HOUSTON, Oct. 25, 2018 (GLOBE NEWSWIRE) -- CBTX, Inc. (the “Company”) (NASDAQ:CBTX), the bank holding company for CommunityBank of Texas N.A., today announced net income of $13.0 million, or $0.52 per diluted share, for the quarter ended September 30, 2018, compared to $10.0 million, or $0.45 per diluted share, for the quarter ended September 30, 2017 and $11.0 million, or $0.44 per diluted share, for the quarter ended June 30, 2018.

For 2018, net income and earnings per share were positively impacted by the 14% reduction of the corporate U.S. statutory federal tax rate from 35% to 21% as a result of the enactment of the Tax Cuts and Jobs Act (the “Tax Act”), which became effective January 1, 2018.

Highlights

  • Total loans, excluding loans held for sale, increased $59.1 million, or 9.8% annualized, to $2.5 billion compared to the quarter ended June 30, 2018.
  • Net interest income for the quarter ended September 30, 2018 totaled $31.5 million, an increase of 2.1% from the second quarter of 2018, primarily due to the impact of increased average loans and average federal funds sold, partially offset by the impact of increased interest-bearing deposits and increased rates on those deposits.
  • The efficiency ratio improved to 57.0% for the quarter ended September 30, 2018, compared to 58.2% for the quarter ended June 30, 2018.

Operating Results:

Net Interest Income

Net interest income was $31.5 million for the third quarter of 2018, compared to $27.3 million for the third quarter of 2017 and $30.9 million for the second quarter of 2018. The increase in net interest income in the third quarter of 2018 from the third quarter of 2017, was primarily due to increased average loans and increased average yields on loans and federal funds sold. The increase in net interest income in the third quarter of 2018 from the second quarter of 2018 was due to increased average loans and average federal funds sold, partially offset by the impact of increased interest-bearing deposits and increased rates on those deposits.

The yield on interest-earning assets was 4.70% for the third quarter of 2018, compared to 4.32% for the third quarter of 2017 and 4.71% for the second quarter of 2018.

The cost of interest-bearing liabilities, including borrowings, was 0.80% for the third quarter of 2018, compared to 0.60% for the third quarter of 2017 and 0.60% for the second quarter of 2018.

The net interest margin was 4.28% for the third quarter of 2018 compared to 3.98% for the third quarter of 2017 and 4.39% for the second quarter of 2018.

Provision (Recapture) for Loan Losses

Provision for loan loss was a recapture of $1.1 million for the third quarter of 2018, compared to a recapture of $1.7 million for the third quarter of 2017 and a provision of $690,000 for the second quarter of 2018. The recapture in the third quarter of 2018 was driven by strong credit quality, improved national and local economic trends, continuing low nonperforming and impaired loans and minimal charge-off history. The recapture during the third quarter of 2017 resulted from pay-offs of certain classified and problem loans, which resulted in the reversal of their related allowance for loan losses.

The allowance for loan losses was $24.5 million, or 0.99% of total loans, at September 30, 2018, compared to $23.8 million, or 1.08% of total loans, at September 30, 2017 and $25.7 million, or 1.07% of total loans, at June 30, 2018.

Noninterest Income

Noninterest income was $3.5 million for the third quarter of 2018, $4.1 million for the third quarter of 2017 and $3.5 million for the second quarter of 2018. Noninterest income for the third quarter of 2017 is higher compared to the third quarter of 2018 primarily due to gains on sales of two branches recorded in the third quarter of 2017.

Noninterest income was relatively flat from the second quarter of 2018 to the third quarter of 2018. 

Noninterest Expense

Noninterest expense was $20.0 million for the third quarter of 2018, $19.0 million for the third quarter of 2017 and $20.0 million for the second quarter of 2018.

Noninterest expense increased $947,000 in the third quarter of 2018 compared to the third quarter of 2017 primarily due to increased salaries and employee benefits, partially offset by decreased repossessed and other asset expenses. Although we sold two branches in the third quarter of 2017, net occupancy expense increased $207,000 or 9.3% in the third quarter of 2018 compared to the third quarter of 2017. This increase is primarily due to increased costs for repairs and maintenance and other expenses.

Noninterest expense during the third quarter of 2018 compared to the second quarter of 2018 was relatively flat.

Income Taxes

Income tax expense was $3.2 million for the third quarter of 2018, $3.9 million for the third quarter of 2017 and $2.6 million for the second quarter of 2018.

The effective tax rates were 19.8% for the third quarter of 2018, 28.1% for the third quarter of 2017 and 19.3% for the second quarter of 2018. The effective tax rate for the second and third quarter of 2018 primarily reflects the reduction of the federal tax rate from 35% to 21% effective January 1, 2018 as a result of the Tax Act.

Balance Sheet Highlights:

Loans

Loans were $2.5 billion at September 30, 2018, $2.2 billion at September 30, 2017 and $2.4 billion at June 30, 2018. The increases from the prior year and second quarter are primarily due to organic growth.

Asset Quality

Nonperforming assets remain low relative to total assets at $5.8 million, or 0.18% of total assets, at September 30, 2018, $9.7 million, or 0.33% of total assets, at September 30, 2017 and $4.9 million, or 0.16% of total assets at June 30, 2018.

Annualized net charge-offs (recoveries) to average loans were 0.02% for the third quarter of 2018, (0.04%) for the third quarter of 2017 and 0.05% for the second quarter of 2018.

Deposits and Borrowings

Total deposits were $2.7 billion at September 30, 2018, compared to $2.6 billion at September 30, 2017 and $2.6 billion at June 30, 2018.

Our total borrowings are comprised of notes payable, repurchase agreements and Federal Home Loan Bank (FHLB) advances and were $1.4 million at September 30, 2018, $26.6 million at September 30, 2017 and $51.4 million at June 30, 2018. The decrease in borrowings from June 30, 2018 to September 30, 2018 is due to the payoff of FHLB short-term advances of $50 million outstanding at June 30, 2018. Borrowings at September 30, 2017 include $24.4 million for our note payable, which was repaid due to scheduled payments and repayment in full during the quarter ended December 31, 2017.

Capital

At September 30, 2018, the Company remained well capitalized under bank regulatory requirements. Our ratio of total shareholders’ equity to total assets was 14.8% at September 30, 2018, 12.8% at September 30, 2017 and 14.9% at June 30, 2018.

Our ratio of tangible equity to tangible assets was 12.4% at September 30, 2018, 10.1% at September 30, 2017 and 12.4% at June 30, 2018. Tangible equity to tangible assets is a non‑GAAP financial measure. See the table captioned “Non‑GAAP to GAAP Reconciliation” at the end of this earnings release. Our ratios of total shareholders’ equity to total assets and tangible equity to tangible assets both increased from September 30, 2017 to September 30, 2018 due to our November 2017 initial public offering of our common stock and earnings between those periods.

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.2 billion asset bank, offering commercial banking solutions to local small and mid-sized businesses and professionals in Houston, Beaumont and surrounding communities in southeast 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; 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
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)

                
Balance Sheet Data (at period end): 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
                
Loans, excluding loans held for sale $ 2,463,197  $ 2,404,132  $ 2,356,053  $ 2,311,544  $ 2,199,478 
Allowance for loan losses   (24,486)   (25,746)   (25,349)   (24,778)   (23,757)
Loans, net   2,438,711    2,378,386    2,330,704    2,286,766    2,175,721 
                
Cash and equivalents   281,640    245,265    279,915    326,199    348,578 
Debt securities   222,493    230,393    221,183    223,208    217,660 
Premises and equipment, net   52,032    52,607    53,135    53,607    54,129 
Goodwill   80,950    80,950    80,950    80,950    80,950 
Other intangible assets, net   6,038    6,276    6,521    6,770    7,031 
Repossessed real estate and other assets   175    137    295    705    1,136 
Loans held for sale   384    560    113    1,460    466 
Other assets   108,030    106,186    101,974    101,418    104,167 
Total Assets $ 3,190,453  $ 3,100,760  $ 3,074,790  $ 3,081,083  $ 2,989,838 
                
Noninterest-bearing deposits $ 1,144,985  $ 1,114,155  $ 1,120,521  $ 1,109,789  $ 1,051,755 
Interest-bearing deposits   1,545,095    1,447,119    1,479,181    1,493,183    1,502,872 
Total deposits   2,690,080    2,561,274    2,599,702    2,602,972    2,554,627 
                
Note payable   -    -    -    -    24,357 
Repurchase agreements   1,351    1,448    861    1,525    2,239 
Federal Home Loan Bank advances   -    50,000    -    -    - 
Junior subordinated debt   6,726    6,726    6,726    6,726    6,726 
Other liabilities   20,445    20,117    15,930    23,646    20,768 
Total Liabilities   2,718,602    2,639,565    2,623,219    2,634,869    2,608,717 
                
Shareholders' Equity   471,851    461,195    451,571    446,214    381,121 
Total Liabilities and Shareholders' Equity $ 3,190,453  $ 3,100,760  $ 3,074,790  $ 3,081,083  $ 2,989,838 


CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)

                      
  For the Three Months Ended  For the Nine Months Ended
  9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017 9/30/2018 9/30/2017
Interest Income                     
Interest and fees on loans $ 31,513  $ 30,493 $ 28,462 $ 27,726  $ 27,129  $ 90,468 $ 79,642 
Securities   1,535    1,507   1,436   1,357    1,334    4,478   3,990 
Federal Funds and interest-bearing deposits   1,617    1,127   1,187   1,283    1,106    3,931   2,661 
Total Interest Income   34,665    33,127   31,085   30,366    29,569    98,877   86,293 
Interest Expense                     
Deposits   2,961    2,126   1,948   1,993    1,964    7,035   5,659 
Repurchase agreements   1    1   1   —    2    3   5 
Federal Home Loan Bank advances   61    12   —   —    —    73   — 
Note payable   4    3   4   122    269    11   784 
Junior subordinated debt   112    109   93   86    83    314   236 
Total Interest Expense   3,139    2,251   2,046   2,201    2,318    7,436   6,684 
Net Interest Income   31,526    30,876   29,039   28,165    27,251    91,441   79,609 
Provision (Recapture) for Loan Losses   (1,142)   690   865   1,050    (1,654)   413   (1,388)
Net Interest Income After Provision (Recapture) for Loan Losses   32,668    30,186   28,174   27,115    28,905    91,028   80,997 
Noninterest Income                     
Deposit account service charges   1,597    1,497   1,478   1,388    1,395    4,572   4,412 
Net gain (loss) on sale of assets   152    210   130   (7)   828    492   1,531 
Card interchange fees   922    971   927   941    803    2,820   2,512 
Earnings on bank-owned life insurance   443    465   451   460    459    1,359   1,120 
Other   412    363   375   362    601    1,150   1,485 
Total Noninterest Income   3,526    3,506   3,361   3,144    4,086    10,393   11,060 
Noninterest Expense                     
Salaries and employee benefits   12,499    12,496   12,695   14,021    11,829    37,690   34,552 
Net occupancy expense   2,428    2,433   2,265   2,346    2,221    7,126   6,805 
Regulatory fees   488    513   545   487    458    1,546   1,689 
Data processing   664    666   683   674    662    2,013   1,955 
Printing, stationery and office   503    480   411   415    348    1,394   1,065 
Amortization of intangibles   245    248   255   263    267    748   816 
Professional and director fees   809    686   919   1,168    606    2,414   1,937 
Correspondent bank and customer related transaction expenses   66    68   67   67    67    201   219 
Loan processing costs   102    75   118   141    115    295   320 
Advertising, marketing and business development   437    475   506   508    266    1,418   953 
Repossessed real estate and other asset expense   3    5   57   66    340    65   543 
Security and protection expense   346    311   302   300    331    959   1,055 
Telephone and communications   342    394   386   344    311    1,122   972 
Other expenses   1,032    1,162   1,075   1,189    1,196    3,269   3,422 
Total Noninterest Expense   19,964    20,012   20,284   21,989    19,017    60,260   56,303 
Net Income Before Income Tax Expense   16,230    13,680   11,251   8,270    13,974    41,161   35,754 
Income Tax Expense   3,207    2,638   2,139   6,313    3,927    7,984   10,140 
Net Income  $ 13,023  $ 11,042 $ 9,112 $ 1,957  $ 10,047  $ 33,177 $ 25,614 



CBTX, INC. AND SUBSIDIARY
Financial Highlights (Unaudited)
(In thousands, except per share data and percentages)

                       
  For the Three Months Ended  For the Nine Months Ended 
  9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017 9/30/2018 9/30/2017 
Profitability:                      
Net income $ 13,023 $ 11,042 $ 9,112 $ 1,957 $ 10,047 $ 33,177 $ 25,614 
Basic earnings per share $ 0.52 $ 0.44 $ 0.37 $ 0.08 $ 0.46 $ 1.34 $ 1.16 
Diluted earnings per share $ 0.52 $ 0.44 $ 0.37 $ 0.08 $ 0.45 $ 1.33 $ 1.16 
                       
Return on average assets (1)   1.6%  1.4%  1.2%  0.3%  1.3%  1.4%  1.2%
Return on average shareholders' equity (1)   11.0%  9.7%  8.2%  1.8%  10.5%  9.7%  8.6%
Net interest margin- tax equivalent (1)   4.3%  4.4%  4.2%  4.1%  4.1%  4.3%  4.1%
Efficiency ratio (2)   57.0%  58.2%  62.6%  70.2%  60.7%  59.2%  62.1%
                       
Liquidity and Capital Ratios:                      
Total shareholders' equity to total assets   14.8%  14.9%  14.7%  14.5%  12.8%  14.8%  12.8%
Tangible equity to tangible assets (3)   12.4%  12.4%  12.2%  12.0%  10.1%  12.4%  10.1%
Common equity tier 1 capital ratio   14.3%  14.1%  14.1%  14.2%  12.2%  14.3%  12.2%
Tier 1 leverage ratio   12.8%  12.9%  12.6%  12.3%  10.5%  12.8%  10.5%
Tier 1 risk-based capital ratio   14.5%  14.3%  14.4%  14.4%  12.5%  14.5%  12.5%
Total risk-based capital ratio   15.4%  15.3%  15.4%  15.4%  13.5%  15.4%  13.5%
                       
Other Data:                      
Weighted average common shares outstanding- Basic   24,859   24,858   24,833   23,629   22,063   24,850   22,062 
Weighted average common shares outstanding- Diluted   25,060   24,997   24,954   23,742   22,138   25,007   22,144 
Common shares outstanding at period end   24,859   24,859   24,833   24,833   22,063   24,859   22,063 
Dividends per share $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.15 $ 0.15 
Book value per share $ 19.0 $ 18.6 $ 18.2 $ 18.0 $ 17.3 $ 19.0 $ 17.3 
Tangible book value per share (3) $ 15.5 $ 15.0 $ 14.7 $ 14.4 $ 13.3 $ 15.5 $ 13.3 
Employees - full-time equivalents   489   488   477   462   464   489   464 



(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
Net Interest Margin (Unaudited)
(In thousands, except percentages)

                            
  For the Three Months Ended
  9/30/2018 6/30/2018 9/30/2017
     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-earnings assets:                           
Total loans (2) $ 2,404,491  $ 31,513  5.20 $ 2,375,253  $ 30,493  5.15 $ 2,191,016  $ 27,129  4.91%
Debt securities   230,592    1,535  2.64   228,262    1,507  2.65   223,132    1,334  2.37%
Federal funds sold and other interest-earning assets   272,739    1,404  2.04   201,906    936  1.86   284,334    927  1.29%
Nonmarketable equity securities   16,799    213  5.01   14,823    191  5.17   14,695    179  4.83%
Total interest-earning assets   2,924,621  $ 34,665  4.70   2,820,244  $ 33,127  4.71   2,713,177  $ 29,569  4.32%
Allowance for loan losses   (25,689)         (25,392)         (25,316)      
Noninterest-earnings assets   292,598          288,416          290,767       
Total assets $ 3,191,530        $ 3,083,268        $ 2,978,628       
Liabilities and Shareholders’ Equity                           
Interest-bearing liabilities:                           
Interest-bearing deposits $ 1,530,077  $ 2,961  0.77 $ 1,478,016  $ 2,126  0.58 $ 1,501,732  $ 1,964  0.52%
Repurchase agreements   1,516    1  0.26   1,540    1  0.26   2,404    2  0.33%
FHLB advances   11,141    61  2.17   2,198    12  2.19   —    —  —%
Note payable   —    4  —   —    3  —   24,742    269  4.31%
Junior subordinated debt   10,826    112  4.14   10,826    109  4.04   10,826    83  3.04%
Total interest-bearing liabilities   1,553,560  $ 3,139  0.80   1,492,580  $ 2,251  0.60   1,539,704  $ 2,318  0.60%
Noninterest-bearing liabilities:                           
Noninterest-bearing deposits   1,145,516          1,111,736          1,041,731       
Other liabilities   23,600          20,441          18,844       
Total noninterest-bearing liabilities   1,169,116          1,132,177          1,060,575       
Shareholders’ equity   468,854          458,511          378,349       
Total liabilities and shareholders’ equity $ 3,191,530        $ 3,083,268        $ 2,978,628       
Net interest income    $ 31,526       $ 30,876       $ 27,251   
Net interest spread (3)        3.90        4.11        3.73%
Net interest margin (4)        4.28        4.39        3.98%
Net interest margin—tax equivalent (5)        4.31        4.43        4.07%

(1)  Annualized. 
(2)  Includes average outstanding balances of loans held for sale of $741,000, $425,000 and $1.1 million for the quarter ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively. 
(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)  To make pre‑tax income and resultant yields on tax‑exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment of $261,000, $267,000 and $1.1 million for the quarter ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively, has been computed using a federal income tax rate of 21% for 2018 and 35% for 2017.


                   
  For the Nine Months Ended September 30,
  2018 2017
     Interest       Interest   
  Average Earned/ Average Average Earned/ Average
  Outstanding Interest Yield/ Outstanding Interest Yield/
(Dollars in thousands) Balance Paid Rate Balance Paid Rate
Assets                  
Interest-earnings assets:                  
Total loans (1) $ 2,366,714  $ 90,468  5.11 $ 2,190,975  $ 79,642  4.86%
Debt securities   227,552    4,478  2.63   220,396    3,990  2.42%
Federal funds sold and other interest-earning assets   242,529    3,334  1.84   257,628    2,110  1.10%
Nonmarketable equity securities   15,449    597  5.17   14,690    551  5.01%
Total interest-earning assets   2,852,244  $ 98,877  4.63   2,683,689  $ 86,293  4.30%
Allowance for loan losses   (25,318)         (25,719)      
Noninterest-earnings assets   289,391          280,139       
Total assets $ 3,116,317        $ 2,938,109       
Liabilities and Shareholders’ Equity                  
Interest-bearing liabilities:                  
Interest-bearing deposits $ 1,499,925  $ 7,035  0.63 $ 1,497,845  $ 5,659  0.51%
Repurchase agreements   1,492    3  0.27   2,409    5  0.28%
FHLB advances   4,487    73  2.18   —    —  —%
Note payable   —    11  —   25,841    784  4.06%
Junior subordinated debt   10,826    314  3.88   10,826    236  2.91%
Total interest-bearing liabilities   1,516,730  $ 7,436  0.66   1,536,921  $ 6,684  0.58%
Noninterest-bearing liabilities:                  
Noninterest-bearing deposits   1,118,408          1,012,952       
Other liabilities   21,744          18,080       
Total noninterest-bearing liabilities   1,140,152          1,031,032       
Shareholders’ equity   459,435          370,156       
Total liabilities and shareholders’ equity $ 3,116,317        $ 2,938,109       
Net interest income    $ 91,441       $ 79,609   
Net interest spread (2)        3.98        3.72%
Net interest margin (3)        4.29        3.97%
Net interest margin—tax equivalent (4)        4.32        4.05%


(1) Annualized. 
(2)Includes average outstanding balances of loans held for sale of $571,000 and $853,000 for the nine months ended September 30, 2018 and September 30, 2017, respectively. 
(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)To make pre‑tax income and resultant yields on tax‑exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment of $798,000 and $1.8 million for the nine months ended September 30, 2018 and September 30, 2017, respectively, has been computed using a federal income tax rate of 21% for 2018 and 35% for 2017. 

CBTX, INC. AND SUBSIDIARY
Yield Trend (Unaudited)

                
  For the Three Months Ended
  9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Yield Trend - Annualized:               
Interest-earnings assets:               
Total loans  5.20%  5.15%  4.98%  4.88%  4.91%
Debt securities  2.64%  2.65%  2.60%  2.42%  2.37%
Federal funds sold and other interest-earning assets  2.04%  1.86%  1.60%  1.37%  1.29%
Nonmarketable equity securities  5.01%  5.17%  5.32%  5.13%  4.83%
Total interest-earning assets  4.70%  4.71%  4.49%  4.29%  4.32%
                
Interest-bearing liabilities:               
Interest-bearing deposits  0.77%  0.58%  0.53%  0.52%  0.52%
Repurchase agreements  0.26%  0.26%  0.29%  —%  0.33%
FHLB advances  2.17%  2.19%  —%  —%  —%
Note payable  —%  —%  —%  4.30%  4.31%
Junior subordinated debt  4.14%  4.04%  3.48%  3.15%  3.04%
Total interest-bearing liabilities  0.80%  0.60%  0.55%  0.56%  0.60%
                
Net interest spread (1)  3.90%  4.11%  3.93%  3.73%  3.73%
Net interest margin (2)  4.28%  4.39%  4.19%  3.98%  3.98%
Net interest margin—tax equivalent (3)  4.31%  4.43%  4.23%  4.06%  4.07%



(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)To make pre‑tax income and resultant yields on tax‑exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment has been computed using a federal income tax rate of 21% for 2018 and 35% for 2017.


CBTX, INC. AND SUBSIDIARY

Average Outstanding Balances (Unaudited)
(In thousands)

                
  For the Three Months Ended
  9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Average Outstanding Balances:               
                
Assets               
Interest-earnings assets:               
Total loans (1) $ 2,404,491  $ 2,375,253  $ 2,319,463  $ 2,252,735  $ 2,191,016 
Debt securities   230,592    228,262    223,730    222,602    223,132 
Federal funds sold and other interest-earning assets   272,739    201,906    252,722    317,484    284,334 
Nonmarketable equity securities   16,799    14,823    14,701    14,698    14,695 
Total interest-earning assets   2,924,621    2,820,244    2,810,616    2,807,519    2,713,177 
Allowance for loan losses   (25,689)   (25,392)   (24,866)   (24,127)   (25,316)
Noninterest-earnings assets   292,598    288,416    287,099    296,108    290,767 
Total assets $ 3,191,530  $ 3,083,268  $ 3,072,849  $ 3,079,500  $ 2,978,628 
                
Liabilities and Shareholders’ Equity               
Interest-bearing liabilities:               
Interest-bearing deposits $ 1,530,077  $ 1,478,016  $ 1,491,613  $ 1,519,631  $ 1,501,732 
Repurchase agreements   1,516    1,540    1,418    1,793    2,404 
FHLB advances   11,141    2,198    —    —    — 
Note payable   —    —    —    11,252    24,742 
Junior subordinated debt   10,826    10,826    10,826    10,826    10,826 
Total interest-bearing liabilities   1,553,560    1,492,580    1,503,857    1,543,502    1,539,704 
Noninterest-bearing liabilities:               
Noninterest-bearing deposits   1,145,516    1,111,736    1,097,085    1,087,416    1,041,731 
Other liabilities   23,600    20,441    21,165    23,271    18,844 
Total noninterest-bearing liabilities   1,169,116    1,132,177    1,118,250    1,110,687    1,060,575 
Shareholders’ equity   468,854    458,511    450,742    425,311    378,349 
Total liabilities and shareholders’ equity $ 3,191,530  $ 3,083,268  $ 3,072,849  $ 3,079,500  $ 2,978,628 



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


CBTX, INC. AND SUBSIDIARY
Period End Balances (Unaudited)
(In thousands, except percentages)

                               
  9/30/2018  6/30/2018  3/31/2018  12/31/2017  9/30/2017 
  Amount   Amount   Amount   Amount   Amount  
Loan Portfolio:                              
Commercial and industrial $ 569,334   23.1 $ 565,850   23.5 $ 559,070   23.7 $ 559,363   24.1 $ 548,870   24.9%
Real estate:                              
Commercial real estate   776,439   31.4   780,224   32.4   767,108   32.5   738,293   31.9   689,501   31.3%
Construction and development   487,289   19.7   449,390   18.6   436,260   18.5   449,211   19.4   424,489   19.3%
1-4 family residential   288,737   11.7   279,227   11.6   260,580   11.0   258,584   11.2   246,564   11.2%
Multi-family residential   236,907   9.6   229,609   9.5   236,000   10.0   220,305   9.5   211,219   9.6%
Consumer   39,807   1.6   41,833   1.7   40,869   1.7   40,433   1.7   42,772   1.9%
Agricultural   11,609   0.5   10,951   0.5   8,807   0.4   11,256   0.5   11,424   0.5%
Other   59,484   2.4   53,376   2.2   52,382   2.2   40,344   1.7   29,684   1.3%
Gross loans   2,469,606   100.0   2,410,460   100.0   2,361,076   100.0   2,317,789   100.0   2,204,523   100.0%
Less deferred fees and unearned discount   (6,025)      (5,768)      (4,910)      (4,785)      (4,579)   
Less allowance for loan losses   (24,486)      (25,746)      (25,349)      (24,778)      (23,757)   
Less loans held for sale   (384)      (560)      (113)      (1,460)      (466)   
Loans, net $ 2,438,711     $ 2,378,386     $ 2,330,704     $ 2,286,766     $ 2,175,721    
                               
Deposits:                              
Interest-bearing demand accounts $ 367,120   13.6 $ 342,890   13.4 $ 345,378   13.3 $ 363,015   14.0 $ 340,627   13.3
Money market accounts   722,382   26.9   650,747   25.4   717,548   27.6   702,299   27.0   726,903   28.5
Savings accounts   94,344   3.5   97,576   3.8   95,603   3.7   95,842   3.7   88,613   3.5
Certificates and other time deposits, $100,000 or greater   182,552   6.8   164,464   6.4   161,777   6.2   172,469   6.6   179,777   7.0
Certificates and other time deposits, less than $100,000   178,697   6.6   191,442   7.5   158,875   6.1   159,558   6.1   166,952   6.5
Total interest-bearing deposits   1,545,095   57.4   1,447,119   56.5   1,479,181   56.9   1,493,183   57.4   1,502,872   58.8
Noninterest-bearing deposits   1,144,985   42.6   1,114,155   43.5   1,120,521   43.1   1,109,789   42.6   1,051,755   41.2
Total deposits $ 2,690,080   100.0 $ 2,561,274   100.0 $ 2,599,702   100.0 $ 2,602,972   100.0 $ 2,554,627   100.0


CBTX, INC. AND SUBSIDIARY
Credit Quality (Unaudited)
(In thousands, except percentages)

                     
  9/30/2018  6/30/2018  3/31/2018  12/31/2017  9/30/2017 
Nonperforming assets (at period end):                    
Nonaccrual loans:                    
Commercial and industrial $ 2,161  $ 1,734  $ 2,533  $ 3,280  $ 2,444 
Real estate:                    
Commercial real estate   2,751    2,092    2,217    3,216    5,038 
Construction and development   13    225    233    252    265 
1-4 family residential   677    738    765    898    844 
Multi-family residential   —    —    —    —    1 
Consumer   —    4    21    —    — 
Agricultural   —    —    —    —    — 
Nonaccrual loans   5,602    4,793    5,769    7,646    8,592 
Accruing loans 90 or more days past due   —    —    —    —    — 
Total nonperforming loans   5,602    4,793    5,769    7,646    8,592 
Foreclosed assets, including other real estate:                    
Commercial real estate, construction and development, land and land development   175    137    295    298    729 
Residential real estate   —    —    —    407    407 
Total foreclosed assets   175    137    295    705    1,136 
Total nonperforming assets $ 5,777  $ 4,930  $ 6,064  $ 8,351  $ 9,728 
                     
Allowance for Loan Losses (at period end):                    
Commercial and industrial $ 8,763  $ 7,648  $ 7,439  $ 7,257  $ 7,194 
Real estate:                    
Commercial real estate   6,913    10,930    10,742    10,375    9,640 
Construction and development   3,606    3,335    3,356    3,482    3,364 
1-4 family residential   2,454    1,404    1,329    1,326    1,282 
Multi-family residential   1,630    1,479    1,520    1,419    1,360 
Consumer   394    479    517    566    626 
Agricultural   71    66    53    68    69 
Other   655    405    393    285    222 
Total allowance for loan losses $ 24,486  $ 25,746  $ 25,349  $ 24,778  $ 23,757 
                     
Credit Quality Ratios (at period end):                    
Nonperforming assets to total assets   0.18   0.16   0.20   0.27   0.33
Nonperforming loans to total loans   0.23   0.20   0.24   0.33   0.39
Allowance for loan losses to nonperforming loans   437.09   537.16   439.40   324.06   276.50
Allowance for loan losses to total loans   0.99   1.07   1.08   1.07   1.08



CBTX, INC. AND SUBSIDIARY
Allowance for Loan Losses (Unaudited)
(In thousands, except percentages)

                 
  For the Three Months Ended 
  9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017 
Analysis of Allowance for Loan Losses                
                 
Allowance for loan losses at beginning of period $ 25,746  $ 25,349  $ 24,778  $ 23,757  $ 25,187  
                 
Provision (recapture) for loan losses   (1,142)   690    865    1,050    (1,654) 
                 
Net (charge-offs) recoveries                
Commercial and industrial   (114)   (301)   (297)   52    205  
Real estate:                
Commercial real estate   (3)   5    3    (118)   2  
Construction and development   —    —    —    —    —  
1-4 family residential   4    —    (2)   (7)   2  
Multi-family residential   —    —    —    —    —  
Consumer   (4)   3    2    9    4  
Agricultural   —    —    —    35    11  
Other   (1)   —    —    —    —  
Total net (charge-offs) recoveries   (118)   (293)   (294)   (29)   224  
                 
Allowance for loan losses at end of period $ 24,486  $ 25,746  $ 25,349  $ 24,778  $ 23,757  
                 
Net charge-offs (recoveries) to average loans   0.02   0.05   0.05   —   (0.04)


CBTX, INC. AND SUBSIDIARY
Non‑GAAP to GAAP Reconciliation (Unaudited)
(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 and other statistical measures or ratios or statistical measures 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 (1) tangible equity as total shareholders’ equity, less goodwill and other intangible assets, net of accumulated amortization, and (2) 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 tables reconcile, 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 shareholders’ equity to total assets:

                     
  9/30/2018  6/30/2018  3/31/2018  12/31/2017  9/30/2017 
Tangible Equity                    
Total shareholders’ equity $ 471,851  $ 461,195  $ 451,571  $ 446,214  $ 381,121 
Adjustments:                    
Goodwill   80,950    80,950    80,950    80,950    80,950 
Other intangibles   6,038    6,276    6,521    6,770    7,031 
Tangible equity $ 384,863  $ 373,969  $ 364,100  $ 358,494  $ 293,140 
Tangible Assets                    
Total assets $ 3,190,453  $ 3,100,760  $ 3,074,790  $ 3,081,083  $ 2,989,838 
Adjustments:                    
Goodwill   80,950    80,950    80,950    80,950    80,950 
Other intangibles   6,038    6,276    6,521    6,770    7,031 
Tangible assets $ 3,103,465  $ 3,013,534  $ 2,987,319  $ 2,993,363  $ 2,901,857 
                     
Common shares outstanding   24,859    24,859    24,833    24,833    22,063 
                     
Book value per share $ 19.0  $ 18.6  $ 18.2  $ 18.0  $ 17.3 
Tangible book value per share $ 15.5  $ 15.0  $ 14.7  $ 14.4  $ 13.3 
                     
Total shareholders’ equity to total assets   14.8   14.9%   14.7%   14.5%   12.8%
Tangible equity to tangible assets   12.4   12.4%   12.2%   12.0%   10.1%