8-K
Stellar Bancorp, Inc. (STEL)
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): January 27, 2023
Stellar Bancorp, Inc.
(Exact Name of Registrant as Specified in Charter)
| Texas | 001-38280 | 20-8339782 |
|---|---|---|
| (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<br><br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, par value $0.01 per share | STEL | The Nasdaq Stock Market LLC |
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 January 27, 2023, Stellar Bancorp, Inc., (the “Company”) issued a press release announcing its financial results for the fourth quarter and year-end 2022. 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 Number | Description of Exhibit |
|---|---|
| 99.1 | Press Release issued by Stellar Bancorp, Inc. datedJanuary27, 2023 |
| 99.2 | FourthQuarter 2022 Earnings Presentation datedJanuary27, 2023 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Forward-Looking Statements
Certain statements in this Current Report on Form 8-K, including the exhibits hereto, 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 Company’s merger of equals (the "Merger") with Allegiance Bancshares, Inc. (“Allegiance”), 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 the Company 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 our operations following the Merger 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 the Company’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 the Company 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; 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 and the Joint Proxy Statement/Prospectus regarding the Merger that the Company filed with the SEC on April 7, 2022 pursuant to Rule 424(b)(3) and the Company’s Annual Report on Form 10-K and Allegiance’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.
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: January 27, 2023 | By: | /s/ Paul P. Egge |
| Paul P. Egge | ||
| Chief Financial Officer |
Document
Exhibit 99.1
PRESS RELEASE
STELLAR BANCORP, INC. REPORTS
FOURTH QUARTER 2022 RESULTS
HOUSTON, January 27, 2023 - Stellar Bancorp, Inc. (the “Company” or “Stellar”) (NASDAQ: STEL) today reported net income of $2.1 million, or $0.04 earnings per diluted share, for the fourth quarter 2022 and $51.4 million, or $1.47 earnings per diluted share, for the year ended December 31, 2022. The fourth quarter 2022 results for Stellar reflect the merger of equals (the “Merger”) between Allegiance Bancshares, Inc. (“Allegiance”) and CBTX, Inc. (“CBTX”), which became effective on October 1, 2022.
“We are pleased to report our fourth quarter results as a combined institution. Our scale and resources enhance our ability to execute our business strategy focused on delivering exceptional customer service to increase shareholder value while continuing to honor our community values. The integration of our combined talents and expertise benefits our customers, employees, communities and shareholders. We are very grateful for the dedication and hard work of our team coming together and for the continued work as we implement an efficient system conversion in the first quarter of 2023,” said Robert R. Franklin, Jr., Stellar’s Chief Executive Officer.
“As we approach 2023, we are excited about the opportunities created by our combination and also cautious about increasing interest rates and the resulting effects on our economy. We will focus our efforts in the coming year on credit quality, liquidity and capital management. We are convinced more than ever that there is a bright long-term future for Stellar,” concluded Mr. Franklin.
Fourth Quarter 2022 Financial Highlights
•Total assets were $10.90 billion at year-end reflecting combined scale from the Merger.
•Tax equivalent net interest margin was 4.71% for the fourth quarter 2022. The tax equivalent net interest margin, excluding purchase accounting accretion, was 4.38% for the fourth quarter. Refer to the calculation of this non-GAAP financial measure on page 11.
•Net income for the fourth quarter 2022 of $2.1 million and diluted earnings per share of $0.04. Pre-tax, pre-provision income of $46.6 million and adjusted pre-tax, pre-provision income of $53.0 million for the fourth quarter 2022. Refer to the calculation of this non-GAAP financial measure on page 11.
•As a result of the Merger, the Company recorded a $28.2 million provision for credit losses on non-purchased credit deteriorated (“non-PCD”) loans and a $5.0 million provision for unfunded commitments for the Current Expected Credit Loss requirement, along with a $7.6 million allowance for credit losses on purchase credit deteriorated (“PCD”) loans. Acquisition and merger related expenses totaled $11.5 million in the fourth quarter 2022.
Merger of Equals
On October 1, 2022, the Merger of Allegiance with CBTX was completed pursuant to an Agreement and Plan of Merger dated November 5, 2021 (as amended, the “Merger Agreement”), with the surviving corporation renamed Stellar Bancorp, Inc. Pursuant to the Merger Agreement, each share of Allegiance common stock was converted into the right to receive 1.4184 shares of common stock of the Company for each share of Allegiance common stock.
The Merger 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 have been 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 may not be comparable to financial results prior to the Merger. Results of operations reflect the combined operations following the Merger for the fourth quarter 2022 and stand-alone Allegiance for all periods prior.
Fourth Quarter 2022 Results
Stellar’s net interest income in the fourth quarter 2022 increased $57.5 million, or 99.0%, to $115.6 million from $58.1 million for the fourth quarter 2021 and increased $54.9 million, or 90.5%, from $60.7 million for the third quarter 2022. These increases were primarily due to the Merger. The net interest margin on a tax equivalent basis increased 114 basis points to 4.71% for the fourth quarter 2022 from 3.57% for the fourth quarter 2021 and increased 86 basis points from 3.85% for the third quarter 2022. The increase in the margin over the prior quarter and the comparable quarter in the prior year were primarily due to dynamics relating to the Merger and increases in interest rates. During the quarter, net interest income benefited from $8.2 million in income from purchase accounting adjustments. Excluding purchase accounting adjustments, net interest income would have been $107.5 million and the tax equivalent net interest margin would have been 4.38%.
Noninterest income for the fourth quarter 2022 was $10.6 million, an increase of $8.2 million, or 333.5%, compared to $2.5 million for the fourth quarter 2021 and an increase of $7.6 million, or 255.2%, compared to $3.0 million for the third quarter 2022. Noninterest income increased primarily due to nonrecurring gains on sale of securities, loans and assets held for sale totaling $4.0 million along with increased scale as a result of the Merger during the quarter.
Noninterest expense for the fourth quarter 2022 increased $42.9 million, or 116.7%, to $79.6 million from $36.7 million for the fourth quarter 2021 and increased $35.6 million, or 80.8%, compared to the third quarter of 2022. These increases in noninterest expense over the prior periods were primarily due to increases in operating expenses due to the Merger, most significantly salaries and benefits due to increased scale, and the amortization of core deposit intangibles. Acquisition and merger-related expenses associated with the Merger totaled $11.5 million during the quarter.
Stellar’s efficiency ratio increased to 65.14% for the fourth quarter 2022 compared to 60.68% for the fourth quarter 2021 and decreased from 69.18% for the third quarter 2022. Fourth quarter 2022 annualized returns on average assets, average equity and average tangible equity were 0.07%, 0.60% and 1.18%, respectively, compared to 1.23%, 10.60% and 15.05% for the fourth quarter 2021. Annualized returns on average assets, average equity and average tangible equity for the third quarter 2022 were 0.84%, 7.90% and 11.78%, respectively. Return on average tangible equity is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 11.
Year Ended December 31, 2022 Results
Net interest income before provision for credit losses for the year ended December 31, 2022 increased $60.4 million, or 26.4%, to $289.0 million from $228.6 million for the year ended December 31, 2021 primarily due to the Merger. The net interest margin on a tax equivalent basis increased 4 basis points to 3.94% for the year ended December 31, 2022 from 3.90% for the year ended December 31, 2021. The increase in the margin over the prior year was primarily due to the increase in the average yield on interest-earning assets partially offset by increased funding costs. Excluding purchase accounting adjustments, net interest income would have been $280.6 million and the tax equivalent net interest margin would have been 3.83%.
Noninterest income for the year ended December 31, 2022 was $20.4 million, an increase of $11.8 million, or 137.7%, compared to $8.6 million for the year ended December 31, 2021 due primarily to the Merger and nonrecurring gains on sale of assets.
Noninterest expense for the year ended December 31, 2022 increased $56.5 million, or 40.5%, to $196.1 million from $139.6 million for the year ended December 31, 2021. The increase in noninterest expense over the year ended December 31, 2021 was primarily due to increased salaries and benefits, amortization of core deposit intangibles and acquisition and merger-related expenses associated with the Merger.
Stellar’s efficiency ratio increased to 64.23% for the year ended December 31, 2022 from 58.86% for the year ended December 31, 2021. For the year ended December 31, 2022, returns on average assets, average equity and average tangible equity were 0.64%, 5.69% and 9.16%, respectively, compared to 1.24%, 10.38% and 14.93%, respectively, for the year ended December 31, 2021. Return on average tangible equity is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 11.
Financial Condition
Stellar’s total assets at December 31, 2022 increased $3.80 billion, or 53.4%, to $10.90 billion compared to $7.10 billion at December 31, 2021 and increased $4.17 billion, or 247.8% (annualized), compared to $6.73 billion at September 30, 2022.
Total loans at December 31, 2022 increased $3.53 billion, or 83.7%, to $7.75 billion compared to $4.22 billion at December 31, 2021, and increased $3.16 billion, or 275.5% (annualized) compared to $4.59 billion at September 30, 2022, primarily due to the Merger. The Company recorded purchase accounting adjustments on loans of $166.5 million related to the Merger. At December 31, 2022, the remaining balance of the purchase accounting adjustments on loans was $154.8 million. Core loans, which exclude Paycheck Protection Program (PPP) loans, increased $3.67 billion, or 90.0%, to $7.74 billion at December 31, 2022 from $4.07 billion at December 31, 2021 and increased $3.17 billion, or 277.0% (annualized), from $4.57 billion at September 30, 2022.
Deposits at December 31, 2022 increased $3.22 billion, or 53.2%, to $9.27 billion compared to $6.05 billion at December 31, 2021 and increased $3.61 billion, or 254.9% (annualized), compared to $5.66 billion at September 30, 2022.
Asset Quality
Stellar’s nonperforming assets totaled $45.0 million, or 0.41% of total assets, at December 31, 2022 compared to $24.1 million, or 0.34% of total assets, at December 31, 2021 and $21.6 million, or 0.32% of total assets at September 30, 2022. The allowance for credit losses on loans as a percentage of total loans was 1.20% at December 31, 2022, 1.14% at December 31, 2021 and 1.14% at September 30, 2022.
The provision for credit losses for the fourth quarter 2022 was $44.8 million compared to the reversal of provision for credit losses of $2.6 million for the fourth quarter 2021 and the provision for credit losses of $2.0 million for the third quarter 2022. As a result of loans acquired in the merger, the fourth quarter includes a $28.2 million provision for credit losses on loans and a $5.0 million provision for unfunded commitments. Additionally, the Company recorded a $7.6 million allowance for credit losses on PCD loans acquired.
Fourth quarter 2022 net charge-offs were $5.7 million, or 0.30% (annualized) of average loans, compared to net charge-offs of $1.4 million, or 0.13% (annualized) of average loans, for the fourth quarter 2021 and net recoveries of $245 thousand, or (0.02)% (annualized) of average loans, for the third quarter 2022. Fourth quarter net charge-offs included $4.6 million of charge-offs on loans sold during the fourth quarter 2022.
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 pages 11 of this earnings release for a reconciliation of these non-GAAP financial measures.
Conference Call
As previously announced, Stellar’s management team will host a conference call and webcast on Friday, January 27, 2023 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss fourth quarter 2022 results. Individuals and investment professionals may register for the conference call at https://register.vevent.com/register/BI70fcd05aee4348f7b0dc18ea083f2b2c 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/events-and-presentations. If you are unable to participate during the live webcast, the webcast will be accessible via the Investor Relations section of Stellar’s website at ir.stellarbancorpinc.com.
About Stellar Bancorp, Inc.
Stellar Bancorp, Inc. is a bank holding company headquartered in Houston, Texas. Stellar’s principal banking subsidiary, created by the merger of Allegiance Bank and CommunityBank of Texas, N.A. and to be renamed Stellar Bank upon system conversion, 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 our operations following the merger 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; 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 and the Joint Proxy Statement/Prospectus regarding the Merger that CBTX filed with the SEC on April 7, 2022 pursuant to Rule 424(b)(3) and CBTX’s Annual Report on Form 10-K and Allegiance’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.
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
| 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31 | September 30 | June 30 | March 31 | December 31 | ||||||
| (Dollars in thousands) | ||||||||||
| ASSETS | ||||||||||
| Cash and due from banks | $ | 67,063 | $ | 16,449 | $ | 17,547 | $ | 26,629 | $ | 23,961 |
| Interest-bearing deposits at other financial<br>institutions | 304,642 | 102,118 | 275,290 | 672,755 | 733,548 | |||||
| Total cash and cash equivalents | 371,705 | 118,567 | 292,837 | 699,384 | 757,509 | |||||
| Available for sale securities, at fair value | 1,807,586 | 1,618,995 | 1,709,321 | 1,790,707 | 1,773,765 | |||||
| Loans held for investment | 7,754,751 | 4,591,912 | 4,348,833 | 4,283,514 | 4,220,486 | |||||
| Less: allowance for credit losses on loans | (93,180) | (52,147) | (50,242) | (49,215) | (47,940) | |||||
| Loans, net | 7,661,571 | 4,539,765 | 4,298,591 | 4,234,299 | 4,172,546 | |||||
| Accrued interest receivable | 44,743 | 29,697 | 29,882 | 31,505 | 33,392 | |||||
| Premises and equipment, net | 126,803 | 57,837 | 58,482 | 62,168 | 63,708 | |||||
| Federal Home Loan Bank stock | 15,058 | 16,843 | 4,078 | 9,376 | 9,358 | |||||
| Bank owned life insurance | 103,094 | 28,305 | 28,170 | 28,374 | 28,240 | |||||
| Goodwill | 497,260 | 223,642 | 223,642 | 223,642 | 223,642 | |||||
| Core deposit intangibles, net | 143,525 | 12,406 | 13,156 | 13,907 | 14,658 | |||||
| Other assets | 129,092 | 84,285 | 73,605 | 56,001 | 28,136 | |||||
| Total assets | $ | 10,900,437 | $ | 6,730,342 | $ | 6,731,764 | $ | 7,149,363 | $ | 7,104,954 |
| LIABILITIES AND SHAREHOLDERS’<br>EQUITY | ||||||||||
| LIABILITIES: | ||||||||||
| Deposits: | ||||||||||
| Noninterest-bearing | $ | 4,230,169 | $ | 2,465,839 | $ | 2,394,719 | $ | 2,353,604 | $ | 2,243,085 |
| Interest-bearing | ||||||||||
| Demand | 1,591,828 | 956,920 | 1,016,381 | 1,070,855 | 869,984 | |||||
| Money market and savings | 2,575,923 | 1,471,690 | 1,510,008 | 1,552,853 | 1,643,745 | |||||
| Certificates and other time | 869,712 | 766,270 | 959,524 | 1,185,015 | 1,290,825 | |||||
| Total interest-bearing deposits | 5,037,463 | 3,194,880 | 3,485,913 | 3,808,723 | 3,804,554 | |||||
| Total deposits | 9,267,632 | 5,660,719 | 5,880,632 | 6,162,327 | 6,047,639 | |||||
| Accrued interest payable | 2,098 | 2,673 | 1,500 | 3,086 | 1,753 | |||||
| Borrowed funds | 63,925 | 257,000 | — | 89,959 | 89,956 | |||||
| Subordinated debt | 109,367 | 109,241 | 109,109 | 108,978 | 108,847 | |||||
| Other liabilities | 74,239 | 44,407 | 35,194 | 33,073 | 40,291 | |||||
| Total liabilities | 9,517,261 | 6,074,040 | 6,026,435 | 6,397,423 | 6,288,486 | |||||
| SHAREHOLDERS’ EQUITY: | ||||||||||
| Common stock | 530 | 281 | 286 | 290 | 289 | |||||
| Capital surplus | 1,222,761 | 511,434 | 524,033 | 532,372 | 530,845 | |||||
| Retained earnings | 303,146 | 307,975 | 296,477 | 282,896 | 267,092 | |||||
| Accumulated other comprehensive (loss) income | (143,261) | (163,388) | (115,467) | (63,618) | 18,242 | |||||
| Total shareholders’ equity | 1,383,176 | 656,302 | 705,329 | 751,940 | 816,468 | |||||
| TOTAL LIABILITIES AND<br>SHAREHOLDERS’ EQUITY | $ | 10,900,437 | $ | 6,730,342 | $ | 6,731,764 | $ | 7,149,363 | $ | 7,104,954 |
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
| Three Months Ended | Years Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| December 31 | September 30 | June 30 | March 31 | December 31 | December 31 | December 31 | ||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||
| INTEREST INCOME: | ||||||||||||||
| Loans, including fees | $ | 116,145 | $ | 58,025 | $ | 53,835 | $ | 52,370 | $ | 56,855 | $ | 280,375 | $ | 230,713 |
| Securities: | ||||||||||||||
| Taxable | 9,834 | 6,655 | 5,571 | 5,068 | 3,933 | 27,128 | 11,889 | |||||||
| Tax-exempt | 3,057 | 2,594 | 2,557 | 2,525 | 2,526 | 10,733 | 9,909 | |||||||
| Deposits in other financial<br>institutions | 2,933 | 608 | 877 | 340 | 317 | 4,758 | 673 | |||||||
| Total interest income | 131,969 | 67,882 | 62,840 | 60,303 | 63,631 | 322,994 | 253,184 | |||||||
| INTEREST EXPENSE: | ||||||||||||||
| Demand, money market and<br>savings deposits | 12,406 | 3,527 | 1,859 | 1,347 | 1,277 | 19,139 | 5,365 | |||||||
| Certificates and other time<br>deposits | 2,083 | 1,664 | 1,922 | 2,156 | 2,391 | 7,825 | 11,628 | |||||||
| Borrowed funds | 417 | 499 | 114 | 186 | 434 | 1,216 | 1,878 | |||||||
| Subordinated debt | 1,449 | 1,502 | 1,463 | 1,442 | 1,425 | 5,856 | 5,749 | |||||||
| Total interest expense | 16,355 | 7,192 | 5,358 | 5,131 | 5,527 | 34,036 | 24,620 | |||||||
| NET INTEREST INCOME | 115,614 | 60,690 | 57,482 | 55,172 | 58,104 | 288,958 | 228,564 | |||||||
| Provision for credit losses | 44,793 | 1,962 | 2,143 | 1,814 | (2,577) | 50,712 | (2,322) | |||||||
| Net interest income after provision<br>for credit losses | 70,821 | 58,728 | 55,339 | 53,358 | 60,681 | 238,246 | 230,886 | |||||||
| NONINTEREST INCOME: | ||||||||||||||
| Nonsufficient funds fees | 447 | 145 | 126 | 116 | 156 | 834 | 464 | |||||||
| Service charges on deposit<br>accounts | 1,242 | 527 | 560 | 527 | 476 | 2,856 | 1,671 | |||||||
| Gain (loss) on sale of assets | 4,025 | 42 | (17) | — | (321) | 4,050 | (272) | |||||||
| Bank owned life insurance | 515 | 135 | 342 | 133 | 139 | 1,125 | 554 | |||||||
| Debit card and ATM card income | 1,897 | 869 | 880 | 819 | 834 | 4,465 | 2,996 | |||||||
| Other | 2,511 | 1,277 | 813 | 2,423 | 1,170 | 7,024 | 3,149 | |||||||
| Total noninterest income | 10,637 | 2,995 | 2,704 | 4,018 | 2,454 | 20,354 | 8,562 | |||||||
| NONINTEREST EXPENSE: | ||||||||||||||
| Salaries and employee benefits | 40,949 | 22,013 | 21,864 | 22,728 | 22,918 | 107,554 | 90,177 | |||||||
| Net occupancy and equipment | 3,781 | 2,129 | 2,220 | 2,205 | 2,194 | 10,335 | 9,144 | |||||||
| Depreciation | 1,903 | 1,003 | 1,012 | 1,033 | 1,103 | 4,951 | 4,254 | |||||||
| Data processing and software<br>amortization | 3,776 | 2,541 | 2,522 | 2,498 | 2,264 | 11,337 | 8,862 | |||||||
| Professional fees | 2,298 | 485 | 662 | 138 | 1,008 | 3,583 | 3,025 | |||||||
| Regulatory assessments and<br>FDIC insurance | 1,263 | 1,134 | 1,256 | 1,261 | 949 | 4,914 | 3,407 | |||||||
| Core deposit intangibles<br>amortization | 7,051 | 750 | 751 | 751 | 824 | 9,303 | 3,296 | |||||||
| Communications | 737 | 359 | 363 | 341 | 395 | 1,800 | 1,406 | |||||||
| Advertising | 1,130 | 385 | 483 | 462 | 481 | 2,460 | 1,692 | |||||||
| Other real estate expense | 152 | 93 | 65 | 59 | 69 | 369 | 548 | |||||||
| Acquisition and merger-related<br> expenses | 11,469 | 10,551 | 1,667 | 451 | 1,408 | 24,138 | 2,011 | |||||||
| Other | 5,115 | 2,588 | 5,039 | 2,590 | 3,131 | 15,332 | 11,732 | |||||||
| Total noninterest expense | 79,624 | 44,031 | 37,904 | 34,517 | 36,744 | 196,076 | 139,554 | |||||||
| INCOME BEFORE INCOME<br>TAXES | 1,834 | 17,692 | 20,139 | 22,859 | 26,391 | 62,524 | 99,894 | |||||||
| Provision for income taxes | (218) | 3,406 | 3,702 | 4,202 | 4,833 | 11,092 | 18,341 | |||||||
| NET INCOME | $ | 2,052 | $ | 14,286 | $ | 16,437 | $ | 18,657 | $ | 21,558 | $ | 51,432 | $ | 81,553 |
| EARNINGS PER SHARE | ||||||||||||||
| Basic | $ | 0.04 | $ | 0.51 | $ | 0.57 | $ | 0.65 | $ | 0.75 | $ | 1.48 | $ | 2.85 |
| Diluted | $ | 0.04 | $ | 0.50 | $ | 0.56 | $ | 0.64 | $ | 0.74 | $ | 1.47 | $ | 2.82 |
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
| Three Months Ended | Years Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
| December 31 | September 30 | June 30 | March 31 | December 31 | December 31 | December 31 | |||||||||||||||
| (Dollars and share amounts in thousands, except per share data) | |||||||||||||||||||||
| Net income | $ | 2,052 | $ | 14,286 | $ | 16,437 | $ | 18,657 | $ | 21,558 | $ | 51,432 | $ | 81,553 | |||||||
| Earnings per share, basic | $ | 0.04 | $ | 0.51 | $ | 0.57 | $ | 0.65 | $ | 0.75 | $ | 1.48 | $ | 2.85 | |||||||
| Earnings per share, diluted | $ | 0.04 | $ | 0.50 | $ | 0.56 | $ | 0.64 | $ | 0.74 | $ | 1.47 | $ | 2.82 | |||||||
| Dividends per share | $ | 0.13 | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.08 | $ | 0.43 | $ | 0.34 | |||||||
| Return on average assets(A) | 0.07 | % | 0.84 | % | 0.94 | % | 1.04 | % | 1.23 | % | 0.64 | % | 1.24 | % | |||||||
| Return on average equity(A) | 0.60 | % | 7.90 | % | 8.86 | % | 9.40 | % | 10.60 | % | 5.69 | % | 10.38 | % | |||||||
| Return on average tangible<br><br>equity(A)(B) | 1.18 | % | 11.78 | % | 13.00 | % | 13.35 | % | 15.05 | % | 9.16 | % | 14.93 | % | |||||||
| Net interest margin<br><br>(tax equivalent)(A)(C) | 4.71 | % | 3.85 | % | 3.53 | % | 3.30 | % | 3.57 | % | 3.94 | % | 3.90 | % | |||||||
| Net interest margin<br><br>(tax equivalent) excluding PAA(A)(B)(C) | 4.38 | % | 3.85 | % | 3.52 | % | 3.29 | % | 3.56 | % | 3.83 | % | 3.89 | % | |||||||
| Efficiency ratio(D) | 65.14 | % | 69.18 | % | 62.96 | % | 58.32 | % | 60.68 | % | 64.23 | % | 58.86 | % | |||||||
| Capital Ratios | |||||||||||||||||||||
| Stellar Bancorp, Inc.(Consolidated) | |||||||||||||||||||||
| Equity to assets | 12.69 | % | 9.75 | % | 10.48 | % | 10.52 | % | 11.49 | % | 12.69 | % | 11.49 | % | |||||||
| Tangible equity to tangible<br><br>assets(B) | 7.24 | % | 6.47 | % | 7.21 | % | 7.44 | % | 8.42 | % | 7.24 | % | 8.42 | % | |||||||
| Estimated common equity<br>tier 1 capital | 10.04 | % | 11.39 | % | 12.06 | % | 12.28 | % | 12.47 | % | 10.04 | % | 12.47 | % | |||||||
| Estimated tier 1 risk-based<br>capital | 10.15 | % | 11.58 | % | 12.26 | % | 12.49 | % | 12.69 | % | 10.15 | % | 12.69 | % | |||||||
| Estimated total risk-based<br>capital | 12.47 | % | 14.66 | % | 15.47 | % | 15.76 | % | 16.08 | % | 12.47 | % | 16.08 | % | |||||||
| Estimated tier 1 leverage<br>capital | 8.55 | % | 9.00 | % | 8.65 | % | 8.37 | % | 8.53 | % | 8.55 | % | 8.53 | % | |||||||
| Allegiance Bank | |||||||||||||||||||||
| Estimated common equity<br>tier 1 capital | 10.46 | % | 12.20 | % | 12.51 | % | 12.48 | % | 12.63 | % | 10.46 | % | 12.63 | % | |||||||
| Estimated tier 1 risk-based<br>capital | 10.46 | % | 12.20 | % | 12.51 | % | 12.48 | % | 12.63 | % | 10.46 | % | 12.63 | % | |||||||
| Estimated total risk-based<br>capital | 12.10 | % | 14.12 | % | 14.50 | % | 14.50 | % | 14.71 | % | 12.10 | % | 14.71 | % | |||||||
| Estimated tier 1 leverage<br>capital | 8.81 | % | 9.49 | % | 8.83 | % | 8.37 | % | 8.49 | % | 8.81 | % | 8.49 | % | |||||||
| Other Data | |||||||||||||||||||||
| Weighted average shares: | |||||||||||||||||||||
| Basic | 52,715 | 28,286 | 28,874 | 28,883 | 28,737 | 34,738 | 28,660 | ||||||||||||||
| Diluted | 52,973 | 28,529 | 29,120 | 29,114 | 28,968 | 35,007 | 28,872 | ||||||||||||||
| Period end shares outstanding | 52,955 | 28,137 | 28,586 | 28,904 | 28,846 | 52,955 | 28,846 | ||||||||||||||
| Book value per share | $ | 26.12 | $ | 23.33 | $ | 24.67 | $ | 26.02 | $ | 28.30 | $ | 26.12 | $ | 28.30 | |||||||
| Tangible book value per share(B) | $ | 14.02 | $ | 14.94 | $ | 16.39 | $ | 17.80 | $ | 20.04 | $ | 14.02 | $ | 20.04 | |||||||
| Employees - full-time equivalents | 1,025 | 562 | 578 | 586 | 594 | 1,025 | 594 |
(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 11 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 on the sale of loans, securities and assets. Additionally, taxes and provision for credit losses are not part of this calculation.
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
| Three Months Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||||||||
| Average Balance | Interest Earned/ <br>Interest Paid | Average Yield/Rate | Average Balance | Interest Earned/ <br>Interest Paid | Average Yield/Rate | Average Balance | Interest Earned/<br>Interest Paid | Average Yield/Rate | ||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| Assets | ||||||||||||||||||
| Interest-Earning Assets: | ||||||||||||||||||
| Loans | $ | 7,666,502 | $ | 116,145 | 6.01 | % | $ | 4,456,174 | $ | 58,025 | 5.17 | % | $ | 4,243,778 | $ | 56,855 | 5.32 | % |
| Securities | 1,795,082 | 12,891 | 2.85 | % | 1,709,470 | 9,249 | 2.15 | % | 1,457,793 | 6,459 | 1.76 | % | ||||||
| Deposits in other financial institutions | 354,117 | 2,933 | 3.29 | % | 160,340 | 608 | 1.50 | % | 843,808 | 317 | 0.15 | % | ||||||
| Total interest-earning assets | 9,815,701 | $ | 131,969 | 5.33 | % | 6,325,984 | $ | 67,882 | 4.26 | % | 6,545,379 | $ | 63,631 | 3.86 | % | |||
| Allowance for credit losses on loans | (88,150) | (50,609) | (50,654) | |||||||||||||||
| Noninterest-earning assets | 1,218,458 | 442,511 | 447,005 | |||||||||||||||
| Total assets | $ | 10,946,009 | $ | 6,717,886 | $ | 6,941,730 | ||||||||||||
| Liabilities and<br>Shareholders' Equity | ||||||||||||||||||
| Interest-Bearing Liabilities: | ||||||||||||||||||
| Interest-bearing demand<br>deposits | $ | 1,465,711 | $ | 5,422 | 1.47 | % | $ | 978,531 | $ | 2,380 | 0.96 | % | $ | 724,841 | $ | 388 | 0.21 | % |
| Money market and savings<br>deposits | 2,705,984 | 6,984 | 1.02 | % | 1,500,083 | 1,147 | 0.30 | % | 1,618,240 | 889 | 0.22 | % | ||||||
| Certificates and other time<br>deposits | 932,058 | 2,083 | 0.89 | % | 877,231 | 1,664 | 0.75 | % | 1,335,020 | 2,391 | 0.71 | % | ||||||
| Borrowed funds | 37,824 | 417 | 4.37 | % | 68,752 | 499 | 2.88 | % | 138,747 | 434 | 1.24 | % | ||||||
| Subordinated debt | 109,307 | 1,449 | 5.26 | % | 109,177 | 1,502 | 5.46 | % | 108,784 | 1,425 | 5.20 | % | ||||||
| Total interest-bearing<br>liabilities | 5,250,884 | $ | 16,355 | 1.24 | % | 3,533,774 | $ | 7,192 | 0.81 | % | 3,925,632 | $ | 5,527 | 0.56 | % | |||
| Noninterest-Bearing<br>Liabilities: | ||||||||||||||||||
| Noninterest-bearing demand<br>deposits | 4,199,982 | 2,424,884 | 2,163,016 | |||||||||||||||
| Other liabilities | 147,205 | 41,792 | 46,141 | |||||||||||||||
| Total liabilities | 9,598,071 | 6,000,450 | 6,134,789 | |||||||||||||||
| Shareholders' equity | 1,347,938 | 717,436 | 806,941 | |||||||||||||||
| Total liabilities and<br>shareholders' equity | $ | 10,946,009 | $ | 6,717,886 | $ | 6,941,730 | ||||||||||||
| Net interest rate spread | 4.09 | % | 3.45 | % | 3.30 | % | ||||||||||||
| Net interest income and margin | $ | 115,614 | 4.67 | % | $ | 60,690 | 3.81 | % | $ | 58,104 | 3.52 | % | ||||||
| Net interest income and net<br>interest margin (tax equivalent) | $ | 116,574 | 4.71 | % | $ | 61,418 | 3.85 | % | $ | 58,838 | 3.57 | % |
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
| Years Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||
| Average Balance | Interest Earned/ <br>Interest Paid | Average Yield/ <br>Rate | Average Balance | Interest Earned/ <br>Interest Paid | Average Yield/Rate | |||||||
| (Dollars in thousands) | ||||||||||||
| Assets | ||||||||||||
| Interest-Earning Assets: | ||||||||||||
| Loans | $ | 5,171,944 | $ | 280,375 | 5.42 | % | $ | 4,422,467 | $ | 230,713 | 5.22 | % |
| Securities | 1,779,425 | 37,861 | 2.13 | % | 1,050,376 | 21,798 | 2.08 | % | ||||
| Deposits in other financial institutions | 462,075 | 4,758 | 1.03 | % | 458,190 | 673 | 0.15 | % | ||||
| Total interest-earning assets | 7,413,444 | $ | 322,994 | 4.36 | % | 5,931,033 | $ | 253,184 | 4.27 | % | ||
| Allowance for credit losses<br> on loans | (59,099) | (51,513) | ||||||||||
| Noninterest-earning assets | 633,928 | 680,191 | ||||||||||
| Total assets | $ | 7,988,273 | $ | 6,559,711 | ||||||||
| Liabilities and Shareholders' Equity | ||||||||||||
| Interest-Bearing Liabilities: | ||||||||||||
| Interest-bearing demand deposits | $ | 1,140,575 | $ | 9,278 | 0.81 | % | $ | 574,079 | $ | 1,409 | 0.25 | % |
| Money market and savings deposits | 1,841,348 | 9,861 | 0.54 | % | 1,571,532 | 3,956 | 0.25 | % | ||||
| Certificates and other time deposits | 1,034,491 | 7,825 | 0.76 | % | 1,349,216 | 11,628 | 0.86 | % | ||||
| Borrowed funds | 61,773 | 1,216 | 1.97 | % | 144,354 | 1,878 | 1.30 | % | ||||
| Subordinated debt | 109,111 | 5,856 | 5.37 | % | 108,588 | 5,749 | 5.29 | % | ||||
| Total interest-bearing liabilities | 4,187,298 | $ | 34,036 | 0.81 | % | 3,747,769 | 24,620 | 0.66 | % | |||
| Noninterest-Bearing Liabilities: | ||||||||||||
| Noninterest-bearing demand deposits | 2,833,865 | 1,983,934 | ||||||||||
| Other liabilities | 62,581 | 41,972 | ||||||||||
| Total liabilities | 7,083,744 | 5,773,675 | ||||||||||
| Shareholders' equity | 904,529 | 786,036 | ||||||||||
| Total liabilities and shareholders' equity | $ | 7,988,273 | $ | 6,559,711 | ||||||||
| Net interest rate spread | 3.55 | % | 3.61 | % | ||||||||
| Net interest income and margin | $ | 288,958 | 3.90 | % | $ | 228,564 | 3.85 | % | ||||
| Net interest income and net interest<br>margin (tax equivalent) | $ | 292,152 | 3.94 | % | $ | 231,315 | 3.90 | % |
Stellar Bancorp, Inc.
Financial Highlights
(Unaudited)
| Three Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | ||||||||||||||
| December 31 | September 30 | June 30 | March 31 | December 31 | |||||||||||
| (Dollars in thousands) | |||||||||||||||
| Period-end Loan Portfolio: | |||||||||||||||
| Commercial and industrial | $ | 1,455,795 | $ | 732,636 | $ | 727,068 | $ | 714,450 | $ | 693,559 | |||||
| Paycheck Protection Program (PPP) | 13,226 | 17,827 | 31,855 | 78,624 | 145,942 | ||||||||||
| Real estate: | |||||||||||||||
| Commercial real estate (including<br>multi-family residential) | 3,931,480 | 2,407,039 | 2,265,155 | 2,197,502 | 2,104,621 | ||||||||||
| Commercial real estate construction and<br>land development | 1,037,678 | 513,248 | 450,694 | 453,473 | 439,125 | ||||||||||
| 1-4 family residential (including home equity) | 1,000,956 | 699,636 | 682,066 | 669,306 | 685,071 | ||||||||||
| Residential construction | 268,150 | 183,563 | 155,017 | 136,760 | 117,901 | ||||||||||
| Consumer and other | 47,466 | 37,963 | 36,978 | 33,399 | 34,267 | ||||||||||
| Total loans held for investment | $ | 7,754,751 | $ | 4,591,912 | $ | 4,348,833 | $ | 4,283,514 | $ | 4,220,486 | |||||
| Deposits: | |||||||||||||||
| Interest-bearing demand | $ | 1,591,828 | $ | 956,920 | $ | 1,016,381 | $ | 1,070,855 | $ | 869,984 | |||||
| Money market and savings | 2,575,923 | 1,471,690 | 1,510,008 | 1,552,853 | 1,643,745 | ||||||||||
| Certificates and other time | 869,712 | 766,270 | 959,524 | 1,185,015 | 1,290,825 | ||||||||||
| Total interest-bearing deposits | 5,037,463 | 3,194,880 | 3,485,913 | 3,808,723 | 3,804,554 | ||||||||||
| Noninterest-bearing deposits | 4,230,169 | 2,465,839 | 2,394,719 | 2,353,604 | 2,243,085 | ||||||||||
| Total deposits | $ | 9,267,632 | $ | 5,660,719 | $ | 5,880,632 | $ | 6,162,327 | $ | 6,047,639 | |||||
| Asset Quality: | |||||||||||||||
| Nonaccrual loans | $ | 45,048 | $ | 21,551 | $ | 28,225 | $ | 26,275 | $ | 24,127 | |||||
| Accruing loans 90 or more days past due | — | — | — | — | — | ||||||||||
| Total nonperforming loans | 45,048 | 21,551 | 28,225 | 26,275 | 24,127 | ||||||||||
| Total nonperforming assets | $ | 45,048 | $ | 21,551 | $ | 28,225 | $ | 26,275 | $ | 24,127 | |||||
| Net charge-offs (recoveries) | $ | 5,707 | $ | (245) | $ | 571 | $ | 317 | $ | 1,353 | |||||
| Nonaccrual loans: | |||||||||||||||
| Commercial and industrial | $ | 25,402 | $ | 6,916 | $ | 9,145 | $ | 7,809 | $ | 8,358 | |||||
| Real estate: | |||||||||||||||
| Commercial real estate (including<br>multi-family residential) | 9,970 | 10,392 | 14,409 | 15,259 | 12,639 | ||||||||||
| Commercial real estate construction and<br>land development | — | 241 | 1,511 | — | 63 | ||||||||||
| 1-4 family residential (including home equity) | 9,404 | 3,854 | 3,040 | 3,065 | 2,875 | ||||||||||
| Residential construction | — | — | — | — | — | ||||||||||
| Consumer and other | 272 | 148 | 120 | 142 | 192 | ||||||||||
| Total nonaccrual loans | $ | 45,048 | $ | 21,551 | $ | 28,225 | $ | 26,275 | $ | 24,127 | |||||
| Asset Quality Ratios: | |||||||||||||||
| Nonperforming assets to total assets | 0.41 | % | 0.32 | % | 0.42 | % | 0.37 | % | 0.34 | % | |||||
| Nonperforming loans to total loans | 0.58 | % | 0.47 | % | 0.65 | % | 0.61 | % | 0.57 | % | |||||
| Allowance for credit losses on loans to<br>nonperforming loans | 206.85 | % | 241.97 | % | 178.01 | % | 187.31 | % | 198.70 | % | |||||
| Allowance for credit losses on loans to total loans | 1.20 | % | 1.14 | % | 1.16 | % | 1.15 | % | 1.14 | % | |||||
| Net charge-offs (recoveries) to average loans (annualized) | 0.30 | % | (0.02 | %) | 0.05 | % | 0.03 | % | 0.13 | % |
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 Ended | Years Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
| December 31 | September 30 | June 30 | March 31 | December 31 | December 31 | December 31 | |||||||||||||||
| (Dollars and share amounts in thousands, except per share data) | |||||||||||||||||||||
| Net income | $ | 2,052 | $ | 14,286 | $ | 16,437 | $ | 18,657 | $ | 21,558 | $ | 51,432 | $ | 81,553 | |||||||
| Add: Provision for credit losses | 44,793 | 1,962 | 2,143 | 1,814 | (2,577) | 50,712 | (2,322) | ||||||||||||||
| Add: Provision for income taxes | (218) | 3,406 | 3,702 | 4,202 | 4,833 | 11,092 | 18,341 | ||||||||||||||
| Pre-tax, pre-provision income | $ | 46,627 | $ | 19,654 | $ | 22,282 | $ | 24,673 | $ | 23,814 | $ | 113,236 | $ | 97,572 | |||||||
| Total average assets | $ | 10,946,009 | $ | 6,717,886 | $ | 7,019,299 | $ | 7,257,498 | $ | 6,941,730 | $ | 7,988,273 | $ | 6,559,711 | |||||||
| Pre-tax, pre-provision return on average assets(B) | 1.69 | % | 1.16 | % | 1.27 | % | 1.38 | % | 1.36 | % | 1.42 | % | 1.49 | % | |||||||
| Pre-tax, pre-provision income | $ | 46,627 | $ | 19,654 | $ | 22,282 | $ | 24,673 | $ | 23,814 | $ | 113,236 | $ | 97,572 | |||||||
| Add: Acquisition and merger-related expenses | 11,469 | 10,551 | 1,667 | 451 | 1,408 | 24,138 | 2,011 | ||||||||||||||
| Add: Core deposit intangibles amortization | 7,051 | 750 | 751 | 751 | 824 | 9,303 | 3,296 | ||||||||||||||
| Less: Purchase accounting accretion | 8,160 | 40 | 77 | 93 | 93 | 8,370 | 600 | ||||||||||||||
| Less: Gain (loss) on sale of assets | 4,025 | 42 | (17) | — | (321) | 4,050 | (272) | ||||||||||||||
| Adjusted pre-tax, pre-provision income | $ | 52,962 | $ | 30,873 | $ | 24,640 | $ | 25,782 | $ | 26,274 | $ | 134,257 | $ | 102,551 | |||||||
| Adjusted pre-tax, pre-provision return on average assets(B) | 1.92 | % | 1.82 | % | 1.41 | % | 1.44 | % | 1.50 | % | 1.68 | % | 1.56 | % | |||||||
| Total noninterest expense | $ | 79,624 | $ | 44,031 | $ | 37,904 | $ | 34,517 | $ | 36,744 | $ | 196,076 | $ | 139,554 | |||||||
| Less: Acquisition and merger-related expenses | 11,469 | 10,551 | 1,667 | 451 | 1,408 | 24,138 | 2,011 | ||||||||||||||
| Less: Core deposit intangibles amortization | 7,051 | 750 | 751 | 751 | 824 | 9,303 | 3,296 | ||||||||||||||
| Net interest income | 115,614 | 60,690 | 57,482 | 55,172 | 58,104 | 288,958 | 228,564 | ||||||||||||||
| Less: Purchase accounting accretion | 8,160 | 40 | 77 | 93 | 93 | 8,370 | 600 | ||||||||||||||
| Total noninterest income | 10,637 | 2,995 | 2,704 | 4,018 | 2,454 | 20,354 | 8,562 | ||||||||||||||
| Less: Gain (loss) on sale of assets | 4,025 | 42 | (17) | — | (321) | 4,050 | (272) | ||||||||||||||
| Adjusted efficiency ratio(A) | 53.57% | 51.46% | 59.02% | 56.37% | 56.78% | 54.78% | 56.69% | ||||||||||||||
| Total shareholders' equity | $ | 1,383,176 | $ | 656,302 | $ | 705,329 | $ | 751,940 | $ | 816,468 | $ | 1,383,176 | $ | 816,468 | |||||||
| Less: Goodwill and core deposit intangibles, net | 640,785 | 236,048 | 236,798 | 237,549 | 238,300 | 640,785 | 238,300 | ||||||||||||||
| Tangible shareholders’ equity | $ | 742,391 | $ | 420,254 | $ | 468,531 | $ | 514,391 | $ | 578,168 | $ | 742,391 | $ | 578,168 | |||||||
| Shares outstanding at end of period | 52,955 | 28,137 | 28,586 | 28,904 | 28,846 | 52,955 | 28,846 | ||||||||||||||
| Tangible book value per share | $ | 14.02 | $ | 14.94 | $ | 16.39 | $ | 17.80 | $ | 20.04 | $ | 14.02 | $ | 20.04 | |||||||
| Average shareholders' equity | $ | 1,347,938 | $ | 717,436 | $ | 744,126 | $ | 804,704 | $ | 806,941 | $ | 904,529 | $ | 786,036 | |||||||
| Less: Average goodwill and core deposit intangibles, net | 658,107 | 236,399 | 237,153 | 237,925 | 238,700 | 343,257 | 239,916 | ||||||||||||||
| Average tangible shareholders’ equity | $ | 689,831 | $ | 481,037 | $ | 506,973 | $ | 566,779 | $ | 568,241 | $ | 561,272 | $ | 546,120 | |||||||
| Return on average tangible equity(B) | 1.18 | % | 11.78 | % | 13.00 | % | 13.35 | % | 15.05 | % | 9.16 | % | 14.93 | % | |||||||
| Total assets | $ | 10,900,437 | $ | 6,730,342 | $ | 6,731,764 | $ | 7,149,363 | $ | 7,104,954 | $ | 10,900,437 | $ | 7,104,954 | |||||||
| Less: Goodwill and core deposit intangibles, net | 640,785 | 236,048 | 236,798 | 237,549 | 238,300 | 640,785 | 238,300 | ||||||||||||||
| Tangible assets | $ | 10,259,652 | $ | 6,494,294 | $ | 6,494,966 | $ | 6,911,814 | $ | 6,866,654 | $ | 10,259,652 | $ | 6,866,654 | |||||||
| Tangible equity to tangible assets | 7.24 | % | 6.47 | % | 7.21 | % | 7.44 | % | 8.42 | % | 7.24 | % | 8.42 | % | |||||||
| Net interest income (tax equivalent) | $ | 116,574 | $ | 61,418 | $ | 58,238 | $ | 55,922 | $ | 58,838 | $ | 292,152 | $ | 231,315 | |||||||
| Less: Purchase accounting accretion | 8,160 | 40 | 77 | 93 | 93 | 8,370 | 600 | ||||||||||||||
| Adjusted net interest income (tax equivalent) | $ | 108,414 | $ | 61,378 | $ | 58,161 | $ | 55,829 | $ | 58,745 | $ | 283,782 | $ | 230,715 | |||||||
| Average earning assets | $ | 9,815,701 | $ | 6,325,984 | $ | 6,618,005 | $ | 6,873,708 | $ | 6,545,379 | $ | 7,413,444 | $ | 5,931,033 | |||||||
| Net interest margin<br>(tax equivalent) excluding PAA | 4.38 | % | 3.85 | % | 3.52 | % | 3.29 | % | 3.56 | % | 3.83 | % | 3.89 | % |
(A)Represents total noninterest expense, excluding acquisition and merger-related expenses, core deposit intangibles amortization and write-down on assets moved to held for sale, divided by the sum of net interest income, excluding purchase accounting adjustments 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.
(B)Interim periods annualized.
11
a992earningspresentation
Fourth Quarter 2022 Earnings Presentation Exhibit 99.2
Forward-Looking Statements and Non-GAAP Financial Measures 2 Certain statements in this presentation 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”) of CBTX, Inc. (now Stellar Bancorp, Inc.) (the "Company") and Allegiance Bancshares, Inc. ("Allegiance"), 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 our operations following the Merger 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; 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 and the Joint Proxy Statement/Prospectus regarding the Merger that the Company filed with the SEC on April 7, 2022 pursuant to Rule 424(b)(3), CBTX’s Annual Report on Form 10-K and Allegiance’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 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; the ratio of tangible equity to tangible assets; net interest margin (tax equivalent) excluding PAA; and loan yield excluding accretion for internal planning and forecasting purposes. Stellar 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 Combination delivers scale, growth opportunities, and talent depth Valuable franchise in one of the best markets in the U.S. Merger-of-equals between of CBTX, Inc. and Allegiance Bancshares, Inc. became effective October 1, 2022, with the combined company renamed Stellar Bancorp, Inc. (NASDAQ: STEL) Strong core earnings power Q4 2022 (Dollars in millions) Total assets $10,900 Total loans $7,755 Total deposits $9,268 Tangible equity to tangible assets (1) 7.24% Total loans to total deposits 83.7% Principal banking subsidiary to be renamed Stellar Bank upon system conversion in February
4 Financial Highlights – Fourth Quarter 2022 (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) Represents total noninterest expense divided by the sum of net interest income and noninterest income, excluding gains and losses on the sale of loans, securities, and assets. (4) Annualized. Key Financial Accomplishments: Crossed $10 billion in assets with closing of Merger Reported Q4 2022 net income of $2.1 million, or $0.04 per share, impacted by merger related items − See slides 5 and 6 for additional detail detailing merger impacts Strong NIM: reported NIM of 4.71% / NIM excluding PAA of 4.38%(1) Excellent Core Funding: 45.6% noninterest-bearing deposits / 0.69% cost of funds Strong Core Earnings Power: PTPP ROAA of 1.69%(1)(4)/ adjusted for merger and nonrecurring impacts 1.92%(1)(2)(4) The merger was accounted for as a reverse acquisition using the acquisition method of accounting, with CBTX treated as the legal acquirer and Allegiance treated as the accounting acquirer for financial reporting purposes. The results for Stellar reflect the results of Allegiance prior to completion of the merger and reflect the results for Stellar from the effective date of the merger, October 1, 2022, going forward. Q4 2022 Actual Adjusted(1) Net interest margin (tax equivalent)(4) 4.71% 4.38% Pre-tax, pre provision net income 46,627$ (1) 52,962$ (2) Pre-tax, pre provision ROAA(4) 1.69% (1) 1.92% (2) Eff iciency ratio(3) 65.14% 53.57% (2) (Dollars in thousands)
Merger Related Accounting Adjustments(1) 5 • Purchase accounting mark on acquired loans of $166.5 million (5.31% of legacy CBTX loan portfolio) • $9.3 million allocated to purchase credit deteriorated (PCD) loans • $157.2 million allocated to non-PCD loans • Core deposit intangible of $138.2 million (3.79% of legacy CBTX non-time deposit portfolio) amortized using sum-of-the-years-digits method over 10 years • Scheduled amortization expense of $24.5 million in 2023 and $22.0 million in 2024 • Establishment of new allowance for credit loss on acquired loans • $28.2 million provision for credit losses on non-PCD loans • $5.0 million provision for unfunded commitments • $7.6 million allowance for credit losses on PCD loans • Acquisition and merger-related expenses of $11.5 million for the fourth quarter 2022 • Gain on sale of acquired loans of $1.9 million • Gain on sale of securities of $1.2 million related to sale of $353.9 million of legacy CBTX securities (69.3% of the legacy CBTX portfolio) • Gain on sale of branch of approximately $972 thousand FMV ADJUSTMENTS CORE DEPOSIT INTANGIBLE ALLOWANCE FOR CREDIT LOSSES OTHER ADJUSTMENTS (1) The Company’s valuations of CBTX’s assets and liabilities are preliminary and may be refined for up to a year from the date of the Merger.
Core PTPP Earnings Power 6 (1) Non-GAAP financial measure. (2) Adjusted results exclude the impact of acquisition and merger-related expenses, core deposit intangibles amortization, purchase accounting adjustments and the net gain on sale of assets for the period presented. (3) Annualized. After excluding merger-related expenses, nonrecurring and non-cash merger accounting items, core pre-tax, pre-provision (“PTPP”) earnings power is Stellar Q4 2022 (Dollars in thousands) Net income 2,052$ (+) Provision for credit losses 44,793 Outsized provision resulting from the merger (+) Provision for income taxes (218) Pre-tax, pre-provision income(1) 46,627$ (+) Acquisition and merger-related expenses 11,469$ (-) Net gain on sale of assets 4,025 Nonrecurring revenue from loan, securities and other asset sales during the quarter (+) Core deposit intangibles amortization 7,051 Quarterly intangible amortization expense created from purchase accounting adjustments (-) Purchase accounting adjustments (PAA) 8,160 Quarterly revenue impact of PAA taken into loan yield, created by purchase accounting Adjusted pre-tax, pre-provision income(1)(2) 52,962$ Core Earnings Power after adjustments for merger related items Pre-tax, pre provision ROAA(1)(3) 1.69% Adjusted pre-tax, pre provision ROAA(1)(2)(3) 1.92%
C & I 19.0% Cons. & Other 0.6% 1-4 Fam. 12.9% C&D 16.8%Multi. 5.7% OO CRE 23.2% CRE 21.8% Fourth 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. Note: Combined represents the simple addition of legacy balances at September 30,2022. Loan Portfolio Composition Loans (in millions) Ongoing Focus on Quality • Yield on loans at 6.01% • Yield on loans excluding PAA at 5.59%(1) • No material moves in lending concentrations • Proactively sold $35.4 million of loans Average Outstanding Balance Interest Earned / Interest Paid Average Yield / Rate ASSETS Interest-Earning Assets: Loans 7,666,502$ 116,145$ 6.01% 5.59% Securities 1,795,082 12,891 2.85% Deposits in other financial institutions 354,117 2,933 3.29% Total interest-earning assets 9,815,701$ 131,969$ 5.33% 5.00% Q4 2022 (Dollars in thousands) Excl. PAA Fees/Costs (1) (1)
Fourth Quarter Deposit Summary 8 Deposit MixDeposits (in millions) High Quality Deposit Funding: • 45.6% Noninterest bearing deposits • Core Funded Balance Sheet • 83.7% Loan / Deposit Ratio NIB 45.6% IB Demand 17.2% Sav. & MMDA 27.8% CD's 9.4% Combined Q3 2022 Q4 2022 Cost of Deposits 0.28% 0.62% Cost of IB Deposits 0.51 % 1 .1 3% (1) Combined represents the simple addition of legacy balances at September 30, 2022 or weighted average legacy costs; estimated. (1)
Fourth Quarter Asset Quality Summary Strong credit quality metrics Q4 2022 NCOs totaled $5.7 million $4.6 million of Q4 charges related to the proactive sale of $35.4 million of loans Adj. NCOs / Avg. Loans(1) was 0.06% NCOs for the combined company would have totaled $6.1 million(2) for the FY 2022 Track record is exceptional for both companies Annual NCOs avg. for the 5 years ended December 31, 2021 was 0.03% for legacy CBTX Annual NCOs avg. for the 5 years ended December 31, 2021 was 0.14% for legacy ABTX 9 NPAs by Type C&I 56.4%CRE 22.1% 1-4 Family 20.9% Consumer 0.6% Q4 2022 (Dollars in thousands) Nonperforming loans to total loans 0.58% Total nonperforming loans 45,048$ Nonperforming assets to total assets 0.41% Total nonperforming assets 45,048$ Net charge-offs to average loans (annualized) 0.30% Allow ance for credit losses on loans to total loans 1.20% (1) Excludes NCOs created as part of the proactive sale of loans; annualized. (2) Combined represents the simple addition of legacy balances for 2022; estimated.
Regulatory Capital Ratios(1) 10 Adequately Well Capitalized Capitalized Bank Capital Ratios CET 1 Ratio 10.46% 4.50% 6.50% Tier 1 Capital Ratio 10.46% 6.00% 8.00% Total Capital Ratio 12.10% 8.00% 10.00% Tier 1 Leverage Ratio 8.81% 4.00% 5.00% Consolidated Capital Ratios TCE / TA(2) 7.24% N/A N/A CET 1 Ratio 10.04% 4.00% N/A Tier 1 Capital Ratio 10.15% 4.50% N/A Total Capital Ratio 12.47% 6.00% N/A Tier 1 Leverage Ratio 8.55% 8.00% N/A Q4 2022 (1) Estimated. (2) Refer to the calculation of this non-GAAP financial measure and a reconciliation to its most directly comparable GAAP financial measure in the appendix.
11 Key Takeaways Excellent core funding profile Merger scale brings strong combined earnings power Key success factor for 2023: risk management Significant financial flexibility Positioned for rapid capital-build
Unparalleled Market Focus Total Assets Houston Region(1) Percent of Company Name ($B) Deposits ($B) Deposits (%) JPMorgan $3,841 $188.0 7.6% Wells Fargo 1,881 34.3 2.4% BofA 3,112 29.7 1.5% Zions 87.8 14.1 17.8% PNC 541 11.9 2.7% Stellar 11.1 9.5 98.1% Frost 51.8 8.4 18.4% Capital One 440 8.0 2.6% Cadence 47.7 7.6 18.9% Prosperity 37.4 6.8 22.6% Allegiance 6.7 5.9 100.0% Woodforest 9.6 5.9 70.4% Comerica 86.9 3.9 5.1% CBTX 4.3 3.6 95.1% Texas Capital 32.3 2.9 11.3% Truist 545 2.9 0.7% 12 Houston Region Market Share(1) Deposits ($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 Stell r 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.
Headquartered in 4th Largest City in the US 5-Year Historical Population Growth (2017-2022) STRONG AND DIVERSIFIED HOUSTON REGION Houston has the second highest concentration of Fortune 1000 companies in the U.S. The Port of Houston ranked #1 in the U.S. in 2021 foreign waterborne tonnage Houston is the #1 most diverse city in the U.S. based on socioeconomic factors The Woodlands, a Houston suburb, is #1 on the list of America’s 50 Best Places to Live Houston is home to the Texas Medical Center, which has 10 million patient encounters each year During the pandemic, Houston saw the second highest growth in jobs available for software and IT workers 13 Median Home Price ($000s) Median Household Income Source: S&P Capital IQ Pro as of June 30, 2022; Texas Medical Center; Houston.org; Wallet Hub; ABC News; Axios. (1.6%) (2.2%) (0.3%) 7.3% 5.9% 5.8% 2.8% New York MSA Los Angeles MSA Chicago MSA Dallas MSA Houston MSA Texas USA $597.6 $825.7 $370.1 $408.2 $357.2 $344.9 $440.3 New York MSA Los Angeles MSA Chicago MSA Dallas MSA Houston MSA Texas USA $92,717 $86,804 $83,335 $81,205 $74,859 $70,957 $72,465 New York MSA Los Angeles MSA Chicago MSA Dallas MSA Houston MSA Texas USA
440 bps 400 bps 386 bps 245 bps 128 bps 8 bps (31 bps) (33 bps) (49 bps) (76 bps) (135 bps) (137 bps) (193 bps) (343 bps) (354 bps) (500 bps) (400 bps) (300 bps) (200 bps) (100 bps) - 100 bps 200 bps 300 bps 400 bps 500 bps JPMorgan Cullen/Frost Bankers Bank of America Independent Bank Group Veritex Holdings Texas Capital Comerica Zions Prosperity Hilltop Holdings First Financial Bankshares Cadence Bank Wells Fargo PNC Financial Strong Combined Market Share Growth In Competitive Texas Markets 14 Pure Play Texas Banks Money Center Banks Other Significant Banks in Texas 2022 Deposit-Weighted Market Share 11.1% 5-Year Change In Deposit-Weighted Market Share by County (‘17 - ‘22 Change in bps) Source: S&P Capital IQ Pro. Note: Deposit data as of June 30, combined for M&A completed over or pending in last 5 years. 41.4% 17.1% 29.1% 7.7% 1.6% 5.1% 1.9% 3.8% 14.8% 7.8% 37.9% 8.1% 11.8% 4.4% Stellar
Appendix: Non-GAAP Reconciliation(1) 15 (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. Q4 2022 Net income $ 2,052 (+) Provision for credit losses 44,793 (+) Provision for income taxes (218) Pre-tax, pre-provision income $ 46,627 Total average assets $ 10,946,009 Pre-tax, pre-provision return on average assets(2) 1.69% Pre-tax, pre-provision income $ 46,627 (+) Acquisition and merger-related expenses 11,469 (+) Core deposit intangibles amortization 7,051 (-) Purchase accounting adjustments 8,160 (-) Gain on sale of assets 4,025 Adjusted pre-tax, pre-provision income $ 52,962 Adjusted pre-tax, pre-provision return on average assets(2) 1.92% Total noninterest expense $ 79,624 (-) Acquisition and merger-related expenses 11,469 (-) Core deposit intangibles amortization 7,051 Net interest income 115,614 (-) Purchase accounting adjustments 8,160 Total noninterest income 10,637 (-) Gain on sale of assets 4,025 Adjusted efficiency ratio 53.57% Total shareholders' equity $ 1,383,176 (-) Goodw ill and core deposit intangibles, net 640,785 Tangible shareholders’ equity $ 742,391 Total assets $ 10,900,437 (-) Goodw ill and core deposit intangibles, net 640,785 Tangible assets $ 10,259,652 Tangible equity to tangible assets 7.24% Net interest income (tax equivalent) $ 116,574 (-) Purchase accounting adjustments 8,160 Adjusted net interest income (tax equivalent) $ 108,414 Average earning assets $ 9,815,701 Net interest margin (tax equivalent)(2) 4.71% Net interest margin (tax equivalent) excluding PAA(2) 4.38% Interest on loans, as reported $ 116,145 (-) Purchase accounting adjustments - loan accretion 8,148 Interest on loans w ithout loan accretion $ 107,997 Average loans $ 7,666,502 Loan yield, as reported(2) 6.01% Loan yield, w ithout accretion(2) 5.59%
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