Allegiance Bancshares, Inc. Reports Third Quarter 2019 Results

HOUSTON, Oct. 25, 2019 (GLOBE NEWSWIRE) -- Allegiance Bancshares, Inc. ABTX ("Allegiance"), the holding company of Allegiance Bank (the "Bank"), today reported net income of $12.0 million and diluted earnings per share of $0.57 for the third quarter 2019 compared to net income of $8.9 million and diluted earnings per share of $0.65 for the third quarter 2018.  The third quarter 2019 included $1.4 million of pre-tax severance expense.  Net income for the nine months ended September 30, 2019 was $39.0 million, or $1.81 per diluted share, compared to net income of $24.1 million, or $1.77 per diluted share, for the nine months ended September 30, 2018.  The nine months ended September 30, 2019 results included $1.4 million of pre-tax severance expense and $1.3 million of pre-tax acquisition and merger-related expenses. The nine months ended September 30, 2018 results included $821 thousand of pre-tax acquisition and merger-related expenses.

"The third quarter was very productive for us and culminated with the completion of a $60 million subordinated debt offering," said George Martinez, Allegiance's Chairman and Chief Executive Officer.  "Securing this attractive capital, positions us well for future growth," continued Martinez.

"We are dedicated to taking great care of our customers by building on long-lasting relationships as we help them reach their financial goals.  We are also keenly focused on developing new customer relationships and adding to our market share.  Our personalized service to all of our customers is what will continue to set us apart as the premier bank in the Houston region and what will continue to drive our long-term financial success. We are in a tremendous position of strength and are encouraged about our prospects for the remainder of the year as we work to leverage our talent and capital to produce improved returns for our shareholders," concluded Martinez.

Third Quarter 2019 Results

Net interest income before the provision for loan losses in the third quarter 2019 increased $16.8 million, or 59.9%, to $44.8 million from $28.0 million for the third quarter 2018 primarily due to a $1.55 billion, or 56.6%, increase in average interest-earning assets for the same period.  This increase was mainly 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 for the third quarter 2019 decreased from $45.6 million in the second quarter 2019.  The net interest margin on a tax equivalent basis increased 6 basis points to 4.16% for the third quarter 2019 from 4.10% for the third quarter 2018 and decreased 17 basis points from 4.33% for the second quarter 2019. Core net interest margin on a tax equivalent basis excludes the impact of acquisition accounting adjustments and was 3.97% for the third quarter 2019 compared to 4.07% for the second quarter 2019. Please refer to the non-GAAP reconciliation on page 10. 

Noninterest income for the third quarter 2019 was $2.9 million, an increase of $961 thousand, or 49.8%, compared to $1.9 million for the third quarter 2018 and decreased $956 thousand, or 24.9%, compared to $3.8 million for the second quarter 2019.  Noninterest income for the second quarter 2019 included $846 thousand of gain on the sale of securities. 

Noninterest expense for the third quarter 2019 increased $10.8 million, or 56.6%, to $30.0 million from $19.2 million for the third quarter 2018, and decreased slightly compared to the second quarter 2019. The increase over the prior year quarter was primarily due to additional expenses associated with increased headcount and bank offices from the Post Oak acquisition. Additionally, the third quarter 2019 included $1.4 million of severance expense partially offset by a $676 thousand FDIC Small Bank Assessment Credit.

In the third quarter 2019, Allegiance's efficiency ratio was 62.88% compared to 61.93% for the second quarter 2019 and 63.95% for the third quarter 2018.  Third quarter 2019 annualized returns on average assets, average equity and average tangible equity were 0.98%, 6.73% and 10.33%, respectively, compared to 1.19%, 8.10% and 12.52%, respectively, for the second quarter 2019.  Annualized returns on average assets, average equity and average tangible equity for the third quarter 2018 were 1.18%, 10.80% and 12.40%, respectively.

Nine Months Ended September 30, 2019 Results

Net interest income before provision for loan losses for the nine months ended September 30, 2019 increased $52.3 million, or 63.2%, to $135.0 million from $82.7 million for the nine months ended September 30, 2018 primarily due to a $1.56 billion, or 58.4%, increase in average interest-earning assets over the prior year associated with the Post Oak acquisition.  The net interest margin on a tax equivalent basis increased 10 basis points to 4.27% for the nine months ended September 30, 2019 from 4.17% for the nine months ended September 30, 2018. Core net interest margin on a tax equivalent basis for the nine months ended September 30, 2019 would have been 4.02%, compared to 4.17% for the nine months ended September 30, 2018. Please refer to the non-GAAP reconciliation on page 10. 

Noninterest income for the nine months ended September 30, 2019 was $10.0 million, an increase of $4.6 million, or 86.3%, compared to $5.4 million for the nine months ended September 30, 2018 due primarily to additional noninterest income resulting from the Post Oak acquisition along with the gain on sale of securities.

Noninterest expense for the nine months ended September 30, 2019 increased $33.5 million, or 58.0%, to $91.2 million from $57.7 million for the nine months ended September 30, 2018. The increase in noninterest expense over the nine months ended September 30, 2018 was primarily due to additional expenses associated with increased headcount and bank offices along with merger-related expenses from the Post Oak acquisition. Additionally, the nine months ended 2019 included $1.4 million of severance expense partially offset by a $676 thousand FDIC Small Bank Assessment Credit.

Allegiance's efficiency ratio decreased from 65.52% for the nine months ended September 30, 2018 to 63.25% for the nine months ended September 30, 2019. For the nine months ended September 30, 2019, returns on average assets, average equity and average tangible equity were 1.09%, 7.36% and 11.35%, respectively, compared to 1.10%, 10.16% and 11.72%, respectively, for the nine months ended September 30, 2018.

Financial Condition

Total assets at September 30, 2019 increased $111.6 million to $4.91 billion compared to $4.79 billion at June 30, 2019 and increased $1.87 billion compared to $3.04 billion at September 30, 2018, primarily due to the Post Oak acquisition and organic loan growth.

Total loans at September 30, 2019 increased $28.0 million, or 2.9% (annualized), to $3.89 billion compared to $3.86 billion at June 30, 2019 and increased $1.45 billion, or 59.2%, compared to $2.44 billion at September 30, 2018, primarily due to loans acquired in the Post Oak acquisition. Core loans, which exclude the mortgage warehouse portfolio, increased $37.6 million, or 4.0% (annualized), to $3.85 billion at September 30, 2019 from $3.81 billion at June 30, 2019 and increased $1.46 billion, or 60.9%, from $2.39 billion at September 30, 2018.  Excluding loans acquired from Post Oak at acquisition of $1.16 billion, core loans at September 30, 2019 increased $297.4 million, from September 30, 2018.

Deposits at September 30, 2019 increased $36.8 million, or 3.8% (annualized), to $3.90 billion compared to $3.86 billion at June 30, 2019 and increased $1.46 billion, or 60.1%, compared to $2.43 billion at September 30, 2018, primarily related to the Post Oak acquisition.

Asset Quality

Nonperforming assets totaled $42.9 million, or 0.88% of total assets, at September 30, 2019, compared to $37.7 million, or 0.79%, of total assets, at June 30, 2019, and $16.9 million, or 0.56% of total assets, at September 30, 2018. The allowance for loan losses was 0.77% of total loans at September 30, 2019, 0.72% of total loans at June 30, 2019 and 0.97% of total loans at September 30, 2018. The decrease in the allowance for loan losses as a percentage of loans from September 30, 2018 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 third quarter 2019 was $2.6 million, or 0.27% (annualized) of average loans, compared to $1.4 million, or 0.15% (annualized) of average loans, for the second quarter 2019.

Third quarter 2019 net charge-offs were $729 thousand, or 0.07% (annualized) of average loans, compared to net charge-offs of $590 thousand, or 0.06% (annualized) of average loans, for the second quarter 2019 and $245 thousand, or 0.04% (annualized) of average loans, for the third quarter 2018. Net charge-offs for the nine months ended September 30, 2019 were $1.5 million, or 0.18% (annualized) of average loans, compared to net charge-offs for the nine months ended September 30, 2018 of $1.3 million, or 0.08% (annualized) of average loans.

GAAP Reconciliation of Non-GAAP Financial Measures

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 10 of this earnings release for a reconciliation of these non-GAAP financial measures.

Conference Call

As previously announced, Allegiance's management team will host a conference call on Friday, October 25, 2019 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) to discuss its third quarter 2019 results. Individuals and investment professionals may participate in the call by dialing (877) 279-2520. The conference ID number is 1986475.  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.

Allegiance Bancshares, Inc.

As of September 30, 2019, Allegiance was a $4.91 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 September 30, 2019, Allegiance Bank operated 27 full-service banking locations in the Houston region, which we define as the Houston-The Woodlands-Sugar Land and Beaumont-Port Arthur metropolitan statistical areas, 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.

Allegiance Bancshares, Inc.
Financial Highlights
(Unaudited)

Allegiance Bancshares, Inc.
Financial Highlights
(Unaudited)

Allegiance Bancshares, Inc.
Financial Highlights
(Unaudited)

1. Interim periods annualized.
2. Refer to the calculation of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures on page 10 of this Earnings Release.
3. Net interest margin represents net interest income divided by average interest-earning assets.
4. Represents total noninterest expense divided by the sum of net interest income plus noninterest income, excluding net gains and losses on the sale of loans, securities and assets. Additionally, taxes and provision for loan losses are not part of this calculation.

Allegiance Bancshares, Inc.
Financial Highlights
(Unaudited)

Allegiance Bancshares, Inc.
Financial Highlights
(Unaudited)

Allegiance Bancshares, Inc.
Financial Highlights
(Unaudited)

Allegiance Bancshares, Inc.
GAAP Reconciliation and Management's Explanation of Non-GAAP Financial Measures
(Unaudited)

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 and  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, the ratio of tangible equity to tangible assets and core net interest margin on a tax equivalent basis 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.