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What changed in Stellar Bancorp, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Stellar Bancorp, Inc.'s 2024 and 2025 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 2025 report.

+402 added−367 removedSource: 10-K (2026-02-26) vs 10-K (2025-03-03)

Top changes in Stellar Bancorp, Inc.'s 2025 10-K

402 paragraphs added · 367 removed · 286 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

146 edited+63 added−44 removed381 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. 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.
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; 16 • 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.
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.
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.
If there are additional financial institution failures that affect the Deposit Insurance Fund, we may be required to pay FDIC premiums higher than current levels. Future additional assessments, increases or required prepayments in FDIC insurance premiums may materially adversely affect our business, financial condition and results of operations.
If there are financial institution failures that affect the Deposit Insurance Fund, we may be required to pay FDIC premiums higher than current levels. Future additional assessments, increases or required prepayments in FDIC insurance premiums may materially adversely affect our business, financial condition and results of operations.
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).
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 36 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).
Negative public opinion could result from the Company’s actual or alleged conduct in any number of activities, including (1) lending practices, (2) expansion strategy, (3) product and service offerings, (4) corporate governance, (5) regulatory compliance, (6) mergers and acquisitions, (7) disclosure, (8) sharing or inadequate protection of customer information, (9) successful or attempted cyber-attacks against the Company, its customers or its third-party partners or vendors and (10) failure to discharge any publicly announced commitments to employees or environmental, social and governance initiatives or to respond adequately to social and sustainability concerns from the viewpoint of its stakeholders from actions taken by government regulators and community organizations in response to the Company’s conduct.
Negative public opinion could result from the Company’s actual or alleged conduct in any number of activities, including (1) lending practices, (2) expansion strategy, (3) product and service offerings, (4) corporate governance, (5) regulatory compliance, (6) mergers and acquisitions, (7) disclosure, (8) sharing or inadequate protection of customer information, (9) successful or attempted cyber-attacks against the Company, its customers or its third-party partners or vendors and (10) failure to discharge any publicly announced commitments to employees or environmental, social and governance initiatives or to respond adequately to social 31 and sustainability concerns from the viewpoint of its stakeholders from actions taken by government regulators and community organizations in response to the Company’s conduct.
In addition, federal and state bank regulatory agencies periodically review our allowance for credit losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure. Such regulatory agencies may require the Company to recognize future charge-offs. Their conclusions about the quality of a particular borrower or our entire loan portfolio may be different than ours.
In addition, federal and state bank regulatory agencies periodically review our allowance for credit losses 25 and the value attributed to nonaccrual loans or to real estate acquired through foreclosure. Such regulatory agencies may require the Company to recognize future charge-offs. Their conclusions about the quality of a particular borrower or our entire loan portfolio may be different than ours.
The rules also define “qualified mortgages,” imposing both underwriting standards—for example, a borrower’s debt to income ratio may not exceed 43%—and limits on the terms of their loans. Points and fees are subject to a relatively stringent cap, and the terms include a wide array of payments that may be made in the course of closing a loan.
The rules also define “qualified mortgages,” imposing both underwriting standards—for example, a borrower’s debt to income ratio may not generally exceed 43% and limits on the terms of their loans. Points and fees are subject to a relatively stringent cap, and the terms include a wide array of payments that may be made in the course of closing a loan.
Human errors, malfeasance and other misconduct, even if promptly discovered and remediated, can result in reputational damage or legal risk and have a material adverse effect on our business, financial condition and results of operations. If the goodwill that we have recorded in connection with business acquisitions becomes impaired, it could require charges to earnings.
Human errors, 23 malfeasance and other misconduct, even if promptly discovered and remediated, can result in reputational damage or legal risk and have a material adverse effect on our business, financial condition and results of operations. If the goodwill that we have recorded in connection with business acquisitions becomes impaired, it could require charges to earnings.
Our products and services are tailored to address the needs of our targeted customers and we believe positions us well to compete effectively and build strong customer relationships. • Focus on seasoned bankers —We believe our management team’s long-standing presence and experience in our markets gives us valuable insight into the local market and the ability to successfully develop and recruit talented bankers.
Our products and services are tailored to address the needs of our targeted customers and we believe positions us well to compete effectively and build strong customer relationships. • Focus on seasoned bankers —We believe our management team’s long-standing presence and experience in our market gives us valuable insight into the local market and the ability to successfully develop and recruit talented bankers.
The rules also generally require public companies to disclose on Form 8-K any cybersecurity incident it determines to be material within four business days of such determination and to describe the material aspects of the incident's nature, scope, and timing, as well as its material impact or reasonably likely material impact on the company. See “Item 1C.
The rules also generally require public companies to disclose on Form 8-K any cybersecurity incident it determines to be material within four business days of such determination and to describe the material aspects of the incident’s nature, scope, and timing, as well as its 14 material impact or reasonably likely material impact on the company. See “Item 1C.
Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K and is not part of this or any other report that we file with or furnish to the SEC. Regulation and Supervision The U.S. banking industry is highly regulated under federal and state law.
Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K and is not part of this or any other report that we file with or furnish to the SEC. 5 Regulation and Supervision The U.S. banking industry is highly regulated under federal and state law.
We believe that our strong market share position in our geographic areas of operation are a reflection of our ability to effectively compete with the larger banks in our markets most of which are based out of state. Human Capital Overview Our ability to serve our customers and communities is driven by the strength and engagement of our workforce.
We believe that our strong market share position in our geographic areas of operation is a reflection of our ability to effectively compete with the larger banks in our market, most of which are based out of state. Human Capital Overview Our ability to serve our customers and communities is driven by the strength and engagement of our workforce.
Certain loans, including interest only loans and negative amortization loans, cannot be qualified mortgages. The Community Reinvestment Act The Community Reinvestment Act (“CRA”) and related regulations are intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighborhoods, consistent with safe and sound operations.
Certain loans, including interest only loans and negative amortization loans, cannot be qualified mortgages. 13 The Community Reinvestment Act The Community Reinvestment Act (“CRA”) and related regulations are intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighborhoods, consistent with safe and sound operations.
In addition, to access our network, products and services, our customers and other third-parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks. All of these factors increase our risks related to cyber-threats and electronic disruptions.
In addition, to access our network, 28 products and services, our customers and other third-parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks. All of these factors increase our risks related to cyber-threats and electronic disruptions.
These risks include: (1) the viability of the contractor, (2) the value of the project being subject to successful completion, (3) the contractor’s ability to complete the project, to meet deadlines and time schedules and to stay within our estimates and (4) concentration of such loans with a single contractor and our affiliates.
These risks include: (1) the viability of the contractor, (2) the value of the project being subject to successful completion, (3) the contractor’s ability to complete 24 the project, to meet deadlines and time schedules and to stay within our estimates and (4) concentration of such loans with a single contractor and our affiliates.
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.
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”). 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.
This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding, monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made.
This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding, monitoring the capabilities of the AI models, reducing 29 erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made.
We intend to continue to grow our business through strategic acquisitions of financial institutions coupled with organic growth. Generally, we must receive state and federal regulatory approval before we can acquire an FDIC-insured depository institution or related business.
We intend to continue to grow our business through strategic acquisitions of financial institutions coupled with organic growth. Generally, we must receive state and federal regulatory approval before we can acquire an FDIC-insured depository institution 32 or related business.
It is possible that such comprehensive changes to the federal government may be materially adverse to the regional and local economies where we conduct business and to our customers, which, in turn, could be materially adverse to our business, financial condition and results of operations.
It is possible that such comprehensive changes to the federal 21 government may be materially adverse to the regional and local economies where we conduct business and to our customers, which, in turn, could be materially adverse to our business, financial condition and results of operations.
The final supervisory determination on an institution’s capital adequacy is based on the regulator’s assessment of numerous factors. As a bank holding company and a state-chartered non-member bank, the Company and the Bank are subject to both risk-based and leverage regulatory capital requirements.
The final supervisory determination on an institution’s capital adequacy is based on the regulator’s assessment of numerous factors. As a bank holding company and a state-chartered member bank, the Company and the Bank are subject to both risk-based and leverage regulatory capital requirements.
During challenging economic environments, our customers are more dependent on our credit commitment, and increased borrowings under these commitments could adversely impact our liquidity. Inflationary pressures and rising prices may affect our results of operations and financial condition.
During challenging economic environments, our customers are more dependent on our credit commitment, and increased borrowings under these commitments could adversely impact our liquidity. 19 Inflationary pressures and rising prices may affect our results of operations and financial condition.
We have established relationships with correspondent banks and other independent financial institutions to provide other services requested by customers, including loan participations sold when the requested loan amount exceeds the lending limits in our lending policies. 3 Table of Contents Competition We compete in the highly competitive commercial banking industry through the Bank and firmly believe that the Bank’s presence in the community and philosophy of personalized service enhances our ability to attract and retain customers.
We have established relationships with correspondent banks and other independent financial institutions to provide other services requested by customers, including loan participations sold when the requested loan amount exceeds the lending limits in our lending policies. 3 Competition We compete in the highly competitive commercial banking industry through the Bank and firmly believe that the Bank’s presence in the community and philosophy of personalized service enhances our ability to attract and retain customers.
Community Banking Services Lending Activities We offer a wide range of commercial and retail lending services, including commercial loans, loans to small businesses guaranteed by the Small Business Administration (the “SBA”), mortgage loans, home equity loans, personal loans and automobile loans, among others, specifically designed for small- to medium-sized businesses and companies, professionals and individuals generally located within Texas and primarily in our markets.
Community Banking Services Lending Activities We offer a wide range of commercial and retail lending services, including commercial loans, loans to small businesses guaranteed by the Small Business Administration (the “SBA”), mortgage loans, home equity loans, personal loans and automobile loans, among others, specifically designed for small- to medium-sized businesses and companies, professionals and individuals generally located within Texas and primarily in our market.
In light of evolving priorities among government and agency leaders, there is some uncertainty as to how the CFPB examination and regulatory authority might impact our business in the near and medium terms. Negative public opinion regarding the Company or its failure to maintain the Company’s or the Bank’s reputation in the communities served could adversely impact business.
In light of evolving priorities among government and agency leaders, there is some uncertainty as to how the CFPB examination and regulatory authority might impact our business in the near and medium term. Negative public opinion regarding the Company or its failure to maintain the Company’s or the Bank’s reputation in the communities served could adversely impact business.
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.
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 • Local decision making authority —Acquisitions of many local financial institutions in our market 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 market.
CFPB enforcement actions may serve as precedent for how the CFPB interprets and enforces consumer protection laws, including practices or acts that are deemed to be unfair, deceptive or abusive, with respect to all supervised institutions, which may result in the imposition of higher standards of compliance with such laws.
CFPB enforcement actions may serve as precedent for how the CFPB interprets and enforces consumer protection laws, including practices or acts that are deemed to be unfair, deceptive or abusive, with respect to all supervised institutions, which may result in the imposition of higher standards of compliance with such laws and increased compliance costs.
The Company may grant registration rights covering shares of its common stock or other securities in connection with acquisitions and investments.
The 35 Company may grant registration rights covering shares of its common stock or other securities in connection with acquisitions and investments.
We will leverage our community banking strategy to organically grow our banking franchise through: • increasing the productivity of existing bankers, as measured by loans, deposits and fee income per banker, while enhancing profitability by leveraging our existing operating platform; • focusing on local decision-making, allowing us to provide customers with timely decisions on loan requests, which we believe allows us to effectively compete with larger financial institutions; • preserving a culture of risk management; • identifying and hiring additional seasoned bankers who will thrive within a locally-focused community banking model; and • broadening our financial services offerings and technology adoption to better serve our customer base's evolving needs while increasing operational efficiency.
We will leverage our community banking strategy to organically grow our banking franchise through: • increasing the productivity of existing bankers, as measured by loans, deposits and fee income per banker, while enhancing profitability by leveraging our existing operating platform; • identifying and hiring additional seasoned bankers who will thrive within a locally focused community banking model; • focusing on local decision-making, allowing us to provide customers with timely decisions on loan requests, which we believe allows us to effectively compete with larger financial institutions; and • broadening our financial services offerings and technology adoption to better serve our customer base’s evolving needs while increasing operational efficiency.
In particular, many of our competitors are significantly larger with greater financial resources, and may be able to offer more attractive compensation packages and broader career opportunities. Furthermore, our current and potential new personnel may prefer and seek jobs where they can work fully remote.
In particular, many of our competitors are significantly larger with greater financial resources and may be able to offer more attractive compensation packages and broader career opportunities. Furthermore, our current and potential new personnel may prefer and seek jobs where they can work fully remotely.
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.
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.
If we become subject to such regulatory actions, our business, financial condition, results of operations, cash flows and reputation may be negatively impacted. Many of the Company ’ s new activities and expansion plans may require regulatory approvals, and failure to obtain them may restrict our growth.
If we become subject to such regulatory actions, our business, financial condition, results of operations, cash flows and reputation may be negatively impacted. Many of the Company ’ s new activities and expansion plans may require regulatory approval, and failure to obtain them may restrict our growth.
Any such misrepresented information could adversely impact the Company’s business, financial condition and results of operations. The Company may be subject to environmental liabilities in connection with the properties we own and the foreclosure on real estate assets securing our loan portfolio.
Any such misrepresented information could adversely impact the Company’s business, financial condition and results of operations. 30 The Company may be subject to environmental liabilities in connection with the properties we own and the foreclosure of real estate assets securing our loan portfolio.
We are focused on delivering a wide variety of high-quality, relationship-driven commercial and community-oriented banking products and services tailored to meet the needs of small- to medium-sized businesses, professionals and individuals in our markets.
We are focused on delivering a wide variety of high-quality, relationship-driven commercial and community-oriented banking products and services tailored to meet the needs of small- to medium-sized businesses, professionals and individuals in our market.
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.
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.
Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. 28 Table of Contents Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs.
Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs.
Moreover, the current presidential administration has made certain changes in the leadership and senior staffs of the federal banking agencies and may make additional changes in the future. Such changes are likely to impact the rulemaking, supervision, examination and enforcement priorities and policies of the agencies.
Moreover, the current presidential administration has made certain changes in the leadership and senior staff of the federal banking agencies and may make additional changes in the future. Such changes are likely to impact the rulemaking, supervision, examination and enforcement priorities and policies of the agencies.
A depository institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a common equity Tier 1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive to meet and maintain a specific level for any capital measure.
A depository institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive to meet and maintain a specific level for any capital measure.
In addition, the FDIA prohibits an insured depository institution from offering interest rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending upon where the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the FDIC.
In addition, the FDIA prohibits an insured depository institution from offering interest rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending upon where the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the Federal Reserve.
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.
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 Federal Reserve.
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.
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.
Federal Reserve rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction plus 5 basis points multiplied by the value of the transaction.
Federal Reserve rules applicable to financial institutions that have assets of $10 billion or more, such as the Bank, provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction plus 5 basis points multiplied by the value of the transaction.
If we were to lose the services of highly productive bankers, 20 Table of Contents including successful bankers employed by an acquired bank, to a competitor or otherwise, the Company may not be able to retain valuable relationships and some of our customers could choose to use the services of a competitor instead of our services.
If we were to lose the services of highly productive bankers, including successful bankers employed by an acquired bank, to a competitor or otherwise, the Company may not be able to retain valuable relationships and some of our customers could choose to use the services of a competitor instead of our services.
We may also be required to sell or, in the alternative, commit to retain branches as a condition to receiving regulatory approval, which may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition. We also plan to continue de novo branching as a part of our organic growth strategy.
We may also be required to sell or, alternatively, commit to retain branches as a condition to receiving regulatory approval, which may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition. We also plan to continue de novo branching as a part of our organic growth strategy.
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.
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.
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.
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.
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%.
Under the Basel III Capital Rules, to be well capitalized, an insured depository institution is required to maintain a minimum CET1 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%.
The FDIC may, on a case-by-case basis and upon application by an adequately capitalized insured depository institution, waive the restriction on brokered deposits upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution.
The Federal Reserve may, on a case-by-case basis and upon application by an adequately capitalized insured depository institution, waive the restriction on brokered deposits upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution.
We have made extensive investments in the technology and systems necessary to build a scalable corporate infrastructure with the capacity to support continued growth. The Merger better positions us to effectively invest in technology and be more future-focused than smaller banks.
We have made extensive investments in the technology and systems necessary to build a scalable corporate infrastructure with the capacity to support continued growth. Our size better positions us to effectively invest in technology and be more future-focused than smaller banks.
We may incur compliance, operating, maintenance and remediation costs. 19 Table of Contents Significant changes to the size, structure, powers and operations of the federal government may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial conditions.
We may incur compliance, operating, maintenance and remediation costs. Significant changes to the size, structure, powers and operations of the federal government may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial conditions.
If the federal government were to reduce the amount of SBA loan guarantees, such reduction could adversely impact our SBA lending program. 24 Table of Contents We may suffer losses in our loan portfolio due to inadequate or faulty underwriting and loan collection practices.
If the federal government were to reduce the amount of SBA loan guarantees, such reduction could adversely impact our SBA lending program. We may suffer losses in our loan portfolio due to inadequate or faulty underwriting and loan collection practices.
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.
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; • market perception of our ability to manage growth projections and expectations and to complete the Merger with Prosperity; • 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.
To that end, the banking regulators have broad regulatory, examination and enforcement authority and regularly examine the operations of banking organizations. The regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of a banking organization’s operations are unsatisfactory.
To that end, the banking regulators have broad regulatory, examination and enforcement authority and regularly examine the operations of banking organizations. The regulators have various formal and informal enforcement actions available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of a banking organization’s operations are unsatisfactory.
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.
In instances in which a company owns at least 5% but less than 25%, the Federal Reserve considers the full facts and circumstances of the relationship between the company and the bank holding company to determine whether the company controls 7 the 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.
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.
We are committed to attracting, developing, and retaining talented individuals who contribute to our long-term success. Our culture emphasizes collaboration, integrity, and accountability, fostering an environment where employees at all levels can thrive. As of December 31, 2024, we had 1,023 employees.
We are committed to attracting, developing, and retaining talented individuals who contribute to our long-term success. Our culture emphasizes collaboration, integrity, and accountability, fostering an environment where employees at all levels can thrive. As of December 31, 2025, we had 1,053 employees.
Concentrated Commercial Real Estate Lending Guidance The federal banking agencies, including the FDIC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.
Concentrated Commercial Real Estate Lending Guidance The federal banking agencies have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.
A depository institution is “under-capitalized” if it has a total risk-based capital ratio of less than 8.0%, a common equity Tier 1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%.
A depository institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a common equity Tier 1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%.
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.
As of December 31, 2025, we held $1.22 billion of public 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.
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.
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.
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.
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.
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.
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.
Under the Dodd-Frank Act, bank holding companies and their subsidiaries must be well-capitalized and well-managed in order for the bank holding company and its nonbank affiliates to engage in the expanded financial activities permissible only for a financial holding company. The Company has not elected to pursue financial holding company status.
Bank holding companies and their subsidiaries must be well-capitalized and well-managed in order for the bank holding company and its nonbank affiliates to engage in the expanded financial activities permissible only for a financial holding company. The Company has not elected to pursue financial holding company status.
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.
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 Federal Reserve 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.
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.
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.
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.
As of December 31, 2025, the Bank met the requirements to be “well capitalized” under the prompt corrective action regulations. 9 The prompt corrective action regulations do not apply to bank holding companies.
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 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.
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.
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.
Under the Basel III Capital Rules, banking organizations were provided a one-time option in their initial regulatory financial report filed after January 1, 2015, to remove certain components of accumulated other comprehensive income from the computation of common equity regulatory capital.
Under the Basel III Capital Rules, banking organizations were provided a one-time option in their initial regulatory financial report filed after January 1, 2015, to remove certain components of accumulated other comprehensive income from the computation of common equity regulatory capital. We elected to opt-out of the requirement to include most components of accumulated other comprehensive income in regulatory capital.
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.
Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
With compliance required by May 1, 2022, the final rule requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
Banking organizations are required to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
A number of factors may adversely affect the labor force available to us or increase labor costs, a shift towards remote work, wage inflation, higher unemployment subsidies, other government regulations and general macroeconomic factors.
Labor costs are a material component of operating our business. A number of factors may adversely affect the labor force available to us or increase labor costs, a shift towards remote work, wage inflation, higher unemployment subsidies, other government regulations and general macroeconomic factors.
In addition, the Basel III Capital Rules established more conservative standards for including an instrument in regulatory capital and impose certain deductions from and adjustments to the measure of common equity Tier 1 capital.
In addition, the Basel III Capital Rules established more conservative standards for including an instrument in regulatory capital and impose certain deductions from and adjustments to the measure of CET1 capital.
We expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our customers are located. 14 Table of Contents In July 2023, the SEC adopted rules requiring public companies to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, processes, strategy, and governance.
We expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our customers are located. The SEC requires public companies to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, processes, strategy, and governance.
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.
As of December 31, 2025, the fair value of our securities portfolio was $2.20 billion, which represented 20.3% 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.
Furthermore, if a court were to find the exclusive forum provision contained in the Company’s bylaws, as amended pursuant to the merger agreement, to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect its business, operating results and financial condition. ITEM 1B.
Furthermore, if a court were to find the exclusive forum provision contained in the Company’s bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect its business, operating results and financial condition. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
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.
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.
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, 2025, our allowance for credit losses on loans was $83.6 million, which represented 1.15% of our total loans and 159.15% 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.
If we are unable to attract and retain successful loan officers and other personnel, or if our loan officers and other personnel fail to meet our expectations in terms of customer relationships and profitability, we may be unable to execute our business strategy and our business, financial condition, results of operations and growth prospects may be negatively affected.
If we are unable to attract and retain successful loan officers and other personnel, or if our loan officers and other personnel fail to meet our expectations in terms of customer relationships and profitability, we may be unable to execute our business strategy and our business, financial condition, results of operations and growth prospects may be negatively affected. 22 Our results of operations may be adversely affected by labor shortages, turnover and labor cost increases .
While the Company does not anticipate any changes in our executive management team, the unexpected loss of any of these members of management could have a material adverse effect on the Company and our ability to implement our business strategy.
While the Company does not anticipate any changes in our executive management team, the unexpected loss of any of these members of management could have a material adverse effect on the Company and our ability to implement our business strategy. Growth Strategy Risks Our strategic growth plan could expose the Company to financial, execution and operational risks.
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.
Risks Related to Business and Operations External and Market Related Risks • negative developments affecting the financial services industry; 15 • 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; • adverse impact of geopolitical events, wars, natural disasters, climate change, pandemics and other catastrophes; • 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeDecember 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.
Biggest changeDecember 31, 2025 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 $ 298,792 3.59 % $ 2,571 5.86 % $ 2,229 3.78 % $ 90,769 4.51 % $ 394,361 3.82 % Municipal securities — 0.00 % 14,660 2.76 % 76,295 2.34 % 127,188 2.50 % 218,143 2.46 % Agency mortgage-backed pass-through securities 14 2.74 % 8,684 4.05 % 10,606 3.37 % 812,511 4.29 % 831,815 4.28 % Agency collateralized mortgage obligations 4,991 2.80 % 34,743 3.65 % 35,170 4.33 % 662,723 3.37 % 737,627 3.43 % Corporate bonds and other 1,145 3.07 % — 0.00 % 71,832 5.65 % 35,843 2.81 % 108,820 4.69 % Total $ 304,942 3.57 % $ 60,658 3.59 % $ 196,132 3.98 % $ 1,729,034 3.79 % $ 2,290,766 3.77 % 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 % 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.
We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.
Commitments to Extend Credit . We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.
All loans deemed as being individually evaluated are reviewed on a quarterly basis in order to determine whether a specific reserve is required. The Company considers certain loans to be collateral dependent if the borrower is experiencing financial difficulty and management expects repayment for the loan to be substantially through the operation or sale of the collateral.
All loans deemed as being individually evaluated are reviewed on a quarterly basis in order to determine whether a specific reserve is required. The 44 Company considers certain loans to be collateral dependent if the borrower is experiencing financial difficulty and management expects repayment for the loan to be substantially through the operation or sale of the collateral.
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.
Where applicable, instruments on the balance sheet are modeled at the instrument level, incorporating 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.
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.
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.
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.
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.
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.
A summary of pertinent information related to the Company’s issuances of junior subordinated debentures outstanding at December 31, 2025 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, 2025.
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.
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.
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.
During the years ended December 31, 2025 and 2024, 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.
In December 2024, the Bank redeemed the Bank Notes at a redemption price equal to 100% of the principal amount of Bank Notes plus accrued and unpaid interest. 59 In September 2019, Stellar issued $60.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Company Notes”) due October 1, 2029.
In December 2024, the Bank redeemed the Bank Notes at a redemption price equal to 100% of the principal amount of Bank Notes plus accrued and unpaid interest. 61 In September 2019, Stellar issued $60.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Company Notes”) due October 1, 2029.
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.
The Company has fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by each 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 3-Month SOFR plus a spread adjustment.
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.
As of December 31, 2025 and 2024, 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.
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.
Covenants made under the Loan Agreement include, among other things, while there are 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 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.
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 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, 2025 December 31, 2024 December 31, 2025 December 31, 2024 +300 9.2% 3.1% (1.0)% (4.9)% +200 6.5% 2.4% 1.5% (1.8)% +100 3.4% 1.4% 1.8% (0.2)% Base 0.0% 0.0% 0.0% 0.0% -100 (3.2)% (2.5)% (4.0)% (2.8)% -200 (5.9)% (5.2)% (10.5)% (7.9)% -300 (7.6)% (8.6)% (19.5)% (15.1)% 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.
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.
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 53 more likely to decrease in value than real estate.
Increasing estimated loss rates by 5% (i.e. quantitative and qualitative) would have a $3.6 million impact.
Increasing estimated loss rates by 5% (i.e. quantitative and qualitative) would have a $3.5 million impact.
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.
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 4 – Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statements.
Any redemption will be at a redemption price equal to 100% of the principal amount of Company Notes being redeemed, plus accrued and unpaid interest, and will be subject to, and require, prior regulatory approval. The Company Notes are not subject to redemption at the option of the holders.
Any future redemptions will be at a redemption price equal to 100% of the principal amount of Company Notes being redeemed, plus accrued and unpaid interest, and will be subject to, and require, prior regulatory approval. The Company Notes are not subject to redemption at the option of the holders.
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.
Item 1A. — Risk Factors” and the following: • the proposed transaction with Prosperity, including the likelihood of the satisfaction of the conditions to the completion of the transaction and whether and when the transaction will be consummated; • 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, legislative and regulatory actions and reforms and executive orders; • 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; 42 • natural disasters, climate change and adverse weather in the Company’s market area; • 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 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.
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.
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.
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, 2024 for a discussion of 2024 versus 2023 results.
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, 2025, the Company believes it was in compliance with all such debt covenants and had not been made aware of any noncompliance by the lender.
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.
See Note 3 – 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.
(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.
(2) Tax-equivalent adjustments have been computed using a federal income tax rate of 21% for the years ended December 31, 2025, 2024 and 2023. 48 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.
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.
Results of Operations This section provides a comparative discussion of the Company’s results of operations for the two-year period ended December 31, 2025, unless otherwise specified. See “Item 7.
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.
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 the Company’s junior subordinated debentures.
The increase in average yield during 2024 compared to 2023 was primarily due to security purchases during the year increasing the mix of higher-yielding securities within the portfolio . Goodwill and Core Deposit Intangibles Goodwill was $497.3 million as of both December 31, 2024 and 2023.
The increase in average yield during 2025 compared to 2024 was primarily due to security purchases during the year increasing the mix of higher-yielding securities within the portfolio . 59 Goodwill and Core Deposit Intangibles Goodwill was $497.3 million as of both December 31, 2025 and 2024.
The decrease in the net interest margin on a tax equivalent basis was primarily due to increased funding costs more than offsetting increased yields on earning assets.
The decrease in the net interest margin on a tax equivalent basis was primarily due to decreased yields on earning assets more than offsetting decreased funding costs.
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.
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, 43 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.
Historical lifetime loss is determined by utilizing an open-pool (“cumulative loss rate”) methodology, adjusted for credit risk characteristics and current and forecasted economic conditions. Losses are predicted over a reasonable and supportable period of one year for all loan pools, followed by an immediate reversion to long-term historical averages.
Historical lifetime loss is determined by utilizing an open-pool cumulative loss rate methodology, adjusted for credit risk characteristics and current and forecasted economic conditions. Losses are predicted over a reasonable and supportable period of one year for all loan pools, followed by an immediate reversion to long-term historical averages.
Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for credit losses. Standby Letters of Credit. Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third party.
Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for credit losses. 63 Standby Letters of Credit. Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third-party.
FHLB advances are used to manage liquidity as needed. The advances are secured by a blanket lien on certain loans. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits.
FHLB advances are used to manage liquidity as needed. The advances are secured by blanket liens on certain loans. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits.
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.
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.
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).
As of December 31, 2025, our commercial real estate construction and land development loan portfolio included $102.4 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 $137.1 million as of December 31, 2024. 1-4 Family Residential (Including Home Equity).
Refer to the accompanying notes to accompanying consolidated financial statements for the expected timing of such payments as of December 31, 2024.
Refer to the accompanying notes to accompanying consolidated financial statements for the expected timing of such payments as of December 31, 2025.
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.
Our securities portfolio had a weighted average life of 6.4 years and 7.2 years at December 31, 2025 and 2024, respectively. 62 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.
Core deposit intangibles, net, as of December 31, 2024 was $92.5 million compared to $116.7 million as of December 31, 2023. Core deposit intangibles are amortized using the straight-line or an accelerated method over the estimated useful life of seven to ten years. Deposits Our lending and investing activities are primarily funded by deposits.
Core deposit intangibles, net, as of December 31, 2025 was $71.0 million compared to $92.5 million as of December 31, 2024. Core deposit intangibles are amortized using the straight-line or an accelerated method over the estimated useful life of seven to ten years. Deposits Our lending and investing activities are primarily funded by deposits.
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.
At December 31, 2025 and 2024, we had FHLB letters of credit in the amount of $2.17 billion and $2.10 billion, respectively, pledged as collateral for public and other deposits of state and local government agencies. See Note 9 – Borrowings and Borrowing Capacity to the accompanying consolidated financial statements.
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.
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, 2025 and 2024, commercial real estate and commercial construction loans represented 61.5% and 63.4%, respectively, of our total loans.
Average interest-earning assets decreased $55.5 million, or 0.6%, for the year ended December 31, 2024 compared with the year ended December 31, 2023 primarily due a decrease in average loans, partially offset by increases in average securities and deposits in other financial institutions.
Average interest-earning assets decreased $59.7 million, or 0.6%, for the year ended December 31, 2025 compared with the year ended December 31, 2024 primarily due a decrease in average loans, partially offset by increases in average securities and deposits in other financial institutions.
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.
Our average loans decreased $449.0 million, or 5.8%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. 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.
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.
As of December 31, 2025, 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 $1.1 million. On the other hand, a 5% increase in each qualitative risk factor across all segments (where assigned) would have increased funded reserves by $2.9 million.
As of December 31, 2024, the Company Notes bore a floating rate of interest equal to the 3-Month SOFR plus 3.13% and a spread adjustment for each quarterly interest period, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year.
As of December 31, 2025, the Company Notes bore at a floating rate equal to 3-Month SOFR plus 3.13% and a spread adjustment for each quarterly interest period, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year. On October 1, 2025, the Company redeemed $30.0 million of the Company Notes.
(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.
(Consolidated) Total Capital (to risk weighted assets) 15.73% 8.00% 10.50% N/A Common Equity Tier 1 Capital (to risk weighted assets) 14.18% 4.50% 7.00% N/A Tier 1 Capital (to risk weighted assets) 14.31% 6.00% 8.50% N/A Tier 1 Leverage (to average tangible assets) 11.52% 4.00% 4.00% N/A STELLAR BANK Total Capital (to risk weighted assets) 15.03% 8.00% 10.50% 10.00% Common Equity Tier 1 Capital (to risk weighted assets) 13.83% 4.50% 7.00% 6.50% Tier 1 Capital (to risk weighted assets) 13.83% 6.00% 8.50% 8.00% Tier 1 Leverage (to average tangible assets) 11.14% 4.00% 4.00% 5.00% Asset/Liability Management and Interest Rate Risk Our asset liability and interest rate risk policy provides management with guidelines for effective balance sheet management.
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.
We recorded a provision for credit losses of $10.2 million for the year ended December 31, 2025 compared to a reversal of provision for credit losses of $2.9 million for the year ended December 31, 2024.
See further discussion of the allowance for the credit losses in “Financial Condition-Asset Quality.” Net charge-offs were $6.7 million for the year ended December 31, 2024 compared to net charge-offs of $11.1 million for the year ended December 31, 2023.
See further discussion of the allowance for the credit losses in “Financial Condition-Asset Quality.” Net charge-offs were $3.8 million for the year ended December 31, 2025 compared to net charge-offs of $6.7 million for the year ended December 31, 2024.
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.
Years Ended December 31, 2025 2024 Sources of Funds: Deposits: Noninterest-bearing 30.6 % 31.7 % Interest-bearing 52.5 % 51.0 % Borrowed funds 0.2 % 0.7 % Subordinated debt 0.6 % 1.0 % Other liabilities 0.8 % 0.9 % Shareholders’ equity 15.3 % 14.7 % Total 100.0 % 100.0 % Uses of Funds: Loans 68.6 % 72.4 % Securities 17.3 % 15.0 % Deposits in other financial institutions 4.6 % 3.1 % Noninterest-earning assets 9.5 % 9.5 % Total 100.0 % 100.0 % Average noninterest-bearing deposits to average deposits 36.8 % 38.3 % Average loans to average deposits 82.6 % 87.6 % As of December 31, 2025 and 2024, we had outstanding commitments to extend credit of $2.10 billion and $1.70 billion, respectively, and commitments associated with outstanding letters of credit of $65.6 million and $43.6 million, respectively.
As a result, commercial and industrial loans require more extensive underwriting and servicing than other types of loans. Our commercial and industrial loan portfolio decreased $51.8 million, or 3.7%, to $1.36 billion as of December 31, 2024 compared to $1.41 billion as of December 31, 2023. Commercial Real Estate (Including Multi-Family Residential) .
As a result, commercial and industrial loans require more extensive underwriting and servicing than other types of loans. Our commercial and industrial loan portfolio increased $114.3 million, or 8.4%, to $1.48 billion as of December 31, 2025 compared to $1.36 billion as of December 31, 2024. Commercial Real Estate (Including Multi-Family Residential) .
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.
See Note 2 – Goodwill and Other Intangible Assets to the consolidated financial statements for additional information on the Company’s goodwill balances. 45 Recently Issued Accounting Pronouncements We have evaluated new accounting pronouncements that have recently been issued.
Our ratio of noninterest-bearing deposits to total deposits was 39.2% and 40.0% for the years ended December 31, 2024 and 2023, respectively. Deposits include fully collateralized public funds of $1.44 billion and $1.17 billion at December 31, 2024 and 2023, respectively.
Our ratio of noninterest-bearing deposits to total deposits was 37.8% and 39.2% for the years ended December 31, 2025 and 2024, respectively. Deposits include fully collateralized public funds of $1.11 billion and $1.44 billion at December 31, 2025 and 2024, respectively.
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%.
Noninterest Expense Noninterest expense was $285.5 million for the year ended December 31, 2025 compared to $289.0 million for the year ended December 31, 2024, a decrease of $3.5 million, or 1.2%.
As of December 31, 2024 and December 31, 2023, 47.4% and 46.6%, respectively, of our commercial real estate loans were owner-occupied.
As of December 31, 2025 and December 31, 2024, 47.7% and 47.4%, respectively, of our commercial real estate loans were owner-occupied.
We make loans to finance the purchase or ownership of commercial real estate. As of December 31, 2024, our commercial real estate loans comprised 52.0% of our loan portfolio.
We make loans to finance the purchase or ownership of commercial real estate. As of December 31, 2025, our commercial real estate loans comprised 51.6% of our loan portfolio.
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.
The average rate paid on interest-bearing liabilities of 3.06% and the average yield on interest-earning assets of 6.00% for the year ended December 31, 2025 decreased by 40 basis points and 25 basis points, respectively, over the same period in 2024.
Our largest source of funds is deposits and our largest use of funds is loans. Our average deposits increased $22.1 million, or 0.3%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Our largest source of funds is deposits and our largest use of funds is loans. Our average deposits decreased $6.2 million, or 0.1%, for the year ended December 31, 2025 compared to the year ended December 31, 2024.
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.
Total immediate contingent funding sources, including unrestricted cash, available-for-sale securities that are not pledged and total available borrowing capacity was $3.95 billion, or 43.7%, of total deposits at December 31, 2025. Estimated uninsured deposits net of collateralized deposits were 45.7% of total deposits at December 31, 2025.
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.
Credit Agreement On December 13, 2024, the Company renewed its loan agreement with another financial institution (the “Loan Agreement”), that provides for a $75.0 million revolving line of credit. At December 31, 2025, there were no outstanding borrowings on this line of credit and no draws were taken on this line of credit during 2025 or 2024.
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.
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 $33.3 million, or 21.1%, to $124.7 million as of December 31, 2025 from $158.0 million as of December 31, 2024. Consumer and Other.
At December 31, 2024, our allowance for credit losses on loans was $81.1 million, or 1.09% of total loans, compared with $91.7 million, or 1.16% of total loans, as of December 31, 2023.
At December 31, 2025, our allowance for credit losses on loans was $83.6 million, or 1.15% of total loans, compared with $81.1 million, or 1.09% of total loans, as of December 31, 2024.
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.
Accordingly, as of December 31, 2025, 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. 58 The following table summarizes the contractual maturity of securities and their weighted average yields as of the dates indicated.
Net income was $115.0 million, or $2.15 per diluted common share, for the year ended December 31, 2024 compared with $130.5 million, or $2.45 per diluted common share, for the year ended December 31, 2023, a decrease of $15.5 million, or 11.9% .
Net income was $102.9 million, or $1.99 per diluted common share, for the year ended December 31, 2025 compared with $115.0 million, or $2.15 per diluted common share, for the year ended December 31, 2024, a decrease of $12.1 million, or 10.5% .
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.
As of December 31, 2025, the carrying amount of investment securities totaled $2.20 billion, an increase of $525.4 million, or 31.4%, compared with $1.67 billion as of December 31, 2024. Securities represented 20.3% and 15.3% of total assets as of December 31, 2025 and 2024, respectively.
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.
As of December 31, 2025 and 2024, 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.
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.
During 2025, changes in our overall interest rate profile were driven by the increase in certain interest-bearing deposits and securities along with a decrease in noninterest-bearing deposits, loans and cash and cash equivalents.
Noninterest income totaled $23.0 million for the year ended December 31, 2024 compared to $24.6 million for the year ended December 31, 2023, a decrease of $1.5 million, or 6.2%.
Noninterest income totaled $21.8 million for the year ended December 31, 2025 compared to $23.0 million for the year ended December 31, 2024, a decrease of $1.3 million, or 5.4%.
Our commercial real estate loan portfolio decreased $203.6 million, or 5.0%, to $3.87 billion as of December 31, 2024 from $4.07 billion as of December 31, 2023. 51 The following table summarizes our commercial real estate loan portfolio by type of property securing the loans at December 31, 2024.
Our commercial real estate loan portfolio decreased $101.9 million, or 2.6%, to $3.77 billion as of December 31, 2025 from $3.87 billion as of December 31, 2024. 52 The following table summarizes our commercial real estate loan portfolio by type of property securing the loans at December 31, 2025.
This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet.
We utilize static balance sheet rate shocks to estimate the potential impact on net interest income of changes in interest rates under various rate scenarios. This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet.
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.
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) 2025 2024 2024 2023 (In thousands) Salaries and employee benefits (1) $ 168,807 $ 165,357 $ 3,450 $ 165,357 $ 157,034 $ 8,323 Net occupancy and equipment 17,619 17,864 (245) 17,864 16,932 932 Depreciation 8,058 7,807 251 7,807 7,584 223 Data processing and software amortization 22,980 21,652 1,328 21,652 19,526 2,126 Professional fees 6,261 9,424 (3,163) 9,424 7,955 1,469 Regulatory assessments and FDIC insurance 6,187 7,568 (1,381) 7,568 11,032 (3,464) Amortization of intangibles 21,580 24,220 (2,640) 24,220 26,883 (2,663) Communications 3,435 3,418 17 3,418 2,796 622 Advertising 4,707 4,127 580 4,127 3,627 500 Acquisition and merger-related expenses — — — — 15,555 (15,555) Other (2) 25,836 27,521 (1,685) 27,521 21,570 5,951 Total noninterest expense $ 285,470 $ 288,958 $ (3,488) $ 288,958 $ 290,494 $ (1,536) (1) Total salaries and employee benefits includes $9.2 million, $10.8 million and $9.9 million in stock-based compensation expense for the years ended December 31, 2025, 2024 and 2023, respectively.
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.
Including policy-driven capacity for brokered deposits, the Bank would have been able to add approximately $2.26 billion to its contingent sources of liquidity, bringing total contingent funding sources to approximately $6.2 billion, or 68.8%, of deposits at December 31, 2025.
The FHLB letters of credit pledged as collateral for public and other deposits of state and local government agencies expire in the following periods (in thousands): 2025 $ 1,461,825 2026 122,300 2027 402,500 2028 43,000 Thereafter 72,000 Total $ 2,101,625 Subordinated Debt Junior Subordinated Debentures In connection with the acquisition of F&M Bancshares, Inc. in 2015, Stellar assumed Farmers & Merchants Capital Trust II and Farmers & Merchants Capital Trust III.
At December 31, 2025, the Company had FHLB letters of credit pledged as collateral for public and other deposits of state and local government agencies expire in the following periods (in thousands): 2026 $ 1,618,496 2027 366,000 2028 56,000 2029 77,000 Thereafter 55,000 Total $ 2,172,496 Subordinated Debt Junior Subordinated Debentures In connection with the acquisition of F&M Bancshares, Inc. in 2015, the Company assumed Farmers & Merchants Capital Trust II and Farmers & Merchants Capital Trust III.
This increase was primarily due to higher interest rates on interest-bearing deposits and borrowed funds and an increase in average interest-bearing deposits. The cost of average interest-bearing liabilities increased to 3.46% for the year ended December 31, 2024 compared to 2.86% for the same period in 2023.
This decrease was primarily due to lower interest rates on interest-bearing deposits and borrowed funds partially offset by an increase in average interest-bearing deposits. The cost of average interest-bearing liabilities decreased to 3.06% for the year ended December 31, 2025 from 3.46% for the same period in 2024.
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.
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, 2025, 2024 and 2023, thus making tax-exempt yields comparable to taxable asset yields.
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.
Our residential real estate portfolio (including home equity) increased $20.7 million, or 1.9%, to $1.14 billion as of December 31, 2025 from $1.12 billion as of December 31, 2024. Residential Construction.
The obligations of the Company under the Loan Agreement are secured by a pledge of all the issued and outstanding shares of capital stock of the Bank.
The Company may prepay the principal amount of the line of credit without premium or penalty. The obligations of the Company under the Loan Agreement are secured by a pledge of all of the issued and outstanding shares of capital stock of the Bank.
The following table presents information regarding nonperforming assets as of the dates indicated: December 31, 2024 2023 (Dollars in thousands) Nonaccrual loans: Commercial and industrial $ 8,500 $ 5,048 Real estate: Commercial real estate (including multi-family residential) 16,459 16,699 Commercial real estate construction and land development 3,061 5,043 1-4 family residential (including home equity) 9,056 8,874 Residential construction — 3,288 Consumer and other 136 239 Total nonaccrual loans 37,212 39,191 Accruing loans 90 or more days past due — — Total nonperforming loans 37,212 39,191 Foreclosed assets 1,708 — Total nonperforming assets $ 38,920 $ 39,191 Troubled loan modifications (1) $ 13,457 $ 15,727 Nonperforming assets to total assets 0.36 % 0.37 % Nonperforming loans to total loans 0.50 % 0.49 % (1) Troubled loan modifications in the table above represent the balance at the end of the respective period for those loans that are not already presented as a nonperforming loan.
Nonaccrual loans consisted of 171 separate credits at December 31, 2025 compared to 101 separate credits at December 31, 2024. 55 The following table presents information regarding nonperforming assets as of the dates indicated: December 31, 2025 2024 (Dollars in thousands) Nonaccrual loans: Commercial and industrial $ 7,616 $ 8,500 Real estate: Commercial real estate (including multi-family residential) 29,271 16,459 Commercial real estate construction and land development 1,838 3,061 1-4 family residential (including home equity) 13,333 9,056 Residential construction 448 — Consumer and other 42 136 Total nonaccrual loans 52,548 37,212 Accruing loans 90 or more days past due — — Total nonperforming loans 52,548 37,212 Foreclosed assets 7,492 1,734 Total nonperforming assets $ 60,040 $ 38,946 Troubled loan modifications (1) $ 2,085 $ 13,457 Nonperforming assets to total assets 0.56 % 0.36 % Nonperforming loans to total loans 0.72 % 0.50 % (1) Troubled loan modifications in the table above represent the balance at the end of the respective period for those loans that are not already presented as a nonperforming loan.
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.
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. As of December 31, 2025 and 2024, the Bank was well capitalized.
The following table presents an analysis of the allowance for credit losses on loans and other related data as of and for the periods indicated: December 31, 2024 2023 (Dollars in thousands) Average loans outstanding $ 7,712,122 $ 7,961,911 Gross loans outstanding at end of period 7,439,854 7,925,133 Allowance for credit losses on loans at beginning of period 91,684 93,180 Provision for credit losses on loans (3,964) 9,625 Charge-offs: Commercial and industrial loans (7,300) (10,600) Real estate: Commercial real estate (including multi-family residential) (786) — Commercial real estate construction and land development — — 1-4 family residential (including home equity) (2) (1,525) Residential construction — — Consumer and other (171) (291) Total charge-offs for all loan types (8,259) (12,416) Recoveries: Commercial and industrial loans 1,449 1,223 Real estate: Commercial real estate (including multi-family residential) 130 16 Commercial real estate construction and land development — — 1-4 family residential (including home equity) 6 9 Residential construction — — Consumer and other 12 47 Total recoveries for all loan types 1,597 1,295 Net charge-offs (6,662) (11,121) Allowance for credit losses on loans at end of period $ 81,058 $ 91,684 Allowance for credit losses on loans to total loans 1.09 % 1.16 % Net charge-offs to average loans 0.09 % 0.14 % Allowance for credit losses on loans to nonperforming loans 217.83 % 233.94 % 55 Allowance for Credit Losses on Unfunded Commitments The allowance for credit losses on unfunded commitments estimates current expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us.
The increase in the allowance for credit losses on loans during 2025 primarily resulted from changes to the specific reserves within the allowance for credit losses model primarily due to the increase in nonperforming loans, among other things. 56 The following table presents an analysis of the allowance for credit losses on loans and other related data as of and for the periods indicated: December 31, 2025 2024 (Dollars in thousands) Average loans outstanding $ 7,263,152 $ 7,712,122 Gross loans outstanding at end of period 7,300,591 7,439,854 Allowance for credit losses on loans at beginning of period 81,058 91,684 Provision for (reversal of) credit losses on loans 6,334 (3,964) Charge-offs: Commercial and industrial loans (3,170) (7,300) Real estate: Commercial real estate (including multi-family residential) (590) (786) Commercial real estate construction and land development (462) — 1-4 family residential (including home equity) (373) (2) Residential construction — — Consumer and other (145) (171) Total charge-offs for all loan types (4,740) (8,259) Recoveries: Commercial and industrial loans 706 1,449 Real estate: Commercial real estate (including multi-family residential) 14 130 Commercial real estate construction and land development — — 1-4 family residential (including home equity) — 6 Residential construction — — Consumer and other 257 12 Total recoveries for all loan types 977 1,597 Net charge-offs (3,763) (6,662) Allowance for credit losses on loans at end of period $ 83,629 $ 81,058 Allowance for credit losses on loans to total loans 1.15 % 1.09 % Net charge-offs to average loans 0.05 % 0.09 % Allowance for credit losses on loans to nonperforming loans 159.15 % 217.83 % Allowance for Credit Losses on Unfunded Commitments The allowance for credit losses on unfunded commitments estimates current expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us.
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.
Years Ended December 31, 2025 2024 2023 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 $ 7,263,152 $ 484,877 6.68% $ 7,712,122 $ 531,680 6.89% $ 7,961,911 $ 537,722 6.75% Securities 1,828,752 68,576 3.75% 1,593,073 53,165 3.34% 1,490,588 41,047 2.75% Deposits in other financial institutions 488,213 21,017 4.30% 334,654 17,555 5.25% 242,803 12,048 4.96% Total interest-earning assets 9,580,117 $ 574,470 6.00% 9,639,849 $ 602,400 6.25% 9,695,302 $ 590,817 6.09% Allowance for credit losses on loans (81,708) (91,770) (95,668) Noninterest-earning assets 1,086,711 1,098,396 1,147,232 Total assets $ 10,585,120 $ 10,646,475 $ 10,746,866 Liabilities and Shareholders’ Equity Interest-Bearing Liabilities: Interest-bearing demand deposits $ 1,952,032 $ 54,429 2.79% $ 1,618,212 $ 48,290 2.98% $ 1,464,015 $ 38,689 2.64% Money market and savings deposits 2,407,951 66,102 2.75% 2,236,678 64,956 2.90% 2,259,264 48,646 2.15% Certificates and other time deposits 1,196,586 46,276 3.87% 1,574,598 68,745 4.37% 1,239,345 41,286 3.33% Borrowed funds 20,791 986 4.74% 77,662 4,549 5.86% 318,721 17,807 5.59% Subordinated debt 62,605 5,057 8.08% 107,768 7,868 7.30% 109,560 7,630 6.96% Total interest-bearing liabilities 5,639,965 $ 172,850 3.06% 5,614,918 $ 194,408 3.46% 5,390,905 $ 154,058 2.86% Noninterest-Bearing Liabilities: Noninterest-bearing demand deposits 3,236,602 3,369,931 3,814,651 Other liabilities 85,472 94,165 85,376 Total liabilities 8,962,039 9,079,014 9,290,932 Shareholders’ equity 1,623,081 1,567,461 1,455,934 Total liabilities and shareholders’ equity $ 10,585,120 $ 10,646,475 $ 10,746,866 Net interest rate spread 2.94% 2.79% 3.23% Net interest income and margin (1) $ 401,620 4.19% $ 407,992 4.23% $ 436,759 4.50% Net interest income and margin (tax equivalent) (2) $ 402,005 4.20% $ 408,305 4.24% $ 437,670 4.51% Cost of funds 1.95% 2.16% 1.67% Cost of deposits 1.90% 2.07% 1.47% (1) The net interest margin is equal to annualized net interest income divided by average interest-earning assets.
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.
Total loans as a percentage of assets were 67.6% and 68.2% as of December 31, 2025 and December 31, 2024, respectively. 51 The following table summarizes our loan portfolio by type of loan as of the dates indicated: December 31, 2025 2024 Amount Percent Amount Percent (Dollars in thousands) Commercial and industrial $ 1,476,559 20.2 % $ 1,362,260 18.3 % Real estate: Commercial real estate (including multi-family residential) 3,766,294 51.6 % 3,868,218 52.0 % Commercial real estate construction and land development 720,779 9.9 % 845,494 11.4 % 1-4 family residential (including home equity) 1,136,227 15.6 % 1,115,484 15.0 % Residential construction 124,653 1.7 % 157,977 2.1 % Consumer and other 76,079 1.0 % 90,421 1.2 % Total loans 7,300,591 100.0 % 7,439,854 100.0 % Allowance for credit losses on loans (83,629) (81,058) Loans, net $ 7,216,962 $ 7,358,796 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 decrease in noninterest expense in 2024 compared to 2023 was primarily due to $15.6 million of acquisition and merger-related expenses recognized in 2023, along with a $3.5 million decrease in regulatory assessments and a $2.7 million decrease in amortization of intangibles, partially offset by an $8.3 million increase in salaries and employee benefits, a $2.1 million increase in data processing and software amortization and a $1.5 million increase in professional fees.
The decrease in noninterest expense during 2025 compared to 2024 was primarily due to a $3.2 million decrease in professional fees, a $2.6 million decrease in amortization of intangibles and a $1.4 million decrease in regulatory assessments partially offset by a $3.5 million increase salaries and employee benefits.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

4 edited+15 added−18 removed5 unchanged
Biggest changeOur Chief Information Security Officer (“CISO”), who reports directly to the Bank’s Chief Risk Officer (“CRO”), along with key members of his team, regularly collaborates with peer banks, industry groups, and policymakers to discuss cybersecurity trends and issues to identify best practices.
Biggest changeThe Chief lnformation Security Officer (“CISO”), who reports directly to the Chief Risk Officer (“CRO”), and the Chief lnformation Officer (“CIO”), along with key members of their teams, regularly collaborate with peer banks and industry groups to discuss cybersecurity trends, issues, and best practices. The information security program is periodically reviewed with the goal of addressing changing threats and conditions.
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 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. 38
The Company’s CRO has over a 25-year career in the banking industry and is currently serving as Senior Executive Vice President and Chief Risk Officer of Stellar Bank and Chief Risk Officer of Stellar Bancorp, Inc.
The Company’s CISO holds an undergraduate degree in Business Administration and has attained the professional certification of Certified Information Systems Security Professional (“CISSP”). The Company’s CRO has over a 25-year career in the banking industry and is currently serving as Senior Executive Vice President and Chief Risk Officer of Stellar Bank and Chief Risk Officer of Stellar Bancorp, Inc.
ITEM 1C. CYBERSECURITY Our risk management program is designed to identify, assess, and mitigate risks across various aspects of our Company, including financial, operational, regulatory, reputational, and legal. The Board is actively involved in oversight of the Company’s risk management program, and cybersecurity represents an important component of the Company’s overall approach to enterprise risk management (“ERM”).
ITEM 1C. CYBERSECURITY Risk Management and Strategy The Company’s risk management program is designed to identify, assess, and mitigate risks across various areas and functions, including financial, operational, technological, regulatory, reputational, and legal. Cybersecurity is a critical component of the enterprise risk management program, given the increasing reliance on technology and potential of cyber threats.
Removed
The Company’s cybersecurity policies, standards, processes and practices are integrated into the Company’s ERM program and are based on recognized frameworks established by the Federal Financial Institutions Examination Council and other industry recognized standards.
Added
The Company’s information security program is designed to protect the confidentiality, integrity, and availability of its computer systems, networks, software and information assets, including customer, and other sensitive data. The structure of the Company’s information security program is designed around regulatory guidance, industry leading risk frameworks and other industry standards.
Removed
The information security program is periodically reviewed by the Bank’s CISO with the goal of addressing changing threats and conditions.
Added
In addition, the Company leverages certain industry and government associations, third-party benchmarking, audits, and threat intelligence sources to facilitate and promote program effectiveness.
Removed
In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, integrity and availability of the information that the Company collects and stores by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
Added
The Company employs an in-depth, layered, defensive strategy that embraces a “secure by design” philosophy when designing new products, services, and technology. The Company leverages people, processes, and technology as part of its efforts to manage and maintain cybersecurity controls. The Company employs a variety of solutions and processes designed to prevent, detect, and respond to suspicious activity.
Removed
Risk Management and Strategy As one of the critical elements of the Company’s overall ERM approach, the Company’s cybersecurity risk management program and strategy is focused on the following key areas: • Governance —As discussed in more detail under the heading “Governance,” the Board’s oversight of cybersecurity risk management is supported by the Risk Committee of the Board (the “Risk Committee”) and by the Technology Committee of the Board (the “Technology Committee”), which regularly interacts with the Company’s ERM function, CRO, Chief Information Officer (“CIO”), CISO and other members of management and relevant management committees.
Added
The Company also actively monitors its email gateways for malicious phishing email campaigns and monitors remote connections as a portion of its workforce has the option to work remotely. The Company has established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations and tabletop exercises, and recovery and resilience tests.
Removed
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.
Added
It engages in regular assessments of its infrastructure, software systems, and network architecture, using internal cybersecurity experts, and third-party specialists. The Company also maintains a third-party risk management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and its supply chain.
Removed
This committee is composed of directors with significant experience in technology and cybersecurity, working to align our cyber risk management strategies with best practices and industry standards. • Technical Safeguards —The Company deploys layered technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through penetration testing, vulnerability assessments and cybersecurity threat intelligence. • Incident Response and Recovery Planning —The Company has implemented a robust, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents.
Added
The Company leverages internal and 37 external auditors and independent external partners to periodically review its processes, systems, and controls, including with respect to its information security program, to assess the design and operating effectiveness of the control environment and make recommendations to strengthen its risk management program.
Removed
To that end, the Company has established and maintains a comprehensive cybersecurity incident response plan that establishes a structured approach for the Company’s response to a cybersecurity incident, such plan is tested and evaluated on a regular basis.
Added
The Company maintains a Cybersecurity Incident Response Policy (“CSIRP”) and related checklists that provide a documented framework for responding to actual or potential cybersecurity incidents, including timely escalation of incidents to the Cybersecurity Response Team and notification to the appropriate regulatory and governmental authorities. As needed, the notification may include senior management and/or the Company’s and Bank’s Board of Directors.
Removed
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.
Added
The CSIRP and related checklists are coordinated through the CISO, CRO, and key members of management, including but not limited to representatives from the information security, information technology and legal teams that are embedded into the Cybersecurity Response Team. The CSIRP facilitates coordination across multiple parts of the organization and is evaluated at least annually.
Removed
The Company engages in the periodic assessment and testing of the Company’s policies, standards, processes and practices that are designed to address cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, assessments, tabletop exercises, vulnerability testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures and planning.
Added
During the fiscal year of this Report, the Company has not experienced a cybersecurity incident that has materially impacted its business strategy, results of operations, or financial condition. Despite the Company’s efforts, there can be no assurance that its cybersecurity risk management processes and measures described will be fully implemented, complied with, or effective in protecting its systems and information.
Removed
The Company regularly engages third parties to perform assessments on our cybersecurity measures, including information security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness. The results of such assessments, audits and reviews are reported to the Audit Committee of the Board, the Risk Committee, the Technology Committee and the Board.
Added
The Company faces risks from certain cybersecurity threats that, if realized, are reasonably likely to materially affect its business strategy, results of operations or financial condition including through potential operational disruption, regulatory or supervisory actions, reputational harm or increased costs associated with remediation and recovery. See “Item 1A. Risk Factors” in this document for further information.
Removed
The Company adjusts its cybersecurity policies, standards, processes and practices as necessary based on the information provided by these assessments, audits and reviews.
Added
Governance The Bank’s Board of Directors is responsible for overseeing the risks associated with cybersecurity threats. The Bank Operational Risk Committee (“Ops Risk”) of the Board has primary responsibility for overseeing the technology program, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks.
Removed
During the fiscal year of this Report, the Company has not identified risks from cybersecurity threats, including as a result of prior cybersecurity incidents that individually or in the aggregate have materially affected or are reasonably anticipated to materially affect the organization. Nevertheless, the Company recognizes cybersecurity threats are ongoing and evolving, and we continue to remain vigilant.
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The CISO and the CIO provide quarterly reports to the Ops Risk Committee regarding the information security and technology programs, key enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The CISO also reports summaries of key issues, including significant cybersecurity incidents.
Removed
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.
Added
In addition to the Ops Risk Committee, the management-level Technology Committee (“TC”) focuses on and provides oversight of the information security program. The TC reviews and, as appropriate, approves the broad objectives, strategies and policies governing the Company’s protection of data assets and information security framework.
Removed
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.
Added
The CRO additionally assesses the adequacy of information security practices and reports on cyber risk to the Risk Oversight Committee (“ROC”) of the Company’s Board of Directors. The TC is co-chaired by the CIO and CISO, and includes the CEO, CRO, COO, and other key departmental managers from throughout the Bank.
Removed
The Board and the Technology Committee each receive regular presentations and reports on cybersecurity risks, which address a wide range of topics including recent developments, evolving standards, vulnerability assessments, third-party and independent reviews.
Added
This committee generally meets monthly to discuss various operational strategies and issues, including information technology and information security policies, practices, controls, and mitigation and prevention efforts.
Removed
The 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.
Removed
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.
Removed
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.

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, 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.
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, 2025, we had 52 full-service banking centers, with 35 banking centers located in the Houston MSA, 16 banking centers in the Beaumont MSA and one banking center in Dallas, Texas.
We lease 20 of these banking centers, as well as our executive office, and own the remaining 34 banking centers. For the leased locations, the Company either leases the location entirely, owns the building and has a ground lease, or owns the drive through and leases the banking center.
We lease 20 of these banking centers, as well as our executive office, and own the remaining 32 banking centers. For the leased locations, the Company either leases the location entirely, owns the building and has a ground lease, or owns the drive through and leases the banking center.
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.
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 2026 to 2045, without consideration of any renewal periods available.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod 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.
Biggest changePeriod Number of Shares Purchased (1) Shares Purchased as Part of Publicly Announced Plan Average Price Paid Per Share Number of Shares That May Yet be Purchased Under the Plan (2) October 1, 2025 to October 31, 2025 27,833 44,948 $ 29.56 1,889,238 November 1, 2025 to November 30, 2025 50 142,410 $ 30.22 1,622,799 December 1, 2025 to December 31, 2025 — 111,989 $ 31.17 1,545,111 Total 27,883 299,347 $ 30.40 40 (1) Shares 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.
The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and may be modified, suspended or discontinued at any time.
The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The 2025-2026 Repurchase Program does not obligate the Company to acquire a specific dollar amount or number of shares and may be modified, suspended or discontinued at any time.
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.
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 2025.
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.
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, 2020 in Stellar ’ s common stock or an index, including reinvestment of dividends.
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.
Dividend reinvestment has been assumed. The Performance graph assumes $100 invested on December 31, 2020 in the Company’ common stock and each comparative index shown.
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.
Repurchases under the 2025-2026 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 Securities Exchange Act of 1934, as amended, or otherwise.
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.
Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2025, 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 710,388 $ 26.67 1,686,152 Equity compensation plans not approved by security holders — — — Total 710,388 1,686,152 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 (the “2024-2025 Repurchase Program”) which was terminated as of April 23, 2025.
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.
During the first quarter of 2026, the Company declared a quarterly dividend of $0.15 per share to be paid in the first quarter of 2026. See Note 18 — Subsequent Events.
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.
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 24, 2026, there were 50,772,216 shares outstanding and 860 shareholders of record of the Company’s common stock.
(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 performance graph compares the cumulative total shareholder return on CBTX common stock for the period beginning at the close of trading on December 31, 2020 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, 2025, with the cumulative total return of the Russell 2000 Index and the S&P 600 Banks Index.
See “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.
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. See “Item 1. — Business—Regulation and Supervision—Regulatory Limits on Dividends, Distributions and Repurchases.” 39 The Company’s junior subordinated debentures allow it to defer interest payments thereunder for a period of time.
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.
The closing price per share of common stock on December 31, 2025, the last trading day of the year, was $30.94. Dividends During 2025, the Company paid quarterly cash dividends of $0.14 per share of its common stock for the first quarter, second quarter and the third quarter and $0.15 per share of its common stock for the fourth quarter.
When this settlement method is elected by the employee, the Company repurchases the shares withheld upon vesting of the award stock.
When this settlement method is elected by the employee, the Company repurchases the shares withheld upon vesting of the award stock. (2) Computed based on the closing price of the Company’s common stock as of the end of each period shown. Performance Graph On October 1, 2022, Allegiance Bancshares, Inc. merged with CBTX, Inc.
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)
Fiscal year ending De cember 31. 2020 2021 2022 2023 2024 2025 Stellar Bancorp, Inc. 100.00 115.79 119.73 115.51 120.12 133.67 Russell 2000 100.00 114.82 91.35 106.82 119.14 134.40 S&P 600 Banks 100.00 135.74 125.04 122.91 140.90 147.34 (Source: Refinitiv) ITEM 6. [RESERVED] 41
Removed
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.
Added
On April 23, 2025, the Company announced that its Board of Directors authorized a new share repurchase program which is similar to the previous repurchase program under which the Company may repurchase up to $65 million of the Company’s common stock through May 31, 2026 (the “2025-2026 Repurchase Program”).
Added
As of December 31, 2025, the number of shares that may be repurchased under 2025-2026 plan was 1,545,111 based on the closing share price of the Company's common stock. The Company repurchased 299,347 shares at a weighted-average price of $30.44 per share during the fourth quarter of 2025 under the 2025-2026 Repurchase Program. All shares repurchased were retired.
Added
(“CBTX”) with CBTX as the surviving corporation that was renamed Stellar Bancorp, Inc.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward‑looking nature.
Biggest changeThese statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward‑looking nature.

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 71 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 on page 72 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