Stellar Bancorp, Inc. Reports Fourth Quarter 2023 Results

Stellar Bancorp, Inc. (the “Company” or “Stellar”) (NYSE: STEL) today reported net income of $27.3 million, or diluted earnings per share of $0.51, for the fourth quarter 2023 and net income of $130.5 million, or diluted earnings per share of $2.45, for the year ended December 31, 2023. During the fourth quarter, the Company recorded certain nonrecurring noninterest expense items, including the FDIC special insurance assessment expense of $2.4 million.

“We are pleased to announce our full-year and fourth quarter results, capping a successful year despite industry challenges and economic uncertainty,” said Robert R. Franklin, Jr., Stellar’s Chief Executive Officer. “We maintained our focus on capital, liquidity, and credit to protect shareholder value in a year of rapidly rising interest rates and large bank failures, all while setting the foundation of a new organization following our combination in late 2022. Our staff has done a great job in combining two banks and we are poised to refine what we have built. The success of our team’s efforts during the year is reflected by our maintaining a solid net interest margin, a strong deposit base, our credit quality and ability to build capital,” he continued.

“While we expect a somewhat slower economy in 2024, our focus will be on continuing to optimize and reduce our noninterest expenses as we manage the organization’s needs and requirements from crossing the $10 billion asset threshold. We believe that we are well positioned to take advantage of the opportunities that may be presented in 2024 and that our strategy provides us with optionality,” said Mr. Franklin.

“We operate in some of the best banking markets in the country and we look forward to the possibility of additional clarity around the direction of interest rates and a more reasonably priced market for deposits and funding in the new year. Thank you to our shareholders for their support and we look forward to continuing to build shareholder value in 2024,” concluded Mr. Franklin.

2023 Financial Highlights

• Strong Earnings: Stellar recorded 2023 net income of $130.5 million, or diluted earnings per share of $2.45, representing a return on average assets of 1.21%, return on average equity of 8.96% and return on average tangible equity of 15.75%⁽¹⁾.

• Meaningful Regulatory Capital Build: Total risk-based capital ratio increased to 14.02% at December 31, 2023 from 12.39% at December 31, 2022 and Tier 1 leverage ratio increased to 10.18% at December 31, 2023 from 8.55% at December 31, 2022.

• Book Value Growth: During 2023, book value per share increased to $28.54 at December 31, 2023 compared to $26.12 at December 31, 2022 while tangible book value per share increased by $3.00, or 21.4%, from $14.02 at December 31, 2022 to $17.02 at December 31, 2023.

• Advantageous Funding Profile: Noninterest-bearing deposit balances remained a significant portion of our deposit funding base, ending the year at 40.0% of total deposits.

Fourth Quarter 2023 Financial Highlights

• Strong Net Interest Margin: Tax equivalent net interest margin was 4.40% for fourth quarter of 2023 up from 4.37% in the third quarter of 2023. The tax equivalent net interest margin, excluding purchase accounting accretion (“PAA”), was 3.91%⁽¹⁾ for the fourth quarter of 2023 up from 3.87%⁽¹⁾ for the third quarter of 2023.

• Solid Profitability: Fourth quarter 2023 net income of $27.3 million, or diluted earnings per share of $0.51, translated into an annualized return on average assets of 1.02%, an annualized return on average equity of 7.33% and an annualized return on average tangible equity of 12.61%⁽¹⁾.

_____________________

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

Merger of Equals

The merger of equals (the “Merger”) between Allegiance Bancshares, Inc. (“Allegiance”) and CBTX, Inc. (“CBTX”), which became effective on October 1, 2022, was accounted for as a reverse acquisition using the acquisition method of accounting, with CBTX treated as the legal acquirer and Allegiance treated as the accounting acquirer for financial reporting purposes. Therefore, the historical financial statements of the Company prior to the Merger reflect the historical financial statement balances of Allegiance. In addition, the assets and liabilities of CBTX as of the date of the Merger were recorded at estimated fair value and added to those of Allegiance. The Merger had a significant impact on all aspects of the Company's financial statements and, as a result, financial results after the Merger are not comparable to financial results prior to the Merger. Results of operations for 2023 and the fourth quarter 2022 reflect the combined operations following the Merger. The full year 2022 results of operations reflect the combined operations for the fourth quarter 2022 and the stand-alone Allegiance results for all periods prior to October 1, 2022.

Fourth Quarter 2023 Results

Net interest income in the fourth quarter 2023 decreased $791 thousand, or 0.7%, to $105.9 million from $106.7 million for the third quarter 2023. The net interest margin on a tax equivalent basis increased three basis points to 4.40% for the fourth quarter 2023 from 4.37% for the third quarter 2023. The increase in the net interest margin from the prior quarter was primarily due to the increased yield on interest earning assets partially offset by increased rates on our cost of funding. Net interest income for the fourth quarter of 2023 benefited from $11.7 million of income from purchase accounting adjustments compared to $12.4 million in the third quarter of 2023. Excluding purchase accounting adjustments, a non-GAAP measure that is reconciled on page 10 of this earnings release, net interest income (tax equivalent) for the fourth quarter 2023 would have been $94.4 million and the tax equivalent net interest margin would have been 3.91%.

Noninterest income for the fourth quarter 2023 was $6.9 million, an increase of $2.2 million, or 46.7%, compared to $4.7 million for the third quarter 2023. Noninterest income increased in the fourth quarter of 2023 compared to the third quarter of 2023 primarily due to Small Business Investment Company income recognized partially offset by a decrease in debit card and ATM income due to the impact of the Durbin Amendment and change in the Company’s policy on charging nonsufficient funds fees.

Noninterest expense for the fourth quarter 2023 increased $7.2 million, or 10.2%, to $77.9 million compared to $70.7 million for the third quarter 2023. The increase in noninterest expense in the fourth quarter of 2023 compared to the third quarter of 2023 was primarily due to nonrecurring items including higher professional fees associated with various projects during the quarter some of which related to crossing the $10 billion asset threshold, a $2.4 million accrual for future payments to the FDIC pursuant to the special insurance assessment associated with two bank failures during 2023 and $1.9 million of severance expense.

The efficiency ratio was 69.21% for the fourth quarter 2023 compared to 63.50% for the third quarter 2023. Fourth quarter 2023 annualized returns on average assets, average equity and average tangible equity were 1.02%, 7.33% and 12.61%, respectively, compared to 1.14%, 8.34% and 14.47%, respectively, for the third quarter 2023. Return on average tangible equity is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 10 of this earnings release.

Year Ended December 31, 2023 Results

Net interest income for the year ended December 31, 2023 increased $147.8 million, or 51.1%, to $436.8 million from $289.0 million for the year ended December 31, 2022. The net interest margin on a tax equivalent basis increased 57 basis points to 4.51% for the year ended December 31, 2023 from 3.94% for the year ended December 31, 2022. The increase in the net interest margin from the prior quarter was primarily due to the impact of the Merger. Net interest income for the year ended December 31, 2023 benefited from $46.8 million of purchase accounting adjustments compared to $8.4 million for the year ended December 31, 2022. Excluding purchase accounting adjustments, a non-GAAP measure that is reconciled on page 10 of this earnings release, net interest income (tax equivalent) for the year ended December 31, 2023 would have been $390.9 million and the tax equivalent net interest margin would have been 4.03%.

Noninterest income for the year ended December 31, 2023 was $24.6 million, an increase of $4.2 million, or 20.7%, compared to $20.4 million for the year ended December 31, 2022. Noninterest income increased in 2023 compared to 2022 primarily due to increased scale as a result of the Merger along with increased Small Business Investment Company income. The increase in noninterest income was partially offset by the decrease in debit card and ATM income due to the impact of the Durbin Amendment and change in the Company’s policy on charging nonsufficient funds fees along with the nonrecurring gains on sale of securities, loans and assets during the fourth quarter 2022.

Noninterest expense for the year ended December 31, 2023 increased $94.4 million, or 48.2%, to $290.5 million compared to $196.1 million for the year ended December 31, 2022. The increase in noninterest expense in 2023 compared to 2022 was due to increased scale as a result of the Merger primarily within categories such as salaries and benefits and amortization of intangibles along with higher professional fees associated with various projects some of which related to crossing the $10 billion asset threshold, partially offset by a decrease in acquisition and merger-related expenses to $15.6 million from $24.1 million in 2022.

The efficiency ratio was 63.02% for the year ended December 31, 2023 compared to 64.23% for the year ended December 31, 2022. Annualized returns on average assets, average equity and average tangible equity were 1.21%, 8.96% and 15.75%, respectively, for the year ended December 31, 2023 compared to 0.64%, 5.69% and 9.16%, respectively, for the year ended December 31, 2022. Return on average tangible equity is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 10 of this earnings release.

Financial Condition

Total loans at December 31, 2023 decreased $79.4 million to $7.93 billion compared to $8.00 billion at September 30, 2023. At December 31, 2023, the remaining balance of the purchase accounting adjustments on loans was $106.8 million.

Total deposits at December 31, 2023 increased $186.8 million to $8.87 billion compared to $8.69 billion at September 30, 2023, due to increases in interest-bearing demand, money market and certificates and other time deposits, partially offset by a decreases noninterest-bearing deposits. Shifts in the deposit mix were primarily driven by the current interest rate environment and an intensely competitive market for deposits. Estimated uninsured deposits totaled $4.95 billion and estimated uninsured deposits net of collateralized deposits of $1.17 billion were $3.78 billion, or 42.6%, of total deposits at December 31, 2023.

Total assets at December 31, 2023 were $10.65 billion, a decrease of $18.3 million, compared to $10.67 billion at September 30, 2023.

Asset Quality

Nonperforming assets totaled $39.2 million, or 0.37% of total assets, at December 31, 2023, compared to $38.3 million, or 0.36%, of total assets, at September 30, 2023. The allowance for credit losses on loans as a percentage of total loans was 1.16% at December 31, 2023 and 1.17% at September 30, 2023.

The provision for credit losses for the fourth quarter 2023 was $1.0 million compared to $2.3 million for the third quarter 2023. Fourth quarter 2023 net charge-offs were $2.6 million, or 0.13% (annualized) of average loans, compared to net charge-offs of $8.1 million, or 0.40% (annualized) of average loans, for the third quarter 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 26, 2024 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its fourth quarter 2023 results. Participants may register for the conference call at https://conferencingportals.com/event/FdklYbaS 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 audio-only webcast may be accessed at https://events.q4inc.com/attendee/844946085. 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 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)
	2023																2022
	December 31				September 30				June 30				March 31				December 31
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	121,004			$	94,970			$	105,913			$	99,231			$	67,063
Interest-bearing deposits at other financial institutions		278,233				207,302				198,176				164,102				304,642
Total cash and cash equivalents		399,237				302,272				304,089				263,333				371,705
Available for sale securities, at fair value		1,395,680				1,414,952				1,478,222				1,519,175				1,807,586
Loans held for investment		7,925,133				8,004,528				8,068,718				7,886,044				7,754,751
Less: allowance for credit losses on loans		(91,684	)			(93,575	)			(100,195	)			(96,188	)			(93,180	)
Loans, net		7,833,449				7,910,953				7,968,523				7,789,856				7,661,571
Accrued interest receivable		44,244				43,536				42,051				42,405				44,743
Premises and equipment, net		118,683				119,332				119,142				124,723				126,803
Federal Home Loan Bank stock		25,051				29,022				24,478				19,676				15,058
Bank-owned life insurance		105,084				104,699				104,148				103,616				103,094
Goodwill		497,318				497,318				497,260				497,260				497,260
Core deposit intangibles, net		116,712				122,944				129,805				136,665				143,525
Other assets		111,681				120,432				110,633				108,009				129,092
Total assets	$	10,647,139			$	10,665,460			$	10,778,351			$	10,604,718			$	10,900,437
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	3,546,815			$	3,656,288			$	3,713,536			$	3,877,859			$	4,230,169
Interest-bearing
Demand		1,659,999				1,397,492				1,437,509				1,394,244				1,591,828
Money market and savings		2,136,777				2,128,950				2,174,073				2,401,840				2,575,923
Certificates and other time		1,529,876				1,503,891				1,441,251				1,064,932				869,712
Total interest-bearing deposits		5,326,652				5,030,333				5,052,833				4,861,016				5,037,463
Total deposits		8,873,467				8,686,621				8,766,369				8,738,875				9,267,632
Accrued interest payable		11,288				7,612				4,555				3,875				2,098
Borrowed funds		50,000				323,981				369,963				238,944				63,925
Subordinated debt		109,765				109,665				109,566				109,420				109,367
Other liabilities		81,601				76,735				69,218				67,388				74,239
Total liabilities		9,126,121				9,204,614				9,319,671				9,158,502				9,517,261
SHAREHOLDERS’ EQUITY:
Common stock		533				533				533				533				530
Capital surplus		1,232,627				1,231,686				1,228,532				1,225,596				1,222,761
Retained earnings		405,945				385,600				361,619				333,368				303,146
Accumulated other comprehensive loss		(118,087	)			(156,973	)			(132,004	)			(113,281	)			(143,261	)
Total shareholders’ equity		1,521,018				1,460,846				1,458,680				1,446,216				1,383,176
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	10,647,139			$	10,665,460			$	10,778,351			$	10,604,718			$	10,900,437

Stellar Bancorp, Inc. Financial Highlights (Unaudited)
	Three Months Ended																	Years Ended
	2023													2022				2023			2022
	December 31			September 30			June 30				March 31			December 31				December 31			December 31
	(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees	$	139,114		$	138,948		$	133,931			$	125,729		$	116,145			$	537,722		$	280,375
Securities:
Taxable		9,622			9,493			9,726				9,653			9,834				38,494			27,128
Tax-exempt		418			437			436				1,262			3,057				2,553			10,733
Deposits in other financial institutions		3,021			2,391			2,865				3,771			2,933				12,048			4,758
Total interest income		152,175			151,269			146,958				140,415			131,969				590,817			322,994
INTEREST EXPENSE:
Demand, money market and savings deposits		25,033			23,557			20,708				18,037			12,406				87,335			19,139
Certificates and other time deposits		15,075			13,282			9,622				3,307			2,083				41,286			7,825
Borrowed funds		4,154			5,801			6,535				1,317			417				17,807			1,216
Subordinated debt		1,983			1,908			1,812				1,927			1,449				7,630			5,856
Total interest expense		46,245			44,548			38,677				24,588			16,355				154,058			34,036
NET INTEREST INCOME		105,930			106,721			108,281				115,827			115,614				436,759			288,958
Provision for credit losses		1,047			2,315			1,915				3,666			44,793				8,943			50,712
Net interest income after provision for credit losses		104,883			104,406			106,366				112,161			70,821				427,816			238,246
NONINTEREST INCOME:
Nonsufficient funds and overdraft charges		183			291			418				406			447				1,298			834
Service charges on deposit accounts		1,337			1,329			1,157				943			1,242				4,766			2,856
Gain (loss) on sale of assets		198			—			(6	)			198			4,025				390			4,050
Bank-owned life insurance		573			551			532				522			515				2,178			1,125
Debit card and ATM income		542			935			1,821				1,698			1,897				4,996			4,465
Other		4,053			1,589			1,561				3,731			2,511				10,934			7,024
Total noninterest income		6,886			4,695			5,483				7,498			10,637				24,562			20,354
NONINTEREST EXPENSE:
Salaries and employee benefits		40,464			39,495			37,300				39,775			40,949				157,034			107,554
Net occupancy and equipment		4,572			4,455			3,817				4,088			3,781				16,932			10,335
Depreciation		1,955			1,952			1,841				1,836			1,903				7,584			4,951
Data processing and software amortization		5,000			4,798			4,674				5,054			3,776				19,526			11,337
Professional fees		3,867			997			1,564				1,527			2,298				7,955			3,583
Regulatory assessments and FDIC insurance		5,169			1,814			2,755				1,294			1,263				11,032			4,914
Amortization of intangibles		6,247			6,876			6,881				6,879			7,051				26,883			9,303
Communications		743			663			689				701			737				2,796			1,800
Advertising		1,004			877			907				839			1,130				3,627			2,460
Acquisition and merger-related expenses		3,072			3,421			2,897				6,165			11,469				15,555			24,138
Other		5,848			5,400			5,882				4,440			5,267				21,570			15,701
Total noninterest expense		77,941			70,748			69,207				72,598			79,624				290,494			196,076
INCOME BEFORE INCOME TAXES		33,828			38,353			42,642				47,061			1,834				161,884			62,524
Provision for income taxes		6,562			7,445			7,467				9,913			(218	)			31,387			11,092
NET INCOME	$	27,266		$	30,908		$	35,175			$	37,148		$	2,052			$	130,497		$	51,432
EARNINGS PER SHARE
Basic	$	0.51		$	0.58		$	0.66			$	0.70		$	0.04			$	2.45		$	1.48
Diluted	$	0.51		$	0.58		$	0.66			$	0.70		$	0.04			$	2.45		$	1.47

Stellar Bancorp, Inc. Financial Highlights (Unaudited)
	Three Months Ended																				Years Ended
	2023																2022				2023				2022
	December 31				September 30				June 30				March 31				December 31				December 31				December 31
	(Dollars and share amounts in thousands, except per share data)
Net income	$	27,266			$	30,908			$	35,175			$	37,148			$	2,052			$	130,497			$	51,432
Earnings per share, basic	$	0.51			$	0.58			$	0.66			$	0.70			$	0.04			$	2.45			$	1.48
Earnings per share, diluted	$	0.51			$	0.58			$	0.66			$	0.70			$	0.04			$	2.45			$	1.47
Dividends per share	$	0.13			$	0.13			$	0.13			$	0.13			$	0.13			$	0.52			$	0.43
Return on average assets(A)		1.02	%			1.14	%			1.31	%			1.38	%			0.07	%			1.21	%			0.64	%
Return on average equity(A)		7.33	%			8.34	%			9.67	%			10.62	%			0.60	%			8.96	%			5.69	%
Return on average tangible equity(A)(B)		12.61	%			14.47	%			17.05	%			19.32	%			1.16	%			15.75	%			9.16	%
Net interest margin (tax equivalent)(A)(C)		4.40	%			4.37	%			4.49	%			4.80	%			4.71	%			4.51	%			3.94	%
Net interest margin (tax equivalent) excluding PAA(A)(B)(C)		3.91	%			3.87	%			3.97	%			4.38	%			4.38	%			4.03	%			3.83	%
Efficiency ratio(D)		69.21	%			63.50	%			60.83	%			58.96	%			65.14	%			63.02	%			64.23	%
Capital Ratios
Stellar Bancorp, Inc. (Consolidated)
Equity to assets		14.29	%			13.70	%			13.53	%			13.64	%			12.69	%			14.29	%			12.69	%
Tangible equity to tangible assets(B)		9.04	%			8.37	%			8.19	%			8.15	%			7.24	%			9.04	%			7.24	%
Estimated Total capital ratio (to risk-weighted assets)		14.02	%			13.42	%			13.03	%			12.72	%			12.39	%			14.02	%			12.39	%
Estimated Common equity Tier 1 capital (to risk weighted assets)		11.77	%			11.14	%			10.67	%			10.39	%			10.04	%			11.77	%			10.04	%
Estimated Tier 1 capital (to risk-weighted assets)		11.89	%			11.25	%			10.78	%			10.50	%			10.15	%			11.89	%			10.15	%
Estimated Tier 1 leverage (to average tangible assets)		10.18	%			9.82	%			9.51	%			9.01	%			8.55	%			10.18	%			8.55	%
Stellar Bank
Estimated Total capital ratio (to risk-weighted assets)		13.65	%			13.13	%			12.80	%			12.42	%			12.02	%			13.65	%			12.02	%
Estimated Common equity Tier 1 capital (to risk-weighted assets)		12.20	%			11.63	%			11.22	%			10.87	%			10.46	%			12.20	%			10.46	%
Estimated Tier 1 capital (to risk-weighted assets)		12.20	%			11.63	%			11.22	%			10.87	%			10.46	%			12.20	%			10.46	%
Estimated Tier 1 leverage (to average tangible assets)		10.44	%			10.15	%			9.89	%			9.35	%			8.81	%			10.44	%			8.81	%
Other Data
Weighted average shares:
Basic		53,282				53,313				53,297				53,021				52,715				53,229				34,738
Diluted		53,350				53,380				53,375				53,138				52,973				53,313				35,007
Period end shares outstanding		53,291				53,322				53,303				53,296				52,955				53,291				52,955
Book value per share	$	28.54			$	27.40			$	27.37			$	27.14			$	26.12			$	28.54			$	26.12
Tangible book value per share(B)	$	17.02			$	15.76			$	15.60			$	15.24			$	14.02			$	17.02			$	14.02
Employees - full-time equivalents		998				1,008				1,004				1,055				1,025				998				1,025

(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
	December 31, 2023										September 30, 2023										December 31, 2022
	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	$	7,973,780			$	139,114		6.92	%		$	8,043,706			$	138,948		6.85	%		$	7,666,502			$	116,145		6.01	%
Securities		1,386,079				10,040		2.87	%			1,471,916				9,930		2.68	%			1,795,082				12,891		2.85	%
Deposits in other financial institutions		217,068				3,021		5.52	%			181,931				2,391		5.21	%			354,117				2,933		3.29	%
Total interest-earning assets		9,576,927			$	152,175		6.30	%			9,697,553			$	151,269		6.19	%			9,815,701			$	131,969		5.33	%
Allowance for credit losses on loans		(92,992	)									(99,892	)									(88,150	)
Noninterest-earning assets		1,142,438										1,143,634										1,218,458
Total assets	$	10,626,373									$	10,741,295									$	10,946,009
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	1,420,892			$	10,548		2.95	%		$	1,400,508			$	10,415		2.95	%		$	1,465,711			$	5,422		1.47	%
Money market and savings deposits		2,163,348				14,485		2.66	%			2,166,610				13,142		2.41	%			2,705,984				6,984		1.02	%
Certificates and other time deposits		1,461,227				15,075		4.09	%			1,400,367				13,282		3.76	%			932,058				2,083		0.89	%
Borrowed funds		275,694				4,154		5.98	%			411,212				5,801		5.60	%			37,824				417		4.37	%
Subordinated debt		109,713				1,983		7.17	%			109,608				1,908		6.91	%			109,307				1,449		5.26	%
Total interest-bearing liabilities		5,430,874			$	46,245		3.38	%			5,488,305			$	44,548		3.22	%			5,250,884			$	16,355		1.24	%
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		3,624,417										3,695,592										4,199,982
Other liabilities		95,705										86,389										147,205
Total liabilities		9,150,996										9,270,286										9,598,071
Shareholders' equity		1,475,377										1,471,009										1,347,938
Total liabilities and shareholders' equity	$	10,626,373									$	10,741,295									$	10,946,009
Net interest rate spread								2.92	%									2.97	%									4.09	%
Net interest income and margin					$	105,930		4.39	%						$	106,721		4.37	%						$	115,614		4.67	%
Net interest income and net interest margin (tax equivalent)					$	106,121		4.40	%						$	106,919		4.37	%						$	116,574		4.71	%
Cost of funds								2.03	%									1.92	%									0.69	%
Cost of deposits								1.84	%									1.69	%									0.62	%

Stellar Bancorp, Inc. Financial Highlights (Unaudited)
	Years Ended December 31,
	2023										2022
	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	$	7,961,911			$	537,722		6.75	%		$	5,171,944			$	280,375		5.42	%
Securities		1,490,588				41,047		2.75	%			1,779,425				37,861		2.13	%
Deposits in other financial institutions		242,803				12,048		4.96	%			462,075				4,758		1.03	%
Total interest-earning assets		9,695,302			$	590,817		6.09	%			7,413,444			$	322,994		4.36	%
Allowance for credit losses on loans		(95,668	)									(59,099	)
Noninterest-earning assets		1,147,232										633,928
Total assets	$	10,746,866									$	7,988,273
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	1,464,015			$	38,689		2.64	%		$	1,140,575			$	9,278		0.81	%
Money market and savings deposits		2,259,264				48,646		2.15	%			1,841,348				9,861		0.54	%
Certificates and other time deposits		1,239,345				41,286		3.33	%			1,034,491				7,825		0.76	%
Borrowed funds		318,721				17,807		5.59	%			61,773				1,216		1.97	%
Subordinated debt		109,560				7,630		6.96	%			109,111				5,856		5.37	%
Total interest-bearing liabilities		5,390,905			$	154,058		2.86	%			4,187,298				34,036		0.81	%
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		3,814,651										2,833,865
Other liabilities		85,376										62,581
Total liabilities		9,290,932										7,083,744
Shareholders' equity		1,455,934										904,529
Total liabilities and shareholders' equity	$	10,746,866									$	7,988,273
Net interest rate spread								3.23	%									3.55	%
Net interest income and margin					$	436,759		4.50	%						$	288,958		3.90	%
Net interest income and net interest margin (tax equivalent)					$	437,670		4.51	%						$	292,152		3.94	%
Cost of funds								1.67	%									0.48	%
Cost of deposits								1.47	%									0.39	%

Stellar Bancorp, Inc. Financial Highlights (Unaudited)
	Three Months Ended
	2023																2022
	December 31				September 30				June 30				March 31				December 31
	(Dollars in thousands)
Period-end Loan Portfolio:
Commercial and industrial	$	1,409,002			$	1,474,600			$	1,512,476			$	1,477,340			$	1,455,795
Paycheck Protection Program (PPP)		5,100				5,968				8,027				11,081				13,226
Real estate:
Commercial real estate (including multi-family residential)		4,071,807				4,076,606				4,038,487				4,014,609				3,931,480
Commercial real estate construction and land development		1,060,406				1,078,265				1,136,124				1,034,538				1,037,678
1-4 family residential (including home equity)		1,047,174				1,024,945				1,009,439				1,008,362				1,000,956
Residential construction		267,357				289,553				311,208				292,143				268,150
Consumer and other		64,287				54,591				52,957				47,971				47,466
Total loans held for investment	$	7,925,133			$	8,004,528			$	8,068,718			$	7,886,044			$	7,754,751
Deposits:
Noninterest-bearing	$	3,546,815			$	3,656,288			$	3,713,536			$	3,877,859			$	4,230,169
Interest-bearing
Demand		1,659,999				1,397,492				1,437,509				1,394,244				1,591,828
Money market and savings		2,136,777				2,128,950				2,174,073				2,401,840				2,575,923
Certificates and other time		1,529,876				1,503,891				1,441,251				1,064,932				869,712
Total interest-bearing deposits		5,326,652				5,030,333				5,052,833				4,861,016				5,037,463
Total deposits	$	8,873,467			$	8,686,621			$	8,766,369			$	8,738,875			$	9,267,632
Asset Quality:
Nonaccrual loans	$	39,191			$	38,291			$	43,349			$	43,413			$	45,048
Accruing loans 90 or more days past due		—				—				—				—				—
Total nonperforming loans		39,191				38,291				43,349				43,413				45,048
Other repossessed assets		—				—				—				124				—
Total nonperforming assets	$	39,191			$	38,291			$	43,349			$	43,537			$	45,048
Net charge-offs	$	2,577			$	8,116			$	236			$	192			$	5,707
Nonaccrual loans:
Commercial and industrial	$	5,048			$	14,991			$	22,968			$	23,329			$	25,402
Real estate:
Commercial real estate (including multi-family residential)		16,699				13,563				8,221				9,026				9,970
Commercial real estate construction and land development		5,043				170				388				27				—
1-4 family residential (including home equity)		8,874				8,442				10,880				10,586				9,404
Residential construction		3,288				635				665				195				—
Consumer and other		239				490				227				250				272
Total nonaccrual loans	$	39,191			$	38,291			$	43,349			$	43,413			$	45,048
Asset Quality Ratios:
Nonperforming assets to total assets		0.37	%			0.36	%			0.40	%			0.41	%			0.41	%
Nonperforming loans to total loans		0.49	%			0.48	%			0.54	%			0.55	%			0.58	%
Allowance for credit losses on loans to nonperforming loans		233.94	%			244.38	%			231.14	%			221.56	%			206.85	%
Allowance for credit losses on loans to total loans		1.16	%			1.17	%			1.24	%			1.22	%			1.20	%
Net charge-offs to average loans (annualized)		0.13	%			0.40	%			0.01	%			0.01	%			0.30	%

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																				Years Ended
	2023																2022				2023				2022
	December 31				September 30				June 30				March 31				December 31				December 31				December 31
	(Dollars and share amounts in thousands, except per share data)
Net income	$	27,266			$	30,908			$	35,175			$	37,148			$	2,052			$	130,497			$	51,432
Add: Provision for credit losses		1,047				2,315				1,915				3,666				44,793				8,943				50,712
Add: Provision for income taxes		6,562				7,445				7,467				9,913				(218	)			31,387				11,092
Pre-tax, pre-provision income	$	34,875			$	40,668			$	44,557			$	50,727			$	46,627			$	170,827			$	113,236
Total average assets	$	10,626,373			$	10,741,295			$	10,740,138			$	10,882,533			$	10,946,009			$	10,746,866			$	7,988,273
Pre-tax, pre-provision return on average assets(B)		1.30	%			1.50	%			1.66	%			1.89	%			1.69	%			1.59	%			1.42	%
Total shareholders' equity	$	1,521,018			$	1,460,846			$	1,458,680			$	1,446,216			$	1,383,176			$	1,521,018			$	1,383,176
Less: Goodwill and core deposit intangibles, net		614,030				620,262				627,065				633,925				640,785				614,030				640,785
Tangible shareholders’ equity	$	906,988			$	840,584			$	831,615			$	812,291			$	742,391			$	906,988			$	742,391
Shares outstanding at end of period		53,291				53,322				53,303				53,296				52,955				53,291				52,955
Tangible book value per share	$	17.02			$	15.76			$	15.60			$	15.24			$	14.02			$	17.02			$	14.02
Average shareholders' equity	$	1,475,377			$	1,471,009			$	1,458,473			$	1,418,082			$	1,347,938			$	1,455,934			$	904,529
Less: Average goodwill and core deposit intangibles, net		617,236				623,864				630,854				638,110				658,107				627,449				343,257
Average tangible shareholders’ equity	$	858,141			$	847,145			$	827,619			$	779,972			$	689,831			$	828,485			$	561,272
Return on average tangible equity(B)		12.61	%			14.47	%			17.05	%			19.32	%			1.18	%			15.75	%			9.16	%
Total assets	$	10,647,139			$	10,665,460			$	10,778,351			$	10,604,718			$	10,900,437			$	10,647,139			$	10,900,437
Less: Goodwill and core deposit intangibles, net		614,030				620,262				627,065				633,925				640,785				614,030				640,785
Tangible assets	$	10,033,109			$	10,045,198			$	10,151,286			$	9,970,793			$	10,259,652			$	10,033,109			$	10,259,652
Tangible equity to tangible assets		9.04	%			8.37	%			8.19	%			8.15	%			7.24	%			9.04	%			7.24	%
Net interest income (tax equivalent)	$	106,121			$	106,919			$	108,509			$	116,119			$	116,574			$	437,670			$	292,152
Less: Purchase accounting accretion		11,726				12,400				12,572				10,104				8,160				46,802				8,370
Adjusted net interest income (tax equivalent)	$	94,395			$	94,519			$	95,937			$	106,015			$	108,414			$	390,868			$	283,782
Average earning assets	$	9,576,927			$	9,697,553			$	9,693,527			$	9,815,803			$	9,815,701			$	9,695,302			$	7,413,444
Net interest margin (tax equivalent) excluding PAA		3.91	%			3.87	%			3.97	%			4.38	%			4.38	%			4.03	%			3.83	%

(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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