STEL

ANALYST NOTE: STELLAR BANCORP, INC. (STEL) DATE: 2026-06-20 CURRENT PRICE: $38.43

1. Structural Readiness

• Conservative Entry: Not yet defined (awaiting confirmed breakout).
• Aggressive/Pre-Breakout Entry: Not actionable on setup alone; requires confirmation.
• Breakout Level: Not yet established.
• Current Price: $38.43.
• Extension: Not applicable (price has not yet extended from a confirmed breakout).
• ATR Context: Current ATR is 1.5% (sub-threshold). This indicates low volatility relative to the historical "sweet spot" (4–6%), suggesting the market is currently in a low-conviction consolidation phase or awaiting a catalyst.

2. Thesis Layer

• Thesis Classification: TACTICAL.
• Macro Thesis: There is NO named secular thesis attached to this name as of 2026-06-20.
• Judgment Framework: The investment case must be judged strictly on setup quality (the structural formation of the coil) and business fundamentals (operational execution and M&A progress). Do not invent a macro narrative. The conviction stack relies on the probability of the forming coil resolving to the upside combined with the successful execution of the pending merger.

3. Business Overview

Stellar Bancorp, Inc. operates as a community bank focused on small- to medium-sized businesses (SMBs), professionals, and individual customers primarily within Texas.

• Business Model: The company generates the majority of its income from interest income on loans, interest income from securities, and service charges on customer accounts (E9).
• Scale & Metrics (as of Dec 31, 2025):
• Total Assets: $10.81 billion (E16).
• Total Loans: $7.30 billion (E16).
• Total Deposits: $9.02 billion (E16).
• Shareholders' Equity: $1.67 billion (E16).
• Average Funded Loan Size: ~$533 thousand (E20).
• Operational Highlights (Q2 2025 & Q1 2026):
• Deposit Growth: Management reported strong deposit growth, with 51% of new deposits coming from new customers in the quarter, maintaining a 40-50% new customer hover rate throughout the year (E6).
• Loan Originations: Year-to-date loan originations were up 62% compared to the prior year, with a strategic shift toward Commercial & Industrial (C&I) credits (E4).
• Net Interest Margin (NIM): NIM excluding purchase accounting accretion reached 4.0% in Q2 2025 (E3). By Q1 2026, the tax-equivalent NIM was 4.24%, an increase of 4 basis points year-over-year (E11).
• Liquidity & Capital: Management expressed confidence in liquidity and capital positioning, citing a balance sheet driven by strong deposit growth (E1).
• Strategic Catalyst (Merger):
• On January 27, 2026, Stellar entered into a Merger Agreement with Prosperity Bancshares, Inc. (E17).
• Expected Closing: Management expects the merger to be completed on or about July 1, 2026, subject to shareholder and regulatory approval (E10, E18).
• Current Status (June 20, 2026): The merger is in the final pre-closing phase. Acquisition-related expenses of $3.3 million were incurred in Q1 2026 (E12).

4. Archetype and Conviction

• Archetype: Growth Leader (with a structural M&A inflection).
• *Fit:* The company demonstrates top-tier margin defense (NIM > 4%), strong loan origination growth (62% YoY), and a clear path to scale via the Prosperity merger. The "Growth Leader" label is supported by the ability to expand the balance sheet while maintaining margin quality.
• Conviction Stack:
• Thesis Strength: Moderate. The thesis is tactical and dependent on the successful closing of the merger. There is no broad secular tailwind named, but the specific M&A catalyst is well-defined.
• Evidence Quality: High. The evidence base is robust, containing specific financial metrics, management commentary on margins and deposits, and clear regulatory timelines for the merger.
• Rerating Potential: High, contingent on the merger closing. The combination of Stellar and Prosperity is expected to create a "truly focused franchise with scale" in a competitive Texas landscape (E7).
• Valuation Context: Not explicitly provided in the evidence base for 2026-06-20. The focus remains on the operational metrics (NIM, deposit mix) and the merger premium.

5. Invalidations, Strengths, and Gaps

• What Would Strengthen the Case:
• Merger Confirmation: Official regulatory approval or a definitive announcement that the July 1, 2026 closing is certain.
• Margin Expansion: Continued NIM expansion beyond the 4.24% Q1 2026 level, validating the "top-tier margin profile" claim.
• What Would Invalidate the Case:
• Merger Failure: Regulatory rejection or a termination of the Merger Agreement with Prosperity.
• Deposit Outflow: A significant reversal in the "sticky" deposit trend (currently 51% new customers), which would threaten the liquidity and capital positioning.
• Gaps in Evidence:
• Post-Merger Pro Forma Metrics: While the merger is expected, specific pro forma earnings or synergy targets for the combined entity are not detailed in the provided filings.
• Valuation Multiples: No P/E, P/B, or EV/EBITDA data is available for the 2026-06-20 date to assess relative value.

PRIVATE ANALYST CALL

Judgment: Buy Confidence: medium Key evidence: 1) Strong deposit growth with 51% new customer acquisition in Q2 2025; 2) NIM expansion to 4.24% in Q1 2026, exceeding 4% target; 3) Merger with Prosperity Bancshares expected to close July 1, 2026, creating a scaled Texas franchise. Sizing hint: Position size should reflect the "Forming" status; treat as a partial conviction play pending the July 1 closing confirmation. Expected path: Price consolidates near current levels as the market awaits the July 1 merger closing; potential volatility spike upon confirmation of closing. Expected horizon: 2 to 4 weeks (leading up to and immediately following the July 1, 2026 closing).