Stellar Bancorp, Inc. Reports Fourth Quarter 2025 Results

Stellar Bancorp, Inc. (the "Company" or "Stellar") (NYSE:STEL) today reported net income of $26.1 million, or diluted earnings per share of $0.51, for the fourth quarter of 2025 and net income of $102.9 million, or diluted earnings per share of $1.99, for the full year 2025.

Financial Highlights

• Strong Net Interest Income and Margin: Net interest income was $103.4 million for the fourth quarter of 2025 up from $100.6 million for the third quarter of 2025. The tax equivalent net interest margin, excluding PAA ("Purchase Accounting Adjustments"), was 4.06%⁽¹⁾ for the fourth quarter of 2025 compared to 4.00%⁽¹⁾ for the third quarter of 2025.

• Solid Profitability: Net income for the full year 2025 was $102.9 million, or diluted earnings per share of $1.99, which translated into a return on average assets of 0.97%, a return on average equity of 6.34% and a return on average tangible equity of 11.48%⁽¹⁾. Net income for the fourth quarter of 2025 was $26.1 million, or diluted earnings per share of $0.51, which translated into an annualized return on average assets of 0.97%, an annualized return on average equity of 6.23% and an annualized return on average tangible equity of 10.90%⁽¹⁾.

• Meaningful Book Value Build: Book value per share increased to $32.78 at December 31, 2025 from $30.09 at December 31, 2024. Tangible book value per share increased to $21.62⁽¹⁾ at December 31, 2025 from $21.08⁽¹⁾ at September 30, 2025 and from $19.05⁽¹⁾ at December 31, 2024.

• Repurchase of Shares: Repurchased 299,347 shares at a weighted average price per share of $30.44 during the fourth quarter of 2025.

• Paydown of Subordinated Debt: On October 1, 2025, the Company completed the previously announced redemption of $30 million of its $60 million of subordinated debt.

Year 2025 Results

Net interest income for 2025 decreased $6.4 million, or 1.6%, to $401.6 million from $408.0 million for 2024. The net interest margin on a tax equivalent basis decreased to 4.20% for 2025 from 4.24% for 2024. The decrease in net interest income from the prior year was primarily due to the decrease in average interest-earning assets partially offset by the decrease in cost of interest-bearing liabilities. Net interest income for 2025 benefited from $19.3 million of income from PAA down from $33.0 million for 2024. Excluding PAA, net interest income (tax equivalent) for 2025 would have been $382.7 million⁽¹⁾ and the tax equivalent net interest margin would have been 3.99%⁽¹⁾ an increase from $375.3 million and 3.89% for the year 2024.

Noninterest income for 2025 was $21.8 million, a decrease of $1.3 million, or 5.4%, compared to $23.0 million for 2024. Noninterest income decreased in 2025 compared to 2024 primarily due to losses on sales and write-downs on foreclosed assets recorded during 2025.

Noninterest expense for 2025 decreased $3.5 million, or 1.2%, to $285.5 million compared to $289.0 million for 2024. The decrease in noninterest expense during 2025 compared to 2024 was primarily due to a $3.2 million decrease in professional fees, a $2.6 million decrease in amortization of intangibles and a $1.4 million decrease in regulatory assessments partially offset by a $3.5 million increase salaries and employee benefits.

The efficiency ratio was 62.28%⁽¹⁾ for 2025 compared to 61.53%⁽¹⁾ for 2024. Annualized returns on average assets, average equity and average tangible equity were 0.97%, 6.34% and 11.48%⁽¹⁾ for 2025, respectively, compared to 1.08%, 7.34% and 13.89%⁽¹⁾ for 2024, respectively.

Fourth Quarter 2025 Results

Net interest income in the fourth quarter of 2025 increased $2.7 million, or 2.7%, to $103.4 million from $100.6 million for the third quarter of 2025. The net interest margin on a tax equivalent basis increased to 4.21% for the fourth quarter of 2025 from 4.20% for the third quarter of 2025. The increase in net interest income from the prior quarter was primarily due to the decrease in cost of average interest-bearing liabilities. Net interest income for the fourth quarter of 2025 benefited from $3.8 million of income from PAA compared to $4.8 million in the third quarter of 2025. Excluding PAA, net interest income (tax equivalent) for the fourth quarter of 2025 would have been $99.7 million⁽¹⁾ and the tax equivalent net interest margin would have been 4.06%⁽¹⁾ compared to net interest income of $95.9 million and tax equivalent net interest margin of 4.00% for the third quarter of 2025.

Noninterest income for the fourth quarter of 2025 was $5.5 million, an increase of $522 thousand, or 10.5%, compared to $5.0 million for the third quarter of 2025. Noninterest income increased in the fourth quarter of 2025 compared to the third quarter of 2025 primarily due to a death benefit on bank-owned life insurance received during the fourth quarter of 2025.

Noninterest expense for the fourth quarter of 2025 decreased $984 thousand, or 1.3%, to $72.2 million compared to $73.1 million for the third quarter of 2025. The decrease in noninterest expense during the fourth quarter of 2025 compared to the third quarter of 2025 was primarily due to a decrease in amortization of intangibles of $624 thousand and a decrease in regulatory assessments of $483 thousand.

The efficiency ratio was 61.64%⁽¹⁾ for the fourth quarter of 2025 compared to 63.69%⁽¹⁾ for the third quarter of 2025. Annualized returns on average assets, average equity and average tangible equity were 0.97%, 6.23% and 10.90%⁽¹⁾ for the fourth quarter of 2025, respectively, compared to 0.97%, 6.30% and 11.45%⁽¹⁾ for the third quarter of 2025, respectively.

Financial Condition

Total assets at December 31, 2025 were $10.81 billion, an increase of $178.5 million compared to $10.63 billion at September 30, 2025. The increase in total assets was largely due to an increase of $356.2 million in securities and a $132.7 million increase in loans, partially offset by a $303.9 million decrease in interest-bearing deposits at other financial institutions.

Total loans at December 31, 2025 increased $132.7 million to $7.30 billion compared to $7.17 billion at September 30, 2025. At December 31, 2025, the remaining balance of the PAA on loans was $54.3 million.

Total deposits at December 31, 2025 increased $204.0 million to $9.02 billion compared to $8.82 billion at September 30, 2025 primarily due to increases in noninterest-bearing and interest-bearing demand deposits partially offset by a decrease in certificates and other time deposits.

Asset Quality

Nonperforming assets totaled $60.0 million, or 0.56% of total assets, at December 31, 2025, compared to $54.2 million, or 0.51% of total assets, at September 30, 2025 and $38.9 million, or 0.36% of total assets, at December 31, 2024. The allowance for credit losses on loans as a percentage of total loans was 1.15% at December 31, 2025 compared to 1.10% at September 30, 2025 and 1.09% at December 31, 2024.

The year ended December 31, 2025 included a provision for credit losses of $10.2 million compared to a reversal of provision for credit losses of $2.9 million for the year ended December 31, 2024. Net charge-offs for the year ended December 31, 2025 were $3.8 million, or 0.05% of average loans, compared to net charge-offs of $6.7 million, or 0.09% of average loans, for the year ended December 31, 2024.

The provision for credit losses was $5.1 million for the fourth quarter of 2025 compared to $305 thousand for the third quarter of 2025 primarily due to loan growth. Net charge-offs for the fourth quarter of 2025 were $71 thousand compared to net charge-offs of $3.3 million, or 0.18% (annualized) of average loans, for the third quarter of 2025.

GAAP Reconciliation of Non-GAAP Financial Measures

Stellar's management uses certain non-GAAP financial measures to evaluate its performance. 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 Cancelled

As a result of today's announcement that the Company has entered into a merger agreement with Prosperity Bancshares, Inc., the Company has cancelled the previously announced conference call regarding the Company's fourth quarter results, which was scheduled for Friday, January 30, 2026, at 8:00 a.m. Central Time (9:00 a.m. Eastern Time).

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 Houston, Dallas, Beaumont and surrounding communities in Texas.

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, 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 statements related to the expected timing, completion and benefits of the proposed transaction with Prosperity Bancshares, Inc., 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: 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; risks associated with uninsured deposits and responsive measures by federal or state governments or banking regulators; legislative changes, executive orders, regulatory actions and reforms of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Texas Department of Banking.

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 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.