U.S. Markets open in 9 hrs 24 mins

CBTX, Inc. Reports Fourth Quarter and Year End Financial Results

HOUSTON, Jan. 29, 2020 (GLOBE NEWSWIRE) -- CBTX, Inc., or the Company (CBTX), the bank holding company for CommunityBank of Texas, N.A., or the Bank, today announced net income of $12.6 million, or $0.50 per diluted share, for the quarter ended December 31, 2019, compared to $13.1 million, or $0.52 per diluted share, for the quarter ended September 30, 2019 and $14.1 million, or $0.56 per diluted share, for the quarter ended December 31, 2018.

The Company reported net income for the year ended December 31, 2019 of $50.5 million, or $2.02 per diluted share, compared to $47.3 million, or $1.89 per diluted share for the year ended December 31, 2018.

Robert R. Franklin, Jr., CBTX, Inc. Chairman, CEO and President said, “Our Company is proud to announce a record year of earnings for 2019. The CommunityBank of Texas family stayed true to relationship banking while delivering strong credit quality and continuing to build shareholder value.”

Mr. Franklin added, “We operate in strong, competitive markets for loans and deposits. Although the Federal Reserve continued to lower rates in the last half of the year, we were able to maintain a healthy net interest margin. Our historic trend of fourth quarter interest-bearing deposit growth also allowed us to adjust deposit rates late in November. We believe that the pressure of lower interest rates will extend into 2020, but we are hopeful of a stabilizing rate environment as we move into the year.”

“We are also cautious around what could be a very contentious election season which we believe may lead businesses to slow their decision making, especially later in the year,” said Mr. Franklin. “We will continue to hire additional producers, spend on technology to support our business and to look for acquisition opportunities.” “Our goal is to remain disciplined in our relationship banking approach while building shareholder value and a quality earnings stream.”

Highlights

  • Net income increased $3.2 million, or 6.8%, during 2019, as compared to 2018.

  • Loans were $2.6 billion at December 31, 2019, compared to $2.7 billion at September 30, 2019 and $2.4 billion at December 31, 2018.

  • Net interest margin on a tax equivalent basis was 4.18% for the quarter ended December 31, 2019, compared to 4.43% for the quarter ended September 30, 2019 and 4.42% for the quarter ended December 31, 2018.

  • The cost of interest-bearing deposits was 1.08% for the quarter ended December 31, 2019, compared to 1.05% for the quarter ended September 30, 2019 and 0.89% for the quarter ended December 31, 2018.

  • Nonperforming assets remain low relative to total assets at 0.03% at December 31, 2019, compared to 0.03% of total assets at September 30, 2019 and 0.11% of total assets at December 31, 2018.

  • The Company will adopt the new accounting standard related to current expected credit losses, or CECL, effective January 1, 2020 and expects to have an allowance for credit losses to loans ratio of 1.10% to 1.14%, with the increase to be largely due to unfunded commitments.

Operating Results

Net Interest Income

Net interest income was $33.8 million for the fourth quarter of 2019, compared to $34.6 million for the third quarter of 2019 and $33.2 million for the fourth quarter of 2018. Net interest income decreased $789,000 during the fourth quarter of 2019, compared to the third quarter of 2019, due to lower average yields on loans and other interest earning assets and higher average interest-bearing deposits, partially offset by higher average loans and other interest earning assets.

Net interest income increased $566,000 in the fourth quarter of 2019, compared to the fourth quarter of 2018, primarily due to higher average loans, partially offset by higher average interest-bearing deposits, higher average rates on Federal Home Loan Bank advances and lower average yields on loans and other interest earning assets.

Net interest income increased $11.3 million during 2019, compared to 2018, primarily due to increases in average loan yields and volume, partially offset by increased average rates on interest-bearing deposits and higher average Federal Home Loan Bank advances. Loan growth during 2019 was funded through increased interest-bearing deposits, noninterest-bearing deposits and Federal Home Loan Bank advances. During 2019, the costs of interest-bearing deposits have trended upward due to competitive stress on rates but remain a low-cost source of funds as compared to other sources of funds such as debt.

Provision/Recapture for Loan Losses

The provision for loan loss was a recapture of $148,000 for the fourth quarter of 2019, compared to provision of $579,000 for the third quarter of 2019 and a $2.2 million recapture for the fourth quarter of 2018. The recapture in the fourth quarter of 2019 was primarily due to a decrease in loan balances. The recapture in the fourth quarter of 2018 resulted from strong credit quality, continuing low nonperforming and impaired loans and minimal charge-off history. The provision for loan loss was $2.4 million for 2019, compared to a recapture of $1.8 million for 2018.

The allowance for loan losses was $25.3 million, or 0.96% of total loans, at December 31, 2019, compared to $25.6 million, or 0.96% of total loans, at September 30, 2019 and $23.7 million, or 0.97% of total loans, at December 31, 2018.  

Noninterest Income

Noninterest income was $3.7 million for the fourth quarter of 2019, compared to $4.1 million for the third quarter of 2019 and $3.9 million for the fourth quarter of 2018. Swap origination fees, which are included in other noninterest income, were $428,000 in the third quarter of 2019, as compared to $45,000 in the fourth quarter of 2019 and $52,000 for the fourth quarter of 2018.

Noninterest income was $18.6 million for 2019, an increase of $4.4 million compared to 2018, primarily due to the receipt of nontaxable death benefit proceeds of $4.7 million under bank-owned life insurance policies and a resulting gain of $3.3 million over the carrying value. In addition, swap origination fees increased $832,000 during 2019 as compare to 2018.

Noninterest Expense

Noninterest expense was $22.1 million for the fourth quarter of 2019, compared to $22.0 million for the third quarter of 2019 and $21.8 million for the fourth quarter of 2018. Noninterest expense increased $65,000 during the fourth quarter of 2019, compared to the third quarter of 2019, primarily due to increased salaries and benefits, partially offset by decreased legal fees, which are included in professional and director fees. The Bank incurred legal fees of $363,000 in the fourth quarter of 2019, compared to $729,000 in the third quarter of 2019.

Noninterest expense increased $354,000 in the fourth quarter of 2019, compared to the fourth quarter of 2018, primarily due to increased salaries and benefits as a result of annual salary increases in 2019 and higher stock compensation expense due to grants of restricted stock, increased legal fees, increased occupancy costs and increased telephone and communication costs, partially offset by a decrease in regulatory fees.

Noninterest expense increased $8.1 million during 2019, compared to 2018, primarily due to a $4.7 million increase in salaries and benefits as a result of annual salary increases in 2019 and increased stock compensation expense due to grants of restricted stock and a $3.5 million increase in legal fees, partially offset by a $915,000 decrease in regulatory fees.

Income Taxes

Income tax expense was $2.9 million for the fourth quarter of 2019, compared to $3.0 million for the third quarter of 2019 and $3.4 million for the fourth quarter of 2018. The effective tax rates were 18.69% for the fourth quarter of 2019, 18.61% for the third quarter of 2019 and 19.32% for the fourth quarter of 2018.

Income tax expense was $11.6 million for 2019 and $11.4 million for 2018.The effective tax rates were 18.64% for 2019 and 19.37% for 2018. The decrease in the effective tax rate for 2019 was primarily due to the nontaxable gain related to the bank-owned life insurance policies noted above.

Balance Sheet Highlights

Loans

Loans, excluding loans held for sale, were $2.6 billion at December 31, 2019, $2.7 billion at September 30, 2019 and $2.4 billion at December 31, 2018. Loans, excluding loans held for sale, decreased $37.7 million, or 1.4%, during the fourth quarter of 2019 due to an increase in loan paydowns, as compared to the third quarter of 2019 and increased $192.3 million, or 7.9%, during 2019 due to organic growth in the loan portfolio, as compared to 2018.

Asset Quality

Nonperforming assets remain low relative to total assets at $977,000, or 0.03% of total assets, at December 31, 2019, $1.1 million, or 0.03% of total assets, at September 30, 2019 and $3.5 million, or 0.11% of total assets, at December 31, 2018.

Annualized net charge-offs (recoveries) to average loans were 0.02% for the fourth quarter of 2019, 0.05% for the third quarter of 2019 and (0.22%) for the fourth quarter of 2018.

Deposits and Borrowings

Total deposits were $2.9 billion at December 31, 2019, $2.7 billion at September 30, 2019 and $2.8 billion at December 31, 2018. Deposits increased $86.1 million, or 3.1%, during 2019 due to normal fluctuations in customer activities.

We define total borrowings as the total of repurchase agreements, Federal Home Loan Bank advances and notes payable. Total borrowings were $50.5 million, $121.2 million and $4.1 million at December 31, 2019, September 30, 2019 and December 31, 2018, respectively. Borrowings fluctuated between the fourth and third quarter of 2019 and the fourth quarter of 2018 due to increased Federal Home Loan Bank advances to fund loan growth during those periods.

Capital

At December 31, 2019, the Company remained well capitalized under bank regulatory requirements. The Company’s total shareholders’ equity to total assets, was 15.40% at December 31, 2019, 15.31% at September 30, 2019 and 14.87% at December 31, 2018. Our ratio of tangible equity to tangible assets was 13.26% at December 31, 2019, 13.13% at September 30, 2019 and 12.56% at December 31, 2018. Tangible equity to tangible assets is a non-GAAP financial measure. The most directly comparable GAAP financial measure of 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 earnings release.

Non-GAAP Financial Measures

The Company’s accounting and reporting policies conform to United States generally accepted accounting principles, or GAAP, and the prevailing practices in the banking industry. The Company’s management also evaluates performance based on certain additional 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.

About CBTX, Inc.

CBTX, Inc. is the bank holding company for CommunityBank of Texas, N.A., a $3.5 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: 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; avoid or address interruptions or breaches in the Company’s information system security; address the costs and effects of regulatory or other government inquiries, the results of regulatory examinations, investigations or reviews or the ability to obtain the required regulatory approvals; 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.


CBTX, INC. AND SUBSIDIARY
Financial Highlights (Unaudited)
(In thousands, except per share data and percentages)

    Three Months Ended   Year Ended
    12/31/2019   9/30/2019   6/30/2019   3/31/2019   12/31/2018   12/31/2019   12/31/2018
Profitability:                                          
Net income   $  12,636     $  13,076     $  14,315     $  10,490     $  14,112     $  50,517     $  47,289  
Basic earnings per share   $  0.51     $  0.52     $  0.57     $  0.42     $  0.57     $  2.03     $  1.90  
Diluted earnings per share   $  0.50     $  0.52     $  0.57     $  0.42     $  0.56     $  2.02     $  1.89  
                                           
Return on average assets (1)     1.43 %     1.53 %     1.72 %     1.30 %     1.71 %     1.50 %     1.50 %
Return on average shareholders' equity (1)     9.40 %     9.92 %     11.30 %     8.59 %     11.66 %     9.81 %     10.18 %
Net interest margin- tax equivalent (1)     4.18 %     4.43 %     4.53 %     4.56 %     4.42 %     4.42 %     4.35 %
Efficiency ratio (2)     58.96 %     56.98 %     56.25 %     61.34 %     58.67 %     58.30 %     59.04 %
                                           
Liquidity and Capital Ratios:                                          
Total shareholders' equity to total assets     15.40 %     15.31 %     15.18 %     15.19 %     14.87 %     15.40 %     14.87 %
Tangible equity to tangible assets (3)     13.26 %     13.13 %     12.96 %     12.89 %     12.56 %     13.26 %     12.56 %
Common equity tier 1 capital ratio     15.52 %     14.99 %     14.71 %     14.53 %     14.71 %     15.52 %     14.71 %
Tier 1 risk-based capital ratio     15.52 %     14.99 %     14.71 %     14.53 %     14.76 %     15.52 %     14.76 %
Total risk-based capital ratio     16.41 %     15.88 %     15.59 %     15.41 %     15.63 %     16.41 %     15.63 %
Tier 1 leverage ratio     13.11 %     13.23 %     13.12 %     13.02 %     12.74 %     13.11 %     12.74 %
                                           
Other Data:                                          
Weighted average common shares outstanding- Basic      24,951        24,923        24,921        24,910        24,886        24,926        24,859  
Weighted average common shares outstanding- Diluted      25,071        25,046        25,042        25,054        25,046        25,053        25,018  
Common shares outstanding at period end      24,980        24,923        24,923        24,918        24,907        24,980        24,907  
Dividends per share   $  0.10     $  0.10     $  0.10     $  0.10     $  0.05     $  0.40     $  0.20  
Book value per share   $  21.45     $  21.07     $  20.59     $  20.01     $  19.58     $  21.45     $  19.58  
Tangible book value per share (3)   $  18.01     $  17.62     $  17.13     $  16.54     $  16.10     $  18.01     $  16.10  
Employees - full-time equivalents      500        504        508        494        495        500        495  

_____________________________
(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.



CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)

Balance Sheet Data (at period end):   12/31/2019   9/30/2019   6/30/2019   3/31/2019   12/31/2018
                               
Loans, excluding loans held for sale   $  2,639,085     $  2,676,824     $  2,642,289     $  2,544,709     $  2,446,823  
Allowance for loan losses      (25,280 )      (25,576 )      (25,342 )      (24,643 )      (23,693 )
Loans, net      2,613,805        2,651,248        2,616,947        2,520,066        2,423,130  
                               
Cash and equivalents      372,064        289,399        266,776        276,515        382,070  
Securities      231,262        228,061        232,601        228,684        229,964  
Premises and equipment      50,875        51,183        51,346        51,453        51,622  
Goodwill      80,950        80,950        80,950        80,950        80,950  
Other intangible assets      4,938        5,106        5,318        5,538        5,775  
Loans held for sale      1,463        —        1,408        852        —  
Operating lease right-to-use asset      12,926        12,864        12,355        12,879        —  
Other assets      110,261        112,774        111,805        106,525        105,585  
Total assets   $  3,478,544     $  3,431,585     $  3,379,506     $  3,283,462     $  3,279,096  
                               
Noninterest-bearing deposits   $  1,184,861     $  1,196,720     $  1,201,287     $  1,229,172     $  1,183,058  
Interest-bearing deposits      1,667,527        1,547,607        1,537,620        1,521,827        1,583,224  
Total deposits      2,852,388        2,744,327        2,738,907        2,750,999        2,766,282  
                               
Federal Home Loan Bank advances      50,000        120,000        90,000        —        —  
Repurchase agreements      485        1,208        805        1,600        2,498  
Junior subordinated debt      —        —        —        —        1,571  
Operating lease liabilities      15,704        15,513        14,806        15,134        —  
Other liabilities      24,246        25,317        21,830        17,076        21,120  
Total liabilities      2,942,823        2,906,365        2,866,348        2,784,809        2,791,471  
                               
Shareholders' equity      535,721        525,220        513,158        498,653        487,625  
Total liabilities and shareholders' equity   $  3,478,544     $  3,431,585     $  3,379,506     $  3,283,462     $  3,279,096  
                                         


CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)

    Three Months Ended   Year Ended
    12/31/2019   9/30/2019   6/30/2019   3/31/2019   12/31/2018   12/31/2019   12/31/2018
Interest income                                                  
Interest and fees on loans   $  35,634     $  36,353     $  35,608     $  33,793     $  33,427     $  141,388     $  123,895  
Securities      1,442        1,436        1,519        1,557        1,542        5,954        6,020  
Other interest-earning assets      1,279        1,212        1,359        1,483        1,696        5,333        5,030  
Equity investments      213        192        163        152        217        720        814  
Total interest income      38,568        39,193        38,649        36,985        36,882        153,395        135,759  
Interest expense                                                  
Deposits      4,463        4,130        3,822        3,584        3,551        15,999        10,586  
Federal Home Loan Bank advances      316        483        523        64        —        1,386        73  
Repurchase agreements      —        1        1        1        1        3        4  
Note payable and junior subordinated debt      3        4        4        8        110        19        435  
Total interest expense      4,782        4,618        4,350        3,657        3,662        17,407        11,098  
Net interest income      33,786        34,575        34,299        33,328        33,220        135,988        124,661  
Provision (recapture) for loan losses      (148 )      579        807        1,147        (2,169 )      2,385        (1,756 )
Net interest income after provision (recapture) for loan losses      33,934        33,996        33,492        32,181        35,389        133,603        126,417  
Noninterest income                                                  
Deposit account service charges      1,587        1,681        1,657        1,629        1,709        6,554        6,281  
Net gain (loss) on sale of assets      305        190        69        88        168        652        660  
Card interchange fees      1,007        908        941        864        921        3,720        3,741  
Earnings on bank-owned life insurance      430        430        3,721        430        456        5,011        1,815  
Other      388        906        915        482        605        2,691        1,755  
Total noninterest income      3,717        4,115        7,303        3,493        3,859        18,628        14,252  
Noninterest expense                                                  
Salaries and employee benefits      14,264        13,951        14,185        13,822        13,834        56,222        51,524  
Net occupancy expense      2,417        2,484        2,338        2,267        2,268        9,506        9,394  
Regulatory fees      84        144        446        464        507        1,138        2,053  
Data processing      651        652        661        714        664        2,678        2,677  
Software      423        469        425        440        408        1,757        1,576  
Printing, stationery and office      309        313        327        353        303        1,302        1,161  
Amortization of intangibles      216        221        225        232        237        894        985  
Professional and director fees      1,220        1,455        2,282        2,091        1,123        7,048        3,537  
Correspondent bank and customer related transaction expenses      70        67        66        65        64        268        265  
Loan processing costs      102        124        124        95        153        445        448  
Advertising, marketing and business development      452        407        532        440        406        1,831        1,824  
Repossessed real estate and other asset expense      1        —        —        —        7        1        72  
Security and protection expense      364        410        367        323        317        1,464        1,276  
Telephone and communications      506        434        456        378        408        1,774        1,530  
Other expenses      1,031        914        969        901        1,057        3,815        3,694  
Total noninterest expense      22,110        22,045        23,403        22,585        21,756        90,143        82,016  
Net income before income tax expense      15,541        16,066        17,392        13,089        17,492        62,088        58,653  
Income tax expense      2,905        2,990        3,077        2,599        3,380        11,571        11,364  
Net income   $  12,636     $  13,076     $  14,315     $  10,490     $  14,112     $  50,517     $  47,289  
                                                         



CBTX, INC. AND SUBSIDIARY
Net Interest Margin (Unaudited)
(In thousands, except percentages)

    Three Months Ended
    12/31/2019   9/30/2019   12/31/2018
          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)   $  2,682,842     $  35,634   5.27 %   $  2,655,941     $  36,353   5.43 %   $  2,468,415     $  33,427   5.37 %
Securities      232,441        1,442   2.46 %      234,525        1,436   2.41 %      226,882        1,542   2.70 %
Other interest-earning assets      300,395        1,279   1.69 %      215,900        1,212   2.25 %      293,299        1,696   2.30 %
Equity investments      16,140        213   5.24 %      16,154        192   4.72 %      14,789        217   5.79 %
Total interest-earning assets      3,231,818     $  38,568   4.73 %      3,122,520     $  39,193   4.98 %      3,003,385     $  36,882   4.87 %
Allowance for loan losses      (25,591 )                (25,422 )                (24,305 )          
Noninterest-earnings assets      298,615                  296,861                  295,236            
Total assets   $  3,504,842               $  3,393,959               $  3,274,316            
Liabilities and Shareholders’ Equity                                                
Interest-bearing liabilities:                                                
Interest-bearing deposits   $  1,646,883     $  4,463   1.08 %   $  1,557,503     $  4,130   1.05 %   $  1,578,146     $  3,551   0.89 %
Federal Home Loan Bank advances      68,913        316   1.82 %      83,804        483   2.29 %      —        —    —  
Repurchase agreements      423        —    —        1,043        1   0.38 %      1,925        1   0.21 %
Note payable and junior subordinated debt      —        3    —        —        4    —        9,817        110   4.28 %
Total interest-bearing liabilities      1,716,219     $  4,782   1.11 %      1,642,350     $  4,618   1.12 %      1,589,888     $  3,662   0.91 %
Noninterest-bearing liabilities:                                                
Noninterest-bearing deposits      1,212,939                  1,189,087                  1,181,035            
Other liabilities      42,406                  39,775                  23,083            
Total noninterest-bearing liabilities      1,255,345                  1,228,862                  1,204,118            
Shareholders’ equity      533,278                  522,747                  480,310            
Total liabilities and shareholders’ equity   $  3,504,842               $  3,393,959               $  3,274,316            
Net interest income         $  33,786             $  34,575             $  33,220    
Net interest spread (3)               3.62 %               3.86 %               3.96 %
Net interest margin (4)               4.15 %               4.39 %               4.39 %
Net interest margin—tax equivalent (5)               4.18 %               4.43 %               4.42 %

_____________________________
(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 $251,000, $257,000 and $257,000 for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively, were computed using a federal income tax rate of 21%.



CBTX, INC. AND SUBSIDIARY
Net Interest Margin (Unaudited)
(In thousands, except percentages)

    Years Ended December 31,
    2019     2018  
          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)   $  2,608,505     $  141,388   5.42 %   $  2,392,348     $  123,895   5.18 %
Securities      233,543        5,954   2.55 %      227,384        6,020   2.65 %
Other interest-earning assets      243,349        5,333   2.19 %      255,323        5,030   1.97 %
Equity investments      14,852        720   4.85 %      15,282        814   5.32 %
Total interest-earning assets      3,100,249     $  153,395   4.95 %      2,890,337     $  135,759   4.70 %
Allowance for loan losses      (24,971 )                (25,063 )          
Noninterest-earnings assets      299,387                  290,868            
Total assets   $  3,374,665               $  3,156,142            
Liabilities and Shareholders’ Equity                                
Interest-bearing liabilities:                                
Interest-bearing deposits   $  1,566,038     $  15,999   1.02 %   $  1,519,643     $  10,586   0.70 %
Federal Home Loan Bank advances      61,589        1,386   2.25 %      3,356        73   2.18 %
Repurchase agreements      1,046        3   0.29 %      1,601        4   0.25 %
Note payable and junior subordinated debt      —        19    —        10,572        435   4.11 %
Total interest-bearing liabilities      1,628,673     $  17,407   1.07 %      1,535,172     $  11,098   0.72 %
Noninterest-bearing liabilities:                                
Noninterest-bearing deposits      1,193,527                  1,134,191            
Other liabilities      37,458                  22,082            
Total noninterest-bearing liabilities      1,230,985                  1,156,273            
Shareholders’ equity      515,007                  464,697            
Total liabilities and shareholders’ equity   $  3,374,665               $  3,156,142            
Net interest income         $  135,988             $  124,661    
Net interest spread (2)               3.88 %               3.98 %
Net interest margin (3)               4.39 %               4.31 %
Net interest margin—tax equivalent (4)               4.42 %               4.35 %

_____________________________
(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 $1.0 million and $1.1 million for the years ended December 31, 2019 and 2018, respectively, were computed using a federal income tax rate of 21%.



CBTX, INC. AND SUBSIDIARY
Rate/Volume Analysis (Unaudited)
(In thousands)

...
    Three Months Ended December 31, 2019, Compared to
      Three Months Ended September 30, 2019
    Increase (Decrease) due to      
(Dollars in thousands)