Stellar Bancorp, Inc. Reports Third Quarter 2024 Results

HOUSTON--(BUSINESS WIRE)--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 [e-mail]. 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.

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