STXB - Earnings call transcript Q2 2021 | Spirit of Texas Bancshares, Inc.

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Operator

Greetings and welcome to the Spirit of Texas Bancshares Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jerry Golemon, Chief Operating Officer. Thank you, sir.

You may begin.

Jerry Golemon

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

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

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

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

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

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

Dean Bass

Jerry good Welcome. morning you, Thank and everyone.

as second repurchases a dividends. grown the During maintained share anniversary those Over company. shareholder asset third earnings, years, quarterly and asset have over quality times traded X publicly core through by and value XXX%, size our quarter, we through challenging increased celebrated we

This an another operational excellence. profitability strong performance represent quarter’s history of results established and and

For and the second a we of $X.X average during of $XX.X fully with assets assets declining EPS quarter, XX.X% of $X.XX improve earned on representing Credit annualized. income return million, net X.XX% continues or quarter. diluted to non-performing the quality million,

able above to our net X%, goals. margin with Additionally, the we maintain interest been consistent have

to is of While appropriately. report the solid results, we in are pleased a another understanding the performance superior future and trends positioning aspect economic quarter overall of ourselves ensuring large

national from supply parts quality health curve ability and and Federal future. overall the policy other Texas credit profitability forces. other our the trends, and macroeconomic of in now experiencing the shortages Reserve economies and is we our With to borrower Texas, internal discussions have country, impact and booming, shifted like which staffing to inflationary pressures, the yield enhance

challenges within over that public exceeded have Overall, a on shortages we this of labor years our impact While company. must as expectations significant we have network well quarter understand markets. becoming past we are and not borrowers the these capital overall experienced as since X bankers, the our having the

shareholder to banking are and profitability live we that challenged, of many we and of are We traditional being continue positioned to to times increase are community the but in continue models increase truly value. unprecedented well core confident

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

David McGuire

Dean. you, Thank

of anticipate loan been loans related of annualized. fees grew in loans, of the or anticipate for be two next growth Historically, first all The of end the always recognized to PPP expect yield quarters XXXX, of majority We remaining the the through $X.X high significantly net origination year total two most of forgiveness have the deferred $XXX.X trend growth over of forgiveness to with fees with Excluding the applications PPP the and Currently, period X.X%, anticipate impact deferred round the the on net the X.X% million quarters we loans as excluding overall of two remaining we loans single-digit second and million. purchase the all basis PPP annual working discount, by mature. the slower materially quarters. growth the and of the have Currently, impact of PPP earning coming XX this continue for million increased basis of forgiveness $XX.X was QX last and recent portfolios year. PPP quarter, of a QX increase loan from points which XX which primarily yield points XXXX of acquired and XXXX increased accretion quarter to earned The in from XXXX. loans. is

discount, March compared acquired at was loan X.X% of X.XX% XXXX. the Excluding impact XX, the yield to loans and PPP

to we During the are quarter, experience market. impacting started pressure on rates, loan entire competitive the which have

and justifies than will our by other offered those the higher quality value borrowers institutions. a understand ensure As we rate deals we on such, focus that provide, which

we Overall, build While in loan to competitive impact we pipeline expect we the next working and our month closure mitigate two near-term, the rates pressures levels in return possible. each diligently loan do wherever continues compress expect yield margin overall to to pre-pandemic the and quarters. net to to these not the are interest

income yielding coming will liquidity Additionally, deploying higher the in loans quarters. excess interest net significantly assist into

by Annualized through the of to points basis At decreased quarter, the the on significantly ongoing first loans the for loans points net charge-off were of XX.X% Non-performing PPP quarter during impaired for was quarter quarter. was portfolio consistent quarter negatively points for $X.X losses of the organic the was were basis worked pandemic. quality XX with pre-pandemic and second resolved points, impacted first which end, credits XXXX. related remaining quarter the Charge-offs outstanding the provision loan Overall, fully for declining XX million, charge-offs $X.X basis XXXX. activity loans deferments to for as excluding loans. basis from The coverage have remain the charge-off to we During quarter that provide the the quarter turn to quarter the XXXX annual loans activity. of side back XX to the will Jerry company. the ratio XX asset closer second of with a With during the review historical improved XXXX. of over our to funding is for call non-performing or that, million, first to expected I Jerry? remainder

Jerry Golemon

no Exclusive Total an a QX time deposits decrease from at QX up David. to PPP bearing reduction $XX.X X% Time for deposits by deposits deposits decreased to a aggressive million $XXX.X from re-pricing, cost basis $XX.X related put of grew or X.X% basis the a in of reported deposit billion, The of reduction of deposits, million million or QX $X.X at make from of loans improved points bank deposits, the were Non-interest X.X% XXXX million is over of decreased in of total a QX The has to you, proceeds QX deposits. Non-interest XX.X%. deposits of QX to loan-to-deposit cost $XX.X QX, deposits or decrease accounting XXXX. Thank broker decreased XXXX. XXXX XX in mix to of or This XX.X% Due million from a points ratio QX X.X% the reduction was the from or the end the from XXXX. deposits borrowers XXXX million PPP-related use. in and resulted these X.XX%. The increase shift again, deposits. of total in $XX.X annualized. X from end with bearing QX $XX.X X.XX% decrease. deposits currently due as QX decrease X% XXXX

quarter QX the to growth XX.X% the the XX%, of previously Excluding totaled obtaining by mentioned pledged payoff it. annualized $XX.X X.X% up PPP quarter. of of million LF to Borrowings the PPP the ratio activities, due on during end $XXX.X borrowings forgiveness the against to loan-to-deposit the due X.X% PPP Borrowings is million in Bank over after the decreased I loans of call of holding for financial second a including from of The has at now second of a credit, to million end million. the like assets to sources and Loan availability line to $XXX quarter. company would Allison Fed overview lines the QX. at Home significant provide liquidity, $XX of of totaling available loan turn million $XXX.X Allison? Federal company funds

Allison Johnson

of diluted of earnings XXXX during million $X.X Thank by and of loans. income QX from Non-interest of driven the on primarily tables net million everyone. quarter detailed quarter Jerry, quarter XXXX. We net in financial linked and on was first loans for fully the an $X.XX the of the of million were origination be anticipate income per net to fees $X.XX of and earnings primarily driven for $X.X of $X.X the origination compared accretion diluted provided $X.X recognized fully QX share Net increase of of income second June of fees the XX, and million you, to QX million of PPP morning, of second compared for EPS fees. recognition ended EPS was release. good million earnings the $XX.X an PPP We The XXXX, with in million swap $X.X quarter. $X.X million XXXX. Consolidated increase months by $X.X increase majority XXXX, remaining was to X yesterday’s

products to as remain to restructuring rewards well the strategic our in continue income We in investment should swap a SBA expect of initiative for to increase department. we as as coming begin quarters reap the XXXX non-interest our

million yield X.XX% Non-interest and insurance in $XX.X we which in Additionally, XXXX. products, quarter during of $XX quarter, life relatively in million second the first $XX.X the a compared the non-interest approximately quarter equivalent million flat runs of of to was XXXX, bank-owned has expense which totaled through tax second purchased reported income.

include have non-interest in and expenses, expenses were first of free additional distorted second various XXXX of initiatives, quarters. These which associated branch historically previous The projects quarters merger-related expenses associated of strategic and a with and our core and hiring balance expenses expenses expenses, represents much sheet picture run-rate expense clearer approximately non-interest management $XX currently. optimization The with in priorities. million restructuring expense

in net tax was margin equivalent Moving of compared margin tax X.XX% interest on X.XX%, to of a equivalent first basis increase the quarter to the XXXX point XXXX second sequentially. XX the quarter representing margin,

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

we As liquidity introduced, growth forgiven in PPP is products. and our future fund are needs and liquidity continue balancing to higher-yielding loans loan investment will excess

our on XX second our $X.X we government-guaranteed pressure or organic outstanding see million, at of markets, the target the basis provisioning beginning PPP headwinds produce provision which renewal. the expense for during related maintaining to moving with was The XX X%. quarter our for loan to quarter organic basis are The points, interest loans or our XXX% to excluding to loans. million total the acquired net the end. at However, XXXX, increased was margin loans above competitive to $XX.X for the losses loan loans rates of from basis ratio in respect coverage points outstanding, in portfolio XX the the provision quarter of on loans will second which primarily allowance the The the billion organic on quarter PPP $X.XX excluding of portfolio points portfolios

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

and over at to ratios a the June for ratio to provides the of X basis. to strong like position strong at enjoy bank closing forward. to the assess XX.XX% capital Tier I’d company continue XX, on A consolidated opportunities we the capital us going turn with Dean back now flexibility Dean? strategic As leverage remarks. XX.XX% call XXXX, of the

Dean Bass

close our network without Thank be our years. I’d of exceptional base, by X supportive that of wouldn’t dedicated performance. and like last which for Allison. team our you over our Obviously, another management share investors you, the to in of bankers size vision. to And we tripled thanking quarter customer talented thank course, here has

hidden results. time every always a for at excellence Spirit team within. culture report any speaks maintained quarterly looking Texas have are challenges of I’m to itself abilities that our each for confident We of opportunities golden the in the we upcoming and of tackle Bank that while

ask results like remarks. line are positioned any reflect for continued we open prepared questions. to the growth to Operator? that operator This our profitability. for well Our I’d up concludes the and

Operator

your with first Instructions] Milsaps comes Our [Operator question. proceed Piper Brad from with question Please Sandler.

Brad Milsaps

Hi, good morning.

Dean Bass

Good morning, Brad.

Allison Johnson

Good morning.

Brad Milsaps

I start Allison, wanted Maybe to with expenses.

say heard I pretty think you $XX would million that be good I a run-rate.

to last to quarter being I you the think run-rate talked about maybe $XX closer $XX.X million. million

kind XQ what’s some benefited doing just side. the down. you savings expense off revenue kind I you those your of put curious, seems curious are XX, FAS kind bring of of projects to around know well run-rate you’re it from more And kind of like or of numbers kind found Just of brought really that some thoughts just on but kind down?

Allison Johnson

Yes.

run-rate our forward, gets going XX.X. add QX, origination back if fees core and that really run-rate with you costs of us deferred you fees, associated of really, origination if $X add to So loans back million QX origination PPP in or

So in our just what – mergers out bit to cost savings out occurred past. we is a able we QX little were from of squeeze the more

additional the loan to really increased we’re continue going of forward. increase of annually and producers And about half X.X% also projecting an demand, going hiring facilitate being salaries, With bonuses the for forward. we that open back said, to expect anticipating the we raises XX.X help So we year. for to for are that are

So that little bit you increase a see forward. going may

Brad Milsaps

Dave, And the you great. talked don’t there. it if more missed think you you but about feel the just number? kind good of I this still that remarks, what growth of maybe know quarter, I thoughts I curious about prepared back-half-weighted, year. expect single-digit-type obviously your be Okay, to are high apologize last but do kind I in getting your for

David McGuire

Yes.

we’re Just really right Brad, looking that, exactly now. good

month this month and look next good. fact, In extremely

up things that So that pre-pandemic returned off very end our where broad year, on seeing taking is the it borrowers are to really now money we I’ve up different very, to mouth like button and deals their of putting to of levels, sets putting their the done Very, what pause It’s deals it’s like us about pipeline. to. get and by guided what a we’re almost of the we’re They type do, the their money seeing and to to what showing excited the get are pace spectrum reach fingers done. in now.

Brad Milsaps

a of And question, maybe great. Dean. just That’s picture kind final bigger

guys easily had another beat expectations. great You quarter,

book You got It’s sort range. of tough value to or lots trading of look is capital, in acquisitions tangible of at stock that yet the so. to be X.XX maybe got

about we there, much buyback see the Just aggressive could got given get do how feel you you with you’ve capital, you strong so particularly posted? the results more

Dean Bass

hard, I like but becoming never come we know – if to out always Well, play we’ve company the easy it’s side, anyone from M&A public always been executed. And have. for has the a small It’s us. have executed so But don’t ball. been been else used and of we – we in

of M&A up would kind – that’s are where we address on look competitive. run so will look want there And more that for we opportunities. don’t buybacks. rather to the price We I where We those side. the it’s Allison let

bargain. And so Go we a ahead, certainly Allison. are

Allison Johnson

Yes.

we quarter, during the So for another stock buyback renewed also our year. plan

to looking rate trading. are at our going the deploy plan the price gives have most we we do of and stock which are makes shareholders and our the where sense ultimately, them is our we deploy. So, greatest the return. for available And to But valuations capital,

Brad Milsaps

Thank you. Great.

Operator

you. Thank

question comes proceed with next Inc. Stephens Our Please Olney with Matt your from question.

Matt Olney

Thanks. look to morning. are loan any can like I Thank It like that prepared that love in yields. yields. a would you. put what remarks incremental ago? about sounds versus on spreads mentioned wanted there you months hear the and to is pressure I behind loan few Good numbers the was ask today

David McGuire

Dave. Matt, Good this is morning.

X what mid first to I years is down We it now basis points years, put are in about was the high-Xs X number to a seeing am debt to quarter of – XX quarter. from any on term which if a going to right it, to

floor of is the where kind I perspective. our from think that’s

ourselves above need for margin mean do grow, us won’t that, of on are all our doesn’t that our we maintaining the need business most to loans. And to floors at and We dedicating be will side. And X%. the that quality costs to for needs good fight we in we meets the those It time.

little pressure, is of as much a but not there bit you might it’s So, think. as

million to we our are $X that we needs price in $X play, maybe range and to that with in loans, marketplace million just easily million can bigger on $XXX typically think I borrowers more able than to loans. as we and where much in

long margins. at we customer and that And in that as loans pricing, admitting, has maintain are maintain a so pace to stay as we awakened year so requesting haven’t our will seen base a they if we that we over our

Matt Olney

participations something or year. we in about see or David. any later in were quarter, helpful, that last loan is sold That’s could that XQ Okay. XQ? see that talked we we the And be then called in Did XQ of potentially that could back

David McGuire

bought XX, Yes, $XX of about million sorry, misstated end we quarter. – back before the million $XX the Matt, before the that,

Matt Olney

$XX million, Perfect. okay.

of may first something million north I in think you be sold quarter. you the – $XX

for the So, potential in year? is there incremental purchases later

David McGuire

Yes.

Matt Olney

And big then a terms bank was growth new customer share on market the PPP, obviously, winner the in wins. and of

I Have over of customers? before yet of the the if on newer of some will any kind you see some the what’s customers from those on deposit side. have not, tailwinds? seen of And side expectation bringing when those you of think you highlighted movement those some loan

David McGuire

to see Actually, Yes. are just that. now we starting

We so to includes our PPP and that customers. is like said, base are customer – speak, our awakening, I

and bringing we So, are overall are their loans, looking and new they finalizing, deposits loans. for their

So, are unique very they different them, that. so process. ability three bank new significant PPP got the the provide that past our we just that this and through to approved loans to week, loan X,XXX and to about new customers related excited to we relationships PPP were That’s

Matt Olney

help. great. that sounds Okay, I your appreciate

David McGuire

Thanks Matt.

Operator

Thank you.

Please KBW. with with question comes your Brady Our Gailey proceed next from question.

Brady Gailey

loan wanted just morning Good guys. I on growth Thanks. the follow-up to question. Hi.

you But and is you year, this I to now. out to this know are XXXX higher, year know a is but that larger the beyond, you used So a a unique which when percentage growth high-single – look be lot digits year. company also

kind loan do XXXX growth and XXXX? about of how think of you outside So, year into this

David McGuire

we Well, built are grow. to

And we to we the believe that here. so lending additional are capacity we we in going that the and low got years that’s from foregoing mid-teens to have adding today, capacity today to maintain staff able are a be

would that. we attainable, growth. for built see that’s So, be. to kind We like It’s where of like and are we that to

to mean to the the high-teens our all State teams that prior being in economy to So, I we are to those were with in markets properly the lender it, we believe are additional that we market. still were be adding would I we of to is – in being that I functioning there. kind at Texas, major going if actively able year pandemic. looking to maintain last And metros, mid guiding lenders coverage the the guidance our of and active with then

Brady Gailey

that Okay. was can Then nice I fees. quarter, volatile, you $X.X in the have be really know the million will second quarter. but some in second swap it

quarter. was in I be fee side? think zero think on just sustainability should you it or swap talk that longer to do kind close the what run rate about term the the of Maybe first

David McGuire

rate are educating the that future, are have through It – and commercial is kind correct. goes into particularly very in the now, environment swap, preserving owner-occupied in the You going customers the we we for a of them is rate on job. Right in volatile, portfolio. CRE – now low that a but large value it and right of sales a CRE

XX second budget really quarter. in and in well those that to very And look quarter of with product. our successful that, that $X a might in hard days third it’s very million been that, in things, out the we quarter the a And been expectations because little looking marketplace. a the kind at so same past be It’s about have think we accepted in we are reasonable but have

rate our will are to fixed that’s to And little number us, And some to some us coming customers But bit on against quarters a particularly basis, banks. will the be be then less. good average, larger new more that I play think really it and also, a with. allows compete on a

that the will It very that’s we go ability competitive. years get get out floating a where debt service to so X rate and to we will debt. which a XX fixed rate, like, And years protect and might their

Brady Gailey

percentage remind quarter. going for you should lastly of then it the ratio if And was some look at you what that linked have kind guys just flat about mean, in I me, make Can points us the loans reserve reserve Alright. reserve, It’s marks we you around that pretty put that marks of know acquisition is basis acquisition look those how ex-PPP. forward? XX you higher. when and I think

Allison Johnson

Yes.

So, got discount $X.X unamortized we of have our on portfolio. still million acquired

I GDP coverage credit the it’s quality seeing You and in going $XX quarter-over-quarter, economy to in, where ratio. improve. back where where are mean improvements continues add sit we that on about that’s a with be the are landing to quality those oil tweak prices then so I to at, Realistically, in trading XXs barrel, and our our are we they can’t and above just forward. just the asset is going doing going qualitatives well when just

that’s thought going our of So, kind forward. process

Brady Gailey

And CECL coming you up ‘XX, for right? still is on X, guys January Okay.

Allison Johnson

Yes. Correct.

Brady Gailey

That’s me. it great. guys. Okay, Thanks for

Operator

comments. back This concludes call. the now would like the call Thank hand question-and-answer management for final of portion to I to the you.

Dean Bass

much. a and very good us day. good today, Thank in appreciate questions. for Thank you you and the very interest very I calling much in you Have

Operator

and this today’s webcast. Ladies gentlemen, concludes

at a may your Thank for and day. disconnect time. this You great now you lines have your participation

Spirit of Texas Bancshares (STXB) 22 Jul 212021 Q2 Earnings call transcript