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CBTX, Inc. Reports First Quarter Financial Results

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HOUSTON, April 30, 2020 (GLOBE NEWSWIRE) -- CBTX, Inc., or the Company (NASDAQ:CBTX), the bank holding company for CommunityBank of Texas, N.A., or the Bank, today announced net income of $7.5 million, or $0.30 per diluted share, for the quarter ended March 31, 2020, compared to $12.6 million, or $0.50 per diluted share, for the quarter ended December 31, 2019 and $10.5 million, or $0.42 per diluted share, for the quarter ended March 31, 2019.

"Our first quarter turned largely on our focus on the impacts of the COVID-19 pandemic and the effects it played on our communities, customers and employees," said Robert R. Franklin, Jr., Chairman, CEO and President of the Company. "We are a bank with a team that is well-experienced working through challenging times in our markets, including dealing with hurricanes, floods and economic crises that have occurred in the past. That experience allowed us to keep our services available for our customers and work to keep our employees safe."

Mr. Franklin continued, "We have worked over the years to emphasize building quality relationships with customers through the good and bad times. We believe staying true to our mission has resulted in a proven track record of a quality loan portfolio evidenced by our continued strong capital, credit quality and liquidity metrics."

"I am proud of our team and their work to support our customers during these anxious times. It is evident by our team's tireless efforts on the SBA's paycheck protection loan program to find solutions to assist our customers with the large volume of loan applications in a very short period of time," said Mr. Franklin.

He added, "We are pleased to be able to help with what we think is a positive impact to our customers and communities. We believe our team's continued performance gives us and our customers optimism for opportunities to come as the circumstances in our markets continue to evolve."

Highlights 

  • Net income was $7.5 million for the first quarter of 2020, a decrease of $5.1 million and $2.9 million compared to the fourth quarter of 2019 and the first quarter of 2019, respectively, primarily due to the increase in the provision for credit losses during the first quarter of 2020.
  • The provision for credit losses was $5.0 million for the first quarter of 2020, primarily due to the impact of the Corona-virus, or COVID-19, and the drop in the prices of oil and gas on current and forecasted economic factors, compared to a recapture of $148,000 for the fourth quarter of 2019 and a provision of $1.1 million for the first quarter of 2019.
  • The Company's adoption of the new accounting standard related to current expected credit losses, or CECL, effective on January 1, 2020, resulted in a net reduction to retained earnings of $3.0 million.
  • The allowance for credit losses, or ACL, for loans increased to $31.2 million at March 31, 2020, compared to $25.3 million at December 31, 2019 and $24.6 million at March 31, 2019.
  • Net interest margin on a tax equivalent basis was 4.06% for the quarter ended March 31, 2020, compared to 4.18% for the quarter ended December 31, 2019 and 4.56% for the quarter ended March 31, 2019.  
  • Maintained strong capital ratios with the Company's total risk-based capital ratio being 16.42%, compared to 16.41% at December 31, 2019, and 15.41% at March 31,2019.

Operating Results

Net Interest Income

Net interest income was $32.2 million for the first quarter of 2020, compared to $33.8 million for the fourth quarter of 2019 and $33.3 million for the first quarter of 2019. Net interest income decreased $1.6 million during the first quarter of 2020, compared to the fourth quarter of 2019, primarily due to the decrease in rates for loans, the decrease in average loans, the decrease in rates for other interest-earning assets and the impact of the decrease of one day between the periods, which was partially offset by the decrease in rates for interest-bearing deposits and the decrease in average advances from the Federal Home Loan Bank.

Net interest income decreased $1.1 million during the first quarter of 2020, compared to the first quarter of 2019, primarily due to a decrease in rates for loans, securities and other interest-earning assets and the increase in average interest-bearing deposits and advances from the Federal Home Loan Bank, partially offset by the increase in average loans and other interest-earning assets, the decrease in rates on interest-bearing deposits and increased average advances from the Federal Home Loan Bank and the increase of one day between the periods.

The yields on interest-earning assets trended downward to 4.56% for the first quarter of 2020, compared to 4.73% for the fourth quarter of 2019 and 5.03% for the first quarter of 2019. The rates on interest-bearing deposits fluctuated within a narrow band during these periods. The cost of interest-bearing liabilities was 0.94% for the first quarter of 2020, 1.11% for the fourth quarter of 2019 and 0.95% for the first quarter of 2019. Yields on interest-earning assets decreased, and the costs of interest-bearing liabilities did not decrease to the same extent, which caused compression of the Company's net interest margin on a tax equivalent basis to 4.06% for the first quarter of 2020, from 4.18% for the fourth quarter of 2019 and 4.56% for the first quarter of 2019.

Although competitive pressures have caused the costs of interest-bearing deposits to not drop in tandem to decreases in market rates, they remain a low-cost source of funds, as compared to other sources of funds such as debt.

Provision/Recapture for Credit Losses

The provision for credit losses was $5.0 million for the first quarter of 2020, compared to a recapture of $148,000 for the fourth quarter of 2019 and a provision of $1.1 million for the first quarter of 2019. The increase in the provision for credit losses for the first quarter of 2020 was primarily due to the impact of COVID-19 and the drop in the prices of oil and gas during the first quarter of 2020 on the local and national economy and on current and forecasted expected credit losses. The recapture in the fourth quarter of 2019 was primarily due to a decrease in loan balances.

Effective January 1, 2020, the Company adopted the new accounting standard related to CECL. As a result, the ACL for loans was increased $874,000 and the liability related to the ACL unfunded commitments increased $2.9 million with the associated deferred tax assets increasing $809,000, which resulted in a net reduction to retained earnings of $3.0 million upon adoption.

The ACL for loans was $31.2 million, or 1.17% of total loans, at March 31, 2020, compared to $25.3 million, or 0.96% of total loans, at December 31, 2019 and $24.6 million, or 0.97% of total loans, at March 31, 2019. The increase in the ACL for loans was primarily due to the impact of COVID-19, as discussed above, and the drop in the price of oil and gas during the first quarter of 2020. These factors resulted in an approximate increase of 0.21% to the ACL as a percentage of total loans.

The Company's oil and gas loans represented 7.2% of gross loans at March 31, 2020, 7.5% at December 31, 2019 and 8.0% at March 31, 2019. The Company's direct oil and gas loans are loans to an entity with more than 50% of its revenue related to the well-head, oil in the ground or extracting oil or gas. This includes any activity, product or service related to the oil and gas industry, such as exploration and production, or E&P, drilling, downhole equipment or services, oil field services, machine shops, pump or compressor at the well, midstream companies and midstream service companies. The Company's indirect oil and gas loans are loans to an entity with a material portion of its revenue (20%-50%) from the type of companies defined above as "direct." Examples of indirect oil and gas loans include loans to trucking companies, machine shops and commercial real estate with significant reliance on oil and gas companies.

The liability associated with the ACL for unfunded commitments was $3.7 million at March 31, 2020, compared to $378,000 at December 31, 2019 and March 31, 2019. The increase was primarily due to the adoption of CECL and the impact of COVID-19 and oil and gas price declines as discussed above. The economic impact from COVID-19 and oil and gas prices resulted in an approximate increase of 0.08% to the liability associated with the ACL as a percentage of total availability on unfunded commitments.

Noninterest Income

Noninterest income was $4.3 million for the first quarter of 2020, $3.7 million for the fourth quarter of 2019 and $3.5 million for the first quarter of 2019. The increase in noninterest income during the first quarter of 2020, as compared to the fourth quarter of 2019 and first quarter of 2019 is primarily due to increased interest rate swap origination fees due to new interest rate swap transactions.

Noninterest Expense

Noninterest expense was $22.1 million for the first quarter of 2020, compared to $22.1 million for the fourth quarter of 2019 and $22.6 million for the first quarter of 2019. The decrease in noninterest expense of $496,000 between the first quarter of 2020 and the first quarter of 2019 was primarily due to lower professional and director fees, predominately legal fees, and lower regulatory fees, partially offset by increased salaries and benefits as a result of annual salary increases and increased employee headcount on a full-time equivalent basis.

Income Taxes

Income tax expense was $1.9 million for the first quarter of 2020, $2.9 million for the fourth quarter of 2019 and $2.6 million for the first quarter of 2019. The effective tax rates were 19.85% for the first quarter of 2020, 18.69% for the fourth quarter of 2019 and 19.86% for the first quarter of 2019. The differences between the federal statutory rate of 21% and the effective tax rates were largely attributable to permanent differences primarily related to tax exempt interest and bank-owned life insurance.

Balance Sheet Highlights

Loans

Loans, excluding loans held for sale, were $2.7 billion at March 31, 2020, $2.6 billion at December 31, 2019 and $2.5 billion at March 31, 2019.

In support of customers financially impacted by COVID-19, the Company began providing short-term loan modifications by offering relief through payment deferrals during the first quarter of 2020. The Company has deferred payments, including principal and interest, totaling $936,000 as of March 31, 2020. These deferral arrangements provide for one-month to six-month deferral periods.

Asset Quality

Nonperforming assets remain low relative to total assets at $1.4 million, or 0.04% of total assets, at March 31, 2020, compared to $977,000, or 0.03% of total assets, at December 31, 2019 and $3.0 million, or 0.09% of total assets, at March 31, 2019.

Annualized net charge-offs (recoveries) to average loans were (0.05%) for the first quarter of 2020, 0.02% for the fourth quarter of 2019 and 0.03% for the first quarter of 2019.

Deposits and Borrowings

Total deposits were $2.8 billion at March 31, 2020, $2.9 billion at December 31, 2019 and $2.8 billion at March 31, 2019, with the differences due to normal fluctuations in customer activities.

We define total borrowings as the total of repurchase agreements, Federal Home Loan Bank advances and notes payable. Total borrowings were $51.4 million, $50.5 million and $1.6 million at March 31, 2020, December 31, 2019 and March 31, 2019, respectively. Borrowings fluctuated between the first quarter of 2020 and first quarter of 2019 due to increased Federal Home Loan Bank advances to fund loan growth.

Capital

At March 31, 2020, the Company continued to be well capitalized and maintain strong capital ratios under bank regulatory requirements. The Company's total risk-based capital ratio was 16.42% at March 31, 2020, compared to 16.41% at December 31, 2019, and 15.41% at March 31, 2019. The Company's tier 1 leverage ratio was 13.18% at March 31, 2020, compared to 13.11% at December 31, 2019, and 13.02% at March 31, 2019. The Company's total shareholders' equity to total assets was 15.67% at March 31, 2020, 15.40% at December 31, 2019 and 15.19% at March 31, 2019.

Our ratio of tangible equity to tangible assets was 13.51% at March 31, 2020, 13.26% at December 31, 2019 and 12.89% at March 31, 2019. 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. See the table captioned "Non‑GAAP to GAAP Reconciliation" at the end of this press release.

Non-GAAP Financial Measures

The Company's accounting and reporting policies conform to 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," and "tangible equity to tangible assets," which are supplemental measures that are not required by, or are not presented in accordance with, GAAP. Non-GAAP financial measures do not include operating, other statistical measures or ratios calculated using exclusively financial measures calculated in accordance with GAAP. Non-GAAP financial measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the way we calculate the non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

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

The Company will hold a conference call to discuss results for the quarter ended March 31, 2020 on April 30, 2020 at 8:00 a.m. Central Standard Time. Investors and interested parties may listen to the teleconference via telephone by calling (877) 620-1733 if calling from the U.S. or Canada (or (470) 414-9785 if calling from outside the U.S.).  The conference call ID number is 7692825. To access the live webcast of the conference call, individuals can visit the Investor Relations page of the Company's website: https://ir.cbtxinc.com/events-and-presentations. An archived edition of the earnings webcast will also be posted on the Company's website later that day and will remain available to interested parties via the same link for one year.

The conference call will contain forward-looking statements in addition to statements of historical fact. The actual achievement of any forecasted results or the unfolding of future economic or business developments in a way anticipated or projected by the company involves numerous risks and uncertainties that may cause the company's actual performance to be materially different from that stated or implied in the forward-looking statements. Such risks and uncertainties include, among other things, risks discussed within the "Risk Factors" section of the Company's most recent Forms 10-Q and 10-K and subsequent 8-Ks. 

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.4 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: manage the economic risks related to the impact of COVID-19 and the recent drop in oil and gas prices (including risks related to its customers' credit quality, the Company's ability to borrow, and the impact of a resultant recession generally), and other hazards such as natural disasters and adverse weather, acts of war or terrorism, other pandemics, an outbreak of hostilities or other international or domestic calamities and the governmental or military response thereto, and other matters beyond the Company's control; the geographic concentration of our markets in Beaumont and Houston, Texas; manage changes and the continued health or availability of management personnel; the amount of nonperforming and classified assets that the Company holds and the efforts to resolve the nonperforming assets; deterioration of its asset quality; interest rate risks associated with the Company's business; business and economic conditions generally and in the financial services industry, nationally and within the Company's primary markets; volatility and direction of oil prices, including risks related to the recent collapse in oil prices, and the strength of the energy industry, generally and within Texas; the composition of the Company's loan portfolio, including the identity of its borrowers and the concentration of loans in specialized industries, especially the creditworthiness of energy company borrowers; changes in the value of collateral securing the loans; the Company's ability to maintain important deposit customer relationships and the Company's reputation; the Company's ability to maintain effective internal control over financial reporting; the Company's ability to pursue available remedies in the event of a loan default for loans under the Payment Protection Program ("PPP") and the risk of holding the PPP loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise lent to; the volatility and direction of market interest rates; liquidity risks associated with the Company's business; systems failures, interruptions or breaches involving the Company's information technology and telecommunications systems or third‑party servicers; the failure of certain third-party vendors to perform; the institution and outcome of litigation and other legal proceedings against the Company or to which it may become subject; operational risks associated with the Company's business; the costs, effects and results of regulatory examinations, investigations, including the ongoing investigation by the Financial Crimes Enforcement Network, or FinCEN, of the U.S. Department of Treasury, or reviews or the ability to obtain the required regulatory approvals; changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters; governmental or regulatory responses to the COVID-19 pandemic and newly enacted fiscal stimulus that impact the Company's loan portfolio and forbearance practice; and other governmental interventions in the U.S. financial system that may impact how the Company achieves its performance goals. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC") and other reports and statements that the Company has filed with the SEC. If one or more events related to these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, actual results may differ materially from what it anticipates. Accordingly, you should not place undue reliance on any such forward looking statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict which will arise. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Copies of the SEC filings for the Company are available for download free of charge from www.communitybankoftx.com under the Investor Relations tab.

 
CBTX, INC. AND SUBSIDIARY
Financial Highlights
(In thousands, except per share data and percentages)
                               
    Three Months Ended
    3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Profitability:                              
Net income   $  7,541     $  12,636     $  13,076     $  14,315     $  10,490  
Basic earnings per share   $  0.30     $  0.51     $  0.52     $  0.57     $  0.42  
Diluted earnings per share   $  0.30     $  0.50     $  0.52     $  0.57     $  0.42  
                               
Return on average assets (1)     0.87 %     1.43 %     1.53 %     1.72 %     1.30 %
Return on average shareholders' equity (1)     5.64 %     9.40 %     9.92 %     11.30 %     8.59 %
Net interest margin- tax equivalent (1)     4.06 %     4.18 %     4.43 %     4.53 %     4.56 %
Efficiency ratio (2)     60.44 %     58.96 %     56.98 %     56.25 %     61.34 %
                               
Liquidity and Capital Ratios:                              
Total shareholders' equity to total assets     15.67 %     15.40 %     15.31 %     15.18 %     15.19 %
Tangible equity to tangible assets (3)     13.51 %     13.26 %     13.13 %     12.96 %     12.89 %
Common equity tier 1 capital ratio     15.23 %     15.52 %     14.99 %     14.71 %     14.53 %
Tier 1 risk-based capital ratio     15.23 %     15.52 %     14.99 %     14.71 %     14.53 %
Total risk-based capital ratio     16.42 %     16.41 %     15.88 %     15.59 %     15.41 %
Tier 1 leverage ratio     13.18 %     13.11 %     13.23 %     13.12 %     13.02 %
                               
Other Data:                              
Weighted average common shares outstanding- Basic      24,926        24,951        24,923        24,921        24,910  
Weighted average common shares outstanding- Diluted      25,000        25,071        25,046        25,042        25,054  
Common shares outstanding at period end      24,746        24,980        24,923        24,923        24,918  
Dividends per share   $  0.10     $  0.10     $  0.10     $  0.10     $  0.10  
Book value per share   $  21.70     $  21.45     $  21.07     $  20.59     $  20.01  
Tangible book value per share (3)   $  18.23     $  18.01     $  17.62     $  17.13     $  16.54  
Employees - full-time equivalents      512        500        504        508        494  

__________________________

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

 
CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(In thousands)
                               
Balance Sheet Data (at period end):   3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
                               
Loans, excluding loans held for sale   $  2,671,587     $  2,639,085     $  2,676,824     $  2,642,289     $  2,544,709  
Allowance for credit losses for loans      (31,194 )      (25,280 )      (25,576 )      (25,342 )      (24,643 )
Loans, net      2,640,393        2,613,805        2,651,248        2,616,947        2,520,066  
                               
Cash and equivalents      284,898        372,064        289,399        266,776        276,515  
Securities      234,014        231,262        228,061        232,601        228,684  
Premises and equipment      50,243        50,875        51,183        51,346        51,453  
Goodwill      80,950        80,950        80,950        80,950        80,950  
Other intangible assets      4,700        4,938        5,106        5,318        5,538  
Loans held for sale      882        1,463        —        1,408        852  
Operating lease right-to-use asset      12,577        12,926        12,864        12,355        12,879  
Other assets      116,993        110,261        112,774        111,805        106,525  
Total assets   $  3,425,650     $  3,478,544     $  3,431,585     $  3,379,506     $  3,283,462  
                               
Noninterest-bearing deposits   $  1,195,541     $  1,184,861     $  1,196,720     $  1,201,287     $  1,229,172  
Interest-bearing deposits      1,596,692        1,667,527        1,547,607        1,537,620        1,521,827  
Total deposits      2,792,233        2,852,388        2,744,327        2,738,907        2,750,999  
                               
Federal Home Loan Bank advances      50,000        50,000        120,000        90,000        —  
Repurchase agreements      1,415        485        1,208        805        1,600  
Operating lease liabilities      15,356        15,704        15,513        14,806        15,134  
Other liabilities      29,772        24,246        25,317        21,830        17,076  
Total liabilities      2,888,776        2,942,823        2,906,365        2,866,348        2,784,809  
                               
Total shareholders' equity      536,874        535,721        525,220        513,158        498,653  
Total liabilities and shareholders' equity   $  3,425,650     $  3,478,544     $  3,431,585     $  3,379,506     $  3,283,462  
                                         



 
CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income
(In thousands)
                               
    Three Months Ended
    3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Interest income                              
Interest and fees on loans   $  33,617   $  35,634     $  36,353   $  35,608   $  33,793
Securities      1,363      1,442        1,436      1,519      1,557
Other interest-earning assets      1,055      1,279        1,212      1,359      1,483
Equity investments      176      213        192      163      152
Total interest income      36,211      38,568        39,193      38,649      36,985
Interest expense                              
Deposits      3,766      4,463        4,130      3,822      3,584
Federal Home Loan Bank advances      221      316        483      523      64
Repurchase agreements      —      —        1      1      1
Note payable and junior subordinated debt      4      3        4      4      8
Total interest expense      3,991      4,782        4,618      4,350      3,657
Net interest income      32,220      33,786        34,575      34,299      33,328
Provision (recapture) for credit losses                              
Provision (recapture) for credit losses for loans      4,739      (148 )      579      807      1,147
Provision for credit losses for unfunded commitments      310      —        —      —      —
Total provision (recapture) for credit losses      5,049      (148 )      579      807      1,147
Net interest income after provision (recapture) for credit losses      27,171      33,934        33,996      33,492      32,181
Noninterest income                              
Deposit account service charges      1,485      1,587        1,681      1,657      1,629
Card interchange fees      922      1,007        908      941      864
Earnings on bank-owned life insurance      416      430        430      3,721      430
Net gain on sales of assets      123      305        190      69      88
Other      1,381      388        906      915      482
Total noninterest income      4,327      3,717        4,115      7,303      3,493
Noninterest expense                              
Salaries and employee benefits      14,223      14,264        13,951      14,185      13,822
Occupancy expense      2,424      2,417        2,484      2,338      2,267
Professional and director fees      1,152      1,220        1,455      2,282      2,091
Data processing and software      1,222      1,074        1,121      1,086      1,154
Regulatory fees      103      84        144      446      464
Advertising, marketing and business development      364      452        407      532      440
Telephone and communications      419      506        434      456      378
Security and protection expense      374      364        410      367      323
Amortization of intangibles      221      216        221      225      232
Other expenses      1,587      1,513        1,418      1,486      1,414
Total noninterest expense      22,089      22,110        22,045      23,403      22,585
Net income before income tax expense      9,409      15,541        16,066      17,392      13,089
Income tax expense      1,868      2,905        2,990      3,077      2,599
Net income   $  7,541   $  12,636     $  13,076   $  14,315   $  10,490
                                 


 
CBTX, INC. AND SUBSIDIARY
Net Interest Margin
(In thousands, except percentages)
                                                 
    Three Months Ended
    3/31/2020   12/31/2019   3/31/2019
          Interest             Interest             Interest    
    Average   Earned/   Average   Average   Earned/   Average   Average   Earned/   Average
    Outstanding   Interest   Yield/   Outstanding   Interest   Yield/   Outstanding   Interest   Yield/
    Balance   Paid   Rate (1)   Balance   Paid   Rate (1)   Balance   Paid   Rate (1)
Assets                                                
Interest-earning assets:                                                
Total loans (2)   $  2,634,507     $  33,617   5.13 %   $  2,682,842     $  35,634   5.27 %   $  2,500,788     $  33,793   5.48 %
Securities      233,917        1,363   2.34 %      232,441        1,442   2.46 %      231,650        1,557   2.73 %
Other interest-earning assets      315,099        1,055   1.35 %      300,395        1,279   1.69 %      239,281        1,483   2.51 %
Equity investments      13,661        176   5.18 %      16,140        213   5.24 %      12,285        152   5.02 %
Total interest-earning assets      3,197,184     $  36,211   4.56 %      3,231,818     $  38,568   4.73 %      2,984,004     $  36,985   5.03 %
Allowance for credit losses for loans      (25,831 )                (25,591 )                (24,016 )          
Noninterest-earning assets      296,698                  298,615                  302,915            
Total assets   $  3,468,051               $  3,504,842               $  3,262,903            
Liabilities and Shareholders' Equity                                                
Interest-bearing liabilities:                                                
Interest-bearing deposits   $  1,650,064     $  3,766   0.92 %   $  1,646,883     $  4,463   1.08 %   $  1,544,039     $  3,584   0.94 %
Federal Home Loan Bank advances      50,000        221   1.78 %      68,913        316   1.82 %      9,722        64   2.67 %
Repurchase agreements      763        —    —        423        —    —        1,856        1   0.22 %
Note payable and junior subordinated debt      —        4    —        —        3    —        365        8   4.44 %
Total interest-bearing liabilities      1,700,827     $  3,991   0.94 %      1,716,219     $  4,782   1.11 %      1,555,982     $  3,657   0.95 %
Noninterest-bearing liabilities:                                                
Noninterest-bearing deposits      1,184,776                  1,212,939                  1,177,086            
Other liabilities      44,620                  42,406                  34,634            
Total noninterest-bearing liabilities      1,229,396                  1,255,345                  1,211,720            
Shareholders' equity      537,828                  533,278                  495,201            
Total liabilities and shareholders' equity   $  3,468,051               $  3,504,842               $  3,262,903            
Net interest income         $  32,220             $  33,786             $  33,328    
Net interest spread (3)               3.62 %               3.62 %               4.08 %
Net interest margin (4)               4.05 %               4.15 %               4.53 %
Net interest margin—tax equivalent (5)               4.06 %               4.18 %               4.56 %

__________________________
(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 $81,000, $251,000 and $255,000 for the quarters ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively, were computed using a federal income tax rate of 21%.

 
CBTX, INC. AND SUBSIDIARY
Rate/Volume Analysis 
(In thousands)
                         
    Three Months Ended March 31, 2020, Compared to
      Three Months Ended December 31, 2019
    Increase (Decrease) due to      
(Dollars in thousands)   Rate   Volume   Days   Total
Interest-earning assets:                        
Total loans   $  (988 )   $  (642 )   $  (387 )   $  (2,017 )
Securities      (73 )      9        (15 )      (79 )
Other interest-earning assets      (273 )      63        (14 )      (224 )
Equity investments      (2 )      (33 )      (2 )      (37 )
Total increase (decrease) in interest income      (1,336 )      (603 )      (418 )      (2,357 )
Interest-bearing liabilities:                        
Interest-bearing deposits      (657 )      9        (49 )      (697 )
Federal Home Loan Bank advances      (5 )      (87 )      (3 )      (95 )
Repurchase agreements      —        —              —  
Note payable and junior subordinated debt      1        —        —        1  
Total increase in interest expense      (661 )      (78 )      (52 )      (791 )
Increase (decrease) in net interest income   $  (675 )   $  (525 )   $  (366 )   $  (1,566 )
                                 


                         
    Three Months Ended March 31, 2020, Compared to
      Three Months Ended March 31, 2019
    Increase (Decrease) due to    
(Dollars in thousands)   Rate   Volume     Days   Total 
Interest-earning assets:                        
Total loans   $  (2,358 )   $  1,807     $  375   $  (176 )
Securities      (226 )      15        17      (194 )
Other interest-earning assets      (913 )      469        16      (428 )
Equity investments      5        17        2      24  
Total increase (decrease) in interest income      (3,492 )      2,308        410      (774 )
Interest-bearing liabilities:                        
Interest-bearing deposits      (103 )      246        39      182  
Federal Home Loan Bank advances      (109 )      265        1      157  
Repurchase agreements      —        (1 )      —      (1 )
Note payable and junior subordinated debt      —        (4 )      —      (4 )
Total increase in interest expense      (212 )      506        40      334  
Increase (decrease) in net interest income   $  (3,280 )   $  1,802     $  370   $  (1,108 )
                               


 
CBTX, INC. AND SUBSIDIARY
Yield Trend
                     
    Three Months Ended
    3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
                     
Interest-earning assets:                    
Total loans   5.13 %   5.27 %   5.43 %   5.51 %   5.48 %
Securities   2.34 %   2.46 %   2.41 %   2.61 %   2.73 %
Other interest-earning assets   1.35 %   1.69 %   2.25 %   2.48 %   2.51 %
Equity investments   5.18 %   5.24 %   4.72 %   4.32 %   5.02 %
Total interest-earning assets   4.56 %   4.73 %   4.98 %   5.07 %   5.03 %
                     
Interest-bearing liabilities:                    
Interest-bearing deposits   0.92 %   1.08 %   1.05 %   1.01 %   0.94 %
Federal Home Loan Bank advances   1.78 %   1.82 %   2.29 %   2.53 %   2.67 %
Repurchase agreements    —      —     0.38 %   0.46 %   0.22 %
Note payable and junior subordinated debt    —      —      —      —     4.44 %
Total interest-bearing liabilities   0.94 %   1.11 %   1.12 %   1.09 %   0.95 %
                     
Net interest spread (1)   3.62 %   3.62 %   3.86 %   3.98 %   4.08 %
Net interest margin (2)   4.05 %   4.15 %   4.39 %   4.50 %   4.53 %
Net interest margin—tax equivalent (3)   4.06 %   4.18 %   4.43 %   4.53 %   4.56 %

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

 
CBTX, INC. AND SUBSIDIARY
Average Outstanding Balances 
(In thousands)
                               
    Three Months Ended
    3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
                               
Assets                              
Interest-earning assets:                              
Total loans (1)   $  2,634,507     $  2,682,842     $  2,655,941     $  2,591,928     $  2,500,788  
Securities      233,917        232,441        234,525        233,339        231,650  
Other interest-earning assets      315,099        300,395        215,900        219,639        239,281  
Equity investments      13,661        16,140        16,154        15,218        12,285  
Total interest-earning assets      3,197,184        3,231,818        3,122,520        3,060,124        2,984,004  
Allowance for credit losses for loans      (25,831 )      (25,591 )      (25,422 )      (24,829 )      (24,016 )
Noninterest-earning assets      296,698        298,615        296,861        299,234        302,915  
Total assets   $  3,468,051     $  3,504,842     $  3,393,959     $  3,334,529     $  3,262,903  
                               
Liabilities and Shareholders' Equity                              
Interest-bearing liabilities:                              
Interest-bearing deposits   $  1,650,064     $  1,646,883     $  1,557,503     $  1,514,697     $  1,544,039  
Federal Home Loan Bank advances      50,000        68,913        83,804        83,022        9,722  
Repurchase agreements      763        423        1,043        877        1,856  
Note payable and junior subordinated debt      —        —        —        —        365  
Total interest-bearing liabilities      1,700,827        1,716,219        1,642,350        1,598,596        1,555,982  
Noninterest-bearing liabilities:                              
Noninterest-bearing deposits      1,184,776        1,212,939        1,189,087        1,194,645        1,177,086  
Other liabilities      44,620        42,406        39,775        32,991        34,634  
Total noninterest-bearing liabilities      1,229,396        1,255,345        1,228,862        1,227,636        1,211,720  
Shareholders' equity      537,828        533,278        522,747        508,297        495,201  
Total liabilities and shareholders' equity   $  3,468,051     $  3,504,842     $  3,393,959     $  3,334,529     $  3,262,903  
                                         

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

 
CBTX, INC. AND SUBSIDIARY
Loans and Deposits Period End Balances
(In thousands, except percentages)
                                                   
    3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
    Amount     Amount     Amount     Amount     Amount  
                                                   
Loan Portfolio:                                                  
Commercial and industrial   $  542,650     20.3 %   $  527,607     19.9 %   $  523,831     19.5 %   $  540,084     20.4 %   $  559,882     21.9 %
Real estate:                                                  
Commercial real estate      904,395     33.8 %      900,746     34.0 %      875,329     32.6 %      854,513     32.2 %      811,742     31.8 %
Construction and development      558,343     20.8 %      527,812     19.9 %      572,276     21.4 %      559,672     21.1 %      572,861     22.5 %
1-4 family residential      276,142     10.3 %      280,192     10.6 %      287,434     10.7 %      281,525     10.6 %      281,502     11.0 %
Multi-family residential      267,152     10.0 %      277,209     10.5 %      298,396     11.1 %      298,887     11.3 %      213,582     8.4 %
Consumer      38,133     1.4 %      36,782     1.4 %      37,975     1.4 %      39,803     1.5 %      39,072     1.5 %
Agriculture      7,520     0.3 %      9,812     0.4 %      10,836     0.4 %      9,923     0.4 %      8,915     0.4 %
Other      84,076     3.1 %      86,513     3.3 %      76,860     2.9 %      65,471     2.5 %      64,215     2.5 %
Gross loans      2,678,411     100.0 %      2,646,673     100.0 %      2,682,937     100.0 %      2,649,878     100.0 %      2,551,771     100.0 %
Less allowance for credit losses      (31,194 )          (25,280 )          (25,576 )          (25,342 )          (24,643 )    
Less deferred fees and unearned discount      (5,942 )          (6,125 )          (6,113 )          (6,181 )          (6,210 )    
Less loans held for sale      (882 )          (1,463 )          —            (1,408 )          (852 )    
Loans, net   $  2,640,393         $  2,613,805         $  2,651,248         $  2,616,947         $  2,520,066      
                                                   
                                                   
Deposits:                                                  
Interest-bearing demand accounts   $  359,943     12.9 %   $  369,744     13.0 %   $  337,746     12.3 %   $  351,326     12.8 %   $  352,623     12.8 %
Money market accounts      760,036     27.2 %      805,942     28.3 %      739,436     26.9 %      717,883     26.2 %      695,968     25.3 %
Savings accounts      90,227     3.2 %      92,183     3.2 %      91,413     3.3 %      91,828     3.4 %      96,251     3.5 %
Certificates and other time deposits, $100,000 or greater      212,341     7.6 %      208,018     7.3 %      198,561     7.3 %      189,741     6.9 %      181,507     6.6 %
Certificates and other time deposits, less than $100,000      174,145     6.3 %      191,640     6.7 %      180,451     6.6 %      186,842     6.8 %      195,478     7.1 %
Total interest-bearing deposits      1,596,692     57.2 %      1,667,527     58.5 %      1,547,607     56.4 %      1,537,620     56.1 %      1,521,827     55.3 %
Noninterest-bearing deposits      1,195,541     42.8 %      1,184,861     41.5 %      1,196,720     43.6 %      1,201,287     43.9 %      1,229,172     44.7 %
Total deposits   $  2,792,233     100.0 %   $  2,852,388     100.0 %   $  2,744,327     100.0 %   $  2,738,907     100.0 %   $  2,750,999     100.0 %
                                                                       


 
CBTX, INC. AND SUBSIDIARY
Credit Quality
(In thousands, except percentages)
                                       
    3/31/2020     12/31/2019     9/30/2019     6/30/2019     3/31/2019
Nonperforming Assets (at period end):                                      
Nonaccrual loans:                                      
Commercial and industrial   $  449       $  596       $  354       $  1,795       $  1,390  
Real estate:                                      
Commercial real estate      67          67          159          850          862  
Construction and development      519          —          —          —          —  
1-4 family residential      413          314          629          624          635  
Multi-family residential      —          —          —          —          —  
Consumer      —          —          —          —          47  
Agriculture      —          —          —          —          —  
Nonaccrual loans      1,448          977          1,142          3,269          2,934  
Accruing loans 90 or more days past due      —          —          —          9          —  
Total nonperforming loans      1,448          977          1,142          3,278          2,934  
Foreclosed assets      —          —          —          36          41  
Total nonperforming assets   $  1,448       $  977       $  1,142       $  3,314       $  2,975  
                                       
Allowance for Credit Losses for Loans (at period end):                                      
Commercial and industrial   $  9,535       $  7,671       $  7,470       $  7,792       $  8,416  
Real estate:                                      
Commercial real estate      9,576          7,975          7,788          7,371          6,784  
Construction and development      5,795          4,446          4,825          4,579          4,700  
1-4 family residential      2,430          2,257          2,338          2,236          2,249  
Multi-family residential      2,413          1,699          1,829          2,178          1,457  
Consumer      477          388          558          458          357  
Agriculture      129          74          82          73          50  
Other      839          770          686          655          630  
Total allowance for credit losses for loans   $  31,194       $  25,280       $  25,576       $  25,342       $  24,643  
                                       
Credit Quality Ratios (at period end):                                      
Nonperforming assets to total assets     0.04 %       0.03 %       0.03 %       0.10 %       0.09 %
Nonperforming loans to total loans     0.05 %       0.04 %       0.04 %       0.12 %       0.12 %
Allowance for credit losses for loans to nonperforming loans     2,154.28 %       2,587.51 %       2,239.58 %       773.09 %       839.91 %
Allowance for credit losses for loans to total loans     1.17 %       0.96 %       0.96 %       0.96 %       0.97 %


 
CBTX, INC. AND SUBSIDIARY
Allowance for Credit Losses for Loans
(In thousands, except percentages)
                               
    Three Months Ended
    3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Analysis of Allowance for Credit Losses for Loans                              
                               
Allowance for credit losses for loans at beginning of period   $  25,280     $  25,576     $  25,342     $  24,643     $  23,693  
                               
Adoption of CECL      874        —        —        —        —  
                               
Provision (recapture)      4,739        (148 )      579        807        1,147  
                               
Net (charge-offs) recoveries                              
Commercial and industrial      398        (205 )      (374 )      22        (206 )
Real estate:                              
Commercial real estate      —        (1 )      33        2        2  
Construction and development      —        —        —        —        —  
1-4 family residential      1        —        1        (11 )      1  
Consumer      (99 )      47        (1 )      (78 )      6  
Agriculture      —        10        —        —        —  
Other      1        1        (4 )      (43 )      —  
Total net (charge-offs) recoveries      301        (148 )      (345 )      (108 )      (197 )
                               
Allowance for credit losses for loans at end of period   $  31,194     $  25,280     $  25,576     $  25,342     $  24,643  
                               
Net charge-offs (recoveries) to average loans (1)     (0.05 %)     0.02 %     0.05 %     0.02 %     0.03 %

 

_________________________
(1)   Annualized.

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

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

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

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

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

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

                                       
    3/31/2020     12/31/2019     9/30/2019     6/30/2019     3/31/2019
Tangible Equity                                      
Total shareholders' equity   $  536,874       $  535,721       $  525,220       $  513,158       $  498,653  
Adjustments:                                      
Goodwill      80,950          80,950          80,950          80,950          80,950  
Other intangibles      4,700          4,938          5,106          5,318          5,538  
Tangible equity   $  451,224       $  449,833       $  439,164       $  426,890       $  412,165  
Tangible Assets                                      
Total assets   $  3,425,650       $  3,478,544       $  3,431,585       $  3,379,506       $  3,283,462  
Adjustments:                                      
Goodwill      80,950          80,950          80,950          80,950          80,950  
Other intangibles      4,700          4,938          5,106          5,318          5,538  
Tangible assets   $  3,340,000       $  3,392,656       $  3,345,529       $  3,293,238       $  3,196,974  
                                       
Common shares outstanding      24,746          24,980          24,923          24,923          24,918  
                                       
Book value per share   $  21.70       $  21.45       $  21.07       $  20.59       $  20.01  
Tangible book value per share   $  18.23       $  18.01       $  17.62       $  17.13       $  16.54  
Total shareholders' equity to total assets     15.67 %       15.40 %       15.31 %       15.18 %       15.19 %
Tangible equity to tangible assets     13.51 %       13.26 %       13.13 %       12.96 %       12.89 %

Investor Relations:

Justin M. Long
281.325.5013
investors@CBoTX.com

Media Contact:

Ashley Warren
713.210.7622 
awarren@CBoTX.com

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