cbtx_Current_Folio_10Q

Table of Contents

June

 

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  September 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 October 21, 2019, there were 26,016,468 shares of the registrant’s common stock outstanding, including 236,433 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  September 30, 2019 and December 31, 2018

1

 

Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 2019 and 2018

2

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months ended September 30, 2019 and 2018

3

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months ended September 30, 2019 and 2018

4

 

Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 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

57

 

 

 

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

58

Item 4. 

Mine Safety Disclosures

58

Item 5. 

Other Information

58

Item 6. 

Exhibits

58

 

SIGNATURES

60

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2019

    

2018

 

 

 

 

 

 

ASSETS

 

 

  

 

 

  

Cash and due from banks

 

$

56,416

 

$

54,450

Interest-bearing deposits at other financial institutions

 

 

232,983

 

 

327,620

Total cash and cash equivalents

 

 

289,399

 

 

382,070

Securities

 

 

228,061

 

 

229,964

Equity investments

 

 

19,220

 

 

13,026

Loans, net of allowance for loan loss of $25,576 and $23,693 at September 30, 2019 and December 31, 2018, respectively

 

 

2,651,248

 

 

2,423,130

Premises and equipment, net of accumulated depreciation of $32,128 and $29,867 at September 30, 2019 and December 31, 2018, respectively

 

 

51,183

 

 

51,622

Goodwill

 

 

80,950

 

 

80,950

Other intangible assets, net of accumulated amortization of $15,593 and $14,915 at September 30, 2019 and December 31, 2018, respectively

 

 

5,106

 

 

5,775

Bank-owned life insurance

 

 

71,451

 

 

71,525

Operating lease right-to-use asset

 

 

12,864

 

 

 —

Deferred tax asset, net

 

 

7,094

 

 

7,201

Other assets

 

 

15,009

 

 

13,833

Total assets

 

$

3,431,585

 

$

3,279,096

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

  

 

 

  

Liabilities

 

 

  

 

 

  

Noninterest-bearing deposits

 

$

1,196,720

 

$

1,183,058

Interest-bearing deposits

 

 

1,547,607

 

 

1,583,224

Total deposits

 

 

2,744,327

 

 

2,766,282

Repurchase agreements

 

 

1,208

 

 

2,498

Federal Home Loan Bank advances

 

 

120,000

 

 

 —

Junior subordinated debt

 

 

 —

 

 

1,571

Operating lease liabilities

 

 

15,513

 

 

 —

Other liabilities

 

 

25,317

 

 

21,120

Total liabilities

 

 

2,906,365

 

 

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, 25,780,035 and 25,777,693 shares issued at September 30, 2019 and December 31, 2018, 24,922,689 and 24,907,421 shares outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

258

 

 

258

Additional paid-in capital

 

 

346,097

 

 

344,497

Retained earnings

 

 

190,960

 

 

160,626

Treasury stock, at cost, 857,346 and 870,272 shares held at September 30, 2019 and December 31, 2018, respectively

 

 

(14,562)

 

 

(14,781)

Accumulated other comprehensive gain (loss), net of tax of $656 and ($791) at September 30, 2019 and December 31, 2018, respectively

 

 

2,467

 

 

(2,975)

Total shareholders’ equity

 

 

525,220

 

 

487,625

Total liabilities and shareholders’ equity

 

$

3,431,585

 

$

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 September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Interest income

 

 

  

 

 

  

 

 

  

 

 

  

Interest and fees on loans

 

$

36,353

 

$

31,513

 

$

105,754

 

$

90,468

Securities

 

 

1,436

 

 

1,535

 

 

4,512

 

 

4,478

Other interest-earning assets

 

 

1,212

 

 

1,404

 

 

4,054

 

 

3,334

Equity investments

 

 

192

 

 

213

 

 

507

 

 

597

Total interest income

 

 

39,193

 

 

34,665

 

 

114,827

 

 

98,877

Interest expense

 

 

  

 

 

  

 

 

  

 

 

  

Deposits

 

 

4,130

 

 

2,961

 

 

11,536

 

 

7,035

Federal Home Loan Bank advances and repurchase agreements

 

 

484

 

 

62

 

 

1,073

 

 

76

Note payable and junior subordinated debt

 

 

 4

 

 

116

 

 

16

 

 

325

Total interest expense

 

 

4,618

 

 

3,139

 

 

12,625

 

 

7,436

Net interest income

 

 

34,575

 

 

31,526

 

 

102,202

 

 

91,441

Provision (recapture) for loan losses

 

 

579

 

 

(1,142)

 

 

2,533

 

 

413

Net interest income after provision for loan losses

 

 

33,996

 

 

32,668

 

 

99,669

 

 

91,028

Noninterest income

 

 

  

 

 

  

 

 

  

 

 

  

Deposit account service charges

 

 

1,681

 

 

1,597

 

 

4,967

 

 

4,572

Net gain on sale of assets

 

 

190

 

 

152

 

 

347

 

 

492

Card interchange fees

 

 

908

 

 

922

 

 

2,713

 

 

2,820

Earnings on bank-owned life insurance

 

 

430

 

 

443

 

 

4,581

 

 

1,359

Other

 

 

906

 

 

412

 

 

2,303

 

 

1,150

Total noninterest income

 

 

4,115

 

 

3,526

 

 

14,911

 

 

10,393

Noninterest expense

 

 

  

 

 

  

 

 

  

 

 

  

Salaries and employee benefits

 

 

13,951

 

 

12,499

 

 

41,958

 

 

37,690

Net occupancy expense

 

 

2,484

 

 

2,428

 

 

7,089

 

 

7,126

Regulatory fees

 

 

144

 

 

488

 

 

1,054

 

 

1,546

Data processing

 

 

652

 

 

664

 

 

2,027

 

 

2,013

Software

 

 

469

 

 

400

 

 

1,334

 

 

1,168

Printing, stationery and office

 

 

313

 

 

291

 

 

993

 

 

858

Amortization of intangibles

 

 

221

 

 

245

 

 

678

 

 

748

Professional and director fees

 

 

1,455

 

 

809

 

 

5,828

 

 

2,414

Correspondent bank and customer related transaction expenses

 

 

67

 

 

66

 

 

198

 

 

201

Loan processing costs

 

 

124

 

 

102

 

 

343

 

 

295

Advertising, marketing and business development

 

 

407

 

 

437

 

 

1,379

 

 

1,418

Repossessed real estate and other asset expense

 

 

 —

 

 

 3

 

 

 —

 

 

65

Security and protection expense

 

 

410

 

 

346

 

 

1,100

 

 

959

Telephone and communications

 

 

434

 

 

342

 

 

1,268

 

 

1,122

Other expenses

 

 

914

 

 

844

 

 

2,784

 

 

2,637

Total noninterest expense

 

 

22,045

 

 

19,964

 

 

68,033

 

 

60,260

Net income before income tax expense

 

 

16,066

 

 

16,230

 

 

46,547

 

 

41,161

Income tax expense

 

 

2,990

 

 

3,207

 

 

8,666

 

 

7,984

Net income

 

$

13,076

 

$

13,023

 

$

37,881

 

$

33,177

Earnings per common share

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

$

0.52

 

$

0.52

 

$

1.52

 

$

1.34

Diluted

 

$

0.52

 

$

0.52

 

$

1.51

 

$

1.33

 

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 September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Net income

 

$

13,076

    

$

13,023

 

$

37,881

    

$

33,177

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

 

 

1,084

 

 

(1,957)

 

 

6,831

 

 

(6,583)

Reclassification adjustments for net realized gains included in net income

 

 

54

 

 

23

 

 

57

 

 

23

Change in related deferred income tax

 

 

(239)

 

 

407

 

 

(1,446)

 

 

1,378

Other comprehensive income (loss), net of tax

 

 

899

 

 

(1,527)

 

 

5,442

 

 

(5,182)

Total comprehensive income

 

$

13,975

 

$

11,496

 

$

43,323

 

$

27,995

 

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

Nine Months Ended September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

25,731,504

 

$

257

 

$

343,249

 

$

118,353

 

(898,272)

 

$

(15,256)

 

$

(389)

 

$

446,214

Net income

 

 —

 

 

 —

 

 

 —

 

 

33,177

 

 —

 

 

 —

 

 

 —

 

 

33,177

Dividends on common stock, $0.15 per share

 

 —

 

 

 —

 

 

 —

 

 

(3,762)

 

 —

 

 

 —

 

 

 —

 

 

(3,762)

Exercise of stock options

 

 —

 

 

 —

 

 

(181)

 

 

 —

 

25,400

 

 

431

 

 

 —

 

 

250

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,154

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,154

Other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(5,182)

 

 

(5,182)

Balance at September 30, 2018

 

25,731,504

 

$

257

 

$

344,222

 

$

147,768

 

(872,872)

 

$

(14,825)

 

$

(5,571)

 

$

471,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 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

 

 —

 

 

 —

 

 

 —

 

 

37,881

 

 —

 

 

 —

 

 

 —

 

 

37,881

Dividends on common stock, $0.30 per share

 

 —

 

 

 —

 

 

 —

 

 

(7,547)

 

 —

 

 

 —

 

 

 —

 

 

(7,547)

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

 

 —

 

 

 —

 

 

(98)

 

 

 —

 

12,926

 

 

219

 

 

 —

 

 

121

Shares repurchased

 

(100)

 

 

 —

 

 

(3)

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(3)

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,720

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,720

Other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,442

 

 

5,442

Balance at September 30, 2019

 

25,780,035

 

$

258

 

$

346,097

 

$

190,960

 

(857,346)

 

$

(14,562)

 

$

2,467

 

$

525,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

25,731,504

 

$

257

 

$

343,807

 

$

136,000

 

(872,872)

 

$

(14,825)

 

$

(4,044)

 

$

461,195

Net income

 

 —

 

 

 —

 

 

 —

 

 

13,023

 

 —

 

 

 —

 

 

 —

 

 

13,023

Dividends on common stock, $0.05 per share

 

 —

 

 

 —

 

 

 —

 

 

(1,255)

 

 —

 

 

 —

 

 

 —

 

 

(1,255)

Exercise of stock options

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation expense

 

 —

 

 

 —

 

 

415

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

415

Other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(1,527)

 

 

(1,527)

Balance at September 30, 2018

 

25,731,504

 

$

257

 

$

344,222

 

$

147,768

 

(872,872)

 

$

(14,825)

 

$

(5,571)

 

$

471,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

25,780,135

 

$

258

 

$

345,495

 

$

180,401

 

(857,466)

 

$

(14,564)

 

$

1,568

 

$

513,158

Net income

 

 —

 

 

 —

 

 

 —

 

 

13,076

 

 —

 

 

 —

 

 

 —

 

 

13,076

Dividends on common stock, $0.10 per share

 

 —

 

 

 —

 

 

 —

 

 

(2,517)

 

 —

 

 

 —

 

 

 —

 

 

(2,517)

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

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

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

 

 —

 

 

 —

 

 

(3)

 

 

 —

 

120

 

 

 2

 

 

 —

 

 

(1)

Shares repurchased

 

(100)

 

 

 —

 

 

(3)

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(3)

Stock-based compensation expense

 

 —

 

 

 —

 

 

608

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

608

Other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

899

 

 

899

Balance at September 30, 2019

 

25,780,035

 

$

258

 

$

346,097

 

$

190,960

 

(857,346)

 

$

(14,562)

 

$

2,467

 

$

525,220

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

    

2019

 

2018

Cash flows from operating activities:

 

 

  

 

 

 

Net income

 

$

37,881

 

$

33,177

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

 

 

  

 

 

 

Provision for loan losses

 

 

2,533

 

 

413

Depreciation expense

 

 

2,408

 

 

2,483

Amortization of intangibles

 

 

678

 

 

748

Amortization of premiums on securities

 

 

881

 

 

841

Amortization of lease right-to-use assets

 

 

987

 

 

 —

Accretion of lease liabilities

 

 

397

 

 

 —

Earnings on bank-owned life insurance

 

 

(4,581)

 

 

(1,359)

Stock-based compensation expense

 

 

1,720