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CBTX, Inc. Reports Second Quarter Financial Results

July 29, 2020 at 4:30 PM EDT

HOUSTON, July 29, 2020 (GLOBE NEWSWIRE) -- CBTX, Inc., or the Company (NASDAQ: CBTX), the bank holding company for CommunityBank of Texas, N.A., or the Bank, today announced net income of $2.2 million, or $0.09 per diluted share, for the quarter ended June 30, 2020, compared to $7.5 million, or $0.30 per diluted share, for the quarter ended March 31, 2020 and $14.3 million, or $0.57 per diluted share, for the quarter ended June 30, 2019.

“I am proud to work every day beside the great CommunityBank of Texas family,” said Robert R. Franklin, Jr., Chairman, CEO and President of the Company. “Our focus remains on our customer base and the communities we serve. We continue to operate in an unprecedented time related to the COVID-19 pandemic and the fog it has created over our daily activities and economies.”

“We believe in the resiliency of our customer base and the communities in which we operate,” Mr. Franklin continued. “We also know how to get through crises. Our team is experienced and many of the same tools we have used in the past are important to help with the outcomes from the pandemic. We persist in our efforts to work to keep our employees safe with internal controls around social distancing, sanitizing and making work from home solutions available when possible.”

“Many of our customers are back to work and finding their own solutions to the problems created by the pandemic.   Our requests from customers for deferrals continues to decline, and the over 2,000 PPP loans we made last quarter have helped our customers through these unprecedented times.” said Mr. Franklin.

“While our customers and team are resilient and moving forward, we believe that it will be several months before we can more clearly see the effects of the shut-down of our economy, both at a local and national level,” Mr. Franklin said.  “We are also monitoring the slowdown of the oil and gas industry and the new normal that the industry will operate under as we go forward.”

“We continued to add to our provision for loan losses during the second quarter primarily because of the general uncertainty created in our markets. We believe that our reserve build and our continued strong capital position gives us the stability we need to continue to work with our customers in these tough times,” Mr. Franklin added. “We believe that CBTX, Inc. will emerge from this crisis strong and able to pursue any opportunities that may arise.”

Highlights

  • Net income was $2.2 million for the second quarter of 2020, a decrease of $5.3 million and $12.1 million compared to the first quarter of 2020 and the second quarter of 2019, respectively, primarily due to the increase in the provision for credit losses during the second quarter of 2020.

  • The provision for credit losses was $9.9 million for the second quarter of 2020, compared to $5.0 million for the first quarter of 2020 and $807,000 for the second quarter of 2019. The increase in 2020 was primarily due to the impact of COVID-19, and the sustained instability of the oil and gas industry on current and forecasted economic factors.

  • The allowance for credit losses, or ACL, for loans increased to $39.7 million at June 30, 2020, compared to $31.2 million at March 31, 2020 and $25.3 million at June 30, 2019.

  • Funded $336.1 million in loans under the Small Business Administration’s Paycheck Protection Program, or the PPP, during the second quarter of 2020.

  • Net interest margin on a tax equivalent basis was 3.68% for the quarter ended June 30, 2020, compared to 4.06% for the quarter ended March 31, 2020 and 4.53% for the quarter ended June 30, 2019.  

  • Declared quarterly cash dividend of $0.10 per share of common stock paid on July 15, 2020.

  • Maintained strong capital ratios with the Company’s total risk-based capital ratio being 16.56% at June 30, 2020, compared to 16.42% at March 31, 2020 and 15.59% at June 30, 2019.

Operating Results

Net Interest Income

Net interest income was $32.2 million for the second quarter of 2020, compared to $32.2 million for the first quarter of 2020 and $34.3 million for the second quarter of 2019. Net interest income decreased $62,000 during the second quarter of 2020, compared to the first quarter of 2020, primarily due to lower rates on loans and other interest-earning assets, partially offset by the impact of increased average loans and lower rates on interest-bearing deposits. Net interest income decreased $2.1 million during the second quarter of 2020, compared to the second quarter of 2019, primarily due to lower rates on loans and other interest-earning assets, partially offset by the impact of increased average loans and lower rates on interest-bearing deposits.

The yield on interest-earning assets was 3.91% for the second quarter of 2020, compared to 4.56% for the first quarter of 2020 and 5.07% for the second quarter of 2019. The cost of interest-bearing liabilities was 0.52% for the second quarter of 2020, 0.94% for the first quarter of 2020 and 1.09% for the second quarter of 2019. Yields on interest-earning assets decreased, and the costs of interest-bearing liabilities did not decrease to the same extent, which caused compression of the Company’s net interest margin on a tax equivalent basis to 3.68% for the second quarter of 2020, from 4.06% for the first quarter of 2020 and 4.53% for the second quarter of 2019.

Provision/Recapture for Credit Losses

The provision for credit losses was $9.9 million for the second quarter of 2020, compared to $5.0 million for the first quarter of 2020 and $807,000 for the second quarter of 2019. The increase in the provision for credit losses for the first and second quarters of 2020 was primarily due to the impact of COVID-19 and the sustained instability of the oil and gas industry during such periods on the local and national economy and on current and forecasted economic factors.

The ACL for loans was $39.7 million, or 1.35% of total loans, at June 30, 2020, compared to $31.2 million, or 1.17% of total loans, at March 31, 2020 and $25.3 million, or 0.96% of total loans, at June 30, 2019. The increase in the ACL for loans was primarily due to the impact of COVID-19 and the sustained instability of the oil and gas industry on current and forecasted economic factors during the first and second quarters of 2020.

The liability associated with the ACL for unfunded commitments was $5.0 million at June 30, 2020, compared to $3.7 million at March 31, 2020 and $378,000 at June 30, 2019. The increase was primarily due to the adoption of Accounting Standards Update, or ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or CECL, effective January 1, 2020, the impact of COVID-19 and the sustained instability of the oil and gas industry, as noted above.

Noninterest Income

Noninterest income was $2.9 million for the second quarter of 2020, $4.3 million for the first quarter of 2020 and $7.3 million for the second quarter of 2019. The decrease in noninterest income during the second quarter of 2020, as compared to the first quarter of 2020 was primarily due to increased interest rate swap origination fees recognized on new interest rate swap transactions during the first quarter of 2020. The decrease in noninterest income during the second quarter of 2020, as compared to the second quarter of 2019 was primarily due to nontaxable death benefit proceeds of $4.7 million received under bank-owned life insurance policies and a gain of $3.3 million over the carrying value recorded during the second quarter of 2019.

Noninterest Expense

Noninterest expense was $22.5 million for the second quarter of 2020, compared to $22.1 million for the first quarter of 2020 and $23.4 million for the second quarter of 2019. The increase in noninterest expense of $406,000 between the second and first quarter of 2020 was primarily due to increased professional and director fees, mainly consulting fees, and increased regulatory fees, partially offset by a decrease in salaries and employee benefits resulting from decreases in employee benefits costs.

The decrease in noninterest expense of $908,000 between the second quarter of 2020 and the second quarter of 2019 primarily related to a reduction in professional and director fees, mainly legal fees, partially offset by increased consulting fees.

Income Taxes

Income tax expense was $539,000 for the second quarter of 2020, $1.9 million for the first quarter of 2020 and $3.1 million for the second quarter of 2019. The effective tax rates were 19.95% for the second quarter of 2020, 19.85% for the first quarter of 2020 and 17.69% for the second quarter of 2019. 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 and bank-owned life insurance.

Balance Sheet Highlights

Loans

Loans, excluding loans held for sale, were $2.9 billion at June 30, 2020, $2.7 billion at March 31, 2020 and $2.6 billion at June 30, 2019.

During the second quarter of 2020, the Company funded 2,010 PPP loans to customers in the principal amount totaling $336.1 million and an average loan balance of $167,000. The Company recognized a net yield of 2.28% during the second quarter of 2020 on these PPP loans.

In support of customers impacted by COVID-19, the Company offered relief through payment deferrals. The deferral periods range from one to six-months, with the majority of the deferrals involving three-month arrangements. As of June 30, 2020, the Company had entered into deferral arrangements on 689 loans with total outstanding principal of $545.0 million. As of June 30, 2020 and March 31, 2020, these arrangements resulted in the deferral of payments, including both principal and interest, totaling $17.0 million and $936,000, respectively.

Asset Quality

Nonperforming assets remain low relative to total assets at $11.2 million, or 0.29% of total assets, at June 30, 2020, compared to $1.4 million, or 0.04% of total assets, at March 31, 2020 and $3.3 million, or 0.10% of total assets, at June 30, 2019. The increase in nonperforming assets during the second quarter of 2020 primarily related to $9.9 million of loans, which were placed on nonaccrual status while subject to deferral arrangements discussed above.

Through June 30, 2020, 35 loans totaling $27.0 million were restructured as troubled debt restructurings, or TDRs, which included 32 loans totaling $26.3 million, that were subject to deferral arrangements discussed above.

Annualized net charge-offs (recoveries) to average loans were 0.01% for the second quarter of 2020, (0.05%) for the first quarter of 2020 and 0.02% for the second quarter of 2019.

Deposits and Borrowings

Total deposits were $3.3 billion at June 30, 2020, $2.8 billion at March 31, 2020 and $2.7 billion at June 30, 2019.

The Company defines total borrowings as the total of repurchase agreements, Federal Home Loan Bank advances and notes payable. Total borrowings were $52.5 million, $51.4 million and $90.8 million at June 30, 2020, March 31, 2020 and June 30, 2019, respectively. Borrowings fluctuated between the second quarter of 2020 and second quarter of 2019 due to increased Federal Home Loan Bank advances to fund loan growth in 2019.

Capital

At June 30, 2020, 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 16.56% at June 30, 2020, compared to 16.42% at March 31, 2020, and 15.59% at June 30, 2019. The Company’s Tier 1 leverage ratio was 11.96% at June 30, 2020, compared to 13.18% at March 31, 2020, and 13.12% at June 30, 2019. The Company’s total shareholders’ equity to total assets ratio was 13.77% at June 30, 2020, 15.67% at March 31, 2020 and 15.18% at June 30, 2019.

The ratio of tangible equity to tangible assets was 11.84% at June 30, 2020, 13.51% at March 31, 2020 and 12.96% at June 30, 2019. 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 press release.

Non-GAAP Financial Measures

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

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

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

Conference Call Information

The Company will hold a conference call to discuss results for the quarter ended June 30, 2020 on July 30, 2020 at 8:00 a.m. Central Standard 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 1285151. 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 $3.9 billion asset bank, offering commercial banking solutions to small and mid-sized businesses and professionals in Houston, Dallas, Beaumont and surrounding communities in Texas. Visit www.communitybankoftx.com for more information.

Forward-Looking Statements

This release may contain certain forward-looking statements within the meaning of the securities laws that are based on various facts and derived utilizing important assumptions, current expectations, estimates and projections about the Company and its subsidiary. Forward-looking statements include information regarding the Company’s future financial performance, business and growth strategy, projected plans and objectives, as well as projections of macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing. Further, certain factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: whether the Company can: manage the economic risks related to the impact of COVID-19 and the recent drop in oil and gas prices (including risks related to its customers’ credit quality, deferrals and modifications to loans, the Company’s ability to borrow, and the impact of a resultant recession generally), and other hazards such as natural disasters and adverse weather, acts of war or terrorism, other pandemics, an outbreak of  hostilities or other international or domestic calamities and the governmental or military response thereto, and other matters beyond the Company’s control; the geographic concentration of our markets in Beaumont and Houston, Texas; manage changes and the continued health or availability of management personnel; the amount of nonperforming and classified assets that the Company holds and the efforts to resolve the nonperforming assets; deterioration of its asset quality; interest rate risks associated with the Company’s business; business and economic conditions generally and in the financial services industry, nationally and within the Company’s primary markets; volatility and direction of oil prices, including risks related to the recent collapse in oil prices, and the strength of the energy industry, generally and within Texas; the composition of the Company’s loan portfolio, including the identity of its borrowers and the concentration of loans in specialized industries, especially the creditworthiness of energy company borrowers; changes in the value of collateral securing the loans; the Company’s ability to maintain important deposit customer relationships and the Company’s 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 loans under the PPP and the risk of holding the PPP loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise lent to; the 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; 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, or FinCEN, of the U.S. Department of Treasury, or reviews or the ability to obtain the 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 and newly enacted fiscal stimulus that impact the Company’s loan portfolio and forbearance practice; and other governmental interventions in the U.S. financial system that may impact how the Company achieves its performance goals. Additionally, many of these risks and uncertainties are currently elevated by and may or will 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
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 6/30/2020 6/30/2019
Profitability:                    
Net income$2,163  $7,541  $12,636  $13,076  $14,315  $9,704  $24,805 
Basic earnings per share$0.09  $0.30  $0.51  $0.52  $0.57  $0.39  $1.00 
Diluted earnings per share$0.09  $0.30  $0.50  $0.52  $0.57  $0.39  $0.99 
                     
Return on average assets (1) 0.23%  0.87%  1.43%  1.53%  1.72%  0.54%  1.52%
Return on average shareholders' equity (1) 1.60%  5.64%  9.40%  9.92%  11.30%  3.60%  9.97%
Net interest margin- tax equivalent (1) 3.68%  4.06%  4.18%  4.43%  4.53%  3.87%  4.55%
Efficiency ratio (2) 64.15%  60.44%  58.96%  56.98%  56.25%  62.26%  58.64%
                     
Liquidity and Capital Ratios:                    
Total shareholders' equity to total assets 13.77%  15.67%  15.40%  15.31%  15.18%  13.77%  15.18%
Tangible equity to tangible assets (3) 11.84%  13.51%  13.26%  13.13%  12.96%  11.84%  12.96%
Common equity tier 1 capital ratio 15.30%  15.23%  15.52%  14.99%  14.71%  15.30%  14.71%
Tier 1 risk-based capital ratio 15.30%  15.23%  15.52%  14.99%  14.71%  15.30%  14.71%
Total risk-based capital ratio 16.56%  16.42%  16.41%  15.88%  15.59%  16.56%  15.59%
Tier 1 leverage ratio 11.96%  13.18%  13.11%  13.23%  13.12%  11.96%  13.12%
                     
Other Data:                    
Weighted average common shares outstanding - Basic 24,752   24,926   24,951   24,923   24,921   24,839   24,916 
Weighted average common shares outstanding - Diluted 24,780   25,000   25,071   25,046   25,042   24,885   25,047 
Common shares outstanding at period end 24,755   24,746   24,980   24,923   24,923   24,755   24,923 
Dividends per share$0.10  $0.10  $0.10  $0.10  $0.10  $0.20  $0.20 
Book value per share$21.71  $21.70  $21.45  $21.07  $20.59  $21.71  $20.59 
Tangible book value per share (3)$18.26  $18.23  $18.01  $17.62  $17.13  $18.26  $17.13 
Employees - full-time equivalents 523   512   500   504   508   523   508 

_____________________________

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

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

               
Balance Sheet Data (at period end):6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019
               
Loans, excluding loans held for sale$2,934,888  $2,671,587  $2,639,085  $2,676,824  $2,642,289 
Allowance for credit losses for loans (39,678)  (31,194)  (25,280)  (25,576)  (25,342)
Loans, net 2,895,210   2,640,393   2,613,805   2,651,248   2,616,947 
               
Cash and equivalents 492,400   284,898   372,064   289,399   266,776 
Securities 235,438   234,014   231,262   228,061   232,601 
Premises and equipment 50,729   50,243   50,875   51,183   51,346 
Goodwill 80,950   80,950   80,950   80,950   80,950 
Other intangible assets 4,496   4,700   4,938   5,106   5,318 
Loans held for sale    882   1,463      1,408 
Operating lease right-to-use asset 14,081   12,577   12,926   12,864   12,355 
Other assets 128,421   116,993   110,261   112,774   111,805 
Total assets$3,901,725  $3,425,650  $3,478,544  $3,431,585  $3,379,506 
               
Noninterest-bearing deposits$1,513,748  $1,195,541  $1,184,861  $1,196,720  $1,201,287 
Interest-bearing deposits 1,740,455   1,596,692   1,667,527   1,547,607   1,537,620 
Total deposits 3,254,203   2,792,233   2,852,388   2,744,327   2,738,907 
               
Federal Home Loan Bank advances 50,000   50,000   50,000   120,000   90,000 
Repurchase agreements 2,500   1,415   485   1,208   805 
Operating lease liabilities 16,983   15,356   15,704   15,513   14,806 
Other liabilities 40,683   29,772   24,246   25,317   21,830 
Total liabilities 3,364,369   2,888,776   2,942,823   2,906,365   2,866,348 
               
Total shareholders’ equity 537,356   536,874   535,721   525,220   513,158 
Total liabilities and shareholders’ equity$3,901,725  $3,425,650  $3,478,544  $3,431,585  $3,379,506 


CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income
(In thousands)

                     
 Three Months Ended  Six Months Ended
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 6/30/2020 6/30/2019
Interest income                    
Interest and fees on loans$32,857 $33,617 $35,634  $36,353 $35,608 $66,474 $69,401
Securities 1,228  1,363  1,442   1,436  1,519  2,591  3,076
Other interest-earning assets 169  1,055  1,279   1,212  1,359  1,224  2,842
Equity investments 171  176  213   192  163  347  315
Total interest income 34,425  36,211  38,568   39,193  38,649  70,636  75,634
Interest expense                    
Deposits 2,022  3,766  4,463   4,130  3,822  5,788  7,406
Federal Home Loan Bank advances 240  221  316   483  523  461  587
Repurchase agreements 1       1  1  1  2
Note payable and junior subordinated debt 4  4  3   4  4  8  12
Total interest expense 2,267  3,991  4,782   4,618  4,350  6,258  8,007
Net interest income 32,158  32,220  33,786   34,575  34,299  64,378  67,627
Provision (recapture) for credit losses                    
Provision (recapture) for credit losses for loans 8,537  4,739  (148)  579  807  13,276  1,954
Provision for credit losses for unfunded commitments 1,333  310         1,643  
Total provision (recapture) for credit losses 9,870  5,049  (148)  579  807  14,919  1,954
Net interest income after provision (recapture) for credit losses 22,288  27,171  33,934   33,996  33,492  49,459  65,673
Noninterest income                    
Deposit account service charges 1,095  1,485  1,587   1,681  1,657  2,580  3,286
Card interchange fees 915  922  1,007   908  941  1,837  1,805
Earnings on bank-owned life insurance 412  416  430   430  3,721  828  4,151
Net gain on sales of assets 139  123  305   190  69  262  157
Other 348  1,381  388   906  915  1,729  1,397
Total noninterest income 2,909  4,327  3,717   4,115  7,303  7,236  10,796
Noninterest expense                    
Salaries and employee benefits 14,012  14,223  14,264   13,951  14,185  28,235  28,007
Occupancy expense 2,558  2,424  2,417   2,484  2,338  4,982  4,605
Professional and director fees 1,541  1,152  1,220   1,455  2,282  2,693  4,373
Data processing and software 1,292  1,222  1,074   1,121  1,086  2,514  2,240
Regulatory fees 476  103  84   144  446  579  910
Advertising, marketing and business development 269  364  452   407  532  633  972
Telephone and communications 392  419  506   434  456  811  834
Security and protection expense 351  374  364   410  367  725  690
Amortization of intangibles 230  221  216   221  225  451  457
Other expenses 1,374  1,587  1,513   1,418  1,486  2,961  2,900
Total noninterest expense 22,495  22,089  22,110   22,045  23,403  44,584  45,988
Net income before income tax expense 2,702  9,409  15,541   16,066  17,392  12,111  30,481
Income tax expense 539  1,868  2,905   2,990  3,077  2,407  5,676
Net income $2,163 $7,541 $12,636  $13,076 $14,315 $9,704 $24,805


CBTX, INC. AND SUBSIDIARY

Net Interest Margin
(In thousands, except percentages)

                         
  Three Months Ended
  6/30/2020 3/31/2020 6/30/2019
     Interest      Interest      Interest  
  Average Earned/ Average Average Earned/ Average Average Earned/ Average
  Outstanding Interest Yield/ Outstanding Interest Yield/ Outstanding Interest Yield/
  Balance Paid Rate (1) Balance Paid Rate (1) Balance Paid Rate (1)
Assets                        
Interest-earning assets:                        
Total loans (2) $2,908,204  $32,857 4.54% $2,634,507  $33,617 5.13% $2,591,928  $35,608 5.51%
Securities  240,343   1,228 2.05%  233,917   1,363 2.34%  233,339   1,519 2.61%
Other interest-earning assets  378,405   169 0.18%  315,099   1,055 1.35%  219,639   1,359 2.48%
Equity investments  15,147   171 4.54%  13,661   176 5.18%  15,218   163 4.32%
Total interest-earning assets  3,542,099  $34,425 3.91%  3,197,184  $36,211 4.56%  3,060,124  $38,649 5.07%
Allowance for credit losses for loans  (31,443)       (25,831)       (24,829)     
Noninterest-earning assets  305,821        296,698        299,234      
Total assets $3,816,477       $3,468,051       $3,334,529      
Liabilities and Shareholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing deposits $1,687,991  $2,022 0.48% $1,650,064  $3,766 0.92% $1,514,697  $3,822 1.01%
Federal Home Loan Bank advances  70,769   240 1.36%  50,000   221 1.78%  83,022   523 2.53%
Repurchase agreements  2,101   1 0.19%  763       877   1 0.46%
Note payable and junior subordinated debt     4       4       4  
Total interest-bearing liabilities  1,760,861  $2,267 0.52%  1,700,827  $3,991 0.94%  1,598,596  $4,350 1.09%
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits  1,462,271        1,184,776        1,194,645      
Other liabilities  49,958        44,620        32,991      
Total noninterest-bearing liabilities  1,512,229        1,229,396        1,227,636      
Shareholders’ equity  543,387        537,828        508,297      
Total liabilities and shareholders’ equity $3,816,477       $3,468,051       $3,334,529      
Net interest income    $32,158      $32,220      $34,299  
Net interest spread (3)       3.39%       3.62%       3.98%
Net interest margin (4)       3.65%       4.05%       4.50%
Net interest margin—tax equivalent (5)       3.68%       4.06%       4.53%

_______________________________

(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 $247,000, $81,000 and $258,000 for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively, were computed using a federal income tax rate of 21%.

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

                 
  Six Months Ended June 30,
  2020
 2019
  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) $2,771,355  $66,474 4.82% $2,546,610  $69,401 5.50%
Securities  237,130   2,591 2.20%  232,499   3,076 2.67%
Other interest-earning assets  346,753   1,224 0.71%  229,405   2,842 2.50%
Equity investments  14,404   347 4.84%  13,537   315 4.69%
Total interest-earning assets  3,369,642  $70,636 4.22%  3,022,051  $75,634 5.05%
Allowance for loan losses  (28,637)       (24,426)     
Noninterest-earning assets  301,281        301,065      
Total assets $3,642,286       $3,298,690      
Liabilities and Shareholders’ Equity                
Interest-bearing liabilities:                
Interest-bearing deposits $1,669,031  $5,788 0.70% $1,529,283  $7,406 0.98%
Federal Home Loan Bank advances  60,385   461 1.54%  46,575   587 2.54%
Repurchase agreements  1,432   1 0.14%  1,364   2 0.30%
Note payable and junior subordinated debt     8       12  
Total interest-bearing liabilities  1,730,848  $6,258 0.73%  1,577,222  $8,007 1.02%
Noninterest-bearing liabilities:                
Noninterest-bearing deposits  1,323,520        1,185,919      
Other liabilities  45,595        33,764      
Total noninterest-bearing liabilities  1,369,115        1,219,683      
Shareholders’ equity  542,323        501,785      
Total liabilities and shareholders’ equity $3,642,286       $3,298,690      
Net interest income    $64,378      $67,627  
Net interest spread (3)       3.49%       4.03%
Net interest margin (4)       3.84%       4.51%
Net interest margin—tax equivalent (5)       3.87%       4.55%

_______________________________

(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 $496,000 and $513,000 for the six months ended June 30, 2020 and June 30, 2019, 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, 2020,
  Compared to Three Months Ended March 31, 2020
  Increase (Decrease) due to   
(Dollars in thousands) Rate Volume Days Total
Interest-earning assets:            
Total loans $(4,251) $3,491 $ $(760)
Securities  (172)  37    (135)
Other interest-earning assets  (1,099)  213    (886)
Equity investments  (24)  19    (5)
Total increase (decrease) in interest income  (5,546)  3,760    (1,786)
Interest-bearing liabilities:            
Interest-bearing deposits  (1,831)  87    (1,744)
Federal Home Loan Bank advances  (73)  92    19 
Repurchase agreements  1       1 
Note payable and junior subordinated debt          
Total increase (decrease) in interest expense  (1,903)  179    (1,724)
Increase (decrease) in net interest income $(3,643) $3,581 $ $(62)


             
  Three Months Ended June 30, 2020, 
  Compared to Three Months Ended June 30, 2019
  Increase (Decrease) due to  
(Dollars in thousands) Rate Volume  Days Total 
Interest-earning assets:            
Total loans $(7,096) $4,345  $ $(2,751)
Securities  (337)  46     (291)
Other interest-earning assets  (2,172)  982     (1,190)
Equity investments  8        8 
Total increase (decrease) in interest income  (9,597)  5,373     (4,224)
Interest-bearing liabilities:            
Interest-bearing deposits  (2,236)  436     (1,800)
Federal Home Loan Bank advances  (205)  (78)    (283)
Repurchase agreements  (1)  1      
Note payable and junior subordinated debt           
Total increase (decrease) in interest expense  (2,442)  359     (2,083)
Increase (decrease) in net interest income $(7,155) $5,014  $ $(2,141)


             
  Six Months Ended June 30, 2020, 
  Compared to Six Months Ended June 30, 2019
  Increase (Decrease) due to
  
(Dollars in thousands) Rate Volume  Days Total 
Interest-earning assets:            
Total loans $(9,441) $6,130  $384 $(2,927)
Securities  (564)  62   17  (485)
Other interest-earning assets  (3,089)  1,455   16  (1,618)
Equity investments  10   20   2  32 
Total increase (decrease) in interest income  (13,084)  7,667   419  (4,998)
Interest-bearing liabilities:            
Interest-bearing deposits  (2,339)  680   41  (1,618)
Federal Home Loan Bank advances  (303)  174   3  (126)
Repurchase agreements  (1)       (1)
Note payable and junior subordinated debt     (4)    (4)
Total increase (decrease) in interest expense  (2,643)  850   44  (1,749)
Increase (decrease) in net interest income $(10,441) $6,817  $375 $(3,249)

CBTX, INC. AND SUBSIDIARY
Yield Trend

          
 Three Months Ended
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019
          
Interest-earning assets:         
Total loans4.54% 5.13% 5.27% 5.43% 5.51%
Securities2.05% 2.34% 2.46% 2.41% 2.61%
Other interest-earning assets0.18% 1.35% 1.69% 2.25% 2.48%
Equity investments4.54% 5.18% 5.24% 4.72% 4.32%
Total interest-earning assets3.91% 4.56% 4.73% 4.98% 5.07%
          
Interest-bearing liabilities:         
Interest-bearing deposits0.48% 0.92% 1.08% 1.05% 1.01%
Federal Home Loan Bank advances1.36% 1.78% 1.82% 2.29% 2.53%
Repurchase agreements0.19%     0.38% 0.46%
Note payable and junior subordinated debt         
Total interest-bearing liabilities0.52% 0.94% 1.11% 1.12% 1.09%
          
Net interest spread (1)3.39% 3.62% 3.62% 3.86% 3.98%
Net interest margin (2)3.65% 4.05% 4.15% 4.39% 4.50%
Net interest margin—tax equivalent (3)3.68% 4.06% 4.18% 4.43% 4.53%

______________________________

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

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

               
 Three Months Ended
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019
               
Assets              
Interest-earning assets:              
Total loans (1)$2,908,204  $2,634,507  $2,682,842  $2,655,941  $2,591,928 
Securities 240,343   233,917   232,441   234,525   233,339 
Other interest-earning assets 378,405   315,099   300,395   215,900   219,639 
Equity investments 15,147   13,661   16,140   16,154   15,218 
Total interest-earning assets 3,542,099   3,197,184   3,231,818   3,122,520   3,060,124 
Allowance for credit losses for loans (31,443)  (25,831)  (25,591)  (25,422)  (24,829)
Noninterest-earning assets 305,821   296,698   298,615   296,861   299,234 
Total assets$3,816,477  $3,468,051  $3,504,842  $3,393,959  $3,334,529 
               
Liabilities and Shareholders’ Equity              
Interest-bearing liabilities:              
Interest-bearing deposits$1,687,991  $1,650,064  $1,646,883  $1,557,503  $1,514,697 
Federal Home Loan Bank advances 70,769   50,000   68,913   83,804   83,022 
Repurchase agreements 2,101   763   423   1,043   877 
Note payable and junior subordinated debt              
Total interest-bearing liabilities 1,760,861   1,700,827   1,716,219   1,642,350   1,598,596 
Noninterest-bearing liabilities:              
Noninterest-bearing deposits 1,462,271   1,184,776   1,212,939   1,189,087   1,194,645 
Other liabilities 49,958   44,620   42,406   39,775   32,991 
Total noninterest-bearing liabilities 1,512,229   1,229,396   1,255,345   1,228,862   1,227,636 
Shareholders’ equity 543,387   537,828   533,278   522,747   508,297 
Total liabilities and shareholders’ equity$3,816,477  $3,468,051  $3,504,842  $3,393,959  $3,334,529 

______________________________

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

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

                         
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019
 Amount  Amount  Amount  Amount  Amount 
                         
Loan Portfolio:                        
Commercial and industrial$837,667  28.4% $542,650  20.3% $527,607  19.9% $523,831  19.5% $540,084  20.4%
Real estate:                        
Commercial real estate 908,027  30.8%  904,395  33.8%  900,746  34.0%  875,329  32.6%  854,513  32.2%
Construction and development 552,879  18.8%  558,343  20.8%  527,812  19.9%  572,276  21.4%  559,672  21.1%
1-4 family residential 272,253  9.2%  276,142  10.3%  280,192  10.6%  287,434  10.7%  281,525  10.6%
Multi-family residential 255,273  8.7%  267,152  10.0%  277,209  10.5%  298,396  11.1%  298,887  11.3%
Consumer 36,338  1.2%  38,133  1.4%  36,782  1.4%  37,975  1.4%  39,803  1.5%
Agriculture 7,795  0.3%  7,520  0.3%  9,812  0.4%  10,836  0.4%  9,923  0.4%
Other 77,535  2.6%  84,076  3.1%  86,513  3.3%  76,860  2.9%  65,471  2.5%
Gross loans 2,947,767  100.0%  2,678,411  100.0%  2,646,673  100.0%  2,682,937  100.0%  2,649,878  100.0%
Less allowance for credit losses (39,678)    (31,194)    (25,280)    (25,576)    (25,342)  
Less deferred fees and unearned discount (12,879)    (5,942)    (6,125)    (6,113)    (6,181)  
Less loans held for sale      (882)    (1,463)         (1,408)  
Loans, net$2,895,210    $2,640,393    $2,613,805    $2,651,248    $2,616,947   
                         
                         
Deposits:                        
Interest-bearing demand accounts$366,281  11.2% $359,943  12.9% $369,744  13.0% $337,746  12.3% $351,326  12.8%
Money market accounts 878,006  27.0%  760,036  27.2%  805,942  28.3%  739,436  26.9%  717,883  26.2%
Savings accounts 98,485  3.0%  90,227  3.2%  92,183  3.2%  91,413  3.3%  91,828  3.4%
Certificates and other time deposits, $100,000 or greater 200,505  6.2%  212,341  7.6%  208,018  7.3%  198,561  7.3%  189,741  6.9%
Certificates and other time deposits, less than $100,000 197,178  6.1%  174,145  6.3%  191,640  6.7%  180,451  6.6%  186,842  6.8%
Total interest-bearing deposits 1,740,455  53.5%  1,596,692  57.2%  1,667,527  58.5%  1,547,607  56.4%  1,537,620  56.1%
Noninterest-bearing deposits 1,513,748  46.5%  1,195,541  42.8%  1,184,861  41.5%  1,196,720  43.6%  1,201,287  43.9%
Total deposits$3,254,203  100.0% $2,792,233  100.0% $2,852,388  100.0% $2,744,327  100.0% $2,738,907  100.0%


CBTX, INC. AND SUBSIDIARY

Credit Quality
(In thousands, except percentages)

               
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019
Nonperforming Assets (at period end):              
Nonaccrual loans:              
Commercial and industrial$5,519  $449  $596  $354  $1,795 
Real estate:              
Commercial real estate 4,811   67   67   159   850 
Construction and development 506   519          
1-4 family residential 332   413   314   629   624 
Multi-family residential              
Consumer              
Agriculture              
Nonaccrual loans 11,168   1,448   977   1,142   3,269 
Accruing loans 90 or more days past due             9 
Total nonperforming loans 11,168   1,448   977   1,142   3,278 
Foreclosed assets             36 
Total nonperforming assets$11,168  $1,448  $977  $1,142  $3,314 
               
Allowance for Credit Losses for Loans (at period end):              
Commercial and industrial$12,108  $9,535  $7,671  $7,470  $7,792 
Real estate:              
Commercial real estate 12,424   9,576   7,975   7,788   7,371 
Construction and development 7,050   5,795   4,446   4,825   4,579 
1-4 family residential 3,173   2,430   2,257   2,338   2,236 
Multi-family residential 2,880   2,413   1,699   1,829   2,178 
Consumer 529   477   388   558   458 
Agriculture 134   129   74   82   73 
Other 1,380   839   770   686   655 
Total allowance for credit losses for loans$39,678  $31,194  $25,280  $25,576  $25,342 
               
Credit Quality Ratios (at period end):              
Nonperforming assets to total assets 0.29%  0.04%  0.03%  0.03%  0.10%
Nonperforming loans to total loans 0.38%  0.05%  0.04%  0.04%  0.12%
Allowance for credit losses for loans to nonperforming loans 355.28%  2,154.28%  2,587.51%  2,239.58%  773.09%
Allowance for credit losses for loans to total loans 1.35%  1.17%  0.96%  0.96%  0.96%


CBTX, INC. AND SUBSIDIARY

Allowance for Credit Losses for Loans
(In thousands, except percentages)

               
 Three Months Ended
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019
Analysis of Allowance for Credit Losses for Loans              
               
Allowance for credit losses for loans at beginning of period$ 31,194  $ 25,280  $ 25,576  $ 25,342  $ 24,643 
               
Adoption of CECL  —    874    —    —    — 
               
Provision (recapture)  8,537    4,739    (148)   579    807 
               
Net (charge-offs) recoveries              
Commercial and industrial  18    398    (205)   (374)   22 
Real estate:              
Commercial real estate  (24)   —    (1)   33    2 
Construction and development  —    —    —    —    — 
1-4 family residential  (66)   1    —    1    (11)
Multi-family residential  —    —    —    —    — 
Consumer  7    (99)   47    (1)   (78)
Agriculture  12    —    10    —    — 
Other  —    1    1    (4)   (43)
Total net (charge-offs) recoveries  (53)   301    (148)   (345)   (108)
               
Allowance for credit losses for loans at end of period$ 39,678  $ 31,194  $ 25,280  $ 25,576  $ 25,342 
               
Net charge-offs (recoveries) to average loans (1) 0.01%  (0.05%)  0.02%  0.05%  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 as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non‑GAAP financial measures do not include operating, other statistical measures or ratios calculated using exclusively financial measures calculated in accordance with GAAP. Non‑GAAP financial measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the way we calculate the non‑GAAP financial measures may differ from that of other companies reporting measures with similar names.

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

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

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

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

               
 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019
Tangible Equity              
Total shareholders’ equity$537,356  $536,874  $535,721  $525,220  $513,158 
Adjustments:              
Goodwill 80,950   80,950   80,950   80,950   80,950 
Other intangibles 4,496   4,700   4,938   5,106   5,318 
Tangible equity$451,910  $451,224  $449,833  $439,164  $426,890 
Tangible Assets              
Total assets$3,901,725  $3,425,650  $3,478,544  $3,431,585  $3,379,506 
Adjustments:              
Goodwill 80,950   80,950   80,950   80,950   80,950 
Other intangibles 4,496   4,700   4,938   5,106   5,318 
Tangible assets$3,816,279  $3,340,000  $3,392,656  $3,345,529  $3,293,238 
               
Common shares outstanding 24,755   24,746   24,980   24,923   24,923 
               
Book value per share$21.71  $21.70  $21.45  $21.07  $20.59 
Tangible book value per share$18.26  $18.23  $18.01  $17.62  $17.13 
Total shareholders’ equity to total assets 13.77%  15.67%  15.40%  15.31%  15.18%
Tangible equity to tangible assets 11.84%  13.51%  13.26%  13.13%  12.96%

 

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