UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


			FORM			10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2021~~March 31, 2022

☐ 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 class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01

VBTX

Nasdaq 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 ~~49,523,683~~53,962,875 outstanding shares of the registrant’s common stock, par value $0.01 per share.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES



		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements – (Unaudited)	3
	~~Condensed~~ Consolidated Balance Sheets as of ~~June 30, 2021~~March 31, 202 2 and December 31, ~~2020~~202 1	4
	~~Condensed~~ Consolidated Statements of Income for the Three Months Ended March 31, 202 2 and ~~Six~~202 ~~Months Ended June 30, 2021 and 2020~~1	5
	~~Condensed~~ Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June 30, 2021~~March 31, 202 2 and ~~2020~~202 1	6
	~~Condensed~~ Consolidated Statements of Changes in Stockholders’ Equity for the Three ~~and Six~~ Months Ended ~~June 30, 2021~~March 31, 202 2 and ~~2020~~202 1	7
	~~Condensed~~ Consolidated Statements of Cash Flows for the ~~Six~~ Three Months Ended ~~June 30, 2021~~March 31, 202 2 and ~~2020~~202 1	98
	Notes to ~~Condensed~~ Consolidated Financial Statements	109
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4542
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7362
Item 4.	Controls and Procedures	7464

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	7565
Item 1A.	Risk Factors	7565
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7565
Item 3.	Defaults Upon Senior Securities	7565
Item 4.	Mine Safety Disclosures	7565
Item 5.	Other Information	7565
Item 6.	Exhibits	7666
SIGNATURES		7767

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

~~Condensed~~ Consolidated Balance Sheets

as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021

(Dollars in thousands, except par value and share information)


		June 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	51,726	$	44,337	Cash and due from banks	$	51,966	$	44,023
Interest bearing deposits in other banks	Interest bearing deposits in other banks	338,301		186,488		Interest bearing deposits in other banks	499,607		335,761
Total cash and cash equivalents	Total cash and cash equivalents	390,027		230,825		Total cash and cash equivalents	551,573		379,784
Debt securities available-for-sale, at fair value		1,077,239		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 value						Debt securities available-for-sale (“AFS”), at fair value	1,063,249		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 securities	Equity securities	14,982		14,938		Equity securities	14,880		15,393
Securities purchased under agreements to resell						Securities purchased under agreements to resell	100,818		102,288
Investment in unconsolidated subsidiaries	Investment in unconsolidated subsidiaries	1,018		1,018		Investment in unconsolidated subsidiaries	1,018		1,018
Federal Home Loan Bank of Dallas Stock (“FHLB”) and Federal Reserve Bank (“FRB”) Stock		71,558		71,236
Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock						Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock	71,983		71,892
Total investments	Total investments	1,213,435		1,142,393		Total investments	1,433,213		1,243,085
Loans held for sale	Loans held for sale	12,065		21,414		Loans held for sale	18,721		26,007
Loans held for investment, Paycheck Protection Program (“PPP”) loans, carried at fair value		291,401		358,042
Loans held for investment, mortgage warehouse (“MW”)		559,939		577,594
Loans held for investment, excluding MW and PPP		6,272,087		5,847,862
Loans held for investment (“LHI”), Paycheck Protection Program (“PPP”) loans, carried at fair value						Loans held for investment (“LHI”), Paycheck Protection Program (“PPP”) loans, carried at fair value	18,512		53,369
LHI, mortgage warehouse (“MW”)						LHI, mortgage warehouse (“MW”)	542,877		565,645
LHI, excluding MW and PPP						LHI, excluding MW and PPP	7,125,429		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, net		7,023,884		6,678,414
Total LHI, net						Total LHI, net	7,614,333		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, net	Bank premises, furniture and equipment, net	123,504		115,063		Bank premises, furniture and equipment, net	109,138		109,271
Other real estate owned		2,467		2,337
Other real estate owned (“OREO”)						Other real estate owned (“OREO”)	1,062		—
Intangible assets, net of accumulated amortization	Intangible assets, net of accumulated amortization	57,143		61,733		Intangible assets, net of accumulated amortization	63,986		66,017
Goodwill	Goodwill	370,840		370,840		Goodwill	404,452		403,771
Other assets	Other assets	72,856		114,997		Other assets	173,561		138,851

Total assets	Total assets	$	9,349,525	$	8,820,871	Total assets	$	10,453,680	$	9,757,249
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Noninterest-bearing deposits	Noninterest-bearing deposits	$	2,388,068	$	2,097,099	Noninterest-bearing deposits	$	2,765,895	$	2,510,723
Interest-bearing transaction and savings deposits	Interest-bearing transaction and savings deposits	3,112,974		2,958,456		Interest-bearing transaction and savings deposits	3,688,292		3,276,312
Certificates and other time deposits	Certificates and other time deposits	1,477,860		1,457,291		Certificates and other time deposits	1,435,409		1,576,580
Total deposits	Total deposits	6,978,902		6,512,846		Total deposits	7,889,596		7,363,615
Accounts payable and other liabilities	Accounts payable and other liabilities	55,499		61,928		Accounts payable and other liabilities	105,552		69,160

Advances from FHLB	Advances from FHLB	777,640		777,718		Advances from FHLB	777,522		777,562
Subordinated debentures and subordinated notes	Subordinated debentures and subordinated notes	262,766		262,778		Subordinated debentures and subordinated notes	228,018		227,764
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	1,811		2,225		Securities sold under agreements to repurchase	4,996		4,069

Total liabilities	Total liabilities	8,076,618		7,617,495		Total liabilities	9,005,684		8,442,170
Commitments and contingencies (Notes 8 and 11)	Commitments and contingencies (Notes 8 and 11)	0		0		Commitments and contingencies (Notes 8 and 11)	0		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, respectively		558		555
Additional paid-in capital		1,134,603		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, respectively						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, respectively	605		560
Additional paid-in capital (“APIC”)						Additional paid-in capital (“APIC”)	1,297,161		1,142,758
Retained earnings	Retained earnings	216,704		172,232		Retained earnings	298,830		275,273
Accumulated other comprehensive income		77,189		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, respectively						Treasury 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’ equity	Total stockholders’ equity	1,272,907		1,203,376		Total stockholders’ equity	1,447,996		1,315,079
Total liabilities and stockholders’ equity	Total 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.

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,
2021 2020 2021 2020
Interest and dividend income:
Loans, including fees $ 67,814 $ 70,440 $ 135,213 $ 148,301
Debt securities 7,529 7,825 14,966 15,222
Deposits in financial institutions and Fed Funds sold 167 186 294 1,057
Equity securities and other investments 672 891 1,335 1,741
Total interest and dividend income 76,182 79,342 151,808 166,321
Interest expense:
Transaction and savings deposits 1,661 2,471 3,641 9,023
Certificates and other time deposits 2,423 6,515 5,484 14,755
Advances from FHLB 1,829 2,801 3,641 5,680
Subordinated debentures and subordinated notes 3,138 1,798 6,276 3,701
Total interest expense 9,051 13,585 19,042 33,159
Net interest income 67,131 65,757 132,766 133,162
Provision for credit losses 0 16,172 0 47,948
Provision for credit losses on unfunded commitments 577 2,799 7 6,680
Net interest income after provision for credit losses 66,554 46,786 132,759 78,534
Noninterest income:
Service charges and fees on deposit accounts 3,847 2,960 7,476 6,602
Loan fees 1,823 1,240 3,164 2,085
Gain on sales of securities 0 2,879 0 2,879
Gain on sale of mortgage loans held for sale 385 308 892 450
Government guaranteed loan income, net 3,448 11,006 9,996 11,445
Other 2,953 2,897 5,100 5,076
Total noninterest income 12,456 21,290 26,628 28,537
Noninterest expense:
Salaries and employee benefits 23,451 20,019 46,383 38,889
Occupancy and equipment 4,233 3,994 8,329 8,267
Professional and regulatory fees 3,086 2,796 6,527 4,992
Data processing and software expense 2,536 2,434 4,855 4,523
Marketing 1,841 561 2,750 1,644
Amortization of intangibles 2,517 2,696 5,054 5,392
Telephone and communications 337 308 674 627
COVID expenses 0 1,245 0 1,245
Other 3,716 6,008 6,742 10,027
Total noninterest expense 41,717 40,061 81,314 75,606
Income before income tax expense 37,293 28,015 78,073 31,465
Income tax expense 7,837 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,
		2022		2021
Interest and dividend income:
Loans, including fees		$	71,443	$	67,399
Debt securities		7,762		7,437
Deposits in financial institutions and Fed Funds sold		262		127
Equity securities and other investments		910		663
Total interest and dividend income		80,377		75,626
Interest expense:
Transaction and savings deposits		1,751		1,980
Certificates and other time deposits		1,380		3,061
Advances from FHLB		1,547		1,812
Subordinated debentures and subordinated notes		2,659		3,138
Total interest expense		7,337		9,991
Net interest income		73,040		65,635
Benefit for credit losses		(500)		—
Provision (benefit) for credit losses on unfunded commitments		493		(570)
Net interest income after provision for credit losses		73,047		66,205
Noninterest income:
Service charges and fees on deposit accounts		4,710		3,629
Loan fees		2,794		1,341

Gain on sale of mortgage loans held for sale		307		507
Government guaranteed loan income, net		4,891		6,548
Equity method investment income		367		—
Other		2,028		2,147
Total noninterest income		15,097		14,172
Noninterest expense:
Salaries and employee benefits		27,513		22,932
Occupancy and equipment		4,517		4,096
Professional and regulatory fees		3,158		3,441
Data processing and software expense		2,921		2,319
Marketing		1,187		909
Amortization of intangibles		2,495		2,537
Telephone and communications		385		337
Merger and acquisition (“M&A”) expense		700		—

Other		3,696		3,026
Total noninterest expense		46,572		39,597
Income before income tax expense		41,572		40,780
Income tax expense		8,102		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.

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,
2021 2020 2021 2020
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, net 10,303 4,773 (9,134) 33,260
Reclassification adjustment for net gains included in net income 0 (2,879) 0 (2,879)
Net unrealized gains (losses) on securities available-for-sale 10,303 1,894 (9,134) 30,381
Net unrealized gains (losses) on derivative instruments designated as cash flow hedges 8,401 (4,668) 35,672 (936)
Other comprehensive income (loss), before tax 18,704 (2,774) 26,538 29,445
Income tax expense (benefit) 3,928 (518) 5,574 6,492
Other comprehensive income (loss), net of tax 14,776 (3,292) 20,964 22,953
Comprehensive income $ 44,232 $ 20,736 $ 82,207 $ 51,115


	Three Months Ended March 31,
		2022		2021
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 HTM		4,255		—

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.

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 Stock Treasury Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Total
Shares Amount Shares Amount
Balance at March 31, 2021 49,432,750 $ 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 withholdings 20,946 1 — — (83) — — (82)
Exercise of employee stock options, net of 19,616 and 3,831 shares withheld to cover tax withholdings and exercise price, respectively 44,599 — — — 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, 2021 49,498,295 $ 558 6,309,972 $ (156,147) $ 1,134,603 $ 216,704 $ 77,189 $ 1,272,907



Three Months Ended March 31, 2022
	Common Stock			Treasury Stock			APIC		Retained Earnings		AOCI		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	49,372,329	$	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 taxes	187,801	2		—	—		(2,839)		—		—		(2,837)
Exercise of employee stock options, net 28,064 and 5,738 shares withheld to cover taxes and exercise, respectively	34,320	—		—	—		98		—		—		98

Stock based compensation	—	—		—	—		3,318		—		—		3,318
Common stock follow on offering	4,314,474	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, 2022	53,908,924	$	605	6,638,094	$	(167,582)	$	1,297,161	$	298,830	$	18,982	$	1,447,996

Three Months Ended June 30, 2020
Common Stock Treasury Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income
Shares Amount Shares Amount Total
Balance at March 31, 2020 49,557,364 $ 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 withholdings 17,447 — — — (41) — — (41)
Exercise of employee stock options (0 shares withheld to cover tax withholdings or exercise price) 57,936 1 — — 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, 2020 49,632,747 $ 555 5,814,922 $ (144,160) $ 1,122,063 $ 143,277 $ 42,014 $ 1,163,749


Three Months Ended March 31, 2021
	Common Stock			Treasury Stock			APIC		Retained Earnings		AOCI
	Shares	Amount		Shares	Amount								Total
Balance at December 31, 2020	49,337,768	$	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 taxes	58,110	—		—	—		(468)		—		—			(468)
Exercise of employee stock options, net of 18,052 and 3,474 shares withheld to cover taxes and exercise, respectively	184,494	2		—	—		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, 2021	49,432,750	$	557	6,309,972	$	(156,147)	$	1,131,324	$	195,661	$	62,413		$	1,233,808

See accompanying Notes to ~~Condensed~~ Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

~~Condensed~~ Consolidated Statements of ~~Changes in Stockholders’ Equity~~Cash 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 Stock Treasury Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income
Shares Amount Shares Amount Total
Balance at December 31, 2020 49,337,768 $ 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 withholdings 79,056 1 — — (551) — — (550)
Exercise of employee stock options, net of 37,668 and 7,305 shares withheld to cover tax withholdings and exercise price, respectively 229,093 2 — — 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, 2021 49,498,295 $ 558 6,309,972 $ (156,147) $ 1,134,603 $ 216,704 $ 77,189 $ 1,272,907

Six Months Ended June 30, 2020
Common Stock Treasury Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
(Loss) Income
Shares Amount Shares Amount Total
Balance at December 31, 2019 51,063,869 $ 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 withholdings 86,279 1 — — (644) — — (643)
Exercise of employee stock options, net of 98,836 and 139,715 shares withheld to cover tax withholdings and exercise price, respectively 474,810 5 — — 916 — — 921
Stock warrants exercised 10,000 — — — 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, 2020 49,632,747 $ 555 5,814,922 $ (144,160) $ 1,122,063 $ 143,277 $ 42,014 $ 1,163,749


	For the Three Months Ended March 31,
	2022		2021
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 intangibles	4,378		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 expense	3,318		2,478

Excess tax benefit from stock compensation	(992)		(154)
Net amortization of premiums on debt securities	811		730
Unrealized loss on equity securities recognized in earnings	513		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 asset	280		(128)
Originations of loans held for sale	(12,613)		(1,096)
Proceeds from sales of loans held for sale	21,293		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 liabilities	34,729		(8,437)
Net cash provided by operating activities	68,218		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 securities	33,880		40,102
Purchases of HTM debt securities	(5,068)		(4,335)
Maturity, calls and paydowns of HTM debt securities	25		1,222
Purchases of other investments	(91)		(233)
Proceeds from sales of equity securities	1,470		—
Net loans originated	(332,290)		(184,586)
Proceeds from sale of government guaranteed loans	4,910		—
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 deposits	525,987		391,799
Net increase (decrease) in advances from FHLB	224		(39)

Net change in securities sold under agreement to repurchase	927		552

Net proceeds on sale of common stock in public offering	153,869		—
Payments to tax authorities for stock-based compensation	(2,837)		(468)
Proceeds from exercise of employee stock options	98		2,879

Purchase of treasury stock	—		(4,074)
Dividends paid	(9,913)		(8,358)


Net cash provided by financing activities	668,355		382,291
Net increase in cash and cash equivalents	171,789		237,204
Cash and cash equivalents at beginning of period	379,784		230,825
Cash and cash equivalents at end of period	$	551,573	$	468,029

See accompanying Notes to ~~Condensed~~ Consolidated Financial Statements.

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,
2021 2020
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 intangibles 7,420 7,856
Net accretion of time deposit premium, debt discount and debt issuance costs (132) (974)
Provision for credit losses 7 54,628
Accretion of loan purchase discount (3,447) (7,454)
Stock-based compensation expense 5,170 3,803
Excess tax benefit from stock compensation (269) (1,423)
Net amortization of premiums on debt securities 1,548 1,746
Unrealized loss (gain) on equity securities recognized in earnings 136 (213)
Change in cash surrender value and mortality rates of BOLI (449) (961)
Net gain on sales of debt securities 0 (2,879)
Change in fair value of government guaranteed loans using fair value option 416 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 sale 59,875 39,586
Loss on sale of other real estate owned 0 209
Gain on sale of bank premises, furniture and equipment 0 (358)
Write-down of other real estate owned 174 0
Termination of derivatives designated as hedging instruments 43,900 0
Decrease (increase) in other assets 26,384 (13,291)
(Decrease) increase in accounts payable and other liabilities (4,178) 10,706
Net cash provided by operating activities 147,190 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 securities 0 90,897
Proceeds from maturities, calls and pay downs of available for sale debt securities 88,361 146,525
Purchases of held to maturity debt securities (19,877) 0
Maturity, calls and paydowns of held to maturity debt securities 1,953 826
Purchases of other investments (502) (20,150)
Net loans originated (344,869) (636,536)
Proceeds from sale of government guaranteed loans 1,692 8,384
Net additions to bank premises, furniture and equipment (10,742) (1,090)
Proceeds from sales of bank premises, furniture and equipment 0 2,157
Proceeds from sales of other real estate owned 0 1,843
Net cash used in investing activities (435,780) (728,609)
Cash flows from financing activities:
Net increase in deposits 466,130 231,882
Net (decrease) increase in advances from FHLB (78) 409,924
Redemption of subordinated debt 0 (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 options 3,549 4,068
Proceeds from exercise of stock warrants 0 109
Purchase of treasury stock (4,074) (49,557)
Dividends paid (16,771) (17,291)
Net cash provided by financing activities 447,792 569,764
Net increase in cash and cash equivalents 159,202 (91,244)
Cash and cash equivalents at beginning of period 230,825 251,550
Cash and cash equivalents at end of period $ 390,027 $ 160,306

~~See accompanying~~ Notes to ~~Condensed Consolidated Financial Statements.~~

~~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, 2021~~March 31, 2022 and December 31, ~~2020, condensed~~2021, 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 ~~six~~three months ended ~~June 30, 2021~~March 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, ~~2020~~2021 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

~~Reclassifications~~Reclassifications

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 ~~are~~is 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, 2021~~March 31, 2022 and ~~2020:~~
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Earnings (numerator)
Net income $ 29,456 $ 24,028 $ 61,243 $ 28,162
Shares (denominator)
Weighted average shares outstanding for basic EPS 49,476 49,597 49,435 50,161
Dilutive effect of employee stock-based awards 855 130 752 222
Adjusted weighted average shares outstanding 50,331 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,
		2022		2021
Earnings (numerator)
Net income		$	33,470	$	31,787


Shares (denominator)
Weighted average shares outstanding for basic EPS		50,695		49,394
Dilutive effect of employee stock-based awards		876		604
Adjusted weighted average shares outstanding		51,571		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 ~~1,651~~80 antidilutive shares excluded from the diluted EPS weighted average shares outstanding ~~477~~ relating to restricted stock units (“RSUs”) and ~~1,174~~none relating to stock options. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, there were ~~1,353~~75 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, ~~226~~23 relating to RSUs and ~~1,127~~52 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 Taxes~~2022-01, “Derivatives and Hedging (Topic ~~740)" ("~~815)” (“ASU ~~2019-12"~~2022-01”) ~~simplifies~~clarifies 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 exceptions~~these portfolios more accessible and ~~improves~~renamed that method the ~~consistent application of GAAP by clarifying and amending other existing guidance.~~“portfolio layer” method. ASU ~~2019-12 was~~2022-01 is effective ~~for us on~~ January 1, ~~2021~~2023 and ~~did~~is 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,
		2021		2020			2022		2021
		(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 interest	Cash paid for interest	$	20,022	$	35,116	Cash paid for interest	$	5,368	$	7,602
Cash paid for income taxes	Cash paid for income taxes	15		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 assets		334		4,100
Transfer of other real estate owned to other assets for losses incurred upon sale and expected to be collected from the SBA		0		327
Transfer of AFS debt securities to HTM debt securities						Transfer of AFS debt securities to HTM debt securities	117,001		—
Net foreclosure of OREO and repossessed assets						Net foreclosure of OREO and repossessed assets	1,062		—

Noncash assets acquired in business combination1						Noncash assets acquired in business combination1

LHI						LHI	(681)		—

Goodwill						Goodwill	681		—

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, the~~The Company's Board of Directors (the “Board”) ~~originally~~has 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 program~~shares. 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 shares~~Shares 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 held~~periods indicated are as ~~treasury stock at an average price per share of $26.83 and $24.78, respectively.~~follows:


	Three Months Ended March 31,
	2022	2021
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.

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, 2021~~March 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, 2021~~March 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,
2021 2020 2021 2020
Unrealized gain (loss) recognized on equity securities with a readily determinable fair value $ 63 $ 462 $ (136) $ 213


	Three Months Ended March 31,
		2022		2021
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, 2021~~March 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 sale~~AFS and ~~held to maturity~~HTM debt securities are as follows:

June 30, 2021
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses ACL Fair Value
Available for sale
Corporate bonds $ 195,342 $ 10,032 $ 4 $ 0 $ 205,370
Municipal securities 117,277 8,704 177 0 125,804
Mortgage-backed securities 233,997 11,990 1,097 0 244,890
Collateralized mortgage obligations 375,506 15,057 572 0 389,991
Asset-backed securities 59,091 2,292 349 0 61,034
Collateralized loan obligations 50,149 1 0 0 50,150
$ 1,031,362 $ 48,076 $ 2,199 $ 0 $ 1,077,239


		June 30, 2021											March 31, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
Held to maturity
AFS												AFS

Corporate bonds												Corporate bonds	$	262,839	$	5,975	$	1,593	$	—	$	267,221
Municipal securities												Municipal securities	50,335		993		1,006		—		50,322
Mortgage-backed securities												Mortgage-backed securities	153,215		593		5,838		—		147,970
Collateralized mortgage obligations												Collateralized mortgage obligations	493,702		613		16,192		—		478,123
Asset-backed securities												Asset-backed securities	50,452		721		1,233		—		49,940
Collateralized loan obligations												Collateralized loan obligations	70,179		—		506		—		69,673
													$	1,080,722	$	8,895	$	26,368	$	—	$	1,063,249

													Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
HTM												HTM
Mortgage-backed securities	Mortgage-backed securities	$	21,073	$	727	$	105	$	0	$	21,695	Mortgage-backed securities	$	39,072	$	—	$	3,340	$	—	$	35,732
Collateralized mortgage obligations	Collateralized mortgage obligations	1,423		73		0		0		1,496		Collateralized mortgage obligations	37,618		203		2,339		—		35,482
Municipal securities	Municipal securities	26,142		2,176		20		0		28,298		Municipal securities	104,575		603		6,574		—		98,604
		$	48,638	$	2,976	$	125	$	0	$	51,489		$	181,265	$	806	$	12,253	$	—	$	169,818

The Company ~~did not~~elected to transfer ~~any~~25 AFS debt securities ~~from available for sale to held to maturity at~~with an aggregate fair value ~~during~~of $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.


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
AFS

Corporate bonds	$	198,396	$	10,294	$	178	$	—	$	208,512
Municipal securities	116,100		8,261		431		—		123,930
Mortgage-backed securities	124,230		4,326		1,489		—		127,067
Collateralized mortgage obligations	424,174		12,240		2,350		—		434,064
Asset-backed securities	53,466		1,616		519		—		54,563
Collateralized loan obligations	45,089		—		167		—		44,922
	$	961,455	$	36,737	$	5,134	$	—	$	993,058

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
HTM
Mortgage-backed securities	$	25,767	$	45	$	508	$	—	$	25,304
Collateralized mortgage obligations	5,490		560		—		—		6,050
Municipal securities	28,179		2,015		102		—		30,092
	$	59,436	$	2,620	$	610	$	—	$	61,446

December 31, 2020
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses ACL Fair Value
Available for sale
Corporate bonds $ 173,050 $ 6,417 $ 1,297 $ 0 $ 178,170
Municipal securities 115,533 10,129 6 0 125,656
Mortgage-backed securities 240,320 16,047 42 0 256,325
Collateralized mortgage obligations 388,080 20,895 66 0 408,909
Asset-backed securities 52,335 2,934 0 0 55,269
$ 969,318 $ 56,422 $ 1,411 $ 0 $ 1,024,329
December 31, 2020
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses ACL Fair Value
Held to maturity
Mortgage-backed securities $ 6,982 $ 849 $ 0 $ 0 $ 7,831
Collateralized mortgage obligations 1,620 103 0 0 1,723
Municipal securities 22,270 2,459 0 0 24,729
$ 30,872 $ 3,411 $ 0 $ 0 $ 34,283

The following tables disclose the Company’s ~~available for sale~~AFS 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 Months				12 Months or More				Totals					Less Than 12 Months				12 Months or More				Totals
		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
AFS														AFS

Corporate bonds	Corporate bonds	$	3,246	$	4	$	0	$	0	$	3,246	$	4	Corporate bonds	$	72,219	$	1,593	$	—	$	—	$	72,219	$	1,593
Municipal securities	Municipal securities	12,753		151		2,314		26		15,067		177		Municipal securities	11,731		902		1,889		104		13,620		1,006
Mortgage-backed securities	Mortgage-backed securities	62,811		1,097		0		0		62,811		1,097		Mortgage-backed securities	57,918		2,515		27,791		3,323		85,709		5,838
Collateralized mortgage obligations	Collateralized mortgage obligations	64,909		572		0		0		64,909		572		Collateralized mortgage obligations	338,386		13,597		23,610		2,595		361,996		16,192
Asset-backed securities	Asset-backed securities	11,626		349		0		0		11,626		349		Asset-backed securities	24,209		464		10,918		769		35,127		1,233
Collateralized loan obligations														Collateralized loan obligations	69,673		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

HTM														HTM
Mortgage-backed securities	Mortgage-backed securities	$	15,028	$	105	$	0	$	0	$	15,028	$	105	Mortgage-backed securities	$	19,592	$	1,784	$	16,141	$	1,556	$	35,733	$	3,340
Municipal securities	Municipal securities	2,031		20		0		0		2,031		20		Municipal securities	75,221		6,281		2,005		293		77,226		6,574
Collateralized mortgage obligations														Collateralized mortgage obligations	31,162		2,339		—		—		31,162		2,339
		$	17,059	$	125	$	0	$	0	$	17,059	$	125		$	125,975	$	10,404	$	18,146	$	1,849	$	144,121	$	12,253


		December 31, 2020													December 31, 2021
		Less Than 12 Months				12 Months or More				Totals					Less Than 12 Months				12 Months or More				Totals
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AFS														AFS
		Value		Loss		Value		Loss		Value		Loss
Available for sale

Corporate bonds														Corporate bonds	$	7,072	$	178	$	—	$	—	$	7,072	$	178
Municipal securities	Municipal securities	$	2,667	$	6	$	0	$	0	$	2,667	$	6	Municipal securities	12,704		194		4,350		237		17,054		431
Corporate bonds		31,953		1,297		0		0		31,953		1,297
Mortgage-backed securities	Mortgage-backed securities	34,402		108		0		0		34,402		108		Mortgage-backed securities	40,276		1,283		4,677		206		44,953		1,489
Collateralized mortgage obligations														Collateralized mortgage obligations	106,063		2,350		—		—		106,063		2,350
Asset-backed securities														Asset-backed securities	11,265		519		—		—		11,265		519
Collateralized loan obligations														Collateralized loan obligations	44,922		167		—		—		44,922		167
															$	222,302	$	4,691	$	9,027	$	443	$	231,329	$	5,134
		$	69,022	$	1,411	$	0	$	0	$	69,022	$	1,411
HTM														HTM
Mortgage-backed securities														Mortgage-backed securities	$	24,214	$	508	$	—	$	—	$	24,214	$	508
Municipal securities														Municipal securities	4,583		102		—		—		4,583		102
															$	28,797	$	610	$	—	$	—	$	28,797	$	610

Management evaluates ~~available for sale~~AFS 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 sale~~AFS debt securities in an unrealized loss position totaled 2293 and 1134 at ~~June 30, 2021~~March 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

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 ~~tables~~table 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.


	March 31, 2022
	AFS				HTM
	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 years	204,782		206,454		4,304		4,330
Due after ten years	68,980		69,442		100,271		94,274
	313,174		317,543		104,575		98,604
Mortgage-backed securities and collateralized mortgage obligations	646,917		626,093		76,690		71,214
Asset-backed securities	50,452		49,940		—		—
Collateralized loan obligations	70,179		69,673		—		—
	$	1,080,722	$	1,063,249	$	181,265	$	169,818


		June 30, 2021									December 31, 2021
		Available for Sale				Held to Maturity					AFS				HTM
		Amortized Cost		Fair Value		Amortized Cost		Fair Value			Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due from one year to five years	Due from one year to five years	$	5,186	$	5,308	$	0	$	0	Due from one year to five years	$	5,201	$	5,241	$	—	$	—
Due from five years to ten years	Due from five years to ten years	175,614		184,705		3,871		4,180		Due from five years to ten years	178,203		186,972		3,849		4,115
Due after ten years	Due after ten years	131,819		141,161		22,271		24,118		Due after ten years	131,092		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 obligations	Mortgage-backed securities and collateralized mortgage obligations	609,503		634,881		22,496		23,191		Mortgage-backed securities and collateralized mortgage obligations	548,404		561,131		31,257		31,354
Asset-backed securities	Asset-backed securities	59,091		61,034		0		0		Asset-backed securities	53,466		54,563		—		—
Collateralized loan obligations	Collateralized loan obligations	50,149		50,150		0		0		Collateralized loan obligations	45,089		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 Sale Held to Maturity
Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Due from one year to five years $ 4,935 $ 5,139 $ 0 $ 0
Due from five years to ten years 154,576 158,510 3,334 3,591
Due after ten years 129,072 140,177 18,936 21,138
288,583 303,826 22,270 24,729
Mortgage-backed securities and collateralized mortgage obligations 628,400 665,234 8,602 9,554
Asset-backed securities 52,335 55,269 0 0
$ 969,318 $ 1,024,329 $ 30,872 $ 34,283

~~Proceeds from~~No sales of AFS debt securities ~~available for sale and gross gains and losses for~~occurred during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020 were as follows:~~2021.

Six Months Ended June 30,
2021 2020
Proceeds for sales $ 0 $ 90,897
Gross realized gains 0 2,879
Gross realized losses 0 0

As of ~~June 30, 2021~~March 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, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

1615

5. ~~Loans Held for Investment~~LHI and ACL

~~Loans held for investment~~LHI in the accompanying ~~condensed~~ consolidated balance sheets are summarized as follows:


		June 30, 2021		December 31, 2020			March 31, 2022		December 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 land	Construction and land	$	871,765	$	693,030	Construction and land	$	1,297,338	$	1,062,144
Farmland	Farmland	13,661		13,844		Farmland	48,095		55,827
1 - 4 family residential	1 - 4 family residential	513,635		524,344		1 - 4 family residential	604,408		542,566
Multi-family residential	Multi-family residential	367,445		424,962		Multi-family residential	272,250		310,241
Owner occupied commercial (“OOCRE”)		744,899		717,472
Non-owner occupied commercial (“NOOCRE”)		1,986,538		1,904,132
OOCRE						OOCRE	633,615		665,537
NOOCRE						NOOCRE	2,145,826		2,120,309
Commercial	Commercial	1,771,100		1,559,546		Commercial	2,125,900		2,006,876
MW	MW	559,939		577,594		MW	542,877		565,645
Consumer	Consumer	10,530		13,000		Consumer	9,533		11,998
		6,839,512		6,427,924			7,679,842		7,341,143

Deferred loan fees, net	Deferred loan fees, net	(7,486)		(2,468)		Deferred loan fees, net	(11,536)		(9,489)
ACL	ACL	(99,543)		(105,084)		ACL	(72,485)		(77,754)
Loans held for investment carried at amortized cost, net		6,732,483		6,320,372
LHI carried at amortized cost, net						LHI carried at amortized cost, net	7,595,821		7,253,900

Loans held for investment, carried at fair value:
LHI, carried at fair value:						LHI, carried at fair value:
PPP loans	PPP loans	291,401		358,042		PPP loans	18,512		53,369

Total loans held for investment, net		$	7,023,884	$	6,678,414
Total LHI, net						Total LHI, net	$	7,614,333	$	7,307,269

Included in the total ~~loans held for investment,~~LHI, net, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 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, 2021~~March 31, 2022 and December 31, ~~2020~~2021 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, 2021~~March 31, 2022 and December 31, ~~2020~~2021 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 condensed~~Company's consolidated statements of income and in change in fair value of government guaranteed loans using fair value option on the ~~accompanying condensed~~Company's consolidated statements of cash ~~flows.~~flows:

June 30, 2021 June 30, 2020
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
PPP fee income $ 1,004 $ 7,628 $ 12,516 $ 12,516
Net gain (loss) due to the change in fair value 622 335 (2,005) (2,005)


	March 31, 2022		March 31, 2021

PPP fee income	$	—	$	6,624
Net gain (loss) due to the change in fair value	175		(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.

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 investment~~LHI is as follows:


		Three Months Ended June 30, 2021																			Three Months Ended March 31, 2022
		Construction and Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total			Construction and Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
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 loans		462		(1)		130		(627)		2,408		(595)		2,750		(76)		4,451
Credit loss expense PCD loans		13		0		(173)		0		(17)		(1,666)		(2,610)		2		(4,451)
Balance at beginning of year																				Balance 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 loans																				Credit loss (benefit) expense non-PCD loans	1,595		(29)		224		(537)		813		(4,114)		4,044		622		2,618
Credit loss (benefit) expense PCD loans																				Credit loss (benefit) expense PCD loans	(5)		—		(72)		—		(1,264)		673		(2,442)		(8)		(3,118)
Charge-offs	Charge-offs	0		0		(288)		0		(689)		0		(5,620)		(20)		(6,617)		Charge-offs	—		—		—		—		(1,341)		(553)		(3,294)		(134)		(5,322)
Recoveries	Recoveries	0		0		23		0		500		0		659		42		1,224		Recoveries	—		—		—		—		—		400		144		9		553
Ending Balance	Ending 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 Land Farmland Residential Multifamily OOCRE NOOCRE Commercial Consumer Total
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 loans 2,818 5 2,609 1,529 1,597 7,424 1,202 (11) 17,173
Credit loss expense PCD loans (635) 0 (150) 0 (4,172) 2,962 998 (4) (1,001)
Charge-offs 0 0 0 0 0 0 (1,740) (57) (1,797)
Recoveries 0 0 0 0 0 0 7 0 7
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 Land Farmland Residential Multifamily OOCRE NOOCRE Commercial Consumer Total
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) 0 1,001 (1,474) (1,560) (3) (2,234)
Charge-offs 0 0 (303) 0 (689) 0 (5,966) (38) (6,996)
Recoveries 0 0 26 0 500 0 885 44 1,455
Ending Balance $ 7,280 0 $ 46 $ 6,660 $ 4,187 $ 11,324 $ 37,242 $ 32,560 $ 244 $ 99,543

Six Months Ended June 30, 2020
Construction and Land Farmland Residential Multifamily OOCRE NOOCRE Commercial Consumer Total
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) 4 3,716 628 3,406 5,138 7,025 217 19,427
Impact of adoption ASC 326 PCD loans 645 0 908 0 7,682 2,037 8,335 103 19,710
Credit loss expense non-PCD loans 5,783 (2) 5,097 3,835 2,515 17,379 11,428 (26) 46,009
Credit loss expense PCD loans (522) 0 (323) 0 (1,695) 3,374 1,124 (19) 1,939
Charge-offs 0 0 0 0 0 0 (1,740) (125) (1,865)
Recoveries 0 0 1 0 0 0 36 274 311
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 Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
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	—		—		3		—		—		—		226		2		231
Ending Balance	$	6,805	$	47	$	6,968	$	4,814	$	9,122	$	39,503	$	37,381	$	296	$	104,936

The majority of the ~~Company’s~~Company'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, 2021~~March 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, 2021					December 31, 2020						March 31, 2022					December 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	$	0		$	199	$	11

OOCRE			1,413		430			0		0

NOOCRE	NOOCRE		19,321		6,147			16,080		0		NOOCRE		$	17,551	$	4,572		$	17,908	$	7,808
Commercial	Commercial		4,053		1,508			8,666		4,668		Commercial		1,085		84			1,702		—

Consumer	Consumer		1,063		0			143		50		Consumer		1,063		538			1,063		—
Total	Total		$	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.

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.

Nonaccrual loans aggregated by class of loans, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, were as follows:
June 30, 2021 December 31, 2020
Nonaccrual Nonaccrual With No ACL Nonaccrual Nonaccrual With No ACL
Real estate:
1 - 4 family residential $ 1,201 $ 1,201 $ 3,308 $ 3,199
OOCRE 16,960 16,385 6,266 5,645
NOOCRE 35,181 15,739 40,830 19,213
Commercial 22,424 1,743 29,318 1,015
Consumer 1,228 1,216 1,374 1,220
Total $ 76,994 $ 36,284 $ 81,096 $ 30,292


	March 31, 2022				December 31, 2021
	Nonaccrual		Nonaccrual With No ACL			Nonaccrual		Nonaccrual With No ACL
Real estate:


1 - 4 family residential	$	1,005	$	1,005		$	990	$	990

OOCRE	13,446		13,446			14,236		13,824
NOOCRE	17,739		189			17,978		191
Commercial	13,259		1,317			15,267		4,207

Consumer	1,231		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, 2021~~March 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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, is as follows:


		June 30, 2021																	March 31, 2022
		30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)			30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)
Real estate:	Real estate:																	Real estate:
Construction and land	Construction and land	$	0	$	0	$	0	$	0	$	869,324	$	2,441	$	871,765	$	0	Construction and land	$	1,400	$	—	$	—	$	1,400	$	1,294,062	$	1,876	$	1,297,338	$	—
Farmland	Farmland	0		0		0		0		13,661		0		13,661		0		Farmland	—		—		—		—		48,095		—		48,095		—
1 - 4 family residential	1 - 4 family residential	1,837		0		1,145		2,982		509,444		1,209		513,635		43		1 - 4 family residential	2,429		—		926		3,355		599,891		1,162		604,408		—
Multi-family residential	Multi-family residential	0		0		0		0		367,445		0		367,445		0		Multi-family residential	—		—		—		—		272,250		—		272,250		—
OOCRE	OOCRE	143		4,612		11,740		16,495		699,518		28,886		744,899		0		OOCRE	3,114		509		13,446		17,069		593,946		22,600		633,615		—
NOOCRE	NOOCRE	855		12,501		3,359		16,715		1,941,201		28,622		1,986,538		0		NOOCRE	—		—		17,739		17,739		2,112,843		15,244		2,145,826		—
Commercial	Commercial	1,985		404		11,560		13,949		1,741,947		15,204		1,771,100		356		Commercial	4,026		6,280		3,881		14,187		2,104,273		7,440		2,125,900		264
MW	MW	0		0		0		0		559,939		0		559,939		0		MW	430		—		—		430		542,447		—		542,877		—
Consumer	Consumer	148		2		1,159		1,309		9,035		186		10,530		63		Consumer	68		35		1,161		1,264		8,099		170		9,533		—
Total	Total	$	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 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)			30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)
Real estate:	Real estate:																	Real estate:
Construction and land	Construction and land	$	0	$	0	$	0	$	0	$	690,345	$	2,685	$	693,030	$	0	Construction and land	$	—	$	—	$	—	$	—	$	1,059,796	$	2,348	$	1,062,144	$	—
Farmland	Farmland	0		0		0		0		13,844		0		13,844		0		Farmland	—		—		—		—		55,827		—		55,827		—
1 - 4 family residential	1 - 4 family residential	2,338		122		4,802		7,262		508,341		8,741		524,344		1,670		1 - 4 family residential	2,073		—		1,008		3,081		538,307		1,178		542,566		24
Multi-family residential	Multi-family residential	0		0		0		0		424,962		0		424,962		0		Multi-family residential	—		—		—		—		310,241		—		310,241		—
OOCRE	OOCRE	2,278		2,143		2,814		7,235		672,246		37,991		717,472		1,280		OOCRE	4,538		965		11,622		17,125		620,848		27,564		665,537		—
NOOCRE	NOOCRE	7,675		2,911		17,586		28,172		1,832,784		43,176		1,904,132		0		NOOCRE	936		—		192		1,128		2,100,981		18,200		2,120,309		—
Commercial	Commercial	1,983		1,431		20,360		23,774		1,516,312		19,460		1,559,546		1,230		Commercial	1,525		4,395		3,708		9,628		1,988,622		8,626		2,006,876		191
MW	MW	0		0		0		0		577,594		0		577,594		0		MW	—		—		—		—		565,645		—		565,645		—
Consumer	Consumer	75		77		1,338		1,490		11,308		202		13,000		24		Consumer	135		105		1,082		1,322		10,499		177		11,998		20
Total	Total	$	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 basis~~and $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, 2021~~March 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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

There were no new TDRs during the three months ended March 31, 2022. The following ~~table~~tables 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 Structure Payment Deferrals Total Modifications Number of Loans
Six months ended June 30, 2021
Commercial $ 207 $ 0 $ 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 Structure		Payment Deferrals		Total Modifications		Number of Loans





Commercial real estate	$	240	$	—	$	240	1



Total	$	240	$	—	$	240	1

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, 2021~~March 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 during~~During 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 $57~~March 31, 2022 and ~~$179, respectively. Interest income recorded during the three and six months ended June 30, 2020 on TDR loans and~~2021, 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, 2021~~March 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
2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
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 mention 0 0 0 321 0 0 0 0 321


	Term Loans Amortized Cost Basis by Origination Year1
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
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


Substandard		0		0		0		1,185		0		0		0		0		1,185
PCD		0		0		0		0		0		2,441		0		0		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	$	0	$	13,661

Total farmland		$	1,549	$	534	$	469	$	3,367	$	3,023	$	3,554	$	1,165	$	0	$	13,661

1 - 4 family residential:	1 - 4 family residential:																			1 - 4 family residential:
Pass	Pass	$	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 mention	Special mention	0		0		0		152		0		421		0		0		573		Special mention	—		—		—		—		—		344		—		—		344
Substandard	Substandard	0		0		0		0		118		1,117		890		0		2,125		Substandard	—		—		—		—		—		980		567		—		1,547
PCD	PCD	0		0		0		0		0		1,209		0		0		1,209		PCD	—		—		—		—		—		1,162		—		—		1,162
Total 1 - 4 family residential	Total 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:
Pass	Pass	$	51,096	$	66,234	$	94,568	$	81,127	$	13,762	$	39,419	$	52	$	0	$	346,258	Pass	$	28,596	$	66,418	$	59,149	$	33,489	$	51,868	$	11,020	$	46	$	—	$	250,586
Special mention	Special mention	0		0		0		21,187		0		0		0		0		21,187		Special mention	—		—		—		—		21,664		—		—		—		21,664

Total multi-family residential	Total multi-family residential	$	51,096	$	66,234	$	94,568	$	102,314	$	13,762	$	39,419	$	52	$	0	$	367,445	Total multi-family residential	$	28,596	$	66,418	$	59,149	$	33,489	$	73,532	$	11,020	$	46	$	—	$	272,250

OOCRE:	OOCRE:																			OOCRE:
Pass	Pass	$	64,427	$	149,710	$	69,980	$	59,757	$	69,529	$	212,896	$	2,246	$	0	$	628,545	Pass	$	12,150	$	111,119	$	101,059	$	56,202	$	60,078	$	209,795	$	2,566	$	13,674	$	566,643
Special mention	Special mention	0		0		1,077		20,251		333		8,218		0		0		29,879		Special mention	—		2,397		889		1,037		—		5,713		—		—		10,036
Substandard	Substandard	0		414		0		25,656		881		30,638		0		0		57,589		Substandard	—		—		—		—		23,628		10,708		—		—		34,336
PCD	PCD	0		0		1,431		0		7,299		20,156		0		0		28,886		PCD	—		—		—		—		—		22,600		—		—		22,600
Total OOCRE	Total OOCRE	$	64,427	$	150,124	$	72,488	$	105,664	$	78,042	$	271,908	$	2,246	$	0	$	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:
Pass	Pass	$	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 mention	Special mention	0		238		2,747		15,678		22,176		45,872		493		0		87,204		Special mention	—		—		741		2,170		44,414		72,686		—		—		120,011
Substandard	Substandard	0		1,495		11,044		26,127		4,487		47,394		12,501		0		103,048		Substandard	—		—		—		1,770		9,889		40,934		—		—		52,593
PCD	PCD	0		0		0		18,855		0		9,767		0		0		28,622		PCD	—		—		—		—		13,785		1,459		—		—		15,244
Total NOOCRE	Total 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:
Pass	Pass	$	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 mention	Special mention	760		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
Substandard	Substandard	0		866		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
PCD	PCD	0		0		0		365		2,121		12,718		0		0		15,204		PCD	—		—		—		—		309		7,131		—		—		7,440
Total commercial	Total 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:
Pass	Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	558,400	$	0	$	558,400	Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	542,447	$	—	$	542,447
Special mention		0		0		0		0		0		0		1,539		0		1,539

Substandard																				Substandard	—		—		—		—		—		—		430		—		430

Total MW	Total MW	$	0	$	0	$	0	$	0	$	0	$	0	$	559,939	$	0	$	559,939	Total MW	$	—	$	—	$	—	$	—	$	—	$	—	$	542,877	$	—	$	542,877

Consumer:																				Consumer:
Pass																				Pass	$	685	$	899	$	1,411	$	437	$	310	$	3,341	$	968	$	—	$	8,051
Special mention																				Special mention	—		—		—		—		—		76		—		—		76
Substandard																				Substandard	—		—		—		2		—		170		1,064		—		1,236
PCD																				PCD	—		—		—		—		—		170		—		—		170
Total consumer																				Total consumer	$	685	$	899	$	1,411	$	439	$	310	$	3,757	$	2,032	$	—	$	9,533

Total Pass																				Total 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 $ 0 $ 9,092
Special mention 0 0 0 0 0 16 0 0 16
Substandard 0 0 3 3 107 59 1,064 0 1,236
PCD 0 0 0 0 26 160 0 0 186
Total consumer $ 325 $ 1,818 $ 845 $ 625 $ 3,423 $ 1,377 $ 2,117 $ 0 $ 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 Mention 760 4,605 5,219 65,726 31,726 56,917 5,846 3,448 174,247
Total Substandard 0 2,775 15,362 67,654 11,881 83,452 29,120 4,024 214,268
Total PCD 0 0 1,431 19,220 9,446 46,451 0 0 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

1~~Term loans amortized cost basis by origination year excludes $7,486 of deferred loan fees, net~~.

Term Loans Amortized Cost Basis by Origination Year1
2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
As of December 31, 2020
Construction and land:
Pass $ 155,358 $ 282,497 $ 179,372 $ 11,791 $ 9,938 $ 27,147 $ 21,066 $ 0 $ 687,169
Special mention 0 0 2,666 0 0 0 0 0 2,666
Substandard 0 0 510 0 0 0 0 0 510
PCD 0 0 0 0 0 2,685 0 0 2,685
Total construction and land $ 155,358 $ 282,497 $ 182,548 $ 11,791 $ 9,938 $ 29,832 $ 21,066 $ 0 $ 693,030
Farmland:
Pass $ 867 $ 972 $ 3,367 $ 3,688 $ 0 $ 3,656 $ 1,294 $ 0 $ 13,844
Total farmland $ 867 $ 972 $ 3,367 $ 3,688 $ 0 $ 3,656 $ 1,294 $ 0 $ 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 mention 0 1,077 154 760 0 687 0 0 2,678
Substandard 0 0 142 668 0 0 924 0 1,734
PCD 0 0 0 0 0 8,741 0 0 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 $ 0 $ 412,282
Special mention 0 0 12,680 0 0 0 0 0 12,680
Total multi-family residential $ 107,332 $ 106,559 $ 152,401 $ 18,722 $ 32,672 $ 7,218 $ 58 $ 0 $ 424,962
OOCRE:
Pass $ 113,741 $ 65,262 $ 75,940 $ 79,253 $ 79,202 $ 176,668 $ 5,532 $ 0 $ 595,598
Special mention 0 948 22,725 3,701 12,860 4,326 0 0 44,560
Substandard 370 0 10,579 3,830 11,315 6,822 201 6,206 39,323
PCD 0 0 0 0 7,951 30,040 0 0 37,991
Total OOCRE $ 114,111 $ 66,210 $ 109,244 $ 86,784 $ 111,328 $ 217,856 $ 5,733 $ 6,206 $ 717,472

NOOCRE:
Pass $ 361,246 $ 255,976 $ 445,079 $ 90,738 $ 174,893 $ 309,572 $ 13,413 $ 0 $ 1,650,917
Special mention 101 31,714 37,572 19,262 25,997 37,951 493 0 153,090
Substandard 1,226 0 9,850 0 4,562 4,108 0 23,098 14,105 0 56,949
PCD 0 0 18,744 0 6,652 17,780 0 0 43,176
Total NOOCRE $ 362,573 $ 297,540 $ 505,957 $ 114,108 $ 207,542 $ 388,401 $ 28,011 $ 0 $ 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 mention 1,306 2,539 8,224 10,033 1,201 2,165 26,922 3,670 56,060
Substandard 722 4,487 23,245 3,772 7,216 2,083 30,460 5,275 77,260
PCD 0 0 0 3,382 4,196 11,882 0 0 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 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 577,594 $ 0 $ 577,594
Total MW $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 577,594 $ 0 $ 577,594
Consumer:
Pass $ 2,489 $ 1,216 $ 1,038 $ 3,899 $ 887 $ 353 $ 1,475 $ 0 $ 11,357
Special mention 0 0 0 0 25 227 0 0 252
Substandard 0 0 0 60 0 66 1,063 0 1,189
PCD 0 0 0 36 0 166 0 0 202
Total consumer $ 2,489 $ 1,216 $ 1,038 $ 3,995 $ 912 $ 812 $ 2,538 $ 0 $ 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 Mention 1,407 36,278 84,021 33,756 40,083 45,356 27,415 3,670 271,986
Total Substandard 2,318 14,337 39,038 12,438 18,531 32,069 46,753 11,481 176,965
Total PCD 0 0 18,744 3,418 18,799 71,294 0 0 112,255
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
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
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 mention	2,420		—		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 mention	7,958		2,341		149		15,136		1,069		3,368		3,482		2,589		36,092
Substandard	15,662		5,843		6,286		14,908		4,167		2,779		20,500		4,342		74,487


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 Mention	10,378		4,547		2,886		66,204		17,488		58,918		3,482		3,078		166,981
Total Substandard	15,662		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,
		2021		2020		2021		2020				2022		2021
Balance at beginning of period	Balance at beginning of period	$	3,402	$	2,990	$	3,363	$	3,113	Balance at beginning of period		$	17,705	$	3,363

Increase from loan sales	Increase from loan sales	384		22		384		131		Increase from loan sales		1,491		—
Net recoveries		84		0		212		0
Servicing asset impairment, net of recoveries										Servicing asset impairment, net of recoveries		(280)		128
Amortization charged as a reduction to income	Amortization charged as a reduction to income	(145)		(72)		(234)		(304)		Amortization charged as a reduction to income		(748)		(89)
Balance at end of period	Balance 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.

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, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

During the ~~quarter~~three 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 investment~~Agriculture (“USDA”) LHI resulting in a gain of ~~$1,953.~~$533 and $3,628, respectively. During the ~~quarter~~three months ended ~~June 30, 2020,~~March 31, 2021, the Bank sold ~~$7,780 of~~no 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 condensed~~Company'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, 2021~~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:
June 30, 2021
Level 1
Inputs Level 2
Inputs Level 3
Inputs Total
Fair Value
Financial Assets:
Available for sale debt securities $ 0 $ 1,077,239 $ 0 $ 1,077,239
Equity securities with a readily determinable fair value 11,227 0 0 11,227
PPP loans 0 291,401 0 291,401
Loans held for sale(1)
0 6,605 0 6,605
Interest rate swap designated as hedging instruments 0 7,926 0 7,926
Correspondent interest rate swaps not designated as hedging instruments 0 334 0 334
Customer interest rate swaps not designated as hedging instruments 0 6,050 0 6,050
Correspondent interest rate caps and collars not designated as hedging instruments 0 1 0 1
Financial Liabilities:
Correspondent interest rate swaps not designated as hedging instruments $ 0 $ 6,406 $ 0 $ 6,406
Customer interest rate swaps not designated as hedging instruments 0 297 0 297
Customer interest rate caps and collars not designated as hedging instruments 0 1 0 1


	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 value	10,525		—		—		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	—		1		—		1

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		—		1

(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 $ 0 $ 1,024,329 $ 0 $ 1,024,329
Equity securities with a readily determinable fair value 11,363 0 0 11,363
PPP loans 0 358,042 0 358,042
Loans held for sale(1)
0 6,681 0 6,681
Interest rate swap designated as hedging instruments 0 17,543 0 17,543
Customer interest rate swaps not designated as hedging instruments 0 10,937 0 10,937
Correspondent interest rate caps and collars not designated as hedging instruments 0 1 0 1
Financial Liabilities:
Interest rate swap designated as hedging instruments $ 0 $ 2,255 $ 0 $ 2,255
Correspondent interest rate swaps not designated as hedging instruments 0 11,666 0 11,666
Customer interest rate caps and collars not designated as hedging instruments 0 1 0 1


	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 value	11,038		—		—		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	—		1		—		1
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		—		1

(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, 2021~~as 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 $ 0 $ 0 $ 15,618 $ 15,618
Servicing assets with a valuation allowance 0 0 2,560 2,560
Other real estate owned 0 0 2,467 2,467
As of December 31, 2020
  Assets:
Collateral dependent loans with an ACL $ 0 $ 0 $ 2,386 $ 2,386
Servicing assets with a valuation allowance 0 0 2,975 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 dependent~~2021, 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, 2021~~as 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, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were as follows:


				Fair Value									Fair Value
		Carrying Amount		Level 1		Level 2		Level 3			Carrying Amount		Level 1		Level 2		Level 3
June 30, 2021
March 31, 2022										March 31, 2022
Financial assets:	Financial assets:									Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	390,027	$	0	$	390,027	$	0	Cash and cash equivalents	$	551,573	$	—	$	551,573	$	—
Held to maturity debt securities		48,638		0		51,489		0
HTM debt securities										HTM debt securities	181,265		—		169,818		—
Securities purchased under agreements to resell										Securities purchased under agreements to resell	100,818		—		100,818		—
Loans held for sale(1)										Loans held for sale(1)	3,156		—		3,156		—
PPP Loans										PPP Loans	18,512		—		—		18,512

LHI, excluding PPP loans(2)										LHI, excluding PPP loans(2)	7,649,794		—		—		7,537,714
Accrued interest receivable										Accrued interest receivable	23,356		—		23,356		—
BOLI										BOLI	83,641		—		83,641		—
Servicing asset										Servicing asset	749		—		749		—
Equity securities without a readily determinable fair value										Equity securities without a readily determinable fair value	4,355		N/A		N/A		N/A
FHLB and FRB stock										FHLB and FRB stock	71,983		N/A		N/A		N/A
Financial liabilities:										Financial liabilities:
Deposits										Deposits	$	7,889,596	$	—	$	7,401,333	$	—
Advances from FHLB										Advances from FHLB	777,522		—		770,158		—
Accrued interest payable										Accrued interest payable	1,292		—		1,292		—
Subordinated debentures and subordinated notes										Subordinated debentures and subordinated notes	228,018		—		228,018		—
Securities sold under agreement to repurchase										Securities sold under agreement to repurchase	4,996		—		5,017		—

December 31, 2021										December 31, 2021
Financial assets:										Financial assets:
Cash and cash equivalents										Cash and cash equivalents	$	379,784	$	—	$	379,784	$	—
HTM debt securities										HTM debt securities	59,436		—		61,446		—
Securities purchased under agreements to resell										Securities purchased under agreements to resell	102,288		—		102,288		—
Loans held for sale(1)	Loans held for sale(1)	5,460		0		5,460		0		Loans held for sale(1)	16,140		—		16,140		—

Loans held for investment(2)		6,708,780		0		0		6,751,060
LHI(2)										LHI(2)	7,259,233		—		—		7,283,992
Accrued interest receivable	Accrued interest receivable	23,494		0		23,494		0		Accrued interest receivable	22,008		—		22,008		—
Bank-owned life insurance	Bank-owned life insurance	83,304		0		83,304		0		Bank-owned life insurance	83,194		—		83,194		—
Servicing asset	Servicing asset	1,165		0		1,165		0		Servicing asset	14,482		—		14,482		—
Equity securities without a readily determinable fair value	Equity securities without a readily determinable fair value	3,755		N/A		N/A		N/A		Equity securities without a readily determinable fair value	4,355		N/A		N/A		N/A
FHLB and FRB stock	FHLB and FRB stock	71,558		N/A		N/A		N/A		FHLB and FRB stock	71,892		N/A		N/A		N/A
Financial liabilities:	Financial liabilities:									Financial liabilities:
Deposits	Deposits	$	6,978,902	$	0	$	6,887,072	$	0	Deposits	$	7,363,615	$	—	$	7,145,175	$	—
Advances from FHLB	Advances from FHLB	777,640		0		791,331		0		Advances from FHLB	777,562		—		796,480		—
Accrued interest payable	Accrued interest payable	1,832		0		1,832		0		Accrued interest payable	1,507		—		1,507		—
Subordinated debentures and subordinated notes	Subordinated debentures and subordinated notes	262,766		0		262,766		0		Subordinated debentures and subordinated notes	227,764		—		227,764		—
Securities sold under agreement to repurchase	Securities sold under agreement to repurchase	1,811		0		1,789		0		Securities sold under agreement to repurchase	4,069		—		4,026		—

December 31, 2020
Financial assets:
Cash and cash equivalents		$	230,825	$	0	$	230,825	$	0
Held to maturity debt securities		30,872		0		34,283		0
Loans held for sale(1)		14,733		0		14,733		0

Loans held for investment(2)		6,317,986		0		0		6,335,402
Accrued interest receivable		23,798		0		23,798		0
Bank-owned life insurance		82,855		0		82,855		0
Servicing asset		388		0		486		0
Equity securities without a readily determinable fair value		3,575		N/A		N/A		N/A
FHLB and FRB stock		71,236		N/A		N/A		N/A
Financial liabilities:
Deposits		$	6,512,846	$	0	$	6,608,849	$	0
Advances from FHLB		777,718		0		782,321		0
Accrued interest payable		2,665		0		2,665		0
Subordinated debentures and subordinated notes		262,778		0		262,778		0
Securities sold under agreement to repurchase		2,225		0		2,199		0

(1) Loans held for sale represent mortgage loans held for sale that are carried at lower of cost or market.

(2) ~~Loans held for investment~~LHI 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, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are as shown in the table below.


		June 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
				Estimated Fair Value						Estimated Fair Value							Estimated Fair Value						Estimated Fair Value
		Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative			Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability 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		$	0	$	0	$	0	$	500,000	$	17,543	$	0

Interest rate swap on money market deposit account payments	Interest rate swap on money market deposit account payments	250,000		1,508		0		250,000		0		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 payments	Interest rate swap on customer loan interest payments	125,000		987		0		0		0		0		Interest rate swap on customer loan interest payments	125,000		—		7,780		125,000		—		867
Interest rate swap on customer loan interest payments	Interest rate swap on customer loan interest payments	125,000		1,347		0		0		0		0		Interest rate swap on customer loan interest payments	125,000		—		7,450		125,000		—		537
Interest rate swap on customer loan interest payments	Interest rate swap on customer loan interest payments	125,000		4,084		0		0		0		0		Interest rate swap on customer loan interest payments	125,000		—		6,223		125,000		2,460		—
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	625,000	$	7,926	$	0	$	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 swaps	Interest rate swaps	$	240,912	$	334	$	6,406	$	303,918	$	0	$	11,666	Interest rate swaps	$	403,389	$	15,462	$	348	$	379,787	$	1,527	$	3,498
Interest rate caps and collars	Interest rate caps and collars	41,916		1		0		41,916		1		0		Interest rate caps and collars	33,716		1		—		41,916		—		1
Commercial customer counterparty:	Commercial customer counterparty:													Commercial customer counterparty:
Interest rate swaps	Interest rate swaps	240,912		6,050		297		303,918		10,937		0		Interest rate swaps	403,389		289		15,327		379,787		3,261		1,442
Interest rate caps and collars	Interest rate caps and collars	41,916		0		1		41,916		0		1		Interest rate caps and collars	33,716		—		1		41,916		1		—
Total derivatives not designated as hedging instruments	Total 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/liabilities	Offsetting derivative assets/liabilities			(5,727)		(5,727)				1		1		Offsetting derivative assets/liabilities	—		(11,353)		(11,353)		—		(2,609)		(2,609)
Total derivatives	Total 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 income		Location 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 income		Location of (loss) gain reclassified from accumulated other comprehensive income into income				Gain (loss) recognized in other comprehensive income on derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location of gain (loss) reclassified from accumulated other comprehensive income into income		Gain recognized in other comprehensive income on derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location 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 advances	Interest rate swap on borrowing advances	$	0	$	0	Interest Expense		$	(2,089)	$	0	Interest Expense			Interest rate swap on borrowing advances	$	(264)	$	264	Interest Expense		$	26,357	$	—	Interest Expense
Interest rate swap on money market deposit account payments	Interest rate swap on money market deposit account payments	(132)		(207)		Interest Expense		(2,033)		(215)		Interest Income			Interest rate swap on money market deposit account payments	9,389		(171)		Interest Expense		3,895		(199)		Interest Expense
Commercial loan interest rate floor	Commercial loan interest rate floor	0		325		Interest Income		(546)		546		Interest Income			Commercial loan interest rate floor	—		—		Interest Income		—		541		Interest Income
Interest rate swaps on customer loan interest payments	Interest rate swaps on customer loan interest payments	8,533		(8)		Interest Income		0		0					Interest rate swaps on customer loan interest payments	(22,506)		1,078		Interest Income		(2,981)		224		Interest Income
Total	Total	$	8,401	$	110			$	(4,668)	$	331				Total	$	(13,381)	$	1,171			$	27,271	$	566

						Net gain recognized in other noninterest income						Net gain recognized in other noninterest income								Net gain recognized in other noninterest income						Net 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 collars	Interest rate swaps, caps and collars					$	92					$	75		Interest rate swaps, caps and collars					$	719					$	98

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 income Location of (loss) gain reclassified from accumulated other comprehensive income into income Gain (loss) recognized in other comprehensive income on derivative (Loss) gain reclassified from accumulated other comprehensive income into income Location 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 $ 0 Interest Expense $ 2,525 $ 0 Interest Expense
Interest rate swap on money market deposit account payments 3,763 (406) Interest Expense (3,936) (215) Interest Expense
Commercial loan interest rate floor 0 866 Interest Income 475 831 Interest Income
Interest rate swaps on customer loan interest payments 5,552 216 Interest Income 0 0
Total $ 35,672 $ 676 $ (936) $ 616
Derivatives not designated as hedging instruments: Net gain recognized in other noninterest income Net 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-year~~10 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.

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

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.

The following is a summary of the interest rate swaps, caps and collars outstanding as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.
June 30, 2021
Notional Amount Fixed Rate Floating Rate Maturity Fair 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
$ 1
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 Amount Fixed Rate Floating Rate Maturity Fair 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
$ 1
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)


	March 31, 2022
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair 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	$	1

	December 31, 2021
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair 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	$	1

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)

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, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:


		June 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
Commitments to extend credit	Commitments to extend credit	$	3,599,961	$	2,743,571	Commitments to extend credit	$	4,021,956	$	3,809,509
MW commitments	MW commitments	575,657		354,603		MW commitments	844,415		716,370
Standby and commercial letters of credit	Standby and commercial letters of credit	53,877		44,427		Standby and commercial letters of credit	75,495		65,881
Total	Total	$	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,
		2021		2020		2021		2020				2022		2021
Beginning balance for ACL on unfunded commitments	Beginning 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 adoption		0		0		0		840
Provision for credit losses on unfunded commitments		577		2,799		7		6,680
Provision (benefit) for credit losses on unfunded commitments										Provision (benefit) for credit losses on unfunded commitments		493		(570)
Ending balance of ACL on unfunded commitments	Ending 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, 2021~~March 31, 2022 and ~~2020.~~2021.

A summary of option activity under the 2010 Incentive Plan for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ and changes during the periods then ended, is presented below:


		2010 Incentive Plan							2010 Incentive Plan
		Non-Performance Based Stock Options
		Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2020		257,500	$	10.28	1.37 years

Exercised		(207,500)	10.14
Outstanding and exercisable at June 30, 2020		50,000	$	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, 2021	Outstanding at January 1, 2021	20,000	$	10.09	1.06 years	$	374	Outstanding at January 1, 2021	20,000	$	10.09	1.06

Exercised	Exercised	(18,550)	10.00					Exercised	(18,300)	10.00
Outstanding and exercisable at June 30, 2021		1,450	$	10.39	1.48 years	$	136
Outstanding and exercisable at March 31, 2021								Outstanding and exercisable at March 31, 2021	1,700	$	10.37	1.69

Outstanding at January 1, 2022								Outstanding at January 1, 2022	1,000	$	10.43	1.07	$	147

Outstanding and exercisable at March 31, 2022								Outstanding and exercisable at March 31, 2022	1,000	$	10.43	1.07	$	68

As of ~~June 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 and ~~June 30, 2020~~March 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 ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ is presented below:

Fair Value of Options Exercised as of June 30,
2021 2020
Nonperformance-based stock options exercised 552 5,851


	Fair Value of Options Exercised as of March 31,
	2022	2021
Nonperformance-based stock options exercised	—	543

2019 Amended Plan and Green Acquired Omnibus Plans

~~2021~~2022 Grants of ~~RSUs~~Restricted Stock Units

During the ~~six~~three months ending ~~June 30, 2021,~~March 31, 2022, the Company granted non-performance-based RSUs and performance-based ~~RSUs~~restricted 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 ~~six~~three months ending ~~June 30, 2021 with~~March 31, 2022 have an annual graded vesting over a three year period from the grant date.

The PSUs granted in February ~~2021~~2022 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, ~~2021~~2022 to January 31, ~~2024,~~2025, the performance condition performance period is from January 1, ~~2021~~2022 to December 31, ~~2023~~2024 and the market condition performance period is from February 1, ~~2021~~2022 to January 31, ~~2024.~~2025. A Monte Carlo simulation was used to estimate the fair value of PSUs on the grant date.

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,
2021 2020 2021 2020
2019 Amended Plan $ 2,202 $ 1,392 $ 4,183 $ 2,880
Veritex (Green) 2014 Plan 490 453 987 923


	Three Months Ended March 31,
	2022		2021
2019 Amended Plan	$	2,904	$	1,981
Veritex (Green) 2014 Plan	414		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 ~~six~~three 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, 2020		849,768	$	23.61	8.24 years
Granted		170,025	27.31

Forfeited		(22,456)	28.00

Exercised		(33,439)	19.19
Outstanding at June 30, 2020		963,898	$	24.32	8.08 years
Options exercisable at June 30, 2020		487,983	$	24.21	7.31 years
										Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2021	Outstanding at January 1, 2021	975,801	$	24.26	7.45 years	$	2,422		Outstanding at January 1, 2021	975,801	$	24.26	0
Granted	Granted	500	36.54						Granted	—	—

Forfeited	Forfeited	(13,996)	25.93						Forfeited	(13,996)	25.93

Exercised	Exercised	(133,252)	22.95						Exercised	(71,479)	23.03
Outstanding at June 30, 2021		829,053	$	24.46	7.31 years	$	9,083
Options exercisable at June 30, 2021		515,903	$	24.57	6.82 years	$	5,593
Weighted average fair value of options granted during the period			$	36.54
Outstanding at March 31, 2021									Outstanding at March 31, 2021	890,326	$	24.34	7.54
Options exercisable at March 31, 2021									Options exercisable at March 31, 2021	560,176	$	24.31	7.07

Outstanding at January 1, 2022									Outstanding at January 1, 2022	710,043	$	24.38	0	0

Exercised									Exercised	(38,128)	23.34
Outstanding at March 31, 2022									Outstanding at March 31, 2022	671,915	$	24.44	6.65	$	9,226
Options exercisable at March 31, 2022									Options exercisable at March 31, 2022	518,237	$	24.45	6.35	$	7,108

As of ~~June 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 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, 2021~~March 31, 2022 is expected to be recognized over the remaining weighted average requisite service period of ~~1.13~~0.92 years.

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 ~~six~~three months then ended, is as follows:


		2019 Amended Plan			2019 Amended Plan
		Non-performance-Based
		RSUs			RSUs
		Units	Weighted Average Grant Date Fair Value				Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020		175,688	$	21.65
Outstanding at January 1, 2021						Outstanding at January 1, 2021	441,132	$	20.39
Granted						Granted	232,149	26.38

Vested into shares						Vested into shares	(41,362)	23.29

Outstanding at March 31, 2021						Outstanding at March 31, 2021	631,919	$	22.40

Outstanding at January 1, 2022						Outstanding at January 1, 2022	598,051	$	23.39
Granted	Granted	328,900	26.55			Granted	169,355	40.77

Vested into shares	Vested into shares	(66,874)	24.75			Vested into shares	(96,141)	24.69
Forfeited	Forfeited	(470)	29.13			Forfeited	(2,350)	26.12
Outstanding at June 30, 2020		437,244	$	24.83

Outstanding at January 1, 2021		441,132	$	20.39
Granted		232,649	26.40

Vested into shares		(64,710)	24.27
Forfeited		(8,981)	26.29
Outstanding at June 30, 2021		600,090	$	22.21
Outstanding at March 31, 2022						Outstanding at March 31, 2022	668,915	$	27.59

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 ~~six~~three months then ended, is as follows:


		2019 Amended Plan				2019 Amended Plan
					Performance-Based
		PSUs				PSUs
		Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020		63,727	$	22.76
Granted		39,398	29.13

Vested into shares		(1,841)	26.65

Outstanding at June 30, 2020		101,284	$	25.22
								Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2021	Outstanding at January 1, 2021	100,195	$	23.20			Outstanding at January 1, 2021	100,195	$	23.20
Granted	Granted	56,276	25.94				Granted	56,276	26.12

Outstanding at June 30, 2021		156,471	$	24.17
Outstanding at March 31, 2021							Outstanding at March 31, 2021	156,471	$	24.23

Outstanding at January 1, 2022							Outstanding at January 1, 2022	156,471	$	24.17
Granted							Granted	39,429	40.38
Incremental PSUs granted upon performance condition met							Incremental PSUs granted upon performance condition met	31,655	0
Vested into shares							Vested into shares	(94,991)	21.49

Outstanding at March 31, 2022							Outstanding at March 31, 2022	132,564	$	30.15

As of ~~June 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 and ~~June 30, 2020~~March 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, 2021~~March 31, 2022 is expected to be recognized over the remaining weighted average requisite service period of ~~2.26~~2.31 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 ~~six~~three 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,
		2021	2020		2022	2021
Non-performance-based stock options exercised	Non-performance-based stock options exercised	4,286	943	Non-performance-based stock options exercised	1,562	2,090
RSUs vested	RSUs vested	1,986	100	RSUs vested	2,524	1,113
PSUs vested	PSUs vested	0	18	PSUs vested	2,270	—

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 ~~six~~three 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, 2020 386,969 $ 19.30 7.86 years 0
Granted 31,075 29.13
Forfeited (27,070) 21.38
Exercised (34,476) 19.54
Outstanding at June 30, 2020 356,498 $ 19.95 7.53 years
Options exercisable at June 30, 2020 214,342 $ 17.87 6.65 years
Outstanding at January 1, 2021 352,000 $ 19.99 6.97 years $ 2,124
Forfeited (4,251) 21.38
Exercised (59,522) 19.50
Outstanding at June 30, 2021 288,227 $ 20.07 6.49 years $ 4,447
Options exercisable at June 30, 2021 217,031 $ 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, 2021	352,000	$	19.99		0


Forfeited	(3,960)	21.38

Exercised	(54,241)	19.77
Outstanding at March 31, 2021	293,799	$	20.01	6.65
Options exercisable at March 31, 2021	222,312	$	18.84	6.19

Outstanding at January 1, 2022	217,804	$	19.62	6.13	$	4,424




Exercised	(28,622)	21.34
Outstanding at March 31, 2022	189,182	$	19.37	5.57	$	3,595
Options exercisable at March 31, 2022	180,830	$	18.81	5.45	$	3,501

As of ~~June 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 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, 2021~~March 31, 2022 is expected to be recognized over the remaining weighted average requisite service period of ~~0.66~~0.76 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 ~~six~~three months then ended, is as follows:


		RSUs				RSUs
		Units	Weighted Average Grant Date Fair Value			Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020		116,250	$	21.38
Granted		93,918	28.47
Vested into shares		(38,744)	29.13
Forfeited		(4,402)	29.13
Outstanding at June 30, 2020		167,022	$	25.33

Outstanding at January 1, 2021	Outstanding at January 1, 2021	156,187	$	22.64	Outstanding at January 1, 2021	156,187	$	21.15
Granted	Granted	5,692	26.12		Granted	5,692	26.12
Vested into shares	Vested into shares	(33,335)	21.38		Vested into shares	(33,335)	21.38
Forfeited	Forfeited	(3,119)	24.99		Forfeited	(2,646)	24.25
Outstanding at June 30, 2021		125,425	$	21.22
Outstanding at March 31, 2021					Outstanding at March 31, 2021	125,898	$	21.25

Outstanding at January 1, 2022					Outstanding at January 1, 2022	122,784	$	21.13
Granted					Granted	4,231	40.38
Vested into shares					Vested into shares	(32,931)	21.80
Forfeited					Forfeited	(2,558)	29.13
Outstanding at March 31, 2022					Outstanding at March 31, 2022	91,526	$	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 ~~six~~three months then ended, is as follows:


		PSUs				PSUs
		Units	Weighted Average Grant Date Fair Value			Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020		25,320	$	21.38
Granted		8,531	29.13

Outstanding at June 30, 2020		33,851	$	23.33

Outstanding at January 1, 2021	Outstanding at January 1, 2021	30,728	$	21.43	Outstanding at January 1, 2021	30,728	$	21.43
Granted	Granted	6,231	25.94		Granted	6,231	26.12

Forfeited	Forfeited	(1,060)	19.69		Forfeited	(724)	19.69
Outstanding at June 30, 2021		35,899	$	22.26
Outstanding at March 31, 2021					Outstanding at March 31, 2021	36,235	$	22.27

Outstanding at January 1, 2022					Outstanding at January 1, 2022	35,899	$	22.26
Granted					Granted	4,411	40.38
Incremental PSUs granted upon performance condition met					Incremental PSUs granted upon performance condition met	10,566	0
Vested into shares					Vested into shares	(31,703)	19.69

Outstanding at March 31, 2022					Outstanding at March 31, 2022	19,173	$	29.26

As of ~~June 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 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 ~~1.67~~2.13 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 ~~six~~three 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,
		2021		2020			2022		2021
Non-performance-based stock options exercised	Non-performance-based stock options exercised	$	1,757	$	1,001	Non-performance-based stock options exercised	$	1,143	$	1,582
RSUs vested	RSUs vested	855		142		RSUs vested	718		713

PSU vested						PSU vested	624		—

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 ~~six~~three 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, 2020		571,735	$	10.64	1.74 years

Exercised		(440,652)	10.35
Outstanding at June 30, 2020		131,083	$	11.60	5.41 years
									Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2021	Outstanding at January 1, 2021	131,083	$	11.60	4.90 years	$	1,843	Outstanding at January 1, 2021	131,083	$	11.60

Exercised	Exercised	(62,742)	10.51					Exercised	(62,000)	10.50
Outstanding at June 30, 2021		68,341	$	12.60	2.67 years	$	1,559
Outstanding at March 31, 2021								Outstanding at March 31, 2021	69,083	$	12.59	2.90

Outstanding at January 1, 2022								Outstanding at January 1, 2022	66,143	$	12.56

Exercised								Exercised	(1,372)	13.07
Outstanding at March 31, 2022								Outstanding at March 31, 2022	64,771	$	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 ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ presented below:

Fair Value of Options Exercised as of June 30,
2021 2020
Nonperformance-based stock options exercised 1,838 12,231


	Fair Value of Options Exercised as of March 31,
	2022	2021
Nonperformance-based stock options exercised	56	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,
		2021			2020			2021			2020					2022			2021
Income tax expense for the period	Income 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 rate	Effective tax rate	21.0		%	14.2		%	21.6		%	10.5		%	Effective tax rate		19.5		%	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.

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.

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, its~~The Bank’s capital amounts and PCA classification ~~would~~are 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 and~~Banks meeting all of the ~~Bank continue to meet all~~ requirements under this framework ~~we and the Bank will~~are 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, ~~2020~~2020; however, the Bank was no longer eligible to use the CBLR framework beginning as of June 30, 2021.

~~If we were not eligible for or did not opt into~~As a result of our no longer using the CBLR framework, we ~~would be~~are subject to ~~other~~various 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 organization~~bank 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, 2021~~March 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, 2021~~March 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”) methodology~~CECL during the 2020 calendar year with the option to delay for two years the estimated impact of

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’s~~our 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 be~~was delayed through the year 2021, ~~after which~~with the effects ~~will be~~ phased-in over a three-year period from January 1, 2022 through December 31, 2024.

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
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2021
Total capital (to risk-weighted assets)
As of March 31, 2022														As of March 31, 2022
Total capital (to risk-weighted assets “RWA”)														Total capital (to risk-weighted assets “RWA”)
Company	Company	$	1,146,015	12.86	%	$	712,918	8.0	%	n/a		n/a		Company	$	1,276,341	12.73	%	$	802,100	8.0	%	n/a		n/a
Bank	Bank	1,030,594		11.57	%	712,597		8.0	%	$	890,747	10.0	%	Bank	1,245,323		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)
Company	Company	833,956		9.36	%	534,587		6.0	%	n/a		n/a		Company	1,016,916		10.14		601,725		6.0		n/a		n/a
Bank	Bank	950,947		10.68	%	534,240		6.0	%	712,320		8.0	%	Bank	1,183,396		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)
Company	Company	804,619		9.03	%	400,973		4.5	%	n/a		n/a		Company	987,414		9.84		451,561		4.5		n/a		n/a
Bank	Bank	950,947		10.68	%	400,680		4.5	%	578,760		6.5	%	Bank	1,183,396		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)
Company	Company	833,956		9.38	%	355,632		4.0	%	n/a		n/a		Company	1,016,916		10.66		381,582		4.0		n/a		n/a
Bank	Bank	950,947		10.70	%	355,494		4.0	%	444,368		5.0	%	Bank	1,183,396		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, 2021														As of December 31, 2021
Total capital (to RWA)														Total capital (to RWA)
Company	Company	$	1,099,031	13.57	%	$	647,918	8.0	%	n/a		n/a		Company	$	1,100,404	11.60	%	$	758,899	8.0	%	n/a		n/a
Bank	Bank	968,481		11.96	%	647,813		8.0	%	$	809,767	10.0	%	Bank	1,053,871		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)
Company	Company	782,487		9.66	%	486,017		6.0	%	n/a		n/a		Company	843,585		8.89		569,349		6.0		n/a		n/a
Bank	Bank	884,471		10.92	%	485,973		6.0	%	647,964		8.0	%	Bank	994,351		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)
Company	Company	753,261		9.30	%	364,481		4.5	%	n/a		n/a		Company	814,138		8.58		426,995		4.5		n/a		n/a
Bank	Bank	884,471		10.92	%	364,480		4.5	%	526,471		6.5	%	Bank	994,351		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)
Company	Company	782,487		9.43	%	331,914		4.0	%	n/a		n/a		Company	843,585		9.05		372,855		4.0		n/a		n/a
Bank	Bank	884,471		10.66	%	331,884		4.0	%	414,855		5.0	%	Bank	994,351		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. ~~NaN~~No 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 ~~six~~three 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, respectively~~March 31, 2021.

~~13. Subsequent Events~~

4339

~~On July 16, 2021, the~~The Bank ~~completed an investment~~is subject to ~~acquire~~limitations 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 part~~capital conservation buffer of ~~the investment, the Company obtained the right to designate one member to Thrive’s board~~2.5% 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, is~~the fragmented USDA lending space. The goodwill will be deducted for tax purposes.

The acquisition makes the Bank a ~~family-owned business~~leading 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 leader~~additional $5,000 in ~~transforming~~cash 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 into~~Bank.

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, 2021		Measurement Period Adjustments		Final Fair Value
Assets acquired
Cash and cash equivalents	1,978		—		1,978
LHI	29,338		(681)		28,657
Servicing asset	13,913		—		13,913
Other assets	690		—		690
	45,919		(681)		45,238

Liabilities assumed					0
Accounts payable and other accrued expenses	16,350		—		16,350
	16,350		—		16,350

Fair value of net assets acquired	29,569		(681)		28,888
Consideration:					—
Cash paid	57,500		—		57,500
Contingent consideration	5,000		—		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.

Acquired Loans and PCD Loans

Acquired loans were recorded at fair value based on a ~~customer centered digital experience~~discounted 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 Estate	2,138
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,
	2020		2019
Net interest income	$	267,331	$	286,313
Net income	84,368		93,939

Basic EPS	$	1.69	$	1.77
Diluted EPS	1.69		1.74

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 chartered~~state-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 ~~market~~markets 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 ~~market~~markets and throughout the state of Texas.

Recent Developments

~~Impact of~~ COVID-19 Effects, Actions and Recent Developments

~~The~~Overview. 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 created~~by the World Health Organization and a ~~global~~national 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 in~~gatherings, among other things, throughout many parts of the United States and, ~~globally, including~~in particular, the markets ~~that~~in which we ~~serve. Possible additional waves of~~operate. As the current pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, ~~variant strains thereof, may adversely affect~~among other things, its severity; the ~~re-opening process. Conversely, ongoing virus containment efforts~~duration of the outbreak; the impact to our customers, employees and ~~vaccination progress, as well as~~vendors; the ~~possibility of further government stimulus, could accelerate~~impact to the ~~macroeconomic recovery.~~

financial services and

4542

~~We have~~banking industry; and the impact to the economy as a whole as well as the effect of actions taken, ~~deliberate~~or 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 that~~contain 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 ~~have~~implemented our Business Continuity and Health Emergency Response plans to address the ~~balance sheet strength~~issues arising as a result of COVID-19 and to ~~serve~~facilitate the continued delivery of essential services while maintaining a high level of safety for our ~~clients and communities during~~customers as well as our employees. Nonetheless, as the COVID-19 pandemic ~~including increasing our liquidity~~continues 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 protect~~persistent effects. This is particularly the ~~health~~case with the emergence, contagiousness and threat of ~~our customers~~new 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, ~~dispersion~~greatly 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 focused~~services 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 risk~~our operations ~~enhanced remote access security~~as 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 execution~~oil price volatility, could, despite improvements in 2021, again destabilize the financial markets and ~~flexible scheduling provided~~geographies 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 who~~impact 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 ~~unable~~continuing 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.

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 ~~CARES~~Coronavirus 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 ~~may~~were eligible to apply for forgivable loans from existing SBA lenders and other approved lenders that ~~enroll~~enrolled 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 to~~Uncertainties 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, 2021~~March 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, 2021~~March 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.~~

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 ~~decrease~~increase in interest income on loans ~~due to~~and 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 from~~debt and a $229 thousand decrease in interest-bearing demand and savings deposits during the three months ended ~~June 30, 2020~~March 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, 2021~~March 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.

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,
2021 2020
Interest Interest
Average Earned/ Average Average Earned/ Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Paid Rate Balance Paid Rate
(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, MW 455,334 3,476 3.06 304,873 2,279 3.01
PPP loans 364,020 911 1.00 303,223 757 1.00
Debt Securities 1,095,678 7,529 2.76 1,117,964 7,825 2.82
Interest-earning deposits in other banks 548,087 167 0.12 366,764 186 0.20
Equity securities and other investments 87,413 672 3.08 110,672 891 3.24
Total interest-earning assets 8,659,059 76,182 3.53 8,001,485 79,342 3.99
ACL (105,050) (110,483)
Noninterest-earning assets 767,270 798,772
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 deposits 1,515,092 2,423 0.64 1,625,971 6,515 1.61
Advances from FHLB 777,655 1,829 0.94 1,206,930 2,801 0.93
Subordinated debentures and subordinated debt 264,931 3,138 4.75 142,549 1,798 5.07
Total interest-bearing liabilities 5,749,083 9,051 0.63 5,660,347 13,585 0.97
Noninterest-bearing liabilities:
Noninterest-bearing deposits 2,266,470 1,826,327
Other liabilities 51,355 47,302
Total liabilities 8,066,908 7,533,976
Stockholders’ equity 1,254,371 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 %


	For the Three Months Ended March 31,
	2022						2021
			Interest						Interest
	Average		Earned/		Average		Average		Earned/		Average
	Outstanding		Interest		Yield/		Outstanding		Interest		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)	$	6,872,943	$	68,297	4.03	%	$	5,897,815	$	62,702	4.31	%
LHI, MW	421,680		3,069		2.95		510,678		3,815		3.03
PPP loans	31,335		77		1.00		356,356		882		1.00
Debt Securities	1,140,834		7,762		2.76		1,063,538		7,437		2.84
Interest-earning deposits in other banks	554,864		262		0.19		341,483		127		0.15
Equity securities and other investments	190,002		910		1.94		87,178		663		3.08
Total interest-earning assets	9,211,658		80,377		3.54		8,257,048		75,626		3.71
ACL	(77,843)						(105,972)
Noninterest-earning assets	865,107						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 deposits	1,501,852		1,380		0.37		1,509,836		3,061		0.82
Advances from FHLB	777,538		1,547		0.81		777,694		1,812		0.94
Subordinated debentures and subordinated debt	231,875		2,659		4.65		265,356		3,138		4.80
Total interest-bearing liabilities	5,982,910		7,337		0.50		5,591,472		9,991		0.72

Noninterest-bearing liabilities:
Noninterest-bearing deposits	2,591,504						2,069,233
Other liabilities	67,060						56,272
Total liabilities	8,641,474						7,716,977
Stockholders’ equity	1,357,448						1,224,294
Total liabilities and stockholders’ equity	9,998,922						$	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
Volume Rate Total
(In thousands)
Interest-earning assets:
Loans $ 3,661 $ (8,395) $ (4,734)
Loans held for investments, MW 1,129 68 1,197
PPP loans — 154 154
Debt securities (157) (139) (296)
Interest-bearing deposits in other banks 90 (109) (19)
Equity securities and other investments (188) (31) (219)
Total increase (decrease) in interest income 4,535 (8,452) (3,917)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits 467 (1,277) (810)
Certificates and other time deposits (445) (3,647) (4,092)
Advances from FHLB (999) 27 (972)
Subordinated debentures and subordinated notes 1,548 (208) 1,340
Total increase (decrease) in interest expense 571 (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
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	10,367	$	(4,772)	$	5,595
LHI, MW	(665)		(81)		(746)
PPP loans	(805)		—		(805)
Debt Securities	541		(216)		325
Equity securities and other investments	781		(534)		247
Interest-bearing deposits in other banks	79		56		135
Total increase (decrease) in interest income	10,298		(5,547)		4,751
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	282		(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 provision~~a benefit for credit losses of $500 thousand for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$16.2 million~~no 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
		2021		2020			(Decrease)			2022		2021		(Decrease)
		(In thousands)				(In thousands)
Noninterest income:	Noninterest income:								Noninterest income:
Service charges and fees on deposit accounts	Service 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 fees	Loan fees	1,823		1,240			583		Loan fees	2,794		1,341		1,453
Gain on sales of securities		—		2,879			(2,879)
Gain on sales of mortgage loans held for sale		385		308			77

Gain on sales of mortgage loans									Gain on sales of mortgage loans	307		507		(200)
Government guaranteed loan income, net	Government guaranteed loan income, net	3,448		11,006			(7,558)		Government guaranteed loan income, net	4,891		6,548		(1,657)

Equity method investment income, net									Equity method investment income, net	367		—		367
Other	Other	2,953		2,897			56		Other	2,028		2,147		(119)
Total noninterest income	Total 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 ~~drivers~~driver of the ~~decrease were~~increase 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 increase~~increases in analysis charges ~~resulting from additional deposit accounts being serviced~~of $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, 2021~~March 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 ~~related~~related to the sales of government guaranteed ~~loans~~.loans. The decrease in government guaranteed loan income, net, of ~~$7.6~~$1.7 million ~~from~~or 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 on~~with no corresponding PPP ~~loans~~loan originations during the three months ended ~~June 30, 2021 compared the same period in 2020, partially~~March 31, 2022. This decrease is offset by ~~a $2.6~~an increase of $4.2 million ~~increase in~~on 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)
2021 2020
(In thousands)
Salaries and employee benefits $ 23,451 $ 20,019 $ 3,432
Non-staff expenses:
Occupancy and equipment 4,233 3,994 239
Professional and regulatory fees 3,086 2,796 290
Data processing and software expense 2,536 2,434 102
Marketing 1,841 561 1,280
Amortization of intangibles 2,517 2,696 (179)
Telephone and communications 337 308 29
COVID expenses — 1,245 (1,245)
Other 3,716 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.

~~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.

~~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.

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,
2021 2020
Interest Interest
Average Earned/ Average Average Earned/ Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Paid Rate Balance Paid Rate
(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, MW 482,853 7,292 3.05 234,260 3,613 3.10
PPP loans 360,209 1,793 1.00 152,861 757 1.00
Debt securities 1,079,697 14,966 2.80 1,078,459 15,222 2.84
Interest-bearing deposits in other banks 445,356 294 0.13 337,655 1,057 0.63
Equity securities and other investments 87,296 1,335 3.08 101,294 1,741 3.46
Total interest-earning assets 8,459,165 151,808 3.62 7,694,756 166,321 4.35
ACL (105,509) (77,376)
Noninterest-earning assets 778,691 763,567
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 deposits 1,512,479 5,484 0.73 1,639,807 14,755 1.81
Advances from FHLB 777,675 3,641 0.94 1,072,416 5,680 1.07
Subordinated debentures and subordinated notes 265,142 6,276 4.77 143,869 3,701 5.17
Total interest-bearing liabilities 5,670,713 19,042 0.68 5,524,818 33,159 1.21
Noninterest-bearing liabilities:
Noninterest-bearing deposits 2,168,396 1,675,015
Other liabilities 53,823 38,488
Total liabilities 7,892,932 7,238,321
Stockholders’ equity 1,239,415 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.~~

For the Six Months Ended
June 30, 2021 vs. 2020
Increase (Decrease)
Due to Change in
Volume Rate Total
(In thousands)
Interest-earning assets:
Loans $ 5,293 $ (23,096) $ (17,803)
Loans held for investment, MW 3,822 (143) 3,679
PPP loans 1,793 — 1,036
Debt securities 17 (273) (256)
Interest-bearing deposits in other banks 336 (1,099) (763)
Equity securities and other investments (240) (166) (406)
Total increase (decrease) in interest income 11,021 (24,777) (14,513)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits 1,506 (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 notes 3,111 (536) 2,575
Total increase (decrease) in interest expense 1,917 (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.

~~Noninterest Income~~

~~The following table presents, for the periods indicated, the major categories of noninterest income:~~
For the
Six Months Ended
June 30, Increase
2021 2020 (Decrease)
(In thousands)
Noninterest income:
Service charges and fees on deposit accounts $ 7,476 $ 6,602 $ 874
Loan fees 3,164 2,085 1,079
Gain on sales of securities — 2,879 (2,879)
Gain on sales of mortgage loans held for sale 892 450 442
Government guaranteed loan income, net 9,996 11,445 (1,449)
Other 5,100 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.

Noninterest Expense

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)
		2021		2020		(Decrease)			2022		2021
		(In thousands)							(In thousands)
Salaries and employee benefits	Salaries 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 equipment	Occupancy and equipment	8,329		8,267		62		Occupancy and equipment	4,517		4,096		421
Professional and regulatory fees	Professional and regulatory fees	6,527		4,992		1,535		Professional and regulatory fees	3,158		3,441		(283)
Data processing and software expense	Data processing and software expense	4,855		4,523		332		Data processing and software expense	2,921		2,319		602
Marketing	Marketing	2,750		1,644		1,106		Marketing	1,187		909		278
Amortization of intangibles	Amortization of intangibles	5,054		5,392		(338)		Amortization of intangibles	2,495		2,537		(42)
Telephone and communications	Telephone and communications	674		627		47		Telephone and communications	385		337		48
Merger and acquisition expense								Merger and acquisition expense	700		—		700

COVID expenses		—		1,245		(1,245)
Other	Other	6,742		10,027		(3,285)		Other	3,696		3,026		670
Total noninterest expense	Total noninterest expense	$	81,314	$	75,606	$	5,708	Total noninterest expense	$	46,572	$	39,597	$	6,975

Noninterest expense for the ~~six~~three months ended ~~June 30, 2021~~March 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 ~~six~~three 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 ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, an increase ~~$7.5~~of $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 increase~~resulting from continued investment in ~~employee stock based compensation, a $582~~talent, (ii) $960 thousand increase in ~~employee benefit costs~~stock-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.

~~Professional~~Merger and ~~regulatory fees.~~acquisition expense. This category includes legal, professional, audit, regulatory and ~~Federal Deposit Insurance Corporation (“FDIC”) assessment fees. Professional~~other expenses incurred in connection with a pending or completed merger or acquisition. Merger and ~~regulatory fees were $6.5 million for~~acquisition expenses incurred in the ~~six~~three 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 which~~March 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 ~~advertising~~our proposed transaction to acquire interLINK, a technology-enabled deposit gathering and ~~promotions,~~processing platform which ~~increased~~ ~~$1.1 million primarily related~~is expected to ~~an increase~~close in ~~annual sponsorship fees for~~ the ~~six months ended June 30, 2021 compared to the same period in 2020.~~

~~COVID expenses.~~ ~~This category~~third 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 ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, income tax expense totaled ~~$16.8~~$8.1 million, ~~an increase~~a 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 ~~six~~three months ended ~~June 30, 2021, the Company~~March 31, 2022, we had an effective tax rate of ~~21.6%~~19.5%. The ~~Company had~~decrease in the effective tax rate was primarily a ~~net discrete tax expense~~result of ~~$157 thousand. This discrete tax expense related to a true-up~~the 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 ~~six~~the 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 ~~six~~three 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.

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, ~~2020~~2021 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, 2021~~March 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, 2021~~March 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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

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,
		2021				2020					2022				2021
		Total		Percent		Total		Percent			Total		Percent		Total		Percent
		(Dollars in thousands)									(Dollars in thousands)
Commercial	Commercial	$	1,771,100	25.9	%	$	1,559,546	24.3	%	Commercial	$	2,125,900	27.7	%	$	2,006,876	27.3	%
MW	MW	559,939		8.2	%	577,594		9.0	%	MW	542,877		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 land	Construction and land	871,765		12.7	%	693,030		10.8	%	Construction and land	1,297,338		16.9	%	1,062,144		14.5	%
Farmland	Farmland	13,661		0.2	%	13,844		0.2	%	Farmland	48,095		0.6	%	55,827		0.8	%
1-4 family residential	1-4 family residential	513,635		7.5	%	524,344		8.2	%	1-4 family residential	604,408		7.9	%	542,566		7.4	%
Multifamily	Multifamily	367,445		5.4	%	424,962		6.6	%	Multifamily	272,250		3.5	%	310,241		4.2	%
Consumer	Consumer	10,530		0.2	%	13,000		0.3	%	Consumer	9,533		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 value										LHI, PPP loans, carried at fair value	$	18,512	100.0	%	$	53,369	100.0	%

Total loans held for sale	Total 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, 2021~~March 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,
		2021			2020				2022			2021
		(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 due	Accruing loans 90 or more days past due	462			3,660			Accruing loans 90 or more days past due	264			235
Total nonperforming loans	Total nonperforming loans	77,456			84,756			Total nonperforming loans	46,944			49,922
Other real estate owned:	Other real estate owned:							Other real estate owned:

Commercial real estate and 1-4 family residential		2,467			2,337
Commercial real estate, construction, land and land development								Commercial real estate, construction, land and land development	1,062			—

Total other real estate owned	Total other real estate owned	2,467			2,337			Total other real estate owned	1,062			—
Total nonperforming assets	Total nonperforming assets	$	79,923		$	87,093		Total nonperforming assets	$	48,006		$	49,922
Troubled debt restructured loans—nonaccrual	Troubled debt restructured loans—nonaccrual	22,777			23,225			Troubled debt restructured loans—nonaccrual	19,248			19,746
Troubled debt restructured loans—accruing	Troubled debt restructured loans—accruing	5,866			5,932			Troubled debt restructured loans—accruing	4,025			5,772
Ratio of nonperforming loans to total loans held for investment		1.23		%	1.46		%
Ratio of nonperforming loans to total loans								Ratio of nonperforming loans to total loans	0.66		%	0.74		%
Ratio of nonperforming assets to total assets	Ratio of nonperforming assets to total assets	0.85		%	0.99		%	Ratio of nonperforming assets to total assets	0.46		%	0.51		%

(1) At ~~June 30, 2021~~March 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,
2021 2020
(In thousands)
Commercial $ 22,424 $ 29,318
Real estate:
OOCRE 16,960 6,266
NOOCRE 35,181 40,830
1-4 family residential 1,201 3,308
Consumer 1,228 1,374
Total $ 76,994 $ 81,096


	As of March 31,		As of December 31,
	2022		2021
	(In thousands)
Commercial	$	13,259	$	15,267

Real estate:
OOCRE	13,446		14,236
NOOCRE	17,739		17,978


1-4 family residential	1,005		990

Consumer	1,231		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
		Pass		Special Mention		Substandard		PCD		Total				Pass		Special Mention		Substandard		PCD		Total
Real estate:	Real estate:												Real estate:
Construction and land	Construction and land	$	867,818	$	321	$	1,185	$	2,441	$	871,765		Construction and land	$	1,293,849	$	1,613	$	—	$	1,876	$	1,297,338
Farmland	Farmland	13,661		—		—		—		13,661			Farmland	48,095		—		—		—		48,095
1 - 4 family residential	1 - 4 family residential	509,728		573		2,125		1,209		513,635			1 - 4 family residential	601,355		344		1,547		1,162		604,408
Multi-family residential	Multi-family residential	346,258		21,187		—		—		367,445			Multi-family residential	250,586		21,664		—		—		272,250
OOCRE	OOCRE	628,545		29,879		57,589		28,886		744,899			OOCRE	566,643		10,036		34,336		22,600		633,615
NOOCRE	NOOCRE	1,767,664		87,204		103,048		28,622		1,986,538			NOOCRE	1,957,978		120,011		52,593		15,244		2,145,826
Commercial	Commercial	1,673,283		33,528		49,085		15,204		1,771,100			Commercial	2,021,437		42,632		54,391		7,440		2,125,900
MW	MW	558,400		1,539		—		—		559,939			MW	542,447		—		430		—		542,877
Consumer	Consumer	9,092		16		1,236		186		10,530			Consumer	8,051		76		1,236		170		9,533
Total	Total	$	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
		Pass		Special Mention		Substandard		PCD		Total				Pass		Special Mention		Substandard		PCD		Total
Real estate:	Real estate:												Real estate:
Construction and land	Construction and land	$	687,169	$	2,666	$	510	$	2,685	$	693,030		Construction and land	$	1,057,891	$	1,905	$	—	$	2,348	$	1,062,144
Farmland	Farmland	13,844		—		—		—		13,844			Farmland	55,827		—		—		—		55,827
1 - 4 family residential	1 - 4 family residential	511,191		2,678		1,734		8,741		524,344			1 - 4 family residential	539,485		352		1,551		1,178		542,566
Multi-family residential	Multi-family residential	412,282		12,680		—		—		424,962			Multi-family residential	288,954		21,287		—		—		310,241
OOCRE	OOCRE	595,598		44,560		39,323		37,991		717,472			OOCRE	591,377		9,704		36,892		27,564		665,537
NOOCRE	NOOCRE	1,650,917		153,090		56,949		43,176		1,904,132			NOOCRE	1,922,455		97,562		82,092		18,200		2,120,309
Commercial	Commercial	1,406,766		56,060		77,260		19,460		1,559,546			Commercial	1,887,671		36,092		74,487		8,626		2,006,876
MW	MW	577,594		—		—		—		577,594			MW	565,100		—		545		—		565,645
Consumer	Consumer	11,357		252		1,189		202		13,000			Consumer	10,440		79		1,302		177		11,998
Total	Total	$	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 investment~~LHI

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.

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


		As of				As of					As of				As of
		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
				Percent				Percent					Percent				Percent
		Amount		of Total		Amount		of Total			Amount		of Total		Amount		of Total
		(Dollars in thousands)									(Dollars in thousands)
Real estate:	Real estate:									Real estate:
Construction and land	Construction and land	$	7,280	7.3	%	$	7,768	7.4	%	Construction and land	$	8,883	12.3	%	$	7,293	9.4	%
Farmland	Farmland	46		0.1		56		0.1		Farmland	158		0.2		187		0.2
1 - 4 family residential	1 - 4 family residential	6,660		6.7		8,148		7.8		1 - 4 family residential	6,134		8.5		5,982		7.7
Multi-family residential	Multi-family residential	4,187		4.2		6,231		5.9		Multi-family residential	2,127		2.9		2,664		3.4
OOCRE	OOCRE	11,324		11.4		9,719		9.2		OOCRE	7,423		10.2		9,215		11.9
NOOCRE	NOOCRE	37,242		37.4		35,237		33.5		NOOCRE	26,954		37.2		30,548		39.3
Total real estate	Total real estate	$	66,739	67.1	%	$	67,159	63.9	%	Total real estate	$	51,679	71.3	%	$	55,889	71.9	%
Commercial	Commercial	32,560		32.7		37,554		35.7		Commercial	20,084		27.7		21,632		27.8
Consumer	Consumer	244		0.2		371		0.4		Consumer	722		1.0		233		0.3
Total ACL	Total 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, 2021~~March 31, 2022 from ~~$105.1 million as of~~ December 31, ~~2020.~~2021. The decrease in the ACL compared to December 31, ~~2020~~2021 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 Ended			Six Months Ended				Three Months Ended			Three Months Ended
		June 30, 2021			June 30, 2020				March 31, 2022			March 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 period	ACL at beginning of period	105,084			29,834			ACL at beginning of period	77,754			105,084
Impact of adopting ASC 326		—			39,137
Provision for credit losses		—			47,948

Benefit for credit losses								Benefit for credit losses	(500)			—
Charge-offs:	Charge-offs:							Charge-offs:
Real estate:	Real estate:							Real estate:

Residential	Residential	(303)			—			Residential	—			(15)
OOCRE	OOCRE	(689)			—			OOCRE	(1,341)			—

NOOCRE								NOOCRE	(553)			—
Commercial	Commercial	(5,966)			(1,740)			Commercial	(3,294)			(346)
Consumer	Consumer	(38)			(125)			Consumer	(134)			(18)
Total charge-offs	Total charge-offs	(6,996)			(1,865)			Total charge-offs	(5,322)			(379)
Recoveries:	Recoveries:							Recoveries:
Real estate:	Real estate:							Real estate:

Residential	Residential	26			1			Residential	—			3
OOCRE		500			—

NOOCRE								NOOCRE	400			—
Commercial	Commercial	885			36			Commercial	144			226
Consumer	Consumer	44			274			Consumer	9			2
Total recoveries	Total recoveries	1,455			311			Total recoveries	553			231
Net charge-offs	Net charge-offs	(5,541)			(1,554)			Net charge-offs	(4,769)			(148)
ACL at end of period	ACL 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 loans	Ratio of ACL to end of period loans excluding MW and PPP loans	1.59		%	2.01		%	Ratio of ACL to end of period loans excluding MW and PPP loans	1.02		%	1.76		%
Ratio of net charge-offs to average loans	Ratio of net charge-offs to average loans	0.09		%	0.03		%	Ratio of net charge-offs to average loans	0.07		%	—		%

(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, 2021~~March 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, 2021~~March 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, 2021~~March 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.

~~Deposits~~Equity 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, 2021~~March 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, ~~2020~~2021 was primarily the result of increases of ~~$154.5~~$412.0 million in

interest-bearing transaction and savings deposits ~~$20.6~~and $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, 2021~~March 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 ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~1.04%~~ for the year ended December 31, ~~2020. The~~2021. 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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Our current FHLB advances mature within ~~fourteen~~fifteen years. Other than FHLB borrowings, we had no other short-term borrowings at the dates indicated.

~~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, 2021~~March 31, 2022 and December 31, ~~2020, $455.7~~2021, $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, 2021~~March 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 ~~2020~~2021 10-K for further discussion on the details of our junior subordinated debentures and subordinated notes.

June 30, 2021
Balance Rate
(Dollars in thousands)
Junior subordinated debentures:
Parkway National Capital Trust I $ 3,093 1.97%
SovDallas Capital Trust I 8,609 4.24%
Patriot Bancshares Capital Trust I 5,155 2.09%
Patriot Bancshares Capital Trust II 17,011 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 Notes 75,000 4.75%
4.125% Fixed-to-Floating Rate Subordinated Notes 125,000 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
	Balance		Rate
	(Dollars in thousands)
Junior subordinated debentures
Parkway National Capital Trust I	$	3,093	2.03%
SovDallas Capital Trust I	8,609		4.24%
Patriot Bancshares Capital Trust I	5,155		2.09%
Patriot Bancshares Capital Trust II	17,011		1.98%
Subordinated notes
4.75% Fixed-to-Floating Rate Subordinated Notes	75,000		4.75%
4.125% Fixed-to-Floating Rate Subordinated Notes	125,000		4.13%

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 ~~six~~three months ended ~~June 30, 2021~~March 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, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. There were no advances under these lines of credit outstanding as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

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 ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~$8.5~~$9.4 billion for the year ended December 31, ~~2020.~~2021.


		For the		For the			For the		For the
		Six Months Ended		Year Ended			Three Months Ended		Year Ended
		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Sources of Funds:	Sources of Funds:					Sources of Funds:
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	23.7	%	21.4	%	Noninterest-bearing	25.9	%	24.1	%
Interest-bearing	Interest-bearing	34.1		32.0		Interest-bearing	34.7		34.2
Certificates and other time deposits	Certificates and other time deposits	16.6		18.2		Certificates and other time deposits	15.0		16.5
Advances from FHLB	Advances from FHLB	8.5		12.0		Advances from FHLB	7.8		8.3
Other borrowings	Other borrowings	2.9		2.0		Other borrowings	2.3		2.8
Other liabilities	Other liabilities	0.6		0.7		Other liabilities	0.7		0.6
Stockholders’ equity	Stockholders’ equity	13.6		13.7		Stockholders’ equity	13.6		13.5
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%
Uses of Funds:	Uses of Funds:					Uses of Funds:
Loans	Loans	73.8	%	72.7	%	Loans	72.7	%	73.2	%
Debt securities		11.8		13.2
Securities available-for-sale						Securities available-for-sale	11.3		12.0
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks	4.9		1.2		Interest-bearing deposits in other banks	5.5		1.5
Other noninterest-earning assets	Other noninterest-earning assets	9.4		12.9		Other noninterest-earning assets	10.5		13.3
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%
Average noninterest-bearing deposits to average deposits	Average noninterest-bearing deposits to average deposits	31.9	%	29.9	%	Average noninterest-bearing deposits to average deposits	34.3	%	32.3	%

Average loans, excluding PPP and MW, to average deposits	Average loans, excluding PPP and MW, to average deposits	88.3	%	94.5	%	Average loans, excluding PPP and MW, to average deposits	90.9	%	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 investment~~LHI increased ~~12.6%~~10.1% for the ~~six~~three months ended ~~June 30, 2021~~March 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 Dallas~~Federal 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.

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 the For the
Six Months Ended Six Months Ended
June 30, 2021 June 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 activities 447,792 569,764
Net change in cash and cash equivalents $ 159,202 $ (91,244)


	For the		For the
	Three Months Ended		Three Months Ended
	March 31, 2022		March 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 activities	668,355		382,291
Net change in cash and cash equivalents	$	171,789	$	237,204

Cash Flows Provided by Operating Activities

For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, net cash provided by operating activities ~~increased~~decreased by ~~$79.6~~$15.0 million when compared to the same period in ~~2020.~~2021. The ~~increase~~decrease 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 ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, net cash used in investing activities ~~decreased~~increased by ~~$292.8~~$336.5 million when compared to the same period in ~~2020.~~2021. The ~~decrease~~increase in cash used in investing activities was primarily attributable to a ~~$169.7~~$186.7 million ~~decrease~~increase in purchases of ~~available for sale~~AFS debt securities and a ~~$291.7~~$147.7 million ~~decrease~~increase 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 securities~~maturities, calls and ~~a decrease~~paydowns of ~~$58.2 million for maturities of securities available for sale.~~AFS debt securities.

Cash Flows Provided by Financing ~~Activites~~Activities

For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, net cash provided by financing activities ~~decreased~~increased by ~~$122.0~~$286.1 million when compared to the same period in ~~2020.~~2021. The ~~decrease~~increase 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 ~~six~~three 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, ~~$5.2~~an increase of $6.2 million in ~~stock based compensation, $3.5~~other 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, each~~stock-based compensation recognized during the ~~six~~three 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 ~~six~~three 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, 2021~~March 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,
2021 2020
Amount Ratio Amount Ratio
(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,
	2022				2021
	Amount		Ratio		Amount		Ratio
	(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 enters~~we have entered into ~~certain~~ contractual obligations ~~such as~~ ~~our non-cancelable~~and 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 Condition—Borrowings,” there have been no significant changes in the types of contractual obligations or amounts due as of ~~June 30, 2021~~March 31, 2022 since December 31, ~~2020~~2021 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.

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 certain~~includes “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

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;

•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, ~~2020~~2021, ~~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

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.

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.

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, 2021				As of December 31, 2020					As of March 31, 2022				As of December 31, 2021
		Percent Change		Percent Change		Percent Change		Percent Change			Percent Change		Percent Change		Percent Change		Percent Change
Change in Interest	Change in Interest	in Net Interest		in Fair Value		in Net Interest		in Fair Value		Change in Interest	in Net Interest		in Fair Value		in Net Interest		in Fair Value
Rates (Basis Points)	Rates (Basis Points)	Income		of Equity		Income		of Equity		Rates (Basis Points)	Income		of Equity		Income		of Equity
+ 300	+ 300	17.36	%	12.71	%	18.91	%	29.38	%	+ 300	23.48	%	11.78	%	20.31	%	15.79	%
+ 200	+ 200	11.18	%	9.44	%	12.06	%	19.93	%	+ 200	15.42	%	8.39	%	13.13	%	11.62	%
+ 100	+ 100	5.03	%	5.34	%	5.37	%	9.64	%	+ 100	7.39	%	4.51	%	6.60	%	6.64	%
Base	Base	—	%	—	%	—	%	—	%	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.

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, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

7464

~~7PART~~PART 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
2.3						Agreement and Plan of Reorganization dated July 23, 2018, by and among Veritex Holdings, Inc., MustMS, Inc. and Green Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 24, 2018).
~~3.1~~						Restated Certificate of Formation (with Amendments) of Veritex Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Registration No. 333-198484) filed September 22, 2014)
3.2						Third Amended and Restated Bylaws of Veritex Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed ~~January 2, 2019)~~July 25, 2017).
~~10.1~~						Executive Employment Agreement, dated April 16, 2021, by and among Veritex Community Bank, Veritex Holdings, Inc. and C. Malcolm Holland (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
~~10.2~~						Executive Employment Agreement, dated April 16, 2021, by and among Veritex Community Bank, Community Bank, Veritex Holdings, Inc. and Jeff Kesler (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
~~10.3~~						Executive Employment Agreement, dated April 16, 2021, by and among Veritex Community Bank, Community Bank, Veritex Holdings, Inc. and Jon Heine (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
~~10.4~~						Executive Employment Agreement, dated April 16, 2021, by and among Veritex Community Bank, Community Bank, Veritex Holdings, Inc. and Clay Riebe (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
31.1*						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
104						Cover 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, 2021~~May 9, 2022						/s/ C. Malcolm Holland, III
						C. Malcolm Holland, III
						Chairman and Chief Executive Officer
						(Principal Executive Officer)




Date: ~~August 6, 2021~~May 9, 2022						/s/ Terry S. Earley
						Terry S. Earley
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

7767


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest and dividend income:
Loans, including fees	$	67,814	$	70,440	$	135,213	$	148,301
Debt securities	7,529		7,825		14,966		15,222
Deposits in financial institutions and Fed Funds sold	167		186		294		1,057
Equity securities and other investments	672		891		1,335		1,741
Total interest and dividend income	76,182		79,342		151,808		166,321
Interest expense:
Transaction and savings deposits	1,661		2,471		3,641		9,023
Certificates and other time deposits	2,423		6,515		5,484		14,755
Advances from FHLB	1,829		2,801		3,641		5,680
Subordinated debentures and subordinated notes	3,138		1,798		6,276		3,701
Total interest expense	9,051		13,585		19,042		33,159
Net interest income	67,131		65,757		132,766		133,162
Provision for credit losses	0		16,172		0		47,948
Provision for credit losses on unfunded commitments	577		2,799		7		6,680
Net interest income after provision for credit losses	66,554		46,786		132,759		78,534
Noninterest income:
Service charges and fees on deposit accounts	3,847		2,960		7,476		6,602
Loan fees	1,823		1,240		3,164		2,085
Gain on sales of securities	0		2,879		0		2,879
Gain on sale of mortgage loans held for sale	385		308		892		450
Government guaranteed loan income, net	3,448		11,006		9,996		11,445

Other	2,953		2,897		5,100		5,076
Total noninterest income	12,456		21,290		26,628		28,537
Noninterest expense:
Salaries and employee benefits	23,451		20,019		46,383		38,889
Occupancy and equipment	4,233		3,994		8,329		8,267
Professional and regulatory fees	3,086		2,796		6,527		4,992
Data processing and software expense	2,536		2,434		4,855		4,523
Marketing	1,841		561		2,750		1,644
Amortization of intangibles	2,517		2,696		5,054		5,392
Telephone and communications	337		308		674		627

COVID expenses	0		1,245		0		1,245
Other	3,716		6,008		6,742		10,027
Total noninterest expense	41,717		40,061		81,314		75,606
Income before income tax expense	37,293		28,015		78,073		31,465
Income tax expense	7,837		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 June 30, 2020
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income
	Shares	Amount		Shares	Amount								Total
Balance at March 31, 2020	49,557,364	$	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 withholdings	17,447	—		—	—		(41)		—		—			(41)
Exercise of employee stock options (0 shares withheld to cover tax withholdings or exercise price)	57,936	1		—	—		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, 2020	49,632,747	$	555	5,814,922	$	(144,160)	$	1,122,063	$	143,277	$	42,014		$	1,163,749


Six Months Ended June 30, 2021
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income
	Shares	Amount		Shares	Amount								Total
Balance at December 31, 2020	49,337,768	$	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 withholdings	79,056	1		—	—		(551)		—		—			(550)
Exercise of employee stock options, net of 37,668 and 7,305 shares withheld to cover tax withholdings and exercise price, respectively	229,093	2		—	—		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, 2021	49,498,295	$	558	6,309,972	$	(156,147)	$	1,134,603	$	216,704	$	77,189		$	1,272,907


Six Months Ended June 30, 2020
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income
	Shares	Amount		Shares	Amount								Total
Balance at December 31, 2019	51,063,869	$	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 withholdings	86,279	1		—	—		(644)		—		—			(643)
Exercise of employee stock options, net of 98,836 and 139,715 shares withheld to cover tax withholdings and exercise price, respectively	474,810	5		—	—		916		—		—			921
Stock warrants exercised	10,000	—		—	—		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, 2020	49,632,747	$	555	5,814,922	$	(144,160)	$	1,122,063	$	143,277	$	42,014		$	1,163,749


	For the Six Months Ended June 30,
	2021		2020
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 intangibles	7,420		7,856
Net accretion of time deposit premium, debt discount and debt issuance costs	(132)		(974)
Provision for credit losses	7		54,628

Accretion of loan purchase discount	(3,447)		(7,454)
Stock-based compensation expense	5,170		3,803

Excess tax benefit from stock compensation	(269)		(1,423)
Net amortization of premiums on debt securities	1,548		1,746
Unrealized loss (gain) on equity securities recognized in earnings	136		(213)
Change in cash surrender value and mortality rates of BOLI	(449)		(961)
Net gain on sales of debt securities	0		(2,879)
Change in fair value of government guaranteed loans using fair value option	416		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 sale	59,875		39,586
Loss on sale of other real estate owned	0		209
Gain on sale of bank premises, furniture and equipment	0		(358)


Write-down of other real estate owned	174		0
Termination of derivatives designated as hedging instruments	43,900		0
Decrease (increase) in other assets	26,384		(13,291)
(Decrease) increase in accounts payable and other liabilities	(4,178)		10,706
Net cash provided by operating activities	147,190		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 securities	0		90,897
Proceeds from maturities, calls and pay downs of available for sale debt securities	88,361		146,525
Purchases of held to maturity debt securities	(19,877)		0
Maturity, calls and paydowns of held to maturity debt securities	1,953		826
Purchases of other investments	(502)		(20,150)

Net loans originated	(344,869)		(636,536)
Proceeds from sale of government guaranteed loans	1,692		8,384
Net additions to bank premises, furniture and equipment	(10,742)		(1,090)
Proceeds from sales of bank premises, furniture and equipment	0		2,157
Proceeds from sales of other real estate owned	0		1,843
Net cash used in investing activities	(435,780)		(728,609)
Cash flows from financing activities:
Net increase in deposits	466,130		231,882
Net (decrease) increase in advances from FHLB	(78)		409,924
Redemption of subordinated debt	0		(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 options	3,549		4,068
Proceeds from exercise of stock warrants	0		109
Purchase of treasury stock	(4,074)		(49,557)
Dividends paid	(16,771)		(17,291)


Net cash provided by financing activities	447,792		569,764
Net increase in cash and cash equivalents	159,202		(91,244)
Cash and cash equivalents at beginning of period	230,825		251,550
Cash and cash equivalents at end of period	$	390,027	$	160,306



Consumer:
Pass	$	325	$	1,818	$	842	$	622	$	3,290	$	1,142	$	1,053	$	0	$	9,092
Special mention	0		0		0		0		0		16		0		0		16
Substandard	0		0		3		3		107		59		1,064		0		1,236
PCD	0		0		0		0		26		160		0		0		186
Total consumer	$	325	$	1,818	$	845	$	625	$	3,423	$	1,377	$	2,117	$	0	$	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 Mention	760		4,605		5,219		65,726		31,726		56,917		5,846		3,448		174,247
Total Substandard	0		2,775		15,362		67,654		11,881		83,452		29,120		4,024		214,268
Total PCD	0		0		1,431		19,220		9,446		46,451		0		0		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



NOOCRE:
Pass	$	361,246		$	255,976		$	445,079	$	90,738	$	174,893	$	309,572	$	13,413	$	0	$	1,650,917
Special mention	101			31,714			37,572		19,262		25,997		37,951		493		0		153,090
Substandard	1,226		0	9,850		0	4,562		4,108		0		23,098		14,105		0		56,949
PCD	0			0			18,744		0		6,652		17,780		0		0		43,176
Total NOOCRE	$	362,573		$	297,540		$	505,957	$	114,108	$	207,542	$	388,401	$	28,011	$	0	$	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 mention	1,306			2,539			8,224		10,033		1,201		2,165		26,922		3,670		56,060
Substandard	722			4,487			23,245		3,772		7,216		2,083		30,460		5,275		77,260
PCD	0			0			0		3,382		4,196		11,882		0		0		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	$	0		$	0		$	0	$	0	$	0	$	0	$	577,594	$	0	$	577,594



Total MW	$	0		$	0		$	0	$	0	$	0	$	0	$	577,594	$	0	$	577,594

Consumer:
Pass	$	2,489		$	1,216		$	1,038	$	3,899	$	887	$	353	$	1,475	$	0	$	11,357
Special mention	0			0			0		0		25		227		0		0		252
Substandard	0			0			0		60		0		66		1,063		0		1,189
PCD	0			0			0		36		0		166		0		0		202
Total consumer	$	2,489		$	1,216		$	1,038	$	3,995	$	912	$	812	$	2,538	$	0	$	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 Mention	1,407			36,278			84,021		33,756		40,083		45,356		27,415		3,670		271,986
Total Substandard	2,318			14,337			39,038		12,438		18,531		32,069		46,753		11,481		176,965
Total PCD	0			0			18,744		3,418		18,799		71,294		0		0		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


	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 income		Location of (loss) gain reclassified from accumulated other comprehensive income into income		Gain (loss) recognized in other comprehensive income on derivative		(Loss) gain reclassified from accumulated other comprehensive income into income		Location 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	$	0	Interest Expense		$	2,525	$	0	Interest Expense
Interest rate swap on money market deposit account payments	3,763		(406)		Interest Expense		(3,936)		(215)		Interest Expense
Commercial loan interest rate floor	0		866		Interest Income		475		831		Interest Income
Interest rate swaps on customer loan interest payments	5,552		216		Interest Income		0		0
Total	$	35,672	$	676			$	(936)	$	616


Derivatives not designated as hedging instruments:					Net gain recognized in other noninterest income						Net gain recognized in other noninterest income
Interest rate swaps, caps and collars					$	190					$	576


	For the Three Months Ended June 30,
	2021						2020
			Interest						Interest
	Average		Earned/		Average		Average		Earned/		Average
	Outstanding		Interest		Yield/		Outstanding		Interest		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(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, MW	455,334		3,476		3.06		304,873		2,279		3.01
PPP loans	364,020		911		1.00		303,223		757		1.00
Debt Securities	1,095,678		7,529		2.76		1,117,964		7,825		2.82
Interest-earning deposits in other banks	548,087		167		0.12		366,764		186		0.20
Equity securities and other investments	87,413		672		3.08		110,672		891		3.24
Total interest-earning assets	8,659,059		76,182		3.53		8,001,485		79,342		3.99
ACL	(105,050)						(110,483)
Noninterest-earning assets	767,270						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 deposits	1,515,092		2,423		0.64		1,625,971		6,515		1.61
Advances from FHLB	777,655		1,829		0.94		1,206,930		2,801		0.93
Subordinated debentures and subordinated debt	264,931		3,138		4.75		142,549		1,798		5.07
Total interest-bearing liabilities	5,749,083		9,051		0.63		5,660,347		13,585		0.97

Noninterest-bearing liabilities:
Noninterest-bearing deposits	2,266,470						1,826,327
Other liabilities	51,355						47,302
Total liabilities	8,066,908						7,533,976
Stockholders’ equity	1,254,371						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	%


	For the Three Months Ended June 30,
	2021 vs. 2020
	Increase (Decrease)

	Due to Change in
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	3,661	$	(8,395)	$	(4,734)
Loans held for investments, MW	1,129		68		1,197
PPP loans	—		154		154
Debt securities	(157)		(139)		(296)
Interest-bearing deposits in other banks	90		(109)		(19)
Equity securities and other investments	(188)		(31)		(219)
Total increase (decrease) in interest income	4,535		(8,452)		(3,917)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	467		(1,277)		(810)
Certificates and other time deposits	(445)		(3,647)		(4,092)
Advances from FHLB	(999)		27		(972)
Subordinated debentures and subordinated notes	1,548		(208)		1,340
Total increase (decrease) in interest expense	571		(5,105)		(4,534)
Increase (decrease) in net interest income	$	3,964	$	(3,347)	$	617


	For the Six Months Ended
	June 30, 2021 vs. 2020
	Increase (Decrease)

	Due to Change in
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	5,293	$	(23,096)	$	(17,803)
Loans held for investment, MW	3,822		(143)		3,679
PPP loans	1,793		—		1,036
Debt securities	17		(273)		(256)
Interest-bearing deposits in other banks	336		(1,099)		(763)
Equity securities and other investments	(240)		(166)		(406)
Total increase (decrease) in interest income	11,021		(24,777)		(14,513)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	1,506		(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 notes	3,111		(536)		2,575
Total increase (decrease) in interest expense	1,917		(16,034)		(14,117)
Increase (decrease) in net interest income	$	9,104	$	(8,743)	$	(396)