Stellar Bancorp(US:STEL)2023-07-29 20:04Financial 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]