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Stellar Bancorp(STEL) - 2025 Q2 - Quarterly Results
Stellar BancorpStellar Bancorp(US:STEL)2025-07-25 11:02

Q2 2025 Earnings Overview Stellar Bancorp reported strong Q2 2025 results with increased net income and positive CEO commentary on growth and market share Overall Performance 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 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 Bank4 - Bankers made meaningful progress on originations, expecting continued loan and deposit growth for the remainder of the year5 - Anticipates tailwinds for the Houston economy from the President's spending bill and expects to gain market share in vibrant Texas markets6 Key Financial Highlights Stellar Bancorp demonstrated strong profitability, stable capital, and improved asset quality in Q2 2025, alongside share repurchase activity Profitability Metrics 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 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 20258 Capital Position and Book Value 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 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 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 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 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 growth12 Loan Portfolio Trends 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, 202513 Deposit Trends 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 deposits14 - Certificates and other time deposits decreased primarily due to the reduction in brokered deposits14 Asset Quality Analysis Stellar Bancorp showed improved asset quality in Q2 2025, with reduced nonperforming assets and stable, low net charge-offs Nonperforming Assets 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 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 Detailed financial statements show Q2 2025 balance sheet growth, improved income, and shifts in average balances and asset quality ratios Consolidated Balance Sheets 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 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) 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 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 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 Management utilizes non-GAAP financial measures for performance evaluation, providing detailed reconciliations to GAAP results for investor transparency Management's Explanation 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 forecasting42 - These non-GAAP measures are intended to provide meaningful supplemental information and should not be considered in isolation or as a substitute for GAAP measures42 Reconciliation Tables 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 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. 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, Texas21 - Its principal banking subsidiary, Stellar Bank, provides diversified commercial banking services to small- to medium-sized businesses and individual customers21 - Services are offered across Houston, Dallas, Beaumont, and surrounding communities in Texas21 Forward-Looking Statements 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 provisions22 - These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors that may cause actual results to differ materially23 - Factors include changes in interest rates, economic conditions, competitive environment, asset quality, regulatory actions, and technological changes23 - The company disclaims any obligation to update or revise forward-looking statements, except as required by federal securities laws24 Conference Call Details 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 - Participants can register via a provided link to receive dial-in numbers and a unique PIN, or access a simultaneous webcast18 - An archived webcast will be available on the Investor Relations section of the Company's website18