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 28, 2020 -- CBTX, Inc., or the Company (NASDAQ: CBTX), the bank holding company for CommunityBank of Texas, N.A., or the Bank, today announced net income of $6.4 million, or $0.26 per diluted share, for the quarter ended September 30, 2020, compared to $2.2 million, or $0.09 per diluted share, for the quarter ended June 30, 2020 and $13.1 million, or $0.52 per diluted share, for the quarter ended September 30, 2019.

Robert R. Franklin, Jr., Chairman, CEO and President of the Company remarked, “During the third quarter, we continued to work through the impact of the pandemic on our operations and the economy. The quarter provided us more visibility into the relationships that had entered into deferrals and the impact of the shutdown on their businesses. We are pleased that our markets are opening cautiously including the more affected industries such as schools, restaurants and hotels. We believe that the fourth quarter will be one of caution as we begin to see more clearly the longer-term effect of the pandemic.”

Mr. Franklin added, “As we move through the fourth quarter, we will stay close to our borrowers to understand the stresses they may be experiencing. We will also be watchful around the economic uncertainty that may be created by our contentious political climate and the outcomes of the upcoming elections. We will continue to build reserve as needed and recognize real time our stressed relationships. Although challenges remain, we are using our experiences gained in past difficult times as we seek to identify and address any potential problematic credits through classifications and plans with our customers.”

Mr. Franklin continued, “Our capital remains strong, we continued our dividend program and we resumed our buyback program during the third quarter. Although we remain watchful, we believe that our experience, relationships and focus will provide us continued opportunities in the fourth quarter and into 2021. We are optimistic about the new year as the world learns to live with COVID-19. Our great bank family has done an excellent job continuing to provide the great service our customers have come to expect throughout the current stresses both at home and at work. It is in times like these that our team shines the brightest.”

Highlights

● Net income was $6.4 million for the third quarter of 2020, an increase of $4.3 million compared to the second quarter of 2020 and a decrease of $6.7 million for the third quarter of 2020 compared to the third quarter of 2019 primarily due to fluctuations in the provision for credit losses.

● The provision for credit losses was $4.1 million for the third quarter of 2020, compared to $9.9 million for the second quarter of 2020 and $579,000 for the third quarter of 2019. The increase in 2020 was primarily due to the impact of COVID-19 and the sustained instability of the oil and gas industry on current and forecasted economic factors and increased adversely graded loans.

● The allowance for credit losses, or ACL, for loans increased to $44.1 million at September 30, 2020, compared to $39.7 million at June 30, 2020 and $25.6 million at September 30, 2019.

● Loans on COVID-19 related deferral arrangements decreased to 41 loans with total principal outstanding of $82.4 million as of September 30, 2020, down from 689 loans with total principal outstanding of $545.0 million as of June 30, 2020. A total of 16 of the 41 loans on deferral arrangements at the end of the third quarter were scheduled to return to payment in October of 2020.

● Net interest margin on a tax equivalent basis was 3.55% for the quarter ended September 30, 2020, compared to 3.68% for the quarter ended June 30, 2020 and 4.43% for the quarter ended September 30, 2019.  

● Maintained strong capital ratios with the Company’s total risk-based capital ratio being 16.67% at September 30, 2020, compared to 16.56% at June 30, 2020 and 15.88% at September 30, 2019.

1

Operating Results

Net Interest Income

Net interest income was $31.7 million for the third quarter of 2020, compared to $32.2 million for the second quarter of 2020 and $34.6 million for the third quarter of 2019. Net interest income decreased $450,000 during the third quarter of 2020, compared to the second quarter of 2020, primarily due to lower rates on loans and other securities, partially offset by the impact of increased average loans and lower rates on interest-bearing deposits. Net interest income decreased $2.9 million during the third quarter of 2020, compared to the third quarter of 2019, primarily due to lower rates on loans and other interest-earning assets and higher average interest-bearing deposits, partially offset by the impact of increased average loans and other interest earning-assets and lower rates on interest-bearing deposits.

The yield on interest-earning assets was 3.75% for the third quarter of 2020, compared to 3.91% for the second quarter of 2020 and 4.98% for the third quarter of 2019. The cost of interest-bearing liabilities was 0.46% for the third quarter of 2020, 0.52% for the second quarter of 2020 and 1.12% for the third quarter of 2019. Yields on interest-earning assets decreased, and the costs of interest-bearing liabilities did not decrease to the same extent, which caused compression of the Company’s net interest margin on a tax equivalent basis to 3.55% for the third quarter of 2020, from 3.68% for the second quarter of 2020 and 4.43% for the third quarter of 2019.

Provision/Recapture for Credit Losses

The provision for credit losses was $4.1 million for the third quarter of 2020, compared to $9.9 million for the second quarter of 2020 and $579,000 for the third quarter of 2019. The increase in the provision for credit losses during 2020 was primarily due to the impact of COVID-19 and the sustained instability of the oil and gas industry during such periods on the local and national economy and on current and forecasted economic factors and an increase in adversely graded loans.

The ACL for loans was $44.1 million, or 1.49% of total loans, at September 30, 2020, compared to $39.7 million, or 1.35% of total loans, at June 30, 2020 and $25.6 million, or 0.96% of total loans, at September 30, 2019. The increase in the ACL for loans was primarily due to the impact of COVID-19 and the sustained instability of the oil and gas industry on current and forecasted economic factors during 2020 and an increase in adversely graded loans.

The liability associated with the ACL for unfunded commitments was $4.5 million at September 30, 2020, compared to $5.0 million at June 30, 2020 and $378,000 at September 30, 2019. The increase in 2020 was primarily due to the adoption of Accounting Standards Update, or ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or CECL, effective January 1, 2020, the impact of COVID-19 and the sustained instability of the oil and gas industry, as noted above.

Noninterest Income

Noninterest income was $4.0 million for the third quarter of 2020, $2.9 million for the second quarter of 2020 and $4.1 million for the third quarter of 2019. The increase in noninterest income during the third quarter of 2020, as compared to the second quarter of 2020 and third quarter of 2019 was primarily due to nontaxable death proceeds of $2.0 million received under bank-owned life insurance policies. The Company recorded a gain of $769,000 over the carrying value during the third quarter of 2020.

Noninterest Expense

Noninterest expense was $23.9 million for the third quarter of 2020, compared to $22.5 million for the second quarter of 2020 and $22.0 million for the third quarter of 2019. The increase in noninterest expense of $1.4 million between the third and second quarter of 2020 was primarily due to increased professional and director fees, mainly consulting fees related to Bank Secrecy Act/Anti-Money Laundering, or BSA/AML, compliance  matters, and increased salaries and employee benefits.

The increase in noninterest expense of $1.8 million between the third quarter of 2020 and the third quarter of 2019 primarily related to an increase in professional and director fees, mainly consulting fees related to BSA/AML matters, increased regulatory fees and increased salaries and employee benefits.

Income Taxes

2

Income tax expense was $1.3 million for the third quarter of 2020, $539,000 for the second quarter of 2020 and $3.0 million for the third quarter of 2019. The effective tax rates were 17.31% for the third quarter of 2020, 19.95% for the second quarter of 2020 and 18.61% for the third quarter of 2019. The differences between the federal statutory rate of 21% and the effective tax rates were largely attributable to permanent differences primarily related to tax exempt interest and bank-owned life insurance earnings.

Balance Sheet Highlights

Loans

Loans, excluding loans held for sale, were $3.0 billion at September 30, 2020, $2.9 billion at June 30, 2020 and $2.7 billion at September 30, 2019.

In support of customers impacted by COVID-19, the Company offered relief through payment deferrals. The deferral periods range from one to six-months, with the majority of the deferrals involving three-month arrangements. As of September 30, 2020, the Company had 41 loans on deferral with total outstanding principal of $82.4 million, down from 689 loans on deferral with total outstanding principal of $545.0 million as of June 30, 2020.

Asset Quality

Nonperforming assets remain low at $15.6 million, or 0.41% of total assets, at September 30, 2020, $11.2 million, or 0.29% of total assets, at June 30, 2020 and $1.1 million, or 0.03% of total assets, at September 30, 2019. The increase in nonperforming assets during the third quarter of 2020 is primarily related to two loans totaling $5.0 million.

During the nine months ended September 30, 2020, 37 loans totaling $36.4 million were restructured as troubled debt restructurings, or TDRs, which include 35 loans totaling $36.0 million that were provided a deferral arrangement as the borrower was impacted by the COVID-19 pandemic and resultant economic circumstances.  As of September 30, 2020, eight of these 35 TDRs were still on a deferral arrangement and had principal balances totaling $14.4 million.

Annualized net charge-offs to average loans were 0.02% for the third quarter of 2020, 0.01% for the second quarter of 2020 and 0.05% for the third quarter of 2019.

Deposits and Borrowings

Total deposits were $3.2 billion at September 30, 2020, $3.3 billion at June 30, 2020 and $2.7 billion at September 30, 2019.

The Company defines total borrowings as the total of repurchase agreements, Federal Home Loan Bank advances and notes payable. Total borrowings were $52.2 million, $52.5 million and $121.2 million at September 30, 2020, June 30, 2020 and September 30, 2019, respectively. Borrowings fluctuated between the third quarter of 2020 and third quarter of 2019 due to increased Federal Home Loan Bank advances to fund loan growth in 2019.

Capital

At September 30, 2020, the Company continued to be well capitalized and maintained strong capital ratios under bank regulatory requirements. The Company’s total risk-based capital ratio was 16.67% at September 30, 2020, compared to 16.56% at June 30, 2020, and 15.88% at September 30, 2019. The Company’s Tier 1 leverage ratio was 11.90% at September 30, 2020, compared to 11.96% at June 30, 2020, and 13.23% at September 30, 2019. The Company’s total shareholders’ equity to total assets ratio was 14.18% at September 30, 2020, 13.77% at June 30, 2020 and 15.31% at September 30, 2019.

The ratio of tangible equity to tangible assets was 12.22% at September 30, 2020, 11.84% at June 30, 2020 and 13.13% at September 30, 2019. Tangible equity to tangible assets is a non-GAAP financial measure. The most directly comparable financial measure calculated in accordance with United States generally accepted accounting principles, or GAAP, to tangible equity to tangible assets is total shareholders’ equity to total assets. See the table captioned “Non-GAAP to GAAP Reconciliation” at the end of this press release.

3

Non-GAAP Financial Measures

The Company’s accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. The Company’s management also evaluates performance based on certain non-GAAP financial measures. The Company classifies 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.

This press release contains certain non-GAAP financial measures including “tangible book value,” “tangible book value per common share,” and “tangible equity to tangible assets,” which are supplemental measures that are not required by, or are not presented in accordance with, GAAP. Non-GAAP financial measures do not include operating, other statistical measures or ratios 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.

Please refer to the table titled “Non-GAAP to GAAP Reconciliation” at the end of this earnings release for a reconciliation of these non-GAAP financial measures.

Conference Call Information

The Company will hold a conference call to discuss results for the quarter ended September 30, 2020 on October 29, 2020 at 8:00 a.m. Central Standard Time. Investors and interested parties may listen to the teleconference via telephone by calling (877) 620-1733 if calling from the U.S. or Canada (or (470) 414-9785 if calling from outside the U.S.).  The conference call ID number is 9087182. To access the live webcast of the conference call, individuals can visit the Investor Relations page of the Company’s website: https://ir.cbtxinc.com/events-and-presentations. An archived edition of the earnings webcast will also be posted on the Company’s website later that day and will remain available to interested parties via the same link for one year.  

The conference call will contain forward-looking statements in addition to statements of historical fact. The actual achievement of any forecasted results or the unfolding of future economic or business developments in a way anticipated or projected by the Company involves numerous risks and uncertainties that may cause the Company’s actual performance to be materially different from that stated or implied in the forward-looking statements. Such risks and uncertainties include, among other things, risks discussed within the “Risk Factors” section of the Company’s most recent Forms 10-Q and 10-K and subsequent 8-Ks.

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.8 billion asset bank, offering commercial banking solutions to small and mid-sized businesses and professionals in Houston, Dallas, Beaumont and surrounding communities in 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: manage the economic risks related to the impact of COVID-19 and the sustained instability of the oil and gas industry (including risks related to its customers’ credit quality,

4

deferrals and modifications to loans, the Company’s ability to borrow, and the impact of a resultant recession generally), and other hazards such as natural disasters and adverse weather, acts of war or terrorism, other pandemics, an outbreak of  hostilities or other international or domestic calamities and the governmental or military response thereto, and other matters beyond the Company’s control; the geographic concentration of our markets in Beaumont and Houston, Texas; whether the Company can manage changes and the continued health or availability of management personnel; the amount of nonperforming and classified assets that the Company holds and the efforts to resolve the nonperforming assets; deterioration of its asset quality; interest rate risks associated with the Company’s business; business and economic conditions generally and in the financial services industry, nationally and within the Company’s primary markets; volatility and direction of oil prices, including risks related to the instability of oil prices, and the strength of the energy industry, generally and within Texas; the composition of the Company’s loan portfolio, including the identity of its borrowers and the concentration of loans in specialized industries, especially the creditworthiness of energy company borrowers; changes in the value of collateral securing the loans; the Company’s ability to maintain important deposit customer relationships and the Company’s reputation; the Company’s ability to maintain effective internal control over financial reporting; the Company’s ability to pursue available remedies in the event of a loan default for loans under the PPP and the risk of holding the PPP loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise lent to; the volatility and direction of market interest rates; liquidity risks associated with the Company’s business; systems failures, interruptions or breaches involving the Company’s information technology and telecommunications systems or third-party servicers; the failure of certain third-party vendors to perform; the institution and outcome of litigation and other legal proceedings against the Company or to which it may become subject; operational risks associated with the Company’s business; the costs, effects and results of regulatory examinations, investigations, including the ongoing investigation by the Financial Crimes Enforcement Network, or FinCEN, of the U.S. Department of Treasury, or reviews or the ability to obtain the required regulatory approvals; the Company’s ability to meet the requirements of its Formal Agreement with the Office of the Comptroller of the Currency, and the risk that such Formal Agreement may have a negative impact on the Company’s financial performance and results of operations; changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters; governmental or regulatory responses to the COVID-19 pandemic and newly enacted fiscal stimulus that impact the Company’s loan portfolio and forbearance practice; and other governmental interventions in the U.S. financial system that may impact how the Company achieves its performance goals. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. 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, or 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.

5

CBTX, INC. AND SUBSIDIARY

Financial Highlights

(In thousands, except per share data and percentages)

	Three Months Ended										Nine Months Ended
	9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019		9/30/2020		9/30/2019
Profitability:
Net income	$	6,421	$	2,163	$	7,541	$	12,636	$	13,076	$	16,125	$	37,881
Basic earnings per share	$	0.26	$	0.09	$	0.30	$	0.51	$	0.52	$	0.65	$	1.52
Diluted earnings per share	$	0.26	$	0.09	$	0.30	$	0.50	$	0.52	$	0.65	$	1.51
Return on average assets(1)		0.66%		0.23%		0.87%		1.43%		1.53%		0.58%		1.52%
Return on average shareholders' equity(1)		4.70%		1.60%		5.64%		9.40%		9.92%		3.97%		9.95%
Net interest margin- tax equivalent(1)		3.55%		3.68%		4.06%		4.18%		4.43%		3.76%		4.51%
Efficiency ratio(2)		66.77%		64.15%		60.44%		58.96%		56.98%		63.76%		58.09%
Liquidity and Capital Ratios:
Total shareholders' equity to total assets		14.18%		13.77%		15.67%		15.40%		15.31%		14.18%		15.31%
Tangible equity to tangible assets(3)		12.22%		11.84%		13.51%		13.26%		13.13%		12.22%		13.13%
Common equity tier 1 capital ratio		15.41%		15.30%		15.23%		15.52%		14.99%		15.41%		14.99%
Tier 1 risk-based capital ratio		15.41%		15.30%		15.23%		15.52%		14.99%		15.41%		14.99%
Total risk-based capital ratio		16.67%		16.56%		16.42%		16.41%		15.88%		16.67%		15.88%
Tier 1 leverage ratio		11.90%		11.96%		13.18%		13.11%		13.23%		11.90%		13.23%
Credit Quality:
Allowance for credit losses for loans to total loans		1.49%		1.35%		1.17%		0.96%		0.96%		1.49%		0.96%
Nonperforming assets to total assets		0.41%		0.29%		0.04%		0.03%		0.03%		0.41%		0.03%
Nonperforming loans to total loans		0.53%		0.38%		0.05%		0.04%		0.04%		0.53%		0.04%
Net charge-offs (recoveries) to average loans(1)		0.02%		0.01%		(0.05%)		0.02%		0.05%		—		0.03%
Other Data:
Weighted average common shares outstanding - basic		24,748		24,752		24,926		24,951		24,923		24,808		24,918
Weighted average common shares outstanding - diluted		24,770		24,780		25,000		25,071		25,046		24,847		25,053
Common shares outstanding at period end		24,713		24,755		24,746		24,980		24,923		24,713		24,923
Dividends per share	$	0.10	$	0.10	$	0.10	$	0.10	$	0.10	$	0.30	$	0.30
Book value per share	$	21.89	$	21.71	$	21.70	$	21.45	$	21.07	$	21.89	$	21.07
Tangible book value per share(3)	$	18.44	$	18.26	$	18.23	$	18.01	$	17.62	$	18.44	$	17.62
Employees - full-time equivalents		515		523		512		500		504		515		504

(1) 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.

6

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(In thousands)

Balance Sheet Data (at period end):	9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Loans, excluding loans held for sale	$	2,964,526	$	2,934,888	$	2,671,587	$	2,639,085	$	2,676,824
Allowance for credit losses for loans		(44,069)		(39,678)		(31,194)		(25,280)		(25,576)
Loans, net		2,920,457		2,895,210		2,640,393		2,613,805		2,651,248
Cash and equivalents		377,572		492,400		284,898		372,064		289,399
Securities		226,101		235,438		234,014		231,262		228,061
Premises and equipment		61,732		50,729		50,243		50,875		51,183
Goodwill		80,950		80,950		80,950		80,950		80,950
Other intangible assets		4,303		4,496		4,700		4,938		5,106
Loans held for sale		1,763		-		882		1,463		-
Operating lease right-to-use asset		12,893		14,081		12,577		12,926		12,864
Other assets		128,901		128,421		116,993		110,261		112,774
Total assets	$	3,814,672	$	3,901,725	$	3,425,650	$	3,478,544	$	3,431,585
Noninterest-bearing deposits	$	1,460,983	$	1,513,748	$	1,195,541	$	1,184,861	$	1,196,720
Interest-bearing deposits		1,709,681		1,740,455		1,596,692		1,667,527		1,547,607
Total deposits		3,170,664		3,254,203		2,792,233		2,852,388		2,744,327
Federal Home Loan Bank advances		50,000		50,000		50,000		50,000		120,000
Repurchase agreements		2,153		2,500		1,415		485		1,208
Operating lease liabilities		15,759		16,983		15,356		15,704		15,513
Other liabilities		35,175		40,683		29,772		24,246		25,317
Total liabilities		3,273,751		3,364,369		2,888,776		2,942,823		2,906,365
Total shareholders’ equity		540,921		537,356		536,874		535,721		525,220
Total liabilities and shareholders’ equity	$	3,814,672	$	3,901,725	$	3,425,650	$	3,478,544	$	3,431,585

7

CBTX, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income

(In thousands)

	Three Months Ended										Nine Months Ended
	9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019		9/30/2020		9/30/2019
Interest income
Interest and fees on loans	$	32,318	$	32,857	$	33,617	$	35,634	$	36,353	$	98,792	$	105,754
Securities		1,107		1,228		1,363		1,442		1,436		3,698		4,512
Other interest-earning assets		176		169		1,055		1,279		1,212		1,400		4,054
Equity investments		162		171		176		213		192		509		507
Total interest income		33,763		34,425		36,211		38,568		39,193		104,399		114,827
Interest expense
Deposits		1,831		2,022		3,766		4,463		4,130		7,619		11,536
Federal Home Loan Bank advances		221		240		221		316		483		682		1,070
Repurchase agreements		—		1		—		—		1		1		3
Note payable and junior subordinated debt		3		4		4		3		4		11		16
Total interest expense		2,055		2,267		3,991		4,782		4,618		8,313		12,625
Net interest income		31,708		32,158		32,220		33,786		34,575		96,086		102,202
Provision (recapture) for credit losses
Provision (recapture) for credit losses for loans		4,569		8,537		4,739		(148)		579		17,845		2,533
Provision (recapture) for credit losses for unfunded commitments		(461)		1,333		310		—		—		1,182		—
Total provision (recapture) for credit losses		4,108		9,870		5,049		(148)		579		19,027		2,533
Net interest income after provision (recapture) for credit losses		27,600		22,288		27,171		33,934		33,996		77,059		99,669
Noninterest income
Deposit account service charges		1,176		1,095		1,485		1,587		1,681		3,756		4,967
Card interchange fees		995		915		922		1,007		908		2,832		2,713
Earnings on bank-owned life insurance		1,187		412		416		430		430		2,015		4,581
Net gain on sales of assets		114		139		123		305		190		376		347
Other		551		348		1,381		388		906		2,280		2,303
Total noninterest income		4,023		2,909		4,327		3,717		4,115		11,259		14,911
Noninterest expense
Salaries and employee benefits		14,332		14,012		14,223		14,264		13,951		42,567		41,958
Occupancy expense		2,496		2,558		2,424		2,417		2,484		7,478		7,089
Professional and director fees		2,446		1,541		1,152		1,220		1,455		5,139		5,828
Data processing and software		1,525		1,292		1,222		1,074		1,121		4,039		3,361
Regulatory fees		471		476		103		84		144		1,050		1,054
Advertising, marketing and business development		429		269		364		452		407		1,062		1,379
Telephone and communications		486		392		419		506		434		1,297		1,268
Security and protection expense		299		351		374		364		410		1,024		1,100
Amortization of intangibles		198		230		221		216		221		649		678
Other expenses		1,176		1,374		1,587		1,513		1,418		4,137		4,318
Total noninterest expense		23,858		22,495		22,089		22,110		22,045		68,442		68,033
Net income before income tax expense		7,765		2,702		9,409		15,541		16,066		19,876		46,547
Income tax expense		1,344		539		1,868		2,905		2,990		3,751		8,666
Net income	$	6,421	$	2,163	$	7,541	$	12,636	$	13,076	$	16,125	$	37,881

8

CBTX, INC. AND SUBSIDIARY

Net Interest Margin

(In thousands, except percentages)

	Three Months Ended
	9/30/2020						6/30/2020					9/30/2019
	Average			Interest		Average	Average		Interest		Average	Average		Interest		Average
	Outstanding			Earned/		Yield/	Outstanding		Earned/		Yield/	Outstanding		Earned/		Yield/
	Balance			Interest Paid		Rate(1)	Balance		Interest Paid		Rate(1)	Balance		Interest Paid		Rate(1)
Assets
Interest-earning assets:
Total loans(2)	$	2,945,320		$	32,318	4.37%	$	2,908,204	$	32,857	4.54%	$	2,655,941	$	36,353	5.43%
Securities		236,015			1,107	1.87%		240,343		1,228	2.05%		234,525		1,436	2.41%
Other interest-earning assets		383,626			176	0.18%		378,405		169	0.18%		215,900		1,212	2.25%
Equity investments		15,334			162	4.20%		15,147		171	4.54%		16,154		192	4.72%
Total interest-earning assets		3,580,295		$	33,763	3.75%		3,542,099	$	34,425	3.91%		3,122,520	$	39,193	4.98%
Allowance for credit losses for loans		(40,135)						(31,443)					(25,422)
Noninterest-earning assets		326,590						305,821					296,861
Total assets	$	3,866,750					$	3,816,477				$	3,393,959
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	1,730,812		$	1,831	0.42%	$	1,687,991	$	2,022	0.48%	$	1,557,503	$	4,130	1.05%
Federal Home Loan Bank advances		50,000			221	1.76%		70,769		240	1.36%		83,804		483	2.29%
Repurchase agreements		2,230			—	—		2,101		1	0.19%		1,043		1	0.38%
Note payable and junior subordinated debt		—			3	—		—		4	—		—		4	—
Total interest-bearing liabilities		1,783,042		$	2,055	0.46%		1,760,861	$	2,267	0.52%		1,642,350	$	4,618	1.12%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		1,484,557						1,462,271					1,189,087
Other liabilities		55,386						49,958					39,775
Total noninterest-bearing liabilities		1,539,943						1,512,229					1,228,862
Shareholders’ equity		543,765						543,387					522,747
Total liabilities and shareholders’ equity	$	3,866,750					$	3,816,477				$	3,393,959
Net interest income				$	31,708				$	32,158				$	34,575
Net interest spread(3)			���			3.29%					3.39%					3.86%
Net interest margin(4)						3.52%					3.65%					4.39%
Net interest margin—tax equivalent(5)						3.55%					3.68%					4.43%

(1) Annualized.

(2) Includes average outstanding balances related to loans held for sale.

(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) Tax equivalent adjustments of $258,000, $247,000 and $257,000 for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively, were computed using a federal income tax rate of 21%.

9

CBTX, INC. AND SUBSIDIARY

Year to Date Net Interest Margin

(In thousands, except percentages)

	Nine Months Ended September 30,
	2020					2019
	Average		Interest		Average	Average		Interest		Average
	Outstanding		Earned/		Yield/	Outstanding		Earned/		Yield/
(Dollars in thousands)	Balance		Interest Paid		Rate(1)	Balance		Interest Paid		Rate(1)
Assets
Interest-earning assets:
Total loans(2)	$	2,829,767	$	98,792	4.66%	$	2,583,454	$	105,754	5.47%
Securities		236,756		3,698	2.09%		233,913		4,512	2.58%
Other interest-earning assets		359,134		1,400	0.52%		224,123		4,054	2.42%
Equity investments		14,716		509	4.62%		14,419		507	4.70%
Total interest-earning assets		3,440,373	$	104,399	4.05%		3,055,909	$	114,827	5.02%
Allowance for credit losses for loans		(32,499)					(24,762)
Noninterest-earning assets		309,778					299,648
Total assets	$	3,717,652				$	3,330,795
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	1,689,772	$	7,619	0.60%	$	1,538,793	$	11,536	1.00%
Federal Home Loan Bank advances		56,898		682	1.60%		59,121		1,070	2.42%
Repurchase agreements		1,700		1	0.08%		1,256		3	0.32%
Note payable and junior subordinated debt		—		11	—		—		16	—
Total interest-bearing liabilities		1,748,370	$	8,313	0.64%		1,599,170	$	12,625	1.06%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		1,377,594					1,186,985
Other liabilities		48,881					35,791
Total noninterest-bearing liabilities		1,426,475					1,222,776
Shareholders’ equity		542,807					508,849
Total liabilities and shareholders’ equity	$	3,717,652				$	3,330,795
Net interest income			$	96,086				$	102,202
Net interest spread(3)					3.41%					3.96%
Net interest margin(4)					3.73%					4.47%
Net interest margin—tax equivalent(5)					3.76%					4.51%

(1) Annualized.

(2) Includes average outstanding balances related to loans held for sale.

(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) Tax equivalent adjustments of $754,000 and $770,000 for the nine months ended September 30, 2020 and 2019, respectively, were computed using a federal income tax rate of 21%.

10

CBTX, INC. AND SUBSIDIARY

Rate/Volume Analysis

(In thousands)

	Three Months Ended September 30, 2020,
	Compared to Three Months Ended June 30, 2020
	Increase (Decrease) due to
(Dollars in thousands)	Rate		Volume		Days		Total
Interest-earning assets:
Total loans	$	(1,320)	$	419	$	362	$	(539)
Securities		(112)		(22)		13		(121)
Other interest-earning assets		3		2		2		7
Equity investments		(13)		2		2		(9)
Total increase (decrease) in interest income		(1,442)		401		379		(662)
Interest-bearing liabilities:
Interest-bearing deposits		(265)		51		23		(191)
Federal Home Loan Bank advances		48		(70)		3		(19)
Repurchase agreements		(1)		—		—		(1)
Note payable and junior subordinated debt		—		(1)		—		(1)
Total increase (decrease) in interest expense		(218)		(20)		26		(212)
Increase (decrease) in net interest income	$	(1,224)	$	421	$	353	$	(450)

	Three Months Ended September 30, 2020,
	Compared to Three Months Ended September 30, 2019
	Increase (Decrease) due to
(Dollars in thousands)	Rate		Volume			Days	Total
Interest-earning assets:
Total loans	$	(7,996)	$	3,961	$	—	$	(4,035)
Securities		(338)		9		—		(329)
Other interest-earning assets		(1,987)		951		—		(1,036)
Equity investments		(20)		(10)		—		(30)
Total increase (decrease) in interest income		(10,341)		4,911		—		(5,430)
Interest-bearing liabilities:
Interest-bearing deposits		(2,758)		459		—		(2,299)
Federal Home Loan Bank advances		(67)		(195)		—		(262)
Repurchase agreements		(2)		1		—		(1)
Note payable and junior subordinated debt		—		(1)		—		(1)
Total increase (decrease) in interest expense		(2,827)		264		—		(2,563)
Increase (decrease) in net interest income	$	(7,514)	$	4,647	$	—	$	(2,867)

	Nine Months Ended September 30, 2020,
	Compared to Nine Months Ended September 30, 2019
	Increase (Decrease) due to
(Dollars in thousands)	Rate		Volume			Days	Total
Interest-earning assets:
Total loans	$	(17,426)	$	10,077	$	387	$	(6,962)
Securities		(886)		55		17		(814)
Other interest-earning assets		(5,112)		2,444		14		(2,654)
Equity investments		(10)		10		2		2
Total increase (decrease) in interest income		(23,434)		12,586		420		(10,428)
Interest-bearing liabilities:
Interest-bearing deposits		(5,088)		1,129		42		(3,917)
Federal Home Loan Bank advances		(351)		(40)		3		(388)
Repurchase agreements		(3)		1		—		(2)
Note payable and junior subordinated debt		—		(5)		—		(5)
Total increase (decrease) in interest expense		(5,442)		1,085		45		(4,312)
Increase (decrease) in net interest income	$	(17,992)	$	11,501	$	375	$	(6,116)

11

CBTX, INC. AND SUBSIDIARY

Yield Trend⁽¹⁾

	Three Months Ended
	9/30/2020	6/30/2020	3/31/2020	12/31/2019	9/30/2019
Interest-earning assets:
Total loans	4.37%	4.54%	5.13%	5.27%	5.43%
Securities	1.87%	2.05%	2.34%	2.46%	2.41%
Other interest-earning assets	0.18%	0.18%	1.35%	1.69%	2.25%
Equity investments	4.20%	4.54%	5.18%	5.24%	4.72%
Total interest-earning assets	3.75%	3.91%	4.56%	4.73%	4.98%
Interest-bearing liabilities:
Interest-bearing deposits	0.42%	0.48%	0.92%	1.08%	1.05%
Federal Home Loan Bank advances	1.76%	1.36%	1.78%	1.82%	2.29%
Repurchase agreements	—	0.19%	—	—	0.38%
Note payable and junior subordinated debt	—	—	—	—	—
Total interest-bearing liabilities	0.46%	0.52%	0.94%	1.11%	1.12%
Net interest spread(2)	3.29%	3.39%	3.62%	3.62%	3.86%
Net interest margin(3)	3.52%	3.65%	4.05%	4.15%	4.39%
Net interest margin—tax equivalent(4)	3.55%	3.68%	4.06%	4.18%	4.43%

(1)Annualized.

(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) Tax equivalent adjustments were computed using a federal income tax rate of 21%.

12

CBTX, INC. AND SUBSIDIARY

Average Outstanding Balances

(In thousands)

	Three Months Ended
	9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Assets
Interest-earning assets:
Total loans(1)	$	2,945,320	$	2,908,204	$	2,634,507	$	2,682,842	$	2,655,941
Securities		236,015		240,343		233,917		232,441		234,525
Other interest-earning assets		383,626		378,405		315,099		300,395		215,900
Equity investments		15,334		15,147		13,661		16,140		16,154
Total interest-earning assets		3,580,295		3,542,099		3,197,184		3,231,818		3,122,520
Allowance for credit losses for loans		(40,135)		(31,443)		(25,831)		(25,591)		(25,422)
Noninterest-earning assets		326,590		305,821		296,698		298,615		296,861
Total assets	$	3,866,750	$	3,816,477	$	3,468,051	$	3,504,842	$	3,393,959
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	1,730,812	$	1,687,991	$	1,650,064	$	1,646,883	$	1,557,503
Federal Home Loan Bank advances		50,000		70,769		50,000		68,913		83,804
Repurchase agreements		2,230		2,101		763		423		1,043
Note payable and junior subordinated debt		—		—		—		—		—
Total interest-bearing liabilities		1,783,042		1,760,861		1,700,827		1,716,219		1,642,350
Noninterest-bearing liabilities:
Noninterest-bearing deposits		1,484,557		1,462,271		1,184,776		1,212,939		1,189,087
Other liabilities		55,386		49,958		44,620		42,406		39,775
Total noninterest-bearing liabilities		1,539,943		1,512,229		1,229,396		1,255,345		1,228,862
Shareholders’ equity		543,765		543,387		537,828		533,278		522,747
Total liabilities and shareholders’ equity	$	3,866,750	$	3,816,477	$	3,468,051	$	3,504,842	$	3,393,959

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

13

CBTX, INC. AND SUBSIDIARY

Loans and Deposits Period End Balances

(In thousands, except percentages)

	9/30/2020			6/30/2020			3/31/2020			12/31/2019			9/30/2019
	Amount		%	Amount		%	Amount		%	Amount		%	Amount		%
Loan Portfolio:
Commercial and industrial	$	832,686	28.0%	$	837,667	28.4%	$	542,650	20.3%	$	527,607	19.9%	$	523,831	19.5%
Real estate:
Commercial real estate		949,933	31.9%		908,027	30.8%		904,395	33.8%		900,746	34.0%		875,329	32.6%
Construction and development		506,216	17.0%		552,879	18.8%		558,343	20.8%		527,812	19.9%		572,276	21.4%
1-4 family residential		253,868	8.5%		272,253	9.2%		276,142	10.3%		280,192	10.6%		287,434	10.7%
Multi-family residential		298,733	10.0%		255,273	8.7%		267,152	10.0%		277,209	10.5%		298,396	11.1%
Consumer		35,637	1.2%		36,338	1.2%		38,133	1.4%		36,782	1.4%		37,975	1.4%
Agriculture		9,753	0.3%		7,795	0.3%		7,520	0.3%		9,812	0.4%		10,836	0.4%
Other		91,501	3.1%		77,535	2.6%		84,076	3.1%		86,513	3.3%		76,860	2.9%
Gross loans		2,978,327	100.0%		2,947,767	100.0%		2,678,411	100.0%		2,646,673	100.0%		2,682,937	100.0%
Less allowance for credit losses		(44,069)			(39,678)			(31,194)			(25,280)			(25,576)
Less deferred fees and unearned discount		(12,038)			(12,879)			(5,942)			(6,125)			(6,113)
Less loans held for sale		(1,763)			—			(882)			(1,463)			—
Loans, net	$	2,920,457		$	2,895,210		$	2,640,393		$	2,613,805		$	2,651,248
Deposits:
Interest-bearing demand accounts	$	346,406	10.9%	$	366,281	11.2%	$	359,943	12.9%	$	369,744	13.0%	$	337,746	12.3%
Money market accounts		916,668	28.9%		878,006	27.0%		760,036	27.2%		805,942	28.3%		739,436	26.9%
Savings accounts		103,062	3.3%		98,485	3.0%		90,227	3.2%		92,183	3.2%		91,413	3.3%
Certificates and other time deposits, $100,000 or greater		171,854	5.4%		200,505	6.2%		212,341	7.6%		208,018	7.3%		198,561	7.3%
Certificates and other time deposits, less than $100,000		171,691	5.4%		197,178	6.1%		174,145	6.3%		191,640	6.7%		180,451	6.6%
Total interest-bearing deposits		1,709,681	53.9%		1,740,455	53.5%		1,596,692	57.2%		1,667,527	58.5%		1,547,607	56.4%
Noninterest-bearing deposits		1,460,983	46.1%		1,513,748	46.5%		1,195,541	42.8%		1,184,861	41.5%		1,196,720	43.6%
Total deposits	$	3,170,664	100.0%	$	3,254,203	100.0%	$	2,792,233	100.0%	$	2,852,388	100.0%	$	2,744,327	100.0%

14

CBTX, INC. AND SUBSIDIARY

Credit Quality

(In thousands, except percentages)

	9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Nonperforming Assets (at period end):
Nonaccrual loans:
Commercial and industrial	$	6,699	$	5,519	$	449	$	596	$	354
Real estate:
Commercial real estate		4,811		4,811		67		67		159
Construction and development		241		506		519		—		—
1-4 family residential		325		332		413		314		629
Multi-family residential		—		—		—		—		—
Consumer		—		—		—		—		—
Agriculture		—		—		—		—		—
Other		3,500		—		—		—		—
Nonaccrual loans		15,576		11,168		1,448		977		1,142
Accruing loans 90 or more days past due		—		—		—		—		—
Total nonperforming loans		15,576		11,168		1,448		977		1,142
Foreclosed assets		—		—		—		—		—
Total nonperforming assets	$	15,576	$	11,168	$	1,448	$	977	$	1,142
Allowance for Credit Losses for Loans (at period end):
Commercial and industrial	$	13,347	$	12,108	$	9,535	$	7,671	$	7,470
Real estate:
Commercial real estate		12,745		12,424		9,576		7,975		7,788
Construction and development		6,334		7,050		5,795		4,446		4,825
1-4 family residential		2,871		3,173		2,430		2,257		2,338
Multi-family residential		3,117		2,880		2,413		1,699		1,829
Consumer		507		529		477		388		558
Agriculture		164		134		129		74		82
Other		4,984		1,380		839		770		686
Total allowance for credit losses for loans	$	44,069	$	39,678	$	31,194	$	25,280	$	25,576
Credit Quality Ratios (at period end):
Nonperforming assets to total assets		0.41%		0.29%		0.04%		0.03%		0.03%
Nonperforming loans to total loans		0.53%		0.38%		0.05%		0.04%		0.04%
Allowance for credit losses for loans to nonperforming loans		282.93%		355.28%		2,154.28%		2,587.51%		2,239.58%
Allowance for credit losses for loans to total loans		1.49%		1.35%		1.17%		0.96%		0.96%

15

CBTX, INC. AND SUBSIDIARY

Allowance for Credit Losses for Loans

(In thousands, except percentages)

	Three Months Ended										Nine Months Ended
	9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019		9/30/2020		9/30/2019
Beginning balance	$	39,678	$	31,194	$	25,280	$	25,576	$	25,342	$	25,280	$	23,693
Adoption of CECL		—		—		874		—		—		874		—
Provision (recapture)		4,569		8,537		4,739		(148)		579		17,845		2,533
Net (charge-offs) recoveries:
Commercial and industrial		(31)		18		398		(205)		(374)		385		(558)
Real estate:
Commercial real estate		(135)		(24)		—		(1)		33		(159)		37
Construction and development		—		—		—		—		—		—		—
1-4 family residential		(5)		(66)		1		—		1		(70)		(9)
Multi-family residential		—		—		—		—		—		—		(88)
Consumer		(7)		7		(99)		47		(1)		(99)		15
Agriculture		—		12		—		10		—		12		(52)
Other		—		—		1		1		(4)		1		5
Total net (charge-offs) recoveries		(178)		(53)		301		(148)		(345)		70		(650)
Ending balance	$	44,069	$	39,678	$	31,194	$	25,280	$	25,576	$	44,069	$	25,576
Net charge-offs (recoveries) to average loans(1)		0.02%		0.01%		(0.05%)		0.02%		0.05%		—		0.03%

(1) Annualized.

16

CBTX, INC. AND SUBSIDIARY

Non-GAAP to GAAP Reconciliation

(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, other statistical measures or ratios 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 tangible equity as total shareholders’ equity, less goodwill and other intangible assets, net of accumulated amortization, and 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 table reconciles, 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 total shareholders’ equity to total assets:

	9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Tangible Equity
Total shareholders’ equity	$	540,921	$	537,356	$	536,874	$	535,721	$	525,220
Adjustments:
Goodwill		80,950		80,950		80,950		80,950		80,950
Other intangibles		4,303		4,496		4,700		4,938		5,106
Tangible equity	$	455,668	$	451,910	$	451,224	$	449,833	$	439,164
Tangible Assets
Total assets	$	3,814,672	$	3,901,725	$	3,425,650	$	3,478,544	$	3,431,585
Adjustments:
Goodwill		80,950		80,950		80,950		80,950		80,950
Other intangibles		4,303		4,496		4,700		4,938		5,106
Tangible assets	$	3,729,419	$	3,816,279	$	3,340,000	$	3,392,656	$	3,345,529
Common shares outstanding		24,713		24,755		24,746		24,980		24,923
Book value per share	$	21.89	$	21.71	$	21.70	$	21.45	$	21.07
Tangible book value per share	$	18.44	$	18.26	$	18.23	$	18.01	$	17.62
Total shareholders’ equity to total assets		14.18%		13.77%		15.67%		15.40%		15.31%
Tangible equity to tangible assets		12.22%		11.84%		13.51%		13.26%		13.13%

17

Investor Relations:

Justin M. Long

281.325.5013

investors@CBoTX.com

Media Contact:

Ashley Warren

713.210.7622

awarren@CBoTX.com

18