0001473844FALSE00014738442023-10-272023-10-27

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
Form 8-K
____________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): October 27, 2023
Stellar Bancorp, Inc.
(Exact Name of Registrant as Specified in Charter)
Texas001-3828020-8339782
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)
9 Greenway Plaza, Suite 110  
Houston, Texas 77046
(Address of Principal Executive Offices) (Zip Code)
(713) 210-7600
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
£Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
£Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
£Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
£Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per shareSTEL New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £


Item 2.02. Results of Operations and Financial Condition.
On October 27, 2023, Stellar Bancorp, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter of 2023. A copy of the press release, as well as a copy of the accompanying earnings presentation, are furnished as Exhibit 99.1 and Exhibit 99.2 hereto, respectively, and incorporated herein by reference.
In accordance with General Instruction B.2 to Form 8-K, the information furnished in Item 2.02, Exhibit 99.1 and Exhibit 99.2 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and such information shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d)    Exhibits. The following are furnished as exhibits to this Current Report on Form 8-K:
Exhibit NumberDescription of Exhibit
99.1
99.2
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
Forward-Looking Statements

This Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements anticipated in such statements. Forward-looking statements speak only as of the date they are made and, except as required by law, the Company does not assume any duty to update forward-looking statements. Such forward-looking statements include, but are not limited to, statements concerning the Company’s plans, objectives, strategies, expectations, intentions and other statements that are not statements of historical fact, and may be identified by words such as “anticipates,” “believes,” “building,” “continue,” “could,” “drive,” “estimates,” “expects,” “extent,” “focus,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “outlook,” “plan,” “position,” “probable,” “progressing,” “projects,” “prudent,” “seeks,” “should,” “target,” “view,” “will” or “would” or the negative of these words and phrases or similar words or phrases. For a list of factors that could cause actual results to differ materially from those set forth in the forward-looking statements, see the risk factors described in the Company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and other reports that are filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement.


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
STELLAR BANCORP, INC.
Date: October 27, 2023By:/s/ Paul P. Egge
Paul P. Egge
Chief Financial Officer



Exhibit 99.1
imagea.jpg
PRESS RELEASE                                        

STELLAR BANCORP, INC. REPORTS
THIRD QUARTER 2023 RESULTS

HOUSTON, October 27, 2023 - Stellar Bancorp, Inc. (the “Company” or “Stellar”) (NYSE: STEL) today reported net income of $30.9 million and diluted earnings per share of $0.58 for the third quarter 2023 compared to net income of $35.2 million and diluted earnings per share of $0.66 for the second quarter 2023.

“We are pleased with our results for the third quarter 2023 given the uncertainty of the economic environment. We remain steadfast in our commitment to provide and protect the qualities we think drive shareholder value; balance sheet strength; sound quality; and stable core deposits” said Robert R. Franklin, Jr., Stellar’s Chief Executive Officer.

“We continue our strategy of not fighting the actions of the Federal Reserve as it attempts to slow the economy to tamp down inflation. Raising interest rates is a blunt tool and there are consequences to the velocity at which rates have increased. We must remain vigilant as customers adjust to higher prices, the higher cost of capital and potential adjustments to asset prices,” continued Mr. Franklin.

“We will continue to build our capital base, be mindful of our liquidity position and be watchful of our credit quality. We believe that Stellar remains well positioned to have optionality as we move through this economic cycle while protecting and increasing long-term shareholder value,” concluded Mr. Franklin.

Third Quarter 2023 Financial Highlights

•Strong Profitability: Third quarter 2023 net income of $30.9 million and diluted earnings per share of $0.58 translated into an annualized return on average assets of 1.14% and an annualized return on average tangible equity of 14.47%(1).

•Continued Regulatory Capital Build: Total risk-based capital ratio increased to 13.42% at September 30, 2023 from 12.39% at December 31, 2022 and Tier 1 leverage ratio increased to 9.82% at September 30, 2023 from 8.55% at December 31, 2022.

•Solid Margin: Tax equivalent net interest margin was 4.37% for the third quarter of 2023 as compared to 4.49% in the second quarter of 2023. The tax equivalent net interest margin, excluding purchase accounting accretion (“PAA”), was 3.87%(1) for the third quarter of 2023 and 3.97%(1) for the second quarter of 2023.

•Advantageous Funding Profile: Noninterest-bearing deposit balances decreased from the second quarter but remained a significant portion of our deposit funding base at 42.1% at the end of the third quarter 2023 compared to 42.4% at the end of the second quarter 2023.

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 reflect the combined operations following the Merger for the first, second and third quarters of 2023 and the fourth quarter 2022 and stand-alone Allegiance for all periods prior to October 1, 2022.



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


1

Third Quarter 2023 Results

Stellar’s net interest income in the third quarter 2023 decreased $1.6 million, or 1.4%, from $108.3 million for the second quarter 2023. The net interest margin on a tax equivalent basis decreased 12 basis points to 4.37% for the third quarter 2023 from 4.49% for the second quarter
2023. The decrease in the net interest margin from the prior quarter was primarily due to the impact of increased interest rates on our cost of funding only partially offset by increased income on interest earning assets. Net interest income for the third quarter of 2023 benefited from
$12.4 million of income from purchase accounting adjustments compared to $12.6 million in the second quarter of 2023. Excluding purchase accounting adjustments, a non-GAAP measure that is reconciled on page 10 of this earnings release, net interest income for the third quarter 2023 would have been $94.5 million and the tax equivalent net interest margin would have been 3.87%.

Noninterest income for the third quarter 2023 was $4.7 million, a decrease of $788 thousand, or 14.4%, compared to $5.5 million for the second quarter 2023. Noninterest income decreased in the third quarter of 2023 compared to the second quarter of 2023 primarily due to 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 third quarter 2023 increased $1.5 million, or 2.2%, to $70.7 million compared to $69.2 million for the second quarter of 2023. The increase in noninterest expense in the third quarter of 2023 compared to the second quarter of 2023 was primarily due to an increase in salaries and employee benefits and acquisition and merger-related expenses which totaled $3.4 million for the third quarter of 2023 compared to $2.9 million in the second quarter of 2023.

Stellar’s efficiency ratio was 63.50% for the third quarter 2023 compared to 60.83% for the second quarter 2023. Third quarter 2023 annualized returns on average assets, average equity and average tangible equity were 1.14%, 8.34% and 14.47%, respectively, compared to 1.31%, 9.67% and 17.05%, respectively, for the second 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.

Financial Condition

Total loans at September 30, 2023 decreased $64.2 million to $8.00 billion compared to $8.07 billion at June 30, 2023. At September 30, 2023, the remaining balance of the purchase accounting adjustments on loans was $118.8 million.

Total deposits at September 30, 2023 decreased $79.7 million to $8.69 billion compared to $8.77 billion at June 30, 2023, due to decreases in noninterest-bearing demand, interest-bearing demand, money market and savings balances, partially offset by increases in certificates and other time 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 $4.73 billion and estimated uninsured deposits net of collateralized deposits of $865.7 million were $3.86 billion, or 44.5%, of total deposits at September 30, 2023.

Total assets at September 30, 2023 were $10.67 billion, a decrease of $112.9 million, compared to $10.78 billion at June 30, 2023.

Asset Quality

Nonperforming assets totaled $38.3 million, or 0.36% of total assets, at September 30, 2023, compared to $43.3 million, or 0.40%, of total assets, at June 30, 2023. The allowance for credit losses on loans as a percentage of total loans was 1.17% at September 30, 2023 and 1.24% at June 30, 2023.

The provision for credit losses for the third quarter 2023 was $2.3 million compared to $1.9 million for the second quarter 2023. Third quarter 2023 net charge-offs were $8.1 million, or 0.40% (annualized) of average loans, compared to net charge-offs of $236 thousand, or 0.01% (annualized) of average loans, for the second quarter 2023. Net charge-offs increased this quarter primarily due to a single commercial and industrial loan relationship that was placed on nonaccrual status at December 31, 2022 and had an allowance for credit losses of $5.1 million at June 30, 2023. During the third quarter 2023, the borrower’s financial condition further deteriorated, which prompted the charge-off of $8.0 million on the loan relationship.

GAAP Reconciliation of Non-GAAP Financial Measures

Stellar’s management uses certain non-GAAP financial measures. 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.


2


Conference Call

Stellar’s management team will host a conference call and webcast on Friday, October 27, 2023 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss third quarter 2023 results. Individuals and investment professionals may register for the conference call at https://register.vevent.com/register/BI6cc171f27f424552a720c74008bfa355 to receive the dial-in numbers and unique PIN to access the call. If you need assistance in obtaining a dial-in number, please contact IR@stellarbancorpinc.com. A simultaneous audio-only webcast may be accessed via the Investor Relations section of Stellar’s website at https://ir.stellarbancorpinc.com/news-and-events/webcast-and-presentations. If you are unable to participate during the live webcast, the webcast will be accessible via the Investor Relations section of Stellar’s website at ir.stellarbancorpinc.com.

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.

Investor relations
IR@stellarbancorpinc.com

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.


3
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
20232022
 September 30  June 30  March 31  December 31  September 30
 (Dollars in thousands)
ASSETS
Cash and due from banks$94,970 $105,913 $99,231 $67,063 $16,449 
Interest-bearing deposits at other financial institutions207,302 198,176 164,102 304,642 102,118 
Total cash and cash equivalents302,272 304,089 263,333 371,705 118,567 
Available for sale securities, at fair value1,414,952 1,478,222 1,519,175 1,807,586 1,618,995 
Loans held for investment8,004,528 8,068,718 7,886,044 7,754,751 4,591,912 
Less: allowance for credit losses on loans(93,575)(100,195)(96,188)(93,180)(52,147)
Loans, net7,910,953 7,968,523 7,789,856 7,661,571 4,539,765 
Accrued interest receivable43,536 42,051 42,405 44,743 29,697 
Premises and equipment, net119,332 119,142 124,723 126,803 57,837 
Federal Home Loan Bank stock29,022 24,478 19,676 15,058 16,843 
Bank-owned life insurance104,699 104,148 103,616 103,094 28,305 
Goodwill497,318 497,260 497,260 497,260 223,642 
Core deposit intangibles, net122,944 129,805 136,665 143,525 12,406 
Other assets120,432 110,633 108,009 129,092 84,285 
Total assets$10,665,460 $10,778,351 $10,604,718 $10,900,437 $6,730,342 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing$3,656,288 $3,713,536 $3,877,859 $4,230,169 $2,465,839 
Interest-bearing
Demand1,397,492 1,437,509 1,394,244 1,591,828 956,920 
Money market and savings2,128,950 2,174,073 2,401,840 2,575,923 1,471,690 
Certificates and other time1,503,891 1,441,251 1,064,932 869,712 766,270 
Total interest-bearing deposits5,030,333 5,052,833 4,861,016 5,037,463 3,194,880 
Total deposits8,686,621 8,766,369 8,738,875 9,267,632 5,660,719 
Accrued interest payable7,612 4,555 3,875 2,098 2,673 
Borrowed funds323,981 369,963 238,944 63,925 257,000 
Subordinated debt109,665 109,566 109,420 109,367 109,241 
Other liabilities76,735 69,218 67,388 74,239 44,407 
Total liabilities9,204,614 9,319,671 9,158,502 9,517,261 6,074,040 
SHAREHOLDERS’ EQUITY:
Common stock533 533 533 530 281 
Capital surplus1,231,686 1,228,532 1,225,596 1,222,761 511,434 
Retained earnings385,600 361,619 333,368 303,146 307,975 
Accumulated other comprehensive loss(156,973)(132,004)(113,281)(143,261)(163,388)
Total shareholders’ equity1,460,846 1,458,680 1,446,216 1,383,176 656,302 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$10,665,460 $10,778,351 $10,604,718 $10,900,437 $6,730,342 
4
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Three Months EndedNine Months Ended
2023202220232022
September 30June 30March 31December 31September 30September 30September 30
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees$138,948 $133,931 $125,729 $116,145 $58,025 $398,608 $164,230 
Securities:
Taxable9,493 9,726 9,653 9,834 6,655 28,872 17,294 
Tax-exempt437 436 1,262 3,057 2,594 2,135 7,676 
Deposits in other financial institutions2,391 2,865 3,771 2,933 608 9,027 1,825 
Total interest income151,269 146,958 140,415 131,969 67,882 438,642 191,025 
INTEREST EXPENSE:
Demand, money market and savings deposits23,557 20,708 18,037 12,406 3,527 62,302 6,733 
Certificates and other time deposits13,282 9,622 3,307 2,083 1,664 26,211 5,742 
Borrowed funds5,801 6,535 1,317 417 499 13,653 799 
Subordinated debt1,908 1,812 1,927 1,449 1,502 5,647 4,407 
Total interest expense44,548 38,677 24,588 16,355 7,192 107,813 17,681 
NET INTEREST INCOME106,721 108,281 115,827 115,614 60,690 330,829 173,344 
Provision for credit losses2,315 1,915 3,666 44,793 1,962 7,896 5,919 
Net interest income after provision for credit losses104,406 106,366 112,161 70,821 58,728 322,933 167,425 
NONINTEREST INCOME:
Nonsufficient funds and overdraft charges291 418 406 447 145 1,115 387 
Service charges on deposit accounts1,329 1,157 943 1,242 527 3,429 1,614 
(Loss) gain on sale of assets— (6)198 4,025 42 192 25 
Bank-owned life insurance551 532 522 515 135 1,605 610 
Debit card and ATM income935 1,821 1,698 1,897 869 4,454 2,568 
Other1,589 1,561 3,731 2,511 1,277 6,881 4,513 
Total noninterest income4,695 5,483 7,498 10,637 2,995 17,676 9,717 
NONINTEREST EXPENSE:
Salaries and employee benefits39,495 37,300 39,775 40,949 22,013 116,570 66,605 
Net occupancy and equipment4,455 3,817 4,088 3,781 2,129 12,360 6,554 
Depreciation1,952 1,841 1,836 1,903 1,003 5,629 3,048 
Data processing and software amortization4,798 4,674 5,054 3,776 2,541 14,526 7,561 
Professional fees997 1,564 1,527 2,298 485 4,088 1,285 
Regulatory assessments and FDIC insurance1,814 2,755 1,294 1,263 1,134 5,863 3,651 
Amortization of intangibles6,876 6,881 6,879 7,051 750 20,636 2,252 
Communications663 689 701 737 359 2,053 1,063 
Advertising877 907 839 1,130 385 2,623 1,330 
Acquisition and merger-related expenses3,421 2,897 6,165 11,469 10,551 12,483 12,669 
Other5,400 5,882 4,440 5,267 2,681 15,722 10,434 
Total noninterest expense70,748 69,207 72,598 79,624 44,031 212,553 116,452 
INCOME BEFORE INCOME TAXES38,353 42,642 47,061 1,834 17,692 128,056 60,690 
Provision for income taxes7,445 7,467 9,913 (218)3,406 24,825 11,310 
NET INCOME$30,908 $35,175 $37,148 $2,052 $14,286 $103,231 $49,380 
EARNINGS PER SHARE
Basic$0.58 $0.66 $0.70 $0.04 $0.51 $1.94 $1.72 
Diluted$0.58 $0.66 $0.70 $0.04 $0.50 $1.94 $1.71 
5
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Three Months EndedNine Months Ended
2023202220232022
September 30June 30March 31December 31September 30September 30September 30
(Dollars and share amounts in thousands, except per share data)
Net income$30,908$35,175$37,148$2,052$14,286$103,231$49,380
Earnings per share, basic$0.58$0.66$0.70$0.04$0.51$1.94$1.72
Earnings per share, diluted$0.58$0.66$0.70$0.04$0.50$1.94$1.71
Dividends per share$0.13$0.13$0.13$0.13$0.10$0.39$0.30
Return on average assets(A)
1.14 %1.31 %1.38 %0.07 %0.84 %1.28 %0.94 %
Return on average equity(A)
8.34 %9.67 %10.62 %0.60 %7.90 %9.52 %8.74 %
Return on average tangible equity(A)(B)
14.47 %17.05 %19.32 %1.16 %11.78 %16.86 %12.75 %
Net interest margin (tax equivalent)(A)(C)
4.37 %4.49 %4.80 %4.71 %3.85 %4.55 %3.55 %
Net interest margin (tax equivalent) excluding PAA(A)(B)(C)
3.87 %3.97 %4.38 %4.38 %3.85 %4.07 %3.55 %
Efficiency ratio(D)
63.50 %60.83 %58.96 %65.14 %69.18 %61.02 %63.62 %
Capital Ratios
Stellar Bancorp, Inc. (Consolidated)
Equity to assets13.70 %13.53 %13.64 %12.69 %9.75 %13.70 %9.75 %
Tangible equity to tangible assets(B)
8.37 %8.19 %8.15 %7.24 %6.47 %8.37 %6.47 %
Total capital ratio (to risk-weighted assets)13.42 %13.03 %12.72 %12.39 %14.66 %13.44 %14.66 %
Common equity Tier 1 capital (to risk weighted assets)
11.14 %10.67 %10.39 %10.04 %11.39 %11.14 %11.39 %
Tier 1 capital (to risk-weighted assets)
11.25 %10.78 %10.50 %10.15 %11.58 %11.25 %11.58 %
Tier 1 leverage (to average tangible assets)
9.82 %9.51 %9.01 %8.55 %9.00 %9.82 %9.00 %
Stellar Bank
Total capital ratio (to risk-weighted assets)13.13 %12.80 %12.42 %12.02 %14.12 %13.16 %14.12 %
Common equity Tier 1 capital (to risk-weighted assets)
11.63 %11.22 %10.87 %10.46 %12.20 %11.63 %12.20 %
Tier 1 capital (to risk-weighted assets)
11.63 %11.22 %10.87 %10.46 %12.20 %11.63 %12.20 %
Tier 1 leverage (to average tangible assets)
10.15 %9.89 %9.35 %8.81 %9.49 %10.15 %9.49 %
Other Data
Weighted average shares:
Basic53,31353,29753,02152,71528,28653,21128,679
Diluted53,38053,37553,13852,97328,53053,30028,901
Period end shares outstanding53,32253,30353,29652,95528,13753,32228,137
Book value per share$27.40$27.37$27.14$26.12$23.33$27.40$23.33
Tangible book value per share(B)
$15.76$15.60$15.24$14.02$14.94$15.76$14.94
Employees - full-time equivalents1,0081,0041,0551,0255621,008562

(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.

    
6
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Three Months Ended
September 30, 2023June 30, 2023September 30, 2022
Average BalanceInterest Earned/
Interest Paid		Average Yield/RateAverage BalanceInterest Earned/
Interest Paid		Average Yield/RateAverage BalanceInterest Earned/
Interest Paid		Average Yield/Rate
(Dollars in thousands)
Assets
Interest-Earning Assets:
Loans$8,043,706 $138,948 6.85 %$7,980,856 $133,931 6.73 %$4,456,174 $58,025 5.17 %
Securities1,471,916 9,930 2.68 %1,502,949 10,162 2.71 %1,709,470 9,249 2.15 %
Deposits in other financial institutions181,931 2,391 5.21 %209,722 2,865 5.48 %160,340 608 1.50 %
Total interest-earning assets9,697,553 $151,269 6.19 %9,693,527 $146,958 6.08 %6,325,984 $67,882 4.26 %
Allowance for credit losses on loans(99,892)(96,414)(50,609)
Noninterest-earning assets1,143,634 1,143,025 442,511 
Total assets$10,741,295 $10,740,138 $6,717,886 
Liabilities and
    Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand
    deposits
$1,400,508 $10,415 2.95 %$1,387,604 $9,343 2.70 %$978,531 $2,380 0.96 %
Money market and savings
    deposits
2,166,610 13,142 2.41 %2,220,827 11,365 2.05 %1,500,083 1,147 0.30 %
Certificates and other time
    deposits
1,400,367 13,282 3.76 %1,225,834 9,622 3.15 %877,231 1,664 0.75 %
Borrowed funds411,212 5,801 5.60 %479,896 6,535 5.46 %68,752 499 2.88 %
Subordinated debt109,608 1,908 6.91 %109,499 1,812 6.64 %109,177 1,502 5.46 %
Total interest-bearing liabilities5,488,305 $44,548 3.22 %5,423,660 $38,677 2.86 %3,533,774 $7,192 0.81 %
Noninterest-Bearing
    Liabilities:
Noninterest-bearing demand
    deposits
3,695,592 3,779,594 2,424,884 
Other liabilities86,389 78,411 41,792 
Total liabilities9,270,286 9,281,665 6,000,450 
Shareholders' equity1,471,009 1,458,473 717,436 
Total liabilities and
    shareholders' equity
$10,741,295 $10,740,138 $6,717,886 
Net interest rate spread2.97 %3.22 %3.45 %
Net interest income and margin$106,721 4.37 %$108,281 4.48 %$60,690 3.81 %
Net interest income and net
    interest margin (tax equivalent)
$106,919 4.37 %$108,509 4.49 %$61,418 3.85 %
Cost of funds1.92 %1.69 %0.48 %
Cost of deposits1.69 %1.41 %0.36 %
7
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Nine Months Ended September 30,
20232022
Average BalanceInterest Earned/
Interest Paid		Average Yield/
Rate		Average BalanceInterest Earned/
Interest Paid		Average Yield/Rate
(Dollars in thousands)
Assets
Interest-Earning Assets:
Loans$7,957,911 $398,608 6.70 %$4,331,288 $164,230 5.07 %
Securities1,525,808 31,007 2.72 %1,774,149 24,970 1.88 %
Deposits in other financial institutions251,475 9,027 4.80 %498,456 1,825 0.49 %
Total interest-earning assets9,735,194 $438,642 6.02 %6,603,893 $191,025 3.87 %
Allowance for credit losses
    on loans		(96,570)(49,422)
Noninterest-earning assets1,148,847 441,767 
Total assets$10,787,471 $6,996,238 
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits$1,478,547 $28,141 2.54 %$1,031,006 $3,856 0.50 %
Money market and savings deposits2,291,588 34,161 1.99 %1,549,969 2,877 0.25 %
Certificates and other time deposits1,164,572 26,211 3.01 %1,069,011 5,742 0.72 %
Borrowed funds333,220 13,653 5.48 %69,492 799 1.54 %
Subordinated debt109,508 5,647 6.89 %109,046 4,407 5.40 %
Total interest-bearing liabilities5,377,435 $107,813 2.68 %3,828,524 17,681 0.62 %
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits3,878,760 2,373,489 
Other liabilities81,894 39,123 
Total liabilities9,338,089 6,241,136 
Shareholders' equity1,449,382 755,102 
Total liabilities and shareholders' equity$10,787,471 $6,996,238 
Net interest rate spread3.34 %3.25 %
Net interest income and margin$330,829 4.54 %$173,344 3.51 %
Net interest income and net interest
    margin (tax equivalent)
$331,549 4.55 %$175,578 3.55 %
Cost of funds1.56 %0.38 %
Cost of deposits1.34 %0.28 %
8
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

Three Months Ended
20232022
 September 30  June 30 March 31  December 31  September 30
(Dollars in thousands)
Period-end Loan Portfolio:
Commercial and industrial$1,474,600$1,512,476$1,477,340$1,455,795$732,636
Paycheck Protection Program (PPP)5,9688,02711,08113,22617,827
Real estate:
Commercial real estate (including multi-family residential)4,076,6064,038,4874,014,6093,931,4802,407,039
Commercial real estate construction and land development1,078,2651,136,1241,034,5381,037,678513,248
1-4 family residential (including home equity)1,024,9451,009,4391,008,3621,000,956699,636
Residential construction289,553311,208292,143268,150183,563
Consumer and other54,59152,95747,97147,46637,963
Total loans held for investment$8,004,528$8,068,718$7,886,044$7,754,751$4,591,912
Deposits:
Noninterest-bearing$3,656,288$3,713,536$3,877,859$4,230,169$2,465,839
Interest-bearing
Demand1,397,4921,437,5091,394,2441,591,828956,920
Money market and savings2,128,9502,174,0732,401,8402,575,9231,471,690
Certificates and other time1,503,8911,441,2511,064,932869,712766,270
Total interest-bearing deposits5,030,3335,052,8334,861,0165,037,4633,194,880
Total deposits$8,686,621$8,766,369$8,738,875$9,267,632$5,660,719
Asset Quality:
Nonaccrual loans$38,291$43,349$43,413$45,048$21,551
Accruing loans 90 or more days past due—————
Total nonperforming loans38,29143,34943,41345,04821,551
Other repossessed assets——124——
Total nonperforming assets$38,291$43,349$43,537$45,048$21,551
Net charge-offs (recoveries)$8,116$236$192$5,707$(245)
Nonaccrual loans:
Commercial and industrial$14,991$22,968$23,329$25,402$6,916
Real estate:
Commercial real estate (including multi-family residential)13,5638,2219,0269,97010,392
Commercial real estate construction and land development17038827—241
1-4 family residential (including home equity)8,44210,88010,5869,4043,854
Residential construction635665195——
Consumer and other490227250272148
Total nonaccrual loans$38,291$43,349$43,413$45,048$21,551
Asset Quality Ratios:
Nonperforming assets to total assets0.36 %0.40 %0.41 %0.41 %0.32 %
Nonperforming loans to total loans0.48 %0.54 %0.55 %0.58 %0.47 %
Allowance for credit losses on loans to nonperforming loans244.38 %231.14 %221.56 %206.85 %241.97 %
Allowance for credit losses on loans to total loans1.17 %1.24 %1.22 %1.20 %1.14 %
Net charge-offs (recoveries) to average loans (annualized)0.40 %0.01 %0.01 %0.30 %(0.02 %)

9
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, adjusted pre-tax, pre-provision income, adjusted pre-tax, pre-provision ROAA, adjusted efficiency ratio, 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 EndedNine Months Ended
2023202220232022
 September 30 June 30 March 31  December 31  September 30September 30September 30
(Dollars and share amounts in thousands, except per share data)
Net income$30,908$35,175$37,148$2,052$14,286$103,231$49,380
Add: Provision for credit losses2,3151,9153,66644,7931,9627,8965,919
Add: Provision for income taxes7,4457,4679,913(218)3,40624,82511,310
Pre-tax, pre-provision income$40,668$44,557$50,727$46,627$19,654$135,952$66,609
Total average assets$10,741,295$10,740,138$10,882,533$10,946,009$6,717,886$10,787,471$6,996,238
Pre-tax, pre-provision return on average assets(B)
1.50 %1.66 %1.89 %1.69 %1.16 %1.68 %1.27 %
Pre-tax, pre-provision income$40,668$44,557$50,727$46,627$19,654$135,952$66,609
Add: Acquisition and merger-related expenses3,4212,8976,16511,46910,55112,48312,669
Add: Amortization of intangibles 6,8766,8816,8797,05175020,6362,252
Less: Purchase accounting accretion12,40012,57210,1048,1604035,076210
Less: (Loss) gain on sale of assets—(6)1984,0254219225
Adjusted pre-tax, pre-provision income$38,565$41,769$53,469$52,962$30,873$133,803$81,295
Adjusted pre-tax, pre-provision return on average assets(B)
1.42 %1.56 %1.99 %1.92 %1.82 %1.66 %1.55 %
Total noninterest expense$70,748$69,207$72,598$79,624$44,031$212,553$116,452
Less: Acquisition and merger-related expenses3,4212,8976,16511,46910,55112,48312,669
Less: Amortization of intangibles6,8766,8816,8797,05175020,6362,252
Net interest income106,721108,281115,827115,61460,690330,829173,344
Less: Purchase accounting accretion12,40012,57210,1048,1604035,076210
Total noninterest income4,6955,4837,49810,6372,99517,6769,717
Less: (Loss) gain on sale of assets—(6)1984,0254219225
Adjusted efficiency ratio(A)
61.05%58.73%52.69%53.57%51.46%57.28%55.53%
Total shareholders' equity$1,460,846$1,458,680$1,446,216$1,383,176$656,302$1,460,846$656,302
Less: Goodwill and core deposit intangibles, net620,262627,065633,925640,785236,048620,262236,048
Tangible shareholders’ equity$840,584$831,615$812,291$742,391$420,254$840,584$420,254
Shares outstanding at end of period53,32253,30353,29652,95528,13753,32228,137
Tangible book value per share$15.76$15.60$15.24$14.02$14.94$15.76$14.94
Average shareholders' equity$1,471,009$1,458,473$1,418,082$1,347,938$717,436$1,449,382$755,102
Less: Average goodwill and core deposit intangibles, net623,864630,854638,110658,107236,399630,890237,153
Average tangible shareholders’ equity$847,145$827,619$779,972$689,831$481,037$818,492$517,949
Return on average tangible equity(B)
14.47 %17.05 %19.32 %1.18 %11.78 %16.86 %12.75 %
Total assets$10,665,460$10,778,351$10,604,718$10,900,437$6,730,342$10,665,460$6,730,342
Less: Goodwill and core deposit intangibles, net620,262627,065633,925640,785236,048620,262236,048
Tangible assets$10,045,198$10,151,286$9,970,793$10,259,652$6,494,294$10,045,198$6,494,294
Tangible equity to tangible assets8.37 %8.19 %8.15 %7.24 %6.47 %8.37 %6.47 %
Net interest income (tax equivalent)$106,919$108,509$116,119$116,574$61,418$331,549$175,578
Less: Purchase accounting accretion12,40012,57210,1048,1604035,076210
Adjusted net interest income (tax equivalent)$94,519$95,937$106,015$108,414$61,378$296,473$175,368
Average earning assets$9,697,553$9,693,527$9,815,803$9,815,701$6,325,984$9,735,194$6,603,893
Net interest margin (tax equivalent) excluding PAA3.87 %3.97 %4.38 %4.38 %3.85 %4.07 %3.55 %
(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.
10
Third Quarter 2023 Earnings Presentation Exhibit 99.2

 
Forward-Looking Statements and Non-GAAP Financial Measures 2 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 of equals (the “Merger”) between Allegiance Bancshares, Inc. and CBTX, Inc. which became effective on October 1, 2022, 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 Bancorp, Inc. (“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. GAAP Reconciliation of Non-GAAP Financial Measures The Company’s management uses certain non-GAAP (generally accepted accounting principles) financial measures to evaluate its performance. The Company 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 the Company’s performance and when planning, forecasting, analyzing and comparing past, present and future periods. Specifically, the Company reviews pre-tax, pre-provision income; pre-tax, pre-provision ROAA; adjusted pre-tax, pre-provision income; adjusted pre-tax, pre-provision ROAA; adjusted efficiency ratio; the ratio of tangible equity to tangible assets; net interest margin (tax equivalent) excluding purchase accounting adjustments; and loan yield excluding accretion for internal planning and forecasting purposes. The Company has included in this presentation 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.

 
3 (1) Refer to the calculation of this non-GAAP financial measure and a reconciliation to its most directly comparable GAAP financial measure in the appendix. Stellar Bancorp, Inc. - Snapshot Houston’s largest regionally-focused bank  Valuable franchise in one of the best markets in the U.S.  Strong core earnings power and capital position  Principal banking subsidiary renamed Stellar Bank upon successful system conversion in February  Combination delivered scale, growth opportunities, and talent depth  Merger-of-equals between CBTX, Inc. and Allegiance Bancshares, Inc. became effective October 1, 2022 (NYSE: STEL) 9/30/2023 6/30/2023 Total assets 10,665,460$ 10,778,351$ Total loans 8,004,528 8,068,718 Total deposits 8,686,621 8,766,369 Total loans to total deposits 92.15% 92.04% Equity to assets 13.70% 13.53% Tangible equity to tangible assets (1) 8.37% 8.19% (Dollars in thousands)

 
$1.9 $1.9 $2.1 $2.5 $2.6 $3.0 $3.1 $5.5 $5.7 $6.7 $7.6 $7.8 $8.6 $10.2 $12.0 $27.2 $29.8 $157.3 Texas Independent BOK Regions Texas Capital Truist Comerica Third Coast Woodforest Prosperity Capital One Frost Cadence Stellar PNC Zions BofA Wells Fargo JPMorgan Focused on Serving the Houston Region 4 Note: Deposit market share based on FDIC data as of June 30, 2023. 1) Houston Region defined as the Houston-Pasadena-The Woodlands and Beaumont-Port Arthur MSAs; Excludes non-retail branches. Source: S&P Capital IQ Pro, Houston.org, Texas Medical Center, and Wallet Hub. Stel a Houston Region Market Share(1) Deposits ($B) Houston Percent of Houston T otal Assets Region Com pany Region Market Nam e ($B) Deposits ($B) Deposits (%) Share (%) JPMorgan 3,868 157.3 6.6 48.2 Wells Fargo 1,876 29.8 2.2 9.1 BofA 3,123 27.2 1.4 8.3 Zions 87.2 12.0 16.2 3.7 PNC 558 10.2 2.4 3.1 Stellar 10.8 8.6 97.7 2.6 Cadence 48.8 7.8 20.1 2.4 Frost 48.6 7.6 18.8 2.3 Capital One 468 6.7 1.9 2.0 Prosperity 39.9 5.7 20.9 1.8 Woodforest 9.6 5.5 69.7 1.7 Third Coast 4.0 3.1 90.9 0.9 Comerica 91.0 3.0 4.5 0.9 Truist 555 2.6 0.6 0.8 Texas Capital 29.0 2.5 10.7 0.8 Regions 156 2.1 1.6 0.6 BOK 49.2 1.9 5.7 0.6 Texas Independent 2.2 1.9 100.0 0.6 (1)

 
5 Third Quarter Financial Highlights (1) Refer to the calculation of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures in the appendix. (2) Adjusted results exclude acquisition and merger-related expenses, core deposit intangible amortization, purchase accounting adjustments and gains and losses on the sale of assets. (3) Annualized. (4) Represents total noninterest expense divided by the sum of net interest income and noninterest income, excluding gains and losses on the sale of assets.  Reported third quarter 2023 net income of $30.9 million, or $0.58 per diluted share, as compared to net income of $35.2 million, or $0.66 per share, for the second quarter 2023. The third and second quarter 2023 results reflect significant nonrecurring items related to the Merger.  Core Earnings Power: Return on average assets (“ROAA”) of 1.14% and pre-tax, pre-provision (“PTPP”) ROAA of 1.50%.(1)(4)  Adjusted for merger and nonrecurring adjustments, PTPP ROAA would have been 1.42%.(1)(2)(4)  Net Interest Margin (“NIM”): 4.37% and NIM excluding purchase accounting adjustments (“PAA”) of 3.87%.(1)  Core Funding: 42.1% noninterest-bearing deposits, 1.69% cost of deposits and 1.92% cost of funds.  Regulatory Capital Build: Consolidated total risk based capital ratio increased to 13.42% at September 30, 2023 from 12.39% at December 31, 2022 and Tier 1 leverage ratio increased to 9.82% at September 30, 2023 from 8.55% at December 31, 2022. Q3 2023 Q2 2023 Actual Adjusted(1) Adjusted(1) Net interest margin (tax equivalent)(3) 4.37% 3.87% 4.49% 3.97% Pre-tax, pre-provision income 40,668$ (1) 38,565$ (2) 44,557$ (1) 41,769$ (2) Pre-tax, pre-provision ROAA(3) 1.50% (1) 1.42% (2) 1.66% (1) 1.56% (2) Eff iciency ratio(4) 63.50% 61.05% (2) 60.83% 58.73% (2) Actual (Dollars in thousands)

 
Third Quarter Deposit Summary 6 Deposit Mix Deposits (in millions) Maintaining Discipline Navigating Competitive Deposit Market As of September 30, 2023: • Retained favorable mix: 42.1% noninterest-bearing deposits • Estimated uninsured deposits, net of collateralized deposits: 44.5% • Average account size of $86 thousand, excluding collateralized deposits • 92.2% loan to deposit ratio • Brokered deposits increased to $579.0 million from $537.8 million at September 30, 2023 from June 30, 2023 . (1) NIB 42.1% IB Demand 16.1% MMDA & Sav. 24.5% CD's 17.3% Q3 2023 Q2 2023 Noninterest-bearing ("NIB") 3,656,288$ 3,713,536$ Interest-bearing demand ("IB Demand") 1,397,492 1,437,509 Money market and savings ("MMDA & Sav") 2,128,950 2,174,073 Certificates and other time ("CDs") 1,503,891 1,441,251 Total deposits 8,686,621$ 8,766,369$ Cost of deposits 1.69% 1.41% Cost of interest-bearing deposits 2.94% 2.52% (Dollars in thousands)

 
Third Quarter Loan Summary 7 (1) Refer to the calculation of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures in the appendix. . Loan Portfolio Composition (1) (1) Average Yield / Rate Excl. PAA(1) Average Yield / Rate Excl. PAA(1) Interest-Earning Assets: Loans 8,043,706$ 138,948$ 6.85% 6.24% 7,980,856$ 133,931$ 6.73% 6.10% Securities 1,471,916 9,930 2.68% 1,502,949 10,162 2.71% Deposits in other financial institutions 181,931 2,391 5.21% 209,722 2,865 5.48% Total interest-earning assets 9,697,553$ 151,269$ 6.19% 5.68% 9,693,527$ 146,958$ 6.08% 5.56% (Dollars in thousands) Q3 2023 Q2 2023 Average Outstanding Balance Interest Earned / Interest Paid Average Outstanding Balance Interest Earned / Interest Paid 1-4 Family 12.8% Multifamily RE 5.7% Resi. C&D 3.6% CRE C&D 13.4% CRE 21.6% OO CRE 23.6% C&I 18.6% Consumer & Other 0.7%Q3 2023 Q2 2023 Commercial and Industrial (“C&I”) 1,480,568$ 1,520,503$ Commercial Real Estate (“CRE”) 1,731,467 1,756,289 Owner-occupied CRE (“OO CRE") 1,891,794 1,850,862 Multifamily Real Estate 453,345 431,336 Total Commercial Real Estate 4,076,606 4,038,487 CRE Construction & Development (“CRE C&D”) 1,078,265 1,136,124 1-4 Family Residential ("1-4 Family") 1,024,945 1,009,439 Residential Construction (“Resi. C&D”) 289,553 311,208 Consumer and other 54,591 52,957 Total 8,004,528$ 8,068,718$ (Dollars in thousands)

 
Third Quarter Asset Quality Summary 8 Nonperforming Loans by Type (1) Combined represents the simple addition of legacy balances for 2022; estimated. Nonperforming assets decreased during the quarter Allowance for credit losses on loans: • As of September 30, 2023, was $93.6 million, or 1.17% of total loans compared to $100.2 million, or 1.24% of total loans as of June 30, 2023 Allowance for credit losses on loans to nonperforming loans: • As of September 30, 2023, was 244.38% compared to 231.14% as of June 30, 2023 C&I 39.2% CRE 35.4% C&D 0.4% 1-4 Family 22.1% Other 2.9% Nonaccrual Loans with No Related Allowance Nonaccrual Loans with Related Allowance Total Nonaccrual Loans Commercial and industrial 10,337$ 4,634$ 14,971$ Paycheck protection program (PPP) 20 — 20 Commercial real estate (including multi-family residential) 10,820 2,743 13,563 Commercial real estate construction and land development 170 — 170 1-4 family residential (including equity) 6,849 1,593 8,442 Residential construction 635 — 635 Consumer and other 81 409 490 28,912$ 9,379$ 38,291$ (Dollars in thousands) Q3 2023 Q2 2023 Total nonperforming loans 38,291$ 43,349$ Nonperforming loans to total loans 0.48% 0.54% Total nonperforming assets 38,291$ 43,349$ Nonperforming assets to total 0.36% 0.40% Net charge-offs 8,116$ 236$ Net charge-offs to average loans 0.40% 0.01% (Dollars in thousands)

 
Regulatory Capital Ratios 9 (1) Refer to the calculation of this non-GAAP financial measure and a reconciliation to its most directly comparable GAAP financial measure in the appendix. Year-to-date regulatory capital ratios have grown meaningfully Minimum Required Plus Capital Conservation Buffer Consolidated Capital Ratios Total Capital Ratio (to risk-weighted assets) 13.42% 12.39% 10.50% Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 11.14% 10.04% 7.00% Tier 1 Capital Ratio (to risk-weighted assets) 11.25% 10.15% 8.50% Tier 1 Leverage Ratio (to average tangible assets) 9.82% 8.55% 4.00% Tangible equity to tangible assets (1) 8.37% 7.24% N/A Bank Capital Ratios Total Capital Ratio (to risk-weighted assets) 13.13% 12.02% 10.50% Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 11.63% 10.46% 7.00% Tier 1 Capital Ratio (to risk-weighted assets) 11.63% 10.46% 8.50% Tier 1 Leverage Ratio (to average tangible assets) 10.15% 8.81% 4.00% Q3 2023 Q4 2022

 
10 Strong Liquidity Profile Stellar is well-positioned to manage through current environment Sources of Liquidity at September 30, 2023 Sources of Liquidity Estimated Uninsured Deposits at September 30, 2023 (1) Brokered deposit capacity is governed by internal policy limits. (Dollars in millions) Cash 302$ Unpledged securities 703 Total on-balance sheet 1,005 FHLB available capacity 2,276 Discount window available capacity 824 Total immediate available liquidity 4,105 Available brokered deposit capacity(1) 1,162 Total available liquidity 5,267$ Amount 106.3% 136.4% Immediate available liquidity coverage of estimated uninsured deposits, net of collateralized deposits Total available liquidity coverage of estimated uninsured deposits, net of collateralized deposits (Dollars in millions) Total deposits 8,687$ Estimated uninsured deposits 4,727 Less: collateralized deposits (866) Estimated uninsured, net of collateralized deposits 3,861$ Percent of total deposits 44.5% Amount

 
11 Key Takeaways Excellent core funding profile Strong earnings power and franchise value in one of the best markets in the U.S. Key success factors: Credit performance and risk management Significant financial flexibility Positioned for rapid capital-build to continue

 
4.8% 4.1% 2.1% Houston MSA Texas USA 5.0% 4.4% 2.4% Houston MSA Texas USA 29.8 27.2 12.0 10.2 8.6 7.8 7.6 6.7 5.7 JP Morgan Wells Fargo BofA Zions PNC Stellar Cadence Frost Capital One Prosperity Diverse and Strong Markets of Operation 12 Houston is Diverse, with Significant Economic TailwindsGreater Houston Market  Houston is the #1 most diverse city in the U.S. based on socioeconomic factors, according to Wallet Hub  26th largest economy in the world – if ranked as a country − 15th largest population in the U.S – if ranked as a state  Port Houston is the largest Gulf Coast container port, 1st in foreign tonnage for 26 consecutive years  Houston is home to the Texas Medical Center, the world's largest medical complex, which has 10 million annual patient encounters  Business friendly: #3 among U.S. metro areas in Fortune 500 headquarters (26)  Major business clusters in Beaumont-Port Arthur area include chemical and petroleum manufacturing, materials manufacturing and transportation Top 10 Bank by Deposits in Houston Region(1) ($B) Note: Deposit market share based on FDIC data as of June 30, 2023. 1) Houston Region defined as the Houston-Pasadena-The Woodlands and Beaumont-Port Arthur MSAs; Excludes non-retail branches. Source: S&P Capital IQ Pro, Houston.org, Texas Medical Center, and Wallet Hub. $157 Est. Population Growth ’23-’28 Est. Number of Households Growth ’23-’28 Population Change (’18-’23) Median Household Income (’23) Significant Deposit Share Houston MSA: 5.5% Texas: 5.4% / U.S: 2.4% Houston MSA: $74,325 Texas: $71,347 / U.S: $73,503 Stellar has over $8.6 billion in deposits in the Houston region(1) Houston HQ Bank

 
Professional and Business Services 17% Government 13% Education and Health Services 13% Leisure and Hospitality 10% Retail Trade 9% Manufacturing 7% Construction 6% Transportation, Warehousing, and Utilities 6% Financial Activities 6% Wholesale Trade 5% Other Services 4% Mining and Logging 2% Information 1% 4.6% 5.4% 4.0% 3.2% 2.6% 0.9% 4.7% 6.1% 2.8% 2.9% 2.9% (3.9)% 2.2% (0.6)% Mining and Logging Private Education and Health Services Financial Activities Leisure and Hospitality Professional and Business Services Information Wholesale Trade Transportation, Warehousing, and Utilities Government Total Nonfarm Manufacturing Construction Retail Trade Other Services Diversified and Growing Economy 13 1) Data is preliminary as of September 2023, from the U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics Houston vs. U.S. Job Change by Industry (Sept ‘22 – Sept. ‘23)(1) Diversified Economy by Job Sector(1) Commentary  Houston’s economy has become much more diversified over the years, while remaining the energy capital of the United States  Houston's largest job sector, professional and business services, recovered faster than U.S. and has shown sector growth  Financial activities showed a large gain over the last year versus the United States United States Houston MSA

 
2.0 3.0 4.0 5.0 6.0 7.0 2.0 2.5 3.0 3.5 2007 2009 2011 2013 2015 2017 2019 2021 2023 Houston is a Resilient Market 14  Since the Great Recession, Houston has proven its resiliency, weathering economic cycles and natural disasters − Houston welcomed 2.1 million new residents and created over 905 thousand jobs since 2007 P op u lation (M ) O il Pr ic e D ec lin e G re at R ec es si on Ik e H ar ve y C O V ID -1 9 E m p lo ym en t ( M ) Employment Population1) Data is preliminary as of September 2023, from the U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics, Texas Workforce Commission

 
302,570 (300,000) (200,000) (100,000) 0 100,000 200,000 300,000 400,000 H ou st on D al la s N ew Y or k A tla nt a Ph oe ni x M ia m i Ta m pa Se at tl e R iv er si de B os to n D en ve r W as hi ng to n Sa n Fr an ci sc o M in ne ap ol is Ph ila de lp hi a Sa n D ie go B al ti m or e D et ro it Lo s A ng el es C hi ca go Houston’s Growth Projected to Continue 15 Source: S&P Capital IQ Pro as of June 30, 2022; Oxford Economics, December 2022, CBRE Research. 2010-2023 Population Change (%) Houston has the highest projected net migration 20 most populated metros 5.20% 1.35% 0.46% 24.61% 24.45% 19.57% 8.34% New York MSA Los Angeles MSA Chicago MSA Dallas MSA Houston MSA Texas U.S. • Houston has seen tremendous growth over the past ten years, aided by the relocation of multiple Fortune 500 companies • The growth is not expected to stop any time soon either, as it is projected to see the largest net migration compared to the top 30 most populated metros • The continued growth of the Houston metro will strengthen and diversify the greater economy, benefiting the businesses and constituents Houston is projected to add over 302,000 people by net migration in the next 5 years – a 60,500/year average

 
$92,662 $86,611 $83,193 $81,625 $74,325 $71,347 $73,503 New York MSA Los Angeles MSA Chicago MSA Dallas MSA Houston MSA Texas U.S. $787,500 $978,000 $335,000 $385,000 $330,000 $341,700 $400,528 New York MSA Los Angeles MSA Chicago MSA Dallas MSA Houston MSA Texas U.S. 8.5x 11.3x 4.0x 4.7x 4.4x 4.8x 5.4x New York MSA Los Angeles MSA Chicago MSA Dallas MSA Houston MSA Texas U.S. Housing Market and Cost of Living 16 • Cost of living in Houston is 8.3% less than that of the U.S. market average while the median household income is above the U.S. median • Houston is #2 in U.S. annual new home starts and closing, only behind Dallas 2 0 2 3 M ed ia n H o u se h o ld I n co m e 2 0 2 3 M ed ia n H o m e P ri ce H H I to M ed ia n H o m e P ri ce R at io

 
Appendix: Non-GAAP Reconciliation(1) 17 (1) See the disclosure under the heading “GAAP Reconciliation of Non-GAAP Financial Measures” on slide 2 regarding the use of non-GAAP financial measures. (2) Annualized. Net income $ 30,908 $ 35,175 (+) Provision for credit losses 2,315 1,915 (+) Provision for income taxes 7,445 7,467 Pre-tax, pre-provision Income $ 40,668 $ 44,557 Total average assets $ 10,741,295 $ 10,740,138 Pre-tax, pre-provision return on average assets(2) 1.50% 1.66% Pre-tax, pre-provision income $ 40,668 $ 44,557 (+) Acquisition and merger-related expenses 3,421 2,897 (+) Amortization of intangibles 6,876 6,881 (-) Purchase accounting accretion 12,400 12,572 (-) (Loss) gain on sale of assets - (6) Adjusted pre-tax, pre-provision net income $ 38,565 $ 41,769 Adjusted pre-tax, pre-provision return on average assets(2) 1.42% 1.56% Total noninterest expense $ 70,748 $ 69,207 (+) Acquisition and merger-related expenses 3,421 2,897 (+) Amortization of intangibles 6,876 6,881 Net interest income 106,721 108,281 (-) Purchase accounting accretion 12,400 12,572 Total noninterest income 4,695 5,483 (-) (Loss) gain on sale of assets - (6) Adjusted efficiency ratio 61.05% 58.73% Q3 2023 Q2 2023 (Dollars in thousands) Total shareholders' equity $ 1,460,846 $ 1,458,680 (-) Goodw ill and core deposit intangibles, net 620,262 627,065 Tangible shareholders' equity $ 840,584 $ 831,615 Total assets $ 10,665,460 $ 10,778,351 (-) Goodw ill and core deposit intangibles, net 620,262 627,065 Tangible assets $ 10,045,198 $ 10,151,286 Tangible equity to tangible assets 8.37% 8.19% Net interest income (tax equivalent) $ 106,919 $ 108,509 (-) Purchase accounting accretion 12,400 12,572 Adjusted net interest income (tax equivalent) $ 94,519 $ 95,937 Average earning assets $ 9,697,553 $ 9,693,527 Net interest margin (tax equivalent)(2) 4.37% 4.49% Net interest margin (tax equivalent) excluding PAA(2) 3.87% 3.97% Interest on loans, as reported $ 138,948 $ 133,931 (-) Purchase accounting accretion (loans) 12,400 12,572 Interest on loans w ithout loan discount accretion $ 126,548 $ 121,359 Average loans $ 8,043,706 $ 7,980,856 Loan yield, as reported 6.85% 6.73% Loan yield, w ithout discount accretion 6.24% 6.10% Q3 2023 Q2 2023 (Dollars in thousands)

 
18 NYSE: STEL

 
v3.23.3
Cover
Oct. 27, 2023
Cover [Abstract]  
Document Type 8-K
Amendment Flag false
Document Period End Date Oct. 27, 2023
Entity File Number 001-38280
Entity Registrant Name Stellar Bancorp, Inc.
Entity Central Index Key 0001473844
Entity Tax Identification Number 20-8339782
Entity Incorporation, State or Country Code TX
Entity Address, Address Line One 9 Greenway Plaza,
Entity Address, Address Line Two Suite 110
Entity Address, City or Town Houston
Entity Address, State or Province TX
Entity Address, Postal Zip Code 77046
City Area Code 713
Local Phone Number 210-7600
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common stock, par value $0.01 per share
Trading Symbol STEL
Security Exchange Name NYSE
Entity Emerging Growth Company false
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