STEL - NASDAQ

SB

Stellar Bancorp, Inc.

STEL·NASDAQ

$32.41

+0.062%
Financial ServicesBanks - Regional

Stellar Bancorp, Inc. operates as the bank holding company that provides a range of commercial banking services primarily to small and medium-sized businesses, professionals, and individual customers. It accepts deposit products, including checking accounts, commercial accounts, money market accounts, savings accounts, and other time deposits; and certificates of deposit. The company's loan portfolio comprises commercial and industrial loans; commercial real estate loans, including multi-family residential loans; commercial real estate construction and land development loans; residential real estate loans, such as 1-4 family residential mortgage loans; residential construction loans; and consumer and other loans. In addition, it offers automated teller machine services, drive-through services, and depository facilities; mobile banking services; and telephone, mail, and Internet banking services. Further, the company provides safe deposit boxes, debit cards, cash management and wire transfer services, night depository services, direct deposits, cashier's checks, and letters of credit. It has locations in the Southeast region, including Houston, The Woodlands, Sugar Land, Beaumont, and Port Arthur, as well as Dallas. The company was founded in 2007 and is headquartered in Houston, Texas.

StatementsValue Model

At a Glance

Live Snapshot
Market Cap$1.66B
EPS2.1500
P/E Ratio13.20
Earnings Date01/29/2026

Earnings Call Transcript

STEL • 2024 • Q2

Ramon Vitulli
David, we've been trying to wait to a point where some of the noise in interest rates, especially on the deposit side, get drowned out a bit. And I think we're starting to see stabilization across the industry. We're not seeing reaches for higher and higher interest rates. The thing that we know about our franchise is that, once we get a level playing field, we can compete for deposits and loans for that matter, but certainly for deposits, and that's been our background. And so, we think that's starting to inflect and get to the point where things will be a lot more competitive and where we're competing on quality rather than just higher interest rates.
Operator
Our next question comes from the line of Will Jones at KBW.
Will Jones
Paul, I just wanted to start on the margin and maybe more specifically deposit costs. It was a bit surprising maybe to see a little bit of an acceleration this quarter in deposit costs after just comparing it to what we saw in the first quarter. And I kind of go back to your comments last quarter about the necessity to see a little bit of liquidity build. I guess question is, is that kind of a little bit of the driver of this quarter's change? And then it's been a broader narrative this quarter that, yes, maybe deposit costs continue to see pressure in the early half of the quarter, but moderated and maybe even stabilized as we entered the latter half. Would you guys kind of describe that as the trend for your deposit costs this quarter?
Ramon Vitulli
No, I'll start with the drivers of margin. And I would say really the big driver was the cost of funds. And ultimately, what you saw in the second quarter was really the full quarter effect of how our mix of deposits shifted during the first quarter of 2024. So, probably around mid-quarter, mid to late quarters where you saw – where we experienced a measure of non-interest bearing outflows and that kind of resetting the deck and effectively replacing non-interest-bearing balance with interest-bearing-balance is ultimately what drove kind of a higher entrance cost of funds in the second quarter. The really good news is the extent to which it's been rather stable. So we have experienced up to this point, and if we were to review kind of on a month-to-month basis, a pretty high level of stability in cost of funds. In fact, probably one of the worst cost of funds months was likely April, but it has been relatively stable and it has been improved materially, but we're pleased to be experiencing relative stability and have experienced monthly stability throughout the second quarter.
Will Jones
If we just kind of pair that commentary, maybe we see deposit cost stabilize here – and with the expectation that NII troughs this quarter and expands from here on out, would you expect margin stability going forward or is there opportunity to maybe see a bit of expansion as we exit the year?
Ramon Vitulli
I think stability to expansion, I'd actually rather speak in net interest income terms. It's kind of where we're more confident in the trough by virtue of some – as we build some on balance sheet liquidity and pivot to a larger securities portfolio and whatnot, that can have less of an effect on non-interest income as it might have diluting the net interest margin metric. Ideally, we get both, but I see net interest income inflecting perhaps a hair before the metric of net interest margin inflects because of some of the inherently dilutive effects of building liquidity on our balance sheet to that statistic.
Will Jones
I certainly understand wanting to maintain that attractive funding profile.
Operator
[Operator Instructions]. And our next question comes from the line of Matthew Olney from Stephens.
Matthew Olney
Paul, I want to go back to something you mentioned earlier. You mentioned building a larger securities portfolio and we saw some of this in 1Q, again in 2Q. I think these end-of-period balances are close to $1.6 billion. We'd love to hear an update on what you've been buying more recently and then expectations for continued build of that portfolio in the back half of the year.
Paul Egge
Certainly. We've been keeping it very vanilla, low risk-weighted agency securities and really changing to a focus of cash flow. We've engaged in some level of securities repositioning since the merger. That has been focused on bringing in the duration of our securities portfolio incrementally and focusing on cash flow because a securities portfolio, one of its main purposes is its strong source of liquidity. So that's been the flavor of incremental purchases. And we're really comfortable with where it's at now, but I think don't be shocked if we were to grow that as a percentage of average assets, perhaps another percentage point or two. There's definitely some certain dynamics relating to the pace of loan growth and whatnot that we consider in sizing it. But to get back to the original part of the question, the focus in building it has been more on cash flow related securities with that heightened focus on liquidity.
Matthew Olney
On the expense side, I think, Paul, you mentioned maybe a few non-core items in the second quarter. Can you just review those again? I think I just missed those in your prepared remarks. Just more broadly, the full year guidance, I think we've talked around expenses in that $280 million number. Would love to hear any updated thoughts with respect to that.
Paul Egge
The bogey we target for 2024 is quarterly non-interest expense of $70 million. We were at $71.2 million in the second quarter. The first quarter, we were $71.4 million and that was reflective of some seasonal dynamics. But in the second quarter, we recognized the additional FDIC assessment from SVB. We got the invoice for that during the quarter. So being that that is probable and estimable, we took the accrual on that of $420,000. We had about $450,000 of severance expenses. And then a handful of other kind of not-worth-calling-out small expenses that are non-recurring in nature that generally explain that delta between $71.2 million and really our guidance of $79 a quarter.
Operator
Our next question comes from the line of Andrew [ph] with Piper Sandler.
Unidentified Participant
Just on the credit side, can you detail what drove the minimal net charge-off this quarter as well as what drove the reversal of the provision?
Paul Egge
Could you repeat that, Andrew?
Unidentified Participant
Just on the credit side, can you detail what drove the minimal net charge-offs and what drove the provision reversal this quarter?
Ramon Vitulli
Well, there was lower outstanding in our CECL formula as we weight certain categories and there's lower outstanding amounts in those categories. That will bring the estimate down. I think the reversal was driven by the fall off in overall loan balances and also we have less in unfunded. Minimal charge-offs, we have some recoveries that were in the quarter, not huge by any means, but we just didn't have much in the way of loans that necessitated charging off. We're taking a real clear-eyed approach to our credit quality. And if a loan needs to be downgraded, it can be downgraded, but we have on our NPAs, we feel like we have strong collateral coverage, and so we feel like there's no need to have an active write-off. We feel pretty good about that. That's what drove that release.
Unidentified Participant
Congrats on the quarter.
Operator
Our next question comes from the line of John Rodis with Janney.
John Rodis
Just a question for you just to follow up your comments on net interest income bottoming. I assume you're talking about core net interest income excluding yield accretion, is that correct?
Paul Egge
Absolutely, yes.
John Rodis
Okay. And then can you just give us your thoughts on what yield accretion could be in the second half of the year on a quarterly basis or what we should be modeling?
Paul Egge
I'd probably look at the first quarter run rate more than the second quarter run rate. We did benefit from a little bit more in the second quarter. And we're pleased actually. In the second quarter, we got a lot of payoffs and loans that we did not mind seeing payoff and the net result is obviously an increase in that waterfall portion of accretion. So it's really hard to bet on the behavior of loans. Particularly, we've been pleased that some pretty low rate loans are paying off due to sale of property and whatnot, more so than we would have handicapped. So I'd probably guide towards conservatism closer to the first quarter versus the second quarter. But the good news is we have $87.4 million of loan discount remaining. We feel great about the credit and we're going to recognize that in income as those loans pay down. We see a high level of certainty in that accretion income in the coming quarters.
John Rodis
Just one other question on the tax rate. What's a good – it's ticked up a little bit here, but is 20% still good to use or should we use a little bit higher?
Paul Egge
I would guide you to between 20% and 21%.
Transcript from July 26, 2024

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