S-4/A
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As filed with the Securities and Exchange Commission on August 2, 2018

Registration No. 333-225845

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ALLEGIANCE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   6022   26-3564100

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

8847 West Sam Houston Pkwy., N., Suite 200

Houston, Texas 77040

(281) 894-3200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

George Martinez

Chairman and Chief Executive Officer

8847 West Sam Houston Pkwy., N., Suite 200

Houston, Texas 77040

(281) 894-3200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Troy L. Harder

Joshua T. McNulty

Bracewell LLP

711 Louisiana Street, Suite 2300

Houston, Texas 77002

(713) 221-1456

 

Shanna Kuzdzal

Executive Vice President and

General Counsel

8847 W. Sam Houston Pkwy. N.,

Suite 200

Houston, Texas 77040

(713) 454-8148

 

Chet A. Fenimore

Pam Gates O’Quinn

Fenimore, Kay, Harrison & Ford, LLP

812 San Antonio Street, Suite 600

Austin, Texas 78701

(512) 583-5900

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and all other conditions to the proposed merger described herein have been satisfied or waived.

If the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    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 7(a)(2)(B) of the Securities Act.  ☒

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this joint proxy statement/prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement/prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION, DATED AUGUST 2, 2018

 

LOGO    LOGO

PROPOSED MERGER AND SHARE ISSUANCE—YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

On April 30, 2018, Allegiance Bancshares, Inc., a Texas corporation (which we refer to as “Allegiance”), and Post Oak Bancshares, Inc., a Texas corporation (which we refer to as “Post Oak”), entered into an Agreement and Plan of Reorganization (which we refer to as the “merger agreement”) that provides for the acquisition of Post Oak by Allegiance. Subject to the terms and conditions of the merger agreement, Post Oak will merge with and into Allegiance, with Allegiance continuing as the surviving corporation (which we refer to as the “merger”).

At the effective time of the merger, each outstanding share of the common stock, par value $0.01 per share, of Post Oak (which we refer to as “Post Oak common stock”), other than shares of Post Oak common stock held by Post Oak and Allegiance and any dissenting shareholder (as defined in this joint proxy statement/prospectus), will be converted into the right to receive 0.7017 of a share (such number being referred to as the “exchange ratio”) of the common stock, par value $1.00 per share, of Allegiance (which we refer to as the “Allegiance common stock”), together with cash in lieu of a fractional share, subject to adjustment if Post Oak’s tangible common equity is less than the minimum equity required by the merger agreement prior to the closing of the merger. More specifically, the merger consideration that Post Oak shareholders would be entitled to receive in the merger will be reduced on a dollar-for-dollar basis (using the volume-weighted average price of Allegiance common stock on the NASDAQ Stock Market, Inc. Global Market System (which we refer to as “NASDAQ”), for the twenty trading-day period ending on and including the fifth trading day before the day of completion of the merger (which we refer to as the “average closing price”) to determine the number of shares to be subtracted from the aggregate merger consideration) to the extent by which Post Oak’s tangible common equity, as defined in the merger agreement, is less than the minimum equity required by the merger agreement. The minimum equity required by the merger agreement is set at approximately $154.3 million if closing were to occur on the last business day of October 2018, and increases by $1.8 million for each month after October (and decreases by $1.8 million for each month prior to October). As of the date of this joint proxy statement/prospectus, Post Oak estimates that, assuming closing occurs on the last business day of October 2018, the Post Oak tangible common equity as of the closing of the merger will be $154.3 million or greater, resulting in no downward adjustment to the aggregate merger consideration with respect to the Post Oak tangible common equity.

In addition, if the average closing price of Allegiance common stock is less than $32.52 per share and Allegiance common stock underperforms a selected index of public Texas community bank stocks by more than 20.0%, Post Oak has the right to terminate the merger agreement. Allegiance has the discretion, but not the obligation, to increase the merger consideration by increasing the number of shares of Allegiance common stock in the aggregate merger consideration such that the value of the aggregate merger consideration is equal to at least $278,564,572 (valuing the aggregate stock consideration based on the average closing price in accordance with the merger agreement).

Consequently, you will not know the exact per share merger consideration to be paid to Post Oak shareholders as a result of the merger when you vote at your company’s special meeting. Assuming no downward adjustment to the aggregate merger consideration, for each share of Post Oak common stock you own, you will be entitled to receive 0.7017 of a share of Allegiance common stock, plus cash in lieu of a fractional share. In this joint proxy statement/prospectus, we refer to the number of shares of Allegiance common stock that a Post Oak shareholder will receive in the merger, together with cash in lieu of a fractional share, as the “merger consideration.”

Allegiance common stock is listed on NASDAQ under the symbol “ABTX.” Based on the following closing prices of Allegiance common stock on NASDAQ: (i) $40.80 on April 27, 2018, the last trading day before public


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announcement of the merger agreement and (ii) $44.85 on August 1, 2018, the latest practicable trading day before the date of this joint proxy statement/prospectus, the implied value of the per share merger consideration would be approximately $28.63 and $31.47, respectively, and the implied value of the total merger consideration would be approximately $349.9 million and $385.7 million, respectively. Each of the foregoing examples in the preceding sentence assumes there is no adjustment to the merger consideration.

Neither Allegiance nor Post Oak expects the magnitude of any downward adjustment of the aggregate merger consideration to cause Post Oak to re-solicit proxies from its shareholders.

We urge you to obtain current market quotations for Allegiance common stock. There are no current market quotations for Post Oak common stock because Post Oak is a privately-owned corporation and its common stock is not traded on any established public trading market.

Allegiance will hold a special meeting of its shareholders in connection with the merger. At the Allegiance special meeting, the holders of Allegiance common stock (which we refer to as the “Allegiance shareholders”) will be asked to vote (i) to adopt the merger agreement and approve the merger (which we refer to as the “Allegiance Merger Proposal”), (ii) to approve the issuance of the Allegiance common stock in connection with the merger (which we refer to as the “Allegiance Stock Issuance Proposal”), (iii) to approve an amendment to the Amended and Restated Certificate of Formation of Allegiance to increase the amount of authorized capital stock of Allegiance from 41,000,000 shares to 81,000,000 shares (which we refer to as the “Allegiance Charter Amendment Proposal”) and (iv) to approve the adjournment of the Allegiance special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Allegiance Merger Proposal and the Allegiance Stock Issuance Proposal (which we refer to as the “Allegiance Adjournment Proposal”). Adoption of each of the Allegiance Merger Proposal and the Allegiance Charter Amendment Proposal requires the affirmative vote of the holders of two-thirds of the outstanding shares of Allegiance common stock. Adoption of each of the Allegiance Stock Issuance Proposal and the Allegiance Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the Allegiance shareholders at the Allegiance special meeting, in person or by proxy, and entitled to vote as of the Allegiance record date.

Post Oak will hold a special meeting of its shareholders in connection with the merger. Post Oak shareholders will be asked to vote (i) to adopt the merger agreement and approve the merger (which we refer to as the “Post Oak Merger Proposal”) and (ii) to approve the adjournment of the Post Oak special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Post Oak Merger Proposal (which we refer to as the “Post Oak Adjournment Proposal”). Adoption of the Post Oak Merger Proposal requires the affirmative vote of the holders of two-thirds of the outstanding shares of Post Oak common stock. Adoption of the Post Oak Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the Post Oak shareholders on such proposal at the Post Oak special meeting, in person or by proxy, and entitled to vote as of the Post Oak record date.

Your vote is important regardless of the number of shares that you own. Whether or not you plan to attend your company’s special meeting, please take time to vote by following the voting instructions included in the enclosed proxy card. Submitting a proxy now will not prevent you from being able to vote in person at your company’s special meeting.

The Allegiance special meeting will be held on September 14, 2018 at The Houstonian Hotel at 111 North Post Oak Lane, Houston, Texas 77024, at 1:00 p.m. local time. The Post Oak special meeting will be held on September 13, 2018 at the corporate office of Post Oak at 2000 West Loop South, Suite 100, Houston, Texas 77027, at 10:30 a.m. local time.

Allegiance’s board of directors unanimously recommends that the Allegiance shareholders vote “FOR” the adoption of the Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal and the Allegiance Adjournment Proposal.

Post Oak’s board of directors unanimously recommends that Post Oak shareholders vote “FOR” the adoption of the Post Oak Merger Proposal and the Post Oak Adjournment Proposal.


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This joint proxy statement/prospectus describes the Allegiance special meeting, the Post Oak special meeting, the merger, the issuance of the Allegiance common stock in connection with the merger, the documents related to the merger and other related matters. Please carefully read this entire joint proxy statement/prospectus, including “Risk Factors,” beginning on page 38, for a discussion of the risks relating to the merger. You also can obtain information about Allegiance from documents that it has filed with the Securities and Exchange Commission.

 

LOGO

George Martinez

Chairman and Chief Executive Officer

Allegiance Bancshares, Inc.

Telephone: (281) 894-3200

  

LOGO

Roland L. Williams

President, Chairman and Chief Executive Officer

Post Oak Bancshares, Inc.

Telephone: (713) 493-3900

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the merger or passed upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The securities to be issued in the merger are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either Allegiance or Post Oak, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of this joint proxy statement/prospectus is August 2, 2018, and it is first being mailed or otherwise delivered to the shareholders of Allegiance and Post Oak on or about August 6, 2018.


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LOGO

8847 West Sam Houston Parkway, N., Suite 200

Houston, Texas 77040

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

 

To the Shareholders of Allegiance Bancshares, Inc.:

Notice is hereby given that Allegiance Bancshares, Inc. (“Allegiance”) will hold a special meeting of its shareholders on September 14, 2018 at 1:00 p.m., local time, at The Houstonian Hotel at 111 North Post Oak Lane, Houston, Texas 77024 to consider and vote upon the following matters:

 

    a proposal to adopt the Agreement and Plan of Reorganization (the “merger agreement”), by and between Allegiance and Post Oak Bancshares, Inc. (“Post Oak”), and approve the merger, each as more fully described in the accompanying joint proxy statement/prospectus (the “Allegiance Merger Proposal”);

 

    a proposal to approve the issuance of shares of Allegiance common stock in connection with the merger (the “Allegiance Stock Issuance Proposal”);

 

    a proposal to approve an amendment to the Amended and Restated Certificate of Formation of Allegiance to increase the amount of authorized capital stock of Allegiance from 41,000,000 shares to 81,000,000 shares (the “Allegiance Charter Amendment Proposal”); and

 

    a proposal to adjourn the Allegiance special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Allegiance Merger Proposal and the Allegiance Stock Issuance Proposal (the “Allegiance Adjournment Proposal”).

These proposals are described in the accompanying joint proxy statement/prospectus. Allegiance has fixed the close of business on August 1, 2018 as the record date for the Allegiance special meeting. Only holders of record of Allegiance common stock as of the Allegiance record date are entitled to notice of, and to vote at, the Allegiance special meeting, or any adjournment or postponement of the Allegiance special meeting. Adoption of each of the Allegiance Merger Proposal and the Allegiance Charter Amendment Proposal requires the affirmative vote of holders of two-thirds of the outstanding shares of Allegiance common stock. Adoption of each of the Allegiance Stock Issuance Proposal and the Allegiance Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the Allegiance shareholders at the Allegiance special meeting, in person or by proxy, and entitled to vote as of the Allegiance record date.

Allegiance’s board of directors has unanimously approved the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the issuance of Allegiance common stock pursuant to the Allegiance Stock Issuance Proposal, are advisable and in the best interests of Allegiance and its shareholders, and recommends that Allegiance shareholders vote “FOR” the Allegiance Merger Proposal, “FOR” the Allegiance Stock Issuance Proposal, “FOR” the Allegiance Charter Amendment Proposal and “FOR” the Allegiance Adjournment Proposal.

Your vote is very important. Allegiance and Post Oak cannot complete the merger unless Allegiance’s shareholders approve the Allegiance Merger Proposal and the Allegiance Stock Issuance Proposal. Regardless of whether you plan to attend the Allegiance special meeting, please vote as soon as possible. If you hold stock in your name as a shareholder of record of Allegiance, please complete, sign, date and return the accompanying proxy card in the enclosed postage-paid return envelope. If you hold your stock in “street name” through a bank or broker, please follow the instructions on the voting instruction card furnished by the record holder.

This joint proxy statement/prospectus provides a detailed description of the Allegiance special meeting, the proposals to be voted on at the Allegiance special meeting, the documents related to such proposals and other related matters. Allegiance urges you to read the joint proxy statement/prospectus, including any documents it refers you to, and its annexes carefully and in their entirety. We look forward to seeing and visiting with you at the Allegiance special meeting.

BY ORDER OF THE BOARD OF DIRECTORS,

 

LOGO

George Martinez

Chairman and Chief Executive Officer


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LOGO

2000 West Loop South, Suite 100

Houston, Texas 77027

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

 

To the Shareholders of Post Oak Bancshares, Inc.:

Notice is hereby given that Post Oak Bancshares, Inc. (“Post Oak”) will hold a special meeting of its shareholders on September 13, 2018 at 10:30 a.m., local time, at the corporate office of Post Oak at 2000 West Loop South, Suite 100, Houston, Texas 77027 to consider and vote upon the following matters:

 

    a proposal to adopt the Agreement and Plan of Reorganization (the “merger agreement”), by and between Allegiance Bancshares, Inc. (“Allegiance”) and Post Oak, and approve the merger, each as more fully described in the accompanying joint proxy statement/prospectus (the “Post Oak Merger Proposal”); and

 

    a proposal to adjourn the Post Oak special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Post Oak Merger Proposal (the “Post Oak Adjournment Proposal”).

The proposals are described in the accompanying joint proxy statement/prospectus. Post Oak has fixed the close of business on August 1, 2018 as the record date for the Post Oak special meeting (the “Post Oak record date”). Only Post Oak shareholders of record as of the Post Oak record date are entitled to notice of, and to vote at, the Post Oak special meeting, or any adjournment or postponement of the Post Oak special meeting. Approval of the Post Oak Merger Proposal requires the affirmative vote of holders of two-thirds of the outstanding shares of Post Oak common stock. The Post Oak Adjournment Proposal will be approved if a majority of the votes cast on such proposal at the Post Oak special meeting, in person or by proxy, are voted in favor of such proposal.

Post Oak shareholders have the right to dissent from the merger and obtain payment in cash of the appraised fair value of their shares of Post Oak common stock under applicable provisions of the Texas Business Organizations Code (the “TBOC”). In order for such Post Oak shareholder to perfect such Post Oak shareholder’s right to dissent, such Post Oak shareholder must carefully follow the procedure set forth in the TBOC. A copy of the applicable statutory provisions of the TBOC is included as Annex F to the joint proxy statement/prospectus and a summary of the provisions can be found under the section of the joint proxy statement/prospectus entitled “The Merger-Dissenters’ Rights of Post Oak Shareholders.”

Post Oak’s board of directors has unanimously approved the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Post Oak and its shareholders, and unanimously recommends that Post Oak shareholders vote “FOR” the Post Oak Merger Proposal and “FOR” the Post Oak Adjournment Proposal.

Your vote is very important. Allegiance and Post Oak cannot complete the merger unless Post Oak’s shareholders adopt the merger agreement and approve the merger. Regardless of whether you plan to attend the Post Oak special meeting, please vote as soon as possible. If you hold stock in your name as a shareholder of record of Post Oak, please complete, sign, date and return the accompanying proxy card in the enclosed postage-paid return envelope. If you hold your stock in “street name” through a bank or broker, please follow the instructions on the voting instruction card furnished by the bank or broker, as the record holder.

This joint proxy statement/prospectus provides a detailed description of the Post Oak special meeting, the Post Oak Merger Proposal, the documents related to the merger and other related matters. Post Oak urges you to read the joint proxy statement/prospectus, including any documents it refers you to, and its annexes carefully and in their entirety. We look forward to seeing and visiting with you at the Post Oak special meeting.

BY ORDER OF THE BOARD OF DIRECTORS,

 

LOGO

Roland L. Williams

President, Chairman and Chief Executive Officer


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ADDITIONAL INFORMATION

This joint proxy statement/prospectus references important business and financial information about Allegiance and Post Oak from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain those documents incorporated by reference in this joint proxy statement/prospectus by accessing the SEC’s website maintained at http://www.sec.gov, for documents regarding Allegiance, or by requesting copies in writing or by telephone from the appropriate company, as set forth below, for documents regarding either Allegiance or Post Oak:

 

Allegiance Bancshares, Inc.

8847 West Sam Houston Parkway, N., Suite 200

Houston, Texas 77040

Attention: George Martinez

Telephone: (281) 894-3200

  

Post Oak Bancshares, Inc.

2000 West Loop S, Suite 100

Houston, Texas 77027

Attention: Roland L. Williams

Telephone: (713) 439-3900

You will not be charged for any of these documents that you request. To receive timely delivery of these documents in advance of the meetings, you must make your request no later than five business days before the date of your meeting. This means that Allegiance shareholders requesting documents must do so by September 7, 2018, in order to receive them before the Allegiance special meeting, and Post Oak shareholders requesting documents must do so by September 6, 2018, in order to receive them before the Post Oak special meeting.

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (which we refer to as the “SEC”) by Allegiance (File No. 333-225845), constitutes a prospectus of Allegiance under Section 5 of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”), with respect to the shares of Allegiance common stock to be issued to Post Oak shareholders pursuant to the terms of the merger agreement. This document also constitutes a joint proxy statement for both Allegiance and Post Oak under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”). It also constitutes a notice of special meeting with respect to each of the Allegiance special meeting and the Post Oak special meeting.

You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This joint proxy statement/prospectus is dated August 2, 2018, and you should assume that the information in this document is accurate only as of such date. You should assume that the information incorporated by reference into this document is accurate as of the date of such document. Neither the mailing of this document to Allegiance shareholders or Post Oak shareholders nor the issuance by Allegiance of shares of Allegiance common stock in connection with the merger will create any implication to the contrary.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding Allegiance has been provided by Allegiance and information contained in this document regarding Post Oak has been provided by Post Oak.

For more details, see the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information” beginning on page 152.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS

     1  

SUMMARY

     11  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ALLEGIANCE

     24  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF POST OAK

     26  

SELECTED UNAUDITED PRO FORMA FINANCIAL DATA

     28  

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS

     30  

UNAUDITED COMPARATIVE PER SHARE DATA

     37  

RISK FACTORS

     38  

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

     45  

THE POST OAK SPECIAL MEETING

     48  

POST OAK PROPOSALS

     51  

THE ALLEGIANCE SPECIAL MEETING

     52  

ALLEGIANCE PROPOSALS

     56  

INFORMATION ABOUT POST OAK

     58  

POST OAK MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     60  

THE MERGER

     81  

THE MERGER AGREEMENT

     111  

ACCOUNTING TREATMENT

     127  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     128  

DESCRIPTION OF CAPITAL STOCK OF ALLEGIANCE

     131  

COMPARISON OF SHAREHOLDERS’ RIGHTS

     135  

COMPARATIVE MARKET PRICES AND DIVIDENDS

     146  

BENEFICIAL OWNERSHIP OF ALLEGIANCE COMMON STOCK BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF ALLEGIANCE

     149  

BENEFICIAL OWNERSHIP OF POST OAK COMMON STOCK BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF POST OAK

     151  

LEGAL MATTERS

     152  

EXPERTS

     152  

WHERE YOU CAN FIND MORE INFORMATION

     152  

Consolidated Financial Statements of Post Oak

     FS-1  

Annex A         Agreement and Plan of Reorganization

     A-1  

Annex B         Form of Post Oak Voting Agreement

     B-1  

Annex C         Form of Post Oak Director Support Agreement

     C-1  

Annex D         Opinion of Performance Trust Capital Partners, LLC

     D-1  

Annex E         Opinion of Raymond James & Associates, Inc.

     E-1  

Annex F         Rights of Dissenting Owners: Texas Business Organizations Code § 10.351 et. seq.

     F-1  


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QUESTIONS AND ANSWERS

The following are some questions that you, as an Allegiance shareholder or a Post Oak shareholder, may have about the merger, the Allegiance special meeting and the Post Oak special meeting, as applicable, and brief answers to those questions. Allegiance and Post Oak urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger, the Allegiance special meeting and the Post Oak special meeting or the proposals presented at those meetings, as applicable. Additional important information is also contained in the annexes to this joint proxy statement/prospectus. For details about where you can find additional important information, please see the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information” beginning on page 152.

Unless the context otherwise requires, references in this joint proxy statement/prospectus to “Allegiance” refer to Allegiance Bancshares, Inc., a Texas corporation, and its affiliates, including Allegiance Bank, a Texas state bank and a wholly-owned subsidiary of Allegiance (which we refer to as “Allegiance Bank”). Additionally, unless the context otherwise requires, references in this joint proxy statement/prospectus to “Post Oak” refer to Post Oak Bancshares, Inc., a Texas corporation, and its affiliates, including Post Oak Bank, N.A., a national banking association and a wholly-owned subsidiary of Post Oak (which we refer to as “Post Oak Bank”).

 

Q: What is the merger?

 

A: Allegiance and Post Oak entered into the merger agreement on April 30, 2018. Under the merger agreement, Post Oak will merge with and into Allegiance, with Allegiance continuing as the surviving corporation (which we refer to as the “merger”). Immediately following the merger (or at such later time as Allegiance may determine), Allegiance will cause Post Oak Bank to merge with and into Allegiance Bank, with Allegiance Bank as the surviving bank (which we refer to as the “bank merger”).

A copy of the merger agreement is included in this joint proxy statement/prospectus as Annex A.

The merger cannot be completed unless, among other things:

 

    the holders of at least two-thirds of the outstanding shares of Allegiance common stock vote in favor of Allegiance Merger Proposal;

 

    a majority of the votes cast by the Allegiance shareholders at the Allegiance special meeting, in person or by proxy, are voted in favor of the Allegiance Stock Issuance Proposal; and

 

    the holders of at least two-thirds of the outstanding shares of Post Oak common stock vote in favor of the Post Oak Merger Proposal.

 

Q: Why am I receiving this joint proxy statement/prospectus?

 

A: Allegiance and Post Oak are delivering this document to you because it is a joint proxy statement being used by both Allegiance’s board of directors (which we refer to as the “Allegiance Board”) and Post Oak’s board of directors (which we refer to as the “Post Oak Board”) to solicit proxies of their respective shareholders entitled to vote on the matters in connection with approval of the merger and the issuance of shares of Allegiance common stock in the merger, as applicable, and related matters.

Allegiance has called a special meeting of its shareholders to consider and vote on the Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal and other matters described herein. This document serves as the proxy statement for the Allegiance special meeting and describes the proposals to be presented at the Allegiance special meeting. This document also constitutes a notice of special meeting with respect to the Allegiance special meeting.



 

1


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Post Oak has called a special meeting of its shareholders to consider the Post Oak Merger Proposal. This document serves as the proxy statement for the Post Oak special meeting and describes the proposals to be presented at the Post Oak special meeting. It also constitutes a notice of special meeting with respect to the Post Oak special meeting.

In addition, this document is a prospectus that is being delivered to Post Oak shareholders because Allegiance is offering shares of Allegiance common stock to Post Oak shareholders in connection with the merger.

This joint proxy statement/prospectus contains important information about the merger, the proposals being voted on at the Allegiance and Post Oak special meetings and important information to consider in connection with an investment in Allegiance common stock. You should read it carefully and in its entirety. The enclosed materials allow you to have your shares of common stock voted by proxy without attending your company’s special meeting. Your vote is important, and Allegiance and Post Oak encourage you to submit your proxy as soon as possible.

 

Q: What are the Allegiance shareholders being asked to vote on at the Allegiance special meeting?

 

A: Allegiance is soliciting proxies from the Allegiance shareholders with respect to the following proposals:

 

    the Allegiance Merger Proposal;

 

    the Allegiance Stock Issuance Proposal;

 

    the Allegiance Charter Amendment Proposal; and

 

    a proposal to adjourn the Allegiance special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Allegiance Merger Proposal and the Allegiance Stock Issuance Proposal (which we refer to as the “Allegiance Adjournment Proposal”).

Completion of the merger is not conditioned upon approval of the Allegiance Charter Amendment Proposal or the Allegiance Adjournment Proposal.

 

Q: What are Post Oak shareholders being asked to vote on at the Post Oak special meeting?

 

A: Post Oak is soliciting proxies from its common shareholders with respect to the following proposals:

 

    the Post Oak Merger Proposal; and

 

    a proposal to adjourn the Post Oak special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Post Oak Merger Proposal (which we refer to as the “Post Oak Adjournment Proposal”). Completion of the merger is not conditioned upon approval of the Post Oak Adjournment Proposal.

 

Q: What will Post Oak shareholders be entitled to receive in the merger?

 

A: If the merger is completed, each outstanding share of Post Oak common stock (other than shares of Post Oak common stock held by Post Oak or Allegiance, and any Post Oak shareholder who has perfected such shareholder’s dissenter’s rights (which we refer to as a “dissenting shareholder”) under applicable law including the terms and provisions of Chapter 10, Subchapter H of the Texas Business Organizations Code (which we refer to as the “TBOC”)) will be converted into the right to receive 0.7017 of a share (such number being referred to as the “exchange ratio”) of Allegiance common stock (and cash in lieu of a fractional share).

The aggregate merger consideration that Post Oak shareholders would be entitled to receive in the merger will be reduced on a dollar-for-dollar basis (using the volume-weighted average price of Allegiance



 

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common stock on the NASDAQ Stock Market, Inc. Global Market System (which we refer to as “NASDAQ”), for the twenty trading-day period ending on and including the fifth trading day before the day of completion of the merger (which we refer to as the “average closing price”) to determine the number of shares to be subtracted from the aggregate merger consideration) to the extent by which Post Oak’s tangible common equity, as defined in the merger agreement, is less than the minimum equity required by the merger agreement. The minimum equity required by the merger agreement is set at approximately $154.3 million if closing were to occur on the last business day of October 2018, and increases by $1.8 million for each month after October (and decreases by $1.8 million for each month prior to October). As of the date of this joint proxy statement/prospectus, Post Oak estimates that, assuming closing occurs on the last business day of October 2018, the Post Oak tangible common equity as of the closing of the merger will be $154.3 million or greater, resulting in no downward adjustment to the aggregate merger consideration with respect to the Post Oak tangible common equity.

For a discussion of the possible downward adjustment to the aggregate merger consideration including Post Oak’s estimates of its tangible common equity, see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration” beginning on page 113.

In addition, if the average closing price of Allegiance common stock is less than $32.52 per share and Allegiance common stock underperforms a selected index of public Texas community bank stocks by more than 20.0%, Post Oak has the right to terminate the merger agreement. Allegiance has the discretion, but not the obligation, to increase the merger consideration by increasing the number of shares of Allegiance common stock in the aggregate merger consideration such that the value of the aggregate merger consideration is equal to at least $278,564,572 (valuing the aggregate stock consideration based on the average closing price in accordance with the merger agreement). As a result, the number of shares of Allegiance common stock that Post Oak shareholders will receive in the merger may fluctuate with the market price of Allegiance common stock and will not be known at the time that Post Oak shareholders vote on the merger agreement.

Allegiance will not issue any fractional shares of Allegiance common stock in the merger. Post Oak shareholders who would otherwise be entitled to a fraction of a share of Allegiance common stock upon the completion of the merger will instead receive, for the fraction of a share, an amount in cash determined by multiplying the fractional share by the average closing price of Allegiance common stock.

As a result of the foregoing, based on the number of shares of Allegiance common stock and Post Oak common stock outstanding as of August 1, 2018, the last date before the date of this joint proxy statement/prospectus for which it was practicable to obtain this information, approximately 61.6% of outstanding Allegiance common stock following the merger will be held by shareholders who were holders of Allegiance common stock immediately prior to the effective time and approximately 38.4% of outstanding Allegiance common stock will be held by shareholders who were holders of Post Oak common stock immediately prior to the effective time.

 

Q: What will Allegiance shareholders be entitled to receive in the merger?

 

A: Allegiance shareholders will not be entitled to receive any merger consideration and will continue to hold the shares of Allegiance common stock that they held immediately prior to the completion of the merger. Following the merger, shares of Allegiance common stock will continue to be traded on NASDAQ under the symbol “ABTX.”

 

Q: Will the value of the merger consideration change between the date of this joint proxy statement/prospectus and the time the merger is completed?

 

A:

Yes, the value of the aggregate merger consideration will fluctuate between the date of this joint proxy statement/prospectus and the completion of the merger based upon the market value for Allegiance common



 

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  stock. Any fluctuation in the market price of Allegiance common stock after the date of this joint proxy statement/prospectus will change the value of the shares of Allegiance common stock that Post Oak shareholders will be entitled to receive. Consequently, you will not know the exact per share merger consideration to be paid to Post Oak shareholders as a result of the merger when you vote at your company’s special meeting.

The table below sets forth the implied value of the per share merger consideration based on the closing price of Allegiance common stock as quoted by NASDAQ on the specified dates:

 

Date

   Closing Price of
Allegiance Common
Stock
     Implied Value of Per
Share Stock
Consideration(1)
     Aggregate Merger
Consideration(1)
 

April 27, 2018(2)

   $ 40.80      $ 28.63      $ 349,925,165 (3) 

August 1, 2018(4)

     44.85        31.47        385,653,718 (5) 

 

  (1) Assumes there is no adjustment to the merger consideration. For a discussion of the possible adjustments to the merger consideration, see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration” beginning on page 113.
  (2) The last trading day before public announcement of the merger agreement.
  (3) Calculated based on 11,828,154 shares of Post Oak common stock issued and outstanding as of April 27, 2018, and the issuance of 572,850 shares upon the exercise of outstanding Post Oak options with a weighted average exercise price of $8.93.
  (4) The latest practicable trading day before the date of this joint proxy statement/prospectus.
  (5) Calculated based on 11,882,629 shares of Post Oak common stock issued and outstanding as of August 1, 2018, and the issuance of 518,950 shares upon the exercise of outstanding Post Oak options with a weighted average exercise price of $8.94.

The aggregate merger consideration that Post Oak shareholders would be entitled to receive in the merger will be reduced on a dollar-for-dollar basis (using the average closing price of Allegiance common stock to determine the number of shares to be subtracted from the aggregate merger consideration) to the extent by which Post Oak’s tangible common equity, as defined in the merger agreement, is less than the minimum equity required by the merger agreement. The minimum equity required by the merger agreement is set at approximately $154.3 million if closing were to occur on the last business day of October 2018, and increases by $1.8 million for each month after October (and decreases by $1.8 million for each month prior to October). For a discussion of the possible downward adjustment to the aggregate merger consideration including Post Oak’s estimates of its tangible common equity, see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration” beginning on page 113.

In addition, if the average closing price of Allegiance common stock is less than $32.52 per share and Allegiance common stock underperforms the selected index by more than 20.0%, Post Oak has the right to terminate the merger agreement. Allegiance has the discretion, but not the obligation, to increase the merger consideration by increasing the number of shares of Allegiance common stock in the aggregate merger consideration such that the value of the aggregate merger consideration is equal to at least $278,564,572 (valuing the aggregate stock consideration based on the average closing price in accordance with the merger agreement). As a result, the number of shares of Allegiance common stock that Post Oak shareholders will receive in the merger may fluctuate with the market price of Allegiance common stock and will not be known at the time that Post Oak shareholders vote on the merger agreement.

 

Q: How does the Allegiance Board recommend that I vote at the Allegiance special meeting?

 

A: The Allegiance Board unanimously recommends that you vote “FOR” the Allegiance Merger Proposal, “FOR” the Allegiance Stock Issuance Proposal, “FOR” the Allegiance Charter Amendment Proposal and “FOR” the Allegiance Adjournment Proposal.


 

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Q: How does the Post Oak Board recommend that I vote at the Post Oak special meeting?

 

A: The Post Oak Board unanimously recommends that you vote “FOR” the Post Oak Merger Proposal and “FOR” the Post Oak Adjournment Proposal.

 

Q: When and where are the special meetings?

 

A: The Allegiance special meeting will be held at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024 on September 14, 2018, at 1:00 p.m. local time.

The Post Oak special meeting will be held at the corporate office of Post Oak at 2000 West Loop South, Suite 100, Houston, Texas 77027 on September 13, 2018, at 10:30 a.m. local time.

 

Q: What do I need to do now?

 

A: After you have carefully read this joint proxy statement/prospectus and have decided how you wish to vote your shares, please vote your shares promptly so that your shares are represented and voted at your special meeting. If you hold your shares in your name as a shareholder of record, we request that you complete, sign, date and mail your proxy card in the enclosed postage-paid return envelope as soon as possible. If you hold your shares in “street name” through a bank or broker, we request that you direct your bank or broker how to vote in accordance with the instructions you have received from your bank or broker. “Street name” shareholders who wish to vote in person at their special meeting will need to obtain a legal proxy from the institution that holds their shares.

 

Q: What is the difference between a shareholder of record and a “street name” holder?

 

A: If you are an Allegiance shareholder and if your shares of Allegiance common stock are registered directly in your name with Computershare Trust Company, N.A. (which we refer to as “Computershare”), Allegiance’s stock transfer agent, you are considered the shareholder of record with respect to those shares of Allegiance common stock. This joint proxy statement/prospectus and the Allegiance proxy card have been sent directly to you by Computershare at Allegiance’s request. On the close of business on August 1, 2018, the record date for the Allegiance special meeting, Allegiance had approximately 488 holders of record.

If you are a Post Oak shareholder and if your shares of Post Oak common stock are registered directly in your name, you are considered the shareholder of record with respect to those shares of Post Oak common stock. On the close of business on August 1, 2018, the record date for the Post Oak special meeting, Post Oak had approximately 907 holders of record.

If your shares of Allegiance common stock or Post Oak common stock are held in a stock brokerage account or by a bank or other nominee, the nominee is considered the record holder of those shares. You are considered the beneficial owner of these shares, and your shares are held in “street name.” This joint proxy statement/prospectus and the Allegiance proxy card or Post Oak proxy card, as applicable, have been forwarded to you by your nominee. As the beneficial owner, you have the right to direct your nominee concerning how to vote your shares by using the voting instructions it included in the mailing or by following its instructions for voting.

 

Q: If my shares of Allegiance common stock or Post Oak common stock, as applicable, are held in “street name” by my bank or broker, will my bank or broker automatically vote my shares for me?

 

A: No. Your bank or broker cannot vote your shares without instructions from you. You should instruct your bank or broker how to vote your shares in accordance with the instructions provided to you. Please check the voting form used by your bank or broker.


 

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Q: What is a broker non-vote?

 

A: A broker non-vote occurs when a broker or nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker or nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

If you are an Allegiance shareholder, your broker does not have discretionary authority to vote your shares with respect to the Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal or the Allegiance Adjournment Proposal. If you wish for the vote of your shares to be counted, you must direct your broker how to vote your shares.

If you are a Post Oak shareholder, your broker does not have discretionary authority to vote your shares with respect to the Post Oak Merger Proposal or the Post Oak Adjournment Proposal. If you wish for the vote of your shares to be counted, you must direct your broker how to vote your shares.

 

Q: How are broker non-votes and abstentions treated?

 

A: Abstentions and broker non-votes will be counted for purposes of determining the presence or absence of a quorum.

Abstentions and broker non-votes by Allegiance shareholders will not have the effect of a vote against the Allegiance Stock Issuance Proposal.

Abstentions and broker non-votes will have the effect of a vote against the Allegiance Merger Proposal, the Allegiance Charter Amendment Proposal and the Post Oak Merger Proposal because Texas law requires these proposals to be approved by the affirmative vote of the holders of two-thirds of the outstanding shares entitled to vote.

Abstentions and broker non-votes will not have the effect of a vote against the Allegiance Adjournment Proposal or the Post Oak Adjournment Proposal.

 

Q: What constitutes a quorum for the Allegiance special meeting?

 

A: The presence (in person or by proxy) of holders of at least a majority of the voting power represented by all issued and outstanding shares of Allegiance common stock entitled to be voted at the Allegiance special meeting constitutes a quorum for transacting business at the Allegiance special meeting. All shares of Allegiance common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Allegiance special meeting.

 

Q: What constitutes a quorum for the Post Oak special meeting?

 

A: The presence (in person or by proxy) of holders of at least a majority of the voting power represented by all issued and outstanding shares of Post Oak common stock entitled to be voted at the Post Oak special meeting constitutes a quorum for transacting business at the Post Oak special meeting. All shares of Post Oak common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Post Oak special meeting.

 

Q: What is the vote required to approve each proposal at the Allegiance special meeting?

 

A:

Allegiance Merger Agreement Proposal: The affirmative vote of two-thirds of the outstanding shares of Allegiance common stock is required to approve the Allegiance Merger Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to



 

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  instruct your bank or broker how to vote with respect to the Allegiance Merger Proposal, it will have the effect of a vote AGAINST the proposal.

Allegiance Stock Issuance Proposal: The affirmative vote of a majority of the votes cast on the proposal at the Allegiance special meeting, in person or by proxy, is required to approve the Allegiance Stock Issuance Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Stock Issuance Proposal, it will have no effect on the proposal.

Allegiance Charter Amendment Proposal: The affirmative vote of two-thirds of the outstanding shares of Allegiance common stock is required to approve the Allegiance Charter Amendment Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Charter Amendment Proposal, it will have the effect of a vote AGAINST the proposal.

Allegiance Adjournment Proposal: The affirmative vote of a majority of the votes cast on the proposal at the Allegiance special meeting, in person or by proxy, is required to approve the Allegiance Adjournment Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Adjournment Proposal, it will have no effect on the proposal.

 

Q: What is the vote required to approve each proposal at the Post Oak special meeting?

 

A: Post Oak Merger Proposal: The affirmative vote of two-thirds of the outstanding shares of Post Oak common stock is required to approve the Post Oak Merger Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Post Oak special meeting or fail to instruct your bank or broker how to vote with respect to the Post Oak Merger Proposal, it will have the effect of a vote AGAINST the proposal.

Post Oak Adjournment Proposal: The affirmative vote of a majority of the votes cast on the proposal at the Post Oak special meeting, in person or by proxy, is required to approve the Post Oak Adjournment Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Post Oak special meeting or fail to instruct your bank or broker how to vote with respect to the Post Oak Adjournment Proposal, it will have no effect on the proposal.

 

Q: Why is my vote important?

 

A: If you do not vote, it will be more difficult for Allegiance or Post Oak to obtain the necessary quorum to hold their respective special meetings and to obtain approval of the proposals to be voted upon at the special meetings. In addition, if you are a Post Oak shareholder, your failure to vote will have the effect of a vote AGAINST the Post Oak Merger Proposal, and, if you are an Allegiance shareholder, your failure to vote will have the effect of a vote AGAINST the Allegiance Merger Proposal and the Allegiance Charter Amendment Proposal. The Allegiance Board unanimously recommends that you, as an Allegiance shareholder, vote “FOR” the Allegiance Merger Proposal, “FOR” the Allegiance Stock Issuance Proposal and “FOR” the Allegiance Charter Amendment Proposal. The Post Oak Board unanimously recommends that you, as a Post Oak shareholder, vote “FOR” the Post Oak Merger Proposal.

 

Q: Can I attend the special meeting?

 

A:

All shareholders of Allegiance and Post Oak as of the Allegiance record date and the Post Oak record date, respectively (including shareholders of record and shareholders who hold their shares in “street name” through banks, brokers, nominees or any other holder of record) are invited to attend their respective special



 

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  meetings. If you plan to attend your special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, all shareholders of Allegiance and Post Oak must bring a form of personal photo identification in order to be admitted.

Allegiance and Post Oak reserve the right to refuse admittance to anyone without proper proof of share ownership or without proper photo identification. The use of cameras, sound recording equipment, communications devices or any similar equipment during the special meetings is prohibited without Allegiance’s or Post Oak’s express written consent, respectively.

 

Q: If I attend the special meeting, can I vote my shares in person?

Holders of record and beneficial owners of Allegiance common stock can vote in person at the Allegiance special meeting. If you are a beneficial owner of Allegiance common stock, you must obtain a proxy card, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the Allegiance special meeting.

Only Post Oak shareholders of record as of the Post Oak record date can vote in person at the Post Oak special meeting. If you are a beneficial owner of Post Oak common stock who holds shares in “street name” through a broker, bank, trustee or other nominee, you must direct your bank or broker how to vote in accordance with the instructions you have received from your bank or broker.

 

Q: Can I change my vote?

 

A: Allegiance shareholders: Yes. If you are a holder of record of Allegiance common stock, you may change your vote or revoke any proxy at any time before the Allegiance special meeting is called to order by (i) delivering a written notice of revocation to Allegiance’s Corporate Secretary, (ii) completing, signing and returning a new proxy card with a later date than your original proxy card prior to such time that the proxy card for any such holder of common stock must be received, and any earlier proxy will be revoked automatically, (iii) logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically and following the instructions indicated on the proxy card, or (iv) attending the Allegiance special meeting in person, notifying the Corporate Secretary that you are revoking your proxy and voting by ballot at the Allegiance special meeting. Your attendance by itself at the Allegiance special meeting will not automatically revoke your proxy unless you give written notice of revocation to the Corporate Secretary of Allegiance before the Allegiance special meeting is called to order. A revocation or later-dated proxy received by Allegiance after the Allegiance special meeting is called to order will not be recognized and will not affect the vote. All written notices of revocation and other communications with respect to revocation or proxies should be sent to: Allegiance Bancshares, Inc., 8847 West Sam Houston Parkway, N., Suite 200, Houston, Texas 77040, Attention: Corporate Secretary.

If you hold your shares of Allegiance common stock in “street name” through a bank or broker, you should contact your bank or broker to change your vote or revoke your proxy.

Post Oak shareholders: Yes. If you are a holder of record of Post Oak common stock, you may change your vote or revoke any proxy at any time before it is voted by (i) attending and voting in person at the Post Oak special meeting; (ii) giving notice of revocation of the proxy at the Post Oak special meeting; or (iii) delivering to the Secretary of Post Oak (A) a written notice of revocation or (B) a duly executed proxy card relating to the same shares, bearing a date later than the proxy card previously executed. Attendance at the Post Oak special meeting by itself will not automatically revoke your proxy. A revocation or later-dated proxy received by Post Oak after the vote will not be recognized and will not affect the vote. Post Oak’s Secretary’s mailing address is: 2000 West Loop South, Suite 100, Houston, Texas 77027.

If you hold your shares of Post Oak common stock in “street name” through a bank or broker, you should contact your bank or broker to change your vote or revoke your proxy.



 

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Q: What are the expected U.S. federal income tax consequences of the merger?

 

A: The obligations of Allegiance and Post Oak to complete the merger are conditioned on, among other things, the receipt by Allegiance and Post Oak of tax opinions from Bracewell LLP (“Bracewell”) and Fenimore, Kay, Harrison & Ford, LLP (“Fenimore Kay”), respectively, dated as of the closing date of the merger, to the effect that, on the basis of facts, representations and assumptions that are consistent with the facts existing at the effective time of the merger and as set forth and referred to in such opinions, the merger will qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If the merger qualifies as a reorganization under Section 368(a) of the Code, holders of Post Oak common stock generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Post Oak common stock for shares of Allegiance common stock, except with respect to any cash received in lieu of a fractional share of Allegiance common stock. If any of the tax opinion representations and assumptions are incorrect, incomplete or false or are violated, the validity of the opinions described above may be affected and the tax consequences of the merger could differ from those described in this joint proxy statement/prospectus.

For further information, please see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 128. The U.S. federal income tax consequences described above may not apply to all holders of Post Oak common stock. Your tax consequences will depend on your individual situation. Accordingly, holders are urged to consult their own tax advisors for a full understanding of the particular tax consequences to them of the merger.

 

Q: Are Post Oak shareholders entitled to dissenters’ rights?

 

A: Yes, Post Oak shareholders may assert dissenters’ rights. For further information, see “The Merger—Dissenters’ Rights of Post Oak Shareholders” beginning on page 108, which discussion is qualified by the full text of the provisions of the TBOC relating to rights of dissent set forth in Annex F hereto.

 

Q: If I am a Post Oak shareholder, should I send in my Post Oak stock certificates now?

 

A: No. Please do not send in your Post Oak stock certificates with your proxy. After the merger, Allegiance’s exchange agent, Computershare, will send you instructions for exchanging Post Oak stock certificates for the per share merger consideration. See “The Merger Agreement—Conversion of Shares; Exchange of Certificates” beginning on page 115.

 

Q: Whom may I contact if I cannot locate my Post Oak stock certificate(s)?

 

A: If you are unable to locate your original Post Oak stock certificate(s), you should contact Renee Bourland, at (713) 439-3902 or renee.bourland@postoakbank.com.

 

Q: What should I do if I receive more than one set of voting materials?

 

A:

Allegiance shareholders and Post Oak shareholders may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold shares of Allegiance common stock or Post Oak common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you are a holder of record of Allegiance common stock or Post Oak common stock and your shares are registered in more than one name, you will receive more than one proxy card. In addition, if you are a holder of both Allegiance common stock and Post Oak common stock, you will receive one or more separate proxy cards or voting instruction cards for each company. Please



 

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  complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus to ensure that you vote every share of Allegiance common stock and/or Post Oak common stock that you own.

 

Q: When do you expect to complete the merger?

 

A: Allegiance and Post Oak currently expect to complete the merger in the fourth quarter of 2018. However, neither Allegiance nor Post Oak can assure you of when or if the merger will be completed. Before the merger is completed, Allegiance must obtain the approval of Allegiance shareholders for the Allegiance Merger Proposal and the Allegiance Stock Issuance Proposal, Post Oak must obtain the approval of Post Oak shareholders for the Post Oak Merger Proposal, necessary regulatory approvals must be obtained and certain other closing conditions must be satisfied.

 

Q: What happens if the merger is not completed?

 

A: If the merger is not completed, holders of Post Oak common stock will not receive any consideration for their shares in connection with the merger. Instead, Post Oak will remain an independent company. In addition, if the merger agreement is terminated in certain circumstances, Post Oak may be required to pay a termination fee to Allegiance or pay Allegiance’s merger-related expenses. See the section of this joint proxy statement/prospectus entitled “The Merger Agreement—Termination Fee” beginning on page 125 for a complete discussion of the circumstances under which termination fees will be required to be paid.

 

Q: Whom should I call with questions?

 

A: Allegiance shareholders: If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of Allegiance common stock, please contact Investor Relations at (281) 894-3200 or ir@allegiancebank.com or Shareholder Services at Computershare at (800) 962-4284.

Post Oak shareholders: If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of Post Oak common stock, please contact Renee Bourland, at (713) 439-3902 or renee.bourland@postoakbank.com.



 

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SUMMARY

This summary highlights selected information from this joint proxy statement/prospectus. It may not contain all of the information that is important to you. Allegiance and Post Oak urge you to read carefully the entire joint proxy statement/prospectus, including the annexes, and the other documents to which they refer in order to fully understand the merger. A copy of the merger agreement is attached as Annex A. In addition, we incorporate by reference into this joint proxy statement/prospectus important business and financial information about Allegiance. See “Where You Can Find More Information” beginning on page 152. Each item in this summary refers to the page of this joint proxy statement/prospectus on which that subject is discussed in more detail.

Information about the Companies

Allegiance

Allegiance Bancshares, Inc. is a Texas corporation and registered bank holding company headquartered in Houston, Texas. 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, professionals and individual customers. Allegiance believes the size, growth and increasing economic diversity of the Houston metropolitan area, when combined with its super-community banking strategy, provides it with excellent opportunities for long-term, sustainable growth. Allegiance’s super-community banking strategy is designed to foster strong customer relationships while benefitting from a platform and scale that is competitive with larger regional and national banks. Allegiance believes this strategy presents a significant market advantage when serving small to medium-sized business customers and further enables Allegiance to attract talented bankers.

Allegiance currently operates 16 full-service banking locations and one loan production office in the Houston metropolitan area. Allegiance has experienced significant growth since it began banking operations in 2007, resulting from both organic growth, including de novo branching, and two whole-bank acquisitions. As of March 31, 2018, Allegiance had total assets of $2.89 billion, total gross loans of $2.29 billion, total deposits of $2.28 billion and total shareholders’ equity of $312.0 million.

Allegiance’s stock is traded on NASDAQ under the symbol “ABTX”.

Allegiance’s principal office is located at 8847 West Sam Houston Parkway, N., Suite 200, Houston, Texas 77040, and its telephone number at that location is (281) 894-3200. Additional information about Allegiance and its subsidiaries is included in documents incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information,” beginning on page 152.

Post Oak

Formed in 2008, Post Oak is a Texas corporation that owns all of the outstanding shares of common stock of Post Oak Bank, N.A., a national banking association formed in 2004, with operational headquarters in Houston, Texas. Post Oak Bank is a traditional commercial bank offering a variety of banking services to commercial and consumer customers throughout the Houston metropolitan area and Beaumont, Texas. Post Oak Bank offers a range of lending services, including real estate, commercial and consumer loans to individuals and small- to medium-sized business and professional firms that are located in or conduct a substantial portion of their business in Post Oak Bank’s market areas.

Post Oak Bank operates 13 banking locations: 12 located throughout the greater Houston metropolitan area and one in Beaumont, outside of Houston. As of March 31, 2018, Post Oak, on a consolidated basis, reported total assets of $1.43 billion, total loans of $1.15 billion, total deposits of $1.24 billion and shareholders’ equity of $162.7 million. Post Oak does not file reports with the SEC because Post Oak is not a publicly-traded company.



 

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Post Oak’s principal executive offices are located at 2000 West Loop South, Suite 100, Houston, Texas 77027, and its telephone number at that location is (713) 439-3900. Additional information about Post Oak and its subsidiaries is included in documents referred to in the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information,” beginning on page 152.

In the Merger, Post Oak Shareholders Will Be Entitled To Receive Shares of Allegiance Common Stock

Merger Consideration

Allegiance and Post Oak are proposing a strategic merger. If the merger is completed, each share of Post Oak common stock (other than shares of Post Oak common stock held by Post Oak, Allegiance and any dissenting shareholder) will be converted into the right to receive 0.7017 of a share of Allegiance common stock. Allegiance will not issue any fractional shares of Allegiance common stock in the merger. Post Oak shareholders who would otherwise be entitled to a fraction of a share of Allegiance common stock upon the completion of the merger will instead receive, for the fraction of a share, an amount in cash determined by multiplying the fractional share by the average closing price of Allegiance common stock.

The Allegiance common stock is listed on NASDAQ under the symbol “ABTX.” See “Description of Capital Stock of Allegiance” for additional information about the Allegiance common stock. See “Comparison of Shareholders’ Rights” and “Comparative Market Prices and Dividends” for comparative information about the Allegiance common stock and the Post Oak common stock and the rights of holders thereof.

The market value of the shares of Allegiance common stock to be paid as consideration will fluctuate with the market price of Allegiance common stock and will not be known at the time the Post Oak shareholders vote on the Post Oak Merger Proposal and the Allegiance shareholders vote on the Allegiance Merger Proposal and the Allegiance Stock Issuance Proposal.

The table below sets forth the implied value of the per share merger consideration based on the closing price of Allegiance common stock as quoted by NASDAQ on the specified dates:

 

Date

   Closing Price of
Allegiance
Common Stock
     Implied Value of Per
Share Stock
Consideration(1)
     Aggregate Merger
Consideration(1)
 

April 27, 2018(2)

   $ 40.80      $ 28.63      $ 349,925,165 (3) 

August 1, 2018(4)

     44.85        31.47        385,653,718 (5) 

 

(1) Assumes there is no adjustment to the merger consideration. For a discussion of the possible adjustments to the merger consideration, see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration” beginning on page 113.
(2) The last trading day before public announcement of the merger agreement.
(3) Calculated based on 11,828,154 shares of Post Oak common stock issued and outstanding as of April 27, 2018, and the issuance of 572,850 shares upon the exercise of outstanding Post Oak options with a weighted average exercise price of $8.93.
(4) The latest practicable trading day before the date of this joint proxy statement/prospectus.
(5) Calculated based on 11,882,629 shares of Post Oak common stock issued and outstanding as of August 1, 2018, and the issuance of 518,950 shares upon the exercise of outstanding Post Oak options with a weighted average exercise price of $8.94.

The merger agreement governs the merger. The merger agreement is included in this joint proxy statement/prospectus as Annex A. All descriptions in this summary and elsewhere in this joint proxy statement/prospectus of the terms and conditions of the merger are qualified by reference to the merger agreement. Please read the merger agreement carefully for a more complete understanding of the merger.



 

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Adjustments to Merger Consideration

The aggregate merger consideration that Post Oak shareholders would be entitled to receive in the merger will be reduced on a dollar-for-dollar basis (using the average closing price of Allegiance common stock to determine the number of shares to be subtracted from the aggregate merger consideration) to the extent by which Post Oak’s tangible common equity, as defined in the merger agreement, is less than the minimum equity required by the merger agreement. The minimum equity required by the merger agreement is set at approximately $154.3 million if closing were to occur on the last business day of October 2018, and increases by $1.8 million for each month after October (and decreases by $1.8 million for each month prior to October). As of the date of this joint proxy statement/prospectus, Post Oak estimates that, assuming closing occurs on the last business day of October 2018, the Post Oak tangible common equity as of the closing of the merger will be $154.3 million or greater, resulting in no downward adjustment to the aggregate merger consideration with respect to the Post Oak tangible common equity. For additional information regarding the composition and determination of Post Oak tangible common equity, see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration” beginning on page 113.

In addition, if (1) the average closing price of the Allegiance common stock is less than $32.52 and (2) the number obtained by dividing the average closing price by $40.65 is less than the number obtained by dividing (A) the Final Index Price by (B) the Initial Index Price and subtracting 0.20 from such quotient, then Post Oak may give notice of its intent to terminate the merger agreement, at which time Allegiance has the discretion, but not the obligation, to increase the merger consideration by increasing the number of shares of Allegiance common stock in the aggregate merger consideration such that the value of the aggregate merger consideration is equal to at least $278,564,572 (valuing the aggregate stock consideration based on the average closing price in accordance with the merger agreement). The Final Index Price, as such term is used herein, is the average of the daily closing value of the Index for the 20 consecutive trading days ending on and including the fifth trading day preceding the closing date. The Initial Index Price, as such term is used herein, is $42.75 (the closing value of the Index on the date immediately prior to the date of the merger agreement). The Index, as such term is used herein, means the financial institutions with the following trading symbols on an equal weighted basis: CBTX, FFIN, GNBC, GNTY, IBTX, IBOC, LTXB, PB, SBSI and VBTX. If Allegiance elects to increase the merger consideration, Post Oak will no longer have the right to terminate the merger agreement for these reasons. If Allegiance elects not to increase the merger consideration, Post Oak may terminate the merger agreement.

The Allegiance Board Unanimously Recommends that Allegiance Shareholders Vote “FOR” the Allegiance Merger Proposal, “FOR” the Allegiance Stock Issuance Proposal, “FOR” the Allegiance Charter Amendment Proposal and “FOR” the Allegiance Adjournment Proposal (page 52)

The Allegiance Board has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement, including the issuance of the Allegiance common stock, are advisable and in the best interests of Allegiance and its shareholders and has unanimously approved the merger agreement. The Allegiance Board recommends that Allegiance shareholders vote “FOR” the Allegiance Merger Proposal, “FOR” the Allegiance Stock Issuance Proposal and “FOR” the Allegiance Adjournment Proposal. For the factors considered by the Allegiance Board in reaching its decision to approve the merger agreement, see “The Merger—Allegiance’s Reasons for the Merger; Recommendation of the Allegiance Board” beginning on page 96. The Allegiance Board has also determined that the amendment to the Amended and Restated Certificate of Formation of Allegiance to increase the number authorized shares of capital stock is advisable and in the best interests of Allegiance and its shareholders. The Allegiance Board recommends that Allegiance shareholders vote “FOR” the Allegiance Charter Amendment Proposal.



 

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The Post Oak Board Unanimously Recommends that Post Oak Shareholders Vote “FOR” the Post Oak Merger Proposal and “FOR” the Post Oak Adjournment Proposal (page 51)

The Post Oak Board has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Post Oak and its shareholders and has unanimously approved the merger agreement. The Post Oak Board unanimously recommends that Post Oak shareholders vote “FOR” the Post Oak Merger Proposal and “FOR” the Post Oak Adjournment Proposal. For the factors considered by the Post Oak Board in reaching its decision to approve the merger agreement, see “The Merger-Post Oak’s Reasons for the Merger; Recommendation of the Post Oak Board” beginning on page 84.

Post Oak Director Support Agreements and Post Oak Voting Agreement (page 126); Ownership of Directors, Executive Officers and Affiliates (pages 149 and 151)

In connection with entering into the merger agreement, each of the directors of Post Oak and Post Oak Bank who is not a party to an employment agreement has entered into a Director Support Agreement with Allegiance pursuant to which each has agreed to refrain from harming the goodwill of Allegiance, Post Oak or any of their respective subsidiaries and their respective customer, client and vendor relationships.

The directors and certain officers of Post Oak and Post Oak Bank have entered into a voting agreement with Allegiance, solely in their capacity as shareholders of Post Oak, pursuant to which they have agreed to vote in favor of the Post Oak Merger Proposal and in favor of any other matter required to be approved by the shareholders of Post Oak to facilitate the transactions contemplated by the merger agreement. As of the Post Oak record date, the Post Oak shareholders who are party to the voting agreement beneficially own and are entitled to vote in the aggregate approximately 28.9% of the outstanding shares of Post Oak common stock. For more information regarding the voting agreement, see “The Merger Agreement—Post Oak Director Support Agreements and Post Oak Voting Agreement” beginning on page 126.

As of the Post Oak record date, the directors and executive officers of Post Oak and their affiliates beneficially owned and were entitled to vote, in the aggregate, 3,038,559 shares of Post Oak common stock, representing approximately 25.6% of the shares of Post Oak common stock outstanding on that date. Post Oak currently expects that each of its executive officers will vote their shares of Post Oak common stock in favor of the Post Oak Merger Proposal and the Post Oak Adjournment Proposal. As of the Post Oak record date, Allegiance beneficially owned no shares of Post Oak common stock, and the directors and executive officers of Allegiance and their affiliates beneficially owned no shares of Post Oak common stock.

As of the Allegiance record date, the directors and executive officers of Allegiance and their affiliates beneficially owned and were entitled to vote approximately 1,648,807 shares of Allegiance common stock representing approximately 12.3% of the shares of Allegiance common stock outstanding on that date. Allegiance currently expects that each of its executive officers will vote their shares of Allegiance common stock in favor of the Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal and the Allegiance Adjournment Proposal, although none of them has entered into any agreement obligating him or her to do so. As of the Allegiance record date, Post Oak beneficially owned no shares of Allegiance common stock, and the directors and executive officers of Post Oak and their affiliates beneficially owned, in the aggregate, 2,056 shares of Allegiance common stock or less than 1.0% of the outstanding Allegiance common stock.



 

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Opinion of Post Oak’s Financial Advisor (page 86 and Annex D)

On April 30, 2018, Performance Trust Capital Partners, LLC (“Performance Trust”) rendered to the Post Oak Board its written opinion with respect to the fairness, from a financial point of view, to the holders of Post Oak common stock, as of April 30, 2018, of the per share merger consideration plus the assumption and conversion of Post Oak stock options pursuant to the merger agreement (which is defined in the opinion as the “Aggregate Merger Consideration”). Performance Trust’s opinion was directed to the Post Oak Board and only addressed the fairness, from a financial point of view, to the holders of Post Oak common stock of the Aggregate Merger Consideration and did not address any other aspect or implication of the merger. The references to Performance Trust’s opinion in this joint proxy statement/prospectus are qualified in their entirety by reference to the full text of Performance Trust’s written opinion, which is included as Annex D to this joint proxy statement/prospectus and Performance Trust’s opinion sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Performance Trust in preparing its opinion. However, neither Performance Trust’s opinion, nor the summary of its opinion and the related analyses set forth in this joint proxy statement/prospectus is intended to be, and they do not constitute, advice or a recommendation to the Post Oak Board or any shareholder of Post Oak as to how to act or vote with respect to any matter relating to the merger agreement or otherwise. Performance Trust’s opinion was furnished for the use and benefit of the Post Oak Board (in its capacity as such) in connection with its evaluation of the merger and should not be construed as creating, and Performance Trust will not be deemed to have, any fiduciary duty to the Post Oak Board, Post Oak, any security holder or creditor of Post Oak or any other person, regardless of any prior or ongoing advice or relationships. See “The Merger—Opinion of Post Oak’s Financial Advisor” beginning on page 86.

Fairness Opinion to Allegiance’s Board of Directors (page 97 and Annex E)

On April 30, 2018, at the request of the Allegiance Board, representatives of Raymond James & Associates, Inc. (“Raymond James”) rendered its written opinion, dated April 30, 2018, that as of such date and based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion, the exchange ratio in the merger pursuant to the merger agreement was fair, from a financial point of view, to Allegiance.

The full text of the written opinion of Raymond James, dated April 30, 2018, which sets forth, among other things, the various qualifications, assumptions and limitations on the scope of the review undertaken, is included in this joint proxy statement/prospectus as Annex E. Raymond James provided its opinion for the information and assistance of the Allegiance Board (solely in each director’s capacity as such) in connection with, and for purposes of, the Allegiance Board’s consideration of the merger, and its opinion only addresses whether the exchange ratio was fair, from a financial point of view, to Allegiance as of the date of such opinion. The opinion of Raymond James did not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Raymond James opinion does not constitute a recommendation to the Allegiance Board or any holder of Allegiance common stock or Post Oak common stock as to how the Allegiance Board, such shareholder or any other person should vote or otherwise act with respect to the merger or any other matter. See “The Merger—Opinion of Allegiance’s Financial Advisor” beginning on page 97.

How Post Oak Equity-Based Awards Will Be Treated (page 114)

Restricted Stock Awards

At the effective time, each restricted stock award granted by Post Oak will become fully vested and each holder of such restricted stock awards will be entitled to receive the per share merger consideration for each share of Post Oak common stock held by such holder.



 

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Stock Options

Upon completion of the merger, each option to purchase shares of Post Oak common stock granted under the Post Oak Bancshares, Inc. Stock Option Plan, as amended, that is outstanding immediately prior to the merger will automatically be converted into an option to purchase shares of Allegiance common stock. The number of shares of Allegiance common stock purchasable under the converted option, as well as the exercise price of these stock options, will be adjusted to reflect the exchange ratio, rounded to the nearest whole share. Each converted option will remain subject to the same terms and conditions as were applicable prior to the merger.

Post Oak Will Hold the Post Oak Special Meeting on September 13, 2018 (page 48)

The Post Oak special meeting will be held on September 13, 2018, at 10:30 a.m. local time, at the corporate office of Post Oak at 2000 West Loop South, Suite 100, Houston, Texas 77027. At the Post Oak special meeting, Post Oak shareholders will be asked to approve the Post Oak Merger Proposal and the Post Oak Adjournment Proposal.

Only holders of record of Post Oak common stock at the close of business on August 1, 2018, the Post Oak record date, will be entitled to notice of and to vote at the Post Oak special meeting. Each share of Post Oak common stock is entitled to one vote on each proposal to be considered at the Post Oak special meeting. As of the Post Oak record date, there were 11,882,629 shares of Post Oak common stock entitled to vote at the Post Oak special meeting. As of the Post Oak record date, the directors and executive officers of Post Oak and their affiliates beneficially owned and were entitled to vote, in the aggregate, 3,038,559 shares of Post Oak common stock representing approximately 25.6% of the shares of Post Oak common stock outstanding on that date.

The Post Oak Merger Proposal will be approved if at least two-thirds of the outstanding shares of Post Oak common stock are voted in favor of such proposal. If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the Post Oak special meeting or fail to instruct your bank or broker how to vote with respect to the Post Oak Merger Proposal, it will have the effect of a vote AGAINST the Post Oak Merger Proposal.

The Post Oak Adjournment Proposal will be approved if a majority of the votes cast on the proposal at the Post Oak special meeting are voted in favor of the proposal. If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the Post Oak special meeting or fail to instruct your bank or broker how to vote with respect to the Post Oak Adjournment Proposal, it will have no effect on the proposal.

Allegiance Will Hold the Allegiance Special Meeting on September 14, 2018 (page 52)

The Allegiance special meeting will be held on September 14, 2018, at 1:00 p.m. local time, at The Houstonian Hotel at 111 North Post Oak Lane, Houston, Texas 77024. At the Allegiance special meeting, Allegiance shareholders will be asked to approve the Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal and the Allegiance Adjournment Proposal.

Only holders of record of Allegiance common stock at the close of business on August 1, 2018, the Allegiance record date, will be entitled to notice of and to vote at the Allegiance special meeting. Each share of Allegiance common stock is entitled to one vote on each proposal to be considered at the Allegiance special meeting. As of the Allegiance record date, there were 13,367,590 shares of Allegiance common stock entitled to vote at the Allegiance special meeting. As of the Allegiance record date, the directors and executive officers of Allegiance and their affiliates beneficially owned and were entitled to vote approximately 1,648,807 shares of Allegiance common stock representing approximately 12.3% of the shares of Allegiance common stock outstanding on that date.



 

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Each of the Allegiance Merger Proposal and the Allegiance Charter Amendment Proposal will be approved if at least two-thirds of the outstanding shares of Allegiance common stock are voted in favor of such proposal. If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Merger Proposal or the Allegiance Charter Amendment Proposal, it will have the effect of a vote AGAINST the Allegiance Merger Proposal and the Allegiance Charter Amendment Proposal.

Each of the Allegiance Stock Issuance Proposal and the Allegiance Adjournment Proposal will be approved if a majority of the votes cast at the Allegiance special meeting are voted in favor of each such proposal. If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to either of the Allegiance Stock Issuance Proposal or the Allegiance Adjournment Proposal, it will have no effect on such proposal.

Material U.S. Federal Income Tax Consequences of the Merger (page 128)

The obligations of Allegiance and Post Oak to complete the merger are conditioned on, among other things, the receipt by Allegiance and Post Oak of tax opinions from Bracewell and Fenimore Kay, respectively, dated as of the closing date of the merger, to the effect that, on the basis of facts, representations and assumptions that are consistent with the facts existing at the effective time and as set forth and referred to in such opinions, the merger will qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code.

If the merger qualifies as a reorganization under Section 368(a) of the Code, holders of Post Oak common stock generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Post Oak common stock for shares of Allegiance common stock, except with respect to any cash received in lieu of fractional shares of Allegiance common stock. If any of the tax opinion representations and assumptions are incorrect, incomplete or false or are violated, the validity of the opinions described above may be affected and the tax consequences of the merger could differ from those described in this joint proxy statement/prospectus.

For further information, please see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 128. The U.S. federal income tax consequences described above may not apply to all holders of Post Oak common stock. Tax matters are complicated, and the tax consequences of the merger to a particular shareholder will depend in part on such shareholder’s individual circumstances. Accordingly, holders are urged to consult their own tax advisors for a full understanding of the particular tax consequences to them of the merger.

Interests of Post Oak’s Directors and Executive Officers in the Merger (page 105)

In considering the recommendation of the Post Oak Board with respect to the merger agreement, you should be aware that certain of Post Oak’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of the Post Oak shareholders generally. Interests of directors and executive officers that may be different from or in addition to the interests of the Post Oak shareholders include:

 

    Retention Payments. Renee Bourland, Charles Carmouche, Fernando Parra, Robert Phillips, Romi Sandel and Roland L. Williams will receive retention payments in an aggregate amount of approximately $5.2 million from Post Oak upon closing of the merger.

 

   

Employment Agreements. Allegiance’s obligation to consummate the merger is subject to certain of Post Oak’s executive officers having employment and non-competition agreements with Allegiance Bank prior to the completion of the merger. On April 30, 2018, Post Oak Bank and Allegiance Bank



 

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entered into employment agreements with each of Roland L. Williams, Renee Bourland, Fernando Parra, Robert Phillips and Romi Sandel.

The agreements with Mr. Williams and Ms. Bourland are for a term of three years after the effective date of the merger and entitle the named individual to receive a base annual salary, a minimum bonus paid quarterly during the three-year period and a restricted stock award of 8,591 and 5,164 shares, respectively, that will vest over two years, plus reimbursement of certain business expenses and participation in certain employee benefit programs. The agreements also contain non-competition and non-solicitation obligations for three years from the effective date of the merger. For the entire three-year term, the aggregate value of the employment agreements (excluding any stock awards and perquisites) for Mr. Williams and Ms. Bourland is $1.45 million and $750,000, respectively.

The agreements with Messrs. Parra and Phillips and Ms. Sandel are for a term of two years after the effective date of the merger and entitle the named individual to receive a base annual salary, a minimum bonus paid quarterly during the two-year period and a restricted stock award of 6,898, 5,738 and 5,057 shares, respectively, that will vest over four years, plus reimbursement of certain business expenses and participation in certain employee benefit programs. The agreements also contain non-competition and non-solicitation obligations for two years from the effective date of the merger. For the entire two-year term, the aggregate value of the employment agreements (excluding any stock awards and perquisites) for Messrs. Parra and Phillips and Ms. Sandel is $749,000, $657,500 and $582,750, respectively.

The employment agreements entitle each named individual, after termination of employment with Allegiance Bank for any reason other than for cause (as defined in the employment agreement) or as a result of death or disability, to receive payment of base salary and bonus for the remainder of the term of the agreement from Allegiance Bank.

 

    Accelerated Vesting of Restricted Stock Awards. At the effective time of the merger, each restricted stock award granted by Post Oak, including an aggregate of 63,720 shares held by Messrs. Williams, Carmouche, Parra and Phillips and Messes. Bourland and Sandel, will become fully vested and each holder of such restricted stock awards will be entitled to receive the per share merger consideration for each share of Post Oak common stock held by such holder.

 

    Insurance. Post Oak agreed that it will purchase for a period of not less than four years after the effective date of the merger, past acts insurance coverage for no less than the four-year period immediately preceding the effective time of the merger under its (1) current directors and officers insurance policy coverage (or comparable coverage), (2) employment practices liability insurance, (3) current financial institutions bond (or comparable coverage) and (4) bankers professional liability, mortgage errors and omissions and fiduciary liability insurance for each director and officer of Post Oak or one of its subsidiaries currently covered under the comparable policies maintained by Post Oak or one of its subsidiaries.

 

    Director Arrangements. Allegiance agreed to expand the Allegiance Board by three, with one new vacancy created in each class of Allegiance’s staggered board, and fill such newly created vacancies with Mr. Roland L. Williams and two of the outside directors of the board of Post Oak selected by Post Oak and reasonably acceptable to Allegiance.

 

   

Indemnification. Allegiance agreed to indemnify and hold harmless the directors and officers of Post Oak or Post Oak Bank as of the effective time and for four years thereafter, subject to the limitations of any regulatory body, against costs or expenses, judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or before the effective time of the merger, whether asserted or claimed before, at or after the effective time of the merger,



 

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arising in whole or in part out of or pertaining to the fact that he or she was acting in his or her capacity as a director or officer of Post Oak or Post Oak Bank to the fullest extent that the indemnified party would be entitled under the articles of incorporation of Post Oak or the articles of association of Post Oak Bank, as applicable, as in effect on the date of the merger agreement and to the extent permitted by applicable law.

These interests are discussed in more detail in the section of this joint proxy statement/prospectus entitled “The Merger—Interests of Post Oak’s Directors and Executive Officers in the Merger” beginning on page 105. The Post Oak Board was aware of these interests and considered them, among other matters, in approving the merger agreement.

Post Oak does not anticipate that any of the payments described above will impact the amount of the per share merger consideration payable to the Post Oak shareholders. However, the payments to be made with respect to the retention payments and for the “tail” insurance will be accounted for in determining the Post Oak tangible common equity, as more specifically described in the merger agreement, for purposes of determining whether there would be a downward adjustment to the aggregate merger consideration. For additional information on the potential downward adjustments to the aggregate merger consideration, please see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration” beginning on page 113.

In addition, Charles Carmouche, a Post Oak director, is the beneficial owner of 2,056 shares, or less than 1.0%, of Allegiance common stock as of August 1, 2018. Mr. Carmouche disclosed such ownership at the meeting of the Post Oak Board at which the Post Oak Board approved the merger agreement and the transactions contemplated thereby.

Post Oak Shareholders Are Entitled to Assert Dissenters’ Rights (page 108 and Annex F)

Post Oak shareholders have the right to dissent from the merger and obtain payment in cash of the fair value of their shares of Post Oak common stock under the TBOC. In order for such Post Oak shareholder to perfect such Post Oak shareholder’s right to dissent, such Post Oak shareholder must carefully follow the procedure set forth in the applicable provisions of the TBOC. A copy of the applicable statutory provisions of the TBOC is included as Annex F to this joint proxy statement/prospectus and a summary of the provisions can be found under the section of this joint proxy statement/prospectus entitled “The Merger—Dissenters’ Rights of Post Oak Shareholders” beginning on page 108.

Conditions that Must Be Satisfied or Waived for the Merger to Occur (page 121)

Currently, Post Oak and Allegiance expect to complete the merger in the fourth quarter of 2018. As more fully described in this joint proxy statement/prospectus and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. Allegiance’s and Post Oak’s respective obligations to complete the merger are subject to the satisfaction or waiver of the following conditions:

 

    approval of the Post Oak Merger Proposal by the Post Oak shareholders and the approval of the Allegiance Merger Proposal and the Allegiance Stock Issuance Proposal by the Allegiance shareholders;

 

    receipt of all required regulatory approvals of transactions contemplated by the merger agreement, including the merger of Post Oak Bank with and into Allegiance Bank, in a manner that does not impose any restrictions on the operations of Allegiance which are reasonably unacceptable to Allegiance;


 

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    the registration statement of which this joint proxy statement/prospectus forms a part has become effective and no stop order suspending its effectiveness is in effect and no proceedings for that purpose have been initiated and continuing or threatened by the SEC, and all necessary approvals under state securities laws relating to the issuance or trading of the Allegiance common stock to be issued have been received;

 

    the shares of Allegiance common stock to be issued to Post Oak shareholders being authorized for listing on the NASDAQ;

 

    except as explicitly provided in the merger agreement, the other party’s representations and warranties contained in the merger agreement being true and correct as of the date of the merger agreement and being true and correct in all material respects as of the date of the closing and receipt of a certificate signed by an appropriate representative of the other party to that effect;

 

    the absence of a material adverse change in the financial condition, assets, properties, deposits, results of operations, earnings, business or cash flows of either party or any event that could reasonably be expected to cause or result in a material adverse effect on either party;

 

    the performance or compliance in all material respects by each party with its respective covenants and obligations required by the merger agreement to be performed or complied with before the closing of the merger and receipt of a certificate signed by an appropriate representative of the other party to that effect; and

 

    receipt by each party of an opinion of such party’s counsel to the effect that the merger will qualify as a reorganization under Section 368(a) of the Code.

In addition to the conditions listed above, Post Oak’s obligation to complete the merger is subject to certain consents identified in the merger agreement having been obtained by Allegiance, and Post Oak having received evidence thereof in form and substance satisfactory to it.

In addition to the conditions listed above, Allegiance’s obligation to complete the merger is subject to the satisfaction of the following conditions:

 

    each of the directors and certain officers of Post Oak and Post Oak Bank must have executed a release agreement, releasing Post Oak and Post Oak Bank and their respective successors from any and all claims of such directors and officers, subject to certain limited exceptions, and such releases must remain in full force and effect;

 

    certain officers of Post Oak Bank each having entered into a two-year employment and non-competition agreement with Allegiance Bank, which have been executed, and such employment agreements must remain in full force and effect;

 

    each of the non-employee directors of Post Oak and Post Oak Bank having entered into a support (non-competition) agreement with Allegiance, which have been executed, and such support agreements must remain in full force and effect;

 

    each of the directors and certain officers of Post Oak and Post Oak Bank must have executed a voting agreement, which has been executed;

 

    holders of no more than 5.0% of the outstanding Post Oak common stock have demanded or are entitled to demand payment of the appraised fair value of their shares as dissenting shareholders;

 

    Post Oak’s allowance for loan losses as of the closing date must be at a level equal to at least 1.0% of its total loans;

 

    Post Oak’s tangible equity capital must not be less than the minimum equity required by the merger agreement;


 

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    Post Oak will have accrued for any costs and expenses, including legal fees and expenses and settlement costs, related to outstanding legal proceedings;

 

    Post Oak, at the request of Allegiance, will have amended or terminated any employee benefit plans; and

 

    Post Oak having delivered to Allegiance all other instruments and documents which Allegiance or its counsel may reasonably request to effectuate the merger and transactions contemplated by the merger agreement.

Neither Post Oak nor Allegiance can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party, or that the merger will be completed.

Termination of the Merger Agreement (page 124)

Allegiance and Post Oak can mutually agree at any time to terminate the merger agreement without completing the merger. In addition, either Allegiance or Post Oak may decide, without the consent of the other, to terminate the merger agreement if:

 

    any order, decree or ruling or any other action which seeks to restrain, enjoin or prohibit the merger is issued, and such order, decree, ruling or other action is final and non-appealable;

 

    any of the transactions contemplated by the merger agreement are not approved by the appropriate regulatory authorities or the applications or notices are suggested or recommended to be withdrawn by any regulatory authorities;

 

    the merger has not been completed by October 27, 2018 (unless one or more of the regulatory approvals has not been received on or before October 27, 2018, in which case this deadline will be extended to November 26, 2018) or such later date approved in writing by the boards of directors of Allegiance and Post Oak, unless the failure to complete the merger by that time is due to a violation of the merger agreement by the party that seeks to terminate the merger agreement;

 

    Allegiance shareholders fail to approve either the Allegiance Merger Proposal or the Allegiance Stock Issuance Proposal;

 

    Post Oak shareholders fail to approve the Post Oak Merger Proposal; or

 

    the other party materially breaches its representations and warranties or any covenant or agreement contained in the merger agreement and such breach has not been cured within 15 days after the terminating party gives written notice of such failure to the breaching party.

Post Oak may terminate the merger agreement, without the consent of Allegiance, if the board of directors of Post Oak receives an unsolicited, bona fide alternative acquisition proposal (as defined in the merger agreement) and, under certain terms and conditions, determines that it is a superior proposal to that of the merger agreement and that the failure to accept such proposal would be inconsistent with its fiduciary duties; but, Allegiance has the right to adjust the terms and conditions of the merger agreement so that the superior proposal no longer constitutes a superior proposal.

Post Oak may also terminate the merger agreement if (1) the average closing price of the Allegiance common stock is less than $32.52 and (2) the number obtained by dividing the average closing price by $40.65 is less than the number obtained by dividing (A) the Final Index Price by (B) the Initial Index Price and subtracting 0.20 from such quotient. Upon receipt of such notice, Allegiance has the discretion, but not the obligation, to increase the merger consideration by increasing the number of shares of Allegiance common stock in the aggregate merger consideration such that the value of the aggregate merger consideration is equal to at least



 

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$278,564,572 (valuing the aggregate stock consideration based on the average closing price in accordance with the merger agreement). The Final Index Price, as such term is used herein, is the average of the daily closing value of the Index for the 20 consecutive trading days ending on and including the fifth trading day preceding the closing date. The Initial Index Price, as such term is used herein, is $42.75 (the closing value of the Index on the date immediately prior to the date of the merger agreement). The Index, as such term is used herein, means the financial institutions with the following trading symbols on an equal weighted basis: CBTX, FFIN, GNBC, GNTY, IBTX, IBOC, LTXB, PB, SBSI and VBTX. If Allegiance elects to increase the merger consideration, Post Oak will no longer have the right to terminate the merger agreement for these reasons.

In addition, Allegiance may terminate the merger agreement, without the consent of Post Oak, if:

 

    any required regulatory approval is obtained subject to restrictions or conditions on the operations of Post Oak, Post Oak Bank, Allegiance or Allegiance Bank that are reasonably unacceptable to Allegiance;

 

    Post Oak breaches the non-solicitation obligations set forth in the merger agreement in a manner adverse to Allegiance;

 

    the Post Oak Board agrees to accept a superior proposal (as defined in the merger agreement); or

 

    the Post Oak Board withdraws or modifies, in any manner adverse to Allegiance, its recommendation or approval of the merger agreement or the merger or recommends to Post Oak shareholders acceptance or approval of any alternative acquisition proposal.

Termination Fee (page 125)

If the merger agreement is terminated under certain circumstances, including circumstances involving an alternative acquisition proposal and changes in the recommendation of the Post Oak Board, Post Oak may be required to pay to Allegiance a termination fee equal to $14.272 million or up to $775,000 for its merger-related expenses. This termination fee could discourage other companies from seeking to acquire or merge with Post Oak. Termination fees are discussed in more detail in the section of this joint proxy statement/prospectus entitled “The Merger Agreement—Termination Fee” beginning on page 125.

Regulatory Approvals Required for the Merger (page 111)

The merger cannot be completed unless it is approved by the Board of Governors of the Federal Reserve System (which we refer to as the “Federal Reserve”) or such approval is waived by the Federal Reserve. On June 14, 2018, Allegiance filed the required documentation with the Federal Reserve Bank of Dallas to request a waiver of its approval, which was granted on June 26, 2018.

In addition, the merger of Post Oak Bank with and into Allegiance Bank requires the approval of the Federal Deposit Insurance Corporation (which we refer to as the “FDIC”) and the Texas Department of Banking (which we refer to as the “TDB”).

On May 25, 2018, Allegiance Bank filed applications with the FDIC and the TDB to obtain approval of the bank merger. The U.S. Department of Justice will have between 15 and 30 days following approval by the FDIC to challenge the approval on antitrust grounds. While Post Oak and Allegiance do not know of any reason that the Department of Justice would challenge regulatory approval by the FDIC and believe that the likelihood of such action is remote, there can be no assurance that the Department of Justice will not initiate such a proceeding, or if such a proceeding is initiated, as to the result of any such challenge.



 

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Although neither Post Oak nor Allegiance knows of any reason why it cannot obtain these regulatory approvals in a timely manner, Post Oak and Allegiance cannot be certain when or if they will be obtained.

The Rights of Post Oak Shareholders Will Change as a Result of the Merger (page 135)

The rights of Post Oak shareholders will change as a result of the merger due to differences in Allegiance’s and Post Oak’s governing documents. See “Comparison of Shareholders’ Rights” beginning on page 135 for a description of the material differences in shareholders’ rights under each of the Allegiance and Post Oak governing documents.

Market Prices of Securities; Dividends (page 146)

Shares of Allegiance common stock are traded on NASDAQ under the ticker symbol “ABTX.” The last reported sale price of Allegiance common stock on April 27, 2018, the last trading day before public announcement of the merger agreement, was $40.80 per share. The last reported sale price of Allegiance common stock on August 1, 2018 was $44.85 per share. There is no established public trading market for the shares of Post Oak common stock. Neither Allegiance nor Post Oak has historically paid dividends. See “Comparison of Market Prices and Dividends” for more information.

Risk Factors (page 38)

You should consider all the information contained in this joint proxy statement/prospectus in deciding how to vote for the proposals presented in this joint proxy statement/prospectus. In particular, you should consider the factors described under the section of this joint proxy statement/prospectus entitled “Risk Factors” beginning on page 38.

Recent Developments

On July 26, 2018, Allegiance announced its results of operations for the three and six months ended June 30, 2018. Allegiance reported net income of $7.6 million, or $0.55 per diluted share, for the three months ended June 30, 2018, and $15.3 million, or $1.12 per diluted share, for the six months ended June 30, 2018. Net interest income was $27.8 million and $54.7 million for three and six months ended June 30, 2018, respectively, and the net interest margin was 4.21% and 4.20% for the three and six months ended June 30, 2018, respectively. The yield on interest-earning assets was 5.12% and 5.07% for the three and six months ended June 30, 2018, respectively. Total noninterest expense was $19.9 million and $38.6 million for the three and six months ended June 30, 2018, respectively. Allegiance recorded a provision for loan losses of $631 thousand and $1.3 million for the three and six months ended June 30, 2018, respectively. At June 30, 2018, the allowance for loan losses totaled $23.8 million and total nonperforming assets were $14.6 million. Allegiance’s nonperforming assets to total assets ratio was 0.49% at June 30, 2018. At June 30, 2018, Allegiance reported total loans of $2.36 billion, total assets of $2.97 billion, total deposits of $2.31 billion, total interest-bearing deposits of $1.56 billion, total liabilities of $2.65 billion and shareholders’ equity of $319.9 million. At June 30, 2018, Allegiance’s estimated tier 1 common equity to risk-weighted assets ratio was 10.97% and its book value was $23.98 per share.



 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ALLEGIANCE

The following selected consolidated historical financial data of Allegiance as of and for the three months ended March 31, 2018 and 2017, have been derived from Allegiance’s unaudited consolidated financial statements incorporated by reference into this joint proxy statement/prospectus. The following selected consolidated historical financial data of Allegiance as of December 31, 2017 and 2016 and for each of the years ended December 31, 2017, 2016 and 2015, have been derived from Allegiance’s audited consolidated financial statements incorporated by reference into this joint proxy statement/prospectus, and the selected consolidated historical financial data as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2014 and 2013, have been derived from Allegiance’s audited consolidated financial statements not included or incorporated by reference into this joint proxy statement/prospectus. Allegiance’s unaudited consolidated financial statements have been prepared on a basis consistent with Allegiance’s audited consolidated financial statements. In the opinion of management of Allegiance, such unaudited consolidated financial data as of and for the three months ended March 31, 2018 and 2017 reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. Allegiance’s historical results are not necessarily indicative of the results that may be expected for any future period. See “Where You Can Find More Information” beginning on page 152.

 

    As of and for the
Three Months Ended
March 31,
    As of and for the Year Ended December 31,  
    2018     2017     2017     2016(1)     2015(2)     2014     2013(3)  
    (unaudited)        
    (Dollars in thousands, except share and per share data)  

Selected Period End Balance Sheet Data:

             

Cash and cash equivalents

  $ 190,088     $ 184,146     $ 182,103     $ 142,098     $ 148,431     $ 167,540     $ 213,076  

Available for sale securities

    307,411       317,219       309,615       316,455       165,097       84,962       87,007  

Loans held for sale

    —         —         —         —         27,887       —         —    

Loans held for investment

    2,290,494       1,986,438       2,270,876       1,891,635       1,653,165       1,002,054       836,694  

Allowance for loan losses

    24,628       18,687       23,649       17,911       13,098       8,246       6,655  

Goodwill and intangible assets, net

    42,468       43,249       42,663       43,444       44,619       12,891       13,044  

Total assets

    2,886,484       2,592,330       2,860,231       2,450,948       2,084,579       1,280,008       1,164,759  

Noninterest-bearing deposits

    694,880       615,225       683,110       593,751       620,320       373,795       325,410  

Interest-bearing deposits

    1,589,922       1,397,344       1,530,864       1,276,432       1,138,813       759,889       719,921  

Total deposits

    2,284,802       2,012,569       2,213,974       1,870,183       1,759,133       1,133,684       1,045,331  

Total shareholders’ equity

    311,988       289,130       306,865       279,817       258,490       131,778       109,736  

Total common shareholders’ equity

    311,988       289,130       306,865       279,817       258,490       131,778       109,736  

Selected Income Statement Data:

             

Net interest income

  $ 26,889     $ 24,128     $ 103,668     $ 89,864     $ 80,166     $ 46,834     $ 33,891  

Provision for loan losses

    653       1,343       13,188       5,469       5,792       2,150       240  

Net interest income after provision for loan losses

    26,236       22,785       90,480       84,395       74,374       44,684       33,651  

Noninterest income

    1,646       1,341       5,861       7,268       3,992       2,607       1,639  

Noninterest expense

    18,717       16,549       69,962       59,258       54,805       33,458       24,598  

Net income before income taxes

    9,165       7,577       26,379       32,405       23,561       13,833       10,692  

Net income

    7,711       6,047       17,632       22,851       15,786       9,005       6,839  

Net income attributable to common shareholders(4)

    7,711       6,047       17,632       22,851       15,227       9,005       6,839  

Selected Per Share Data:

             

Earnings per common share, basic

  $ 0.58     $ 0.46     $ 1.34     $ 1.78     $ 1.45     $ 1.29     $ 1.25  

Earnings per common share, diluted

    0.57       0.45       1.31       1.75       1.43       1.26       1.22  

Book value per common share

    23.46       22.10       23.20       21.59       20.17       17.62       15.78  

Weighted average common shares outstanding, basic

    13,261,755       13,020,569       13,124,900       12,873,326       10,470,465       6,978,025       5,449,700  

Weighted average common shares outstanding, diluted

    13,541,660       13,376,952       13,457,718       13,073,932       10,654,003       7,142,377       5,621,042  

Shares outstanding at end of period

    13,301,310       13,080,383       13,226,826       12,958,341       12,812,985       7,477,309       6,953,125  


 

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    As of and for the
Three Months Ended
March 31,
    As of and for the Years Ended December 31,  
    2018     2017     2017     2016(1)     2015(2)     2014     2013(3)  
    (unaudited)        

Selected Performance Metrics:

             

Return on average assets(5)(10)

    1.09     0.96     0.65     0.98     0.81     0.75     0.78

Return on average common equity(5)(10)

    10.10     8.61     5.92     8.36     7.43     7.73     9.02

Tax equivalent net interest margin(5)(6)

    4.20     4.38     4.34     4.37     4.68     4.31     4.19

Efficiency ratio(7)

    65.59     64.98     63.89     62.34     65.27     67.79     69.23

Loans to deposits ratio

    100.25     98.70     102.57     101.15     95.56     88.39     80.04

Noninterest expense to average assets(5)(10)

    2.64     2.63     2.59     2.53     2.83     2.80     2.82

Selected Credit Quality Ratios:

             

Nonperforming assets to total assets(8)

    0.49     0.77     0.49     0.75     0.25     0.25     0.25

Nonperforming loans to total loans(9)

    0.58     0.97     0.59     0.88     0.31     0.32     0.31

Allowance for loan losses to nonperforming loans(9)

    1.84     96.75     177.44     107.26     252.66     258.98     258.75

Allowance for loan losses to total loans

    1.08     0.94     1.04     0.95     0.78     0.82     0.80

Provision for loan losses to average loans(5)(10)

    0.12     0.28     0.63     0.31     0.38     0.23     0.04

Net (recoveries) charge-offs to average loans(5) (10)

    (0.06 )%      0.12     0.36     0.04     0.06     0.06     0.02

Capital Ratios:

             

Common equity Tier 1 capital ratio

    10.82     11.10     10.54     11.30     11.72     N/A       N/A  

Tier 1 risk-based capital

    11.19     11.51     10.92     11.73     12.21     11.96     11.60

Total risk-based capital

    13.72     12.35     13.43     12.57     12.92     12.80     12.39

Leverage capital ratio

    9.98     10.28     9.84     10.35     11.02     9.55     9.61

 

(1) Allegiance completed the sale of two branches acquired from F&M Bancshares, Inc. during the first quarter of 2016.
(2) Allegiance completed the acquisition of F&M Bancshares, Inc. on January 1, 2015.
(3) Allegiance completed the acquisition of Independence Bank, National Association on November 16, 2013.
(4) On January 1, 2015, Allegiance issued shares of Series A and Series B preferred stock, in connection with the acquisition of F&M Bancshares, Inc., which had preferred stock outstanding pursuant to the U.S. Treasury’s Troubled Asset Relief Program. Allegiance paid $559 thousand in preferred dividends during 2015. On July 15, 2015, Allegiance redeemed all of the outstanding shares of Series A and Series B preferred stock with cash on hand for an aggregate redemption price of $11.7 million (which is the sum of the liquidation amount plus accrued and unpaid dividends up to, but excluding, the redemption date).
(5) Allegiance calculates average assets and average common equity for a period by dividing the sum of total assets or total common shareholders’ equity, as the case may be, as of the close of business on each day in the relevant period, by the number of days in the period. Allegiance calculates return on average assets by dividing net income for that period by average assets. Allegiance calculates return on average common equity for a period by dividing net income attributable to common shareholders for that period by average common equity and average tangible common equity, as the case may be, for that period.
(6) Net interest margin represents net interest income divided by average interest-earning assets.
(7) Efficiency ratio 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 (including the sale of two Central Texas branches acquired from F&M Bancshares, Inc.). Additionally, taxes and provision for loan losses are not part of this calculation.
(8) Nonperforming assets include nonaccrual loans, loans past due 90 days or more and still accruing interest, repossessed assets and other real estate.
(9) Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest.

(10) Interim periods annualized.



 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF POST OAK

The following selected consolidated historical financial data of Post Oak as of and for the three months ended March 31, 2018 and 2017, have been derived from Post Oak’s unaudited consolidated financial statements included elsewhere in this joint proxy statement/prospectus. The following selected consolidated historical financial data of Post Oak as of and for each of the years ended December 31, 2017 and 2016, have been derived from Post Oak’s audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus, and the selected consolidated historical financial data as of and for each of the years ended December 31, 2015, 2014 and 2013, have been derived from Post Oak’s audited consolidated financial statements not included or incorporated by reference into this joint proxy statement/prospectus. Post Oak’s historical results are not necessarily indicative of the results that may be expected for any future period. See “Where You Can Find More Information” beginning on page 152.

 

    As of and for the Three
Months Ended

March 31,
    As of and for the Years Ended December 31,  
    2018     2017     2017(1)     2016     2015(2)     2014     2013  
    (unaudited)        
    (Dollars in thousands, except per share data)  

Selected Period End Balance Sheet Data:

             

Cash and cash equivalents

  $ 199,179     $ 115,982     $ 199,380       136,944     $ 132,456     $ 156,279     $ 143,951  

Available for sale securities

    48,464       38,505       49,446       38,483       41,787       14,508       13,555  

Loans held for investment

    1,146,661       956,838       1,147,002       925,648       887,450       720,249       604,780  

Allowance for possible credit losses

    11,995       11,421       12,030       11,239       9,894       9,256       8,350  

Goodwill and intangible assets, net

    6,057       5,156       6,190       5,217       4,741       —         —    

Total assets

    1,432,607       1,142,597       1,429,372       1,129,643       1,092,565       901,653       772,461  

Noninterest-bearing deposits

    423,242       399,653       468,256       396,621       320,246       258,305       197,329  

Interest-bearing deposits

    817,909       606,671       783,590       602,013       646,967       540,739       481,987  

Total deposits

    1,241,151       1,006,324       1,251,846       998,634       967,213       799,044       679,315  

Total shareholders’ equity

    162,736       132,885       157,917       129,823       122,367       101,703       92,548  

Selected Income Statement Data:

             

Net interest income

  $ 13,606     $ 11,349     $ 52,027     $ 44,321     $ 37,429     $ 33,456     $ 28,782  

Provision for possible credit losses

    250       200       790       1,952       702       1,882       1,280  

Net interest income after provision for loan losses

    13,356       11,149       51,237       42,369       36,727       31,574       27,502  

Noninterest income

    722       674       4,572       2,481       1,192       940       894  

Noninterest expense

    8,322       7,689       31,912       28,224       23,256       21,143       18,652  

Net income before income taxes

    5,756       4,135       23,897       16,626       14,663       11,371       9,744  

Net income

    4,430       2,601       15,027       10,931       9,612       7,431       6,316  

Selected Per Share Data:

             

Earnings per common share, basic

  $ 0.38     $ 0.24     $ 1.33     $ 0.99     $ 0.90     $ 0.74     $ 0.64  

Earnings per common share, diluted

    0.37       0.23       1.29       0.96       0.87       0.71       0.61  

Book value per common share

    13.81       12.12       13.48       11.92       11.02       9.94       9.31  

Weighted average common shares outstanding,
basic

    11,747,366       10,930,226       11,302,235       10,999,070       10,668,976       10,085,611       9,918,710  

Weighted average common shares outstanding, diluted

    12,111,531       11,341,619       11,669,026       11,428,920       11,023,519       10,520,574       10,423,985  

Shares outstanding at end of period

    11,782,349       10,968,363       11,712,382       10,892,088       11,106,052       10,231,899       9,939,322  


 

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     As of and for the Three
Months Ended
March 31,
    As of and for the Years Ended December 31,  
        2018           2017        2017(1)     2016     2015(2)     2014     2013  
     (unaudited)        

Selected Performance Metrics:

              

Return on average assets(3)(8)

     1.28     0.93     1.15     0.98     1.01     0.90     0.89

Return on average equity(3)(8)

     11.16     7.97     10.19     8.69     8.84     7.67     7.05

Tax equivalent net interest margin(3)(4)

     4.15     4.31     4.24     4.24     3.64     4.24     4.22

Efficiency ratio(5)

     58.08     63.95     57.62     60.31     60.22     61.47     62.85

Loans to deposits ratio

     92.39     95.08     91.62     92.69     91.75     90.14     89.03

Noninterest expense to average assets(3)(8)

     2.40     2.75     2.44     2.53     2.44     2.57     2.62

Selected Credit Quality Ratios:

              

Nonperforming assets to total assets(6)

     0.56     0.51     0.31     0.56     0.46     0.15     0.19

Nonperforming loans to total loans(7)

     0.43     0.55     0.38     0.57     0.45     0.14     0.23

Allowance for possible credit losses to nonperforming loans(7)

     241.88     216.39     274.09     213.51     246.79     890.86     593.46

Allowance for possible credit losses to total loans

     1.05     1.19     1.05     1.21     1.11     1.29     1.38

Provision for possible credit losses to average loans(3)(8)

     0.09     0.09     0.07     0.22     0.08     0.28     0.23

Net charge-offs to average loans(3)(8)

     0.10     0.01     0.00     0.07     0.01     0.15     0.03

Capital Ratios:

              

Common equity Tier 1 capital ratio

     13.61     12.98     13.10     13.24     13.10     N/A       N/A  

Tier 1 risk-based capital

     13.61     12.98     13.10     13.24     13.10     14.00     15.10

Total risk-based capital

     14.65     14.13     14.10     14.42     14.20     15.20     16.30

Leverage capital ratio

     11.16     11.32     10.60     10.92     10.40     11.10     11.90

 

(1) Post Oak completed the acquisition of The State Bank of Texas (“TSBOT”) on April 1, 2017.
(2) Post Oak completed the acquisition of SSB Bancshares, Inc. on December 1, 2015.
(3) Post Oak calculates average assets and average equity for a period by dividing the sum of total assets or total shareholders’ equity, as the case may be, as of the close of business on each day in the relevant period, by the number of days in the period. Post Oak calculates return on average assets by dividing net income for that period by average assets. Post Oak calculates return on average equity for a period by dividing net income for that period by average equity for that period.
(4) Net interest margin represents net interest income divided by average interest-earning assets.
(5) Efficiency ratio 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 (including the bargain purchase gain on the TSBOT acquisition in 2017). Additionally, taxes and provision for possible credit losses are not part of this calculation.
(6) Nonperforming assets include nonaccrual loans, loans past due 90 days or more and still accruing interest, repossessed assets and other real estate.
(7) Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest.
(8) Interim periods annualized.


 

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SELECTED UNAUDITED PRO FORMA FINANCIAL DATA

The following table shows selected unaudited pro forma combined consolidated financial information about the financial condition and results of operations of Allegiance giving effect to the merger. The selected unaudited pro forma combined consolidated financial information assumes that the merger is accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the assets and liabilities of Post Oak, as of the effective date of the merger, will be recorded by Allegiance at their respective fair values and the excess of the merger consideration over the fair value of Post Oak’s net assets will be allocated to goodwill.

The table sets forth the information as if the merger had become effective on March 31, 2018, with respect to financial condition data, and on January 1, 2017, with respect to the results of operations data. The selected unaudited pro forma combined consolidated financial data has been derived from and should be read in connection with the unaudited pro forma combined consolidated financial information, including the notes thereto, which is included in this joint proxy statement/prospectus under “Unaudited Pro Forma Combined Consolidated Financial Statements.”

The selected unaudited pro forma combined consolidated financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented. The selected unaudited pro forma combined consolidated financial information also does not consider any potential impacts of current market conditions on revenues, potential revenue enhancements, anticipated cost savings and expense efficiencies or asset dispositions, among other factors. Further, as explained in more detail in the notes accompanying the detailed unaudited pro forma combined consolidated financial information included under “Unaudited Pro Forma Combined Consolidated Financial Information,” the allocation of the purchase price reflected in the selected unaudited pro forma combined consolidated financial data is subject to adjustments and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Additionally, the final adjustments may be different from the unaudited pro forma adjustments presented in this joint proxy statement/prospectus.

 

     As of
March 31, 2018
 
     (Dollars in
thousands)
 

Pro Forma Combined Consolidated Balance Sheet Data:

  

Cash and cash equivalents

   $ 378,421  

Loans, net

     3,397,294  

Total assets

     4,483,917  

Deposits

     3,527,103  

Borrowed funds

     257,569  

Subordinated debt

     48,719  

Other liabilities

     14,252  

Total shareholders’ equity

     636,274  


 

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     For the Three
Months
Ended
March 31,
2018
     For the Year
Ended
December 31,
2017
 
     (Dollars in thousands, except per
share amounts)
 

Pro Forma Combined Consolidated Statement of Income Data:

     

Net interest income

   $ 41,728      $ 162,668  

Provision for loan losses

     903        13,978  

Noninterest income

     2,295        9,543  

Noninterest expense

     27,415        103,805  

Income before income taxes

     15,705        54,428  

Net income

     12,760        35,358  

Pro Forma Combined Consolidated Per Share Data:

     

Earnings per common share:

     

Basic

   $ 0.59      $ 1.65  

Diluted

     0.58        1.61  

Weighted average common shares outstanding:

     

Basic

     21,529,429        21,392,574  

Diluted

     22,064,869        21,982,769  


 

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UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma combined consolidated balance sheet as of March 31, 2018, and the unaudited pro forma combined consolidated statements of income for the three months ended March 31, 2018, and the year ended December 31, 2017, have been prepared to show the impact on Allegiance’s historical financial position and results of operations of the consummation of the merger, including the expected issuance of 8,267,674 shares of Allegiance common stock to Post Oak’s shareholders based on 11,782,349 shares of Post Oak common stock outstanding at March 31, 2018.

The unaudited pro forma combined consolidated financial information and explanatory notes are based upon the following assumptions:

 

    a closing price of Allegiance common stock of $39.15 per share, which was the closing price of Allegiance common stock on March 31, 2018, as to the expected issuance of 8,267,674 shares of Allegiance common stock to Post Oak’s shareholders;

 

    options to purchase 617,350 shares of Post Oak common stock at a weighted average exercise price of $8.92 outstanding at March 31, 2018; and

 

    that no adjustment is made to the merger consideration to be received by Post Oak shareholders.

The unaudited pro forma combined consolidated financial statements give effect to the acquisition of Post Oak as a business combination under GAAP. Accordingly, all assets and liabilities were recorded at estimated fair value. Pro forma adjustments are included only to the extent they are (i) directly attributable to the acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma combined statement of income, expected to have a continuing impact on the combined results. The pro forma adjustments are based on estimates made for the purpose of preparing these pro forma statements and are described in the accompanying notes. Allegiance’s management believes that the estimates used in these pro forma financial statements are reasonable under the circumstances.

The pro forma adjustments included herein are subject to change as additional information becomes available and additional analyses are performed. The final allocation of the purchase price will be determined after further valuation analyses under GAAP are performed with respect to the fair values of certain tangible and intangible assets and liabilities as of the date of acquisition. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein. In addition, the pro forma financial statements do not include the effects of any potential cost savings which management believes will result from combining certain operating procedures.

Allegiance anticipates that the acquisition of Post Oak will provide the combined company with the ability to better serve its customers, reach new customers and reduce operating expenses. In addition, certain subjective estimates have been utilized in determining the pro forma adjustments applied to the historical results of operations of Post Oak. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had Allegiance and Post Oak been combined during these periods.

The unaudited pro forma combined consolidated financial information has been derived from, and should be read in conjunction with, the historical consolidated financial statements and related notes of Allegiance and Post Oak.



 

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2018

 

     As Reported            Pro Forma
Combined
 
     Allegiance     Post Oak     Pro Forma
Adjustments
          

Assets

           

Cash and cash equivalents

   $ 190,088     $ 199,179     $ (10,846     (a)      $ 378,421  

Investment securities

     307,411       48,464       —            355,875  

Loans held for investment

     2,290,494       1,146,661       (15,233     (b)        3,421,922  

Allowance for loan losses

     (24,628     (11,995     11,995       (c)        (24,628
  

 

 

   

 

 

   

 

 

      

 

 

 

Loans, net

     2,265,866       1,134,666       (3,238        3,397,294  

Premises and equipment, net

     18,605       21,673       —            40,278  

Other real estate owned

     365       3,133       —            3,498  

Goodwill

     39,389       4,265       166,697       (d)        210,351  

Core deposit intangibles, net

     3,079       1,792       12,213       (e)        17,084  

Other assets

     61,681       19,435       —            81,116  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 2,886,484     $ 1,432,607     $ 164,826        $ 4,483,917  
  

 

 

   

 

 

   

 

 

      

 

 

 

Liabilities and Shareholders’ Equity

           

Deposits:

           

Noninterest-bearing

   $ 694,880     $ 423,242     $ —          $ 1,118,122  

Interest-bearing

     1,589,922       817,909       1,150       (f)        2,408,981  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total deposits

     2,284,802       1,241,151       1,150          3,527,103  

Borrowed funds

     232,569       25,000       —            257,569  

Subordinated debt

     48,719       —         —            48,719  

Other liabilities

     8,406       3,720       2,126       (g)        14,252  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     2,574,496       1,269,871       3,276          3,847,643  

Shareholders’ equity:

           

Preferred equity

     —         —         —            —    

Common stock

     13,302       124       8,436       (h)        21,862  

Capital surplus

     219,760       104,803       221,769       (h)        546,332  

Retained earnings

     82,533       65,809       (76,655     (i)        71,687  

Accumulated other comprehensive loss

     (3,607     (545     545       (j)        (3,607

Treasury stock, at cost

     —         (7,455     7,455       (h)        —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

     311,988       162,736       161,550          636,274  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and shareholders’ equity

   $ 2,886,484     $ 1,432,607     $ 164,826        $ 4,483,917  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

(a) Adjustment reflects transaction related expenses expected to be incurred by Allegiance and Post Oak.
(b) Adjustment to reflect the estimated fair value of Post Oak’s loan portfolio.
(c) Adjustment reflects the elimination of Post Oak’s existing allowance for loan losses. Purchased loans in a business combination are recorded at estimated fair value on the purchase date and the carryover of the related allowance for loan losses is prohibited.


 

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(d) Adjustment to eliminate Post Oak’s goodwill of $4.3 million and record estimated goodwill associated with the merger of $171.0 million.

 

Assets of Post Oak:

  

Cash and cash equivalents

   $ 199,179  

Investment securities

     48,464  

Loans

     1,131,428  

Core deposit intangible

     14,005  

Other assets

     44,241  
  

 

 

 

Total assets acquired

     1,437,317  

Liabilities of Post Oak assumed

     1,273,147  
  

 

 

 

Net assets acquired

   $ 164,170  
  

 

 

 

Merger consideration

   $ 335,132  

Net assets acquired

     164,170  
  

 

 

 

Total goodwill resulting from the acquisition

   $ 170,962  
  

 

 

 

 

(e) Adjustment reflects the elimination of Post Oak’s core deposit intangibles in the amount of $1.8 million and records the new fair value estimate of Post Oak’s core deposit intangibles of $14.0 million. The fair value estimate represents a 1.15% premium on Post Oak’s core deposits. The actual amount of such core deposit intangible assets will be determined upon completion of the merger and the estimated pro forma adjustment could change.
(f) Adjustment to Post Oak’s certificates of deposit to account for current market interest rates.
(g) Adjustment to deferred tax liability for the fair value accounting adjustments related to the acquired assets and assumed liabilities, based on a 21% statutory tax rate.
(h) Adjustment to remove Post Oak’s common stock, additional paid in capital and treasury stock and to record the issuance of shares of Allegiance common stock to Post Oak shareholders.
(i) Adjustment to eliminate Post Oak’s retained earnings that include the impact of acquisition related expenses.
(j) Adjustment to eliminate Post Oak’s accumulated other comprehensive income balance.


 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2018

 

     As Reported         
     Allegiance      Post Oak      Pro Forma
Adjustments
           Pro Forma
Combined
 
     (Dollars in thousands, except per share amounts)  

Interest income

 

Interest and fees on loans

   $ 30,117        14,799      $ 1,149       (k)      $ 46,065  

Interest on investment securities

     2,058        226        —            2,284  

Interest on deposits at other financial institution

     216        565        —            781  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest income

     32,391        15,590        1,149          49,130  

Interest expense on deposits

     3,761        1,904        (84     (l)        5,581  

Interest expense on subordinated debt

     705        —          —            705  

Interest expense on borrowings

     1,036        80        —            1,116  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest expense

     5,502        1,984        (84        7,402  
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income

     26,889        13,606        1,233          41,728  

Provision for loan losses

     653        250        —            903  
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income after provision for loan losses

     26,236        13,356        1,233          40,825  

Noninterest income

             

Service charges on deposit accounts

     399        504        —            903  

Other income

     1,247        218        (73     (m)        1,392  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total noninterest income

     1,646        722        (73        2,295  
  

 

 

    

 

 

    

 

 

      

 

 

 

Noninterest expenses

             

Salaries and employee benefits

     12,794        5,428        —            18,222  

Occupancy and equipment

     1,679        968        —            2,647  

Core deposit intangibles amortization

     195        132        376       (n)        703  

Other

     4,049        1,794        —            5,843  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total noninterest expenses

     18,717        8,322        376          27,415  
  

 

 

    

 

 

    

 

 

      

 

 

 

Income before income tax

     9,165        5,756        784          15,705  

Income tax expense

     1,454        1,326        165       (o)        2,945  
  

 

 

    

 

 

    

 

 

      

 

 

 

Net income

   $ 7,711      $ 4,430      $ 619        $ 12,760  
  

 

 

    

 

 

    

 

 

      

 

 

 

Earnings per common share:

             

Basic

   $ 0.58              $ 0.59  

Diluted

   $ 0.57              $ 0.58  

Weighted average common shares outstanding:

             

Basic

     13,261,755             (p)        21,529,429  

Diluted

     13,541,660             (q)        22,064,869  

 

(k) Adjustment reflects the fair value accretion on Post Oak’s loan portfolio for the three months ended March 31, 2018 assuming the merger was consummated on January 1, 2017, based on a preliminary evaluation of the acquired loan portfolio to estimate the necessary credit and interest rate fair value adjustments.
(l) Adjustment reflects accretion of the premium on acquired Post Oak certificates of deposit for the three months ended March 31, 2018 assuming the merger was consummated on January 1, 2017.
(m) Adjustment to reverse purchase accounting accretion related to the SSB acquisition recorded during the three months ended March 31, 2018.


 

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(n) Adjustment to eliminate Post Oak’s amortization expense on core deposit intangible assets and record estimated amortization of acquired core deposit intangible assets for the three months ended March 31, 2018.
(o) Adjustment to income tax expense to record the income tax effects of pro forma adjustments at the statutory tax rate of 21%.
(p) Adjustment includes the 8,267,674 shares of Allegiance common stock issued in connection with the merger calculated by using the 0.7017 exchange ratio.
(q) Adjustment includes the 8,267,674 shares of Allegiance common stock issued in connection with the merger calculated by using the 0.7017 exchange ratio and 255,535 diluted shares of Allegiance common stock as a result of Post Oak stock options converted to Allegiance stock options.


 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2017

 

     As Reported        
     Allegiance      Post Oak      Pro Forma
Adjustments
           Pro Forma
Combined
 
     (Dollars in thousands, except per share amounts)  

Interest income

             

Interest and fees on loans

   $ 110,331      $ 55,250      $ 6,243       (r)      $ 171,824  

Interest on investment securities

     8,445        888        —            9,333  

Interest on deposits at other financial institution

     662        1,593        —            2,255  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest income

     119,438        57,731        6,243          183,412  
  

 

 

    

 

 

    

 

 

      

 

 

 

Interest expense on deposits

     12,219        5,597        (730     (s)        17,086  

Interest expense on subordinated debt

     629        —          —            629  

Interest expense on borrowings

     2,922        107        —            3,029  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest expense

     15,770        5,704        (730        20,744  
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income

     103,668        52,027        6,973          162,668  

Provision for loan losses

     13,188        790        —            13,978  
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income after provision for loan losses

     90,480        51,237        6,973          148,690  
  

 

 

    

 

 

    

 

 

      

 

 

 

Noninterest income

             

Service charges on deposit accounts

     1,468        863        —            2,331  

Other income

     4,393        3,709        (890     (t)        7,212  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total noninterest income

     5,861        4,572        (890        9,543  
  

 

 

    

 

 

    

 

 

      

 

 

 

Noninterest expenses

             

Salaries and employee benefits

     44,745        20,192        —            64,937  

Occupancy and equipment

     4,400        3,807        —            8,207  

Core deposit intangibles amortization

     781        382        1,931       (u)        3,094  

Other

     20,036        7,531        —            27,567  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total noninterest expenses

     69,962        31,912        1,931          103,805  
  

 

 

    

 

 

    

 

 

      

 

 

 

Income before income tax

     26,379        23,897        4,152          54,428  

Income tax expense

     8,747        8,870        1,453       (v)        19,070  
  

 

 

    

 

 

    

 

 

      

 

 

 

Net income

   $ 17,632      $ 15,027      $ 2,699        $ 35,358  
  

 

 

    

 

 

    

 

 

      

 

 

 

Earnings per common share:

             

Basic

   $ 1.34              $ 1.65  

Diluted

   $ 1.31              $ 1.61  

Weighted average common shares outstanding:

             

Basic

     13,124,900             (w)        21,392,574  

Diluted

     13,457,718             (x)        21,982,769  

 

(r) Adjustment reflects the fair value accretion on Post Oak’s loan portfolio assuming the merger was consummated on January 1, 2017, based on a preliminary evaluation of the acquired loan portfolio to estimate the necessary credit and interest rate fair value adjustments.
(s) Adjustment reflects accretion of the premium on acquired Post Oak certificates of deposit assuming the merger was consummated on January 1, 2017.
(t) Adjustment to reverse purchase accounting accretion related to the SSB acquisition recorded during the year 2017.


 

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(u) Adjustment for the year ended December 31, 2017 to eliminate Post Oak amortization expense on core deposit intangible assets and record estimated amortization of acquired core deposit intangible assets.
(v) Adjustment to income tax expense to record the income tax effects of pro forma adjustments at the statutory tax rate of 21%.
(w) Adjustment includes the 8,267,674 shares of Allegiance common stock issued in connection with the merger calculated by using the 0.7017 exchange ratio.
(x) Adjustment includes the 8,267,674 shares of Allegiance common stock issued in connection with the merger calculated by using the 0.7017 exchange ratio and 257,377 diluted shares as a result of Post Oak stock options converted to Allegiance stock options.


 

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UNAUDITED COMPARATIVE PER SHARE DATA

The following table shows unaudited earnings and book value per share data for Allegiance and Post Oak on a historical and pro forma combined company basis after giving effect to the acquisition of Post Oak by Allegiance as of and for the three months ended March 31, 2018 and year ended December 31, 2017. The information should be read together with the historical consolidated financial statements of Allegiance and Post Oak and the pro forma combined consolidated financial statements, including the notes thereto, which are incorporated by reference or included elsewhere in this joint proxy statement/prospectus.

The selected unaudited pro forma information, while helpful in illustrating the financial characteristics of the combined company under a set of assumptions including the effect of the merger, does not reflect the impact of other factors that may result as a consequence of the merger or consider any potential impacts of current market conditions or the merger on revenues, expense efficiencies or asset dispositions, among other factors, nor the impact of possible business model changes. As a result, unaudited pro forma data is presented for illustrative purposes only and does not represent an attempt to predict or suggest future results. Upon completion of the merger, the operating results of Post Oak will be reflected in the consolidated financial statements of Allegiance on a prospective basis.

The per equivalent Post Oak share data shows the effect of the merger and the 0.7017 exchange ratio.

 

     Allegiance
Historical
     Post Oak
Historical
     Pro Forma
Combined
     Per
Equivalent
Post Oak
Share
 
     (Unaudited)  

Book value per share

           

At March 31, 2018

   $ 23.46      $ 13.81      $ 29.50      $ 20.70  

Basic earnings per share:

           

Three months ended March 31, 2018

   $ 0.58      $ 0.38      $ 0.59      $ 0.42  

Year ended December 31, 2017

     1.34        1.33        1.65        1.16  

Diluted earnings per share:

           

Three months ended March 31, 2018

   $ 0.57      $ 0.37      $ 0.58      $ 0.41  

Year ended December 31, 2017

     1.31        1.29        1.61        1.13  


 

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RISK FACTORS

An investment by Post Oak’s shareholders in Allegiance common stock as a result of the exchange of shares of Allegiance common stock for shares of Post Oak common stock in the merger involves certain risks. Similarly, a decision on the part of Allegiance shareholders to approve the merger and the issuance of shares of Allegiance common stock in connection with that merger also involves risks for the shareholders of Allegiance, who will continue to hold their shares of Allegiance common stock after the merger. Certain material risks and uncertainties connected with the merger and ownership of Allegiance common stock are discussed below. In addition, Allegiance discusses certain other material risks connected with the ownership of Allegiance common stock and with Allegiance’s business under the caption “Risk Factors” appearing in Allegiance’s Annual Report on Form 10-K most recently filed with the SEC and may include additional or updated disclosures of such material risks in its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that it files with the SEC after the date of this joint proxy statement/prospectus, each of which reports is or will be incorporated by reference in this joint proxy statement/prospectus.

Holders of Post Oak common stock and holders of Allegiance common stock should carefully read and consider all of these risks and all other information contained in this joint proxy statement/prospectus, including the discussions of risk factors included in the documents incorporated by reference in this joint proxy statement/ prospectus, in deciding whether to vote for approval of the various proposals for which they may vote at the special meeting of the Post Oak shareholders or the special meeting of the Allegiance shareholders described herein. If any of the risks described in this joint proxy statement/prospectus or those documents incorporated by reference herein result in effects on Allegiance or Allegiance Bank, the value of Allegiance common stock that you, as an existing Allegiance shareholder, currently hold or that you, as an existing Post Oak shareholder, would hold upon consummation of the merger could decline significantly, and the current holders of Allegiance common stock and/or the holders of Post Oak common stock could lose all or part of their respective investments in the Allegiance common stock.

Risks Relating to the Merger

The merger may not be consummated unless important conditions are satisfied.

Allegiance and Post Oak expect the merger to close during the fourth quarter of 2018, but the acquisition is subject to a number of closing conditions. Satisfaction of many of these conditions is beyond Allegiance’s control. If these conditions are not satisfied or waived, the merger will not be completed or may be delayed and each of Allegiance and Post Oak may lose some or all of the intended benefits of the merger. Certain of the conditions that remain to be satisfied include, but are not limited to:

 

    the continued accuracy of the representations and warranties made by the parties in the merger agreement;

 

    the performance by each party of its respective obligations under the merger agreement;

 

    the receipt of required regulatory approvals, including the approval of the FDIC and TDB;

 

    the absence of any injunction, order or decree restraining, enjoining or otherwise prohibiting the merger;

 

    the absence of any material adverse change in the financial condition, business or results of operations of Post Oak or Post Oak Bank;

 

    receipt by Allegiance and Post Oak from their respective tax counsel of a federal tax opinion that the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code;

 

    the effectiveness of the registration statement covering the shares of Allegiance common stock that are expected to be issued to Post Oak shareholders as consideration for the merger;

 

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    the approval of Allegiance’s shareholders with respect to the shares of its common stock that are expected to be issued to Post Oak’s shareholders as consideration for the merger; and

 

    the approval by Post Oak’s shareholders of the merger agreement and the merger.

As a result, the merger may not close as scheduled or at all. In addition, either Allegiance or Post Oak may terminate the merger agreement under certain circumstances. For additional information regarding the conditions to the merger, see “The Merger Agreement—Conditions to Complete the Merger.”

Because the market price of Allegiance common stock will fluctuate, Post Oak shareholders cannot be certain of the precise value of the merger consideration they will be entitled to receive.

Upon completion of the merger, each outstanding share of Post Oak common stock will be converted into the right to receive 0.7017 of a share of Allegiance common stock, together with cash in lieu of a fractional share, subject to adjustment if Post Oak’s tangible common equity is less than the minimum equity required by the merger agreement immediately prior to the closing of the merger, as more fully described below. In addition, if the Allegiance average closing price is less than $32.52 per share and Allegiance common stock underperforms the selected index by more than 20.0%, Allegiance has the right to increase the merger consideration to prevent a termination of the merger agreement by Post Oak. For a discussion of the possible upward adjustment to the aggregate merger consideration, see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration.” There will be a lapse of time between each of the date of this joint proxy statement/prospectus, the date of the Allegiance special meeting, the date of the Post Oak special meeting and the date on which Post Oak shareholders entitled to receive the merger consideration actually receive the merger consideration. The market value of Allegiance common stock may fluctuate during these periods as a result of a variety of factors, including general market and economic conditions, changes in Allegiance’s businesses, operations and prospects and regulatory considerations. Many of these factors are outside of the control of Allegiance and Post Oak. Consequently, at the time Post Oak shareholders must decide whether to approve the merger agreement, they will not know the actual market value of the shares of Allegiance common stock they may receive when the merger is completed. The value of the merger consideration will depend on the market value of shares of Allegiance common stock on the date the merger consideration is received. This value will not be known at the time of the Post Oak special meeting and may be more or less than the current price of Allegiance common stock or the price of Allegiance common stock at the time of the Post Oak special meeting.

The merger consideration could be reduced if Post Oak’s tangible common equity is less than the minimum equity required by the merger agreement immediately prior to the closing of the merger.

The aggregate merger consideration that Post Oak shareholders would be entitled to receive in the merger will be reduced on a dollar-for-dollar basis (using the average closing price of Allegiance common stock to determine the number of shares to be subtracted from the aggregate merger consideration) to the extent by which Post Oak’s tangible common equity, as defined in the merger agreement, is less than the minimum equity required by the merger agreement. The minimum equity required by the merger agreement is set at approximately $154.3 million if closing were to occur on the last business day of October 2018, and increases by $1.8 million for each month after October (and decreases by $1.8 million for each month prior to October).

Post Oak’s tangible common equity as calculated prior to the closing of the merger will depend in part on the results of Post Oak’s business operations and the management of expenses by Post Oak prior to the closing of the merger. If Post Oak’s earnings are less than it expects or if its expenses are greater than Post Oak expects, Post Oak’s tangible common equity may be less than the minimum equity required by the merger agreement.

Shareholders will not know the exact value of the aggregate merger consideration they will be entitled to receive when they vote with respect to the merger. For a discussion of the possible downward adjustment to the aggregate merger consideration including Post Oak’s estimates of its tangible common equity, see “The Merger Agreement—Structure of the Merger—Adjustments to Merger Consideration.”

 

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Regulatory approvals may not be received, may take longer than expected or may impose conditions that Allegiance does not anticipate or that cannot be met.

Before the merger may be completed, various approvals must be obtained from bank regulatory authorities, including the FDIC and the TDB. These regulators may impose conditions on the completion of, or require changes to the terms of, the merger. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or of imposing additional costs or limitations on Allegiance following the completion of the merger. The regulatory approvals may not be received at all, may not be received in a timely fashion or may contain conditions on the completion of the merger that are burdensome, not anticipated or cannot be met. If the completion of the merger is delayed, including by a delay in receipt of necessary governmental approvals, the business, financial condition and results of operations of Allegiance and Post Oak may also be materially adversely affected.

The market price of Allegiance common stock after the merger may be affected by factors different from those affecting Post Oak common stock or Allegiance common stock currently.

The businesses of Allegiance and Post Oak differ in some respects and, accordingly, the results of operations of the combined company and the market price of Allegiance’s shares of common stock after the merger may be affected by factors different from those currently affecting the results of operations of each of Allegiance and Post Oak. For a discussion of the business of Allegiance and of certain factors to consider in connection with that business, see the documents incorporated by reference into this joint proxy statement/prospectus and referred to under “Where You Can Find More Information.”

Post Oak will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Post Oak and consequently, if the merger occurs, on Allegiance. These uncertainties may impair Post Oak’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Post Oak to seek to change existing business relationships with Post Oak, which could negatively affect Post Oak’s results of operations. Retention of certain employees may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with Allegiance. If key employees depart, Allegiance’s business following the merger could be harmed. In addition, the merger agreement restricts Post Oak from making certain acquisitions and loans and taking other specified actions until the merger occurs without the consent of Allegiance. These restrictions may prevent Post Oak from pursuing attractive business opportunities that may arise prior to the completion of the merger. See the section entitled “The Merger Agreement—Covenants and Agreements—Conduct of Business Prior to the Completion of the Merger” of this joint proxy statement/prospectus for a description of the restrictive covenants to which Post Oak is subject.

Combining the two companies may be more difficult, costly or time consuming than expected, and the anticipated benefits and cost savings of the merger may not be realized.

Allegiance and Post Oak have operated and, until the completion of the merger, will continue to operate, separately. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on Allegiance’s ability to successfully combine and integrate the businesses of Allegiance and Post Oak in a manner that permits growth opportunities and does not materially disrupt existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors, employees and other constituents or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect Allegiance’s ability to successfully conduct its business, which could have an adverse effect on Allegiance’s financial results and the value of its

 

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common stock. If Allegiance experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause Allegiance and/or Post Oak to lose customers or cause customers to remove their accounts from Allegiance and/or Post Oak and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Post Oak and Allegiance during this transition period and on the combined company for an undetermined period after completion of the merger. In addition, the actual cost savings of the merger could be less than anticipated.

Allegiance’s and Post Oak’s historical and pro forma combined consolidated financial information may not be representative of Allegiance’s results as a combined company.

The unaudited pro forma combined financial statements in this joint proxy statement/prospectus are presented for illustrative purposes only and are not necessarily indicative of what Allegiance’s actual financial condition or results of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma combined financial statements reflect adjustments to illustrate the effect of the merger had they been completed on the dates indicated. Such unaudited pro forma combined financial statements are based upon preliminary estimates to record the Post Oak identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation for the merger reflected in this joint proxy statement/prospectus is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the identifiable assets and identifiable liabilities of Post Oak as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. For more information, see the section of this joint proxy statement/prospectus entitled “Unaudited Pro Forma Combined Consolidated Financial Statements.”

Allegiance will incur significant transaction and integration costs in connection with the merger.

Allegiance expects to incur significant costs associated with completing the merger and integrating Post Oak’s operations into Allegiance’s operations and is continuing to assess the impact of these costs. Although Allegiance believes that the elimination of duplicate costs, as well as the realization of other efficiencies related to the integration of Post Oak’s business with Allegiance’s business, will offset incremental transaction and integration costs over time, this net benefit may not be achieved in the near term, or at all.

Post Oak’s officers and directors have interests in the merger in addition to or different from the interests that they share with you as a Post Oak shareholder.

Some of Post Oak’s executive officers participated in negotiations of the merger agreement with Allegiance, and the Post Oak Board approved the merger agreement and is recommending that Post Oak shareholders vote to approve the merger agreement. In considering these facts and the other information included in or incorporated by reference into this joint proxy statement/prospectus, you should be aware that certain of Post Oak’s executive officers and directors have economic interests in the merger that are different from or in addition to the interests that they share with you as a Post Oak shareholder. These interests include, as a result of the merger, the payment of certain benefits to Roland L. Williams, Chairman, Chief Executive Officer and President, and Renee C. Bourland, Executive Vice President and Chief Financial Officer, among other Post Oak officers, are entitled under existing agreements and arrangements with Post Oak. For further discussion of the interests of Post Oak’s directors and officers in the merger, see “The Merger—Interests of Directors and Officers of Post Oak in the Merger.”

 

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Holders of Post Oak common stock and Allegiance common stock will have a reduced ownership and voting interest after the merger and will exercise less influence over management.

Holders of Post Oak common stock and Allegiance common stock currently have the right to vote in the election of the board of directors and on other matters affecting Post Oak and Allegiance, respectively. Upon the completion of the merger, each Post Oak shareholder who receives shares of Allegiance common stock will become an Allegiance shareholder with a percentage ownership of Allegiance that is smaller than the shareholder’s percentage ownership of Post Oak. Based on the number of outstanding shares of common stock of Allegiance and Post Oak on August 1, 2018, it is currently expected that the former Post Oak shareholders as a group will receive shares in the merger constituting approximately 38.4% of the outstanding shares of Allegiance common stock immediately after the merger. As a result, current Allegiance shareholders as a group will own approximately 61.6% of the outstanding shares of Allegiance common stock immediately after the merger. Because of this reduced ownership percentage, Post Oak shareholders may have less influence on the management and policies of Allegiance than they now have on the management and policies of Post Oak, and current Allegiance shareholders may have less influence than they now have on the management and policies of Allegiance. Upon consummation of the merger, Allegiance has agreed to appoint Roland L. Williams and two other current members of the Post Oak Board to the Allegiance Board and the board of directors of Allegiance Bank.

The merger agreement limits Post Oak’s ability to pursue alternatives to the merger.

The merger agreement prohibits Post Oak from initiating, soliciting, encouraging or facilitating certain third-party acquisition proposals. In addition, Post Oak has agreed to pay Allegiance a termination fee of $14.272 million if the transaction is terminated because Post Oak decides to enter into or close another acquisition transaction or up to $775,000 in Allegiance’s expenses if Post Oak fails to call or does not receive the required vote at the Post Oak special meeting and an acquisition proposal (as defined in the merger agreement) exists. These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Post Oak from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Post Oak than it might otherwise have proposed to pay.

The fairness opinions rendered to the boards of directors of Allegiance and Post Oak by their respective financial advisors were based on the respective financial analyses performed by each of the financial advisors. The financial advisors considered factors such as market and other conditions then in effect, and financial forecasts and other information made available to such firm, as of the date of their respective opinions. As a result, these opinions do not reflect changes in events or circumstances after the date of these opinions. Allegiance and Post Oak have not obtained, and do not expect to obtain, updated fairness opinions from their respective financial advisors reflecting changes in circumstances that may have occurred since the signing of the merger agreement.

The opinions rendered on April 30, 2018 by Raymond James, financial advisor to Allegiance, and by Performance Trust, financial advisor to Post Oak, were based on the respective financial analyses performed, which considered market and other conditions then in effect, and financial forecasts and other information made available to them, as of the date of their respective opinions, which may have changed, or may change, after the date of the opinions. Neither opinion has been updated to reflect changes that may occur or may have occurred after the date on which it was delivered, including changes to the operations and prospects of Allegiance or Post Oak, changes in general market and economic conditions or other changes. Any such changes may alter the relative value of Allegiance or Post Oak or the prices of shares of Allegiance common stock or Post Oak common stock by the time the merger is completed. The opinions do not speak as of the date the merger will be completed or as of any date other than the date of such opinions. For a description of the opinion that Allegiance received from its financial advisor, please see “The Merger—Opinion of Allegiance’s Financial Advisor.” For a description of the opinion that Post Oak received from its financial advisor, please see “The Merger—Opinion of Post Oak’s Financial Advisor.”

 

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The shares of Allegiance common stock to be received by Post Oak shareholders as a result of the merger will have different rights than the shares of Post Oak common stock and in some cases may be less favorable.

The rights associated with Post Oak common stock are different from the rights associated with Allegiance common stock. In some cases, the rights associated with the Allegiance common stock may be less favorable to shareholders than those associated with the Post Oak common stock. For example, holders of Post Oak common stock currently elect each member of their board of directors at each annual meeting of the Post Oak shareholders. Upon consummation of the merger, the holders of Post Oak common stock will hold Allegiance common stock that provides that the members of only one of three classes of directors are elected at each annual meeting of Allegiance shareholders, which could have an anti-takeover effect and may delay, discourage or prevent an attempted acquisition or change in control of Allegiance. See “Comparison of Shareholders’ Rights” for a more detailed description of the shareholder rights of each of Allegiance and Post Oak.

The dissenters’ rights appraisal process relating to shares of the Post Oak common stock is uncertain.

Holders of Post Oak common stock may or may not be entitled to receive more than the amount provided for in the merger agreement for their shares of Post Oak common stock if they elect to exercise their right to dissent from the proposed merger, depending on the appraisal of the fair value of the Post Oak common stock pursuant to the dissenting shareholder procedures under the TBOC. See “The Merger—Dissenters’ Rights of Post Oak Shareholders” and Annex F. For this reason, the amount of cash that such shareholders might be entitled to receive should they elect to exercise their right to dissent to the merger may be more or less than the value of the merger consideration to be paid pursuant to the merger agreement. In addition, it is a condition in the merger agreement that the holders of not more than 5.0% of the outstanding shares of Post Oak common stock shall have exercised their statutory dissenters’ rights under the TBOC. The number of shares of Post Oak common stock for which holders will exercise dissenters’ rights under the TBOC is not known and therefore there is no assurance that this closing condition will be satisfied.

Allegiance and Post Oak have structured the merger to qualify as a reorganization for U.S. federal income tax purposes. However, no ruling has been or will be sought from the IRS regarding the U.S. federal income tax consequences of the merger.

The obligations of Allegiance and Post Oak to complete the merger are conditioned on, among other things, the receipt by Allegiance and Post Oak of tax opinions from Bracewell and Fenimore Kay, respectively, dated as of the closing date of the merger, to the effect that, on the basis of facts, representations and assumptions that are consistent with the facts existing at the effective time of the merger and as set forth and referred to in such opinions, the merger will qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. However, no ruling has been or will be sought from the U.S. Internal Revenue Service (referred to as the “IRS”) as to the U.S. federal income tax consequences of the merger. There can be no assurance that the IRS will not successfully challenge the intended tax treatment of the merger. In addition, these opinions will be based on certain tax opinion representations and assumptions (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger”). If any of the tax opinion representations and assumptions are incorrect, incomplete or false, or are violated, the validity of the opinions described above may be affected and the tax consequences of the merger could differ from those described in this joint proxy statement/prospectus.

Each shareholder is urged to read the discussion under “Material U.S. Federal Income Tax Consequences of the Merger,” and to consult its own tax advisor for a full understanding of the tax consequences to such shareholder of the merger.

 

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Risk Related to the Allegiance Charter Amendment Proposal

If the proposed amendment to Allegiance’s Amended and Restated Certificate of Formation is approved, Allegiance will be able to issue additional shares of its common stock in the future, which may adversely affect the market price of Allegiance common stock and dilute the holdings of existing shareholders.

The proposed amendment to Allegiance’s Amended and Restated Certificate of Formation, if approved by Allegiance shareholders, will increase the number of authorized shares of Allegiance’s common stock by 40,000,000 shares. In the future, Allegiance may issue additional shares of Allegiance common stock in connection with another acquisition, to increase its capital resources or to raise additional capital if Allegiance’s or Allegiance Bank’s capital ratios fall below or near the regulatory required minimums. Significant issuances of common stock may dilute the holdings of Allegiance’s existing shareholders or reduce the market price of Allegiance common stock, or both. Holders of Allegiance common stock are not entitled to preemptive rights or other protections against dilution.

 

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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus and the documents incorporated by reference or deemed incorporated by reference into this joint proxy statement/prospectus and any other written or oral statements made by Allegiance and Post Oak from time to time may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements, other than statements of historical fact, included in this joint proxy statement/prospectus and the documents incorporated by reference herein and therein, regarding strategy, future operations, financial position, estimated revenues and income or losses, projected costs and capital expenditures, prospects, plans and objectives of management are forward-looking statements. When used in this joint proxy statement/prospectus and the documents incorporated by reference herein and therein, the words “plan,” “endeavor,” “will”, “would,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are (or were when made) based on current expectations and assumptions about future events and are (or were when made) based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described in the “Risk Factors” section of this joint proxy statement/prospectus.

There are or will be important factors that could cause Allegiance’s or Post Oak’s actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, the following:

 

    risks related to the merger, including the failure of Post Oak’s shareholders to approve the Post Oak Merger Proposal or the failure of Allegiance’s shareholders to approve either the Allegiance Merger Proposal or the Allegiance Stock Issuance Proposal;

 

    the ability of Allegiance and Post Oak to obtain the required regulatory approvals of the merger and the bank merger on the proposed terms and schedule;

 

    the ability of Allegiance to successfully combine and integrate the businesses of Allegiance and Post Oak;

 

    risks related to the concentration of Allegiance’s business in the Houston metropolitan area, including risks associated with volatility or decreases in oil and gas prices or prolonged periods of lower oil and gas prices;

 

    general market conditions and economic trends nationally, regionally and particularly in the Houston metropolitan area;

 

    Allegiance’s ability to retain executive officers and key employees and their customer and community relationships;

 

    Allegiance’s ability to recruit and retain successful bankers that meet Allegiance’s expectations in terms of customer and community relationships and profitability;

 

    risks related to Allegiance’s strategic focus on lending to small to medium-sized businesses;

 

    Allegiance’s ability to implement Allegiance’s growth strategy, including through the identification of acquisition candidates that will be accretive to Allegiance’s financial condition and results of operations, as well as permitting decision-making authority at the branch level;

 

    risks related to any businesses Allegiance acquires in the future, including exposure to potential asset and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the need for additional capital to finance such transactions and possible failures in realizing the anticipated benefits from such acquisitions;

 

    risks associated with Allegiance’s owner-occupied commercial real estate loan and other commercial real estate loan portfolios, including the risks inherent in the valuation of the collateral securing such loans;

 

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    risks associated with Allegiance’s commercial and industrial loan portfolio, including the risk for deterioration in value of the general business assets that generally secure such loans;

 

    the accuracy and sufficiency of the assumptions and estimates Allegiance makes in establishing reserves for potential loan losses and other estimates;

 

    risk of deteriorating asset quality and higher loan charge-offs, as well as the time and effort necessary to resolve nonperforming assets;

 

    potential changes in the prices, values and sales volumes of commercial and residential real estate securing Allegiance’s real estate loans;

 

    changes in market interest rates that affect the pricing of Allegiance’s loans and deposits and Allegiance’s net interest income;

 

    potential fluctuations in the market value and liquidity of the securities Allegiance holds for sale;

 

    risk of impairment of investment securities, goodwill, other intangible assets or deferred tax assets;

 

    the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services, which may adversely affect Allegiance’s pricing and terms;

 

    risks associated with negative public perception of Allegiance;

 

    Allegiance’s ability to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting;

 

    risks associated with fraudulent and negligent acts by Allegiance’s customers, employees or vendors;

 

    Allegiance’s ability to keep pace with technological change or difficulties when implementing new technologies;

 

    risks associated with system failures or failures to protect against cybersecurity threats, such as breaches of Allegiance’s network security;

 

    Allegiance’s ability to comply with privacy laws and properly safeguard personal, confidential or proprietary information;

 

    risks associated with data processing system failures and errors;

 

    potential risk of environmental liability related to owning or foreclosing on real property;

 

    the institution and outcome of litigation and other legal proceeding against Allegiance or to which it becomes subject;

 

    Allegiance’s ability to maintain adequate liquidity and to raise necessary capital to fund Allegiance’s acquisition strategy and operations or to meet increased minimum regulatory capital levels;

 

    Allegiance’s ability to comply with various governmental and regulatory requirements applicable to financial institutions;

 

    the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by Allegiance’s regulators, such as the further implementation of the Dodd-Frank Act;

 

    governmental monetary and fiscal policies, including the policies of the Federal Reserve;

 

    Allegiance’s ability to comply with supervisory actions by federal and state banking agencies;

 

    changes in the scope and cost of FDIC insurance and other coverage;

 

    systemic risks associated with the soundness of other financial institutions;

 

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    the effects of war or other conflicts, acts of terrorism (including cyberattacks) or other catastrophic events, including storms, droughts, tornadoes and flooding, that may affect general economic conditions; and

 

    other risks and uncertainties listed from time to time in Allegiance’s reports and documents filed with the SEC.

Other factors not identified above, including those described under the headings “Risk Factors” in this joint proxy statement/prospectus and Allegiance’s Annual Report on Form 10-K for the year ended December 31, 2017 and the other documents incorporated by reference into this joint proxy statement/prospectus, may also cause actual results to differ materially from those described in any forward-looking statements. Most of these factors are difficult to anticipate, are generally beyond the control of Allegiance and Post Oak and may prove to be inaccurate. You should consider these factors in connection with considering any forward-looking statements.

All forward-looking statements, expressed or implied, included in or incorporated by reference into this joint proxy statement/prospectus are expressly qualified in their entirety by this cautionary note. This cautionary note should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, Allegiance and Post Oak disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect new information obtained or events or circumstances that occur after the date any such forward-looking statement is made.

 

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THE POST OAK SPECIAL MEETING

This section contains information for Post Oak shareholders about the Post Oak special meeting that Post Oak has called to allow its shareholders to consider and vote on the Post Oak Merger Proposal. Post Oak is mailing this joint proxy statement/prospectus to you, as a Post Oak shareholder, on or about August 6, 2018. This joint proxy statement/prospectus is accompanied by a notice of the Post Oak special meeting and a form of proxy card that the Post Oak Board is soliciting for use at the Post Oak special meeting and at any adjournments or postponements of the Post Oak special meeting.

Date, Time and Place of the Post Oak Special Meeting

The Post Oak special meeting will be held at the corporate office of Post Oak at 2000 West Loop South, Suite 100, Houston, Texas 77027, at 10:30 a.m. local time, on September 13, 2018. On or about August 6, 2018, Post Oak commenced mailing this document and the enclosed form of proxy card to its shareholders entitled to vote at the Post Oak special meeting.

Matters to Be Considered

At the Post Oak special meeting, you, as a Post Oak shareholder, will be asked to consider and vote upon the following matters:

 

    the Post Oak Merger Proposal; and

 

    the Post Oak Adjournment Proposal.

Completion of the merger is conditioned on, among other things, Post Oak shareholder approval of the merger agreement and the transactions contemplated thereby, including the merger. No other business may be conducted at the Post Oak special meeting.

Recommendation of the Post Oak Board

On April 25, 2018, the Post Oak Board unanimously approved the merger agreement and the transactions contemplated thereby. Based on Post Oak’s reasons for the merger described in the section of this joint proxy statement/prospectus entitled “The Merger—Post Oak’s Reasons for the Merger; Recommendation of the Post Oak Board,” the Post Oak Board believes that the merger is in the best interests of the Post Oak shareholders.

Accordingly, the Post Oak Board recommends that you vote “FOR” the Post Oak Merger Proposal and “FOR” the Post Oak Adjournment Proposal.

Post Oak Record Date and Quorum

The Post Oak Board has fixed the close of business on August 1, 2018 as the Post Oak record date for determining the holders of Post Oak common stock entitled to receive notice of and to vote at the Post Oak special meeting.

As of the Post Oak record date, there were 11,882,629 shares of Post Oak common stock outstanding and entitled to notice of, and to vote at, the Post Oak special meeting or any adjournment thereof, and such outstanding shares of Post Oak common stock were held by approximately 907 holders of record. Each share of Post Oak common stock entitles the holder to one vote at the Post Oak special meeting on each proposal to be considered at the Post Oak special meeting.

No business may be transacted at the Post Oak special meeting unless a quorum is present. The presence (in person or by proxy) of holders of at least a majority of the voting power represented by all issued and outstanding shares of Post Oak common stock entitled to be voted at the Post Oak special meeting constitutes a quorum for

 

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transacting business at the Post Oak special meeting. All shares of Post Oak common stock present in person or represented by proxy, including abstentions and broker-non votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Post Oak special meeting.

Required Vote; Treatment of Abstentions; Broker Non-Votes and Failure to Vote

Post Oak Merger Proposal: The affirmative vote of the holders of two-thirds of the outstanding shares of Post Oak common stock is required to approve the Post Oak Merger Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Post Oak special meeting or fail to instruct your bank or broker how to vote with respect to the Post Oak Merger Proposal, it will have the effect of a vote “AGAINST” the proposal.

Post Oak Adjournment Proposal: The affirmative vote of a majority of votes cast on the Post Oak Adjournment Proposal at the Post Oak special meeting, in person or by proxy, is required to approve the Post Oak Adjournment Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Post Oak special meeting or fail to instruct your bank or broker how to vote with respect to the Post Oak Adjournment Proposal, it will have no effect on the proposal.

Shares Held by Officers and Directors

As of the Post Oak record date, the directors and executive officers of Post Oak and their affiliates beneficially owned and were entitled to vote, in the aggregate, 3,038,559 shares of Post Oak common stock, representing approximately 25.6% of the shares of Post Oak common stock outstanding on that date. The directors and certain officers of Post Oak and Post Oak Bank have entered into a voting agreement with Allegiance, solely in their capacity as shareholders of Post Oak, pursuant to which they have agreed to vote in favor of the merger agreement and the transactions contemplated thereby. The Post Oak shareholders who are party to the voting agreement beneficially own and are entitled to vote in the aggregate approximately 28.9% of the outstanding shares of Post Oak common stock as of the Post Oak record date. Post Oak currently expects that each of its executive officers will vote their shares of Post Oak common stock in favor of the Post Oak Merger Proposal and the Post Oak Adjournment Proposal. As of the Post Oak record date, Allegiance beneficially owned no shares of Post Oak common stock, and the directors and executive officers of Allegiance and their affiliates beneficially owned no shares of Post Oak common stock.

Voting by Proxy or in Person; Incomplete Proxies

A Post Oak shareholder of record as of the Post Oak record date may vote by proxy or in person at the Post Oak special meeting. If you hold your shares of Post Oak common stock in your name as a Post Oak shareholder of record as of the Post Oak record date, to submit a proxy we ask that you complete and return the proxy card in the enclosed envelope. The envelope requires no additional postage if mailed in the United States.

Post Oak requests that Post Oak shareholders vote by completing and signing the accompanying proxy card and returning it to Post Oak as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy card is returned properly executed, the shares of Post Oak common stock represented by it will be voted at the Post Oak special meeting in accordance with the instructions contained on the proxy card. If any proxy card is returned without indication as to how to vote, the shares of Post Oak common stock represented by the proxy card will be voted as recommended by the Post Oak Board.

If you hold your stock in “street name” through a bank or broker, you must direct your bank or broker how to vote in accordance with the instructions you have received from your bank or broker.

Every Post Oak shareholder’s vote is important. Accordingly, each Post Oak shareholder should sign, date and return the enclosed proxy card whether or not the Post Oak shareholder plans to attend the Post Oak

 

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special meeting in person. Sending in your proxy card will not prevent you from voting your shares personally at the meeting because you may revoke your proxy at any time before it is voted.

Shares Held in “Street Name”

Banks, brokers and other nominees who hold shares of Post Oak common stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokers and other nominees are not allowed to exercise their voting discretion with respect to the approval of matters determined to be “non-routine,” without specific instructions from the beneficial owner. Broker non-votes are shares held by a broker, bank or other nominee that are represented at the Post Oak special meeting, but with respect to which the broker or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the broker does not have discretionary voting power on such proposal. The Post Oak Merger Proposal and the Post Oak Adjournment Proposal are non-routine matters. If your broker, bank or other nominee holds your shares of Post Oak common stock in “street name,” your broker, bank or other nominee will vote your shares of Post Oak common stock only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker, bank or other nominee with this joint proxy statement/prospectus.

Revocability of Proxies and Changes to a Post Oak Shareholder’s Vote

If you are a shareholder of record, you have the power to change your vote at any time before your shares of Post Oak common stock are voted at the Post Oak special meeting by:

 

    attending and voting in person at the Post Oak special meeting;

 

    giving notice of revocation of the proxy at the Post Oak special meeting; or

 

    delivering to the Secretary of Post Oak at 2000 West Loop South, Suite 100, Houston, Texas 77027 (i) a written notice of revocation or (ii) a duly executed proxy card relating to the same shares, bearing a date later than the proxy card previously executed. Attendance at the Post Oak special meeting will not in and of itself constitute a revocation of a proxy.

If you choose to send a completed proxy card bearing a later date than your original proxy card, the new proxy card must be received before the beginning of the Post Oak special meeting.

If your shares are held in “street name” by a bank or broker, you should follow the instructions of your bank or broker regarding the revocation of proxies.

Solicitation of Proxies

In addition to solicitation by mail, Post Oak’s directors, officers, and employees may solicit proxies by personal interview, telephone or electronic mail. Post Oak reimburses brokerage houses, custodians, nominees, and fiduciaries for their expenses in forwarding proxies and proxy material to their principals. Post Oak will bear the entire cost of soliciting proxies from you.

Attending the Post Oak Special Meeting

All Post Oak shareholders, including holders of record as of the Post Oak record date and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Post Oak special meeting. Only Post Oak shareholders of record as of the Post Oak record date can vote in person at the Post Oak special meeting. If you are a Post Oak shareholder of record as of the Post Oak record date and you wish to attend the Post Oak special meeting, please bring your proxy card and evidence of your stock ownership, such as your most recent account statement, to the Post Oak special meeting. You should also bring valid picture identification.

 

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A Post Oak shareholder who holds shares in “street name” through a broker, bank, trustee or other nominee (which we refer to as a “beneficial owner”) who desires to attend the Post Oak special meeting in person must bring proof of beneficial ownership as of the record date, such as a letter from the broker, bank, trustee or other nominee that is the record owner of such beneficial owner’s shares, a brokerage account statement or the voting instruction form provided by the broker. You should also bring valid picture identification.

Assistance

If you need assistance in completing your proxy card, have questions regarding Post Oak’s special meeting or would like additional copies of this joint proxy statement/prospectus, please contact Renee Bourland at (713) 439-3902 or renee.bourland@postoakbank.com.

POST OAK PROPOSALS

Proposal No. 1—Post Oak Merger Proposal

Post Oak is asking its shareholders to adopt the merger agreement and approve the merger. Holders of Post Oak common stock should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

After careful consideration, the Post Oak Board, by a unanimous vote of all directors, approved the merger agreement and declared the merger agreement and the transactions contemplated thereby, including the merger, to be advisable and in the best interests of Post Oak and the shareholders of Post Oak. See “The Merger—Post Oak’s Reasons for the Merger; Recommendation of the Post Oak Board” for a more detailed discussion of the Post Oak Board’s recommendation.

The Post Oak Board recommends a vote “FOR” the Post Oak Merger Proposal.

Proposal No. 2—Post Oak Adjournment Proposal

The Post Oak special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Post Oak special meeting to adopt the Post Oak Merger Proposal.

If, at the Post Oak special meeting, the number of shares of Post Oak common stock present or represented and voting in favor of the Post Oak Merger Proposal is insufficient to adopt the Post Oak Merger Proposal, Post Oak intends to move to adjourn the Post Oak special meeting in order to enable the Post Oak Board to solicit additional proxies for approval of the Post Oak Merger Proposal. In that event, Post Oak will ask its shareholders to vote upon the Post Oak Adjournment Proposal, but not the Post Oak Merger Proposal.

In this proposal, Post Oak is asking its shareholders to authorize the holder of any proxy solicited by the Post Oak Board on a discretionary basis to vote in favor of adjourning the Post Oak special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Post Oak shareholders who have previously voted.

The Post Oak Board recommends a vote “FOR” the Post Oak Adjournment Proposal.

 

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THE ALLEGIANCE SPECIAL MEETING

This section contains information for Allegiance shareholders about the Allegiance special meeting that Allegiance has called to allow its shareholders to consider and vote on the Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal and the Allegiance Adjournment Proposal. Allegiance is mailing this joint proxy statement/prospectus to you, as an Allegiance shareholder, on or about August 6, 2018. This joint proxy statement/prospectus is accompanied by a notice of the Allegiance special meeting of Allegiance shareholders and a form of proxy card that the Allegiance Board is soliciting for use at the Allegiance special meeting and at any adjournments or postponements of the Allegiance special meeting.

Date, Time and Place of Allegiance Special Meeting

The Allegiance special meeting will be held on September 14, 2018 at The Houstonian Hotel at 111 North Post Oak Lane, Houston, Texas 77024, at 1:00 p.m. local time.

Matters to Be Considered

At the Allegiance special meeting, you, as an Allegiance shareholder, will be asked to consider and vote upon the following matters:

 

    the Allegiance Merger Proposal;

 

    the Allegiance Stock Issuance Proposal;

 

    the Allegiance Charter Amendment Proposal; and

 

    the Allegiance Adjournment Proposal.

Recommendation of the Allegiance Board

After careful consideration, the Allegiance Board determined that the merger agreement and the transactions contemplated thereby, including the merger and the related Allegiance share issuance, are advisable and in the best interests of Allegiance and its shareholders. The Allegiance Board unanimously recommends that Allegiance shareholders vote “FOR” the Allegiance Merger Proposal, “FOR” the Allegiance Stock Issuance Proposal, “FOR” the Allegiance Charter Amendment Proposal and “FOR” the Allegiance Adjournment Proposal. See the section of this joint proxy statement/prospectus entitled “The Merger—Allegiance’s Reasons for the Merger; Recommendation of the Allegiance Board” for a more detailed discussion of the Allegiance Board’s recommendation.

Allegiance Record Date and Quorum

The Allegiance Board has fixed the close of business on August 1, 2018 as the Allegiance record date for determining the holders of Allegiance common stock entitled to receive notice of and to vote at the Allegiance special meeting.

As of the Allegiance record date, there were 13,367,590 shares of Allegiance common stock outstanding and entitled to vote at the Allegiance special meeting held by approximately 488 holders of record. Each share of Allegiance common stock entitles the holder to one vote at the Allegiance special meeting on each proposal to be considered at the Allegiance special meeting.

The presence in person or by proxy of a majority of the Allegiance common stock outstanding on the Allegiance record date will constitute a quorum. All shares of Allegiance common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Allegiance special meeting.

 

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Vote Required; Treatment of Abstentions; Broker Non-Votes and Failure to Vote

Allegiance Merger Proposal: The affirmative vote of the holders of two-thirds of the outstanding shares of Allegiance common stock is required to approve the Allegiance Merger Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Merger Proposal, it will have the effect of a vote “AGAINST” the proposal.

Allegiance Stock Issuance Proposal: The affirmative vote of a majority of the votes cast on the proposal at the Allegiance special meeting, in person or by proxy, is required to approve the Allegiance Stock Issuance Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Stock Issuance Proposal, it will have no effect on the proposal.

Allegiance Charter Amendment Proposal: The affirmative vote of the holders of two-thirds of the outstanding shares of Allegiance common stock is required to approve the Allegiance Charter Amendment Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Charter Amendment Proposal, it will have the effect of a vote “AGAINST” the proposal.

Allegiance Adjournment Proposal: The affirmative vote of a majority of the votes cast on the proposal at the Allegiance special meeting, in person or by proxy, is required to approve the Allegiance Adjournment Proposal. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the Allegiance special meeting or fail to instruct your bank or broker how to vote with respect to the Allegiance Adjournment Proposal, it will have no effect on the proposal.

Shares Held by Officers and Directors

As of the Allegiance record date, there were 13,367,590 shares of Allegiance common stock entitled to vote at the Allegiance special meeting. As of the Allegiance record date, the directors and executive officers of Allegiance and their affiliates beneficially owned and were entitled to vote approximately 1,648,807 shares of Allegiance common stock representing approximately 12.3% of the shares of Allegiance common stock outstanding on that date. Allegiance currently expects that each of its executive officers will vote their shares of Allegiance common stock in favor of the Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal and the Allegiance Adjournment Proposal, although none of them has entered into any agreement obligating him or her to do so. As of the Allegiance record date, Post Oak beneficially owned no shares of Allegiance common stock, and the directors and executive officers of Post Oak and their affiliates beneficially owned, in the aggregate, 2,056 shares of Allegiance common stock or less than 1.0% of the outstanding Allegiance common stock.

Voting by Proxy or in Person; Incomplete Proxies

Each copy of this joint proxy statement/prospectus mailed to holders of Allegiance common stock is accompanied by a form of proxy card with instructions for voting. If you hold shares of Allegiance common stock in your name as an Allegiance shareholder of record as of the Allegiance record date, you should complete and return the proxy card accompanying this joint proxy statement/prospectus, regardless of whether you plan to attend the Allegiance special meeting. You may also vote your shares through the Internet. Information and applicable deadlines for voting through the Internet are set forth in the enclosed proxy card instructions.

If you hold your stock in “street name” through a bank or broker, you must direct your bank or broker how to vote in accordance with the instructions you have received from your bank or broker.

All shares represented by valid proxies that Allegiance receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on

 

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your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted as recommended by the Allegiance Board. No matters other than the matters described in this joint proxy statement/prospectus are anticipated to be presented for action at the Allegiance special meeting or at any adjournment or postponement of the Allegiance special meeting.

Shares Held in “Street Name”

Under stock exchange rules, banks, brokers and other nominees who hold shares of Allegiance common stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokers and other nominees are not allowed to exercise their voting discretion with respect to the approval of matters determined to be “non-routine,” without specific instructions from the beneficial owner. Broker non-votes are shares held by a broker, bank or other nominee that are represented at the Allegiance special meeting, but with respect to which the broker or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the broker does not have discretionary voting power on such proposal. The Allegiance Merger Proposal, the Allegiance Stock Issuance Proposal, the Allegiance Charter Amendment Proposal and the Allegiance Adjournment Proposal are all non-routine matters. If your broker, bank or other nominee holds your shares of Allegiance common stock in “street name,” your broker, bank or other nominee will vote your shares of Allegiance common stock only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker, bank or other nominee with this joint proxy statement/prospectus.

Revocability of Proxies and Changes to an Allegiance Shareholder’s Vote

If you hold stock in your name as an Allegiance shareholder of record as of the Allegiance record date, you may revoke any proxy at any time before the Allegiance special meeting is called to order by (i) signing and returning a proxy card with a later date, (ii) voting by the Internet at a later time, (iii) delivering a written revocation letter to Allegiance’s Corporate Secretary or (iv) attending the Allegiance special meeting in person, notifying the Corporate Secretary and voting by ballot at the Allegiance special meeting.

Any Allegiance shareholder entitled to vote in person at the Allegiance special meeting may vote in person regardless of whether a proxy has been previously given, but your attendance by itself at the Allegiance special meeting will not automatically revoke your proxy unless you give written notice of revocation to the Corporate Secretary of Allegiance before the Allegiance special meeting is called to order.

Written notices of revocation and other communications about revoking your proxy card should be addressed to:

Allegiance Bancshares, Inc.

8847 West Sam Houston Parkway, N., Suite 200

Houston, Texas 77040

Attention: Corporate Secretary

If your shares are held in “street name” by a bank or broker, you should follow the instructions of your bank or broker regarding the revocation of proxies.

Solicitation of Proxies

Allegiance is soliciting your proxy in conjunction with the Allegiance share issuance. Allegiance will bear the entire cost of soliciting proxies from you. In addition to solicitation of proxies by mail, Allegiance will request that banks, brokers and other record holders send proxies and proxy material to the beneficial owners of Allegiance common stock and secure their voting instructions. Allegiance will reimburse the record holders for

 

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their reasonable expenses in taking those actions. If necessary, Allegiance may use its directors and several of its regular employees, who will not be specially compensated, to solicit proxies from the Allegiance shareholders, either personally or by telephone, facsimile, letter or electronic means.

Attending the Allegiance Special Meeting

All holders of Allegiance common stock, including holders of record as of the Allegiance record date and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Allegiance special meeting. Allegiance shareholders of record as of the Allegiance record date can vote in person at the Allegiance special meeting. If you are not an Allegiance shareholder of record as of the Allegiance record date, you must obtain a proxy executed in your favor from the record holder of your shares of Allegiance common stock, such as a broker, bank or other nominee, to be able to vote in person at the Allegiance special meeting. If you plan to attend the Allegiance special meeting, you must hold your shares of Allegiance common stock in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted. Allegiance reserves the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification. The use of cameras, sound recording equipment, communications devices or any similar equipment during the Allegiance special meeting is prohibited without Allegiance’s express written consent.

Assistance

If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of Allegiance common stock, please contact Investor Relations at (281) 894-3200 or ir@allegiancebank.com or Shareholder Services at Computershare at (800) 962-4284.

 

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ALLEGIANCE PROPOSALS

Proposal No. 1—Allegiance Merger Proposal

Allegiance is asking its shareholders to adopt the merger agreement and approve the merger. Holders of Allegiance common stock should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

After careful consideration, the Allegiance Board unanimously approved the merger agreement and declared the merger agreement and the transactions contemplated thereby, including the merger, to be advisable and in the best interests of Allegiance and the shareholders of Allegiance. See “The Merger—Allegiance’s Reasons for the Merger; Recommendation of the Allegiance Board” for a more detailed discussion of the Allegiance Board’s recommendation.

The Allegiance Board recommends that Allegiance shareholders vote

“FOR” the Allegiance Merger Proposal.

Proposal No. 2—Allegiance Stock Issuance Proposal

Under the NASDAQ Listing Rules, a company listed on NASDAQ is required to obtain shareholder approval prior to the issuance of common stock in connection with the acquisition of the stock of another company if the common stock will have upon issuance voting power equal to or in excess of 20.0% of the voting power outstanding before the issuance of stock, or the number of shares of common stock to be issued is or will be equal to or in excess of 20.0% of the number of shares of common stock outstanding before the issuance of the stock. If Allegiance and Post Oak complete the merger, the number of shares of Allegiance common stock issued in the merger will exceed 20.0% of the shares of Allegiance common stock outstanding before such issuance. Accordingly, Allegiance must obtain the approval of Allegiance shareholders for the issuance of shares of Allegiance common stock in connection with the merger.

Allegiance is asking its shareholders to approve the issuance of Allegiance common stock in accordance with the terms and conditions of the merger agreement. Holders of Allegiance common stock should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement, the merger and the Allegiance share issuance. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

After careful consideration, the Allegiance Board unanimously approved the merger agreement and declared the merger agreement and the transactions contemplated thereby, including the merger and the issuance of Allegiance common stock, to be advisable and in the best interests of Allegiance and the Allegiance shareholders. See the section of this joint proxy statement/prospectus entitled “The Merger—Allegiance’s Reasons for the Merger; Recommendation of the Allegiance Board” for a more detailed discussion of the Allegiance Board’s recommendation.

The Allegiance Board recommends that Allegiance shareholders vote

“FOR” the Allegiance Stock Issuance Proposal.

Proposal No. 3—Allegiance Charter Amendment Proposal

Allegiance is proposing to amend its Amended and Restated Certificate of Formation to authorize the issuance of 81,000,000 shares of capital stock, consisting of: (A) one class of 80,000,000 shares of common stock with a par value of $1.00 per share, and (B) one class of 1,000,000 shares of preferred stock with a par value of $1.00 per share.

 

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Currently, Allegiance has the authority to issue 41,000,000 shares of capital stock, consisting of (A) one class of 40,000,000 shares of common stock with a par value of $1.00 per share, and (B) one class of 1,000,000 shares of preferred stock with a par value of $1.00 per share. As of August 1, 2018, 13,367,590 shares of common stock were issued and outstanding, 1,269,714 shares were reserved for issuance pursuant to Allegiance’s 2015 Amended and Restated Stock Awards and Incentive Plan and approximately 8,702,187 shares will be reserved for issuance as consideration in the merger and for existing Post Oak stock awards. As such, approval of the Allegiance Charter Amendment Proposal is not necessary to complete the merger. Allegiance is asking its shareholders to approve the Charter Amendment Proposal so that Allegiance will continue to have the flexibility to pursue future acquisitions, expand its equity compensation and for other general corporate purposes.

After careful consideration, the Allegiance Board unanimously determined that an increase in the number of authorized shares of capital stock is advisable and in the best interests of Allegiance and the shareholders of Allegiance.

The Allegiance Board recommends that Allegiance shareholders vote

“FOR” the Allegiance Charter Amendment Proposal.

Proposal No. 4—Allegiance Adjournment Proposal

The Allegiance special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the Allegiance Merger Proposal or the Allegiance Stock Issuance Proposal.

If, at the Allegiance special meeting, the number of shares of Allegiance common stock present or represented and voting in favor of the Allegiance Merger Proposal or the Allegiance Stock Issuance Proposal is insufficient to approve either proposal, Allegiance intends to move to adjourn the Allegiance special meeting in order to solicit additional proxies for the approval of such proposal. In that event, Allegiance will ask its shareholders to vote upon the Allegiance Adjournment Proposal, but not the Allegiance Merger Proposal or the Allegiance Stock Issuance Proposal. In accordance with the Allegiance bylaws (which we refer to as Allegiance’s “bylaws”), a vote to approve the proposal to adjourn the Allegiance special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Allegiance special meeting to approve the Allegiance Merger Proposal or the Allegiance Stock Issuance Proposal may be taken in the absence of a quorum.

In this proposal, Allegiance is asking its shareholders to authorize the holder of any proxy solicited by the Allegiance Board on a discretionary basis to vote in favor of adjourning the Allegiance special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Allegiance shareholders who have previously voted.

The Allegiance Board recommends that Allegiance shareholders vote

“FOR” the Allegiance Adjournment Proposal.

 

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INFORMATION ABOUT POST OAK

Post Oak is a Texas corporation that owns all of the outstanding shares of common stock of Post Oak Bank, N.A., a national bank, with operational headquarters in Houston, Texas. Post Oak Bank offers full commercial and consumer banking services to customers throughout its market areas in and around Houston, Texas. Post Oak Bank has 13 banking locations: 12 located throughout the greater Houston metropolitan area and one in Beaumont, outside of Houston.

Post Oak’s principal executive offices are located at 2000 West Loop South, Suite 100, Houston, Texas 77027, and its telephone number at that location is (713) 439-3900. Additional information about Post Oak and its subsidiary is included in documents incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information.”

Information about Post Oak’s Business

General. Post Oak was incorporated as a Texas corporation in 2008 to serve as a bank holding company for Post Oak Bank. Post Oak does not, as an entity, engage in separate business activities of a material nature apart from the activities it performs for Post Oak Bank. Its primary activities are to provide assistance in the management and coordination of Post Oak Bank’s financial resources. Post Oak’s principal asset is the outstanding common stock of Post Oak Bank. Post Oak derives its revenues primarily from the operations of Post Oak Bank in the form of dividends received from Post Oak Bank.

Post Oak Bank is a national banking association chartered in 2004, and has served since that time as a community-based financial institution with operations centered in the Houston metropolitan area.

As a bank holding company, Post Oak is subject to supervision and regulation by the Federal Reserve, in accordance with the requirements set forth in the BHC Act and by the rules and regulations issued by the Federal Reserve.

As of March 31, 2018, Post Oak, on a consolidated basis, reported total assets of $1.43 billion, total loans of $1.15 billion, total deposits of $1.24 billion and shareholders’ equity of $162.7 million. Post Oak does not file reports with the SEC.

Products and Services. Post Oak Bank is a traditional commercial bank offering a variety of banking services to consumer and commercial customers throughout the Houston metropolitan area and Beaumont, Texas. Post Oak Bank offers a range of lending services, including real estate, commercial and consumer loans to individuals and small- to medium-sized business and professional firms that are located in or conduct a substantial portion of their business in Post Oak Bank’s market areas. Real estate loans offered by Post Oak Bank are secured by first or second mortgages on the subject collateral, and often relate to owner-occupied office and retail buildings. Commercial loans offered include loans to small- and medium-sized businesses for the purpose of purchasing equipment, inventory, facilities or for working capital. Consumer loans offered include loans for the purpose of purchasing automobiles, recreational vehicles, personal residences, household goods, home improvements or for educational needs.

Post Oak Bank offers depository services and various checking account services. Post Oak Bank also offers commercial treasury management services, safe deposit boxes, debit card services, merchant bank card services, wire transfer services, cashier’s checks, telephone banking, Internet banking, direct deposit and automatic transfers between accounts. Post Oak Bank has ATMs at most of its locations. Post Oak Bank’s business is not seasonal in any material respect.

Post Oak Bank funds its lending activities primarily from the core deposit base. Post Oak Bank obtains deposits from its local markets and is not heavily dependent on any single depositor.

 

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Competition. The table below summarizes certain key demographic information relating to Post Oak’s target markets and Post Oak’s presence within those markets.

 

Metropolitan Statistical Area (“MSA”)

   Market
Rank(1)
   Branch
Count
   Deposits in Market
(in thousands)
     Market Share (%)  

Houston MSA

   22    12    $ 1,113,742        0.46  

Beaumont-Port Arthur MSA

   11    1      64,167        1.25  

 

(1) Deposit information used to determine market rank was provided by the FDIC’s Summary of Deposits as of June 30, 2017.

Each activity in which Post Oak is engaged involves competition with other banks, as well as with nonbanking financial institutions and nonfinancial enterprises. In addition to competing with other commercial banks within and outside its primary service area, Post Oak competes with other financial institutions engaged in the business of making loans or accepting deposits, such as savings and loan associations, credit unions, industrial loan associations, insurance companies, small loan companies, financial companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit card organizations and other enterprises. Banks and other financial institutions with which Post Oak competes may have capital resources and legal loan limits substantially higher than those maintained by Post Oak.

Employees. As of April 30, 2018, Post Oak had 189 full-time employees, three part-time employees and one temporary employee, none of whom are covered by a collective bargaining agreement.

Information about Post Oak’s Properties

Post Oak Bank leases its principal executive offices, which are located at 2000 West Loop South, Suite 100, Houston, Texas 77027. Post Oak Bank also leases its branches located at 1302A West Davis Street, Conroe, Texas 77304; 1600 Highway 6 South, Suite 150 Sugar Land, Texas 77478; 1800 Hughes Landing Blvd., Suite 100, The Woodlands, Texas 77380; and 790 W Sam Houston Parkway N, Suite 100, Houston, Texas 77024. Post Oak Bank owns its branches located at 1500 Miller St, Anahuac, Texas 77514; 3330 Antoine Dr., Houston, Texas 77092; 55 Interstate 10 N, Beaumont, Texas 77707; 501 N. Cleveland St, Dayton, Texas 77535; 14770 Northwest Freeway, Houston, Texas 77040; 1302 N. Main St, Liberty, Texas 77575; 4420 East Sam Houston Pkwy S, Pasadena, Texas 77505; and 13010 Murphy Rd., Stafford, Texas 77477.

Post Oak Legal Proceedings

From time to time, Post Oak or Post Oak Bank may become a party to various litigation matters incidental to the conduct of its business. Neither Post Oak nor Post Oak Bank is presently a party to any legal proceeding the resolution of which, in the opinion of Post Oak’s management, would be expected to have a material adverse effect on Post Oak’s business, operating results, financial condition or prospects.

 

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POST OAK MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to provide an overview of the significant factors affecting the financial condition and results of operations of Post Oak for the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016. The following discussion and analysis should be read in conjunction with the sections of this joint proxy statement/prospectus entitled “Special Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors,” “Selected Consolidated Historical Financial Data of Post Oak” and Post Oak’s consolidated financial statements and the accompanying notes included elsewhere in this joint proxy statement/prospectus. As used in this section, unless the context otherwise requires, references to “Post Oak” refer to Post Oak Bancshares, Inc. and Post Oak Bank, N.A. on a consolidated basis. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that Post Oak believes are reasonable but may prove to be inaccurate. Post Oak assumes no obligation to update any of these forward-looking statements.

Overview

Post Oak is a Texas corporation that owns all of the outstanding shares of common stock of Post Oak Bank, N.A., a national banking association, with operational headquarters in Houston, Texas. Post Oak Bank offers full consumer and commercial banking services to customers throughout its market areas in and around Houston, Texas. Post Oak Bank has 13 banking locations: 12 located throughout the greater Houston metropolitan area and one in Beaumont, outside of the Houston metropolitan area. As of March 31, 2018, Post Oak had total assets of $1.43 billion, total loans of $1.15 billion, total deposits of $1.24 billion and total shareholders’ equity of $162.7 million.

Post Oak generates most of its income from interest income on loans, service charges on customer accounts and interest income from deposits in other financial institutions. Post Oak incurs interest expense on deposits and other borrowed funds and noninterest expenses such as salaries and employee benefits and occupancy expenses. Net interest income is the largest source of Post Oak’s revenue. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

Changes in the market interest rates and interest rates Post Oak earns on interest-earning assets or pays on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in Post Oak’s loan portfolio are affected by, among other factors, economic and competitive conditions in Texas and specifically in the Houston metropolitan area, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within Post Oak’s target market.

On April 1, 2017, Post Oak completed the acquisition of The State Bank of Texas (“TSBOT”), an independent community bank headquartered in Houston, Texas. TSBOT operated two branches, one in Houston, Texas and one in Stafford, Texas. The financial results for the year ended 2017 reflect earnings for the combined entity for the last nine months of the year.

Results of Operations for the Three Months Ended March 31, 2018 and 2017

Net income was $4.4 million for the three months ended March 31, 2018 compared with $2.6 million for the three months ended March 31, 2017, an increase of $1.8 million, or 70.4%. The increase in net income was

 

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primarily the result of a $2.3 million increase in net interest income partially offset by a $633 thousand increase in noninterest expense. Annualized returns on average equity were 11.16% and 7.97% and annualized returns on average assets were 1.28% and 0.93%, for the three months ended March 31, 2018 and 2017, respectively.

Net Interest Income

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Tax equivalent net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.

Three months ended March 31, 2018 compared to March 31, 2017. Net interest income before the provision for possible credit losses for the three months ended March 31, 2018 was $13.6 million compared with $11.3 million for the three months ended March 31, 2017, an increase of $2.3 million, or 19.9%. The increase in net interest income was primarily due to the increase in average interest-earning assets of $261.1 million, or 24.4%, for the three months ended March 31, 2018 compared to the same period in 2017 primarily due to the acquisition of TSBOT and organic loan growth.

Interest income was $15.6 million for the three months ended March 31, 2018, an increase of $3.2 million, or 25.8%, compared with the three months ended March 31, 2017 primarily due to an increase of $2.8 million of interest income and fees on loans during the three months ended March 31, 2018 compared to the same period in 2017 as a result of the increase in average loans outstanding of $218.0 million for the same period.

Interest expense was $2.0 million for the three months ended March 31, 2018, an increase of $938 thousand, or 89.7%, compared with the three months ended March 31, 2017. This increase was primarily due to an increase in average interest-bearing liabilities and an increase in the funding costs on interest-bearing liabilities. Average interest-bearing liabilities increased $219.7 million, or 36.5%, for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase in average-bearing liabilities was primarily due to the increase in average interest-bearing deposits of $200.0 million, or 33.2%, during the three months ended March 31, 2018 compared to the same period in 2017. The increase in interest-bearing deposits for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was impacted by the increase in average money market and savings deposits of $111.7 million, or 36.7%. Additionally, interest expense increased due to the increase in the average cost of interest-bearing liabilities to 98 basis points for the three months ended March 31, 2018 compared to 70 basis points for the same period in 2017.

Tax equivalent net interest margin, defined as net interest income adjusted for tax-free income divided by average interest-earning assets, for the three months ended March 31, 2018 was 4.15%, a decrease of 16 basis points compared to 4.31% for the three months ended March 31, 2017. The average yield on interest earning assets and the average rate paid on interest-bearing liabilities increased over the prior year. The average yield on interest-earning assets of 4.75% and the average rate paid on interest-bearing liabilities, 0.98%, as of March 31, 2018, were primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of the underlying assets and liabilities. Tax equivalent adjustments to net interest margin are the result of increasing income from tax-free securities by an amount equal to the taxes that would have been paid if the income were fully taxable based on a 21.0% and 35.0% federal tax rate for the three months ended March 31, 2018 and 2017, respectively, thus making tax-exempt yields comparable to taxable asset yields.

 

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The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the annualized resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Any nonaccruing loans have been included in the table as loans carrying a zero yield.

 

     Three Months Ended March 31,  
     2018     2017  
     Average
Balance
    Interest
Earned/
Interest Paid
     Average
Yield/
Rate
    Average
Balance
    Interest
Earned/
Interest
Paid
     Average
Yield/
Rate
 
     (Dollars in thousands)  

Assets

              

Interest-Earning Assets:

              

Loans

   $ 1,149,346     $ 14,799        5.22   $ 931,380     $ 11,971        5.21

Securities

     48,992       226        1.87     38,328       168        1.78

Deposits in other financial institutions

     132,501       565        1.73     100,050       256        1.04
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     1,330,839       15,590        4.75     1,069,758       12,395        4.70
  

 

 

   

 

 

      

 

 

   

 

 

    

Allowance for loan losses

     (12,060          (11,309     

Noninterest-earning assets

     88,509            75,526       
  

 

 

        

 

 

      

Total assets

   $ 1,407,288          $ 1,133,975       
  

 

 

        

 

 

      

Liabilities and Shareholders’ Equity

              

Interest-Bearing Liabilities:

              

Interest-bearing demand deposits

   $ 53,065       46        0.35   $ 42,360       36        0.34

Money market and savings deposits

     415,686       928        0.91     304,018       416        0.55

Certificates and other time deposits

     333,485       930        1.13     255,887       594        0.94

Borrowed funds

     19,694       80        1.65     —         —          0.00
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     821,930       1,984        0.98     602,265       1,046        0.70
  

 

 

   

 

 

      

 

 

   

 

 

    

Noninterest-Bearing Liabilities:

              

Noninterest-bearing demand deposits

     423,188            396,974       

Other liabilities

     1,071            2,490       
  

 

 

        

 

 

      

Total liabilities

     1,246,189            1,001,729       

Shareholders’ equity

     161,099            132,246       
  

 

 

        

 

 

      

Total liabilities and shareholders’ equity

   $ 1,407,288          $ 1,133,975       
  

 

 

        

 

 

      

Net interest rate spread

          3.77          4.00

Net interest income and margin (1)

     $ 13,606        4.15     $ 11,349        4.30
    

 

 

        

 

 

    

Net interest income and margin (tax equivalent) (2)

     $ 13,620        4.15     $ 11,372        4.31
    

 

 

        

 

 

    

 

(1) The net interest margin is equal to annualized net interest income divided by average interest-earning assets.
(2) In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 21.0% and 35.0% for the three months ended March 31, 2018 and 2017, respectively, and other applicable effective tax rates.

 

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The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

 

     For the Three Months Ended  
     2018 vs. 2017  
     Increase
(Decrease)
Due to Change in
        
     Volume      Rate      Total  
     (Dollars in thousands)  

Interest-Earning assets:

        

Loans

   $ 2,802      $ 26      $ 2,828  

Securities

     47        11        58  

Deposits in other financial institutions

     83        226        309  
  

 

 

    

 

 

    

 

 

 

Total increase in interest income

     2,932        263        3,195  
  

 

 

    

 

 

    

 

 

 

Interest-Bearing liabilities:

        

Interest-bearing demand deposits

     9        1        10  

Money market and savings deposits

     153        359        512  

Certificates and other time deposits

     180        156        336  

Borrowed funds

     —          80        80  
  

 

 

    

 

 

    

 

 

 

Total increase in interest expense

     342        596        938  
  

 

 

    

 

 

    

 

 

 

Increase (decrease) in net interest income

   $ 2,590      $ (333    $ 2,257  
  

 

 

    

 

 

    

 

 

 

Provision for Possible Credit Losses

Post Oak’s provision for possible credit losses is a charge to income in order to bring its allowance for possible credit losses to a level deemed appropriate by management. The provision for possible credit losses was $250 thousand for the three months ended March 31, 2018 compared to $200 thousand for the same period in 2017, an increase of $50 thousand, or 25.0%. The increase in provision expense was due to growth in the overall loan portfolio as well as an increase in the level of specific reserves needed to cover impaired loans.

Noninterest Income

Post Oak’s primary sources of noninterest income are debit card and ATM card income and service charges on deposit accounts. Noninterest income does not include loan origination fees, which are recognized over the life of the related loan as an adjustment to yield using the straight-line method.

Three months ended March 31, 2018 compared with the three months ended March 31, 2017. Noninterest income totaled $722 thousand for the three months ended March 31, 2018 compared to $674 thousand for the same period in 2017, an increase of $48 thousand, or 7.1%.

 

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The following table presents, for the periods indicated, the major categories of noninterest income:

 

     For the Three Months
Ended March 31,
     Increase
(Decrease)
 
     2018      2017     
     (Dollars in thousands)  

Service charges on deposit accounts

   $ 218      $ 221      $ (3

Debit card and ATM card income

     195        170        25  

Bank owned life insurance income

     24        24        —    

Wire transfer fees

     31        29        2  

Rebate from correspondent bank

     62        32        30  

Other

     192        198        (6
  

 

 

    

 

 

    

 

 

 

Total noninterest income

   $ 722      $ 674      $ 48  
  

 

 

    

 

 

    

 

 

 

Noninterest Expense

Three months ended March 31, 2018 compared with three months ended March 31, 2017. Noninterest expense was $8.3 million for the three months ended March 31, 2018 compared to $7.7 million for the three months ended March 31, 2017, an increase of $633 thousand, or 8.2%. This increase was primarily due to increased expenses related to supporting strategic growth initiatives and the TSBOT acquisition, partially offset by a decrease in professional fees.

The following table presents, for the periods indicated, the major categories of noninterest expense:

 

     For the Three Months
Ended March 31,
     Increase
(Decrease)
 
     2018      2017     
     (Dollars in thousands)  

Salaries and employee benefits

   $ 5,428      $ 4,722      $ 706  

Occupancy and equipment expense

     968        865        103  

Data processing

     543        534        9  

Regulatory assessments and FDIC insurance

     275        236        39  

Professional fees

     279        592        (313

Office expense

     79        101        (22

Marketing and business development

     183        168        15  

Loans and other real estate

     84        59        25  

Core deposit intangible amortization

     132        61        71  

Other

     351        351        —    
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

   $ 8,322      $ 7,689      $ 633  
  

 

 

    

 

 

    

 

 

 

Salaries and Employee Benefits. Salaries and benefits increased $706 thousand, or 15.0%, for the three months ended March 31, 2018 compared to the same period in 2017. This increase was primarily attributable to an increase in employees as a result of the TSBOT acquisition.

Professional Fees. Professional fees decreased $313 thousand, or 52.9%, for the three months ended March 31, 2018 compared to the same period in 2017 primarily due to expenses incurred during the first quarter of 2017 related to the TSBOT acquisition.

Efficiency Ratio

The efficiency ratio is a supplemental financial measure utilized in management’s internal evaluation of Post Oak’s performance and is not calculated based on generally accepted accounting principles. A GAAP-based efficiency ratio is calculated by dividing total noninterest expense, excluding credit loss provisions, by net interest income plus total noninterest income, as shown in the Consolidated Statements of Income. The efficiency

 

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ratio is calculated by excluding from noninterest income the net gains and losses on the sale of securities, which can vary widely from period to period. Additionally, taxes and provision for loan losses are not included in this calculation. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income and/or being invested to generate future income, while a decrease would indicate a more efficient allocation of resources. Post Oak’s efficiency ratio was 58.08% for the three months ended March 31, 2018 compared to 63.95% for the three months ended March 31, 2017.

Income Taxes

The amount of federal and state income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other nondeductible expenses. Income tax expense decreased $208 thousand, or 13.6%, to $1.3 million for the three months ended March 31, 2018 compared with $1.5 million for the same period in 2017. Post Oak’s effective tax rates were 23.0% and 37.1% for the three months ended March 31, 2018 and 2017, respectively. Post Oak’s effective tax rate decreased for the three months ended March 31, 2018 compared to the same period in 2017 primarily due to the reduction in the U.S. federal statutory income tax rate to 21.0% for 2018 from 35.0% for periods prior to 2018 under the Tax Cuts and Jobs Act enacted on December 22, 2017.

Results of Operations for the Years Ended December 31, 2017 and 2016

Net income was $15.0 million for the year ended December 31, 2017 compared with $10.9 million for the year ended December 31, 2016, an increase of $4.1 million, or 37.5%. The increase in net income was primarily the result of a $7.7 million increase in net interest income partially offset by a $3.7 million increase in noninterest expense. Returns on average equity were 10.19% and 8.69% and returns on average assets were 1.15% and 0.98%, for the years ended December 31, 2017 and 2016, respectively.

Year ended December 31, 2017 compared with the year ended December 31, 2016. Net interest income before the provision for loan losses for the year ended December 31, 2017 was $52.0 million compared with $44.3 million for the year ended December 31, 2016, an increase of $7.7 million, or 17.4%. The increase in net interest income was primarily due to the increase in average interest-earning assets of $181.9 million, or 17.4%, for the year ended December 31, 2017 compared with the year ended December 31, 2016. The increase in average interest-earning assets during the year ended December 31, 2017 as compared to the year ended 2016 was primarily due to the TSBOT acquisition and organic loan growth.

Interest income was $57.7 million for the year ended December 31, 2017, an increase of $9.2 million, or 19.0%, compared with the year ended December 31, 2016 primarily due to an increase of $8.3 million of interest income and fees on loans during the year ended December 31, 2017 compared to the same period in 2016 as a result of the increase in average loans outstanding of $168.8 million for the same period.

Interest expense was $5.7 million for the year ended December 31, 2017, an increase of $1.5 million, or 36.4%, compared with the year ended December 31, 2016. This increase was primarily due to an increase in average interest-bearing liabilities and an increase in the funding costs on interest-bearing liabilities. Average interest-bearing liabilities increased $91.2 million, or 14.4%, for the year ended December 31, 2017 compared with the year ended December 31, 2016, driven partly by the TSBOT acquisition. The increase in average interest-bearing liabilities was primarily due to the increase in average interest-bearing deposits of $82.4 million, or 13.0%, and the use of borrowed funds in an average amount of $8.8 million during the year ended December 31, 2017. The increase in interest-bearing deposits for the year ended December 31, 2017 compared to the year ended December 31, 2016 was primarily due to the increase in average certificates and other time deposits of $50.3 million, or 18.4%.

Tax equivalent net interest margin was 4.24% for both of the years ended December 31, 2017 and 2016. The average yield on interest-earning assets and the average rate paid on interest-bearing liabilities are primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of the underlying assets and liabilities. Tax equivalent adjustments to net interest margin are the result of increasing income from

 

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tax-free securities by an amount equal to the taxes that would have been paid if the income were fully taxable based on a 35.0% federal tax rate, thus making tax-exempt yields comparable to taxable asset yields. The tax equivalent yields and net interest margin during the comparable periods are presented based upon a tax rate of 35.0%. Beginning January 1, 2018, tax equivalent yields and the net interest margin will be based upon a tax rate of 21.0% as a result of the Tax Cuts and Jobs Act enacted on December 22, 2017.

The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the annualized resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Any nonaccruing loans have been included in the table as loans carrying a zero yield.

 

     Years Ended December 31,  
     2017     2016  
     Average
Balance
    Interest
Earned/
Interest
Paid
     Average
Yield/
Rate
    Average
Balance
    Interest
Earned/
Interest
Paid
     Average
Yield/
Rate
 
     (Dollars in thousands)  

Assets

              

Interest-Earning Assets:

              

Loans

   $ 1,061,420     $ 55,250        5.21   $ 892,660     $ 46,956        5.26

Securities

     51,115       888        1.74     42,114       708        1.68

Deposits in other financial institutions

     116,866       1,593        1.36     112,692       840        0.75
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     1,229,401     $ 57,731        4.70     1,047,466     $ 48,504        4.63
  

 

 

   

 

 

      

 

 

   

 

 

    

Allowance for loan losses

     (11,718          (10,858     

Noninterest-earning assets

     88,888            78,274       
  

 

 

        

 

 

      

Total assets

   $ 1,306,571          $ 1,114,882       
  

 

 

        

 

 

      

Liabilities and Shareholders’ Equity

              

Interest-Bearing Liabilities:

              

Interest-bearing demand deposits

   $ 45,811     $ 159        0.35   $ 47,090     $ 168        0.36

Money market and savings deposits

     344,579       2,386        0.69     311,265       1,513        0.49

Certificates and other time deposits

     323,378       3,052        0.94     273,039       2,502        0.92

Borrowed funds

     8,843       107        1.21     1       —          0.00
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     722,611     $ 5,704        0.79     631,395     $ 4,183        0.66
  

 

 

   

 

 

      

 

 

   

 

 

    

Noninterest-Bearing Liabilities:

              

Noninterest-bearing demand deposits

     431,606            354,336       

Other liabilities

     4,946            3,291       
  

 

 

        

 

 

      

Total liabilities

     1,159,163            989,022       

Shareholders’ equity

     147,408            125,860       
  

 

 

        

 

 

      

Total liabilities and shareholders’ equity

   $ 1,306,571          $ 1,114,882       
  

 

 

        

 

 

      

Net interest rate spread

          3.91          3.97

Net interest income and margin (1)

     $ 52,027        4.23     $ 44,321        4.23
    

 

 

        

 

 

    

Net interest income and margin (tax equivalent) (2)

     $ 52,151        4.24     $ 44,417        4.24
    

 

 

        

 

 

    

 

(1) The net interest margin is equal to net interest income divided by average interest-earning assets.
(2) In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 35.0% for the years ended December 31, 2017 and 2016 and other applicable effective tax rates.

 

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The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

 

         For the Years Ended December 31,      
     2017 vs. 2016  
     Increase
(Decrease)
Due to Change in
       
     Volume     Rate     Total  
     (Dollars in thousands)  

Interest-Earning assets:

      

Loans

   $ 8,877     $ (583   $ 8,294  

Securities

     151       29       180  

Deposits in other financial institutions

     31       722       753  
  

 

 

   

 

 

   

 

 

 

Total increase in interest income

     9,059       168       9,227  
  

 

 

   

 

 

   

 

 

 

Interest-Bearing liabilities:

      

Interest-bearing demand deposits

     (5     (4     (9

Money market and savings deposits

     162       711       873  

Certificates and other time deposits

     461       89       550  

Borrowed funds

     —         107       107  
  

 

 

   

 

 

   

 

 

 

Total increase in interest expense

     618       903       1,521  
  

 

 

   

 

 

   

 

 

 

Increase (decrease) in net interest income

   $ 8,441     $ (735   $ 7,706  
  

 

 

   

 

 

   

 

 

 

Provision for Possible Credit Losses

The provision for possible credit losses for the year ended December 31, 2017 was $790 thousand compared with $2.0 million for the year ended December 31, 2016. The decreased provision in 2017 was due to minimal charge-offs for that year.

Noninterest Income

Post Oak’s primary sources of noninterest income are debit card and ATM card income and service charges on deposit accounts. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.

Year ended December 31, 2017 compared with the year ended December 31, 2016. Noninterest income totaled $4.6 million for the year ended December 31, 2017 compared to $2.5 million for the year ended December 31, 2016, an increase of $2.1 million, or 84.3%. This increase was primarily due to the $1.2 million bargain purchase gain recorded as a result of the TSBOT acquisition, which was primarily due to the excess in appraised value of the acquired premises in excess of TSBOT’s amortized cost, net of deferred tax adjustments.

 

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The following table presents, for the periods indicated, the major categories of noninterest income:

 

     For the Years Ended
December 31,
     Increase  
         2017              2016          (Decrease)  
     (Dollars in thousands)  

Service charges on deposit accounts

   $ 863      $ 879      $ (16

Debit card and ATM card income

     732        622        110  

Bargain purchase gain

     1,220        —          1,220  

Bank owned life insurance income

     98        99        (1

(Loss) gain on sale of other real estate

     (111      7        (118

Wire transfer fees

     121        83        38  

Rebate from correspondent bank

     295        —          295  

Other

     1,354        791        563  
  

 

 

    

 

 

    

 

 

 

Total noninterest income

   $ 4,572      $ 2,481      $ 2,091  
  

 

 

    

 

 

    

 

 

 

Noninterest Expense

Year ended December 31, 2017 compared with the year ended December 31, 2016. Noninterest expense was $31.9 million for the year ended December 31, 2017 compared to $28.2 million for the year ended December 31, 2016, an increase of $3.7 million, or 13.1%. This increase was primarily due to additional expenses incurred related to the TSBOT acquisition.

The following table presents, for the periods indicated, the major categories of noninterest expense:

 

     For the Years Ended
December 31,
     Increase  
         2017              2016          (Decrease)  
     (Dollars in thousands)  

Salaries and employee benefits

   $ 20,192      $ 18,265      $ 1,927  

Occupancy and equipment

     3,871        3,514        357  

Data processing

     2,237        1,732        505  

Regulatory assessments and bank insurance

     1,258        1,181        77  

Professional fees

     1,516        1,071        445  

Office expense

     852        739        113  

Marketing and business development

     623        615        8  

Loans and other real estate

     386        304        82  

Core deposit intangible amortization

     382        243        139  

Other

     595        560        35  
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

   $ 31,912      $ 28,224      $ 3,688  
  

 

 

    

 

 

    

 

 

 

Salaries and Employee Benefits. Salaries and benefits were $20.2 million for the year ended December 31, 2017, an increase of $1.9 million, or 10.6%, compared to the year ended December 31, 2016. This increase was primarily attributable to the employees added as a result of the TSBOT acquisition. The number of Post Oak full-time employees increased to 186 at December 31, 2017 from 167 employees at December 31, 2016.

Occupancy and Equipment. Occupancy and equipment expenses increased $357 thousand, or 10.2%, for the year ended December 31, 2017 to $3.9 million compared to $3.5 million for the year ended December 31, 2016. This increase was primarily due to additional costs incurred as a result of the TSBOT acquisition.

Data Processing. Data processing increased $505 thousand, or 29.2%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. This increase was primarily due to additional expenses incurred related to the TSBOT acquisition.

 

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Professional Fees. Professional fees increased $445 thousand, or 41.5%, for the year ended December 31, 2017 to $1.5 million from $1.1 million for the year ended December 31, 2016 due to additional expenses incurred related to the TSBOT acquisition.

Efficiency Ratio

Post Oak calculates the efficiency ratio by dividing total noninterest expense by the sum of net interest income and noninterest income, excluding net gains and losses on the sale of securities and the bargain purchase gain as a result of the TSBOT acquisition. Additionally, taxes and provision for loan losses are not part of this calculation. The efficiency ratio was 57.62% for the year ended December 31, 2017 compared with 60.31% for the year ended December 31, 2016.

Income Taxes

The amount of federal and state income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other nondeductible expenses. Income tax expense increased $3.2 million, or 55.8%, to $8.9 million for the year ended December 31, 2017 compared with $5.7 million for the same period in 2016 primarily due to an increase in pre-tax net income.

The effective tax rates were 37.1% and 34.3% for the years ended December 31, 2017 and 2016, respectively. The effective tax rate for 2017 was impacted by the adjustment of Post Oak’s deferred tax assets related to the reduction in the U.S. federal statutory income tax rate to 21.0% under the Tax Cuts and Jobs Act enacted on December 22, 2017, substantially offset by the tax free bargain purchase gain and the tax free income from the purchase of additional municipal securities.

Financial Condition

Loan Portfolio

At March 31, 2018, total loans decreased $341 thousand from December 31, 2017. Total loans at December 31, 2017 were $1.15 billion, an increase of $221.4 million, or 23.9%, compared to $925.6 million as of December 31, 2016 primarily due to the 2017 acquisition of TSBOT in addition to the organic growth within the loan portfolio.

Total loans as a percentage of deposits were 92.4%, 91.6% and 92.7% as of March 31, 2018, December 31, 2017 and December 31, 2016, respectively. Total loans as a percentage of assets were 80.0%, 80.2% and 81.9% as of March 31, 2018, December 31, 2017 and December 31, 2016, respectively.

The following table summarizes Post Oak’s loan portfolio by type of loan as of the dates indicated:

 

     March 31, 2018     December 31, 2017     December 31, 2016  
     Amount     Percent     Amount     Percent     Amount     Percent  
     (Dollars in thousands)  

Real estate

   $ 893,059       78.0   $ 890,847       77.7   $ 744,407       80.5

Commercial and industrial

     206,040       18.0     205,574       17.9     142,513       15.4

Agriculture

     7,345       0.6     8,280       0.7     9,324       1.0

Consumer

     31,390       2.7     33,029       2.9     11,519       1.2

Other

     8,827       0.7     9,272       0.8     17,885       1.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

     1,146,661       100.0     1,147,002       100.0     925,648       100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for possible credit losses

     (11,995       (12,030       (11,239  
  

 

 

     

 

 

     

 

 

   

Loans, net

   $ 1,134,666       $ 1,134,972       $ 914,409    
  

 

 

     

 

 

     

 

 

   

 

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Post Oak has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. Diversification of the loan portfolio is a means of managing the risks associated with fluctuations in economic conditions.

In order to manage the diversification of the portfolio, Post Oak segments loans into classes. The real estate loan segment is sub-segmented into classes that primarily include commercial real estate mortgage loans, construction and land development loans, farmland loans, 1-4 family residential loans and multi-family residential loans. Post Oak segments consumer loans into classes that primarily include automobiles and other consumer loans, which include revolving credit plans. Post Oak analyzes the overall ability of the borrower and guarantors to repay a loan. Information and risk management practices specific to Post Oak’s loan segments and classes follows.

Real estate. Post Oak makes commercial real estate mortgage loans which are primarily viewed as cash flow loans and secondarily as loans secured by real estate. The properties securing Post Oak’s commercial real estate loans can be owner occupied or nonowner occupied. Concentrations within the various types of commercial properties are monitored by management in order to assess the risks in the portfolio. The real estate loan portfolio increased $2.2 million, or 0.2%, to $893.1 million as of March 31, 2018 compared to $890.8 million as of December 31, 2017. Total real estate loans as of December 31, 2017 increased $146.4 million, or 19.7%, compared to $744.4 million as of December 31, 2016.

The repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans. Post Oak seeks to minimize these risks in a variety of ways in connection with underwriting these loans, including giving careful consideration to the property’s operating history, future operating projections, current and projected occupancy, location and physical condition.

Construction and land development loans are generally nonowner occupied and are subject to certain risks attributable to the fact that loan funds are advanced over the construction phase and the project is of uncertain value prior to its completion. Construction loans are generally based upon estimates of costs and value associated with the completed project with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay the loan. Post Oak has underwriting and funding procedures designed to address what it believes to be the risks associated with such loans; however, no assurance can be given the procedures will prevent losses resulting from the risks described above.

Post Oak’s real estate lending activities also include the origination of 1-4 family residential and multi-family residential loans. The terms of these loans typically range from three to ten years and are secured by the properties financed. Post Oak requires the borrowers to maintain mortgage title insurance and hazard insurance. Post Oak retains all 1-4 family residential loans for its own portfolio rather than selling such loans into the secondary market.

Commercial and Industrial. Post Oak’s commercial and industrial loans represent credit extended to small to medium sized businesses primarily for the purpose of providing working capital and equipment purchase financing. Commercial and industrial loans often are dependent on the profitable operations of the borrower. These credits are primarily made based on the expected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may also incorporate a personal guarantee. Some shorter term loans may be extended on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The cash flows of borrowers may not be as expected and the collateral securing these loans may fluctuate, increasing the risk associated with this loan

 

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segment. As a result of the additional complexities, variables, and risks, commercial loans typically require more thorough underwriting and servicing than other types of loans. The commercial and industrial loan portfolio increased $466 thousand, or 0.2%, to $206.0 million as of March 31, 2018 compared to $205.6 million as of December 31, 2017. Total commercial and industrial loans as of December 31, 2017 increased $63.1 million, or 44.2%, compared to $142.5 million as of December 31, 2016.

Agriculture. Post Oak provides crop production and farm equipment loans to local area farmers. Post Oak evaluates these borrowers primarily based on their historical profitability, level of experience in their particular agricultural industry, overall financial capacity and the secondary collateral, including crop insurance, to withstand economic and national fluctuations common to the industry. The agriculture loan portfolio decreased $935 thousand, or 11.3%, to $7.3 million as of March 31, 2018 compared to $8.3 million as of December 31, 2017. Total agriculture loans as of December 31, 2017 decreased $1.0 million, or 11.2%, compared to $9.3 million as of December 31, 2016.

Consumer. Post Oak’s consumer loans include automobile loans, home improvement loans, home equity loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 1 to 7 years and vary based on the nature of collateral and size of the loan. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus more likely to be adversely affected by job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as deemed appropriate by Post Oak’s management. The consumer loan portfolio decreased $1.6 million, or 5.0%, to $31.4 million as of March 31, 2018 compared to $33.0 million as of December 31, 2017. Total consumer loans as of December 31, 2017 increased $21.5 million, or 186.7%, compared to $11.5 million as of December 31, 2016. This increase was primarily due to a significant consumer loan acquired in the TSBOT acquisition.

Other loans. Other loans consist primarily of amounts funded to mortgage companies which are secured by the assignment of various notes receivables representing mortgages on single family residences. In addition, other loans consists of smaller loans to business entities and individuals for various personal and business purposes and overdraft lines of credit principally extended to individuals.

Concentrations of Credit

The vast majority of Post Oak’s lending activity occurs in the Houston metropolitan area. Post Oak’s loans are primarily secured by real estate, including commercial and residential construction, owner occupied and nonowner occupied and multi-family commercial real estate, raw land and other real estate based loans located in the Houston metropolitan area. As of March 31, 2018, December 31, 2017 and 2016, real estate loans represented 77.9%, 77.7% and 80.4%, respectively, of Post Oak’s total loans.

Asset Quality

Nonperforming Assets and Potential Problem Loans. Post Oak has procedures in place to assist in maintaining the overall quality of its loan portfolio. Post Oak has established underwriting guidelines to be followed by its officers to monitor Post Oak’s delinquency levels for any negative or adverse trends.

Post Oak had $5.0 million, $4.4 million and $5.3 million in nonaccrual loans as of March 31, 2018, December 31, 2017 and 2016, respectively.

 

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The following table presents information regarding nonperforming assets as of the dates indicated:

 

     As of
March 31, 2018
    As of
December 31, 2017
    As of
December 31, 2016
 
     (Dollars in thousands)  

Nonaccrual loans:

      

Real estate

   $ 4,174     $ 3,817     $ 4,780  

Commercial and industrial

     632       413       484  

Agriculture

     —         —         —    

Consumer

     153       159       —    

Other

     —         —         —    
  

 

 

   

 

 

   

 

 

 

Total nonaccrual loans

     4,959       4,389       5,264  

Accruing loans 90 or more days past due

     —         —         —    
  

 

 

   

 

 

   

 

 

 

Total nonperforming loans

     4,959       4,389       5,264  

Other real estate

     3,133       —         1,087  

Other repossessed assets

     —         —         —    
  

 

 

   

 

 

   

 

 

 

Total nonperforming assets

   $ 8,092     $ 4,389     $ 6,351  
  

 

 

   

 

 

   

 

 

 

Restructured loans (1)

   $ 1,148     $ 1,166     $ 2,289  

Nonperforming assets to total assets

     0.56     0.31     0.56

Nonperforming loans to total loans

     0.43     0.38     0.57

 

(1) Restructured loans represent the balance at the end of the respective period for those performing loans modified in a troubled debt restructuring that are not already presented as a nonperforming loan.

Allowance for Possible Credit Losses

The allowance for possible credit losses is a valuation allowance that is established through charges to earnings in the form of a provision for possible credit losses. The amount of the allowance for possible credit losses is affected by the following: (1) charge-offs of loans that decrease the allowance, (2) subsequent recoveries on loans previously charged off that increase the allowance and (3) provisions for loan losses charged to income that increase the allowance. For purposes of determining the allowance for possible credit losses, Post Oak considers the loans in its portfolio by segment, class and risk grade. Management uses judgment to determine the estimation method that fits the credit risk characteristics of each portfolio segment or loan class. To assist in the assessment of risk, management reviews reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Post Oak utilizes an independent third party loan review service to review the credit risk assigned to loans on a periodic basis and the results are presented to management for review.

At March 31, 2018 and December 31, 2017, the allowance for possible credit losses amounted to $12.0 million, or 1.05%, of total loans, as of both dates compared with $11.2 million, or 1.21%, as of December 31, 2016. Post Oak believes that the allowance for possible credit losses at March 31, 2018, December 31, 2017 and December 31, 2016 was adequate to cover probable incurred losses in the loan portfolio as of such date.

 

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The following table presents, as of and for the periods indicated, an analysis of the allowance for possible credit losses and other related data:

 

     For the Three Months Ended
March 31, 2018
    For the Year Ended
December 31, 2017
    For the Year Ended
December 31, 2016
 
     (Dollars in thousands)  

Average loans outstanding

   $ 1,149,346     $ 1,061,420     $ 892,660  

Gross loans outstanding at end of period

     1,146,661       1,147,002       925,648  

Allowance for possible credit losses at beginning of period

     12,030       11,239       9,894  

Provision for possible credit losses

     250       790       1,952  

Charge-offs:

      

Real estate

     —         (15     (58

Commercial and industrial

     (290     (20     (572

Agriculture

     —         (9     —    

Consumer

     (1     —         —    

Other

     —         —         —    
  

 

 

   

 

 

   

 

 

 

Total charge-offs for all loan types

     (291     (44     (630
  

 

 

   

 

 

   

 

 

 

Recoveries:

      

Real estate

     —         —         —    

Commercial and industrial

     6       45       23  

Agriculture

     —         —         —    

Consumer

     —         —         —    

Other

     —         —         —    
  

 

 

   

 

 

   

 

 

 

Total recoveries for all loan types

     6       45       23  
  

 

 

   

 

 

   

 

 

 

Net charge-offs

     (285     1       (607
  

 

 

   

 

 

   

 

 

 

Allowance for possible credit losses at end of period

   $ 11,995     $ 12,030     $ 11,239  
  

 

 

   

 

 

   

 

 

 

Allowance for possible credit losses to total loans

     1.05     1.05     1.21

Net charge-offs to average loans (1)

     0.10     0.00     0.07

Allowance for possible credit losses to nonperforming loans

     241.88     274.09     213.51

 

(1) Interim period annualized.

 

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The following table shows the allocation of the allowance for possible credit losses among Post Oak’s loan categories and the percentage of the respective loan category to total loans held for investment as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any loan category.

 

     As of March 31, 2018     As of December 31, 2017     As of December 31, 2016  
     Amount      Percent of
Loans to
Total Loans
    Amount      Percent of
Loans to
Total Loans
    Amount      Percent of
Loans to
Total Loans
 
             (Dollars in thousands)               

Balance of allowance for possible credit losses applicable to:

 

            

Real estate

   $ 9,337        78.0   $ 9,338        77.7   $ 9,034        80.5

Commercial and industrial

     2,155        18.0     2,155        17.9     1,730        15.4

Agriculture

     77        0.6     87        0.7     113        1.0

Consumer

     328        2.7     346        2.9     140        1.2

Other

     98        0.7     104        0.8     222        1.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total allowance for possible credit losses

   $ 11,995        100.0   $ 12,030        100.0   $ 11,239        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

In addition to the allowance for possible credit losses at March 31, 2018, December 31, 2017 and 2016, Post Oak held $22 thousand for each of these years in reserve in other liabilities for unfunded loan commitments to provide for the risk of loss inherent in its unfunded lending related commitments.

Available for Sale Securities

As of March 31, 2018, the carrying amount of investment securities totaled $48.5 million, a decrease of $982 thousand, or 2.0%, compared with $49.4 million as of December 31, 2017. The carrying amount of investment securities at December 31, 2017 increased $11.0 million, or 28.5%, compared with $38.5 million as of December 31, 2016. Securities represented 3.4%, 3.5% and 3.4% of total assets as of March 31, 2018, December 31, 2017 and 2016, respectively.

All of the securities in the portfolio are classified as available for sale. Securities classified as available for sale are measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, as accumulated comprehensive income or loss until realized. Interest earned on securities is included in interest income.

 

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The following table summarizes the amortized cost and fair value of the securities in the securities portfolio as of the dates shown:

 

    March 31, 2018  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair Value  
    (Dollars in thousands)  

Available for Sale

       

U.S. Government and agency securities:

       

Bonds

  $ 16,468     $ 9     $ (73   $ 16,404  

Agency mortgage-backed securities

    16,580       1       (464     16,117  

Municipal securities

    16,107       3       (167     15,943  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 49,155     $ 13     $ (704   $ 48,464  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2017  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair Value  
    (Dollars in thousands)  

Available for Sale

       

U.S. Government and agency securities:

       

Bonds

  $ 16,461     $ 12     $ (51   $ 16,422  

Agency mortgage-backed securities

    17,217       3       (239     16,981  

Municipal securities

    16,171       —         (128     16,043  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 49,849     $ 15     $ (418   $ 49,446  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2016  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair Value  
    (Dollars in thousands)  

Available for Sale