SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations—Stellar Bancorp, Inc., formerly known as CBTX, Inc., or the Company, operated 34 branches, 18 in the Houston market area, 15 in the Beaumont/East Texas market area and one in Dallas, through its wholly-owned subsidiary, CommunityBank of Texas, N.A., or the Bank, as of September 30, 2022.

Effective October 1, 2022, the Company completed its previously announced merger of equals, or the Merger, with Allegiance Bancshares, Inc. or Allegiance and changed its name to Stellar Bancorp, Inc. See Note: 22. Subsequent Events for further discussion regarding the Merger.

The Bank provides relationship-driven commercial banking products and services primarily to small and medium-sized businesses and professionals with operations within the Bank’s markets.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP, but do not include all the information and footnotes required for complete consolidated financial statements. In management’s opinion, these interim unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s consolidated financial position at September 30, 2022 and December 31, 2021 and consolidated results of operations and consolidated shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and consolidated cash flows for the nine months ended September 30, 2022 and 2021.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown in this report are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included within the Company’s Annual Report on Form 10-K.

Treasury Stock – During the three months ended September 30, 2022, the Company retired 826,995 treasury shares with a cost basis of $14.0 million. These shares were returned to the status of authorized but unissued shares.

Share Repurchase Program—The Company repurchased 510,161 shares under the Company’s share repurchase program during the nine months ended September 30, 2022 at an average price of $29.48. During the nine months ended September 30, 2021, the Company repurchased 214,219 shares at an average price of $27.19. Shares repurchased were retired and returned to the status of authorized but unissued shares.

Accounting Standards Not Yet Adopted—Accounting Standards Update, or ASU, 2022-02, eliminates the troubled debt receivable, or TDR, accounting model for creditors that have already adopted Topic 326, which is commonly referred to as the current expected credit loss, or CECL model. The FASB’s decision to eliminate the TDR accounting model is in response to feedback that the allowance under CECL already incorporates credit losses from loans modified as TDRs and, consequently, the related accounting and disclosures, which preparers often find onerous to apply, no longer provide the same level of benefit to users.

In lieu of the TDR accounting model, creditors will apply the general loan modification guidance in Subtopic 310-20 to all loan modifications, including modifications made for borrowers experiencing financial difficulty. Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met:

(i) the terms of the new loan are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks; and (ii) modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as the continuation of the old loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate.

This update will become effective for the Company for fiscal years beginning after December 31, 2022, including interim periods within those fiscal years, and is not expected to have a significant impact on the Company’s financial statements.

Cash Flow Reporting—As of December 31, 2021, the Company had $1.8 million in cash held as collateral on deposit with other financial institution counterparties related to interest rate swap transactions that are considered restricted cash. As of September 30, 2022, the Company had no cash held as collateral related to interest rate swap transactions.

Supplemental disclosures of cash flow information were as follows for the periods indicated below:

	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021
Supplemental disclosures of cash flow information:
Cash paid for taxes	$	6,750	$	4,559
Cash paid for interest		4,171		4,694
Supplemental disclosures of non-cash flow information:
Operating lease right-to-use asset increased (decreased) in exchange for lease liabilities		809		(617)
Change in liability for dividends accrued		167		(755)