Stellar Bancorp, Inc. Reports First Quarter 2025 Results

Stellar Bancorp, Inc. (the "Company" or "Stellar") (NYSE:STEL) today reported net income of $24.7 million or diluted earnings per share of $0.46, for the first quarter of 2025, compared to net income of $25.2 million, or diluted earnings per share of $0.47, for the fourth quarter of 2024.

"We are pleased with the great work our team is doing as we turn our efforts from building our foundation to growing our bank," said Robert R. Franklin, Jr., Stellar's Chief Executive Officer. "We are seeing our pipelines build while experiencing payoffs as commercial real estate is sold or refinanced. This follows our expectations as interest rates begin to stabilize and we stabilize our position under regulatory guidance," Mr. Franklin continued.

"We cannot ignore the uncertainty that has been introduced by the administration through tariffs. We will continue to monitor the effects on the economy in general and specifically our customer base. We continue to believe that we operate in one of the most dynamic markets in the country and will continue to deliver opportunities for Stellar Bank. However, we will remain cautious around credit as we build our pipelines," commented Mr. Franklin.

"Given the uncertainty caused in the first quarter, we expect most of our growth to come in the second half of the year, but what we have seen so far this year is encouraging. Thank you to the great Stellar Team as we build Stellar into the bank of choice in our markets," Mr. Franklin concluded.

Financial Highlights

• Solid Profitability: Net income for the first quarter of 2025 was $24.7 million, or diluted earnings per share of $0.46, which translated into an annualized return on average assets of 0.94%, an annualized return on average equity of 6.21% and an annualized return on average tangible equity of 11.48%⁽¹⁾.
• Strong Net Interest Margin: Tax equivalent net interest margin for the first quarter of 2025 was 4.20% compared to 4.25% for the fourth quarter of 2024. The tax equivalent net interest margin, excluding purchase accounting accretion ("PAA"), was 3.97%⁽¹⁾ for the first quarter of 2025 compared to 3.94%⁽¹⁾ for the fourth quarter of 2024.
• Strong Capital Position and Book Value Build: Total risk-based capital ratio increased to 15.94% at March 31, 2025, while book value per share increased to $30.89 at March 31, 2025 from $30.09 at December 31, 2024 and tangible book value per share increased to $19.69⁽¹⁾ at March 31, 2025 from $19.05⁽¹⁾ at December 31, 2024.
• Repurchase of Shares: Repurchased 1.4 million shares at a weighted average price per share of $27.99 during the first quarter of 2025 and 679 thousand shares at a weighted average price of $25.83 per share since the end of the first quarter of 2025. On April 23, 2025, the Board of Directors authorized of new share repurchase program under which the Company may repurchase up to $65 million of common stock through May 31, 2026.

First Quarter 2025 Results

Net interest income in the first quarter of 2025 decreased $3.7 million, or 3.6%, to $99.3 million from $103.0 million for the fourth quarter of 2024. The net interest margin on a tax equivalent basis decreased 5 basis points to 4.20% for the first quarter of 2025 from 4.25% for the fourth quarter of 2024. The decrease in the net interest margin from the prior quarter was primarily due to the impact of lower rates on interest-earnings assets and decreased average interest-earnings assets partially offset by lower rates on interest-bearing liabilities. Net interest income for the first quarter of 2025 benefited from $5.4 million of income from PAA compared to $7.6 million in the fourth quarter of 2024. Excluding PAA, net interest income (tax equivalent) for the first quarter of 2025 would have been $94.0 million⁽¹⁾ and the tax equivalent net interest margin would have been 3.97%⁽¹⁾.

Noninterest income for the first quarter of 2025 was $5.5 million, an increase of $473 thousand, or 9.4%, compared to $5.0 million for the fourth quarter of 2024. Noninterest income increased in the first quarter of 2025 compared to the fourth quarter of 2024 primarily due to a gain on sales of assets during the first quarter of 2025.

Noninterest expense for the first quarter of 2025 decreased $5.1 million, or 6.8%, to $70.2 million compared to $75.3 million for the fourth quarter of 2024. The decrease in noninterest expense in the first quarter of 2025 compared to the fourth quarter of 2024 was primarily due to a decrease in salaries and employee benefits of $2.0 million, a decrease in professional fees of $1.6 million and an $811 thousand decrease in advertising expense.

The efficiency ratio was 61.93% for the first quarter of 2025 compared to 64.46% for the fourth quarter of 2024. Annualized returns on average assets, average equity and average tangible equity were 0.94%, 6.21% and 11.48%⁽¹⁾ for the first quarter of 2025, respectively, compared to 0.94%, 6.21% and 11.53%⁽¹⁾ for the fourth quarter of 2024, respectively.

Financial Condition

Total assets at March 31, 2025 were $10.43 billion, a decrease of $470.9 million compared to $10.91 billion at December 31, 2024. The decrease in total assets was largely due to seasonality in government deposits.

Total loans at March 31, 2025 decreased $156.7 million to $7.28 billion compared to $7.44 billion at December 31, 2024. At March 31, 2025, the remaining balance of the purchase accounting accretion on loans was $68.2 million.

Total deposits at March 31, 2025 decreased $565.7 million to $8.56 billion compared to $9.13 billion at December 31, 2024 primarily due to decreases in noninterest-bearing and certificates and other time deposits. Noninterest-bearing deposits largely decreased due to the aforementioned seasonality in government deposits while certificates and other time deposits decreased primarily due to the reduction in brokered deposits. 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 $59.7 million, or 0.57% of total assets, at March 31, 2025, compared to $38.9 million, or 0.36% of total assets, at December 31, 2024. The allowance for credit losses on loans as a percentage of total loans was 1.15% at March 31, 2025 compared to 1.09% at December 31, 2024.

The provision for credit losses was $3.6 million for the first quarter of 2025, compared to $942 thousand for the fourth quarter of 2024 primarily due to the increase in nonperforming loans. Net charge-offs for the first quarter of 2025 were $163 thousand, or 0.01% (annualized) of average loans, compared to net charge-offs of $2.0 million, or 0.11% (annualized) of average loans, for the fourth 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 9 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, April 25, 2025 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its results for the first quarter of 2025. Participants may register for the conference call at https://registrations.events/direct/Q4I635868 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 [email protected]. A simultaneous webcast is available at https://registrations.events/direct/Q4I635868 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, 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: 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; risks associated with uninsured deposits and responsive measures by federal or state governments or banking regulators; legislative changes, executive orders, regulatory actions and reforms of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Texas Department of Banking.

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.