Stellar Bancorp, Inc. Q2 FY2024 earnings call

• Bob Franklin mentioned de-risking the balance sheet by focusing on capital, liquidity, and credit, with commercial real estate portfolio within regulatory guidance. Emphasized balanced approach to lending with higher focus on small to medium-sized businesses and added personnel. - Paul Egge highlighted net income improvement, net interest income details, net interest margin, provision for credit losses reversal, non-interest income and expense, and capital growth, noting total risk-based capital increased from prior years.

Second quarter net income was $29.8 million or $0.56 per diluted share. Net interest income was $101.4 million, a decrease of about $700,000 from the first quarter. Net interest margin was 4.24% in Q2 vs. 4.26% in Q1. Purchase accounting accretion was $10.1 million. There was a $1.9 million reversal of provision for credit losses. Non-interest income was $5.4 million. Non-interest expense was $71.2 million. Total risk-based capital was 15.34% at the end of Q2.

• Q2 net interest income seen as a relative trough from which to grow in the back half of 2024. - Full year non-interest expense target is quarterly non-interest expense of $70 million. - Tax rate guidance is between 20% and 21%.

Q: David Feaster asked about loan decline, hiring, and deposit costs.

A: Robert Franklin and Ramon Vitulli discussed strategic loan reduction, hiring of C&I talent, and deposit cost stabilization.

Q: Will Jones inquired about M&A and margin.

A: Robert Franklin mentioned ongoing M&A conversations, and Ramon Vitulli talked about net interest income trough and margin stability.

Q: Matthew Olney asked about securities portfolio, expenses, and CRE.

A: Paul Egge discussed securities portfolio focus on cash flow, expense details including FDIC assessment and severance, and CRE concentrations.

Q: Unidentified participant asked about credit and capital.

A: Ramon Vitulli and Robert Franklin talked about credit charge-offs, provision reversal, and capital retention vs. return to shareholders.

Q: John Rodis asked about net interest income and tax rate.

A: Paul Egge commented on net interest income trough and tax rate guidance between 20%-21%