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spk01: Good day and thank you for standing by. Welcome to the Community Bank of Texas fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, Justin Long, General Counsel. Please go ahead.
spk04: Thank you. Good morning. I'm Justin Long, the General Counsel of CVTX. Our management team would like to welcome you to the CVTX Inc. Earnings Call for the fourth quarter of 2021. We appreciate you joining us. We issued our earnings press release yesterday afternoon, a copy of which is available on our website, along with a slide presentation that we will refer to during this presentation. Before we begin, I'd like to remind you that during this presentation, we may make forward-looking statements regarding future events our financial performance, or our business prospects. Forward-looking statements are subject to risks 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 reports on Form 10-Q, and our other filings with the SEC, which can all be accessed on our investor relations website at ir.cbtxinc.com. Any forward-looking statements are made only as of the date of this call, and we assume no obligation to update any such statements. You should also be aware that during this call, we will reference certain non-GAAP financial information. A reconciliation of these financial measures to the most directly comparable GAAP financial measures is included in our earnings release and investor presentation. I'm joined this morning by Robert R. Franklin, Jr., our chairman, president, and CEO, Ted Piegett, our chief financial officer, Jill West, our chief credit officer, and Joseph McMullen, our controller. At the end of their remarks, we'll open the call to questions. With that, I'll turn it over to our chairman, president, and CEO, Bob Franklin.
spk07: Thank you, Justin. Welcome to the earnings call for CBTX, Inc. for the fourth quarter of 2021. We are pleased to present our fourth quarter results of an eventful 2021. The first half of the year was marked by caution, but as we moved to the second half of the year, we saw increasing optimism as the country appeared to be better able to deal with the impact of the pandemic, which allowed us to better assess the continuing effects on our team and our customers. As the year progressed, the economic environment transitioned from a heavily COVID impacted economy to a more stable and recovering economy. Our Texas economy provided opportunities and showed its resilience, even with the emergence of the Omicron variant during the fourth quarter. Over the second half of the year, the economic environment transitioned, showing signs of recovery. Given the opportunity to have more face-to-face interaction with our customers and our prospects, our team began to build back our pipeline and show loan growth. The calling efforts of the third quarter produced good loans that were booked into the fourth quarter and solid relationship driven deposits. This team effort provides us good momentum as we move into 2022. During the fourth quarter, we were proud to announce that we had found an excellent partner in Allegiance Bank and that we would combine in a merger of equals transaction to close in the first half of 2022. We have filed the regulatory applications and our teams are working together, identifying ways to build a better bank together. As we work together towards closing, we continue to be very excited about the opportunities that our combined organization will have in the future. Additionally, we settled and ended the investigation by the Financial Institutional FinCEN and the order that we had with the OCC during the fourth quarter. We're pleased to have concluded this chapter and we believe the BSA program stands ready to be a leader for our merger partner and ready for our increase in size and scale. Our fourth quarter financial results reflect several one-time charges reflecting the settlements with the regulatory agencies and some of the costs associated with the actions we have taken in connection with the pending merger. Ted will speak more specifically to our financial results. Overall, we are excited about 2022 and the opportunities it will provide. We have liquidity. We have capital. We have an asset-sensitive balance sheet that should allow us to succeed in our Texas markets, which continue to do well. Now I'll turn this over to Ted Poggett, our Chief Financial Officer.
spk06: Ted Poggett Thank you, Bob. Certain financial information for the fourth quarter and prior periods begins on slide five of the investor presentation. For the fourth quarter, of 2021, the company reported a net loss of $545,000, or two cents per diluted share. Its earnings were impacted by the costs of the settlement with the regulatory agencies and the costs associated with the pending merger. Net income for the year ended December 31, 2021, was $35.6 million, or $1.45 per diluted share. compared to $1.06 per diluted share for the year ended December 31, 2020. Now we'll move to the fourth quarter results. Net interest income for the fourth quarter 2021 decreased to $30.8 million from the third quarter 2021. And that interest margin on a tax-equivalent basis decreased 15 basis points to 3.7% from third quarter 2021. The loan yield decreased 13 basis points to 4.39% from the third quarter. The cost of interest-bearing liabilities fell to 24 basis points for the fourth quarter of 2021. The provision for credit losses was a recapture of $1.2 million for the fourth quarter of 2021, primarily due to qualitative factor adjustments associated with continued improvements in the local economy. Non-interest income for the fourth quarter decreased four to $4.1 million from third quarter, primarily due to a decrease in earnings on bank-owned life insurance due to related gains of $1.9 million realized in the third quarter. Net gains on sales of assets increased $550,000. Noninterest expense for the fourth quarter increased $10.5 million from third quarter, primarily to Regulatory fees increasing $7.9 million, primarily due to the imposition of civil money penalties totaling $8 million in settlement of BSA AML compliance matters. Other expenses increased $2 million to $3.3 million, primarily due to $1.3 million in expenses associated with the pending merger with Allegiance Bank shares Inc. Salaries and employee benefits increased $1.6 million, primarily due to an increase of $894,000 in officer bonuses and $545,000 in officer salaries. Income expense was $1.8 million for the fourth quarter, and the effective tax rate was 142% for fourth quarter. because the payments made in conjunction with the resolution of the DSA AEML compliance matters are not tax deductible. Leading to the balance sheet. Total assets at December 31, 2021 increased $276.9 million compared to September 30th, 2021. It was driven by growth in loans of $259 million and growth in securities of $65.5 million. Loans, excluding loans held for sale in December 31, 2020, increased $307.1 million from the third quarter compared to September 21, loans which exclude PPP loans increased 12.2% in the fourth quarter. Deposits in December 31, 21 increased $299.6 million compared to September 30, 2021. Compared to December 31, 2021, Deposits are up 16 percent. The total cost of top deposits was 13 basis points for the fourth quarter. The company maintained strong capital ratios as the total risk capital ratio was 16.42, the CET capital ratio was 15.31, and the Tier 1 leverage ratio was 11.22 percent. at December 31, 2021. Nonperforming assets totaled 50 basis points on total assets at December 31, 2021. The allowance for credit losses for loans was 31.3 million or 1.09% of total loans at December 31, 2021. The ACL decreased during the fourth quarter primarily due to the recapture of $901,000 in the ACL for loans and recapture of $306,000 for unfunded commitments due to the qualitative factor adjustments associated with the continued improvements in the local economy. Net recoveries were $38,000 for fourth quarter compared to $82,000 for third quarter. Now I'll turn it over to Joe West.
spk05: Thank you, Ted. I'd like to speak a bit to our loan portfolio beginning on slide nine from the investor presentation. For the fourth quarter, our loans, excluding loans held for sale, were up at $2.84 billion versus $2.58 billion at the end of the third quarter of 2021, an increase of approximately $260 million. Our loan growth was due in part to our organic growth, And much of the growth came in the second half of the fourth quarter with our booking of 141 million of loans in December of 2021. We also purchased approximately 81.4 million of one to four family mortgage loans in the fourth quarter. Our loan deferrals related to COVID stayed relatively constant as we had seven loans with principal totaling 18.5 million on deferral at the end of the fourth quarter. For the quarter, CNI, including the effect of PPP payoffs, was up by approximately 38.1 million or 6.1, excuse me, 6.4% compared to Q3. And CNI increased 87.6 million net of PPP payoffs. CRE was up 62.8 million, 6.1% quarter over quarter. Construction and development was up 67.2 million or 17% compared to the third quarter. One to four family was up 73.1 million, 35.8%, and multifamily was up 500,000. Slide 10 sets forth the components of our commercial loans, and our total commercial loans were up in the fourth quarter to 2.47 billion versus 2.31 billion at the end of the third quarter, including our PPT loans. Slide 11 also sets forth our oil and gas exposure, including how we quantify our direct and indirect exposure. Our direct and indirect oil and gas loans for the third quarter increased to $204.9 million compared with the end of the third quarter. Slide 12 sets forth information about our PPP loans. During the third quarter, our net PPP loans decreased to $52.8 million, and we received $49.5 million related to forgiveness or payments from customers. The table at the bottom of slide nine sets forth our average yield on our portfolio. our average yield on our PPP loans and the average yield on our loan portfolio when taking out the PPP loans. Slide 13 sets forth information about our allowance for credit losses. As Ted noted, our allowance for credit losses to loans was 1.09% at December 31, 2021. Turning to slide 14, our non-performing assets remain low during the fourth quarter and our credit quality remains strong. Slide 14 also shows information regarding our non-performing assets, our total assets, which was 0.50% as of 12-31-21, compared to 0.49% as of September 30, 2021. As with the second quarter, our recoveries during the quarter exceeded our charge-offs, resulting in a net recovery of $38,000. With that, I'll turn it back over to Bob Franklin.
spk07: Thank you, Joe. With that, we're ready to open it up for questions.
spk01: Thank you. If you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of Charles West with Piper Sandler. Your line is open. Please go ahead.
spk02: Good morning, everyone. Good morning. Good morning. So I just want to start on the loan growth. It was great to see the positive momentum there. Can you speak more to what drove that? Was it line utilization or something else? And then how did production compare to recent quarters?
spk07: What was the last part of that?
spk02: And then how did the production compare to recent quarters?
spk07: Well, it certainly was better than what we had seen for the first three quarters of the year. But it was across the board on various things. It really wasn't attributed to line usage. It was more new production. We saw some good CRE opportunities that we've taken advantage of and some good CNI opportunities, so kind of across the board, really.
spk05: Yeah, I would say that we've been looking at new loans in our committees and discussing them with our lenders. Really starting in the second half of the year, getting the deals approved and closed was slower than we would have liked. Q3 was pretty flat, but we saw a lot of activity in the fourth quarter, especially accelerated toward the end of the year. As Bob said, it was across the board. You know, the majority of it was in commercial real estate, but we also saw some good C&I growth as well.
spk07: Yeah, we saw our approved pipeline building through the third quarter, and we could see where, as these things got closed, that the fourth quarter was going to be good, and I think we feel good about where we're heading into the first quarter because we've got a good pipeline behind us and it's continuing to build. So we feel good about where loan growth is.
spk02: Okay, great. That makes sense. And then a follow-up to that on the loan purchases, what was the yield on these compared to non-purchase? And is this something you plan to do more of in the future?
spk05: Yeah, the weighted average yield net to us on the purchase is 2.78.
spk07: But no, we will look at these things in the future. I don't know that we'll do a whole lot of it. It just sort of depends. We kind of – it was – offset a little bit of the PPP runoff. But we had the opportunity to buy a package at a decent yield, and we went ahead and did it. But I don't think it's something that we're normally going to do.
spk02: Okay, great. That's all for me. Thank you. Thank you.
spk01: Thank you. And again, ladies and gentlemen, if you have a question at this time, please press star then 1. And our next question comes from the line of Thomas Wendler with Stevens Inc. Your line is open. Please go ahead.
spk03: Hey, good morning, everyone. Good morning. So just looking at expenses, we saw that tick up in salaries. I think you guys gave us a little bit of an outlay between the increase in salaries and the bonuses. Can you give us an idea of a good run rate for expenses for 2022?
spk07: Yeah, I think if you use somewhere around $25 million... is going to be probably something that would work. It's going to be a little bumpy as we get towards the combination with allegiance. I think expenses associated with that will be all around that number. But from a run rate standpoint, on a normalized basis, given where we are today, that kind of works.
spk03: That's great. Thank you. And then with the MOE with ABTX, that's set to close in the second quarter. Can you give us any updates on the MOE and the conversion timeline?
spk07: Well, I don't think it's in our – I don't think we get to decide. So as soon as we get regulatory approval, we'll move to close. And we've done what we can do as far as filing our documents. In the meantime – We're having great meetings with our partner, having good integration sessions and finding the right way to run this bank in the future as a combined organization. So we feel really good about what's going on in that regard. But from a timing standpoint, it's kind of taken out of our realm. We'll have to rely on the regulators on when they get this thing approved.
spk03: Yep, yep, that sounds all right. And then one final one from me. Can you give us any color around the percent of the loan portfolio that's variable, and then how many of those variable rate loans are currently on their floor?
spk05: Yeah, we've got, you know, on the variable rate side, you've got, hold on, I'm looking up some numbers. We have about 50%, really, about a billion 440 is variable rate. And we think a good bit are sitting at the floor. We think we'll have something around $750 million, and that includes prime adjustable loans as well as any LIBOR pricing or SOFR pricing we have that can move with the first rate move. I mean, the LIBOR has already started to move up a little bit. But depending on when the Fed decides to do its first rate hike, we've got about 570 that could move in the prime portfolio.
spk03: All right. That's great, guys. Thanks for answering my questions.
spk07: Thank you very much.
spk01: Thank you. And I'm showing no further questions. And I would like to turn the conference back over to Bob Franklin for any further remarks.
spk07: Well, thank you very much. I think we're very excited about 2022. I think Texas economy is good, and we see good opportunities out there. Our guys are doing a great job of building pipeline, and we're very excited about the prospects that we have with our new merger partner, Allegiance Bank. So with that, thank you for your attention today, and we appreciate you attending the call.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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