0001473844FALSE00014738442023-07-282023-07-28

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): July 28, 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 July 28, 2023, Stellar Bancorp, Inc. (the “Company”), issued a press release announcing its financial results for the second 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: July 28, 2023By:/s/ Paul P. Egge
Paul P. Egge
Chief Financial Officer


Exhibit 99.1
imagea.jpg
PRESS RELEASE                                            

STELLAR BANCORP, INC. REPORTS
SECOND QUARTER 2023 RESULTS

HOUSTON, July 28, 2023 - Stellar Bancorp, Inc. (the “Company” or “Stellar”) (NYSE: STEL) today reported net income of $35.2 million and diluted earnings per share of $0.66 for the second quarter 2023 compared to net income of $37.1 million and diluted earnings per share of $0.70 for the first quarter 2023.

“We are pleased to announce our second quarter operating results. We remain focused on capital, credit and liquidity and that focus is reflected in our results for the quarter that include our continued capital build, good credit quality and growth of loans in a measured way,” said Robert R. Franklin, Jr., Stellar’s Chief Executive Officer.

“The Federal Reserve continues to increase interest rates which has put pressure on deposit rates and net interest margin across the industry and the deposit rate environment remains very competitive. However, we’ve been able to maintain our high percentage of noninterest-bearing deposits while staying competitive with our interest-bearing deposit rates. Our relationship driven model continued to provide us with a very healthy margin. We are working to remain disciplined to position Stellar for long-term success as we manage through the current economic environment, thankful to be operating in what we believe to be the best commercial banking region in the country. The long-term future for Stellar remains bright,” concluded Mr. Franklin.

Second Quarter 2023 Financial Highlights

•Strong Profitability: Second quarter 2023 net income of $35.2 million and diluted earnings per share of $0.66 translated into an annualized return on average assets of 1.31% and an annualized return on average tangible equity of 17.05%(1).

•Continued Regulatory Capital Build: Total risk-based capital ratio increased to 13.03% at June 30, 2023 from 12.39% at December 31, 2022 and Tier 1 leverage ratio increased to 9.51% at June 30, 2023 from 8.55% at December 31, 2022.

•Excellent Credit Performance: Net charge-offs of $428 thousand, or 0.01%, for the year-to-date 2023, while nonperforming assets remained stable.

•Solid Margin: Tax equivalent net interest margin was 4.49% for the second quarter of 2023 as compared to 4.80% in the first quarter of 2023. The tax equivalent net interest margin, excluding purchase accounting accretion (“PAA”), was 3.97%(1) for the second quarter of 2023 and 4.38%(1) for the first quarter of 2023.

•Advantageous Funding Profile: Noninterest-bearing deposit balances decreased from the first quarter but remained a significant portion of our deposit funding base at 42.4% at the end of the second quarter 2023 compared to 44.4% at the end of the first 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 Company’s valuations of CBTX’s assets and liabilities are preliminary and may be refined for up to a year from the date of the Merger. 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 and second 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.


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Second Quarter 2023 Results

Stellar’s net interest income in the second quarter 2023 decreased $7.5 million, or 6.5%, from $115.8 million for the first quarter 2023. The net interest margin on a tax equivalent basis decreased 31 basis points to 4.49% for the second quarter 2023 from 4.80% for the first 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 second quarter of 2023 benefited from $12.6 million of income from purchase accounting adjustments compared to $10.1 million in the first 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 second quarter 2023 would have been $95.9 million and the tax equivalent net interest margin would have been 3.97%.

Noninterest income for the second quarter 2023 was $5.5 million, a decrease of $2.0 million, or 26.9%, compared to $7.5 million for the first quarter 2023. Noninterest income decreased in the second quarter of 2023 compared to the first quarter of 2023 primarily due to Small Business Investment Company income recognized in the first quarter of 2023.

Noninterest expense for the second quarter 2023 decreased $3.4 million, or 4.7%, to $69.2 million compared to $72.6 million for the first quarter of 2023. The decrease in noninterest expense in the second quarter of 2023 compared to the first quarter of 2023 was primarily due to a decrease in acquisition and merger-related expenses which totaled $2.9 million for the second quarter of 2023 compared to $6.2 million in the first quarter of 2023.

Stellar’s efficiency ratio was 60.83% for the second quarter 2023 compared to 58.96% for the first quarter 2023. Second quarter 2023 annualized returns on average assets, average equity and average tangible equity were 1.31%, 9.67% and 17.05%, respectively, compared to 1.38%, 10.62% and 19.32%, respectively, for the first 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 June 30, 2023 increased $182.7 million to $8.07 billion compared to $7.89 billion at March 31, 2023. At June 30, 2023, the remaining balance of the purchase accounting adjustments on loans was $131.4 million.

Total deposits at June 30, 2023 increased $27.5 million to $8.77 billion compared to $8.74 billion at March 31, 2023, driven in part by increased CDs more than offsetting decreases in noninterest-bearing and money market balances. 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 $4.75 billion and estimated uninsured deposits net of collateralized deposits of $936 million were $3.82 billion, or 43.5%, of total deposits at June 30, 2023.

Total assets at June 30, 2023 were $10.78 billion, an increase of $173.6 million, compared to $10.60 billion at March 31, 2023.

Asset Quality

Nonperforming assets totaled $43.3 million, or 0.40% of total assets, at June 30, 2023 compared to $43.5 million, or 0.41% of total assets, at March 31, 2023. The allowance for credit losses on loans as a percentage of total loans was 1.24% at June 30, 2023 and 1.22% at March 31, 2023.

The provision for credit losses for the second quarter 2023 was $1.9 million compared to $3.7 million for the first quarter 2023. Second quarter 2023 net charge-offs were $236 thousand, or 0.01% (annualized) of average loans, compared to net charge-offs of $192 thousand, or 0.01% (annualized) of average loans, for the first quarter 2023.

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.

Conference Call

Stellar’s management team will host a conference call and webcast on Friday, July 28, 2023 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss second quarter 2023 results. Individuals and investment professionals may register for the conference call at https://register.vevent.com/register/BI2481d74e1f5a4577b2eff534eef7c8b7 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


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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.


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Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
20232022
June 30March 31December 31September 30June 30
 (Dollars in thousands)
ASSETS
Cash and due from banks$105,913 $99,231 $67,063 $16,449 $17,547 
Interest-bearing deposits at other financial institutions198,176 164,102 304,642 102,118 275,290 
Total cash and cash equivalents304,089 263,333 371,705 118,567 292,837 
Available for sale securities, at fair value1,478,222 1,519,175 1,807,586 1,618,995 1,709,321 
Loans held for investment8,068,718 7,886,044 7,754,751 4,591,912 4,348,833 
Less: allowance for credit losses on loans(100,195)(96,188)(93,180)(52,147)(50,242)
Loans, net7,968,523 7,789,856 7,661,571 4,539,765 4,298,591 
Accrued interest receivable42,051 42,405 44,743 29,697 29,882 
Premises and equipment, net119,142 124,723 126,803 57,837 58,482 
Federal Home Loan Bank stock24,478 19,676 15,058 16,843 4,078 
Bank-owned life insurance104,148 103,616 103,094 28,305 28,170 
Goodwill497,260 497,260 497,260 223,642 223,642 
Core deposit intangibles, net129,805 136,665 143,525 12,406 13,156 
Other assets110,633 108,009 129,092 84,285 73,605 
Total assets$10,778,351 $10,604,718 $10,900,437 $6,730,342 $6,731,764 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing$3,713,536 $3,877,859 $4,230,169 $2,465,839 $2,394,719 
Interest-bearing
Demand1,437,509 1,394,244 1,591,828 956,920 1,016,381 
Money market and savings2,174,073 2,401,840 2,575,923 1,471,690 1,510,008 
Certificates and other time1,441,251 1,064,932 869,712 766,270 959,524 
Total interest-bearing deposits5,052,833 4,861,016 5,037,463 3,194,880 3,485,913 
Total deposits8,766,369 8,738,875 9,267,632 5,660,719 5,880,632 
Accrued interest payable4,555 3,875 2,098 2,673 1,500 
Borrowed funds369,963 238,944 63,925 257,000 — 
Subordinated debt109,566 109,420 109,367 109,241 109,109 
Other liabilities69,218 67,388 74,239 44,407 35,194 
Total liabilities9,319,671 9,158,502 9,517,261 6,074,040 6,026,435 
SHAREHOLDERS’ EQUITY:
Common stock533 533 530 281 286 
Capital surplus1,228,532 1,225,596 1,222,761 511,434 524,033 
Retained earnings361,619 333,368 303,146 307,975 296,477 
Accumulated other comprehensive loss(132,004)(113,281)(143,261)(163,388)(115,467)
Total shareholders’ equity1,458,680 1,446,216 1,383,176 656,302 705,329 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$10,778,351 $10,604,718 $10,900,437 $6,730,342 $6,731,764 


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Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Three Months EndedSix Months Ended
2023202220232022
June 30March 31December 31September 30June 30June 30June 30
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees$133,931 $125,729 $116,145 $58,025 $53,835 $259,660 $106,205 
Securities:
Taxable9,726 9,653 9,834 6,655 5,571 19,379 10,639 
Tax-exempt436 1,262 3,057 2,594 2,557 1,698 5,082 
Deposits in other financial institutions2,865 3,771 2,933 608 877 6,636 1,217 
Total interest income146,958 140,415 131,969 67,882 62,840 287,373 123,143 
INTEREST EXPENSE:
Demand, money market and savings deposits20,708 18,037 12,406 3,527 1,859 38,745 3,206 
Certificates and other time deposits9,622 3,307 2,083 1,664 1,922 12,929 4,078 
Borrowed funds6,535 1,317 417 499 114 7,852 300 
Subordinated debt1,812 1,927 1,449 1,502 1,463 3,739 2,905 
Total interest expense38,677 24,588 16,355 7,192 5,358 63,265 10,489 
NET INTEREST INCOME108,281 115,827 115,614 60,690 57,482 224,108 112,654 
Provision for credit losses1,915 3,666 44,793 1,962 2,143 5,581 3,957 
Net interest income after provision for credit losses106,366 112,161 70,821 58,728 55,339 218,527 108,697 
NONINTEREST INCOME:
Nonsufficient funds fees418 406 447 145 126 824 242 
Service charges on deposit accounts1,157 943 1,242 527 560 2,100 1,087 
(Loss) gain on sale of assets(6)198 4,025 42 (17)192 (17)
Bank-owned life insurance532 522 515 135 342 1,054 475 
Debit card and ATM card income1,821 1,698 1,897 869 880 3,519 1,699 
Other1,561 3,731 2,511 1,277 813 5,292 3,236 
Total noninterest income5,483 7,498 10,637 2,995 2,704 12,981 6,722 
NONINTEREST EXPENSE:
Salaries and employee benefits37,300 39,775 40,949 22,013 21,864 77,075 44,592 
Net occupancy and equipment3,817 4,088 3,781 2,129 2,220 7,905 4,425 
Depreciation1,841 1,836 1,903 1,003 1,012 3,677 2,045 
Data processing and software amortization4,674 5,054 3,776 2,541 2,522 9,728 5,020 
Professional fees1,564 1,527 2,298 485 662 3,091 800 
Regulatory assessments and FDIC insurance2,755 1,294 1,263 1,134 1,256 4,049 2,517 
Amortization of intangibles6,881 6,879 7,051 750 751 13,760 1,502 
Communications689 701 737 359 363 1,390 704 
Advertising907 839 1,130 385 483 1,746 945 
Acquisition and merger-related expenses2,897 6,165 11,469 10,551 1,667 9,062 2,118 
Other5,882 4,440 5,267 2,681 5,104 10,322 7,753 
Total noninterest expense69,207 72,598 79,624 44,031 37,904 141,805 72,421 
INCOME BEFORE INCOME TAXES42,642 47,061 1,834 17,692 20,139 89,703 42,998 
Provision for income taxes7,467 9,913 (218)3,406 3,702 17,380 7,904 
NET INCOME$35,175 $37,148 $2,052 $14,286 $16,437 $72,323 $35,094 
EARNINGS PER SHARE
Basic$0.66 $0.70 $0.04 $0.51 $0.57 $1.36 $1.22 
Diluted$0.66 $0.70 $0.04 $0.50 $0.56 $1.36 $1.21 


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Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Three Months EndedSix Months Ended
2023202220232022
June 30March 31December 31September 30June 30June 30June 30
(Dollars and share amounts in thousands, except per share data)
Net income$35,175$37,148$2,052$14,286$16,437$72,323$35,094
Earnings per share, basic$0.66$0.70$0.04$0.51$0.57$1.36$1.22
Earnings per share, diluted$0.66$0.70$0.04$0.50$0.56$1.36$1.21
Dividends per share$0.13$0.13$0.13$0.10$0.10$0.26$0.20
Return on average assets(A)
1.31 %1.38 %0.07 %0.84 %0.94 %1.35 %0.99 %
Return on average equity(A)
9.67 %10.62 %0.60 %7.90 %8.86 %10.14 %9.14 %
Return on average tangible equity(A)(B)
17.05 %19.32 %1.16 %11.78 %13.00 %18.14 %13.19 %
Net interest margin (tax equivalent)(A)(C)
4.49 %4.80 %4.71 %3.85 %3.53 %4.64 %3.41 %
Net interest margin (tax equivalent) excluding PAA(A)(B)(C)
3.97 %4.38 %4.38 %3.85 %3.52 %4.18 %3.41 %
Efficiency ratio(D)
60.83 %58.96 %65.14 %69.18 %62.96 %59.86 %60.66 %
Capital Ratios
Stellar Bancorp, Inc. (Consolidated)
Equity to assets13.53 %13.64 %12.69 %9.75 %10.48 %13.53 %10.48 %
Tangible equity to tangible assets(B)
8.19 %8.15 %7.24 %6.47 %7.21 %8.19 %7.21 %
Total capital ratio (to risk-weighted assets)13.03 %12.72 %12.39 %14.66 %15.47 %13.03 %15.47 %
Common equity Tier 1 capital (to risk weighted assets)
10.67 %10.39 %10.04 %11.39 %12.06 %10.67 %12.06 %
Tier 1 capital (to risk-weighted assets)
10.78 %10.50 %10.15 %11.58 %12.26 %10.78 %12.26 %
Tier 1 leverage (to average tangible assets)
9.51 %9.01 %8.55 %9.00 %8.65 %9.51 %8.65 %
Stellar Bank
Total capital ratio (to risk-weighted assets)12.80 %12.42 %12.02 %14.12 %14.50 %12.80 %14.50 %
Common equity Tier 1 capital (to risk-weighted assets)
11.22 %10.87 %10.46 %12.20 %12.51 %11.22 %12.51 %
Tier 1 capital (to risk-weighted assets)
11.22 %10.87 %10.46 %12.20 %12.51 %11.22 %12.51 %
Tier 1 leverage (to average tangible assets)
9.89 %9.35 %8.81 %9.49 %8.83 %9.89 %8.83 %
Other Data
Weighted average shares:
Basic53,29753,02152,71528,28628,87453,16028,879
Diluted53,37553,13852,97328,52929,12053,26129,108
Period end shares outstanding53,30353,29652,95528,13728,58653,30328,586
Book value per share$27.37$27.14$26.12$23.33$24.67$27.37$24.67
Tangible book value per share(B)
$15.60$15.24$14.02$14.94$16.39$15.60$16.39
Employees - full-time equivalents1,0041,0551,0255625781,004578

(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.

    


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Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Three Months Ended
June 30, 2023March 31, 2023June 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$7,980,856 $133,931 6.73 %$7,847,011 $125,729 6.50 %$4,303,714 $53,835 5.02 %
Securities1,502,949 10,162 2.71 %1,604,011 10,915 2.76 %1,778,745 8,128 1.83 %
Deposits in other financial institutions209,722 2,865 5.48 %364,781 3,771 4.19 %535,546 877 0.66 %
Total interest-earning assets9,693,527 $146,958 6.08 %9,815,803 $140,415 5.80 %6,618,005 $62,840 3.81 %
Allowance for credit losses on loans(96,414)(93,331)(49,290)
Noninterest-earning assets1,143,025 1,160,061 450,584 
Total assets$10,740,138 $10,882,533 $7,019,299 
Liabilities and
    Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand
    deposits
$1,387,604 $9,343 2.70 %$1,650,273 $8,382 2.06 %$1,044,493 $927 0.36 %
Money market and savings
    deposits
2,220,827 11,365 2.05 %2,490,889 9,655 1.57 %1,566,376 932 0.24 %
Certificates and other time
    deposits
1,225,834 9,622 3.15 %861,595 3,307 1.56 %1,088,664 1,922 0.71 %
Borrowed funds479,896 6,535 5.46 %105,191 1,317 5.08 %50,116 114 0.91 %
Subordinated debt109,499 1,812 6.64 %109,415 1,927 7.14 %109,045 1,463 5.38 %
Total interest-bearing liabilities5,423,660 $38,677 2.86 %5,217,363 $24,588 1.91 %3,858,694 $5,358 0.56 %
Noninterest-Bearing
    Liabilities:
Noninterest-bearing demand
    deposits
3,779,594 4,166,265 2,382,230 
Other liabilities78,411 80,823 34,249 
Total liabilities9,281,665 9,464,451 6,275,173 
Shareholders' equity1,458,473 1,418,082 744,126 
Total liabilities and
    shareholders' equity
$10,740,138 $10,882,533 $7,019,299 
Net interest rate spread3.22 %3.89 %3.25 %
Net interest income and margin$108,281 4.48 %$115,827 4.79 %$57,482 3.48 %
Net interest income and net
    interest margin (tax equivalent)
$108,509 4.49 %$116,119 4.80 %$58,238 3.53 %
Cost of funds1.69 %1.06 %0.34 %
Cost of deposits1.41 %0.94 %0.25 %


7
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
Six Months Ended June 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$7,914,303 $259,660 6.62 %$4,267,810 $106,205 5.02 %
Securities1,553,200 21,077 2.74 %1,807,024 15,721 1.75 %
Deposits in other financial institutions286,823 6,636 4.67 %670,316 1,217 0.37 %
Total interest-earning assets9,754,326 $287,373 5.94 %6,745,150 $123,143 3.68 %
Allowance for credit losses
    on loans		(94,881)(48,819)
Noninterest-earning assets1,151,497 441,390 
Total assets$10,810,942 $7,137,721 
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits$1,518,213 $17,725 2.35 %$1,057,678 $1,476 0.28 %
Money market and savings deposits2,355,112 21,020 1.80 %1,575,325 1,730 0.22 %
Certificates and other time deposits1,044,721 12,929 2.50 %1,166,490 4,078 0.70 %
Borrowed funds293,578 7,852 5.39 %69,868 300 0.87 %
Subordinated debt109,458 3,739 6.89 %108,979 2,905 5.38 %
Total interest-bearing liabilities5,321,082 $63,265 2.40 %3,978,340 10,489 0.53 %
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits3,971,862 2,347,366 
Other liabilities79,609 37,767 
Total liabilities9,372,553 6,363,473 
Shareholders' equity1,438,389 774,248 
Total liabilities and shareholders' equity$10,810,942 $7,137,721 
Net interest rate spread3.54 %3.15 %
Net interest income and margin$224,108 4.63 %$112,654 3.37 %
Net interest income and net interest
    margin (tax equivalent)
$224,628 4.64 %$114,160 3.41 %
Cost of funds1.37 %0.33 %
Cost of deposits1.17 %0.24 %


8
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)

Three Months Ended
20232022
June 30March 31December 31September 30June 30
(Dollars in thousands)
Period-end Loan Portfolio:
Commercial and industrial$1,512,476$1,477,340$1,455,795$732,636$727,068
Paycheck Protection Program (PPP)8,02711,08113,22617,82731,855
Real estate:
Commercial real estate (including multi-family residential)4,038,4874,014,6093,931,4802,407,0392,265,155
Commercial real estate construction and land development1,136,1241,034,5381,037,678513,248450,694
1-4 family residential (including home equity)1,009,4391,008,3621,000,956699,636682,066
Residential construction311,208292,143268,150183,563155,017
Consumer and other52,95747,97147,46637,96336,978
Total loans held for investment$8,068,718$7,886,044$7,754,751$4,591,912$4,348,833
Deposits:
Noninterest-bearing$3,713,536$3,877,859$4,230,169$2,465,839$2,394,719
Interest-bearing
Demand1,437,5091,394,2441,591,828956,9201,016,381
Money market and savings2,174,0732,401,8402,575,9231,471,6901,510,008
Certificates and other time1,441,2511,064,932869,712766,270959,524
Total interest-bearing deposits5,052,8334,861,0165,037,4633,194,8803,485,913
Total deposits$8,766,369$8,738,875$9,267,632$5,660,719$5,880,632
Asset Quality:
Nonaccrual loans$43,349$43,413$45,048$21,551$28,225
Accruing loans 90 or more days past due—————
Total nonperforming loans43,34943,41345,04821,55128,225
Other repossessed assets—124———
Total nonperforming assets$43,349$43,537$45,048$21,551$28,225
Net charge-offs (recoveries)$236$192$5,707$(245)$571
Nonaccrual loans:
Commercial and industrial$22,968$23,329$25,402$6,916$9,145
Real estate:
Commercial real estate (including multi-family residential)8,2219,0269,97010,39214,409
Commercial real estate construction and land development38827—2411,511
1-4 family residential (including home equity)10,88010,5869,4043,8543,040
Residential construction665195———
Consumer and other227250272148120
Total nonaccrual loans$43,349$43,413$45,048$21,551$28,225
Asset Quality Ratios:
Nonperforming assets to total assets0.40 %0.41 %0.41 %0.32 %0.42 %
Nonperforming loans to total loans0.54 %0.55 %0.58 %0.47 %0.65 %
Allowance for credit losses on loans to nonperforming loans231.14 %221.56 %206.85 %241.97 %178.01 %
Allowance for credit losses on loans to total loans1.24 %1.22 %1.20 %1.14 %1.16 %
Net charge-offs (recoveries) to average loans (annualized)0.01 %0.01 %0.30 %(0.02 %)0.05 %



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 EndedSix Months Ended
2023202220232022
June 30March 31December 31September 30June 30June 30June 30
(Dollars and share amounts in thousands, except per share data)
Net income$35,175$37,148$2,052$14,286$16,437$72,323$35,094
Add: Provision for credit losses1,9153,66644,7931,9622,1435,5813,957
Add: Provision for income taxes7,4679,913(218)3,4063,70217,3807,904
Pre-tax, pre-provision income$44,557$50,727$46,627$19,654$22,282$95,284$46,955
Total average assets$10,740,138$10,882,533$10,946,009$6,717,886$7,019,299$10,810,942$7,137,721
Pre-tax, pre-provision return on average assets(B)
1.66 %1.89 %1.69 %1.16 %1.27 %1.78 %1.33 %
Pre-tax, pre-provision income$44,557$50,727$46,627$19,654$22,282$95,284$46,955
Add: Acquisition and merger-related expenses2,8976,16511,46910,5511,6679,0622,118
Add: Amortization of intangibles 6,8816,8797,05175075113,7601,502
Less: Purchase accounting accretion12,57210,1048,160407722,676170
Less: (Loss) gain on sale of assets(6)1984,02542(17)192(17)
Adjusted pre-tax, pre-provision income$41,769$53,469$52,962$30,873$24,640$95,238$50,422
Adjusted pre-tax, pre-provision return on average assets(B)
1.56 %1.99 %1.92 %1.82 %1.41 %1.78 %1.42 %
Total noninterest expense$69,207$72,598$79,624$44,031$37,904$141,805$72,421
Less: Acquisition and merger-related expenses2,8976,16511,46910,5511,6679,0622,118
Less: Amortization of intangibles6,8816,8797,05175075113,7601,502
Net interest income108,281115,827115,61460,69057,482224,108112,654
Less: Purchase accounting accretion12,57210,1048,160407722,676170
Total noninterest income5,4837,49810,6372,9952,70412,9816,722
Less: (Loss) gain on sale of assets(6)1984,02542(17)192(17)
Adjusted efficiency ratio(A)
58.73%52.69%53.57%51.46%59.02%55.54%57.71%
Total shareholders' equity$1,458,680$1,446,216$1,383,176$656,302$705,329$1,458,680$705,329
Less: Goodwill and core deposit intangibles, net627,065633,925640,785236,048236,798627,065236,798
Tangible shareholders’ equity$831,615$812,291$742,391$420,254$468,531$831,615$468,531
Shares outstanding at end of period53,30353,29652,95528,13728,58653,30328,586
Tangible book value per share$15.60$15.24$14.02$14.94$16.39$15.60$16.39
Average shareholders' equity$1,458,473$1,418,082$1,347,938$717,436$744,126$1,438,389$774,248
Less: Average goodwill and core deposit intangibles, net630,854638,110658,107236,399237,153634,462237,537
Average tangible shareholders’ equity$827,619$779,972$689,831$481,037$506,973$803,927$536,711
Return on average tangible equity(B)
17.05 %19.32 %1.18 %11.78 %13.00 %18.14 %13.19 %
Total assets$10,778,351$10,604,718$10,900,437$6,730,342$6,731,764$10,778,351$6,731,764
Less: Goodwill and core deposit intangibles, net627,065633,925640,785236,048236,798627,065236,798
Tangible assets$10,151,286$9,970,793$10,259,652$6,494,294$6,494,966$10,151,286$6,494,966
Tangible equity to tangible assets8.19 %8.15 %7.24 %6.47 %7.21 %8.19 %7.21 %
Net interest income (tax equivalent)$108,509$116,119$116,574$61,418$58,238$224,628$114,160
Less: Purchase accounting accretion12,57210,1048,160407722,676170
Adjusted net interest income (tax equivalent)$95,937$106,015$108,414$61,378$58,161$201,952$113,990
Average earning assets$9,693,527$9,815,803$9,815,701$6,325,984$6,618,005$9,754,326$6,745,150
Net interest margin (tax equivalent) excluding PAA3.97 %4.38 %4.38 %3.85 %3.52 %4.18 %3.41 %
(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
Second 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 Combination of the Houston region’s two largest regionally-focused banks  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 June 30, 2023 March 31, 2023 Total assets 10,778$ 10,605$ Total loans 8,069 7,886 Total deposits 8,766 8,739 Total loans to total deposits 92.04% 90.24% Equity to assets 13.53% 13.64% Tangible equity to tangible assets (1) 8.19% 8.15% (Dollars in millions)  Combination delivers scale, growth opportunities, and talent depth  Merger-of-equals between CBTX, Inc. and Allegiance Bancshares, Inc. became effective October 1, 2022 (NYSE: STEL)

 
Unparalleled Focus on Houston Region Total Assets Houston Region(1) Percent of Company Name ($B) Deposits ($B) Deposits (%) JPMorgan $3,841 $188.0 7.6% Wells Fargo 1,881 34.3 2.4% BofA 3,112 29.7 1.5% Zions 87.8 14.1 17.8% PNC 541 11.9 2.7% Stellar 11.1 9.5 98.1% Frost 51.8 8.4 18.4% Capital One 440 8.0 2.6% Cadence 47.7 7.6 18.9% Prosperity 37.4 6.8 22.6% Allegiance 6.7 5.9 100.0% Woodforest 9.6 5.9 70.4% Comerica 86.9 3.9 5.1% CBTX 4.3 3.6 95.1% Texas Capital 32.3 2.9 11.3% Truist 545 2.9 0.7% 4 Houston Region Market Share(1) Deposits ($B) $34.3 $29.7 $14.1 $11.9 $9.5 $8.4 $8.0 $7.6 $6.8 $5.9 $5.9 $3.9 $3.6 $2.9 $2.9 JPMorgan Wells Fargo BofA Zions PNC Stellar Frost Capital One Cadence Prosperity Allegiance Woodforest Comerica CBTX Texas Capital Truist $188.0 Stellar Allegianc CBT Note: Deposit market share based on FDIC data as of June 30, 2022; Stellar deposits in the Houston Region are combined deposits as of June 30, 2022. (1) Houston Region defined as the Houston-The Woodlands-Sugar Land and Beaumont-Port Arthur MSAs. Source: S&P Capital IQ Pro; Excludes non-retail branches.

 
5 Second 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 second quarter 2023 net income of $35.2 million, or $0.66 per diluted share, as compared to net income of $37.1 million, or $0.70 per share, for the first quarter 2023. The second quarter and first quarter 2023 results reflect significant nonrecurring items related to the Merger.  Core Earnings Power: Return on average assets (“ROAA”) of 1.31% and pre-tax, pre-provision (“PTPP”) ROAA of 1.66%. (1)(4)  Adjusted for merger and nonrecurring adjustments, PTPP ROAA would have been 1.56%. (1)(2)(4)  Net Interest Margin (“NIM”): 4.49% and NIM excluding purchase accounting adjustments (“PAA”) of 3.97%. (1)  Core Funding: 42.4% noninterest-bearing deposits, 1.41% cost of deposits and 1.69% cost of funds.  Regulatory Capital Build: Total risk based capital ratio increased to 13.03% at June 30, 2023 from 12.39% at December 31, 2022 and Tier 1 leverage ratio increased to 9.51% at June 30, 2023 from 8.55% at December 31, 2022. Q2 2023 Q1 2023 Actual Adjusted(1) Adjusted(1) Net interest margin (tax equivalent)(3) 4.49% 3.97% 4.80% 4.38% Pre-tax, pre-provision income 44,557$ (1) 41,769$ (2) 50,727$ (1) 53,469$ (2) Pre-tax, pre-provision ROAA (3) 1.66% (1) 1.56% (2) 1.89% (1) 1.99% (2) Efficiency ratio(4) 60.83% 58.73% (2) 58.96% 52.69% (2) Actual (Dollars in thousands)

 
Second Quarter Deposit Summary 6 Deposit Mix Deposits (in millions) Maintaining Discipline Navigating Competitive Deposit Market As of June 30, 2023: • Retained favorable mix: 42.4% noninterest-bearing deposits • Estimated uninsured deposits, net of collateralized municipal deposits: 43.5% • Average account size of $86 thousand, excluding municipal deposits • 92.0% loan to deposit ratio • Brokered deposits increased from $203.4 million to $537.8 million from March 31, 2023 to June 30, 2023 . (1) Q2 2023 Q1 2023 Noninterest-bearing ("NIB") 3,713,536$ 3,877,859$ Interest-bearing demand ("IB") 1,437,509 1,394,244 Money market and savings ("Sav & MMDA") 2,174,073 2,401,840 Certificates and other time ("CDs") 1,441,251 1,064,932 Total deposits 8,766,369$ 8,738,875$ Cost of deposits 1.41% 0.94% Cost of interest-bearing deposits 2.52% 1.73% (Dollars in thousands) NIB 42.4% IB Demand 16.4% MMDA & Sav. 24.8% CD's 16.4%

 
Second 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 Quality Loan Portfolio • Commercial Real Estate (“CRE”): 45.8% of CRE portfolio was owner-occupied (“OO”) and the average funded loan size was approximately $1.1 million • Construction & Development (“C&D”): $1.4 billion portfolio with $311.2 million, or 21.5%, 1-4 family, $197.2 million, or 13.6%, was owner-occupied and the average funded loan size was approximately $844 thousand (1) (1) Average Yield / Rate Excl. PAA(1) Average Yield / Rate Excl. PAA(1) Interest-Earning Assets: Loans 7,980,856$ 133,931$ 6.73% 6.10% 7,847,011$ 125,729$ 6.50% 5.98% Securities 1,502,949 10,162 2.71% 1,604,011 10,915 2.76% Deposits in other financial institutions 209,722 2,865 5.48% 364,781 3,771 4.19% Total interest-earning assets 9,693,527$ 146,958$ 6.08% 5.56% 9,815,803$ 140,415$ 5.80% 5.38% (Dollars in thousands) Q2 2023 Q1 2023 Average Outstanding Balance Interest Earned / Interest Paid Average Outstanding Balance Interest Earned / Interest Paid 1-4 Fam. 12.5% C&D 17.9% Multi. 5.3% CRE 21.8% OO CRE 22.9% C&I 19.0% Other 0.6%

 
Second Quarter Asset Quality Summary 8 Nonperforming Loans by Type (1) Combined represents the simple addition of legacy balances for 2022; estimated. Nonperforming assets decreased and net charge-offs were minimal in Q2 2023 Allowance for credit losses on loans: • As of June 30, 2023, was $100.2 million, or 1.24% of total loans compared to $96.2 million, or 1.22% of total loans as of March 31, 2023 Allowance for credit losses on loans to nonperforming loans: • As of June 30, 2023, was 231.14% compared to 221.56% as of March 31, 2023 Nonaccrual Loans with No Related Allowance Nonaccrual Loans with Related Allowance Total Nonaccrual Loans Commercial and industrial 1,487$ 21,313$ 22,800$ Paycheck protection program (PPP) 168 — 168 Commercial real estate (including multi-family residential) 6,983 1,238 8,221 Commercial real estate construction and land development 388 — 388 1-4 family residential (including home equity) 7,300 3,580 10,880 Residential construction 665 — 665 Consumer and other 60 167 227 17,051$ 26,298$ 43,349$ (Dollars in thousands) Q2 2023 Q1 2023 Total nonperforming loans 43,349$ 43,413$ Nonperforming loans to total loans 0.54% 0.55% Total nonperforming assets 43,349$ 43,537$ Nonperforming assets to total assets 0.40% 0.41% Net charge-offs 236$ 192$ Net charge-offs to average loans (annualized) 0.01% 0.01% (Dollars in thousands) C&I 52.6% CRE 19.0% PPP 0.4% 1-4 Family 25.1% Other 2.9%

 
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) 13.03% 12.39% 10.50% Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 10.67% 10.04% 7.00% Tier 1 Capital Ratio (to risk-weighted assets) 10.78% 10.15% 8.50% Tier 1 Leverage Ratio (to average tangible assets) 9.51% 8.55% 4.00% Tangible equity to tangible assets (1) 8.19% 7.24% N/A Bank Capital Ratios Total Capital Ratio (to risk-weighted assets) 12.80% 12.02% 10.50% Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 11.22% 10.46% 7.00% Tier 1 Capital Ratio (to risk-weighted assets) 11.22% 10.46% 8.50% Tier 1 Leverage Ratio (to average tangible assets) 9.89% 8.81% 4.00% Q2 2023 Q4 2022

 
10 Strong Liquidity Profile Stellar is well-positioned to manage through current environment Sources of Liquidity at June 30, 2023 Sources of Liquidity Estimated Uninsured Deposits at June 30, 2023 (1) Brokered deposit capacity is governed by internal policy limits. (Dollars in millions) Cash 304$ Unpledged securities 410 Total on-balance sheet 714 FHLB available capacity 2,901 Discount window available capacity 911 Total immediate available liquidity 4,526 Available brokered deposit capacity(1) 1,233 Total available liquidity 5,759$ Amount (Dollars in millions) Total deposits 8,766$ Estimated uninsured deposits 4,751 Less: collateralized municipal deposits (936) Estimated uninsured, net of collateralized municipal deposits 3,815$ Percent of total deposits 43.5% Amount 118.6% 151.0% Immediate available liquidity coverage of estimated uninsured deposits, net of collateralized deposits Total available liquidity coverage of estimated uninsured deposits, net of collateralized deposits

 
11 Key Takeaways Excellent core funding profile Merger scale brings strong combined earnings power and franchise value in one of the best markets in the U.S. Key success factor for 2023: Credit performance and risk management Significant financial flexibility Positioned for rapid capital-build

 
4.8% 4.1% 2.1% Houston MSA Texas USA 34.3 29.7 14.1 11.9 9.5 8.4 8.0 7.6 6.8 JP Morgan Wells Fargo BofA Zions PNC Stellar Frost Capital One Cadence Prosperity Diverse and Strong Markets 12 Houston is Diverse, with Significant Economic Tailwinds Greater 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 of Houston is the largest Gulf Coast container port, handling 70% of U.S. Gulf Coast container traffic  Houston is home to the Texas Medical Center, which has 10 million annual patient encounters  Business friendly: #3 among U.S. metro areas in Fortune 500 headquarters (24)  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)(2) ($B) 1) Houston Region defined as the Houston-The Woodlands-Sugar Land and Beaumont-Port Arthur MSAs; Excludes non-retail branches. 2) Stellar’s deposits reflect proforma combined deposits $188 Est. Population Growth ’23-’28 Est. Number of Households Growth ’23-’28 5.0% 4.4% 2.4% Houston MSA Texas USA 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 had over $9.5 billion in deposits in the Houston region(1) Houston HQ Bank Source: S&P Capital IQ Pro, Houston.org, Texas Medical Center and Wallet Hub Note: deposit market share based on FDIC data as of June 30, 2022.

 
Professional and Business Services 17% Government 14% Education and Health Services 13% Leisure and Hospitality 10% Retail Trade 9% Manufacturing 7% Construction 7% Transportation and Utilities 6% Financial Activities 6% Wholesale Trade 5% Other Services 4% Mining and Logging 2% Information 1% 7.4% 5.9% 5.8% 5.6% 5.5% 5.0% 4.9% 4.9% 4.6% 4.3% 3.1% 2.1% 0.6% (0.5)% 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 February 2023, from the U.S. Bureau of Labor Statistics Houston vs. U.S. Job Change by Industry (Feb ‘22 – Feb. ‘23)(1) Diversified Economy by Job Sector(1) Commentary  While Houston remains the Energy Capital of the World, its economy and employment has become much more diversified  Houston's largest job sector, professional and business services, has grown at a significantly faster rate than the U.S.  Houston has the second highest concentration of Fortune 100 companies in the U.S. 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’s Resilience and Growth 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 870 thousand jobs since 2007 P o p u la tio n (M ) O il P ri ce D ec li n e G re a t R ec es si o n Ik e H a rv ey C O V ID -1 9 E m p lo y m e n t (M ) Employment Population1) Data is preliminary as of February 2023, from the 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 o u st o n D a ll a s N ew Y o rk A tl a n ta P h o en ix M ia m i T a m p a S ea tt le R iv er si d e B o st o n D en v er W a sh in g to n S a n F ra n ci sc o M in n ea p o li s P h il a d el p h ia S a n D ie g o B a lt im o re D et ro it L o s A n g el es C h ic a g o 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 e d ia n H o u s e h o ld I n c o m e 2 0 2 3 M e d ia n H o m e P r ic e H H I t o M e d ia n H o m e P r ic e R a ti o

 
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 $ 35,175 $ 37,148 (+) Provision for credit losses 1,915 3,666 (+) Provision for income taxes 7,467 9,913 Pre-tax, pre-provision Income $ 44,557 $ 50,727 Total average assets $ 10,740,138 $ 10,882,533 Pre-tax, pre-provision return on average assets (2) 1.66% 1.89% Pre-tax, pre-provision income $ 44,557 $ 50,727 (+) Acquisition and merger-related expenses 2,897 6,165 (+) Amortization of intangibles 6,881 6,879 (-) Purchase accounting accretion 12,572 10,104 (-) (Loss) gain on sale of assets (6) 198 Adjusted pre-tax, pre-provision net income $ 41,769 $ 53,469 Adjusted pre-tax, pre-provision return on average assets (2) 1.56% 1.99% Total noninterest expense $ 69,207 $ 72,598 (+) Acquisition and merger-related expenses 2,897 6,165 (+) Amortization of intangibles 6,881 6,879 Net interest income 108,281 115,827 (-) Purchase accounting accretion 12,572 10,104 Total noninterest income 5,483 7,498 (-) (Loss) gain on sale of assets (6) 198 Adjusted efficiency ratio 58.73% 52.69% Q2 2023 Q1 2023 (Dollars in thousands) Total shareholders' equity $ 1,458,680 $ 1,446,216 (-) Goodw ill and core deposit intangibles, net 627,065 633,925 Tangible shareholders' equity $ 831,615 $ 812,291 Total assets $ 10,778,351 $ 10,604,718 (-) Goodw ill and core deposit intangibles, net 627,065 633,925 Tangible assets $ 10,151,286 $ 9,970,793 Tangible equity to tangible assets 8.19% 8.15% Net interest income (tax equivalent) $ 108,509 $ 116,119 (-) Purchase accounting accretion 12,572 10,104 Adjusted net interest income (tax equivalent) $ 95,937 $ 106,015 Average earning assets $ 9,693,527 $ 9,815,803 Net interest margin (tax equivalent)(2) 4.49% 4.80% Net interest margin (tax equivalent) excluding PAA (2) 3.97% 4.38% Interest on loans, as reported $ 133,931 $ 125,729 (-) Purchase accounting accretion (loans) 12,572 10,104 Interest on loans w ithout loan discount accretion $ 121,359 $ 115,625 Average loans $ 7,980,856 $ 7,847,011 Loan yield, as reported 6.73% 6.50% Loan yield, w ithout discount accretion 6.10% 5.98% Q2 2023 Q1 2023 (Dollars in thousands)

 
18 NYSE: STEL

 
v3.23.2
Cover
Jul. 28, 2023
Cover [Abstract]  
Document Type 8-K
Amendment Flag false
Document Period End Date Jul. 28, 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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