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Stellar Bancorp, Inc. (STEL)·Q1 2025 Earnings Summary

Executive Summary

  • STEL delivered solid profitability but mixed top line in Q1 2025: diluted EPS of $0.46 and ROAA of 0.94%, while tax-equivalent NIM slipped 5 bps q/q to 4.20% (ex-PAA ticked up 3 bps to 3.97%) . Against S&P Global consensus, EPS beat but revenue missed, creating a “quality vs headline” narrative for the quarter (see Estimates Context) [Values retrieved from S&P Global]*.
  • Management emphasized capital return and discipline: repurchased 1.4M shares at $27.99 in Q1 and another 679K post-quarter; new $65M buyback authorized through May 31, 2026, supporting EPS accretion and downside support for shares .
  • Balance sheet contracted sequentially (assets -$471M; deposits -$566M), largely on seasonal outflows of government deposits and lower brokered balances, while noninterest-bearing deposits remained healthy at 37.4% (supportive for funding costs) .
  • Credit normalized: NPLs rose to 0.75% of loans (from 0.50%) on owner-occupied CRE issues; ACL rose to 1.15% of loans with provision of $3.6M, but net charge-offs remained de minimis at 0.01% annualized—manageable directionally .
  • Outlook: Management expects growth to be second-half weighted as pipelines convert; targets a “4 handle” on core NIM (ex-PAA) while maintaining expense discipline and capital flexibility—key potential stock catalysts alongside the active buyback .

What Went Well and What Went Wrong

  • What Went Well
    • EPS quality and margin core: core NIM (ex-PAA) improved to 3.97% from 3.94% q/q despite a 90-day quarter; cost of funds fell 14 bps to 1.96% and cost of deposits fell 12 bps to 1.90% .
    • Capital return and book value accretion: TBVPS rose to $19.69 from $19.05; new $65M repurchase authorization supports continued capital optimization .
    • Deposit franchise resilience: 37.4% noninterest-bearing deposits; management reiterated success acquiring new accounts without leading on price—favorable for long-run funding costs .
    • Quote: “We are seeing our pipelines build… as interest rates begin to stabilize… we expect most of our growth to come in the second half of the year” — CEO Robert Franklin .
  • What Went Wrong
    • Headline revenue softness and balance sheet contraction: assets -$471M and deposits -$566M q/q on seasonal government outflows and lower brokered deposits; loans -$157M q/q as CRE paydowns remained elevated .
    • Credit uptick: NPLs to loans rose to 0.75% from 0.50% q/q, driven by owner-occupied CRE; provision increased to $3.6M from $0.9M, though NCOs were minimal .
    • Competitive deposit market persists, limiting near-term funding cost relief; management does not expect the same sequential improvement in Q2 as in Q1 .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Diluted EPS ($)$0.63 $0.52 $0.46
Net Income ($MM)$33.9 $27.8 $24.7
Net Interest Income ($MM)$101.5 $103.0 $99.3
Noninterest Income ($MM)$6.3 $5.0 $5.5
NIM (tax-equivalent)4.19% 4.25% 4.20%
NIM (tax-equivalent) ex-PAA3.91% 3.94% 3.97%
Efficiency Ratio66.18% 66.59% 61.93%
ROAA (annualized)1.27% 1.04% 0.94%
ROAE (annualized)8.49% 6.85% 6.21%
Total Assets ($B)$10.63 $10.91 $10.43
Loans HFI ($B)$7.55 $7.44 $7.28
Deposits ($B)$8.74 $9.13 $8.56

  • KPIs and Balance Sheet Mix

    • Deposit mix: Noninterest-bearing 37.8% (Q3), 39.2% (Q4), 37.4% (Q1); Q1 cost of deposits 1.90%, cost of funds 1.96%, L/D 85.1%; brokered deposits down to $365.1MM from $481.8MM .
    • Credit metrics: NPLs/Loans 0.43% (Q3), 0.50% (Q4), 0.75% (Q1); NPAs/Assets 0.33%, 0.36%, 0.57%; ACL/Loans 1.12%, 1.09%, 1.15%; NCOs (annualized) 0.21%, 0.11%, 0.01% .
    • Capital: Total risk-based capital 15.91% (Q3), 16.06% (Q4), 15.94% (Q1); TBVPS $19.28, $19.10, $19.69 .

  • Loan Portfolio Composition ($MM) | Category | Q4 2024 | Q1 2025 | |---|---:|---:| | Commercial & Industrial | 1,362.3 | 1,362.3 | | CRE (incl. Multifamily) | 3,868.2 | 3,854.6 | | CRE Construction & Development | 845.5 | 721.5 | | 1–4 Family Residential | 1,115.5 | 1,125.8 | | Residential Construction | 158.0 | 141.3 | | Consumer & Other | 90.4 | 77.7 | | Total Loans | 7,439.9 | 7,283.1 |

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/CommentaryChange
Core NIM (ex-PAA)2025No formal targetAim to regain a “4 handle” over time; cautious given uncertainty Qualitative upward bias
Loan Growth2025Implied return to growth; 2H skew suggested previouslyGrowth expected to be second-half weighted; pipelines building; payoffs ~$275–$300MM/quarter Maintained 2H skew
Operating Expenses2025Prior commentary around ~$295MM for FY (management reference)Q1 beat helped by timing; mgmt “likes chances” to beat prior guidance but cautions on annualizing Slight positive bias
Capital ActionsThrough 5/31/2026N/ANew $65MM repurchase authorization New program
DividendQuarterly$0.14 per share (raised in Q4)$0.14 in Q1 2025 Maintained

Note: No formal quantified revenue/EPS outlook was provided; commentary emphasized funding mix, disciplined credit, and second-half loan growth cadence .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Net Interest Margin (core)NIM TE ex-PAA improved to 3.91% in Q3; to 3.94% in Q4 3.97% in Q1; goal to reach “4 handle” ex-PAA Improving
Deposits & CompetitionCompetitive market; NIB ~38–39% NIB 37.4%; strong new account wins without price leadership Stable franchise resilience
Credit QualityNPLs fell in Q3; stable in Q4 at 0.50% NPLs up to 0.75%, owner-occupied CRE issues; provision up Normalizing higher
Capital & BuybacksCapital build continued; small Q3 repurchases Aggressive repurchases in Q1; new $65MM authorization More active
Loan Growth MixCRE reduction focus post-merger Loan growth 2H-weighted; payoffs $275–$300MM/quarter; originations trending better Re-acceleration later
Macro/PolicyElection uncertainty (Q3); deposit competition Monitoring tariff impacts; cautious underwriting Elevated uncertainty

Management Commentary

  • “We are seeing our pipelines build… as interest rates begin to stabilize… we expect most of our growth to come in the second half of the year” — CEO Robert R. Franklin, Jr. .
  • “Core net interest margin progress… ex-PAA was 3.97%, up from 3.94%... drivers included strong NIB mix (over 37%), 14 bps lower cost of funds, and higher securities yields” — CFO Paul Egge .
  • “We took advantage of our strong capital position to return capital… buying back 1.4 million shares… and a new $65 million program” — CFO Paul Egge .

Q&A Highlights

  • Loan growth cadence: Originations improving; expect growth to overcome paydowns ($275–$300MM/quarter) in 2H 2025 as carried balances turn positive .
  • Deposits: Intense competition persists; strong new account openings with ~40% new-to-bank and reduced closures, without leading on price .
  • Credit: NPL migration in owner-occupied CRE tied to management issues, not tariffs; continued focus on primary cash flow and disciplined underwriting .
  • Capital strategy: Considering potential sub debt retirement; balancing buybacks vs. refinancing/M&A optionality; prefer buybacks for tax efficiency .
  • Margin outlook: Core NIM ex-PAA at 3.97%; each incremental bp is a “win” with aspiration to reach a 4-handle, but management prefers to under-promise .
  • Pricing: New originations ~7.29% and renewals ~7.48% in Q1; ~50/50 fixed vs. variable on new production .
  • Expenses: Q1 expense beat partly timing-related (~50%); management likes chances of beating prior full-year expense commentary but cautions on annualizing .

Estimates Context

MetricQ3 2024Q4 2024Q1 2025
EPS Consensus Mean*0.4860.4900.442
EPS Actual*0.6300.5200.460
Revenue Consensus Mean ($MM)*106.0107.5105.7
Revenue Actual ($MM)*113.8107.0101.1
  • Q1 2025 vs. consensus: EPS beat (+$0.02), Revenue miss (~-$4.5M). Q4 2024: EPS beat, Revenue slight miss. Q3 2024: EPS and Revenue beats [GetEstimates].
  • Values marked with an asterisk (*) are retrieved from S&P Global.

Key Takeaways for Investors

  • Core profitability intact: EPS beat alongside sequential core NIM (ex-PAA) improvement, supported by favorable deposit mix and lower funding costs—constructive for multiple support if sustained .
  • Near-term headline risk: Revenue miss versus S&P consensus and q/q balance sheet contraction could pressure optics; watch seasonal deposit normalization in Q2 and pipeline conversion in 2H [Values retrieved from S&P Global]*.
  • Credit watchlist manageable: Owner-occupied CRE drove higher NPLs, but NCOs remain very low and reserves increased; continued monitoring warranted but risk appears contained near term .
  • Capital deployment is a catalyst: A fresh $65MM buyback and active repurchases drive EPS accretion and downside valuation support while preserving M&A optionality .
  • Margin path: Management aims for a “4 handle” on core NIM; additional progress likely gradual given competition—focus on mix optimization and funding discipline .
  • Expense discipline: Q1 expense beat had timing benefits but underscores operating leverage potential if 2H growth materializes; track external professional fees pace and reinvestment .
  • 2H setup: Converting a growing pipeline amid stabilizing rates and disciplined credit remains the core narrative for re-acceleration into H2, with deposit stability and pricing on new/renewals supportive for core NIM .

Appendix: Source Citations

  • Q1 2025 8-K Earnings Release and Presentation: .
  • Q1 2025 Earnings Call Transcript: .
  • Q4 2024 8-K: .
  • Q3 2024 8-K: .
  • Estimates (S&P Global): GetEstimates tables above. Values marked with an asterisk (*) are retrieved from S&P Global.