Texas Lending And Digital Investments Will Unlock Enduring Value

Key Takeaways

• Robust growth in Texas markets, enhanced C&I lending, and tech adoption drive diversification, efficiency, and topline revenue expansion.
  
• Strong credit quality and sector consolidation support resilience, talent gains, and opportunities for long-term competitive and earnings growth.
  
• High exposure to commercial real estate, intense non-bank competition, unpredictable payoffs, interest rate risk, and geographic concentration create multiple pressures on growth and earnings stability.

Catalysts

Operates as the bank holding company for Southside Bank that provides various financial services to individuals, businesses, municipal entities, and nonprofit organizations.

• Exposure to ongoing population and job growth across Texas continues to drive strong new loan production and commercial deposit growth, positioning the bank to benefit from higher loan balances and fee income, which should support future revenue and earnings expansion.
  
• Significant progress in expanding commercial & industrial (C&I) lending and hiring experienced relationship managers in high-growth urban markets such as Houston enhances diversification, reduces concentration risk, and lays the groundwork for more resilient, higher-margin loan growth.
  
• The bank is leveraging digital banking investments and technology partnerships to improve efficiency, lower operating expenses (as highlighted by improved efficiency ratios), and appeal to new, tech-savvy customers, ultimately driving improved net margins and topline growth.
  
• Strong credit underwriting and stable loan quality, evidenced by low nonperforming asset ratios and declining classified loans, reinforce earnings resilience and reduce the likelihood of significant credit losses, maintaining a stable return on equity.
  
• Ongoing consolidation in the Texas regional banking sector is creating opportunities for talent acquisition, new client relationships, and potential M&A premiums, which could strengthen competitive positioning and enhance long-term revenue growth.

Southside Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Southside Bancshares's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 33.6% today to 28.5% in 3 years time.
• Analysts expect earnings to reach $96.2 million (and earnings per share of $3.22) by about August 2028, up from $85.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from 9.9x today. This future PE is greater than the current PE for the US Banks industry at 11.1x.
• Analysts expect the number of shares outstanding to decline by 0.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Southside Bancshares Future Earnings Per Share Growth

Risks

• High exposure to commercial real estate loans and continued heavy payoffs-especially from open market property sales and refinancings with non-bank lenders-create uncertainty in loan growth and expose Southside to potential sector downturns, which could negatively impact net interest income and compress margins if CRE market conditions worsen.
  
• Increasing competition from debt funds and non-bank lenders, who are offering more aggressive loan-to-value ratios and fewer covenants, threatens Southside's ability to originate and retain quality loans, presenting a risk to future revenue growth and asset quality.
  
• Ongoing unpredictability in loan payoffs-including some large, unexpected exits such as the $50 million oil and gas loan-reduces the reliability of net loan growth projections, potentially resulting in lower-than-expected growth in interest-earning assets and depressing earnings.
  
• Rising unrealized losses within the available-for-sale (AFS) securities portfolio (now at $60.4 million, up from $51.2 million last quarter) coupled with the portfolio's long duration, exposes the company to prolonged interest rate risk and potential further declines in book value and net margins if rates remain high or volatile.
  
• The bank's heavy concentration in Texas markets, along with reliance on deposit growth in these regions, increases vulnerability to local economic downturns, competition, or demographic shifts, which could adversely affect loan demand, deposit stability, and long-term revenue.

Valuation

• The analysts have a consensus price target of $34.0 for Southside Bancshares based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $337.1 million, earnings will come to $96.2 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 7.4%.
• Given the current share price of $28.28, the analyst price target of $34.0 is 16.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.