Stellar Bancorp, Inc. (STEL) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Allegiance Bancshares, Inc. It is now my pleasure to turn today's meeting over to George Martinez, Chairman, Allegiance Bancshares, Inc. Mr. Martinez, the floor is yours.

Thank you, operator. Along with my fellow directors and executive officers of the company, I would like to welcome you to the Annual Meeting of Shareholders of Allegiance Bancshares, Inc., which I now officially call to order. I'm George Martinez, Chairman of the Board of Directors of the company and I will be presiding at this meeting. Today's virtual-only meeting is a live audio webcast. We are grateful that this technology enables us to reach our shareholders while prioritizing safety amid the ongoing COVID-19 pandemic. Thank you very much to those who are participating online today. We appreciate your attendance, your interest and, most importantly, your support of Allegiance Bancshares, Inc. This annual meeting of shareholders is held pursuant to the bylaws of the company and written notice to all shareholders. I call your attention to the rules of conduct and agenda set forth for this meeting. These were made available to each shareholder in the file section in the lower left of the screen. Shareholders may submit questions during the meeting online by clicking on the Dialogue icon in the upper right corner of the meeting center screen and typing the question into the web portal. During the annual meeting, questions from shareholders should pertain to the proposals being considered at that particular time. Shareholders wishing to ask other questions will be given an opportunity to do so following the meeting. After introducing the directors and officers in attendance and dealing with a few procedural matters, we will take up the items to be acted on. Board members in attendance in addition to me are John Beckworth; Matt Hartzell; Bob Ivany; Frances Jeter; Nick Nichols; Rob McKee, who is retiring from the Board; David Moulton, who is retiring from the Board; and Tom Reiser, who is retiring from the Board; Steve Retzloff, who is also CEO of the company and Chairman of the bank; Raimundo Riojas; Fred Robertson; Ray Vitulli, who is President of the company and CEO of the Bank; Lou Waters; and Roland Williams. Advisory Board members are Luis Garza and Dr. Charles Brunicardi. The company's executive officers in attendance who are not also directors are Okan Akin, Chief Risk Officer and President of the Bank; Daryl Bohls, Executive Vice President; Paul Egge, Chief Financial Officer; Lynda Keene, Executive Vice President; Shanna Kuzdzal, General Counsel and Secretary; Scott Lester, Executive Vice President; and Bob Neyland, Executive Vice President. I would also like to introduce Ms. Denise Castillo-Rhodes and Ms. Janet Wong, both Class 2 Director nominees up for election at today's annual meeting. Ms. Castillo-Rhodes is presently the Executive Vice President and Chief Financial Officer of the Texas Medical Center. Ms. Wong is a certified public accountant and retired partner with KPMG. Both Ms. Castillo-Rhodes and Ms. Wong offer years of significant leadership skills and experience and no doubt will be assets to our Board. Additional biographical information on Ms. Castillo-Rhodes and Ms. Wong may be found in the proxy statement posted on the meeting site. We also have with us today, Gina Green, representing the company's independent registered public accounting firm, Crowe LLP. Although Crowe has indicated that it does not wish to make a statement, Ms. Green is available to respond to appropriate questions. Next, there are a few routine business matters we must attend to. Ms. Kuzdzal is hereby designated as secretary of the meeting. In addition, the Board of Directors has appointed Ms. Courtney Theriot to serve as the inspector of the election for this meeting. I request that she file her Oath of Office with the secretary of the meeting for inclusion in the minutes of this meeting. Ms. Kuzdzal, will you please report on the proof of notice of meeting.

Certainly. The notice of this virtual meeting dated April 8, 2020 was sent to all shareholders on or about April 20 -- sorry, April 8, 2020.

Thank you. An affidavit of mailing is on file with the secretary. Our next order of business at this meeting is to determine whether the shares represented at the meeting are sufficient to constitute a quorum for the purpose of transacting business. Ms. Kuzdzal, do you have a report?

Yes, Mr. Chairman. The list of shareholders shows that holders of 20,353,668 shares of common stock of the company are entitled to vote at this meeting. We are informed by Ms. Theriot, the inspector of election, that there are represented, by virtual attendees or by proxy, at least 15,282,958 shares of common stock, or at least approximately 75% of all of the shares entitled to vote at the meeting.

Thank you. Because holders of a majority of the shares entitled to vote at this meeting are present online or by proxy, I declare this meeting to be duly convened for purposes of transacting such business as may properly come before it.

It is currently 1:37 p.m. Central Time on April 23, 2020, and the polls for voting on all matters are open. All shareholders entitled to vote at this meeting have the ability to do so online. If you are a shareholder entitled to vote and have not yet voted, or if you want to change a vote you previously submitted, please do so by clicking on the link provided online. If you previously voted by proxy, you do not need to vote today, unless you wish to change your vote. After voting has been completed on all matters on the agenda, we will close the polls and the inspector of election will provide us with the preliminary report.

We will now move to a review of the proposals. The first proposal before the shareholders of the company is the election of 4 Class 2 directors to serve until the 2023 Annual Meeting of Shareholders. Management's nominees were set forth in the proxy materials provided to each shareholder and it consists of the following: Denise Castillo-Rhodes, Robert Ivany, Janet S. Wong and George Martinez, that's me, and no other nominations were received prior to the deadline established in the company's bylaws. Therefore, no additional nominations may be made at this meeting, and I declare the nominations to be closed. Seeing no questions or comments on the first proposal, we'll move on to the second proposal. The second proposal before the shareholders of the company is the approval of the charter amendment. The Board approved the amendment to the charter to remove the plurality vote standard for the election of directors, subject to the approval by our shareholders at this annual meeting. In the event that our shareholders do not approve proposal 2, the charter amendment will not become effective and the existing charter will continue in its current form. Seeing no questions or comments on the second proposal, we'll move on to the third proposal. The third proposal before the shareholders of the company is the ratification of the appointment of Crowe LLP as the independent registered public accounting firm of the company for the year ending December 31, 2020. The Board of Directors recommends the ratification of the appointment of Crowe to serve as the company's independent registered public accounting firm and to audit the company's financial statements for the fiscal year ending December 31, 2020.

The polls are about to close, so please take this time to vote if you have not yet voted. [Voting]

Since everyone has had the opportunity to vote, it's now 1:40 p.m. and the polls are closed. The inspector of election has delivered her preliminary report, and I will now announce the preliminary results. Mr. Chairman, based on the inspector of election's preliminary report, each of the 4 Class 2 nominees has been elected as a Director, and the appointment of Crowe LLP as the company's accounting firm has been ratified. Proposal 2 for the charter amendment did not receive the affirmative vote of at least 66.67% of the outstanding shares and so did not get approved. We will file the final report of the inspector of election with the records of this meeting. We expect to report the results of the voting on a Form 8-K to be filed with the SEC within 4 business days of this meeting.

Since there is no other business to come before the meeting, I now declare this annual meeting of shareholders of Allegiance Bancshares, Inc. adjourned. Thank you for your attendance today. We will now have remarks from the company's management, after which we will have a brief question-and-answer period. Please submit questions online by clicking on the dialogue icon in the upper right corner of the meeting center screen. I now introduce Steve Retzloff, Chief Executive Officer.

Thank you, George. I also welcome all of you today. So thank you for your attendance as our first and, as much as it has been forced upon us, hopefully, our last virtual shareholders meeting. All of us here at Allegiance certainly hope and pray that under the current circumstances, the pandemic has had a little detrimental impact on you as possible with regard to your personal health, your business pursuits, and particularly your outlook and vision for our collective future as we all work together for an effective and complete recovery, including locally, nationally and worldwide. Before going too deep into our prepared comments, I would like to first thank our recently retiring directors for their service to your company. Tom Reiser, a fellow organizer of the bank with his expertise in insurance and risk mitigation; David Moulton, who has enriched us deeply for many years with his unparalleled wisdom as a community banker; and Rob McKee, who has been a voice with deep insight into energy and a rational trusted guide for a broad range of great discussion, have all served our shareholders skillfully over their years of service. We thank you all for your dedication and valued contribution. While we will miss those who exit, we are excited to welcome 2 new directors into the boardroom. As George mentioned, Denise Castillo-Rhodes and Janet Wong are exceptionally well qualified, and we are very much looking forward to the participation and contribution that both will provide as we pursue continued growth and accomplishments together. While we will not be answering questions today about the impacts of the COVID pandemic and related disruptions in the price of oil on the bank and/or our outlook on the Houston economy, today, I invite all of you to participate in our conference call scheduled for 9 a.m. on -- Central Time on Thursday, April 30, when we will discuss our first quarter earnings and address the aforementioned impacts. For today, I will report on the 2019 year-end results, followed by comments from the President of the company and CEO of Allegiance Bank, Ray Vitulli. However, I do want to let you all know just how proud we are of the preparedness and response our bankers have delivered during the COVID-19 event. Ray will speak to our recent activities in more detail, but I cannot delegate my expression of deep gratitude to the Allegiance bankers whose sacrificial efforts during late nights and entire weekends has been beyond inspirational and which constitute a significant adhesive for the communities we serve. Our focus as the pandemic has unfolded has not so much represented a shift to something new, but rather, due to unwelcomed circumstances, has strangely showcased our bankers by being right where we have always pledged to be, taking care of our customers, their employees and their families. Though likely no longer as crucial of a report under today's present uncertainty, it is important to note that we ended 2019 and entered 2020 bigger and better than ever, having booked solid performance last year, including strong loan and deposit originations and 7.5% growth in assets. We ended the year just shy of $5 billion in assets and a very strong capital position with a consolidated total risk-based capital ratio at an all-time high of 14.83% and all of our bank level capital ratios at or near all-time highs. Solid core earnings highlighted by an 11.5% return on tangible common equity reflect the earnings power that led to the strong capital position. These results contributed to declaring and paying our first ever dividend during the first quarter of 2020. In 2019, we received numerous local and state-wide awards, purchased a branch in Sugar Land, recruited additional relationship bankers, filled other strategic positions, added C-suite talent in the form of a Chief Human Resources Officer, or a CHRO, and a Chief Information Officer, or CIO, and completed a $60 million subordinated debt offering, among many other accomplishments. As we address the current economic environment, our super-community bank strategy is not only alive and well, but in my opinion, hits many proverbial bull's eyes. In providing extraordinary service to small and medium-sized businesses in our region, while building the scale to provide a full range of relevant products and services, we are differentiated from the competition and able to take advantage of a long-held marketplace opportunity, which condenses down to 2 words: extraordinary service. This differentiation, however, is less significant as a marketing talking point but rather more a manifestation of a true value proposition for our customers, which we believe translates into an excellent risk-reward opportunity for our shareholders. In short, our close customer relationships are exactly what is required to address the evolving needs of our client base. Just as we stepped up in the aftermath of Hurricane Harvey, we are at it again. Our super-community strategy places our focus on small local businesses, which are precisely the small businesses that are the target of the government's relief efforts. And our team has stepped up in a big way to serve as a conduit in that effort, which Ray will explain shortly. Finally, I would remind everyone that the Houston region has weathered many economic cycles and storms. It is a vibrant area of Texas growing an economic diversity and continues to be, for people like myself and most of our bankers who have called it home for their entire lives, a region built with people who have a great heart, a strong will to succeed and understand deeply what it means to take the bull by the horns. So I thank you, and I'll now turn it over to Ray.

Thanks, Steve. I'd just like to share some details on our response to the COVID-19 pandemic. I'll describe in 3 broad categories: business continuity, communication and PPP and other related loan matters. In terms of our business continuity, the bank has been operating with our 27 banking offices, leveraging our drive-through facilities as well as accepting appointments with customers, as needed. We've also encouraged the use of our electronic banking platform and make some adjustments to that platform to make it an easier experience regarding mobile remote deposits and other forms of payment that can be done remotely. We've also seen that, as I think most know, there's been an increase in fraud just with the pandemic of bad actors, and so we've also launched a debit card management tool that allows our customers to turn off and turn on -- turn off and on their cards, should they see something unusual. Our bankers are working remotely. We're honoring the -- all guidance coming from whether it's national, state, local regarding this pandemic and everything from the no more than 10 in a gathering, to social distancing, to what we believe and was announced recently about our mask requirements starting next week. We will make sure all that is in full compliance as we operate the bank in this way, in this business continuity way. With regards to communication, we are -- internally, we have a number of communications going because of the guidance that comes with managing the bank through all these different things coming our way, but also external communication to make sure our customers are informed, and they know what's happening through all this process. Our bankers are responsive. As Steve mentioned, we were working days, nights, weekends to meet the needs of our customers to keep them informed of what's happening through this pandemic and how we're responding and -- so we can meet their needs. And then when it comes to PPP and other loan matters, the bank has originated more than 3,500 PPP loans that, in aggregate approvals, are in excess of $600 million with -- impacting more than 55,000 jobs. That's a lot of hard work from the team to make that happen, and we are also now in the funding stage of getting those loans funded. We're also handling loan deferrals as customers need so that they can get through this until we can get the economy back in full force. And we're handling other matters in, what I would say, in an extremely responsive way, so that both our business owners and our consumers can feel like they have their bank there, and we can respond. So with that, we greatly thank you for attending, for your interest in Allegiance Bancshares and hope that your families are safe and healthy. This concludes our presentation.

And if we have any questions, we'd certainly entertain those now.

[Operator Instructions]

So we're not seeing any questions. And so we very much thank all of you for your attendance today. And again, I echo the comments of Ray. We just hope for your safety and health going forward and as we come out of these issues that we're facing these days. So thank you very much.

This concludes the meeting. You may now disconnect.