UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


			FORM			~~10-Q/A~~10-Q

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

For the quarterly period ended ~~June 30, 2023~~

ORMarch 31, 2024

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

For the transition period from to .

Commission File Number: 001-36682


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


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

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


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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01

VBTX

Nasdaq Global Market

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of ~~August 7, 2023,~~May 3, 2024, there were ~~54,305,922~~54,525,408 outstanding shares of the registrant’s common stock, par value $0.01 per share.

~~EXPLANATORY NOTE~~

~~Veritex Holdings, Inc. (the “Company”) is filing this Amendment No.1 (this “Amendment”) to its quarterly report on Form 10-Q for the quarter ended June 30, 2023, originally filed with the Securities and Exchange Commission on August 8, 2023 (the “Original Filing~~”), for the sole purpose of adding the iXBRL to the Original Filing which was inadvertently omitted. No changes have been made to the financial statements or any other disclosures contained in the Original Filing. This Amendment does not modify or update, in any way, disclosures made in the Original Filing.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Glossary of Acronyms, Abbreviations, and Terms

The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q, including “Part I, Item 1. Financial Statements” and “Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

ACL

Allowance for Credit Loss

Green

Green Bank

AFS

Available-For-Sale

HTM

Held-To-Maturity

AML

Anti-Money Laundering

IRA

Inflation Reduction Act of 2022

AMLA

Anti-Money Laundering Act of 2020

LHFS

Loans Held for Sale

AOCI

Accumulated Other Comprehensive Income

LHI

Loans Held for Investment

APIC

Additional Paid-In Capital

LIBOR

London Interbank Offered Rate

ASC

Accounting Standards Codification

Lower

Lower Holding Company

ASU

Accounting Standard Update

M&A

Mergers and acquisitions

BOLI

Bank-Owned Life Insurance

MBS

Mortgage-backed Securities

Board

Board of Directors of Veritex Holdings, Inc.

Mortgage Warehouse

BTFP

Bank Term Funding Program

NAC

North Avenue Capital, LLC

CBLR

Community Bank Leverage Ratio

NOOCRE

Non-owner Occupied CRE

Certificates of Deposit

NPV

Net Present Value

CECL

Current Expected Credit Losses

OBS

Off-Balance Sheet

CET1

Common Equity Tier 1

OOCRE

Owner Occupied CRE

CMO

Collateralized Mortgage Obligation

OREO

Other Real Estate Owned

CRA

Community Reinvestment Act

PCA

Prompt Corrective Action

CRE

Commercial Real Estate

PCD

Purchased Credit Deteriorated

DCF

Discounted Cash Flow

PSU

Performance-based Restricted stock units

DFW

Dallas-Fort Worth

RBC

Risk-Based Capital

DIF

Deposit Insurance Fund

RSU

Restricted stock units

EPS

Earnings Per Share

RWA

Risk-Weighted Assets

Exchange Act

Securities Exchange Act of 1934, as amended

Sarbanes-Oxley Act

Sarbanes-Oxley Act of 2002

FASB

Financial Accounting Standards Board

SBA

U. S. Small Business Administration

FDIC

Federal Deposit Insurance Corporation

SEC

Securities and Exchange Commission

Federal Reserve

The Federal Reserve System

SOFR

Secured Overnight Financing Rate

FHLB

Federal Home Loan Bank

TDB

Texas Department of Banking

FRB

Federal Reserve Bank of Dallas

Thrive

Thrive Mortgage, LLC

GAAP

Generally Accepted Accounting Principles in the United States of America

USDA

United States Department of Agriculture

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023

(Dollars in thousands, except par value and share information)
June 30, December 31,
2023 2022
(Unaudited)
ASSETS
Cash and due from banks $ 53,166 $ 60,551
Interest bearing deposits in other banks 610,755 375,526
Total cash and cash equivalents 663,921 436,077
Debt securities available-for-sale (“AFS”), at fair value 961,045 1,096,292
Debt securities held-to-maturity (“HTM”) (fair value of $158,767 and $158,781, at June 30, 2023 and December 31, 2022, respectively) 182,975 186,168
Equity securities 20,859 19,864
Investment in unconsolidated subsidiaries 1,018 1,018
Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock 117,017 101,568
Total investments 1,282,914 1,404,910
Loans held for sale (“LHFS”) 29,876 20,641
Loans held for investment (“LHI”), mortgage warehouse (“MW”) 436,255 446,227
LHI, excluding MW 9,257,183 9,036,424
Less: Allowance for credit losses (“ACL”) (102,150) (91,052)
Total LHI, net 9,591,288 9,391,599
Bank-owned life insurance (“BOLI”) 84,375 84,496
Premises and equipment, net 105,986 108,824
Intangible assets, net of accumulated amortization 48,293 53,213
Goodwill 404,452 404,452
Other assets 259,263 250,149
Total assets $ 12,470,368 $ 12,154,361
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing deposits $ 2,234,109 $ 2,640,617
Interest-bearing transaction and savings deposits 3,590,253 3,514,729
Certificates and other time deposits 2,928,949 2,086,642
Correspondent money market deposits 480,598 881,246
Total deposits 9,233,909 9,123,234
Accounts payable and other liabilities 190,900 177,579
Advances from FHLB 1,325,000 1,175,000
Subordinated debentures and subordinated notes 229,279 228,775
Total liabilities 10,979,088 10,704,588
Stockholders’ equity:
Common stock, $0.01 par value:
Authorized shares - 75,000,000
Issued shares - 60,898,886 and 60,668,049 at June 30, 2023 and December 31, 2022, respectively 609 607
Additional paid-in capital (“APIC”) 1,311,687 1,306,852
Retained earnings 429,753 379,299
Accumulated other comprehensive (loss) income (“AOCI”) (83,187) (69,403)
Treasury stock, 6,638,094 and 6,638,094 shares at cost at June 30, 2023 and December 31, 2022, respectively (167,582) (167,582)
Total stockholders’ equity 1,491,280 1,449,773
Total liabilities and stockholders’ equity $ 12,470,368 $ 12,154,361


	March 31,		December 31,
	2024		2023
	(Unaudited)
ASSETS
Cash and due from banks	$	41,884	$	58,914
Interest bearing deposits in other banks	698,885		570,149
Total cash and cash equivalents	740,769		629,063
Debt securities AFS, at fair value	1,166,268		1,076,639
Debt securities HTM (fair value of $155,741 and $160,021, at March 31, 2024 and December 31, 2023, respectively)	178,662		180,403
Equity securities	21,676		21,521

Investment in unconsolidated subsidiaries	1,018		1,018
FHLB Stock and FRB Stock	54,094		53,699
Total investments	1,421,718		1,333,280
LHFS	64,762		79,072

LHI, MW	449,531		377,796
LHI, excluding MW	9,249,551		9,206,544
Less: ACL	(112,032)		(109,816)
Total LHI, net	9,587,050		9,474,524
BOLI	85,359		84,833
Premises and equipment, net	105,299		105,727
OREO	18,445		—
Intangible assets, net of accumulated amortization	38,679		41,753
Goodwill	404,452		404,452
Other assets	241,863		241,633
Total assets	$	12,708,396	$	12,394,337
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing deposits	$	2,349,211	$	2,218,036
Interest-bearing transaction and savings deposits	4,220,114		4,348,385
Certificates and other time deposits	3,486,805		3,191,737
Correspondent money market deposits	597,690		580,037
Total deposits	10,653,820		10,338,195
Accounts payable and other liabilities	186,027		195,036
Advances from FHLB	100,000		100,000
Subordinated debentures and subordinated notes	230,034		229,783

Total liabilities	11,169,881		10,863,014

Stockholders’ equity:
Common stock, $0.01 par value:
Authorized shares - 75,000,000
Issued shares - 61,134,055 and 60,976,462 at March 31, 2024 and December 31, 2023, respectively	611		610

APIC	1,319,144		1,317,516
Retained earnings	457,499		444,242
AOCI	(71,157)		(63,463)
Treasury stock, 6,638,094 and 6,638,094 shares, at cost, at March 31, 2024 and December 31, 2023, respectively	(167,582)		(167,582)
Total stockholders’ equity	1,538,515		1,531,323
Total liabilities and stockholders’ equity	$	12,708,396	$	12,394,337

See accompanying Notes to Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~

(Dollars in thousands, except per share amounts)
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 163,727 $ 82,191 $ 315,434 $ 153,634
Debt securities 10,166 9,632 21,154 17,394
Deposits in financial institutions and Fed Funds sold 7,507 714 13,041 976
Equity securities and other investments 1,118 1,057 2,526 1,967
Total interest and dividend income 182,518 93,594 352,155 173,971
INTEREST EXPENSE
Transaction and savings deposits 32,957 4,094 62,814 5,845
Certificates and other time deposits 28,100 1,465 49,067 2,845
Advances from FHLB 17,562 834 29,920 2,381
Subordinated debentures and subordinated notes 3,068 2,721 6,134 5,380
Total interest expense 81,687 9,114 147,935 16,451
NET INTEREST INCOME 100,831 84,480 204,220 157,520
Provision for credit losses 15,000 9,000 24,385 8,500
(Benefit) provision for credit losses on unfunded commitments (1,129) — 368 493
Net interest income after provision (benefit) for credit losses 86,960 75,480 179,467 148,527
NONINTEREST INCOME
Service charges and fees on deposit accounts 5,272 5,039 10,289 9,749
Loan fees 1,520 2,385 3,584 5,179
Loss on sales of debt securities — — (5,321) —
Gain on sale of mortgage LHFS 40 223 46 530
Government guaranteed loan income, net 4,144 789 13,832 5,680
Equity method investment income (loss) 485 966 (1,036) 1,333
Customer swap income 961 1,321 1,178 2,267
Other 1,270 (345) 4,651 737
Total noninterest income 13,692 10,378 27,223 25,475
NONINTEREST EXPENSE
Salaries and employee benefits 28,650 26,924 60,515 54,437
Occupancy and equipment 4,827 4,496 9,800 9,013
Professional and regulatory fees 6,868 2,865 11,257 6,023
Data processing and software expense 4,709 3,386 9,429 6,307
Marketing 2,627 2,306 4,406 3,493
Amortization of intangibles 2,468 2,495 4,963 4,990
Telephone and communications 355 352 833 737
Merger and acquisition (“M&A”) expense — 295 — 995
Other 6,693 5,034 12,609 8,730
Total noninterest expense 57,197 48,153 113,812 94,725
Income before income tax expense 43,455 37,705 92,878 79,277
Income tax expense 9,725 8,079 20,737 16,181
NET INCOME $ 33,730 $ 29,626 $ 72,141 $ 63,096
Basic earnings per share (“EPS”) $ 0.62 $ 0.55 $ 1.33 $ 1.21
Diluted EPS $ 0.62 $ 0.54 $ 1.32 $ 1.19


	Three Months Ended March 31,
	2024		2023
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	161,942	$	151,707
Debt securities	13,695		10,988
Deposits in financial institutions and Federal Funds sold	8,050		5,534
Equity securities and other investments	900		1,408
Total interest and dividend income	184,587		169,637
INTEREST EXPENSE
Transaction and savings deposits	46,784		29,857
Certificates and other time deposits	40,492		20,967
Advances from FHLB	1,391		12,358
Subordinated debentures and subordinated notes	3,114		3,066
Total interest expense	91,781		66,248
NET INTEREST INCOME	92,806		103,389
Provision for credit losses	7,500		9,385
(Benefit) provision for credit losses on unfunded commitments	(1,541)		1,497
Net interest income after provision (benefit) for credit losses	86,847		92,507
NONINTEREST INCOME
Service charges and fees on deposit accounts	4,896		5,017
Loan fees	2,510		2,064
Loss on sales of debt securities	(6,304)		(5,321)
Government guaranteed loan income, net	2,614		9,688
Equity method investment loss	—		(1,521)
Customer swap income	408		217
Other	2,538		3,387
Total noninterest income	6,662		13,531
NONINTEREST EXPENSE
Salaries and employee benefits	33,365		31,865
Occupancy and equipment	4,677		4,973
Professional and regulatory fees	6,053		4,389
Data processing and software expense	4,856		4,720
Marketing	1,546		1,779
Amortization of intangibles	2,438		2,495
Telephone and communications	261		478

Other	8,920		5,916
Total noninterest expense	62,116		56,615
Income before income tax expense	31,393		49,423
Income tax expense	7,237		11,012
NET INCOME	$	24,156	$	38,411


Basic EPS	$	0.44	$	0.71
Diluted EPS	$	0.44	$	0.70

See accompanying Notes to Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~

(Dollars in thousands)

Three Months Ended June 30, Six Months Ended
June 30,
2023 2022 2023 2022
NET INCOME $ 33,730 $ 29,626 $ 72,141 $ 63,096
OTHER COMPREHENSIVE INCOME
Net unrealized gains (losses) on debt securities AFS:
Change in net unrealized loss on debt securities AFS during the period, net (21,975) (39,374) (19,428) (88,450)
Amortization (accretion) from transfer of debt securities from AFS to HTM (165) (151) 3,457 4,104
Reclassification adjustment for net losses included in net income — — 5,321 —
Net unrealized loss on debt securities AFS (22,140) (39,525) (10,650) (84,346)
Net unrealized loss on derivative instruments designated as cash flow hedges (15,033) (11,572) (7,955) (24,953)
Other comprehensive loss, before tax (37,173) (51,097) (18,605) (109,299)
Income tax expense (8,494) (10,699) (4,821) (23,813)
Other comprehensive loss, net of tax (28,679) (40,398) (13,784) (85,486)
COMPREHENSIVE INCOME (LOSS) $ 5,051 $ (10,772) $ 58,357 $ (22,390)


	Three Months Ended March 31,
	2024		2023
NET INCOME	$	24,156	$	38,411
OTHER COMPREHENSIVE INCOME
Net unrealized (losses) gains on debt securities AFS:
Change in net unrealized (losses) gains on debt securities AFS during the period, net	(10,421)		2,547
Amortization from transfer of debt securities from AFS to HTM	2,925		3,622
Reclassification adjustment for net losses included in net income	6,304		5,321
Net unrealized (losses) gains on debt securities AFS	(1,192)		11,490

Net unrealized (losses) gains on derivative instruments designated as cash flow hedges	(8,495)		7,078

Other comprehensive (loss) income, before tax	(9,687)		18,568
Income tax (benefit) expense	(1,993)		3,673
Other comprehensive (loss) income, net of tax	(7,694)		14,895
COMPREHENSIVE INCOME	$	16,462	$	53,306

See accompanying Notes to Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~

(Dollars in thousands, except share data)

Three Months Ended June 30, 2023
Common Stock Treasury Stock APIC Retained
Earnings AOCI Total
Shares Amount Shares Amount
Balance at March 31, 2023 54,229,033 $ 609 6,638,094 $ (167,582) $ 1,308,345 $ 406,873 $ (54,508) $ 1,493,737
Restricted stock units (“RSU”) vested, net of 2,960 shares withheld to cover taxes 18,425 — — — (56) — — (56)
Exercise of employee stock options, net of 2,343 shares withheld to cover exercise 13,334 — — — 231 — — 231
Stock based compensation — — — — 3,167 — 3,167
Net income — — — — — 33,730 — 33,730
Dividends paid — — — — — (10,850) — (10,850)
Other comprehensive loss — — — — — — (28,679) (28,679)
Balance at June 30, 2023 54,260,792 $ 609 6,638,094 $ (167,582) $ 1,311,687 $ 429,753 $ (83,187) $ 1,491,280



Three Months Ended March 31, 2024
	Common Stock			Treasury Stock			APIC		Retained Earnings		AOCI		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2023	54,338,368	$	610	6,638,094	$	(167,582)	$	1,317,516	$	444,242	$	(63,463)	$	1,531,323
RSU vested, net of 69,034 shares withheld to cover taxes	157,593	1		—	—		(1,261)		—		—		(1,260)


Stock based compensation	—	—		—	—		2,889		—				2,889

Net income	—	—		—	—		—		24,156		—		24,156
Dividends paid	—	—		—	—		—		(10,899)		—		(10,899)
Other comprehensive loss	—	—		—	—		—		—		(7,694)		(7,694)
Balance at March 31, 2024	54,495,961	$	611	6,638,094	$	(167,582)	$	1,319,144	$	457,499	$	(71,157)	$	1,538,515

Three Months Ended June 30, 2022
Common Stock Treasury Stock APIC Retained
Earnings AOCI
Shares Amount Shares Amount Total
Balance at March 31, 2022 53,908,924 $ 605 6,638,094 $ (167,582) $ 1,297,161 $ 298,830 $ 18,982 $ 1,447,996
RSUs vested, net of 3,669 shares withheld to cover taxes 12,885 — — — (155) — — (155)
Exercise of employee stock options 29,228 1 — — 520 — — 521
Stock based compensation — — — — 2,644 — — 2,644
Net income — — — — — 29,626 — 29,626
Dividends paid — — — — — (10,792) — (10,792)
Other comprehensive loss — — — — — — (40,398) (40,398)
Balance at June 30, 2022 53,951,037 $ 606 6,638,094 $ (167,582) $ 1,300,170 $ 317,664 $ (21,416) $ 1,429,442


Three Months Ended March 31, 2023
	Common Stock			Treasury Stock			APIC		Retained Earnings		AOCI
	Shares	Amount		Shares	Amount								Total
Balance at December 31, 2022	54,029,955	$	607	6,638,094	$	(167,582)	$	1,306,852	$	379,299	$	(69,403)		$	1,449,773
RSUs 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 loss	—	—		—	—		—		—		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

See accompanying Notes to Consolidated Financial Statements.

~~VERITEX HOLDINGS, INC. AND SUBSIDIARIES~~

~~Consolidated Statements of Changes in Stockholders’ Equity(Unaudited)~~

~~For the Three and Six Months Ended June 30, 2023 and 2022~~

~~(Dollars in thousands, except share data)~~

Six Months Ended June 30, 2023
Common Stock Treasury Stock APIC Retained
Earnings AOCI
Shares Amount Shares Amount Total
Balance at December 31, 2022 54,029,955 $ 607 6,638,094 $ (167,582) $ 1,306,852 $ 379,299 $ (69,403) $ 1,449,773
RSUs vested, net of 74,425 shares withheld to cover taxes 179,506 2 — — (1,984) — — (1,982)
Exercise of employee stock options, net of 121 and 9,729 shares withheld to cover taxes and exercise, respectively 51,331 — — — 765 — — 765
Stock based compensation — — — — 6,054 — — 6,054
Net income — — — — — 72,141 — 72,141
Dividends paid — — — — — (21,687) — (21,687)
Other comprehensive loss — — — — — — (13,784) (13,784)
Balance at June 30, 2023 54,260,792 $ 609 6,638,094 $ (167,582) $ 1,311,687 $ 429,753 $ (83,187) $ 1,491,280

Six Months Ended June 30, 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 71,634 shares withheld to cover taxes 200,686 2 — — (2,994) — — (2,992)
Exercise of employee stock options, net of 6,905 and 28,064 shares withheld to cover taxes and exercise, respectively 63,548 1 — — 618 — — 619
Common stock follow-on offering 4,314,474 43 153,826 153,869
Stock based compensation — — — — 5,962 — — 5,962
Net income — — — — — 63,096 — 63,096
Dividends paid — — — — — (20,705) — (20,705)
Other comprehensive income — — — — — — (85,486) (85,486)
Balance at June 30, 2022 53,951,037 $ 606 6,638,094 $ (167,582) $ 1,300,170 $ 317,664 $ (21,416) $ 1,429,442

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

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~

(Dollars in thousands)


		For the Six Months Ended June 30,					For the Three Months Ended March 31,
		2023		2022			2024	2023
Cash flows from operating activities:	Cash flows from operating activities:
Net income	Net income	$	72,141	$	63,096
Net income
Net income
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles	Depreciation and amortization of fixed assets and intangibles	10,041		9,381
Net amortization of time deposit premium, debt discount and debt issuance costs		478		492
Depreciation and amortization of fixed assets and intangibles
Depreciation and amortization of fixed assets and intangibles
Net (accretion) amortization of time deposit premium, debt discount and debt issuance costs
Provision for credit losses and unfunded commitments	Provision for credit losses and unfunded commitments	24,753		8,993
Accretion of loan discount	Accretion of loan discount	(1,897)		(2,811)
Stock-based compensation expense	Stock-based compensation expense	6,054		5,962

Excess tax expense (benefit) from stock compensation		153		(1,075)
Excess tax expense from stock compensation
Excess tax expense from stock compensation
Excess tax expense from stock compensation
Net amortization of premiums on debt securities	Net amortization of premiums on debt securities	1,718		2,016
Unrealized loss on equity securities recognized in earnings		31		869
Unrealized loss (gain) on equity securities recognized in earnings
Change in cash surrender value and mortality rates of BOLI	Change in cash surrender value and mortality rates of BOLI	121		(903)
Loss on sales of debt securities	Loss on sales of debt securities	5,321		—
Change in fair value of government guaranteed loans using fair value option	Change in fair value of government guaranteed loans using fair value option	(616)		209
Gain on sales of mortgage LHFS	Gain on sales of mortgage LHFS	(46)		(530)
Gain on sales of government guaranteed loans	Gain on sales of government guaranteed loans	(15,598)		(5,427)

Servicing asset (recoveries), net impairment		(862)		1,883
Servicing asset recoveries, net

Servicing asset recoveries, net

Servicing asset recoveries, net
Originations of LHFS	Originations of LHFS	(39,877)		(30,047)
Proceeds from sales of LHFS	Proceeds from sales of LHFS	34,273		44,115

Equity method investment loss (income)		1,036		(1,333)
Equity method investment loss

Increase in other assets		(6,527)		(16,806)
Increase in accounts payable and other liabilities		7,620		21,157
Equity method investment loss

Equity method investment loss

Decrease (increase) in other assets

Decrease (increase) in other assets

Decrease (increase) in other assets
(Decrease) increase in accounts payable and other liabilities
Net cash provided by operating activities	Net cash provided by operating activities	98,317		99,241
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Purchases of AFS debt securities	Purchases of AFS debt securities	(189,668)		(432,678)

Purchases of AFS debt securities

Purchases of AFS debt securities
Proceeds from sales of AFS debt securities	Proceeds from sales of AFS debt securities	109,793		—
Proceeds from maturities, calls and pay downs of AFS debt securities	Proceeds from maturities, calls and pay downs of AFS debt securities	197,634		54,530
Purchases of HTM debt securities		—		(11,642)

Maturity, calls and paydowns of HTM debt securities
Maturity, calls and paydowns of HTM debt securities
Maturity, calls and paydowns of HTM debt securities	Maturity, calls and paydowns of HTM debt securities	2,107		1,518
Purchases of other investments	Purchases of other investments	(16,475)		(16,290)
Proceeds from sales of equity securities		—		3,327

Net loans originated

Net loans originated

Net loans originated	Net loans originated	(291,810)		(1,202,273)
Proceeds from sale of government guaranteed loans	Proceeds from sale of government guaranteed loans	79,812		32,041
Net additions (disposals) to premises and equipment		337		(2,026)
Net (disposals) additions to premises and equipment

Net cash used in investing activities	Net cash used in investing activities	(108,270)		(1,573,493)

Net cash used in investing activities

Net cash used in investing activities
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits		110,701		1,154,107
Net increase (decrease) in deposits
Net increase in advances from FHLB	Net increase in advances from FHLB	150,000		221,080

Net change in securities sold under agreement to repurchase		—		(794)
Net proceeds on sale of common stock in public offering		—		153,869

Payments to tax authorities for stock-based compensation

Payments to tax authorities for stock-based compensation

Payments to tax authorities for stock-based compensation	Payments to tax authorities for stock-based compensation	(1,982)		(2,992)
Proceeds from exercise of employee stock options	Proceeds from exercise of employee stock options	765		619

Dividends paid	Dividends paid	(21,687)		(20,705)

Dividends paid

Dividends paid

Net cash provided by financing activities
Net cash provided by financing activities
Net cash provided by financing activities	Net cash provided by financing activities	237,797		1,505,184
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	227,844		30,932
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	436,077		379,784
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	663,921	$	410,716

See accompanying Notes to Consolidated Financial Statements.

109

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except for per share amounts)

1. Operations and Summary of Significant Accounting Policies

Organization and Nature of ~~Organization~~Business

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 1819 branches located in the Dallas-Fort Worth metroplex and 11 branches in the Houston metropolitan area. As of this filing, one branch in the Dallas-Fort Worth metroplex was opened after first quarter end 2024. 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~~TDB and the Board of Governors of the Federal Reserve ~~System (the “Federal Reserve”)~~ are the primary regulators of the Company and the Bank, and both regulatory agencies perform periodic examinations to ensure regulatory compliance.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Veritex Holdings, Inc. and its subsidiaries, including ~~Veritex Community~~the Bank.

The accompanying unaudited consolidated financial statements have been prepared in accordance with ~~generally accepted accounting principles in the United States of America (“GAAP”),~~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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, consolidated statements of income, consolidated statements of comprehensive income (loss) and consolidated changes in stockholders’ equity ~~and consolidated statements of comprehensive income~~ for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ and consolidated statements of cash flows for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and ~~2022.~~2023.

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”).~~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, ~~2022~~2023 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, ~~2023.~~2024.

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.

1110

~~Reclassifications~~

~~Certain items in the Company’s prior year financial statements were reclassified to conform to the current presentation.~~

EPS

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 ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:


		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
Numerator:
Numerator:
Numerator:	Numerator:
Net income	Net income	$	33,730	$	29,626	$	72,141	$	63,096
Net income
Net income
Denominator:
Denominator:
Denominator:	Denominator:
Weighted average shares outstanding for basic EPS	Weighted average shares outstanding for basic EPS	54,247		53,949		54,199		52,331
Weighted average shares outstanding for basic EPS
Weighted average shares outstanding for basic EPS
Dilutive effect of employee stock-based awards
Dilutive effect of employee stock-based awards
Dilutive effect of employee stock-based awards	Dilutive effect of employee stock-based awards	239		697		347		790
Adjusted weighted average shares outstanding	Adjusted weighted average shares outstanding	54,486		54,646		54,546		53,121
Adjusted weighted average shares outstanding
Adjusted weighted average shares outstanding
EPS:
EPS:
EPS:	EPS:
Basic	Basic	$	0.62	$	0.55	$	1.33	$	1.21
Basic
Basic
Diluted	Diluted	$	0.62	$	0.54	$	1.32	$	1.19
Diluted
Diluted
Antidilutive shares
Antidilutive shares
Antidilutive shares

For the three months ended ~~June 30, 2023,~~March 31, 2024, there were 311,127 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 18514 relating to RSUs and 13613 relating to stock options. ~~For the six months ended June 30, 2023, there were 231 antidilutive shares excluded from the diluted EPS weighed average shares outstanding, 180 related to RSUs and 51 relating to stock options.~~

For the three months ended ~~June 30, 2022,~~March 31, 2023, there were ~~290~~834 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, ~~280~~440 related to RSUs and ~~ten~~214 related ~~to stock options. For the six months ended June 30, 2022, there were 205 antidilutive shares excluded from the diluted EPS weighed average shares outstanding, 204 related to RSUs and 1 relating~~ to stock options.

Cost Method Accounting

The Company follows ASC 325-20, Cost Method Investments, to account for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments). Investments of this nature are initially recorded at cost. Income is recorded for dividends received that are distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost of the investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

Recent Accounting Pronouncements

~~There were no~~ASU 2024-01, “Compensation — Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards” (“ASU 2024-01”) clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance. Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting ~~standards or updates issued during the second quarter of 2023.~~principle. ASU 2024-01 is effective January 1, 2025, including interim periods, and is not expected to have a significant impact on our financial statements.

~~Goodwill~~

ASU 2024-02 “

~~Goodwill resulting from~~Codification Improvements” (“ASU 2024-02”) amends the Codification to remove references to various concepts statements and impacts a ~~business combination represents~~variety of topics in the ~~excess~~Codification. The amendments apply to all reporting entities within the scope of the ~~fair value of~~affected accounting guidance, but in most instances the ~~consideration transferred over~~references removed are extraneous and not required to understand or apply the ~~fair value of~~guidance. Generally, the ~~net assets acquired~~amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and ~~liabilities assumed as of the acquisition date. Goodwill~~ is not ~~amortized but is reviewed for potential impairment annually~~expected to have a significant impact on October 31 of each fiscal year or when a triggering event occurs. The Company may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test, and the Company may resume performing the qualitative assessment in any subsequent period. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of potential impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Any such adjustments to goodwill are reflected in the results of operations in the periods in which they become known.our financial statements.

1211

~~During the second quarter of 2023, the Company observed a sustained decline in the market valuation of the Company’s common stock as a result of~~ ~~significant volatility~~ in the banking industry with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. As a result, the Company performed an interim quantitative impairment test with a trigger date of May 31, 2023. The Company determined the fair value of its reporting unit using a combination of a market and an income approach. Upon completion of the quantitative evaluation, the Company determined that the fair value of the Company's reporting unit exceeded its related carrying value ~~by approximately 26%~~, and therefore goodwill was not impaired. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

2. Supplemental Statement of Cash Flows

Other supplemental cash flow information is presented below:

Six Months Ended June 30,
2023 2022
(in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 127,174 $ 16,572
Cash paid for income taxes 23,500 10,000
Supplemental Disclosures of Non-Cash Flow Information:
Transfer of AFS debt securities to HTM debt securities — 117,001
Net foreclosure of OREO and repossessed assets — 1,032
Noncash assets acquired in business combination1
LHI — (681)
Goodwill — 681

1 ~~Represents adjustments to provisional estimates recorded during the six months ended June 30, 2022 for the acquisition of North Avenue Capital, LLC (“NAC”).~~


	Three Months Ended March 31,
	2024		2023
	(in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	98,354	$	54,189
Cash paid for income taxes	—		—

3. Securities

Equity Securities With a Readily Determinable Fair Value

The Company held equity securities with a fair value of ~~$9,761~~$9,792 and ~~$9,792~~$9,897 at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. The Company did not realize a loss on equity securities with a readily determinable fair value during the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 or ~~2022, respectively.~~2023. The gross unrealized 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 June 30, Six Months Ended June 30,
2023 2022 2023 2022
Unrealized loss recognized on equity securities with a readily determinable fair value $ (157) $ (356) $ (31) $ (869)


	Three Months Ended March 31,
	2024		2023
Unrealized (loss) gain recognized on equity securities with a readily determinable fair value	$	(105)	$	126

Equity Securities Without a Readily Determinable Fair Value

The Company held equity securities without a readily determinable fair ~~values~~value and measured at aggregate cost of ~~$11,098~~$38,194 and ~~$10,072~~$11,624 as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

Securities Purchased Under Agreements to Resell

~~As of June 30, 2023, we~~We held no securities purchased under agreements to resell and we recognized no interest income ~~during the six months ended June 30, 2023~~ on securities purchased under agreements to ~~resell. As of June 30, 2022, we held securities purchased under agreements to~~ resell ~~of $99.0 million and we recognized interest income of $585 thousand~~ during the ~~six~~three months ended ~~June 30, 2022 on securities purchased under agreements to resell.~~March 31, 2024 or 2023. 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:

June 30, 2023
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ACL Fair Value
AFS
U.S. government agencies $ 39,708 $ 4 $ — $ — $ 39,712
Corporate bonds 244,322 1,102 36,552 885 207,987
Municipal securities 46,818 — 3,653 — 43,165
Mortgage-backed securities 126,547 15 16,021 — 110,541
Collateralized mortgage obligations 507,796 — 51,972 — 455,824
Asset-backed securities 36,708 454 909 — 36,253
Collateralized loan obligations 69,750 — 2,187 — 67,563
$ 1,071,649 $ 1,575 $ 111,294 $ 885 $ 961,045
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ACL Fair Value
HTM
Mortgage-backed securities $ 35,198 $ — $ 6,495 $ — $ 28,703
Collateralized mortgage obligations 35,014 — 5,230 — 29,784
Municipal securities 112,763 — 12,483 — 100,280
$ 182,975 $ — $ 24,208 $ — $ 158,767

1412


			December 31, 2022										March 31, 2024
			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
AFS	AFS

Corporate bonds	Corporate bonds		$	268,179	$	1,445	$	17,379	$	—	$	252,245

Corporate bonds

Corporate bonds
Municipal securities	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
MBS
CMO
Asset-backed securities	Asset-backed securities		42,015		289		2,613		—		39,691
Collateralized loan obligations	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
			Amortized Cost
			Amortized Cost
			Amortized Cost											Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
HTM	HTM
Mortgage-backed securities			$	36,342	$	—	$	6,753	$	—	$	29,589
Collateralized mortgage obligations			36,169		—		5,884		—		30,285
MBS
MBS
MBS
CMO
Municipal securities	Municipal securities		113,657		6		14,756		—		98,907
			$	186,168	$	6	$	27,393	$	—	$	158,781
		$

~~Mortgage-backed securities (“MBS”)~~


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

Corporate bonds	$	244,652	$	1,034	$	29,566	$	—	$	216,120
Municipal securities	46,631		108		3,258		—		43,481
MBS	194,486		4,430		13,465		—		185,451
CMO	563,421		4,634		46,999		—		521,056
Asset-backed securities	47,738		1,045		2,130		—		46,653
Collateralized loan obligations	64,250		—		372		—		63,878
	$	1,161,178	$	11,251	$	95,790	$	—	$	1,076,639

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
HTM
MBS	$	33,716	$	—	$	6,037	$	—	$	27,679
CMO	34,483		—		4,567		—		29,916
Municipal securities	112,204		86		9,864		—		102,426
	$	180,403	$	86	$	20,468	$	—	$	160,021

MBS are commercial MBS, secured by commercial properties, and residential MBS, generally secured by single-family residential properties. All ~~mortgage-backed securities~~MBS included in the table above were issued by U.S. government agencies or corporations.

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~~was recorded at the fair value of the AFS debt securities at the time of transfer. The net unrealized holding gain retained in AOCI for securities transferred from AFS to HTM was ~~$3,457~~$2,925 and ~~$3,790~~$3,122 at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

The following tables disclose the Company’s ~~AFS~~ debt securities in an unrealized loss position, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position:


	March 31, 2024
	Less Than 12 Months				12 Months or More				Totals
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AFS

Corporate bonds	$	53,376	$	5,297	$	164,604	$	21,134	$	217,980	$	26,431
Municipal securities	10,915		3,357		—		—		10,915		3,357
MBS	—		—		87,805		14,686		87,805		14,686
CMO	61,680		1,066		339,830		46,197		401,510		47,263
Asset-backed securities	64,037		1,999		6,250		550		70,287		2,549
Collateralized loan obligations	—		—		33,177		73		33,177		73
	$	190,008	$	11,719	$	631,666	$	82,640	$	821,674	$	94,359

HTM
MBS	$	—	$	—	$	26,435	$	6,719	$	26,435	$	6,719
CMO	—		—		28,659		4,927		28,659		4,927
Municipal securities	100,109		11,275		—		—		100,109		11,275
	$	100,109	$	11,275	$	55,094	$	11,646	$	155,203	$	22,921

June 30, 2023
Less Than 12 Months 12 Months or More Totals
Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
AFS
Corporate bonds $ 88,314 $ 14,686 $ 97,892 $ 21,866 $ 186,206 $ 36,552
Municipal securities 24,483 351 18,682 3,302 43,165 3,653
Mortgage-backed securities 935 19 108,865 16,002 109,800 16,021
Collateralized mortgage obligations 52,483 2,853 403,341 49,119 455,824 51,972
Asset-backed securities 3,232 147 7,864 762 11,096 909
Collateralized loan obligations — — 67,563 2,187 67,563 2,187
$ 169,447 $ 18,056 $ 704,207 $ 93,238 $ 873,654 $ 111,294
HTM
Mortgage-backed securities $ — $ — $ 28,703 $ 6,495 $ 28,703 $ 6,495
Collateralized mortgage obligations 3,752 280 26,032 4,950 29,784 5,230
Municipal securities 21,077 225 79,203 12,258 100,280 12,483
$ 24,829 $ 505 $ 133,938 $ 23,703 $ 158,767 $ 24,208


			December 31, 2022												December 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

Corporate bonds	Corporate bonds		$	197,946	$	15,697	$	15,568	$	1,682	$	213,514	$	17,379

Corporate bonds

Corporate bonds
Municipal securities	Municipal securities		33,919		848		8,813		3,350		42,732		4,198
Mortgage-backed securities			115,467		11,104		22,780		6,317		138,247		17,421
Collateralized mortgage obligations			482,358		42,553		71,198		13,296		553,556		55,849
MBS
CMO
Asset-backed securities	Asset-backed securities		15,195		991		11,207		1,621		26,402		2,612
Collateralized loan obligations	Collateralized loan obligations		23,673		1,328		42,375		2,375		66,048		3,703
			$	868,558	$	72,521	$	171,941	$	28,641	$	1,040,499	$	101,162

HTM	HTM
Mortgage-backed securities			$	804	$	85	$	28,784	$	6,668	$	29,588	$	6,753
Collateralized mortgage obligations			25,285		4,676		4,999		1,208		30,284		5,884
HTM
HTM
MBS
MBS
MBS
CMO
Municipal securities	Municipal securities		85,671		11,411		9,161		3,345		94,832		14,756
			$	111,760	$	16,172	$	42,944	$	11,221	$	154,704	$	27,393
		$

The number of AFS debt securities in an unrealized loss position totaled ~~148~~133 and ~~175~~142 at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Management does not have the intent to sell any of these debt securities and believes that it is more likely than not that the Company will not have to sell any such debt securities before a recovery of cost. The fair value is expected to recover as the debt securities approach their maturity date or repricing date or if market yields for such investments

decline. Accordingly, as of ~~June 30, 2023,~~March 31, 2024, 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 following table presents the activity in the ~~allowance for credit losses~~ACL for AFS debt securities:

Six Months Ended June 30,
2023 2022
Allowance for credit losses:
Beginning Balance $ — $ —
Credit Loss Expense 885 —
Allowance for credit losses ending balance $ 885 $ —


	Three Months ended March 31,
	2024		2023
ACL:
Beginning balance	$	—	$	—
Credit loss expense	—		885
ACL ending balance	$	—	$	885

The amortized costs and estimated fair values of AFS and HTM 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,~~MBS, CMOs, 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,~~MBS, CMOs, 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.


			June 30, 2023
			AFS				HTM
			Amortized Cost		Fair Value		Amortized Cost		Fair Value
		March 31, 2024												March 31, 2024
		AFS										AFS			HTM
		Amortized Cost									Amortized Cost		Fair Value	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less		$	39,708	$	39,712	$	—	$	—
Due from one year to five years	Due from one year to five years		43,578		44,452		454		440
Due from five years to ten years	Due from five years to ten years		191,277		157,406		13,168		12,744
Due after ten years	Due after ten years		56,285		49,294		99,141		87,096
			330,848		290,864		112,763		100,280
Mortgage-backed securities and collateralized mortgage obligations			634,343		566,365		70,212		58,487
		276,798
MBS and CMO
Asset-backed securities	Asset-backed securities		36,708		36,253		—		—
Collateralized loan obligations	Collateralized loan obligations		69,750		67,563		—		—
			$	1,071,649	$	961,045	$	182,975	$	158,767
		$


		December 31, 2022
		AFS				HTM
		Amortized Cost		Fair Value		Amortized Cost		Fair Value
		December 31, 2023
		December 31, 2023
		December 31, 2023
		AFS
		AFS
		AFS
		Amortized Cost
		Amortized Cost
		Amortized Cost
Due in one year or less
Due in one year or less
Due in one year or less	Due in one year or less	$	—	$	—	$	—	$	—
Due from one year to five years	Due from one year to five years	53,692		54,179		—		—
Due from one year to five years
Due from one year to five years
Due from five years to ten years
Due from five years to ten years
Due from five years to ten years	Due from five years to ten years	205,911		190,406		8,275		8,129
Due after ten years	Due after ten years	58,462		53,351		105,382		90,778
		318,065		297,936		113,657		98,907
Mortgage-backed securities and collateralized mortgage obligations		765,864		692,617		72,511		59,874
Due after ten years
Due after ten years
		291,283
		291,283
		291,283
MBS and CMO
MBS and CMO
MBS and CMO
Asset-backed securities
Asset-backed securities
Asset-backed securities	Asset-backed securities	42,015		39,691		—		—
Collateralized loan obligations	Collateralized loan obligations	69,750		66,048		—		—
		$	1,195,694	$	1,096,292	$	186,168	$	158,781
Collateralized loan obligations
Collateralized loan obligations
		$
		$
		$

1715

Proceeds from sales of debt securities AFS and gross gains and losses for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ were as follows:

Six Months Ended June 30,
2023 2022
Proceeds from sales (1)
$ 109,793 $ —
Gross realized losses (1)
5,321 —
~~(1)~~ ~~There were no proceeds from sales or gross realized losses for the three months ended June 30, 2023.~~


	Three Months Ended March 31,
	2024		2023
Proceeds from sales	$	113,794	$	109,793

Gross realized losses	6,304		5,321

As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders' equity. There was a blanket floating lien on all debt securities held by the Company to secure FHLB advances as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

1816

4. LHI and ACL

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


		June 30, 2023		December 31, 2022		March 31, 2024	December 31, 2023
LHI, carried at amortized cost:	LHI, carried at amortized cost:
Real estate:
Real estate:
Real estate:	Real estate:
Construction and land	Construction and land	$	1,659,700	$	1,787,400
Farmland	Farmland	51,663		43,500
1 - 4 family residential	1 - 4 family residential	923,442		894,456
Multi-family residential	Multi-family residential	592,473		322,679
Owner occupied commercial real estate (“OOCRE”)		671,602		715,829
Non-owner occupied commercial real estate (“NOOCRE”)		2,509,731		2,341,379
OOCRE
NOOCRE
Commercial	Commercial	2,850,084		2,942,348
MW	MW	436,255		446,227
Consumer	Consumer	11,189		7,806
	$
		9,706,139		9,501,624

Deferred loan fees, net
Deferred loan fees, net
Deferred loan fees, net	Deferred loan fees, net	(12,701)		(18,973)
ACL	ACL	(102,150)		(91,052)
Total LHI, net	Total LHI, net	9,591,288		9,391,599

Included in the total LHI, net, as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 was an accretable discount related to purchased performing and ~~purchased credit deteriorated (“PCD”)~~PCD loans acquired in the approximate amounts of ~~$6,798~~$5,084 and ~~$8,260,~~$5,334, respectively. The discount is being accreted into income on a level-yield basis over the life of the loans. In addition, included in the net loan portfolio as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 is a discount on retained loans from sale of originated ~~U.S. Small Business Administration (“SBA”)~~SBA and ~~U.S.~~ ~~Department of Agriculture (“USDA”)~~USDA loans of ~~$7,602~~$8,512 and ~~$5,238,~~$7,629, respectively.

During the year ended December 31, 2022, the Company purchased $223,924 in pooled residential real estate loans at a net discount, with a remaining balance of ~~$167,847~~$160,695 as of ~~June 30, 2023.~~March 31, 2024. The remaining net purchase discount of ~~$3,683~~$3,005 and ~~$4,135~~$3,231 related to these 1-4 family residential loans purchased is included in the total LHI, net, as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. No additional pooled residential real estate loans ~~were purchased during the six months ended June 30, 2023.~~have been repurchased since 2022.

ACL

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The activity in the ACL related to LHI is as follows:

Three Months Ended June 30, 2023
Construction and Land Farmland Residential Multifamily OOCRE NOOCRE Commercial Consumer Total
Balance at beginning of the period $ 17,314 $ 168 $ 9,541 $ 3,484 $ 8,813 $ 26,238 $ 32,717 $ 419 $ 98,694
Credit loss (benefit) expense non-PCD loans 831 2 (331) 1,223 (1,286) 9,914 5,642 (45) 15,950
Credit (benefit) loss expense PCD loans — — (2) — (8) (212) (728) — (950)
Charge-offs — — — — — (8,215) (3,540) (92) (11,847)
Recoveries — — 1 — — 150 106 46 303
Ending Balance $ 18,145 $ 170 $ 9,209 $ 4,707 $ 7,519 $ 27,875 $ 34,197 $ 328 $ 102,150

1917


		Three Months Ended June 30, 2022																		Three Months Ended March 31, 2024
		Construction and Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total		Construction and Land	Farmland	Residential	Multifamily	OOCRE	NOOCRE	Commercial	MW	Consumer	Total
Balance at beginning of the period	Balance at beginning of the period	$	8,883	$	158	$	6,134	$	2,127	$	7,423	$	26,954	$	20,084	$	722	$	72,485
Credit (benefit) loss expense non-PCD loans		1,428		(13)		1,919		59		185		725		3,068		1,718		9,089
Credit loss expense non-PCD loans
Credit (benefit) loss expense PCD loans	Credit (benefit) loss expense PCD loans	(11)		—		—		—		—		—		1,178		(1,256)		(89)
Charge-offs	Charge-offs	—		—		—		—		(244)		—		(528)		(1,091)		(1,863)
Recoveries	Recoveries	—		—		3		—		245		93		572		41		954
Ending Balance	Ending Balance	$	10,300	$	145	$	8,056	$	2,186	$	7,609	$	27,772	$	24,374	$	134	$	80,576

Six Months Ended June 30, 2023
Construction and Land Farmland Residential Multifamily OOCRE NOOCRE Commercial Consumer Total
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 5,071 43 (319) 2,100 (1,048) 9,415 8,638 318 24,218
Credit (benefit) expense PCD loans (46) — (7) — (24) (179) (462) — (718)
Charge-offs — — — — (116) (8,215) (4,591) (154) (13,076)
Recoveries — — 2 — — 150 470 52 674
Ending Balance $ 18,145 $ 170 $ 9,209 $ 4,707 $ 7,519 $ 27,875 $ 34,197 $ 328 $ 102,150


		Six Months Ended June 30, 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 the period	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		3,022		(42)		2,143		(478)		997		(3,389)		7,112		2,340		11,705
Credit loss (benefit) expense non-PCD loans
Credit (benefit) loss expense PCD loans	Credit (benefit) loss expense PCD loans	(15)		—		(72)		—		(1,263)		673		(1,264)		(1,264)		(3,205)
Charge-offs	Charge-offs	—		—		—		—		(1,585)		(553)		(3,822)		(1,225)		(7,185)
Recoveries	Recoveries	—		—		3		—		245		493		716		50		1,507
Ending Balance	Ending Balance	$	10,300	$	145	$	8,056	$	2,186	$	7,609	$	27,772	$	24,374	$	134	$	80,576

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.

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, 2024
			March 31, 2024
			March 31, 2024											December 31, 2023
												Real Property(1)	ACL Allocation		Real Property(1)	ACL Allocation
		June 30, 2023					December 31, 2022
Construction and land
Construction and land
Construction and land
			Real Property(1)		ACL Allocation			Real Property(1)		ACL Allocation
1 - 4 family residential
1 - 4 family residential
1 - 4 family residential

OOCRE
OOCRE
OOCRE	OOCRE		$	1,157	$	—		$	1,193	$	129
NOOCRE	NOOCRE		32,897		1,939			20,896		2,138
Commercial	Commercial		2,317		589			1,240		396
Mortgage warehouse			208		208			—		—
Consumer			—		—			15		—

Total	Total		$	36,579	$	2,736		$	23,344	$	2,663

Total

Total

(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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, were as follows:


		June 30, 2023				December 31, 2022
		Nonaccrual		Nonaccrual With No ACL			Nonaccrual		Nonaccrual With No ACL
Real estate:
											March 31, 2024	December 31, 2023
	Nonaccrual



Construction and land
Construction and land
Construction and land

1 - 4 family residential

1 - 4 family residential

1 - 4 family residential	1 - 4 family residential	$	1,231	$	1,231		$	862	$	862

OOCRE	OOCRE	10,287		10,287			9,737		8,545

OOCRE

OOCRE
NOOCRE
NOOCRE
NOOCRE	NOOCRE	32,981		25,049			21,377		13,178
Commercial	Commercial	23,007		1,953			11,397		2,521
MW		208		—			—		—
Commercial
Commercial

Consumer

Consumer

Consumer	Consumer	62		62			169		169
Total	Total	$	67,776	$	38,582		$	43,542	$	25,275
Total
Total

There were ~~$7,736~~$9,419 and ~~$8,545~~$13,715 of PCD loans that are not accounted for on a pooled basis included in nonaccrual loans at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023, interest income not recognized on nonaccrual loans was ~~$1,996~~$781 and ~~$2,768, respectively. During the three and six months ended June 30, 2022, interest income not recognized on non accrual loans was $589 and $1,478,~~772, respectively.

An age analysis of past due loans, aggregated by class of loans and including past due nonaccrual loans, as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, is as follows:


	March 31, 2024
	30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		Total Loans		Total 90 Days Past Due and Still Accruing
Real estate:
Construction and land	$	13,150	$	59	$	6,678	$	19,887	$	1,548,370	$	1,568,257	$	—
Farmland	—		—		—		—		30,979		30,979		—
1 - 4 family residential	2,352		459		2,159		4,970		964,431		969,401		—
Multi-family residential	—		—		—		—		751,607		751,607		—
OOCRE	1,826		—		15,346		17,172		771,204		788,376		220
NOOCRE	10,605		2,847		12,658		26,110		2,326,883		2,352,993		—
Commercial	427		3,075		9,963		13,465		2,772,522		2,785,987		—
MW	—		—		—		—		449,531		449,531		—
Consumer	11		—		—		11		8,871		8,882		—
Total	$	28,371	$	6,440	$	46,804	$	81,615	$	9,624,398	$	9,706,013	$	220


		June 30, 2023																	December 31, 2023
		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)			30 to 59 Days	60 to 89 Days	90 Days or Greater	Total Past Due	Total Current	Total Loans	Total 90 Days Past Due and Still Accruing(2)
Real estate:	Real estate:																	Real estate:
Construction and land	Construction and land	$	—	$	—	$	—	$	—	$	1,659,700	$	—	$	1,659,700	$	—
Farmland	Farmland	—		—		—		—		51,663		—		51,663		—
1 - 4 family residential	1 - 4 family residential	2,867		306		996		4,169		918,174		1,099		923,442		197
Multi-family residential	Multi-family residential	—		—		—		—		592,473		—		592,473		—
OOCRE	OOCRE	4,225		33		1,157		5,415		647,637		18,550		671,602		—
NOOCRE	NOOCRE	11,970		—		21,569		33,539		2,462,065		14,127		2,509,731		—
Commercial	Commercial	1,908		18,441		16,462		36,811		2,809,846		3,427		2,850,084		302
MW	MW	—		—		208		208		436,047		—		436,255		—
Consumer	Consumer	74		43		29		146		11,026		17		11,189		29
Total	Total	$	21,044	$	18,823	$	40,421	$	80,288	$	9,588,631	$	37,220	$	9,706,139	$	528

~~(1)~~ ~~Total past due loans includes $15 of PCD loans as of June 30, 2023.~~

~~(2)~~Loans 90 days past due and still accruing ~~excludes $795 of PCD loans as of June 30, 2023.~~

December 31, 2022
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:
Construction and land $ 1,121 $ 2,111 $ — $ 3,232 $ 1,782,624 $ 1,544 $ 1,787,400 $ —
Farmland — — — — 43,500 — 43,500 —
1 - 4 family residential 4,319 129 499 4,947 888,329 1,180 894,456 123
Multi-family residential 1,000 — — 1,000 321,679 — 322,679 —
OOCRE 3,342 1,186 1,193 5,721 690,291 19,817 715,829 —
NOOCRE 5,156 — 20,896 26,052 2,302,579 12,748 2,341,379 —
Commercial 3,088 2,188 1,675 6,951 2,931,696 3,701 2,942,348 —
MW — — — — 446,227 — 446,227 —
Consumer 352 — 45 397 7,386 23 7,806 2
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 $2,004 of PCD loans and $669 of PPP loans as of December 31, 2022.~~

~~There were $528 loans past due 90 days and still accruing as of June 30, 2023. Loans past due 90 days and still accruing were $125 as of December 31, 2022. These loans~~interest are ~~also~~ considered well-secured and ~~are~~ in the process of collection as of the reporting date with plans in place for the borrowers to bring the notes fully ~~current or to subsequently be renewed.~~current. The Company believes that it will collect all principal and interest due on each of the loans 90 days past due ~~90 days~~ and still accruing.

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted ~~Accounting Standards Update (“ASU”)~~ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt 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.

An assessment of 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 credit losses because of~~ACL (due to the measurement methodologies used to estimate the ~~allowance,~~allowance), a change to the ~~allowance for credit losses~~ACL is generally not recorded upon modification.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted during the ~~six~~three months ended ~~June 30, 2023:~~March 31, 2024:

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

Interest Rate Reduction

Financial Impact

Interest Rate Reduction

Amortized Cost Basis

% of Loan Class

Financial Impact

1-4 Family Residential Rentals1

41,497

4.5

Reduced weighted-average contractual interest rate from floating 7.5% to fixed 6.0%

NOOCRE

28,441

1.2

Interest rate reduced longer than 3 months


	Term Extension
	Amortized Cost Basis		% of Loan Class		Financial Impact
Construction and land	$	2,000	0.1	%	Principal and interest payments deferred longer than three months

1~~1-4 Family Residential Rentals is included in the 1-4 family residential loan portfolio and is reported as such in accordance with Federal Financial Institutions Examination Counsel guidelines.~~

Term Extension
Amortized Cost Basis % of Loan Class Financial Impact
NOOCRE $ 8,887 0.4 % Principal and interest deferred over three months
Commercial 873 — % Principal and interest deferred over three months
$ 9,760


	Combination - Interest Rate Reduction and Term Extension
	Amortized Cost Basis		% of Loan Class		Financial Impact

NOOCRE	$	45,762	1.9	%	Principal payments deferred and interest rate reduced longer than three months
Commercial	6,336		0.2	%	Principal payments deferred and interest rate reduced longer than three months
	$	52,098

No modifications to borrowers in financial difficulty had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial ~~difficulty:~~difficulty.

The Company closely monitors the performance of the loans 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 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~~

~~41,497~~

—

~~NOOCRE~~

~~8,887~~

—

~~Commercial~~

~~873~~

—

~~Total~~

~~51,257~~

—


Payment Status
	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due
Construction and land	$	—	$	2,000	$	—	$	—

NOOCRE	84,190		9,343		—		—
Commercial	27,764		—		—		2,108
Total	$	111,954	$	11,343	$	—	$	2,108

The Company has not committed to lend additional amounts to customers with outstanding loans classified as Troubled Loan Modifications ~~(“TLM”)~~ as of ~~June 30, 2023~~March 31, 2024 or December 31, ~~2022.~~2023.

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
		2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of June 30, 2023

																				2024	2023	2022	2021	2020	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
As of March 31, 2024
Construction and land:	Construction and land:
Construction and land:
Construction and land:
Pass
Pass
Pass	Pass	$	28,704	$	605,749	$	600,551	$	153,453	$	3,671	$	14,393	$	184,343	$	502	$	1,591,366
Special mention	Special mention	—		2,377		3,795		3,065		25,766		—		—		—		35,003
Substandard	Substandard	—		—		7,809		25,522		—		—		—		—		33,331

Total construction and land	Total construction and land	$	28,704	$	608,126	$	612,155	$	182,040	$	29,437	$	14,393	$	184,343	$	502	$	1,659,700
Total construction and land
Total construction and land
Construction and land gross charge-offs	Construction and land gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Farmland:	Farmland:
Farmland:
Farmland:
Pass
Pass
Pass	Pass	$	2,035	$	2,487	$	22,399	$	18,265	$	18	$	5,009	$	1,450	$	—	$	51,663

Total farmland

Total farmland

Total farmland	Total farmland	$	2,035	$	2,487	$	22,399	$	18,265	$	18	$	5,009	$	1,450	$	—	$	51,663
Farmland gross charge-offs	Farmland gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1 - 4 family residential:	1 - 4 family residential:

1 - 4 family residential:

1 - 4 family residential:
Pass
Pass
Pass	Pass	$	29,388	$	145,300	$	200,696	$	84,769	$	39,868	$	284,326	$	129,061	$	5,360	$	918,768
Special mention	Special mention	—		—		—		—		—		264		—		—		264
Substandard	Substandard	—		145		725		—		129		1,780		532		—		3,311
PCD	PCD	—		—		—		—		—		1,099		—		—		1,099
Total 1 - 4 family residential	Total 1 - 4 family residential	$	29,388	$	145,445	$	201,421	$	84,769	$	39,997	$	287,469	$	129,593	$	5,360	$	923,442
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
Pass

Total multi-family residential

Total multi-family residential

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

OOCRE:
OOCRE:
OOCRE:
Pass
Pass
Pass
Special mention
Substandard
PCD
Total OOCRE
OOCRE gross charge-offs

NOOCRE:
NOOCRE:
NOOCRE:
Pass
Pass
Pass
Special mention
Substandard
PCD
Total NOOCRE

2422

Multi-family residential:
Pass $ 5,160 $ 77,025 $ 208,657 $ 196,218 $ 8,223 $ 19,953 $ 48,358 $ 26 $ 563,620
Special mention — — — — — 26,916 — — 26,916
Substandard — — — — 1,937 — — — 1,937
Total multi-family residential $ 5,160 $ 77,025 $ 208,657 $ 196,218 $ 10,160 $ 46,869 $ 48,358 $ 26 $ 592,473
Multi-family residential gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
OOCRE:
Pass $ 20,974 $ 154,657 $ 103,045 $ 94,722 $ 42,152 $ 185,144 $ 3,388 $ 12,665 $ 616,747
Special mention — 9,378 1,028 717 1,921 185 — 2,730 15,959
Substandard — — 273 1,366 — 18,674 — 33 20,346
PCD — — — — — 18,550 — — 18,550
Total OOCRE $ 20,974 $ 164,035 $ 104,346 $ 96,805 $ 44,073 $ 222,553 $ 3,388 $ 15,428 $ 671,602
OOCRE gross charge-offs $ — $ — $ — $ 5 $ 5 $ 106 $ — $ — $ 116
NOOCRE:
Pass $ 47,715 $ 732,050 $ 540,159 $ 259,281 $ 155,272 $ 449,700 $ 34,323 $ 12,736 $ 2,231,236
Special mention — 3,731 39,981 25,209 41,337 54,229 — — 164,487
Substandard — — 2,764 — 1,265 88,168 — 7,684 99,881
PCD — — — — — 14,127 — — 14,127
Total NOOCRE $ 47,715 $ 735,781 $ 582,904 $ 284,490 $ 197,874 $ 606,224 $ 34,323 $ 20,420 $ 2,509,731
NOOCRE gross charge-offs $ — $ — $ — $ — $ — $ 8,215 $ — $ — $ 8,215
Commercial:
Pass $ 126,009 $ 365,055 $ 117,959 $ 60,365 $ 50,341 $ 59,030 $ 1,961,574 $ 5,505 $ 2,745,838
Special mention — 14,612 533 1,704 1,292 1,244 24,525 — 43,910
Substandard — 18,065 19 5,402 2,534 10,968 16,575 3,346 56,909
PCD — — — — — 3,427 — — 3,427
Total commercial $ 126,009 $ 397,732 $ 118,511 $ 67,471 $ 54,167 $ 74,669 $ 2,002,674 $ 8,851 $ 2,850,084
Commercial gross charge-offs $ — $ — $ — $ 48 $ 479 $ 4,064 $ — $ — $ 4,591
MW:
Pass $ 3,927 $ 61,548 $ 182 $ 205 $ 665 $ 170 $ 369,350 $ — $ 436,047
Special mention — — — — — 208 — — 208
Total MW $ 3,927 $ 61,548 $ 182 $ 205 $ 665 $ 378 $ 369,350 $ — $ 436,255
Mortgage warehouse gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Consumer:
Pass $ 4,818 $ 1,304 $ 372 $ 726 $ 138 $ 1,916 $ 1,704 $ — $ 10,978
Special mention — — — — — 53 — — 53
Substandard — 29 — — 14 98 — — 141
PCD — — — — — 17 — — 17
Total consumer $ 4,818 $ 1,333 $ 372 $ 726 $ 152 $ 2,084 $ 1,704 $ — $ 11,189
Consumer gross charge-offs $ — $ — $ — $ — $ — $ 154 $ — $ — $ 154


NOOCRE gross charge-offs

Commercial:
Commercial:
Commercial:
Pass
Pass
Pass
Special mention
Substandard
PCD
Total commercial
Commercial gross charge-offs

MW:
MW:
MW:
Pass
Pass
Pass

Total MW

Total MW

Total MW
MW gross charge-offs

Consumer:
Consumer:
Consumer:
Pass
Pass
Pass
Special mention
Substandard
PCD
Total consumer
Consumer gross charge-offs

Total Pass
Total Pass
Total Pass	Total Pass	$	268,730	$	2,145,175	$	1,794,020	$	868,004	$	300,348	$	1,019,641	$	2,733,551	$	36,794	$	9,166,263
Total Special Mention	Total Special Mention	—		30,098		45,337		30,695		70,316		83,099		24,525		2,730		286,800
Total Substandard	Total Substandard	—		18,239		11,590		32,290		5,879		119,688		17,107		11,063		215,856
Total PCD	Total PCD	—		—		—		—		—		37,220		—		—		37,220
Total	Total	$	268,730	$	2,193,512	$	1,850,947	$	930,989	$	376,543	$	1,259,648	$	2,775,183	$	50,587	$	9,706,139
Total gross charge-offs		$	—	$	—	$	—	$	53	$	484	$	12,539	$	—	$	—	$	13,076
Current period gross charge-offs

1 Term loans amortized cost basis by origination year excludes ~~$12,701~~$6,931 of deferred loan fees, net.




		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		2023	2022	2021	2020	2019	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
As of December 31,	As of December 31,
Construction and land:	Construction and land:
Construction and land:
Construction and land:
Pass
Pass
Pass
Special mention
Substandard

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

Farmland:
Farmland:
Farmland:
Pass
Pass
Pass

Total farmland

Total farmland

Total farmland
Farmland gross charge-offs

1 - 4 family residential:
1 - 4 family residential:
1 - 4 family residential:
Pass
Pass
Pass	Pass	$	347,855	$	709,208	$	378,229	$	69,241	$	30,673	$	14,025	$	215,263	$	140	$	1,764,634
Special mention	Special mention	—		18,662		2,560		—		—		—		—		—		21,222
Substandard	Substandard	—		—		—		—		—		—		—		—		—
PCD	PCD	—		—		—		—		—		1,544		—		—		1,544
Total construction and land		$	347,855	$	727,870	$	380,789	$	69,241	$	30,673	$	15,569	$	215,263	$	140	$	1,787,400

Farmland:
Pass		$	2,546	$	16,242	$	18,530	$	21	$	—	$	5,069	$	1,092	$	—	$	43,500
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
PCD		—		—		—		—		—		—		—		—		—
Total farmland		$	2,546	$	16,242	$	18,530	$	21	$	—	$	5,069	$	1,092	$	—	$	43,500

1 - 4 family residential:
Pass		$	135,006	$	188,635	$	87,861	$	43,293	$	41,960	$	257,768	$	86,900	$	726	$	842,149
Special mention		—		—		—		—		—		278		26,068		—		26,346
Substandard		—		184		—		—				1,028		23,569		—		24,781
PCD		—		—		—		—		—		1,180		—		—		1,180
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:
Pass		$	72,044	$	80,793	$	110,426	$	8,402	$	32,822	$	2,494	$	—	$	—	$	306,981
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		1,954		13,744		—		—		—		15,698
PCD		—		—		—		—		—		—		—		—		—
Total multi-family residential		$	72,044	$	80,793	$	110,426	$	10,356	$	46,566	$	2,494	$	—	$	—	$	322,679

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

NOOCRE:

2623


Total 1 - 4 family residential
1-4 Family gross charge-offs

Multi-family residential:
Multi-family residential:
Multi-family residential:
Pass
Pass
Pass
Special mention
Substandard

Total multi-family residential
Total multi-family residential
Total multi-family residential
Multifamily gross charge-offs

OOCRE:
OOCRE:
OOCRE:
Pass
Pass
Pass
Special mention
Substandard
PCD
Total OOCRE
OOCRE gross charge-offs

NOOCRE:
NOOCRE:
NOOCRE:
Pass
Pass
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
NOOCRE gross charge-offs

Commercial:	Commercial:
Commercial:
Commercial:
Pass
Pass
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	—		—		—		—		273		3,428		—		—		3,701
Total commercial	Total commercial	$	490,978	$	137,120	$	95,732	$	92,734	$	58,642	$	39,699	$	2,026,813	$	630	$	2,942,348
Commercial gross charge-offs

MW:	MW:
MW:
MW:
Pass	Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	444,393	$	—	$	444,393
Special mention		—		—		—		—		—		—		1,626		—		1,626
Substandard		—		—		—		—		46		162		—		—		208
Pass
Pass

Total MW	Total MW	$	—	$	—	$	—	$	—	$	46	$	162	$	446,019	$	—	$	446,227

Total MW

Total MW
MW gross charge-offs

Consumer:	Consumer:
Consumer:
Consumer:
Pass
Pass
Pass	Pass	$	1,965	$	452	$	872	$	216	$	135	$	2,298	$	1,618	$	—	$	7,556
Special mention	Special mention	—		—		—		—		—		58		—		—		58
Substandard	Substandard	—		—		—		—		—		169		—		—		169
PCD	PCD	—		—		—		—		—		23		—		—		23
Total consumer	Total consumer	$	1,965	$	452	$	872	$	216	$	135	$	2,548	$	1,618	$	—	$	7,806
Consumer gross charge-offs

Total Pass	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 Pass
Total Pass
Total Special Mention	Total Special Mention	—		21,649		26,743		25,971		19,659		55,504		142,141		45		291,712
Total Substandard		17,894		4,242		5,189		7,459		55,634		67,296		29,861		77		187,652
Total PCD		—		—		—		—		12,970		26,043		—		—		39,013
Total		$	1,993,914	$	1,792,050	$	1,017,699	$	431,810	$	479,768	$	935,168	$	2,849,209	$	2,006	$	9,501,624


Total Substandard	640		36,880		9,789		4,799		7,241		122,811		15,773		74		198,007
Total PCD	—		—		—		—		—		36,305		—		—		36,305
Total	$	701,008	$	2,326,877	$	1,747,195	$	816,093	$	359,111	$	1,149,311	$	2,474,545	$	18,985	$	9,593,125
Current year gross charge-offs	$	—	$	2,187	$	2	$	2,941	$	1,301	$	18,935	$	—	$	—	$	25,366

1 Term loans amortized cost basis by origination year excludes ~~$18,973~~$8,785 of deferred loan fees, net.

Servicing Assets

The Company was servicing loans of approximately ~~$587,529~~$586,583 and ~~$520,593~~$571,611 as of ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. A summary of the changes in the related servicing assets are as follows:






		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Balance at beginning of period	Balance at beginning of period	$	15,248	$	18,168	$	14,880	$	17,705
Balance at beginning of period
Balance at beginning of period

Increase from loan sales	Increase from loan sales	814		207		1,773		1,698
Servicing asset net recoveries, (net impairment)		438		(1,603)		862		(1,883)

Increase from loan sales

Increase from loan sales
Servicing asset impairment, net recoveries
Servicing asset impairment, net recoveries
Servicing asset impairment, net recoveries
Amortization charged as a reduction to income
Amortization charged as a reduction to income
Amortization charged as a reduction to income	Amortization charged as a reduction to income	(1,577)		(1,092)		(2,592)		(1,840)
Balance at end of period	Balance at end of period	$	14,923	$	15,680	$	14,923	$	15,680
Balance at end of period
Balance at end of period

Fair value of servicing assets is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current market rates over the expected lives of the loans being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset. As of ~~June 30, 2023~~March 31, 2024 and ~~2022~~2023 there was a valuation allowance of ~~$1,589~~$1,310 and ~~$2,511,~~$2,027, 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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

The following table reflects principal sold and related gain for SBA and USDA LHI. The gain on sale of these loans is recorded in government guaranteed loan income, net in the Company’s consolidated statements of income.


	Three Months Ended March 31,
	2024		2023
SBA LHI principal sold	$	13,233	$	6,340
Gain on sale of SBA LHI	1,176		148
USDA LHI principal sold	—		44,002
Gain on sale of USDA LHI	—		6,984

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
SBA LHI principal sold $ 590 $ 11,511 $ 6,930 $ 15,886
Gain on sale of SBA LHI 431 1,186 579 1,719
USDA LHI principal sold 18,638 500 62,640 20,500
Gain on sale of USDA LHI 2,679 80 9,663 3,708
LHFS

The following table reflects LHFS.


	March 31, 2024		December 31, 2023
SBA/USDA construction and land	$	41,456	$	41,492
1 - 4 family residential	772		788
SBA OOCRE	3,976		16,758
NOOCRE	10,500		10,500
SBA commercial	8,058		9,534
Total LHFS	$	64,762	$	79,072

5. Fair Value

The following table summarizes assets measured at fair value on a recurring basis as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


			June 30, 2023
		March 31, 2024												March 31, 2024
			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:
AFS debt securities	AFS debt securities		$	—	$	961,045	$	—	$	961,045
AFS debt securities
AFS debt securities
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value		9,761		—		—		9,761

LHFS(1)
LHFS(1)
LHFS(1)	LHFS(1)		—		28,691		—		28,691
Interest rate swap designated as hedging instruments	Interest rate swap designated as hedging instruments		—		25,041		—		25,041
Correspondent interest rate swaps not designated as hedging instruments	Correspondent interest rate swaps not designated as hedging instruments		—		41,369		—		41,369
Customer interest rate swaps not designated as hedging instruments	Customer interest rate swaps not designated as hedging instruments		—		479		—		479
Correspondent interest rate caps and collars not designated as hedging instruments	Correspondent interest rate caps and collars not designated as hedging instruments		—		2,152		—		2,152

Financial Liabilities:	Financial Liabilities:
Financial Liabilities:
Financial Liabilities:
Interest rate swap designated as hedging instruments
Interest rate swap designated as hedging instruments
Interest rate swap designated as hedging instruments	Interest rate swap designated as hedging instruments		$	—	$	55,057	$	—	$	55,057
Correspondent interest rate swaps not designated as hedging instruments	Correspondent interest rate swaps not designated as hedging instruments		—		581		—		581
Customer interest rate swaps not designated as hedging instruments	Customer interest rate swaps not designated as hedging instruments		—		40,755		—		40,755

Customer interest rate caps and collars not designated as hedging instruments	Customer interest rate caps and collars not designated as hedging instruments		—		2,152		—		2,152
Customer interest rate caps and collars not designated as hedging instruments
Customer interest rate caps and collars not designated as hedging instruments

1)1Represents LHFS elected to be carried at fair ~~value.~~value upon origination or acquisition.


		December 31, 2022								December 31, 2023
		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:
AFS debt securities	AFS debt securities	$	—	$	1,096,292	$	—	$	1,096,292
AFS debt securities
AFS debt securities
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	9,792		—		—		9,792
PPP loans		—		—		1,995		1,995

LHFS(1)
LHFS(1)
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
Interest rate swap designated as hedging instruments	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	—		1,126		—		1,126
Customer interest rate swaps not designated as hedging instruments	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	—		1,494		—		1,494

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

There were no transfers between Level 2 and Level 3 during the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

The following table summarizes assets measured at fair value on a non-recurring basis as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 June 30, 2023
As of March 31, 2024										As of March 31, 2024
Assets:	Assets:									Assets:
Collateral dependent loans with an ACL	Collateral dependent loans with an ACL	$	—	$	—	$	7,674	$	7,674
Servicing assets with a valuation allowance	Servicing assets with a valuation allowance	—		—		7,396		7,396
As of December 31, 2022
OREO
As of December 31, 2023
Assets:
Assets:
Assets:	Assets:
Collateral dependent loans with an ACL	Collateral dependent loans with an ACL	$	—	$	—	$	7,969	$	7,969
Collateral dependent loans with an ACL
Collateral dependent loans with an ACL
Servicing assets with a valuation allowance	Servicing assets with a valuation allowance	—		—		10,984		10,984

At ~~June 30, 2023,~~March 31, 2024, collateral dependent loans with an allowance had a recorded investment of ~~$10,410,~~$16,117, with ~~$2,736~~$2,957 specific ~~allowance for credit loss~~ACL allocated. At December 31, ~~2022,~~2023, collateral dependent loans with an allowance had a carrying value of ~~$10,632,~~$17,660, with ~~$2,663~~$3,386 of specific ~~allowance for credit loss~~ACL allocated.

At ~~June 30, 2023,~~March 31, 2024, servicing assets of ~~$8,985~~$6,038 had a valuation allowance totaling ~~$1,589.~~$1,310. At December 31, ~~2022,~~2023, servicing assets of ~~$13,435~~$8,214 had a valuation allowance totaling ~~$2,451.~~$1,532.

OREO primarily consists of five properties recorded with a fair value of approximately $18,445 at March 31, 2024. There were no OREO properties recorded as of December 31, 2023.

There were no liabilities measured at fair value on a non-recurring basis as of ~~June 30, 2023~~March 31, 2024 or December 31, ~~2022.~~2023.

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, ~~2022.~~2023. 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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were as follows:

Fair Value
Carrying
Amount Level 1 Level 2 Level 3
June 30, 2023
Financial assets:
Cash and cash equivalents $ 663,921 $ — $ 663,921 $ —
HTM debt securities 182,975 — 158,767 —
LHFS(1)
1,185 — — 1,185
LHI(2)
9,583,614 — — 9,386,165
Accrued interest receivable 42,637 — 42,637 —
BOLI 84,375 — 84,375 —
Servicing asset 7,527 — 7,527 —
Equity securities without a readily determinable fair value 11,098 N/A N/A N/A
FHLB and FRB stock 117,017 N/A N/A N/A
Financial liabilities:
Deposits $ 9,233,909 $ — $ 8,414,776 $ —
Advances from FHLB 1,325,000 — 1,324,267 —
Accrued interest payable 29,511 — 29,511 —
Subordinated debentures and subordinated notes 229,279 — 229,279 —
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 — — — —
LHFS(1)
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 — — — —


			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
March 31, 2024
Financial assets:
Cash and cash equivalents	$	740,769	$	—	$	740,769	$	—
HTM debt securities	178,662		—		155,741		—

LHFS(1)	11,272		—		11,272		—


LHI(2)	9,573,890		—		—		9,409,404
Accrued interest receivable	51,476		—		51,476		—
BOLI	85,359		—		85,359		—
Servicing asset	7,894		—		7,894		—
Equity securities without a readily determinable fair value	38,194		N/A		N/A		N/A
FHLB and FRB stock	54,094		N/A		N/A		N/A
Financial liabilities:
Noninterest-bearing deposits	$	2,349,211	$	—	$	2,349,211	$	—
Interest-bearing deposits	8,304,609		—		8,147,449		—
Advances from FHLB	100,000		—		100,056		—
Accrued interest payable	33,200		—		33,200		—
Subordinated debentures and subordinated notes	230,034		—		230,034		—


December 31, 2023
Financial assets:
Cash and cash equivalents	$	629,063	$	—	$	629,063	$	—
HTM debt securities	180,403		—		160,021		—

LHFS(1)	11,288		—		11,288		—

LHI(2)	9,577,180		—		—		9,322,744
Accrued interest receivable	53,313		—		53,313		—
BOLI	84,833		—		84,833		—
Servicing asset	6,576		—		6,576		—
Equity securities without a readily determinable fair value	11,624		N/A		N/A		N/A
FHLB and FRB stock	53,699		N/A		N/A		N/A
Financial liabilities:
Noninterest-bearing deposits	$	2,218,036	$	—	$	2,218,036	$	—
Interest-bearing deposits	8,120,159		—		8,096,209		—
Advances from FHLB	100,000		—		100,051		—
Accrued interest payable	41,948		—		41,948		—
Subordinated debentures and subordinated notes	229,783		—		229,783		—

(1) LHFS primarily represent commercial loans moved to held for sale or mortgage LHFS that are carried at lower of cost or market.

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

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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are as shown in the table below.


		June 30, 2023							December 31, 2022							March 31, 2024			December 31, 2023
					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):
Interest rate swap on money market deposit account payments	Interest rate swap on money market deposit account payments	$	250,000		$	18,627	$	—	$	250,000	$	21,234	$	—
Interest rate swap on money market deposit account payments
Interest rate swap on money market deposit account payments
Interest rate swaps on fixed rate advances/brokered CDs
Interest rate swaps on customer loan interest payments	Interest rate swaps on customer loan interest payments	375,000			—		48,297		375,000		—		49,211
Interest rate collars on customer loan interest payments	Interest rate collars on customer loan interest payments	450,000			1,087		6,760		450,000		3,267		4,960
Interest rate floor on customer loan interest payments	Interest rate floor on customer loan interest payments	200,000			5,327		—		100,000		2,022		—
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	1,275,000		$	25,041	$	55,057	$	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:
Derivatives not designated as hedging instruments:
Financial institution counterparty:	Financial institution counterparty:														Financial institution counterparty:
Interest rate swaps	Interest rate swaps	$	874,222		$	41,369	$	581	$	805,311	$	38,839	$	1,126
Interest rate caps and corridors	Interest rate caps and corridors	111,270			2,152		—		68,370		1,494		—
Commercial customer counterparty:	Commercial customer counterparty:
Interest rate swaps	Interest rate swaps	874,222			479		40,755		805,311		1,004		38,188
Interest rate swaps
Interest rate swaps
Interest rate caps and corridors	Interest rate caps and corridors	111,270			—		2,152		68,370		—		1,494
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	1,970,984		$	44,000	$	43,488	$	1,747,362	$	41,337	$	40,808
Offsetting derivative assets/liabilities	Offsetting derivative assets/liabilities	—			(33,158)		(33,158)		—		(30,982)		(30,982)
Total derivatives	Total derivatives	$	3,245,984		$	35,883	$	65,387	$	2,922,362	$	36,878	$	63,997

3129

Pre-tax (loss) gain included in the consolidated statements of income and related to derivative instruments for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ were as follows.


		For the Three Months Ended June 30, 2023						For the Three Months Ended June 30, 2022							For the Three Months Ended March 31, 2024							For the Three Months Ended March 31, 2023
		(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		(Loss) gain recognized in other comprehensive income on derivative		Gain reclassified from accumulated other comprehensive income into income		Location of (loss) gain reclassified from accumulated other comprehensive income into income			(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		(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
Derivatives designated as hedging instruments (cash flow hedges):	Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	Interest rate swap on borrowing advances	$	(1,094)	$	1,094	Interest Expense		$	(1,094)	$	1,094	Interest Expense
Interest rate swap on borrowing advances
Interest rate swap on borrowing advances															$	(1,094)		$	1,094		Interest Expense		$	(1,082)			$	1,082			Interest Expense
Interest rate swap on money market deposit account payments	Interest rate swap on money market deposit account payments	1,370		2,866		Interest Expense		2,323		229		Interest Expense		Interest rate swap on money market deposit account payments	1,849		3,439		3,439	Interest Expense		Interest Expense			(3,977)	2,568			2,568	Interest Expense		Interest Expense
Interest rate swaps, collars and floors on customer loan interest payments	Interest rate swaps, collars and floors on customer loan interest payments	(15,309)		(4,706)		Interest Income		(12,801)		499		Interest Income		Interest rate swaps, collars and floors on customer loan interest payments	(9,250)		(5,369)		(5,369)	Interest Income		Interest Income			12,136	(3,807)			(3,807)	Interest Income		Interest Income
Total	Total	$	(15,033)	$	(746)			$	(11,572)	$	1,822

						Net gain recognized in other noninterest income
						Net gain recognized in other noninterest income						Net gain recognized in other noninterest income
						Net gain recognized in other noninterest income

						Net gain recognized in other noninterest income																									Net gain recognized in other noninterest income
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars	Interest rate swaps, caps and collars					$	983					$	1,407
Interest rate swaps, caps and collars
Interest rate swaps, caps and collars

For the Six Months Ended
June 30, 2023 For the Six Months Ended
June 30, 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 $ (2,176) $ 2,176 Interest Expense $ (1,358) $ 1,358 Interest Expense
Interest rate swap on money market deposit account payments (2,607) 5,434 Interest Expense 11,712 58 Interest Expense
Interest rate swaps, collars and floors on customer loan interest payments (3,171) (8,513) Interest Income (35,307) 1,577 Interest Income
Total $ (7,954) $ (903) $ (24,953) $ 2,993
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 $ 1,196 $ 2,126

Cash Flow Hedges

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. To qualify for hedge accounting, a formal assessment is prepared to determine whether the 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 the cash flow 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 fair value recorded in AOCI, net of tax. Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability.

3330

Interest Rate Swap, Floor, Cap and Collar Agreements Not Designated as Hedging Derivatives

In order to accommodate the borrowing needs of certain commercial customers, the Company has entered into interest rate swap or cap agreements with those customers. These interest rate derivative contracts effectively allow the Company’s customers to convert a variable rate loan into a fixed rate loan. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on the Company’s results of operations. The fair value amounts are included in other assets and other liabilities.

The following is a summary of the interest rate swaps, caps and collars outstanding as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

June 30, 2023

March 31, 2024

Notional Amount

Fixed Rate

Floating Rate

Maturity

Fair Value

Notional Amount

Fixed Rate

Floating Rate

Maturity

Fair Value

Non-hedging derivative instruments:

Customer interest rate derivative:

Interest rate swaps - receive fixed/pay floating

874,222

2.41% - 7.37%

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.

4.6 years

(40,276)

Interest rate caps and corridors

111,270

3.50% - 5.90%

SOFR CME 1 month + 0.0%

Wtd. Avg.

1.3 years

(2,152)

Correspondent interest rate derivative:

Interest rate swaps - pay fixed/receive floating

874,222

2.41% - 7.37%

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.

4.6 years

40,788

Interest rate caps and corridors

111,270

3.50% - 5.90%

SOFR CME 1 month + 0.0%

Wtd. Avg.

1.3 years

2,152

December 31, 2022

Notional Amount

Fixed Rate

Floating Rate

Maturity

Fair Value

December 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

805,311

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

3431

7. ~~Off-Balance Sheet~~OBS Loan Commitments

The Company is party to financial instruments with ~~off-balance sheet (“OBS”)~~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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


		June 30,		December 31,		March 31,	December 31,
		2023		2022		2024	2023
Commitments to extend credit	Commitments to extend credit	$	3,606,714	$	4,511,671
MW commitments	MW commitments	984,453		1,088,558
Standby and commercial letters of credit	Standby and commercial letters of credit	102,935		98,179
Total	Total	$	4,694,102	$	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 ACL on unfunded commitments is recorded in accounts payable and other liabilities on the consolidated balance sheets:






		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Beginning balance for ACL on unfunded commitments	Beginning balance for ACL on unfunded commitments	$	11,583	$	9,759	$	10,086	$	9,266
Beginning balance for ACL on unfunded commitments
Beginning balance for ACL on unfunded commitments
(Benefit) provision for credit losses on unfunded commitments
(Benefit) provision for credit losses on unfunded commitments
(Benefit) provision for credit losses on unfunded commitments	(Benefit) provision for credit losses on unfunded commitments	(1,129)		—		368		493
Ending balance of ACL on unfunded commitments	Ending balance of ACL on unfunded commitments	$	10,454	$	9,759	$	10,454	$	9,759
Ending balance of ACL on unfunded commitments
Ending balance of ACL on unfunded commitments

3532

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 ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022.~~2023.

A summary of option activity under the 2010 Incentive Plan for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ and changes during the periods then ended, is presented below:

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, 2022 1,000 $ 10.43
Outstanding and exercisable at June 30, 2022 1,000 $ 10.43 1.07
Outstanding at January 1, 2023 1,000 $ 10.43 1.07 $ 147
Exercised (1,000) 10.43
Outstanding and exercisable at June 30, 2023 — $ — — $ —

~~As of June 30, 2023, December 31, 2022 and June 30, 2022 there was no unrecognized stock compensation expense related to non-performance based stock options.~~


	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, 2023	1,000	$	10.43	1.07 years



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

A summary of the fair value of the Company’s stock options exercised under the 2010 Incentive Plan for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ is presented below:

Fair Value of Options Exercised as of June 30,
2023 2022
Nonperformance-based stock options exercised $ 16 $ —


	Fair Value of Options Exercised as of March 31,
	2024		2023
Nonperformance-based stock options exercised	$	—	$	16

2022 Equity Plan, Veritex (Green) 2014 Plan and Green ~~Acquired Omnibus Plans~~2010 Plan

Grants of ~~Restricted Stock Units~~RSU

During the three ~~and six~~ months ending ~~June 30, 2023,~~March 31, 2024, the Company granted non-performance-based RSUs and ~~performance-based restricted stock units (“PSUs”)~~PSUs under the 2022 Amended and Restated Omnibus Incentive Plan (the “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 ~~six~~three months ending ~~June 30, 2023~~March 31, 2024 have an annual graded vesting over a three year period from the grant date.

The PSUs granted in February ~~2023~~2024 are subject to a service, performance and market conditions. The performance and market condition determine the number of awards to vest. The service period is from February 1, ~~2023~~2024 to January 31, ~~2026,~~2027, the performance conditions performance period is from January 1, ~~2023~~2024 to December 31, ~~2025~~2026 and the market condition performance period is from February 1, ~~2023~~2024 to January 31, ~~2026.~~2027. 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 2022 Equity Plan and the Veritex (Green) 2014 Plan were as follows:


	Three Months Ended March 31,
	2024		2023
2022 Equity Plan	$	2,459	$	2,465
Veritex (Green) 2014 Plan	430		422

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
2022 Equity Plan $ 2,680 $ 2,444 $ 5,145 $ 5,348
Veritex (Green) 2014 Plan 487 200 909 614

2022 Equity Plan

A summary of the status of the Company’s stock options under the 2022 Equity Plan as of ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ and changes during the ~~six~~three months then ended, is as follows:


		2022 Equity 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, 2022		710,043	$	24.38

Exercised		(38,128)	23.34
Outstanding at June 30, 2022		672,415	$	24.44	6.40
Options exercisable at June 30, 2022		541,737	$	24.53	6.14
									Shares Underlying Options	Weighted Exercise Price	Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2023	Outstanding at January 1, 2023	657,494	$	24.47

Forfeited	Forfeited	(1,666)	17.38

Forfeited

Forfeited
Cancelled
Cancelled
Cancelled	Cancelled	(3,804)	29.13
Exercised	Exercised	(17,285)	18.29
Outstanding at June 30, 2023		634,739	$	24.63	5.09 years	$	96
Options exercisable at June 30, 2023		608,739	$	24.79	5.03 years	$	93
Exercised
Exercised
Outstanding at March 31, 2023
Outstanding at March 31, 2023
Outstanding at March 31, 2023
Options exercisable at March 31, 2023
Options exercisable at March 31, 2023
Options exercisable at March 31, 2023

Outstanding at January 1, 2024

Outstanding at January 1, 2024

Outstanding at January 1, 2024

Outstanding at March 31, 2024

Outstanding at March 31, 2024

Outstanding at March 31, 2024
Options exercisable at March 31, 2024

There was no unrecognized compensation expense related to options awarded under the 2022 Equity Plan as of March 31, 2024 and December 31, 2023. As of ~~June 30,~~March 31, 2023, ~~December 31, 2022 and June 30, 2022,~~ there ~~was $75, $172~~ ~~and $50~~ $122 of total unrecognized compensation expense related to options awarded under the 2022 Equity ~~Plan, respectively. The unrecognized compensation expense at June 30, 2023 is expected to be recognized over the remaining weighted average requisite service period of 0.01 years.~~Plan.

A summary of the status of the Company’s RSUs under the 2022 Equity Plan as of ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ and changes during the ~~six~~three months then ended, is as follows:

2022 Equity Plan

Non-performance-Based

RSUs

2022 Equity Plan

Non-performance-Based

Units

Weighted
Average
Grant Date
Fair Value

RSUs

Outstanding at January 1, 2022

598,051

23.39

Outstanding at January 1, 2023

Granted

238,455

38.91

Vested into shares

(112,695)

25.76

Vested into shares

Forfeited

(6,142)

31.22

Outstanding at June 30, 2022

717,669

28.14

Forfeited

Outstanding at March 31, 2023

Outstanding at January 1, 2023

955,104

28.38

Outstanding at January 1, 2024

Granted

273,086

27.84

Vested into shares

(184,337)

29.87

Vested into shares

Forfeited

(22,887)

32.30

Outstanding at June 30, 2023

1,020,966

27.88

Forfeited

Outstanding at March 31, 2024

A summary of the status of the Company’s PSUs under the 2022 Equity Plan as of ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ and changes during the ~~six~~three months then ended, is as follows:

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
Incremental PSUs granted upon performance conditions met 31,655 —
Vested into shares (94,991) 21.49
Forfeited — —
Outstanding at June 30, 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
Forfeited (8,468) 30.90
Outstanding at June 30, 2023 129,768 $ 30.28


	2022 Equity Plan
	Performance-Based
	PSUs
	Units	Weighted Average Grant Date Fair Value
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

Outstanding at January 1, 2024	129,786	$	30.28
Granted	113,144	18.84

Vested into shares	(56,729)	25.94

Outstanding at March 31, 2024	186,201	$	25.01

As of ~~June 30, 2023,~~March 31, 2024, December 31, ~~2022~~2023 and ~~June 30, 2022,~~March 31, 2023, there was ~~$19,074~~$18,421, ~~$17,160~~$14,692 and ~~$1,207~~$15,278 of total unrecognized compensation related to RSUs and PSUs awarded under the 2022 Equity Plan, respectively. The unrecognized compensation expense at ~~June 30, 2023~~March 31, 2024 is expected to be recognized over the remaining weighted average requisite service period of ~~0.90~~2.60 years.

A summary of the fair value of the Company’s stock options exercised, RSUs and PSUs vested under the 2022 Equity Plan during the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ is presented below:


	Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
	2024		2023
Non-performance-based stock options exercised	$	—	$	31
RSUs vested	3,057		3,044
PSUs vested	1,133		1,070

Fair Value of Options Exercised or RSUs Vested in the Six Months Ended June 30,
2023 2022
Non-performance-based stock options exercised 66 1,562
RSUs vested 3,125 3,325
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 ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ and changes during the ~~six~~three months then ended, is as follows:


		Veritex (Green) 2014 Plan						Veritex (Green) 2014 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, 2022		217,804	$	19.62

Exercised		(58,642)	19.21
Outstanding at June 30, 2022		158,372	$	19.76	5.65
Options exercisable at June 30, 2022		149,646	$	19.11	5.52
								Shares Underlying Options	Weighted Exercise Price	Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2023	Outstanding at January 1, 2023	155,212	$	19.83

Cancelled	Cancelled	(505)	21.38

Cancelled

Cancelled
Exercised	Exercised	(13,266)	22.74
Outstanding at June 30, 2023		141,441	$	21.86	4.28 years	$	266
Options exercisable at June 30, 2023		141,441	$	21.86	4.28 years	$	266
Exercised
Exercised
Outstanding at March 31, 2023
Outstanding at March 31, 2023
Outstanding at March 31, 2023
Options exercisable at March 31, 2023
Options exercisable at March 31, 2023
Options exercisable at March 31, 2023

Outstanding at January 1, 2024

Outstanding at January 1, 2024

Outstanding at January 1, 2024

Outstanding at March 31, 2024

Outstanding at March 31, 2024

Outstanding at March 31, 2024
Options exercisable at March 31, 2024
Weighted average fair value of options granted during the period	Weighted average fair value of options granted during the period		$	—

As of ~~June 30,~~March 31, 2024, December 31, 2023 and ~~December~~March 31, ~~2022~~2023 there was no unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan. ~~As of~~ ~~June 30, 2022~~ ~~there was $470 of total unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan, respectively.~~

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A summary of the status of the Company’s RSUs under the Veritex (Green) 2014 Plan as of ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ and changes during the ~~six~~three months then ended, is as follows:

Veritex (Green) 2014 Plan

Non-performance-Based

RSUs

Units

Weighted
Average
Grant Date
Fair Value

Outstanding at January 1, 2022

122,784

21.13

Granted

4,231

40.38

Vested into shares

(32,931)

21.80

Forfeited

(4,922)

29.13

Outstanding at June 30, 2022

89,162

21.55

Veritex (Green) 2014 Plan

Non-performance-Based

RSUs

Units

Weighted
Average
Grant Date
Fair Value

Outstanding at January 1, 2023

86,233

21.09

Vested into shares

(19,282)

29.66

Vested into shares

Forfeited

(2,232)

29.13

Outstanding at June 30, 2023

64,719

18.26

Outstanding at March 31, 2023

Outstanding at January 1, 2024

Vested into shares

Outstanding at March 31, 2024

A summary of the status of the Company’s PSUs under the Veritex (Green) 2014 Plan as of ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ and changes during the ~~six~~three months then ended, is as follows:

Veritex (Green) 2014 Plan

Performance-Based

PSUs

Units

Weighted
Average
Grant Date
Fair Value

Outstanding at January 1, 2022

35,899

22.26

Granted

4,411

40.38

Incremental PSUs granted upon performance condition met

10,566

—

Vested into shares

(31,703)

19.69

Outstanding at June 30, 2022

19,173

29.26

Units

Weighted
Average
Grant Date
Fair Value

Outstanding at January 1, 2023

19,173

30.74

Vested into shares

(8,531)

25.94

Outstanding at June 30, 2023

10,642

31.93

Vested into shares

Outstanding at March 31, 2023

Outstanding at January 1, 2024

Granted

Vested into shares

Outstanding at March 31, 2024

As of ~~June 30, 2023,~~March 31, 2024, December 31, ~~2022~~2023 and ~~June 30, 2022,~~March 31, 2023, there ~~was~~ w~~$2,730~~as $1,383, $1,781, ~~$3,825,~~ and ~~$16,855,~~$3,260, 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 ~~2.17~~1.12 years.

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A summary of the fair value of the Company’s stock options exercised, RSUs and ~~RSUs~~PSUs vested under the Veritex (Green) 2014 Plan during the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 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 Six Months Ended June 30,

2023

2022

Non-performance-based stock options exercised

2,229

Non-performance-based stock options exercised

RSUs vested

2,091

718

PSU vested

227

624

PSU vested

Green 2010 Plan

In addition to the Veritex (Green) 2014 Plan discussed earlier in this Note, the Company assumed the Green Bancorp Inc. 2010 Stock Option Plan (“Green 2010 Plan”).

A summary of the status of the Company’s stock options under the Green 2010 Plan as of ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ and changes during the ~~six~~three months then ended, is as follows:

Green 2010 Plan

Non-performance Based Stock Options

Shares
Underlying
Options

Weighted
Exercise
Price

Weighted
Average
Contractual
Term

Aggregate Intrinsic Value

Outstanding at January 1, 2022

66,143

12.56

Exercised

(1,746)

13.20

Outstanding at June 30, 2022

64,397

12.55

1.70 years

Shares
Underlying
Options

Weighted
Exercise
Price

Weighted
Average
Contractual
Term

Aggregate Intrinsic Value

Outstanding at January 1, 2023

43,162

13.11

Exercised

(29,630)

13.22

Outstanding at June 30, 2023

13,532

12.86

3.69 years

678,601

Exercised

Outstanding at March 31, 2023

Outstanding at January 1, 2024

Outstanding at March 31, 2024

A summary of the fair value of the Company’s stock options exercised under the Green 2010 Plan during the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ presented below:

Fair Value of Options Exercised as of June 30,
2023 2022
Nonperformance-based stock options exercised 365 —


	Fair Value of Options Exercised as of March 31,
	2024		2023
Nonperformance-based stock options exercised	$	—	$	365

9. Income Taxes

Income tax expense for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ was as follows:


					Three Months Ended March 31,
					Three Months Ended March 31,
					Three Months Ended March 31,

		Three Months Ended June 30,						Six Months Ended June 30,
		2023			2022			2023			2022
Income tax expense for the period	Income tax expense for the period	$	9,725		$	8,079		$	20,737		$	16,181
Income tax expense for the period
Income tax expense for the period
Effective tax rate	Effective tax rate	22.4		%	21.4		%	22.3		%	20.4		%
Effective tax rate
Effective tax rate

For the three months ended ~~June 30, 2023,~~March 31, 2024, the Company had an effective tax rate of ~~22.4%~~23.1%. The Company had a net discrete tax expense of ~~$41~~$384 thousand associated with the recognition of an excess tax expense realized on share-based payment awards during the three months ended ~~June 30, 2023.~~March 31, 2024. Excluding this discrete tax item, the Company had an effective tax rate of ~~22.3%~~21.8% for the three months ended ~~June 30, 2023.~~March 31, 2024.

At December 31, 2023, we determined it was more likely than not that a portion of our deferred tax assets would not be realized in their entirety. Thus, the Company recorded a $4,249 valuation allowance in continuing operations relating to the

4138

impairment on our investment in Thrive as of March 31, 2024. The deferred tax asset is not realizable due to the capital loss that will not be recognized. The position was upheld as of March 31, 2024. There was no valuation allowance in the comparable period in 2023.

For the three months ended June 30, 2022, the Company had an effective tax rate of 21.4%. The Company had a net discrete tax benefit of $91 thousand primarily associated with the recognition an excess tax benefit realized on share-based payment awards during the three months ended June 30, 2022. Excluding this discrete tax item, the Company had an effective tax rate of 21.7% for the three months ended June 30, 2022.

~~For the six months ended June 30,~~March 31, 2023, the Company had an effective tax rate of 22.3%. The Company had a net discrete tax expense of ~~$153~~$112 thousand associated with the recognition of an excess tax expense realized on share-based payment awards during the ~~six~~three months ended ~~June 30,~~March 31, 2023. Excluding this discrete tax item, the Company had an effective tax rate of ~~22.2%~~22.1% for the ~~six~~three months ended ~~June 30,~~March 31, 2023.

For the six months ended June 30, 2022, the Company had an effective tax rate of 20.4%. The Company had a net discrete tax benefit of $1.1 million associated with the recognition of an excess tax benefit realized on share-based payment awards during the six months ended June 30, 2022 . Excluding this discrete tax item, the Company had an effective tax rate of 21.8% for the six months ended June 30, 2022.

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.

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”),~~PCA, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain ~~off-balance sheet~~OBS 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.

As a result of our no longer using the ~~Community Bank Leverage Ratio (“CBLR”)~~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~~CET1 capital to ~~risk-weighted assets (“RWA”),~~RWA, 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~~RBC ratios, and a banking organization with any ~~risk-based capital~~RBC 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,~~CET1, Tier 1, and total capital ratios and Tier 1 leverage ratios as set forth in the table below.

As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~June 30, 2023~~March 31, 2024 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 June 30, 2023
As of March 31, 2024
Total capital (to RWA)	Total capital (to RWA)
Total capital (to RWA)
Total capital (to RWA)
Company
Company
Company	Company	$	1,468,808	12.51	%	$	939,286	8.0	%	$	1,174,107	10.0	%		$	1,520,656		13.33		13.33		%					$	912,622			8.0						8.0	%									n/a
Bank	Bank	1,448,929		12.35		938,577		8.0		1,173,222		10.0
Tier 1 capital (to RWA)	Tier 1 capital (to RWA)
Company	Company	1,175,474		10.01		704,580		6.0		704,580		6.0
Company
Company																	1,212,512				10.63							684,391							6.0										n/a
Bank	Bank	1,354,077		11.54		704,026		6.0		938,702		8.0
Common equity tier 1 (to RWA)
CET1 (to RWA)
Company
Company
Company	Company	1,145,695		9.76		528,241		4.5		n/a		n/a			1,182,567			10.37		10.37			513,168						513,168			4.5							4.5			n/a							n/a
Bank	Bank	1,354,077		11.54		528,020		4.5		762,695		6.5
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)
Company	Company	1,175,474		9.80		479,785		4.0		n/a		n/a
Company
Company																	1,212,512				10.12							479,254							4.0										n/a
Bank	Bank	1,354,077		11.30		479,319		4.0		599,149		5.0
As of December 31, 2022
As of December 31, 2023
Total capital (to RWA)	Total capital (to RWA)
Total capital (to RWA)
Total capital (to RWA)
Company
Company
Company	Company	$	1,395,904	11.63	%	$	960,209	8.0	%	n/a		n/a			$	1,500,703		13.18		13.18		%					$	910,897			8.0						8.0	%									n/a
Bank	Bank	1,368,082		11.41		959,216		8.0		$	1,199,020	10.0	%	Bank			1,467,960		12.90			12.90		910,363						910,363				8.0						8.0			$			$	1,137,953	10.0		10.0	%
Tier 1 capital (to RWA)	Tier 1 capital (to RWA)
Company	Company	1,121,021		9.34		720,142		6.0		n/a		n/a
Company
Company																	1,202,252				10.56							683,098							6.0										n/a
Bank	Bank	1,291,288		10.77		719,381		6.0		959,174		8.0
Common equity tier 1 (to RWA)
CET1 (to RWA)
Company
Company
Company	Company	1,091,353		9.09		540,274		4.5		n/a		n/a			1,172,362			10.29		10.29			512,695						512,695			4.5							4.5			n/a							n/a
Bank	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)
Company	Company	1,121,021		9.82		456,628		4.0		n/a		n/a
Company
Company																	1,202,252				10.03							479,462							4.0										n/a
Bank	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. Dividends of ~~$20,000~~$27,500 were paid by the Bank to the Holdco during the three ~~and six~~ months ending ~~June 30, 2023. No~~March 31, 2024. There were no dividends ~~were~~ paid by the Bank to the Holdco during the three ~~and six~~ months ended ~~June 30, 2022.~~March 31, 2023.

Dividends of ~~$10,850,~~$10,899, or $0.20 per issued and outstanding share of the the Company’s common stock and $10,837, or $0.20, per outstanding share ~~and $21,687, or $0.40 per outstanding share on~~of the ~~applicable record date,~~Company’s common stock were paid by the Company during the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023 ~~respectively.~~ Dividends of $10,792, or $0.20 per outstanding share, and $20,705, or $0.40 per outstanding share on the applicable record date, were paid by the Company during the three and six months ended June 30, 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 ~~4.35%~~4.98% as of ~~June 30, 2023.~~March 31, 2024.

4440

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, ~~2022.~~2023. 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~~

During the first half of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to 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 increased by 1.2% as compared to December 31, 2022, to $9.23 billion at June 30, 2023 as we experienced minimal deposit outflow in the second quarter of 2023. In March of 2023, the Federal Reserve established a Bank Term Funding Program to offer loans of up to one year to eligible depository institutions pledging qualifying assets as collateral. These assets will be valued at par. The Company signed up for the program; however, the Company 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 funding sources in response to these recent developments. Furthermore, the Company remains well capitalized with CET1 at 9.76% as of June 30, 2023.

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In accordance with Item 303(c) of Regulation S-K, the Company is providing a comparison of the quarter ended June 30, 2023 against the preceding sequential quarter. The Company believes providing a sequential discussion of its results of operations provides more relevant information for investors and stakeholders to understand and analyze the business.

Results of Operations for the Three Months Ended ~~June 30, 2023~~March 31, 2024 and March 31, 2023

General

Net income for the three months ended ~~June 30, 2023~~March 31, 2024 was ~~$33.7~~$24.2 million, a decrease of ~~$4.7~~$14.2 million, or ~~12.2%~~37.1%, from net income of $38.4 million for the three months ended March 31, 2023.

Basic EPS for the three months ended ~~June 30, 2023~~March 31, 2024 was ~~$0.62,~~$0.44, a decrease of ~~$0.09~~$0.27 from $0.71 for the three months ended March 31, ~~2023, respectively.~~2023. Diluted EPS for the three months ended ~~June 30, 2023~~March 31, 2024 was ~~$0.62,~~$0.44, a decrease of ~~$0.08~~$0.26 from $0.70 for the three months ended March 31, 2023.

Net Interest Income

For the three months ended ~~June 30, 2023,~~March 31, 2024, net interest income before provisions for credit losses totaled ~~$100.8~~$92.8 million and net interest margin and net interest spread were ~~3.51%~~3.24% and ~~2.50%~~1.97%, respectively. For the three months ended March 31, 2023, net interest income before provision for credit losses totaled $103.4 million and net interest margin and net interest spread were 3.69% and 2.74%, respectively. Net interest margin decreased 45 bps from the three months ended March 31, 2023, primarily due to an increase in the average rate paid on interest-bearing liabilities, offset by an increase in the average yields earned on interest-earning assets. The decrease in net interest income of $10.6 million was primarily ~~due~~attributable to anan increase of $19.5 millionin interest expense on certificates and other time deposits anda $16.9 million increase in interest expense ~~of $3.1~~on transaction. The decrease was partially offset by a $11.0 milliondecrease in ~~transaction and savings deposits, a~~ ~~$7.1 million~~ ~~increase~~ in ~~certificates and other time deposits, and a $5.2 million increase in~~interest expense on advances from FHLB, ~~offset by~~ an increase in interest income ~~of $12.0 million~~ on loans of $10.2 million due to an increase in loan yields and higher average balances~~during~~, during the three months ended ~~June 30, 2023,~~March 31, 2024, compared to the three months ended March 31, 2023. ~~Net interest margin decreased 18 bps to 3.51% from 3.69% for the three months ended June 30, 2023, compared to the three months ended March 31, 2023,~~ The~~primarily due to the~~ $36.5 million increase in ~~funding costs~~interest expense on ~~deposits and FHLB borrowing costs, partially offset~~ bydeposit accounts was due to an increase in ~~loan yields~~average funding costs of total deposits and ~~average balances~~ ~~during the three months ended June 30, 2023.~~borrowings. As a result, the average cost of interest-bearing deposits increased 137 bps to ~~3.61%~~4.43% for the three months ended ~~June 30, 2023~~March 31, 2024 from ~~2.92%~~3.06% for the three months ended March 31, 2023. The average costs of total deposits, including noninterest-bearing deposits, for the three months ended March 31, 2024 increased 118 basis points to 3.42% compared to 2.24% for the three months ended March 31, 2023.

For the three months ended ~~June 30, 2023,~~March 31, 2024, interest expense totaled ~~$81.7~~$91.8 million and the average rate paid on interest-bearing liabilities was ~~3.86%~~4.47%. 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%.The ~~quarter-over-quarter~~ increase of $25.6 million in interest expense 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 impact of rising interest rates year over year.

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 ~~June 30, 2023~~March 31, 2024 and ~~three months ended~~ March 31, 2023, interest income not recognized on ~~nonaccrual~~non-accrual loans was ~~$2.0 million~~$781 thousand and $772 thousand, respectively. Any ~~nonaccrual~~non-accrual loans have been included in the table as loans carrying a zero yield.


		For the Three Months Ended June 30,						For the Three Months Ended March 31,
		2023						2023
				Interest						Interest
		Average		Earned/		Average		Average		Earned/		Average
		Outstanding		Interest		Yield/		Outstanding		Interest		Yield/
		Balance		Paid		Rate		Balance		Paid		Rate
		(Dollars in thousands)
		For the Three Months Ended March 31,
		For the Three Months Ended March 31,
		For the Three Months Ended March 31,
		2024
		2024
		2024
				Interest
				Interest
				Interest
		Average
		Average
		Average
		Outstanding
		Outstanding
		Outstanding
		Balance
		Balance
		Balance
		(Dollars in thousands)
		(Dollars in thousands)
		(Dollars in thousands)
Assets
Assets
Assets	Assets
Interest-earning assets:	Interest-earning assets:
Interest-earning assets:
Interest-earning assets:
Loans(1)
Loans(1)
Loans(1)	Loans(1)	$	9,285,550	$	158,685	6.85	%	$	9,141,137	$	146,801	6.51	%
LHI, MW	LHI, MW	371,763		5,042		5.44		360,172		4,906		5.52

Debt Securities		1,133,845		10,166		3.60		1,252,457		10,988		3.56
Interest-earning deposits in other banks		583,818		7,507		5.16		478,345		5,534		4.69
LHI, MW
LHI, MW
Debt securities
Debt securities
Debt securities
Interest-bearing deposits in other banks
Interest-bearing deposits in other banks
Interest-bearing deposits in other banks
Equity securities and other investments
Equity securities and other investments
Equity securities and other investments	Equity securities and other investments	137,868		1,118		3.25		124,985		1,408		4.57
Total interest-earning assets	Total interest-earning assets	11,512,844		182,518		6.36		11,357,096		169,637		6.06
Total interest-earning assets
Total interest-earning assets
ACL
ACL
ACL	ACL	(102,559)						(92,664)
Noninterest-earning assets	Noninterest-earning assets	939,938						949,881
Noninterest-earning assets
Noninterest-earning assets
Total assets
Total assets
Total assets	Total assets	$	12,350,223					$	12,214,313

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing liabilities:
Interest-bearing liabilities:	Interest-bearing liabilities:
Interest-bearing demand and savings deposits	Interest-bearing demand and savings deposits	$	3,919,745	$	32,957	3.37	%	$	4,150,995	$	29,857	2.92	%
Interest-bearing demand and savings deposits
Interest-bearing demand and savings deposits
Certificates and other time deposits
Certificates and other time deposits
Certificates and other time deposits	Certificates and other time deposits	2,873,548		28,100		3.92		2,588,728		20,967		3.28
Advances from FHLB	Advances from FHLB	1,472,912		17,562		4.78		1,122,683		12,358		4.46
Subordinated debentures and subordinated debt		229,151		3,068		5.37		231,251		3,066		5.38
Advances from FHLB
Advances from FHLB
Subordinated debentures and subordinated notes
Subordinated debentures and subordinated notes
Subordinated debentures and subordinated notes
Total interest-bearing liabilities
Total interest-bearing liabilities
Total interest-bearing liabilities	Total interest-bearing liabilities	8,495,356		81,687		3.86		8,093,657		66,248		3.32

Noninterest-bearing liabilities:	Noninterest-bearing liabilities:

Noninterest-bearing liabilities:

Noninterest-bearing liabilities:
Noninterest-bearing deposits
Noninterest-bearing deposits
Noninterest-bearing deposits	Noninterest-bearing deposits	2,175,002						2,470,700
Other liabilities	Other liabilities	169,240						173,380
Other liabilities
Other liabilities
Total liabilities
Total liabilities
Total liabilities	Total liabilities	10,839,598						10,737,737
Stockholders’ equity	Stockholders’ equity	1,510,625						1,476,576
Stockholders’ equity
Stockholders’ equity
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	12,350,223						12,214,313
Total liabilities and stockholders’ equity
Total liabilities and stockholders’ equity

Net interest rate spread(2)

Net interest rate spread(2)

Net interest rate spread(2)	Net interest rate spread(2)					2.50	%					2.74	%
Net interest income	Net interest income			$	100,831					$	103,389
Net interest income
Net interest income
Net interest margin(3)	Net interest margin(3)					3.51	%					3.69	%
Net interest margin(3)
Net interest margin(3)

(1) Includes average outstanding balances of LHFS of ~~$23,374~~$53,866 and $19,679 for the three months ended ~~June 30, 2023~~March 31, 2024 and ~~three months ended~~ March 31, 2023, respectively, and average balances of LHI, excluding ~~MW 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.

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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, 2024 vs March 31, 2023											March 31, 2024 vs March 31, 2023
										Increase (Decrease)
			For the Three Months Ended
			June 30, 2023 vs. March 31, 2023
			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:
Loans	Loans		$	2,319	$	9,565	$	11,884
Loans
Loans
LHI, MW	LHI, MW		158		(22)		136

Debt Securities			(1,041)		219		(822)
Debt securities
Debt securities
Debt securities
Interest-bearing deposits in other banks
Equity securities and other investments	Equity securities and other investments		1,220		753		1,973
Interest-bearing deposits in other banks			145		(435)		(290)
Total increase in interest income	Total increase in interest income		2,801		10,080		12,881
Interest-bearing liabilities:	Interest-bearing liabilities:
Interest-bearing demand and savings deposits
Interest-bearing demand and savings deposits
Interest-bearing demand and savings deposits	Interest-bearing demand and savings deposits		(1,663)		4,763		3,100
Certificates and other time deposits	Certificates and other time deposits		2,307		4,826		7,133
Advances from FHLB	Advances from FHLB		3,855		1,349		5,204
Subordinated debentures and subordinated notes	Subordinated debentures and subordinated notes		(28)		30		2
Total increase in interest expense	Total increase in interest expense		4,471		10,968		15,439
Increase in net interest income	Increase in net interest income		$	(1,670)	$	(888)	$	(2,558)

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 description of the factors taken into account by management in determining the ACL see “—Financial Condition—ACL on LHI” The provision for credit loan losses of ~~$15.0~~was $7.5 million ~~for the three months ended June 30, 2023, compared to $9.4 million provision~~ for the three months ended March 31, ~~2023.~~2024, compared to a $9.4 million provision for credit loan losses for the three months ended March 31, 2023, a decrease of $1.9 million. The ~~increase~~decrease in the recorded provision for credit losses for the three months ended March 31, 2024 was primarily attributable to ~~an increase in general reserves as a result of~~ changes in the Texas economic ~~factors, qualitative factors and specific reserves on loans that not share similar risk characteristics.~~ forecast.

For the three months ended ~~June 30, 2023,~~March 31, 2024, we also ~~recorded $1.1~~recorded a $1.5 million benefit for unfunded commitmentscompared to a $1.5 million provision for unfunded commitments for ~~the~~ three months ended March 31, 2023. The ~~main driver for the~~change from a provision to a benefit for unfunded commitments ~~is reduction of~~ was attributable to a decrease in unfunded ~~commitments quarter over quarter.~~commitment balances.

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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:


		For the							For the
		Three Months Ended							Three Months Ended
		June 30,		March 31,		Increase			March 31,		Increase
		2023		2023		(Decrease)			2024	2023		(Decrease)
		(In thousands)						(In thousands)
Noninterest income:	Noninterest income:
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts	$	5,272	$	5,017	$	255
Service charges and fees on deposit accounts
Service charges and fees on deposit accounts
Loan fees	Loan fees	1,520		2,064		(544)
Loss on sales of debt securities	Loss on sales of debt securities	—		(5,321)		5,321
Gain on sales of mortgage LHFS		40		6		34
Government guaranteed loan income, net	Government guaranteed loan income, net	4,144		9,688		(5,544)
Equity method investment income (loss)		485		(1,521)		2,006
Equity method investment loss
Customer swap income	Customer swap income	961		217		744
Other	Other	1,270		3,381		(2,111)
Total noninterest income	Total noninterest income	$	13,692	$	13,531	$	161

Noninterest income for the three months ended ~~June 30, 2023 increased $161 thousand,~~March 31, 2024 decreased $6.9 million, or ~~1.2%~~50.8%, to ~~$13.7~~$6.7 million compared to noninterest income of $13.5 million for the three months ended March 31, 2023. The primary drivers of the ~~increase~~decrease were as ~~follows.~~follows:

Loss on sales of debt securities. ~~Their were no~~The increase in the loss on sale of debt securities ~~sold~~ during the three months ended ~~June 30,~~March 31, 2024, compared to the three months ended March 31, 2023, was due to a $6.3 million loss on sales of debt securities due to as a result of a strategic restructuring in which we sold $120.1 million of lower-yielding AFS debt securities, at amortized cost, with a 3.11% average yield compared to a $5.3 million loss on sales of ~~investment~~debt securities ~~recorded during the three months ended March 31, 2023~~ due to the Company selling $116.2 million of ~~investment~~debt securities in ~~early~~ March 2023.

Government guaranteed loan income, net. Government guaranteed loan income, net, includes income related to the sales of ~~government guaranteed~~SBA and USDA loans. The decrease in ~~government~~government. guaranteed loan income, net, of ~~$5.5~~$7.1 million ~~or 57.2%, for~~during the three months ended ~~June 30, 2023,~~March 31, 2024 was primarily due to a $5.7 million decrease in the gain on USDA loans and a decrease of $2.8 million in government guaranteed LHFS loan valuation, compared to the three months ended March 31, ~~2023,~~2023. The decrease was ~~primarily due to a $3.8~~partially offset by an increase of $1.4 million ~~decrease~~ in ~~the fair value of government guaranteed loans, including held for sale loans, and a decrease of $1.7 million on~~ the gain on ~~sale of~~ SBA ~~and U.S. Department of Agriculture (“USDA”)~~ loans.

Equity method investment ~~income (loss).~~loss. Equity method investment ~~income (loss)~~loss is comprised of ~~income recorded on~~losses and gains primarily related to our Thrive Investment. The change in equity method ~~investments, specifically~~investment loss is related to the Company divesting of our equity method investment in Thrive ~~Mortgage, LLC (“Thrive”),~~related to Thrive’s entry into a definitive agreement in December 2023 to be acquired by Lower, which acquisition closed in March of ~~which the Bank holds a 49% equity~~2024. Our subsequent investment in Lower is accounted for under cost method ~~interest. During~~accounting.

Other. Other includes other noninterest income from fees. Other noninterest income was $2.5 million for the three months ended ~~June 30, 2023, the Company recorded income from this investment~~March 31, 2024, an decrease of ~~$485~~$849 thousand, or 25.1% as compared to ~~a loss from this investment of $1.5 million during~~ the three months ended March 31, 2023. The ~~increase~~decrease was primarily driven by a decrease in ~~income is a result~~the valuation adjustment and amortization of ~~Thrive's continued focus on expense reduction across the corporation and exiting long dated locks, which are no longer being entered into.~~

~~Customer swap income.~~ ~~The increase in customer swap income~~our servicing asset of ~~$744~~$681 thousand ~~or 342.9%, during the three months ended June 30, 2023,~~ compared to the three months ended March 31, ~~2023, was primarily due to the increase in trade executions.~~2023.

~~Other.~~ The decrease in other noninterest income of $2.1 million, or 62.4%, during the three months ended June 30, 2023, compared to the three months ended March 31, 2023, was primarily due to a decrease of $912 thousand in BOLI income due to a death claim recognized during the first quarter of 2023, an increase of $549 thousand of servicing asset amortization, net of recoveries, and an increase of $283 thousand in loss on equity market securities. The remaining changes were nominal amongst individual other noninterest income accounts.

4945

~~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 For the Increase (Decrease)
Three Months Ended
June 30, March 31,
2023 2023
(In thousands)
Salaries and employee benefits $ 28,650 $ 31,865 $ (3,215)
Occupancy and equipment 4,827 4,973 (146)
Professional and regulatory fees 6,868 4,389 2,479
Data processing and software expense 4,709 4,720 (11)
Marketing 2,627 1,779 848
Amortization of intangibles 2,468 2,495 (27)
Telephone and communications 355 478 (123)
Other 6,693 5,916 777
Total noninterest expense $ 57,197 $ 56,615 $ 582

~~Noninterest expense for the~~ ~~three months ended June 30, 2023increased $582 thousand, or 1.0%, to $57.2 million compared to noninterest expense of $56.6 million for the~~ ~~three months ended March 31, 2023. 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 ~~$28.7 million~~ ~~for the three months ended June 30, 2023, a decrease of~~ ~~$3.2 million~~, or 10.1%, compared to the three months ended March 31, 2023. The decrease was primarily attributable to a $2.9 million decrease in lender incentives driven by a decrease in loan production and an $805 thousand decrease in payroll tax expenses, partially offset by a $437 thousand increase in severance expenses.

~~Professional and regulatory fees.~~ ~~This category includes legal, professional, audit, regulatory, and FDIC’s assessment fees. The increase of $2.5 million, or 56.5%,~~ ~~for the~~ three months ended June 30, 2023 was primarily attributable to increases in FDIC assessment fees of $1.7 million due to an increase in asset size and legal and professional fees of $725 thousand, compared to the three months ended March 31, 2023.

~~Marketing.~~ ~~This category of expenses includes expenses related to advertising and promotions expenses and other marketing expenses, which increased~~ ~~$848 thousand for~~ the three months ended June 30, 2023, compared to the three months ended March 31, 2023. This increase is primarily due to a $791 thousand increase in advertising and promotions expenses during the three months ended June 30, 2023, compared to the three months ended March 31, 2023.

~~Other noninterest expense.~~ This category includes loan operations and collections, supplies and printing, automatic teller and online expenses and other miscellaneous expenses. Other noninterest expense was $6.7 million for the three months ended June 30, 2023, compared to $5.9 million for the three months ended March 31, 2023, an increase of $777 thousand, or 13.1%. This increase was primarily due to an increase of $1.0 million in miscellaneous expenses, partially offset by a decrease of $185 thousand in loan fee expenses and a decrease of $117 thousand in ATM and debit card expenses, during the three months ended June 30, 2023 as compared to the three months ended March 31, 2023. 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 June 30, 2023, we did not believe a valuation allowance was necessary.

~~For the~~ ~~three months ended June 30, 2023, income tax expense totaled $9.7 million,~~ ~~a decrease~~ ~~of $1.3 million, compared to an income tax expense of $11.0 million for the~~ ~~three months ended March 31, 2023. For the~~ ~~three months ended June 30, 2023, we had an effective tax rate of 22.4%.~~ The Company had a net discrete tax expense of $41 thousand associated with the recognition of an excess tax expense realized on share-based payment awards during the three months ended June 30, 2023. Excluding this discrete tax item, the Company had an effective tax rate of 22.3% for the three months ended June 30, 2023.

~~Results of Operations for the Six Months Ended June 30, 2023 and June 30, 2022~~

~~General~~

~~Net income for the six months ended June 30, 2023 was $72.1 million, an increase of $9.0 million, or 14.3%, from net income of $63.1 million for the six months ended June 30, 2022.~~

Basic EPS for the six months ended June 30, 2023 was $1.33, an increase of $0.12 from $1.21 for the six months ended June 30, 2022. Diluted EPS for the six months ended June 30, 2023 was $1.32, an increase of $0.13 from $1.19 for the six months ended June 30, 2022.

~~Net Interest Income~~

For the six months ended June 30, 2023, net interest income before provisions for credit losses totaled $204.2 million and net interest margin and net interest spread were 3.60% and 2.61%, respectively. For the six months ended June 30, 2022, net interest income totaled $157.5 million and net interest margin and net interest spread were 3.32% and 3.13%~~, respectively.~~ ~~Net interest margin increased 28 bps from the~~ six months ended June 30, 2022, primarily due to an increase in the average yields earned on interest-earning assets and offset by an increase in the average rate paid on interest-bearing liabilities during the six months ended June 30, 2023. ~~The~~ ~~increase~~ ~~in net interest income of $46.7 million was~~ primarily attributable to an increase in interest income on loans which increased $161.8 million and a $12.1 million increase in interest income on deposits in financial institutions and Fed Funds sold due to an increase in loan yields and higher average balances, partially offset by ~~a $57.0 million~~ ~~increase~~ ~~in interest expense on transaction and savings deposits,~~ ~~an increase of~~ ~~$46.2 millionin interest expense on certificates and other time deposits and a $27.5 million~~ ~~increase~~ ~~in interest expense on advances from FHLB,~~ ~~during the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The~~ ~~$103.2 million~~ increase in interest expense on deposit accounts was due to an increase in average funding costs of total deposits and borrowings. As a result, the average cost of interest-bearing deposits increased 299 bps to 3.33% for the six months ended June 30, 2023 from 0.34% for the six months ended June 30, 2022. The average costs of total deposits, including noninterest-bearing deposits, for the six months ended June 30, 2023 is 1.23%.

~~For the six months ended June 30, 2023, interest expense totaled~~ ~~$147.9 million~~ ~~and the average rate paid on interest-bearing liabilities was 3.60%. For the six months ended June 30, 2022, interest expense totaled $16.5 million and the average~~ ~~rate paid on interest-bearing liabilities was 0.54%.~~ The increase of $131.4 million in interest expense was primarily due 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 rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as non-accrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the six months ended June 30, 2023 and June 30, 2022, interest income not recognized on non-accrual loans was $2.8 million and $1.5 million, respectively. Any non-accrual loans have been included in the table as loans carrying a zero yield.

For the Six Months Ended June 30,
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)
$ 9,213,742 $ 305,486 6.69 % $ 7,233,431 $ 146,636 4.09 %
LHI, MW 366,000 9,948 5.48 450,592 6,998 3.13
Debt securities 1,192,823 21,154 3.58 1,230,159 17,394 2.85
Interest-bearing deposits in other banks 531,373 13,041 4.95 461,844 976 0.43
Equity securities and other investments 131,462 2,526 3.87 178,602 1,967 2.22
Total interest-earning assets 11,435,400 352,155 6.21 9,554,628 173,971 3.67
ACL (97,639) (76,046)
Noninterest-earning assets 944,883 878,679
Total assets $ 12,282,644 $ 10,357,261
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits $ 4,046,716 $ 62,814 3.13 % $ 3,621,697 $ 5,845 0.33 %
Certificates and other time deposits 2,731,925 49,067 3.62 1,480,654 2,845 0.39
Advances from FHLB 1,284,953 29,920 4.70 803,295 2,381 0.60
Subordinated debentures and subordinated notes 230,195 6,134 5.37 231,959 5,380 4.68
Total interest-bearing liabilities 8,293,789 147,935 3.60 6,137,605 16,451 0.54
Noninterest-bearing liabilities:
Noninterest-bearing deposits 2,310,049 2,731,869
Other liabilities 185,111 85,126
Total liabilities 10,788,949 8,954,600
Stockholders’ equity 1,493,695 1,402,661
Total liabilities and stockholders’ equity $ 12,282,644 $ 10,357,261
Net interest rate spread(2)
2.61 % 3.13 %
Net interest income $ 204,220 $ 157,520
Net interest margin(3)
3.60 % 3.32 %

~~(1)~~ ~~Includes average outstanding balances of LHFS of $21,537 and $12,440 for the six months ended June 30, 2023 and June 30, 2022, respectively, and average balances of LHI, excluding 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.~~

For the Six Months Ended
June 30, 2023 vs June 30, 2022
Increase (Decrease)
Due to Change in
Volume Rate Total
(In thousands)
Interest-earning assets:
Loans $ 40,145 $ 118,705 $ 158,850
LHI, MW (1,313) 4,263 2,950
Debt securities (528) 4,288 3,760
Interest-bearing deposits in other banks 148 11,917 12,065
Equity securities and other investments (519) 1,078 559
Total increase in interest income 37,933 140,251 178,184
Interest-bearing liabilities:
Interest-bearing demand and savings deposits 686 56,283 56,969
Certificates and other time deposits 2,404 43,818 46,222
Advances from FHLB 1,428 26,111 27,539
Subordinated debentures and subordinated notes (41) 795 754
Total increase in interest expense 4,477 127,007 131,484
Increase in net interest income $ 33,456 $ 13,244 $ 46,700

~~Provision for Credit Losses~~

Our provision for credit losses is a charge to income in order to bring our ACL to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the ACL see “—Financial Condition—Allowance for Credit Losses on Loans Held for Investment.” The provision for credit loan losses was $24.8 million for the six months ended June 30, 2023, compared to a $9.0 million provision for credit loan losses for the six months ended June 30, 2022, an increase of $15.8 million. The increase in the recorded provision for credit losses for the six months ended June 30, 2023 was primarily attributable to changes in the Texas economic forecast and an increase in loan growth. For the six months ended June 30, 2023, we also recorded a $368 thousand provision for unfunded commitments, ~~which was attributable to~~ ~~changes in Texas economic forecast, slightly offset by~~ ~~lower unfunded commitment balances. compared~~ ~~to a $493 thousand provision for unfunded commitments for six months ended June 30, 2022.~~

~~Noninterest Income~~

~~The following table presents, for the periods indicated, the major categories of noninterest income:~~
For the
Six Months Ended
June 30, June 30, Increase
2023 2022 (Decrease)
(In thousands)
Noninterest income:
Service charges and fees on deposit accounts $ 10,289 $ 9,749 $ 540
Loan fees 3,584 5,179 (1,595)
Loss on sales of debt securities (5,321) — (5,321)
Gain on sales of mortgage loans 46 530 (484)
Government guaranteed loan income, net 13,832 5,680 8,152
Equity method investment (loss) income (1,036) 1,333 (2,369)
Customer swap income 1,178 2,267 (1,089)
Other 4,651 737 3,914
Total noninterest income $ 27,223 $ 25,475 $ 1,748

Noninterest income for the six months ended June 30, 2023 increased $1.7 million, or 6.9%, to $27.2 million compared to noninterest income of $25.5 million for the six months ended June 30, 2022. The primary drivers of the increase were as follows:

~~Loan fees.~~ The decrease of $1.6 million in loan fees is primarily due to a decrease of $975 thousand in syndication fee income, a decrease of $254 thousand in prepayment fees on CRE, a $219 thousand decrease in other loan fees, and a $151 thousand decrease in appraisal review fees due to a decrease in volume.

~~Loss on sales of debt securities.~~ The loss on sale of debt securities during the six months ended June 30, 2023, compared to the six months ended June 30, 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. There was no comparative sale of securities for the six months ended June 30, 2022.

~~Government guaranteed loan income, net.~~ Government guaranteed loan income, net, includes income related to the sales of SBA and USDA loans. The increase in government guaranteed loan income, net, of $8.2 million during the six months ended June 30, 2023 was primarily due to a $8.3 million increase in the gain on USDA loans, partially offset by a $557 thousand decrease in gain on sale of SBA loans, compared to the six months ended June 30, 2022.

~~Equity method investment (loss) income.~~ Equity method investment (loss) income is comprised of losses and gains earned on equity method investments, specifically our 49% investment in Thrive. The loss from these investments was $1.0 million for the six months ended June 30, 2023, a decrease of $2.4 million compared to income of $1.3 million for the six months ended June 30, 2022. The decrease was primarily due to the negative impact of rising rates on the fair value and volume of loans originated by Thrive.

~~Customer swap income.~~ The decrease in customer swap income of $1.1 million or 48.0%, during the six months ended June 30, 2023 was primarily due to the decrease in trade executions, compared to the six months ended June 30, 2022.

~~Other.~~ Other includes other noninterest income from fees. Other noninterest income was $4.7 million for the six months ended June 30, 2023, an increase of $3.9 million, or 531.1% as compared to the six months ended June 30, 2022. The increase was primarily driven by a $2.7 million increase in the valuation adjustment on the servicing assets, an increase in BOLI income of $976 thousand, a $134 thousand increase in insurance reimbursement, and a $117 thousand increase in income from asset disposition.

Noninterest Expense

The following table presents, for the periods indicated, the major categories of noninterest expense:


		For the



			For the
			Six Months Ended
			June 30,		June 30,		Increase		March 31,			Increase
			2023		2022		(Decrease)			2024	2023		(Decrease)
			(In thousands)							(In thousands)
Noninterest expense	Noninterest expense
Salaries and employee benefits	Salaries and employee benefits		$	60,515	$	54,437	$	6,078
Salaries and employee benefits
Salaries and employee benefits
Occupancy and equipment	Occupancy and equipment		9,800		9,013		787
Professional and regulatory fees	Professional and regulatory fees		11,257		6,023		5,234
Data processing and software expense	Data processing and software expense		9,429		6,307		3,122
Marketing	Marketing		4,406		3,493		913
Amortization of intangibles	Amortization of intangibles		4,963		4,990		(27)
Telephone and communications	Telephone and communications		833		737		96
M&A expense			—		995		(995)

Other
Other
Other	Other		12,609		8,730		3,879
Total noninterest expense	Total noninterest expense		$	113,812	$	94,725	$	19,087

Noninterest expense for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 increased ~~$19.1~~$5.5 million, or ~~20.1%~~9.7%, to ~~$113.8~~$62.1 million compared to noninterest expense of ~~$94.7~~$56.6 million for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023. 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 $~~60.5~~33.4 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, an increase of $~~6.1~~1.5 million, or ~~11.2%~~4.7%, compared to the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. The increase was primarily attributable to a ~~$4.9~~$1.8 million increase in officer salaries, ~~a $3.4 million increase in general bonuses,~~offset by an increase of ~~$2.0~~$1.2 million in contra origination costs, a ~~$1.5 million increase in severance cost, and a $1.2 million increase in employee group insurance cost. The increase was partially offset by a~~ decrease of ~~$4.3~~$1.0 million in ~~off-cycle~~ bonuses and a decrease of ~~$2.4 million~~$709 thousand in ~~lender incentives.~~severance costs. The remaining changes were nominal amongst individual other noninterest expense ~~accounts~~accounts.

Professional and regulatory fees. The category includes legal, professional, audit, regulatory, and FDIC assessment fees. The increase of $~~5.2~~1.7 million, or ~~86.9%~~37.9%, was primarily attributable to an increase in of $963 thousand of FDIC assessment fees ~~of $3.4 million due to an increase~~that increased when the Company crossed $10 billion in ~~asset size, an increase of $965 thousand in legal~~total assets and ~~professional fees, and an increase of $864 thousand in audit and regulatory services.~~

~~Data processing and software expense~~. ~~This category of expenses includes expense related to data processing and software expenses. For the~~ ~~six months ended June 30, 2023, data processing and software expense was~~ ~~$9.4 million~~ an increase of ~~$3.1 million, or 39.1%, compared to the same period in~~ ~~2022. The increase was primarily due to an increase of $2.7 million in software expenses for the enhancement of systems to mitigate security risk due to the Bank’s growth and $457~~$536 thousand ~~in data processing expenses.~~professional services.

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 ~~$12.6~~$8.9 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to $~~8.7~~5.9 million for the same period in ~~2022,~~2023, an increase of ~~$3.9~~$3.0 million, or ~~44.4%~~50.8%. This increase was primarily due to an increase ~~(i)~~ of ~~$976 thousand miscellaneous losses and expenses, (ii)~~ $2.7 million in ~~$843 thousand third party banking services, (iii) of $312 thousand in subscription fees, (iv) of $220 thousand in auto and traveling expenses, (v) of $174 thousand in insurance expense, in each case,~~earned credit rebates during the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 as compared to the same period in ~~2022.~~2023. The remaining changes were nominal amongst individual other 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 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 December 31, 2023, ~~June 30,~~a $4.2 million valuation allowance was established relating to an impairment on our investment in Thrive. The position was upheld as of March 31, 2024. As of March 31, 2023,~~, we~~ the Company did not believe a valuation allowance was necessary.

For the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024, income tax expense totaled ~~$20.7~~$7.2 million, ~~an increase~~a decrease of ~~$4.6~~$3.8 million, compared to an income tax expense of ~~$16.2~~$11.0 million for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023. For the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024, we had an effective tax rate of ~~22.3%~~23.1% which includes a discrete tax expense of ~~$153~~$384 thousand associated with the recognition of an excess tax expense realized on share-based payment ~~awards.~~awards. Excluding this discrete tax item, the Company had an effective tax rate of ~~22.1%~~21.8%. For the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023, the Company had an effective tax rate of ~~20.4%~~22.3%.

5747

Financial Condition

Our total assets increased $~~306.0~~314.1 million, or 2.5%, from ~~$12.15~~$12.39 billion as of December 31, ~~2022~~2023 to ~~$12.47~~$12.71 billion as of ~~June 30, 2023.~~March 31, 2024. 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 ~~June 30, 2023,~~March 31, 2024, total LHI, excluding ACL, was ~~$9.72~~$9.71 billion, an increase of ~~$220.0~~$112.9 million,, or ~~2.3%~~1.2%, compared to ~~$9.50~~$9.59 billion as of December 31, ~~2022.~~2023. The increase was the result of the continued execution and success of our loan growth ~~strategy and previously unfunded balances that were funded during the year.~~strategy. In addition to these amounts, $~~29.9~~64.8 million and $~~20.6~~79.1 million in loans were classified as ~~held for sale~~LHFS as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

Total LHI as a percentage of deposits were 91.1% and 92.8% as of March 31, 2024 and December 31, 2023, respectively. Total LHI, excluding MW loans, as a percentage of deposits were ~~100.4%~~86.9% and ~~99.3%~~89.1% as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Total LHI ~~excluding MW loans,~~ as a percentage of assets were ~~74.2%~~76.4% and ~~78.2%~~77.4% as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

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




		As of June 30,				As of December 31,
		2023				2022				Increase (Decrease)					2024							2023						Increase (Decrease)
		Amount		% of Total		Amount		% of Total		Amount		% Change Quarter over Quarter				Amount			% of Total				Amount				% of Total				Amount				% Change Quarter over Quarter
		(Dollars in thousands)														(Dollars in thousands)
Commercial	Commercial	$	2,850,084	29.4	%	$	2,942,348	31.0	%	$	(92,264)	(3.1)	%	Commercial		$	2,785,987	28.8		28.8	%			$	2,752,063	28.7			28.7	%		$	33,924	1.2		1.2	%
MW	MW	436,255		4.5		446,227		4.7		(9,972)		(2.2)	%
Real estate:	Real estate:
Owner Occupied CRE (“OOCRE”)		671,602		6.9		715,829		7.5		(44,227)		(6.2)	%
Non-owner Occupied CRE (“NOOCRE”)		2,509,731		25.9		2,341,379		24.6		168,352		7.2	%
OOCRE
OOCRE
OOCRE
NOOCRE
Construction and land	Construction and land	1,659,700		17.1		1,787,400		18.8		(127,700)		(7.1)	%
Farmland	Farmland	51,663		0.5		43,500		0.5		8,163		18.8	%
1-4 family residential	1-4 family residential	923,442		9.5		894,456		9.4		28,986		3.2	%
Multifamily	Multifamily	592,473		6.1		322,679		3.4		269,794		83.6	%
Consumer	Consumer	11,189		0.1		7,806		0.1		3,383		43.3	%
Total LHI, carried at amortized cost(1)	Total LHI, carried at amortized cost(1)	$	9,706,139	100.0	%	$	9,501,624	100.0	%	$	204,515	2.2	%	Total LHI, carried at amortized cost(1)		$	9,706,013	100.0		100.0	%			$	9,593,125	100.0			100.0	%		$	112,888	1.2		1.2	%

Total LHFS	Total LHFS	$	29,876			$	20,641
Total LHFS
Total LHFS

(1) Total LHI, carried at amortized cost, excludes ~~$12.7~~$6.9 million and ~~$19.0~~$8.8 million of deferred loan fees, net, as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

5848

CRE Portfolio Composition

The majority of our CRE loan portfolio consists of multifamily residential, NOOCRE and construction and land loans. The table below details the composition of the multifamily residential, NOOCRE and construction and land loan portfolio's by borrower type and geographic location.


	As of March 31,
	2024
Property Type	DFW		Houston		Secondary Texas(1)		Out of State		Total		% of Total Loans

Industrial	$	440,988	$	257,198	$	166,967	$	252,100	$	1,117,253	11.5	%
Multifamily	425,041		481,602		173,180		137,544		1,217,367		12.5
Office	336,002		135,784		23,748		32,652		528,186		5.4
Retails	188,223		194,289		137,745		180,340		700,597		7.2
Hotel	169,792		22,610		112,436		138,819		443,657		4.6
SFR	249,310		34,421		81,248		8,833		373,812		3.9
Other	69,333		86,650		53,393		82,609		291,985		3.0
Total CRE	$	1,878,689	$	1,212,554	$	748,717	$	832,897	$	4,672,857	48.1	%


	As of December 31,
	2023
Property Type	DFW		Houston		Secondary Texas(1)		Out of State		Total		% of Total Loans

Industrial	$	409,899	$	263,880	$	151,780	$	265,138	$	1,090,697	11.4	%
Multifamily	395,344		506,761		165,340		125,890		1,193,335		12.4
Office	361,612		137,486		31,914		32,627		563,639		5.9
Retails	192,770		188,582		138,176		179,536		699,064		7.3
Hotel	166,356		22,764		110,795		141,054		440,969		4.6
SFR	250,151		29,556		89,582		8,201		377,490		3.9
Other	81,981		108,512		53,438		81,671		325,602		3.4
Total CRE	$	1,858,113	$	1,257,541	$	741,025	$	834,117	$	4,690,796	48.9	%

(1)Includes loans made to markets in the state of Texas outside of DFW and Houston.

Out of State Concentration

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. The following table provides details on our out of state portfolio concentration:


	As of March 31,				As of December 31,
	2024				2023
Out of State Loan Portfolio	Amount		Percent of Total Loans		Amount		Percent of Total Loans
(Dollars in thousands)
Commercial Real Estate	$	785,201	8.1	%	$	784,523	8.2	%
Lender Finance	536,568		5.5		536,568		5.6
Commercial	371,075		3.8		355,626		3.7
MW	224,903		2.3		141,329		1.5
Mortgage Servicing Rights	229,804		2.4		227,002		2.4
1-4 Family Residential	257,846		2.7		259,745		2.7
USDA and SBA	192,676		2.0		199,184		2.1
Other	370		—		370		—
Total Out of State Loans	$	2,598,443	26.8	%	$	2,504,347	26.1	%

Nonperforming Assets

The following table presents information regarding nonperforming assets by category as of the dates indicated:


			As of June 30,			As of December 31,				As of March 31,		As of December 31,
			2023			2022				2024		2023
		(Dollars in thousands)												(Dollars in thousands)
Nonperforming loans(1)
Construction and land
Construction and land
Construction and land
1-4 family residential
			(Dollars in thousands)
Nonperforming loans(1)
1-4 family residential			$	1,231		$	862
Mortgage warehouse			208			—
OOCRE
OOCRE
OOCRE	OOCRE		10,287			9,737
NOOCRE	NOOCRE		32,981			21,377

Commercial	Commercial		23,007			11,397

Commercial

Commercial

Consumer
Consumer
Consumer	Consumer		62			169
Accruing loans 90 or more days past due	Accruing loans 90 or more days past due		528			125
Total nonperforming loans	Total nonperforming loans		68,304			43,667
OREO	OREO		—			—
Total nonperforming assets	Total nonperforming assets		$	68,304		$	43,667

Nonperforming assets to total assets	Nonperforming assets to total assets		0.55		%	0.36		%
Nonperforming assets to total assets
Nonperforming assets to total assets										0.82	%	0.77	%
Nonperforming assets to total loans and OREO									Nonperforming assets to total loans and OREO	1.06	%	0.99	%
Nonperforming loans to total loans	Nonperforming loans to total loans		0.71		%	0.48		%	Nonperforming loans to total loans	0.88	%	1.00	%

(1) At ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, nonaccrual loans included ~~PCD loans of $7.7~~$9.4 million and ~~$8.5~~$13.7 million, respectively, ~~not accounted for on a pooled basis along with $15 thousand~~ of PCD loans that are accounted for on a pooled ~~basis at June 30, 2023.~~basis.

5950

Potential Problem Loans

The following tables summarize our internal ratings of our loans as of the dates indicated.


			June 30, 2023
			Pass		Special Mention		Substandard		PCD		Total
			(Dollars in thousands)										March 31, 2024
														Pass	Special Mention	Substandard		PCD1	Total
		(Dollars in thousands)															(Dollars in thousands)
Real estate:	Real estate:
Construction and land
Construction and land
Construction and land	Construction and land		$	1,591,366	$	35,003	$	33,331	$	—	$	1,659,700
Farmland	Farmland		51,663		—		—		—		51,663
1 - 4 family residential	1 - 4 family residential		918,768		264		3,311		1,099		923,442
Multi-family residential	Multi-family residential		563,620		26,916		1,937		—		592,473
OOCRE	OOCRE		616,747		15,959		20,346		18,550		671,602
NOOCRE	NOOCRE		2,231,236		164,487		99,881		14,127		2,509,731
Commercial	Commercial		2,745,838		43,910		56,909		3,427		2,850,084
MW	MW		436,047		208		—		—		436,255
Consumer	Consumer		10,978		53		141		17		11,189
Total	Total		$	9,166,263	$	286,800	$	215,856	$	37,220	$	9,706,139

December 31, 2022
Pass Special
Mention Substandard PCD Total
(Dollars in thousands)
Real estate:
Construction and land $ 1,764,634 $ 21,222 $ — $ 1,544 $ 1,787,400
Farmland 43,500 — — — 43,500
1 - 4 family residential 842,149 26,346 24,781 1,180 894,456
Multi-family residential 306,981 — 15,698 — 322,679
OOCRE 648,591 9,186 38,235 19,817 715,829
NOOCRE 2,167,498 105,963 55,170 12,748 2,341,379
Commercial 2,757,945 127,311 53,391 3,701 2,942,348
MW 444,393 1,626 208 — 446,227
Consumer 7,556 58 169 23 7,806
Total $ 8,983,247 $ 291,712 $ 187,652 $ 39,013 $ 9,501,624
1 Within PCD loans, $13,503 are considered classified credits.


	December 31, 2023
	Pass		Special Mention		Substandard		PCD		Total
	(Dollars in thousands)
Real estate:
Construction and land	$	1,693,230	$	34,231	$	6,793	$	—	$	1,734,254
Farmland	31,114		—		—		—		31,114
1 - 4 family residential	928,106		4,501		3,382		1,130		937,119
Multi-family residential	579,021		11,701		15,095		—		605,817
OOCRE	722,430		25,925		27,563		18,170		794,088
NOOCRE	2,066,080		182,531		88,030		14,084		2,350,725
Commercial	2,641,017		51,073		57,065		2,908		2,752,063
MW	377,796		—		—		—		377,796
Consumer	9,972		85		79		13		10,149
Total	$	9,048,766	$	310,047	$	198,007	$	36,305	$	9,593,125

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.

6051

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








		June 30, 2023		March 31, 2023				December 31, 2022
		Allocated Allowance		ACL to Loans		Allocated Allowance			ACL to Loans		Allocated Allowance		ACL to Loans

Construction and land	Construction and land	$	18,145	1.09	%	$	17,314		0.95	%	$	13,120	0.73	%
Construction and land
Construction and land
Farmland
Farmland
Farmland	Farmland	170		0.33		168			0.33		127		0.29
1 - 4 family residential	1 - 4 family residential	9,209		1.00		9,541			1.06		9,533		1.07
1 - 4 family residential
1 - 4 family residential
Multi-family residential
Multi-family residential
Multi-family residential	Multi-family residential	4,707		0.79		3,484			0.81		2,607		0.81
OOCRE	OOCRE	7,519		1.12		8,813			1.40		8,707		1.22
OOCRE
OOCRE
NOOCRE
NOOCRE
NOOCRE	NOOCRE	27,875		1.11		26,238			1.05		26,704		1.14
Commercial	Commercial	34,197		1.20		32,717			1.13		30,142		1.03
Commercial
Commercial
MW
MW
MW
Consumer
Consumer
Consumer	Consumer	328		2.93		419			5.04		112		1.43
Total	Total	$	102,150	1.05	%	$	98,694		1.07	%	$	91,052	1.01	%
Total
Total

The ACL increased ~~$23.5~~$2.2 million to ~~$102.2~~$112.0 million as of ~~June 30, 2023~~March 31, 2024 from December 31, ~~2022.~~2023. The increase in the ACL compared to December 31, ~~2022,~~2023, was primarily attributable to changes in economic factors resulting in increases in ~~specific reserves~~both general and ~~loan growth, offset by charge-offs.~~qualitative factor reserves.

6152


(Dollars in thousands)	(Dollars in thousands)	Net (Charge-offs) Recoveries		Average Loans		Annualized Net (Charge-off) Recoveries to Average Loans
Six Months Ended June 30, 2023
(Dollars in thousands)
(Dollars in thousands)
Three Months Ended March 31, 2024
Three Months Ended March 31, 2024
Three Months Ended March 31, 2024
Construction and land
Construction and land
Construction and land	Construction and land	$	—	$	1,888,850	—	%
Farmland	Farmland	—		49,354		—
Farmland
Farmland
1 - 4 family residential
1 - 4 family residential
1 - 4 family residential	1 - 4 family residential	2		892,026		—
Multi-family residential	Multi-family residential	—		457,113		—
Multi-family residential
Multi-family residential
OOCRE
OOCRE
OOCRE	OOCRE	(116)		684,394		(0.07)
NOOCRE	NOOCRE	(8,065)		2,371,929		(1.36)
NOOCRE
NOOCRE
Commercial
Commercial
Commercial	Commercial	(4,121)		2,861,925		(0.58)
MW	MW	—		366,000		—
MW
MW
Consumer
Consumer
Consumer	Consumer	(102)		8,151		(5.02)
Total	Total	$	(12,402)	$	9,579,742	(0.52)	%
Total
Total

Six Months Ended June 30, 2022
Three Months Ended March 31, 2023

Three Months Ended March 31, 2023

Three Months Ended March 31, 2023
Construction and land
Construction and land
Construction and land	Construction and land	$	—	$	1,297,634	—	%
Farmland	Farmland	—		51,032		—
Farmland
Farmland
1 - 4 family residential
1 - 4 family residential
1 - 4 family residential	1 - 4 family residential	3		610,223		—
Multi-family residential	Multi-family residential	—		276,794		—
Multi-family residential
Multi-family residential
OOCRE
OOCRE
OOCRE	OOCRE	(1,340)		708,717		(0.76)
NOOCRE	NOOCRE	(60)		2,104,941		(0.01)
NOOCRE
NOOCRE
Commercial
Commercial
Commercial	Commercial	(3,106)		2,175,058		(0.57)
MW	MW	—		450,592		—
MW
MW
Consumer
Consumer
Consumer	Consumer	(1,175)		9,465		(49.79)
Total	Total	$	(5,678)	$	7,684,456	(0.30)	%
Total
Total

Net ~~loans charged off~~charged-offs increased ~~$6.7~~$4.4 million, or ~~118.4%.~~18 bps to average loans annualized. Although we believe that we have established our ACL in accordance with ~~accounting principles generally accepted in the United States (“GAAP”)~~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~~OBS Credit exposure

The ACL on off-balance-sheet credit exposures totaled ~~$10.5~~$6.5 million and ~~$10.1~~$8.0 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~June 30, 2023,~~March 31, 2024, we held equity securities with a readily determinable fair value of $9.8 million compared to ~~$9.8~~$9.9 million as of December 31, ~~2022.~~2023. These equity securities primarily represent investments in a publicly traded ~~Community Reinvestment Act~~CRA 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 ~~$11.1~~$38.2 million at ~~June 30, 2023,~~March 31, 2024, compared to ~~$10.1~~$11.6 million at December 31, ~~2022.~~2023. 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.

FHLB Stock and FRB Stock

As of ~~June 30, 2023,~~March 31, 2024, we held FHLB stock and FRB stock of ~~$117.0~~$54.1 million compared to ~~$101.6~~$53.7 million as of December 31, ~~2022.~~2023. 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 ~~June 30, 2023,~~March 31, 2024, the carrying amount of debt securities totaled ~~$1.14~~$1.34 billion, ~~a decrease~~an increase of ~~$138.4~~$87.9 million, or ~~10.8%~~7.0%, compared to ~~$1.28~~$1.26 billion as of December 31, ~~2022.~~2023. The ~~decrease~~increase was primarily due topurchases of AFS debt securities of $230.0 million. The increase was partially offset by the sale of debt securities of ~~$109.8~~$120.1 million ~~with~~at a ~~net~~ loss of ~~$5.3 million.~~$6.3 million and $19.5 million in paydowns. Debt securities represented ~~9.2%~~10.6% and ~~10.6%~~10.1% of total assets as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

All of our ~~mortgage-backed securities~~MBS and ~~collateralized mortgage obligations~~CMOs 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, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in our investment portfolio. As of ~~June 30, 2023,~~March 31, 2024, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.

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 Company has ~~148~~133 AFS debt securities that were in an unrealized loss position totaling ~~$111.3~~$94.4 million as of ~~June 30, 2023.~~March 31, 2024. The Company evaluated all debt securities and anno ACL on debt securities ~~of $885 thousand~~ was recognized in the Company’s consolidated balance sheets as of ~~June 30, 2023.~~March 31, 2024. The Company recorded no ACL for its held to maturity debt securities as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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~~

Equity method investment loss is comprised of losses on equity method investments, specifically our 49% investment in Thrive. We had $54.6 million in equity method investments as of June 30, 2023 and reported a loss of $1.0 million resulting from these investments for the six months ended June 30, 2023, which represents our proportionate share of our investee’s loss. The loss recorded during the six months ended June 30, 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 six months ended June 30, 2023.

dates

Deposits

Total deposits as of ~~June 30, 2023~~March 31, 2024 were ~~$9.23~~$10.65 billion, an increase of ~~$110.7~~$315.6 million, or ~~1.2%~~3.1%, compared to ~~$9.12~~$10.34 billion as of December 31, ~~2022.~~2023. The increase from December 31, ~~2022~~2023 was primarily the result of increases of ~~$842.3~~$295.1 million in certificates and other time deposits, ~~and of $75.5~~$131.2 million in ~~interest-bearing transaction.~~noninterest-bearing transactions and $17.7 million in correspondent money market deposits. The increase was partially offset by ~~decreases~~a decrease of ~~$406.5~~$128.3 million in ~~noninterest-bearing~~interest-bearing demand ~~deposits and $400.6 million in correspondent money market~~ deposits.



	March 31, 2024
	Ending Balance		% of Total		Average Outstanding Balance
Noninterest-bearing	$	2,349,211	22.1	%	$	2,355,315
Interest-bearing transaction	724,171		6.8		810,004
Money market	3,326,742		31.2		3,096,567
Savings	169,201		1.6		150,214
Certificates and other time deposits > $250k	1,307,412		12.3		1,318,235
Certificates and other time deposits < $250k	2,179,393		20.4		1,965,500
Correspondent money market accounts	597,690		5.6		582,660
Total deposits	$	10,653,820	100.0	%	$	10,278,495

6354

June 30, 2023
Ending Balance % of Total Average
Outstanding Balance
Noninterest-bearing $ 2,234,109 24.2 % $ 2,175,002
Interest-bearing transaction 676,653 7.3 % 780,712
Money market 2,816,769 30.5 % 2,635,556
Savings 96,831 1.0 % 101,258
Certificates and other time deposits 2,928,949 31.8 % 2,873,548
Correspondent money market accounts 480,598 5.2 % 402,219
Total deposits $ 9,233,909 100 % $ 8,968,295


		December 31, 2022
		Ending Balance		% of Total		Average Outstanding Balance
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
		December 31, 2023
	Ending Balance							Ending Balance	% of Total	Average Outstanding Balance
Noninterest-bearing	Noninterest-bearing	$	2,640,617	28.9	%	$	2,737,468
Interest-bearing transaction	Interest-bearing transaction	622,814		6.8	%	594,461
Money market	Money market	2,773,623		30.4	%	2,715,476
Savings	Savings	118,293		1.3	%	126,269
Certificates and other time deposits		2,086,642		22.9	%	1,785,152
Certificates and other time deposits > $250k
Certificates and other time deposits < $250k
Correspondent money market accounts	Correspondent money market accounts	881,245		9.7	%	885,730
Total deposits	Total deposits	$	9,123,234	100	%	$	8,844,556

Borrowings

We utilize ~~short-term~~short- 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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, total available borrowing capacity of ~~$1.12~~$2.21 billion and ~~$787.3 million,~~$2.19 billion, respectively, was available under this arrangement with outstanding balances of ~~$1.33 billion~~$100.0 million and ~~$1.18 billion,~~$100.0 million, respectively, and a weighted average interest rate of ~~4.70%~~5.54% for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and ~~1.73%~~4.70% for the year ended December 31, ~~2022.~~2023. The FHLB has also issued standby letters of credit to the Company for ~~$1.13~~$1.38 billion and ~~$1.03~~$1.38 billion as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Our current FHLB advances mature within ~~two~~0.2 years. Other than FHLB borrowings, we had no other short-term borrowings at the dates indicated.

FRB

The FRB has an available borrower in custody arrangement, which allows us to borrow ~~funds through their discount window or their new Bank Term Funding Program (“BTFP”). As of June 30, 2023~~on a collateralized basis. Certain commercial and ~~December 31, 2022,~~ ~~$2.72 billion~~ ~~and $1.14 billion were available under the FRB discount window through the pledging of certain qualifying~~consumer loans ~~and securities. As of June 30, 2023 and December 31, 2022, no borrowings were outstanding~~are pledged under this arrangement. ~~In addition, we had available~~We maintain this borrowing ~~capacity of $463.6 million under~~arrangement to meet liquidity needs pursuant to our contingency funding plan. The following table outlines the FRB availability:


	Three Months Ended
	March 31,		December 31,
	2024		2023
FRB loans pledged as collateral at period end	$	2,015,276	$	2,143,269
FRB securities pledged as collateral at period end	953,163		328,919
BTFP availability at period end(1)	—		455,361
Total FRB availability	$	2,968,439	$	2,927,549

(1) There were no borrowings against the BTFP ~~through~~at the ~~pledging~~end of ~~certain qualifying securities with no outstanding borrowings under this program as of June 30, 2023.~~the respective periods.

Junior subordinated debentures and subordinated notes

The table below details our junior subordinated debentures and subordinated notes. Refer to Note 1413 “Subordinated Debentures and Subordinated Notes” in our ~~2022~~Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the details of our junior subordinated debentures and subordinated notes.

June 30, 2023
Balance Rate
(Dollars in thousands)
Junior subordinated debentures
Parkway National Capital Trust I $ 3,093 7.40%
SovDallas Capital Trust I 8,609 9.18
Patriot Bancshares Capital Trust I 5,155 7.11
Patriot Bancshares Capital Trust II 17,011 7.35
Subordinated notes
4.75% Fixed-to-Floating Rate Subordinated Notes 75,000 4.75
4.125% Fixed-to-Floating Rate Subordinated Notes 125,000 4.13


	March 31, 2024
	Balance		Rate
	(Dollars in thousands)
Junior subordinated debentures
Parkway National Capital Trust I	$	3,093	7.44%
SovDallas Capital Trust I	8,609		9.59
Patriot Bancshares Capital Trust I	5,155		7.43
Patriot Bancshares Capital Trust II	17,011		7.39
Subordinated notes
4.75% Fixed-to-Floating Rate Subordinated Notes	75,000		4.75
4.125% Fixed-to-Floating Rate Subordinated Notes	125,000		4.125

Liquidity and Capital Resources

Liquidity

Liquidity management involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and the year ended December 31, ~~2022,~~2023, 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 four lines of credit with commercial banks that provide for extensions of credit with an availability to borrow up to an aggregate of $100.0 million as of June 30, 2023.~~

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~~$150.0 million as of March 31, 2024. 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 $125.0 million as of December 31, ~~2022.~~2023. There were no advances under these lines of credit outstanding as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

6556

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 ~~$12.28~~$12.34 billion for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and ~~$10.99~~$12.28 billion for the year ended December 31, ~~2022.~~2023.


		For the		For the						For the
		Six Months Ended		Year Ended				Three Months Ended				Year Ended
		June 30, 2023		December 31, 2022				March 31, 2024				December 31, 2023
Sources of Funds:	Sources of Funds:
Deposits:	Deposits:
Deposits:
Deposits:
Noninterest-bearing
Noninterest-bearing
Noninterest-bearing	Noninterest-bearing	18.8	%	25.3	%		19.1	%			18.8	%
Interest-bearing	Interest-bearing	32.9		35.8
Certificates and other time deposits	Certificates and other time deposits	22.2		14.6
Advances from FHLB	Advances from FHLB	10.5		8.1
Other borrowings	Other borrowings	1.9		2.1
Other liabilities	Other liabilities	1.5		1.1
Stockholders’ equity	Stockholders’ equity	12.2		13.0
Total	Total	100.0	%	100.0	%	Total		100.0	%			100.0	%
Uses of Funds:	Uses of Funds:
Loans	Loans	77.2	%	74.9	%
Loans
Loans								76.7	%			77.3	%
Debt Securities	Debt Securities	9.7		11.6
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks	4.3		1.5
Other noninterest-earning assets	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	25.4	%	33.4	%	Average noninterest-bearing deposits to average deposits		22.9	%			24.4	%

Average loans to average deposits		101.4	%	94.6	%
Average loans, excluding MW, to average deposits
Average loans, excluding MW, to average deposits
Average loans, excluding MW, to average deposits								90.3	%			97.5	%

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 15.4%~~decreased 0.4% for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to the year ended December 31, ~~2022.~~2023. We use excess deposits to pay down FHLB borrowings to reduce wholesale funding.

As of ~~June 30, 2023,~~March 31, 2024, we had ~~$3.61~~$2.83 billion in outstanding commitments to extend credit, ~~$984.5~~$794.5 million in unconditionally cancellable MW commitments and ~~$102.9~~$113.4 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, ~~2022,~~2023, we had ~~$4.51~~$3.08 billion in outstanding commitments to extend credit, ~~$1.09 billion~~$803.7 million in MW commitments and ~~$98.2~~$111.6 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.

As of ~~June 30, 2023,~~March 31, 2024, we had cash and cash equivalents of ~~$663.9~~$740.8 million compared to ~~$436.1~~$629.1 million as of December 31, ~~2022.~~2023.

6657

Analysis of Cash Flows


			For the				For the Three Months Ended
			Six Months Ended				March 31, 2024	March 31, 2023
			June 30, 2023		June 30, 2022
			(In thousands)
		(In thousands)							(In thousands)
Net cash provided by operating activities	Net cash provided by operating activities		$	98,317	$	99,241
Net cash used in investing activities	Net cash used in investing activities		(108,270)		(1,573,493)
Net cash provided by financing activities	Net cash provided by financing activities		237,797		1,505,184
Net change in cash and cash equivalents	Net change in cash and cash equivalents		$	227,844	$	30,932

Cash Flows Provided by Operating Activities

For the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, net cash provided by operating activities ~~decreased~~increased by ~~$924 thousand~~$9.7 million when compared to the same period in ~~2022.~~2023. The increase in cash provided by operating activities was primarily attributable to a $18.6 million increase in proceeds from LHFS and a $17.3 million decrease in originations of LHFS. The increase was partially offset by a $21.8 million decrease in accounts payable and other liabilities.

Cash Flows Used in Investing Activities

For the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, net cash used in investing activities ~~decreased~~increased by ~~$1.47 billion~~$170.6 million when compared to the same period in ~~2022.~~2023. The ~~decrease~~increase in cash used in investing activities was primarily attributable to a ~~$910.5~~$157.1 million decrease ~~in originations of net LHI, a $243.0 million decrease in purchases of AFS debt securities, and a $143.1 million increase~~ in maturities, and calls and sales/paydowns of AFS debt ~~securities.~~securities as part of our strategic restructuring of the portfolio.

Cash Flows Provided by Financing Activities

For the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, net cash provided by financing activities decreased by ~~$1.27 billion~~$99.7 million when compared to the same period in ~~2022.~~2023. The decrease in cash provided by financing activities was primarily attributable to a ~~$1.04 billion decrease in new deposits and a $153.9~~$505.0 million decrease in ~~proceeds~~advances from ~~our common stock offering completed during the six months ended June 30, 2022.~~FHLB, partially offset by a $405.2 million increase in new deposits.

As of the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.

Share Repurchases

On March 28, 2024, the Board authorized a stock buyback program (the "Stock Buyback Program") pursuant to which the Company could, from time to time, purchase up to $50,000 of its outstanding common stock in the aggregate. The Stock Buyback Program has an expiration date of March 31, 2025 and may be suspended, terminated, amended or modified by the Board at any time without prior notice at the Board’s discretion. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any share and the program may be terminated or amended by the Board at any time prior to its expiration. All repurchases under the Stock Buyback Program to date were made subsequent to the three months ended March 31, 2024.

Share repurchases subsequent to three months ended March 31, 2024 are as follows:


	As of
	May 6, 2024		March 31, 2023
Number of shares repurchased	36,846		—
Weighted average price per share	$	19.97	$	—

Capital Resources

Total stockholders’ equity increased to $1.54 billion as of March 31, 2024, compared to $1.53 billion as of December 31, 2023, an increase of $7.2 million, or 0.5%. The increase from December 31, 2023 to March 31, 2024 was primarily the result of $24.2 million of net income recognized and $2.9 million in stock-based compensation during the three months ended March 31, 2024. This increase was partially offset by $10.9 million in dividends declared and paid, $7.7 million in accumulated other comprehensive income, and $1.3 million of RSUs vesting during the three months ended March 31, 2024.

By comparison, total stockholders’ equity increased to $1.49 billion as of ~~June 30,~~March 31, 2023, compared to $1.45 billion as of December 31, 2022, an increase of ~~$41.5~~$44.0 million, or ~~2.9%~~3.0%. The increase from December 31, 2022 to ~~June 30,~~March 31, 2023 was primarily the result of ~~$72.1~~$38.4 million of net income recognized, ~~$6.1~~$14.9 million in other comprehensive income along with $2.9 million in stock-based compensation and a ~~$765~~$534 thousand increase due to the exercise of employee stock options during the ~~six~~three months ended ~~June 30,~~March 31, 2023. This increase was partially offset by ~~$21.7~~$10.8 million in dividends declared and paid ~~$13.8~~and $1.9 million ~~in accumulated other comprehensive income, and $2.0 million~~ of r~~estricted stock units (“RSU”)~~RSUs vesting during the ~~six~~three months ended ~~June 30,~~March 31, 2023.

By comparison, total stockholders’ equity increased to $1.43 billion as of June 30, 2022, compared to $1.32 billion as of December 31, 2021, an increase of $114.4 million, or 8.7%. The increase from December 31, 2021 to June 30, 2022 was primarily the result of our $153.9 million common stock offering, $63.1 million of net income recognized, along with $6.0 million in stock-based compensation and a $618 thousand increase due to the exercise of employee stock options during the ~~six months ended June 30, 2022. This increase was partially offset by $85.5 million in other comprehensive income and $20.7 million in dividends declared and paid during the~~ ~~six months ended June 30, 2022~~.

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 1211 – “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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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.

The following table presents the actual capital amounts and regulatory capital ratios for us and the Bank as of the dates indicated.


		As of June 30,				As of December 31,				As of March 31,				As of December 31,
		2023				2022				2024				2023
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio
		(Dollars in thousands)								(Dollars in thousands)
Veritex Holdings, Inc.	Veritex Holdings, Inc.
Total capital (to RWA)	Total capital (to RWA)	$	1,468,808	12.51	%	$	1,395,904	11.63	%
Total capital (to RWA)
Total capital (to RWA)										$	1,520,656	13.33	%		$	1,500,703	13.18	%
Tier 1 capital (to RWA)	Tier 1 capital (to RWA)	1,175,474		10.01		1,121,021		9.34
Common equity tier 1 (to RWA)		1,145,695		9.76		1,091,353		9.09
CET1 (to RWA)
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)	1,175,474		9.80		1,121,021		9.82
Veritex Community Bank	Veritex Community Bank
Total capital (to RWA)	Total capital (to RWA)	$	1,448,929	12.35	%	$	1,368,082	11.41	%
Total capital (to RWA)
Total capital (to RWA)										$	1,475,046	12.98	%		$	1,467,960	12.90	%
Tier 1 capital (to RWA)	Tier 1 capital (to RWA)	1,354,077		11.54		1,291,288		10.77
Common equity tier 1 (to RWA)		1,354,077		11.54		1,291,288		10.77
CET1 (to RWA)
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)	1,354,077		11.30		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 ~~June 30, 2023~~March 31, 2024 since December 31, ~~2022~~2023 as reported in our Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2023.

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 ACL, business combinations, debt securities and goodwill. Since December 31, ~~2022~~2023, 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, ~~2022~~2023, 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.

~~Goodwill~~

Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized but is reviewed for potential impairment annually on October 31 of each fiscal year or when a triggering event occurs.

We may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. We have an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test, and we may resume performing the qualitative assessment in any subsequent period. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of potential impairment and the amount of impairment loss, involves estimating the fair value of a reporting unit and comparing these estimated fair values with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Any such adjustments to goodwill are reflected in the results of operations in the periods in which they become known.

Estimating the fair values of a reporting unit involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including revenues, capital expenditures, cash flows and the selection and use of an appropriate discount rate and market values and multiples of earnings and revenues of similar public companies. Projected sales and capital expenditures are based on our annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit.

The use of different assumptions, estimates or judgments in the goodwill impairment testing process, including with respect to the estimated future cash flows of our reporting unit, the discount rate used to discount such estimated cash flows to their net present value, and the reasonableness of the resultant implied control premium relative to our market capitalization, could materially increase or decrease the fair value of the reporting unit and/or its net assets and, accordingly, could materially increase or decrease any related impairment charge.

~~During the second quarter of 2023, the Company observed a sustained decline in the market valuation of the Company’s common stock as a result of~~ ~~significant volatility~~ in the banking industry with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system.As a result of the sustained economic disruption, we determined that the likelihood of impairment was greater than 50% and therefore we performed an interim quantitative impairment assessment for our reporting unit with a trigger date of May 31, 2023. We determined the fair value of our reporting unit using a combination of a market and income approach. As a result of our evaluation, the fair value of our reporting unit exceeded its related carrying value by approximately 26%, and therefore goodwill was not impaired. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

~~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 banking industry, responsive measures to mitigate and manage it and related supervisory and regulatory actions 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,” “targets,” “outlooks,” “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 and Texas;

•the effects of regional or national civil unrest;

•the effects of war or other conflicts, including, but not limited to, the current conflicts between Russia and the Ukraine and Israel and Hamas, acts of terrorism, cyber attacks or other catastrophic events, including natural disasters such as storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions;

•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~~Changes in the financial performance and/or condition of ~~borrowers, including any increase in those risks due to changing economic conditions, inflation and interest rates;~~our borrowers;

•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;

•changes in consumer spending, borrowing and saving habits;

•the potential impact of climate change;

•the impact of pandemics, epidemics and any other health-related crisis;

•the effects of changes in governmental monetary and fiscal policies and laws, 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, ~~2022, our Quarterly Report on Form 10-Q for the quarter-ended March 31,~~ 2023 ~~and~~ ~~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. Any forward-looking statement speaks only as of the date on which it is made.You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation, and specifically decline any obligation to, publicly release ~~publicly~~ any ~~revisions~~supplement, update or revision to any forward-looking statements, to report events or to report the occurrence of unanticipated events, whether as a result of new information, future developments or otherwise, 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.

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Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. With exception of our cash flow hedges designated as a hedging instrument, we do not enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. We enter into interest rate swaps, caps and collars as an accommodation to our customers in connection with our interest rate swap program. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

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

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

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

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

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


		As of June 30, 2023				As of December 31, 2022					As of March 31, 2024				As of December 31, 2023
		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	10.52	%	1.85	%	13.00	%	4.65	%	+ 300	13.54	%	(6.78)	%		11.39	%	(6.15)	%
+ 200	+ 200	7.13	%	1.45	%	8.88	%	3.36	%
+ 100	+ 100	3.61	%	0.84	%	4.46	%	1.77	%
Base	Base	—	%	—	%	—	%	—	%
−100	−100	(3.63)	%	(1.29)	%	(4.72)	%	(2.55)	%
−200

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.~~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.

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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”)~~CEO and ~~Chief Financial Officer (“CFO”),~~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 CEO and 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”))~~Act) were effective as of the end of the period covered by this ~~Report.~~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 ~~June 30, 2023~~March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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, ~~2022,~~2023, 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.

~~Other than the risk factor set forth below, there~~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, ~~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, need for outside liquidity support 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 most recent estimates of the FDIC are that the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank resulted in losses 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.2023.

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

~~None.~~

On March 26, 2024, the Board authorized a stock buyback program (the “Stock Buyback Program”) pursuant to which the Company is authorized to purchase up to $50 million shares of the Company’s outstanding common stock.

The Stock Buyback Program has an expiration date of March 31, 2025, and may be suspended, terminated, amended or modified by the Board at any time without prior notice at the Board’s discretion.Repurchases under the Stock Buyback Program may be made, from time to time, in amounts and at prices the Company deems appropriate.The Stock Buyback Program does not obligate the Company to purchase any shares of its common stock.Repurchases by the Company under the Stock Buyback Program will be subject to general market and economic conditions, applicable legal and regulatory requirements and other considerations.During the three months ended March 31, 2024, the Company did not repurchase any shares of its common stock under the Stock Buyback Program.

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~~Item 5. Other Information~~

During the three months ended June 30, 2023, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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 ~~June 30, 2023,~~March 31, 2024, 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

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure, other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the ~~Securities~~ Exchange Act, ~~of 1934,~~ the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



						VERITEX HOLDINGS, INC.
						(Registrant)





Date: ~~August 8, 2023~~May 6, 2024						/s/ C. Malcolm Holland, III
						C. Malcolm Holland, III
						Chairman and Chief Executive Officer
						(Principal Executive Officer)




Date: ~~August 8, 2023~~May 6, 2024						/s/ Terry S. Earley
						Terry S. Earley
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

7566


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	163,727	$	82,191	$	315,434	$	153,634
Debt securities	10,166		9,632		21,154		17,394
Deposits in financial institutions and Fed Funds sold	7,507		714		13,041		976
Equity securities and other investments	1,118		1,057		2,526		1,967
Total interest and dividend income	182,518		93,594		352,155		173,971
INTEREST EXPENSE
Transaction and savings deposits	32,957		4,094		62,814		5,845
Certificates and other time deposits	28,100		1,465		49,067		2,845
Advances from FHLB	17,562		834		29,920		2,381
Subordinated debentures and subordinated notes	3,068		2,721		6,134		5,380
Total interest expense	81,687		9,114		147,935		16,451
NET INTEREST INCOME	100,831		84,480		204,220		157,520
Provision for credit losses	15,000		9,000		24,385		8,500
(Benefit) provision for credit losses on unfunded commitments	(1,129)		—		368		493
Net interest income after provision (benefit) for credit losses	86,960		75,480		179,467		148,527
NONINTEREST INCOME
Service charges and fees on deposit accounts	5,272		5,039		10,289		9,749
Loan fees	1,520		2,385		3,584		5,179
Loss on sales of debt securities	—		—		(5,321)		—
Gain on sale of mortgage LHFS	40		223		46		530
Government guaranteed loan income, net	4,144		789		13,832		5,680
Equity method investment income (loss)	485		966		(1,036)		1,333
Customer swap income	961		1,321		1,178		2,267
Other	1,270		(345)		4,651		737
Total noninterest income	13,692		10,378		27,223		25,475
NONINTEREST EXPENSE
Salaries and employee benefits	28,650		26,924		60,515		54,437
Occupancy and equipment	4,827		4,496		9,800		9,013
Professional and regulatory fees	6,868		2,865		11,257		6,023
Data processing and software expense	4,709		3,386		9,429		6,307
Marketing	2,627		2,306		4,406		3,493
Amortization of intangibles	2,468		2,495		4,963		4,990
Telephone and communications	355		352		833		737
Merger and acquisition (“M&A”) expense	—		295		—		995
Other	6,693		5,034		12,609		8,730
Total noninterest expense	57,197		48,153		113,812		94,725
Income before income tax expense	43,455		37,705		92,878		79,277
Income tax expense	9,725		8,079		20,737		16,181
NET INCOME	$	33,730	$	29,626	$	72,141	$	63,096


Basic earnings per share (“EPS”)	$	0.62	$	0.55	$	1.33	$	1.21
Diluted EPS	$	0.62	$	0.54	$	1.32	$	1.19



Three Months Ended June 30, 2023
	Common Stock			Treasury Stock			APIC		Retained Earnings		AOCI		Total
	Shares	Amount		Shares	Amount
Balance at March 31, 2023	54,229,033	$	609	6,638,094	$	(167,582)	$	1,308,345	$	406,873	$	(54,508)	$	1,493,737
Restricted stock units (“RSU”) vested, net of 2,960 shares withheld to cover taxes	18,425	—		—	—		(56)		—		—		(56)
Exercise of employee stock options, net of 2,343 shares withheld to cover exercise	13,334	—		—	—		231		—		—		231

Stock based compensation	—	—		—	—		3,167		—				3,167

Net income	—	—		—	—		—		33,730		—		33,730
Dividends paid	—	—		—	—		—		(10,850)		—		(10,850)
Other comprehensive loss	—	—		—	—		—		—		(28,679)		(28,679)
Balance at June 30, 2023	54,260,792	$	609	6,638,094	$	(167,582)	$	1,311,687	$	429,753	$	(83,187)	$	1,491,280


Multi-family residential:
Pass	$	5,160	$	77,025	$	208,657	$	196,218	$	8,223	$	19,953	$	48,358	$	26	$	563,620
Special mention	—		—		—		—		—		26,916		—		—		26,916
Substandard	—		—		—		—		1,937		—		—		—		1,937

Total multi-family residential	$	5,160	$	77,025	$	208,657	$	196,218	$	10,160	$	46,869	$	48,358	$	26	$	592,473
Multi-family residential gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

OOCRE:
Pass	$	20,974	$	154,657	$	103,045	$	94,722	$	42,152	$	185,144	$	3,388	$	12,665	$	616,747
Special mention	—		9,378		1,028		717		1,921		185		—		2,730		15,959
Substandard	—		—		273		1,366		—		18,674		—		33		20,346
PCD	—		—		—		—		—		18,550		—		—		18,550
Total OOCRE	$	20,974	$	164,035	$	104,346	$	96,805	$	44,073	$	222,553	$	3,388	$	15,428	$	671,602
OOCRE gross charge-offs	$	—	$	—	$	—	$	5	$	5	$	106	$	—	$	—	$	116

NOOCRE:
Pass	$	47,715	$	732,050	$	540,159	$	259,281	$	155,272	$	449,700	$	34,323	$	12,736	$	2,231,236
Special mention	—		3,731		39,981		25,209		41,337		54,229		—		—		164,487
Substandard	—		—		2,764		—		1,265		88,168		—		7,684		99,881
PCD	—		—		—		—		—		14,127		—		—		14,127
Total NOOCRE	$	47,715	$	735,781	$	582,904	$	284,490	$	197,874	$	606,224	$	34,323	$	20,420	$	2,509,731
NOOCRE gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	8,215	$	—	$	—	$	8,215

Commercial:
Pass	$	126,009	$	365,055	$	117,959	$	60,365	$	50,341	$	59,030	$	1,961,574	$	5,505	$	2,745,838
Special mention	—		14,612		533		1,704		1,292		1,244		24,525		—		43,910
Substandard	—		18,065		19		5,402		2,534		10,968		16,575		3,346		56,909
PCD	—		—		—		—		—		3,427		—		—		3,427
Total commercial	$	126,009	$	397,732	$	118,511	$	67,471	$	54,167	$	74,669	$	2,002,674	$	8,851	$	2,850,084
Commercial gross charge-offs	$	—	$	—	$	—	$	48	$	479	$	4,064	$	—	$	—	$	4,591

MW:
Pass	$	3,927	$	61,548	$	182	$	205	$	665	$	170	$	369,350	$	—	$	436,047
Special mention	—		—		—		—		—		208		—		—		208


Total MW	$	3,927	$	61,548	$	182	$	205	$	665	$	378	$	369,350	$	—	$	436,255
Mortgage warehouse gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Pass	$	4,818	$	1,304	$	372	$	726	$	138	$	1,916	$	1,704	$	—	$	10,978
Special mention	—		—		—		—		—		53		—		—		53
Substandard	—		29		—		—		14		98		—		—		141
PCD	—		—		—		—		—		17		—		—		17
Total consumer	$	4,818	$	1,333	$	372	$	726	$	152	$	2,084	$	1,704	$	—	$	11,189
Consumer gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	154	$	—	$	—	$	154


	For the Six Months Ended June 30, 2023						For the Six Months Ended June 30, 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	$	(2,176)	$	2,176	Interest Expense		$	(1,358)	$	1,358	Interest Expense
Interest rate swap on money market deposit account payments	(2,607)		5,434		Interest Expense		11,712		58		Interest Expense
Interest rate swaps, collars and floors on customer loan interest payments	(3,171)		(8,513)		Interest Income		(35,307)		1,577		Interest Income
Total	$	(7,954)	$	(903)			$	(24,953)	$	2,993

					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					$	1,196					$	2,126


	For the For the				Increase (Decrease)
	Three Months Ended
	June 30,		March 31,
	2023		2023
	(In thousands)
Salaries and employee benefits	$	28,650	$	31,865	$	(3,215)
Occupancy and equipment	4,827		4,973		(146)
Professional and regulatory fees	6,868		4,389		2,479
Data processing and software expense	4,709		4,720		(11)
Marketing	2,627		1,779		848
Amortization of intangibles	2,468		2,495		(27)
Telephone and communications	355		478		(123)

Other	6,693		5,916		777
Total noninterest expense	$	57,197	$	56,615	$	582


	For the Six Months Ended
	June 30, 2023 vs June 30, 2022
	Increase (Decrease)

	Due to Change in
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	40,145	$	118,705	$	158,850
LHI, MW	(1,313)		4,263		2,950

Debt securities	(528)		4,288		3,760
Interest-bearing deposits in other banks	148		11,917		12,065
Equity securities and other investments	(519)		1,078		559
Total increase in interest income	37,933		140,251		178,184
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	686		56,283		56,969
Certificates and other time deposits	2,404		43,818		46,222
Advances from FHLB	1,428		26,111		27,539
Subordinated debentures and subordinated notes	(41)		795		754
Total increase in interest expense	4,477		127,007		131,484
Increase in net interest income	$	33,456	$	13,244	$	46,700