Stellar Bancorp's Q2 2025: Navigating Contradictions in Loan Growth, Deposit Costs, and Cost Management

Loan growth and origination outlook, deposit costs and funding strategy, loan growth strategy and funding costs, expenses and cost management, deposit growth and strategy are the key contradictions discussed in Stellar Bancorp's latest 2025Q2 earnings call.



Loan Growth and Origination:
- Stellar Bank's loan volume stabilized in Q2, with new loan originations nearly doubling from the previous quarter, reaching the highest level since 2022.
- This growth was driven by the bank's business development efforts, a healthy pipeline, and strong support from the resilient Texas marketplace.

Net Income and Margin Performance:
- The bank reported Q2 net income of $26.4 million or $0.51 per diluted share, up from the previous quarter, with an annualized ROAA of 1.01% and ROATCE of 12.16%.
- The increase in net income was attributed to non-interest expense management and low credit costs, despite a slight decrease in net interest income due to lower earning assets and slightly lower net interest margin.

Capital and Liquidity Position:
- Stellar Bancorp ended the second quarter with total risk-based capital at 15.98% and tangible book value per share increasing by 10.8% year-over-year.
- The strong capital position is a result of internal capital generation and strategic management of non-interest expenses, providing financial flexibility for opportunistic investments.

Deposit Growth and Funding Strategy:
- The bank experienced deposit growth, which contributed to the increase in loans. The strategy involved expanding the existing customer base and strategically reducing reliance on wholesale funds.
- The shift in funding composition towards lower-cost alternatives and a focus on core deposits positioned the bank to defend and improve its top-tier margin profile.

M&A Opportunities and Share Repurchases:
- The bank is open to strategic opportunities for growth, including M&A discussions with potential partners, while maintaining a disciplined approach to pricing.
- Stellar Bancorp continued share repurchases, purchasing 791,000 shares at a weighted average price of $26.08 per share, as part of its capital deployment strategy.