its sensitivity to market rate changes, including the transition away from LIBOR - The Company manages interest rate risk by structuring its balance sheet and does not use leveraged derivatives or financial options for this purpose[273](index=273&type=chunk) - Simulation models show that at September 30, 2022, the Company's balance sheet was less asset sensitive to future rate increases and more sensitive to downward rate movements compared to December 31, 2021[279](index=279&type=chunk) - LIBOR was used as an index rate for a majority of the Company's interest-rate swaps and approximately **4.5%** of its loans, with a transition away from LIBOR expected to span through June 2023[280](index=280&type=chunk) [Non-GAAP Financial Measures](index=101&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the use of non-GAAP financial measures, such as tangible equity and tangible book value per share, to provide additional financial insights - Non-GAAP financial measures like tangible equity and tangible book value per share are used to provide insights exclusive of intangible assets[285](index=285&type=chunk) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Tangible equity (in thousands) | $417,287 | $477,517 | | Tangible assets (in thousands) | $4,187,693 | $4,401,393 | | Tangible book value per share | $17.38 | $19.50 | | Tangible equity to tangible assets | 9.96% | 10.85% | [Critical Accounting Policies](index=102&type=section&id=Critical%20Accounting%20Policies) This section refers to the Company's Annual Report on Form 10-K for a detailed discussion of critical accounting policies involving significant judgment - Critical accounting policies, involving significant judgment and complexity, are detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[288](index=288&type=chunk) [Emerging Growth Company](index=102&type=section&id=Emerging%20Growth%20Company) This section notes the Company's status as an 'emerging growth company' under the JOBS Act and its impending loss of this status - The Company qualifies as an 'emerging growth company' under the JOBS Act, allowing for reduced reporting and other requirements[289](index=289&type=chunk) - The Company will lose its emerging growth status on December 31, 2022[289](index=289&type=chunk) [Recently Issued Accounting Pronouncements](index=102&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section directs readers to Note 1 of the financial statements for information on recently issued accounting pronouncements - Information on recently issued accounting pronouncements can be found in Note 1 of the financial statements[290](index=290&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=104&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers to the "Interest Rate Sensitivity and Market Risk" discussion within Management's Discussion and Analysis for details on how the Company manages market risk - The Company's management of market risk is discussed in the "Interest Rate Sensitivity and Market Risk" section of the MD&A[291](index=291&type=chunk) [Item 4. Controls and Procedures](index=104&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2022 - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[292](index=292&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[293](index=293&type=chunk) [PART II — OTHER INFORMATION](index=104&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=104&type=section&id=Item%201.%20Legal%20Proceedings) The Company is subject to routine claims and lawsuits but management believes their disposition will not have a material adverse effect on financial position or results of operations - The Company is not currently subject to any material legal proceedings[294](index=294&type=chunk) - Management believes the likelihood is remote that current claims and lawsuits would have a material adverse effect on the Company's financial position or results[295](index=295&type=chunk) [Item 1A. Risk Factors](index=104&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to previously disclosed risk factors and directs investors to the Company's Annual Reports on Form 10-K and other SEC filings for a comprehensive list - No material changes in risk factors have occurred since the previous disclosures in the Company's and Allegiance's Annual Reports on Form 10-K for 2021 and the Joint Proxy Statement Prospectus regarding the Merger[296](index=296&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=104&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company had no unregistered sales of equity securities and continued its share repurchase program, repurchasing 416,746 shares under the 2021 program during the three months ended September 30, 2022 - No unregistered sales of equity securities occurred[297](index=297&type=chunk) - The Company repurchased **416,746 shares** under the 2021 Repurchase Program during the three months ended September 30, 2022, at an average price of **$29.89**[303](index=303&type=chunk) - A new **$40.0 million** 2022 Repurchase Program was authorized, effective September 22, 2022, through September 30, 2023, with no shares repurchased under it during Q3 2022[300](index=300&type=chunk) [Item 3. Defaults Upon Senior Securities](index=106&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities - There were no defaults upon senior securities[305](index=305&type=chunk) [Item 4. Mine Safety Disclosures](index=106&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[306](index=306&type=chunk) [Item 5. Other Information](index=106&type=section&id=Item%205.%20Other%20Information) The Company reported no other information for this item - No other information was reported for this item[307](index=307&type=chunk) [Item 6. Exhibits](index=107&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including merger agreements, organizational documents, employment agreements, incentive plans, and certifications - Key exhibits include the Agreement and Plan of Merger (Exhibit 2.1), Second Amended and Restated Certificate of Formation (Exhibit 3.1), and the Stellar Bancorp, Inc. 2022 Omnibus Incentive Plan (Exhibit 10.5)[308](index=308&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) are included[308](index=308&type=chunk) [SIGNATURES](index=110&type=section&id=SIGNATURES) The report is duly signed by Robert R. Franklin, Jr., Chief Executive Officer, and Paul P. Egge, Senior Executive Vice President and Chief Financial Officer, on behalf of CBTX, Inc - The report was signed by Robert R. Franklin, Jr., Chief Executive Officer, and Paul P. Egge, Senior Executive Vice President and Chief Financial Officer, on October 28, 2022[313](index=313&type=chunk)