Spirit of Texas Bancshares, Inc. Reports Record Fourth Quarter 2020 Financial Results

CONROE, Texas, Jan. 25, 2021 /PRNewswire/ -- Spirit of Texas Bancshares, Inc. STXB ("Spirit", the "Company", "we", "our", or "us"), reported net income of $12.5 million in the fourth quarter of 2020, representing diluted earnings per share of $0.72, compared to net income of $6.2 million in the fourth quarter of 2019, representing diluted earnings per share of $0.35. Record financial results for the fourth quarter of 2020 were assisted by $4.5 million net accretion of origination fees on Paycheck Protection Program ("PPP") loans, and $3.7 million gain on sale of Main Street Lending Program ("Main Street") loans, offset by increased provision expense for potential loan losses related to the COVID-19 pandemic.

Fourth Quarter 2020 Financial and Operational Highlights

• Net interest margin for the fourth quarter of 2020 as reported and on a tax equivalent basis⁽¹⁾ was 4.36% and 4.44%, respectively.
• At December 31, 2020, return on average assets was 1.65% annualized.
• Increased quarterly cash dividend to $0.09 per share
• Capital remained strong with a Tier 1 leverage ratio of 10.30% at Spirit of Texas Bank, SSB (the "Bank") and 9.90% at the Company on a consolidated basis at December 31, 2020.
• Book value per share increased to $21.12 at December 31, 2020 and tangible book value per share⁽¹⁾ increased to $16.11 at the same date.
• At December 31, 2020, total stockholders' equity to total assets was 11.69% and tangible stockholders' equity to tangible assets⁽¹⁾ was 9.18%.
• Successfully completed the sale of the Bank's Clear Lake branch to Moody National Bank.

Dean Bass, Spirit's Chairman and Chief Executive Officer, stated, "I am incredibly proud of the Spirit of Texas team for achieving these outstanding 2020 results.  Throughout 2020, we have been able to execute across all functions and at all levels to navigate through an extremely tough environment.  Despite the challenges, we have set records during the quarter and fiscal year with respect to nearly all of our financial and operational goals.  We continue to make strength and stability our first priority so that we can be prepared for potential growth opportunities in 2021.

"With asset quality, liquidity, and capital in strong and stable positions, we believe that we are well-situated to return to the growth trajectory we enjoyed prior to the COVID-19 pandemic.  We will look for new opportunities, organically and through strategic partnerships, in a continued effort to increase value for our shareholders," Mr. Bass concluded.

Loan Portfolio and Composition

During the fourth quarter of 2020, gross loans declined to $2.39 billion as of December 31, 2020, a decrease of 2.5% from $2.45 billion as of September 30, 2020, and an increase of 35.3% from $1.77 billion as of December 31, 2019.   During the fourth quarter of 2020, $150.8 million of the PPP loans we originated were forgiven.  Excluding the effect of PPP loan forgiveness, the loan portfolio grew by $88.7 million, or 14.3% annualized. We continue to enjoy a robust loan pipeline and remain committed to lending through new and existing government programs and satisfying the funding needs of customers in the markets we serve. 

The vast majority of our loan customers continue to show signs of recovery from the COVID-19 pandemic, as demonstrated by the significant decline of loans for which we had granted deferrals.  We continue to monitor industries that have experienced more lasting effects from the COVID-19 pandemic. Hospitality remains our primary focus; however, our total exposure in this segment represents only $100.6 million or 4.2% of our total loan portfolio. At December 31, 2020, approximately $16.5 million of hospitality loans remain on deferment periods that will expire during the first quarter of 2021. Direct and indirect oil and gas exposure is an additional focal point representing $80.3 million or 3.4% of our total loan portfolio.  Restaurants and retail centers continue to show signs of improvement and should benefit from additional stimulus programs that are expected to be forthcoming in the first quarter of 2021. 

Asset Quality

Asset quality remained strong in the fourth quarter of 2020. We believe we now have a much clearer picture of our borrowers' ability to pay as agreed and have appropriately adjusted risk ratings and qualitative factors.  Downgrades and increases in impaired loans continue to appear to be due to borrower specific events and not systemic weakness in any particular industry. The provision for loan losses recorded for the fourth quarter of 2020 was $4.4 million, which served to increase the allowance to $16.0 million, or 0.67% of the $2.39 billion in gross loans outstanding as of December 31, 2020. The coverage ratio on the organic portfolio was 1.04% of the $1.49 billion in organic loans outstanding, excluding PPP loans which are fully guaranteed by the U.S. Small Business Administration ("SBA") and not reserved for as of December 31, 2020. The majority of the provision expense for the fourth quarter of 2020 related to risk rate downgrades and impaired loans.

Nonperforming loans to loans held for investment ratio continues to remain low as of December 31, 2020 at 0.36% which was unchanged from September 30, 2020, and 0.37% as of December 31, 2019. Annualized net charge-offs were 9 basis points for the fourth quarter of 2020, compared to 14 basis points for the fourth quarter of 2019.

During 2020, we had approved deferrals associated with loans with an unpaid principal balance of approximately $545.8 million.  Approximately $458.9 million, or 84.1%, of approved deferrals have exited the 90 day deferral period, and resumed regularly scheduled payments. Loans in second and third deferment periods were $52.7 million and $12.8 million, respectively at December 31, 2020.

Deposits and Borrowings

Deposits totaled $2.46 billion as of December 31, 2020, an increase of 7.5% from $2.29 billion as of September 30, 2020, and an increase of 27.5% from $1.93 billion as of December 31, 2019.  Noninterest-bearing demand deposits increased $60.3 million, or 9.0%, from September 30, 2020, and increased $282.7 million, or 63.6%, from December 31, 2019. The increase in noninterest-bearing deposits is primarily deposits related to the Main Street Lending Program. Noninterest-bearing demand deposits represented 29.6% of total deposits as of December 31, 2020, up from 29.2% of total deposits as of September 30, 2020, and up from 23.1% of total deposits as of December 31, 2019.  Savings and Money Market deposits increased $69.7 million or 12.9%, from September 30, 2020 primarily due to movement out of time deposits into Money Market accounts. The average cost of deposits was 0.46% for the fourth quarter of 2020, representing a 12 basis point decrease from the third quarter of 2020 and a 52 basis point decrease from the fourth quarter of 2019. The decrease in average cost of deposits was due primarily to the repricing of certificates of deposit during the quarter.

Borrowings decreased by $25.0 million during the fourth quarter of 2020 to $252.7 million due primarily to repayment of advances under the Paycheck Protection Program Liquidity Facility with the Board of Governors of the Federal Reserve System. Borrowings totaled 8.2% of total assets at December 31, 2020, compared to 9.5% at September 30, 2020 and 4.4% at December 31, 2019.

Net Interest Margin and Net Interest Income

The net interest margin for the fourth quarter of 2020 was 4.36%, an increase of 46 basis points from the third quarter of 2020 and a decrease of 4 basis points from the fourth quarter of 2019. The tax equivalent net interest margin⁽¹⁾ for the fourth quarter of 2020 was 4.44%, an increase of 47 basis points from the third quarter of 2020 and 1 basis point from the fourth quarter of 2019.  The increase from the third quarter of 2020 is due primarily to net accretion of deferred origination fees over deferred origination costs associated with PPP loan forgiveness.  At the time of forgiveness the remaining net fee is recognized immediately.  Excluding the impact of PPP loans, net interest margin and tax equivalent net interest margin for the fourth quarter of 2020 were 4.13% and 4.21%, respectively.  Approximately $3.3 million of net deferred fees remain unamortized at December 31, 2020.

Net interest income totaled $29.9 million for the fourth quarter of 2020, an increase of 35.0% from $22.2 million for the fourth quarter of 2019.  Interest income totaled $33.7 million for the fourth quarter of 2020, an increase of 24.5% from $27.1 million for the fourth quarter of 2019.  Interest and fees on loans increased $2.8 million, or 9.3%, compared to the third quarter of 2020, and increased by $7.5 million, or 29.9%, from the fourth quarter of 2019. Interest expense was $3.8 million for the fourth quarter of 2020, a decrease of 10.4% from $4.3 million for the third quarter of 2020 and a decrease of 21.1% from $4.9 million for the fourth quarter of 2019. 

Noninterest Income and Noninterest Expense

Noninterest income totaled $8.8 million for the fourth quarter of 2020, compared to $4.8 million for the third quarter of 2020. Gain on sale of Main Street loans represented $3.7 million of the $4.0 million increase. Additionally, swap fees were $2.4 million for the fourth quarter of 2020, compared to $494 thousand for the third quarter of 2020.  These increases were offset by declines in gain on sale of SBA loans, SBA servicing fees, and mortgage referral fees of $312 thousand, $81 thousand, and $193 thousand, respectively.

Noninterest expense totaled $18.4 million in the fourth quarter of 2020, a decrease of 4.5% from $19.3 million in the third quarter of 2020, primarily due to a decrease in salaries and benefits. The decrease in salaries and benefits was primarily due to the core system conversion associated with the acquisition of Citizens State Bank, which was completed in July 2020 and allowed for the elimination of headcount redundancies. 

The efficiency ratio was 47.7% in the fourth quarter of 2020, compared to 62.2% in the third quarter of 2020, and 68.4% in the fourth quarter of 2019. The fourth quarter efficiency ratio was assisted by increased swap fees, PPP origination fees immediately recognized at the time of forgiveness, and gain on sale of Main Street loans.

Subsequent Events

On January 8, 2021, we completed the previously announced sale of our Jacksboro branch location to First State Bank of Graham, Texas (the "Jacksboro Branch Sale"). The Jacksboro Branch Sale resulted in the sale of loans of approximately $3.5 million, deposits of approximately $5.7 million and the real property on which the branch was located.

Conference Call

Spirit of Texas Bancshares has scheduled a conference call to discuss its fourth quarter 2020 results, which will be broadcast live over the Internet, on Tuesday, January 26, 2020 at 10:00 a.m. Eastern Time / 9:00 a.m. Central Time. To participate in the call, dial 201-389-0867 and ask for the Spirit of Texas call at least 10 minutes prior to the start time, or access it live over the Internet at https://ir.sotb.com/news-events/ir-calendar.  For those who cannot listen to the live call, a replay will be available through February 2, 2021, and may be accessed by dialing 201-612-7415 and using pass code 13715026#. Also, an archive of the webcast will be available shortly after the call at https://ir.sotb.com/news-events/ir-calendar for 90 days.

About Spirit of Texas Bancshares, Inc.

Spirit, through its wholly-owned subsidiary, Spirit of Texas Bank, provides a wide range of relationship-driven commercial banking products and services tailored to meet the needs of businesses, professionals and individuals.  Spirit of Texas Bank has 36 locations in the Houston, Dallas/Fort Worth, Bryan/College Station, Austin, San Antonio, Corpus Christi and Tyler metropolitan areas, along with offices in North Central and South Texas.  Please visit https://www.sotb.com for more information.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended.  Any statements about our expectations, beliefs, plans, predictions, protections, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking.  Forward-looking statements are typically, but not exclusively, identified by the use of forward-looking terminology such as "believes," "expects," "could," "may," "will, "should," "seeks," "likely," "intends" "plans," "pro forma," "projects," "estimates" or "anticipates" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters.  Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events.  Factors that could cause our actual results to differ materially from those  described in the forward-looking statements include, among others: (i) changes in general business, industry or economic conditions, or competition; (ii) the impact of the COVID-19 pandemic on the Bank's business, including the impact of actions taken by governmental and regulatory authorities in response to such pandemic, such as the Coronavirus Aid, Relief, and Economic Security Act and the programs established thereunder, and the Bank's participation in such programs, (iii) changes in any applicable law, rule, regulation, policy, guideline, or practice governing or affecting bank holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (iv) adverse changes or conditions in capital and financial markets; (v) changes in interest rates; (vi) higher-than-expected costs or other difficulties related to integration of combined or merged businesses; (vii) the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions; (viii) changes in the quality or composition of our loan and investment portfolios; (ix) adequacy of loan loss reserves; (x) increased competition; (xi) loss of certain key officers; (xii) continued relationships with major customers; (xiii) deposit attrition; (xiv) rapidly changing technology; (xv) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xvi) changes in the cost of funds, demand for loan products, or demand for financial services; (xvii) other economic, competitive, governmental, or technological factors affecting our operations, markets, products, services, and prices; and (xviii) our success at managing the foregoing items.   For a discussion of additional factors that could cause our actual results to differ materially from those described in the forward-looking statements, please see the risk factors discussed in our most recent Annual Report on Form 10-K for the year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission (the "SEC") on March 16, 2020, our Quarterly Reports on Form 10-Q and our other filings with the SEC.

While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance.  All forward-looking statements are necessarily only estimates of future results.  Accordingly, actual results may differ materially from those expressed in or contemplated by the particular forward-looking statement, and, therefore, you are cautioned not to place undue reliance on such statements.  Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Spirit of Texas Bancshares, Inc.