Stellar Bancorp, Inc. Reports Third Quarter 2025 Financial Results
Stellar Bancorp, Inc. a leading community-focused financial institution, today announced its financial results for the third quarter of 2025, reporting net income of $25.7 million, or diluted earnings per share of $0.50. This represents a slight decrease compared to the prior quarter, which recorded net income of $26.4 million, or $0.51 per diluted share. Despite this marginal decline, Stellar demonstrated continued stability in its core operations, with notable gains in net interest income, tangible book value, and deposit growth.
Robert R. Franklin, Jr., Chief Executive Officer of Stellar Bancorp, highlighted the company’s overall strong performance. “We are pleased to report robust third-quarter results for 2025, underpinned by improved net interest income and net interest margin. In addition, we observed growth in deposits and tangible book value, further reinforcing our balance sheet and positioning the Company for continued success in the quarters ahead,” Mr. Franklin stated.
Strategic Portfolio Management and Loan Composition
During the third quarter, Stellar Bancorp focused on strategically repositioning its loan portfolio to optimize risk-adjusted returns. The bank continued to reduce exposure to non-relationship real estate commitments, while emphasizing a more balanced mix of commercial and industrial (C&I) loans alongside real estate lending. According to Mr. Franklin, “Our real estate portfolio remains well within regulatory guidelines, and we intend to maintain compliance as a core priority. Although loan payoffs continued during the quarter, our ongoing portfolio repositioning is expected to moderate this activity over the long term, supporting more stable earnings growth.”
Credit quality remained solid throughout the quarter, reflecting both strong underwriting standards and favorable economic conditions in the Texas markets where Stellar operates. Mr. Franklin noted, “The Texas markets we serve continue to perform well, and Stellar Bancorp is increasingly recognized as a locally-managed bank that provides meaningful support to small and medium-sized businesses. We are confident in our ability to deepen customer relationships and deliver long-term shareholder value, even amidst potential disruption from merger activity in our markets.”
Third Quarter 2025 Financial Highlights
Stellar Bancorp’s third-quarter performance was highlighted by several key financial metrics:
- Net Interest Margin: The tax-equivalent net interest margin (NIM) improved slightly to 4.20% in the third quarter of 2025, up from 4.18% in the second quarter. Excluding purchase accounting accretion (PAA), the tax-equivalent NIM was 4.00%, reflecting a modest increase from 3.95% in the previous quarter. The growth in NIM was driven primarily by increased yields on securities and deposits at other financial institutions, combined with higher average balances in the bank’s securities portfolio.
- Profitability: Net income for the quarter was $25.7 million, translating to diluted earnings per share of $0.50. On an annualized basis, this represents a return on average assets (ROAA) of 0.97%, a return on average equity (ROAE) of 6.30%, and a return on average tangible equity (ROATE) of 11.45%. These metrics underscore Stellar’s continued focus on balancing profitability with prudent risk management.
- Capital Strength and Book Value Growth: Stellar Bancorp’s total risk-based capital ratio increased to 16.33% at September 30, 2025, compared to 15.98% at June 30, reflecting the company’s commitment to maintaining a robust capital base. Book value per share rose to $32.27, up from $31.20 in the prior quarter, while tangible book value per share increased to $21.08, compared to $19.94, demonstrating continued value creation for shareholders.
- Subordinated Debt Paydown: On October 1, 2025, the company completed a previously announced redemption of $30 million of its $60 million in outstanding subordinated debt, further strengthening its balance sheet and improving capital flexibility.
Detailed Financial Performance
- Net Interest Income: For the third quarter, net interest income rose $2.3 million, or 2.3%, to $100.6 million, compared to $98.3 million in the prior quarter. The increase was primarily attributed to higher yields on securities and deposits, as well as an overall increase in average securities balances. Net interest income benefited from $4.8 million in income from PAA, compared with $5.3 million in the second quarter. Excluding PAA, the adjusted tax-equivalent net interest income would have been $95.9 million, with an adjusted NIM of 4.00%.
- Noninterest Income: Noninterest income totaled $5.0 million for the third quarter, reflecting a decrease of $805,000, or 13.9%, from the second quarter’s $5.8 million. The decline was primarily driven by losses on sales and write-downs of foreclosed assets, partially offset by steady fee income from other banking operations.
- Noninterest Expense: Noninterest expense increased $3.1 million, or 4.5%, to $73.1 million from $70.0 million in the second quarter. The increase was largely due to higher salaries and employee benefits, which rose by $2.2 million, professional fees of $314,000, and advertising expenses totaling an additional $258,000. Salaries and benefits included $464,000 in severance related to planned branch closures, reflecting the bank’s strategic effort to optimize operational efficiency.
- Efficiency Ratio: Stellar’s efficiency ratio for the third quarter was 63.69%, up slightly from 61.87% in the second quarter. This ratio reflects the bank’s disciplined approach to cost management while investing in strategic initiatives to support long-term growth.
Balance Sheet Overview
Total assets at September 30, 2025, were $10.63 billion, an increase of $135 million from $10.49 billion at June 30. This growth was driven primarily by an increase in interest-bearing deposits at other financial institutions and securities holdings, which were funded by core deposit growth. Total loans decreased $119.5 million, ending the quarter at $7.17 billion, down from $7.29 billion in the previous quarter, reflecting ongoing loan payoffs. The remaining balance of PAA on loans was $58.1 million at the end of the quarter.
Total deposits rose $143.8 million to $8.82 billion, driven by growth in money market and savings accounts. This increase in core deposits reflects continued customer confidence in Stellar’s locally-managed banking model.
Asset Quality and Credit Metrics
Stellar Bancorp continued to maintain strong asset quality metrics. Nonperforming assets totaled $54.2 million, or 0.51% of total assets, a decrease from $58.2 million, or 0.55% of total assets, in the prior quarter. The allowance for credit losses as a percentage of total loans declined slightly to 1.10% from 1.14%, reflecting prudent credit risk management practices.
The provision for credit losses in the third quarter was $305,000, compared to $1.1 million in the prior quarter. Net charge-offs were $3.3 million, or 0.18% annualized of average loans, up from $206,000, or 0.01% annualized, in the second quarter. The increase in charge-offs primarily reflects the timing of loan maturities and payoffs, rather than a deterioration in overall credit quality.
Non-GAAP Financial Measures
Stellar Bancorp’s management utilizes certain non-GAAP financial measures, such as tangible book value per share, adjusted net interest income, and efficiency ratios, to evaluate operational performance and financial strength. A detailed reconciliation of these non-GAAP measures to their respective GAAP metrics is provided in the company’s earnings release. These metrics offer insight into core operational trends and the underlying profitability of the business.
