Allegiance Bancshares, Inc. Reports Second Quarter 2017 Results

• Record core loan growth of $363.0 million, or 21.6%, year over year and $118.8 million, or 24.7% (annualized), for the second quarter 2017 compared to the linked quarter
  
  
• Net interest income increased 14.4% year over year and 4.1% for the second quarter 2017 compared to the linked quarter
  
  
• Efficiency ratio decreased to 61.92% for the second quarter 2017 from 64.98% for the first quarter 2017

HOUSTON, July 25, 2017 (GLOBE NEWSWIRE) -- Allegiance Bancshares, Inc. (NASDAQ:ABTX) ("Allegiance"), the holding company of Allegiance Bank (the "Bank"), today reported net income of $5.4 million in the second quarter 2017 compared to $5.3 million in the second quarter 2016 and diluted earnings per share for the second quarter 2017 and 2016 of $0.40.

"We are extremely proud to report another record quarter of high-quality organic loan production," commented George Martinez, Allegiance's Chairman and Chief Executive Officer.  "Our linked second quarter core loan growth of $118.8 million represents an annualized increase of 24.7% and reflects the hard work and dedication of our talented team of legacy lenders who, in collaboration with our recently added lenders, continue to build strong relationships in the vibrant Houston market. At the same time, our asset quality continues to be solid with net charge-offs of 0.13%, which reflects our disciplined underwriting," continued Martinez.

"In addition to enhancing our lending team, we have hired key personnel to strengthen our infrastructure and support the operational and regulatory requirements applicable to a larger bank as we pursue our ambitious growth goals. While net income declined in the second quarter 2017 compared to the linked quarter, primarily due to an increased provision for loan loss expense as a result of robust loan growth and prior nonperforming credit relationships, we are pleased to see gains in both efficiency and pre-tax pre-provision earnings in our second quarter 2017 performance,” concluded Martinez.

Second Quarter 2017 Results

Net interest income before provision for loan losses in the second quarter 2017 increased $3.2 million, or 14.4%, to $25.1 million from $21.9 million for the second quarter 2016 primarily due to organic loan growth and an increase in our securities portfolio.  Net interest income before provision for loan losses in the second quarter 2017 increased $979 thousand, or 4.1%, from $24.1 million in the first quarter 2017.  The net interest margin on a tax equivalent basis decreased 3 basis points to 4.29% for the second quarter 2017 from 4.32% for the second quarter 2016 and decreased 9 basis points from 4.38% for the first quarter 2017.

Noninterest income for the second quarter 2017 was $1.5 million, an increase of $265 thousand, or 21.9%, compared to $1.2 million for the second quarter 2016 and an increase of $136 thousand, or 10.1%, compared to $1.3 million for the first quarter 2017.

Noninterest expense for the second quarter 2017 increased $2.5 million, or 18.2%, to $16.5 million from $13.9 million for the second quarter 2016, and decreased $88 thousand, or 0.5%, from $16.5 million for the first quarter 2017. The increase in noninterest expense over the second quarter 2016 was primarily due to increased professional service fees to support growth initiatives.

In the second quarter 2017, Allegiance’s efficiency ratio decreased to 61.92% from 64.98% for the first quarter 2017 and increased from 60.11% for the second quarter 2016.

Second quarter 2017 annualized returns on average assets, average equity and average tangible equity were 0.81%, 7.32% and 8.57%, respectively, compared to 0.91%, 7.79% and 9.30%, respectively, for the second quarter 2016.  Annualized returns on average assets, average equity and average tangible equity for the first quarter 2017 were 0.96%, 8.61% and 10.15%, respectively.

Six Months Ended June 30, 2017 Results

Net interest income before provision for loan losses for the six months ended June 30, 2017 increased $6.2 million, or 14.4%, to $49.2 million from $43.0 million for the six months ended June 30, 2016 primarily due to organic loan growth and an increase in our securities portfolio.  The net interest margin on a tax equivalent basis decreased 5 basis points to 4.33% for the six months ended June 30, 2017 from 4.38% for the six months ended June 30, 2016.

Noninterest income for the six months ended June 30, 2017 was $2.8 million, a decrease of $1.7 million, or 37.6%, compared to $4.5 million for the six months ended June 30, 2016. The six months ended June 30, 2016 included a pre-tax gain of $2.1 million on the sale of two Central Texas branch locations that were sold in order to focus on the Houston MSA. Excluding the gain on the sale of these branches, noninterest income would have increased $352 thousand, or 14.3%, for the six months ended June 30, 2017 compared to the six months ended June 30, 2016.

Noninterest expense for the six months ended June 30, 2017 increased $4.8 million, or 17.2%, to $33.0 million from $28.2 million for the six months ended June 30, 2016.  The increase in noninterest expense over the six months ended June 30, 2016 was primarily due to increases in salaries and benefits as a result of the increased headcount and professional service fees related to supporting growth initiatives.

During the six months ended June 30, 2017, Allegiance’s efficiency ratio increased to 63.41% from 61.93% for the six months ended June 30, 2016.

For the six months ended June 30, 2017, annualized returns on average assets, average equity and average tangible equity were 0.89%, 7.95% and 9.34%, respectively, compared to 1.04%, 8.74% and 10.46%, respectively, for the six months ended June 30, 2016. Excluding the gain on the sale of the two Central Texas branch locations during the first quarter 2016, the annualized returns on average assets, average equity and average tangible equity for the six months ended June 30, 2016 would have been 0.92%, 7.73% and 9.26%, respectively.

Financial Condition

Total loans at June 30, 2017 increased $361.0 million, or 20.6%, to $2.11 billion compared to $1.75 billion at June 30, 2016 and increased $128.2 million, or 6.5%, compared to $1.99 billion at March 31, 2017. These increases were due to strong organic loan growth within the Bank’s loan portfolio. Core loans, which exclude the mortgage warehouse portfolio, increased $363.0 million, or 21.6%, to $2.04 billion at June 30, 2017 from $1.68 billion at June 30, 2016 and increased $118.8 million, or 6.2%, from $1.92 billion at March 31, 2017.

Deposits at June 30, 2017 increased $255.9 million, or 13.9%, to $2.10 billion compared to $1.84 billion at June 30, 2016 and increased $86.7 million, or 4.3%, compared to $2.01 billion at March 31, 2017.

Asset Quality

Nonperforming assets totaled $19.9 million, or 0.73% of total assets, at June 30, 2017, compared to $8.6 million, or 0.37% of total assets, at June 30, 2016, and $19.9 million, or 0.77% of total assets, at March 31, 2017. The allowance for loan losses was 0.99% of total loans at June 30, 2017, 0.85% of total loans at June 30, 2016 and 0.94% of total loans at March 31, 2017.

The provision for loan losses for the second quarter 2017 was $3.0 million, or 0.59% (annualized) of average loans, compared to $1.6 million, or 0.38% (annualized) of average loans, for the second quarter 2016, and $1.3 million, or 0.28% (annualized) of average loans, for the first quarter 2017. During the quarter, Allegiance bolstered its reserves with consistent application of its allowance methodology.  The provision for loan losses for the six months ended June 30, 2017 was $4.4 million, or 0.44% (annualized) of average loans, compared to $2.4 million, or 0.28% (annualized) of average loans for the six months ended June 30, 2016.

Second quarter 2017 net charge-offs were $684 thousand, or 0.13% (annualized) of average loans, compared to net charge-offs of $485 thousand, or 0.11% (annualized) of average loans, for the second quarter 2016, and $567 thousand, or 0.12% (annualized) of average loans, for the first quarter 2017. Net charge-offs for the six months ended June 30, 2017 were $1.3 million, or 0.13% (annualized) of average loans, compared to $656 thousand, or 0.08% (annualized) of average loans for the six months ended June 30, 2016.

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 Tuesday, July 25, 2017 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) to discuss its second quarter 2017 results. Individuals and investment professionals may participate in the call by dialing (877) 279-2520. The conference ID number is 51461392.  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, Past Events.

Allegiance Bancshares, Inc.

Allegiance Bancshares, Inc. is a $2.72 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 Houston metropolitan area-based small to medium-sized businesses and individual customers. Allegiance’s unique 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.  Allegiance Bank operates 16 full-service banking locations and one loan production office in 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,” “anticipates,” “intends,” “projects,” “estimates,” “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, 2016 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.
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.  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 common share, return on average tangible common equity and the ratio of tangible common equity to tangible assets for internal planning and forecasting purposes. Additionally, Allegiance excluded the one time sale of two Central Texas branch locations during the first quarter 2016 as noted within the narrative, as Allegiance believes this transaction was not indicative of its recurring operating results. 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.