Stellar Bancorp, Inc. Reports Third Quarter 2024 Results

By: Stellar Bancorp, Inc. via Business Wire

October 25, 2024 at 07:00 AM EDT

Stellar Bancorp, Inc. (the “Company” or “Stellar”) (NYSE: STEL) today reported net income of $33.9 million, or diluted earnings per share of $0.63, for the third quarter of 2024 compared to net income of $29.8 million, or diluted earnings per share of $0.56, for the second quarter of 2024.

“We are pleased to announce our third quarter 2024 financial results that reflect our work as we mark the second anniversary of our transformational merger completed on October 1, 2022,” said Robert R. Franklin, Jr., Stellar’s Chief Executive Officer. “Since the merger, we have focused on building the foundation of Stellar Bank. Those efforts include constructing the scalable infrastructure to support an institution with more than $10 billion of assets while we have built a strong capital base, significantly increased our liquidity position and maintained a disciplined focus on credit. We have also significantly reduced our exposure to commercial real estate and invested in assets to help us grow a more balanced loan portfolio through additional commercial and industrial lending experience and leadership.”

“Stellar Bank is positioned for success as the economic and political environment becomes clearer. Although we can’t predict timing of interest rate changes, we feel comfortable with our revenue outlook. The election cycle will soon be complete and some of the elevated stress and uncertainty around the process will abate,” Mr. Franklin continued.

“Our markets remain resilient. We have positioned the Bank for quality growth and we look forward to furthering the Stellar brand in our markets,” concluded Mr. Franklin.

Third Quarter 2024 Financial Highlights

Solid Profitability: Third quarter 2024 net income of $33.9 million, or diluted earnings per share of $0.63, translated into an annualized return on average assets of 1.27%, an annualized return on average equity of 8.49% and an annualized return on average tangible equity of 13.63%⁽¹⁾.

Strong Net Interest Margin: Tax equivalent net interest margin was 4.19% for the third quarter of 2024 compared to 4.24% for the second quarter of 2024. The tax equivalent net interest margin, excluding purchase accounting accretion (“PAA”), was 3.91%⁽¹⁾ for the third quarter of 2024 compared to 3.82%⁽¹⁾ for the second quarter of 2024.

Meaningful Capital and Book Value Build: Total risk-based capital ratio increased to 15.91% at September 30, 2024 from 15.34% at June 30, 2024, book value per share increased to $30.43 from $29.23 at June 30, 2024 and tangible book value per share increased to $19.28⁽¹⁾ from $18.00⁽¹⁾ at June 30, 2024.

Improving Credit Metrics: Nonperforming loans decreased $18.8 million to $32.1 million at September 30, 2024 from $50.9 million at June 30, 2024. Allowance for credit losses on loans to nonperforming loans increased to 262.92% at September 30, 2024 from 186.17% at June 30, 2024.

Third Quarter 2024 Results

Net interest income in the third quarter of 2024 increased $97 thousand, or 0.1%, to $101.5 million from $101.4 million for the second quarter of 2024. The net interest margin on a tax equivalent basis decreased 5 basis points to 4.19% for the third quarter of 2024 from 4.24% for the second quarter of 2024. The decrease in the net interest margin from the prior quarter was primarily due to the impact of decreased interest rates on interest earning assets, partially offset by decreased rates on interest-bearing liabilities. Net interest income for the third quarter of 2024 benefited from $6.8 million of income from purchase accounting accretion compared to $10.1 million in the second quarter of 2024. Excluding purchase accounting accretion, net interest income (tax equivalent) for the third quarter of 2024 would have been $94.8 million⁽¹⁾ and the tax equivalent net interest margin would have been 3.91%⁽¹⁾.

Noninterest income for the third quarter of 2024 was $6.3 million, an increase of $886 thousand, or 16.4%, compared to $5.4 million for the second quarter of 2024. Noninterest income increased in the third quarter of 2024 compared to the second quarter of 2024 primarily due to an increase in gains on sales of assets and Small Business Investment Company income recognized in the third quarter of 2024 compared to the second quarter of 2024.

Noninterest expense for the third quarter of 2024 decreased $150 thousand, or 0.2%, to $71.1 million compared to $71.2 million for the second quarter of 2024. The decrease in noninterest expense in the third quarter of 2024 compared to the second quarter of 2024 was primarily due to a $2.0 million decrease in other noninterest expense and a $520 thousand decrease in regulatory assessments, partially offset by a $2.1 million increase in salaries and employee benefits.

The efficiency ratio was 66.18% for the third quarter of 2024 compared to 66.63% for the second quarter of 2024. Annualized returns on average assets, average equity and average tangible equity were 1.27%, 8.49% and 13.63%⁽¹⁾for the third quarter of 2024, respectively, compared to 1.13%, 7.78% and 12.82%⁽¹⁾, respectively, for the second quarter of 2024.

___________________

⁽¹⁾Refer to page 10 of this earnings release for the calculation of this non-GAAP financial measure.

Financial Condition

Total assets at September 30, 2024 were $10.63 billion, a decrease of $93.9 million, compared to $10.72 billion at June 30, 2024.

Total loans at September 30, 2024 decreased $162.8 million to $7.55 billion compared to $7.71 billion at June 30, 2024. At September 30, 2024, the remaining balance of the purchase accounting accretion on loans was $81.4 million.

Total deposits at September 30, 2024 increased $17.3 million to $8.74 billion compared to $8.73 billion at June 30, 2024, due to increases in interest-bearing demand deposits and money market and savings deposits, partially offset by decreases in certificates and other time deposits and noninterest-bearing deposits. Shifts in the deposit mix were primarily driven by the current interest rate environment and an intensely competitive market for deposits.

During the third quarter 2024, the Company repurchased 108,984 shares at an average price per share of $26.10 under its share repurchase program.

Asset Quality

Nonperforming assets totaled $35.1 million, or 0.33% of total assets, at September 30, 2024, compared to $53.5 million, or 0.50% of total assets, at June 30, 2024. The allowance for credit losses on loans as a percentage of total loans was 1.12% at September 30, 2024 and 1.23% at June 30, 2024.

The third quarter of 2024 included a reversal of provision for credit losses of $6.0 million compared to a reversal of provision for credit losses of $1.9 million recorded during the second quarter of 2024. Net charge-offs for the third quarter of 2024 were $3.9 million, or 0.21% (annualized) of average loans, compared to net recoveries of $1 thousand, or 0.00% (annualized) of average loans, for the second quarter of 2024.

GAAP Reconciliation of Non-GAAP Financial Measures

Stellar’s management uses certain non-GAAP financial measures to evaluate its performance. Please refer to the GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures on page 10 of this earnings release for a reconciliation of these non-GAAP financial measures.

Conference Call

Stellar’s management team will host a conference call and webcast on Friday, October 25, 2024 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its results for the second quarter of 2024. Participants may register for the conference call at https://registrations.events/direct/Q4I635867 to receive the dial-in numbers and unique PIN to access the call. If you need assistance in obtaining a dial-in number, please contact IR@stellar.bank. A simultaneous audio-only webcast may be accessed at https://events.q4inc.com/attendee/992487934. If you are unable to participate during the live webcast, the webcast will be accessible via the Investor Relations section of the Company’s website at ir.stellar.bank.

About Stellar Bancorp, Inc.

Stellar Bancorp, Inc. is a bank holding company headquartered in Houston, Texas. Stellar’s principal banking subsidiary, Stellar Bank, provides a diversified range of commercial banking services primarily to small- to medium-sized businesses and individual customers across the Houston, Dallas, Beaumont and surrounding communities in Texas.

Forward-Looking Statements

Certain statements in this press release which are not historical in nature are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements about the benefits of the Company’s merger with Allegiance Bancshares, Inc. (the “Merger”), including future financial performance and operating results, the Company’s plans, business and growth strategies, objectives, expectations and intentions, and other statements that are not historical facts, including projections of macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material. Forward-looking statements may be identified by terminology such as “may,” “will,” “should,” “could,” “scheduled,” “plans,” “intends,” “projects,” “anticipates,” “expects,” “believes,” “estimates,” “potential,” “would,” or “continue” or negatives of such terms or other comparable terminology.

All forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Stellar to differ materially from any results expressed or implied by such forward-looking statements. Such factors include, among others: the risk that the cost savings and any revenue synergies from the Merger may not be fully realized or may take longer than anticipated to be realized; disruption to our business as a result of the Merger; the risk that the integration of operations will be materially delayed or will be more costly or difficult than we expected or that we are otherwise unable to successfully integrate our legacy businesses; the amount of the costs, fees, expenses and charges related to the Merger; reputational risk and the reaction of our customers, suppliers, employees or other business partners to the Merger; changes in the interest rate environment, the value of Stellar’s assets and obligations and the availability of capital and liquidity; general competitive, economic, political and market conditions; and other factors that may affect future results of Stellar including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; disruptions to the economy and the U.S. banking system caused by recent bank failures, risks associated with uninsured deposits and responsive measures by federal or state governments or banking regulators, including increases in the cost of our deposit insurance assessments and other actions of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Texas Department of Banking and legislative and regulatory actions and reforms.

Additional factors which could affect the Company’s future results can be found in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, in each case filed with the SEC and available on the SEC’s website at https://www.sec.gov. We disclaim any obligation and do not intend to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

	2024									2023
	September 30			June 30			March 31			December 31			September 30
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	103,735		$	110,341		$	74,663		$	121,004		$	94,970
Interest-bearing deposits at other financial institutions		412,482			379,909			325,079			278,233			207,302
Total cash and cash equivalents		516,217			490,250			399,742			399,237			302,272

Available for sale securities, at fair value		1,691,752			1,630,971			1,523,100			1,395,680			1,414,952

Loans held for investment		7,551,124			7,713,897			7,908,111			7,925,133			8,004,528
Less: allowance for credit losses on loans		(84,501	)		(94,772	)		(96,285	)		(91,684	)		(93,575	)
Loans, net		7,466,623			7,619,125			7,811,826			7,833,449			7,910,953

Accrued interest receivable		39,473			43,348			45,466			44,244			43,536
Premises and equipment, net		113,742			113,984			115,698			118,683			119,332
Federal Home Loan Bank stock		20,123			15,089			16,050			25,051			29,022
Bank-owned life insurance		106,876			106,262			105,671			105,084			104,699
Goodwill		497,318			497,318			497,318			497,318			497,318
Core deposit intangibles, net		98,116			104,315			110,513			116,712			122,944
Other assets		79,537			103,001			103,838			111,681			120,432
Total assets	$	10,629,777		$	10,723,663		$	10,729,222		$	10,647,139		$	10,665,460


LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing	$	3,303,048		$	3,308,441		$	3,323,149		$	3,546,815		$	3,656,288
Interest-bearing
Demand		1,571,504			1,564,405			1,576,261			1,659,999			1,397,492
Money market and savings		2,280,651			2,213,031			2,203,767			2,136,777			2,128,950
Certificates and other time		1,587,398			1,639,426			1,691,539			1,529,876			1,503,891
Total interest-bearing deposits		5,439,553			5,416,862			5,471,567			5,326,652			5,030,333
Total deposits		8,742,601			8,725,303			8,794,716			8,873,467			8,686,621

Accrued interest payable		16,915			12,327			12,227			11,288			7,612
Borrowed funds		60,000			240,000			215,000			50,000			323,981
Subordinated debt		110,064			109,964			109,864			109,765			109,665
Other liabilities		74,074			70,274			66,717			81,601			76,735
Total liabilities		9,003,654			9,157,868			9,198,524			9,126,121			9,204,614

SHAREHOLDERS’ EQUITY:
Common stock		535			536			536			533			533
Capital surplus		1,238,619			1,238,477			1,235,221			1,232,627			1,231,686
Retained earnings		474,905			447,948			425,130			405,945			385,600
Accumulated other comprehensive loss		(87,936	)		(121,166	)		(130,189	)		(118,087	)		(156,973	)
Total shareholders’ equity		1,626,123			1,565,795			1,530,698			1,521,018			1,460,846
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	10,629,777		$	10,723,663		$	10,729,222		$	10,647,139		$	10,665,460

Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

	Three Months Ended												Nine Months Ended
	2024								2023				2024			2023
	September 30			June 30			March 31		December 31		September 30		September 30			September 30

INTEREST INCOME:
Loans, including fees	$	132,372		$	135,885		$	134,685	$	139,114	$	138,948	$	402,942		$	398,608
Securities:
Taxable		13,898			11,923			9,293		9,622		9,493		35,114			28,872
Tax-exempt		814			816			818		418		437		2,448			2,135
Deposits in other financial institutions		4,692			3,555			3,627		3,021		2,391		11,874			9,027
Total interest income		151,776			152,179			148,423		152,175		151,269		452,378			438,642

INTEREST EXPENSE:
Demand, money market and savings deposits		29,440			28,399			27,530		25,033		23,557		85,369			62,302
Certificates and other time deposits		18,073			18,758			15,084		15,075		13,282		51,915			26,211
Borrowed funds		840			1,700			1,774		4,154		5,801		4,314			13,653
Subordinated debt		1,916			1,912			1,917		1,983		1,908		5,745			5,647
Total interest expense		50,269			50,769			46,305		46,245		44,548		147,343			107,813
NET INTEREST INCOME		101,507			101,410			102,118		105,930		106,721		305,035			330,829
(Reversal of) provision for credit losses		(5,985	)		(1,935	)		4,098		1,047		2,315		(3,822	)		7,896
Net interest income after provision for credit losses		107,492			103,345			98,020		104,883		104,406		308,857			322,933

NONINTEREST INCOME:
Service charges on deposit accounts		1,594			1,648			1,598		1,520		1,620		4,840			4,544
Gain (loss) on sale of assets		432			(64	)		513		198		—		881			192
Bank-owned life insurance		614			591			587		573		551		1,792			1,605
Debit card and ATM income		551			543			527		542		935		1,621			4,454
Other		3,111			2,698			3,071		4,053		1,589		8,880			6,881
Total noninterest income		6,302			5,416			6,296		6,886		4,695		18,014			17,676

NONINTEREST EXPENSE:
Salaries and employee benefits		41,123			39,061			41,376		40,464		39,495		121,560			116,570
Net occupancy and equipment		4,570			4,503			4,390		4,572		4,455		13,463			12,360
Depreciation		1,911			1,948			1,964		1,955		1,952		5,823			5,629
Data processing and software amortization		5,706			5,501			4,894		5,000		4,798		16,101			14,526
Professional fees		1,714			1,620			2,662		3,867		997		5,996			4,088
Regulatory assessments and FDIC insurance		1,779			2,299			1,854		5,169		1,814		5,932			5,863
Amortization of intangibles		6,212			6,215			6,212		6,247		6,876		18,639			20,636
Communications		827			847			937		743		663		2,611			2,053
Advertising		878			891			765		1,004		877		2,534			2,623
Acquisition and merger-related expenses		—			—			—		3,072		3,421		—			12,483
Other		6,346			8,331			6,356		5,848		5,400		21,033			15,722
Total noninterest expense		71,066			71,216			71,410		77,941		70,748		213,692			212,553
INCOME BEFORE INCOME TAXES		42,728			37,545			32,906		33,828		38,353		113,179			128,056
Provision for income taxes		8,837			7,792			6,759		6,562		7,445		23,388			24,825
NET INCOME	$	33,891		$	29,753		$	26,147	$	27,266	$	30,908	$	89,791		$	103,231

EARNINGS PER SHARE
Basic	$	0.63		$	0.56		$	0.49	$	0.51	$	0.58	$	1.68		$	1.94
Diluted	$	0.63		$	0.56		$	0.49	$	0.51	$	0.58	$	1.68		$	1.94

Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

	Three Months Ended															Nine Months Ended
	2024									2023						2024			2023
	September 30			June 30			March 31			December 31			September 30			September 30			September 30
	(Dollars and share amounts in thousands, except per share data)
Net income	$	33,891		$	29,753		$	26,147		$	27,266		$	30,908		$	89,791		$	103,231

Earnings per share, basic	$	0.63		$	0.56		$	0.49		$	0.51		$	0.58		$	1.68		$	1.94
Earnings per share, diluted	$	0.63		$	0.56		$	0.49		$	0.51		$	0.58		$	1.68		$	1.94
Dividends per share	$	0.13		$	0.13		$	0.13		$	0.13		$	0.13		$	0.39		$	0.39

Return on average assets^(A)		1.27	%		1.13	%		0.98	%		1.02	%		1.14	%		1.13	%		1.28	%
Return on average equity^(A)		8.49	%		7.78	%		6.88	%		7.33	%		8.34	%		7.73	%		9.52	%
Return on average tangible equity^(A)(B)		13.63	%		12.82	%		11.47	%		12.61	%		14.47	%		12.67	%		16.86	%
Net interest margin (tax equivalent)^(A)(C)		4.19	%		4.24	%		4.26	%		4.40	%		4.37	%		4.23	%		4.55	%
Net interest margin (tax equivalent) excluding PAA^(A)(B)(C)		3.91	%		3.82	%		3.91	%		3.91	%		3.87	%		3.88	%		4.07	%
Efficiency ratio^(D)		66.18	%		66.63	%		66.18	%		69.21	%		63.50	%		66.33	%		61.02	%

Capital Ratios
Stellar Bancorp, Inc. (Consolidated)
Equity to assets		15.30	%		14.60	%		14.27	%		14.29	%		13.70	%		15.30	%		13.70	%
Tangible equity to tangible assets^(B)		10.27	%		9.53	%		9.12	%		9.04	%		8.37	%		10.27	%		8.37	%
Estimated Total capital ratio (to risk-weighted assets)		15.91	%		15.34	%		14.62	%		14.02	%		13.61	%		15.91	%		13.61	%
Estimated Common equity Tier 1 capital (to risk weighted assets)		13.62	%		12.98	%		12.29	%		11.77	%		11.30	%		13.62	%		11.30	%
Estimated Tier 1 capital (to risk-weighted assets)		13.74	%		13.10	%		12.41	%		11.89	%		11.41	%		13.74	%		11.41	%
Estimated Tier 1 leverage (to average tangible assets)		11.25	%		10.93	%		10.55	%		10.18	%		9.82	%		11.25	%		9.82	%
Stellar Bank
Estimated Total capital ratio (to risk-weighted assets)		15.07	%		14.65	%		14.13	%		13.65	%		13.32	%		15.07	%		13.32	%
Estimated Common equity Tier 1 capital (to risk-weighted assets)		13.63	%		13.12	%		12.61	%		12.20	%		11.80	%		13.63	%		11.80	%
Estimated Tier 1 capital (to risk-weighted assets)		13.63	%		13.12	%		12.61	%		12.20	%		11.80	%		13.63	%		11.80	%
Estimated Tier 1 leverage (to average tangible assets)		11.16	%		10.94	%		10.72	%		10.44	%		10.15	%		11.16	%		10.15	%

Other Data
Weighted average shares:
Basic		53,541			53,572			53,343			53,282			53,313			53,485			53,211
Diluted		53,580			53,608			53,406			53,350			53,380			53,531			53,300
Period end shares outstanding		53,446			53,564			53,551			53,291			53,322			53,446			53,322
Book value per share	$	30.43		$	29.23		$	28.58		$	28.54		$	27.40		$	30.43		$	27.40
Tangible book value per share^(B)	$	19.28		$	18.00		$	17.23		$	17.02		$	15.76		$	19.28		$	15.76
Employees - full-time equivalents		1,040			1,045			1,007			998			1,008			1,040			1,008

(A)	Interim periods annualized.
(B)	Refer to the calculation of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures on page 10 of this Earnings Release.
(C)	Net interest margin represents net interest income divided by average interest-earning assets.
(D)	Represents total noninterest expense divided by the sum of net interest income plus noninterest income, excluding net gains and losses on the sale of loans, securities and assets. Additionally, taxes and provision for credit losses are not part of this calculation.

Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

	Three Months Ended
	September 30, 2024							June 30, 2024							September 30, 2023
	Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate		Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate		Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
	(Dollars in thousands)
Assets
Interest-Earning Assets:
Loans	$	7,627,522		$	132,372	6.90	%	$	7,808,320		$	135,885	7.00	%	$	8,043,706		$	138,948	6.85	%
Securities		1,676,614			14,712	3.49	%		1,549,638			12,739	3.31	%		1,471,916			9,930	2.68	%
Deposits in other financial institutions		339,493			4,692	5.50	%		258,916			3,555	5.52	%		181,931			2,391	5.21	%
Total interest-earning assets		9,643,629		$	151,776	6.26	%		9,616,874		$	152,179	6.36	%		9,697,553		$	151,269	6.19	%
Allowance for credit losses on loans		(94,785	)						(96,306	)						(99,892	)
Noninterest-earning assets		1,077,422							1,103,297							1,143,634
Total assets	$	10,626,266						$	10,623,865						$	10,741,295

Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	1,606,736		$	12,458	3.08	%	$	1,545,096		$	12,213	3.18	%	$	1,400,508		$	10,415	2.95	%
Money market and savings deposits		2,254,767			16,982	3.00	%		2,227,393			16,186	2.92	%		2,166,610			13,142	2.41	%
Certificates and other time deposits		1,620,908			18,073	4.44	%		1,694,536			18,758	4.45	%		1,400,367			13,282	3.76	%
Borrowed funds		49,077			840	6.81	%		112,187			1,700	6.09	%		411,212			5,801	5.60	%
Subordinated debt		110,007			1,916	6.93	%		109,910			1,912	7.00	%		109,608			1,908	6.91	%
Total interest-bearing liabilities		5,641,495		$	50,269	3.54	%		5,689,122		$	50,769	3.59	%		5,488,305		$	44,548	3.22	%

Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		3,303,726							3,308,633							3,695,592
Other liabilities		93,127							87,986							86,389
Total liabilities		9,038,348							9,085,741							9,270,286
Shareholders’ equity		1,587,918							1,538,124							1,471,009
Total liabilities and shareholders’ equity	$	10,626,266						$	10,623,865						$	10,741,295

Net interest rate spread						2.72	%						2.77	%						2.97	%

Net interest income and margin				$	101,507	4.19	%				$	101,410	4.24	%				$	106,721	4.37	%

Net interest income and net interest margin (tax equivalent)				$	101,578	4.19	%				$	101,482	4.24	%				$	106,919	4.37	%

Cost of funds						2.24	%						2.27	%						1.92	%
Cost of deposits						2.15	%						2.16	%						1.69	%

Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

	Nine Months Ended September 30,
	2024							2023
	Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate		Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
	(Dollars in thousands)
Assets
Interest-Earning Assets:
Loans	$	7,790,957		$	402,942	6.91	%	$	7,957,911		$	398,608	6.70	%
Securities		1,556,462			37,562	3.22	%		1,525,808			31,007	2.72	%
Deposits in other financial institutions		287,960			11,874	5.51	%		251,475			9,027	4.80	%
Total interest-earning assets		9,635,379		$	452,378	6.27	%		9,735,194		$	438,642	6.02	%
Allowance for credit losses on loans		(94,236	)						(96,570	)
Noninterest-earning assets		1,104,426							1,148,847
Total assets	$	10,645,569						$	10,787,471

Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	1,616,313		$	36,949	3.05	%	$	1,478,547		$	28,141	2.54	%
Money market and savings deposits		2,211,148			48,420	2.93	%		2,291,588			34,161	1.99	%
Certificates and other time deposits		1,586,623			51,915	4.37	%		1,164,572			26,211	3.01	%
Borrowed funds		98,374			4,314	5.86	%		333,220			13,653	5.48	%
Subordinated debt		109,909			5,745	6.98	%		109,508			5,647	6.89	%
Total interest-bearing liabilities		5,622,367		$	147,343	3.50	%		5,377,435		$	107,813	2.68	%

Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		3,379,096							3,878,760
Other liabilities		92,527							81,894
Total liabilities		9,093,990							9,338,089
Shareholders’ equity		1,551,579							1,449,382
Total liabilities and shareholders' equity	$	10,645,569						$	10,787,471

Net interest rate spread						2.77	%						3.34	%

Net interest income and margin				$	305,035	4.23	%				$	330,829	4.54	%

Net interest income and net interest margin (tax equivalent)				$	305,266	4.23	%				$	331,549	4.55	%

Cost of funds						2.19	%						1.56	%
Cost of deposits						2.09	%						1.34	%

Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

	Three Months Ended
	2024									2023
	September 30			June 30			March 31			December 31			September 30
	(Dollars in thousands)
Period-end Loan Portfolio:
Commercial and industrial	$	1,347,876		$	1,392,435		$	1,451,462		$	1,409,002		$	1,474,600
Paycheck Protection Program (PPP)		2,877			3,629			4,293			5,100			5,968
Real estate:
Commercial real estate (including multi-family residential)		3,976,296			4,029,671			4,049,885			4,071,807			4,076,606
Commercial real estate construction and land development		890,316			922,805			1,039,443			1,060,406			1,078,265
1-4 family residential (including home equity)		1,112,235			1,098,681			1,049,316			1,047,174			1,024,945
Residential construction		161,494			200,134			252,573			267,357			289,553
Consumer and other		60,030			66,542			61,139			64,287			54,591
Total loans held for investment	$	7,551,124		$	7,713,897		$	7,908,111		$	7,925,133		$	8,004,528

Deposits:
Noninterest-bearing	$	3,303,048		$	3,308,441		$	3,323,149		$	3,546,815		$	3,656,288
Interest-bearing
Demand		1,571,504			1,564,405			1,576,261			1,659,999			1,397,492
Money market and savings		2,280,651			2,213,031			2,203,767			2,136,777			2,128,950
Certificates and other time		1,587,398			1,639,426			1,691,539			1,529,876			1,503,891
Total interest-bearing deposits		5,439,553			5,416,862			5,471,567			5,326,652			5,030,333
Total deposits	$	8,742,601		$	8,725,303		$	8,794,716		$	8,873,467		$	8,686,621

Asset Quality:
Nonaccrual loans	$	32,140		$	50,906		$	57,129		$	39,191		$	38,291
Accruing loans 90 or more days past due		—			—			—			—			—
Total nonperforming loans		32,140			50,906			57,129			39,191			38,291
Other real estate		2,984			2,548			—			—			—
Total nonperforming assets	$	35,124		$	53,454		$	57,129		$	39,191		$	38,291

Net charge-offs (recoveries)	$	3,933		$	(1	)	$	714		$	2,577		$	8,116

Nonaccrual loans:
Commercial and industrial	$	9,718		$	18,451		$	15,465		$	5,048		$	14,991
Real estate:
Commercial real estate (including multi-family residential)		10,695			18,094			21,268			16,699			13,563
Commercial real estate construction and land development		4,183			1,641			8,406			5,043			170
1-4 family residential (including home equity)		7,259			12,454			10,368			8,874			8,442
Residential construction		121			155			1,410			3,288			635
Consumer and other		164			111			212			239			490
Total nonaccrual loans	$	32,140		$	50,906		$	57,129		$	39,191		$	38,291

Asset Quality Ratios:
Nonperforming assets to total assets		0.33	%		0.50	%		0.53	%		0.37	%		0.36	%
Nonperforming loans to total loans		0.43	%		0.66	%		0.72	%		0.49	%		0.48	%
Allowance for credit losses on loans to nonperforming loans		262.92	%		186.17	%		168.54	%		233.94	%		244.38	%
Allowance for credit losses on loans to total loans		1.12	%		1.23	%		1.22	%		1.16	%		1.17	%
Net charge-offs to average loans (annualized)		0.21	%		0.00	%		0.04	%		0.13	%		0.40	%

Stellar Bancorp, Inc.

GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures

(Unaudited)

Stellar’s management uses certain non-GAAP (generally accepted accounting principles) financial measures to evaluate its performance. Stellar believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and that management and investors benefit from referring to these non-GAAP financial measures in assessing Stellar’s performance and when planning, forecasting, analyzing and comparing past, present and future periods. Specifically, Stellar reviews pre-tax, pre-provision income, pre-tax pre-provision ROAA, tangible book value per share, return on average tangible equity, tangible equity to tangible assets and net interest margin (tax equivalent) excluding PAA for internal planning and forecasting purposes. Stellar has included in this earnings release information relating to these non-GAAP financial measures for the applicable periods presented. These non-GAAP measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which Stellar calculates the non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

	Three Months Ended															Nine Months Ended
	2024									2023						2024			2023
	September 30			June 30			March 31			December 31			September 30			September 30			September 30
	(Dollars and share amounts in thousands, except per share data)
Net income	$	33,891		$	29,753		$	26,147		$	27,266		$	30,908		$	89,791		$	103,231
Add: Provision for credit losses		(5,985	)		(1,935	)		4,098			1,047			2,315			(3,822	)		7,896
Add: Provision for income taxes		8,837			7,792			6,759			6,562			7,445			23,388			24,825
Pre-tax, pre-provision income	$	36,743		$	35,610		$	37,004		$	34,875		$	40,668		$	109,357		$	135,952

Total average assets	$	10,626,266		$	10,623,865		$	10,686,789		$	10,626,373		$	10,741,295		$	10,645,569		$	10,787,471

Pre-tax, pre-provision return on average assets^(B)		1.38	%		1.35	%		1.39	%		1.30	%		1.50	%		1.37	%		1.68	%

Total shareholders’ equity	$	1,626,123		$	1,565,795		$	1,530,698		$	1,521,018		$	1,460,846		$	1,626,123		$	1,460,846
Less: Goodwill and core deposit intangibles, net		595,434			601,633			607,831			614,030			620,262			595,434			620,262
Tangible shareholders’ equity	$	1,030,689		$	964,162		$	922,867		$	906,988		$	840,584		$	1,030,689		$	840,584

Shares outstanding at end of period		53,446			53,564			53,551			53,291			53,322			53,446			53,322

Tangible book value per share	$	19.28		$	18.00		$	17.23		$	17.02		$	15.76		$	19.28		$	15.76

Average shareholders’ equity	$	1,587,918		$	1,538,124		$	1,528,298		$	1,475,377		$	1,471,009		$	1,551,579		$	1,449,382
Less: Average goodwill and core deposit intangibles, net		598,866			604,722			611,149			617,236			623,864			604,890			630,890
Average tangible shareholders’ equity	$	989,052		$	933,402		$	917,149		$	858,141		$	847,145		$	946,689		$	818,492

Return on average tangible equity^(B)		13.63	%		12.82	%		11.47	%		12.61	%		14.47	%		12.67	%		16.86	%

Total assets	$	10,629,777		$	10,723,663		$	10,729,222		$	10,647,139		$	10,665,460		$	10,629,777		$	10,665,460
Less: Goodwill and core deposit intangibles, net		595,434			601,633			607,831			614,030			620,262			595,434			620,262
Tangible assets	$	10,034,343		$	10,122,030		$	10,121,391		$	10,033,109		$	10,045,198		$	10,034,343		$	10,045,198

Tangible equity to tangible assets		10.27	%		9.53	%		9.12	%		9.04	%		8.37	%		10.27	%		8.37	%

Net interest income (tax equivalent)	$	101,578		$	101,482		$	102,207		$	106,121		$	106,919		$	305,266		$	331,549
Less: Purchase accounting accretion		6,795			10,098			8,551			11,726			12,400			25,444			35,076
Adjusted net interest income (tax equivalent)	$	94,783		$	91,384		$	93,656		$	94,395		$	94,519		$	279,822		$	296,473

Average earning assets	$	9,643,629		$	9,616,874		$	9,645,544		$	9,576,927		$	9,697,553		$	9,635,379		$	9,735,194
Net interest margin (tax equivalent) excluding PAA		3.91	%		3.82	%		3.91	%		3.91	%		3.87	%		3.88	%		4.07	%

(A)

Represents total noninterest expense, excluding acquisition and merger-related expenses, core deposit intangibles amortization and write-downs on assets moved to held for sale, divided by the sum of net interest income, excluding purchase accounting adjustments plus noninterest income, excluding gains and losses on the sale of assets. Additionally, taxes and provision for credit losses are not part of this calculation.

(B)

Interim periods annualized.