CBTX, Inc. [CBTX] Filings

10-Q 1 cbtx-20220331x10q.htm 10-Q

Table of Contents

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 March 31, 2022

☐ 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)

(713) 210-7600

(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 April 25, 2022, there were 24,606,405 shares of the registrant’s common stock, par value $0.01 per share outstanding, including 104,225 shares of unvested restricted stock deemed to have beneficial ownership.

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CBTX, INC.

		Page
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements – (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
	Cautionary Note Regarding Forward-Looking Statements	35
	Overview	38
	Impact and Uncertain Economic Outlook	39
	Results of Operations	40
	Financial Condition	44
	Liquidity and Capital Resources	52
	Interest Rate Sensitivity and Market Risk	55
	Non-GAAP Financial Measures	56
	Critical Accounting Policies	57
	Recently Issued Accounting Pronouncements	57
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4.	Controls and Procedures	58

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
SIGNATURES		62

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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)



	March 31, 2022		December 31, 2021
Assets:
Cash and due from banks	$	47,718	$	27,689
Interest-bearing deposits at other financial institutions		723,273		922,457
Total cash and cash equivalents		770,991		950,146
Securities		547,979		425,046
Equity investments		17,101		17,727
Loans held for sale		748		164
Loans, net of allowance for credit losses of $31,442 and $31,345 at March 31, 2022 and December 31, 2021, respectively		2,848,438		2,836,179
Premises and equipment, net of accumulated depreciation of $38,912 and $39,196 at March 31, 2022 and December 31, 2021, respectively		56,665		58,417
Goodwill		80,950		80,950
Other intangible assets, net of accumulated amortization of $17,526 and $17,345 at March 31, 2022 and December 31, 2021, respectively		3,540		3,658
Bank-owned life insurance		73,527		73,156
Operating lease right-to-use assets		10,850		11,191
Deferred tax assets, net		16,724		9,973
Other assets		18,464		19,394
Total assets	$	4,445,977	$	4,486,001

Liabilities:
Noninterest-bearing deposits	$	1,801,323	$	1,784,981
Interest-bearing deposits		2,019,902		2,046,303
Total deposits		3,821,225		3,831,284
Federal Home Loan Bank advances		50,000		50,000
Operating lease liabilities		13,752		14,142
Other liabilities		21,277		28,450
Total liabilities		3,906,254		3,923,876
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, 25,338,008 and 25,323,558 shares issued at March 31, 2022 and December 31, 2021, respectively; 24,502,180 and 24,487,730 shares outstanding at March 31, 2022 and December 31, 2021, respectively		253		253
Additional paid-in capital		336,214		335,846
Retained earnings		244,672		237,165
Treasury stock, at cost, 835,828 shares held at both March 31, 2022 and December 31, 2021		(14,196)		(14,196)
Accumulated other comprehensive income (loss), net of tax of $(7,236) and $813 at March 31, 2022 and December 31, 2021, respectively		(27,220)		3,057
Total shareholders’ equity		539,723		562,125
Total liabilities and shareholders’ equity	$	4,445,977	$	4,486,001

See accompanying notes to condensed consolidated financial statements.

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CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share amounts)


	Three Months Ended March 31,
	2022		2021
Interest income:
Interest and fees on loans	$	31,221	$	33,165
Securities		2,292		1,173
Interest-bearing deposits at other financial institutions		348		177
Equity investments		154		146
Total interest income		34,015		34,661
Interest expense:
Deposits		1,164		1,350
Federal Home Loan Bank advances		221		221
Total interest expense		1,385		1,571
Net interest income		32,630		33,090
Provision for credit losses:
Provision for credit losses for loans		20		286
Provision for credit losses for unfunded commitments		415		126
Total provision for credit losses		435		412
Net interest income after provision for credit losses		32,195		32,678
Noninterest income:
Deposit account service charges		1,370		1,193
Card interchange fees		1,037		976
Earnings on bank-owned life insurance		371		390
Net gain on sales of assets		530		192
Other		2,021		360
Total noninterest income		5,329		3,111
Noninterest expense:
Salaries and employee benefits		15,254		14,188
Occupancy expense		2,371		2,521
Professional and director fees		879		1,703
Data processing and software		1,763		1,576
Regulatory fees		614		556
Advertising, marketing and business development		249		285
Telephone and communications		454		463
Security and protection expense		324		390
Amortization of intangibles		181		191
Other expenses		2,563		1,412
Total noninterest expense		24,652		23,285
Net income before income tax expense		12,872		12,504
Income tax expense		2,277		2,485
Net income	$	10,595	$	10,019
Earnings per common share
Basic	$	0.43	$	0.41
Diluted	$	0.43	$	0.41

See accompanying notes to condensed consolidated financial statements.

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CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2022		2021
Net income	$	10,595	$	10,019

Change in unrealized losses on securities available for sale arising during the period		(38,325)		(4,339)
Change in related deferred income tax		8,048		911
Other comprehensive income (loss), net of tax		(30,277)		(3,428)
Total comprehensive income (loss)	$	(19,682)	$	6,591

See accompanying notes to condensed consolidated financial statements.

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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
Balance at December 31, 2020	25,458,816	$	255	$	339,334	$	214,456	(845,988)	$	(14,369)	$	6,775	$	546,451

Net income	—		—		—		10,019	—		—		—		10,019
Dividends on common stock, $0.13 per share	—		—		—		(3,196)	—		—		—		(3,196)
Stock-based compensation expense	—		—		541		—	—		—		—		541
Vesting of restricted stock, net of shares withheld for employee tax liabilities	10,727		—		(70)		—	—		—		—		(70)
Shares repurchased	(181,089)		(2)		(4,966)		—	—		—		—		(4,968)
Other comprehensive loss, net of tax	—		—		—		—	—		—		(3,428)		(3,428)
Balance at March 31, 2021	25,288,454	$	253	$	334,839	$	221,279	(845,988)	$	(14,369)	$	3,347	$	545,349

Balance at December 31, 2021	25,323,558	$	253	$	335,846	$	237,165	(835,828)	$	(14,196)	$	3,057	$	562,125

Net income	—		—		—		10,595	—		—		—		10,595
Dividends on common stock, $0.13 per share	—		—		—		(3,088)	—		—		—		(3,088)
Stock-based compensation expense	—		—		483		—	—		—		—		483
Vesting of restricted stock, net of shares withheld for employee tax liabilities	14,450		—		(115)		—	—		—		—		(115)
Other comprehensive loss, net of tax	—		—		—		—	—		—		(30,277)		(30,277)
Balance at March 31, 2022	25,338,008	$	253	$	336,214	$	244,672	(835,828)	$	(14,196)	$	(27,220)	$	539,723

See accompanying notes to condensed consolidated financial statements.

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CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	10,595	$	10,019
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Provision for credit losses		435		412
Depreciation expense		840		863
Amortization of intangibles		181		191
Amortization of premiums on securities		298		400
Amortization of lease right-to-use assets		341		385
Accretion of lease liabilities		86		100
Earnings on bank-owned life insurance		(371)		(390)
Stock-based compensation expense		483		541
Deferred income tax provision		1,297		611
Net gain on sales of assets		(530)		(192)
Net loss on securities		52		16
Change in operating assets and liabilities:
Loans held for sale		(184)		1,900
Other assets		930		4,426
Other liabilities		(7,949)		(3,382)
Total adjustments		(4,091)		5,881
Net cash provided by operating activities		6,504		15,900
Cash flows from investing activities:
Purchases of securities		(324,328)		(227,793)
Proceeds from sales, calls and maturities of securities		151,385		152,530
Principal repayments of securities		11,335		18,698
Net decrease in loans		17,334		31,956
Net purchases of loan participations		(32,415)		—
Proceeds from sales of Small Business Administration loans		2,802		374
Net return of capital (contributions) to equity investments		1,843		(134)
Net purchases of premises and equipment		(238)		(313)
Net cash used in investing activities		(172,282)		(24,682)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits		16,342		144,983
Net increase in interest-bearing deposits		(26,401)		(62,030)
Dividends paid on common stock		(3,203)		(2,469)
Payments to tax authorities for stock-based compensation		(115)		(70)
Repurchase of common stock		—		(4,968)
Net cash (used) provided by financing activities		(13,377)		75,446
Net increase (decrease) in cash, cash equivalents and restricted cash		(179,155)		66,664
Cash, cash equivalents and restricted cash, beginning		950,146		538,007
Cash, cash equivalents and restricted cash, ending	$	770,991	$	604,671

See accompanying notes to condensed consolidated financial statements.

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CBTX, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations—CBTX, Inc., or the Company or CBTX, operates 34 branches, 18 in the Houston market area, 15 in the Beaumont/East Texas market area and one in Dallas, through its wholly-owned subsidiary, CommunityBank of Texas, N.A., or the Bank. The Bank provides relationship-driven commercial banking products and services primarily to small and medium-sized businesses and professionals with operations within the Bank’s markets.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP, but do not include all the information and footnotes required for complete consolidated financial statements. In management’s opinion, these interim unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s consolidated financial position at March 31, 2022 and December 31, 2021 and consolidated results of operations, consolidated shareholders’ equity and consolidated cash flows for the three months ended March 31, 2022 and 2021.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown in this report are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included within the Company’s Annual Report on Form 10-K.

Share Repurchase Program—There were no shares repurchased under the Company’s share repurchase program during the three months ended March 31, 2022. During the three months ended March 31, 2021, 181,089 shares were repurchased at an average price of $27.44. Shares repurchased were retired and returned to the status of authorized but unissued shares.

Accounting Standards Not Yet Adopted—Accounting Standards Update, or ASU, 2022-02, eliminates the accounting guidance for troubled debt restructurings, or TDRs, by creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Under the new guidance, the creditor must determine whether a modification results in a new loan or a continuation of an existing loan. ASU 2022-02 also requires the disclosure of the current-period gross loan charge-offs by year of origination. This update is effective for the Company for fiscal years beginning after December 31, 2022, including interim periods within those fiscal years. Early adoption is permitted and the amendments about TDRs and related disclosure enhancements may be adopted separately from the amendments related to vintage disclosures. The Company is in the process of evaluating the impact of this ASU.

Cash Flow Reporting—As of March 31, 2022 and December 31, 2021, the Company had $220,000 and $1.8 million, respectively, in cash held as collateral on deposit with other financial institution counterparties related to interest rate swap transactions that are considered restricted cash.

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Supplemental disclosures of cash flow information were as follows for the periods indicated below:


	Three Months Ended March 31,
(Dollars in thousands)	2022		2021
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,413	$	1,688
Supplemental disclosures of non-cash flow information:
Change in liability for dividends accrued		115		(727)
Repossessed real estate and other assets		—		106

NOTE 2: SECURITIES

The amortized cost, related gross unrealized gains and losses and fair values of investments in securities as of the dates indicated below were as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
March 31, 2022
Debt securities available for sale:
State and municipal securities	$	171,658	$	488	$	(16,372)	$	155,774
U.S. Treasury securities		110,597		—		(1,553)		109,044
U.S. agency securities:
Callable debentures		3,000		—		(193)		2,807
Collateralized mortgage obligations		94,876		2		(4,954)		89,924
Mortgage-backed securities		201,184		258		(12,133)		189,309
Equity securities		1,193		—		(72)		1,121
Total	$	582,508	$	748	$	(35,277)	$	547,979
December 31, 2021
Debt securities available for sale:
State and municipal securities	$	168,541	$	4,451	$	(392)	$	172,600
U.S. Treasury securities		11,888		—		(91)		11,797
U.S. agency securities:
Callable debentures		3,000		—		(27)		2,973
Collateralized mortgage obligations		63,129		115		(862)		62,382
Mortgage-backed securities		173,446		1,805		(1,130)		174,121
Equity securities		1,189		—		(16)		1,173
Total	$	421,193	$	6,371	$	(2,518)	$	425,046

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The amortized cost and estimated fair value of securities, by contractual maturities, as of the dates indicated below were as follows:

(Dollars in thousands)

1 Year or Less

After 1 Year to 5 Years

After 5 Years to 10 Years

After 10 Years

Total

March 31, 2022

Amortized cost:

Debt securities available for sale:

State and municipal securities

—

507

CBTX, Inc. [CBTX] Filings
10-Q	[2022-04-28]
10-K	[2022-02-25]
10-Q	[2021-10-27]
10-Q	[2021-07-28]
10-Q	[2021-04-28]
10-K	[2021-02-26]
10-Q	[2020-10-28]
10-Q	[2020-07-29]
10-Q	[2020-04-30]
10-K	[2020-02-26]
10-Q	[2019-10-24]
10-Q	[2019-07-25]
10-Q	[2019-04-30]
10-K	[2019-02-28]
10-Q	[2018-10-31]
10-Q	[2018-07-30]
10-Q	[2018-05-01]
10-K	[2018-03-23]
10-Q	[2017-12-14]
S-1	[2017-10-13]