Stellar Bancorp(US:STEL)2022-10-28 18:29Financial Data and Key Metrics Changes - The third quarter operating results for Allegiance and CBTX showed strong year-to-date loan growth, which drove higher net interest margins and net interest income, contributing to a robust revenue profile [19][20] - Both companies recognized significant M&A expenses during the quarter, impacting the bottom line, but adjusted for these expenses, both entered the merger at record levels of bottom-line and pretax pre-provision earnings power [20][21] - The blended loan to deposit ratio was approximately 82% at the end of the third quarter, indicating a disciplined approach to deposit rates [22] Business Line Data and Key Metrics Changes - Both legacy banks maintained strong loan growth despite some outflows from more rate-sensitive deposit categories, with a notable increase in non-interest bearing deposits [23] - The merger has allowed for a more robust mortgage operation, leveraging the strengths of both banks [47] Market Data and Key Metrics Changes - The current operating environment is characterized by rising interest rates, which the Federal Reserve is using to curb inflation, creating a unique market backdrop [14] - The company is positioned in one of the best markets in the United States for business, which is expected to support long-term growth [15] Company Strategy and Development Direction - The company aims to successfully integrate the two franchises while focusing on maintaining capital and liquidity and staying disciplined on credit [15][30] - The strategic priority is to harness a strong core earnings profile while navigating the transition from pandemic-driven liquidity to a more normalized operating environment [33] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding growth in 2023, indicating that while robust growth was achieved in 2022, similar levels may not be sustainable [41] - The company remains optimistic about its long-term future, emphasizing the importance of quality in business composition and stakeholder satisfaction [34][32] Other Important Information - The merger was completed on October 1, 2022, and the company will continue to operate under the legacy brands until the core system integration is completed in early 2023 [9][10] - The company has been proactive in managing its liquidity profile post-merger, selling a significant portion of the legacy CBTX security portfolio to bolster liquidity [25] Q&A Session Summary Question: Growth Outlook - Management acknowledged a cautious approach to growth in 2023, indicating that while the market remains strong, growth levels may not match those of 2022 [41][42] Question: Integration and Synergies - The delay in closing the merger provided additional time for preparation, which has been beneficial for a smoother integration process [46] - Initial synergies have been identified, particularly in mortgage operations, which are expected to enhance revenue [47] Question: Capital Priorities - Both companies were active in share repurchase programs, repurchasing approximately $25 million in shares during the quarter [51] - Management indicated a wait-and-see approach regarding capital priorities due to anticipated impacts from purchase accounting adjustments [52] Question: Cost Savings Realization - Cost savings have been realized ahead of schedule due to the merger delay, with expectations for significant savings post-core conversion in 2023 [58][60] Question: Deposit Balances - Management noted pressures on deposit balances due to competitive interest rates but emphasized the strength of their relationship-driven deposit base [66] Question: Accretion and Tangible Book Value - The company discussed the impact of purchase accounting on tangible book value and the timing of accretion from interest rate marks [93][100]