• Net Income: $24.7 million or $0.46 per diluted share.
• Return on Average Assets: 94 basis points annualized.
• Return on Average Tangible Common Equity: 11.48% annualized.
• Net Interest Income: $99.3 million, down from $103 million in the previous quarter.
• Net Interest Margin: 4.2%, compared to 4.25% in the fourth quarter of 2024.
• Purchase Accounting Accretion: $5.4 million, down from $7.6 million in the previous quarter.
• Provision for Loan Losses: $3.6 million.
• Allowance for Credit Losses on Loans: $83.7 million or 1.15% of loans.
• Noninterest Income: $5.5 million, up from $5 million in the previous quarter.
• Noninterest Expense: $70.2 million, down from $75.3 million in the previous quarter.
• Total Risk-Based Capital: 15.94% at the end of the first quarter.
• Tangible Book Value Per Share: Increased 14.3% year over year to $19.69 per share.
• Share Repurchases: 1.4 million shares at an average price of $27.99 per share during the first quarter.
• New Share Repurchase Program: Authorized up to $65 million in shares through May 2026.

• Warning! GuruFocus has detected 2 Warning Sign with STEL.

Release Date: April 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stellar Bancorp Inc (NYSE:STEL) reported a first-quarter net income of $24.7 million, translating to $0.46 per diluted share.
• The company executed meaningful share repurchases, buying back 1.4 million shares at an average price of $27.99 per share, demonstrating strong capital management.
• Noninterest expenses decreased by $5.1 million to $70.2 million, reflecting effective cost management.
• The company maintained a strong proportion of noninterest-bearing deposits, representing over 37% of the deposit base.
• Stellar Bancorp Inc (NYSE:STEL) achieved a 14.3% year-over-year increase in tangible book value per share, reaching $19.69.

Negative Points

• Net interest income decreased to $99.3 million from $103 million in the previous quarter, impacted by lower purchase accounting accretion and fewer days to earn interest.
• The balance sheet shrunk due to seasonal outflows of government banking deposits and cash balances.
• The company booked a provision for loan losses of $3.6 million, indicating potential credit risk concerns.
• Economic uncertainty and new tariff policies introduce challenges, potentially impacting customer sentiment and loan growth.
• The intensely competitive deposit market poses challenges for core deposit growth and optimizing funding costs.

Q & A Highlights

Q: Could you discuss the current sentiment among your clients and how the loan pipeline is trending, considering the economic uncertainty? A: Robert Franklin, CEO, explained that the company is focused on reconfiguring its loan portfolio to resemble that of a larger bank, moving away from reliance on smaller real estate loans. Ramon Vitulli, President, added that loan originations have been strong, with a positive pipeline indicating potential growth in the second half of the year. The company is seeing elevated payoffs but expects growth as new originations fund.

Q: Can you elaborate on the competitive landscape for deposits and your strategy for core deposit growth? A: Ramon Vitulli noted that the market is intensely competitive, but Stellar Bancorp has been successful in onboarding new accounts, with a significant portion being new customers. Paul Egge, CFO, emphasized that the company does not lead with price but focuses on maintaining a strong mix of noninterest-bearing deposits.

Q: What are you observing in terms of credit quality, especially with the recent migration in nonaccruals? A: Joe West, Chief Credit Officer, stated that the migration was primarily in owner-occupied CRE due to management issues, not tariffs. The company maintains a strong focus on primary cash flow sources and has not adjusted underwriting standards due to current economic conditions.

Q: How is Stellar Bancorp approaching capital management, particularly regarding share buybacks and potential debt redemption? A: Robert Franklin mentioned that the company continues to build capital and is considering retiring some subordinated debt. While M&A remains a possibility, the focus is on organic growth and capital optimization through share buybacks, which are seen as tax-efficient.

Q: What is the outlook for net interest margin (NIM) and deposit costs? A: Paul Egge highlighted that the company aims to achieve a core NIM with a 4% handle, excluding purchase accounting adjustments. While deposit costs have improved, further reductions will be challenging, and the focus remains on optimizing the deposit mix.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.