STEL

Key Points

• Bob Franklin noted solid results with increased net interest income and margin, balance sheet expansion via deposit growth, and credit quality with some charge-offs but appropriate reserves. They repurchased shares and paid down subordinated debt.
• Paul Egge detailed net income, net interest income and margin improvements, provision for loan losses, noninterest income/expense trends, strong capital position, and strategic differentiation amidst Texas M&A disruption. Mentioned year-to-date tangible book value per share increase and focus on growing the company while maintaining financial flexibility.

Forward-Looking Statements

• Expect fourth quarter expenses to be closer to the run rate of the first half of the year. Focus on lowering deposit costs, defending and potentially improving the margin excluding purchase accounting accretion. Intend to be opportunistic with deploying liquidity in loans and securities as part of growing the loan portfolio and the bank.

In the third quarter of 2025, Stellar Bancorp reported net income of $25.7 million or $0.50 per diluted share. Net interest income was $100.6 million, an increase from $98.3 million in the second quarter, with a net interest margin of 4.2% compared to 4.18% in Q2. Excluding purchase accounting accretion, net interest income was $95.9 million, and the margin was 4%. Noninterest income was $5 million in Q3 vs. $5.8 million in Q2. Noninterest expense rose to $73.1 million from $70 million in Q2. Total risk-based capital was 16.33% at the end of Q3, up from 15.98% in Q2. Tangible book value per share increased 9.3% from $19.28 to $21.08 per share.

Risks

• Competition in the Texas market with increasing out-of-state competitors. M&A disruption in Texas. Potential impact of Fed easing on margin dynamics. Credit risks related to new players with different pricing and covenant packages.

Q: Start on the growth side, asking about drivers of payoffs and pay downs, growth outlook in Texas market.

A: Ramon Vitulli said payoffs were $330 million in Q3, with 44% related to sale of collateral/business and 25% competitive refinance. Loan originations up 62% year-to-date, pipeline healthy. Bob Franklin mentioned focus on low-cost deposits and growing the loan portfolio despite market turmoil.

Q: Touching on credit front, concerns in industry, approach to credit management.

A: Paul Egge said they manage credit through front door originations, do stress testing, portfolio mix shifted to lower loan-to-deposit ratio, focus on C&I and real estate loans in growing markets.

Q: Deposit side growth drivers, plans for excess liquidity.

A: Ramon Vitulli said 51% of new deposits in Q3 were to new customers, focus on low-cost deposits. Robert Franklin said they intend to deploy excess liquidity in loans and securities to grow the bank.

Q: Seasonal deposit strength in Q4, expense ratio outlier.

A: Paul Egge said government banking deposits have seasonal strength but hard to predict, Q3 expenses were an outlier, expect Q4 expenses closer to first half run rate. Focus on optimizing expenses and holding the line.

Q: Margin discussion, Fed easing impact, deposit cost management.

A: Paul Egge said focused on lowering deposit costs via exception pricing, initial repricing dynamics and security/loan repricing trends help defend margin. Intend to manage deposit costs through nuanced approach.

Q: Loan growth, expectation of payoff pressure easing, M&A thoughts.

A: Ramon Vitulli said loan originations up 62%, pipeline healthy, may get lift from loan originations. Robert Franklin said continue conversations on M&A, protective of balance sheet and funding base.