STXB - Earnings call transcript Q1 2021 | Spirit of Texas Bancshares, Inc.

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Operator

Greetings, and welcome to the Spirit of Texas Bancshares First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] It is now my pleasure to introduce your host Mr. Jerry Golemon, Chief Operating Officer. Thank you, sir.

begin. may You

Jerry Golemon

me and President us operator, call everyone. appreciate Ms. Officer; Chief results. We webcast Chairman Johnson, Dean Thank Chief Allison Chief and the good Lending Spirit joining Executive With quarter first for review David conference Officer. is of you Mr. to Bass, McGuire, you, Mr. XXXX morning, today and Texas Financial and and Bancshares Officer;

of commentary a XX, remarks, available now opening a and you today, release. reported that will first at access accurate on the the information opening we as be There details speaks on transcript these a in like few I’d and also how any time-sensitive my Following are note housekeeping will high-level replay call financial website only features today’s or information as of www.sotb.com. on will available that items. be it provide to no more replay reading. telephonic yesterday’s and call replay the cover Q&A. will before webcast quarter via There our be review for a was may and time therefore, be to the XX, information of XXXX, the included call listening Please until replay of longer advised April this April XXXX, of on

States of the United the management. during reflect contain In of the statements Securities forward-looking management the comments conference call may addition, meaning by views made the certain forward-looking Laws. current within statements Federal These

contingencies. XXXX, year SEC financial comments XX-K, filed non-GAAP The measures. materially The from statements in risks, read is risks, to or results, contingencies to and However, today made Form listener uncertainties differ performance December encouraged XX, reader the uncertainties Report, company’s to cause the for also will certain certain actual of expressed or those the include understand Annual and the various by management. could those with ended achievements

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

Now, CEO, Dean? turn call I’d to over Bass. Dean Chairman and like the to our Mr.

Dean Bass

everyone. Thank Welcome. you, good and Jerry, morning,

are quarter the performance. for up solid is and steam. open business, economy announce picking pleased We Texas to another is

a vaccine During into we the of Texans businesses received to seen full in the significant capacity. the mask requirement have number state quarter and operate the mandatory across at allowed

As increase in result, economic across seen a parts in a anticipate recovery the of have an And state. the quicker activity country. we we many

diluted return quarter, annualized. we During strong fully on of $X.XX, of income with assets reported the of average and $XX EPS net X.XX% million over

interest either significant Our provision on inefficient has has with expense appears in has number returned and periods and taken in been consistent assessment Texas. model. are to remove active insight current balance. and our balance The experience, based The all pandemic with the has indicators not within and to response adjusted and our deferral to margin loans and allowance pre-pandemic Credit stabilized net quality excess levels improvement or liquidity improved economic deploy the leverage. adequate measures global

strategic turn now gaze growth to through to pleased We our future organically are and partnerships. both

we’re has quarter projections. remainder The growth growth. quarter loan our and funding projections and review annual with always first been the as for And to respect we slower of loan pipeline year, quarterly in a the our confident

about our of few never quarters. that at the are chase but opportunities materialize in growth are currently will underwriting We the expected excited guidelines, loan we next to the expense

us the assist As partners strategic who diligently growing with always, impact. with bank meaningful for we’re can looking

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

David McGuire

have we requesting when not from who deferment will These year resumed active $XX.X know excess requesting that of our scheduled XXXX achieved. payments XX% the to XX, possible that well credit and May, team the expect The team at principal tirelessly and administration of be some I middle at million needs more the XX% add around XX, and periods results payments. loans deferment our of to than resume like balance have March million loans unpaid of more scheduled the borrower last has assistance. has as December worked XXXX. statistics guidance and loans during lending would deferment understanding loan as I in Dean. XXXX would Spirit have to you, as declined without $XX.X team entire of Thank detail past proud deferment providing

million policy PPP to While limits. in we improve with the $XX.X commercial sold to and mix did our loans, respect real experience some loan approximately the estate assist excluding concentrations quarter from we when portfolio effort participations growth during loan an

Dean year. mentioned, in historically increasing second slower and has a loan typically for first the the been period demand the through As quarter growth the end quarter late of

our basis The yield at current in of excluding fourth quarter in look we year-over-year high X.XX%, decreased points in loans, pipeline, the the The was single-digits. which slower in fourth we of XXXX. XXXX loans quarter yield on XX and originated PPP As projecting PPP given newly loans X% we which was loan XXXX. are pace the PPP still yield experienced from growth, a of QX decrease expected forgiveness than

to loan stabilized. XX, PPP excluding loans compared December of The loans, was Excluding on at XXXX. the the X.X% yield yield has PPP impact X.XX%

during quarter. strong remains quality the Asset first

of have loans pandemic past XXXX. accounts. to $X.X $X.X XX, for provision quarter increased the the in outstanding assets quarter was XX provide XX points which consistent not XXXX. on review excluding from loan non-performing Annualized losses ratio during was through At to did Jerry the improvement loans. credit related of quarter at basis With million overall quarter primarily basis XXXX expect overall first points, loans meaningfully portfolio the of points XXXX. side Jerry? first in from for to charge-offs funding and that, end quarter The increase of points first the to million, during I’ll increased the back was basis to call risk for We remaining the the ratings, non-performing with XXXX. coverage March organic net loans the working a XX $X.X were Non-performing to at to December due We PPP company. XX, turn basis related over seen million XX loans

Jerry Golemon

at of increased a the of to million related and to representing Total million in $XXX XXXX. make sequential from David. QX shift basis aggressive was of from of deposits. repricing the the due of This no mix improved originating and QX points The PPP of XXXX. from of the reported the QX, deposits XXXX, deposits now loans again deposits QX of The broker $X.X from $XX million from with QX eight or related the seasonality $XX XXXX. $XXX was deposits end of up million QX loans increase XX.X% XX% bank an loan-to-deposit up was Noninterest-bearing QX newly in public cost deposits PPP decrease or along $XX.X QX a bulk deposits end increase. XX.X%. deposits X.XX% with deposit you, funds. XX.X% million to the XXXX, at million, increase over total were resulted $XXX end of Thank Noninterest-bearing has at Of of increase X.X% million or XX% an ratio

like including by the end totaled Borrowings participations a sold $XXX.X has to forgiveness from totaling would a of Borrowings XX.X% it, available obtaining pledged over as ratio overview Allison after $XX call LF short holding liquidity, during drops on the mentioned X% the due of and the the borrowings. the FHLB million. Home to the loans turn first payoff company company as due the assets of the end quarter to financial million, of PPP Federal to against $XXX.X the a borrowing to QX. million at well maturity Bank PPP million in credit, line Excluding PPP $XXX funds of during quarter. quarter. $XX loan-to-deposit at XX.X% availability million The in provide decreased loan down QX, Loan first to Alison? of to activities, previously sources Fed the of I significant now land term

Allison Johnson

million Net earnings share diluted to Consolidated of income everyone. fees driven million million by origination and $X.XX fees latest deferred quarter and financial loans income of recognition the Thanks, was to EPS round first anticipate PPP PPP XX, good the on with million compared loans net PPP, $X.X were million, linked XXXX, million swap provided driven Lending net for first in of per should and sale primarily March PPP reduction EPS $X.X origination with the was of XXXX, associated the months a earnings to of detailed In $X.X the million net the by earnings of XXXX. with of We for three yesterday’s generated of be XXXX to $X.X $X.X one-time life $XX.X million a of the in the million release. diluted QX from fourth the costs XXXX of Jerry, of $X.X morning, fully of fees XXXX. The gain Non-interest in $XXX.X the fully over $X.X million. recognition quarter million in latest we Main of which income of product a fee primarily quarter. funded recognized of was Program income on compared quarter million and origination loans. $X.X round of recognize in decrease we the QX [ph] the $X.X XXXX decline Street loans during ended $X.X $X.XX, and remaining during tables from PPP. net origination of We the

totaled quarter and in million PPP XXXX. round for expense, non-interest treasury the which in of quarters, first costs with the as the offerings strategic XXXX, $XX.X to remain the million swap loans. in expect of We of management $XX.X due of income fourth of for million latest the deferral XXXX. the origination coming to initiative Non-interest $X.X a increase to compared associated quarter Decrease products

to equivalent equivalent compared in efforts XXXX. of branch a be expenses, quarter in diligently XXXX X.XX%, The basis focus was will fourth point sequentially. to quarter margin tax tax first ongoing of XXXX our XX the a to Given continue optimization representing reduce decrease X.XX%, margin

X.XX% loans for for equivalent quarter of XXXX the net interest Excluding XXXX. the first fourth of to impact are X.XX% tax the of quarter margin PPP was compared

government of increase the basis XXX% points $X.XX provision loans. basis or quarter the billion was loans the related on ratio at coverage The organic XX excluding quarter total specific loans impaired to PPP losses we in XX XX our points approximately was in reserves tax on quarter, the our outstanding, second excluding the organic loan portfolio guaranteed PPP The primarily help ensure equivalent loans. allowance million on points outstanding for the basis expense provision increased loans and yielding of $XX.X securities, that During quarter $X.X the net X%. or higher the should margin the which $XXX into above to moved quarter, for million, The remains improve of fourth interest in for target million margin cash which our the end. to

we the provision acquired on of XXXX. We fund $X.X expect charge-offs would million amounts March expense XX, net to those discounts growth. at remainder have XXXX and for needed beyond Additionally, unamortized the loan loan elevated portfolio not

as the back Dean? current ratios ratio Dean at of and leverage company enjoy the closing turn consolidated that growth As XXXX, may a the call continue quarters. of a to position over organic and bank March so to the priority X strategic on coming remarks. a X.XX% on capital strong that with arise the XX strong in basis we focus XX.XX% I’d Tier like maintaining capital we partnerships to for of can

Dean Bass

in strengths for for the pleased what the results, Allison. can has excited we’re up increase growth the growth, beginning of of open the questions. truly you, Texas weaknesses activity our merger of strong Spirit mitigate story as with exiting stability, for strategic remarks. I’d an right Bank. operator of the experienced focus Without the level some ask quality and the future and Operator? doubt, as capital line partners. return I’m to Thank store banks pandemic. inception. expertise team finding to with of our visibility a bank to has Spirit position, trajectory first Texas With very This capital prepared it since is we’re markets, a We at in a seek XXXX. the any quarter be now combine of to to seeing management and on like returning concludes will the and our

Operator

Stephens. Thank Instructions] of first question with from line comes Olney Our you. the Matt [Operator

question. You may proceed your with

Matt Olney

Good morning. you. Thank

Dean Bass

Matt. morning, Good

Jerry Golemon

Matt. morning, Good

Matt Olney

XQ from want fees the I process like than PPP And your round in the peers sounds forgiveness you’re the I start sentiment remaining first definitely But of well. slower and in expected was believe. expecting side. it from XQ to on recognized the that’s I of PPP to think been be some the as

process the seeing that forgiveness recent you’re mean does So in of weeks? start already to improve

Allison Johnson

first actually March I’ll and the second recognizing can of forgiveness loan of recognize this fee We we that the this recognized, $X picked PPP year. Sorry, income you in rounds $X.X the be up of of to million have did and half two take we David, additional first. half yet remaining in actually of fees expect million second And which we up to intervene. ended another quarter

David McGuire

saw as of quarter Yes. SBA and Matt, just fact. there end of the color too a acceleration loans, today a we the before in up through for as to on little forgiving continued that’s add right the matter

the and year, two rounds will we’ll as quarter, think those be said, and pretty processing and So, forgiveness round Allison third out those we’re fourth. plowing quickly then start satisfied those this for early that through late first loans the in wait three here later quarter,

Matt Olney

it. Got

in I SBA quarter quarter fees expected both swaps these respect hear to love expectations and you gains first on you particular, here? your with in first than what from saw in but the just bit And those think perfect. a and on about more two slower, the little to Okay, overall,

Allison Johnson

Sure.

quarter, last we implemented new So swap this product.

portfolio, eligible ahead customers. went that of product any should and implemented loans that product, and we scrubbed take swap the existing we we those advantage So, bought for that loan

So seasonality kind loan would was million, of that of an kind the of about increased typically slower QX, I think, quarter. being anomaly an though, QX, a fee with growth for that, $X.X income which

going the on about forward. to to $X from I’ll gain We probably and in the let with expect associated here a about portfolio income seasonality a we’re up generated additionally, million that quarter SBA fee talk future swap And a about pick estimating David those. quarters sale

David McGuire

new we the generating activity in last pandemic. due to SBA loans a if SBA for pre-pandemic look you year today, see The to that is, it the very starting was we’re year a difficult at had SBA department. But

is reliant much upon we expected and second probably end to and through probably will because half that income the expectation on third a and fully and product of during year. SBA timeline we’ll the the So see of income, more the quarters closing the world, second the in year SBA loans funding the be swap fee on better other

Matt Olney

loan Okay, about $XX side, it. side, participations got helpful. And That’s some just hear think more the strategy growth then behind around to loan sold mentioned million, on this. you I love

to concentrations. these associated this would reducing mentioned do whether to the you’ve Thanks. curious continue any And look think I fees future? in to selling I’m you with other institutions?

David McGuire

year. the able of the can want their high up a going to the on the this that Well, where our trying rest remember, internal were, going have as we’re did acquisition if targets. partners to the you we’re year quality were Matt, the we CRE loans, out time piece portfolios, to build into as now of so versus take year, Again, to regulatory buckets we And did policies last at same we branch is this exact we the balance same Simmons we of refill able capacity those loan, into find this our to rebalance.

are, So our expectation for rest we along last those may we XX of the fee when loans, that. we servicing we did as looking basis back no fees growth year. is, a those that other do loans, and there’s at and some sell on And we is year, bring move of like with projections fee we our – associated – no points those take the

Dean Bass

this to – we Matt And for same a bring more the same year, And we different back those in. bring points. last did just reason. year, some lessen But the pressure in have capacity to liquidity lessen, it’s thing, remember, like to about the then

Matt Olney

the queue. Thank you. I’ll helpful. that’s back in Okay,

Operator

question Sandler. the next Our with from Piper line Brad Instructions] Milsaps of [Operator comes

may your You with proceed question.

Brad Milsaps

good Hi, morning.

Dean Bass

Brad. morning, Good

David McGuire

Brad. morning, Good

Brad Milsaps

I kind kind wanted follow-up margin loan that basis, the core on to maybe was yield the and I linked loan you’re on flat impressed the able of a essentially. yield hold discussion, quarter of to

servicing Do there to that of through curious, pressure interest any income there? stability how we’re think, your fee that from of is might of fees kind in what commercial those additional more just, a given, of the Just is that supporting I rate real run from versus, estate that is seeing income you any you expect, be much participation opposed to do of peers kind maybe where the market? of, get sense want kind other

Allison Johnson

Yes.

the we’ve have again, for that on I material would decrease, impact the those think had trend our reprice is reprice see CD in yields XX But So, the that to The see, to is continue cost got following loan think way XX% side, to really next expect going yield and is the yield. us we’re loan that would next we don’t quarters, quarter, stabilized Brad, months. continuing XX% forward. going that, The to cost participation over a of funds of run funds of works portfolio to through continuing there. I we’re going

relief around the some see move some we’ll into during quarter. So, portfolio from deploy and securities We that our cash there. money did

in to pickup have term. going we on. deposits like we’re short I QX necessarily of I that’s So, that see we turning quantitative most there well. faucet things, But the as driven now. don’t expect in mean off mainly that’s right some – an And anytime influx and by we easing the see just think

and we’re asset with position our use cash future to that, in or keep asset mix we deploy we liquidity can versus and what constantly for seeing can So growth. mix that monitoring our loan how earning cash

Brad Milsaps

you quarter. things, debt had end borrowings funding the million the I the on about of think of side Allison, term $XXX Just at of yes long and

as those I should that funding the loans $XX and the essentially pay-off? that think down is PPP for million remainder of come roughly loans

Allison Johnson

That’s correct.

Brad Milsaps

of kind that, million offsets deferred you the will that rationalization, just of push kind assume the XX see rate expense expenses, things $X.X in to I back And sense costs could the of Okay, other you of run then FAS branch branch that the side rationalization mentioned, get but there any a lower? wanted on, the side run of that, come related great. ongoing rate of kind rate, run on

Allison Johnson

rationalization Yes. some branch Again, in we to the maybe second of occur see, expect the year. half

loan things incentive our given we last lot off a off, for wasn’t One of was again year we so there of shut lenders. the turned compensation we COVID, the did growth,

that this that we year, back Given turn growth on. expecting we’re initiative

that’s being So in. factored

about going the that half in there quarter run to So the perspective, per getting with million year. rate closures second from some of the a branch in maintain expect we $XX.X of potential forward

Brad Milsaps

final just Great. I for you kind of you as kind number, And Dean, think that that, an we’re growth ability mean, to of this impact back XXX% kind trying end forward? XXX it’s the going you that towards number of it, push year, of CRE sort quarter. pushing guys, XXX? view upper to Are what The about just curious, question and me, represent about, governor the had grow? participation the I from of at capital, to is was total How much how loan think is the might, your to going threshold, that of bound. is overtime, you to below obviously, kind

Dean Bass

and year, does excellent an now, in let explain the we’re what to from We very there a with Simmons? to you if CRE puts Good what, you spot position do think remember a quality the was this And some And what’s now. back it’s questions year, year of pressure was, what we’re of position. last great amount, those? the right are going your question. position, in dollar that little It’s in payoff, transpired good large a last a going David

David McGuire

our decade about with Yes. Brad, now went on targets we for XXX% Tier then CRE. regulatory policies, construction to we’ve and to internally, going adopted loans, up X to capital probably exceed we – XXX%, a of total ago

earnings, across gets given manage we we’re now. low-XXXs to measures, when in right And number and that to building other So, back now. that that we’re going down our immediately and right below in done that that attention, capacity that bumped – we’re want we with we’ve the

forward. that So, and new needs our service have the base we of customers the availability going customer to existing

Dean Bass

M&A, we consider sub and did Also growth. to last the year debt for organic when was

still we and And funds could it we so have keep drop if mind, down additional income. and in was needed progress thought stimulate to our

Brad Milsaps

hop I’ll in Thank you, queue. Great. guys. back

Dean Bass

Brad. you, Thank

Operator

the Our from next question with KBW. Woody line comes of Lay

may with You your proceed question.

Woody Lay

good morning, Hey, guys.

Dean Bass

morning. Good

David McGuire

Good morning, Woody.

Woody Lay

Yes.

a was was It to get on to to low are curious hoping but trending hotel portfolio. quick this fall was how I see I occupancy point? nice So, a such update level, the just rates to deferrals

Dean Bass

hotel Woody, that just – to back Right Yes, seeing beginning summer by be the and have on of deferred. we that now, are we’re feet. is its the summer. our we’re predicted so portfolio actually faster the that be approaching would loans they’re continued of what then And we’re we the all

are have Occupancies are improving, hotels. – are three Things We RevPARs are revenues improving. improving,

those middle by the the the portfolio be, so hotel back performing summer, And All contractual is need payments the rest to as back are we that agreed. as all be where we’ll of in to end payments think and made they And in of place. being and the amortizations expected.

that. So good about overall, very feel we

probably ready year quite look we But, if We think it the loans grow or healthy, later entertain will not better here portfolio that’s of point. hotel and We’re become for to industry, know remain in things the at Texas, in that that where state the this into particularly on. you focus doing new to XXXX.

Woody Lay

That’s to great hear.

industry loan is, Ford side I the loan the the seeing the Ford what and point? sound yields your just would imagine competition pretty this liquidity here. you’re curious flush at onboarding you loan pretty on how excess average question you’re new competition yields optimistic is at with is moment, that pricing and on It’s Next from with But where price intense.

Dean Bass

margin of target X%. a a have We maintaining above

fixed to careful going for looking a right, and that. it’s a five maturity, really rate, to being year particularly get be to we’re so the if it’s three on loan, going it a now And we’re with depending deal, they’re

competition, five want to in low-to-mid year the rate you’re three other We We’re fixed the I Xs. see in. else of it’s pricing peers, deal, a as local are, speak that everybody far going at in floating looking a we rate the can’t doing based really same If our pricing to be as to but then than to to north things is what on deal. their same are. X%, what margins on And they’re doing

is, going down same, competition, it’s that So we’re to be theirs. just underwriting be the if to expectation our guidelines the the pricing into running much will pretty versus

David McGuire

Also the $X we going our last might what through had add, that’s following pipeline, on in pandemic was year, to into billion. quarters. And the around the bank ready we come

we’re now they that pipeline to those very so where seeing And back to encouraging. those ranges, which ranges, pre-pandemic, is close were

Woody Lay

And it. sort point pipeline, time, be driving Got me, there in particular, Or any sound go as a the at does it segments last then that base forward? we growth? strong for will this broad the of are will in

David McGuire

Yes, basically lot a of our of. is, that lenders statewide different footprint are one being benefits see is a having of to opportunities of that take the we able advantage

segment it So, we actually the – we and you at out. when look do pipeline, if

any segment other. seeing than We’re the any growing not one faster

needle, be that segments company you and the expect it. looking in to we’re is after, always on So, a reasons, we expect do one-by-one, will that community it remain and that it granularity add is we’ve many that like bank. to And different – done as a might huge our not safety going there, the trying move in ours loans go to we’ll like for to company, a

for of purposes. lots be going real different but be We’re related could to probably estate collateral, as more

Dean Bass

a point. And makes good David

have We in our team. very geography a

many, have and years their been for doing strong some job many been, in that different have professionals We markets.

loans. a and territory little that bit so of And for advantage us in an looking where they’re gives just

So feel that’s strength the we like.

Woody Lay

Got all it. for That’s guys. me. Thanks,

Dean Bass

Thanks, Woody.

Operator

line with from Our Olney Matt next comes question of Stephens. the

question. proceed your may with You

Matt Olney

Thanks.

I about the terms investment that think million. Love the and to a Thanks. duration? details Just securities $XXX and purchase hear products behind mentioned on quarter, in follow-up you in more of yields

Allison Johnson

Sure, yes.

years. we general. that over portfolio little a a X.X. average yield is The have was in cash duration And into that five on flowing low majority really The is put agency mortgage-backed. risk profile the So, of

Matt Olney

broadly, for year? to guess this around I of M&A Texas bank sense Perfect. your Dean Thank the love most Thanks. you. the hear more thoughts We’d And make of types M&A. love kind chatter more about hear then what transactions in to for the and

Dean Bass

if disappointed question. be ask that I’d you me didn’t

board $X $X merger So, bank out always that that the are We’ve But to – agree I company. back good been billion out on metro a try board there’s harder with company there we in the billion to target. it’s strong there that run picked in now, into in more $XXX there had companies different are has groups the pretty that metros, has for We is on the and different of think now where And fringes the $X in of $XXX billion range there now to best are have first the going before, I good or billion we waiving we’ve it’s pre-COVID a two but interest makes at I continue right any to active strong to $X million been different up it’s as to and whether a to outstanding little that talked bank in been about groups, sectors. lot other that was figure potentials a open you, our a the years interest M&A and had company. sense a the what’s levels, markets.

to and been And us. has good we way think continue. that’s successful So fringe, our a to edges

Matt Olney

thanks commentary. Okay, of

Dean Bass

you. Thank

Operator

There I Bass questions at to turn like you, floor comments. the would to Mr. Dean for are closing further no this back over time.

Dean Bass

future. and We a this exciting call listen the on forward Thank being talking interest the everyone, and being appreciate We think the certainly your things in call. look for are there Thank lot to in enjoyed you on to quarters. of you, up. you. And have we

Operator

for participation. teleconference. Ladies today’s and your conclude gentlemen, This thank you does

disconnect have may day. your this a rest lines your time. wonderful You of at And

Spirit of Texas Bancshares (STXB) 22 Apr 212021 Q1 Earnings call transcript