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spk09: Thank you for standing by and welcome to the Second Quarter Allegiance Bank Shares, Inc. Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star 1-1 on your touchstone telephone. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Ms. Courtney Theriault, Chief Accounting Officer. Ma'am, please go ahead.
spk01: Thank you, Operator, and thank you to all who have joined our call today. This morning's earnings call will be led by Steve Redfloss, CEO of the company, Ray Vitulli, President of the company and CEO of Allegiance Bank, Paul Ege, Executive Vice President and CFO of Allegiance Bank, and Shanna Cuzzle, Executive Vice President and General Counsel. Before we begin, I need to remind everyone that some of the remarks made today constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend all such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. Also note that if we give guidance about future results, that guidance is only a reflection of management's belief at the time the statement is made, and such beliefs are subject to change. We disclaim any obligation to publicly update any forward-looking statements, except as may be required by law. Please see the last page of the text in this morning's earnings release. which is available on our website at allegiancebank.com for additional information about the risk factors associated with forward-looking statements. We also have provided an investor presentation on our website. Although it is not being used as a guide for today's comments, it is available for review at this time. At the conclusion of our remarks, we will open the line and allow time for questions. I now turn the call over to our CEO, Steve Redsoff.
spk07: Thank you, Courtney, and good morning, everyone who's participating with us on today's call. We thank you for your time and interest. You know, we're quite pleased with our strong and steady progress to higher core operating performance thus far in 2022 as we've established yet another record level of relationship-based loan originations while maintaining discipline on recurring non-interest expenses. Although our headline EPS for the second quarter was lower than the first quarter in the year-ago quarter, our core operating performance improved on many levels, particularly after adjusting with the impact of TPPC income and non-recurring items. Paul will expand on this in greater detail in his commentary, but the primary improvement driver was core loan growth. Our second quarter core loan growth of $112 million represented a 10.7% annualized run rate, which follows a 12.8% first quarter run rate. This key growth metric reflects both the committed effort of our field and central booking departments, but also of the strength of the regional economy. Of the 20 largest MSAs in the U.S., Houston is among the seven which have now fully replaced the job losses that resulted from the pandemic and now also includes job expansions in the energy sector. Texas overall continues to post very strong employment gains compared to the rest of the nation. I will not belabor the point, but will say that we are encouraged by the growth opportunity that is presented within our geographic footprint. Notwithstanding our overarching positive sentiment, today's macro level volatility, reflective of inflation and the impact of higher interest rates on the overall economy, clearly evokes a degree of care and caution as it relates to establishing changes to near-term tactics and strategies. The team has made manifold progress as it relates to our preparedness for the merger with Community Bank of Texas. As we have come together with our integration planning, our alignment to a fully unified strategy and culture have progressed to a level that further fosters our confidence that we will most certainly benefit the scale and a uniquely powerful market position in one of the best markets in the country. To that end, we have received shareholder approval from both sides and regulatory approval from the FDIC and the Texas Department of Banking. Once we get the nod from the Federal Reserve, we are prepared to schedule the merger close and get closer to operating as a stellar bank. While briefed today, it's my high degree of confidence about our current posture and my appreciation for the talent and committed efforts of our staff or to determine the length of my comments, I would go on for hours. With that, I'll turn it over to Ray for a more detailed review of our operational results, followed by Paul, who will cover our financial results.
spk06: Thanks, Steve. We are very pleased to report another quarter of solid loan growth, as our lending team, for the first time in the bank's history, exceeded half a billion dollars in core loan origination. We have reported healthy pipelines over the past few quarters, and it's nice to see the flow from pipelines to origination to loan growth. When looking at the composition of the origination, we continue to see expansion of our existing customer base coupled with loans to new customers. Our bankers are focused on providing outstanding service, which has set us apart in a market that is dominated by out-of-state banks. I recently received an email with the subject line, a note from a happy customer. The email described how we responded quickly to solve a problem. After referencing our team of bankers that helped during this matter, the customer ended the email with, At Allegiance, relationships with your clients really do come first. As we approach our 15-year anniversary, it never gets old to share these stories and to thank our bankers and customers for what has been created over the years and what is certain to continue as we complete our merger to become Stellar Bank. Moving now to our production results. Our staff and lending team looked at a new record of $565 million of new core loans that funded to a level of $366 million by June 30, compared to the first quarter when $469 million of new core loans were generated, which funded to a level of $307 million. The weighted average interest rate charged on the new second quarter core loan was 4.92%, compared to the weighted average rate charged on the new first quarter core loan of 4.55%. Paid-off core loans were $276 million in the second quarter compared to $214 million in the first quarter. The $276 million of paid-off core loans during the quarter had a weighted average rate of 4.85%. Carried core loans experienced advances of $143 million at a weighted average rate of 5.10% and paydowns of $124 million, which were at a weighted average rate of 4.93%. All in, the overall period end weighted average rate charge on our funded core loans increased 13 basis points, ending the second quarter at 4.93% compared to 4.80% as of March 31. With strong core loan growth of $112 million for the quarter, we were pleased to report core funded loans of just over $4.3 billion, setting another record for the bank. Turning to asset quality, non-performing assets into the second quarter at 42 basis points of total assets, up slightly from 37 basis points in the first quarter. Non-accrual loans into the second quarter at $28.2 million, up $1.9 million from the first quarter. This increase was due to $7.3 million in addition, partially offset by $2.7 million in upgrades placed back on accrual, $1.3 million in payoffs, $725,000 in payments and $697,000 in charged off balances. In terms of our broader watch list, our classified loans as a percentage of total loans decreased to 3.29% of total loans as of June 30 compared to 3.80% as of March 31. Criticized loans decreased to 3.97% at June 30 from 5.01% at March 31. In aggregate, our asset quality at quarter end remains in a manageable position single-digit charge-offs for the quarter. On the deposit front, total deposits decreased $282 million in the second quarter compared to the first quarter and increased $447 million over the year-ago quarter. The decrease in the second quarter was primarily due to continued strategic optimization, which included the runoff of broker deposits, as well as the de-emphasis on certain historically high-beta deposits, particularly within our CD book. We continue to see growth in non-interest-bearing deposits primarily as a result of net new accounts that were open during the quarter. With that, our non-interest-bearing deposits, the total deposit ratio was 40.7% for June 30 compared to 38.2% for March 31 and 36.3% for the year-ago quarter. In closing, in the most recent issue of the Greater Houston Partnership Economic Update, the metro Houston population is reported at 7.3 million people. As Steve mentioned, the region has recovered all the job losses from the pandemic, and there are a number of trends that place the region in a position for future growth, from housing costs at nearly 20% below the national average to being one of the most ethnically diverse populations in the country. As we work towards the closing of our merger, we see even more opportunity for growth and market share gains as the go-to bank for small to medium-sized businesses in this dynamic region. I now turn it over to our CFO, Paul.
spk02: Thanks, Ray. We are happy to report solid results with another quarter of meaningful loan growth and healthy earnings. Net income for the second quarter was $16.4 million for $0.80 per annum share as compared to $18.7 million for $0.91 per annum share in the first quarter and $22.9 million or $1.12 for diluted share in the second quarter of 2021. Notwithstanding lower headline earnings, we are really pleased with our second quarter results, particularly when you consider the significantly lower PPP fee revenue, the more normalized provisioning, and the significant non-recurring expense noise we had this quarter versus comparison core. To put some numbers behind these items, During the second quarter in year-to-date 2022, we only recognized net PPP fee revenue and interest income of $1.4 million and $4 million, respectively, compared to $6.4 million and $13.3 million, respectively, for the same periods in 2021. We made up for the PPP revenue gap with lower interest expenses, increased securities revenue, and the broader allegiance team has done an extraordinary job of increasing core loan revenues through excellent core loan growth. Next, we saw a more normalized provision story in 2022 due to the core loan growth as compared to a recapture provision for credit losses during the comparable period in 2021. Last, our elevated expenses in the second quarter were primarily driven by $3.9 million of what we consider to be non-recurring items, which included $1.7 million in M&A-related expenses and a $2.2 million operating loss during the quarter. Adjusting away the volatility of provisioning, our pre-tax pre-vision income for the second quarter was $22.3 million, as compared to $24.7 million in the first quarter, which of course featured $1.3 million of extra SBIC income, and $25.3 million for the year-ago quarter. Now, if we were to add back the $3.9 million in non-recurring M&A expenses, and net operating laws, an adjusted measure for pre-tax pre-vision income for the second quarter would have been approximately $26.2 million, which we feel reflects meaningful progress. Onto the details. Net interest income was $57.5 million for the second quarter, up from $55.2 million in the first quarter, primarily due to the effects of core loan growth, a more favorable rate environment, partially offset by a $1.1 million decrease in PPP fee revenue recognized as interest income and only slightly higher interest expense. Net interest income was also up from $56.6 million for the second quarter of 2021, primarily due to lower interest expenses and increased income from securities, partially offset by decreased PPP net fee income. Recall that net fee revenue related to PPP loans recognized into interest income during the second quarter was only $1.4 million compared to $2.5 million in the first quarter and $6.4 million for the second quarter of 2021. Interest expense increased by $227,000 during the second quarter compared to the first quarter and decreased by $878,000 when you compare it to the prior year quarter. Before moving on, I should note that we only had approximately $934,000 of net deferred PPP fees remaining at midyear. Reflecting on PPP revenue, it was great while it lasted, and we now feel very well positioned going forward as PPP revenue loses its impact. Yield on loans is unchanged at 5.02% for the second quarter compared to 5.02% for the first quarter, and this decreased from 5.09% in the year-ago quarter. When you exclude PPP loans and related revenue, yield on loans would have been 4.93% in the second quarter, 4.87% in the first quarter, and 5.07% in the year-ago quarter. Total yield on interest earning assets was 3.81% for the second quarter, up from 3.56% for the first quarter, and down from 4.41% for the year-ago quarter. These trends are primarily reflective of changes in interest rates and the mixed shift in our earning asset base, which we are really pleased to see inflect toward the higher proportion of core loans. With respect to interest expense, our cost of interest-bearing liabilities increased slightly to 56 basis points from 51 basis points for the first quarter and down from the year-ago quarter cost of 67 basis points, driven principally by deposit repricing and lower borrowing. The overall cost of funds for the second quarter increased slightly to 34 basis points versus 32 basis points in the first quarter. We are working really hard to preserve our optimized deposit positioning as we manage expected changes in interest rates throughout 2022 and beyond. As we look at our tax equivalent net interest margin over the last year, lower PPP net fee income recognition and mixed shifts in the composition of our earning assets drive the story. resulting in a margin of 3.53% for the second quarter as compared to 3.3% in the first quarter and 4.02% in the year-ago quarter. Excluding TPP loan balances and related revenue, the net interest margin would have been 3.46% for the second quarter from 3.14% in the first quarter and 3.88% for the year-ago quarter. After so many quarters of the structural downtrend in core NIMS, due to what was a more diluted earning asset mix, it is very gratifying to see such meaningful inflection in our core NIM profile. From here, we like the prospects of loan growth driving increased core loans as a percentage of overall earning assets, which should set us up very well for both NIM and net interest income growth. Pivoting to non-interest items, non-interest income decreased to $2.7 million for the second quarter from $4 million in the first quarter, to the fact that the first quarter included $1.3 million of extraordinary income from SDIC investments. Total non-interest expense increased in the second quarter to $37.9 million compared to the $34.5 million in the first quarter. This was largely due to the aforementioned operating loss, along with merger-related expenses recorded in the quarter. Aside from these items, which we consider to be one-off, we are very pleased to be holding the line on expenses as non-exclusive expenses would have been about $34 million if you were to exclude these items. Our efficiency ratio for the second quarter increased to 62.96% compared to 58.32% from the first quarter of 2022, reflective of that increase in non-recurring noise. If you were to exclude non-recurring items, specifically M&A expenses in both Q1 and Q2, that SBIC gain in Q1, and the aforementioned operating loss in Q2, the adjusted efficiency ratios for the first and second quarters were 58.5% and 56.54%, respectively, which we view as good progress on a core basis. Moving on to credit, we recorded a provision for credit losses of $2.1 million during the quarter, which is primarily reflective of the strong core loan growth during the period. Our allowance for credit losses on loans ended the quarter at $50.2 million, representing 116 basis points total loss. The bottom line, our second quarter ROAA and ROATC metrics came to 0.94% and 13% respectively, representing what we feel are solid results, all things considered. Quarter end standard book value per share was $23.25, which represents a meaningful decrease since year end notwithstanding solid earnings. This decrease is reflective of the AOCI impact of the significant shift in interest rates on the value of our available for sale securities portfolio. We went from an $18.2 million gain position in AOCI at year end to a $115.5 million loss position at June 30th. We view this as transitory. We continue to feel very well positioned on capital The company declared a dividend of $0.14 per share, and we were active repurchasing shares during the second quarter, buying back 217,000 shares at a weighted average share price of $39.24. In closing, we are extremely excited and looking forward to the closing of our pending merger with CBTX as soon as possible, since we have such great conviction in the strategic and financial benefits of the merger. We can't wait to form Stellar Bay. Turn the call back over to Steve.
spk07: Thank you, Paul. And with that, I'll turn it over to the operator to open the line for questions.
spk09: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your touchtone telephone. One moment for our first question. Our first question comes from David Feaster of Raymond James. Your line is open.
spk08: Hey, good morning, everybody. Morning, David. Morning. Maybe just starting on growth. I was hoping you could talk through some of the puts and takes here. You talked about record originations. Just curious whether you think there might be some dynamic of a pull forward of demand there and how much may be just driven by the strength of the economic backdrop in Texas, which we all know is obviously really strong. And then just any commentary on the pulse of your economies and how the pipeline is trending and expectations for growth as we look forward.
spk06: Make sure, David. This is Ray. On those originations, you know, it set a record. And everything about it is really what we like. I mean, you had granularity. Average loan size was about $586,000 in there. So it's still granular. The mix looks like our regular portfolio. And 46% of it was floating. So we're really excited about that. And that was, you know, we reported a pipeline pipeline that we felt would generate you know kind of a nice solid originations and that pipeline which is fresh are going into the third quarter at this time looks about the same so we feel pretty good about at least as we look out a quarter and maybe Steve might want to talk about the things on the economy yeah it's just it just continues to do well obviously we have had good population growth in Houston our cost of
spk07: housing is still below the national average, so that's a positive. Probably average home prices being sold are still 20% below comparable to other areas of the country, the average. We've got a positive purchasing managers index in Houston. Port of Houston is doing great. The refining industry is doing well. There's just a lot of positives in the area, and we still have that affordability index. It's not as wide as it once was, but it's still there. Houston's recovered all those jobs from the pandemic. We're actually seeing a little bit of growth in energy-related jobs. We've seen hotels perform better than obviously through the pandemic. There's still probably a few sub-industries, maybe a event centers, something like that, some kind of small business things that we keep a close eye on. But overall, we're very, very pleased with being in the Houston region. Wouldn't want to be anywhere else.
spk08: Yeah, that's terrific. And maybe just touching on some of the deposit dynamics, you talked about the optimization of the book, and it was great to see the continued non-interest-bearing growth. I mean, that's tremendous and a testament to what y'all are doing. But Just curious how you think about deposit growth going forward, trends that you're seeing, whether you're seeing any migration within the book, and just how you think about your ability to continue to drive core deposit growth. And any commentary on deposit bait is just given these recent two 75 basis point hikes.
spk02: Absolutely. You know, it's been a good almost two years of optimization that we've been working on with respect to our deposit books. And we're really pleased with where we stand kind of going forward, as we said, standalone. And in particular, as we put these two companies together to form Stellar Bancorp, especially given the great strength of TPTX's deposit book. So both companies are extremely focused on the core relationship deposit. And that's going to be really where we earn our paychecks and That focus is going to be noninterest-bearing as well as the interest-bearing relationship deposit. So what you see in our financials is a de-emphasis towards CDs. We still are going to have CDs as part of our deposit book, but we look at the deposit composition of our partners at CBTX and understand that a more optimized book is going to be somewhere in between theirs and ours as it relates to composition. with a great focus on the non-interest-bearing, which we focused on getting with our loans, as well as that interest-bearing relationship. So as long as we're in the customer acquisition business and we're really pleased with not only our ability and our track record of adding and retaining customers, but what our potential will be together as Stellar Bancorp. So we're pretty bullish. As Steve said, we're in one of the best markets out there, and we're positioned to get more than our fair share of the growth that's out there.
spk08: That's extremely helpful. And then last thing, just maybe at a high level, touching on asset quality. You talked about, Steve, maintaining a degree of care and caution, just given the environment. Boyd's maintained a very conservative approach to credit, but there's some real challenges in the economy, but obviously Texas is relatively insulated. are always better positioned. But maybe at a high level, just curious your thoughts on the credit outlook from your standpoint, the pulse of your clients, whether that started to shift at all. And then as you look out, are there any segments that you're maybe more cautious on or watching more closely?
spk07: You know, we're really pleased with kind of the year-to-date progress on all of our asset quality metrics, you know, whether it's charge-offs or criticized assets, they all seem to be getting back to that kind of more normal level that we're used to. We've had most of those sectors that we've kind of watched really closely and maybe even received deferral payments during the pandemic are all back non-deferrals. They're performing better. So at this point, up to now, we're seeing improvement. Obviously, we're like everybody else. The world is volatile. Interest rates, discussions that you see around possible recessions and so on. When I make that comment about being cautious, we're just always cautious. We continue to underwrite closely. We look for guarantees. We look for great underwriting on our credits. We're just going to be careful. There are some macro trends out there that you want to always be aware of, whether it's electric cars or just changes in our social fabric of the country that would cause you concern about one credit here or one credit there. But generally speaking, we love our granularity. The nice thing about that is everybody would know and recognize that if something did happen to one, it's a small one, right? So we really like that approach. And it also is that sector that really appreciates the relationship and the higher service that we can provide through our setup. So again, Ray, I don't know if you have any comments about that.
spk06: Well, we might keep an eye on the future. It really isn't too much different than what we do now, probably lodging. And then on a macro level, probably keep an eye on office. But again, our granularity, we're not playing in, say, large office buildings. Yeah, that's what I would add.
spk08: That makes sense. Thanks, guys. Great quarter. Thank you.
spk09: Thank you. Our next question comes from Brad Millsap, Parker Family. Your line is open. Mr. Millsap, your line is open.
spk04: Hey, good morning, guys. Good morning, Brad. Thanks for taking my question. Just wanted to maybe start with the margin. Ray, I think your loan yields, maybe pre-pandemic, you know, reached a height of 550 or 560. It sounded like, you know, you had some good improvement on new funded loans this quarter. I'm just kind of curious, you know, with these last few rate hikes, you know, in your mind, how quickly can you get back there? Just kind of wanted to think about, you know, kind of what your standalone margin, you know, could be given some of the repricing characteristics of your loan books.
spk06: Sure. We've seen nice improvement with the month we got. Yeah, June. So we reported that the new loan production, we reported that the rate on that was $492. And intro quarter, June, had a five handle. So we're pretty pleased about that. So that trajectory picked up nicely. So as far as when might we get back there, I think, you know, with this rate bump that we just got, I mean, I think with five handles on our new production and if we're able to maintain this kind of pace of half a billion a quarter, you know, we can do the math and figure out when we get there. But we feel good about getting back into the fives. And thought we might get there this quarter on the new production, but we're happy with 492.
spk02: And I might add, you know, about a third or a little over a third of our loans are variable rate. And A QUARTER AGO, ONLY A LITTLE OVER HALF OR TWO-THIRDS OF THOSE WERE ABOVE SPORTS. WITH THIS MOST RECENT RATE HIKE, REALLY, IT'S ALL ABOVE SPORTS. AND IT POSITIONS US REALLY WELL IN THAT ALL OF OUR VARIABLE IS TRULY VARIABLE FROM HERE ON IN, WITH PROBABLY ONLY A FEW EXCEPTIONS. AND THEN AN EXTRA, CALL IT 20 TO 25% OF OUR PORTFOLIO, THE KIND THAT MATURES IN THE NEXT So therein lies, I think, some potential for repricing in addition to the great kind of core origination that's going on that's shifting us to a higher overall yield.
spk04: Thanks, Paul. That's helpful. And just as you think about funding, I know you had some nice improvement in your deposit mix this quarter. And this is a little complicated because you're coming together with CBTX. it looks like your liquidity is down to a fairly low level. From here, Paul, would it be that, you know, you guys would need to be out, you know, raising deposits to fund your growth, or do you have enough cash flow coming out of the bond portfolio to sort of, you know, cover, you know, your liquidity needs to fund the growth that you do have?
spk02: There's a good amount of cash flows coming out of the security portfolio, and it's a high-class problem to get to if we find ourselves having to go raise to be more commercial as it relates to raising our deposit funding. But we do fully acknowledge the extent to which we need to be competitive. And with this most recent rate hike, it does make sense for us to be chinning the bar for our clients a little more than we have thus far in the rate hike cycle. So we're working on ensuring that we're providing the right value proposition to our deposit customers and the goals to be measured and find with our partners at CBTX, we put these companies together to form Stellar to kind of get, have the right mix of discipline as we seek to kind of get everything we're trying to accomplish out of the transaction, which is better operating leverage and an overall strong
spk04: value proposition for all of our stakeholders thanks paul um and just final one for me just just on expenses um you know recognizing that a couple things that you guys pointed out in the release um your personnel costs were still down link quarter is it would it be possible that we're already seeing um some of the expense savings from the deal sort of showing up in the run rate and we should maybe kind of adjust what we were thinking about in terms of expense savings when the companies come together? Or is there a different way we should be thinking about it?
spk02: There's definitely a pull-through of the expected cost saves. I mean, we're in an environment where there is meaningful non-interest expense pressure. And notwithstanding that, our ability to hold the line is definitely a function of some TAB, Mark McIntyre, A pull through of those expenses, both on the personnel side and otherwise it all really kind of puts us in a good position on a pro forma basis really. TAB, Mark McIntyre, We want to close our merger as soon as practical and there are people working day and night and we're probably arguably a hair thin as a function of. TAB, Mark McIntyre, How we're trying to operate here in the intro.
spk04: Okay, great. I'll call back and key. Thank you, guys.
spk09: Thank you. Our next question comes from Brady Gailey of KBW. Your line is open.
spk05: Hey, thank you. Good morning, guys. Good morning, Brady. I know a lot has changed over the last nine months in between when you all announced the merger and today. Like, you know, the interest rate backdrop is a lot higher. You outlined 265 of pro forma 2023 EPS. I'm guessing that is probably going to be better than 265 now, but any updates on how you think about kind of the combined earning power next year of Stellar?
spk02: Yes. You nailed it. We feel really – we felt good about the numbers that we presented when we announced it. uh the transaction and uh we've got no reason to have anything but even more conviction around uh you know our prospects of uh hitting and potentially outperforming that the market has come to us to a degree if you recall there were uh some embedded uh rate hikes in the scenarios that we uh look forward to get to that number uh but we have outpaced that the rate hike schedule has outpaced those expectations and separately we've had wind at our backs as it relates to the nature of each company's respective loan growth. So we feel great.
spk07: Nothing we've identified that would tell us there's something material to change that.
spk05: And then on the topic of loan growth, I think you guys normally point to high single digits
spk07: cdtx points to five to eight percent so if you think about the pro forma lung growth of stellar it's somewhere around eight or nine percent is probably the right way to think about it i think that's probably good you know there's long term and short term there's going to be quarters where you know things are a little warmer than others and there's big quarters when they're not but i think a good solid uh you know high single digit for the combined company This is a powerful business combination to build this, put together this $12 billion regional presence. I think you're going to see good things in terms of market response to what we're putting together. So I feel confident in those numbers. Being in that kind of high single-digit region, I want to go forward.
spk05: And then finally for me, the $2.2 million investment operational loss that you're kind of backing out of the expense. What happened there? What is that? That's not a merger charge, or is it? What is that 2.2 operational loss?
spk07: The 2.2 million operational loss is related to a possible fraud. It's a recent event. It's still under pretty deep investigation. So, as such, we're really not able to comment on the specifics around that.
spk05: Okay. All right. Great. Thanks, guys.
spk09: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your touchtone telephone. Our next question comes from Matt Olney of Stevens. Your line is open.
spk03: Hi, guys. Good morning. Can you hear me? Hey, Matt. Hey, most of my questions have been addressed. I just want to clarify the funding topic and make sure I appreciate the plan for third quarter. It sounds like there could be some more runoff of some of the higher cost CDs that we saw in 2Q, and it looks like some of the loan growth is going to be funded by either securities cash flow or overnight liquidity. Is that more or less kind of the short-term plan for funding growth in 3Q?
spk02: I'd say so. I don't expect that. That much more by way of runoff, I kind of feel like at least our more planned and deliberate efforts of optimization are pretty close to complete, although we are going to strategically not be extremely competitive for that funding class . But you're right. limit in the pro forma uh we've got plenty of liquidity and uh and i'm feeling basically plenty of liquidity so ultimately we are uh until we use up our existing liquidity we're and we're going to be focused on uh continued optimization but we're also focused on customer acquisition on the funding side of the book and and really uh tying funding to our lending relationship, and because really that's the optimal dynamic as it relates to driving profitability that we want and the business mix that we want.
spk03: Got it. Okay. Thanks for that, Paul. I think the rest of my questions have already been addressed, so thank you. All right. Thanks, Matt.
spk09: Thank you. I'd like to turn the call over to Mr. Steve Retzlaff for any closing remarks.
spk07: Very good. Once again, we appreciate everyone's time and interest in the bank. And I just want to comment one more time that we're very appreciative of our staff and all those from our merger partner who have really performed at an exceptional level as we prepare to become Stellar Bank. So, again, thank you, and we look forward to speaking to you again or with you again in the future. Thank you very much.
spk09: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating.
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