Q2 2021 CBTX Inc Earnings Call
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Good day, and thank you for standing by and welcome to the C. B P X Q2, 2021earnings conference call. At this time, all participants are in a listen only mode.
Yeah.
On the speaker's presentation, there will be a question and answer session.
I ask the question during the session you will need to press star 1 on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Justin long. Please go ahead.
Moving now.
Among the general counsel to the Etfs and our management team I'd like to welcome you to the CET Ex Inc earnings call from the second quarter of 2021.
We appreciate you joining us we issued our earnings press release yesterday afternoon the car.
Copy of which is available on the website on <unk>.
<unk> presentation that we will report to the during this presentation.
We also filed our quarterly report on form 10-Q for the second quarter yesterday.
Before we begin I'd like to remind you that during the presentation. We may make forward looking statements regarding future events financial performance of our business prospects.
Forward looking statements are subject to risks.
Patients and uncertainties that could cause actual results to differ materially.
Additional information concerning factors that could cause actual results to differ is available in our earnings release and in the risk factors section of our annual report on form 10-K, our quarterly report on form 10-Q for the second quarter.
Risks and our other filings with the SEC.
Which can all be accessed on our Investor relations website at IR day.
The <unk> ex AMC dot com.
Any forward looking statements are made only as of the date of this call and we assume no obligation to update the statements.
Statements.
You should also be aware of the during this call we will reference certain non-GAAP financial information on <unk>.
Reconciliation of these financial measures to the most directly comparable GAAP financial measures is included in our earnings release of Investor presentation.
I'm joined this morning by Robert on Franklin Junior, our Chairman President and CEO.
Okay.
Ladies and gentlemen, please standby.
Power of resume momentarily.
Excuse me. This is the operator, I do apologize, but there'll be a slight delay on todays conference. Please hold on the conference will resume shortly thank you for your patience.
Yeah.
And your life.
Thank you.
Well, we got cut off so I am not sure where I was in my brilliance, but.
The RPC deal [laughter] will start back.
Our PPP portfolio.
<unk> to decline as the pace of borrower forgiveness picked up during the second quarter of.
Our officers are increasing their pace of in person meetings, and we are seeing our pipeline build as we continue into the third quarter.
Our expectations are that we will continue to see new loan activity.
Activity coming from existing relationships and new newly acquired customers is our calling efforts continue to increase into the third and fourth quarter.
We have been provided significant liquidity by our customer base, our job is to stay focused and disciplined on our credit culture.
We put these funds to work.
We faced stiff competition in the rate environment is challenging.
But we but these are issues that we have dealt with since the beginning.
As community bankers.
The challenges to not make mistakes as we are not being paid a rate risk.
As in this interest rate environment.
I also want to thank our entire team that has worked very hard on our bank secrecy Act program to meet regulatory expectations, including the formal agreement with the OCC.
It has been of bank wide effort and we continued our efforts during the second quarter.
Including the work with some consultants and outside counsel, we have continued to communicate with the OCC regarding our program and the formal agreement.
We believe debt, we have taken the necessary actions to comply with each of the articles of the Formula agreement.
With the <unk>.
Based on discussions with the OCC, we expect to hear from them regarding the status of the formal agreement in the coming weeks, we do not anticipate our spend on consultants to continue into the third and fourth quarter.
We are pleased to be in a more robust economy and expect to capitalize on that.
The 2.
The continued to build on CVT ex for the future.
We remain focused on creating shareholder value, we have a great team excellent customers and operate in growing markets. We have a strong balance sheet exhibiting a strong capital position.
Our relationship model.
Model provides us with low cost deposits and strong sticky customer relationships, our focus real focus will remain on driving long term value for our shareholders.
With that I'll now turn on turn this over to Ted <unk>, Our Chief Financial Officer.
Thank you Bob.
Gross certain financial information for the second quarter in prior periods begins on slide 4 of our Investor presentation.
The company reported net income of $11.7 million of 48 cents per diluted share for the quarter ended June 30 of 2021.
Compared to $10 million of <unk> 41.
Since per diluted share for the quarter ended March 31.2021.
And finally 2001 to $2.2 million on <unk> per diluted share for the quarter ended June 30.
2020.
Our net our net interest income from the second quarter 2021 was $31 million.
The decrease of $2.1 million from the first quarter the.
The net is.
Net interest margin on the tax equivalent basis was 3.9% from the second quarter.
Increase of 42 basis points from the first quarter 2021.
The loan yield increased 28 basis points to 436% for the second quarter 2021.
Compared to first quarter of 2021 the.
The cost of interest bearing liabilities.
West.
3.2% from the second quarter.
Compared to <unk>.
34% for the first quarter 2021.
The provision for credit losses was the recapture of 5.
The $5.1 million for second quarter 2021.
Compared to a provision for.
Credit losses of 412000.
Which was primarily due to continued improvements in the national economy, economic forecast loan quality and the size of the loan portfolio.
Noninterest income from the second quarter increased 380000, when the first quarter 2.3 points.
Couple of million.
Due to increases in gains on.
Sales of assets and also the card interchange fees.
Non interest expense from the second quarter 2021 was $25.2 million.
An increase of 1.9.
$9 million for the first quarter.
The increase from first quarter of 2021, primarily resulted from increases in.
Professional and director fees of $738000.
Salaries and the employment benefit of 546000 <unk>.
And the advertising marketing.
And business development of 2000.
Excuse me 225000 from the first quarter.
Total assets at June 30, 'twenty, 1 increased $37.9 million to a total of $4.1 billion.
Compared to March.
1.2.
2021.
Growth was driven by our.
The net deposit inflows of $32 million.
Loans, excluding excluding loans held for sale at June 30, a decrease of 162 million.
The total of 7.2.
<unk> 37 billion.
Compared to March 31.
2021.
PPP loans net of deferred fees earned on our discounts were $179 million at June 30th.
On the 1 and compare it to.
200.
The $8.8 million at the end of March 31, 2021.
Compared to June 32020.
Our loans, excluding PPP loans decreased 3.8% of on an annualized basis.
Deposits.
At June 32021.
Increased $32 million to $3.4 billion compared to March 31.
Compared to June 30.
2020 deposits increased 5% on an annualized basis.
The company maintain.
The team strong capital ratios as the total risk based capital ratio increased to 17, 72% the.
Common equity tier 1 capital ratio increased to $16.4 6%.
And the tier 1 leverage ratio was 11.63 at June 32020.
1.
Nonperforming assets totaled $21 million of 5.2% of the total assets at June 30.
2021.
Compared to $23.6 million of.
5.9% of total assets at March 31, 2021.
The allowance for credit losses per loans was 30, $37.2 million of 136 percentage of total loans.
At June 32021.
Compared to $40.9 million or $1.4 1% of total loans at March 31.
'twenty 1.
The ACL decreased during the second quarter.
Primarily due to recapture of $4.2 million in Asia.
$893000 in the ACL for loans and unfunded.
Unfunded commitments.
This was due to improvements in the.
2 of our economy and the economic forecasts the reduction of on loan portfolio and an improvement in loan quality.
Net recoveries were $499000 for the second quarter compared to net charge offs of $49000 for the first quarter 2021.
Now I will turn it over.
The Nashville Wes.
Thank you Curt I'll speak of it to our loan portfolio, beginning with slide 7 from the Investor presentation.
For the second quarter, our net loans were down slightly at $2.69 billion versus $2.85 billion at the end of first quarter of 'twenty 1 a decrease.
Joey of approximately $160 million due primarily to pay downs during the second quarter of 2021 of of approximately $64 million of commercial loans. We also had a decrease of approximately $90 million an hour of PPP loans.
Our loan deferrals of relating to Covid to continue to decrease and we had 9 loans.
Very slowly.
<unk> 5 million on deferral at the end of the second quarter.
For the quarter C&I was down by approximately $98 million of 12, 9% again with non he made in PPP payoffs compared with Q1, CRE was down 1.5% quarter over quarter.
Construction on development was down 8.2% compared with the first quarter 1 of 4 family was down 6% and multifamily was down 2.4%.
Slide 8 sets forth the components of our commercial loans on our gross commercial loans were down slightly for the second quarter from $2.6.
Again versus $2 for 1 day.
The second quarter.
As you turn to slide 9 you will see our construction and development loan components in our construction development loans were down approximately $38.1 million when compared to March 31, 2021, due to payoffs as well as some existing C&D loans, reaching completion.
<unk> and moving to permanent loan classification.
Slide 9 sets forth, our oil and gas exposure, including how we quantify our director of indirect exposure.
Our direct and indirect oil and gas loans for the second quarter increased slightly to $171.6 million compared with the end of the first quarter.
Tens.
Sets forth information about our PPP loans.
During the second quarter, we saw the pace of approved forgiveness applications increase in our net PPP loans decreased $89.6 million from the end of the first quarter.
During the second quarter, we originated $2.3 million of new PPP loans.
We received payments totaling $110 million burn $10.4 million related to forgive us or payments from customers.
We continue to work with our borrowers on forgive us applications the tape.
At the bottom of slide 10 sets forth, our average yield on our loan portfolio our average.
Average yield on our PPP loans and the average yield on.
Our loan portfolio, we're taking out the PPP loans.
On slide 11 sets forth information about our allowance for credit losses as Ted noted on our allowance for credit losses was 136% at June 32021.
The slide 12.
Our nonperforming assets decreased again slightly during the first quarter and our credit quality remains strong.
Slide 12 shows information regarding our nonperforming assets to our total assets, which was 0.52% as of June 32000.
'twenty, 1 compared to 0.59% as of March 32021, our recoveries during the second quarter exceeded our charge offs, resulting in a net recovery of 499000.
With that I'll turn it back to Bob Franklin.
Thanks.
Thanks, Joe at that time.
We will open it up the questions.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star followed by the number 1 on your telephone keypad.
Just a moment of go past Q&A roster again Thats star 1.
Your first question is from the line of Graham <expletive> with Piper Sandler.
Hey, good morning, guys.
Morning.
So I just kind of wanted to start off on the pay down in front of.
I know, it's I know, it's tough to gauge, but given what you guys are seeing in the market. Today do you think you can.
The access.
The rate or or decelerate in the back of the year and then also how does that impact of what you.
We expect on the on the loan growth front, excluding P. P P loans.
Yeah, the ground weighted.
We somewhat expected to see the the second quarter have.
Somewhat of a depth of as we've started the.
Push into more face to face meetings.
We did get some unexpected paydowns in the form of of several projects that debt.
Were sold.
The pricing on some of the stuff is in the kind of surprised us a little bit on where it came from with the retail centers.
Which we.
We thought we were fairly stressed over the.
The COVID-19 period, but but.
Recovered quickly.
And Theres a lot of capital chasing the.
These projects so little unexpected to see and I think Joe has those numbers.
2.
The if you wanted to talk about them Joe.
The first half of the year we've seen.
The decrease in our outstanding retail CRE of about 48 million that you might recall from early.
Earlier presentation, when we were discussing of the effects of Covid.
For the 1 of the things we highlighted was our exposure to.
Commercial real estate in the retail space.
Under 300 million, so that's down now to <unk>.
Just under $2.50 or.
So what was interesting about that as Bob said the.
Most of the these were.
The reduction.
The refinancing out to another layer of the sale of the center to another investor.
And to the extent that we could we track the sales prices on those Inc.
Comparator of what the appraisals on they were selling at above the appraised values determined so felt pretty good about that is giving.
Some of it.
As an indicator of some strength in that market.
We also had some contraction in our outstanding.
On a low the C stores more of those I think were refinances and sales that was about probably about $20 million on first half.
The.
Little bit of a contraction in our.
1 of the 4 family Perm.
The portfolio of things.
Homeowner taking advantage of lower rates.
With other lenders so I think the.
That was the.
The decline a little bit but the.
The big the Big hit really was the retail on the C stores.
No.
In some ways of Derisked, the balance sheet of little bit.
But we were happy to see that the the prices for.
Some of those properties on holding up.
So while we have seen on the other side of that Graham as are our pipeline is significantly better than it was at the beginning of the first quarter.
The second the first part of the second quarter.
And so we're starting to get new opportunities and starting to book those loans.
As we begin the third quarter, and we think that will do nothing but increase throughout the rest of the year. So.
We feel good about.
Where we are from a trajectory standpoint.
And it didn't surprise us necessarily that we took a slight step back in the second quarter.
As we can as we started to.
Do our face to face meetings so.
Sure.
I think payoffs will continue.
Okay.
But I think they are more at a similar pace to lower we would normally see.
Cycle, but.
We will just have to see where that where that takes us but I think most people are going to start to see the same kind of thing.
The price.
The side of that is that the pipeline is good and we feel good about where we're going on there.
Okay, great. Thanks.
And now on liquidity looks like the average for liquidity balances in the corner of it was about $670 million.
Just kind of wanted to get.
A sense of of what your plan is on deploying that cash into a into higher yielding assets.
Do you think you'll you'll buy more bonds may be at a similar magnitude to what we saw this quarter or.
Thinking that you might just reserve the majority of it for loan growth assuming a lot of it runs out of the bank.
They have been temporary or stimulus.
But there have been I guess that came in over the last couple of months.
Yes.
It's all of the above I think you've just described Graham I mean, where where we typically deploy our money into loans, that's where we'd like to go and Thats, where we take our risk and we have increased our bond portfolio some of.
It's not a great environment, we don't feel too.
<unk> increased that bond portfolio.
We're aware of that you can make a lot of mistakes that of low interest rate environment and pay for those in later years and so we're very.
Cognizant of trying to stay as flexible as.
The stable.
At the rapid rate that this liquidity came to us it is difficult for us to employ it in the same rapid rate and so we have to be diligent about the way we do it that's how we're going to step along and do this over over time and we can't do it tomorrow. So.
We think we will continue on a good growth rate through the end of the year.
If the economy stays.
<unk>.
Good as good as it is now through next year.
I think 2000.22022 will be of a.
Very good place to kind of catch up on this liquidity position.
Part of it but it's an unusual place for US we haven't had this kind of.
Liquidity GAAP for a long time on.
It's going to take us a while to work through it and understand.
Because I do think some of this is temporary I don't believe that people are going to sit there forever.
In this low interest rate environment on hold cash balances the way they have so we expect.
Some of that will go away when it's hard for us to understand what that may be but we do expect some of that to push off and get employed in the something better than certainly what we're paying them which is.
Very little.
Our cost of funds is still extremely low.
And.
We just continue to look for opportunities to employ debt.
Okay Awesome, that's it from me guys congrats on the corner.
Thank you very much.
Your next.
Interest from the line of will Jones with K B W.
Hey, great. Good morning, how is everybody.
Good morning will.
So great news to you guys on the BSA. It sounds like you guys are seeing a lot more visibility on that front.
Bob just wanted to ask do you see.
It's fair to say that <unk>.
Question really the last big slug of BSA expense I know it.
Can be really really hard to.
Look forward to kind of map that out, but just curious if.
If you think <unk> may be.
On that kind of peak BSA expenses from here and then maybe thinking more on core expense base stripping out the DSD impact.
Expenses were up a little bit quarter over quarter closer to the $24 million Mark.
And on some of this is comp related was there anything 1 time.
In that comp line and.
Or is that really just a reflection of some of the hiring efforts you guys put forth in those 2.
$24 million of good core run rate on the expense base moving forward.
<unk>.
Yes, we are.
<unk>.
We are at the end we feel of the.
Spend on consultants for BSA.
We feel very good about where are we.
Yeah.
We of comply with each of the the items that we needed to comply with.
And we think we will hear from the OCC. It's in their court at this point.
Good.
Sort of.
Hopefully put at end of this.
As far.
Our.
Elevated expenses around the salaries insight, we have hired from BSA folks.
So there is some spend in that regard.
And we're also.
Looking to hire additional lenders so.
Far as we've had a lot of conversations with people.
We're in the process of hiring some additional.
Additional folks to help us deploy some of the liquidity.
So.
It's sort of all of the of all of the above.
The I think the.
From where we stand.
We've been encouraged by.
The pickup in our pipeline.
And the opportunities that we see out there.
To make new loans.
We have been.
Sort of disappointed.
And where.
Some of our competition wants to take.
Interest rate.
Days, but.
So it's challenging interest rate environment.
It makes us all work harder for the last but it's it is what it is and we can because of our cost structure on the deposit side.
And certainly able to to deploy money.
And in this kind of interest rate environment. However.
When you don't when you get paid at very small risk premium to put that money out you want to take less risk in the portfolio. So.
It's always the risk reward thing and we are cognizant of that and.
We're careful around it.
But.
We have seen really good some really good opportunities here recently and we feel good about what's going on in Houston, Texas, and East, Texas, where we deploy most of our money.
Yes.
It's all really great.
That's all great color.
And just maybe switching gears, a little bit thinking about capital.
It doesn't appear that you guys were active on the bond debt. This quarter. So can you just confirm that that was the case and then.
Moving into the back half of the year I just wanted to get us on how you'd characterize your buyback appetite from here you know you've got.
Really nice capital.
Capital stack the stock price has pulled back a little bit it feels like on an opportunity for you guys to be active in the big way here.
Looking to get some thoughts around the buyback.
I think we'd probably agree with you around the buyback situation I think we are we do have some opportunities there and we continue to want to explore that.
We.
We feel.
A lot better about our M&A discussions.
Given where we think we are from a regulatory standpoint so.
We're going to continue to explore that we're having several conversations along those lines on.
And.
We will see where that takes us.
But.
Yes.
We're also taking a look at our dividend and see where that is.
That's probably the place so we look at a little bit of everything, but I do think theres some opportunity to purchase of our stock.
I think we will continue that we were a little.
Less active this last quarter, but I think.
Possibly see us.
On a little more active in the next in the next quarter.
Depending on where the pricing goods.
No that's great and then maybe Bob just expanding on the M&A conversation a little bit.
Sure.
Ideally would you like to see the franchise grow when it when it really being the east Texas market.
Well, I think primarily Houston or Dallas. So we are looking to expand our presence in Dallas for debt.
And always will.
Would be happy to do something in the Houston market also because that's our primary market, but we.
We want to bolster our efforts in Dallas, we have a very small presence there now.
But it's such a great.
Economy up there and and we really feel like we should.
B of participant there.
And.
We've been looking for some additional people and possibly some M&A.
Activity up there. So there are some possibilities there in and we're going to continue to pursue that so.
We're looking on all fronts.
I think that's to keep our eyes and ears open.
What's the best thing for Us.
Along with doing the things that we do every day, which is.
Loans and deposits.
Great well that's it from me thanks, guys.
Thank you very much will.
Ladies and gentlemen, as a reminder.
Ask a question. Please press star 1 on your telephone keypad your.
Your next question is from the line of Thomas Wendler with Stephens, Inc.
Hey, good morning, guys.
More on Tommy most of my questions have been asked when I got on 1 more for you. It looks like your deposit costs have stayed pretty.
Flat at our interest bearing deposit costs I'll, just say of stayed pretty flat at 35 bps can you give me an idea of.
If you guys can move that any lower than where you expect it to kind of shake out.
Well I think we find it pretty low as it is the.
[laughter].
No I don't I.
I don't think its kind of go much slower.
Yes.
On.
We've got <unk>.
Certain customers that the.
Okay.
We've had to do some things for but.
For the most part we're paying very little if not.
Nothing for deposits.
Sure.
Our overall cost of funds are so low at this point.
It's not a it's not something we spend a lot of time on any more it's more about how do we get this money out.
That's our real focus.
Alright, thanks for answering my question.
Okay got it thank.
Thank you.
And there are no further questions at this time I would like to turn the call back over to Robert Franklin.
Thank you very much we appreciate everyone's interest in <unk> ex <unk>.
Look forward to speaking with the next quarter. Thank you.
Thank you. This concludes today's conference call. We thank you for participating and ex that you now disconnect.
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