Core Viewpoint - Stellar Bancorp, Inc. is conducting its Q4 2024 earnings conference call, indicating a focus on financial performance and strategic insights for the quarter [1]. Group 1: Company Overview - The earnings call is led by key executives including CEO Bob Franklin and CFO Paul Egge, highlighting the leadership team's involvement in discussing financial results [3]. - Other notable participants include the Executive Chairman Steve Retzloff and President Ray Vitulli, indicating a strong executive presence during the call [3]. Group 2: Call Structure - The call begins with an operator introduction, followed by a reminder that the lines are muted to minimize background noise, ensuring a clear communication environment [2]. - After the initial remarks, a question-and-answer session is scheduled, allowing for interaction and clarification on the discussed topics [2].

Fourth Quarter 2024 Earnings Presentation Forward-Looking Statements and Non-GAAP Financial Measures Certain statements in this press release which are not historical in nature are intended to be, and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements about the benefits of the me ...

Financial Performance - Stellar Bancorp reported $107.99 million in revenue for Q4 2024, a 4.3% YoY decline [1] - EPS for the quarter was $0.52, compared to $0.55 a year ago [1] - Revenue exceeded Zacks Consensus Estimate by 0.46% ($107.5 million estimate) [1] - EPS surpassed consensus estimate by 8.33% ($0.48 estimate) [1] Key Metrics Analysis - Net interest margin (tax equivalent) was 4.3%, slightly above the 4.2% analyst estimate [4] - Efficiency ratio came in at 66.6%, higher than the 66.1% estimate [4] - Total nonperforming loans reached $37.21 million, exceeding the $32.37 million estimate [4] - Average balance of total interest-earning assets was $9.65 billion, slightly below the $9.66 billion estimate [4] - Total nonperforming assets stood at $38.92 million, higher than the $33.83 million estimate [4] Income Metrics - Net interest income reached $102.96 million, surpassing the $101.95 million estimate [4] - Net interest income (tax equivalent) was $103.04 million, slightly above the $102.04 million estimate [4] - Total non-interest income came in at $5.03 million, below the $5.57 million estimate [4] Stock Performance - Stellar Bancorp shares returned +1% over the past month, slightly underperforming the Zacks S&P 500 composite's +1.2% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential alignment with broader market performance [3]

Core Insights - Stellar Bancorp (STEL) reported quarterly earnings of $0.52 per share, exceeding the Zacks Consensus Estimate of $0.48 per share, but down from $0.55 per share a year ago, representing an earnings surprise of 8.33% [1] - The company achieved revenues of $107.99 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.46%, although this is a decrease from year-ago revenues of $112.82 million [2] - Stellar Bancorp has consistently surpassed consensus EPS estimates over the last four quarters [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.42 on revenues of $105.5 million, and for the current fiscal year, it is $1.88 on revenues of $434.47 million [7] - The estimate revisions trend for Stellar Bancorp is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Industry Context - The Banks - Southeast industry, to which Stellar Bancorp belongs, is currently in the top 10% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - Net income for the fourth quarter of 2024 was $27.8 million, or diluted earnings per share of $0.52, while net income for the full year 2024 was $117.6 million, or diluted earnings per share of $2.20[2] - Net income for the three months ended December 31, 2024, was $27,817,000, a decrease from $33,891,000 in the previous quarter[43] - Earnings per share (EPS), basic and diluted, for Q4 2024 was $0.52, down from $0.63 in Q4 2023, representing a decline of 17.5%[31] - The return on average assets for Q4 2024 was 1.04%, compared to 1.27% in Q4 2023, indicating a decrease of 18.1%[31] - Net income for the three months ended December 31, 2024, was $27,817,000, a decrease of 17.8% compared to $33,891,000 for the same period in 2023[31] Income and Expenses - Net interest income for 2024 decreased by $28.8 million, or 6.6%, to $408.0 million from $436.8 million in 2023, with a net interest margin of 4.24% for 2024 compared to 4.51% in 2023[6] - Noninterest income for 2024 was $23.0 million, an increase of $1.5 million, or 6.2%, compared to $24.6 million in 2023[6] - Total noninterest expense increased to $71,981 million from $71,066 million in the prior quarter[29] - The company’s total noninterest income for the year was $23,046 million, slightly down from $24,562 million in the previous year[29] Assets and Liabilities - Total assets at December 31, 2024, were $10.91 billion, an increase of $275.3 million compared to $10.63 billion at September 30, 2024[12] - Total liabilities increased to $9,294,645 thousand, up from $9,003,654 thousand, representing a growth of 3.2%[27] - Total assets increased to $10,905,110 thousand as of December 31, 2024, up from $10,629,777 thousand in the previous quarter, representing a growth of 2.6%[26] - Total deposits at December 31, 2024, increased by $385.8 million to $9.13 billion compared to $8.74 billion at September 30, 2024[14] Capital and Equity - Total risk-based capital ratio increased to 16.06% at December 31, 2024, up from 14.02% at December 31, 2023, with book value per share rising to $30.14 from $28.54[7] - Total shareholders' equity decreased to $1,610,465 thousand from $1,626,123 thousand, a decline of 1.0%[27] - Shareholders' equity rose to $1,614,791 thousand as of December 31, 2024, compared to $1,475,377 thousand a year earlier[35] Loan Performance - Nonperforming loans decreased by $2.0 million to $37.2 million at December 31, 2024, from $39.2 million at December 31, 2023[7] - Net loans held for investment decreased slightly to $7,358,796 thousand from $7,466,623 thousand, a decline of 1.4% quarter-over-quarter[26] - Nonperforming assets to total assets ratio increased to 0.36%, up from 0.33% in the previous quarter[40] - Nonperforming loans to total loans ratio increased to 0.50%, compared to 0.43% in the previous quarter[40] Credit Losses - The fourth quarter of 2024 included a provision for credit losses of $942 thousand, compared to a reversal of provision for credit losses of $6.0 million in the third quarter of 2024[16] - The allowance for credit losses on loans was $81,058 thousand, slightly down from $84,501 thousand, indicating a reduction of 5.8%[26] - Provision for credit losses was $942 million, a reversal from a provision of $(5,985) million in the previous quarter[29] Operational Efficiency - The efficiency ratio for the year ended December 31, 2024, was 66.39%, compared to 63.02% for the year ended December 31, 2023[10] - The efficiency ratio for Q4 2024 was 66.59%, slightly up from 66.18% in Q3 2024, reflecting a marginal increase in operational costs[31] Strategic Focus - The company plans to focus on growth at a more normalized organic pattern while exploring opportunities with downstream partners to increase operating leverage[3]

Revenue Generation - The company generates most of its income from interest income on loans, interest income from investments in securities, and service charges on customer accounts[121]. - Net interest income is the largest source of revenue, calculated as the difference between interest income on earning assets and interest expense on liabilities[121]. - The company measures net interest margin, which is calculated as net interest income divided by average interest-earning assets[121]. Credit Losses and Allowance - The allowance for credit losses is based on expected losses, historical loss experience, and qualitative considerations, making it a critical accounting estimate[125]. - The company evaluates loans with similar risk characteristics collectively and applies reserve factors based on historical lifetime loss and current economic conditions[126]. - Individual credit loss estimates are performed for nonaccrual loans and modified loans classified as troubled loan modifications[127]. - The company assesses the overall quality of the loan portfolio and the adequacy of the allowance for credit losses on loans through a loan review process[127]. - Changes in the allowance for credit losses can be attributed to historical lifetime loss, specific reserves for individually evaluated loans, and changes in qualitative factors[127]. - A 5% increase in historical loss rates would have increased funded reserves by $1.8 million, while a 5% increase in qualitative risk factors would have increased reserves by $3.0 million[128]. - The allowance for credit losses recorded a reversal of $6.0 million for the three months ended September 30, 2024, compared to a provision of $2.3 million for the same period in 2023[155]. - The allowance for credit losses on loans was $84.5 million, or 1.12% of total loans, as of September 30, 2024, compared to $91.7 million, or 1.16%, as of December 31, 2023[184]. - The allowance for credit losses on unfunded commitments was $10.0 million as of September 30, 2024, down from $11.3 million at December 31, 2023[185]. Interest Income and Expense - Net interest income for the three months ended September 30, 2024, was $101.5 million, a decrease of $5.2 million, or 4.9%, compared to $106.7 million for the same period in 2023, primarily due to increased funding costs[137]. - Interest income for the three months ended September 30, 2024, was $151.8 million, an increase of $507 thousand, or 0.3%, compared to $151.3 million for the same period in 2023, driven by higher-yielding securities and loans[138]. - Interest expense for the three months ended September 30, 2024, was $50.3 million, an increase of $5.7 million, or 12.8%, compared to $44.5 million for the same period in 2023, primarily due to higher funding costs[139]. - Interest income increased to $452.4 million for the nine months ended September 30, 2024, up $13.7 million, or 3.1%, from $438.6 million in the same period in 2023[147]. - Interest expense rose to $147.3 million for the nine months ended September 30, 2024, an increase of $39.5 million, or 36.7%, compared to $107.8 million for the same period in 2023[148]. - The cost of average interest-bearing liabilities increased to 3.50% for the nine months ended September 30, 2024, compared to 2.68% for the same period in 2023[148]. - The average rate paid on interest-bearing liabilities increased by 82 basis points over the same period in 2023[149]. Financial Performance - Net income for the three months ended September 30, 2024, was $33.9 million, or $0.63 per diluted share, compared to $30.9 million, or $0.58 per diluted share for the same period in 2023, reflecting an increase primarily due to an $8.3 million decrease in the provision for credit losses[134]. - Annualized return on average assets for the three months ended September 30, 2024, was 1.27%, up from 1.14% in the same period of 2023, while return on average equity increased to 8.49% from 8.34%[135]. - For the nine months ended September 30, 2024, net income was $89.8 million, or $1.68 per diluted share, compared to $103.2 million, or $1.94 per diluted share for the same period in 2023, primarily due to a $25.8 million decrease in net interest income[136]. - Noninterest income increased by $1.6 million, or 34.2%, to $6.3 million for the three months ended September 30, 2024, compared to $4.7 million for the same period in 2023[156]. - Noninterest income for the nine months ended September 30, 2024, totaled $18.0 million, an increase of $338 thousand, or 1.9%, compared to $17.7 million for the same period in 2023[157]. Loan Portfolio and Asset Quality - Total loans decreased by $374.0 million, or 4.7%, to $7.55 billion as of September 30, 2024, compared to December 31, 2023[168]. - The commercial and industrial loan portfolio decreased by $61.1 million, or 4.3%, to $1.35 billion as of September 30, 2024[169]. - Commercial real estate loans decreased by $95.5 million, or 2.3%, to $3.98 billion as of September 30, 2024[172]. - Commercial real estate construction and land development loans decreased by $170.1 million, or 16.0%, to $890.3 million as of September 30, 2024[174]. - The residential real estate loan portfolio increased by $65.1 million, or 6.2%, to $1.11 billion as of September 30, 2024, compared to December 31, 2023[175]. - The residential construction loans portfolio decreased by $105.9 million, or 39.6%, to $161.5 million as of September 30, 2024, from $267.4 million as of December 31, 2023[176]. - The consumer and other loan portfolio decreased by $4.3 million, or 6.6%, to $60.0 million as of September 30, 2024, from $64.3 million as of December 31, 2023[177]. - Nonperforming assets totaled $35.1 million, or 0.33% of total assets, at September 30, 2024, down from $39.2 million, or 0.37%, at December 31, 2023[180]. - Total nonperforming loans amounted to $32.14 million as of September 30, 2024, compared to $39.19 million at December 31, 2023[181]. - Total charge-offs for all loan types amounted to $5.855 million for the nine months ended September 30, 2024, compared to $9.721 million for the same period in 2023[184]. Deposits and Funding - Total deposits as of September 30, 2024, were $8.74 billion, a decrease of $130.9 million, or 1.5%, from $8.87 billion at December 31, 2023[198]. - Noninterest-bearing deposits decreased by $243.8 million, or 6.9%, to $3.30 billion, while interest-bearing deposits increased by $112.9 million, or 2.1%, to $5.44 billion[198]. - The company had a total borrowing capacity of $2.98 billion as of September 30, 2024, with $1.86 billion available and $1.12 billion outstanding[200]. - Total immediate contingent funding sources were $4.33 billion, or 49.6% of total deposits at September 30, 2024, with an additional potential $1.55 billion from brokered deposits, bringing total contingent funding sources to approximately $5.89 billion, or 67.4% of deposits[214]. Capital and Equity - Total shareholders' equity increased to $1.63 billion at September 30, 2024, up from $1.52 billion at December 31, 2023, primarily due to net income of $89.8 million[219]. - The Bank was well-capitalized under regulatory capital guidelines, with total capital to risk-weighted assets at 15.91% as of September 30, 2024, exceeding the minimum required ratio of 8.0%[221]. - Common Equity Tier 1 capital to risk-weighted assets was 13.62% as of September 30, 2024, above the minimum required ratio of 4.5%[221]. Interest Rate Risk Management - The Asset Liability Committee (ALCO) manages interest rate risk by formulating strategies based on the current outlook on interest rates and other factors[226]. - During the nine months ended September 30, 2024, the overall interest rate profile was affected by a decrease in noninterest-bearing deposits and certain interest-bearing deposits, alongside increases in certificates of deposits and borrowed funds[228]. - A simulation model estimates the potential impact on net interest income under various interest rate scenarios, with a +300 basis points change resulting in a 5.9% increase in net interest income[229]. - The economic value of equity is projected to change by -4.9% with a -200 basis points interest rate change, compared to a 0.0% change in a stable rate scenario[229]. - The company does not face foreign exchange rate or commodity price risk, focusing instead on managing interest rate exposure through balance sheet structuring[225]. Operational and Regulatory Compliance - The effectiveness of the company's disclosure controls and procedures was confirmed by the Chief Executive Officer and Chief Financial Officer as of the end of the reporting period[230]. - There were no changes in the company's internal control over financial reporting that materially affected its operations during the quarter ended September 30, 2024[231]. - The company is not currently involved in any legal proceedings that would materially affect its business or financial condition[232].

Financial Data and Key Metrics Changes - The company reported a net income of $33.9 million or $0.63 per diluted share for Q3 2024, an increase from $29.8 million or $0.56 per diluted share in Q2 2024, resulting in an annualized ROAA of 1.27% and ROATCE of 13.63% [7] - Net interest income for the quarter was $101.5 million, slightly up from $101.4 million in Q2 2024, with a net interest margin of 4.19% compared to 4.24% in the previous quarter [9] - The allowance for credit losses on loans decreased to $84.5 million or 1.12% of loans from $94.8 million or 1.23% at the end of Q2 2024, reflecting a decrease in non-performing loans by nearly 37% [11] Business Line Data and Key Metrics Changes - The company originated over $300 million in loans during Q3 2024, which was $50 million more than in Q2 2024, but payoffs were $230 million, leading to a net decline in loans [15][16] - Non-interest income increased to $6.3 million in Q3 2024 from $5.4 million in Q2 2024, benefiting from $1.3 million of SEIC income and a small gain on asset sales [11] Market Data and Key Metrics Changes - The company noted that Texas markets continue to exhibit strength relative to the rest of the country, contributing to a positive outlook for growth into 2025 [14] - The deposit costs were reduced ahead of Federal Reserve cuts, with new accounts opened at a lower rate than previous quarters, indicating strong customer sentiment [18][19] Company Strategy and Development Direction - The company is focused on building a strong infrastructure to cross the $10 billion mark, emphasizing capital liquidity and credit while derisking the balance sheet [5] - Management is considering M&A opportunities to enhance growth, particularly looking for well-balanced franchises that can improve funding profiles [6][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, anticipating a more balanced lending philosophy and strong relationships to support both sides of the balance sheet [5] - The company is preparing for potential economic changes post-presidential election and believes that interest rates are normalizing, which could provide a favorable environment for growth in 2025 [5][22] Other Important Information - The company has started share repurchases, buying back 108,000 shares at an average price of $26.10, and plans to redeem $40 million of subordinated debt in December [13] - The tangible book value per share has grown by 37.5% since the merger, reflecting strong internal capital generation [12] Q&A Session Summary Question: Loan dynamics and growth outlook - Management noted that loan originations were $300 million, with payoffs of $230 million, indicating a cautious approach to growth due to market conditions [15][16] Question: Deposit front and customer sentiment - The company reported strong account openings in Q3, with new accounts coming in at a lower rate than previous quarters, indicating positive customer sentiment [18] Question: Margin trajectory and loan yield repricing - Management expressed confidence in defending the net interest margin and indicated potential for upward repricing opportunities as fixed-rate loans pay down [20][38] Question: M&A activity and market conditions - Management is actively exploring M&A opportunities but emphasized the importance of finding the right partner to enhance growth and manage expenses effectively [27]

Core Insights - Stellar Bancorp reported revenue of $107.81 million for Q3 2024, a year-over-year decline of 3.2% but a surprise of +1.87% over the Zacks Consensus Estimate of $105.83 million [1] - The EPS for the same period was $0.63, compared to $0.58 a year ago, with an EPS surprise of +28.57% against the consensus estimate of $0.49 [1] Financial Performance Metrics - Net interest margin (tax equivalent) was 4.2%, exceeding the three-analyst average estimate of 4.1% [1] - Efficiency Ratio stood at 66.2%, slightly better than the three-analyst average estimate of 66.6% [1] - Total nonperforming loans were reported at $32.14 million, significantly lower than the two-analyst average estimate of $51.14 million [1] - Average balance of total interest-earning assets was $9.64 billion, close to the $9.66 billion average estimate based on two analysts [1] - Total nonperforming assets were $35.12 million, compared to the two-analyst average estimate of $52.38 million [1] - Net Interest Income was $101.51 million, surpassing the $100.30 million estimated by three analysts on average [1] - Net Interest Income (tax equivalent) was $101.58 million, exceeding the three-analyst average estimate of $100.39 million [1] - Total Non-Interest Income was $6.30 million, higher than the $5.54 million estimated by three analysts on average [1] Stock Performance - Shares of Stellar Bancorp have returned +2.5% over the past month, outperforming the Zacks S&P 500 composite's +1.4% change [1] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [1]

Financial Performance - Stellar Bancorp reported quarterly earnings of $0.63 per share, exceeding the Zacks Consensus Estimate of $0.49 per share, and up from $0.58 per share a year ago, representing an earnings surprise of 28.57% [1] - The company posted revenues of $107.81 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 1.87%, although this is a decline from year-ago revenues of $111.42 million [1] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.48 on revenues of $106.5 million, and for the current fiscal year, it is $2.01 on revenues of $427.67 million [4] - The estimate revisions trend for Stellar Bancorp is currently unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [4] Industry Context - The Banks - Southeast industry, to which Stellar Bancorp belongs, is currently in the bottom 45% of over 250 Zacks industries, suggesting that the industry outlook may negatively impact the stock's performance [5] - Customers Bancorp, another company in the same industry, is expected to report a significant decline in earnings, with a projected EPS of $1.45, down 44% year-over-year, and revenues expected to decrease by 11.5% [5]

Financial Performance - Net income for Q3 2024 was $33.9 million, or diluted earnings per share of $0.63, compared to $29.8 million, or $0.56 per share in Q2 2024[1][2] - Net income for Q3 2024 was $33,891 thousand, an increase from $29,753 thousand in the previous quarter[28] - Basic and diluted earnings per share for Q3 2024 were both $0.63, up from $0.56 in Q3 2023, representing a 12.5% increase[19] - Net interest income after provision for credit losses was $107,492,000 for Q3 2024, compared to $103,345,000 in Q2 2024[18] - Total noninterest income increased to $6,302,000 in Q3 2024, compared to $5,416,000 in Q2 2024[18] - Total noninterest expense for Q3 2024 was $71,066,000, a decrease from $71,216,000 in Q2 2024[18] - Net interest income for the nine months ended September 30, 2024, was $305,035 thousand, down from $330,829 thousand, representing a decrease of 7.8%[25] Asset and Liability Management - Total assets decreased by $93.9 million to $10.63 billion at September 30, 2024, from $10.72 billion at June 30, 2024[7] - Total liabilities amounted to $9,038,348 thousand, with shareholders' equity at $1,587,918 thousand[24] - Total liabilities decreased to $9,093,990 thousand from $9,338,089 thousand, a reduction of 2.62%[25] - Total deposits increased slightly to $8,742,601 thousand from $8,725,303 thousand, an increase of approximately 0.20%[16] - Total deposits increased slightly to $8,742,601 thousand from $8,725,303 thousand, an increase of 0.2%[26] Capital and Equity - Total risk-based capital ratio increased to 15.91% at September 30, 2024, up from 15.34% at June 30, 2024[4] - Total shareholders' equity rose to $1,626,123 thousand from $1,565,795 thousand, an increase of approximately 3.86%[16] - Shareholders' equity increased to $1,551,579 thousand from $1,449,382 thousand, reflecting a growth of 7.06%[25] - Tangible shareholders' equity increased to $1,030,689 thousand from $964,162 thousand in the previous quarter[28] Loan Performance - Nonperforming loans decreased by $18.8 million to $32.1 million at September 30, 2024, from $50.9 million at June 30, 2024[4] - Total loans decreased by $162.8 million to $7.55 billion at September 30, 2024, compared to $7.71 billion at June 30, 2024[8] - Nonaccrual loans decreased significantly to $32,140 thousand from $50,906 thousand, a reduction of 37.0%[26] - Loans held for investment decreased to $7,551,124 thousand from $7,713,897 thousand, a decrease of about 2.1%[16] Efficiency and Ratios - The efficiency ratio improved to 66.18% in Q3 2024 from 66.63% in Q2 2024[7] - Return on average assets improved to 1.27% in Q3 2024, compared to 1.13% in Q3 2023[19] - Estimated Tier 1 capital to risk-weighted assets was 13.74% as of September 30, 2024, up from 13.10% in June 2024[20] - Nonperforming assets to total assets ratio improved to 0.33% from 0.50%[26] Shareholder Returns - Dividends per share remained stable at $0.13 for both Q3 2024 and Q3 2023[19] - The company repurchased 108,984 shares at an average price of $26.10 during Q3 2024[8] Non-GAAP Measures - The company reported a tangible book value per share, which is a key non-GAAP financial measure, for internal planning and forecasting purposes[27] - Stellar's management emphasizes the importance of non-GAAP financial measures for evaluating performance and making comparisons[27] - The company continues to focus on pre-tax, pre-provision income as a significant performance metric[27] - Stellar's management believes that non-GAAP measures provide meaningful supplemental information regarding its performance[27]