8-K: Prosperity Bancshares to Acquire Stellar Bancorp for $2 Billion

Prosperity Bancshares, Inc. announced a definitive merger agreement to acquire Stellar Bancorp, Inc. for approximately $2.002 billion, creating the second largest bank by deposits headquartered in Texas.

Summary

• Prosperity Bancshares, Inc. (Prosperity) will acquire Stellar Bancorp, Inc. (Stellar) in a definitive merger agreement dated January 27, 2026.
• Stellar will merge with and into Prosperity, and Stellar's wholly owned banking subsidiary, Stellar Bank, will merge with and into Prosperity Bank.
• The total consideration for the acquisition is valued at approximately $2.002 billion, based on Prosperity's closing stock price of $72.90 on January 27, 2026.
• Stellar shareholders will receive 0.3803 shares of Prosperity common stock and $11.36 in cash for each outstanding share of Stellar common stock.
• As of December 31, 2025, Stellar reported total assets of $10.807 billion, total loans of $7.301 billion, and total deposits of $9.021 billion.
• The combined entity will create the second largest bank by deposits headquartered in Texas, operating over 330 banking centers.
• The merger has been unanimously approved by the Boards of Directors of both companies and is expected to close during the second quarter of 2026.

Sentiment

Score: 8

Explanation: The filing announces a strategic merger that significantly enhances Prosperity's market position and scale in key Texas markets, with projected EPS accretion and substantial cost synergies. While there is tangible book value dilution, the earnback period is manageable, and the strategic benefits appear strong. The integration of Stellar's management and strong deposit franchise are also positive indicators.

Positives

• Creates the second largest Texas-headquartered bank by assets, with pro forma assets of $54 billion, loans of $33 billion, and deposits of $42 billion at estimated close.
• Significantly enhances Prosperity's presence in the Houston area, a market with a diverse economy and projected population growth of 7.3% from 2026-2031.
• Bolsters Prosperity's position as a leading Houston bank, with pro forma deposits of $11.1 billion and 92 branches, ranking 6th in the Houston MSA.
• Achieves the #1 bank position in Beaumont by deposit share (36.8% pro forma).
• Stellar brings a strong deposit franchise with 38% non-interest-bearing (NIB) deposits and a cost of deposits of 1.77% as of Q4 2025, which is better than the KBW Regional Bank Index median.
• Projected 2027 EPS accretion of 9.2% for Prosperity.
• Expected cost savings of 35.0% of Stellar's non-interest expense, phased-in at 25.0% in 2026 and 100% thereafter.
• Key members of Stellar's management team, including Robert R. Franklin, Jr. and Ramon Vitulli, will join Prosperity in leadership roles, bringing extensive banking experience and local market knowledge.

Negatives

• Projected tangible book value (TBV) dilution of 7.8%.
• The TBV earnback period is estimated at approximately 4.5 years.
• Estimated one-time transaction expenses of approximately $100.0 million, pre-tax.
• The issuance of additional shares of Prosperity's common stock in the proposed transaction will cause dilution to existing shareholders.
• The possibility exists that the proposed transaction may be more expensive to complete than anticipated due to unexpected factors or events.

Risks

• Cost savings and synergies from the proposed transaction may not be fully realized or may take longer than anticipated.
• Disruption to Prosperity's and Stellar's businesses may occur as a result of the announcements and pendency of the proposed transaction.
• The integration of Stellar's businesses and operations into Prosperity may be materially delayed, more costly or difficult than expected, or Prosperity may be unable to successfully integrate Stellar's business.
• Failure to obtain the necessary approval by the shareholders of Stellar.
• Inability by Prosperity and/or Stellar to obtain required governmental approvals of the proposed transaction on the expected timeline, or at all, with the risk that such approvals may result in the imposition of conditions that could adversely affect Prosperity or the expected benefits.
• Reputational risk and the reaction of each company's customers, suppliers, employees, or other business partners to the proposed transaction.
• Failure of the closing conditions in the Merger Agreement to be satisfied, or any unexpected delay in closing the proposed transaction or the occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement.
• Dilution caused by the issuances of additional shares of Prosperity's common stock in the proposed transaction.
• The possibility that the proposed transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events.
• The outcome of any legal or regulatory proceedings that may be currently pending or later instituted against Prosperity or Stellar before or after the proposed transaction.
• Diversion of management's attention from ongoing business operations.
• General competitive, economic, political, and market conditions and other factors that may affect future results of Prosperity and Stellar.

Future Outlook

The merger is expected to create significant value through increased scale, enhanced market presence in Houston and Beaumont, and substantial cost synergies. Management anticipates a 9.2% EPS accretion by 2027, despite an initial 7.8% tangible book value dilution with an earnback period of approximately 4.5 years. The combined entity aims to be a stronger, more competitive, and resilient financial institution, well-positioned to serve the growing Texas economy.

Management Comments

• "I am very excited to announce the merger of Stellar with Prosperity and to partner with Bob, Ray and the management team and other professionals of Stellar Bank. The combination of our companies will create the second largest bank by deposits headquartered in Texas with over 330 banking centers. Together, our increased scale better positions us to invest in future opportunities and serve our customers." David Zalman, Senior Chairman and Chief Executive Officer of Prosperity.
• "This is a rare opportunity to significantly enhance our presence in the Houston area, a market with a diverse economy that is continually attracting investment and has a growing population. Bob and Ray have extensive banking experience and we are looking forward to them joining our team and continuing to take Prosperity to the next level. Our banks have a complementary footprint, and we are familiar with and remain committed to the communities that Stellar Bank serves, including with both financial products and community support." David Zalman.
• "We are thrilled to announce this partnership with Prosperity. By joining forces, we are creating one of the strongest Texas banking franchises, supported by an exceptional deposit base and a shared commitment to relationship-driven community banking. This combination enhances our ability to serve customers with greater scale, expanded capabilities, and the financial strength needed to meet the evolving needs of a growing Texas economy. I am incredibly proud of what our team has built, and I am excited about the opportunities this merger creates for our customers, employees, and communities. Together with Prosperity, we look forward to building an even more competitive and resilient financial institution for the future." Robert R. Franklin, Jr., Chief Executive Officer of Stellar and Executive Chairman of Stellar Bank.

Industry Context

This acquisition positions Prosperity Bancshares as the second largest bank by deposits headquartered in Texas, significantly strengthening its footprint in the high-growth Houston and Beaumont metropolitan areas. The move reflects a broader trend of consolidation within the regional banking sector, particularly in attractive markets like Texas, as institutions seek greater scale, operational efficiencies, and expanded customer bases to compete more effectively against larger national banks and adapt to evolving economic conditions.

Comparison to Industry Standards

• Stellar's Non-Interest Bearing (NIB) Deposits / Total Deposits of 38% is significantly higher than the KBW NASDAQ Regional Banking Index (KRX) median of 25%, indicating a strong, low-cost deposit base.
• Stellar's Cost of Deposits of 1.77% is lower than the KRX median of 1.98%, further highlighting its attractive funding profile.
• The pro forma combined company's NIB Deposits / Total Deposits of 34% remains well above the KRX median, maintaining a competitive advantage in funding costs.
• The pro forma combined company's Cost of Deposits of 1.36% is substantially lower than the KRX median, reinforcing its strong deposit franchise.
• Prosperity has a strong track record of M&A, having completed 31 transactions since 2000, demonstrating a proven strategy for growth and integration, and outperforming the S&P 500 and NASDAQ BANK indices in total shareholder return over the long term.

Management Changes

Stakeholder Impact

• Shareholders (Stellar): Will receive a total consideration valued at $39.08 per share, consisting of 0.3803 shares of Prosperity common stock and $11.36 in cash for each outstanding share.
• Shareholders (Prosperity): Expected to benefit from increased scale, market leadership, and projected EPS accretion, but will experience a 7.8% tangible book value dilution with an estimated 4.5-year earnback period.
• Customers: Anticipated to benefit from greater scale, expanded capabilities, and the financial strength of the combined entity, with a continued commitment to relationship-driven community banking.
• Employees (Stellar): Key management will transition into leadership roles within Prosperity Bank, and employment agreements have been signed with key Stellar Bank personnel, suggesting retention for some, while potential redundancies may arise from targeted cost savings.
• Communities: Prosperity has expressed commitment to serving the communities currently served by Stellar Bank with both financial products and community support.

Next Steps

• Prosperity intends to file a Registration Statement on Form S-4 with the SEC to register the shares of Prosperity common stock to be issued to Stellar shareholders.
• The Registration Statement will include a Proxy Statement/Prospectus which will be sent to the shareholders of Stellar.
• Stellar's shareholders must approve the merger.
• Required regulatory approvals must be obtained from relevant governmental authorities.
• Satisfaction of other customary closing conditions as set forth in the Merger Agreement.
• A conference call is scheduled for January 28, 2026, to discuss this transaction with analysts and investors.

Key Dates

Recommendation

The acquisition of Stellar Bancorp by Prosperity Bancshares is a strategically sound move that significantly enhances Prosperity's market position in the attractive Texas banking landscape. The projected 9.2% EPS accretion by 2027, coupled with substantial cost synergies (35% of Stellar's non-interest expense), indicates strong financial benefits. While there is an initial 7.8% tangible book value dilution, the estimated 4.5-year earnback period is acceptable for a strategic acquisition of this scale. Stellar's strong deposit franchise, characterized by a high percentage of non-interest-bearing deposits and a low cost of deposits compared to industry peers, will further strengthen Prosperity's funding base. The integration of experienced Stellar management also bodes well for a smooth transition and continued growth. Given Prosperity's proven track record of successful M&A integrations and long-term shareholder value creation, this transaction presents a compelling opportunity for long-term investors.

Keywords

Prosperity Bancshares, Stellar Bancorp, Merger, Acquisition, Banking, Texas, Houston, Beaumont, Financial Services, Regional Bank, Bank Merger, PB, STEL, Deposit Franchise, EPS Accretion, TBV Dilution