STEL - Earnings call transcript Q1 2024

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Stellar Bancorp, Inc.

First Quarter 2024 Earnings Call. [Operator Instructions] I will now hand today's call over to Courtney Theriot, Chief Accounting Officer. Please go ahead.

Courtney Theriot

Good morning.

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

results, everyone at defined a of that constitute obligation and beliefs we disclaim be the that some statements, covered the guidance statements provisions Also to to time if begin, the statements are in by harbor We except Before Reform update law. today as as note made, that I is management's subject reflection to for safe future remarks as we intend contained Litigation forward-looking and beliefs Securities any the statement remind statements XXXX publicly about amended. in give need is Private made the be of all act. change. the such required forward-looking forward-looking to of Act only any may by guidance We such

time remarks, in you CEO, will additional risk available page call over If last the morning's questions. we line with our forward-looking ir.stellar.bank, will for of associated allow is to I conclusion Bob factors Franklin. the release, our earnings open information the which on text of at see website now the our turn this for about At and the statements. the

Robert Franklin

quarter your strengthen Stellar team all team Thank earnings morning, members a you Stellar value. and welcome to The create our remains Thank for stellar the Bank building to Bancorp Good continuing shareholder and to you, first way. Stellar bank efforts Courtney. focused the on call.

continue we as moved and our strengthen not liquidity build to has aim closely watch capital, credit. Our

of put heritage with that a We Higher interest and a our they have work work rates projects, are existing on depending cash us. customers flows our our the as community certain culture. underwriting. strain timing bank on We with on

our potential efforts early. We to challenges continue identify

to new As through our with additional guarantor cycle. customers paydowns as support work projects, we collateral with to get look the we project and/or

watch intend our stay Our intent customers well address closely reserved to to close credits. event we to We stay in to and stress. those the is need

As paydown we work has bit, identify might we a significant not allowed a credits classified expand but significant years appear us requirement of with expected. losses stress, into that it in our over does see be the stress ultimate the customers otherwise may equity and the will going or to the list exit result losses. The project that level our without

people our capital of bolstered values Our last Fort year, XXX,XXX to customers population chasing and Dallas good grow also last our by are a holding year. almost deals. over only by second asset We Worth. significant jobs created saw new Houston markets, amount XXX,XXX

what we Our liquidity, United bright, base, do not, metrics. and Reserve fights We in future Federal inflation need strong one We the the deposit to markets capital good States. higher understand best of, maintain have interest great is and the operate rates. a good in credit we with as if

to Our our success. turn intention our of of I stay fundamentals Paul focused will the map the is road over to now CFO. call on Egge,

Paul Egge

good Thanks, morning, Bob, and everybody.

diluted on on per of million common XX.XX%. return which net or return for XX.XX% earnings annualized an on of X.XX% quarter of diluted $X.XX of equity tangible of and average annualized $XX.X share, income or as fourth ROAA compared a are equity of which X.XX% share, quarter $XX.X tangible pleased assets made to first and common million return represents report to per We an average $X.XX an

credit in we mentioned and on capital, commentary, his liquidity are our As focus in continuing Bob XXXX.

the a means this on that composition, as posture, So management, asset and liquidity, optimizing it higher a doing been building growth our the XXXX. margin power, $X.X managing to this quarter $XXX.X accounting to interest from rate crossed to interest having in emphasis pressures and earnings can we accruing notwithstanding asset balance responsibilities neutral rate million, threshold. Net million taking quarter be difference relative the best from attributed fourth This loan a risk a the X.XX% are $X.X fourth interest booked $XX relative representing of front, the the a a $XXX.X in putting maintaining emphasis first to purchase decreasing come X.X% we position billion XXXX. in the quarter. of current the on protect million on interest defensive Most million for accretion have income the capital. to of into from quarter liability environment net of prior lower relates and translated And decrease sheet and the that earnings was of quarter

at of quarter for reflective quarter. income Excluding down in versus prior prior X very loans for basis $X.X annualized credit from losses net at accounting the in appropriately our average margin the of purchase problem potential total a the manageable unchanged Since reserving points only credit loans, puts of this booked we $X allowance credit. X.XX%. Walking conservative from provision net the X.XX% were was up to quarter accretion, provision charge-offs largely X.XX% statement, quarter, about the million in further linked million interest

income. noninterest to on Moving

While annual in quarter was certain large operate sales on for nearly and while threshold. increases our on gain as $XX.X uptick $X.X quarter. a to the focused our thanks payments. We million dynamics, quarter, payroll merit SBIC the with revenue a for income reflects a seasonal expenses in some infrastructure remain as in around of $XX taxes the from necessary at as bonus investments million million, such noninterest also effectively to noninterest and income the bright above managing managing not was billion line asset seasonal which expense $X.X expectations possible largely the at as portion in spot Last, mix,

our ability our our pressures, industry and relative to cumulative Given protect power earnings industry good future. for the the we to feel positioning about results,

the capital since of continued ratios to we really and capital strong driver is merger. Total been book across As regulatory at capital was like XX.XX% Relatively capital, and XXXX a risk-based end we've growing XX.XX% the end to reflective tangible expense growth the our the XX.XX% of since since our merger, of relates closing amortization prospects our has internal at progress ratio and generation. This quarter has internal been regulatory very solid notwithstanding of our generation end consistent to the at the the first capital it merger. of accelerated for relative successful all XXXX. been capital value earnings, CDI

purchase quarter the assets million million $XXX.X core of topic accounting items, discount the and in loan ended we $XX.X remaining. On a of with intangible deposit

despite drag on potential of noninterest-bearing the deposits threshold, it to bullish seeing the but our NIM industry highlights go-forward strong somewhat in funding Our net business. but compare profile This fall on to strong favorably extent value be we deposit interest to and the ability on franchise of in has our XX% remain our impacts our the the margin, region. continue below a to mix the Houston which remains funding

that in Bob mentioned both the terms. the extraordinary affordability. in populous continue percentage notably and relative areas data the most the far Speaking add value games. of of Metropolitan only XXXX Key Dallas be I'll population pack Houston, metro and of areas U.S. on absolute relative ahead are in Houston the population jobs and the growth drivers staff to XXXX to

you. Bob. beyond. strength the in Thank serve potential Stellar's markets So now XXXX the further success and we gives overall of us strategic positioning to the turn call will And over for our and in back comfort I

Robert Franklin

Paul. any. ready Thank And to take you, operator, questions if there we're are

Operator

Instructions] with James. Your is David from [Operator Raymond question first Feaster

David Feaster

And demand just trending of credit behind pipeline what slower decline for how growth? color balances. start pace I you're your expectations any mean loan talked broadly? let's from the has about and your clients I curious in changed is Maybe of maybe the more loans. appetite maybe we on curious with or I'm a but And weakened. growth, for if the was drivers hearing some has

Ramon Vitulli

David, it's Ray.

about kind the did prior that, at posture around new we've loan million little from about in had -- origination. look we quarter, with you originated which of a when that quarter quarter this up while bit the to fourth that the of talks first really but we line $XXX So loans,

of healthy payoffs, $XXX be generate believe low had million that we million level could growth, So single-digit payoffs to what seeing in but of still $XXX we're quarter. the

where -- not exceeding getting -- construction So carried where the when our had take have in call done development and really would you -- that, around past. lift we're our as you what payoffs in you of that we're we lending, what where advances piece, like look the at the we've we've we

bringing equal. growth really piece loan that's about nothing So it's because the to

what is are of payoff and function our fund So experience. new it's a at really those what loans

decrease. net that's So the really drove what

I last It just it that where seen levels if consistent so we've digit. with plus could payoffs. quarters over depends deliver -- million payoff happens and single $XXX XXX X what XXX and continue. on think for those those what in fund That quarter the payoffs or is range, low still in really the

X new are those of mark in and Those really is past you a ], XX loans thought level pricing-wise. when good came quarters. at around -- over -- where the look which or on So X loans [ really the coming those X new booked, high we

Robert Franklin

the of so pace underwriting I demand We little bit. bit. this just that's interest And do around have a a higher think, lot rates, stricter think slowed then a some slowed has I and

of is it So that, there's there, a out business been. it of has slower but combination than all still

David Feaster

side front-end helpful. trend How quarter? NIB That's Was you're Just other trends, the how Okay. having on or with initiatives weighted did core as think thoughts on especially could then on about deposit you deposit And NIB growth touch just the that touching the throughout your especially back-end core just trends maybe on that and you in? success, well? kind of front. where

Ramon Vitulli

on like that seeing on still we've support we're what historically new still the It kind onboarding. account -- the maintained. our to that NIB of looks We

the were of mid really in number accounts Our category. good

uncommon. was than usually high previous at a which don't the quarters Just very dollar amount start and business our a accounts less dollar that, level. with little associated isn't Those

an function the mostly some took broker came an -- is we NIB. the in just of at When decrease like portfolio. still had sits. had still deposits that So without there carried you still the look that book pleased to of a that that, on we're those it's just accounts that we call that at -- Also, the looked impact -- with onboarding NIB, And on will it take. we're -- When NIB the the still drop, course, that -- the you then of came solid at those fighting look on portfolio. came to interest-bearing fight. rate we're compared did the in the we on portion, you that where that And where on point impact what

the a function was So of level of not some accounts. outsized kind decrease closed of

David Feaster

Okay.

more Okay. And just That's then color. good asset maybe broadly. on quality touching

reputation being in nonaccruals? just more to You perhaps curious you're seeing slow could guys what a of the underwriter, the on quick you if downgrade, a increase great very more what conservative have drove credit front? credit on upgrade. you're what broadly touch seeing as I'm And kind broadly, on

Joe F. West

about In is the was nonaccrual good that, have run we managing actively two that XX% of of Joe. experienced comprised a some management some This space, in credits issues are that and currently portion C&I that problems. of

we're those. managing actively So

we're that increase that and couple appropriately smaller by unexpected of and cases. some are well. cost as construction of most couple driven loans some drove increases a There of was isolated those watching have into that run So problems, in

the in with. operated driver we CRE that. issues that two had also we're older that of And kind rated that's dealing So loans

in the Q. $XX the in the report million jump comprises and that in the you NPAs see So that

Operator

[Operator Your line Stephens. Matt is Instructions] question next Olney with of your

Matt Olney

I saw want loan the loan core some accretion. ex positive to in movements ask yields. nice yields the We about

schedule variable any kind repricing yield receiving you've on core and yields? far those kind from Just any And just been here. coming loan commentary And up? recent that's us color fixed your levels as just of that as more outlook remind of on rate of loan loan newer

Ramon Vitulli

Now variable. I'd fixed evolve typically it the around the bit little came million at $XXX so of repricing new is I I'll ] [ note the there's XX. there quarter, a X mentioned, on on on then plus first was at billion And component give range -- new loans, about you renewed the rate. some think as you Matt, X what about X of XX we're ] gives color an a just on that you the probably market renew [ and new X really kind XX XX. that $X of but and a that. ] describe [ That's mentioned for just quarter. the $XXX So or ] we loans that was [ to million what's I of of think funding just pricing, if the was it $XXX that was with in note It with quarter, renewed amount with close of talking that in [indiscernible] amount, opportunity, whether -- before, the And renewed kind coming that million between on

Matt Olney

Yes.

I helpful. that, guess credit love to just up hear maybe from And then Okay. with That's perspective. following a

renew borrowers As if with loans just being some debt that? Joe else views those has of with know those you higher borrowers expense. the anybody discussions with how or digested on at the any levels, that's just I higher digesting don't

Robert Franklin

higher, up be that borrowers and known been Yes, rate Matt, about if had accepting got going coming that. a of they've they've is conversations that, our they've to maturity the that as we with

We guarantor loan have good support of lot in our a portfolio.

up necessary we've hasn't would about do But rates for able all most pushback they're been part, that. that much to able to that. them understand paying there guarantors them They absorb say for fully that know So and stepped the and that been is afford have this with in it. at the to have not been and the wouldn't being up working been move the I they coming,

Unknown Executive

stuff the about we most up the of not increase that are on still on have, there, exception the that for Yes. with still of which in out the is there's price And still -- ability Houston, office, dynamics but the ability leases to talking Jeff we're office, rates. Matt, going to

through a they've cycle. get to lease Now got

coming can So that's a the not on. amount and to with those to gap to where increase folks have There's move the we're trying market. the lease increases. they rates stuff still to huge from We so one bridge cycle of get that next on rate

the to be these rates to guys So they able tenants their well opportunity. when but positioned got increase get get opportunity, are they pretty on the

paydowns. So position. we bridge our to guarantors collateral there, got gap the is about market along But the that themselves. sometimes can actually We've feel good us with additional the helping borrowers get

Matt Olney

what headwind on by that. the the going I obviously, Paul, other loan an you've direction. thoughts I'm Appreciate interest got perspective And of from here? margin, yield offset kind net your core core deposit the guess margin overall of this dynamic the are the Okay. costs, of curious from

Paul Egge

a I mean Sure couple fronts. thing. we're fighting on of [indiscernible]

end. interest-bearing cost us this as deposit in loan mix uptick deposits, on well overall the shifts side as nonperformers First, revenue hits from the other

So a but we relates in maintaining our positioning see quarter good were definitely first about it second feel quarter. we margin, the where to strong in we to relative relatively pressure as the

Matt Olney

Any from from a security that was Okay. XQ. And investment on the the it just into XQ nice lastly, side, up step recent then like purchases? there overall balances looked specifically, And color of step-up? on your

Paul Egge

back securities been securities be are portfolio something that types as liquidity, our through about. been and we're to we're remarks liquidity you've the our that incrementally thoughtful securities of liquidity the go since yields high is cash we're getting flow-oriented of portfolio. We level principal [indiscernible] byproduct from think portfolio. we'll a able a overall from the build be that standpoint to flows as focused cash heard has trying The on into I we've Well, and of prepared forward going Certainly. in better mentioned building in largely in Bob post of has

Operator

Rodis question with Janney. Your line from next of is the John

John Rodis

a Just follow-up.

how guess, question forward? think Just about expect should portfolio. to that? would going securities follow on up relatively -- on stable to would it remain we Paul, Matt's the directionally, you I Or

Paul Egge

a XX.X% securities XX%. currently. of We're percentage an intermediate on of more assets of about We're getting trying a at to as like target of path

a want read kind of that got before we've incremental to how is us. of tea but we for target to sheet, manage little ways go the So [indiscernible] balance interim bit we to our an

John Rodis

Okay.

income On in what impact the this side other the SBIC fee was quarter? income,

Paul Egge

it $XXX,XXX. believe I was around

we some can't it necessarily we when SBIC it get we income, have we range but when diversified So when of welcome a investments our to watch and comes. set

John Rodis

Okay.

or quarter, this was size income line in was else $XXX,XXX, $X.X there item? of that unusual Other quarter for so And anything that back million the out other

Paul Egge

but of before the Actually, was have on couple been sale to as we from income, There separate on gain the may added kind other the out being is, up largest smaller of unusual that a obviously, sale items gain item. called higher expected. than that

John Rodis

then, And $XX.X Okay. Paul, quarter. million just expenses, -- XX for on the

about or with feel range, million think I you run given Do still last quarter, comfortable higher talked of first rate? $XXX year the around for that a maybe just the little quarter bit you sort so.

Paul Egge

XXX -- dynamics plan do Well, we quarter we projects pressure our have the XXXX, some perhaps did and guidance -- in our the because get are for how larger. quarter we potential the go last the company with it. expense be But but first much go very hard week quarter, we on gave some right for forward. really put to we relatively last as manage aligned first make the working in forward was we're you combined levels There to see expect we, ultimately, to

John Rodis

Okay.

Paul, so I you're a probably this that's little run another above -- I come is I mean, quarter said guess what saying? a rate I guess, XXX. So mean, bit way, in first you better I guess,

Paul Egge

that on have I see XXX that decent chance a we'll pressure guidance.

indicative as first plan. The we our the that head as hit literally to relates quarter on the just of isn't actually because it nail

initiatives potential to reasons pressure here more expenses little the guidance. more be or put expected It's broad seasonal on quarter. for that the other to a in We first swollen have

Operator

remarks. closing are will today's further over there back call now any hand for questions. Mr. I time, this Franklin audio At to no

Robert Franklin

today, you on very the Appreciate Stellar everyone's thank and for Bank being much. call. you Thank in interest

Operator

you call. today's Thank joining. for concludes This

your may now disconnect lines. You

Stellar Bancorp (STEL) 26 Apr 242024 Q1 Earnings call transcript