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, compared to $26.4 million or $0.51 per share in Q2 2025, reflecting an annualized ROAA of 0.97% and an annualized ROATCE of 11.45% [9] - Net interest income increased to $100.6 million from $98.3 million in the previous quarter, with a net interest margin of 4.2% compared to 4.18% in Q2 2025 [10] - The total risk-based capital ratio improved to 16.33% at the end of Q3 2025 from 15.98% at the end of Q2 2025, and tangible book value per share increased by 9.3% year-over-year [13] Business Line Data and Key Metrics Changes - The provision for loan losses was $305,000 in Q3 2025, with net charge-offs totaling $3.3 million, primarily from previously identified credits [11] - Non-interest income decreased to $5 million from $5.8 million in the previous quarter, mainly due to write-downs on foreclosed assets [12] - Non-interest expenses rose to $73.1 million from $70 million in Q2 2025, driven by increased salaries and benefits, including severance expenses related to branch closures [12] Market Data and Key Metrics Changes - The company experienced strong deposit growth, with 51% of new deposits coming from new customers, reflecting improved brand awareness and customer satisfaction [32] - The company reported a significant increase in loan originations, up 62% year-to-date compared to the same period last year, although Q3 originations were lower than Q2 [22] Company Strategy and Development Direction - The company aims to enhance shareholder value through disciplined capital deployment, focusing on building quality assets and maintaining strong credit quality [8] - The management emphasized the importance of maintaining a competitive edge in a dynamic market, particularly in Texas, where M&A activity is increasing [13][67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of credit trends and the overall market, despite some concerns in the industry [7][29] - The company plans to continue optimizing expenses and managing its balance sheet effectively to support growth and maintain financial flexibility [45] Other Important Information - The company repurchased shares and paid down $30 million of subordinated debt after the quarter-end, reinforcing its capital position [8] - The management noted that Q3 expenses were considered an outlier and expected a return to a more typical expense level in Q4 2025 [12][44] Q&A Session Summary Question: What is driving the payoffs and paydowns, and what is the growth outlook? - Payoffs in the last quarter were about $50 million more than the previous quarter, with 44% related to collateral sales and 25% due to refinancing elsewhere. The company remains optimistic about future growth due to a healthy pipeline [20][22] Question: What are the current credit concerns and management's approach? - Management stated that they conduct stress testing and monitor portfolios closely, emphasizing a shift towards more stable C&I credits while maintaining a strong real estate loan portfolio [26][28] Question: What are the drivers behind the strong deposit growth? - The company reported that 51% of new deposits were from new customers, reflecting successful market share gains and improved customer satisfaction [31][32] Question: What are the expectations for seasonal deposit strength in Q4? - The company noted historical seasonal strength in government banking deposits, but it is difficult to predict exact amounts for the upcoming quarter [39][41] Question: What is the outlook for loan growth and M&A activity? - Management indicated that loan growth is expected to manifest in the second half of the year, with ongoing conversations about potential M&A opportunities while being cautious about maintaining a strong balance sheet [65][67]