UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


			FORM			10-Q

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

For the quarterly period ended March 31, ~~2022~~2023

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

For the transition period from to .

Commission File Number: 001-36682


			VERITEX HOLDINGS, INC.
			(Exact name of registrant as specified in its charter)


Texas		27-0973566
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification no.)

8214 Westchester Drive, Suite 800
Dallas,	Texas	75225
(Address of principal executive offices)		(Zip code)


			(972)			349-6200
			(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01

VBTX

Nasdaq Global Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May ~~6, 2022,~~9, 2023, there were ~~53,962,875~~54,247,973 outstanding shares ofof the registrant’s common stock, par value $0.01 per share.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES



		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements – ~~(Unaudited)~~	3
	~~Consolidated Balance Sheets as of March 31, 202~~2 ~~and December 31, 202~~1Unaudited	4
	Consolidated ~~Statements of Income for the Three Months Ended March 31, 202~~2 ~~and 202~~1Balance Sheets	5
	Consolidated Statements of ~~Comprehensive~~ Income ~~for the Three Months Ended March 31, 202~~2 ~~and 202~~1	6
	Consolidated Statements of ~~Changes in Stockholders’ Equity for the Three Months Ended March 31, 202~~2 ~~and 202~~1Comprehensive Income	78
	Consolidated Statements of Changes in Stockholders’ Equity	9
	Consolidated Statements of Cash Flows ~~for the Three Months Ended March 31, 202~~2 ~~and 202~~1	811
	Notes to Consolidated Financial Statements	913
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4252
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6279
Item 4.	Controls and Procedures	6481

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	6582
Item 1A.	Risk Factors	6582
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
~~Item 3.~~	~~Defaults Upon Senior Securities~~	65
~~Item 4.~~	~~Mine Safety Disclosures~~	65
~~Item 5.~~	~~Other Information~~	6582
Item 6.	Exhibits	6682
SIGNATURES		6784

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022

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


		March 31,		December 31,			March 31,		December 31,
		2022		2021			2023		2022
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	51,966	$	44,023	Cash and due from banks	$	57,628	$	60,551
Interest bearing deposits in other banks	Interest bearing deposits in other banks	499,607		335,761		Interest bearing deposits in other banks	750,767		375,526
Total cash and cash equivalents	Total cash and cash equivalents	551,573		379,784		Total cash and cash equivalents	808,395		436,077
Debt securities available-for-sale (“AFS”), at fair value	Debt securities available-for-sale (“AFS”), at fair value	1,063,249		993,058		Debt securities available-for-sale (“AFS”), at fair value	966,123		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 securities	Equity securities	14,880		15,393		Equity securities	20,522		19,864
Securities purchased under agreements to resell		100,818		102,288

Investment in unconsolidated subsidiaries	Investment in unconsolidated subsidiaries	1,018		1,018		Investment in unconsolidated subsidiaries	1,018		1,018
Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock	Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock	71,983		71,892		Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock	116,081		101,568
Total investments	Total investments	1,433,213		1,243,085		Total investments	1,288,580		1,404,910
Loans held for sale		18,721		26,007
Loans held for investment (“LHI”), Paycheck Protection Program (“PPP”) loans, carried at fair value		18,512		53,369
LHI, mortgage warehouse (“MW”)		542,877		565,645
LHI, excluding MW and PPP		7,125,429		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 MW						LHI, excluding MW	9,237,159		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, net	Total LHI, net	7,614,333		7,307,269		Total LHI, net	9,575,966		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, net		109,138		109,271
Other real estate owned (“OREO”)		1,062		—
Premises and equipment, net						Premises and equipment, net	107,540		108,824

Intangible assets, net of accumulated amortization	Intangible assets, net of accumulated amortization	63,986		66,017		Intangible assets, net of accumulated amortization	51,086		53,213
Goodwill	Goodwill	404,452		403,771		Goodwill	404,452		404,452
Other assets	Other assets	173,561		138,851		Other assets	245,690		250,149
Total assets	Total assets	$	10,453,680	$	9,757,249	Total assets	$	12,609,487	$	12,154,361
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Noninterest-bearing deposits	Noninterest-bearing deposits	$	2,765,895	$	2,510,723	Noninterest-bearing deposits	$	2,212,389	$	2,640,617
Interest-bearing transaction and savings deposits	Interest-bearing transaction and savings deposits	3,688,292		3,276,312		Interest-bearing transaction and savings deposits	3,492,011		3,738,535
Certificates and other time deposits	Certificates and other time deposits	1,435,409		1,576,580		Certificates and other time deposits	2,896,870		2,086,642
Correspondent money market deposits						Correspondent money market deposits	433,468		657,440
Total deposits	Total deposits	7,889,596		7,363,615		Total deposits	9,034,738		9,123,234
Accounts payable and other liabilities	Accounts payable and other liabilities	105,552		69,160		Accounts payable and other liabilities	171,985		177,579
Advances from FHLB	Advances from FHLB	777,522		777,562		Advances from FHLB	1,680,000		1,175,000
Subordinated debentures and subordinated notes	Subordinated debentures and subordinated notes	228,018		227,764		Subordinated debentures and subordinated notes	229,027		228,775
Securities sold under agreements to repurchase		4,996		4,069

Total liabilities	Total liabilities	9,005,684		8,442,170		Total liabilities	11,115,750		10,704,588
Commitments and contingencies (Notes 8 and 11)		0		0

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.01 par value; 75,000,000 shares authorized; 60,547,018 and 56,010,423 shares issued at March 31, 2022 and December 31, 2021, respectively; 53,908,924 and 49,372,329 shares outstanding at March 31, 2022 and December 31, 2021, respectively		605		560
Common stock, $0.01 par value:						Common stock, $0.01 par value:
Authorized shares - 75,000,000						Authorized shares - 75,000,000
Issued shares - 60,867,127 and 60,668,049 at March 31, 2023 and December 31, 2022, respectively						Issued shares - 60,867,127 and 60,668,049 at March 31, 2023 and December 31, 2022, respectively	609		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 earnings	Retained earnings	298,830		275,273		Retained earnings	406,873		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, respectively						Treasury 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’ equity	Total stockholders’ equity	1,447,996		1,315,079		Total stockholders’ equity	1,493,737		1,449,773
Total liabilities and stockholders’ equity	Total 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.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands, except per share amounts)


		Three Months Ended March 31,						Three Months Ended March 31,
			2022		2021				2023		2022
Interest and dividend income:
Loans, including fees			$	71,443	$	67,399
INTEREST AND DIVIDEND INCOME							INTEREST AND DIVIDEND INCOME
Interest and fees on loans							Interest and fees on loans		$	151,707	$	71,443
Debt securities	Debt securities		7,762		7,437		Debt securities		10,988		7,762
Deposits in financial institutions and Fed Funds sold	Deposits in financial institutions and Fed Funds sold		262		127		Deposits in financial institutions and Fed Funds sold		5,534		262
Equity securities and other investments	Equity securities and other investments		910		663		Equity securities and other investments		1,408		910
Total interest and dividend income	Total interest and dividend income		80,377		75,626		Total interest and dividend income		169,637		80,377
Interest expense:
INTEREST EXPENSE							INTEREST EXPENSE
Transaction and savings deposits	Transaction and savings deposits		1,751		1,980		Transaction and savings deposits		29,857		1,751
Certificates and other time deposits	Certificates and other time deposits		1,380		3,061		Certificates and other time deposits		20,967		1,380
Advances from FHLB	Advances from FHLB		1,547		1,812		Advances from FHLB		12,358		1,547
Subordinated debentures and subordinated notes	Subordinated debentures and subordinated notes		2,659		3,138		Subordinated debentures and subordinated notes		3,066		2,659
Total interest expense	Total interest expense		7,337		9,991		Total interest expense		66,248		7,337
Net interest income			73,040		65,635
Benefit for credit losses			(500)		—
Provision (benefit) for credit losses on unfunded commitments			493		(570)
Net interest income after provision for credit losses			73,047		66,205
Noninterest income:
NET INTEREST INCOME							NET INTEREST INCOME		103,389		73,040
Provision (benefit) for credit losses							Provision (benefit) for credit losses		9,385		(500)
Provision for credit losses on unfunded commitments							Provision for credit losses on unfunded commitments		1,497		493
Net interest income after provision (benefit) for credit losses							Net interest income after provision (benefit) for credit losses		92,507		73,047
NONINTEREST INCOME							NONINTEREST INCOME
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts		4,710		3,629		Service charges and fees on deposit accounts		5,017		4,710
Loan fees	Loan fees		2,794		1,341		Loan fees		2,064		2,794

Gain on sale of mortgage loans held for sale			307		507
Loss on sales of debt securities							Loss on sales of debt securities		(5,321)		—
Gain on sale of mortgage LHFS							Gain on sale of mortgage LHFS		6		307
Government guaranteed loan income, net	Government guaranteed loan income, net		4,891		6,548		Government guaranteed loan income, net		9,688		4,891
Equity method investment income			367		—
Equity method investment (loss) income							Equity method investment (loss) income		(1,521)		367
Customer swap income							Customer swap income		217		946
Other	Other		2,028		2,147		Other		3,381		1,082
Total noninterest income	Total noninterest income		15,097		14,172		Total noninterest income		13,531		15,097
Noninterest expense:
NONINTEREST EXPENSE							NONINTEREST EXPENSE
Salaries and employee benefits	Salaries and employee benefits		27,513		22,932		Salaries and employee benefits		31,865		27,513
Occupancy and equipment	Occupancy and equipment		4,517		4,096		Occupancy and equipment		4,973		4,517
Professional and regulatory fees	Professional and regulatory fees		3,158		3,441		Professional and regulatory fees		4,389		3,158
Data processing and software expense	Data processing and software expense		2,921		2,319		Data processing and software expense		4,720		2,921
Marketing	Marketing		1,187		909		Marketing		1,779		1,187
Amortization of intangibles	Amortization of intangibles		2,495		2,537		Amortization of intangibles		2,495		2,495
Telephone and communications	Telephone and communications		385		337		Telephone and communications		478		385
Merger and acquisition (“M&A”) expense	Merger and acquisition (“M&A”) expense		700		—		Merger and acquisition (“M&A”) expense		—		700

Other	Other		3,696		3,026		Other		5,916		3,696
Total noninterest expense	Total noninterest expense		46,572		39,597		Total noninterest expense		56,615		46,572
Income before income tax expense	Income before income tax expense		41,572		40,780		Income before income tax expense		49,423		41,572
Income tax expense	Income tax expense		8,102		8,993		Income tax expense		11,012		8,102
Net income			$	33,470	$	31,787
NET INCOME							NET 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 EPS							Diluted EPS		$	0.70	$	0.65

See accompanying Notes to Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)

Three Months Ended March 31,
2022 2021
Net income $ 33,470 $ 31,787
Other comprehensive income:
Net unrealized (losses) gains on securities AFS:
Change in net unrealized losses on securities AFS during the period, net (49,076) (19,437)
Amortization from transfer of securities from AFS to HTM 4,255 —
Net unrealized losses on securities AFS (44,821) (19,437)
Net unrealized (losses) gains on derivative instruments designated as cash flow hedges (13,381) 27,271
Other comprehensive (losses) income, before tax (58,202) 7,834
Income tax (benefit) expense (13,114) 1,646
Other comprehensive (loss) income, net of tax (45,088) 6,188
Comprehensive (loss) income $ (11,618) $ 37,975


	Three Months Ended March 31,
		2023		2022
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, net		2,547		(49,076)
Amortization from transfer of debt securities from AFS to HTM		3,622		4,255
Reclassification adjustment for net losses included in net income		5,321		—
Net unrealized gain (loss) on debt securities AFS		11,490		(44,821)

Net unrealized gain (loss) on derivative instruments designated as cash flow hedges		7,078		(13,381)

Other comprehensive gain (loss), before tax		18,568		(58,202)
Income tax benefit (expense)		3,673		(13,114)
Other comprehensive gain (loss), net of tax		14,895		(45,088)
COMPREHENSIVE INCOME (LOSS)		$	53,306	$	(11,618)

See accompanying Notes to Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

(In thousands, except for shares)

Three Months Ended March 31, 2022
Common Stock Treasury Stock APIC Retained
Earnings AOCI Total
Shares Amount Shares Amount
Balance at December 31, 2021 49,372,329 $ 560 6,638,094 $ (167,582) $ 1,142,758 $ 275,273 $ 64,070 $ 1,315,079
Restricted stock units (“RSU”) vested, net of 67,965 shares withheld to cover taxes 187,801 2 — — (2,839) — — (2,837)
Exercise of employee stock options, net 28,064 and 5,738 shares withheld to cover taxes and exercise, respectively 34,320 — — — 98 — — 98
Stock based compensation — — — — 3,318 — — 3,318
Common stock follow on offering 4,314,474 43 — — 153,826 — — 153,869
Net income — — — — — 33,470 — 33,470
Dividends paid — — — — — (9,913) — (9,913)
Other comprehensive loss — — — — — — (45,088) (45,088)
Balance at March 31, 2022 53,908,924 $ 605 6,638,094 $ (167,582) $ 1,297,161 $ 298,830 $ 18,982 $ 1,447,996



Three Months Ended March 31, 2023
	Common Stock			Treasury Stock			APIC		Retained Earnings		AOCI		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	54,029,955	$	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 taxes	161,081	2		—	—		(1,928)		—		—		(1,926)
Exercise of employee stock options, net of 121 and 9,729 shares withheld to cover taxes and exercise, respectively	37,997	—		—	—		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, 2023	54,229,033	$	609	6,638,094	$	(167,582)	$	1,308,345	$	406,873	$	(54,508)	$	1,493,737

Three Months Ended March 31, 2021
Common Stock Treasury Stock APIC Retained
Earnings AOCI
Shares Amount Shares Amount Total
Balance at December 31, 2020 49,337,768 $ 555 6,162,350 $ (152,073) $ 1,126,437 $ 172,232 $ 56,225 $ 1,203,376
Restricted stock units vested, net of 16,587 shares withheld to cover taxes 58,110 — — — (468) — — (468)
Exercise of employee stock options, net of 18,052 and 3,474 shares withheld to cover taxes and exercise, respectively 184,494 2 — — 2,877 — — 2,879
Stock buyback (147,622) — 147,622 (4,074) — — — (4,074)
Stock based compensation — — — — 2,478 — — 2,478
Net income — — — — — 31,787 — 31,787
Dividends paid — — — — — (8,358) — (8,358)
Other comprehensive income — — — — — — 6,188 6,188
Balance at March 31, 2021 49,432,750 $ 557 6,309,972 $ (156,147) $ 1,131,324 $ 195,661 $ 62,413 $ 1,233,808


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


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

See accompanying Notes to Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)

For the Three Months Ended March 31,
2022 2021
Cash flows from operating activities:
Net income $ 33,470 $ 31,787
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles 4,378 3,765
Net accretion of time deposit premium, debt discount and debt issuance costs (16) (80)
Benefit for credit losses (7) (570)
Accretion of loan discount (1,598) (1,911)
Stock-based compensation expense 3,318 2,478
Excess tax benefit from stock compensation (992) (154)
Net amortization of premiums on debt securities 811 730
Unrealized loss on equity securities recognized in earnings 513 199
Change in cash surrender value and mortality rates of BOLI (447) (463)
Change in fair value of government guaranteed loans using fair value option (379) (917)
Gain on sales of mortgage loans held for sale (307) (507)
Gain on sales of government guaranteed loans (4,161) —
Net impairment (recovery) of servicing asset 280 (128)
Originations of loans held for sale (12,613) (1,096)
Proceeds from sales of loans held for sale 21,293 4,070
Equity method investment income (367) —
Termination of derivatives designated as hedging instruments — 43,900
(Increase) decrease in other assets (9,687) 10,554
Increase (decrease) in accounts payable and other liabilities 34,729 (8,437)
Net cash provided by operating activities 68,218 83,220
Cash flows from investing activities:
Purchases of AFS debt securities (266,490) (79,816)
Proceeds from maturities, calls and pay downs of AFS debt securities 33,880 40,102
Purchases of HTM debt securities (5,068) (4,335)
Maturity, calls and paydowns of HTM debt securities 25 1,222
Purchases of other investments (91) (233)
Proceeds from sales of equity securities 1,470 —
Net loans originated (332,290) (184,586)
Proceeds from sale of government guaranteed loans 4,910 —
Net additions to bank premises, furniture and equipment (1,130) (661)
Net cash used in investing activities (564,784) (228,307)
Cash flows from financing activities:
Net increase in deposits 525,987 391,799
Net increase (decrease) in advances from FHLB 224 (39)
Net change in securities sold under agreement to repurchase 927 552
Net proceeds on sale of common stock in public offering 153,869 —
Payments to tax authorities for stock-based compensation (2,837) (468)
Proceeds from exercise of employee stock options 98 2,879
Purchase of treasury stock — (4,074)
Dividends paid (9,913) (8,358)
Net cash provided by financing activities 668,355 382,291
Net increase in cash and cash equivalents 171,789 237,204
Cash and cash equivalents at beginning of period 379,784 230,825
Cash and cash equivalents at end of period $ 551,573 $ 468,029


	For the Three Months Ended March 31,
	2023		2022
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 intangibles	4,764		4,378
Net amortization (accretion) of time deposit premium, debt discount and debt issuance costs	240		(16)
Provision (benefit) for credit losses and unfunded commitments	10,882		(7)
Accretion of loan discount	(1,014)		(1,598)
Stock-based compensation expense	2,887		3,318

Excess tax expense (benefit) from stock compensation	112		(992)
Net amortization of premiums on debt securities	885		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 securities	5,321		—
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 LHFS	5,520		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 liabilities	3,975		34,729
Net cash provided by operating activities	34,539		68,218
Cash flows from investing activities:


Purchases of AFS debt securities	(149,982)		(266,490)
Proceeds from sales of AFS debt securities	109,793		—
Proceeds from maturities, calls and pay downs of AFS debt securities	175,289		33,880
Purchases of HTM debt securities	—		(5,068)
Maturity, calls and paydowns of HTM debt securities	800		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 equipment	18		(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 FHLB	505,000		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 options	534		98


Dividends paid	(10,837)		(9,913)

Net cash provided by financing activities	404,287		668,355
Net increase in cash and cash equivalents	372,318		171,789
Cash and cash equivalents at beginning of period	436,077		379,784
Cash and cash equivalents at end of period	$	808,395	$	551,573

See accompanying Notes to Consolidated Financial Statements.

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, ~~2022~~2023 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, ~~2022~~2023 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, ~~2022~~2023 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, ~~2021~~2022 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.

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, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended March 31,					Three Months Ended March 31,
			2022		2021				2023		2022
Earnings (numerator)
Numerator:								Numerator:
Net income	Net income		$	33,470	$	31,787		Net income	$	38,411	$	33,470

Shares (denominator)
Denominator:								Denominator:
Weighted average shares outstanding for basic EPS	Weighted average shares outstanding for basic EPS		50,695		49,394			Weighted average shares outstanding for basic EPS	54,149		50,695
Dilutive effect of employee stock-based awards	Dilutive effect of employee stock-based awards		876		604			Dilutive effect of employee stock-based awards	457		876
Adjusted weighted average shares outstanding	Adjusted weighted average shares outstanding		51,571		49,998			Adjusted weighted average shares outstanding	54,606		51,571
EPS:	EPS:							EPS:
Basic	Basic		$	0.66	$	0.64		Basic	$	0.71	$	0.66
Diluted	Diluted		$	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 relating~~none 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 will~~for 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.

2. Supplemental Statement of Cash Flows

Other supplemental cash flow information is presented below:


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
		(in thousands)					(in thousands)
Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:					Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	Cash paid for interest	$	5,368	$	7,602	Cash paid for interest	$	54,189	$	5,368
Cash paid for income taxes	Cash 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 securities	Transfer of AFS debt securities to HTM debt securities	117,001		—		Transfer of AFS debt securities to HTM debt securities	—		117,001
Net foreclosure of OREO and repossessed assets	Net foreclosure of OREO and repossessed assets	1,062		—		Net foreclosure of OREO and repossessed assets	—		1,062

Noncash assets acquired in business combination1

LHI		(681)		—

Goodwill		681		—

1 Represents adjustments to provisional estimates recorded during the three months ended March 31, 2022 for the acquisition of North Avenue Capital, LLC (“NAC”). Refer to Note 13. Business Combinations for further discussion.

3. ~~Share Transactions~~

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,
2022 2021
Numbers of shares repurchased — 147,622
Weighted average price per share — $ 26.83

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

4. Securities

Equity Securities With a Readily Determinable Fair Value

The Company held equity securities with a fair value of ~~$10,525~~$9,918 and ~~$11,038~~$9,792 at March 31, ~~2022~~2023 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 ~~loss~~gain (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,
2022 2021
Unrealized loss recognized on equity securities with a readily determinable fair value $ 513 $ 199


	Three Months Ended March 31,
	2023		2022
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, ~~2022~~2023 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 ACL Fair Value
AFS
Corporate bonds $ 262,839 $ 5,975 $ 1,593 $ — $ 267,221
Municipal securities 50,335 993 1,006 — 50,322
Mortgage-backed securities 153,215 593 5,838 — 147,970
Collateralized mortgage obligations 493,702 613 16,192 — 478,123
Asset-backed securities 50,452 721 1,233 — 49,940
Collateralized loan obligations 70,179 — 506 — 69,673
$ 1,080,722 $ 8,895 $ 26,368 $ — $ 1,063,249
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ACL Fair Value
HTM
Mortgage-backed securities $ 39,072 $ — $ 3,340 $ — $ 35,732
Collateralized mortgage obligations 37,618 203 2,339 — 35,482
Municipal securities 104,575 603 6,574 — 98,604
$ 181,265 $ 806 $ 12,253 $ — $ 169,818


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
AFS

Corporate bonds	$	244,190	$	1,218	$	23,900	$	885	$	220,623
Municipal securities	46,910		57		3,345		—		43,622
Mortgage-backed securities	130,343		24		14,703		—		115,664
Collateralized mortgage obligations	524,593		—		41,940		—		482,653
Asset-backed securities	38,966		622		2,075		—		37,513
Collateralized loan obligations	69,750		—		3,702		—		66,048
	$	1,054,752	$	1,921	$	89,665	$	885	$	966,123

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
HTM
Mortgage-backed securities	$	35,999	$	—	$	6,302	$	—	$	29,697
Collateralized mortgage obligations	35,616		—		4,748		—		30,868
Municipal securities	113,221		98		12,106		—		101,213
	$	184,836	$	98	$	23,156	$	—	$	161,778


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
AFS

Corporate bonds	$	268,179	$	1,445	$	17,379	$	—	$	252,245
Municipal securities	49,886		3		4,198		—		45,691
Mortgage-backed securities	156,408		23		17,420		—		139,011
Collateralized mortgage obligations	609,456		—		55,850		—		553,606
Asset-backed securities	42,015		289		2,613		—		39,691
Collateralized loan obligations	69,750		—		3,702		—		66,048
	$	1,195,694	$	1,760	$	101,162	$	—	$	1,096,292

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
HTM
Mortgage-backed securities	$	36,342	$	—	$	6,753	$	—	$	29,589
Collateralized mortgage obligations	36,169		—		5,884		—		30,285
Municipal securities	113,657		6		14,756		—		98,907
	$	186,168	$	6	$	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.

December 31, 2021
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses ACL Fair Value
AFS
Corporate bonds $ 198,396 $ 10,294 $ 178 $ — $ 208,512
Municipal securities 116,100 8,261 431 — 123,930
Mortgage-backed securities 124,230 4,326 1,489 — 127,067
Collateralized mortgage obligations 424,174 12,240 2,350 — 434,064
Asset-backed securities 53,466 1,616 519 — 54,563
Collateralized loan obligations 45,089 — 167 — 44,922
$ 961,455 $ 36,737 $ 5,134 $ — $ 993,058
Amortized
Cost Gross Unrealized Gains Gross Unrealized Losses ACL Fair Value
HTM
Mortgage-backed securities $ 25,767 $ 45 $ 508 $ — $ 25,304
Collateralized mortgage obligations 5,490 560 — — 6,050
Municipal securities 28,179 2,015 102 — 30,092
$ 59,436 $ 2,620 $ 610 $ — $ 61,446

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 Months				12 Months or More				Totals					Less Than 12 Months				12 Months or More				Totals
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AFS	AFS													AFS

Corporate bonds	Corporate bonds	$	72,219	$	1,593	$	—	$	—	$	72,219	$	1,593	Corporate bonds	$	—	$	—	$	15,710	$	311	$	15,710	$	311
Municipal securities	Municipal securities	11,731		902		1,889		104		13,620		1,006		Municipal securities	27,477		306		11,317		3,039		38,794		3,345
Mortgage-backed securities	Mortgage-backed securities	57,918		2,515		27,791		3,323		85,709		5,838		Mortgage-backed securities	3,410		67		111,436		14,636		114,846		14,703
Collateralized mortgage obligations	Collateralized mortgage obligations	338,386		13,597		23,610		2,595		361,996		16,192		Collateralized mortgage obligations	131,159		3,404		351,494		38,536		482,653		41,940
Asset-backed securities	Asset-backed securities	24,209		464		10,918		769		35,127		1,233		Asset-backed securities	3,224		150		16,978		1,925		20,202		2,075
Collateralized loan obligations	Collateralized loan obligations	69,673		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

HTM	HTM													HTM
Mortgage-backed securities	Mortgage-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 obligations														Collateralized mortgage obligations	3,829		220		27,039		4,528		30,868		4,748
Municipal securities	Municipal securities	75,221		6,281		2,005		293		77,226		6,574		Municipal securities	12,170		94		76,434		12,012		88,604		12,106
Collateralized mortgage obligations		31,162		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 Months				12 Months or More				Totals					Less Than 12 Months				12 Months or More				Totals
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AFS	AFS													AFS

Corporate bonds	Corporate bonds	$	7,072	$	178	$	—	$	—	$	7,072	$	178	Corporate bonds	$	197,946	$	15,697	$	15,568	$	1,682	$	213,514	$	17,379
Municipal securities	Municipal securities	12,704		194		4,350		237		17,054		431		Municipal securities	33,919		848		8,813		3,350		42,732		4,198
Mortgage-backed securities	Mortgage-backed securities	40,276		1,283		4,677		206		44,953		1,489		Mortgage-backed securities	115,467		11,104		22,780		6,317		138,247		17,421
Collateralized mortgage obligations	Collateralized mortgage obligations	106,063		2,350		—		—		106,063		2,350		Collateralized mortgage obligations	482,358		42,553		71,198		13,296		553,556		55,849
Asset-backed securities	Asset-backed securities	11,265		519		—		—		11,265		519		Asset-backed securities	15,195		991		11,207		1,621		26,402		2,612
Collateralized loan obligations	Collateralized loan obligations	44,922		167		—		—		44,922		167		Collateralized loan obligations	23,673		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

HTM	HTM													HTM
Mortgage-backed securities	Mortgage-backed securities	$	24,214	$	508	$	—	$	—	$	24,214	$	508	Mortgage-backed securities	$	804	$	85	$	28,784	$	6,668	$	29,588	$	6,753
Collateralized mortgage obligations														Collateralized mortgage obligations	25,285		4,676		4,999		1,208		30,284		5,884
Municipal securities	Municipal securities	4,583		102		—		—		4,583		102		Municipal securities	85,671		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, ~~2022~~2023 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

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

expected to recover as the debt securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of 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, 2022									March 31, 2023
		AFS				HTM					AFS				HTM
		Amortized Cost		Fair Value		Amortized Cost		Fair Value			Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due from one year to five years	Due from one year to five years	$	39,412	$	41,647	$	—	$	—	Due from one year to five years	$	29,466	$	30,422	$	456	$	445
Due from five years to ten years	Due from five years to ten years	204,782		206,454		4,304		4,330		Due from five years to ten years	205,272		182,451		13,221		12,946
Due after ten years	Due after ten years	68,980		69,442		100,271		94,274		Due after ten years	56,362		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 obligations	Mortgage-backed securities and collateralized mortgage obligations	646,917		626,093		76,690		71,214		Mortgage-backed securities and collateralized mortgage obligations	654,936		598,317		71,615		60,565
Asset-backed securities	Asset-backed securities	50,452		49,940		—		—		Asset-backed securities	38,966		37,513		—		—
Collateralized loan obligations	Collateralized loan obligations	70,179		69,673		—		—		Collateralized loan obligations	69,750		66,048		—		—
		$	1,080,722	$	1,063,249	$	181,265	$	169,818		$	1,054,752	$	966,123	$	184,836	$	161,778


		December 31, 2021									December 31, 2022
		AFS				HTM					AFS				HTM
		Amortized Cost		Fair Value		Amortized Cost		Fair Value			Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due from one year to five years	Due from one year to five years	$	5,201	$	5,241	$	—	$	—	Due from one year to five years	$	53,692	$	54,179	$	—	$	—
Due from five years to ten years	Due from five years to ten years	178,203		186,972		3,849		4,115		Due from five years to ten years	205,911		190,406		8,275		8,129
Due after ten years	Due after ten years	131,092		140,229		24,330		25,977		Due after ten years	58,462		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 obligations	Mortgage-backed securities and collateralized mortgage obligations	548,404		561,131		31,257		31,354		Mortgage-backed securities and collateralized mortgage obligations	765,864		692,617		72,511		59,874
Asset-backed securities	Asset-backed securities	53,466		54,563		—		—		Asset-backed securities	42,015		39,691		—		—
Collateralized loan obligations	Collateralized loan obligations	45,089		44,922		—		—		Collateralized loan obligations	69,750		66,048		—		—
		$	961,455	$	993,058	$	59,436	$	61,446		$	1,195,694	$	1,096,292	$	186,168	$	158,781

Proceeds from sales of ~~AFS~~ debt securities ~~occurred during~~AFS 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,
	2023		2022
Proceeds from sales	$	109,793	$	—

Gross realized losses	5,321		—

As of March 31, ~~2022~~2023 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, ~~2022~~2023 and December 31, ~~2021.~~2022.

5.4. LHI and ACL

LHI in the accompanying consolidated balance sheets are summarized as follows:


		March 31, 2022		December 31, 2021			March 31, 2023		December 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 land	Construction and land	$	1,297,338	$	1,062,144	Construction and land	$	1,831,349	$	1,787,400
Farmland	Farmland	48,095		55,827		Farmland	51,680		43,500
1 - 4 family residential	1 - 4 family residential	604,408		542,566		1 - 4 family residential	896,252		894,456
Multi-family residential	Multi-family residential	272,250		310,241		Multi-family residential	432,209		322,679
OOCRE		633,615		665,537
NOOCRE		2,145,826		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
Commercial	Commercial	2,125,900		2,006,876		Commercial	2,895,957		2,942,348
MW	MW	542,877		565,645		MW	437,501		446,227
Consumer	Consumer	9,533		11,998		Consumer	8,316		7,806
		7,679,842		7,341,143			9,690,171		9,501,624

Deferred loan fees, net	Deferred loan fees, net	(11,536)		(9,489)		Deferred loan fees, net	(15,511)		(18,973)
ACL	ACL	(72,485)		(77,754)		ACL	(98,694)		(91,052)
LHI carried at amortized cost, net	LHI carried at amortized cost, net	7,595,821		7,253,900		LHI carried at amortized cost, net	9,575,966		9,391,599

LHI, carried at fair value:
PPP loans		18,512		53,369

Total LHI, net	Total 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, ~~2022~~2023 and December 31, ~~2021~~2022 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, ~~2022~~2023 and December 31, ~~2021~~2022 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~~

~~Included~~a 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, 2022 March 31, 2021
PPP fee income $ — $ 6,624
Net gain (loss) due to the change in fair value 175 (287)

These PPP loans were originated through an application to the SBA under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and are 100% forgivable if certain criteria are met by the borrowers. As of March 31, 2022, we believe a ~~majority of the Company’s PPP loans will meet such criteria.~~

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 Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total			Construction and Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
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 period																				Balance 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 loans	Credit loss (benefit) expense non-PCD loans	1,595		(29)		224		(537)		813		(4,114)		4,044		622		2,618		Credit loss (benefit) expense non-PCD loans	4,240		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 loans																				Credit (benefit) loss expense PCD loans	(46)		—		(5)		—		(16)		33		267		—		233
Charge-offs	Charge-offs	—		—		—		—		(1,341)		(553)		(3,294)		(134)		(5,322)		Charge-offs	—		—		—		—		(116)		—		(1,051)		(62)		(1,229)
Recoveries	Recoveries	—		—		—		—		—		400		144		9		553		Recoveries	—		—		1		—		—		—		364		6		371
Ending Balance	Ending 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 Land Farmland Residential Multifamily OOCRE NOOCRE Commercial Consumer Total
Balance at beginning of year $ 7,768 $ 56 $ 8,148 $ 6,231 $ 9,719 $ 35,237 $ 37,554 $ 371 $ 105,084
Credit (benefit) loss expense non-PCD loans (949) (9) (1,144) (1,417) (1,615) 4,074 (1,103) (54) (2,217)
Credit (benefit) loss expense PCD loans (14) — (24) — 1,018 192 1,050 (5) 2,217
Charge-offs — — (15) — — — (346) (18) (379)
Recoveries — — 3 — — — 226 2 231
Ending Balance $ 6,805 $ 47 $ 6,968 $ 4,814 $ 9,122 $ 39,503 $ 37,381 $ 296 $ 104,936


	Three Months Ended March 31, 2022
	Construction and Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
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 loans	1,595		(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		9		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, ~~2022~~2023 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, 2022					December 31, 2021						March 31, 2023					December 31, 2022
			Real Property(1)		ACL Allocation			Real Property(1)		ACL Allocation				Real Property(1)		ACL Allocation			Real Property(1)		ACL Allocation

Construction and land												Construction and land		$	1,583	$	—		$	—	$	—

OOCRE												OOCRE		1,181		—			1,193		129
NOOCRE	NOOCRE		$	17,551	$	4,572		$	17,908	$	7,808	NOOCRE		20,696		1,939			20,896		2,138
Commercial	Commercial		1,085		84			1,702		—		Commercial		1,231		477			1,240		396

Consumer	Consumer		1,063		538			1,063		—		Consumer		12		—			15		—
Total	Total		$	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.

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.

Nonaccrual loans aggregated by class of loans, as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, were as follows:


		March 31, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Nonaccrual		Nonaccrual With No ACL			Nonaccrual		Nonaccrual With No ACL				Nonaccrual			Nonaccrual With No ACL		Nonaccrual		Nonaccrual With No ACL
Real estate:	Real estate:											Real estate:

Construction and land												Construction and land	$	1,583		$	1,583	$	—	$	—

1 - 4 family residential	1 - 4 family residential	$	1,005	$	1,005		$	990	$	990		1 - 4 family residential	818			818		862		$	862

OOCRE	OOCRE	13,446		13,446			14,236		13,824			OOCRE	9,322			9,322		9,737		8,545
NOOCRE	NOOCRE	17,739		189			17,978		191			NOOCRE	20,783			12,784		21,377		13,178
Commercial	Commercial	13,259		1,317			15,267		4,207			Commercial	11,659			2,633		11,397		2,521

Consumer	Consumer	1,231		168			1,216		1,216			Consumer	71			71		169		169
Total	Total	$	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, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

During the three months ended March 31, ~~2022~~2023 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, ~~2022~~2023 and December 31, ~~2021,~~2022, is as follows:


		March 31, 2022																	March 31, 2023
		30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)			30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due (1)		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(2)
Real estate:	Real estate:																	Real estate:
Construction and land	Construction 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	$	—
Farmland	Farmland	—		—		—		—		48,095		—		48,095		—		Farmland	—		—		—		—		51,680		—		51,680		—
1 - 4 family residential	1 - 4 family residential	2,429		—		926		3,355		599,891		1,162		604,408		—		1 - 4 family residential	5,331		442		296		6,069		888,989		1,194		896,252		296
Multi-family residential	Multi-family residential	—		—		—		—		272,250		—		272,250		—		Multi-family residential	—		—		—		—		432,209		—		432,209		—
OOCRE	OOCRE	3,114		509		13,446		17,069		593,946		22,600		633,615		—		OOCRE	2,833		1,405		1,181		5,419		606,957		19,187		631,563		—
NOOCRE	NOOCRE	—		—		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		—
Commercial	Commercial	4,026		6,280		3,881		14,187		2,104,273		7,440		2,125,900		264		Commercial	1,152		3,219		2,785		7,156		2,885,081		3,720		2,895,957		—
MW	MW	430		—		—		430		542,447		—		542,877		—		MW	208		—		—		208		437,293		—		437,501		—
Consumer	Consumer	68		35		1,161		1,264		8,099		170		9,533		—		Consumer	113		10		—		123		8,175		18		8,316		—
Total	Total	$	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.


		December 31, 2021																	December 31, 2022
		30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)			30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due(1)		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(2)
Real estate:	Real estate:																	Real estate:
Construction and land	Construction 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	$	—
Farmland	Farmland	—		—		—		—		55,827		—		55,827		—		Farmland	—		—		—		—		43,500		—		43,500		—
1 - 4 family residential	1 - 4 family residential	2,073		—		1,008		3,081		538,307		1,178		542,566		24		1 - 4 family residential	4,319		129		499		4,947		888,329		1,180		894,456		123
Multi-family residential	Multi-family residential	—		—		—		—		310,241		—		310,241		—		Multi-family residential	1,000		—		—		1,000		321,679		—		322,679		—
OOCRE	OOCRE	4,538		965		11,622		17,125		620,848		27,564		665,537		—		OOCRE	3,342		1,186		1,193		5,721		690,291		19,817		715,829		—
NOOCRE	NOOCRE	936		—		192		1,128		2,100,981		18,200		2,120,309		—		NOOCRE	5,156		—		20,896		26,052		2,302,579		12,748		2,341,379		—
Commercial	Commercial	1,525		4,395		3,708		9,628		1,988,622		8,626		2,006,876		191		Commercial	3,088		2,188		1,675		6,951		2,931,696		3,701		2,942,348		—
MW	MW	—		—		—		—		565,645		—		565,645		—		MW	—		—		—		—		446,227		—		446,227		—
Consumer	Consumer	135		105		1,082		1,322		10,499		177		11,998		20		Consumer	352		—		45		397		7,386		23		7,806		2
Total	Total	$	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 ~~Restructuring~~Restructurings 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.

~~Modifications~~An assessment of ~~terms~~whether 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 reduction~~credit losses because of the ~~stated interest rate~~measurement 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 the~~reporting period of the ~~modification. The recorded investment in TDRs was $23,273~~loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and ~~$25,518 as~~type of ~~March 31, 2022 and December 31, 2021, respectively.~~

~~There were no new TDRs~~concession granted during the three months ended March 31, ~~2022. The following tables presents~~2023:


Loan Modifications Made to Borrowers Experiencing Financial Difficulty

	Interest Rate Reduction
	Amortized Cost Basis		% of Loan Class		Financial 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 modified~~is reported as ~~TDRs during the three months ended March 31, 2021.~~such in accordance with Federal Financial Institutions Examination Counsel guidelines.

During the Three Months Ended March 31, 2021
Adjusted Payment Structure Payment Deferrals Total Modifications Number of Loans
Commercial real estate $ 240 $ — $ 240 1
Total $ 240 $ — $ 240 1

~~There were no loans modified as TDR loans within the previous 12 months and for which there was~~No modifications to borrowers in financial difficulty had a payment default during the ~~three months ended March 31, 2022~~period and ~~2021. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or results~~were modified in the ~~foreclosure and repossession of~~12 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 terms~~performance of the loans ~~not~~that 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
	Current		30-59 Days Past Due		60-89 Days Past Due		90+ 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 ~~TDRs~~TLMs as of March 31, ~~2022~~2023 or December 31, ~~2021.~~2022.

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
2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
As of March 31, 2022
Construction and land:
Pass $ 42,398 $ 530,492 $ 518,181 $ 113,127 $ 54,941 $ 27,712 $ 6,160 $ 838 $ 1,293,849
Special mention — — 1,613 — — — — — 1,613
PCD — — — — — 1,876 — — 1,876
Total construction and land $ 42,398 $ 530,492 $ 519,794 $ 113,127 $ 54,941 $ 29,588 $ 6,160 $ 838 $ 1,297,338
Farmland:
Pass $ 2,278 $ 16,697 $ 18,914 $ 25 $ 3,367 $ 5,533 $ 1,281 $ — $ 48,095
Total farmland $ 2,278 $ 16,697 $ 18,914 $ 25 $ 3,367 $ 5,533 $ 1,281 $ — $ 48,095


																					Term Loans Amortized Cost Basis by Origination Year1
																					2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of March 31, 2023																				As of March 31, 2023
Construction and land:																				Construction and land:
Pass																				Pass	$	2,440	$	503,556	$	731,203	$	243,188	$	43,087	$	17,882	$	200,052	$	—	$	1,741,408
Special mention																				Special mention	—		1,470		25,948		11,487		20,641		290		—		—		59,836
Substandard																				Substandard	—		—		4,583		25,522		—		—		—		—		30,105

Total construction and land																				Total 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-offs																				Construction and land gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Farmland:																				Farmland:
Pass																				Pass	$	2,044	$	2,514	$	22,640	$	18,397	$	19	$	5,034	$	1,032	$	—	$	51,680

Total farmland																				Total farmland	$	2,044	$	2,514	$	22,640	$	18,397	$	19	$	5,034	$	1,032	$	—	$	51,680
Farmland gross charge-offs																				Farmland gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1 - 4 family residential:	1 - 4 family residential:																			1 - 4 family residential:
Pass	Pass	$	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 mention	Special mention	—		—		—		—		—		344		—		—		344		Special mention	—		—		—		—		—		691		—		—		691
Substandard	Substandard	—		—		—		—		—		980		567		—		1,547		Substandard	—		—		—		—		—		1,382		199		—		1,581
PCD	PCD	—		—		—		—		—		1,162		—		—		1,162		PCD	—		—		—		—		—		1,194		—		—		1,194
Total 1 - 4 family residential	Total 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-offs																				1-4 family residential gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family residential:	Multi-family residential:																			Multi-family residential:
Pass	Pass	$	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 mention	Special mention	—		—		—		—		21,664		—		—		—		21,664		Special mention	—		—		—		—		1,945		13,763		—		—		15,708

Total multi-family residential	Total 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-offs																				Multi-family residential gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

OOCRE:	OOCRE:																			OOCRE:
Pass	Pass	$	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 mention	Special mention	—		2,397		889		1,037		—		5,713		—		—		10,036		Special mention	—		—		2,298		—		1,943		4,738		—		—		8,979
Substandard	Substandard	—		—		—		—		23,628		10,708		—		—		34,336		Substandard	—		—		—		1,442		—		18,828		—		—		20,270
PCD	PCD	—		—		—		—		—		22,600		—		—		22,600		PCD	—		—		—		—		—		19,187		—		—		19,187
Total OOCRE	Total 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-offs																				OOCRE gross charge-offs	$	—	$	—	$	—	$	5	$	5	$	106	$	—	$	—	$	116

NOOCRE:	NOOCRE:																			NOOCRE:
Pass	Pass	$	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 mention	Special mention	—		—		741		2,170		44,414		72,686		—		—		120,011		Special mention	—		—		—		22,849		18,536		38,563		—		—		79,948
Substandard	Substandard	—		—		—		1,770		9,889		40,934		—		—		52,593		Substandard	—		—		2,783		—		2,232		108,687		—		—		113,702
PCD	PCD	—		—		—		—		13,785		1,459		—		—		15,244		PCD	—		—		—		—		—		13,210		—		—		13,210
Total NOOCRE	Total 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		—		—		—		2		—		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-offs																				NOOCRE gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Commercial:																				Commercial:
Pass																				Pass	$	101,857	$	388,951	$	123,908	$	69,297	$	84,702	$	66,526	$	1,968,105	$	572	$	2,803,918
Special mention																				Special mention	—		—		1,113		—		71		5,467		14,070		—		20,721
Substandard																				Substandard	—		17,894		3,292		5,121		3,982		16,125		21,110		74		67,598
PCD																				PCD	—		—		—		—		—		3,720		—		—		3,720
Total commercial																				Total commercial	$	101,857	$	406,845	$	128,313	$	74,418	$	88,755	$	91,838	$	2,003,285	$	646	$	2,895,957
Commercial gross charge-offs																				Commercial gross charge-offs	$	—	$	—	$	—	$	48	$	479	$	524	$	—	$	—	$	1,051

MW:																				MW:
Pass																				Pass	$	1,868	$	55,891	$	252	$	288	$	741	$	174	$	359,206	$	—	$	418,420
Special mention																				Special mention	—		—		—		—		—		—		18,873		—		18,873
Substandard																				Substandard	—		—		—		—		—		208		—		—		208

Total MW																				Total MW	$	1,868	$	55,891	$	252	$	288	$	741	$	382	$	378,079	$	—	$	437,501
Mortgage warehouse gross charge-offs																				Mortgage warehouse gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:																				Consumer:
Pass																				Pass	$	1,388	$	1,437	$	412	$	804	$	168	$	2,240	$	1,709	$	—	$	8,158
Special mention																				Special mention	—		—		—		—		—		57		—		—		57
Substandard																				Substandard	—		—		—		—		16		67		—		—		83
PCD																				PCD	—		—		—		—		—		18		—		—		18
Total consumer																				Total consumer	$	1,388	$	1,437	$	412	$	804	$	184	$	2,382	$	1,709	$	—	$	8,316
Consumer gross charge-offs																				Consumer gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	62	$	—	$	—	$	62

Total Pass																				Total 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 Mention	Total 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 Substandard	Total 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 PCD	Total PCD	—		—		—		—		14,094		34,398		—		—		48,492		Total PCD	—		—		—		—		—		37,329		—		—		37,329
Total	Total	$	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-offs																				Total 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
		2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total			2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2021
As of December 31,																				As of December 31,
Construction and land:	Construction and land:																			Construction and land:
Pass	Pass	$	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 mention	Special mention	—		1,593		—		312		—		—		—		—		1,905		Special mention	—		18,662		2,560		—		—		—		—		—		21,222

PCD	PCD	—		—		—		—		—		2,348		—		—		2,348		PCD	—		—		—		—		—		1,544		—		—		1,544
Total construction and land	Total 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:
Pass	Pass	$	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 farmland	Total 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 mention		2,420		—		1,052		—		—		6,232		—		—		9,704
Substandard		—		412		—		25,440		781		10,259		—		—		36,892
PCD		—		1,377		—		—		6,567		19,620		—		—		27,564
Total OOCRE		$	116,833	$	113,305	$	58,016	$	98,552	$	62,269	$	210,611	$	2,986	$	2,965	$	665,537

NOOCRE:
Pass		$	628,140	$	298,091	$	254,566	$	319,359	$	56,710	$	336,713	$	5,861	$	23,015	$	1,922,455
Special mention		—		613		1,685		29,469		16,354		48,952		—		489		97,562
Substandard		—		48		1,775		26,209		1,581		52,479		—		—		82,092
PCD		—		—		—		13,620		—		4,580		—		—		18,200
Total NOOCRE		$	628,140	$	298,752	$	258,026	$	388,657	$	74,645	$	442,724	$	5,861	$	23,504	$	2,120,309

Commercial:
Pass		$	430,213	$	187,370	$	124,798	$	65,186	$	40,254	$	52,491	$	968,229	$	19,130	$	1,887,671
Special mention		7,958		2,341		149		15,136		1,069		3,368		3,482		2,589		36,092
Substandard		15,662		5,843		6,286		14,908		4,167		2,779		20,500		4,342		74,487


1 - 4 family residential:																				1 - 4 family residential:
Pass																				Pass	$	135,006	$	188,635	$	87,861	$	43,293	$	41,960	$	257,768	$	86,900	$	726	$	842,149
Special mention																				Special mention	—		—		—		—		—		278		26,068		—		26,346
Substandard																				Substandard	—		184		—		—				1,028		23,569		—		24,781
PCD																				PCD	—		—		—		—		—		1,180		—		—		1,180
Total 1 - 4 family residential																				Total 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:
Pass																				Pass	$	72,044	$	80,793	$	110,426	$	8,402	$	32,822	$	2,494	$	—	$	—	$	306,981

Total multi-family residential																				Total multi-family residential	$	72,044	$	80,793	$	110,426	$	10,356	$	46,566	$	2,494	$	—	$	—	$	322,679

OOCRE:																				OOCRE:
Pass																				Pass	$	191,044	$	106,698	$	84,230	$	43,965	$	49,461	$	167,968	$	5,225	$	—	$	648,591
Special mention																				Special mention	—		2,321		1,409		1,964		—		3,447		—		45		9,186
Substandard																				Substandard	—		—		—		—		23,231		15,004		—		—		38,235
PCD																				PCD	—		—		—		—		—		19,817		—		—		19,817
Total OOCRE																				Total OOCRE	$	191,044	$	109,019	$	85,639	$	45,929	$	72,692	$	206,236	$	5,225	$	45	$	715,829

NOOCRE:																				NOOCRE:
Pass																				Pass	$	752,476	$	531,735	$	215,076	$	149,246	$	196,424	$	305,434	$	16,642	$	465	$	2,167,498
Special mention																				Special mention	—		—		22,774		19,464		12,274		51,451		—		—		105,963
Substandard																				Substandard	—		—		—		1,310		7,659		46,201		—		—		55,170
PCD																				PCD	—		—		—		—		12,697		51		—		—		12,748
Total NOOCRE																				Total NOOCRE	$	752,476	$	531,735	$	237,850	$	170,020	$	229,054	$	403,137	$	16,642	$	465	$	2,341,379

Commercial:																				Commercial:
Pass																				Pass	$	473,084	$	132,396	$	90,543	$	83,996	$	40,030	$	31,269	$	1,906,074	$	553	$	2,757,945
Special mention																				Special mention	—		666		—		4,543		7,385		270		114,447		—		127,311
Substandard																				Substandard	17,894		4,058		5,189		4,195		10,954		4,732		6,292		77		53,391
PCD	PCD	—		—		—		315		1,785		6,526		—		—		8,626		PCD	—		—		—		—		273		3,428		—		—		3,701
Total commercial	Total 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:
Pass	Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	564,850	$	250	$	565,100	Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	444,393	$	—	$	444,393

Substandard	Substandard	—		—		—		—		—		—		545		—		545		Substandard	—		—		—		—		46		162		—		—		208

Total MW	Total MW	$	—	$	—	$	—	$	—	$	—	$	—	$	565,395	$	250	$	565,645	Total MW	$	—	$	—	$	—	$	—	$	46	$	162	$	446,019	$	—	$	446,227

Consumer:	Consumer:																			Consumer:
Pass	Pass	$	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 mention	Special mention	—		—		—		—		65		14		—		—		79		Special mention	—		—		—		—		—		58		—		—		58
Substandard	Substandard	—		—		22		—		177		39		1,064		—		1,302		Substandard	—		—		—		—		—		169		—		—		169
PCD	PCD	—		—		—		—		24		153		—		—		177		PCD	—		—		—		—		—		23		—		—		23
Total consumer	Total 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 Pass	Total Pass	$	1,841,709	$	1,241,076	$	662,869	$	647,461	$	202,918	$	708,994	$	1,561,600	$	52,573	$	6,919,200	Total 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 Mention	Total Special Mention	10,378		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 Substandard	Total Substandard	15,662		6,303		8,083		66,557		6,787		66,459		22,676		4,342		196,869		Total Substandard	17,894		4,242		5,189		7,459		55,634		67,296		29,861		77		187,652
Total PCD	Total PCD	—		1,377		—		13,935		8,376		34,405		—		—		58,093		Total PCD	—		—		—		—		12,970		26,043		—		—		39,013
Total	Total	$	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.

Servicing Assets

The Company was servicing loans of approximately ~~$518,612~~$571,611 and ~~$261,885~~$518,612 as of March 31, ~~2022~~2023 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,
			2022		2021				2023		2022
Balance at beginning of period	Balance at beginning of period		$	17,705	$	3,363		Balance at beginning of period	$	14,880	$	17,705

Increase from loan sales	Increase from loan sales		1,491		—			Increase from loan sales	959		1,491
Servicing asset impairment, net of recoveries	Servicing asset impairment, net of recoveries		(280)		128			Servicing asset impairment, net of recoveries	424		(280)
Amortization charged as a reduction to income	Amortization charged as a reduction to income		(748)		(89)			Amortization charged as a reduction to income	(1,015)		(748)
Balance at end of period	Balance 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, ~~2022~~2023 and ~~2021~~2022 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, ~~2022~~2023 and December 31, ~~2021.~~2022.

~~During the three months ended March 31, 2022, the Bank~~The following table reflects principal sold ~~$4,376 in~~and 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 USDA~~these loans is recorded in government guaranteed loan income, net in the ~~Company's~~Company’s consolidated statements of income.


	Three Months Ended March 31,
	2023		2022
SBA LHI principal sold	$	6,340	$	4,376
Gain on sale of SBA LHI	148		533
USDA LHI principal sold	44,002		20,000
Gain on sale of USDA LHI	6,984		3,628

6.5. Fair Value

The following table summarizes assets measured at fair value on a recurring basis as of March 31, ~~2022~~2023 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 value 10,525 — — 10,525
PPP loans — 18,512 — 18,512
Loans held for sale(1)
— 15,565 — 15,565
Interest rate swap designated as hedging instruments — 13,931 — 13,931
Correspondent interest rate swaps not designated as hedging instruments — 15,462 — 15,462
Customer interest rate swaps not designated as hedging instruments — 289 — 289
Correspondent interest rate caps and collars not designated as hedging instruments — 1 — 1
Financial Liabilities:
Interest rate swap designated as hedging instruments $ — $ 21,453 $ — $ 21,453
Correspondent interest rate swaps not designated as hedging instruments — 348 — 348
Customer interest rate swaps not designated as hedging instruments — 15,327 — 15,327
Customer interest rate caps and collars not designated as hedging instruments — 1 — 1

~~(1)~~


	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 value	9,918		—		—		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 sale~~LHFS 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 value	Equity securities with a readily determinable fair value	11,038		—		—		11,038		Equity securities with a readily determinable fair value	9,792		—		—		9,792
PPP loans	PPP 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 instruments										Interest rate swap designated as hedging instruments	—		26,523		—		26,523
Correspondent interest rate swaps not designated as hedging instruments										Correspondent interest rate swaps not designated as hedging instruments	—		38,839		—		38,839
Customer interest rate swaps not designated as hedging instruments										Customer interest rate swaps not designated as hedging instruments	—		1,004		—		1,004
Correspondent interest rate caps and collars not designated as hedging instruments										Correspondent interest rate caps and collars not designated as hedging instruments	—		1,494		—		1,494
Financial Liabilities:										Financial Liabilities:
Interest rate swap designated as hedging instruments	Interest 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 instruments	Correspondent 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 instruments	Customer 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 instruments	Customer interest rate caps and collars not designated as hedging instruments	—		1		—		1		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		—		1

(1) Represents ~~loans held for sale~~LHFS elected to be carried at fair ~~value.~~value upon origination or acquisition..

There were no transfers between Level 2 and Level 3 during the three months ended March 31, ~~2022~~2023 and ~~2021.~~December 31, 2022.

The following table summarizes assets measured at fair value on a non-recurring basis as of March 31, ~~2022~~2023 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, 2023										As of March 31, 2023
Assets:	Assets:									Assets:
Collateral dependent loans with an ACL	Collateral dependent loans with an ACL	$	—	$	—	$	14,505	$	14,505	Collateral dependent loans with an ACL	$	—	$	—	$	6,814	$	6,814
Servicing assets with a valuation allowance	Servicing 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, 2022										As of December 31, 2022
Assets:	Assets:									Assets:
Collateral dependent loans with an ACL	Collateral dependent loans with an ACL	$	—	$	—	$	10,100	$	10,100	Collateral dependent loans with an ACL	$	—	$	—	$	7,969	$	7,969
Servicing assets with a valuation allowance	Servicing 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, impaired~~2022, 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, ~~2022~~2023 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.

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, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:

Fair Value
Carrying
Amount Level 1 Level 2 Level 3
March 31, 2022
Financial assets:
Cash and cash equivalents $ 551,573 $ — $ 551,573 $ —
HTM debt securities 181,265 — 169,818 —
Securities purchased under agreements to resell 100,818 — 100,818 —
Loans held for sale(1)
3,156 — 3,156 —
PPP Loans 18,512 — — 18,512
LHI, excluding PPP loans(2)
7,649,794 — — 7,537,714
Accrued interest receivable 23,356 — 23,356 —
BOLI 83,641 — 83,641 —
Servicing asset 749 — 749 —
Equity securities without a readily determinable fair value 4,355 N/A N/A N/A
FHLB and FRB stock 71,983 N/A N/A N/A
Financial liabilities:
Deposits $ 7,889,596 $ — $ 7,401,333 $ —
Advances from FHLB 777,522 — 770,158 —
Accrued interest payable 1,292 — 1,292 —
Subordinated debentures and subordinated notes 228,018 — 228,018 —
Securities sold under agreement to repurchase 4,996 — 5,017 —
December 31, 2021
Financial assets:
Cash and cash equivalents $ 379,784 $ — $ 379,784 $ —
HTM debt securities 59,436 — 61,446 —
Securities purchased under agreements to resell 102,288 — 102,288 —
Loans held for sale(1)
16,140 — 16,140 —
LHI(2)
7,259,233 — — 7,283,992
Accrued interest receivable 22,008 — 22,008 —
Bank-owned life insurance 83,194 — 83,194 —
Servicing asset 14,482 — 14,482 —
Equity securities without a readily determinable fair value 4,355 N/A N/A N/A
FHLB and FRB stock 71,892 N/A N/A N/A
Financial liabilities:
Deposits $ 7,363,615 $ — $ 7,145,175 $ —
Advances from FHLB 777,562 — 796,480 —
Accrued interest payable 1,507 — 1,507 —
Subordinated debentures and subordinated notes 227,764 — 227,764 —
Securities sold under agreement to repurchase 4,069 — 4,026 —


			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
March 31, 2023
Financial assets:
Cash and cash equivalents	$	808,395	$	—	$	808,395	$	—
HTM debt securities	184,836		—		161,778		—

LHFS(1)	1,069		—		—		1,069


LHI(2)	9,575,966		—		—		9,321,175
Accrued interest receivable	42,242		—		42,242		—
BOLI	84,962		—		84,962		—
Servicing asset	6,353		—		6,353		—
Equity securities without a readily determinable fair value	10,604		N/A		N/A		N/A
FHLB and FRB stock	116,081		N/A		N/A		N/A
Financial liabilities:
Deposits	$	9,034,738	$	—	$	8,296,710	$	—
Advances from FHLB	1,680,000		—		1,681,089		—
Accrued interest payable	18,651		—		18,651		—
Subordinated debentures and subordinated notes	229,027		—		229,027		—


December 31, 2022
Financial assets:
Cash and cash equivalents	$	436,077	$	—	$	436,077	$	—
HTM debt securities	186,168		—		158,781		—
Securities purchased under agreements to resell	—		—		—		—
LHFS1)	866		—		866		—

LHI(2)	9,399,614		—		—		9,163,616
Accrued interest receivable	44,035		—		44,035		—
BOLI	84,496		—		84,496		—
Servicing asset	3,896		—		3,896		—
Equity securities without a readily determinable fair value	10,072		N/A		N/A		N/A
FHLB and FRB stock	101,568		N/A		N/A		N/A
Financial liabilities:
Deposits	$	9,123,234	$	—	$	8,341,419	$	—
Advances from FHLB	1,175,000		—		1,156,852		—
Accrued interest payable	8,795		—		8,795		—
Subordinated debentures and subordinated notes	228,775		—		228,775		—
Securities sold under agreement to repurchase	—		—		—		—

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

(2) LHI includes MW and is carried at amortized cost.

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

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, ~~2022~~2023 and December 31, ~~2021~~2022 are as shown in the table below.


		March 31, 2022						December 31, 2021							March 31, 2023						December 31, 2022
				Estimated Fair Value						Estimated Fair Value							Estimated Fair Value						Estimated Fair Value
		Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative			Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative
Derivatives designated as hedging instruments (cash flow hedges):	Derivatives designated as hedging instruments (cash flow hedges):													Derivatives designated as hedging instruments (cash flow hedges):

Interest rate swap on money market deposit account payments	Interest 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 payments		125,000		—		7,780		125,000		—		867
Interest rate swap on customer loan interest payments		125,000		—		7,450		125,000		—		537
Interest rate swap on customer loan interest payments		125,000		—		6,223		125,000		2,460		—
Interest rate swaps on customer loan interest payments														Interest rate swaps on customer loan interest payments	375,000		—		41,126		375,000		—		49,211
Interest rate collars on customer loan interest payments														Interest rate collars on customer loan interest payments	450,000		3,445		3,754		450,000		3,267		4,960
Interest rate floor on customer loan interest payments														Interest rate floor on customer loan interest payments	200,000		7,544		—		100,000		2,022		—
Total derivatives designated as hedging instruments	Total 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 swaps	Interest 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 collars		33,716		1		—		41,916		—		1
Interest rate caps and corridors														Interest rate caps and corridors	123,870		1,351		—		68,370		1,494		—
Commercial customer counterparty:	Commercial customer counterparty:													Commercial customer counterparty:
Interest rate swaps	Interest rate swaps	403,389		289		15,327		379,787		3,261		1,442		Interest rate swaps	805,488		1,912		28,282		805,311		1,004		38,188
Interest rate caps and collars		33,716		—		1		41,916		1		—
Interest rate caps and corridors														Interest rate caps and corridors	123,870		—		1,351		68,370		—		1,494
Total derivatives not designated as hedging instruments	Total 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/liabilities	Offsetting derivative assets/liabilities	—		(11,353)		(11,353)		—		(2,609)		(2,609)		Offsetting derivative assets/liabilities			(25,703)		(25,703)				(30,982)		(30,982)
Total derivatives	Total 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, ~~2022~~2023 and ~~2021~~2022 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 derivative Gain (loss) reclassified from accumulated other comprehensive income into income Location of gain (loss) reclassified from accumulated other comprehensive income into income Gain recognized in other comprehensive income on derivative Gain (loss) reclassified from accumulated other comprehensive income into income Location of gain (loss) reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances $ (264) $ 264 Interest Expense $ 26,357 $ — Interest Expense
Interest rate swap on money market deposit account payments 9,389 (171) Interest Expense 3,895 (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 income Net 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 derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location of (loss) gain reclassified from accumulated other comprehensive income into income		Gain (loss) recognized in other comprehensive income on derivative		(Loss) gain reclassified from accumulated other comprehensive income into income		Location of (loss) gain reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	(1,082)	$	1,082	Interest Expense		$	(264)	$	264	Interest Expense
Interest rate swap on money market deposit account payments	(3,977)		2,568		Interest Expense		9,389		(171)		Interest Expense
Derivatives on customer loan interest payments	12,136		(3,807)		Interest Income		(22,506)		1,078		Interest Income
Total	$	7,077	$	(157)			$	(13,381)	$	1,171

					Net gain recognized in other noninterest income						Net gain recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps, floors and collars					$	212					$	719

Cash Flow Hedges

~~Cash~~We 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 amount~~hedging 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 attributable~~hedge. 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 rates~~fair value recorded in ~~regards~~AOCI, net of tax. Amounts recorded to ~~forecasted of three-month attributable to changes~~AOCI are reclassified into earnings in ~~interest rates~~the same period in ~~regards to forecasted money market account borrowings from March 2021 through March 2028~~which 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 hedge~~same 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.

The following is a summary of the interest rate swaps, caps and collars outstanding as of March 31, ~~2022~~2023 and December 31, ~~2021.~~
March 31, 2022
Notional Amount Fixed Rate Floating Rate Maturity Fair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating $ 403,389 2.970% - 8.470%
LIBOR 1 month + 2.2% - 5%
SOFR CME 1 month + 2.1% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.6 years
$ (15,038)
Interest rate cap $ 33,716 3.000% LIBOR 1 month + —%
Wtd. Avg.
0.4 years
$ (1)
Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating $ 403,389 2.970% - 8.470%
LIBOR 1 month + 2.2% - 5%
SOFR CME 1 month + 2.1% - 3.75%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.6 years
$ 15,114
Interest rate cap $ 33,716 3.000% LIBOR 1 month + —%
Wtd. Avg.
0.4 years
$ 1
December 31, 2021
Notional Amount Fixed Rate Floating Rate Maturity Fair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating $ 379,787 2.970% - 8.470%
LIBOR 1 month + 2.200% - 5.000%
SOFR CME 1 month + 2.480% - 2.900%
SOFR-NYFD 30 day avg + 2.500% - 2.964%
Wtd. Avg.
4.8 years
$ 1,820
Interest rate caps $ 41,916 3.000% / 5.000% LIBOR 1 month + —% - 2.500%
Wtd. Avg.
0.6 years
$ 1
Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating $ 379,787 2.970% - 8.470%
LIBOR 1 month + 2.200% - 5.000%
SOFR CME 1 month + 2.480% - 2.900%
SOFR-NYFD 30 day avg + 2.500% - 2.964%
Wtd. Avg.
4.8 years
$ (1,972)
Interest rate caps $ 41,916 2.500% / 3.000% LIBOR 1 month + —%
Wtd. Avg.
0.6 years
$ (1)
2022.


	March 31, 2023
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair 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 Amount		Fixed Rate	Floating Rate	Maturity	Fair 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

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, ~~2022~~2023 and December 31, ~~2021:~~2022:


		March 31,		December 31,			March 31,		December 31,
		2022		2021			2023		2022
Commitments to extend credit	Commitments to extend credit	$	4,021,956	$	3,809,509	Commitments to extend credit	$	4,138,471	$	4,511,671
MW commitments	MW commitments	844,415		716,370		MW commitments	985,207		1,088,558
Standby and commercial letters of credit	Standby and commercial letters of credit	75,495		65,881		Standby and commercial letters of credit	105,950		98,179
Total	Total	$	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 ~~allowance~~ACL 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,
			2022		2021				2023		2022
Beginning balance for ACL on unfunded commitments	Beginning 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 commitments			493		(570)
Provision for credit losses on unfunded commitments								Provision for credit losses on unfunded commitments	1,497		493
Ending balance of ACL on unfunded commitments	Ending balance of ACL on unfunded commitments		$	9,759	$	10,177		Ending balance of ACL on unfunded commitments	$	11,583	$	9,759

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, ~~2022~~2023 and ~~2021.~~2022.

A summary of option activity under the 2010 Incentive Plan for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, and changes during the periods then ended, is presented below:


		2010 Incentive Plan							2010 Incentive Plan
		Non-Performance Based Stock Options
		Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2021		20,000	$	10.09	1.06

Exercised		(18,300)	10.00
Outstanding and exercisable at March 31, 2021		1,700	$	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, 2022	Outstanding at January 1, 2022	1,000	$	10.43	1.07	$	147	Outstanding at January 1, 2022	1,000	$	10.43

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

Outstanding at January 1, 2023								Outstanding at January 1, 2023	1,000	$	10.43	1.07	$	147

Exercised								Exercised	(1,000)	10.43
Outstanding and exercisable at March 31, 2023								Outstanding and exercisable at March 31, 2023	—	$	—	—	$	—

As of March 31, ~~2022,~~2023, December 31, ~~2021~~2022 and March 31, ~~2021~~2022 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, ~~2022~~2023 and ~~2021~~2022 is presented below:

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


	Fair Value of Options Exercised as of March 31,
	2023		2022
Nonperformance-based stock options exercised	$	16	$	—

~~2019 Amended~~2022 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 ~~2019~~2022 Amended and ~~Restatement~~Restated 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, ~~2022~~2023 have an annual graded vesting over a three year period from the grant date.

The PSUs granted in February ~~2022~~2023 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, ~~2022~~2023 to January 31, ~~2025,~~2026, the performance ~~condition~~conditions performance period is from January 1, ~~2022~~2023 to December 31, ~~2024~~2025 and the market condition performance period is from February 1, ~~2022~~2023 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 Amended~~2022 Equity Plan and the Veritex (Green) 2014 Plan were as follows:


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
2019 Amended Plan		$	2,904	$	1,981
2022 Equity Plan						2022 Equity Plan	$	2,465	$	2,904
Veritex (Green) 2014 Plan	Veritex (Green) 2014 Plan	414		497		Veritex (Green) 2014 Plan	422		414

~~2019 Amended~~2022 Equity Plan

A summary of the status of the Company’s stock options under the ~~2019 Amended~~2022 Equity Plan as of March 31, ~~2022~~2023 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, 2021		975,801	$	24.26	0
Granted		—	—

Forfeited		(13,996)	25.93

Exercised		(71,479)	23.03
Outstanding at March 31, 2021		890,326	$	24.34	7.54
Options exercisable at March 31, 2021		560,176	$	24.31	7.07
										Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2022	Outstanding at January 1, 2022	710,043	$	24.38	0	0			Outstanding at January 1, 2022	710,043	$	24.38

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

Outstanding at January 1, 2023									Outstanding at January 1, 2023	657,494	$	24.47

Forfeited									Forfeited	(1,666)	17.38
Cancelled									Cancelled	(3,804)	29.13
Exercised									Exercised	(3,951)	21.38
Outstanding at March 31, 2023									Outstanding at March 31, 2023	648,073	$	24.48	5.24	$	123
Options exercisable at March 31, 2023									Options exercisable at March 31, 2023	610,073	$	24.74	5.13	$	114

As of March 31, ~~2022,~~2023, December 31, ~~2021~~2022 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 Amended~~2022 Equity Plan, respectively. The unrecognized compensation expense at March 31, ~~2022~~2023 is expected to be recognized over the remaining weighted average requisite service period of ~~0.92~~0.01 years.

A summary of the status of the Company’s RSUs under the ~~2019 Amended~~2022 Equity Plan as of March 31, ~~2022~~2023 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
		Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2021		441,132	$	20.39
Granted		232,149	26.38

Vested into shares		(41,362)	23.29

Outstanding at March 31, 2021		631,919	$	22.40
								Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2022	Outstanding at January 1, 2022	598,051	$	23.39			Outstanding at January 1, 2022	598,051	$	23.39
Granted	Granted	169,355	40.77				Granted	169,355	40.77

Vested into shares	Vested into shares	(96,141)	24.69				Vested into shares	(96,141)	24.69
Forfeited	Forfeited	(2,350)	26.12				Forfeited	(2,350)	26.12
Outstanding at March 31, 2022	Outstanding at March 31, 2022	668,915	$	27.59			Outstanding at March 31, 2022	668,915	$	27.59

Outstanding at January 1, 2023							Outstanding at January 1, 2023	955,104	$	28.38
Granted							Granted	224,165	27.90

Vested into shares							Vested into shares	(162,952)	30.23
Forfeited							Forfeited	(16,394)	31.77
Outstanding at March 31, 2023							Outstanding at March 31, 2023	999,923	$	27.87

A summary of the status of the Company’s PSUs under the ~~2019 Amended~~2022 Equity Plan as of March 31, ~~2022~~2023 and ~~2021,~~2022, and changes during the three months then ended, is as follows:

2019 Amended Plan
Performance-Based
PSUs
Units Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2021 100,195 $ 23.20
Granted 56,276 26.12
Outstanding at March 31, 2021 156,471 $ 24.23
Outstanding at January 1, 2022 156,471 $ 24.17
Granted 39,429 40.38
Incremental PSUs granted upon performance condition met 31,655 0
Vested into shares (94,991) 21.49
Outstanding at March 31, 2022 132,564 $ 30.15


	2022 Equity Plan
	Performance-Based
	PSUs
	Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2022	156,471	$	24.17
Granted	39,429	40.38



Outstanding at March 31, 2022	132,564	$	30.15

Outstanding at January 1, 2023	126,707	$	31.19
Granted	53,310	27.55

Vested into shares	(41,781)	26.42

Outstanding at March 31, 2023	129,768	$	30.28

As of March 31, ~~2022,~~2023, December 31, ~~2021~~2022 and March 31, ~~2021~~2022, 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 Amended~~2022 Equity Plan, respectively. The unrecognized compensation expense at March 31, ~~2022~~2023 is expected to be recognized over the remaining weighted average requisite service period of ~~2.31~~1.68 years.

A summary of the fair value of the Company’s stock options exercised, RSUs and PSUs vested under the ~~2019 Amended~~2022 Equity Plan during the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is presented below:

Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
2022 2021
Non-performance-based stock options exercised 1,562 2,090
RSUs vested 2,524 1,113
PSUs vested 2,270 —


	Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
	2023	2022
Non-performance-based stock options exercised	31	1,562
RSUs vested	3,044	2,524
PSUs vested	1,070	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, ~~2022~~2023 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, 2021 352,000 $ 19.99 0
Forfeited (3,960) 21.38
Exercised (54,241) 19.77
Outstanding at March 31, 2021 293,799 $ 20.01 6.65
Options exercisable at March 31, 2021 222,312 $ 18.84 6.19
Outstanding at January 1, 2022 217,804 $ 19.62 6.13 $ 4,424
Exercised (28,622) 21.34
Outstanding at March 31, 2022 189,182 $ 19.37 5.57 $ 3,595
Options exercisable at March 31, 2022 180,830 $ 18.81 5.45 $ 3,501


	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, 2022	217,804	$	19.62




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

Outstanding at January 1, 2023	155,212	$	19.83



Cancelled	(505)	21.38
Exercised	(13,266)	21.38
Outstanding at March 31, 2023	141,441	$	21.86	4.87	$	287
Options exercisable at March 31, 2023	141,441	$	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.~~

A summary of the status of the Company’s RSUs under the Veritex (Green) 2014 Plan as of March 31, ~~2022~~2023 and ~~2021~~2022 and changes during the three months then ended, is as follows:


					Veritex (Green) 2014 Plan
					Non-performance-Based
		RSUs					RSUs
		Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2021		156,187	$	21.15
Granted		5,692	26.12
Vested into shares		(33,335)	21.38
Forfeited		(2,646)	24.25
Outstanding at March 31, 2021		125,898	$	21.25
							Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2022	Outstanding at January 1, 2022	122,784	$	21.13		Outstanding at January 1, 2022	122,784	$	21.13
Granted	Granted	4,231	40.38			Granted	4,231	40.38
Vested into shares	Vested into shares	(32,931)	21.80			Vested into shares	(32,931)	21.80
Forfeited	Forfeited	(2,558)	29.13			Forfeited	(2,558)	29.13
Outstanding at March 31, 2022	Outstanding at March 31, 2022	91,526	$	21.55		Outstanding at March 31, 2022	91,526	$	21.55

Outstanding at January 1, 2023						Outstanding at January 1, 2023	86,233	$	21.09

Vested into shares						Vested into shares	(19,282)	29.66
Forfeited						Forfeited	(2,232)	29.13
Outstanding at March 31, 2023						Outstanding at March 31, 2023	64,719	$	18.26

A summary of the status of the Company’s PSUs under the Veritex (Green) 2014 Plan as of March 31, ~~2022~~2023 and ~~2021~~2022 and changes during the three months then ended, is as follows:


					Veritex (Green) 2014 Plan
					Performance-Based
		PSUs					PSUs
		Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2021		30,728	$	21.43
Granted		6,231	26.12

Forfeited		(724)	19.69
Outstanding at March 31, 2021		36,235	$	22.27
							Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2022	Outstanding at January 1, 2022	35,899	$	22.26		Outstanding at January 1, 2022	35,899	$	22.26
Granted	Granted	4,411	40.38			Granted	4,411	40.38
Incremental PSUs granted upon performance condition met	Incremental PSUs granted upon performance condition met	10,566	0			Incremental PSUs granted upon performance condition met	10,566	$	19.69
Vested into shares	Vested into shares	(31,703)	19.69			Vested into shares	(31,703)	$	19.69

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

Outstanding at January 1, 2023						Outstanding at January 1, 2023	19,173	$	30.74

Vested into shares						Vested into shares	(8,531)	25.94

Outstanding at March 31, 2023						Outstanding at March 31, 2023	10,642	$	31.93

As of March 31, ~~2022,~~2023, December 31, ~~2021~~2022 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 ~~2.13~~2.20 years.

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, ~~2022~~2023 and ~~2021~~2022 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,
		2022		2021			2023		2022
Non-performance-based stock options exercised	Non-performance-based stock options exercised	$	1,143	$	1,582	Non-performance-based stock options exercised	$	18	$	1,143
RSUs vested	RSUs vested	718		713		RSUs vested	1,990		718
PSU vested	PSU vested	624		—		PSU vested	227		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, ~~2022~~2023 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, 2021		131,083	$	11.60

Exercised		(62,000)	10.50
Outstanding at March 31, 2021		69,083	$	12.59	2.90
									Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2022	Outstanding at January 1, 2022	66,143	$	12.56				Outstanding at January 1, 2022	66,143	$	12.56

Exercised	Exercised	(1,372)	13.07					Exercised	(1,372)	13.07
Outstanding at March 31, 2022	Outstanding at March 31, 2022	64,771	$	12.55	1.95	$	1,659	Outstanding at March 31, 2022	64,771	$	12.55	1.95 years

Outstanding at January 1, 2023								Outstanding at January 1, 2023	43,162	$	13.11

Exercised								Exercised	(29,630)	13.22
Outstanding at March 31, 2023								Outstanding at March 31, 2023	13,532	$	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, ~~2022~~2023 and ~~2021~~2022 presented below:

Fair Value of Options Exercised as of March 31,
2022 2021
Nonperformance-based stock options exercised 56 1,812


	Fair Value of Options Exercised as of March 31,
	2023	2022
Nonperformance-based stock options exercised	365	56

~~10.~~9. Income Taxes

Income tax expense for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 was as follows:


		Three Months Ended March 31,				Three Months Ended March 31,
			2022				2021				2023			2022
Income tax expense for the period	Income tax expense for the period		$	8,102			$	8,993		Income tax expense for the period	$	11,012		$	8,102
Effective tax rate	Effective tax rate		19.5		%		22.1		%	Effective tax rate	22.3		%	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.

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.

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, ~~2022~~2023 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, ~~2022~~2023 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

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.

A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios is presented in the following table:


		Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under PCA Provisions					Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under PCA Provisions
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2022
As of March 31, 2023														As 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”)
Company	Company	$	1,276,341	12.73	%	$	802,100	8.0	%	n/a		n/a		Company	$	1,437,576	11.99	%	$	959,183	8.0	%	n/a		n/a
Bank	Bank	1,245,323		12.42		802,140		8.0		$	1,002,676	10.0	%	Bank	1,424,435		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)
Company	Company	1,016,916		10.14		601,725		6.0		n/a		n/a		Company	1,146,356		9.56		719,470		6.0		n/a		n/a
Bank	Bank	1,183,396		11.80		601,727		6.0		802,302		8.0		Bank	1,331,501		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)
Company	Company	987,414		9.84		451,561		4.5		n/a		n/a		Company	1,116,632		9.32		539,146		4.5		n/a		n/a
Bank	Bank	1,183,396		11.80		451,295		4.5		651,871		6.5		Bank	1,331,501		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)
Company	Company	1,016,916		10.66		381,582		4.0		n/a		n/a		Company	1,146,356		9.67		474,191		4.0		n/a		n/a
Bank	Bank	1,183,396		12.41		381,433		4.0		476,791		5.0		Bank	1,331,501		11.24		473,844		4.0		592,305		5.0
As of December 31, 2021
As of December 31, 2022														As of December 31, 2022
Total capital (to RWA)	Total capital (to RWA)													Total capital (to RWA)
Company	Company	$	1,100,404	11.60	%	$	758,899	8.0	%	n/a		n/a		Company	$	1,395,904	11.63	%	$	960,209	8.0	%	n/a		n/a
Bank	Bank	1,053,871		11.11		758,863		8.0		$	948,579	10.0	%	Bank	1,368,082		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)
Company	Company	843,585		8.89		569,349		6.0		n/a		n/a		Company	1,121,021		9.34		720,142		6.0		n/a		n/a
Bank	Bank	994,351		10.48		569,285		6.0		759,047		8.0		Bank	1,291,288		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)
Company	Company	814,138		8.58		426,995		4.5		n/a		n/a		Company	1,091,353		9.09		540,274		4.5		n/a		n/a
Bank	Bank	994,351		10.48		426,964		4.5		616,725		6.5		Bank	1,291,288		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)
Company	Company	843,585		9.05		372,855		4.0		n/a		n/a		Company	1,121,021		9.82		456,628		4.0		n/a		n/a
Bank	Bank	994,351		10.69		372,068		4.0		465,085		5.0		Bank	1,291,288		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 ended~~2023 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 ended~~2023 ~~March 31, 2021~~.and 2022, respectively.

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, 2021 Measurement Period Adjustments Final Fair Value
Assets acquired
Cash and cash equivalents 1,978 — 1,978
LHI 29,338 (681) 28,657
Servicing asset 13,913 — 13,913
Other assets 690 — 690
45,919 (681) 45,238
Liabilities assumed 0
Accounts payable and other accrued expenses 16,350 — 16,350
16,350 — 16,350
Fair value of net assets acquired 29,569 (681) 28,888
Consideration: —
Cash paid 57,500 — 57,500
Contingent consideration 5,000 — 5,000
Total consideration $ 62,500 $ — $ 62,500
Goodwill $ 32,931 $ 681 $ 33,612

~~Acquisition-related Expenses~~

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

~~Acquired Loans and PCD Loans~~

Acquired loans were recorded at fair value based on a 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 Estate~~	~~2,138~~
~~Total fair value~~	$	~~28,657~~
~~Contractual principal balance~~	$	~~29,338~~

~~Supplemental Pro Forma Information (unaudited)~~

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

Year Ended December 31,
2020 2019
Net interest income $ 267,331 $ 286,313
Net income 84,368 93,939
Basic EPS $ 1.69 $ 1.77
Diluted EPS 1.69 1.74

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, Actions~~During 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 ~~duration~~Company 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 and~~March 31, 2023.

4240

~~banking industry; and~~In accordance with Item 303(c) of Regulation S-K, the ~~impact to the economy as~~Company 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 impact~~preceding 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 susceptible~~provides 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.

~~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.

~~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, ~~2022~~2023 and ~~2021~~December 31, 2022

General

Net income for the three months ended March 31, ~~2022~~2023 was ~~$33.5~~$38.4 million, ~~an increase~~a 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 ~~March~~December 31, ~~2021.~~2022.

Basic EPS for the three months ended March 31, ~~2022 and 2021~~2023 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, ~~2022~~2023 was ~~$0.65, an increase~~$0.70, a decrease of ~~$0.01~~$0.03 from ~~$0.64~~$0.73 for the three months ended ~~March~~December 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 ~~March~~December 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 ~~increase~~decrease 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 deposits~~Fed Funds sold during the three months ended March 31, ~~2022~~2023, compared to the three months ended ~~March~~December 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 unchanged~~decreased 18 basis points from ~~3.22% for~~ the three months ended ~~March~~December 31, 2022 ~~and 2021,~~ primarily due to ~~a decrease in average yields earned on loan balances, offset by decreases~~an increase in the average rate paid on interest-bearing ~~demand and savings deposits and certificate and other time deposits~~liabilities, 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 ~~decreased~~increased 94 basis points to ~~0.26%~~3.06% for the three months ended March 31, ~~2022~~2023 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 ~~March~~December 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 decrease~~increase of $20.1 millionin interest expense was primarily due to ~~decreases~~an increase in funding costs attributable to a $12.4 million increase in the average ~~rates~~rate 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.

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~~interest–bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average ~~rates~~rate earned on interest-earning assets, the average ~~rates~~rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as ~~nonaccrual~~non-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, ~~2022~~2023 and ~~2021,~~December 31, 2022, interest income not recognized on ~~nonaccrual~~non-accrual loans was ~~$889~~$772 thousand and ~~$1.1~~$4.7 million, respectively. Any ~~nonaccrual~~non-accrual loans have been included in the table as loans carrying a zero yield.


	For the Three Months Ended March 31,						For the Three Months Ended December 31,
	2023						2022
			Interest						Interest
	Average		Earned/		Average		Average		Earned/		Average
	Outstanding		Interest		Yield/		Outstanding		Interest		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)	$	9,141,137	$	146,801	6.51	%	$	8,743,380	$	131,823	5.98	%
LHI, MW	360,172		4,906		5.52		383,080		5,024		5.20

Debt securities	1,252,457		10,988		3.56		1,286,342		10,880		3.36
Interest-bearing deposits in other banks	478,345		5,534		4.69		353,737		3,401		3.81
Equity securities and other investments	124,985		1,408		4.57		119,054		1,087		3.62
Total interest-earning assets	11,357,096		169,637		6.06		10,885,593		152,215		5.55
ACL	(92,664)						(85,275)
Noninterest-earning assets	949,881						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 deposits	2,588,728		20,967		3.28		1,785,152		8,543		1.90
Advances from FHLB	1,122,683		12,358		4.46		1,073,049		10,577		3.91
Subordinated debentures and subordinated notes	231,251		3,066		5.38		229,037		2,954		5.12
Total interest-bearing liabilities	8,093,657		66,248		3.32		7,409,174		46,117		2.47

Noninterest-bearing liabilities:
Noninterest-bearing deposits	2,470,700						2,737,468
Other liabilities	173,380						179,584
Total liabilities	10,737,737						10,326,226
Stockholders’ equity	1,476,576						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,
2022 2021
Interest Interest
Average Earned/ Average Average Earned/ Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)
$ 6,872,943 $ 68,297 4.03 % $ 5,897,815 $ 62,702 4.31 %
LHI, MW 421,680 3,069 2.95 510,678 3,815 3.03
PPP loans 31,335 77 1.00 356,356 882 1.00
Debt Securities 1,140,834 7,762 2.76 1,063,538 7,437 2.84
Interest-earning deposits in other banks 554,864 262 0.19 341,483 127 0.15
Equity securities and other investments 190,002 910 1.94 87,178 663 3.08
Total interest-earning assets 9,211,658 80,377 3.54 8,257,048 75,626 3.71
ACL (77,843) (105,972)
Noninterest-earning assets 865,107 790,195
Total assets $ 9,998,922 $ 8,941,271
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits $ 3,471,645 $ 1,751 0.20 % $ 3,038,586 $ 1,980 0.26 %
Certificates and other time deposits 1,501,852 1,380 0.37 1,509,836 3,061 0.82
Advances from FHLB 777,538 1,547 0.81 777,694 1,812 0.94
Subordinated debentures and subordinated debt 231,875 2,659 4.65 265,356 3,138 4.80
Total interest-bearing liabilities 5,982,910 7,337 0.50 5,591,472 9,991 0.72
Noninterest-bearing liabilities:
Noninterest-bearing deposits 2,591,504 2,069,233
Other liabilities 67,060 56,272
Total liabilities 8,641,474 7,716,977
Stockholders’ equity 1,357,448 1,224,294
Total liabilities and stockholders’ equity 9,998,922 $ 8,941,271
Net interest rate spread(2)
3.04 % 2.99 %
Net interest income $ 73,040 $ 65,635
Net interest margin(3)
3.22 % 3.22 %

(1) Includes average outstanding balances of ~~loans held for sale~~LHFS of ~~$12,769~~$19,679 and ~~$16,602~~$15,296 for the three months ended March 31, ~~2022~~2023 and ~~March~~December 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. 2021							March 31, 2023 vs. December 31, 2022
		Increase (Decrease)							Increase (Decrease)

		Due to Change in							Due to Change in
		Volume		Rate		Total			Volume		Rate		Total
		(In thousands)							(In thousands)
Interest-earning assets:	Interest-earning assets:							Interest-earning assets:
Loans	Loans	$	10,367	$	(4,772)	$	5,595	Loans	$	3,943	$	11,035	$	14,978
LHI, MW	LHI, MW	(665)		(81)		(746)		LHI, MW	(167)		49		(118)
PPP loans		(805)		—		(805)
Debt Securities		541		(216)		325

Debt securities								Debt securities	(8)		116		108
Interest-bearing deposits in other banks								Interest-bearing deposits in other banks	206		1,927		2,133
Equity securities and other investments	Equity securities and other investments	781		(534)		247		Equity securities and other investments	53		268		321
Interest-bearing deposits in other banks		79		56		135
Total increase (decrease) in interest income		10,298		(5,547)		4,751
Total increase in interest income								Total increase in interest income	4,027		13,395		17,422
Interest-bearing liabilities:	Interest-bearing liabilities:							Interest-bearing liabilities:
Interest-bearing demand and savings deposits	Interest-bearing demand and savings deposits	282		(511)		(229)		Interest-bearing demand and savings deposits	(84)		5,898		5,814
Certificates and other time deposits	Certificates and other time deposits	(16)		(1,665)		(1,681)		Certificates and other time deposits	733		11,691		12,424
Advances from FHLB	Advances from FHLB	—		(265)		(265)		Advances from FHLB	99		1,682		1,781
Subordinated debentures and subordinated notes	Subordinated debentures and subordinated notes	(396)		(83)		(479)		Subordinated debentures and subordinated notes	25		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 expense								Total increase in interest expense	773		19,358		20,131
Increase in net interest income								Increase 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 recorded~~For a ~~benefit~~description of the factors taken into account by management in determining the ACL see “—Financial Condition—Allowance for Credit Losses on Loans Held for Investment.” The provision for credit loan losses ~~of $500 thousand~~was $8.5 million for the three months ended March 31, ~~2022,~~2023, compared to no$11.8 million provision ~~or benefit~~ for the ~~same period~~three 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 ~~higher~~changes 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
		2022		2021			(Decrease)			2023		2022		(Decrease)
		(In thousands)				(In thousands)
Noninterest income:	Noninterest income:								Noninterest income:
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts	$	4,710	$	3,629		$	1,081	Service charges and fees on deposit accounts	$	5,017	$	5,173	$	(156)
Loan fees	Loan fees	2,794		1,341			1,453		Loan fees	2,064		2,477		(413)

Loss on sales of debt securities									Loss on sales of debt securities	(5,321)		—		(5,321)
Gain on sales of mortgage loans	Gain on sales of mortgage loans	307		507			(200)		Gain on sales of mortgage loans	6		4		2
Government guaranteed loan income, net	Government guaranteed loan income, net	4,891		6,548			(1,657)		Government guaranteed loan income, net	9,688		7,808		1,880

Equity method investment income, net		367		—			367
Equity method investment loss									Equity method investment loss	(1,521)		(5,416)		3,895
Customer swap income									Customer swap income	217		2,273		(2,056)
Other	Other	2,028		2,147			(119)		Other	3,381		2,007		1,374
Total noninterest income	Total 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 $925~~2023 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 ~~driver~~drivers of the ~~increase was~~decrease were as follows:

~~Service charges and fees~~Loss 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 component~~loss on sale of ~~our noninterest income. Service charges and fees on deposit accounts were $4.7 million~~debt securities during the three months ended March 31, ~~2022, an increase of $1.1 million or 29.8%, over~~2023, compared to the ~~same period in 2021. This increase~~three months ended December 31, 2022, was primarily due to ~~increases in analysis charges~~a $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 ~~increases~~the 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 guaranteed~~SBA and USDA loans. The ~~decrease~~increase 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 ~~decrease~~valuation of ~~$6.6 million in fees~~USDA 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 loans~~equity 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 originations~~2023, 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 decrease~~2023 compared to three months ended December 31, 2022 is ~~offset by an~~a 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 ~~valuations~~units 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 period~~three 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
	2023		2022		(Decrease)
	(In thousands)
Noninterest expense
Salaries and employee benefits	$	31,865	$	33,690	$	(1,825)
Occupancy and equipment	4,973		5,116		(143)
Professional and regulatory fees	4,389		4,401		(12)
Data processing and software expense	4,720		4,197		523
Marketing	1,779		1,841		(62)
Amortization of intangibles	2,495		2,495		—
Telephone and communications	478		358		120

Other	5,916		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%.

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.


	For the Three Months Ended March 31,
	2023						2022
			Interest						Interest
	Average		Earned/		Average		Average		Earned/		Average
	Outstanding		Interest		Yield/		Outstanding		Interest		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)	$	9,141,137	$	146,801	6.51	%	$	6,904,278	$	68,374	4.02	%
LHI, MW	360,172		4,906		5.52		421,680		3,069		2.95

Debt Securities	1,252,457		10,988		3.56		1,140,834		7,762		2.76
Interest-earning deposits in other banks	478,345		5,534		4.69		554,864		262		0.19
Equity securities and other investments	124,985		1,408		4.57		190,002		910		1.94
Total interest-earning assets	11,357,096		169,637		6.06		9,211,658		80,377		3.54
ACL	(92,664)						(77,843)
Noninterest-earning assets	949,881						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 deposits	2,588,728		20,967		3.28		1,501,852		1,380		0.37
Advances from FHLB	1,122,683		12,358		4.46		777,538		1,547		0.81
Subordinated debentures and subordinated debt	231,251		3,066		5.38		231,875		2,659		4.65
Total interest-bearing liabilities	8,093,657		66,248		3.32		5,982,910		7,337		0.50

Noninterest-bearing liabilities:
Noninterest-bearing deposits	2,470,700						2,591,504
Other liabilities	173,380						67,060
Total liabilities	10,737,737						8,641,474
Stockholders’ equity	1,476,576						1,357,448
Total liabilities and stockholders’ equity	12,214,313						$	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.


	For the Three Months Ended March 31,
	2023 vs 2022
	Increase (Decrease)
	Due to Change in
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	22,152	$	56,275	$	78,427
LHI, MW	(447)		2,284		1,837

Debt Securities	760		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 income	22,118		67,142		89,260
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	343		27,763		28,106
Certificates and other time deposits	999		18,588		19,587
Advances from FHLB	687		10,124		10,811
Subordinated debentures and subordinated notes	(7)		414		407
Total increase in interest expense	2,022		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.

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
	2023		2022		(Decrease)
	(In thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	5,017	$	4,710	$	307
Loan fees	2,064		2,794		(730)
Loss on sales of debt securities	(5,321)		—		(5,321)
Gain on sales of mortgage LHFS	6		307		(301)
Government guaranteed loan income, net	9,688		4,891		4,797


Equity method investment (loss) income	(1,521)		367		(1,888)
Customer swap income	217		946		(729)
Other	3,381		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.

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)
		2022		2021					2023		2022
		(In thousands)							(In thousands)
Salaries and employee benefits	Salaries and employee benefits	$	27,513	$	22,932	$	4,581	Salaries and employee benefits	$	31,865	$	27,513	$	4,352
Non-staff expenses:

Occupancy and equipment	Occupancy and equipment	4,517		4,096		421		Occupancy and equipment	4,973		4,517		456
Professional and regulatory fees	Professional and regulatory fees	3,158		3,441		(283)		Professional and regulatory fees	4,389		3,158		1,231
Data processing and software expense	Data processing and software expense	2,921		2,319		602		Data processing and software expense	4,720		2,921		1,799
Marketing	Marketing	1,187		909		278		Marketing	1,779		1,187		592
Amortization of intangibles	Amortization of intangibles	2,495		2,537		(42)		Amortization of intangibles	2,495		2,495		—
Telephone and communications	Telephone and communications	385		337		48		Telephone and communications	478		385		93
Merger and acquisition expense		700		—		700
M&A expense								M&A expense	—		700		(700)

Other	Other	3,696		3,026		670		Other	5,916		3,696		2,220
Total noninterest expense	Total 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, ~~2022~~2023 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, ~~2021~~2022. 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. The~~2022. This increase ~~was~~is primarily ~~attributable~~due to ~~a (i) $2.7~~an 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, regulatory~~expenses 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 related~~2023, compared to ~~our~~ ~~proposed transaction~~the 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 expected~~promotions during the three months ended March 31, 2023, compared to ~~close~~the same period in ~~the third quarter of~~ 2022.

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, ~~2021~~2022 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, ~~2022~~2023 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, ~~2022~~2023 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, ~~2022~~2023 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,
2022 2021
Total Percent Total Percent
(Dollars in thousands)
Commercial $ 2,125,900 27.7 % $ 2,006,876 27.3 %
MW 542,877 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 land 1,297,338 16.9 % 1,062,144 14.5 %
Farmland 48,095 0.6 % 55,827 0.8 %
1-4 family residential 604,408 7.9 % 542,566 7.4 %
Multifamily 272,250 3.5 % 310,241 4.2 %
Consumer 9,533 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,
	2023				2022				Increase (Decrease)
	Amount		% of Total		Amount		% of Total		Amount		% Change Quarter over Quarter
	(Dollars in thousands)
Commercial	$	2,895,957	29.9	%	$	2,942,348	31.0	%	$	(46,391)	(1.6)	%
MW	437,501		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 land	1,831,349		18.9		1,787,400		18.8		43,949		2.5	%
Farmland	51,680		0.5		43,500		0.5		8,180		18.8	%
1-4 family residential	896,252		9.2		894,456		9.4		1,796		0.2	%
Multifamily	432,209		4.5		322,679		3.4		109,530		33.9	%
Consumer	8,316		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, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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,
2022 2021
(Dollars in thousands)
Nonaccrual loans(1)
$ 46,680 $ 49,687
Accruing loans 90 or more days past due 264 235
Total nonperforming loans 46,944 49,922
Other real estate owned:
Commercial real estate, construction, land and land development 1,062 —
Total other real estate owned 1,062 —
Total nonperforming assets $ 48,006 $ 49,922
Troubled debt restructured loans—nonaccrual 19,248 19,746
Troubled debt restructured loans—accruing 4,025 5,772
Ratio of nonperforming loans to total loans 0.66 % 0.74 %
Ratio of nonperforming assets to total assets 0.46 % 0.51 %


	As of March 31,			As of December 31,
	2023			2022
	(Dollars in thousands)
Nonperforming loans(1)
1-4 family residential	$	818		$	862

OOCRE	9,322			9,737
NOOCRE	20,783			21,377
Construction and land	1,583			—

Commercial	11,659			11,397

Consumer	71			169
Accruing loans 90 or more days past due	296			125
Total nonperforming loans	44,532			43,667
OREO	—			—
Total nonperforming assets	$	44,532		$	43,667

Nonperforming assets to total assets	0.35		%	0.36		%
Nonperforming loans to total loans, excluding MW loans	0.49		%	0.48		%

(1) At March 31, ~~2022~~2023 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,
2022 2021
(In thousands)
Commercial $ 13,259 $ 15,267
Real estate:
OOCRE 13,446 14,236
NOOCRE 17,739 17,978
1-4 family residential 1,005 990
Consumer 1,231 1,216
Total $ 46,680 $ 49,687

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										Pass		Special Mention		Substandard				PCD	Total
		Pass		Special Mention		Substandard		PCD		Total				(Dollars in thousands)
Real estate:	Real estate:												Real estate:
Construction and land	Construction 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
Farmland	Farmland	48,095		—		—		—		48,095			Farmland	51,680		—		—			—		51,680
1 - 4 family residential	1 - 4 family residential	601,355		344		1,547		1,162		604,408			1 - 4 family residential	892,786		691		1,581			1,194		896,252
Multi-family residential	Multi-family residential	250,586		21,664		—		—		272,250			Multi-family residential	416,501		15,708		—			—		432,209
OOCRE	OOCRE	566,643		10,036		34,336		22,600		633,615			OOCRE	583,127		8,979		20,270			19,187		631,563
NOOCRE	NOOCRE	1,957,978		120,011		52,593		15,244		2,145,826			NOOCRE	2,298,484		79,948		113,702			13,210		2,505,344
Commercial	Commercial	2,021,437		42,632		54,391		7,440		2,125,900			Commercial	2,803,918		20,721		67,598			3,720		2,895,957
MW	MW	542,447		—		430		—		542,877			MW	418,420		18,873		208			—		437,501
Consumer	Consumer	8,051		76		1,236		170		9,533			Consumer	8,158		57		83			18		8,316
Total	Total	$	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										Pass		Special Mention		Substandard				PCD	Total
		Pass		Special Mention		Substandard		PCD		Total				(Dollars in thousands)
Real estate:	Real estate:												Real estate:
Construction and land	Construction 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
Farmland	Farmland	55,827		—		—		—		55,827			Farmland	43,500		—		—			—		43,500
1 - 4 family residential	1 - 4 family residential	539,485		352		1,551		1,178		542,566			1 - 4 family residential	842,149		26,346		24,781			1,180		894,456
Multi-family residential	Multi-family residential	288,954		21,287		—		—		310,241			Multi-family residential	306,981		—		15,698			—		322,679
OOCRE	OOCRE	591,377		9,704		36,892		27,564		665,537			OOCRE	648,591		9,186		38,235			19,817		715,829
NOOCRE	NOOCRE	1,922,455		97,562		82,092		18,200		2,120,309			NOOCRE	2,167,498		105,963		55,170			12,748		2,341,379
Commercial	Commercial	1,887,671		36,092		74,487		8,626		2,006,876			Commercial	2,757,945		127,311		53,391			3,701		2,942,348
MW	MW	565,100		—		545		—		565,645			MW	444,393		1,626		208			—		446,227
Consumer	Consumer	10,440		79		1,302		177		11,998			Consumer	7,556		58		169			23		7,806
Total	Total	$	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.

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

As of As of
March 31, 2022 December 31, 2021
Percent Percent
Amount of Total Amount of Total
(Dollars in thousands)
Real estate:
Construction and land $ 8,883 12.3 % $ 7,293 9.4 %
Farmland 158 0.2 187 0.2
1 - 4 family residential 6,134 8.5 5,982 7.7
Multi-family residential 2,127 2.9 2,664 3.4
OOCRE 7,423 10.2 9,215 11.9
NOOCRE 26,954 37.2 30,548 39.3
Total real estate $ 51,679 71.3 % $ 55,889 71.9 %
Commercial 20,084 27.7 21,632 27.8
Consumer 722 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~~.

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


	March 31, 2023						December 31, 2022
	Allocated Allowance		% of Loan Portfolio		ACL to Loans		Allocated Allowance		% of Loan Portfolio		ACL to Loans

Construction and land	$	17,314	19.8	%	0.95	%	$	13,120	19.7	%	0.73	%
Farmland	168		0.5		0.33		127		0.4		0.29
1 - 4 family residential	9,541		9.7		1.06		9,533		9.9		1.07
Multi-family residential	3,484		4.7		0.81		2,607		3.6		0.81
OOCRE	8,813		6.8		1.40		8,707		7.9		1.22
NOOCRE	26,238		27.1		1.05		26,704		25.9		1.14
Commercial	32,717		31.3		1.13		30,142		32.5		1.02
Consumer	419		0.1		5.04		112		0.1		1.43
Total	$	98,694	100.0	%	1.07	%	$	91,052	100.0	%	1.01	%

Three Months Ended Three Months Ended
March 31, 2022 March 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 period 77,754 105,084
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 — 3
NOOCRE 400 —
Commercial 144 226
Consumer 9 2
Total recoveries 553 231
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 loans 1.02 % 1.76 %
Ratio of net charge-offs to average loans 0.07 % — %
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.~~


(Dollars in thousands)	Net (Charge-offs) Recoveries		Average Loans		Annualized 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 residential	1		891,003		—
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 ~~GAAP~~accounting 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 and~~2023, 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.

~~Securities purchased under agreements to resell~~

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

FHLB Stock and FRB Stock

As of 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 increase~~a 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 ~~increase~~decrease was primarily due to ~~purchases~~the sale of debt securities of ~~$271.6~~$109.8 million ~~and~~with a net ~~unrealized gains $44.8 million, partially offset by maturities, calls, and paydowns~~loss 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, ~~2022~~2023 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 sale~~AFS debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. ~~As of March 31, 2022, management believes~~The Company has 36 AFS debt securities that ~~available for sale securities~~were in an unrealized loss position ~~are due to noncredit-related factors, including changes in interest rates~~totaling $23.9 million as of March 31, 2023. The Company evaluated all debt securities and ~~other market conditions, and therefore no~~an ACL ~~have been~~on 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, ~~2022~~2023 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 an~~Equity 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 board~~loss is comprised of ~~directors. As a result of the investment, we have a $35.8 million basis difference which is being accounted for as~~losses 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, ~~2022~~2023 and reported ~~$367 thousand~~a loss of ~~income~~$1.5 million resulting from ~~this investment~~these investments for the three months ended March 31, ~~2022~~2023, 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, ~~2022~~2023 were ~~$7.9~~$9.03 billion, ~~an increase~~a 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 ~~increase~~decrease from December 31, ~~2021~~2022 was primarily the result of ~~increases~~decreases 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 Total		Average Outstanding Balance
Noninterest-bearing	$	2,212,389	24.4	%	$	2,470,700
Interest-bearing transaction	866,609		9.6	%	715,481
Money market	2,518,922		27.9	%	2,646,708
Savings	106,480		1.2	%	113,736
Certificates and other time deposits	2,896,870		32.1	%	2,588,728
Correspondent money market accounts	433,468		4.8	%	675,070
Total deposits	$	9,034,738	100	%	$	9,210,423



	December 31, 2022
	Ending Balance		% of Total		Average Outstanding Balance
Noninterest-bearing	$	2,640,617	28.9	%	$	2,737,468
Interest-bearing transaction	622,814		6.8	%	594,461
Money market	2,773,623		30.4	%	2,715,476
Savings	118,293		1.3	%	126,269
Certificates and other time deposits	2,086,642		22.9	%	1,785,152
Correspondent money market accounts	881,245		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, ~~2022~~2023 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% for~~4.46% for the three months ended March 31, ~~2022~~2023 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, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Our current FHLB advances mature within ~~fifteen~~two 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, ~~2022~~2023 and December 31, ~~2021,~~2022, $~~995.1 million~~3.00 billion ~~was~~and $1.14 billion were available under this arrangement based on collateral values of pledged commercial and consumer loans. As of March 31, ~~2022~~2023 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

The table below details our junior subordinated debentures and subordinated notes. Refer to Note 14 ~~“Borrowed Funds”~~“Subordinated Debentures and Subordinated Notes” in our ~~2021~~2022 10-K for further discussion on the details of our junior subordinated debentures and subordinated notes.


		March 31, 2022			March 31, 2023
		Balance		Rate			Balance		Rate
		(Dollars in thousands)			(Dollars in thousands)
Junior subordinated debentures	Junior subordinated debentures					Junior subordinated debentures
Parkway National Capital Trust I	Parkway National Capital Trust I	$	3,093	2.03%		Parkway National Capital Trust I	$	3,093	6.72%
SovDallas Capital Trust I	SovDallas Capital Trust I	8,609		4.24%		SovDallas Capital Trust I	8,609		8.75
Patriot Bancshares Capital Trust I	Patriot Bancshares Capital Trust I	5,155		2.09%		Patriot Bancshares Capital Trust I	5,155		6.68
Patriot Bancshares Capital Trust II	Patriot Bancshares Capital Trust II	17,011		1.98%		Patriot Bancshares Capital Trust II	17,011		6.67
Subordinated notes	Subordinated notes					Subordinated notes
4.75% Fixed-to-Floating Rate Subordinated Notes	4.75% Fixed-to-Floating Rate Subordinated Notes	75,000		4.75%		4.75% Fixed-to-Floating Rate Subordinated Notes	75,000		4.75
4.125% Fixed-to-Floating Rate Subordinated Notes	4.125% Fixed-to-Floating Rate Subordinated Notes	125,000		4.13%		4.125% Fixed-to-Floating Rate Subordinated Notes	125,000		4.13

Liquidity and Capital Resources

Liquidity

Liquidity management involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the three months ended March 31, ~~2022~~2023 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, ~~2022~~2023 and December 31, ~~2021.~~2022. There were no advances under these lines of credit outstanding as of March 31, ~~2022~~2023 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.

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, ~~2022~~2023 and ~~$9.4~~$10.99 billion for the year ended December 31, ~~2021.~~2022.


		For the		For the			For the
		Three Months Ended		Year Ended			Three Months Ended
		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Sources of Funds:	Sources of Funds:					Sources of Funds:
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	25.9	%	24.1	%	Noninterest-bearing	20.2	%	25.3	%
Interest-bearing	Interest-bearing	34.7		34.2		Interest-bearing	34.0		35.8
Certificates and other time deposits	Certificates and other time deposits	15.0		16.5		Certificates and other time deposits	21.2		14.6
Advances from FHLB	Advances from FHLB	7.8		8.3		Advances from FHLB	9.2		8.1
Other borrowings	Other borrowings	2.3		2.8		Other borrowings	1.9		2.1
Other liabilities	Other liabilities	0.7		0.6		Other liabilities	1.4		1.1
Stockholders’ equity	Stockholders’ equity	13.6		13.5		Stockholders’ equity	12.1		13.0
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%
Uses of Funds:	Uses of Funds:					Uses of Funds:
Loans	Loans	72.7	%	73.2	%	Loans	77.0	%	74.9	%
Securities available-for-sale		11.3		12.0
Debt Securities						Debt Securities	10.3		11.6
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks	5.5		1.5		Interest-bearing deposits in other banks	3.9		1.5
Other noninterest-earning assets	Other noninterest-earning assets	10.5		13.3		Other noninterest-earning assets	8.8		12.0
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%
Average noninterest-bearing deposits to average deposits	Average noninterest-bearing deposits to average deposits	34.3	%	32.3	%	Average noninterest-bearing deposits to average deposits	26.8	%	33.4	%

Average loans, excluding PPP and MW, to average deposits		90.9	%	89.9	%
Average loans, excluding MW, to average deposits						Average loans, excluding MW, to average deposits	99.2	%	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, ~~2022~~2023, 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 ~~investments~~debt 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.

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.

Analysis of Cash Flows


		For the		For the			For the
		Three Months Ended		Three Months Ended			Three Months Ended
		March 31, 2022		March 31, 2021			March 31, 2023		December 31, 2022
		(In thousands)					(In thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	68,218	$	83,220	Net cash provided by operating activities	$	34,539	$	68,218
Net cash used in investing activities	Net cash used in investing activities	(564,784)		(228,307)		Net cash used in investing activities	(66,508)		(564,784)
Net cash provided by financing activities	Net cash provided by financing activities	668,355		382,291		Net cash provided by financing activities	404,287		668,355
Net change in cash and cash equivalents	Net 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 termination~~a 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 ~~increased~~decreased by ~~$336.5~~$498.3 million when compared to the same period in ~~2021.~~2022. The ~~increase~~decrease 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 ~~purchases~~maturities, and calls and paydowns of AFS debt securities, and a ~~$147.7~~$116.5 million ~~increase~~decrease in ~~originations of net loans held for investment. This decrease was partially offset by a decrease of $6.2 million of maturities, calls and paydowns~~purchases 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 ~~increased~~decreased by ~~$286.1~~$264.1 million when compared to the same period in ~~2021.~~2022. The ~~increase~~decrease in cash provided by financing activities was primarily attributable to a ~~$134.2~~$614.5 million ~~increase~~decrease in deposits and a $153.9 million ~~increase~~decrease 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, ~~2022~~2023 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, ~~2022~~2023 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,
		2022				2021					2023				2022
		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio
		(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 Bank	Veritex Community Bank									Veritex 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 Condition—Borrowings,” there have been no significant changes in the types of contractual obligations or amounts due as of March 31, ~~2022~~2023 since December 31, ~~2021~~2022 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.

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.

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 pandemic~~banking 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;

•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;

•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, ~~2021~~2022 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.

Our exposure to interest rate risk is managed by the Asset-Liability Committee of the Bank in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.

We use an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and the balance sheet, respectively. Contractual maturities and repricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio.

We utilize static balance sheet rate shocks to estimate the potential impact on net interest income of changes in interest

rates under various rate scenarios. This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet. Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 5.0% for a 100 basis point shift, 10.0% for a 200 basis point shift, and 15.0% for a 300 basis point shift.

The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:


		As of March 31, 2022				As of December 31, 2021					As of March 31, 2023				As of December 31, 2022
		Percent Change		Percent Change		Percent Change		Percent Change			Percent Change		Percent Change		Percent Change		Percent Change
Change in Interest	Change in Interest	in Net Interest		in Fair Value		in Net Interest		in Fair Value		Change in Interest	in Net Interest		in Fair Value		in Net Interest		in Fair Value
Rates (Basis Points)	Rates (Basis Points)	Income		of Equity		Income		of Equity		Rates (Basis Points)	Income		of Equity		Income		of Equity
+ 300	+ 300	23.48	%	11.78	%	20.31	%	15.79	%	+ 300	11.53	%	1.82	%	13.00	%	4.65	%
+ 200	+ 200	15.42	%	8.39	%	13.13	%	11.62	%	+ 200	7.82	%	1.49	%	8.88	%	3.36	%
+ 100	+ 100	7.39	%	4.51	%	6.60	%	6.64	%	+ 100	3.93	%	0.95	%	4.46	%	1.77	%
Base	Base	—	%	—	%	—	%	—	%	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.

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 Officer~~CEO and ~~Chief Financial Officer~~CFO 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, ~~2022~~2023 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.

~~There~~Other 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
2.3						Agreement and Plan of Reorganization dated July 23, 2018, by and among Veritex Holdings, Inc., MustMS, Inc. and Green Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 24, 2018).
3.2						Third Amended and Restated Bylaws of Veritex Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed July 25, 2017).




31.1*						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						The following materials from Veritex Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended 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.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed with this Quarterly Report on Form 10-Q

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

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, 2022~~10, 2023						/s/ C. Malcolm Holland, III
						C. Malcolm Holland, III
						Chairman and Chief Executive Officer
						(Principal Executive Officer)




Date: May ~~9, 2022~~10, 2023						/s/ Terry S. Earley
						Terry S. Earley
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

6768


Three Months Ended March 31, 2021
	Common Stock			Treasury Stock			APIC		Retained Earnings		AOCI
	Shares	Amount		Shares	Amount								Total
Balance at December 31, 2020	49,337,768	$	555	6,162,350	$	(152,073)	$	1,126,437	$	172,232	$	56,225		$	1,203,376
Restricted stock units vested, net of 16,587 shares withheld to cover taxes	58,110	—		—	—		(468)		—		—			(468)
Exercise of employee stock options, net of 18,052 and 3,474 shares withheld to cover taxes and exercise, respectively	184,494	2		—	—		2,877		—		—			2,879

Stock buyback	(147,622)	—		147,622	(4,074)		—		—		—			(4,074)
Stock based compensation	—	—		—	—		2,478		—		—			2,478

Net income	—	—		—	—		—		31,787		—			31,787
Dividends paid	—	—		—	—		—		(8,358)		—			(8,358)

Other comprehensive income	—	—		—	—		—		—		6,188			6,188
Balance at March 31, 2021	49,432,750	$	557	6,309,972	$	(156,147)	$	1,131,324	$	195,661	$	62,413		$	1,233,808


	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
AFS

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
HTM
Mortgage-backed securities	$	39,072	$	—	$	3,340	$	—	$	35,732
Collateralized mortgage obligations	37,618		203		2,339		—		35,482
Municipal securities	104,575		603		6,574		—		98,604
	$	181,265	$	806	$	12,253	$	—	$	169,818


	March 31, 2022		March 31, 2021

PPP fee income	$	—	$	6,624
Net gain (loss) due to the change in fair value	175		(287)


	During the Three Months Ended March 31, 2021
	Adjusted Payment Structure		Payment Deferrals		Total Modifications		Number of Loans





Commercial real estate	$	240	$	—	$	240	1



Total	$	240	$	—	$	240	1


	Estimate at December 31, 2021		Measurement Period Adjustments		Final Fair Value
Assets acquired
Cash and cash equivalents	1,978		—		1,978
LHI	29,338		(681)		28,657
Servicing asset	13,913		—		13,913
Other assets	690		—		690
	45,919		(681)		45,238

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

Fair value of net assets acquired	29,569		(681)		28,888
Consideration:					—
Cash paid	57,500		—		57,500
Contingent consideration	5,000		—		5,000
Total consideration	$	62,500	$	—	$	62,500
Goodwill	$	32,931	$	681	$	33,612


	Year Ended December 31,
	2020		2019
Net interest income	$	267,331	$	286,313
Net income	84,368		93,939

Basic EPS	$	1.69	$	1.77
Diluted EPS	1.69		1.74


	As of				As of
	March 31, 2022				December 31, 2021
			Percent				Percent
	Amount		of Total		Amount		of Total
	(Dollars in thousands)
Real estate:
Construction and land	$	8,883	12.3	%	$	7,293	9.4	%
Farmland	158		0.2		187		0.2
1 - 4 family residential	6,134		8.5		5,982		7.7
Multi-family residential	2,127		2.9		2,664		3.4
OOCRE	7,423		10.2		9,215		11.9
NOOCRE	26,954		37.2		30,548		39.3
Total real estate	$	51,679	71.3	%	$	55,889	71.9	%
Commercial	20,084		27.7		21,632		27.8
Consumer	722		1.0		233		0.3
Total ACL	$	72,485	100.0	%	$	77,754	100.0	%