[10-Q] Stellar Bancorp, Inc. Quarterly Earnings Report
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Filing Sentiment
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10-Q
AMREP (AXR) FY 2025 10-K highlights
- Net income doubled to $12.7 m (EPS diluted $2.37) vs. $6.7 m ($1.25) in FY 2024, driven by stronger land sale margins and higher interest income.
- Revenue slipped 3 % to $49.7 m as undeveloped land and investment asset sales fell; homebuilding revenue rose 24 % to $21.2 m on 50 home closings.
- Margin mix shift: land sale gross margin expanded to 52 % (36 %), while homebuilding margin compressed to 21 % (25 %). Operating income improved 59 % to $12.1 m.
- Balance-sheet strength: cash, cash equivalents & U.S. treasuries grew 32 % to $39.9 m; notes payable fell to just $26 k, leaving AXR effectively debt-free. Real-estate inventory edged up 1 % to $66.8 m.
- Backlog momentum: 88 homes in production (28 under contract worth $12.8 m) vs. 64 (20; $8.7 m) a year earlier.
- Land bank: ~16,600 owned acres plus 15,500 undeveloped acres in NM; 2025 land sales 719 acres (mostly undeveloped at low cost).
- Outlook: management warns FY 2026 developed-land revenue will decline as it slows new projects amid affordability, entitlement and infrastructure delays; rising costs and incentives continue to pressure home margins.
AXR remains a niche land developer/homebuilder concentrated in Rio Rancho, NM, with high cash, minimal leverage and exposure to housing demand and interest-rate volatility.
Principali dati del bilancio AMREP (AXR) FY 2025 10-K
- Utile netto raddoppiato a 12,7 milioni di dollari (EPS diluito 2,37 $) rispetto a 6,7 milioni (1,25 $) nel FY 2024, grazie a margini più elevati nelle vendite di terreni e maggiori entrate da interessi.
- Ricavi in calo del 3% a 49,7 milioni di dollari a causa della diminuzione delle vendite di terreni non sviluppati e di asset d’investimento; i ricavi dalla costruzione di case sono aumentati del 24% a 21,2 milioni con 50 chiusure di vendita.
- Variazione nella composizione dei margini: il margine lordo delle vendite di terreni è salito al 52% (dal 36%), mentre il margine della costruzione di case si è ridotto al 21% (dal 25%). L’utile operativo è cresciuto del 59% a 12,1 milioni.
- Solidità patrimoniale: liquidità, equivalenti di cassa e titoli del Tesoro USA aumentati del 32% a 39,9 milioni; debiti verso terzi scesi a soli 26.000 dollari, rendendo AXR di fatto priva di debiti. L’inventario immobiliare è leggermente cresciuto dell’1% a 66,8 milioni.
- Slancio degli ordini: 88 case in produzione (28 sotto contratto per un valore di 12,8 milioni) rispetto a 64 (20; 8,7 milioni) dell’anno precedente.
- Banco terreni: circa 16.600 acri di proprietà più 15.500 acri non sviluppati in New Mexico; vendite di terreni nel 2025 pari a 719 acri (principalmente terreni non sviluppati a basso costo).
- Prospettive: la direzione avverte che i ricavi da terreni sviluppati nel FY 2026 diminuiranno a causa del rallentamento dei nuovi progetti dovuto a problemi di accessibilità, autorizzazioni e ritardi nelle infrastrutture; l’aumento dei costi e degli incentivi continua a comprimere i margini delle abitazioni.
AXR resta uno sviluppatore immobiliare e costruttore di case di nicchia concentrato a Rio Rancho, NM, con elevata liquidità, leva finanziaria minima ed esposizione alla domanda abitativa e alla volatilità dei tassi d’interesse.
Aspectos destacados del 10-K FY 2025 de AMREP (AXR)
- El ingreso neto se duplicó a 12,7 millones de dólares (EPS diluido 2,37 $) frente a 6,7 millones (1,25 $) en FY 2024, impulsado por mayores márgenes en ventas de terrenos y mayores ingresos por intereses.
- Los ingresos cayeron un 3% a 49,7 millones debido a la disminución en ventas de terrenos sin desarrollar y activos de inversión; los ingresos por construcción de viviendas aumentaron un 24% a 21,2 millones con 50 cierres de casas.
- Cambio en la mezcla de márgenes: el margen bruto por venta de terrenos creció al 52% (36%), mientras que el margen de construcción de viviendas se comprimió al 21% (25%). El ingreso operativo mejoró un 59% a 12,1 millones.
- Fortaleza del balance: efectivo, equivalentes de efectivo y bonos del Tesoro de EE.UU. crecieron un 32% a 39,9 millones; las notas por pagar cayeron a solo 26.000 dólares, dejando a AXR prácticamente sin deuda. El inventario inmobiliario aumentó un 1% a 66,8 millones.
- Impulso en la cartera de pedidos: 88 casas en producción (28 bajo contrato por valor de 12,8 millones) frente a 64 (20; 8,7 millones) un año antes.
- Banco de terrenos: aproximadamente 16.600 acres propios más 15.500 acres sin desarrollar en Nuevo México; ventas de terrenos en 2025 de 719 acres (principalmente sin desarrollar y a bajo costo).
- Perspectivas: la dirección advierte que los ingresos por terrenos desarrollados en FY 2026 disminuirán debido a la desaceleración de nuevos proyectos ante problemas de asequibilidad, permisos y retrasos en infraestructura; los costos crecientes y los incentivos continúan presionando los márgenes de viviendas.
AXR sigue siendo un desarrollador de terrenos y constructor de viviendas de nicho concentrado en Rio Rancho, NM, con alta liquidez, apalancamiento mínimo y exposición a la demanda de vivienda y la volatilidad de las tasas de interés.
AMREP (AXR) 2025 회계연도 10-K 주요 내용
- 순이익이 두 배 증가하여 1,270만 달러(EPS 희석 2.37달러)로, 2024 회계연도의 670만 달러(1.25달러) 대비, 토지 판매 마진 강화 및 이자 수익 증가에 힘입음.
- 매출은 3% 감소하여 4,970만 달러, 개발되지 않은 토지 및 투자 자산 판매 감소 영향; 주택 건설 매출은 50채의 주택 인도에 힘입어 24% 증가한 2,120만 달러 기록.
- 마진 구성 변화: 토지 판매 총마진이 52%(기존 36%)로 확대된 반면, 주택 건설 마진은 21%(기존 25%)로 축소됨. 영업이익은 59% 증가한 1,210만 달러.
- 재무 건전성: 현금, 현금성 자산 및 미국 국채가 32% 증가하여 3,990만 달러; 지급어음은 2.6만 달러로 감소하여 AXR은 사실상 무부채 상태. 부동산 재고는 1% 소폭 증가한 6,680만 달러.
- 수주 모멘텀: 현재 생산 중인 주택 88채(계약 중 28채, 가치 1,280만 달러)로, 전년의 64채(20채; 870만 달러) 대비 증가.
- 토지 은행: 약 16,600에이커의 소유 토지와 뉴멕시코에 15,500에이커의 개발되지 않은 토지 보유; 2025년 토지 판매는 719에이커(대부분 저비용의 개발되지 않은 토지).
- 전망: 경영진은 FY 2026년 개발 토지 매출이 주택 가격 부담, 인허가 및 인프라 지연으로 신규 프로젝트가 둔화되어 감소할 것이라고 경고; 비용 상승과 인센티브는 주택 마진에 지속적인 압박.
AXR은 뉴멕시코주 리오 란초에 집중된 틈새 토지 개발업체이자 주택 건설업체로, 높은 현금 보유와 최소한의 부채, 주택 수요 및 금리 변동성에 노출되어 있음.
Points clés du rapport 10-K FY 2025 d'AMREP (AXR)
- Le bénéfice net a doublé pour atteindre 12,7 millions de dollars (BPA dilué de 2,37 $) contre 6,7 millions (1,25 $) en FY 2024, grâce à des marges plus fortes sur les ventes de terrains et à des revenus d’intérêts plus élevés.
- Le chiffre d’affaires a reculé de 3 % à 49,7 millions en raison de la baisse des ventes de terrains non aménagés et d’actifs d’investissement ; les revenus de la construction résidentielle ont augmenté de 24 % à 21,2 millions grâce à 50 clôtures de ventes de maisons.
- Changement dans la répartition des marges : la marge brute sur les ventes de terrains s’est élargie à 52 % (36 %), tandis que la marge sur la construction résidentielle s’est compressée à 21 % (25 %). Le résultat opérationnel a progressé de 59 % à 12,1 millions.
- Solidité du bilan : les liquidités, équivalents de trésorerie et bons du Trésor américain ont augmenté de 32 % pour atteindre 39,9 millions ; les billets à payer ont chuté à seulement 26 000 $, laissant AXR pratiquement sans dette. L’inventaire immobilier a légèrement augmenté de 1 % à 66,8 millions.
- Élan du carnet de commandes : 88 maisons en production (28 sous contrat pour une valeur de 12,8 millions) contre 64 (20 ; 8,7 millions) un an plus tôt.
- Parc foncier : environ 16 600 acres détenus plus 15 500 acres non aménagés au Nouveau-Mexique ; ventes de terrains en 2025 de 719 acres (principalement non aménagés à faible coût).
- Perspectives : la direction avertit que les revenus des terrains aménagés en FY 2026 diminueront en raison du ralentissement des nouveaux projets lié à l’accessibilité, aux autorisations et aux retards d’infrastructure ; la hausse des coûts et des incitations continue de peser sur les marges des maisons.
AXR reste un promoteur foncier et constructeur résidentiel de niche concentré à Rio Rancho, NM, avec une trésorerie élevée, un endettement minimal et une exposition à la demande de logements et à la volatilité des taux d’intérêt.
AMREP (AXR) FY 2025 10-K Highlights
- Der Nettogewinn hat sich verdoppelt auf 12,7 Mio. USD (verwässertes EPS 2,37 USD) gegenüber 6,7 Mio. USD (1,25 USD) im Geschäftsjahr 2024, angetrieben durch höhere Margen beim Grundstücksverkauf und gestiegene Zinserträge.
- Umsatz sank um 3 % auf 49,7 Mio. USD, da der Verkauf von unerschlossenen Grundstücken und Anlagevermögen zurückging; die Umsätze im Hausbau stiegen um 24 % auf 21,2 Mio. USD bei 50 Hausübergaben.
- Margenverschiebung: Die Bruttomarge beim Grundstücksverkauf stieg auf 52 % (36 %), während die Hausbaumarge auf 21 % (25 %) schrumpfte. Das Betriebsergebnis verbesserte sich um 59 % auf 12,1 Mio. USD.
- Starke Bilanz: Zahlungsmittel, Zahlungsmitteläquivalente und US-Staatsanleihen stiegen um 32 % auf 39,9 Mio. USD; Verbindlichkeiten aus Anleihen sanken auf nur 26.000 USD, wodurch AXR effektiv schuldenfrei ist. Der Immobilienbestand stieg leicht um 1 % auf 66,8 Mio. USD.
- Auftragsbestand im Aufwind: 88 Häuser in Produktion (28 unter Vertrag im Wert von 12,8 Mio. USD) gegenüber 64 (20; 8,7 Mio. USD) im Vorjahr.
- Grundstücksbestand: Ca. 16.600 eigene Acres plus 15.500 unerschlossene Acres in New Mexico; Grundstücksverkäufe 2025: 719 Acres (überwiegend unerschlossen und kostengünstig).
- Ausblick: Das Management warnt, dass die Umsätze mit entwickelten Grundstücken im Geschäftsjahr 2026 zurückgehen werden, da neue Projekte aufgrund von Bezahlbarkeits-, Genehmigungs- und Infrastrukturverzögerungen langsamer anlaufen; steigende Kosten und Anreize üben weiterhin Druck auf die Hausbaumargen aus.
AXR bleibt ein Nischenentwickler von Grundstücken und Hausbauer, konzentriert auf Rio Rancho, NM, mit hoher Liquidität, minimaler Verschuldung und Exponierung gegenüber der Wohnungsnachfrage und Zinsvolatilität.
Positive
- None.
Negative
- None.
Insights
TL;DR – Earnings up, cash rich, but revenue flat & FY26 land slowdown flagged.
The FY 25 print is fundamentally positive: EPS +90 %, operating margin 24 %, and a fortress balance sheet (cash $40 m vs. near-zero debt) provide downside protection. Cash yield on market cap (~$120 m) is compelling. However, top-line contraction and guidance for lower developed-land sales temper enthusiasm. Homebuilding backlog growth offsets some risk, yet mix shift is diluting margins. Valuation could re-rate higher if management redeploys cash or initiates capital returns.
TL;DR – Concentration, affordability headwinds and margin pressure remain key threats.
AXR relies on three builders for 100 % of developed-lot sales and a single geographic market. Management expects FY 26 land revenue drop, signalling softer cash generation. Home gross margin slid 400 bps despite price hikes, reflecting incentives and cost inflation; further erosion is likely if rates stay elevated. Although liquidity is ample, limited scale, thin float and insider control (51 %) restrict exit options for investors. Overall impact neutral with rising downside risk.
Principali dati del bilancio AMREP (AXR) FY 2025 10-K
- Utile netto raddoppiato a 12,7 milioni di dollari (EPS diluito 2,37 $) rispetto a 6,7 milioni (1,25 $) nel FY 2024, grazie a margini più elevati nelle vendite di terreni e maggiori entrate da interessi.
- Ricavi in calo del 3% a 49,7 milioni di dollari a causa della diminuzione delle vendite di terreni non sviluppati e di asset d’investimento; i ricavi dalla costruzione di case sono aumentati del 24% a 21,2 milioni con 50 chiusure di vendita.
- Variazione nella composizione dei margini: il margine lordo delle vendite di terreni è salito al 52% (dal 36%), mentre il margine della costruzione di case si è ridotto al 21% (dal 25%). L’utile operativo è cresciuto del 59% a 12,1 milioni.
- Solidità patrimoniale: liquidità, equivalenti di cassa e titoli del Tesoro USA aumentati del 32% a 39,9 milioni; debiti verso terzi scesi a soli 26.000 dollari, rendendo AXR di fatto priva di debiti. L’inventario immobiliare è leggermente cresciuto dell’1% a 66,8 milioni.
- Slancio degli ordini: 88 case in produzione (28 sotto contratto per un valore di 12,8 milioni) rispetto a 64 (20; 8,7 milioni) dell’anno precedente.
- Banco terreni: circa 16.600 acri di proprietà più 15.500 acri non sviluppati in New Mexico; vendite di terreni nel 2025 pari a 719 acri (principalmente terreni non sviluppati a basso costo).
- Prospettive: la direzione avverte che i ricavi da terreni sviluppati nel FY 2026 diminuiranno a causa del rallentamento dei nuovi progetti dovuto a problemi di accessibilità, autorizzazioni e ritardi nelle infrastrutture; l’aumento dei costi e degli incentivi continua a comprimere i margini delle abitazioni.
AXR resta uno sviluppatore immobiliare e costruttore di case di nicchia concentrato a Rio Rancho, NM, con elevata liquidità, leva finanziaria minima ed esposizione alla domanda abitativa e alla volatilità dei tassi d’interesse.
Aspectos destacados del 10-K FY 2025 de AMREP (AXR)
- El ingreso neto se duplicó a 12,7 millones de dólares (EPS diluido 2,37 $) frente a 6,7 millones (1,25 $) en FY 2024, impulsado por mayores márgenes en ventas de terrenos y mayores ingresos por intereses.
- Los ingresos cayeron un 3% a 49,7 millones debido a la disminución en ventas de terrenos sin desarrollar y activos de inversión; los ingresos por construcción de viviendas aumentaron un 24% a 21,2 millones con 50 cierres de casas.
- Cambio en la mezcla de márgenes: el margen bruto por venta de terrenos creció al 52% (36%), mientras que el margen de construcción de viviendas se comprimió al 21% (25%). El ingreso operativo mejoró un 59% a 12,1 millones.
- Fortaleza del balance: efectivo, equivalentes de efectivo y bonos del Tesoro de EE.UU. crecieron un 32% a 39,9 millones; las notas por pagar cayeron a solo 26.000 dólares, dejando a AXR prácticamente sin deuda. El inventario inmobiliario aumentó un 1% a 66,8 millones.
- Impulso en la cartera de pedidos: 88 casas en producción (28 bajo contrato por valor de 12,8 millones) frente a 64 (20; 8,7 millones) un año antes.
- Banco de terrenos: aproximadamente 16.600 acres propios más 15.500 acres sin desarrollar en Nuevo México; ventas de terrenos en 2025 de 719 acres (principalmente sin desarrollar y a bajo costo).
- Perspectivas: la dirección advierte que los ingresos por terrenos desarrollados en FY 2026 disminuirán debido a la desaceleración de nuevos proyectos ante problemas de asequibilidad, permisos y retrasos en infraestructura; los costos crecientes y los incentivos continúan presionando los márgenes de viviendas.
AXR sigue siendo un desarrollador de terrenos y constructor de viviendas de nicho concentrado en Rio Rancho, NM, con alta liquidez, apalancamiento mínimo y exposición a la demanda de vivienda y la volatilidad de las tasas de interés.
AMREP (AXR) 2025 회계연도 10-K 주요 내용
- 순이익이 두 배 증가하여 1,270만 달러(EPS 희석 2.37달러)로, 2024 회계연도의 670만 달러(1.25달러) 대비, 토지 판매 마진 강화 및 이자 수익 증가에 힘입음.
- 매출은 3% 감소하여 4,970만 달러, 개발되지 않은 토지 및 투자 자산 판매 감소 영향; 주택 건설 매출은 50채의 주택 인도에 힘입어 24% 증가한 2,120만 달러 기록.
- 마진 구성 변화: 토지 판매 총마진이 52%(기존 36%)로 확대된 반면, 주택 건설 마진은 21%(기존 25%)로 축소됨. 영업이익은 59% 증가한 1,210만 달러.
- 재무 건전성: 현금, 현금성 자산 및 미국 국채가 32% 증가하여 3,990만 달러; 지급어음은 2.6만 달러로 감소하여 AXR은 사실상 무부채 상태. 부동산 재고는 1% 소폭 증가한 6,680만 달러.
- 수주 모멘텀: 현재 생산 중인 주택 88채(계약 중 28채, 가치 1,280만 달러)로, 전년의 64채(20채; 870만 달러) 대비 증가.
- 토지 은행: 약 16,600에이커의 소유 토지와 뉴멕시코에 15,500에이커의 개발되지 않은 토지 보유; 2025년 토지 판매는 719에이커(대부분 저비용의 개발되지 않은 토지).
- 전망: 경영진은 FY 2026년 개발 토지 매출이 주택 가격 부담, 인허가 및 인프라 지연으로 신규 프로젝트가 둔화되어 감소할 것이라고 경고; 비용 상승과 인센티브는 주택 마진에 지속적인 압박.
AXR은 뉴멕시코주 리오 란초에 집중된 틈새 토지 개발업체이자 주택 건설업체로, 높은 현금 보유와 최소한의 부채, 주택 수요 및 금리 변동성에 노출되어 있음.
Points clés du rapport 10-K FY 2025 d'AMREP (AXR)
- Le bénéfice net a doublé pour atteindre 12,7 millions de dollars (BPA dilué de 2,37 $) contre 6,7 millions (1,25 $) en FY 2024, grâce à des marges plus fortes sur les ventes de terrains et à des revenus d’intérêts plus élevés.
- Le chiffre d’affaires a reculé de 3 % à 49,7 millions en raison de la baisse des ventes de terrains non aménagés et d’actifs d’investissement ; les revenus de la construction résidentielle ont augmenté de 24 % à 21,2 millions grâce à 50 clôtures de ventes de maisons.
- Changement dans la répartition des marges : la marge brute sur les ventes de terrains s’est élargie à 52 % (36 %), tandis que la marge sur la construction résidentielle s’est compressée à 21 % (25 %). Le résultat opérationnel a progressé de 59 % à 12,1 millions.
- Solidité du bilan : les liquidités, équivalents de trésorerie et bons du Trésor américain ont augmenté de 32 % pour atteindre 39,9 millions ; les billets à payer ont chuté à seulement 26 000 $, laissant AXR pratiquement sans dette. L’inventaire immobilier a légèrement augmenté de 1 % à 66,8 millions.
- Élan du carnet de commandes : 88 maisons en production (28 sous contrat pour une valeur de 12,8 millions) contre 64 (20 ; 8,7 millions) un an plus tôt.
- Parc foncier : environ 16 600 acres détenus plus 15 500 acres non aménagés au Nouveau-Mexique ; ventes de terrains en 2025 de 719 acres (principalement non aménagés à faible coût).
- Perspectives : la direction avertit que les revenus des terrains aménagés en FY 2026 diminueront en raison du ralentissement des nouveaux projets lié à l’accessibilité, aux autorisations et aux retards d’infrastructure ; la hausse des coûts et des incitations continue de peser sur les marges des maisons.
AXR reste un promoteur foncier et constructeur résidentiel de niche concentré à Rio Rancho, NM, avec une trésorerie élevée, un endettement minimal et une exposition à la demande de logements et à la volatilité des taux d’intérêt.
AMREP (AXR) FY 2025 10-K Highlights
- Der Nettogewinn hat sich verdoppelt auf 12,7 Mio. USD (verwässertes EPS 2,37 USD) gegenüber 6,7 Mio. USD (1,25 USD) im Geschäftsjahr 2024, angetrieben durch höhere Margen beim Grundstücksverkauf und gestiegene Zinserträge.
- Umsatz sank um 3 % auf 49,7 Mio. USD, da der Verkauf von unerschlossenen Grundstücken und Anlagevermögen zurückging; die Umsätze im Hausbau stiegen um 24 % auf 21,2 Mio. USD bei 50 Hausübergaben.
- Margenverschiebung: Die Bruttomarge beim Grundstücksverkauf stieg auf 52 % (36 %), während die Hausbaumarge auf 21 % (25 %) schrumpfte. Das Betriebsergebnis verbesserte sich um 59 % auf 12,1 Mio. USD.
- Starke Bilanz: Zahlungsmittel, Zahlungsmitteläquivalente und US-Staatsanleihen stiegen um 32 % auf 39,9 Mio. USD; Verbindlichkeiten aus Anleihen sanken auf nur 26.000 USD, wodurch AXR effektiv schuldenfrei ist. Der Immobilienbestand stieg leicht um 1 % auf 66,8 Mio. USD.
- Auftragsbestand im Aufwind: 88 Häuser in Produktion (28 unter Vertrag im Wert von 12,8 Mio. USD) gegenüber 64 (20; 8,7 Mio. USD) im Vorjahr.
- Grundstücksbestand: Ca. 16.600 eigene Acres plus 15.500 unerschlossene Acres in New Mexico; Grundstücksverkäufe 2025: 719 Acres (überwiegend unerschlossen und kostengünstig).
- Ausblick: Das Management warnt, dass die Umsätze mit entwickelten Grundstücken im Geschäftsjahr 2026 zurückgehen werden, da neue Projekte aufgrund von Bezahlbarkeits-, Genehmigungs- und Infrastrukturverzögerungen langsamer anlaufen; steigende Kosten und Anreize üben weiterhin Druck auf die Hausbaumargen aus.
AXR bleibt ein Nischenentwickler von Grundstücken und Hausbauer, konzentriert auf Rio Rancho, NM, mit hoher Liquidität, minimaler Verschuldung und Exponierung gegenüber der Wohnungsnachfrage und Zinsvolatilität.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
FORM 10-Q
_______________________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2025
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-38280
_______________________________________________
(Exact name of registrant as specified in its charter)
_______________________________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices, including zip code)
(713 ) 210-7600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| NYSE Texas | ||||||||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| S | Accelerated filer | £ | ||||||||||||
| Non-accelerated filer | £ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
As of July 22, 2025, the registrant had 51,352,644 shares common stock, $0.01 par value per share, outstanding.
Table of Contents
STELLAR BANCORP, INC.
INDEX TO FORM 10-Q
June 30, 2025
PART I—FINANCIAL INFORMATION | ||||||||
Item 1. | Interim Consolidated Financial Statements | 3 | ||||||
Consolidated Balance Sheets (unaudited) | 3 | |||||||
Consolidated Statements of Income (unaudited) | 4 | |||||||
Consolidated Statements of Comprehensive Income (unaudited) | 5 | |||||||
Consolidated Statements of Changes in Shareholders’ Equity (unaudited) | 6 | |||||||
Consolidated Statements of Cash Flows (unaudited) | 7 | |||||||
Condensed Notes to Interim Consolidated Financial Statements (unaudited) | 8 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 | ||||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 56 | ||||||
Item 4. | Controls and Procedures | 57 | ||||||
PART II—OTHER INFORMATION | ||||||||
Item 1. | Legal Proceedings | 57 | ||||||
Item 1A. | Risk Factors | 58 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 58 | ||||||
Item 3. | Defaults upon Senior Securities | 58 | ||||||
Item 4. | Mine Safety Disclosures | 58 | ||||||
Item 5. | Other Information | 58 | ||||||
Item 6. | Exhibits | 59 | ||||||
Signatures | 60 | |||||||
2
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PART I—FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
STELLAR BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands, except shares and par value) | |||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | $ | |||||||||
| Interest-bearing deposits at other financial institutions | |||||||||||
| Total cash and cash equivalents | |||||||||||
| Available for sale securities, at fair value | |||||||||||
| Loans held for investment | |||||||||||
| Less: allowance for credit losses on loans | ( | ( | |||||||||
| Loans, net | |||||||||||
| Accrued interest receivable | |||||||||||
| Premises and equipment, net | |||||||||||
| Federal Reserve Bank and Federal Home Loan Bank stock | |||||||||||
| Bank-owned life insurance | |||||||||||
| Goodwill | |||||||||||
| Core deposit intangibles, net | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| LIABILITIES: | |||||||||||
| Deposits: | |||||||||||
| Noninterest-bearing | $ | $ | |||||||||
| Interest-bearing | |||||||||||
| Demand | |||||||||||
| Money market and savings | |||||||||||
| Certificates and other time | |||||||||||
| Total interest-bearing deposits | |||||||||||
| Total deposits | |||||||||||
| Accrued interest payable | |||||||||||
| Borrowed funds | |||||||||||
| Subordinated debt | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 13) | |||||||||||
| SHAREHOLDERS’ EQUITY: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Capital surplus | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | |||||||||
See condensed notes to interim consolidated financial statements.
3
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STELLAR BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||||||
| INTEREST INCOME: | |||||||||||||||||||||||
| Loans, including fees | $ | $ | $ | $ | |||||||||||||||||||
| Securities: | |||||||||||||||||||||||
| Taxable | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Deposits in other financial institutions | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| INTEREST EXPENSE: | |||||||||||||||||||||||
| Demand, money market and savings deposits | |||||||||||||||||||||||
| Certificates and other time deposits | |||||||||||||||||||||||
| Borrowed funds | |||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| NET INTEREST INCOME | |||||||||||||||||||||||
| Provision for (reversal of) credit losses | ( | ||||||||||||||||||||||
| Net interest income after provision for credit losses | |||||||||||||||||||||||
| NONINTEREST INCOME: | |||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| (Loss) gain on sale of assets | ( | ( | |||||||||||||||||||||
| Bank-owned life insurance income | |||||||||||||||||||||||
| Debit card and interchange income | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||
| NONINTEREST EXPENSE: | |||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||
| Net occupancy and equipment | |||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||
| Data processing and software amortization | |||||||||||||||||||||||
| Professional fees | |||||||||||||||||||||||
| Regulatory assessments and FDIC insurance | |||||||||||||||||||||||
| Amortization of intangibles | |||||||||||||||||||||||
| Communications | |||||||||||||||||||||||
| Advertising | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||||||||||
| EARNINGS PER SHARE: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| DIVIDENDS PER SHARE | $ | $ | $ | $ | |||||||||||||||||||
See condensed notes to interim consolidated financial statements.
4
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STELLAR BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||||||||
| Unrealized (loss) gain on securities: | ||||||||||||||||||||||||||
Change in unrealized holding (loss) gain on available for sale securities during the period | ( | ( | ||||||||||||||||||||||||
| Reclassification of loss realized through the sale of securities | ||||||||||||||||||||||||||
| Total other comprehensive (loss) income | ( | ( | ||||||||||||||||||||||||
Deferred tax benefit (expense) related to other comprehensive (income) loss | ( | ( | ||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | ( | ( | ||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
See condensed notes to interim consolidated financial statements.
5
Table of Contents
STELLAR BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| Common Stock | Capital Surplus | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Common stock issued in connection with the exercise of stock options and restricted stock awards | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Cash dividends declared, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Common stock issued in connection with the exercise of stock options and restricted stock awards | — | — | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Cash dividends declared, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Common stock issued in connection with the exercise of stock options and restricted stock awards | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Common stock issued in connection with the exercise of stock options and restricted stock awards | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See condensed notes to interim consolidated financial statements.
6
Table of Contents
STELLAR BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and intangibles amortization | |||||||||||
| Net accretion of discount on loans | ( | ( | |||||||||
| Net (accretion) amortization of securities | ( | ||||||||||
| Provision for credit losses | |||||||||||
| Deferred income tax expense | |||||||||||
| Stock-based compensation expense | |||||||||||
| Net change in operating leases | |||||||||||
| Bank-owned life insurance income | ( | ( | |||||||||
| Federal Home Loan Bank stock dividends | ( | ( | |||||||||
| Gain on sale of assets | ( | ( | |||||||||
| Excess tax benefit from stock based compensation | ( | ||||||||||
| (Increase) decrease in accrued interest receivable and other assets | ( | ||||||||||
| Decrease in accrued interest payable and other liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of available for sale securities | ( | ( | |||||||||
| Proceeds from maturities and principal paydowns of available for sale securities | |||||||||||
| Proceeds from sales and calls of available for sale securities | |||||||||||
| Net change in total loans | |||||||||||
| Purchase of bank premises and equipment | ( | ( | |||||||||
| Proceeds from sale of bank premises, equipment and other real estate | |||||||||||
| Net (purchase) redemption of Federal Reserve Bank and Federal Home Loan Bank stock | ( | ||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Net decrease in noninterest-bearing deposits | ( | ( | |||||||||
| Net (decrease) increase in interest-bearing deposits | ( | ||||||||||
| Net change in borrowed funds | |||||||||||
| Dividends paid to common shareholders | ( | ( | |||||||||
| (Payments made) proceeds from the issuance of restricted stock and stock option exercises | ( | ||||||||||
| Repurchase of common stock | ( | ||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ||||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Income taxes paid | $ | $ | |||||||||
| Interest paid | |||||||||||
| Cash paid for operating lease liabilities | |||||||||||
| SUPPLEMENTAL NONCASH DISCLOSURE: | |||||||||||
| Loans transferred to other real estate | |||||||||||
See condensed notes to interim consolidated financial statements.
7
Table of Contents
STELLAR BANCORP, INC.
CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2025
(Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature of Operations—Stellar Bancorp, Inc. (“Stellar”) through its wholly-owned subsidiary, Stellar Bank (the “Bank” and together with Stellar, collectively referred to herein as “we,” “us,” “our” and the “Company”), provides a diversified range of commercial banking services primarily to small-to medium-sized businesses. Stellar derives substantially all of its revenues and income from the operation of the Bank.
The Company is focused on delivering a wide variety of relationship-driven commercial banking products and community-oriented services tailored to meet the needs of small-to medium-sized businesses, professionals and individuals through its 54 banking centers with 37 banking centers in the Houston metropolitan statistical area (“MSA”), 16 banking centers in the Beaumont MSA and one banking center in Dallas, Texas.
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission (“SEC”). Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis, and all such adjustments are of a normal recurring nature. Transactions between Stellar and the Bank have been eliminated. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Operating results for the three and six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
Reclassifications—Certain items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.
Significant Accounting and Reporting Policies—The Company’s significant accounting and reporting policies can be found in Note 1 of the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Recent Accounting Standards
Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” was issued in December 2023. This update requires that public business entities on an annual basis (1) disclose specific categories in the tax rate reconciliation, (2) provide additional information for reconciling items that meet a quantitative threshold and (3) disaggregate income taxes paid by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption was permitted. The Company will adopt this ASU and does not believe it will have a significant impact on the Company's financial statements.
ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”. This update requires that public businesses disclose details about specific expenses such as inventory purchases, employee compensation, depreciation, amortization and depletion. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2026. Early adoption is permitted. The Company is evaluating the impact of this ASU, but does not believe it will have a significant impact on the Company’s financial statements.
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Table of Contents
2. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of the Company’s goodwill and core deposit intangible assets were as follows:
| Goodwill | Core Deposit Intangibles | Servicing Assets | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | ||||||||||||||
| Amortization | — | ( | ( | ||||||||||||||
| Decrease due to payoff of serviced loans | — | — | ( | ||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | ||||||||||||||
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired recorded on the acquisition date of an entity. Goodwill is subject to impairment testing, which must be conducted at least annually or upon the occurrence of a triggering event. Various factors, such as the Company’s results of operations, the trading price of the Company’s common stock relative to the book value per share, macroeconomic conditions and conditions in the banking sector, inform whether a triggering event for an interim goodwill impairment test has occurred. Goodwill is recorded and evaluated for impairment at its reporting unit, the Company. The Company’s policy is to test goodwill for impairment annually as of October 1st, or on an interim basis if an event triggering an impairment assessment is determined to have occurred.
The estimated aggregate future amortization expense for core deposit intangible assets remaining as of June 30, 2025 is as follows (in thousands):
| Remaining 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
3. SECURITIES
The amortized cost and fair value of securities available for sale were as follows:
| June 30, 2025 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Municipal securities | ( | ||||||||||||||||||||||
| Agency mortgage-backed pass-through securities | ( | ||||||||||||||||||||||
| Agency collateralized mortgage obligations | ( | ||||||||||||||||||||||
| Corporate bonds and other | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
9
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| December 31, 2024 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Municipal securities | ( | ||||||||||||||||||||||
| Agency mortgage-backed pass-through securities | ( | ||||||||||||||||||||||
| Agency collateralized mortgage obligations | ( | ||||||||||||||||||||||
| Corporate bonds and other | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
As of June 30, 2025, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This belief is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.
The amortized cost and fair value of investment securities at June 30, 2025, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations at any time with or without call or prepayment penalties.
| Amortized Cost | Fair Value | |||||||||||||
| (In thousands) | ||||||||||||||
| Due in one year or less | $ | $ | ||||||||||||
| Due after one year through five years | ||||||||||||||
| Due after five years through ten years | ||||||||||||||
| Due after ten years | ||||||||||||||
| Subtotal | ||||||||||||||
Agency mortgage-backed pass-through securities and collateralized mortgage obligations | ||||||||||||||
| Total | $ | $ | ||||||||||||
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Securities with unrealized losses segregated by length of time in a continuous loss position were as follows:
| June 30, 2025 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | More than 12 Months | Total | |||||||||||||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Municipal securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
Agency mortgage-backed pass-through securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Agency collateralized mortgage obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Corporate bonds and other | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | More than 12 Months | Total | |||||||||||||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Municipal securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
Agency mortgage-backed pass-through securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Agency collateralized mortgage obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Corporate bonds and other | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
During the six months ended June 30, 2025, the Company had sales and calls of securities of $115.2 million with a loss of $3 thousand. During the six months ended June 30, 2024, the Company had sales and calls of securities of $6.9 million with no gain or loss recorded.
At June 30, 2025 and December 31, 2024, the Company did not own securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of consolidated shareholders’ equity at such respective dates.
The carrying value of pledged securities was $537.4 million at June 30, 2025 and $410.2 million at December 31, 2024. The majority of the securities in each case were pledged to collateralize public fund deposits.
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4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The loan portfolio balances, net of unearned income and fees, consist of various types of loans primarily made to borrowers located within Texas, and segregated by class of loan were as follows:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Commercial and industrial | $ | $ | |||||||||
| Real estate: | |||||||||||
| Commercial real estate (including multi-family residential) | |||||||||||
| Commercial real estate construction and land development | |||||||||||
| 1-4 family residential (including home equity) | |||||||||||
| Residential construction | |||||||||||
| Consumer and other | |||||||||||
| Total loans | |||||||||||
| Allowance for credit losses on loans | ( | ( | |||||||||
| Loans, net | $ | $ | |||||||||
Nonaccrual and Past Due Loans
An aging analysis of past due loans, segregated by class of loans, is included below. The Company defines recorded investment as the outstanding loan balances including net deferred loan fees, and excluding accrued interest receivable of $28.2 million and $30.4 million as of June 30, 2025 and December 31, 2024, respectively, due to immateriality.
| June 30, 2025 | |||||||||||||||||||||||||||||||||||
| Loans Past Due and Still Accruing | Nonaccrual Loans | Current Loans | Total Loans | ||||||||||||||||||||||||||||||||
| 30-89 Days | 90 or More Days | Total Past Due Loans | |||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
Commercial real estate (including multi-family residential) | |||||||||||||||||||||||||||||||||||
Commercial real estate construction and land development | |||||||||||||||||||||||||||||||||||
1-4 family residential (including home equity) | |||||||||||||||||||||||||||||||||||
| Residential construction | |||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Loans Past Due and Still Accruing | Nonaccrual Loans | Current Loans | Total Loans | ||||||||||||||||||||||||||||||||
| 30-89 Days | 90 or More Days | Total Past Due Loans | |||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
Commercial real estate (including multi-family residential) | |||||||||||||||||||||||||||||||||||
Commercial real estate construction and land development | |||||||||||||||||||||||||||||||||||
1-4 family residential (including home equity) | |||||||||||||||||||||||||||||||||||
| Residential construction | |||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt. The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks certain risk ratings to be used as credit quality indicators including trends related to (1) the weighted-average risk grade of loans, (2) the level of classified loans, (3) the delinquency status of loans, (4) nonperforming loans and (5) the general economic conditions in our market. On an annual basis, individual bankers, under the oversight of credit administration, review updated financial information for pass grade commercial loans over a defined threshold to reassess the risk grade. When a loan reaches a set of internally designated criteria, including substandard or higher, a special assets officer will be involved in the monitoring of the loan on an on-going basis.
The following is a general description of the risk ratings used by the Company:
Pass—Credits in this category contain an acceptable amount of risk.
Special Mention—Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Substandard—Loans classified as substandard have well-defined weaknesses on a continuing basis and are inadequately protected by the current net worth and paying capacity of the borrower, declining collateral values, or a continuing downturn in their industry which is reducing their profits to below zero and having a significantly negative impact on their cash flow. These loans so classified are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful—Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Loss—Loans classified as loss are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.
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The following table presents risk ratings by category and the gross charge-offs by primary loan type and year of origination or renewal. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. The following summarizes the amortized cost basis of loans by year of origination/renewal and credit quality indicator by class of loan as of June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans | Revolving Loans Converted to Term Loans | Total | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate (including multi-family residential) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate (including multi-family residential) loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate construction and land development | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate construction and land development | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
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| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans | Revolving Loans Converted to Term Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Total | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family residential (including home equity) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total 1-4 family residential (including home equity) | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total residential construction | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consumer and other | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
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The following table presents the activity in the allowance for credit losses on loans by portfolio type for the three and six months ended June 30, 2025 and 2024:
Commercial and industrial | Commercial real estate (including multi-family residential) | Commercial real estate construction and land development | 1-4 family residential (including home equity) | Residential construction | Consumer and other | Total | |||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Provision for (reversal of) credit losses on loans | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Six Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Provision for (reversal of) credit losses on loans | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Balance June 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Provision for (reversal of) credit losses on loans | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Six Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Provision for (reversal of) credit losses on loans | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Balance June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Allowance for Credit Losses on Unfunded Commitments
In addition to the allowance for credit losses on loans, the Company has established an allowance for credit losses on unfunded commitments, classified in other liabilities and adjusted as a provision for credit loss expense. The allowance represents estimates of 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 the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is informed by historical analysis looking at utilization rates. The expected credit loss rates applied to the commitments expected to fund is informed by the general valuation allowance utilized for outstanding balances with the same
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underlying assumptions and drivers. The allowance for credit losses on unfunded commitments as of June 30, 2025 and December 31, 2024 was $14.6 million and $12.4 million, respectively. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The Company recorded a provision on unfunded commitments of $1.5 million during the three months ended June 30, 2025 compared to a reversal of provision on unfunded commitments of $421 thousand for the three months ended June 30, 2024 and a provision on unfunded commitments of $2.2 million for the six months ended June 30, 2025 compared to a reversal of provision of $1.6 million.
Collateral Dependent Loans
Collateral dependent loans are secured by real estate assets, accounts receivable, inventory and equipment. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan and any loss is included in the allowance for credit losses on loans as a specific allocation. The allowance for credit losses on collateral dependent loans was $7.3 million and $2.0 million, as of June 30, 2025 and December 31, 2024, respectively.
The following tables present the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of June 30, 2025 and December 31, 2024:
| June 30, 2025 | |||||||||||||||||||||||
| Real Estate | Business Assets | Other | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | |||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate (including multi-family residential) | |||||||||||||||||||||||
| Commercial real estate construction and land development | |||||||||||||||||||||||
| 1-4 family residential (including home equity) | |||||||||||||||||||||||
| Residential construction | |||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Real Estate | Business Assets | Other | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | |||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate (including multi-family residential) | |||||||||||||||||||||||
| Commercial real estate construction and land development | |||||||||||||||||||||||
| 1-4 family residential (including home equity) | |||||||||||||||||||||||
| Residential construction | |||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
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Nonaccrual Loans
The following tables present additional information regarding nonaccrual loans. No
| June 30, 2025 | |||||||||||||||||
| Nonaccrual Loans with No Related Allowance | Nonaccrual Loans with Related Allowance | Total Nonaccrual Loans | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Commercial and industrial | $ | $ | $ | ||||||||||||||
| Real estate: | |||||||||||||||||
| Commercial real estate (including multi-family residential) | |||||||||||||||||
| Commercial real estate construction and land development | |||||||||||||||||
| 1-4 family residential (including home equity) | |||||||||||||||||
| Residential construction | |||||||||||||||||
| Consumer and other | |||||||||||||||||
| Total loans | $ | $ | $ | ||||||||||||||
| December 31, 2024 | |||||||||||||||||
| Nonaccrual Loans with No Related Allowance | Nonaccrual Loans with Related Allowance | Total Nonaccrual Loans | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Commercial and industrial | $ | $ | $ | ||||||||||||||
| Real estate: | |||||||||||||||||
| Commercial real estate (including multi-family residential) | |||||||||||||||||
| Commercial real estate construction and land development | |||||||||||||||||
| 1-4 family residential (including home equity) | |||||||||||||||||
| Residential construction | |||||||||||||||||
| Consumer and other | |||||||||||||||||
| Total loans | $ | $ | $ | ||||||||||||||
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Loan Modifications
Loan modifications are reported if concessions have been granted to borrowers that are experiencing financial difficulty. The percentage of loans modified comprised less than 1 % of their respective classes of loan portfolios at June 30, 2025.
The following tables present information regarding loans that were modified due to the borrowers experiencing financial difficulty during the three months and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Reduction | Term Extension | Payment Delay | Principal Forgiveness | Combination Term Extension and Payment Delay | Combination Term Extension and Interest Rate Reduction | Total | ||||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate (including multi-family residential) | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate construction and land development | ||||||||||||||||||||||||||||||||||||||||||||
1-4 family residential (including home equity) | ||||||||||||||||||||||||||||||||||||||||||||
| Residential construction | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Reduction | Term Extension | Payment Delay | Principal Forgiveness | Combination Term Extension and Payment Delay | Combination Term Extension and Interest Rate Reduction | Total | ||||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate (including multi-family residential) | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate construction and land development | ||||||||||||||||||||||||||||||||||||||||||||
1-4 family residential (including home equity) | ||||||||||||||||||||||||||||||||||||||||||||
| Residential construction | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
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| Three Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Reduction | Term Extension | Payment Delay | Principal Forgiveness | Combination Term Extension and Payment Delay | Combination Term Extension and Interest Rate Reduction | Total | ||||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate (including multi-family residential) | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate construction and land development | ||||||||||||||||||||||||||||||||||||||||||||
1-4 family residential (including home equity) | ||||||||||||||||||||||||||||||||||||||||||||
| Residential construction | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Reduction | Term Extension | Payment Delay | Principal Forgiveness | Combination Term Extension and Payment Delay | Combination Term Extension and Interest Rate Reduction | Total | ||||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate (including multi-family residential) | ||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate construction and land development | ||||||||||||||||||||||||||||||||||||||||||||
1-4 family residential (including home equity) | ||||||||||||||||||||||||||||||||||||||||||||
| Residential construction | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
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The following tables summarizes, by loan portfolio, the financial effect of the Company’s loan modifications for the periods indicated:
| Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | ||||||||||||||||||||||
| Weighted-Average Term Extension | Weighted-Average Interest Rate Reduction | Weighted-Average Term Extension | Weighted-Average Interest Rate Reduction | ||||||||||||||||||||
| (months) | (months) | ||||||||||||||||||||||
| Commercial and industrial | % | % | |||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
Commercial real estate (including multi-family residential) | — | % | — | % | |||||||||||||||||||
Commercial real estate construction and land development | — | % | — | % | |||||||||||||||||||
1-4 family residential (including home equity) | — | % | — | % | |||||||||||||||||||
| Residential construction | — | % | — | % | |||||||||||||||||||
| Consumer and other | — | % | — | % | |||||||||||||||||||
| Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | ||||||||||||||||||||||
| Weighted-Average Term Extension | Weighted-Average Interest Rate Reduction | Weighted-Average Term Extension | Weighted-Average Interest Rate Reduction | ||||||||||||||||||||
| (months) | (months) | ||||||||||||||||||||||
| Commercial and industrial | % | % | |||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
Commercial real estate (including multi-family residential) | % | — | % | ||||||||||||||||||||
Commercial real estate construction and land development | % | % | |||||||||||||||||||||
1-4 family residential (including home equity) | — | % | — | % | |||||||||||||||||||
| Residential construction | — | % | % | ||||||||||||||||||||
| Consumer and other | — | % | — | % | |||||||||||||||||||
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The following table summarizes modified loans that had a payment default, determined as 90 or more days past due, that were modified due to the borrowers experiencing financial difficulty during the twelve month periods indicated:
| Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||
| Term Extension | Payment Delay | Combination | Term Extension | Payment Delay | Combination | |||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||
Commercial real estate (including multi-family residential) | ||||||||||||||||||||||||||||||||||||||
Commercial real estate construction and land development | ||||||||||||||||||||||||||||||||||||||
1-4 family residential (including home equity) | ||||||||||||||||||||||||||||||||||||||
| Residential construction | ||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
5. LEASES
At June 30, 2025, the Company had 30 operating leases consisting of branch locations, office facilities and equipment. The right-of-use asset is classified within premises and equipment and the lease liability is included in other liabilities on the balance sheet. The Company also owns certain office facilities which it leases to outside parties under operating lessor leases; however, such leases are not significant. There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the six months ended June 30, 2025 and 2024.
Supplemental lease information at the dates indicated was as follows:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Balance Sheet: | |||||||||||
| Operating lease right-of-use asset classified as premises and equipment | $ | $ | |||||||||
| Operating lease liability classified as other liabilities | $ | $ | |||||||||
| Weighted average lease term, in years | |||||||||||
| Weighted average discount rate | % | % | |||||||||
Lease costs for the dates indicated were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Income Statement: | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
| Total operating lease costs | $ | $ | $ | $ | |||||||||||||||||||
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The following table summarizes the contractual maturity of the Company’s lease liabilities as of the dates indicated below:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Lease payments due: | |||||||||||
| Within one year | $ | $ | |||||||||
| After one but within two years | |||||||||||
| After two but within three years | |||||||||||
| After three but within four years | |||||||||||
| After four but within five years | |||||||||||
| After five years | |||||||||||
| Total lease payments | |||||||||||
| Less: discount on cash flows | ( | ( | |||||||||
| Total lease liability | $ | $ | |||||||||
6. FAIR VALUE
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Fair value represents the estimated exchange price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price,” in the principal or most advantageous market available to the entity in an orderly transaction between market participants on the measurement date.
Fair Value Hierarchy
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company groups financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
•Level 1—Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Significant unobservable inputs that reflect management’s judgment and assumptions that market participants would use in pricing an asset or liability that are supported by little or no market activity.
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The carrying amounts and estimated fair values of financial instruments that are reported on the balance sheet were as follows:
| June 30, 2025 | |||||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Available for sale securities | |||||||||||||||||||||||||||||
| Loans held for investment, net of allowance | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
| Borrowed funds | |||||||||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Available for sale securities | |||||||||||||||||||||||||||||
| Loans held for investment, net of allowance | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
| Borrowed funds | |||||||||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||||||||
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The following tables present fair values for assets and liabilities measured on a recurring basis:
| June 30, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||
| Available for sale securities: | |||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | $ | |||||||||||||||||||
| Municipal securities | |||||||||||||||||||||||
| Agency mortgage-backed pass-through securities | |||||||||||||||||||||||
| Agency collateralized mortgage obligations | |||||||||||||||||||||||
| Corporate bonds and other | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Credit risk participation agreements | |||||||||||||||||||||||
| Total fair value of financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
| Total fair value of financial liabilities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||
| Available for sale securities: | |||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | $ | |||||||||||||||||||
| Municipal securities | |||||||||||||||||||||||
| Agency mortgage-backed pass-through securities | |||||||||||||||||||||||
| Agency collateralized mortgage obligations | |||||||||||||||||||||||
| Corporate bonds and other | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Credit risk participation agreements | |||||||||||||||||||||||
| Total fair value of financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
| Total fair value of financial liabilities | $ | $ | $ | $ | |||||||||||||||||||
There were no transfers between levels during the six months ended June 30, 2025 or 2024.
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Certain assets, including purchase credit deteriorated and individually evaluated loans with allowances for credit losses and branch assets held for sale, are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances such as impairment. There were no liabilities measured at fair value on a nonrecurring basis at June 30, 2025 and December 31, 2024. Assets measured on a nonrecurring basis for the periods noted are summarized in the table below:
| June 30, 2025 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Loans: | |||||||||||||||||
| Commercial and industrial | $ | $ | $ | ||||||||||||||
Commercial real estate (including multi-family residential) | |||||||||||||||||
Commercial real estate construction and land development | |||||||||||||||||
| 1-4 family residential (including home equity) | |||||||||||||||||
| Consumer and other | |||||||||||||||||
| Foreclosed assets | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| December 31, 2024 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Loans: | |||||||||||||||||
| Commercial and industrial | $ | $ | $ | ||||||||||||||
Commercial real estate (including multi-family residential) | |||||||||||||||||
Commercial real estate construction and land development | |||||||||||||||||
| 1-4 family residential (including home equity) | |||||||||||||||||
| Consumer and other | |||||||||||||||||
| Foreclosed assets | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
7. DEPOSITS
Time deposits that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250 thousand at June 30, 2025 and December 31, 2024 were $626.9 million and $605.6 million, respectively.
Scheduled maturities of time deposits as of June 30, 2025 were as follows (in thousands):
| 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
As of June 30, 2025, the Company had brokered deposits of $163.2 million, or 1.9 % of total deposits, and $481.8 million, or 5.3 % of total deposits, as of December 31, 2024. Also included within deposits are public funds which are deposits from governments and municipalities that are subject to seasonality and are fully collateralized by either securities pledged or FHLB letters of credit. Public funds totaled $1.12 billion, or 12.9 % of total deposits, as of June 30, 2025 compared to $1.56 billion, or 17.1 % of total deposits, as of December 31, 2024.
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8. DERIVATIVE INSTRUMENTS
The Company has outstanding interest rate swap contracts with certain customers and equal and offsetting interest rate swaps with other financial institutions entered into at the same time. These interest rate swap contracts are not designated as hedging instruments for mitigating interest rate risk. The objective of the transactions is to allow customers to effectively convert a variable rate loan to a fixed rate.
In connection with each swap transaction, the Company agreed to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agreed to pay a third-party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts are designed to offset each other and do not significantly impact the Company’s operating results except in certain situations where there is a significant deterioration in the customer’s credit worthiness or that of the counterparties. At June 30, 2025, management determined there was no such deterioration.
At both June 30, 2025 and December 31, 2024, the Company had nine
At both June 30, 2025 and December 31, 2024, the Company had three
Derivative instruments not designated as hedges outstanding as of the periods indicated below were as follows (dollars in thousands):
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Classification | Notional Amounts | Fair Value | Fixed Rate | Floating Rate | Weighted Average Maturity (Years) | |||||||||||||||||||||||||||||||||
| Interest rate swaps: | ||||||||||||||||||||||||||||||||||||||
| Financial institutions | Other assets | $ | $ | SOFR 1M + | ||||||||||||||||||||||||||||||||||
| Financial institutions | Other assets | U.S. Prime | ||||||||||||||||||||||||||||||||||||
| Customers | Other assets | SOFR 1M + | ||||||||||||||||||||||||||||||||||||
| Financial institutions | Other liabilities | ( | SOFR 1M + | |||||||||||||||||||||||||||||||||||
| Customers | Other liabilities | ( | U.S. Prime | |||||||||||||||||||||||||||||||||||
| Customers | Other liabilities | ( | SOFR 1M + | |||||||||||||||||||||||||||||||||||
| Credit risk participation agreements: | ||||||||||||||||||||||||||||||||||||||
| Financial institutions | Other assets | SOFR 1M + | ||||||||||||||||||||||||||||||||||||
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| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Classification | Notional Amounts | Fair Value | Fixed Rate | Floating Rate | Weighted Average Maturity (Years) | |||||||||||||||||||||||||||||||||
| Interest rate swaps: | ||||||||||||||||||||||||||||||||||||||
| Financial institutions | Other assets | $ | $ | SOFR 1M + | ||||||||||||||||||||||||||||||||||
| Financial institutions | Other assets | U.S. Prime | ||||||||||||||||||||||||||||||||||||
| Customers | Other liabilities | ( | U.S. Prime | |||||||||||||||||||||||||||||||||||
| Customers | Other liabilities | ( | SOFR 1M + | |||||||||||||||||||||||||||||||||||
| Credit risk participation agreements: | ||||||||||||||||||||||||||||||||||||||
| Financial institutions | Other assets | SOFR 1M + | ||||||||||||||||||||||||||||||||||||
9. BORROWINGS AND BORROWING CAPACITY
The Company has an available line of credit with the Federal Home Loan Bank of Dallas (“FHLB”), which allows the Company to borrow on a collateralized basis. 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. At June 30, 2025, the Company had a total borrowing capacity of $3.19 billion, of which $1.97 billion was available under this agreement and $1.22 billion was outstanding pursuant to FHLB advances and letters of credit. Of the $1.22 billion, there were $70.0 million of FHLB short-term advances outstanding at June 30, 2025 at a weighted-average rate of 4.75 % and $1.14 billion of FHLB letters of credit.
At June 30, 2025, the Company had FHLB letters of credit pledged as collateral for public and other deposits of state and local government agencies which expire in the following periods (in thousands):
| 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
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 June 30, 2025, there were no outstanding borrowings on this line of credit and no draws were taken on this line of credit during the three or six months ended June 30, 2025. Interest accrues on outstanding borrowings at a per annum rate equal to 3-month SOFR plus 2.75 %, calculated in accordance with the terms of the revolving promissory note and payable quarterly through the first 24 months. The entire outstanding balance and unpaid interest is payable in full on December 13, 2033, the maturity date. 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.
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. As of June 30, 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.
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10. 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. 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 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. 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 the Company’s present and future senior indebtedness. 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. The junior subordinated debentures are included in Tier 1 capital under current regulatory guidelines and interpretations. Under the provisions of each issue of the debentures, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years . If interest payments on either issue of the debentures are deferred, the distributions on the applicable trust preferred securities and common securities will also be deferred.
A summary of pertinent information related to the Company’s junior subordinated debentures outstanding at June 30, 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 | $ | $ | November 8, 2033 | ||||||||||||||||||||||
| Farmers & Merchants Capital Trust III | June 30, 2005 | July 7, 2035 | ||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
(1) All junior subordinated debentures were callable at June 30, 2025. | ||||||||||||||||||||||||||
Subordinated Notes
In December 2017, the Bank issued $40.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Bank Notes”) due December 15, 2027 and bore a floating rate of interest equal to 3-Month SOFR plus 3.03 %. 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.
In September 2019, the Company issued $60.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Company Notes”) due October 1, 2029. The Company Notes bear interest 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. 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.
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11. INCOME TAXES
The amount of the Company’s income tax expense is influenced by the amount of pre-tax income, tax-exempt income and other nondeductible items.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Income tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Effective income tax rate | % | % | % | % | |||||||||||||||||||
12. STOCK-BASED COMPENSATION
During the second quarter of 2025, the Company increased the maximum shares authorized to be issued under the 2022 Omnibus Incentive Plan (the “2022 Plan”) to 3,100,000 shares of common stock. All restricted stock and performance share awards outstanding at June 30, 2025 were issued under the 2022 Plan. At June 30, 2025, there were 1,684,456 shares reserved for issuance under the 2022 Plan.
The Company accounts for stock-based employee compensation plans using the fair value-based method of accounting. The Company recognized total stock-based compensation expense of $2.6 million and $2.8 million for the three months ended June 30, 2025 and 2024, respectively and $4.5 million and $5.6 million for the six months ended June 30, 2025 and 2024, respectively.
Stock Options
Stock options outstanding at June 30, 2025 were issued under equity compensation plans that are no longer active. No additional shares may be issued under these compensation plans. Stock option activity during the six months ended June 30, 2025 was as follows:
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
| (In thousands) | (In years) | (In thousands) | |||||||||||||||||||||
| Options outstanding, January 1, 2025 | $ | $ | |||||||||||||||||||||
| Options granted | |||||||||||||||||||||||
| Options exercised | ( | ||||||||||||||||||||||
| Options forfeited | ( | ||||||||||||||||||||||
| Options outstanding, June 30, 2025 | $ | $ | |||||||||||||||||||||
Options vested and exercisable, June 30, 2025 | $ | $ | |||||||||||||||||||||
Restricted Stock Awards
The fair value of the Company’s restricted stock awards is estimated based on the market value of the Company’s common stock at the date of grant, which is the closing price of the Company’s common stock on the day before the grant date. The shares of restricted stock granted generally vest over a period of two or three years from the date of grant and the Company accounts for shares of restricted stock by recording the fair value of the grant on the award date as compensation expense over the vesting period. Restricted stock awards are non-transferable and subject to forfeiture until the restricted stock awards vest and any dividends with respect to the restricted stock awards are subject to the same restrictions, including the risk of forfeiture.
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Nonvested shares of restricted stock activity during the six months ended June 30, 2025 was as follows:
| Number of Shares | Weighted- Average Grant Date Fair Value | ||||||||||
| (In thousands) | |||||||||||
Nonvested share awards outstanding, January 1, 2025 | $ | ||||||||||
| Share awards granted | |||||||||||
| Share awards vested | ( | ||||||||||
| Unvested share awards forfeited or cancelled | ( | ||||||||||
Nonvested share awards outstanding, June 30, 2025 | $ | ||||||||||
As of June 30, 2025, there was $10.7 million of unrecognized compensation expense related to restricted stock awards which is expected to be recognized over a weighted-average period of 2.05 years.
Performance Share Units (“PSUs”) and Performance Share Awards (“PSAs”)
The Company’s PSUs and PSAs are earned subject to certain performance goals being met after a specified performance period and are settled in shares of Company common stock. There were 88,941 PSUs awarded during the six months ended June 30, 2025, which were granted with a three-year performance period and will vest in March 2028. The grant date fair value of the PSUs and PSAs is based on the probable outcome of the applicable performance conditions and is calculated at target based on a combination of the closing market price of our common stock on the grant date and a Monte Carlo simulated fair value in accordance with accounting standards codification (“ASC”) 718. At June 30, 2025, there was $3.8 million of unrecognized compensation expense related to the PSUs and PSAs, which is expected to be recognized over a weighted-average period of 2.35 years.
13. OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles generally accepted in the United States are not included in the Company’s consolidated balance sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments.
The contractual amounts of financial instruments with off-balance sheet risk are as follows:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Commitments to extend credit | $ | $ | |||||||||
| Standby letters of credit | |||||||||||
| Total | $ | $ | |||||||||
At June 30, 2025 and December 31, 2024, the Company had FHLB letters of credit in the amount of $1.14 billion and $2.10 billion, respectively, pledged as collateral for public and other deposits of state and local government agencies. For more information on FHLB borrowings, see Note 9 – Borrowings and Borrowing Capacity.
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed do not necessarily represent future cash funding requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk associated with certain commitments to extend credit in determining the
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level of the allowance for credit losses. The amount and type of collateral, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.
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. In the event of nonperformance by the customer, the Company has the rights to the underlying collateral. The credit risk to the Company in issuing letters of credit is substantially similar to that involved in extending loan facilities to its customers. The Company’s policy for obtaining collateral, and the nature of such collateral, is substantially similar to that involved in making commitments to extend credit.
Litigation
The Company is subject to potential and asserted claims, inquiries, investigations and lawsuits which arise in the ordinary course of business. The process of resolving matters through litigation or other means is inherently uncertain, and it is possible that an unfavorable resolution of such matters will adversely affect the financial position or results of operations of the Company. The Company's regular practice is to expense legal fees as services are rendered in connection with legal matters, and to accrue for liabilities when payment is estimable and probable.
14. REGULATORY CAPITAL MATTERS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines, and for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Management believes as of June 30, 2025 and December 31, 2024, the Company and the Bank met all capital adequacy requirements to which they were then subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If less than well capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.
The Bank’s capital ratios as of June 30, 2025 exceed the minimum levels necessary to be considered “well-capitalized” under the prompt corrective action regulatory framework. The following is a summary of the Company’s and the Bank’s actual and required capital ratios as of June 30, 2025 and December 31, 2024:
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| Actual | Minimum Required for Capital Adequacy Purposes | Minimum Required Plus Capital Conservation Buffer | To Be Categorized As Well-Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
STELLAR BANCORP, INC. (Consolidated) | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
Total Capital (to risk-weighted assets) | $ | % | $ | % | $ | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||
Common Equity Tier 1 Capital (to risk-weighted assets) | % | % | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
Tier 1 Capital (to risk-weighted assets) | % | % | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
Tier 1 Leverage (to average tangible assets) | % | % | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
Total Capital (to risk-weighted assets) | $ | % | $ | % | $ | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||
Common Equity Tier 1 Capital (to risk-weighted assets) | % | % | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
Tier 1 Capital (to risk-weighted assets) | % | % | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
Tier 1 Leverage (to average tangible assets) | % | % | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
| STELLAR BANK | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
Total Capital (to risk-weighted assets) | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
Common Equity Tier 1 Capital (to risk-weighted assets) | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
Tier 1 Capital (to risk-weighted assets) | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
Tier 1 Leverage (to average tangible assets) | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
Total Capital (to risk-weighted assets) | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
Common Equity Tier 1 Capital (to risk-weighted assets) | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
Tier 1 Capital (to risk-weighted assets) | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
Tier 1 Leverage (to average tangible assets) | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
Dividend Restrictions
The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. In addition, the Company’s credit agreement with another financial institution also limits its ability to pay dividends. Under applicable banking regulations, the amount of dividends that may be paid by the Bank in any calendar year is limited to the current year’s net profits combined with the retained net profits of the preceding two years, subject to the capital requirements described above.
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15. EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated as net income divided by the weighted-average number of common shares outstanding during the period. All restricted shares and performance share awards are considered outstanding at the date of grant. Diluted earnings per common share is computed using the weighted-average number of common shares determined for the basic earning per common shares computation plus the potential diluted effect of outstanding stock options and performance share units using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and for the reported periods is provided below.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Per Share Amount | Amount | Per Share Amount | Amount | Per Share Amount | Amount | Per Share Amount | |||||||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to shareholders | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Basic: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average shares outstanding | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Diluted: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Add incremental shares for: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dilutive effect of stock option exercises and performance share units | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
16. SEGMENT INFORMATION
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except where the context otherwise requires or where otherwise indicated in this Quarterly Report on Form 10-Q, the term “Stellar” refers to Stellar Bancorp, Inc., the terms “we,” “us,” “our,” “Company” and “our business” refer to Stellar Bancorp, Inc. and our wholly owned banking subsidiary, Stellar Bank, a Texas banking association.
Cautionary Notice Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward‑looking statements. These forward‑looking statements reflect the Company’s current views with respect to, among other things, future events and the Company’s financial performance. These 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. These forward‑looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Accordingly, the Company cautions that any such forward‑looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward‑looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward‑looking statements.
There are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these forward‑looking statements, including, but not limited to, the risks described in “Part I— Item 1A.—Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 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, 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;
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•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;
•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 foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. This discussion and analysis includes forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that the Company believes are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth above may cause actual results to differ materially from projected results discussed in the forward-looking statements appearing in this discussion and analysis.
The Company disclaims any obligation and does not intend to update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
Overview
We generate most of our income from interest income on loans, interest income from investments in securities and service charges on customer accounts. We incur interest expense on deposits and other borrowed funds and noninterest expenses such as salaries and employee benefits and occupancy expenses. Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings that are used to fund those assets. Net interest income is our largest source of revenue. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the interest expenses of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas and specifically in our market, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our market and throughout the state of Texas.
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Our net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and borrowed funds, referred to as a “rate change.” Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets.
Critical Accounting Policies
Certain of our accounting estimates are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Management believes that determining the allowance for credit losses is its most critical accounting estimate. Our accounting policies are discussed in detail in Note 1– Nature of Operations and Summary of Significant Accounting and Reporting Policies in our Annual Report on Form 10-K for the year ended December 31, 2024.
Allowance for Credit Losses
The allowance for credit losses is a valuation account which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. Management considers the policies related to the allowance for credit losses as the most critical to the financial statement presentation. The Company bases its estimates of credit losses on three primary components: (1) estimates of expected losses that exist in various segments of performing loans over the remaining life of the loan portfolio using a reasonable and supportable economic forecast, (2) specifically identified losses in individually analyzed credits which are collateral-dependent, which generally include nonaccrual loans and purchased credit deteriorated (“PCD”) loans and (3) qualitative factors related to economic conditions, portfolio concentrations, regulatory policy updates, and other relevant factors that address estimates of expected losses. Estimating the timing and amounts of future losses is subject to management’s judgment as these projected cash flows rely upon the estimates discussed above and factors that are reflective of current or future expected conditions using analytical and forecasting models and tools. Volatility in certain credit metrics and differences between expected and actual outcomes are to be expected. For example, customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.
Loans with similar risk characteristics are aggregated into homogenous pools and are collectively evaluated by applying reserve factors, such as historical lifetime loss, concentration risk, volume, growth and composition of the loan portfolio, current and forecasted economic conditions to amortized cost balances over the remaining contractual life of the collectively evaluated portfolio. 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. 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. In order to assess which loans are to be individually evaluated, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Individual credit loss estimates are typically performed for nonaccrual loans and all other loans identified by management. 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. For collateral dependent loans, loss estimates are based on the fair value of collateral, less estimated cost to sell (if applicable). Collateral values supporting individually evaluated loans are assessed quarterly and appraisals are typically obtained at least annually. The Company allocates a specific loan loss reserve on an individual loan basis primarily based on the value of the collateral securing the individually evaluated loan. Through this loan review process, the Company assesses the overall quality of the loan portfolio and the adequacy of the allowance for credit losses on loans while considering risk elements attributable to particular loan types in assessing the quality of individual loans. In addition, for each category of loans, the Company considers secondary sources of income and the financial strength and credit history of the borrower and any guarantors.
A change in the allowance for credit losses on loans can be attributable to several factors, most notably historical lifetime loss, specific reserves for individually evaluated loans, changes in qualitative factors and growth within the loan portfolio. The estimated loan losses for all loan pools are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses to bring the allowance to the level management believes is appropriate based on factors that have not otherwise been fully
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accounted for, including adjustments for foresight risk, input imprecision and model imprecision. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management, but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon quarterly trend assessments in portfolio concentrations, changes in lending policies and procedures, policy exceptions, independent loan review results, internal risk ratings and peer group credit quality trends. Additional qualitative considerations are made for any identified risk which did not exist within our portfolio historically and therefore may not be adequately addressed through evaluation of such risk factors based on historical portfolio trends. Qualitative adjustments also include current and forecasted economic conditions primarily measured by local and national economic metrics, such as GDP, unemployment rates, interest rates and oil and gas prices based on historical and forecasted economic research scenarios provided by industry-leading financial intelligence and analytical solutions, which the Company has subscribed to. The qualitative allowance allocation is increased or decreased for each loan pool based on the assessment of these various qualitative factors. Management recognizes the sensitivity of various assumptions made in the quantitative modeling of expected losses and may adjust reserves depending upon the level of uncertainty that currently exists in one or more assumptions.
As of June 30, 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 $1.6 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. Increasing estimated loss rates by 5% (i.e., quantitative and qualitative) would have a $3.5 million impact.
The allowance for credit losses could be affected by significant downturns in circumstances relating to loan quality and economic conditions and as such may not be sufficient to cover expected losses in the loan portfolio which could necessitate additional provisions or a reduction in the allowance for credit losses if our assumption prove to be incorrect. Unanticipated changes and events could have a significant impact on the financial performance of borrowers and their ability to perform as agreed. We may experience significant credit losses if borrowers experience financial difficulties, which could have a material adverse effect on our operating results.
Goodwill
Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired in a business combination. During the measurement period, the Company may record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date.
Goodwill is subject to impairment testing, which must be conducted at least annually or upon the occurrence of a triggering event. Goodwill is recorded and evaluated for impairment at its reporting unit, the Company. 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. Various factors, such as the Company’s results of operations, the trading price of the Company’s common stock relative to the book value per share, macroeconomic conditions and conditions in the banking sector, inform whether a triggering event for an interim goodwill impairment test has occurred. The impairment test compares the estimated fair value of each reporting unit with its net book value. If the unit’s fair value is less than its carrying value, an impairment loss is recognized in our results of operations in the periods in which they become known in an amount equal to this excess.
See Note 2 – Goodwill and Other Intangible Assets to the consolidated financial statements for additional information on the Company’s goodwill and intangibles.
Recently Issued Accounting Pronouncements
We have evaluated new accounting pronouncements that have recently been issued. Refer to Note 1 - Nature of Operations and Summary of Significant Accounting and Reporting Policies in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements that have been adopted by the Company or that will require enhanced disclosures in the Company’s financial statements in future periods.
Results of Operations
Net income was $26.4 million, or $0.51 per diluted share, for the three months ended June 30, 2025 compared to $29.8 million, or $0.56 per diluted share, for the three months ended June 30, 2024. The decrease in net income was primarily due to a $3.1 million decrease in net interest income and a $3.0 million increase in the provision for credit losses, partially offset by a $1.2 million decrease in noninterest expense and a $1.1 million decrease in the provision for income taxes.
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Annualized returns on average assets, returns on average equity and efficiency ratios were 1.01%, 6.62% and 61.87%, for the three months ended June 30, 2025, respectively, compared to 1.13%, 7.78% and 60.81% for the three months ended June 30, 2024, respectively. The efficiency ratio is calculated by dividing total noninterest expense, excluding amortization of core deposit intangibles, by the sum of net interest income plus noninterest income, excluding net gains and losses on the sale of assets. Additionally, taxes and provisions for credit losses are not part of the efficiency ratio calculation. The calculation of the efficiency ratio was revised to exclude the amortization of core deposit intangibles during 2025. Prior periods were recalculated and disclosed under the revised calculation.
Net income was $51.1 million, or $0.97 per diluted share, for the six months ended June 30, 2025 compared to $55.9 million, or $1.04 per diluted share, for the six months ended June 30, 2024. The decrease in net income was primarily due to a $5.9 million decrease in net interest income, a $2.6 million increase in the provision for credit losses and a $416 thousand decrease in noninterest income partially offset by $2.5 million decrease in noninterest expense and a $1.6 million decrease in the provision for income taxes.
Annualized returns on average assets, returns on average equity and efficiency ratios were 0.98%, 6.42% and 61.90%, for the six months ended June 30, 2025, respectively, compared to 1.06%, 7.33% and 60.62% for the six months ended June 30, 2024, respectively. The calculation of the efficiency ratio was revised to exclude the amortization of core deposit intangibles during 2025. Prior periods were recalculated and disclosed under the revised calculation.
Net Interest Income
Three months ended June 30, 2025 compared with three months ended June 30, 2024. Net interest income before the provision for credit losses for the three months ended June 30, 2025 was $98.3 million compared with $101.4 million for the three months ended June 30, 2024, a decrease of $3.1 million, or 3.0%, primarily due to the decrease in average loans along with lower purchase accounting accretion and lower rates on loans which more than offset the decrease in interest expense due to lower rates on interest-bearing liabilities.
Interest income was $142.7 million for the three months ended June 30, 2025, a decrease of $9.5 million, or 6.2%, compared with $152.2 million for the three months ended June 30, 2024, primarily due to the decrease in average loans and loan yields due in part to lower purchase accounting accretion and changes in earning asset mix, partially offset by an increase in average securities, average securities yield and deposits in other financial institutions. The yield on the securities portfolio increased to 3.73% for the three months ended June 30, 2025 from 3.31% for the same period in 2024. Average interest-earning assets decreased $168.3 million, or 1.75%, for the three months ended June 30, 2025 compared with the three months ended June 30, 2024, primarily due the decrease in average loans partially offset by increases in securities and deposits in other financial institutions. Average loans to average interest earning assets decreased to 77.1% for the three months ended June 30, 2025 compared to 81.2% for the same period in the prior year. Additionally, interest income from purchase accounting adjustments was $5.3 million for the three months ended June 30, 2025 compared to $10.1 million for the three months ended June 30, 2024.
Interest expense was $44.3 million for the three months ended June 30, 2025, a decrease of $6.4 million, or 12.6%, compared with $50.8 million for the three months ended June 30, 2024. This decrease was primarily due to lower interest rates, a decrease in higher rate certificates and time deposits and a decrease in average borrowed funds. The cost of average interest-bearing liabilities decreased to 3.16% for the three months ended June 30, 2025 from 3.59% for the same period in 2024. Average interest-bearing liabilities decreased $59.4 million for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 primarily due to a decrease in borrowed funds and subordinated debt partially offset by an increase in average interest-bearing deposits.
Tax equivalent net interest margin, defined as net interest income adjusted for tax-free income divided by average interest-earning assets for the three months ended June 30, 2025 was 4.18%, a decrease of 6 basis points compared to 4.24% for the three months ended June 30, 2024. The decrease in the net interest margin on a tax equivalent basis was primarily due to lower rates on interest-earning assets, largely driven by lower purchase accounting accretion and changes in earning asset mix, partially offset by decreased funding costs. The average rate paid on interest-bearing liabilities of 3.16% and the average yield on interest-earning assets of 6.06% for the three months ended June 30, 2025 decreased by 43 basis points and 30 basis points, respectively, over 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 three months ended June 30, 2025 and 2024, thus making tax-exempt yields comparable to taxable asset yields.
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The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the annualized resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Average loans include loans on nonaccrual status carrying a zero yield.
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 7,282,609 | $ | 121,814 | 6.71 | % | $ | 7,808,320 | $ | 135,885 | 7.00 | % | |||||||||||||||||||||||
| Securities | 1,729,384 | 16,103 | 3.73 | % | 1,549,638 | 12,739 | 3.31 | % | |||||||||||||||||||||||||||
| Deposits in other financial institutions | 436,596 | 4,782 | 4.39 | % | 258,916 | 3,555 | 5.52 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | 9,448,589 | $ | 142,699 | 6.06 | % | 9,616,874 | $ | 152,179 | 6.36 | % | |||||||||||||||||||||||||
| Allowance for credit losses on loans | (83,700) | (96,306) | |||||||||||||||||||||||||||||||||
| Noninterest-earning assets | 1,099,268 | 1,103,297 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 10,464,157 | $ | 10,623,865 | |||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||||||||||||||||||
| Interest-Bearing Liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,952,004 | $ | 14,399 | 2.96 | % | $ | 1,545,096 | $ | 12,213 | 3.18 | % | |||||||||||||||||||||||
| Money market and savings deposits | 2,371,221 | 16,698 | 2.82 | % | 2,227,393 | 16,186 | 2.92 | % | |||||||||||||||||||||||||||
| Certificates and other time deposits | 1,201,903 | 11,459 | 3.82 | % | 1,694,536 | 18,758 | 4.45 | % | |||||||||||||||||||||||||||
| Borrowed funds | 34,427 | 407 | 4.74 | % | 112,187 | 1,700 | 6.09 | % | |||||||||||||||||||||||||||
| Subordinated debt | 70,151 | 1,401 | 8.01 | % | 109,910 | 1,912 | 7.00 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 5,629,706 | $ | 44,364 | 3.16 | % | 5,689,122 | $ | 50,769 | 3.59 | % | |||||||||||||||||||||||||
| Noninterest-Bearing Liabilities: | |||||||||||||||||||||||||||||||||||
| Noninterest-bearing demand deposits | 3,160,791 | 3,308,633 | |||||||||||||||||||||||||||||||||
| Other liabilities | 78,120 | 87,986 | |||||||||||||||||||||||||||||||||
| Total liabilities | 8,868,617 | 9,085,741 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 1,595,540 | 1,538,124 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 10,464,157 | $ | 10,623,865 | |||||||||||||||||||||||||||||||
| Net interest rate spread | 2.90 | % | 2.77 | % | |||||||||||||||||||||||||||||||
Net interest income and margin(1) | $ | 98,335 | 4.17 | % | $ | 101,410 | 4.24 | % | |||||||||||||||||||||||||||
Net interest income and margin (tax equivalent)(2) | $ | 98,427 | 4.18 | % | $ | 101,482 | 4.24 | % | |||||||||||||||||||||||||||
| Cost of funds | 2.02 | % | 2.27 | % | |||||||||||||||||||||||||||||||
| Cost of deposits | 1.97 | % | 2.16 | % | |||||||||||||||||||||||||||||||
(1)The net interest margin is equal to annualized net interest income divided by average interest-earning assets.
(2)Tax-equivalent adjustments have been computed using a federal income tax rate of 21% for the three months ended June 30, 2025 and 2024.
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Six months ended June 30, 2025 compared with six months ended June 30, 2024. Net interest income before the provision for credit losses for the six months ended June 30, 2025 was $197.6 million compared with $203.5 million for the six months ended June 30, 2024 a decrease of $5.9 million, or 2.9% primarily due to the decrease in average loans along with lower purchase accounting accretion and rates on loans which more than offset the decrease in interest expense due to lower rates on interest-bearing liabilities.
Interest income was $285.0 million for the six months ended June 30, 2025 a decrease of $15.6 million, or 5.2%, compared with $300.6 million for the six months ended June 30, 2024, primarily due to a decrease in average loans and loan yields due in part to lower purchase accounting accretion and changes in the earning asset mix, partially offset by an increase in average securities, average yield on securities and deposits in other financial institutions. The yield on the securities portfolio increased to 3.76% for the six months ended June 30, 2025 from 3.07% for the same period in 2024. Average interest-earning assets decreased $111.2 million, or 1.2%, for the six months ended June 30, 2025 compared with the six months ended June 30, 2024, primarily due to the decrease in average loans partially offset by increases in securities and deposits in other financial institutions. Average loans to average interest earning assets decreased to 76.8% for the six months ended June 30, 2025 compared to 81.8% for the same period in the prior year. Additionally, interest income from purchase accounting adjustments was $10.7 million for the six months ended June 30, 2025 compared to $18.6 million for the six months ended June 30, 2024.
Interest expense was $87.4 million for the six months ended June 30, 2025 a decrease of $9.6 million, or 9.9%, compared with $97.1 million for the six months ended June 30, 2024. This decrease was primarily due to lower interest rates, a decrease in higher rate certificates and time deposits and a decrease in average borrowed funds. The cost of average interest-bearing liabilities decreased to 3.15% for the six months ended June 30, 2025 compared to 3.48% for the same period in 2024. Average interest-bearing liabilities decreased $18.1 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 primarily due to a decrease in borrowed funds and subordinated debt partially offset by an increase in average interest-bearing deposits.
Tax equivalent net interest margin, defined as net interest income adjusted for tax-free income divided by average interest-earning assets for the six months ended June 30, 2025 was 4.19%, a decrease of 6 basis points compared to 4.25% for the six months ended June 30, 2024. The decrease in the net interest margin on a tax equivalent basis was primarily due to lower rates on interest-earning assets, largely driven by lower purchase accounting accretion and changes in earning asset mix, partially offset by decreased funding costs. The average rate paid on interest-bearing liabilities of 3.15% and the average yield on interest-earning assets of 6.04% for the six months ended June 30, 2025 decreased by 33 basis points and 24 basis points, respectively, over 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 six months ended June 30, 2025 and 2024, thus making tax-exempt yields comparable to taxable asset yields.
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The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the annualized resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Average loans include loans on nonaccrual status carrying a zero yield.
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 7,313,283 | $ | 242,454 | 6.69 | % | $ | 7,873,572 | $ | 270,570 | 6.91 | % | |||||||||||||||||||||||
| Securities | 1,773,092 | 33,063 | 3.76 | % | 1,495,726 | 22,850 | 3.07 | % | |||||||||||||||||||||||||||
| Deposits in other financial institutions | 433,625 | 9,502 | 4.42 | % | 261,911 | 7,182 | 5.51 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | 9,520,000 | $ | 285,019 | 6.04 | % | 9,631,209 | $ | 300,602 | 6.28 | % | |||||||||||||||||||||||||
| Allowance for credit losses on loans | (82,440) | (93,959) | |||||||||||||||||||||||||||||||||
| Noninterest-earning assets | 1,099,956 | 1,118,077 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 10,537,516 | $ | 10,655,327 | |||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||||||||||||||||||
| Interest-Bearing Liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,931,926 | $ | 26,791 | 2.80 | % | $ | 1,621,154 | $ | 24,491 | 3.04 | % | |||||||||||||||||||||||
| Money market and savings deposits | 2,303,273 | 31,880 | 2.79 | % | 2,189,099 | 31,438 | 2.89 | % | |||||||||||||||||||||||||||
| Certificates and other time deposits | 1,249,175 | 24,986 | 4.03 | % | 1,569,292 | 33,842 | 4.34 | % | |||||||||||||||||||||||||||
| Borrowed funds | 40,079 | 924 | 4.65 | % | 123,293 | 3,474 | 5.67 | % | |||||||||||||||||||||||||||
| Subordinated debt | 70,136 | 2,845 | 8.18 | % | 109,859 | 3,829 | 7.01 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 5,594,589 | $ | 87,426 | 3.15 | % | 5,612,697 | $ | 97,074 | 3.48 | % | |||||||||||||||||||||||||
| Noninterest-Bearing Liabilities: | |||||||||||||||||||||||||||||||||||
| Noninterest-bearing demand deposits | 3,252,917 | 3,417,196 | |||||||||||||||||||||||||||||||||
| Other liabilities | 85,171 | 92,223 | |||||||||||||||||||||||||||||||||
| Total liabilities | 8,932,677 | 9,122,116 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 1,604,839 | 1,533,211 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | 10,537,516 | 10,655,327 | |||||||||||||||||||||||||||||||||
| Net interest rate spread | 2.89 | % | 2.80 | % | |||||||||||||||||||||||||||||||
Net interest income and margin(1) | $ | 197,593 | 4.19 | % | $ | 203,528 | 4.25 | % | |||||||||||||||||||||||||||
Net interest income and margin (tax equivalent)(2) | $ | 197,780 | 4.19 | % | $ | 203,688 | 4.25 | % | |||||||||||||||||||||||||||
| Cost of funds | 1.99 | % | 2.16 | % | |||||||||||||||||||||||||||||||
| Cost of deposits | 1.93 | % | 2.05 | % | |||||||||||||||||||||||||||||||
(1)The net interest margin is equal to annualized net interest income divided by average interest-earning assets.
(2)Tax-equivalent adjustments have been computed using a federal income tax rate of 21% for the six months ended June 30, 2025 and 2024.
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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. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2025 vs. 2024 | 2025 vs. 2024 | ||||||||||||||||||||||||||||||||||
| Increase (Decrease) Due to Change in | Increase (Decrease) Due to Change in | ||||||||||||||||||||||||||||||||||
| Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Interest-earning Assets: | |||||||||||||||||||||||||||||||||||
| Loans | $ | (9,174) | $ | (4,897) | $ | (14,071) | $ | (38,719) | $ | 10,603 | $ | (28,116) | |||||||||||||||||||||||
| Securities | 1,482 | 1,882 | 3,364 | 8,521 | 1,692 | 10,213 | |||||||||||||||||||||||||||||
| Deposits in other financial institutions | 2,446 | (1,219) | 1,227 | 9,469 | (7,149) | 2,320 | |||||||||||||||||||||||||||||
| Total decrease increase in interest income | (5,246) | (4,234) | (9,480) | (20,729) | 5,146 | (15,583) | |||||||||||||||||||||||||||||
| Interest-bearing Liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | 3,225 | (1,039) | 2,186 | 9,441 | (7,141) | 2,300 | |||||||||||||||||||||||||||||
| Money market and savings deposits | 1,048 | (536) | 512 | 3,297 | (2,855) | 442 | |||||||||||||||||||||||||||||
| Certificates and other time deposits | (5,468) | (1,831) | (7,299) | (13,883) | 5,027 | (8,856) | |||||||||||||||||||||||||||||
| Borrowed funds | (1,182) | (111) | (1,293) | (4,715) | 2,165 | (2,550) | |||||||||||||||||||||||||||||
| Subordinated debt | (694) | 183 | (511) | (2,784) | 1,800 | (984) | |||||||||||||||||||||||||||||
| Total decrease in interest expense | (3,071) | (3,334) | (6,405) | (8,644) | (1,004) | (9,648) | |||||||||||||||||||||||||||||
| (Decrease) increase in net interest income | $ | (2,175) | $ | (900) | $ | (3,075) | $ | (12,085) | $ | 6,150 | $ | (5,935) | |||||||||||||||||||||||
Provision for Credit Losses
Our allowance for credit losses is established through charges to income in the form of the provision in order to bring our allowance for credit losses for various types of financial instruments including loans, unfunded commitments and securities to a level deemed appropriate by management. We recorded a provision for credit losses of $1.1 million and a reversal of provision of $1.9 million for the three months ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025 and 2024, we recorded a provision for credit losses of $4.7 million and $2.2 million, respectively. The provision for credit losses for the three months ended June 30, 2025 was primarily due to the increase in unfunded commitments within the allowance for credit losses model partially offset by decreases in loan balances, among other things. The provision for credit losses for the six months ended June 30, 2025 was primarily due to changes in the specific reserves within the allowance for credit losses model primarily due to the increase in nonperforming loans partially offset by decreases in loan balances, among other things.
Noninterest Income
Our primary sources of noninterest income are service charges on deposit accounts, bank-owned life insurance income and debit card and interchange income. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.
Three months ended June 30, 2025 compared with three months ended June 30, 2024. Noninterest income totaled $5.8 million for the three months ended June 30, 2025 compared with $5.4 million for the same period in 2024, an increase of $375 thousand, or 6.9%, primarily due to $490 thousand in Federal Reserve Bank (“FRB”) dividends included in other noninterest income as a result of Stellar Bank becoming a member of the Federal Reserve System effective April 2025.
Six months ended June 30, 2025 compared with six months ended June 30, 2024. Noninterest income totaled $11.3 million for the six months ended June 30, 2025 compared with $11.7 million for the same period in 2024, a decrease of $416 thousand, or 3.6%, primarily due to a decrease in other noninterest income and service charges on deposit accounts.
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The following table presents, for the periods indicated, the major categories of noninterest income:
| Three Months Ended June 30, | Increase (Decrease) | Six Months Ended June 30, | Increase (Decrease) | ||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Service charges on deposit accounts | $ | 1,561 | $ | 1,648 | $ | (87) | $ | 3,145 | $ | 3,246 | $ | (101) | |||||||||||||||||||||||
| Gain on sale of assets | (57) | (64) | 7 | 360 | 449 | (89) | |||||||||||||||||||||||||||||
| Bank-owned life insurance income | 618 | 591 | 27 | 1,228 | 1,178 | 50 | |||||||||||||||||||||||||||||
| Debit card and interchange income | 566 | 543 | 23 | 1,086 | 1,070 | 16 | |||||||||||||||||||||||||||||
Other(1) | 3,103 | 2,698 | 405 | 5,477 | 5,769 | (292) | |||||||||||||||||||||||||||||
| Total noninterest income | $ | 5,791 | $ | 5,416 | $ | 375 | $ | 11,296 | $ | 11,712 | $ | (416) | |||||||||||||||||||||||
(1) Other includes Small Business Investment Company income, FHLB and FRB dividends and wire transfer fees among other items.
Noninterest Expense
Three months ended June 30, 2025 compared with three months ended June 30, 2024. Noninterest expense was $70.0 million for the three months ended June 30, 2025 compared to $71.2 million for the three months ended June 30, 2024 a decrease of $1.2 million, or 1.7%, primarily due to a decrease of $738 thousand in regulatory assessments, $667 thousand in amortization of intangibles, $333 thousand in professional fees and $1.7 million in other noninterest expense partially offset by an increase of $1.9 million in salaries and employee benefits.
Six months ended June 30, 2025 compared with six months ended June 30, 2024. Noninterest expense was $140.2 million for the six months ended June 30, 2025 compared to $142.6 million for the six months ended June 30, 2024, a decrease of $2.5 million, or 1.7%, primarily due to a decrease of $1.3 million in amortization of intangibles, $1.2 million in professional fees, $568 thousand in net occupancy and equipment and $2.0 million in other noninterest expense partially offset by an increase of $2.3 million in salaries and employee benefits and $907 thousand in data processing and software amortization.
The following table presents, for the periods indicated, the major categories of noninterest expense:
| Three Months Ended June 30, | Increase (Decrease) | Six Months Ended June 30, | Increase (Decrease) | ||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
Salaries and employee benefits(1) | $ | 40,927 | $ | 39,061 | $ | 1,866 | $ | 82,719 | $ | 80,437 | $ | 2,282 | |||||||||||||||||||||||
| Net occupancy and equipment | 4,399 | 4,503 | (104) | 8,325 | 8,893 | (568) | |||||||||||||||||||||||||||||
| Depreciation | 1,992 | 1,948 | 44 | 3,987 | 3,912 | 75 | |||||||||||||||||||||||||||||
| Data processing and software amortization | 5,620 | 5,501 | 119 | 11,302 | 10,395 | 907 | |||||||||||||||||||||||||||||
| Professional fees | 1,287 | 1,620 | (333) | 3,073 | 4,282 | (1,209) | |||||||||||||||||||||||||||||
Regulatory assessments and FDIC insurance | 1,561 | 2,299 | (738) | 3,294 | 4,153 | (859) | |||||||||||||||||||||||||||||
Amortization of intangibles | 5,548 | 6,215 | (667) | 11,096 | 12,427 | (1,331) | |||||||||||||||||||||||||||||
| Communications | 861 | 847 | 14 | 1,708 | 1,784 | (76) | |||||||||||||||||||||||||||||
| Advertising | 1,167 | 891 | 276 | 1,949 | 1,656 | 293 | |||||||||||||||||||||||||||||
| Other | 6,642 | 8,331 | (1,689) | 12,717 | 14,687 | (1,970) | |||||||||||||||||||||||||||||
| Total noninterest expense | $ | 70,004 | $ | 71,216 | $ | (1,212) | $ | 140,170 | $ | 142,626 | $ | (2,456) | |||||||||||||||||||||||
(1)Total salaries and employee benefits includes $2.6 million and $2.8 million for the three months ended June 30, 2025 and 2024 and $4.5 million and $5.6 million for the six months ended June 30, 2025 and 2024, respectively, of stock-based compensation expense.
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Amortization of intangibles. Amortization of intangibles decreased $667 thousand during the three months ended June 30, 2025 and $1.3 million during the six months ended June 30, 2025 compared to the same periods in 2024.
Professional fees. Professional fees decreased $333 thousand during the three months ended June 30, 2025 and $1.2 million during the six months ended June 30, 2025, compared to the same periods in 2024 primarily due to consulting fees for various projects in 2024.
Regulatory assessments and FDIC insurance. Regulatory assessments and FDIC insurance decreased primarily due to the additional special assessment recorded in 2024 for future payments to the FDIC pursuant to the final FDIC rule implementing a special insurance assessment to recover losses to the Deposit Insurance Fund associated with protecting uninsured depositors following several bank failures in 2023.
Data processing and software amortization. Data processing and software amortization increased $119 thousand during the three months ended June 30, 2025 and $907 thousand during the six months ended June 30, 2025 compared to the same periods in 2024 primarily due to increased software expense.
Salaries and employee benefits. Salaries and benefits increased $1.9 million during the three months ended June 30, 2025 and $2.3 million during the six months ended June 30, 2025 compared to the same periods in 2024 primarily due to the increase in full-time equivalent employees and annual salary increases.
Efficiency Ratio
The efficiency ratio is a supplemental financial measure utilized in management’s internal evaluation of our performance. We calculate our efficiency ratio by dividing total noninterest expense, excluding the amortization of core deposits intangibles, by the sum of net interest income and noninterest income, excluding net gains and losses on the sale of assets. Additionally, taxes and provision for credit losses are not part of this calculation. The calculation of the efficiency ratio was revised to exclude the amortization of core deposit intangibles in 2025. Prior periods were recalculated and are disclosed under the revised calculation. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources. Our efficiency ratio was 61.87% for the three months ended June 30, 2025 compared to 60.81% for the three months ended June 30, 2024 and 61.90% for the six months ended June 30, 2025 compared to 60.62% for the six months ended June 30, 2024.
We monitor the efficiency ratio in comparison with changes in our total assets and loans, and we believe that maintaining or reducing the efficiency ratio during periods of growth demonstrates the scalability of our operating platform. We expect to continue to benefit from our scalable platform in future periods as we continue to monitor overhead expenses necessary to support our growth.
Income Taxes
The amount of federal and state income tax expense is influenced by the amount of pre-tax income, tax-exempt income and other nondeductible expenses. Income tax expense decreased $1.1 million for the three months ended June 30, 2025 and $1.6 million for the six months ended June 30, 2025 compared with the same periods in 2024 primarily due to the changes in pre-tax net income. Our effective tax rate was 20.2% for the three months ended June 30, 2025 compared to 20.8% for the three months ended June 30, 2024 and 20.2% for the six months ended June 30, 2025 compared to 20.7% for the six months ended June 30, 2024.
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Financial Condition
Loan Portfolio
At June 30, 2025, total loans were $7.3 billion, a decrease of $152.5 million, or 2.1%, compared with December 31, 2024. Total loans as a percentage of deposits were 84.0% and 81.5% as of June 30, 2025 and December 31, 2024, respectively. Total loans as a percentage of assets were 69.4% and 68.2% as of June 30, 2025 and December 31, 2024, respectively.
The following table summarizes our loan portfolio by type of loan as of the dates indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 1,346,744 | 18.5 | % | $ | 1,362,260 | 18.3 | % | |||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
| Commercial real estate (including multi-family residential) | 3,840,981 | 52.7 | % | 3,868,218 | 52.0 | % | |||||||||||||||||||||||||||||
| Commercial real estate construction and land development | 762,911 | 10.5 | % | 845,494 | 11.4 | % | |||||||||||||||||||||||||||||
| 1-4 family residential (including home equity) | 1,126,523 | 15.5 | % | 1,115,484 | 15.0 | % | |||||||||||||||||||||||||||||
| Residential construction | 137,855 | 1.9 | % | 157,977 | 2.1 | % | |||||||||||||||||||||||||||||
| Consumer and other | 72,333 | 0.9 | % | 90,421 | 1.2 | % | |||||||||||||||||||||||||||||
| Total loans | 7,287,347 | 100.0 | % | 7,439,854 | 100.0 | % | |||||||||||||||||||||||||||||
| Allowance for credit losses on loans | (83,165) | (81,058) | |||||||||||||||||||||||||||||||||
| Loans, net | $ | 7,204,182 | $ | 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. Our strategy for credit risk management generally includes well-defined, centralized credit policies, uniform underwriting criteria and ongoing risk monitoring and review processes for credit exposures. The strategy generally emphasizes regular credit examinations and management reviews of loans. We have certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. We maintain an independent loan review department which includes third-party loan review services to review the credit risk on a periodic basis. The internal loan review department focuses on credits not reviewed by the third-party loan reviewer to ensure more complete coverage of credit risk. Results of these reviews are presented to management and the risk committee of the Board of Directors. The loan review process complements and reinforces the risk identification and assessment decisions made by bankers and credit personnel and contained in our policies and procedures. The principal categories of our loan portfolio are discussed below:
Commercial and Industrial. We make commercial and industrial loans in our market area that are underwritten on the basis of the borrower’s ability to service the debt from income. The increased risk in these loans derives from the expectation that commercial and industrial loans generally are serviced principally from the operations of the business, which may not be successful and from the type of collateral securing these loans. Commercial and industrial loans are typically collateralized by general business assets including, among other things, accounts receivable, inventory and equipment and are generally backed by a personal guaranty of the borrower or principal. This collateral may decline in value more rapidly than we anticipate, exposing us to increased credit risk. As a result, commercial and industrial loans require more extensive underwriting and servicing than other types of loans. Our commercial and industrial loan portfolio was $1.35 billion as of June 30, 2025 and $1.36 billion as of December 31, 2024.
Commercial Real Estate (Including Multi-Family Residential). We make loans to finance the purchase or ownership of commercial real estate. As of June 30, 2025, our commercial real estate loans comprised 52.7% of our loan portfolio. Repayment is generally dependent on the successful operations of the property and may be impacted by general economic conditions, including fluctuations in the value of real estate, vacancy rates and unemployment trends. The collateral securing these loans is typically more difficult to liquidate due to the fluctuation of real estate values. As of June 30, 2025 and December 31, 2024, 47.0% and 47.4%, respectively, of our commercial real estate loans were owner-occupied. Our commercial real estate loan portfolio decreased $27.2 million, or 0.7%, to $3.84 billion as of June 30, 2025 from $3.87 billion as of December 31, 2024.
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The following table summarizes our commercial real estate loan portfolio by type of property securing the loans at June 30, 2025.
| Property Type | Amount | Average Loan Size | Percent of Total | |||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Retail | $ | 614,162 | $ | 1,326 | 16.0 | % | ||||||||||||||
| Warehouse | 569,591 | 794 | 14.8 | % | ||||||||||||||||
| Multi-family | 455,646 | 2,149 | 11.9 | % | ||||||||||||||||
| Convenience Store | 420,536 | 1,383 | 10.9 | % | ||||||||||||||||
| Office | 388,488 | 821 | 10.1 | % | ||||||||||||||||
| Industrial | 182,907 | 1,829 | 4.8 | % | ||||||||||||||||
| Restaurant / Bar | 149,353 | 1,052 | 3.9 | % | ||||||||||||||||
| Church | 129,841 | 941 | 3.4 | % | ||||||||||||||||
| Auto Sales / Repair | 129,223 | 714 | 3.4 | % | ||||||||||||||||
| Healthcare | 109,831 | 1,121 | 2.9 | % | ||||||||||||||||
| Hotel / Motel | 105,899 | 3,309 | 2.7 | % | ||||||||||||||||
| Other | 585,504 | 1,278 | 15.2 | % | ||||||||||||||||
| Total | $ | 3,840,981 | 1,158 | 100.0 | % | |||||||||||||||
As of June 30, 2025, our commercial real estate loan portfolio included $280.1 million of multi-family community development loans with associated tax credits, which fund Texas based projects to promote affordable housing, compared to $233.3 million as of December 31, 2024.
Commercial Real Estate Construction and Land Development. We make commercial real estate construction and land development loans to fund commercial construction, land acquisition and real estate development construction. Construction loans involve additional risks as they often involve the disbursement of funds with the repayment dependent on the ultimate success of the project’s completion. Sources of repayment for these loans may be pre-committed permanent financing or sale of the developed property. The loans in this portfolio are monitored closely by management. Due to uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often includes the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. As of June 30, 2025 and December 31, 2024, 13.4% and 13.1%, respectively, of our commercial real estate construction and land development loans were owner-occupied. Our commercial real estate construction and land development loans decreased $82.6 million, or 9.8%, to $762.9 million as of June 30, 2025 compared to $845.5 million as of December 31, 2024.
As of June 30, 2025, our commercial real estate construction and land development loan portfolio included $137.3 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). Our residential real estate loans include the origination of 1-4 family residential mortgage loans (including home equity and home improvement loans and home equity lines of credit) collateralized by owner-occupied residential properties located in our market areas. Our residential real estate portfolio (including home equity) increased $11.0 million, or 1.0%, to $1.13 billion as of June 30, 2025 from $1.12 billion as of December 31, 2024.
Residential Construction. We make residential construction loans to home builders and individuals to fund the construction of single-family residences with the understanding that such loans will be repaid from the proceeds of the sale of the homes by builders or with the proceeds of a mortgage loan. 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 $20.1 million, or 12.7%, to $137.9 million as of June 30, 2025 from $158.0 million as of December 31, 2024.
Consumer and Other. Our consumer and other loan portfolio is made up of loans made to individuals for personal purposes and deferred fees and costs on all loan types. 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
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more likely to decrease in value than real estate. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. Our consumer and other loan portfolio decreased $18.1 million, or 20.0%, to $72.3 million as of June 30, 2025 from $90.4 million as of December 31, 2024.
Concentrations of Credit
The vast majority of our lending activity occurs in the Houston and Beaumont MSAs. Our loans are primarily secured by real estate, including commercial and residential construction, owner-occupied and nonowner-occupied and multi-family commercial real estate, raw land and other real estate based loans located in the Houston and Beaumont MSAs. As of June 30, 2025 and December 31, 2024, commercial real estate and commercial construction loans represented 63.2% and 63.4%, respectively, of our total loans.
Asset Quality
We have procedures in place to assist us in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our officers and monitor our delinquency levels for any negative or adverse trends.
Nonperforming Assets
Nonperforming assets totaled $58.2 million, or 0.55% of total assets, at June 30, 2025 compared to $38.9 million, or 0.36%, of total assets at December 31, 2024. Nonaccrual loans consisted of 172 separate credits at June 30, 2025 compared to 101 separate credits at December 31, 2024. The following table presents information regarding nonperforming assets as of the dates indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Nonaccrual loans: | |||||||||||
| Commercial and industrial | $ | 13,395 | $ | 8,500 | |||||||
| Real estate: | |||||||||||
| Commercial real estate (including multi-family residential) | 23,359 | 16,459 | |||||||||
| Commercial real estate construction and land development | 3,412 | 3,061 | |||||||||
| 1-4 family residential (including home equity) | 9,965 | 9,056 | |||||||||
| Residential construction | 176 | — | |||||||||
| Consumer and other | 198 | 136 | |||||||||
| Total nonaccrual loans | 50,505 | 37,212 | |||||||||
| Accruing loans 90 or more days past due | — | — | |||||||||
| Total nonperforming loans | 50,505 | 37,212 | |||||||||
| Foreclosed assets | 7,652 | 1,708 | |||||||||
| Total nonperforming assets | $ | 58,157 | $ | 38,920 | |||||||
Troubled loan modifications(1) | $ | 9,494 | $ | 13,457 | |||||||
| Nonperforming assets to total assets | 0.55 | % | 0.36 | % | |||||||
| Nonperforming loans to total loans | 0.69 | % | 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.
Allowance for Credit Losses
The allowance for credit losses is a valuation allowance that is established through charges to earnings in the form of a provision for (or reversal of) credit losses calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326- Measurement of Credit Losses on Financial Instruments (“ASC 326”) that is deducted from the amortized cost basis of certain assets to present the net amount expected to be collected. The amount of each allowance account represents management’s best estimate of
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current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. 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. 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.
Allowance for Credit Losses on Loans
The allowance for credit losses on loans represents management’s estimates of current expected credit losses in the loan portfolio. Pools of loans with similar risk characteristics are collectively evaluated, while loans that no longer share risk characteristics with loan pools are evaluated individually.
At June 30, 2025, our allowance for credit losses on loans was $83.2 million, or 1.14% of total loans, compared with $81.1 million, or 1.09% of total loans, as of December 31, 2024. The increase in the allowance for credit losses on loans during the second quarter of 2025 primarily resulted from changes in the specific reserves within the allowance for credit losses model primarily due to the increase in nonperforming loans partially offset by a decrease in loan balances, among other things. The following table presents an analysis of the allowance for loan losses and other related data as of and for the periods indicated:
| Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Average loans outstanding | $ | 7,313,283 | $ | 7,873,572 | |||||||
| Gross loans outstanding at end of period | 7,287,347 | 7,713,897 | |||||||||
Allowance for credit losses on loans at beginning of period | 81,058 | 91,684 | |||||||||
| Provision for credit losses on loans | 2,476 | 3,801 | |||||||||
| Charge-offs: | |||||||||||
| Commercial and industrial loans | (108) | (810) | |||||||||
| Real estate: | |||||||||||
Commercial real estate (including multi-family residential) | (116) | (527) | |||||||||
Commercial real estate construction and land development | (310) | — | |||||||||
| 1-4 family residential (including home equity) | (342) | — | |||||||||
| Consumer and other | (4) | (105) | |||||||||
| Total charge-offs for all loan types | (880) | (1,442) | |||||||||
| Recoveries: | |||||||||||
| Commercial and industrial loans | 492 | 715 | |||||||||
| Real estate: | |||||||||||
Commercial real estate (including multi-family residential) | 13 | — | |||||||||
| 1-4 family residential (including home equity) | — | 6 | |||||||||
| Consumer and other | 6 | 8 | |||||||||
| Total recoveries for all loan types | 511 | 729 | |||||||||
| Net charge-offs | (369) | (713) | |||||||||
| Allowance for credit losses on loans at end of period | $ | 83,165 | $ | 94,772 | |||||||
| Allowance for credit losses on loans to total loans | 1.14 | % | 1.23 | % | |||||||
Net charge-offs to average loans(1) | 0.01 | % | 0.02 | % | |||||||
Allowance for credit losses on loans to nonperforming loans | 164.67 | % | 186.17 | % | |||||||
(1)Annualized.
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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 allowance for credit losses on unfunded commitments is a liability account reported as a component of other liabilities in our consolidated balance sheets and is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is affected by historical analysis looking at utilization rates. The expected credit loss rates applied to the commitments expected to fund are affected by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. At June 30, 2025, our allowance for credit losses on unfunded commitments was $14.6 million compared to $12.4 million at December 31, 2024.
See Note 4 – Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statement for additional information regarding how we estimate and evaluate the credit risk in our loan portfolio.
Available for Sale Securities
We use our securities portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and to meet pledging and regulatory capital requirements. As of June 30, 2025, the carrying amount of investment securities totaled $1.73 billion, an increase of $56.7 million, or 3.4%, compared with $1.67 billion as of December 31, 2024. Securities represented 16.5% and 15.3% of total assets as of June 30, 2025 and December 31, 2024, respectively.
All of the securities in our securities portfolio are classified as available for sale. Securities classified as available for sale are measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, as accumulated comprehensive income or loss until realized. Interest earned on securities is included in interest income. The following tables summarize the amortized cost and fair value of the securities in our securities portfolio as of the dates shown:
| June 30, 2025 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||
| U.S. government and agency securities | $ | 183,978 | $ | 520 | $ | (4,253) | $ | 180,245 | |||||||||||||||
| Municipal securities | 219,119 | 147 | (30,907) | 188,359 | |||||||||||||||||||
| Agency mortgage-backed pass-through securities | 664,597 | 619 | (40,414) | 624,802 | |||||||||||||||||||
| Agency collateralized mortgage obligations | 702,301 | 1,135 | (61,082) | 642,354 | |||||||||||||||||||
| Corporate bonds and other | 100,086 | 488 | (6,650) | 93,924 | |||||||||||||||||||
| Total | $ | 1,870,081 | $ | 2,909 | $ | (143,306) | $ | 1,729,684 | |||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||
| U.S. government and agency securities | $ | 198,962 | $ | 348 | $ | (5,707) | $ | 193,603 | |||||||||||||||
| Municipal securities | 219,545 | 367 | (28,459) | 191,453 | |||||||||||||||||||
| Agency mortgage-backed pass-through securities | 566,719 | 3 | (45,346) | 521,376 | |||||||||||||||||||
| Agency collateralized mortgage obligations | 730,861 | 830 | (71,328) | 660,363 | |||||||||||||||||||
| Corporate bonds and other | 115,601 | 181 | (9,561) | 106,221 | |||||||||||||||||||
| Total | $ | 1,831,688 | $ | 1,729 | $ | (160,401) | $ | 1,673,016 | |||||||||||||||
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Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under ASC Topic 326. 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. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of June 30, 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.
The following tables summarize the contractual maturity of securities and their weighted average yields as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures. Available for sale securities are shown at amortized cost. For purposes of the tables below, the yields on municipal securities were calculated on a tax equivalent basis.
| June 30, 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 | $ | 74,750 | 1.05 | % | $ | 3,231 | 5.65 | % | $ | 2,540 | 3.51 | % | $ | 103,457 | 4.47 | % | $ | 183,978 | 3.09 | % | |||||||||||||||||||||||||||||||||||||||
| Municipal securities | — | 0.00 | % | 3,796 | 4.58 | % | 82,050 | 2.32 | % | 133,273 | 2.42 | % | 219,119 | 2.42 | % | ||||||||||||||||||||||||||||||||||||||||||||
Agency mortgage-backed pass-through securities | 22 | 2.52 | % | 5,444 | 3.93 | % | 6,898 | 4.60 | % | 652,233 | 4.11 | % | 664,597 | 4.12 | % | ||||||||||||||||||||||||||||||||||||||||||||
Agency collateralized mortgage obligations | — | 0.00 | % | 40,144 | 3.78 | % | 35,858 | 4.67 | % | 626,299 | 3.27 | % | 702,301 | 3.37 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | 1,127 | 0.77 | % | 9,500 | 9.94 | % | 49,500 | 5.47 | % | 39,959 | 2.69 | % | 100,086 | 4.73 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 75,899 | 1.05 | % | $ | 62,115 | 4.88 | % | $ | 176,846 | 3.78 | % | $ | 1,555,221 | 3.62 | % | $ | 1,870,081 | 3.57 | % | |||||||||||||||||||||||||||||||||||||||
| 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. Mortgage-backed securities and collateralized mortgage obligations are typically issued with stated principal amounts and are backed by pools of mortgage loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay and, in particular, monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and, consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of the security.
As of June 30, 2025 and December 31, 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.
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The average yield of our securities portfolio was 3.73% for the three months ended June 30, 2025 compared with 3.31% for the three months ended June 30, 2024 and 3.76% for the six months ended June 30, 2025 compared with 3.07% for the six months ended June 30, 2024. The increase in average yield during the three and six months ended June 30, 2025 compared to the same periods in 2024 was primarily due to security purchases during the quarter increasing the mix of higher-yielding securities within the portfolio.
Goodwill and Core Deposit Intangibles
Goodwill was $497.3 million as of both June 30, 2025 and December 31, 2024. Goodwill resulting from business combinations represents the excess of the consideration paid over the fair value of the net assets acquired. Goodwill is assessed annually for impairment and on an interim basis if an event occurs or circumstances change that would indicate that the carrying amount of the asset may not be recoverable.
Core deposit intangibles, net, as of June 30, 2025 was $81.5 million and $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. We offer a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and certificates and other time accounts. We rely primarily on convenient locations, personalized service and our customer relationships to attract and retain these deposits. We seek customers that will engage in both a lending and deposit relationship with us.
Total deposits at June 30, 2025 were $8.67 billion, a decrease of $454.8 million, or 5.0%, compared with $9.13 billion at December 31, 2024 primarily driven by seasonality, industry-wide pressures and the maintenance of pricing discipline in an intensely competitive market for deposits. Noninterest-bearing deposits at June 30, 2025 were $3.18 billion, a decrease of $392.5 million, or 11.0%, compared with $3.58 billion at December 31, 2024. Interest-bearing deposits at June 30, 2025 were $5.49 billion, a decrease of $62.3 million, or 1.1%, compared with $5.55 billion at December 31, 2024. Our ratio of noninterest-bearing deposits to total deposits was 36.7% and 39.2% for at June 30, 2025 and December 31, 2024, respectively. Deposits include fully collateralized public funds of $1.04 billion and $1.44 billion at June 30, 2025 and December 31, 2024, respectively.
The following table sets forth the amount of time deposits that met or exceeded the FDIC insurance limit of $250 thousand by time remaining until maturity at June 30, 2025 (in thousands):
| Three months or less | $ | 204,778 | |||
| Over three months through six months | 230,411 | ||||
| Over six months through 12 months | 154,255 | ||||
| Over 12 months | 37,424 | ||||
| Total | $ | 626,868 | |||
Borrowings
The Company has an available line of credit with the Federal Home Loan Bank of Dallas (“FHLB”), which allows the Company to borrow on a collateralized basis. 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. At June 30, 2025, the Company had a total borrowing capacity of $3.19 billion, of which $1.97 billion was available under this agreement and $1.22 billion was outstanding pursuant to FHLB advances and letters of credit. Of the $1.22 billion, there were $70.0 million of FHLB short-term advances outstanding at June 30, 2025 at a weighted-average rate of 4.75% and $1.14 billion of FHLB letters of credit.
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At June 30, 2025, the Company had FHLB letters of credit pledged as collateral for public and other deposits of state and local government agencies which expire in the following periods (in thousands):
| 2025 | $ | 363,340 | |||
| 2026 | 210,950 | ||||
| 2027 | 391,000 | ||||
| 2028 | 56,000 | ||||
| Thereafter | 123,000 | ||||
| Total | $ | 1,144,290 | |||
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. 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 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. 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 the Company’s present and future senior indebtedness. 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. The junior subordinated debentures are included in Tier 1 capital under current regulatory guidelines and interpretations. Under the provisions of each issue of the debentures, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on either issue of the debentures are deferred, the distributions on the applicable trust preferred securities and common securities will also be deferred.
A summary of pertinent information related to the Company’s junior subordinated debentures outstanding at June 30, 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 junior subordinated debentures were callable at June 30, 2025.
Subordinated Notes
In December 2017, the Bank issued $40.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Bank Notes”) due December 15, 2027 and bore a floating rate of interest equal to 3-Month SOFR plus 3.03%. 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.
In September 2019, the Company issued $60.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the “Company Notes”) due October 1, 2029. The Company Notes bear interest 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. 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.
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Credit Agreement
On December 13, 2024, the Company renewed a loan agreement with another financial institution (the “Loan Agreement”) that provides for a $75.0 million revolving line of credit. At June 30, 2025, there were no outstanding borrowings on this line of credit and no draws were taken on this line of credit during the three or six months ended June 30, 2025. Interest accrues on outstanding borrowings at a per annum rate equal to 3-month SOFR plus 2.75%, calculated in accordance with the terms of the revolving promissory note and payable quarterly through the first 24 months. The entire outstanding balance and unpaid interest is payable in full on December 13, 2033, the maturity date. The Company may prepay the principal 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.
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. As of June 30, 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.
Liquidity and Capital Resources
Liquidity
Liquidity is the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs and to maintain reserve requirements to operate on an ongoing basis and manage unexpected events, all at a reasonable cost. During the six months ended June 30, 2025 and the year ended December 31, 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.
Liquidity risk management is an important element in our asset/liability management process. Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. Liquidity stress scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.
Our largest source of funds is deposits and our largest use of funds is loans. Average total deposits decreased $59.5 million, or 0.7%, and average loans decreased $560.3 million, or 7.1%, during the six months ended June 30, 2025 compared to the six months ended June 30, 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. Our securities portfolio had a weighted average life of 7.3 years and 7.2 years at June 30, 2025 and December 31, 2024, respectively.
Total immediate contingent funding sources, including unrestricted cash, available-for-sale securities that are not pledged and total available borrowing capacity was $5.78 billion, or 66.7%, of total deposits at June 30, 2025. As of June 30, 2025, estimated uninsured deposits net of collateralized deposits were 46.2% of total deposits compared to 43.4% at December 31, 2024. Including policy-driven capacity for brokered deposits, the Bank would have been able to add approximately $2.02 billion to its contingent sources of liquidity, bringing total contingent funding sources to approximately $7.8 billion, or 89.9%, of deposits at June 30, 2025.
As of June 30, 2025 and December 31, 2024, we had outstanding commitments to extend credit of $1.93 billion and $1.70 billion, respectively, and commitments associated with outstanding letters of credit of $42.2 million and $43.6 million, respectively. Since commitments associated with commitments to extend credit and outstanding letters of credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements. Commitments to make loans are generally made for an approval period of 120 days or less. Variable rate loan commitments were $1.57 billion at June 20, 2025 and $1.26 billion at December 31, 2025. Fixed rate loan commitments were $357.9 million at June 30, 2025 and $440.4 million at December 31, 2025. At June 30, 2025, the fixed rate loan commitments had interest rates ranging from 2.50% to 13.50% with a weighted average maturity of 2.02 and a weighted-average rate of 7.13%.
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At June 30, 2025 and December 31, 2024, we had FHLB letters of credit in the amount of $1.14 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.
As of June 30, 2025 and December 31, 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. Refer to the accompanying notes to accompanying consolidated financial statements for the expected timing of such payments as of December 31, 2024. These include payments related to (1) operating leases (Note 5 – Leases), (2) time deposits with stated maturity dates (Note 7 – Deposits), (3) borrowings (Note 9 – Borrowings and Borrowing Capacity) and (4) commitments to extend credit and standby letters of credit (Note 13 – Off-Balance Sheet Arrangements, Commitments and Contingencies).
Capital Resources
Capital management consists of providing equity to support our current and future operations. We are subject to capital adequacy requirements imposed by the Federal Reserve and the Bank is subject to capital adequacy requirements imposed by the FDIC. Both the Federal Reserve and the FDIC have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define capital and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profiles among bank holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate relative risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.
Under current guidelines, the minimum ratio of total capital to risk-weighted assets (which are primarily the credit risk equivalents of balance sheet assets and certain off-balance sheet items such as standby letters of credit) is 8.0%. At least half of total capital must be composed of Tier 1 capital, which includes common shareholders’ equity (including retained earnings), less goodwill, other disallowed intangible assets and disallowed deferred tax assets, among other items. The Federal Reserve also has adopted a minimum leverage ratio, requiring Tier 1 capital of at least 4.0% of average quarterly total consolidated assets, net of goodwill and certain other intangible assets, for all but the most highly rated bank holding companies. The federal banking agencies have also established risk-based and leverage capital guidelines that FDIC-insured depository institutions are required to meet. These regulations are generally similar to those established by the Federal Reserve for bank holding companies.
Under the Federal Deposit Insurance Act, the federal bank regulatory agencies must take “prompt corrective action” against undercapitalized U.S. depository institutions. U.S. depository institutions are assigned one of five capital categories: “well- capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized,” and are subjected to different regulation corresponding to the capital category within which the institution falls. A depository institution is deemed to be “well capitalized” if the banking institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a common equity Tier 1 capital ratio of 6.5% and 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. 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.
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 June 30, 2025 and December 31, 2024, the Bank was well-capitalized under regulatory capital guidelines. Total shareholders’ equity was $1.60 billion at June 30, 2025 and $1.61 billion at December 31, 2024. Shareholders' equity decreased during the six months ended June 30, 2025 due to $59.2 million paid to repurchase common stock at a weighted average per share of $27.30 and dividends paid of $14.5 million, or $0.28 per common share, partially offset by net income of $51.1 million and a decrease of $14.4 million of other comprehensive loss.
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The following is a summary of the Company’s and the Bank’s actual and required capital ratios as of June 30, 2025:
| Actual Ratio | Minimum Required For Capital Adequacy Purposes | Minimum Required Plus Capital Conservation Buffer | To Be Categorized As Well-Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||
| Stellar Bancorp, Inc. (Consolidated) | |||||||||||||||||||||||
| Total Capital (to risk-weighted assets) | 15.98% | 8.00% | 10.50% | N/A | |||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets) | 14.06% | 4.50% | 7.00% | N/A | |||||||||||||||||||
| Tier 1 Capital (to risk-weighted assets) | 14.18% | 6.00% | 8.50% | N/A | |||||||||||||||||||
| Tier 1 Leverage (to average tangible assets) | 11.44% | 4.00% | 4.00% | N/A | |||||||||||||||||||
| Stellar Bank | |||||||||||||||||||||||
| Total Capital (to risk-weighted assets) | 15.39% | 8.00% | 10.50% | 10.00% | |||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets) | 14.18% | 4.50% | 7.00% | 6.50% | |||||||||||||||||||
| Tier 1 Capital (to risk-weighted assets) | 14.18% | 6.00% | 8.50% | 8.00% | |||||||||||||||||||
| Tier 1 Leverage (to average tangible assets) | 11.44% | 4.00% | 4.00% | 5.00% | |||||||||||||||||||
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. We have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.
As a financial institution, a component of the market risk that we face is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential for economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
Based upon the nature of our operations, we are not subject to foreign exchange rate or commodity price risk. We do not own any trading assets. We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of a community banking business. The Company enters into interest rate swaps as an accommodation to customers.
Our exposure to interest rate risk is managed by the Asset Liability Committee (“ALCO”). The ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the ALCO reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity.
We use an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and the balance sheet, respectively. 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. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
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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 summarizes the simulated change in net interest income over a 12-month horizon and the economic value of equity as of the dates indicated:
| Change in Interest Rates (Basis Points) | Percent Change in Net Interest Income | Percent Change in Economic Value of Equity | ||||||||||||||||||||||||
| June 30, 2025 | December 31, 2024 | June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||
| +300 | 5.2% | 3.1% | (4.2)% | (4.9)% | ||||||||||||||||||||||
| +200 | 3.9% | 2.4% | (0.7)% | (1.8)% | ||||||||||||||||||||||
| +100 | 2.2% | 1.4% | 0.5% | (0.2)% | ||||||||||||||||||||||
| Base | 0.0% | 0.0% | 0.0% | 0.0% | ||||||||||||||||||||||
| -100 | (3.3)% | (2.5)% | (3.6)% | (2.8)% | ||||||||||||||||||||||
| -200 | (6.8)% | (5.2)% | (10.1)% | (7.9)% | ||||||||||||||||||||||
| -300 | (9.9)% | (8.6)% | (18.9)% | (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. During the six months ended June 30, 2025, changes in our overall interest rate profile were driven by the decrease in cash, loans, noninterest-bearing deposits and certificates of deposits and an increase in borrowings.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. See Exhibits 31.1 and 31.2 for the Certification statements issued by the Company’s Chief Executive Officer and Chief Financial Officer, respectively.
Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to claims and litigation arising in the ordinary course of business. In the opinion of management, we are not party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which such claim or litigation is resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor. We intend to defend ourselves vigorously against any future claims or litigation.
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ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed by the Company. Investors should carefully consider the risks described in “Part I—Item 1A.—Risk Factors” in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2024 and the Company’s other SEC filings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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”). The Company repurchased 679,331 shares at a weighted average price of $25.83 per share during the second quarter of 2025 under the 2024-2025 Repurchase Program prior to its termination as of April 23, 2025. All shares repurchased were retired.
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”). 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. 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 number of shares that may be repurchased under 2025- 2026 plan was 2,212,361 based on the closing share price of the Company's common stock, as of June 30, 2025. The Company repurchased 112,066 shares at a weighted average price of $27.61 per share during the second quarter of 2025 under the 2025-2026 Repurchase Program. All shares repurchased were retired.
The following table summarizes the shares repurchased by the Company:
| Period | Number of Shares Purchased(1) | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Plan | Number of Shares That May Yet be Purchased Under the Plan(2) | ||||||||||||||||||||||
| April 1, 2025 to April 30, 2025 | — | $ | 25.83 | 679,331 | 2,604,167 | |||||||||||||||||||||
| May 1, 2025 to May 31, 2025 | — | $ | — | — | 2,414,562 | |||||||||||||||||||||
| June 1, 2025 to June 30, 2025 | — | $ | 27.61 | 112,066 | 2,212,361 | |||||||||||||||||||||
| Total | — | $ | 26.08 | 791,397 | ||||||||||||||||||||||
(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. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None of the Company’s directors or officers adopted terminated
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ITEM 6. EXHIBITS
| Exhibit Number | Description | |||||||
| 3.1 | Second Amended and Restated Certificate of Formation of Stellar Bancorp, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 3, 2022) | |||||||
| 3.2 | Amended and Restated Bylaws of Stellar Bancorp, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 4, 2025) | |||||||
| 10.1 | Amended and Restated Stellar Bancorp, Inc. 2022 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 28, 2025) | |||||||
| 10.2 | Stellar Bancorp, Inc. Executive Severance Plan (incorporated herein b reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 22, 2025) | |||||||
| 31.1* | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended | |||||||
| 31.2* | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended | |||||||
| 32.1** | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
| 32.2** | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
| 101.INS* | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
* Filed with this Quarterly Report on Form 10-Q.
** Furnished with this Quarterly Report on Form 10-Q.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Stellar Bancorp, Inc. (Registrant) | |||||
Date: July 25, 2025 | /s/ Robert R. Franklin, Jr. | ||||
| Robert R. Franklin, Jr. | |||||
| Chief Executive Officer | |||||
Date: July 25, 2025 | /s/ Paul P. Egge | ||||
| Paul P. Egge | |||||
| Chief Financial Officer | |||||
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Stellar Bancorp Inc
NYSE:STEL
STEL Rankings
STEL Latest News
STEL Latest SEC Filings
Jul 25, 2025
[8-K] Stellar Bancorp, Inc. Reports Material Event
STEL Stock Data
1.65B
46.43M
10.11%
59.14%
0.76%
Banks - Regional
National Commercial Banks
United States
HOUSTON