Third 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 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 industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material. Forward-looking statements may be identified by terminology such as "may," "will," "should," "could," "scheduled," "plans," "intends," "projects," "anticipates," "expects," "believes," "estimates," "potential," "would," or "continue" or negatives of such terms or other comparable terminology.
All forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Stellar Bancorp, Inc. ("Stellar") to differ materially from any results expressed or implied by such forward-looking statements.
Such factors include, among others: the risk that the cost savings and any revenue synergies from the Merger may not be fully realized or may take longer than anticipated to be realized; disruption to our business as a result of the Merger; the risk that the integration of operations will be materially delayed or will be more costly or difficult than we expected or that we are otherwise unable to successfully integrate our legacy businesses; the amount of the costs, fees, expenses and charges related to the Merger; reputational risk and the reaction of our customers, suppliers, employees or other business partners to the Merger; changes in the interest rate environment, the value of Stellar's assets and obligations and the availability of capital and liquidity; general competitive, economic, political and market conditions; and other factors that may affect future results of Stellar including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; disruptions to the economy and the U.S. banking system caused by recent bank failures, risks associated with uninsured deposits and responsive measures by federal or state governments or banking regulators, including increases in the cost of our deposit insurance assessments and other actions of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Texas Department of Banking and legislative and regulatory actions and reforms.
Additional factors which could affect the Company's future results can be found in the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, in each case filed with the SEC and available on the SEC's website at https://www.sec.gov. We disclaim any obligation and do not intend to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
GAAP Reconciliation of Non-GAAP Financial Measures
The Company's management uses certain non-GAAP (generally accepted accounting principles) financial measures to evaluate its performance. The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and that management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance and when planning, forecasting, analyzing and comparing past, present and future periods. Specifically, the Company reviews pre-tax,pre-provision income; pre-tax,pre-provision ROAA; adjusted pre-tax,pre-provision income; adjusted pre-tax,pre-provision ROAA; adjusted efficiency ratio; the ratio of tangible equity to tangible assets; net interest margin (tax equivalent) excluding purchase accounting adjustments; and loan yield excluding accretion for internal planning and forecasting purposes. The Company has included in this presentation information relating to these non-GAAP financial measures for the applicable periods presented. These non-GAAP measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which Stellar calculates the non-GAAP financial measures may differ from that of other companies reporting measures with similar names.
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Stellar Bancorp, Inc. - Snapshot
Houston's largest regionally-focused bank
- Merger-of-equalsbetween CBTX, Inc. and Allegiance Bancshares, Inc. became effective October 1, 2022 (NYSE: STEL)
- Combination delivered scale, growth opportunities, and talent depth
- Principal banking subsidiary renamed Stellar Bank upon successful system conversion in February
- Strong core earnings power and capital position
- Valuable franchise in one of the best markets in the U.S.
9/30/2023
6/30/2023
(Dollars in thousands)
Total assets | $10,665,460 | $10,778,351 |
Total loans | 8,004,528 | 8,068,718 |
Total deposits | 8,686,621 | 8,766,369 |
Total loans to total deposits | 92.15% | 92.04% |
Equity to assets | 13.70% | 13.53% |
Tangible equity to tangible assets (1) | 8.37% | 8.19% |
(1) Refer to the calculation of this non-GAAP financial measure and a reconciliation to its most directly comparable GAAP financial measure in the appendix.
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Focused on Serving the Houston Region
Deposits ($B)
JPMorgan | ||||
Wells Fargo | $29.8 | |||
BofA | $27.2 | |||
Zions | $12.0 | |||
PNC | $10.2 | |||
Stellar | $8.6 | |||
Cadence | $7.8 | |||
Frost | $7.6 | |||
Capital One | $6.7 | |||
Prosperity | $5.7 | |||
Woodforest | $5.5 | |||
Third Coast | $3.1 | |||
Comerica | $3.0 | |||
Truist | $2.6 | |||
Texas Capital | $2.5 | |||
Regions | $2.1 | |||
BOK | $1.9 | |||
Texas Independent | $1.9 |
Houston Region Market Share(1)
Houston | Percent of | Houston | |||
T otal Assets | Region (1) | Company | Region Market | ||
Name | ($B) | Deposits ($B) | Deposits (%) | Share (%) | |
$157.3 | JPMorgan | 3,868 | 157.3 | 6.6 | 48.2 |
Wells Fargo | 1,876 | 29.8 | 2.2 | 9.1 | |
BofA | 3,123 | 27.2 | 1.4 | 8.3 | |
Zions | 87.2 | 12.0 | 16.2 | 3.7 | |
PNC | 558 | 10.2 | 2.4 | 3.1 | |
Stellar | 10.8 | 8.6 | 97.7 | 2.6 | |
Cadence | 48.8 | 7.8 | 20.1 | 2.4 | |
Frost | 48.6 | 7.6 | 18.8 | 2.3 | |
Capital One | 468 | 6.7 | 1.9 | 2.0 | |
Prosperity | 39.9 | 5.7 | 20.9 | 1.8 | |
Woodforest | 9.6 | 5.5 | 69.7 | 1.7 | |
Third Coast | 4.0 | 3.1 | 90.9 | 0.9 | |
Comerica | 91.0 | 3.0 | 4.5 | 0.9 | |
Truist | 555 | 2.6 | 0.6 | 0.8 | |
Texas Capital | 29.0 | 2.5 | 10.7 | 0.8 | |
Regions | 156 | 2.1 | 1.6 | 0.6 | |
BOK | 49.2 | 1.9 | 5.7 | 0.6 | |
Texas Independent | 2.2 | 1.9 | 100.0 | 0.6 |
Note: Deposit market share based on FDIC data as of June 30, 2023.
- Houston Region defined as the Houston-Pasadena-The Woodlands and Beaumont-Port Arthur MSAs; Excludes non-retail branches. Source: S&P Capital IQ Pro, Houston.org, Texas Medical Center, and Wallet Hub.
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Third Quarter Financial Highlights
- Reported third quarter 2023 net income of $30.9 million, or $0.58 per diluted share, as compared to net income of $35.2 million, or $0.66 per share, for the second quarter 2023. The third and second quarter 2023 results reflect significant nonrecurring items related to the Merger.
- Core Earnings Power: Return on average assets ("ROAA") of 1.14% and pre-tax,pre-provision ("PTPP") ROAA of 1.50%.(1)(4)
- Adjusted for merger and nonrecurring adjustments, PTPP ROAA would have been 1.42%.(1)(2)(4)
- Net Interest Margin ("NIM"): 4.37% and NIM excluding purchase accounting adjustments ("PAA") of 3.87%.(1)
- Core Funding: 42.1% noninterest-bearing deposits, 1.69% cost of deposits and 1.92% cost of funds.
- Regulatory Capital Build: Consolidated total risk based capital ratio increased to 13.42% at September 30, 2023 from 12.39% at December 31, 2022 and Tier 1 leverage ratio increased to 9.82% at September 30, 2023 from 8.55% at December 31, 2022.
Q3 2023 | Q2 2023 | ||||||||
Actual | Adjusted(1) | Actual | Adjusted(1) | ||||||
Net interest margin (tax equivalent)(3) | (Dollars in thousands) | ||||||||
4.37% | (1) | 3.87% | (2) | 4.49% | (1) | 3.97% | (2) | ||
Pre-tax,pre-provision income | $ 40,668 | $ 38,565 | $ 44,557 | $ 41,769 | |||||
Pre-tax,pre-provision ROAA(3) | 1.50% | (1) | 1.42% | (2) | 1.66% | (1) | 1.56% | (2) | |
Efficiency ratio(4) | 63.50% | 61.05% | (2) | 60.83% | 58.73% | (2) |
- Refer to the calculation of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures in the appendix.
- Adjusted results exclude acquisition and merger-related expenses, core deposit intangible amortization, purchase accounting adjustments and gains and losses on the sale of assets.
- Annualized.
- Represents total noninterest expense divided by the sum of net interest income and noninterest income, excluding gains and losses on the sale of assets.
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Third Quarter Deposit Summary
Maintaining Discipline Navigating Competitive Deposit Market
As of September 30, 2023:
- Retained favorable mix: 42.1% noninterest-bearing deposits
- Estimated uninsured deposits, net of collateralized deposits: 44.5%
- Average account size of $86 thousand, excluding collateralized deposits
- 92.2% loan to deposit ratio
- Brokered deposits increased to $579.0 million from $537.8 million at September 30, 2023 from June 30, 2023
Deposits (in millions)
Deposit Mix
CD's
17.3%
NIB 42.1%
MMDA &
Sav.
24.5%
IB Demand
16.1%
Q3 2023 | Q2 2023 | ||||
(Dollars in thousands) | |||||
Noninterest-bearing ("NIB") | $ | 3,656,288 | $ | 3,713,536 | |
Interest-bearing demand ("IB Demand") | 1,397,492 | 1,437,509 | |||
Money market and savings ("MMDA & Sav") | 2,128,950 | 2,174,073 | |||
Certificates and other time ("CDs") | 1,503,891 | 1,441,251 | |||
Total deposits | $ | 8,686,621 | $ | 8,766,369 | |
Cost of deposits | 1.69% | 1.41% | |||
Cost of interest-bearing deposits | 2.94% | 2.52% | |||
.
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Third Quarter Loan Summary
Loan Portfolio Composition
Commercial and Industrial ("C&I")
Commercial Real Estate ("CRE")
Owner-occupied CRE ("OO CRE") Multifamily Real Estate
Total Commercial Real Estate
CRE Construction & Development ("CRE C&D") 1-4 Family Residential ("1-4 Family") Residential Construction ("Resi. C&D") Consumer and other
Total
Consumer & Other | 1-4 Family | |||
Q3 2023 | Q2 2023 | 0.7% | ||
C&I | 12.8% | |||
(Dollars in thousands) | 18.6% |
$ | 1,480,568 | $ 1,520,503 | Multifamily RE | ||
1,731,467 | 1,756,289 | 5.7% | |||
Resi. C&D | |||||
1,891,794 | 1,850,862 | ||||
453,345 | 431,336 | 3.6% | |||
4,076,606 | 4,038,487 | ||||
1,078,265 | 1,136,124 | CRE C&D | |||
1,024,945 | 1,009,439 | ||||
289,553 | 311,208 | 13.4% | |||
OO CRE | |||||
54,591 | 52,957 | ||||
23.6% | |||||
$ | 8,004,528 | $ 8,068,718 |
CRE 21.6%
Q3 2023 | |||||||
Average | Interest | Average | |||||
Outstanding | Earned / | ||||||
Yield / Rate | |||||||
Balance | Interest Paid | ||||||
Interest-Earning Assets: | |||||||
Loans | $ | 8,043,706 | $ | 138,948 | 6.85% | ||
Securities | 1,471,916 | 9,930 | 2.68% | ||||
Deposits in other financial institutions | 181,931 | 2,391 | 5.21% | ||||
Total interest-earning assets | $ | 9,697,553 | $ | 151,269 | 6.19% | ||
Q2 2023 | |||||||
Excl. PAA(1) | Average | Interest | Average | ||||
Outstanding | Earned / | ||||||
Balance | Interest Paid | Yield / Rate | |||||
(Dollars in thousands) | |||||||
6.24% | $ | 7,980,856 | $ | 133,931 | 6.73% | ||
1,502,949 | 10,162 | 2.71% | |||||
209,722 | 2,865 | 5.48% | |||||
5.68% | $ | 9,693,527 | $ | 146,958 | 6.08% | ||
Excl. PAA(1)
6.10%
(1)
5.56%
(1)
- Refer to the calculation of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures in the appendix.
.
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Third Quarter Asset Quality Summary
Nonperforming assets decreased during the quarter
Allowance for credit losses on loans:
- As of September 30, 2023, was $93.6 million, or 1.17% of total loans compared to $100.2 million, or 1.24% of total loans as of June 30, 2023
Allowance for credit losses on loans to nonperforming loans:
- As of September 30, 2023, was 244.38% compared to 231.14% as of June 30, 2023
Nonaccrual | ||
Loans with No | ||
Related | ||
Allowance | ||
Commercial and industrial | $ | 10,337 |
Paycheck protection program (PPP) | 20 | |
Commercial real estate (including | ||
multi-family residential) | 10,820 | |
Commercial real estate construction | ||
and land development | 170 | |
1-4 family residential (including | ||
equity) | 6,849 | |
Residential construction | 635 | |
Consumer and other | 81 | |
$ | 28,912 | |
Nonaccrual
Loans with
Related
Allowance
(Dollars in thousands)
$ | 4,634 |
- | |
2,743 | |
- | |
1,593 | |
- | |
409 | |
$ | 9,379 |
Total
Nonaccrual
Loans
$ | 14,971 |
20 | |
13,563 | |
170 | |
8,442 | |
635 | |
490 | |
$ | 38,291 |
Nonperforming Loans by Type
Other 2.9%
1-4 Family
22.1%
C&I
39.2%
C&D
0.4%
CRE 35.4%
Q3 2023 | Q2 2023 | |
(Dollars in thousands) | ||||
Total nonperforming loans | $ | 38,291 | $ | 43,349 |
Nonperforming loans to total loans | 0.48% | 0.54% | ||
Total nonperforming assets | $ | 38,291 | $ | 43,349 |
Nonperforming assets to total | 0.36% | 0.40% | ||
Net charge-offs | $ | 8,116 | $ | 236 |
Net charge-offs to average loans | 0.40% | 0.01% |
(1) Combined represents the simple addition of legacy balances for 2022; estimated.
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Regulatory Capital Ratios
Year-to-date regulatory capital ratios have grown meaningfully
Minimum | |||||||||||
Required | |||||||||||
Q3 2023 | Q4 2022 | Plus Capital | |||||||||
Conservation | |||||||||||
Buffer | |||||||||||
Consolidated Capital Ratios | |||||||||||
Total Capital Ratio (to risk-weighted assets) | 13.42% | 12.39% | 10.50% | ||||||||
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) | 11.14% | ||||||||||
10.04% | 7.00% | ||||||||||
Tier 1 | Capital Ratio (to risk-weighted assets) | 11.25% | 10.15% | 8.50% | |||||||
Tier 1 | Leverage Ratio (to average tangible assets) | 9.82% | 8.55% | 4.00% | |||||||
Tangible equity to tangible assets (1) | 8.37% | 7.24% | N/A | ||||||||
Bank Capital Ratios | |||||||||||
Total Capital Ratio (to risk-weighted assets) | 13.13% | 12.02% | 10.50% | ||||||||
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) | 11.63% | 10.46% | 7.00% | ||||||||
Tier 1 | Capital Ratio (to risk-weighted assets) | 11.63% | 10.46% | 8.50% | |||||||
Tier 1 | Leverage Ratio (to average tangible assets) | 10.15% | |||||||||
8.81% | 4.00% | ||||||||||
(1) Refer to the calculation of this non-GAAP financial measure and a reconciliation to its most directly comparable GAAP financial measure in the appendix.
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Strong Liquidity Profile
Stellar is well-positioned to manage through current environment
Sources of Liquidity at September 30, 2023 | Estimated Uninsured Deposits at September 30, 2023 | ||||||
Amount | Amount | ||||||
(Dollars in millions) | (Dollars in millions) | ||||||
Cash | $ | 302 | Total deposits | $ | 8,687 | ||
Unpledged securities | 703 | Estimated uninsured deposits | 4,727 | ||||
Total on-balance sheet | 1,005 | ||||||
FHLB available capacity | 2,276 | Less: collateralized deposits | (866) | ||||
Discount window available capacity | 824 | Estimated uninsured, net of | |||||
collateralized deposits | $ | 3,861 | |||||
Total immediate available liquidity | 4,105 | Percent of total deposits | 44.5% | ||||
Available brokered deposit capacity(1) | 1,162 | ||||||
Total available liquidity | $ | 5,267 |
Immediate available liquidity coverage of estimated uninsured deposits, net of collateralized deposits | 106.3% |
Total available liquidity coverage of estimated uninsured deposits, net of collateralized deposits | 136.4% |
- Brokered deposit capacity is governed by internal policy limits.
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Stellar Bancorp Inc. published this content on 27 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2023 12:28:07 UTC.