- Key insight: The merged bank will hold the No. 1 deposit share in Beaumont, home to a bustling port and some of the nation’s largest oil refineries.
- Expert quote: “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.” — Stellar Bancorp Chairman and CEO Robert Franklin
- Supporting data: Prosperity has completed 31 M&A deals since 2000.
UPDATE: This article includes information from the conference call that the two companies held to discuss the deal, as well as information about how the combined company would compare in size with Cullen/Frost Bankers, which is expected to be the largest Texas-headquartered bank.
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Prosperity Bancshares in Houston has agreed to pay $2 billion for crosstown rival Stellar Bancorp in a deal that would create the second-biggest Texas-headquartered bank.
The combined company will carry the Prosperity name and brand. It would hold $54 billion of assets and a number-five deposit share in Houston. In Beaumont, home to a massive Exxon-Mobil refinery, as well as one of the country’s busiest ports, the combined company would rank number-one by deposits.
The cash-and-stock deal is expected to close during the second quarter of 2026.
During a conference call with analysts Wednesday, Prosperity Senior Chairman and CEO David Zalman called the merger a “marriage made in heaven.” Zalman said he has known Stellar Chairman and CEO Robert Franklin more than 20 years, adding they’ve discussed doing a deal for an extended period.
“We did our due diligence, and we feel really good,” Zalman added. “This is something we’ve thought about and talked about with each other for years and years.”
Zalman said the two CEOs’ like-minded approach to banking, as well as the proximity between the two banks “takes a lot of risk out of the transaction.”
“We’re across the street, so we can throw rocks at each other,” Zalman added.
Franklin has agreed to join the merged company as vice chairman. Stellar President Ramon Vitulli will serve as Houston-area chairman. Franklin and one other Stellar director will join Prosperity’s board.
The planned acquisition of Stellar is the third deal Prosperity has announced since mid-July. Prosperity closed its
Prosperity, which began in 1983 as a one-branch bank in Edna, Texas, has made bank acquisitions a central component of its expansion strategy throughout its history. The company has completed 31 deals since 2000.
Stellar emerged from the
In Wednesday’s press release, Franklin said that Stellar was “thrilled” to announce the deal 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,” Franklin said.
On the conference call, Franklin said the two banks are similar, with a focus on maintaining high-quality, low-cost deposits. At the same time, both banks maintain similar loan portfolios with a focus on commercial-and-industrial and commercial real estate lending, balanced by significant mortgage lending activity.
“It’s hard to find people to partner with that look like that,” Franklin said. “We do similar loans, similar types of deals. It’s not a heavy lift to understand that we could continue to do those kinds of things.”
Once the deal closes, and following the expected Feb. 1 closing of Dallas-based Comerica’s sale to Fifth Third Bancorp, Prosperity will rank second by deposits among Texas-based banks, behind the $52.5 billion-asset Cullen/Frost Bankers. San Antonio-based Cullen/Frost reported deposits totaling $42.5 billion on Sept. 30, 2025. The merged Prosperity is projecting $42 billion of deposits at closing.
The deal price works out to $39.08 per share and represents 181% of Stellar’s tangible book value. It will be paid roughly 70% in stock and 30% in cash. Prosperity believes it can cut about 35% of Stellar’s noninterest expenses, which totaled $285.5 million in 2025.
Prosperity is projecting 9.2% earnings-per-share accretion in 2027 with projected earnings-per-share of $7.34. On the flip side, the deal is expected to result in 7.8% tangible-book-value dilution, to be earned back over four-and-a-half years.
Analysts’ initial impressions focused on the $2 billion cost and the relatively high premium Prosperity paid. Piper Sandler’s Stephen Scouten noted that the $39.08 per share price tag amounted to a 20% premium over Stellar’s Tuesday closing price of $32.63. “The price paid is a higher premium than we would have expected,” Scouten wrote Wednesday in a research note.
RBC Capital Markets Analyst Jon Arfstrom wrote that the deal price is “likely to be scrutinized,” but he added that deposits in the lucrative, growing and highly competitive Houston market are more expensive than those in other markets.
“This is an expensive acquisition for Prosperity, but the deal enhances franchise value and density in the sought-after and faster-growing Texas markets,” Arfstrom wrote.
Investors appeared to share the concerns about the price of the deal. Prosperity’s shares were trading down by about 8% Wednesday afternoon at $67.06.
Zalman acknowledged on the conference call that Prosperity “paid a lot” for Stellar, but he argued that the merged company’s enhanced franchise value far outweighs the cost.
“The franchise value is enhanced by us being one of the largest banks in the Houston market,” Zalman said. “I think the combination of the earnings, the enhanced franchise value — I can tell you it’s significant.”
Both Prosperity and Stellar reported fourth-quarter earnings simultaneous with the deal announcement. Prosperity earned $140 million for the three months ending Dec. 31, up 8.8% from the same period in 2024. Stellar reported fourth-quarter net income of $26.1 million, up from $25.2 million for the same three months in 2024.