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What You Should Know About Southside Bancshares Inc’s (NASDAQ:SBSI) Liquidity

Yolanda Lovett

Southside Bancshares Inc’s (NASDAQ:SBSI) profitability and risk are largely affected by the underlying economic growth for the region it operates in US given it is a small-cap stock with a market capitalisation of US$1.24B. Since banks make money by reinvesting its customers’ deposits in the form of loans, strong economic growth will drive the level of savings deposits and demand for loans, directly impacting the cash flows of those banks. After the Financial Crisis in 2008, a set of reforms called Basel III was created with the purpose of strengthening regulation, risk management and supervision in the banking sector. The Basel III reforms are aimed at banking regulations to improve financial institutions’ ability to absorb shocks caused by economic stress which could expose banks like Southside Bancshares to vulnerabilities. Its financial position may weaken in an adverse macro event such as political instability which is why it is crucial to understand how well the bank manages its risks. Strong management of leverage and liquidity could place the bank in a protected position at the face of macro headwinds. We can gauge Southside Bancshares’s risk-taking behaviour by analysing three metrics for leverage and liquidity which I will take you through now. Check out our latest analysis for Southside Bancshares

NasdaqGS:SBSI Historical Debt Apr 24th 18

Is SBSI’s Leverage Level Appropriate?

Banks with low leverage are exposed to lower risks around their ability to repay debt. A bank’s leverage can be thought of as the amount of assets it holds compared to its own shareholders’ funds. Though banks are required to have a certain level of buffer to meet its capital requirements, Southside Bancshares’s leverage level of 9x is significantly below the appropriate ceiling of 20x. With assets 9 times equity, the banks has maintained a prudent level of its own fund relative to borrowed fund which places it in a strong position to pay back its debt in times of adverse events. If the bank needs to increase its debt levels to firm up its capital cushion, there is plenty of headroom to do so without deteriorating its financial position.

How Should We Measure SBSI’s Liquidity?

Handing Money Transparent

As I eluded to above, loans are relatively illiquid. It’s helpful to understand how much of this illiquid asset makes up the bank’s total asset. Generally, they should make up less than 70% of total assets, consistent with Southside Bancshares’s case with a ratio of 50.38%. At this level of loan, the bank has preserved a sensible level between maintaining liquidity and generating interest income from the loan.

What is SBSI’s Liquidity Discrepancy?

SBSI profits by lending out its customers’ deposits as loans and charge an interest on the principle. These loans may be fixed term and often cannot be readily realized, yet customer deposits on the liability side must be paid on-demand and in short notice. This mismatch between illiquid loans and liquid deposits poses a risk for the bank if unusual events occur and requires it to immediately repay its depositors. Compared to the appropriate industry loan to deposit level of 90%, Southside Bancshares’s ratio of over 72.50% is sensibly lower and within the safe margin, which positions the bank cautiously in terms of liquidity as it has not disproportionately lent out its deposits and has retained an apt level of deposits.

Next Steps:

Southside Bancshares ticks all the boxes for operational prudency in terms of liquidity and leverage. These factors often sideline next to other fundamentals but are equally important to consider as part of the investment thesis. High liquidity and low leverage places the bank in an ideal position to repay financial liabilities in case of adverse headwinds. We’ve only touched on operational risks for SBSI in this article. But as a stock investment, there are other fundamentals you need to understand. Below, I’ve compiled three important aspects you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for SBSI’s future growth? Take a look at our free research report of analyst consensus for SBSI’s outlook.
  2. Valuation: What is SBSI worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether SBSI is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.