Stellar Bancorp(STEL) - 2025 Q1 - Quarterly Report

Financial Performance - Net income for the three months ended March 31, 2025, was $24.7 million, or$ 0.46 per diluted share, compared to $26.1 million, or$ 0.49 per diluted share for the same period in 2024, reflecting a decrease in net income [124]. - The decrease in net income was primarily due to a $2.9 million decrease in net interest income and a$ 791 thousand decrease in noninterest income [124]. - Noninterest expense decreased by $1.2 million and the provision for income taxes decreased by$ 496 thousand, partially offsetting the declines in income [124]. - Annualized returns on average assets, average equity, and efficiency ratios were 0.94%, 6.21%, and 61.93% for the three months ended March 31, 2025, compared to 0.98%, 6.88%, and 60.42% for the same period in 2024 [125]. - Net interest income before provision for credit losses decreased by $2.9 million, or 2.8%, to$ 99.3 million for the three months ended March 31, 2025, from $102.1 million in 2024 [126]. - Interest income was$ 142.3 million for the three months ended March 31, 2025, a decrease of $6.1 million, or 4.1%, compared to$ 148.4 million for the same period in 2024 [127]. - Interest expense decreased by $3.2 million, or 7.0%, to$ 43.1 million for the three months ended March 31, 2025, from $46.3 million in 2024 [128]. - Tax equivalent net interest margin was 4.20% for the three months ended March 31, 2025, a decrease of 6 basis points from 4.26% in 2024 [129]. - Noninterest income totaled$ 5.5 million for the three months ended March 31, 2025, a decrease of $791 thousand, or 12.6%, from$ 6.3 million in 2024 [138]. - Noninterest expense was $70.2 million for the three months ended March 31, 2025, a decrease of$ 1.2 million, or 1.7%, compared to $71.4 million in 2024 [140]. Credit Quality - The allowance for credit losses is based on estimates of expected losses in performing loans, with a 5% increase in historical loss rates potentially increasing funded reserves by$ 1.6 million [118]. - A 5% increase in qualitative risk factors across all segments could increase funded reserves by $2.8 million, while an overall increase in estimated loss rates by 5% would have a$ 3.5 million impact [118]. - Provision for credit losses was $3.6 million for the three months ended March 31, 2025, down from$ 4.1 million in 2024 [136]. - The provision for credit losses on loans for the first quarter of 2025 was $2.9 million, compared to$ 5.3 million for the same period in 2024, indicating a decrease of 46.5% [165]. - Nonperforming assets totaled $59.7 million, or 0.57% of total assets, at March 31, 2025, compared to$ 38.9 million, or 0.36%, at December 31, 2024 [160]. - As of March 31, 2025, total nonaccrual loans increased to $54.5 million from$ 37.2 million as of December 31, 2024, representing a 46.5% increase [161]. - The allowance for credit losses on loans was $83.7 million, or 1.15% of total loans, up from$ 81.1 million, or 1.09% of total loans, as of December 31, 2024 [164]. - Nonperforming loans to total loans ratio increased to 0.75% from 0.50% [161]. - The allowance for credit losses on loans to nonperforming loans ratio was 153.61% as of March 31, 2025, down from 168.54% [165]. - Total nonperforming assets rose to $59.7 million, up from$ 38.9 million, marking a 53.4% increase [161]. Loans and Deposits - Average loans decreased to $7.34 billion for the three months ended March 31, 2025, from$ 7.94 billion in 2024 [131]. - Total loans decreased by $156.7 million, or 2.1%, to$ 7.28 billion as of March 31, 2025, compared to $7.44 billion as of December 31, 2024 [147]. - Commercial real estate loans comprised 52.9% of the loan portfolio as of March 31, 2025, with a total amount of$ 3.85 billion, a decrease of $13.6 million, or 0.4%, from December 31, 2024 [149]. - Commercial real estate construction and land development loans decreased by$ 124 million, or 14.7%, to $721.5 million as of March 31, 2025, compared to$ 845.5 million as of December 31, 2024 [153]. - The consumer and other loan portfolio decreased by $12.8 million, or 14.1%, to$ 77.7 million as of March 31, 2025, from $90.4 million as of December 31, 2024 [157]. - Total deposits as of March 31, 2025, were$ 8.56 billion, a decrease of $565.7 million, or 6.2%, from$ 9.13 billion at December 31, 2024 [177]. - Noninterest-bearing deposits decreased by $370.6 million, or 10.4%, to$ 3.21 billion as of March 31, 2025 [177]. - Interest-bearing deposits decreased by $195.1 million, or 3.5%, to$ 5.36 billion as of March 31, 2025 [177]. - Average total deposits decreased by $28.6 million, or 0.3%, and average loans decreased by$ 594.5 million, or 7.5%, for the three months ended March 31, 2025 compared to the same period in 2024 [190]. Asset Management - The carrying amount of investment securities increased to $1.72 billion, a rise of$ 46.4 million, or 2.8%, from $1.67 billion as of December 31, 2024 [168]. - The yield on the securities portfolio increased to 3.78% for the three months ended March 31, 2025, from 2.82% in 2024 [127]. - The average yield of the securities portfolio increased to 3.78% for the three months ended March 31, 2025, compared to 2.82% for the same period in 2024 [173]. - The securities portfolio had a weighted average life of 7.3 years as of March 31, 2025 [190]. Compliance and Risk Management - The company is subject to various risks including economic disruptions, changes in interest rates, and asset quality deterioration, which could materially affect future results [105]. - Goodwill is subject to impairment testing at least annually, with potential impairment losses recognized if fair value is less than carrying value [121]. - The company has evaluated recent accounting pronouncements that may require enhanced disclosures in future financial statements [123]. - The Company maintained compliance with all debt covenants under the Loan Agreement as of March 31, 2025 [187]. - Interest rate risk simulation indicated a potential decrease in net interest income of 8.7% under a +300 basis points scenario as of March 31, 2025 [207]. - The Asset Liability Committee (ALCO) regularly reviews the sensitivity of assets and liabilities to interest rate changes [204]. Capital and Borrowing - Total shareholders' equity was$ 1.61 billion as of March 31, 2025, with a net income of $24.7 million during the three months ended March 31, 2025 [199]. - The total capital ratio to risk-weighted assets was 15.94%, significantly above the minimum required ratio of 8.0% as of March 31, 2025 [200]. - The Company had a total borrowing capacity of$ 3.04 billion, with $1.72 billion available under the Federal Home Loan Bank agreement as of March 31, 2025 [179]. - The Company had$ 120.0 million of FHLB short-term advances outstanding at a weighted-average rate of 4.75% as of March 31, 2025 [179]. - The Company issued $60.0 million of Fixed-to-Floating Rate Subordinated Notes due October 1, 2029, bearing interest at a floating rate equal to 3-Month SOFR plus 3.13% [184]. - The Company had outstanding commitments to extend credit of$ 1.81 billion as of March 31, 2025 [193]. - Total immediate contingent funding sources were $4.80 billion, or 56.0% of total deposits, as of March 31, 2025 [191]. - Estimated uninsured deposits net of collateralized deposits were 45.5% of total deposits at March 31, 2025 [191].