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Section 1: 10-Q (10-Q)

abtx-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM              TO

COMMISSION FILE NUMBER: 001-37585

 

Allegiance Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

 

Texas

26-3564100

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

8847 West Sam Houston Parkway, N., Suite 200

Houston, Texas 77040

(Address of principal executive offices, including zip code)

(281) 894-3200

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value, $1.00 per share

 

ABTX

 

NASDAQ Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No  

As of July 31, 2019, the registrant had 21,158,312 shares common stock, $1.00 par value per share, outstanding.

 

 

 

 


 

ALLEGIANCE BANCSHARES, INC.

INDEX TO FORM 10-Q

June 30, 2019

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Interim Consolidated Financial Statements

3

 

Consolidated Balance Sheets (unaudited)

3

 

Consolidated Statements of Income (unaudited)

4

 

Consolidated Statements of Comprehensive Income (unaudited)

5

 

Consolidated Statements of Changes in Shareholders' Equity (unaudited)

6

 

Consolidated Statements of Cash Flows (unaudited)

7

 

Condensed Notes to Interim Consolidated Financial Statements (unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

58

Item 4.

Controls and Procedures

59

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

60

Item 1A.

Risk Factors

60

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

61

Signatures

62

 

 

 

2


Table of Contents

 

PART I—FINANCIAL INFORMATION

ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

170,850

 

 

$

118,771

 

Interest-bearing deposits at other financial institutions

 

 

61,757

 

 

 

150,176

 

Total cash and cash equivalents

 

 

232,607

 

 

 

268,947

 

Available for sale securities, at fair value

 

 

348,173

 

 

 

337,293

 

Loans held for investment

 

 

3,857,963

 

 

 

3,708,306

 

Less: allowance for loan losses

 

 

(27,940

)

 

 

(26,331

)

Loans, net

 

 

3,830,023

 

 

 

3,681,975

 

Accrued interest receivable

 

 

16,508

 

 

 

17,010

 

Premises and equipment, net

 

 

59,690

 

 

 

41,717

 

Other real estate owned

 

 

6,294

 

 

 

630

 

Federal Home Loan Bank stock

 

 

8,866

 

 

 

10,941

 

Bank owned life insurance

 

 

26,794

 

 

 

26,480

 

Goodwill

 

 

223,642

 

 

 

223,125

 

Core deposit intangibles, net

 

 

24,231

 

 

 

26,587

 

Other assets

 

 

17,383

 

 

 

20,544

 

TOTAL ASSETS

 

$

4,794,211

 

 

$

4,655,249

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

1,173,423

 

 

$

1,209,300

 

Interest-bearing

 

 

 

 

 

 

 

 

Demand

 

 

390,067

 

 

 

366,905

 

Money market and savings

 

 

995,467

 

 

 

879,840

 

Certificates and other time

 

 

1,301,683

 

 

 

1,206,491

 

Total interest-bearing deposits

 

 

2,687,217

 

 

 

2,453,236

 

Total deposits

 

 

3,860,640

 

 

 

3,662,536

 

Accrued interest payable

 

 

3,531

 

 

 

2,812

 

Borrowed funds

 

 

146,998

 

 

 

225,493

 

Subordinated debt

 

 

49,019

 

 

 

48,899

 

Other liabilities

 

 

29,322

 

 

 

12,525

 

Total liabilities

 

 

4,089,510

 

 

 

3,952,265

 

COMMITMENTS AND CONTINGENCIES (See Note 13)

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $1 par value; 1,000,000 shares authorized; no

   shares issued or outstanding

 

 

 

 

 

 

Common stock, $1 par value; 80,000,000 shares authorized; 21,147,179 shares

   issued and outstanding at June 30, 2019 and 21,937,740 shares issued

   and outstanding at December 31, 2018

 

 

21,147

 

 

 

21,938

 

Capital surplus

 

 

541,979

 

 

 

571,803

 

Retained earnings

 

 

137,342

 

 

 

112,131

 

Accumulated other comprehensive income (loss)

 

 

4,233

 

 

 

(2,888

)

Total shareholders’ equity

 

 

704,701

 

 

 

702,984

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

4,794,211

 

 

$

4,655,249

 

 

See condensed notes to interim consolidated financial statements.

 

3


Table of Contents

 

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

56,016

 

 

$

31,846

 

 

$

110,205

 

 

$

61,963

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

1,837

 

 

 

646

 

 

 

2,819

 

 

 

1,245

 

Tax-exempt

 

 

692

 

 

 

1,451

 

 

 

1,982

 

 

 

2,910

 

Deposits in other financial institutions

 

 

401

 

 

 

250

 

 

 

1,089

 

 

 

466

 

Total interest income

 

 

58,946

 

 

 

34,193

 

 

 

116,095

 

 

 

66,584

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, money market and savings deposits

 

 

4,513

 

 

 

887

 

 

 

8,241

 

 

 

1,863

 

Certificates and other time deposits

 

 

7,008

 

 

 

3,284

 

 

 

13,264

 

 

 

6,069

 

Borrowed funds

 

 

1,118

 

 

 

1,472

 

 

 

2,945

 

 

 

2,508

 

Subordinated debt

 

 

736

 

 

 

734

 

 

 

1,471

 

 

 

1,439

 

Total interest expense

 

 

13,375

 

 

 

6,377

 

 

 

25,921

 

 

 

11,879

 

NET INTEREST INCOME

 

 

45,571

 

 

 

27,816

 

 

 

90,174

 

 

 

54,705

 

Provision for loan losses

 

 

1,407

 

 

 

631

 

 

 

2,409

 

 

 

1,284

 

Net interest income after provision for loan losses

 

 

44,164

 

 

 

27,185

 

 

 

87,765

 

 

 

53,421

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonsufficient funds fees

 

 

139

 

 

 

214

 

 

 

301

 

 

 

390

 

Service charges on deposit accounts

 

 

365

 

 

 

106

 

 

 

690

 

 

 

329

 

Gain on sale of securities

 

 

846

 

 

 

 

 

 

846

 

 

 

 

Gain on sale of other real estate

 

 

70

 

 

 

1

 

 

 

71

 

 

 

1

 

Bank owned life insurance income

 

 

155

 

 

 

138

 

 

 

314

 

 

 

279

 

Rebate from correspondent bank

 

 

884

 

 

 

564

 

 

 

1,780

 

 

 

1,008

 

Other

 

 

1,386

 

 

 

782

 

 

 

3,132

 

 

 

1,444

 

Total noninterest income

 

 

3,845

 

 

 

1,805

 

 

 

7,134

 

 

 

3,451

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

19,415

 

 

 

12,778

 

 

 

39,099

 

 

 

25,572

 

Net occupancy and equipment

 

 

2,088

 

 

 

1,333

 

 

 

4,166

 

 

 

2,605

 

Depreciation

 

 

756

 

 

 

433

 

 

 

1,509

 

 

 

840

 

Data processing and software amortization

 

 

1,735

 

 

 

1,356

 

 

 

3,332

 

 

 

2,409

 

Professional fees

 

 

527

 

 

 

567

 

 

 

1,126

 

 

 

1,036

 

Regulatory assessments and FDIC insurance

 

 

802

 

 

 

494

 

 

 

1,530

 

 

 

1,028

 

Core deposit intangibles amortization

 

 

1,178

 

 

 

196

 

 

 

2,356

 

 

 

391

 

Communications

 

 

468

 

 

 

259

 

 

 

898

 

 

 

507

 

Advertising

 

 

617

 

 

 

340

 

 

 

1,321

 

 

 

670

 

Acquisition and merger-related expenses

 

 

153

 

 

 

625

 

 

 

1,326

 

 

 

625

 

Other

 

 

2,341

 

 

 

1,479

 

 

 

4,532

 

 

 

2,894

 

Total noninterest expense

 

 

30,080

 

 

 

19,860

 

 

 

61,195

 

 

 

38,577

 

INCOME BEFORE INCOME TAXES

 

 

17,929

 

 

 

9,130

 

 

 

33,704

 

 

 

18,295

 

Provision for income taxes

 

 

3,681

 

 

 

1,574

 

 

 

6,778

 

 

 

3,028

 

NET INCOME

 

$

14,248

 

 

$

7,556

 

 

$

26,926

 

 

$

15,267

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.67

 

 

$

0.57

 

 

$

1.25

 

 

$

1.15

 

Diluted

 

$

0.66

 

 

$

0.55

 

 

$

1.24

 

 

$

1.12

 

 

See condensed notes to interim consolidated financial statements.

 

4


Table of Contents

 

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Net income

 

$

14,248

 

 

$

7,556

 

 

$

26,926

 

 

$

15,267

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized holding gain (loss) on

   available for sale securities during the period

 

 

2,388

 

 

 

(759

)

 

 

9,850

 

 

 

(5,841

)

Reclassification of gain realized through the sale

   of securities

 

 

(846

)

 

 

 

 

 

(846

)

 

 

 

Total other comprehensive income (loss)

 

 

1,542

 

 

 

(759

)

 

 

9,004

 

 

 

(5,841

)

Deferred tax (expense) benefit related to other

   comprehensive income

 

 

(324

)

 

 

159

 

 

 

(1,883

)

 

 

1,298

 

Other comprehensive income (loss), net of tax

 

 

1,218

 

 

 

(600

)

 

 

7,121

 

 

 

(4,543

)

Comprehensive income

 

$

15,466

 

 

$

6,956

 

 

$

34,047

 

 

$

10,724

 

 

See condensed notes to interim consolidated financial statements.

 

5


Table of Contents

 

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Capital

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Surplus

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

 

(in thousands, except share data)

 

BALANCE AT MARCH 31, 2018

 

 

13,302,462

 

 

$

13,302

 

 

$

219,760

 

 

$

82,533

 

 

$

(3,607

)

 

$

311,988

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,556

 

 

 

 

 

 

 

7,556

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(600

)

 

 

(600

)

Common stock issued in

   connection with the exercise

   of stock options and restricted

   stock awards

 

 

38,457

 

 

 

39

 

 

 

508

 

 

 

 

 

 

 

 

 

 

 

547

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

397

 

 

 

 

 

 

 

 

 

 

 

397

 

BALANCE AT JUNE 30, 2018

 

 

13,340,919

 

 

$

13,341

 

 

$

220,665

 

 

$

90,089

 

 

$

(4,207

)

 

$

319,888

 

BALANCE AT MARCH 31, 2019

 

 

21,483,972

 

 

$

21,484

 

 

$

556,184

 

 

$

123,094

 

 

$

3,015

 

 

$

703,777

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,248

 

 

 

 

 

 

 

14,248

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,218

 

 

 

1,218

 

Common stock issued in

   connection with the exercise

   of stock options and restricted

   stock awards

 

 

107,403

 

 

 

107

 

 

 

294

 

 

 

 

 

 

 

 

 

 

 

401

 

Repurchase of common stock

 

 

(444,196

)

 

 

(444

)

 

 

(15,381

)

 

 

 

 

 

 

 

 

 

 

(15,825

)

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

882

 

 

 

 

 

 

 

 

 

 

 

882

 

BALANCE AT JUNE 30, 2019

 

 

21,147,179

 

 

$

21,147

 

 

$

541,979

 

 

$

137,342

 

 

$

4,233

 

 

$

704,701

 

BALANCE AT JANUARY 1, 2018

 

 

13,226,826

 

 

$

13,227

 

 

$

218,408

 

 

$

74,894

 

 

$

336

 

 

$

306,865

 

        Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,267

 

 

 

 

 

 

 

15,267

 

        Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,543

)

 

 

(4,543

)

        Reclassification of amounts

           within AOCI to retained

           earnings due to tax reform

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72

)

 

 

 

 

 

 

(72

)

Common stock issued in

   connection with the exercise

   of stock options and restricted

   stock awards

 

 

114,093

 

 

 

114

 

 

 

1,422

 

 

 

 

 

 

 

 

 

 

 

1,536

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

835

 

 

 

 

 

 

 

 

 

 

 

835

 

BALANCE AT JUNE 30, 2018

 

 

13,340,919

 

 

$

13,341

 

 

$

220,665

 

 

$

90,089

 

 

$

(4,207

)

 

$

319,888

 

BALANCE AT JANUARY 1, 2019

 

 

21,937,740

 

 

$

21,938

 

 

$

571,803

 

 

$

112,131

 

 

$

(2,888

)

 

$

702,984

 

Cumulative effect of change in

    accounting principle related to

    ASU 2017-08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,715

)

 

 

 

 

 

 

(1,715

)

Total shareholders' equity at

    beginning of period, as

    adjusted (See Note 1)

 

 

21,937,740

 

 

 

21,938

 

 

 

571,803

 

 

 

110,416

 

 

 

(2,888

)

 

 

701,269

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,926

 

 

 

 

 

 

 

26,926

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,121

 

 

 

7,121

 

Common stock issued in

   connection with the exercise

   of stock options and restricted

   stock awards

 

 

140,050

 

 

 

139

 

 

 

927

 

 

 

 

 

 

 

 

 

 

 

1,066

 

Repurchase of common stock

 

 

(930,611

)

 

 

(930

)

 

 

(32,239

)

 

 

 

 

 

 

 

 

 

 

(33,169

)

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

1,488

 

 

 

 

 

 

 

 

 

 

 

1,488

 

BALANCE AT JUNE 30, 2019

 

 

21,147,179

 

 

$

21,147

 

 

$

541,979

 

 

$

137,342

 

 

$

4,233

 

 

$

704,701

 

 

See condensed notes to interim consolidated financial statements.

 

6


Table of Contents

 

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

26,926

 

 

$

15,267

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and core deposit intangibles amortization

 

 

3,864

 

 

 

1,231

 

Provision for loan losses

 

 

2,409

 

 

 

1,284

 

Net amortization of premium on investments

 

 

1,514

 

 

 

1,627

 

Excess tax benefit related to the exercise of stock options

 

 

(36

)

 

 

(325

)

Bank owned life insurance

 

 

(314

)

 

 

(279

)

Net accretion of discount on loans

 

 

(5,220

)

 

 

(207

)

Net accretion of discount on subordinated debt

 

 

55

 

 

 

55

 

Net accretion of discount on certificates of deposit

 

 

(287

)

 

 

(3

)

Net gain on the sale or write down of premises, equipment and other real estate

 

 

(71

)

 

 

(1

)

Net gain on sale of securities

 

 

(846

)

 

 

 

Federal Home Loan Bank stock dividends

 

 

(232

)

 

 

(149

)

Stock based compensation expense

 

 

1,488

 

 

 

835

 

Net change in lease right-of-use assets

 

 

542

 

 

 

 

Decrease (increase) n accrued interest receivable and other assets

 

 

1,633

 

 

 

(1,745

)

Increase in accrued interest payable and other liabilities

 

 

2,353

 

 

 

630

 

Net cash provided by operating activities

 

 

33,778

 

 

 

18,220

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from maturities and principal paydowns of available for sale securities

 

 

1,488,427

 

 

 

1,813,074

 

Proceeds from sales of available for sale securities

 

 

149,366

 

 

 

149,366

 

Purchase of available for sale securities

 

 

(1,642,051

)

 

 

(1,811,824

)

Net change in total loans

 

 

(106,279

)

 

 

(90,038

)

Purchase of bank premises and equipment

 

 

(1,065

)

 

 

(1,446

)

Net redemptions (purchases) of Federal Home Loan Bank stock

 

 

2,307

 

 

 

(3,795

)

Net cash paid for the LoweryBank branch acquisition

 

 

(32,867

)

 

 

 

Net cash (used in) provided by investing activities

 

 

(142,162

)

 

 

55,337

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net (decrease) increase in noninterest-bearing deposits

 

 

(49,757

)

 

 

66,677

 

Net increase in interest-bearing deposits

 

 

232,399

 

 

 

33,138

 

Paydowns on borrowed funds

 

 

(78,495

)

 

 

(7,000

)

Proceeds from the issuance of common stock, stock option exercises and the ESPP

 

 

1,066

 

 

 

1,536

 

Repurchase of treasury stock

 

 

(33,169

)