Stellar Bancorp, Inc. (the “Company” or “Stellar”) (NYSE: STEL) today reported net income of $27.8 million, or diluted earnings per share of $0.52, for the fourth quarter of 2024 and net income of $117.6 million, or diluted earnings per share of $2.20, for the full year 2024.

“We are proud of our team and their work establishing the foundation of Stellar Bank,” said Robert R. Franklin, Jr., Stellar’s Chief Executive Officer. “Our strong foundation is a testament to their significant efforts over the past two years and they have prepared us for the year ahead. We intend to turn towards growth at a more normalized organic pattern while we keep an eye towards opportunities with downstream partners that would increase our operating leverage,” Mr. Franklin continued.

“We remain focused on core fundamentals as we enter 2025 and are encouraged by the economic activity in our markets. We are excited about the future ahead of us,” Mr. Franklin concluded.

2024 Financial Highlights

• Solid Profitability: Net income for the full year 2024 was $117.6 million, or diluted earnings per share of $2.20, which translated into a return on average assets of 1.10%, a return on average equity of 7.50% and a return on average tangible equity of 12.18%⁽¹⁾. Net income for the fourth quarter of 2024 was $27.8 million, or diluted earnings per share of $0.52, which translated into an annualized return on average assets of 1.04%, an annualized return on average equity of 6.85% and an annualized return on average tangible equity of 10.82%⁽¹⁾.
• Strong Net Interest Margin: Tax equivalent net interest margin was 4.24% for the year 2024 compared to 4.51% for 2023. The tax equivalent net interest margin, excluding purchase accounting accretion (“PAA”), was 3.89%⁽¹⁾ for 2024 compared to 4.03%⁽¹⁾ for 2023. Tax equivalent net interest margin for the fourth quarter of 2024 was 4.25% compared to 4.19% for the third quarter of 2024. The tax equivalent net interest margin, excluding PAA, was 3.94%⁽¹⁾ for the fourth quarter of 2024 compared to 3.91%⁽¹⁾ for the third quarter of 2024.
• Meaningful Capital and Book Value Build: Total risk-based capital ratio increased to 16.06% at December 31, 2024 from 14.02% at December 31, 2023, book value per share increased to $30.14 from $28.54 at December 31, 2023 and tangible book value per share increased to $19.10⁽¹⁾ from $17.02⁽¹⁾ at December 31, 2023.
• Credit Metrics: Nonperforming loans decreased $2.0 million to $37.2 million at December 31, 2024 from $39.2 million at December 31, 2023.

Year 2024 Results

Net interest income for 2024 decreased $28.8 million, or 6.6%, to $408.0 million from $436.8 million for 2023. The net interest margin on a tax equivalent basis decreased 27 basis points to 4.24% for the full year 2024 from 4.51% for the full year 2023. The decrease in the net interest margin from the prior year was primarily due to the impact of increased average interest-bearing liabilities and increased rates on interest-bearing liabilities, partially offset by increased rates on interest-earning assets. Net interest income for the year 2024 benefited from $33.0 million of income from purchase accounting accretion compared to $46.8 million for the year 2023. Excluding purchase accounting accretion, net interest income (tax equivalent) for the year 2024 would have been $375.3 million⁽¹⁾ and the tax equivalent net interest margin would have been 3.89%⁽¹⁾.

Noninterest income for the year 2024 was $23.0 million, an increase of $1.5 million, or 6.2%, compared to $24.6 million for the year 2023. Noninterest income decreased in 2024 compared to 2023 primarily due to a decrease in debit card and ATM income, partially offset by the increase in gains on sales of assets and Small Business Investment Company income recognized in 2024 compared to 2023.

Noninterest expense for the year 2024 decreased $4.8 million, or 1.7%, to $285.7 million compared to $290.5 million for the year 2023. The decrease in noninterest expense in 2024 compared to 2023 was primarily due to $15.6 million of acquisition and merger-related expenses recognized in 2023, a $3.5 million decrease in regulatory assessments and a $2.7 million decrease in amortization of intangibles, partially offset by a $5.0 million increase in salaries and employee benefits.

The efficiency ratio was 66.39% for the year ended December 31, 2024 compared to 63.02% for the year ended December 31, 2023. Returns on average assets, average equity and average tangible equity were 1.10%, 7.50% and 12.18%⁽¹⁾ for 2024, respectively, compared to 1.21%, 8.96% and 15.75%⁽¹⁾ for 2023, respectively.

Fourth Quarter 2024 Results

Net interest income in the fourth quarter of 2024 increased $1.5 million, or 1.4%, to $103.0 million from $101.5 million for the third quarter of 2024. The net interest margin on a tax equivalent basis increased 6 basis points to 4.25% for the fourth quarter of 2024 from 4.19% for the third quarter of 2024. The increase in the net interest margin from the prior quarter was primarily due to the impact of decreased rates on interest-bearing liabilities. Net interest income for the fourth quarter of 2024 benefited from $7.6 million of income from purchase accounting accretion compared to $6.8 million in the third quarter of 2024. Excluding purchase accounting accretion, net interest income (tax equivalent) for the fourth quarter of 2024 would have been $95.5 million⁽¹⁾ and the tax equivalent net interest margin would have been 3.94%⁽¹⁾.

Noninterest income for the fourth quarter of 2024 was $5.0 million, a decrease of $1.3 million, or 20.2%, compared to $6.3 million for the third quarter of 2024. Noninterest income decreased in the fourth quarter of 2024 compared to the third quarter of 2024 primarily due to a loss on sales of assets in the fourth quarter of 2024 and Small Business Investment Company income recognized in the third quarter of 2024.

Noninterest expense for the fourth quarter of 2024 increased $915 thousand, or 1.3%, to $72.0 million compared to $71.1 million for the third quarter of 2024. The increase in noninterest expense in the fourth quarter of 2024 compared to the third quarter of 2024 was primarily due to an increase of $1.7 million in professional fees and a $715 thousand increase in advertising expense, partially offset by a $611 thousand decrease in salaries and employee benefits and a $631 thousand decrease in amortization of intangibles.

The efficiency ratio was 66.59% for the fourth quarter of 2024 compared to 66.18% for the third quarter of 2024. Annualized returns on average assets, average equity and average tangible equity were 1.04%, 6.85% and 10.82%⁽¹⁾ for the fourth quarter of 2024, respectively, compared to 1.27%, 8.49% and 13.63%⁽¹⁾ for the third quarter of 2024, respectively.

Financial Condition

Total assets at December 31, 2024 were $10.91 billion, an increase of $275.3 million, compared to $10.63 billion at September 30, 2024.

Total loans at December 31, 2024 decreased $111.3 million to $7.44 billion compared to $7.55 billion at September 30, 2024. At December 31, 2024, the remaining balance of the purchase accounting accretion on loans was $73.7 million.

Total deposits at December 31, 2024 increased $385.8 million to $9.13 billion compared to $8.74 billion at September 30, 2024, due to increases in interest-bearing and noninterest-bearing demand deposits, partially offset by decreases in certificates and other time deposits and money-market and savings accounts. Shifts in the deposit mix were primarily driven by the current interest rate environment and an intensely competitive market for deposits.

Asset Quality

Nonperforming assets totaled $38.9 million, or 0.36% of total assets, at December 31, 2024, compared to $35.1 million, or 0.33% of total assets, at September 30, 2024 and $39.2 million at December 31, 2023. The allowance for credit losses on loans as a percentage of total loans was 1.09% at December 31, 2024, 1.12% at September 30, 2024 and 1.16% at December 31, 2023.

The fourth quarter of 2024 included a provision for credit losses of $942 thousand compared to a reversal of provision for credit losses of $6.0 million recorded during the third quarter of 2024. Net charge-offs for the fourth quarter of 2024 were $2.0 million, or 0.11% (annualized) of average loans, compared to net charge-offs of $3.9 million, or 0.21% (annualized) of average loans, for the third quarter of 2024.

The year ended December 31, 2024 included a reversal of provision for credit losses of $2.9 million compared to a provision for credit losses of $8.9 million recorded for the year ended December 31, 2023. Net charge-offs for the year ended December 31, 2024 were $6.7 million, or 0.09% of average loans, compared to net charge-offs of $11.1 million, or 0.14% of average loans, for the year ended December 31, 2023.

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, January 31, 2025 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its results for the fourth quarter and full year 2024. Participants may register for the conference call at https://registrations.events/direct/Q4I635866 conference ID 63586 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 webcast is available at https://registrations.events/direct/Q4I635866 and requires pre-registration. 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.