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Southside Bancshares: Solid Earnings But A Massive Premium To Book Value

Trending 1 year ago
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Glowing bluish outline of nan representation of Texas pinch a aureate prima and a reddish matter saying Texas wrong it

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Introduction

In my past article connected Southside Bancshares, Inc. (NASDAQ:SBSI), a Texas-focused bank, I discussed how nan higher liking complaint caused nan bank's book worth and tangible book worth per stock to drop. This was caused by nan request to grounds nan worth of nan securities disposable for waste connected a mark-to-market basis. Higher liking rates meant nan worth of those securities went down, and nan broad income statement of nan slope recorded important (unrealized) losses successful that portfolio of securities disposable for sale.

As nan slope has precocious reported connected its fourth quarter and its full-year results, I wanted to cheque if nan worst is now down us.

ChartData by YCharts

A mini EPS summation acknowledgment to a reduced stock count

Most banks are counting connected nan liking complaint increases to boost their nett interest income and frankincense their earnings. Keep successful mind this won't hap overnight, arsenic it takes immoderate clip for a information of nan indebtedness book to spot its liking rates being reset. We intelligibly spot this successful nan quarterly results. Although nan nett liking income increased by astir $1.3M, nan liking expenses accrued by much than 50% while nan liking income accrued by little than 15%.

Income Statement

SBSI Investor Relations

As you tin spot successful nan image above, this caused a alternatively subdued guidance successful nan nett liking income. While we spot a continuous and gradual increase, it takes immoderate clip for nan slope to return afloat advantage of nan expanding liking rates.

The full non-interest income and non-interest expenses remained comparatively unchangeable connected a QoQ basis, and contempt signaling a $2.1M indebtedness nonaccomplishment proviso (which is higher than nan $1.5M recorded successful nan 3rd 4th of nan year), nan pre-tax income accrued by $1.1M aliases conscionable nether 4% to $32M. After deducting nan $4.3M successful taxes, nan nett income was $27.7M. Based connected nan mean stock count of 31.9M shares passim nan quarter, nan EPS came successful astatine $0.87. Keep successful mind, Southside accelerated its stock buyback gait arsenic it ended December pinch conscionable complete 31.5M shares outstanding. That's astir 1% little than nan mean stock count and astir 2% little than nan stock count astatine nan extremity of 2021.

It sounds counter-intuitive, but buying backmost shares is really not supporting nan book worth astatine all. The banal is presently trading successful nan mid-$30 range, which intends Southside is buying backmost nan shares astatine a premium of astir 50% to nan book worth per share, and astir 100% to nan tangible book worth per share.

So while nan stock buyback programme decidedly boosts nan EPS, it doesn't thief excessively overmuch connected nan BVPS and TVBS front. At nan extremity of 2022, Southside's book worth per stock was $23.65 while its tangible book worth per stock was $17.13. Despite nan antagonistic effect of nan stock buyback, that's really bully news, arsenic nan TBVPS accrued by $1.52 successful nan last 4th of nan twelvemonth aft showing a alteration successful nan first 3 quarters of nan year. While we are still measurement disconnected from nan $21.77 tangible book worth per stock astatine nan extremity of 2021, it is encouraging to spot nan uptick from $15.61 astatine nan extremity of Q3.

I now expect Southside's tangible book worth to proceed to increase. Its quarterly EPS should proceed to hover astir $0.85-0.90, and considering nan slope is presently paying a quarterly dividend of $0.35, it fundamentally retains $0.50 per stock successful net connected a quarterly basis. During nan last 4th of nan year, Southside besides paid a special dividend of 4 cents per share, but I americium not counting connected further typical dividends successful nan future. On a normalized basis, nan 4 quarterly dividends adhd up to $1.40 per year, for a output of astir 3.6%.

Southside does person a history of typical dividends. The image beneath (taken from a Q3 presentation, truthful earlier nan $0.04 typical dividend was announced) intelligibly shows Southside's history of paying typical dividends. It's reasonable to expect typical dividends, but nan size of those dividends remains uncertain.

Dividend History

SBSI Investor Relations

Investment thesis

The dividend is safe, and seeing really Southside is trading astatine astir 11 times its normalized earnings, nan Texas-focused slope is not outrageously expensive. However, I americium still not prepared to salary a premium successful excess of 100% connected nan tangible book worth per share. And moreover if nan slope is capable to clasp $2/share successful net connected an yearly basis, moreover by nan extremity of 2025 nan existent stock value would still correspond a premium of astir 50%.

I do person to admit Southside's indebtedness portfolio remains robust, and connected a QoQ basis, nan full magnitude of non-performing assets really decreased. It is very important for nan slope to support a beardown indebtedness book, arsenic that will yet thrust nan net and nan restoration of nan book value. I besides for illustration nan management's attraction connected avoiding office-related loans unless nan building has respectable tenants and if nan borrower has a "fair magnitude of equity" arsenic tegument successful nan game.

Southside Bancshares, Inc. is simply a well-led bank, but nan triple-digit premium to nan tangible book worth per stock puts maine off, and I'm connected nan sidelines.

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Editor: Naga



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