Stellar Bancorp's Q3 Net Income Plunges 24% Amid Loan & Deposit Declines

TL;DR

**STEL's Q3 earnings are a red flag, with net income down 24% and shrinking deposits – time to re-evaluate your position.**

AI Summary

Stellar Bancorp, Inc. reported a net income of $25.67 million for the three months ended September 30, 2025, a significant decrease from $33.89 million in the same period of 2024, representing a 24.3% decline. For the nine months ended September 30, 2025, net income was $76.72 million, down from $89.79 million in 2024, a 14.5% reduction. Total interest income decreased to $145.41 million for the three months ended September 30, 2025, from $151.78 million in 2024, while total interest expense also decreased to $44.77 million from $50.27 million. Net interest income saw a slight decline to $100.64 million from $101.51 million year-over-year for the quarter. The company recorded a provision for credit losses of $0.31 million for the quarter, a notable shift from a reversal of $5.99 million in the prior year. Loans held for investment decreased to $7.17 billion as of September 30, 2025, from $7.44 billion at December 31, 2024. Total deposits also declined to $8.82 billion from $9.13 billion over the same period, with noninterest-bearing deposits decreasing by $365.26 million. The company repurchased $64.24 million of common stock during the nine months ended September 30, 2025, compared to $2.84 million in the prior year.

Why It Matters

Stellar Bancorp's declining net income and shrinking loan and deposit base signal potential headwinds for investors, suggesting reduced profitability and growth. The significant increase in common stock repurchases, totaling $64.24 million, could be a strategic move to boost shareholder value amidst operational challenges, but it also reflects a lack of higher-return investment opportunities. This performance could impact employee morale and future hiring, while customers might see changes in service offerings or interest rates as the bank navigates a more challenging environment. In a competitive banking landscape, these trends could make it harder for Stellar to compete with larger, more diversified institutions.

Risk Assessment

Risk Level: medium — The company reported a 24.3% decrease in net income for the three months ended September 30, 2025, to $25.67 million from $33.89 million in 2024. Additionally, loans held for investment decreased by $271.99 million from December 31, 2024, to September 30, 2025, and total deposits decreased by $310.92 million, indicating potential asset and funding challenges.

Analyst Insight

Investors should closely monitor Stellar Bancorp's future loan growth and deposit trends, as these are critical indicators of a bank's health. The substantial share repurchases suggest management believes the stock is undervalued, but declining profitability warrants caution. Consider if the current dividend yield of $0.14 per share for Q3 2025 is sustainable given the earnings decline.

Financial Highlights

debt To Equity

5.43

revenue

$145.41M

operating Margin

N/A

total Assets

$10.63B

total Debt

$70.20M

net Income

$25.67M

eps

$0.50

gross Margin

N/A

cash Position

$728.45M

revenue Growth

-4.19%

Revenue Breakdown

Key Numbers

• $25.67M — Net Income (Q3 2025) (24.3% decrease from $33.89M in Q3 2024)
• $76.72M — Net Income (9M 2025) (14.5% decrease from $89.79M in 9M 2024)
• $7.17B — Loans held for investment (Sep 30, 2025) (Decreased from $7.44B at Dec 31, 2024)
• $8.82B — Total deposits (Sep 30, 2025) (Decreased from $9.13B at Dec 31, 2024)
• $0.31M — Provision for credit losses (Q3 2025) (Shift from a $5.99M reversal in Q3 2024)
• $64.24M — Repurchase of common stock (9M 2025) (Significant increase from $2.84M in 9M 2024)
• $0.50 — Basic EPS (Q3 2025) (Decreased from $0.63 in Q3 2024)
• $0.14 — Dividends per share (Q3 2025) (Increased from $0.13 in Q3 2024)
• $10.63B — Total Assets (Sep 30, 2025) (Decreased from $10.91B at Dec 31, 2024)
• $77.87M — Accumulated other comprehensive loss (Sep 30, 2025) (Improved from $(125.36M) at Dec 31, 2024)

Key Players & Entities

• Stellar Bancorp, Inc. (company) — registrant
• Stellar Bank (company) — wholly-owned subsidiary
• SEC (regulator) — Securities and Exchange Commission
• New York Stock Exchange (regulator) — exchange where STEL is registered
• Houston (location) — metropolitan statistical area for banking centers
• Beaumont (location) — metropolitan statistical area for banking centers
• Dallas (location) — location of one banking center
• GAAP (other) — U.S. generally accepted accounting principles

FAQ

Risk Factors

• Interest Rate Sensitivity [high — financial]: The company's profitability is sensitive to changes in interest rates. A decrease in interest rates could reduce net interest income, while an increase could increase interest expense on deposits and borrowings. For the three months ended September 30, 2025, net interest income decreased to $100.64M from $101.51M year-over-year.
• Credit Risk and Loan Portfolio Quality [high — financial]: The company faces credit risk from its loan portfolio. A significant shift occurred in the provision for credit losses, with a charge of $0.31M in Q3 2025 compared to a reversal of $5.99M in Q3 2024. Loans held for investment decreased to $7.17B from $7.44B.
• Deposit Outflows and Funding Costs [medium — market]: Total deposits declined to $8.82B from $9.13B as of September 30, 2025, compared to December 31, 2024, with noninterest-bearing deposits decreasing by $365.26M. This indicates potential pressure on funding sources and may lead to higher funding costs.
• Intangible Asset Amortization [medium — operational]: The company has significant goodwill ($497.32M) and core deposit intangibles ($75.93M as of Sep 30, 2025). Declines in core deposit intangibles ($92.55M at Dec 31, 2024) suggest amortization or impairment, impacting earnings.
• Regulatory Compliance and Capital Requirements [high — regulatory]: As a financial institution, Stellar Bancorp is subject to stringent regulatory oversight. Changes in regulations or failure to comply can result in fines, penalties, and reputational damage. Maintaining adequate capital levels is crucial.

Industry Context

The banking industry is currently navigating a complex environment characterized by fluctuating interest rates, evolving customer deposit behaviors, and ongoing credit risk management. Banks are facing pressure to maintain net interest margins amidst rising funding costs, while also managing loan portfolio quality. Competition remains intense, driving a need for operational efficiency and strategic capital allocation.

Regulatory Implications

Stellar Bancorp operates under strict regulatory frameworks governing capital adequacy, liquidity, and risk management. Any perceived weakening in asset quality or capital ratios could attract increased scrutiny from regulators, potentially leading to enhanced compliance requirements or limitations on business activities.

What Investors Should Do

1. Monitor credit loss trends closely.
2. Analyze the drivers of deposit outflows.
3. Evaluate the impact of stock repurchases.
4. Assess the improvement in Accumulated Other Comprehensive Loss.

Key Dates

• 2025-09-30: End of Q3 2025 — Reported net income of $25.67M, a 24.3% decrease year-over-year. Loans held for investment stood at $7.17B and total deposits at $8.82B.
• 2025-09-30: Nine Months Ended Q3 2025 — Net income was $76.72M, down 14.5% from the prior year. Stock repurchases totaled $64.24M, a significant increase.
• 2024-09-30: End of Q3 2024 — Reported net income of $33.89M. A reversal of credit losses of $5.99M was recorded.
• 2024-12-31: End of Fiscal Year 2024 — Total assets were $10.91B, loans held for investment were $7.44B, and total deposits were $9.13B.

Glossary

Provision for credit losses

An expense set aside by a financial institution to cover potential losses from loans that may not be repaid. A reversal indicates that previously set-aside funds are no longer deemed necessary. (A significant shift from a reversal to a provision in Q3 2025 signals potential deterioration in loan quality or increased risk perception.)

Net interest income

The difference between the interest income generated by a bank's assets (like loans and securities) and the interest paid out on its liabilities (like deposits and borrowings). (A core measure of a bank's profitability from its primary lending and borrowing activities. A slight decline in Q3 2025 suggests pressure on margins.)

Loans held for investment

Loans that a bank intends to hold until maturity, rather than selling them in the secondary market. These are typically carried at amortized cost. (Represents a significant portion of the bank's assets. A decrease indicates a potential reduction in lending activity or loan payoffs.)

Noninterest-bearing deposits

Deposits that do not earn interest, such as most checking accounts. These are typically a low-cost source of funding for banks. (A decrease in these deposits can impact a bank's cost of funds and liquidity.)

Accumulated other comprehensive loss

A component of shareholders' equity that includes unrealized gains and losses on certain investments and foreign currency translations that are not included in net income. (An improvement from a large loss to a smaller loss indicates positive movement in these unrealized gains/losses, potentially due to market conditions affecting investment portfolios.)

Year-Over-Year Comparison

Compared to the prior year's comparable periods, Stellar Bancorp experienced a notable decline in profitability, with net income falling 24.3% for Q3 2025 and 14.5% for the nine months ended September 30, 2025. This was accompanied by a decrease in total interest income and net interest income, alongside a significant shift from a credit loss reversal to a provision for credit losses. Total assets, loans, and deposits all saw reductions, while the company substantially increased its share repurchase activity.

Key Financial Figures

• $0.01 — ch registered Common Stock, par value, $0.01 per share STEL New York Stock Exchange

Filing Documents

• stel-20250930.htm (10-Q) — 3031KB
• stel2025q310qex311.htm (EX-31.1) — 10KB
• stel2025q310qex312.htm (EX-31.2) — 9KB
• stel2025q310qex321.htm (EX-32.1) — 4KB
• stel2025q310qex322.htm (EX-32.2) — 4KB
• 0001473844-25-000064.txt ( ) — 14835KB
• stel-20250930.xsd (EX-101.SCH) — 61KB
• stel-20250930_cal.xml (EX-101.CAL) — 119KB
• stel-20250930_def.xml (EX-101.DEF) — 354KB
• stel-20250930_lab.xml (EX-101.LAB) — 846KB
• stel-20250930_pre.xml (EX-101.PRE) — 640KB
• stel-20250930_htm.xml (XML) — 3499KB

—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION Item 1. Interim Consolidated Financial Statements 3 Consolidated Balance Sheets (unaudited) 3 Consolidated Statements of Income (unaudited) 4 Consolidated Statements of Comprehensive Income (unaudited) 5 Consolidated Statements of Changes in Shareholders ' Equity (unaudited) 6 Consolidated Statements of Cash Flows (unaudited) 7 Condensed Notes to Interim Consolidated Financial Statements (unaudited) 8 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 33 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 56 Item 4.

Controls and Procedures

Controls and Procedures 57

—OTHER INFORMATION

PART II—OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 57 Item 1A.

Risk Factors

Risk Factors 57 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 58 Item 3. Defaults upon Senior Securities 58 Item 4. Mine Safety Disclosures 58 Item 5. Other Information 58 Item 6. Exhibits 59

Signatures

Signatures 60 2 Table of Content s

—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS STELLAR BANCORP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, 2025 December 31, 2024 (In thousands, except shares and par value) ASSETS Cash and due from banks $ 99,407 $ 419,967 Interest-bearing deposits at other financial institutions 629,042 491,249 Total cash and cash equivalents 728,449 911,216 Available for sale securities, at fair value 1,842,268 1,673,016 Loans held for investment 7,167,857 7,439,854 Less: allowance for credit losses on loans ( 78,924 ) ( 81,058 ) Loans, net 7,088,933 7,358,796 Accrued interest receivable 34,865 37,884 Premises and equipment, net 107,803 111,856 Federal Reserve Bank and Federal Home Loan Bank stock 45,437 8,209 Bank-owned life insurance 109,358 107,498 Goodwill 497,318 497,318 Core deposit intangibles, net 75,929 92,546 Other assets 97,753 107,451 TOTAL ASSETS $ 10,628,113 $ 10,905,790 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Noninterest-bearing $ 3,210,948 $ 3,576,206 Interest-bearing Demand 1,960,857 1,845,749 Money market and savings 2,489,169 2,253,193 Certificates and other time 1,156,489 1,453,236 Total interest-bearing deposits 5,606,515 5,552,178 Total deposits 8,817,463 9,128,384 Accrued interest payable 9,429 17,052 Subordinated debt 70,196 70,105 Other liabilities 77,887 82,389 Total liabilities 8,974,975 9,297,930 COMMITMENTS AND CONTINGENCIES (See Note 13) SHAREHOLDERS' EQUITY: Preferred stock, $ 0.01 par value; 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2025 and December 31, 2024 — — Common stock, $ 0.01 par value; 140,000,000 shares authorized; 51,228,156 shares issued and outstanding at September 30, 2025 and 53,428,699 shares issued and outstanding at December 31, 2024 512 534 Capital surplus 1,182,781 1,240,050 Retained earnings 547,717 492,640 Accumulated other comprehensive loss ( 77,872 ) ( 125,364 ) Total shareholders' equity 1,653,138 1,6

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