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Stellar Bancorp(STEL) - 2025 Q2 - Quarterly Report
2025-07-25 20:31
PART I—FINANCIAL INFORMATION Presents Stellar Bancorp, Inc.'s unaudited interim financial information for the period ended June 30, 2025 [ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20INTERIM%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Presents Stellar Bancorp, Inc.'s unaudited interim consolidated financial statements and condensed notes for June 30, 2025 [Consolidated Balance Sheets (unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(unaudited)) Summarizes Stellar Bancorp, Inc.'s financial position at June 30, 2025, detailing assets, liabilities, and equity | Metric | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | **ASSETS** | | | | Total cash and cash equivalents | $578,104 | $911,216 | | Available for sale securities | $1,729,684 | $1,673,016 | | Loans, net | $7,204,182 | $7,358,796 | | TOTAL ASSETS | $10,493,010 | $10,905,790 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total deposits | $8,673,614 | $9,128,384 | | Total liabilities | $8,889,176 | $9,297,930 | | Total shareholders' equity | $1,603,834 | $1,607,860 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $10,493,010 | $10,905,790 | - Total assets decreased by **$412.78 million (3.78%)** from December 31, 2024, to June 30, 2025, primarily driven by a decrease in cash and cash equivalents and net loans[8](index=8&type=chunk) - Total deposits decreased by **$454.77 million (4.98%)** over the six-month period, with noninterest-bearing deposits seeing a larger proportional decrease[8](index=8&type=chunk) [Consolidated Statements of Income (unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Income%20(unaudited)) Reports Stellar Bancorp, Inc.'s unaudited income and expenses for the periods ended June 30, 2025 and 2024 | Metric | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total interest income | $142,699 | $152,179 | $285,019 | $300,602 | | Total interest expense | $44,364 | $50,769 | $87,426 | $97,074 | | NET INTEREST INCOME | $98,335 | $101,410 | $197,593 | $203,528 | | Provision for (reversal of) credit losses | $1,090 | $(1,935) | $4,722 | $2,163 | | Total noninterest income | $5,791 | $5,416 | $11,296 | $11,712 | | Total noninterest expense | $70,004 | $71,216 | $140,170 | $142,626 | | NET INCOME | $26,352 | $29,753 | $51,054 | $55,900 | | Basic EPS | $0.51 | $0.56 | $0.98 | $1.05 | | Diluted EPS | $0.51 | $0.56 | $0.97 | $1.04 | | DIVIDENDS PER SHARE | $0.14 | $0.13 | $0.28 | $0.26 | - Net income decreased by **$3.4 million (11.43%)** for the three months ended June 30, 2025, and by **$4.846 million (8.67%)** for the six months ended June 30, 2025, compared to the same periods in 2024[10](index=10&type=chunk) - The provision for credit losses increased significantly, from a reversal of **$1.935 million** in Q2 2024 to a provision of **$1.090 million** in Q2 2025, and from **$2.163 million** to **$4.722 million** for the six-month period[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income (unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(unaudited)) Details Stellar Bancorp, Inc.'s unaudited comprehensive income, including net income and other comprehensive items | Metric | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | $26,352 | $29,753 | $51,054 | $55,900 | | Other comprehensive (loss) income, net of tax | $(8,555) | $9,023 | $14,420 | $(3,079) | | Comprehensive income | $17,797 | $38,776 | $65,474 | $52,821 | - Other comprehensive income shifted from a gain of **$9.023 million** in Q2 2024 to a loss of **$8.555 million** in Q2 2025, primarily due to changes in unrealized gains/losses on available-for-sale securities[12](index=12&type=chunk) - Comprehensive income decreased significantly by **$20.979 million (54.11%)** for the three months ended June 30, 2025, compared to the same period in 2024, but increased by **$12.653 million (23.95%)** for the six-month period[12](index=12&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity (unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(unaudited)) Outlines changes in Stellar Bancorp, Inc.'s shareholders' equity from December 31, 2024, to June 30, 2025 | Metric | Balance at December 31, 2024 (In thousands) | Balance at June 30, 2025 (In thousands) | | :----------------------------------- | :------------------------------------------ | :-------------------------------------- | | Common Stock (Amount) | $534 | $514 | | Capital Surplus | $1,240,050 | $1,185,048 | | Retained Earnings | $492,640 | $529,216 | | Accumulated Other Comprehensive Loss | $(125,364) | $(110,944) | | Total Shareholders' Equity | $1,607,860 | $1,603,834 | - Total shareholders' equity slightly decreased by **$4.026 million** from December 31, 2024, to June 30, 2025, primarily due to common stock repurchases and cash dividends, partially offset by net income and a decrease in accumulated other comprehensive loss[8](index=8&type=chunk)[14](index=14&type=chunk) - The company repurchased **2,170,359 shares** of common stock for **$59.244 million** during the six months ended June 30, 2025[14](index=14&type=chunk) [Consolidated Statements of Cash Flows (unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Presents Stellar Bancorp, Inc.'s unaudited cash flow activities for the six months ended June 30, 2025 and 2024 | Cash Flow Activity | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $20,078 | $69,213 | | Net cash provided by (used in) investing activities | $105,605 | $(6,362) | | Net cash (used in) provided by financing activities | $(458,795) | $28,162 | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $(333,112) | $91,013 | | CASH AND CASH EQUIVALENTS, END OF PERIOD | $578,104 | $490,250 | - Net cash provided by operating activities decreased significantly by **$49.135 million (71.0%)** for the six months ended June 30, 2025, compared to the same period in 2024[16](index=16&type=chunk) - Investing activities shifted from a net cash outflow of **$6.362 million** in 2024 to a net cash inflow of **$105.605 million** in 2025, primarily due to changes in purchases and proceeds from available-for-sale securities[16](index=16&type=chunk) - Financing activities resulted in a net cash outflow of **$458.795 million** in 2025, a substantial change from the **$28.162 million** inflow in 2024, driven by decreases in deposits and common stock repurchases[16](index=16&type=chunk) [Condensed Notes to Interim Consolidated Financial Statements (unaudited)](index=8&type=section&id=Condensed%20Notes%20to%20Interim%20Consolidated%20Financial%20Statements%20(unaudited)) [1. Nature of Operations and Summary of Significant Accounting and Reporting Policies](index=9&type=section&id=1.%20Nature%20of%20Operations%20and%20Summary%20of%20Significant%20Accounting%20and%20Reporting%20Policies) Describes Stellar Bancorp, Inc.'s business operations and key accounting and reporting policies - Stellar Bancorp, Inc. (Stellar) operates primarily through its wholly-owned subsidiary, Stellar Bank, providing commercial banking services to small-to medium-sized businesses, professionals, and individuals[17](index=17&type=chunk) - The Company operates **54 banking centers**, with **37** in the Houston MSA, **16** in the Beaumont MSA, and **one** in Dallas, Texas[18](index=18&type=chunk) - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC guidance, with management's estimates and assumptions[19](index=19&type=chunk) - The Company is evaluating ASU 2024-03, 'Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures,' effective for annual periods beginning after December 15, 2026, but does not anticipate a significant impact[23](index=23&type=chunk) [2. Goodwill and Other Intangible Assets](index=10&type=section&id=2.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Details Stellar Bancorp, Inc.'s goodwill and other intangible assets, including amortization schedules | Asset Type | Balance as of December 31, 2024 (In thousands) | Amortization (In thousands) | Decrease due to payoff of serviced loans (In thousands) | Balance as of June 30, 2025 (In thousands) | | :-------------------------- | :------------------------------------------- | :-------------------------- | :----------------------------------------------------- | :---------------------------------------- | | Goodwill | $497,318 | — | — | $497,318 | | Core Deposit Intangibles | $92,546 | $(11,078) | — | $81,468 | | Servicing Assets | $146 | $(18) | $(4) | $124 | - Goodwill remained unchanged at **$497.318 million** as of June 30, 2025, and December 31, 2024[24](index=24&type=chunk) - Core deposit intangibles, net, decreased by **$11.078 million** due to amortization during the six months ended June 30, 2025[24](index=24&type=chunk) | Remaining Amortization Period | Estimated Aggregate Future Amortization Expense (In thousands) | | :---------------------------- | :----------------------------------------------------------- | | Remaining 2025 | $10,450 | | 2026 | $18,896 | | 2027 | $16,272 | | 2028 | $13,244 | | Thereafter | $22,606 | | Total | $81,468 | [3. Securities](index=10&type=section&id=3.%20SECURITIES) Provides an overview of Stellar Bancorp, Inc.'s securities portfolio, including fair values and unrealized gains/losses | Security Type | Amortized Cost (June 30, 2025, In thousands) | Fair Value (June 30, 2025, In thousands) | Amortized Cost (December 31, 2024, In thousands) | Fair Value (December 31, 2024, In thousands) | | :------------------------------------------ | :------------------------------------------- | :--------------------------------------- | :----------------------------------------------- | :--------------------------------------------- | | U.S. government and agency securities | $183,978 | $180,245 | $198,962 | $193,603 | | Municipal securities | $219,119 | $188,359 | $219,545 | $191,453 | | Agency mortgage-backed pass-through securities | $664,597 | $624,802 | $566,719 | $521,376 | | Agency collateralized mortgage obligations | $702,301 | $642,354 | $730,861 | $660,363 | | Corporate bonds and other | $100,086 | $93,924 | $115,601 | $106,221 | | Total Available for Sale Securities | $1,870,081 | $1,729,684 | $1,831,688 | $1,673,016 | - Total available-for-sale securities increased in fair value by **$56.668 million (3.39%)** from December 31, 2024, to June 30, 2025[26](index=26&type=chunk)[27](index=27&type=chunk) - Unrealized losses on available-for-sale securities decreased from **$160.401 million** at December 31, 2024, to **$143.306 million** at June 30, 2025, primarily due to increases in market interest rates[26](index=26&type=chunk)[27](index=27&type=chunk) - The Company had sales and calls of securities totaling **$115.2 million** with a loss of **$3 thousand** during the six months ended June 30, 2025[30](index=30&type=chunk) [4. Loans and Allowance for Credit Losses](index=13&type=section&id=4.%20LOANS%20AND%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) Analyzes Stellar Bancorp, Inc.'s loan portfolio composition and the allowance for credit losses | Loan Type | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :------------------------------------------ | :----------------------------- | :------------------------------- | | Commercial and industrial | $1,346,744 | $1,362,260 | | Commercial real estate (including multi-family residential) | $3,840,981 | $3,868,218 | | Commercial real estate construction and land development | $762,911 | $845,494 | | 1-4 family residential (including home equity) | $1,126,523 | $1,115,484 | | Residential construction | $137,855 | $157,977 | | Consumer and other | $72,333 | $90,421 | | Total loans | $7,287,347 | $7,439,854 | | Allowance for credit losses on loans | $(83,165) | $(81,058) | | Loans, net | $7,204,182 | $7,358,796 | - Total loans decreased by **$152.507 million (2.05%)** from December 31, 2024, to June 30, 2025[33](index=33&type=chunk) - Nonaccrual loans increased to **$50.505 million** at June 30, 2025, from **$37.212 million** at December 31, 2024, an increase of **$13.293 million (35.72%)**[35](index=35&type=chunk)[36](index=36&type=chunk)[50](index=50&type=chunk) | Metric | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Total Past Due Loans (30-89 Days) | $30,428 | $34,755 | | Total Nonaccrual Loans | $50,505 | $37,212 | | Allowance for credit losses on loans | $83,165 | $81,058 | | Allowance for credit losses on unfunded commitments | $14,600 | $12,400 | | Collateral dependent loans allowance | $7,300 | $2,000 | - The allowance for credit losses on loans increased by **$2.107 million (2.60%)** from December 31, 2024, to June 30, 2025[33](index=33&type=chunk)[45](index=45&type=chunk) - Loan modifications due to financial difficulty totaled **$5.821 million** for the six months ended June 30, 2025, compared to **$12.585 million** for the same period in 2024[51](index=51&type=chunk)[52](index=52&type=chunk) [5. Leases](index=23&type=section&id=5.%20LEASES) Details Stellar Bancorp, Inc.'s operating lease assets, liabilities, and associated costs | Metric | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Operating lease right-of-use asset | $16,126 | $17,279 | | Operating lease liability | $17,134 | $18,273 | | Weighted average lease term (years) | 6.99 | 7.24 | | Weighted average discount rate | 4.32% | 4.28% | | Lease Cost Type | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total operating lease costs | $1,646 | $2,101 | $3,414 | $4,049 | - Total operating lease costs decreased by **$455 thousand (21.66%)** for the three months ended June 30, 2025, and by **$635 thousand (15.68%)** for the six months ended June 30, 2025, compared to the same periods in 2024[56](index=56&type=chunk) [6. Fair Value](index=24&type=section&id=6.%20FAIR%20VALUE) Explains Stellar Bancorp, Inc.'s fair value measurements for financial assets and liabilities using a three-level hierarchy | Financial Asset/Liability | Carrying Amount (June 30, 2025, In thousands) | Estimated Fair Value (June 30, 2025, In thousands) | | :----------------------------------- | :-------------------------------------------- | :----------------------------------------------- | | Cash and cash equivalents | $578,104 | $578,104 | | Available for sale securities | $1,729,684 | $1,729,684 | | Loans held for investment, net of allowance | $7,204,182 | $7,152,306 | | Deposits | $8,673,614 | $8,669,475 | | Subordinated debt | $70,165 | $69,635 | - The Company uses a three-level fair value hierarchy based on the observability of inputs, with Level 1 for quoted prices in active markets, Level 2 for significant other observable inputs, and Level 3 for significant unobservable inputs[59](index=59&type=chunk) | Financial Asset (Recurring) | Level 1 (June 30, 2025, In thousands) | Level 2 (June 30, 2025, In thousands) | Level 3 (June 30, 2025, In thousands) | Total (June 30, 2025, In thousands) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Available for sale securities | $0 | $1,729,684 | $0 | $1,729,684 | | Interest rate swaps (assets) | $0 | $4,251 | $0 | $4,251 | | Credit risk participation agreements | $0 | $0 | $11 | $11 | | Total fair value of financial assets | $0 | $1,733,935 | $11 | $1,733,946 | | Financial Asset (Nonrecurring) | Level 3 (June 30, 2025, In thousands) | | :----------------------------------- | :------------------------------------ | | Commercial and industrial loans | $11,377 | | Commercial real estate loans | $7,232 | | 1-4 family residential loans | $5,585 | | Foreclosed assets | $7,652 | | Total | $31,846 | [7. Deposits](index=27&type=section&id=7.%20DEPOSITS) Provides a breakdown of Stellar Bancorp, Inc.'s deposit types and changes over the period | Deposit Type | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Noninterest-bearing deposits | $3,183,693 | $3,576,206 | | Interest-bearing deposits | $5,489,921 | $5,552,178 | | Total deposits | $8,673,614 | $9,128,384 | | Brokered deposits | $163,200 | $481,800 | | Public funds | $1,120,000 | $1,560,000 | - Total deposits decreased by **$454.77 million (4.98%)** from December 31, 2024, to June 30, 2025, primarily due to seasonality, industry-wide pressures, and pricing discipline[8](index=8&type=chunk)[66](index=66&type=chunk) - Brokered deposits significantly decreased by **$318.6 million (66.13%)** from December 31, 2024, to June 30, 2025[66](index=66&type=chunk) - Public funds decreased by **$440 million (28.21%)** over the same period[66](index=66&type=chunk) [8. Derivative Instruments](index=28&type=section&id=8.%20DERIVATIVE%20INSTRUMENTS) Describes Stellar Bancorp, Inc.'s use of interest rate swaps and credit risk participation agreements - The Company uses interest rate swap contracts as an intermediary for customers to convert variable-rate loans to fixed rates, with offsetting swaps with financial institutions to mitigate risk[67](index=67&type=chunk)[68](index=68&type=chunk) - As of June 30, 2025, and December 31, 2024, the Company had **nine** interest rate swap agreements outstanding[69](index=69&type=chunk) - The Company also had **three** credit risk participation agreements with a financial institution, providing credit protection related to interest rate swaps[70](index=70&type=chunk) | Derivative Type | Notional Amounts (June 30, 2025, In thousands) | Fair Value (June 30, 2025, In thousands) | | :----------------------------------- | :------------------------------------------- | :--------------------------------------- | | Interest rate swaps (financial institutions, assets) | $62,226 | $4,012 | | Interest rate swaps (financial institutions, assets) | $4,722 | $168 | | Interest rate swaps (customers, assets) | $8,459 | $71 | | Interest rate swaps (customers, liabilities) | $8,459 | $(71) | | Interest rate swaps (customers, liabilities) | $4,722 | $(168) | | Interest rate swaps (customers, liabilities) | $62,226 | $(4,012) | | Credit risk participation agreements (financial institutions, assets) | $19,501 | $11 | [9. Borrowings and Borrowing Capacity](index=29&type=section&id=9.%20BORROWINGS%20AND%20BORROWING%20CAPACITY) Outlines Stellar Bancorp, Inc.'s borrowing capacity and outstanding borrowings, primarily with the FHLB - As of June 30, 2025, the Company had a total borrowing capacity of **$3.19 billion** with the FHLB, of which **$1.97 billion** was available[73](index=73&type=chunk) - Outstanding FHLB short-term advances were **$70.0 million** at a weighted-average rate of **4.75%** as of June 30, 2025[73](index=73&type=chunk) - FHLB letters of credit pledged as collateral for public and other deposits totaled **$1.14 billion** at June 30, 2025[73](index=73&type=chunk)[74](index=74&type=chunk) - The Company renewed a **$75.0 million** revolving line of credit on December 13, 2024, with no outstanding borrowings as of June 30, 2025[75](index=75&type=chunk) [10. Subordinated Debt](index=30&type=section&id=10.%20SUBORDINATED%20DEBT) Details Stellar Bancorp, Inc.'s outstanding subordinated debt, including debentures and notes - The Company assumed Junior Subordinated Debentures from Farmers & Merchants Capital Trust II and III, totaling **$11.341 million** outstanding at June 30, 2025[77](index=77&type=chunk)[78](index=78&type=chunk) - These debentures are callable and bear a floating interest rate equal to 3-Month SOFR plus a spread adjustment[77](index=77&type=chunk)[78](index=78&type=chunk) - The Bank redeemed **$40.0 million** of Fixed-to-Floating Rate Subordinated Notes in December 2024[79](index=79&type=chunk) - The Company has **$60.0 million** aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes outstanding, due October 1, 2029, bearing interest at 3-Month SOFR plus 3.13%[80](index=80&type=chunk) [11. Income Taxes](index=31&type=section&id=11.%20INCOME%20TAXES) Reports Stellar Bancorp, Inc.'s income tax expense and effective tax rates for the periods presented | Metric | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Income tax expense | $6,680 | $7,792 | $12,943 | $14,551 | | Effective income tax rate | 20.2% | 20.8% | 20.2% | 20.7% | - Income tax expense decreased by **$1.112 million (14.27%)** for the three months ended June 30, 2025, and by **$1.608 million (11.05%)** for the six months ended June 30, 2025, compared to the same periods in 2024, primarily due to changes in pre-tax net income[82](index=82&type=chunk) - The effective income tax rate decreased slightly from **20.8%** to **20.2%** for the three-month period and from **20.7%** to **20.2%** for the six-month period[82](index=82&type=chunk) [12. Stock-Based Compensation](index=31&type=section&id=12.%20STOCK-BASED%20COMPENSATION) Summarizes Stellar Bancorp, Inc.'s stock-based compensation expense and equity award details | Metric | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total stock-based compensation expense | $2,600 | $2,800 | $4,500 | $5,600 | - The Company recognized **$2.6 million** in stock-based compensation expense for Q2 2025, a decrease from **$2.8 million** in Q2 2024[84](index=84&type=chunk) - The 2022 Omnibus Incentive Plan's authorized shares increased to **3,100,000**, with **1,684,456 shares** reserved for issuance at June 30, 2025[83](index=83&type=chunk) - Unrecognized compensation expense for restricted stock awards was **$10.7 million**, expected to be recognized over **2.05 years**, and **$3.8 million** for PSUs/PSAs, expected over **2.35 years**[87](index=87&type=chunk)[88](index=88&type=chunk) [13. Off-Balance Sheet Arrangements, Commitments and Contingencies](index=32&type=section&id=13.%20OFF-BALANCE%20SHEET%20ARRANGEMENTS,%20COMMITMENTS%20AND%20CONTINGENCIES) Details Stellar Bancorp, Inc.'s off-balance sheet commitments, including credit extensions and letters of credit | Off-Balance Sheet Item | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Commitments to extend credit | $1,930,315 | $1,701,923 | | Standby letters of credit | $42,230 | $43,639 | | Total | $1,972,545 | $1,745,562 | - Commitments to extend credit increased by **$228.392 million (13.42%)** from December 31, 2024, to June 30, 2025[90](index=90&type=chunk) - The Company had FHLB letters of credit totaling **$1.14 billion** pledged as collateral for public and other deposits at June 30, 2025[90](index=90&type=chunk) - The Company is subject to claims and litigation in the ordinary course of business, with legal fees expensed as incurred and liabilities accrued when estimable and probable[94](index=94&type=chunk) [14. Regulatory Capital Matters](index=33&type=section&id=14.%20REGULATORY%20CAPITAL%20MATTERS) Presents Stellar Bancorp, Inc.'s and Stellar Bank's regulatory capital ratios and compliance status | Capital Ratio (Stellar Bancorp, Inc. Consolidated) | Actual Ratio (June 30, 2025) | Minimum Required for Adequacy Purposes | Minimum Required Plus Capital Conservation Buffer | | :------------------------------------------------- | :--------------------------- | :------------------------------------- | :---------------------------------------------- | | Total Capital (to risk-weighted assets) | 15.98% | 8.00% | 10.50% | | Common Equity Tier 1 Capital (to risk-weighted assets) | 14.06% | 4.50% | 7.00% | | Tier 1 Capital (to risk-weighted assets) | 14.18% | 6.00% | 8.50% | | Tier 1 Leverage (to average tangible assets) | 11.44% | 4.00% | 4.00% | | Capital Ratio (Stellar Bank) | Actual Ratio (June 30, 2025) | Minimum Required for Adequacy Purposes | Minimum Required Plus Capital Conservation Buffer | To Be Categorized As Well-Capitalized Under Prompt Corrective Action Provisions | | :----------------------------------------- | :--------------------------- | :------------------------------------- | :---------------------------------------------- | :---------------------------------------------------------------------------- | | Total Capital (to risk-weighted assets) | 15.39% | 8.00% | 10.50% | 10.00% | | Common Equity Tier 1 Capital (to risk-weighted assets) | 14.18% | 4.50% | 7.00% | 6.50% | | Tier 1 Capital (to risk-weighted assets) | 14.18% | 6.00% | 8.50% | 8.00% | | Tier 1 Leverage (to average tangible assets) | 11.44% | 4.00% | 4.00% | 5.00% | - Both Stellar Bancorp, Inc. and Stellar Bank exceeded all minimum capital adequacy requirements and were considered 'well-capitalized' as of June 30, 2025[95](index=95&type=chunk)[97](index=97&type=chunk)[213](index=213&type=chunk) [15. Earnings Per Common Share](index=35&type=section&id=15.%20EARNINGS%20PER%20COMMON%20SHARE) Provides Stellar Bancorp, Inc.'s basic and diluted earnings per common share calculations | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.51 | $0.56 | $0.98 | $1.05 | | Diluted EPS | $0.51 | $0.56 | $0.97 | $1.04 | | Weighted average shares outstanding (Basic, in thousands) | 51,529 | 53,572 | 52,333 | 53,457 | | Weighted average shares outstanding (Diluted, in thousands) | 51,569 | 53,608 | 52,376 | 53,506 | - Basic and diluted EPS decreased for both the three-month and six-month periods ended June 30, 2025, compared to the prior year, reflecting lower net income and a reduction in weighted-average shares outstanding[101](index=101&type=chunk) - **99,011 shares** were not considered in computing diluted EPS as of June 30, 2025, due to their antidilutive effect[101](index=101&type=chunk) [16. Segment Information](index=35&type=section&id=16.%20SEGMENT%20INFORMATION) Identifies Stellar Bancorp, Inc.'s single reportable operating segment and management's performance evaluation - The Company operates as a single reportable operating segment, primarily banking operations, as determined by the Chief Financial Officer[102](index=102&type=chunk) - The chief operating decision maker evaluates consolidated net income, significant expenses, and budget-to-actual results to assess financial performance and allocate resources[102](index=102&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=35&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Provides management's analysis of Stellar Bancorp, Inc.'s financial condition, operations, and key performance drivers [Overview](index=37&type=section&id=Overview) Provides an overview of Stellar Bancorp, Inc.'s primary income sources, expenses, and factors affecting net interest income - Stellar generates most of its income from interest on loans and investments, and service charges, while incurring interest expense on deposits and borrowings, and noninterest expenses[108](index=108&type=chunk) - Net interest income, the largest revenue source, is evaluated by monitoring yields on assets, rates on liabilities, net interest spread, and net interest margin[108](index=108&type=chunk) - Net interest income is affected by changes in the volume and mix of interest-earning assets and liabilities, as well as fluctuations in market interest rates driven by monetary policies and macroeconomic factors[109](index=109&type=chunk)[111](index=111&type=chunk) [Critical Accounting Policies](index=38&type=section&id=Critical%20Accounting%20Policies) Highlights Stellar Bancorp, Inc.'s most critical accounting estimates, including allowance for credit losses and goodwill - Management considers the allowance for credit losses as its most critical accounting estimate, representing the best estimate of lifetime expected losses based on forecasts, historical data, and qualitative factors[112](index=112&type=chunk)[113](index=113&type=chunk) - Goodwill, representing the excess of acquisition cost over net assets acquired, is tested for impairment annually or upon a triggering event, comparing the reporting unit's fair value to its net book value[120](index=120&type=chunk)[121](index=121&type=chunk) - A **5%** increase in historical loss rates would increase funded reserves by **$1.6 million**, while a **5%** increase in each qualitative risk factor would increase funded reserves by **$2.9 million**[118](index=118&type=chunk) [Recently Issued Accounting Pronouncements](index=39&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) Refers to Note 1 for a discussion of recently issued accounting pronouncements relevant to Stellar Bancorp, Inc. - The Company has evaluated new accounting pronouncements and refers to Note 1 for a discussion of those adopted or requiring enhanced disclosures[123](index=123&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) Summarizes Stellar Bancorp, Inc.'s financial performance, including net income, EPS, and efficiency ratio trends | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (in millions) | $26.4 | $29.8 | $51.1 | $55.9 | | Diluted EPS | $0.51 | $0.56 | $0.97 | $1.04 | | Annualized ROAA | 1.01% | 1.13% | 0.98% | 1.06% | | Annualized ROAE | 6.62% | 7.78% | 6.42% | 7.33% | | Efficiency Ratio | 61.87% | 60.81% | 61.90% | 60.62% | - Net income decreased for both the three-month and six-month periods ended June 30, 2025, primarily due to lower net interest income and increased provision for credit losses[124](index=124&type=chunk)[126](index=126&type=chunk) - The efficiency ratio increased for both periods, indicating a less efficient allocation of resources compared to the prior year[125](index=125&type=chunk)[127](index=127&type=chunk) [Net Interest Income](index=40&type=section&id=Net%20Interest%20Income) Analyzes Stellar Bancorp, Inc.'s net interest income, interest income, and interest expense trends | Metric | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net interest income | $98,335 | $101,410 | $197,593 | $203,528 | | Total interest income | $142,699 | $152,179 | $285,019 | $300,602 | | Total interest expense | $44,364 | $50,769 | $87,426 | $97,074 | | Tax equivalent net interest margin | 4.18% | 4.24% | 4.19% | 4.25% | | Average yield on interest-earning assets | 6.06% | 6.36% | 6.04% | 6.28% | | Average rate paid on interest-bearing liabilities | 3.16% | 3.59% | 3.15% | 3.48% | - Net interest income decreased by **$3.1 million (3.0%)** for the three months and **$5.9 million (2.9%)** for the six months ended June 30, 2025, primarily due to lower average loans and reduced purchase accounting accretion[128](index=128&type=chunk)[136](index=136&type=chunk) - Interest income decreased due to lower average loans and loan yields, partially offset by increased securities and deposits in other financial institutions[129](index=129&type=chunk)[137](index=137&type=chunk) - Interest expense decreased due to lower interest rates, a reduction in higher-rate certificates and time deposits, and decreased average borrowed funds[130](index=130&type=chunk)[138](index=138&type=chunk) [Provision for Credit Losses](index=44&type=section&id=Provision%20for%20Credit%20Losses) Details Stellar Bancorp, Inc.'s provision for credit losses and changes compared to prior periods | Metric | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Provision for credit losses | $1,100 | $(1,900) | $4,700 | $2,200 | - The Company recorded a provision for credit losses of **$1.1 million** for the three months ended June 30, 2025, compared to a reversal of **$1.9 million** for the same period in 2024[146](index=146&type=chunk) - For the six months ended June 30, 2025, the provision for credit losses was **$4.7 million**, up from **$2.2 million** in the prior year, driven by increased unfunded commitments and nonperforming loans[146](index=146&type=chunk) [Noninterest Income](index=44&type=section&id=Noninterest%20Income) Reviews Stellar Bancorp, Inc.'s noninterest income sources and their changes over the reporting periods | Noninterest Income Category | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Service charges on deposit accounts | $1,561 | $1,648 | $3,145 | $3,246 | | Bank-owned life insurance income | $618 | $591 | $1,228 | $1,178 | | Debit card and interchange income | $566 | $543 | $1,086 | $1,070 | | Other | $3,103 | $2,698 | $5,477 | $5,769 | | Total noninterest income | $5,791 | $5,416 | $11,296 | $11,712 | - Total noninterest income increased by **$375 thousand (6.9%)** for the three months ended June 30, 2025, primarily due to **$490 thousand** in Federal Reserve Bank dividends[148](index=148&type=chunk) - For the six months ended June 30, 2025, total noninterest income decreased by **$416 thousand (3.6%)**, mainly due to a decrease in other noninterest income and service charges on deposit accounts[149](index=149&type=chunk) [Noninterest Expense](index=45&type=section&id=Noninterest%20Expense) Examines Stellar Bancorp, Inc.'s noninterest expenses, including salaries, regulatory assessments, and amortization | Noninterest Expense Category | Three Months Ended June 30, 2025 (In thousands) | Three Months Ended June 30, 2024 (In thousands) | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Salaries and employee benefits | $40,927 | $39,061 | $82,719 | $80,437 | | Regulatory assessments and FDIC insurance | $1,561 | $2,299 | $3,294 | $4,153 | | Amortization of intangibles | $5,548 | $6,215 | $11,096 | $12,427 | | Professional fees | $1,287 | $1,620 | $3,073 | $4,282 | | Data processing and software amortization | $5,620 | $5,501 | $11,302 | $10,395 | | Total noninterest expense | $70,004 | $71,216 | $140,170 | $142,626 | - Total noninterest expense decreased by **$1.2 million (1.7%)** for the three months and **$2.5 million (1.7%)** for the six months ended June 30, 2025, compared to the prior year[152](index=152&type=chunk)[153](index=153&type=chunk) - Salaries and employee benefits increased by **$1.9 million (4.79%)** for the three months and **$2.3 million (2.84%)** for the six months, driven by increased full-time equivalent employees and annual salary increases[154](index=154&type=chunk)[158](index=158&type=chunk) - Regulatory assessments and FDIC insurance decreased due to a special assessment recorded in 2024[156](index=156&type=chunk) [Efficiency Ratio](index=46&type=section&id=Efficiency%20Ratio) Reports Stellar Bancorp, Inc.'s efficiency ratio, indicating operational efficiency trends | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Efficiency ratio | 61.87% | 60.81% | 61.90% | 60.62% | - The efficiency ratio increased to **61.87%** for the three months and **61.90%** for the six months ended June 30, 2025, from **60.81%** and **60.62%** respectively in the prior year, indicating a slight decrease in operational efficiency[159](index=159&type=chunk) - The efficiency ratio calculation was revised in 2025 to exclude the amortization of core deposit intangibles, with prior periods recalculated for comparability[159](index=159&type=chunk) [Income Taxes](index=46&type=section&id=Income%20Taxes) Details Stellar Bancorp, Inc.'s income tax expense and effective tax rates for the reporting periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense (in millions) | $1.1 | $1.6 | $12.9 | $14.6 | | Effective tax rate | 20.2% | 20.8% | 20.2% | 20.7% | - Income tax expense decreased by **$1.1 million** for the three months and **$1.6 million** for the six months ended June 30, 2025, compared to the same periods in 2024, primarily due to changes in pre-tax net income[161](index=161&type=chunk) - The effective tax rate for both periods in 2025 was **20.2%**, a slight decrease from **20.8%** and **20.7%** in 2024, respectively[161](index=161&type=chunk) [Financial Condition](index=47&type=section&id=Financial%20Condition) Analyzes Stellar Bancorp, Inc.'s financial position, including loan portfolio, asset quality, and deposits [Loan Portfolio](index=47&type=section&id=Loan%20Portfolio) Details the composition and changes in Stellar Bancorp, Inc.'s loan portfolio by type | Loan Type | June 30, 2025 (In thousands) | Percent of Total (June 30, 2025) | December 31, 2024 (In thousands) | Percent of Total (December 31, 2024) | | :------------------------------------------ | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------------- | | Commercial and industrial | $1,346,744 | 18.5% | $1,362,260 | 18.3% | | Commercial real estate (including multi-family residential) | $3,840,981 | 52.7% | $3,868,218 | 52.0% | | Commercial real estate construction and land development | $762,911 | 10.5% | $845,494 | 11.4% | | 1-4 family residential (including home equity) | $1,126,523 | 15.5% | $1,115,484 | 15.0% | | Residential construction | $137,855 | 1.9% | $157,977 | 2.1% | | Consumer and other | $72,333 | 0.9% | $90,421 | 1.2% | | Total loans | $7,287,347 | 100.0% | $7,439,854 | 100.0% | - Total loans decreased by **$152.5 million (2.1%)** to **$7.3 billion** at June 30, 2025, compared to December 31, 2024[162](index=162&type=chunk) - Commercial real estate and commercial construction loans represented **63.2%** of total loans at June 30, 2025, indicating a significant concentration in these segments[173](index=173&type=chunk) - The residential construction loan portfolio decreased by **$20.1 million (12.7%)** to **$137.9 million**[170](index=170&type=chunk) [Asset Quality](index=49&type=section&id=Asset%20Quality) Analyzes Stellar Bancorp, Inc.'s asset quality metrics, including nonperforming assets and credit loss allowance | Metric | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Total nonaccrual loans | $50,505 | $37,212 | | Foreclosed assets | $7,652 | $1,708 | | Total nonperforming assets | $58,157 | $38,920 | | Nonperforming assets to total assets | 0.55% | 0.36% | | Nonperforming loans to total loans | 0.69% | 0.50% | | Allowance for credit losses on loans | $83,165 | $81,058 | | Allowance for credit losses on unfunded commitments | $14,600 | $12,400 | - Nonperforming assets increased by **$19.237 million (49.43%)** to **$58.2 million** at June 30, 2025, from **$38.9 million** at December 31, 2024[175](index=175&type=chunk) - Nonaccrual loans increased by **$13.293 million (35.72%)** to **$50.5 million**, and foreclosed assets increased by **$5.944 million (347.9%)** to **$7.652 million**[175](index=175&type=chunk) - The allowance for credit losses on loans increased to **$83.2 million (1.14% of total loans)** at June 30, 2025, from **$81.1 million (1.09% of total loans)** at December 31, 2024, primarily due to increased nonperforming loans[179](index=179&type=chunk) [Available for Sale Securities](index=51&type=section&id=Available%20for%20Sale%20Securities) Reviews Stellar Bancorp, Inc.'s available-for-sale securities portfolio, including fair values and yields | Security Type | Fair Value (June 30, 2025, In thousands) | Fair Value (December 31, 2024, In thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------------- | | U.S. government and agency securities | $180,245 | $193,603 | | Municipal securities | $188,359 | $191,453 | | Agency mortgage-backed pass-through securities | $624,802 | $521,376 | | Agency collateralized mortgage obligations | $642,354 | $660,363 | | Corporate bonds and other | $93,924 | $106,221 | | Total Available for Sale Securities | $1,729,684 | $1,673,016 | - The carrying amount of investment securities increased by **$56.7 million (3.4%)** to **$1.73 billion** at June 30, 2025[182](index=182&type=chunk) - Securities represented **16.5%** of total assets at June 30, 2025, up from **15.3%** at December 31, 2024[182](index=182&type=chunk) - The average yield of the securities portfolio increased to **3.73%** for Q2 2025 (from **3.31%** in Q2 2024) and **3.76%** for the six months ended June 30, 2025 (from **3.07%** in 2024), due to higher-yielding security purchases[188](index=188&type=chunk) [Goodwill and Core Deposit Intangibles](index=53&type=section&id=Goodwill%20and%20Core%20Deposit%20Intangibles) Reports Stellar Bancorp, Inc.'s goodwill and core deposit intangibles, noting changes due to amortization - Goodwill remained constant at **$497.3 million** as of both June 30, 2025, and December 31, 2024[189](index=189&type=chunk) - Core deposit intangibles, net, decreased to **$81.5 million** at June 30, 2025, from **$92.5 million** at December 31, 2024, due to amortization[190](index=190&type=chunk) [Deposits](index=53&type=section&id=Deposits) Examines Stellar Bancorp, Inc.'s deposit trends, including noninterest-bearing and interest-bearing categories | Deposit Type | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Total deposits | $8,673,614 | $9,128,384 | | Noninterest-bearing deposits | $3,183,693 | $3,576,206 | | Interest-bearing deposits | $5,489,921 | $5,552,178 | | Noninterest-bearing deposits to total deposits | 36.7% | 39.2% | | Fully collateralized public funds | $1,040,000 | $1,440,000 | - Total deposits decreased by **$454.8 million (5.0%)** to **$8.67 billion** at June 30, 2025, driven by seasonality, industry pressures, and pricing discipline[192](index=192&type=chunk) - Noninterest-bearing deposits decreased by **$392.5 million (11.0%)**, and interest-bearing deposits decreased by **$62.3 million (1.1%)**[192](index=192&type=chunk) [Borrowings](index=53&type=section&id=Borrowings) Details Stellar Bancorp, Inc.'s borrowing capacity and outstanding advances, primarily from the FHLB - The Company had a total FHLB borrowing capacity of **$3.19 billion** at June 30, 2025, with **$1.97 billion** available[194](index=194&type=chunk) - Outstanding FHLB short-term advances were **$70.0 million** at a weighted-average rate of **4.75%** at June 30, 2025[194](index=194&type=chunk) - FHLB letters of credit pledged as collateral for public and other deposits totaled **$1.14 billion** at June 30, 2025[194](index=194&type=chunk)[195](index=195&type=chunk) [Subordinated Debt](index=54&type=section&id=Subordinated%20Debt) Outlines Stellar Bancorp, Inc.'s outstanding subordinated debt instruments and their terms - Junior subordinated debentures outstanding totaled **$11.341 million** at June 30, 2025, assumed from prior acquisitions[196](index=196&type=chunk)[197](index=197&type=chunk) - The Bank redeemed **$40.0 million** of Fixed-to-Floating Rate Subordinated Notes in December 2024[198](index=198&type=chunk) - The Company has **$60.0 million** of Fixed-to-Floating Rate Subordinated Notes outstanding, due October 1, 2029, with interest at 3-Month SOFR plus 3.13%[199](index=199&type=chunk) [Credit Agreement](index=55&type=section&id=Credit%20Agreement) Describes Stellar Bancorp, Inc.'s revolving line of credit and compliance with debt covenants - The Company renewed a **$75.0 million** revolving line of credit on December 13, 2024, with no outstanding borrowings at June 30, 2025[200](index=200&type=chunk) - The line of credit accrues interest at 3-month SOFR plus **2.75%** and matures on December 13, 2033[200](index=200&type=chunk) - The Company was in compliance with all debt covenants as of June 30, 2025, including maintaining a cash flow to debt service ratio of not less than **1.25** and the Bank's Tier 1 Leverage Ratio of at least **8.0%**[201](index=201&type=chunk) [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) [Liquidity](index=55&type=section&id=Liquidity) Assesses Stellar Bancorp, Inc.'s liquidity sources, funding strategies, and contingent funding capacity - Liquidity needs are primarily met by deposits, borrowed funds, and securities, with access to correspondent banks, the Federal Reserve discount window, and FHLB advances[202](index=202&type=chunk) - Average total deposits decreased by **$59.5 million (0.7%)** and average loans decreased by **$560.3 million (7.1%)** during the six months ended June 30, 2025, compared to the prior year[204](index=204&type=chunk) - Total immediate contingent funding sources were **$5.78 billion (66.7% of total deposits)** at June 30, 2025, with estimated uninsured deposits (net of collateralized) at **46.2%** of total deposits[206](index=206&type=chunk) - Outstanding commitments to extend credit were **$1.93 billion** and standby letters of credit were **$42.2 million** at June 30, 2025[207](index=207&type=chunk) [Capital Resources](index=56&type=section&id=Capital%20Resources) Reviews Stellar Bancorp, Inc.'s regulatory capital requirements and actual capital ratios - The Company and the Bank are subject to various regulatory capital requirements, including risk-based capital and leverage ratios, and are classified as 'well-capitalized' under prompt corrective action regulations[210](index=210&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk) | Capital Ratio (Stellar Bancorp, Inc. Consolidated) | Actual Ratio (June 30, 2025) | | :------------------------------------------------- | :--------------------------- | | Total Capital (to risk-weighted assets) | 15.98% | | Common Equity Tier 1 capital (to risk-weighted assets) | 14.06% | | Tier 1 Capital (to risk-weighted assets) | 14.18% | | Tier 1 Leverage (to average tangible assets) | 11.44% | | Capital Ratio (Stellar Bank) | Actual Ratio (June 30, 2025) | | :----------------------------------------- | :--------------------------- | | Total Capital (to risk-weighted assets) | 15.39% | | Common Equity Tier 1 capital (to risk-weighted assets) | 14.18% | | Tier 1 Capital (to risk-weighted assets) | 14.18% | | Tier 1 Leverage (to average tangible assets) | 11.44% | - Shareholders' equity decreased during the six months ended June 30, 2025, due to **$59.2 million** in common stock repurchases and **$14.5 million** in dividends paid, partially offset by net income and a decrease in other comprehensive loss[213](index=213&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=57&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Outlines Stellar Bancorp, Inc.'s management of market risk, focusing on interest rate risk and simulation models [Asset/Liability Management and Interest Rate Risk](index=57&type=section&id=Asset%20%26%20Liability%20Management%20and%20Interest%20Rate%20Risk) Describes Stellar Bancorp, Inc.'s approach to managing interest rate risk through ALCO and simulation models - The Company's asset liability and interest rate risk policy guides balance sheet management and monitors net interest rate sensitivity[215](index=215&type=chunk) - Interest rate risk, the potential for economic losses from future interest rate changes, is managed by the Asset Liability Committee (ALCO) through strategies considering earnings, capital, and market conditions[216](index=216&type=chunk)[218](index=218&type=chunk) - The Company uses an interest rate risk simulation model and shock analysis to test the sensitivity of net interest income and the balance sheet to interest rate changes[219](index=219&type=chunk)[220](index=220&type=chunk) | Change in Interest Rates (Basis Points) | Percent Change in Net Interest Income (June 30, 2025) | Percent Change in Economic Value of Equity (June 30, 2025) | | :-------------------------------------- | :---------------------------------------------------- | :------------------------------------------------------- | | +300 | 5.2% | (4.2)% | | +200 | 3.9% | (0.7)% | | +100 | 2.2% | 0.5% | | Base | 0.0% | 0.0% | | -100 | (3.3)% | (3.6)% | | -200 | (6.8)% | (10.1)% | | -300 | (9.9)% | (18.9)% | [ITEM 4. CONTROLS AND PROCEDURES](index=57&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Confirms the effectiveness of Stellar Bancorp, Inc.'s disclosure controls and procedures as of June 30, 2025 - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[222](index=222&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[223](index=223&type=chunk) PART II—OTHER INFORMATION Presents other required information for Stellar Bancorp, Inc., including legal, risk, and equity matters [ITEM 1. LEGAL PROCEEDINGS](index=57&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Details Stellar Bancorp, Inc.'s involvement in legal claims and litigation in the ordinary course of business - The Company is subject to claims and litigation arising in the ordinary course of business[224](index=224&type=chunk) - Management believes no current legal proceedings would have a material adverse effect on the Company's business, financial condition, or results of operations[224](index=224&type=chunk) - Unfavorable resolutions, regardless of merit, could still adversely affect the Company's financial position, results of operations, and reputation[224](index=224&type=chunk) [ITEM 1A. RISK FACTORS](index=58&type=section&id=ITEM%201A.%20RISK%20FACTORS) Highlights that no material changes to Stellar Bancorp, Inc.'s risk factors have occurred since the last annual report - No material changes in risk factors have occurred since the Company's Annual Report on Form 10-K for the year ended December 31, 2024[225](index=225&type=chunk) - Investors should carefully consider the risks described in previous SEC filings[225](index=225&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=59&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Reports Stellar Bancorp, Inc.'s common stock repurchase programs and shares bought back during the quarter - The Company repurchased **679,331 shares** at a weighted average price of **$25.83 per share** under the 2024-2025 Repurchase Program before its termination on April 23, 2025[226](index=226&type=chunk) - A new 2025-2026 Repurchase Program was authorized on April 23, 2025, allowing repurchases of up to **$65 million** of common stock through May 31, 2026[227](index=227&type=chunk) - Under the new program, **112,066 shares** were repurchased at a weighted average price of **$27.61 per share** during the second quarter of 2025[227](index=227&type=chunk) | Period | Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------- | :------------------------- | :--------------------------- | | April 1, 2025 to April 30, 2025 | 679,331 | $25.83 | | June 1, 2025 to June 30, 2025 | 112,066 | $27.61 | | Total | 791,397 | $26.08 | [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=59&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) Confirms no defaults upon senior securities for Stellar Bancorp, Inc. during the reporting period - There were no defaults upon senior securities during the period[229](index=229&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=59&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) States that mine safety disclosures are not applicable to Stellar Bancorp, Inc.'s operations - Mine Safety Disclosures are not applicable to the Company[230](index=230&type=chunk) [ITEM 5. OTHER INFORMATION](index=59&type=section&id=ITEM%205.%20OTHER%20INFORMATION) Confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[231](index=231&type=chunk) [ITEM 6. EXHIBITS](index=60&type=section&id=ITEM%206.%20EXHIBITS) Lists all exhibits filed with Stellar Bancorp, Inc.'s Quarterly Report on Form 10-Q - Exhibits include the Second Amended and Restated Certificate of Formation, Amended and Restated Bylaws, and the 2022 Omnibus Incentive Plan[233](index=233&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) are included[233](index=233&type=chunk) - Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) and the Cover Page Interactive Data File (104) are part of the exhibits[233](index=233&type=chunk) [SIGNATURES](index=61&type=section&id=SIGNATURES) Confirms the official signing of Stellar Bancorp, Inc.'s Quarterly Report on Form 10-Q by executive officers - The report is signed by Robert R. Franklin, Jr., Chief Executive Officer, and Paul P. Egge, Chief Financial Officer, on July 25, 2025[237](index=237&type=chunk)
Stellar Bancorp(STEL) - 2025 Q2 - Earnings Call Transcript
2025-07-25 14:00
Financial Data and Key Metrics Changes - The company reported a net income of $26.4 million or $54.51 per diluted share for Q2 2025, an increase from $24.7 million or $46 per share in Q1 2025, representing an annualized ROAA of 1.01% and an annualized ROATCE of 12.16% [9][10] - Net interest income for Q2 was $98.3 million, slightly down from $99.3 million in Q1, with a net interest margin of 4.18% compared to 4.2% in the previous quarter [11][12] - Noninterest income increased to $5.8 million in Q2 from $5.5 million in Q1, benefiting from Federal Reserve Bank dividends [13] - Noninterest expenses remained flat at approximately $70 million, reflecting effective expense management [14] Business Line Data and Key Metrics Changes - New loan originations nearly doubled in Q2 compared to Q1, marking the highest level since 2022, indicating a return to organic growth [6][7] - The company experienced slight growth in loans, attributed to a healthy pipeline and business development efforts [6][10] Market Data and Key Metrics Changes - The Texas marketplace remains resilient, providing opportunities for growth, particularly in the context of increased M&A activity [7] - The competitive landscape for loans is described as extremely competitive, with the company gaining market share in the Dallas and Houston Beaumont regions [22] Company Strategy and Development Direction - The company aims to build itself into the bank of choice for small business leaders, focusing on relationship banking to drive long-term shareholder value [8] - The strategy includes expanding existing relationships and acquiring new customers, with a disciplined approach to managing expenses while remaining opportunistic [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to defend and improve net interest margins, despite competitive pressures on funding costs [31][45] - The company is open to acquiring new talent to support growth, while maintaining a strong balance sheet and capital position [26][14] Other Important Information - The total risk-based capital ratio was 15.98% at the end of Q2, slightly up from 15.97% at the end of Q1 [14] - The company repurchased 791,000 shares at a weighted average price of $26.08 during the quarter [14] Q&A Session Summary Question: Growth outlook and competitive landscape for loans - Management noted that loan originations nearly doubled in Q2 compared to Q1, with a healthy pipeline supporting continued growth [20][21] Question: Funding side and core deposits strategy - The company has seen competitive pressures on money market deposits but is well-positioned to drive core deposits, with a focus on new customer acquisition [23][24] Question: Expense management and future investments - Management characterized expense management as holding the line to remain opportunistic for future investments, while being open to acquiring new talent [25][26] Question: Margin trends and implications for the second half of the year - Management feels confident in defending margins and expects improvements as the funding composition stabilizes [30][31] Question: M&A discussions and opportunities - The pace of M&A discussions has increased, with management emphasizing the importance of disciplined pricing [50] Question: Other income line trends - Management indicated that the other income line may trend back towards first quarter levels, with some volatility expected [53]
Stellar Bancorp (STEL) Q2 Earnings Beat Estimates
ZACKS· 2025-07-25 13:16
Group 1: Earnings Performance - Stellar Bancorp reported quarterly earnings of $0.51 per share, exceeding the Zacks Consensus Estimate of $0.45 per share, but down from $0.56 per share a year ago, representing an earnings surprise of +13.33% [1] - Over the last four quarters, the company has surpassed consensus EPS estimates four times [2] - The company posted revenues of $104.13 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 0.67%, compared to year-ago revenues of $106.83 million [2] Group 2: Stock Performance and Outlook - Stellar Bancorp shares have increased by approximately 11.2% since the beginning of the year, outperforming the S&P 500's gain of 8.2% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.45 on revenues of $106.83 million, and $1.83 on revenues of $424.57 million for the current fiscal year [7] Group 3: Industry Context - The Zacks Industry Rank indicates that the Banks - Southeast industry is currently in the top 11% of over 250 Zacks industries, suggesting strong performance potential [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - The estimate revisions trend for Stellar Bancorp was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6]
Stellar Bancorp(STEL) - 2025 Q2 - Earnings Call Presentation
2025-07-25 13:00
Financial Performance - Net income for Q2 2025 was $264 million, resulting in diluted earnings per share of $051[22] - The tax equivalent net interest margin was 418% for Q2 2025, compared to 420% in Q1 2025[22] - Excluding purchase accounting adjustments (PAA), the net interest margin was 395% in Q2 2025, down from 397% in Q1 2025[22] - The total capital ratio increased to 1598% as of June 30, 2025[22] - Tangible book value per share increased to $1994 at June 30, 2025, from $1969 at March 31, 2025[22] Balance Sheet - Total assets reached $1049 billion as of June 30, 2025[9] - Total loans amounted to $7287 billion as of June 30, 2025[9] - Total deposits were $8674 billion as of June 30, 2025[9] - Noninterest-bearing deposits constituted 3671% of total deposits as of June 30, 2025[9, 13] Loan Portfolio - Total loans reached $7287347 thousand in Q2 2025, slightly up from $7283133 thousand in Q1 2025[32] - Commercial Real Estate (CRE) loans, including multifamily, comprised $3840981 thousand of the total loan portfolio in Q2 2025[32]
Stellar Bancorp(STEL) - 2025 Q2 - Quarterly Results
2025-07-25 11:02
[Q2 2025 Earnings Overview](index=1&type=section&id=Q2%202025%20Earnings%20Overview) Stellar Bancorp reported strong Q2 2025 results with increased net income and positive CEO commentary on growth and market share [Overall Performance](index=1&type=section&id=Overall%20Performance) Stellar Bancorp reported increased net income and diluted EPS for Q2 2025 compared to Q1 2025, indicating solid profitability and growth efforts Net Income and Diluted EPS (QoQ) | Metric | Q2 2025 | Q1 2025 | Change | Percentage Change | | :-------------------- | :------ | :------ | :----- | :---------------- | | Net Income | $26.4 million | $24.7 million | +$1.7 million | +6.88% | | Diluted EPS | $0.51 | $0.46 | +$0.05 | +10.87% | [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Robert R. Franklin, Jr. expressed satisfaction with Q2 results, highlighting progress in originations, anticipated loan and deposit growth, and market share gains in Texas, partly driven by potential tailwinds from the President's spending bill - Management is pleased with Q2 results, reflecting growth efforts at Stellar Bank[4](index=4&type=chunk) - Bankers made meaningful progress on originations, expecting continued loan and deposit growth for the remainder of the year[5](index=5&type=chunk) - Anticipates tailwinds for the Houston economy from the President's spending bill and expects to gain market share in vibrant Texas markets[6](index=6&type=chunk) [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) Stellar Bancorp demonstrated strong profitability, stable capital, and improved asset quality in Q2 2025, alongside share repurchase activity [Profitability Metrics](index=1&type=section&id=Profitability%20Metrics) Stellar Bancorp demonstrated solid profitability in Q2 2025, with improvements in key return metrics compared to the previous quarter Q2 2025 Profitability Metrics (Annualized) | Metric | Q2 2025 | Q1 2025 | Change | | :------------------------------- | :------ | :------ | :----- | | Net Income | $26.4 million | $24.7 million | +$1.7 million | | Diluted EPS | $0.51 | $0.46 | +$0.05 | | Return on Average Assets (ROAA) | 1.01% | 0.94% | +0.07% | | Return on Average Equity (ROAE) | 6.62% | 6.21% | +0.41% | | Return on Average Tangible Equity| 12.16% | 11.48% | +0.68% | [Net Interest Margin](index=1&type=section&id=Net%20Interest%20Margin) The tax equivalent net interest margin slightly decreased in Q2 2025, primarily due to increased rates on interest-bearing liabilities and a decrease in average interest-earning assets, partially offset by higher loan rates Net Interest Income and Margin (QoQ) | Metric | Q2 2025 | Q1 2025 | Change | | :----------------------------------------- | :----------- | :----------- | :----------- | | Net Interest Income | $98.3 million | $99.3 million | -$0.9 million | | Tax Equivalent Net Interest Margin | 4.18% | 4.20% | -0.02% | | Tax Equivalent Net Interest Margin (excl. PAA) | 3.95% | 3.97% | -0.02% | - Net interest income benefited from **$5.3 million** of income from Purchase Accounting Accretion (PAA) in Q2 2025, slightly down from **$5.4 million** in Q1 2025[8](index=8&type=chunk) [Capital Position and Book Value](index=1&type=section&id=Capital%20Position%20and%20Book%20Value) Stellar Bancorp maintained a strong capital position, with increases in total risk-based capital ratio and book values per share at the end of Q2 2025 Capital and Book Value Metrics (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :------------------------- | :------------ | :------------- | :----- | | Total Risk-Based Capital Ratio | 15.98% | 15.97% | +0.01% | | Book Value Per Share | $31.20 | $30.89 | +$0.31 | | Tangible Book Value Per Share | $19.94 | $19.69 | +$0.25 | [Asset Quality and Charge-offs](index=1&type=section&id=Asset%20Quality%20and%20Charge-offs) The company reported low net charge-offs and manageable asset quality for the six months ended June 30, 2025 Net Charge-offs (Six Months Ended) | Metric | June 30, 2025 | June 30, 2024 | Change | | :----------------------------------- | :------------ | :------------ | :----- | | Net Charge-offs | $370 thousand | $713 thousand | -$343 thousand | | Net Charge-offs (% of average loans) | 0.01% | 0.02% | -0.01% | [Share Repurchase Activity](index=1&type=section&id=Share%20Repurchase%20Activity) Stellar Bancorp repurchased a significant number of shares during the second quarter of 2025 Share Repurchase Activity (Q2 2025) | Metric | Q2 2025 | | :----------------------------------- | :------ | | Shares Repurchased | 791 thousand | | Weighted Average Price Per Share | $26.08 | [Financial Condition Analysis](index=2&type=section&id=Financial%20Condition%20Analysis) Stellar Bancorp's balance sheet showed growth in assets and deposits, with a slight increase in the loan portfolio during Q2 2025 [Balance Sheet Overview](index=2&type=section&id=Balance%20Sheet%20Overview) Total assets increased in Q2 2025, primarily driven by growth in Federal Reserve Bank stock, cash, and securities, funded largely by core deposit growth Total Assets (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :---------- | :------------ | :------------- | :----------- | | Total Assets| $10.49 billion| $10.43 billion | +$58.1 million | - Increase in total assets was largely due to an increase in Federal Reserve Bank stock, cash, and securities, funded by core deposit growth[12](index=12&type=chunk) [Loan Portfolio Trends](index=2&type=section&id=Loan%20Portfolio%20Trends) Total loans saw a slight increase in Q2 2025, with a remaining balance of purchase accounting accretion on loans Total Loans (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :---------- | :------------ | :------------- | :----------- | | Total Loans | $7.29 billion | $7.28 billion | +$4.2 million | - The remaining balance of purchase accounting accretion (PAA) on loans was **$62.9 million** at June 30, 2025[13](index=13&type=chunk) [Deposit Trends](index=2&type=section&id=Deposit%20Trends) Total deposits increased in Q2 2025, driven by growth in demand, money market, and savings deposits, partially offset by a reduction in certificates and other time deposits, mainly due to brokered deposits Total Deposits (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :------------ | :------------ | :------------- | :------------ | | Total Deposits| $8.67 billion | $8.56 billion | +$110.9 million | - Increases in demand and money market and savings deposits were partially offset by decreases in certificates and other time and noninterest-bearing deposits[14](index=14&type=chunk) - Certificates and other time deposits decreased primarily due to the reduction in brokered deposits[14](index=14&type=chunk) [Asset Quality Analysis](index=2&type=section&id=Asset%20Quality%20Analysis) Stellar Bancorp showed improved asset quality in Q2 2025, with reduced nonperforming assets and stable, low net charge-offs [Nonperforming Assets](index=2&type=section&id=Nonperforming%20Assets) Nonperforming assets decreased in Q2 2025, both in absolute terms and as a percentage of total assets, indicating an improvement in asset quality Nonperforming Assets (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :--------------------------- | :------------ | :------------- | :----------- | | Nonperforming Assets | $58.2 million | $59.7 million | -$1.5 million | | Nonperforming Assets (% of Total Assets) | 0.55% | 0.57% | -0.02% | [Credit Loss Provision and Net Charge-offs](index=2&type=section&id=Credit%20Loss%20Provision%20and%20Net%20Charge-offs) The provision for credit losses significantly decreased in Q2 2025, while net charge-offs remained low and stable Credit Loss Provision and Net Charge-offs (QoQ) | Metric | Q2 2025 | Q1 2025 | Change | | :----------------------------------- | :------------ | :------------ | :------------ | | Provision for Credit Losses | $1.1 million | $3.6 million | -$2.5 million | | Net Charge-offs | $206 thousand | $163 thousand | +$43 thousand | | Net Charge-offs (% of average loans) | 0.01% | 0.01% | 0.00% | Allowance for Credit Losses on Loans (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :----------------------------------- | :------------ | :------------- | :----- | | Allowance for Credit Losses on Loans (% of Total Loans) | 1.14% | 1.15% | -0.01% | [Detailed Financial Statements](index=5&type=section&id=Detailed%20Financial%20Statements) Detailed financial statements show Q2 2025 balance sheet growth, improved income, and shifts in average balances and asset quality ratios [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheet shows an increase in total assets and deposits from Q1 to Q2 2025, with a slight decrease in total shareholders' equity Key Balance Sheet Items (QoQ) | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Total Assets | $10,493,010 | $10,434,887 | +$58,123 | | Total Loans held for investment | $7,287,347 | $7,283,133 | +$4,214 | | Total Deposits | $8,673,614 | $8,562,713 | +$110,901 | | Total Liabilities | $8,889,176 | $8,824,055 | +$65,121 | | Total Shareholders' Equity | $1,603,834 | $1,610,832 | -$6,998 | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) The income statement reflects a slight increase in net interest income and a decrease in noninterest expense, contributing to higher net income in Q2 2025 compared to Q1 2025 Key Income Statement Items (QoQ) | Metric (in thousands) | Q2 2025 | Q1 2025 | Change | | :--------------------------- | :----------- | :----------- | :----------- | | Total Interest Income | $142,699 | $142,320 | +$379 | | Total Interest Expense | $44,364 | $43,062 | +$1,302 | | Net Interest Income | $98,335 | $99,258 | -$923 | | Provision for credit losses | $1,090 | $3,632 | -$2,542 | | Total Noninterest Income | $5,791 | $5,505 | +$286 | | Total Noninterest Expense | $70,004 | $70,166 | -$162 | | Income Before Income Taxes | $33,032 | $30,965 | +$2,067 | | Net Income | $26,352 | $24,702 | +$1,650 | [Average Balances and Rates (Interest-Earning Assets & Liabilities)](index=9&type=section&id=Average%20Balances%20and%20Rates) Average interest-earning assets decreased slightly from Q1 to Q2 2025, while the average yield on these assets increased. The cost of funds and deposits also increased, impacting the net interest margin Average Interest-Earning Assets and Yields (QoQ) | Metric | Q2 2025 (in thousands) | Q1 2025 (in thousands) | Change (in thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :-------------------- | | Average Loans | $7,282,609 | $7,344,298 | -$61,689 | | Average Securities | $1,729,384 | $1,817,286 | -$87,902 | | Total Average Interest-Earning Assets| $9,448,589 | $9,592,205 | -$143,616 | | Average Yield on Loans | 6.71% | 6.66% | +0.05% | | Average Yield on Total Interest-Earning Assets | 6.06% | 6.02% | +0.04% | Average Interest-Bearing Liabilities and Rates (QoQ) | Metric | Q2 2025 (in thousands) | Q1 2025 (in thousands) | Change (in thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :-------------------- | | Average Interest-Bearing Demand Deposits | $1,952,004 | $1,911,625 | +$40,379 | | Average Money Market and Savings Deposits | $2,371,221 | $2,234,571 | +$136,650 | | Average Certificates and Other Time Deposits | $1,201,903 | $1,296,972 | -$95,069 | | Total Average Interest-Bearing Liabilities | $5,629,706 | $5,559,084 | +$70,622 | | Cost of Funds | 2.02% | 1.96% | +0.06% | | Cost of Deposits | 1.97% | 1.90% | +0.07% | [Period-End Loan Portfolio and Deposits](index=11&type=section&id=Period-End%20Loan%20Portfolio%20and%20Deposits) The loan portfolio composition remained relatively stable, with commercial real estate being the largest segment. Total deposits increased, driven by interest-bearing demand and money market/savings deposits Period-End Loan Portfolio (QoQ, in thousands) | Loan Category | June 30, 2025 | March 31, 2025 | Change | | :------------------------------------------ | :------------ | :------------- | :----- | | Commercial and industrial | $1,346,744 | $1,362,266 | -$15,522 | | Commercial real estate (incl. multi-family) | $3,840,981 | $3,854,607 | -$13,626 | | Commercial real estate construction and land development | $762,911 | $721,488 | +$41,423 | | 1-4 family residential (incl. home equity) | $1,126,523 | $1,125,837 | +$686 | | Residential construction | $137,855 | $141,283 | -$3,428 | | Consumer and other | $72,333 | $77,652 | -$5,319 | | Total loans held for investment | $7,287,347 | $7,283,133 | +$4,214 | Period-End Deposits (QoQ, in thousands) | Deposit Type | June 30, 2025 | March 31, 2025 | Change | | :----------------------- | :------------ | :------------- | :----- | | Noninterest-bearing | $3,183,693 | $3,205,619 | -$21,926 | | Interest-bearing Demand | $1,941,156 | $1,863,752 | +$77,404 | | Money market and savings | $2,393,767 | $2,248,616 | +$145,151 | | Certificates and other time | $1,154,998 | $1,244,726 | -$89,728 | | Total deposits | $8,673,614 | $8,562,713 | +$110,901 | [Asset Quality Ratios](index=11&type=section&id=Asset%20Quality%20Ratios) Asset quality ratios showed improvement, with nonperforming assets and loans decreasing, and coverage by the allowance for credit losses remaining strong Asset Quality Ratios (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :------------------------------------------- | :------------ | :------------- | :----- | | Nonperforming assets to total assets | 0.55% | 0.57% | -0.02% | | Nonperforming loans to total loans | 0.69% | 0.75% | -0.06% | | Allowance for credit losses on loans to nonperforming loans | 164.67% | 153.61% | +11.06% | | Allowance for credit losses on loans to total loans | 1.14% | 1.15% | -0.01% | | Net charge-offs to average loans (annualized)| 0.01% | 0.01% | 0.00% | [Non-GAAP Financial Measures Reconciliation](index=12&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) Management utilizes non-GAAP financial measures for performance evaluation, providing detailed reconciliations to GAAP results for investor transparency [Management's Explanation](index=12&type=section&id=Management's%20Explanation) Stellar's management uses non-GAAP financial measures to evaluate performance, providing supplemental information for investors and internal planning. These measures should be considered alongside GAAP results - Stellar's management uses non-GAAP financial measures (e.g., pre-tax, pre-provision income, tangible book value per share, return on average tangible equity, efficiency ratio, net interest margin excluding PAA) for performance evaluation, planning, and forecasting[42](index=42&type=chunk) - These non-GAAP measures are intended to provide meaningful supplemental information and should not be considered in isolation or as a substitute for GAAP measures[42](index=42&type=chunk) [Reconciliation Tables](index=12&type=section&id=Reconciliation%20Tables) Detailed reconciliations are provided for key non-GAAP financial measures, including pre-tax, pre-provision income, tangible book value per share, return on average tangible equity, tangible equity to tangible assets, net interest margin (tax equivalent) excluding PAA, and the efficiency ratio Pre-tax, Pre-provision Income Reconciliation (QoQ, in thousands) | Metric (in thousands) | Q2 2025 | Q1 2025 | Change | | :--------------------------- | :----------- | :----------- | :----------- | | Net Income | $26,352 | $24,702 | +$1,650 | | Add: Provision for credit losses | $1,090 | $3,632 | -$2,542 | | Add: Provision for income taxes | $6,680 | $6,263 | +$417 | | Pre-tax, pre-provision income| $34,122 | $34,597 | -$475 | Tangible Book Value Per Share Reconciliation (QoQ) | Metric | June 30, 2025 | March 31, 2025 | Change | | :--------------------------- | :------------ | :------------- | :----- | | Total Shareholders' Equity (in thousands) | $1,603,834 | $1,610,832 | -$6,998 | | Less: Goodwill and core deposit intangibles, net (in thousands) | $578,786 | $584,325 | -$5,539 | | Tangible Shareholders' Equity (in thousands) | $1,025,048 | $1,026,507 | -$1,459 | | Shares outstanding at end of period (in thousands) | 51,398 | 52,141 | -743 | | Tangible Book Value Per Share| $19.94 | $19.69 | +$0.25 | Net Interest Margin (Tax Equivalent) Excluding PAA Reconciliation (QoQ) | Metric | Q2 2025 | Q1 2025 | Change | | :--------------------------- | :----------- | :----------- | :----- | | Net interest income (tax equivalent) (in thousands) | $98,427 | $99,353 | -$926 | | Less: Purchase accounting accretion (in thousands) | $5,344 | $5,397 | -$53 | | Adjusted net interest income (tax equivalent) (in thousands) | $93,083 | $93,956 | -$873 | | Net interest margin (tax equivalent) excluding PAA | 3.95% | 3.97% | -0.02% | [Company Information](index=4&type=section&id=Company%20Information) Stellar Bancorp, a Houston-based bank holding company, provides commercial banking services across Texas, with its report including necessary forward-looking statements [About Stellar Bancorp, Inc.](index=4&type=section&id=About%20Stellar%20Bancorp,%20Inc.) Stellar Bancorp, Inc. is a Houston-based bank holding company, with its principal subsidiary, Stellar Bank, offering commercial banking services to businesses and individuals across key Texas markets - Stellar Bancorp, Inc. is a bank holding company headquartered in Houston, Texas[21](index=21&type=chunk) - Its principal banking subsidiary, Stellar Bank, provides diversified commercial banking services to small- to medium-sized businesses and individual customers[21](index=21&type=chunk) - Services are offered across Houston, Dallas, Beaumont, and surrounding communities in Texas[21](index=21&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements regarding future financial performance, strategies, and economic trends, which are subject to various risks and uncertainties, and the company disclaims any obligation to update them - Statements in the press release that are not historical facts are identified as 'forward-looking statements' under safe harbor provisions[22](index=22&type=chunk) - These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors that may cause actual results to differ materially[23](index=23&type=chunk) - Factors include changes in interest rates, economic conditions, competitive environment, asset quality, regulatory actions, and technological changes[23](index=23&type=chunk) - The company disclaims any obligation to update or revise forward-looking statements, except as required by federal securities laws[24](index=24&type=chunk) [Conference Call Details](index=2&type=section&id=Conference%20Call%20Details) Stellar Bancorp's management team will host a conference call and webcast on July 25, 2025, to discuss the Q2 2025 results, with registration and access details provided - A conference call and webcast will be hosted on Friday, July 25, 2025, at 8:00 a.m. Central Time (9:00 a.m. Eastern Time)[18](index=18&type=chunk) - Participants can register via a provided link to receive dial-in numbers and a unique PIN, or access a simultaneous webcast[18](index=18&type=chunk) - An archived webcast will be available on the Investor Relations section of the Company's website[18](index=18&type=chunk)
Stellar Bancorp(STEL) - 2025 Q1 - Earnings Call Presentation
2025-04-25 20:50
Financial Performance - Net income for Q1 2025 was $24.7 million, resulting in diluted earnings per share of $0.46[22] - The tax equivalent net interest margin for Q1 2025 was 4.20%[13, 22] - Excluding purchase accounting adjustments (PAA), the net interest margin was 3.97% for Q1 2025[13, 22] - The total capital ratio (to risk-weighted assets) was 15.94% as of March 31, 2025[9, 13, 22] - Tangible book value per share increased to $19.69 as of March 31, 2025[19, 22] Balance Sheet - Total assets were $10.43 billion as of March 31, 2025[9] - Total loans amounted to $7.28 billion as of March 31, 2025[9, 30] - Total deposits reached $8.56 billion as of March 31, 2025[9, 26] - Noninterest-bearing deposits constituted 37.4% of total deposits as of March 31, 2025[9, 13, 24] Loan Portfolio - Commercial and Industrial (C&I) loans totaled $1.36 billion in Q1 2025[30] - Total Commercial Real Estate loans were $3.85 billion in Q1 2025[30] - 1-4 Family Residential loans amounted to $1.13 billion in Q1 2025[30] Houston Market - Stellar has $8.6 billion in deposits in the Houston region[15, 50] - Stellar ranked 6th in deposit market share for the Houston region[13]
Stellar Bancorp(STEL) - 2025 Q1 - Quarterly Report
2025-04-25 20:47
Financial Performance - Net income for the three months ended March 31, 2025, was $24.7 million, or $0.46 per diluted share, compared to $26.1 million, or $0.49 per diluted share for the same period in 2024, reflecting a decrease in net income [124]. - The decrease in net income was primarily due to a $2.9 million decrease in net interest income and a $791 thousand decrease in noninterest income [124]. - Noninterest expense decreased by $1.2 million and the provision for income taxes decreased by $496 thousand, partially offsetting the declines in income [124]. - Annualized returns on average assets, average equity, and efficiency ratios were 0.94%, 6.21%, and 61.93% for the three months ended March 31, 2025, compared to 0.98%, 6.88%, and 60.42% for the same period in 2024 [125]. - Net interest income before provision for credit losses decreased by $2.9 million, or 2.8%, to $99.3 million for the three months ended March 31, 2025, from $102.1 million in 2024 [126]. - Interest income was $142.3 million for the three months ended March 31, 2025, a decrease of $6.1 million, or 4.1%, compared to $148.4 million for the same period in 2024 [127]. - Interest expense decreased by $3.2 million, or 7.0%, to $43.1 million for the three months ended March 31, 2025, from $46.3 million in 2024 [128]. - Tax equivalent net interest margin was 4.20% for the three months ended March 31, 2025, a decrease of 6 basis points from 4.26% in 2024 [129]. - Noninterest income totaled $5.5 million for the three months ended March 31, 2025, a decrease of $791 thousand, or 12.6%, from $6.3 million in 2024 [138]. - Noninterest expense was $70.2 million for the three months ended March 31, 2025, a decrease of $1.2 million, or 1.7%, compared to $71.4 million in 2024 [140]. Credit Quality - The allowance for credit losses is based on estimates of expected losses in performing loans, with a 5% increase in historical loss rates potentially increasing funded reserves by $1.6 million [118]. - A 5% increase in qualitative risk factors across all segments could increase funded reserves by $2.8 million, while an overall increase in estimated loss rates by 5% would have a $3.5 million impact [118]. - Provision for credit losses was $3.6 million for the three months ended March 31, 2025, down from $4.1 million in 2024 [136]. - The provision for credit losses on loans for the first quarter of 2025 was $2.9 million, compared to $5.3 million for the same period in 2024, indicating a decrease of 46.5% [165]. - Nonperforming assets totaled $59.7 million, or 0.57% of total assets, at March 31, 2025, compared to $38.9 million, or 0.36%, at December 31, 2024 [160]. - As of March 31, 2025, total nonaccrual loans increased to $54.5 million from $37.2 million as of December 31, 2024, representing a 46.5% increase [161]. - The allowance for credit losses on loans was $83.7 million, or 1.15% of total loans, up from $81.1 million, or 1.09% of total loans, as of December 31, 2024 [164]. - Nonperforming loans to total loans ratio increased to 0.75% from 0.50% [161]. - The allowance for credit losses on loans to nonperforming loans ratio was 153.61% as of March 31, 2025, down from 168.54% [165]. - Total nonperforming assets rose to $59.7 million, up from $38.9 million, marking a 53.4% increase [161]. Loans and Deposits - Average loans decreased to $7.34 billion for the three months ended March 31, 2025, from $7.94 billion in 2024 [131]. - Total loans decreased by $156.7 million, or 2.1%, to $7.28 billion as of March 31, 2025, compared to $7.44 billion as of December 31, 2024 [147]. - Commercial real estate loans comprised 52.9% of the loan portfolio as of March 31, 2025, with a total amount of $3.85 billion, a decrease of $13.6 million, or 0.4%, from December 31, 2024 [149]. - Commercial real estate construction and land development loans decreased by $124 million, or 14.7%, to $721.5 million as of March 31, 2025, compared to $845.5 million as of December 31, 2024 [153]. - The consumer and other loan portfolio decreased by $12.8 million, or 14.1%, to $77.7 million as of March 31, 2025, from $90.4 million as of December 31, 2024 [157]. - Total deposits as of March 31, 2025, were $8.56 billion, a decrease of $565.7 million, or 6.2%, from $9.13 billion at December 31, 2024 [177]. - Noninterest-bearing deposits decreased by $370.6 million, or 10.4%, to $3.21 billion as of March 31, 2025 [177]. - Interest-bearing deposits decreased by $195.1 million, or 3.5%, to $5.36 billion as of March 31, 2025 [177]. - Average total deposits decreased by $28.6 million, or 0.3%, and average loans decreased by $594.5 million, or 7.5%, for the three months ended March 31, 2025 compared to the same period in 2024 [190]. Asset Management - The carrying amount of investment securities increased to $1.72 billion, a rise of $46.4 million, or 2.8%, from $1.67 billion as of December 31, 2024 [168]. - The yield on the securities portfolio increased to 3.78% for the three months ended March 31, 2025, from 2.82% in 2024 [127]. - The average yield of the securities portfolio increased to 3.78% for the three months ended March 31, 2025, compared to 2.82% for the same period in 2024 [173]. - The securities portfolio had a weighted average life of 7.3 years as of March 31, 2025 [190]. Compliance and Risk Management - The company is subject to various risks including economic disruptions, changes in interest rates, and asset quality deterioration, which could materially affect future results [105]. - Goodwill is subject to impairment testing at least annually, with potential impairment losses recognized if fair value is less than carrying value [121]. - The company has evaluated recent accounting pronouncements that may require enhanced disclosures in future financial statements [123]. - The Company maintained compliance with all debt covenants under the Loan Agreement as of March 31, 2025 [187]. - Interest rate risk simulation indicated a potential decrease in net interest income of 8.7% under a +300 basis points scenario as of March 31, 2025 [207]. - The Asset Liability Committee (ALCO) regularly reviews the sensitivity of assets and liabilities to interest rate changes [204]. Capital and Borrowing - Total shareholders' equity was $1.61 billion as of March 31, 2025, with a net income of $24.7 million during the three months ended March 31, 2025 [199]. - The total capital ratio to risk-weighted assets was 15.94%, significantly above the minimum required ratio of 8.0% as of March 31, 2025 [200]. - The Company had a total borrowing capacity of $3.04 billion, with $1.72 billion available under the Federal Home Loan Bank agreement as of March 31, 2025 [179]. - The Company had $120.0 million of FHLB short-term advances outstanding at a weighted-average rate of 4.75% as of March 31, 2025 [179]. - The Company issued $60.0 million of Fixed-to-Floating Rate Subordinated Notes due October 1, 2029, bearing interest at a floating rate equal to 3-Month SOFR plus 3.13% [184]. - The Company had outstanding commitments to extend credit of $1.81 billion as of March 31, 2025 [193]. - Total immediate contingent funding sources were $4.80 billion, or 56.0% of total deposits, as of March 31, 2025 [191]. - Estimated uninsured deposits net of collateralized deposits were 45.5% of total deposits at March 31, 2025 [191].
Stellar Bancorp(STEL) - 2025 Q1 - Earnings Call Transcript
2025-04-25 18:33
Financial Data and Key Metrics Changes - Stellar Bancorp reported a net income of $24.7 million or $0.46 per diluted share for Q1 2025, with an annualized return on average assets of 94 basis points and an annualized return on average tangible common equity of 11.48% [8][10] - The net interest income for the quarter was $99.3 million, down from $103 million in the previous quarter, resulting in a net interest margin of 4.2% compared to 4.25% in Q4 2024 [12][10] - Noninterest expenses decreased to $70.2 million from $75.3 million in the previous quarter, reflecting effective cost management [15][10] - The total risk-based capital ratio was 15.94% at the end of Q1 2025, slightly down from 16% at the end of Q4 2024 [16] Business Line Data and Key Metrics Changes - The company experienced a reduction in loans during the quarter, with payoffs estimated between $275 million to $300 million [31][70] - Core net interest margin excluding purchase accounting accretion improved to 3.97% from 3.94% in the prior quarter [12][10] - Noninterest income increased to $5.5 million from $5 million in the previous quarter, benefiting from small gains on asset sales [14] Market Data and Key Metrics Changes - The company noted a competitive market for deposits, with a focus on acquiring new accounts, achieving a significant number of new accounts onboarded in Q1 2025 [38][39] - Approximately 40% of new accounts were from customers who were not previously with the bank, indicating successful market penetration [38] Company Strategy and Development Direction - The management emphasized a cautious approach to growth due to economic uncertainty, with expectations for growth to materialize in the latter half of 2025 [7][11] - The company plans to utilize its strong capital position for share repurchases while remaining open to growth opportunities through M&A in the future [19][50] - The focus remains on building a strong foundation and optimizing capital management to benefit shareholders [6][20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty introduced by new tariff policies but remains optimistic about customer acquisition and pipeline growth [4][5][7] - The management expressed confidence in returning to a reasonable level of growth later in the year, despite current challenges [11][20] Other Important Information - The company repurchased 1.4 million shares at an average price of $27.99 per share during the first quarter, with a new share repurchase program authorized for up to $65 million [18][19] - Tangible book value per share increased by 14.3% year-over-year, from $17.23 to $19.69 [17] Q&A Session Summary Question: What is the current sentiment from clients regarding loan growth? - Management indicated cautious optimism about potential growth, noting that the pipeline is trending positively despite economic uncertainty [24][25][30] Question: Can you elaborate on the competitive landscape for deposits? - Management highlighted intense competition in the market but noted success in onboarding new accounts, particularly from new customers [35][38] Question: What are the expectations for loan paydowns and growth in the coming quarters? - Management expects payoffs to remain around $275 to $300 million per quarter, with growth anticipated in the second half of the year as the pipeline builds [70][69] Question: How is the company managing expenses moving forward? - Management expressed a commitment to managing expenses while also investing in growth, indicating that the first quarter's performance was better than planned [78][79]
Stellar Bancorp (STEL) Q1 Earnings: How Key Metrics Compare to Wall Street Estimates
ZACKS· 2025-04-25 14:35
Core Insights - Stellar Bancorp reported a revenue of $104.76 million for the quarter ended March 2025, reflecting a decrease of 3.4% year-over-year [1] - The earnings per share (EPS) for the quarter was $0.46, down from $0.49 in the same quarter last year, with a surprise of +4.55% compared to the consensus estimate of $0.44 [1] Financial Performance - The reported revenue was slightly below the Zacks Consensus Estimate of $105.47 million, resulting in a surprise of -0.67% [1] - The net interest margin (tax equivalent) stood at 4.2%, matching the average estimate from analysts [4] - The efficiency ratio was reported at 61.9%, significantly better than the average estimate of 68.9% [4] - Total nonperforming loans amounted to $54.52 million, exceeding the average estimate of $37.63 million [4] - Average balance of total interest-earning assets was $9.59 billion, slightly above the average estimate of $9.58 billion [4] - Net charge-offs to average loans (annualized) were reported at 0%, better than the average estimate of 0.2% [4] - Total nonperforming assets reached $59.67 million, higher than the average estimate of $38.46 million [4] - Net interest income was reported at $99.26 million, slightly below the average estimate of $100.17 million [4] - Total non-interest income was $5.51 million, surpassing the average estimate of $5.31 million [4] Stock Performance - Stellar Bancorp's shares have returned -3.4% over the past month, compared to a -4.8% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]
Stellar Bancorp(STEL) - 2025 Q1 - Earnings Call Transcript
2025-04-25 14:02
Financial Data and Key Metrics Changes - The company reported a net income of $24.7 million or $0.46 per diluted share for Q1 2025, with an annualized return on average assets of 94 basis points and an annualized return on average tangible common equity of 11.48% [10] - Net interest income decreased to $99.3 million from $103 million in the previous quarter, resulting in a net interest margin of 4.2%, down from 4.25% [11][12] - Non-interest expenses decreased to $70.2 million from $75.3 million in the previous quarter, reflecting a reduction of $5.1 million [13] Business Line Data and Key Metrics Changes - The company experienced a provision for loan losses of $3.6 million, with minimal net charge-offs of $163,000, increasing the allowance for credit losses on loans to $83.7 million, or 1.15% of loans [13] - Non-interest income increased to $5.5 million from $5 million in the previous quarter, benefiting from small gains on asset sales [13] Market Data and Key Metrics Changes - The company noted a competitive market for deposits, with a focus on new account origination, onboarding more accounts in both number and dollar amount compared to the previous quarter [31][32] - The company maintained a strong proportion of non-interest bearing deposits, representing over 37% of the deposit base, and achieved a 14 basis point improvement in the cost of funds [12] Company Strategy and Development Direction - The company aims to build a strong foundation for growth, focusing on customer acquisition and managing capital to benefit shareholders through share repurchases [7][8] - The management expressed a cautious approach to growth due to economic uncertainty, anticipating growth to be pushed to the latter half of the year [9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged economic uncertainty introduced by the administration but remains optimistic about opportunities for new customer acquisition and growth in the second half of the year [7][9] - The management emphasized a disciplined approach to credit monitoring in light of new tariff policies affecting customers [7] Other Important Information - The company repurchased 1.4 million shares at a weighted average price of $27.99 per share during the first quarter, with a new share repurchase program authorized for up to $65 million through May 2026 [15] - Year-over-year tangible book value per share increased by 14.3% from $17.23 to $19.69, after accounting for dividends and share repurchases [14] Q&A Session Summary Question: Client sentiment and loan pipeline trends - Management noted a cautious optimism regarding loan growth, with a focus on reconfiguring the loan book to reduce reliance on smaller real estate loans [22][23] - The loan originations in Q1 were solid, supporting a positive outlook for the pipeline and deal flow [26] Question: Competitive deposit market - Management highlighted the intense competition in the deposit market, with successful onboarding of new accounts and a low level of closed accounts [30][31] Question: Credit migration and concerns - Management reported migration in non-accruals primarily in owner-occupied commercial real estate, but did not attribute it to tariffs, indicating a cautious approach to new credits [35][36] Question: Capital management and buyback strategy - Management discussed the ongoing evaluation of capital use, including potential debt redemption and the flexibility to pursue M&A opportunities [44][46] Question: Expense trends and outlook - Management cautioned against annualizing the first quarter's expenses, indicating a focus on managing costs while investing in growth [68]