abtx-ex991_65.htm

HOUSTON, April 26, 2019. Allegiance Bancshares, Inc. (NASDAQ: ABTX) ("Allegiance"), the holding company of Allegiance Bank (the "Bank"), today reported net income of $12.7 million and diluted earnings per share of $0.58 for the first quarter 2019 compared to $7.7 million and diluted earnings per share of $0.57 for the first quarter 2018. The first quarter 2019 results included $1.2 million of pre-tax acquisition and merger-related expenses.

“2019 has already proven to be a productive year for Allegiance,” said George Martinez, Allegiance’s Chairman and Chief Executive Officer. “We successfully completed the integration of Post Oak Bank, including the full rebrand and systems conversion along with the continued cultural integration process; completed the branch acquisition of LoweryBank in Sugar Land; and rebalanced our footprint by consolidating two bank offices. We could not be more proud of our employees for their tireless efforts and commitment to Allegiance Bank. We believe we are well-positioned to support new and existing customers, who now have direct access to all of our comprehensive products and services, with 27 bank offices across the Houston region,” continued Martinez.

“We are pleased with our first quarter results as they reflect our continued focus on relationship banking and our ability to generate loans in a highly competitive environment. We continue to execute on our growth plans and generate solid returns for our shareholders. Our focus remains on attracting the best bankers in our markets to support organic growth. We hired 6 loan and deposit producers thus far in 2019 and anticipate that our bankers will continue to earn the trust of great customers and our shareholders will continue to reap the rewards. We are off to a strong start and look forward to another successful year,” concluded Martinez.

Net interest income before the provision for loan losses in the first quarter 2019 increased $17.7 million, or 65.9%, to $44.6 million from $26.9 million for the first quarter 2018 primarily due to a $1.59 billion, or 60.6%, increase in average interest-earning assets for the same period primarily due to the Post Oak Bancshares, Inc. acquisition during the fourth quarter of 2018 as well as organic growth for the year over year period. Net interest income before provision for loan losses of $44.6 million for the first quarter 2019 decreased slightly from $45.8 million in the fourth quarter 2018 primarily due to the increase in interest expense as a result of higher funding costs on interest-bearing liabilities. The net interest margin on a tax equivalent basis increased 11 basis points to 4.31% for the first quarter 2019 from 4.20% for the first quarter 2018 and decreased 14 basis points from 4.45% for the fourth quarter 2018. Excluding the impact of acquisition accounting adjustments, the net interest margin on a tax equivalent basis for the first quarter 2019 would have been 4.03% compared to 4.20% and 4.16% for the first quarter 2018 and fourth quarter 2018, respectively.

Noninterest income for the first quarter 2019 was $3.3 million, an increase of $1.6 million, or 99.8%, compared to $1.6 million for the first quarter 2018 and increased $955 thousand, or 40.9%, compared to $2.3 million for the fourth quarter 2018. Noninterest income for the fourth quarter 2018 included $429 thousand of loss on the sales of other real estate and repossessed assets.

Noninterest expense for the first quarter 2019 increased $12.4 million, or 66.2%, to $31.1 million from $18.7 million for the first quarter 2018, and increased $2.1 million, or 7.1%, from $29.0 million for the fourth quarter 2018. These increases were primarily due to additional noninterest expenses associated with the Post Oak acquisition, of which $1.2 million was attributable to acquisition and merger-related expenses.

In the first quarter 2019, Allegiance’s efficiency ratio was 64.97% compared to 65.59% for the first quarter 2018 and 60.30% for the fourth quarter 2018. First quarter 2019 annualized returns on average assets, average equity and average tangible equity were 1.08%, 7.27% and 11.22%, respectively, compared to 1.09%, 10.10% and 11.71%, respectively, for the first quarter 2018. Annualized returns on average assets, average equity and average tangible equity for the fourth quarter 2018 were 1.12%, 7.49% and 11.66%, respectively.

Total assets at March 31, 2019 increased $113.6 million, or 2.4%, to $4.77 billion compared to $4.66 billion at December 31, 2018 and increased $1.88 billion, or 65.2%, compared to $2.89 billion at March 31, 2018, primarily due to the Post Oak acquisition and organic loan growth.

Total loans at March 31, 2019 increased $97.9 million, or 10.6% (annualized), to $3.81 billion compared to $3.71 billion at December 31, 2018 and increased $1.52 billion, or 66.2%, compared to $2.29 billion at March 31, 2018, primarily due to loans acquired in the Post Oak acquisition. Core loans, which exclude the mortgage warehouse portfolio, increased $109.4 million, or 3.0%, to $3.77 billion at March 31, 2019 from $3.66 billion at December 31, 2018 and increased $1.52 billion, or 67.6%, from $2.25 billion at March 31, 2018. Excluding loans acquired from Post Oak of $1.16 billion, core loans at March 31, 2019 increased $360.5 million, from March 31, 2018.

Deposits at March 31, 2019 increased $117.5 million, or 3.2%, to $3.78 billion compared to $3.66 billion at December 31, 2018 and increased $1.50 billion, or 65.4%, compared to $2.28 billion at March 31, 2018, primarily related to the Post Oak acquisition.

Nonperforming assets totaled $33.8 million, or 0.71% of total assets, at March 31, 2019, compared to $33.6 million, or 0.72%, of total assets, at December 31, 2018, and $14.2 million, or 0.49% of total assets, at March 31, 2018. The allowance for loan losses was 0.71% of total loans at March 31, 2019, 0.71% of total loans at December 31, 2018 and 1.08 % of total loans at March 31, 2018. The decrease in the allowance for loan losses as a percentage of loans from prior periods reflects the loans acquired in the Post Oak acquisition that were recorded at fair value without an allowance for loan losses at acquisition date.

The provision for loan losses for the first quarter 2019 was $1.0 million, or 0.11% (annualized) of average loans, compared to $3.0 million, 0.32% (annualized), of average loans, for the fourth quarter 2018 and $653 thousand, or 0.12% (annualized) of average loans, for the first quarter 2018.

First quarter 2019 net charge-offs were $210 thousand compared to net charge-offs of $219 thousand for the fourth quarter 2018 and net recoveries of $326 thousand for the first quarter 2018.

Allegiance’s management uses certain non-GAAP financial measures to evaluate its performance. Please refer to the GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures on page 9 of this earnings release for a reconciliation of these non-GAAP financial measures.

As previously announced, Allegiance’s management team will host a conference call on Friday, April 26, 2019 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) to discuss its first quarter 2019 results. Individuals and investment professionals may participate in the call by dialing (877) 279-2520. The conference ID number is 8668328. Alternatively, a simultaneous audio-only webcast may be accessed via the Investor Relations section of Allegiance’s website at www.allegiancebank.com, under Upcoming Events. If you are unable to participate during the live webcast, the webcast will be archived on the Investor Relations section of Allegiance’s website at www.allegiancebank.com, under News and Events, Event Calendar, Past Events.

As of March 31, 2019, Allegiance was a $4.77 billion asset Houston, Texas-based bank holding company. Through its wholly owned subsidiary, Allegiance Bank, Allegiance provides a diversified range of commercial banking services primarily to small to medium-sized businesses and individual customers in the Houston region. Allegiance’s super-community banking strategy was designed to foster strong customer relationships while benefiting from a platform and scale that is competitive with larger local and regional banks. As of March 31, 2019, Allegiance Bank operated 27 full-service banking locations, with 26 bank offices and one loan production office in the Houston metropolitan area and one bank office location in Beaumont, just outside of the Houston metropolitan area. Visit www.allegiancebank.com for more information.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This release may contain forward-looking statements within the meaning of the securities laws that are based on various facts and derived utilizing important assumptions, present expectations, estimates and projections about Allegiance and its subsidiaries. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “continues,” “anticipates,” “intends,” “projects,” “estimates,” “potential,” “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 words. Forward-looking statements include information concerning Allegiance’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. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Allegiance’s control, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include but are not limited to whether Allegiance can: continue to develop and maintain new and existing customer and community relationships; successfully implement its growth strategy, including identifying suitable acquisition targets and integrating the businesses of acquired companies and banks; sustain its current internal growth rate; provide quality and competitive products and services that appeal to its customers; continue to have access to debt and equity capital markets; and achieve its performance objectives. These and various other risk factors are discussed in Allegiance’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in other reports and statements Allegiance has filed with the Securities and Exchange Commission. Copies of such filings are available for download free of charge from the Investor Relations section of Allegiance’s website at www.allegiancebank.com, under Financial Information, SEC Filings. Any forward-looking statement made by Allegiance in this release speaks only as of the date on which it is made. Factors or events that could cause Allegiance’s actual results to differ may emerge from time to time, and it is not possible for Allegiance to predict all of them. Allegiance undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

	2019			2018
	March 31			December 31			September 30			June 30			March 31
	(Dollars in thousands)
Cash and cash equivalents	$	258,843		$	268,947		$	191,468		$	200,645		$	190,088
Available for sale securities		345,716			337,293			300,115			300,897			307,411

Total loans		3,806,161			3,708,306			2,440,926			2,358,675			2,290,494
Allowance for loan losses		(27,123	)		(26,331	)		(23,586	)		(23,831	)		(24,628	)
Loans, net		3,779,038			3,681,975			2,417,340			2,334,844			2,265,866

Goodwill		223,642			223,125			39,389			39,389			39,389
Core deposit intangibles, net		25,409			26,587			2,688			2,883			3,079
Premises and equipment, net		60,327			41,717			18,970			19,049			18,605
Other real estate owned		1,152			630			1,801			1,710			365
Bank owned life insurance		26,639			26,480			22,838			22,701			22,563
Other assets		48,036			48,495			40,930			44,308			39,118
Total assets	$	4,768,802		$	4,655,249		$	3,035,539		$	2,966,426		$	2,886,484

Noninterest-bearing deposits	$	1,181,920		$	1,209,300		$	789,705		$	749,787		$	694,880
Interest-bearing deposits		2,598,141			2,453,236			1,644,086			1,563,999			1,589,922
Total deposits		3,780,061			3,662,536			2,433,791			2,313,786			2,284,802

Borrowed funds		201,995			225,493			211,569			275,569			232,569
Subordinated debt		48,959			48,899			48,839			48,779			48,719
Other liabilities		34,010			15,337			13,209			8,404			8,406
Total liabilities		4,065,025			3,952,265			2,707,408			2,646,538			2,574,496

Common stock		21,484			21,938			13,397			13,341			13,302
Capital surplus		556,184			571,803			221,762			220,665			219,760
Retained earnings		123,094			112,131			98,968			90,089			82,533
Accumulated other comprehensive income (loss)		3,015			(2,888	)		(5,996	)		(4,207	)		(3,607	)
Total shareholders’ equity		703,777			702,984			328,131			319,888			311,988
Total liabilities and equity	$	4,768,802		$	4,655,249		$	3,035,539		$	2,966,426		$	2,886,484

	Three Months Ended
	2019		2018
	March 31		December 31			September 30		June 30		March 31
	(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees	$	54,189	$	53,272		$	32,988	$	31,846	$	30,117
Securities:
Taxable		982		844			636		646		599
Tax-exempt		1,290		1,445			1,447		1,451		1,459
Deposits in other financial institutions		688		742			265		250		216
Total interest income		57,149		56,303			35,336		34,193		32,391

INTEREST EXPENSE:
Demand, money market and savings deposits		3,728		3,367			1,248		887		976
Certificates and other time deposits		6,256		5,358			4,051		3,284		2,785
Borrowed funds		1,827		1,008			1,272		1,472		1,036
Subordinated debt		735		732			729		734		705
Total interest expense		12,546		10,465			7,300		6,377		5,502
NET INTEREST INCOME		44,603		45,838			28,036		27,816		26,889
Provision for loan losses		1,002		2,964			—		631		653
Net interest income after provision for loan losses		43,601		42,874			28,036		27,185		26,236

NONINTEREST INCOME:
Nonsufficient funds fees		162		190			175		214		176
Service charges on deposit accounts		325		363			177		106		223
Gain (loss) on sales of other real estate and repossessed assets		1		(429	)		—		1		—
Bank owned life insurance		159		163			137		138		141
Rebate from correspondent bank		896		988			613		564		444
Other		1,746		1,059			826		782		662
Total noninterest income		3,289		2,334			1,928		1,805		1,646

NONINTEREST EXPENSE:
Salaries and employee benefits		19,684		18,167			12,965		12,778		12,794
Net occupancy and equipment		2,078		1,959			1,281		1,333		1,272
Depreciation		753		802			490		433		407
Data processing and software amortization		1,597		1,485			1,226		1,356		1,053
Professional fees		599		670			303		567		469
Regulatory assessments and FDIC insurance		728		776			505		494		534
Core deposit intangibles amortization		1,178		1,229			195		196		195
Communications		430		416			262		259		248
Advertising		704		704			351		340		330
Acquisition and merger-related expenses		1,173		840			196		625		—
Other		2,191		1,998			1,390		1,479		1,415
Total noninterest expense		31,115		29,046			19,164		19,860		18,717
INCOME BEFORE INCOME TAXES		15,775		16,162			10,800		9,130		9,165
Provision for income taxes		3,097		2,999			1,921		1,574		1,454
NET INCOME	$	12,678	$	13,163		$	8,879	$	7,556	$	7,711

EARNINGS PER SHARE
Basic	$	0.58	$	0.60		$	0.66	$	0.57	$	0.58
Diluted	$	0.58	$	0.59		$	0.65	$	0.55	$	0.57

	Three Months Ended
	2019			2018
	March 31			December 31			September 30			June 30			March 31
	(Dollars and share amounts in thousands, except per share data)
Net income	$	12,678		$	13,163		$	8,879		$	7,556		$	7,711

Earnings per share, basic	$	0.58		$	0.60		$	0.66		$	0.57		$	0.58
Earnings per share, diluted	$	0.58		$	0.59		$	0.65		$	0.55		$	0.57

Return on average assets^(A)		1.08	%		1.12	%		1.18	%		1.03	%		1.09	%
Return on average equity^(A)		7.27	%		7.49	%		10.80	%		9.55	%		10.10	%
Return on average tangible equity^(A)(B)		11.22	%		11.66	%		12.40	%		11.02	%		11.71	%
Tax equivalent net interest margin^(C)		4.31	%		4.45	%		4.10	%		4.21	%		4.20	%
Tax equivalent net interest margin-adjusted for acquisition accounting adjustments^(D)		4.03	%		4.16	%		4.10	%		4.21	%		4.20	%
Efficiency ratio^(E)		64.97	%		60.30	%		63.95	%		67.05	%		65.59	%

Capital Ratios
Allegiance Bancshares, Inc. (Consolidated)
Equity to assets		14.76	%		15.10	%		10.81	%		10.78	%		10.81	%
Tangible equity to tangible assets^(B)		10.06	%		10.29	%		9.56	%		9.49	%		9.48	%
Estimated common equity tier 1 capital		11.37	%		11.76	%		11.17	%		10.60	%		10.82	%
Estimated tier 1 risk-based capital		11.61	%		12.01	%		11.53	%		10.97	%		11.19	%
Estimated total risk-based capital		13.28	%		13.70	%		13.94	%		13.42	%		13.72	%
Estimated tier 1 leverage capital		10.25	%		10.61	%		10.23	%		9.78	%		9.98	%
Allegiance Bank
Estimated common equity tier 1 capital		11.67	%		11.83	%		11.24	%		11.04	%		10.95	%
Estimated tier 1 risk-based capital		11.67	%		11.83	%		11.24	%		11.04	%		10.95	%
Estimated total risk-based capital		13.34	%		13.53	%		13.65	%		13.49	%		13.49	%
Estimated tier 1 leverage capital		10.31	%		10.45	%		9.98	%		9.84	%		9.77	%

Other Data
Weighted average shares:
Basic		21,733			21,908			13,371			13,327			13,262
Diluted		22,040			22,210			13,637			13,634			13,542
Period end shares outstanding		21,484			21,938			13,397			13,341			13,302
Book value per share	$	32.76		$	32.04		$	24.49		$	23.98		$	23.46
Tangible book value per share^(B)	$	21.17		$	20.66		$	21.35		$	20.81		$	20.26

	Three Months Ended
	March 31, 2019								December 31, 2018								March 31, 2018
	Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate			Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate			Average Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
	(Dollars in thousands)
Assets
Interest-Earning Assets:
Loans	$	3,747,234		$	54,189		5.86	%	$	3,639,390		$	53,272		5.81	%	$	2,260,119		$	30,117		5.40	%
Securities		346,686			2,272		2.66	%		336,974			2,289		2.70	%		312,769			2,058		2.67	%
Deposits in other financial institutions and other		118,749			688		2.35	%		132,281			742		2.23	%		49,897			216		1.75	%
Total interest-earning assets		4,212,669		$	57,149		5.50	%		4,108,645		$	56,303		5.44	%		2,622,785		$	32,391		5.01	%
Allowance for loan losses		(26,760	)							(23,554	)							(23,949	)
Noninterest-earning assets		559,763								564,934								272,430
Total assets	$	4,745,672							$	4,650,025							$	2,871,266

Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	338,193		$	963		1.16	%	$	325,046		$	920		1.12	%	$	232,375		$	317		0.55	%
Money market and savings deposits		880,138			2,765		1.27	%		942,764			2,447		1.03	%		552,396			659		0.48	%
Certificates and other time deposits		1,302,958			6,256		1.95	%		1,232,666			5,358		1.72	%		800,343			2,785		1.41	%
Borrowed funds		283,566			1,827		2.61	%		168,403			1,008		2.37	%		250,414			1,036		1.68	%
Subordinated debt		48,925			735		6.09	%		48,865			732		5.94	%		48,684			705		5.87	%
Total interest-bearing liabilities		2,853,780		$	12,546		1.78	%		2,717,744		$	10,465		1.53	%		1,884,212		$	5,502		1.18	%

Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		1,167,172								1,215,589								669,258
Other liabilities		17,054								19,389								8,251
Total liabilities		4,038,006								3,952,722								2,561,721
Shareholders' equity		707,666								697,303								309,545
Total liabilities and shareholders' equity	$	4,745,672							$	4,650,025							$	2,871,266

Net interest rate spread							3.72	%							3.91	%							3.83	%

Net interest income and margin				$	44,603		4.29	%				$	45,838		4.43	%				$	26,889		4.16	%

Net interest income and tax equivalent net interest margin				$	44,805		4.31	%				$	46,100		4.45	%				$	27,174		4.20	%

	Three Months Ended
	2019			2018
	March 31			December 31			September 30			June 30			March 31
	(Dollars in thousands)
Period-end Loan Portfolio:
Commercial and industrial	$	699,471		$	702,037		$	458,434		$	452,307		$	447,168
Mortgage warehouse		36,742			48,274			48,876			51,552			41,572
Real estate:
Commercial real estate (including multi-family residential)		1,771,890			1,650,912			1,161,992			1,134,903			1,108,537
Commercial real estate construction and land development		396,162			430,128			298,916			270,965			257,566
1-4 family residential (including home equity)		658,261			649,311			344,342			330,053			317,842
Residential construction		201,314			186,411			117,740			109,962			108,882
Consumer and other		42,321			41,233			10,626			8,933			8,927
Total loans	$	3,806,161		$	3,708,306		$	2,440,926		$	2,358,675		$	2,290,494

Asset Quality:
Nonaccrual loans	$	32,670		$	32,953		$	14,943		$	12,137		$	13,373
Accruing loans 90 or more days past due		—			—			—			—			—
Total nonperforming loans		32,670			32,953			14,943			12,137			13,373
Other real estate		1,152			630			1,801			1,710			365
Other repossessed assets		—			—			205			740			443
Total nonperforming assets	$	33,822		$	33,583		$	16,949		$	14,587		$	14,181

Net charge-offs (recoveries)	$	210		$	219		$	245		$	1,428		$	(326	)

Nonaccrual loans:
Commercial and industrial	$	11,221		$	10,861		$	6,258		$	5,983		$	6,153
Mortgage warehouse		—			—			—			—			—
Real estate:
Commercial real estate (including multi-family residential)		17,531			17,776			5,006			4,917			6,466
Commercial real estate construction and land development		818			974			694			—			—
1-4 family residential (including home equity)		2,928			3,201			2,985			1,237			754
Residential construction		—			—			—			—			—
Consumer and other		172			141			—			—			—
Total nonaccrual loans	$	32,670		$	32,953		$	14,943		$	12,137		$	13,373

Asset Quality Ratios:
Nonperforming assets to total assets		0.71	%		0.72	%		0.56	%		0.49	%		0.49	%
Nonperforming loans to total loans		0.86	%		0.89	%		0.61	%		0.51	%		0.58	%
Allowance for loan losses to nonperforming loans		83.02	%		79.90	%		157.84	%		196.35	%		184.16	%
Allowance for loan losses to total loans		0.71	%		0.71	%		0.97	%		1.01	%		1.08	%
Net charge-offs (recoveries) to average loans (annualized)		0.02	%		0.02	%		0.04	%		0.25	%	(0.06)%

GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures

Allegiance’s management uses certain non−GAAP (generally accepted accounting principles) financial measures to evaluate its performance. Allegiance believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance. Allegiance believes that management and investors benefit from referring to these non-GAAP financial measures in assessing Allegiance’s performance and when planning, forecasting, analyzing and comparing past, present and future periods. Specifically, Allegiance reviews tangible book value per share, return on average tangible equity and the ratio of tangible equity to tangible assets for internal planning and forecasting purposes. Allegiance has included in this Earnings Release information relating to these non-GAAP financial measures for the applicable periods presented. These non-GAAP 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 manner in which Allegiance calculates the non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

	Three Months Ended
	2019			2018
	March 31			December 31			September 30			June 30			March 31
	(Dollars and share amounts in thousands, except per share data)
Total Shareholders' equity	$	703,777		$	702,984		$	328,131		$	319,888		$	311,988
Less: Goodwill and core deposit intangibles, net		249,051			249,712			42,077			42,272			42,468
Tangible shareholders’ equity	$	454,726		$	453,272		$	286,054		$	277,616		$	269,520

Shares outstanding at end of period		21,484			21,938			13,397			13,341			13,302

Tangible book value per share	$	21.17		$	20.66		$	21.35		$	20.81		$	20.26

Net income	$	12,678		$	13,163		$	8,879		$	7,556		$	7,711

Average shareholders' equity	$	707,666		$	697,303		$	326,204		$	317,408		$	309,545
Less: Average goodwill and core deposit intangibles, net		249,277			249,252			42,203			42,393			42,589
Average tangible shareholders’ equity	$	458,389		$	448,051		$	284,001		$	275,015		$	266,956

Return on average tangible equity		11.22	%		11.66	%		12.40	%		11.02	%		11.71	%

Total assets	$	4,768,802		$	4,655,249		$	3,035,539		$	2,966,426		$	2,886,484
Less: Goodwill and core deposit intangibles, net		249,051			249,712			42,077			42,272			42,468
Tangible assets	$	4,519,751		$	4,405,537		$	2,993,462		$	2,924,154		$	2,844,016

Tangible equity to tangible assets		10.06	%		10.29	%		9.56	%		9.49	%		9.48	%