Executive Summary

Q4 2024 delivered solid profitability with diluted EPS of $0.52; net interest margin improved to 4.25% (tax-equivalent) and 3.94% excluding purchase accounting accretion, supported by lower rates on interest-bearing liabilities and strong core funding .
Deposits rose $385.8M quarter-over-quarter to $9.13B while loans declined $111.3M; management flagged ~$300M of year-end deposit seasonality from government banking clients that will normalize in Q1 2025 .
Capital build remains a hallmark: Total risk-based capital ratio reached 16.06%, tangible book value per share increased to $19.10; the bank redeemed $40M of bank-level sub debt in December .
2025 setup: management targets positive operating leverage, mid-single-digit loan growth, and modestly higher noninterest expense (~$295M); quarterly dividend was increased to $0.14, reinforcing capital strength and shareholder returns .
Potential stock catalysts: rising core NIM, deposit mix improvement, capital deployment optionality (including M&A), and sustained credit normalization; note seasonality unwind of year-end deposits may temporarily dampen Q1 balance sheet optics .

What Went Well and What Went Wrong

What Went Well
- Net interest margin momentum: NIM (tax-equivalent) rose to 4.25% from 4.19% in Q3; adjusted NIM excluding PAA rose to 3.94% from 3.91%, driven by a 19 bp improvement in cost of interest-bearing liabilities and stronger securities yields .
- Core funding strength: noninterest-bearing deposits were 39% of the base at year-end, supporting margin resilience and strategic flexibility .
- Capital and TBV accretion: Total risk-based capital reached 16.06% and tangible book value per share increased to $19.10; management redeemed $40M of bank-level sub debt, further optimizing the stack .
What Went Wrong
- Noninterest income fell 20% QoQ on asset sale losses and lumpy SBIC timing; total noninterest income was $5.0M vs $6.3M in Q3 .
- Expenses ticked up: noninterest expense rose 1.3% QoQ to $72.0M due to higher professional fees and advertising; full-year expense landed above initial guidance .
- Asset quality mixed: provision swung to +$0.942M after a -$6.0M reversal in Q3; NPA ratio rose slightly to 0.36% (from 0.33%), though net charge-offs improved to 0.11% (annualized) from 0.21% .

Financial Results

Metric	Q4 2023	Q3 2024	Q4 2024
Net Interest Income ($MM)	$105.93	$101.51	$102.96
Noninterest Income ($MM)	$6.89	$6.30	$5.03
Diluted EPS ($)	$0.51	$0.63	$0.52
ROAA (%)	1.02%	1.27%	1.04%
ROATCE (%)	12.61%	13.63%	10.82%
NIM (Tax-Equivalent, %)	4.40%	4.19%	4.25%
NIM ex-PAA (%)	3.91%	3.91%	3.94%
Efficiency Ratio (%)	69.21%	66.18%	66.59%

Segment (Loan) Breakdown ($MM):

Segment	Q4 2023	Q3 2024	Q4 2024
Commercial & Industrial	$1,414.10	$1,350.75	$1,362.26
CRE (incl. Multifamily)	$4,071.81	$3,976.30	$3,868.22
CRE Construction & Land Dev.	$1,060.41	$890.32	$845.49
1–4 Family Residential	$1,047.17	$1,112.24	$1,115.48
Residential Construction	$267.36	$161.49	$157.98
Consumer & Other	$64.29	$60.03	$90.42
Total Loans HFI	$7,925.13	$7,551.12	$7,439.85

KPIs and Balance Sheet:

KPI	Q4 2023	Q3 2024	Q4 2024
Total Deposits ($MM)	$8,873.47	$8,742.60	$9,128.38
Total Assets ($MM)	$10,647.14	$10,629.78	$10,905.11
Cost of Deposits (%)	1.84%	2.15%	2.02%
Cost of Funds (%)	2.03%	2.24%	2.10%
NPA / Assets (%)	0.37%	0.33%	0.36%
NPL / Loans (%)	0.49%	0.43%	0.50%
ACL / Loans (%)	1.16%	1.12%	1.09%
Net Charge-Offs to Avg Loans (annualized, %)	0.13%	0.21%	0.11%
Total Risk-Based Capital (%)	14.02%	15.91%	16.06%
Tangible Book Value per Share ($)	$17.02	$19.28	$19.10

Estimates Comparison

Metric	Q4 2023	Q3 2024	Q4 2024	S&P Global Consensus (Q4 2024)
Diluted EPS ($)	$0.51	$0.63	$0.52	Unavailable (SPGI limit)
Net Interest Income ($MM)	$105.93	$101.51	$102.96	Unavailable (SPGI limit)

Note: S&P Global consensus estimates were unavailable at the time of retrieval due to provider rate limits. We attempted to fetch consensus EPS and revenue estimates via SPGI; requests failed (“Daily Request Limit Exceeded”). No estimate comparisons are provided [GetEstimates error logs].

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Noninterest Expense	FY 2025	n/a	~$295M target	Initiated (new)
Loan Growth	FY 2025	Mid-single-digit (Oct commentary)	Mid-single-digit reaffirmed	Maintained
Operating Leverage	FY 2025	n/a	Aim for positive operating leverage	Initiated (new)
Dividend per Share	Q1 2025	$0.13 (Q3 2024)	$0.14 declared (payable Mar 31, 2025)	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 2024, Q3 2024)	Current Period (Q4 2024)	Trend
Net Interest Margin trajectory	Q2: NIM 4.24%; ex-PAA 3.82% • Q3: NIM 4.19%; ex-PAA 3.91%	NIM 4.25%; ex-PAA 3.94%; expect incremental improvement in 2025	Improving
Core funding/NIB deposits	Q2: NIB 37.9% of deposits • Q3: NIB 37.8%	NIB ~39% at year-end; seasonal govt deposits to normalize	Strengthening mix; Q1 normalization
Capital actions	Q2/Q3: continued capital build • Q3: announced intent to redeem sub debt	Redeemed $40M bank sub debt; total RBC 16.06%	Accretive/optimizing
Loan growth outlook	Q2/Q3: portfolio repositioning; paydowns	Reaffirm mid-single-digit growth; Q4 originations highest in 6 quarters	Improving momentum
M&A optionality	Q3: optionality strengthened (TBV, capital)	M&A as speed lever; disciplined partner selection	Active, disciplined
Liquidity posture	Q2/Q3: ample liquidity coverage of uninsured deposits	High cash at year-end partly transitory; prefer 15–16% securities mix	Stable, calibrated
Credit normalization	Q2: NCO ~0.00% YTD; ACL/NPL >180% • Q3: NCO 0.21%; NPLs down	Provision +$0.942M; NCO 0.11%; NPA 0.36%	Normalizing off strong base

Management Commentary

CEO (Robert Franklin): “Our robust capital base and strong balance sheet, coupled with the vibrant markets we serve, paved the way for a promising future... For Stellar Bank, 2025 is the year of the customer... grow our existing relationships, and cultivate new ones” .
CFO (Paul Egge): “Net interest margin... 4.25%... excluding purchase accounting accretion... 3.94%... Key drivers... 19 basis point improvement in our cost of interest-bearing liabilities... strength in our noninterest-bearing deposit portfolio” .
CFO (Paul Egge): “We did not repurchase any shares... but redeemed the $40 million of bank-level sub debt in December... It is our goal to deliver positive operating leverage during the year” .
CEO (Robert Franklin) on M&A: “We can get there faster if we can do M&A, but we don't want to make a big mistake... We can get there on an organic basis, it's just going to be a bit slower” .

Q&A Highlights

Expenses: Q4 professional fees were timing-related to outsourced auditing engagements; full-year 2024 expenses finished above the initial guide .
Margin and rate stance: Management remains largely neutral on rate positioning and expects NIM resilience under multiple rate paths; favors an upward sloping curve .
Loan growth: Mid-single-digit growth in 2025 reaffirmed, with Q4 originations the highest in six quarters .
Deposits and liquidity: Year-end deposit boost is partly seasonal/transitory; high cash levels expected to normalize early Q1 .
Accretion outlook: Remaining loan discount ~$73.7M; accretion expected to diminish and flatten in 2025 .
Provision/credit normalization: Planning incorporates normalized mid-teens bps net charge-offs over time; credit remains strong .

Estimates Context

S&P Global IBES/Capital IQ consensus EPS and revenue estimates were unavailable due to provider rate limits at time of request; we attempted multiple retrievals and received “Daily Request Limit Exceeded” errors. As a result, we cannot present beat/miss versus Wall Street consensus for Q4 2024 or prior quarters [GetEstimates error logs].

Key Takeaways for Investors

Margin momentum with improving funding costs and stronger securities yields should support NIM in 2025; adjusted NIM rose to 3.94% in Q4 .
Deposit mix quality is a differentiator (NIB ~39% at year-end); expect Q1 normalization of ~$300M seasonal deposits, temporarily affecting balance sheet optics .
Capital strength and TBV accretion create optionality (redemption of $40M sub debt, high regulatory capital ratios); dividend increased to $0.14 per quarter .
Loan portfolio repositioning away from CRE continues; 2025 loan growth targeted mid-single-digit with Q4 originations the strongest in six quarters .
Operating leverage focus: management targets positive operating leverage in 2025 with noninterest expense around $295M and revenue growth to outpace costs .
Credit normalization from a strong base: modest provision in Q4, improved net charge-offs; watch NPA trend given slight uptick QoQ .
Note discrepancy: CFO referenced Q3 purchase accounting accretion of ~$5.8M, while the press release shows $6.8M; our analysis anchors to filed 8-K figures .

Additional Notes and Discrepancies

Q4 purchase accounting accretion was $7.6M per management and $7.6M per 8-K; Q3 accretion cited as $5.8M by CFO vs $6.8M in 8-K—use 8-K for consistency in reported financials .
Deposit increase QoQ (+$385.8M) includes government client seasonality; management expects normalization in Q1 2025 .

Appendix: Balance Sheet Movements (QoQ)

Assets: +$275.3M to $10.91B .
Loans: -$111.3M to $7.44B .
Deposits: +$385.8M to $9.13B; mix changes favor demand deposits, offset by declines in time/money-market .
Capital ratios: Total RBC 16.06%; CET1 14.19% .

Stellar Bancorp, Inc. (STEL)·Q4 2024 Earnings Summary