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CBTX, Inc. Reports Quarterly Financial Results

October 27, 2021 at 5:17 PM EDT

HOUSTON, Oct. 27, 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 third quarter of 2021.

Robert R. Franklin, Jr., Chairman, CEO and President of the Company said, “We are proud to present our third quarter financial results which continue to be indicative of the transition from a COVID dominated economy through most of the first half of the year to an improved economic environment as we enter the fourth quarter. We have seen credit stabilize, and continued growth in deposits which have provided the Bank with significant liquidity and opportunity. As we enter the fourth quarter, with the local economy continuing to improve, our customers are starting new projects and looking for new ways to expand their businesses.”

Mr. Franklin continued, “During much of 2020 and early 2021 we consciously curtailed our commercial real estate lending due to the uncertainty surrounding the sector and we are seeing the effects of slowing that engine as we rebuild our pipeline. Our lenders have made good efforts to increase our pipeline in a highly competitive environment. We have experienced an unusually high number of payoffs during the last couple of quarters but see the stabilization of our portfolio in the fourth quarter and foresee the ability to get back to our traditional growth rate in the next couple of quarters.”

“In light of the significant liquidity that our customers have provided us, we increased our bond purchases on a measured basis given that we continue to reside in a very low interest rate environment. We will continue to look at our expense base as we budget for 2022 and make adjustments where warranted,” Mr. Franklin added.

Mr. Franklin further said, “CBTX, Inc. is in a solid position for success with an experienced lending staff, liquidity to lend and significant capital to give us flexibility in supporting our future expansion decisions. Our strong, loyal and low-cost relationship driven deposit base continues to provide significant shareholder value. Our asset sensitivity gives us an upside as we transition to a higher interest rate environment possibly in late 2022. Our goal is to finish strong in the fourth quarter as we build momentum into 2022 and return to our traditional growth rate. We are excited about the future for CBTX, Inc.”

Highlights

  • Net income was $14.4 million for the third quarter of 2021, or $0.59 per diluted share, compared to $11.7 million, or $0.48 per diluted share, for the second quarter of 2021 and $6.4 million, or $0.26 per diluted share, for the third quarter of 2020.
  • Decrease in the allowance for credit losses, or ACL, resulted in a recapture of credit losses of $4.9 million during the third quarter of 2021, primarily due to continued improvements in the national and local economies and economic forecasts and the reduction of the loan portfolios during the third quarter of 2021.
  • Net interest margin on a tax equivalent basis decreased to 3.22% for the third quarter of 2021, compared to 3.29% for the second quarter of 2021, primarily due to lower average balances for the loan portfolio.
  • Cash and equivalents increased $210.4 million to $998.8 million during the third quarter of 2021, primarily due to net deposit inflows and loan payments received.

Operating Results

Net Interest Income

Net interest income was $31.2 million for the third quarter of 2021, compared to $31.0 million for the second quarter of 2021 and $31.7 million for the third quarter of 2020. Net interest income increased $231,000 during the third quarter of 2021, compared to the second quarter of 2021, primarily due to an increase in income on interest-bearing deposits at other financial institutions due to higher rates and higher average balances and an increase in income on securities due to higher average securities balances, higher rates on loans and the impact of an additional day during the third quarter of 2021 compared to the second quarter of 2021. These increases were partially offset by lower average loans. The increase in loan yield during the third quarter of 2021 includes $2.3 million of net fees recognized on Paycheck Protection Program, or PPP, loans in the third quarter of 2021, compared to $1.5 million recognized in the second quarter of 2021.

Net interest income decreased $459,000 during the third quarter of 2021, compared to the third quarter of 2020, primarily due to lower average loans and higher average interest-bearing deposits, partially offset by lower rates on interest-bearing deposits and higher rates on loans.

The yield on interest-earning assets was 3.33% for the third quarter of 2021, compared to 3.41% for the second quarter of 2021 and 3.75% for the third quarter of 2020. The cost of interest-bearing liabilities was 0.30% for the third quarter of 2021, 0.32% for the second quarter of 2021 and 0.46% for the third quarter of 2020. The Company’s net interest margin on a tax equivalent basis was 3.22% for the third quarter of 2021, compared to 3.29% for the second quarter of 2021 and 3.55% for the third quarter of 2020.

Provision (Recapture) for Credit Losses

The provision for credit losses was a recapture of credit losses of $4.9 million for the third quarter of 2021, compared to a recapture of credit losses of $5.1 million for the second quarter of 2021 and a provision of credit losses of $4.1 million for the third quarter of 2020.

The recapture of credit losses for the third and second quarters of 2021 were primarily the result of the adjustment of certain qualitative factors used to determine the ACL due to the continued improvements in the national and local economies and economic forecasts.

The provision for credit losses of $4.1 million for the third 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 September 30, 2021, the ACL for loans was $32.2 million, or 1.23%, to loans excluding loans held for sale, $37.2 million, or 1.36%, to loans excluding loans held for sale, at June 30, 2021 and $44.1 million, or 1.49%, to loans excluding loans held for sale at September 30, 2020. The decrease in the ACL for loans at September 30, 2021 was primarily the result of the adjustment of certain qualitative factors utilized in the Company’s ACL estimate due to the continued improvements in the national and local economies and economic forecasts. A decrease in the Company’s loan portfolio also contributed to the decrease in the ACL during 2021.

The ACL for unfunded commitments was $3.6 million at September 30, 2021, compared to $3.4 million at June 30, 2021 and $4.5 million at September 30, 2020. The decrease in the ACL for unfunded commitments from June 30, 2021 to September 30, 2021 and from September 30, 2020 to September 30, 2021 was primarily the result of the adjustment to certain qualitative factors due to the continued improvements in the national and local economies and economic forecasts as well as fluctuations in unfunded commitments.

Noninterest Income

Noninterest income was $5.6 million for the third quarter of 2021, $3.5 million for the second quarter of 2021 and $4.0 million for the third quarter of 2020. The increase of $2.1 million for the third quarter of 2021, compared to the second quarter of 2021 and an increase of $1.5 million for the third quarter of 2021, compared to the third quarter of 2020 were both primarily due to gains of $1.9 million and $769,000 during the third quarter of 2021 and 2020 related to bank-owned life insurance. As the owner and beneficiary under bank-owned insurance policies as the result of claims submitted on covered individuals, the Company received proceeds of $2.7 million and $2.0 million during the third quarter of 2021 and the third quarter of 2020, respectively.

Noninterest Expense

Noninterest expense was $24.4 million for the third quarter of 2021, compared to $25.2 million for the second quarter of 2021 and $23.9 million for the third quarter of 2020. The decrease in noninterest expense of $825,000 between the third quarter of 2021 and the second quarter of 2021 was primarily due to a $874,000 decrease in professional and director fees. Professional fees related to Bank Secrecy Act/Anti-Money Laundering, or BSA/AML, compliance matters decreased $1.2 million to $202,000 for the third quarter of 2021, compared to $1.4 million for the second quarter of 2021. This decrease in BSA/AML related professional fees during the third quarter of 2021 was partially offset by increases in consulting fees related to a loan review project.

The increase in noninterest expense of $514,000 for the third quarter of 2021, compared to the third quarter of 2020, was primarily due to a $668,000 increase in salaries and employee benefits, a $164,000 increase in occupancy expense, a $104,000 increase in data processing and software, and a $126,000 increase in security and protection expense, partially offset by a $879,000 decrease in professional and director fees. Professional fees related to BSA/AML compliance matters decreased $1.3 million to $202,000 for the third quarter of 2021, compared to $1.5 million for the third quarter of 2020.

Income Taxes

Income tax expense was $2.9 million for the third quarter of 2021, $2.7 million for the second quarter of 2021 and $1.3 million for the third quarter of 2020. The effective tax rates were 16.81% for the third quarter of 2021, 18.70% for the second quarter of 2021 and 17.31% for the third 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 $2.6 billion at September 30, 2021, $2.7 billion at June 30, 2021 and $3.0 billion at September 30, 2020. The decrease from June 30, 2021 to September 30, 2021 and the decrease from September 30, 2020 to September 30, 2021 were both primarily due to larger loan paydowns than loan originations.

The decrease in loans was also impacted by the decrease in the Company’s PPP loans which were $100.8 million, net of deferred fees and unearned discounts, at September 30, 2021, $179.1 million at June 30, 2021 and $324.3 million at September 30, 2020. During the third quarter of 2021, no PPP loans were originated and payments totaling $80.6 million were received. During the second quarter of 2021, $20.4 million of PPP loans were originated and payments totaling $110.4 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 nine months of 2021. As of September 30, 2021, the Company had 7 loans subject to such deferral arrangements with outstanding principal balances of $18.8 million and 9 loans on deferral arrangements with total outstanding principal balances of $20.5 million at June 30, 2021 and 41 loans on deferral arrangement with total outstanding principal balances totaling $82.4 million at September 30, 2020.

Cash and Cash Equivalents

Cash and equivalents increased $210.4 million from June 30, 2021 to September 30, 2021 and $621.2 million from September 30, 2020 to September 30, 2021. These increases are primarily due to loan payments received and net deposit inflows.

Securities

Securities were $359.5 million at September 30, 2021, $309.2 million at June 30, 2021 and $226.1 million at September 30, 2020. The increase in securities was primarily due to purchases out pacing maturities, call and paydowns.

Deposits and Borrowings

Total deposits were $3.5 billion at September 30, 2021, $3.4 billion at June 30, 2021 and $3.2 billion at September 30, 2020. The increase in deposits of $114.8 million between June 30, 2021 and September 30, 2021 was due to net deposit inflows of $43.5 million in interest-bearing accounts and net deposit inflows of $71.4 million in non-interest-bearing accounts. The increase in deposits of $361.0 million between September 30, 2020 and September 30, 2021 was due to net deposit inflows of $193.8 million and $167.2 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 $52.2 million at September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

Capital

At September 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 18.12% at September 30, 2021, compared to 17.72% at June 30, 2021 and 16.67% at September 30, 2020. The Company’s tier 1 leverage ratio was 11.69% at September 30, 2021, compared to 11.63% at June 30, 2021 and 11.90% at September 30, 2020. The Company’s total shareholders’ equity to total assets ratio was 13.41% at September 30, 2021, 13.68% at June 30, 2021 and 14.18% at September 30, 2020.

The ratio of tangible equity to tangible assets was 11.64% at September 30, 2021, 11.84% at June 30, 2021 and 12.22% at September 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 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 third quarter 2021 financial results on Thursday, October 28, 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 5048704. 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 possible results and amount of civil money penalties related to such FinCEN investigation and the Company’s BSA/AML program; 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  Nine Months Ended
     9/30/2021    6/30/2021    3/31/2021    12/31/2020    9/30/2020 9/30/2021 9/30/2020
Profitability:                     
Net income $14,421  $11,703  $10,019  $10,236  $6,421  $36,143  $16,125 
Basic earnings per share $0.59  $0.48  $0.41  $0.42  $0.26  $1.48  $0.65 
Diluted earnings per share $0.59  $0.48  $0.41  $0.41  $0.26  $1.47  $0.65 
                      
Return on average assets(1)  1.37%  1.14%  1.03%  1.05%  0.66%  1.19%  0.58%
Return on average shareholders' equity(1)  10.15%  8.49%  7.39%  7.47%  4.70%  8.70%  3.97%
Net interest margin - tax equivalent(1)  3.22%  3.29%  3.71%  3.62%  3.55%  3.40%  3.76%
Efficiency ratio(2)  66.21%  73.02%  64.32%  65.64%  66.77%  67.76%  63.76%
                      
Liquidity and Capital Ratios:                     
Total shareholders' equity to total assets  13.41%  13.68%  13.54%  13.84%  14.18%  13.41%  14.18%
Tangible equity to tangible assets(3)  11.64%  11.84%  11.67%  11.94%  12.22%  11.64%  12.22%
Common equity tier 1 capital ratio  16.87%  16.46%  15.75%  15.45%  15.41%  16.87%  15.41%
Tier 1 risk-based capital ratio  16.87%  16.46%  15.75%  15.45%  15.41%  16.87%  15.41%
Total risk-based capital ratio  18.12%  17.72%  17.00%  16.71%  16.67%  18.12%  16.67%
Tier 1 leverage ratio  11.69%  11.63%  11.90%  12.00%  11.90%  11.69%  11.90%
                      
Credit Quality:                     
Allowance for credit losses for loans to loans excluding loans held for sale  1.23%  1.36%  1.41%  1.39%  1.49%  1.23%  1.49%
Nonperforming assets to total assets  0.49%  0.52%  0.59%  0.61%  0.41%  0.49%  0.41%
Nonperforming loans to loans excluding loans held for sale  0.79%  0.77%  0.81%  0.82%  0.53%  0.79%  0.53%
Net charge-offs (recoveries) to average loans(1)  (0.01)%  (0.07)%  0.01%  0.49%  0.02%  (0.03)%   
                      
Other Data:                     
Weighted average common shares outstanding - basic  24,432   24,447   24,508   24,621   24,748   24,462   24,808 
Weighted average common shares outstanding - diluted  24,544   24,571   24,616   24,678   24,770   24,572   24,847 
Common shares outstanding at period end  24,420   24,450   24,442   24,613   24,713   24,420   24,713 
Dividends per share $0.13  $0.13  $0.13  $0.10  $0.10  $0.39  $0.30 
Book value per share $23.12  $22.75  $22.31  $22.20  $21.89  $23.12  $21.89 
Tangible book value per share(3) $19.65  $19.28  $18.84  $18.74  $18.44  $19.65  $18.44 
Employees - full-time equivalents  520   529   517   511   515   520   515 



(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)

                
     9/30/2021    6/30/2021 3/31/2021 12/31/2020 9/30/2020
                
Loans excluding loans held for sale $2,608,402  $2,729,496  $2,891,632  $2,924,117  $2,964,526 
Allowance for credit losses for loans  (32,208)  (37,183)  (40,874)  (40,637)  (44,069)
Loans, net  2,576,194   2,692,313   2,850,758   2,883,480   2,920,457 
                
Cash and equivalents  998,785   788,409   604,671   538,007   377,572 
Securities  359,539   309,233   289,091   237,281   226,101 
Premises and equipment  59,235   59,987   60,551   61,152   61,732 
Goodwill  80,950   80,950   80,950   80,950   80,950 
Other intangible assets  3,702   3,846   3,991   4,171   4,303 
Loans held for sale  327   808   1,005   2,673   1,763 
Operating lease right-to-use asset  11,527   12,514   12,900   13,285   12,893 
Other assets  118,860   118,474   124,722   128,218   128,901 
Total assets $4,209,119  $4,066,534  $4,028,639  $3,949,217  $3,814,672 
                
Noninterest-bearing deposits $1,628,144  $1,556,784  $1,621,408  $1,476,425  $1,460,983 
Interest-bearing deposits  1,903,491   1,860,002   1,763,339   1,825,369   1,709,681 
Total deposits  3,531,635   3,416,786   3,384,747   3,301,794   3,170,664 
                
Federal Home Loan Bank advances  50,000   50,000   50,000   50,000   50,000 
Repurchase agreements              2,153 
Operating lease liabilities  14,556   15,590   16,060   16,447   15,759 
Other liabilities  48,335   27,931   32,483   34,525   35,175 
Total liabilities  3,644,526   3,510,307   3,483,290   3,402,766   3,273,751 
                
Total shareholders’ equity  564,593   556,227   545,349   546,451   540,921 
Total liabilities and shareholders’ equity $4,209,119  $4,066,534  $4,028,639  $3,949,217  $3,814,672 


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

                      
  Three Months Ended  Nine Months Ended
     9/30/2021    6/30/2021    3/31/2021    12/31/2020    9/30/2020    9/30/2021    9/30/2020
Interest income                            
Interest and fees on loans $30,765  $30,793  $33,165 $32,886  $32,318  $94,723  $98,792
Securities  1,435   1,332   1,173  1,070   1,107   3,940   3,698
Interest-bearing deposits at other financial institutions  340   223   177  168   176   740   1,400
Equity investments  157   158   146  170   162   461   509
Total interest income  32,697   32,506   34,661  34,294   33,763   99,864   104,399
Interest expense                           
Deposits  1,227   1,267   1,350  1,549   1,831   3,844   7,619
Federal Home Loan Bank advances  221   221   221  221   221   663   682
Other interest-bearing liabilities          4   3      12
Total interest expense  1,448   1,488   1,571  1,774   2,055   4,507   8,313
Net interest income  31,249   31,018   33,090  32,520   31,708   95,357   96,086
Provision (recapture) for credit losses                     
Provision (recapture) for credit losses for loans  (5,057)  (4,190)  286  229   4,569   (8,961)  17,845
Provision (recapture) for credit losses for unfunded commitments  162   (893)  126  (364)  (461)  (605)  1,182
Total provision (recapture) for credit losses  (4,895)  (5,083)  412  (135)  4,108   (9,566)  19,027
Net interest income after provision (recapture) for credit losses  36,144   36,101   32,678  32,655   27,600   104,923   77,059
Noninterest income                           
Deposit account service charges  1,352   1,167   1,193  1,270   1,176   3,712   3,756
Card interchange fees  1,048   1,095   976  999   995   3,119   2,832
Earnings on bank-owned life insurance  2,323   390   390  407   1,187   3,103   2,015
Net gain on sales of assets  360   366   192  379   114   918   376
Other  479   473   360  467   551   1,312   2,280
Total noninterest income  5,562   3,491   3,111  3,522   4,023   12,164   11,259
Noninterest expense                           
Salaries and employee benefits  15,000   14,734   14,188  12,848   14,332   43,922   42,567
Occupancy expense  2,660   2,597   2,521  2,628   2,496   7,778   7,478
Professional and director fees  1,567   2,441   1,703  3,209   2,446   5,711   5,139
Data processing and software  1,629   1,661   1,576  1,330   1,525   4,866   4,039
Regulatory fees  478   501   556  748   471   1,535   1,050
Advertising, marketing and business development  493   510   285  438   429   1,288   1,062
Telephone and communications  516   550   463  455   486   1,529   1,297
Security and protection expense  425   537   390  423   299   1,352   1,024
Amortization of intangibles  182   186   191  197   198   559   649
Other expenses  1,422   1,480   1,412  1,382   1,176   4,314   4,137
Total noninterest expense  24,372   25,197   23,285  23,658   23,858   72,854   68,442
Net income before income tax expense  17,334   14,395   12,504  12,519   7,765   44,233   19,876
Income tax expense  2,913   2,692   2,485  2,283   1,344   8,090   3,751
Net income  $14,421  $11,703  $10,019 $10,236  $6,421  $36,143  $16,125


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

                         
  Three Months Ended
  9/30/2021 6/30/2021 9/30/2020
  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) $2,702,248  $30,765 4.52% $2,835,995  $30,793 4.36% $2,945,320  $32,318 4.37%
Securities  327,968   1,435 1.74%  302,808   1,332 1.76%  236,015   1,107 1.87%
Interest-bearing deposits at other financial institutions  854,406   340 0.16%  670,508   223 0.13%  383,626   176 0.18%
Equity investments  13,367   157 4.66%  15,338   158 4.13%  15,334   162 4.20%
Total interest-earning assets  3,897,989  $32,697 3.33%  3,824,649  $32,506 3.41%  3,580,295  $33,763 3.75%
Allowance for credit losses for loans  (36,945)         (40,806)         (40,135)       
Noninterest-earning assets  313,901          317,115          326,590        
Total assets $4,174,945         $4,100,958         $3,866,750        
Liabilities and Shareholders’ Equity                                 
Interest-bearing liabilities:                                 
Interest-bearing deposits $1,895,617  $1,227 0.26% $1,839,812  $1,267 0.28% $1,730,812  $1,831 0.42%
Federal Home Loan Bank advances  50,000   221 1.75%  50,000   221 1.77%  50,000   221 1.76%
Other interest-bearing liabilities                2,230   3 0.54%
Total interest-bearing liabilities  1,945,617  $1,448 0.30%  1,889,812  $1,488 0.32%  1,783,042  $2,055 0.46%
Noninterest-bearing liabilities:                                 
Noninterest-bearing deposits  1,612,985          1,611,565          1,484,557        
Other liabilities  52,712          46,774          55,386        
Total noninterest-bearing liabilities  1,665,697          1,658,339          1,539,943        
Shareholders’ equity  563,631          552,807          543,765        
Total liabilities and shareholders’ equity $4,174,945         $4,100,958         $3,866,750        
Net interest income     $31,249        $31,018        $31,708   
Net interest spread(3)         3.03%         3.09%         3.29%
Net interest margin(4)         3.18%         3.25%         3.52%
Net interest margin - tax equivalent(5)         3.22%         3.29%         3.55%



(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 $369,000, $321,000 and $258,000 for the quarters ended September 30, 2021, June 30, 2021 and September 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)

                 
  Nine Months Ended September 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) $2,812,449  $94,723 4.50% $2,829,767  $98,792 4.66%
Securities  296,958   3,940 1.77%  236,756   3,698 2.09%
Interest-bearing deposits at other financial institutions  668,119   740 0.15%  359,134   1,400 0.52%
Equity investments  14,679   461 4.20%  14,716   509 4.62%
Total interest-earning assets  3,792,205  $99,864 3.52%  3,440,373  $104,399 4.05%
Allowance for credit losses for loans  (39,594)         (32,499)       
Noninterest-earning assets  318,009          309,778        
Total assets $4,070,620         $3,717,652        
Liabilities and Shareholders’ Equity                      
Interest-bearing liabilities:                      
Interest-bearing deposits $1,846,211  $3,844 0.28% $1,689,772  $7,619 0.60%
Federal Home Loan Bank advances  50,000   663 1.77%  56,898   682 1.60%
Other interest-bearing liabilities         1,700   12 0.95%
Total interest-bearing liabilities  1,896,211  $4,507 0.32%  1,748,370  $8,313 0.64%
Noninterest-bearing liabilities:                      
Noninterest-bearing deposits  1,568,071          1,377,594        
Other liabilities  50,966          48,881        
Total noninterest-bearing liabilities  1,619,037          1,426,475        
Shareholders’ equity  555,372          542,807        
Total liabilities and shareholders’ equity $4,070,620         $3,717,652        
Net interest income     $95,357        $96,086   
Net interest spread(3)         3.20%         3.41%
Net interest margin(4)         3.36%         3.73%
Net interest margin - tax equivalent(5)         3.40%         3.76%



(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 $989,000 and $754,000 for the nine months ended September 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 September 30, 2021,
   Compared to Three Months Ended June 30, 2021
     Increase (Decrease) due to   
(Dollars in thousands) Rate Volume Days Total
Interest-earning assets:            
Total loans $1,087  $(1,454) $339 $(28)
Securities  (22)  110   15  103 
Interest-bearing deposits at other financial institutions  55   60   2  117 
Equity investments  18   (21)  2  (1)
Total increase (decrease) in interest income  1,138   (1,305)  358  191 
Interest-bearing liabilities:            
Interest-bearing deposits  (94)  40   14  (40)
Federal Home Loan Bank advances  (2)     2   
Other interest-bearing liabilities           
Total increase (decrease) in interest expense  (96)  40   16  (40)
Increase (decrease) in net interest income $1,234  $(1,345) $342 $231 


             
  Three Months Ended September 30, 2021,
   Compared to Three Months Ended September 30, 2020
     Increase (Decrease) due to     
(Dollars in thousands) Rate Volume  Days Total 
Interest-earning assets:            
Total loans $1,117  $(2,670) $ $(1,553)
Securities  (104)  432     328 
Interest-bearing deposits at other financial institutions  (49)  213     164 
Equity investments  15   (20)    (5)
Total increase (decrease) in interest income  979   (2,045)    (1,066)
Interest-bearing liabilities:                
Interest-bearing deposits  (778)  174     (604)
Federal Home Loan Bank advances           
Other interest-bearing liabilities     (3)    (3)
Total increase (decrease) in interest expense  (778)  171     (607)
Increase (decrease) in net interest income $1,757  $(2,216) $ $(459)


             
  Nine Months Ended September 30, 2021,
  Compared to Nine Months Ended September 30, 2020
     Increase (Decrease) due to     
(Dollars in thousands) Rate Volume  Days Total 
Interest-earning assets:            
Total loans $(3,104) $(604) $(361) $(4,069)
Securities  (687)  943   (14)  242 
Interest-bearing deposits at other financial institutions  (1,858)  1,203   (5)  (660)
Equity investments  (45)  (1)  (2)  (48)
Total increase (decrease) in interest income  (5,694)  1,541   (382)  (4,535)
Interest-bearing liabilities:               
Interest-bearing deposits  (4,450)  703   (28)  (3,775)
Federal Home Loan Bank advances  67   (84)  (2)  (19)
Other interest-bearing liabilities     (12)     (12)
Total increase (decrease) in interest expense  (4,383)  607   (30)  (3,806)
Increase (decrease) in net interest income $(1,311) $934  $(352) $(729)


CBTX, INC. AND SUBSIDIARY
Yield Trend(1)

           
  Three Months Ended
     9/30/2021 6/30/2021 3/31/2021 12/31/2020 9/30/2020
           
Interest-earning assets:          
Total loans 4.52% 4.36% 4.64% 4.42% 4.37%
Securities 1.74% 1.76% 1.84% 1.80% 1.87%
Interest-bearing deposits at other financial institutions 0.16% 0.13% 0.15% 0.17% 0.18%
Equity investments 4.66% 4.13% 3.86% 4.41% 4.20%
Total interest-earning assets 3.33% 3.41% 3.85% 3.79% 3.75%
           
Interest-bearing liabilities:          
Interest-bearing deposits 0.26% 0.28% 0.30% 0.35% 0.42%
Federal Home Loan Bank advances 1.75% 1.77% 1.79% 1.76% 1.76%
Other interest-bearing liabilities       1.12% 0.54%
Total interest-bearing liabilities 0.30% 0.32% 0.34% 0.39% 0.46%
           
Net interest spread(2) 3.03% 3.09% 3.51% 3.40% 3.29%
Net interest margin(3) 3.18% 3.25% 3.68% 3.59% 3.52%
Net interest margin - tax equivalent(4) 3.22% 3.29% 3.71% 3.62% 3.55%



(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
     9/30/2021    6/30/2021    3/31/2021    12/31/2020    9/30/2020
                
Assets               
Interest-earning assets:               
Total loans(1) $2,702,248  $2,835,995  $2,901,291  $2,961,622  $2,945,320 
Securities  327,968   302,808   259,341   236,233   236,015 
Interest-bearing deposits at other financial institutions  854,406   670,508   475,279   388,936   383,626 
Equity investments  13,367   15,338   15,353   15,346   15,334 
Total interest-earning assets  3,897,989   3,824,649   3,651,264   3,602,137   3,580,295 
Allowance for credit losses for loans  (36,945)  (40,806)  (41,078)  (44,233)  (40,135)
Noninterest-earning assets  313,901   317,115   321,334   321,303   326,590 
Total assets $4,174,945  $4,100,958  $3,931,520  $3,879,207  $3,866,750 
                
Liabilities and Shareholders’ Equity               
Interest-bearing liabilities:               
Interest-bearing deposits $1,895,617  $1,839,812  $1,802,175  $1,744,557  $1,730,812 
Federal Home Loan Bank advances  50,000   50,000   50,000   50,163   50,000 
Other interest-bearing liabilities           1,426   2,230 
Total interest-bearing liabilities  1,945,617   1,889,812   1,852,175   1,796,146   1,783,042 
Noninterest-bearing liabilities:               
Noninterest-bearing deposits  1,612,985   1,611,565   1,478,183   1,482,753   1,484,557 
Other liabilities  52,712   46,774   51,634   55,174   55,386 
Total noninterest-bearing liabilities  1,665,697   1,658,339   1,529,817   1,537,927   1,539,943 
Shareholders’ equity  563,631   552,807   549,528   545,134   543,765 
Total liabilities and shareholders’ equity $4,174,945  $4,100,958  $3,931,520  $3,879,207  $3,866,750 



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


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

                          
  9/30/2021 6/30/2021 3/31/2021 12/31/2020 9/30/2020
     Amount    %   Amount    %   Amount    %   Amount    %   Amount    %  
                          
Loan Portfolio:                         
Commercial and industrial $596,251  22.8% $658,733  24.0% $756,707  26.1% $742,957  25.3% $832,686  28.0%
Real estate:                              
Commercial real estate  1,029,137  39.3%  1,060,968  38.7%  1,072,263  36.9%  1,041,998  35.5%  949,933  31.9%
Construction and development  393,541  15.0%  426,007  15.5%  464,091  16.0%  522,705  17.8%  506,216  17.0%
1-4 family residential  204,151  7.8%  211,328  7.7%  224,880  7.7%  239,872  8.2%  253,868  8.5%
Multi-family residential  285,852  10.9%  265,252  9.7%  271,719  9.4%  258,346  8.8%  298,733  10.0%
Consumer  27,930  1.1%  31,444  1.1%  32,767  1.1%  33,884  1.1%  35,637  1.2%
Agriculture  8,780  0.4%  8,283  0.4%  6,974  0.2%  8,670  0.3%  9,753  0.3%
Other  71,915  2.7%  78,607  2.9%  74,387  2.6%  88,238  3.0%  91,501  3.1%
Gross loans  2,617,557  100.0%  2,740,622  100.0%  2,903,788  100.0%  2,936,670  100.0%  2,978,327  100.0%
Less allowance for credit losses  (32,208)    (37,183)    (40,874)    (40,637)    (44,069)  
Less deferred fees and unearned discount  (8,828)     (10,318)     (11,151)     (9,880)     (12,038)   
Less loans held for sale  (327)     (808)     (1,005)     (2,673)     (1,763)   
Loans, net $2,576,194     $2,692,313     $2,850,758     $2,883,480     $2,920,457    
                          
Deposits:                         
Interest-bearing demand accounts $386,196  10.9% $375,543  11.0% $368,124  10.9% $380,175  11.5% $346,406  10.9%
Money market accounts  1,139,167  32.3%  1,101,091  32.2%  995,945  29.4%  1,039,617  31.5%  916,668  28.9%
Savings accounts  118,794  3.4%  115,823  3.4%  112,467  3.3%  108,167  3.3%  103,062  3.3%
Certificates and other time deposits, $100,000 or greater  140,740  4.0%  142,343  4.2%  145,762  4.3%  152,592  4.6%  171,854  5.4%
Certificates and other time deposits, less than $100,000  118,594  3.4%  125,202  3.6%  141,041  4.2%  144,818  4.4%  171,691  5.4%
Total interest-bearing deposits  1,903,491  54.0%  1,860,002  54.4%  1,763,339  52.1%  1,825,369  55.3%  1,709,681  53.9%
Noninterest-bearing deposits  1,628,144  46.0%  1,556,784  45.6%  1,621,408  47.9%  1,476,425  44.7%  1,460,983  46.1%
Total deposits $3,531,635  100.0% $3,416,786  100.0% $3,384,747  100.0% $3,301,794  100.0% $3,170,664  100.0%


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

                    
     9/30/2021  6/30/2021  3/31/2021  12/31/2020  9/30/2020
Nonperforming Assets (at period end):                   
Nonaccrual loans:                   
Commercial and industrial $9,773   $10,038   $12,230   $12,588   $6,699 
Real estate:                   
Commercial real estate  10,419    10,572    10,664    10,665    4,811 
Construction and development          236    238    241 
1-4 family residential  351    363    378    526    325 
Other  42                3,500 
Nonaccrual loans  20,585    20,973    23,508    24,017    15,576 
Accruing loans 90 or more days past due                   
Total nonperforming loans  20,585    20,973    23,508    24,017    15,576 
Foreclosed assets          106         
Total nonperforming assets $20,585   $20,973   $23,614   $24,017   $15,576 
                    
Allowance for Credit Losses for Loans (at period end):                   
Commercial and industrial $11,401   $12,260   $13,812   $13,035   $13,347 
Real estate:                        
Commercial real estate  11,744    13,260    14,280    13,798    12,745 
Construction and development  3,334    4,453    5,445    6,089    6,334 
1-4 family residential  1,700    2,172    2,458    2,578    2,871 
Multi-family residential  2,156    2,382    2,714    2,513    3,117 
Consumer  449    494    434    440    507 
Agriculture  109    115    107    137    164 
Other  1,315    2,047    1,624    2,047    4,984 
Total allowance for credit losses for loans $32,208   $37,183   $40,874   $40,637   $44,069 
                    
Credit Quality Ratios (at period end):                   
Nonperforming assets to total assets  0.49%   0.52%   0.59%   0.61%   0.41%
Nonperforming loans to loans excluding loans held for sale  0.79%   0.77%   0.81%   0.82%   0.53%
Allowance for credit losses for loans to nonperforming loans  156.46%   177.29%   173.87%   169.20%   282.93%
Allowance for credit losses for loans to loans excluding loans held for sale  1.23%   1.36%   1.41%   1.39%   1.49%


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

                
  Three Months Ended
     9/30/2021    6/30/2021    3/31/2021    12/31/2020    9/30/2020
                
Beginning balance $37,183  $40,874  $40,637  $44,069  $39,678 
                
Provision (recapture):               
Commercial and industrial  (945)  (1,955)  872   (7)  1,270 
Real estate:               
Commercial real estate  (1,516)  (1,020)  482   910   456 
Construction and development  (1,119)  (992)  (644)  (245)  (716)
1-4 family residential  (469)  (286)  (120)  (293)  (297)
Multi-family residential  (226)  (332)  201   (604)  237 
Consumer  (39)  (36)  (10)  (68)  (15)
Agriculture  (11)  8   (72)  (27)  30 
Other  (732)  423   (423)  563   3,604 
Total provision (recapture)  (5,057)  (4,190)  286   229   4,569 
                
Net (charge-offs) recoveries:               
Commercial and industrial  86   403   (95)  (305)  (31)
Real estate:               
Commercial real estate           143   (135)
Construction and development               
1-4 family residential  (3)           (5)
Multi-family residential               
Consumer  (6)  96   4   1   (7)
Agriculture  5      42       
Other           (3,500)   
Total net (charge-offs) recoveries  82   499   (49)  (3,661)  (178)
                
Ending balance $32,208  $37,183  $40,874  $40,637  $44,069 
Net charge-offs (recoveries) to average loans(1)  (0.01)%  (0.07)%  0.01%  0.49%  0.02%



(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:

                    
     9/30/2021  6/30/2021  3/31/2021  12/31/2020  9/30/2020
Total shareholders’ equity $564,593   $556,227   $545,349   $546,451   $540,921 
Adjustments:                   
Goodwill  (80,950)   (80,950)   (80,950)   (80,950)   (80,950)
Other intangibles  (3,702)   (3,846)   (3,991)   (4,171)   (4,303)
Tangible equity $479,941   $471,431   $460,408   $461,330   $455,668 
                    
Total assets $4,209,119   $4,066,534   $4,028,639   $3,949,217   $3,814,672 
Adjustments:                   
Goodwill  (80,950)   (80,950)   (80,950)   (80,950)   (80,950)
Other intangibles  (3,702)   (3,846)   (3,991)   (4,171)   (4,303)
Tangible assets $4,124,467   $3,981,738   $3,943,698   $3,864,096   $3,729,419 
                    
Common shares outstanding  24,420    24,450    24,442    24,613    24,713 
Book value per share $23.12   $22.75   $22.31   $22.20   $21.89 
Tangible book value per share $19.65   $19.28   $18.84   $18.74   $18.44 
Total shareholders’ equity to total assets  13.41%   13.68%   13.54%   13.84%   14.18%
Tangible equity to tangible assets  11.64%   11.84%   11.67%   11.94%   12.22%

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Justin M. Long
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