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CBTX, Inc. Reports Quarterly Financial Results

July 28, 2021 at 4:07 PM EDT

HOUSTON, July 28, 2021 (GLOBE NEWSWIRE) -- CBTX, Inc., or the Company (NASDAQ: CBTX), the bank holding company for CommunityBank of Texas, N.A., or the Bank, today announced its results for the second quarter of 2021.

Robert R. Franklin, Jr., Chairman, CEO and President of the Company stated, “We are proud to present our second quarter financial results which we think are indicative of a transition from a COVID dominated economy to a more robust, growth economy. We have seen credit steadily improve, deposits continue to grow, customers beginning to develop new projects and look to expand their operations, and our local economy rally with improvement in the unemployment picture. We are seeing a more natural flow of payoffs as people sell projects or modify them into more permanent financing.”

Mr. Franklin continued, “Our officers are increasing their pace of in-person meetings, and we are seeing our pipeline expand as we continue into the third quarter. We expect to continue to see new and improved activity through the third and fourth quarter.”

Mr. Franklin added, “We have been provided significant liquidity by our customer base. Our job is to stay focused and disciplined on our credit culture as we put these funds to work. Competition for business is stiff and the rate environment is challenging; however, these are issues we have dealt with since our inception. We are happy to be in a more robust economy and will continue to use that growth to continue to build CBTX for the future.”

Highlights

  • Net income was $11.7 million for the second quarter of 2021, or $0.48 per diluted share, compared to $10.0 million, or $0.41 per diluted share, for the first quarter of 2021 and $2.2 million, or $0.09 per diluted share, for the second quarter of 2020.
  • Recapture of allowance for credit losses, or ACL, of $5.1 million, primarily due to continued improvements in the national economy and forward-looking national economic forecasts, improved loan quality and the reduction of loan balances and unfunded commitments during the second quarter of 2021.
  • Net interest margin on a tax equivalent basis decreased to 3.29% for the second quarter of 2021, compared to 3.71% for the first quarter of 2021, primarily due to lower loan rates and average balances for the loan portfolio.
  • Cash and equivalents increased $183.7 million to $788.4 million during the second quarter of 2021, primarily due to net deposit inflows and loan payments received.

Operating Results

Net Interest Income

Net interest income was $31.0 million for the second quarter of 2021, compared to $33.1 million for the first quarter of 2021 and $32.2 million for the second quarter of 2020. Net interest income decreased $2.1 million during the second quarter of 2021, compared to the first quarter of 2021, primarily due to lower loan rates and lower average loans, partially offset by the impact of one additional day, higher average securities and lower rates on interest-bearing deposits in the second quarter of 2021. Net interest income includes $1.5 million of net fees recognized on Paycheck Protection Program, or PPP, loans in the second quarter of 2021, compared to $3.2 million recognized in the first quarter of 2021.

Net interest income decreased $1.1 million during the second quarter of 2021, compared to the second quarter of 2020, primarily due to lower rates on interest-earning assets, lower average loans and higher average interest-bearing deposits, partially offset by lower rates on interest-bearing deposits and higher average securities and other interest-earning assets.

The yield on interest-earning assets was 3.41% for the second quarter of 2021, compared to 3.85% for the first quarter of 2021 and 3.91% for the second quarter of 2020. The cost of interest-bearing liabilities was 0.32% for the second quarter of 2021, 0.34% for the first quarter of 2021 and 0.52% for the second quarter of 2020. The Company’s net interest margin on a tax equivalent basis was 3.29% for the second quarter of 2021, compared to 3.71% for the first quarter of 2021 and 3.68% for the second quarter of 2020.

Provision (Recapture) for Credit Losses

The provision for credit losses was a recapture of credit losses of $5.1 million for the second quarter of 2021, compared to a provision for credit losses of $412,000 for the first quarter of 2021 and a provision for credit losses of $9.9 million for the second quarter of 2020.

The recapture of credit losses for the second quarter of 2021 includes a recapture of $4.2 million related to the loan portfolio and a recapture of $893,000 related to unfunded commitments and was primarily the result of certain qualitative factor adjustments used to determine the ACL.

The provision for credit losses of $412,000 for the first quarter of 2021 reflected an increase in specific reserves for loans individually evaluated within the portfolio, partially offset by the impact of a reduction in the loan portfolio and minimal adjustments to the qualitative factors utilized to determine the ACL.

The provision for credit losses of $9.9 million for the second quarter of 2020 resulted from the impact of the COVID-19 pandemic and the sustained instability of the oil and gas industry, which led to the adjustment of certain factors utilized to determine the ACL.

At June 30, 2021, the ACL for loans was $37.2 million, or 1.36% to loans excluding loans held for sale, $40.9 million, or 1.41% to loans excluding loans held for sale, at March 31, 2021 and $39.7 million or 1.35% to loans excluding loans held for sale at June 30, 2020. The decrease in the ACL for loans at June 30, 2021 was primarily the result of the assessment of certain qualitative factors utilized in the Company’s ACL estimate. Due to the continued improvements in the national economy, economic forecasts and loan quality, the Company adjusted its economic forecasts and certain loan qualitative factors. A decrease in the collectively evaluated loan portfolio also resulted in a decrease in the ACL at June 30, 2021.

The ACL for unfunded commitments was $3.4 million at June 30, 2021, compared to $4.3 million at March 31, 2021 and $5.0 million at June 30, 2020.

Noninterest Income

Noninterest income was $3.5 million for the second quarter of 2021, $3.1 million for the first quarter of 2021 and $2.9 million for the second quarter of 2020. The increase of $380,000 for the second quarter of 2021, compared to the first quarter of 2021 and the increase of $582,000 for the second quarter of 2021, compared to the second quarter of 2020 were both primarily due to gains on sales of assets and higher card interchange fees during the second quarter of 2021.

Noninterest Expense

Noninterest expense was $25.2 million for the second quarter of 2021, compared to $23.3 million for the first quarter of 2021 and $22.5 million for the second quarter of 2020. The increase in noninterest expense of $1.9 million between the second quarter of 2021 and the first quarter of 2021 was primarily due to a $738,000 increase in professional and director fees, mainly from consulting and legal fees related to Bank Secrecy Act/Anti-Money Laundering, or BSA/AML, compliance matters, a $546,000 increase in salaries and employee benefits, an increase in advertising, marketing and business development expense of $225,000 and a $147,000 increase in security and protection expense.

The increase in noninterest expense of $2.7 million for the second quarter of 2021, compared to the second quarter of 2020, was primarily due to a $900,000 increase in professional and director fees, a $722,000 increase in salaries and employee benefits, a $369,000 increase in data processing and software, a $241,000 increase in advertising, marketing and business development expense and a $186,000 increase in security and protection expense.

Total consulting related fees associated with BSA/AML compliance matters were $796,000 for the second quarter of 2021, compared to $661,000 in the first quarter of 2021 and $214,000 in the second quarter of 2020. Legal fees related to the BSA/AML compliance matters were $592,000 for the second quarter of 2021 compared to $290,000 for the second quarter of 2020. No legal fees related to the BSA/AML compliance matters were recorded in the first quarter of 2021.

Income Taxes

Income tax expense was $2.7 million for the second quarter of 2021, $2.5 million for the first quarter of 2021 and $539,000 for the second quarter of 2020. The effective tax rates were 18.70% for the second quarter of 2021, 19.87% for the first quarter of 2021 and 19.95% for the second quarter of 2020. The differences between the federal statutory rate of 21% and the effective tax rates were largely attributable to permanent differences primarily related to tax exempt interest income and bank-owned life insurance earnings.

Balance Sheet Highlights

Loans

Loans excluding loans held for sale were $2.7 billion at June 30, 2021, $2.9 billion at March 31, 2021 and $2.9 billion at June 30, 2020. The decrease from March 31, 2021 to June 30, 2021 and the decrease from June 30, 2020 to June 30, 2021 were both primarily due to higher loan paydowns versus loan originations.

The decrease in loans was impacted by the Company’s participation in the PPP under the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which facilitates loans to small businesses. PPP loans, net of deferred fees and unearned discounts, were $179.1 million at June 30, 2021, $268.8 million at March 31, 2021 and $323.7 million at June 30, 2021. During the second quarter of 2021, $20.4 million of PPP loans were originated and payments totaling $110.4 million were received. During the first quarter of 2021, $122.3 million of PPP loans were originated and payments totaling $123.4 million were received.

In support of customers impacted by the COVID-19 pandemic, the Company offered relief through payment deferrals during 2020 and the first and second quarters of 2021. As of June 30, 2021, the Company had 9 loans subject to such deferral arrangements with total outstanding principal balances of $20.5 million, compared to 16 loans totaling $34.3 million as of March 31, 2021 and 689 loans totaling $545.0 million at June 30, 2020.

Deposits and Borrowings

Total deposits were $3.4 billion at June 30, 2021, $3.4 billion at March 31, 2021 and $3.3 billion at June 30, 2020. The increase in deposits of $32.0 million between March 31, 2021 and June 30, 2021 was due to net deposit inflows of $96.7 million in interest-bearing accounts, partially offset by net deposit outflows of $64.6 million in non-interest-bearing accounts. The increase in deposits of $162.6 million between June 30, 2020 and June 30, 2021 was due to net deposit inflows of $119.5 million and $43.0 million in interest-bearing accounts and noninterest-bearing accounts, respectively.

The Company defines total borrowings as the total of repurchase agreements, Federal Home Loan Bank advances and notes payable. Total borrowings were $50.0 million, $50.0 million and $52.5 million at June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

Capital

At June 30, 2021, the Company continued to be well capitalized and maintained strong capital ratios under bank regulatory requirements. The Company’s total risk-based capital ratio was 17.72% at June 30, 2021, compared to 17.00% at March 31, 2021 and 16.56% at June 30, 2020. The Company’s tier 1 leverage ratio was 11.63% at June 30, 2021, compared to 11.90% at March 31, 2021 and 11.96% at June 30, 2020. The Company’s total shareholders’ equity to total assets ratio was 13.68% at June 30, 2021, 13.54% at March 31, 2021 and 13.77% at June 30, 2020.

The ratio of tangible equity to tangible assets was 11.84% at June 30, 2021, 11.67% at March 31, 2021 and 11.84% at June 30, 2020. Tangible equity to tangible assets is a non-GAAP financial measure. The most directly comparable financial measure calculated in accordance with United States generally accepted accounting principles, or GAAP, to 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

This earnings 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. 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.

Conference Call Information

The Company will hold a conference call to discuss second quarter 2021 financial results on Thursday, July 29, 2021 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time). Investors and interested parties may listen to the teleconference via telephone by calling (877) 620-1733 if calling from the U.S. or Canada (or (470) 414-9785 if calling from outside the U.S.). The conference call ID number is 1036609. To access the live webcast of the conference call, individuals can visit the Investor Relations page of the Company’s website: https://ir.cbtxinc.com/events-and-presentations. An archived edition of the earnings webcast will also be posted on the Company’s website later that day and will remain available to interested parties via the same link for one year.

The conference call will contain forward-looking statements in addition to statements of historical fact. The actual achievement of any forecasted results or the unfolding of future economic or business developments in a way anticipated or projected by the Company involves numerous risks and uncertainties that may cause the Company’s actual performance to be materially different from that stated or implied in the forward-looking statements. Such risks and uncertainties include, among other things, risks discussed within the “Risk Factors” section of the Company’s most recent Forms 10-Q and 10-K and subsequent 8-Ks.

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a community 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 earnings 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: natural disasters and adverse weather on the Company’s market area, acts of terrorism, pandemics, an outbreak of hostilities or other international or domestic calamities and other matters beyond the Company’s control; the Company’s ability to manage the economic risks related to the impact of the COVID-19 pandemic (including risks related to its customers’ credit quality, deferrals and modifications to loans); the geographic concentration of the Company’s markets in Houston and Beaumont, Texas; the Company’s ability to manage changes and the continued health or availability of management personnel; the amount of nonperforming and classified assets that the Company holds and the time and effort necessary to resolve nonperforming assets; deterioration of asset quality; interest rate risk associated with the Company’s business; national business and economic conditions in general, in the financial services industry and within the Company’s primary markets; sustained instability of the oil and gas industry in general and within Texas; the composition of the Company’s loan portfolio, including the identity of the Company’s borrowers and the concentration of loans in specialized industries; changes in the value of collateral securing the Company’s loans; the Company’s ability to maintain important deposit customer relationships and its reputation; the Company’s ability to maintain effective internal control over financial reporting; the Company’s ability to pursue available remedies in the event of a loan default for PPP loans and the risk of holding such loans at unfavorable interest rates and on terms that are less favorable than those with customers to whom the Company would have otherwise lent; volatility and direction of market interest rates; liquidity risks associated with the Company’s business; systems failures, interruptions or breaches involving the Company’s information technology and telecommunications systems or third-party servicers; the failure of certain third-party vendors to perform; the institution and outcome of litigation and other legal proceedings against the Company or to which it may become subject; the operational risks associated with the Company’s business; the costs, effects and results of regulatory examinations, investigations, including the ongoing investigation by the Financial Crimes Enforcement Network of the U.S. Department of Treasury, or FinCEN, or reviews or the ability to obtain required regulatory approvals; the Company’s ability to meet the requirements of its Formal Agreement with the Office of the Comptroller of the Currency and the risk that such Formal Agreement may have a negative impact on the Company’s financial performance and results of operations; changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters; governmental or regulatory responses to the COVID-19 pandemic that may impact the Company’s loan portfolio and forbearance practice; further government intervention in the U.S. financial system that may impact how the Company achieves its performance goals; and other risks, uncertainties, and factors that are discussed from time to time in the Company’s reports and documents filed with the SEC. Additionally, many of these risks and uncertainties have been elevated by and may continue to be elevated by the COVID-19 pandemic.

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, or 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
(In thousands, except per share data and percentages)

                      
  Three Months Ended Six Months Ended
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020 6/30/2021 6/30/2020
Profitability:                     
Net income $11,703  $10,019  $10,236  $6,421  $2,163  $21,722  $9,704 
Basic earnings per share $0.48  $0.41  $0.42  $0.26  $0.09  $0.89  $0.39 
Diluted earnings per share $0.48  $0.41  $0.41  $0.26  $0.09  $0.88  $0.39 
                      
Return on average assets(1)  1.14%  1.03%  1.05%  0.66%  0.23%  1.09%  0.54%
Return on average shareholders' equity(1)  8.49%  7.39%  7.47%  4.70%  1.60%  7.95%  3.60%
Net interest margin - tax equivalent(1)  3.29%  3.71%  3.62%  3.55%  3.68%  3.49%  3.87%
Efficiency ratio(2)  73.02%  64.32%  65.64%  66.77%  64.15%  68.56%  62.26%
                      
Liquidity and Capital Ratios:                     
Total shareholders' equity to total assets  13.68%  13.54%  13.84%  14.18%  13.77%  13.68%  13.77%
Tangible equity to tangible assets(3)  11.84%  11.67%  11.94%  12.22%  11.84%  11.84%  11.84%
Common equity tier 1 capital ratio  16.46%  15.75%  15.45%  15.41%  15.30%  16.46%  15.30%
Tier 1 risk-based capital ratio  16.46%  15.75%  15.45%  15.41%  15.30%  16.46%  15.30%
Total risk-based capital ratio  17.72%  17.00%  16.71%  16.67%  16.56%  17.72%  16.56%
Tier 1 leverage ratio  11.63%  11.90%  12.00%  11.90%  11.96%  11.63%  11.96%
                      
Credit Quality:                     
Allowance for credit losses for loans to loans excluding loans held for sale  1.36%  1.41%  1.39%  1.49%  1.35%  1.36%  1.35%
Nonperforming assets to total assets  0.52%  0.59%  0.61%  0.41%  0.29%  0.52%  0.29%
Nonperforming loans to loans excluding loans held for sale  0.77%  0.81%  0.82%  0.53%  0.38%  0.77%  0.38%
Net charge-offs (recoveries) to average loans(1)  (0.07)%  0.01%  0.49%  0.02%  0.01%  (0.03)%  (0.02)%
                      
Other Data:                     
Weighted average common shares outstanding - basic  24,447   24,508   24,621   24,748   24,752   24,477   24,839 
Weighted average common shares outstanding - diluted  24,571   24,616   24,678   24,770   24,780   24,591   24,885 
Common shares outstanding at period end  24,450   24,442   24,613   24,713   24,755   24,450   24,755 
Dividends per share $0.13  $0.13  $0.10  $0.10  $0.10  $0.26  $0.20 
Book value per share $22.75  $22.31  $22.20  $21.89  $21.71  $22.75  $21.71 
Tangible book value per share(3) $19.28  $18.84  $18.74  $18.44  $18.26  $19.28  $18.26 
Employees - full-time equivalents  529   517   511   515   523   529   523 



      (1)   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
(In thousands)

                
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020
                
Loans excluding loans held for sale $2,729,496  $2,891,632  $2,924,117  $2,964,526  $2,934,888 
Allowance for credit losses for loans  (37,183)  (40,874)  (40,637)  (44,069)  (39,678)
Loans, net  2,692,313   2,850,758   2,883,480   2,920,457   2,895,210 
                
Cash and equivalents  788,409   604,671   538,007   377,572   492,400 
Securities  309,233   289,091   237,281   226,101   235,438 
Premises and equipment  59,987   60,551   61,152   61,732   50,729 
Goodwill  80,950   80,950   80,950   80,950   80,950 
Other intangible assets  3,846   3,991   4,171   4,303   4,496 
Loans held for sale  808   1,005   2,673   1,763    
Operating lease right-to-use asset  12,514   12,900   13,285   12,893   14,081 
Other assets  118,474   124,722   128,218   128,901   128,421 
Total assets $4,066,534  $4,028,639  $3,949,217  $3,814,672  $3,901,725 
                
Noninterest-bearing deposits $1,556,784  $1,621,408  $1,476,425  $1,460,983  $1,513,748 
Interest-bearing deposits  1,860,002   1,763,339   1,825,369   1,709,681   1,740,455 
Total deposits  3,416,786   3,384,747   3,301,794   3,170,664   3,254,203 
                
Federal Home Loan Bank advances  50,000   50,000   50,000   50,000   50,000 
Repurchase agreements           2,153   2,500 
Operating lease liabilities  15,590   16,060   16,447   15,759   16,983 
Other liabilities  27,931   32,483   34,525   35,175   40,683 
Total liabilities  3,510,307   3,483,290   3,402,766   3,273,751   3,364,369 
                
Total shareholders’ equity  556,227   545,349   546,451   540,921   537,356 
Total liabilities and shareholders’ equity $4,066,534  $4,028,639  $3,949,217  $3,814,672  $3,901,725 


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

                      
  Three Months Ended Six Months Ended
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020 6/30/2021 6/30/2020
Interest income                     
Interest and fees on loans $30,793  $33,165 $32,886  $32,318  $32,857 $63,958  $66,474
Securities  1,332   1,173  1,070   1,107   1,228  2,505   2,591
Interest-bearing deposits at other financial institutions  223   177  168   176   169  400   1,224
Equity investments  158   146  170   162   171  304   347
Total interest income  32,506   34,661  34,294   33,763   34,425  67,167   70,636
Interest expense                     
Deposits  1,267   1,350  1,549   1,831   2,022  2,617   5,788
Federal Home Loan Bank advances  221   221  221   221   240  442   461
Other interest-bearing liabilities       4   3   5     9
Total interest expense  1,488   1,571  1,774   2,055   2,267  3,059   6,258
Net interest income  31,018   33,090  32,520   31,708   32,158  64,108   64,378
Provision (recapture) for credit losses                     
Provision for credit losses for loans  (4,190)  286  229   4,569   8,537  (3,904)  13,276
Provision (recapture) for credit losses for unfunded commitments  (893)  126  (364)  (461)  1,333  (767)  1,643
Total provision (recapture) for credit losses  (5,083)  412  (135)  4,108   9,870  (4,671)  14,919
Net interest income after provision (recapture) for credit losses  36,101   32,678  32,655   27,600   22,288  68,779   49,459
Noninterest income                     
Deposit account service charges  1,167   1,193  1,270   1,176   1,095  2,360   2,580
Card interchange fees  1,095   976  999   995   915  2,071   1,837
Earnings on bank-owned life insurance  390   390  407   1,187   412  780   828
Net gain on sales of assets  366   192  379   114   139  558   262
Other  473   360  467   551   348  833   1,729
Total noninterest income  3,491   3,111  3,522   4,023   2,909  6,602   7,236
Noninterest expense                     
Salaries and employee benefits  14,734   14,188  12,848   14,332   14,012  28,922   28,235
Occupancy expense  2,597   2,521  2,628   2,496   2,558  5,118   4,982
Professional and director fees  2,441   1,703  3,209   2,446   1,541  4,144   2,693
Data processing and software  1,661   1,576  1,330   1,525   1,292  3,237   2,514
Regulatory fees  501   556  748   471   476  1,057   579
Advertising, marketing and business development  510   285  438   429   269  795   633
Telephone and communications  550   463  455   486   392  1,013   811
Security and protection expense  537   390  423   299   351  927   725
Amortization of intangibles  186   191  197   198   230  377   451
Other expenses  1,480   1,412  1,382   1,176   1,374  2,892   2,961
Total noninterest expense  25,197   23,285  23,658   23,858   22,495  48,482   44,584
Net income before income tax expense  14,395   12,504  12,519   7,765   2,702  26,899   12,111
Income tax expense  2,692   2,485  2,283   1,344   539  5,177   2,407
Net income  $11,703  $10,019 $10,236  $6,421  $2,163 $21,722  $9,704


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

                         
  Three Months Ended
  6/30/2021 3/31/2021 6/30/2020
  Average Interest Average Average Interest Average Average Interest Average
  Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
  Balance Interest Paid Rate(1) Balance Interest Paid Rate(1) Balance Interest Paid Rate(1)
Assets                        
Interest-earning assets:                        
Total loans(2) $2,835,995  $30,793 4.36% $2,901,291  $33,165 4.64% $2,908,204  $32,857 4.54%
Securities  302,808   1,332 1.76%  259,341   1,173 1.84%  240,343   1,228 2.05%
Interest-bearing deposits at other financial institutions  670,508   223 0.13%  475,279   177 0.15%  378,405   169 0.18%
Equity investments  15,338   158 4.13%  15,353   146 3.86%  15,147   171 4.54%
Total interest-earning assets  3,824,649  $32,506 3.41%  3,651,264  $34,661 3.85%  3,542,099  $34,425 3.91%
Allowance for credit losses for loans  (40,806)       (41,078)       (31,443)     
Noninterest-earning assets  317,115        321,334        305,821      
Total assets $4,100,958       $3,931,520       $3,816,477      
Liabilities and Shareholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing deposits $1,839,812  $1,267 0.28% $1,802,175  $1,350 0.30% $1,687,991  $2,022 0.48%
Federal Home Loan Bank advances  50,000   221 1.77%  50,000   221 1.79%  70,769   240 1.36%
Other interest-bearing liabilities                2,101   5 0.96%
Total interest-bearing liabilities  1,889,812  $1,488 0.32%  1,852,175  $1,571 0.34%  1,760,861  $2,267 0.52%
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits  1,611,565        1,478,183        1,462,271      
Other liabilities  46,774        51,634        49,958      
Total noninterest-bearing liabilities  1,658,339        1,529,817        1,512,229      
Shareholders’ equity  552,807        549,528        543,387      
Total liabilities and shareholders’ equity $4,100,958       $3,931,520       $3,816,477      
Net interest income    $31,018      $33,090      $32,158  
Net interest spread(3)       3.09%       3.51%       3.39%
Net interest margin(4)       3.25%       3.68%       3.65%
Net interest margin - tax equivalent(5)       3.29%       3.71%       3.68%



      (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 $321,000, $299,000 and $247,000 for the quarters ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively, were computed using a federal income tax rate of 21%.


CBTX, INC. AND SUBSIDIARY
Net Interest Margin – Year to Date
(In thousands, except percentages)

                 
  Six Months Ended June 30,
  2021
 2020
  Average Interest Average Average Interest Average
  Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
(Dollars in thousands) Balance Interest Paid Rate(1) Balance Interest Paid Rate(1)
Assets                
Interest-earning assets:                
Total loans(2) $2,868,463  $63,958 4.50% $2,771,355  $66,474 4.82%
Securities  281,196   2,505 1.80%  237,130   2,591 4.20%
Interest-bearing deposits at other financial institutions  573,433   400 0.14%  346,753   1,224 0.71%
Equity investments  15,346   304 3.99%  14,404   347 4.84%
Total interest-earning assets  3,738,438  $67,167 3.62%  3,369,642  $70,636 4.22%
Allowance for credit losses for loans  (40,941)       (28,637)     
Noninterest-earning assets  318,520        301,281      
Total assets $4,016,017       $3,642,286      
Liabilities and Shareholders’ Equity                
Interest-bearing liabilities:                
Interest-bearing deposits $1,821,098  $2,617 0.29% $1,669,031  $5,788 0.70%
Federal Home Loan Bank advances  50,000   442 1.78%  60,385   461 1.54%
Other interest-bearing liabilities         1,432   9 1.26%
Total interest-bearing liabilities  1,871,098  $3,059 0.33%  1,730,848  $6,258 0.73%
Noninterest-bearing liabilities:                
Noninterest-bearing deposits  1,545,242        1,323,520      
Other liabilities  48,503        45,595      
Total noninterest-bearing liabilities  1,593,745        1,369,115      
Shareholders’ equity  551,174        542,323      
Total liabilities and shareholders’ equity $4,016,017       $3,642,286      
Net interest income    $64,108      $64,378  
Net interest spread(3)       3.29%       3.49%
Net interest margin(4)       3.46%       3.84%
Net interest margin - tax equivalent(5)       3.49%       3.87%



      (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 $621,000 and $496,000 for the six months ended June 30, 2021 and 2020, respectively, were computed using a federal income tax rate of 21%.


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

             
  Three Months Ended June 30, 2021,
   Compared to Three Months Ended March 31, 2021
  Increase (Decrease) due to   
(Dollars in thousands) Rate Volume Days Total
Interest-earning assets:            
Total loans $(1,994) $(747) $369 $(2,372)
Securities  (52)  197   14  159 
Interest-bearing deposits at other financial institutions  (28)  72   2  46 
Equity investments  10      2  12 
Total increase (decrease) in interest income  (2,064)  (478)  387  (2,155)
Interest-bearing liabilities:            
Interest-bearing deposits  (126)  28   15  (83)
Federal Home Loan Bank advances  (2)     2   
Other interest-bearing liabilities           
Total increase (decrease) in interest expense  (128)  28   17  (83)
Increase (decrease) in net interest income $(1,936) $(506) $370 $(2,072)


             
  Three Months Ended June 30, 2021,
  Compared to Three Months Ended June 30, 2020
  Increase (Decrease) due to  
(Dollars in thousands) Rate Volume  Days Total
Interest-earning assets:            
Total loans $(1,249) $(815) $ $(2,064)
Securities  (214)  318     104 
Interest-bearing deposits at other financial institutions  (77)  131     54 
Equity investments  (15)  2     (13)
Total decrease in interest income  (1,555)  (364)    (1,919)
Interest-bearing liabilities:            
Interest-bearing deposits  (936)  181     (755)
Federal Home Loan Bank advances  51   (70)    (19)
Other interest-bearing liabilities  (5)       (5)
Total increase (decrease) in interest expense  (890)  111     (779)
Decrease in net interest income $(665) $(475) $ $(1,140)


             
  Six Months Ended June 30, 2021,
  Compared to Six Months Ended June 30, 2020
  Increase (Decrease) due to  
(Dollars in thousands) Rate Volume  Days Total 
Interest-earning assets:            
Total loans $(4,478) $2,328  $(366) $(2,516)
Securities  (554)  482   (14)  (86)
Interest-bearing deposits at other financial institutions  (1,618)  800   (6)  (824)
Equity investments  (64)  23   (2)  (43)
Total increase (decrease) in interest income  (6,714)  3,633   (388)  (3,469)
Interest-bearing liabilities:            
Interest-bearing deposits  (3,669)  529   (31)  (3,171)
Federal Home Loan Bank advances  64   (80)  (3)  (19)
Other interest-bearing liabilities     (9)     (9)
Total increase (decrease) in interest expense  (3,605)  440   (34)  (3,199)
Increase (decrease) in net interest income $(3,109) $3,193  $(354) $(270)


CBTX, INC. AND SUBSIDIARY
Yield Trend(1)

           
  Three Months Ended
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020
           
Interest-earning assets:          
Total loans 4.36% 4.64% 4.42% 4.37% 4.54%
Securities 1.76% 1.84% 1.80% 1.87% 2.05%
Interest-bearing deposits at other financial institutions 0.13% 0.15% 0.17% 0.18% 0.18%
Equity investments 4.13% 3.86% 4.41% 4.20% 4.54%
Total interest-earning assets 3.41% 3.85% 3.79% 3.75% 3.91%
           
Interest-bearing liabilities:          
Interest-bearing deposits 0.28% 0.30% 0.35% 0.42% 0.48%
Federal Home Loan Bank advances 1.77% 1.79% 1.76% 1.76% 1.36%
Other interest-bearing liabilities         0.96%
Total interest-bearing liabilities 0.32% 0.34% 0.39% 0.46% 0.52%
           
Net interest spread(2) 3.09% 3.51% 3.40% 3.29% 3.39%
Net interest margin(3) 3.25% 3.68% 3.59% 3.52% 3.65%
Net interest margin - tax equivalent(4) 3.29% 3.71% 3.62% 3.55% 3.68%



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


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

                
  Three Months Ended
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020
                
Assets               
Interest-earning assets:               
Total loans(1) $2,835,995  $2,901,291  $2,961,622  $2,945,320  $2,908,204 
Securities  302,808   259,341   236,233   236,015   240,343 
Interest-bearing deposits at other financial institutions  670,508   475,279   388,936   383,626   378,405 
Equity investments  15,338   15,353   15,346   15,334   15,147 
Total interest-earning assets  3,824,649   3,651,264   3,602,137   3,580,295   3,542,099 
Allowance for credit losses for loans  (40,806)  (41,078)  (44,233)  (40,135)  (31,443)
Noninterest-earning assets  317,115   321,334   321,303   326,590   305,821 
Total assets $4,100,958  $3,931,520  $3,879,207  $3,866,750  $3,816,477 
                
Liabilities and Shareholders’ Equity               
Interest-bearing liabilities:               
Interest-bearing deposits $1,839,812  $1,802,175  $1,744,557  $1,730,812  $1,687,991 
Federal Home Loan Bank advances  50,000   50,000   50,163   50,000   70,769 
Other interest-bearing liabilities        1,426   2,230   2,101 
Total interest-bearing liabilities  1,889,812   1,852,175   1,796,146   1,783,042   1,760,861 
Noninterest-bearing liabilities:               
Noninterest-bearing deposits  1,611,565   1,478,183   1,482,753   1,484,557   1,462,271 
Other liabilities  46,774   51,634   55,174   55,386   49,958 
Total noninterest-bearing liabilities  1,658,339   1,529,817   1,537,927   1,539,943   1,512,229 
Shareholders’ equity  552,807   549,528   545,134   543,765   543,387 
Total liabilities and shareholders’ equity $4,100,958  $3,931,520  $3,879,207  $3,866,750  $3,816,477 



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


CBTX, INC. AND SUBSIDIARY
Loans and Deposits Period End Balances
(In thousands, except percentages)

                          
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020
  Amount % Amount % Amount % Amount % Amount %
                          
Loan Portfolio:                         
Commercial and industrial $658,733  24.0% $756,707  26.1% $742,957  25.3% $832,686  28.0% $837,667  28.4%
Real estate:                         
Commercial real estate  1,060,968  38.7%  1,072,263  36.9%  1,041,998  35.5%  949,933  31.9%  908,027  30.8%
Construction and development  426,007  15.5%  464,091  16.0%  522,705  17.8%  506,216  17.0%  552,879  18.8%
1-4 family residential  211,328  7.7%  224,880  7.7%  239,872  8.2%  253,868  8.5%  272,253  9.2%
Multi-family residential  265,252  9.7%  271,719  9.4%  258,346  8.8%  298,733  10.0%  255,273  8.7%
Consumer  31,444  1.1%  32,767  1.1%  33,884  1.1%  35,637  1.2%  36,338  1.2%
Agriculture  8,283  0.4%  6,974  0.2%  8,670  0.3%  9,753  0.3%  7,795  0.3%
Other  78,607  2.9%  74,387  2.6%  88,238  3.0%  91,501  3.1%  77,535  2.6%
Gross loans  2,740,622  100.0%  2,903,788  100.0%  2,936,670  100.0%  2,978,327  100.0%  2,947,767  100.0%
Less allowance for credit losses  (37,183)    (40,874)    (40,637)    (44,069)    (39,678)  
Less deferred fees and unearned discount  (10,318)    (11,151)    (9,880)    (12,038)    (12,879)  
Less loans held for sale  (808)    (1,005)    (2,673)    (1,763)       
Loans, net $2,692,313    $2,850,758    $2,883,480    $2,920,457    $2,895,210   
                          
Deposits:                         
Interest-bearing demand accounts $375,543  11.0% $368,124  10.9% $380,175  11.5% $346,406  10.9% $366,281  11.2%
Money market accounts  1,101,091  32.2%  995,945  29.4%  1,039,617  31.5%  916,668  28.9%  878,006  27.0%
Savings accounts  115,823  3.4%  112,467  3.3%  108,167  3.3%  103,062  3.3%  98,485  3.0%
Certificates and other time deposits, $100,000 or greater  142,343  4.2%  145,762  4.3%  152,592  4.6%  171,854  5.4%  200,505  6.2%
Certificates and other time deposits, less than $100,000  125,202  3.6%  141,041  4.2%  144,818  4.4%  171,691  5.4%  197,178  6.1%
Total interest-bearing deposits  1,860,002  54.4%  1,763,339  52.1%  1,825,369  55.3%  1,709,681  53.9%  1,740,455  53.5%
Noninterest-bearing deposits  1,556,784  45.6%  1,621,408  47.9%  1,476,425  44.7%  1,460,983  46.1%  1,513,748  46.5%
Total deposits $3,416,786  100.0% $3,384,747  100.0% $3,301,794  100.0% $3,170,664  100.0% $3,254,203  100.0%


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

                
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020
Nonperforming Assets (at period end):               
Nonaccrual loans:               
Commercial and industrial $10,038  $12,230  $12,588  $6,699  $5,519 
Real estate:               
Commercial real estate  10,572   10,664   10,665   4,811   4,811 
Construction and development     236   238   241   506 
1-4 family residential  363   378   526   325   332 
Multi-family residential               
Consumer               
Agriculture               
Other           3,500    
Nonaccrual loans  20,973   23,508   24,017   15,576   11,168 
Accruing loans 90 or more days past due               
Total nonperforming loans  20,973   23,508   24,017   15,576   11,168 
Foreclosed assets     106          
Total nonperforming assets $20,973  $23,614  $24,017  $15,576  $11,168 
                
Allowance for Credit Losses for Loans (at period end):               
Commercial and industrial $12,260  $13,812  $13,035  $13,347  $12,108 
Real estate:               
Commercial real estate  13,260   14,280   13,798   12,745   12,424 
Construction and development  4,453   5,445   6,089   6,334   7,050 
1-4 family residential  2,172   2,458   2,578   2,871   3,173 
Multi-family residential  2,382   2,714   2,513   3,117   2,880 
Consumer  494   434   440   507   529 
Agriculture  115   107   137   164   134 
Other  2,047   1,624   2,047   4,984   1,380 
Total allowance for credit losses for loans $37,183  $40,874  $40,637  $44,069  $39,678 
                
Credit Quality Ratios (at period end):               
Nonperforming assets to total assets  0.52%  0.59%  0.61%  0.41%  0.29%
Nonperforming loans to loans excluding loans held for sale  0.77%  0.81%  0.82%  0.53%  0.38%
Allowance for credit losses for loans to nonperforming loans  177.29%  173.87%  169.20%  282.93%  355.28%
Allowance for credit losses for loans to loans excluding loans held for sale  1.36%  1.41%  1.39%  1.49%  1.35%


CBTX, INC. AND SUBSIDIARY
Allowance for Credit Losses for Loans
(In thousands, except percentages)

                
  Three Months Ended
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020
                
Beginning balance $40,874  $40,637  $44,069  $39,678  $31,194 
                
Provision (recapture):               
Commercial and industrial  (1,955)  872   (7)  1,270   2,555 
Real estate:               
Commercial real estate  (1,020)  482   910   456   2,872 
Construction and development  (992)  (644)  (245)  (716)  1,255 
1-4 family residential  (286)  (120)  (293)  (297)  809 
Multi-family residential  (332)  201   (604)  237   467 
Consumer  (36)  (10)  (68)  (15)  45 
Agriculture  8   (72)  (27)  30   (7)
Other  423   (423)  563   3,604   541 
Total provision (recapture)  (4,190)  286   229   4,569   8,537 
                
Net (charge-offs) recoveries:               
Commercial and industrial  403   (95)  (305)  (31)  18 
Real estate:               
Commercial real estate        143   (135)  (24)
Construction and development               
1-4 family residential           (5)  (66)
Multi-family residential               
Consumer  96   4   1   (7)  7 
Agriculture     42         12 
Other        (3,500)      
Total net (charge-offs) recoveries  499   (49)  (3,661)  (178)  (53)
                
Ending balance $37,183  $40,874  $40,637  $44,069  $39,678 
Net charge-offs (recoveries) to average loans(1)  (0.07)%  0.01%  0.49%  0.02%  0.01%



      (1)   Annualized.


CBTX, INC. AND SUBSIDIARY
Non-GAAP to GAAP Reconciliation
(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 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.

This earnings 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.

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:

                
  6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020
Tangible Equity               
Total shareholders’ equity $556,227  $545,349  $546,451  $540,921  $537,356 
Adjustments:               
Goodwill  80,950   80,950   80,950   80,950   80,950 
Other intangibles  3,846   3,991   4,171   4,303   4,496 
Tangible equity $471,431  $460,408  $461,330  $455,668  $451,910 
Tangible Assets               
Total assets $4,066,534  $4,028,639  $3,949,217  $3,814,672  $3,901,725 
Adjustments:               
Goodwill  80,950   80,950   80,950   80,950   80,950 
Other intangibles  3,846   3,991   4,171   4,303   4,496 
Tangible assets $3,981,738  $3,943,698  $3,864,096  $3,729,419  $3,816,279 
                
Common shares outstanding  24,450   24,442   24,613   24,713   24,755 
                
Book value per share $22.75  $22.31  $22.20  $21.89  $21.71 
Tangible book value per share $19.28  $18.84  $18.74  $18.44  $18.26 
Total shareholders’ equity to total assets  13.68%  13.54%  13.84%  14.18%  13.77%
Tangible equity to tangible assets  11.84%  11.67%  11.94%  12.22%  11.84%


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