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Aqua Bounty Technologies Inc. (Reg S) (NASDAQ:ABTX)
Q1 2019 Earnings Call
April 26, 2019 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to Allegiance Bancshares first-quarter 2019 earnings conference call. [Operator instructions] As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Ms. Courtney Theriot.

Ma'am, please go ahead.

Courtney Theriot -- Senior Vice President and Manager of Financial Reporting

Thank you, operator, and thank you for all who have joined our call today. This morning's earnings call will be led by George Martinez, chairman and CEO; Steve Retzloff, president; Ray Vitulli, executive vice president and president of Allegiance Bank; and Paul Egge, executive vice president and CFO. Before we begin, I need to remind everyone that some of the remarks made today may constitute forward-looking statements as defined in the private securities litigation reform act of 1995 as amended. We intend all such statements to be covered by the safe harbor provisions for forward-looking statements contained in the act.

Also note, that if we give guidance about future results, that guidance is only a reflection of management's beliefs at the time the statement is made. Management's beliefs relating to predictions are subject to change, and we do not publicly update guidance. Please see the last page of the text in this morning's earnings release for additional information about the risk factors associated with forward-looking statements. If needed, a copy of the earnings release is available on our website, at allegiancebank.com or by calling Heather Robert at (281) 517-6422, and she will email you a copy.

We also have provided an investor presentation on our website. Although it is not being used as a guide for today's comments, it is available for review at this time. At the conclusion of our remarks, we will open the line and allow time for questions. I now turn the call over to our CEO, George Martinez.

George Martinez -- Chairman and Chief Executive Officer

Thank you, Courtney, and we welcome all of you to our first-quarter earnings call. The first quarter of 2019 was a busy one for Allegiance. During the quarter, we completed a successful conversion of Post Oak locations into Allegiance Bank, and we are well on our way to a common culture across our Houston region footprint. Additionally, during the quarter, we completed an acquisition of the LoweryBank branch in Sugar Land, acquiring loans of approximately $45 million and deposits of approximately $16 million.

We are excited about our new customers from LoweryBank and the strategic location we acquired, positioning us very well to support new and existing customers, as well as, to build our brand in this attractive Houston submarket. Also during the first quarter, we optimized our footprint by consolidating two bank offices in addition to the Galleria office that was closed in November 2018. We exited our existing Sugar Land location in conjunction with the Lowery bank branch acquisition. And we consolidated the legacy Allegiance town & country bank office into the town & country location that was acquired in Post Oak bank.

As there were lot of moving parts during the quarter, but we are pleased with the results, and we feel the table is set for improving results as the year progresses. We experienced organic loan growth across our footprint without compromising our credit culture, even in the midst of our integration efforts, which is attributable to our highly dedicated bankers. Core loan growth increased 12% annualized in the first quarter 2019 compared to the end of the fourth quarter 2018, including the loans acquired from Lowery bank. Loan deposits increased in the first quarter by $118 million albeit with a temporary increase in wholesale funding, partly to cover the shortfall that resulted from the LoweryBank acquisition.

We continue to see exceptional loan loss experience as our net charge-offs were two basis points annualized for the first quarter and for the fourth quarter of the '18. We were pleased to see an increase in net income to $12.7 million and diluted earnings per share of $0.58 for the first quarter 2019 compared to $7.7 million and $0.57 per share for the year ago quarter. All of these successes point to the confidence that we have in our diligent employees and their ongoing ability to generate solid returns for our shareholders. Our focus continues to remain on maintaining a work environment second to none, which is critical for attracting the best bankers in the Houston region.

Next, Steve will describe our results in more detail followed by Paul who will explain some of the numbers behind Steve's narrative. Then we will open the call for questions.

Steve Retzloff -- President

Thanks, George. I also welcome everyone to our first-quarter conference call. What best characterizes the first quarter of 2019 particularly, given the intense handholding effort provided to our customers doing the core and online electronic banking conversion is a comment from one of our commercial customers who wrote, "I've been so impressed with the level of professionalism and courtesy surrounding the conversion. From the start, I got the impression that Allegiance Bank was very concerned about making the conversion as smooth as possible.

I was impressed with the training held locally at your bank. Very pleased that it was made convenient for all of your customers located in this area. The treasury department is totally amazing, but limited concerning questions I have were handled with professionalism and speed." We received many other similar compliments. I will spare you a reading of them all.

All I can say is for us a successful conversion with an abundance of happy customers. It just doesn't get any better than that. Notwithstanding the Q1, all hands on that commitment to customer service and ongoing management of our integration, our bankers maintain strong momentum in growing our core loans, which we defined as loans excluding our mortgage warehouse lines. Total core loans ended the first quarter at $3.78 billion, an increase of $109.4 million during the quarter, a growth rate of 12%.

Excluding the acquired loans from the branch purchase of $45 million, the organic loan growth rate was 7%. This compares to core loan growth of $104 million or a rate of 11.7% for the fourth quarter. During the first quarter, our lender team booked $305 million of new loans that funded to a level of $200 million by March 31. This compares to the fourth quarter when $353 million of new loans were generated, which funded to a level of $223 million in the fourth quarter.

Paid-off loans were $159 million in the first quarter compared to $166 million in the fourth. The average size of the new organic core loans generated during the first quarter was $418,000 submitted and $275,000 funded, which, once again, reflects our focus on the small to medium-sized business sector. Based on total loan amount, the weighted average interest rate charged on our new first-quarter core loans was 5.76%, or based on period-end, funded balance was 5.70%, which is in line with the fourth-quarter weighted average rate of 5.75%. Notably, the $159 million of paid-off loans during the quarter had a weighted average rate of 4.94%, whereas during the fourth quarter the $166 million of paid-off loans at a weighted average rate of 5.44%.

Resulting from the new loans, paid loans, renewals and the resulting loan mix, the period-end weighted average interest rate charged on our portfolio, our core loans reflect an upward trend. At the quarter-end, weighted average rate, before accrued fees and acquisition accounting, increased from 5.47% as of December 31, 2018 to 5.52% as of March 31, 2019. Paul will discuss the resulting portfolio yields and margins in his report. The mix of new loan production based on fourth-quarter funded levels was represented by the following four commercial categories: owner-occupied commercial real estate 22.8%, nonowner-occupied commercial real estate 14.3%, commercial term loans 13.5%, commercial working capital 9.1%.

These four commercial categories represented 59.8% of the new funded production compared to 52.1% for the fourth quarter and 61.8% for the third quarter of 2018, indicating our ongoing commercial concentration. Loans secured by one to four family residential real estate contributed 17.9% of the new funded core loans. Construction and development, including land loans contributed 14.5%, and multifamily contributed 2.9% of the new funded core loans during the quarter. The overall loan mix was a little changed on a linked-quarter basis.

The slide deck posted on our website provides added color regarding the overall mix of loans. The average funded loan size ended the quarter at $337,000. Net charge-offs experienced during the quarter was once again very low at $210,000 on annualized rate of two basis points. The 2018 full-year net charge-offs were $1.57 million or six basis points.

The bank's quarter-end asset quality position remains solid. Nonperforming assets ended the quarter a little changed from the fourth quarter, declining from 72 to 71 basis points of total assets. The $522,000 increase in ORE was a foreclosed, undeveloped property for which we already have entered into an earnest money contract. Non-accrual loans decreased only slightly during the quarter, ending at $32.7 million.

Ten relationships represent 75% of the non-accrual loans, which, as a group, have a 14% specific reserve and a well-collateralized improvement. In terms of our watch list, our classified loans, as a percentage of total loans, once again declined, slightly ending at 2.08% of total loans at March 31 compared to 2.15% at December 31 of '18 and 2.26% at September 30 of '18. Criticized loans increased slightly to a 3% from a linked quarter of 2.86%. The specific reserves for the impaired loans increased, ending the quarter at 18.5%.

Total deposits increased in the first quarter by $117.5 million, ending the quarter at $3.78 billion, which looks good on the surface, but we experienced a challenging quarter as it relates to deposit mix. Core or non-brokered deposits decreased by $65.6 million during the quarter with non-interest-bearing deposits representing $27.4 million of the decrease. The difference, which we view, is temporary to support the timing differential of loan and deposit growth exaggerated by our branch acquisition was funded with approximately $183.1 million of brokered deposits. We reiterate our emphasis on our core deposit growth initiatives, notwithstanding the setback in the quarter.

And I might add that the second quarter is off to a good start. Given the decrease in non-interest-bearing deposits of $27.4 million, the non-interest-bearing deposit ratio ended the quarter at 31.2% compared to 33% at year-end. Oil prices have elevated nicely since we reported last quarter to the mid-to-upper 60s per barrel recently, which although, Allegiance continues to not focus on this sector, a higher price bodes well for the region. Our local economic data remains positive.

According to the recently revised U.S. bureau of labor statistics, the Houston MSA gained 73,300 jobs during 2018 with unemployment at 4.2% as of February 2019. Revised statistics indicated growth of 4,600 new jobs for Beaumont rather than a previously reported decline. In the latest forecast from the Perryman group, as reported by the greater Houston partnership, metro Houston is expected to grow by 600,000 people, add 340,000 jobs and $100 billion of increased GDP by the end of 2023.

For the trailing 12 months ended March 2019, single-family homes sales reached a very robust level of 97,000 homes in the Houston MSA. Current inventory is at 3.9 months. And finally, the Houston area purchasing managers' index ended February at 56.1%, further indicating expansion. So the overall tone with our commercial customers remains positive, and the local economic outlook is strong.

With a completed purchase of the bank office in sugar land and with the dust settled on our other bank office adjustments, including three office closures, Allegiance Bank now have 27 bank locations, including 26 in the Houston area and one in Beaumont, plus one LPO in southeast Houston. Our six new 2019 lender hires and other recent producer hires have been deployed into an existing available branch infrastructure into markets where they can be most productive. The remainder of 2019 will be focused on completing all remaining phases of our integration, including the elimination of redundancies, further market penetrations and a deeper dive into both procedural and technology-based efficiency enhancements. With that, I will now turn it over to our CFO, Paul.

Paul Egge -- Executive Vice President and Chief Financial Officer

Thanks, Steve. First quarter net income was $12.7 million or $0.58 per diluted share as compared to fourth-quarter earnings of $13.2 million or $0.59 per diluted share. Our first quarter was impacted by higher funding costs and certain non-interest expenses related specifically to the Post Oak integration. First quarter net interest income decreased slightly to $44.6 million from $45.8 million in the fourth quarter.

This is primarily due to an increase in funding cost, and interest-bearing liabilities, partially offset by continued organic growth. I should note, the first quarter had two fewer days than the fourth quarter. Average interest-earning assets for the first quarter 2019 increased 2.5% compared to the fourth quarter of 2018 and 60.6% compared to the first quarter of 2018. In conjunction with a full-quarter effect of the December rate hike, our cost of deposits and borrowed fund continued to increase during the quarter.

Increased rates on the front end of the curve, coupled with overall trends in funding mix and cost, led $2.1 million, an increased interest expense in the first quarter as compared to the fourth quarter. Approximately $1.4 million of the increased interest expense came directly from increased levels of average broker deposits and borrowed funds balances over the quarter where the balance came from the migration and cost of customer deposits. Total cost of interest-bearing liabilities was 178 basis points for the first quarter of 2019 compared to 153 basis points for the fourth quarter of '18 and 118 basis points for the year ago quarter. Overall, cost of funds for the first quarter was 127 basis points versus 106 basis points in the fourth quarter and 87 basis points in the year ago quarter.

Excluding acquisition accounting adjustments in the first quarter, the total cost of interest-bearing liabilities would have been 182 basis points, and the overall cost of funds would have been 129 basis points. We saw progress on core asset yields as the yield on loans in the first quarter was 5.86% versus 5.81% in the fourth quarter, and 5.4% in the year ago quarter. Adjusting for the acquisition accretion recorded in the first quarter of 2019, yield on loans would have been 5.57% in the first quarter and 5.51% in the fourth quarter. Total yield on interest-earning assets was 5.5% for the first quarter, 5.44% for the fourth quarter and 5.01% for the year ago quarter.

Adjusting for the acquisition accretion, total yield on earning assets would have been 5.24% compared to an adjusted yield on earning assets of 5.18% for the fourth quarter. Within the first quarter, acquisition accounting accretion increased loan income by $2.7 million, and reduced CD expense by $287,000 for a total positive effect on net interest income of $3 million. This quarter's accretion leaves $11.8 million in the loan mark and $1.1 million in the CD mark. The tax equivalent net interest margin for the first quarter was 4.31% compared to 4.45% in the fourth quarter.

Adjusting for the acquisition accounting accretion, net interest margin would have been 4.03% for the first quarter compared to 4.16% for the fourth quarter. non-interest income increased to $3.3 million for the first quarter from $2.3 million for the fourth quarter, primarily due to losses from the sales of ORE and ORA of $429,000 during the fourth quarter of 2018 and approximately $600,000 of onetime items relating to Post Oak. First quarter 2019 also represents a very nice pickup from the $1.6 million from the year ago quarter. Total non-interest expense for the first quarter 2019 was $31.1 million compared to $29 million for the fourth quarter of '18, primarily due to $1.2 million of merger-related expenses incurred during the first quarter of 2019 related to the Post Oak integration and systems conversion.

I should also note, the first quarter salary and benefits line featured some seasonality due to approximately $400,000 of elevated FICA taxes as well as the annual salary increases, elevated temp and overtime expense around the conversion and expense related to certain employees that stay due to conversion. Efficiency ratio for the first quarter increased to 64.97% compared to the 60.3% we posted for the fourth quarter, an improvement from 65.59% for the prior-year quarter. Excluding merger-related expenses, the efficiency ratio for the first quarter of 2019 and fourth quarter 2018 would have been approximately 62.52% and 58.55%, respectively. The provision for loan losses was $1 million for the first quarter of 2019 and the ending allowance at $27.1 million, a 71 basis points of total loans.

Due to -- if you were to include $11.8 million in loan mark remaining on acquired loans, the ending allowance plus loan mark to total loans is 102 basis points and 103 basis points on core loans. This compared to 109 basis points to total loans and 111 basis points to core loans at December 31. Our effective tax rate in the first quarter was 19.6% compared to 18.6% for the fourth quarter as municipal securities and BOLI represent increasingly smaller portion of our revenue mix. Bottom line, our first quarter 2019 produced a return on average assets of 1.08%, and a return on tangible equity of 11.22%.

On the pre-tax, pre-provision basis, our ROAA during the quarter was 1.43%, and excluding M&A-related expenses, it would have been 1.53%. Before passing the call back to George, I should note that during the first quarter we made additional share repurchases under our board authorized share repurchase program. We repurchased just over 486,000 shares at a weighted average price of $35.65 per share during the quarter. Entering the second quarter, we had about 444,000 shares remaining under the share repurchase program.

I will now turn the call back over to George.

George Martinez -- Chairman and Chief Executive Officer

Thank you, Paul. Operator, we would now like to open the line for questions. 

Questions and Answers:

Operator

Our first question comes from line of Brad Milsaps with Sandler O'Neill. Your line is now open.

Brad Milsaps -- Sandler O'Neill -- Analyst

Hey. Good morning, guys.

Steve Retzloff -- President

Good morning, Brad.

Brad Milsaps -- Sandler O'Neill -- Analyst

Paul, I was curious, you could maybe first, start with the operating expenses. I know you guys had a lot going on in the quarter with conversion. You talked about, you know, $400,000 of FICA taxes that hurt, obviously, in the first quarter. I know last quarter when we were discussing cost savings, you know, thought you might continue to reinvest in franchise and spend a lot of those.

So long winded question saying, you know. What do you think, you know, your expense rate can fall to, if at all. Kind of looking out over the next several quarters or is it gonna be a situation where it's kind of stays where it is because of the investments that you're making.

Paul Egge -- Executive Vice President and Chief Financial Officer

Yeah. I mean, by virtue of continually investing in the franchise, I think, first of, you'll -- you will see a fall in -- from the first quarter to the second quarter, and normalization, but our normalized numbers are going to have just embedded in them an upward trend by virtue of our investing in the business, and and inspiring producers. But if we're going to see -- we saw in addition to conversion related things, a little bit of extra one off items that weren't necessarily discussed during the call. We look forward to seeing that operating expense line normalize back into call it, $29 million to $29 and a half million dollars range so to speak in the second quarter, and maintain some growth there, but but really try to dampen the growth as we squeeze out other redundancies relating to [Inaudible] because there still are some things that are running in parallel.

Well, we -- we will have closed the door on a lot of redundancy here in the first quarter, but more -- there's a little bit more to come as we continue our efforts.

Brad Milsaps -- Sandler O'Neill -- Analyst

OK. And just to follow up on, on the hiring. Maybe, Ray could comment, you know, what success you had in the first quarter in terms of bringing in people, and are you still looking at kind of the same pace, you know, that you guys have been targeting throughout the year.

Ray Vitulli -- Executive Vice President and President of Personal Insurance

Yeah, Brad. We're real pleased with these -- the first of so far 19 of the six. They're all -- actually all six came from banks larger than us, of which, one was the money center. The other five were more regional type bank, focused banks.

So -- and the candidate flow has been very good. So yeah, this pace of, you know, I think, you know, we were at one a month, and we talked about maybe one and a half, something like that still seems like what we're -- the kind of talent flow that we're seeing right now for the rest of the year.

Brad Milsaps -- Sandler O'Neill -- Analyst

Got it, and I think, last quarter we talked about, you know, we kind of worked through math of the 2017 and '18 class. You felt like you sort of had capacity of several hundred million dollars, maybe $350 million. Does that still kind of equate to a double digit, low double digit type loan growth in 2019 in your mind?

Ray Vitulli -- Executive Vice President and President of Personal Insurance

I would say so, yeah. But the -- with the -- in that number still the $350 million to $400 million is probably a good number when you start adding the '19 hires.

Brad Milsaps -- Sandler O'Neill -- Analyst

OK. Great. And one final for Paul. You mentioned you said there were $600,000 of non-recurring fee income items at Post Oak.

Is that correct?

Paul Egge -- Executive Vice President and Chief Financial Officer

Yes.

Brad Milsaps -- Sandler O'Neill -- Analyst

OK. Great. Thank you, guys.

Operator

Our next question comes from Matt Olney with Stephens. Your line is now open.

Adam Freyaldenhoven -- Stephens Inc. -- Analyst

Hey guys. This is Adam Freyaldenhoven on for Matt today.

Steve Retzloff -- President

Good morning, Adam.

Adam Freyaldenhoven -- Stephens Inc. -- Analyst

Good morning. Thanks for taking my question. So I wanted to start on the non-interest bearing deposits. They were down this quarter on an average basis, and I know you said that there was some seasonality, but was any of that from customers switching to interest bearing accounts?

Ray Vitulli -- Executive Vice President and President of Personal Insurance

So we don't see that in the first quarter as far as the migration of -- between the products. The -- if you kind of break it out into just in general, the components that -- what we call, the waterfall that makes up that decrease. You got basically opened accounts, closed accounts and carried accounts. And really the driver of the decrease in that demand was, what we call it, in the carried accounts, so those accounts that were currently on the books, just dropped in the first quarter.

And if you look at our -- if you try to pick up some trends, it's not a whole lot of trend there other than -- if you take -- if you look at '17 and '18 plus this quarter, the nine quarters, five of them carried balances go up, four of them carried balances went down. So that's why we're kind of looking at it temporary. What we really want to focus on and control more, which is the new account opening. And for the first quarter that was at a high watermark in terms of number of accounts and the dollar amount associated with those accounts.

Adam Freyaldenhoven -- Stephens Inc. -- Analyst

OK. Thank you. That's helpful. And one more on the NIM.

I've known, previous quarters you bounced around the idea of toddling loan growth to help maintain the margin. Is that something you're once again considering?

Paul Egge -- Executive Vice President and Chief Financial Officer

What do you mean by that?

Adam Freyaldenhoven -- Stephens Inc. -- Analyst

Just to slow loan growth with the reprising pressure eases and you can kind of protect that -- protect your core margin?

Paul Egge -- Executive Vice President and Chief Financial Officer

Certainly. That is consideration and when you see this mix shift that is provoked thought. But when we disaggregate the difference in margin, what we see is that our core margin in terms of core loans funded by core customer deposits is actually stable. And we can really isolate the mix shift that occurred in this quarter very much -- that mix shift to effectively, let's call it, of that NIM decline.

So really the core piece of our business we talked about it in the January call is if we're able to successfully fund our business and execute with core customer deposits, we should have stable margins. This quarter, we were not able to [Inaudible] the margin decreased by product. So --

Adam Freyaldenhoven -- Stephens Inc. -- Analyst

That's helpful. Thank you. That's it for me.

Operator

[Operator instructions] Our next question comes from the line of David Easter with Raymond James.

David Easter -- Raymond James -- Analyst

Hey, good morning guys.

Ray Vitulli -- Executive Vice President and President of Personal Insurance

David.

David Easter -- Raymond James -- Analyst

Just kind of following up on the core NIM. I mean, you know, the key obviously is core deposit growth. Could you just talk about core deposit strategies that you've got in place? And I guess with the flatter rate outlook, do you think that the rate of deposit cost increases could slow from here? And maybe combined with add-on rates in your loan portfolio actually stabilized the NIM?

Paul Egge -- Executive Vice President and Chief Financial Officer

Well, I'll speak to some stabilization, and Ray will speak to the deposit initiatives. With -- this quarter, we did kind of see the full quarter effect with that December rate hike. And as you might imagine, a lot of more wholesale sources of fund that we had -- that we used during the quarter are more quarterly and the cost of that is directly proportional to the front end of the curve. So we saw some stabilization going into the back half of the quarter.

But ultimately, improving our mix is going to drive the NIM story, the extent we can use less of those -- less desirable sources of funds. And Ray, maybe you can hit on the deposit strategy.

Ray Vitulli -- Executive Vice President and President of Personal Insurance

Yeah, David. So this leading indicator we believe up in new accounts opened is just really where we're focused. And we do have markets where we're -- where we've just become more active, for instance, sugar land, Stafford, North of the Houston and the Woodlands. Those are markets where we are working on market share penetration there.

And some of the hires that were made in the first quarter going offices to further develop that market where we -- right now, we just don't have a lot of penetration. So the upside there, we're very excited about the growth we can get there. And that mix will look like our normal mix, which is -- where we've enjoyed this non-interest bearing as compared to the total deposit mix. Our TM, we -- or treasury management in the first quarter, I'm not going to call fully implemented for the first quarter.

It currently got implemented maybe in February, but second quarter will be our first full quarter of a full team of treasury management sales and service. It has improved our customer experience on onboarding, and we've seen really nice growth in onboarding and treasury management customers going back in forth -- from the third quarter, fourth quarter and now first quarter, increases in all of those quarters.

David Easter -- Raymond James -- Analyst

OK. That's helpful. You know, one of the other strategies we've talked about is the increasing your C&I composition, hoping that to drive deposit growth. It looks like C&I was relatively stable this quarter.

Could you just talk about what you're seeing in that segment and your thoughts on growing that portfolio and ultimately, what it could mean for core deposit growth going forward, too?

Ray Vitulli -- Executive Vice President and President of Personal Insurance

Definitely, strategy of the bank, and we -- you know, that almost -- it looks somewhat like the deposit announced, where you look at the leading indicator being new accounts opened. And so on the C&I side, we look at originations because at C&I with revolvers you may -- our funding history, as you know, you get some funding, not a 100% funding. So as far as the originations, we're very pleased with what's happened over the last few quarters, and even first quarter, the originations had slight increase from the previous quarter. And then you need to see that waterfall what happens when it turns.

But it is an effort we have actually of our 108 producers in the field. We actually have a team that really focused on C&I, a section of those, as well as, rest of the bank are working to improve that concentration.

David Easter -- Raymond James -- Analyst

OK. Thanks.

Operator

Our next question comes from Blair Brantley with Brean Capital. Your line is now open.

Blair Brantley -- Brean Capital -- Analyst

Good morning, everyone.

Ray Vitulli -- Executive Vice President and President of Personal Insurance

Good morning, Blair.

Blair Brantley -- Brean Capital -- Analyst

Just a couple of quick questions. First, on the last comment, you mentioned 108 lenders. I think you had 107 last quarter, but you had six hires. Was there some shift there, people leaving?

Ray Vitulli -- Executive Vice President and President of Personal Insurance

Yeah. We had a couple of retirements and a couple exits.

Blair Brantley -- Brean Capital -- Analyst

All right, great. And then just kind of think about capital plans you're going forward. Paul, with buyback and kind of where you bought back last quarter, are you still kind of thinking about doing similar activity there? And how does that kind of fold into future M&A thoughts?

Paul Egge -- Executive Vice President and Chief Financial Officer

Well, we're trying to be as thoughtful as possible as it relates to our capital position. We're enjoying really being closed to high watermark as it relates to where we've operated from a cap [Inaudible], and we expect improving profitability. So we plan on continuing the current share repurchase program. And there will be follow-up with our board as to whether to pursue more or consider other ways to return capital to shareholders.

Ray Vitulli -- Executive Vice President and President of Personal Insurance

As far as M&A, we're continued to be, you know, a potential buyer and we're continued to enjoy relationships with a lot of bankers in the area, and so we're ready andwilling.

Blair Brantley -- Brean Capital -- Analyst

Is there any shift in the turn or the frequency of conversation or they attend out there at all?

Paul Egge -- Executive Vice President and Chief Financial Officer

Really in our market, I think there's a lot of digestion by virtue of last 18 months. We had about eight bank fields and has really a bumper crop of activity. So there isn't -- I'd say, the tone and pace of discussions have been a little quiet. But we continue to -- continue our own calling efforts so to speak.

Ray Vitulli -- Executive Vice President and President of Personal Insurance

Yeah. We've been active for quite a while. I mean basically, as I say, increase is just continuing at the same level that we've always been on for the last number of years. Would you --

Blair Brantley -- Brean Capital -- Analyst

Thank you. I appreciate it.

Operator

We have a follow-up question from the line of Brad Milsaps with Sandler O'Neill. Your line is now open.

Brad Milsaps -- Sandler O'Neill -- Analyst

Hey, Paul, just wanted to ask quick housekeeping question on the tax rate. Usually, it takes a step down in the first quarter with the way the option accounting works. I know you mentioned, you know, less contribution from [Inaudible] and other nontaxable income. But just curious does it take a step up from here, and run at a higher rate than previously your -- kind of what are your thoughts around the tax rate?

Paul Egge -- Executive Vice President and Chief Financial Officer

Now that a lot of our expiring options that we enjoy the tax benefit from over the last year and a half, that's a bumper crop that has expired. And we don't expect that piece of the tax benefit to be. That means, we're going forward from here on end. And really what you see is a crawling out of those tax preferential revenue items.

And if anything, we may consider future mix shift in our securities portfolio away from municipal securities. So I'd expect to see our tax rate slowly migrate up.

Brad Milsaps -- Sandler O'Neill -- Analyst

Great. Thank you.

Operator

And I'm not showing any further questions in queue at this time. I'd like to turn the call back to George Martinez for closing remarks.

George Martinez -- Chairman and Chief Executive Officer

Once again, we appreciate your time and interest in Allegiance. We look forward to speaking with you again in the future. Thank you very much.[Operator signoff]

Duration: 38 minutes

Call Participants:

Courtney Theriot -- Senior Vice President and Manager of Financial Reporting

George Martinez -- Chairman and Chief Executive Officer

Steve Retzloff -- President

Paul Egge -- Executive Vice President and Chief Financial Officer

Brad Milsaps -- Sandler O'Neill -- Analyst

Ray Vitulli -- Executive Vice President and President of Personal Insurance

Adam Freyaldenhoven -- Stephens Inc. -- Analyst

David Easter -- Raymond James -- Analyst

Blair Brantley -- Brean Capital -- Analyst

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