STEL - Earnings call 4 2023 | Stellar Bancorp, Inc.

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Operator

Good morning. My name is Crista, and I'll be your conference operator today. At this times, I would like to welcome everyone to the Stellar Bancorp's Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your speaker today, Courtney Theriot, Chief Accounting Officer. Courtney, you may begin your conference.

Courtney Theriot

thank all and our have operator, today. call you, you who to joined Thank morning. Good

be like Credit and would call of call bank. Also Bob Chairman fourth Executive team welcome bank; the Paul and CFO, for West, quarter our Egge. will Franklin; earnings and morning's Senior Retzloff, attendance today Our XXXX. This to company; Vitulli, of the earnings are you in by CEO, led to Executive Steve the President CEO Ray President Officer and Chief Vice the of of of the company our Joe

all need Before provisions Reform the is be statements are last by which allow the the we call future guidance Bob Litigation defined give and subject with We the obligation statements reflection the by conclusion statements. At may any of publicly at law. Please our any line covered CEO, forward-looking begin, if forward-looking on our some for of remind now information associated we the ir.stellar.bank Franklin. to I management is factors morning's available to is statements additional a contained the forward-looking remarks, text will risk such today about to in for that as to note except open the about questions. I act. over Act made our only statement of turn for see the time beliefs disclaim safe update made be will the time harbor in and the Also page constitute statements, release, as of to this change. required earnings at such beliefs forward-looking of we intend remarks XXXX Securities results, guidance that that as in Private everyone We amended. the website

Robert Franklin

good earnings and welcome Thank fourth and you, the Stellar call. Bancorp Courtney, to morning, quarter

bring X make day, begin external way. current work I with dealing dedication banks XXXX, developing to the conclude will circumstances. in Their the hard together outstanding pressures by we and Every Stellar allowed strides at the stellar Bank. while us we thanking of As team economic

Our team and values is more our working hard ingrain our clear across organization, each culture our day. becomes to

pleased are the stresses all focused on industry and we while XXXX, for liquidity of our given capital, We results with credit.

these credit us strong build equity our for metrics with around allowed discipline maintaining to maintain while to on return valuable good a the stabilize finished Our interest shareholders. tenants capital and franchise, margin net nice deposit year our shareholders'

seek is people -- is The mantra and We heavy optimize process, lifting us. optimized. XXXX expense, future. must XXXX Our to for is behind

keep continues and economy expect We tame on focus liquidity the will our capital, credit to Federal as robust 'XX Reserve we a inflation. as in less

the take in be the However, we to We these creation details the and that and rewarding CFO, market provide over best and shareholders. I of dynamics call are we to presented will efforts well on to will we advantage markets country, Egge, a -- some for expect believe be the positioned year. turn now for of the to our over Paul more quarter our the we will opportunities us operate in year. for value the

Paul Egge

Stellar good close Thanks, to and out by pleased a and are we Bob, very XXXX transformational everybody. year industry After a disruption, morning, for strong marked Bancorp.

X.XX% Our of and of share $XXX.X net an on the earnings income $X.XX, for equity per common up diluted was XX.XX%. representing tangible million, year return of ROAA

showed we regulatory capital, these XXXX earnings our We growing total while on fronts, risk-based liquidity all the And our XXXX. into very was were and noted, starting during which capital XXXX. grew notwithstanding a from year-end significant value, end competitive pressure the year share growth ratios. of successful performed protecting XXXX from all of book capital $XX.XX improvement focus in share in Driving increased tangible and feel similar this end entering $XX.XX of Bob at As industry XX.X% at year-end at credit. our XX.XX% have the the our build regulatory to all per we we in capital of capital, of XXXX power, year. On turbulence well at was across over ratio capital particular, our point to ratios XX.XX% on and per

During funding. by strategy disciplined our the deposits, profile very year, marked to strong with noninterest-bearing we also funding interest-bearing respect a maintained a with XX% along

high to result, balance. All healthy a to well maintain and manage interest maintain while, we've As a competitive environment margins strong the we've pretty core through been profile. earnings credit able to able a rate been

to during million relating assessment, to I'll the expense due $XX the million higher that in thresholds. noninterest diluted shortly. Fourth earnings quarter professional noninterest third initiatives asset than detail the were primarily share associated to million more and ROAA to an recognized FDIC This million elevated the quarter the a investments. per other diluted lower XX.XX%. common focus income side, a flow nonrecurring $X.X quarter expense of return noninterest was noninterest and incrementally despite or during SBIC equity and per $XX.X share, from to $X.X our earned on fees quarter during higher among we quarter, We special fourth expense the expenses due severance tangible or of And items X.XX% for $X.XX a relating higher billion lower expense in earned income provision. Notable the nearly with quarter. $X.X offsetting million items a mostly Turning of was $XX.X $X.XX than making on mostly the the crossing

few the X.XX% in was X.XX% during X.XX% basis the fourth was Net excluding accounting purchase quarter, quarter. NIM net fourth accretion, quarter, X.XX% in the relative prior interest margin interest fourth quarter. up During quarter saw from from the up the our And third quarter. we the in to third tick margin points a

well. In to funding has and has the We an about pleased feel about in stability margin protect half which We our our feel leveling to net has offset pace the the is have been environment. With of trend we favorably capital of really continued we relative in driver also our and of capital to discount margin well amortization as generation positioned ability relatively this a the we profile ended which believe the prospects XXXX. of internal items, our kept a stabilization to $XXX.X been purchase back in accounting expense, good strong our as loan continues like very core Stellar XXXX of profitability the pretty quarter. perform our and repricing in and XXXX, compare showed interest during relative in signs with respect notwithstanding challenging in upward asset remaining XXXX, in earnings, continued summary, our assets to we good strong in industry, year Strong deposit generation with to trends fourth for outlook, intangible accelerated off to $XXX.X internal CDI some in million. growth, million

liquidity otherwise Our margins unknown, spot turn over our and current credit, underwriting you. and to most operate credit the us Bob. a in the comfort take appropriately maintain strongest capital, good reserved call earnings in position and and and back in will given perhaps On I the power. discipline importantly, country. Thank some now the funding markets to puts fact And we of economic in Texas we favorable we feel that

Robert Franklin

to operator, And Paul. happy questions. we'll you, be Thank take

Operator

Feaster first Raymond from Instructions] Your [Operator of James. comes line question David from the

David Feaster

sensitivity Maybe rate on side. just starting the

core throughout margin rising screen maybe great to franchise. You've obviously today, cycle. you core rate sensitive. this rate modestly deposit closer But a We've neutral, liability expansion got actually seen

we how Just and potential given the you'd quickly increased cuts margin be to get you do curious year. to prospects cuts, impacts the this how on I'm reprice able the lower of of cuts if rate think deposits about expect

Paul Egge

neutral that's to ready true We take in mantra sensitivity. on profile. anything. And rate comfort mantra interest another In the really interest risk -- XXXX for for a is be rate our

end We And to of very sensitivity is and are particularly to measure we markets down, money the the really extent the short see funding. curve, a of neutral. CD rate there front

we for and our pretty really with not outcome once to we're -- So make position, strong. in be a rate XXXX. interest there again, to rate ability on we reprice bet feel our any trying But rates well positioned see as to

David Feaster

how the we'll those reprice Okay. ability to -- rates. able slow pretty And curious think helpful. the loan I'm market. for about just the of maybe again, you just in your Do on clients? challenges the you I liquidity increase repricing including you to just those were think be landscape. mean, the and about deposits, to kind declines. deposit another, of do of how given some maybe we That's deposits sensitivity Actually, touching think competitive

Paul Egge

I think funding your the you in exception can is most that you naturally, as your where ability going reprice as wholesale short, to reprice. to -- universe be well pretty get stayed the

Ramon Vitulli

in is sheet took mentioned that, measured to add on just approach. are would largest where I the very money David, probably rates, that our opportunity Paul -- our market we a Yes, that

So that we very really weren't might -- be up. on aggressive the

probably similar. first. plus short were and time a down, be But would the we this of be time did term, deposits course, So we put during target on we that handled pricing, we that the NIB. enjoy exception The we where on would it'd as then XX%

So I that think, in be as Paul money mentioned, market bucket. it will

Robert Franklin

think sense felt what to side, and we you retreat the to into to to fund about great get pay, was that to when like made really were just balance still franchise. didn't want sheet, back wanted I'd David, deposit our for we us market and approach and It we above aggressive people about our something that our as the maintain deposit competition. add, trying changed wanted we to

rates market. front. as feel do got we we do what the deposit deposit start on like basis compete the to reprice as And as in a to to be need can we out, to anyone ability on Now the level competitive we've

want to or for kind idea rates these want things. paying level we not that be us out So some we're of going we just -- outsized to give prices

David Feaster

uncertainty and the maybe and pricing on the And Okay. helpful. curious, today, holding much demand appetite kind tightening just touching client up. just of market And just and in how perspective? the that of weaker quarter. where strategic seeing of growth in pushing higher you're your That's from declines pricing to I'm just versus side growth slow opportunities economy is kind the is the and loan where and for

Ramon Vitulli

used you to approach as well trying and to as David, of combination this our rate are that underwriting both customers get our demand both some think as -- environment. that I mentioned, a pressure it's

on seeing so fronts. And it we're both

have our has and number a remained has been our We have originations where while constant. of C&I construction pretty strategic, row development and a quarters declined, that in

an with compared as came an little on X So where third percentage, as renewed million handle real feel bit a did we about In handle. those quarter good but bit. increased we a the on little with originations, another and loans, $XXX to our in X also Still quarter, total drop C&Is a rates. the fourth new

with So pleased we're pretty well. that as

David Feaster

Okay. And light you of I'm through in rate in Core do that. bit. curious, Terrific. level? just this great. touching on moving Last for expense the Curious one the about managing the about? A some we've of me. you challenges you mean think just up think then how lot quarter. that do just a think talked expense Maybe how That's ticked just parts side. a revenue about good how year, core expenses about expenses run I the of

Paul Egge

be We a -- we better. be to a expected us in of may to the little going to drivers into said, we the a There's in But want to position like do achieve able what lot around best, we to on $XXX the we expense want the Bob optimization, focused achieve extent which to level spend XXXX pursue to feel to XXXX that's as pursue see ultimately, plan. that guided million. basis core on we're of initiatives

to But we're -- where to that's the Now higher by tends had targeting. going X. a that to it drive to if be than divide seasonality you quarter going be first to -- little some were that's

Operator

Your next Matthew line Olney the from from of comes Stephens. question

Matt Olney

on the professional start I'll fees.

XXXX? -- And color I think initiatives? then see billion more to do elevated trending initiatives on item professional assets. these was that how fees line Paul of due of Any mentioned in you these $XX some crossing

Paul Egge

of more dynamic. timing was a It

in third quarter. as a standards of of things goals the quarter run our And relates similar it the $X.X in quarterly we third line rate from with a over basis, fourth on the be saw $XX I'd quarter, achieve has year quarter. look we think forward, would the lower achieve second to about to all at that work the the to timing we If dip here wanted quarter say of professional fourth the quarter. quarter to trend new the we look probably what you the by to being was than million, kind that and saw fees fourth a that end has more it in of in billion the second when but some certainly the a relatively assets. When been from variation lot like of done you

Matt Olney

assume that's that 'XX you million. I $XXX And all Okay. in the guidance mentioned, embedded of Paul,

Paul Egge

Exactly.

Matt Olney

us And in helpful. then take X% I Any remind loan on reprice at the the the And rate higher loan bank. mentioned these yields. fixed then, you some what yields. expect That's the Remind the uptick guess, on over just I Okay. are getting Ray color switching drivers still accretion levels, dynamics of out If to nice heard the pretty newer loan there? And repricing to year. of during yields the the level. us a I'm core I

from the cases. kind Just of in coming remind us some they're reprice dynamic, what on on

Ramon Vitulli

-- Matt, renewed quarter loans. a run we on loans, been around million we've of have rate the of a renewed $XXX

And coming X.XX%. renewed quarter, those came -- at of at off fourth the on so for X.XX%

X% So forward, what will closer, at -- the in renewing to and the I then new was expect. And they'll $XXX then probably think the loans new would something we is million came it it new, get obviously, Xs that probably on again X%. on in off something going of in the coming but

in hope floating mean helps you're in the your I'm what expecting fixed you referring that $XXX rate to. million So I that repricing. I obviously, that -- with there's and fix

portion the I of that have -- handy, So don't rate is. what that the fixed

Matt Olney

quickly cut does point And guess reprice this the you side. of behind yield various I what's floating of Fed year. we're things helpful. the would floating bank in were think models, the and year, our portion. mentioned to the assuming a pretty I just Remind at loans all that the this That's at us downward what dollar some Yes. Fed from amount

Paul Egge

floating. but Around -- variable, truly a little over XX% is

You'd XX%. a about be over talking little

in So that's what particular. relative immediately move we'll more Fed to SOFR

Ramon Vitulli

direct yes, one. Yes,

Paul Egge

Yes.

Matt Olney

on where deposit the Perfect. on And levers move the some in about of were the then Okay. the noninterest-bearing fourth A rates you side? of the there thoughts kind of still up to hit of on one line? levels the highest time on you pull Any can color And or side, bit give stabilizing? What kind you peers. more quarter, if little but see lower. amongst what balances

Paul Egge

XX/XX, basis ask But would in say we XX% you an on if Point look if at or to we that We it from the or of for it take would that of in average average it NIB NIM right XX ratio. quarter. like around XX.X% looked see percent XX% enjoyed -- kind went appear point I so were to you the on to time at have or deposits. today, a you more time at

you growth at when kind out obviously the down. pleased And that really bit was resilience of a really, NIB. grows, was we're interest-bearing far, so particular little point-to-point actually with drown piece And that slightly large what holding of occurred the up. A -- And NIB that in in XX/XX demand. the of

with of of going So maintaining the portfolio customers, resilience we look pleased of really to we're strong forward noninterest-bearing forward. our NIB and proportion really

Operator

Instructions] John Your next Montgomery from from of line [Operator Scott. Rodis comes the question Janney

John Rodis

Just looking in -- the quarter? at income, gears, looking what SBIC fee the switching was impact

Paul Egge

$X.X gain. revenue million. SBIC of on million that We recognized $X.X

John Rodis

it forward? have that's should And you sometimes, mean, that know I not how -- we should I we really -- think about going how but

Paul Egge

source -- we about since there, of conservative are We think relates watch it to how Yes. our we as we very to revenue. how gains we recognize set can't that

look pace million at in XXXX. as noninterest that think $X.X our expense would I and So our ex base about

John Rodis

then... And Okay.

Paul Egge

to And are to -- build notes are that. we always we speak always -- can working working has that. Ray Ray on initiatives But --

John Rodis

on question fee other the $XXX,XXX quarter. one income. we were just about there? fees I Paul, The on going going that How about third think card down, number should from know, forward? don't Anything

Paul Egge

fees. Interchange,

Ramon Vitulli

our That's Durbin impact.

to our to cards onboarding. hard So our on working really more story overcome to have we've new penetration good And as in seen that. good try account just a -- team

through And Durbin. so those that that to I we've from hope just decrease grow -- had overcome and

John Rodis

quarter, was fourth the down started Okay. the the some -- in was it in hit more down was But even the it third so in quarter.

So okay.

Paul Egge

Yes.

John Rodis

outside But line nothing of in that item? or Durbin unusual

Paul Egge

No.

John Rodis

No.

Paul Egge

So than was of little higher we impact the been we estimated. that Durbin a have observed we -- bit have initially

John Rodis

provision Okay. question, guess how And just I know is the guys, other we But one this harder. level then forward? bit just little and about -- on think maybe should I a going provisioning,

Robert Franklin

formula-driven, it's guys. mean I Well,

as almost with that provision. loan to happens on portfolio, loan or are that the good drive hard will based bad. we're in hard as project what It's So interest And our portfolio what increases rate.

John Rodis

Are...

Paul Egge

expect do credit. We

we -- economic given especially are We conservative on credit, unknowns. stance a have

we're way is the obviously in we've into level a in that So planned of reserves. for -- normalized plays and charge-offs the XXXX, more industry

John Rodis

do when say -- more what normal? think Paul, normal, is you you what

Paul Egge

than you of high operate being. I we have mean to have feel something when where industry been the charge-offs credit relative cycle a net single-digit of set on to most what's really maintain, baseline. nationwide a just hitting assume companies legacy think in metrics the we prudent when a industry, about charge-off would part, there XXs low say for up good net basis of provide and expectation because normal whatever expectation little And I in you numbers. able ability our to elevated. But the to finally for about bit a a an to us, both do is teens, industry to better the end

John Rodis

still one good is just XX%, number? other rate Paul, And a Okay. tax around question. The

Paul Egge

Yes.

Operator

the Stephens. of from Olney comes from question next Matthew Your line

Matt Olney

Yes.

the I quarter, think, want stabilization the levels. if the We core you to go back margin. the fourth out take to accretion in Just saw

quarter moves for on holds for on the bottom. what's of in quarters, any NIM assuming confidence the a here call color the were I a fourth the think quarter? off you to core ago, that any fact, has, But few little in the bottomed level hesitant Fed kind a

Paul Egge

a backdrop. No. real uncertain It's

going defend to we our net a out a positioned of to us. really and about results interest have margin defend bottom speak are themselves. we'll You're hard we But teasing good income. the for time how feel out And let our

Matt Olney

of Okay. maybe of remarks deployment the front, call. but thoughts build, your on throughout capital Any think, good just in not around the something it a this year? something I buybacks the a significant quarter want fourth for year. was and also And you this Or year? environment Paul, year maybe think Lots focus more take is the stock Could you do be buybacks? on the then lean updated you capital this the in back to seat prepared on

Robert Franklin

we've a I sure of comfortable on do. the lot things optionality levels give feels that want to spent and think making a that we where Matt, Well, time us everyone build capital lot we back more to

and And many rates plays that's don't the year the to be It how options so down. provides know capital see we there's to to possible, I case going us I want out. be that. or as coming have as not. a will if interesting expectation of of lot available to know

still right to sure we'll leading might that I of get to dividend, choose the continue economy we it's point do, on. although some making this the that to to so those and deployment to some seems into going slowdown around a we optionality. economy to whatever all for whether And year. But and have is available want certainty M&A, is path the think be the going -- more -- until the we're try that opportunity, think little have we're are we of and have I one where little during clipping interest the going But buybacks, is capital rates we've be same the shareholders. probably -- a what us in on options along if okay, there's the we been all at

Matt Olney

at a to And acceptable, be build? considerably figure is deploy It do feel urgency me like out capital to where capital here any in absent point you level build could Or actions. ask Okay. let 'XX. feel this built that trying deploy to kind the more or any getting 'XX, continue before capital? we're level they're way. we nicely that in urgency levels for to to it uncertainty we it. to this Would for if something looks to is what really you other of going The while give think, I'm let close built capital

Robert Franklin

I ability question, or X credit might year I think If Maybe as good buybacks. clarity joust. we that a we're We we stay quarter. to enjoy way. capital, about best -- down, one we going we to want rate if somebody certainty to is starts what third questioning and the against we think Matt. a That's do. cuts the they have on have this buybacks. around options get better And can our like base economy we that in capital might second And much for not know. certainly more make cuts be unemployment we're actually to with means up, standpoint, the economy us slowing what think true and a me, comes a to where couple we'll from project, shareholders. going life is do we sure whatever no great and operate want an don't rates way we of But that that are. But and to to to want do solid move move -- it. Interest is keep understand I open. maybe we thing the don't I we certain there's small into will the gives a interest do our we

Operator

closing for questions in time. at our no will this call remarks. over have I turn Chief now Executive queue Bob We the to Franklin, further Officer,

Robert Franklin

today. very for much. way. and to continuing Bank everyone, Stellar great a forward look you to their XXXX in you, build We Thank interest Thank

Operator

and you conference today's now Thank call. may disconnect. for This you participation, your concludes

Stellar Bancorp (STEL) 26 Jan 242023 Q4 Earnings call transcript