cbtx_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM  10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended  June 30, 2019

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____   to   ____.

Commission File Number: 001-38280

 

CBTX, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Texas

 

20‑8339782

 

 

 

(State or other jurisdiction of

 

(I.R.S. employer

 

 

 

incorporation or organization)

 

identification no.)

9 Greenway Plaza, Suite 110

Houston, Texas 77046

(Address of principal executive offices)

 

(713) 210‑7600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

CBTX

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No 

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

Large accelerated filer

 

Accelerated filer 

 

 

 

Non-accelerated filer

 

Smaller reporting company 

 

 

 

 

 

Emerging growth company 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes  No 

 

 

As of July 22, 2019, there were 26,015,288 shares of the registrant’s common stock outstanding, including 235,153 shares of unvested restricted stock.

 

 

 

 

Table of Contents

CBTX, INC.

 

 

Page

PART I — FINANCIAL INFORMATION 

 

 

 

Item 1. 

Financial Statements – (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of  June  30, 2019 and December 31, 2018

1

 

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2019 and 2018

2

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June  30, 2019 and 2018

3

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June  30, 2019 and 2018

4

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June  30, 2019 and 2018

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

 

Cautionary Note Regarding Forward-looking Statements

33

 

Overview

34

 

Results of Operations

35

 

Financial Condition

41

 

Liquidity and Capital Resources

50

 

Interest Rate Sensitivity and Market Risk

53

 

Impact of Inflation

54

 

Non-GAAP Financial Measures

54

 

Critical Accounting Policies

55

 

Recently Issued Accounting Pronouncements

56

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

56

Item 4. 

Controls and Procedures

56

 

 

 

PART II — OTHER INFORMATION 

Item 1. 

Legal Proceedings

57

Item 1A. 

Risk Factors

57

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 3. 

Defaults Upon Senior Securities

57

Item 4. 

Mine Safety Disclosures

57

Item 5. 

Other Information

58

Item 6. 

Exhibits

58

 

SIGNATURES

59

 

 

 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except par value and share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

 

 

 

 

 

 

ASSETS

 

 

  

 

 

  

Cash and due from banks

 

$

55,213

 

$

54,450

Interest-bearing deposits at other financial institutions

 

 

211,563

 

 

327,620

Total cash and cash equivalents

 

 

266,776

 

 

382,070

Securities

 

 

232,601

 

 

229,964

Equity investments

 

 

18,922

 

 

13,026

Loans held for sale

 

 

1,408

 

 

 —

Loans, net of allowance for loan loss of $25,342 and $23,693 at June 30, 2019 and December 31, 2018, respectively

 

 

2,616,947

 

 

2,423,130

Premises and equipment, net of accumulated depreciation of $31,388 and $29,867 at June 30, 2019 and December 31, 2018, respectively

 

 

51,346

 

 

51,622

Goodwill

 

 

80,950

 

 

80,950

Other intangible assets, net of accumulated amortization of $15,372 and $14,915 at June 30, 2019 and December 31, 2018, respectively

 

 

5,318

 

 

5,775

Bank-owned life insurance

 

 

71,021

 

 

71,525

Operating lease right-to-use asset

 

 

12,355

 

 

 —

Deferred tax asset, net

 

 

6,430

 

 

7,201

Other assets

 

 

15,432

 

 

13,833

Total assets

 

$

3,379,506

 

$

3,279,096

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

  

 

 

  

Liabilities

 

 

  

 

 

  

Noninterest-bearing deposits

 

$

1,201,287

 

$

1,183,058

Interest-bearing deposits

 

 

1,537,620

 

 

1,583,224

Total deposits

 

 

2,738,907

 

 

2,766,282

Repurchase agreements

 

 

805

 

 

2,498

Federal Home Loan Bank advances

 

 

90,000

 

 

 —

Junior subordinated debt

 

 

 —

 

 

1,571

Operating lease liabilities

 

 

14,806

 

 

 —

Other liabilities

 

 

21,830

 

 

21,120

Total liabilities

 

 

2,866,348

 

 

2,791,471

Commitments and contingencies (Note 17)

 

 

  

 

 

  

Shareholders’ equity

 

 

  

 

 

  

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued

 

 

 —

 

 

 —

Common stock, $0.01 par value, 90,000,000 shares authorized, 25,780,135 and 25,777,693 shares issued at June 30, 2019 and December 31, 2018, 24,922,669 and 24,907,421 shares outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

258

 

 

258

Additional paid-in capital

 

 

345,495

 

 

344,497

Retained earnings

 

 

180,401

 

 

160,626

Treasury stock, at cost, 857,466 and 870,272 shares held at June 30, 2019 and December 31, 2018, respectively

 

 

(14,564)

 

 

(14,781)

Accumulated other comprehensive gain (loss), net of tax of $417 and ($791) at June 30, 2019 and December 31, 2018, respectively

 

 

1,568

 

 

(2,975)

Total shareholders’ equity

 

 

513,158

 

 

487,625

Total liabilities and shareholders’ equity

 

$

3,379,506

 

$

3,279,096

 

 

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

    

2019

    

2018

    

2019

    

2018

Interest income

 

 

  

 

 

  

 

 

  

 

 

  

Interest and fees on loans

 

$

35,608

 

$

30,493

 

$

69,401

 

$

58,955

Securities

 

 

1,519

 

 

1,507

 

 

3,076

 

 

2,943

Federal Funds and other interest-earning assets

 

 

1,359

 

 

936

 

 

2,842

 

 

1,930

Equity investments

 

 

163

 

 

191

 

 

315

 

 

384

Total interest income

 

 

38,649

 

 

33,127

 

 

75,634

 

 

64,212

Interest expense

 

 

  

 

 

  

 

 

  

 

 

  

Deposits

 

 

3,822

 

 

2,126

 

 

7,406

 

 

4,074

Federal Home Loan Bank advances and repurchase agreements

 

 

524

 

 

13

 

 

589

 

 

14

Note payable and junior subordinated debt

 

 

 4

 

 

112

 

 

12

 

 

209

Total interest expense

 

 

4,350

 

 

2,251

 

 

8,007

 

 

4,297

Net interest income

 

 

34,299

 

 

30,876

 

 

67,627

 

 

59,915

Provision for loan losses

 

 

807

 

 

690

 

 

1,954

 

 

1,555

Net interest income after provision for loan losses

 

 

33,492

 

 

30,186

 

 

65,673

 

 

58,360

Noninterest income

 

 

  

 

 

  

 

 

  

 

 

  

Deposit account service charges

 

 

1,657

 

 

1,497

 

 

3,286

 

 

2,975

Net gain on sale of assets

 

 

69

 

 

210

 

 

157

 

 

340

Card interchange fees

 

 

941

 

 

971

 

 

1,805

 

 

1,898

Earnings on bank-owned life insurance

 

 

3,721

 

 

465

 

 

4,151

 

 

916

Other

 

 

915

 

 

363

 

 

1,397

 

 

738

Total noninterest income

 

 

7,303

 

 

3,506

 

 

10,796

 

 

6,867

Noninterest expense

 

 

  

 

 

  

 

 

  

 

 

  

Salaries and employee benefits

 

 

14,185

 

 

12,496

 

 

28,007

 

 

25,191

Net occupancy expense

 

 

2,338

 

 

2,433

 

 

4,605

 

 

4,698

Regulatory fees

 

 

446

 

 

513

 

 

910

 

 

1,058

Data processing

 

 

661

 

 

666

 

 

1,375

 

 

1,349

Software

 

 

425

 

 

403

 

 

865

 

 

768

Printing, stationery and office

 

 

327

 

 

303

 

 

680

 

 

567

Amortization of intangibles

 

 

225

 

 

248

 

 

457

 

 

503

Professional and director fees

 

 

2,282

 

 

686

 

 

4,373

 

 

1,605

Correspondent bank and customer related transaction expenses

 

 

66

 

 

68

 

 

131

 

 

135

Loan processing costs

 

 

124

 

 

75

 

 

219

 

 

193

Advertising, marketing and business development

 

 

532

 

 

475

 

 

972

 

 

981

Repossessed real estate and other asset expense

 

 

 —

 

 

 5

 

 

 —

 

 

62

Security and protection expense

 

 

367

 

 

311

 

 

690

 

 

613

Telephone and communications

 

 

456

 

 

394

 

 

834

 

 

780

Other expenses

 

 

969

 

 

936

 

 

1,870

 

 

1,793

Total noninterest expense

 

 

23,403

 

 

20,012

 

 

45,988

 

 

40,296

Net income before income tax expense

 

 

17,392

 

 

13,680

 

 

30,481

 

 

24,931

Income tax expense

 

 

3,077

 

 

2,638

 

 

5,676

 

 

4,777

Net income

 

$

14,315

 

$

11,042

 

$

24,805

 

$

20,154

Earnings per common share

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

$

0.57

 

$

0.44

 

$

1.00

 

$

0.81

Diluted

 

$

0.57

 

$

0.44

 

$

0.99

 

$

0.81

 

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

 

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

    

2019

    

2018

    

2019

    

2018

Net income

 

$

14,315

    

$

11,042

 

$

24,805

    

$

20,154

Change in unrealized gains (losses) on securities available for sale arising during the period, net

 

 

2,721

 

 

(961)

 

 

5,747

 

 

(4,626)

Reclassification adjustments for net realized gains included in net income

 

 

 —

 

 

 —

 

 

 3

 

 

 —

Change in related deferred income tax

 

 

(571)

 

 

201

 

 

(1,207)

 

 

971

Other comprehensive income (loss), net of tax

 

 

2,150

 

 

(760)

 

 

4,543

 

 

(3,655)

Total comprehensive income

 

$

16,465

 

$

10,282

 

$

29,348

 

$

16,499

 

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Treasury Stock

 

Comprehensive

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Income (Loss)

    

Total

Six Months Ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

25,731,504

 

$

257

 

$

343,249

 

$

118,353

 

(898,272)

 

$

(15,256)

 

$

(389)

 

$

446,214

Net income

 

 —

 

 

 —

 

 

 —

 

 

20,154

 

 —

 

 

 —

 

 

 —

 

 

20,154

Dividends on common stock, $0.10 per share

 

 —

 

 

 —

 

 

 —

 

 

(2,507)

 

 —

 

 

 —

 

 

 —

 

 

(2,507)

Exercise of stock options

 

 —

 

 

 —

 

 

(181)

 

 

 —

 

25,400

 

 

431

 

 

 —

 

 

250

Stock-based compensation expense

 

 —

 

 

 —

 

 

739

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

739

Other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(3,655)

 

 

(3,655)

Balance at June 30, 2018

 

25,731,504

 

$

257

 

$

343,807

 

$

136,000

 

(872,872)

 

$

(14,825)

 

$

(4,044)

 

$

461,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

25,777,693

 

$

258

 

$

344,497

 

$

160,626

 

(870,272)

 

$

(14,781)

 

$

(2,975)

 

$

487,625

Net income

 

 —

 

 

 —

 

 

 —

 

 

24,805

 

 —

 

 

 —

 

 

 —

 

 

24,805

Dividends on common stock, $0.20 per share

 

 —

 

 

 —

 

 

 —

 

 

(5,030)

 

 —

 

 

 —

 

 

 —

 

 

(5,030)

Vesting of restricted stock, net of shares withheld for employee tax liabilities

 

2,442

 

 

 —

 

 

(19)

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(19)

Exercise of stock options, net of shares withheld for employee tax liabilities

 

 —

 

 

 —

 

 

(95)

 

 

 —

 

12,806

 

 

217

 

 

 —

 

 

122

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,112

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,112

Other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

4,543

 

 

4,543

Balance at June 30, 2019

 

25,780,135

 

$

258

 

$

345,495

 

$

180,401

 

(857,466)

 

$

(14,564)

 

$

1,568

 

$

513,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

 

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Quarterly Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Treasury Stock

 

Comprehensive

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Income (Loss)

    

Total

Three Months Ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

25,731,504

 

$

257

 

$

343,641

 

$

126,213

 

(898,272)

 

$

(15,256)

 

$

(3,284)

 

$

451,571

Net income

 

 —

 

 

 —

 

 

 —

 

 

11,042

 

 —

 

 

 —

 

 

 —

 

 

11,042

Dividends on common stock, $0.05 per share

 

 —

 

 

 —

 

 

 —

 

 

(1,255)

 

 —

 

 

 —

 

 

 —

 

 

(1,255)

Exercise of stock options

 

 —

 

 

 —

 

 

(181)

 

 

 —

 

25,400

 

 

431

 

 

 —

 

 

250

Stock-based compensation expense

 

 —

 

 

 —

 

 

347

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

347

Other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(760)

 

 

(760)

Balance at June 30, 2018

 

25,731,504

 

$

257

 

$

343,807

 

$

136,000

 

(872,872)

 

$

(14,825)

 

$

(4,044)

 

$

461,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

25,777,904

 

$

258

 

$

344,971

 

$

168,603

 

(859,428)

 

$

(14,597)

 

$

(582)

 

$

498,653

Net income

 

 —

 

 

 —

 

 

 —

 

 

14,315

 

 —

 

 

 —

 

 

 —

 

 

14,315

Dividends on common stock, $0.10 per share

 

 —

 

 

 —

 

 

 —

 

 

(2,517)

 

 —

 

 

 —

 

 

 —

 

 

(2,517)

Vesting of restricted stock, net of shares withheld for employee tax liabilities

 

2,231

 

 

 —

 

 

(17)

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(17)

Exercise of stock options, net of shares withheld for employee tax liabilities

 

 —

 

 

 —

 

 

(26)

 

 

 —

 

1,962

 

 

33

 

 

 —

 

 

 7

Stock-based compensation expense

 

 —

 

 

 —

 

 

567

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

567

Other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,150

 

 

2,150

Balance at June 30, 2019

 

25,780,135

 

$

258

 

$

345,495

 

$

180,401

 

(857,466)

 

$

(14,564)

 

$

1,568

 

$

513,158

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

 

2018

Cash flows from operating activities:

 

 

  

 

 

 

Net income

 

$

24,805

 

$

20,154

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

 

 

  

 

 

 

Provision for loan losses

 

 

1,954

 

 

1,555

Depreciation

 

 

1,635

 

 

1,652

Amortization of intangibles

 

 

457

 

 

503

Amortization of premiums on securities

 

 

534

 

 

574

Amortization of lease right-to-use assets

 

 

659

 

 

 —

Accretion of lease liabilities

 

 

262

 

 

 —

Earnings on bank-owned life insurance

 

 

(4,151)

 

 

(916)

Stock-based compensation expense

 

 

1,112

 

 

739

Deferred income tax provision

 

 

(436)

 

 

171

Net realized gains on sales of debt securities

 

 

(16)

 

 

(12)

Net gains on sales of assets