SEC Filing | Stellar Bancorp, Inc.

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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, 2021

☐ 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 25, 2021, there 24,579,599 were shares of the registrant’s common stock outstanding, including 159,961 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, 2021 and December 31, 2020	1
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
	Cautionary Note Regarding Forward-Looking Statements	37
	Overview	38
	Information Regarding COVID-19 Impact and Uncertain Economic Outlook	39
	Results of Operations	41
	Financial Condition	47
	Liquidity and Capital Resources	55
	Interest Rate Sensitivity and Market Risk	58
	Non-GAAP Financial Measures	59
	Critical Accounting Policies	60
	Recently Issued Accounting Pronouncements	60
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	60

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
SIGNATURES		64

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, 2021		December 31, 2020
Assets:
Cash and due from banks	$	50,642	$	46,814
Interest-bearing deposits at other financial institutions		948,143		491,193
Total cash and cash equivalents		998,785		538,007
Securities		359,539		237,281
Equity investments		17,349		18,652
Loans held for sale		327		2,673
Loans, net of allowance for credit losses of $32,208 and $40,637 at September 30, 2021 and December 31, 2020, respectively		2,576,194		2,883,480
Premises and equipment, net of accumulated depreciation of $38,332 and $35,826 at September 30, 2021 and December 31, 2020, respectively		59,235		61,152
Goodwill		80,950		80,950
Other intangible assets, net of accumulated amortization of $17,166 and $16,607 at September 30, 2021 and December 31, 2020, respectively		3,702		4,171
Bank-owned life insurance		72,771		72,338
Operating lease right-to-use assets		11,527		13,285
Deferred tax assets, net		9,760		10,700
Other assets		18,980		26,528
Total assets	$	4,209,119	$	3,949,217

Liabilities:
Noninterest-bearing deposits	$	1,628,144	$	1,476,425
Interest-bearing deposits		1,903,491		1,825,369
Total deposits		3,531,635		3,301,794
Federal Home Loan Bank advances		50,000		50,000
Operating lease liabilities		14,556		16,447
Other liabilities		48,335		34,525
Total liabilities		3,644,526		3,402,766
Commitments and contingencies (Note 16)
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, 25,263,594 and 25,458,816 shares issued at September 30, 2021 and December 31, 2020, respectively; 24,419,638 and 24,612,828 shares outstanding at September 30, 2021 and December 31, 2020, respectively		253		255
Additional paid-in capital		335,226		339,334
Retained earnings		241,012		214,456
Treasury stock, at cost, 843,956 and 845,988 shares held at September 30, 2021 and December 31, 2020, respectively		(14,334)		(14,369)
Accumulated other comprehensive income, net of tax of $648 and $1,801 at September 30, 2021 and December 31, 2020, respectively		2,436		6,775
Total shareholders’ equity		564,593		546,451
Total liabilities and shareholders’ equity	$	4,209,119	$	3,949,217

See accompanying notes to condensed consolidated financial statements.

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,
	2021		2020		2021		2020
Interest income:
Interest and fees on loans	$	30,765	$	32,318	$	94,723	$	98,792
Securities		1,435		1,107		3,940		3,698
Interest-bearing deposits at other financial institutions		340		176		740		1,400
Equity investments		157		162		461		509
Total interest income		32,697		33,763		99,864		104,399
Interest expense:
Deposits		1,227		1,831		3,844		7,619
Federal Home Loan Bank advances		221		221		663		682
Other interest-bearing liabilities		—		3		—		12
Total interest expense		1,448		2,055		4,507		8,313
Net interest income		31,249		31,708		95,357		96,086
Provision (recapture) for credit losses:
Provision (recapture) for credit losses for loans		(5,057)		4,569		(8,961)		17,845
Provision (recapture) for credit losses for unfunded commitments		162		(461)		(605)		1,182
Total provision (recapture) for credit losses		(4,895)		4,108		(9,566)		19,027
Net interest income after provision (recapture) for credit losses		36,144		27,600		104,923		77,059
Noninterest income:
Deposit account service charges		1,352		1,176		3,712		3,756
Card interchange fees		1,048		995		3,119		2,832
Earnings on bank-owned life insurance		2,323		1,187		3,103		2,015
Net gain on sales of assets		360		114		918		376
Other		479		551		1,312		2,280
Total noninterest income		5,562		4,023		12,164		11,259
Noninterest expense:
Salaries and employee benefits		15,000		14,332		43,922		42,567
Occupancy expense		2,660		2,496		7,778		7,478
Professional and director fees		1,567		2,446		5,711		5,139
Data processing and software		1,629		1,525		4,866		4,039
Regulatory fees		478		471		1,535		1,050
Advertising, marketing and business development		493		429		1,288		1,062
Telephone and communications		516		486		1,529		1,297
Security and protection expense		425		299		1,352		1,024
Amortization of intangibles		182		198		559		649
Other expenses		1,422		1,176		4,314		4,137
Total noninterest expense		24,372		23,858		72,854		68,442
Net income before income tax expense		17,334		7,765		44,233		19,876
Income tax expense		2,913		1,344		8,090		3,751
Net income	$	14,421	$	6,421	$	36,143	$	16,125
Earnings per common share
Basic	$	0.59	$	0.26	$	1.48	$	0.65
Diluted	$	0.59	$	0.26	$	1.47	$	0.65

See accompanying notes to condensed consolidated financial statements.

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,
	2021		2020		2021		2020
Net income	$	14,421	$	6,421	$	36,143	$	16,125

Change in unrealized gains (losses) on securities available for sale arising during the period		(3,446)		(327)		(5,493)		5,010
Reclassification adjustments for net realized gains included in net income		—		—		—		10
Change in related deferred income tax		723		69		1,154		(1,055)
Other comprehensive income (loss), net of tax		(2,723)		(258)		(4,339)		3,965
Total comprehensive income	$	11,698	$	6,163	$	31,804	$	20,090

See accompanying notes to condensed consolidated financial statements.

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, 2020:
Balance at December 31, 2019	25,837,048	$	258	$	346,559	$	201,080	(857,346)	$	(14,562)	$	2,386	$	535,721
Net income	—		—		—		16,125	—		—		—		16,125
Cumulative effect of accounting changes from adoption of CECL, net of deferred tax asset	—		—		—		(3,045)	—		—		—		(3,045)
Dividends on common stock, $0.30 per share	—		—		—		(7,480)	—		—		—		(7,480)
Stock-based compensation expense	—		—		1,691		—	—		—		—		1,691
Vesting of restricted stock, net of shares withheld for employee tax liabilities	13,050		—		(45)		—	—		—		—		(45)
Exercise of stock options, net of shares withheld for employee tax liabilities	—		—		(10)		—	2,524		43		—		33
Shares repurchased	(282,363)		(2)		(6,042)		—	—		—		—		(6,044)
Other comprehensive income, net of tax	—		—		—		—	—		—		3,965		3,965
Balance at September 30, 2020	25,567,735	$	256	$	342,153	$	206,680	(854,822)	$	(14,519)	$	6,351	$	540,921

Nine Months Ended September 30, 2021:
Balance at December 31, 2020	25,458,816	$	255	$	339,334	$	214,456	(845,988)	$	(14,369)	$	6,775	$	546,451
Net income	—		—		—		36,143	—		—		—		36,143
Dividends on common stock, $0.39 per share	—		—		—		(9,587)	—		—		—		(9,587)
Stock-based compensation expense	—		—		1,813		—	—		—		—		1,813
Vesting of restricted stock, net of shares withheld for employee tax liabilities	18,997		—		(87)		—	—		—		—		(87)
Exercise of stock options, net of shares withheld for employee tax liabilities	—		—		(11)		—	2,032		35		—		24
Shares repurchased	(214,219)		(2)		(5,823)		—	—		—		—		(5,825)
Other comprehensive income, net of tax	—		—		—		—	—		—		(4,339)		(4,339)
Balance at September 30, 2021	25,263,594	$	253	$	335,226	$	241,012	(843,956)	$	(14,334)	$	2,436	$	564,593

See accompanying notes to condensed consolidated financial statements.

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		Total
Three Months Ended September 30, 2020:
Balance at June 30, 2020	25,609,456	$	256	$	342,256	$	202,754	(854,822)	$	(14,519)	$	6,609	$	537,356
Net income	—		—		—		6,421	—		—		—		6,421
Dividends on common stock, $0.10 per share	—		—		—		(2,495)	—		—		—		(2,495)
Stock-based compensation expense	—		—		582		—	—		—		—		582
Vesting of restricted stock, net of shares withheld for employee tax liabilities	197		—		(1)		—	—		—		—		(1)
Exercise of stock options, net of shares withheld for employee tax liabilities	—		—		—		—	—		—		—		—
Shares repurchased	(41,918)		—		(684)		—	—		—		—		(684)
Other comprehensive loss, net of tax	—		—		—		—	—