Southside Bancshares, Inc. (NASDAQ:SBSI) is a Texas chartered bank serving the primary markets of East Texas, Southeast Texas and the Fort Worth, Austin and Houston areas. The community-focused bank has a diversified branch footprint consisting of 55 branches, 13 of which are in grocery stores, and offers consumer, commercial, and mortgage banking services.
Shares of Southside Bancshares have performed well with the stock increasing from around $3.70 in 2000 to $35.62 on July 28, 2021. Because management didn't make many risky loans, the stock didn't fall as much as many other bank stocks did during the financial crisis.
Although Southside Bancshares stock did fall from around $35 to $25 during the pandemic, the bank's financial results were strong given that the company reported an increase in earnings and a strong asset portfolio.
Due to the economic recovery, Southside Bancshares shares rallied above their highs they made before the pandemic before pulling back to around $35.62. With the recent pullback, the stock could be an opportunity.
Given its history, the stock of Southside Bancshares seems more conservative than the stocks of some other banks given that Southside Bancshares management has shown that they can manage risk well and handle challenges such as the financial crisis and the pandemic well. The bank also has strong capital ratios. Given the economic recovery and continued organic growth potential, Southside Bancshares has upside.
Southside Bancshares Handled the Challenge of 2020
Southside Bancshares handled the pandemic well.
In 2020, Southside Bancshares' earnings per common share increased by 12.3% to $2.47 compared to 2019 and net income rose 10.2% to $82.2 million. The company also reported an efficiency ratio of 49.4% and a return on average tangible common equity of 13.8%. The company also increased the cash dividend by 3.2% to $1.30.
Southside Bancshares making smart loans may have contributed to the performance as the bank's nonperforming assets remained low at 0.25% of total assets for 2020.
Performance Since 2016
Southside Bancshares has also done well in terms of growth for a long period of time. In terms of recent years, Southside Bancshares has increased its total assets at a 10.3% CAGR from 2013 to Q1 2021. The bank's diluted earnings per common share has increased from $1.81 in 2016 to $2.47 in 2020 and tangible book value per common share has increased from $14.43 in 2016 to $20.16 in 2020.
Southside Bancshares has tailwinds that could help the company continue to grow.
The U.S. economy is expected to strengthen in 2021 and 2022 given the trillions in fiscal stimulus already in the economy and the low interest rates. The Senate is also beginning to work on Biden's nearly $1 trillion national infrastructure plan that could increase the amount of stimulus in the economy even further. With more economic growth, loan demand for Southside Bancshares could increase.
In the medium term, an increase in interest rates from abnormally low rates could help Southside Bancshares' profitability. Although many economists expect the first interest rate hike in 2023, unforeseen circumstances could always change the timing of the first rate hike. If inflation is too high and unemployment is low, the first rate hike could occur sooner. If inflation is low and unemployment is still high, the first rate hike could occur later.
There are other growth opportunities.
Southside Bancshares continues to explore new markets where it might expand successfully and it expects its operations in all of its market areas to grow in the future. The bank's management's experience could help with M&A. The company has an experienced management team with each with more than 20 years of experience in the banking sector.
For 2021, Southside Bancshares also intends on focusing on organic loan and deposit growth and further enhancing the bank's digital/technology strategies.
Insider Monkey Holdings
For the filing period ended March 31, 2021, Jim Simons' Renaissance Technologies was the largest holder among the funds we track with a holding of 777,846 shares. Although Renaissance Technologies cut its holdings by 16% from the prior filing period, both Cliff Asness' AQR Capital Management and Ken Griffin's Citadel Investment Group increased their holdings for the filing period ended March 31 from the period before. AQR Capital Management increased its holdings by 336% to 73,865 shares and Citadel Investment Group increased its holdings by 50% to 71,364 shares.
The recent increases in the Delta variant could slow the U.S. economic recovery. Any weakness in the U.S. economy could weaken Southside Bancshares' financial results.
Energy production and related industries make up a significant part of the economies of Southside Bancshares' primary markets. If oil prices were to drop to low levels for an extended period, the bank could experience a negative impact from weaker loan demand from the energy industry. As of March 31, 2021, the oil and gas industry made up 2.82% of Southside Bancshares' total loans. Given the multiplier effect the oil and gas industry has on the economy, however, Southside Bancshares' exposure to energy is likely greater.
Analysts expect Southside Bancshares to earn $2.53 per share for 2022, which gives the bank a forward price to estimated 2022 earnings of 14.08. Although that's a little higher than some other banks such as U.S. Bancorp (USB) which has the same ratio of around 12.5, Southside Bancshares' strong balance sheet and history of execution make the stock still attractive.
Southside Bancshares has a strong balance sheet which makes the stock less risky than owning the stock of some other banks. In Q1 2021, Southside Bancshares had a common equity tier 1 ratio of 14.71%, or over twice what's considered well capitalized. In the first quarter of 2021, the company also had a leverage ratio to average assets of 10.29% versus the 5% level that's considered well capitalized.
There's a history of execution. Shares of Southside Bancshares have increased from $3.70 in 2000 to $35.62 on July 28, 2021 with management navigating the financial crisis and the pandemic better than many other banks. The bank's regular plus special dividend per share has also increased from $1 in 2015 to $1.3 in 2020.
Southside Bancshares' dividend seems secure. In May, the bank declared a dividend of $0.33 per share, which annualized would be $1.32 per share. At a stock price of $35.62 on July 28, 2021, Southside Bancshares would have a forward annualized yield of 3.7%. With the earnings estimate for 2022 of $2.53, the dividend could increase and the bank would still have a payout ratio of under 60%.
Given the strengthening economy, Southside Bancshares could always beat its earnings estimates too.