Sign in

You're signed outSign in or to get full access.

SB

Stellar Bancorp, Inc. (STEL)·Q2 2025 Earnings Summary

Executive Summary

  • EPS of $0.51 beat S&P Global consensus of $0.446, driven by lower provision, disciplined opex, and modest noninterest income uplift; total revenue of $103.0M missed consensus $104.9M as higher funding costs and slightly lower average earning assets compressed NIM sequentially . EPS consensus and revenue consensus values marked with * (Values retrieved from S&P Global).
  • NIM (tax-equivalent) of 4.18% (ex-PAA 3.95%) dipped 2 bps QoQ; cost of deposits rose to 1.97% (vs. 1.90% in Q1), with competitive money market pricing partially offset by brokers and reduced wholesale reliance .
  • Originations nearly doubled QoQ (~$640M), supporting a return to organic loan growth in 2H 2025; deposits grew $111M QoQ with core mix improvement (MMDA & savings up, time down) and brokered deposits reduced to $163.2M .
  • Credit remained benign: NPL ratio improved to 0.69% (from 0.75% QoQ), ACL/loans at 1.14%; provision fell to $1.1M and annualized NCOs remained ~0.01% .
  • Capital and buybacks provide support: total capital ratio 15.98%; 791k shares repurchased at $26.08, while tangible book per share rose to $19.94 .

What Went Well and What Went Wrong

What Went Well

  • “New loan originations nearly doubled in the second quarter… highest level since 2022, and we believe it marks the return to organic growth” — CEO .
  • Core deposit growth and mix: total deposits +$110.9M QoQ; MMDA & savings +$145.2M; brokered CDs reduced by ~$202M QoQ to $163.2M .
  • Expense discipline and credit: noninterest expense essentially flat at ~$70.0M; provision down to $1.1M; NPL ratio improved and NCOs remained minimal .

What Went Wrong

  • Revenue miss vs consensus: S&P Global consensus $104.9M* vs actual $103.0M*; modest NIM compression (4.18% vs 4.20%) as higher funding costs outweighed earning asset yields . EPS and revenue values marked with * (Values retrieved from S&P Global).
  • Noninterest-bearing deposits ratio slipped to 36.71% (from 37.44%), and cost of funds rose to 2.02% QoQ amid competitive money market pricing .
  • NPL level remains above prior-year Q2 (0.69% vs 0.66%), with office CRE continuing to warrant monitoring despite granular exposure and maturity dispersion .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Net Interest Income ($USD Millions)$101.41 $99.26 $98.33
Noninterest Income ($USD Millions)$5.42 $5.51 $5.79
Diluted EPS ($USD)$0.56 $0.46 $0.51
NIM (Tax-Equivalent, %)4.24% 4.20% 4.18%
NIM ex-PAA (Tax-Equivalent, %)3.82% 3.97% 3.95%
Efficiency Ratio (%)60.81% 61.93% 61.87%
ROAA (Annualized, %)1.13% 0.94% 1.01%
Provision for Credit Losses ($USD Millions)$(1.94) $3.63 $1.09
Deposit Composition and CostsQ1 2025Q2 2025
Total Deposits ($USD Billions)$8.56 $8.67
Noninterest-Bearing (% of total)37.44% 36.71%
Cost of Deposits (%)1.90% 1.97%
Cost of Funds (%)1.96% 2.02%
Brokered Deposits ($USD Millions)$365.1 $163.2
Loans and Asset QualityQ2 2024Q1 2025Q2 2025
Total Loans ($USD Billions)$7.71 $7.28 $7.29
NPLs ($USD Millions)$50.91 $54.52 $50.51
NPLs / Loans (%)0.66% 0.75% 0.69%
NPAs / Assets (%)0.50% 0.57% 0.55%
ACL on Loans ($USD Millions)$94.77 $83.75 $83.17
ACL / Loans (%)1.23% 1.15% 1.14%
Net Charge-offs to Avg Loans (Annualized, %)0.00% 0.01% 0.01%
CapitalQ2 2024Q1 2025Q2 2025
Total Capital Ratio (Consolidated, %)15.30% 15.97% 15.98%
CET1 Ratio (Consolidated, %)12.95% 14.05% 14.06%
Tier 1 Leverage (Consolidated, %)10.77% 11.20% 11.44%
Tangible Book Value/Share ($)$18.00 $19.69 $19.94
Estimate Comparison (Q2 2025)ConsensusActualSurprise
EPS (Primary/Diluted, $)0.446*0.51+14.4%*
Revenue ($USD Millions)104.92*103.04*(1.8)%*
Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core NIM (tax-equivalent) ex-PAAMedium-termAim to “get a 4% handle” Reaffirmed 4% goal; normalization of yield curve (Fed cuts) would benefit margin medium term Maintained
Loan GrowthFY 2025 / 2HReturn to growth in 2H, mid-single-digit longer term Originations nearly doubled (~$640M); expect loan/deposit growth remainder of year Maintained with stronger pipelines
Noninterest ExpenseFY 2025~$295M for 2025 with focus on holding the line “Hold the line” but invest opportunistically; opex essentially flat QoQ Maintained
Capital DeploymentOngoingEvaluate debt redemption, buybacks; flexibility 791k shares repurchased in Q2; continue evaluating sub debt redemption Active execution
Dividend per ShareQuarterlyRaised to $0.14 in Q4’24 $0.14 in Q2’25 Maintained

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Margin outlook & rate pathNeutral positioning; defend margin; upward-sloping curve favored Core NIM ex-PAA +3 bps to 3.97%; target 4% handle NIM 4.18% (ex-PAA 3.95%); Fed cuts/curve normalization supportive medium term Incremental improvement, defend core
Loan originations & payoffsMomentum building into 2025 Payoffs ~$275–$300M/quarter; H2 growth expected Originations doubled ($640M); slight loan growth QoQ; H2 acceleration Positive inflection
Deposits & funding mix39% NIB at YE; seasonal government inflows Competitive market; strong new account openings; cost improvements Core deposit growth; cost of deposits up; reduced wholesale/brokered Core focus with competitive pressure
Capital & buybacksRedeemed $40M bank-level sub debt; evaluating buybacks New $65M buyback authorization; active repurchases 791k shares repurchased; consider sub debt redemption Shareholder-friendly, flexible
Credit qualityStrong credit; normalized expectations in ‘25 Owner-occupied CRE migration; cautious underwriting NPL ratio improved; provision down; NCOs minimal Stable/benign

Management Commentary

  • “Our pipeline is healthy… new loan originations nearly doubling in the second quarter… we believe it marks the return to organic growth.” — CEO .
  • “We are positioned to deliver positive operating leverage… and maintain a really strong balance sheet.” — CFO .
  • “Second quarter margin… impacted by higher funding costs more than offsetting higher yields on earning assets… two basis point change versus the first quarter.” — CFO .
  • “Second quarter benefited from Federal Reserve Bank dividends as a result of Stellar Bank becoming a member of the Federal Reserve System effective in April 2025.” — CFO .

Q&A Highlights

  • Growth setup: Originations ~$640M; bar for net growth is to exceed payoffs and lift carried balances as unfunded commitments convert; expect H2 acceleration .
  • Funding strategy: Reduced reliance on FHLB and brokered CDs; focus on core funding to defend margin amid competitive money market pricing .
  • Expense posture: “Hold the line” to preserve optionality; opportunistic talent investments; back-office build post $10B threshold largely complete .
  • Capital allocation: Buybacks price-sensitive; optionality to redeem additional sub debt considered; organic growth is primary use of capital .
  • Securities/balance sheet: Maintain bonds roughly steady as % of assets; priority on loan growth while keeping liquid balance sheet .

Estimates Context

  • EPS: Actual $0.51 vs S&P Global consensus $0.446* — bold beat driven by lower provision ($1.1M vs $3.6M in Q1), disciplined opex, and modest other income uplift from Fed dividends ($0.49M) . EPS consensus value marked with * (Values retrieved from S&P Global).
  • Revenue: Actual $103.0M* vs S&P Global consensus $104.9M* — miss attributable to higher deposit and funding costs that modestly compressed NIM and slightly lower average earning assets . Revenue values marked with * (Values retrieved from S&P Global).
  • Implication: Street may need to adjust FY margin and funding cost assumptions modestly higher, while EPS trajectory benefits from expense discipline and credit costs trending low.

Key Takeaways for Investors

  • EPS beat with resilient NIM and tight credit costs; monitor funding mix as money market competition lifts deposit costs — near-term margin defense remains key .
  • H2 2025 growth catalyst: originations doubled and pipelines improving; watch conversion of unfunded commitments and carried balances for acceleration .
  • Capital deployment offers downside support: buybacks and potential sub debt redemption alongside strong CET1/Tier 1 leverage; tangible book compounding continues .
  • Credit benign but keep an eye on office CRE; maturities well-laddered and nonowner/owner split diversified; NPL ratio has improved QoQ .
  • Revenue miss underscores sensitivity to funding costs; any curve normalization or Fed cuts should structurally aid margins medium-term — CFO reiterated path to 4% core NIM ex-PAA .
  • Deposit gathering remains a differentiator: strong net new accounts and core growth without leading on price; continued brokered reduction is margin-accretive over time .
  • Tactical setup: Favor buy-on-weakness near funding-cost headlines; reassess into Q3/Q4 for confirmation of loan growth and margin trajectory with ongoing buyback support .