Stellar Bancorp (STEL) Q2 2024 earnings summary

Executive summary

• Net income for Q2 2024 was $29.8 million, or $0.56 per diluted share, with annualized ROAA of 1.13% and ROATCE of 12.82%, up from Q1 2024 but down from Q2 2023 due to lower net interest income and higher expenses.

• Focused on de-risking the balance sheet by reducing CRE exposure to within regulatory guidance and shifting toward a more balanced lending approach, emphasizing C&I and small to medium-sized businesses.

• Management highlights resilience in core Texas markets, readiness for interest rate changes, and a cautious outlook due to macroeconomic and political uncertainties.

• Efficiency ratio increased to 66.63% from 60.83% year-over-year, reflecting higher operating costs relative to income.

• The merger of equals between CBTX, Inc. and Allegiance Bancshares, Inc. became effective October 1, 2022, delivering scale and growth opportunities.

Financial highlights

• Net interest income for Q2 2024 was $101.4 million, down 0.7% from Q1 2024 and 6.3% from Q2 2023; net interest margin was 4.24%, slightly lower than prior periods.

• Noninterest income was $5.4 million, down from $6.3 million in Q1 and 1.2% lower year-over-year, mainly due to lower gains on asset sales and debit card/ATM income.

• Noninterest expense was $71.2 million, slightly down from Q1 but up 2.9% year-over-year, with higher salaries and benefits.

• Total assets at June 30, 2024 were $10.72 billion; total loans $7.71 billion; total deposits $8.73 billion.

• Cost of deposits was 2.16%, favorably low compared to industry peers, supported by stable non-interest-bearing deposits.

Outlook and guidance

• Net interest income is expected to have bottomed in Q2, with anticipated growth in the second half of 2024.

• Management anticipates possible lower interest rates in September but is prepared for either scenario.

• Quarterly non-interest expense guidance remains at $70 million, with recent quarters slightly above due to non-recurring items.

• Tax rate guidance is between 20% and 21%.

• Focus remains on credit performance, risk management, and leveraging financial flexibility.