Allegiance Bancshares and CBTX agreed to a merger of equals that the two Houston banks said would create the largest lender based in the nation’s fourth-most populous market.
The all-stock deal, expected to close in the second quarter of 2022, would create a bank with more than $11 billion of assets. The companies emphasized the need for added size to compete with megabanks such as JPMorgan Chase and Wells Fargo, as well as several prominent regional banks.
The merger would create a bank with the sixth-largest deposit market share in the Houston metropolitan area and the No. 1 lender among banks based in Texas’ biggest city.
“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,” CBTX Chairman and CEO Bob Franklin said in a joint press release on Monday. “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.”
That next generation is increasingly demanding robust digital banking services, analysts say, and community banks need larger asset bases to address the rising technology expenses necessary to compete with larger peers, particularly in major markets.
For these reasons, there had long been speculation about a potential merger of equals involving Allegiance and CBTX “and we believe this deal has been in the works for some time,” said Raymond James analyst David Feaster.
Like its peers across the country, the two banks are both investing in digital platforms.
“We are pleased to see the combination, and believe the transaction significantly accelerates key strategic initiatives for each bank,” Feaster said.
CBTX is the legal acquirer while Allegiance is the accounting acquirer. Allegiance stockholders will receive 1.4184 shares of CBTX for each of their current shares.
Should the two banks secure regulatory approvals, Allegiance shareholders will own approximately 54% of the combined company and CBTX shareholders will own the rest. The companies did not disclose a sale price in the release but estimated together they would have a market capitalization of $1.5 billion.
Allegiance CEO Steve Retzloff will become executive chair of the combined company, while Franklin is slated to be chief executive. Allegiance CFO Paul Egge will be the combined company's finance chief. Allegiance President Ray Vitulli will be the CEO of the banking unit.
The board of directors of the combined company will initially consist of 14 members — seven from each bank.
Allegiance Bancshares is the parent company of Allegiance Bank, while CBTX is the parent company of CommunityBank of Texas. The combined bank will rebrand after closing, though the companies have not finalized the details.
The companies projected cost savings of about $35.5 million by 2023, or about 15% of their combined annual operating expenses. They estimated the deal would generate 40% and 17% accretion to CBTX's and Allegiance's earnings per share in 2023, respectively.
The companies estimated 3.9% tangible book value dilution for the combined bank, which they expect to earn back in less than a year.
