UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021March 31, 2022
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             .
Commission File Number: 001-36682
VERITEX HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Texas 27-0973566
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
   
8214 Westchester Drive, Suite 800  
Dallas,Texas 75225
(Address of principal executive offices) (Zip code)
(972)349-6200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01VBTXNasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
   
Non-accelerated filer 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 5, 2021,May 6, 2022, there were 49,523,68353,962,875 outstanding shares of the registrant’s common stock, par value $0.01 per share.



VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Page

2


PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements
3


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
as of June 30, 2021March 31, 2022 and December 31, 20202021
(Dollars in thousands, except par value and share information) 
June 30,December 31,March 31,December 31,
2021202020222021
(Unaudited)(Unaudited)
ASSETSASSETSASSETS
Cash and due from banksCash and due from banks$51,726 $44,337 Cash and due from banks$51,966 $44,023 
Interest bearing deposits in other banksInterest bearing deposits in other banks338,301 186,488 Interest bearing deposits in other banks499,607 335,761 
Total cash and cash equivalentsTotal cash and cash equivalents390,027 230,825 Total cash and cash equivalents551,573 379,784 
Debt securities available-for-sale, at fair value1,077,239 1,024,329 
Debt securities held-to-maturity (fair value of $51,489 and $34,283, at June 30, 2021 and December 31, 2020, respectively)48,638 30,872 
Debt securities available-for-sale (“AFS”), at fair valueDebt securities available-for-sale (“AFS”), at fair value1,063,249 993,058 
Debt securities held-to-maturity (“HTM”) (fair value of $169,818 and $61,446, at March 31, 2022 and December 31, 2021, respectively)Debt securities held-to-maturity (“HTM”) (fair value of $169,818 and $61,446, at March 31, 2022 and December 31, 2021, respectively)181,265 59,436 
Equity securitiesEquity securities14,982 14,938 Equity securities14,880 15,393 
Securities purchased under agreements to resellSecurities purchased under agreements to resell100,818 102,288 
Investment in unconsolidated subsidiariesInvestment in unconsolidated subsidiaries1,018 1,018 Investment in unconsolidated subsidiaries1,018 1,018 
Federal Home Loan Bank of Dallas Stock (“FHLB”) and Federal Reserve Bank (“FRB”) Stock71,558 71,236 
Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) StockFederal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock71,983 71,892 
Total investmentsTotal investments1,213,435 1,142,393 Total investments1,433,213 1,243,085 
Loans held for saleLoans held for sale12,065 21,414 Loans held for sale18,721 26,007 
Loans held for investment, Paycheck Protection Program (“PPP”) loans, carried at fair value291,401 358,042 
Loans held for investment, mortgage warehouse (“MW”)559,939 577,594 
Loans held for investment, excluding MW and PPP6,272,087 5,847,862 
Loans held for investment (“LHI”), Paycheck Protection Program (“PPP”) loans, carried at fair valueLoans held for investment (“LHI”), Paycheck Protection Program (“PPP”) loans, carried at fair value18,512 53,369 
LHI, mortgage warehouse (“MW”)LHI, mortgage warehouse (“MW”)542,877 565,645 
LHI, excluding MW and PPPLHI, excluding MW and PPP7,125,429 6,766,009 
Less: Allowance for credit losses (“ACL”)Less: Allowance for credit losses (“ACL”)(99,543)(105,084)Less: Allowance for credit losses (“ACL”)(72,485)(77,754)
Total loans held for investment, net7,023,884 6,678,414 
Total LHI, netTotal LHI, net7,614,333 7,307,269 
Bank-owned life insurance (“BOLI”)Bank-owned life insurance (“BOLI”)83,304 82,855 Bank-owned life insurance (“BOLI”)83,641 83,194 
Bank premises, furniture and equipment, netBank premises, furniture and equipment, net123,504 115,063 Bank premises, furniture and equipment, net109,138 109,271 
Other real estate owned2,467 2,337 
Other real estate owned (“OREO”)Other real estate owned (“OREO”)1,062 — 
Intangible assets, net of accumulated amortizationIntangible assets, net of accumulated amortization57,143 61,733 Intangible assets, net of accumulated amortization63,986 66,017 
GoodwillGoodwill370,840 370,840 Goodwill404,452 403,771 
Other assetsOther assets72,856 114,997 Other assets173,561 138,851 
Total assetsTotal assets$9,349,525 $8,820,871 Total assets$10,453,680 $9,757,249 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY  LIABILITIES AND STOCKHOLDERS’ EQUITY  
Deposits:Deposits:  Deposits:  
Noninterest-bearing depositsNoninterest-bearing deposits$2,388,068 $2,097,099 Noninterest-bearing deposits$2,765,895 $2,510,723 
Interest-bearing transaction and savings depositsInterest-bearing transaction and savings deposits3,112,974 2,958,456 Interest-bearing transaction and savings deposits3,688,292 3,276,312 
Certificates and other time depositsCertificates and other time deposits1,477,860 1,457,291 Certificates and other time deposits1,435,409 1,576,580 
Total depositsTotal deposits6,978,902 6,512,846 Total deposits7,889,596 7,363,615 
Accounts payable and other liabilitiesAccounts payable and other liabilities55,499 61,928 Accounts payable and other liabilities105,552 69,160 
Advances from FHLBAdvances from FHLB777,640 777,718 Advances from FHLB777,522 777,562 
Subordinated debentures and subordinated notesSubordinated debentures and subordinated notes262,766 262,778 Subordinated debentures and subordinated notes228,018 227,764 
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase1,811 2,225 Securities sold under agreements to repurchase4,996 4,069 
Total liabilitiesTotal liabilities8,076,618 7,617,495 Total liabilities9,005,684 8,442,170 
Commitments and contingencies (Notes 8 and 11)Commitments and contingencies (Notes 8 and 11)0Commitments and contingencies (Notes 8 and 11)0
Stockholders’ equity:Stockholders’ equity:  Stockholders’ equity:  
Common stock, $0.01 par value; 75,000,000 shares authorized; 55,808,267 and 55,500,118 shares issued at June 30, 2021 and December 31, 2020, respectively; 49,498,295 and 49,337,768 shares outstanding at June 30, 2021 and December 31, 2020, respectively558 555 
Additional paid-in capital1,134,603 1,126,437 
Common stock, $0.01 par value; 75,000,000 shares authorized; 60,547,018 and 56,010,423 shares issued at March 31, 2022 and December 31, 2021, respectively; 53,908,924 and 49,372,329 shares outstanding at March 31, 2022 and December 31, 2021, respectivelyCommon stock, $0.01 par value; 75,000,000 shares authorized; 60,547,018 and 56,010,423 shares issued at March 31, 2022 and December 31, 2021, respectively; 53,908,924 and 49,372,329 shares outstanding at March 31, 2022 and December 31, 2021, respectively605 560 
Additional paid-in capital (“APIC”)Additional paid-in capital (“APIC”)1,297,161 1,142,758 
Retained earningsRetained earnings216,704 172,232 Retained earnings298,830 275,273 
Accumulated other comprehensive income77,189 56,225 
Treasury stock, 6,309,972 and 6,162,350 shares at cost at June 30, 2021 and December 31, 2020, respectively(156,147)(152,073)
Accumulated other comprehensive income (“AOCI”)Accumulated other comprehensive income (“AOCI”)18,982 64,070 
Treasury stock, 6,638,094 and 6,638,094 shares at cost at March 31, 2022 and December 31, 2021, respectivelyTreasury stock, 6,638,094 and 6,638,094 shares at cost at March 31, 2022 and December 31, 2021, respectively(167,582)(167,582)
Total stockholders’ equityTotal stockholders’ equity1,272,907 1,203,376 Total stockholders’ equity1,447,996 1,315,079 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$9,349,525 $8,820,871 Total liabilities and stockholders’ equity$10,453,680 $9,757,249 


See accompanying Notes to Condensed Consolidated Financial Statements.
4


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
(Dollars in thousands, except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Interest and dividend income:
Loans, including fees$67,814 $70,440 $135,213 $148,301 
Debt securities7,529 7,825 14,966 15,222 
Deposits in financial institutions and Fed Funds sold167 186 294 1,057 
Equity securities and other investments672 891 1,335 1,741 
Total interest and dividend income76,182 79,342 151,808 166,321 
Interest expense:
Transaction and savings deposits1,661 2,471 3,641 9,023 
Certificates and other time deposits2,423 6,515 5,484 14,755 
Advances from FHLB1,829 2,801 3,641 5,680 
Subordinated debentures and subordinated notes3,138 1,798 6,276 3,701 
Total interest expense9,051 13,585 19,042 33,159 
Net interest income67,131 65,757 132,766 133,162 
Provision for credit losses16,172 47,948 
Provision for credit losses on unfunded commitments577 2,799 6,680 
Net interest income after provision for credit losses66,554 46,786 132,759 78,534 
Noninterest income:
Service charges and fees on deposit accounts3,847 2,960 7,476 6,602 
Loan fees1,823 1,240 3,164 2,085 
Gain on sales of securities2,879 2,879 
Gain on sale of mortgage loans held for sale385 308 892 450 
Government guaranteed loan income, net3,448 11,006 9,996 11,445 
Other2,953 2,897 5,100 5,076 
Total noninterest income12,456 21,290 26,628 28,537 
Noninterest expense:
Salaries and employee benefits23,451 20,019 46,383 38,889 
Occupancy and equipment4,233 3,994 8,329 8,267 
Professional and regulatory fees3,086 2,796 6,527 4,992 
Data processing and software expense2,536 2,434 4,855 4,523 
Marketing1,841 561 2,750 1,644 
Amortization of intangibles2,517 2,696 5,054 5,392 
Telephone and communications337 308 674 627 
COVID expenses1,245 1,245 
Other3,716 6,008 6,742 10,027 
Total noninterest expense41,717 40,061 81,314 75,606 
Income before income tax expense37,293 28,015 78,073 31,465 
Income tax expense7,837 3,987 16,830 3,303 
Net income$29,456 $24,028 $61,243 $28,162 
Basic earnings per share$0.60 $0.48 $1.24 $0.56 
Diluted earnings per share$0.59 $0.48 $1.22 $0.56 

Three Months Ended
March 31,
20222021
Interest and dividend income:
Loans, including fees$71,443 $67,399 
Debt securities7,762 7,437 
Deposits in financial institutions and Fed Funds sold262 127 
Equity securities and other investments910 663 
Total interest and dividend income80,377 75,626 
Interest expense:
Transaction and savings deposits1,751 1,980 
Certificates and other time deposits1,380 3,061 
Advances from FHLB1,547 1,812 
Subordinated debentures and subordinated notes2,659 3,138 
Total interest expense7,337 9,991 
Net interest income73,040 65,635 
Benefit for credit losses(500)— 
Provision (benefit) for credit losses on unfunded commitments493 (570)
Net interest income after provision for credit losses73,047 66,205 
Noninterest income:
Service charges and fees on deposit accounts4,710 3,629 
Loan fees2,794 1,341 
Gain on sale of mortgage loans held for sale307 507 
Government guaranteed loan income, net4,891 6,548 
Equity method investment income367 — 
Other2,028 2,147 
Total noninterest income15,097 14,172 
Noninterest expense:
Salaries and employee benefits27,513 22,932 
Occupancy and equipment4,517 4,096 
Professional and regulatory fees3,158 3,441 
Data processing and software expense2,921 2,319 
Marketing1,187 909 
Amortization of intangibles2,495 2,537 
Telephone and communications385 337 
Merger and acquisition (“M&A”) expense700 — 
Other3,696 3,026 
Total noninterest expense46,572 39,597 
Income before income tax expense41,572 40,780 
Income tax expense8,102 8,993 
Net income$33,470 $31,787 
Basic earnings per share$0.66 $0.64 
Diluted earnings per share$0.65 $0.64 
See accompanying Notes to Condensed Consolidated Financial Statements.
5


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
(Dollars in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net income$29,456 $24,028 $61,243 $28,162 
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available-for-sale:
Change in net unrealized gains (losses) on securities available-for-sale during the period, net10,303 4,773 (9,134)33,260 
Reclassification adjustment for net gains included in net income(2,879)(2,879)
Net unrealized gains (losses) on securities available-for-sale10,303 1,894 (9,134)30,381 
Net unrealized gains (losses) on derivative instruments designated as cash flow hedges8,401 (4,668)35,672 (936)
Other comprehensive income (loss), before tax18,704 (2,774)26,538 29,445 
Income tax expense (benefit)3,928 (518)5,574 6,492 
Other comprehensive income (loss), net of tax14,776 (3,292)20,964 22,953 
Comprehensive income$44,232 $20,736 $82,207 $51,115 
Three Months Ended March 31,
20222021
Net income$33,470 $31,787 
Other comprehensive income:
Net unrealized (losses) gains on securities AFS:
Change in net unrealized losses on securities AFS during the period, net(49,076)(19,437)
Amortization from transfer of securities from AFS to HTM4,255 — 
Net unrealized losses on securities AFS(44,821)(19,437)
Net unrealized (losses) gains on derivative instruments designated as cash flow hedges(13,381)27,271 
Other comprehensive (losses) income, before tax(58,202)7,834 
Income tax (benefit) expense(13,114)1,646 
Other comprehensive (loss) income, net of tax(45,088)6,188 
Comprehensive (loss) income$(11,618)$37,975 

See accompanying Notes to Condensed Consolidated Financial Statements.


6



VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) 
For the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
(Dollars in thousands)In thousands, except for shares)
Three Months Ended June 30, 2021
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total 
 SharesAmountSharesAmount
Balance at March 31, 202149,432,750 $557 6,309,972 $(156,147)$1,131,324 $195,661 $62,413 $1,233,808 
Restricted stock units (“RSUs”) vested, net of 2,402 shares withheld to cover tax withholdings20,946 — — (83)— — (82)
Exercise of employee stock options, net of 19,616 and 3,831 shares withheld to cover tax withholdings and exercise price, respectively44,599 — — — 670 — — 670 
Stock based compensation— — — — 2,692 — — 2,692 
Net income— — — — — 29,456 — 29,456 
Dividends paid— — — — — (8,413)(8,413)
Other comprehensive income— — — — — — 14,776 14,776 
Balance at June 30, 202149,498,295 $558 6,309,972 $(156,147)$1,134,603 $216,704 $77,189 $1,272,907 
Three Months Ended March 31, 2022
 Common StockTreasury StockAPICRetained
Earnings
AOCITotal 
 SharesAmountSharesAmount
Balance at December 31, 202149,372,329 $560 6,638,094 $(167,582)$1,142,758 $275,273 $64,070 $1,315,079 
Restricted stock units (“RSU”) vested, net of 67,965 shares withheld to cover taxes187,801 — — (2,839)— — (2,837)
Exercise of employee stock options, net 28,064 and 5,738 shares withheld to cover taxes and exercise, respectively34,320 — — — 98 — — 98 
Stock based compensation— — — — 3,318 — — 3,318 
Common stock follow on offering4,314,474 43 — — 153,826 — — 153,869 
Net income— — — — — 33,470 — 33,470 
Dividends paid— — — — — (9,913)— (9,913)
Other comprehensive loss— — — — — — (45,088)(45,088)
Balance at March 31, 202253,908,924 $605 6,638,094 $(167,582)$1,297,161 $298,830 $18,982 $1,447,996 
Three Months Ended June 30, 2020
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
 
 SharesAmountSharesAmountTotal
Balance at March 31, 202049,557,364 $554 5,814,922 $(144,160)$1,119,757 $127,812 $45,306 $1,149,269 
RSUs vested, net of 2,501 shares withheld to cover tax withholdings17,447 — — — (41)— — (41)
Exercise of employee stock options (0 shares withheld to cover tax withholdings or exercise price)57,936 — — 502 — — 503 
Stock based compensation— — — — 1,845 — — 1,845 
Net income— — — — — 24,028 — 24,028 
Dividends paid— — — — — (8,563)— (8,563)
Other comprehensive loss— — — — — — (3,292)(3,292)
Balance at June 30, 202049,632,747 $555 5,814,922 $(144,160)$1,122,063 $143,277 $42,014 $1,163,749 

Three Months Ended March 31, 2021
 Common StockTreasury StockAPICRetained
Earnings
AOCI 
 SharesAmountSharesAmountTotal
Balance at December 31, 202049,337,768 $555 6,162,350 $(152,073)$1,126,437 $172,232 $56,225 $1,203,376 
Restricted stock units vested, net of 16,587 shares withheld to cover taxes58,110 — — — (468)— — (468)
Exercise of employee stock options, net of 18,052 and 3,474 shares withheld to cover taxes and exercise, respectively184,494 — — 2,877 — — 2,879 
Stock buyback(147,622)— 147,622 (4,074)— — — (4,074)
Stock based compensation— — — — 2,478 — — 2,478 
Net income— — — — — 31,787 — 31,787 
Dividends paid— — — — — (8,358)— (8,358)
Other comprehensive income— — — — — — 6,188 6,188 
Balance at March 31, 202149,432,750 $557 6,309,972 $(156,147)$1,131,324 $195,661 $62,413 $1,233,808 
See accompanying Notes to Condensed Consolidated Financial Statements.
7



VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ EquityCash Flows (Unaudited)
For the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
(Dollars in thousands)
Six Months Ended June 30, 2021
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
 
 SharesAmountSharesAmountTotal
Balance at December 31, 202049,337,768 $555 6,162,350 $(152,073)$1,126,437 $172,232 $56,225 $1,203,376 
RSUs vested, net of 18,989 shares withheld to cover tax withholdings79,056 — — (551)— — (550)
Exercise of employee stock options, net of 37,668 and 7,305 shares withheld to cover tax withholdings and exercise price, respectively229,093 — — 3,547 — — 3,549 
Stock buyback(147,622)— 147,622 (4,074)— — — (4,074)
Stock based compensation— — — — 5,170 — — 5,170 
Net income— — — — — 61,243 — 61,243 
Dividends paid— — — — — (16,771)— (16,771)
Other comprehensive income— — — — — — 20,964 20,964 
Balance at June 30, 202149,498,295 $558 6,309,972 $(156,147)$1,134,603 $216,704 $77,189 $1,272,907 
Six Months Ended June 30, 2020
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
 
 SharesAmountSharesAmountTotal
Balance at December 31, 201951,063,869 $549 3,812,711 $(94,603)$1,117,879 $147,911 $19,061 $1,190,797 
RSUs vested, net of 21,180 shares withheld to cover tax withholdings86,279 — — (644)— — (643)
Exercise of employee stock options, net of 98,836 and 139,715 shares withheld to cover tax withholdings and exercise price, respectively474,810 — — 916 — — 921 
Stock warrants exercised10,000 — — — 109 — — 109 
Stock buyback(2,002,211)— 2,002,211 (49,557)— — — (49,557)
Stock based compensation— — — — 3,803 — — 3,803 
Net income— — — — — 28,162 — 28,162 
Dividends paid— — — — — (17,291)— (17,291)
CECL impact on date of adoption— — — — — (15,505)— (15,505)
Other comprehensive loss— — — — — — 22,953 22,953 
Balance at June 30, 202049,632,747 $555 5,814,922 $(144,160)$1,122,063 $143,277 $42,014 $1,163,749 

 For the Three Months Ended March 31,
 20222021
Cash flows from operating activities:
Net income$33,470 $31,787 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization of fixed assets and intangibles4,378 3,765 
Net accretion of time deposit premium, debt discount and debt issuance costs(16)(80)
Benefit for credit losses(7)(570)
Accretion of loan discount(1,598)(1,911)
Stock-based compensation expense3,318 2,478 
Excess tax benefit from stock compensation(992)(154)
Net amortization of premiums on debt securities811 730 
Unrealized loss on equity securities recognized in earnings513 199 
Change in cash surrender value and mortality rates of BOLI(447)(463)
Change in fair value of government guaranteed loans using fair value option(379)(917)
Gain on sales of mortgage loans held for sale(307)(507)
Gain on sales of government guaranteed loans(4,161)— 
Net impairment (recovery) of servicing asset280 (128)
Originations of loans held for sale(12,613)(1,096)
Proceeds from sales of loans held for sale21,293 4,070 
Equity method investment income(367)— 
Termination of derivatives designated as hedging instruments— 43,900 
(Increase) decrease in other assets(9,687)10,554 
Increase (decrease) in accounts payable and other liabilities34,729 (8,437)
Net cash provided by operating activities68,218 83,220 
Cash flows from investing activities:  
Purchases of AFS debt securities(266,490)(79,816)
Proceeds from maturities, calls and pay downs of AFS debt securities33,880 40,102 
Purchases of HTM debt securities(5,068)(4,335)
Maturity, calls and paydowns of HTM debt securities25 1,222 
Purchases of other investments(91)(233)
Proceeds from sales of equity securities1,470 — 
Net loans originated(332,290)(184,586)
Proceeds from sale of government guaranteed loans4,910 — 
Net additions to bank premises, furniture and equipment(1,130)(661)
Net cash used in investing activities(564,784)(228,307)
Cash flows from financing activities:  
Net increase in deposits525,987 391,799 
Net increase (decrease) in advances from FHLB224 (39)
Net change in securities sold under agreement to repurchase927 552 
Net proceeds on sale of common stock in public offering153,869 — 
Payments to tax authorities for stock-based compensation(2,837)(468)
Proceeds from exercise of employee stock options98 2,879 
Purchase of treasury stock— (4,074)
Dividends paid(9,913)(8,358)
Net cash provided by financing activities668,355 382,291 
Net increase in cash and cash equivalents171,789 237,204 
Cash and cash equivalents at beginning of period379,784 230,825 
Cash and cash equivalents at end of period$551,573 $468,029 
See accompanying Notes to Condensed Consolidated Financial Statements.
8


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows(Unaudited)
For the Six Months Ended June 30, 2021 and 2020
(Dollars in thousands)
 For the Six Months Ended June 30,
 20212020
Cash flows from operating activities:
Net income$61,243 $28,162 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization of fixed assets and intangibles7,420 7,856 
Net accretion of time deposit premium, debt discount and debt issuance costs(132)(974)
Provision for credit losses54,628 
Accretion of loan purchase discount(3,447)(7,454)
Stock-based compensation expense5,170 3,803 
Excess tax benefit from stock compensation(269)(1,423)
Net amortization of premiums on debt securities1,548 1,746 
Unrealized loss (gain) on equity securities recognized in earnings136 (213)
Change in cash surrender value and mortality rates of BOLI(449)(961)
Net gain on sales of debt securities(2,879)
Change in fair value of government guaranteed loans using fair value option416 1,675 
Gain on sales of mortgage loans held for sale(892)(449)
Gain on sales of government guaranteed loans(1,953)(604)
Originations of loans held for sale(47,763)(52,164)
Proceeds from sales of loans held for sale59,875 39,586 
Loss on sale of other real estate owned209 
Gain on sale of bank premises, furniture and equipment(358)
Write-down of other real estate owned174 
Termination of derivatives designated as hedging instruments43,900 
Decrease (increase) in other assets26,384 (13,291)
(Decrease) increase in accounts payable and other liabilities(4,178)10,706 
Net cash provided by operating activities147,190 67,601 
Cash flows from investing activities:  
Purchases of available for sale debt securities(151,796)(321,465)
Proceeds from sales of available for sale debt securities90,897 
Proceeds from maturities, calls and pay downs of available for sale debt securities88,361 146,525 
Purchases of held to maturity debt securities(19,877)
Maturity, calls and paydowns of held to maturity debt securities1,953 826 
Purchases of other investments(502)(20,150)
Net loans originated(344,869)(636,536)
Proceeds from sale of government guaranteed loans1,692 8,384 
Net additions to bank premises, furniture and equipment(10,742)(1,090)
Proceeds from sales of bank premises, furniture and equipment2,157 
Proceeds from sales of other real estate owned1,843 
Net cash used in investing activities(435,780)(728,609)
Cash flows from financing activities:  
Net increase in deposits466,130 231,882 
Net (decrease) increase in advances from FHLB(78)409,924 
Redemption of subordinated debt(5,000)
Net change in securities sold under agreement to repurchase(414)(581)
Payments to tax authorities for stock-based compensation(550)(3,790)
Proceeds from exercise of employee stock options3,549 4,068 
Proceeds from exercise of stock warrants109 
Purchase of treasury stock(4,074)(49,557)
Dividends paid(16,771)(17,291)
Net cash provided by financing activities447,792 569,764 
Net increase in cash and cash equivalents159,202 (91,244)
Cash and cash equivalents at beginning of period230,825 251,550 
Cash and cash equivalents at end of period$390,027 $160,306 
See accompanying Notes to Condensed Consolidated Financial Statements.
9


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements 
(Dollars in thousands, except for per share amounts) 

1. Summary of Significant Accounting Policies
Nature of Organization
In this report, the words “Veritex”,“Veritex,” “the Company,” “we,” “us,” and “our” refer to the combined entities of Veritex Holdings, Inc. and its subsidiaries, including Veritex Community Bank. The word “Holdco” refers to Veritex Holdings, Inc. The word “the Bank” refers to Veritex Community Bank.
Veritex is a Texas state banking organization, with corporate offices in Dallas, Texas, and currently operates 2118 branches and 1 mortgage office located in the Dallas-Fort Worth metroplex and 1110 branches in the Houston metropolitan area. The Bank provides a full range of banking services, including commercial and retail lending and the acceptance of checking and savings deposits, to individual and corporate customers. The Texas Department of Banking (the “TDB”) and the Board of Governors of the Federal Reserve System (the “Federal Reserve”) are the primary regulators of the Company and the Bank, and both regulatory agencies perform periodic examinations to ensure regulatory compliance.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Veritex Holdings, Inc. and its subsidiaries, including Veritex Community Bank.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), but do not include all of the information and footnotes required for complete financial statements. Intercompany transactions and balances are eliminated in consolidation. In management’s opinion, these unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s condensed consolidated balance sheets at June 30, 2021March 31, 2022 and December 31, 2020, condensed2021, consolidated statements of income and comprehensive income for the three and six months ended June 30,March 31, 2022 and 2021, and 2020, condensed consolidated statements of changes in stockholders’ equity for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 and condensed consolidated statements of cash flows for the sixthree months ended June 30, 2021March 31, 2022 and 2020.2021.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown herein are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Quarterly Reports on Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 20202021 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 26, 2021.March 1, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Segment Reporting
    The Company has 1 reportable segment. All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each activity of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and borrowings while managing interest rate and credit risk. Accordingly, all significant operating decisions are based upon an analysis of the Bank as 1 segment or unit. The Company’s chief operating decision-maker, the Chief Executive Officer, uses the consolidated results to make operating and strategic decisions.
109


ReclassificationsReclassifications
Certain items in the Company’s prior year financial statements were reclassified to conform to the current presentation including the reclassification on the condensed consolidated statements of income from rental income to other income of $547 and $1,098 during the three and six months ended June 30, 2020, respectively.presentation.
Earnings Per Share (“EPS”)
EPS areis based upon the weighted average shares outstanding. The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted EPS for the three and six months ended June 30, 2021March 31, 2022 and 2020:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Earnings (numerator)
Net income$29,456 $24,028 $61,243 $28,162 
Shares (denominator)
Weighted average shares outstanding for basic EPS49,476 49,597 49,435 50,161 
Dilutive effect of employee stock-based awards855 130 752 222 
Adjusted weighted average shares outstanding50,331 49,727 50,187 50,383 
EPS:
Basic$0.60 $0.48 $1.24 $0.56 
Diluted$0.59 $0.48 $1.22 $0.56 
2021:

For the three and six months ended June 30, 2021, there were 52 and 538 antidilutive shares, respectively, excluded from the diluted EPS weighted average shares outstanding related to stock options.

Three Months Ended March 31,
20222021
Earnings (numerator)
Net income$33,470 $31,787 
Shares (denominator)
Weighted average shares outstanding for basic EPS50,695 49,394 
Dilutive effect of employee stock-based awards876 604 
Adjusted weighted average shares outstanding51,571 49,998 
EPS:
Basic$0.66 $0.64 
Diluted$0.65 $0.64 
For the three months ended June 30, 2020,March 31, 2022, there were 1,65180 antidilutive shares excluded from the diluted EPS weighted average shares outstanding 477 relating to restricted stock units (“RSUs”) and 1,174none relating to stock options. For the sixthree months ended June 30, 2020,March 31, 2021, there were 1,35375 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 22623 relating to RSUs and 1,12752 relating to stock options.

Transfers of debt securities from AFS to HTM

Transfers of debt securities into the HTM category from the AFS category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in the carrying value of the HTM securities. Such amounts are amortized over the remaining life of the security.

Recent Accounting Pronouncements

Accounting Standard Update (“ASU”) ASU 2019-12, "Income Taxes2022-01, “Derivatives and Hedging (Topic 740)" ("815)” (“ASU 2019-12"2022-01”) simplifiesclarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for income taxes by removing certain exceptionsthese portfolios more accessible and improvesrenamed that method the consistent application of GAAP by clarifying and amending other existing guidance.“portfolio layer” method. ASU 2019-12 was2022-01 is effective for us on January 1, 20212023 and didis not expected to have a significant impact on our consolidated financial statements and related disclosures.

statements.
ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.

ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs” ("ASU 2020-08") clarifies the accounting for the amortization of purchase premiums for callable debt securities with multiple call dates. ASU 2020-08 was effective for us on January 1, 2021 and did not have a significant impact on our consolidated financial statements and related disclosures.


ASU 2022-02, “
Financial Instruments - Credit Losses (Topic 326)” (“ASU 2022-02”) eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. ASU 2022-02 is effective January 1, 2023 and will have an impact on our financial statement disclosures.
1110


2. Supplemental Statement of Cash Flows
Other supplemental cash flow information is presented below:

Six Months Ended June 30, Three Months Ended March 31,
20212020 20222021
(in thousands)(in thousands)
Supplemental Disclosures of Cash Flow Information:Supplemental Disclosures of Cash Flow Information:  Supplemental Disclosures of Cash Flow Information:  
Cash paid for interestCash paid for interest$20,022 $35,116 Cash paid for interest$5,368 $7,602 
Cash paid for income taxesCash paid for income taxes15 2,330 Cash paid for income taxes— 15 
Supplemental Disclosures of Non-Cash Flow Information:Supplemental Disclosures of Non-Cash Flow Information:  Supplemental Disclosures of Non-Cash Flow Information:  
Net foreclosure of other real estate owned and repossessed assets334 4,100 
Transfer of other real estate owned to other assets for losses incurred upon sale and expected to be collected from the SBA327 
Transfer of AFS debt securities to HTM debt securitiesTransfer of AFS debt securities to HTM debt securities117,001 — 
Net foreclosure of OREO and repossessed assetsNet foreclosure of OREO and repossessed assets1,062 — 
Noncash assets acquired in business combination1
Noncash assets acquired in business combination1
LHILHI(681)— 
GoodwillGoodwill681 — 
1 Represents adjustments to provisional estimates recorded during the three months ended March 31, 2022 for the acquisition of North Avenue Capital, LLC (“NAC”). Refer to Note 13. Business Combinations for further discussion.

3. Share Transactions    
    On January 28, 2019, theThe Company's Board of Directors (the “Board”) originallyhas authorized the purchase of up to $250,000 of the Company's outstanding common stock under a stock buyback program (the "Stock Buyback Program") pursuant to which the Company could, from time to time, purchase up to $50,000 of its outstanding common stock in the aggregate. The Board authorized increases of $50,000 on September 3, 2019 and $75,000 on December 12, 2019, resulting inwith an aggregate authorization to purchase up to $175,000 under the Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2019 to December 31, 2021.2022. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any share and the programshares. The Stock Buyback Program may be terminated or amended by the Board at any time prior to its expiration.

    During the three months ended June 30, 2021 and 2020, there were 0 sharesShares repurchased through the Stock Buyback Program. During the six months ended June 30, 2021 and 2020, there were 147,622 and 2,002,211 shares repurchased through the Stock Buyback Program and heldperiods indicated are as treasury stock at an average price per share of $26.83 and $24.78, respectively.follows:
Three Months Ended March 31,
20222021
Numbers of shares repurchased— 147,622 
Weighted average price per share— $26.83 

On March 8, 2022, the Company completed an underwritten public offering of 3,947,369 shares of its common stock at $38.00 per share. On March 10, 2022, the representatives of the underwriters delivered to the Company a written notice of exercise by the underwriters of the underwriters' option to purchase an additional 367,105 shares of the Company's common stock at $38.00 per share, which subsequently closed on March 14, 2022. Net proceeds, after deducting underwriting discounts and offering expenses, of such offering were approximately $153,826. The Company intends to use the net proceeds from the Offering for general corporate purposes and to support its continued growth, including investments in the Bank and future strategic acquisitions.
12
11


4. Securities
Equity Securities With a Readily Determinable Fair Value
The Company held equity securities with a fair value of $11,227$10,525 and $11,363$11,038 at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The Company did not realize a loss on equity securities with a readily determinable fair value during the three and six months ended June 30, 2021March 31, 2022 or 2020.2021. The gross unrealized gain (loss)loss recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s condensed consolidated statements of income were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Unrealized gain (loss) recognized on equity securities with a readily determinable fair value$63 $462 $(136)$213 
Three Months Ended March 31,
20222021
Unrealized loss recognized on equity securities with a readily determinable fair value$513 $199 
Equity Securities Without a Readily Determinable Fair Value
The Company held equity securities without a readily determinable fair values and measured at cost of $3,755 and $3,575$4,355 as of June 30, 2021March 31, 2022 and December 31, 2020, respectively.2021.
Debt Securities
Debt securities have been classified in the condensed consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, allowance for credit losses (“ACL”)ACL and the fair value of available for saleAFS and held to maturityHTM debt securities are as follows:
 June 30, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
ACLFair Value
Available for sale
Corporate bonds$195,342 $10,032 $$$205,370 
Municipal securities117,277 8,704 177 125,804 
Mortgage-backed securities233,997 11,990 1,097 244,890 
Collateralized mortgage obligations375,506 15,057 572 389,991 
Asset-backed securities59,091 2,292 349 61,034 
Collateralized loan obligations50,149 50,150 
 $1,031,362 $48,076 $2,199 $$1,077,239 
June 30, 2021 March 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
ACLFair Value
Held to maturity
AFSAFS
Corporate bondsCorporate bonds$262,839 $5,975 $1,593 $— $267,221 
Municipal securitiesMunicipal securities50,335 993 1,006 — 50,322 
Mortgage-backed securitiesMortgage-backed securities153,215 593 5,838 — 147,970 
Collateralized mortgage obligationsCollateralized mortgage obligations493,702 613 16,192 — 478,123 
Asset-backed securitiesAsset-backed securities50,452 721 1,233 — 49,940 
Collateralized loan obligationsCollateralized loan obligations70,179 — 506 — 69,673 
$1,080,722 $8,895 $26,368 $— $1,063,249 
Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
HTMHTM
Mortgage-backed securitiesMortgage-backed securities$21,073 $727 $105 $$21,695 Mortgage-backed securities$39,072 $— $3,340 $— $35,732 
Collateralized mortgage obligationsCollateralized mortgage obligations1,423 73 1,496 Collateralized mortgage obligations37,618 203 2,339 — 35,482 
Municipal securitiesMunicipal securities26,142 2,176 20 28,298 Municipal securities104,575 603 6,574 — 98,604 
$48,638 $2,976 $125 $$51,489 $181,265 $806 $12,253 $— $169,818 
The Company did notelected to transfer any25 AFS debt securities from available for sale to held to maturity atwith an aggregate fair value duringof $117,001 to a classification of HTM debt securities on January 1, 2022. In accordance with FASB ASC 320-10-35-10, the three and six months ended June 30, 2021.transfer from AFS to HTM must be recorded at the fair value of the AFS debt securities at the time of transfer. The net unrealized holding gain of $4,387, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM debt securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.
12


 December 31, 2021
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
ACLFair Value
AFS
Corporate bonds$198,396 $10,294 $178 $— $208,512 
Municipal securities116,100 8,261 431 — 123,930 
Mortgage-backed securities124,230 4,326 1,489 — 127,067 
Collateralized mortgage obligations424,174 12,240 2,350 — 434,064 
Asset-backed securities53,466 1,616 519 — 54,563 
Collateralized loan obligations45,089 — 167 — 44,922 
 $961,455 $36,737 $5,134 $— $993,058 
Amortized
Cost
Gross Unrealized GainsGross Unrealized LossesACLFair Value
HTM
Mortgage-backed securities$25,767 $45 $508 $— $25,304 
Collateralized mortgage obligations5,490 560 — — 6,050 
Municipal securities28,179 2,015 102 — 30,092 
$59,436 $2,620 $610 $— $61,446 
13


 December 31, 2020
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
ACLFair Value
Available for sale
Corporate bonds$173,050 $6,417 $1,297 $$178,170 
Municipal securities115,533 10,129 125,656 
Mortgage-backed securities240,320 16,047 42 256,325 
Collateralized mortgage obligations388,080 20,895 66 408,909 
Asset-backed securities52,335 2,934 55,269 
 $969,318 $56,422 $1,411 $$1,024,329 
December 31, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
ACLFair Value
Held to maturity
Mortgage-backed securities$6,982 $849 $$$7,831 
Collateralized mortgage obligations1,620 103 1,723 
Municipal securities22,270 2,459 24,729 
$30,872 $3,411 $$$34,283 
14


The following tables disclose the Company’s available for saleAFS debt securities in an unrealized loss position for which an ACL has not been recorded, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position:
June 30, 2021 March 31, 2022
Less Than 12 Months12 Months or MoreTotals Less Than 12 Months12 Months or MoreTotals
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Available for sale
AFSAFS
Corporate bondsCorporate bonds$3,246 $$$$3,246 $Corporate bonds$72,219 $1,593 $— $— $72,219 $1,593 
Municipal securitiesMunicipal securities12,753 151 2,314 26 15,067 177 Municipal securities11,731 902 1,889 104 13,620 1,006 
Mortgage-backed securitiesMortgage-backed securities62,811 1,097 62,811 1,097 Mortgage-backed securities57,918 2,515 27,791 3,323 85,709 5,838 
Collateralized mortgage obligationsCollateralized mortgage obligations64,909 572 64,909 572 Collateralized mortgage obligations338,386 13,597 23,610 2,595 361,996 16,192 
Asset-backed securitiesAsset-backed securities11,626 349 11,626 349 Asset-backed securities24,209 464 10,918 769 35,127 1,233 
Collateralized loan obligationsCollateralized loan obligations69,673 506 — — 69,673 506 
$155,345 $2,173 $2,314 $26 $157,659 $2,199  $574,136 $19,577 $64,208 $6,791 $638,344 $26,368 
Held to maturity
HTMHTM
Mortgage-backed securitiesMortgage-backed securities$15,028 $105 $$$15,028 $105 Mortgage-backed securities$19,592 $1,784 $16,141 $1,556 $35,733 $3,340 
Municipal securitiesMunicipal securities2,031 20 2,031 20 Municipal securities75,221 6,281 2,005 293 77,226 6,574 
Collateralized mortgage obligationsCollateralized mortgage obligations31,162 2,339 — — 31,162 2,339 
$17,059 $125 $$$17,059 $125  $125,975 $10,404 $18,146 $1,849 $144,121 $12,253 
December 31, 2020 December 31, 2021
Less Than 12 Months12 Months or MoreTotals Less Than 12 Months12 Months or MoreTotals
FairUnrealizedFairUnrealizedFairUnrealized Fair
Value
Unrealized LossFair
Value
Unrealized LossFair
Value
Unrealized Loss
AFSAFS
ValueLossValueLossValueLoss
Available for sale
Corporate bondsCorporate bonds$7,072 $178 $— $— $7,072 $178 
Municipal securitiesMunicipal securities$2,667 $$$$2,667 $Municipal securities12,704 194 4,350 237 17,054 431 
Corporate bonds31,953 1,297 31,953 1,297 
Mortgage-backed securitiesMortgage-backed securities34,402 108 34,402 108 Mortgage-backed securities40,276 1,283 4,677 206 44,953 1,489 
Collateralized mortgage obligationsCollateralized mortgage obligations106,063 2,350 — — 106,063 2,350 
Asset-backed securitiesAsset-backed securities11,265 519 — — 11,265 519 
Collateralized loan obligationsCollateralized loan obligations44,922 167 — — 44,922 167 
$222,302 $4,691 $9,027 $443 $231,329 $5,134 
$69,022 $1,411 $$$69,022 $1,411 
HTMHTM
Mortgage-backed securitiesMortgage-backed securities$24,214 $508 $— $— $24,214 $508 
Municipal securitiesMunicipal securities4,583 102 — — 4,583 102 
$28,797 $610 $— $— $28,797 $610 

Management evaluates available for saleAFS debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
The number of available for saleAFS debt securities in an unrealized loss position totaled 2293 and 1134 at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Management does not have the intent to sell any of these debt securities and believes that it is more
14


likely than not that the Company will not have to sell any such debt securities before a recovery of cost. The fair value is expected to recover as the debt securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of June 30, 2021,March 31, 2022, management believes that the unrealized losses detailed in the previous tablestable are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company’s condensed consolidated statements of income.
    The amortized costs and estimated fair values of AFS debt securities, available for sale, by contractual maturity, as of the dates indicated, are shown in the table below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, and collateralized loan obligations typically are issued with stated principal amounts, and the securities are backed by pools of mortgage loans and other loans that have varying maturities. The terms of mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, and collateralized loan obligations thus approximates the terms of the underlying mortgages and loans and can vary significantly due to prepayments. Therefore, these securities are not included in the maturity categories below.
15


March 31, 2022
AFSHTM
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due from one year to five years$39,412 $41,647 $— $— 
Due from five years to ten years204,782 206,454 4,304 4,330 
Due after ten years68,980 69,442 100,271 94,274 
313,174 317,543 104,575 98,604 
Mortgage-backed securities and collateralized mortgage obligations646,917 626,093 76,690 71,214 
Asset-backed securities50,452 49,940 — — 
Collateralized loan obligations70,179 69,673 — — 
$1,080,722 $1,063,249 $181,265 $169,818 
June 30, 2021December 31, 2021
Available for SaleHeld to MaturityAFSHTM
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due from one year to five yearsDue from one year to five years$5,186 $5,308 $$Due from one year to five years$5,201 $5,241 $— $— 
Due from five years to ten yearsDue from five years to ten years175,614 184,705 3,871 4,180 Due from five years to ten years178,203 186,972 3,849 4,115 
Due after ten yearsDue after ten years131,819 141,161 22,271 24,118 Due after ten years131,092 140,229 24,330 25,977 
312,619 331,174 26,142 28,298 314,496 332,442 28,179 30,092 
Mortgage-backed securities and collateralized mortgage obligationsMortgage-backed securities and collateralized mortgage obligations609,503 634,881 22,496 23,191 Mortgage-backed securities and collateralized mortgage obligations548,404 561,131 31,257 31,354 
Asset-backed securitiesAsset-backed securities59,091 61,034 Asset-backed securities53,466 54,563 — — 
Collateralized loan obligationsCollateralized loan obligations50,149 50,150 Collateralized loan obligations45,089 44,922 — — 
$1,031,362 $1,077,239 $48,638 $51,489 $961,455 $993,058 $59,436 $61,446 
December 31, 2020
Available for SaleHeld to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due from one year to five years$4,935 $5,139 $$
Due from five years to ten years154,576 158,510 3,334 3,591 
Due after ten years129,072 140,177 18,936 21,138 
288,583 303,826 22,270 24,729 
Mortgage-backed securities and collateralized mortgage obligations628,400 665,234 8,602 9,554 
Asset-backed securities52,335 55,269 
$969,318 $1,024,329 $30,872 $34,283 
    Proceeds fromNo sales of AFS debt securities available for sale and gross gains and losses foroccurred during the sixthree months ended June 30, 2021March 31, 2022 and 2020 were as follows:2021.
Six Months Ended June 30,
20212020
Proceeds for sales$$90,897 
Gross realized gains2,879 
Gross realized losses
As of June 30, 2021March 31, 2022 and December 31, 2020,2021, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’shareholders' equity. There was a blanket floating lien on all debt securities held by the Company to secure FHLB advances as of June 30, 2021March 31, 2022 and December 31, 2020.2021.

1615


5. Loans Held for InvestmentLHI and ACL
Loans held for investmentLHI in the accompanying condensed consolidated balance sheets are summarized as follows:
June 30, 2021December 31, 2020 March 31, 2022December 31, 2021
Loans held for investment, carried at amortized cost:
LHI, carried at amortized cost:LHI, carried at amortized cost:
Real estate:Real estate:        Real estate:        
Construction and landConstruction and land$871,765 $693,030 Construction and land$1,297,338 $1,062,144 
FarmlandFarmland13,661 13,844 Farmland48,095 55,827 
1 - 4 family residential1 - 4 family residential513,635 524,344 1 - 4 family residential604,408 542,566 
Multi-family residentialMulti-family residential367,445 424,962 Multi-family residential272,250 310,241 
Owner occupied commercial (“OOCRE”)744,899 717,472 
Non-owner occupied commercial (“NOOCRE”)1,986,538 1,904,132 
OOCREOOCRE633,615 665,537 
NOOCRENOOCRE2,145,826 2,120,309 
CommercialCommercial1,771,100 1,559,546 Commercial2,125,900 2,006,876 
MWMW559,939 577,594 MW542,877 565,645 
ConsumerConsumer10,530 13,000 Consumer9,533 11,998 
6,839,512 6,427,924 7,679,842 7,341,143 
Deferred loan fees, netDeferred loan fees, net(7,486)(2,468)Deferred loan fees, net(11,536)(9,489)
ACLACL(99,543)(105,084)ACL(72,485)(77,754)
Loans held for investment carried at amortized cost, net6,732,483 6,320,372 
LHI carried at amortized cost, netLHI carried at amortized cost, net7,595,821 7,253,900 
Loans held for investment, carried at fair value:
LHI, carried at fair value:LHI, carried at fair value:
PPP loansPPP loans291,401 358,042 PPP loans18,512 53,369 
Total loans held for investment, net$7,023,884 $6,678,414 
Total LHI, netTotal LHI, net$7,614,333 $7,307,269 
Included in the total loans held for investment,LHI, net, as of June 30, 2021March 31, 2022 and December 31, 20202021 was an accretable discount related to purchased performing and purchased credit deteriorated (“PCD”) loans acquired within a business combination in the approximate amounts of $12,192$7,628 and $15,526,$8,657, respectively. The discount is being accreted into income on a level-yield basis over the life of the loans. In addition, included in the net loan portfolio as of June 30, 2021March 31, 2022 and December 31, 20202021 is a discount on retained loans from sale of originated U.S. Small Business Administration (“SBA”) loans of $3,291$3,429 and $3,215,$3,430, respectively.
Loans held for investment,LHI, PPP loans, carried at fair value
Included in total loans held for investment,LHI, net, as of June 30, 2021March 31, 2022 and December 31, 20202021 was $291,401$18,512 and $358,042,$53,369, respectively, of PPP loans, which are carried at fair value. The following table summarizes the PPP fee income which is included in government guaranteed loan income, net on the accompanying condensed consolidated statements of income and the net gain (loss) due to the change in the fair value of PPP loans, both of which isare included in government guaranteed loan income, net, on the accompanying condensedCompany's consolidated statements of income and in change in fair value of government guaranteed loans using fair value option on the accompanying condensedCompany's consolidated statements of cash flows.flows:
June 30, 2021June 30, 2020
 Three Months EndedSix Months EndedThree Months EndedSix Months Ended
PPP fee income$1,004 $7,628 $12,516 $12,516 
Net gain (loss) due to the change in fair value622 335 (2,005)(2,005)



17


March 31, 2022March 31, 2021
PPP fee income$— $6,624 
Net gain (loss) due to the change in fair value175 (287)
These PPP loans were originated through an application to the SBA under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and are 100% forgivable if certain criteria are met by the borrowers. As of June 30, 2021,March 31, 2022, we believe a majority of the Company’s PPP loans will meet such criteria.
16


ACL
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring (“TDR”)(TDR). The activity in the ACL related to loans held for investmentLHI is as follows:
Three Months Ended June 30, 2021 Three Months Ended March 31, 2022
Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of period$6,805 $47 $6,968 $4,814 $9,122 $39,503 $37,381 $296 $104,936 
Credit loss expense non-PCD loans462 (1)130 (627)2,408 (595)2,750 (76)4,451 
Credit loss expense PCD loans13 (173)(17)(1,666)(2,610)(4,451)
Balance at beginning of yearBalance at beginning of year$7,293 $187 $5,982 $2,664 $9,215 $30,548 $21,632 $233 $77,754 
Credit loss (benefit) expense non-PCD loansCredit loss (benefit) expense non-PCD loans1,595 (29)224 (537)813 (4,114)4,044 622 2,618 
Credit loss (benefit) expense PCD loansCredit loss (benefit) expense PCD loans(5)— (72)— (1,264)673 (2,442)(8)(3,118)
Charge-offsCharge-offs(288)(689)(5,620)(20)(6,617)Charge-offs— — — — (1,341)(553)(3,294)(134)(5,322)
RecoveriesRecoveries23 500 659 42 1,224 Recoveries— — — — — 400 144 553 
Ending BalanceEnding Balance$7,280 $46 $6,660 $4,187 $11,324 $37,242 $32,560 $244 $99,543 Ending Balance$8,883 $158 $6,134 $2,127 $7,423 $26,954 $20,084 $722 $72,485 
 Three Months Ended June 30, 2020
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of period$6,838 $58 $8,318 $4,899 $16,461 $25,681 $38,110 $618 $100,983 
Credit loss expense non-PCD loans2,818 2,609 1,529 1,597 7,424 1,202 (11)17,173 
Credit loss expense PCD loans(635)(150)(4,172)2,962 998 (4)(1,001)
Charge-offs(1,740)(57)(1,797)
Recoveries
Ending Balance$9,021 $63 $10,777 $6,428 $13,886 $36,067 $38,577 $546 $115,365 
 Six Months Ended June 30, 2021
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of year$7,768 $56 $8,148 $6,231 $9,719 $35,237 $37,554 $371 $105,084 
Credit loss expense non-PCD loans(487)(10)(1,014)(2,044)793 3,479 1,647 (130)2,234 
Credit loss expense PCD loans(1)0(197)1,001 (1,474)(1,560)(3)(2,234)
Charge-offs(303)(689)(5,966)(38)(6,996)
Recoveries26 500 885 44 1,455 
Ending Balance$7,280 0$46 $6,660 $4,187 $11,324 $37,242 $32,560 $244 $99,543 
18


 Six Months Ended June 30, 2020
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of year$3,822 $61 $1,378 $1,965 $1,978 $8,139 $12,369 $122 $29,834 
Impact of adopting ASC 326 non-PCD loans(707)3,716 628 3,406 5,138 7,025 217 19,427 
Impact of adoption ASC 326 PCD loans645 908 7,682 2,037 8,335 103 19,710 
Credit loss expense non-PCD loans5,783 (2)5,097 3,835 2,515 17,379 11,428 (26)46,009 
Credit loss expense PCD loans(522)(323)(1,695)3,374 1,124 (19)1,939 
Charge-offs(1,740)(125)(1,865)
Recoveries36 274 311 
Ending Balance$9,021 $63 $10,777 $6,428 $13,886 $36,067 $38,577 $546 $115,365 

 Three Months Ended March 31, 2021
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of year$7,768 $56 $8,148 $6,231 $9,719 $35,237 $37,554 $371 $105,084 
Credit (benefit) loss expense non-PCD loans(949)(9)(1,144)(1,417)(1,615)4,074 (1,103)(54)(2,217)
Credit (benefit) loss expense PCD loans(14)— (24)— 1,018 192 1,050 (5)2,217 
Charge-offs— — (15)— — — (346)(18)(379)
Recoveries— — — — — 226 231 
Ending Balance$6,805 $47 $6,968 $4,814 $9,122 $39,503 $37,381 $296 $104,936 
The majority of the Company’sCompany's loan portfolio consists of loans to businesses and individuals in the Dallas-Fort Worth metroplex and the Houston metropolitan area. This geographic concentration subjects the loan portfolio to the general economic conditions within these areas. The risks created by this concentration have been considered by management in the determination of the adequacy of the ACL. Management believes the ACL was adequate to cover estimated losses on loans held for investment as of June 30, 2021March 31, 2022 and December 31, 2020.2021.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of June 30, 2021 and December 31, 2020, were as follows:loans:
June 30, 2021December 31, 2020March 31, 2022December 31, 2021
Real Property(1)
ACL Allocation
Real Property(1)
ACL Allocation
Real Property(1)
ACL Allocation
Real Property(1)
ACL Allocation
Real estate:        
1 - 4 family residential$199 $$199 $11 
OOCRE1,413 430 
NOOCRENOOCRE19,321 6,147 16,080 NOOCRE$17,551 $4,572 $17,908 $7,808 
CommercialCommercial4,053 1,508 8,666 4,668 Commercial1,085 84 1,702 — 
ConsumerConsumer1,063 143 50 Consumer1,063 538 1,063 — 
TotalTotal$26,049 $8,085 $25,088 $4,729 Total$19,699 $5,194 $20,673 $7,808 
(1) Loans reported exclude PCD loans that transitioned upon adoption of ASC 326 and accounted for on a pooled basis.



17


Nonaccrual and Past Due Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due in accordance with the terms of the applicable loan agreement. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
19


Nonaccrual loans aggregated by class of loans, as of June 30, 2021March 31, 2022 and December 31, 2020,2021, were as follows:
 June 30, 2021December 31, 2020
NonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACL
Real estate:        
1 - 4 family residential$1,201 $1,201 $3,308 $3,199 
OOCRE16,960 16,385 6,266 5,645 
NOOCRE35,181 15,739 40,830 19,213 
Commercial22,424 1,743 29,318 1,015 
Consumer1,228 1,216 1,374 1,220 
Total$76,994 $36,284 $81,096 $30,292 
 March 31, 2022December 31, 2021
NonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACL
Real estate:        
1 - 4 family residential$1,005 $1,005 $990 $990 
OOCRE13,446 13,446 14,236 13,824 
NOOCRE17,739 189 17,978 191 
Commercial13,259 1,317 15,267 4,207 
Consumer1,231 168 1,216 1,216 
Total$46,680 $16,125 $49,687 $20,428 
    There were $12,515$10,678 and $1,508$11,056 of PCD loans that are not accounted for on a pooled basis included in nonaccrual loans at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
    During the three and six months ended June 30,March 31, 2022 and 2021, interest income not recognized on nonaccrual loans was $255$889 and $1,375, respectively. During the three and six months ended June 30, 2020, interest income not recognized on nonaccrual loans was $363 and $536,$1,120, respectively.

An age analysis of past due loans, aggregated by class of loans and including past due nonaccrual loans, as of June 30, 2021March 31, 2022 and December 31, 2020,2021, is as follows:
June 30, 2021 March 31, 2022
30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
Real estate:Real estate:                            Real estate:                            
Construction and landConstruction and land$$$$$869,324 $2,441 $871,765 $Construction and land$1,400 $— $— $1,400 $1,294,062 $1,876 $1,297,338 $— 
FarmlandFarmland13,661 13,661 Farmland— — — — 48,095 — 48,095 — 
1 - 4 family residential1 - 4 family residential1,837 1,145 2,982 509,444 1,209 513,635 43 1 - 4 family residential2,429 — 926 3,355 599,891 1,162 604,408 — 
Multi-family residentialMulti-family residential367,445 367,445 Multi-family residential— — — — 272,250 — 272,250 — 
OOCREOOCRE143 4,612 11,740 16,495 699,518 28,886 744,899 OOCRE3,114 509 13,446 17,069 593,946 22,600 633,615 — 
NOOCRENOOCRE855 12,501 3,359 16,715 1,941,201 28,622 1,986,538 NOOCRE— — 17,739 17,739 2,112,843 15,244 2,145,826 — 
CommercialCommercial1,985 404 11,560 13,949 1,741,947 15,204 1,771,100 356 Commercial4,026 6,280 3,881 14,187 2,104,273 7,440 2,125,900 264 
MWMW559,939 559,939 MW430 — — 430 542,447 — 542,877 — 
ConsumerConsumer148 1,159 1,309 9,035 186 10,530 63 Consumer68 35 1,161 1,264 8,099 170 9,533 — 
TotalTotal$4,968 $17,519 $28,963 $51,450 $6,711,514 $76,548 $6,839,512 $462 Total$11,467 $6,824 $37,153 $55,444 $7,575,906 $48,492 $7,679,842 $264 
(1) Loans 90 days past due and still accruing excludes $17,099$5,511 of pooled PCD loans and $203 of PPP loans as of June 30, 2021 that transitioned upon adoption of ASC 326.March 31, 2022.

2018


December 31, 2020 December 31, 2021
30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
Real estate:Real estate:                            Real estate:                            
Construction and landConstruction and land$$$$$690,345 $2,685 $693,030 $Construction and land$— $— $— $— $1,059,796 $2,348 $1,062,144 $— 
FarmlandFarmland13,844 13,844 Farmland— — — — 55,827 — 55,827 — 
1 - 4 family residential1 - 4 family residential2,338 122 4,802 7,262 508,341 8,741 524,344 1,670 1 - 4 family residential2,073 — 1,008 3,081 538,307 1,178 542,566 24 
Multi-family residentialMulti-family residential424,962 424,962 Multi-family residential— — — — 310,241 — 310,241 — 
OOCREOOCRE2,278 2,143 2,814 7,235 672,246 37,991 717,472 1,280 OOCRE4,538 965 11,622 17,125 620,848 27,564 665,537 — 
NOOCRENOOCRE7,675 2,911 17,586 28,172 1,832,784 43,176 1,904,132 NOOCRE936 — 192 1,128 2,100,981 18,200 2,120,309 — 
CommercialCommercial1,983 1,431 20,360 23,774 1,516,312 19,460 1,559,546 1,230 Commercial1,525 4,395 3,708 9,628 1,988,622 8,626 2,006,876 191 
MWMW577,594 577,594 MW— — — — 565,645 — 565,645 — 
ConsumerConsumer75 77 1,338 1,490 11,308 202 13,000 24 Consumer135 105 1,082 1,322 10,499 177 11,998 20 
TotalTotal$14,349 $6,684 $46,900 $67,933 $6,247,736 $112,255 $6,427,924 $4,204 Total$9,207 $5,465 $17,612 $32,284 $7,250,766 $58,093 $7,341,143 $235 
(1) Loans 90 days past due and still accruing excludes $32,627$9,345 of PCD loans accounted for on a pooled basisand $206 of PPP loans as of December 31, 2020.2021.

Loans past due 90 days and still accruing were $462$264 and $4,204$235 as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. These loans are also considered well-secured, and are in the process of collection with plans in place for the borrowers to bring the notes fully current or to subsequently be renewed. The Company believes that it will collect all principal and interest due on each of the loans past due 90 days and still accruing.
Troubled Debt Restructuring
Modifications of terms for the Company’s loans and their inclusion as TDRs are based on individual facts and circumstances. Loan modifications that are included as TDRs may involve a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk, or deferral of principal payments, regardless of the period of the modification. The recorded investment in TDRs was $28,643$23,273 and $29,157$25,518 as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
    There were no new TDRs during the three months ended March 31, 2022. The following tabletables presents the pre- and post-modification amortized cost of loans modified as TDRs during the six months ended June 30, 2021 and 2020. There were 0 loans modified as TDRS during the three months ended June 30, 2021 and 2020.March 31, 2021.
Adjusted Payment StructurePayment DeferralsTotal ModificationsNumber of Loans
Six months ended June 30, 2021
Commercial$207 $$207 1
Six months ended June 30, 2020
Commercial$1,440 $1,337 $2,777 3


During the Three Months Ended March 31, 2021
 Adjusted Payment StructurePayment DeferralsTotal ModificationsNumber of Loans
Commercial real estate$240 $— $240 
Total$240 $— $240 

There were 0no loans modified as TDR loans within the previous 12 months and for which there was a payment default during the three and six months ended June 30, 2021March 31, 2022 and 2020.2021. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral.
Interest income duringDuring the three and six months ended June 30, 2021 that would have been recorded had the terms of the loans not been modified on TDR loans was $57March 31, 2022 and $179, respectively. Interest income recorded during the three and six months ended June 30, 2020 on TDR loans and2021, interest income that would have been recorded on TDR loans had the terms of the loans not been modified was minimal.$92 and $122, respectively.
The Company has not committed to lend additional amounts to customers with outstanding loans classified as TDRs as of June 30, 2021March 31, 2022 or December 31, 2020.2021.
2119


For the six months ended June 30, 2021, the Company had 12 modifications of loans with an aggregate principal balances of $4,758 that qualified for temporary suspension of TDR requirements under Section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act, 2021, and related interagency guidance of the federal banking agencies (collectively “Section 4013 of the CARES Act”). For the year ended December 31, 2020, the Company had 754 modifications of loans with an aggregate principal balance of $1,126,975 that qualified for temporary suspension of TDR requirements under Section 4013 of the CARES Act. As of June 30, 2021, the Company had 2 loans with an aggregate principal balance of $6,920 remaining on deferment under Section 4013 of the CARES Act.
Credit Quality Indicators
    From a credit risk standpoint, the Company classifies its loans in one of the following categories: (i) pass, (ii) special mention, (iii) substandard or (iv) doubtful. Loans classified as loss are charged-off. Loans not rated special mention, substandard, doubtful or loss are classified as pass loans.
    The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on criticized credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period. All classified credits are evaluated for impairment. If impairment is determined to exist, a specific reserve is established. The Company’s methodology is structured so that specific reserves are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
    Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are generally not so pronounced that the Company expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.
    Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
    Credits rated doubtful are those in which full collection of principal appears highly questionable, and in which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual.
    Credits classified as PCD are those that, at acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. All loans considered to be purchased-credit impaired loans prior to January 1, 2020 were converted to PCD loans upon adoption of ASC 326. The Company elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are foreclosed, written off, paid off, or sold.
The Company considers the guidance in ASC 310-20 when determining whether a modification, extension or renewal of a loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. Based on the most recent analysis performed, the risk category of loans by class of loans based on year or origination is as follows:    
 
Term Loans Amortized Cost Basis by Origination Year1
 20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of June 30, 2021
Construction and land:
Pass$114,709 $309,478 $267,673 $116,639 $16,742 $29,490 $12,591 $496 $867,818 
Special mention321 321 
 
Term Loans Amortized Cost Basis by Origination Year1
 20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of March 31, 2022
Construction and land:
Pass$42,398 $530,492 $518,181 $113,127 $54,941 $27,712 $6,160 $838 $1,293,849 
Special mention— — 1,613 — — — — — 1,613 
PCD— — — — — 1,876 — — 1,876 
Total construction and land$42,398 $530,492 $519,794 $113,127 $54,941 $29,588 $6,160 $838 $1,297,338 
Farmland:
Pass$2,278 $16,697 $18,914 $25 $3,367 $5,533 $1,281 $— $48,095 
Total farmland$2,278 $16,697 $18,914 $25 $3,367 $5,533 $1,281 $— $48,095 
2220


Substandard1,185 1,185 
PCD2,441 2,441 
Total construction and land$114,709 $309,478 $267,673 $118,145 $16,742 $31,931 $12,591 $496 $871,765 
Farmland:
Pass$1,549 $534 $469 $3,367 $3,023 $3,554 $1,165 $$13,661 
Total farmland$1,549 $534 $469 $3,367 $3,023 $3,554 $1,165 $$13,661 
1 - 4 family residential:1 - 4 family residential:1 - 4 family residential:
PassPass$90,644 $112,315 $61,905 $77,038 $32,372 $115,821 $16,295 $3,338 $509,728 Pass$26,827 $251,200 $102,312 $48,789 $52,176 $108,126 $11,245 $680 $601,355 
Special mentionSpecial mention152 421 573 Special mention— — — — — 344 — — 344 
SubstandardSubstandard118 1,117 890 2,125 Substandard— — — — — 980 567 — 1,547 
PCDPCD1,209 1,209 PCD— — — — — 1,162 — — 1,162 
Total 1 - 4 family residentialTotal 1 - 4 family residential$90,644 $112,315 $61,905 $77,190 $32,490 $118,568 $17,185 $3,338 $513,635 Total 1 - 4 family residential$26,827 $251,200 $102,312 $48,789 $52,176 $110,612 $11,812 $680 $604,408 
Multi-family residential:Multi-family residential:Multi-family residential:
PassPass$51,096 $66,234 $94,568 $81,127 $13,762 $39,419 $52 $$346,258 Pass$28,596 $66,418 $59,149 $33,489 $51,868 $11,020 $46 $— $250,586 
Special mentionSpecial mention21,187 21,187 Special mention— — — — 21,664 — — — 21,664 
Total multi-family residentialTotal multi-family residential$51,096 $66,234 $94,568 $102,314 $13,762 $39,419 $52 $$367,445 Total multi-family residential$28,596 $66,418 $59,149 $33,489 $73,532 $11,020 $46 $— $272,250 
OOCRE:OOCRE:OOCRE:
PassPass$64,427 $149,710 $69,980 $59,757 $69,529 $212,896 $2,246 $$628,545 Pass$12,150 $111,119 $101,059 $56,202 $60,078 $209,795 $2,566 $13,674 $566,643 
Special mentionSpecial mention1,077 20,251 333 8,218 29,879 Special mention— 2,397 889 1,037 — 5,713 — — 10,036 
SubstandardSubstandard414 25,656 881 30,638 57,589 Substandard— — — — 23,628 10,708 — — 34,336 
PCDPCD1,431 7,299 20,156 28,886 PCD— — — — — 22,600 — — 22,600 
Total OOCRETotal OOCRE$64,427 $150,124 $72,488 $105,664 $78,042 $271,908 $2,246 $$744,899 Total OOCRE$12,150 $113,516 $101,948 $57,239 $83,706 $248,816 $2,566 $13,674 $633,615 
NOOCRE:NOOCRE:NOOCRE:
PassPass$192,285 $337,090 $265,817 $441,505 $97,425 $416,101 $15,848 $1,593 $1,767,664 Pass$150,063 $628,084 $271,385 $200,553 $285,499 $413,590 $7,237 $1,567 $1,957,978 
Special mentionSpecial mention238 2,747 15,678 22,176 45,872 493 87,204 Special mention— — 741 2,170 44,414 72,686 — — 120,011 
SubstandardSubstandard1,495 11,044 26,127 4,487 47,394 12,501 103,048 Substandard— — — 1,770 9,889 40,934 — — 52,593 
PCDPCD18,855 9,767 28,622 PCD— — — — 13,785 1,459 — — 15,244 
Total NOOCRETotal NOOCRE$192,285 $338,823 $279,608 $502,165 $124,088 $519,134 $28,842 $1,593 $1,986,538 Total NOOCRE$150,063 $628,084 $272,126 $204,493 $353,587 $528,669 $7,237 $1,567 $2,145,826 
Commercial:Commercial:Commercial:
PassPass$297,688 $244,094 $161,556 $78,968 $21,978 $55,754 $800,605 $12,640 $1,673,283 Pass$92,216 $445,732 $170,620 $130,796 $58,092 $75,602 $1,048,204 $175 $2,021,437 
Special mentionSpecial mention760 4,367 1,395 8,137 9,217 2,390 3,814 3,448 33,528 Special mention— 17,848 2,421 131 10,101 6,394 5,737 — 42,632 
SubstandardSubstandard866 4,315 14,683 6,288 4,244 14,665 4,024 49,085 Substandard— 4,744 4,918 6,137 13,579 6,463 18,550 — 54,391 
PCDPCD365 2,121 12,718 15,204 PCD— — — — 309 7,131 — — 7,440 
Total commercialTotal commercial$298,448 $249,327 $167,266 $102,153 $39,604 $75,106 $819,084 $20,112 $1,771,100 Total commercial$92,216 $468,324 $177,959 $137,064 $82,081 $95,590 $1,072,491 $175 $2,125,900 
MW:MW:MW:
PassPass$$$$$$$558,400 $$558,400 Pass$— $— $— $— $— $— $542,447 $— $542,447 
Special mention1,539 1,539 
SubstandardSubstandard— — — — — — 430 — 430 
Total MWTotal MW$$$$$$$559,939 $$559,939 Total MW$— $— $— $— $— $— $542,877 $— $542,877 
Consumer:Consumer:
PassPass$685 $899 $1,411 $437 $310 $3,341 $968 $— $8,051 
Special mentionSpecial mention— — — — — 76 — — 76 
SubstandardSubstandard— — — — 170 1,064 — 1,236 
PCDPCD— — — — — 170 — — 170 
Total consumerTotal consumer$685 $899 $1,411 $439 $310 $3,757 $2,032 $— $9,533 
Total PassTotal Pass$355,213 $2,050,641 $1,243,031 $583,418 $566,331 $854,719 $1,620,154 $16,934 $7,290,441 
2321


Consumer:
Pass$325 $1,818 $842 $622 $3,290 $1,142 $1,053 $$9,092 
Special mention16 16 
Substandard107 59 1,064 1,236 
PCD26 160 186 
Total consumer$325 $1,818 $845 $625 $3,423 $1,377 $2,117 $$10,530 
Total Pass$812,723 $1,221,273 $922,810 $859,023 $258,121 $874,177 $1,408,255 $18,067 $6,374,449 
Total Special Mention760 4,605 5,219 65,726 31,726 56,917 5,846 3,448 174,247 
Total Substandard2,775 15,362 67,654 11,881 83,452 29,120 4,024 214,268 
Total PCD1,431 19,220 9,446 46,451 76,548 
Total$813,483 $1,228,653 $944,822 $1,011,623 $311,174 $1,060,997 $1,443,221 $25,539 $6,839,512 
Total Special Mention— 20,245 5,664 3,338 76,179 85,213 5,737 — 196,376 
Total Substandard— 4,744 4,918 7,909 47,096 59,255 20,611 — 144,533 
Total PCD— — — — 14,094 34,398 — — 48,492 
Total$355,213 $2,075,630 $1,253,613 $594,665 $703,700 $1,033,585 $1,646,502 $16,934 $7,679,842 
1Term loans amortized cost basis by origination year excludes $7,486 of deferred loan fees, net.

 
Term Loans Amortized Cost Basis by Origination Year1
 20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2020
Construction and land:
Pass$155,358 $282,497 $179,372 $11,791 $9,938 $27,147 $21,066 $$687,169 
Special mention2,666 2,666 
Substandard510 510 
PCD2,685 2,685 
Total construction and land$155,358 $282,497 $182,548 $11,791 $9,938 $29,832 $21,066 $$693,030 
Farmland:
Pass$867 $972 $3,367 $3,688 $$3,656 $1,294 $$13,844 
Total farmland$867 $972 $3,367 $3,688 $$3,656 $1,294 $$13,844 
1 - 4 family residential:
Pass$120,580 $79,617 $91,890 $49,338 $31,936 $115,797 $19,065 $2,968 $511,191 
Special mention1,077 154 760 687 2,678 
Substandard142 668 924 1,734 
PCD8,741 8,741 
Total 1 - 4 family residential$120,580 $80,694 $92,186 $50,766 $31,936 $125,225 $19,989 $2,968 $524,344 
Multi-family residential:
Pass$107,332 $106,559 $139,721 $18,722 $32,672 $7,218 $58 $$412,282 
Special mention12,680 12,680 
Total multi-family residential$107,332 $106,559 $152,401 $18,722 $32,672 $7,218 $58 $$424,962 
OOCRE:
Pass$113,741 $65,262 $75,940 $79,253 $79,202 $176,668 $5,532 $$595,598 
Special mention948 22,725 3,701 12,860 4,326 44,560 
Substandard370 10,579 3,830 11,315 6,822 201 6,206 39,323 
PCD7,951 30,040 37,991 
Total OOCRE$114,111 $66,210 $109,244 $86,784 $111,328 $217,856 $5,733 $6,206 $717,472 
24


NOOCRE:
Pass$361,246 $255,976 $445,079 $90,738 $174,893 $309,572 $13,413 $$1,650,917 
Special mention101 31,714 37,572 19,262 25,997 37,951 493 153,090 
Substandard1,226 09,850 04,562 4,108 23,098 14,105 56,949 
PCD18,744 6,652 17,780 43,176 
Total NOOCRE$362,573 $297,540 $505,957 $114,108 $207,542 $388,401 $28,011 $$1,904,132 
Commercial:
Pass$251,004 $158,158 $112,961 $50,734 $19,821 $41,856 $758,832 $13,400 $1,406,766 
Special mention1,306 2,539 8,224 10,033 1,201 2,165 26,922 3,670 56,060 
Substandard722 4,487 23,245 3,772 7,216 2,083 30,460 5,275 77,260 
PCD3,382 4,196 11,882 19,460 
Total commercial$253,032 $165,184 $144,430 $67,921 $32,434 $57,986 $816,214 $22,345 $1,559,546 
MW:
Pass$$$$$$$577,594 $$577,594 
Total MW$$$$$$$577,594 $$577,594 
Consumer:
Pass$2,489 $1,216 $1,038 $3,899 $887 $353 $1,475 $$11,357 
Special mention25 227 252 
Substandard60 66 1,063 1,189 
PCD36 166 202 
Total consumer$2,489 $1,216 $1,038 $3,995 $912 $812 $2,538 $$13,000 
Total Pass$1,112,617 $950,257 $1,049,368 $308,163 $349,349 $682,267 $1,398,329 $16,368 $5,866,718 
Total Special Mention1,407 36,278 84,021 33,756 40,083 45,356 27,415 3,670 271,986 
Total Substandard2,318 14,337 39,038 12,438 18,531 32,069 46,753 11,481 176,965 
Total PCD18,744 3,418 18,799 71,294 112,255 
Total$1,116,342 $1,000,872 $1,191,171 $357,775 $426,762 $830,986 $1,472,497 $31,519 $6,427,924 
1 Term loans amortized cost basis by origination year excludes $2,468$11,536 of deferred loan fees, net.

 
Term Loans Amortized Cost Basis by Origination Year1
 20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2021
Construction and land:
Pass$389,420 $453,262 $116,855 $57,637 $5,741 $29,182 $4,631 $1,163 $1,057,891 
Special mention— 1,593 — 312 — — — — 1,905 
PCD— — — — — 2,348 — — 2,348 
Total construction and land$389,420 $454,855 $116,855 $57,949 $5,741 $31,530 $4,631 $1,163 $1,062,144 
Farmland:
Pass$16,849 $28,655 $27 $3,367 $2,957 $2,643 $1,329 $— $55,827 
Total farmland$16,849 $28,655 $27 $3,367 $2,957 $2,643 $1,329 $— $55,827 
1 - 4 family residential:
Pass$191,333 $101,377 $54,826 $59,861 $27,743 $85,661 $12,659 $6,025 $539,485 
Special mention— — — — — 352 — — 352 
Substandard— — — — 81 903 567 — 1,551 
PCD— — — — — 1,178 — — 1,178 
Total 1 - 4 family residential$191,333 $101,377 $54,826 $59,861 $27,824 $88,094 $13,226 $6,025 $542,566 
Multi-family residential:
Pass$67,979 $59,239 $54,321 $68,531 $11,815 $27,020 $49 $— $288,954 
Special mention— — — 21,287 — — — — 21,287 
Total multi-family residential$67,979 $59,239 $54,321 $89,818 $11,815 $27,020 $49 $— $310,241 
OOCRE:
Pass$114,413 $111,516 $56,964 $73,112 $54,921 $174,500 $2,986 $2,965 $591,377 
Special mention2,420 — 1,052 — — 6,232 — — 9,704 
Substandard— 412 — 25,440 781 10,259 — — 36,892 
PCD— 1,377 — — 6,567 19,620 — — 27,564 
Total OOCRE$116,833 $113,305 $58,016 $98,552 $62,269 $210,611 $2,986 $2,965 $665,537 
NOOCRE:
Pass$628,140 $298,091 $254,566 $319,359 $56,710 $336,713 $5,861 $23,015 $1,922,455 
Special mention— 613 1,685 29,469 16,354 48,952 — 489 97,562 
Substandard— 48 1,775 26,209 1,581 52,479 — — 82,092 
PCD— — — 13,620 — 4,580 — — 18,200 
Total NOOCRE$628,140 $298,752 $258,026 $388,657 $74,645 $442,724 $5,861 $23,504 $2,120,309 
Commercial:
Pass$430,213 $187,370 $124,798 $65,186 $40,254 $52,491 $968,229 $19,130 $1,887,671 
Special mention7,958 2,341 149 15,136 1,069 3,368 3,482 2,589 36,092 
Substandard15,662 5,843 6,286 14,908 4,167 2,779 20,500 4,342 74,487 
22


PCD— — — 315 1,785 6,526 — — 8,626 
Total commercial$453,833 $195,554 $131,233 $95,545 $47,275 $65,164 $992,211 $26,061 $2,006,876 
MW:
Pass$— $— $— $— $— $— $564,850 $250 $565,100 
Substandard— — — — — — 545 — 545 
Total MW$— $— $— $— $— $— $565,395 $250 $565,645 
Consumer:
Pass$3,362 $1,566 $512 $408 $2,777 $784 $1,006 $25 $10,440 
Special mention— — — — 65 14 — — 79 
Substandard— — 22 — 177 39 1,064 — 1,302 
PCD— — — — 24 153 — — 177 
Total consumer$3,362 $1,566 $534 $408 $3,043 $990 $2,070 $25 $11,998 
Total Pass$1,841,709 $1,241,076 $662,869 $647,461 $202,918 $708,994 $1,561,600 $52,573 $6,919,200 
Total Special Mention10,378 4,547 2,886 66,204 17,488 58,918 3,482 3,078 166,981 
Total Substandard15,662 6,303 8,083 66,557 6,787 66,459 22,676 4,342 196,869 
Total PCD— 1,377 — 13,935 8,376 34,405 — — 58,093 
Total$1,867,749 $1,253,303 $673,838 $794,157 $235,569 $868,776 $1,587,758 $59,993 $7,341,143 
1 Term loans amortized cost basis by origination year excludes $9,489 of deferred loan fees, net.
Servicing Assets
The Company was servicing loans of approximately $304,290$518,612 and $215,638$261,885 as of June 30,March 31, 2022 and 2021, and 2020, respectively. A summary of the changes in the related servicing assets are as follows:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2021202020212020 20222021
Balance at beginning of periodBalance at beginning of period$3,402 $2,990 $3,363 $3,113 Balance at beginning of period$17,705 $3,363 
Increase from loan salesIncrease from loan sales384 22 384 131 Increase from loan sales1,491 — 
Net recoveries84 212 
Servicing asset impairment, net of recoveriesServicing asset impairment, net of recoveries(280)128 
Amortization charged as a reduction to incomeAmortization charged as a reduction to income(145)(72)(234)(304)Amortization charged as a reduction to income(748)(89)
Balance at end of periodBalance at end of period$3,725 $2,940 $3,725 $2,940 Balance at end of period$18,168 $3,402 
Fair value of servicing assets is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current market rates over the expected lives of the loans being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset. As of June 30,March 31, 2022 and 2021 and June 30, 2020 there was a valuation allowance of $344$908 and $536,$428, respectively.
25


The Company may also receive a portion of subsequent interest collections on loans sold that exceed the contractual servicing fees. In that case, the Company records an interest-only strip based on its relative fair market value and the other components of the loans. There was 0no interest-only strip receivable recorded at June 30, 2021March 31, 2022 and December 31, 2020.2021.
During the quarterthree months ended June 30, 2021,March 31, 2022, the Bank sold $15,176$4,376 in SBA LHI and $20,000 in United States Department of SBA loans held for investmentAgriculture (“USDA”) LHI resulting in a gain of $1,953.$533 and $3,628, respectively. During the quarterthree months ended June 30, 2020,March 31, 2021, the Bank sold $7,780 ofno SBA loans held for investment resulting in a gain of $604.or USDA LHI. The gain on sale of SBA and USDA loans is recorded in government guaranteed loan income, net, in the accompanying condensedCompany's consolidated statements of income.




2623


6. Fair Value
The following table summarizes assets measured at fair value on a recurring basis as of June 30, 2021March 31, 2022 and December 31, 2020,2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 June 30, 2021
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Financial Assets:
Available for sale debt securities$$1,077,239 $$1,077,239 
Equity securities with a readily determinable fair value11,227 11,227 
PPP loans291,401 291,401 
Loans held for sale(1)
6,605 6,605 
Interest rate swap designated as hedging instruments7,926 7,926 
Correspondent interest rate swaps not designated as hedging instruments334 334 
Customer interest rate swaps not designated as hedging instruments6,050 6,050 
Correspondent interest rate caps and collars not designated as hedging instruments
Financial Liabilities:
Correspondent interest rate swaps not designated as hedging instruments$$6,406 $$6,406 
Customer interest rate swaps not designated as hedging instruments297 297 
Customer interest rate caps and collars not designated as hedging instruments
 March 31, 2022
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Financial Assets:
AFS debt securities$— $1,063,249 $— $1,063,249 
Equity securities with a readily determinable fair value10,525 — — 10,525 
PPP loans— 18,512 — 18,512 
Loans held for sale(1)
— 15,565 — 15,565 
Interest rate swap designated as hedging instruments— 13,931 — 13,931 
Correspondent interest rate swaps not designated as hedging instruments— 15,462 — 15,462 
Customer interest rate swaps not designated as hedging instruments— 289 — 289 
Correspondent interest rate caps and collars not designated as hedging instruments— — 
Financial Liabilities:
Interest rate swap designated as hedging instruments$— $21,453 $— $21,453 
Correspondent interest rate swaps not designated as hedging instruments— 348 — 348 
Customer interest rate swaps not designated as hedging instruments— 15,327 — 15,327 
Customer interest rate caps and collars not designated as hedging instruments— — 
(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.value.
 December 31, 2020
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Financial Assets:
 Available for sale debt securities$$1,024,329 $$1,024,329 
Equity securities with a readily determinable fair value11,363 11,363 
PPP loans358,042 358,042 
Loans held for sale(1)
6,681 6,681 
Interest rate swap designated as hedging instruments17,543 17,543 
Customer interest rate swaps not designated as hedging instruments10,937 10,937 
Correspondent interest rate caps and collars not designated as hedging instruments
Financial Liabilities:
Interest rate swap designated as hedging instruments$$2,255 $$2,255 
Correspondent interest rate swaps not designated as hedging instruments11,666 11,666 
Customer interest rate caps and collars not designated as hedging instruments
 December 31, 2021
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Financial Assets:
 AFS debt securities$— $993,058 $— $993,058 
Equity securities with a readily determinable fair value11,038 — — 11,038 
PPP loans— 53,369 — 53,369 
Loans held for sale(1)
— 9,867 — 9,867 
Interest rate swap designated as hedging instruments— 7,001 — 7,001 
Correspondent interest rate swaps not designated as hedging instruments— 1,527 — 1,527 
Customer interest rate swaps not designated as hedging instruments— 3,261 — 3,261 
Customer interest rate caps and collars not designated as hedging instruments— — 
Financial Liabilities:
Interest rate swap designated as hedging instruments$— $1,404 $— $1,404 
Correspondent interest rate swaps not designated as hedging instruments— 3,498 — 3,498 
Customer interest rate caps and collars not designated as hedging instruments— 1,442 — 1,442 
Correspondent interest rate caps and collars not designated as hedging instruments— — 
(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.value.
2724


There were no transfers between Level 2 and Level 3 during the three months ended March 31, 2022 and 2021.
The following table summarizes assets measured at fair value on a non-recurring basis at June 30, 2021as of March 31, 2022 and December 31, 2020,2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 Fair Value
Measurements Using
 
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
As of June 30, 2021                
  Assets:    
Collateral dependent loans with an ACL$$$15,618 $15,618 
Servicing assets with a valuation allowance2,560 2,560 
Other real estate owned2,467 2,467 
As of December 31, 2020    
  Assets:    
Collateral dependent loans with an ACL$$$2,386 $2,386 
Servicing assets with a valuation allowance2,975 2,975 
 Fair Value
Measurements Using
 
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
As of March 31, 2022                
  Assets:    
Collateral dependent loans with an ACL$— $— $14,505 $14,505 
Servicing assets with a valuation allowance— — 17,419 17,419 
As of December 31, 2021    
  Assets:    
Collateral dependent loans with an ACL$— $— $10,100 $10,100 
Servicing assets with a valuation allowance— — 3,223 3,223 
At June 30, 2021,March 31, 2022, collateral dependent loans with an allowance had a recorded investment of $23,703,$19,699, with $8,085$5,194 specific allowance for credit loss allocated. At December 31, 2020, collateral dependent2021, impaired loans had a carrying value of $7,115,$17,908, with $4,729$7,808 specific allowance for credit loss allocated.
At June 30, 2021,March 31, 2022, servicing assets of $2,904$18,327 had a valuation allowance totaling $344.$908. At December 31, 2020,2021, servicing assets of $3,531$3,850 had a valuation allowance totaling $556.
Other real estate owned consisted of 3 properties recorded with a fair value of approximately $2,467 at June 30, 2021. During the six months ended June 30, 2021, the Company incurred a write-down of $174 in total on all properties.$627.
There were 0no liabilities measured at fair value on a non-recurring basis at June 30, 2021as of March 31, 2022 or December 31, 2020.2021.
Fair Value of Financial Instruments
    The Company’s methods of determining fair value of financial instruments in this Note are consistent with its methodologies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021. Please refer to Note 17 in the Company’s Annual Report on Form 10-K for information on these methods.
2825


    The estimated fair values and carrying values of all financial instruments not measured at fair value on a recurring basis under current authoritative guidance as of June 30, 2021March 31, 2022 and December 31, 20202021 were as follows:
Fair ValueFair Value
Carrying
Amount
Level 1Level 2Level 3Carrying
Amount
Level 1Level 2Level 3
June 30, 2021
March 31, 2022March 31, 2022
Financial assets:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$390,027 $$390,027 $Cash and cash equivalents$551,573 $— $551,573 $— 
Held to maturity debt securities48,638 51,489 
HTM debt securitiesHTM debt securities181,265 — 169,818 — 
Securities purchased under agreements to resellSecurities purchased under agreements to resell100,818 — 100,818 — 
Loans held for sale(1)
Loans held for sale(1)
3,156 — 3,156 — 
PPP LoansPPP Loans18,512 — — 18,512 
LHI, excluding PPP loans(2)
LHI, excluding PPP loans(2)
7,649,794 — — 7,537,714 
Accrued interest receivableAccrued interest receivable23,356 — 23,356 — 
BOLIBOLI83,641 — 83,641 — 
Servicing assetServicing asset749 — 749 — 
Equity securities without a readily determinable fair valueEquity securities without a readily determinable fair value4,355 N/AN/AN/A
FHLB and FRB stockFHLB and FRB stock71,983 N/AN/AN/A
Financial liabilities:Financial liabilities:
DepositsDeposits$7,889,596 $— $7,401,333 $— 
Advances from FHLBAdvances from FHLB777,522 — 770,158 — 
Accrued interest payableAccrued interest payable1,292 — 1,292 — 
Subordinated debentures and subordinated notesSubordinated debentures and subordinated notes228,018 — 228,018 — 
Securities sold under agreement to repurchaseSecurities sold under agreement to repurchase4,996 — 5,017 — 
December 31, 2021December 31, 2021
Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$379,784 $— $379,784 $— 
HTM debt securitiesHTM debt securities59,436 — 61,446 — 
Securities purchased under agreements to resellSecurities purchased under agreements to resell102,288 — 102,288 — 
Loans held for sale(1)
Loans held for sale(1)
5,460 5,460 
Loans held for sale(1)
16,140 — 16,140 — 
Loans held for investment(2)
6,708,780 6,751,060 
LHI(2)
LHI(2)
7,259,233 — — 7,283,992 
Accrued interest receivableAccrued interest receivable23,494 23,494 Accrued interest receivable22,008 — 22,008 — 
Bank-owned life insuranceBank-owned life insurance83,304 83,304 Bank-owned life insurance83,194 — 83,194 — 
Servicing assetServicing asset1,165 1,165 Servicing asset14,482 — 14,482 — 
Equity securities without a readily determinable fair valueEquity securities without a readily determinable fair value3,755 N/AN/AN/AEquity securities without a readily determinable fair value4,355 N/AN/AN/A
FHLB and FRB stockFHLB and FRB stock71,558 N/AN/AN/AFHLB and FRB stock71,892 N/AN/AN/A
Financial liabilities:Financial liabilities:Financial liabilities:
DepositsDeposits$6,978,902 $$6,887,072 $Deposits$7,363,615 $— $7,145,175 $— 
Advances from FHLBAdvances from FHLB777,640 791,331 Advances from FHLB777,562 — 796,480 — 
Accrued interest payableAccrued interest payable1,832 1,832 Accrued interest payable1,507 — 1,507 — 
Subordinated debentures and subordinated notesSubordinated debentures and subordinated notes262,766 262,766 Subordinated debentures and subordinated notes227,764 — 227,764 — 
Securities sold under agreement to repurchaseSecurities sold under agreement to repurchase1,811 1,789 Securities sold under agreement to repurchase4,069 — 4,026 — 
December 31, 2020
Financial assets:
Cash and cash equivalents$230,825 $$230,825 $
Held to maturity debt securities30,872 34,283 
Loans held for sale(1)
14,733 14,733 
Loans held for investment(2)
6,317,986 6,335,402 
Accrued interest receivable23,798 23,798 
Bank-owned life insurance82,855 82,855 
Servicing asset388 486 
Equity securities without a readily determinable fair value3,575 N/AN/AN/A
FHLB and FRB stock71,236 N/AN/AN/A
Financial liabilities:
Deposits$6,512,846 $$6,608,849 $
Advances from FHLB777,718 782,321 
Accrued interest payable2,665 2,665 
Subordinated debentures and subordinated notes262,778 262,778 
Securities sold under agreement to repurchase2,225 2,199 
(1) Loans held for sale represent mortgage loans held for sale that are carried at lower of cost or market.
(2) Loans held for investmentLHI includes MW and is carried at amortized cost.
2926


7. Derivative Financial Instruments
The Company primarily uses derivatives to manage exposure to market risk, including interest rate risk and credit risk and to assist customers with their risk management objectives. Management will designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship. The Company’s remaining derivatives consist of derivatives held for customer accommodation or other purposes.
The fair value of derivative positions outstanding is included in other assets and accounts payable and other liabilities on the accompanying condensed consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying condensed consolidated statements of cash flows. For derivatives not designated as hedging instruments, swap fee income and gains and losses due to changes in fair value are included in other noninterest income and the operating section of the condensed consolidated statement of cash flows. For derivatives designated as hedging instruments, the entire change in the fair value related to the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified into interest income or interest expense when the forecasted transaction affects income. The notional amounts and estimated fair values as of June 30, 2021March 31, 2022 and December 31, 20202021 are as shown in the table below.

June 30, 2021December 31, 2020 March 31, 2022December 31, 2021
Estimated Fair ValueEstimated Fair ValueEstimated Fair ValueEstimated Fair Value
Notional
Amount
Asset DerivativeLiability DerivativeNotional
Amount
Asset DerivativeLiability Derivative Notional
Amount
Asset DerivativeLiability DerivativeNotional
Amount
Asset DerivativeLiability Derivative
Derivatives designated as hedging instruments (cash flow hedges):Derivatives designated as hedging instruments (cash flow hedges):Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances$$$$500,000 $17,543 $
Interest rate swap on money market deposit account paymentsInterest rate swap on money market deposit account payments250,000 1,508 250,000 2,255 Interest rate swap on money market deposit account payments$250,000 $13,931 $— $250,000 $4,541 $— 
Interest rate swap on customer loan interest paymentsInterest rate swap on customer loan interest payments125,000 987 Interest rate swap on customer loan interest payments125,000 — 7,780 125,000 — 867 
Interest rate swap on customer loan interest paymentsInterest rate swap on customer loan interest payments125,000 1,347 Interest rate swap on customer loan interest payments125,000 — 7,450 125,000 — 537 
Interest rate swap on customer loan interest paymentsInterest rate swap on customer loan interest payments125,000 4,084 Interest rate swap on customer loan interest payments125,000 — 6,223 125,000 2,460 — 
Total derivatives designated as hedging instrumentsTotal derivatives designated as hedging instruments$625,000 $7,926 $$750,000 $17,543 $2,255 Total derivatives designated as hedging instruments$625,000 $13,931 $21,453 $625,000 $7,001 $1,404 
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:      Derivatives not designated as hedging instruments:      
Financial institution counterparty:Financial institution counterparty:      Financial institution counterparty:      
Interest rate swapsInterest rate swaps$240,912 $334 $6,406 $303,918 $$11,666 Interest rate swaps$403,389 $15,462 $348 $379,787 $1,527 $3,498 
Interest rate caps and collarsInterest rate caps and collars41,916 41,916 Interest rate caps and collars33,716 — 41,916 — 
Commercial customer counterparty:Commercial customer counterparty:  Commercial customer counterparty:  
Interest rate swapsInterest rate swaps240,912 6,050 297 303,918 10,937 Interest rate swaps403,389 289 15,327 379,787 3,261 1,442 
Interest rate caps and collarsInterest rate caps and collars41,916 41,916 Interest rate caps and collars33,716 — 41,916 — 
Total derivatives not designated as hedging instrumentsTotal derivatives not designated as hedging instruments$565,656 $6,385 $6,704 $691,668 $10,938 $11,667 Total derivatives not designated as hedging instruments$874,210 $15,752 $15,676 $843,406 $4,789 $4,941 
Offsetting derivative assets/liabilitiesOffsetting derivative assets/liabilities(5,727)(5,727)Offsetting derivative assets/liabilities— (11,353)(11,353)— (2,609)(2,609)
Total derivativesTotal derivatives$1,190,656 $8,584 $977 $1,441,668 $28,482 $13,923 Total derivatives$1,499,210 $18,330 $25,776 $1,468,406 $9,181 $3,736 

3027


Pre-tax gain (loss) included in the condensed consolidated statements of income and related to derivative instruments for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 were as follows.
For the Three Months Ended
June 30, 2021
For the Three Months Ended
June 30, 2020
For the Three Months Ended
March 31, 2022
For the Three Months Ended
March 31, 2021
(Loss) gain recognized in other comprehensive income on derivative(Loss) gain reclassified from accumulated other comprehensive income into incomeLocation of (loss) gain reclassified from accumulated other comprehensive income into income(Loss) recognized in other comprehensive income on derivative(Loss) gain reclassified from accumulated other comprehensive income into incomeLocation of (loss) gain reclassified from accumulated other comprehensive income into income Gain (loss) recognized in other comprehensive income on derivativeGain (loss) reclassified from accumulated other comprehensive income into incomeLocation of gain (loss) reclassified from accumulated other comprehensive income into incomeGain recognized in other comprehensive income on derivativeGain (loss) reclassified from accumulated other comprehensive income into incomeLocation of gain (loss) reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):Derivatives designated as hedging instruments (cash flow hedges):Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advancesInterest rate swap on borrowing advances$$Interest Expense$(2,089)$Interest ExpenseInterest rate swap on borrowing advances$(264)$264 Interest Expense$26,357 $— Interest Expense
Interest rate swap on money market deposit account paymentsInterest rate swap on money market deposit account payments(132)(207)Interest Expense(2,033)(215)Interest IncomeInterest rate swap on money market deposit account payments9,389 (171)Interest Expense3,895 (199)Interest Expense
Commercial loan interest rate floorCommercial loan interest rate floor325 Interest Income(546)546 Interest IncomeCommercial loan interest rate floor— — Interest Income— 541 Interest Income
Interest rate swaps on customer loan interest paymentsInterest rate swaps on customer loan interest payments8,533 (8)Interest IncomeInterest rate swaps on customer loan interest payments(22,506)1,078 Interest Income(2,981)224 Interest Income
TotalTotal$8,401 $110 $(4,668)$331 Total$(13,381)$1,171 $27,271 $566 
Net gain recognized in other noninterest incomeNet gain recognized in other noninterest incomeNet gain recognized in other noninterest incomeNet gain recognized in other noninterest income
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collarsInterest rate swaps, caps and collars$92 $75 Interest rate swaps, caps and collars$719 $98 
31


 For the Six Months Ended
June 30, 2021
For the Six Months Ended
June 30, 2020
 Gain recognized in other comprehensive income on derivative(Loss) gain reclassified from accumulated other comprehensive income into incomeLocation of (loss) gain reclassified from accumulated other comprehensive income into incomeGain (loss) recognized in other comprehensive income on derivative(Loss) gain reclassified from accumulated other comprehensive income into incomeLocation of (loss) gain reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances$26,357 $Interest Expense$2,525 $Interest Expense
Interest rate swap on money market deposit account payments3,763 (406)Interest Expense(3,936)(215)Interest Expense
Commercial loan interest rate floor866 Interest Income475 831 Interest Income
Interest rate swaps on customer loan interest payments5,552 216 Interest Income
Total$35,672 $676 $(936)$616 
Derivatives not designated as hedging instruments:Net gain recognized in other noninterest incomeNet gain recognized in other noninterest income
Interest rate swaps, caps and collars$190 $576 
Cash Flow Hedges
    Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, floors, caps and collars to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans.
In March 2021, the Company entered into three fixed receive/pay variable interest rate swaps, each with a notional amount of $125,000, to hedge the variability of cash flow payments attributable to changes in interest rates in regards to forecasted of three-month attributable to changes in interest rates in regards to forecasted money market account borrowings from March 2021 through March 2028 and March 2021 through March 2031.
In March 2020, the Company entered into an interest rate swap for a notional amount of $500,000 to hedge the variability of cash flow payments attributable to changes in interest rates in regards to forecasted issuances of three-month term debt arrangements every three months from March 2022 through March 2032. These forecasted borrowings can be sourced from a FHLB advance, repurchase agreement, brokered certificate of deposit or some combination of these sources.combination. This interest rate swap was terminated on February 24, 2021. The pre-tax gain of $43,900, resulting from the termination of the interest rate swap, will remain in other comprehensive income (loss) and will be accreted over a 10-year10 year period starting in March 2022 unless the forecasted transactions become probable of not occurring. The gain accreted into income during the three months months ended March 31, 2022 was $264.

28


In March 2020, the Company entered into an interest rate swap for a notional amount of $250,000 to hedge the variability of cash flow payments attributable to changes in interest rates in regards to forecasted money market account borrowings from March 2020 through March 2025.

    In May 2019, the Company entered into a $275,000 notional interest rate floor for commercial loans with a two-year term. The interest rate floor had a purchased floor strike of 2.43%. In February 2020, the Company terminated this interest rate
32


floor. The gain resulting from the termination of the interest rate floor will remain in other comprehensive income (loss) and will be accreted into earnings over the remaining period of the former hedging relationship unless the forecasted transaction becomes probable of not occurring.
Interest Rate Swap, Floor, Cap and Collar Agreements Not Designated as Hedging Derivatives
    In order to accommodate the borrowing needs of certain commercial customers, the Company has entered into interest rate swap or cap agreements with those customers. These interest rate derivative contracts effectively allow the Company’s customers to convert a variable rate loan into a fixed rate loan. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on the Company’s results of operations. The fair value amounts are included in other assets and other liabilities.
29


The following is a summary of the interest rate swaps, caps and collars outstanding as of June 30, 2021March 31, 2022 and December 31, 2020.2021.
 June 30, 2021
 Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:     
Customer interest rate derivative:     
Interest rate swaps - receive fixed/pay floating$240,912 3.140% - 8.470%LIBOR 1 month + 0% - 5.00%
Wtd. Avg.
5.0 years
$(6,072)
Interest rate caps and collars$41,916 2.500% / 3.000%LIBOR 1 month + 0%-
Wtd. Avg.
1.1 years
$
Correspondent interest rate derivative:     
Interest rate swaps - pay fixed/receive floating$240,912 3.140% - 8.470%LIBOR 1 month + 0% - 5.00%
Wtd. Avg.
5.0 years
$5,753 
Interest rate caps and collars$41,916 3.000% / 5.000%LIBOR 1 month + 0%
Wtd. Avg.
1.1 years
$(1)
December 31, 2020
Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating$303,918 3.140% - 8.470%
LIBOR 1 month + 0% - 5.00%
PRIME H15 - 0.250%
Wtd. Avg.
4.1 years
$(11,666)
Interest rate caps and collars$41,916 2.500% / 3.000%LIBOR 1 month + 0%
Wtd. Avg.
1.6 years
$
Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating$303,918 3.140% - 8.470%
LIBOR 1 month + 0% - 5.00%
PRIME H15 - 25
Wtd. Avg.
4.1 years
$10,937 
Interest rate caps and collars$41,916 3.000% / 5.000%LIBOR 1 month + 0% - 2.5%
Wtd. Avg.
1.6 years
$(1)

33


 March 31, 2022
 Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:     
Customer interest rate derivative:     
Interest rate swaps - receive fixed/pay floating$403,389 2.970% - 8.470%
LIBOR 1 month + 2.2% - 5%
SOFR CME 1 month + 2.1% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.6 years
$(15,038)
Interest rate cap$33,716 3.000%LIBOR 1 month + —%
Wtd. Avg.
0.4 years
$(1)
Correspondent interest rate derivative:     
Interest rate swaps - pay fixed/receive floating$403,389 2.970% - 8.470%
LIBOR 1 month + 2.2% - 5%
SOFR CME 1 month + 2.1% - 3.75%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.6 years
$15,114 
Interest rate cap$33,716 3.000%LIBOR 1 month + —%
Wtd. Avg.
0.4 years
$
December 31, 2021
Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating$379,787 2.970% - 8.470%
LIBOR 1 month + 2.200% - 5.000%
SOFR CME 1 month + 2.480% - 2.900%
SOFR-NYFD 30 day avg + 2.500% - 2.964%
Wtd. Avg.
4.8 years
$1,820 
Interest rate caps$41,916 3.000% / 5.000%LIBOR 1 month + —% - 2.500%
Wtd. Avg.
0.6 years
$
Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating$379,787 2.970% - 8.470%
LIBOR 1 month + 2.200% - 5.000%
SOFR CME 1 month + 2.480% - 2.900%
SOFR-NYFD 30 day avg + 2.500% - 2.964%
Wtd. Avg.
4.8 years
$(1,972)
Interest rate caps$41,916 2.500% / 3.000%LIBOR 1 month + —%
Wtd. Avg.
0.6 years
$(1)



30


8. Off-Balance Sheet Loan Commitments
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, MW commitments and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets.
The Company’s exposure to credit loss in the event of nonperformance by the other party to a financial instrument for commitments to extend credit, MW commitments and standby and commercial letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The following table sets forth the approximate amounts of these financial instruments as of June 30, 2021March 31, 2022 and December 31, 2020:2021:
June 30,December 31, March 31,December 31,
20212020 20222021
Commitments to extend creditCommitments to extend credit$3,599,961 $2,743,571 Commitments to extend credit$4,021,956 $3,809,509 
MW commitmentsMW commitments575,657 354,603 MW commitments844,415 716,370 
Standby and commercial letters of creditStandby and commercial letters of credit53,877 44,427 Standby and commercial letters of credit75,495 65,881 
TotalTotal$4,229,495 $3,142,601 Total$4,941,866 $4,591,760 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer’s creditworthiness on a case-by-case basis and substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of future loan funding. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower.
MW commitments are unconditionally cancellable and represent the unused capacity on MW facilities the Company has approved. The Company reserves the right to refuse to buy any mortgage loans offered for sale by a customer, for any reason, at the Company’s sole and absolute discretion.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby and commercial letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s policy for obtaining collateral and the nature of such collateral is substantially the same as that involved in making commitments to extend credit.
The table below presents the activity in the allowance for unfunded commitment credit losses related to those financial instruments discussed above. This allowance is recorded in accounts payable and other liabilities on the condensed consolidated balance sheets:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2021202020212020 20222021
Beginning balance for ACL on unfunded commitmentsBeginning balance for ACL on unfunded commitments$10,177 $5,599 $10,747 $878 Beginning balance for ACL on unfunded commitments$9,266 $10,747 
Impact of CECL adoption840 
Provision for credit losses on unfunded commitments577 2,799 6,680 
Provision (benefit) for credit losses on unfunded commitmentsProvision (benefit) for credit losses on unfunded commitments493 (570)
Ending balance of ACL on unfunded commitmentsEnding balance of ACL on unfunded commitments$10,754 $8,398 $10,754 $8,398 Ending balance of ACL on unfunded commitments$9,759 $10,177 

3431


9. Stock-Based Awards
2010 Stock Option and Equity Incentive Plan (“2010 Incentive Plan”)
    The Company recognized 0no stock compensation expense related to the 2010 Incentive Plan for the three and six months ended June 30, 2021March 31, 2022 and 2020.2021.
A summary of option activity under the 2010 Incentive Plan for the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, and changes during the periods then ended, is presented below:
2010 Incentive Plan2010 Incentive Plan
Non-Performance Based Stock Options
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2020257,500 $10.28 1.37 years
Exercised(207,500)10.14 
Outstanding and exercisable at June 30, 202050,000 $10.84 1.98 years
Non-Performance Based Stock Options
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2021Outstanding at January 1, 202120,000 $10.09 1.06 years$374 Outstanding at January 1, 202120,000 $10.09 1.06
ExercisedExercised(18,550)10.00 Exercised(18,300)10.00 
Outstanding and exercisable at June 30, 20211,450 $10.39 1.48 years$136 
Outstanding and exercisable at March 31, 2021Outstanding and exercisable at March 31, 20211,700 $10.37 1.69
Outstanding at January 1, 2022Outstanding at January 1, 20221,000 $10.43 1.07$147 
Outstanding and exercisable at March 31, 2022Outstanding and exercisable at March 31, 20221,000 $10.43 1.07$68 

As of June 30, 2021,March 31, 2022, December 31, 20202021 and June 30, 2020March 31, 2021 there was 0no unrecognized stock compensation expense related to non-performance based stock options.
    A summary of the fair value of the Company’s stock options exercised under the 2010 Incentive Plan for the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 is presented below:
Fair Value of Options Exercised as of June 30,
 20212020
Nonperformance-based stock options exercised552 5,851 
Fair Value of Options Exercised as of March 31,
 20222021
Nonperformance-based stock options exercised— 543 
2019 Amended Plan and Green Acquired Omnibus Plans
20212022 Grants of RSUsRestricted Stock Units
    During the sixthree months ending June 30, 2021,March 31, 2022, the Company granted non-performance-based RSUs and performance-based RSUsrestricted stock units (“PSUs”) under the 2019 Amended and Restatement Omnibus Incentive Plan (the “2019 Amended Plan”) and the Veritex (Green) 2014 Omnibus Equity Incentive Plan (the “Veritex (Green) 2014 Plan”). The majority of the RSUs granted to employees during the sixthree months ending June 30, 2021 withMarch 31, 2022 have an annual graded vesting over a three year period from the grant date.
    The PSUs granted in February 20212022 are subject to a service, performance and market condition. The performance and market condition determine the number of awards to vest. The service period is from February 1, 20212022 to January 31, 2024,2025, the performance condition performance period is from January 1, 20212022 to December 31, 20232024 and the market condition performance period is from February 1, 20212022 to January 31, 2024.2025. A Monte Carlo simulation was used to estimate the fair value of PSUs on the grant date.
35


Stock Compensation Expense
Stock compensation expense for options, RSUs and PSUs granted under the 2019 Amended Plan and the Veritex (Green) 2014 Plan were as follows:
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
2019 Amended Plan$2,202 $1,392 $4,183 $2,880 
Veritex (Green) 2014 Plan490 453 987 923 
32


Three Months Ended March 31,
 20222021
2019 Amended Plan$2,904 $1,981 
Veritex (Green) 2014 Plan414 497 
2019 Amended Plan
A summary of the status of the Company’s stock options under the 2019 Amended Plan as of June 30,March 31, 2022 and 2021, and 2020, and changes during the sixthree months then ended, is as follows:
2019 Amended Plan 2019 Amended Plan
Non-performance Based Stock Options Non-performance Based Stock Options
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2020849,768 $23.61 8.24 years
Granted170,025 27.31 
Forfeited(22,456)28.00 
Exercised(33,439)19.19 
Outstanding at June 30, 2020963,898 $24.32 8.08 years
Options exercisable at June 30, 2020487,983 $24.21 7.31 years
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2021Outstanding at January 1, 2021975,801 $24.26 7.45 years$2,422 Outstanding at January 1, 2021975,801 $24.26 0
GrantedGranted500 36.54 Granted— — 
ForfeitedForfeited(13,996)25.93 Forfeited(13,996)25.93 
ExercisedExercised(133,252)22.95 Exercised(71,479)23.03 
Outstanding at June 30, 2021829,053 $24.46 7.31 years$9,083 
Options exercisable at June 30, 2021515,903 $24.57 6.82 years$5,593 
Weighted average fair value of options granted during the period$36.54 
Outstanding at March 31, 2021Outstanding at March 31, 2021890,326 $24.34 7.54
Options exercisable at March 31, 2021Options exercisable at March 31, 2021560,176 $24.31 7.07
Outstanding at January 1, 2022Outstanding at January 1, 2022710,043 $24.38 00
ExercisedExercised(38,128)23.34 
Outstanding at March 31, 2022Outstanding at March 31, 2022671,915 $24.44 6.65$9,226 
Options exercisable at March 31, 2022Options exercisable at March 31, 2022518,237 $24.45 6.35$7,108 

As of June 30, 2021,March 31, 2022, December 31, 20202021 and June 30, 2020, March 31, 2021, there was $1,635, $2,470 $626, $803 and $3,206$2,047 of total unrecognized compensation expense related to options awarded under the 2019 Amended Plan, respectively. The unrecognized compensation expense at June 30, 2021March 31, 2022 is expected to be recognized over the remaining weighted average requisite service period of 1.130.92 years.

36



A summary of the status of the Company’s RSUs under the 2019 Amended Plan as of June 30,March 31, 2022 and 2021, and 2020, and changes during the sixthree months then ended, is as follows:
2019 Amended Plan 2019 Amended Plan
Non-performance-Based
RSUs RSUs
UnitsWeighted
Average
Grant Date
Fair Value
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2020175,688 $21.65 
Outstanding at January 1, 2021Outstanding at January 1, 2021441,132 $20.39 
GrantedGranted232,149 26.38 
Vested into sharesVested into shares(41,362)23.29 
Outstanding at March 31, 2021Outstanding at March 31, 2021631,919 $22.40 
Outstanding at January 1, 2022Outstanding at January 1, 2022598,051 $23.39 
GrantedGranted328,900 26.55 Granted169,355 40.77 
Vested into sharesVested into shares(66,874)24.75 Vested into shares(96,141)24.69 
ForfeitedForfeited(470)29.13 Forfeited(2,350)26.12 
Outstanding at June 30, 2020437,244 $24.83 
Outstanding at January 1, 2021441,132 $20.39 
Granted232,649 26.40 
Vested into shares(64,710)24.27 
Forfeited(8,981)26.29 
Outstanding at June 30, 2021600,090 $22.21 
Outstanding at March 31, 2022Outstanding at March 31, 2022668,915 $27.59 

33


A summary of the status of the Company’s PSUs under the 2019 Amended Plan as of June 30,March 31, 2022 and 2021, and 2020, and changes during the sixthree months then ended, is as follows:
2019 Amended Plan 2019 Amended Plan
Performance-Based
PSUs PSUs
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 202063,727 $22.76 
Granted39,398 29.13 
Vested into shares(1,841)26.65 
Outstanding at June 30, 2020101,284 $25.22 
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2021Outstanding at January 1, 2021100,195 $23.20 Outstanding at January 1, 2021100,195 $23.20 
GrantedGranted56,276 25.94 Granted56,276 26.12 
Outstanding at June 30, 2021156,471 $24.17 
Outstanding at March 31, 2021Outstanding at March 31, 2021156,471 $24.23 
Outstanding at January 1, 2022Outstanding at January 1, 2022156,471 $24.17 
GrantedGranted39,429 40.38 
Incremental PSUs granted upon performance condition metIncremental PSUs granted upon performance condition met31,655 0
Vested into sharesVested into shares(94,991)21.49 
Outstanding at March 31, 2022Outstanding at March 31, 2022132,564 $30.15 
As of June 30, 2021,March 31, 2022, December 31, 20202021 and June 30, 2020March 31, 2021 there was $12,280, $8,222$16,882, $10,413 and $10,038$14,217 of total unrecognized compensation related to RSUs and PSUs awarded under the 2019 Amended Plan, respectively. The unrecognized compensation expense at June 30, 2021March 31, 2022 is expected to be recognized over the remaining weighted average requisite service period of 2.262.31 years.
    A summary of the fair value of the Company’s stock options exercised, RSUs and PSUs vested under the 2019 Amended Plan during the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 is presented below:
Fair Value of Options Exercised, RSUs or PSUs Vested in the Six Months Ended June 30,Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
20212020 20222021
Non-performance-based stock options exercisedNon-performance-based stock options exercised4,286 943 Non-performance-based stock options exercised1,562 2,090 
RSUs vestedRSUs vested1,986 100 RSUs vested2,524 1,113 
PSUs vestedPSUs vested18 PSUs vested2,270 — 
3734



Veritex (Green) 2014 Plan
A summary of the status of the Company’s stock options under the Veritex (Green) 2014 Plan as of June 30,March 31, 2022 and 2021, and 2020, and changes during the sixthree months then ended, is as follows:
 Non-performance Based Stock Options
 Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2020386,969 $19.30 7.86 years0
Granted31,075 29.13 
Forfeited(27,070)21.38 
Exercised(34,476)19.54 
Outstanding at June 30, 2020356,498 $19.95 7.53 years
Options exercisable at June 30, 2020214,342 $17.87 6.65 years
Outstanding at January 1, 2021352,000 $19.99 6.97 years$2,124 
Forfeited(4,251)21.38 
Exercised(59,522)19.50 
Outstanding at June 30, 2021288,227 $20.07 6.49 years$4,447 
Options exercisable at June 30, 2021217,031 $18.89 6.05 years$3,585 
 Non-performance Based Stock Options
 Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2021352,000 $19.99 0
Forfeited(3,960)21.38 
Exercised(54,241)19.77 
Outstanding at March 31, 2021293,799 $20.01 6.65
Options exercisable at March 31, 2021222,312 $18.84 6.19
Outstanding at January 1, 2022217,804 $19.62 6.13$4,424 
Exercised(28,622)21.34 
Outstanding at March 31, 2022189,182 $19.37 5.57$3,595 
Options exercisable at March 31, 2022180,830 $18.81 5.45$3,501 

As of June 30, 2021,March 31, 2022, December 31, 20202021 and June 30, 2020,March 31, 2021, there was $349, $626,$75, $100, and $910$497 of total unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan, respectively. The unrecognized compensation expense at June 30, 2021March 31, 2022 is expected to be recognized over the remaining weighted average requisite service period of 0.660.76 years.

3835



A summary of the status of the Company’s RSUs under the Veritex (Green) 2014 Plan as of June 30,March 31, 2022 and 2021 and 2020 and changes during the sixthree months then ended, is as follows:

RSUsRSUs
UnitsWeighted
Average
Grant Date
Fair Value
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2020116,250 $21.38 
Granted93,918 28.47 
Vested into shares(38,744)29.13 
Forfeited(4,402)29.13 
Outstanding at June 30, 2020167,022 $25.33 
Outstanding at January 1, 2021Outstanding at January 1, 2021156,187 $22.64 Outstanding at January 1, 2021156,187 $21.15 
GrantedGranted5,692 26.12 Granted5,692 26.12 
Vested into sharesVested into shares(33,335)21.38 Vested into shares(33,335)21.38 
ForfeitedForfeited(3,119)24.99 Forfeited(2,646)24.25 
Outstanding at June 30, 2021125,425 $21.22 
Outstanding at March 31, 2021Outstanding at March 31, 2021125,898 $21.25 
Outstanding at January 1, 2022Outstanding at January 1, 2022122,784 $21.13 
GrantedGranted4,231 40.38 
Vested into sharesVested into shares(32,931)21.80 
ForfeitedForfeited(2,558)29.13 
Outstanding at March 31, 2022Outstanding at March 31, 202291,526 $21.55 

A summary of the status of the Company’s PSUs under the Veritex (Green) 2014 Plan as of June 30,March 31, 2022 and 2021 and 2020 and changes during the sixthree months then ended, is as follows:
PSUs PSUs
UnitsWeighted
Average
Grant Date
Fair Value
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 202025,320 $21.38 
Granted8,531 29.13 
Outstanding at June 30, 202033,851 $23.33 
Outstanding at January 1, 2021Outstanding at January 1, 202130,728 $21.43 Outstanding at January 1, 202130,728 $21.43 
GrantedGranted6,231 25.94 Granted6,231 26.12 
ForfeitedForfeited(1,060)19.69 Forfeited(724)19.69 
Outstanding at June 30, 202135,899 $22.26 
Outstanding at March 31, 2021Outstanding at March 31, 202136,235 $22.27 
Outstanding at January 1, 2022Outstanding at January 1, 202235,899 $22.26 
GrantedGranted4,411 40.38 
Incremental PSUs granted upon performance condition metIncremental PSUs granted upon performance condition met10,566 0
Vested into sharesVested into shares(31,703)19.69 
Outstanding at March 31, 2022Outstanding at March 31, 202219,173 $29.26 
As of June 30, 2021,March 31, 2022, December 31, 20202021 and June 30, 2020,March 31, 2021, there was $2,005, $2,484, and $3,249,$1,399, $1,252, and $2,429, respectively, of total unrecognized compensation related to outstanding RSUs and PSUs awarded under the Veritex (Green) 2014 Plan to be recognized over a remaining weighted average requisite service period of 1.672.13 years.
3936


    A summary of the fair value of the Company’s stock options exercised and RSUs vested under the Veritex (Green) 2014 Plan during the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 presented below:
Fair Value of Options Exercised or RSUs Vested in the Six Months Ended June 30,Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
20212020 20222021
Non-performance-based stock options exercisedNon-performance-based stock options exercised$1,757 $1,001 Non-performance-based stock options exercised$1,143 $1,582 
RSUs vestedRSUs vested855 142 RSUs vested718 713 
PSU vestedPSU vested624 — 
Green 2010 Plan
In addition to the Veritex (Green) 2014 Plan discussed earlier in this Note, the Company assumed the Green Bancorp Inc. 2010 Stock Option Plan (“Green 2010 Plan”).
A summary of the status of the Company’s stock options under the Green 2010 Plan as of June 30,March 31, 2022 and 2021, and 2020, and changes during the sixthree months then ended, is as follows:
Green 2010 Plan Green 2010 Plan
Non-performance Based Stock Options Non-performance Based Stock Options
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2020571,735 $10.64 1.74 years
Exercised(440,652)10.35 
Outstanding at June 30, 2020131,083 $11.60 5.41 years
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2021Outstanding at January 1, 2021131,083 $11.60 4.90 years$1,843 Outstanding at January 1, 2021131,083 $11.60 
ExercisedExercised(62,742)10.51 Exercised(62,000)10.50 
Outstanding at June 30, 202168,341 $12.60 2.67 years$1,559 
Outstanding at March 31, 2021Outstanding at March 31, 202169,083 $12.59 2.90
Outstanding at January 1, 2022Outstanding at January 1, 202266,143 $12.56 
ExercisedExercised(1,372)13.07 
Outstanding at March 31, 2022Outstanding at March 31, 202264,771 $12.55 1.95$1,659 
A summary of the fair value of the Company’s stock options exercised under the Green 2010 Plan during the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 presented below:
Fair Value of Options Exercised as of June 30,
 20212020
Nonperformance-based stock options exercised1,838 12,231 
Fair Value of Options Exercised as of March 31,
 20222021
Nonperformance-based stock options exercised56 1,812 

10. Income Taxes
    Income tax expense for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 was as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
2021202020212020 20222021
Income tax expense for the periodIncome tax expense for the period$7,837 $3,987 $16,830 $3,303 Income tax expense for the period$8,102 $8,993 
Effective tax rateEffective tax rate21.0 %14.2 %21.6 %10.5 %Effective tax rate19.5 %22.1 %
For the three months ended June 30, 2021,March 31, 2022, the Company had an effective tax rate of 21.0%19.5%. The Company had a net discrete tax benefit of $115 related to$992 associated with the recognition an excess tax benefit realized on share-based payment awards during the three months ended June 30,March 31, 2022. Excluding this discrete tax item, the Company had an effective tax rate of 21.9% for the three months ended March 31, 2022.
37


For the three months ended March 31, 2021, the Company had an effective tax rate of 22.1%. The Company had a net discrete tax expense of $272 associated with the recognition of a $426 true-up of a deferred tax liability and $154 in excess tax benefit realized on share-based payment awards during the three months ended March 31, 2021. Excluding this discrete tax item, the Company had an effective tax rate of 21.3%21.4% for the three months ended June 30,March 31, 2021.
40


For the six months ended June 30, 2021, the Company had an effective tax rate of 21.6%. The Company had a net discrete tax expense of $157. This discrete tax expense related to a true-up of a deferred tax liability of $426 offset by $269 of an excess tax benefit realized on share-based payment awards during six months ended June 30, 2021. Excluding these discrete tax items, the Company had an effective tax rate of 21.4% for the six months ended June 30, 2021.
For the three and six months ended June 30, 2020, the Company had an effective tax rate of 14.2% and 10.5%, respectively. The decrease in the effective tax rate during the three months ended was primarily due to a net discrete tax benefit of $1,799 as a result of the Company amending a prior year Green Bancorp, Inc. (“Green”) tax return to carry back a net operating loss ("NOL") incurred by Green on January 1, 2019. The Company was allowed to carry back this NOL as result of a provision in the CARES Act that permits NOLs generated in tax years 2018, 2019 or 2020 to be carried back five years. In addition to this, during the six months ended June 30, 2020, the Company recognized a net discrete tax benefit of $1,423 primarily associated with the recognition of excess tax benefit realized on share-based payment awards. Excluding these discrete tax items, the Company had an effective tax rate of 20.7% and 20.9% for the three and six months ended June 30, 2020.

11. Legal Contingencies
Litigation
The Company may from time to time be involved in legal actions arising from normal business activities. In the opinion of management, there are no claims for which it is reasonably possible that an adverse outcome would have a material effect on the Company's financial position, liquidity or results of operations. The Company is not aware of any material unasserted claims.

12. Capital Requirements and Restrictions on Retained Earnings
Under applicable U.S. banking laws, there are legal restrictions limiting the amount of dividends the Company can declare. Approval of the regulatory authorities is required if, among other things, the effect of the dividends declared would cause regulatory capital of the Company to fall below specified minimum levels.
The Company on a consolidated basis and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements triggers certain mandatory actions and may lead to additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (“PCA”), the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and if the Bank were not eligible for or did not opt into the Community Bank Leverage Ratio (“CBLR”) framework, certain off-balance sheet items as calculated under regulatory accounting practices. If the Company were not eligible for or did not opt into the CBLR framework, itsThe Bank’s capital amounts and PCA classification wouldare also be subject to qualitative judgments by the regulators about components of capital, risk weightings of assets, and other factors. In addition, an institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.

Under the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 and implementing regulations of the federal banking agencies, certain banking organizations with less than $10 billion in total consolidated assets may elect to satisfy a single Community Bank Leverage Ratio (“CBLR”) of Tier 1 capital to average total consolidated assets in lieu of the generally applicable capital requirements of the capital rules implementing Basel III. Accordingly, if we andBanks meeting all of the Bank continue to meet all requirements under this framework we and the Bank willare not be required to report or calculate risk-based capital, and the Bank will be considered to have met the well-capitalized ratio requirements under PCA regulations. The federal banking agencies have finalized the CBLR minimum at 9% and we and the Bank exceed this standard. The CARES Act temporarily reduced the CBLR to 8% until the earlier of December 31, 2020 or the expiration of the national emergency declaration, and rules issued by the federal banking agencies provide a graduated transition back to the 9% threshold by January 1, 2022. The Bank was eligible and elected to use the CBLR framework as of December 31, 20202020; however, the Bank was no longer eligible to use the CBLR framework beginning as of June 30, 2021.

41


If we were not eligible for or did not opt intoAs a result of our no longer using the CBLR framework, we would beare subject to othervarious quantitative measures established by regulation to ensure capital adequacy. These generally applicable capital requirements require a banking organization that does not operate under the CBLR framework to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The capital rules implementing Basel III also include a “capital conservation buffer” of 2.5% on top of each of the minimum risk-based capital ratios, and a banking organization with any risk-based capital ratio that meets or exceeds the minimum requirement but does not meet the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments based on the amount of the shortfall. Additionally, to be categorized as “well capitalized,” a banking organizationbank that does not operate under the CBLR framework is required to maintain minimum total risk-based common equity Tier 1, Tier 1, and total capital ratios and Tier 1 leverage ratios as set forth in the table below.

As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company’s and the Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” if the Company and the Bank were not operating under the CBLR framework.. There are no conditions or events since June 30, 2021March 31, 2022 that management believes have changed the Company’s category.

In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt the current expected credit losses (“CECL”) methodologyCECL during the 2020 calendar year with the option to delay for two years the estimated impact of
38


CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with the Company’sour adoption of CECL on January 1, 2020, the Company has elected to utilize the five-year CECL transition. As a result, the effects of CECL on the Company’s and the Bank’s regulatory capital will bewas delayed through the year 2021, after whichwith the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024.

42


A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios is presented in the following table:
Actual For Capital 
Adequacy Purposes
 To Be Well
Capitalized Under
PCA Provisions
Actual For Capital 
Adequacy Purposes
 To Be Well
Capitalized Under
PCA Provisions
AmountRatio Amount Ratio Amount Ratio AmountRatio Amount Ratio Amount Ratio
As of June 30, 2021
Total capital (to risk-weighted assets)
As of March 31, 2022As of March 31, 2022
Total capital (to risk-weighted assets “RWA”)Total capital (to risk-weighted assets “RWA”)
CompanyCompany$1,146,015 12.86 %$712,918 8.0 %n/an/aCompany$1,276,341 12.73 %$802,100 8.0 %n/an/a
BankBank1,030,594 11.57 %712,597 8.0 %$890,747 10.0 %Bank1,245,323 12.42 802,140 8.0 $1,002,676 10.0 %
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to RWA)Tier 1 capital (to RWA)
CompanyCompany833,956 9.36 %534,587 6.0 %n/an/aCompany1,016,916 10.14 601,725 6.0 n/an/a
BankBank950,947 10.68 %534,240 6.0 %712,320 8.0 %Bank1,183,396 11.80 601,727 6.0 802,302 8.0 
Common equity tier 1 (to risk-weighted assets)
Common equity tier 1 (to RWA)Common equity tier 1 (to RWA)
CompanyCompany804,619 9.03 %400,973 4.5 %n/an/aCompany987,414 9.84 451,561 4.5 n/an/a
BankBank950,947 10.68 %400,680 4.5 %578,760 6.5 %Bank1,183,396 11.80 451,295 4.5 651,871 6.5 
Tier 1 capital (to average assets)Tier 1 capital (to average assets)Tier 1 capital (to average assets)
CompanyCompany833,956 9.38 %355,632 4.0 %n/an/aCompany1,016,916 10.66 381,582 4.0 n/an/a
BankBank950,947 10.70 %355,494 4.0 %444,368 5.0 %Bank1,183,396 12.41 381,433 4.0 476,791 5.0 
As of December 31, 2020
Total capital (to risk-weighted assets)
As of December 31, 2021As of December 31, 2021
Total capital (to RWA)Total capital (to RWA)
CompanyCompany$1,099,031 13.57 %$647,918 8.0 %n/an/aCompany$1,100,404 11.60 %$758,899 8.0 %n/an/a
BankBank968,481 11.96 %647,813 8.0 %$809,767 10.0 %Bank1,053,871 11.11 758,863 8.0 $948,579 10.0 %
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to RWA)Tier 1 capital (to RWA)
CompanyCompany782,487 9.66 %486,017 6.0 %n/an/aCompany843,585 8.89 569,349 6.0 n/an/a
BankBank884,471 10.92 %485,973 6.0 %647,964 8.0 %Bank994,351 10.48 569,285 6.0 759,047 8.0 
Common equity tier 1 (to risk-weighted assets)
Common equity tier 1 (to RWA)Common equity tier 1 (to RWA)
CompanyCompany753,261 9.30 %364,481 4.5 %n/an/aCompany814,138 8.58 426,995 4.5 n/an/a
BankBank884,471 10.92 %364,480 4.5 %526,471 6.5 %Bank994,351 10.48 426,964 4.5 616,725 6.5 
Tier 1 capital (to average assets)Tier 1 capital (to average assets)Tier 1 capital (to average assets)
CompanyCompany782,487 9.43 %331,914 4.0 %n/an/aCompany843,585 9.05 372,855 4.0 n/an/a
BankBank884,471 10.66 %331,884 4.0 %414,855 5.0 %Bank994,351 10.69 372,068 4.0 465,085 5.0 
    
Dividend Restrictions

Dividends paid by the Bank are subject to certain restrictions imposed by regulatory agencies. Capital requirements further limit the amount of dividends that may be paid by the Bank. NaNNo dividends were paid by the Bank to the Holdco during the three months ended June 30, 2021.March 31, 2022. Dividends of $8,440 were paid by the Bank to the Holdco during the sixthree months ended June 30,March 31, 2021. Dividends of $20,000 and $45,000 were paid by the Bank to the Holdco during the three and six months ended June 30, 2020, respectively.

Dividends of $8,413,$9,913, or $0.17 per outstanding share, and $16,771, or $0.34$0.20 per outstanding share on the applicable record date, were paid by the Company during the three and six months ended June 30, 2021, respectively.March 31, 2022. Dividends of $8,563,$8,358, or $0.17 per outstanding share, and $17,291, or $0.34 per outstanding share on the applicable record date, were paid by the Company during the three and six months ended June 30, 2020, respectivelyMarch 31, 2021.

13. Subsequent Events

4339


On July 16, 2021, theThe Bank completed an investmentis subject to acquirelimitations on dividend payouts if, among other things, it does not have a 49% interest in Thrive Mortgage, LLC (“Thrive”) for $53,900 in cash. As partcapital conservation buffer of the investment, the Company obtained the right to designate one member to Thrive’s board2.5% or more. The Bank had a capital conservation buffer of directors.4.42% as of March 31, 2022.

Thrive, headquartered
13. Business Combinations

NAC

On November 1, 2021, the Company completed its acquisition of NAC. Under this method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair values. The excess cost over fair value of net assets acquired is recorded as goodwill. As the consideration paid for NAC exceeded the provisional value of the net assets acquired, goodwill of $32,931 related to the acquisition was recorded. This goodwill resulted from the combination of expected operational synergies and increased market share in Georgetown, Texas, isthe fragmented USDA lending space. The goodwill will be deducted for tax purposes.

The acquisition makes the Bank a family-owned businessleading player in the USDA Business and Industry lending program. It furthered the Company’s strategy of diversifying revenue streams and providing meaningful gain on sale and loan servicing fees. The Company will leverage NAC’s loan sourcing technology to further enhance the Company’s products and services.

Consideration

Under the terms of the definitive agreement for the acquisition, the Bank paid $57,500 in cash to existing shareholders of NAC. Three years after the transaction, NAC has the right, subject to adjustment, to receive an industry leaderadditional $5,000 in transformingcash subject to certain performance measures. NAC will continue to operate under its current name and brand and in its current office space, as a wholly owned subsidiary of the home financing process intoBank.

Fair Value

The following table presents the amounts recorded on the consolidated balance sheets on the acquisition date of November 1, 2021, showing the estimated fair value as reported at December 31, 2021, the measurement period adjustments and the fair value determined to be final as of March 31, 2022.

Estimate at December 31, 2021Measurement Period AdjustmentsFinal Fair Value
Assets acquired
Cash and cash equivalents1,978 — 1,978 
LHI29,338 (681)28,657 
Servicing asset13,913 — 13,913 
Other assets690 — 690 
45,919 (681)45,238 
Liabilities assumed0
Accounts payable and other accrued expenses16,350 — 16,350 
16,350 — 16,350 
Fair value of net assets acquired29,569 (681)28,888 
Consideration:— 
Cash paid57,500 — 57,500 
Contingent consideration5,000 — 5,000 
Total consideration$62,500 $— $62,500 
Goodwill$32,931 $681 $33,612 

Acquisition-related Expenses

For the three months ended March 31, 2022, the Company incurred no pre-tax merger and acquisition expenses. For the year ended December 31, 2021, the Company incurred $826 of pre-tax merger and acquisition expenses.
40


Acquired Loans and PCD Loans
Acquired loans were recorded at fair value based on a customer centered digital experiencediscounted cash flow valuation methodology that considers, among other things, projected default rates, loss given defaults and isrecovery rates. No ACL was carried over from NAC. The Bank did not identify any acquired PCD loans.

The following table discloses the first company in Texas to close a fully electronic note with a remote notary. Thrive’s markets include, among others, Texas, Ohio, Colorado, Kentucky, North Carolina, Kansas, Virginia, Florida, Marylandfair value and Indiana.contractual value of loans acquired from NAC on November 1, 2021:

Total acquired loans
Commercial$26,519 
Commercial Real Estate2,138 
Total fair value$28,657 
Contractual principal balance$29,338 


Supplemental Pro Forma Information (unaudited)

The following table presents supplemental pro forma information for the years ended December 31, 2020 and 2019 as if the NAC acquisition was completed as of January 1, 2019. The pro forma results combine the historical results of NAC into the Company's consolidated statements of income, including the impact of certain purchase accounting adjustments, including loan discount accretion. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2019:

Year Ended December 31,
20202019
Net interest income$267,331 $286,313 
Net income84,368 93,939 
Basic EPS$1.69 $1.77 
Diluted EPS1.69 1.74 
44
41


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) as well as with our consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. Except where the content otherwise requires or when otherwise indicated, the terms “Veritex,” the “Company,” “we,” “us,” “our,” and “our business” refer to the combined entities of Veritex Holdings, Inc. and its subsidiaries, including Veritex Community Bank.

This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Special Cautionary Notice Regarding Forward-Looking Statements,” may cause actual results to differ materially from the projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements. For additional information concerning forward-looking statements, please read “Special Cautionary Notice Regarding Forward-Looking Statements” below.

Overview

    We are a Texas state banking organization with corporate offices in Dallas, Texas. Through our wholly owned subsidiary, Veritex Community Bank, a Texas state charteredstate-chartered bank, we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals. Beginning at our operational inception in 2010, we initially targeted customers and focused our acquisitions primarily in the Dallas metropolitan area, which we consider to be Dallas and the adjacent communities in North Dallas. Our current primary marketmarkets now includes the broader Dallas-Fort Worth metroplex and the Houston metropolitan area. As we continue to grow, we may expand to other metropolitan banking markets in Texas.

    Our business is conducted through one reportable segment, community banking, which generates the majority of our revenues from interest income on loans, customer service and loan fees, gains on sale of government guaranteed loans and mortgage loans and interest income from securities. We incur interest expense on deposits and other borrowed funds and noninterest expense, such as salaries, employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through net interest margin. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets.

    Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, and interest-bearing and noninterest-bearing liabilities, 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 our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas and, specifically, in the Dallas-Fort Worth metroplex and Houston metropolitan area, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target marketmarkets and throughout the state of Texas.

Recent Developments

Impact of COVID-19 Effects, Actions and Recent Developments

TheOverview. Our business has been, and continues to be, impacted by the outbreak of COVID-19. In March 2020, COVID-19 was declared a pandemic has createdby the World Health Organization and a globalnational emergency by the President of the United States. Efforts to limit the spread of COVID-19 have included quarantines/shelter-in-place orders, the closure or limiting capacity of businesses, travel restrictions, supply chain limitations and prohibitions on public health crisis that has resulted in continued unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity ingatherings, among other things, throughout many parts of the United States and, globally, includingin particular, the markets thatin which we serve. Possible additional waves ofoperate. As the current pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, variant strains thereof, may adversely affectamong other things, its severity; the re-opening process. Conversely, ongoing virus containment effortsduration of the outbreak; the impact to our customers, employees and vaccination progress, as well asvendors; the possibility of further government stimulus, could accelerateimpact to the macroeconomic recovery.

financial services and
4542


We havebanking industry; and the impact to the economy as a whole as well as the effect of actions taken, deliberateor that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). COVID-19 has negatively affected, and is expected to continue to affect, our business, financial position and operating results. In light of the uncertainties and continuing developments discussed herein, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material. The longer-term potential impact on our business could depend to a large extent on future developments and actions taken by authorities and other entities to ensure thatcontain COVID-19 and its economic impact. Furthermore, the sustainability of the economic recovery observed in 2021 remains unclear and significant volatility could continue for a prolonged period as the potential exists for additional variants of COVID-19, including the recent Omicron variant, to impede the global economic recovery and exacerbate geographic differences in the spread of, and response to, COVID-19.

Impact on our Operations. In 2020, the State of Texas and many other jurisdictions declared health emergencies. The resulting closures and/or limited operations of non-essential businesses and related economic disruption impacted our operations as well as the operations of our customers. Financial services were identified as a Critical Infrastructure Sector by the Department of Homeland Security. Accordingly, our business remained open and we haveimplemented our Business Continuity and Health Emergency Response plans to address the balance sheet strengthissues arising as a result of COVID-19 and to servefacilitate the continued delivery of essential services while maintaining a high level of safety for our clients and communities duringcustomers as well as our employees. Nonetheless, as the COVID-19 pandemic including increasing our liquiditycontinues to be on-going, there continues to be uncertainties related to its magnitude, duration and reserves supported by a strong capital position. In order to protectpersistent effects. This is particularly the healthcase with the emergence, contagiousness and threat of our customersnew and employees,different strains of the virus as well as the availability, acceptance and to comply with applicable governmental directives, we implemented our operational response and preparedness plan, which includes,effectiveness of vaccines. As such, the COVID-19 pandemic could still, among other things, dispersiongreatly affect our routine and essential operations due to staff absenteeism, particularly among key personnel; result in limited access to or closures of our branch facilities and other physical offices; exacerbate operational, technical or security-related risks arising from a remote workforce; and result in adverse government or regulatory agency orders. Additionally, we are experiencing an increasingly competitive labor market due to an on-going labor shortage which has impacted and could continue to impact our ability to staff open positions and/or retain existing employees and has resulted in and could continue to result in an increase in our staffing costs. The business and operations of our third-party service providers, many of whom perform critical operation processes, increased monitoring focusedservices for our business, could also be significantly impacted by many of these same issues, which in turn could impact us. As a result, we continue to be unable to fully assess or predict the extent of the effects of COVID-19 on higher riskour operations enhanced remote access securityas the ultimate impact will depend on factors that are currently unknown and/or beyond our control.

Impact on our Financial Position and Results of Operations. Our financial position and results of operations are particularly susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors and the decline in the value of assets held by us. While its effects continue to be on-going, the COVID-19 pandemic resulted in a significant decrease in commercial activity throughout the State of Texas as well as nationally. This decrease in commercial activity caused and, in light of new and different strains of the virus, may yet further cause our customers (including affected businesses and individuals), vendors and counterparties to be unable to meet existing payment or other obligations to us. The national public health crisis arising from the COVID-19 pandemic (and public expectations about it), combined with other factors, including, but not limited to, inflation, labor shortages, supply chain disruption and further restricted internet access, enhanced security around wire transfer executionoil price volatility, could, despite improvements in 2021, again destabilize the financial markets and flexible scheduling providedgeographies in which we operate. The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements could further impact the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect our earnings correlate with deteriorating economic conditions, which, in turn, are likely to employees whoimpact our borrowers’ creditworthiness and our ability to make loans. See further information related to the risk exposure of our loan portfolio under the sections captioned “Loans” and “Allowance for Credit Losses” elsewhere in this discussion.

In addition, the economic pressures and uncertainties arising from the COVID-19 pandemic have resulted in and may continue to result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis and certain industries may take longer to recover (particularly those that rely on travel or large gatherings) as consumers may be hesitant to return to full social interaction. We lend to customers operating in such industries including energy, hotels/lodging, restaurants, entertainment and commercial real estate, among others, that have been significantly impacted by COVID-19 and we are unablecontinuing to work from home.monitor these customers closely. Additionally, the temporary closures of bank branches in 2020 and the safety precautions implemented at re-opened branches could result in consumers becoming more comfortable with technology and devaluing face-to-face interaction. Our business is relationship driven and such changes could necessitate changes to our business practices to accommodate changing consumer behaviors.
43


Legislative and Regulatory Actions. Actions taken by the federal government and the Federal Reserve and other bank regulatory agencies to mitigate the economic effects of COVID-19 have impacted our financial position and results of operations. These actions are further discussed below.

During 2020, in an effort to provide monetary stimulus to counteract the economic disruption caused by COVID-19, the Federal Reserve:

•    Expanded reverse repo operations, adding liquidity to the banking system.
•    Restarted quantitative easing.
•    Lowered the interest rate at the discount window by 1.5% to 0.25%.
•    Reduced reserve requirement ratios to zero percent.
•    Encouraged banks to use their capital and liquidity buffers to lend.
•    Introduced and expanded several new temporary programs to help preserve market liquidity.

On March 27, 2020, the CARESCoronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”), a loan program administered by the SBA.U.S. Small Business Administration (“SBA”). Under the PPP, small businesses, sole proprietorships,proprietorship’s, independent contractors and self-employed individuals maywere eligible to apply for forgivable loans from existing SBA lenders and other approved lenders that enrollenrolled in the program, subject to numerous limitations and eligibility criteria. Subsequent legislation, including as noted below, has allocated additional funding to the PPP. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, provided additional funding for the PPP and allowed eligible borrowers, including certain borrowers who already received a PPP loan, to apply for PPP loans through March 31, 2021. The SBA began accepting PPP applications under the Consolidated Appropriations Act, 2021 on January 13, 2021. The American Rescue Plan Act of 2021, enacted on March 11, 2021, expanded the eligibility criteria for PPP loans and revised the exclusions from payroll costs for purposes of loan forgiveness. The PPP Extension Act of 2021, enacted on March 30, 2021, extended the PPP through May 31, 2021.

Banks and bank holding companies have been particularly impacted by the COVID-19 pandemic as a result of disruption and volatility in the global capital markets. We are closely monitoring the potential for new laws and regulations impacting lending and funding practices as well as capital and liquidity standards. Such changes could require us to maintain significantly more capital, with common equity as a more predominant component, or manage the composition of our assets and liabilities to comply with formulaic liquidity requirements.

Veritex Response. We have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities during the COVID-19 pandemic, including increasing our liquidity and reserves supported by a strong capital position. In order to protect the health of our customers and employees, and to comply with applicable governmental directives, we implemented our operational response and preparedness plan, which includes, among other things, dispersion of critical operation processes, increased monitoring focused on higher risk operations, enhanced remote access security and further restricted internet access, enhanced security around wire transfer execution and flexible scheduling provided to employees who are unable to work from home.

Beginning in early April 2020, we began processing loan applications under the PPP, and in January 2021 we began processing applications under the latest round of the PPP. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. If a loan is fully forgiven, the SBA will repay the lending bank in full. If a loan is partially forgiven or not forgiven at all, a bank must look to the borrower for repayment of unforgiven principal and interest. If the borrower defaults, the loan is guaranteed by the SBA. In order to obtain loan forgiveness, a PPP borrower must submit a forgiveness application. The SBA began approving forgiveness applications on October 2, 2020.

In response to the COVID-19 pandemic, we also implemented a loan deferment program to provide temporary payment relief to certain of our borrowers who meet the program's qualifications. This program allows for a deferral of principal and/or interest payments for 90 days (“Round 1 Deferments”), which we may extend for an additional 90 days (“Round 2 Deferments”), for a maximum of 180 days on a cumulative basis. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. The CARES Act, as amended by the Consolidated Appropriations Act, 2021, specified that COVID-19 related loan modifications executed between March 1, 2020 and the earlier of (i) 60 days after the date of termination of the national emergency declared by the President and (ii) January 1, 2022, on loans that were current as of December 31, 2019 are not TDRs.Additionally, under guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers that were current prior to any relief are not TDRs under ASC Subtopic 310-40, “Troubled Debt Restructuring by Creditors.”These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant.Under the loan deferment program, Company had 12 and 754 modifications of loans in 2021 and 2020, respectively with aggregate principal balances of $4.8 million and $1.1 billion in 2021 and 2020, respectively, that qualified for temporary suspension of TDR requirements under Section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act, 2021, and the interagency guidance. As of June 30, 2021, the Company had 2 loans with an aggregate principal balance of $6.9 million remaining on deferment under Section 4013 of the CARES Act.

Significant uncertainties as toUncertainties in certain future economic conditions exist, and we have taken deliberate actions in response to these uncertainties, including increased levels of on balance sheet liquidity and increased capital ratio levels. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act;Act and the subsequent legislation enacted in connection with the COVID-19 pandemic, as discussed above; however, the extent to which the COVID-19 pandemic will impact our operations and financial results during 2021 is highly uncertain.

Financial position and results of operations

The COVID-19 pandemic had a material impact on our ACL during 2020. Our ACL calculation and resulting provision for credit losses is significantly impacted by changes in the Texas economic forecasts used in the current expected credit losses (“CECL”) model throughout 2020 and 2021 to reflect the expected impact of the COVID-19 pandemic. Should economic conditions worsen, we could experience increases in our ACL and record additional credit loss expense. We could also see an increase in our ratio of past due loans to total loans and an increase in charge-offs related to COVID-19. It is possible that our asset quality measures could worsen at future measurement periods if the effects of the COVID-19 pandemic are further prolonged.

4644


Our fee income could be reduced due to the COVID-19 pandemic. In keeping with guidance from regulators, we are working with customers affected by the COVID-19 pandemic to waive fees from a variety of sources, including, but not limited to, insufficient funds and overdraft fees, ATM fees and account maintenance fees. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 pandemic. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact our fee income in future periods.

Our interest income could also be reduced due to the COVID-19 pandemic and the associated 1.00% yield earned on PPP loans. In keeping with guidance from regulators, we are actively working with borrowers affected by the COVID-19 pandemic to defer their payments, interest, and fees. While interest and fees will still accrue to income, should eventual credit losses on these deferred payments emerge, our interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

Capital and liquidity

As of June 30, 2021,March 31, 2022, all of our and the Bank’s capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by further credit losses. We rely on cash on hand as well as dividends from the Bank to service our debt. If our capital deteriorates such that the Bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.

We maintain access to multiple sources of liquidity. As of June 30, 2021, we have not utilized the PPPLF. Wholesale funding markets have remained open to us with stable and low rates for short term funding. If an economic recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

Asset valuation

Currently, we do not expect the COVID-19 pandemic to affect our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.


Results of Operations for the Three Months Ended June 30,March 31, 2022 and 2021 and 2020

General

    Net income for the three months ended June 30, 2021March 31, 2022 was $29.5$33.5 million, an increase of $5.4$1.7 million, or 22.6%5.3%, from net income of $24.0$31.8 million for the three months ended June 30, 2020.March 31, 2021.
    Basic earnings per share (“EPS”)EPS for the three months ended June 30,March 31, 2022 and 2021 was $0.60, an increase of $0.12 from $0.48 for the three months ended June 30, 2020.$0.66. Diluted EPS for the three months ended June 30, 2021March 31, 2022 was $0.59,$0.65, an increase of $0.11$0.01 from $0.48$0.64 for the three months ended June 30, 2020.
47


March 31, 2021.
Net Interest Income

For the three months ended June 30, 2021,March 31, 2022, net interest income totaled $67.1$73.0 million and net interest margin and net interest spread were 3.11%3.22% and 2.90%3.04%, respectively. For the three months ended June 30, 2020,March 31, 2021, net interest income totaled $65.8$65.6 million and net interest margin and net interest spread were 3.31%3.22% and 3.02%2.99%, respectively. The increase in net interest income was due to a $4.5 million decrease in interest expense, partially offset by a $3.2 million decrease in interest income. The decrease in interest income was primarily due to a $2.6$4.0 million decreaseincrease in interest income on loans due toand a $1.7 million decrease in the average yields earned on loans. The decrease in interest expense resulted from $810 thousand and $4.1 million decreases in interest expenses on interest-bearing demand and savings deposits and certificates and other time deposits, respectively, during the three months ended June 30, 2021 compared to the three months ended June 30, 2020, partially offset by a $1.3 million increase $479 thousand decrease in interest expense on subordinated debentures and subordinated debt. Net interest margin decreased 20 basis points fromdebt and a $229 thousand decrease in interest-bearing demand and savings deposits during the three months ended June 30, 2020March 31, 2022 compared to the three months ended March 31, 2021. Net interest margin was unchanged from 3.22% for the three months ended March 31, 2022 and 2021, primarily due to a decrease in average yields earned on loan balances, partially offset by decreases in the average rate paid on interest-bearing demand and savings deposits and certificate and other time deposits in the three months ended June 30, 2021.March 31, 2022. As a result, the average cost of interest-bearing deposits decreased to 0.35%0.26% for the three months ended June 30, 2021March 31, 2022 from 0.84%0.45% for the three months ended June 30, 2020.March 31, 2021.

For the three months ended June 30, 2021,March 31, 2022, interest expense totaled $9.1$7.3 million and the average rate paid on interest-bearing liabilities was 0.63%0.50%. For the three months ended June 30, 2020,March 31, 2021, interest expense totaled $13.6$10.0 million and the average rate paid on interest-bearing liabilities was 0.97%0.72%. The year-over-year decrease was due to decreases in the average rates paid on interest-bearing demand and savings deposits and certificates and other time deposits and a change in deposit mix.

48


The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rates earned on interest-earning assets, the average rates paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended June 30,March 31, 2022 and 2021, and 2020, interest income not recognized on nonaccrual loans was $255$889 thousand and $536 thousand,$1.1 million, respectively. Any nonaccrual loans have been included in the table as loans carrying a zero yield.
For the Three Months Ended June 30,
20212020
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$6,108,527 $63,427  4.16 %$5,797,989 $67,404  4.68 %
Loans held for investment, MW455,334 3,476 3.06 304,873 2,279 3.01 
PPP loans364,020 911 1.00 303,223 757 1.00 
Debt Securities1,095,678 7,529  2.76  1,117,964 7,825  2.82 
Interest-earning deposits in other banks548,087 167  0.12  366,764 186  0.20 
Equity securities and other investments87,413 672  3.08  110,672 891  3.24 
Total interest-earning assets8,659,059 76,182  3.53  8,001,485 79,342  3.99 
ACL(105,050)   (110,483)  
Noninterest-earning assets767,270   798,772   
Total assets$9,321,279   $8,689,774   
Liabilities and Stockholders’ Equity      
Interest-bearing liabilities:      
Interest-bearing demand and savings deposits$3,191,405 $1,661  0.21 %$2,684,897 $2,471  0.37 %
Certificates and other time deposits1,515,092 2,423 0.64 1,625,971 6,515 1.61 
Advances from FHLB777,655 1,829  0.94  1,206,930 2,801  0.93 
Subordinated debentures and subordinated debt264,931 3,138  4.75  142,549 1,798  5.07 
Total interest-bearing liabilities5,749,083 9,051  0.63  5,660,347 13,585  0.97 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,266,470    1,826,327   
Other liabilities51,355    47,302   
Total liabilities8,066,908    7,533,976   
Stockholders’ equity1,254,371    1,155,798   
Total liabilities and stockholders’ equity$9,321,279   $8,689,774   
Net interest rate spread(2)
  2.9 %  3.02 %
Net interest income$67,131  $65,757  
Net interest margin(3)
 3.11 % 3.31 %
45


For the Three Months Ended March 31,
20222021
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$6,872,943 $68,297  4.03 %$5,897,815 $62,702  4.31 %
LHI, MW421,680 3,069 2.95 510,678 3,815 3.03 
PPP loans31,335 77 1.00 356,356 882 1.00 
Debt Securities1,140,834 7,762  2.76  1,063,538 7,437  2.84 
Interest-earning deposits in other banks554,864 262  0.19  341,483 127  0.15 
Equity securities and other investments190,002 910  1.94  87,178 663  3.08 
Total interest-earning assets9,211,658 80,377  3.54  8,257,048 75,626  3.71 
ACL(77,843)   (105,972)  
Noninterest-earning assets865,107   790,195   
Total assets$9,998,922   $8,941,271   
Liabilities and Stockholders’ Equity      
Interest-bearing liabilities:      
Interest-bearing demand and savings deposits$3,471,645 $1,751  0.20 %$3,038,586 $1,980  0.26 %
Certificates and other time deposits1,501,852 1,380 0.37 1,509,836 3,061 0.82 
Advances from FHLB777,538 1,547  0.81  777,694 1,812  0.94 
Subordinated debentures and subordinated debt231,875 2,659  4.65  265,356 3,138  4.80 
Total interest-bearing liabilities5,982,910 7,337  0.50  5,591,472 9,991  0.72 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,591,504    2,069,233   
Other liabilities67,060    56,272   
Total liabilities8,641,474    7,716,977   
Stockholders’ equity1,357,448    1,224,294   
Total liabilities and stockholders’ equity9,998,922   $8,941,271   
Net interest rate spread(2)
  3.04 %  2.99 %
Net interest income$73,040  $65,635  
Net interest margin(3)
 3.22 % 3.22 %
(1) Includes average outstanding balances of loans held for sale of $14,364$12,769 and $22,958$16,602 for the three months ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, respectively, and average balances of loans held for investment,LHI, excluding MW and PPP loans.
(2) Net interest rate spread is equal to the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets.

4946


The following table presents the 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 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 June 30,
 2021 vs. 2020
 Increase (Decrease) 
 Due to Change in 
VolumeRateTotal
 (In thousands)
Interest-earning assets:
Loans$3,661 $(8,395)$(4,734)
Loans held for investments, MW1,129 68 1,197 
PPP loans— 154 154 
Debt securities(157)(139)(296)
Interest-bearing deposits in other banks90 (109)(19)
Equity securities and other investments(188)(31)(219)
Total increase (decrease) in interest income4,535 (8,452)(3,917)
Interest-bearing liabilities:  
Interest-bearing demand and savings deposits467 (1,277)(810)
Certificates and other time deposits(445)(3,647)(4,092)
Advances from FHLB(999)27 (972)
Subordinated debentures and subordinated notes1,548 (208)1,340 
Total increase (decrease) in interest expense571 (5,105)(4,534)
Increase (decrease) in net interest income$3,964 $(3,347)$617 

 For the Three Months Ended March 31,
 2022 vs. 2021
 Increase (Decrease) 
 Due to Change in 
 VolumeRateTotal
 (In thousands)
Interest-earning assets:
Loans$10,367 $(4,772)$5,595 
LHI, MW(665)(81)(746)
PPP loans(805)— (805)
Debt Securities541 (216)325 
Equity securities and other investments781 (534)247 
Interest-bearing deposits in other banks79 56 135 
Total increase (decrease) in interest income10,298 (5,547)4,751 
Interest-bearing liabilities:  
Interest-bearing demand and savings deposits282 (511)(229)
Certificates and other time deposits(16)(1,665)(1,681)
Advances from FHLB— (265)(265)
Subordinated debentures and subordinated notes(396)(83)(479)
Total decrease in interest expense(130)(2,524)(2,654)
Increase (decrease) in net interest income$10,428 $(3,023)$7,405 
Provision for Credit Losses
Our provision for credit losses is a charge to income in order to bring our ACL to a level deemed appropriate by management. We recorded no provisiona benefit for credit losses of $500 thousand for the three months ended June 30, 2021,March 31, 2022, compared to $16.2 millionno provision or benefit for the same period in 2020, a decrease of $16.2 million, or 100.0%. The decreased provision for credit losses was primarily attributable to changes in the Texas economic forecasts used in the Current Expected Credit Losses (“CECL”) model during2021. For the three months ended June 30, 2021 to reflect the expected impact of the COVID-19 pandemic as of June 30, 2021 compared to the Texas economic forecasts utilized in the CECL model for the three months ended June 30, 2020. Prior to the three months ended June 30, 2021, significant deterioration in these forecasted Texas economic indicators was brought on by the projected economic impact of the COVID-19 pandemic on the reasonable and supportable forecast period. In the second quarter of 2021,March 31, 2022, we also recorded a $577$493 thousand provision for unfunded commitments, which was attributable to higher unfunded balances slightly offset by improving Texas economic forecasts utilized in the unfunded commitments loss rates, compared to a $2.8 million provision for unfunded commitments recorded for the three months ended June 30, 2020.


balances.

5047


Noninterest Income
Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, loan fees, gain on the sale of securities, gains on the sale of mortgage loans, held for sale, government guaranteed loan income, net, equity method investment income, net, and other income. Noninterest income does not include loan origination fees, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.
The following table presents, for the periods indicated, the major categories of noninterest income:
For the   For the  
Three Months Ended June 30,Increase Three Months Ended March 31,Increase
20212020(Decrease) 20222021(Decrease)
(In thousands) (In thousands)
Noninterest income:Noninterest income:Noninterest income:
Service charges and fees on deposit accountsService charges and fees on deposit accounts$3,847 $2,960 $887 Service charges and fees on deposit accounts$4,710 $3,629 $1,081 
Loan feesLoan fees1,823 1,240 583 Loan fees2,794 1,341 1,453 
Gain on sales of securities— 2,879 (2,879)
Gain on sales of mortgage loans held for sale385 308 77 
Gain on sales of mortgage loansGain on sales of mortgage loans307 507 (200)
Government guaranteed loan income, netGovernment guaranteed loan income, net3,448 11,006 (7,558)Government guaranteed loan income, net4,891 6,548 (1,657)
Equity method investment income, netEquity method investment income, net367 — 367 
OtherOther2,953 2,897 56 Other2,028 2,147 (119)
Total noninterest incomeTotal noninterest income$12,456 $21,290 $(8,834)Total noninterest income$15,097 $14,172 $925 

Noninterest income for the three months ended June 30, 2021 decreased $8.8 million,March 31, 2022 increased $925 thousand, or 41.5%6.5%, to $12.5$15.1 million compared to noninterest income of $21.3$14.2 million for the same period in 2020.2021. The primary driversdriver of the decrease wereincrease was as follows:
Service charges and fees on deposit accounts. We earn service charges and fees from our customers for deposit-related activities. The income from these deposit activities constitutes a significant and predictable component of our noninterest income. Service charges and fees on deposit accounts were $3.8$4.7 million for during the three months ended June 30, 2021,March 31, 2022, an increase of $887 thousand$1.1 million or 29.8%, over the same period in 2020.2021. This increase was primarily due to a $580 thousand increaseincreases in analysis charges resulting from additional deposit accounts being servicedof $636 thousand, ATM and debit card fees of $256 thousand, and other fee income of $163 thousand.
Loan fees. We earn certain fees in connection with funding and servicing loans. Loan fees were $2.8 million for the three months ended June 30, 2021March 31, 2022 compared to the same period in 2020.
Gain on sales of securities. There were no sales of securities during the three months ended June 30, 2021 resulting in no gains or losses recognized compared to gains of $2.9$1.3 million for the same period in 2020.2021. The increase of $1.5 million, or 108.4%, was primarily due to increases in syndication fees of $1.0 million and prepayment fees on CRE of $358 thousand.
Government guaranteed loan income, net. Government guaranteed loan income, net, includes non-interest income earned on PPP loans as well as income relatedrelated to the sales of government guaranteed loans.loans. The decrease in government guaranteed loan income, net, of $7.6$1.7 million fromor 25.3% was primarily due to the decrease of $6.6 million in fees earned on PPP loans for the three months ended June 30, 2020 to the three months ended June 30,March 31, 2021 was driven by a $11.5 million decrease in fee income earned onwith no corresponding PPP loansloan originations during the three months ended June 30, 2021 compared the same period in 2020, partiallyMarch 31, 2022. This decrease is offset by a $2.6an increase of $4.2 million increase inon the valuation of PPP loans held at fair value and a $2.0 million increase in gain on sale of SBA and USDA loans, as well as an increase of $729 thousand in loan valuations during the three months ended June 30,March 31, 2022, compared to the same period in 2021.

5148


Noninterest Expense
Noninterest expense is composed of all employee expenses and costs associated with operating our facilities, acquiring and retaining customer relationships and providing bank services. The major component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of office equipment, professional fees and regulatory fees, data processing and software expenses, marketing expenses and amortization of intangibles.
The following table presents, for the periods indicated, the major categories of noninterest expense:
 For the Three Months Ended June 30,Increase (Decrease)
 20212020
 (In thousands)
Salaries and employee benefits$23,451 $20,019 $3,432 
Non-staff expenses:
Occupancy and equipment4,233 3,994 239 
Professional and regulatory fees3,086 2,796 290 
Data processing and software expense2,536 2,434 102 
Marketing1,841 561 1,280 
Amortization of intangibles2,517 2,696 (179)
Telephone and communications337 308 29 
COVID expenses— 1,245 (1,245)
Other3,716 6,008 (2,292)
Total noninterest expense$41,717 $40,061 $1,656 
Noninterest expense for the three months ended June 30, 2021 increased $1.7 million, or 4.1%, to $41.7 million compared to noninterest expense of $40.1 million for the three months ended June 30, 2020. The most significant components of the increase were as follows:

Salaries and employee benefits. Salaries and employee benefits include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. These expenses are impacted by the amount of direct loan origination costs, which are required to be deferred in accordance with ASC 310-20 (formerly FAS91). Salaries and employee benefits were $23.5 million for the three months ended June 30, 2021, an increase of $3.4 million, or 17.1%, compared to the same period in 2020. The increase was primarily attributable to an increase in accrued employee bonus of $1.6 million, an increase in salaries of $1.4 million and an increase in employee stock based compensation of $786 thousand for the three months ended June 30, 2021 as compared to the same period in 2020. This increase was offset by an increase of $828 thousand in direct loan origination costs which are required to be deferred in accordance with ASC 310-20.
Marketing. This category of expenses includes expenses related to advertising and promotions, which increased $1.3 million for the three months ended June 30, 2021 compared to the same period in 2020. This increase is primarily due to $842 thousand increase in annual sponsorship fees.
COVID expenses. This category of expenses includes expenses related to the COVID-19 pandemic. There were no COVID-19 pandemic related expenses for the three months ended June 30, 2021 compared to $1.3 million for the three months ended June 30, 2020 that primarily related to PPP incentive compensation of $500 thousand, Community Reinvestment Act (“CRA”) donations of $406 thousand, employee salaries of $273 thousand and janitorial expenses of $22 thousand.

Other noninterest expense. This category includes loan and collection expenses, supplies and printing, postage, automatic teller and online expenses and other miscellaneous expenses. Other noninterest expense was $3.7 million for the three months ended June 30, 2021 compared to $6.0 million for the same period in 2020, a decrease of $2.3 million, or 38.1%. This decrease was primarily due to a decrease in bank service charges resulting from pre-payment fees on FHLB advances paid off early of $1.6 million during the three months ended June 30, 2020 with no corresponding expense during the same period in 2021. The decrease was also driven by a decrease in problem loan fees of $1.1 million during the three months ended June 30, 2021 as compared to the same period in 2020.
52



Income Tax Expense
Income tax expense is a function of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of June 30, 2021, we did not believe a valuation allowance was necessary.

For the three months ended June 30, 2021, income tax expense totaled $7.8 million, an increase of $3.9 million, compared to $4.0 million for the same period in 2020.

For the three months ended June 30, 2021, the Company had an effective tax rate of 21.0%. The Company had a net discrete tax benefit of $115 thousand for excess tax benefit realized on share-based payment award during the tree months ended June 30, 2021.Excluding this discrete tax item, the Company had an effective tax rate of 21.3% for the three months ended June 30, 2021.
For the three months ended June 30, 2020, the Company had an effective tax rate of 14.2%. The Company had a net discrete tax benefit of $1.8 million as a result of the Company amending a prior year Green tax return to carry back a net operating loss ("NOL") incurred by Green Bancorp, Inc. on January 1, 2019 during the three months ended June 30, 2020. Excluding this discrete tax item, the Company had an effective tax rate of 20.7% for the three months ended June 30, 2020.
53


Results of Operations for the Six Months Ended June 30, 2021 and 2020

General

    Net income for the six months ended June 30, 2021 was $61.2 million, an increase of $33.1 million, or 117.5%, from net income of $28.2 million for the six months ended June 30, 2020.
    Basic EPS for the six months ended June 30, 2021 was $1.24, an increase of $0.68 from $0.56 for the six months ended June 30, 2020. Diluted EPS for the six months ended June 30, 2021 was $1.22, an increase of $0.66 from $0.56 for the six months ended June 30, 2020.
Net Interest Income

For the six months ended June 30, 2021, net interest income before provisions for credit losses totaled $132.8 million and net interest margin and net interest spread were 3.16% and 2.94%, respectively. For the six months ended June 30, 2020, net interest income totaled $133.2 million and net interest margin and net interest spread were 3.48% and 3.14%, respectively. The decrease in net interest income of $396 thousand was primarily due to a $13.1 million decrease in interest income on loans, partially offset by $5.4 million and $9.3 million decreases in interest expense on interest-bearing demand and savings deposits and certificates and other time deposits, respectively, during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease in interest income on loans was due to a decrease in average yields earned on loans. Net interest margin decreased 32 basis points from the six months ended June 30, 2020 primarily due to a decrease in yields earned on loan balances, partially offset by decreases in the average rate paid on interest-bearing demand and savings deposits and certificates and other time deposits in the six months ended June 30, 2021 and an unfavorable shift in the mix of earning assets compared to the six months ended June 30, 2020. As a result, the average cost of interest-bearing deposits decreased 77 basis points to 0.40% for the six months ended June 30, 2021 from 1.11% for the six months ended June 30, 2020.

For the six months ended June 30, 2021, interest expense totaled $19.0 million and the average rate paid on interest-bearing liabilities was 0.68%. For the six months ended June 30, 2020, interest expense totaled $33.2 million and the average rate paid on interest-bearing liabilities was 1.21%. The decrease in interest expense of $14.1 million was due to a $5.4 million decrease in the average rate paid on interest-bearing demand and savings deposits and a $9.3 million decrease in the average rate paid on time deposits, partially offset by a $536 thousand increase in interest paid on borrowings.

54


    The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest–bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as non-accrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the six months ended June 30, 2021 and 2020, interest income not recognized on non-accrual loans was $1.4 million and $536 thousand, respectively. Any non-accrual loans have been included in the table as loans carrying a zero yield.

For the Six Months Ended June 30,
20212020
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$6,003,754 $126,128  4.24 %$5,790,227 $143,931  5.00 %
Loans held for investment, MW482,853 7,292 3.05 234,260 3,613 3.10 
PPP loans360,209 1,793 1.00 152,861 757 1.00 
Debt securities1,079,697 14,966  2.80 1,078,459 15,222  2.84 
Interest-bearing deposits in other banks445,356 294 0.13 337,655 1,057 0.63 
Equity securities and other investments87,296 1,335 3.08 101,294 1,741 3.46 
Total interest-earning assets8,459,165 151,808  3.62 7,694,756 166,321  4.35 
ACL(105,509)  (77,376)  
Noninterest-earning assets778,691   763,567   
Total assets$9,132,347   $8,380,947   
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits$3,115,417 $3,641  0.24 %$2,668,726 $9,023  0.68 %
Certificates and other time deposits1,512,479 5,484 0.73 1,639,807 14,755 1.81 
Advances from FHLB777,675 3,641  0.94 1,072,416 5,680  1.07 
Subordinated debentures and subordinated notes265,142 6,276  4.77 143,869 3,701  5.17 
Total interest-bearing liabilities5,670,713 19,042  0.68 5,524,818 33,159  1.21 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,168,396   1,675,015   
Other liabilities53,823   38,488   
Total liabilities7,892,932   7,238,321   
Stockholders’ equity1,239,415   1,142,626   
Total liabilities and stockholders’ equity$9,132,347   $8,380,947   
Net interest rate spread(2)
  2.94 %  3.14 %
Net interest income $132,766  $133,162 
Net interest margin(3)
  3.16 %  3.48 %

(1) Includes average outstanding balances of loans held for sale of $15,476 and $16,977 for the six months ended June 30, 2021 and June 30, 2020, respectively, and average balances of loans held for investment, excluding MW and PPP loans.
(2) Net interest rate spread is equal to the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets.
55



The following table presents the 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 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 Six Months Ended
 June 30, 2021 vs. 2020
 Increase (Decrease) 
 Due to Change in 
 VolumeRateTotal
 (In thousands)
Interest-earning assets:
Loans$5,293 $(23,096)$(17,803)
Loans held for investment, MW3,822 (143)3,679 
PPP loans1,793 — 1,036 
Debt securities17 (273)(256)
Interest-bearing deposits in other banks336 (1,099)(763)
Equity securities and other investments(240)(166)(406)
Total increase (decrease) in interest income11,021 (24,777)(14,513)
Interest-bearing liabilities:   
Interest-bearing demand and savings deposits1,506 (6,888)(5,382)
Certificates and other time deposits(1,143)(8,128)(9,271)
Advances from FHLB(1,557)(482)(2,039)
Subordinated debentures and subordinated notes3,111 (536)2,575 
Total increase (decrease) in interest expense1,917 (16,034)(14,117)
Increase (decrease) in net interest income$9,104 $(8,743)$(396)

Provision for Credit Losses
Our provision for credit losses is a charge to income in order to bring our ACL to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the ACL see “—Financial Condition—Allowance for Credit Losses on Loans Held for Investment.” No provision for credit losses was recorded for the six months ended June 30, 2021, compared to $47.9 million for the same period in 2020, a decrease of $47.9 million, or 100%.

The decrease in the recorded provision for credit losses for the six months ended June 30, 2021 was primarily attributable to improvement in the Texas economic forecasts used in the CECL model in 2021 to reflect the expected impact of the COVID-19 pandemic as of June 30, 2021, as compared to the Texas economic forecasts utilized in the CECL model and expected impact of the COVID-19 pandemic as of June 30, 2020. In the six months ended June 30, 2021, we also recorded an $7 thousand provision for unfunded commitments, which was also primarily attributable to higher unfunded balances slightly offset by improving Texas economic forecasts utilized in the unfunded commitments loss rates. In the six months ended June 30, 2020, we recorded a $6.7 million provision for unfunded commitments, which was attributable to the change in the economic forecasts as a result of the COVID-19 pandemic. Allowance for credit losses as a percentage of loans held for investment, excluding MW and PPP loans, was 1.59%, 1.76% and 2.01% of total loans at June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

56


Noninterest Income
The following table presents, for the periods indicated, the major categories of noninterest income:
 For the  
 Six Months Ended 
 June 30,Increase
 20212020(Decrease)
 (In thousands)
Noninterest income:
Service charges and fees on deposit accounts$7,476 $6,602 $874 
Loan fees3,164 2,085 1,079 
Gain on sales of securities— 2,879 (2,879)
Gain on sales of mortgage loans held for sale892 450 442 
Government guaranteed loan income, net9,996 11,445 (1,449)
Other5,100 5,076 24 
Total noninterest income$26,628 $28,537 $(1,909)

Noninterest income for the six months ended June 30, 2021 decreased $1.9 million, or 6.7%, to $26.6 million compared to noninterest income of $28.5 million for the same period in 2020. The primary drivers of the decrease were as follows:
Service charges and fees on deposit accounts. We earn service charges and fees from our customers for deposit-related activities. The income from these deposit activities constitutes a significant and predictable component of our noninterest income. Service charges and fees on deposit accounts were $7,476 for the six months ended June 30, 2021, an increase of $874, over the same period in 2020. This increase was primarily due to a $375 thousand increase in analysis charges resulting from additional deposit accounts being serviced for the six months ended June 30, 2021 compared to the same period in 2020.
Loan fees.We earn certain loan fees in connection with funding and servicing loans. Loan fees were $3.2 million for the six months ended June 30, 2021 compared to $2.1 million for the same period in 2020. The increase of $1.1 million was primarily attributable to a $418 thousand increase in syndication loan fees and an increase of $278 thousand in unused credit line fees.
Gain on sales of securities. There were no sales of securities during the six months ended June 30, 2021 resulting in no gains or losses recognized compared to gains of $2.9 million for the same period in 2020 which primarily due to a decrease in market interest rates below coupon rates for securities sold during the six months ended June 30, 2020.
Government guaranteed loan income, net. Government guaranteed loan income, net, includes noninterest income earned on PPP loans as well as income related to the sales of SBA loans. The decrease in government guaranteed loan income, net, of $1.4 million was driven by a $4.9 million decrease in fee income earned on PPP loans during the six months ended June 30, 2021 compared the same period in 2020 partially offset by a $2.3 million increase in the valuation of PPP loans held at fair value and a $1.3 million increase in gain on sale of SBA loans during the six months ended June 30, 2021.

57


Noninterest Expense

Noninterest expense is composed of all employee expenses and costs associated with operating our facilities, acquiring and retaining customer relationships and providing bank services. The major component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of office equipment, professional fees and regulatory fees, data processing and software expenses, marketing expenses and amortization of intangibles.
The following table presents, for the periods indicated, the major categories of noninterest expense:
For the
Six Months Ended
June 30,Increase For the Three Months Ended March 31,Increase (Decrease)
20212020(Decrease) 20222021
(In thousands) (In thousands)
Salaries and employee benefitsSalaries and employee benefits$46,383 $38,889 $7,494 Salaries and employee benefits$27,513 $22,932 $4,581 
Non-staff expenses:Non-staff expenses:Non-staff expenses:
Occupancy and equipmentOccupancy and equipment8,329 8,267 62 Occupancy and equipment4,517 4,096 421 
Professional and regulatory feesProfessional and regulatory fees6,527 4,992 1,535 Professional and regulatory fees3,158 3,441 (283)
Data processing and software expenseData processing and software expense4,855 4,523 332 Data processing and software expense2,921 2,319 602 
MarketingMarketing2,750 1,644 1,106 Marketing1,187 909 278 
Amortization of intangiblesAmortization of intangibles5,054 5,392 (338)Amortization of intangibles2,495 2,537 (42)
Telephone and communicationsTelephone and communications674 627 47 Telephone and communications385 337 48 
Merger and acquisition expenseMerger and acquisition expense700 — 700 
COVID expenses— 1,245 (1,245)
OtherOther6,742 10,027 (3,285)Other3,696 3,026 670 
Total noninterest expenseTotal noninterest expense$81,314 $75,606 $5,708 Total noninterest expense$46,572 $39,597 $6,975 
 
Noninterest expense for the sixthree months ended June 30, 2021March 31, 2022 increased $5.7$7.0 million, or 7.5%17.6%, to $81.3$46.6 million compared to noninterest expense of $75.6$39.6 million for the sixthree months ended June 30, 2020.March 31, 2021. The most significant components of the increase were as follows:

Salaries and employee benefits. Salaries and employee benefits include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. These expenses are impacted by the amount of direct loan origination costs, which are required to be deferred in accordance with ASC 310-20 (formerly FAS91).310-20. Salaries and employee benefits were $46.4$27.5 million for the sixthree months ended June 30, 2021,March 31, 2022, an increase $7.5of $4.6 million,, or 19.3%20.0%, compared to the same period in 2020.2021. The increase was primarily attributable to a $3.5 million increase in accrued employee bonus, $2.2(i) $2.7 million increase in salaries a $1.3 million increaseresulting from continued investment in employee stock based compensation, a $582talent, (ii) $960 thousand increase in employee benefit costsstock-based compensation resulting from the vesting of February 1, 2019 performance restricted stock unit awards which vested at 150% due the Company’s performance (as defined by the equity awards) and a $334(iii) $829 thousand increase in payroll taxes during the six months ended June 30, 2021 compared to the same period in 2020. This increase was offset by an increase of $1.1 million in direct loan origination costs which are required to be deferred in accordance with ASC 310-20.FICA taxes.

ProfessionalMerger and regulatory fees.acquisition expense. This category includes legal, professional, audit, regulatory and Federal Deposit Insurance Corporation (“FDIC”) assessment fees. Professionalother expenses incurred in connection with a pending or completed merger or acquisition. Merger and regulatory fees were $6.5 million foracquisition expenses incurred in the sixthree months ended June 30, 2021 compared to $5.0 million for the same period in 2020, an increase of $1.5 million. The increase was primarily due to FDIC assessment fees whichMarch 31, 2022, were $2.0 million for the six months ended June 30, 2021 compared to $908 thousand for the same period in 2020 driven by an increase in average assets, total equity and FDIC assessment rates.

Marketing. This category of expenses includes expenses related to advertisingour proposed transaction to acquire interLINK, a technology-enabled deposit gathering and promotions,processing platform which increased $1.1 million primarily relatedis expected to an increaseclose in annual sponsorship fees for the six months ended June 30, 2021 compared to the same period in 2020.

COVID expenses. This categorythird quarter of expenses includes expenses related to the COVID-19 pandemic. There were no COVID-19 pandemic related expenses for the six months ended June 30, 2021 compared to $1.3 million for the six months ended June 30, 2020 primarily related to PPP incentive compensation of $500 thousand, CRA donations of $406 thousand, employee salaries of $273 thousand and increased janitorial expenses of $22 thousand.

2022.
5849


Other noninterest expense. This category includes loan operations and collections, supplies and printing, automatic teller and online expenses and other miscellaneous expenses. Other noninterest expense was $6.7 million for the six months ended June 30, 2021 compared to $10.0 million for the same period in 2020, a decrease $3.3 million, or 32.8%. This decrease was primarily due to a decrease in bank service charges resulting from pre-payment fees on FHLB advances paid off early of $1.6 million during the six months ended June 30, 2020 with no corresponding expense during the same period in 2021. The decrease was also driven by a decrease in problem loan fees of $1.2 million during the six months ended June 30, 2021 as compared to the same period in 2020.


Income Tax Expense
 
Income tax expense is a function of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of March 31, 2022, we did not believe a valuation allowance was necessary.

For the sixthree months ended June 30, 2021,March 31, 2022, income tax expense totaled $16.8$8.1 million, an increasea decrease of $13.5 million, or 409.5%,$891 thousand, compared to an income tax expense of $3.3$9.0 million for the same period in 2020.

2021. For the sixthree months ended June 30, 2021, the CompanyMarch 31, 2022, we had an effective tax rate of 21.6%19.5%. The Company haddecrease in the effective tax rate was primarily a net discrete tax expenseresult of $157 thousand. This discrete tax expense related to a true-upthe recognition of a deferred tax liability of $426$992 thousand offset by $269 thousand of an excess tax benefit realized on share-based payment awards during sixthe three months ended June 30, 2021.March 31, 2022. Excluding these discrete tax items, the Company had an effective tax rate of 21.4%21.9% for the sixthree months ended June 30, 2021.March 31, 2022.
For the six months ended June 30, 2020, the Company had an effective tax rate of 10.5%. The decrease in the effective tax rate during the six months ended was primarily due to a net discrete tax benefit of $1.8 million as a result of the Company amending a prior year Green tax return to carry back a NOL incurred by Green on January 1, 2019. The Company was allowed to carry back this NOL as result of a provision in the CARES Act that permits NOLs generated in tax years 2018, 2019 or 2020 to be carried back five years. In addition to this, during the six months ended June 30, 2020, the Company recognized a net discrete tax benefit of $1.4 million primarily associated with the recognition of excess tax benefit realized on share-based payment awards. Excluding these discrete tax items, the Company had an effective tax rate of 20.9% for the six months ended June 30, 2020.
59



Financial Condition
 
Our total assets increased $528.7$696.4 million, or 6.0%7.1%, from $8.8$9.8 billion as of December 31, 20202021 to $9.3$10.5 billion as of June 30, 2021.March 31, 2022.  Our asset growth was due to the continued execution of our strategy to establish deep relationships in the Dallas-Fort Worth metroplex and the Houston metropolitan area as well as our PPP loan portfolio, with which we serve small businesses impacted by the COVID-19 pandemic.area. We believe these relationships will continue to bring in new customer accounts and grow balances from existing loan and deposit customers.
 
Loan Portfolio
 
Our primary source of income is interest on loans to individuals, professionals, small to medium-sized businesses and commercial companies located in the Dallas-Fort Worth metroplex and Houston metropolitan area. Our loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate ("CRE") properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our interest-earning asset base.
 
As of June 30, 2021,March 31, 2022, total loans held for investment,LHI, excluding ACL, was $7.1$7.7 billion, an increase of $330.6$294.5 million, or 4.9%4.0%, compared to $6.8$7.4 billion as of December 31, 2020.2021. The increase was the result of the continued execution and success of our loan growth strategy. In addition to these amounts, $12.1$18.7 million and $21.4$26.0 million in loans were classified as held for sale as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
 
Total loans held for investment,LHI, excluding MW and PPP loans, as a percentage of deposits were 90.0%90.5% and 89.8%92.0% as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Total loans held for investment,LHI, excluding MW and PPP loans, as a percentage of assets were 67.1%68.2% and 66.3%69.3% as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.

50


The following table summarizes our loan portfolio by type of loan as of the dates indicated:
As of June 30,As of December 31, As of March 31,As of December 31,
20212020 20222021
TotalPercentTotalPercent TotalPercentTotalPercent
(Dollars in thousands) (Dollars in thousands)
CommercialCommercial$1,771,100 25.9 %$1,559,546 24.3 %Commercial$2,125,900 27.7 %$2,006,876 27.3 %
MWMW559,939 8.2 %577,594 9.0 %MW542,877 7.1 %565,645 7.7 %
Real estate:Real estate:  Real estate:  
Owner Occupied CRE (“OOCRE”)Owner Occupied CRE (“OOCRE”)744,899 10.9 %717,472 11.1 %Owner Occupied CRE (“OOCRE”)633,615 8.3 %665,537 9.1 %
Non-owner Occupied CRE (“NOOCRE”)Non-owner Occupied CRE (“NOOCRE”)1,986,538 29.0 %1,904,132 29.6 %Non-owner Occupied CRE (“NOOCRE”)2,145,826 27.9 %2,120,309 28.9 %
Construction and landConstruction and land871,765 12.7 %693,030 10.8 %Construction and land1,297,338 16.9 %1,062,144 14.5 %
FarmlandFarmland13,661 0.2 %13,844 0.2 %Farmland48,095 0.6 %55,827 0.8 %
1-4 family residential1-4 family residential513,635 7.5 %524,344 8.2 %1-4 family residential604,408 7.9 %542,566 7.4 %
MultifamilyMultifamily367,445 5.4 %424,962 6.6 %Multifamily272,250 3.5 %310,241 4.2 %
ConsumerConsumer10,530 0.2 %13,000 0.3 %Consumer9,533 0.1 %11,998 0.2 %
Total loans held for investment, carried at amortized cost1
$6,839,512 100.0 %$6,427,924 100.0 %
Total LHI, carried at amortized cost(1)
Total LHI, carried at amortized cost(1)
$7,679,842 100.0 %$7,341,143 100.0 %
Held for investment PPP loans, carried at fair value$291,401 100.0 %$358,042 100.0 %
LHI, PPP loans, carried at fair valueLHI, PPP loans, carried at fair value$18,512 100.0 %$53,369 100.0 %
Total loans held for saleTotal loans held for sale$12,065 100.0 %$21,414 100.0 %Total loans held for sale$18,721 100.0 %$26,007 100.0 %
1(1) Total loans held for investment,LHI, carried at amortized cost, excludes $7.5$11.5 million and $2.5$9.5 million of deferred loan fees, net, as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.

6051


Nonperforming Assets

The following table presents information regarding nonperforming assets at the dates indicated: 
As of June 30,As of December 31, As of March 31,As of December 31,
20212020 20222021
(Dollars in thousands) (Dollars in thousands)
Nonaccrual loans(1)
Nonaccrual loans(1)
$76,994 $81,096 
Nonaccrual loans(1)
$46,680 $49,687 
Accruing loans 90 or more days past dueAccruing loans 90 or more days past due462 3,660 Accruing loans 90 or more days past due264 235 
Total nonperforming loansTotal nonperforming loans77,456 84,756 Total nonperforming loans46,944 49,922 
Other real estate owned:Other real estate owned: Other real estate owned: 
Commercial real estate and 1-4 family residential2,467 2,337 
Commercial real estate, construction, land and land developmentCommercial real estate, construction, land and land development1,062 — 
Total other real estate ownedTotal other real estate owned2,467 2,337 Total other real estate owned1,062 — 
Total nonperforming assetsTotal nonperforming assets$79,923 $87,093 Total nonperforming assets$48,006 $49,922 
Troubled debt restructured loans—nonaccrual Troubled debt restructured loans—nonaccrual22,777 23,225  Troubled debt restructured loans—nonaccrual19,248 19,746 
Troubled debt restructured loans—accruing Troubled debt restructured loans—accruing5,866 5,932  Troubled debt restructured loans—accruing4,025 5,772 
Ratio of nonperforming loans to total loans held for investment1.23 %1.46 %
Ratio of nonperforming loans to total loansRatio of nonperforming loans to total loans0.66 %0.74 %
Ratio of nonperforming assets to total assetsRatio of nonperforming assets to total assets0.85 %0.99 %Ratio of nonperforming assets to total assets0.46 %0.51 %
(1) At June 30, 2021March 31, 2022 and December 31, 2020,2021, nonaccrual loans included PCD loans of $12,515$10,678 and $1,508$11,506, respectively, not accounted for on a pooled basis.

The following table presents information regarding nonaccrual loans by category as of the dates indicated:
 As of June 30,As of December 31,
 20212020
(In thousands)
Commercial$22,424 $29,318 
Real estate:
OOCRE16,960 6,266 
NOOCRE35,181 40,830 
1-4 family residential1,201 3,308 
Consumer1,228 1,374 
Total$76,994 $81,096 
 As of March 31,As of December 31,
 20222021
(In thousands)
Commercial$13,259 $15,267 
Real estate:
OOCRE13,446 14,236 
NOOCRE17,739 17,978 
1-4 family residential1,005 990 
Consumer1,231 1,216 
Total$46,680 $49,687 

6152


Potential Problem Loans

The following tables summarize our internal ratings of our loans as of the dates indicated.
June 30, 2021 March 31, 2022
PassSpecial
Mention
SubstandardPCDTotal PassSpecial
Mention
SubstandardPCDTotal
Real estate:Real estate:Real estate:
Construction and landConstruction and land$867,818 $321 $1,185 $2,441 $871,765 Construction and land$1,293,849 $1,613 $— $1,876 $1,297,338 
FarmlandFarmland13,661 — — — 13,661 Farmland48,095 — — — 48,095 
1 - 4 family residential1 - 4 family residential509,728 573 2,125 1,209 513,635 1 - 4 family residential601,355 344 1,547 1,162 604,408 
Multi-family residentialMulti-family residential346,258 21,187 — — 367,445 Multi-family residential250,586 21,664 — — 272,250 
OOCREOOCRE628,545 29,879 57,589 28,886 744,899 OOCRE566,643 10,036 34,336 22,600 633,615 
NOOCRENOOCRE1,767,664 87,204 103,048 28,622 1,986,538 NOOCRE1,957,978 120,011 52,593 15,244 2,145,826 
CommercialCommercial1,673,283 33,528 49,085 15,204 1,771,100 Commercial2,021,437 42,632 54,391 7,440 2,125,900 
MWMW558,400 1,539 — — 559,939 MW542,447 — 430 — 542,877 
ConsumerConsumer9,092 16 1,236 186 10,530 Consumer8,051 76 1,236 170 9,533 
TotalTotal$6,374,449 $174,247 $214,268 $76,548 $6,839,512 Total$7,290,441 $196,376 $144,533 $48,492 $7,679,842 
December 31, 2020 December 31, 2021
PassSpecial
Mention
SubstandardPCDTotal PassSpecial
Mention
SubstandardPCDTotal
Real estate:Real estate:Real estate:
Construction and landConstruction and land$687,169 $2,666 $510 $2,685 $693,030 Construction and land$1,057,891 $1,905 $— $2,348 $1,062,144 
FarmlandFarmland13,844 — — — 13,844 Farmland55,827 — — — 55,827 
1 - 4 family residential1 - 4 family residential511,191 2,678 1,734 8,741 524,344 1 - 4 family residential539,485 352 1,551 1,178 542,566 
Multi-family residentialMulti-family residential412,282 12,680 — — 424,962 Multi-family residential288,954 21,287 — — 310,241 
OOCREOOCRE595,598 44,560 39,323 37,991 717,472 OOCRE591,377 9,704 36,892 27,564 665,537 
NOOCRENOOCRE1,650,917 153,090 56,949 43,176 1,904,132 NOOCRE1,922,455 97,562 82,092 18,200 2,120,309 
CommercialCommercial1,406,766 56,060 77,260 19,460 1,559,546 Commercial1,887,671 36,092 74,487 8,626 2,006,876 
MWMW577,594 — — — 577,594 MW565,100 — 545 — 565,645 
ConsumerConsumer11,357 252 1,189 202 13,000 Consumer10,440 79 1,302 177 11,998 
TotalTotal$5,866,718 $271,986 $176,965 $112,255 $6,427,924 Total$6,919,200 $166,981 $196,869 $58,093 $7,341,143 
 
ACL on loans held for investmentLHI
We maintain an ACL that represents management’s best estimate of the credit losses and risks inherent in the loan portfolio. In determining the ACL, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the ACL is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.
62
53


The following table presents, as of and for the periods indicated, an analysis of the ACL and other related data:
As ofAs of As ofAs of
June 30, 2021December 31, 2020 March 31, 2022December 31, 2021
 Percent Percent  Percent Percent
Amountof TotalAmountof Total Amountof TotalAmountof Total
(Dollars in thousands) (Dollars in thousands)
Real estate:Real estate:                Real estate:                
Construction and landConstruction and land$7,280 7.3 %$7,768 7.4 %Construction and land$8,883 12.3 %$7,293 9.4 %
FarmlandFarmland46 0.1 56 0.1 Farmland158 0.2 187 0.2 
1 - 4 family residential1 - 4 family residential6,660 6.7 8,148 7.8 1 - 4 family residential6,134 8.5 5,982 7.7 
Multi-family residentialMulti-family residential4,187 4.2 6,231 5.9 Multi-family residential2,127 2.9 2,664 3.4 
OOCREOOCRE11,324 11.4 9,719 9.2 OOCRE7,423 10.2 9,215 11.9 
NOOCRENOOCRE37,242 37.4 35,237 33.5 NOOCRE26,954 37.2 30,548 39.3 
Total real estateTotal real estate$66,739 67.1 %$67,159 63.9 %Total real estate$51,679 71.3 %$55,889 71.9 %
CommercialCommercial32,560 32.7 37,554 35.7 Commercial20,084 27.7 21,632 27.8 
ConsumerConsumer244 0.2 371 0.4 Consumer722 1.0 233 0.3 
Total ACLTotal ACL$99,543 100.0 %$105,084 100.0 %Total ACL$72,485 100.0 %$77,754 100.0 %

The ACL decreased $5.5$5.3 million to $99.5$72.5 million as of June 30, 2021March 31, 2022 from $105.1 million as of December 31, 2020.2021. The decrease in the ACL compared to December 31, 20202021 was primarily attributable to net charge-offs of $5.5$4.8 million and changes in projected Texas economic forecasts using our CECL model which resulted in no calculated required provision for credit losses as of June 30, 2021 partially offset by increases in reserves for net loan growth and increases a decrease in specific reserves on certain nonaccrual loans during the six months ended June 30, 2021.slightly offset by an increase in general reserves as a result of continued loan growth.

6354


The following table presents, as of and for the periods indicated, an analysis of the ACL and other related data:

Six Months EndedSix Months Ended Three Months EndedThree Months Ended
June 30, 2021June 30, 2020 March 31, 2022March 31, 2021
(Dollars in thousands) (Dollars in thousands)
Average loans outstanding, excluding PPP loans(1)
Average loans outstanding, excluding PPP loans(1)
$6,486,607 $6,024,487 
Average loans outstanding, excluding PPP loans(1)
$7,294,623 $6,391,891 
Amortized costs of loans outstanding at end of period, excluding MW and PPP loans(1)
6,272,087 5,847,862 
Amortized costs of loans outstanding at end of period excluding MW and PPP loans(1)
Amortized costs of loans outstanding at end of period excluding MW and PPP loans(1)
7,125,429 5,963,493 
Amortized costs of loans outstanding at end of period, excluding PPP loans(1)
Amortized costs of loans outstanding at end of period, excluding PPP loans(1)
6,832,026 5,726,873 
Amortized costs of loans outstanding at end of period, excluding PPP loans(1)
7,668,306 6,563,185 
ACL at beginning of periodACL at beginning of period105,084 29,834 ACL at beginning of period77,754 105,084 
Impact of adopting ASC 326— 39,137 
Provision for credit losses— 47,948 
Benefit for credit lossesBenefit for credit losses(500)— 
Charge-offs:Charge-offs:  Charge-offs:  
Real estate:Real estate:  Real estate:  
ResidentialResidential(303)— Residential— (15)
OOCREOOCRE(689)— OOCRE(1,341)— 
NOOCRENOOCRE(553)— 
CommercialCommercial(5,966)(1,740)Commercial(3,294)(346)
ConsumerConsumer(38)(125)Consumer(134)(18)
Total charge-offsTotal charge-offs(6,996)(1,865)Total charge-offs(5,322)(379)
Recoveries:Recoveries:  Recoveries:  
Real estate:Real estate:  Real estate:  
ResidentialResidential26 Residential— 
OOCRE500 — 
NOOCRENOOCRE400 — 
CommercialCommercial885 36 Commercial144 226 
ConsumerConsumer44 274 Consumer
Total recoveriesTotal recoveries1,455 311 Total recoveries553 231 
Net charge-offsNet charge-offs(5,541)(1,554)Net charge-offs(4,769)(148)
ACL at end of periodACL at end of period$99,543 $115,365 ACL at end of period$72,485 $104,936 
Ratio of ACL to end of period loans excluding MW and PPP loansRatio of ACL to end of period loans excluding MW and PPP loans1.59 %2.01 %Ratio of ACL to end of period loans excluding MW and PPP loans1.02 %1.76 %
Ratio of net charge-offs to average loansRatio of net charge-offs to average loans0.09 %0.03 %Ratio of net charge-offs to average loans0.07 %— %
(1)Excludes loans held for sale.

Although we believe that we have established our ACL in accordance with GAAP and that the ACL was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.
 
Equity Securities
As of June 30, 2021,March 31, 2022, we held equity securities with a readily determinable fair value of $11.2$10.5 million compared to $11.4$11.0 million as of December 31, 2020.2021. These equity securities primarily represent investments in a publicly traded Community Reinvestment Act fund and are subject to market pricing volatility, with changes in fair value recorded in earnings.

The Company held equity securities without a readily determinable fair values and measured at cost of $3.8 million and $3.6$4.4 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The Company measures equity securities that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.






6455


Securities purchased under agreements to resell

As of March 31, 2022, we held securities purchased under agreements to resell of $100.8 million and we recognized interest income of $270 thousand during the three months ended March 31, 2022. We held no securities purchased under agreements to resell during the three months ended March 31, 2021. Securities purchased under agreements to resell typically mature 30 days from the settlement date, qualify as a secured borrowing and are measured at amortized cost.

FHLB Stock and FRB Stock

As of June 30, 2021,March 31, 2022, we held FHLB stock and FRB stock of $71.6$72.0 million compared to $71.2$71.9 million as of December 31, 2020.2021. The Bank is a member of its regional FRB and of the FHLB system. FRB member banks are required to hold a percentage of their capital as stock in their regional FRB. FHLB members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. Both FRB and FHLB stock are carried at cost, restricted for sale, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Debt Securities
We use our debt securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of June 30, 2021,March 31, 2022, the carrying amount of debt securities totaled $1.1$1.2 billion, an increase of $70.7$192.0 million, or 6.7%18.2%, compared to $1.1 billion as of December 31, 2020.2021. The increase was primarily due to purchases of debt securities of $171.7$271.6 million and net unrealized gains $44.8 million, partially offset by maturities, calls, and paydowns of $90.3$33.9 million. Debt securities represented 12.0%11.9% and 12.0%10.8% of total assets as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. During the three months ended March 31, 2022, a portion of the AFS securities were reclassified to the HTM category.
All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in our investment portfolio. As of June 30, 2021,March 31, 2022, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.
 
    Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. As of June 30, 2021,March 31, 2022, management believes that available for sale securities in aan unrealized loss position are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no ACL have been recognized in the Company’s condensed consolidated balance sheets. The Company also recorded no ACL for its held to maturity debt securities as of June 30, 2021.March 31, 2022.
    As of June 30, 2021March 31, 2022 and December 31, 2020,2021, we did not own securities of any one issuer other than U.S. government agency securities for which aggregate cost exceeded 10.0% of our stockholders’ equity as of such respective dates.
DepositsEquity Method Investments
On July 16, 2021, the Bank completed an investment to acquire a 49% interest in Thrive Mortgage, LLC (“Thrive”) for $54.9 million in cash and obtained the right to designate a member to Thrive’s board of directors. As a result of the investment, we have a $35.8 million basis difference which is being accounted for as equity method goodwill.

We had $61.1 million in equity method investments as of March 31, 2022 and reported $367 thousand of income resulting from this investment for the three months ended March 31, 2022 which represents our proportionate share of our investee’s income.

Deposits.

Total deposits as of June 30, 2021March 31, 2022 were $7.0$7.9 billion, an increase of $466.1$526.0 million, or 7.2%7.1%, compared to $6.5$7.4 billion as of December 31, 2020.2021. The increase from December 31, 20202021 was primarily the result of increases of $154.5$412.0 million in
56


interest-bearing transaction and savings deposits $20.6and $255.2 million in noninterest-bearing demand deposits partially offset by $141.2 million decrease in certificates and other time deposits, and $291.0 million in noninterest-bearing demand deposits.
Borrowings
We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
FHLB Advances 
The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of each of June 30, 2021March 31, 2022 and December 31, 2020,2021, total borrowing capacity of $646.9$787.9 million and $766.4$777.5 million, respectively, was available under this arrangement and $777.6$228.0 million and $777.7$227.8 million, respectively, was outstanding with a weighted average interest rate of 0.94% for the sixthree months ended June 30, 2021March 31, 2022 and 1.04% for the year ended December 31, 2020. The2021. FHLB has also issued standby letters of credit to the Company for $956.3$777.5 million and $567.9$777.6 million as of each of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Our current FHLB advances mature within fourteenfifteen years. Other than FHLB borrowings, we had no other short-term borrowings at the dates indicated.
65


Federal Reserve Bank of Dallas.FRB  
The FRB of Dallas has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain securities and commercial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. As of June 30, 2021March 31, 2022 and December 31, 2020, $455.72021, $995.1 million and $871.5 million, respectively, were was available under this arrangement based on collateral values of pledged commercial and consumer loans. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, no borrowings were outstanding under this arrangement.
Junior subordinated debentures and subordinated notes
The table below details our junior subordinated debentures and subordinated notes. Refer to Note 14 “Borrowed Funds” in our 20202021 10-K for further discussion on the details of our junior subordinated debentures and subordinated notes.
June 30, 2021
BalanceRate
(Dollars in thousands)
Junior subordinated debentures:
Parkway National Capital Trust I$3,093 1.97%
SovDallas Capital Trust I8,609 4.24%
Patriot Bancshares Capital Trust I5,155 2.09%
Patriot Bancshares Capital Trust II17,011 1.92%
33,868 
Discount on junior subordinated debentures(3,513)
Total junior subordianted debentures$30,355 
Subordinated notes:
8.50% Fixed-to-Floating Rate Subordinated Notes$35,000 8.50%
4.75% Fixed-to-Floating Rate Subordinated Notes75,000 4.75%
4.125% Fixed-to-Floating Rate Subordinated Notes125,000 4.13%
235,000 
Net debt issuance costs and premium on subordinated notes(2,589)
Total subordinated notes$232,411 
Total subordinated debentures and subordinated notes$262,766 
March 31, 2022
BalanceRate
(Dollars in thousands)
Junior subordinated debentures
Parkway National Capital Trust I$3,093 2.03%
SovDallas Capital Trust I8,609 4.24%
Patriot Bancshares Capital Trust I5,155 2.09%
Patriot Bancshares Capital Trust II17,011 1.98%
Subordinated notes
4.75% Fixed-to-Floating Rate Subordinated Notes75,000 4.75%
4.125% Fixed-to-Floating Rate Subordinated Notes125,000 4.13%

57


Liquidity and Capital Resources
Liquidity
Liquidity management involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the sixthree months ended June 30, 2021March 31, 2022 and the year ended December 31, 2020,2021, our liquidity needs were primarily met by core deposits, wholesale borrowings, security and loan maturities and amortizing investment and loan portfolios. Use of brokered deposits, purchased funds from correspondent banks and overnight advances from the FHLB and the FRB are available and have been utilized to take advantage of the cost of these funding sources. We maintained five lines of credit with commercial banks that provide for extensions of credit with an availability to borrow up to an aggregate of $175.0 million as of June 30, 2021March 31, 2022 and December 31, 2020.2021. There were no advances under these lines of credit outstanding as of June 30, 2021March 31, 2022 and December 31, 2020.2021.
66


In addition, $18.5 million was available in conjunction with the Paycheck Protection Program Liquidity Program (“PPPLF”) which is a lending facility offered by the FRB to facilitate lending to small businesses under the PPP. As of March 31, 2022, we have not utilized the PPPLF.
The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of our average total assets for the period indicated. Average assets totaled $9.1$10.0 billion for the sixthree months ended June 30, 2021March 31, 2022 and $8.5$9.4 billion for the year ended December 31, 2020.2021.
For theFor the For theFor the
Six Months EndedYear Ended Three Months EndedYear Ended
June 30, 2021December 31, 2020 March 31, 2022December 31, 2021
Sources of Funds:Sources of Funds:Sources of Funds:
Deposits:Deposits:Deposits:
Noninterest-bearingNoninterest-bearing23.7 %21.4 %Noninterest-bearing25.9 %24.1 %
Interest-bearingInterest-bearing34.1 32.0 Interest-bearing34.7 34.2 
Certificates and other time depositsCertificates and other time deposits16.6 18.2 Certificates and other time deposits15.0 16.5 
Advances from FHLBAdvances from FHLB8.5 12.0 Advances from FHLB7.8 8.3 
Other borrowingsOther borrowings2.9 2.0 Other borrowings2.3 2.8 
Other liabilitiesOther liabilities0.6 0.7 Other liabilities0.7 0.6 
Stockholders’ equityStockholders’ equity13.6 13.7 Stockholders’ equity13.6 13.5 
TotalTotal100.0 %100.0 %Total100.0 %100.0 %
Uses of Funds:Uses of Funds:Uses of Funds:
LoansLoans73.8 %72.7 %Loans72.7 %73.2 %
Debt securities11.8 13.2 
Securities available-for-saleSecurities available-for-sale11.3 12.0 
Interest-bearing deposits in other banksInterest-bearing deposits in other banks4.9 1.2 Interest-bearing deposits in other banks5.5 1.5 
Other noninterest-earning assetsOther noninterest-earning assets9.4 12.9 Other noninterest-earning assets10.5 13.3 
TotalTotal100.0 %100.0 %Total100.0 %100.0 %
Average noninterest-bearing deposits to average depositsAverage noninterest-bearing deposits to average deposits31.9 %29.9 %Average noninterest-bearing deposits to average deposits34.3 %32.3 %
Average loans, excluding PPP and MW, to average depositsAverage loans, excluding PPP and MW, to average deposits88.3 %94.5 %Average loans, excluding PPP and MW, to average deposits90.9 %89.9 %
Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average loans held for investmentLHI increased 12.6%10.1% for the sixthree months ended June 30, 2021March 31, 2022 compared to the year ended December 31, 2020.2021. We invest excess deposits in interest-bearing deposits at other banks, the FRB of DallasFederal Reserve or liquid investments securities until these monies are needed to fund loan growth.
As of June 30, 2021,March 31, 2022, we had $3.6$4.0 billion in outstanding commitments to extend credit, $575.7$844.4 million in unconditionally cancellable MW commitments and $53.9$75.5 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2020,2021, we had $2.7$3.8 billion in outstanding commitments to extend credit, $354.6$716.4 million in MW commitments and $44.4$65.9 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
58


As of June 30, 2021,March 31, 2022, we had cash and cash equivalents of $390.0$551.6 million compared to $230.8$379.8 million as of December 31, 2020.2021.
Analysis of Cash Flows
 For theFor the
 Six Months EndedSix Months Ended
 June 30, 2021June 30, 2020
(In thousands)
Net cash provided by operating activities$147,190 $67,601 
Net cash used in investing activities(435,780)(728,609)
Net cash provided by financing activities447,792 569,764 
Net change in cash and cash equivalents$159,202 $(91,244)

67


 For theFor the
 Three Months EndedThree Months Ended
 March 31, 2022March 31, 2021
(In thousands)
Net cash provided by operating activities$68,218 $83,220 
Net cash used in investing activities(564,784)(228,307)
Net cash provided by financing activities668,355 382,291 
Net change in cash and cash equivalents$171,789 $237,204 
Cash Flows Provided by Operating Activities
    For the sixthree months ended June 30, 2021,March 31, 2022, net cash provided by operating activities increaseddecreased by $79.6$15.0 million when compared to the same period in 2020.2021. The increasedecrease in cash from operating activities was primarily related to the increase in net income of $33.1 million and the cash received for the termination of derivatives designated as hedging instruments of $43.9 million for three months ended March 31, 2021 and a increase in originations of loans held for sale of $11.5 million.
Cash Flows Used in Investing Activities
    For the sixthree months ended June 30, 2021,March 31, 2022, net cash used in investing activities decreasedincreased by $292.8$336.5 million when compared to the same period in 2020.2021. The decreaseincrease in cash used in investing activities was primarily attributable to a $169.7$186.7 million decreaseincrease in purchases of available for saleAFS debt securities and a $291.7$147.7 million decreaseincrease in originations of net loans held for investment. This decrease was partially offset by a decrease of $90.9$6.2 million for proceeds from sale of available for sale securitiesmaturities, calls and a decreasepaydowns of $58.2 million for maturities of securities available for sale.AFS debt securities.
Cash Flows Provided by Financing ActivitesActivities
    For the sixthree months ended June 30, 2021,March 31, 2022, net cash provided by financing activities decreasedincreased by $122.0$286.1 million when compared to the same period in 2020.2021. The decreaseincrease in cash provided by financing activities was primarily attributable to a $410.0 million decrease in advances from the FHLB. This decrease was partially offset by a $234.2$134.2 million increase in deposits and a decrease in treasury$153.9 million increase proceeds from our common stock repurchases of $45.5 million.offering completed during the three months ended March 31, 2022.
    As of the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
Share Repurchases
    On January 28, 2019, the Company's Board originally authorized the Stock Buyback Program pursuant to which the Company could, from time to time, purchase up to $50.0 million of its outstanding common stock in the aggregate. The Board authorized increases of $50.0 million on September 3, 2019 and $75.0 million on December 12, 2019, resulting in an aggregate authorization to purchase up to $175.0 million under the Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2019 to December 31, 2021. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC and capital and dividend guidelines of the Federal Reserve. The Stock Buyback Program does not obligate the Company to purchase any shares, and the program may be terminated or amended by the Board at any time prior to its expiration.
During the six months ended June 30, 2021 and 2020, 147,622 shares and 2,002,211 shares, respectively, were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $26.83 and $24.78, respectively.

Capital Resources
Total stockholders’ equity increased to $1.27$1.45 billion as of June 30,March 31, 2022, compared to $1.32 billion as of December 31, 2021, an increase of $132.9 million, or 10.1%. The increase from December 31, 2021 to March 31, 2022 was primarily the result of our $153.8 million common stock offering, $33.5 million of net income recognized during the three months ended March 31, 2022, a $3.3 million in stock-based compensation recognized during the three months ended March 31, 2022 and a $98 thousand increase due to the exercise of employee stock options. This increase was partially offset by $45.1 million in other comprehensive income and $9.9 million in dividends declared and paid during the three months ended March 31, 2022.
By comparison, total stockholders’ equity increased to $1.23 billion as of March 31, 2021, compared to $1.20 billion as of December 31, 2020, an increase of $69.5$30.4 million, or 5.8%2.5%. The increase from December 31, 2020 to June 30,March 31, 2021 was primarily the result of $61.2$31.8 million of net income recognized, $5.2an increase of $6.2 million in stock based compensation, $3.5other comprehensive income, a $2.9 million increase due to the exercise of employee stock options, and an increase of $21.0$2.5 million in other comprehensive income, eachstock-based compensation recognized during the sixthree months ended June 30,March 31, 2021. This increase was partially offset by $16.8$4.1 million in stock buybacks and $8.4 million in dividends declared and paid during the sixthree months ended June 30, 2021 and $4.1 million of stock buybacks during the six months ended June 30,March 31, 2021.
By comparison, total stockholders’ equity decreased to $1.16 billion as of June 30, 2020, compared to $1.19 billion as of December 31, 2019, a decrease of $27.0 million, or 2.3%. The decrease was primarily the result of $49.6 million in stock buybacks, $17.3 million in dividends declared and paid and $15.5 million in CECL transition during the six months ended June 30, 2020. These decreases were partially offset by $28.2 million net income recognized and an increase of $23.0 million in other comprehensive income recognized during the six months ended June 30, 2020.
6859


Capital management consists of providing equity to support our current and future operations. Our regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank holding company and bank levels. See Note 12 – “Capital Requirements and Restrictions on Retained Earnings” in the notes to our condensed consolidated financial statements for additional discussion regarding the regulatory capital requirements applicable to us and the Bank. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, we and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for purposes of the PCA regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.
On March 8, 2022, the Company completed an underwritten public offering of 3,947,369 shares of its common stock at $38.00 per share. On March 10, 2022, the representatives of the underwriters delivered to the Company a written notice of exercise by the underwriters of the underwriters' option to purchase an additional 367,105 shares of the Company's common stock at $38.00 per share, which subsequently closed on March 14, 2022. Net proceeds, after deducting underwriting discounts and offering expenses, of such offering were approximately $153.8 million. The Company intends to use the net proceeds from the Offering for general corporate purposes and to support its continued growth, including investments in Veritex Bank and future strategic acquisitions.

The following table presents the actual capital amounts and regulatory capital ratios for us and the Bank as of the dates indicated.
 As of June 30,As of December 31,
 20212020
 AmountRatioAmountRatio
 (Dollars in thousands)
Veritex Holdings, Inc.
Total capital (to risk-weighted assets)$1,146,015 12.86 %$1,099,031 13.57 %
Tier 1 capital (to risk-weighted assets)833,956 9.36 782,487 9.66 
Common equity tier 1 (to risk-weighted assets)804,619 9.03 753,261 9.30 
Tier 1 capital (to average assets)833,956 9.38 782,487 9.43 
Veritex Community Bank
Total capital (to risk-weighted assets)$1,030,594 11.57 %$968,481 11.96 %
Tier 1 capital (to risk-weighted assets)950,947 10.68 884,471 10.92 
Common equity tier 1 (to risk-weighted assets)950,947 10.68 884,471 10.92 
Tier 1 capital (to average assets)950,947 10.70 884,471 10.66 
 As of March 31,As of December 31,
 20222021
 AmountRatioAmountRatio
 (Dollars in thousands)
Veritex Holdings, Inc.
Total capital (to risk-weighted assets)$1,276,341 12.73 %$1,100,404 11.60 %
Tier 1 capital (to risk-weighted assets)1,016,916 10.14 843,585 8.89 
Common equity tier 1 (to risk-weighted assets)987,414 9.84 814,138 8.58 
Tier 1 capital (to average assets)1,016,916 10.66 843,585 9.05 
Veritex Community Bank
Total capital (to risk-weighted assets)$1,245,323 12.42 %$1,053,871 11.11 %
Tier 1 capital (to risk-weighted assets)1,183,396 11.80 994,351 10.48 
Common equity tier 1 (to risk-weighted assets)1,183,396 11.80 994,351 10.48 
Tier 1 capital (to average assets)1,183,396 12.41 994,351 10.69 
Contractual Obligations
In the ordinary course of the Company’s operations, the Company enterswe have entered into certain contractual obligations such as our non-cancelableand have made other commitments to make future operating leases, time deposits, future cash payments associated with our contractual obligations pursuant to our FHLB advances, junior subordinated debentures, subordinated debt, securities sold under agreements to repurchase and qualified affordable housing investments. The Company believes that it will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels. The Company expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. The Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs.
payments. Other than normal changes in the ordinary course of business and changes discussed within “Financial ConditionBorrowings,” there have been no significant changes in the types of contractual obligations or amounts due as of June 30, 2021March 31, 2022 since December 31, 20202021 as reported in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Off-Balance Sheet Items
In the normal course of business, we enter into various transactions which, in accordance with GAAP, are not included in our consolidated balance sheets. However, we have only limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
69


The Company’s commitments to extend credit, MW commitments and outstanding standby and commercial letters of credit were $3.6 billion, $575.7 million and $53.9 million, respectively, as of June 30, 2021. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. The Company manages its liquidity in light of the aggregate amounts of commitments to extend credit and outstanding standby and commercial letters of credit in effect from time to time to ensure that the Company will have adequate sources of liquidity to fund such commitments and honor drafts under such letters of credit.
Commitments to Extend Credit
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
MW commitments
Mortgage warehouse commitments are unconditionally cancellable and represent the unused capacity on MW facilities the Company has approved. The Company reserves the right to refuse to buy any mortgage loans offered for sale by a customer, for any reason, at the Company’s sole and absolute discretion.
Standby and Commercial Letters of Credit
Standby and commercial letters of credit are written conditional commitments that the Company issues to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the customer is obligated to reimburse the Company for the amount paid under this standby and commercial letter of credit.
Impact of Inflation
Our condensed consolidated financial statements and related notes included elsewhere herein have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.
Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
Subsequent Events
On July 16, 2021, the Bank completed an investment to acquire a 49% interest in Thrive Mortgage, LLC (“Thrive”) for $53.9 million in cash. As part of the investment, the Company obtained the right to designate one member to Thrive’s board of directors.
Thrive, headquartered in Georgetown, Texas, is a family-owned business and an industry leader in transforming the home financing process into a customer centered digital experience and is the first company in Texas to close a fully electronic note with a remote notary. Thrive’s markets include, among others, Texas, Ohio, Colorado, Kentucky, North Carolina, Kansas, Virginia, Florida, Maryland and Indiana.


7060


LIBOR Transition
    On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, confirmed that the publication of most LIBOR term rates will end on June 30, 2023. Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including to the Company. The Company’s commercial and consumer businesses issue, trade and hold various products that are currently indexed to LIBOR. As of June 30, 2021, the Company had approximately $1.04 billion of loans indexed to LIBOR that mature after June 30, 2023. The Company’s products that are indexed to LIBOR are significant, and if not sufficiently planned for, the discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks to the Company.
The Alternative Reference Rates Committee (“ARRC”) has proposed the Secured Overnight Financing Rate (“SOFR”) as its preferred rate as an alternative to LIBOR. In 2019 and 2020, the ARRC released final recommended fallback contract language for new issuances of LIBOR indexed bilateral business loans, syndicated loans, floating rate notes, securitizations, and adjustable rate mortgage loans and private student loans. On April 6, 2021, New York Governor Cuomo signed into law legislation that provides for the substitution of SOFR as an alternative reference rate in any LIBOR-based contract governed by New York state law that does not include clear fallback language, once LIBOR is discontinued. The ARRC also has published other recommendations relating to the spread adjustment between LIBOR and SOFR and other transition matters. The International Swaps and Derivatives Association, Inc. has announced a protocol for the transition of derivative instruments away from LIBOR.

Due to the uncertainty surrounding the future of LIBOR, it is expected that the transition will span several reporting periods through at least the end of 2021. One of the major identified risks is inadequate fallback language in various existing instruments’ contracts that may result in issues establishing the alternative index and adjusting the margin as applicable. The Company continues to monitor this activity and evaluate the related risks to its business.

Critical Accounting Policies
    Our accounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial condition. We have identified certain significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. The significant accounting policies which we believe to be the most critical in preparing our consolidated financial statements relate to loans and ACL,allowance for credit losses, business combinations, debt securities and goodwill. Since December 31, 2020,2021, there have been no changes in critical accounting policies as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Form 10-K for the year ended December 31, 2020,2021, except for those updates discussed in Note 1 - Summary of Significant Accounting Policies in the accompanying notes to the condensed consolidated financial statements included in this report.

Special Cautionary Notice Regarding Forward-Looking Statements
    This Quarterly Report on Form 10-Q contains certainincludes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on various facts and derived utilizing assumptions, current expectations, estimates and projections and are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include, without limitation, statements relating to the proposed investment in Thrive by Veritex, the expected payment date of our quarterly cash dividend, impact of certain changes in our accounting policies, standards and interpretations, the effects of the COVID-19 pandemic and actions taken in response thereto, our future financial performance, business and growth strategy, projected plans and objectives, as well as other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact broader economic and industry trends, and any such variations may be material. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing words. You should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:

risks related to the concentration of our business in Texas, and specifically within the Dallas-Fort Worth metroplex and the Houston metropolitan area, including risks associated with any downturn in the real estate sector and risks
71


associated with a decline in the values of single family homes in the Dallas-Fort Worth metroplex and the Houston metropolitan area;
uncertain market conditions and economic trends nationally, regionally and particularly in the Dallas-Fort Worth metroplex, Houston metropolitan area and Texas, including as a result of the COVID-19 pandemic;
risks related to the impact of the COVID-19 pandemic including variants thereof such as the delta variant, on our business and operations, especially as a vaccine becomes widely available, and considering the potential of resurgences or additional waves of infection;operations;
possible additional loan losses and impairment of the collectability of loans, particularly as a result of the COVID-19 pandemic and the programs implemented by the CARES Act, including its automatic loan forbearance provisions, and our PPP lending activities;
the effects of regional or national civil unrest;
changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;
risks related to our strategic focus on lending to small to medium-sized businesses;
the sufficiency of the assumptions and estimates we make in establishing reserves for potential loan losses;
our ability to implement our growth strategy, including identifying and consummating suitable acquisitions;
our ability to recruit and retain successful bankers that meet our expectations in terms of customer relationships and profitability;
changes in our accounting policies, standards and interpretations;
our ability to retain executive officers and key employees and their customer and community relationships;
risks associated with our CRE and construction loan portfolios, including the risks inherent in the valuation of the collateral securing such loans;
risks associated with our commercial loan portfolio, including the risk of deterioration in value of the general business assets that generally secure such loans;
our level of nonperforming assets and the costs associated with resolving problem loans, if any, and complying with government-imposed foreclosure moratoriums;
potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;
61


risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area;
our ability to maintain adequate liquidity (including in compliance with CBLR standards and the effect of the transition to the CECL methodology for allowances and related adjustments) and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels;
potential fluctuations in the market value and liquidity of our debt securities;
the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;
our ability to maintain an effective system of disclosure controls and procedures and internal control over financial reporting;
risks associated with fraudulent and negligent acts by our customers, employees or vendors;
our ability to keep pace with technological change or difficulties when implementing new technologies;
risks associated with difficulties and/or terminations with third-party service providers and the services they provide;
risks associated with unauthorized access, cyber-crime and other threats to data security;
potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;
our 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 our regulators, and economic stimulus programs;
uncertainty regarding the future of LIBOR and any replacement alternatives on our business;
governmental monetary and fiscal policies, including the policies of the Federal Reserve;
our ability to comply with supervisory actions by federal and state banking agencies;
changes in the scope and cost of FDIC, insurance and other coverage; and
systemic risks associated with the soundness of other financial institutions.

Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 20202021, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as well as the information contained in this Quarterly Report on Form 10-Q, may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by
72


us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

    As a financial institution, our primary component of market risk is interest rate volatility. Our asset, liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.
    Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
    We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. With exception of our cash flow hedges designated as a hedging instrument, we do not enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. We enter into interest rate swaps, caps and collars as an accommodation to our customers in connection with our interest rate swap program. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
62


    Our exposure to interest rate risk is managed by the Asset-Liability Committee of the Bank in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.
We use an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and the balance sheet, respectively. Contractual maturities and repricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio.
We utilize static balance sheet rate shocks to estimate the potential impact on net interest income of changes in interest
rates under various rate scenarios. This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet.  Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 5.0% for a 100 basis point shift, 10.0% for a 200 basis point shift, and 15.0% for a 300 basis point shift.

73


    The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:
As of June 30, 2021As of December 31, 2020 As of March 31, 2022As of December 31, 2021
Percent ChangePercent ChangePercent ChangePercent Change Percent ChangePercent ChangePercent ChangePercent Change
Change in InterestChange in Interestin Net Interestin Fair Valuein Net Interestin Fair ValueChange in Interestin Net Interestin Fair Valuein Net Interestin Fair Value
Rates (Basis Points)Rates (Basis Points)Incomeof EquityIncomeof EquityRates (Basis Points)Incomeof EquityIncomeof Equity
+ 300+ 30017.36 %12.71 %18.91 %29.38 %+ 30023.48 %11.78 %20.31 %15.79 %
+ 200+ 20011.18 %9.44 %12.06 %19.93 %+ 20015.42 %8.39 %13.13 %11.62 %
+ 100+ 1005.03 %5.34 %5.37 %9.64 %+ 1007.39 %4.51 %6.60 %6.64 %
BaseBase— %— %— %— %Base— %— %— %— %
−100−100(2.18)%(10.93)%(1.77)%(10.87)%−100(7.75)%(6.70)%(3.85)%(11.68)%
    The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.

63


Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures — As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this Report. In making this determination, our management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, considered a reportable event on a Current Report on Form 8-K that occurred during the period covered by this report, which was untimely but eventually filed with the SEC one day late due to an oversight, and which management believes does not change the effectiveness of our disclosure controls as of the end of the period covered by this report.

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2021March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

7464


7PARTPART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves vigorously against any pending or future claims and litigation.

At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

Item 1A.  Risk Factors

In evaluating an investment in our common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020,2021, as well as the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC.
    There has been no material change in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not Applicable.

Item 5.  Other Information

None.

7565


Item 6. Exhibits
 
Exhibit
Number
    Description of Exhibit

 
 
 
 
 
101* The following materials from Veritex Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30,March 31, 2021, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Income, (iv) Condensed Consolidated Statements of Comprehensive Income, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (vi) Condensed Consolidated Statements of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed with this Quarterly Report on Form 10-Q
** Furnished with this Quarterly Report on Form 10-Q

7666


SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   
  VERITEX HOLDINGS, INC.
  (Registrant)
   
   
   
   
   
Date: August 6, 2021May 9, 2022 /s/ C. Malcolm Holland, III
  C. Malcolm Holland, III
  Chairman and Chief Executive Officer
  (Principal Executive Officer)
   
   
   
   
Date: August 6, 2021May 9, 2022 /s/ Terry S. Earley
  Terry S. Earley
  Chief Financial Officer
  (Principal Financial and Accounting Officer)
   
   
   

7767