STEL — Stellar Bancorp, Inc.

Summary of Stellar Bank Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Net Income: $25.7 million, or $0.50 per diluted share, down from $26.4 million, or $0.51 per share in Q2 2025.
• Return on Average Assets (ROAA): 0.97%.
• Return on Average Tangible Common Equity (ROATCE): 11.45%.
• Net Interest Income: Increased to $100.6 million from $98.3 million in Q2 2025.
• Net Interest Margin (NIM): Improved to 4.2% from 4.18% in Q2, with a notable increase to 4% excluding purchase accounting accretion.
• Charge-offs: $3.3 million in net charge-offs, primarily from previously identified credits.
• Total Risk-Based Capital: 16.33%, up from 15.98% in Q2.
• Tangible Book Value per Share: Increased 9.3% year-over-year to $21.08.

2. Strategic Updates and Business Highlights

• The bank's balance sheet expansion was primarily driven by strong deposit growth, with a focus on full client relationships.
• Share repurchases were lower at just under $5 million for the quarter, with a total of approximately $64 million year-to-date.
• The bank is committed to enhancing shareholder value through disciplined capital deployment and maintaining a strong capital position.
• The management emphasized a focus on relationship banking to defend and potentially improve margins.

3. Forward Guidance and Outlook

• Management expects fourth-quarter expenses to align more closely with the first half of the year, potentially returning to around $70 million.
• The pipeline for loan originations remains healthy, with a 62% increase in loan originations year-to-date compared to the previous year.
• The bank is optimistic about growth in 2026, despite current competitive pressures and elevated payoffs.

4. Bad News, Challenges, or Points of Concern

• The bank experienced a rise in payoffs, with $330 million in payoffs this quarter, attributed to collateral sales and competitive refinancing.
• Noninterest income decreased to $5 million, down from $5.8 million in Q2, primarily due to write-downs on foreclosed assets.
• Concerns about credit quality were raised, although management stated that charge-offs were manageable and previously identified.
• Competitive pressures in the Texas market are increasing, with new entrants affecting pricing and covenant structures.

5. Notable Q&A Insights

• Management acknowledged the competitive landscape but expressed confidence in their ability to maintain and grow market share through strong customer relationships.
• There was discussion on the bank's approach to managing credit risk, including stress testing and careful monitoring of the portfolio.
• The bank's deposit growth was driven by new customer acquisition, with 51% of new deposits coming from new clients.
• Management is cautious about M&A opportunities, emphasizing the importance of protecting their balance sheet and funding base while exploring strategic partnerships.

Overall, Stellar Bank reported solid financial results in Q3 2025, with a focus on maintaining growth and managing competitive pressures while navigating challenges in credit quality and market dynamics.