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 • Q4

Operator
Good morning, and welcome everyone to Stellar Bank, Q4 Earnings Release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Courtney Theriot. Please go ahead.
Operator
[Operator Instructions] And our first question comes from the line of Will Jones with KBW. Will, please go ahead.
Will Jones
So Paul, I just wanted to start on expenses. I know that full year, they came maybe a little bit ahead of where you were expecting to be, but broadly speaking, expenses containment was still a pretty strong suit for you guys this year. I did want to ask about higher professional fees this quarter, whether there's anything to kind of read into or anything kind of unique that was happening in that line this year or in this quarter?
Paul Egge
No, it's timing related to certain outside auditing -- outsourced auditing engagements.
Will Jones
Yes, okay. That's helpful. And last one, Paul, maybe just jump into the margin real quick. I know in the past, you kind of talked about, you know, we're relatively neutral from a rate positioning standpoint. I guess just would you just reaffirm that that's still how you guys are viewing it today? And, now as we look to '25, whether we see two cuts, three cuts, five cuts? Just confirm maybe that you still see the same glide path to the margin as we kind of move through the balance of next year?
Paul Egge
We sit in a great position of strength as it relates to our margin. And that we're really pleased with where it sits on an absolute basis, and then as well when you adjust for purchase accounting accretion. As long as we're able to maintain a core funded balance sheet, which is really our goal, we see continued strength. Now, with respect to our positioning, we try to stay neutral, and we're pleased with the fact that even if rates were to stay up high, we have a continued repricing that should benefit us incrementally. That being said, we are big fans of an upward sloping yield curve. So, we kind of feel like we win no matter what. We're sitting in a great spot and we can withstand the current environment we think better than a lot of the industry.
Will Jones
Yes, not a bad spot to be. We're looking forward to 2025. Thanks, guys.
Operator
And your next question comes from the line of Matt Olney with Stephens. Matt, please go ahead.
Ramon Vitulli
Matt, we're also -- I think you mentioned momentum, and fourth quarter loan originations were the highest we've had in six quarters. So, we do have some momentum going into 2025 and expect that to continue.
Matthew Olney
Okay, thanks for that, Ray. And then on the other side, on the deposit side, I think those deposit balances were relatively flat in 2024. Would love just to hear a bit of thoughts on expectations to grow deposit levels in 2025.
Ramon Vitulli
Well, if you look at 2024, yeah, you're right about the number, but we really like the leading indicator of what we onboarded. So we had 58% of our number of our accounts were new, of our new accounts were new-new, meaning the customers were not here before, and then we're watching those accounts as they grow, as they mature. So -- And in dollar terms, our net new of -- was new exceeding closed was really strong. So, I think all those -- the leading indicators of where we're headed in 2025 were good. We're continuing to onboard nice clients. And then on the loan side, we had some good C&I growth as a percentage of our originations, which helps our -- obviously helps our deposit proposition when we get those treasury accounts going with those loans.
Matthew Olney
Okay. All right. Appreciate that. And then just lastly from me, going back to the comment about the goal of positive operating leverage for 2025, it looks like that guidance you gave us for expenses implies kind of a low to -- low to mid single-digit growth year-over-year. So, to get that positive operating leverage, should we be thinking about revenue growth in a manner similar to low to mid or a little bit higher? Just -- How are you thinking about the positive operating leverage comment?
Paul Egge
[indiscernible] You somewhat answered your own question. It's about 3% in growth in non-interest expense. And the revenue dynamics, we believe support that much or higher on a higher base of revenue, and that will deliver operating leverage as long as we can execute on incremental growth.
Paul Egge
Thanks, Matt.
Operator
[Operator Instructions] And your next question comes from the line of Stephen Scouten with Piper Sandler. Stephen, please go ahead.
Stephen Scouten
Yes, thanks. Good morning, guys. Appreciate it. I guess if I could follow up one more question on operating leverage, if I look at consensus numbers, maybe assuming earnings are down on a year-over-year basis and some of that provision-related, but I'm just wondering, I guess, are you guys thinking about operating leverage, core ex-accretion or are you thinking about that on a GAAP basis? And if so, what do you think analysts' expectations are kind of missing as it relates to that trend line?
Paul Egge
We're seeking to deliver it on both basis -- bases. And I think you guys will reset your expectations based on where our year-end was, and how we've delivered throughout 2024. It does feel like either the margin outlook or the combination of growth and margin has been relatively light, and we're seeking to do better clearly than what's out there in consensus numbers.
Stephen Scouten
Got it. That's helpful. And then for that accretion, I think it was in the $47 million range in 2023, $33 million, give or take, this year. Would you expect that to kind of decline at a similar pace, apart from obviously some unexpected paydowns and such? Is that the right way to think about it?
Paul Egge
That's the right way to think about it. I mean, we've benefited from a decent amount of windfall earnings over the last two years, in addition to what's scheduled accretion. We have currently remaining a loan discount of $73.7 million left, and we see it diminishing and flattening out in the next year or so.
Stephen Scouten
Okay. Great. And then the deposit growth this quarter was pretty fantastic, especially some really strong non-interest bearing deposit growth, and you paid down borrowing. So, you guys have a ton of on-balance sheet liquidity at this point. What do you start to do now that you've kind of tackled the borrowings? Like, how do you think about the investments of that liquidity as you move forward, assuming the strength of your deposit base continues to shine through?
Paul Egge
Well, we do need to note that part of that growth and year-end balance sheet is going to be transitory, relating to the seasonality of our operating account business in the government space. So that is, when you pull that out, we're more flat on a quarter-over-quarter basis with respect to the overall deposit story. But we have -- so, that's the reason why there's a particularly high level of cash on the balance sheet, since we don't expect that to -- that funding to stay on our balance sheet for more than a month or so. So, some of that excess liquidity is a mirage, but we do seek and we have been seeking to hold a high level of securities and cash on our balance sheet, and we like that, so long as it's not at the detriment of our ability to drive a good earnings profile.
Operator
And your next question comes from the line of John Rodis with Janney. John, please go ahead.
John Rodis
Paul, maybe a question for you on the securities portfolio, given, you know, your conversation just about deposit flows and outflows and then liquidity. How do you see securities portfolio trending in 2025?
Paul Egge
We like to keep our securities portfolio around 15% to 16% of our balance sheet, and we value the opportunity to consider increasing that, but we're really mindful of trying to drive the right overall return profile, and that I think is what drives that level currently.
John Rodis
Okay. Thank you. Thank you, Paul. Helpful. And then just one other question on provisioning, and I guess the reserve level and so forth, and I know CECL plays a big part, but can you just talk about how we should view the provision for 2025?
Paul Egge
Yes. Credit has been great in 2024, and as we look at 2025, it is, you know, covering the waterfall of growth in loans, relative to charge-offs, and from a planning perspective, we assume a little bit more normalization in credit, but naturally the last year in particular, we've benefited a ton from a strong credit. And then there has been a measure of drivers in our reserve, and it's partially a function of CECL, that has been very asset-specific, loans that are individually evaluated. You know, we're very conservative when something falls into that bucket, and to the extent that a situation works itself out, it ends up creating a release situation. So there were a lot of idiosyncrasies there that drove our experience in 2024. We seek to continue to have strong credit in 2025, but we have normalized expectations, and we'll continue to manage as best we can.
John Rodis
Paul, what do you think, you know, talking about normal, what do you think is sort of a normalized net charge-off rate for your company?
Paul Egge
Well, fortunately, we don't have a history of having high net charge-off rates, either Stellar or predecessor companies, but we do think it's prudent to have normalized expectations since this great run of credit in the nation is pretty long in the tooth. So we think where you guys are at in consensus around the mid-teens is the right expectation to have, and we'll continue to seek to continue our track record of driving better results than expectations tend to dictate.
John Rodis
Paul, just to clarify, is that mid-teens on net charge-offs, or is that mid-teens on provision expense?
Paul Egge
Mid-teens on net charge-offs, maybe 16 or so. Okay.
John Rodis
Okay. Okay, thank you guys. Have a nice day.
Operator
And your next question comes from the line of David Feaster with Raymond James. Please go ahead, David.
Ramon Vitulli
David, we're waiting on year-end numbers, but we were trending towards population growth still in excess of 100,000, job growth still in excess of 60,000. And as Bob mentioned around rate stabilization, we're definitely seeing that with deal flow as far as what we're seeing in committee around, you know, just more opportunity there and more activity, I think, as Bob mentioned, because of the kind of stabilization in the rate environment. And we're winning business, which is great.
Ramon Vitulli
And David, we've got, I mean, back to the momentum, we've got momentum there. I mean, over 50% of our new accounts, number of new accounts were to customers that had not been here before. So, we really love that trend.
Transcript from February 1, 2025

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