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Section 1: 10-Q (10-Q)

abtx-10q_20190930.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 September 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 October 30, 2019, the registrant had 20,810,603 shares common stock, $1.00 par value per share, outstanding.

 

 

 

 


 

ALLEGIANCE BANCSHARES, INC.

INDEX TO FORM 10-Q

September 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

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

57

Item 4.

Controls and Procedures

58

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

59

Item 1A.

Risk Factors

59

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

Signatures

61

 

 

 

2


Table of Contents

 

PART I—FINANCIAL INFORMATION

ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

246,312

 

 

$

118,771

 

Interest-bearing deposits at other financial institutions

 

 

54,307

 

 

 

150,176

 

Total cash and cash equivalents

 

 

300,619

 

 

 

268,947

 

Available for sale securities, at fair value

 

 

353,000

 

 

 

337,293

 

Loans held for investment

 

 

3,886,004

 

 

 

3,708,306

 

Less: allowance for loan losses

 

 

(29,808

)

 

 

(26,331

)

Loans, net

 

 

3,856,196

 

 

 

3,681,975

 

Accrued interest receivable

 

 

15,201

 

 

 

17,010

 

Premises and equipment, net

 

 

67,175

 

 

 

41,717

 

Other real estate owned

 

 

8,333

 

 

 

630

 

Federal Home Loan Bank stock

 

 

14,138

 

 

 

10,941

 

Bank owned life insurance

 

 

26,947

 

 

 

26,480

 

Goodwill

 

 

223,642

 

 

 

223,125

 

Core deposit intangibles, net

 

 

23,053

 

 

 

26,587

 

Other assets

 

 

17,536

 

 

 

20,544

 

TOTAL ASSETS

 

$

4,905,840

 

 

$

4,655,249

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

1,227,839

 

 

$

1,209,300

 

Interest-bearing

 

 

 

 

 

 

 

 

Demand

 

 

340,754

 

 

 

366,905

 

Money market and savings

 

 

1,114,233

 

 

 

879,840

 

Certificates and other time

 

 

1,214,659

 

 

 

1,206,491

 

Total interest-bearing deposits

 

 

2,669,646

 

 

 

2,453,236

 

Total deposits

 

 

3,897,485

 

 

 

3,662,536

 

Accrued interest payable

 

 

4,915

 

 

 

2,812

 

Borrowed funds

 

 

159,501

 

 

 

225,493

 

Subordinated debt

 

 

107,771

 

 

 

48,899

 

Other liabilities

 

 

29,860

 

 

 

12,525

 

Total liabilities

 

 

4,199,532

 

 

 

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; 20,736,779 shares

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

   and outstanding at December 31, 2018

 

 

20,737

 

 

 

21,938

 

Capital surplus

 

 

529,688

 

 

 

571,803

 

Retained earnings

 

 

149,389

 

 

 

112,131

 

Accumulated other comprehensive income (loss)

 

 

6,494

 

 

 

(2,888

)

Total shareholders’ equity

 

 

706,308

 

 

 

702,984

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

4,905,840

 

 

$

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

55,790

 

 

$

32,988

 

 

$

165,995

 

 

$

94,951

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,090

 

 

 

636

 

 

 

4,909

 

 

 

1,881

 

Tax-exempt

 

 

483

 

 

 

1,447

 

 

 

2,465

 

 

 

4,357

 

Deposits in other financial institutions

 

 

302

 

 

 

265

 

 

 

1,391

 

 

 

731

 

Total interest income

 

 

58,665

 

 

 

35,336

 

 

 

174,760

 

 

 

101,920

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, money market and savings deposits

 

 

4,975

 

 

 

1,248

 

 

 

13,216

 

 

 

3,111

 

Certificates and other time deposits

 

 

6,909

 

 

 

4,051

 

 

 

20,173

 

 

 

10,120

 

Borrowed funds

 

 

1,183

 

 

 

1,272

 

 

 

4,128

 

 

 

3,780

 

Subordinated debt

 

 

761

 

 

 

729

 

 

 

2,232

 

 

 

2,168

 

Total interest expense

 

 

13,828

 

 

 

7,300

 

 

 

39,749

 

 

 

19,179

 

NET INTEREST INCOME

 

 

44,837

 

 

 

28,036

 

 

 

135,011

 

 

 

82,741

 

Provision for loan losses

 

 

2,597

 

 

 

 

 

 

5,006

 

 

 

1,284

 

Net interest income after provision for loan losses

 

 

42,240

 

 

 

28,036

 

 

 

130,005

 

 

 

81,457

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonsufficient funds fees

 

 

168

 

 

 

175

 

 

 

469

 

 

 

565

 

Service charges on deposit accounts

 

 

379

 

 

 

177

 

 

 

1,069

 

 

 

506

 

Gain on sale of securities

 

 

 

 

 

 

 

 

846

 

 

               —                  

 

Gain on sale of other real estate

 

 

 

 

 

 

 

 

71

 

 

 

1

 

Bank owned life insurance income

 

 

153

 

 

 

137

 

 

 

467

 

 

 

416

 

Rebate from correspondent bank

 

 

900

 

 

 

613

 

 

 

2,680

 

 

 

1,621

 

Other

 

 

1,289

 

 

 

826

 

 

 

4,421

 

 

 

2,270

 

Total noninterest income

 

 

2,889

 

 

 

1,928

 

 

 

10,023

 

 

 

5,379

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

20,221

 

 

 

12,965

 

 

 

59,320

 

 

 

38,537

 

Net occupancy and equipment

 

 

1,973

 

 

 

1,281

 

 

 

6,139

 

 

 

3,886

 

Depreciation

 

 

822

 

 

 

490

 

 

 

2,331

 

 

 

1,330

 

Data processing and software amortization

 

 

2,058

 

 

 

1,226

 

 

 

5,390

 

 

 

3,635

 

Professional fees

 

 

667

 

 

 

303

 

 

 

1,793

 

 

 

1,339

 

Regulatory assessments and FDIC insurance

 

 

(41

)

 

 

505

 

 

 

1,489

 

 

 

1,533

 

Core deposit intangibles amortization

 

 

1,178

 

 

 

195

 

 

 

3,534

 

 

 

586

 

Communications

 

 

455

 

 

 

262

 

 

 

1,353

 

 

 

769

 

Advertising

 

 

449

 

 

 

351

 

 

 

1,770

 

 

 

1,021

 

Acquisition and merger-related expenses

 

 

 

 

 

196

 

 

 

1,326

 

 

 

821

 

Other

 

 

2,227

 

 

 

1,390

 

 

 

6,759

 

 

 

4,284

 

Total noninterest expense

 

 

30,009

 

 

 

19,164

 

 

 

91,204

 

 

 

57,741

 

INCOME BEFORE INCOME TAXES

 

 

15,120

 

 

 

10,800

 

 

 

48,824

 

 

 

29,095

 

Provision for income taxes

 

 

3,073

 

 

 

1,921

 

 

 

9,851

 

 

 

4,949

 

NET INCOME

 

$

12,047

 

 

$

8,879

 

 

$

38,973

 

 

$

24,146

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.57

 

 

$

0.66

 

 

$

1.83

 

 

$

1.81

 

Diluted

 

$

0.57

 

 

$

0.65

 

 

$

1.81

 

 

$

1.77

 

 

See condensed notes to interim consolidated financial statements.

 

4


Table of Contents

 

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Net income

 

$

12,047

 

 

$

8,879

 

 

$

38,973

 

 

$

24,146

 

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

 

 

2,862

 

 

 

(2,265

)

 

 

12,712

 

 

 

(8,106

)

Reclassification of gain realized through the sale

   of securities

 

 

 

 

 

 

 

 

(846

)

 

               —                        

 

Total other comprehensive income (loss)

 

 

2,862

 

 

 

(2,265

)

 

 

11,866

 

 

 

(8,106

)

Deferred tax (expense) benefit related to other

   comprehensive income

 

 

(601

)

 

 

476

 

 

 

(2,484

)

 

 

1,774

 

Other comprehensive income (loss), net of tax

 

 

2,261

 

 

 

(1,789

)

 

 

9,382

 

 

 

(6,332

)

Comprehensive income

 

$

14,308

 

 

$

7,090

 

 

$

48,355

 

 

$

17,814

 

 

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 JUNE 30, 2018

 

 

13,340,919

 

 

$

13,341

 

 

$

220,665

 

 

$

90,089

 

 

$

(4,207

)

 

$

319,888

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,879

 

 

 

 

 

 

 

8,879

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,789

)

 

 

(1,789

)

Common stock issued in

   connection with the exercise

   of stock options and restricted

   stock awards

 

 

55,784

 

 

 

56

 

 

 

717

 

 

 

 

 

 

 

 

 

 

 

773

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

 

 

380

 

BALANCE AT SEPTEMBER 30, 2018

 

 

13,396,703

 

 

$

13,397

 

 

$

221,762

 

 

$

98,968

 

 

$

(5,996

)

 

$

328,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JUNE 30, 2019

 

 

21,147,179

 

 

$

21,147

 

 

$

541,979

 

 

$

137,342

 

 

$

4,233

 

 

$

704,701

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,047

 

 

 

 

 

 

 

12,047

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,261

 

 

 

2,261

 

Common stock issued in

   connection with the exercise

   of stock options and restricted

   stock awards

 

 

20,590

 

 

 

21

 

 

 

475

 

 

 

 

 

 

 

 

 

 

 

496

 

Repurchase of common stock

 

 

(430,990

)

 

 

(431

)

 

 

(13,555

)

 

 

 

 

 

 

 

 

 

 

(13,986

)

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

789

 

 

 

 

 

 

 

 

 

 

 

789

 

BALANCE AT SEPTEMBER 30, 2019

 

 

20,736,779

 

 

$

20,737

 

 

$

529,688

 

 

$

149,389

 

 

$

6,494

 

 

$

706,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2017

 

 

13,226,826

 

 

$

13,227

 

 

$

218,408

 

 

$

74,894

 

 

$

336

 

 

$

306,865

 

        Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,146

 

 

 

 

 

 

 

24,146

 

        Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,332

)

 

 

(6,332

)

        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

 

 

169,877

 

 

 

170

 

 

 

2,139

 

 

 

 

 

 

 

 

 

 

 

2,309

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

1,215

 

 

 

 

 

 

 

 

 

 

 

1,215

 

BALANCE AT SEPTEMBER 30, 2018

 

 

13,396,703

 

 

$

13,397

 

 

$

221,762

 

 

$

98,968

 

 

$

(5,996

)

 

$

328,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2018

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,973

 

 

 

 

 

 

 

38,973

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,382

 

 

 

9,382

 

Common stock issued in

   connection with the exercise

   of stock options and restricted

   stock awards

 

 

160,640

 

 

 

160

 

 

 

1,402

 

 

 

 

 

 

 

 

 

 

 

1,562

 

Repurchase of common stock

 

 

(1,361,601

)

 

 

(1,361

)

 

 

(45,794

)

 

 

 

 

 

 

 

 

 

 

(47,155

)

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

2,277

 

 

 

 

 

 

 

 

 

 

 

2,277

 

BALANCE AT SEPTEMBER 30, 2019

 

 

20,736,779

 

 

$

20,737

 

 

$

529,688

 

 

$

149,389

 

 

$

6,494

 

 

$

706,308

 

 

See condensed notes to interim consolidated financial statements.

 

6


Table of Contents

 

ALLEGIANCE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

38,973

 

 

$

24,146

 

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

 

 

 

 

 

 

 

 

Depreciation and core deposit intangibles amortization

 

 

5,865

 

 

 

1,916

 

Provision for loan losses

 

 

5,006

 

 

 

1,284

 

Net amortization of premium on investments

 

 

2,613

 

 

 

2,413

 

Excess tax benefit related to the exercise of stock options

 

 

(105

)

 

 

(420

)

Bank owned life insurance income

 

 

(467

)

 

 

(416

)

Net accretion of discount on loans

 

 

(7,112

)

 

 

(207

)

Net accretion of discount on subordinated debt

 

 

83

 

 

 

82

 

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

 

 

(332

)

 

 

(268

)

Stock based compensation expense

 

 

2,277

 

 

 

1,215

 

Net change in lease right-of-use assets

 

 

1,467

 

 

 

 

Decrease (increase) in accrued interest receivable and other assets

 

 

1,340

 

 

 

(2,846

)

Increase in accrued interest payable and other liabilities

 

 

6,359

 

 

 

5,563

 

Net cash provided by operating activities

 

 

54,763

 

 

 

32,458

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from maturities and principal paydowns of available for sale securities

 

 

2,245,919

 

 

 

2,014,951

 

Proceeds from sales of available for sale securities

 

 

149,366

 

 

 

 

Purchase of available for sale securities

 

 

(2,401,762

)

 

 

(2,015,970

)

Net change in total loans

 

 

(135,197

)

 

 

(172,625

)

Purchase of bank premises and equipment

 

 

(12,279

)

 

 

(1,857

)

Net (purchases) redemptions of Federal Home Loan Bank stock

 

 

(2,865