SOUTHSIDE BANCSHARES INC (SBSI) stock intrinsic value fair value estimate & owner earnings analysis

Southside Bancshares is the holding company for Southside Bank, a community bank based in Tyler, Texas, with 53 branches across East Texas, Southeast Texas, Dallas-Fort Worth, Austin and Houston. At June 30, 2026 it had $8.76 billion of assets, $4.95 billion of loans and $6.17 billion of deposits, and it has paid a cash dividend every year since 1970. A large share of its balance sheet is bonds rather than loans (about $2.7 billion of securities at the end of 2025), which ties results closely to interest rates. HOW WE MEASURED EARNINGS For a bank, we count cash earnings after interest, then subtract the cost of credit losses every year (the provision), stock compensation, ordinary capital spending, and swings in accrued interest and other balance-sheet items. Non-cash charges are added back, including the $32.3 million loss on bonds sold in 2025 and $8.5 million of net bond premium write-downs in 2025. Because that last item flatters earnings a little (roughly $0.28 a share), we credit less growth than the bank has shown. On this basis cash earnings per share were $2.80 in 2018, $2.48 in 2019, $2.75 in 2020, $4.36 in 2021, $4.08 in 2022, $3.43 in 2023, $3.36 in 2024 and $3.42 in 2025. We set 2021 aside because a $17.0 million release of loan-loss reserves inflated it. The anchor is the middle value of 2018 through 2025 excluding 2021, which is $3.36 a share. The window starts in 2018 because the November 2017 purchase of Diboll State Bancshares ($1.1 billion of assets) changed the size of the bank, and it spans both the low-rate years and the high-rate years. Swings of $50 to $95 million a year in the cash-flow lines for other liabilities (2022 through 2025), which the filing says include derivative positions and which largely offset the movement in other assets, could not be fully traced; we treat them as timing items and exclude them from our earnings measure. As a check, we rebuilt 2023 through 2025 line by line from net income plus each non-cash item, and the results tie exactly. Recent results: first-half 2026 net income was $50.1 million against $43.3 million a year earlier, and net interest income rose 6.4 percent to $115.0 million. On our measure that is about $3.65 a share annualized. That is two quarters, so we use it only for the bull case and not for the base level. Our earlier published figures ($26, $39 and $49) were built on a different basis and are not comparable with those below. BASE CASE: about $60.95 a share Earnings start from the $3.36 anchor. Cash earnings per share grew 1.7 percent in 2025 ($3.42 versus $3.36), so we start year one at a slightly lower 1.5 percent, then 2.0 percent a year for years two through five and 1.5 percent for years six through ten, below the 2.9 percent a year the bank has produced since 2018. That growth is credited because it is the output of a process the bank has run for many years: internally funded retained profit and share repurchases (diluted shares fell from 33.9 million in 2019 to 30.2 million in 2025). The profit a bank must retain to support that growth, about $22.90 of tangible equity per share times the growth rate, is deducted each year. After year ten we hold the year-ten earnings level of about $3.98 flat and add no growth, because the evidence that continues is the deposit franchise and a dividend record back to 1970, not any further expansion. Ten years of cash is worth about $23.94 a share and the flat period beyond is worth about $37.01. As a bank, interest is a normal cost, so no debt is subtracted: the business is worth about $60.95 and the owed deposits and borrowings are already charged in the earnings. Left out: net interest margin improvement, new markets, acquisitions, and any benefit from first-half 2026 strength. BEAR CASE: about $36.59 a share This case uses a full credit cycle of the kind banks went through in 2008 to 2010, when industry-wide net charge-offs peaked around 2.5 percent of loans a year. Because Southside's loans are Texas-based and its worst recent year was a $20.2 million provision in 2020, we scale that to 1.2, 1.8 and 1.5 percent of its roughly $4.95 billion of loans in years two through four, about 4.5 percent in total. After the roughly $4 million a year of normal provisioning already in our earnings, that costs about $1.49, $2.29 and $1.89 a share after tax, leaving about $0.99, $0.19 and $0.59 of free earnings per share in those years. Outside those three loss years, the case assumes cash earnings of only $2.48 a share, the lowest year in our series (2019, a flat rate environment), starting in year one and never growing. The named risks behind it are real: problem assets rose to $38.2 million (0.45 percent of assets) at the end of 2025, mostly a $27.5 million commercial real estate loan whose maturity was extended during lease-up, and deposits fell by about $0.7 billion in the first half of 2026 to $6.17 billion while borrowings and other funding rose by roughly $0.9 billion. Even if the dividend were kept at today's level through those three years, tangible equity of about $680 million would fall by roughly $75 million, which would cost about 1.3 points on a common equity tier 1 ratio that was 12.87 percent at the end of 2025, so no share issue is needed. The bear value exceeds tangible book value of about $22.90 a share because even at trough earnings the bank earns about 11 percent on tangible equity, funded by $6.2 billion of deposits that include $1.4 billion of non-interest-bearing accounts, and it has paid dividends through every prior cycle. No borrowings are subtracted because interest is already charged in earnings. BULL CASE: about $67.36 a share Earnings hold at the first-half 2026 run rate of about $3.65 a share, grow 2.5 percent a year for years two through five and 2.0 percent for years six through ten, then stay flat, with credit losses staying near today's low level (first-half 2026 provision was $1.5 million). This is what happens if the stronger interest spread seen in 2026 persists; the named lever is the 2025 bond sales and the roughly $0.97 billion of securities bought that year. Nothing is credited for a market or rate recovery. CHALLENGES WE TESTED We tested the assumption that credit quality stays benign by reading the problem-loan data: it deteriorated in 2025 because of the one extended loan, so the bear case carries a loss on it. We tested whether cash flow overstated earnings: the gap between 2025 cash earnings ($103.3 million) and net income ($69.2 million) is explained by the add-backs, mainly the $32.3 million bond-sale loss, depreciation and premium write-downs, net of capital spending, and ties line by line. WHAT WOULD MAKE US WRONG Deposits continuing to leave and being replaced with higher-cost borrowing, a Texas commercial real estate downturn larger than the bear case, or a sustained period of low rates that returns earnings to 2019 levels with no recovery. Bond holdings carried at amortized cost were worth $144 million less than their balance-sheet value at the end of 2025; that does not reduce our earnings figures but it would become a loss if those bonds had to be sold. MARGIN-OF-SAFETY PRICE: $23.00 a share We are fairly sure of the earnings level: eight years of results fall between $2.48 and $4.36, and the last three years sit within $0.07 of each other. We are less sure of the funding picture, given the first-half deposit decline. The worst plausible outcome is a Texas real estate credit cycle arriving together with higher funding costs; on our numbers the bank survives that without a share issue, but earnings could fall near zero for a year, and no case models a regulatory action or a forced securities sale. If we are wrong about earnings staying around $3.36 and they settle at $2.48 with no credit losses, the shares would be worth about $41; with the credit cycle on top, about $36.59. The price assumes a holding period of four to five years, during which the bank pays a cash dividend of roughly $1.44 a share. At $23.00 the price is about tangible book value, with an earnings yield of about 14.6 percent on the $3.36 anchor and a dividend yield of about 6.3 percent. A 20 percent annual return over four years means the shares must reach about $42 within four years, on top of roughly $6 of dividends received, a level above the bear-case value and well within what the base case describes, so it asks only that the business performs about as it has. A higher price would require counting on the spread persisting, which we have set aside until we have more than two good quarters.