Stellar Bancorp (STEL) 8-K CBTX, Inc. Reports Third Quarter Financial Results

Exhibit 99.1

CBTX, Inc. Reports Third Quarter Financial Results

Houston, Texas, October 25, 2018-- 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

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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.  

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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.

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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

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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

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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.

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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.  

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	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.

8

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.  

9

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.

10

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	%

11

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	%

12

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)	%

13

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	%

14

Investor Relations:

James L. Sturgeon

281.325.5013

investors@CBoTX.com

Media Contact:

Ashley Warren

713.210.7622

awarren@CBoTX.com

15