UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
OR

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
   
Non-accelerated filer Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 6, 2022,9, 2023, there were 53,962,87554,247,973 outstanding shares ofof the registrant’s common stock, par value $0.01 per share.





VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Page

2




PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements
3


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
as of March 31, 20222023 and December 31, 20212022
(Dollars in thousands, except par value and share information) 
March 31,December 31,March 31,December 31,
2022202120232022
(Unaudited)(Unaudited)
ASSETSASSETSASSETS
Cash and due from banksCash and due from banks$51,966 $44,023 Cash and due from banks$57,628 $60,551 
Interest bearing deposits in other banksInterest bearing deposits in other banks499,607 335,761 Interest bearing deposits in other banks750,767 375,526 
Total cash and cash equivalentsTotal cash and cash equivalents551,573 379,784 Total cash and cash equivalents808,395 436,077 
Debt securities available-for-sale (“AFS”), at fair valueDebt securities available-for-sale (“AFS”), at fair value1,063,249 993,058 Debt securities available-for-sale (“AFS”), at fair value966,123 1,096,292 
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 
Debt securities held-to-maturity (“HTM”) (fair value of $161,778 and $158,781, at March 31, 2023 and December 31, 2022, respectively)Debt securities held-to-maturity (“HTM”) (fair value of $161,778 and $158,781, at March 31, 2023 and December 31, 2022, respectively)184,836 186,168 
Equity securitiesEquity securities14,880 15,393 Equity securities20,522 19,864 
Securities purchased under agreements to resell100,818 102,288 
Investment in unconsolidated subsidiariesInvestment in unconsolidated subsidiaries1,018 1,018 Investment in unconsolidated subsidiaries1,018 1,018 
Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) StockFederal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock71,983 71,892 Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock116,081 101,568 
Total investmentsTotal investments1,433,213 1,243,085 Total investments1,288,580 1,404,910 
Loans held for sale18,721 26,007 
Loans held for investment (“LHI”), Paycheck Protection Program (“PPP”) loans, carried at fair value18,512 53,369 
LHI, mortgage warehouse (“MW”)542,877 565,645 
LHI, excluding MW and PPP7,125,429 6,766,009 
Loans held for sale (“LHFS”)Loans held for sale (“LHFS”)42,816 20,641 
Loans held for investment (“LHI”), mortgage warehouse (“MW”)Loans held for investment (“LHI”), mortgage warehouse (“MW”)437,501 446,227 
LHI, excluding MWLHI, excluding MW9,237,159 9,036,424 
Less: Allowance for credit losses (“ACL”)Less: Allowance for credit losses (“ACL”)(72,485)(77,754)Less: Allowance for credit losses (“ACL”)(98,694)(91,052)
Total LHI, netTotal LHI, net7,614,333 7,307,269 Total LHI, net9,575,966 9,391,599 
Bank-owned life insurance (“BOLI”)Bank-owned life insurance (“BOLI”)83,641 83,194 Bank-owned life insurance (“BOLI”)84,962 84,496 
Bank premises, furniture and equipment, net109,138 109,271 
Other real estate owned (“OREO”)1,062 — 
Premises and equipment, netPremises and equipment, net107,540 108,824 
Intangible assets, net of accumulated amortizationIntangible assets, net of accumulated amortization63,986 66,017 Intangible assets, net of accumulated amortization51,086 53,213 
GoodwillGoodwill404,452 403,771 Goodwill404,452 404,452 
Other assetsOther assets173,561 138,851 Other assets245,690 250,149 
Total assetsTotal assets$10,453,680 $9,757,249 Total assets$12,609,487 $12,154,361 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY  LIABILITIES AND STOCKHOLDERS’ EQUITY  
Deposits:Deposits:  Deposits:  
Noninterest-bearing depositsNoninterest-bearing deposits$2,765,895 $2,510,723 Noninterest-bearing deposits$2,212,389 $2,640,617 
Interest-bearing transaction and savings depositsInterest-bearing transaction and savings deposits3,688,292 3,276,312 Interest-bearing transaction and savings deposits3,492,011 3,738,535 
Certificates and other time depositsCertificates and other time deposits1,435,409 1,576,580 Certificates and other time deposits2,896,870 2,086,642 
Correspondent money market depositsCorrespondent money market deposits433,468 657,440 
Total depositsTotal deposits7,889,596 7,363,615 Total deposits9,034,738 9,123,234 
Accounts payable and other liabilitiesAccounts payable and other liabilities105,552 69,160 Accounts payable and other liabilities171,985 177,579 
Advances from FHLBAdvances from FHLB777,522 777,562 Advances from FHLB1,680,000 1,175,000 
Subordinated debentures and subordinated notesSubordinated debentures and subordinated notes228,018 227,764 Subordinated debentures and subordinated notes229,027 228,775 
Securities sold under agreements to repurchase4,996 4,069 
Total liabilitiesTotal liabilities9,005,684 8,442,170 Total liabilities11,115,750 10,704,588 
Commitments and contingencies (Notes 8 and 11)0
Stockholders’ equity:Stockholders’ equity:  Stockholders’ equity:  
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, respectively605 560 
Common stock, $0.01 par value:Common stock, $0.01 par value:
Authorized shares - 75,000,000Authorized shares - 75,000,000
Issued shares - 60,867,127 and 60,668,049 at March 31, 2023 and December 31, 2022, respectivelyIssued shares - 60,867,127 and 60,668,049 at March 31, 2023 and December 31, 2022, respectively609 607 
Additional paid-in capital (“APIC”)Additional paid-in capital (“APIC”)1,297,161 1,142,758 Additional paid-in capital (“APIC”)1,308,345 1,306,852 
Retained earningsRetained earnings298,830 275,273 Retained earnings406,873 379,299 
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(167,582)(167,582)
Accumulated other comprehensive (loss) income (“AOCI”) Accumulated other comprehensive (loss) income (“AOCI”)(54,508)(69,403)
Treasury stock, 6,638,094 and 6,638,094 shares at cost at March 31, 2023 and December 31, 2022, respectivelyTreasury stock, 6,638,094 and 6,638,094 shares at cost at March 31, 2023 and December 31, 2022, respectively(167,582)(167,582)
Total stockholders’ equityTotal stockholders’ equity1,447,996 1,315,079 Total stockholders’ equity1,493,737 1,449,773 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$10,453,680 $9,757,249 Total liabilities and stockholders’ equity$12,609,487 $12,154,361 


See accompanying Notes to Consolidated Financial Statements.
4


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 20222023 and 20212022
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
Three Months Ended
March 31,
2022202120232022
Interest and dividend income:
Loans, including fees$71,443 $67,399 
INTEREST AND DIVIDEND INCOMEINTEREST AND DIVIDEND INCOME
Interest and fees on loansInterest and fees on loans$151,707 $71,443 
Debt securitiesDebt securities7,762 7,437 Debt securities10,988 7,762 
Deposits in financial institutions and Fed Funds soldDeposits in financial institutions and Fed Funds sold262 127 Deposits in financial institutions and Fed Funds sold5,534 262 
Equity securities and other investmentsEquity securities and other investments910 663 Equity securities and other investments1,408 910 
Total interest and dividend incomeTotal interest and dividend income80,377 75,626 Total interest and dividend income169,637 80,377 
Interest expense:
INTEREST EXPENSEINTEREST EXPENSE
Transaction and savings depositsTransaction and savings deposits1,751 1,980 Transaction and savings deposits29,857 1,751 
Certificates and other time depositsCertificates and other time deposits1,380 3,061 Certificates and other time deposits20,967 1,380 
Advances from FHLBAdvances from FHLB1,547 1,812 Advances from FHLB12,358 1,547 
Subordinated debentures and subordinated notesSubordinated debentures and subordinated notes2,659 3,138 Subordinated debentures and subordinated notes3,066 2,659 
Total interest expenseTotal interest expense7,337 9,991 Total interest expense66,248 7,337 
Net interest income73,040 65,635 
Benefit for credit losses(500)— 
Provision (benefit) for credit losses on unfunded commitments493 (570)
Net interest income after provision for credit losses73,047 66,205 
Noninterest income:
NET INTEREST INCOMENET INTEREST INCOME103,389 73,040 
Provision (benefit) for credit lossesProvision (benefit) for credit losses9,385 (500)
Provision for credit losses on unfunded commitmentsProvision for credit losses on unfunded commitments1,497 493 
Net interest income after provision (benefit) for credit lossesNet interest income after provision (benefit) for credit losses92,507 73,047 
NONINTEREST INCOMENONINTEREST INCOME
Service charges and fees on deposit accountsService charges and fees on deposit accounts4,710 3,629 Service charges and fees on deposit accounts5,017 4,710 
Loan feesLoan fees2,794 1,341 Loan fees2,064 2,794 
Gain on sale of mortgage loans held for sale307 507 
Loss on sales of debt securitiesLoss on sales of debt securities(5,321)— 
Gain on sale of mortgage LHFSGain on sale of mortgage LHFS307 
Government guaranteed loan income, netGovernment guaranteed loan income, net4,891 6,548 Government guaranteed loan income, net9,688 4,891 
Equity method investment income367 — 
Equity method investment (loss) incomeEquity method investment (loss) income(1,521)367 
Customer swap incomeCustomer swap income217 946 
OtherOther2,028 2,147 Other3,381 1,082 
Total noninterest incomeTotal noninterest income15,097 14,172 Total noninterest income13,531 15,097 
Noninterest expense:
NONINTEREST EXPENSENONINTEREST EXPENSE
Salaries and employee benefitsSalaries and employee benefits27,513 22,932 Salaries and employee benefits31,865 27,513 
Occupancy and equipmentOccupancy and equipment4,517 4,096 Occupancy and equipment4,973 4,517 
Professional and regulatory feesProfessional and regulatory fees3,158 3,441 Professional and regulatory fees4,389 3,158 
Data processing and software expenseData processing and software expense2,921 2,319 Data processing and software expense4,720 2,921 
MarketingMarketing1,187 909 Marketing1,779 1,187 
Amortization of intangiblesAmortization of intangibles2,495 2,537 Amortization of intangibles2,495 2,495 
Telephone and communicationsTelephone and communications385 337 Telephone and communications478 385 
Merger and acquisition (“M&A”) expenseMerger and acquisition (“M&A”) expense700 — Merger and acquisition (“M&A”) expense— 700 
OtherOther3,696 3,026 Other5,916 3,696 
Total noninterest expenseTotal noninterest expense46,572 39,597 Total noninterest expense56,615 46,572 
Income before income tax expenseIncome before income tax expense41,572 40,780 Income before income tax expense49,423 41,572 
Income tax expenseIncome tax expense8,102 8,993 Income tax expense11,012 8,102 
Net income$33,470 $31,787 
NET INCOMENET INCOME$38,411 $33,470 
Basic earnings per share$0.66 $0.64 
Diluted earnings per share$0.65 $0.64 
Basic earnings per share (“EPS”)Basic earnings per share (“EPS”)$0.71 $0.66 
Diluted EPSDiluted EPS$0.70 $0.65 
See accompanying Notes to Consolidated Financial Statements.
5


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three Months Ended March 31, 20222023 and 20212022
(Dollars in thousands)
Three Months Ended March 31,
20222021
Net income$33,470 $31,787 
Other comprehensive income:
Net unrealized (losses) gains on securities AFS:
Change in net unrealized losses on securities AFS during the period, net(49,076)(19,437)
Amortization from transfer of securities from AFS to HTM4,255 — 
Net unrealized losses on securities AFS(44,821)(19,437)
Net unrealized (losses) gains on derivative instruments designated as cash flow hedges(13,381)27,271 
Other comprehensive (losses) income, before tax(58,202)7,834 
Income tax (benefit) expense(13,114)1,646 
Other comprehensive (loss) income, net of tax(45,088)6,188 
Comprehensive (loss) income$(11,618)$37,975 
Three Months Ended
March 31,
20232022
NET INCOME$38,411 $33,470 
OTHER COMPREHENSIVE INCOME
Net unrealized gains (losses) on debt securities AFS:
Change in net unrealized gain (loss) on debt securities AFS during the period, net2,547 (49,076)
Amortization from transfer of debt securities from AFS to HTM3,622 4,255 
Reclassification adjustment for net losses included in net income5,321 — 
Net unrealized gain (loss) on debt securities AFS11,490 (44,821)
Net unrealized gain (loss) on derivative instruments designated as cash flow hedges7,078 (13,381)
Other comprehensive gain (loss), before tax18,568 (58,202)
Income tax benefit (expense)3,673 (13,114)
Other comprehensive gain (loss), net of tax14,895 (45,088)
COMPREHENSIVE INCOME (LOSS)$53,306 $(11,618)

See accompanying Notes to Consolidated Financial Statements.


6



VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) 
For the Three Months Ended March 31, 20222023 and 20212022
(In thousands, except for shares)
Three Months Ended March 31, 2022
 Common StockTreasury StockAPICRetained
Earnings
AOCITotal 
 SharesAmountSharesAmount
Balance at December 31, 202149,372,329 $560 6,638,094 $(167,582)$1,142,758 $275,273 $64,070 $1,315,079 
Restricted stock units (“RSU”) vested, net of 67,965 shares withheld to cover taxes187,801 — — (2,839)— — (2,837)
Exercise of employee stock options, net 28,064 and 5,738 shares withheld to cover taxes and exercise, respectively34,320 — — — 98 — — 98 
Stock based compensation— — — — 3,318 — — 3,318 
Common stock follow on offering4,314,474 43 — — 153,826 — — 153,869 
Net income— — — — — 33,470 — 33,470 
Dividends paid— — — — — (9,913)— (9,913)
Other comprehensive loss— — — — — — (45,088)(45,088)
Balance at March 31, 202253,908,924 $605 6,638,094 $(167,582)$1,297,161 $298,830 $18,982 $1,447,996 
Three Months Ended March 31, 2023
 Common StockTreasury StockAPICRetained
Earnings
AOCITotal 
 SharesAmountSharesAmount
Balance at December 31, 202254,029,955 $607 6,638,094 $(167,582)$1,306,852 $379,299 $(69,403)$1,449,773 
Restricted stock units (“RSU”) vested, net of 71,465 shares withheld to cover taxes161,081 — — (1,928)— — (1,926)
Exercise of employee stock options, net of 121 and 9,729 shares withheld to cover taxes and exercise, respectively37,997 — — — 534 — — 534 
Stock based compensation— — — 2,887 — 2,887 
Net income— — — — — 38,411 — 38,411 
Dividends paid— — — — — (10,837)— (10,837)
Other comprehensive income— — — — — — 14,895 14,895 
Balance at March 31, 202354,229,033 $609 6,638,094 $(167,582)$1,308,345 $406,873 $(54,508)$1,493,737 
Three Months Ended March 31, 2021
 Common StockTreasury StockAPICRetained
Earnings
AOCI 
 SharesAmountSharesAmountTotal
Balance at December 31, 202049,337,768 $555 6,162,350 $(152,073)$1,126,437 $172,232 $56,225 $1,203,376 
Restricted stock units vested, net of 16,587 shares withheld to cover taxes58,110 — — — (468)— — (468)
Exercise of employee stock options, net of 18,052 and 3,474 shares withheld to cover taxes and exercise, respectively184,494 — — 2,877 — — 2,879 
Stock buyback(147,622)— 147,622 (4,074)— — — (4,074)
Stock based compensation— — — — 2,478 — — 2,478 
Net income— — — — — 31,787 — 31,787 
Dividends paid— — — — — (8,358)— (8,358)
Other comprehensive income— — — — — — 6,188 6,188 
Balance at March 31, 202149,432,750 $557 6,309,972 $(156,147)$1,131,324 $195,661 $62,413 $1,233,808 


Three Months Ended March 31, 2022
 Common StockTreasury StockAPICRetained
Earnings
AOCI 
 SharesAmountSharesAmountTotal
Balance at December 31, 202149,372,329 $560 6,638,094 $(167,582)$1,142,758 $275,273 $64,070 $1,315,079 
RSUs vested, net of 67,965 shares withheld to cover taxes187,801 — — (2,839)— — (2,837)
Exercise of employee stock options, net of 5,738 and 28,064 shares withheld to cover taxes and exercise, respectively34,320 — — — 98 — — 98 
Common stock follow on offering4,314,474 43 153,826 153,869 
Stock based compensation— — — — 3,318 — — 3,318 
Net income— — — — — 33,470 — 33,470 
Dividends paid— — — — — (9,913)— (9,913)
Other comprehensive loss— — — — — — (45,088)(45,088)
Balance at March 31, 202253,908,924 $605 6,638,094 $(167,582)$1,297,161 $298,830 $18,982 $1,447,996 

See accompanying Notes to Consolidated Financial Statements.


7


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 20222023 and 20212022
(Dollars in thousands)

 For the Three Months Ended March 31,
 20222021
Cash flows from operating activities:
Net income$33,470 $31,787 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization of fixed assets and intangibles4,378 3,765 
Net accretion of time deposit premium, debt discount and debt issuance costs(16)(80)
Benefit for credit losses(7)(570)
Accretion of loan discount(1,598)(1,911)
Stock-based compensation expense3,318 2,478 
Excess tax benefit from stock compensation(992)(154)
Net amortization of premiums on debt securities811 730 
Unrealized loss on equity securities recognized in earnings513 199 
Change in cash surrender value and mortality rates of BOLI(447)(463)
Change in fair value of government guaranteed loans using fair value option(379)(917)
Gain on sales of mortgage loans held for sale(307)(507)
Gain on sales of government guaranteed loans(4,161)— 
Net impairment (recovery) of servicing asset280 (128)
Originations of loans held for sale(12,613)(1,096)
Proceeds from sales of loans held for sale21,293 4,070 
Equity method investment income(367)— 
Termination of derivatives designated as hedging instruments— 43,900 
(Increase) decrease in other assets(9,687)10,554 
Increase (decrease) in accounts payable and other liabilities34,729 (8,437)
Net cash provided by operating activities68,218 83,220 
Cash flows from investing activities:  
Purchases of AFS debt securities(266,490)(79,816)
Proceeds from maturities, calls and pay downs of AFS debt securities33,880 40,102 
Purchases of HTM debt securities(5,068)(4,335)
Maturity, calls and paydowns of HTM debt securities25 1,222 
Purchases of other investments(91)(233)
Proceeds from sales of equity securities1,470 — 
Net loans originated(332,290)(184,586)
Proceeds from sale of government guaranteed loans4,910 — 
Net additions to bank premises, furniture and equipment(1,130)(661)
Net cash used in investing activities(564,784)(228,307)
Cash flows from financing activities:  
Net increase in deposits525,987 391,799 
Net increase (decrease) in advances from FHLB224 (39)
Net change in securities sold under agreement to repurchase927 552 
Net proceeds on sale of common stock in public offering153,869 — 
Payments to tax authorities for stock-based compensation(2,837)(468)
Proceeds from exercise of employee stock options98 2,879 
Purchase of treasury stock— (4,074)
Dividends paid(9,913)(8,358)
Net cash provided by financing activities668,355 382,291 
Net increase in cash and cash equivalents171,789 237,204 
Cash and cash equivalents at beginning of period379,784 230,825 
Cash and cash equivalents at end of period$551,573 $468,029 
 For the Three Months Ended March 31,
 20232022
Cash flows from operating activities:
Net income$38,411 $33,470 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles4,764 4,378 
Net amortization (accretion) of time deposit premium, debt discount and debt issuance costs240 (16)
Provision (benefit) for credit losses and unfunded commitments10,882 (7)
Accretion of loan discount(1,014)(1,598)
Stock-based compensation expense2,887 3,318 
Excess tax expense (benefit) from stock compensation112 (992)
Net amortization of premiums on debt securities885 811 
Unrealized (gain) loss on equity securities recognized in earnings(126)513 
Change in cash surrender value and mortality rates of BOLI(466)(447)
Loss on sales of debt securities5,321 — 
Change in fair value of government guaranteed loans using fair value option(2,239)(379)
Gain on sales of mortgage LHFS(6)(307)
Gain on sales of government guaranteed loans(7,449)(4,161)
Net impairment of servicing asset(424)280 
Originations of LHFS(25,136)(12,613)
Proceeds from sales of LHFS5,520 21,293 
Equity method investment loss (income)1,521 (367)
Decrease (increase) in other assets(3,119)(9,687)
(Decrease) increase in accounts payable and other liabilities3,975 34,729 
Net cash provided by operating activities34,539 68,218 
Cash flows from investing activities:  
Purchases of AFS debt securities(149,982)(266,490)
Proceeds from sales of AFS debt securities109,793 — 
Proceeds from maturities, calls and pay downs of AFS debt securities175,289 33,880 
Purchases of HTM debt securities— (5,068)
Maturity, calls and paydowns of HTM debt securities800 25 
Purchases of other investments(15,045)(91)
Proceeds from sales of equity securities— 1,470 
Net loans originated(134,513)(332,290)
Proceeds from sale of government guaranteed loans(52,868)4,910 
Net additions (disposals) to premises and equipment18 (1,130)
Net cash used in investing activities(66,508)(564,784)
Cash flows from financing activities:  
Net (decrease) increase in deposits(88,484)525,987 
Net increase in advances from FHLB505,000 224 
Net change in securities sold under agreement to repurchase— 927 
Net proceeds on sale of common stock in public offering— 153,869 
Payments to tax authorities for stock-based compensation(1,926)(2,837)
Proceeds from exercise of employee stock options534 98 
Dividends paid(10,837)(9,913)
Net cash provided by financing activities404,287 668,355 
Net increase in cash and cash equivalents372,318 171,789 
Cash and cash equivalents at beginning of period436,077 379,784 
Cash and cash equivalents at end of period$808,395 $551,573 
See accompanying Notes to Consolidated Financial Statements.
8


VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Notes to 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,” “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 18 branches located in the Dallas-Fort Worth metroplex and 10 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 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 consolidated financial statements include the accounts of Veritex Holdings, Inc. and its subsidiaries, including Veritex Community Bank.

The accompanying unaudited 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 consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s consolidated balance sheets at March 31, 20222023 and December 31, 2021,2022, consolidated statements of income, consolidated changes in stockholders’ equity and consolidated statements of comprehensive income for the three months ended March 31, 20222023 and 2021, consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2022 and 2021 and consolidated statements of cash flows for the three months ended March 31, 20222023 and 2021.2022.

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 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 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, 20212022 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 1, 2022.February 28, 2023.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the 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.
9



Reclassifications
Certain items in the Company’s prior year financial statements were reclassified to conform to the current presentation.
Earnings Per Share (“EPS”) PPP loans of $1,995 were reported separately as LHI PPP loans, carried at fair value, as of December 31, 2022 and have been reclassed to LHI, excluding MW loans.
EPS 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 months ended March 31, 20222023 and 2021:2022:
Three Months Ended March 31,Three Months Ended March 31,
2022202120232022
Earnings (numerator)
Numerator:Numerator:
Net incomeNet income$33,470 $31,787 Net income$38,411 $33,470 
Shares (denominator)
Denominator:Denominator:
Weighted average shares outstanding for basic EPSWeighted average shares outstanding for basic EPS50,695 49,394 Weighted average shares outstanding for basic EPS54,149 50,695 
Dilutive effect of employee stock-based awardsDilutive effect of employee stock-based awards876 604 Dilutive effect of employee stock-based awards457 876 
Adjusted weighted average shares outstandingAdjusted weighted average shares outstanding51,571 49,998 Adjusted weighted average shares outstanding54,606 51,571 
EPS:EPS:EPS:
BasicBasic$0.66 $0.64 Basic$0.71 $0.66 
DilutedDiluted$0.65 $0.64 Diluted$0.70 $0.65 
For the three months ended March 31, 2023, there were 834 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 440 relating to RSUs and 214 relating to stock options.

For the three months ended March 31, 2022, there were 80 antidilutive shares excluded from the diluted EPS weighted average shares outstanding relating to restricted stock units (“RSUs”) and none relating to stock options. For the three months ended March 31, 2021, there were 75 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 23 relatingrelated to RSUs and 52 relatingnone related 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 2022-01, “Derivatives and Hedging (Topic 815)” (“ASU 2022-01”) 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 these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023 and is not expected to have a significant impact on our consolidated financial statements.

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 willfor the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2022-02 did not have ana significant impact on our financial statements. See Note 4 - LHI and ACL for new financial statement disclosures.disclosures applicable under this standard.

ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. ASU 2023-02 will be effective for us on January 1, 2024, though early adoption is permitted, and its adoption is not expected to have a significant effect on our financial statements.
10


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

Three Months Ended March 31, Three Months Ended March 31,
20222021 20232022
(in thousands)(in thousands)
Supplemental Disclosures of Cash Flow Information:Supplemental Disclosures of Cash Flow Information:  Supplemental Disclosures of Cash Flow Information:  
Cash paid for interestCash paid for interest$5,368 $7,602 Cash paid for interest$54,189 $5,368 
Cash paid for income taxesCash paid for income taxes— 15 Cash paid for income taxes— — 
Supplemental Disclosures of Non-Cash Flow Information:Supplemental Disclosures of Non-Cash Flow Information:  Supplemental Disclosures of Non-Cash Flow Information:
Transfer of AFS debt securities to HTM debt securitiesTransfer of AFS debt securities to HTM debt securities117,001 — Transfer of AFS debt securities to HTM debt securities— 117,001 
Net foreclosure of OREO and repossessed assetsNet foreclosure of OREO and repossessed assets1,062 — Net foreclosure of OREO and repossessed assets— 1,062 
Noncash assets acquired in business combination1
LHI(681)— 
Goodwill681 — 
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
    The Company's Board of Directors (the “Board”) 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") with an expiration date of December 31, 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 shares. The Stock Buyback Program may be terminated or amended by the Board at any time prior to its expiration.

    Shares repurchased through the periods indicated are as follows:
Three Months Ended March 31,
20222021
Numbers of shares repurchased— 147,622 
Weighted average price per share— $26.83 

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


4. Securities
Equity Securities With a Readily Determinable Fair Value
The Company held equity securities with a fair value of $10,525$9,918 and $11,038$9,792 at March 31, 20222023 and December 31, 2021,2022, respectively. The Company did not realize a loss on equity securities with a readily determinable fair value during the three months ended March 31, 2023 or 2022, or 2021.respectively. The gross unrealized lossgain (loss) recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s consolidated statements of income were as follows:
Three Months Ended March 31,
20222021
Unrealized loss recognized on equity securities with a readily determinable fair value$513 $199 
Three Months Ended March 31,
20232022
Unrealized gain (loss) recognized on equity securities with a readily determinable fair value$126 $(513)
Equity Securities Without a Readily Determinable Fair Value
The Company held equity securities without a readily determinable fair values and measured at cost of $4,355$10,604 and $10,072 as of March 31, 20222023 and December 31, 2021.2022, respectively.
Securities purchased under agreements to resell
As of March 31, 2023, we held no securities purchased under agreements to resell and we recognized no interest income during the three months ended March 31, 2023. 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. 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.
Debt Securities
Debt securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, ACL and the fair value of AFS and HTM debt securities are as follows:
 March 31, 2022
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
ACLFair Value
AFS
Corporate bonds$262,839 $5,975 $1,593 $— $267,221 
Municipal securities50,335 993 1,006 — 50,322 
Mortgage-backed securities153,215 593 5,838 — 147,970 
Collateralized mortgage obligations493,702 613 16,192 — 478,123 
Asset-backed securities50,452 721 1,233 — 49,940 
Collateralized loan obligations70,179 — 506 — 69,673 
 $1,080,722 $8,895 $26,368 $— $1,063,249 
Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
HTM
Mortgage-backed securities$39,072 $— $3,340 $— $35,732 
Collateralized mortgage obligations37,618 203 2,339 — 35,482 
Municipal securities104,575 603 6,574 — 98,604 
$181,265 $806 $12,253 $— $169,818 
11


 March 31, 2023
 Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
AFS
Corporate bonds$244,190 $1,218 $23,900 $885 $220,623 
Municipal securities46,910 57 3,345 — 43,622 
Mortgage-backed securities130,343 24 14,703 — 115,664 
Collateralized mortgage obligations524,593 — 41,940 — 482,653 
Asset-backed securities38,966 622 2,075 — 37,513 
Collateralized loan obligations69,750 — 3,702 — 66,048 
 $1,054,752 $1,921 $89,665 $885 $966,123 
Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
HTM
Mortgage-backed securities$35,999 $— $6,302 $— $29,697 
Collateralized mortgage obligations35,616 — 4,748 — 30,868 
Municipal securities113,221 98 12,106 — 101,213 
$184,836 $98 $23,156 $— $161,778 

 December 31, 2022
 Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
AFS
Corporate bonds$268,179 $1,445 $17,379 $— $252,245 
Municipal securities49,886 4,198 — 45,691 
Mortgage-backed securities156,408 23 17,420 — 139,011 
Collateralized mortgage obligations609,456 — 55,850 — 553,606 
Asset-backed securities42,015 289 2,613 — 39,691 
Collateralized loan obligations69,750 — 3,702 — 66,048 
 $1,195,694 $1,760 $101,162 $— $1,096,292 
Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
HTM
Mortgage-backed securities$36,342 $— $6,753 $— $29,589 
Collateralized mortgage obligations36,169 — 5,884 — 30,285 
Municipal securities113,657 14,756 — 98,907 
$186,168 $$27,393 $— $158,781 
The Company elected to transfer 25 AFS debt securities with an aggregate fair value of $117,001 to a classification of HTM debt securities on January 1, 2022. In accordance with FASB ASC 320-10-35-10, the 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),AOCI, with the associated pre-tax amount retained in the carrying value of the HTM debt securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.
12


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



The following tables disclose the Company’s 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:
March 31, 2022 March 31, 2023
Less Than 12 Months12 Months or MoreTotals Less Than 12 Months12 Months or MoreTotals
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
AFSAFSAFS
Corporate bondsCorporate bonds$72,219 $1,593 $— $— $72,219 $1,593 Corporate bonds$— $— $15,710 $311 $15,710 $311 
Municipal securitiesMunicipal securities11,731 902 1,889 104 13,620 1,006 Municipal securities27,477 306 11,317 3,039 38,794 3,345 
Mortgage-backed securitiesMortgage-backed securities57,918 2,515 27,791 3,323 85,709 5,838 Mortgage-backed securities3,410 67 111,436 14,636 114,846 14,703 
Collateralized mortgage obligationsCollateralized mortgage obligations338,386 13,597 23,610 2,595 361,996 16,192 Collateralized mortgage obligations131,159 3,404 351,494 38,536 482,653 41,940 
Asset-backed securitiesAsset-backed securities24,209 464 10,918 769 35,127 1,233 Asset-backed securities3,224 150 16,978 1,925 20,202 2,075 
Collateralized loan obligationsCollateralized loan obligations69,673 506 — — 69,673 506 Collateralized loan obligations— — 66,048 3,702 66,048 3,702 
$574,136 $19,577 $64,208 $6,791 $638,344 $26,368  $165,270 $3,927 $572,983 $62,149 $738,253 $66,076 
HTMHTMHTM
Mortgage-backed securitiesMortgage-backed securities$19,592 $1,784 $16,141 $1,556 $35,733 $3,340 Mortgage-backed securities$— $— $29,697 $6,302 $29,697 $6,302 
Collateralized mortgage obligationsCollateralized mortgage obligations3,829 220 27,039 4,528 30,868 4,748 
Municipal securitiesMunicipal securities75,221 6,281 2,005 293 77,226 6,574 Municipal securities12,170 94 76,434 12,012 88,604 12,106 
Collateralized mortgage obligations31,162 2,339 — — 31,162 2,339 
$125,975 $10,404 $18,146 $1,849 $144,121 $12,253  $15,999 $314 $133,170 $22,842 $149,169 $23,156 
December 31, 2021 December 31, 2022
Less Than 12 Months12 Months or MoreTotals Less Than 12 Months12 Months or MoreTotals
Fair
Value
Unrealized LossFair
Value
Unrealized LossFair
Value
Unrealized Loss Fair
Value
Unrealized LossFair
Value
Unrealized LossFair
Value
Unrealized Loss
AFSAFSAFS
Corporate bondsCorporate bonds$7,072 $178 $— $— $7,072 $178 Corporate bonds$197,946 $15,697 $15,568 $1,682 $213,514 $17,379 
Municipal securitiesMunicipal securities12,704 194 4,350 237 17,054 431 Municipal securities33,919 848 8,813 3,350 42,732 4,198 
Mortgage-backed securitiesMortgage-backed securities40,276 1,283 4,677 206 44,953 1,489 Mortgage-backed securities115,467 11,104 22,780 6,317 138,247 17,421 
Collateralized mortgage obligationsCollateralized mortgage obligations106,063 2,350 — — 106,063 2,350 Collateralized mortgage obligations482,358 42,553 71,198 13,296 553,556 55,849 
Asset-backed securitiesAsset-backed securities11,265 519 — — 11,265 519 Asset-backed securities15,195 991 11,207 1,621 26,402 2,612 
Collateralized loan obligationsCollateralized loan obligations44,922 167 — — 44,922 167 Collateralized loan obligations23,673 1,328 42,375 2,375 66,048 3,703 
$222,302 $4,691 $9,027 $443 $231,329 $5,134  $868,558 $72,521 $171,941 $28,641 $1,040,499 $101,162 
HTMHTMHTM
Mortgage-backed securitiesMortgage-backed securities$24,214 $508 $— $— $24,214 $508 Mortgage-backed securities$804 $85 $28,784 $6,668 $29,588 $6,753 
Collateralized mortgage obligationsCollateralized mortgage obligations25,285 4,676 4,999 1,208 30,284 5,884 
Municipal securitiesMunicipal securities4,583 102 — — 4,583 102 Municipal securities85,671 11,411 9,161 3,345 94,832 14,756 
$28,797 $610 $— $— $28,797 $610 $111,760 $16,172 $42,944 $11,221 $154,704 $27,393 

Management evaluates 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 AFS debt securities in an unrealized loss position totaled 93114 and 34175 at March 31, 20222023 and December 31, 2021,2022, respectively. Management does not have the intent to sell any of these debt securities and believes that it is more
14


likely than not that the Company will not have to sell any such debt securities before a recovery of cost. The fair value is
13


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 March 31, 2022,2023, management believes that the unrealized losses detailed in the previous 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 consolidated statements of income.
    The amortized costs and estimated fair values of AFS debt securities, 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, 2022March 31, 2023
AFSHTMAFSHTM
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized CostFair ValueAmortized CostFair Value
Due from one year to five yearsDue from one year to five years$39,412 $41,647 $— $— Due from one year to five years$29,466 $30,422 $456 $445 
Due from five years to ten yearsDue from five years to ten years204,782 206,454 4,304 4,330 Due from five years to ten years205,272 182,451 13,221 12,946 
Due after ten yearsDue after ten years68,980 69,442 100,271 94,274 Due after ten years56,362 51,372 99,544 87,822 
313,174 317,543 104,575 98,604 291,100 264,245 113,221 101,213 
Mortgage-backed securities and collateralized mortgage obligationsMortgage-backed securities and collateralized mortgage obligations646,917 626,093 76,690 71,214 Mortgage-backed securities and collateralized mortgage obligations654,936 598,317 71,615 60,565 
Asset-backed securitiesAsset-backed securities50,452 49,940 — — Asset-backed securities38,966 37,513 — — 
Collateralized loan obligationsCollateralized loan obligations70,179 69,673 — — Collateralized loan obligations69,750 66,048 — — 
$1,080,722 $1,063,249 $181,265 $169,818 $1,054,752 $966,123 $184,836 $161,778 
December 31, 2021December 31, 2022
AFSHTMAFSHTM
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized CostFair ValueAmortized CostFair Value
Due from one year to five yearsDue from one year to five years$5,201 $5,241 $— $— Due from one year to five years$53,692 $54,179 $— $— 
Due from five years to ten yearsDue from five years to ten years178,203 186,972 3,849 4,115 Due from five years to ten years205,911 190,406 8,275 8,129 
Due after ten yearsDue after ten years131,092 140,229 24,330 25,977 Due after ten years58,462 53,351 105,382 90,778 
314,496 332,442 28,179 30,092 318,065 297,936 113,657 98,907 
Mortgage-backed securities and collateralized mortgage obligationsMortgage-backed securities and collateralized mortgage obligations548,404 561,131 31,257 31,354 Mortgage-backed securities and collateralized mortgage obligations765,864 692,617 72,511 59,874 
Asset-backed securitiesAsset-backed securities53,466 54,563 — — Asset-backed securities42,015 39,691 — — 
Collateralized loan obligationsCollateralized loan obligations45,089 44,922 — — Collateralized loan obligations69,750 66,048 — — 
$961,455 $993,058 $59,436 $61,446 $1,195,694 $1,096,292 $186,168 $158,781 
No
14


Proceeds from sales of AFS debt securities occurred duringAFS and gross gains and losses for the three months ended March 31, 2023 and 2022 and 2021.were as follows:
Three Months Ended March 31,
20232022
Proceeds from sales$109,793 $— 
Gross realized losses5,321 — 
As of March 31, 20222023 and December 31, 2021,2022, 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 shareholders'stockholders' equity. There was a blanket floating lien on all debt securities held by the Company to secure FHLB advances as of March 31, 20222023 and December 31, 2021.2022.

15


5.4. LHI and ACL
LHI in the accompanying consolidated balance sheets are summarized as follows:
March 31, 2022December 31, 2021 March 31, 2023December 31, 2022
LHI, carried at amortized cost:LHI, carried at amortized cost:LHI, carried at amortized cost:
Real estate:Real estate:        Real estate:        
Construction and landConstruction and land$1,297,338 $1,062,144 Construction and land$1,831,349 $1,787,400 
FarmlandFarmland48,095 55,827 Farmland51,680 43,500 
1 - 4 family residential1 - 4 family residential604,408 542,566 1 - 4 family residential896,252 894,456 
Multi-family residentialMulti-family residential272,250 310,241 Multi-family residential432,209 322,679 
OOCRE633,615 665,537 
NOOCRE2,145,826 2,120,309 
Owner occupied commercial real estate (“OOCRE”)Owner occupied commercial real estate (“OOCRE”)631,563 715,829 
Non-owner occupied commercial real estate (“NOOCRE”)Non-owner occupied commercial real estate (“NOOCRE”)2,505,344 2,341,379 
CommercialCommercial2,125,900 2,006,876 Commercial2,895,957 2,942,348 
MWMW542,877 565,645 MW437,501 446,227 
ConsumerConsumer9,533 11,998 Consumer8,316 7,806 
7,679,842 7,341,143 9,690,171 9,501,624 
Deferred loan fees, netDeferred loan fees, net(11,536)(9,489)Deferred loan fees, net(15,511)(18,973)
ACLACL(72,485)(77,754)ACL(98,694)(91,052)
LHI carried at amortized cost, netLHI carried at amortized cost, net7,595,821 7,253,900 LHI carried at amortized cost, net9,575,966 9,391,599 
LHI, carried at fair value:
PPP loans18,512 53,369 
Total LHI, netTotal LHI, net$7,614,333 $7,307,269 Total LHI, net$9,575,966 $9,391,599 
Included in the total LHI, net, as of March 31, 20222023 and December 31, 20212022 was an accretable discount related to purchased performing and purchased credit deteriorated (“PCD”) loans acquired within a business combination in the approximate amounts of $7,628$7,476 and $8,657,$8,260, 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 March 31, 20222023 and December 31, 20212022 is a discount on retained loans from sale of originated U.S. Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) loans of $3,429$6,554 and $3,430,$5,238, respectively.
LHI, PPP During the year ended December 31, 2022, the Company purchased $223,924 in pooled residential real estate loans carried at fair value
Includeda net discount. The remaining net purchase discount of $3,909 is included in the total LHI, net, as of March 31, 2022 and December 31, 2021 was $18,512 and $53,369, respectively, of PPP loans, which are carried at fair value. The following table summarizes the PPP fee income and net gain (loss) due to the change in the fair value of PPP loans, both of which are included in government guaranteed loan income, net,will be amortized on the Company's consolidated statements of income and in change in fair value of government guaranteed loans using fair value option on the Company's consolidated statements of cash flows:
March 31, 2022March 31, 2021
PPP fee income$— $6,624 
Net gain (loss) due to the change in fair value175 (287)
These PPP loans were originated through an application to the SBA under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and are 100% forgivable if certain criteria are met by the borrowers. As of March 31, 2022, we believe a majority of the Company’s PPP loans will meet such criteria.
16


straight line basis over five years.
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). The activity in the ACL related to LHI is as follows:
Three Months Ended March 31, 2022 Three Months Ended March 31, 2023
Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of year$7,293 $187 $5,982 $2,664 $9,215 $30,548 $21,632 $233 $77,754 
Balance at beginning of the periodBalance at beginning of the period$13,120 $127 $9,533 $2,607 $8,707 $26,704 $30,142 $112 $91,052 
Credit loss (benefit) expense non-PCD loansCredit loss (benefit) expense non-PCD loans1,595 (29)224 (537)813 (4,114)4,044 622 2,618 Credit loss (benefit) expense non-PCD loans4,240 41 12 877 238 (499)2,995 363 8,267 
Credit loss (benefit) expense PCD loans(5)— (72)— (1,264)673 (2,442)(8)(3,118)
Credit (benefit) loss expense PCD loansCredit (benefit) loss expense PCD loans(46)— (5)— (16)33 267 — 233 
Charge-offsCharge-offs— — — — (1,341)(553)(3,294)(134)(5,322)Charge-offs— — — — (116)— (1,051)(62)(1,229)
RecoveriesRecoveries— — — — — 400 144 553 Recoveries— — — — — 364 371 
Ending BalanceEnding Balance$8,883 $158 $6,134 $2,127 $7,423 $26,954 $20,084 $722 $72,485 Ending Balance$17,314 $168 $9,541 $3,484 $8,813 $26,238 $32,717 $419 $98,694 
 Three Months Ended March 31, 2021
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of year$7,768 $56 $8,148 $6,231 $9,719 $35,237 $37,554 $371 $105,084 
Credit (benefit) loss expense non-PCD loans(949)(9)(1,144)(1,417)(1,615)4,074 (1,103)(54)(2,217)
Credit (benefit) loss expense PCD loans(14)— (24)— 1,018 192 1,050 (5)2,217 
Charge-offs— — (15)— — — (346)(18)(379)
Recoveries— — — — — 226 231 
Ending Balance$6,805 $47 $6,968 $4,814 $9,122 $39,503 $37,381 $296 $104,936 
16


 Three Months Ended March 31, 2022
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of the period$7,293 $187 $5,982 $2,664 $9,215 $30,548 $21,632 $233 $77,754 
Credit (benefit) loss expense non-PCD loans1,595 (29)224 (537)813 (4,114)4,044 622 2,618 
Credit (benefit) loss expense PCD loans(5)— (72)— (1,264)673 (2,442)(8)(3,118)
Charge-offs— — — — (1,341)(553)(3,294)(134)(5,322)
Recoveries— — — — — 400 144 553 
Ending Balance$8,883 $158 $6,134 $2,127 $7,423 $26,954 $20,084 $722 $72,485 
The majority of the 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 as of March 31, 20222023 and 2021.2022.
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:
March 31, 2022December 31, 2021March 31, 2023December 31, 2022
Real Property(1)
ACL Allocation
Real Property(1)
ACL Allocation
Real Property(1)
ACL Allocation
Real Property(1)
ACL Allocation
Construction and landConstruction and land$1,583 $— $— $— 
OOCREOOCRE1,181 — 1,193 129 
NOOCRENOOCRE$17,551 $4,572 $17,908 $7,808 NOOCRE20,696 1,939 20,896 2,138 
CommercialCommercial1,085 84 1,702 — Commercial1,231 477 1,240 396 
ConsumerConsumer1,063 538 1,063 — Consumer12 — 15 — 
TotalTotal$19,699 $5,194 $20,673 $7,808 Total$24,703 $2,416 $23,344 $2,663 
(1) Loans reported exclude PCD loans that transitioned upon adoption of ASC 326 and accounted for on a pooled basis.



17


Nonaccrual and Past Due Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due in accordance with the terms of the 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.
17


Nonaccrual loans aggregated by class of loans, as of March 31, 20222023 and December 31, 2021,2022, were as follows:
March 31, 2022December 31, 2021 March 31, 2023December 31, 2022
NonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACL
Real estate:Real estate:        Real estate:        
Construction and landConstruction and land$1,583 $1,583 $— $— 
1 - 4 family residential1 - 4 family residential$1,005 $1,005 $990 $990 1 - 4 family residential818 818 862 $862 
OOCREOOCRE13,446 13,446 14,236 13,824 OOCRE9,322 9,322 9,737 8,545 
NOOCRENOOCRE17,739 189 17,978 191 NOOCRE20,783 12,784 21,377 13,178 
CommercialCommercial13,259 1,317 15,267 4,207 Commercial11,659 2,633 11,397 2,521 
ConsumerConsumer1,231 168 1,216 1,216 Consumer71 71 169 169 
TotalTotal$46,680 $16,125 $49,687 $20,428 Total$44,236 $27,211 $43,542 $25,275 
    There were $10,678$8,141 and $11,056$8,545 of PCD loans that are not accounted for on a pooled basis included in nonaccrual loans at March 31, 20222023 and December 31, 2021,2022, respectively.
    During the three months ended March 31, 20222023 and 2021,2022, interest income not recognized on nonaccrual loans was $889$772 and $1,120,$889, respectively.
An age analysis of past due loans, aggregated by class of loans and including past due nonaccrual loans, as of March 31, 20222023 and December 31, 2021,2022, is as follows:
March 31, 2022 March 31, 2023
30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
30 to 59 Days60 to 89 Days90 Days or Greater
Total Past Due (1)
Total CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(2)
Real estate:Real estate:                            Real estate:                            
Construction and landConstruction and land$1,400 $— $— $1,400 $1,294,062 $1,876 $1,297,338 $— Construction and land$619 $— $1,583 $2,202 $1,829,147 $— $1,831,349 $— 
FarmlandFarmland— — — — 48,095 — 48,095 — Farmland— — — — 51,680 — 51,680 — 
1 - 4 family residential1 - 4 family residential2,429 — 926 3,355 599,891 1,162 604,408 — 1 - 4 family residential5,331 442 296 6,069 888,989 1,194 896,252 296 
Multi-family residentialMulti-family residential— — — — 272,250 — 272,250 — Multi-family residential— — — — 432,209 — 432,209 — 
OOCREOOCRE3,114 509 13,446 17,069 593,946 22,600 633,615 — OOCRE2,833 1,405 1,181 5,419 606,957 19,187 631,563 — 
NOOCRENOOCRE— — 17,739 17,739 2,112,843 15,244 2,145,826 — NOOCRE— — 20,696 20,696 2,471,438 13,210 2,505,344 — 
CommercialCommercial4,026 6,280 3,881 14,187 2,104,273 7,440 2,125,900 264 Commercial1,152 3,219 2,785 7,156 2,885,081 3,720 2,895,957 — 
MWMW430 — — 430 542,447 — 542,877 — MW208 — — 208 437,293 — 437,501 — 
ConsumerConsumer68 35 1,161 1,264 8,099 170 9,533 — Consumer113 10 — 123 8,175 18 8,316 — 
TotalTotal$11,467 $6,824 $37,153 $55,444 $7,575,906 $48,492 $7,679,842 $264 Total$10,256 $5,076 $26,541 $41,873 $9,610,969 $37,329 $9,690,171 $296 
(1)Total past due loans includes $17 of PCD loans as of March 31, 2023.
(2) Loans 90 days past due and still accruing excludes $5,511$1,449 of PCD loans and $203 of PPP loans as of March 31, 2022.2023.

18


December 31, 2021 December 31, 2022
30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
30 to 59 Days60 to 89 Days90 Days or Greater
Total Past Due(1)
Total CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(2)
Real estate:Real estate:                            Real estate:                            
Construction and landConstruction and land$— $— $— $— $1,059,796 $2,348 $1,062,144 $— Construction and land$1,121 $2,111 $— $3,232 $1,782,624 $1,544 $1,787,400 $— 
FarmlandFarmland— — — — 55,827 — 55,827 — Farmland— — — — 43,500 — 43,500 — 
1 - 4 family residential1 - 4 family residential2,073 — 1,008 3,081 538,307 1,178 542,566 24 1 - 4 family residential4,319 129 499 4,947 888,329 1,180 894,456 123 
Multi-family residentialMulti-family residential— — — — 310,241 — 310,241 — Multi-family residential1,000 — — 1,000 321,679 — 322,679 — 
OOCREOOCRE4,538 965 11,622 17,125 620,848 27,564 665,537 — OOCRE3,342 1,186 1,193 5,721 690,291 19,817 715,829 — 
NOOCRENOOCRE936 — 192 1,128 2,100,981 18,200 2,120,309 — NOOCRE5,156 — 20,896 26,052 2,302,579 12,748 2,341,379 — 
CommercialCommercial1,525 4,395 3,708 9,628 1,988,622 8,626 2,006,876 191 Commercial3,088 2,188 1,675 6,951 2,931,696 3,701 2,942,348 — 
MWMW— — — — 565,645 — 565,645 — MW— — — — 446,227 — 446,227 — 
ConsumerConsumer135 105 1,082 1,322 10,499 177 11,998 20 Consumer352 — 45 397 7,386 23 7,806 
TotalTotal$9,207 $5,465 $17,612 $32,284 $7,250,766 $58,093 $7,341,143 $235 Total$18,378 $5,614 $24,308 $48,300 $9,414,311 $39,013 $9,501,624 $125 
(1)Total past due loans includes $13,178 of PCD loans as of December 31, 2022.
(2) Loans 90 days past due and still accruing excludes $9,345$2,004 of PCD loans and $206$669 of PPP loans as of December 31, 2021.2022.

There were $296 loans past due 90 days and still accruing as of March 31, 2023. Loans past due 90 days and still accruing were $264 and $235$125 as of March 31, 2022 and December 31, 2021, respectively.2022. 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.
Modifications to Borrowers Experiencing Financial Difficulty
The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt RestructuringRestructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.
ModificationsAn assessment of termswhether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance 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 reductioncredit losses because of the stated interest ratemeasurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.
The following table shows the amortized cost basis at the end 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 thereporting period of the modification. The recorded investment in TDRs was $23,273loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and $25,518 astype of March 31, 2022 and December 31, 2021, respectively.
    There were no new TDRsconcession granted during the three months ended March 31, 2022. The following tables presents2023:
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Interest Rate Reduction
 Amortized Cost Basis% of Loan ClassFinancial Impact
1-4 Family Residential Rentals1
$42,647 4.8 %Reduced weighted-average contractual interest rate from floating 7.5% to fixed 6.0%
Total$42,647 
11-4 Family Residential Rentals is included in the pre-1-4 family residential loan portfolio and post-modification amortized cost of loans modifiedis reported as TDRs during the three months ended March 31, 2021.such in accordance with Federal Financial Institutions Examination Counsel guidelines.
19



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

There were no loans modified as TDR loans within the previous 12 months and for which there wasNo modifications to borrowers in financial difficulty had a payment default during the three months ended March 31, 2022period and 2021. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or resultswere modified in the foreclosure and repossession of12 months before default to borrowers experiencing financial difficulty:
The Company closely monitors the applicable collateral.
During the three months ended March 31, 2022 and 2021, interest income that would have been recorded on TDR loans had the termsperformance of the loans notthat are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified was $92 and $122, respectively.in the last 12 months:
Payment Status
Current30-59 Days Past Due60-89 Days Past Due90+ Days Past Due
1-4 Family Residential Rentals$42,647 $— $— $— 
Total$42,647 $— $— $— 
The Company has not committed to lend additional amounts to customers with outstanding loans classified as TDRsTLMs as of March 31, 20222023 or December 31, 2021.2022.
19


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
 20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of March 31, 2022
Construction and land:
Pass$42,398 $530,492 $518,181 $113,127 $54,941 $27,712 $6,160 $838 $1,293,849 
Special mention— — 1,613 — — — — — 1,613 
PCD— — — — — 1,876 — — 1,876 
Total construction and land$42,398 $530,492 $519,794 $113,127 $54,941 $29,588 $6,160 $838 $1,297,338 
Farmland:
Pass$2,278 $16,697 $18,914 $25 $3,367 $5,533 $1,281 $— $48,095 
Total farmland$2,278 $16,697 $18,914 $25 $3,367 $5,533 $1,281 $— $48,095 
20


Term Loans Amortized Cost Basis by Origination Year1
20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of March 31, 2023As of March 31, 2023
Construction and land:Construction and land:
PassPass$2,440 $503,556 $731,203 $243,188 $43,087 $17,882 $200,052 $— $1,741,408 
Special mentionSpecial mention— 1,470 25,948 11,487 20,641 290 — — 59,836 
SubstandardSubstandard— — 4,583 25,522 — — — — 30,105 
Total construction and landTotal construction and land$2,440 $505,026 $761,734 $280,197 $63,728 $18,172 $200,052 $— $1,831,349 
Construction and land gross charge-offsConstruction and land gross charge-offs$— $— $— $— $— $— $— $— $— 
Farmland:Farmland:
PassPass$2,044 $2,514 $22,640 $18,397 $19 $5,034 $1,032 $— $51,680 
Total farmlandTotal farmland$2,044 $2,514 $22,640 $18,397 $19 $5,034 $1,032 $— $51,680 
Farmland gross charge-offsFarmland gross charge-offs$— $— $— $— $— $— $— $— $— 
1 - 4 family residential:1 - 4 family residential:1 - 4 family residential:
PassPass$26,827 $251,200 $102,312 $48,789 $52,176 $108,126 $11,245 $680 $601,355 Pass$13,449 $139,484 $183,529 $86,358 $41,883 $294,800 $115,517 $17,766 $892,786 
Special mentionSpecial mention— — — — — 344 — — 344 Special mention— — — — — 691 — — 691 
SubstandardSubstandard— — — — — 980 567 — 1,547 Substandard— — — — — 1,382 199 — 1,581 
PCDPCD— — — — — 1,162 — — 1,162 PCD— — — — — 1,194 — — 1,194 
Total 1 - 4 family residentialTotal 1 - 4 family residential$26,827 $251,200 $102,312 $48,789 $52,176 $110,612 $11,812 $680 $604,408 Total 1 - 4 family residential$13,449 $139,484 $183,529 $86,358 $41,883 $298,067 $115,716 $17,766 $896,252 
1-4 family residential gross charge-offs1-4 family residential gross charge-offs$— $— $— $— $— $— $— $— $— 
Multi-family residential:Multi-family residential:Multi-family residential:
PassPass$28,596 $66,418 $59,149 $33,489 $51,868 $11,020 $46 $— $250,586 Pass$5,190 $73,744 $121,248 $136,876 $8,306 $35,226 $35,911 $— $416,501 
Special mentionSpecial mention— — — — 21,664 — — — 21,664 Special mention— — — — 1,945 13,763 — — 15,708 
Total multi-family residentialTotal multi-family residential$28,596 $66,418 $59,149 $33,489 $73,532 $11,020 $46 $— $272,250 Total multi-family residential$5,190 $73,744 $121,248 $136,876 $10,251 $48,989 $35,911 $— $432,209 
Multi-family residential gross charge-offsMulti-family residential gross charge-offs$— $— $— $— $— $— $— $— $— 
OOCRE:OOCRE:OOCRE:
PassPass$12,150 $111,119 $101,059 $56,202 $60,078 $209,795 $2,566 $13,674 $566,643 Pass$5,931 $126,121 $105,907 $89,064 $42,865 $209,887 $3,352 $— $583,127 
Special mentionSpecial mention— 2,397 889 1,037 — 5,713 — — 10,036 Special mention— — 2,298 — 1,943 4,738 — — 8,979 
SubstandardSubstandard— — — — 23,628 10,708 — — 34,336 Substandard— — — 1,442 — 18,828 — — 20,270 
PCDPCD— — — — — 22,600 — — 22,600 PCD— — — — — 19,187 — — 19,187 
Total OOCRETotal OOCRE$12,150 $113,516 $101,948 $57,239 $83,706 $248,816 $2,566 $13,674 $633,615 Total OOCRE$5,931 $126,121 $108,205 $90,506 $44,808 $252,640 $3,352 $— $631,563 
OOCRE gross charge-offsOOCRE gross charge-offs$— $— $— $$$106 $— $— $116 
NOOCRE:NOOCRE:NOOCRE:
PassPass$150,063 $628,084 $271,385 $200,553 $285,499 $413,590 $7,237 $1,567 $1,957,978 Pass$47,684 $761,518 $568,395 $263,632 $152,268 $487,869 $16,523 $595 $2,298,484 
Special mentionSpecial mention— — 741 2,170 44,414 72,686 — — 120,011 Special mention— — — 22,849 18,536 38,563 — — 79,948 
SubstandardSubstandard— — — 1,770 9,889 40,934 — — 52,593 Substandard— — 2,783 — 2,232 108,687 — — 113,702 
PCDPCD— — — — 13,785 1,459 — — 15,244 PCD— — — — — 13,210 — — 13,210 
Total NOOCRETotal NOOCRE$150,063 $628,084 $272,126 $204,493 $353,587 $528,669 $7,237 $1,567 $2,145,826 Total NOOCRE$47,684 $761,518 $571,178 $286,481 $173,036 $648,329 $16,523 $595 $2,505,344 
Commercial:
Pass$92,216 $445,732 $170,620 $130,796 $58,092 $75,602 $1,048,204 $175 $2,021,437 
Special mention— 17,848 2,421 131 10,101 6,394 5,737 — 42,632 
Substandard— 4,744 4,918 6,137 13,579 6,463 18,550 — 54,391 
PCD— — — — 309 7,131 — — 7,440 
Total commercial$92,216 $468,324 $177,959 $137,064 $82,081 $95,590 $1,072,491 $175 $2,125,900 
MW:
Pass$— $— $— $— $— $— $542,447 $— $542,447 
Substandard— — — — — — 430 — 430 
Total MW$— $— $— $— $— $— $542,877 $— $542,877 
Consumer:
Pass$685 $899 $1,411 $437 $310 $3,341 $968 $— $8,051 
Special mention— — — — — 76 — — 76 
Substandard— — — — 170 1,064 — 1,236 
PCD— — — — — 170 — — 170 
Total consumer$685 $899 $1,411 $439 $310 $3,757 $2,032 $— $9,533 
Total Pass$355,213 $2,050,641 $1,243,031 $583,418 $566,331 $854,719 $1,620,154 $16,934 $7,290,441 
NOOCRE gross charge-offsNOOCRE gross charge-offs$— $— $— $— $— $— $— $— $— 
21


Commercial:Commercial:
PassPass$101,857 $388,951 $123,908 $69,297 $84,702 $66,526 $1,968,105 $572 $2,803,918 
Special mentionSpecial mention— — 1,113 — 71 5,467 14,070 — 20,721 
SubstandardSubstandard— 17,894 3,292 5,121 3,982 16,125 21,110 74 67,598 
PCDPCD— — — — — 3,720 — — 3,720 
Total commercialTotal commercial$101,857 $406,845 $128,313 $74,418 $88,755 $91,838 $2,003,285 $646 $2,895,957 
Commercial gross charge-offsCommercial gross charge-offs$— $— $— $48 $479 $524 $— $— $1,051 
MW:MW:
PassPass$1,868 $55,891 $252 $288 $741 $174 $359,206 $— $418,420 
Special mentionSpecial mention— — — — — — 18,873 — 18,873 
SubstandardSubstandard— — — — — 208 — — 208 
Total MWTotal MW$1,868 $55,891 $252 $288 $741 $382 $378,079 $— $437,501 
Mortgage warehouse gross charge-offsMortgage warehouse gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer:Consumer:
PassPass$1,388 $1,437 $412 $804 $168 $2,240 $1,709 $— $8,158 
Special mentionSpecial mention— — — — — 57 — — 57 
SubstandardSubstandard— — — — 16 67 — — 83 
PCDPCD— — — — — 18 — — 18 
Total consumerTotal consumer$1,388 $1,437 $412 $804 $184 $2,382 $1,709 $— $8,316 
Consumer gross charge-offsConsumer gross charge-offs$— $— $— $— $— $62 $— $— $62 
Total PassTotal Pass$181,851 $2,053,216 $1,857,494 $907,904 $374,039 $1,119,638 $2,701,407 $18,933 $9,214,482 
Total Special MentionTotal Special Mention— 20,245 5,664 3,338 76,179 85,213 5,737 — 196,376 Total Special Mention— 1,470 29,359 34,336 43,136 63,569 32,943 — 204,813 
Total SubstandardTotal Substandard— 4,744 4,918 7,909 47,096 59,255 20,611 — 144,533 Total Substandard— 17,894 10,658 32,085 6,230 145,297 21,309 74 233,547 
Total PCDTotal PCD— — — — 14,094 34,398 — — 48,492 Total PCD— — — — — 37,329 — — 37,329 
TotalTotal$355,213 $2,075,630 $1,253,613 $594,665 $703,700 $1,033,585 $1,646,502 $16,934 $7,679,842 Total$181,851 $2,072,580 $1,897,511 $974,325 $423,405 $1,365,833 $2,755,659 $19,007 $9,690,171 
Total gross charge-offsTotal gross charge-offs$— $— $— $53 $484 $692 $— $— $1,229 
1 Term loans amortized cost basis by origination year excludes $11,536$15,511 of deferred loan fees, net.

Term Loans Amortized Cost Basis by Origination Year1
Term Loans Amortized Cost Basis by Origination Year1
20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal 20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2021
As of December 31,As of December 31,
Construction and land:Construction and land:Construction and land:
PassPass$389,420 $453,262 $116,855 $57,637 $5,741 $29,182 $4,631 $1,163 $1,057,891 Pass$347,855 $709,208 $378,229 $69,241 $30,673 $14,025 $215,263 $140 $1,764,634 
Special mentionSpecial mention— 1,593 — 312 — — — — 1,905 Special mention— 18,662 2,560 — — — — — 21,222 
PCDPCD— — — — — 2,348 — — 2,348 PCD— — — — — 1,544 — — 1,544 
Total construction and landTotal construction and land$389,420 $454,855 $116,855 $57,949 $5,741 $31,530 $4,631 $1,163 $1,062,144 Total construction and land$347,855 $727,870 $380,789 $69,241 $30,673 $15,569 $215,263 $140 $1,787,400 
Farmland:Farmland:Farmland:
PassPass$16,849 $28,655 $27 $3,367 $2,957 $2,643 $1,329 $— $55,827 Pass$2,546 $16,242 $18,530 $21 $— $5,069 $1,092 $— $43,500 
Total farmlandTotal farmland$16,849 $28,655 $27 $3,367 $2,957 $2,643 $1,329 $— $55,827 Total farmland$2,546 $16,242 $18,530 $21 $— $5,069 $1,092 $— $43,500 
1 - 4 family residential:
Pass$191,333 $101,377 $54,826 $59,861 $27,743 $85,661 $12,659 $6,025 $539,485 
Special mention— — — — — 352 — — 352 
Substandard— — — — 81 903 567 — 1,551 
PCD— — — — — 1,178 — — 1,178 
Total 1 - 4 family residential$191,333 $101,377 $54,826 $59,861 $27,824 $88,094 $13,226 $6,025 $542,566 
Multi-family residential:
Pass$67,979 $59,239 $54,321 $68,531 $11,815 $27,020 $49 $— $288,954 
Special mention— — — 21,287 — — — — 21,287 
Total multi-family residential$67,979 $59,239 $54,321 $89,818 $11,815 $27,020 $49 $— $310,241 
OOCRE:
Pass$114,413 $111,516 $56,964 $73,112 $54,921 $174,500 $2,986 $2,965 $591,377 
Special mention2,420 — 1,052 — — 6,232 — — 9,704 
Substandard— 412 — 25,440 781 10,259 — — 36,892 
PCD— 1,377 — — 6,567 19,620 — — 27,564 
Total OOCRE$116,833 $113,305 $58,016 $98,552 $62,269 $210,611 $2,986 $2,965 $665,537 
NOOCRE:
Pass$628,140 $298,091 $254,566 $319,359 $56,710 $336,713 $5,861 $23,015 $1,922,455 
Special mention— 613 1,685 29,469 16,354 48,952 — 489 97,562 
Substandard— 48 1,775 26,209 1,581 52,479 — — 82,092 
PCD— — — 13,620 — 4,580 — — 18,200 
Total NOOCRE$628,140 $298,752 $258,026 $388,657 $74,645 $442,724 $5,861 $23,504 $2,120,309 
Commercial:
Pass$430,213 $187,370 $124,798 $65,186 $40,254 $52,491 $968,229 $19,130 $1,887,671 
Special mention7,958 2,341 149 15,136 1,069 3,368 3,482 2,589 36,092 
Substandard15,662 5,843 6,286 14,908 4,167 2,779 20,500 4,342 74,487 
22


1 - 4 family residential:1 - 4 family residential:
PassPass$135,006 $188,635 $87,861 $43,293 $41,960 $257,768 $86,900 $726 $842,149 
Special mentionSpecial mention— — — — — 278 26,068 — 26,346 
SubstandardSubstandard— 184 — — 1,028 23,569 — 24,781 
PCDPCD— — — — — 1,180 — — 1,180 
Total 1 - 4 family residentialTotal 1 - 4 family residential$135,006 $188,819 $87,861 $43,293 $41,960 $260,254 $136,537 $726 $894,456 
Multi-family residential:Multi-family residential:
PassPass$72,044 $80,793 $110,426 $8,402 $32,822 $2,494 $— $— $306,981 
Total multi-family residentialTotal multi-family residential$72,044 $80,793 $110,426 $10,356 $46,566 $2,494 $— $— $322,679 
OOCRE:OOCRE:
PassPass$191,044 $106,698 $84,230 $43,965 $49,461 $167,968 $5,225 $— $648,591 
Special mentionSpecial mention— 2,321 1,409 1,964 — 3,447 — 45 9,186 
SubstandardSubstandard— — — — 23,231 15,004 — — 38,235 
PCDPCD— — — — — 19,817 — — 19,817 
Total OOCRETotal OOCRE$191,044 $109,019 $85,639 $45,929 $72,692 $206,236 $5,225 $45 $715,829 
NOOCRE:NOOCRE:
PassPass$752,476 $531,735 $215,076 $149,246 $196,424 $305,434 $16,642 $465 $2,167,498 
Special mentionSpecial mention— — 22,774 19,464 12,274 51,451 — — 105,963 
SubstandardSubstandard— — — 1,310 7,659 46,201 — — 55,170 
PCDPCD— — — — 12,697 51 — — 12,748 
Total NOOCRETotal NOOCRE$752,476 $531,735 $237,850 $170,020 $229,054 $403,137 $16,642 $465 $2,341,379 
Commercial:Commercial:
PassPass$473,084 $132,396 $90,543 $83,996 $40,030 $31,269 $1,906,074 $553 $2,757,945 
Special mentionSpecial mention— 666 — 4,543 7,385 270 114,447 — 127,311 
SubstandardSubstandard17,894 4,058 5,189 4,195 10,954 4,732 6,292 77 53,391 
PCDPCD— — — 315 1,785 6,526 — — 8,626 PCD— — — — 273 3,428 — — 3,701 
Total commercialTotal commercial$453,833 $195,554 $131,233 $95,545 $47,275 $65,164 $992,211 $26,061 $2,006,876 Total commercial$490,978 $137,120 $95,732 $92,734 $58,642 $39,699 $2,026,813 $630 $2,942,348 
MW:MW:MW:
PassPass$— $— $— $— $— $— $564,850 $250 $565,100 Pass$— $— $— $— $— $— $444,393 $— $444,393 
SubstandardSubstandard— — — — — — 545 — 545 Substandard— — — — 46 162 — — 208 
Total MWTotal MW$— $— $— $— $— $— $565,395 $250 $565,645 Total MW$— $— $— $— $46 $162 $446,019 $— $446,227 
Consumer:Consumer:Consumer:
PassPass$3,362 $1,566 $512 $408 $2,777 $784 $1,006 $25 $10,440 Pass$1,965 $452 $872 $216 $135 $2,298 $1,618 $— $7,556 
Special mentionSpecial mention— — — — 65 14 — — 79 Special mention— — — — — 58 — — 58 
SubstandardSubstandard— — 22 — 177 39 1,064 — 1,302 Substandard— — — — — 169 — — 169 
PCDPCD— — — — 24 153 — — 177 PCD— — — — — 23 — — 23 
Total consumerTotal consumer$3,362 $1,566 $534 $408 $3,043 $990 $2,070 $25 $11,998 Total consumer$1,965 $452 $872 $216 $135 $2,548 $1,618 $— $7,806 
Total PassTotal Pass$1,841,709 $1,241,076 $662,869 $647,461 $202,918 $708,994 $1,561,600 $52,573 $6,919,200 Total Pass$1,976,020 $1,766,159 $985,767 $398,380 $391,505 $786,325 $2,677,207 $1,884 $8,983,247 
Total Special MentionTotal Special Mention10,378 4,547 2,886 66,204 17,488 58,918 3,482 3,078 166,981 Total Special Mention— 21,649 26,743 25,971 19,659 55,504 142,141 45 291,712 
Total SubstandardTotal Substandard15,662 6,303 8,083 66,557 6,787 66,459 22,676 4,342 196,869 Total Substandard17,894 4,242 5,189 7,459 55,634 67,296 29,861 77 187,652 
Total PCDTotal PCD— 1,377 — 13,935 8,376 34,405 — — 58,093 Total PCD— — — — 12,970 26,043 — — 39,013 
TotalTotal$1,867,749 $1,253,303 $673,838 $794,157 $235,569 $868,776 $1,587,758 $59,993 $7,341,143 Total$1,993,914 $1,792,050 $1,017,699 $431,810 $479,768 $935,168 $2,849,209 $2,006 $9,501,624 
1 Term loans amortized cost basis by origination year excludes $9,489$18,973 of deferred loan fees, net.
23


Servicing Assets
The Company was servicing loans of approximately $518,612$571,611 and $261,885$518,612 as of March 31, 20222023 and 2021,2022, respectively. A summary of the changes in the related servicing assets are as follows:
Three Months Ended March 31, Three Months Ended March 31,
20222021 20232022
Balance at beginning of periodBalance at beginning of period$17,705 $3,363 Balance at beginning of period$14,880 $17,705 
Increase from loan salesIncrease from loan sales1,491 — Increase from loan sales959 1,491 
Servicing asset impairment, net of recoveriesServicing asset impairment, net of recoveries(280)128 Servicing asset impairment, net of recoveries424 (280)
Amortization charged as a reduction to incomeAmortization charged as a reduction to income(748)(89)Amortization charged as a reduction to income(1,015)(748)
Balance at end of periodBalance at end of period$18,168 $3,402 Balance at end of period$15,248 $18,168 
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 March 31, 20222023 and 20212022 there was a valuation allowance of $2,027 and $908, and $428, respectively.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 no interest-only strip receivable recorded at March 31, 20222023 and December 31, 2021.2022.
During the three months ended March 31, 2022, the BankThe following table reflects principal sold $4,376 inand related gain for SBA LHI and $20,000 in United States Department of Agriculture (“USDA”) LHI resulting in a gain of $533 and $3,628, respectively. During the three months ended March 31, 2021, the Bank sold no SBA or USDA LHI. The gain on sale of SBA and USDAthese loans is recorded in government guaranteed loan income, net in the Company'sCompany’s consolidated statements of income.

Three Months Ended March 31,
20232022
SBA LHI principal sold$6,340 $4,376 
Gain on sale of SBA LHI148 533 
USDA LHI principal sold44,002 20,000 
Gain on sale of USDA LHI6,984 3,628 



23


6.5. Fair Value
The following table summarizes assets measured at fair value on a recurring basis as of March 31, 20222023 and December 31, 2021,2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 March 31, 2022
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Financial Assets:
AFS debt securities$— $1,063,249 $— $1,063,249 
Equity securities with a readily determinable fair value10,525 — — 10,525 
PPP loans— 18,512 — 18,512 
Loans held for sale(1)
— 15,565 — 15,565 
Interest rate swap designated as hedging instruments— 13,931 — 13,931 
Correspondent interest rate swaps not designated as hedging instruments— 15,462 — 15,462 
Customer interest rate swaps not designated as hedging instruments— 289 — 289 
Correspondent interest rate caps and collars not designated as hedging instruments— — 
Financial Liabilities:
Interest rate swap designated as hedging instruments$— $21,453 $— $21,453 
Correspondent interest rate swaps not designated as hedging instruments— 348 — 348 
Customer interest rate swaps not designated as hedging instruments— 15,327 — 15,327 
Customer interest rate caps and collars not designated as hedging instruments— — 
24

(1)
March 31, 2023
 Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Financial Assets:
AFS debt securities$— $966,123 $— $966,123 
Equity securities with a readily determinable fair value9,918 — — 9,918 
LHFS(1)
— 41,747 — 41,747 
Interest rate swap designated as hedging instruments— 28,246 — 28,246 
Correspondent interest rate swaps not designated as hedging instruments— 29,358 — 29,358 
Customer interest rate swaps not designated as hedging instruments— 1,912 — 1,912 
Correspondent interest rate caps and collars not designated as hedging instruments— 1,351 — 1,351 
Financial Liabilities:
Interest rate swap designated as hedging instruments$— $44,880 $— $44,880 
Correspondent interest rate swaps not designated as hedging instruments— 2,454 — 2,454 
Customer interest rate swaps not designated as hedging instruments— 28,282 — 28,282 
Customer interest rate caps and collars not designated as hedging instruments— 1,351 — 1,351 
1) Represents loans held for saleLHFS elected to be carried at fair value.
December 31, 2021 December 31, 2022
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Financial Assets:Financial Assets:Financial Assets:
AFS debt securities AFS debt securities$— $993,058 $— $993,058  AFS debt securities$— $1,096,292 $— $1,096,292 
Equity securities with a readily determinable fair valueEquity securities with a readily determinable fair value11,038 — — 11,038 Equity securities with a readily determinable fair value9,792 — — 9,792 
PPP loansPPP loans— 53,369 — 53,369 PPP loans— — 1,995 1,995 
Loans held for sale(1)
— 9,867 — 9,867 
LHFS(1)
LHFS(1)
— 19,775 — 19,775 
Interest rate swap designated as hedging instrumentsInterest rate swap designated as hedging instruments— 26,523 — 26,523 
Correspondent interest rate swaps not designated as hedging instrumentsCorrespondent interest rate swaps not designated as hedging instruments— 38,839 — 38,839 
Customer interest rate swaps not designated as hedging instrumentsCustomer interest rate swaps not designated as hedging instruments— 1,004 — 1,004 
Correspondent interest rate caps and collars not designated as hedging instrumentsCorrespondent interest rate caps and collars not designated as hedging instruments— 1,494 — 1,494 
Financial Liabilities:Financial Liabilities:
Interest rate swap designated as hedging instrumentsInterest rate swap designated as hedging instruments— 7,001 — 7,001 Interest rate swap designated as hedging instruments$— $54,171 $— $54,171 
Correspondent interest rate swaps not designated as hedging instrumentsCorrespondent interest rate swaps not designated as hedging instruments— 1,527 — 1,527 Correspondent interest rate swaps not designated as hedging instruments— 1,126 — 1,126 
Customer interest rate swaps not designated as hedging instrumentsCustomer interest rate swaps not designated as hedging instruments— 3,261 — 3,261 Customer interest rate swaps not designated as hedging instruments— 38,188 — 38,188 
Customer interest rate caps and collars not designated as hedging instrumentsCustomer interest rate caps and collars not designated as hedging instruments— — Customer interest rate caps and collars not designated as hedging instruments— 1,494 — 1,494 
Financial Liabilities:
Interest rate swap designated as hedging instruments$— $1,404 $— $1,404 
Correspondent interest rate swaps not designated as hedging instruments— 3,498 — 3,498 
Customer interest rate caps and collars not designated as hedging instruments— 1,442 — 1,442 
Correspondent interest rate caps and collars not designated as hedging instruments— — 
(1) Represents loans held for saleLHFS elected to be carried at fair value.value upon origination or acquisition..
24


There were no transfers between Level 2 and Level 3 during the three months ended March 31, 20222023 and 2021.December 31, 2022.
25


The following table summarizes assets measured at fair value on a non-recurring basis as of March 31, 20222023 and December 31, 2021,2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Fair Value
Measurements Using
  Fair Value
Measurements Using
 
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
As of March 31, 2022                
As of March 31, 2023As of March 31, 2023                
Assets: Assets:     Assets:    
Collateral dependent loans with an ACLCollateral dependent loans with an ACL$— $— $14,505 $14,505 Collateral dependent loans with an ACL$— $— $6,814 $6,814 
Servicing assets with a valuation allowanceServicing assets with a valuation allowance— — 17,419 17,419 Servicing assets with a valuation allowance— — 8,895 8,895 
As of December 31, 2021    
As of December 31, 2022As of December 31, 2022
Assets: Assets:     Assets:
Collateral dependent loans with an ACLCollateral dependent loans with an ACL$— $— $10,100 $10,100 Collateral dependent loans with an ACL$— $— $7,969 $7,969 
Servicing assets with a valuation allowanceServicing assets with a valuation allowance— — 3,223 3,223 Servicing assets with a valuation allowance— — 10,984 10,984 
At March 31, 2022,2023, collateral dependent loans with an allowance had a recorded investment of $19,699,$9,230, with $5,194$2,416 specific allowance for credit loss allocated. At December 31, 2021, impaired2022, collateral dependent loans with an allowance had a carrying value of $17,908,$10,632, with $7,808$2,663 of specific allowance for credit loss allocated.
At March 31, 2022,2023, servicing assets of $18,327$10,922 had a valuation allowance totaling $908.$2,027. At December 31, 2021,2022, servicing assets of $3,850$13,435 had a valuation allowance totaling $627.$2,451.
There were no liabilities measured at fair value on a non-recurring basis as of March 31, 20222023 or December 31, 2021.2022.
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, 2021.2022. Please refer to Note 17 in the Company’s Annual Report on Form 10-K for information on these methods.
25


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 March 31, 20222023 and December 31, 20212022 were as follows:
Fair Value
Carrying
Amount
Level 1Level 2Level 3
March 31, 2022
Financial assets:
Cash and cash equivalents$551,573 $— $551,573 $— 
HTM debt securities181,265 — 169,818 — 
Securities purchased under agreements to resell100,818 — 100,818 — 
Loans held for sale(1)
3,156 — 3,156 — 
PPP Loans18,512 — — 18,512 
LHI, excluding PPP loans(2)
7,649,794 — — 7,537,714 
Accrued interest receivable23,356 — 23,356 — 
BOLI83,641 — 83,641 — 
Servicing asset749 — 749 — 
Equity securities without a readily determinable fair value4,355 N/AN/AN/A
FHLB and FRB stock71,983 N/AN/AN/A
Financial liabilities:
Deposits$7,889,596 $— $7,401,333 $— 
Advances from FHLB777,522 — 770,158 — 
Accrued interest payable1,292 — 1,292 — 
Subordinated debentures and subordinated notes228,018 — 228,018 — 
Securities sold under agreement to repurchase4,996 — 5,017 — 
December 31, 2021
Financial assets:
Cash and cash equivalents$379,784 $— $379,784 $— 
HTM debt securities59,436 — 61,446 — 
Securities purchased under agreements to resell102,288 — 102,288 — 
Loans held for sale(1)
16,140 — 16,140 — 
LHI(2)
7,259,233 — — 7,283,992 
Accrued interest receivable22,008 — 22,008 — 
Bank-owned life insurance83,194 — 83,194 — 
Servicing asset14,482 — 14,482 — 
Equity securities without a readily determinable fair value4,355 N/AN/AN/A
FHLB and FRB stock71,892 N/AN/AN/A
Financial liabilities:
Deposits$7,363,615 $— $7,145,175 $— 
Advances from FHLB777,562 — 796,480 — 
Accrued interest payable1,507 — 1,507 — 
Subordinated debentures and subordinated notes227,764 — 227,764 — 
Securities sold under agreement to repurchase4,069 — 4,026 — 
26


Fair Value
Carrying
Amount
Level 1Level 2Level 3
March 31, 2023
Financial assets:
Cash and cash equivalents$808,395 $— $808,395 $— 
HTM debt securities184,836 — 161,778 — 
LHFS(1)
1,069 — — 1,069 
LHI(2)
9,575,966 — — 9,321,175 
Accrued interest receivable42,242 — 42,242 — 
BOLI84,962 — 84,962 — 
Servicing asset6,353 — 6,353 — 
Equity securities without a readily determinable fair value10,604 N/AN/AN/A
FHLB and FRB stock116,081 N/AN/AN/A
Financial liabilities:
Deposits$9,034,738 $— $8,296,710 $— 
Advances from FHLB1,680,000 — 1,681,089 — 
Accrued interest payable18,651 — 18,651 — 
Subordinated debentures and subordinated notes229,027 — 229,027 — 
December 31, 2022
Financial assets:
Cash and cash equivalents$436,077 $— $436,077 $— 
HTM debt securities186,168 — 158,781 — 
Securities purchased under agreements to resell— — — — 
LHFS1)
866 — 866 — 
LHI(2)
9,399,614 — — 9,163,616 
Accrued interest receivable44,035 — 44,035 — 
BOLI84,496 — 84,496 — 
Servicing asset3,896 — 3,896 — 
Equity securities without a readily determinable fair value10,072 N/AN/AN/A
FHLB and FRB stock101,568 N/AN/AN/A
Financial liabilities:
Deposits$9,123,234 $— $8,341,419 $— 
Advances from FHLB1,175,000 — 1,156,852 — 
Accrued interest payable8,795 — 8,795 — 
Subordinated debentures and subordinated notes228,775 — 228,775 — 
Securities sold under agreement to repurchase— — — — 
(1) Loans held for saleLHFS represent mortgage loans held for saleLHFS that are carried at lower of cost or market.
(2) LHI includes MW and is carried at amortized cost.
26


7.6. 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 consolidated balance sheets and in the net change in each of these financial statement line items in the
27


accompanying 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 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 March 31, 20222023 and December 31, 20212022 are as shown in the table below.

March 31, 2022December 31, 2021 March 31, 2023December 31, 2022
Estimated Fair ValueEstimated Fair ValueEstimated Fair ValueEstimated Fair Value
Notional
Amount
Asset DerivativeLiability DerivativeNotional
Amount
Asset DerivativeLiability Derivative Notional
Amount
Asset DerivativeLiability DerivativeNotional
Amount
Asset DerivativeLiability Derivative
Derivatives designated as hedging instruments (cash flow hedges):Derivatives designated as hedging instruments (cash flow hedges):Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on money market deposit account paymentsInterest rate swap on money market deposit account payments$250,000 $13,931 $— $250,000 $4,541 $— Interest rate swap on money market deposit account payments$250,000 $17,257 $— $250,000 $21,234 $— 
Interest rate swap on customer loan interest payments125,000 — 7,780 125,000 — 867 
Interest rate swap on customer loan interest payments125,000 — 7,450 125,000 — 537 
Interest rate swap on customer loan interest payments125,000 — 6,223 125,000 2,460 — 
Interest rate swaps on customer loan interest paymentsInterest rate swaps on customer loan interest payments375,000 — 41,126 375,000 — 49,211 
Interest rate collars on customer loan interest paymentsInterest rate collars on customer loan interest payments450,000 3,445 3,754 450,000 3,267 4,960 
Interest rate floor on customer loan interest paymentsInterest rate floor on customer loan interest payments200,000 7,544 — 100,000 2,022 — 
Total derivatives designated as hedging instrumentsTotal derivatives designated as hedging instruments$625,000 $13,931 $21,453 $625,000 $7,001 $1,404 Total derivatives designated as hedging instruments$1,275,000 $28,246 $44,880 $1,175,000 $26,523 $54,171 
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:      Derivatives not designated as hedging instruments:      
Financial institution counterparty:Financial institution counterparty:      Financial institution counterparty:      
Interest rate swapsInterest rate swaps$403,389 $15,462 $348 $379,787 $1,527 $3,498 Interest rate swaps$805,488 $29,358 $2,454 $805,311 $38,839 $1,126 
Interest rate caps and collars33,716 — 41,916 — 
Interest rate caps and corridorsInterest rate caps and corridors123,870 1,351 — 68,370 1,494 — 
Commercial customer counterparty:Commercial customer counterparty:  Commercial customer counterparty:
Interest rate swapsInterest rate swaps403,389 289 15,327 379,787 3,261 1,442 Interest rate swaps805,488 1,912 28,282 805,311 1,004 38,188 
Interest rate caps and collars33,716 — 41,916 — 
Interest rate caps and corridorsInterest rate caps and corridors123,870 — 1,351 68,370 — 1,494 
Total derivatives not designated as hedging instrumentsTotal derivatives not designated as hedging instruments$874,210 $15,752 $15,676 $843,406 $4,789 $4,941 Total derivatives not designated as hedging instruments$1,858,716 $32,621 $32,087 $1,747,362 $41,337 $40,808 
Offsetting derivative assets/liabilitiesOffsetting derivative assets/liabilities— (11,353)(11,353)— (2,609)(2,609)Offsetting derivative assets/liabilities(25,703)(25,703)(30,982)(30,982)
Total derivativesTotal derivatives$1,499,210 $18,330 $25,776 $1,468,406 $9,181 $3,736 Total derivatives$3,133,716 $35,164 $51,264 $2,922,362 $36,878 $63,997 

2728


Pre-tax (loss) gain (loss) included in the consolidated statements of income and related to derivative instruments for the three months ended March 31, 20222023 and 20212022 were as follows.
 For the Three Months Ended
March 31, 2022
For the Three Months Ended
March 31, 2021
 Gain (loss) recognized in other comprehensive income on derivativeGain (loss) reclassified from accumulated other comprehensive income into incomeLocation of gain (loss) reclassified from accumulated other comprehensive income into incomeGain recognized in other comprehensive income on derivativeGain (loss) reclassified from accumulated other comprehensive income into incomeLocation of gain (loss) reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances$(264)$264 Interest Expense$26,357 $— Interest Expense
Interest rate swap on money market deposit account payments9,389 (171)Interest Expense3,895 (199)Interest Expense
Commercial loan interest rate floor— — Interest Income— 541 Interest Income
Interest rate swaps on customer loan interest payments(22,506)1,078 Interest Income(2,981)224 Interest Income
Total$(13,381)$1,171 $27,271 $566 
Net gain recognized in other noninterest incomeNet gain recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars$719 $98 
 For the Three Months Ended
March 31, 2023
For the Three Months Ended
March 31, 2022
 (Loss) gain recognized in other comprehensive income on derivativeGain (loss) reclassified from accumulated other comprehensive income into incomeLocation of (loss) gain reclassified from accumulated other comprehensive income into incomeGain (loss) recognized in other comprehensive income on derivative(Loss) gain reclassified from accumulated other comprehensive income into incomeLocation of (loss) gain reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances$(1,082)$1,082 Interest Expense$(264)$264 Interest Expense
Interest rate swap on money market deposit account payments(3,977)2,568 Interest Expense9,389 (171)Interest Expense
Derivatives on customer loan interest payments12,136 (3,807)Interest Income(22,506)1,078 Interest Income
Total$7,077 $(157)$(13,381)$1,171 
Net gain recognized in other noninterest incomeNet gain recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps, floors and collars$212 $719 
Cash Flow Hedges
    CashWe enter into cash flow hedge relationships to 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, To qualify for hedge accounting, a formal assessment is prepared to determine whether the Company entered into three fixed receive/pay variable interest rate swaps, each with a notional amounthedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of $125,000, to hedge the variability of cash flow payments attributablehedge. At inception a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in AOCI is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and other liabilities on the consolidated balance sheets with changes in interest ratesfair value recorded in regardsAOCI, net of tax. Amounts recorded to forecasted of three-month attributable to changesAOCI are reclassified into earnings in interest ratesthe same period in regards to forecasted money market account borrowings from March 2021 through March 2028which the hedged asset or liability affects earnings and March 2021 through March 2031.
In March 2020,are presented in the Company entered into an interest rate swap for a notional amount of $500,000 to hedgesame income statement line item as 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. This interest rate swap was terminated on February 24, 2021. The pre-tax gain of $43,900, resulting from the terminationearnings effect of the interest rate swap, will remain in other comprehensive income (loss) and will be accreted over a 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.hedged asset or liability.    

2829


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.
29


The following is a summary of the interest rate swaps, caps and collars outstanding as of March 31, 20222023 and December 31, 2021.
 March 31, 2022
 Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:     
Customer interest rate derivative:     
Interest rate swaps - receive fixed/pay floating$403,389 2.970% - 8.470%
LIBOR 1 month + 2.2% - 5%
SOFR CME 1 month + 2.1% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.6 years
$(15,038)
Interest rate cap$33,716 3.000%LIBOR 1 month + —%
Wtd. Avg.
0.4 years
$(1)
Correspondent interest rate derivative:     
Interest rate swaps - pay fixed/receive floating$403,389 2.970% - 8.470%
LIBOR 1 month + 2.2% - 5%
SOFR CME 1 month + 2.1% - 3.75%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.6 years
$15,114 
Interest rate cap$33,716 3.000%LIBOR 1 month + —%
Wtd. Avg.
0.4 years
$
December 31, 2021
Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating$379,787 2.970% - 8.470%
LIBOR 1 month + 2.200% - 5.000%
SOFR CME 1 month + 2.480% - 2.900%
SOFR-NYFD 30 day avg + 2.500% - 2.964%
Wtd. Avg.
4.8 years
$1,820 
Interest rate caps$41,916 3.000% / 5.000%LIBOR 1 month + —% - 2.500%
Wtd. Avg.
0.6 years
$
Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating$379,787 2.970% - 8.470%
LIBOR 1 month + 2.200% - 5.000%
SOFR CME 1 month + 2.480% - 2.900%
SOFR-NYFD 30 day avg + 2.500% - 2.964%
Wtd. Avg.
4.8 years
$(1,972)
Interest rate caps$41,916 2.500% / 3.000%LIBOR 1 month + —%
Wtd. Avg.
0.6 years
$(1)
2022.


 March 31, 2023
 Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:     
Customer interest rate derivative:     
Interest rate swaps - receive fixed/pay floating$805,488 2.41% - 8.47%
LIBOR 1 month + 3.0% - 5.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.8 years
$(27,071)
Interest rate caps and corridors$123,870 3.50% - 5.90%SOFR CME 1 month + 0.0%
Wtd. Avg.
1.6 years
$(1,351)
Correspondent interest rate derivative:     
Interest rate swaps - pay fixed/receive floating$805,488 2.41% - 8.47%
LIBOR 1 month + 3.0% - 5.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.8 years
$26,904 
Interest rate caps and corridors$123,870 3.50% - 5.90%SOFR CME 1 month + 0.0%
Wtd. Avg.
1.6 years
$1,351 
December 31, 2022
Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating$805,311 2.41% - 8.47%
LIBOR 1 month + 2.8% - 5.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
5.1 years
$(37,183)
Interest rate caps and corridors$68,370 3.50%LIBOR 1 month + 0.0%
Wtd. Avg.
1.8 years
$(1,494)
Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating$805,311 2.41% - 8.47%
LIBOR 1 month + 2.8% - 5.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
5.1 years
$37,713 
Interest rate caps and corridors$68,370 3.50%LIBOR 1 month + 0.0%
Wtd. Avg.
1.8 years
$1,494 

30


8.7. Off-Balance Sheet Loan Commitments
The Company is a party to financial instruments with off-balance sheet (“OBS”) 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 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 March 31, 20222023 and December 31, 2021:2022:
March 31,December 31, March 31,December 31,
20222021 20232022
Commitments to extend creditCommitments to extend credit$4,021,956 $3,809,509 Commitments to extend credit$4,138,471 $4,511,671 
MW commitmentsMW commitments844,415 716,370 MW commitments985,207 1,088,558 
Standby and commercial letters of creditStandby and commercial letters of credit75,495 65,881 Standby and commercial letters of credit105,950 98,179 
TotalTotal$4,941,866 $4,591,760 Total$5,229,628 $5,698,408 
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 allowanceACL on unfunded commitments is recorded in accounts payable and other liabilities on the consolidated balance sheets:
Three Months Ended March 31, Three Months Ended March 31,
20222021 20232022
Beginning balance for ACL on unfunded commitmentsBeginning balance for ACL on unfunded commitments$9,266 $10,747 Beginning balance for ACL on unfunded commitments$10,086 $9,266 
Provision (benefit) for credit losses on unfunded commitments493 (570)
Provision for credit losses on unfunded commitmentsProvision for credit losses on unfunded commitments1,497 493 
Ending balance of ACL on unfunded commitmentsEnding balance of ACL on unfunded commitments$9,759 $10,177 Ending balance of ACL on unfunded commitments$11,583 $9,759 

31


9.8. Stock-Based Awards
2010 Stock Option and Equity Incentive Plan (“2010 Incentive Plan”)
    The Company recognized no stock compensation expense related to the 2010 Incentive Plan for the three months ended March 31, 20222023 and 2021.2022.
A summary of option activity under the 2010 Incentive Plan for the three months ended March 31, 20222023 and 2021,2022, and changes during the periods then ended, is presented below:
2010 Incentive Plan2010 Incentive Plan
Non-Performance Based Stock Options
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 202120,000 $10.09 1.06
Exercised(18,300)10.00 
Outstanding and exercisable at March 31, 20211,700 $10.37 1.69
Non-Performance Based Stock Options
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2022Outstanding at January 1, 20221,000 $10.43 1.07$147 Outstanding at January 1, 20221,000 $10.43 
Outstanding and exercisable at March 31, 2022Outstanding and exercisable at March 31, 20221,000 $10.43 1.07$68 Outstanding and exercisable at March 31, 20221,000 $10.43 1.07
Outstanding at January 1, 2023Outstanding at January 1, 20231,000 $10.43 1.07$147 
ExercisedExercised(1,000)10.43 
Outstanding and exercisable at March 31, 2023Outstanding and exercisable at March 31, 2023— $— — $— 

As of March 31, 2022,2023, December 31, 20212022 and March 31, 20212022 there was no 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 three months ended March 31, 20222023 and 20212022 is presented below:
Fair Value of Options Exercised as of March 31,
 20222021
Nonperformance-based stock options exercised— 543 
Fair Value of Options Exercised as of March 31,
 20232022
Nonperformance-based stock options exercised$16 $— 
2019 Amended2022 Equity Plan and Green Acquired Omnibus Plans
2022 Grants of Restricted Stock Units
    During the three months ending March 31, 2022,2023, the Company granted non-performance-based RSUs and performance-based restricted stock units (“PSUs”) under the 20192022 Amended and RestatementRestated Omnibus Incentive Plan (the “2019 Amended“2022 Equity 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 three months ending March 31, 20222023 have an annual graded vesting over a three year period from the grant date.
    The PSUs granted in February 20222023 are subject to a service, performance and market condition.conditions. The performance and market condition determine the number of awards to vest. The service period is from February 1, 20222023 to January 31, 2025,2026, the performance conditionconditions performance period is from January 1, 20222023 to December 31, 20242025 and the market condition performance period is from February 1, 20222023 to January 31, 2025.2026. 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 Amended2022 Equity Plan and the Veritex (Green) 2014 Plan were as follows:
32


Three Months Ended March 31,Three Months Ended March 31,
20222021 20232022
2019 Amended Plan$2,904 $1,981 
2022 Equity Plan2022 Equity Plan$2,465 $2,904 
Veritex (Green) 2014 PlanVeritex (Green) 2014 Plan414 497 Veritex (Green) 2014 Plan422 414 
2019 Amended2022 Equity Plan
A summary of the status of the Company’s stock options under the 2019 Amended2022 Equity Plan as of March 31, 20222023 and 2021,2022, and changes during the three months then ended, is as follows:
2019 Amended Plan 2022 Equity 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, 2021975,801 $24.26 0
Granted— — 
Forfeited(13,996)25.93 
Exercised(71,479)23.03 
Outstanding at March 31, 2021890,326 $24.34 7.54
Options exercisable at March 31, 2021560,176 $24.31 7.07
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2022Outstanding at January 1, 2022710,043 $24.38 00Outstanding at January 1, 2022710,043 $24.38 
ExercisedExercised(38,128)23.34 Exercised(38,128)23.34 
Outstanding at March 31, 2022Outstanding at March 31, 2022671,915 $24.44 6.65$9,226 Outstanding at March 31, 2022671,915 $24.44 6.65
Options exercisable at March 31, 2022Options exercisable at March 31, 2022518,237 $24.45 6.35$7,108 Options exercisable at March 31, 2022518,237 $24.45 6.35
Outstanding at January 1, 2023Outstanding at January 1, 2023657,494 $24.47 
ForfeitedForfeited(1,666)17.38 
CancelledCancelled(3,804)29.13 
ExercisedExercised(3,951)21.38 
Outstanding at March 31, 2023Outstanding at March 31, 2023648,073 $24.48 5.24$123 
Options exercisable at March 31, 2023Options exercisable at March 31, 2023610,073 $24.74 5.13$114 

As of March 31, 2022,2023, December 31, 20212022 and March 31, 2021,2022, there was $626, $803$122, $172 and $2,047$626 of total unrecognized compensation expense related to options awarded under the 2019 Amended2022 Equity Plan, respectively. The unrecognized compensation expense at March 31, 20222023 is expected to be recognized over the remaining weighted average requisite service period of 0.920.01 years.

33



A summary of the status of the Company’s RSUs under the 2019 Amended2022 Equity Plan as of March 31, 20222023 and 2021,2022, and changes during the three months then ended, is as follows:
2019 Amended Plan 2022 Equity Plan
Non-performance-Based
RSUs RSUs
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2021441,132 $20.39 
Granted232,149 26.38 
Vested into shares(41,362)23.29 
Outstanding at March 31, 2021631,919 $22.40 
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2022Outstanding at January 1, 2022598,051 $23.39 Outstanding at January 1, 2022598,051 $23.39 
GrantedGranted169,355 40.77 Granted169,355 40.77 
Vested into sharesVested into shares(96,141)24.69 Vested into shares(96,141)24.69 
ForfeitedForfeited(2,350)26.12 Forfeited(2,350)26.12 
Outstanding at March 31, 2022Outstanding at March 31, 2022668,915 $27.59 Outstanding at March 31, 2022668,915 $27.59 
Outstanding at January 1, 2023Outstanding at January 1, 2023955,104 $28.38 
GrantedGranted224,165 27.90 
Vested into sharesVested into shares(162,952)30.23 
ForfeitedForfeited(16,394)31.77 
Outstanding at March 31, 2023Outstanding at March 31, 2023999,923 $27.87 

33


A summary of the status of the Company’s PSUs under the 2019 Amended2022 Equity Plan as of March 31, 20222023 and 2021,2022, and changes during the three months then ended, is as follows:
 2019 Amended Plan
Performance-Based
 PSUs
 UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2021100,195 $23.20 
Granted56,276 26.12 
Outstanding at March 31, 2021156,471 $24.23 
Outstanding at January 1, 2022156,471 $24.17 
Granted39,429 40.38 
Incremental PSUs granted upon performance condition met31,655 0
Vested into shares(94,991)21.49 
Outstanding at March 31, 2022132,564 $30.15 

 2022 Equity Plan
Performance-Based
 PSUs
 UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2022156,471 $24.17 
Granted39,429 40.38 
Outstanding at March 31, 2022132,564 $30.15 
Outstanding at January 1, 2023126,707 $31.19 
Granted53,310 27.55 
Vested into shares(41,781)26.42 
Outstanding at March 31, 2023129,768 $30.28 
As of March 31, 2022,2023, December 31, 20212022 and March 31, 20212022, there was $16,882, $10,413$15,278, $17,160 and $14,217$16,882 of total unrecognized compensation related to RSUs and PSUs awarded under the 2019 Amended2022 Equity Plan, respectively. The unrecognized compensation expense at March 31, 20222023 is expected to be recognized over the remaining weighted average requisite service period of 2.311.68 years.
    A summary of the fair value of the Company’s stock options exercised, RSUs and PSUs vested under the 2019 Amended2022 Equity Plan during the three months ended March 31, 20222023 and 20212022 is presented below:
Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
 20222021
Non-performance-based stock options exercised1,562 2,090 
RSUs vested2,524 1,113 
PSUs vested2,270 — 
34


Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
 20232022
Non-performance-based stock options exercised31 1,562 
RSUs vested3,044 2,524 
PSUs vested1,070 2,270 
Veritex (Green) 2014 Plan
A summary of the status of the Company’s stock options under the Veritex (Green) 2014 Plan as of March 31, 20222023 and 2021,2022, and changes during the 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, 2021352,000 $19.99 0
Forfeited(3,960)21.38 
Exercised(54,241)19.77 
Outstanding at March 31, 2021293,799 $20.01 6.65
Options exercisable at March 31, 2021222,312 $18.84 6.19
Outstanding at January 1, 2022217,804 $19.62 6.13$4,424 
Exercised(28,622)21.34 
Outstanding at March 31, 2022189,182 $19.37 5.57$3,595 
Options exercisable at March 31, 2022180,830 $18.81 5.45$3,501 

 Veritex (Green) 2014 Plan
 Non-performance Based Stock Options
 Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2022217,804 $19.62 
Exercised(28,622)21.34 
Outstanding at March 31, 2022189,182 $19.37 5.57
Options exercisable at March 31, 2022180,830 $18.81 5.45
Outstanding at January 1, 2023155,212 $19.83 
Cancelled(505)21.38 
Exercised(13,266)21.38 
Outstanding at March 31, 2023141,441 $21.86 4.87$287 
Options exercisable at March 31, 2023141,441 $21.86 4.87$287 
Weighted average fair value of options granted during the period$— 
As of March 31, 2022,2023 and December 31, 2021 and 2022 there was no unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan. As of March 31, 2021,2022 there was $75 $100, and $497 of total unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan, respectively.The unrecognized compensation expense at March 31, 2022 is expected to be recognized over the remaining weighted average requisite service period of 0.76 years.

35



A summary of the status of the Company’s RSUs under the Veritex (Green) 2014 Plan as of March 31, 20222023 and 20212022 and changes during the three months then ended, is as follows:

Veritex (Green) 2014 Plan
Non-performance-Based
RSUsRSUs
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2021156,187 $21.15 
Granted5,692 26.12 
Vested into shares(33,335)21.38 
Forfeited(2,646)24.25 
Outstanding at March 31, 2021125,898 $21.25 
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2022Outstanding at January 1, 2022122,784 $21.13 Outstanding at January 1, 2022122,784 $21.13 
GrantedGranted4,231 40.38 Granted4,231 40.38 
Vested into sharesVested into shares(32,931)21.80 Vested into shares(32,931)21.80 
ForfeitedForfeited(2,558)29.13 Forfeited(2,558)29.13 
Outstanding at March 31, 2022Outstanding at March 31, 202291,526 $21.55 Outstanding at March 31, 202291,526 $21.55 
Outstanding at January 1, 2023Outstanding at January 1, 202386,233 $21.09 
Vested into sharesVested into shares(19,282)29.66 
ForfeitedForfeited(2,232)29.13 
Outstanding at March 31, 2023Outstanding at March 31, 202364,719 $18.26 

A summary of the status of the Company’s PSUs under the Veritex (Green) 2014 Plan as of March 31, 20222023 and 20212022 and changes during the three months then ended, is as follows:
Veritex (Green) 2014 Plan
Performance-Based
PSUs PSUs
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 202130,728 $21.43 
Granted6,231 26.12 
Forfeited(724)19.69 
Outstanding at March 31, 202136,235 $22.27 
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2022Outstanding at January 1, 202235,899 $22.26 Outstanding at January 1, 202235,899 $22.26 
GrantedGranted4,411 40.38 Granted4,411 40.38 
Incremental PSUs granted upon performance condition metIncremental PSUs granted upon performance condition met10,566 0Incremental PSUs granted upon performance condition met10,566 $19.69 
Vested into sharesVested into shares(31,703)19.69 Vested into shares(31,703)$19.69 
Outstanding at March 31, 2022Outstanding at March 31, 202219,173 $29.26 Outstanding at March 31, 202219,173 $29.26 
Outstanding at January 1, 2023Outstanding at January 1, 202319,173 $30.74 
Vested into sharesVested into shares(8,531)25.94 
Outstanding at March 31, 2023Outstanding at March 31, 202310,642 $31.93 
As of March 31, 2022,2023, December 31, 20212022 and March 31, 2021,2022, there was $1,399, $1,252,$3,260, $3,825, and $2,429,$1,399, 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 2.132.20 years.
36


    A summary of the fair value of the Company’s stock options exercised and RSUs vested under the Veritex (Green) 2014 Plan during the three months ended March 31, 20222023 and 20212022 presented below:
Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
20222021 20232022
Non-performance-based stock options exercisedNon-performance-based stock options exercised$1,143 $1,582 Non-performance-based stock options exercised$18 $1,143 
RSUs vestedRSUs vested718 713 RSUs vested1,990 718 
PSU vestedPSU vested624 — PSU vested227 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 March 31, 20222023 and 2021,2022, and changes during the 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, 2021131,083 $11.60 
Exercised(62,000)10.50 
Outstanding at March 31, 202169,083 $12.59 2.90
Shares
Underlying
Options
Weighted
Exercise
Price
Weighted
Average
Contractual
Term
Aggregate Intrinsic Value
Outstanding at January 1, 2022Outstanding at January 1, 202266,143 $12.56 Outstanding at January 1, 202266,143 $12.56 
ExercisedExercised(1,372)13.07 Exercised(1,372)13.07 
Outstanding at March 31, 2022Outstanding at March 31, 202264,771 $12.55 1.95$1,659 Outstanding at March 31, 202264,771 $12.55 1.95 years
Outstanding at January 1, 2023Outstanding at January 1, 202343,162 $13.11 
ExercisedExercised(29,630)13.22 
Outstanding at March 31, 2023Outstanding at March 31, 202313,532 $12.86 3.94 years$73 
A summary of the fair value of the Company’s stock options exercised under the Green 2010 Plan during the three months ended March 31, 20222023 and 20212022 presented below:
Fair Value of Options Exercised as of March 31,
 20222021
Nonperformance-based stock options exercised56 1,812 
Fair Value of Options Exercised as of March 31,
 20232022
Nonperformance-based stock options exercised365 56 

10.9. Income Taxes
    Income tax expense for the three months ended March 31, 20222023 and 20212022 was as follows:
Three Months Ended March 31,Three Months Ended March 31,
20222021 20232022
Income tax expense for the periodIncome tax expense for the period$8,102 $8,993 Income tax expense for the period$11,012 $8,102 
Effective tax rateEffective tax rate19.5 %22.1 %Effective tax rate22.3 %19.5 %
For the three months ended March 31, 2023, the Company had an effective tax rate of 22.3%. The Company had a net discrete tax expense of $112 thousand associated with the recognition of an excess tax expense realized on share-based payment awards during the three months ended March 31, 2023. Excluding this discrete tax item, the Company had an effective tax rate of 22.1% for the three months ended March 31, 2023.
37



For the three months ended March 31, 2022, the Company had an effective tax rate of 19.5%. The Company had a net discrete tax benefit of $992 associated with the recognition of an excess tax benefit realized on share-based payment awards during the three months ended March 31, 2022.2022 . Excluding this discrete tax item, the Company had an effective tax rate of 21.9% for the three months ended March 31, 2022.
37


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

11.10. 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.

12.11. 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 certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and PCA classification are also 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. Banks meeting all of the requirements under this framework are not required to report or calculate risk-based capital, and will be considered to have met the well-capitalized ratio requirements under PCA regulations. The Bank was eligible and elected to use the CBLR framework as of December 31, 2020; however, the Bank was no longer eligible to use the CBLR framework beginning as of June 30, 2021.

As a result of our no longer using the CBLR framework, we are subject to 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 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 March 31, 20222023 and December 31, 2021,2022, the Company’s and the Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized”. There are no conditions or events since March 31, 20222023 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 CECL during the 2020 calendar year with the option to delay for two years the estimated impact of
38


CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, the Company 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 was delayed through the year 2021, with the effects phased-in over a three-year period from January 1, 2022 through December 31, 2024.
38



A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios is presented in the following table:
Actual For Capital 
Adequacy Purposes
 To Be Well
Capitalized Under
PCA Provisions
Actual For Capital 
Adequacy Purposes
 To Be Well
Capitalized Under
PCA Provisions
AmountRatio Amount Ratio Amount Ratio AmountRatio Amount Ratio Amount Ratio
As of March 31, 2022
As of March 31, 2023As of March 31, 2023
Total capital (to risk-weighted assets “RWA”)Total capital (to risk-weighted assets “RWA”)Total capital (to risk-weighted assets “RWA”)
CompanyCompany$1,276,341 12.73 %$802,100 8.0 %n/an/aCompany$1,437,576 11.99 %$959,183 8.0 %n/an/a
BankBank1,245,323 12.42 802,140 8.0 $1,002,676 10.0 %Bank1,424,435 11.89 958,409 8.0 $1,198,011 10.0 %
Tier 1 capital (to RWA)Tier 1 capital (to RWA)Tier 1 capital (to RWA)
CompanyCompany1,016,916 10.14 601,725 6.0 n/an/aCompany1,146,356 9.56 719,470 6.0 n/an/a
BankBank1,183,396 11.80 601,727 6.0 802,302 8.0 Bank1,331,501 11.12 718,436 6.0 957,914 8.0 
Common equity tier 1 (to RWA)Common equity tier 1 (to RWA)Common equity tier 1 (to RWA)
CompanyCompany987,414 9.84 451,561 4.5 n/an/aCompany1,116,632 9.32 539,146 4.5 n/an/a
BankBank1,183,396 11.80 451,295 4.5 651,871 6.5 Bank1,331,501 11.12 538,827 4.5 778,305 6.5 
Tier 1 capital (to average assets)Tier 1 capital (to average assets)Tier 1 capital (to average assets)
CompanyCompany1,016,916 10.66 381,582 4.0 n/an/aCompany1,146,356 9.67 474,191 4.0 n/an/a
BankBank1,183,396 12.41 381,433 4.0 476,791 5.0 Bank1,331,501 11.24 473,844 4.0 592,305 5.0 
As of December 31, 2021
As of December 31, 2022As of December 31, 2022
Total capital (to RWA)Total capital (to RWA)Total capital (to RWA)
CompanyCompany$1,100,404 11.60 %$758,899 8.0 %n/an/aCompany$1,395,904 11.63 %$960,209 8.0 %n/an/a
BankBank1,053,871 11.11 758,863 8.0 $948,579 10.0 %Bank1,368,082 11.41 959,216 8.0 $1,199,020 10.0 %
Tier 1 capital (to RWA)Tier 1 capital (to RWA)Tier 1 capital (to RWA)
CompanyCompany843,585 8.89 569,349 6.0 n/an/aCompany1,121,021 9.34 720,142 6.0 n/an/a
BankBank994,351 10.48 569,285 6.0 759,047 8.0 Bank1,291,288 10.77 719,381 6.0 959,174 8.0 
Common equity tier 1 (to RWA)Common equity tier 1 (to RWA)Common equity tier 1 (to RWA)
CompanyCompany814,138 8.58 426,995 4.5 n/an/aCompany1,091,353 9.09 540,274 4.5 n/an/a
BankBank994,351 10.48 426,964 4.5 616,725 6.5 Bank1,291,288 10.77 539,535 4.5 779,329 6.5 
Tier 1 capital (to average assets)Tier 1 capital (to average assets)Tier 1 capital (to average assets)
CompanyCompany843,585 9.05 372,855 4.0 n/an/aCompany1,121,021 9.82 456,628 4.0 n/an/a
BankBank994,351 10.69 372,068 4.0 465,085 5.0 Bank1,291,288 11.32 456,286 4.0 570,357 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. No dividends were paid by the Bank to the Holdco during the three months ended March 31, 2022. Dividends of $8,440 were paid by the Bank to the Holdco during the three months ended2023 and March 31, 2021.2022.

Dividends of $10,837, or $0.20, and $9,913, or $0.20, per outstanding share onof the applicable record date,Company’s common stock were paid by the Company during the three months ended March 31, 2022. Dividends of $8,358, or $0.17 per outstanding share on the applicable record date, were paid by the Company during the three months ended2023 March 31, 2021.and 2022, respectively.

39


The Bank is subject to limitations on dividend payouts if, among other things, it does not have a capital conservation buffer of 2.5% or more. The Bank had a capital conservation buffer of 4.42%3.89% as of March 31, 2022.2023.

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 the fragmented USDA lending space. The goodwill will be deducted for tax purposes.

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

Acquisition-related Expenses

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


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

The following table discloses the fair value and contractual value of loans acquired from NAC on November 1, 2021:

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


Supplemental Pro Forma Information (unaudited)

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

Year Ended December 31,
20202019
Net interest income$267,331 $286,313 
Net income84,368 93,939 
Basic EPS$1.69 $1.77 
Diluted EPS1.69 1.74 
4139


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 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, 2021.2022. 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 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 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 markets and throughout the state of Texas.

Recent Industry Developments

COVID-19 Effects, ActionsDuring the first quarter of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and Recent Developments

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 by the World Health Organization and a 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 gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. As the current pandemic is ongoing and dynamic in nature, there are many uncertaintiesindustry wide concerns related to COVID-19 including, among other things,liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. The Company’s total deposits decreased by 1% as compared to December 31, 2022, to $9.0 billion at March 31, 2023 as we experienced minimal deposit outflow in the first quarter. There Federal Reserve also established a Bank Term Funding Program to offer loans of up to one year to eligible depository institutions pledging qualifying assets as collateral. The Company signed up for the program however has not utilized the program to date. The Company also took a number of preemptive actions, which included pro-active outreach to clients and actions to maximize its severity;funding sources in response to these recent developments. Furthermore, the durationCompany remains well capitalized with CET1 at 9.32% as of the outbreak; the impact to our customers, employees and vendors; the impact to the financial services andMarch 31, 2023.
4240


banking industry; andIn accordance with Item 303(c) of Regulation S-K, the impact to the economy asCompany is providing a whole as well as the effect of actions taken, 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 lightcomparison of the uncertainties and continuing developments discussed herein,quarter ended March 31, 2023 against the ultimate adverse impactpreceding sequential quarter. The Company believes providing a sequential discussion 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 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 implemented our Business Continuity and Health Emergency Response plans to address the issues arising as a result of COVID-19 and to facilitate the continued delivery of essential services while maintaining a high level of safety for our customers as well as our employees. Nonetheless, as the COVID-19 pandemic continues to be on-going, there continues to be uncertainties related to its magnitude, duration and persistent effects. This is particularly the case with the emergence, contagiousness and threat of new and different strains of the virus as well as the availability, acceptance and effectiveness of vaccines. As such, the COVID-19 pandemic could still, among other things, 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 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 our operations 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 susceptibleprovides more relevant information for investors and stakeholders to understand and analyze 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 oil price volatility, could, despite improvements in 2021, again destabilize the financial markets and 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 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.business.

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 continuing to monitor these customers closely. Additionally, the temporary closures of bank branches in 2020 and the safety precautions implemented at re-opened branches could result in consumers becoming more comfortable with technology and devaluing face-to-face interaction. Our business is relationship driven and such changes could necessitate changes to our business practices to accommodate changing consumer behaviors.
43


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

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

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

On March 27, 2020, the 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 U.S. Small Business Administration (“SBA”). Under the PPP, small businesses, sole proprietorship’s, independent contractors and self-employed individuals were eligible to apply for forgivable loans from existing SBA lenders and other approved lenders that enrolled in the program, subject to numerous limitations and eligibility criteria. Subsequent legislation, including as noted below, 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.


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 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 is highly uncertain.

44


Capital and liquidity

As of 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. 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 March 31, 20222023 and 2021December 31, 2022

General

    Net income for the three months ended March 31, 20222023 was $33.5$38.4 million, an increasea decrease of $1.7$1.5 million, or 5.3%3.7%, from net income of $31.8$39.9 million for the three months ended MarchDecember 31, 2021.2022.
    Basic EPS for the three months ended March 31, 2022 and 20212023 was $0.66.$0.71, a decrease of $0.03 from $0.74 for the three months ended December 31, 2022. Diluted EPS for the three months ended March 31, 20222023 was $0.65, an increase$0.70, a decrease of $0.01$0.03 from $0.64$0.73 for the three months ended MarchDecember 31, 2021.2022.
Net Interest Income

For the three months ended March 31, 2022,2023, net interest income before provisions for credit losses totaled $73.0$103.4 million and net interest margin and net interest spread were 3.22%3.69% and 3.04%2.74%, respectively. For the three months ended MarchDecember 31, 2021,2022, net interest income totaled $65.6$106.1 million and net interest margin and net interest spread were 3.22%3.87% and 2.99%3.08%, respectively. The increasedecrease in net interest income of $2.7 million was primarily due to an increase of $12.4 millionin interest expense on certificates and other time deposits, a $4.0$5.8 millionincrease in interest expense on transaction and savings deposits and a $1.8 million increase in interest expense on advances from FHLB. The decrease was partially offset by interest income on loans which increased $14.9 million and a $2.1 million increase in interest income on loans deposits in financial institutions and a $1.7 million decrease in certificates and other time deposits, a $479 thousand decrease in interest expense on subordinated debentures and subordinated debt and a $229 thousand decrease in interest-bearing demand and savings depositsFed Funds sold during the three months ended March 31, 20222023, compared to the three months ended MarchDecember 31, 2021.2022. The $18.2 million increase in interest expense on deposit accounts was due to an increase in average funding costs of total deposits and borrowings. The increase in interest income on loans was due to an increase in loan yields and higher average balances. Net interest margin was unchangeddecreased 18 basis points from 3.22% for the three months ended MarchDecember 31, 2022 and 2021, primarily due to a decrease in average yields earned on loan balances, offset by decreasesan increase in the average rate paid on interest-bearing demand and savings deposits and certificate and other time depositsliabilities, slightly offset by an increase in the average rate paid on interest-bearing liabilities during the three months ended March 31, 2022.2023. As a result, the average cost of interest-bearing deposits decreasedincreased 94 basis points to 0.26%3.06% for the three months ended March 31, 20222023 from 0.45%2.12% for the three months ended December 31, 2022. The average costs of total deposits, including noninterest-bearing deposits, for the three months ended March 31, 2021.2023 is 2.24%.

For the three months ended March 31, 2022,2023, interest expense totaled $7.3$66.2 million and the average rate paid on interest-bearing liabilities was 0.50%3.32%. For the three months ended MarchDecember 31, 2021,2022, interest expense totaled $10.0$46.1 million and the average rate paid on interest-bearing liabilities was 0.72%2.47%. The The year-over-year decreaseincrease of $20.1 millionin interest expense was primarily due to decreasesan increase in funding costs attributable to a $12.4 million increase in the average ratesrate paid on certificates and other time deposits, a $5.8 million increase in interest paid interest-bearing demand and savings deposits and certificates and other time deposits and a change $1.8 million increase in deposit mix.the average rate paid on advances from FHLB.

41


The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearinginterest–bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average ratesrate earned on interest-earning assets, the average ratesrate 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 nonaccrualnon-accrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended March 31, 20222023 and 2021,December 31, 2022, interest income not recognized on nonaccrualnon-accrual loans was $889$772 thousand and $1.1$4.7 million, respectively. Any nonaccrualnon-accrual loans have been included in the table as loans carrying a zero yield.
45


For the Three Months Ended March 31,For the Three Months Ended December 31,
20232022
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$9,141,137 $146,801 6.51 %$8,743,380 $131,823 5.98 %
LHI, MW360,172 4,906 5.52 383,080 5,024 5.20 
Debt securities1,252,457 10,988 3.56 1,286,342 10,880 3.36 
Interest-bearing deposits in other banks478,345 5,534 4.69 353,737 3,401 3.81 
Equity securities and other investments124,985 1,408 4.57 119,054 1,087 3.62 
Total interest-earning assets11,357,096 169,637 6.06 10,885,593 152,215 5.55 
ACL(92,664)  (85,275)  
Noninterest-earning assets949,881   960,726   
Total assets$12,214,313   $11,761,044   
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits$4,150,995 $29,857 2.92 %$4,321,936 $24,043 2.21 %
Certificates and other time deposits2,588,728 20,967 3.28 1,785,152 8,543 1.90 
Advances from FHLB1,122,683 12,358 4.46 1,073,049 10,577 3.91 
Subordinated debentures and subordinated notes231,251 3,066 5.38 229,037 2,954 5.12 
Total interest-bearing liabilities8,093,657 66,248 3.32 7,409,174 46,117 2.47 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,470,700   2,737,468   
Other liabilities173,380   179,584   
Total liabilities10,737,737   10,326,226   
Stockholders’ equity1,476,576   1,434,818   
Total liabilities and stockholders’ equity$12,214,313   $11,761,044   
Net interest rate spread(2)
 2.74 % 3.08 %
Net interest income $103,389  $106,098 
Net interest margin(3)
 3.69 % 3.87 %
For the Three Months Ended March 31,
20222021
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$6,872,943 $68,297  4.03 %$5,897,815 $62,702  4.31 %
LHI, MW421,680 3,069 2.95 510,678 3,815 3.03 
PPP loans31,335 77 1.00 356,356 882 1.00 
Debt Securities1,140,834 7,762  2.76  1,063,538 7,437  2.84 
Interest-earning deposits in other banks554,864 262  0.19  341,483 127  0.15 
Equity securities and other investments190,002 910  1.94  87,178 663  3.08 
Total interest-earning assets9,211,658 80,377  3.54  8,257,048 75,626  3.71 
ACL(77,843)   (105,972)  
Noninterest-earning assets865,107   790,195   
Total assets$9,998,922   $8,941,271   
Liabilities and Stockholders’ Equity      
Interest-bearing liabilities:      
Interest-bearing demand and savings deposits$3,471,645 $1,751  0.20 %$3,038,586 $1,980  0.26 %
Certificates and other time deposits1,501,852 1,380 0.37 1,509,836 3,061 0.82 
Advances from FHLB777,538 1,547  0.81  777,694 1,812  0.94 
Subordinated debentures and subordinated debt231,875 2,659  4.65  265,356 3,138  4.80 
Total interest-bearing liabilities5,982,910 7,337  0.50  5,591,472 9,991  0.72 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,591,504    2,069,233   
Other liabilities67,060    56,272   
Total liabilities8,641,474    7,716,977   
Stockholders’ equity1,357,448    1,224,294   
Total liabilities and stockholders’ equity9,998,922   $8,941,271   
Net interest rate spread(2)
  3.04 %  2.99 %
Net interest income$73,040  $65,635  
Net interest margin(3)
 3.22 % 3.22 %

(1) Includes average outstanding balances of loans held for saleLHFS of $12,769$19,679 and $16,602$15,296 for the three months ended March 31, 20222023 and MarchDecember 31, 2021,2022, respectively, and average balances of LHI, excluding MW and PPP loans.MW.
(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.

4642



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 March 31, For the Three Months Ended
2022 vs. 2021March 31, 2023 vs. December 31, 2022
Increase (Decrease)  Increase (Decrease) 
Due to Change in  Due to Change in 
VolumeRateTotal VolumeRateTotal
(In thousands) (In thousands)
Interest-earning assets:Interest-earning assets:Interest-earning assets:
LoansLoans$10,367 $(4,772)$5,595 Loans$3,943 $11,035 $14,978 
LHI, MWLHI, MW(665)(81)(746)LHI, MW(167)49 (118)
PPP loans(805)— (805)
Debt Securities541 (216)325 
Debt securitiesDebt securities(8)116 108 
Interest-bearing deposits in other banksInterest-bearing deposits in other banks206 1,927 2,133 
Equity securities and other investmentsEquity securities and other investments781 (534)247 Equity securities and other investments53 268 321 
Interest-bearing deposits in other banks79 56 135 
Total increase (decrease) in interest income10,298 (5,547)4,751 
Total increase in interest incomeTotal increase in interest income4,027 13,395 17,422 
Interest-bearing liabilities:Interest-bearing liabilities:  Interest-bearing liabilities:   
Interest-bearing demand and savings depositsInterest-bearing demand and savings deposits282 (511)(229)Interest-bearing demand and savings deposits(84)5,898 5,814 
Certificates and other time depositsCertificates and other time deposits(16)(1,665)(1,681)Certificates and other time deposits733 11,691 12,424 
Advances from FHLBAdvances from FHLB— (265)(265)Advances from FHLB99 1,682 1,781 
Subordinated debentures and subordinated notesSubordinated debentures and subordinated notes(396)(83)(479)Subordinated debentures and subordinated notes25 87 112 
Total decrease in interest expense(130)(2,524)(2,654)
Increase (decrease) in net interest income$10,428 $(3,023)$7,405 
Total increase in interest expenseTotal increase in interest expense773 19,358 20,131 
Increase in net interest incomeIncrease in net interest income$3,254 $(5,963)$(2,709)
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 recordedFor a benefitdescription of the factors taken into account by management in determining the ACL see “—Financial Condition—Allowance for Credit Losses on Loans Held for Investment.” The provision for credit loan losses of $500 thousandwas $8.5 million for the three months ended March 31, 2022,2023, compared to no$11.8 million provision or benefit for the same periodthree months ended December 31, 2022, a decrease of $3.3 million. The decrease in 2021. the recorded provision for credit losses for the three months ended March 31, 2023 was primarily attributable to changes in the Texas economic forecast and a decrease in loan growth. For the three months ended March 31, 2022,2023, we also recorded a $493 thousand$1.5 million provision for unfunded commitments, which was attributable to higherchanges in Texas economic factors, offset by lower unfunded balances.balances compared
to a $523 thousand benefit for unfunded commitments for three months ended December 31, 2022.

4743


Noninterest Income
Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, loan fees, gains on the sale of mortgage loans, 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 
Three Months Ended March 31,Increase March 31,December 31,Increase
20222021(Decrease) 20232022(Decrease)
(In thousands) (In thousands)
Noninterest income:Noninterest income:Noninterest income:
Service charges and fees on deposit accountsService charges and fees on deposit accounts$4,710 $3,629 $1,081 Service charges and fees on deposit accounts$5,017 $5,173 $(156)
Loan feesLoan fees2,794 1,341 1,453 Loan fees2,064 2,477 (413)
Loss on sales of debt securitiesLoss on sales of debt securities(5,321)— (5,321)
Gain on sales of mortgage loansGain on sales of mortgage loans307 507 (200)Gain on sales of mortgage loans
Government guaranteed loan income, netGovernment guaranteed loan income, net4,891 6,548 (1,657)Government guaranteed loan income, net9,688 7,808 1,880 
Equity method investment income, net367 — 367 
Equity method investment lossEquity method investment loss(1,521)(5,416)3,895 
Customer swap incomeCustomer swap income217 2,273 (2,056)
OtherOther2,028 2,147 (119)Other3,381 2,007 1,374 
Total noninterest incomeTotal noninterest income$15,097 $14,172 $925 Total noninterest income$13,531 $14,326 $(795)

Noninterest income for the three months ended March 31, 2022 increased $9252023 decreased $795 thousand, or 6.5%5.5%, to $15.1$13.5 million compared to noninterest income of $14.2$14.3 million for the same period in 2021.three months ended December 31, 2022. The primary driverdrivers of the increase wasdecrease were as follows:
Service charges and feesLoss on deposit accounts.sales of debt securities. We earn service charges and fees from our customers for deposit-related activities. The income from these deposit activities constitutes a significant and predictable componentloss on sale of our noninterest income. Service charges and fees on deposit accounts were $4.7 milliondebt securities during the three months ended March 31, 2022, an increase of $1.1 million or 29.8%, over2023, compared to the same period in 2021. This increasethree months ended December 31, 2022, was primarily due to increases in analysis chargesa $5.3 million loss on sales 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 March 31, 2022 compared to $1.3 million for the same period in 2021. The increase of $1.5 million, or 108.4%, was primarilyinvestment securities due to increasesthe Company selling $116.2 million of investment securities in syndication fees of $1.0 million and prepayment fees on CRE of $358 thousand.early March 2023.
Government guaranteed loan income, net. Government guaranteed loan income, net, includes non-interest income earned on PPP loans as well as income related to the sales of government guaranteedSBA and USDA loans. The decreaseincrease in government guaranteed loan income, net, of $1.7$1.9 million or 25.3%during the three months ended March 31, 2023 was primarily due to a $1.9 million increase in the decreasevaluation of $6.6 million in feesUSDA loans HFS compared to the three months ended December 31, 2022.
Equity method investment loss. Equity method investment loss is comprised of losses earned on PPP loansequity method investments, specifically our 49% investment in Thrive. The loss from these investments was $1.5 million for the three months ended March 31, 2021 with no corresponding PPP loan originations2023, as compared to the three months ended December 31, 2022. The decrease in the loss recorded during the three months ended March 31, 2022. This decrease2023 compared to three months ended December 31, 2022 is offset by ana result of Thrive's continued focus on expense reduction across the corporation and exiting long dated locks, which are no longer being entered into, and represented 50% of the loss reported for the three months ended March 31, 2023. Thrive reported a 7.3% increase of $4.2 million on the gain on sale of SBA and USDA loans, as well as an increase of $729 thousand in loan valuationsunits originated during the three months ended March 31,2022 compared to three months ended December 31, 2022.
Customer swap income. The decrease in customer swap income of $2.1 million or 90.5%, during the three months ended March 31, 2022,2023 was primarily due to the decrease in trade executions, compared to the same periodthree months ended December 31, 2022.
Other. Other includes other noninterest income from fees. Other noninterest income was $3.4 million for the three months ended March 31, 2023, an increase of $1.4 million, or 68.5% as compared to the three months ended December 31, 2022. The increase was primarily driven by an increase in 2021.BOLI income of $932 thousand and a $507 thousand increase in the credit valuation adjustment on the servicing asset.

4844


Noninterest Expense

The following table presents, for the periods indicated, the major categories of noninterest expense:
For the
 Three Months Ended
 March 31,December 31,Increase
 20232022(Decrease)
 (In thousands)
Noninterest expense
Salaries and employee benefits$31,865 $33,690 $(1,825)
Occupancy and equipment4,973 5,116 (143)
Professional and regulatory fees4,389 4,401 (12)
Data processing and software expense4,720 4,197 523 
Marketing1,779 1,841 (62)
Amortization of intangibles2,495 2,495 — 
Telephone and communications478 358 120 
Other5,916 5,261 655 
Total noninterest expense$56,615 $57,359 $(744)
Noninterest expense for the three months ended March 31, 2023decreased $744 thousand, or 1.3%, to $56.6 million compared to noninterest expense of $57.4 million for the three months ended December 31, 2022. The most significant components of the decrease 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. Salaries and employee benefits were $31.9 million for the three months ended March 31, 2023, a decrease of $1.8 million, or 5.4%, compared to the three months ended December 31, 2022. The decrease was primarily attributable to a $1.2 million decrease in salaries expense.


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 statutory tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision of income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of March 31, 2023, we did not believe a valuation allowance was necessary.
For the three months ended March 31, 2023, income tax expense totaled $11.0 million, a decrease of $878 thousand, compared to an income tax expense of $11.9 million for the three months ended December 31, 2022. For the three months ended March 31, 2023, we had an effective tax rate of 22.3% which includes a discrete tax expense of $112 thousand associated with the recognition of an excess tax expense realized on share-based payment awards. Excluding this discrete tax item, the Company had an effective tax rate of 22.1%. For the three months ended December 31, 2022, the Company had an effective tax rate of 21.6%.
45


Results of Operations for the Three Months Ended March 31, 2023 and 2022

General

    Net income for the three months ended March 31, 2023 was $38.4 million, an increase of $4.9 million, or 14.8%, from net income of $33.5 million for the three months ended March 31, 2022.
    Basic EPS was $0.71 and $0.66 for the three months ended March 31, 2023 and March 31, 2022, respectively. Diluted EPS for the three months ended March 31, 2023 was $0.70, an increase of $0.05 from $0.65 for the three months ended March 31, 2022.
Net Interest Income

For the three months ended March 31, 2023, net interest income totaled $103.4 million and net interest margin and net interest spread were 3.69% and 2.74%, respectively. For the three months ended March 31, 2022, net interest income totaled $73.0 million and net interest margin and net interest spread were 3.22% and 3.04%, respectively. The increase in net interest income was primarily due to an increase in interest income of $80.3 million on loans and an increase of $3.2 million on debt securities, offset by an increase in interest expense of $28.1 million in transaction and savings deposits, a $19.6 million increase in certificates and other time deposits, and a $10.8 million increase in advances from FHLB during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Net interest margin increased 47 bps to 3.69% from 3.22% for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to an increase in average balances and yields on loans, partially offset by an increase in funding costs during the three months ended March 31, 2023. As a result, the average cost of interest-bearing deposits increased to 3.06% for the three months ended March 31, 2023 from 0.26% for the three months ended March 31, 2022.

For the three months ended March 31, 2023, interest expense totaled $66.2 million and the average rate paid on interest-bearing liabilities was 3.32%. For the three months ended March 31, 2022, interest expense totaled $7.3 million and the average rate paid on interest-bearing liabilities was 0.50%. The year-over-year increase was primarily due to increases in the average rates paid on interest-bearing demand and savings deposits, certificates and other time deposits driven by increases in Federal Funds Rate.

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 March 31, 2023 and 2022, interest income not recognized on nonaccrual loans was $772 thousand and $889 thousand, respectively. Any nonaccrual loans have been included in the table as loans carrying a zero yield.
46


For the Three Months Ended March 31,
20232022
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$9,141,137 $146,801 6.51 %$6,904,278 $68,374 4.02 %
LHI, MW360,172 4,906 5.52 421,680 3,069 2.95 
Debt Securities1,252,457 10,988 3.56  1,140,834 7,762 2.76 
Interest-earning deposits in other banks478,345 5,534 4.69  554,864 262 0.19 
Equity securities and other investments124,985 1,408 4.57  190,002 910 1.94 
Total interest-earning assets11,357,096 169,637 6.06  9,211,658 80,377 3.54 
ACL(92,664)   (77,843)  
Noninterest-earning assets949,881   865,107   
Total assets$12,214,313   $9,998,922   
Liabilities and Stockholders’ Equity      
Interest-bearing liabilities:      
Interest-bearing demand and savings deposits$4,150,995 $29,857 2.92 %$3,471,645 $1,751 0.20 %
Certificates and other time deposits2,588,728 20,967 3.28 1,501,852 1,380 0.37 
Advances from FHLB1,122,683 12,358 4.46 777,538 1,547 0.81 
Subordinated debentures and subordinated debt231,251 3,066 5.38 231,875 2,659 4.65 
Total interest-bearing liabilities8,093,657 66,248 3.32 5,982,910 7,337 0.50 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,470,700 2,591,504 
Other liabilities173,380 67,060 
Total liabilities10,737,737 8,641,474 
Stockholders’ equity1,476,576 1,357,448 
Total liabilities and stockholders’ equity12,214,313 $9,998,922 
Net interest rate spread(2)
2.74 %3.04 %
Net interest income$103,389 $73,040 
Net interest margin(3)
3.69 %3.22 %
(1) Includes average outstanding balances of LHFS of $19,679 and $12,769 for the three months ended March 31, 2023 and March 31, 2022, respectively, and average balances of LHI, excluding MW 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.

47


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 March 31,
 2023 vs 2022
 Increase (Decrease) 
 Due to Change in 
 VolumeRateTotal
 (In thousands)
Interest-earning assets:
Loans$22,152 $56,275 $78,427 
LHI, MW(447)2,284 1,837 
Debt Securities760 2,466 3,226 
Equity securities and other investments(36)5,308 5,272 
Interest-bearing deposits in other banks(311)809 498 
Total increase in interest income22,118 67,142 89,260 
Interest-bearing liabilities:
Interest-bearing demand and savings deposits343 27,763 28,106 
Certificates and other time deposits999 18,588 19,587 
Advances from FHLB687 10,124 10,811 
Subordinated debentures and subordinated notes(7)414 407 
Total increase in interest expense2,022 56,889 58,911 
Increase in net interest income$20,096 $10,253 $30,349 
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 a provision for credit losses of $9.4 million for the three months ended March 31, 2023, compared to $500 thousand benefit for the same period in 2022. The increase was primarily attributable to an increase in general reserves as a result of changes in economic factors and loan growth, partially offset by charge-offs. For the three months ended March 31, 2023, we also recorded $1.5 million provision for unfunded commitments, which was attributable to changes in Texas economic forecasts, compared to a $493 thousand benefit for unfunded commitments for the three months ended March 31, 2022.

48


Noninterest Income
Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, loan fees, loss on sales of debt securities, gain on the sale of mortgage loans, government guaranteed loan income, net, equity method investment (loss) income, customer swap income, 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:
 Three Months Ended March 31,Increase
 20232022(Decrease)
 (In thousands)
Noninterest income:
Service charges and fees on deposit accounts$5,017 $4,710 $307 
Loan fees2,064 2,794 (730)
Loss on sales of debt securities(5,321)— (5,321)
Gain on sales of mortgage LHFS307 (301)
Government guaranteed loan income, net9,688 4,891 4,797 
Equity method investment (loss) income(1,521)367 (1,888)
Customer swap income217 946 (729)
Other3,381 1,082 2,299 
Total noninterest income$13,531 $15,097 $(1,566)
Noninterest income for the three months ended March 31, 2023 decreased $1.6 million, or 10.4%, to $13.5 million compared to noninterest income of $15.1 million for the same period in 2022. The primary drivers of the decrease in noninterest income are equity method investment income and government guaranteed loan income, net; offset by increases in customer swap income, loan fees, other noninterest income, and service charges and fees on deposit accounts.
Loan fees. We earn certain fees in connection with funding and servicing loans. The decrease of $730 thousand, or 26.1%, in loan fees during the three months ended March 31, 2023, compared to the same period in 2022 is primarily attributable to a $412 thousand decrease in syndication and arrangement fees, and a $220 thousand decrease in prepayment fees.
Loss on sales of debt securities. The decrease in loss on sales of debt securities during the three months ended March 31, 2023, compared to the same period in 2022, was primarily due to a $5.3 million loss on sales of investment securities due to the Company selling $116.2 million of investment securities in early March 2023.
Government guaranteed loan income, net. Government guaranteed loan income, net, includes income related to the sales of government guaranteed loans. The increase in government guaranteed loan income, net, of $4.8 million, or 98.1%, for the three months ended March 31, 2023, compared to the same period in 2022, was primarily due to a $1.7 million increase in the fair value of government guaranteed loans, including held for sale loans, and an increase of $3.4 million on the gain on sale of SBA and U.S. Department of Agriculture (“USDA”) loans.
Equity method investment (loss) income. Equity method investment (loss) income is comprised of income recorded on equity method investments, specifically our investment in Thrive Mortgage, LLC (“Thrive”), of which the Bank holds a 49% equity method interest. During the three months ended March 31, 2023, the company recorded a loss from this investment of $1.9 million compared to income from this investment of $367 thousand during the three months ended March 31, 2022. The decrease was primarily due to the negative impact of rising interest rates on the fair value and volume of loans originated by Thrive.
Customer swap income. The decrease in customer swap income of $729 thousand, or 77.1%, during the three months ended March 31, 2023, compared to the same period in 2022, was primarily due to the decrease in trade executions.
Other. The increase in other noninterest income of $2.3 million, or 212.5%, during the three months ended March 31, 2023, compared to the same period in 2022, was primarily due to an increase of $960 thousand in BOLI income, an increase of $638 thousand in gain on equity market securities, and an increase of $532 thousand of servicing asset income.
49


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 and equipment 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 March 31,Increase (Decrease) For the Three Months Ended March 31,Increase (Decrease)
20222021 20232022
(In thousands) (In thousands)
Salaries and employee benefitsSalaries and employee benefits$27,513 $22,932 $4,581 Salaries and employee benefits$31,865 $27,513 $4,352 
Non-staff expenses:
Occupancy and equipmentOccupancy and equipment4,517 4,096 421 Occupancy and equipment4,973 4,517 456 
Professional and regulatory feesProfessional and regulatory fees3,158 3,441 (283)Professional and regulatory fees4,389 3,158 1,231 
Data processing and software expenseData processing and software expense2,921 2,319 602 Data processing and software expense4,720 2,921 1,799 
MarketingMarketing1,187 909 278 Marketing1,779 1,187 592 
Amortization of intangiblesAmortization of intangibles2,495 2,537 (42)Amortization of intangibles2,495 2,495 — 
Telephone and communicationsTelephone and communications385 337 48 Telephone and communications478 385 93 
Merger and acquisition expense700 — 700 
M&A expenseM&A expense— 700 (700)
OtherOther3,696 3,026 670 Other5,916 3,696 2,220 
Total noninterest expenseTotal noninterest expense$46,572 $39,597 $6,975 Total noninterest expense$56,615 $46,572 $10,043 
 
Noninterest expense for the three months ended March 31, 20222023 increased $7.0$10.0 million, or 17.6%21.6%, to $46.6$56.6 million compared to noninterest expense of $39.6$46.6 million for the three months ended March 31, 20212022. 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. Salaries and employee benefits were $27.5$31.9 million for the three months ended March 31, 2023, an increase of $4.4 million, or 15.8%, compared to the same period in 2022. The increase was primarily attributable to a $3.1 million increase in salaries resulting from an increase in talent hired throughout 2022 that had a full quarter of expense recognized in first quarter of 2023, a $524 thousand increase in employee benefit expenses and a $492 thousand increase in severance.

Professional and regulatory fees. This category includes legal, professional, audit, regulatory, and Federal Deposit Insurance Corporation ("FDIC") assessment fees. The increase of $1.2 million, or 39.0%, for the three months ended March 31, 2023 was primarily attributable to increases in FDIC assessment fees of $577 thousand due to an increase in asset size, audit and regulatory fees of $441 thousand and legal and professional fees of $208 thousand, compared to the same period in 2022.

Data processing and software expense. This category of expenses includes expense related to data processing and software expenses, which increased $1.8 million for the three months ended March 31, 2022, an increase of $4.6 million, or 20.0%,2023, compared to the same period in 2021. The2022. This increase wasis primarily attributabledue to a (i) $2.7an increase of $1.6 million in software expenses for the enhancement of systems to mitigate security risk due to the Bank’s growth and an increase of $201 thousand in salaries resulting from continued investment in talent, (ii) $960 thousand increase in 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 (iii) $829 thousand increase in FICA taxes.data processing expenses.

Merger and acquisition expense.Marketing. This category of expenses includes legal, professional, audit, regulatoryexpenses related to advertising and other expenses incurred in connection with a pending or completed merger or acquisition. Merger and acquisition expenses incurred in promotions, which increased $592 thousand for the three months ended March 31, 2022, were related2023, compared to our proposed transactionthe same period in 2022. This increase is primarily due to acquire interLINK, a technology-enabled deposit gathering$544 thousand increase in advertising and processing platform which is expectedpromotions during the three months ended March 31, 2023, compared to closethe same period in the third quarter of 2022.

49
50


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 $5.9 million for the three months ended March 31, 2023, compared to $3.7 million for the same period in 2022, an increase of $2.2 million, or 60.1%. This increase was primarily due to an increase of (i) $749 thousand in expenses for loan fee expenses, (ii) $429 thousand in expenses for third party banking services, (iii) $410 thousand in loan related legal expenses, (iv) $128 thousand in SBA fees, and (v) $124 thousand in subscriptions, in each case, during the three months ended March 31, 2023 as compared to the same period in 2022. The remaining changes were nominal amongst individual noninterest expense accounts.

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, 2022,2023, we did not believe a valuation allowance was necessary.

For the three months ended March 31, 2023, income tax expense totaled $11.0 million, an increase of $2.9 million, compared to an income tax expense of $8.1 million for the same period in 2022. For the three months ended March 31, 2023, we had an effective tax rate of 22.3%. The Company had a net discrete tax expense of $112 thousand associated with the recognition of an excess tax expense realized on share-based payment awards during the three months ended March 31, 2023. Excluding this discrete tax item, the Company had an effective tax rate of 22.1% for the three months ended March 31, 2023.
For the three months ended March 31, 2022, income tax expense totaled $8.1 million, a decrease of $891 thousand, compared to an income tax expense of $9.0 million for the same period in 2021. For the three months ended March 31, 2022, we had an effective tax rate of 19.5%. The decrease in the effective tax rate was primarily a result of the recognition of a $992 thousand excess tax benefit realized on share-based payment awards during the three months ended March 31, 2022. Excluding discrete tax items, the Company had an effective tax rate of 21.9% for the three months ended March 31, 2022.


Financial Condition
 
Our total assets increased $696.4$445.1 million, or 7.1%3.7%, from $9.8$12.15 billion as of December 31, 20212022 to $10.5$12.61 billion as of March 31, 2022.2023.  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. 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 primarily 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"(“CRE”) properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our interest-earning asset base.
 
As of March 31, 2022,2023, total LHI, excluding ACL, was $7.7$9.72 billion, an increase of $294.5$214.2 million, or 4.0%2.3%, compared to $7.4$9.50 billion as of December 31, 2021.2022. The increase was the result of the continued execution and success of our loan growth strategy.strategy and previously unfunded balances that were funded during the quarter. In addition to these amounts, $18.7$42.8 million and $26.0$20.6 million in loans were classified as held for sale as of March 31, 20222023 and December 31, 2021,2022, respectively.
 
Total LHI, excluding MW and PPP loans, as a percentage of deposits were 90.5%102.4% and 92.0%99.3% as of March 31, 20222023 and December 31, 2021,2022, respectively. Total LHI, excluding MW and PPP loans, as a percentage of assets were 68.2%73.3% and 69.3%78.2% as of March 31, 20222023 and December 31, 2021,2022, respectively.

5051


The following table summarizes our loan portfolio by type of loan as of the dates indicated:

 As of March 31,As of December 31,
 20222021
 TotalPercentTotalPercent
 (Dollars in thousands)
Commercial$2,125,900 27.7 %$2,006,876 27.3 %
MW542,877 7.1 %565,645 7.7 %
Real estate:  
Owner Occupied CRE (“OOCRE”)633,615 8.3 %665,537 9.1 %
Non-owner Occupied CRE (“NOOCRE”)2,145,826 27.9 %2,120,309 28.9 %
Construction and land1,297,338 16.9 %1,062,144 14.5 %
Farmland48,095 0.6 %55,827 0.8 %
1-4 family residential604,408 7.9 %542,566 7.4 %
Multifamily272,250 3.5 %310,241 4.2 %
Consumer9,533 0.1 %11,998 0.2 %
Total LHI, carried at amortized cost(1)
$7,679,842 100.0 %$7,341,143 100.0 %
LHI, PPP loans, carried at fair value$18,512 100.0 %$53,369 100.0 %
Total loans held for sale$18,721 100.0 %$26,007 100.0 %
 As of March 31,As of December 31,
 20232022Increase (Decrease)
 Amount% of TotalAmount% of TotalAmount% Change Quarter over Quarter
 (Dollars in thousands)
Commercial$2,895,957 29.9 %$2,942,348 31.0 %$(46,391)(1.6)%
MW437,501 4.5 446,227 4.7 (8,726)(2.0)%
Real estate:  
Owner Occupied CRE (“OOCRE”)631,563 6.5 715,829 7.5 (84,266)(11.8)%
Non-owner Occupied CRE (“NOOCRE”)2,505,344 25.9 2,341,379 24.6 163,965 7.0 %
Construction and land1,831,349 18.9 1,787,400 18.8 43,949 2.5 %
Farmland51,680 0.5 43,500 0.5 8,180 18.8 %
1-4 family residential896,252 9.2 894,456 9.4 1,796 0.2 %
Multifamily432,209 4.5 322,679 3.4 109,530 33.9 %
Consumer8,316 0.1 7,806 0.1 510 6.5 %
Total LHI, carried at amortized cost(1)
$9,690,171 100.0 %$9,501,624 100.0 %$188,547 2.0 %
Total LHFS$42,816 $20,641 
(1) Total LHI, carried at amortized cost, excludes $11.5$15.5 million and $9.5$19.0 million of deferred loan fees, net, as of March 31, 20222023 and December 31, 2021,2022, respectively.




51
52


Nonperforming Assets

The following table presents information regarding nonperforming assets atby category as of the dates indicated:
 As of March 31,As of December 31,
 20222021
 (Dollars in thousands)
Nonaccrual loans(1)
$46,680 $49,687 
Accruing loans 90 or more days past due264 235 
Total nonperforming loans46,944 49,922 
Other real estate owned: 
Commercial real estate, construction, land and land development1,062 — 
Total other real estate owned1,062 — 
Total nonperforming assets$48,006 $49,922 
 Troubled debt restructured loans—nonaccrual19,248 19,746 
 Troubled debt restructured loans—accruing4,025 5,772 
Ratio of nonperforming loans to total loans0.66 %0.74 %
Ratio of nonperforming assets to total assets0.46 %0.51 %
 As of March 31,As of December 31,
 20232022
(Dollars in thousands)
Nonperforming loans(1)
    1-4 family residential$818 $862 
OOCRE9,322 9,737 
NOOCRE20,783 21,377 
Construction and land1,583 — 
    Commercial11,659 11,397 
    Consumer71 169 
Accruing loans 90 or more days past due296 125 
        Total nonperforming loans44,532 43,667 
OREO— — 
         Total nonperforming assets$44,532 $43,667 
Nonperforming assets to total assets0.35 %0.36 %
Nonperforming loans to total loans, excluding MW loans0.49 %0.48 %
(1) At March 31, 20222023 and December 31, 2021,2022, nonaccrual loans included PCD loans of $10,678$8,141 and $11,506,$8,545, respectively, not accounted for on a pooled basis.basis along with $17 of PCD loans that are accounted for on a pooled basis at March 31, 2023.

The following table presents information regarding nonaccrual loans by category as of the dates indicated:
 As of March 31,As of December 31,
 20222021
(In thousands)
Commercial$13,259 $15,267 
Real estate:
OOCRE13,446 14,236 
NOOCRE17,739 17,978 
1-4 family residential1,005 990 
Consumer1,231 1,216 
Total$46,680 $49,687 

5253


Potential Problem Loans

The following tables summarize our internal ratings of our loans as of the dates indicated.
March 31, 2023
March 31, 2022 PassSpecial
Mention
SubstandardPCDTotal
PassSpecial
Mention
SubstandardPCDTotal(Dollars in thousands)
Real estate:Real estate:Real estate:
Construction and landConstruction and land$1,293,849 $1,613 $— $1,876 $1,297,338 Construction and land$1,741,408 $59,836 $30,105 $— $1,831,349 
FarmlandFarmland48,095 — — — 48,095 Farmland51,680 — — — 51,680 
1 - 4 family residential1 - 4 family residential601,355 344 1,547 1,162 604,408 1 - 4 family residential892,786 691 1,581 1,194 896,252 
Multi-family residentialMulti-family residential250,586 21,664 — — 272,250 Multi-family residential416,501 15,708 — — 432,209 
OOCREOOCRE566,643 10,036 34,336 22,600 633,615 OOCRE583,127 8,979 20,270 19,187 631,563 
NOOCRENOOCRE1,957,978 120,011 52,593 15,244 2,145,826 NOOCRE2,298,484 79,948 113,702 13,210 2,505,344 
CommercialCommercial2,021,437 42,632 54,391 7,440 2,125,900 Commercial2,803,918 20,721 67,598 3,720 2,895,957 
MWMW542,447 — 430 — 542,877 MW418,420 18,873 208 — 437,501 
ConsumerConsumer8,051 76 1,236 170 9,533 Consumer8,158 57 83 18 8,316 
TotalTotal$7,290,441 $196,376 $144,533 $48,492 $7,679,842 Total$9,214,482 $204,813 $233,547 $37,329 $9,690,171 
December 31, 2022
December 31, 2021 PassSpecial
Mention
SubstandardPCDTotal
PassSpecial
Mention
SubstandardPCDTotal(Dollars in thousands)
Real estate:Real estate:Real estate:
Construction and landConstruction and land$1,057,891 $1,905 $— $2,348 $1,062,144 Construction and land$1,764,634 $21,222 $— $1,544 $1,787,400 
FarmlandFarmland55,827 — — — 55,827 Farmland43,500 — — — 43,500 
1 - 4 family residential1 - 4 family residential539,485 352 1,551 1,178 542,566 1 - 4 family residential842,149 26,346 24,781 1,180 894,456 
Multi-family residentialMulti-family residential288,954 21,287 — — 310,241 Multi-family residential306,981 — 15,698 — 322,679 
OOCREOOCRE591,377 9,704 36,892 27,564 665,537 OOCRE648,591 9,186 38,235 19,817 715,829 
NOOCRENOOCRE1,922,455 97,562 82,092 18,200 2,120,309 NOOCRE2,167,498 105,963 55,170 12,748 2,341,379 
CommercialCommercial1,887,671 36,092 74,487 8,626 2,006,876 Commercial2,757,945 127,311 53,391 3,701 2,942,348 
MWMW565,100 — 545 — 565,645 MW444,393 1,626 208 — 446,227 
ConsumerConsumer10,440 79 1,302 177 11,998 Consumer7,556 58 169 23 7,806 
TotalTotal$6,919,200 $166,981 $196,869 $58,093 $7,341,143 Total$8,983,247 $291,712 $187,652 $39,013 $9,501,624 
 
ACL on 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.
53


The following table presents, as of and for the periods indicated, an analysis of the ACL and other related data:
 As ofAs of
 March 31, 2022December 31, 2021
  Percent Percent
 Amountof TotalAmountof Total
 (Dollars in thousands)
Real estate:                
Construction and land$8,883 12.3 %$7,293 9.4 %
Farmland158 0.2 187 0.2 
1 - 4 family residential6,134 8.5 5,982 7.7 
Multi-family residential2,127 2.9 2,664 3.4 
OOCRE7,423 10.2 9,215 11.9 
NOOCRE26,954 37.2 30,548 39.3 
Total real estate$51,679 71.3 %$55,889 71.9 %
Commercial20,084 27.7 21,632 27.8 
Consumer722 1.0 233 0.3 
Total ACL$72,485 100.0 %$77,754 100.0 %

The ACL decreased $5.3 million to $72.5 million as of March 31, 2022 from December 31, 2021. The decrease in the ACL compared to December 31, 2021 was primarily attributable to net charge-offs of $4.8 million and a decrease in specific reserves on certain nonaccrual loans slightly offset by an increase in general reserves as a result of continued loan growth.

54


The following table presents, as of and for the periods indicated, an analysis of the ACL and other related data:
 March 31, 2023December 31, 2022
 Allocated Allowance% of Loan PortfolioACL to LoansAllocated Allowance% of Loan PortfolioACL to Loans
 
Construction and land$17,314 19.8 %0.95 %$13,120 19.7 %0.73 %
Farmland168 0.5 0.33 127 0.4 0.29 
1 - 4 family residential9,541 9.7 1.06 9,533 9.9 1.07 
Multi-family residential3,484 4.7 0.81 2,607 3.6 0.81 
OOCRE8,813 6.8 1.40 8,707 7.9 1.22 
NOOCRE26,238 27.1 1.05 26,704 25.9 1.14 
Commercial32,717 31.3 1.13 30,142 32.5 1.02 
Consumer419 0.1 5.04 112 0.1 1.43 
Total$98,694 100.0 %1.07 %$91,052 100.0 %1.01 %

 Three Months EndedThree Months Ended
 March 31, 2022March 31, 2021
 (Dollars in thousands)
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)
7,125,429 5,963,493 
Amortized costs of loans outstanding at end of period, excluding PPP loans(1)
7,668,306 6,563,185 
ACL at beginning of period77,754 105,084 
Benefit for credit losses(500)— 
Charge-offs:  
Real estate:  
Residential— (15)
OOCRE(1,341)— 
NOOCRE(553)— 
Commercial(3,294)(346)
Consumer(134)(18)
Total charge-offs(5,322)(379)
Recoveries:  
Real estate:  
Residential— 
NOOCRE400 — 
Commercial144 226 
Consumer
Total recoveries553 231 
Net charge-offs(4,769)(148)
ACL at end of period$72,485 $104,936 
Ratio of ACL to end of period loans excluding MW and PPP loans1.02 %1.76 %
Ratio of net charge-offs to average loans0.07 %— %
The ACL increased $8.5 million to $98.7 million as of March 31, 2023 from December 31, 2022. The increase in the ACL compared to December 31, 2022, was primarily attributable to loan growth and changes in economic factors, offset by decreases in specific reserves and charge-offs.
(1)Excludes loans held for sale.

55


(Dollars in thousands)Net (Charge-offs) RecoveriesAverage LoansAnnualized Net (Charge-off) Recoveries to Average Loans
Three Months Ended March 31, 2023
Construction and land$— $1,913,734 — %
Farmland— 46,370 — 
1 - 4 family residential891,003 — 
Multi-family residential— 377,725 — 
OOCRE(116)706,052 (0.07)
NOOCRE— 2,329,895 — 
Commercial(687)2,866,017 (0.10)
MW— 360,172 — 
Consumer(56)7,624 (2.98)
Total$(858)$9,498,592 (0.04)%
Three Months Ended March 31, 2022
Construction and land$— $1,166,146 — %
Farmland— 50,500 — 
1 - 4 family residential— 548,733 — 
Multi-family residential— 294,666 — 
OOCRE(1,341)721,108 (0.75)
NOOCRE(153)2,059,694 (0.03)
Commercial(3,150)2,059,103 (0.62)
MW— 421,680 — 
Consumer(125)10,058 (5.04)
Total$(4,769)$7,331,688 (0.26)%
Net loans charged off decreased $3.9 million, or 82.0%. Although we believe that we have established our ACL in accordance with GAAPaccounting principles generally accepted in the United States (“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.
Off-Balance Sheet Credit exposure
The ACL on off-balance-sheet credit exposures totaled $11.6 million and $10.1 million at March 31, 2023 and December 31, 2022, respectively. The level of the ACL on off-balance-sheet credit exposures depends upon the volume of outstanding commitments, underlying risk grades, the expected utilization of available funds and forecasted economic conditions impacting our loan portfolio.  
Equity Securities
As of March 31, 2022,2023, we held equity securities with a readily determinable fair value of $10.5$9.9 million compared to $11.0$9.8 million as of December 31, 2021.2022. 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 $4.4$10.6 million at March 31, 2022 and2023, compared to $10.1 million at December 31, 2021, respectively.2022. 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.




55


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

56


As of March 31, 2022,2023, we held FHLB stock and FRB stock of $72.0$116.1 million compared to $71.9$101.6 million as of December 31, 2021.2022. The Bank is a member of its regional FRB and of the FHLB system. 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 March 31, 2022,2023, the carrying amount of debt securities totaled $1.2$1.15 billion, an increasea decrease of $192.0$131.5 million, or 18.2%10.3%, compared to $1.1$1.28 billion as of December 31, 2021.2022. The increasedecrease was primarily due to purchasesthe sale of debt securities of $271.6$109.8 million andwith a net unrealized gains $44.8 million, partially offset by maturities, calls, and paydownsloss of $33.9$5.3 million. Debt securities represented 11.9%9.1% and 10.8%10.6% of total assets as of March 31, 20222023 and December 31, 2021,2022, 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 March 31, 2022,2023, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.
 
Management evaluates available for saleAFS debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. As of March 31, 2022, management believesThe Company has 36 AFS debt securities that available for sale securitieswere in an unrealized loss position are due to noncredit-related factors, including changes in interest ratestotaling $23.9 million as of March 31, 2023. The Company evaluated all debt securities and other market conditions, and therefore noan ACL have beenon debt securities of $885 thousand was recognized in the Company’s consolidated balance sheets.sheets as of March 31, 2023. The Company also recorded no ACL for its held to maturity debt securities as of March 31, 2022.2023 and December 31, 2022, respectively.

    As of March 31, 20222023 and December 31, 2021,2022, 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.
Equity Method Investments
On July 16, 2021, the Bank completed anEquity method 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 boardloss is comprised of directors. As a result of the investment, we have a $35.8 million basis difference which is being accounted for aslosses on equity method goodwill.

investments, specifically our 49% investment in Thrive. We had $61.1$54.1 million in equity method investments as of March 31, 20222023 and reported $367 thousanda loss of income$1.5 million resulting from this investmentthese investments for the three months ended March 31, 20222023, which represents our proportionate share of our investee’s income.loss. The loss recorded during the three months ended March 31, 2023 is a result of Thrive's quarterly results slightly offset by their continued focus on expense reduction across the corporation and exiting long dated locks, which are no longer being entered into, which represented 50% of the loss reports for the three months ended March 31, 2023.

Deposits.Deposits

Total deposits as of March 31, 20222023 were $7.9$9.03 billion, an increasea decrease of $526.0$88.5 million, or 7.1%1.0%, compared to $7.4$9.12 billion as of December 31, 2021.2022. The increasedecrease from December 31, 20212022 was primarily the result of increasesdecreases of $412.0$246.5 million in interest-bearing transaction and savings deposits, $428.2 million in noninterest-bearing demand deposits, and $224.0 million in correspondent money market deposits. The decrease was partially offset by an increase of $810.2 million in certificates and other time deposits.
5657


interest-bearing transaction and savings deposits and $255.2 million in noninterest-bearing demand deposits partially offset by $141.2 million decrease in certificates and other time deposits.
March 31, 2023
Ending Balance% of TotalAverage
Outstanding Balance
Noninterest-bearing$2,212,389 24.4 %$2,470,700 
Interest-bearing transaction866,609 9.6 %715,481 
Money market2,518,922 27.9 %2,646,708 
Savings106,480 1.2 %113,736 
Certificates and other time deposits2,896,870 32.1 %2,588,728 
Correspondent money market accounts433,468 4.8 %675,070 
Total deposits$9,034,738 100 %$9,210,423 
December 31, 2022
Ending Balance% of TotalAverage
Outstanding Balance
Noninterest-bearing$2,640,617 28.9 %$2,737,468 
Interest-bearing transaction622,814 6.8 %594,461 
Money market2,773,623 30.4 %2,715,476 
Savings118,293 1.3 %126,269 
Certificates and other time deposits2,086,642 22.9 %1,785,152 
Correspondent money market accounts881,245 9.7 %885,730 
Total deposits$9,123,234 100 %$8,844,556 
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 March 31, 20222023 and December 31, 2021,2022, total borrowing capacity of $787.9$373.7 million and $777.5$787.3 million, respectively, was available under this arrangement with outstanding balances of $1.68 billion and $228.0 million$1.18 billion, respectively, and $227.8 million, respectively, was outstanding with a weighted average interest rate of 0.94% for4.46% for the three months ended March 31, 20222023 and1.73% for the year ended December 31, 2021.2022. FHLB has also issued standby letters of credit to the Company for $777.5 million$1.13 billion and $777.6 million$1.03 billion as of each of March 31, 20222023 and December 31, 2021,2022, respectively. Our current FHLB advances mature within fifteentwo years. Other than FHLB borrowings, we had no other short-term borrowings atat the dates indicated.
FRB  
The FRB 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 March 31, 20222023 and December 31, 2021,2022, $995.1 million3.00 billion wasand $1.14 billion were available under this arrangement based on collateral values of pledged commercial and consumer loans. As of March 31, 20222023 and December 31, 2021,2022, no borrowings were outstanding under this arrangement. As of March 31, 2023, approximately $2.72 billion in commercial loans were pledged as collateral. In addition, we had available $614.7 million under the new Bank Term Funding Program (“BTFP”) with no borrowings outstanding under this program during the first quarter of 2023.
Junior subordinated debentures and subordinated notes
58


The table below details our junior subordinated debentures and subordinated notes. Refer to Note 14 “Borrowed Funds”“Subordinated Debentures and Subordinated Notes” in our 20212022 10-K for further discussion on the details of our junior subordinated debentures and subordinated notes.
March 31, 2022March 31, 2023
BalanceRateBalanceRate
(Dollars in thousands)(Dollars in thousands)
Junior subordinated debenturesJunior subordinated debenturesJunior subordinated debentures
Parkway National Capital Trust IParkway National Capital Trust I$3,093 2.03%Parkway National Capital Trust I$3,093 6.72%
SovDallas Capital Trust ISovDallas Capital Trust I8,609 4.24%SovDallas Capital Trust I8,609 8.75
Patriot Bancshares Capital Trust IPatriot Bancshares Capital Trust I5,155 2.09%Patriot Bancshares Capital Trust I5,155 6.68
Patriot Bancshares Capital Trust IIPatriot Bancshares Capital Trust II17,011 1.98%Patriot Bancshares Capital Trust II17,011 6.67
Subordinated notesSubordinated notesSubordinated notes
4.75% Fixed-to-Floating Rate Subordinated Notes4.75% Fixed-to-Floating Rate Subordinated Notes75,000 4.75%4.75% Fixed-to-Floating Rate Subordinated Notes75,000 4.75
4.125% Fixed-to-Floating Rate Subordinated Notes4.125% Fixed-to-Floating Rate Subordinated Notes125,000 4.13%4.125% Fixed-to-Floating Rate Subordinated Notes125,000 4.13

57


Liquidity and Capital Resources
Liquidity
Liquidity management involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the three months ended March 31, 20222023 and the year ended December 31, 2021,2022, 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 March 31, 20222023 and December 31, 2021.2022. There were no advances under these lines of credit outstanding as of March 31, 20222023 and December 31, 2021.2022.
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.
59


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 $10.0$12.21 billion for the three months ended March 31, 20222023 and $9.4$10.99 billion for the year ended December 31, 2021.2022.
For theFor the For the
Three Months EndedYear Ended Three Months Ended
March 31, 2022December 31, 2021 March 31, 2023December 31, 2022
Sources of Funds:Sources of Funds:Sources of Funds:
Deposits:Deposits:Deposits:
Noninterest-bearingNoninterest-bearing25.9 %24.1 %Noninterest-bearing20.2 %25.3 %
Interest-bearingInterest-bearing34.7 34.2 Interest-bearing34.0 35.8 
Certificates and other time depositsCertificates and other time deposits15.0 16.5 Certificates and other time deposits21.2 14.6 
Advances from FHLBAdvances from FHLB7.8 8.3 Advances from FHLB9.2 8.1 
Other borrowingsOther borrowings2.3 2.8 Other borrowings1.9 2.1 
Other liabilitiesOther liabilities0.7 0.6 Other liabilities1.4 1.1 
Stockholders’ equityStockholders’ equity13.6 13.5 Stockholders’ equity12.1 13.0 
TotalTotal100.0 %100.0 %Total100.0 %100.0 %
Uses of Funds:Uses of Funds:Uses of Funds:
LoansLoans72.7 %73.2 %Loans77.0 %74.9 %
Securities available-for-sale11.3 12.0 
Debt SecuritiesDebt Securities10.3 11.6 
Interest-bearing deposits in other banksInterest-bearing deposits in other banks5.5 1.5 Interest-bearing deposits in other banks3.9 1.5 
Other noninterest-earning assetsOther noninterest-earning assets10.5 13.3 Other noninterest-earning assets8.8 12.0 
TotalTotal100.0 %100.0 %Total100.0 %100.0 %
Average noninterest-bearing deposits to average depositsAverage noninterest-bearing deposits to average deposits34.3 %32.3 %Average noninterest-bearing deposits to average deposits26.8 %33.4 %
Average loans, excluding PPP and MW, to average deposits90.9 %89.9 %
Average loans, excluding MW, to average depositsAverage loans, excluding MW, to average deposits99.2 %94.6 %
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 LHI increased 10.1%14.5% for the three months ended March 31, 20222023, compared to the year ended December 31, 2021.2022. We invest excess deposits in interest-bearing deposits at other banks, the Federal Reserve or liquid investmentsdebt securities until these monies are needed to fund loan growth.
As of March 31, 2022,2023, we had $4.0$4.14 billion in outstanding commitments to extend credit, $844.4$985.2 million in unconditionally cancellable MW commitments and $75.5$106.0 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2021,2022, we had $3.8$4.51 billion in outstanding commitments to extend credit, $716.4 million$1.09 billion in MW commitments and $65.9$98.2 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
58


As of March 31, 2022,2023, we had cash and cash equivalents of $551.6$808.4 million compared to $379.8$436.1 million as of December 31, 2021.2022.
60


Analysis of Cash Flows
For theFor the For the
Three Months EndedThree Months Ended Three Months Ended
March 31, 2022March 31, 2021 March 31, 2023December 31, 2022
(In thousands)(In thousands)
Net cash provided by operating activitiesNet cash provided by operating activities$68,218 $83,220 Net cash provided by operating activities$34,539 $68,218 
Net cash used in investing activitiesNet cash used in investing activities(564,784)(228,307)Net cash used in investing activities(66,508)(564,784)
Net cash provided by financing activitiesNet cash provided by financing activities668,355 382,291 Net cash provided by financing activities404,287 668,355 
Net change in cash and cash equivalentsNet change in cash and cash equivalents$171,789 $237,204 Net change in cash and cash equivalents$372,318 $171,789 
Cash Flows Provided by Operating Activities
    For the three months ended March 31, 2022,2023, net cash provided by operating activities decreased by $15.0$33.7 million when compared to the same period in 2021.2022. The decrease in cash from operating activities was primarily related to the cash received for the terminationa decrease in accounts payable and other liabilities 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$30.8 million.
Cash Flows Used in Investing Activities
    For the three months ended March 31, 2022,2023, net cash used in investing activities increaseddecreased by $336.5$498.3 million when compared to the same period in 2021.2022. The increasedecrease in cash used in investing activities was primarily attributable to a $186.7$197.8 million decrease in originations of net LHI, a $141.4 million increase in purchasesmaturities, and calls and paydowns of AFS debt securities, and a $147.7$116.5 million increasedecrease in originations of net loans held for investment. This decrease was partially offset by a decrease of $6.2 million of maturities, calls and paydownspurchases of AFS debt securities.
Cash Flows Provided by Financing Activities
    For the three months ended March 31, 2022,2023, net cash provided by financing activities increaseddecreased by $286.1$264.1 million when compared to the same period in 2021.2022. The increasedecrease in cash provided by financing activities was primarily attributable to a $134.2$614.5 million increasedecrease in deposits and a $153.9 million increasedecrease in proceeds from our common stock offering completed during the three months ended March 31, 2022. The decrease was partially offset by a $504.8 million increase in advances from FHLB.
As of the three months ended March 31, 20222023 and 2021,2022, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
Capital Resources
Total stockholders’ equity increased to $1.49 billion as of March 31, 2023, compared to $1.45 billion as of December 31, 2022, an increase of $44.0 million, or 3.0%. The increase from December 31, 2022 to March 31, 2023 was primarily the result of $38.4 million of net income recognized during the three months ended March 31, 2023, $14.9 million in accumulated other comprehensive income, $2.9 million in stock-based compensation and a $534 thousand increase due to the exercise of employee stock options during the three months ended March 31, 2023. This increase was partially offset by $10.8 million in dividends declared and paid and $1.9 million of restricted stock units (“RSU”) vesting during the three months ended March 31, 2023.
By comparison, total stockholders’ equity increased to $1.45 billion as of 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 $30.4 million, or 2.5%. The increase from December 31, 2020 to March 31, 2021 was primarily the result of $31.8 million of net income recognized, an increase of $6.2 million in other comprehensive income, a $2.9 million increase due to the exercise of employee stock options, and $2.5 million in stock-based compensation recognized during the three months ended March 31, 2021. This increase was partially offset by $4.1 million in stock buybacks and $8.4 million in dividends declared and paid during the three months ended March 31, 2021.
5961


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 consolidated financial statements for additional discussion regarding the regulatory capital requirements applicable to us and the Bank. As of March 31, 20222023 and December 31, 2021,2022, 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 March 31,As of December 31, As of March 31,As of December 31,
20222021 20232022
AmountRatioAmountRatio AmountRatioAmountRatio
(Dollars in thousands) (Dollars in thousands)
Veritex Holdings, Inc.Veritex Holdings, Inc.Veritex Holdings, Inc.
Total capital (to risk-weighted assets)Total capital (to risk-weighted assets)$1,276,341 12.73 %$1,100,404 11.60 %Total capital (to risk-weighted assets)$1,437,576 11.99 %$1,395,904 11.63 %
Tier 1 capital (to risk-weighted assets)Tier 1 capital (to risk-weighted assets)1,016,916 10.14 843,585 8.89 Tier 1 capital (to risk-weighted assets)1,146,356 9.56 1,121,021 9.34 
Common equity tier 1 (to risk-weighted assets)Common equity tier 1 (to risk-weighted assets)987,414 9.84 814,138 8.58 Common equity tier 1 (to risk-weighted assets)1,116,632 9.32 1,091,353 9.09 
Tier 1 capital (to average assets)Tier 1 capital (to average assets)1,016,916 10.66 843,585 9.05 Tier 1 capital (to average assets)1,146,356 9.67 1,121,021 9.82 
Veritex Community BankVeritex Community BankVeritex Community Bank
Total capital (to risk-weighted assets)Total capital (to risk-weighted assets)$1,245,323 12.42 %$1,053,871 11.11 %Total capital (to risk-weighted assets)$1,424,435 11.89 %$1,368,082 11.41 %
Tier 1 capital (to risk-weighted assets)Tier 1 capital (to risk-weighted assets)1,183,396 11.80 994,351 10.48 Tier 1 capital (to risk-weighted assets)1,331,501 11.12 1,291,288 10.77 
Common equity tier 1 (to risk-weighted assets)Common equity tier 1 (to risk-weighted assets)1,183,396 11.80 994,351 10.48 Common equity tier 1 (to risk-weighted assets)1,331,501 11.12 1,291,288 10.77 
Tier 1 capital (to average assets)Tier 1 capital (to average assets)1,183,396 12.41 994,351 10.69 Tier 1 capital (to average assets)1,331,501 11.24 1,291,288 11.32 
Contractual Obligations
In the ordinary course of the Company’s operations, we have entered into contractual obligations and have made other commitments to make future payments. Other than normal changes in the ordinary course of business and changes discussed within “Financial ConditionBorrowings,” there have been no significant changes in the types of contractual obligations or amounts due as of March 31, 20222023 since December 31, 20212022 as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Impact of Inflation
Our 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.
60



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 allowance for credit losses,ACL, business combinations, debt securities and goodwill. Since December 31, 2021,2022, 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, 2021,2022, except for those updates discussed in Note 1 - Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in this report.

62


Special Cautionary Notice Regarding Forward-Looking Statements
    This Quarterly Report on Form 10-Q 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 expected payment date of our quarterly cash dividend, impact of certain changes in our accounting policies, standards and interpretations, a continuation of recent turmoil in the effects of the COVID-19 pandemicbanking industry, responsive measures to mitigate and manage it and related supervisory and regulatory actions taken in response thereto,and costs and 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,” “targets,” “outlooks,” “seeks,” “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 on our business and operations;
possible additional loan losses and impairment of the collectability of loans, particularly as a result of the COVID-19 pandemic and the programs implemented by the CARES Act, including its automatic loan forbearance provisions, and our PPP lending activities;
the effects of regional or national civil unrest;
changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;
risks related to our strategic focus on lending to small to medium-sized businesses;
the sufficiency of the assumptions and estimates we make in establishing reserves for potential loan losses;
our ability to implement our growth strategy, including identifying and consummating suitable acquisitions;
our ability to recruit and retain successful bankers that meet our expectations in terms of customer relationships and profitability;
changes in our accounting policies, standards and interpretations;
our ability to retain executive officers and key employees and their customer and community relationships;
risks associated with our CRE and construction loan portfolios, including the risks inherent in the valuation of the collateral securing such loans;
risks associated with our commercial loan portfolio, including the risk of deterioration in value of the general business assets that generally secure such loans;
our level of nonperforming assets and the costs associated with resolving problem loans, if any, and complying with government-imposed foreclosure moratoriums;
potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;
61


risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area;
credit risks of borrowers, including any increase in those risks due to changing economic conditions, inflation and interest rates;
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;
63


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, 20212022 and, 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.
62


    Our exposure to interest rate risk is managed by the Asset-Liability Committee of the Bank in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.
We use an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and the balance sheet, respectively. Contractual maturities and repricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio.
We utilize static balance sheet rate shocks to estimate the potential impact on net interest income of changes in interest
rates under various rate scenarios. This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet.  Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 5.0% for a 100 basis point shift, 10.0% for a 200 basis point shift, and 15.0% for a 300 basis point shift.
64



    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 March 31, 2022As of December 31, 2021 As of March 31, 2023As of December 31, 2022
Percent ChangePercent ChangePercent ChangePercent Change Percent ChangePercent ChangePercent ChangePercent Change
Change in InterestChange in Interestin Net Interestin Fair Valuein Net Interestin Fair ValueChange in Interestin Net Interestin Fair Valuein Net Interestin Fair Value
Rates (Basis Points)Rates (Basis Points)Incomeof EquityIncomeof EquityRates (Basis Points)Incomeof EquityIncomeof Equity
+ 300+ 30023.48 %11.78 %20.31 %15.79 %+ 30011.53 %1.82 %13.00 %4.65 %
+ 200+ 20015.42 %8.39 %13.13 %11.62 %+ 2007.82 %1.49 %8.88 %3.36 %
+ 100+ 1007.39 %4.51 %6.60 %6.64 %+ 1003.93 %0.95 %4.46 %1.77 %
BaseBase— %— %— %— %Base— %— %— %— %
−100−100(7.75)%(6.70)%(3.85)%(11.68)%−100(4.42)%(1.53)%(4.72)%(2.55)%
    The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.

63


Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures — As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), 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 OfficerCEO and Chief Financial OfficerCFO 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 significant 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 March 31, 20222023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

6465


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, 2021,2022, 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.
    ThereOther than the risk factor set forth below, 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, 2021.2022.
Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.
The recent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional bank holding companies like the Company. These developments have negatively impacted customer confidence in regional banks, which could prompt customers to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby negatively impacting book value and profitability. While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.
We also anticipate increased regulatory scrutiny and regulatory initiatives, such as new regulations or heightened supervisory expectations, intended to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability. Regulators, customers and investors may, among other things, view our deposit composition, level of uninsured deposits, potential losses embedded in held-to-maturity securities, contingent liquidity, CRE composition and concentration, capital position and oversight and internal control structures regarding the foregoing as presenting higher risk in comparison with large national banks or smaller community banks. In addition, the FDIC estimates that the two recent failures of Silicon Valley Bank and Signature Bank resulted in losses of approximately $22.5 billion, of which $19.2 billion is attributable to the protection of uninsured depositors under the Systemic Risk Exception. Federal law requires that any losses to the FDIC’s Deposit Insurance Fund related to this action be repaid by a special assessment on banks. The impact of the assessment to the Company for these failures or any potential future failures is not yet known, but is expected to negatively impact operating results.

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.

6566


Item 6. Exhibits
 
Exhibit
Number
    Description of Exhibit

 
 
 
 
 
101* The following materials from Veritex Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021,2023, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Cover Page, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Income, (iv) Consolidated Statements of Comprehensive Income, (v) Consolidated Statements of Changes in Stockholders’ Equity, (vi) Consolidated Statements of Cash Flows, and (vii) Notes to Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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

6667


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: May 9, 202210, 2023 /s/ C. Malcolm Holland, III
  C. Malcolm Holland, III
  Chairman and Chief Executive Officer
  (Principal Executive Officer)
   
   
   
   
Date: May 9, 202210, 2023 /s/ Terry S. Earley
  Terry S. Earley
  Chief Financial Officer
  (Principal Financial and Accounting Officer)
   
   
   

6768