- Net Income Growth Stellar Bancorp reported Q2 2025 net income of $26.4 million, up 6.7% from Q1, with EPS increasing to $0.51 from $0.46.
- Return Metrics Achieved an annualized ROAA of 1.01% and ROATCE of 12.16%, reflecting improved profitability.
- Net Interest Income Declined slightly to $98.3 million from $99.3 million in Q1, due to lower net interest margin of 4.18%.
- Capital Management Repurchased 791,000 shares at a weighted average price of $26.08, demonstrating strong capital allocation.
- Loan Growth Momentum Loan originations nearly doubled in Q2 compared to Q1, with a healthy pipeline expected to continue.
Financial Performance
The company's financial performance was highlighted by its ability to manage non-interest expenses and maintain low credit costs, primarily due to low net charge-offs. Non-interest income earned $5.8 million, up from $5.5 million in Q1, partly due to additional earnings from Federal Reserve Bank dividend. Non-interest expense was approximately $70 million, essentially flat. The company's balance sheet grew incrementally, thanks largely to deposit growth, while loans ended the quarter slightly up from Q1. The pipeline for new loans is healthy, with originations nearly doubling in Q2 compared to Q1, and the company expects this momentum to continue.
Capital Management
The company's capital management was also a highlight, with the company buying back 791,000 shares of its stock at a weighted average price of $26.08 per share during the quarter. The company’s total risk-based capital was 15.98% at the end of Q2, and the tangible book value increased 10.8% year-over-year to $19.94 per share. According to CFO Paul Egge, "We continue to focus on delivering positive operating leverage by adding more scale for the Stellar Bank platform and maintaining a strong balance sheet."
Valuation and Outlook
At current prices, Stellar Bancorp trades at a P/TBV of 1.04x, a P/E Ratio of 15.06, and a Dividend Yield of 1.77%. The company's valuation is relatively in line with its peers, but its ROIC and ROE are slightly below average. With a healthy loan pipeline and a focus on disciplined growth, the company's intermediate-term goal of a 4% core margin is still reasonable, despite deposit cost competition being a headwind. Potential Fed rate cuts could benefit the margin, as the normalization of the yield curve would open up structural opportunities for improvement. Analysts estimate next year's revenue growth at 3.6%, and with an actual EPS of $0.51 relative to estimates at $0.45, the company's earnings momentum is likely to continue.