Stellar Bancorp, Inc. Q3 FY2024 earnings call

• Celebrated 2 years since Stellar Bancorp, proud of progress toward $10 billion mark and focus on capital, liquidity, credit.
• Derisked balance sheet by increasing liquidity, reducing CRE concentration, and building capital.
• Q3 financial results included ~$6 million reversal of provision for credit losses, net interest margin improvement.
• Regulatory capital ratios have grown consistently since merger, with tangible book value per share up 37.5% since end-2022.
• Started share repurchases in Q3, bought back 108,000 shares, and plan to redeem $40 million of bank-level sub debt in December.
• Texas markets exhibit strength, and the company is well-positioned for organic and inorganic growth.

Stellar Bancorp reported third quarter net income of $33.9 million or $0.63 per diluted share, representing an annualized ROAA of 1.27% and ROATCE of 13.63%. This compares to Q2 2024 earnings of $29.8 million or $0.56 per diluted share. A key driver was a ~$6 million reversal of provision for credit losses on loans. Net interest income for Q3 was $101.5 million, with a net interest margin of 4.19% (vs 4.24% in Q2). Excluding purchase accounting accretion, net interest income increased by ~$3.4 million to $94.8 million, and net interest margin was 3.91% (up from 3.82% in Q2). Regulatory capital ratios improved, with total risk-based capital at 15.91% at Q3 end.

• Aim to return to mid-single digit loan growth in 2025 if market conditions allow.
• Expense target is a $70 million quarterly run rate, working to hold the line on expenses.
• Purchase accounting accretion is expected to wane, with a projected run rate decline.
• Ongoing M&A efforts to find well-balanced franchises with favorable funding profiles.

• Industry pressures and market uncertainties related to the presidential election and interest rate normalization.
• Potential impact on loan demand due to macroeconomic factors like inflation and interest rate movements.
• Expense noise and seasonality affecting quarterly expense trends.

Q: David Feaster, Jr. asked about loan growth drivers, deposit costs, and margin trajectory.

A: Loan growth had $300 million originated in Q3, deposit costs improved with new accounts, and margin is defended with focus on execution.

Q: Matthew Olney inquired about borrower sentiment, 2025 loan growth goals, and expenses.

A: Borrower sentiment awaits clarity on election and rates; goal to return to mid-single digit growth in 2025; expense target is $70 million quarterly with noise managed.

Q: Unidentified participant asked about purchase accounting accretion, M&A, and securities portfolio.

A: Purchase accounting accretion expected to wane, M&A ongoing to find suitable partners, securities portfolio valued for liquidity and cash flows.

Q: Catherine Mealor asked about loan yield repricing and deposit pricing.

A: Loan yields have repricing opportunities with fixed and variable rate loans, deposit accounts had improved average pricing.