8-K: Stellar Bancorp Reports Solid Fourth Quarter and Full Year 2024 Results

Stellar Bancorp reports net income of $27.8 million for Q4 2024 and $117.6 million for the full year, highlighting a strong foundation for future growth.

Summary

• Stellar Bancorp, Inc. reported a net income of $27.8 million, or $0.52 diluted earnings per share, for the fourth quarter of 2024.
• The full year 2024 net income was $117.6 million, or $2.20 diluted earnings per share.
• The company's CEO, Robert R. Franklin, Jr., expressed pride in the team's work in establishing the foundation of Stellar Bank.
• Stellar intends to focus on normalized organic growth and explore opportunities with downstream partners to increase operating leverage.
• The tax equivalent net interest margin was 4.24% for 2024, compared to 4.51% for 2023.
• Excluding purchase accounting accretion (PAA), the net interest margin was 3.89% for 2024, compared to 4.03% for 2023.
• The total risk-based capital ratio increased to 16.06% at December 31, 2024, from 14.02% at December 31, 2023.
• Book value per share increased to $30.14 from $28.54 at the end of 2023, and tangible book value per share increased to $19.10 from $17.02.
• Nonperforming loans decreased by $2.0 million to $37.2 million at the end of 2024 from $39.2 million at the end of 2023.
• Total assets at December 31, 2024, were $10.91 billion, an increase of $275.3 million compared to September 30, 2024.
• Total deposits increased by $385.8 million to $9.13 billion at the end of 2024 compared to the previous quarter.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company highlights its strong foundation and capital position, there are declines in net interest income and margin compared to the previous year. The management expresses optimism, but the financial results indicate mixed performance.

Positives

• Solid profitability with a full year net income of $117.6 million.
• Strong net interest margin of 4.24% for the year.
• Meaningful capital and book value build, with the total risk-based capital ratio increasing to 16.06%.
• Nonperforming loans decreased to $37.2 million.
• Total deposits increased by $385.8 million to $9.13 billion at the end of 2024 compared to the previous quarter.
• Stellar is the 1st in deposit market share for Texas-based banks in the Houston region(1)(2).

Negatives

• Net interest income for 2024 decreased by $28.8 million, or 6.6%, compared to 2023.
• The net interest margin decreased by 27 basis points to 4.24% for the full year 2024 from 4.51% for the full year 2023.
• Noninterest income for the year 2024 was $23.0 million, a decrease of $1.5 million, or 6.2%, compared to $24.6 million for the year 2023.
• Returns on average assets, average equity and average tangible equity were lower for 2024 compared to 2023.

Risks

• Changes in the interest rate environment could impact the value of Stellar's assets and obligations.
• General economic, political, and market conditions could affect future results.
• Changes in asset quality and credit risk could impact the company's performance.
• The inability to sustain revenue and earnings growth poses a risk.
• Disruptions to the economy and the U.S. banking system could have adverse effects.

Future Outlook

Stellar intends to focus on normalized organic growth and explore opportunities with downstream partners to increase operating leverage while remaining focused on core fundamentals as they enter 2025.

Management Comments

• We are proud of our team and their work establishing the foundation of Stellar Bank, said Robert R. Franklin, Jr., Stellars Chief Executive Officer.
• Our strong foundation is a testament to their significant efforts over the past two years and they have prepared us for the year ahead.
• We intend to turn towards growth at a more normalized organic pattern while we keep an eye towards opportunities with downstream partners that would increase our operating leverage, Mr. Franklin continued.
• We remain focused on core fundamentals as we enter 2025 and are encouraged by the economic activity in our markets.
• We are excited about the future ahead of us, Mr. Franklin concluded.

Industry Context

Stellar Bancorp operates in the competitive Texas banking market, particularly in the Houston, Dallas, and Beaumont areas, focusing on smallto medium-sized businesses and individual customers. The company's performance is influenced by factors such as interest rate changes, economic conditions, and regulatory actions affecting the banking industry.

Comparison to Industry Standards

• Stellar Bancorp's return on average assets (ROAA) of 1.10% for 2024 is comparable to regional banks, but lags behind industry leaders.
• For example, JP Morgan Chase consistently reports ROAA above 1.2%.
• Stellar's total capital ratio of 16.06% exceeds regulatory requirements and is in line with well-capitalized peers.
• However, some institutions like Zions Bancorporation maintain higher ratios, often exceeding 17%.
• Stellar's efficiency ratio of 66.39% indicates room for improvement compared to more efficient banks like Frost Bank, which often reports efficiency ratios below 60%.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net interest income and margin.
• Employees can be encouraged by the company's focus on growth and future opportunities.
• Customers may benefit from the company's strong capital position and focus on core fundamentals.

Next Steps

• Management team will host a conference call and webcast on January 31, 2025, to discuss the results.
• The company intends to focus on normalized organic growth.
• Stellar will explore opportunities with downstream partners to increase operating leverage.

Key Dates