Stellar Bancorp(US:STEL)2025-10-24 14:00Financial Data and Key Metrics Changes - The company reported a net income of $25.7 million or $0.50 per diluted share for Q3 2025, a slight decrease from $26.4 million or $0.51 per diluted share in Q2 2025, reflecting an annualized ROA of 0.97% and an annualized ROATCE of 11.45% [6][11] - Net interest income increased to $100.6 million in Q3 2025 from $98.3 million in Q2 2025, driven by higher earning assets and a net interest margin of 4.2%, up from 4.18% in the previous quarter [6][7] - The allowance for credit losses on loans decreased to $78.9 million or 1.1% of loans, down from $83.2 million or 1.14% at the end of Q2 2025 [9] Business Line Data and Key Metrics Changes - Non-interest income decreased to $5 million in Q3 2025 from $5.8 million in Q2 2025, primarily due to write-downs on foreclosed assets [10] - Non-interest expenses increased to $73.1 million from $70 million in the previous quarter, attributed to higher salaries and benefits, including severance expenses related to branch closures [10] Market Data and Key Metrics Changes - The company experienced strong deposit growth, with 51% of new deposits coming from new customers, indicating a successful strategy in expanding market share [24] - The total risk-based capital ratio improved to 16.33% at the end of Q3 2025, compared to 15.98% at the end of Q2 2025 [11] Company Strategy and Development Direction - The company aims to enhance shareholder value through disciplined asset building, protecting margins, and focusing on full client relationships [5] - The management emphasized the importance of maintaining a strong balance sheet to support quality growth and to be opportunistic in the current competitive landscape [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in credit quality, noting that charge-offs were primarily from small credits that were already identified and reserved for [4] - The company anticipates continued loan origination growth, with a healthy pipeline and a year-to-date increase of 62% in loan originations compared to the previous year [18] Other Important Information - The company repurchased shares and paid down $30 million of subordinated debt after the quarter ended, reinforcing its capital position [5] - The tangible book value per share increased by 9.3% year-over-year, from $19.28 to $21.08 [11] Q&A Session Summary Question: What is driving the payoffs and paydowns? - Payoffs were about $50 million more than the previous quarter, with 44% related to collateral sales and 25% to refinancing elsewhere [16][17] Question: What are the current credit concerns? - Management stated that stress testing and portfolio monitoring are in place, and they are cautious about the mix of C&I credits while maintaining a focus on real estate loans [19][20] Question: What are the drivers behind deposit growth? - The growth was driven by new accounts, with 51% of new deposits from new customers, reflecting brand awareness and customer satisfaction improvements [24] Question: What are the expectations for loan growth and payoffs? - Management expects a lift from advances exceeding paydowns, with a healthy pipeline and loan originations anticipated to continue growing [44][46] Question: What is the company's approach to M&A? - The company is cautious about M&A, focusing on finding partners that align with their funding structure and protecting their balance sheet [48]