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CBTX, Inc. Reports Fourth Quarter and Year End Financial Results

January 29, 2020 at 5:00 PM EST

HOUSTON, Jan. 29, 2020 (GLOBE NEWSWIRE) -- CBTX, Inc., or the Company (NASDAQ: CBTX), the bank holding company for CommunityBank of Texas, N.A., or the Bank, today announced net income of $12.6 million, or $0.50 per diluted share, for the quarter ended December 31, 2019, compared to $13.1 million, or $0.52 per diluted share, for the quarter ended September 30, 2019 and $14.1 million, or $0.56 per diluted share, for the quarter ended December 31, 2018.

The Company reported net income for the year ended December 31, 2019 of $50.5 million, or $2.02 per diluted share, compared to $47.3 million, or $1.89 per diluted share for the year ended December 31, 2018.

Robert R. Franklin, Jr., CBTX, Inc. Chairman, CEO and President said, “Our Company is proud to announce a record year of earnings for 2019. The CommunityBank of Texas family stayed true to relationship banking while delivering strong credit quality and continuing to build shareholder value.”

Mr. Franklin added, “We operate in strong, competitive markets for loans and deposits. Although the Federal Reserve continued to lower rates in the last half of the year, we were able to maintain a healthy net interest margin. Our historic trend of fourth quarter interest-bearing deposit growth also allowed us to adjust deposit rates late in November. We believe that the pressure of lower interest rates will extend into 2020, but we are hopeful of a stabilizing rate environment as we move into the year.”

“We are also cautious around what could be a very contentious election season which we believe may lead businesses to slow their decision making, especially later in the year,” said Mr. Franklin. “We will continue to hire additional producers, spend on technology to support our business and to look for acquisition opportunities.” “Our goal is to remain disciplined in our relationship banking approach while building shareholder value and a quality earnings stream.”

Highlights

  • Net income increased $3.2 million, or 6.8%, during 2019, as compared to 2018.

  • Loans were $2.6 billion at December 31, 2019, compared to $2.7 billion at September 30, 2019 and $2.4 billion at December 31, 2018.

  • Net interest margin on a tax equivalent basis was 4.18% for the quarter ended December 31, 2019, compared to 4.43% for the quarter ended September 30, 2019 and 4.42% for the quarter ended December 31, 2018.

  • The cost of interest-bearing deposits was 1.08% for the quarter ended December 31, 2019, compared to 1.05% for the quarter ended September 30, 2019 and 0.89% for the quarter ended December 31, 2018.

  • Nonperforming assets remain low relative to total assets at 0.03% at December 31, 2019, compared to 0.03% of total assets at September 30, 2019 and 0.11% of total assets at December 31, 2018.

  • The Company will adopt the new accounting standard related to current expected credit losses, or CECL, effective January 1, 2020 and expects to have an allowance for credit losses to loans ratio of 1.10% to 1.14%, with the increase to be largely due to unfunded commitments.

Operating Results

Net Interest Income

Net interest income was $33.8 million for the fourth quarter of 2019, compared to $34.6 million for the third quarter of 2019 and $33.2 million for the fourth quarter of 2018. Net interest income decreased $789,000 during the fourth quarter of 2019, compared to the third quarter of 2019, due to lower average yields on loans and other interest earning assets and higher average interest-bearing deposits, partially offset by higher average loans and other interest earning assets.

Net interest income increased $566,000 in the fourth quarter of 2019, compared to the fourth quarter of 2018, primarily due to higher average loans, partially offset by higher average interest-bearing deposits, higher average rates on Federal Home Loan Bank advances and lower average yields on loans and other interest earning assets.

Net interest income increased $11.3 million during 2019, compared to 2018, primarily due to increases in average loan yields and volume, partially offset by increased average rates on interest-bearing deposits and higher average Federal Home Loan Bank advances. Loan growth during 2019 was funded through increased interest-bearing deposits, noninterest-bearing deposits and Federal Home Loan Bank advances. During 2019, the costs of interest-bearing deposits have trended upward due to competitive stress on rates but remain a low-cost source of funds as compared to other sources of funds such as debt.

Provision/Recapture for Loan Losses

The provision for loan loss was a recapture of $148,000 for the fourth quarter of 2019, compared to provision of $579,000 for the third quarter of 2019 and a $2.2 million recapture for the fourth quarter of 2018. The recapture in the fourth quarter of 2019 was primarily due to a decrease in loan balances. The recapture in the fourth quarter of 2018 resulted from strong credit quality, continuing low nonperforming and impaired loans and minimal charge-off history. The provision for loan loss was $2.4 million for 2019, compared to a recapture of $1.8 million for 2018.

The allowance for loan losses was $25.3 million, or 0.96% of total loans, at December 31, 2019, compared to $25.6 million, or 0.96% of total loans, at September 30, 2019 and $23.7 million, or 0.97% of total loans, at December 31, 2018.  

Noninterest Income

Noninterest income was $3.7 million for the fourth quarter of 2019, compared to $4.1 million for the third quarter of 2019 and $3.9 million for the fourth quarter of 2018. Swap origination fees, which are included in other noninterest income, were $428,000 in the third quarter of 2019, as compared to $45,000 in the fourth quarter of 2019 and $52,000 for the fourth quarter of 2018.

Noninterest income was $18.6 million for 2019, an increase of $4.4 million compared to 2018, primarily due to the receipt of nontaxable death benefit proceeds of $4.7 million under bank-owned life insurance policies and a resulting gain of $3.3 million over the carrying value. In addition, swap origination fees increased $832,000 during 2019 as compare to 2018.

Noninterest Expense

Noninterest expense was $22.1 million for the fourth quarter of 2019, compared to $22.0 million for the third quarter of 2019 and $21.8 million for the fourth quarter of 2018. Noninterest expense increased $65,000 during the fourth quarter of 2019, compared to the third quarter of 2019, primarily due to increased salaries and benefits, partially offset by decreased legal fees, which are included in professional and director fees. The Bank incurred legal fees of $363,000 in the fourth quarter of 2019, compared to $729,000 in the third quarter of 2019.

Noninterest expense increased $354,000 in the fourth quarter of 2019, compared to the fourth quarter of 2018, primarily due to increased salaries and benefits as a result of annual salary increases in 2019 and higher stock compensation expense due to grants of restricted stock, increased legal fees, increased occupancy costs and increased telephone and communication costs, partially offset by a decrease in regulatory fees.

Noninterest expense increased $8.1 million during 2019, compared to 2018, primarily due to a $4.7 million increase in salaries and benefits as a result of annual salary increases in 2019 and increased stock compensation expense due to grants of restricted stock and a $3.5 million increase in legal fees, partially offset by a $915,000 decrease in regulatory fees.

Income Taxes

Income tax expense was $2.9 million for the fourth quarter of 2019, compared to $3.0 million for the third quarter of 2019 and $3.4 million for the fourth quarter of 2018. The effective tax rates were 18.69% for the fourth quarter of 2019, 18.61% for the third quarter of 2019 and 19.32% for the fourth quarter of 2018.

Income tax expense was $11.6 million for 2019 and $11.4 million for 2018.The effective tax rates were 18.64% for 2019 and 19.37% for 2018. The decrease in the effective tax rate for 2019 was primarily due to the nontaxable gain related to the bank-owned life insurance policies noted above.

Balance Sheet Highlights

Loans

Loans, excluding loans held for sale, were $2.6 billion at December 31, 2019, $2.7 billion at September 30, 2019 and $2.4 billion at December 31, 2018. Loans, excluding loans held for sale, decreased $37.7 million, or 1.4%, during the fourth quarter of 2019 due to an increase in loan paydowns, as compared to the third quarter of 2019 and increased $192.3 million, or 7.9%, during 2019 due to organic growth in the loan portfolio, as compared to 2018.

Asset Quality

Nonperforming assets remain low relative to total assets at $977,000, or 0.03% of total assets, at December 31, 2019, $1.1 million, or 0.03% of total assets, at September 30, 2019 and $3.5 million, or 0.11% of total assets, at December 31, 2018.

Annualized net charge-offs (recoveries) to average loans were 0.02% for the fourth quarter of 2019, 0.05% for the third quarter of 2019 and (0.22%) for the fourth quarter of 2018.

Deposits and Borrowings

Total deposits were $2.9 billion at December 31, 2019, $2.7 billion at September 30, 2019 and $2.8 billion at December 31, 2018. Deposits increased $86.1 million, or 3.1%, during 2019 due to normal fluctuations in customer activities.

We define total borrowings as the total of repurchase agreements, Federal Home Loan Bank advances and notes payable. Total borrowings were $50.5 million, $121.2 million and $4.1 million at December 31, 2019, September 30, 2019 and December 31, 2018, respectively. Borrowings fluctuated between the fourth and third quarter of 2019 and the fourth quarter of 2018 due to increased Federal Home Loan Bank advances to fund loan growth during those periods.

Capital

At December 31, 2019, the Company remained well capitalized under bank regulatory requirements. The Company’s total shareholders’ equity to total assets, was 15.40% at December 31, 2019, 15.31% at September 30, 2019 and 14.87% at December 31, 2018. Our ratio of tangible equity to tangible assets was 13.26% at December 31, 2019, 13.13% at September 30, 2019 and 12.56% at December 31, 2018. Tangible equity to tangible assets is a non-GAAP financial measure. The most directly comparable GAAP financial measure of tangible equity to tangible assets is total shareholders’ equity to total assets. See the table captioned “Non‑GAAP to GAAP Reconciliation” at the end of this earnings release.

Non-GAAP Financial Measures

The Company’s accounting and reporting policies conform to United States generally accepted accounting principles, or GAAP, and the prevailing practices in the banking industry. The Company’s management also evaluates performance based on certain additional non-GAAP financial measures. The Company classifies a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts or is subject to adjustments that have the effect of excluding or including amounts, that are not included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows.

This press release contains certain non-GAAP financial measures including “tangible book value”, “tangible book value per common share,” and “tangible equity to tangible assets,” which are supplemental measures that are not required by, or are not presented in accordance with, GAAP. Non-GAAP financial measures do not include operating, other statistical measures or ratios calculated using exclusively financial measures calculated in accordance with GAAP. Non-GAAP financial measures 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 way we calculate the non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Please refer to the table titled “Non-GAAP to GAAP Reconciliation” at the end of this earnings release for a reconciliation of these non-GAAP financial measures.

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.5 billion asset bank, offering commercial banking solutions to small and mid-sized businesses and professionals in Houston, Dallas, Beaumont and surrounding communities in Texas.  Visit www.communitybankoftx.com for more information.

Forward-Looking Statements

This release may contain certain forward-looking statements within the meaning of the securities laws that are based on various facts and derived utilizing important assumptions, current expectations, estimates and projections about the Company and its subsidiary. Forward-looking statements include information regarding the Company’s future financial performance, business and growth strategy, projected plans and objectives, as well as projections of macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing. Further, certain factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to, whether the Company can: prudently manage and execute its growth strategy; manage risks associated with its acquisition and de novo branching strategy; maintain its asset quality; address the volatility and direction of market interest rates; continue to have access to debt and equity capital markets; avoid or address interruptions or breaches in the Company’s information system security; address the costs and effects of regulatory or other government inquiries, the results of regulatory examinations, investigations or reviews or the ability to obtain the required regulatory approvals; and achieve its performance goals. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) and other reports and statements that the Company has filed with the SEC. If one or more events related to these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, actual results may differ materially from what it anticipates. Accordingly, you should not place undue reliance on any such forward looking statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict which will arise. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Copies of the SEC filings for the Company are available for download free of charge from www.communitybankoftx.com under the Investor Relations tab.


CBTX, INC. AND SUBSIDIARY
Financial Highlights (Unaudited)
(In thousands, except per share data and percentages)

  Three Months Ended  Year Ended
  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018 12/31/2019 12/31/2018
Profitability:                     
Net income $ 12,636  $ 13,076  $ 14,315  $ 10,490  $ 14,112  $ 50,517  $ 47,289 
Basic earnings per share $ 0.51  $ 0.52  $ 0.57  $ 0.42  $ 0.57  $ 2.03  $ 1.90 
Diluted earnings per share $ 0.50  $ 0.52  $ 0.57  $ 0.42  $ 0.56  $ 2.02  $ 1.89 
                      
Return on average assets (1)  1.43%  1.53%  1.72%  1.30%  1.71%  1.50%  1.50%
Return on average shareholders' equity (1)  9.40%  9.92%  11.30%  8.59%  11.66%  9.81%  10.18%
Net interest margin- tax equivalent (1)  4.18%  4.43%  4.53%  4.56%  4.42%  4.42%  4.35%
Efficiency ratio (2)  58.96%  56.98%  56.25%  61.34%  58.67%  58.30%  59.04%
                      
Liquidity and Capital Ratios:                     
Total shareholders' equity to total assets  15.40%  15.31%  15.18%  15.19%  14.87%  15.40%  14.87%
Tangible equity to tangible assets (3)  13.26%  13.13%  12.96%  12.89%  12.56%  13.26%  12.56%
Common equity tier 1 capital ratio  15.52%  14.99%  14.71%  14.53%  14.71%  15.52%  14.71%
Tier 1 risk-based capital ratio  15.52%  14.99%  14.71%  14.53%  14.76%  15.52%  14.76%
Total risk-based capital ratio  16.41%  15.88%  15.59%  15.41%  15.63%  16.41%  15.63%
Tier 1 leverage ratio  13.11%  13.23%  13.12%  13.02%  12.74%  13.11%  12.74%
                      
Other Data:                     
Weighted average common shares outstanding- Basic   24,951    24,923    24,921    24,910    24,886    24,926    24,859 
Weighted average common shares outstanding- Diluted   25,071    25,046    25,042    25,054    25,046    25,053    25,018 
Common shares outstanding at period end   24,980    24,923    24,923    24,918    24,907    24,980    24,907 
Dividends per share $ 0.10  $ 0.10  $ 0.10  $ 0.10  $ 0.05  $ 0.40  $ 0.20 
Book value per share $ 21.45  $ 21.07  $ 20.59  $ 20.01  $ 19.58  $ 21.45  $ 19.58 
Tangible book value per share (3) $ 18.01  $ 17.62  $ 17.13  $ 16.54  $ 16.10  $ 18.01  $ 16.10 
Employees - full-time equivalents   500    504    508    494    495    500    495 

_____________________________
(1)   Quarterly ratios are annualized.
(2)   Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.
(3)   Non‑GAAP financial measure. See the table captioned “Non‑GAAP to GAAP Reconciliation” at the end of this earnings release.



CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)

Balance Sheet Data (at period end): 12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018
                
Loans, excluding loans held for sale $ 2,639,085  $ 2,676,824  $ 2,642,289  $ 2,544,709  $ 2,446,823 
Allowance for loan losses   (25,280)   (25,576)   (25,342)   (24,643)   (23,693)
Loans, net   2,613,805    2,651,248    2,616,947    2,520,066    2,423,130 
                
Cash and equivalents   372,064    289,399    266,776    276,515    382,070 
Securities   231,262    228,061    232,601    228,684    229,964 
Premises and equipment   50,875    51,183    51,346    51,453    51,622 
Goodwill   80,950    80,950    80,950    80,950    80,950 
Other intangible assets   4,938    5,106    5,318    5,538    5,775 
Loans held for sale   1,463    —    1,408    852    — 
Operating lease right-to-use asset   12,926    12,864    12,355    12,879    — 
Other assets   110,261    112,774    111,805    106,525    105,585 
Total assets $ 3,478,544  $ 3,431,585  $ 3,379,506  $ 3,283,462  $ 3,279,096 
                
Noninterest-bearing deposits $ 1,184,861  $ 1,196,720  $ 1,201,287  $ 1,229,172  $ 1,183,058 
Interest-bearing deposits   1,667,527    1,547,607    1,537,620    1,521,827    1,583,224 
Total deposits   2,852,388    2,744,327    2,738,907    2,750,999    2,766,282 
                
Federal Home Loan Bank advances   50,000    120,000    90,000    —    — 
Repurchase agreements   485    1,208    805    1,600    2,498 
Junior subordinated debt   —    —    —    —    1,571 
Operating lease liabilities   15,704    15,513    14,806    15,134    — 
Other liabilities   24,246    25,317    21,830    17,076    21,120 
Total liabilities   2,942,823    2,906,365    2,866,348    2,784,809    2,791,471 
                
Shareholders' equity   535,721    525,220    513,158    498,653    487,625 
Total liabilities and shareholders' equity $ 3,478,544  $ 3,431,585  $ 3,379,506  $ 3,283,462  $ 3,279,096 
                     


CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)

  Three Months Ended  Year Ended
  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018 12/31/2019 12/31/2018
Interest income                         
Interest and fees on loans $ 35,634  $ 36,353  $ 35,608  $ 33,793  $ 33,427  $ 141,388  $ 123,895 
Securities   1,442    1,436    1,519    1,557    1,542    5,954    6,020 
Other interest-earning assets   1,279    1,212    1,359    1,483    1,696    5,333    5,030 
Equity investments   213    192    163    152    217    720    814 
Total interest income   38,568    39,193    38,649    36,985    36,882    153,395    135,759 
Interest expense                         
Deposits   4,463    4,130    3,822    3,584    3,551    15,999    10,586 
Federal Home Loan Bank advances   316    483    523    64    —    1,386    73 
Repurchase agreements   —    1    1    1    1    3    4 
Note payable and junior subordinated debt   3    4    4    8    110    19    435 
Total interest expense   4,782    4,618    4,350    3,657    3,662    17,407    11,098 
Net interest income   33,786    34,575    34,299    33,328    33,220    135,988    124,661 
Provision (recapture) for loan losses   (148)   579    807    1,147    (2,169)   2,385    (1,756)
Net interest income after provision (recapture) for loan losses   33,934    33,996    33,492    32,181    35,389    133,603    126,417 
Noninterest income                         
Deposit account service charges   1,587    1,681    1,657    1,629    1,709    6,554    6,281 
Net gain (loss) on sale of assets   305    190    69    88    168    652    660 
Card interchange fees   1,007    908    941    864    921    3,720    3,741 
Earnings on bank-owned life insurance   430    430    3,721    430    456    5,011    1,815 
Other   388    906    915    482    605    2,691    1,755 
Total noninterest income   3,717    4,115    7,303    3,493    3,859    18,628    14,252 
Noninterest expense                         
Salaries and employee benefits   14,264    13,951    14,185    13,822    13,834    56,222    51,524 
Net occupancy expense   2,417    2,484    2,338    2,267    2,268    9,506    9,394 
Regulatory fees   84    144    446    464    507    1,138    2,053 
Data processing   651    652    661    714    664    2,678    2,677 
Software   423    469    425    440    408    1,757    1,576 
Printing, stationery and office   309    313    327    353    303    1,302    1,161 
Amortization of intangibles   216    221    225    232    237    894    985 
Professional and director fees   1,220    1,455    2,282    2,091    1,123    7,048    3,537 
Correspondent bank and customer related transaction expenses   70    67    66    65    64    268    265 
Loan processing costs   102    124    124    95    153    445    448 
Advertising, marketing and business development   452    407    532    440    406    1,831    1,824 
Repossessed real estate and other asset expense   1    —    —    —    7    1    72 
Security and protection expense   364    410    367    323    317    1,464    1,276 
Telephone and communications   506    434    456    378    408    1,774    1,530 
Other expenses   1,031    914    969    901    1,057    3,815    3,694 
Total noninterest expense   22,110    22,045    23,403    22,585    21,756    90,143    82,016 
Net income before income tax expense   15,541    16,066    17,392    13,089    17,492    62,088    58,653 
Income tax expense   2,905    2,990    3,077    2,599    3,380    11,571    11,364 
Net income  $ 12,636  $ 13,076  $ 14,315  $ 10,490  $ 14,112  $ 50,517  $ 47,289 
                             



CBTX, INC. AND SUBSIDIARY
Net Interest Margin (Unaudited)
(In thousands, except percentages)

  Three Months Ended
  12/31/2019 9/30/2019 12/31/2018
     Interest      Interest      Interest  
  Average Earned/ Average Average Earned/ Average Average Earned/ Average
  Outstanding Interest Yield/ Outstanding Interest Yield/ Outstanding Interest Yield/
  Balance Paid Rate (1) Balance Paid Rate (1) Balance Paid Rate (1)
Assets                        
Interest-earnings assets:                        
Total loans (2) $ 2,682,842  $ 35,634 5.27% $ 2,655,941  $ 36,353 5.43% $ 2,468,415  $ 33,427 5.37%
Securities   232,441    1,442 2.46%   234,525    1,436 2.41%   226,882    1,542 2.70%
Other interest-earning assets   300,395    1,279 1.69%   215,900    1,212 2.25%   293,299    1,696 2.30%
Equity investments   16,140    213 5.24%   16,154    192 4.72%   14,789    217 5.79%
Total interest-earning assets   3,231,818  $ 38,568 4.73%   3,122,520  $ 39,193 4.98%   3,003,385  $ 36,882 4.87%
Allowance for loan losses   (25,591)        (25,422)        (24,305)     
Noninterest-earnings assets   298,615         296,861         295,236      
Total assets $ 3,504,842       $ 3,393,959       $ 3,274,316      
Liabilities and Shareholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing deposits $ 1,646,883  $ 4,463 1.08% $ 1,557,503  $ 4,130 1.05% $ 1,578,146  $ 3,551 0.89%
Federal Home Loan Bank advances   68,913    316 1.82%   83,804    483 2.29%   —    —  — 
Repurchase agreements   423    —  —    1,043    1 0.38%   1,925    1 0.21%
Note payable and junior subordinated debt   —    3  —    —    4  —    9,817    110 4.28%
Total interest-bearing liabilities   1,716,219  $ 4,782 1.11%   1,642,350  $ 4,618 1.12%   1,589,888  $ 3,662 0.91%
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits   1,212,939         1,189,087         1,181,035      
Other liabilities   42,406         39,775         23,083      
Total noninterest-bearing liabilities   1,255,345         1,228,862         1,204,118      
Shareholders’ equity   533,278         522,747         480,310      
Total liabilities and shareholders’ equity $ 3,504,842       $ 3,393,959       $ 3,274,316      
Net interest income    $ 33,786      $ 34,575      $ 33,220  
Net interest spread (3)       3.62%       3.86%       3.96%
Net interest margin (4)       4.15%       4.39%       4.39%
Net interest margin—tax equivalent (5)       4.18%       4.43%       4.42%

_____________________________
(1)   Annualized.
(2)   Includes average outstanding balances related to loans held for sale.
(3)   Net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities.
(4)   Net interest margin is equal to net interest income divided by average interest‑earning assets.
(5)   Tax equivalent adjustments of $251,000, $257,000 and $257,000 for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively, were computed using a federal income tax rate of 21%.



CBTX, INC. AND SUBSIDIARY
Net Interest Margin (Unaudited)
(In thousands, except percentages)

  Years Ended December 31,
  2019  2018 
     Interest      Interest  
  Average Earned/ Average Average Earned/ Average
  Outstanding Interest Yield/ Outstanding Interest Yield/
(Dollars in thousands) Balance Paid Rate Balance Paid Rate
Assets                
Interest-earnings assets:                
Total loans (1) $ 2,608,505  $ 141,388 5.42% $ 2,392,348  $ 123,895 5.18%
Securities   233,543    5,954 2.55%   227,384    6,020 2.65%
Other interest-earning assets   243,349    5,333 2.19%   255,323    5,030 1.97%
Equity investments   14,852    720 4.85%   15,282    814 5.32%
Total interest-earning assets   3,100,249  $ 153,395 4.95%   2,890,337  $ 135,759 4.70%
Allowance for loan losses   (24,971)        (25,063)     
Noninterest-earnings assets   299,387         290,868      
Total assets $ 3,374,665       $ 3,156,142      
Liabilities and Shareholders’ Equity                
Interest-bearing liabilities:                
Interest-bearing deposits $ 1,566,038  $ 15,999 1.02% $ 1,519,643  $ 10,586 0.70%
Federal Home Loan Bank advances   61,589    1,386 2.25%   3,356    73 2.18%
Repurchase agreements   1,046    3 0.29%   1,601    4 0.25%
Note payable and junior subordinated debt   —    19  —    10,572    435 4.11%
Total interest-bearing liabilities   1,628,673  $ 17,407 1.07%   1,535,172  $ 11,098 0.72%
Noninterest-bearing liabilities:                
Noninterest-bearing deposits   1,193,527         1,134,191      
Other liabilities   37,458         22,082      
Total noninterest-bearing liabilities   1,230,985         1,156,273      
Shareholders’ equity   515,007         464,697      
Total liabilities and shareholders’ equity $ 3,374,665       $ 3,156,142      
Net interest income    $ 135,988      $ 124,661  
Net interest spread (2)       3.88%       3.98%
Net interest margin (3)       4.39%       4.31%
Net interest margin—tax equivalent (4)       4.42%       4.35%

_____________________________
(1)   Annualized.
(2)   Includes average outstanding balances related to loans held for sale.
(3)   Net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities.
(4)   Net interest margin is equal to net interest income divided by average interest‑earning assets.
(5)   Tax equivalent adjustments of $1.0 million and $1.1 million for the years ended December 31, 2019 and 2018, respectively, were computed using a federal income tax rate of 21%.



CBTX, INC. AND SUBSIDIARY
Rate/Volume Analysis (Unaudited)
(In thousands)

  Three Months Ended December 31, 2019, Compared to
    Three Months Ended September 30, 2019
  Increase (Decrease) due to   
(Dollars in thousands) Rate Volume Total
Interest-earning assets:         
Total loans $ (1,087) $ 368  $ (719)
Securities   30    (24)   6 
Other interest-earning assets   (424)   491    67 
Equity investments   21    —    21 
Total increase (decrease) in interest income   (1,460)   835    (625)
Interest-bearing liabilities:         
Interest-bearing deposits   96    237    333 
Federal Home Loan Bank advances   (81)   (86)   (167)
Repurchase agreements   —    (1)   (1)
Note payable and junior subordinated debt   (1)   —    (1)
Total increase in interest expense   14    150    164 
Increase (decrease) in net interest income $ (1,474) $ 685  $ (789)


  Three Months Ended December 31, 2019, Compared to
    Three Months Ended December 31, 2018
  Increase (Decrease) due to  
(Dollars in thousands) Rate Volume Total 
Interest-earning assets:         
Total loans $ (697) $ 2,904  $ 2,207 
Securities   (138)   38    (100)
Other interest-earning assets   (458)   41    (417)
Equity investments   (24)   20    (4)
Total increase (decrease) in interest income   (1,317)   3,003    1,686 
Interest-bearing liabilities:         
Interest-bearing deposits   757    155    912 
Federal Home Loan Bank advances   316    —    316 
Repurchase agreements   —    (1)   (1)
Note payable and junior subordinated debt   —    (107)   (107)
Total increase in interest expense   1,073    47    1,120 
Increase (decrease) in net interest income $ (2,390) $ 2,956  $ 566 


  Year Ended December 31, 2019, Compared to
  Year Ended December 31, 2018
  Increase (Decrease) due to  
(Dollars in thousands) Rate Volume Total 
Interest-earning assets:         
Total loans $ 6,299  $ 11,194  $ 17,493 
Securities   (230)   164    (66)
Other interest-earning assets   540    (237)   303 
Equity investments   (71)   (23)   (94)
Total increase in interest income   6,538    11,098    17,636 
Interest-bearing liabilities:         
Interest-bearing deposits   5,090    323    5,413 
Federal Home Loan Bank advances   46    1,267    1,313 
Repurchase agreements   —    (1)   (1)
Note payable and junior subordinated debt   —    (416)   (416)
Total increase in interest expense   5,136    1,173    6,309 
Increase in net interest income $ 1,402  $ 9,925  $ 11,327 
             


CBTX, INC. AND SUBSIDIARY
Yield Trend (Unaudited)

  Three Months Ended
  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018
           
Interest-earnings assets:          
Total loans 5.27% 5.43% 5.51% 5.48% 5.37%
Securities 2.46% 2.41% 2.61% 2.73% 2.70%
Other interest-earning assets 1.69% 2.25% 2.48% 2.51% 2.30%
Equity investments 5.24% 4.72% 4.32% 5.02% 5.79%
Total interest-earning assets 4.73% 4.98% 5.07% 5.03% 4.87%
           
Interest-bearing liabilities:          
Interest-bearing deposits 1.08% 1.05% 1.01% 0.94% 0.89%
Federal Home Loan Bank advances 1.82% 2.29% 2.53% 2.67%  — 
Repurchase agreements  —  0.38% 0.46% 0.22% 0.21%
Note payable and junior subordinated debt  —   —   —  4.44% 4.28%
Total interest-bearing liabilities 1.11% 1.12% 1.09% 0.95% 0.91%
           
Net interest spread (1) 3.62% 3.86% 3.98% 4.08% 3.96%
Net interest margin (2) 4.15% 4.39% 4.50% 4.53% 4.39%
Net interest margin—tax equivalent (3) 4.18% 4.43% 4.53% 4.56% 4.42%

_____________________________
(1)   Net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities.
(2)   Net interest margin is equal to net interest income divided by average interest‑earning assets.
(3)   Tax equivalent adjustments were computed using a federal income tax rate of 21%.



CBTX, INC. AND SUBSIDIARY
Average Outstanding Balances (Unaudited)
(In thousands)

  Three Months Ended
  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018
                
Assets               
Interest-earnings assets:               
Total loans (1) $ 2,682,842  $ 2,655,941  $ 2,591,928  $ 2,500,788  $ 2,468,415 
Securities   232,441    234,525    233,339    231,650    226,882 
Other interest-earning assets   300,395    215,900    219,639    239,281    293,299 
Equity investments   16,140    16,154    15,218    12,285    14,789 
Total interest-earning assets   3,231,818    3,122,520    3,060,124    2,984,004    3,003,385 
Allowance for loan losses   (25,591)   (25,422)   (24,829)   (24,016)   (24,305)
Noninterest-earnings assets   298,615    296,861    299,234    302,915    295,236 
Total assets $ 3,504,842  $ 3,393,959  $ 3,334,529  $ 3,262,903  $ 3,274,316 
                
Liabilities and Shareholders’ Equity               
Interest-bearing liabilities:               
Interest-bearing deposits $ 1,646,883  $ 1,557,503  $ 1,514,697  $ 1,544,039  $ 1,578,146 
Federal Home Loan Bank advances   68,913    83,804    83,022    9,722    — 
Repurchase agreements   423    1,043    877    1,856    1,925 
Note payable and junior subordinated debt   —    —    —    365    9,817 
Total interest-bearing liabilities   1,716,219    1,642,350    1,598,596    1,555,982    1,589,888 
Noninterest-bearing liabilities:               
Noninterest-bearing deposits   1,212,939    1,189,087    1,194,645    1,177,086    1,181,035 
Other liabilities   42,406    39,775    32,991    34,634    23,083 
Total noninterest-bearing liabilities   1,255,345    1,228,862    1,227,636    1,211,720    1,204,118 
Shareholders’ equity   533,278    522,747    508,297    495,201    480,310 
Total liabilities and shareholders’ equity $ 3,504,842  $ 3,393,959  $ 3,334,529  $ 3,262,903  $ 3,274,316 

_____________________________
(1)   Includes average outstanding balances of loans held for sale.



CBTX, INC. AND SUBSIDIARY
Period End Balances (Unaudited)
(In thousands, except percentages)

  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018
  Amount  Amount  Amount  Amount  Amount 
                          
Loan Portfolio:                         
Commercial and industrial $ 527,607  19.9% $ 523,831  19.5% $ 540,084  20.4% $ 559,882  21.9% $ 519,779  21.2%
Real estate:                         
Commercial real estate   900,746  34.0%   875,329  32.6%   854,513  32.2%   811,742  31.8%   795,733  32.4%
Construction and development   527,812  19.9%   572,276  21.4%   559,672  21.1%   572,861  22.5%   515,533  21.0%
1-4 family residential   280,192  10.6%   287,434  10.7%   281,525  10.6%   281,502  11.0%   282,011  11.5%
Multi-family residential   277,209  10.5%   298,396  11.1%   298,887  11.3%   213,582  8.4%   221,194  9.0%
Consumer   36,782  1.4%   37,975  1.4%   39,803  1.5%   39,072  1.5%   39,421  1.6%
Agricultural   9,812  0.4%   10,836  0.4%   9,923  0.4%   8,915  0.4%   11,076  0.5%
Other   86,513  3.3%   76,860  2.9%   65,471  2.5%   64,215  2.5%   68,382  2.8%
Gross loans   2,646,673  100.0%   2,682,937  100.0%   2,649,878  100.0%   2,551,771  100.0%   2,453,129  100.0%
Less deferred fees and unearned discount   (6,125)     (6,113)     (6,181)     (6,210)     (6,306)  
Less allowance for loan losses   (25,280)     (25,576)     (25,342)     (24,643)     (23,693)  
Less loans held for sale   (1,463)     —      (1,408)     (852)     —   
Loans, net $ 2,613,805    $ 2,651,248    $ 2,616,947    $ 2,520,066    $ 2,423,130   
                          
                          
Deposits:                         
Interest-bearing demand accounts $ 369,744  13.0% $ 337,746  12.3% $ 351,326  12.8% $ 352,623  12.8% $ 387,457  14.0%
Money market accounts   805,942  28.3%   739,436  26.9%   717,883  26.2%   695,968  25.3%   737,770  26.7%
Savings accounts   92,183  3.2%   91,413  3.3%   91,828  3.4%   96,251  3.5%   96,962  3.5%
Certificates and other time deposits, $100,000 or greater   208,018  7.3%   198,561  7.3%   189,741  6.9%   181,507  6.6%   189,007  6.8%
Certificates and other time deposits, less than $100,000   191,640  6.7%   180,451  6.6%   186,842  6.8%   195,478  7.1%   172,028  6.2%
Total interest-bearing deposits   1,667,527  58.5%   1,547,607  56.4%   1,537,620  56.1%   1,521,827  55.3%   1,583,224  57.2%
Noninterest-bearing deposits   1,184,861  41.5%   1,196,720  43.6%   1,201,287  43.9%   1,229,172  44.7%   1,183,058  42.8%
Total deposits $ 2,852,388  100.0% $ 2,744,327  100.0% $ 2,738,907  100.0% $ 2,750,999  100.0% $ 2,766,282  100.0%
                                    


CBTX, INC. AND SUBSIDIARY
Credit Quality (Unaudited)
(In thousands, except percentages)

                
  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018
Nonperforming Assets (at period end):               
Nonaccrual loans:               
Commercial and industrial $ 596  $ 354  $ 1,795  $ 1,390  $ 1,317 
Real estate:               
Commercial real estate   67    159    850    862    1,517 
Construction and development   —    —    —    —    — 
1-4 family residential   314    629    624    635    656 
Multi-family residential   —    —    —    —    — 
Consumer   —    —    —    47    — 
Agricultural   —    —    —    —    — 
Nonaccrual loans   977    1,142    3,269    2,934    3,490 
Accruing loans 90 or more days past due   —    —    9    —    — 
Total nonperforming loans   977    1,142    3,278    2,934    3,490 
Foreclosed assets   —    —    36    41    12 
Total nonperforming assets $ 977  $ 1,142  $ 3,314  $ 2,975  $ 3,502 
                
Allowance for Loan Losses (at period end):               
Commercial and industrial $ 7,671  $ 7,470  $ 7,792  $ 8,416  $ 7,719 
Real estate:               
Commercial real estate   7,975    7,788    7,371    6,784    6,730 
Construction and development   4,446    4,825    4,579    4,700    4,298 
1-4 family residential   2,257    2,338    2,236    2,249    2,281 
Multi-family residential   1,699    1,829    2,178    1,457    1,511 
Consumer   388    558    458    357    387 
Agricultural   74    82    73    50    62 
Other   770    686    655    630    705 
Total allowance for loan losses $ 25,280  $ 25,576  $ 25,342  $ 24,643  $ 23,693 
                
Credit Quality Ratios (at period end):               
Nonperforming assets to total assets  0.03%  0.03%  0.10%  0.09%  0.11%
Nonperforming loans to total loans  0.04%  0.04%  0.12%  0.12%  0.14%
Allowance for loan losses to nonperforming loans  2,587.51%  2,239.58%  773.09%  839.91%  678.88%
Allowance for loan losses to total loans  0.96%  0.96%  0.96%  0.97%  0.97%
                     


CBTX, INC. AND SUBSIDIARY
Allowance for Loan Losses (Unaudited)
(In thousands, except percentages)

                
  Three Months Ended
  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018
Analysis of Allowance for Loan Losses               
                
Allowance for loan losses at beginning of period $ 25,576  $ 25,342  $ 24,643  $ 23,693  $ 24,486 
                
Provision (recapture) for loan losses   (148)   579    807    1,147    (2,169)
                
Net (charge-offs) recoveries               
Commercial and industrial   (205)   (374)   22    (206)   1,521 
Real estate:               
Commercial real estate   (1)   33    2    2    (156)
Construction and development   —    —    —    —    (1)
1-4 family residential   —    1    (11)   1    — 
Consumer   47    (1)   (78)   6    1 
Agricultural   10    —    —    —    10 
Other   1    (4)   (43)   —    1 
Total net (charge-offs) recoveries   (148)   (345)   (108)   (197)   1,376 
                
Allowance for loan losses at end of period $ 25,280  $ 25,576  $ 25,342  $ 24,643  $ 23,693 
                
Net charge-offs (recoveries) to average loans (1)  0.02%  0.05%  0.02%  0.03%  (0.22%)

_____________________________
(1)   Annualized.



CBTX, INC. AND SUBSIDIARY
Non‑GAAP to GAAP Reconciliation (Unaudited)
(In thousands, except per share data and percentages)

Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional non‑GAAP financial measures. We classify a financial measure as being a non‑GAAP financial measure if that financial measure excludes or includes amounts or is subject to adjustments that have the effect of excluding or including amounts, that are not included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non‑GAAP financial measures do not include operating, other statistical measures or ratios calculated using exclusively financial measures calculated in accordance with GAAP. Non‑GAAP financial measures 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 way we calculate the non‑GAAP financial measures may differ from that of other companies reporting measures with similar names.

We calculate tangible equity as total shareholders’ equity, less goodwill and other intangible assets, net of accumulated amortization, and tangible book value per share as tangible equity divided by shares of common stock outstanding at the end of the relevant period. The most directly comparable GAAP financial measure for tangible book value per share is book value per share.

We calculate tangible assets as total assets less goodwill and other intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible equity to tangible assets is total shareholders’ equity to total assets.

We believe that tangible book value per share and tangible equity to tangible assets are measures that are important to many investors in the marketplace who are interested in book value per share and total shareholders’ equity to total assets, exclusive of change in intangible assets.

The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible equity, total assets to tangible assets and presents book value per share, tangible book value per share, tangible equity to tangible assets and total shareholders’ equity to total assets:

                
  12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018
Tangible Equity               
Total shareholders’ equity $ 535,721  $ 525,220  $ 513,158  $ 498,653  $ 487,625 
Adjustments:               
Goodwill   80,950    80,950    80,950    80,950    80,950 
Other intangibles   4,938    5,106    5,318    5,538    5,775 
Tangible equity $ 449,833  $ 439,164  $ 426,890  $ 412,165  $ 400,900 
Tangible Assets               
Total assets $ 3,478,544  $ 3,431,585  $ 3,379,506  $ 3,283,462  $ 3,279,096 
Adjustments:               
Goodwill   80,950    80,950    80,950    80,950    80,950 
Other intangibles   4,938    5,106    5,318    5,538    5,775 
Tangible assets $ 3,392,656  $ 3,345,529  $ 3,293,238  $ 3,196,974  $ 3,192,371 
                
Common shares outstanding   24,980    24,923    24,923    24,918    24,907 
                
Book value per share $ 21.45  $ 21.07  $ 20.59  $ 20.01  $ 19.58 
Tangible book value per share $ 18.01  $ 17.62  $ 17.13  $ 16.54  $ 16.10 
Total shareholders’ equity to total assets  15.40%  15.31%  15.18%  15.19%  14.87%
Tangible equity to tangible assets  13.26%  13.13%  12.96%  12.89%  12.56%


Investor Relations: Justin M. Long 281.325.5013 investors@CBoTX.com Media Contact: Ashley Warren 713.210.7622 awarren@CBoTX.com