Spirit of Texas Bancshares Q4 net income $12.5 million
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Topics: SPIRIT OF TEXAS BANCSHARES
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.
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 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 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.
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 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. ■