Robert R. Franklin, Jr.
About Robert R. Franklin, Jr.
Robert R. Franklin, Jr. is Chief Executive Officer of Stellar Bancorp, Inc. (STEL) and Executive Chairman of Stellar Bank; he serves as a Class III director of the Company and director of the Bank (age 70). He became CEO/director at the October 1, 2022 merger of equals between Allegiance and CBTX, having previously served as CBTX’s Chairman, President and CEO (2013–2022) . Education: B.B.A. in Finance, University of Texas at Austin (1977) . 2024 performance highlights under his leadership: net income $115.0 million; diluted EPS $2.15; ROAA 1.08%; ROE 7.34%; ROATCE 11.91%; dividend raised to $0.14; tangible book value per share up 12% to $19.05; Tier 1 leverage rose to 11.31%; noninterest-bearing deposits 39.2%; NCOs 0.09% of average loans . Long-horizon TSR from 1/1/2020 through 12/31/2024 approximated 100.49 vs 123.92 for the peer index referenced in 2024 (S&P 600), indicating relative underperformance over that span .
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| CBTX, Inc. | Chairman, President & CEO | 2013–2022 | Led growth culminating in 2022 MOE with Allegiance to form Stellar Bancorp . |
| VB Texas, Inc. | Chairman, President & CEO | 2006–2013 | Merged VB Texas, Inc. with CBTX in 2013, providing platform for later MOE . |
| Horizon Capital Bank | President | Until 2005 | Led operations until sale to Cullen/Frost Bankers, Inc. in 2005 . |
| American Bank | President | 1988–2001 | Led until sale to Whitney Holding Corp. in early 2001 . |
| Regional/Community banks | Various roles | >40-year Houston banking career | Extensive lending, ALM and O&G credit expertise paired with community banking leadership . |
External Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| Junior Achievement of Southeast Texas | Board member | Current | Community/education engagement in Houston market . |
| Texas Bankers Association | Former board member | Prior service | Industry advocacy and governance exposure . |
| Local private school | Board service | Prior service | Community leadership; local relationships . |
Fixed Compensation
| Component | 2022 | 2023 | 2024 |
|---|---|---|---|
| Base salary ($) | 573,750 | 745,000 | 785,000 |
| Target annual bonus (% of salary) | 85% (employment terms) | 85% (employment terms) | 95% (raised +10 pts) |
| Actual annual incentive ($) | — (AIP shown as $0 in SCT) | 527,972 (AIP); plus $92,613 discretionary integration bonus | 763,151 (AIP at 102.33% of target) |
Notes:
- Committee increased CEO’s target bonus by 10 percentage points in 2024 to improve competitiveness .
- Majority of CEO pay is variable/at-risk; program emphasizes pay-for-performance .
Performance Compensation
- Annual cash incentive (AIP) design (2024): three metrics, straight-line interpolation; minimum 0%, target 100%, max 150% .
| Metric | Weight | Minimum | Target | Maximum | Actual (2024) | Payout logic |
|---|---|---|---|---|---|---|
| ROATCE | 50% | 7.0% | 11.25%–12.25% | 14.0% | 12.00% | Near midpoint of target range . |
| Pre-tax, pre-provision ROAA | 30% | 1.10% | 1.40%–1.55% | 1.75% | 1.35% | Slightly below target band . |
| Net charge-offs / Avg Loans (bp) | 20% | 35 | 25 to 20 | 5 | 9 | Better than target (lower is better) . |
- 2024 AIP result: 102.33% of target; CEO payout $763,151 (95% target on $785k base) .
- Long-term incentives (granted Mar 15, 2024): 60% PSUs / 40% RSAs for CEO .
- RSAs: 16,404 shares; vest 1/3 on Mar 15, 2025/2026/2027 .
- PSUs: target 24,607; earned 0–200% based on 3-year relative TSR vs S&P U.S. SmallCap Bank Index; threshold 20th percentile; target 45th–55th; max 75th; cliff-vest after the period (Dec 31, 2026) if employed .
- 2022 and 2023 PSA/PSU cohorts: 2022 PSAs estimated earned at 210% of target as of 12/31/2024; 2023 PSAs estimated at 100% of target; changes/vesting per plan and transaction provisions .
Equity Ownership & Alignment
| Item | Detail |
|---|---|
| Beneficial ownership (3/26/2025) | 357,444 shares (289,032 held directly; 34,505 PSAs outstanding; 33,907 RSAs outstanding; PSUs not included) — <1% of shares outstanding . |
| Shares outstanding | 52,266,729 (3/26/2025) . |
| Pledging | Historical pledge disclosed: 101,600 shares pledged (2024 proxy); policy discourages pledging and requires prior notice; CG&N Committee oversees outstanding pledges . |
| Ownership guidelines | Adopted Feb 26, 2025: CEO 5x base salary; directors 5x cash retainer; other execs 2x; 5-year accumulation window . |
| Post-vest holding | One-year post-vest hold for 2025-and-later equity grants for executives . |
| Hedging | Prohibited for executive officers; preclearance and window trading required . |
| Director pay | Employee directors (incl. CEO) receive no director fees; director equity is separate and time-vested for non-employees . |
Vesting/selling pressure calendar:
- RSAs: annual tranches each March 15, 2025–2027 .
- PSUs: cliff in 2026 (12/31/2026) with shares delivered after certification; additional cohorts in 2025/2027 per plan cycles .
Employment Terms
| Term | Key provisions |
|---|---|
| Agreement/term | CEO employment agreement effective at MOE; annual auto-renewals each Oct 1 unless 60-day notice . |
| Minimum base/targets | Minimum base $645,000; target bonus 85% of base; target annual equity 125% of base (plan targets; committee may exceed) . |
| Severance (no CIC) | Greater of $1.5 million or 2x base salary; pro-rata target bonus; 18 months COBRA; accelerated service-based vesting for specified awards; performance awards remain subject to actual performance; release required . |
| Change-in-control plan | Separate CoC Severance Plan: CEO multiple = 3.0x (base + target bonus), pro-rata target bonus, 18 months benefit contribution, outplacement up to $25k; reduction to avoid excess parachute tax if better after-tax; 3 months pre–18 months post CoC window . |
| Non-compete | 2 years post-employment within 50-mile radius of any bank location . |
| Non-solicit | 2 years (customers and employees) . |
| Clawback | Executive officer clawback policy adopted Oct 2, 2023 per SEC/NYSE rules . |
| Post-vest hold | One-year hold for equity vesting in 2025 and beyond . |
| Illustrative payouts | As of 12/31/2024: totals shown for various scenarios (e.g., Involuntary Termination in connection with CoC: $8.26 million total for CEO, including equity and benefits) . |
Performance & Track Record
- 2024 financial and balance sheet outcomes (see About): earnings quality, capital, TBV growth, dividend increase, deposit mix, asset quality .
- Pay Versus Performance (2019–2024 trend excerpts): Cumulative TSR since 1/1/2020 at 100.49 vs peer 123.92; Net income $115.0 million; EPS $2.15 in 2024 .
- Section 16(a) compliance: one inadvertent late filing in 2024 for Mr. Franklin (and Mr. Retzloff) related to PSA forfeitures .
Selected performance table
| Metric | 2022 | 2023 | 2024 |
|---|---|---|---|
| Net income ($mm) | 51.40 | 130.50 | 115.00 |
| EPS ($) | 1.48 | 2.45 | 2.15 |
| TSR (Cumulative since 1/1/2020; $100 basis) | 100.17 | 96.64 | 100.49 |
Major initiatives/achievements:
- Completed MOE integration and core conversion; shareholder say-on-pay support ~96.5% in 2024; updates to corporate governance (declassification proposal, director resignation policy, shareholder rights enhancements) and adoption of ownership guidelines .
Board Governance
- Roles: CEO and Class III director of Company; Executive Chairman of the Bank; not listed as a standing committee member (committee matrix) .
- Board structure: Executive Chairman (Retzloff); CEO (Franklin); Lead Independent Director (Beckworth); 12 of 14 directors are independent per NYSE/SEC; independent executive sessions held 4x in 2024 .
- Classified board phase-out: Board proposes declassification, with all directors up for annual elections by 2028 .
- Meetings/attendance: Board met 5 times in 2024; all directors except one attended ≥75% of Board/committee meetings; 12 directors attended 2024 annual meeting .
- Director compensation (context): Employee directors (e.g., CEO) receive no director compensation; non-employee director program includes cash retainers and annual restricted stock (target $60k) .
Compensation Structure Analysis
- Mix and alignment: Majority of CEO comp is variable/at-risk across AIP and performance-based equity; 2024 program increased CEO target bonus to 95% and weighted LTI 60% to PSUs measured on multi-year relative TSR, reinforcing long-term alignment .
- Metric rigor: 2024 AIP balanced profitability (ROATCE, PTPP ROAA) and credit cost discipline (NCO/Loans). Targets acknowledged macro headwinds vs 2023 actuals; payout modestly above target (102.33%), consistent with mixed results (PTPP ROAA slightly below target; ROATCE within target; credit costs favorable) .
- Governance safeguards: No excise tax gross-ups; hedging prohibited; clawback adopted in 2023; no option repricing without shareholder approval; minimum vesting and one-year post-vest holding adopted in 2025 .
- Peer benchmarking: 2024 peer group includes regional banks such as IBOC, NBHC, Renasant, ServisFirst, Trustmark, Veritex, etc.; Committee used independent advisors (NFP, then Aon) .
Related Party Transactions
- Ordinary-course banking transactions with insiders occur on market terms; Company policies (including Regulation O, Sections 23A/23B) and Related Person Transactions Policy require Audit Committee review and fairness .
Equity Ownership & Director/Executive Policies
- Stock ownership guidelines (CEO 5x salary) and post-vest one-year hold adopted in 2025, enhancing alignment; pledging discouraged and overseen by CG&N Committee; CEO historically pledged 101,600 shares (2024), a governance consideration mitigated by policy oversight .
Compensation Peer Group (2024)
1st Source; Amerant; BancFirst; Berkshire Hills; CVB Financial; Enterprise Financial Services; FB Financial; First Financial Bankshares; First Busey; Independent Bank Group; International Bancshares; National Bank Holdings; Origin Bancorp; Renasant; Sandy Spring; Seacoast Banking; ServisFirst; Southside Bancshares; Trustmark; Veritex .
Say-on-Pay & Shareholder Feedback
- 2024 say-on-pay approval ~96.5%; outreach to top holders focused on governance and comp; responses generally supportive; governance enhancements enacted (declassification proposal, director resignation policy, special meeting rights, shareholder bylaw amendment rights) .
Investment Implications
- Alignment: Elevated at-risk mix (ROATCE/PTPP ROAA/credit costs in cash bonus; multi-year relative TSR in PSUs) and adoption of ownership guidelines and post-vest hold strengthen alignment with long-term value creation .
- Retention risk: Robust severance protections (non-CIC and CIC) and restrictive covenants reduce turnover risk; CEO’s CIC multiple (3.0x) is at the higher end but standard for bank CEOs of similar size, balanced by clawback and governance controls .
- Selling pressure windows: Time-based RSAs vest annually (March 15, 2025–2027); PSUs cliff at year-end 2026; historical share pledge exists; policy oversight on pledging/insider trading reduces disorderly sale risk; watch Form 4s around vest dates .
- Execution: 2024 delivered healthy capital, TBVPS growth, credit quality and dividend increase; AIP paid near target reflecting balanced performance; however, longer-run TSR since 2020 trails peer index — sustained improvement in profitability (PTPP ROAA) and credit/leverage discipline could drive future PSU outcomes and relative TSR .