STEL — Stellar Bancorp, Inc.

Summary of Stellar Bank (STEL) 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 2025; excluding purchase accounting accretion, NIM was 4%.
• Charge-offs: $3.3 million in net charge-offs, with a year-to-date total of $3.7 million (7 basis points annualized).
• Allowance for Credit Losses: Decreased to $78.9 million (1.1% of loans) from $83.2 million (1.14% of loans) in Q2 2025.
• Noninterest Income: Decreased to $5 million from $5.8 million in Q2 2025.
• Noninterest Expense: Increased to $73.1 million from $70 million in Q2 2025, impacted by severance expenses and increased advertising.

2. Strategic Updates and Business Highlights:

• Deposit Growth: Strong deposit growth with 51% of new deposits from new customers, reflecting improved brand awareness and customer satisfaction.
• Share Repurchases: $5 million in share repurchases during Q3, totaling approximately $64 million year-to-date.
• Capital Position: Total risk-based capital increased to 16.33% from 15.98% in Q2 2025.
• Loan Originations: Nearly $500 million in loan originations in Q3, a 62% increase year-to-date compared to the previous year.

3. Forward Guidance and Outlook:

• Management expects to return to a more normalized expense level in Q4 2025, closer to the first half of the year’s run rate.
• The company is optimistic about loan growth in the second half of 2025 and into 2026, supported by a healthy pipeline.
• Management remains focused on maintaining a strong balance sheet and is open to opportunistic investments in bonds if loan growth does not materialize as expected.

4. Bad News, Challenges, or Points of Concern:

• Credit Quality: While credit trends remain favorable, there are concerns about heightened industry scrutiny and potential risks in the broader market.
• Competitive Pressures: Increased competition in the Texas market is leading to higher payoffs and refinancing pressures, impacting loan growth.
• Expense Increases: Higher noninterest expenses due to severance payments and increased advertising costs are seen as outliers, but inflationary pressures may persist.

5. Notable Q&A Insights:

• Management discussed the reasons behind elevated payoffs, attributing 44% to collateral sales and 25% to refinancing elsewhere, indicating competitive pressures.
• The company is focused on managing credit risk through stress testing and careful portfolio management, particularly in C&I loans.
• There is cautious optimism about M&A opportunities, with a focus on finding partners that align with Stellar Bank’s funding philosophy.
• The management expressed confidence in defending their NIM and lowering deposit costs where possible, while also being prepared for future rate cuts.

Overall, Stellar Bank reported solid financial results with a focus on strategic growth and maintaining a strong capital position, despite facing competitive pressures and challenges in the market.