Contradictory Signals: Analyzing Stellar Bank's Q1 2025 Earnings Call on Loans, Deposits, and Capital Strategy

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Capital Management and Share Repurchases:
- Stellar Bancorp repurchased 1.4 million shares in Q1 2025 at a weighted average price of $27.99 per share, and an additional 679,000 shares at a weighted average price of $25.83 since the end of Q1.
- The new share repurchase program allows for the repurchase of up to $65 million in shares through May 2026. This strategy reflects the company's strong capital position and willingness to optimize capital allocation through buybacks.

Loan Growth and Pipeline:
- Loan originations in the first quarter were at a weighted average rate of 7.29% for new loans and 7.48% for renewed loans.
- The company is cautious about loan growth due to economic uncertainties but remains optimistic about their pipeline, with significant commercial real estate paydowns and new customer acquisition opportunities, which are expected to support growth in the second half of the year.

Net Interest Margin and Deposit Cost Optimization:
- Stellar Bancorp reported a net interest margin of 4.2% in Q1 2025, with a net interest income of $99.3 million, down from $103 million in the previous quarter.
- The decline is attributed to lower purchase accounting accretion and fewer days to earn interest. The company continues to optimize its deposit mix, with noninterest-bearing deposits representing over 37% of the deposit base, improving their cost of funds.

Regulatory Capital and Credit Quality:
- The company maintained strong regulatory capital ratios, with total risk-based capital at 15.94% at the end of Q1 2025.
- The allowance for credit losses on loans increased to $83.7 million or 1.15% of loans, indicating continued disciplined credit management despite slight increases in nonaccruals, primarily in owner-occupied CRE segments.