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CBTX, Inc. Reports Third Quarter Financial Results

October 24, 2019 at 4:01 PM EDT

HOUSTON, Oct. 24, 2019 (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 $13.1 million, or $0.52 per diluted share, for the quarter ended September 30, 2019, compared to $14.3 million, or $0.57 per diluted share, for the quarter ended June 30, 2019 and $13.0 million, or $0.52 per diluted share, for the quarter ended September 30, 2018.

Robert R. Franklin, Jr., the Company’s Chairman, CEO and President said, “We are pleased to announce our results for the third quarter. We  maintained our strong net interest margin in an environment of downward pressure on interest rates. Our team remains disciplined in our relationship-driven approach and focused on our goal of continuing to steadily grow our earnings.”

Mr. Franklin continued, “We are in great markets and continue to see opportunities to grow our franchise. We continue to concentrate on credit quality and we expect to remain mindful of the credit headwinds that may rise in the coming year.”

“We believe that we are positioned to meet the continuing challenges of a lower interest rate environment including utilizing the  advantage provided by our great deposit mix,” he added. “We intend to finish the year strong.”

Highlights

  • Loans increased to $2.7 billion at September 30, 2019, compared to $2.6 billion at June 30, 2019 and $2.5 billion at September 30, 2018.
  • Net interest margin on a tax equivalent basis was 4.43% for the quarter ended September 30, 2019, compared to 4.53% for the quarter ended June 30, 2019 and 4.31% for the quarter ended September 30, 2018.
  • The cost of interest-bearing deposits was at 1.05% for the quarter ended September 30, 2019, compared to 1.01% for the quarter ended June 30, 2019 and 0.77% for the quarter ended September 30, 2018.
  • Nonperforming assets remain low relative to total assets at 0.03% at September 30, 2019 compared to 0.10% of total assets at June 30, 2019 and 0.18% of total assets at September 30, 2018.

Operating Results

Net Interest Income

Net interest income was $34.6 million for the third quarter of 2019, compared to $34.3 million for the second quarter of 2019 and $31.5 million for the third quarter of 2018. The increase in net interest income in the third quarter of 2019 from the second quarter of 2019 was primarily due to higher average loans and the impact of one additional day in the third quarter of 2019 compared to the second quarter of 2019, partially offset by lower  average yields on interest-earning assets, increased average interest-bearing deposits and rates on interest-bearing deposits.

The increase in net interest income in the third quarter of 2019 from the third quarter of 2018 was primarily due to higher average loan balances and yields, partially offset by the impact of higher rates on interest-bearing deposits and increased average FHLB advances.

Provision/Recapture for Loan Losses

Provision for loan loss was $579,000 for the third quarter of 2019, compared to $807,000 for the second quarter of 2019 and a $1.1 million recapture for the third quarter of 2018.

The allowance for loan losses was $25.6 million, or 0.96% of total loans, at September 30, 2019, compared to $25.3 million, or 0.96% of total loans, at June 30, 2019, and $24.5 million, or 0.99% of total loans, at September 30, 2018.  

Noninterest Income

Noninterest income was $4.1 million for the third quarter of 2019, $7.3 million for the second quarter of 2019 and $3.5 million for the third quarter of 2018. During the second quarter of 2019, the Company received nontaxable death benefit proceeds of $4.7 million under bank-owned life insurance policies and recorded a gain of $3.3 million over the carrying value.

Noninterest Expense

Noninterest expense was $22.0 million for the third quarter of 2019, $23.4 million for the second quarter of 2019 and $20.0 million for the third quarter of 2018. Noninterest expense decreased $1.4 million during the third quarter of 2019, compared to the second quarter of 2019, primarily due to decreased legal fees included in professional and director fees and decreased regulatory fees resulting from an FDIC deposit assessment credit received. The Bank incurred legal fees of $729,000 in the third quarter of 2019, compared to $1.4 million in the second quarter of 2019.

Noninterest expense increased $2.1 million in the third quarter of 2019, compared to the third quarter of 2018. Salaries and benefits increased $1.5 million resulting from annual salary increases in 2019 and increased stock compensation expense due to grants of restricted stock. Professional and director fees increased $646,000 due to legal fees as noted above.

Income Taxes

Income tax expense was $3.0 million for the third quarter of 2019, $3.1 million for the second quarter of 2019 and $3.2 million for the third quarter of 2018.

The effective tax rates were 18.61% for the third quarter of 2019, 17.69% for the second quarter of 2019 and 19.76% for the third quarter of 2018. The decrease in the effective tax rate for the second quarter of 2019 was due to a nontaxable gain related to bank-owned life insurance policies as noted above.

Balance Sheet Highlights

Loans

Loans, excluding loans held for sale, were $2.7 billion at September 30, 2019, $2.6 billion at June 30, 2019 and $2.5 billion at September 30, 2018. Loans, excluding loans held for sale, increased 8.7% during the twelve months ended September 30, 2019 due to organic growth.

Asset Quality

Nonperforming assets remain low relative to total assets at $1.1 million, or 0.03% of total assets, at September 30, 2019, $3.3 million, or 0.10% of total assets, at June 30, 2019 and $5.8 million, or 0.18% of total assets, at September 30, 2018.

Annualized net charge-offs to average loans were 0.05% for the third quarter of 2019, 0.02% for the second quarter of 2019 and 0.02% for the third quarter of 2018.

Deposits and Borrowings

Total deposits were $2.7 billion at September 30, 2019 and $2.7 billion at June 30, 2019 and $2.7 billion at September 30, 2018. Deposits increased 2.0% during the twelve months ended September 30, 2019 due to normal fluctuations in customer activities.

We define total borrowings as the total of repurchase agreements, FHLB advances and notes payable. Total borrowings were $121.2 million, $90.8 million and $1.4 million at September 30, 2019, June 30, 2019 and September 30, 2018,  respectively. Borrowings increased during the three months ended September 30, 2019 and June 30, 2019 due to loan growth during each period.

Capital

At September 30, 2019, the Company remained well capitalized under bank regulatory requirements.

Our ratio of tangible equity to tangible assets was 13.13% at September 30, 2019, 12.96% at June 30, 2019 and 12.40% at September 30, 2018. Tangible equity to tangible assets is a non-GAAP financial measure. The most directly comparable GAAP financial measure of tangible equity to tangible assets is total shareholders’ equity to total assets, which was 15.31% at September 30, 2019, 15.18% at June 30, 2019 and 14.79% at September 30, 2018. See the table captioned “Non‑GAAP to GAAP Reconciliation” at the end of this earnings release.

Non-GAAP Financial Measures

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

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

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

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.4 billion asset bank, offering commercial banking solutions to small and mid-sized businesses and professionals in Houston, Dallas, Beaumont and surrounding communities in Texas.  Visit www.communitybankoftx.com for more information.

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

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

                     
 Three Months Ended  Nine Months Ended
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 9/30/2019 9/30/2018
Profitability:                    
Net income$ 13,076  $ 14,315  $ 10,490  $ 14,112  $ 13,023  $ 37,881  $ 33,177 
Basic earnings per share$ 0.52  $ 0.57  $ 0.42  $ 0.57  $ 0.52  $ 1.52  $ 1.34 
Diluted earnings per share$ 0.52  $ 0.57  $ 0.42  $ 0.56  $ 0.52  $ 1.51  $ 1.33 
                     
Return on average assets (1) 1.53%  1.72%  1.30%  1.71%  1.62%  1.52%  1.42%
Return on average shareholders' equity (1) 9.92%  11.30%  8.59%  11.66%  11.02%  9.95%  9.65%
Net interest margin- tax equivalent (1) 4.43%  4.53%  4.56%  4.42%  4.31%  4.51%  4.32%
Efficiency ratio (2) 56.98%  56.25%  61.34%  58.67%  56.96%  58.09%  59.17%
                     
Liquidity and Capital Ratios:                    
Total shareholders' equity to total assets 15.31%  15.18%  15.19%  14.87%  14.79%  15.31%  14.79%
Tangible equity to tangible assets (3) 13.13%  12.96%  12.89%  12.56%  12.40%  13.13%  12.40%
Common equity tier 1 capital ratio 14.99%  14.71%  14.53%  14.71%  14.29%  14.99%  14.29%
Tier 1 risk-based capital ratio 14.99%  14.71%  14.53%  14.76%  14.53%  14.99%  14.53%
Total risk-based capital ratio 15.88%  15.59%  15.41%  15.63%  15.44%  15.88%  15.44%
Tier 1 leverage ratio 13.23%  13.12%  13.02%  12.74%  12.84%  13.23%  12.84%
                     
Other Data:                    
Weighted average common shares outstanding- Basic  24,923    24,921    24,910    24,886    24,859    24,918    24,850 
Weighted average common shares outstanding- Diluted  25,046    25,042    25,054    25,046    25,060    25,053    25,007 
Common shares outstanding at period end  24,923    24,923    24,918    24,907    24,859    24,923    24,859 
Dividends per share$ 0.10  $ 0.10  $ 0.10  $ 0.05  $ 0.05  $ 0.30  $ 0.15 
Book value per share$ 21.07  $ 20.59  $ 20.01  $ 19.58  $ 18.98  $ 21.07  $ 18.98 
Tangible book value per share (3)$ 17.62  $ 17.13  $ 16.54  $ 16.10  $ 15.48  $ 17.62  $ 15.48 
Employees - full-time equivalents  504    508    494    495    489    504    489 
                            

 

_______________
(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 (Unaudited)
(In thousands)

Balance Sheet Data (at period end):9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
               
Loans, excluding loans held for sale$ 2,676,824  $ 2,642,289  $ 2,544,709  $ 2,446,823  $ 2,463,197 
Allowance for loan losses  (25,576)   (25,342)   (24,643)   (23,693)   (24,486)
Loans, net  2,651,248    2,616,947    2,520,066    2,423,130    2,438,711 
               
Cash and equivalents  289,399    266,776    276,515    382,070    281,640 
Securities  228,061    232,601    228,684    229,964    222,493 
Premises and equipment  51,183    51,346    51,453    51,622    52,032 
Goodwill  80,950    80,950    80,950    80,950    80,950 
Other intangible assets  5,106    5,318    5,538    5,775    6,038 
Loans held for sale  —    1,408    852    —    384 
Operating lease right-to-use asset  12,864    12,355    12,879    —    — 
Other assets  112,774    111,805    106,525    105,585    108,205 
Total assets$ 3,431,585  $ 3,379,506  $ 3,283,462  $ 3,279,096  $ 3,190,453 
               
Noninterest-bearing deposits$ 1,196,720  $ 1,201,287  $ 1,229,172  $ 1,183,058  $ 1,144,985 
Interest-bearing deposits  1,547,607    1,537,620    1,521,827    1,583,224    1,545,095 
Total deposits  2,744,327    2,738,907    2,750,999    2,766,282    2,690,080 
               
Repurchase agreements  1,208    805    1,600    2,498    1,351 
Federal Home Loan Bank advances  120,000    90,000    —    —    — 
Junior subordinated debt  —    —    —    1,571    6,726 
Operating lease liabilities  15,513    14,806    15,134    —    — 
Other liabilities  25,317    21,830    17,076    21,120    20,445 
Total liabilities  2,906,365    2,866,348    2,784,809    2,791,471    2,718,602 
               
Shareholders' equity  525,220    513,158    498,653    487,625    471,851 
Total liabilities and shareholders' equity$ 3,431,585  $ 3,379,506  $ 3,283,462  $ 3,279,096  $ 3,190,453 
                    

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

 Three Months Ended  Nine Months Ended
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 9/30/2019 9/30/2018
Interest income                    
Interest and fees on loans$ 36,353 $ 35,608 $ 33,793 $ 33,427  $ 31,513  $ 105,754 $ 90,468
Securities  1,436   1,519   1,557   1,542    1,535    4,512   4,478
Other interest-earning assets  1,212   1,359   1,483   1,696    1,404    4,054   3,334
Equity investments  192   163   152   217    213    507   597
Total interest income  39,193   38,649   36,985   36,882    34,665    114,827   98,877
Interest expense                    
Deposits  4,130   3,822   3,584   3,551    2,961    11,536   7,035
FHLB advances and repurchase agreements  484   524   65   1    62    1,073   76
Note payable and junior subordinated debt  4   4   8   110    116    16   325
Total interest expense  4,618   4,350   3,657   3,662    3,139    12,625   7,436
Net interest income  34,575   34,299   33,328   33,220    31,526    102,202   91,441
Provision (recapture) for loan losses  579   807   1,147   (2,169)   (1,142)   2,533   413
Net interest income after provision (recapture) for loan losses  33,996   33,492   32,181   35,389    32,668    99,669   91,028
Noninterest income                    
Deposit account service charges  1,681   1,657   1,629   1,709    1,597    4,967   4,572
Net gain (loss) on sale of assets  190   69   88   168    152    347   492
Card interchange fees  908   941   864   921    922    2,713   2,820
Earnings on bank-owned life insurance  430   3,721   430   456    443    4,581   1,359
Other  906   915   482   605    412    2,303   1,150
Total noninterest income  4,115   7,303   3,493   3,859    3,526    14,911   10,393
Noninterest expense                    
Salaries and employee benefits  13,951   14,185   13,822   13,834    12,499    41,958   37,690
Net occupancy expense  2,484   2,338   2,267   2,268    2,428    7,089   7,126
Regulatory fees  144   446   464   507    488    1,054   1,546
Data processing  652   661   714   664    664    2,027   2,013
Software  469   425   440   408    400    1,334   1,168
Printing, stationery and office  313   327   353   303    291    993   858
Amortization of intangibles  221   225   232   237    245    678   748
Professional and director fees  1,455   2,282   2,091   1,123    809    5,828   2,414
Correspondent bank and customer related transaction expenses  67   66   65   64    66    198   201
Loan processing costs  124   124   95   153    102    343   295
Advertising, marketing and business development  407   532   440   406    437    1,379   1,418
Repossessed real estate and other asset expense  —   —   —   7    3    —   65
Security and protection expense  410   367   323   317    346    1,100   959
Telephone and communications  434   456   378   408    342    1,268   1,122
Other expenses  914   969   901   1,057    844    2,784   2,637
Total noninterest expense  22,045   23,403   22,585   21,756    19,964    68,033   60,260
Net income before income tax expense  16,066   17,392   13,089   17,492    16,230    46,547   41,161
Income tax expense  2,990   3,077   2,599   3,380    3,207    8,666   7,984
Net income $ 13,076 $ 14,315 $ 10,490 $ 14,112  $ 13,023  $ 37,881 $ 33,177
                       

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

 Three Months Ended
 9/30/2019 6/30/2019 9/30/2018
    Interest      Interest      Interest  
 Average Earned/ Average Average Earned/ Average Average Earned/ Average
 Outstanding Interest Yield/ Outstanding Interest Yield/ Outstanding Interest Yield/
 Balance Paid Rate (1) Balance Paid Rate (1) Balance Paid Rate (1)
Assets                       
Interest-earnings assets:                       
Total loans (2)$ 2,655,941  $ 36,353 5.43% $ 2,591,928  $ 35,608 5.51% $ 2,404,491  $ 31,513 5.20%
Securities  234,525    1,436 2.41%   233,339    1,519 2.61%   230,592    1,535 2.64%
Other interest-earning assets  215,900    1,212 2.25%   219,639    1,359 2.48%   272,739    1,404 2.04%
Equity investments  16,154    192 4.72%   15,218    163 4.32%   16,799    213 5.01%
Total interest-earning assets  3,122,520  $ 39,193 4.98%   3,060,124  $ 38,649 5.07%   2,924,621  $ 34,665 4.70%
Allowance for loan losses  (25,422)        (24,829)        (25,689)     
Noninterest-earnings assets  296,861         299,234         292,598      
Total assets$ 3,393,959       $ 3,334,529       $ 3,191,530      
Liabilities and Shareholders’ Equity                       
Interest-bearing liabilities:                       
Interest-bearing deposits$ 1,557,503  $ 4,130 1.05% $ 1,514,697  $ 3,822 1.01% $ 1,530,077  $ 2,961 0.77%
FHLB advances and repurchase agreements  84,847    484 2.26%   83,899    524 2.51%   12,657    62 1.94%
Note payable and junior subordinated debt  —    4  —    —    4  —    10,826    116 4.25%
Total interest-bearing liabilities  1,642,350  $ 4,618 1.12%   1,598,596  $ 4,350 1.09%   1,553,560  $ 3,139 0.80%
Noninterest-bearing liabilities:                       
Noninterest-bearing deposits  1,189,087         1,194,645         1,145,516      
Other liabilities  39,775         32,991         23,600      
Total noninterest-bearing liabilities  1,228,862         1,227,636         1,169,116      
Shareholders’ equity  522,747         508,297         468,854      
Total liabilities and shareholders’ equity$ 3,393,959       $ 3,334,529       $ 3,191,530      
Net interest income   $ 34,575      $ 34,299      $ 31,526  
Net interest spread (3)      3.86%       3.98%       3.90%
Net interest margin (4)      4.39%       4.50%       4.28%
Net interest margin—tax equivalent (5)      4.43%       4.53%       4.31%
                           

_______________
(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 $257,000, $258,000 and $261,000 for the quarter ended September 30, 2019, June 30, 2019 and September 30, 2018, respectively, were computed using a federal income tax rate of 21%.

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

   Nine Months Ended September 30,
  2019  2018
     Interest      Interest  
  Average Earned/ Average Average Earned/ Average
  Outstanding Interest Yield/ Outstanding Interest Yield/
(Dollars in thousands) Balance Paid Rate (1) Balance Paid Rate (1)
Assets                
Interest-earnings assets:                
Total loans (2) $ 2,583,454  $ 105,754 5.47% $ 2,366,714  $ 90,468 5.11%
Securities   233,913    4,512 2.58%   227,552    4,478 2.63%
Other interest-earning assets   224,123    4,054 2.42%   242,529    3,334 1.84%
Equity investments   14,419    507 4.70%   15,449    597 5.17%
Total interest-earning assets   3,055,909  $ 114,827 5.02%   2,852,244  $ 98,877 4.63%
Allowance for loan losses   (24,762)        (25,318)     
Noninterest-earnings assets   299,648         289,391      
Total assets $ 3,330,795       $ 3,116,317      
Liabilities and Shareholders’ Equity                
Interest-bearing liabilities:                
Interest-bearing deposits $ 1,538,793  $ 11,536 1.00% $ 1,499,925  $ 7,035 0.63%
FHLB advances and repurchase agreements   60,377    1,073 2.38%   5,979    76 1.70%
Note payable and junior subordinated debt   —    16  —    10,826    325 4.01%
Total interest-bearing liabilities   1,599,170  $ 12,625 1.06%   1,516,730  $ 7,436 0.66%
Noninterest-bearing liabilities:                
Noninterest-bearing deposits   1,186,985         1,118,408      
Other liabilities   35,791         21,744      
Total noninterest-bearing liabilities   1,222,776         1,140,152      
Shareholders’ equity   508,849         459,435      
Total liabilities and shareholders’ equity $ 3,330,795       $ 3,116,317      
Net interest income    $ 102,202      $ 91,441  
Net interest spread (3)       3.96%       3.97%
Net interest margin (4)       4.47%       4.29%
Net interest margin—tax equivalent (5)       4.51%       4.32%
                   

_______________
(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 $770,000 and $798,000 for the nine months ended September 30, 2019 and September 30, 2018, respectively, were computed using a federal income tax rate of 21%.

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

  Three Months Ended September 30, 2019, Compared to
    Three Months Ended June 30, 2019
  Increase (Decrease) due to   
(Dollars in thousands) Volume Rate Days Total
Interest-earning assets:            
Total loans $ 889  $ (534) $ 390 $ 745 
Securities   8    (108)   17   (83)
Other interest-earning assets   (23)   (139)   15   (147)
Equity investments   10    17    2   29 
Total increase (decrease) in interest income   884    (764)   424   544 
Interest-bearing liabilities:            
Interest-bearing deposits   109    157    42   308 
FHLB advances and repurchase agreements   5    (51)   6   (40)
Note payable and junior subordinated debt   —    —    —   — 
Total increase in interest expense   114    106    48   268 
Increase (decrease) in net interest income $ 770  $ (870) $ 376 $ 276 
             


  Three Months Ended September 30, 2019, Compared to
  Three Months Ended September 30, 2018
  Increase (Decrease) due to  
(Dollars in thousands) Volume Rate Total 
Interest-earning assets:         
Total loans $ 3,295  $ 1,545  $ 4,840 
Securities   26    (125)   (99)
Other interest-earning assets   (293)   101    (192)
Equity investments   (8)   (13)   (21)
Total increase in interest income   3,020    1,508    4,528 
Interest-bearing liabilities:         
Interest-bearing deposits   53    1,116    1,169 
FHLB advances and repurchase agreements   398    24    422 
Note payable and junior subordinated debt   (112)   —    (112)
Total increase in interest expense   339    1,140    1,479 
Increase in net interest income $ 2,681  $ 368  $ 3,049 
             


  Nine Months Ended September 30, 2019, Compared to
  Nine Months Ended September 30, 2018
  Increase (Decrease) due to  
(Dollars in thousands) Volume Rate Total 
Interest-earning assets:         
Total loans $ 8,285  $ 7,001  $ 15,286 
Securities   125    (91)   34 
Other interest-earning assets   (253)   973    720 
Equity investments   (40)   (50)   (90)
Total increase in interest income   8,117    7,833    15,950 
Interest-bearing liabilities:         
Interest-bearing deposits   182    4,319    4,501 
FHLB advances and repurchase agreements   889    108    997 
Note payable and junior subordinated debt   (314)   5    (309)
Total increase in interest expense   757    4,432    5,189 
Increase in net interest income $ 7,360  $ 3,401  $ 10,761 
             

CBTX, INC. AND SUBSIDIARY
Yield Trend (Unaudited)

 Three Months Ended
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Yield Trend - Annualized:         
Interest-earnings assets:         
Total loans5.43% 5.51% 5.48% 5.37% 5.20%
Securities2.41% 2.61% 2.73% 2.70% 2.64%
Other interest-earning assets2.25% 2.48% 2.51% 2.30% 2.04%
Equity investments4.72% 4.32% 5.02% 5.79% 5.01%
Total interest-earning assets4.98% 5.07% 5.03% 4.87% 4.70%
          
Interest-bearing liabilities:         
Interest-bearing deposits1.05% 1.01% 0.94% 0.89% 0.77%
FHLB advances and repurchase agreements2.26% 2.51% 2.28% 0.21% 1.94%
Note payable and junior subordinated debt —   —  8.89% 4.45% 4.25%
Total interest-bearing liabilities1.12% 1.09% 0.95% 0.91% 0.80%
          
Net interest spread (1)3.86% 3.98% 4.08% 3.96% 3.90%
Net interest margin (2)4.39% 4.50% 4.53% 4.39% 4.28%
Net interest margin—tax equivalent (3)4.43% 4.53% 4.56% 4.42% 4.31%
               

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

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

 Three Months Ended
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Average Outstanding Balances:              
               
Assets              
Interest-earnings assets:              
Total loans (1)$ 2,655,941  $ 2,591,928  $ 2,500,788  $ 2,468,415  $ 2,404,491 
Securities  234,525    233,339    231,650    226,882    230,592 
Other interest-earning assets  215,900    219,639    239,281    293,299    272,739 
Equity investments  16,154    15,218    12,285    14,789    16,799 
Total interest-earning assets  3,122,520    3,060,124    2,984,004    3,003,385    2,924,621 
Allowance for loan losses  (25,422)   (24,829)   (24,016)   (24,305)   (25,689)
Noninterest-earnings assets  296,861    299,234    302,915    295,236    292,598 
Total assets$ 3,393,959  $ 3,334,529  $ 3,262,903  $ 3,274,316  $ 3,191,530 
               
Liabilities and Shareholders’ Equity              
Interest-bearing liabilities:              
Interest-bearing deposits$ 1,557,503  $ 1,514,697  $ 1,544,039  $ 1,578,146  $ 1,530,077 
FHLB advances and repurchase agreements  84,847    83,899    11,578    1,925    12,657 
Note payable and junior subordinated debt  —    —    365    9,817    10,826 
Total interest-bearing liabilities  1,642,350    1,598,596    1,555,982    1,589,888    1,553,560 
Noninterest-bearing liabilities:              
Noninterest-bearing deposits  1,189,087    1,194,645    1,177,086    1,181,035    1,145,516 
Other liabilities  39,775    32,991    34,634    23,083    23,600 
Total noninterest-bearing liabilities  1,228,862    1,227,636    1,211,720    1,204,118    1,169,116 
Shareholders’ equity  522,747    508,297    495,201    480,310    468,854 
Total liabilities and shareholders’ equity$ 3,393,959  $ 3,334,529  $ 3,262,903  $ 3,274,316  $ 3,191,530 
                    

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

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

 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
 Amount  Amount  Amount  Amount  Amount 
                         
Loan Portfolio:                        
Commercial and industrial$ 523,831  19.5% $ 540,084  20.4% $ 559,882  21.9% $ 519,779  21.2% $ 569,334  23.1%
Real estate:                        
Commercial real estate  875,329  32.6%   854,513  32.2%   811,742  31.8%   795,733  32.4%   776,439  31.4%
Construction and development  572,276  21.4%   559,672  21.1%   572,861  22.5%   515,533  21.0%   487,289  19.7%
1-4 family residential  287,434  10.7%   281,525  10.6%   281,502  11.0%   282,011  11.5%   288,737  11.7%
Multi-family residential  298,396  11.1%   298,887  11.3%   213,582  8.4%   221,194  9.0%   236,907  9.6%
Consumer  37,975  1.4%   39,803  1.5%   39,072  1.5%   39,421  1.6%   39,807  1.6%
Agricultural  10,836  0.4%   9,923  0.4%   8,915  0.4%   11,076  0.5%   11,609  0.5%
Other  76,860  2.9%   65,471  2.5%   64,215  2.5%   68,382  2.8%   59,484  2.4%
Gross loans  2,682,937  100.0%   2,649,878  100.0%   2,551,771  100.0%   2,453,129  100.0%   2,469,606  100.0%
Less deferred fees and unearned discount  (6,113)     (6,181)     (6,210)     (6,306)     (6,025)  
Less allowance for loan losses  (25,576)     (25,342)     (24,643)     (23,693)     (24,486)  
Less loans held for sale  —      (1,408)     (852)     —      (384)  
Loans, net$ 2,651,248    $ 2,616,947    $ 2,520,066    $ 2,423,130    $ 2,438,711   
                         
                         
Deposits:                        
Interest-bearing demand accounts$ 337,746  12.3% $ 351,326  12.8% $ 352,623  12.8% $ 387,457  14.0% $ 367,120  13.6%
Money market accounts  739,436  26.9%   717,883  26.2%   695,968  25.3%   737,770  26.7%   722,382  26.9%
Savings accounts  91,413  3.3%   91,828  3.4%   96,251  3.5%   96,962  3.5%   94,344  3.5%
Certificates and other time deposits, $100,000 or greater  198,561  7.3%   189,741  6.9%   181,507  6.6%   189,007  6.8%   182,552  6.8%
Certificates and other time deposits, less than $100,000  180,451  6.6%   186,842  6.8%   195,478  7.1%   172,028  6.2%   178,697  6.6%
Total interest-bearing deposits  1,547,607  56.4%   1,537,620  56.1%   1,521,827  55.3%   1,583,224  57.2%   1,545,095  57.4%
Noninterest-bearing deposits  1,196,720  43.6%   1,201,287  43.9%   1,229,172  44.7%   1,183,058  42.8%   1,144,985  42.6%
Total deposits$ 2,744,327  100.0% $ 2,738,907  100.0% $ 2,750,999  100.0% $ 2,766,282  100.0% $ 2,690,080  100.0%
                                   

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

               
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Nonperforming assets (at period end):              
Nonaccrual loans:              
Commercial and industrial$ 354  $ 1,795  $ 1,390  $ 1,317  $ 2,161 
Real estate:              
Commercial real estate  159    850    862    1,517    2,751 
Construction and development  —    —    —    —    13 
1-4 family residential  629    624    635    656    677 
Multi-family residential  —    —    —    —    — 
Consumer  —    —    47    —    — 
Agricultural  —    —    —    —    — 
Nonaccrual loans  1,142    3,269    2,934    3,490    5,602 
Accruing loans 90 or more days past due  —    9    —    —    — 
Total nonperforming loans  1,142    3,278    2,934    3,490    5,602 
Foreclosed assets:              
Real estate  —    36    —    12    175 
Other  —    —    41    —    — 
Total foreclosed assets  —    36    41    12    175 
Total nonperforming assets$ 1,142  $ 3,314  $ 2,975  $ 3,502  $ 5,777 
               
Allowance for Loan Losses (at period end):              
Commercial and industrial$ 7,470  $ 7,792  $ 8,416  $ 7,719  $ 8,763 
Real estate:              
Commercial real estate  7,788    7,371    6,784    6,730    6,913 
Construction and development  4,825    4,579    4,700    4,298    3,606 
1-4 family residential  2,338    2,236    2,249    2,281    2,454 
Multi-family residential  1,829    2,178    1,457    1,511    1,630 
Consumer  558    458    357    387    394 
Agricultural  82    73    50    62    71 
Other  686    655    630    705    655 
Total allowance for loan losses$ 25,576  $ 25,342  $ 24,643  $ 23,693  $ 24,486 
               
Credit Quality Ratios (at period end):              
Nonperforming assets to total assets 0.03%  0.10%  0.09%  0.11%  0.18%
Nonperforming loans to total loans 0.04%  0.12%  0.12%  0.14%  0.23%
Allowance for loan losses to nonperforming loans 2239.58%  773.09%  839.91%  678.88%  437.09%
Allowance for loan losses to total loans 0.96%  0.96%  0.97%  0.97%  0.99%
                    

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

 Three Months Ended
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Analysis of Allowance for Loan Losses              
               
Allowance for loan losses at beginning of period$ 25,342  $ 24,643  $ 23,693  $ 24,486  $ 25,746 
               
Provision (recapture) for loan losses  579    807    1,147    (2,169)   (1,142)
               
Net (charge-offs) recoveries              
Commercial and industrial  (374)   22    (206)   1,521    (114)
Real estate:              
Commercial real estate  33    2    2    (156)   (3)
Construction and development  —    —    —    (1)   — 
1-4 family residential  1    (11)   1    —    4 
Consumer  (1)   (78)   6    1    (4)
Agricultural  —    —    —    10    — 
Other  (4)   (43)   —    1    (1)
Total net (charge-offs) recoveries  (345)   (108)   (197)   1,376    (118)
               
Allowance for loan losses at end of period$ 25,576  $ 25,342  $ 24,643  $ 23,693  $ 24,486 
               
Net charge-offs (recoveries) to average loans(1) 0.05%  0.02%  0.03%  (0.22%)  0.02%
                    

_______________
(1)   Annualized.

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

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

 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Tangible Equity              
Total shareholders’ equity$ 525,220  $ 513,158  $ 498,653  $ 487,625  $ 471,851 
Adjustments:              
Goodwill  80,950    80,950    80,950    80,950    80,950 
Other intangibles  5,106    5,318    5,538    5,775    6,038 
Tangible equity$ 439,164  $ 426,890  $ 412,165  $ 400,900  $ 384,863 
Tangible Assets              
Total assets$ 3,431,585  $ 3,379,506  $ 3,283,462  $ 3,279,096  $ 3,190,453 
Adjustments:              
Goodwill  80,950    80,950    80,950    80,950    80,950 
Other intangibles  5,106    5,318    5,538    5,775    6,038 
Tangible assets$ 3,345,529  $ 3,293,238  $ 3,196,974  $ 3,192,371  $ 3,103,465 
               
Common shares outstanding  24,923    24,923    24,918    24,907    24,859 
               
Book value per share$ 21.07  $ 20.59  $ 20.01  $ 19.58  $ 18.98 
Tangible book value per share$ 17.62  $ 17.13  $ 16.54  $ 16.10  $ 15.48 
Total shareholders’ equity to total assets 15.31%  15.18%  15.19%  14.87%  14.79%
Tangible equity to tangible assets 13.13%  12.96%  12.89%  12.56%  12.40%
                    

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