STEL - Earnings call transcript Q3 2024

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Operator

Greetings, and welcome to the Stellar Bancorp Third Quarter Earnings Release Conference Call. [Operator Instructions] I will now turn the call over to Courtney Theriot, Chief Accounting Officer.

You may now begin.

Courtney Theriot

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

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

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

Robert Franklin

our Stellar and bank great great welcome they're Call. doing in to day Yes. markets. to to known Quarter the thanking brand by every provide to is Bancorp you, service Earnings Thank build work our our team continue for the and Third Courtney, for begin our I the

As proud needed of towards Stellar Bancorp, and on mark anniversary are strong we infrastructure cross liquidity pass to $XX focus we progress billion our capital, a our credit. of the our second building and

our have believe sheet bank reducing and the the liquidity, our and maximum concentrations we for We that building well optionality We by significantly balance provided capital. our future. positioned have derisked increasing CRE are

have behind Soon, are we of rates appears good. and attempting interest with XXXX will be to presidential to the for Combined normalize. stress we the markets the election that strong the us, runway appears serve, it

relationships will sides balance approaching with more build to We strong support the continue and will market to of a both we be lending the balanced philosophy sheet.

Our to grow efforts of capital franchises and we always us respect will will look help us Top will emphasis with our bank funding on at continue allows an organic base be profiles. strong safety is well-balanced growth. With and that optionality. to M&A, mind our

We will shareholders. effort some years. I'll coming pay our or we country, these to for the to down Egge, CFO, the back to subordinated the Paul markets are best on our are succeed well detail to weigh markets turn capital an quarter. increase now the buy dividends in of in and positioned return in also excess the over opportunities our in call serve to our debt we The stock, more

Paul Egge

everybody. morning, Bob, Thanks, and good

thanks ROATCE ROAA reversal ROAA related signified of X.XX% an diluted compares with earnings quarter loan due an are an diluted of the loans share, credit to lower We pleased third in and, represents annualized decrease allowance to balances. $X.XX to evaluated million the which nonperforming extent, approximate million XX.XX%. significantly of of lesser to and driver equity third lower of primarily in average which million $X or of a loans, losses per A a of report X.XX% a share, specific key was This return of on common or XX.XX%. and for net performance annualized $X.XX provision tangible income loans quarter $XX.X $XX.X our quarter an to per on second individually

charge-offs the power, previously more good net totaling aside interest were third quarter we margin, charge-offs had accounting feel provision our for. to of core XX% the reserved purchase million, due improvement $X.X pre-tax, our specifically elevated excluding adjustments. progress net quarter-over-quarter While reversal, the pre-provision in been our about in Setting very than earnings in largely

our loan power into the lowering ago [ with in ability regulatory billion this a end mention, sheet, XX% within to from to deposit asset quarter. X.XX% associated increase and net balance the the $XXX.X cycle our rate guidance all quarter We expense derisking crossing of the prior increased slight our the concentrations are XXXX. ]. very threshold. Net margin Purchase the quarter protect bringing was million to Not CRE quarter quarter quarter translated earnings the solidly while year approximately managing the the This interest accretion over pleased relative million interest XX% C&D second third XXXX. with relative booked ratio to $XX.X income our at $XXX.X a representing about $XX a the in from to in X.XX% most recent million while and the accounting $X.X quarter of second third for in million of was in

loans of in in prior interest and accretion, this basis deposit our purchase drivers from in in accretion, about quarter. from of at margin $X basis cost to the of or from with the during reversal million from our higher of higher since the X.XX% liabilities, X.XX% of third included the for of the allowance million in driven net the securities cost loans X million performance $XX.X with representing portfolio, on Excluding point ended interest-bearing quarter. Key quarter aforementioned net loan income point from XX% the X.XX%, our up increased and million deposit in X balances. Walking $XX.X XXX.X% noninterest-bearing was yields by after allowance purchase quarter. $XX.X on during coverage in margin $X.X lower about third the million of the yields booked XXX.X% In quarter. X.XX% quarter, interest funds, to provision the of improvement in combination offsetting quarter the losses we net charge-offs of prior our improvement this excluding our a further to million we those an credit base, loan a XX% $XX.X quarter. accounting statement, brings accounting second NPLs the to loans stability the the loans to quarter That nearly decreased income million or the end million losses $XX.X for down third said, nonperforming ratio second $XX.X credit quarter, at the loans end

$XX.X was down such quarter in other Moving the $XX.X noninterest the quarter, the was a million from for small items, gain the noninterest on on some expense earned and expense quarter noninterest nonrecurring Last, $X.X the from second with million, versus for as from expense quarter. that quarter million note certain I'll items sales. $X.X million in income noninterest benefited We asset income. second severance roughly million slightly expectations. current our line to excluding the of in and $X.X SBIC

expense. merger. Total of XX.XX% XX.XX% at at This have our results dividends, the have CDI relative been XXXX, XXXX. notwithstanding XXXX regulatory capital annual driven the a book reflective at our end XX.XX% share our the Since growing we value end value merger, end relatively and XX.X% end line accelerated risk-based the of progress the across a profile, $XX.XX quarter tangible amortization ratios bottom the after of of strong capital compound representing ratios record since to grown to and XX%. of the rate growth strong tangible our track growth was earnings per post-merger of third regulatory at of since by all from share of capital book has per closing share Our a thanks continuation to quarter is first per $XX.XX consistent of end

We like operating valuable it in feel current prospects to strong generation which we is creates the the continue for environment. very and optionality internal capital our

XXX.X time an XXX,XXX merger, quarter, repurchase for -- average repurchase During we first program. at our shares price $XX.XX the to third the the buying started under since back shares of

While our we of sub-debt to December, on -- in or we capital, bank-level redeem the the on September that intend in topic also me. of have books pardon $XX million

$XX earnings power and industry our So at and cumulative we sheet position to industry. pressures assets, in feel balance over the billion just given relative about our good very

specifically, positioning our continue organic the to markets future to and and more operating growth turn locally the Texas potential and advantage focused you, more to of our Bank core the Our combination the markets, add market back and meaningful for for the of organic the within economic serve we leverage our into strength growth will We and over rest country. platform. Texas we will feel Stellar relative sustain exhibit strength to the the opportunities scale now resilience and the as XXXX home call in I banks largest beyond. Thank of and success field Bob. and when

Robert Franklin

Paul. Thanks, Operator, questions, ready think for I Yes. please. we're

Operator

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

David Feaster

into of start and and Obviously, a much declined growth? of for the dynamics loan dig side get weaker a strategic the paydowns. seeing more of are of and continued drivers the And to sense some wanted But loans and expected. you're of wanted than there. I that on more I to less in CRE? appetite payoffs of Or that's demand How declines that. function the

just the in how pulse of think curious about term of we growth clients what kind quarter, as you XXXX. Just head your and saw near the into you

Ramon Vitulli

for million third all in $XXX David, particular million than The $XX -- of the a more the I originated the quarter, touched think to you which second quarter, was excess quarter. it. little of about on we

as quarter. It with pleased to pro previous a we're level So rata fund didn't that number. up the

And we less. actually quarters there payoffs then little in bit -- a from that. we'll lift get probably So future our little were a have

our negative the we $XXX we few that growth. the loan payoffs our to compared of for payments, think because in -- our million we're which I see our that know but a then actually starting to we of construction carried, our waterfall, quarter. to last quarters, So call And you advances posture and around development, call is be had to what what

advances our payments are exceeding our posture now of around because that So -- C&D. our

think I for million, about that when see this -- record positioned of increased in [indiscernible] really our -- the our some track now $XXX team. we're in we think that feel we demand as and economy, that good

able to for record that ready more track some of than being a that. We get we're to growth, have and originate

Robert Franklin

we And larger banks together, something the that Yes, I us reformulate loan market opportunity was like banks do much looks community our a David, our from X into portfolio think that. more think to the very a like look for us And X bank. coming gave together. standpoint, to -- I that reason when actually we put there

balance of I what really nice we out sort We've forward. some people think we've today good going our hired looks help sort of really to But is making repositioned feel about ourselves. about that portfolio what C&I position us loans. like

David Feaster

on the of just And I'm are deposit That's hires coming curious, front? impressive the done mean But funding pretty of on mean ahead And those you seeing cost Fed I like were seems maybe the deposit of been fruition. the coin, too, it's even to great. to on what benefit side then costs I side. the what some other reduce you've are of you cuts. able it

deposit just your reducing down in from about rates reprice clients I'm as coming as and general, just the been think lower. just curious, how ability is how And you you to So rates? thus reception has are far start outlook

Ramon Vitulli

the customer customer the around -- feel on how Well, sentiment. we

quarter of rate was opened quarter. on dollar last as accounts, that, of quarters the Third X came the pleased far amount at lower with real than previous largest as the a the

the support the too. on have good, where as NIB that's And far we So our whole NIB accounts mix balance. those new that as of

all So those are encouraging.

Paul Egge

a we how cycle. cost discipline. really We've the of third And wholesale we reflective off takes bear reflective of you quarter think through letting feel has exhibit core able high our time. then that And to to roll position out And future, saw about good in in definitely has played what potential good deposit was it the been incrementally. level of execution that, funds Yes. but fruit just otherwise, this

David Feaster

core just horizon? it's, going great then sense -- a a the trajectory I But obviously, get moving see had the parts, just than forward, got of cuts. a costs mean to a wanted deposit was sense -- to expected. sub-debt margin And look of decline of better lot assuming You wanted the too, ahead of as that's as right? NIM the cuts. cuts we look we Okay. And forward, was in of to the margin on But we get again, there's expansion inclusive trajectory more Fed of I help. redemption, are the to

Paul Egge

sits. feel parts. our Certainly. where moving about lot a of margin good pretty There are We

going to late It's sub-debt all sub-debt, quarter know to we when it this will be execution defend that a quarter, went about that -- now redeem able a early going So in well. we're But very be we'll be which that the obviously variable. issuance to is in we had positive.

on relates there guidance the with we but parts. has to terms long-term And the what loan rate perhaps of and a comfortable next on pressure it It's deposits, we the to course, you we that of next depending really to moving we're it's where other and when nail parts, get being X tend head the So play X where in if in moving hard great hit that all out feel cuts, as the we're great months feel going front-end months invest the like even to improve we that of and a give of curve, take taking actually, benefits. gives to across on exposure to we'll little be think we in growth costs. But it. away we especially, lot as position market us and of bit about all defend And factors and a sit. it the how very

Operator

question Stephens. next Matt Your from Olney from comes

Matt Olney

quarter. in to term to it fourth growth there's near want And uncertainty some still sounds discussion. I like back the go loan the in maybe the

sentiment borrower we get Just we looking to then the are about that can pace if as on that curious of I'm kind borrowers what XXXX, color And and saying. more we for producers economy? more a normal we've mid-single-digit think of more, reasonable talked think C&I they traction? of Is kind layer as these about macro new of previously a especially some gain more in in goal, kind as that you back

Robert Franklin

Matt. Yes,

I focused clear is I on. to this election want going to think the are more that really what go. -- I see where and that think rate smoke But the around we're and inflation we're still on rates

we're to still still loan -- markets It's our But mid-single back the it's giving we're loans. year, are good. pretty is our Houston still other markets it be proper would in. that make to to provides us goal also, Our shooting what And provide digit. markets, market wouldn't get good. that huge. still that's good in to for do for next if say demand It's, I places

kind that's our thoughts of are. So what

Matt Olney

Okay. the that, gears then, I Bob. Appreciate And switching guess, on expense side.

this I think there year. were some noncore items

year, been think full we're we've targeting like but looks trending I bit for about little it million a that. $XXX the above

thoughts from expense here? any Just updated levels on

Paul Egge

be generally $XX and That tends we our some quarterly what there million run had noise And and of million rate more target. year-to-date, in seasonality quarters Certainly. to rate. noise, trending is unfortunately, that all run $XX we

from that an hard as line to growth. bank We and the well hold really are on working as we infrastructure the expense position can standpoint

have still us $X same our fourth running $XX our about and doing that we're million above and the those going million along we're to target. be some had expenses, $X line, targeting had hold see it we level we've items managing But lines. yes, quarter -- best So to that million

Matt Olney

Your comes Sandler. Gorczyca Andrew next from question from Piper

Andrew Gorczyca

in XXXX. I of going expect questions. accounting accretion, for just be what forward the just to One more of had a guys that on you kind purchase looking couple

Paul Egge

predict around hard near purchase $X be trail accretion should -- and waning it that. waxing It the been we fourth of with paydowns million, of to of waning see recognition off. in the income accounting kind quarter, -- in the we'll has Purchase expect and and

starts fourth of We run assume quarter. a discount it and to think have we that loan from be decay and that I to So lumpiness. million, expect to also $X continue remaining decay the over that can will I'd -- a and be still in million will it that that some $XX subject rate expect extinguished you time,

Andrew Gorczyca

Okay.

I just then That's Sounds had other one the helpful. And quick. really good.

commentary earlier affects You you as funding going at if just here targets M&A conversations looking maybe that around up anything change forward? administration some in have I if that better November, any M&A if as was and other we are guys goes, get mentioned an if that had a curious far picking profile,

Robert Franklin

I billion us we right fronts But $XX hoop find we're and much, hanging to for the administration very right get finding make there different that we help it between if of do when don't lot need it's around changes but this $XX thing us M&A. kind certainly some we know really partner the to partner. really on and with billion the want for a around of do have. right change a us. away We And of is the from expense do we the sure the to it level think

of of a private the a banks, deal. lot we're whether of lot how So and with approaching public, or conversations they're having kind different that's we're

We there that we'll have but judge really has of A There's like several job that. folks to it on just come somebody and us. that can't that we'll are good market. where you doing takes really -- timing -- and no do lot wants see to out -- necessarily when with to a we

Operator

Stephens. comes [Operator Our Olney next question Matt Instructions] from from

Matt Olney

to want there. of another on securities quarter hit portfolio, big growth the Just

And you of a just a things. certain curious just are us, guess, kind size updated this at -- on One, Are duration. duration you any on, are seeing point? I is just thoughts portfolio? remind temporary then Or growth? of few absence of in the two, you Just that placeholder of targeting any kind that loan

Paul Egge

we consider we'd and Certainly. to balance Well, to our value good strong of of get minimum because on was balance push in the a even of a sheet increasing ourselves liquidity profile. and early believe good a big that sheet, XX%

and XX to -- next great in securities the flows. we portfolio. a in months, XX% of have cash that back flow bring in We We cash projected

effective million current cash principal is the next have Our that duration, $XXX about flows we we in adjusted XX years. And about just in months. duration X.X expect

So value relates and balance earnings the ability securities a the we, proportion of the to we to our higher on our curve forward we'll duration look notwithstanding sheet. -- having profile, optimize spot definitely normalization and the yield of to to our norm it choose value as

Matt Olney

Okay.

quarter? think credits charge-offs, I on deterioration then And little Any credit Okay. side, some addressed a you higher this loans on with move the there more placed know nonaccrual guess, are was that status. lower. few a nonaccrual credits earlier a the Just few color I but credits I smaller any -- these this third there for in C&I Were quarter? year looking color there. you on the addressed

Robert Franklin

Yes, increase third when favorable throughout in as that the -- quarter happened happened had working of we resolution all toward have We paydowns in we the came We in what those. Matt. some things balance into NPLs as And some incurred of in group. that focus did QX. some were the And some year. significant on had and kind that payoffs well was

Matt Olney

anything out at call And as any guess recent in list, migrations that to beyond other notable recent look I list, classified Okay. months? watch you -- in

Robert Franklin

some we've a portfolio. in Not have at that the rated risk so we've We've taken -- much. really hard seen as mention in look we our loans increase special loans

on bit increase I in of is problem hard we're And of working a think previous you'll what so that we a see resolution But mention the special have credits. compared loans to an times. little

that the so And support the flows credits. cash really a eye toward we're clear keeping also

so we flow, appropriately. cash along see grade we'll, if some diminution we'll And in

Operator

Your KBW. next Mealor from comes from Catherine question

Catherine Mealor

could floating, repricing. give that fixed. yield commentary And bit follow expectations about XX% previously truly know the just up little loan said just your want you've to I a more margin. XX% us on you've variable, I got XX% you if on for

loan just us the of give going. of the if X repricing to And you talk yields you so could just think through a buckets sense and are opportunity kind us kind to where

Paul Egge

and fixed floating and correct and kind variable about pure we bit. me do let about little kind is of XX% Well, still otherwise. that variable, of We're what amongst XX% split But a have...

Catherine Mealor

floating what truly again, that again? Say the

Paul Egge

XX% of to to ] think, XX% variable I the number truly total, about variable close number. me, the XX% floating is, [ -- that of of XX% The pardon

Catherine Mealor

XX% of the total number?

Paul Egge

at pay guidance on you But repricing the repricing we loans is give X.XX%, the how that off have originating are on pay room our And Yes. for loans still feel see as which levels But sitting opportunity reprice loans -- a little to and share what Ray, at some... fixed northward spot of about are bit represents the spot are or and can X.XX%, and improvement you variable we're don't the the a Ray rate down of why coming least like higher? books. some fixed rate loans

Ramon Vitulli

Yes, Catherine.

another we on million renewed million $XXX of originated, quarter, was $XXX at X.XX% And rate loans new the of weighted also that in X.XX%. on loans. average So the those we loans that renewed

market million the $XXX the billion call the that between $XXX million, $X quarter it So in rate. the and receive

Catherine Mealor

And Okay. mostly mostly of then Great. SOFR? that is XX% tied that floating, to

Paul Egge

SOFR. with Combined

Ramon Vitulli

Combined with SOFR.

Catherine Mealor

Okay.

Okay. Great.

Okay.

large upward then it this mentioned amount average of come accounts deposit a you feels looks So of quarter. still pricing like? the opportunities, new like. repricing funding have Do still what in kind you had And of that that on you significant the side,

Ramon Vitulli

prior -- -- improvement quarter onboarded that $XXX the all point That more which of bit from about deposit than was a new XX accounts. XX our million on at basis Yes. little came in,

Catherine Mealor

a Okay. cuts, bit, core keep you fairly NIM of Paul, with feels Fed little stable given Great. And things. those it And you're NIM then maybe the all even even can like just between up balance saying. in kind X that the

Paul Egge

strong lot want in and ability expectations our There's NIM. appropriately. a moving ability is that really but we've great confidence to set parts, We NIM there to maintain for to of potential good feel about our really We got defend upside.

Operator

back like for now further Bob to Franklin to remarks. I'd you. over Thank hand

Robert Franklin

our much Thank attending your in the we'll call. very you. Stellar conclude -- that, With you interest and for Thank Bancorp.

Operator

attending today's call. you for Thank

a may Have wonderful disconnect. You day. now

Stellar Bancorp (STEL) 25 Oct 242024 Q3 Earnings call transcript