HOUSTON, Jan. 30, 2019 (GLOBE NEWSWIRE) -- CBTX, Inc. (the “Company”) (NASDAQ: CBTX), the bank holding company for CommunityBank of Texas N.A., today announced net income of $14.1 million, or $0.56 per diluted share, for the quarter ended December 31, 2018, compared to $2.0 million, or $0.08 per diluted share, for the quarter ended December 31, 2017 and $13.0 million, or $0.52 per diluted share, for the quarter ended September 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.

The Company reported net income for the year ended December 31, 2018 of $47.3 million, or $1.89 per diluted share, compared to $27.6 million, or $1.22 per diluted share, for the year ended December 31, 2017. 

Highlights 

  • Return on average shareholders’ equity was 10.2% for the year ended December 31, 2018, compared to 7.2% for the year ended December 31, 2017. 
  • Net interest income for the quarter ended December 31, 2018 totaled $33.2 million, an increase of 5.4% from the third quarter of 2018, primarily due to the impact of increased average loans and higher average yields on loans, partially offset by the impact of increased interest-bearing deposits and higher rates on those deposits.             
  • The efficiency ratio improved to 59.0% for the year ended December 31, 2018, compared to 64.2% for the year ended December 31, 2017. 

“We are pleased with our 2018 operating results, as our growth led to all-time highs in assets, loans and deposits,” said Robert R. Franklin, Jr., Chairman, President and Chief Executive Officer of CBTX, Inc. “We reported record earnings for the year, driven by stable organic growth in loans and deposits, continued improvement in expense efficiency and excellent credit metrics.”  

Operating Results:

Net Interest Income

Net interest income was $33.2 million for the fourth quarter of 2018, compared to $28.2 million for the fourth quarter of 2017 and $31.5 million for the third quarter of 2018. The increase in net interest income in the fourth quarter of 2018 from the fourth quarter of 2017, was primarily due to increased interest income resulting from higher average loans and higher average yields on loans and federal funds sold, partially offset by an increase in interest expense due to higher average interest-bearing deposits and higher rates on those deposits.

The increase in net interest income in the fourth quarter of 2018 from the third quarter of 2018 was due to increased interest income resulting from higher average loans and higher average yields on loans, partially offset by the impact on interest expense of increased average interest-bearing deposits and higher rates on those deposits.

Net interest income was $124.7 million for the year ended December 31, 2018, compared to $107.8 million for year ended December 31, 2017. The increase in net interest income in 2018, as compared to 2017 was due to increased interest income resulting from higher average loans and securities and higher average yields on loans and federal funds sold, partially offset by the impact of increased interest expense due to higher average interest-bearing deposits and higher rates on those deposits, offset by lower interest expense in 2018 due to the payoff of our note payable in the fourth quarter of 2017.  

Provision (Recapture) for Loan Losses

Provision for loan loss was a recapture of $2.2 million for the fourth quarter of 2018, compared to a provision of $1.1 million for the fourth quarter of 2017 and a recapture of $1.1 million for the third quarter of 2018. The recapture in the fourth quarter of 2018 was due to the impact of recoveries during the quarter. The recapture in the third quarter of 2018 was driven by strong credit quality, continuing low nonperforming and impaired loans and minimal charge-off history. The provision in the fourth quarter of 2017 reflects the increase in loans during that period.

Provision for loan loss was a recapture of $1.8 million for the year ended December 31, 2018, compared to a recapture of $338,000 for the year ended December 31, 2017. The recapture in the year ended December 31, 2018 was due to the recapture in the third and fourth quarter of 2018 (see explanation above). The recapture in the year ended December 31, 2017 was primarily the result of pay-offs of certain classified and problem loans, which resulted in a decrease in their related allowance for loan losses.

The allowance for loan losses was $23.7 million, or 0.97% of total loans, at December 31, 2018, compared to $24.8 million, or 1.07% of total loans, at December 31, 2017 and $24.5 million, or 0.99% of total loans, at September 30, 2018.  

Noninterest Income

Noninterest income was $3.9 million for the fourth quarter of 2018, $3.1 million for the fourth quarter of 2017 and $3.5 million for the third quarter of 2018. Noninterest income for the fourth quarter of 2018 was higher compared to the fourth quarter of 2017 primarily due to an increase in deposit account service charges and higher net gains on sales of assets during the fourth quarter of 2018. Noninterest income for the fourth quarter of 2018 was higher compared to the third quarter of 2018 primarily due to an increase in deposit account service charges.

Noninterest income was $14.3 million for the year ended December 31, 2018 compared to $14.2 million for the year ended December 31, 2017. Although overall noninterest income increased minimally between 2018 and 2017, there were increases in deposit account service charges, card interchange fees and earnings on bank-owned life insurance, partially offset by decreased gains on sales of fixed assets.

Noninterest Expense

Noninterest expense was $21.8 million for the fourth quarter of 2018, $22.0 million for the fourth quarter of 2017 and $20.0 million for the third quarter of 2018.

Noninterest expense decreased $233,000 in the fourth quarter of 2018 compared to the fourth quarter of 2017 primarily due to higher salaries, group health insurance and stock compensation expense during 2018, partially offset by lower deferred compensation expense during 2018 and the impact of a change in control charge of $2.2 million related to our initial public offering (IPO) recorded in the fourth quarter of 2017.

Noninterest expense increased $1.8 million or 9.0% during the fourth quarter of 2018 compared to the third quarter of 2018 primarily due to increased group health insurance and employee bonus expense during 2018.

Noninterest expense was $82.0 million for 2018, as compared to $78.3 million for 2017. This increase during 2018 of $3.7 million was primarily due to increased salaries, group health insurance and stock compensation expense during 2018, partially offset by lower deferred compensation expense and repossessed real estate costs in 2018 and the impact of a change in control charge of $2.5 million related to our IPO recorded in the fourth quarter of 2017.

Income Taxes

Income tax expense was $3.4 million for the fourth quarter of 2018, $6.3 million for the fourth quarter of 2017 and $3.2 million for the third quarter of  2018. Income tax expense was $11.4 million for the year ended December 31, 2018 and $16.5 million for the year ended December 31, 2017.

The effective tax rates were 19.3% for the fourth quarter of 2018, 19.8% for the third quarter of 2018 and 19.4% for the year ended December 31, 2018. The effective tax rates for the 2018 periods reflect the reduction of the federal tax rate from 35% to 21% effective January 1, 2018 as a result of the Tax Act. The effective tax rate for the fourth quarter of 2017 was 76.3%, reflecting the impact of the deferred tax asset remeasurement adjustment of $3.9 million related to the adoption of the Tax Act. The effective tax rate for the year ended December 31, 2017 was 37.4%, reflecting the impact of the adoption of the Tax Act as well as true-ups and return to provision adjustments recorded in 2017. The effective tax rate for the fourth quarter of 2017 and the year ended December 31, 2017, would have been 29.7% and 28.6% without the impact of the deferred tax remeasurement adjustment noted above.

Balance Sheet Highlights:

Loans

Loans were $2.4 billion at December 31, 2018, $2.3 billion at December 31, 2017 and $2.5 billion at September 30, 2018.

Asset Quality

Nonperforming assets remain low relative to total assets at $3.5 million, or 0.11% of total assets, at December 31, 2018, $8.4 million, or 0.27% of total assets, at December 31, 2017 and $5.8 million, or 0.18% of total assets at September 30, 2018.

Annualized net charge-offs (recoveries) to average loans were (0.22%) for the fourth quarter of 2018, 0.00% for the fourth quarter of 2017 and 0.02% for the third quarter of 2018. The annualized charge-offs (recoveries) for the fourth quarter of 2018 reflects the impact of recoveries in that period.

Deposits and Borrowings

Total deposits were $2.8 billion at December 31, 2018, compared to $2.6 billion at December 31, 2017 and $2.7 billion at September 30, 2018.

We define total borrowings as the total of notes payable, repurchase agreements and Federal Home Loan Bank (FHLB) advances.  Total borrowings were comprised of repurchase agreements at December 31, 2018, December 31, 2017 and September 30, 2018 and were $2.5 million, $1.5 million and $1.4 million, respectively.

Capital

At December 31, 2018, the Company remained well capitalized under bank regulatory requirements.

Our ratio of tangible equity to tangible assets was 12.6% at December 31, 2018, 12.0% at December 31, 2017 and 12.4% at September 30, 2018. Tangible equity to tangible assets is a non‑GAAP financial measure. The most directly comparable GAAP financial measure to tangible equity to tangible assets is total shareholders’ equity to total assets, which was 14.9% at December 31, 2018, 14.5% at December 31, 2017 and 14.8% at September 30, 2018. See the table captioned “Non‑GAAP to GAAP Reconciliation” at the end of this earnings release. 

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.3 billion asset bank, offering commercial banking solutions to local small and mid-sized businesses and professionals in Houston, Dallas, 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; avoid or address interruptions or breaches in the Company’s information system security; 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): 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
                
Loans, excluding loans held for sale $ 2,446,823  $ 2,463,197  $ 2,404,132  $ 2,356,053  $ 2,311,544 
Allowance for loan losses   (23,693)   (24,486)   (25,746)   (25,349)   (24,778)
Loans, net   2,423,130    2,438,711    2,378,386    2,330,704    2,286,766 
                
Cash and equivalents   382,070    281,640    245,265    279,915    326,199 
Debt securities   229,964    222,493    230,393    221,183    223,208 
Premises and equipment, net   51,622    52,032    52,607    53,135    53,607 
Goodwill   80,950    80,950    80,950    80,950    80,950 
Other intangible assets, net   5,775    6,038    6,276    6,521    6,770 
Repossessed real estate and other assets   12    175    137    295    705 
Loans held for sale   -    384    560    113    1,460 
Other assets   105,573    108,030    106,186    101,974    101,418 
Total Assets $ 3,279,096  $ 3,190,453  $ 3,100,760  $ 3,074,790  $ 3,081,083 
                
Noninterest-bearing deposits $ 1,183,058  $ 1,144,985  $ 1,114,155  $ 1,120,521  $ 1,109,789 
Interest-bearing deposits   1,583,224    1,545,095    1,447,119    1,479,181    1,493,183 
Total deposits   2,766,282    2,690,080    2,561,274    2,599,702    2,602,972 
                
Repurchase agreements   2,498    1,351    1,448    861    1,525 
Federal Home Loan Bank advances   -    -    50,000    -    - 
Junior subordinated debt   1,571    6,726    6,726    6,726    6,726 
Other liabilities   21,120    20,445    20,117    15,930    23,646 
Total Liabilities   2,791,471    2,718,602    2,639,565    2,623,219    2,634,869 
                
Shareholders' Equity   487,625    471,851    461,195    451,571    446,214 
Total Liabilities and Shareholders' Equity $ 3,279,096  $ 3,190,453  $ 3,100,760  $ 3,074,790  $ 3,081,083 


CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)
 
  For the Three Months Ended  For the Years Ended
  12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 12/31/2018 12/31/2017
Interest Income                     
Interest and fees on loans $ 33,427  $ 31,513  $ 30,493 $ 28,462 $ 27,726  $ 123,895  $ 107,368 
Securities   1,542    1,535    1,507   1,436   1,357    6,020    5,347 
Federal Funds and interest-bearing deposits   1,913    1,617    1,127   1,187   1,283    5,844    3,944 
Total Interest Income   36,882    34,665    33,127   31,085   30,366    135,759    116,659 
Interest Expense                     
Deposits   3,551    2,961    2,126   1,948   1,993    10,586    7,652 
Repurchase agreements   1    1    1   1   —    4    5 
Federal Home Loan Bank advances   —    61    12   —   —    73    — 
Note payable   4    4    3   4   122    15    906 
Junior subordinated debt   106    112    109   93   86    420    322 
Total Interest Expense   3,662    3,139    2,251   2,046   2,201    11,098    8,885 
Net Interest Income   33,220    31,526    30,876   29,039   28,165    124,661    107,774 
Provision (Recapture) for Loan Losses   (2,169)   (1,142)   690   865   1,050    (1,756)   (338)
Net Interest Income After Provision (Recapture) for Loan Losses   35,389    32,668    30,186   28,174   27,115    126,417    108,112 
Noninterest Income                     
Deposit account service charges   1,709    1,597    1,497   1,478   1,388    6,281    5,800 
Net gain (loss) on sale of assets   168    152    210   130   (7)   660    1,524 
Card interchange fees   921    922    971   927   941    3,741    3,453 
Earnings on bank-owned life insurance   456    443    465   451   460    1,815    1,580 
Other   605    412    363   375   362    1,755    1,847 
Total Noninterest Income   3,859    3,526    3,506   3,361   3,144    14,252    14,204 
Noninterest Expense                     
Salaries and employee benefits   13,834    12,499    12,496   12,695   14,021    51,524    48,573 
Net occupancy expense   2,268    2,428    2,433   2,265   2,346    9,394    9,151 
Regulatory fees   507    488    513   545   487    2,053    2,176 
Data processing   664    664    666   683   674    2,677    2,629 
Software   408    400    403   365   344    1,576    1,208 
Printing, stationery and office   303    291    303   264   288    1,161    1,097 
Amortization of intangibles   237    245    248   255   263    985    1,079 
Professional and director fees   1,123    809    686   919   1,168    3,537    3,105 
Correspondent bank and customer related transaction expenses   64    66    68   67   67    265    286 
Loan processing costs   153    102    75   118   141    448    461 
Advertising, marketing and business development   406    437    475   506   508    1,824    1,461 
Repossessed real estate and other asset expense   7    3    5   57   66    72    609 
Security and protection expense   317    346    311   302   300    1,276    1,355 
Telephone and communications   408    342    394   386   344    1,530    1,316 
Other expenses   1,057    844    936   857   972    3,694    3,786 
Total Noninterest Expense   21,756    19,964    20,012   20,284   21,989    82,016    78,292 
Net Income Before Income Tax Expense   17,492    16,230    13,680   11,251   8,270    58,653    44,024 
Income Tax Expense   3,380    3,207    2,638   2,139   6,313    11,364    16,453 
Net Income  $ 14,112  $ 13,023  $ 11,042 $ 9,112 $ 1,957  $ 47,289  $ 27,571 


CBTX, INC. AND SUBSIDIARY
Financial Highlights (Unaudited)
(In thousands, except per share data and percentages)
 
  For the Three Months Ended  For the Years Ended 
  12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 12/31/2018 12/31/2017 
Profitability:                      
Net income $ 14,112  $ 13,023  $ 11,042  $ 9,112  $ 1,957  $ 47,289  $ 27,571  
Basic earnings per share $ 0.57  $ 0.52  $ 0.44  $ 0.37  $ 0.08  $ 1.90  $ 1.23  
Diluted earnings per share $ 0.56  $ 0.52  $ 0.44  $ 0.37  $ 0.08  $ 1.89  $ 1.22  
                       
Return on average assets (1)  1.7%  1.6%  1.4%  1.2%  0.3%  1.5%  0.9% 
Return on average shareholders' equity (1)  11.7%  11.0%  9.7%  8.2%  1.8%  10.2%  7.2% 
Net interest margin- tax equivalent (1)  4.4%  4.3%  4.4%  4.2%  4.1%  4.4%  4.1% 
Efficiency ratio (2)  58.7%  57.0%  58.2%  62.6%  70.2%  59.0%  64.2% 
                       
Liquidity and Capital Ratios:                      
Total shareholders' equity to total assets  14.9%  14.8%  14.9%  14.7%  14.5%  14.9%  14.5% 
Tangible equity to tangible assets (3)  12.6%  12.4%  12.4%  12.2%  12.0%  12.6%  12.0% 
Common equity tier 1 capital ratio  14.7%  14.3%  14.1%  14.1%  14.2%  14.7%  14.2% 
Tier 1 risk-based capital ratio  14.8%  14.5%  14.3%  14.4%  14.4%  14.8%  14.4% 
Total risk-based capital ratio  15.6%  15.4%  15.3%  15.4%  15.4%  15.6%  15.4% 
Tier 1 leverage ratio  12.8%  12.8%  12.9%  12.6%  12.3%  12.8%  12.3% 
                       
Other Data:                      
Weighted average common shares outstanding- Basic   24,886    24,859    24,858    24,833    23,629    24,859    22,457  
Weighted average common shares outstanding- Diluted   25,047    25,060    24,997    24,954    23,742    25,018    22,573  
Common shares outstanding at period end   24,907    24,859    24,859    24,833    24,833    24,907    24,833  
Dividends per share $ 0.05  $ 0.05  $ 0.05  $ 0.05  $ 0.05  $ 0.20  $ 0.20  
Book value per share $ 19.6  $ 19.0  $ 18.6  $ 18.2  $ 18.0  $ 19.6  $ 18.0  
Tangible book value per share (3) $ 16.1  $ 15.5  $ 15.0  $ 14.7  $ 14.4  $ 16.1  $ 14.4  
Employees - full-time equivalents   495    489    488    477    462    495    462  


(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. The most directly comparable GAAP financial measure is book value per share. 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
  12/31/2018 9/30/2018 12/31/2017
     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) $ 2,468,415  $ 33,427 5.37% $ 2,404,491  $ 31,513 5.20% $ 2,252,735  $ 27,726 4.88%
Debt securities   226,882    1,542 2.70%   230,592    1,535 2.64%   222,602    1,357 2.42%
Federal funds sold and other interest-earning assets   293,299    1,697 2.30%   272,739    1,404 2.04%   317,484    1,093 1.37%
Nonmarketable equity securities   14,789    216 5.79%   16,799    213 5.01%   14,698    190 5.13%
Total interest-earning assets   3,003,385  $ 36,882 4.87%   2,924,621  $ 34,665 4.70%   2,807,519  $ 30,366 4.29%
Allowance for loan losses   (24,305)        (25,689)        (24,127)     
Noninterest-earnings assets   295,236         292,598         296,108      
Total assets $ 3,274,316       $ 3,191,530       $ 3,079,500      
Liabilities and Shareholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing deposits $ 1,578,146  $ 3,551 0.89% $ 1,530,077  $ 2,961 0.77% $ 1,519,631  $ 1,993 0.52%
Repurchase agreements   1,925    1 0.21%   1,516    1 0.26%   1,793    —  — 
FHLB advances   —    —  —    11,141    61 2.17%   —    —  — 
Note payable   —    4  —    —    4  —    11,252    122 4.30%
Junior subordinated debt   9,817    106 4.28%   10,826    112 4.14%   10,826    86 3.15%
Total interest-bearing liabilities   1,589,888  $ 3,662 0.91%   1,553,560  $ 3,139 0.80%   1,543,502  $ 2,201 0.56%
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits   1,181,035         1,145,516         1,087,416      
Other liabilities   23,083         23,600         23,271      
Total noninterest-bearing liabilities   1,204,118         1,169,116         1,110,687      
Shareholders’ equity   480,310         468,854         425,311      
Total liabilities and shareholders’ equity $ 3,274,316       $ 3,191,530       $ 3,079,500      
Net interest income    $ 33,220      $ 31,526      $ 28,165  
Net interest spread (3)       3.96%       3.90%       3.73%
Net interest margin (4)       4.39%       4.28%       3.98%
Net interest margin—tax equivalent (5)       4.42%       4.31%       4.06%


(1) Annualized.
(2) Includes average outstanding balances of loans held for sale of $642,000, $741,000 and $521,000 for the quarter ended December 31, 2018, September 30, 2018 and December 31, 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 $257,000, $261,000 and $549,000 for the quarter ended December 31, 2018, September 30, 2018 and December 31, 2017, respectively, has been computed using a federal income tax rate of 21% for 2018 and 35% for 2017.


                 
  For the Years Ended December 31,
  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) $ 2,392,348  $ 123,895 5.18% $ 2,206,541  $ 107,368 4.87%
Debt securities   227,384    6,020 2.65%   220,953    5,347 2.42%
Federal funds sold and other interest-earning assets   255,323    5,030 1.97%   272,715    3,204 1.17%
Nonmarketable equity securities   15,282    814 5.32%   14,692    740 5.04%
Total interest-earning assets   2,890,337  $ 135,759 4.70%   2,714,901  $ 116,659 4.30%
Allowance for loan losses   (25,063)        (25,319)     
Noninterest-earnings assets   290,868         284,165      
Total assets $ 3,156,142       $ 2,973,747      
Liabilities and Shareholders’ Equity                
Interest-bearing liabilities:                
Interest-bearing deposits $ 1,519,643  $ 10,586 0.70% $ 1,503,350  $ 7,652 0.51%
Repurchase agreements   1,601    4 0.25%   2,254    5 0.27%
FHLB advances   3,356    73 2.18%   —    —  — 
Note payable   —    15  —    22,164    906 4.09%
Junior subordinated debt   10,572    420 3.97%   10,826    322 2.97%
Total interest-bearing liabilities   1,535,172  $ 11,098 0.72%   1,538,594  $ 8,885 0.58%
Noninterest-bearing liabilities:                
Noninterest-bearing deposits   1,134,191         1,031,707      
Other liabilities   22,082         19,388      
Total noninterest-bearing liabilities   1,156,273         1,051,095      
Shareholders’ equity   464,697         384,058      
Total liabilities and shareholders’ equity $ 3,156,142       $ 2,973,747      
Net interest income    $ 124,661      $ 107,774  
Net interest spread (2)       3.97%       3.72%
Net interest margin (3)       4.31%       3.97%
Net interest margin—tax equivalent (4)       4.35%       4.06%

(1)   Includes average outstanding balances of loans held for sale of $589,000 and $769,000 for the year ended December 31, 2018 and 2017, respectively.
(2)   Net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities.
(3)   Net interest margin is equal to net interest income divided by average interest‑earning assets.
(4)   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 $1.1 million and $2.3 million for the year ended December 31, 2018 and 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
  12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
Yield Trend - Annualized:          
Interest-earnings assets:          
Total loans 5.37% 5.20% 5.15% 4.98% 4.88%
Debt securities 2.70% 2.64% 2.65% 2.60% 2.42%
Federal funds sold and other interest-earning assets 2.30% 2.04% 1.86% 1.60% 1.37%
Nonmarketable equity securities 5.79% 5.01% 5.17% 5.32% 5.13%
Total interest-earning assets 4.87% 4.70% 4.71% 4.49% 4.29%
           
Interest-bearing liabilities:          
Interest-bearing deposits 0.89% 0.77% 0.58% 0.53% 0.52%
Repurchase agreements 0.21% 0.26% 0.26% 0.29%  — 
FHLB advances  —  2.17% 2.19%  —   — 
Note payable  —   —   —   —  4.30%
Junior subordinated debt 4.28% 4.14% 4.04% 3.48% 3.15%
Total interest-bearing liabilities 0.91% 0.80% 0.60% 0.55% 0.56%
           
Net interest spread (1) 3.96% 3.90% 4.11% 3.93% 3.73%
Net interest margin (2) 4.39% 4.28% 4.39% 4.19% 3.98%
Net interest margin—tax equivalent (3) 4.42% 4.31% 4.43% 4.23% 4.06%

(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
  12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
Average Outstanding Balances:               
                
Assets               
Interest-earnings assets:               
Total loans (1) $ 2,468,415  $ 2,404,491  $ 2,375,253  $ 2,319,463  $ 2,252,735 
Debt securities   226,882    230,592    228,262    223,730    222,602 
Federal funds sold and other interest-earning assets   293,299    272,739    201,906    252,722    317,484 
Nonmarketable equity securities   14,789    16,799    14,823    14,701    14,698 
Total interest-earning assets   3,003,385    2,924,621    2,820,244    2,810,616    2,807,519 
Allowance for loan losses   (24,305)   (25,689)   (25,392)   (24,866)   (24,127)
Noninterest-earnings assets   295,236    292,598    288,416    287,099    296,108 
Total assets $ 3,274,316  $ 3,191,530  $ 3,083,268  $ 3,072,849  $ 3,079,500 
                
Liabilities and Shareholders’ Equity               
Interest-bearing liabilities:               
Interest-bearing deposits $ 1,578,146  $ 1,530,077  $ 1,478,016  $ 1,491,613  $ 1,519,631 
Repurchase agreements   1,925    1,516    1,540    1,418    1,793 
FHLB advances   —    11,141    2,198    —    — 
Note payable   —    —    —    —    11,252 
Junior subordinated debt   9,817    10,826    10,826    10,826    10,826 
Total interest-bearing liabilities   1,589,888    1,553,560    1,492,580    1,503,857    1,543,502 
Noninterest-bearing liabilities:               
Noninterest-bearing deposits   1,181,035    1,145,516    1,111,736    1,097,085    1,087,416 
Other liabilities   23,083    23,600    20,441    21,165    23,271 
Total noninterest-bearing liabilities   1,204,118    1,169,116    1,132,177    1,118,250    1,110,687 
Shareholders’ equity   480,310    468,854    458,511    450,742    425,311 
Total liabilities and shareholders’ equity $ 3,274,316  $ 3,191,530  $ 3,083,268  $ 3,072,849  $ 3,079,500 

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


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

                          
  12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
  Amount  Amount  Amount  Amount  Amount 
                          
Loan Portfolio:                         
Commercial and industrial $ 519,779  21.2% $ 569,334  23.1% $ 565,850  23.5% $ 559,070  23.7% $ 559,363  24.1%
Real estate:                         
Commercial real estate   795,733  32.4%   776,439  31.4%   780,224  32.4%   767,108  32.5%   738,293  31.9%
Construction and development   515,533  21.0%   487,289  19.7%   449,390  18.6%   436,260  18.5%   449,211  19.4%
1-4 family residential   282,011  11.5%   288,737  11.7%   279,227  11.6%   260,580  11.0%   258,584  11.2%
Multi-family residential   221,194  9.0%   236,907  9.6%   229,609  9.5%   236,000  10.0%   220,305  9.5%
Consumer   39,421  1.6%   39,807  1.6%   41,833  1.7%   40,869  1.7%   40,433  1.7%
Agricultural   11,076  0.5%   11,609  0.5%   10,951  0.5%   8,807  0.4%   11,256  0.5%
Other   68,382  2.8%   59,484  2.4%   53,376  2.2%   52,382  2.2%   40,344  1.7%
Gross loans   2,453,129  100.0%   2,469,606  100.0%   2,410,460  100.0%   2,361,076  100.0%   2,317,789  100.0%
Less deferred fees and unearned discount   (6,306)     (6,025)     (5,768)     (4,910)     (4,785)  
Less allowance for loan losses   (23,693)     (24,486)     (25,746)     (25,349)     (24,778)  
Less loans held for sale   —      (384)     (560)     (113)     (1,460)  
Loans, net $ 2,423,130    $ 2,438,711    $ 2,378,386    $ 2,330,704    $ 2,286,766   
                          
                          
Deposits:                         
Interest-bearing demand accounts $ 387,457  14.0% $ 367,120  13.6% $ 342,890  13.4% $ 345,378  13.3% $ 363,015  14.0%
Money market accounts   737,770  26.7%   722,382  26.9%   650,747  25.4%   717,548  27.6%   702,299  27.0%
Savings accounts   96,962  3.5%   94,344  3.5%   97,576  3.8%   95,603  3.7%   95,842  3.7%
Certificates and other time deposits, $100,000 or greater   189,007  6.8%   182,552  6.8%   164,464  6.4%   161,777  6.2%   172,469  6.6%
Certificates and other time deposits, less than $100,000   172,028  6.2%   178,697  6.6%   191,442  7.5%   158,875  6.1%   159,558  6.1%
Total interest-bearing deposits   1,583,224  57.2%   1,545,095  57.4%   1,447,119  56.5%   1,479,181  56.9%   1,493,183  57.4%
Noninterest-bearing deposits   1,183,058  42.8%   1,144,985  42.6%   1,114,155  43.5%   1,120,521  43.1%   1,109,789  42.6%
Total deposits $ 2,766,282  100.0% $ 2,690,080  100.0% $ 2,561,274  100.0% $ 2,599,702  100.0% $ 2,602,972  100.0%


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

                     
  12/31/2018  9/30/2018  6/30/2018  3/31/2018  12/31/2017 
Nonperforming assets (at period end):                    
Nonaccrual loans:                    
Commercial and industrial $ 1,317   $ 2,161   $ 1,734   $ 2,533   $ 3,280  
Real estate:                    
Commercial real estate   1,517     2,751     2,092     2,217     3,216  
Construction and development   —     13     225     233     252  
1-4 family residential   656     677     738     765     898  
Multi-family residential   —     —     —     —     —  
Consumer   —     —     4     21     —  
Agricultural   —     —     —     —     —  
Nonaccrual loans   3,490     5,602     4,793     5,769     7,646  
Accruing loans 90 or more days past due   —     —     —     —     —  
Total nonperforming loans   3,490     5,602     4,793     5,769     7,646  
Foreclosed assets, including other real estate:                    
Commercial real estate, construction and development, land and land development   12     175     137     295     298  
Residential real estate   —     —     —     —     407  
Total foreclosed assets   12     175     137     295     705  
Total nonperforming assets $ 3,502   $ 5,777   $ 4,930   $ 6,064   $ 8,351  
                     
Allowance for Loan Losses (at period end):                    
Commercial and industrial $ 7,719   $ 8,763   $ 7,648   $ 7,439   $ 7,257  
Real estate:                    
Commercial real estate   6,730     6,913     10,930     10,742     10,375  
Construction and development   4,298     3,606     3,335     3,356     3,482  
1-4 family residential   2,281     2,454     1,404     1,329     1,326  
Multi-family residential   1,511     1,630     1,479     1,520     1,419  
Consumer   387     394     479     517     566  
Agricultural   62     71     66     53     68  
Other   705     655     405     393     285  
Total allowance for loan losses $ 23,693   $ 24,486   $ 25,746   $ 25,349   $ 24,778  
                     
Credit Quality Ratios (at period end):                    
Nonperforming assets to total assets  0.11%   0.18%   0.16%   0.20%   0.27% 
Nonperforming loans to total loans  0.14%   0.23%   0.20%   0.24%   0.33% 
Allowance for loan losses to nonperforming loans  678.9%   437.1%   537.2%   439.4%   324.1% 
Allowance for loan losses to total loans  0.97%   0.99%   1.07%   1.08%   1.07% 


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

                 
  For the Three Months Ended 
  12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 
Analysis of Allowance for Loan Losses                
                 
Allowance for loan losses at beginning of period $ 24,486  $ 25,746  $ 25,349  $ 24,778  $ 23,757  
                 
Provision (recapture) for loan losses   (2,169)   (1,142)   690    865    1,050  
                 
Net (charge-offs) recoveries                
Commercial and industrial   1,521    (114)   (301)   (297)   52  
Real estate:                
Commercial real estate   (156)   (3)   5    3    (118) 
Construction and development   (1)   —    —    —    —  
1-4 family residential   —    4    —    (2)   (7) 
Multi-family residential   —    —    —    —    —  
Consumer   1    (4)   3    2    9  
Agricultural   10    —    —    —    35  
Other   1    (1)   —    —    —  
Total net (charge-offs) recoveries   1,376    (118)   (293)   (294)   (29) 
                 
Allowance for loan losses at end of period $ 23,693  $ 24,486  $ 25,746  $ 25,349  $ 24,778  
                 
Net charge-offs (recoveries) to average loans  (0.22%)  0.02%  0.05%  0.05%  0.00% 


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:

                     
  12/31/2018  9/30/2018  6/30/2018  3/31/2018  12/31/2017 
Tangible Equity                    
Total shareholders’ equity $ 487,625   $ 471,851   $ 461,195   $ 451,571   $ 446,214  
Adjustments:                    
Goodwill   80,950     80,950     80,950     80,950     80,950  
Other intangibles   5,775     6,038     6,276     6,521     6,770  
Tangible equity $ 400,900   $ 384,863   $ 373,969   $ 364,100   $ 358,494  
Tangible Assets                    
Total assets $ 3,279,096   $ 3,190,453   $ 3,100,760   $ 3,074,790   $ 3,081,083  
Adjustments:                    
Goodwill   80,950     80,950     80,950     80,950     80,950  
Other intangibles   5,775     6,038     6,276     6,521     6,770  
Tangible assets $ 3,192,371   $ 3,103,465   $ 3,013,534   $ 2,987,319   $ 2,993,363  
                     
Common shares outstanding   24,907     24,859     24,859     24,833     24,833  
                     
Book value per share $ 19.6   $ 19.0   $ 18.6   $ 18.2   $ 18.0  
Tangible book value per share $ 16.1   $ 15.5   $ 15.0   $ 14.7   $ 14.4  
                     
Total shareholders’ equity to total assets  14.9%   14.8%   14.9%   14.7%   14.5% 
Tangible equity to tangible assets  12.6%   12.4%   12.4%   12.2%   12.0%