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What changed in Stellar Bancorp, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Stellar Bancorp, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+340 added−349 removedSource: 10-K (2025-03-03) vs 10-K (2024-02-29)

Top changes in Stellar Bancorp, Inc.'s 2024 10-K

340 paragraphs added · 349 removed · 267 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

118 edited+56 added−37 removed397 unchanged
Biggest changeRisks Related to the Regulation of the Company’s Industry • the Company operates in a highly regulated industry; • failure to comply with any supervisory actions; • new activities and expansion plans may require regulatory approval; • noncompliance and enforcement action under the BSA and other anti-money laundering statutes and regulations; • failure to comply with economic and trade sanctions or anti-corruption laws; • risks associated with failure to comply with numerous federal and state lending laws designed to protect consumers; • increases in FDIC deposit insurance premiums; • Federal Reserve may require the Company to commit capital resources to support the Bank; • the potential effects of the soundness, creditworthiness and liquidity of other financial institutions; • monetary policies and regulations of the Federal Reserve may adversely affect the Company's business; and • risks of loans to and deposits from related parties.
Biggest changeRisks Related to the Regulation of the Company’s Industry • the Company operates in a highly regulated industry; • failure to comply with any supervisory actions; • new activities and expansion plans may require regulatory approval; • noncompliance and enforcement action under the BSA and other anti-money laundering statutes and regulations; • failure to comply with economic and trade sanctions or anti-corruption laws; • risks associated with failure to comply with numerous federal and state lending laws designed to protect consumers; • increases in FDIC deposit insurance premiums; • Federal Reserve may require the Company to commit capital resources to support the Bank; • the potential effects of the soundness, creditworthiness and liquidity of other financial institutions; • monetary policies and regulations of the Federal Reserve may adversely affect the Company's business; and • risks of loans to and deposits from related parties. 16 Table of Contents Risks Related to the Company ’ s Common Stock • fluctuations in the market price of the Company’s common stock; • priority of the holders of the Company’s debt obligations over its common stock with respect to payment; • additional dilution of the percentage ownership of the Company’s shareholders from future sales and issuances of its capital stock or rights to purchase common stock; • potential future issuance of shares of preferred stock; • dependence upon the Bank for cash flow and restrictions on the Bank’s ability to make cash distributions; • anti-takeover effect of certain provisions of the Company’s corporate organizational documents and provisions of federal and state law; and • bylaws could limit a shareholder’s ability to obtain a favorable forum for disputes with the Company.
Under the Basel III Capital Rules, to be well capitalized, an insured depository institution is required to maintain a minimum common equity Tier 1 capital ratio of at least 6.5%, a tier 1 risk-based capital ratio of at least 8.0%, a total risk-based capital ratio of at least 10.0%, and a leverage capital ratio of at least 5.0%.
Under the Basel III Capital Rules, to be well capitalized, an insured depository institution is required to maintain a minimum common equity Tier 1 capital ratio of at least 6.5%, a tier 1 risk-based capital ratio of at least 8.0%, a total risk-based capital ratio of at least 10.0%, and a leverage ratio of at least 5.0%.
Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress.
The market price of the Company’s common stock could fluctuate substantially due to a variety of factors, many of which are beyond our control, including, but not limited to: • general economic conditions and overall market fluctuations; • actual or anticipated fluctuations in our quarterly or annual financial results; • operating and stock price performance of other companies that investors deem comparable to ours; • the perception that investment in Texas is unattractive or less attractive during periods of low or unstable oil prices; • publication of research reports about the Company, its competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of the Company’s financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; • other news, announcements or disclosures (whether by the Company or others) related to the Company, its competitors, its market or the financial services industry or the trading volume of the Company’s common stock; • c hanges in dividends and capital returns; • changes in governmental trade, monetary policies and fiscal policies, including the interest rate policies of the Federal Reserve; • changes in economic, competitive, regulatory conditions and technical factors , or other developments affecting participants in our industry, and publicity regarding our business or any of our significant customers or competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or the Company’s competitors; and • additional or anticipated sales of the Company’s common stock or other securities by the Company or existing shareholders.
The market price of the Company’s common stock could fluctuate substantially due to a variety of factors, many of which are beyond our control, including, but not limited to: • general economic conditions and overall market fluctuations; • actual or anticipated fluctuations in our quarterly or annual financial results; • operating and stock price performance of other companies that investors deem comparable to ours; • the perception that investment in Texas is unattractive or less attractive during periods of low or unstable oil prices; 33 Table of Contents • publication of research reports about the Company, its competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of the Company’s financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; • other news, announcements or disclosures (whether by the Company or others) related to the Company, its competitors, its market or the financial services industry or the trading volume of the Company’s common stock; • c hanges in dividends and capital returns; • changes in governmental trade, monetary policies and fiscal policies, including the interest rate policies of the Federal Reserve; • changes in economic, competitive, regulatory conditions and technical factors , or other developments affecting participants in our industry, and publicity regarding our business or any of our significant customers or competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or the Company’s competitors; and • additional or anticipated sales of the Company’s common stock or other securities by the Company or existing shareholders.
Customers can conveniently access their accounts by phone, through a mobile application for smartphones and tablets, as well as through Internet banking that allows customers to obtain account balances, make deposits, transfer funds, pay bills online and receive electronic delivery of statements.
Customers can conveniently access their accounts by phone, through a mobile application for smartphones and tablets, as well as through online banking that allows customers to obtain account balances, make deposits, transfer funds, pay bills online and receive electronic delivery of statements.
The Company’s bylaws provide that unless the Company consents in writing to the selection of an alternative forum for the following purposes, any state or federal court located in Harris County in the State of Texas (the county in which Houston, Texas is located) shall be the sole and exclusive forum for (1) any actual or purported derivative action or proceeding brought on behalf of the Company, (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee or agent of the Company to the Company or the Company’s shareholders or creditors, including a claim alleging the aiding 35 Table of Contents and abetting of such a breach of fiduciary duty, (3) any action asserting a claim against the Company or any current or former director, officer, or other employee or agent of the Company arising pursuant to any provision of the Texas Business Organization Code (“TBOC”), the certificate of formation, or the bylaws of the Company (as any of the foregoing may be amended from time to time), or (4) any action asserting a claim against the Company or any current or former director, officer, or other employee or agent of the Company as governed by the internal affairs doctrine, including any action to interpret, apply, enforce or determine the validity of any provision of the TBOC, the certificate of formation, or the bylaws of the Company (as any of the foregoing may be amended from time to time).
The Company’s bylaws provide that unless the Company consents in writing to the selection of an alternative forum for the following purposes, any state or federal court located in Harris County in the State of Texas (the county in which Houston, Texas is located) shall be the sole and exclusive forum for (1) any actual or purported derivative action or proceeding brought on behalf of the Company, (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee or agent of the Company to the Company or the Company’s shareholders or creditors, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (3) any action asserting a claim against the Company or any current or former director, officer, or other employee or agent of the Company arising pursuant to any provision of the Texas Business Organization Code (“TBOC”), the certificate of formation, or the bylaws of the Company (as any of the foregoing may be amended from time to time), or (4) any action asserting a claim against the Company or any current or former director, officer, or other employee or agent of the Company as governed by the internal affairs doctrine, including any action to interpret, apply, enforce or determine the validity of any provision of the TBOC, the certificate of formation, or the bylaws of the Company (as any of the foregoing may be amended from time to time).
In instances in which a company owns at least 5 percent but less than 25 percent, the Federal Reserve considers the full fact and circumstances of the relationship between the company and the bank holding company to determine whether the company controls the bank holding company.
In instances in which a company owns at least 5% but less than 25%, the Federal Reserve considers the full fact and circumstances of the relationship between the company and the bank holding company to determine whether the company controls the bank holding company.
The Dodd-Frank Act The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) mandates certain requirements on the financial services industry, including, among many other things: (1) enhanced resolution authority with respect to troubled or failing banks and their holding companies, (2) increased regulatory examination fees, (3) the creation of the Consumer Financial Protection Board (the “CFPB”), and (4) numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector.
The Dodd-Frank Act The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) mandates certain requirements on the financial services industry, including, among many other things: (1) enhanced resolution authority with respect to troubled or failing banks and their holding companies, (2) increased regulatory examination fees, (3) the creation of the Consumer Financial Protection Bureau (the “CFPB”), and (4) numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector.
Under the BHC Act, a company controls a bank holding company if it controls 25 percent or more of any class of voting securities of the bank holding company. A company that controls less than 5 percent of any class of voting securities of a bank holding company is presumed not to control the bank holding company.
Under the BHC Act, a company controls a bank holding company if it controls 25% or more of any class of voting securities of the bank holding company. A company that controls less than 5% of any class of voting securities of a bank holding company is presumed not to control the bank holding company.
Another national economic recession or continued deterioration of conditions in our market could drive losses beyond that which is provided for in our allowance for credit losses and result in the following consequences, any of which could have a material adverse effect on our business: (1) loan delinquencies may rise, (2) nonperforming assets and foreclosures 18 Table of Contents may increase, (3) demand for our products and services may decline and (4) collateral securing our loans, especially real estate, may decline in value, which could reduce customers’ borrowing power and repayment ability.
Another national economic recession or continued deterioration of conditions in our market could drive losses beyond that which is provided for in our allowance for credit losses and result in the following consequences, any of which could have a material adverse effect on our business: (1) loan delinquencies may rise, (2) nonperforming assets and foreclosures may increase, (3) demand for our products and services may decline and (4) collateral securing our loans, especially real estate, may decline in value, which could reduce customers’ borrowing power and repayment ability.
In addition, as a general matter, we must receive prior regulatory approval before establishing or acquiring a depository institution or, in certain cases, a non-bank entity. The Texas Constitution, as amended in 1986, provides that a Texas-chartered bank has the same rights and privileges that are or may be granted to national banks domiciled in Texas.
In addition, as a general matter, we must receive prior regulatory approval before establishing or acquiring a depository institution or, in certain cases, a nonbank entity. The Texas Constitution, as amended in 1986, provides that a Texas-chartered bank has the same rights and privileges that are or may be granted to national banks domiciled in Texas.
We actively solicit the deposit business of our consumer and commercial loan customers and seek to deepen these relationships with additional products and services. 2 Table of Contents • Local decision making authority —Acquisitions of many local financial institutions in our markets by larger, more regionally focused competitors have led to a reduced number of locally-based competitors, and we believe this has created an underserved base of small- to medium-sized businesses, professionals and individuals that are interested in banking with a company headquartered in, and with decision-making authority based in our markets.
We actively solicit the deposit business of our consumer and commercial loan customers and seek to deepen these relationships with additional products and services. • Local decision making authority —Acquisitions of many local financial institutions in our markets by larger, more regionally focused competitors have led to a reduced number of locally-based competitors, and we believe this has created an underserved base of small- to medium-sized businesses, professionals and individuals that are interested in banking with a company headquartered in, and with decision-making authority based in our markets.
The Company also faces competition from many other types of financial institutions, including savings banks, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders, financial technology ( “ fintech”) competitors and certain other non-financial entities, such as retail stores that 19 Table of Contents may maintain their own credit programs and certain governmental organizations that may offer more favorable financing or deposit terms than the Company can.
The Company also faces competition from many other types of financial institutions, including savings banks, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders, financial technology ( “ fintech”) competitors and certain other non-financial entities, such as retail stores that may maintain their own credit programs and certain governmental organizations that may offer more favorable financing or deposit terms than the Company can.
A successful penetration or circumvention of system security could cause negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third-parties’ computers or systems, and could expose us to additional regulatory scrutiny and result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs.
A successful penetration or circumvention of system security could cause negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third-parties’ computers or systems, and could expose us to additional regulatory scrutiny and result in a violation of applicable privacy laws and other laws, 27 Table of Contents litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs.
These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which the Company can engage, limit the dividend or distributions that the Bank can pay to the Company, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements on the Company that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than 30 Table of Contents GAAP would require.
These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which the Company can engage, limit the dividend or distributions that the Bank can pay to the Company, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements on the Company that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP would require.
Other Banking Services We offer basic banking products and services, which we believe are attractively priced, easily understood, convenient and readily accessible to our customers. In addition to banking during normal business hours, we offer extended drive-through hours, ATMs, mobile banking and banking by telephone, mail and Internet.
Other Banking Services We offer basic banking products and services, which we believe are attractively priced, easily understood, convenient and readily accessible to our customers. In addition to banking during normal business hours, we offer extended drive-through hours, ATMs, mobile banking and banking by telephone, mail and online.
Under the FDIA, an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized.” The FDIC may further restrict the payment of dividends by requiring the Bank to maintain a higher level of capital than would otherwise be required in order to be adequately capitalized for regulatory purposes.
Under the FDIA, an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, 9 Table of Contents after making such distribution, the institution would become “undercapitalized.” The FDIC may further restrict the payment of dividends by requiring the Bank to maintain a higher level of capital than would otherwise be required in order to be adequately capitalized for regulatory purposes.
The guidance provides that a bank has a concentration in commercial real estate lending if (1) total reported loans for construction, land development, and other land represent 100% or more of total capital or (2) total reported loans secured by multifamily and non-farm non-residential properties and loans for construction, land development and other land represent 300% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
The guidance provides that a bank has a concentration in commercial real estate lending if (1) total reported loans for construction, land development, and other land represent 100% or more of total capital or (2) total reported loans secured by multifamily and non-farm non-residential properties and loans for construction, land development and 10 Table of Contents other land represent 300% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
Our unrealized losses for our securities portfolio may increase in future periods and we may recognize losses within our securities portfolio. Risks Related to Cybersecurity, Third-Parties and Technology The Company depends on information technology and telecommunications including third-party service providers.
Our unrealized losses for our securities portfolio may increase in future periods and we may recognize losses within our securities portfolio. Risks Related to Cybersecurity, Artificial Intelligence, Third-Parties and Technology The Company depends on information technology and telecommunications including third-party service providers.
We believe that our scalable operating platform will effectively support growth, resulting in greater efficiency and enhanced profitability. • Community-focused, full service customer relationships —We believe that our community banking strategy facilitates strong relationships with our customers.
We believe that our scalable operating platform will effectively support growth, resulting in greater efficiency and enhanced profitability as we grow. • Community-focused, full service customer relationships —We believe that our community banking strategy facilitates strong relationships with our customers.
We intend to continue to emphasize and adhere to these p rocedures and controls, which we believe have helped to minimize our level of loan charge-offs. • Quality loan portfolio — The Company’s focus on loans to small- to medium-sized businesses results in a more diffused portfolio of relatively smaller loan relationships, which we believe reduces the risk relative to a dependence on significantly larger lending relationships.
We intend to continue to emphasize and adhere to these p rocedures and controls, which we believe have helped to minimize our level of loan charge-offs. • Quality loan portfolio —Our focus on loans to small- to medium-sized businesses results in a more diffused portfolio of loan relationships, which we believe reduces the risk relative to a dependence on significantly larger lending relationships.
If general economic conditions negatively impact our market and small- to medium-sized businesses are adversely affected, or our borrowers are otherwise affected by adverse business developments, our business, financial condition and results of operations may be negatively affected. 24 Table of Contents If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings may be affected.
If general economic conditions negatively impact our market and small- to medium-sized businesses are adversely affected, or our borrowers are otherwise affected by adverse business developments, our business, financial condition and results of operations may be negatively affected. If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings may be affected.
In general, statutory restrictions on the activities of banks are aimed at protecting the safety and soundness of depository institutions. 7 Table of Contents Branching Texas law provides that a Texas-chartered bank can establish a branch anywhere in Texas provided that the branch is approved in advance by the TDB. The branch must also be approved by the FDIC.
In general, statutory restrictions on the activities of banks are aimed at protecting the safety and soundness of depository institutions. Branching Texas law provides that a Texas-chartered bank can establish a branch anywhere in Texas provided that the branch is approved in advance by the TDB. The branch must also be approved by the FDIC.
Inflation rose in 2023 and 2022 at levels not seen for over 40 years, and inflationary pressures are currently expected to continue in 2024. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
Inflation rose in 2023 and 2022 at levels not seen for over 40 years and inflationary pressures are expected to continue in 2025. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
Federal Reserve guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. 8 Table of Contents Prompt Corrective Action Under the Federal Deposit Insurance Act (the “FDIA”), the federal bank regulatory agencies must take prompt corrective action against undercapitalized U.S. depository institutions.
Federal Reserve guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Prompt Corrective Action Under the Federal Deposit Insurance Act (the “FDIA”), the federal bank regulatory agencies must take prompt corrective action against undercapitalized U.S. depository institutions.
Examination and Examination Fees The FDIC periodically examines and evaluates state non-member banks. Based on such an evaluation, the Bank, among other things, may be required to revalue its assets and establish specific reserves to compensate for the difference between the Bank’s 10 Table of Contents assessment and that of the FDIC.
Examination and Examination Fees The FDIC periodically examines and evaluates state non-member banks. Based on such an evaluation, the Bank, among other things, may be required to revalue its assets and establish specific reserves to compensate for the difference between the Bank’s assessment and that of the FDIC.
If the Company fails to implement one or more aspects of its growth strategy, the Company may be unable to maintain its historical earnings trends, which could adversely affect its business, financial condition and results of operations. The Company intends to continue to pursue a strategy that includes future acquisitions.
If the Company fails to implement one or more aspects of its growth strategy, the Company may be unable to maintain its historical earnings trends, which could adversely affect its business, financial condition and results of operations. 21 Table of Contents The Company intends to continue to pursue a strategy that includes future acquisitions.
In addition, recently proposed changes to the FHLB system could adversely impact the Company’s access to FHLB borrowings or increase the cost of such borrowings. If our deposits from governments and municipalities were to significantly decline within a short period of time, this could negatively impact our liquidity and earnings.
In addition, recently proposed changes to the FHLB system could adversely impact the Company’s access to FHLB borrowings or increase the cost of such borrowings. 25 Table of Contents If our deposits from governments and municipalities were to significantly decline within a short period of time, this could negatively impact our liquidity and earnings.
As of December 31, 2023, we operated 54 full-service banking centers, wi th 37 banking centers in the Houston MSA, 16 banking centers in the Beaumont MSA and one banking center in Dallas, Texas.
As of December 31, 2024, we operated 54 full-service banking centers, wi th 37 banking centers in the Houston MSA, 16 banking centers in the Beaumont MSA and one banking center in Dallas, Texas.
As a bank holding company of a Texas state chartered bank, the Company is also subject to supervision, regulation, examination and enforcement by the Texas Department of Banking (“TDB”) and the FDIC. 5 Table of Contents The Bank is a Texas-chartered banking association, the deposits of which are insured by the FDIC’s Deposit Insurance Fund, up to applicable legal limits.
As a bank holding company of a Texas state chartered bank, the Company is also subject to supervision, regulation, examination and enforcement by the Texas Department of Banking (“TDB”) and the FDIC. The Bank is a Texas-chartered banking association, the deposits of which are insured by the FDIC’s Deposit Insurance Fund, up to applicable legal limits.
Financial institutions continue to be affected by volatility in the real estate market in some parts of the country and uncertain regulatory and interest rate conditions. Uncertain market and economic conditions can make our ability to assess the creditworthiness of customers and estimate the losses in our loan portfolio more complex.
Financial 17 Table of Contents institutions continue to be affected by volatility in the real estate market in some parts of the country and uncertain regulatory and interest rate conditions. Uncertain market and economic conditions can make our ability to assess the creditworthiness of customers and estimate the losses in our loan portfolio more complex.
The Basel III Capital Rules also provide additional constraints on the inclusion of minority interests, mortgage servicing assets, deferred tax assets and certain investments in the capital of unconsolidated financial institutions in Tier 1 capital, as well as providing stricter risk weighting rules to these assets.
The Basel III Capital Rules also provide additional constraints on the inclusion of minority interests, mortgage servicing 8 Table of Contents assets, deferred tax assets and certain investments in the capital of unconsolidated financial institutions in Tier 1 capital, as well as providing stricter risk weighting rules to these assets.
These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability 12 Table of Contents Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.
These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.
The final rule's effective date is April 1, 2024; however, most of the rule's new requirements will be applicable beginning January 1, 2026. The new data reporting requirements will be applicable on January 1, 2027.
The final rule's effective date was April 1, 2024; however, most of the rule's new requirements will be applicable beginning January 1, 2026. The new data reporting requirements will be applicable on January 1, 2027.
As of December 31, 2023, the Bank met the requirements to be “well capitalized” under the prompt corrective action regulations. The prompt corrective action regulations do not apply to bank holding companies.
As of December 31, 2024, the Bank met the requirements to be “well capitalized” under the prompt corrective action regulations. The prompt corrective action regulations do not apply to bank holding companies.
These risks are discussed more fully in the section following this summary and include, but are not limited to, the following: Risks Related to Business and Operations External and Market Related Risks • adverse developments affecting the financial services industry; • challenging market conditions and economic trends; • inflationary pressures and rising prices; • concentration of our business in our market and largely dependent upon the growth and welfare of our market; • impact of sustained volatility in oil prices and instability in the energy industry; • strong competition to attract and retain customers; • adverse impact of geopolitical events, wars, natural disasters, pandemics and other catastrophes; • climate change and related legislative and regulatory initiatives; • ability to retain bankers and recruit additional successful bankers; • operations may be adversely affected by labor shortages, turnover and labor cost increases; and • the ability of our executive officers and other key individuals to continue the implementation of our long-term business strategy.
These risks are discussed more fully in the section following this summary and include, but are not limited to, the following: Risks Related to Business and Operations External and Market Related Risks • adverse developments affecting the financial services industry; • challenging market conditions and economic trends; • inflationary pressures and rising prices; • concentration of our business in our market and largely dependent upon the growth and welfare of our market; • strong competition to attract and retain customers; 15 Table of Contents • adverse impact of geopolitical events, wars, natural disasters, pandemics and other catastrophes; • climate change and related legislative and regulatory initiatives; • ability to retain bankers and recruit additional successful bankers; • operations may be adversely affected by labor shortages, turnover and labor cost increases; and • the ability of our executive officers and other key individuals to continue the implementation of our long-term business strategy.
As of December 31, 2023, we held $1.17 billion of deposits from municipalities throughout Texas. These deposits may be more volatile than other deposits. If a significant amount of these deposits were withdrawn within a short period of time, it could have a negative impact on our short-term liquidity and have an adverse impact on our earnings.
As of December 31, 2024, we held $1.44 billion of deposits from municipalities throughout Texas. These deposits may be more volatile than other deposits. If a significant amount of these deposits were withdrawn within a short period of time, it could have a negative impact on our short-term liquidity and have an adverse impact on our earnings.
A weakening of the real estate market in our primary market area could have an adverse 23 Table of Contents effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing the loans and the value of our business.
A weakening of the real estate market in our primary market area could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing the loans and the value of our business.
Cybersecurity” for a discussion of the Company’s cybersecurity risk management, strategy and governance. 14 Table of Contents The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions.
Cybersecurity” for a discussion of the Company’s cybersecurity risk management, strategy and governance. The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions.
Any person or entity purchasing or otherwise acquiring any interest in any security of the Company shall be deemed to have notice of and consented to the exclusive forum provision of the Company’s bylaws, as amended pursuant to the merger agreement.
Any person or entity purchasing or otherwise 35 Table of Contents acquiring any interest in any security of the Company shall be deemed to have notice of and consented to the exclusive forum provision of the Company’s bylaws, as amended pursuant to the merger agreement.
The Federal Reserve is required to consider the CRA records of a bank holding company’s controlled banks when considering an application by the bank holding company to acquire a banking organization or to merge with another bank holding company.
The Federal Reserve is required to consider the CRA records of a bank holding company’s controlled banks when considering an application by the bank holding company to acquire a banking organization or to merge with 13 Table of Contents another bank holding company.
Acquisitions of financial institutions are also subject to regulatory approvals that can result in delays, which in some cases could be for a lengthy period of time or may not be 22 Table of Contents received.
Acquisitions of financial institutions are also subject to regulatory approvals that can result in delays, which in some cases could be for a lengthy period of time or may not be received.
We support banking center operations with a centralized credit approval process for larger credit relationships, loan operations, information technology, core data processing, accounting, finance, treasury and treasury management support, deposit operations and executive and board oversight.
We support banking center operations with a centralized credit approval process, loan operations, information technology, core data processing, accounting, finance, treasury and treasury management support, deposit operations and executive and board oversight.
Risks Related to Cybersecurity, Third-Parties and Technology • we are dependent on information technology and telecommunications provided by third-parties; 16 Table of Contents • fraudulent activity, breaches of information security and cybersecurity attacks could have an adverse effect on our business; and • continuing need for technological change, challenges resources to effectively implement new technology or operational challenges when implementing new technology.
Risks Related to Cybersecurity, Artificial Intelligence, Third-Parties and Technology • we are dependent on information technology and telecommunications provided by third-parties; • fraudulent activity, breaches of information security and cybersecurity attacks could have an adverse effect on our business; and • continuing need for technological change, challenges resources to effectively implement new technology or operational challenges when implementing new technology.
Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s compliance with such obligations in connection with the regulatory review of applications, including applications for mergers and acquisitions. The regulatory authorities have imposed cease and desist orders and civil money penalty sanctions against institutions found to be violating these obligations. The U.S.
Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s compliance with such obligations in 11 Table of Contents connection with the regulatory review of applications, including applications for mergers and acquisitions. The regulatory authorities have imposed cease and desist orders and civil money penalty sanctions against institutions found to be violating these obligations.
Increased competition from fintech companies and the growth of digital banking may also lead to pricing pressures as competitors offer more low-fee and no-fee products.
Increased competition from fintech companies and the growth of 18 Table of Contents digital banking may also lead to pricing pressures as competitors offer more low-fee and no-fee products.
In order to satisfy liquidity needs, we may be forced to sell securities which would then require us to realize losses. For example, fixed-rate securities are generally subject to decreases in market value when interest rates rise.
In order to satisfy liquidity needs, we may be 26 Table of Contents forced to sell securities which would then require us to realize losses. For example, fixed-rate securities are generally subject to decreases in market value when interest rates rise.
Our business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems 27 Table of Contents and networks and in the computer and data management systems and networks of third-parties.
Our business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks and in the computer and data management systems and networks of third-parties.
If the Company or the Bank finds a name on any transaction, account 11 Table of Contents or wire transfer that is on an OFAC list, the Company or the Bank must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.
If the Company or the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, the Company or the Bank must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.
We seek to develop comprehensive, long-term banking relationships with customers and offer an array of products and services to support our loan and deposit activities.
We seek to develop comprehensive, 2 Table of Contents long-term banking relationships with customers and offer an array of products and services to support our loan and deposit activities.
The Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank.
The Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure 32 Table of Contents to commit resources to such a subsidiary bank.
The 34 Table of Contents Company may grant registration rights covering shares of its common stock or other securities in connection with acquisitions and investments.
The Company may grant registration rights covering shares of its common stock or other securities in connection with acquisitions and investments.
Those activities include, among other activities, certain insurance and securities activities. Qualifications for becoming a financial holding company include, among other things, meeting certain specified capital standards and achieving certain management ratings in examinations.
Those activities include, among other activities, certain insurance and securities activities. Qualifications for becoming a financial holding company include, among other things, meeting certain specified capital standards and achieving certain management ratings in 7 Table of Contents examinations.
In addition, reserves must be maintained on certain non-personal time deposits. These reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank. Limits on Transactions with Affiliates and Insiders Insured depository institutions are subject to restrictions on their ability to conduct transactions with affiliates and other related parties.
These reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank. Limits on Transactions with Affiliates and Insiders Insured depository institutions are subject to restrictions on their ability to conduct transactions with affiliates and other related parties.
The Company cannot predict the nature of future monetary policies and the effect of such policies on its business and earnings. 15 Table of Contents ITEM 1A.
The Company cannot predict the nature of future monetary policies and the effect of such policies on its business and earnings. ITEM 1A.
In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the Deposit Insurance Fund incurred as a result of recent bank failures and the FDIC’s use of the systemic risk exception to cover certain deposits that were otherwise uninsured. Stellar was required to pay a special assessment of $2.4 million.
In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the Deposit Insurance Fund incurred as a result of recent bank failures and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured.
Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
Interchange fees, or 6 Table of Contents “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
As of December 31, 2023, the fair value of our securities portfolio was $1.40 billion, which represented 13.1% of total assets. Factors beyond our control, including interest rate increases, can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
As of December 31, 2024, the fair value of our securities portfolio was $1.67 billion, which represented 15.3% of total assets. Factors beyond our control, including interest rate increases, can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
These laws and regulations affect the operations and performance of the Company and its subsidiaries. Statutes, regulations and policies limit the activities in which we may engage and how we conduct certain permitted activities. Further, the bank regulatory system imposes reporting and information collection obligations. We incur significant costs related to compliance with these laws and regulations.
These laws and regulations affect the operations and performance of the Company and its subsidiaries. Statutes, regulations and policies limit the activities in which we may engage and how we conduct certain permitted activities. Further, the bank regulatory system imposes reporting and information collection obligations.
Our investment in the growth and development of our employees serves as part of our short and long-term succession strategy to ensure we are developing the appropriate leadership and management pipelines for continuity purposes. Our strategy also includes developing individuals for key and critical roles to ensure the Bank is prepared to meet its growth goals.
We continue to invest in the growth and development of our employees as part of our short and long-term succession strategy to ensure we are sustaining the appropriate leadership and management pipelines for continuity purposes. Our strategy also includes developing individuals for key and critical roles to ensure we are prepared to meet our growth goals.
Our total assets were $10.65 billion as of December 31, 2023. The Dodd-Frank Act and its implementing regulations impose various additional requirements on banks and bank holding companies with $10 billion or more in total assets, including a more frequent and enhanced regulatory examination regime.
The Dodd-Frank Act and its implementing regulations impose various additional requirements on banks and bank holding companies with $10 billion or more in total assets, including a more frequent and enhanced regulatory examination regime.
As of December 31, 2023, $1.41 billion, or 17.8%, of our total loans were comprised of commercial and industrial loans that are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses.
As of December 31, 2024, $1.36 billion, or 18.3%, of our total loans were comprised of commercial and industrial loans that are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses.
Compliance with these laws and regulations is difficult and costly, and changes to these laws and regulations often impose additional compliance costs.
Compliance with these laws and regulations is difficult and costly, and changes to these laws and regulations 30 Table of Contents often impose additional compliance costs.
We may incur compliance, operating, maintenance and remediation costs. Our ability to retain bankers and recruit additional successful bankers is critical to the success of our business strategy and any failure to do so could impair our customer relationships and adversely affect our business and results of operations.
Our ability to retain bankers and recruit additional successful bankers is critical to the success of our business strategy and any failure to do so could impair our customer relationships and adversely affect our business and results of operations.
As of December 31, 2023, our allowance for credit losses on loans was $91.7 million, which represented 1.16% of our total loans and 233.94% of our total nonperforming loans as of the same date. Additional loan losses may occur in the future and may occur at a rate greater than the Company has previously experienced.
As of December 31, 2024, our allowance for credit losses on loans was $81.1 million, which represented 1.09% of our total loans and 217.83% of our total nonperforming loans as of the same date. Additional loan losses may occur in the future and may occur at a rate greater than the Company has previously experienced.
As of December 31, 2023, our average funded loan size was approximately $467 thousand.
As of December 31, 2024, our average funded loan size was approximately $510 thousand.
As a result, the trading price of the Company’s common stock could decline, and shareholders could lose all or part of their investment. Some statements in this Annual Report on Form 10-K, including statements in the following risk factors section, constitute forward‑looking statements.
As a result, the trading price of the Company’s common stock could decline, and shareholders could lose all or part of their investment. Some statements in this Annual Report on Form 10-K, including statements in the following risk factors section, constitute forward‑looking statements. Please refer to “Cautionary Note Regarding Forward‑Looking Statements” an d “Part II.—Item 7.
ITEM 1. BUSINESS The disclosures set forth in this item are qualified by “Item 1A. Risk Factors,” and; the section captioned “Cautionary Notice Regarding Forward-Looking Statements” in the forepart of this report, Item 7. “Cautionary Notice Regarding Forward-Looking Statements” and other cautionary statements set forth elsewhere in this Annual Report on Form 10-K.
ITEM 1. BUSINESS The disclosures set forth in this item are qualified by “Item 1A. Risk Factors,” the section captioned “Cautionary Notice Regarding Forward-Looking Statements” in the forepart of this report, “Item 7.
These laws include, among others: • Truth in Lending Act; • Truth in Savings Act; • Electronic Funds Transfer Act; • Expedited Funds Availability Act; • Equal Credit Opportunity Act; • Fair and Accurate Credit Transactions Act; • Fair Housing Act; • Fair Credit Reporting Act; • Fair Debt Collection Act; • Gramm-Leach-Bliley Act; • Home Mortgage Disclosure Act; • Right to Financial Privacy Act; • Real Estate Settlement Procedures Act; • laws regarding unfair and deceptive acts and practices; and • usury laws.
These laws include, among others: • Truth in Lending Act; • Truth in Savings Act; • Electronic Funds Transfer Act; • Expedited Funds Availability Act; • Equal Credit Opportunity Act; • Fair and Accurate Credit Transactions Act; • Fair Housing Act; • Fair Credit Reporting Act; • Fair Debt Collection Act; • Gramm-Leach-Bliley Act; • Home Mortgage Disclosure Act; • Right to Financial Privacy Act; • Real Estate Settlement Procedures Act; • laws regarding unfair and deceptive acts and practices; and • usury laws. 12 Table of Contents Many states and local jurisdictions have consumer protection laws analogous to, and in addition to, those listed above.
As of December 31, 2023, we had total assets of $10.65 billion, total loans of $7.93 billion, total deposits of $8.87 billion and total shareholders’ equity of $1.52 billion. Business Strategy The Company’s objective is to grow and strengthen its banking franchise through its community banking strategy and strategic acquisitions.
As of December 31, 2024, we had total assets of $10.91 billion, total loans of $7.44 billion, total deposits of $9.13 billion and total shareholders’ equity of $1.61 billion. Business Strategy The Company’s objective is to grow and strengthen its banking franchise through its community banking strategy and strategic acquisitions.
The Bank received an overall CRA rating of “satisfactory” on its most recent CRA examination. 13 Table of Contents In October 2023, the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) jointly adopted a final rule that amends their regulations implementing the CRA.
The regulatory agency’s assessment of the institution’s record is made available to the public. The Bank received an overall CRA rating of “satisfactory” on its most recent CRA examination. In October 2023, the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) jointly adopted a final rule that amends their regulations implementing the CRA.
We also offer factoring services through American Prudential Capital, Inc., a wholly-owned subsidiary of the Bank. See “Item 7. — Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loan Portfolio” for a more detailed discussion of the Company’s lending activities.
We also offer factoring services through American Prudential Capital, Inc., a wholly-owned subsidiary of the Bank. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loan Portfolio” for a more detailed discussion of the Company’s lending activities. Deposit Products Deposits are our principal source of funds for use in lending and other general banking purposes.
Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve. 9 Table of Contents Reserve Requirements Pursuant to regulations of the Federal Reserve, all banking organizations are required to maintain average daily reserves at mandated ratios against their transaction accounts.
Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve. Reserve Requirements Pursuant to regulations of the Federal Reserve, all banking organizations are required to maintain average daily reserves at mandated ratios against their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits.
Risks Related to Business and Operations External and Market Related Risks Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, and the soundness of other financial institutions may have a material effect on the Company’s operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. Risks Related to Business and Operations External and Market Related Risks Adverse developments affecting the financial services industry, such as bank failures or concerns involving liquidity, and the soundness of other financial institutions may have a material effect on the Company’s operations.
As of December 31, 2023, the Company’s ratio of CET1 to risk-weighted assets was 11.77%, Tier 1 capital to risk-weighted assets was 11.89%, total capital to risk-weighted assets was 14.02% and Tier 1 capital to average tangible quarterly assets was 10.18%.
As of December 31, 2024, the Company’s ratio of CET1 to risk-weighted assets was 14.16%, Tier 1 capital to risk-weighted assets was 14.28%, Total capital to risk-weighted assets was 16.03% and Tier 1 capital to average tangible quarterly assets was 11.31%.
Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. Management will continue evaluating the economic conditions at future reporting periods for triggering events.
Future events could cause the Company to conclude that the Company’s goodwill has become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. Management will continue evaluating the economic conditions at future reporting periods for triggering events.
As of December 31, 2023, $6.45 billion, or 81.3%, of our total loans was comprised of loans with real estate as a primary or secondary component of collateral.
As of December 31, 2024, $5.99 billion, or 80.5%, of our total loans was comprised of loans with real estate as a primary or secondary component of collateral.
Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage that may expose the Company to credit losses.
Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage that may expose the Company to credit losses. 23 Table of Contents The small- to medium-sized businesses that the Company lends to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan.
The availability of such income for repayment may be adversely affected by changes in the economy or local market conditions. These loans expose a lender to greater credit risk than loans secured by other types of collateral because the collateral securing these loans is typically more difficult to liquidate due to the fluctuation of real estate values.
These loans expose a lender to greater credit risk than loans secured by other types of collateral because the collateral securing these loans is typically more difficult to liquidate due to the fluctuation of real estate values.
The Company’s results of operations for the year ended December 31, 2022 reflect Allegiance’s results for the first nine months of 2022, while the results for the fourth quarter of 2022, after the Merger on October 1, 2022, set forth the results of operations for Stellar.
After the Merger, Stellar Bank became one of the largest banks based in Houston, Texas. The Company’s results of operations for the year ended December 31, 2022 reflect Allegiance’s results for the first nine months of 2022 and the Company' for the fourth quarter of 2022, after the Merger on October 1, 2022.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

124 edited+14 added−38 removed93 unchanged
Biggest changeOur consumer and other loan portfolio increased $16.8 million, or 35.4%, to $64.3 million as of December 31, 2023 from $47.5 million as of December 31, 2022. 53 Table of Contents The contractual maturity ranges of total loans in our loan portfolio and the amount of such loans with predetermined interest rates in each maturity range and the amount of loans with predetermined (fixed) interest rates and floating interest rates in each maturity range, in each case as of the date indicated, are summarized in the following tables: December 31, 2023 Due in One Year or Less Due After One Year Through Five Years Due After Five Years Through Fifteen Years Due After Fifteen Years Total (In thousands) Commercial and industrial $ 604,930 $ 608,362 $ 195,374 $ 336 $ 1,409,002 Paycheck Protection Program (PPP) 35 5,065 — — 5,100 Real estate: Commercial real estate (including multi-family residential) 557,948 2,025,104 941,105 547,650 4,071,807 Commercial real estate construction and land development 301,644 583,097 64,146 111,519 1,060,406 1-4 family residential (including home equity) 82,755 391,513 148,491 424,415 1,047,174 Residential construction 149,861 46,811 29,148 41,537 267,357 Consumer and other 38,167 22,187 3,933 — 64,287 Total loans $ 1,735,340 $ 3,682,139 $ 1,382,197 $ 1,125,457 $ 7,925,133 Loans with predetermined (fixed) interest rates $ 870,805 $ 2,771,179 $ 576,799 $ 273,417 $ 4,492,200 Loans with floating interest rates 864,535 910,960 805,398 852,040 3,432,933 Total loans $ 1,735,340 $ 3,682,139 $ 1,382,197 $ 1,125,457 $ 7,925,133 December 31, 2022 Due in One Year or Less Due After One Year Through Five Years Due After Five Years Through Fifteen Years Due After Fifteen Years Total (In thousands) Commercial and industrial $ 601,103 $ 669,907 $ 183,693 $ 1,092 $ 1,455,795 Paycheck Protection Program (PPP) 46 13,180 — — 13,226 Real estate: Commercial real estate (including multi-family residential) 408,588 2,148,447 949,717 424,728 3,931,480 Commercial real estate construction and land development 222,515 680,618 59,509 75,036 1,037,678 1-4 family residential (including home equity) 104,814 380,332 165,009 350,801 1,000,956 Residential construction 146,429 62,386 40,792 18,543 268,150 Consumer and other 20,462 23,657 3,347 — 47,466 Total loans $ 1,503,957 $ 3,978,527 $ 1,402,067 $ 870,200 $ 7,754,751 Loans with predetermined (fixed) interest rates $ 771,011 $ 2,883,016 $ 586,171 $ 232,312 $ 4,472,510 Loans with floating interest rates 732,946 1,095,511 815,896 637,888 3,282,241 Total loans $ 1,503,957 $ 3,978,527 $ 1,402,067 $ 870,200 $ 7,754,751 Concentrations of Credit The vast majority of our lending activity occurs in the Houston and Beaumont MSAs.
Biggest changeThe contractual maturity ranges of total loans in our loan portfolio and the amount of such loans with predetermined interest rates in each maturity range and the amount of loans with predetermined (fixed) interest rates and floating interest rates in each maturity range, in each case as of the date indicated, are summarized in the following tables: December 31, 2024 Due in One Year or Less Due After One Year Through Five Years Due After Five Years Through Fifteen Years Due After Fifteen Years Total (In thousands) Commercial and industrial $ 546,235 $ 606,495 $ 207,760 $ 1,770 $ 1,362,260 Real estate: Commercial real estate (including multi-family residential) 631,933 1,786,270 866,978 583,037 3,868,218 Commercial real estate construction and land development 323,344 385,298 62,632 74,220 845,494 1-4 family residential (including home equity) 95,602 408,627 89,177 522,078 1,115,484 Residential construction 83,759 28,650 — 45,568 157,977 Consumer and other 66,471 21,839 2,111 — 90,421 Total loans $ 1,747,344 $ 3,237,179 $ 1,228,658 $ 1,226,673 $ 7,439,854 Loans with predetermined (fixed) interest rates $ 883,937 $ 2,254,974 $ 489,744 $ 286,408 $ 3,915,063 Loans with floating interest rates 863,407 982,205 738,914 940,265 3,524,791 Total loans $ 1,747,344 $ 3,237,179 $ 1,228,658 $ 1,226,673 $ 7,439,854 December 31, 2023 Due in One Year or Less Due After One Year Through Five Years Due After Five Years Through Fifteen Years Due After Fifteen Years Total (In thousands) Commercial and industrial $ 604,965 $ 613,427 $ 195,374 $ 336 $ 1,414,102 Real estate: Commercial real estate (including multi-family residential) 557,948 2,025,104 941,105 547,650 4,071,807 Commercial real estate construction and land development 301,644 583,097 64,146 111,519 1,060,406 1-4 family residential (including home equity) 82,755 391,513 148,491 424,415 1,047,174 Residential construction 149,861 46,811 29,148 41,537 267,357 Consumer and other 38,167 22,187 3,933 — 64,287 Total loans $ 1,735,340 $ 3,682,139 $ 1,382,197 $ 1,125,457 $ 7,925,133 Loans with predetermined (fixed) interest rates $ 870,805 $ 2,771,179 $ 576,799 $ 273,417 $ 4,492,200 Loans with floating interest rates 864,535 910,960 805,398 852,040 3,432,933 Total loans $ 1,735,340 $ 3,682,139 $ 1,382,197 $ 1,125,457 $ 7,925,133 53 Concentrations of Credit The vast majority of our lending activity occurs in the Houston and Beaumont MSAs.
A change in the allowance for credit losses on loans can be attributable to several factors, most notably historical lifetime loss, specific reserves for individually evaluated loans and changes in qualitative factors and growth within the loan portfolio.
A change in the allowance for credit losses on loans can be attributable to several factors, most notably historical lifetime loss, specific reserves for individually evaluated loans, changes in qualitative factors and growth within the loan portfolio.
We make commercial real estate construction and land development loans to fund commercial construction, land acquisition and real estate development construction. Construction loans involve additional risks as they often involve the disbursement of funds with the repayment dependent on the ultimate success of the project’s completion.
Commercial Real Estate Construction and Land Development. We make commercial real estate construction and land development loans to fund commercial construction, land acquisition and real estate development construction. Construction loans involve additional risks as they often involve the disbursement of funds with the repayment dependent on the ultimate success of the project’s completion.
See Note 4 – Securities in the accompanying notes to the consolidated financial statements for additional information. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.
See Note 4 – Securities in the accompanying notes to the consolidated financial statements for additional information. 56 Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.
While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets.
While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the 54 performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets.
The reasonable and supportable period and reversion period are re-evaluated as needed by the Company and are dependent on the current economic environment among other factors. Loans that no longer share risk characteristics with the collectively evaluated loan pools are evaluated on an individual basis and are excluded from the collectively evaluated pools.
The reasonable and supportable period 43 and reversion period are re-evaluated as needed by the Company and are dependent on the current economic environment among other factors. Loans that no longer share risk characteristics with the collectively evaluated loan pools are evaluated on an individual basis and are excluded from the collectively evaluated pools.
Generally, consumer loans entail greater risk than residential real estate loans because they may be unsecured or if secured the value of the collateral, such as an automobile or boat, may be more difficult to assess and more likely to decrease in value than real estate.
Generally, consumer loans entail greater risk than residential real estate loans because they may be unsecured or if secured the value of the collateral, such as an automobile or boat, may be more difficult to assess and 52 more likely to decrease in value than real estate.
The Merger had a significant impact on all aspects of the Company’s financial statements, and as a result, financial results after the Merger are not comparable to financial results prior to the Merger. See Note 2 – Acquisitions in the accompanying notes to the consolidated financial statements for the impact of the Merger.
The Merger had a significant impact on all aspects of the Company’s financial statements and, as a result, financial results for periods after the Merger are not comparable to financial results for periods prior to the Merger. See Note 2 – Acquisitions in the accompanying notes to the consolidated financial statements for the impact of the Merger.
A summary of pertinent information related to the Company’s issuances of junior subordinated debentures outstanding at December 31, 2023 is set forth in the table below: Description Issuance Date Trust Preferred Securities Outstanding Junior Subordinated Debt Owed to Trusts Maturity Date (1) (Dollars in thousands) Farmers & Merchants Capital Trust II November 13, 2003 $ 7,500 $ 7,732 November 8, 2033 Farmers & Merchants Capital Trust III June 30, 2005 3,500 3,609 July 7, 2035 $ 11,341 (1) All debentures were callable at December 31, 2023.
A summary of pertinent information related to the Company’s issuances of junior subordinated debentures outstanding at December 31, 2024 is set forth in the table below: Description Issuance Date Trust Preferred Securities Outstanding Junior Subordinated Debt Owed to Trusts Maturity Date (1) (Dollars in thousands) Farmers & Merchants Capital Trust II November 13, 2003 $ 7,500 $ 7,732 November 8, 2033 Farmers & Merchants Capital Trust III June 30, 2005 3,500 3,609 July 7, 2035 $ 11,341 (1) All debentures were callable at December 31, 2024.
Allowance for Credit Losses on Loans The allowance for credit losses on loans represents management’s estimates of current expected credit losses in the Company’s loan portfolio. Pools of loans with similar risk characteristics are collectively evaluated, while loans that no longer share risk characteristics with loan pools are evaluated individually.
Allowance for Credit Losses on Loans The allowance for credit losses on loans represents management’s estimates of current expected credit losses in the loan portfolio. Pools of loans with similar risk characteristics are collectively evaluated, while loans that no longer share risk characteristics with loan pools are evaluated individually.
The Company's policy is to test goodwill for impairment at least annually as of October 1st, or on an interim basis if an event triggering an impairment assessment is determined to have occurred.
The Company’s policy is to test goodwill for impairment at least annually as of October 1st, or on an interim basis if an event triggering an impairment assessment is 44 determined to have occurred.
During the years ended December 31, 2023 and 2022, our liquidity needs have primarily been met by deposits, borrowed funds and securities. The Bank has access to purchased funds from correspondent banks, the Federal Reserve discount window and advances from the FHLB, on a collateralized basis, are available under a security and pledge agreement to take advantage of investment opportunities.
During the years ended December 31, 2024 and 2023, our liquidity needs have primarily been met by deposits, borrowed funds and securities. The Bank has access to purchased funds from correspondent banks, the Federal Reserve discount window and advances from the FHLB, on a collateralized basis, are available under a security and pledge agreement to take advantage of investment opportunities.
The following table summarizes the simulated change in the economic value of equity and net interest income over a 12-month horizon as of the dates indicated: Change in Interest Rates (Basis Points) Percent Change in Net Interest Income Percent Change in Economic Value of Equity December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 +300 (0.9)% 0.5% (0.9)% (2.9)% +200 (0.6)% 0.5% 1.8% (0.7)% +100 0.1% 0.4% 3.4% 0.6% Base 0.0% 0.0% 0.0% 0.0% -100 0.5% (2.0)% 1.0% (3.2)% -200 0.2% (7.5)% (3.6)% (9.4)% These results are primarily due to the size of our cash position, the size and duration of our loan and securities portfolio, the duration of our borrowings and the expected behavior of demand, money market and savings deposits during such rate fluctuations.
The following table summarizes the simulated change in the economic value of equity and net interest income over a 12-month horizon as of the dates indicated: Change in Interest Rates (Basis Points) Percent Change in Net Interest Income Percent Change in Economic Value of Equity December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 +300 3.1% (0.9)% (4.9)% (0.9)% +200 2.4% (0.6)% (1.8)% 1.8% +100 1.4% 0.1% (0.2)% 3.4% Base 0.0% 0.0% 0.0% 0.0% -100 (2.5)% 0.5% (2.8)% 1.0% -200 (5.2)% 0.2% (7.9)% (3.6)% -300 (8.6)% (1.7)% (15.1)% (12.4)% These results are primarily due to the size of our cash position, the size and duration of our loan and securities portfolio, the duration of our borrowings and the expected behavior of demand, money market and savings deposits during such rate fluctuations.
The following table provides a comparison of the Company’s and the Bank’s leverage and risk-weighted capital ratios as of December 31, 2023 to the minimum and well-capitalized regulatory standards, as well as with the capital conservation buffer: Actual Ratio Minimum Required for Capital Adequacy Purposes Minimum Required Plus Capital Conservation Buffer To Be Categorized As Well Capitalized Under Prompt Corrective Action Provisions STELLAR BANCORP, INC.
The following table provides a comparison of the Company’s and the Bank’s leverage and risk-weighted capital ratios as of December 31, 2024 to the minimum and well-capitalized regulatory standards, as well as with the capital conservation buffer: Actual Ratio Minimum Required for Capital Adequacy Purposes Minimum Required Plus Capital Conservation Buffer To Be Categorized As Well Capitalized Under Prompt Corrective Action Provisions STELLAR BANCORP, INC.
Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other 43 Table of Contents factors, economic and competitive conditions in Texas and specifically in our market, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our market and throughout the state of Texas.
Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas and specifically in our market, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our market and throughout the state of Texas.
The preferred trust securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly owned by the Company.
The preferred trust securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly owned by Stellar.
We have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines. As a financial institution, a component of the market risk that we face is interest rate volatility.
We have established a measurement system for monitoring our net interest rate sensitivity position. We seek to manage our sensitivity position within our established guidelines. As a financial institution, a component of the market risk that we face is interest rate volatility.
Our net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and borrowed funds, referred to as a “rate change.” Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets.
Our net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and borrowed funds, referred to as a “rate change.” Fluctuations in market interest rates are driven by many factors, 42 Table of Contents including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets.
Item 1A. — Risk Factors” and the following: • disruptions to the economy and the U.S. banking system caused by recent bank failures; • risks associated with uninsured deposits and responsive measures by federal or state governments or banking regulators, including increases in our deposit insurance assessments and other actions of the Board of Governors of the Federal Reserve System, FDIC and Texas Department of Banking and legislative and regulatory actions and reforms; • the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; • inflation, interest rate, capital and securities markets and monetary fluctuations; • 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; • local, regional, national and international economic conditions and the impact they may have on the Company and our customers and the Company’s assessment of that impact; • the inability to sustain revenue and earnings growth; • impairment of the Company’s goodwill or other intangible assets; • the composition of the Company’s loan portfolio and the concentration of loans in commercial real estate and commercial real estate construction; • the geographic concentration of the Company’s market; • the accuracy and sufficiency of the assumptions and estimates the Company makes in establishing reserves for potential loan losses and other estimates; • the amount of nonperforming and classified assets that the Company holds and the time and effort necessary to resolve nonperforming assets; • deterioration of asset quality; • customer borrowing, repayment, investment and deposit practices; • the ability to maintain important deposit customer relationships; • changes in the value of collateral securing the Company’s loans; 42 Table of Contents • the risk that the anticipated benefits from the Merger may not be fully realized or may take longer than anticipated to be realized; • the amount of the costs, fees, expenses and charges related to the Merger and the integration; • natural disasters and adverse weather in the Company’s market area; • the potential impact of climate change; • the impact of pandemics, epidemics or any other health-related crisis; • acts of terrorism, an outbreak of hostilities, such as the conflicts in Ukraine or the Middle East, or other international or domestic calamities; • the ability to maintain effective internal control over financial reporting; • the cost and effects of cyber incidents or other failures, interruptions or security breaches of the Company's systems or those of the Company’s customers or third-party providers; • the failure of certain third- or fourth-party vendors to perform; • the impact, extent and timing of technological changes; • the institution and outcome of litigation and other legal proceedings against the Company or to which it may become subject; • the costs, effects and results of regulatory examinations, investigations, or reviews or the ability to obtain required regulatory approvals or meet conditions associated with the same; • changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters; • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; and • other risks, uncertainties, and factors that are discussed from time to time in the Company’s reports and documents filed with the SEC.
Item 1A. — Risk Factors” and the following: • disruptions to the economy and the U.S. banking system caused by recent bank failures; • risks associated with uninsured deposits and responsive measures by federal or state governments or banking regulators, including increases in our deposit insurance assessments and other actions of the Board of Governors of the Federal Reserve System, FDIC and Texas Department of Banking and legislative and regulatory actions and reforms; • the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board and the imposition of tariffs and retaliatory tariffs; • inflation, interest rate, capital and securities markets and monetary fluctuations; • 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; • local, regional, national and international economic conditions and the impact they may have on the Company and our customers and the Company’s assessment of that impact; • the inability to sustain revenue and earnings growth; • impairment of the Company’s goodwill or other intangible assets; • the composition of the Company’s loan portfolio and the concentration of loans in commercial real estate and commercial real estate construction; • the geographic concentration of the Company’s market; • the accuracy and sufficiency of the assumptions and estimates the Company makes in establishing reserves for potential loan losses and other estimates; • the amount of nonperforming and classified assets that the Company holds and the time and effort necessary to resolve nonperforming assets; • deterioration of asset quality; • customer borrowing, repayment, investment and deposit practices; • the ability to maintain important deposit customer relationships; • changes in the value of collateral securing the Company’s loans; • natural disasters and adverse weather in the Company’s market area; • the potential impact of climate change; 41 Table of Contents • the impact of pandemics, epidemics or any other health-related crisis; • acts of terrorism, an outbreak of hostilities, such as the conflicts in Ukraine or the Middle East, or other international or domestic calamities; • the ability to maintain effective internal control over financial reporting; • the cost and effects of cyber incidents or other failures, interruptions or security breaches of the Company's systems or those of the Company’s customers or third-party providers; • the failure of certain third- or fourth-party vendors to perform; • the impact, extent and timing of technological changes; • the institution and outcome of litigation and other legal proceedings against the Company or to which it may become subject; • the costs, effects and results of regulatory examinations, investigations, or reviews or the ability to obtain required regulatory approvals or meet conditions associated with the same; • changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters; • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; and • other risks, uncertainties, and factors that are discussed from time to time in the Company’s reports and documents filed with the SEC.
The Company has fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by such trust to the extent not paid or made by such trust, provided such trust has funds available for such obligations. The trust preferred securities bear a floating rate of interest equal to the 3-Month SOFR plus a comparable spread adjustment.
Stellar has fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by such trust to the extent not paid or made by each trust, provided such trust has funds available for such obligations. The trust preferred securities bear a floating rate of interest equal to 3-Month SOFR plus a spread adjustment.
As of December 31, 2023, the Company believes it was in compliance with all such debt covenants and had not been made aware of any noncompliance by the lender.
As of December 31, 2024, the Company believes it was in compliance with all such debt covenants and had not been made aware of any noncompliance by the lender.
As of December 31, 2023 and 2022, the Company had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. In the ordinary course of business, we have entered into contractual obligations and have made other commitments to make future payments.
As of December 31, 2024 and 2023, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. In the ordinary course of business, we have entered into contractual obligations and have made other commitments to make future payments.
Under certain circumstances, a well-capitalized, adequately capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category. 63 Table of Contents Failure to meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank regulatory agencies, including termination of deposit insurance by the FDIC, restrictions on certain business activities and appointment of the FDIC as conservator or receiver.
Under certain circumstances, a well-capitalized, adequately capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category. 62 Failure to meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank regulatory agencies, including termination of deposit insurance by the FDIC, restrictions on certain business activities and appointment of the FDIC as conservator or receiver.
For additional information regarding critical accounting estimates and policies, refer to “Critical Accounting Estimates” in this 55 Table of Contents section, Note 1 – Nature of Operations and Summary of Significant Accounting and Reporting Policies and Note 5 – Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statements.
For additional information regarding critical accounting estimates and policies, refer to “Critical Accounting Estimates” in this section, Note 1 – Nature of Operations and Summary of Significant Accounting and Reporting Policies and Note 5 – Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statements.
Covenants made under the Loan Agreement include, among other things, while there any obligations outstanding under Loan Agreement, the Company shall maintain a cash flow to debt service (as defined in the Loan Agreement) of not less than 1.25, the Bank’s Texas Ratio (as defined in the Loan Agreement) not to exceed 25.0% and the Bank shall maintain a Tier 1 Leverage Ratio (as defined under the Loan Agreement) of at least 7.0% and restrictions on the ability of the Company and its subsidiaries to incur certain additional debt.
Covenants made under the Loan Agreement include, among other things, while there any obligations outstanding under Loan Agreement, the Company shall maintain a cash flow to debt service (as defined in the Loan Agreement) of not less than 1.25, the Bank’s Texas Ratio (as defined in the Loan Agreement) is not to exceed 20.0%, the Bank shall maintain a Tier 1 Leverage Ratio (as defined under the Loan Agreement) of at least 8.0% and includes restrictions on the ability of the Company and its subsidiaries to incur certain additional debt.
(2) The tax-equivalent adjustments have been computed using a federal income tax rate of 21% for the years ended December 31, 2023, 2022 and 2021. 48 Table of Contents The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earnings assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates.
(2) Tax-equivalent adjustments have been computed using a federal income tax rate of 21% for the years ended December 31, 2024, 2023 and 2022. 47 The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earnings assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates.
See Note 3 – Goodwill and Other Intangible Assets to the consolidated financial statements for additional information on the Company’s goodwill balances and Note 2 – Acquisitions to the consolidated financial statements for goodwill and intangibles recorded in related to the Merger. 46 Table of Contents Recently Issued Accounting Pronouncements We have evaluated new accounting pronouncements that have recently been issued.
See Note 3 – Goodwill and Other Intangible Assets to the consolidated financial statements for additional information on the Company’s goodwill balances and Note 2 – Acquisitions to the consolidated financial statements for goodwill and intangibles recorded in related to the Merger. Recently Issued Accounting Pronouncements We have evaluated new accounting pronouncements that have recently been issued.
Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of the Company’s present and future senior indebtedness.
Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon Stellar making payment on the related junior subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of Stellar’s present and future senior indebtedness.
For example, customers may not repay their loans 44 Table of Contents according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.
For example, customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.
Refer to the accompanying notes to accompanying consolidated financial statements for the expected timing of such payments as of December 31, 2023.
Refer to the accompanying notes to accompanying consolidated financial statements for the expected timing of such payments as of December 31, 2024.
Each of these trusts is a capital or statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s junior subordinated debentures.
Each of the trusts is a capital or statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in Stellar’s junior subordinated debentures.
The efficiency ratio is calculated by dividing total noninterest expense by the sum of net interest income plus noninterest income, excluding gains and losses on the sale of loans, securities and assets. Additionally, taxes and provision for credit losses are not part of the efficiency ratio calculation.
The efficiency ratio is calculated by dividing total noninterest expense by the sum of net interest income plus noninterest income, excluding net gains and losses on the sale of assets. Additionally, taxes and provisions for credit losses are not part of the efficiency ratio calculation.
In order to assess which loans are to be individually evaluated, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Individual credit loss estimates are typically performed for nonaccrual loans, modified loans classified as troubled loan modifications and all other loans identified by management.
In order to assess which loans are to be individually evaluated, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Individual credit loss estimates are typically performed for nonaccrual loans and all other loans identified by management.
During 2023, changes in our overall interest rate profile were driven by the decrease in noninterest bearing deposits and certain interest bearing deposits, increases in certificates of deposits and borrowed funds, an increase in loans and decreases in securities and cash and cash equivalents.
During 2024, changes in our overall interest rate profile were driven by the increase in noninterest bearing deposits and certain interest bearing deposits, increases in certificates of deposits and borrowed funds, a decrease in loans, an increase in securities and increases in cash and cash equivalents.
At December 31, 2023 and 2022, the Company had FHLB letters of credit in the amount of $1.82 billion and $1.08 billion, respectively, pledged as collateral for public and other deposits of state and local government agencies. See Note 10 – Borrowings and Borrowing Capacity to the accompanying consolidated financial statements.
At December 31, 2024 and 2023, we had FHLB letters of credit in the amount of $2.10 billion and $1.82 billion, respectively, pledged as collateral for public and other deposits of state and local government agencies. See Note 10 – Borrowings and Borrowing Capacity to the accompanying consolidated financial statements.
These include payments related to (1) operating leases (Note 6 – Premises and Equipment and Leases), (2) time deposits with stated maturity dates (Note 8 – Deposits), (3) borrowings (Note 10 – Borrowings and Borrowing Capacity) and (4) commitments to extend credit and standby letters of credit (Note 15 – Off-Balance Sheet Arrangements, Commitments and Contingencies). 62 Table of Contents Our commitments associated with outstanding standby letters of credit and commitments to extend credit expiring by period are summarized below as of December 31, 2023.
These include payments related to (1) operating leases (Note 6 – Premises and Equipment and Leases), (2) time deposits with stated maturity dates (Note 8 – Deposits), (3) borrowings (Note 10 – Borrowings and Borrowing Capacity) and (4) commitments to extend credit and standby letters of credit (Note 14 – Off-Balance Sheet Arrangements, Commitments and Contingencies). 61 Our commitments associated with outstanding standby letters of credit and commitments to extend credit expiring by period are summarized below as of December 31, 2024.
As of December 31, 2023, the Company’s commercial real estate construction and land development loan portfolio included $80.5 million of construction and development loans to support multi-family community development loans with associated tax credits, which fund Texas based projects to promote affordable housing, compared to $79.7 million as of December 31, 2022. 1-4 Family Residential (Including Home Equity).
As of December 31, 2024, our commercial real estate construction and land development loan portfolio included $137.1 million of construction and development loans to support multi-family community development loans with associated tax credits, which fund Texas based projects to promote affordable housing, compared to $80.5 million as of December 31, 2023. 1-4 Family Residential (Including Home Equity).
See “Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of 2022 versus 2021 results.
Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of 2023 versus 2022 results.
Results of Operations This section provides a comparative discussion of the Company’s results of operations for the two-year period ended December 31, 2023, unless otherwise specified.
Results of Operations This section provides a comparative discussion of the Company’s results of operations for the two-year period ended December 31, 2024, unless otherwise specified. See “Item 7.
As of December 31, 2023 and 2022, the Bank was well-capitalized. Total shareholders' equity was $1.52 billion at December 31, 2023 compared with $1.38 billion at December 31, 2022, an increase of $137.8 million.
As of December 31, 2024 and 2023, the Bank was well capitalized. Total shareholders' equity was $1.61 billion at December 31, 2024 compared with $1.52 billion at December 31, 2023, an increase of $86.8 million.
The results of operations for the year ended December 31, 2022 reflect Allegiance’s activity for the first nine months of 2022 while the results for the fourth quarter of 2022, after the Merger on October 1, 2022, set forth the results of operations for the Company.
Our results of operations for the year ended December 31, 2022 reflect Allegiance’s results for the first nine months of 2022 and the results for the Company for the fourth quarter of 2022, after the Merger on October 1, 2022.
Years Ended December 31, 2023 2022 Sources of Funds: Deposits: Noninterest-bearing 35.5 % 35.4 % Interest-bearing 46.2 % 50.3 % Borrowed funds 3.0 % 0.8 % Subordinated debt 1.0 % 1.4 % Other liabilities 0.8 % 0.8 % Shareholders’ equity 13.5 % 11.3 % Total 100.0 % 100.0 % Uses of Funds: Loans 74.1 % 64.7 % Securities 13.9 % 22.3 % Deposits in other financial institutions 2.2 % 5.8 % Noninterest-earning assets 9.8 % 7.2 % Total 100.0 % 100.0 % Average noninterest-bearing deposits to average deposits 43.5 % 41.4 % Average loans to average deposits 90.7 % 75.5 % As of December 31, 2023 and 2022, we had outstanding commitments to extend credit of $1.79 billion and $2.36 billion, respectively, and commitments associated with outstanding letters of credit of $37.7 million and $35.5 million, respectively.
Years Ended December 31, 2024 2023 Sources of Funds: Deposits: Noninterest-bearing 31.7 % 35.5 % Interest-bearing 51.0 % 46.2 % Borrowed funds 0.7 % 3.0 % Subordinated debt 1.0 % 1.0 % Other liabilities 0.9 % 0.8 % Shareholders’ equity 14.7 % 13.5 % Total 100.0 % 100.0 % Uses of Funds: Loans 72.4 % 74.1 % Securities 15.0 % 13.9 % Deposits in other financial institutions 3.1 % 2.2 % Noninterest-earning assets 9.5 % 9.8 % Total 100.0 % 100.0 % Average noninterest-bearing deposits to average deposits 38.3 % 43.5 % Average loans to average deposits 87.6 % 90.7 % As of December 31, 2024 and 2023, we had outstanding commitments to extend credit of $1.70 billion and $1.79 billion, respectively, and commitments associated with outstanding letters of credit of $43.6 million and $37.7 million, respectively.
These loans are secured by the real property being built and are made based on our assessment of the value of the property on an as-completed basis. Our residential construction loans portfolio decreased $793 thousand, or 0.3%, to $267.4 million as of December 31, 2023 from $268.2 million as of December 31, 2022. Consumer and Other.
These loans are secured by the real property being built and are made based on our assessment of the value of the property on an as-completed basis. Our residential construction loans portfolio decreased $109.4 million, or 40.9%, to $158.0 million as of December 31, 2024 from $267.4 million as of December 31, 2023. Consumer and Other.
Credit Agreement On December 13, 2022, the Company entered into a loan agreement with another financial institution (the “Loan Agreement”), that provides for a $75.0 million revolving line of credit. At December 31, 2023, there were no outstanding borrowings on this line of credit and the Company did not draw on this line of credit during 2023 or 2022.
Credit Agreement On December 13, 2022, the Company entered into a loan agreement with another financial institution (the “Loan Agreement”), that provides for a $75.0 million revolving line of credit. The term for this agreement expired and was renewed on December 13, 2024. At December 31, 2024, there were no outstanding borrowings on this line of credit.
Certain risks, uncertainties and other factors, including those set forth in “Part I.—Item 1A.—Risk Factors” and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis.
Item 1A.—Risk Factors” and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis.
Including policy-driven capacity for brokered deposits, the Bank would have been able to add approximately $1.16 billion to its contingent sources of liquidity, bringing total contingent funding sources to approximately $4.78 billion, or 53.9%, of deposits at December 31, 2023.
Including policy-driven capacity for brokered deposits, the Bank would have been able to add approximately $1.82 billion to its contingent sources of liquidity, bringing total contingent funding sources to approximately $7.75 billion, or 84.9%, of deposits at December 31, 2024.
Based on sensitivity analyses across all segments of the performing loan portfolio, a 5% increase in historical loss rates would have an impact of $1.9 million increase in funded reserves. On the other hand, a 5% increase in each qualitative risk factor across all segments (where assigned) would have an impact of $3.3 million increase in funded reserves.
As of December 31, 2024, based on sensitivity analyses across all segments of the performing loan portfolio, a 5% increase in historical loss rates would have increased funded reserves by $1.7 million. On the other hand, a 5% increase in each qualitative risk factor across all segments (where assigned) would have increased funded reserves by $3.0 million.
This discussion and analysis includes forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that the Company believes are reasonable but may prove to be inaccurate.
This discussion and analysis includes forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that the Company believes are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth in “Part I.
Assumptions based on past experience are incorporated into the model for nonmaturity deposit account decay rates. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.
The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.
Where applicable, instruments on the balance sheet are modeled at the instrument level, incorporating 64 Table of Contents all relevant attributes such as next reset date, reset frequency and call dates, as well as prepayment assumptions for loans and securities and decay rates for nonmaturity deposits.
Where applicable, instruments on the balance sheet are modeled at the instrument level, incorporating 63 all relevant attributes such as next reset date, reset frequency and call dates, as well as prepayment assumptions for loans and securities and decay rates for nonmaturity deposits. Assumptions based on past experience are incorporated into the model for nonmaturity deposit account decay rates.
(Consolidated) Total Capital (to risk weighted assets) 14.02% 8.00% 10.50% N/A Common Equity Tier 1 Capital (to risk weighted assets) 11.77% 4.50% 7.00% N/A Tier 1 Capital (to risk weighted assets) 11.89% 6.00% 8.50% N/A Tier 1 Capital (to average tangible assets) 10.18% 4.00% 4.00% N/A STELLAR BANK Total Capital (to risk weighted assets) 13.65% 8.00% 10.50% 10.00% Common Equity Tier 1 Capital (to risk weighted assets) 12.20% 4.50% 7.00% 6.50% Tier 1 Capital (to risk weighted assets) 12.20% 6.00% 8.50% 8.00% Tier 1 Capital (to average tangible assets) 10.44% 4.00% 4.00% 5.00% Asset/Liability Management and Interest Rate Risk Our asset liability and interest rate risk policy provides management with the guidelines for effective balance sheet management.
(Consolidated) Total Capital (to risk weighted assets) 16.03% 8.00% 10.50% N/A Common Equity Tier 1 Capital (to risk weighted assets) 14.16% 4.50% 7.00% N/A Tier 1 Capital (to risk weighted assets) 14.28% 6.00% 8.50% N/A Tier 1 Leverage (to average tangible assets) 11.31% 4.00% 4.00% N/A STELLAR BANK Total Capital (to risk weighted assets) 15.31% 8.00% 10.50% 10.00% Common Equity Tier 1 Capital (to risk weighted assets) 14.15% 4.50% 7.00% 6.50% Tier 1 Capital (to risk weighted assets) 14.15% 6.00% 8.50% 8.00% Tier 1 Leverage (to average tangible assets) 11.21% 4.00% 4.00% 5.00% Asset/Liability Management and Interest Rate Risk Our asset liability and interest rate risk policy provides management with the guidelines for effective balance sheet management.
The increased risk in commercial loans derives from the expectation that commercial and industrial loans generally are serviced principally from the operations of the business, which may not be successful and from the type of collateral securing these loans. As a result, commercial and industrial loans require more extensive underwriting and servicing than other types of loans.
The increased risk in these loans derives from the expectation that commercial and industrial loans generally are serviced principally from the operations of the business, which may not be successful and from the type of collateral securing these loans.
Accordingly, as of December 31, 2023, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore, no losses have been recognized in the Company’s consolidated statements of income. 57 Table of Contents The following table summarizes the contractual maturity of securities and their weighted average yields as of the dates indicated.
Accordingly, as of December 31, 2024, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore, no losses have been recognized in the Company’s consolidated statements of income.
Regulatory assessments and FDIC insurance increased $6.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a $2.4 million accrual for future payments to the FDIC pursuant to the final FDIC rule implementing a special insurance assessment to recover losses to the Deposit Insurance Fund associated with protecting uninsured depositors following several bank failures during 2023.
Regulatory assessments and FDIC insurance decreased $3.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to the $2.4 million accrual recorded in 2023 partially offset by an additional $420 thousand recorded in 2024 for future payments to the FDIC pursuant to the final FDIC rule implementing a special insurance assessment to recover losses to the Deposit Insurance Fund associated with protecting uninsured depositors following several bank failures during 2023.
We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management.
We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. Liquidity stress scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.
The average yield on interest-earning assets of 6.09% and the average rate paid on interest-bearing liabilities of 2.86% for the year ended December 31, 2023 increased by 173 basis points and 205 basis points, respectively, over the same period in 2022.
The average rate paid on interest-bearing liabilities of 3.46% and the average yield on interest-earning assets of 6.25% for the year ended December 31, 2024 increased by 60 basis points and 16 basis points, respectively, over the same period in 2023.
As of December 31, 2023 and 2022, we did not own securities of any one issuer (other than the U.S. government and its agencies or sponsored entities) for which the aggregate adjusted cost exceeded 10% of our consolidated shareholders’ equity.
As of December 31, 2024 and 2023, we did not own securities of any one issuer (other than the U.S. government and its agencies or sponsored entities) for which the aggregate adjusted cost exceeded 10% of our consolidated shareholders’ equity. 57 The average yield of our securities portfolio was 3.34% for the year ended December 31, 2024 compared with 2.75% for the year ended December 31, 2023.
The following table presents, for the periods indicated, the major categories of noninterest expense: Years Ended December 31, Increase (Decrease) Years Ended December 31, Increase (Decrease) 2023 2022 2022 2021 (In thousands) Salaries and employee benefits (1) $ 157,034 $ 107,554 $ 49,480 $ 107,554 $ 90,177 $ 17,377 Net occupancy and equipment 16,932 10,335 6,597 10,335 9,144 1,191 Depreciation 7,584 4,951 2,633 4,951 4,254 697 Data processing and software amortization 19,526 11,337 8,189 11,337 8,862 2,475 Professional fees 7,955 3,583 4,372 3,583 3,025 558 Regulatory assessments and FDIC insurance 11,032 4,914 6,118 4,914 3,407 1,507 Amortization of intangibles 26,883 9,303 17,580 9,303 3,296 6,007 Communications 2,796 1,800 996 1,800 1,406 394 Advertising 3,627 2,460 1,167 2,460 1,692 768 Acquisition and merger-related expenses 15,555 24,138 (8,583) 24,138 2,011 22,127 Other 21,570 15,701 5,869 15,701 12,280 3,421 Total noninterest expense $ 290,494 $ 196,076 $ 94,418 $ 196,076 $ 139,554 $ 56,522 (1) Total salaries and employee benefits includes $9.9 million, $9.0 million and $4.0 million in stock based compensation expense for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table presents, for the periods indicated, the major categories of noninterest expense: Years Ended December 31, Increase (Decrease) Years Ended December 31, Increase (Decrease) 2024 2023 2023 2022 (In thousands) Salaries and employee benefits (1) $ 165,357 $ 157,034 $ 8,323 $ 157,034 $ 107,554 $ 49,480 Net occupancy and equipment 17,864 16,932 932 16,932 10,335 6,597 Depreciation 7,807 7,584 223 7,584 4,951 2,633 Data processing and software amortization 21,652 19,526 2,126 19,526 11,337 8,189 Professional fees 9,424 7,955 1,469 7,955 3,583 4,372 Regulatory assessments and FDIC insurance 7,568 11,032 (3,464) 11,032 4,914 6,118 Amortization of intangibles 24,220 26,883 (2,663) 26,883 9,303 17,580 Communications 3,418 2,796 622 2,796 1,800 996 Advertising 4,127 3,627 500 3,627 2,460 1,167 Acquisition and merger-related expenses — 15,555 (15,555) 15,555 24,138 (8,583) Other (2) 27,521 21,570 5,951 21,570 15,701 5,869 Total noninterest expense $ 288,958 $ 290,494 $ (1,536) $ 290,494 $ 196,076 $ 94,418 (1) Total salaries and employee benefits includes $10.8 million, $9.9 million and $9.0 million in stock-based compensation expense for the years ended December 31, 2024, 2023 and 2022, respectively.
Our residential real estate portfolio (including home equity) increased $46.2 million, or 4.6%, to $1.05 billion as of December 31, 2023 from $1.00 billion as of December 31, 2022. Residential Construction.
Our residential real estate portfolio (including home equity) increased $68.3 million, or 6.5%, to $1.12 billion as of December 31, 2024 from $1.05 billion as of December 31, 2023. Residential Construction.
Total immediate contingent funding sources, including unrestricted cash, available-for-sale securities that are not pledged and total available borrowing capacity was $3.62 billion, or 40.8%, of total deposits at December 31, 2023. Estimated uninsured deposits net of collateralized deposits were 42.6% of total deposits at December 31, 2023.
Total immediate contingent funding sources, including unrestricted cash, available-for-sale securities that are not pledged and total available borrowing capacity was $5.93 billion, or 65.0%, of total deposits at December 31, 2024. Estimated uninsured deposits net of collateralized deposits were 43.4% of total deposits at December 31, 2024.
We recorded an $8.9 million provision for credit losses for the year ended December 31, 2023 compared to a $50.7 million provision for credit losses for the year ended December 31, 2022.
We recorded a reversal of provision for credit losses of $2.9 million for the year ended December 31, 2024 compared to a provision for credit losses of $8.9 million for the year ended December 31, 2023.
The Company’s efficiency ratio decreased to 63.02% for the year ended December 31, 2023 compared to 64.23% for the year ended December 31, 2022 and 58.86% for the year ended December 31, 2021.
The Company’s efficiency ratio increased to 67.16% for the year ended December 31, 2024 compared to 63.02% for the year ended December 31, 2023 and 64.23% for the year ended December 31, 2022.
Years Ended December 31, 2023 2022 2021 Average Balance Interest Earned/ Interest Paid Average Yield/ Rate Average Balance Interest Earned/ Interest Paid Average Yield/ Rate Average Balance Interest Earned/ Interest Paid Average Yield/ Rate (Dollars in thousands) Assets Interest-Earning Assets: Loans $ 7,961,911 $ 537,722 6.75% $ 5,171,944 $ 280,375 5.42% $ 4,422,467 $ 230,713 5.22% Securities 1,490,588 41,047 2.75% 1,779,425 37,861 2.13% 1,050,376 21,798 2.08% Deposits in other financial institutions 242,803 12,048 4.96% 462,075 4,758 1.03% 458,190 673 0.15% Total interest-earning assets 9,695,302 $ 590,817 6.09% 7,413,444 $ 322,994 4.36% 5,931,033 $ 253,184 4.27% Allowance for credit losses on loans (95,668) (59,244) (51,513) Noninterest-earning assets 1,147,232 634,073 680,191 Total assets $ 10,746,866 $ 7,988,273 $ 6,559,711 Liabilities and Shareholders' Equity Interest-Bearing Liabilities: Interest-bearing demand deposits $ 1,464,015 $ 38,689 2.64% $ 1,140,575 $ 9,278 0.81% $ 574,079 $ 1,409 0.25% Money market and savings deposits 2,259,264 48,646 2.15% 1,841,348 9,861 0.54% 1,571,532 3,956 0.25% Certificates and other time deposits 1,239,345 41,286 3.33% 1,034,491 7,825 0.76% 1,349,216 11,628 0.86% Borrowed funds 318,721 17,807 5.59% 61,773 1,216 1.97% 144,354 1,878 1.30% Subordinated debt 109,560 7,630 6.96% 109,111 5,856 5.37% 108,588 5,749 5.29% Total interest-bearing liabilities 5,390,905 $ 154,058 2.86% 4,187,298 $ 34,036 0.81% 3,747,769 $ 24,620 0.66% Noninterest-Bearing Liabilities: Noninterest-bearing demand deposits 3,814,651 2,833,865 1,983,934 Other liabilities 85,376 62,581 41,972 Total liabilities 9,290,932 7,083,744 5,773,675 Shareholders' equity 1,455,934 904,529 786,036 Total liabilities and shareholders' equity $ 10,746,866 $ 7,988,273 $ 6,559,711 Net interest rate spread 3.23% 3.55% 3.61% Net interest income and margin (1) $ 436,759 4.50% $ 288,958 3.90% $ 228,564 3.85% Net interest income and margin (tax equivalent) (2) $ 437,670 4.51% $ 292,152 3.94% $ 231,315 3.90% Cost of funds 1.67% 0.48% 0.43% Cost of deposits 1.47% 0.39% 0.31% (1) The net interest margin is equal to net interest income divided by average interest-earning assets.
Years Ended December 31, 2024 2023 2022 Average Balance Interest Earned/ Interest Paid Average Yield/ Rate Average Balance Interest Earned/ Interest Paid Average Yield/ Rate Average Balance Interest Earned/ Interest Paid Average Yield/ Rate (Dollars in thousands) Assets Interest-Earning Assets: Loans $ 7,712,122 $ 531,680 6.89% $ 7,961,911 $ 537,722 6.75% $ 5,171,944 $ 280,375 5.42% Securities 1,593,073 53,165 3.34% 1,490,588 41,047 2.75% 1,779,425 37,861 2.13% Deposits in other financial institutions 334,654 17,555 5.25% 242,803 12,048 4.96% 462,075 4,758 1.03% Total interest-earning assets 9,639,849 $ 602,400 6.25% 9,695,302 $ 590,817 6.09% 7,413,444 $ 322,994 4.36% Allowance for credit losses on loans (91,770) (95,668) (59,244) Noninterest-earning assets 1,098,396 1,147,232 634,073 Total assets $ 10,646,475 $ 10,746,866 $ 7,988,273 Liabilities and Shareholders' Equity Interest-Bearing Liabilities: Interest-bearing demand deposits $ 1,618,212 $ 48,290 2.98% $ 1,464,015 $ 38,689 2.64% $ 1,140,575 $ 9,278 0.81% Money market and savings deposits 2,236,678 64,956 2.90% 2,259,264 48,646 2.15% 1,841,348 9,861 0.54% Certificates and other time deposits 1,574,598 68,745 4.37% 1,239,345 41,286 3.33% 1,034,491 7,825 0.76% Borrowed funds 77,662 4,549 5.86% 318,721 17,807 5.59% 61,773 1,216 1.97% Subordinated debt 107,768 7,868 7.30% 109,560 7,630 6.96% 109,111 5,856 5.37% Total interest-bearing liabilities 5,614,918 $ 194,408 3.46% 5,390,905 $ 154,058 2.86% 4,187,298 $ 34,036 0.81% Noninterest-Bearing Liabilities: Noninterest-bearing demand deposits 3,369,931 3,814,651 2,833,865 Other liabilities 94,165 85,376 62,581 Total liabilities 9,079,014 9,290,932 7,083,744 Shareholders' equity 1,567,461 1,455,934 904,529 Total liabilities and shareholders' equity $ 10,646,475 $ 10,746,866 $ 7,988,273 Net interest rate spread 2.79% 3.23% 3.55% Net interest income and margin (1) $ 407,992 4.23% $ 436,759 4.50% $ 288,958 3.90% Net interest income and margin (tax equivalent) (2) $ 408,305 4.24% $ 437,670 4.51% $ 292,152 3.94% Cost of funds 2.16% 1.67% 0.48% Cost of deposits 2.07% 1.47% 0.39% (1) The net interest margin is equal to annualized net interest income divided by average interest-earning assets.
Our loans are primarily secured by real estate, including commercial and residential construction, owner-occupied and nonowner-occupied and multi-family commercial real estate, raw land and other real estate based loans located in the Houston and Beaumont MSAs.
Our loans are primarily secured by real estate, including commercial and residential construction, owner-occupied and nonowner-occupied and multi-family commercial real estate, raw land and other real estate based loans located in the Houston and Beaumont MSAs. As of December 31, 2024 and 2023, commercial real estate and commercial construction loans represented 63.4% and 64.7%, respectively, of our total loans.
Tax equivalent adjustments to net interest margin are the result of increasing income from tax-free securities and loans by an amount equal to the taxes that would have been paid if the income were fully taxable based on a 21% federal tax rate for the years ended December 31, 2023 and 2022, thus making tax-exempt yields comparable to taxable asset yields.
Tax equivalent adjustments to net interest margin are the result of increasing income from tax-free securities and loans by an amount equal to the taxes that would have been paid if the income were fully taxable based on a 21% federal tax rate for the years ended December 31, 2024, 2023 and 2022, thus making tax-exempt yields comparable to taxable asset yields. 46 The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates.
See Note 5 – Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statement fo r additional information regarding how we estimate and evaluate the credit risk in our loan portfolio.
At December 31, 2024, our allowance for credit losses on unfunded commitments was $12.4 million compared to $11.3 million at December 31, 2023. See Note 5 – Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statement fo r additional information regarding how we estimate and evaluate the credit risk in our loan portfolio.
Subordinated Notes In December 2017, the Bank issued $40.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Bank Notes”) due December 15, 2027.
Subordinated Notes In December 2017, the Bank issued $40.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Bank Notes”) due December 15, 2027 and bore a floating rate of interest equal to 3-Month SOFR plus a 3.03% spread adjustment.
The allowance for credit losses on unfunded commitments is a liability account reported as a component of other 56 Table of Contents liabilities in our consolidated balance sheets and is adjusted as a provision for credit loss expense.
The allowance for credit losses on unfunded commitments is a liability account reported as a component of other liabilities in our consolidated balance sheets and is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund.
We predominantly invest excess deposits in Federal Reserve Bank of Dallas balances, securities, interest-bearing deposits at other banks or other short-term liquid investments until the funds are needed to fund loan growth. Our securities portfolio had a weighted average life of 7.6 years and 8.3 years at December 31, 2023 and 2022, respectively.
Our average loans decreased $249.8 million, or 3.1%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. We predominantly invest excess deposits in Federal Reserve Bank of Dallas balances, securities, interest-bearing deposits at other banks or other short-term liquid investments until the funds are needed to fund loan growth.
Total loans as a percentage of deposits were 89.3% and 83.7% as of December 31, 2023 and December 31, 2022, respectively. Total loans as a percentage of assets were 74.4% and 71.1% as of December 31, 2023 and December 31, 2022, respectively.
Total loans as a percentage of deposits were 81.5% and 89.3% as of December 31, 2024 and December 31, 2023, respectively. Total loans as a percentage of assets were 68.2% and 74.4% as of December 31, 2024 and December 31, 2023, respectively.
The following table summarizes our loan portfolio by type of loan as of the dates indicated: December 31, 2023 2022 Amount Percent Amount Percent (Dollars in thousands) Commercial and industrial $ 1,409,002 17.8 % $ 1,455,795 18.8 % Paycheck Protection Program (PPP) 5,100 0.1 % 13,226 0.2 % Real estate: Commercial real estate (including multi-family residential) 4,071,807 51.3 % 3,931,480 50.7 % Commercial real estate construction and land development 1,060,406 13.4 % 1,037,678 13.4 % 1-4 family residential (including home equity) 1,047,174 13.2 % 1,000,956 12.9 % Residential construction 267,357 3.4 % 268,150 3.4 % Consumer and other 64,287 0.8 % 47,466 0.6 % Total loans 7,925,133 100.0 % 7,754,751 100.0 % Allowance for credit losses on loans (91,684) (93,180) Loans, net $ 7,833,449 $ 7,661,571 Our lending activities originate from the efforts of our bankers with an emphasis on lending to individuals, professionals, small- to medium-sized businesses and commercial companies generally located in our market.
The following table summarizes our loan portfolio by type of loan as of the dates indicated: December 31, 2024 2023 Amount Percent Amount Percent (Dollars in thousands) Commercial and industrial $ 1,362,260 18.3 % $ 1,414,102 17.9 % Real estate: Commercial real estate (including multi-family residential) 3,868,218 52.0 % 4,071,807 51.3 % Commercial real estate construction and land development 845,494 11.4 % 1,060,406 13.4 % 1-4 family residential (including home equity) 1,115,484 15.0 % 1,047,174 13.2 % Residential construction 157,977 2.1 % 267,357 3.4 % Consumer and other 90,421 1.2 % 64,287 0.8 % Total loans 7,439,854 100.0 % 7,925,133 100.0 % Allowance for credit losses on loans (81,058) (91,684) Loans, net $ 7,358,796 $ 7,833,449 Our lending activities originate from the efforts of our bankers with an emphasis on lending to individuals, professionals, small- to medium-sized businesses and commercial companies generally located in our market.
Years Ended December 31, 2023 vs. 2022 2022 vs. 2021 Increase (Decrease) Due to Change in Total Increase (Decrease) Due to Change in Total Volume Rate Volume Rate (In thousands) Interest-Earning assets: Loans $ 151,355 $ 105,992 $ 257,347 $ 39,262 $ 10,400 $ 49,662 Securities (6,152) 9,338 3,186 15,214 849 16,063 Deposits in other financial institutions (2,259) 9,549 7,290 20 4,065 4,085 Total increase in interest income 142,944 124,879 267,823 54,496 15,314 69,810 Interest-Bearing liabilities: Interest-bearing demand deposits 2,620 26,791 29,411 1,442 6,427 7,869 Money market and savings deposits 2,257 36,528 38,785 647 5,258 5,905 Certificates and other time deposits 1,557 31,904 33,461 (2,731) (1,072) (3,803) Borrowed funds 5,062 11,529 16,591 (1,075) 413 (662) Subordinated debt 24 1,750 1,774 23 84 107 Total increase (decrease) in interest expense 11,520 108,502 120,022 (1,694) 11,110 9,416 Increase in net interest income $ 131,424 $ 16,377 $ 147,801 $ 56,190 $ 4,204 $ 60,394 Provision for Credit Losses Our allowance for credit losses is established through charges to income in the form of a provision in order to bring our allowance for credit losses for various types of financial instruments including loans, securities and unfunded commitments to a level deemed appropriate by management.
Years Ended December 31, 2024 vs. 2023 2023 vs. 2022 Increase (Decrease) Due to Change in Total Increase (Decrease) Due to Change in Total Volume Rate Volume Rate (In thousands) Interest-Earning Assets: Loans $ (16,870) $ 10,828 $ (6,042) $ 151,355 $ 105,992 $ 257,347 Securities 2,822 9,296 12,118 (6,152) 9,338 3,186 Deposits in other financial institutions 4,558 949 5,507 (2,259) 9,549 7,290 Total (decrease) increase in interest income (9,490) 21,073 11,583 142,944 124,879 267,823 Interest-Bearing Liabilities: Interest-bearing demand deposits 4,075 5,526 9,601 2,620 26,791 29,411 Money market and savings deposits (486) 16,796 16,310 2,257 36,528 38,785 Certificates and other time deposits 11,168 16,291 27,459 1,557 31,904 33,461 Borrowed funds (13,468) 210 (13,258) 5,062 11,529 16,591 Subordinated debt (125) 363 238 24 1,750 1,774 Total increase in interest expense 1,164 39,186 40,350 11,520 108,502 120,022 (Decrease) increase in net interest income $ (10,654) $ (18,113) $ (28,767) $ 131,424 $ 16,377 $ 147,801 Provision for Credit Losses Our allowance for credit losses is established through charges to income in the form of a provision in order to bring our allowance for credit losses for various types of financial instruments including loans, securities and unfunded commitments to a level deemed appropriate by management.
We make commercial and industrial loans in our market area that are underwritten on the basis of the borrower’s ability to service the debt from income. In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and therefore typically yield a higher return.
We make commercial and industrial loans in our market area that are underwritten on the basis of the borrower’s ability to service the debt from income.
The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of our average total assets for the periods indicated.
Our securities portfolio had a weighted average life of 7.2 and 7.6 years at December 31, 2024 and 2023, respectively. 60 The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of our average total assets for the periods indicated.
We rely primarily on convenient locations, personalized service and our customer relationships to attract and retain these deposits. We seek customers that will engage in both a lending and deposit relationship with us.
We offer a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and certificates and other time accounts. We rely primarily on convenient locations, personalized service and our customer relationships to attract and retain these deposits. We seek customers that will engage in both a lending and deposit relationship with us.
As of December 31, 2023 and December 31, 2022, 21.1% and 18.2%, respectively, of our commercial real estate construction and land development loans were owner-occupied. Our commercial real estate construction and land development loans increased $22.7 million, or 2.2%, to $1.06 billion as of December 31, 2023 compared to $1.04 billion as of December 31, 2022.
As of December 31, 2024 and December 31, 2023, 13.1% and 21.1%, respectively, of our commercial real estate construction and land development loans were owner-occupied. Our commercial real estate construction and land development loans decreased $214.9 million, or 20.3%, to $845.5 million as of December 31, 2024 compared to $1.06 billion as of December 31, 2023.
The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated: Years Ended December 31, 2023 2022 Average Balance Average Rate Average Balance Average Rate (Dollars in thousands) Interest-bearing demand $ 1,464,015 2.64 % $ 1,140,575 0.81 % Money market and savings 2,259,264 2.15 % 1,841,348 0.54 % Certificates and other time 1,239,345 3.33 % 1,034,491 0.76 % Total interest-bearing deposits 4,962,624 2.59 % 4,016,414 0.67 % Noninterest-bearing deposits 3,814,651 — 2,833,865 — Total deposits $ 8,777,275 1.47 % $ 6,850,279 0.39 % The following table sets forth the amount of time deposits that met or exceeded the FDIC insurance limit of $250 thousand by time remaining until maturity at December 31, 2023 (in thousands): Three months or less $ 211,352 Over three months through six months 153,056 Over six months through 12 months 145,320 Over 12 months 38,710 Total $ 548,438 59 Table of Contents Borrowings The Company has an available line of credit with the FHLB, which allows the Company to borrow on a collateralized basis.
The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated: Years Ended December 31, 2024 2023 Average Balance Average Rate Average Balance Average Rate (Dollars in thousands) Interest-bearing demand $ 1,618,212 2.98% $ 1,464,015 2.64% Money market and savings 2,236,678 2.90% 2,259,264 2.15% Certificates and other time 1,574,598 4.37% 1,239,345 3.33% Total interest-bearing deposits 5,429,488 3.35% 4,962,624 2.59% Noninterest-bearing deposits 3,369,931 — 3,814,651 — Total deposits $ 8,799,419 2.07% $ 8,777,275 1.47% The following table sets forth the amount of time deposits that met or exceeded the FDIC insurance limit of $250 thousand by time remaining until maturity at December 31, 2024 (in thousands): Three months or less $ 224,849 Over three months through six months 170,305 Over six months through 12 months 172,999 Over 12 months 37,468 Total $ 605,621 58 Borrowings We have an available line of credit with the FHLB, which allows us to borrow on a collateralized basis.
As of December 31, 2023, the carrying amount of investment securities totaled $1.40 billion, a decrease of $411.9 million, or 22.8%, compared with $1.81 billion as of December 31, 2022. Securities represented 13.1% and 16.6% of total assets as of December 31, 2023 and 2022, respectively.
As of December 31, 2024, the carrying amount of investment securities totaled $1.67 billion, an increase of $277.3 million, or 19.9%, compared with $1.40 billion as of December 31, 2023. Securities represented 15.3% and 13.1% of total assets as of December 31, 2024 and 2023, respectively.
Noninterest Expense Noninterest expense was $290.5 million for the year ended December 31, 2023 compared to $196.1 million for the year ended December 31, 2022, an increase of $94.4 million, or 48.2%.
Noninterest Expense Noninterest expense was $289.0 million for the year ended December 31, 2024 compared to $290.5 million for the year ended December 31, 2023, a decrease of $1.5 million, or 0.5%.
December 31, 2023 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Total Yield (Dollars in thousands) Available for Sale U.S. government and agency securities $ 84,932 1.35 % $ 78,193 1.31 % $ 7,442 4.69 % $ 136,962 4.61 % $ 307,529 2.87 % Municipal securities — 0.00 % 1,806 4.78 % 67,735 2.35 % 160,074 2.65 % 229,615 2.58 % Agency mortgage-backed pass-through securities 640 2.98 % 4,852 2.92 % 12,025 4.32 % 407,147 3.45 % 424,664 3.47 % Agency collateralized mortgage obligations — 0.00 % 11,170 2.80 % 7,869 2.66 % 443,459 1.90 % 462,498 1.93 % Corporate bonds and other 1,077 2.50 % 3,000 5.75 % 62,368 4.75 % 54,379 2.98 % 120,824 3.96 % Total $ 86,649 1.37 % $ 99,021 1.76 % $ 157,439 3.58 % $ 1,202,021 2.88 % $ 1,545,130 2.80 % December 31, 2022 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Total Yield (Dollars in thousands) Available for Sale U.S. government and agency securities $ 76,438 0.54 % $ 173,380 0.92 % $ 16,081 4.96 % $ 167,518 4.92 % $ 433,417 2.55 % Municipal securities — 0.00 % 21,195 3.45 % 93,313 2.93 % 465,568 3.39 % 580,076 3.31 % Agency mortgage-backed pass-through securities 1 3.21 % 14,112 4.02 % 11,201 4.53 % 345,157 2.94 % 370,471 3.03 % Agency collateralized mortgage obligations — 0.00 % 17,291 2.80 % 8,008 2.70 % 436,461 1.78 % 461,760 1.83 % Corporate bonds and other 1,050 1.25 % 4,000 6.20 % 64,176 4.64 % 73,966 2.68 % 143,192 3.66 % Total $ 77,489 0.55 % $ 229,978 1.58 % $ 192,779 3.75 % $ 1,488,670 2.95 % $ 1,988,916 2.78 % The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected life because borrowers may have the right to prepay their obligations.
December 31, 2024 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Total Yield (Dollars in thousands) Available for Sale U.S. government and agency securities $ — 0.00 % $ 78,658 1.31 % $ 3,141 3.77 % $ 117,163 4.66 % $ 198,962 3.32 % Municipal securities — 0.00 % 3,314 4.76 % 74,337 2.44 % 141,894 2.34 % 219,545 2.41 % Agency mortgage-backed pass-through securities 3,285 2.47 % 4,362 3.71 % 7,936 4.53 % 551,136 3.83 % 566,719 3.83 % Agency collateralized mortgage obligations — 0.00 % 30,539 3.44 % 48,589 4.81 % 651,733 3.23 % 730,861 3.34 % Corporate bonds and other 4,110 4.98 % 3,000 7.99 % 62,000 5.42 % 46,491 2.96 % 115,601 4.48 % Total $ 7,395 3.87 % $ 119,873 2.20 % $ 196,003 4.07 % $ 1,508,417 3.47 % $ 1,831,688 3.45 % December 31, 2023 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Total Yield (Dollars in thousands) Available for Sale U.S. government and agency securities $ 84,932 1.35 % $ 78,193 1.31 % $ 7,442 4.69 % $ 136,962 4.61 % $ 307,529 2.87 % Municipal securities — 0.00 % 1,806 4.78 % 67,735 2.35 % 160,074 2.65 % 229,615 2.58 % Agency mortgage-backed pass-through securities 640 2.98 % 4,852 2.92 % 12,025 4.32 % 407,147 3.45 % 424,664 3.47 % Agency collateralized mortgage obligations — 0.00 % 11,170 2.80 % 7,869 2.66 % 443,459 1.90 % 462,498 1.93 % Corporate bonds and other 1,077 2.50 % 3,000 5.75 % 62,368 4.75 % 54,379 2.98 % 120,824 3.96 % Total $ 86,649 1.37 % $ 99,021 1.76 % $ 157,439 3.58 % $ 1,202,021 2.88 % $ 1,545,130 2.80 % The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected life because borrowers may have the right to prepay their obligations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

11 edited+0 added−3 removed16 unchanged
Biggest changeThe CRO reports to the Technology Committee and management committees information regarding cybersecurity incidents that meet established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. On an annual basis, the Board, Technology Committee and appropriate management committees review the Company’s approach to cybersecurity risk management through reporting by the CISO.
Biggest changeThe CISO reports to the Board Risk Committee, Technology Committee and management committees information regarding cybersecurity incidents that meet established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed.
The CISO, in coordination with the Bank’s CRO, CIO and General Counsel, works across the Company to implement and monitor a program designed to protect the Company’s information systems from cybersecurity threats and promptly respond to any cybersecurity incidents in accordance with the Company’s cybersecurity incident response plan.
The CISO, in coordination with the CRO, CIO and General Counsel, works across the Company to implement and monitor a program designed to protect the Company’s information systems from cybersecurity threats and promptly respond to any cybersecurity incidents in accordance with the Company’s cybersecurity incident response plan.
The Company has implemented controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner. • Outside Experts —The Company routinely works with outside experts, consultants, auditors and other third parties in connection with managing its cybersecurity risks and for advice regarding best practices and technical expertise. • Third-Party Risk Management —The Company maintains a robust, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems. • Education and Awareness —The Company provides regular, mandatory training for personnel regarding cybersecurity threats to equip the Company’s personnel with effective tools to address cybersecurity threats.
The Company has implemented controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner. • Outside Experts —The Company routinely works with outside experts, consultants, auditors and other third parties in connection with managing its cybersecurity risks and for advice regarding best practices and technical expertise. 36 Table of Contents • Third-Party Risk Management —The Company maintains a robust, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems. • Education and Awareness —The Company provides regular, mandatory training for personnel regarding cybersecurity threats to equip the Company’s personnel with effective tools to address cybersecurity threats.
For more information on the Company's cybersecurity-related risks, see “Item 1A. Risk Factors – Risks Related to Cybersecurity, Third-Parties and Technology.” The prior incidents enabled us to enhance our operational and cybersecurity risk management practices.
For more information on the Company's cybersecurity-related risks, see “Item 1A. Risk Factors – Risks Related to Cybersecurity, Third-Parties and Technology.” Any prior incidents enabled us to enhance our operational and cybersecurity risk management practices.
The CRO holds an MBA from the University of Houston and a Bachelor of Arts in Finance & Marketing from the same institution. The Company’s CEO, CFO and GC each hold undergraduate and/or graduate degrees in their respective fields, and each have significant experience managing risks at the Company and at similar companies, including risks arising from cybersecurity threats.
The CRO holds an MBA from the University of Houston and a Bachelor of Arts in Finance & Marketing from the same institution. The Company’s CEO, CFO and General Counsel each hold undergraduate and/or graduate degrees in their respective fields, and each have significant experience managing risks at the Company and at similar companies, including risks arising from cybersecurity threats.
The members of the Boards of Directors of the Company and the Bank have hundreds of combined years of experience running successful companies and managing enterprise risk. Specific cybersecurity expertise is brought to the Board from independent directors who lead or have led technology firms and, as such, have direct managerial oversight of cybersecurity risks.
The members of the Boards of Directors of the Company and the Bank have hundreds of combined years of experience running successful companies and managing enterprise risk. Specific cybersecurity expertise is brought to the Board from independent directors who lead or have led technology firms and, as such, have direct managerial oversight of cybersecurity risks. 37 Table of Contents
The Company’s CISO holds an undergraduate degree in Business Administration and has attained the professional certification of Certified Information Systems Security Professional (“CISSP”) and numerous GIAC certifications.
The Company’s CISO holds an undergraduate degree in Business Administration and has attained the professional certification of Certified Information Systems Security Professional (“CISSP”) and multiple GIAC certifications.
The lessons learned have also informed our approach to conducting tabletop exercises simulating potential cyber threats, allowing the Bank to assess and improve our response protocols. Governance The Board, in coordination with the Risk Committee and Technology Committee, oversees the Company’s ERM process, including the management of risks arising from cybersecurity threats.
The lessons learned have also informed the Company’s approach to conducting tabletop exercises simulating potential cyber threats, allowing the Company to assess and improve its response protocols. Governance The Board, in coordination with the Risk Committee and Technology Committee, oversees the Company’s ERM process, including the management of risks arising from cybersecurity threats.
In recognition of the evolving landscape of cyber threats and the critical importance of safeguarding our digital assets and customer information, the Bank has taken proactive steps to enhance our cybersecurity framework and risk management practices.
In recognition of the evolving landscape of cyber threats and the critical importance of safeguarding our digital assets and customer information, the Bank has taken proactive steps to enhance our cybersecurity framework and risk management practices. Central to these efforts is the expertise and oversight provided by the Board, particularly through the involvement of its Technology Committee.
This expertise is invaluable in enhancing our cyber defenses and ensuring our compliance with stringent regulatory standards. 37 Table of Contents The Company’s CISO has served in various roles in information technology and information security for over twenty years, including serving as a Cyberspace Operations Officer in the United States Air Force Reserves and instructing for the SANS Technology Institute.
The Company’s CISO has served in various roles in information technology and information security for over twenty years, including serving as a Cyberspace Operations Officer in the United States Air Force Reserves and instructing for the SANS Technology Institute.
The Technology Committee and the Board approve the Information Security Program and all supporting Policies.
On an annual basis, the Board, Technology Committee and appropriate management committees review the Company’s approach to cybersecurity risk management through reporting by the CISO. The Technology Committee and the Board approve the Information Security Program and all supporting policies.
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Central to these efforts is the expertise and oversight provided by the Board, particularly through the involvement of its 36 Table of Contents Technology Committee.
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The Company has recently bolstered cybersecurity leadership, with the addition of a Director of Information Security Officer (“DISO”). The DISO possesses a wealth of experience in the field of information security, notably having served as a regulator in charge of information security for over seven years.
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This background provides the DISO with a deep understanding of cybersecurity challenges and regulatory requirements faced by financial institutions.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The Company ’ s principal executive office is located at 9 Greenway Plaza, Suite 110, Houston, Texas 77046. As of December 31, 2023, we had 54 full-service banking centers, with 37 banking centers located in the Houston MSA, 16 banking centers in the Beaumont MSA and one banking center in Dallas, Texas.
Biggest changeITEM 2. PROPERTIES The Company ’ s principal executive office is located at 9 Greenway Plaza, Suite 110, Houston, Texas 77046. As of December 31, 2024, we had 54 full-service banking centers, with 37 banking centers located in the Houston MSA, 16 banking centers in the Beaumont MSA and one banking center in Dallas, Texas.
The Company believes that lease terms for the banking centers that it leases are generally consistent with prevailing market terms. The expiration dates of the leases range from 2024 to 2045, without consideration of any renewal periods available.
The Company believes that lease terms for the banking centers that it leases are generally consistent with prevailing market terms. The expiration dates of the leases range from 2025 to 2045, without consideration of any renewal periods available.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe intend to defend ourselves vigorously against any future claims or litigation. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 38 Table of Contents PART II.
Biggest changeWe intend to defend ourselves vigorously against any future claims or litigation. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to the Company. See “Item 1. — Business—Regulation and Supervision—Regulatory Limits on Dividends, Distributions and Repurchases.” The Company’s junior subordinated debentures allow it to defer interest payments thereunder for a period of time.
Biggest changeSee “Item 1. — Business—Regulation and Supervision—Regulatory Limits on Dividends, Distributions and Repurchases.” 38 Table of Contents The Company’s junior subordinated debentures allow it to defer interest payments thereunder for a period of time.
Repurchases under the Company’s share repurchase program may be made from time to time at the Company’s discretion in open market transactions, through block trades, in privately negotiated transactions, and pursuant to any trading plan that may be adopted by the Company’s management in accordance with Rule 10b5-1 of the Exchange Act or otherwise.
Repurchases under the Company’s share repurchase program may be made from time to time at the Company’s discretion in open market transactions, through block trades, in privately negotiated transactions or pursuant to any trading plan that may be adopted by the Company’s management in accordance with Rule 10b5-1 of the Exchange Act or otherwise.
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) of the Company’s common stock during the fourth quarter of 2023.
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) of the Company’s common stock during the fourth quarter of 2024.
(2) Computed based on the closing price of the Company’s common stock as of the end of each period shown. 40 Table of Contents Performance Graph The performance graph compares the cumulative total shareholder return on CBTX’s common stock for the period beginning at the close of trading on December 31, 2018 to the close of trading on September 30, 2022 and Stellar’s common stock for the period beginning October 1, 2022 to the close of trading on December 31, 2023, with the cumulative total return of the Russell 2000 Index, S&P 600 Banks Index, NASDAQ Composite Index and the NASDAQ Bank Index for the same period.
(2) Computed based on the closing price of the Company’s common stock as of the end of each period shown. 39 Table of Contents Performance Graph The performance graph compares the cumulative total shareholder return on the CBTX common stock for the period beginning at the close of trading on December 31, 2019 to the close of trading on September 30, 2022 and Stellar’s common stock for the period beginning October 1, 2022 to the close of trading on December 31, 2024, with the cumulative total return of the Russell 2000 Index and the S&P 600 Banks Index.
The historical stock price performance for Stellar’s common stock shown on the graph below is not necessarily indicative of future stock performance. (1) Prior to the Merger, the shares were traded under the symbol “CBTX.” * $100 invested on December 31, 2018 in Stellar ’ s common stock or an index, including reinvestment of dividends.
The historical stock price performance for Stellar’s common stock shown on the graph below is not necessarily indicative of future stock performance. * $100 invested on December 31, 2019 in Stellar ’ s common stock or an index, including reinvestment of dividends.
Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2023, regarding the equity compensation plans under which the Company’s equity securities are authorized for issuance: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders 917,050 $ 25.24 1,108,690 Equity compensation plans not approved by security holders — — — Total 917,050 1,108,690 39 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers In 2022, the Company’s Board of Directors authorized a share repurchase program (“2022 Repurchase Program”), under which the Company could repurchase up to $40.0 million of the Company’s common stock starting September 22, 2022 through September 30, 2023.
Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2024, regarding the equity compensation plans under which the Company’s equity securities are authorized for issuance: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders 796,889 $ 24.56 810,276 Equity compensation plans not approved by security holders — — — Total 796,889 810,276 Purchases of Equity Securities by the Issuer and Affiliated Purchasers During 2024, the Company’s Board of Directors authorized a share repurchase program to provide that the Company may repurchase up to $60 million of the Company’s common stock through May 31, 2025.
Period Number of Shares Purchased (1) Average Price Paid Per Share Shares Purchased as Part of Publicly Announced Plan Number of Shares That May Yet be Purchased Under the Plan (2) October 1, 2023 to October 31, 2023 49,775 $ 21.32 — 2,763,703 November 1, 2023 to November 30, 2023 13 $ 23.89 — 2,514,669 December 1, 2023 to December 31, 2023 — $ — — 2,155,172 Total 49,788 $ 21.32 (1) S hares employees elected to have withheld to satisfy their tax liabilities related to options exercised or restricted stock vested or to pay the exercise price of the options as allowed under the Company’s stock compensation plans.
Period Number of Shares Purchased (1) Average Price Paid Per Share Shares Purchased as Part of Publicly Announced Plan Number of Shares That May Yet be Purchased Under the Plan (2) October 1, 2024 to October 31, 2024 46,578 $ 24.89 — 2,200,261 November 1, 2024 to November 30, 2024 60 $ 27.35 — 1,931,348 December 1, 2024 to December 31, 2024 — $ — — 2,112,561 Total 46,638 $ 24.89 (1) S hares employees elected to have withheld to satisfy their tax liabilities related to options exercised or restricted stock vested or to pay the exercise price of the options as allowed under the Company’s stock compensation plans.
Dividends During 2023, the Company paid four quarterly cash dividends of $0.13 per share on its common stock and declared a quarterly dividend of $0.13 per share to be paid in the first quarter of 2024. See Note 19 — Subsequent Events.
During the first quarter of 2025, the Company declared a quarterly dividend of $0.14 per share to be paid in the first quarter of 2025. See Note 19 — Subsequent Events.
Dividend reinvestment has been assumed. The Russell 2000 Index and the S&P 600 Bank Index were added to the performance graph due to the transfer of the Company’s stock listing to the NYSE during 2023. The Performance graph assumes $100 invested on December 31, 2018 in the Company’ common stock and each comparative index shown.
Dividend reinvestment has been assumed. The Performance graph assumes $100 invested on December 31, 2019 in the Company’ common stock and each comparative index shown.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Market Prices The Company’s common stock is listed on the New York Stock Exchange under the symbol “STEL.” On June 12, 2023, the Company transferred listing of its common stock from the Nasdaq Stock Market LLC (“Nasdaq”) to the New York Stock Exchange.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Market Prices The Company’s common stock is listed on the New York Stock Exchange under the symbol “STEL.” As of February 27, 2025, there were 52,950,142 shares outstanding and 953 shareholders of record of the Company’s common stock.
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Prior to the Merger, the Company’s stock was listed on the Nasdaq under the symbol “CBTX.” Quotations of the sales volume and the closing sales prices of the common stock of the Company are listed daily in the New York Stock Exchange’s listings.
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The closing price per share of common stock on December 31, 2024, the last trading day of the year, was $28.35. Dividends During 2024, the Company paid three quarterly cash dividends of $0.13 per share and one quarterly dividend of $0.14 per share on its common stock.
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As of February 26, 2024, there were 53,297,191 shares outstanding and 1,209 shareholders of record of the Company’s common stock. The closing price per share of common stock on December 29, 2023, the last trading day of the year, was $27.84.
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The Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to the Company.
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During the second quarter of 2023, the Company's Board of Directors authorized the expansion of its existing share repurchase program to provide that the Company may repurchase up to $60 million of the Company’s common stock through May 31, 2024.
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Fiscal year ending De cember 31. 2019 2020 2021 2022 2023 2024 Stellar Bancorp, Inc. 100.00 83.66 96.87 100.17 96.64 100.49 Russell 2000 100.00 119.96 137.74 109.59 128.14 142.93 S&P 600 Banks 100.00 87.95 119.38 109.98 108.10 123.92 (Source: Refinitiv)
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Fiscal year ending De cember 31. 2018 2019 2020 2021 2022 2023 Stellar Bancorp, Inc. 100.00 107.28 89.75 103.92 107.46 103.67 Russell 2000 100.00 125.52 150.58 172.90 137.56 160.85 S&P 600 Banks 100.00 120.57 106.04 143.94 132.60 130.34 NASDAQ Composite 100.00 136.69 198.10 242.03 163.28 236.17 NASDAQ Bank 100.00 117.98 107.14 151.35 126.88 135.67 (Source: Refinitiv) ITEM 6. [RESERVED] 41 Table of Contents

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, the reports thereon, the notes thereto and supplementary data commence at page 72 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
Biggest changeFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, the reports thereon, the notes thereto and supplementary data commence at page 71 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.

Other STEL 10-K year-over-year comparisons