Stellar Bancorp(STEL) - 2024 Q4 - Annual Report

Financial Position - As of December 31, 2024, the company had total assets of $10.91 billion, total loans of$ 7.44 billion, total deposits of $9.13 billion, and total shareholders' equity of$ 1.61 billion[17]. - As of December 31, 2024, the Company's Common Equity Tier 1 (CET1) ratio to risk-weighted assets was 14.16%, significantly above the minimum requirement of 7.00%[64]. - The Company is required to maintain a Tier 1 capital to risk-weighted assets ratio of at least 8.50%, and its current ratio stands at 14.28%[64]. - Total capital to risk-weighted assets ratio is reported at 16.03%, exceeding the minimum requirement of 10.50%[64]. - The leverage ratio, which is Tier 1 capital to average quarterly assets, is at 11.31%, well above the minimum of 4.00%[64]. - The Company must comply with the Basel III Capital Rules, which include maintaining a capital conservation buffer of 2.50%[64]. - As of December 31, 2024, the Bank met the requirements to be classified as "well capitalized" under prompt corrective action regulations[72]. Merger and Growth Strategy - The merger between Allegiance Bancshares, Inc. and CBTX, Inc. on October 1, 2022, resulted in CBTX being renamed Stellar Bancorp, Inc., with each share of Allegiance common stock converted into 1.4184 shares of the new company[12]. - Following the merger, Stellar Bank became one of the largest banks based in Houston, Texas, with 54 full-service banking centers as of December 31, 2024[15]. - The company intends to continue expanding its presence through organic growth and a disciplined acquisition strategy, focusing on like-minded community banks in Texas[20]. Community Banking and Employee Engagement - The company's community banking strategy focuses on providing customized commercial banking services to small- to medium-sized businesses, enhancing customer relationships and operational efficiency[16]. - The average funded loan size as of December 31, 2024, was approximately $510 thousand, reflecting a focus on small- to medium-sized business lending[26]. - Employee engagement improved to 82% in 2024, up from 69% in 2023, following the implementation of new employee programs[37]. - As of December 31, 2024, the workforce consisted of 1,023 employees, with 49% identifying as non-white and 71% as women[34]. Regulatory Compliance and Oversight - The Company is subject to ongoing supervision and regulation by the Texas Department of Banking and the FDIC[48]. - The Federal Reserve's rules provide a framework for determining control over bank holding companies, with ownership thresholds set at 25% for control[57]. - The Company has not elected to pursue financial holding company status, which would allow for expanded financial activities[59]. - The Company is subject to significant regulatory oversight regarding compliance with consumer protection laws, which can result in substantial liabilities if violated[96]. - Federal bank regulatory agencies have adopted guidelines for establishing information security standards and cybersecurity programs, focusing on risk management[105]. - The Company must notify its primary banking regulator within 36 hours of determining a "computer-security incident" that materially disrupts operations[108]. Capital Distribution and Restrictions - Banking institutions failing to meet capital ratios may face constraints on capital distributions, including dividends and share repurchases[65]. - The FDIA prohibits capital distributions, including dividends, if such distributions would render the institution "undercapitalized"[76]. - The Dodd-Frank Act and Basel III impose additional restrictions on the ability of banking institutions to pay dividends[74]. - The Bank's ability to pay dividends is primarily derived from dividends received from the Bank, which are subject to federal and state regulations[75]. - The FDIC may restrict dividend payments if it deems them unsafe or unsound banking practices[76]. - Institutions classified as "undercapitalized" are prohibited from accepting brokered deposits[82]. Market Risks and Economic Factors - The principal market risk exposure for the Company is to changes in interest rates[367]. - The Federal Reserve's monetary policies significantly affect the operating results of bank holding companies and their subsidiaries[110]. Compliance and Regulatory Changes - The Anti-Money Laundering Act of 2020 codifies a risk-based approach to compliance and expands enforcement authority[93]. - The Company received an overall CRA rating of "satisfactory" on its most recent CRA examination[100]. - The final rule amending CRA regulations will be effective on April 1, 2024, with new data reporting requirements applicable from January 1, 2027[101]. - The Dodd-Frank Act mandates that financial institutions must make a "reasonable and good faith determination" of a borrower's ability to repay a residential mortgage loan[98]. - The CFPB has examination and enforcement authority over all banks with more than$ 10 billion in assets, impacting their ability to engage in mergers or acquisitions[97]. - Changes in laws and regulations could adversely affect the Company's operating environment and profitability[109].