Stellar Bancorp surges 20% on $2 billion Prosperity Bancshares merger
Q4 earnings beat accompanies all-stock deal creating Texas's second-largest bank by deposits
Stellar Bancorp shares surged nearly 20% on Wednesday after the Houston-based regional bank announced a $2.002 billion all-stock merger with Prosperity Bancshares, capping a day that also saw the company report stronger-than-expected fourth-quarter earnings.
The deal, unanimously approved by both boards of directors, will see each outstanding Stellar share exchanged for 0.3803 shares of Prosperity common stock plus $11.36 in cash, based on Prosperity's closing price of $72.90 on January 27. The transaction represents approximately a 20% premium to Stellar's previous closing price and is expected to close in the second quarter of 2026, subject to regulatory and shareholder approvals.
Stellar reported fourth-quarter earnings per share of $0.51, beating analyst estimates of $0.494 by 3.2%, while revenue of $108.9 million exceeded expectations of $106.1 million by 2.6%. The company also cancelled its scheduled earnings conference call due to the merger announcement, underscoring the significance of the deal.
The combined entity will become the second-largest bank by deposits headquartered in Texas, with more than 330 banking centers across the state. As of December 31, 2025, Stellar reported total assets of $10.8 billion, loans of $7.3 billion, and deposits of $9 billion, while Prosperity held $38.5 billion in assets.
"We are thrilled to join forces with Prosperity, creating a premier Texas banking franchise," the companies said in a joint statement. Prosperity characterized Stellar as a "well-run bank with similar credit discipline and an envious noninterest-bearing deposit mix," describing the combination as a "low-risk transaction that significantly enhances our Texas footprint."
For Prosperity, the deal continues an aggressive consolidation strategy in Texas banking. The company completed its acquisition of American Bank Holding Corporation on January 1, 2026, adding 18 branches for approximately $322 million. Prosperity projected that the Stellar transaction will be 9.2% accretive to its 2027 earnings per share, driving EPS to $7.34 compared to a standalone projection of $6.72.
Prosperity's own fourth-quarter results, reported concurrently, showed momentum. The bank posted net income of $139.9 million, or diluted earnings per share of $1.49, up from $1.37 in the prior-year period. Net interest margin improved to 3.30% from 3.05%, and deposits increased by $700.4 million.
Analysts have responded positively to Prosperity's expansion strategy. Average analyst price targets for Prosperity stand at $80.50, representing potential upside from current levels, with projections of approximately 15% EPS growth for 2025, 11% for 2026, and 12% for 2027.
For Stellar shareholders, the merger provides an immediate premium and the opportunity to participate in the combined company's growth prospects. The stock had been trading above consensus analyst targets prior to the announcement, reflecting market expectations of consolidation activity in the regional banking sector.
The transaction comes amid ongoing consolidation in U.S. regional banking, as larger players seek to expand footprints in attractive markets while smaller institutions face increasing pressure from regulatory costs and interest rate headwinds. Texas, in particular, has emerged as a key battleground for banking consolidation given its robust economic growth and population gains.
Investors will be watching closely for regulatory approval milestones and integration planning details in the coming months. The merger announcement marks a significant development in the Texas banking landscape, potentially reshaping competitive dynamics in one of the nation's fastest-growing states.