CBTX - Earnings call transcript Q4 2020

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the CBTX Fourth Quarter 2020 Earnings Conference Call. At this time all participant lines are in listen only mode. After the speaker's presentation, there'll be a question and answer session. [Operator Instructions]. today's be that advised be conference recorded. may Please Instructions]. [Operator hand over to I would host conference to like now your the today.

Justin ahead. Long. go General Counsel, please

Justin Long

refer you. XXXX. team Justin CBTX Thank earnings call you I'm General fourth CBTX morning, of quarter the website, Counsel of yesterday to that to Long, the and which is of appreciate us. issued We copy presentation like presentation. you would the management this slide our for on to We during afternoon, along our joining we the will welcome earnings press our release Good with available

Before I looking this statements to prospects. performance you forward presentation, events, future that business our financial begin, during I'd like regarding or make we may our remind

that Forward looking could differ results statements materially. to are actual subject uncertainties and cause to risks

with we could update Form for Form concerning risk filings the our in and which Any cause results earnings to in our our can IR.cdtxinc.com. the at are all on on the quarter, XX-K, obligation information no quarterly available call looking of factors statements. XX-Q on statements annual website actual differ our the is Additional third report and release our of factors section Relations this that and of only forward as Investor date made any be of such assume to accessed SEC, other report

turn West by end to our these to is over and release McMullen, measures joined we certain measures morning Ted to Franklin. Bob Chairman, remarks open non of reference Pigott, and our our financial that, earnings to this our Controller. President our most GAAP it call Joe our Credit Chief GAAP Officer, will the Bob also A presentation. CEO; Joseph With going the should and Chairman, CEO the we'll I'm At questions. Chief Financial call, President, Officer; that information. reconciliation aware Franklin, I'm in You of during be directly this included financial investor financial the comparable

Robert Franklin

fourth XXXX as Thank you, ever enter fourth for cases as well These acceleration markets caution, the of quarter as of CBTX Justin. across the climate contentious increasing entered we conditions an an XXXX. and for earnings XXXX. call Inc. our with in Welcome to COVID in as country. the the remain political quarter We experienced we

for the while We are distribution communities watchful of impact encouraged more the the be move of economic vaccines, by various new continue policies again. of to the freely to we administration allowing

even though fully Our are our open. resilient, customers remain not markets

loss Loan drop a year. of than is loan pandemic, loan related we We the continue steadily and The our And activity see them. we have adequately believe year current identified up. impacted for spin by deferrals QX in by the the and normal for the lower markets rates We expect last our pick major larger a to half the large beginning that up to portfolio interest reserved but risks affected in XXXX and negatively was provisions, program. our BSA QX slower new in increase to in and new year picking throughout deferrals. requests will relationships

are We cost markets. the our And have rates. lending vaccines new to lower funding the our reopening we hopeful lowered of of complete our meet and for

put the continue regulators and the we formal BSA excuse significant me our OCC, agreement, program. and into As our with to energy for work

expect further significantly to in XXXX. will these our work confident mitigated are meet regulatory efforts that around our in be expense the We expectations and

our for meeting this, bring. maximum since XXXX the to flexibility year. We Ted opportunities will XXXX. that over turn we are Continue the about I sheet again are Chief With a us enter cautious Pigott, we now strong program optimistic balance goals our Financial allows maintain to position the Officer. we also in which and as the will capital But

Ted Pigott

move share for share We'll ended share to the ended year Bob. income September for XX million $XX.X into December XX, results. $X.X the compared quarter $X.X of $X.XX XXXX, Good or for were quarter or December $X.XX morning. per share reported per XXXX or for XXXX fourth $XX.X XXXX. diluted $XX.X you, net diluted compared XXXX. or the XX, the million, Company Thank per million XX December Net to quarter million income ended estimate diluted $X.XX per

XX for XXXX, For increased to XXXX for compared on the quarter X.XX% XXXX income earning for increased The increased XXXX. yield basis to fourth third to to to margin on liabilities the quarter third fourth interest X.XX% to quarter. interest The compared fourth Net for cost XXXX. quarter the basis for third income decreased quarter The XXXX. compared XXX% quarter fourth X third net was third basis quarter X.XX% X.X% points compared fourth assets of equivalent interest the on interest XXXX net $XXX,XXX bearing interest quarter the quarter. to quarter compared points tax in

the anti-money million owned decrease to XXXX, interest bank during life third on XXXX $XXX,XXX points a benefit in professional XX was fees death years XXXX. compliance decreased interest Net proceeds in XXXX life partially directors policies. under value and basis and XXXX compared XXXX XXXX mainly decrease of receives ended non-taxable basis to the bank year of The equivalent X.XX% insurance bank-owned liabilities Earnings the claims. net related million, offset to from insurance bank margin interest X.XX% of bearing to tax million of $X.X During X.XX% decrease included a third or for life we for was million. And on XX, a year interest Non-interest on $XX.X the expense insurance recorded year fees $X.X for salaries $XX.X over the for our of and compared Act two December benefits was XX.X% the quarter Secrecy death matters. quarter due quarter for XXXX. employee million, earning the cost laundering assets carrying and respectively, of Net The the non-taxable for year of of and income to was quarter. on gain the third $XXX,XXX $XXX,XXX XXXX. Bank X.XX% Primarily XXXX. a fourth XXXX. consulting $X.X XXXX The income for yield X.XX% $XXX,XXX for gains increase for benefits

million AML and fees XXXX efforts. million consulting account decreased service fee lower from for due to the $X.X the deposit activity. charges X.X% in million $X.X company's Professional or increased $X.X transaction Additionally, Non-interest include year expense BSA class XXXX. and director regarding fees XXXX

and December our consistent X.X%. And capital to to the trends total XX, to XX, with of primarily seasonal deposits PPP PPP Moving And X.X% inflows. was XX, Loans, strong compared This This increased decreased to XXXX December and deposits September increased XXXX, December XXXX XX.XX%. original origination at December increased XX, XX, XX, of XX, compared by loans. at XXXX, of the company's increased XXXX. deposit they capital XXXX. as loans ratios, from loans excluding for use is compared sale increased also XX.X% ratio XXXX. to XXXX. September September XX, Well We've December to due this maintained condition, X.X% increase XX.X% XXXX. XX, An compared held assets compared at financial based December spurred total to XX.X% risk

credit the December as X.XX% leverage XX% of million, million, Our of X.XX% September was losses The industry the the were compares off. loans portfolio. quarter XXXX conditions tier The charge loans impact fourth was loan million $X.X to instability and XX.XX% on the ratio allowance gas oil This the XX, compared a decrease company's CET or increased total XX, $XX.X in the allowance SEL. to all December [indiscernible] or loans allowance XXXX. loan XX pandemic, for ratios economic total of uncertainties December allowance XXXX. one at XXXX. to capital was for with $XX.X at on XX, during due XXXX. The $XX.X and December associated and determine The to COVID-XX factors primarily due just utilized million certain resultant loan The probably increased sustained to XX,

Now, Joe West. over we'll turn it to

Joe West

Ted. Thanks,

speak starting our the presentation. to portfolio loan X with a from Slide investor me bit Let

billion For the the down quarter, of a versus the third our were year, of of end quarter $X.XX at decrease million. $XX.X approximately $X.XX slightly this at loans fourth billion

loans, pay year. million at our $XXX.X the the of As PPP to down a of are forgiveness a end the basis result and gross which on off of

yield yield from XXXX to average up was XX. months QX a X.XX% X.XX% of for with Our December the ended three

for when the loans QX was PPP excluding on yield average loans X.XX%. Our

multifamily C&I XX.X%. million the pay to were quarter loans compared For was the was the XX.X% up X.X%, X.X% million QX, for quarter, portfolio. non up was million loans PPP $XX in pay CRE down approximately in $XX X.X% four quarter. or by was $XX.X over C&D one and down down family a up that's and PPP down to

September million up additional funding and sets construction our development As to and when gas you September Slide will construction were XXXX components and our planning. exposure, including see development construction XX, the Slide $XX.X forth our portfolio compared loans to due oil and XX you XX, some a development million to pay exposure. of by with oil and from sets XXXX about from downs. how largely XX indirect to land community loan turn and development $X.X in trend approximately information our a Outstanding direct and of XX our PPP approximately forth falling our loans gas quantify balances of payoffs downward we and loans. loan because total continued year, QX QX Slide this

of with our we balances million. borrowers continue another forgiveness we million received XXXX $XX.X At of and $XX.X payments, quarter fourth end had $XXX million forgiveness total the had work on During with totaling the loans to for application submitted principal applications.

SBA simpler application loans to the $XXX,XXX with our also forgiveness With a by of release begun this we of on forgiveness month, than less earlier applications. borrowers work have with

assisting great average second PPP forth is we table portfolio. on on back bottom the began loan of January with XX. The our forgiveness team turned to of a sets Slide has the our XX on apps doing customers borrowers our Our which at work financing and round yield with

principal deferral out XX to PPP average our on the our deferral of COVID-XX deferred $XX.X and with December largest loans approximately sets The remaining when a yield and with those we entered average on nine The the at taking our loans that loans million. category XX, customers deferred was portfolio of remaining Our number end as is on the of balance regarding forth down our our yield result million. was our loans. total of PPP in information the estate loan $XX.X Slide December loans XX real of pandemic. principal commercial the was at arrangements of portfolio

September, you'll think restaurants QX see and and turn hotels XX, the that slight XX.X% of slightly and elements QX. gas, you resulting of are off during our to sets of sensitive comprise to elements stores, XX.X% our approximately Slide continuing from and allowance the for convenience oil at of construction increase COVID-XX group loans XX, that the of most credit fund. Slide Those CRE, what QX, December about our we end and virus; losses across from info If at Retail, a loans XX to breakout XXXX. forth the comparison portfolio are total

XXXX. credit XX, Ted As our X.XX% was noted, loans December for losses allowance at to

assets quarter, Slide Turning remains increased strong. credit XX our the to during quality our but non-performing fourth slightly

As conservatively. our loans problem Bob early process working mentioned, of for with are detection we that believe we and identification

Our XXXX past of be may adversely as to XX, fourth as as total few compared assets in loans was graded well X.XX% information the regarding we XX identifying loans Slide businesses generally. assets, increase our of are our XXXX. pandemic that XXXX by process to X.XX% XX, with as non-performing associated during September quarter as which businesses shows during impacted negatively December including led an the impacted

one offs $X.X Our previously of XXXX, moved that the charge as basis. primarily increased to an during annualized on assets substandard quarter. net to accruing fourth fourth or average of two we offset due during status, of million off fourth by partially to quarter X.XX% relationships Non-performing charged the in increased quarter the nonaccrual $X.X million loans classified loan

TDRs as outstanding all were During I'll the subject remained during at it Franklin. of ranges record that, million, With XX end. to We back restructured with of loans deferral COVID December totaling TDRs XXXX. Bob the XXXX. related year XX, XX year pre restructured investments $XX.X ended, as over XX to turn which outstanding wells modification,

Robert Franklin

for up you, Thank open Operator? with And that, go it Joe. we'll ahead and questions.

Operator

first [Operator from comes line of Our Dick with Sandler. a Instructions] question Piper Graham

now open. line is Your

Graham Dick

a this detail just nonperforming to Good morning. about loans little you into have the more moved quarter. go Can

the You like what kind have focused to then industries in, CRE might on on be they might of, value a know, of kind loan basis. sitting just been like loan and whereas

really I additional think be Just any color would great. here,

Robert Franklin

give Joe to going then I'm make detail. Yes, comment let to I'm you one more going

know to don't same we or credits whether I TDR have. or a we we the treat way everybody treat Cares Act From You chosen, to such always use we have we know, as standpoint, the it. it it’s how not. a related then something's our not. it's else like and TDR We don't would COVID problem do If determine chosen feel

So Joe will some can understand you the give go ahead. you. that of Joe in can you that light, that detail

Joe West

moved are the was relationships bulk in the and One that down QX. industry we dollars in two into that There relationship make of up automotive COVID. significantly due to the nonaccrual business was repair

ahead So, a the results it deferral, not we additional operating at QX put additional nonaccrual QX we granted place downgraded and in when it as continue nonaccrual. deferral, but on then did substandard, suffer to we granted on not went that them but they in and deferral we but did time

with their that I fabricator, loan primary marine estate, been of have metal not particular that some COVID was QX nonaccrual. as is business a associated that a real like that's along. it for in and been a commercial move while substandard has lot industrial And commercial company There to limping with that. And a There's automotive of value real estate an we years. mentioned just a real in the ago. that is is one deteriorated, XX%. moved estate industry. it’s on businesses and other And couple location no associated loan of we had the is to primary, its kind their That issue The the

Graham Dick

you color. then also, in you criticized And into and Thank of seeing then guess, great where the you. to third quarter? classifieds I great. migration a compared are in XXXX? That's what Okay, at terms you're migration And in some do expecting? factored good you your it right fits you're what where what and pretty reserve you Have more considering is expecting in now of think kind already do into

Robert Franklin

levels think we in last -- over the our or got QX extent, handle total before we're things at four constant. five so over compared that or four constant continuing QX to any cases it's out. to And we're that to in if get to in work as classified, earlier obviously and think wanted months, that problems the increase identified repaid, NPA not in little way with ago I year the that of to has a fairly elevated people, but probably because new on We to think this we number And that are emphasize the seeing had five major we we or total a for probably And that look migrate work you as we've them last most remained months. give best additional time remained issue way in a work problems. the

in XXXX. we We're of we So forward as don't into deterioration quality see, seeing portfolio. not the the look credit

we books don't we've I problems got XXXX. time think by new and much too this hitting think identified we see our in problems at this

Graham Dick

last Is that happened did here And million can salaries. pretty that early quarter? expense. anything consultant $X.X basis a sense one guys you Looks where a the AML give you the the in BSA job like guess I lower switching quarterly expense question run might think managing on mainly quarter, then, me just there you rate here specific settle And out XXXX? excluding good in Okay. expenses, of fourth

Robert Franklin

adjustment Ted let some accruals I'll speak better the bonus to a was we rate the quarter, biggest for the and adjustment adjustment, on in had run Yes, But based to XXXX. there had biggest year. that some the fourth

some had quarter salary we to in the that. fourth it's, adjustments around So expense

let that as one. far run going rate address I'll Ted As forward,

Ted Pigott

the we think normalized for [indiscernible]. fourth quarter I

affect forward, the generally are quarter, years. going like runway that in going know forward first and that this think that We've you've I see down. tighten we our things given prior to in which run thing Other you'll that, that don't same than looked the of as only on first going already quarter, So the major at that any be I adjustments not do salary I seen that. we'll really our rate think

Graham Dick

on guys. helpful. that's the quarter in jump I'll Congrats Okay, queue. the back very

Operator

next from line [Operator Our KBW. Jones comes Instructions] of with Will question a

Your open. line now is

Will Jones

Good morning, guys.

let just clarity touch or this back to to little the those get maybe forward? moved wanted just treated credit changed just I that loans, TDR And know anything really how bit, moving around be to the on were you the more they'll has switching wanted of to those COVID So little a those quarter, deferrals decision move to a loans? mechanics regarding

Robert Franklin

The didn't I question it. quite. didn't partner quite repeat Can it. I understand you

Will Jones

anything treated Yes, how around does were just about be that a change clarity deferrals TDR more forward? moved those quarter, really to the COVID this little moving will

Robert Franklin

I them. in depending additional deferral going we're XXXX. to There may, for given prospects business how could on we they with not work their would continue say, to gauge be

of for One really of one to They've not period have to classified revenue problem the a the is the them, prior that been a had longer pandemic. COVID problems the time issue. is

forbearance might will some our to year. continue this there, we if to process can way it work, we collection additional So grant see better

if So the and restructure of are given of of decide we're sort what's near interest The their. point plans medium and evaluating us best the of at to where loans. those for trying regarding additional the bank the a in term both they've

Will Jones

then And on Thanks. to growth. maybe helpful. That's moving just

of about a the You was that banks think range XXXX. And was mid-single organic a outside this growth growth digit Does one know, get the you next able year? to guys bit like optimistic PPP, sound fair number of pretty actually year. I of few CBTX little feel

Robert Franklin

our is expectation to growth, target. that X% our which typical is get this normalized year, our X% think back I well, a we Yes, to is

to clouds of and And specifics, business second first because going give Now, going with really to us. understand Most just kind exactly. the rest quarter and just from the leather marketing. I it's shoe be don't guidance what of I our because really think comes I can't year any are understand to of difficult give that

So when get and our our prospects difficult us. can customers we out makes that visit for and it with

coming that COVID on So happens existing lot in a load which And is customers, not. generation basis, from our out is great. or of regular year year

And are then new much new at and they business pace, maybe a continue what so will businesses. better prospects that

difficult really will And on so back to it's that this be we point at know that track. too that

I certainty our we that's anyway. but expectation any can't and But with going you Our is there. goal able get to we're that. possibly to be fit that feeling could That tell

Will Jones

Understood, to and great. little Definitely tough environment a a ahead look forecasts bit.

the Just one on for me last buyback.

You know, this you a XXX,XXX is which great little Surprised, it guys were quarter active that. little more a wasn't than to shares, see.

stock so at guys the been your especially given Just has cheaply, that trading you time reinstated.

your your moving appetite guys excess to wanted on buyback Just how you'll your capital? hear and thoughts some deploy think you of forward

Robert Franklin

still Well, We're at we some look looking possibly and hungry are always top at right that now. buybacks, at the M&A for increasing and is something that's, looking mind M&A dividend I that's think everything. of

think conversations, buying buyback a the available but people it difficult. we bit a we're have lot But to limitations The that the are us of of make every makes I flow with mean, programs stock lot we have difficult, as far goes, the a it's, what continue little conversations day. I people. can as as to a have the around little

relative what we we we still might other think stock have to cheap continue to in our it's uses to capital. for market back, buy So that be the

provide for different good also that still COVID us. this But a we're think some opportunities. very it's in debacle buy looking a And we capital we employ maybe feel that will way. to So like

their by and I encouraged there are transactions. more considering are. we're are they And that and reassessing out people where are the more conversations that were that think people what we having opportunities

we're excess the that in what So try next XX looking way. negative employ at capital have. We're some to but that happens several we'll we to see not months, different ways it's over hoping a of

Will Jones

No, absolutely not.

color, guys. and for congrats the on it quarter. Thanks all for that's this Okay, me,

Robert Franklin

very much. you Thank

Operator

the further now are There turn over remarks. no I back call time. you. forclosing Franklin Bob at Thank questions this to will

Robert Franklin

that Thank you. for Well, on us in we the everyone you very Thank today. your good. interest are CBTX. adjourned. We call And appreciate with joining

Operator

today's your this Thank gentlemen, and Ladies concludes for you conference call. participation.

disconnect. now may You

Stellar Bancorp (STEL) 29 Jan 212020 Q4 Earnings call transcript