Stellar Bancorp, Inc. Reports Second Quarter 2025 Results

Stellar Bancorp, Inc. (the "Company" or "Stellar") (NYSE:STEL) today reported net income of $26.4 million, or diluted earnings per share of $0.51, for the second quarter of 2025, compared to net income of $24.7 million, or diluted earnings per share of $0.46, for the first quarter of 2025.

"We are pleased to report our second quarter results that reflect the efforts of our team beginning to add growth to the foundation we've built at Stellar Bank," said Robert R. Franklin, Jr., Stellar's Chief Executive Officer.

"Our bankers made meaningful progress on originations during the second quarter after experiencing elevated payoff activity. We believe that the momentum we saw at the end of the second quarter will continue, which sets us up for loan and deposit growth over the remainder of the year," Mr. Franklin continued.

"We also anticipate that the President's spending bill will provide some tail wind for the Houston economy. The Stellar message is resonating with our customer base, and we are seeing great progress with our prospects. Our pipelines are building and Stellar Bank is well-positioned to gain market share in the vibrant Texas markets we serve," Mr. Franklin concluded.

Financial Highlights

• Solid Profitability: Net income for the second quarter of 2025 was $26.4 million, or diluted earnings per share of $0.51, which translated into an annualized return on average assets of 1.01%, an annualized return on average equity of 6.62% and an annualized return on average tangible equity of 12.16%⁽¹⁾.

• Strong Net Interest Margin: Tax equivalent net interest margin for the second quarter of 2025 was 4.18% compared to 4.20% for the first quarter of 2025. The tax equivalent net interest margin, excluding purchase accounting accretion ("PAA"), was 3.95%⁽¹⁾ for the second quarter of 2025 compared to 3.97%⁽¹⁾ for the first quarter of 2025.

• Strong Capital Position and Book Value Build: Total risk-based capital ratio increased to 15.98% at June 30, 2025, while book value per share increased to $31.20 at June 30, 2025 from $30.89 at March 31, 2025 and tangible book value per share increased to $19.94⁽¹⁾ at June 30, 2025 from $19.69⁽¹⁾ at March 31, 2025.

• Low Net Charge-offs: Net charge-offs of $370 thousand, or 0.01% of average loans, for the six months ended June 30, 2025 along with manageable asset quality, compared to $713 thousand, or 0.02% of average loans, for the six months ended June 30, 2024.

• Repurchase of Shares: Repurchased 791 thousand shares at a weighted average price per share of $26.08 during the second quarter of 2025.

Second Quarter 2025 Results

Net interest income in the second quarter of 2025 decreased $923 thousand, or 0.9%, to $98.3 million from $99.3 million for the first quarter of 2025. The net interest margin on a tax equivalent basis decreased to 4.18% for the second quarter of 2025 from 4.20% for the first quarter of 2025. The decrease in the net interest margin from the prior quarter was primarily due to the impact of increased rates on interest-bearing liabilities along with the decrease in average interest-earning assets partially offset by higher rates on loans. Net interest income for the second quarter of 2025 benefited from $5.3 million of income from PAA compared to $5.4 million in the first quarter of 2025. Excluding PAA, net interest income (tax equivalent) for the second quarter of 2025 would have been $93.1 million⁽¹⁾ and the tax equivalent net interest margin would have been 3.95%⁽¹⁾.

Noninterest income for the second quarter of 2025 was $5.8 million, an increase of $286 thousand, or 5.2%, compared to $5.5 million for the first quarter of 2025. Noninterest income increased in the second quarter of 2025 compared to the first quarter of 2025 primarily due to the increase in other noninterest income partially offset by the loss on sale of assets during the second quarter. A significant driver of the increase in other noninterest income was $490 thousand in Federal Reserve Bank dividends as a result of Stellar Bank becoming a member of the Federal Reserve System effective in April 2025.

Noninterest expense for the second quarter of 2025 decreased $162 thousand, or 0.2%, to $70.0 million compared to $70.2 million for the first quarter of 2025. The decrease in noninterest expense in the second quarter of 2025 compared to the first quarter of 2025 was primarily due to a decrease in salaries and employee benefits of $865 thousand along with a decrease in professional fees of $499 thousand partially offset by a $473 thousand increase in net occupancy and equipment, a $385 thousand increase in advertising expense and a $567 thousand increase in other noninterest expense.

The efficiency ratio was 61.87% for the second quarter of 2025 compared to 61.93%⁽¹⁾ for the first quarter of 2025. Annualized returns on average assets, average equity and average tangible equity were 1.01%, 6.62% and 12.16%⁽¹⁾ for the second quarter of 2025, respectively, compared to 0.94%, 6.21% and 11.48%⁽¹⁾ for the first quarter of 2025, respectively.

Financial Condition

Total assets at June 30, 2025 were $10.49 billion, an increase of $58.1 million compared to $10.43 billion at March 31, 2025. The increase in total assets was largely due to an increase in Federal Reserve Bank stock along with increases in cash and securities, all of which were funded largely by core deposit growth.

Total loans at June 30, 2025 increased $4.2 million to $7.29 billion compared to $7.28 billion at March 31, 2025. At June 30, 2025, the remaining balance of the purchase accounting accretion ("PAA") on loans was $62.9 million.

Total deposits at June 30, 2025 increased $110.9 million to $8.67 billion compared to $8.56 billion at March 31, 2025 primarily due to increases in demand and money market and savings deposits partially offset by decreases in certificates and other time and noninterest-bearing deposits. Certificates and other time deposits decreased primarily due to the reduction in brokered deposits.

Asset Quality

Nonperforming assets totaled $58.2 million, or 0.55% of total assets, at June 30, 2025, compared to $59.7 million, or 0.57% of total assets, at March 31, 2025. The allowance for credit losses on loans as a percentage of total loans was 1.14% at June 30, 2025 compared to 1.15% at March 31, 2025.

The provision for credit losses was $1.1 million for the second quarter of 2025 compared to $3.6 million for the first quarter of 2025. Net charge-offs for the second quarter of 2025 were $206 thousand, or 0.01% (annualized) of average loans, compared to net charge-offs of $163 thousand, or 0.01% (annualized) of average loans, for the first quarter of 2025.

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, July 25, 2025 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its results for the second quarter of 2025. Participants may register for the conference call at https://registrations.events/direct/Q4I635866891 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/Q4I635866891 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 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 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.