Stellar Bancorp (STEL)

Texas-based commercial bank Stellar Bancorp (NYSE:STEL) reported revenue ahead of Wall Streets expectations in Q4 CY2025, but sales were flat year on year at $109 million. Its non-GAAP profit of $0.51 per share was in line with analysts’ consensus estimates.

Company Overview

Created through strategic mergers to serve the growing Texas business community, Stellar Bancorp (NYSE:STEL) is a Texas bank holding company that provides commercial banking services primarily to small and medium-sized businesses and professionals.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Stellar Bancorp competes with other Texas-based regional banks such as Prosperity Bancshares (NYSE:PB), Texas Capital Bancshares (NASDAQ:TCBI), and Cullen/Frost Bankers (NYSE:CFR), as well as with national banks operating in its markets including JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Over the last five years, Stellar Bancorp grew its revenue at an exceptional 18.2% compounded annual growth rate. Its growth beat the average banking company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Stellar Bancorp’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.2% over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Stellar Bancorp’s $109 million of revenue was flat year on year but beat Wall Street’s estimates by 1%.

Net interest income made up 97.9% of the company’s total revenue during the last five years, meaning Stellar Bancorp lives and dies by its lending activities because non-interest income barely moves the needle.

Net interest income commands greater market attention due to its reliability and consistency, whereas non-interest income is often seen as lower-quality revenue that lacks the same dependable characteristics.

The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.

Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.

Over the last five years, Stellar Bancorp’s efficiency ratio couldn’t build momentum, hanging around 62.3%.

Stellar Bancorp’s efficiency ratio came in at 61.6% this quarter, beating analysts’ expectations by 478 basis points (100 basis points = 1 percentage point).

For the next 12 months, Wall Street expects Stellar Bancorp to become less profitable as it anticipates an efficiency ratio of 67.4%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

Stellar Bancorp’s TBVPS declined at a 3.3% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 12.7% annually over the last two years from $17.02 to $21.62 per share.

Over the next 12 months, Consensus estimates call for Stellar Bancorp’s TBVPS to grow by 6.7% to $23.07, lousy growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Stellar Bancorp has averaged a Tier 1 capital ratio of 13.7%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Stellar Bancorp has averaged an ROE of 8%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

We were impressed by how significantly Stellar Bancorp blew past analysts’ net interest income expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its EPS was in line. Overall, this print had some key positives. The stock remained flat at $36.41 immediately after reporting.

Updated: January 28, 2026 at 4:06 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We cheer for all companies supporting the economy, but in the case of Stellar Bancorp, we’ll be cheering from the sidelines. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its TBVPS has declined over the last five years. And while the company’s net interest margin a strong starting point for the overall profitability of the business, the downside is its declining EPS over the last two years makes it a less attractive asset to the public markets.

Stellar Bancorp’s P/B ratio based on the next 12 months is 1.1x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $32.40 on the company (compared to the current share price of $36.41), implying they don’t see much short-term potential in Stellar Bancorp.