Q4 2021 Spirit of Texas Bancshares Inc Earnings Call

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Greetings and welcome to the Spirit of Texas, Bancshares' fourth quarter 2021 earnings call.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Mr. Jerry Goldman Chief operating officer for Spirit of Texas Bancshares.

Sir you may begin.

Thank you operator, and good morning, everyone. We appreciate you joining us for the spirit of Texas Bancshares' Conference call and webcast to review 2021 and fourth quarter results.

With me today is Mr. Dean bass, Chairman and Chief Executive Officer, Mr. David Mcguire, President and Chief lending Officer, and MS. Allison Johnson, Chief Financial Officer.

Following my opening remarks, we will provide a high level review and commentary on the financial details of the fourth quarter before opening the call for Q&A.

I'd now like to cover a few housekeeping items, there will be a replay of today's call and it will be available by webcast on our website at www dot peso TV dot com.

It will also be a telephonic replay available until February 3rd 2022.

And more information on how to access. These replay features was included in yesterday's release.

Please note that the information reported on this call speaks only as of today January 27, 2022, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

In addition, the comments made by management during the conference call may contain certain forward looking statements within the meaning of the United States Federal Securities laws.

These forward looking statements reflect the current views of management, however, various risks uncertainties and contingencies could cause actual results performance or achievements to differ materially from those expressed in the statements made by management.

The listener or reader is encouraged to read the company's annual report Form 10-K .

Filed with the SEC for the year ended December 31, 2020 to understand certain of those risks uncertainties and contingencies.

Comments today will also include certain non-GAAP financial measures.

Additional details and reconciliations to the most directly comparable GAAP financial measures are included in yesterday's earnings release, which can be found on the spirit of Texas website.

Now I'd like to turn the call over to our chairman and CEO , Mr. Dean bass Dean.

Thank you Jerry and good morning, everyone welcome.

From a humble beginnings of approximately $50 million in assets.

<unk>, Texas with a population of about 450, <unk>, we have grown the spirit of Texas franchise to over $3 billion in assets over the past 13 years.

Throughout our journey, we have maintain a culture that is committed to quality.

Adding quality assets organically identifying talented bankers acquiring solid institutions.

We have always strived for the most advantageous strategic path to add value for our investors and the communities we serve.

I am very proud that our history of commitment to quality has produced another great quarter of financial and operational results.

During the quarter, we earned $9 $1 million or <unk> 51 per share and fully diluted earnings per share.

We saw the return of SBA loan sales, which generated $812000 and gain during the quarter.

In addition, we are pleased to report strong organic loan growth with over 2 billion in loans and still growing in double digits.

Our goal back in 2008 was to build a profitable safe competitive local bank as time passed our goal is expanded to be a strong Texas regional bank and.

And finally, becoming a public bank that began to reach throughout Texas.

The upcoming merger with Simmons first National Corp is not the end of the spirit of Texas story.

But starts a new chapter that will be filled with further growth in Texas markets.

Our partnership with Simmons will provide the scale and resources that are talented bankers need to elevate their performance and better execute in the highly competitive market for quality banking opportunities.

Now I'll turn the call over to David to discuss the loan portfolio and asset quality David.

Thank you Dan.

During the quarter on an annualized basis, we grew loans, an impressive 24, 3%, excluding the impact of PPP loan forgiveness.

We already have the growth came from the C&I and construction loan portfolios on an annualized basis of 77% and 40% respectively.

Despite loans moving from the pipeline to the portfolio. The pipeline also expanded to a record $1 $2 billion up $100 million from fiscal year end 2021.

Our lenders have worked tirelessly to assist PPP loan borrowers with their forgiveness applications and we are pleased to start 2022, with only $43 $9 million in PPP loans outstanding, which when forgiven will generate $979000 in fee income net of related.

Costs.

We continue to see improvement in asset quality with nonperforming loans to outstanding loans declining to 22 basis points.

Working through previously impaired loans did not result in material charge offs during the quarter with annualized charge offs to net loans of 15 basis points.

The provision for loan losses for the fourth quarter was $970000 provisioning for the quarter was primarily due to organic loan growth at.

At quarter end the coverage ratio in the loan portfolio was 71 basis points.

Yield on loans in the fourth quarter of 2021 was five 8%. Despite the stability in the loan yield quarter over quarter, we expect compression in loan yields for 2022 as competitive pressure for quality deals increases however.

Overall, we expect to see a higher net interest margin going forward.

As a result of the change in the asset mix from lower yielding cash into loans.

With that I will turn the call back over to Jerry to provide a review of the funding side of the company.

Jerry.

Thank you David.

Deposits continued to show strong growth as Q4 ended with total deposits of $2 8 billion, an increase of $111 8 million or 16, 6% annualized from Q3 2021.

And an increase of $323 3 million or 13, 2% over Q4 2020.

Noninterest bearing deposits increased $36 1 million.

Or 18, 8% annualized from Q3.

Noninterest bearing deposits currently make up 28, 9% of total deposits.

Interest bearing deposits, including money markets and savings increased $96 6 million or 29, 1% annualized from Q3.

Primarily due to our success in retaining and growing client relationships from Covid related assistance programs.

Time deposits decreased by $20 9 million or three 6% from Q3 2021.

Due to aggressive re pricing the cost of time deposits decreased 10 basis points from Q3 2020, 120.58%.

This improved shift in deposit mix resulted in a 2% cost of deposits a decrease of six basis points from Q3 2021.

Bank has noted broker deposits.

The reported loan to deposit ratio at the end of Q4 was 83, 5%.

Borrowings decreased by $4 3 million during the fourth quarter to $74 9 million.

Due to repayment of maturing federal home loan bank advances.

Borrowings totaled two 3% of assets at the end of Q4.

The company has significant sources of available liquidity, including $50 million and a holding company line of credit fed funds loans totaling $115 million in federal home loan bank availability of $841 9 million.

I would now like to turn the call over to Alison to provide a financial overview of the fourth quarter Allison.

Thanks, Jerry and good morning, everyone. We provided detailed financial tables in yesterday's earnings release.

<unk> net income for the three months ended December 31, 2021 was $9 1 million with fully diluted EPS of <unk> 51.

Compared to earnings of $12 5 million and fully diluted EPS of <unk> 71 in the fourth quarter of 2020 non.

non-GAAP consolidated net income for the three months ended December 31, 2021, with $9 8 million with fully diluted EPS of <unk> 55.

Excluding the impact of elevated professional services associated with the anticipated merger.

Net income and earnings per share were primarily driven by the recognition of $1 5 million net accretion of.

Of the origination fees on PPP loans, and 812000 of gain on sale of SBA loans.

We anticipate the remaining 979000 of net origination fees on PPP loans to be recognized during Q1 2022.

Noninterest income was $4 3 million for the fourth quarter of 2021 compared to $3 3 million for the third quarter of 2021, an increase of 1 million linked quarter.

The increase from Q3 2021 was primarily due to an increase in gain on sale of SBA loans of 812000.

Noninterest expense totaled $20 3 million in the fourth quarter of 2021, an increase of $2 3 million from the $18 million reported in the third quarter of 2021.

The increase was primarily due to an increase in salaries and benefits expense of 412000 related to bonus accruals and additional 800000 and professional fees related to the merger.

The tax equivalent net interest margin in the fourth quarter of 2021 was $3 eight 9% compared to third quarter 2021 tax equivalent margin of 4%, representing an 11 basis point decrease sequentially.

While the overall cost of funds continues to decline increases in our average cash balance during the quarter drove the compression of our net interest margin.

However, using excess liquidity to fund strong loan growth will assist the overall margin in the coming quarters.

The provision for loan losses for the fourth quarter was 970000, which increased the allowance to $16 4 million or <unk> 71 basis points of our total loans outstanding.

The provision expense for the quarter related primarily to the provisioning of new loans.

Additionally, we have $1 3 million of unamortized discount on the acquired loan portfolio at December 31 2021.

As of December 31, 2021 capital ratios remained strong and book value per share intangible book value per share has increased to $22 79, and $18 <unk> respectively.

I would now like to turn the call back over to Dean for closing remarks.

Thank you Allison.

As we approach the upcoming merger with Simmons.

Confident of our continued success.

And I'm looking forward to seeing what our team is able to accomplish with access to a broader array of products and services.

Including an increased capacity to land by leveraging a larger balance sheet.

I am very proud of our team and their performance over the past 13 years by achieving impressive growth without sacrificing asset quality.

Providing an attractive return for our shareholders.

This concludes our prepared remarks I'd like to ask the operator to open up the line for any questions operator.

Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press star two if you'd like to remove your question from the queue for.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment please poll for questions.

Ladies and gentlemen, thank you. It seems there are no questions. At this time I will turn the floor back to Mr. Bass for any final comments.

Thank you very much.

I guess due to the pending merger there. The question is many of the questions have been answered either.

The press release.

But at the same same time I'd like to thank <unk>.

Each of you for calling in today.

What a year what.

What a year in review.

Two years.

What a challenging two years, our group was up for the challenge over these past two years.

During the war on Covid, our employees showed up showed up every day and fault the battle and performed well as you can see by our numbers.

We have an outstanding team of directors and employees.

And it couldn't be done without without each and every one of them to our shareholders. Thank you for believing in the spirit of Texas story.

Over these last 13 years and especially over the last.

Nearly four years as a public company.

And to our customers. Thank you for letting us serve you.

And as a good friend always told me.

About spirit of Texas Bank, the best is still yet to come.

Thank you very much have a good day.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.