STEL - Earnings call transcript Q2 2024

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Operator

Thank you for standing by. At this time, I'd like to welcome everyone to the Stellar Bancorp, Inc. Q2 2024 Earnings Call. [Operator Instructions] Thank you.

I'd now like to turn the call over to Courtney Theriot, Chief Accounting Officer. ahead. go Please

Courtney Theriot

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

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

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

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

Robert Franklin

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

team. report to Stellar are the We the our results work represent of great that pleased

derisk focusing rates balance and has sheet higher capital, goal to been on cycle the by of Our during liquidity our interest credit.

quarter efforts. reflect these Our results second

goal is and to within forward. portfolio these commercial levels moving the manage is estate regulatory maintain now real and our guidance Our

we to are our approach we medium-sized and While accounts has small- of been acquisition operating focus so to more our includes the a organization. always emphasis This important are taking on emphasize banking, to a on those higher businesses, and that balanced relationship to continue approach will our remain lending.

come. added We have to lead from program great these of our across with them supplemented to success we personnel footprint, look years efforts are great We to and and staff our forward results have to C&I over how the efforts. development our officer they our pleased the

interest back without as of look the We as year. year remain cautious clarity the well half being to an we on rates in as election

excited and play are about the economy create offense and for growth. when quality to ready We funding future the room

Our building into maintaining strong this to positions been good they and as interest goal base of moving Bank through our margin building and opportunities to optionality net by deposit goals us has take a present strategic and provide XXXX. base. the Stellar themselves capital a We believe advantage

call building serve proud over quarter. strong on now more detail franchise. to Texas We will positioned of the the well Egge, and for I in turn we are CFO, Paul our markets our the

Paul Egge

Thanks, Bob, everybody. and good morning,

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

balance liquidity that risk on profile results, through focus our our we've lending of sheet XXXX. been balance emphasis capital, proud and and solid a maintain loan seek able more are we liquid on particularly lower optimize result growth to a our build since credit as to The we performance while capital. maintaining net as accrue We profile sheet been diversify we a navigate has business,

protect responsibilities the $XX ability in the being great our about come power, earnings just and feel notwithstanding the that managing we pressures billion earnings from interest assets. from front, over On to rate the environment current

interest representing the for quarter relative So quarter the second was of first in income XXXX. translated booked $XXX.X from a net the in of $XXX,XXX of quarter net the interest decrease million, quarter in margin X.XX% to $XXX.X X.XX% first XXXX. This of million the a about into

quarter. $X.X million Purchase accounting was $XX.X million accretion prior in to relative the

accretion, proud quarter impact shift quarter. of Excluding margin deposits, we of in the mix industry. mix-driven our very margin X.XX% X.XX% how in linked interest that are broader first was at in purchase cost funding we of deposits X.XX%, experienced the down our uptick compared favorably cost the to the reflective net quarter the accounting and full from of the Notwithstanding of

deposits the high The primary of of deposits, of level noninterest-bearing advantage noninterest-bearing cost of level and cumulative driver cycle. funds has the seeing in is after our SCB aftermath in stabilized effects feel our rate XXXX really outflows of good our about how we the of and

seeing total lower $X.X X.XX% prior mostly million quarter And see credit the quarter, since charge-offs quarter, X.XX% a net statement, net we this to for allowance that interest the negligible booked provision decreased, were loan levels loans and as and credit second annualized income of the due liabilities for provision second our million start a notwithstanding the relative our in the actually from in credit the a up back losses $X.X income losses result in half interest-bearing XXXX. Walking loan to of cost further to prior reversal. for from from balances. credit balances reversal quarter in to stabilization and of stable versus a of grow trough As losses the of down which plateau, we ticked

for should assets from SBIC on and the in I prior that gain income. the Moving quarter. income million earned on in the of sale million quarter quarter. nearly the $X.X noninterest quarter some versus $X.X to first We note million benefited $X.X the

from was in slightly expense down quarter the million noninterest expense $XX.X the quarter. million for first from $XX.X Last, noninterest the

items, Excluding severance our of and as quarter. charge for and assessment certain approximately expense items expectations with the additional such $XXX,XXX generally notable FDIC our line other that was nonrecurring noninterest in $XXX,XXX, special totaled

platform industry relative our earnings meaningful add and pressures great about the position opportunities our we've industry, for the our we assets inorganic $XX to Bank and to power feel in just for at when organic we billion over growth built. more the Stellar cumulative assets, potential Given and operating that leverage positioning future

very capital of ratios very XX.XX% -- QX ratio at capital end the risk-based to no to This has the to regulatory relates it capital, a the relatively of and expense. exception. a strong quarter XX.XX% XXXX. at at across of notwithstanding of we've relative been end book closing and end is XX.XX% second process CDI has reflective Total tangible growing growth As all our was of successful profile been and the the merger merger, also XXXX since our regulatory since the earnings been capital accelerated value consistent which thanks progress is was amortization

very like which current for to environment. continue We valuable is our generation, operating prospects strategically internal we the in capital feel

intangible million the discount with ended $XX.X of $XXX.X remaining a loan We in assets core deposit and million. quarter

well and we will back is prove to the advantageous in focus our standpoint right XXXX our We when largest consistent the on very The believe will Bob. capital, be strength a our as and uncertain economy. us of more bank and time and beyond. resilience remainder will today's in believe liquidity from credit has now navigate market In assertive to just summary, that strategic continue the over serve incredible we as and the drive about call advantageous served is positioning markets locally I credit you, loan Stellar's success growth. as turn we focused the to Thank of

Robert Franklin

think And I operator, take we're you, to Paul. ready Thank questions.

Operator

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

David Feaster

think Maybe activity. tightening could of just ahead curious just decline versus maybe for and of what's this on, structures weaker CRE demand the increased a you less cycle much strategic, potential with and how us this I'm or loans. at is through going if standards given point payoff credit appetite in starting help

you of that your curious us could what help kind through for appetite dig if Just credit today? and drove

Robert Franklin

-- answered the pretty we given books, your when -- together, David, the down guidance. and of to had that a to our sure we make you number banks a to own wanted CRE much and -- put a question wanted X had may I reasons we we have under on significant we down get of think environment, there. That's the amount for

of as sort we've So portfolio back. this balanced effort to grow we are point, a a and at more that the starting accomplished start

the markets. I not continues totally interest cautious have we've we we the is to our rates. we -- And going what mean good. to I'm economy cautious. yet damage around experienced that in year this be sure been to around be the And market But been

it say, would been, say, -- still year. is but It's robust it's Loan last in okay. certainly as still had I even the or demand, year earlier not

I'm got Ray some to I on good comments this going he's because some So make let think. information,

Ramon Vitulli

there the David, been the as quarters, like around X quarter, the was said, about far originating second -- waterfall what down as we the quarter the how for in $XXX addition last in to Bob $XXX of but got we've around million. million

than that we've less we've then we've our originating taken. about historically -- that this in And posture that increase. So million did what $XX was been payoffs

quarter a and million. million was $XXX first payoffs around somewhere been we've So quarter in $XXX the

that So elevated those -- payoffs. are

carried component, other net call C&D we where bucket which we've negative. which the advances, around availability in of taken are the carried, down, that that posture we've our payments to And our that -- then of the because is going flipped actually and

a which million a until more approach. we'll we take $XX about actually probably payments advances, see So we what had offensive exceeding is

David Feaster

Okay.

loans it kind of sounds So here stabilizing? water and tread like

Robert Franklin

a down little that. on we're also C&I. C&D balanced making this We've emphasis the and Stabilized, transition I more think, brought approach little to part a more of

presidential think in the really And couple on get that move the these positioned years are robust rates other all haven't funded replacing the grow we -- to But on of it's as in going and been approach ago. marketplace balanced things through in to them sort loans as had how we I the are there fashion all out, a we So more organization. well the interest that we so out from noise of -- we to construction this election forward.

And our we'll doing. grow. continue that, And I comfort markets to exactly as think get what we in more be that's

see just this job We to I good really growth, think growth here is population the continue future for franchise. and

David Feaster

see great side. And to -- well, on that kind staying great. maybe of That's

on lot in the be interested have deepening in hiring thinking maybe appetite seeing Do your the a front. here? -- curious any curious had success you I'm what hiring where of historically would kind you recruiting for market on potentially all? Just You've front? interested expansion or And the talent. of what producers presence new you're at you're

Robert Franklin

been Stellar Hiring continuing think program in some our direction. own off a people really ODP to to? and side to for. to are program, been has very front But about you producing do going that to for bring And on. our work office our road. senior feet development place the getting to the some continue all And talent that. becoming business, I we we've able We've pay to and and C&I getting the to talent that going. Ray wet had that's We're feel opportunities great just C&I Bank the of migrate the attract want coming move our great good. We've Board. seen towards some going is as folks look people we're good their across talent those pushing We're down through

David Feaster

into if for That's the that especially C&I we've that balances, help seen then And delevering the of could issues, me, us and underlying great. curious think just you NIB borrowers I'm seasonal through in of some of stabilization last some with think trends sustainable could about kind and Is and should seeing and NII start expansion it? costs whether the that you're a growth to translate you to this way margin stabilization and right funding stabilize of going think forward? is ultimately

Ramon Vitulli

I accounts leading it quarter. at onboarded, another on our think the indicator new and the had David, look -- we Yes, strong

of we've quarters dollar had amount fact, accounts in of was highest X one onboarded new quarters. that the In

And that, of really customers. component number XX% So other is about, of onboarded the we're there. new excited accounts that of pleased those really which were

our new that XX% customers the that, on the reflects that were as and noninterest-bearing as noninterest-bearing before. of the think I our been here brand. not inside in field out well And accounts, have of bankers of So

of of will balance, trends. accounts deal those -- and move will So we think they great build that how that start are -- result think level forward because about of funds. NIB our we maintain this I maintain obviously, at what typically talking or that, we And cost and in a as you're with those lower also

Robert Franklin

higher to wait the not see trying we're drowned David, I We're been interest And industry. we've Yes, a interest for is especially rates, get starting out noise playing a we deposits. that's franchise been the think deposit The and across our can some know for about -- loans, deposit and for that get compete higher on And where we our of matter, bit. field, and once rates. side thing seeing that point that for certainly background. reaches we a but we to the level stabilization to

interest to inflect point on competitive get where where we're be and And just and rather the so we a competing rates. things that's lot to think starting than quality higher will more

Operator

comes next at of from Jones question the line Our Will KBW.

William Jones

a for -- in early as that the maybe go deposit your see a kind I was saw bit the half of acceleration about necessity but the moderated costs of we an a last continue you narrative describe just margin the in just on quarter question half. just I of pressure this been more quarter, And liquidity build. the this of see of entered latter maybe It kind to the bit to cost the little specifically, quarter. little quarter, back Would this bit maybe driver even to costs quarter? a we the bit guess stabilized after to maybe it's to little quarter that is I then quarter's trend deposit first costs. guys yes, what as change? and kind comparing comments see of deposit deposit surprising is, this start to wanted of and a that, of And and broader your a

Paul Egge

No. how second saw quarter of XXXX. cost the effect during of I'll I of you that margin. in shifted deposits funds start was big driver the and really, what would the of mix of the And say our really cost of with the ultimately, quarter quarter full was first the drivers our

quarters kind you the kind So outflows. balances effectively where entrance late measure replacing the that a where of noninterest-bearing saw of funds of balances higher with probably around it's mid-quarter, -- resetting to mid cost interest-bearing deck noninterest-bearing ultimately a drove second of experienced and in we And what quarter.

to So which it's rather been is really news extent good the stable.

pretty on of review funds. point, we level of month-to-month this stability a were in to up experience have we So if cost to kind of a basis, high

stable but In it April, fact, one the experiencing improved of it cost throughout probably to relative experienced worst be has pleased of months materially, second funds the was stability likely stability but has have monthly and we're been been quarter. relatively and

William Jones

Great. Okay.

year? exit on and of as with going to we just here the Or a if opportunity deposit of you costs is that expansion maybe commentary, expectation bit expands from the stabilize just there trough see maybe So we that stability kind here. margin And this quarter we out, see NII expect would pair forward?

Paul Egge

metric noninterest some of both, in margin inflecting the perhaps I to of before metric. income stability margin inherently virtue pivot sheet more larger net the balance income that net expansion, get we're confident in some building -- flex on net in portfolio net -- as build but see effect of I'd be think balance we to interest dilutive our a effects as interest because trough have kind hair to might it's of on terms, Ideally, less can statistic. diluting it speak interest securities interest of by where [indiscernible] have on I an income liquidity of the liquidity we sheet actually and some a rather the

William Jones

in inorganic -- incremental or question and what Paul. M&A perspective? what about opportunities space? the you interest We've today? quite just the for about I happening standpoint. discussion the is you. appreciate organic in an is But just a any conversation hiring internally great any your an And market doing Bob, bigger, in bit and talked M&A you're conversation a from like the That's broader that. Are seeing What that's color, pickup from reinvesting

Robert Franklin

Yes.

we're I significant the of a be a of think lot conversations and there amount continues industry, having across conversations to ourselves.

acquisition the is in of is look we maintain profile And and partners the about of always the things trying same they biggest worry way we kind One to is target future hard the themselves. difficult for us that it's focus have, funding a how fund is that good to find the which look that way.

created we as keep for deposit shareholders around the feel so And especially the side, value that's strongly that -- forward. as -- we we very move is

day. I more think and more it's every important becoming

a several right on we're may valuations they think And to and bit going of the that But and are maybe is make starting the that so difficulties exactly conversations. the the having partner, what be narrowed to to targets right they want around to lot the are when that . be. who a they find partner might going come expectations their exit be, our I but understand to were acquisition intend and to decide field choose gets not folks be forward There choice we the

William Jones

certainly to maintain I you attractive that funding wanted profile. understand

So I color appreciate all me. all the for That's guys.

Operator

Our the question Olney from of from comes Stephens. line Instructions] [Operator Matthew next

Matt Olney

mentioned to go to Paul, earlier. I something want you back

building and this some mentioned in XQ. a saw again XQ, larger in You we of portfolio, securities

update then expectations balances I are the in portfolio back that billion. of recently build year? end-of-period close $X.X think you've continued more an these on the been Would buying of for to to love half what hear and

Paul Egge

one on source focusing of has is cash in its on low risk-weighted engaged bringing our in that cash to portfolio because of been securities level and repositioning the Certainly. agency liquidity. since flow really securities of and We've changing We've some securities merger purposes strong been very on a portfolio, securities main incrementally flow. focused of giving duration vanilla focus a a the

of the comfortable at now. average perhaps shocked it's purchases. been were be assets I another grow think as if percentage that a But we're And X. or that's flavor So with of really we don't point incremental where to percentage

There's dynamic that to the focus in whatnot with building on part flow-related liquidity. we certain been relating but definitely question, that cash and get of some the -- it growth on more back the pace consider dynamics the sizing it, securities in has heightened loan to focus original of to

Matt Olney

those Can you And second full remarks. prepared just Okay. just side, I think, guidance. items Paul, in Paul, your just those you and review then then the missed a quarter. broadly, few I maybe on in non-core more think expense mentioned the I year again? the

that I in think love around updated thoughts number. with would that? we've expenses hear talked $XXX to million I respect any to

Paul Egge

The some XXXX is quarter, were We Yes. first million. $XX.X $XX for we of the at bogey for was target the and -- we SCB. in quarter. noninterest the did $XX.X that million we from were second quarterly dynamics. reflective the we second expense assessment But In invoice million, of that got seasonal in additional the quarter. We quarter, the during FDIC have recognized

and $XXX,XXX. of quarter. calling worth that, our kind had the $XX generally guidance And delta being We of a We million that estimable. small So $XXX,XXX that accrual other that that $XX.X severance explains of out about not of is that really probable and in between took nonrecurring a are handful million of then expenses. nature on expenses

Matt Olney

just me. Okay. lastly then Got it. And for maybe

give disclosed CRE within you're Bob think just the missed the percent June C&D down maybe us -- a guidelines, that of the some have as -- the you're, XX? but just has few and can I that, I for you CRE think, at that now I it, of concentrations and mentioned guidelines on times of come

Robert Franklin

about [indiscernible]. on We're right XX% Yes. and

Operator

with of comes Sandler. next line the from Our question Andrew Piper

Unknown Analyst

of quarter drove you what as minimal charge-offs reversal on Just as provision? side, detail drove net the the the the can well what this credit

Ramon Vitulli

catch didn't all I that.

Robert Franklin

Andrew? that, repeat you Could

Unknown Analyst

Sure.

drove side, Just on you the charge-offs reversal minimum what drove the what net and credit the quarter? provision detail can this

Ramon Vitulli

down. lower was bring categories, lower in outstandings outstanding There's those Well, we as formula our CECL there in that the certain wait categories. will estimate amounts

in like our much -- also was fall have have charging the our downgraded, is it necessitated And didn't unfunded any but out we by in we the clear-eyed recoveries that the way if credit the I coverage. some we it loan we have we can were means, that less overall to by be charge-offs a And but just -- the a -- quarter, NPAs, not was think of we quality. just strong driven loan reversal balances. off huge So minimal real have have We're needs be on in loans collateral to downgraded, we approach off. taking feel of

feel write-off. like an there's to we And have need so no accurate

we've got we pretty And good that. so about feel --

So that's release. what drove that

Unknown Analyst

And then That's me just more Okay. around for one capital. helpful.

thinking retention capital versus you're how about moving shareholders returning curious capital Just forward? to

Robert Franklin

happened, Yes, our Andrew, trying point, since our we're comfortable that building We're I capital. to at about retain now to where going been aware of ability something options we've in It's think merger are forward. the think, capital. a we're what

franchise. We we and as are ways to do our as aware we we various do of the The like supplement would far is the to to help choose that biggest can grow us that. expanding certainly thing capital our franchise with whatever

we those a like capital. apparent capital time But to However, what other as it become But folks and cetera. thoughts around considerations are that this think use constrained. make of think I able buybacks things aware year, our as isn't dividends, be end we consider the through we us to are to we this be might the that capital to and will for there's would et

to I think little around. the a have is this extra time

And so the we'll see year. as of rest through we the move

Unknown Analyst

Congrats on quarter. the

Operator

from with comes John of question the line next Our Janney. Rodis

John Rodis

income, Paul, bottoming, comments just net follow interest yield on you're I up Is that net you, accretion. just income assume about question excluding talking for a to your correct? interest core

Paul Egge

yes. Absolutely,

John Rodis

in Okay. the year quarterly us on yield accretion half we what should on And you modeling? then second or basis be be a give can the your of thoughts what just could

Paul Egge

seeing pleased in more more is got benefit that net accretion. not result in the actually. first months portion second at I'd rate. obviously a run And We In mind second probably run the did little bit rate, an have lot quarter quarter than quarter, the did And the payoff. a of that quarter. we're from we in look waterfall of increase the payoffs we second

hard at the on than so to paying would bet pretty rate we property to due really and some sale are more loans, handicapped. it's we've been off particularly, have So of pleased behavior loans whatnot, low of

versus I'd second news the about So discount credit, we quarter closer of But going recognize towards down. first and coming in And quarter. guide good in is $XX.X income those remaining. the probably see net as conservatism the an of we're loans great have to we certainty the feel the million to pay loan that income We a quarters. high level accretion

John Rodis

And should tax on What's is a XX% Okay. other then good to question here, bit use still a one Or ticked but just the higher? little good rate. it's bit a -- we little use? up

Paul Egge

you would between XX% XX%. I guide and to

Operator

over call remarks. to Franklin the turn Bob for now I'll closing back

Robert Franklin

on great you. this hard Thank organization, folks thank your in call. everyone for you interest at our here of We all past for Stellar the quarter, thank their Bank work this and

Operator

call. Thank gentlemen, today's that and all for concludes you Ladies joining.

You disconnect. may now

Stellar Bancorp (STEL) 26 Jul 242024 Q2 Earnings call transcript