Allegiance Bancshares, Inc. Reports Second Quarter 2020 Results

• Record net interest income of $50.8 million, representing 12.9% growth from the first quarter of 2020

• Funded over 5,800 loans totaling in excess of $695 million within the Small Business Administration Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) through June 30, 2020
   
• Net interest margin remained strong at 4.10% for the second quarter 2020
   
• Declared quarterly dividend of $0.10 per share of common stock
   
• Opened de novo branch in the historic East End of Houston on July 27, 2020

HOUSTON, July 30, 2020 (GLOBE NEWSWIRE) -- Allegiance Bancshares, Inc. ABTX (Allegiance), the holding company of Allegiance Bank (the "Bank"), today reported net income of $9.9 million and diluted earnings per share of $0.48 for the second quarter 2020 compared to net income of $14.2 million and diluted earnings per share of $0.66 for the second quarter 2019.  Net income for the six months ended June 30, 2020 was $13.4 million, or $0.65 per diluted share, compared to $26.9 million, or $1.24 per diluted share, for the six months ended June 30, 2019.  The second quarter and six months ended June 30, 2020 results were primarily driven by the increased provision for loan losses in response to COVID-19-related uncertainties in the current economic environment partially offset by increased net interest income. 

"We are pleased with our second quarter 2020 earnings performance, especially in light of the impact of the coronavirus on our economy," said Steve Retzloff, Allegiance's Chief Executive Officer. "Allegiance finished the quarter on a solid foundation of record pre-tax, pre-provision earnings, strong capital ratios, and a great liquidity position. We believe that we are well-positioned in light of today's economic uncertainties and remain a strong resource for those we serve," commented Retzloff.

"Our team of extraordinary bankers and small business lenders worked tirelessly around the clock to deploy the SBA's Paycheck Protection Program ('PPP') to support our small business community. I am incredibly proud of the Bank's ability to deliver on our commitment to help our customers - all while making many changes to how and where we all work. Allegiance reinforces the unique and valuable role a community bank offers to the businesses it serves as our bankers helped our customers and new borrowers secure funding for over 5,800 loans totaling over $695 million and will continue to do more until the PPP program expires. In turn, Allegiance collected a weighted average fee of 3.75% on the PPP loans to be recognized over the life of the loans.  Allegiance was committed to supporting its customers from the start of the process and will continue to be committed throughout the entire forgiveness journey," continued Retzloff.

"As community bankers, we have a responsibility to support the health and welfare of our customers, communities and employees throughout this unprecedented time. Allegiance donated $150,000 and issued a $100,000 matching grant as well as committed volunteers to support the Houston Food Bank that will help provide one million meals across its Houston footprint. Small businesses are the mainstay of our business in the Houston region and we have been honored to serve their needs during this challenging economic environment. We continue to work diligently to build shareholder value by utilizing our strong capital position to support our customers and the communities we serve with outstanding customer service to keep Houston strong," concluded Retzloff.

Second Quarter 2020 Results

Net interest income before the provision for loan losses in the second quarter 2020 increased $5.3 million, or 11.6%, to $50.8 million from $45.6 million for the second quarter 2019 and increased $5.8 million, or 12.9%, from $45.0 million in the first quarter 2020.  These increases were primarily due to changes in the volume and relative mix of the underlying assets and liabilities, the impact of PPP loans as well as lower costs on interest-bearing liabilities.  The net interest margin on a tax equivalent basis decreased 23 basis points to 4.10% for the second quarter 2020 from 4.33% for the second quarter 2019 and decreased 5 basis points from 4.15% for the first quarter 2020. Excluding the impact of acquisition accounting adjustments, adjusted net interest margin on a tax equivalent basis was 4.05% for the second quarter 2020 compared to 4.07% for the second quarter 2019 and 4.04% for the first quarter 2020. Adjusted net interest margin is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 11.

Noninterest income for the second quarter 2020 was $1.6 million, a decrease of $2.3 million, or 59.4%, compared to $3.8 million for the second quarter 2019 and a decrease of $1.2 million, or 42.7%, compared to $2.7 million for the first quarter 2020.  Noninterest income for the second quarter 2020, first quarter 2020 and second quarter 2019 included $93 thousand, $194 thousand and $846 thousand, respectively, of gains on the sale of securities. Second quarter 2020 noninterest income reflected lower transactional fee income, significantly lower correspondent bank rebates and included a loss on the sale of other real estate owned of $306 thousand.

Noninterest expense for the second quarter 2020 decreased $301 thousand, or 1.0%, to $29.8 million from $30.1 million for the second quarter 2019 and decreased $2.6 million, or 8.1%, compared to the first quarter 2020. Noninterest expense for the first quarter 2020 included $2.2 million of other real estate write-downs.

In the second quarter 2020, Allegiance's efficiency ratio was 56.92% compared to 68.13% for the first quarter 2020 and 61.93% for the second quarter 2019.  Second quarter 2020 annualized returns on average assets, average equity and average tangible equity were 0.71%, 5.51% and 8.32%, respectively, compared to 0.29%, 1.98% and 3.02%, respectively, for the first quarter 2020.  Annualized returns on average assets, average equity and average tangible equity for the second quarter 2019 were 1.19%, 8.10% and 12.52%, respectively. Return on average tangible equity is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 11. 

Six Months Ended June 30, 2020 Results

Net interest income before provision for loan losses for the six months ended June 30, 2020 increased $5.7 million, or 6.3%, to $95.9 million from $90.2 million for the six months ended June 30, 2019 primarily due to a $481.4 million, or 11.4%, increase in average interest-earning assets over the prior year, the impact of PPP loans as well as lower costs related to interest-bearing liabilities. The net interest margin on a tax equivalent basis decreased 20 basis points to 4.12% for the six months ended June 30, 2020 from 4.32% for the six months ended June 30, 2019. Excluding the impact of acquisition accounting adjustments, the adjusted net interest margin for the six months ended June 30, 2020 was 4.04%, compared to 4.05% for the six months ended June 30, 2019. Adjusted net interest margin is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 11.

Noninterest income for the six months ended June 30, 2020 was $4.3 million, a decrease of $2.8 million, or 39.9%, compared to $7.1 million for the six months ended June 30, 2019 due primarily to significantly lower correspondent bank rebates and losses on the sales of other real estate owned of $375 thousand. Additionally, noninterest income for the first six months of 2020 and 2019 included $287 thousand and $846 thousand, respectively, of gains on the sale of securities. 

Noninterest expense for the six months ended June 30, 2020 increased $985 thousand, or 1.6%, to $62.2 million from $61.2 million for the six months ended June 30, 2019.  The increase in noninterest expense over the six months ended June 30, 2019 was primarily due to $2.2 million of other real estate write-downs during the first quarter of 2020 partially offset by the decrease in merger-related expenses incurred during the first six months of 2019.

Allegiance's efficiency ratio decreased from 63.44% for the six months ended June 30, 2019 to 62.26% for the six months ended June 30, 2020. For the six months ended June 30, 2020, returns on average assets, average equity and average tangible equity were 0.51%, 3.76% and 5.70%, respectively, compared to 1.14%, 7.69% and 11.87%, respectively, for the six months ended June 30, 2019. Return on average tangible equity is a non-GAAP measure. Please refer to the non-GAAP reconciliation on page 11. 

Financial Condition

Total assets at June 30, 2020 increased $834.5 million, or 66.7% (annualized), to $5.84 billion compared to $5.00 billion at March 31, 2020 and increased $1.04 billion, or 21.7%, compared to $4.79 billion at June 30, 2019, primarily due to the origination of PPP loans and growth in the securities portfolio.

Total loans at June 30, 2020 increased $628.1 million, or 63.5% (annualized), to $4.58 billion compared to $3.96 billion at March 31, 2020 and increased $725.7 million, or 18.8%, compared to $3.86 billion at June 30, 2019, primarily due to the origination of $695.8 million of PPP loans and organic loan growth. Core loans, which exclude the mortgage warehouse portfolio and PPP loans, decreased $66.6 million, or 6.7% (annualized), to $3.89 billion at June 30, 2020 from $3.95 billion at March 31, 2020 and increased $76.1 million, or 2.0%, from $3.81 billion at June 30, 2019.

Deposits at June 30, 2020 increased $747.1 million, or 75.6% (annualized), to $4.70 billion compared to $3.95 billion at March 31, 2020 and increased $840.1 million, or 21.8%, compared to $3.86 billion at June 30, 2019.

Asset Quality

Nonperforming assets totaled $45.1 million, or 0.77% of total assets, at June 30, 2020, compared to $34.2 million, or 0.68% of total assets, at March 31, 2020, and $37.7 million, or 0.79% of total assets, at June 30, 2019. The allowance for loan losses was 1.04% of total loans at June 30, 2020, 0.95% of total loans at March 31, 2020 and 0.72% of total loans at June 30, 2019. Accounting Standards Update (ASU) 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (CECL), became effective for the Company on January 1, 2020. On March 27, 2020, the CARES Act included an option for entities to delay the implementation of CECL until the earlier of the termination date of the national emergency declaration by the President or December 31, 2020. Due to the uncertainty on the economy from COVID-19, the Company chose to delay its implementation of CECL and recorded its provision for loan losses under the incurred loss model that existed prior to CECL.

The provision for loan losses for the second quarter 2020 was $10.7 million, or 0.97% (annualized) of average loans, compared to $11.0 million, or 1.12% (annualized) of average loans, for the first quarter 2020 and $1.4 million, or 0.15% (annualized) of average loans for the second quarter 2019 primarily due to economic risks and uncertainties related to the COVID-19 pandemic. The increase in the Company's provision for loan losses in the second quarter of 2020 compared to prior quarters reflects the uncertainty surrounding unemployment, the economic impact caused by COVID-19 and the economic effects related to the sustained lower crude oil prices.

Second quarter 2020 net charge-offs were $538 thousand, or 0.05% (annualized) of average loans, a decrease from net charge-offs of $2.9 million, or 0.30% (annualized) of average loans, for the first quarter 2020 and $590 thousand, or 0.06% (annualized) of average loans, for the second quarter 2019.  Net charge-offs for the six months ended June 30, 2020 were $3.5 million, or 0.17% (annualized) of average loans, compared to net charge-offs for the six months ended June 30, 2019 of $799 thousand, or 0.04% (annualized) of average loans.

The Company believes the largest risks within its loan portfolio are in the hotel, restaurant and bar and oil and gas portfolios. Loan balances in the hotel industry, excluding PPP loans, totaled $134.0 million, or 2.9% of total loans, at June 30, 2020, of which $7.1 million were on nonaccrual. At June 30, 2020, restaurant and bar industry loans, excluding PPP loans, totaled $111.3 million, or 2.4%, of total loans, of which $695 thousand were on nonaccrual. At June 30, 2020, the Company's allowance for loan losses allocated to its hotel portfolio was 1.3% of total hotel loans and its restaurant and bar portfolio was 1.3% of total restaurant and bar loans. The oil and gas portfolio, excluding PPP loans, totaled $74.7 million, or 1.6%, of total loans at June 30, 2020, of which $788 thousand were on nonaccrual. At June 30, 2020, the allowance for loan losses allocated to the oil and gas loan portfolio was 2.1% of total oil and gas loans.

As of June 30, 2020, the Company executed 2,111 principal and interest deferrals on outstanding loan balances of $1.19 billion with associated accrued interest of $16.4 million to borrowers in connection with the COVID-19 relief provided by the CARES Act. Additionally, upon request and after meeting certain conditions, borrowers could be granted a second payment deferral subsequent to the first deferral. The Company processed second payment deferrals for 129 loans with outstanding loan balances of $100.1 million and associated accrued interest of $1.4 million through July 24, 2020. These deferrals were generally no more than 90 days in duration.

Dividend

On July 23, 2020, the Board of Directors of Allegiance declared a cash dividend of $0.10 per share to be paid on September 15, 2020 to all shareholders of record as of August 31, 2020. The amount and timing of any future dividend payments to shareholders will be subject to the discretion of Allegiance's Board of Directors.

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 11 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 Thursday, July 30, 2020 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) to discuss its second quarter 2020 results. Individuals and investment professionals may participate in the call by dialing (877) 279-2520. The conference ID number is 1791298.  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 June 30, 2020, Allegiance was a $5.84 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 June 30, 2020, 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 contains forward-looking statements within the meaning of the securities laws that are derived utilizing 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 expected 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. Additionally, the impact of the COVID-19 pandemic is rapidly evolving and its future effects on Allegiance are difficult to predict. These and various other risk factors are discussed in Allegiance's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 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. Because of these uncertainties, readers should not place undue reliance on any forward-looking statement. Allegiance disclaims any 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.

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(A) Interim periods annualized.
(B) Refer to the calculation of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures on page 11 of this Earnings Release.
(C) Net interest margin represents net interest income divided by average interest-earning assets.
(D) 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.

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GAAP Reconciliation and Management's Explanation of Non-GAAP Financial Measures
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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 adjusted 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.