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Table of Contents

June

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM  10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____   to   ____.

Commission File Number: 001-38280

CBTX, Inc.

(Exact name of registrant as specified in its charter)

Texas

 

20-8339782

(State or other jurisdiction of

 

(I.R.S. employer

incorporation or organization)

 

identification no.)

9 Greenway Plaza, Suite 110

Houston, Texas 77046

(Address of principal executive offices)

(713210-7600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

CBTX

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company 

 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

As of July 24, 2020, there were 24,950,715 shares of the registrant’s common stock outstanding, including 196,081 shares of unvested restricted stock.

Table of Contents

CBTX, INC.

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements – (Unaudited)

1

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

1

Condensed Consolidated Statements of Income for the Three and Six Months ended June 30, 2020 and 2019

2

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, 2020 and 2019

3

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months ended June 30, 2020 and 2019

4

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2020 and 2019

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Cautionary Note Regarding Forward-Looking Statements

37

Overview

39

Information Regarding COVID-19 Impact and Uncertain Economic Outlook

40

Results of Operations

42

Financial Condition

49

Liquidity and Capital Resources

56

Interest Rate Sensitivity and Market Risk

58

Impact of Inflation

59

Non-GAAP Financial Measures

60

Critical Accounting Policies

61

Recently Issued Accounting Pronouncements

62

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

62

Item 4.

Controls and Procedures

62

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

63

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

69

SIGNATURES

70

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except par value and share amounts)

    

June 30, 2020

    

December 31, 2019

ASSETS

 

  

 

  

Cash and due from banks

$

60,151

$

51,259

Interest-bearing deposits at other financial institutions

 

432,249

 

320,805

Total cash and cash equivalents

 

492,400

 

372,064

Securities

 

235,438

 

231,262

Equity investments

 

18,369

 

16,710

Loans held for sale

 

 

1,463

Loans, net of allowance for credit losses of $39,678 and $25,280 at June 30, 2020 and December 31, 2019, respectively

 

2,895,210

 

2,613,805

Premises and equipment, net of accumulated depreciation of $34,315 and $32,923 at June 30, 2020 and December 31, 2019, respectively

 

50,729

 

50,875

Goodwill

 

80,950

 

80,950

Other intangible assets, net of accumulated amortization of $16,213 and $15,809 at June 30, 2020 and December 31, 2019, respectively

 

4,496

 

4,938

Bank-owned life insurance

 

72,709

 

71,881

Operating lease right-to-use asset

14,081

12,926

Deferred tax asset, net

 

11,440

 

7,432

Other assets

 

25,903

 

14,238

Total assets

$

3,901,725

$

3,478,544

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Liabilities

 

  

 

  

Noninterest-bearing deposits

$

1,513,748

$

1,184,861

Interest-bearing deposits

 

1,740,455

 

1,667,527

Total deposits

 

3,254,203

 

2,852,388

Federal Home Loan Bank advances

50,000

50,000

Repurchase agreements

 

2,500

 

485

Operating lease liabilities

16,983

15,704

Other liabilities

 

40,683

 

24,246

Total liabilities

 

3,364,369

 

2,942,823

Commitments and contingencies (Note 16)

 

  

 

  

Shareholders’ equity

 

  

 

  

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued

 

 

Common stock, $0.01 par value, 90,000,000 shares authorized, 25,609,456 and 25,837,048 shares issued at June 30, 2020 and December 31, 2019, respectively, 24,754,634 and 24,979,702 shares outstanding at June 30, 2020 and December 31, 2019, respectively

 

256

 

258

Additional paid-in capital

 

342,256

 

346,559

Retained earnings

 

202,754

 

201,080

Treasury stock, at cost, 854,822 and 857,346 shares held at June 30, 2020 and December 31, 2019, respectively

 

(14,519)

 

(14,562)

Accumulated other comprehensive gain, net of tax of $1,123 and $634 at June 30, 2020 and December 31, 2019, respectively

 

6,609

 

2,386

Total shareholders’ equity

 

537,356

 

535,721

Total liabilities and shareholders’ equity

$

3,901,725

$

3,478,544

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

    

2020

    

2019

    

2020

    

2019

Interest income

 

  

 

  

 

  

  

Interest and fees on loans

$

32,857

$

35,608

$

66,474

$

69,401

Securities

 

1,228

 

1,519

 

2,591

 

3,076

Other interest-earning assets

 

169

 

1,359

 

1,224

 

2,842

Equity investments

171

163

347

315

Total interest income

 

34,425

 

38,649

 

70,636

 

75,634

Interest expense

 

  

 

  

 

  

 

  

Deposits

 

2,022

 

3,822

 

5,788

 

7,406

Federal Home Loan Bank advances

 

240

 

523

 

461

 

587

Repurchase agreements

1

1

1

2

Note payable and junior subordinated debt

 

4

 

4

 

8

 

12

Total interest expense

 

2,267

 

4,350

 

6,258

 

8,007

Net interest income

 

32,158

 

34,299

 

64,378

 

67,627

Provision for credit losses

 

 

 

 

Provision for credit losses for loans

8,537

807

13,276

1,954

Provision for credit losses for unfunded commitments

1,333

1,643

Total provision for credit losses

9,870

807

14,919

1,954

Net interest income after provision for credit losses

 

22,288

 

33,492

 

49,459

 

65,673

Noninterest income

 

  

 

  

 

  

 

  

Deposit account service charges

 

1,095

 

1,657

 

2,580

 

3,286

Card interchange fees

 

915

 

941

 

1,837

 

1,805

Earnings on bank-owned life insurance

 

412

 

3,721

 

828

 

4,151

Net gain on sales of assets

 

139

 

69

 

262

 

157

Other

 

348

 

915

 

1,729

 

1,397

Total noninterest income

 

2,909

 

7,303

 

7,236

 

10,796

Noninterest expense

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

14,012

 

14,185

 

28,235

 

28,007

Occupancy expense

 

2,558

 

2,338

 

4,982

 

4,605

Professional and director fees

 

1,541

 

2,282

 

2,693

 

4,373

Data processing and software

1,292

1,086

2,514

2,240

Regulatory fees

476

446

579

910

Advertising, marketing and business development

 

269

 

532

 

633

 

972

Telephone and communications

392

456

811

834

Security and protection expense

 

351

 

367

 

725

 

690

Amortization of intangibles

 

230

 

225

 

451

 

457

Other expenses

 

1,374

 

1,486

 

2,961

 

2,900

Total noninterest expense

 

22,495

 

23,403

 

44,584

 

45,988

Net income before income tax expense

 

2,702

 

17,392

 

12,111

 

30,481

Income tax expense

 

539

 

3,077

 

2,407

 

5,676

Net income

$

2,163

$

14,315

$

9,704

$

24,805

Earnings per common share

 

  

 

  

 

  

 

  

Basic

$

0.09

$

0.57

$

0.39

$

1.00

Diluted

$

0.09

$

0.57

$

0.39

$

0.99

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

    

2020

    

2019

    

2020

    

2019

Net income

$

2,163

    

$

14,315

$

9,704

    

$

24,805

Change in unrealized gains on securities available for sale arising during the period, net

 

313

 

2,721

 

5,336

5,747

Reclassification adjustments for net realized gains included in net income

 

 

 

10

3

Change in related deferred income tax

 

(65)

 

(571)

 

(1,123)

(1,207)

Other comprehensive income, net of tax

 

248

 

2,150

 

4,223

4,543

Total comprehensive income

$

2,411

$

16,465

$

13,927

$

29,348

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share amounts)

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Treasury Stock

Comprehensive

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Income (Loss)

    

Total

Six Months Ended June 30, 2019:

Balance at December 31, 2018

25,777,693

$

258

$

344,497

$

160,626

 

(870,272)

$

(14,781)

$

(2,975)

$

487,625

Net income

 

 

 

 

24,805

 

 

 

 

24,805

Dividends on common stock, $0.20 per share

 

 

 

 

(5,030)

 

 

 

 

(5,030)

Stock-based compensation expense

 

 

 

1,112

 

 

 

 

 

1,112

Vesting of restricted stock, net of shares withheld for employee tax liabilities

2,442

(19)

(19)

Exercise of stock options, net of shares withheld for employee tax liabilities

(95)

12,806

217

122

Other comprehensive income, net of tax

 

 

 

 

 

 

 

4,543

 

4,543

Balance at June 30, 2019

25,780,135

$

258

$

345,495

$

180,401

 

(857,466)

$

(14,564)

$

1,568

$

513,158

Six Months Ended June 30, 2020:

Balance at December 31, 2019

25,837,048

$

258

$

346,559

$

201,080

(857,346)

$

(14,562)

$

2,386

$

535,721

Net income

 

 

 

 

9,704

 

 

 

 

9,704

Cumulative effect of accounting changes from adoption of CECL, net of deferred tax asset

(3,045)

(3,045)

Dividends on common stock, $0.20 per share

 

 

 

 

(4,985)

 

 

 

 

(4,985)

Stock-based compensation expense

 

 

 

1,109

 

 

 

 

 

1,109

Vesting of restricted stock, net of shares withheld for employee tax liabilities

12,853

 

 

(44)

(44)

Exercise of stock options, net of shares withheld for employee tax liabilities

(10)

2,524

43

33

Shares repurchased

(240,445)

(2)

(5,358)

(5,360)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

4,223

 

4,223

Balance at June 30, 2020

25,609,456

$

256

$

342,256

$

202,754

 

(854,822)

$

(14,519)

$

6,609

$

537,356

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Quarterly Changes in Shareholders’ Equity (Unaudited)

(Dollars in thousands, except share amounts)

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Treasury Stock

Comprehensive

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Income (Loss)

    

Total

Three Months Ended June 30, 2019:

Balance at March 31, 2019

25,777,904

$

258

$

344,971

$

168,603

 

(859,428)

$

(14,597)

$

(582)

$

498,653

Net income

 

 

 

 

14,315

 

 

 

 

14,315

Dividends on common stock, $0.10 per share

 

 

 

 

(2,517)

 

 

 

 

(2,517)

Stock-based compensation expense

 

 

 

567

 

 

 

 

 

567

Vesting of restricted stock, net of shares withheld for employee tax liabilities

2,231

(17)

(17)

Exercise of stock options, net of shares withheld for employee tax liabilities

(26)

1,962

33

7

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

2,150

 

2,150

Balance at June 30, 2019

 

25,780,135

$

258

$

345,495

$

180,401

 

(857,466)

$

(14,564)

$

1,568

$

513,158

Three Months Ended June 30, 2020:

Balance at March 31, 2020

25,601,835

$

256

$

341,713

$

203,080

 

(855,822)

$

(14,536)

$

6,361

$

536,874

Net income

 

 

 

 

2,163

 

 

 

 

2,163

Dividends on common stock, $0.10 per share