Thursday, April 25, 2019

SCSG—SouthCrest Financial Group EPS Meet Expectations, Margin Expands On Limited Deposit Cost Rise


  • Reported 1Q19 EPS = $0.14 / FIG Est. = $0.14 / Consensus = $0.14
  • Steady Top-line revenues on 6 basis point NIM gain
  • Company remains positioned for success in the Atlanta, GA MSA with significant bank turnover from recent and pending mergers
  • Maintain EPS outlook for 2019 and 2020. Significant franchise value exists given SCSG’s low-cost Deposit base in metro Atlanta with commercial lending capabilities and superb credit discipline.

SCSG reached our goal for 1Q-2019 with $0.14 in EPS. This was a solid quarter with an improved NIM-Net Interest Margin, stable spread income, and a moderate rise in Deposit costs. Loan growth was flat as we antici-pated due to 1Q seasonal patterns and Deposits had a minor drop. We like the rise in the Loans-to-Deposits ratio to 69% from 68% plus the steady DDA ratio at 22% of Total Deposits. Tangible book value rose 5% and tangi-ble capital remains strong at a 10.7% TCE ratio.

We recommend shares in SCSG with an “Outperform” rating and $11.75 price objective given ongoing EPS gains and the accumulation of tangible book value over the next 8 quarters. Modest balance sheet growth com-pares with superb low-cost Deposits and strong capital that should provide downside support in the future. Also, expense operating leverage remains possible as overhead efficiency can improve to sub-70% next year. Tangible book value should rise at a 6% annual pace. Our Price Target is over 20% above the current price, plus the com-pany just raised its quarterly dividend by one penny. ROA should be 0.90% in 2019 and near 1.0% in 2020. We see a low teens Core Deposit premium as appropriate for an independent community Bank with superb low-cost Deposits in the Atlanta, GA MSA with upside on a franchise basis.

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