CBTX, Inc.

CBTX reported second-quarter 2022 net income of $11.7 million, or $0.48 per diluted share, versus $10.6 million, or $0.43 per diluted share, in Q1 2022 and $11.7 million, or $0.48 per diluted share, in Q2 2021. Net interest income was $34.9 million, up $2.2 million sequentially, and tax-equivalent net interest margin expanded to 3.49%, up 27 bps from Q1. The yield on interest-earning assets was 3.56%, and the cost of interest-bearing liabilities was 0.25%. The provision for credit losses was $126,000 versus $435,000 in Q1 and a $5.1 million recapture in Q2 2021. Non-interest expense was $23.8 million, down from $24.7 million in Q1 and $25.2 million a year ago, while the efficiency ratio improved to 61.84%. Loans excluding held-for-sale rose to $3.03 billion, up $153 million, or 5.3%, from Q1 and up 11.1% year over year; excluding PPP loans, loans were $3.2 billion, up $473.6 million, or 18.6%, from Q2 2021. Total assets were $4.32 billion, deposits were $3.76 billion, and the cost of total deposits was 12 bps. Capital ratios remained strong, with total risk-based capital at 15.53%, CET1 at 14.49%, and tier 1 leverage at 11.48%. Non-performing assets were $28.3 million, or 0.65% of total assets, and the allowance for loan losses was 1.06% of total loans. Management did not give formal forward guidance, but said NIM should continue to benefit as Fed hikes reset variable-rate loans, loan growth should moderate from the quarter’s pace, and the pending merger could still close in 2022 if Fed approval comes in the next few weeks.

Bob Franklin said the quarter reflected a “fairly strong economy,” solid loan growth, and benefits from CBTX’s low-cost deposit base, while also noting some pricing pressure and the need to stay disciplined as the economy slows. He was upbeat on the long-term outlook, especially in Texas, but repeatedly stressed caution around inflation, higher rates, and potential asset repricing. On the merger, he said the company is frustrated by the lack of Fed communication, but remains confident there is no known substantive issue blocking approval.

Ted Pigott highlighted net income of $11.7 million, $34.9 million of net interest income, and tax-equivalent NIM of 3.49%, up 27 bps sequentially. He pointed to modest provisioning of $126,000, lower non-interest expense of $23.8 million, and an efficiency ratio of 61.84% as supporting the quarter. He also cited strong capital ratios — 15.53% total risk-based capital, 14.49% CET1, and 11.48% tier 1 leverage — and noted deposits of $3.76 billion with a 12 bps cost. Management also acknowledged non-performing assets increased to $28.3 million, or 0.65% of assets, and the allowance for loan losses was 1.06%.

Analysts focused heavily on the delayed Fed approval for the Allegiance merger, asking what was holding it up and whether the deal timeline could slip. Franklin said there was no known reason for the delay, that shareholders and other regulators had approved the transaction, and that the company simply did not know its place in the Fed queue. Questions also covered buybacks, loan growth, NIM upside, and merger synergies; management said it bought back a little over 93,000 shares, expects further margin benefit as rate hikes pass through, sees long-term loan growth nearer 5% to 8%, and thinks the merger-related operating outlook is likely better than originally projected. Analysts asked about expense savings, systems conversion timing, construction lending, and deposit repricing; management said it still could complete conversion in 2022 if approval arrives soon and that deposit pricing will likely move up modestly but remain competitive.