SEC Filing | Stellar Bancorp, Inc.

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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 September 30, 2022

☐ 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

Stellar Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Texas		20-8339782

(State or other jurisdiction of		(I.R.S. employer

incorporation or organization)		identification no.)

9 Greenway Plaza, Suite 110

Houston, Texas 77046

(Address of principal executive offices)

(713) 210-7600

(Registrant’s telephone number, including area code)

CBTX, Inc.

9 Greenway Plaza, Suite 110

Houston, Texas 77046

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	STEL	The Nasdaq Global Select Market

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 ☒ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐		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 ☒

As of October 24, 2022, there were 52,297,690 shares of the registrant’s common stock, par value $0.01 per share outstanding.

Table of Contents

Stellar Bancorp, Inc.

		Page
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements – (Unaudited)	1
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
	Cautionary Note Regarding Forward-Looking Statements	38
	Overview	40
	Impact and Uncertain Economic Outlook	40
	Results of Operations	41
	Financial Condition	47
	Liquidity and Capital Resources	55
	Interest Rate Sensitivity and Market Risk	57
	Non-GAAP Financial Measures	59
	Critical Accounting Policies	60
	Recently Issued Accounting Pronouncements	60
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61
Item 4.	Controls and Procedures	61

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
SIGNATURES		65

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Stellar Bancorp, Inc. and Subsidiary

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except par value and share amounts)



	September 30, 2022		December 31, 2021
Assets:
Cash and due from banks	$	41,219	$	27,689
Interest-bearing deposits at other financial institutions		329,229		922,457
Total cash and cash equivalents		370,448		950,146
Securities		511,282		425,046
Equity investments		17,835		17,727
Loans held for sale		—		164
Loans, net of allowance for credit losses of $32,577 and $31,345 at September 30, 2022 and December 31, 2021, respectively		3,093,844		2,836,179
Premises and equipment, net of accumulated depreciation of $40,493 and $39,196 at September 30, 2022 and December 31, 2021, respectively		55,594		58,417
Goodwill		80,950		80,950
Other intangible assets, net of accumulated amortization of $17,863 and $17,345 at September 30, 2022 and December 31, 2021, respectively		3,188		3,658
Bank-owned life insurance		74,274		73,156
Operating lease right-to-use assets		10,992		11,191
Deferred tax assets, net		29,581		9,973
Other assets		23,843		19,394
Total assets	$	4,271,831	$	4,486,001

Liabilities:
Noninterest-bearing deposits	$	1,780,473	$	1,784,981
Interest-bearing deposits		1,943,301		2,046,303
Total deposits		3,723,774		3,831,284
Federal Home Loan Bank advances		—		50,000
Operating lease liabilities		13,748		14,142
Other liabilities		32,884		28,450
Total liabilities		3,770,406		3,923,876
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued		—		—
Common stock, $0.01 par value, 90,000,000 shares authorized, 24,015,272 and 25,323,558 shares issued at September 30, 2022 and December 31, 2021, respectively; 24,015,272 and 24,487,730 shares outstanding at September 30, 2022 and December 31, 2021, respectively		240		253
Additional paid-in capital		308,197		335,846
Retained earnings		262,804		237,165
Treasury stock, at cost, 835,828 shares held at December 31, 2021		—		(14,196)
Accumulated other comprehensive income (loss), net of tax of $(18,559) and $813 at September 30, 2022 and December 31, 2021, respectively		(69,816)		3,057
Total shareholders’ equity		501,425		562,125
Total liabilities and shareholders’ equity	$	4,271,831	$	4,486,001

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Stellar Bancorp, Inc. and Subsidiary

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest income:
Interest and fees on loans	$	39,058	$	30,765	$	102,047	$	94,723
Securities		3,046		1,435		8,275		3,940
Interest-bearing deposits at other financial institutions		2,408		340		3,994		740
Equity investments		161		157		473		461
Total interest income		44,673		32,697		114,789		99,864
Interest expense:
Deposits		1,661		1,227		4,003		3,844
Federal Home Loan Bank advances		—		221		272		663
Total interest expense		1,661		1,448		4,275		4,507
Net interest income		43,012		31,249		110,514		95,357
Provision (recapture) for credit losses:
Provision (recapture) for credit losses for loans		523		(5,057)		1,022		(8,961)
Provision (recapture) for credit losses for unfunded commitments		489		162		551		(605)
Total provision (recapture) for credit losses		1,012		(4,895)		1,573		(9,566)
Net interest income after provision (recapture) for credit losses		42,000		36,144		108,941		104,923
Noninterest income:
Deposit account service charges		1,320		1,352		4,076		3,712
Card interchange fees		1,056		1,048		3,228		3,119
Earnings on bank-owned life insurance		376		2,323		1,118		3,103
Net gain on sales of assets		85		360		673		918
Other		612		479		3,229		1,312
Total noninterest income		3,449		5,562		12,324		12,164
Noninterest expense:
Salaries and employee benefits		16,453		15,000		46,405		43,922
Occupancy expense		2,595		2,660		7,362		7,778
Professional and director fees		942		1,567		2,963		5,711
Data processing and software		1,502		1,629		4,723		4,866
Regulatory fees		599		478		2,016		1,535
Advertising, marketing and business development		350		493		965		1,288
Telephone and communications		348		516		1,151		1,529
Security and protection expense		386		425		880		1,352
Amortization of intangibles		165		182		518		559
Other expenses		5,981		1,422		10,748		4,314
Total noninterest expense		29,321		24,372		77,731		72,854
Net income before income tax expense		16,128		17,334		43,534		44,233
Income tax expense		3,381		2,913		8,485		8,090
Net income	$	12,747	$	14,421	$	35,049	$	36,143
Earnings per common share
Basic	$	0.52	$	0.59	$	1.43	$	1.48
Diluted	$	0.52	$	0.59	$	1.43	$	1.47

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Stellar Bancorp, Inc. and Subsidiary

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	12,747	$	14,421	$	35,049	$	36,143

Change in unrealized gains (losses) on securities available for sale arising during the period		(29,119)		(3,446)		(92,244)		(5,493)
Change in related deferred income tax		6,115		723		19,371		1,154
Other comprehensive loss, net of tax		(23,004)		(2,723)		(72,873)		(4,339)
Total comprehensive income (loss)	$	(10,257)	$	11,698	$	(37,824)	$	31,804

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Stellar Bancorp, Inc. and Subsidiary

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share amounts)


											Accumulated
				Additional							Other
	Common Stock			Paid-In		Retained		Treasury Stock			Comprehensive
	Shares	Amount		Capital		Earnings		Shares	Amount		Income (Loss)		Total
Nine Months Ended September 30, 2021:
Balance at December 31, 2020	25,458,816	$	255	$	339,334	$	214,456	(845,988)	$	(14,369)	$	6,775	$	546,451
Net income	—		—		—		36,143	—		—		—		36,143
Dividends on common stock, $0.39 per share	—		—		—		(9,587)	—		—		—		(9,587)
Stock-based compensation expense	—		—		1,813		—	—		—		—		1,813
Vesting of restricted stock, net of shares withheld for employee tax liabilities	18,997		—		(87)		—	—		—		—		(87)
Exercise of stock options, net of shares withheld for employee tax liabilities	—		—		(11)		—	2,032		35		—		24
Shares repurchased	(214,219)		(2)		(5,823)		—	—		—		—		(5,825)
Other comprehensive loss, net of tax	—		—		—		—	—		—		(4,339)		(4,339)
Balance at September 30, 2021	25,263,594	$	253	$	335,226	$	241,012	(843,956)	$	(14,334)	$	2,436	$	564,593

Nine Months Ended September 30, 2022:
Balance at December 31, 2021	25,323,558	$	253	$	335,846	$	237,165	(835,828)	$	(14,196)	$	3,057	$	562,125
Net income	—		—		—		35,049	—		—		—		35,049
Dividends on common stock, $0.39 per share	—		—		—		(9,410)	—		—		—		(9,410)
Stock-based compensation expense	—		—		1,537		—	—		—		—		1,537
Vesting of restricted stock, net of shares withheld for employee tax liabilities	22,463		—		(135)		—	—		—		—		(135)
Exercise of stock options, net of shares withheld for employee tax liabilities	6,407		—		23		—	8,833		150		—		173
Shares repurchased	(510,161)		(5)		(15,036)		—	—		—		—		(15,041)
Retirement of Treasury Stock	(826,995)		(8)		(14,038)		—	826,995		14,046		—		—
Other comprehensive loss, net of tax	—		—		—		—	—		—		(72,873)		(72,873)
Balance at September 30, 2022	24,015,272	$	240	$	308,197	$	262,804	—	$	—	$	(69,816)	$	501,425

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Stellar Bancorp, Inc. and Subsidiary

Condensed Consolidated Statements of Quarterly Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share amounts)


											Accumulated
				Additional							Other
	Common Stock			Paid-In		Retained		Treasury Stock			Comprehensive
	Shares	Amount		Capital		Earnings		Shares	Amount		Income		Total
Three Months Ended September 30, 2021:
Balance at June 30, 2021	25,296,385	$	253	$	335,399	$	229,785	(845,988)	$	(14,369)	$	5,159	$	556,227
Net income	—		—		—		14,421	—		—		—		14,421
Dividends on common stock, $0.13 per share	—		—		—		(3,194)	—		—		—		(3,194)
Stock-based compensation expense	—		—		698		—	—		—		—		698
Vesting of restricted stock, net of shares withheld for employee tax liabilities	339		—		(3)		—	—		—		—		(3)
Exercise of stock options, net of shares withheld for employee tax liabilities	—		—		(11)		—	2,032		35		—		24
Shares repurchased	(33,130)		—