Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stellar Bancorp Inc (STEL, Financial) reported a strong net income of $29.8 million for Q2 2024, up from $26.1 million in Q1 2024.
- The company has successfully de-risked its balance sheet, bringing its commercial real estate portfolio within regulatory guidance.
- Stellar Bancorp Inc (STEL) has maintained a solid net interest margin of 4.24% despite the challenging interest rate environment.
- The company has seen stabilization in its non-interest-bearing deposits, which is a positive indicator for future funding costs.
- Stellar Bancorp Inc (STEL) has been successful in attracting high-quality senior C&I talent, enhancing its operational capabilities.
Negative Points
- Net interest income for the quarter decreased slightly to $101.4 million from $102.1 million in Q1 2024.
- Non-interest income declined to $5.4 million from $6.3 million in the previous quarter, partly due to the absence of gains on asset sales.
- The company experienced elevated payoffs in its loan portfolio, which contributed to a decline in loan balances.
- Stellar Bancorp Inc (STEL) had to recognize an additional FDIC special assessment charge of $420,000 in Q2 2024.
- The company's cost of deposits increased to 2.16%, reflecting the broader industry trend and impacting net interest margin.
Q & A Highlights
Q: Can you explain the decline in loans and your current appetite for credit?
A: Robert Franklin, CEO: The decline is strategic, focusing on reducing CRE exposure and tightening standards ahead of a potential credit cycle. Loan demand is stable but not robust. Ramon Vitulli, President: Originations were down, and payoffs increased, leading to a net decrease in loan balances.
Q: What are your hiring trends and market expansion plans?
A: Robert Franklin, CEO: We've successfully recruited senior C&I talent and are developing internal talent through our officer development program. Stellar Bank is becoming an attractive place to work, and we continue to seek talent across the board.
Q: Can you discuss the stabilization of non-interest-bearing (NIB) deposits and its impact on funding costs and margins?
A: Ramon Vitulli, President: Strong new account onboarding, with 55% being new customers, indicates positive trends. Robert Franklin, CEO: We expect stabilization in deposit costs and a competitive environment for deposits, leading to potential margin expansion.
Q: What drove the minimal net charge-offs and provision reversal this quarter?
A: Robert Franklin, CEO: Lower outstanding loan balances and unfunded commitments led to the provision reversal. Minimal charge-offs were due to strong collateral coverage and recoveries.
Q: How are you balancing capital retention versus returning capital to shareholders?
A: Paul Egge, CFO: We are focused on growing the franchise and maintaining a strong capital position. While aware of shareholder interests in buybacks and dividends, we prioritize strategic growth opportunities.
Q: What are your expectations for net interest income (NII) and margin stability?
A: Paul Egge, CFO: We expect NII to stabilize and potentially expand in the latter half of the year. Margin stability is anticipated, with a focus on building liquidity and managing the balance sheet.
Q: Can you provide an update on your securities portfolio and future plans?
A: Paul Egge, CFO: We focus on low-risk, cash flow-oriented agency securities to enhance liquidity. The portfolio may grow slightly as a percentage of average assets, depending on loan growth dynamics.
Q: What are your current CRE and C&D concentration levels?
A: Robert Franklin, CEO: As of June 30, CRE concentration is around 95%, and C&D concentration is approximately 275%.
Q: What is your guidance on non-interest expenses and any notable items in Q2?
A: Paul Egge, CFO: We target $70 million in quarterly non-interest expenses. Q2 included a $420,000 FDIC assessment and $450,000 in severance expenses, among other non-recurring items.
Q: What are your thoughts on M&A opportunities and maintaining your funding profile?
A: Robert Franklin, CEO: We are having many conversations in the industry. Our focus is on maintaining a strong funding profile, which narrows potential acquisition targets. We aim to be the preferred partner for banks considering exits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
