Financial Data and Key Metrics Changes - The company reported a net income of $24.7 million or $0.46 per diluted share, with an annualized return on average assets of 94 basis points and an annualized return on average tangible common equity of 11.48% [10] - Net interest income for the quarter was $99.3 million, a decrease from $103 million in the previous quarter, resulting in a net interest margin of 4.2% compared to 4.25% in the fourth quarter of 2024 [11][12] - Non-interest expense decreased to $70.2 million from $75.3 million in the previous quarter, reflecting a focus on managing expenses [13] Business Line Data and Key Metrics Changes - The company experienced a provision for loan losses of $3.6 million, with minimal net charge-offs of $163,000, bringing the allowance for credit losses on loans to $83.7 million or 1.15% of loans [13] - Non-interest income increased to $5.5 million from $5 million in the previous quarter, benefiting from small gains on asset sales [13] Market Data and Key Metrics Changes - The company noted a competitive market for deposits, with a focus on new account origination, onboarding more accounts in both number and dollar amount compared to the previous quarter [30][31] - The company maintained a strong proportion of non-interest bearing deposits, representing over 37% of the deposit base, and achieved a 14 basis point improvement in the cost of funds [12] Company Strategy and Development Direction - The company aims to build a strong foundation for growth while managing capital to benefit shareholders, including share repurchases totaling 1.4 million shares at an average price of $27.99 [15][17] - The management expressed a cautious but optimistic outlook for growth, expecting it to be pushed to the latter half of the year due to current economic uncertainties [9][11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged economic uncertainty introduced by the administration but noted no immediate signs of impact on their communities [7] - The company remains focused on customer acquisition and is optimistic about the growth potential in the second half of the year, despite challenges [9][28] Other Important Information - The total risk-based capital ratio was 15.94% at the end of the first quarter, slightly down from 16% at the end of 2024, but the regulatory capital ratios at the bank increased year-over-year [14] - The Board of Directors authorized a new share repurchase program allowing up to $65 million in shares to be repurchased through May 2026 [15] Q&A Session Summary Question: What is the current sentiment from clients regarding loan growth? - Management indicated a cautious optimism about potential loan growth, noting that the pipeline is building positively and that payoffs have been significant, around $275 million to $300 million per quarter [22][27] Question: Can you elaborate on the competitive deposit market? - Management confirmed that the market is intensely competitive, but they have successfully onboarded new accounts, with a significant portion being new customers [30][31] Question: What are the current trends in credit quality? - Management noted some migration in non-accruals, particularly in owner-occupied commercial real estate, but emphasized a cautious approach to credit evaluation [34][37] Question: What are the company's plans regarding capital management? - Management stated they are considering various options for capital utilization, including potential debt redemption and continued share buybacks, while remaining open to M&A opportunities [44][46] Question: How do you see the interest margin evolving? - Management expressed a goal to achieve a core net interest margin of over 4%, while acknowledging that improvements may be incremental due to current economic conditions [56][58]

Core Insights - Stellar Bancorp reported quarterly earnings of $0.46 per share, exceeding the Zacks Consensus Estimate of $0.44 per share, but down from $0.49 per share a year ago, representing an earnings surprise of 4.55% [1] - The company posted revenues of $104.76 million for the quarter, missing the Zacks Consensus Estimate by 0.67% and down from $108.41 million year-over-year [2] - The stock has lost approximately 4.8% year-to-date, compared to a decline of 6.8% in the S&P 500 [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.44, with expected revenues of $106.8 million, and for the current fiscal year, the EPS estimate is $1.83 on revenues of $437.9 million [7] - The estimate revisions trend for Stellar Bancorp is favorable, leading to a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [6] Industry Context - The Banks - Southeast industry, to which Stellar Bancorp belongs, is currently ranked in the top 17% of over 250 Zacks industries, suggesting a positive outlook for stocks within this sector [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - Net income for Q1 2025 was $24.7 million, or diluted earnings per share of $0.46, compared to $25.2 million, or $0.47 per share in Q4 2024[3] - Net income for Q1 2025 was $24,702,000, a decrease of 2.02% from $25,212,000 in Q4 2024[41] - Adjusted net income for Q1 2025 was $29,085,000, compared to $29,621,000 in Q4 2024, a decrease of 1.81%[41] - Basic earnings per share for Q1 2025 were $0.46, consistent with $0.47 in Q4 2024[30] - Earnings per share (EPS) for the same period was $0.46, down from $0.47 in the previous quarter, reflecting a decline of 2.13%[32] Income and Expenses - Net interest income decreased by $3.7 million, or 3.6%, to $99.3 million in Q1 2025 from $103.0 million in Q4 2024, with a net interest margin of 4.20%[8] - Total interest income for Q1 2025 was $142.32 million, a decrease of 5.8% from $150.02 million in Q4 2024[30] - Net interest income after provision for credit losses was $95.63 million, down from $102.02 million in the previous quarter, reflecting a decrease of 6.3%[30] - Noninterest income increased by $473 thousand, or 9.4%, to $5.5 million in Q1 2025 compared to $5.0 million in Q4 2024, primarily due to a gain on asset sales[11] - Noninterest expense decreased by $5.1 million, or 6.8%, to $70.2 million in Q1 2025 from $75.3 million in Q4 2024[12] - Total noninterest expense was $70.17 million, down from $75.27 million in the previous quarter, reflecting a decrease of 6.9%[30] Assets and Liabilities - Total assets decreased by $470.9 million to $10.43 billion as of March 31, 2025, primarily due to seasonality in government deposits[13] - Total liabilities stood at $8.82 billion, down from $9.30 billion in the previous quarter, indicating a decrease of 5.1%[28] - Total deposits decreased by $565.7 million to $8.56 billion as of March 31, 2025, driven by reductions in noninterest-bearing and time deposits[15] - Total deposits decreased to $8.56 billion in Q1 2025 from $9.13 billion in Q4 2024, representing a decline of 6.3%[28] - Total loans decreased by $156.7 million to $7.28 billion as of March 31, 2025, compared to $7.44 billion at the end of Q4 2024[14] Credit Quality - Nonperforming assets increased to $59.7 million, or 0.57% of total assets, compared to $38.9 million, or 0.36%, at the end of Q4 2024[16] - The provision for credit losses was $3.6 million in Q1 2025, up from $942 thousand in Q4 2024, reflecting an increase in nonperforming loans[17] - Nonperforming loans to total loans rose to 0.75%, up from 0.50% in the prior quarter[38] - Allowance for credit losses on loans to nonperforming loans decreased to 153.61% from 217.83% in the previous quarter[38] - Net charge-offs were reported at $163 thousand, significantly lower than $2,016 thousand in the prior quarter[38] Capital Ratios - Total risk-based capital ratio increased to 15.94% as of March 31, 2025, while book value per share rose to $30.89 from $30.09 at the end of Q4 2024[9] - The estimated Tier 1 capital ratio to risk-weighted assets was 14.15%, slightly down from 14.26% in the previous quarter[32] - Tangible equity to tangible assets ratio increased to 10.42% in Q1 2025 from 9.87% in Q4 2024, showing a stronger capital position[41] Operational Efficiency - The efficiency ratio improved to 61.93% from 64.46% in the previous quarter, indicating better cost management[32] - Efficiency ratio improved to 61.93% in Q1 2025 from 64.46% in Q4 2024, indicating better operational efficiency[43] Workforce - The number of full-time equivalent employees rose to 1,054 from 1,037 in the previous quarter, indicating growth in workforce[32] Non-GAAP Measures - The company emphasizes the use of non-GAAP financial measures for performance evaluation, including pre-tax, pre-provision income and tangible book value per share[40] - Stellar's management believes non-GAAP measures provide meaningful supplemental information for assessing performance[40] - The company’s tangible equity to tangible assets ratio is a key focus for internal planning and forecasting[40]

Financial Position - As of December 31, 2024, the company had total assets of $10.91 billion, total loans of $7.44 billion, total deposits of $9.13 billion, and total shareholders' equity of $1.61 billion[17]. - As of December 31, 2024, the Company's Common Equity Tier 1 (CET1) ratio to risk-weighted assets was 14.16%, significantly above the minimum requirement of 7.00%[64]. - The Company is required to maintain a Tier 1 capital to risk-weighted assets ratio of at least 8.50%, and its current ratio stands at 14.28%[64]. - Total capital to risk-weighted assets ratio is reported at 16.03%, exceeding the minimum requirement of 10.50%[64]. - The leverage ratio, which is Tier 1 capital to average quarterly assets, is at 11.31%, well above the minimum of 4.00%[64]. - The Company must comply with the Basel III Capital Rules, which include maintaining a capital conservation buffer of 2.50%[64]. - As of December 31, 2024, the Bank met the requirements to be classified as "well capitalized" under prompt corrective action regulations[72]. Merger and Growth Strategy - The merger between Allegiance Bancshares, Inc. and CBTX, Inc. on October 1, 2022, resulted in CBTX being renamed Stellar Bancorp, Inc., with each share of Allegiance common stock converted into 1.4184 shares of the new company[12]. - Following the merger, Stellar Bank became one of the largest banks based in Houston, Texas, with 54 full-service banking centers as of December 31, 2024[15]. - The company intends to continue expanding its presence through organic growth and a disciplined acquisition strategy, focusing on like-minded community banks in Texas[20]. Community Banking and Employee Engagement - The company's community banking strategy focuses on providing customized commercial banking services to small- to medium-sized businesses, enhancing customer relationships and operational efficiency[16]. - The average funded loan size as of December 31, 2024, was approximately $510 thousand, reflecting a focus on small- to medium-sized business lending[26]. - Employee engagement improved to 82% in 2024, up from 69% in 2023, following the implementation of new employee programs[37]. - As of December 31, 2024, the workforce consisted of 1,023 employees, with 49% identifying as non-white and 71% as women[34]. Regulatory Compliance and Oversight - The Company is subject to ongoing supervision and regulation by the Texas Department of Banking and the FDIC[48]. - The Federal Reserve's rules provide a framework for determining control over bank holding companies, with ownership thresholds set at 25% for control[57]. - The Company has not elected to pursue financial holding company status, which would allow for expanded financial activities[59]. - The Company is subject to significant regulatory oversight regarding compliance with consumer protection laws, which can result in substantial liabilities if violated[96]. - Federal bank regulatory agencies have adopted guidelines for establishing information security standards and cybersecurity programs, focusing on risk management[105]. - The Company must notify its primary banking regulator within 36 hours of determining a "computer-security incident" that materially disrupts operations[108]. Capital Distribution and Restrictions - Banking institutions failing to meet capital ratios may face constraints on capital distributions, including dividends and share repurchases[65]. - The FDIA prohibits capital distributions, including dividends, if such distributions would render the institution "undercapitalized"[76]. - The Dodd-Frank Act and Basel III impose additional restrictions on the ability of banking institutions to pay dividends[74]. - The Bank's ability to pay dividends is primarily derived from dividends received from the Bank, which are subject to federal and state regulations[75]. - The FDIC may restrict dividend payments if it deems them unsafe or unsound banking practices[76]. - Institutions classified as "undercapitalized" are prohibited from accepting brokered deposits[82]. Market Risks and Economic Factors - The principal market risk exposure for the Company is to changes in interest rates[367]. - The Federal Reserve's monetary policies significantly affect the operating results of bank holding companies and their subsidiaries[110]. Compliance and Regulatory Changes - The Anti-Money Laundering Act of 2020 codifies a risk-based approach to compliance and expands enforcement authority[93]. - The Company received an overall CRA rating of "satisfactory" on its most recent CRA examination[100]. - The final rule amending CRA regulations will be effective on April 1, 2024, with new data reporting requirements applicable from January 1, 2027[101]. - The Dodd-Frank Act mandates that financial institutions must make a "reasonable and good faith determination" of a borrower's ability to repay a residential mortgage loan[98]. - The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets, impacting their ability to engage in mergers or acquisitions[97]. - Changes in laws and regulations could adversely affect the Company's operating environment and profitability[109].

Financial Data and Key Metrics Changes - The company reported a fourth quarter net income of $27.8 million or $0.52 per diluted share, with an annualized ROAA of 1.04% and an annualized ROATCE of 10.82% [12] - For the full year 2024, net income was $117.6 million or $2.20 per diluted share, representing an ROAA of 1.1% and an ROATCE of 12.18% [12] - Net interest income for the fourth quarter was $103 million, slightly up from $101.5 million in the third quarter, translating to a net interest margin of 4.25% compared to 4.19% in the previous quarter [14] Business Line Data and Key Metrics Changes - The commercial real estate portfolio remains well within regulatory guidelines, allowing for a full spectrum of loan offerings [10] - Non-interest income for the fourth quarter was $5 million, down from $6.3 million in the third quarter, which had benefited from one-time income [17] - Non-interest expense for the fourth quarter was $72 million, up from $71.1 million in the third quarter, with full year expenses at $285.7 million, slightly lower than the previous year [18] Market Data and Key Metrics Changes - The company noted positive trends in job growth, population increase, and limited housing inventories, which are expected to serve as tailwinds entering 2025 [9] - The company reported a strong deposit base, with non-interest bearing deposits representing 39% of the deposit base at year-end [15] Company Strategy and Development Direction - The company aims to expand its low-cost core funding base while broadening loan offerings, focusing on customer relationships in 2025 [10][11] - The strategy includes evaluating share repurchases and potential partnerships, with a clear focus on organic growth [21][22] - The company plans to maintain a straightforward approach to grow existing relationships and cultivate new ones [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the business environment, citing stabilized interest rates and a favorable economic backdrop [8] - The company remains vigilant about inflation but is encouraged by job growth and increased oil and gas production [9] - Management expects modest growth in non-interest expenses in line with inflation for 2025 [19] Other Important Information - The total risk-based capital ratio was reported at 16.06% at the end of the fourth quarter, up from 14.02% at the end of 2023 [20] - The company did not repurchase any shares in the fourth quarter but redeemed $40 million of bank-level subordinated debt [21] Q&A Session Summary Question: Inquiry about higher professional fees - The increase in professional fees was attributed to timing related to certain outsourced auditing engagements [29] Question: Operating leverage and M&A role - Management indicated that while organic growth is possible, M&A could accelerate the process, but they are cautious about potential mistakes [32] Question: Loan growth outlook for 2025 - Management reaffirmed a mid-single-digit growth target for loans in 2025, supported by strong fourth quarter loan originations [44][45] Question: Deposit growth expectations - Management noted that leading indicators for deposit growth are positive, with a significant portion of new accounts coming from new customers [47] Question: Positive operating leverage guidance - Management expects revenue growth to match or exceed the low to mid-single-digit growth in non-interest expenses to achieve positive operating leverage [50] Question: Securities portfolio trends - The company aims to maintain its securities portfolio at around 15% to 16% of the balance sheet while seeking to drive the right return profile [72] Question: Provisioning and normalized charge-off rates - Management anticipates a normalization in credit conditions and expects mid-teens net charge-off rates moving forward [76][79] Question: Economic outlook and competition - Management expressed confidence in the Houston market's resilience and noted competitive pressures from larger banks, emphasizing the need to build their brand [91][95]

Core Viewpoint - Stellar Bancorp, Inc. is conducting its Q4 2024 earnings conference call, indicating a focus on financial performance and strategic insights for the quarter [1]. Group 1: Company Overview - The earnings call is led by key executives including CEO Bob Franklin and CFO Paul Egge, highlighting the leadership team's involvement in discussing financial results [3]. - Other notable participants include the Executive Chairman Steve Retzloff and President Ray Vitulli, indicating a strong executive presence during the call [3]. Group 2: Call Structure - The call begins with an operator introduction, followed by a reminder that the lines are muted to minimize background noise, ensuring a clear communication environment [2]. - After the initial remarks, a question-and-answer session is scheduled, allowing for interaction and clarification on the discussed topics [2].

Fourth Quarter 2024 Earnings Presentation Forward-Looking Statements and Non-GAAP Financial Measures 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 me ...

Financial Performance - Stellar Bancorp reported $107.99 million in revenue for Q4 2024, a 4.3% YoY decline [1] - EPS for the quarter was $0.52, compared to $0.55 a year ago [1] - Revenue exceeded Zacks Consensus Estimate by 0.46% ($107.5 million estimate) [1] - EPS surpassed consensus estimate by 8.33% ($0.48 estimate) [1] Key Metrics Analysis - Net interest margin (tax equivalent) was 4.3%, slightly above the 4.2% analyst estimate [4] - Efficiency ratio came in at 66.6%, higher than the 66.1% estimate [4] - Total nonperforming loans reached $37.21 million, exceeding the $32.37 million estimate [4] - Average balance of total interest-earning assets was $9.65 billion, slightly below the $9.66 billion estimate [4] - Total nonperforming assets stood at $38.92 million, higher than the $33.83 million estimate [4] Income Metrics - Net interest income reached $102.96 million, surpassing the $101.95 million estimate [4] - Net interest income (tax equivalent) was $103.04 million, slightly above the $102.04 million estimate [4] - Total non-interest income came in at $5.03 million, below the $5.57 million estimate [4] Stock Performance - Stellar Bancorp shares returned +1% over the past month, slightly underperforming the Zacks S&P 500 composite's +1.2% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential alignment with broader market performance [3]

Core Insights - Stellar Bancorp (STEL) reported quarterly earnings of $0.52 per share, exceeding the Zacks Consensus Estimate of $0.48 per share, but down from $0.55 per share a year ago, representing an earnings surprise of 8.33% [1] - The company achieved revenues of $107.99 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.46%, although this is a decrease from year-ago revenues of $112.82 million [2] - Stellar Bancorp has consistently surpassed consensus EPS estimates over the last four quarters [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.42 on revenues of $105.5 million, and for the current fiscal year, it is $1.88 on revenues of $434.47 million [7] - The estimate revisions trend for Stellar Bancorp is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Industry Context - The Banks - Southeast industry, to which Stellar Bancorp belongs, is currently in the top 10% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - Net income for the fourth quarter of 2024 was $27.8 million, or diluted earnings per share of $0.52, while net income for the full year 2024 was $117.6 million, or diluted earnings per share of $2.20[2] - Net income for the three months ended December 31, 2024, was $27,817,000, a decrease from $33,891,000 in the previous quarter[43] - Earnings per share (EPS), basic and diluted, for Q4 2024 was $0.52, down from $0.63 in Q4 2023, representing a decline of 17.5%[31] - The return on average assets for Q4 2024 was 1.04%, compared to 1.27% in Q4 2023, indicating a decrease of 18.1%[31] - Net income for the three months ended December 31, 2024, was $27,817,000, a decrease of 17.8% compared to $33,891,000 for the same period in 2023[31] Income and Expenses - Net interest income for 2024 decreased by $28.8 million, or 6.6%, to $408.0 million from $436.8 million in 2023, with a net interest margin of 4.24% for 2024 compared to 4.51% in 2023[6] - Noninterest income for 2024 was $23.0 million, an increase of $1.5 million, or 6.2%, compared to $24.6 million in 2023[6] - Total noninterest expense increased to $71,981 million from $71,066 million in the prior quarter[29] - The company’s total noninterest income for the year was $23,046 million, slightly down from $24,562 million in the previous year[29] Assets and Liabilities - Total assets at December 31, 2024, were $10.91 billion, an increase of $275.3 million compared to $10.63 billion at September 30, 2024[12] - Total liabilities increased to $9,294,645 thousand, up from $9,003,654 thousand, representing a growth of 3.2%[27] - Total assets increased to $10,905,110 thousand as of December 31, 2024, up from $10,629,777 thousand in the previous quarter, representing a growth of 2.6%[26] - Total deposits at December 31, 2024, increased by $385.8 million to $9.13 billion compared to $8.74 billion at September 30, 2024[14] Capital and Equity - Total risk-based capital ratio increased to 16.06% at December 31, 2024, up from 14.02% at December 31, 2023, with book value per share rising to $30.14 from $28.54[7] - Total shareholders' equity decreased to $1,610,465 thousand from $1,626,123 thousand, a decline of 1.0%[27] - Shareholders' equity rose to $1,614,791 thousand as of December 31, 2024, compared to $1,475,377 thousand a year earlier[35] Loan Performance - Nonperforming loans decreased by $2.0 million to $37.2 million at December 31, 2024, from $39.2 million at December 31, 2023[7] - Net loans held for investment decreased slightly to $7,358,796 thousand from $7,466,623 thousand, a decline of 1.4% quarter-over-quarter[26] - Nonperforming assets to total assets ratio increased to 0.36%, up from 0.33% in the previous quarter[40] - Nonperforming loans to total loans ratio increased to 0.50%, compared to 0.43% in the previous quarter[40] Credit Losses - The fourth quarter of 2024 included a provision for credit losses of $942 thousand, compared to a reversal of provision for credit losses of $6.0 million in the third quarter of 2024[16] - The allowance for credit losses on loans was $81,058 thousand, slightly down from $84,501 thousand, indicating a reduction of 5.8%[26] - Provision for credit losses was $942 million, a reversal from a provision of $(5,985) million in the previous quarter[29] Operational Efficiency - The efficiency ratio for the year ended December 31, 2024, was 66.39%, compared to 63.02% for the year ended December 31, 2023[10] - The efficiency ratio for Q4 2024 was 66.59%, slightly up from 66.18% in Q3 2024, reflecting a marginal increase in operational costs[31] Strategic Focus - The company plans to focus on growth at a more normalized organic pattern while exploring opportunities with downstream partners to increase operating leverage[3]