Organic loan growth of $35.9 million for the quarter
CONROE, Texas, Jan. 29, 2020 /PRNewswire/ -- Spirit of Texas Bancshares, Inc. (NASDAQ: STXB) (“Spirit” or the “Company”), reported net income of $6.2 million in the fourth quarter of 2019 representing diluted earnings per share of $0.35. Net income and diluted earnings per share increased over the same period in the prior year by 148% and 59%, respectively.
Fourth Quarter 2019 Financial and Operational Highlights
• Successfully completed the acquisition of Chandler Bancorp, Inc. and its subsidiary, Citizens State Bank, (together, “Citizens”) on November 5, 2019. The acquisition added approximately $321 million of total assets and seven full-service branches serving the East Texas region.
• Strong organic loan growth of $35.9 million for the three months ended December 31, 2019, or 9.6% annualized.
• Return on average assets was 1.11% annualized, which was unchanged from prior quarter and a 33 basis point increase from the fourth quarter of 2018.
• At December 31, 2019, book value per share was $18.93 and tangible book value per share(1) was $14.56.
• At December 31, 2019, total stockholders’ equity to total assets was 14.50% and tangible stockholders’ equity to tangible assets(1) was 11.54%.
• Diluted earnings per share were $0.35 for the fourth quarter of 2019, compared to $0.22 for the fourth quarter of 2018. Adjusted diluted earnings per share(1) were $0.28 for the fourth quarter of 2019. The pre-tax, non-GAAP adjustments for the fourth quarter of 2019 consisted of a $2.4 million gain on the sale of investment securities and $821 thousand in merger related expenses.
• Entered into a Branch Purchase and Assumption Agreement with Simmons Bank to purchase four branch offices and one mortgage loan office located in Austin, San Antonio and Tilden, Texas. The branch acquisition which will include related loan and deposit accounts is expected to close during the first quarter of 2020.
Dean Bass, Spirit’s Chairman and Chief Executive Officer, stated, “Our fourth quarter results continue to support and validate our acquisition and market diversification strategy across Texas. Since our IPO nearly two years ago, we will have expanded the Spirit’s presence from 15 locations to 41 locations after we close the Simmons branch acquisition this quarter. We continue to believe we are well positioned to take advantage of more opportunities in our markets, while providing the highest quality of service to our vibrant and growing customer base.”
Loan Portfolio and Composition
During the fourth quarter of 2019, gross loans grew to $1.77 billion as of December 31, 2019, an increase of 18.8% from $1.49 billion as of September 30, 2019, and an increase of 60.2% from $1.10 billion as of December 31, 2018. Loan growth during the fourth quarter of 2019 was primarily driven by the Citizens acquisition which added $247.3 million in loans to the acquired loan portfolio. During the third and fourth quarter of 2019, the Company executed strategic banker lift-outs that significantly contributed to the strong organic loan growth during the fourth quarter of $35.9 million. We expect these professionals will generate and maintain meaningful portfolios, while also continuing our focus on increasing core deposits to fund loan growth. We intend to continue to seek out talented bankers that are a good cultural fit and have long standing business relationships in our markets to continue to drive organic loan growth.
Additionally, with the Simmons branch acquisitions, we will expand our presence into the dynamic Austin market and strengthen our presence in the San Antonio- New Braunfels market. The acquisition will provide a strong loan portfolio and deposit base and will complement our franchise. Completion of this transaction, which is expected in the first quarter of 2020, will allow us to expand our footprint to serve all major Texas metropolitan areas.
Asset quality continued to remain strong in the fourth quarter of 2019. The provision for loan losses recorded for the fourth quarter of 2019 was $775 thousand which served to increase the allowance to $6.7 million, or 0.38% of the $1.77 billion in loans outstanding as of December 31, 2019. The coverage ratio on the organic portfolio was 0.57% of the $1.18 billion in organic loans outstanding as of December 31, 2019. The nonperforming loans to loans held for investment ratio as of December 31, 2019 decreased to 0.37% from 0.61% as of September 30, 2019, and 0.46% at December 31, 2018. Annualized net charge-offs were 14 basis points for the fourth quarter of 2019, compared to 22 basis points for the fourth quarter of 2018.
Deposits and Borrowings
Deposits totaled $1.93 billion as of December 31, 2019, an increase of 21.6% from $1.59 billion as of September 30, 2019, and an increase of 63.0% from $1.18 billion as of December 31, 2018. Noninterest-bearing demand deposits increased $78.6 million, or 21.5%, from September 30, 2019, and increased $188.0 million, or 73.2% from December 31, 2018. Noninterest-bearing demand deposits represented 23.1% of total deposits as of December 31, 2019, which was unchanged from September 30, 2019, and 21.7% of total deposits as of December 30, 2018. The average cost of deposits was 0.98% for the fourth quarter of 2019, representing a five basis point decrease from the third quarter of 2019 and a four basis point decrease from the fourth quarter of 2018.
Net Interest Margin and Net Interest Income
The net interest margin for the fourth quarter of 2019 was 4.39%, a decrease of 20 basis points from the third quarter of 2019 and from the fourth quarter of 2018. The tax equivalent net interest margin(1) for the fourth quarter of 2019 was 4.41%, a decrease of 22 basis points from the third quarter of 2019 and a decrease of 21 basis points from the fourth quarter of 2018. The decline from the third quarter of 2019 is primarily due to rate resets on interest-earning assets as a result of decreases in interest rates set by the Federal Open Market Committee during the third quarter of 2019.
Net interest income totaled $22.2 million for the fourth quarter of 2019, an increase of 60.3% from $13.9 million for the fourth quarter of 2018. Interest income totaled $27.1 million for the fourth quarter of 2019, an increase of 60.0% from $16.9 million in the same period in 2018. Interest and fees on loans increased by $9.3 million, or 59.1%, from the fourth quarter of 2018 due to organic and acquired growth in the loan portfolio. Interest expense was $4.9 million for the fourth quarter of 2019, an increase of 58.5% from $3.1 million for the same period in 2018. The increase from the fourth quarter of 2018 was primarily due to growth in the deposit base from acquisitions partially offset by a decrease in the rate paid on interest-bearing liabilities of six basis points.
Noninterest Income and Noninterest Expense
Noninterest income totaled $5.1 million for the fourth quarter of 2019, compared to $3.0 million for the fourth quarter of 2018. The primary components of noninterest income for the fourth quarter of 2019 were gain on sales of securities of $2.4 million, gain on sales of loans of $675 thousand, and net and service charges and fees of $1.1 million. Noninterest expense totaled $18.7 million in the fourth quarter of 2019, an increase of 37.5% from $13.6 million in the same period of the prior year. This increase was primarily driven by increased salaries and employee benefits resulting from the Citizen’s acquisition as well as an investment in strategic banker lift-outs and the amortization of core deposit intangibles related to the acquisitions of The Comanche National Bank, The First National Bank of Beeville, and Citizens.
The efficiency ratio was 68.40% in the fourth quarter of 2019, compared to 80.36% in the fourth quarter of 2018.
(1) Adjusted Basic and Diluted Earnings Per Share, Tax Equivalent Net Interest Margin, Tangible Book Value Per Share, and Tangible Stockholders’ Equity to Tangible Assets Ratio are all non-GAAP measures. Spirit believes that for Adjusted Basic and Diluted Earnings Per Share, the adjustments made to net income allow investors and analysts to better assess its basic and diluted earnings per common share by removing the volatility that is associated with merger-related expenses and gain on sale of investment securities that are unrelated to its core business. In Spirit’s judgment, regarding Tax Equivalent Net Interest Margin, the fully tax equivalent basis is the preferred industry measurement basis for net interest margin and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. Regarding Tangible Book Value Per Share and Tangible Stockholders’ Equity To Tangible Assets, Spirit believes that that these measures are important to many investors in the marketplace who are interested in changes from period to period in book value per share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing its tangible book value. The non-GAAP financial measures that we discuss in this news release should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that it discusses in this news release may differ from that of other banking organizations reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures Spirit has discussed in this news release when comparing such non-GAAP financial measures. Please see a reconciliation to the nearest respective GAAP measures at the end of this news release.
Spirit of Texas Bancshares has scheduled a conference call to discuss its fourth quarter 2019 results, which will be broadcast live over the Internet, on Thursday, January 30, 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 http://ir.sotb.com/events-presentations. For those who cannot listen to the live call, a replay will be available through February 6, 2020 and may be accessed by dialing 201-612-7415 and using pass code 13698207#. Also, an archive of the webcast will be available shortly after the call at http://ir.sotb.com/events-presentations 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, San Antonio- New Braunfels, Corpus Christi and Tyler metropolitan areas, along with offices in North Central 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. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: risks relating to the possibility that the expected benefits and synergies and our projections related to the Citizens acquisition and the Simmons branch acquisitions may not materialize as expected; that prior to the completion of the pending Simmons branch acquisition, the target branches could experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities; difficulty retaining key employees; business and economic conditions generally and in the bank and non-bank financial services industries, nationally and w ithin our local market areas; our ability to mitigate our risk exposures; our ability to maintain our historical earnings trends; risks related to the integration of acquired businesses and any future acquisitions; our ability to successfully identify and address the risks associated with our recent, pending and possible future acquisitions; changes in management personnel; interest rate risk; credit risk associated with our loan portfolio; deteriorating asset quality and higher loan charge-offs; time and effort necessary to resolve nonperforming assets; inaccuracy of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates and projections; lack of liquidity; fluctuations in the fair value and liquidity of the securities we hold for sale; impairment of investment securities, goodwill, other intangible assets or deferred tax assets; our risk management strategies; increased competition in the bank and non-bank financial services industries, nationally, regionally or locally, which may adversely affect pricing and terms; the accuracy of our financial statements and related disclosures and those of companies we acquire; material weaknesses in our internal control over financial reporting; system failures or failures to prevent breaches of our network security; the institution and outcome of litigation and other legal proceedings against us or to which we become subject; changes in federal tax law or policy; the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations, and their application by our regulators; governmental monetary and fiscal policies; increases in our capital requirements; and other risks identified in Spirit’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 15, 2019, its Quarterly Report on Form 10-Q for the periods ended March 31, 2019, June 30, 2019, and September 30, 2019 filed with the SEC on May 10, 2019, August 9, 2019, and November 8, 2019, respectively, and its 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.