Release Date: October 25, 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 third quarter net income of $33.9 million, or 63 cents per diluted share, marking an increase from the previous quarter.
- The company successfully reduced its loan deposit ratio from approximately 92% a year ago to about 86%, indicating improved liquidity management.
- Stellar Bancorp Inc (STEL) achieved a significant decrease in non-performing loans, which dropped nearly 37% from $50.9 million to $32.1 million during the third quarter.
- The bank's capital base is strong, with total risk-based capital at 15.91% at the end of the third quarter, reflecting consistent growth since the merger.
- The company initiated a share repurchase program, buying back 108,000 shares at an average price of $26.10, demonstrating a commitment to returning capital to shareholders.
Negative Points
- Net charge-offs were elevated in the third quarter, totaling $3.9 million, although most had been previously reserved for.
- The net interest margin slightly decreased to 4.19% in the third quarter from 4.24% in the second quarter, indicating pressure on interest income.
- Purchase accounting accretion decreased from $10.1 million in the second quarter to $6.8 million in the third quarter, impacting net interest income.
- The company experienced a decline in loan balances, with loans declining more than expected due to strategic shifts and weaker demand.
- Non-interest expenses remained high, with the quarterly run rate slightly above the targeted $70 million, indicating challenges in cost management.
Q & A Highlights
Q: Can you provide insights into the loan dynamics, particularly the decline in loans and your outlook for growth as we approach 2025?
A: Paul P. Egge, CFO: We originated over $300 million in loans this quarter, which is an increase from the previous quarter. However, payoffs were slightly lower at $230 million. Our advances compared to payments are negative due to our posture on construction and development. We feel well-positioned for increased demand and are ready to originate more loans when the economy allows. Robert R. Franklin, CEO: We have restructured our loan portfolio to resemble a larger bank and hired CNI professionals to balance our portfolio. We are optimistic about our current position for making loans.
Q: How have you managed to reduce deposit costs ahead of potential Fed rate cuts, and what is your outlook on deposits?
A: Paul P. Egge, CFO: We opened a significant number of new accounts this quarter at lower rates than before. Our deposit costs reflect disciplined management and core execution, which we believe will continue to benefit us. Robert R. Franklin, CEO: We are pleased with our deposit cost management and expect to maintain this discipline, which should help us as rates potentially decrease.
Q: What is your expectation for the net interest margin (NIM) trajectory, considering potential Fed rate cuts?
A: Paul P. Egge, CFO: We are comfortable with our current margin and believe we can defend it well. The redemption of sub-debt will be positive, and we are positioned to benefit from any rate cuts. While there are many moving parts, we are confident in our ability to maintain or even improve our margin depending on loan growth and other factors.
Q: Can you provide more color on borrower sentiment and loan growth expectations for 2025?
A: Robert R. Franklin, CEO: We aim to achieve mid-single-digit loan growth next year, contingent on market conditions. Our markets, particularly Houston, remain strong, and we are prepared to capitalize on opportunities as they arise.
Q: What are your plans regarding M&A, and how might a change in administration affect these plans?
A: Robert R. Franklin, CEO: We are actively exploring M&A opportunities to move beyond the $10 billion to $11 billion asset range, which will help manage expenses. We are in discussions with several banks and are focused on finding the right partner. A change in administration is not expected to significantly impact our M&A strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
