Allegiance Bancshares, the holding company of Allegiance Bank, and CBTX, the parent company of CommunityBank of Texas, entered into a definitive agreement pursuant to which the companies will combine in an all-stock merger of equals to create a combined company with an equity market capitalization of approximately $1.5 billion and the 17th largest deposit market share in Texas.
Under the terms of the definitive merger agreement, Allegiance shareholders will receive 1.4184 shares of CBTX common stock for each share of Allegiance common stock they own. Based on the number of outstanding shares of Allegiance and CBTX as of Nov. 5, Allegiance shareholders will own approximately 54% and CBTX shareholders will own approximately 46% of the combined company.
“We are very excited to partner with CBTX with whom we share culture, strategic vision and a commitment to our stakeholders. This transaction is a true merger of equals, combining the best of our highly-respected community banks, which better positions us to serve our customers and drive enhanced financial performance,” Steve Retzloff, CEO of Allegiance, said. “Our companies complement each other beautifully and the combined company will be a formidable competitor across our markets. The combination is poised to deliver long-term value for our shareholders, customers, employees and communities. I have long admired [Bob Franklin’s] leadership and the high-quality community bank franchise that CBTX has built. I am thrilled that we will be on the same team and look forward to working closely as, together, we become Texas’ premier community bank.”
“Bringing two of the Houston region’s best community banks together is a great thing for our communities. Allegiance is a trusted, local bank, and there is no better team with which to unite to work together to preserve the tradition of community banking while meeting the diverse needs of the customers that we serve,” Franklin, who is the chairman and CEO of CBTX, said. “I have tremendous respect for Steve and the Allegiance team and look forward to leveraging our respective strengths as we focus on our combined future. We are committed to the idea that the Houston region needs a financial institution with significant scale that operates with the culture of a community bank and local decision making led by banking professionals with deep experience. The combination enhances our ability to deliver for our communities, shareholders, customers and employees in a better way than either company could achieve alone and gives us the ability to compete in the next generation of banking. The combined company will unify under new branding to be identified prior to the completion of the merger. This will be important as we take the best of both to build our future.”
On a pro forma basis, the combined company expects to deliver improved performance, with a targeted 2023 return on average assets of approximately 1.3%, a return on average tangible common equity of approximately 12% and an efficiency ratio of approximately 52%.
The merger is expected to generate an estimated $35.5 million of run-rate cost synergies by 2023, which represents approximately 15% of combined annual operating expense.
The merger is targeted to deliver 40% and 17% accretion to CBTX’s and Allegiance’s earnings per share in 2023, respectively (first full year of realized cost savings).
The combined company is expected to have a tangible common equity ratio of more than 9.5% at closing.
Retzloff will be the executive chairman of the combined company, while Franklin will be the CEO. In addition, Ray Vitulli, president of Allegiance, will be the CEO of the combined bank; Paul Egge, CFO of Allegiance, will be the CFO of the combined company; and Joe West, chief credit officer of CBTX, will be the chief credit officer of the combined bank
The board of directors of the combined company will initially be comprised of 14 directors, with seven from Allegiance and seven from CBTX. Retzloff and Franklin will both be named directors of the combined company
The merger is expected to close early in Q2/22, subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals and approval of the shareholders of each company.
Raymond James & Associates served as financial advisor to Allegiance, with Bracewell serving as legal advisor. Stephens served as financial advisor to CBTX, with Fenimore Kay Harrison and Norton Rose Fulbright serving as legal advisors.
