Thank you for standing by, and welcome to the second quarter Allegiance Bancshares, Inc. earnings conference call. At this time, all participants are on a listen only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star one one on your touch-tone 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 Theriot, Chief Accounting Officer. Ma'am, please go ahead.
Thank you, operator, and thank you to all who have joined our call today. This morning's earnings call will be led by Steven Retzloff, CEO of the company, Ramon Vitulli, President of the company and CEO of Allegiance Bank, Paul Egge, Executive Vice President and CFO of Allegiance Bank, and Shanna Kuzdzal, 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 Retzloff.
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 base, loan originations, while maintaining discipline on recurring non-interest expenses. Although our headline EPS for the second quarter was lower than the first quarter and the year ago quarter, our core operating performance improved on many levels, particularly after adjusting for the impact of PPP 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 continued 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 above the degree of care and caution as it relates to establishing changes to near-term tactics and strategy. The team has made manifold progress as it relates to our preparedness for the merger with CommunityBank of Texas, N.A. 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 in 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 Stellar Bank. While brief today, if my high degree of confidence about our current posture and my appreciation for the talent and committed efforts of our staff were to determine the length of my comments, I would go on for hours. For 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.
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 originations. We have reported healthy pipelines over the past few quarters, and it's nice to see the flow from pipeline to origination to loan growth. When looking at the composition of the originations, 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 teams booked 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 pay downs of $124 million, which were at a weighted average rate of 4.93%.
All in, the overall period end weighted average rate charged 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 ended the second quarter at 42 basis points of total assets, up slightly from 37 basis points in the first quarter. Non-accrual loans ended the second quarter at $28.2 million, up $1.9 million from the first quarter.
This increase was due to $7.3 million in additions, 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 with 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 opened during the quarter. With that, our non-interest bearing deposits to 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.
Thanks, Ray. We are happy to report solid results with another quarter of meaningful numbers and healthy earnings. Net income for the second quarter was $16.4 million, or $0.80 per diluted share as compared to $18.7 million or $0.91 per diluted share in the first quarter and $22.9 million or $1.12 per 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 revenue, the more normalized provisioning, and the significant non-recurring expense noise we had this quarter versus comparison quarter.
To put some numbers behind these items, during the second quarter year-to-date 2022, we only recognized net PPP revenue as 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 periods 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-provision 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 that operating loss, an adjusted measure for pre-tax pre-provision income for the second quarter would have been approximately $26.2 million, which we feel reflects meaningful progress.
On to 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 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 thousand during the second quarter compared to the first quarter and decreased by $878 thousand when you compare it to the prior year quarter. Before moving on, I should note that we only had approximately $934 thousand of net deferred PPP fees remaining at mid-year. 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 it did decrease 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 mix shift in our earning asset base, which we are really pleased to see inflect towards a 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 mix 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% from the year ago quarter. Excluding PPP 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 a 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, primarily due to the fact that first quarter included $1.3 million of extraordinary income from SBIC 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-interest 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 loans. The bottom line, our second quarter ROAA and ROATCE metrics came to 0.94% and 13% respectively, representing what we feel are solid results, all things considered. Quarter-end tangible 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 a $18.2 million gain position in the AOCI at year-end to a $115.5 million loss position at June 30. 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 actively repurchasing shares during the second quarter, buying back 217,000 shares at a weighted average share price of $39.24. In closing, we're 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 Bank. I will now turn the call back over to Steve.
Thank you, Paul. With that, I'll turn it over to the operator to open the lines for questions.
Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your touchtone telephone. One moment for our first question. Our first question comes from David Feaster of Raymond James. Your line is open.
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, a 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. Just any commentary on the pulse of your economies, and how the pipeline's trending and expectations for growth as we look forward.
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 still granular. The mix looks like our regular portfolio, and 46% of it was floating. So we're really excited about that. That was, you know, we reported a pipeline that we felt would generate, you know, kind of a nice solid originations. 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.
Maybe Steve might want to talk about some things on the economy.
Yeah. It just continues to do well. Obviously, we have had good population growth in Houston. Our cost of housing is still below the national average, so you know, that's a positive. Probably average home prices being sold are still 20% below you know, comparable 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. You know, there's just a lot of positives in the area. You know, we still have that affordability index. It's still a little. It's not as wide as it once was, but it's still there. You know, Houston's recovered all those jobs from the pandemic.
We're actually seeing a little bit of growth in energy-related jobs. You know, we've seen hotels perform better than obviously through the pandemic. There's still probably a few industries, you know, maybe event centers, something like that, some kind of small business things that we keep a close eye on. Overall, we're very, very pleased with being in the kind of the Houston region. Wouldn't wanna be anywhere else.
Yeah. That's terrific. 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. Just curious how you think about deposit growth going forward, trends that you're seeing, whether you're you know, 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 betas, just given these recent 275 basis point hikes.
Absolutely. You know, it's been a good almost two years of optimization that we've been working on with respect to our deposit book. We're really pleased with where we stand kinda going forward as we should standalone, and in particular, as we put these two companies together to form Stellar Bancorp, Inc., especially given the great strength of CBTX's deposit book. Both companies are extremely focused on the core relationship deposits. There, that's gonna be really where we earn our paychecks, and that focus is gonna be non-interest-bearing as well as the interest-bearing relationship deposits. What you see in our financials is a de-emphasis towards CDs.
We still are gonna 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 gonna 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. 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, Inc. 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.
That's extremely helpful. 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 maintained a very conservative approach to credit, but there's some real challenges in the economy, but obviously Texas is relatively insulated, or at least better positioned. Maybe at a high level, just curious your thoughts on the credit outlook from your standpoint, the pulse of your clients, whether that's started to shift at all. As you look out, are there any segments that you're maybe more cautious on or, watching more closely?
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 or they're performing better. You know, at this point, up to now, we're seeing improvement. Obviously, you know, we're like everybody else. You know, 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, you know, guarantees. We look for great underwriting on our credit. We're just gonna be careful. You know, there are some macro trends out there that you wanna always be aware of, and, you know, whether it's electric cars or, you know, 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, you know, we love our granularity. You know, and the nice thing about that is everybody would know and recognize is that if something did happen to one, it's a small one, right? We really like that approach.
It also is that sector that really appreciates the relationship and the higher service that we can provide through our setup. You know, again, Ray, I don't know if you have any comments about that.
No, I mean, I just thought what we might keep an eye on in the future really isn't too much different than what we do now, probably lodging. Then on the macro level, as Steve mentioned, you know, probably keep an eye on office. But again, our granularity, we're not playing in class A large office buildings. So,
Yeah
That's what I would add.
That makes sense. Thanks, guys. Great quarter.
Thank you.
Thank you. Our next question comes from Brad Milsaps of Piper Sandler. Your line is open. Mr. Milsaps, your line is open.
Hey, good morning, guys.
Good morning, Brad.
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 high of 5.50% or 5.60%. 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 book.
Sure. We've seen nice improvement, you know, with the bump we got in June. You know, we reported that the new loan production, the rate on that was 4.92%. In the quarter, June had a five handle. We're pretty pleased about that. That trajectory picked up nicely. I mean, as far as like when we might get back there, I think, you know, with this rate bump that we just got, I think with the 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.
We feel good about getting back into the fives. Thought we might get there this quarter, but on the new production, we were happy with 4.92%.
Yes. I might add, you know, about a third or a little over a third of our loans are variable rates, and a quarter ago, only a little over half or two-thirds of those were above 4%. With this most recent rate hike, really it's all above 4%. It positions us really well in that all of our variable is truly variable from here on in, with probably only a few exceptions. Then an extra, call it 20%-25% of our portfolio is the type that matures in the next 24 months. Therein lies, I think, some potential for repricing in addition to the great kind of core origination that's going on that's mix shifting us to a higher overall yield.
Thanks, Paul. That's helpful. Just as you think about funding, I know you had some nice improvement, you know, in your deposit mix this quarter, and this is a little complicated because you're coming together with CBTX, but 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? Do you have enough cash flow coming out of the bond portfolio to sort of, you know, cover your liquidity needs to fund the growth that you do have?
There's a good amount of cash flow that's coming off the securities 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. We do fully acknowledge the extent to which we need to be competitive. With this most recent rate hike, it does make sense for us to be raising the bar for our clients a little more than we have thus far in the rate hike cycle.
We're working on ensuring that we're providing the right value proposition to our deposit customers, and the goal is to be measured and find with our partners at CBTX. We put these companies together to form Stellar to 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 value proposition for all of our stakeholders.
Thanks, Paul. Just final one for me, just on expenses. You know, recognizing that there's a couple things that you guys pointed out in the release. Your personnel costs were still down linked quarter. Would it be possible that we're already seeing 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?
There's definitely a pull-through of the expected cost savings. I mean, we're in an environment where there is meaningful managed expense pressure. Notwithstanding that, our ability to hold the line is definitely a function of 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, we wanna close our merger as soon as practicable. There are people working day and night and we're probably arguably a hair thin as a function of how we're trying to operate here in the interim.
Okay, great. I'll hop back in queue. Thank you, guys.
All right. Thanks.
Thank you. Our next question comes from Brady Gailey of KBW. Your line is open.
Hey. Thank you. Good morning, guys.
Good morning.
Morning.
I know a lot has changed over the last nine months in between, you know, when y'all announced the merger and today. Like, you know, the interest rate backdrop is a lot higher. You know, you outlined 265 of pro forma 2023 EPS. I mean, I'm guessing that is probably gonna be better than 265 now. Any updates on how you think about kind of the combined earnings power next year of Stellar?
Yes. You nailed it. We felt good about the numbers that we presented when we announced the transaction. We've got no reason to have anything but even more conviction around you know, our prospects of hitting and potentially outperforming that. The market has come to us to a degree. If you recall, there were some embedded rate hikes in the scenario that we put forth to get to that number. We have outpaced the rate hike schedule has outpaced those expectations. Separately, we've had wind at our backs as it relates to the nature of each company's respective loan growth. We feel great.
Okay.
Nothing we've identified that would tell us there's something material to change that.
All right. On the topic of loan growth, I think you guys normally point to high single digits. CBTX points to 5%-8%. If you think about the pro forma loan growth of Stellar, is it somewhere around 8% or 9% is probably the right way to think about it?
I think that's probably good. You know, there's long term and short term. You know, there's gonna be quarters where, you know, things are a little warmer than others, and there'll be quarters when they're not. But I think a good solid, 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 gonna see good things, in terms of market response, to what we're putting together. I feel confident in those numbers, being in that kind of high single digit region, you know, on a go forward.
Okay. Finally for me, the $2.2 million operational loss that you're kind of backing out of the expense base, what happened there? What is that? That's not a merger charge or is it? What is that $2.2 operational loss?
The $2.2 million operational loss is related to a possible fraud. It's a recent event that's still under pretty deep investigation. Actually, we're really not able to comment on the specifics around that.
Okay. All right, great. Thanks, guys.
Thanks.
Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your touchtone telephone. Our next question comes from Matthew Olney of Stephens. Your line is open.
Hi, guys. Good morning. Can you hear me?
Hey, Matt.
Hey, most of my questions have been addressed. I just wanna clarify the funding topic and make sure I appreciate the plans for third quarter. It sounds like there could be some more runoff of some of the higher cost CDs that we saw in 2Q. It looks like some of the loan growth is gonna be funded by either securities cash flow or overnight liquidity. Is that more or less the kind of short-term plan for funding growth in 3Q?
I'd say so. I don't expect that much more by way of runoff. I kind of feel like our 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, CDs. You're right. In the pro forma, we've got plenty of liquidity and on a standalone basis, we have plenty of liquidity. Ultimately, until we use up our existing liquidity, we're going to be focused on continued optimization.
We're also focused on customer acquisition on the funding side of the book and really tying funding to our lending relationships, and because really that's the optimal dynamic as it relates to driving profitability that we want and the business mixture that we want.
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.
Thank you. I'd like to turn the call over to Mr. Steven Retzloff for any closing remarks.
Very good. Once again, we appreciate everyone's time and interest in the bank. I just wanna 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. Again, thank you, and we look forward to speaking to you again or with you again in the future. Thank you very much.
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.