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10 Bank Stocks Bringing Home the Bacon (Mmm... Bacon)

7. Southside Bancshares

Southside Bancshares (SBSI) of Tyler, Texas, has seen its stock rise 6% year-to-date, closing last Friday at $20.74. Based on a quarterly payout of 18 cents, the shares have a dividend yield of 3.47%. The company increased the dividend by a penny in the third quarter.

The company's year-to-date ROA was 1.35% as of Sept. 30, and its five-year average ROA was 1.30%.

Southside had $3.2 billion in total assets as of Sept. 30, with 39 branches.

Third-quarter net income available to common shareholders was $11.5 million, or 70 cents a share, increasing from $11.0 million, or 67 cents a share, in both the second quarter and in the third quarter of 2010.

Net interest income increased 13% year-over-year to $24.0 million in the third quarter, as the company continued to reduce its funding costs, by exercising "call options on our brokered CDs in order to lock in lower cost longer term funding," and replaced maturing Federal Home Loan Bank advances with lower-cost funding.

Partially offsetting the improved net interest income was a decline in gains on the sale of securities, to $3.9 million in the third quarter, from $8.0 million a year earlier.

Brady Gailey of KBW has a neutral rating on Southside Bancshares, with a $20 price target, saying on Oct. 27 that the bank had "navigated this recession well with credit that remained better than peers, a strong dividend and increasing core earnings," and that "its success has largely been due to its leveraged strategy (buy bonds with brokered CDs and FHLB advances), which has added spread income and provided handsome bond gains over the last several years as rates have fallen."

Looking forward, the analyst is "nervous about the size of its bond book (over 60% of assets) as the yield will fall, in our opinion, and earnings will decline."

Of course, a rapid increase in interest could also lead to significant losses.

The shares trade for 10.9 times the consensus 2012 EPS estimate of $1.90, among analysts polled by FactSet, and 1.5 times tangible book value, according to SNL.

Both analysts covering Southside Bancshares have neutral ratings.

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