Stellar Bancorp, Inc. (NASDAQ:STEL) Q4 2022 Earnings Conference Call January 27, 2023 9:00 AM ET
Company Participants
Courtney Theriot – Chief Accounting Officer of Stellar Bank
Robert Franklin – Chief Executive Officer
Steve Retzloff – Executive Chairman
Ray Vitulli – President of the Company and CEO of Stellar Bank
Paul Egge – Senior Executive Vice President and CFO
Joe West – Senior Executive Vice President and Chief Executive Credit Officer of Stellar Bank
Conference Call Participants
David Feaster – Raymond James
Brad Milsaps – Piper Sandler
Matt Olney – Stephens
Will Jones – KBW
Operator
Good day and thank you for standing by. Welcome to the Stellar Bancorp Inc. Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions] Please be advised today’s conference is being recorded.
I would now like to hand the conference over to your speaker today to Courtney Theriot, Chief Accounting Officer of Stellar Bank. Please go ahead.
Courtney Theriot
Good morning and thank you to all who have joined our call today. We would like to welcome you to our earnings call for the fourth quarter of 2022. This morning’s earnings call will be led by Stellar’s CEO Bob Franklin and CFO Paul Egge.
Also in attendance today are Steve Retzloff, Executive Chairman of the company; Ray Vitulli, President of the company and CEO of the Bank and Joe West, Senior Executive Vice President and Chief Executive Credit Officer of the Bank.
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 beliefs 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 maybe required by law. Please see the last page of the text in this morning’s earnings release, which is available on our website at ir.stellarbancorpinc.com for additional information about the risk factors associated with forward-looking statements. 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, Bob Franklin.
Robert Franklin
Thank you, Courtney, and good morning. Welcome to Stellar Bank Corp’s fourth quarter earnings call and our first ever combined organization. I will begin by thanking our dedicated staff that is working tirelessly to make Stellar Bank an outstanding organization. This is an all bank team effort and our team is responding to the challenge. We are divided by two operating systems, but we are fully engaged in supporting a successful system integration in February of 2023. Completion of this conversion is an important step in solidifying the combination of our two banks.
The fourth quarter provides us with a first look at both our balance sheet adjusted for purchase accounting with market valuations and our income statement, which will provide insight into the expenses associated with our merger along with day 2 provisions. The fourth quarter is one dominated by purchase accounting adjustments, and merger related expenses.
Our goal today is to help guide the reader of our financials to a core franchise and reveal the core earnings power created by our combination. We have also been proactive in our decision making, given the current interest rate environment and the economic environment. Throughout the fourth quarter, we look to make business decisions that best fit our current focus on liquidity, capital and credit.
First of all, we took care to make proper reserves as we turn into a more challenging economic environment. Secondly, we sold some of our challenge credits, or more challenge credits, which would have been longer term workouts with uncertain outcomes, opting for certainty, which decreased our classified credits allowed and allowed us to realize great values greater than our indicated marks. And having to mark to market the CBTX securities portfolio for the transaction, net we own the securities today at market value. We felt that an opportune time to sell some of those securities and bolster our liquidity.
Later, Paul and the team will provide more detail to aid and understanding the changes to our financials. Regulatory approval was a key factor in the timing of our closing between announcement and final approval, the interest rate environment changed significantly by the Federal Reserve increasing interest rates at a very rapid pace. Therefore, the purchase marks that were affected by interest rates have been a moving target.
Today, a majority of that work is done. And we have had a chance to review the results. We have never been more bullish on the long term success of this financial combination. Our ability to deliver for our constituencies, our shareholders, our customers, our employees, and our communities in which we operate has never been better.
However, in the near term, we cannot ignore the actions of the Federal Reserve is taking to slow our economy and contain inflation. We know from lessons learned in previous cycles to be cautious. The end of this interest rate cycle remains unclear, but we will be vigilant as to the effects on our customers and our operating economic environment. We will stay disciplined and managing our capital, our liquidity and the credit in our bank as we continue to build Stellar Bank.
Our franchise resides in one of the most robust economies of the country. Our long-term future is bright, and we will stay determined to increase shareholder value. Our belief is that Stellar Bank is well positioned to deliver on that promise.
I will now turn the call over to Paul Egge
Paul Egge
Thanks Rob. Good morning, everybody. We are very pleased to be reporting our first quarter as a combined company as our merger went effective on the first day of October. For accounting and financial reporting purposes, all of our filings contain comparative information relative to Legacy ABTX financial results with historical shares and per share numbers adjusted for the reverse merger. But given the transformative nature of the merger to create Stellar, I will focus my commentary on the year now of Stellar. Thinking to what we believe are the most salient takeaways from our combined financial condition at the end of 2022, our Q4 operating performance and what it all means for our outlook. Then I’ll turn the call back to Bob and he’ll open it up for questions.
Before diving in, I’ll note that while I won’t be directly referencing the accompanying investor presentation, there’s a good amount of detail included in the presentation regarding merger accounting adjustments, non-GAAP items, and other information. So I’ll start with our financial condition, which reflects the impact from purchase accounting and the strategies we executed in the fourth quarter.
We ended the year with $10.9 billion in assets after accounting for the merger and results of operations for the quarter. As we previewed on our third quarter call, the fair value purchase accounting adjustments were meaningful given where the yield curve was at the effective time of the merger. The impact of losses in the securities portfolio to equity were already accounted for in AOCI, amounting to $69.8 million after tax. But the impact of bringing the CBTX loan portfolio over at fair value was even more significant as the fair value mark in the loan portfolio totaled $156.4 million and was mostly interest rate related. The combination of these items led to more goodwill resulting from the merger, incrementally impacting capital in tangible book value per share.
Going forward will effectively earn that loan mark back through pretty significant purchase counting increasing the loan yield over the life of the acquired land. The next most significant merger accounting adjustment was the $138.1 million core deposit intangible created in the merger. This totaled of approximately 3.97% of core deposits, which is relatively high and reflective of the nature of the yield curve at 930 and the high quality composition of the CBTX deposit franchise.
The resulting CDI will be amortized on an accelerated basis over 10 years using some of year’s digits method. And this expense represents a partial offset to the beneficial dynamic of purchase accounting increasing revenue from the loan mart. The last significant merger related item I’ll note is the Day 2 provision of loan losses for non-PCD loans under CECL, which totaled $28.2 million, along with a $5 million Day 2 provision for unfunded commitments on loans running through the income statement.
We also bought over $7.5 million in allowance for credit losses on PCD lands, which did not run through the income statement. — I progress during the quarter, we ended the quarter with $7.75 billion in loans, which after adjusting for the previously mentioned merger related fair value marked on loan reflects an increase in loans over the quarter of around $200 million. This represents what we feel like is an appropriate deceleration of loan growth from prior quarters given current market dynamics.
During the quarter, we saw deposits decrease $116.9 million in the quarter from a combined $9.38 billion at $9 30 to $9.27 billion at the end of 2022. $100.7 million of this decrease came by way of interest bearing deposits. Even though we saw an incremental increase in noninterest-bearing deposits totaling $16 million, we feel great about our deposit composition with 45.6% of our deposits being transactional, noninterest-bearing deposits.
The cost of our interest bearing deposits has continued to increase reflective of current industry markets and a fiercely competitive deposit market. So we feel very good about how we’ve been able to manage these dynamics, relatively speaking. Strategically we’re really pleased with our balance sheet positioning going into 2023, particularly considering our loan deposit ratio of 83.7% solid capital levels and a strong quarter earnings power to support a healthy go-forward capital bill.
Failing [ph] the earnings, our fourth quarter results were noisy. Our bottom line is $2.1 million in net income translating to $0.04 in EPS. These headline numbers were impacted significantly by merger related and non-recurring items, which obscure the continuation of many positive operating trends both ABTX and CBTX brought into the Stellar combination.
First, net interest income and net interest margin were extremely strong. Thanks in part, to purchase counting increasing the loan yields. But even after adjusting for this, we’re very proud of our revenue profile, notwithstanding market dynamics driving cost of funds upward. Headline NIM was 4.71% and after excluding for scanning accretion, adjusted net interest margin was 4.38%.
Purchase counting accretion with $8.2 million in the quarter. The future recognition of purchase accounting accretion will be driven by scheduled and non-scheduled paydown behavior in the acquired portfolio. Our current expectations are for 2023 would be to recognize between $26 million and $30 million of purchase accounting accretion income into yield. This will be partially driven by our expectation that fewer lower yielding loans will pay down early in the current interest rate environment.
Walking down the income statement, it’s hard not to notice that outside provision for loan losses in the quarter totaling $44.8 million. We hit on this in the merger accounting discussion. But it’s important to note that after excluding that pay to PCD provision of $28.2 million on non-PCD loans, and $5 million on provision for unfunded commitments, our quarterly provisioning amounted to $11.6 million, reflective of our more conservative view on credit given an increasing economic uncertainty, loan growth and changes in specific reserves.
The total allowance for credit losses ended the year at $93.2 million, or 1.2% of loans. Before moving on, I should note that we did have a higher than usual net charge-off number during the quarter, totaling $5.7 million, of which $4.6 million related to the proactive sale of $35.4 million in month. These most of these loans came over with meaningful marks such that the actual sale netted again, despite the charge-off. This is a good segway into our non-interest income, which was also bolstered by these gains and other gains totaling $4 million. $1.9 million related to the loan sale we just mentioned, about $1 million came from the sale branch assets. And the remainder came from that strategic sale in October of more than $350 million and acquired securities to support our liquidity profile. And we — Bob mentioned this and we discussed this on our prior earnings call.
Moving on to non-interest expense. This is elevated in the quarter due to the recognition of $11.5 million in merger related expenses in the introduction of merger CDI amortization into our expense base, which totaled $6.3 million for the quarter. During 2023 scheduled CDI amortization expense from the merger will total $24.5 million in addition to the $2.3 million in scheduled CDI amortization from prior deals. Holding aside the M&A expense noise in the introduction of CDI amortization expense, we feel very good about our core operating expenses in the fourth quarter, a result of both negative ABTX and CBTX doing an exceptional job holding the line on non-interest expenses in an otherwise very inflationary environment. And we’re proud of being able to do this without hindering growth since the merger analysis.
From an overall performance standpoint, when you after excluding merger related expenses, and non-recurring, the non-recurring gains, purchase accounting accretion and that CDI amortization, we feel very good about where we set the bar for our adjusted pretax, pre-provision earnings power in the fourth quarter at Stellar — at $53 million. This represents 1.92% of average assets. We believe this strong core operating earnings power will drive rapid capital builds. And once the non-recurring merger noise subsides, the remaining merger related accounting items will be additive to our core operating earnings power, since we expect merger related purchase accounting accretion to exceed the amortization of CDI trades in the merger.
In summary, we feel pretty good about our combined positioning on earnings, liquidity, capital and credit, which we know will prepare us for a wide range of economic scenarios. As we look into 2023 and beyond, we are hyper focused on maintaining the absolute and relative financial and strategic gains from our merger. We feel well positioned to advance and advance our business, notwithstanding the potential challenges 2023 can bring.
Thank you. And I will now turn the call back over to Bob.
Robert Franklin
Thanks, Paul. And we’ll be happy to answer some questions around trying to help folks get through this kind of noisy quarter. So, operator, we’re ready for questions.
Question-And-Answer Session
Operator
[Operator Instructions] And our first question comes from the line of David Feaster with Raymond James. Your line is open. Please go ahead.
David Feaster
Hey, good morning, everybody. I just wanted to just start maybe, with if you could just give us some color on the economic backdrop in Houston. Obviously, the economy’s strong, but I was hoping you could kind of give us a pulse from your perspective on your client, how demand for loans is trending? And then also your appetite for credit. I mean, obviously, the economic backdrop is a bit uncertain. So where are you seeing? Where are you still seeing good risk adjusted returns? And ultimately, how do you think about loan growth for this year?
Ray Vitulli
David, I’ll start on that. This is Ray. On the — the economic background in Houston is still strong. We had — don’t have full 22 job numbers in yet. But that’s expected to be somewhere around 150,000 and job growth for the year, which is a strong year. And, maybe tapered down a little bit in December. But there’s still, that looks good. Our pipeline going into the fourth quarter, we knew was a little was less than the prior quarter. And that really manifested itself through less originations in the fourth quarter, but still really strong. Think about it, we presented about a billion in the third quarter and on a combined basis. And then about 850 or so in the fourth quarter. So kind of that knowing that the demand had tapered just a little bit in our pipeline, it did manifest that way and originations. I think I’ll let Bob talk about kind of how we’ve, that’s kind of the message around our approach to lending, given the uncertainties in the economic environment. But, but overall, we still have a healthy pipeline, even as we think about 2023. And think about our loan growth in 23, even all of that probably still in the low to mid-single digits, but turn it over to Bob.
Robert Franklin
Yes, David, I think what we’re trying to adjust to as well, what may happen in the future, which is for us is uncertainty, nobody likes uncertainty. I think we need to be in front of this stuff. So we’re, we’re enhancing our credit underwriting, making sure that we get to do the right things. And it slows things down a bit. But also in these rising interest rate environments, we see these cycles where at first, these rise — the rising interest rates are sort of ignored, customers continue to buy at low cap rates, and then they start to find it’s very difficult to get things finance, at the rates that they are trying to buy the assets. So you start to see cycles of really repricing of those assets.
So then we get to the point where people are hesitant, because now there’s a lot of talk about when the rate is going to come back down again. So you give people I’m going to hold off on my project until maybe rates come down, I don’t want to borrow at 8%. So there’s a lot of we’re in that phase where there’s a lot of uncertainty. And so we want to be cautious around that as we move through the cycle, but we still have a decent pipeline. It’s not as robust as what we had and in 2022, but we have some pretty substantial loan growth in 2022. So we think we do believe the Fed, we think the Fed is going to continue on to possibly have rates around that five and a quarter number. And so we have to be prepared for the effects of that. So we’re watching our portfolio and watching what we put on.
David Feaster
Okay, that that makes that makes sense. And kind of along the same line, this is where I think, the timing of the deal was really opportune, just given the economic backdrop. And, so I wanted to get an update, and we talked about the conversion and integration upcoming. I was hoping you could just maybe update us on the timing of the synergies is that timeline still on track, and then, just whether you’ve identified any other levers to pull just given the increased scale to help maybe decelerate expense growth and whether there’s any change to that overall synergy target.
Robert Franklin
No change in the synergy target. It has been invaluable in really offsetting what’s been a very inflationary environment. As you know from prior calls, we’ve been able to hold the line and really pulled through a lot of merger cost savings up to this point there. We’re going to be getting perhaps almost all the way there by mid-year. There’s a couple of expense items that will drop off to, to absolutely finish things at the end of 2023. But that’s relatively low, relatively small compared to the overall kind of success on cost saves.
And also, we do continue to have more levers. I appreciate you’re hitting on the fortuitous timing of the merger, because we feel like this merger gives us a lot more financial flexibility, going into uncertain times and more levers to potentially pursue additional cost savings. And we’re just better off with combined scale to confront these uncertain times. And we’ll be better off when we when it’s time to get back on offense.
Ray Vitulli
And we are scheduled for conversion.
David Feaster
Terrific. And so that this this kind of $68 million, you touched on the CDI and some of those impacts, but that’s just kind of $68 million run rates, a pretty good starting base on a core basis.
Paul Egge
Actually, [Indiscernible] high. I look at kind of core expenses. Now that you have the introduction of that very large CDI expense coming from the merger. And core non-merger related and non-redundant expenses in 2022, is probably going to run 265 [ph] over the year, you can chop that into quarters as you see fit. But there’s a broad target for us. Naturally, our execution will be a function of what’s coming by way of opportunities. We’re not going to shy away from opportunities. If the right people and or investments come along in 2023. But currently that’s our target, give or take.
David Feaster
Was that 255 or 265?
Paul Egge
265 [indiscernible], of course.
David Feaster
Got it. And then just last one for me, I wanted to touch on the $35 million in loan sales. Sounds like we’re just kind of cleaning things up just given the deal and the uncertain backdrop just kind of getting ahead of some issues, or some potential issues. But just curious, if you give us some color on that? What did you sell? Were these on the allegiance or CVPX side, or both? And then was there any anything unique in this pool where you’re saying this is something maybe we want to pull back on or anything? We’re a little bit that makes us a bit cautious at this point?
Robert Franklin
Yes David, we had, what’s unique to them is it was basically the hangover that we have from COVID. So we had about four or five credits, that were really struggling at post COVID. And we were having to put pretty heavy marks on those credits anyway. They were rocking along, they were still alive and still trying to be worked out. But it was going to be long term workouts for us with real uncertainty as to what the end might be. So we opted for certainty around what those losses might be. And those portfolios as we were able to come inside our marks. So that’s that’s really why we did. We sort of clear the COVID piece of that.
David Feaster
Got it. That makes sense. Thanks, everybody.
Robert Franklin
Thanks, everybody.
Operator
Thank you. And one moment for our next question. And our next question comes from the line of Brad Milsaps with Piper Sandler. Your line is open. Please go ahead.
Brad Milsaps
Hey, good morning, guys. Thanks for all the color. Maybe I wanted to start with the coordinate interest margin. Paul, maybe could you give us an updated sense of, kind of what you feel like your maybe loan or earning asset data will be going forward as well as kind of hard to think about the, the interest bearing or the total deposit beta at the combined company, and how that would impact your core NIM?
Paul Egge
Certainly. Well, we’re actually really proud of where our kind of cumulative beta is up to this point. And we’ve obviously had a measure of acceleration in the cost of funds here in the fourth quarter, but if you a lot of people calculated certain different ways that we’re in the low end of the low teens relating to cumulative cycle deposit betas on the overall portfolio. This is hugely benefited from our very large — spring deposit base. And that’s been really powerful and hanging down that overall, holding down that overall deposit data.
And ultimately, giving time for our loan betas to move really, our loans are going to be changed as a function of repricing opportunities. And for some loans, we have to wait there. So Ray can probably comment a little more on the composition of the loan portfolio. But we’re, we feel good about the overall kind of pace of things notwithstanding the fact that we’ve seen the cost of deposit start to accelerate a little more to give time for that repricing on the asset side.
Ray Vitulli
And there’s a little color on the loan yield side or at least average way to write on those loans in the — for the fourth quarter. Loans came on it a weighted average rate of 664, which was a nice increase from the previous quarter. And then kind of just to sell a little bit of the entire quarter, we did have that towards the last half of the quarter loans are coming on at 690. So feel really good about where the new loan originations are, as far as that rate, the rate on those notes loans.
Brad Milsaps
That’s helpful. Ray, can you give us a new kind of profile breakdown of kind of variable versus fixed? Stuff that would reprise me all the changes?
Ray Vitulli
Yes, so in the combination, obviously, we had community came with a higher concentration of floating in the total portfolio. But on a combined basis we’re around 58% fixed, 42% floating. And I’d have to where we are on the on the floating and kind of breaking through. I don’t think I have that handy.
Brad Milsaps
Yes, sure. I mean, look like it looked like the lone beta was just under 30% in the quarter. So basically, you’re that that should continue to improve as some of this repricing takes place.
Ray Vitulli
Right. Got it. Got it. Okay. And then, Paul, just, I think I heard you correctly. It looks like you have about a little over 150 million in discount in total that you’ll recognize over the loss of loans, that’s versus about 130 million of CDI or so that that you set up? Is that is that the way to think about it?
Paul Egge
That’s the way to think about CDI. We gave you a little bit of guidance as to how that will scheduled expense that will come through. And we’ve been included that in the investor presentation. And I mentioned in my comments. But we’re amortizing that on an accelerated basis.
Brad Milsaps
Got it? And then I know you had the loans that you sold and cleaned up this quarter. So that probably drove a little bit higher core provision. A lot of companies and they come together, because of the marks they, maybe have a really low provision, for a certain period of time. Can you sort of help us think about how you guys will be tackling that I know, there’s a lot of moving parts with CECL and marks, etcetera. But just kind of curious how to think about sort of your core load loss provisioning? Right.
Paul Egge
I think where we sit right now is how we’re looking at net loan growth in the future. If there’s a lot of moving parts that got our provision, pardon me, our allowance for credit losses to 1.2% of loans. But kind of in a rule of thumb as to how we were looking at budgeting, we, we think that’s appropriate for net loan growth expectations in 2023. There was a lot that went into it. And a big piece of that is a little bit of overseeing the economy. We definitely leaned a little bit more conservative relative to prior periods. And we believe that’s appropriate. And we’ll continue to keep our finger on the pulse and go for it.
Brad Milsaps
Got it. And then just final two for me, just for clarity. The 265 expense number, does that include CDI? And then what would be a good combined tax rate for the combined company?
Paul Egge
All right, so that includes CDI, but it doesn’t include non-M&A expenses, and measure of expenses that we’ll be rolling on mostly in the fourth quarter first quarter, I should say. So the need to make that distinction was it the last part of the question?
Brad Milsaps
No just the cash rate for the combined company.
Paul Egge
All right, I put it over here under 20. And that will largely be a function of dynamic security portfolio.
Brad Milsaps
Got it? Okay. Thank you very much. I appreciate it.
Operator
Thank you. And one moment for our next question. Next question comes from line of Matt Olney with Stephens. Your line is open. Please go ahead.
Matt Olney
Thanks. Good morning, everybody. Just following up on that last question from from Brad on expenses. Bob, what’s your estimate of the remaining noncore expenses we could see for the rest of the year.
Robert Franklin
About $5 million front end loaded, might come in less.
Matt Olney
And then we’ll head on to liquidity. I think you mentioned on the last call that you sold some securities immediately following the deal closing. Remind me of that amount of securities. And I guess from here, what kind of cash flow are you looking for from your existing securities in the portfolio in 2023?
Paul Egge
Sure thanks. We sold about just over 350 million in securities, which represented about 59% of the CBTX portfolio that was brought over. And after that sale, we’re looking at annual cash flows, approximating the following a hair shorter $200 million a year, in the first couple of years. So we see a significant source of liquidity from a cash flow perspective coming out of the securities portfolio in the near term, to better position us.
Matt Olney
Okay, thanks for that, Paul. And then on the capital front, looks like the CT1s around 10%. It feels like that could build pretty quickly given the profitability here. But, any updated thoughts you have on capital, any other general capital actions being considered right now?
Paul Egge
I’d say the first capital action is the built. We — as a byproduct of these, these merger accounting adjustments ended up with lower capital than we’re used to carrying and lower capital than we expected to be carrying both merger. Obviously, a function of the industry environment. We wouldn’t trade it, by the way, because we’ve got a great earnings stream that comes from this interest rate environment. But it did obviously put a transitory hit on kind of that initial capital ratios coming out of the deal here. We feel good about where we stand. But given all the uncertainties in the economy, we’re looking forward to seeing that capital build relatively rapidly to give us more financial flexibility going forward to consider other capital strategies. But first and foremost, we want to see that build, we’re fine with where it is. But we’re more — more is better in the current environment, and we look forward to seeing that builds first and foremost, such that we can be strategic down the line.
Matt Olney
Okay, thanks for that, Paul. And then I guess a clarification point from previously, I think you mentioned the expected CDI expense from the transaction in 2023, the $24.5 million in the presentation, did that include or exclude the additional $2 million from prior deals?
Paul Egge
That excludes.
Matt Olney
Excludes. Okay. So we’ll add that as well. Okay, that’s all from me. Thanks, guys.
Paul Egge
Thanks, Matt.
Operator
Thank you. [Operator Instructions] And our next question comes from the line of Will Jones with KBW. Your line is open. Please go ahead.
Will Jones
Hey, great, thanks. Good morning, guys. Paul, just wanted to follow up on the margin discussion. Paul, it sounds like you guys expect new deposit costs to accelerate a little bit from here. But you’re also optimistic on the loan side with some repricing opportunities upcoming and getting good deals on your new loans coming on. It feels like just reading the whole picture that maybe the margin has a little bit of opportunity to expand from here maybe this is not a peak in the fourth quarter, I was hoping you could give us a little commentary on overhead margin, proceeds from here.
Paul Egge
Certainly, we, we feel like there is the possibility for additional upside, but we’re not focused on that. We’re focused on protecting what we feel is a superlative managers margin profile. And it’s, it’s more about protecting this on a go-forward, to the extent we can add to it incrementally, that will be crazy. But the real task in 2023 and beyond is protecting the advances we’ve really built into our business model through this merger. And the NIM profile is a big piece of that. So we’re humbled by the current industry environment. So it’s extremely competitive out there. But we are bullish about our ability to maintain the strategic and absolute advantages of merging our two companies here and creating solid.
Will Jones
Great. That’s super helpful. Thank you for that. And then just thinking about the balance sheet as a whole, there’s obviously a lot of moving pieces that do close with, the selling of some loans and the wind down of CBTX bonds. It’s really left in a great spot. When you think about it, though, minimal wholesale reliance and good cash positions, Are you guys happy with where the balance sheet landed, post to close, is there any more heavy lifting to be done in terms of some restructuring.
And then just given the added flexibility, you guys built into the balance sheet, did you feel like maybe you could be a little bit more aggressive on the loan growth in the coming year rate, I think you’ve mentioned a low to mid-single digit growth range, but you at least come at the high end of that?
Paul Egge
We want to afford ourselves the flexibility to be on the high end of that. But we don’t want to be in a position where we need to be on the high end of that, this isn’t the market to be a hero in and ultimately, we are managing our balance sheet for ultimate financial flexibility. We just don’t want to find ourselves in a pitch relating to capital, liquidity or credit. And we’ll continue to be strategic to keep ourselves in the higher [ph] category and all of those important subject.
Robert Franklin
Yes. Well I think, we finally get an opportunity to shine as a core funded institution. And it’s something that it’s been a while since relationship banking and core funding has been celebrated. And I think this is, this is a better time to recognize the value of this franchise. So we’re going to try to take advantage of that. And, and utilize that to help grow our franchise in the future. We feel like we’re well capitalized. Nothing is off the table for us as far as the options that we have. And we’re going to just see the — what the right thing is to do. And it also provides us a good backdrop as we move through sort of a challenge more challenged economic times, at least uncertain. But there’s no place I’d rather be than Houston, Texas to operate.
Will Jones
Yes, totally understood. Thanks again, guys. And just one more if I sneak it in. The buyback, and you guys have talked about it before, just being a tool in the tool belt? Is that something that we can see, come to fruition here. Now, now that you have an idea of the pro forma capital, and just any thoughts you have about that would be great.
Paul Egge
Sure, we love and value always having that tool in our tool belt are in the near term, we’re going to be focused on building capital. But we value the flexibility of having that as a tool.
Will Jones
Yes, got it. Thanks, guys. Appreciate the color.
Paul Egge
Thanks.
Operator
Thank you. And one moment, please. And we do have a follow up question from Matt Olney with Stephens. Your line has reopened. Please go ahead.
Matt Olney
Yes, thanks for taking the follow up. I just want to jump on and ask Paul more about some of the commentary around the core margin. I think you said Paul you want to make sure you protect the core margin in 2023. And we can interpret that loss of weight and curious any other color you can give us about protecting that margin? Should we assume that’s around from the perspective of the bank being pretty asset sensitive kind of entering a time period of more rate uncertainty or how should we interpret that comment?
Paul Egge
I interpret it more strategic, and then maybe give you a preview of what you’ll see when we put out our 10K. And that is, we are actually, at the current juncture, relatively neutral from an risk – standpoint. That said, we’ve generally benefited on net interest income in excess of our models by virtue of our betas and our models being more conservative. So there’s, I would adjust that to say that there, there still is a asset sensitive lien, but it’s not necessarily as pronounced as it was historically with legacy.
Matt Olney
Okay. And is that, would you characterize the bank is satisfied with the current interest rate positioning and the lien that you mentioned? Or are you suggesting there could be potentially additional actions in the future?
Paul Egge
We’re continually evaluating how we manage the balance sheet right now. We feel good about the direction, the direction of our net interest income and the absolute value of our net interest, income and margin. And the real goal is to protect it and a real bonus, we’re able to meaningfully grow.
Matt Olney
Okay, got it. Thanks, guys.
Operator
Thank you. And I’m sure no further questions and I’d like to hand the conference back over to CEO Bob Franklin for any further remarks.
Robert Franklin
Michelle, thank you and thanks everyone for their interest in Stellar Bancorp.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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