CBTX, Inc. Reports Fourth  Quarter and Year End Financial Results

Houston, Texas, January 29, 2020 -- 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 $12.6 million, or $0.50 per diluted share, for the quarter ended December 31, 2019, compared to $13.1 million, or $0.52 per diluted share, for the quarter ended September 30, 2019 and $14.1 million, or $0.56 per diluted share, for the quarter ended December  31, 2018. 

The Company reported net income for the year ended December 31, 2019 of  $50.5 million, or $2.02 per diluted share, compared to $47.3 million, or $1.89 per diluted share for the year ended December 31, 2018.

Robert R. Franklin, Jr., CBTX, Inc. Chairman, CEO and President said, “Our Company is proud to announce a record year of earnings for 2019. The CommunityBank of Texas family stayed true to relationship banking while delivering strong credit quality and continuing to build shareholder value.” 

Mr. Franklin added, “We operate in strong, competitive markets for loans and deposits. Although the Federal Reserve continued to lower rates in the last half of the year, we were able to maintain a healthy net interest margin. Our historic trend of fourth quarter interest-bearing deposit growth also allowed us to adjust deposit rates late in November. We believe that the pressure of lower interest rates will extend into 2020, but we are hopeful of a stabilizing rate environment as we move into the year.”

“We are also cautious around what could be a very contentious election season which we believe may lead businesses to slow their decision making, especially later in the year,” said Mr. Franklin. “We will continue to hire additional producers, spend on technology to support our business and to look for acquisition opportunities.” “Our goal is to remain disciplined in our relationship banking approach while building shareholder value and a quality earnings stream.”

Highlights

Operating Results

Net Interest Income

Net interest income was $33.8 million for the fourth quarter of 2019, compared to $34.6 million for the third quarter of 2019 and $33.2 million for the fourth quarter of 2018.  Net interest income decreased $789,000 during the fourth quarter of 2019, compared to the third quarter of 2019, due to lower average yields on loans and other interest earning assets and higher average interest-bearing deposits,  partially offset by higher average loans and other interest earning assets. 

Net interest income increased $566,000 in the fourth quarter of 2019, compared to the fourth quarter of 2018, primarily due to higher average loans, partially offset by higher average interest-bearing deposits, higher average rates on Federal Home Loan Bank advances and lower average yields on loans and other interest earning assets. 

Net interest income increased $11.3 million during 2019,  compared to 2018, primarily due to increases in average loan yields and volume, partially offset by increased average rates on interest-bearing deposits and higher average Federal Home Loan Bank advances. Loan growth during 2019 was funded through increased interest-bearing deposits, noninterest-bearing deposits and Federal Home Loan Bank advances. During 2019, the costs of interest-bearing deposits have trended upward due to competitive stress on rates but remain a  low-cost source of funds as compared to other sources of funds such as debt.

Provision/Recapture for Loan Losses

The provision for loan loss was a recapture of $148,000 for the fourth quarter of 2019, compared to provision of $579,000 for the third quarter of 2019 and  a $2.2 million recapture for the fourth quarter of 2018. The recapture in the fourth quarter of 2019 was primarily due to a decrease in loan balances. The recapture in the fourth quarter of 2018 resulted from strong credit quality, continuing low nonperforming and impaired loans and minimal charge-off history. The provision for loan loss was $2.4 million for 2019, compared to a recapture of $1.8 million for 2018. 

The allowance for loan losses was $25.3 million, or 0.96% of total loans, at December 31, 2019, compared to $25.6 million, or 0.96% of total loans, at September 30, 2019 and $23.7 million, or 0.97% of total loans, at December  31, 2018.   

Noninterest Income

Noninterest income was $3.7 million for the fourth quarter of 2019,  compared to $4.1 million for the third quarter of 2019 and $3.9 million for the fourth quarter of 2018. Swap origination fees, which are included in other noninterest income, were $428,000 in the third quarter of 2019, as compared to $45,000 in the fourth quarter of 2019 and $52,000 for the fourth quarter of 2018.

Noninterest income was $18.6 million for 2019,  an increase of $4.4 million compared to 2018, primarily due to the receipt of nontaxable death benefit proceeds of $4.7 million under bank-owned life insurance policies and a resulting gain of $3.3 million over the carrying value. In addition, swap origination fees increased $832,000 during 2019 as compare to 2018.  

Noninterest Expense

Noninterest expense was $22.1 million for the fourth quarter of 2019, compared to $22.0 million for the third quarter of 2019 and $21.8 million for the fourth quarter of 2018. Noninterest expense increased $65,000 during the fourth quarter of 2019, compared to the third quarter of 2019, primarily due to increased salaries and benefits, partially offset by decreased legal fees, which are included in professional and director fees. The Bank incurred legal fees of $363,000 in the fourth quarter of 2019, compared to $729,000 in the third quarter of 2019. 

Noninterest expense increased  $354,000 in the fourth quarter of 2019, compared to the fourth quarter of 2018, primarily due to increased  salaries and benefits as a result of annual salary increases in 2019 and higher stock compensation expense due to grants of restricted stock, increased legal fees, increased occupancy costs and increased telephone and communication costs, partially offset by a  decrease in regulatory fees.

Noninterest expense increased  $8.1 million during 2019, compared to 2018, primarily due to a $4.7 million  increase in salaries and benefits as a result of annual salary increases in 2019 and increased stock compensation expense due to grants of restricted stock and a $3.5 million increase in legal fees, partially offset by a $915,000 decrease in regulatory fees.

Income Taxes

Income tax expense was $2.9 million for the fourth quarter of 2019,  compared to $3.0 million for the third quarter of 2019 and $3.4 million for the fourth quarter of 2018. The effective tax rates were 18.69% for the fourth quarter of 2019,  18.61% for the third quarter of 2019 and 19.32% for the fourth quarter of 2018.  

Income tax expense was $11.6 million for 2019 and $11.4 million for 2018.The effective tax rates were 18.64% for 2019 and 19.37% for 2018. The decrease in the effective tax rate for 2019 was primarily due to the nontaxable gain related to the bank-owned life insurance policies noted above.  

Balance Sheet Highlights

Loans

Loans, excluding loans held for sale, were $2.6 billion at December  31, 2019,  $2.7 billion at September 30, 2019 and $2.4 billion at December  31, 2018.  Loans, excluding loans held for sale, decreased $37.7 million, or 1.4%, during the fourth quarter of 2019 due to an increase in loan paydowns, as compared to the third quarter of 2019 and increased $192.3 million, or 7.9%, during 2019 due to organic growth in the loan portfolio, as compared to 2018. 

Asset Quality 

Nonperforming assets remain low relative to total assets at $977,000, or 0.03% of total assets, at December  31, 2019,  $1.1 million, or 0.03% of total assets, at September 30, 2019 and $3.5 million, or 0.11% of total assets, at December  31, 2018.

Annualized net charge-offs (recoveries) to average loans were 0.02% for the fourth quarter of 2019, 0.05% for the third quarter of 2019 and (0.22%) for the fourth quarter of 2018.  

Deposits and Borrowings

Total deposits were $2.9 billion at December  31, 2019, $2.7 billion at September  30, 2019 and $2.8 billion at December  31, 2018. Deposits increased $86.1 million, or 3.1%, during 2019 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 $50.5 million, $121.2 million and $4.1 million at December  31, 2019,  September 30, 2019 and December  31, 2018, respectively.  Borrowings fluctuated between the fourth and third quarter of 2019 and the fourth quarter of 2018 due to increased Federal Home Loan Bank advances to fund loan growth during those periods. 

Capital

At December  31, 2019,  the Company remained well capitalized under bank regulatory requirements.  The Company’s total shareholders’ equity to total assets, was 15.40% at December 31, 2019, 15.31% at September 30, 2019 and 14.87% at December 31, 2018. Our ratio of tangible equity to tangible assets was 13.26% at December  31, 2019, 13.13% at September 30, 2019 and 12.56% at December  31, 2018.  Tangible equity to tangible assets is a non-GAAP financial measure.  The most directly comparable GAAP financial measure of tangible equity to tangible assets is total shareholders’ equity to total assets. See the table captioned “Non‑GAAP to GAAP Reconciliation” at the end of this earnings release.

Non-GAAP Financial Measures

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

This press release contains certain non-GAAP financial measures including “tangible book value”, “tangible book value per common share,” 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.

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.5 billion asset bank, offering commercial banking solutions to small and mid-sized businesses and professionals in Houston, Dallas, Beaumont and surrounding communities in Texas.  Visit www.communitybankoftx.com for more information.

Forward-Looking Statements

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

CBTX, INC. AND SUBSIDIARY

Financial Highlights (Unaudited)

(In thousands, except per share data and percentages)

(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 (Unaudited)

(In thousands)

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (Unaudited)

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CBTX, INC. AND SUBSIDIARY

Net Interest Margin (Unaudited)

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