Yahoo Finance

Pending Merger

On November 8, 2021, Allegiance Bancshares, Inc., or Allegiance, the holding company of Allegiance Bank, and CBTX jointly announced that they entered into a definitive merger agreement pursuant to which the companies will combine in an all-stock merger of equals to create a combined company with an equity market capitalization of approximately $1.5 billion and the 17th largest deposit market share in the State of Texas. Under the terms of the definitive merger agreement, Allegiance shareholders will receive 1.4184 shares of CBTX common stock for each share of Allegiance common stock they own. Based on the number of outstanding shares of Allegiance and CBTX as of November 5, 2021, Allegiance shareholders will own approximately 54% and CBTX shareholders will own approximately 46% of the combined company. The companies have submitted the required regulatory filings and the parties anticipate closing in the second quarter of the year.

Operating Results

Net income for the year ended December 31, 2021 was $35.6 million, or $1.45 per diluted share, compared to $26.4 million, or $1.06 per diluted share, for the year ended December 31, 2020. This increase of $9.2 million for 2021, compared to 2020, was primarily due to a recapture for credit losses of $10.8 million for 2021, compared to a provision for credit losses of $18.9 million for 2020. In addition, noninterest expense increased $15.6 million, income tax expense increased $3.9 million, net interest income decreased $2.4 million and noninterest income increased $1.5 million in 2021, compared to 2020.

The Company reported a net loss of $545,000 for the fourth quarter of 2021, or $0.02 per diluted share, compared to net income of $14.4 million, or $0.59 per diluted share, for the third quarter of 2021 and net income of $10.2 million, or $0.41 per diluted share, for the fourth quarter of 2020. The decrease of $15.0 million in net income for the fourth quarter of 2021, compared to the third quarter of 2021, was primarily due to a $10.5 million increase in noninterest expense and a $3.7 million increase in the provision for credit losses. The decrease of $10.8 million in net income for the fourth quarter of 2021, compared to the fourth quarter of 2020, was primarily due to a $11.2 million increase in noninterest expense, a $1.7 million decrease in net interest income, partially offset by a $1.1 million decrease in the provision for credit losses and a $578,000 increase in noninterest income.

Net Interest Income

Net interest income was $30.8 million for the fourth quarter of 2021, compared to $31.2 million for the third quarter of 2021 and $32.5 million for the fourth quarter of 2020. Net interest income decreased $439,000 during the fourth quarter of 2021, compared to the third quarter of 2021, primarily due to lower rates on loans, which was partially offset by higher average securities. Net fees recognized on Paycheck Protection Program, or PPP, loans during the fourth quarter of 2021 were $1.5 million and $2.3 million in the third quarter of 2021.

Net interest income decreased $1.7 million during the fourth quarter of 2021, compared to the fourth quarter of 2020, primarily due to lower average loans, which was partially offset by higher average securities and interest-bearing deposits at other financial institutions and lower rates on interest-bearing deposits. Net fees recognized on PPP loans during the fourth quarter of 2021 were $1.5 million and $2.1 million in the fourth quarter of 2020.

Net interest income decreased $2.4 million during 2021, compared to 2020, primarily due to lower average loans, lower rates on interest-earning assets and higher average interest-bearing deposits, which was partially offset by higher average securities and interest-bearing deposits at other financial institutions and lower rates on interest-bearing deposits. Net fees recognized on PPP loans during 2021 were $8.4 million and $4.0 million during 2020.

The yield on interest-earning assets was 3.16% for the fourth quarter of 2021, compared to 3.33% for the third quarter of 2021 and 3.79% for the fourth quarter of 2020. The cost of interest-bearing liabilities was 0.28% for the fourth quarter of 2021, 0.30% for the third quarter of 2021 and 0.39% for the fourth quarter of 2020. The Company’s net interest margin on a tax equivalent basis was 3.07% for the fourth quarter of 2021, compared to 3.22% for the third quarter of 2021 and 3.62% for the fourth quarter of 2020.

The yield on interest-earning assets was 3.43% for 2021, compared to 3.98% for 2020. The cost of interest-bearing liabilities was 0.31% for 2021 and 0.57% for 2020. The Company’s net interest margin on a tax equivalent basis was 3.31% for 2021, compared to 3.73% for 2020.

Provision (Recapture) for Credit Losses

The provision for credit losses was a recapture of credit losses of $1.2 million for the fourth quarter of 2021, compared to a recapture of $4.9 million for the third quarter of 2021 and a recapture of $135,000 for the fourth quarter of 2020.

The recapture of credit losses of $1.2 million for the fourth quarter of 2021 primarily resulted from qualitative factor adjustments associated with continued improvements in the local economy.

The recapture of credit losses of $135,000 for the fourth quarter of 2020 was comprised of a recapture of credit losses of $364,000 related to unfunded commitments as a result of a decrease in availability and a provision for credit losses of $229,000 for loans.

The recapture of credit losses of $10.8 million in 2021 primarily resulted from the adjustment of certain qualitative factors used to determine the ACL due to the continued improvements in the national and local economies and forecast assumptions. The provision for credit losses of $18.9 million in 2020 primarily resulted from the impact of the COVID-19 pandemic, sustained instability of the oil and gas industry, an increase in adversely graded loans and an increase in charge-offs of $3.1 million from 2019 to 2020.

The ACL for loans was $31.3 million, or 1.09%, to loans excluding loans held for sale at December 31, 2021, $32.2 million, or 1.23%, at September 30, 2021 and $40.6 million, or 1.39%, at December 31, 2020. The decrease in the ACL for loans during 2021, as compared to 2020, was primarily the result of the adjustment of certain qualitative factors utilized in the Company’s ACL estimate due to the continued improvements in the national and local economies and forecast assumptions.

Noninterest Income

Noninterest income was $4.1 million for the fourth quarter of 2021, $5.6 million for the third quarter of 2021 and $3.5 million for the fourth quarter of 2020. The decrease of $1.5 million for the fourth quarter of 2021, compared to the third quarter of 2021, was primarily due to gains of $1.9 million recorded during the third quarter of 2021 related to bank-owned life insurance policies.

Noninterest income was $16.3 million for 2021 and $14.8 million for 2020. The increase of $1.5 million for 2021, compared to 2020, was primarily due to gains of $1.9 million related to bank-owned life insurance policies recorded during 2021, compared to gains of $769,000 related to bank-owned life insurance policies recorded during 2020. Net gains on sales of assets increased $1.1 million from $755,000 for 2020 to $1.8 million for 2021.

Noninterest Expense

Noninterest expense was $34.8 million for the fourth quarter of 2021, compared to $24.4 million for the third quarter of 2021 and $23.7 million for the fourth quarter of 2020. The increase in noninterest expense of $10.5 million between the third and fourth quarters of 2021 and the increase of $11.2 million between the fourth quarters of 2020 and 2021 were primarily due to the payment of $8.0 million to resolve BSA/AML compliance matters and $1.3 million of costs related to the pending merger with Allegiance. The Company incurred $400,000 of merger related costs in the third quarter of 2021.

The increase in noninterest expense of $15.6 million for 2021, compared to 2020, was primarily due to the payment of $8.0 million to resolve BSA/AML compliance matters, $1.7 million of costs related to the pending merger with Allegiance included in 2021 and a $5.1 million increase in salaries and employee benefits. The increase in salaries and employee benefits during 2021, compared to 2020, resulted from increased claims under the Company’s self-funded health plan, increased bonus expense, increased stock-based compensation expense and increased salary expense.

On December 16, 2021, the Bank, entered into a consent order with the Office of the Comptroller of the Currency, or OCC, regarding BSA/AML compliance matters, or the OCC Consent Order. Under the OCC Consent Order, the Bank paid a civil money penalty of $1.0 million.

On December 15, 2021, the Bank entered into a consent order with the Financial Crimes Enforcement Network (“FinCEN”) regarding BSA compliance matters, or the FinCEN Consent Order. Under the terms of the FinCEN Consent Order, the Bank paid a civil money penalty of $8.0 million; provided, however, that FinCEN agreed to credit the Bank the $1.0 million civil money penalty imposed by the OCC described above. As a result, the Bank paid an aggregate sum of $8.0 million under the OCC Consent Order and the FinCEN Consent Order. The OCC Consent Order and FinCEN Consent Order each settle the civil money proceedings against the Bank initiated by the OCC and FinCEN.

Income Taxes

Income tax expense was $1.8 million for the fourth quarter of 2021, $2.9 million for the third quarter of 2021 and $2.3 million for the fourth quarter of 2020. The effective tax rates were 142.41% for the fourth quarter of 2021, 16.81% for the third quarter of 2021 and 18.24% for the fourth quarter of 2020.

Income tax expense was $9.9 million for 2021 and $6.0 million for 2020. The effective tax rates were 21.79% for 2021 and 18.63% for 2020.

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 income and bank-owned life insurance earnings. The tax rate for the year ended December 31, 2021 and the fourth quarter of 2021 were also impacted by the resolution of the BSA/AML compliance matters as the payments are not tax deductible.

Balance Sheet Highlights

Loans

Loans excluding loans held for sale were $2.9 billion at December 31, 2021, $2.6 billion at September 30, 2021 and $2.9 billion at December 31, 2020. The increase in loans excluding loans held for sale from September 30, 2021 to December 31, 2021 of $259.1 million was primarily due to increased loan originations during the fourth quarter of 2021 and the purchase of loans from a third party totaling $81.4 million. The decrease of $56.6 million from December 31, 2020 to December 31, 2021 was primarily due to loan paydowns outpacing loan originations.

The decrease in loans was also impacted by the decrease in the Company’s PPP loans which were $52.8 million, net of deferred fees and unearned discounts, at December 31, 2021, $100.8 million at September 30, 2021 and $271.2 million at December 31, 2020. The PPP program has been closed to further borrowings and the Company has not originated any new loans under this program since the second quarter of 2021. At December 31, 2021, the Company has 330 PPP loans outstanding and 260 of these were originated in 2021 and are not due for any payment until July 2022 at the earliest.

In support of customers impacted by the COVID-19 pandemic, the Company offered relief through payment deferrals during 2020 and 2021. The Company had 7 loans subject to such deferral arrangements with outstanding principal balances of $18.5 million at December 31, 2021, 7 loans on deferral arrangements with total outstanding principal balances of $18.8 million at September 30, 2021 and 21 loans on deferral arrangement with total outstanding principal balances totaling $38.4 million at December 31, 2020.

Cash and Cash Equivalents

Cash and cash equivalents decreased $48.6 million from September 30, 2021 to December 31, 2021 primarily due to loan originations, purchases of securities and a purchase of loans from a third party totaling $81.4 million. Cash and cash equivalents increased $412.1 million from December 31, 2020 to December 31, 2021 primarily due to loan payments received and net deposit inflows.

Securities

Securities were $425.0 million at December 31, 2021, $359.5 million at September 30, 2021 and $237.3 million at December 31, 2020. The increases in securities were primarily due to purchases out pacing maturities, calls and paydowns.

Deposits and Borrowings

Total deposits were $3.8 billion at December 31, 2021, $3.5 billion at September 30, 2021 and $3.3 billion at December 31, 2020. The increase in deposits of $299.6 million between September 30, 2021 and December 31, 2021 was due to net deposit inflows of $142.8 million in interest-bearing accounts and net deposit inflows of $156.8 million in noninterest-bearing accounts. The increase in deposits of $529.5 million between December 31, 2020 and December 31, 2021 was due to net deposit inflows of $220.9 million and $308.6 million in interest-bearing accounts and noninterest-bearing accounts, respectively.

The Company defines total borrowings as the total of Federal Home Loan Bank advances and notes payable. Total borrowings were Federal Home Loan Bank advances of $50.0 million at December 31, 2021, September 30, 2021 and December 31, 2020.

Capital

At December 31, 2021, 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 16.42% at December 31, 2021, 18.12% at September 30, 2021 and 16.71% at December 31, 2020. The Company’s tier 1 leverage ratio was 11.22% at December 31, 2021, 11.69% at September 30, 2021 and 12.00% at December 31, 2020. The Company’s total shareholders’ equity to total assets ratio was 12.53% at December 31, 2021, 13.41% at September 30, 2021 and 13.84% at December 31, 2020.

The ratio of tangible equity to tangible assets was 10.85% at December 31, 2021, 11.64% at September 30, 2021 and 11.94% at December 31, 2020. 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 earnings release.

Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures including “tangible book value,” “tangible book value per share,” and “tangible equity to tangible assets,” which are supplemental measures that are not required by, or are not presented in accordance with, GAAP. 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 fourth quarter 2021 and annual financial results on Friday, January 28, 2022 at 8:00 a.m. Central Time (9:00 a.m. Eastern 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 6593549. 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 community 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 earnings 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: natural disasters and adverse weather on the Company’s market area, acts of terrorism, pandemics, an outbreak of hostilities or other international or domestic calamities and other matters beyond the Company’s control; the Company’s ability to manage the economic risks related to the impact of the COVID-19 pandemic (including risks related to its customers’ credit quality, deferrals and modifications to loans); the geographic concentration of the Company’s markets in Houston and Beaumont, Texas; the Company’s ability to manage changes and the continued health or availability of management personnel; the amount of nonperforming and classified assets that the Company holds and the time and effort necessary to resolve nonperforming assets; deterioration of asset quality; interest rate risk associated with the Company’s business; national business and economic conditions in general, in the financial services industry and within the Company’s primary markets; sustained instability of the oil and gas industry in general and within Texas; the composition of the Company’s loan portfolio, including the identity of the Company’s borrowers and the concentration of loans in specialized industries; changes in the value of collateral securing the Company’s loans; the Company’s ability to maintain important deposit customer relationships and its 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 PPP loans and the risk of holding such loans at unfavorable interest rates and on terms that are less favorable than those with customers to whom the Company would have otherwise lent; 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- or fourth-party servicers; the failure of certain third- or fourth-party vendors to perform; the institution and outcome of litigation and other legal proceedings against the Company or to which it may become subject; the operational risks associated with the Company’s business; the costs, effects and results of regulatory examinations, investigations, or reviews or the ability to obtain required regulatory approvals; 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 that may impact the Company’s loan portfolio and forbearance practice; further government intervention in the U.S. financial system that may impact how the Company achieves its performance goals; the risk that the cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized; disruption to the parties’ businesses as a result of the announcement and pendency of the merger; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the risk that the integration of each party’s operations will be materially delayed or will be more costly or difficult than expected or that the parties are otherwise unable to successfully integrate each party’s businesses into the other’s businesses; the failure to obtain the necessary approvals by the shareholders of Allegiance or the Company; the amount of the costs, fees, expenses and charges related to the merger; the ability by each of Allegiance and the Company to obtain required governmental approvals of the merger (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction); reputational risk and the reaction of each company’s customers, suppliers, employees or other business partners to the merger; the failure of the closing conditions in the merger agreement to be satisfied, or any unexpected delay in closing the merger; the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; the dilution caused by the Company’s issuance of additional shares of its common stock in the merger; general competitive, economic, political and market conditions; and other factors that may affect future results of the Company and Allegiance including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and OCC and legislative and regulatory actions and reforms; and other risks, uncertainties, and factors that are discussed from time to time in the Company’s reports and documents filed with the SEC. Additionally, many of these risks and uncertainties have been elevated by and may 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.

Allegiance and the Company disclaim any obligation and do not intend to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Information about the Merger and Where to Find It

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

In connection with the proposed merger, the Company intends to file a registration statement on Form S-4 with the SEC to register the shares of the Company’s common stock that will be issued to Allegiance shareholders in connection with the merger. The registration statement will include a joint proxy statement/prospectus and other relevant materials in connection with the proposed merger, which will be sent to the shareholders of the Company and Allegiance seeking their approval of the proposed merger.

WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE PROPOSED MERGER BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT ALLEGIANCE, THE COMPANY AND THE PROPOSED MERGER.

Investors and security holders may obtain free copies of these documents, once they are filed, and other documents filed with the SEC by Allegiance or the Company through the website maintained by the SEC at https://www.sec.gov. Documents filed with the SEC by the Company will be available free of charge by accessing the Company’s website at www.communitybankoftx.com under the heading “Investor Relations” or, alternatively, by directing a request by mail or telephone to CBTX, Inc., 9 Greenway Plaza, Suite 110, Houston, Texas 77046, Attn: Investor Relations, (713) 210-7600, and documents filed with the SEC by Allegiance will be available free of charge by accessing Allegiance’s website at www.allegiancebank.com under the heading “Investor Relations” or, alternatively, by directing a request by mail or telephone to Allegiance Bancshares, Inc., 8847 West Sam Houston Parkway, N., Suite 200, Houston, Texas 77040, (281) 894-3200.

Participants in the Solicitation

The Company, Allegiance and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of the Company and Allegiance in connection with the proposed merger. Certain information regarding the interests of these participants and a description of their direct or indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus regarding the proposed merger when it becomes available. Additional information about the directors and executive officers of the Company and their ownership of the Company’s common stock is set forth in the Company’s proxy statement for its annual meeting of shareholders, filed with the SEC on April 14, 2021. Additional information about the directors and executive officers of Allegiance and their ownership of Allegiance’s common stock is set forth in Allegiance’s proxy statement for its annual meeting of shareholders, filed with the SEC on March 10, 2021. These documents can be obtained free of charge from the sources described above.

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

---

(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.

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

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

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

---

(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 $426,000, $369,000 and $287,000 for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively, were computed using a federal income tax rate of 21%.

CBTX, INC. AND SUBSIDIARY
Net Interest Margin – Year to Date
(In thousands, except percentages)