•Mortgage loan origination. The Dodd-Frank Act created the CFPB and authorized the ~~Consumer Financial Protection Bureau (the “CFPB”)~~CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’s ability to repay a residential mortgage loan. Under the Dodd-Frank Act, financial institutions may not make a residential mortgage loan unless ~~they make~~it makes a “reasonable and good faith determination” that the consumer has a “reasonable ability” to repay the loan. The Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure but provides a full or partial safe harbor from such defenses for loans that are “qualified mortgages.” The CFPB has promulgated and amended final rules to, among other things, specify the types of income and assets that may be considered in the ability to repay determination, the permissible sources for verification and the required methods of calculating the loan’s monthly payments. The rules extend the requirement that creditors verify and document a borrower’s income and assets to include all information that creditors rely on in determining repayment ability. The rules also provide further examples of third party documents that may be relied on for such verification, such as government records and check cashing or funds transfer service receipts. ~~The~~As revised in December 2020, the rules set conditions for “qualified mortgages,” including ~~underwriting standards-for example, a borrower’s debt to income ratio may not exceed 43%-and~~price-based limits and limits on ~~the~~other terms of ~~their~~the loans. Points and fees are subject to a relatively stringent cap, and are defined to include a wide array of payments that may be made in the course of closing a loan. Certain loans, including interest only loans and negative amortization loans, cannot be qualified mortgages.

•Risk retention. The Federal Reserve, together with the FDIC, the SEC, the Federal Housing Finance Agency and the Department of Housing and Urban Development, issued a final rule in 2014 to implement the risk retention requirement mandated by Section 941 of the Dodd-Frank Act. The risk retention requirement generally requires a securitizer to retain no less than 5% of the credit risk in assets it sells into a securitization and prohibits a securitizer from directly or indirectly hedging or otherwise transferring the credit risk that the securitizer is required to retain, subject to limited exemptions. One significant exemption is for securities entirely collateralized by ~~“qualified residential mortgages” (“QRMs”),~~QRMs, which are loans deemed to have a lower risk of default. The rule defines QRMs to have the same meaning as the term “qualified mortgage,” as defined by the CFPB. In addition, the rule provides for reduced risk retention requirements for qualifying securitizations of commercial loans, ~~commercial real estate~~CRE loans and auto loans.

•Imposition of restrictions on swaps activities. The Dodd-Frank Act imposes a new regulatory structure on the over-the-counter derivatives market, including requirements for clearing, exchange trading, capital, margin, reporting and record keeping. This framework covers any person required to register as a “major swap participant,” “swap dealer,” “major security-based swap participant” or a “security-based swap dealer.” We are treated as an end user and are not subject directly to many of these requirements, but the requirements may affect the nature of the business we conduct with persons required to register.

~~Consumer Financial Protection Bureau.~~•CFPB. The Dodd-Frank Act created the CFPB, which is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The CFPB has rulemaking authority over many of the statutes governing products and services offered to bank and thrift consumers. For banking organizations with assets of $10 billion or more, the CFPB has exclusive rule-making, examination, and primary enforcement authority under federal consumer financial laws. In addition, the Dodd-Frank Act permits states to adopt certain types of consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB. Compliance with any such new regulations ~~would increase~~increases our cost of operations. ~~With the recent change in leadership at the CFPB, the agency has released a new strategic plan~~The rulemaking, examination and ~~published formal requests for information on possible changes to its general supervisory program and its~~ enforcement ~~program. Taken together, these developments suggest that~~priorities of the CFPB may ~~be taking a different approach~~change under the Biden administration, but we are unable to ~~its implementation of consumer financial protection laws, but~~predict what effect, if any, these changes may have on the ~~agency has not proposed specific changes to its regulations.~~

Bank.

•Deposit insurance. The Dodd-Frank Act made permanent the general $250,000 deposit insurance limit for insured deposits. Amendments to the FDIA also revised the assessment base against which an insured depository institution’s deposit insurance premiums paid to the FDIC’s Deposit Insurance Fund will be calculated. Under the amendments, the assessment base is no longer the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. Additionally, the Dodd-Frank Act made changes to the minimum designated reserve ratio of the Deposit Insurance Fund, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. For a discussion of the assessments the Bank pays to the FDIC, see “Deposit Insurance and Deposit Insurance Assessments” below.

•Transactions with affiliates and insiders. The Dodd-Frank Act generally enhanced the restrictions on transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and clarification regarding the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Insider transaction limitations were expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivatives transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions.

For a discussion of the restrictions on transactions with affiliates and insiders applicable to the Bank, see “Limits on Transactions with Affiliates and Insiders” below

•Corporate governance. The Dodd-Frank Act ~~addresses~~addressed many investor protections, corporate governance and executive compensation matters that ~~will~~ affect most U.S. publicly traded companies, including ~~the Company.~~Veritex. The Dodd-Frank Act: (i) ~~grants~~granted shareholders of U.S. publicly traded companies an advisory vote on executive compensation, (ii) ~~enhances~~enhanced independence requirements for compensation committee members, (iii) ~~requires~~required companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers and (iv) ~~provides~~provided the ~~Securities and Exchange Commission (the “SEC”)~~SEC with authority to adopt proxy access rules that would allow shareholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials. For so long as we ~~are~~were an emerging growth company, we ~~may take~~took advantage of the provisions of the ~~Jumpstart Our Business Startups~~JOBS Act ~~(the “JOBS Act”), allowing~~that allowed us to not seek a non-binding advisory vote on executive compensation or golden parachute arrangements.

•Debit Card Interchange Fees. Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions. Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Federal Reserve rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. An upward adjustment of no more than 1 cent to an issuer's debit card interchange fee is allowed if the card issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product. In October 2023, the Federal Reserve issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents. The proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the Federal Reserve from large debit card issuers.

In May 2018, EGRRCPA was signed into law. While EGRRCPA preserved the fundamental elements of the post Dodd-Frank regulatory framework, it included modifications that were intended to result in meaningful regulatory relief both from certain Dodd-Frank provisions and from certain regulatory capital rules for smaller and certain regional banking organizations. Among other things, EGRRCPA revised the capital treatment of certain CRE loans, and amended certain Truth in Lending Act requirements for residential mortgage loans.

The Volcker Rule

Section 619 of the Dodd-Frank Act, popularly known as the “Volcker Rule,” generally prohibits “banking entities” from engaging in “proprietary trading” and making investments and conducting certain other activities with private equity funds and hedge funds. These prohibitions apply to banking entities of any size, including us and the Bank. In 2013, the Federal Reserve, together with the FDIC, the OCC, the SEC and the ~~CFTC,~~Commodity Futures Trading Commission, issued regulations to implement the Volcker ~~Rule, but full compliance was not required until July 21, 2017.~~Rule. We ~~have reviewed the scope of~~are subject to the Volcker Rule but the Volcker Rule does not significantly affect the operations of us and ~~have determined that~~our subsidiaries because we do not have any ~~activities or investments that are subject to~~significant engagement in the ~~requirements of~~businesses covered by the ~~rule at this time.~~

Volcker Rule.

Notice and Approval Requirements Related to Control

Federal and state banking laws impose notice, application, approval or non-objection and ongoing regulatory requirements on any shareholder or other person that controls or seeks to acquire direct or indirect “control” of an FDIC-insured depository institution. In addition to requirements that may apply under the BHC Act, described above under “Bank and Bank Holding Company Regulation,” the Change in Bank Control Act and the Texas Banking Act require regulatory filings by a shareholder or other person that seeks to acquire direct or indirect “control” of an FDIC-insured, Texas-chartered depository institution. The determination of whether a person “controls” a depository institution or its holding company is based on all of the facts and circumstances surrounding the investment. As a general matter, a person is deemed to control a depository institution or other company if the person owns or controls 25% or more of any class of voting stock. Subject to rebuttal, a person is presumed to control a depository institution or other company if the person owns or controls 10% or more of any class of voting stock and other regulatory criteria are met. The holdings of certain affiliated persons, or persons acting in concert, are typically aggregated for the purpose of applying the 10% and 25% thresholds.

In addition, except under limited circumstances, bank holding companies are prohibited from acquiring, without prior approval of the Federal Reserve, control of any other bank or bank holding company or all or substantially all the assets ~~thereof;~~thereof, or more than 5% of the voting shares of a bank or bank holding company ~~which~~that is not already a subsidiary.

Permissible Activities and Investments

Banking laws generally restrict our ability to engage in, or acquire 5% or more ~~than 5%~~ of the voting shares of a company engaged in, activities other than those determined by the Federal Reserve to be so closely related to banking as to be a proper incident thereto. The ~~Gramm-Leach-Bliley Financial Modernization~~GLB Act ~~of 1999 (the “GLB Act”)~~ expanded the scope of permissible activities to include those that are financial in nature or incidental or complementary to a financial activity for a bank holding company that elects to be a financial holding company, which requires the satisfaction of certain conditions. We have not elected financial holding company status.

In addition, as a general matter, we must receive prior regulatory approval before establishing or acquiring a depository institution or, in certain cases, a non-bank entity.

The Texas Constitution, as amended in 1986, provides that a Texas-chartered bank has the same rights and privileges that are or may be granted to national banks domiciled in Texas. To the extent that the Texas laws and regulations may have allowed state-chartered banks to engage in a broader range of activities than national banks, the ~~Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”),~~FDICIA has operated to limit such activities. FDICIA provides that no state bank or subsidiary thereof may engage as a principal in any activity in which national banks are not permitted ~~for national banks,~~to engage, unless the institution complies with applicable capital requirements and the FDIC determines that the activity poses no significant risk to the ~~Deposit Insurance Fund~~DIF of the FDIC. In general, statutory restrictions on the activities of banks are aimed at protecting the safety and soundness of depository institutions.

~~Branching~~Branches

Texas law provides that a Texas-chartered bank can establish a branch anywhere in Texas provided that the branch is approved in advance by the TDB. The branch must also be approved by the Federal Reserve. The regulators consider a number of factors, including financial history, capital adequacy, earnings prospects, character of management, needs of the community, record of the CRA performance and consistency with corporate powers. The Dodd-Frank Act permits insured state banks that satisfy certain conditions to engage in de novo interstate branching if the laws of the state where the new branch is to be established would permit the establishment of the branch if it were chartered by such state.

Regulatory Capital Requirements and Capital Adequacy

The bank 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. The final supervisory determination on an institution’s capital adequacy is based on the regulator’s assessment of numerous factors. As a bank holding company and a state-chartered member bank, we and the Bank are subject to several regulatory capital requirements.

~~Capital~~The federal banking agencies' current generally applicable capital requirements ~~have evolved over the last thirty years. The current requirement~~for bank holding companies and banks took effect on January 1, 2015, with phase-in periods for certain ~~requirements.~~requirements; as of January 1, 2019, all of the requirements were fully phased in. The requirements are based on a set of international standards popularly known as Basel III. ~~By virtue of the Dodd-Frank Act, the Company is broadly subject to the same requirements that apply to the Bank.~~

Under the ~~current~~generally applicable capital ~~rules,~~requirements, we and the Bank ~~must~~are required to maintain ~~“tangible”~~CET1 capital ~~equal to 1.5%~~ of ~~average total assets, common equity Tier 1 equal to~~at least 4.5% of ~~risk-weighted assets,~~RWA, Tier 1 capital ~~equal to~~of at least 6% of ~~risk-weighted assets,~~RWA, total capital (a combination of Tier 1 and Tier 2 capital) ~~equal to~~of at least 8% of ~~risk-weighted assets,~~RWA, and a leverage ratio of Tier 1 capital to average total consolidated assets ~~equal~~of at least 4%. In addition, generally applicable capital requirements subject banking organizations to ~~4%.~~limitations on capital distributions and discretionary bonus payments to executive officers if the organization does not maintain a “capital conservation buffer” of CET1 capital in an amount greater than 2.5% of its total RWA in excess of the minimum RBC ratio requirements. The effect of the fully phased-in capital conservation buffer is to increase the minimum CET1 capital ratio to 7.0%, the minimum tier 1 RBC ratio to 8.5% and the minimum total RBC ratio to 10.5%, for banking organizations seeking to avoid the limitations on capital distributions and discretionary bonus payments to executive officers. The capital regulations also ~~modified~~determine the thresholds necessary for a ~~savings association~~bank to be deemed well or adequately capitalized; these adjustments are discussed below under “Prompt Corrective Action.”

~~Under~~

For purposes of the ~~rules,~~generally applicable capital requirements, the components of ~~common equity Tier 1~~CET1 capital include common stock instruments (including related surplus), retained earnings, and certain minority interests in the equity accounts of fully consolidated subsidiaries (subject to certain limitations). A bank must make certain deductions from and adjustments to the sum of these components to determine common equity Tier 1 capital. The required deductions for banks include, among other items, goodwill (net of associated deferred tax liabilities), certain other intangible assets (net of deferred tax liabilities), certain deferred tax assets, gains on sale in connection with securitization exposures and investments in and extensions of credit to certain subsidiaries engaged in activities not permissible for national banks. The adjustments require several complex calculations and include adjustments to the amounts of deferred tax assets, mortgage servicing assets, and certain investments in the capital of unconsolidated financial institutions that are includable in common equity Tier 1CET1 capital. Additional Tier 1 capital includes noncumulative perpetual preferred stock and related surplus, and certain minority interests in the equity accounts of fully consolidated subsidiaries not included in ~~common equity Tier 1~~CET1 capital, ~~(subject~~subject to certain ~~limitations).~~ limitations. As a bank holding company with less than $15 billion in total assets, we may include certain existing trust preferred securities and cumulative perpetual preferred stock in regulatory capital while other instruments are disallowed.Tier 2 capital includes subordinated debt with a minimum original maturity of five years, related surplus, certain minority interests in in the equity accounts of fully consolidated subsidiaries not included in Tier 1 capital (subject to certain limitations), and limited amounts of a bank’s ~~allowance for loan and lease losses (“ALLL”).~~ACL. Certain deductions and adjustments are necessary for both additional Tier 1 capital and Tier 2 capital. ~~Tangible capital has~~

In the ~~same definition as Tier 1 capital. Under the~~first quarter of 2020, U.S. federal regulatory authorities issued an interim final ~~rules,~~rule that provides banking organizations ~~were~~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 ~~one-time option~~five-year transition in ~~their initial regulatory financial report filed after~~total). In connection with our adoption of CECL on January 1, ~~2015,~~2020, the Company elected to ~~remove certain components~~utilize the five-year CECL transition. As a result, the effects of ~~accumulated other comprehensive income~~CECL on the Company's and the Bank’s regulatory capital will be delayed through the year 2021, after which the effects will be phased-in over a three-year period from ~~the computation of common equity regulatory capital.~~January 1, 2022 through December 31, 2024.

The risk weights used for the risk-based capital calculations range from 0% for cash, U.S. government securities, and certain other assets, 50% for qualifying residential mortgage exposures, 100% for corporate exposures and non-qualifying mortgage loans and certain other assets, to 600% for certain equity exposures. Loans that are past due by 90 days or more and commercial real estate loans either with a loan-to-value ratio in excess of the supervisory ceilings or without a certain amount of contributed capital from the borrower must be risk-weighted at 150%. Mortgage servicing assets and deferred tax assets that are not deducted from common equity Tier 1 capital in accordance with the adjustment stated above are risk-weighted at 250%.

At December 31, ~~2017,~~2023, we and the Bank ~~was~~are in compliance with the ~~minimum common equity Tier 1~~generally applicable capital ~~Tier 1 capital, total capital, tangible capital and leverage capital~~ratio requirements. See Note 23 of the Notes to the Consolidated Financials for further discussion.

The Company is subject to similar minimum capital requirements as the Bank, except that the Company is not subject to a tangible capital ratio. As a bank holding company with less than $15 billion in total assets, we may include certain existing trust preferred securities and cumulative perpetual preferred stock in regulatory capital while other instruments are disallowed. As of December 31, 2017, the Company was in compliance with the minimum common equity Tier 1 capital, Tier 1 capital, total capital, and leverage capital requirements. For ~~the Company~~us to be ~~“well capitalized,~~“well-capitalized,” the Bank must be well-capitalized and ~~the Company~~Veritex must not be subject to any written agreement, order, capital directive or prompt corrective action directive issued by the Federal Reserve to meet and maintain a specific capital level for any capital measure. As of December 31, ~~2017, the Company~~2023, we met all the requirements to be deemed well-capitalized.

In addition, the rules subject a banking organization to certain limitations on capital distributions and discretionary bonus payments to executive officers if the organization does not maintain a “capital conservation buffer” of common equity Tier 1 capital in an amount greater than 2.5% of its total risk-weighted assets. This requirement is still phasing in and will take full effect on January 1, 2019. In 2017, the necessary buffer was 1.25%; in 2018, it will be 1.875%. The effect of the capital conservation buffer , once fully phased in, will be to increase the minimum common equity Tier 1 capital ratio to 7.0%, the minimum tier 1 risk-based capital ratio to 8.5% and the minimum total risk-based capital ratio to 10.5%, for banking organizations seeking to avoid the limitations on capital distributions and discretionary bonus payments to executive officers.


($ in thousands)	Amount		Ratio
As of December 31, 2023
Total capital (to RWA)
Company	$	1,500,703	13.18	%
Bank	1,467,960		12.90
Tier 1 capital (to RWA)
Company	1,202,252		10.56
Bank	1,368,384		12.03
Common equity tier 1 (to RWA)
Company	1,172,362		10.29
Bank	1,368,384		12.03
Tier 1 capital (to average assets)
Company	1,202,252		10.03
Bank	1,368,384		11.43

The capital requirements described above are minimum ~~supervisory~~ ratios generally applicable to banking organizations. The Federal Reserve (and the other federal bank regulatory agencies) may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

Prompt Corrective Action

In addition to the capital rules described above, the Bank is subject to the ~~“prompt corrective action”~~FDIC’s Prompt Corrective Action (“PCA”) regime. ~~This~~The PCA regime subjects an insured depository institution to increasingly stringent restrictions and supervisory actions by its primary federal regulator, if the institution becomes undercapitalized and its financial condition continues to deteriorate. Each U.S. insured depository institution falls within one of five assigned capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly ~~undercapitalized,”~~undercapitalized” and “critically undercapitalized.” An insured depository institution is deemed to be “well capitalized” if it has a total ~~risk-based capital~~RBC ratio of 10.0% or greater, a ~~common equity Tier~~ CET1 capital ratio of 6.5% or greater, a Tier 1 ~~risk-based capital~~RBC ratio of 8.0% or greater and a leverage ratio of 5.0% or greater and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive to meet and maintain a specific level for any capital measure. A well-capitalized institution is not subject to any restrictions on its activities and enjoys certain regulatory advantages such as streamlined processing of many applications. A depository institution is deemed to be “adequately capitalized” if it has a total ~~risk-based capital~~RBC ratio of 8.0% or greater, a ~~common equity Tier 1~~CET1 capital ratio of 4.5% or ~~greater;~~greater, a Tier 1 ~~risk-based capital~~RBC ratio of 6.0% or ~~greater;~~greater and a leverage ratio of 4.0% or ~~greater;~~greater and does not meet the criteria for a “well capitalized” bank. Adequately-capitalized status is necessary in order to undertake a variety of regulated activities.An institution that is adequately capitalized but not well capitalized may be restricted in its ability to rely on brokered deposits, which is discussed further below under “Brokered Deposits.”

A depository institution is ~~“under-capitalized”~~“under capitalized” if it has a total ~~risk-based capital~~RBC ratio of less than 8.0%, a ~~common equity Tier 1~~CET1 capital ratio of less than 4.5%, a Tier 1 ~~risk-based capital~~RBC ratio of less than 6.0% or a leverage ratio of less than 4.0%. A depository institution is ~~“ significantly~~“significantly undercapitalized” if it has a total ~~risk-based capital~~RBC ratio of less than 6.0%, a ~~common equity Tier 1~~CET1 capital ratio of less than 3.0%, a Tier 1 ~~risk-based capital~~RBC ratio of less

than 4.0% or a leverage ratio of less than 3.0%. anAn institution is critically undercapitalized if its ratio of tangible equity to total assets is equal to or less than 2.0%. Significantly undercapitalized institutions are subject to a wider array of adverse agency actions than undercapitalized institutions. A critically undercapitalized institution is likely to be place in receivership if it does not find a merger partner.Under certain circumstances, an institution may be treated as if the institution were in the next lower capital category.

A banking institution that is undercapitalized is required to submit a capital restoration plan. The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution provides a performance guarantee of the subsidiary’s compliance with the capital restoration plan up to the lesser of 5% of the bank’s total assets or the amount necessary to bring the bank into compliance with capital requirements as of the time it fell out of compliance.

Failure to meet capital guidelines could subject ~~the~~an institution to a variety of enforcement remedies by federal bank regulatory agencies, including termination of deposit insurance upon notice and hearing, restrictions on certain business activities, and appointment of the FDIC as conservator or receiver. As of December 31, ~~2017,~~2023, the Bank met ~~the~~all requirements to be “well capitalized” under the ~~prompt corrective action~~PCA regulations.

Regulatory Limits on Dividends, Distributions and ~~Distributions~~Stock Repurchases

As a bank holding company, we are subject to certain restrictions on paying dividends under applicable federal and Texas laws, regulations and ~~regulations.~~guidance. The Federal Reserve has issued a policy statement that provides that a bank holding company should not pay dividends unless (i) its net income over the last four quarters (net of dividends paid) has been sufficient to fully fund the dividends, (ii) the prospective rate of earnings retention appears to be consistent with the capital needs, asset quality and overall financial condition of the bank holding company and its subsidiaries and (iii) the bank holding company will continue to meet minimum required capital adequacy ratios. Accordingly, a bank holding company should not pay cash dividends that ~~exceeds~~exceed its net income or that can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. ~~The Dodd-Frank Act imposes, and Basel III results in, additional restrictions on the ability of banking institutions to pay dividends.~~

Substantially all of our income, and a principal source of our liquidity, are dividends from the Bank. Bank dividend activity is governed by federal and state laws, regulations and policies.

~~Under Federal Reserve guidelines, the Bank may pay dividends to us only from net income and retained earnings and may not impair its permanent capital, subject to certain exceptions. Capital adequacy~~Applicable requirements serve to limit the amount of dividends that may be paid by the Bank. The Bank may not declare or pay a dividend if (i) the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of the Bank’s net income during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve, (ii) the dividend would exceed the Bank’s undivided profits, unless the Bank has received the prior approval of the Board and of at least two-thirds of the shareholders of each class of stock outstanding, or (iii) the dividend would cause any portion of the Bank’s permanent capital to be withdrawn unless the withdrawal has been approved by the Federal Reserve and by at least two-thirds of the shareholders of each class of stock outstanding. Under the FDIA, an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized.” The Federal Reserve may further restrict the payment of dividends by requiring the Bank to maintain a higher level of capital than would otherwise be required to be adequately capitalized for regulatory purposes. In addition, the Bank may not reduce or increase its outstanding capital and surplus through dividend, redemption, share issuance, or otherwise, without the prior approval of the TDB, except as permitted by the Texas Finance Code.Payment of dividends by the Bank also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice. ~~As noted above,~~If we fail to satisfy the capital conservation buffer, ~~created under the final capital rules, when fully implemented,~~then it may also have the effect of limiting the payment of capital distributions from the Bank.

On January 23, 2024, Veritex Holdings, Inc. announced that its Board declared a quarterly cash dividend of $0.20 per share on our outstanding common stock. The dividend was paid on February 23, 2024 to shareholders of record as of February 9, 2024. This dividend reflects the strength of our performance over the last fiscal year as well as organic capital generation.

In August 2022, the Inflation Reduction Act of 2022 was enacted. Among other things, the Inflation Reduction Act imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

Reserve Requirements

Pursuant to regulations of the Federal Reserve, all banking organizations are required to maintain average daily reserves at mandated ratios against their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits. These reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank. In response to the COVID-19 pandemic, the Federal Reserve reduced reserve requirement ratios to 0% effective March 26, 2020. Increases to the reserve requirement would decrease the amount of the Bank’s assets that it may make available for lending and investment activities.

Limits on Transactions with Affiliates and Insiders

~~Insured~~Sections 23A and 23B of the Federal Reserve Act, as implemented by the Federal Reserve’s Regulation W, subjects insured depository institutions ~~are subject~~ to restrictions on their ability to conduct transactions with affiliates, including their parent bank holding companies and other related parties. Section 23A of the Federal Reserve Act imposes quantitative limits, qualitative requirements, and collateral standards on certain transactions by an insured depository institution with, or for the benefit of, its ~~affiliates.~~affiliates, including by requiring that covered transactions between the insured depository institution and any one affiliate are limited to 10% of the insured depository institution’s capital and surplus, and that the aggregate of all covered transactions with all affiliates are limited to 20% of the insured depository institution’s capital and surplus. Transactions covered by Section 23A include loans, extensions of credit, investment in securities issued by an affiliate, and acquisitions of assets from an affiliate. Section 23B of the Federal Reserve Act requires that most types of transactions by an insured depository institution with, or for the benefit of, an affiliate be on terms substantially the same or at least as favorable to the insured depository institution as if the transaction were conducted with an unaffiliated third party.

As noted above, the Dodd-Frank Act generally ~~enhances~~enhanced the restrictions on transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including ~~an expansion of~~by expanding the definition of “covered transactions” and ~~a clarification regarding~~clarifying the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. The ability of the Federal Reserve to grant exemptions from these restrictions is also narrowed by the Dodd-Frank Act, including by requiring coordination with other bank regulators.

The Federal Reserve’s Regulation O ~~regulations impose~~imposes restrictions and procedural requirements in connection with the extension of credit by an insured depository institution to directors, executive officers, principal shareholders and their related interests.Section 18(z) of the FDIA limits purchases and sales of assets between an insured depository institution and its ~~executivie~~executive officers, directors, and principal shareholders.

Brokered Deposits

The FDIA restricts the use of brokered deposits by certain depository institutions. ~~Under the applicable regulations, a “well~~A well capitalized insured depository ~~institution”~~institution may solicit and accept, renew or roll over any brokered deposit without restriction. An ~~“adequately~~adequately capitalized insured depository ~~institution”~~institution may not accept, renew or roll over any brokered deposit unless it has applied for and been granted a waiver of this prohibition by the FDIC. The FDIC may grant a waiver upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution. The rates that an adequately capitalized institution with a waiver may pay on brokered deposits may not exceed certain ceilings. An “undercapitalized insured depository institution” may not accept, renew or roll over any brokered deposit. As of December 31, 2023, the Bank is considered a well capitalized insured depository institution and had total brokered deposits of $2.03 billion.

Concentrated ~~Commercial Real Estate~~CRE Lending Guidance

The federal banking agencies, including the Federal Reserve, have promulgated guidance governing financial institutions with concentrations in ~~commercial real estate~~CRE lending. The guidance provides that a bank has a concentration in ~~commercial real estate~~CRE lending if (i) total reported loans for construction, land development and other land represent 100% or more of total ~~risk-based capital~~RBC or (ii) total reported loans secured by multifamily and non-farm, ~~residential~~non-residential properties and loans for construction, land development and other land represent 300% or more of total ~~risk-based capital~~RBC and the bank’s ~~commercial real estate~~CRE loan portfolio has increased 50% or more during the prior 36 months. Owner-occupied ~~commercial real estate~~CRE loans are excluded from this second category. If a concentration is present, management must employ heightened risk management practices that address the following key elements: board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of ~~commercial real estate~~CRE lending. At December 31, ~~2017,~~2023, our total reported loans for construction, land development and other land represented over 100% of our total ~~capital~~RBC, indicating a concentration in ~~commercial real estate~~CRE lending. At December 31, ~~2017,~~2023, our management believes that it ~~is in compliance with~~has adequately

addressed the requirements and guidance of federal banking agencies, including the Federal Reserve, for institutions with concentrations in ~~commercial real estate~~CRE lending.

Examination and Examination Fees

The Federal Reserve and TDB periodically ~~examines~~examine our business, including our compliance with laws and ~~evaluates state member banks. Based on such an evaluation,~~regulations.These agencies may conduct joint examinations, and the ~~Bank, among other things, may be required to revalue its assets and establish specific reserves to compensate for the difference between the Bank’s assessment and that of the Federal Reserve. The~~ TDB ~~also conducts examinations of state banks but~~ may accept the results of ~~a federal~~the Federal Reserve’s examination in lieu of conducting an independent examination. ~~In addition,~~If, as a result of an examination, the Federal Reserve or the TDB were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions may include requiring us to remediate any such adverse examination findings.

In addition, these agencies have the authority to take enforcement action against us to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation of law or regulation or unsafe or unsound practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to direct the sale of subsidiaries or other assets, to limit dividends and ~~TDB may elect~~distributions, to ~~conduct a joint examination.~~ restrict our growth, to assess civil money penalties against us or our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is imminent risk of loss to depositors, to terminate our deposit insurance and place our Bank into receivership or conservatorship. Any regulatory enforcement action against us could have an adverse effect on our business, financial condition and results of operations.

The TDB charges fees to recover the costs of examining Texas chartered banks, as well as filing fees for certain applications and other filings. The Dodd-Frank Act provides various agencies with the authority to assess additional supervision fees.

Deposit Insurance and Deposit Insurance Assessments

The Bank’s deposits are insured by the ~~Deposit Insurance Fund, or~~ DIF to the maximum extent permitted by the FDIC. This amount is $250,000 per depositor per account. The Dodd-Frank Act increased the minimum reserve ratio requirement for the DIF to 1.35% of total estimated insured deposits or the comparable percentage of the deposit assessment base.As of June 30, 2020, the DIF reserve ratio fell to 1.30 percent, below the statutory minimum of 1.35 percent. The decline in the ratio was due to extraordinary insured deposit growth, which was resulted mainly from the COVID-19 pandemic, specifically monetary policy action, direct government assistance to the consumers and businesses, and an overall reduction in spending. The FDIC adopted a restoration plan on September 15, 2020 to restore the DIF reserve ratio to the statutory minimum. This restoration plan was amended on June 21, 2022 based on projections indicating that the DIF reserve ratio was at risk of not reaching the required minimum by the statutory deadline of September 30, 2028. In conjunction with the amended restoration plan, the FDIC increased deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023. As of June 30, 2023, the DIF reserve ratio fell to 1.10 percent, from 1.25 percent as of December 31, 2022. The decline in the DIF reserve ratio was due to increased loss provisions, including for the bank failures that occurred in March and May 2023, respectively, coupled with strong insured deposit growth.

On November 16, 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF associated with protecting uninsured depositors following the March and May 2023 bank failures. The FDIA requires the FDIC to take this action in connection with the systematic risk determination announced on March 12, 2023 to cover certain deposits that were otherwise uninsured in connection with the March and May 2023 bank failures. The FDIC will collect the special assessment at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024), and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods. The special assessment will be based on an insured depository institution’s estimated uninsured deposits for the December 31, 2022 reporting period, adjusted to exclude the first $5.0 billion in estimated uninsured deposits from the insured depository institution. As a result of the FDIC’s final rule, we accrued $768 thousand related to the special assessment in the fourth quarter of 2023. This amount represents our current expectation of the full amount of the assessment based on our total uninsured deposits as of December 31, 2022. Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain.

Insured depository institutions fund the DIF through quarterly assessments, which are calculated by multiplying the Bank’s assessment base by the applicable assessment rate. A bank’s deposit insurance assessment base is generally equal to its

total assets minus its average tangible equity during the assessment period. For a depository institution that has total consolidated assets of at least $10 billion, such as the Bank, the FDIC determines the assessment rate based on a scorecard that combines the following measures to produce an assessment rate: CAMELS component ratings, financial measures used to measure a bank’s ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the bank's failure. The CAMELS rating system is a supervisory rating system developed to classify a bank’s overall condition by taking into account capital adequacy, assets, management capability, earnings, liquidity and sensitivity to market and interest rate risk.

Future changes in insurance premiums could have an adverse effect on operating expenses and results of operations and we cannot predict what insurance assessment rates will be in the future.

As insurer of the Bank’s deposits, the FDIC is authorized to conduct examinations of, and to require reporting by, ~~insured institutions.~~the Bank, and has back-up enforcement authority of the Bank as well. The agency also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the ~~FDIC. The FDIC has the authority to initiate enforcement actions against savings associations, after giving the OCC an opportunity to take such action.~~

Insured depository institutions fund the DIF through quarterly assessments. The FDIC has adopted a risk-based premium system to calculate the assessments. All institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize the predecessor to the DIF. ~~These assessments will continue until the Financing Corporation bonds mature in 2019.~~

The FDIC has revised its methodology for determining assessments from time to time. The current methodology, which has been in place since the third quarter of 2016, has a range of assessment rates from 3 basis points to 30 basis points on insured deposits. All insured depository institutions with the exception of large and complex banking organizations are assigned to one of three risk categories based on their composite CAMELS ratings. Each of the three risk categories has a range of rates, and the rate for a particular institution is determined based on seven financial ratios and the weighted average of its component CAMELS ratings. The FDIC may adjust assessment rates downward as the reserve ratio of the Deposit Insurance Fund exceeds 2.0% and higher thresholds.

~~Future changes in insurance premiums could have an adverse effect on the operating expenses and results of operations and we cannot predict what insurance assessment rates will be in the future.~~

The FDIC may terminate the deposit insurance of any insured depository institution, including ~~us,~~the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. Management is not aware of any existing circumstances that would result in termination of our deposit insurance.

Depositor Preference

The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If ~~the Company invests~~we invest in or ~~acquires~~acquire an insured depository institution that fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including ~~the Company,~~Veritex, with respect to any extensions of credit they have made to such insured depository institution.

~~Anti-Money Laundering~~AML and OFAC

~~Insured depository institutions~~The BSA, the Uniting and ~~several other classes~~Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of ~~financial institutions are subject to regulations under the Bank Secrecy Act and~~2001, or the USA PATRIOT Act of 2001, and regulations and policies implementing these statutes require the Bank to maintain a risk-based AML program reasonably designed to prevent and detect money laundering and terrorist financing and to comply with the ~~financing~~recordkeeping and reporting requirements of ~~terrorism.~~the BSA, including the requirement to report suspicious activities. The ~~principal requirements~~Federal Reserve expects that we will have an effective governance structure for ~~an insured depository institution~~the program which includes effective oversight by our Board and management. The program must include, ~~(i) establishment~~at a minimum, a designated compliance officer, written policies, procedures and internal controls, training of ~~an anti-money laundering~~appropriate personnel, and independent testing of the program ~~that includes training~~ and ~~audit components; (ii) establishment of a "know your customer" program involving~~risk-based customer due diligence procedures. The U.S. Department of Treasury’s FinCEN and the federal banking agencies continue to ~~confirm the identity of persons seeking to open accounts~~issue regulations and to deny accounts to those persons unable to demonstrate their identities; (iii) the filing of currency transaction reports for deposits and withdrawals of large amounts of cash; (iv) additional precautions for accounts sought and managed for non-U.S. persons; and (v) verification and certification of money laundering riskguidance with respect to ~~private banking~~the application and foreign correspondent banking relationships. For many of these tasks a bank must keep records to be made available to its primary federal regulator. Anti- money laundering rules and policies are developed by a bureau within the U.S. Departmentrequirements of the ~~Treasury,~~BSA and their expectations for effective AML programs.

In January 2021, the ~~Financial Crimes Enforcement Network, but compliance~~AMLA was enacted. The AMLA includes extensive and fundamental reforms to BSA and other AML laws. Among other things, the AMLA is intended to (1) improve coordination and information sharing among the agencies administering AML, (2) modernize AML laws, (3) encourage technological innovation and the adoption of new technology by ~~individual~~financial institutions, ~~is overseen by its primary federal regulator, in~~(4) reinforce that the ~~Bank's case, the OCC.~~AML shall be risk-based, (5) establish uniform beneficial ownership information reporting requirements, and (6) establish a secure, nonpublic database at FinCEN for beneficial ownership information.

Bank regulators routinely examine institutions for compliance with these obligations, and they must consider an institution’s compliance with such obligations in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. Compliance with these requirements has been a special focus of the Federal Reserve and the other Federal banking agencies in recent years. Any non-compliance is likely to result in an enforcement action, often with substantial monetary penalties and ~~reputation~~reputational damage. ~~A savings association or bank that is required to strengthen its compliance program often must put on hold any initiatives that require banking agency approval.~~

The U.S. Department of the Treasury’s ~~Office of Foreign Assets Control (“OFAC”)~~OFAC is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. IfOFAC administers and enforces applicable economic and trade sanctions programs. These sanctions are usually targeted against foreign countries, terrorists, international narcotics traffickers and those believed to be involved in the proliferation of weapons of mass destruction. These regulations generally require either the blocking of accounts or other property of specified entities or individuals, but they may also require the rejection of certain transactions involving specified entities or individuals.

Failure of a financial institution to maintain and implement adequate BSA/AML and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal, reputational and financial consequences for the institution.The Company or the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, the Company or the Bank must freeze or block such account or transaction, file a suspicious activity reportmaintains policies, procedures and ~~notify the appropriate authorities.~~other internal controls designed to comply with AML requirements and sanctions programs.

Consumer Laws and Regulations

Banking organizations are subject to numerous ~~Federal~~federal laws ~~and regulations~~ intended to protect consumers. These laws include, among others:

•Truth in Lending Act;

•Truth in Savings Act;

•Electronic Funds Transfer Act;

•Expedited Funds Availability Act;

•Equal Credit Opportunity Act;

•Fair and Accurate Credit Transactions Act;

•Fair Housing Act;

•Fair Credit Reporting Act;

•Fair Debt Collection Act;

•The GLB Act;

•Home Mortgage Disclosure Act;

•Right to Financial Privacy Act;

•Real Estate Settlement Procedures Act;

•Section 5 of the Federal Trade Commission ~~Act~~Act; and ~~section~~

•Section 1031 of the Dodd-Frank ~~Act protecting against unfair, deceptive or abusive acts and practices; and~~Act.

~~state usury laws.~~

Many states and local jurisdictions have consumer protection laws analogous to, and in addition to, those listed ~~above.~~above, including state usury laws. These federal, state and local laws regulate the manner in which financial institutions deal with customers when taking deposits, making loans, or conducting other types of transactions. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general and civil or criminal liability.Also, the CFPB is empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. The ~~creation~~Bank and its affiliates and subsidiaries are subject to CFPB supervisory and enforcement authority.

Incentive Compensation

The Federal Reserve reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as Veritex, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the ~~CFPB~~organization’s activities and the prevalence of incentive compensation arrangements. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a

risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In June 2010, the Federal Reserve, the OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

In 2016, the U.S. financial regulators, including the Federal Reserve and the SEC, proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets (including Veritex and the Bank), but these proposed rules have not been finalized.

On October 26, 2022, the SEC adopted a final rule under the Dodd-Frank Act directing national securities exchanges and associations, including Nasdaq, to implement listing standards that require listed companies to adopt policies providing for the recovery (or “clawback”) of erroneously awarded incentive-based compensation received by current or former executive officers in connection with a required accounting restatement. On June 9, 2023, the SEC approved Nasdaq’s proposed listing standards that implement the Dodd-Frank Act rule, including for issuers on the Nasdaq Global Market. These standards became effective with respect to compensation received by such executive officers on or after October 2, 2023. Nasdaq-listed issuers had until December 1, 2023 to adopt a compliant recovery policy, which the Company has ~~led to enhanced enforcement of consumer financial protection laws.~~adopted.

Privacy and Cybersecurity

~~Several~~ Federal statutes and regulations require insured depository institutions to take ~~several steps~~certain actions to protect nonpublic consumer financial information.Consumer data privacy and data protection are also the subject of state laws. The Bank has prepared a privacy policy, which it must disclose to consumers annually.In some cases, the Bank must obtain a consumer's consent before sharing information with an unaffiliated third party, and the Bank must allow a consumer to opt out of the ~~Bank's~~Bank’s sharing of information with its affiliates for marketing and certain other purposes. Additional conditions ~~come into play in~~affect the ~~Bank's~~Bank’s information exchanges with credit reporting agencies.The ~~Bank's~~Bank’s privacy practices and the effectiveness of its systems to protect consumer privacy are ~~one of~~among the subjects covered in ~~the OCC's~~ periodic compliance ~~examinations.~~examinations conducted by the TDB and the Federal Reserve.

The Federal banking agencies pay close attention to the cybersecurity practices of ~~savings associations,~~ banks and their holding companies and affiliates. The interagency council of the agencies, the Federal Financial Institutions Examination Council, has issued ~~several~~a number of policy statements and other guidance for banks ~~as new~~in light of the growing threat posed by cybersecurity ~~threats arise. FFIEC has recently focused on such matters as compromised customer credentials and business continuity planning.~~ threats.Examinations by the banking agencies ~~now~~ include review of an institution’s information technology and its ability to ~~thwart cyber attacks.~~identify, assess, and mitigate cybersecurity risks—including those posed by their third-party service providers.Banking organizations such as the Company are subject to the GLB Act, pursuant to which agency guidance requires them to notify their primary federal regulator as soon as possible upon becoming aware of an incident involving unauthorized access to, or use of, sensitive customer information.Additionally, banking organizations are required to report cyberattacks affecting their operations to their primary federal regulator.Under a final rule adopted by the federal banking agencies on November 1, 2022, banking organizations are required to notify its primary federal regulator of certain significant computer security incidents no later than 36 hours after the banking organization determines that the incident has occurred.These computer security incidents include incidents that have affected, in certain circumstances, the viability of a banking organization’s operations or its ability to deliver banking products and services.The rule also requires certain third party service providers to notify each affected banking organization customer as soon as possible when the bank service provider determines that it has experienced a significant cybersecurity incident that has caused, or is likely to cause, a material disruption for four or more hours.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.On July 26, 2023, the SEC issued a final rule that requires current disclosure of material cybersecurity incidents, as well as enhances and standardizes disclosures regarding cybersecurity risk management, strategy and governance. Effective September 5, 2023, the SEC’s rule requires public

companies to generally disclose information about a material cybersecurity incident within four business days of determining it is material, with periodic updates as to the status of the incident in subsequent filings as necessary.

The ~~Community Reinvestment Act~~CRA

The ~~Community Reinvestment Act (the “CRA”)~~CRA and related regulations are intended to encourage insured depository institutions to help meet the credit needs of ~~low~~its communities, including low- to moderate-income ~~communities and individuals within their institutions’ assessment areas.~~communities. The CRA does not impose specific lending requirements, and it does not contemplate that an insured depository institution would take any action inconsistent with safety and soundness.

The ~~Federal~~federal banking agencies evaluate the performance of each of their regulated institutions periodically to determine whether an institution’s performance is “Outstanding,” “Satisfactory,” “Needs to ~~Improve,”~~Improve” or “Substantial Noncompliance.”Each ~~evaluation~~rating is made public, together with the public section of the underlying report. ~~Outstanding~~Ratings of “Outstanding” or ~~Satisfactory ratings often are~~“Satisfactory” may be a condition to qualify for certain regulatory benefits.

The CRA requires the federal bank regulators to take into account an insured depository institution’s record in meeting the convenience and needs of the communities that the institution serves when considering an application by ~~a bank~~the institution to establish or relocate a branch or to enter into certain mergers or acquisitions. ~~The~~Similarly, the Federal Reserve is required to consider the CRA performance records of a bank holding company’s subsidiary bank (or banks) when considering an application by the bank holding company to acquire a banking organization or to merge with another bank holding ~~company.~~company, or to engage in other expansionary transactions. When we or the Bank apply for regulatory approval to engage in certain transactions, the regulators will consider the CRA performance of the Bank and of the target ~~institutions and our depository institution subsidiaries.~~institutions. An evaluation of “Needs to Improve” or “Substantial Noncompliance” may block or impede regulatory approvals of our applications. The Bank received an overall CRA rating of “Satisfactory” ~~as an intermediate small bank~~ on its most recent CRA examination as of April 2022.

On October 24, 2023, the Federal Reserve, the FDIC and the OCC jointly issued a final rule to strengthen and modernize regulations implementing the CRA that, among other things, (i) encourages banks to expand access to credit, investment, and banking services in low- to moderate-income communities, (ii) adapts to changes in the banking industry, including internet and mobile banking, (iii) provides greater clarity and consistency in the application of the CRA regulations and (iv) tailors CRA evaluations and data collection to bank size and type. Most of the rule’s requirements will be applicable beginning January ~~23, 2017.~~1, 2026. The remaining requirements, including the data reporting requirements, will be applicable on January 1, 2027. We are and will continue to evaluate the impact of these changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.

Changes in Laws, Regulations or Policies

Federal, state and local legislators and regulators regularly introduce measures or take actions that would modify the regulatory requirements applicable to banks, their holding companies and other financial institutions. Changes in laws, regulations or regulatory policies could adversely affect the operating environment for us in substantial and unpredictable ways, increase our cost of doing business, impose new restrictions on the way in which ~~the Company conducts its~~we conduct our operations or add significant operational constraints that might impair ~~the Company’s~~our profitability. Whether new legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, would have on ~~the Company and its subsidiaries’~~our business, financial condition or results of operations cannot be predicted. The ~~majority of these changes will be implemented over time by various regulatory agencies. The~~ full effect that ~~these~~any such changes will have on us ~~and our subsidiaries~~ remains uncertain at this time and may have a material adverse effect on ~~the Company’s~~our business and results of operations.

Effect on Economic Environment

The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding companies and their subsidiaries. Among the means available to the Federal Reserve to affect the money supply are open market operations in U.S. government securities, changes in the discount rate on borrowings and changes in reserve requirements with respect to deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid for deposits. Federal Reserve monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. ~~The Company~~We cannot predict the nature of future monetary policies and the effect of such policies on its business and earnings.

ITEM 1A. RISK FACTORS SUMMARY

The risks and uncertainties facing our company include, but are not limited to, the following:

Risks Related to Veritex’s Business

•Our business concentration in Texas, and specifically the Dallas-Fort Worth metroplex and the Houston metropolitan area, imposes risks and may magnify the consequences of any regional or local economic downturn affecting the Dallas-Fort Worth metroplex and the Houston metropolitan area, including any downturn in the real estate sector

•Uncertain market conditions, economic trends, interest rate shifts, and changes in accounting standards and interpretations could adversely affect our business, financial condition and results of operations.

•Labor shortages and constraints in the supply chain could adversely affect our clients’ operations as well as our operations.

•Interest rate shifts could reduce net interest income and otherwise negatively impact our financial condition and results of operations.

•A large portion of our loan portfolio consists of commercial loans, the deterioration in value of the collateral of which could increase the potential for future losses.

•The Company is subject to risks arising from conditions in the real estate market, as a significant portion of its loans are secured by commercial and residential real estate.

•Significant increases of nonperforming assets from the current level, or greater than anticipated costs to resolve these credits, will have an adverse effect on Veritex’s earnings.

•The small to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition.

•Our allowance for credit losses may prove to be insufficient to absorb potential losses in our loan portfolio, which could adversely affect our business, financial condition and results of operations.

•Our financial condition and results of operations may be adversely affected by changes in accounting policies, standards and interpretations.

•We may be unable to implement aspects of our growth strategy, which may affect our ability to maintain historical earnings trends.

•Our strategy of pursuing acquisitions exposes us to financial, execution and operational risks that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

•As a banking organization with over $10 billion in total consolidated assets, we are subject to increased regulation.

•Our ability to retain executive officers, bankers and other key employees and recruit additional successful team members is critical to the success of our business strategy.

•Loss of any of our executive officers or other key employees could impair relationships with our customers and adversely affect our business.

•The relatively unseasoned nature of a significant portion of our loan portfolio may expose us to increased credit risks.

•Our CRE and construction and land loan portfolios expose us to credit risks that could be greater than the risks related to other types of loans.

•Because a significant portion of our loan portfolio consists of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.

•We may be subject to environmental liabilities in connection with the foreclosure on real estate assets securing our loan portfolio.

•We are exposed to increased credit losses and credit related expenses in the event of a major natural disaster, public health crisis, other catastrophic event or significant climate change effects.

•We have a concentration of loans outstanding to a limited number of borrowers, which may increase our risk of loss.

•A lack of liquidity could impair our ability to fund operations, adversely affect our operations and jeopardize our business, financial condition and results of operations.

•We have a limited operating history and, accordingly, investors will have little basis on which to evaluate its ability to achieve our business objectives.

•We may need to raise additional capital in the future, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as the ability to maintain regulatory compliance, could be adversely affected.

•We face strong competition from financial services companies and other companies that offer banking services.

•We could recognize losses on debt securities held in our securities portfolio, particularly if interest rates stay at current levels or increase or economic and market conditions deteriorate.

•Negative public opinion regarding Veritex or our failure to maintain our reputation in the community could adversely affect our business and prevent us from continuing to grow our business.

•We may not be able to report our financial results accurately and timely as a publicly listed company if we fail to maintain an effective system of disclosure controls and procedures and internal control over financial reporting.

•We are subject to certain operational risks, including, but not limited to, customer or employee fraud, data processing system failures and errors, and threats to data security, such as unauthorized access and cyber-crime.

•We have a continuing need for technological change and may not have the resources to effectively implement new technology, or may experience operational challenges when implementing new technology.

•Our operations could be interrupted if third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations.

•Unauthorized access, cyber-crime and other threats to data security may require significant resources, harm our reputation, and otherwise cause harm to our business.

•Consumers may decide not to use banks to complete their financial transactions.

•If our goodwill becomes impaired, it could require charges to earnings, which would adversely affect our business, financial condition and results of operations.

Risks Related to Veritex’s Industry and Regulation

•The ongoing changes in regulation could adversely affect our business, financial condition, and results of operations.

•We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or failure to comply with them, could adversely affect our business, financial condition and results of operations.

•State and federal banking agencies periodically conduct examinations of our business, including our compliance with laws and regulations, and failure to comply with any supervisory actions to which we are or may become subject as a result of such examinations could adversely affect our business, financial condition and results of operations.

•Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict future growth.

•Financial institutions, such as the Bank, face a risk of noncompliance with and enforcement action under the Bank Secrecy Act and other anti-money laundering statutes and regulations.

•We are subject to fair lending laws, and failure to comply with these laws could lead to material penalties.

•The FDIC’s restoration plan and the related increased assessment rate could adversely affect our earnings.

•We are subject to increased capital requirements, which may adversely impact return on equity or prevent us from paying dividends or repurchasing shares.

•The Federal Reserve imposes monetary policies and regulations on our business and may require us to commit capital resources to support the Bank.

•The Federal Reserve may require us to commit capital resources to support the Bank.

•We could be adversely affected by the soundness of other financial institutions.

•Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.

•Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

Risks Related to Our Common Stock

•The market price of our common stock may fluctuate significantly.

•If securities or industry analysts change their recommendations regarding our common stock or if our operating results do not meet their expectations, our stock price could decline.

•Future sales or the possibility of future sales of a substantial amount of our common stock may depress the price of the common stock.

•The holders of our debt obligations will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up of Veritex and with respect to the payment of interest and preferred dividends.

•We depend on the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted.

•Our dividend policy may change without notice, our future ability to pay dividends is subject to restrictions, and we may not pay dividends in the future.

•The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management.

•Shareholders may be deemed to be acting in concert or otherwise in control of us, which could impose notice, approval and ongoing regulatory requirements upon them and result in adverse regulatory consequences for such holders.

•An investment in our common stock is not an insured deposit and is not guaranteed by the FDIC, so you could lose some or all of your investment.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider the risks described below, together with all other information included in this Annual Report on Form 10‑K, including the disclosures in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in “Item 8. Financial Statements and Supplementary Data.” We believe the risks described below are the risks that are material to us as of the date of this Annual Report on Form 10‑K.10-K. If any of the following risks actually occur, our business, financial condition, results of operations and growth prospects could be ~~materially and~~ adversely affected. In that case, you could experience a partial or complete loss of your investment.

Risks Related toVeritex’sBusiness

~~Veritex’s~~Our business concentration in Texas, and specifically the Dallas-Fort Worth metroplex and the Houston metropolitan area, imposes risks and may magnify the consequences of any regional or local economic downturn affecting the Dallas-Fort Worth metroplex and the Houston metropolitan area, including any downturn in the real estate sector.

~~Veritex~~We primarily ~~conducts~~conduct operations in the Dallas-Fort Worth metroplex and the Houston metropolitan area. As of December 31, ~~2017,~~2023, the substantial majority of the loans in ~~Veritex’s~~our loan portfolio were made to borrowers who live and/or conduct business in the Dallas-Fort Worth metroplex and the Houston metropolitan area, and the substantial majority of secured loans were secured by collateral located in the Dallas-Fort Worth metroplex and the Houston metropolitan area. Accordingly, ~~Veritex is~~we are significantly exposed to risks associated with a lack of geographic diversification. The economic conditions in the Dallas-Fort Worth metroplex and the Houston metropolitan area are highly dependent on the real estate sector as well as the technology, financial services, insurance, transportation, manufacturing and energy sectors. Any downturn or adverse development in these sectors, particularly the real estate sector, or a decline in the value of single-family homes in the Dallas-Fort Worth metroplex and the Houston metropolitan area, could have ~~a material~~an adverse impact on ~~Veritex’s~~our business, financial condition and results of ~~operations, and future prospects.~~operations. Any adverse economic developments, among other things, could negatively affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans and reduce the value of loans in ~~Veritex’s~~our portfolio. Volatility in oil prices may have an impact on the economic conditions in the markets in which we operate. Any regional or local economic downturn that affects (1) existing or prospective borrowers, (2) the Dallas-Fort Worth metroplex or Houston metropolitan area or (3) property values in its market areas, may affect ~~Veritex~~us and ~~its~~our profitability more significantly and more adversely than ~~its~~our competitors whose operations are less geographically focused.

Uncertain market conditions and economic trends could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

~~Veritex operates~~

We operate in an uncertain economic environment, including generally uncertain conditions nationally and locally in ~~its~~our industry and market. Financial institutions continue to be affected by volatility in the real estate market in some parts of the country and uncertain regulatory and interest rate conditions. ~~Veritex retains~~We retain direct exposure to the residential and ~~commercial real estate~~CRE market in Texas, particularly in the Dallas-Fort Worth metroplex and Houston metropolitan area, and isare affected by these events.

~~Veritex’s~~Our ability to assess the creditworthiness of customers and to estimate the losses inherent in ~~its~~our loan portfolio is made more complex by uncertain market and economic conditions. ~~Veritex’s~~Unfavorable economic trends, sustained high unemployment, and declines in real estate values can cause a reduction in the availability of commercial credit and can negatively impact the credit performance of commercial and consumer loans, resulting in increased write-downs. These negative trends can cause economic pressure on consumers and businesses and diminish confidence in the financial markets, which may adversely affect our business, financial condition, results of operations and ability to access capital. A worsening of these conditions, such as a recession or economic slowdown, would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry.

Our risk management practices, such as monitoring the concentration of ~~its~~our loans within specific industries and ~~its~~our credit approval practices, may not adequately reduce credit risk, and ~~its~~our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. A national economic recession or deterioration of conditions in ~~Veritex’s~~our market could drive losses beyond that which is provided for in ~~its~~our allowance for ~~loan~~credit losses and result in one or more of the following consequences:

•increases in loan delinquencies;

•increases in nonperforming assets and foreclosures;

•decreases in demand for ~~Veritex’s~~our products and services, which could adversely affect ~~its~~our liquidity position; and

•decreases in the value of the collateral securing ~~Veritex’s~~our loans, especially real estate, which could reduce customers’ borrowing power and repayment ability

Declines in real estate values, volume of home sales and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could have an adverse effect on ~~Veritex’s~~our borrowers and/or their customers, which could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

Unfavorable or uncertain economic and market conditions can be caused by a decline in economic growth both in the U.S. and internationally; declines in business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; oil price volatility; natural disasters; trade policies and tariffs; the impact of political conditions, including the 2024 presidential and congressional elections; or a combination of these or other factors. In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, Israel and Hamas conflict, terrorism or other geopolitical events. Current economic conditions are being heavily impacted by elevated levels of inflation and rising interest rates. A prolonged period of inflation may impact our profitability by negatively impacting our fixed costs and expenses. Economic and inflationary pressure on consumers and uncertainty regarding economic improvement could result in changes in consumer and business spending, borrowing and savings habits. Such conditions could have a material adverse effect on the credit quality of our loans and our business, financial condition and results of operations. Furthermore, evolving responses from federal and state governments and other regulators, and our customers or our third-party partners or vendors, to new challenges such as climate change have impacted and could continue to impact the economic and political conditions under which we operate which could have a material adverse effect on our business, financial condition and results of operations.

We are monitoring the conflicts between Russia and Ukraine and Israel and Hamas. While we do not expect that either conflict will itself be material to Veritex, geopolitical instability and adversity arising from such conflicts (including additional conflicts that could arise from such conflicts), the imposition of sanctions, taxes and/or tariffs against Russia and Russia’s response to such sanctions (including retaliatory acts, such as cyber-attacks and sanctions against other countries) could adversely affect the global economy or specific international, regional and domestic markets, which could have a material adverse effect on our business, results of operations or financial condition.

Labor shortages and constraints in the supply chain could adversely affect our clients’ operations as well as our operations.

Many sectors in the United States and around the world are experiencing a shortage of workers. The shortage of workers is exacerbating supply chain disruptions around the world, causing certain industries to struggle to regain momentum due to a lack of workers or materials. Our commercial clients may be impacted by the shortage of workers and constraints in the supply chain, which could adversely impact our clients’ operations. Clients may experience disruptions in their operations, which could lead to reduced cash flow and difficulty in making loan repayments. The financial services industry has also been affected by the shortage of workers, and we have experienced the war for talent that is currently underway in the financial services industry. This may lead to open positions remaining unfilled for longer periods of time or a need to increase wages to attract workers. We have had to recently increase wages in certain positions to attract talent, particularly in entry-level type positions and certain specialty areas.

Interest rate shifts could reduce net interest income and otherwise negatively impact ~~Veritex’s~~our financial condition and results of operations.

The majority of ~~Veritex’s~~our banking assets are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, ~~Veritex’s~~our earnings and cash flows depend to a great extent upon the level of net interest income, or the difference between the interest income earned on loans, investments and other interest-earning assets, and the interest paid on interest-bearing liabilities, such as deposits and borrowings. Changes in interest rates can increase or decrease net interest income because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest-bearing liabilities mature or reprice more quickly or to a greater degree than interest-earning assets in a period, an increase in interest rates could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly or to a greater degree than interest-bearing liabilities, falling interest rates could reduce net interest income. ~~Veritex’s~~Our interest sensitivity profile was asset sensitive as of December 31, ~~2017,~~2023, meaning that ~~it estimates~~we estimate net interest income would increase more from rising interest rates than from falling interest rates.

~~Additionally, an~~

An increase in interest rates may also, among other things, reduce the demand for loans and ~~Veritex’s~~our ability to originate loans and decrease loan repayment rates. A decrease in the general level of interest rates may affect ~~Veritex~~us through, among other things, increased prepayments on ~~its~~our loan portfolio and increased competition for deposits. Accordingly, changes in the level of market interest rates affect ~~Veritex’s~~our net yield on interest-earning assets, loan origination volume, loan portfolio and overall results.

Although ~~Veritex’s~~our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in market interest rates, those rates are affected by many factors outside of ~~Veritex’s~~our control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets.

Additionally, interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default and could result in a decrease in the demand for loans. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates. In addition, in a low interest rate environment, loan customers often pursue long-term fixed rate credits, which could adversely affect our earnings and net interest margin if rates increase. Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have ~~a material~~an adverse effect on our results of operations and cash flows. Further, when ~~Veritex places~~we place a loan on nonaccrual status, ~~Veritex reverses~~we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, ~~Veritex continues~~we continue to ~~have~~incur a cost to fund the loan, which is reflected as interest expense on deposits and borrowings, without any interest income to offset the associated funding expense. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and debt securities. Thus, an increase in the amount of nonperforming assets would have an adverse impact on ~~Veritex’s~~our net interest income.

~~Significant increases of nonperforming assets from the current level, or greater than anticipated costs to resolve these credits, will have an adverse effect on Veritex’s earnings.~~

~~Veritex’s nonperforming assets, which consist of non-accrual loans, assets acquired through foreclosure and troubled debt restructurings~~ (TDRs) adversely affect our net income in various ways. Veritex does not record interest income on nonaccrual loans and assets acquired through foreclosure. Veritex must establish an allowance for loan losses which reserves for losses inherent in the loan portfolio that are both probable and reasonably estimable. From time to time, Veritex also writes down the value of properties in our portfolio of assets acquired through foreclosure to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to assets acquired through foreclosure. The resolution of nonperforming assets requires the active involvement of management, which can distract management from daily operations and other income producing activities. Finally, if Veritex’s estimate of the allowance for loan losses is inadequate, Veritex will have to increase the allowance for loan losses accordingly, which will have an adverse effect on Veritex’s earnings. Significant increases in the level of Veritex’s nonperforming assets from the current level, or greater than anticipated costs to resolve these credits, will have an adverse effect on Veritex’s earnings.

The small to medium-sized businesses that Veritex lends to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect Veritex’s results of operations and financial condition.

Veritex focuses its business development and marketing strategy primarily on small to medium-sized businesses. Small to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which characteristics may impair a borrower’s ability to repay a loan. In addition, the success of a small and medium-sized business often depends on the management skills, talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan. If general economic conditions negatively impact the Dallas-Fort Worth metroplex, Houston metropolitan area, or Texas generally and small to medium-sized businesses are adversely affected or Veritex’s borrowers are otherwise affected by adverse business developments, Veritex’s business, financial condition and results of operations could be adversely affected.

Veritex’s allowance for loan losses may prove to be insufficient to absorb potential losses in its loan portfolio, which could adversely affect Veritex’s business, financial condition and results of operations.

Veritex establishes an allowance for loan losses and maintains it at a level considered adequate by management to absorb probable loan losses based on its analysis of the loan portfolio and market environment. The allowance for loan losses represents Veritex’s estimate of probable losses in the portfolio at each balance sheet date and is based upon relevant information available to Veritex. Veritex’s allowance for loan losses consists of a general component based upon probable but unidentified losses inherent in the portfolio and a specific component based on individual loans that are considered impaired. The general component is based on various factors including historical loss experience, historical loss experience for peer banks, growth trends, loan concentrations, migration trends between internal loan risk ratings, current economic conditions and other qualitative factors. The specific component of the allowance for loan losses is calculated based on a review of individual loans considered impaired. The analysis of impaired losses may be based on the present value of expected future cash flows discounted at the effective loan rate, an observable market price or the fair value of the underlying collateral on collateral dependent loans. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral. The amount ultimately realized may differ from the carrying value of these assets because of economic, operating or other conditions beyond Veritex’s control, and any such differences may be material.

As of December 31, 2017, Veritex’s allowance for loan losses was 0.57% of its total loans. Loans acquired are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Additional loan losses may occur in the future and may occur at a rate greater than Veritex has previously experienced. Veritex may be required to take additional provisions for loan losses in the future to further supplement the allowance for loan losses, either due to management’s decision to do so or requirements by its banking regulators. In addition, bank regulatory agencies will periodically review the allowance for loan losses and the value attributed to non-accrual loans or to real estate acquired through foreclosure. Such regulatory agencies may require Veritex to recognize future charge-offs. These adjustments could adversely affect Veritex’s business, financial condition and results of operations.

~~Veritex may be unable to implement aspects of its growth strategy, which may affect its ability to maintain historical earnings trends.~~

Veritex’s business has grown rapidly. Financial institutions that grow rapidly can experience significant difficulties as a result of rapid growth. Furthermore, Veritex’s strategy focuses on organic growth, supplemented by acquisitions. Veritex may be unable to execute on aspects of its growth strategy to sustain its historical rate of growth or may be unable to grow at all. More specifically, Veritex may be unable to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth or find suitable acquisition candidates. Various factors, such as economic conditions and competition, may impede or prohibit the growth of Veritex’s operations, the opening of new branches and the consummation of acquisitions. Further, Veritex may be unable to attract and retain experienced bankers, which could adversely affect its growth. The success of Veritex’s strategy also depends on its ability to effectively manage growth, which is dependent upon a number of factors, including the ability to adapt existing credit, operational, technology and governance infrastructure to accommodate expanded operations. If Veritex fails to build infrastructure sufficient to support rapid growth or fails to implement one or more aspects of its strategy, Veritex may be unable to maintain historical earnings trends, which could have an adverse effect on Veritex’s business, financial condition and results of operations.

Veritex’s strategy of pursuing acquisitions exposes it to financial, execution and operational risks that could have a material adverse effect on its business, financial condition, results of operations and growth prospects.

~~Veritex intends to continue pursuing a strategy that includes acquisitions. An acquisition strategy involves significant risks, including the following:~~

~~finding suitable candidates for acquisition;~~

~~attracting funding to support additional growth within acceptable risk tolerances;~~

~~maintaining asset quality;~~

~~retaining customers and key personnel, including bankers;~~

~~obtaining necessary regulatory approvals, which Veritex may have difficulty obtaining or be unable to obtain;~~

~~conducting adequate due diligence and managing known and unknown risks and uncertainties;~~

~~integrating acquired businesses; and~~

~~maintaining adequate regulatory capital~~

The market for acquisition targets is highly competitive, which may adversely affect Veritex’s ability to find acquisition candidates that fit its strategy and standards. Veritex faces significant competition in pursuing acquisition targets from other banks and financial institutions, many of which possess greater financial, human, technical and other resources than Veritex. Veritex’s ability to compete in acquiring target institutions will depend on the financial resources available to fund the acquisitions, including the amount of cash and cash equivalents and the liquidity and market price of Veritex common stock. In addition, increased competition may also drive up the acquisition consideration that Veritex will be required to pay in order to successfully capitalize on attractive acquisition opportunities. To the extent that Veritex is unable to find suitable acquisition targets, an important component of its growth strategy may not be realized.

Acquisitions of financial institutions also involve operational risks and uncertainties, such as unknown or contingent liabilities with no available manner of recourse, exposure to unexpected problems such as asset quality, the retention of key employees and customers and other issues that could negatively affect Veritex’s business. Veritex may not be able to complete future acquisitions or, if completed, may not be able to successfully integrate the operations, technology platforms, management, products and services of the entities acquired or realize a reduction of redundancies. The integration process may also require significant time and attention from Veritex’s management that would otherwise be directed toward servicing existing business and developing new business. Failure to successfully integrate the entities Veritex acquires into its existing operations in a timely manner may increase its operating costs significantly and adversely affect Veritex’s business, financial condition and results of operations. Further, acquisitions typically involve the payment of a premium over book and market values and, therefore, some dilution of Veritex’s tangible book value and net income per common share may occur in connection with any future acquisition, and the carrying amount of any goodwill that is currently maintained or that may be acquired may be subject to impairment in future periods.

Veritex’s ability to retain bankers and recruit additional successful bankers is critical to the success of its business strategy, and any failure to do so could adversely affect Veritex’s business, financial condition, results of operations and growth prospects.

Veritex’s ability to retain and grow loans, deposits and fee income depends upon the business generation capabilities, reputation and relationship management skills of its bankers. If Veritex were to lose the services of any of its bankers, including successful bankers employed by banks that Veritex may acquire, to a new or existing competitor or otherwise, Veritex may not be able to retain valuable relationships and some of its customers could choose to use the services of a competitor instead.

Veritex’s growth strategy also relies on its ability to attract and retain additional profitable bankers. Veritex may face difficulties in recruiting and retaining bankers of the desired caliber, including as a result of competition from other financial institutions. In particular, many of Veritex’s competitors are significantly larger with greater financial resources, and may be able to offer more attractive compensation packages and broader career opportunities. Additionally, Veritex may incur significant expenses and expend significant time and resources on training, integration and business development before it is able to determine whether a new banker will be profitable or effective. If Veritex is unable to attract and retain successful bankers, or if its bankers fail to meet expectations in terms of customer relationships and profitability, Veritex may be unable to execute its business strategy and its business, financial condition, results of operations and growth prospects may be adversely affected.

~~Loss of any of Veritex’s executive officers or other key employees could impair relationships with its customers and adversely affect its business.~~

Veritex’s success is dependent upon the continued service and skills of its executive management team. Veritex’s goals, strategies and marketing efforts are closely tied to the banking philosophy and strengths of its executive management team. Veritex’s success is also dependent in part on the continued service of its market presidents and relationship managers. The loss of any of these key personnel could adversely affect Veritex’s business because of their skills, years of industry experience, relationships with customers and the difficulty of promptly finding qualified replacement personnel. Veritex cannot guarantee that these executive officers or key employees will continue to be employed with them in the future.

~~The relatively unseasoned nature of a significant portion of Veritex’s loan portfolio may expose it to increased credit risks.~~

The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid timely or at all or that the value of any collateral supporting the loan will be insufficient to cover Veritex’s outstanding exposure. Veritex’s loan portfolio has grown to $2.2 billion as of December 31, 2017, from $100.9 million as of December 31, 2010.This growth is related to both organic growth and loans acquired in connection with acquisitions. The organic portion of this increase is due to increased loan production in the Texas markets in which we operate. It is difficult to assess the future performance of acquired or recently originated loans because Veritex’s relatively limited experience with such loans does not provide it with a significant payment history from which to judge future collectability. These loans may experience higher delinquency or charge-off levels than Veritex’s historical loan portfolio experience, which could adversely affect Veritex’s business, financial condition and results of operations.

A large portion of ~~Veritex’s~~our loan portfolio consists of commercial loans secured by receivables, promissory notes, inventory, equipment or other commercial collateral, the deterioration in value of which could increase the potential for future losses.

As of December 31, ~~2017, $684.6 million~~2023, $2.75 billion of our loan portfolio or ~~30.6%~~28.7%, of ~~Veritex’s~~our total ~~loans,~~LHI, consisted of commercial loans to businesses. In general, these loans are collateralized by general business assets including, among other things, accounts receivable, promissory notes, inventory and equipment, and most are backed by a personal guaranty of the borrower or principal. These commercial loans are typically larger in amount than loans to individuals and, therefore, have the potential for larger losses on a single loan basis. Additionally, the repayment of commercial loans is subject to the ongoing business operations of the borrower. The collateral securing such loans generally includes moveable property such as equipment and inventory, which may decline in value more rapidly than ~~Veritex anticipates~~we anticipate, thereby exposing itus to increased credit risk. A significant portion of ~~Veritex’s~~our commercial loans are secured by promissory notes that evidence loans made by Veritex to borrowers that in turn make loans to others that are secured by real estate. Accordingly, negative changes in the economy affecting real estate values and liquidity could impair the value of the collateral securing these loans. Significant adverse changes in the economy or local market conditions in which ~~Veritex’s~~our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage that may expose ~~Veritex~~us to credit losses and could adversely affect ~~its~~our business, financial condition and results of operations.

~~Veritex’s~~

The Company is subject to risks arising from conditions in the real estate market, as a significant portion of its loans are secured by commercial and residential real estate.

The Company’s real estate lending activities and its exposure to fluctuations in real estate collateral values are significant and may increase as its assets increase. The market value of real estate can fluctuate significantly in a relatively short period of time as a result of market conditions in the geographic area in which the real estate is located, in response to factors such as economic downturns, changes in the economic health of industries heavily concentrated in a particular area and in response to changes in market interest rates, which influence capitalization rates used to value revenue-generating commercial real estate. If the value of real estate serving as collateral for loans declines materially, a significant part of the loan portfolio could become under-collateralized and losses incurred upon borrower defaults would increase. Conditions in certain segments of the real estate industry, including homebuilding, lot development and mortgage lending, may have an effect on the values of real estate pledged as collateral for loans. The inability of purchasers of real estate, including residential real estate, to obtain financing may weaken the financial condition of borrowers who are dependent on the sale or refinancing of property to repay their loans. Changes in the economic health of certain industries can have a significant impact on other sectors or industries which are directly or indirectly associated with those industries and may impact the value of real estate in areas where such industries are concentrated.

Significant increases of nonperforming assets from the current level, or greater than anticipated costs to resolve these credits, will have an adverse effect on Veritex’s earnings.

Our nonperforming assets, which consist of nonaccrual loans, accruing loans 90 days or more past due and other real estate owned, adversely affect our net income in various ways. We do not record interest income on nonaccrual loans and assets acquired through foreclosure. We must establish an allowance for credit losses which reserves for losses inherent in our loan portfolio that are both probable and reasonably estimable. From time to time, we also write down the value of properties in our portfolio of assets acquired through foreclosure to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to assets acquired through foreclosure. The resolution of nonperforming assets requires the active involvement of management, which can distract management from daily operations and other income producing activities. Finally, if our estimate of the allowance for credit losses is inadequate, we will have to increase the allowance for credit losses accordingly, which will have an adverse effect on our earnings. Significant increases in the level of our nonperforming assets from the current level, or greater than anticipated costs to resolve these credits, will have an adverse effect on our earnings.

The small to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition.

We focus our business development and marketing strategy primarily on small to medium-sized businesses. Small to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which characteristics may impair a borrower’s ability to repay a loan. In addition, the success of a small or medium-sized business often depends on the management skills, talents and efforts of a small group of people, and the death, disability or resignation of one or more of these people could have an adverse impact on the business and its ability to repay its loans. If general economic conditions negatively impact the Dallas-Fort Worth metroplex, Houston metropolitan area or Texas generally, and small to medium-sized businesses are adversely affected or our borrowers are otherwise affected by adverse business developments, our business, financial condition and results of operations could be adversely affected.

Our allowance for credit losses may prove to be insufficient to absorb potential losses in our loan portfolio, which could adversely affect our business, financial condition and results of operations.

We establish an allowance for credit losses and maintain it at a level considered adequate by management to absorb expected credit losses based on our analysis of the loan portfolio and market environment. The allowance for credit losses represents our estimate of expected losses in the portfolio at each balance sheet date and is based upon relevant information available to us. Our allowance for credit losses consists of a general component based upon probable but unidentified losses inherent in the portfolio and a specific component based on individual loans that do not share similar risk characteristics of segmented loan portfolios. The general component is based on a discounted cash flow model driven off forecasted economic indicators, historical loss experience for peer banks and other qualitative factors. The specific component of the allowance for credit losses is calculated based on a review of individual loans that do not share similar risk characteristics of segmented loan portfolios. The specific loan analysis of expected losses may be based on the present value of expected future cash flows discounted at the effective loan rate, an observable market price or the fair value of the underlying collateral on collateral dependent loans. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral. The amount ultimately realized may differ from the carrying value of these assets because of economic, operating or other conditions beyond our control, and any such differences may be material.

As of December 31, 2023, our allowance for credit losses was $109.8 million of our total LHI. Loans acquired are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans. Additional credit losses may occur in the future and may occur at a rate greater than we previously experienced. We may be required to take additional provisions for credit losses in the future to further supplement the allowance for credit losses, either due to management’s decision to do so or requirements by our banking regulators. In addition, bank regulatory agencies will periodically review the allowance for credit losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure. Such regulatory agencies may require us to recognize future charge-offs. These adjustments could adversely affect our business, financial condition and results of operations.

Our financial condition and results of operations may be adversely affected by changes in accounting policies, standards and interpretations.

The FASB and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of our financial statements. Additionally, those bodies that establish and interpret the accounting standards (such as the FASB, SEC and banking regulators) may change prior interpretations or positions on how

these standards should be applied. Changes resulting from these new standards may result in materially different financial results and may require that we change how we process, analyze and report financial information and that we change financial reporting controls.

We may be unable to implement aspects of our growth strategy, which may affect our ability to maintain historical earnings trends.

Our business has grown rapidly, with a strategy focused on organic growth, supplemented by acquisitions. Financial institutions that grow rapidly can experience significant difficulties as a result of rapid growth. We may be unable to execute on aspects of our growth strategy to sustain our historical rate of growth or may be unable to grow at all. More specifically, we may be unable to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth or find suitable acquisition candidates. Various factors, such as economic conditions and competition, may impede or prohibit the growth of our operations, the opening of new branches and the consummation of acquisitions. Further, we may be unable to attract and retain experienced bankers, which could adversely affect our growth. The success of our strategy also depends on our ability to effectively manage growth, which is dependent upon a number of factors, including the ability to adapt existing credit, operational, technology and governance infrastructure to accommodate expanded operations. If we fail to build infrastructure sufficient to support rapid growth or fails to implement one or more aspects of our strategy, we may be unable to maintain historical earnings trends, which could have an adverse effect on our business, financial condition and results of operations.

Our strategy of pursuing acquisitions exposes us to financial, execution and operational risks that could have an adverse effect on our business, financial condition, results of operations and growth prospects.

We intend to continue pursuing strategic acquisitions. An acquisition strategy involves significant risks, including the following:

•finding suitable candidates for acquisition;

•attracting funding to support additional growth within acceptable risk tolerances;

•maintaining asset quality;

•retaining customers and key personnel, including bankers;

•obtaining necessary regulatory approvals, which we may have difficulty obtaining or be unable to obtain;

•conducting adequate due diligence and managing known and unknown risks and uncertainties;

•integrating acquired businesses; and

•maintaining adequate regulatory capital.

The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition candidates that fit our strategy and standards. We face significant competition in pursuing acquisition targets from other banks and financial institutions, many of which possess greater financial, human, technical and other resources. Our ability to compete in acquiring target institutions will depend on the financial resources available to fund acquisitions, including the amount of cash and cash equivalents and the liquidity and market price of our common stock. In addition, increased competition may also drive up the acquisition consideration that we will be required to pay in order to successfully capitalize on attractive acquisition opportunities. To the extent that we are unable to find suitable acquisition targets, an important component of our growth strategy may not be realized.

Acquisitions of financial institutions also involve operational risks and uncertainties, such as unknown or contingent liabilities with no available manner of recourse, exposure to unexpected problems such as asset quality, the retention of key employees and customers and other issues that could negatively affect our business. We may not be able to complete future acquisitions or, if completed, may not be able to successfully integrate the operations, technology platforms, management, products and services of the entities acquired or realize a reduction of redundancies. The integration process may also require significant time and attention from our management that would otherwise be directed toward servicing existing business and developing new business. Failure to successfully integrate the entities we acquire into our existing operations in a timely or effective manner may increase our operating costs significantly and adversely affect our business, financial condition and results of operations. Further, acquisitions typically involve the payment of a premium over book and market values and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future acquisition. In addition, the carrying amount of any goodwill that is currently maintained or that may be acquired may be subject to impairment in future periods.

As a banking organization with over $10 billion in total consolidated assets, we are subject to increased regulation.

Federal law imposes heightened requirements on bank holding companies and depository institutions that exceed $10 billion in total consolidated assets.An insured depository institution with $10 billion or more in total assets is subject to supervision, examination, and enforcement with respect to consumer protection laws by the CFPB. Additionally, other regulatory requirements apply to insured depository institution holding companies and insured depository institutions with $10 billion or more in total consolidated assets, including the Volcker Rule, management interlocks requirements and inability to comply with capital requirements through the CBLR framework.Further, deposit insurance assessment rates are calculated differently, and may be higher, for insured depository institutions with $10 billion or more in total consolidated assets.

Debit card interchange fee restrictions set forth in section 1075 of the Dodd-Frank Act, known as the Durbin Amendment, as implemented by regulations of the Federal Reserve, cap the maximum debit interchange fee that an issuer may receive per transaction at the sum of 21 cents plus five basis points.An issuer that adopts certain fraud prevention procedures may charge an additional one cent per transaction.Debit card issuers with less than $10 billion in total consolidated assets are exempt from these interchange fee restrictions.The exemption for small issuers ceases to apply as of July 1 of the year following the calendar year in which the issuer has total consolidated assets of $10 billion or more at year-end.

Our ability to retain bankers and recruit additional successful bankers is critical to the success of our business strategy, and any failure to do so could adversely affect our business, financial condition, results of operations and growth prospects.

Our ability to retain and grow loans, deposits and fee income depends upon the business generation capabilities, reputation and relationship management skills of our bankers. If we were to lose the services of any of our bankers, including successful bankers employed by banks that we may acquire, to a new or existing competitor or otherwise, we may not be able to retain valuable relationships and some of our customers could choose to use the services of a competitor instead.

Our growth strategy also relies on our ability to attract and retain additional profitable bankers. We may face difficulties in recruiting and retaining bankers of the desired caliber, including as a result of competition from other financial institutions. In particular, some of our competitors are significantly larger with greater financial resources, and may be able to offer more attractive compensation packages and broader career opportunities. Additionally, we may incur significant expenses and expend significant time and resources on training, integration and business development before we are able to determine whether a new banker will be profitable or effective. If we are unable to attract and retain successful bankers, or if our bankers fail to meet expectations in terms of customer relationships and profitability, we may be unable to execute our business strategy and our business, financial condition, results of operations and growth prospects may be adversely affected.

Loss of any of our executive officers or other key employees could impair relationships with our customers and adversely affect our business.

Our success depends on the continued service and skills of our executive management team. Our goals, strategies and marketing efforts are closely tied to the banking philosophy and strengths of our executive management team. Our success is also dependent in part on the continued service of our market presidents and relationship managers. The loss of any of these key personnel could adversely affect our business because of their skills, years of industry experience and relationships with customers, and because it may be difficult to promptly find qualified replacement personnel. We cannot guarantee that these executive officers or key employees will continue to be employed with us in the future.

The relatively unseasoned nature of a significant portion of our loan portfolio may expose us to increased credit risks.

The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid timely or at all or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure. Our LHI portfolio has grown to $9.59 billion as of December 31, 2023. This growth is related to both organic growth and loans acquired in connection with business acquisitions. The organic portion of this increase is due to increased loan production in the Texas markets in which we operate. It is difficult to assess the future performance of acquired or recently originated loans because our relatively limited experience with such loans does not provide us with a significant payment history from which to judge future collectability. These loans may experience higher delinquency or charge-off levels than our historical loan portfolio experience, which could adversely affect our business, financial condition and results of operations.

Our CRE and construction and land loan portfolios expose itus to credit risks that could be greater than the risks related to other types of loans.

As of December 31, ~~2017, $909.3 million,~~2023, $3.14 billion of our loan portfolio, or ~~40.7%~~32.8% of total ~~loans,~~LHI, consisted of ~~commercial real estate~~CRE loans ~~(including owner occupied commercial real estate loans)~~ and ~~$277.8 million,~~$1.73 billion of our loan portfolio, or ~~12.4%~~18.1% of total ~~loans,~~LHI, consisted of construction and land loans. These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. The availability of such income for repayment may be adversely affected by changes in the economy or local market conditions. These loans expose a lender to greater credit risk than loans secured by other types of collateral because the collateral securing these loans is typically more difficult to liquidate due to the fluctuation of real estate values. Additionally, non-owner occupied ~~commercial real estate~~CRE loans generally involve relatively large balances to single borrowers or related groups of borrowers. Unexpected deterioration in the credit quality of ~~Veritex’s~~our non-owner occupied ~~commercial real estate~~CRE loan portfolio could require itus to increase the allowance for ~~loan~~credit losses, which would reduce profitability and could have ~~a material~~an adverse effect on ~~Veritex’s~~our business, financial condition and results of operations.

Construction and land loans also involve risks attributable to the fact that loan funds are secured by a project under construction, and the project is of uncertain value prior to its completion. It can be difficult to accurately evaluate the total funds required to complete a project, and construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If ~~Veritex is~~we are forced to foreclose on a project prior to completion, itwe may be unable to recover the entire unpaid portion of the loan. In addition, ~~Veritex~~we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time, any of which could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

Because a significant portion of ~~its~~our loan portfolio consists of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing ~~Veritex’s~~our real estate loans and result in loan and other losses.

As of December 31, ~~2017, $1.5~~2023, $6.83 billion of our loan portfolio, or ~~68.9%~~71.2% of total ~~loans,~~LHI, consisted of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in the Texas markets in which we operate could increase the credit risk associated with ~~Veritex’s~~our real estate loan portfolio. Real estate values in many Texas markets have experienced periods of fluctuation over the last five ~~years. The~~years, and the market value of real estate can fluctuate significantly in a short period of time. Adverse changes affecting real estate values and the liquidity of real estate in one or more of ~~Veritex’s~~our markets could increase the credit risk associated with ~~Veritex’s~~our loan portfolio, and could result in losses that adversely affect credit quality, financial condition and results of ~~operation.~~operations. Negative changes in the economy affecting real estate values and liquidity in ~~Veritex’s~~our market areas could significantly impair the value of property pledged as collateral on loans and affect ~~its~~our ability to sell the collateral upon foreclosure without a loss or additional losses. Collateral may ~~have~~need to be sold for less than the outstanding balance of the loan, which could result in losses on such loans. Such declines and losses could have ~~a material~~an adverse impact on ~~Veritex’s~~our business, results of operations and growth prospects. If real estate values decline, it is also more likely that ~~Veritex~~we would be required to increase the allowance for ~~loan~~credit losses, which could adversely affect ~~its~~our business, financial condition and results of operations.

~~Veritex~~We may be subject to environmental liabilities in connection with the foreclosure on real estate assets securing ~~its~~our loan portfolio.

Hazardous or toxic substances or other environmental hazards may be located on the properties that secure ~~Veritex’s~~our loans. If ~~Veritex acquires~~we acquire such properties as a result of foreclosure or otherwise, itwe could become subject to various environmental liabilities. For example, ~~Veritex~~we could be held liable for the cost of cleaning up or otherwise addressing contamination at or from these properties. ~~Veritex~~We could also be held liable to a governmental entity or third party for property damage, personal injury or other claims relating to any environmental contamination at or from these properties. In addition, ~~Veritex owns~~we may own and ~~operates~~operate certain properties that may be subject to similar environmental liability ~~risks.~~ risks during any given fiscal year.Although ~~Veritex has~~we have policies and procedures that are designed to mitigate ~~against~~ certain environmental risks, itwe may not detect all environmental hazards associated with these properties. If ~~Veritex~~we were to become subject to significant environmental liabilities, ~~its~~our business, financial condition and results of operations could be adversely affected.

~~Veritex has~~

We are exposed to increased credit losses and credit related expenses in the event of a major natural disaster, public health crisis, other catastrophic event or significant climate change effects.

The occurrence of a major natural or environmental disaster, public health crisis or similar catastrophic event, as well as significant climate change effects such as rising sea levels or wildfires, especially in densely populated geographic areas, could increase our credit losses and credit related expenses. A natural disaster, public health crisis or catastrophic event or other significant climate change effect that either damages or destroys residential or multifamily real estate underlying mortgage

loans or real estate collateral, or negatively affects the ability of borrowers to continue to make payments on loans, could increase our serious delinquency rates and average credit loss severity in the affected areas. Such events could also cause downturns in economic and market conditions generally, which could have an adverse effect on our business and financial results. We may not have adequate insurance coverage for some of these natural, catastrophic, public health or climate change-related events.

We have a concentration of loans outstanding to a limited number of borrowers, which may increase ~~its~~our risk of loss.

~~Veritex has~~

We have extended significant amounts of credit to a limited number of borrowers, and as of December 31, ~~2017,~~2023, the aggregate amount of loans to ~~its~~our 10 and 25 largest borrowers (including related entities) amounted to ~~$212.5~~$811.2 million, or ~~9.5%~~8.5% of total ~~loans,~~LHI, and ~~$437.8 million,~~$1.68 billion, or ~~19.6%~~17.5%, of total ~~loans, respectively.~~LHI, respectively. As of such date, none of these loans were nonperforming loans. Concentration of a significant amount of credit extended to a limited number of borrowers increases the risk in ~~Veritex’s~~our loan portfolio. If one or more of these borrowers is unable to make payments of interest and principal in respect of such loans, the potential loss to ~~Veritex~~us is more likely to have ~~a material~~an adverse effect on ~~its~~our business, financial condition and results of operations.

A lack of liquidity could impair our ability to fund operations, adversely affect our operations and jeopardize our business, financial condition and results of operations.

~~A lack of liquidity could impair Veritex’s ability to fund operations and adversely affect its operations and jeopardize its business, financial condition, and results of operations.~~

Liquidity is essential to ~~Veritex’s~~our business. ~~Veritex relies~~We rely on ~~its~~our ability to generate deposits and effectively manage the repayment and maturity schedules of loans and ~~investment~~debt securities, respectively, to ensure that ~~it has~~we have adequate liquidity to fund operations. An inability to raise funds through deposits, borrowings, the sale of ~~Veritex’s investment~~our debt securities, or the sale of loans and other sources could have a substantial negative effect on ~~its~~our liquidity.

~~Veritex’s~~

Our most important source of funds is core deposits. Core deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff. If customers move money out of bank deposits and into other ~~investments~~products, such as money market funds, ~~Veritex~~we would lose a relatively low-cost source of funds, increasing funding costs and reducing net interest income and net income.

Other primary sources of funds consist of cash flows from operations, maturities and sales of ~~investment~~ securities, and proceeds from the issuance and sale of ~~Veritex~~our equity and debt securities to investors. Additional liquidity is provided by the ability to borrow from ~~Veritex’s~~our brokered deposit network, ~~which includes the Federal Home Loan Bank of Dallas, or~~ the FHLB and the ~~Federal Reserve Bank of Dallas, or the~~ FRB. ~~Veritex~~We also may borrow funds from third-party lenders, such as other financial institutions. Access to funding sources in amounts adequate to finance or capitalize ~~its~~our activities, or on acceptable terms, could be impaired by factors that affect ~~Veritex~~us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. ~~Veritex’s~~Our access to funding sources could also be affected by a decrease in the level of business activity as a result of a downturn in the Dallas-Fort Worth metroplex or the Houston metropolitan area or by one or more adverse regulatory actions against ~~it.~~Veritex.

Any decline in available funding could adversely impact ~~Veritex’s~~our ability to originate loans, invest in securities, meet ~~its~~our expenses or fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have ~~a material~~an adverse impact on liquidity and could, in turn, adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

~~Veritex has~~We have a limited operating history and, accordingly, investors will have little basis on which to evaluate its ability to achieve ~~its~~our business objectives.

~~Veritex was~~

We were formed as a bank holding company in 2009 and commenced banking operations in 2010. Accordingly, ~~Veritex has~~we have a limited operating history upon which to evaluate ~~its~~our business and future prospects. As a result, it is difficult ~~if not impossible,~~ to predict future operating results and to assess the likelihood of the success of ~~Veritex’s~~our business. As a relatively young financial institution, Veritex Bank is also subject to risks and levels of risk that are often greater than those encountered by financial institutions with longer established operations and relationships. New financial institutions often require significant capital from sources other than operations. Since Veritex is a relatively young financial institution, its management team and employees will shoulder the burdens of the business operations and a workload associated with business growth and capitalization that is disproportionately greater than a more mature, established financial institution.

~~Veritex~~

We may need to raise additional capital in the future, and if ~~it fails~~we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, ~~Veritex’s~~our financial condition, liquidity and results of operations, as well as the ability to maintain regulatory compliance, could be adversely affected.

~~Veritex faces~~

We face significant capital and other regulatory requirements as a financial institution. ~~Veritex~~We may need to raise additional capital in the future to provide sufficient capital resources and liquidity to meet ~~its~~our commitments and business needs, which could include the possibility of financing acquisitions. In addition, ~~Veritex,~~we, on a consolidated basis, and Veritex Bank, on a ~~stand-alone~~standalone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity. Importantly, regulatory

capital requirements could increase from current levels, which could require ~~Veritex~~us to raise additional capital or reduce ~~its~~our operations. ~~Veritex’s~~Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on ~~Veritex’s~~our financial condition and performance. Accordingly, ~~Veritex~~we may be unable to raise additional capital if needed or on acceptable terms. If ~~Veritex fails~~we fail to maintain capital to meet regulatory requirements, ~~its~~our liquidity, business, financial condition and results of operations could be adversely affected.

~~Veritex~~

We could recognize losses on ~~investment~~debt securities held in ~~its~~our securities portfolio, particularly if interest rates stay at current levels or increase or economic and market conditions deteriorate.

While ~~Veritex attempts~~we attempt to invest a significant percentage of ~~its~~our assets in loans ~~(its~~(our loan to deposit ratio was ~~98.0%~~89.1% as of December 31, ~~2017)~~2023), itwe also ~~invests~~invest a percentage of ~~its~~our total assets in ~~investment~~debt securities ~~(7.7%~~(10.1% as of December 31, ~~2017)~~2023) with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested, managing interest rate risk, meeting pledging requirements and meeting regulatory capital requirements. As of December 31, ~~2017,~~2023, the fair value of ~~Veritex’s~~our AFS debt securities portfolio was ~~$228.1 million,~~$1.08 billion, which included a net unrealized loss of ~~$1.6~~$84.5 million. Factors beyond ~~Veritex’s~~our control can significantly influence the fair value of debt securities in ~~its~~our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate debt securities are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual borrowers with respect to the underlying securities, and continued instability in the credit markets. Any of the foregoing factors could cause other-than-temporary impairment in future periods and result in realized losses. The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, ~~Veritex~~we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on ~~its~~our business, financial condition and results of operations.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last two years, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in U.S. banks’ securities portfolios. If the Company were to sell such securities with embedded unrealized losses, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that this program or similar programs will be available in the future or effective in addressing liquidity needs on favorable terms as they arise.

~~Veritex faces~~We face strong competition from financial services companies and other companies that offer banking services, which could adversely affect ~~its~~our business, financial condition and results of operations.

~~Veritex conducts~~

We conduct our operations exclusively in Texas and particularly in the Dallas-Fort Worth metroplex and Houston metropolitan area. Many of ~~Veritex’s~~our competitors offer the same, or a wider variety of, banking services within the same market area. These competitors include banks with nationwide operations, regional banks and other community banks. ~~Veritex~~We also ~~faces~~face competition from many other types of financial institutions, including savings banks, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders and certain other non-financial entities, such as retail stores which may maintain their own credit programs and certain governmental organizations which may offer more favorable financing or deposit terms than ~~Veritex~~we can. In addition, a number of out-of-state financial intermediaries have opened production offices, or otherwise solicit deposits, in ~~its~~our market area. Increased competition in ~~Veritex’s~~our market may result in reduced loans and deposits, as well as reduced net interest margin, fee income and profitability. Ultimately, ~~Veritex~~we may not be able to compete successfully against current and future competitors. If ~~it is~~we are unable to attract and retain banking customers, ~~Veritex~~we may be unable to continue to grow loan and deposit portfolios, and ~~its~~our business, financial condition and results of operations could be adversely affected.

~~Veritex’s~~

Our ability to compete successfully depends on a number of factors, including, among other things:

~~the~~

•our ability to develop, build and maintain ~~and build long‑term~~long-term customer relationships based on top quality service, high ethical standards and safe, sound assets;

•the scope, relevance and pricing of products and services offered to meet customer needs and demands;

•the rate at which ~~Veritex introduces~~we introduce new products and services relative to ~~its~~our competitors;

•customer satisfaction with ~~Veritex’s~~our level of service;

•the ability to expand ~~Veritex’s~~our market position; and

•industry and general economic trends.

Failure to perform in any of these areas could significantly weaken ~~Veritex’s~~our competitive position, which could adversely affect ~~its~~our growth and profitability, which, in turn, could adversely ~~effect its~~affect our business, financial condition and results of operations.

Also, technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. In particular, the activity of certain "fintech" and "wealthtech" companies have grown significantly over recent years and are expected to continue to grow. Some "fintech" and "wealthtech" companies are not subject to the same regulation as we are, which may allow them to be more competitive. Certain "fintech" and "wealthtech" companies have and may continue to offer bank or bank-like products and a number of such organizations have applied for bank or industrial loan charters while others have partnered with existing banks to allow them to offer deposit products to their customers. Increased competition from "fintech" and "wealthtech" companies and the growth of digital banking may also lead to pricing pressures as competitors offer more low-fee and no-fee products.

Negative public opinion regarding Veritex or ~~Veritex’s~~our failure to maintain ~~its~~our reputation in the community could adversely affect ~~its~~our business and prevent ~~Veritex~~us from continuing to grow ~~its~~our business.

As a community bank, ~~Veritex’s~~our reputation within the community ~~it serves~~we serve is critical to ~~its~~our success. ~~Veritex strives~~We strive to enhance ~~its~~our reputation by recruiting, hiring and retaining employees who share ~~its~~our core values of being an integral part of the communities Veritex serves and delivering superior service to ~~its~~our customers. If ~~Veritex’s~~our reputation is negatively affected by the actions of ~~its~~our employees or otherwise, ~~Veritex~~we may be less successful in attracting new customers, and ~~its~~our business, financial condition, results of operations and prospects could be materially and adversely affected. Further, negative public opinion ~~can~~could expose ~~Veritex~~us to litigation and regulatory action as ~~it seeks~~we seek to implement ~~its~~our growth strategy.

~~If Veritex fails~~We may not be able to report our financial results accurately and timely as a publicly listed company if we fail to maintain an effective system of disclosure controls and procedures and internal control over financial ~~reporting, it may not be able~~reporting.

As a publicly traded company, we are required to ~~accurately report its~~file periodic reports containing our consolidated financial ~~results or prevent fraud.~~

~~Ensuring that Veritex has adequate~~statements with the SEC within a specified time following the completion of quarterly and annual periods. Maintaining effective disclosure controls and procedures ~~including~~is necessary to identify information we must disclose in our periodic reports and maintaining effective internal control over financial reporting ~~in place so that it can~~is necessary to produce ~~accurate~~reliable financial statements ~~on a timely basis is costly~~ and ~~time-consuming and needs~~ to ~~be reevaluated frequently. Veritex is in the process of documenting, reviewing and, if appropriate, improving its internal~~prevent fraud. If we fail to maintain effective disclosure controls and procedures ~~since becoming~~or effective internal control over financial reporting, we may experience difficulty in satisfying our SEC reporting obligations. Any failure by us to file our periodic reports with the SEC in a ~~public company~~timely manner could harm our reputation and ~~being subject~~cause investors and potential investors to lose confidence in us and reduce the ~~requirements~~market price of our common stock, and could result in a suspension or delisting of our common stock.

We must also comply with Section 404 of the Sarbanes-Oxley Act, ~~of 2002, or the Sarbanes-Oxley Act,~~ which requires that we perform an annual ~~management assessments~~evaluation of the effectiveness of ~~its~~our internal control over financial reporting. During the course of our evaluation and testing, we may identify deficiencies, including material weaknesses, which would have to be remediated to satisfy SEC rules for attesting to the effectiveness of our internal control over financial reporting. A material weakness is defined by the standards issued by the Public Company Accounting Oversight Board as a deficiency, or combination of deficiencies, in internal control over financial reporting ~~and, when Veritex ceases to~~that results in a reasonable possibility that a material misstatement of our annual or interim financial statements will not be ~~an emerging growth company under the JOBS Act,~~prevented or detected on a report by its independent auditors addressing these assessments. Veritex’s management may conclude that its internal control over financial reporting is not effective due to its failure to cure any identifiedtimely basis. If a material weakness ~~or otherwise. Moreover, even if Veritex’s~~is determined to exist, we must disclose this deficiency in periodic reports we file with the SEC. The existence of a material weakness would preclude management ~~concludes~~from concluding that ~~its~~our internal control over financial reporting is effective ~~Veritex’s~~and would also preclude our independent ~~registered public accounting firm may not conclude that its~~auditors from attesting to the effectiveness of our internal control over financial ~~reporting is effective.~~reporting. In ~~the future, Veritex’s independent registered public accounting firm may not be satisfied with its internal control over~~addition, disclosures of this type in our SEC reports could cause investors to lose confidence in our financial reporting orand may negatively affect the ~~level at which its controls~~market price of our common stock.

More generally, if we are documented, designed, operated or reviewed, or it may interpret the relevant requirements differently from Veritex. In addition, during the course of the evaluation, documentation and testing of Veritex’s internal control over financial reporting, Veritex may identify deficiencies that it may not be able to remediate in timeunable to meet the ~~deadline imposed by the SEC for compliance with~~demands that have been placed upon us as a public company, including the requirements of ~~Section 404 of~~ the Sarbanes-Oxley Act. Any such deficiencies may also subject Veritex to adverse regulatory consequences. If Veritex fails to achieve and maintain the adequacy of its internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, VeritexAct, we may be unable to accurately report ~~its~~our financial ~~information on a timely basis, it may not be able~~results in future periods, or report them within the timeframes required by law or stock exchange regulations. Failure to ~~conclude on an ongoing basis that it has effective internal control over financial reporting in accordance~~comply with the Sarbanes-Oxley Act ~~and it may suffer adverse regulatory consequences or violations of listing standards. There~~ could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. Under such circumstances, we may be unable to implement the necessary internal controls in a ~~negative reaction~~timely manner, or at all, and future material weaknesses may exist or may be discovered. If we fail to implement the necessary improvements, or if material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired, which could result in late filings of our annual and quarterly reports with the SEC, restatements of our consolidated financial ~~markets due~~statements, a decline

in our stock price, suspension or delisting of our common stock, and could have an adverse effect on our business, results of operations or financial condition. Even if we are able to report our financial statements accurately and in a ~~loss~~timely manner, any failure in our efforts to implement the improvements or disclosure of ~~investor confidence~~material weaknesses in our future filings with the ~~reliability of Veritex’s financial statements.~~SEC could cause our reputation to be harmed and our stock price to decline significantly.

~~Veritex is~~

We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.

Employee errors and employee or customer misconduct could subject ~~Veritex~~us to financial losses or regulatory sanctions and seriously harm ~~its~~our reputation. Misconduct by ~~Veritex’s~~our employees could include hiding unauthorized activities, improper or unauthorized activities on behalf of customers or improper use of confidential information. It is not always possible to prevent employee errors ~~and~~or misconduct, and the precautions ~~Veritex takes~~we take to prevent and detect ~~this activity~~these activities may not be effective in all cases. Employee errors could also subject ~~Veritex~~us to financial claims for negligence.

~~Veritex maintains~~

We maintain a system of internal controls to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud, as well as insurance coverage designed to protect itus from material losses associated with these risks, including losses resulting from any associated business interruption. If these internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

In addition, ~~Veritex relies~~we rely heavily upon information supplied by third parties, including the information contained in credit applications, property appraisals, title information, equipment pricing and valuation and employment and income documentation, in deciding which loans to originate, as well as the terms of those loans. If any of the information upon which Veritex relies is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected, or ~~Veritex~~we may fund a loan that it would not have funded or on terms itwe would not have extended. Whether a misrepresentation is made by the loan applicant or another third party, ~~Veritex~~we will generally bear the risk of loss associated with the misrepresentation. A loan subject to a material misrepresentation is typically unsellable or subject to repurchase if it is sold prior to detection of ~~the~~ misrepresentation. The sources of the misrepresentations are often difficult to locate, and recovery of any of the resulting monetary losses ~~Veritex~~we may suffer could be difficult.

~~Veritex has~~We have a continuing need for technological change and may not have the resources to effectively implement new technology, or may experience operational challenges when implementing new technology.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. ~~Veritex’s~~Our future success will depend, at least in part, upon ~~its~~our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in operations as ~~it continues~~we continue to grow and expand the products and services ~~offered. Veritex~~we offer. We may experience operational challenges as ~~it implements~~we implement these new technology enhancements or products, which could result in an inability to fully realize the anticipated benefits from such new technology or significant costs to remedy any such challenges in a timely manner.

Many of ~~Veritex’s~~our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products compared to those that ~~Veritex~~we will be able to provide, which would put itus at a competitive disadvantage. Accordingly, ~~Veritex~~we may lose customers seeking new technology-driven products and services to the extent ~~it is~~we are unable to provide such products and services.

~~Veritex’s~~

Our operations could be interrupted if third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations.

~~Veritex depends~~

We depend on a number of relationships with third-party service providers. Specifically, ~~Veritex receives~~we receive certain ~~third-party~~ services from third parties including, but not limited to, core systems processing, essential web hosting and other Internet systems, online banking services, deposit processing and other processing services. ~~Veritex’s~~Our operations could be interrupted if any of these third-party service providers ~~experience~~experiences difficulties, or ~~terminate their~~terminates its services, and ~~Veritex is~~we are unable to replace ~~them~~the provider with other service providers, particularly on a timely basis. If an interruption were to continue for a significant period of time, ~~Veritex’s~~our business, financial condition and results of operations could be adversely affected, perhaps materially. In addition, we may not be insured against all types of losses as a result of third-party failures, and insurance coverage may be inadequate to cover all losses resulting from interruptions of third-party services. Even if ~~Veritex is~~we are able to replace third-party service providers, it may be at a higher cost to ~~it,~~us, which could adversely affect ~~its~~our business, financial condition and results of operations.

~~System failure or breaches of Veritex’s network security could subject it to increased operating costs as well as litigation~~

Unauthorized access, cyber-crime and other ~~liabilities.~~threats to data security may require significant resources, harm our reputation, and otherwise cause harm to our business.

~~The computer~~

We necessarily collect, use and hold personal and financial information concerning individuals and businesses with which we have a banking relationship.This information includes non-public, personally identifiable information that is protected under applicable federal and state laws and regulations. Additionally, certain of these data processing functions are outsourced to third-party providers.Our facilities and systems, and ~~network infrastructure Veritex uses, including the systems and infrastructure~~those of our third-party service providers, ~~could~~may be vulnerable to ~~unforeseen problems. Veritex’s~~threats to data security, security breaches, acts of vandalism and other physical security threats, computer viruses or compromises, ransomware attacks, misplaced or lost data, programming and/or human errors or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of our confidential business, employee or customer information, whether originating with us, our vendors or retail businesses, could severely damage our reputation, expose us to the risks of civil litigation and liability, require the payment of regulatory fines or penalties or undertaking of costly remediation efforts with respect to third parties affected by a security breach, disrupt our operations, ~~are dependent upon its ability to protect its computer equipment,~~ and ~~the information stored therein, against~~have an adverse effect on our business, financial condition and results of operations.In addition, any damage, ~~from physical theft, fire, power loss, telecommunications~~ failure or ~~a similar catastrophic event, as well as from~~ security ~~breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure~~breach that causes breakdowns or disruptions in ~~Veritex’s~~our general ledger, deposit, loan ~~and~~or other systems could damage ~~its~~our reputation, result in a loss of customer business, subject itus to additional regulatory scrutiny, ~~including enforcement action that could restrict its operations,~~ or expose ~~Veritex~~us to civil litigation and possible financial liability, any of which could have ~~a material~~an adverse effect on it. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through Veritex’s computer systems and network infrastructure, which may result in significant liability to Veritex and may cause existing and potential customers to refrain from doing business with Veritex. In addition, advances in computer capabilities could result in a compromise or breach of the systems Veritex and its third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could adversely affect Veritex’sour business, financial condition and results of operations.

It is difficult or impossible to defend against every cyber risk and controls employed by our information technology department and our other employees and vendors could prove inadequate.Increasing sophistication of cyber-criminals and terrorists make keeping up with new threats difficult and could result in a breach.Cybersecurity risks appear to be growing and, as a result, the cyber-resilience of banking organizations is of increased importance to federal and state banking agencies and other regulators. New or revised laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, sharing, retention and safeguarding of consumer and employee information, and current or planned business activities. Compliance with current or future privacy, data protection and information security laws to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our profitability. In the last few years, there have been an increasing number of cyber incidents, including several well-publicized cyber-attacks that targeted other U.S. companies, including financial services companies much larger than us. These cyber incidents have been initiated from a variety of sources, including terrorist organizations and hostile foreign governments. As technology advances, the ability to initiate transactions and access data has also become more widely distributed among mobile devices, personal computers, automated teller machines, remote deposit capture sites and similar access points, some of which are not controlled or secured by us. It is possible that we could have exposure to liability and suffer losses as a result of a security breach or cyber-attack that occurred through no fault of Veritex. Further, the probability of a successful cyber-attack against us or one of our third-party service providers cannot be predicted. As cyber threats continue to evolve and increase, we may be required to spend significant additional resources to continue to modify or enhance our protective and preventative measures or to investigate and remediate any information security vulnerabilities. Our systems and those of our third-party vendors may also become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing consumers to complete financial transactions ~~through alternative methods~~ that historically have involved ~~banks.~~banks through alternative methods. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid ~~cards.~~cards or other mobile payment services. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, which may increase as consumers become more comfortable with these new technologies and offerings, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have ~~a material~~an adverse effect on our financial condition and results of operations.

If the goodwill that ~~Veritex has~~we have recorded or may record in connection with a business acquisition becomes impaired, it could require charges to earnings, which would adversely ~~effect its~~affect our business, financial condition and results of operations.

Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets acquired in connection with the purchase of another financial institution. ~~Veritex reviews~~We review goodwill for impairment at least annually, or more frequently if a triggering event occurs which indicates that the carrying value of the asset might be impaired. ~~Veritex utilizes~~We may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amounts, 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 first step of the 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 the entity shall perform the first step of the two-step ~~process to test for~~goodwill impairment ~~of goodwill.~~test. Under the first step, the estimation of fair value of ~~Veritex’s one~~the reporting unit is compared to its carrying value including goodwill. If step one indicates a potential impairment, the second step is performed to measure the amount of impairment, if any. If the carrying amount of the reporting ~~unit~~ goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in ~~Veritex’s~~the results of operations in the periods in which they become known. As of December 31, ~~2017,~~2023, goodwill totaled ~~$159.5~~$404.5 million. Although ~~Veritex has~~we have not recorded any impairment charges since the goodwill was initially recorded, future evaluations of existing goodwill or goodwill acquired in the future may result in findings of impairment and related write-downs, which could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

Risks Related to Veritex’s Industry and Regulation

The ongoing ~~implementation of the Dodd-Frank Act~~changes in regulation could adversely affect ~~Veritex’s~~our business, financial condition, and results of operations.

In July 2010, the Dodd-Frank Act was signed into ~~law,~~law.This statute and ~~the process of implementation is ongoing. The Dodd-Frank Act~~its implementing regulations have imposed significant regulatory and compliance changes on ~~many industries, including Veritex’s. Significant uncertainty continues to surround~~financial institutions. The enactment of EGRRCPA in 2018, the ~~manner~~CARES Act in ~~which~~2020 and other legislation or rulemaking by the ~~various~~ regulatory agencies ~~ultimately will implement the provisions of the Dodd-Frank Act, and the full extent of the impact of the requirements on Veritex’s operations is unclear.~~may impose other costs or provide regulatory relief. The ~~changes resulting from the Dodd-Frank Act~~evolving financial services regulatory framework may impact the profitability of ~~Veritex’s~~our business activities, require changes to certain of ~~its~~our business practices, require the development of new compliance infrastructure, impose upon ~~Veritex~~us more stringent capital, liquidity and leverage requirements or otherwise adversely affect ~~its~~our business. These changes may also require ~~Veritex~~us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements or with any future changes in laws or regulations could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

~~Veritex operates~~

We operate in a highly regulated environment and the laws and regulations that govern ~~its~~our operations, corporate governance, executive compensation and accounting principles, or changes in them, or failure to comply with them, could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

~~Veritex is~~

We are subject to extensive regulation, supervision and legal requirements that govern almost all aspects of ~~its~~our operations. These laws and regulations are not intended to protect ~~Veritex~~our shareholders. Rather, these laws and regulations are intended to protect customers, depositors, the ~~Deposit Insurance Fund,~~DIF, and the overall financial stability of the United States. These laws and regulations, among other matters, prescribe minimum capital requirements, impose ~~limitations~~limitations on the business activities in which ~~Veritex~~we can engage, limit the ~~dividend~~dividends or distributions that the Bank can pay to the Holdco and that Veritex can pay to shareholders, restrict the ability of institutions to guarantee ~~Veritex’s~~our debt, and impose certain specific accounting requirements on ~~Veritex~~us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in ~~its capital~~our capital than generally accepted accounting principles would require. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. ~~Veritex’s~~Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject itus to restrictions on ~~its~~our business activities, fines and other penalties, any of which could adversely affect ~~its~~our results of operations, capital base and the price of ~~its~~our securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

State and federal banking agencies periodically conduct examinations of ~~Veritex’s~~our business, including our compliance with laws and regulations, and failure to comply with any supervisory actions to which ~~Veritex is~~we are or may become subject as a result of such examinations could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

~~Texas and federal banking agencies, including the~~

The TDB and the Federal Reserve periodically conduct examinations of ~~Veritex’s~~our business, including our compliance with laws and regulations. If, as a result of an examination, a Texas or federal banking agency were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of ~~Veritex’s~~our operations had become unsatisfactory, or that Veritex, the Bank or their respective management were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to prohibit “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in ~~Veritex’s~~our capital levels, to restrict ~~its~~our growth, to assess civil monetary penalties against Veritex, the Bank or their respective officers or directors, to remove officers and directors and to terminate the Bank’s deposit insurance upon notice and hearing. If ~~Veritex becomes~~we become subject to such regulatory actions, ~~its~~our business, financial condition, results of operations and reputation could be adversely affected.

Many of ~~Veritex’s~~our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict future growth.

~~Veritex intends~~

We intend to complement and expand ~~its~~our business by pursuing strategic acquisitions of financial institutions and other complementary businesses. Generally, ~~Veritex~~we must receive state and federal regulatory approval before itwe can acquire a depository institution insured by the FDIC or related business. In determining whether to approve a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, ~~Veritex’s~~our financial condition, ~~its~~our future prospects and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital ratios and levels, the competence, experience and integrity of management and ~~its~~the parties' record of compliance with laws and regulations, the convenience and needs of the communities to be served (including the ~~acquiring institution’s~~parties' record of ~~compliance~~performance under the CRA) and the effectiveness of the ~~acquiring institution~~parties' in combating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to ~~it,~~us, or at all. ~~Veritex~~We may also be required to sell branches as a condition to receiving regulatory approval, which condition may not be acceptable to itus or, if acceptable to ~~it,~~us, may reduce the benefit of any acquisition.

In addition to the acquisition of existing financial institutions, as opportunities arise, ~~Veritex plans~~we plan to continue de novo branching as a part of its organic growth strategy. De novo branching and any acquisitions carry with them numerous risks, including the inability to obtain all required regulatory approvals. When evaluating applications to establish a de novo branch in Texas, the Federal Reserve and the TDB consider similar factors to those considered in connection with an expansionary transaction. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo branches could impact ~~Veritex’s~~our business plans and restrict ~~its~~our growth.

Financial institutions, such as the Bank, face a risk of noncompliance with and enforcement action ~~with~~under the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The ~~Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or~~BSA, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other ~~duties,~~requirements, to institute and maintain an effective ~~anti-money laundering~~AML program and file suspicious activity and currency transaction reports as appropriate. ~~The Financial Crimes Enforcement Network,~~FinCEN, established by the U.S. Department of the Treasury ~~or the Treasury Department,~~ to administer the ~~Bank Secrecy Act,~~BSA, is authorized to impose significant civil money penalties for violations of those requirements, and ~~has recently engaged~~may engage in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue ~~Service. There is also increased scrutiny of compliance~~Service, among other government and law enforcement agencies. In addition, OFAC may pursue enforcement actions for failure to comply with the sanctions programs ~~and rules administered and enforced by the Treasury Department’s Office of Foreign Assets Control.~~it administers.

In order to comply with regulations, guidelines and examination procedures in this area, ~~Veritex has~~we have dedicated significant resources to ~~its Bank Secrecy Act anti-money laundering~~our BSA/AML programs. If ~~its~~our policies, procedures and systems are deemed deficient, ~~Veritex~~we could be subject to liability, including fines and regulatory actions such as restrictions on ~~its~~our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of ~~its~~our business plans, ~~including~~such as acquisitions and de novo branching.

~~Veritex is~~We are subject to ~~the CRA and~~ fair lending laws, and failure to comply with these laws could lead to material penalties.

The ~~CRA, the~~ Equal Credit Opportunity Act, the Fair Housing Act and other federal and state fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The ~~CFPB, the~~Federal Reserve, TDB, U.S. Department of Justice ~~Department~~ and other federal and state agencies are responsible for enforcing these laws and ~~regulations.~~regulations against us. A successful challenge to ~~an institution’s performance under the CRA or~~our compliance with fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictions on expansion activity. In addition, violations of fair lending laws and regulations may have an adverse effect on our CRA rating, which in turn may affect our ability to obtain regulatory approval for certain expansionary transactions and branching activities.Private parties may also have the ability to challenge an institution’s performance under fair lending laws and regulations in private class action litigation.

The FDIC’s restoration plan and the related increased assessment rate could adversely affect ~~Veritex’s~~our earnings and results of operations.

As a result of economic conditions and the enactment of the Dodd-Frank Act, the FDIC ~~has increased~~revised its deposit insurance assessment ~~rates,~~methodology, which ~~in turn raised~~has had the effect of raising deposit premiums for many insured depository institutions. If these increases are insufficient for the ~~Deposit Insurance Fund~~DIF to meet its funding requirements, special assessments or increases in deposit insurance premiums may be required. ~~Veritex is~~We are generally unable to control the amount of premiums that ~~it is~~we are required to pay for FDIC insurance.

periods. The special assessment will be based on an insured depository institution’s estimated uninsured deposits for the December 31, 2022 reporting period, adjusted to exclude the first $5.0 billion in estimated uninsured deposits from the insured depository institution. As a result of the FDIC’s final rule, we accrued $768 thousand related to the special assessment in the fourth quarter of 2023. This amount represents our current expectation of the full amount of the assessment based on our total uninsured deposits as of December 31, 2022. Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain.

If there are additional financial institution failures that affect the ~~Deposit Insurance Fund, Veritex~~DIF, we may be required to pay FDIC premiums higher than current levels. ~~Veritex’s~~ Our FDIC insurance related costs were ~~$1.2~~$12.2 million, which included $768 thousand of FDIC special assessment, for the year ended December 31, ~~2017, compared to $661 thousand~~2023 and $5.3 million and $4.0 million for the ~~year~~years ended December 31, ~~2016~~2022 and ~~$448 thousand for the year ended December 31, 2015.~~2021, respectively. Any future additional assessments, increases or required prepayments in FDIC insurance premiums could adversely affect ~~Veritex’s~~our earnings and results of operations.

~~Veritex is~~We are subject to increased capital requirements, which may adversely impact return on equity or prevent ~~Veritex~~us from paying dividends or repurchasing shares.

The Dodd-Frank Act requires the federal banking agencies to establish stricter risk-based and leverage capital requirements to apply to ~~banks~~insured depository institutions and ~~bank and savings and loan~~their holding companies. ~~The~~In 2013, the federal banking agencies ~~have~~ adopted revised risk-based and leverage capital requirements as well as a revised method for calculating ~~risk-weighted assets.~~ RWA.

The revised capital rules ~~apply~~subjected us to ~~all bank holding companies with $1 billion or more in consolidated assets and all banks regardless of size.~~

~~As a result of the adoption of enhanced capital rules, Veritex became subject to increased~~higher required capital levels on January 1, 2015, with ~~a phase-in period for certain provisions over four years that began~~the requirements fully phased in ~~2016.~~ as of January 1, 2019.The application of more stringent capital requirements on ~~Veritex~~us could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions such as the inability to pay dividends or repurchase shares if ~~Veritex~~we were to be unable to comply with such requirements.

The Federal Reserve may require ~~Veritex~~us to commit capital resources to support the Bank.

A bank holding company is required to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks. The Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank at times when the bank holding company may not be inclined to do so and may charge the bank holding company with engaging in unsafe and unsound practices for ~~failure~~failing to commit resources to such a subsidiary bank. Accordingly, ~~Veritex~~we could be required to provide financial assistance to the Bank if it experiences financial distress.

Such a capital injection may be required at a time when ~~Veritex’s~~our resources are limited and itwe may be required to borrow the funds to make the required capital injection. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of any note obligations.

~~Veritex~~We could be adversely affected by the soundness of other financial institutions.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. ~~Veritex has~~We have exposure to many different industries and counterparties, and routinely ~~executes~~execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients. Many of these transactions expose ~~Veritex~~us to credit risk in the event of a default by a counterparty or client. In addition, ~~Veritex’s~~our credit risk may be exacerbated when ~~its~~our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due. Any such losses could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

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 March and May 2023 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 move and/or maintain their deposits to/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 higher 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 HTM 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. We could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could have a material adverse effect on our business, financial condition and results of operations.

Monetary policies and regulations of the Federal Reserve could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

In addition to being affected by general economic conditions, ~~Veritex’s~~our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the U.S. money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of both the discount rate and the federal funds rate and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Although ~~Veritex~~we cannot determine the effects of such policies on itus at this time, such policies could adversely affect ~~its~~our business, financial condition and results of operations.

Risks Related to ~~Veritex’s~~Our Common Stock

The market price of ~~Veritex’s~~our common stock may fluctuate significantly.

The market price of ~~Veritex’s~~our common stock could fluctuate significantly due to a number of factors, including, but not limited to:

~~Veritex’s~~

•our quarterly or annual earnings, or those of other companies in ~~its~~our industry;

•actual or anticipated fluctuations in ~~Veritex’s~~our operating results;

•changes in accounting standards, policies, guidance, interpretations or principles;

•the public reaction to ~~Veritex’s~~our press releases, ~~its~~our other public announcements and ~~its~~our filings with the SEC;

•announcements by ~~Veritex~~us or ~~its~~our competitors of significant acquisitions, dispositions, innovations or new programs and services;

•changes in financial estimates and recommendations by securities analysts that cover ~~Veritex’s~~our common stock or the failure of securities analysts to cover ~~Veritex’s~~our common stock;

•changes in earnings estimates by securities analysts or ~~Veritex’s~~our ability to meet those estimates;

•the operating and stock price performance of other comparable companies;

•general economic conditions and overall market fluctuations;

•the trading volume of ~~Veritex’s~~our common stock;

•changes in business, legal or regulatory conditions, or other developments affecting participants in ~~Veritex’s~~our industry, and publicity regarding ~~its~~our business or any of ~~its~~our significant customers or competitors;

•changes in governmental monetary policies, including the policies of the Federal Reserve;

•future sales of ~~Veritex’s~~our common stock by ~~Veritex~~us or ~~its~~our directors, executive officers or significant shareholders; and

•changes in economic conditions in and political conditions affecting ~~Veritex’s~~our target markets.

In particular, the realization of any of the risks described in this “Item 1A. Risk Factors” ~~section~~ could have ~~a material~~an adverse effect on the market price of ~~Veritex’s~~our common stock and cause the value of your investment to decline. In addition, the stock market in

general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of ~~Veritex’s~~our common stock over the short, medium or long-term, regardless of ~~Veritex’s~~our actual performance. If the market price of ~~Veritex’s~~our common stock reaches an elevated level, it may materially and rapidly decline. In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted securities class action litigation. If ~~Veritex~~we were to be involved in a class action lawsuit, it could divert the attention of senior management and could adversely affect ~~Veritex’s~~our business, financial condition and results of operations.

If securities or industry analysts change their recommendations regarding ~~Veritex’s~~our common stock or if ~~Veritex’s~~our operating results do not meet their expectations, ~~Veritex’s~~our stock price could decline.

The trading market for ~~Veritex’s~~our common stock could be influenced by the research and reports that industry or securities analysts may publish about Veritex or ~~its~~our business. If one or more of these analysts cease coverage of ~~Veritex~~us or fail to publish reports on itus regularly, ~~Veritex~~we could lose visibility in the financial markets, which in turn could cause ~~its~~our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover ~~Veritex~~us downgrade ~~its~~our stock or if ~~Veritex’s~~our operating results do not meet their expectations, either absolutely or relative to ~~Veritex’s~~our competitors, ~~Veritex’s~~our stock price could decline significantly.

Future sales or the possibility of future sales of a substantial amount of ~~Veritex~~our common stock may depress the price of ~~shares of Veritex’s~~the common stock.

Future sales or the availability for sale of substantial amounts of ~~Veritex’s~~our common stock in the public market, or the perception that these sales could occur, could adversely affect the prevailing market price of ~~Veritex’s~~our common stock and could impair ~~its~~our ability to raise capital through future sales of equity securities.

~~Veritex~~

We may issue shares of ~~its~~our common stock or other securities from time to time as consideration for future acquisitions and investments and pursuant to compensation and incentive plans. If any such acquisition or investment is significant, the number of shares of ~~Veritex’s~~our common stock, or the number or aggregate principal amount, as the case may be, of other securities that ~~Veritex~~we may issue may in turn be substantial. ~~Veritex~~We may also grant registration rights covering those shares of ~~its~~our common stock or other securities in connection with any such acquisitions and investments.

~~Veritex~~

We cannot predict the size of future issuances of ~~its~~our common stock or the effect, if any, that future issuances and sales of its common stock will have on the market price of ~~its~~our common stock. Sales of substantial amounts of ~~Veritex’s~~our common stock (including shares of ~~its~~our common stock issued in connection with an acquisition or under a compensation or incentive plan), or the perception that such sales could occur, may adversely affect prevailing market prices for ~~its~~our common stock and could impair ~~Veritex’s~~our ability to raise capital through future sales of its securities.

The holders of ~~Veritex’s~~our debt obligations will have priority over ~~Veritex’s~~our common stock with respect to payment in the event of liquidation, dissolution or winding up of Veritex and with respect to the payment of interest and preferred dividends.

As of December 31, ~~2017, Veritex~~2023, we had approximately ~~$4.9~~$198.9 million outstanding in aggregate principal amount of subordinated ~~promissory~~ notes held by investors, and, in the aggregate, ~~$11.7~~$30.9 million of junior subordinated debentures issued to ~~two~~four statutory trusts that in turn issued ~~$11.4~~$32.9 million in the aggregate of trust ~~preferred~~preferred securities. In the future, ~~Veritex~~we may incur additional indebtedness. Upon ~~Veritex’s~~our liquidation, dissolution or winding up, holders of ~~its~~our common stock will not be entitled to receive any payment or other distribution of assets until after all of ~~Veritex’s~~our obligations to ~~its~~our debt holders have been satisfied and holders of trust preferred securities have received any payment or distribution due to them. In addition, ~~Veritex is~~we are required to pay interest on ~~its~~our outstanding indebtedness before ~~it pays~~we pay any dividends on ~~its~~our common stock. Since any decision to issue debt securities or incur other borrowings in the future will depend on market conditions and other factors beyond ~~Veritex’s~~our control, the amount, timing, nature or success of ~~Veritex’s~~our future capital raising efforts is uncertain. Thus, holders of ~~Veritex’s~~our common stock bear the risk that ~~Veritex’s~~our future issuances of debt securities or ~~its~~our incurrence of other borrowings will negatively affect the market price of ~~its~~our common stock.

~~Veritex is dependent upon~~

We depend on the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted, which could impact ~~Veritex’s~~our ability to satisfy its obligations.

~~Veritex’s~~

Our primary asset is the Bank. As such, ~~Veritex depends upon~~we depend on cash flow through dividends from the Bank ~~for cash distributions through dividends on the Bank’s stock~~ to pay ~~Veritex’s~~our operating expenses and satisfy ~~its~~our obligations, including debt obligations. There are numerous laws and ~~banking~~ regulations that limit the Bank’s ability to pay dividends to ~~Veritex.~~Holdco. If the Bank is unable to pay dividends to ~~Veritex, Veritex~~Holdco, we will not be able to satisfy ~~its~~our obligations. ~~Federal and state statutes and regulations restrict the Bank’s ability to make cash distributions to Veritex.~~ These statutes and regulations require, among other things, that the Bank maintain certain levels of capital in order to pay a dividend. Further, federal and state banking authorities have the ability to restrict the Bank’s payment of dividends through supervisory action. See also “Item 1. Business—Regulation and Supervision—Regulatory Limits on Dividends and Distributions.”

~~For~~Our dividend policy may change without notice, our future ability to pay dividends is subject to restrictions, and we may not pay dividends in the future.

In January 2019, we initiated a quarterly cash dividend on our common stock. Holders of our common stock are entitled to receive only such cash dividends as ~~long~~our Board may declare out of funds legally available for the payment of dividends. The timing, declaration, amount and payment of future cash dividends, if any, will be within the discretion of our Board and will depend upon then-existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities, growth opportunities, any legal, regulatory, contractual or other limitations on our ability to pay dividends and other factors our Board may deem relevant. As a bank holding company, our ability to pay dividends is also affected by the policies and enforcement powers of the Federal Reserve and any future payment of dividends will depend on the Bank’s ability to make distributions and payments to Holdco, as ~~Veritex~~these distributions and payments are our principal source of funds to pay dividends. The Bank is ~~an emerging growth company, Veritex will~~also subject to various legal, regulatory and other restrictions on its ability to make distributions and payments to Holdco. In addition, in the future, we may enter into borrowing or other contractual arrangements that restrict our ability to pay dividends. As a consequence of these various limitations and restrictions, we may not be ~~required~~able to ~~comply with certain reporting requirements, including disclosure about its executive compensation, that apply~~make, or may have to ~~other public companies.~~

~~Veritex is classified as an “emerging growth company” under~~reduce or eliminate, the ~~JOBS Act. For as long as Veritex is an emerging growth company, unlike other public companies, it will not be required to, among other things, (1) provide an auditor’s attestation report~~payment of dividends on ~~management’s assessment~~our common stock. Any change in the level of our dividends or the suspension of the ~~effectiveness~~payment thereof could have an adverse effect on the market price of its system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (2) comply with any new requirements proposed by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the auditour common stock. See also “Item 1. Business—Regulation and ~~the financial statements of the issuer, (3) provide certain disclosure regarding executive compensation required of larger public companies, (4) hold nonbinding advisory votes~~Supervision—Regulatory Limits on executive compensation, or (5) obtain shareholder approval of any golden parachute payments not previously approved. Veritex will remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of its initial public offering, which was completed in October 2014, although Veritex will lose that status sooner if it has more than $1.07 billion of revenues in a fiscal year, has more than $700.0 million in market value of its common stock held by non-affiliates, or issues more than $1.0 billion of non-convertible debt over a 3-year period.Dividends and Distributions.”

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, ~~of 2002,~~ may strain ~~Veritex’s~~our resources, increase ~~its~~our costs and distract management.

~~Veritex~~

We completed ~~its~~our initial public offering in October 2014. As a public company, ~~Veritex incurs~~we incur significant legal, accounting and other expenses that itwe did not incur as a private company. ~~Veritex~~We also incur costs associated with ~~its~~our public company reporting requirements and with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, ~~of 2002, Nasdaq~~stock exchange rules and the rules implemented by the SEC. These rules and regulations have increased ~~Veritex’s~~our legal and financial compliance costs and make some activities more time-consuming and costly. These rules and regulations also make it more difficult and more expensive for ~~Veritex~~us to obtain director and officer liability insurance. As a result, it may be more difficult for ~~Veritex~~us to attract and retain qualified individuals to serve on ~~its board of directors~~our Board or as executive officers.

Shareholders may be deemed to be acting in concert or otherwise in control of ~~Veritex,~~us, which could impose notice, approval and ongoing regulatory requirements upon them and result in adverse regulatory consequences for such holders.

Veritex is a bank holding company regulated by the Federal Reserve. Banking laws impose notice, approval and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or a company that controls an FDIC-insured depository institution, such as a bank holding company. These laws include the BHC Act and the Change in Bank Control ~~Act.~~Act and, for Texas chartered-banks such as the Bank, change of control requirements established by the Texas Finance Code. The determination as to whether an investor “controls” a depository institution or holding company is based on all of the facts and circumstances surrounding the investment.

As a general matter, a party is deemed to control a depository institution or other company if the party (1) owns or controls 25.0% or more of any class of voting stock of the bank or other company, (2) controls the election of a majority of the directors of the bank or other company, or (3) has the power to exercise a controlling influence over the management or policies of the bank or other company. In addition, subject to rebuttal, a party may be presumed to control a depository institution or other company if the investor owns or controls 10.0% or more of any class of voting stock. Ownership by affiliated parties, or parties acting in concert, is typically aggregated for these purposes. “Acting in concert” generally means knowing participation in a joint activity or parallel action towards the common goal of acquiring control of a bank or a parent company, whether or not pursuant to an express agreement. The manner in which this definition is applied in individual circumstances can vary and cannot always be predicted with certainty.

Any shareholder that is deemed to “control” ~~Veritex~~us for regulatory purposes would become subject to notice, approval and ongoing regulatory requirements and may be subject to adverse regulatory consequences. ~~Potential investors~~Investors are ~~advised to consult with their legal counsel regarding~~responsible for ensuring that they do not, directly or indirectly, acquire shares of our stock in excess of the amount that can be acquired without regulatory approval under applicable ~~regulations and requirements.~~law.These regulatory constraints on acquisition of our stock could inhibit transactions that would increase the price of our stock.

An investment in ~~Veritex’s~~our common stock is not an insured deposit and is not guaranteed by the FDIC, so you could lose some or all of your investment.

An investment in ~~Veritex’s~~our common stock is not a bank deposit and, therefore, is not insured against loss or guaranteed by the FDIC, any other deposit insurance fund or by any other public or private entity. An investment in ~~Veritex’s~~our common stock is

inherently risky for the reasons described herein. As a result, if you acquire ~~Veritex’s~~our common stock, you could lose some or all of your investment.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Cybersecurity risks are constantly evolving and becoming increasingly pervasive across all industries. To mitigate these risks and protect sensitive customer data, financial transactions and our information systems, the Company has implemented a comprehensive cybersecurity risk management program, which is a component of its overarching enterprise risk management program. Key components of the cybersecurity risk management program include:

• A risk assessment process that identifies and prioritizes material cybersecurity risks; defines and evaluates the effectiveness of controls to mitigate these risks; and reports results to executive management and the Board;

• A third-party MDR service, which monitors the security of our information systems around-the-clock, including intrusion detection and alerting;

• A dedicated cybersecurity team covering critical cyber defense functions such as engineering, data protection, identity and access management, insider risk management, security operations, threat emulation and threat intelligence;

• A training program that educates employees about cybersecurity risks and how to protect themselves from cyberattacks;

• An awareness program that keeps employees informed about cybersecurity threats and how to stay safe online;

• An incident response plan that outlines the steps the Company will take to respond to a cybersecurity incident, which is tested on a periodic basis.

The Company engages reputable third-party assessors to conduct various independent risk assessments on a regular basis, including but not limited to maturity assessments and various testing. Following a defense-in-depth strategy, the Company leverages both in-house resources and third-party service providers to implement and maintain processes and controls to manage the identified risks.

Our third-party risk management program is designed to ensure that our vendors meet our cybersecurity requirements. This includes conducting periodic risk assessments of vendors, requiring vendors to implement appropriate cybersecurity controls and monitoring vendor compliance with our cybersecurity requirements.

The Company’s cybersecurity risk management program and strategy are designed to ensure the Company's information and information systems are appropriately protected from a variety of threats, both natural and man-made. Periodic risk assessments are performed to validate control requirements and ensure that the Company’s information is protected at a level commensurate with its sensitivity, value, and criticality. Preventative and detective security controls are employed on media where information is stored, the systems that process it, and infrastructure components that facilitate its transmission to ensure the confidentiality, integrity, and availability of Company information. These controls include, but are not limited to access control, data encryption, data loss prevention, incident response, security monitoring, third party risk management, and vulnerability management.

The Company's cybersecurity risk management program and strategy are regularly reviewed and updated to ensure that they are aligned with the Company's business objectives and are designed to address evolving cybersecurity threats and satisfy regulatory requirements and industry standards.

Material Effects of Cybersecurity Threats

While cybersecurity risks have the potential to materially affect the Company's business, financial condition, and results of operations, the Company does not believe that risks from cybersecurity threats or attacks, including as a result of any previous cybersecurity incidents, have materially affected the Company, including its business strategy, results of operations or financial condition. However, the sophistication of cyber threats continues to increase, and the Company’s cybersecurity risk management and strategy may be insufficient or may not be successful in protecting against all cyber incidents. Accordingly, no matter how well designed or implemented the Company’s controls are, it may not be able to anticipate all cyber security breaches, and it may not be able to implement effective preventive measures against such security breaches in a timely manner.

For more information on how cybersecurity risk may materially affect the Company’s business strategy, results of operations or financial condition, please refer to Item 1A Risk Factors.

Governance

Board Oversight

The Board is charged with overseeing the establishment and execution of the Company’s risk management framework and monitoring adherence to related policies required by applicable statutes, regulations and principles of safety and soundness. Consistent with this responsibility the Board has delegated primary oversight responsibility over the Company’s risk management framework, including oversight of cybersecurity risk and cybersecurity risk management, to the Risk Committee of the Board. The Risk Committee receives regular updates on cybersecurity risks and incidents and the cybersecurity program through direct interaction with the CISO and the Head of Information Risk and provides periodic updates regarding cybersecurity risks and the cybersecurity program to the full Board. Additionally, awareness and training on cybersecurity topics is provided to the Board on an annual basis.

Management's Role

The Information Security department is responsible for implementing and maintaining the Company’s cybersecurity risk management program. The Information Security department consists of cybersecurity and information risk professionals who assess, identify, and manage cybersecurity risks. Information Security is led by the CISO, who reports directly to the Chief Information Officer and the Board with a secondary reporting line to the Chief Risk Officer. The Company’s CISO has over 20 years of experience in cybersecurity across the financial services industry, as well as experience working in a leading managed security services provider. Prior to joining the Company, the Company’s CISO served as leader of the Global Threat Management Center for a major global financial institution. The Information Risk department, led by the Head of Information Risk, who reports directly to the Chief Risk Officer, is responsible for ensuring the protection of electronic and physical information through the identification and management of risk activities. As a governance and oversight function, the Information Risk department measures and reports on the quality of information and cyber risk management across all functions of the Company. Information security risk is reported by both the Information Security and Information Risk departments through monthly management metric reporting working groups and multiple layers of quarterly risk committees to achieve an appropriate flow of information risk reporting to the Board. The risk committees include the Operational Risk Management Committee, the Executive Risk Management Committee and the Risk Committee of the Board. These committees establish and oversee policies, programs, and other guidance to provide specific expectations for managing the cybersecurity risk.

ITEM 2. PROPERTIES

At December 31, ~~2017,~~2023, our executive offices were located at 8214 Westchester Drive, Suite ~~400,~~800, Dallas, Texas 75225. In addition to our executive offices, at December 31, ~~2017,~~2023, we had ~~twenty~~18 full-service branches ~~and one mortgage office~~ located in the Dallas-Fort Worth metroplex ~~two~~and 11 full-service branches in the ~~Austin metropolitan area and one full-service branch in the~~ Houston ~~metropolitan area. On January 1, 2018, the Company sold the two full-service branches in the Austin~~ metropolitan area. We own the building in which our executive offices are located and lease the majority of the space in which our other administrative offices are located. As of December 31, ~~2017,~~2023, we owned ~~thirteen~~16 of our branch locations and leased the ~~mortgage~~remaining 13 branch and office ~~and remaining ten branch~~ locations. The remaining terms of our leases on our full-services branches range from one to ~~five~~nine years and give us the option to renew for subsequent terms of equal duration or otherwise extend the lease term subject to price adjustment based on market conditions at the time of renewal. The net book value of our investment in premises, equipment and leaseholds, excluding computer equipment, was approximately $77.0 million, which includes $5.1 million of premises and equipment classified as held for sale, at December 31, 2017. We believe that our current facilities are adequate to meet ~~the~~our present and immediately foreseeable ~~needs of the Bank and the Company.~~needs.

For more information about our bank premises and equipment and ~~operating~~ leases, please see Note 67 and Note 158, respectively, of ~~the Notes to Consolidated Financial Statements contained~~our consolidated financial statements included elsewhere in ~~Item 15 of~~ this report.

ITEM 3. 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,~~laws, 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~~management��s attention and may materially adversely affect our reputation, even if resolved in our favor.

ITEM 4. MINE AND SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for Common Stock

Shares of our common stock are traded on the Nasdaq Global Market under the symbol “VBTX”. Our shares have been traded on the Nasdaq Global Market since October 9, 2014. Prior to that date, there was no public trading market for our common stock.

~~The following table presents the range of high and low sales price per share reported on The Nasdaq Global Market for the period indicated.~~

2017 2016
High Low High Low
First Quarter $ 29.25
$ 25.64
$ 17.00
$ 12.35
Second Quarter 28.47
25.39
16.25
14.35
Third Quarter 27.54
24.22
17.48
13.91
Fourth Quarter 28.60
25.75
27.76
15.46

Holders of Record

As of ~~March 13, 2018,~~February 27, 2024, there were ~~333~~272 holders of record of our common stock.

Dividend Policy

~~We have not~~On January 23, 2024, Veritex announced that its Board declared ~~or paid any dividends~~a quarterly cash dividend of $0.20 per share on our outstanding common stock. ~~We currently intend~~The dividend was paid on February 23, 2024 to ~~retain all~~shareholders of record as of February 9, 2024. For the year ended December 31, 2023, we declared and paid $43.3 million in cash dividends.

The timing, declaration, amount and payment of any future cash dividends are at the discretion of our ~~future earnings, if~~Board and will depend on many factors, including our results of operations, financial condition, capital requirements, investment opportunities, growth opportunities, any ~~for use in our business and do not anticipate paying any cash dividends~~legal, regulatory, contractual or other limitations on our ~~common stock in the foreseeable future.~~

~~There~~ability to pay dividends and other factors our Board may deem relevant. In addition, there are regulatory ~~requirements related to~~restrictions on our ability and the ability of the Bank to pay dividends. See “Item 1A. Risk Factors—Our dividend policy may change without notice, our future ability to pay dividends is subject to restrictions, and we may not pay dividends in the future” and “Item 1. Business—Regulation and Supervision—Regulatory Limits on Dividends and ~~Distributions”.~~Distributions.”

Unregistered Sales of Equity Securities

None.

Equity Compensation Plan Information

See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”. The information regarding the securities authorized for issuance under equity compensation plans called for by this item is set forth in our 2024 Proxy Statement, and is incorporated herein by reference.

Stock Performance Graph

The following table and graph compares the cumulative total shareholder return on our common stock to the cumulative total return of the ~~S&P 500 Total Return~~KBW Nasdaq Regional Banking Index and the Nasdaq Bank Index for the period beginning on ~~October 9, 2014, the first day of trading of our common stock on the Nasdaq Global Market~~December 31, 2018 through December 31, ~~2017.~~2023. The following information reflects index values as of close of trading, assumes $100 invested on ~~October 9, 2014~~December 31, 2018 in our common stock, the ~~S&P 500 Total Return~~KBW Nasdaq Regional Banking Index and the Nasdaq Bank Index, and assumes the reinvestment of dividends, if any. The historical stock price performance for our common stock shown ~~on the graph~~ below is not necessarily indicative of future stock performance.


	December 31, 2018		December 31, 2019		December 31, 2020		December 31, 2021		December 31, 2022		December 31, 2023
Veritex Holdings, Inc.	$	100.00	$	121.23	$	108.31	$	151.34	$	123.55	$	115.31
KBW Nadsaq Regional Banking Index (KRX)	100.00		100.53		99.29		128.04		116.75		101.46
Nasdaq Bank Index	100.00		136.25		120.02		186.06		131.34		108.84

October 9, 2014 December 31, 2014 June 30, 2015 December 31, 2015 June 30, 2016 December 31, 2016 June 30, 2017 December 31, 2017
Veritex Holdings, Inc. $ 100.00
$ 101.58
$ 107.06
$ 116.20
$ 114.84
$ 191.47
$ 188.75
$ 197.78
S&P 500 100.00
106.78
107.00
106.00
108.85
116.11
125.68
138.66
Nasdaq Bank 100.00
110.05
118.56
117.34
112.44
158.44
154.46
164.00

Comparison of Cumulative Total Return

Stock Repurchases

~~No purchases~~On January 28, 2019, our Board authorized a stock buyback program pursuant to which we may, from time to time, purchase up to $50.0 million of our outstanding common stock (the “Stock Buyback Program”). Our Board authorized increases of $50.0 million in September 2019, $75.0 million in December 2019 and $75.0 million in September 2021, resulting in an aggregate authorization to purchase of up to $250.0 million of our common ~~stock were made by or on behalf~~stock. Our Board also authorized extensions of ~~us or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under~~ the ~~Exchange Act during~~expiration date of the ~~year ended~~Stock Buyback Program from December 31, ~~2017. There is currently~~2019 to December 31, 2020, then from December 31, 2020 to March 31, 2021 and then from March 31, 2021 to December 31, 2022. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any shares. The Stock Buyback Program may be terminated or amended by the Board at any time prior to its expiration. During 2023, the Company had no ~~authorization to repurchase~~repurchases of shares of ~~outstanding~~its common stock.

ITEM 6. ~~SELECTED FINANCIAL DATA~~[RESERVED]

As of and For the Years Ended December 31,
2017 2016 2015 2014 2013
(Dollars in thousands, except per share data)
Selected Period-end Balance Sheet Data:
Total assets $ 2,945,583
$ 1,408,507
$ 1,039,551
$ 802,231
$ 664,946
Cash and cash equivalents 149,044
234,791
71,551
93,251
76,646
Investment securities 228,117
102,559
75,813
45,127
45,604
Total loans⁽¹⁾
2,233,518
991,897
820,567
603,310
495,270
Allowance for loan losses 12,808
8,524
6,772
5,981
5,018
Goodwill 159,452
26,865
26,865
19,148
19,148
Intangibles 20,441
2,181
2,410
1,261
1,567
Noninterest-bearing deposits 612,830
327,614
301,367
251,124
218,990
Interest-bearing deposits 1,665,800
792,016
567,043
387,619
354,948
Total deposits 2,278,630
1,119,630
868,410
638,743
573,938
Advances from FHLB 71,164
38,306
28,444
40,000
15,000
Other borrowings 31,689
8,035
8,027
8,019
8,047
Total stockholders’ equity 488,929
239,088
132,046
113,312
66,239
Selected Income Statement Data:
Net interest income $ 68,508
$ 40,955
$ 31,459
$ 25,340
$ 21,041
Provision for loan losses 5,114
2,050
868
1,423
1,883
Net interest income after provision for loan losses 63,394
38,905
30,591
23,917
19,158
Noninterest income 7,576
6,503
3,704
2,496
2,391
Noninterest expense 42,789
26,390
21,388
18,503
16,364
Income before income tax 28,181
19,018
12,907
7,910
5,185
Income tax expense 13,029
6,467
4,117
2,705
1,777
Net income 15,152
12,551
8,790
5,205
3,408
Preferred dividends 42
—
98
80
60
Net income available to common stockholders $ 15,110
$ 12,551
$ 8,692
$ 5,125
$ 3,348
Share Data:
Basic earnings per common share $ 0.82
$ 1.16
$ 0.86
$ 0.73
$ 0.58
Diluted earnings per common share 0.80
1.13
0.84
0.72
0.57
Book value per common share⁽²⁾
20.28
15.73
12.33
11.12
10.03
Tangible book value per common share⁽³⁾
12.82
13.82
9.59
8.96
6.46
Basic weighted average common shares outstanding 18,403,894
10,849,331
10,061,015
6,991,585
5,787,810
Diluted weighted average common shares outstanding 18,809,894
11,058,118
10,332,158
7,152,328
5,848,810
Performance Ratios:
Return on average assets⁽⁴⁾
0.76 % 1.06 % 0.98 % 0.75 % 0.58 %
Return on average equity⁽⁴⁾
4.55
8.80
6.94
6.28
5.27
Net interest margin⁽⁵⁾
3.77
3.72
3.80
3.78
4.0
Efficiency ratio⁽⁶⁾
56.24
55.61
60.83
66.47
69.84
Loans to deposits ratio 98.02
88.59
94.50
94.45
86.3
Noninterest expense to average assets⁽⁴⁾
2.16
2.22
2.38
2.71
2.80
Summary Credit Quality Ratios:
Nonperforming assets to total assets 0.03 % 0.17 % 0.11 % 0.07 % 0.44 %
Nonperforming loans to total loans 0.02
0.18
0.08
0.07
0.23
Allowance for loan losses to nonperforming loans 2,651.76
479.95
1,003.26
1,371.79
445.65
Allowance for loan losses to total loans 0.57
0.86
0.83
0.99
1.01
Net charge-offs to average loans outstanding 0.06
0.03
0.01
0.08
0.02
Capital Ratios:
Total stockholders’ equity to total assets 16.60 % 16.97 % 12.70 % 14.12 % 10.0 %
Tangible common equity to tangible assets⁽⁷⁾
11.12
15.23
10.17
10.86
5.82
Tier 1 capital to average assets⁽⁴⁾
12.92
16.82
10.75
12.66
8.06
Tier 1 capital to risk-weighted assets 12.48
20.72
12.85
15.45
9.75
Common equity tier 1 (to risk-weighted assets) 11.41
20.42
12.48
n/a
n/a
Total capital to risk-weighted assets 13.16
22.02
14.25
17.21
11.74

~~(1)~~

Total loans does not include loans held for sale and deferred fees. Loans held for sale were $0.8 million as of December 31, 2017, $5.2 million as of December 31, 2016, $2.8 million as of December 31, 2015, $8.9 million as of December 31, 2014 and $2.1 million as of December 31, 2013. Deferred fees were $28 thousand as of December 31, 2017, $55 thousand of December 31, 2016, $62 thousand as of December 31, 2015, $51 thousand as of December 31, 2014 and $94 thousand as of December 31, 2013.


~~(2)~~	We calculate book value per common share as stockholders’ equity less preferred stock at the end of the relevant period divided by the outstanding number of shares of our common stock at the end of the relevant period.

~~(3)~~

We calculate tangible book value per common share as total stockholders’ equity less preferred stock, goodwill, and intangible assets, net of accumulated amortization at the end of the relevant period, divided by the outstanding number of shares of our common stock at the end of the relevant period. Tangible book value per common share is a non-GAAP financial measure, and, as we calculate tangible book value per common share, the most directly comparable GAAP financial measure is total stockholders’ equity per common share. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures.”

~~(4)~~

Except as otherwise indicated in this footnote, we calculate our average assets and average equity for a period by dividing the sum of our total assets or total stockholders’ equity, as the case may be, as of the close of business on each day in the relevant period, by the number of days in the period. We have calculated our return on average assets and return on average equity for a period by dividing net income for that period by our average assets and average equity, as the case may be, for that period.


~~(5)~~	~~Net interest margin represents net interest income, annualized on a fully tax equivalent basis, divided by average interest-earning assets.~~


~~(6)~~	~~Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.~~

~~(7)~~

We calculate tangible common equity as total stockholders’ equity less preferred stock, goodwill, and intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and intangible assets, net of accumulated amortization. Tangible common equity to tangible assets is a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total stockholders’ equity to total assets. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures.”

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 ~~“Item 6. Selected Financial Data” and~~ our consolidated financial statements and the accompanying notes included ~~elsewhere in~~Item 8 of this Annual Report on Form 10-K. 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 in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those 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.

Overview

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

Our business is conducted through one reportable segment, community banking, ~~where we generate~~which generates the majority of our revenues from interest income on loans, customer service and loan fees, gains on sale of ~~Small Business Administration (“SBA”)~~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, ~~and~~ employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through ~~our~~ 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, ~~and stockholders’ equity,~~ are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas and, specifically, in the Dallas-Fort Worth metroplex and Houston metropolitan area, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target market and throughout the ~~State~~state of Texas.

~~2017 Highlights~~

~~Sovereign Bancshares, Inc.~~

On August 1, 2017, we acquired Sovereign, a Texas corporation and parent company of Sovereign Bank. We issued 5,117,642 shares of its common stock and paid out $56.2 million in cash to Sovereign in consideration for the acquisition. Additionally, under the terms of the merger agreement, each of Sovereign’s 24,500 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C was converted into one share of our Senior Non-Cumulative Perpetual, Series D Preferred Stock at the consummation of the acquisition. For further information, see Note 22 - Preferred Stock in the accompanying Notes to the Consolidated Financial Statements included in Item 8 of this report. We acquired an estimated $1.1 billion in assets and assumed $905.1 million of liabilities as a result of this acquisition as of the closing date.

On August 8, 2017, we redeemed all 24,500 shares of the Series D Preferred Stock at its liquidation value of $1,000 per share plus accrued dividends for a total redemption amount of $24.7 million. For further information, see Note 24 – Business Combinations in the accompanying Notes to the Consolidated Financial Statements included in Item 8 of this report.

~~Common Stock Offering~~

On August 1, 2017, the Company completed an underwritten common stock offering issuing 2,285,050 shares of the Company’s common stock with $56.7 million in net proceeds after underwriting discounts and offering expenses. The Company used a portion of the net proceeds of the offering to fund a portion of the consideration paid for the acquisition of Liberty Bancshares, Inc. and for general corporate purposes.

~~Liberty Bancshares, Inc.~~

On December 1, 2017, we acquired Liberty, a Texas corporation and parent company of Liberty Bank. We issued approximately 1,450,000 shares of its common stock and paid out $25.0 million in cash to Liberty in consideration for the acquisition. We acquired an estimated $467.3 million in assets and assumed $401.9 million of liabilities as a result of this acquisition as of the closing date. For further information, see Note 24 – Business Combinations in the accompanying Notes to the Consolidated Financial Statements included in Item 8 of this report.

Anticipated 2024 Trends

This discussion of trends expected to impact our business in ~~2018~~2024 is based on information presently available and reflects certain assumptions, including ~~assuming a continuation of~~ the current economic and ~~low~~interest rate environment. Differences in actual economic conditions compared with our assumptions could have ~~a material~~an adverse impact on our results. See “Special Cautionary Notice Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for additional factors that could cause results to differ materially from those contemplated by the following forward-looking statements. We anticipate the following trends or events related to our business in fiscal year ~~2018:~~2024:

•Focus on deposit liquidity to fund continued organic growth;

•Continued emphasis on credit quality and relationship ~~banking.~~banking;

~~Continue~~•Focus on net interest margin and the impact of anticipated interest rate movement in 2024;

•Targeted focus on talent investments to ~~leverage~~further organically grow the Company;

•Further expansion in the USDA space via our subsidiary NAC;

•Leveraging of our strong capital through accretive organic growth and ~~merger~~possible strategic acquisition opportunities; and ~~acquisition opportunities.~~

~~Continued meaningful costs savings~~•Potential branch restructures, consolidations or closures to continue with our branch-light business model.

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, CRE loans 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 1.4% and 13.3% as compared to September 30, 2023 and December 31, 2022, respectively, to $10.34 billion at December 31, 2023. Borrowings from the FHLB decreased $1.08 billion during the year ended December 31, 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 no outstanding borrowings. The Company also took a number of preemptive actions, which included pro-active outreach to clients and actions to maximize its fundingsources in response to these recent ~~acquisitions~~developments. Furthermore, the Company remains well capitalized with CET1 at 10.29% as of ~~Sovereign and Liberty, the consolidation~~December 31, 2023, an increase of ~~our back office functions into one operations center and the sale~~120 bps from December 31, 2022.

Results of ~~our two non-core Austin branches on January 1, 2018.~~Operations

~~Net interest income higher, reflecting full-year benefits from the 2017 rate increases and loan growth.~~

~~Net charge-offs to remain low, with continued solid performance~~For discussion of the ~~overall loan portfolio.~~

Income tax expense to approximate 21% of pre-tax income reflecting the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) excluding discrete tax impact from the re-measurement of deferred taxes upon finalization of the provisional estimates for certain assets acquired and liabilities assumed in the Sovereign and Liberty acquisitions as well as discrete tax impact from deferred employee stock transactions.

~~Results~~results of operations for the ~~Fiscal Years~~year ended December 31, 2022 compared to year ended December 31, 2021, see Veritex's 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2023.

Year Ended December 31, ~~2017 and~~2023 compared to year ended December 31, ~~2016~~2022

General

Net income available to common stockholders for the year ended December 31, ~~2017~~2023 was ~~$15.1~~$108.3 million, ~~an increase~~a decrease of ~~$2.5~~$38.1 million, or ~~20.4%~~26.0%, from net income available to common stockholders of ~~$12.6~~$146.3 million for the year ended December 31, 2016. Net income available to common stockholders for the 2017 period was negatively impacted by a $3.1 million re-measurement of our deferred tax assets and deferred tax liabilities due to our new effective tax rate under the Tax Act.2022.

Basic ~~earnings per share (“EPS”)~~EPS for the year ended December 31, ~~2017~~2023 was ~~$0.82,~~$2.00, a decrease of ~~$0.34~~$0.75 from ~~$1.16~~$2.75 for the year ended December 31, ~~2016.~~2022. Diluted ~~earnings per share~~EPS for the year ended December 31, ~~2017~~2023 was ~~$0.80,~~$1.98, a decrease of ~~$0.33~~$0.73 from ~~$1.13~~$2.71 for the year ended December 31, ~~2016.~~2022.

~~Net Interest Income~~

Our operating results depend primarily on our net interest income, calculated as 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. Fluctuations in market interest rates impact the yield and rates paid on interest sensitive assets and liabilities. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact net interest income. The variance driven by the changes in the amount and mix of interest-earning assets and interest-bearing liabilities is referred to as a “volume change.” Changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds are referred to as a “rate change.”

To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

For the year ended December 31, 2017, net interest income totaled $68.5 million compared with net interest income of $41.0 million for the year ended December 31, 2016, an increase of $27.5 million, or 67.3%. This increase was primarily due to a $32.9 million, or 70.7%, increase in interest income resulting from growth in the Company’s average interest-earning assets which was partially offset by an increase in interest expense of $5.4 million, or 95.7%, for the year ended December 31, 2017. Interest income was $79.5 million compared to $46.6 million for the years ended December 31, 2017 and 2016, respectively~~. The primary driver of increased interest income was the growth on interest earned on average loans.~~ Interest earned on average loans outstanding for the year ended December 31, 2017 compared to average loans outstanding for the year ended December 31, 2016 increased $29.1 million, or 65.2%. The growth in average loans was the result~~of the~~acquisitions of Sovereign and Liberty, new loan originations and growth of existing customer loan balances. Average loan balances grew from $924.5 million for the year ended December 31, 2016 to $1.4 billion for the year ended December 31, 2017, an increase of $516.8 million, or 55.9%.

~~Interest expense for the year ended December 31, 2017 was $11.0 million compared to $5.6 million for the year ended December 31, 2016, an increase of $5.4 million, or 95.8%~~. The year-over-year increase was due to growth of average interest bearing-liabilities of $475.4 million, or 64.2%, primarily due to the increase in interest bearing liabilities assumed from Sovereign and Liberty and organic growth in average interest bearing deposits, advances from FHLB, and other borrowings.

Net interest margin and net interest spread were 3.77% and 3.48%, respectively, for the year ended December 31, 2017 compared to 3.72% and 3.47%, respectively, for the year ended December 31, 2016. The increase in net interest margin by 5 basis points and increase in net interest spread by 1 basis point was due to an increase in the average yield earned on interest-bearing assets by 16 basis points which was offset by an increase in the average yield paid on interest-bearing liabilities by 15 basis points. The average interest earned on interest-bearing assets increased to 4.39% during the year ended December 31, 2017 from 4.23% for the year ended December 31, 2016. The average interest paid on interest-bearing liabilities increased to 0.91% during the year ended December 31, 2017 from 0.76% for the year ended December 31, 2016.

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 years ended December 31, 2017 and 2016, interest income not recognized on non-accrual loans was minimal. Any non-accrual loans have been included in the table as loans carrying a zero yield.

For the Year Ended December 31,
2017 2016

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Total loans⁽¹⁾⁽⁴⁾
$ 1,441,295
$ 73,795
5.12 % $ 924,465
$ 44,681
4.83 %
Securities available for sale 170,253
3,462
2.03
84,558
1,409
1.67
Investment in subsidiary 202
8
3.96
93
2
2.15
Interest-earning deposits in financial institutions 202,314
2,287
1.13
93,199
503
0.54
Total interest-earning assets 1,814,064
79,552
4.39
1,102,315
46,595
4.23
Allowance for loan losses (9,567 ) (7,743 )
Noninterest-earning assets⁽⁴⁾
176,471
94,200

Total assets $ 1,980,968
$ 1,188,772

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits⁽⁴⁾
$ 1,151,033
$ 9,878
0.86 % $ 688,978
$ 4,988
0.72 %
Advances from FHLB 51,196
531
1.04
43,649
260
0.60
Other borrowings 13,878
635
4.58
8,077
392
4.85
Total interest-bearing liabilities 1,216,107
11,044
0.91
740,704
5,640
0.76
Noninterest-bearing liabilities:
Noninterest-bearing deposits⁽⁴⁾
425,124
302,548

Other liabilities⁽⁴⁾
6,802
2,937

Total noninterest-bearing liabilities 431,926
305,485

Stockholders’ equity 332,935
142,583

Total liabilities and stockholders’ equity $ 1,980,968
$ 1,188,772

Net interest rate spread⁽²⁾
3.48 % 3.47 %
Net interest income $ 68,508
$ 40,955

Net interest margin⁽³⁾
3.77 % 3.72 %

~~__________________~~


~~(1)~~	~~Includes average outstanding balances of loans held for sale of $2,493, and $5,078 and deferred loan fees of $19 and $54 for the years ended December 31, 2017 and 2016, respectively.~~


~~(2)~~	~~Net interest rate spread is 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.~~


~~(4)~~	Includes average outstanding balances of branch assets and liabilities held for sale in total loans, noninterest-bearing assets, interest-bearing deposits, noninterest-bearing deposits and other liabilities.

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 changes attributable to changes in 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 Year Ended December 31, 2017
Compared to 2016
Increase (Decrease) Due To
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Total loans $ 26,462
$ 2,652
$ 29,114
Securities available for sale 1,740
313
2,053
Other investments 4
2
6
Interest-earning deposits in other banks 1,233
551
1,784
Total increase in interest income 29,439
3,518
32,957
Interest-bearing liabilities:
Interest-bearing deposits 3,974
916
4,890
Advances from FHLB 78
193
271
Other borrowings 266
(23 ) 243
Total increase in interest expense 4,318
1,086
5,404
Increase (decrease) in net interest income $ 25,121
$ 2,432
$ 27,553

~~Provision for Loan Losses~~

Our provision for loan losses is a charge to income in order to bring our allowance for loan losses to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the allowance for loan losses see “—Financial Condition—Allowance for Loan Losses.” The provision for loan losses was $5.1 million for the year ended December 31, 2017, compared to $2.1 million for the same period in 2016, an increase of $3.0 million or 149.5%. The increase in provision expense was primarily due to the general provision required for purchased Sovereign loans that were refinanced and re-underwritten at maturity as well as an increase in organic loan growth. Once an acquired loan undergoes new underwriting and meets the criteria for a new loan, any remaining fair value adjustments are taken into interest income and the loan becomes fully subject to our allowance for loan loss methodology. In addition, net charge-offs increased $532 thousand for the year ended December 31, 2017 compared to the same period in 2016.

~~Noninterest Income~~

Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, gains on the sale of investment securities, gains on the sale of loans and income from bank-owned life insurance. Noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs, 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 Year Ended
December 31,
Increase
2017 2016 (Decrease)
(Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts $ 2,502
$ 1,846
$ 656
Gain on sales of investment securities 222
15
207
Gain on sales of loans 3,141
3,288
(147 )
Bank-owned life insurance 753
771
(18 )
Other 958
583
375
Total noninterest income $ 7,576
$ 6,503
$ 1,073

Noninterest income for the year ended December 31, 2017 increased $1.1 million, or 16.5%, to $7.6 million compared to noninterest income of $6.5 million for the same period in 2016. The primary components of the increase were as follows:

~~Service charges and fees on deposit accounts.~~ We earn service charges and fees from our customers for deposit-related activities. The income from these deposit activities constitutes a significant and predictable component of our noninterest income. Service charges and fees on deposit accounts were $2.5 million for the year ended December 31, 2017, an increase of $656 thousand, or 35.5%, over the same period in 2016. This increase was primarily attributable to organic growth in the number of deposit accounts and accounts assumed from the Sovereign and Liberty acquisitions.

~~Gain on sales of investment securities.~~ ~~Gain on sales of investment securities were~~ ~~$222 thousand~~ for the year ended December 31, 2017 compared to $15 thousand for the same period in 2016. The increase of $207 thousand primarily resulted from the sale of $190 thousand Sovereign investment securities during the third quarter of 2017 that did not fit our investment strategy.

~~Gain on sales of loans.~~ We originate SBA guaranteed loans and long-term fixed-rate mortgage loans for resale into the secondary market. Income from sale on loans was $3.1 million for the year ended December 31, 2017 compared to $3.3 million for the same period in 2016. The decrease of $147 thousand, or 4.5%, was primarily due to a decrease in gain on sale of mortgage loans by $463 thousand offset by an increase in sales of SBA-guaranteed loans resulting in incremental gains of $250 thousand.

~~Other.~~ Other noninterest income was $958 thousand for the year ended December 31, 2017, an increase of $375 thousand, or 64.3%, compared to the same period in 2016. The increase was primarily due to a $271 thousand increase in SBA service fee income resulting from an increase in SBA loans of $20.6 million, the introduction of rental revenue derived from the purchase of our corporate office of $139 thousand, and a $90 thousand increase in dividend income as a result of bi-annual Federal Reserve Bank stock dividends attributable to additional purchases of Federal Reserve Bank stock during the year ended December 31, 2017. These increases were partially offset by a reduction in income on late charges of $99 thousand for the year ended December 31, 2017.

~~Noninterest Expense~~

Noninterest expense is composed of all employee expenses and costs associated with operating our facilities, acquiring and retaining customer relationships and providing bank services. The major component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses such as occupancy expenses, depreciation and amortization of office equipment, professional fees and regulatory fees, including Federal Deposit Insurance Corporation (“FDIC”) assessments, data processing expenses, and advertising and promotion expenses.

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

For the Year Ended
December 31,
Increase
2017 2016 (Decrease)
(Dollars in thousands)
Salaries and employee benefits $ 20,828
$ 14,332
$ 6,496
Non-staff expenses:
Occupancy and equipment 5,618
3,667
1,951
Professional fees 5,672
2,804
2,868
Data processing and software expense 2,217
1,158
1,059
FDIC assessment fees 1,177
661
516
Marketing 1,293
983
310
Other assets owned expenses and write-downs 182
163
19
Amortization of intangibles 964
380
584
Telephone and communications 720
402
318
Other 4,118
1,840
2,278
Total noninterest expense $ 42,789
$ 26,390
$ 16,399

Noninterest expense for the year ended December 31, 2017 increased $16.4 million, or 62.1%, to $42.8 million compared to noninterest expense of $26.4 million for the same period in 2016. The most significant components of the increase were as follows:

~~Salaries and employee benefits.~~ Salaries and employee benefits include payroll expenses, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. The level of employee expense is 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 $20.8 million for the year ended December 31, 2017, an increase of $6.5 million, or 45.3%, compared to the same period in 2016. The increase was primarily attributable to increased employee compensation of $5.9 million resulting from higher headcount including the addition of full-time equivalent employees related to the Sovereign and Liberty acquisitions and merit increases given to employees during the year ended December 31, 2017. Incentive costs also increased $1.9 million which primarily included lender incentive increases of $573 thousand as a result of organic loan growth during the period and employee stock compensation increases of $711 thousand. Employee benefits and payroll taxes also increased $391 thousand and $522 thousand, respectively, compared to the same period in 2016. These increases in salaries and employee benefits were partially offset by direct origination costs previously mentioned which increased $2.2 million as a result of the growth in loans during the year ended December 31, 2017 compared to the same period in 2016.

~~Occupancy and equipment.~~ Occupancy and equipment expense includes lease expense, building depreciation and related facilities costs as well as furniture, fixture and equipment depreciation, small equipment purchases and maintenance expense. Our expense associated with occupancy and equipment was $5.6 million for the year ended December 31, 2017 compared to $3.7 million for the same period in 2016. The increase of $1.9 million, or 53.2%, was primarily due to the leasing of additional office space beginning June 1, 2016 at the corporate headquarters location, additional lease expense associated with the opening of the Turtle Creek branch beginning in January 2017, the addition of eight owned buildings and eight property leases from our acquisitions of Sovereign and Liberty in 2017 and one month of depreciation associated with the purchase of our corporate headquarters building in December 2017.

~~Professional fees.~~ This category includes legal, investment bank, director, stock transfer agent fees and other public company services, information technology support, audit services and regulatory assessment expense. Professional fees were $5.7 million for the year ended December 31, 2017, an increase of $2.9 million, or 102.3%, compared to the same period in 2016. This increase was primarily the result of legal and other professional services associated with the Sovereign and Liberty acquisitions.

~~FDIC assessment fees.~~ FDIC assessment fees were $1.2 million for the year ended December 31, 2017 compared to $661 thousand for the same period during 2016. The increase in FDIC assessment fees is a result of the Sovereign and Liberty acquisitions and the resulting increase in average assets for the year ended December 31, 2017.

~~Other.~~ This category includes operating and administrative expenses including loan operations and collections, supplies and printing, online and card interchange expense, ATM/debit card processing, postage and delivery, bank-owned life insurance (“BOLI”) mortality expense, insurance and security expenses. Other noninterest expense increased $2.3 million, or 123.8%, to $4.1 million for the year ended December 31, 2017, compared to $1.8 million for the same period in 2016 primarily related to an increase in loan and collection expense of $652 thousand resulting from an increase in loan originations and renewals during 2017. Additionally, ATM and interchange expenses increased $247 thousand, insurance expenses increased $293 thousand and dues and memberships increased $225 thousand primarily as result of the Sovereign and Liberty acquisitions.

~~Income Tax Expense.~~The amount of 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 December 31, 2017, the Company did not believe a valuation allowance was necessary.

For the year ended December 31, 2017, income tax expense totaled $13.0 million, an increase of $6.6 million, or 101.5%, compared to $6.5 million for the same period in 2016. The increase was primarily attributable to the $9.2 million increase in net operating income from $19.0 million for the year ended December 31, 2016 to $28.2 million for the same period in 2017 as well as a $3.1 million income tax expense adjustment to the Company's deferred tax asset related to the December 22, 2017 enactment of the Tax Act. The SEC issued Staff Accounting Bulletin No. 118(“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period for up to one year from the enactment date to complete the accounting. Based on the information available and current interpretation of the rules, the Company has made reasonable estimates of the impact of the reduction in the corporate tax rate and re-measurement of certain deferred tax assets and liabilities based on the rate at which they were expected to reverse in the future. The Company is still analyzing certain provisional estimates for the Liberty and Sovereign acquisitions with respect to loans, bank premises, furniture and equipment, goodwill, intangible assets, deposits and deferred taxes. Any changes to these provisional estimates and re-measurement of deferred taxes could potentially have an impact on our future earnings and our effective tax rate.

~~Results of Operations for the Fiscal Years Ended December 31, 2016 and December 31, 2015~~

~~General~~

Net income available to common stockholders for the year ended December 31, 2016 was $12.6 million, an increase of $3.9 million, or 44.4%, from net income available to common stockholders of $8.7 million for the year ended December 31, 2015. Basic earnings per share for the year ended December 31, 2016 was $1.16, an increase of $0.30 from $0.86 for the year ended December 31, 2015. Diluted earnings per share for the year ended December 31, 2016 was $1.13, an increase of $0.29 from $0.84 for the year ended December 31, 2015.

Net Interest Income

To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

For the year ended December 31, ~~2016,~~2023, net interest income totaled ~~$41.0~~$399.1 million compared ~~with~~to net interest income of ~~$31.5~~$364.7 million for the year ended December 31, ~~2015,~~2022, an increase of ~~$9.5~~$34.5 million, or ~~30.2%~~9.4%. This increase was primarily due to a $11.7 million, or 33.4%, increase in interest income resulting from growth in the Company’s average interest-earning assets which was partially offset by an increase in interest expense of $2.2 million, or 63.0%, for the year ended December 31, 2016. Interest income was ~~$46.6~~$726.9 million, compared to ~~$34.9~~$449.4 million, for the years ended December 31, ~~2016~~2023 and ~~2015, respectively~~.2022, respectively. The primary ~~driver~~drivers of ~~increased~~the increase in interest income ~~was~~is the ~~growth~~result of an increase of $277.5 million, or 61.7%, in interest income primarily due to an increase in interest income on loans of $248.6 million due to an increase in loan yields. The increase in net interest ~~earned~~income is partially offset by the increase of $243.0 million, or 286.7%, in interest expense resulting from a $110.1 million increase in certificates and other time deposits and a $106.2 million increase in interest expense on ~~average loans.~~ ~~Interest earned on average loans outstanding~~transaction and savings deposit accounts. Average loan balances grew from $8.31 billion for the year ended December 31, ~~2016 compared~~2022 to ~~average loans outstanding~~$9.59 billion for the year ended December 31, ~~2015 increased $11.0 million, or 32.7%. The growth in average loans was the resultof the~~acquisition of IBT Bancorp, Inc. (“IBT”), which closed on July 1, 2015, new loan originations, and growth of existing customer loan balances. Average loan balances grew from $697.4 million for the year ended December 31, 2015 to $924.5 million for the year ended December 31, 2016,2023, an increase of ~~$227.0 million,~~$1.28 billion, or ~~32.6%~~15.4%.

Interest expense for the year ended December 31, ~~2016~~2023 was ~~$5.6~~$327.8 million, compared to ~~$3.5~~$84.8 million for the year ended December 31, ~~2015,~~2022, an increase of ~~$2.2~~$243.0 million, or ~~63.0%~~286.7%. The year-over-year increase was due to ~~growth~~increases in the averages rates paid on interest-bearing demand and savings deposits and certificates and other time deposits and a change in deposit mix. For the year ended December 31, 2023 the average balance for interest-bearing demand and savings deposits was $4.20 billion compared to $3.93 billion for the year ended December 31, 2022, an increase of ~~average interest bearing-liabilities of $238.4~~$262.6 million, or ~~47.5%, primarily due to~~6.7%. For the ~~increase in interest bearing liabilities acquired in~~year ended December 31, 2023 the ~~IBT acquisition and organic growth in~~ average ~~interest bearing deposits, advances from FHLB~~balance for certificates and other ~~borrowings.~~time deposits was $2.98 billion compared to $1.60 billion for the year ended December 31, 2022, an increase of $1.38 billion, or 85.9%.

Net interest margin and net interest spread were ~~3.72%~~3.49% and ~~3.47%~~2.40%, respectively, for the year ended December 31, ~~2016~~2023 compared to ~~3.80%~~3.59% and ~~3.53%~~3.15%, respectively, for the year ~~ended~~ended December 31, ~~2015.~~2022. The decrease in net interest margin by 810 basis points and decrease in net interest spread by 675 basis points ~~was primarily~~were due to an increase in the average ~~yield~~rate paid on interest-bearing liabilities by 7269 basis points, offset by an increase in the average yield earned on interest-bearing assets by 194 basis points.The average interest earned on interest-bearing assets increased to 6.36% during the year ended December 31, 2023 from 4.42% for the year ended December 31, 2022 primarily due to an increase in yields earned on loan balances. The average interest paid on interest-bearing liabilities increased to ~~0.76%~~3.96% during the year ended December 31, ~~2016~~2023 from ~~0.69%~~1.27% for the year ended December 31, ~~2015~~. Competition for new deposits in our market reduced our ability to grow noninterest-bearing deposits consistent with prior year’s growth rate. The average balance of noninterest-bearing deposits grew to $302.5 million from $267.6 million for the year ended December 31, 2015, an increase of $35.0 million, or 13.1%. The ratio of average noninterest-bearing deposits to average noninterest-bearing deposits plus average interest-bearing deposits declined to 30.5% for the year-ended December 31, 2016 from 36.0% for the year ended December 31, 2015. Average interest-bearing deposits grew to $689.0 million for the year ended December 31, 2016 from $475.0 million for the year ended December 31, 2015, an increase of $213.9 million, or 45.0%, which was2022, primarily due to ~~increases in average outstanding money market balances. This was~~ the ~~result~~increase of new relationships originated from our new correspondent banking group that successfully grew our financial institution money market deposit product. This product was offered at an introductory rate above the average rate paid on ~~our traditional money market accounts~~deposits. The increases in yields on earning assets and ~~as a result, interest-bearing deposit~~funding costs are attributed to the impact of rising interest rates increased to 0.72% from 0.61%. Partially offsetting this increase was a decrease in the average rate paid on advances from FHLB as average balances outstanding grew to $43.6 million with an average yield of 0.60% for the year ended December 31, 2016 from $18.1 million with an average yield of 0.88% for the year ended December 31, 2015.during 2023.

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~~nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the ~~years~~year ended December 31, ~~2016~~2023 and ~~2015,~~2022, interest income not recognized on ~~non-accrual~~nonaccrual loans, excluding PCD loans, was ~~minimal.~~$6.5 million and $6.6 million, respectively. Any ~~non-accrual~~nonaccrual loans have been included in the table as loans carrying a zero yield.

For the Year Ended December 31,
2016 2015

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Total loans(1) $ 924,465
$ 44,681
4.83 % $ 697,439
$ 33,680
4.83 %
Securities available for sale 84,558
1,409
1.67
59,088
997
1.69
Investment in subsidiary 93
2
2.15
93
2
2.15
Interest-earning deposits in financial institutions 93,199
503
0.54
70,630
241
0.34
Total interest-earning assets 1,102,315
46,595
4.23
827,250
34,920
4.22
Allowance for loan losses (7,743 ) (6,419 )
Noninterest-earning assets 94,199
78,006

Total assets $ 1,188,771
$ 898,837

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits $ 688,978
$ 4,988
0.72 % $ 475,034
$ 2,918
0.61 %
Advances from FHLB 43,649
260
0.60 % 18,055
159
0.88
Other borrowings 8,077
392
4.85 % 9,212
384
4.17
Total interest-bearing liabilities 740,704
5,640
0.76
502,301
3,461
0.69
Noninterest-bearing liabilities:
Noninterest-bearing deposits 302,548
267,550

Other liabilities 2,937
2,408

Total noninterest-bearing liabilities 305,485
269,958

Stockholders’ equity 142,582
126,578

Total liabilities and stockholders’ equity $ 1,188,771
$ 898,837

Net interest rate spread(2) 3.47 % 3.53 %
Net interest income $ 40,955
$ 31,459

Net interest margin(3) 3.72 % 3.80 %

~~__________________~~


~~(1)~~	~~Includes average outstanding balances of loans held for sale of $5,078, and $3,134 for the years ended December 31, 2016 and 2015, respectively.~~


~~(2)~~	~~Net interest rate spread is 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 Year Ended December 31,
	2023						2022						2021
	Average Outstanding Balance		Interest Earned/ Interest Paid		Average Yield/ Rate		Average Outstanding Balance		Interest Earned/ Interest Paid		Average Yield/ Rate		Average Outstanding Balance		Interest Earned/ Interest Paid		Average Yield/ Rate
	(Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)	$	9,244,070	$	628,122	6.79	%	$	7,877,949	$	383,008	4.86	%	$	6,558,280	$	266,307	4.06	%
LHI, MW	347,596		20,123		5.79		433,062		16,671		3.85		468,001		14,219		3.04

Debt securities	1,173,880		44,364		3.78		1,277,643		38,736		3.03		1,092,967		32,132		2.94
Interest-earning deposits in other banks	542,959		28,331		5.22		405,471		6,275		1.55		410,785		589		0.14
Equity securities and other investments	120,135		5,934		4.94		169,875		4,720		2.78		133,594		3,237		2.42
Total interest-earning assets	11,428,640		726,874		6.36	%	10,164,000		449,410		4.42	%	8,663,627		316,484		3.65	%
ACL	(103,179)						(79,845)						(101,383)
Noninterest-earning assets	957,286						905,103						799,334
Total assets	$	12,282,747					$	10,989,258					$	9,361,578
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	$	4,197,517	148,975		3.55	%	$	3,934,926	42,785		1.09	%	$	3,198,225	6,858		0.21	%
Certificates and other time deposits	2,977,178		125,409		4.21		1,601,687		15,307		0.96		1,540,188		9,079		0.59
Advances from FHLB	873,617		41,024		4.70		896,687		15,501		1.73		777,635		7,336		0.94
Subordinated debentures and subordinated notes	229,268		12,352		5.39		230,984		11,160		4.83		263,535		12,428		4.72
Total interest-bearing liabilities	8,277,580		327,760		3.96	%	6,664,284		84,753		1.27	%	5,779,583		35,701		0.62	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits	2,309,983						2,782,077						2,256,546
Other liabilities	193,659						119,237						57,457
Total liabilities	10,781,222						9,565,598						8,093,586
Stockholders’ equity	1,501,525						1,423,660						1,267,992
Total liabilities and stockholders’ equity	$	12,282,747					$	10,989,258					$	9,361,578
Net interest spread(2)					2.40	%					3.15	%					3.03	%
Net interest income			$	399,114					$	364,657					$	280,783
Net interest margin(3)					3.49	%					3.59	%					3.24	%

(1) Includes average outstanding balances of LHFS of $25,684, $13,558 and $12,093 for the twelve months ended December 31, 2023, 2022 and 2021, respectively.

(2) Net interest rate spread is 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.

The following table presents ~~information regarding~~ the ~~dollar amount of~~ 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 changes attributable to changes in 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 Year Ended December 31, 2023						For the Year Ended December 31, 2022
	Compared to 2022						Compared to 2021
	Increase (Decrease) Due To Change in						Increase (Decrease) Due To Change in
	Volume		Rate		Total		Volume		Rate		Total
	(Dollars in thousands)
Interest-earning assets:
Loans(1)	$	92,760	$	152,354	$	245,114	$	74,343	$	42,358	$	116,701
LHI, MW	(4,949)		8,401		3,452		(1,345)		3,797		2,452

Debt securities	(3,922)		9,550		5,628		5,596		1,008		6,604
Interest-earning deposits in other banks	7,177		14,879		22,056		(82)		5,768		5,686
Equity securities and other investments	(2,457)		3,671		1,214		1,009		474		1,483
Total increase in interest income	$	88,609	$	188,855	$	277,464	$	79,521	$	53,405	$	132,926
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	$	9,322	$	96,868	$	106,190	$	8,030	$	27,897	$	35,927
Certificates and other time deposits	57,908		52,194		110,102		590		5,638		6,228
Advances from FHLB	(1,084)		26,607		25,523		2,060		6,105		8,165
Subordinated debentures and subordinated notes	(92)		1,284		1,192		(1,572)		304		(1,268)
Total increase in interest expense	66,054		176,953		243,007		9,108		39,944		49,052
Increase in net interest income	$	22,555	$	11,902	$	34,457	$	70,413	$	13,461	$	83,874

For the Year Ended
December 31, 2016 vs. 2015
Increase
(Decrease)
Due to Change in
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Total loans $ 7,552
$ (1,108 ) $ 6,444
Securities available for sale 172
(14 ) 158
Other investments —
(1 ) (1 )
Interest-earning deposits in other banks 22
37
59
Total increase (decrease) in interest income 7,746
(1,086 ) 6,660
Interest-bearing liabilities:
Interest-bearing deposits 654
(158 ) 496
Advances from FHLB 16
25
41
Other borrowings 53
(48 ) 5
Total increase (decrease) in interest expense 723
(181 ) 542
Increase (decrease) in net interest income $ 7,023
$ (905 ) $ 6,118

(1) Includes average outstanding balances of LHFS of $25,684, $13,558 and $12,093 for the twelve months ended December 31, 2023, 2022 and 2021 respectively.

Provision for ~~Loan~~Credit Losses

Our provision for ~~loan~~credit losses is a charge to income in order to bring our ~~allowance for loan losses~~ACL to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the ~~allowance for loan losses~~ACL see ~~“-Financial Condition-Allowance for Loan Losses.”~~“—Financial Condition—ACL on LHI”. The provision for ~~loan~~credit losses was ~~$2.1~~$42.5 million for the year ended December 31, ~~2016,~~2023, compared to ~~$868 thousand~~a provision for credit losses of $27.0 million for the same period in ~~2015,~~2022, an increase to the provision of ~~$1.2 million or 136.2%.~~$15.6 million. The ~~increase in~~increased provision ~~expense~~for credit losses was ~~due mainly to loan growth as well an increase in general reserves due~~primarily attributable to changes in the Texas economic forecasts, increases in qualitative factors ~~around~~and loan growth used in the ~~nature, volume~~CECL model during the year ended December 31, 2023. These changes in the Texas economic forecasts were made to reflect changes in economic factors such as rising interest rates, inflation, labor supply and ~~mix~~the conflicts between Russia and Ukraine and Israel and Hamas as of December 31, 2023 compared to such forecasts utilized in the ~~loan portfolio~~CECL model for the year ended December 31, ~~2016~~2022. ACL as ~~compared to the same period in 2015. In addition, loans totaling approximately $88.5 million were acquired as part~~a percentage of ~~the IBT acquisition in July of 2015. No provision~~LHI was ~~recorded for these loans as they were recorded~~1.14% and 0.96% at the purchase date fair value and there has been no significant credit deterioration since the acquisition date, requiring additional credit loss provision. In addition, net charge-offs increased $221 thousand for the year ended December 31, ~~2016 compared to the same period in 2015.~~2023 and 2022, respectively.

Noninterest Income

Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, loan fees, loss on the sale of securities, gains on the sale of ~~loans~~mortgage LHFS, gain on sale of SBA LHFS, gain on sale of USDA LHFS, equity method investment (loss) income and other ~~real estate owned and income from bank-owned life insurance.~~income. Noninterest income does not include loan origination fees, ~~to the extent they exceed the direct loan origination costs,~~ 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 Year Ended December 31,						2023 vs 2022				2022 vs 2021
	2023		2022		2021		$ Change		% Change		$ Change		% Change
	(Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	20,248	$	20,139	$	16,742	$	109	0.5	%	$	3,397	20.3	%
Loan fees	6,348		10,442		7,607		(4,094)		(39.2)		2,835		37.3
Loss on sales of securities	(5,321)		—		(188)		(5,321)		N/M		188		N/M
Gain on sales of mortgage LHFS	77		550		1,592		(473)		(86.0)		(1,042)		(65.5)
Government guaranteed loan income, net	19,982		14,060		15,760		5,922		42.1		(1,700)		(10.8)
Equity method investment (loss) income	(30,589)		(5,141)		5,760		(25,448)		495.0		(10,901)		(189.3)
Customer swap income	1,618		7,898		2,491		(6,280)		(79.5)		5,407		217.1
Other	6,742		4,874		8,641		1,868		38.3		(3,767)		(43.6)
Total noninterest income	$	19,105	$	52,822	$	58,405	$	(33,717)	(63.8)	%	$	(5,583)	(9.6)	%

For the
Year Ended
December 31,
Increase
2016 2015 (Decrease)
(Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts $ 1,846
$ 1,326
$ 520
Gain on sales of investment securities 15
7
8
Gain on sales of loans 3,288
1,273
2,015
Gain on sales of other assets owned —
—
—
Bank-owned life insurance 771
747
24
Other 583
351
232
Total noninterest income $ 6,503
$ 3,704
$ 2,799
N/M = Not meaningful

Noninterest income for the year ended December 31, ~~2016 increased $2.8~~2023 decreased $33.7 million, or ~~75.6%~~63.8%, to ~~$6.5~~$19.1 million compared to noninterest income of ~~$3.7~~$52.8 million for the same period in ~~2015.~~2022. The primary components of the ~~increase~~decrease were as follows:

~~Service charges and fees on deposit accounts.~~Loan fees. We earn ~~service charges~~certain loan fees in connection with funding and servicing loans. Loan fees from our customers for deposit-related activities. The income from these deposit activities constitutes a significant and predictable component of our noninterest income. Service charges and fees on deposit accounts were ~~$1.8~~$6.3 million for the year ended December 31, ~~2016, an increase of $520 thousand, or 39.2%, over~~2023 compared to $10.4 million for the same period in ~~2015. This increase~~2022. The decrease of $4.1 million was primarily attributable to ~~growth~~a decrease in ~~the number~~loan syndication and arrangement fees of ~~deposit accounts, transaction fees and service charges from new and existing customers and from a full year of fees in 2016 from accounts acquired in the acquisition of IBT on July 1, 2015.~~$3.4 million.

~~Gain~~Loss on sales of ~~loans.~~ ~~We originate SBA guaranteed loans and long-term fixed-rate mortgage loans for resale into the secondary market. Income from~~securities. The loss on sale ~~on loans was $3.3~~of securities of $5.3 million for the year ended December 31, ~~2016 compared~~2023 was primarily attributable to ~~$1.3~~a $5.3 million loss on sales of debt securities due to the Company selling $116.2 million of debt securities in early March 2023. There were no comparative sales of securities for the year ended December 31, 2022.

Government guaranteed loan income, net. Government guaranteed loan income, net, includes income related to the sales of government guaranteed loans. The increase in government guaranteed loan income, net, of $5.9 million was primarily due to a $2.5 million increase in the gain on USDA and SBA loans and an increase of $3.6 million in government guaranteed LHFS loan valuation for the year ended December 31, 2023.

Equity method investment (loss) income. Equity method investment (loss) income is comprised of losses or income recognized on equity method investments, specifically our investment in Thrive, of which the Bank currently holds a 49% interest. The loss from this investment was $30.6 million for the year ended December 31, ~~2015. The increase~~2023, a decrease of ~~$2.0~~$25.4 million ~~or 162.2%, was primarily due~~compared to ~~increased sales~~income from this investment of ~~SBA-guaranteed loans resulting in incremental gains of $1.1~~$5.1 million ~~increased number of mortgage loans sold resulting in increased gains of $702 thousand, and a non-recurring gain on the sale of a loan acquired in the IBT acquisition of $193 thousand.~~

~~Bank-owned life insurance.~~ We invest in BOLI due to its attractive nontaxable return and protection against the loss of our key employees. We record income based on the growth of the cash surrender value of these policies as well as the annual yield. Income from BOLI increased $24 thousand, or 3.2%, for the year ended December 31, ~~2016~~2022. The decrease was primarily due to an impairment on our equity method investment in Thrive related to Thrive’s entry into a definitive agreement in December 2023 to be acquired by Lower and 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 $6.3 million, or 79.5%, was primarily due to the decrease in trade executions during the year ended December 31, 2023, compared to the same period in ~~2015. The increase of $24 thousand in~~2022.

Other. Other includes other noninterest income ~~was primarily attributable to $1.0 million additional BOLI~~ from ~~the acquisition of IBT.~~

~~Other.~~ fees. Other noninterest income was ~~$583 thousand~~$6.7 million for the ~~year~~twelve months ended December 31, ~~2016,~~2023, an increase of ~~$232 thousand,~~$1.9 million, or ~~66.1%~~38.3%, compared to the same period in ~~2015.~~2022. The increase was ~~in part related to a $151 thousand~~primarily driven by an increase in ~~late charges~~the credit valuation adjustment and amortization on the servicing asset for commercial loans of ~~which $107 thousand was received from a single customer on the pay off of their past due loan during the year ended December 31, 2016. Additionally, $43 thousand of the~~$3.8 million, an increase in analysis charges of $1.9 million, a $1.4 million increase in the fair value of other equity method investments and an increase in BOLI insurance income of $1.1 million. The increase was aspartially offset by a ~~result~~decrease in services charges for bankruptcy trust of the collection of a loan that was fully charged off by IBT prior to our acquisition of IBT in July of 2015. Finally, dividends on FHLB and FRB stock increased $56 thousand from $163 thousand during the year ended December 31, 2015 to $219 thousand during the year ended December 31, 2016. This increase is attributable to the purchase of an additional $2.6$1.1 million and ~~$624 thousand~~a decrease in debit card income of ~~FHLB and FRB stock, respectively, during the year ended December 31, 2016.~~$915 thousand. The remaining changes were nominal between other noninterest income accounts.

Noninterest Expense

Noninterest expense is composed of all employee expenses and costs associated with operating our facilities, acquiring and retaining customer relationships and providing bank services. The major component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of office equipment, professional fees and regulatory fees, ~~including FDIC assessments,~~ data processing and software expenses, marketing expenses and ~~advertising and promotion expenses.~~amortization of intangibles.

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


	For the Year Ended December 31,						2023 vs 2022				2022 vs 2021
	2023		2022		2021		$ Change		% Change		$ Change		% Change
	(Dollars in thousands)
Salaries and employee benefits	$	122,070	$	117,841	$	94,748	$	4,229	3.6	%	$	23,093	24.4	%
Non-staff expenses:
Occupancy and equipment	19,351		18,744		17,263		607		3.2		1,481		8.6
Professional and regulatory fees	26,166		14,142		12,945		12,024		85.0		1,197		9.2
Data processing and software expense	18,539		14,013		9,946		4,526		32.3		4,067		40.9
Marketing	8,704		7,179		5,344		1,525		21.2		1,835		34.3
Amortization of intangibles	9,838		9,979		10,057		(141)		(1.4)		(78)		(0.8)
Telephone and communications	1,551		1,484		1,434		67		4.5		50		3.5


M&A expense	—		1,379		826		(1,379)		(100.0)		553		66.9
Other	27,245		18,314		15,149		8,931		48.8		3,165		20.9
Total noninterest expense	$	233,464	$	203,075	$	167,712	$	30,389	15.0	%	$	35,363	21.1	%

For the Year Ended
December 31,
Increase
2016 2015 (Decrease)
(Dollars in thousands)
Salaries and employee benefits $ 14,332
$ 11,265
$ 3,067
Non-staff expenses:
Occupancy and equipment 3,667
3,477
190
Professional fees 2,804
2,023
781
Data processing and software expense 1,158
1,216
(58 )
FDIC assessment fees 661
448
213
Marketing 983
799
184
Other assets owned expenses and write-downs 163
53
110
Amortization of intangibles 380
338
42
Telephone and communications 402
263
139
Other 1,840
1,506
334
Total noninterest expense $ 26,390
$ 21,388
$ 5,002

Noninterest expense for the year ended December 31, ~~2016~~2023 increased ~~$5.0~~$30.4 million, or ~~23.4%~~15.0%, to ~~$26.4~~$233.5 million compared to noninterest expense of ~~$21.4~~$203.1 million for the same period in ~~2015.~~2022. The most significant components of the increase were as follows:

Salaries and employee benefits.Salaries and employee benefits include payroll expenses, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. ~~The level of employee expense is~~These expenses are impacted by the amount of direct loan origination costs, which are required to be deferred in accordance with ASC 310-20 (formerly FAS91). Salaries and employee benefits were ~~$14.3~~$122.1 million for the year ended December 31, ~~2016,~~2023, an increase of ~~$3.1~~$4.2 million, or ~~27.2%~~3.6%, compared to the same period in ~~2015.~~2022. The increase was primarily attributable to ~~the addition~~increases in compensation costs of ~~15 full-time equivalent employees during 2016~~$7.4 million from continued investment in talent, which included a one-time signing bonus of $500 thousand to our new Chief Banking Officer, contra origination costs of $6.0 million, and ~~higher~~employee benefit expense of $2.6 million. The increase was partially offset by a decrease in stock based compensation, incentive and ~~benefit costs as a result~~bonus of a full twelve months expense in 2016 associated with the employees acquired with the acquisition of IBT on July 1, 2015. As of December 31, 2016, we had 162 full-time equivalent employees. Salaries and employee benefits included $983 thousand and $633 thousand in stock-based compensation expense for the years ended December 31, 2016 and 2015, respectively.

Professional and ~~maintenance as a result of a full twelve months of expense associated with facilities acquired with the acquisition of IBT on July 1, 2015 and increased hardware and software costs.~~

~~Professional~~regulatory fees.This category includes legal, ~~investment bank, director, stock transfer agent~~professional, audit, regulatory, and FDIC assessment fees. The increase of $12.0 million, or 85.0%, was primarily attributable to an increase in FDIC assessment fees of $6.9 million, which includes a $768 thousand FDIC special assessment expense, an increase in legal and ~~other public company services, information technology support,~~professional fees of $3.8 million and an increase in audit ~~services~~ and regulatory ~~assessment expense. Professional fees were $2.8~~services of $1.3 million for the year ended December 31, ~~2016,~~2023. In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF incurred as a result of March and May 2023 bank failures and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured. The FDIA requires the FDIC to take this action in connection with the systematic risk determination announced on March 12, 2023 to cover certain deposits that were otherwise uninsured in connection with the March and May 2023 bank failures. The FDIC will collect the special assessment at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024), and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods. The special assessment will be based on an insured depository institution’s estimated uninsured deposits for the December 31, 2022 reporting period, adjusted to exclude the first $5.0 billion in estimated uninsured deposits from the insured depository institution. As a result of this final rule, we accrued $768 thousand related to the special assessment in the fourth quarter of 2023. This amount represents our current expectation of the full amount of the assessment based on our total uninsured deposits as of December 31, 2022. Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time

basis. The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain.

Data processing and software expense. This category of expenses includes expense related to data processing and software expenses. For the twelve months ended December 31, 2023, data processing and software expense was $18.5 million, an increase of ~~$781 thousand,~~$4.5 million, or ~~38.6%~~32.3%, compared to the same period in ~~2015.~~ 2022. The increase was primarily due to ~~increases~~an increase of $3.5 million in ~~directors’ fees~~software expenses for the enhancement of ~~$240 thousand, SEC filing~~systems to mitigate security risk due to the Bank’s growth and ~~reporting~~$1.0 million in data processing expenses.

Marketing. This category of expenses ~~of $66 thousand~~includes expenses related to advertising and ~~audit~~promotions, which increased $1.5 million, or 21.2%, primarily due to a $1.4 million increase in advertising and ~~regulatory~~promotion expenses ~~of $312 thousand. In addition, acquisition related expense included within professional services and legal fees increased $58 thousand during 2016~~for the year ended December 31, 2023 compared to the same period in ~~2015.~~2022.

~~FDIC assessment fees.~~ ~~FDIC assessment fees~~M&A expense. M&A expense includes legal, professional, audit, regulatory and other expenses incurred in connection with a merger or acquisition. There were ~~$661 thousand~~no M&A related expenses for the ~~year~~twelve months ended December 31, 2016 and $448 thousand for the same period during 2015. The increase was primarily attributable to a higher assessment associated with both a higher assessment base due to an increase in average assets from organic growth and growth through the IBT acquisition on July 1, 2015 and a higher assessment rate implemented in the third quarter of 2016.2023.

~~Other.~~Other noninterest expense. This category includes ~~operating and administrative expenses including~~ loan operations and collections, supplies and printing, automatic teller and online expenses and ~~card interchange expense, ATM/debit card processing, postage and delivery, BOLI mortality expense, insurance and security~~other miscellaneous expenses. Other noninterest expense ~~increased $334 thousand, or 22.2%, to $1.8~~was $27.2 million for the year ended December 31, ~~2016,~~2023, compared to ~~$1.5~~$18.3 million for the same period in ~~2015~~2022, an increase of $8.9 million, or 48.8%. This increase was primarily ~~related~~due to ~~operating expenses associated with the addition~~an increase of ~~IBT, organic growth~~$1.1 million in ~~deposit and loan volume, and additional staffing levels. Operating expense increases include increases~~third party banking services, an increase of $1.6 million in loan and collection expenses and an increase of $4.0 million in earned credit rebates in excess of reversed interest income during the year ended December 31, 2023 as compared to the same period in 2022. The remaining changes were nominal amongst individual noninterest expense ~~of $174 thousand, security expense of $66 thousand, education and training of $43 thousand, and dues and memberships and subscriptions of $42 thousand.~~accounts.

Income Tax Expense

~~The amount of income~~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 December 31, ~~2016,~~2023, a $4.2 million valuation allowance was established relating to an impairment on our investment in Thrive. As of December 31, 2022, the Company did not believe a valuation allowance was necessary.

For the year ended December 31, ~~2016,~~2023, income tax expense totaled ~~$6.5~~$36.0 million, ~~an increase~~a decrease of ~~$2.4~~$4.3 million, or ~~57.1%~~10.7%, compared to ~~$4.1~~$40.3 million for the same period in ~~2015. The increase was primarily attributable to the $6.1 million increase in net operating income from $12.9 million for~~2022.

For the year ended December 31, ~~2015 to $19.0 million for~~2023, the ~~same period in 2016.~~

~~The Company’s estimated annual~~Company had an effective tax rate ~~before reporting~~of 25.0%. The change in the ~~net impact of discrete items, was approximately 34.1% and 33.3%~~effective tax rate for the ~~years~~twelve months ended December 31, ~~2016 and 2015, respectively.~~2023, compared to the twelve months ended December 31, 2022, was primarily due to a $4.2 million valuation allowance relating to an impairment on our investment in Thrive. The ~~increase in~~deferred tax asset is not realizable due to the capital loss that will not be recognized.

For the year ended December 31, 2022, the Company had an effective tax ~~rates~~rate of 21.6%. The Company had a net discrete tax benefit of $1.1 million. This discrete tax benefit related to $1.1 million of an excess tax benefit realized on share-based payment awards, partially offset by $54 thousand of deferred tax true-ups during the year ended December 31, 2022. Excluding these discrete tax items, the Company had an effective tax rate of 22.1% for the year ended December 31, ~~2016 was affected primarily by increases in our federal statutory rate from 34% to 35%~~2022. ~~The effective tax rate is below our statutory rate primarily due to tax exempt income generated from BOLI and municipal securities.~~

Financial Condition

Our total assets were ~~$2.9~~$12.39 billion and ~~$1.4~~$12.15 billion as of December 31, ~~2017~~2023 and ~~2016 ,~~2022, respectively. Assets increased ~~$1.5 billion,~~$240.0 million, or ~~109.1%~~2.0%, from December 31, ~~2016~~2022 to December 31, ~~2017.~~ 2023. Our asset growth was due to the ~~successful~~continued execution of our strategy to establish deep relationships in the Dallas-Fort Worth metroplex ~~as well as successfully closing~~and the ~~Sovereign and Liberty acquisitions with fair value acquired assets of $1.1 billion and $401.9 million, respectively.~~Houston metropolitan. We believe these relationships ~~and acquisitions~~ will continue to bring in new customer accounts and grow balances from existing loan and deposit customers.

Loan Portfolio

Our primary source of income is interest on loans to individuals, professionals, small to medium-sized businesses and commercial companies located in the Dallas-Fort Worth metroplex and Houston metropolitan area. Our loan portfolio consists primarily of commercial loans and real estate loans secured by ~~commercial real estate~~CRE properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our ~~earning~~interest-earning asset base.

As of December 31, ~~2017,~~2023, total ~~loans~~LHI were ~~$2.2~~$9.59 billion, an increase of ~~$1.2 billion,~~$91.5 million, or ~~125.2%~~1.0%, compared to ~~$991.9 million~~$9.50 billion as of December 31, ~~2016. These increases were primarily due~~2022. This increase was the ~~acquired loans from Sovereign~~result of the continued execution and ~~Liberty with an acquisition date fair value~~success of ~~$752.5 million and $312.6 million, respectively, as well as organic growth in new originations from the addition of experienced commercial bankers and~~ our ~~continued penetration in our primary market areas. In~~loan growth strategy. In addition to these amounts, ~~$841 thousand~~$79.1 million and ~~$5.2~~$20.6 million in loans were ~~loans~~ classified as held for sale as of December 31, ~~2017~~2023 and ~~2016,~~2022, respectively.

Total ~~loans~~LHI as a percentage of deposits were ~~98.0%~~92.8% and ~~94.5%~~104.1% as of December 31, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively. Total ~~loans~~LHI as a percentage of total assets were ~~75.8%~~77.4% and ~~78.9%~~78.2% as of December 31, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively.

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


	As of December 31,
	2023				2022				Increase (Decrease)
	Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in thousands)
Commercial	$	2,752,063	28.7	%	$	2,942,348	31.0	%	$	(190,285)	(2.3)	%
MW	377,796		3.9		446,227		4.7		(68,431)		(0.8)
Real estate:
OOCRE	794,088		8.3		715,829		7.5		78,259		0.8
NOOCRE	2,350,725		24.5		2,341,379		24.6		9,346		(0.1)
Construction and land	1,734,254		18.1		1,787,400		18.8		(53,146)		(0.7)
Farmland	31,114		0.3		43,500		0.5		(12,386)		(0.2)
1 - 4 family residential	937,119		9.8		894,456		9.4		42,663		0.4
Multi-family residential	605,817		6.3		322,679		3.4		283,138		2.9
Consumer	10,149		0.1		7,806		0.1		2,343		—
Total LHI, carried at amortized cost	$	9,593,125	100	%	$	9,501,624	100	%	$	91,501	—	%

Total LHFS	$	79,072			$	20,641			$	58,431

As of December 31,
2017 2016 2015 2014 2013
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
Commercial $ 684,551
30.6 % $ 291,416
29.4 % $ 246,124
30.0 % $ 207,101
34.3 % $ 160,823
32.5 %
Real estate:

Construction and land 277,825
12.4
162,614
16.4
126,422
15.4
69,966
11.6
47,643
9.6
Farmland 9,385
0.4
8,262
0.8
11,696
1.4
10,528
1.7
11,656
2.4
1 - 4 family residential 251,665
11.3
140,137
14.1
137,704
16.8
105,788
17.5
86,908
17.5
Multi-family residential 91,152
4.1
14,683
1.5
8,695
1.1
9,964
1.7
11,862
2.4
Commercial Real Estate 909,292
40.7
370,696
37.4
284,622
34.7
195,839
32.5
171,451
34.6
Consumer 9,648
0.4
4,089
0.4
5,304
0.6
4,124
0.7
4,927
1.0
Total loans held for investment $ 2,233,518
100 % $ 991,897
100 % $ 820,567
100 % $ 603,310
100 % $ 495,270
100 %
Total loans held for sale $ 841
$ 5,208
$ 2,831
$ 8,858
$ 2,051

Commercial. Our commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the identified cash flows of the borrower, and secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and generally include personal guarantees.

Commercial loans ~~increased $393.1~~decreased $190.3 million, or ~~134.9%~~6.5%, to ~~$684.6~~$2.75 billion as of December 31, 2023 from $2.94 billion as of December 31, 2022. The decrease was primarily due to a decrease in loan volume in the commercial loan portfolio due to rising rates during the year ended December 31, 2023 compared to the year ended December 31, 2022.

MW. Our MW loans consist of ownership interests purchased in single-family residential mortgages funded through our warehouse lending group. These loans are typically on our balance sheet for 10 to 25 days or less. We have agreements with mortgage lenders and purchase legal ownership interests in individual loans they originate. All loans are underwritten consistent with established programs for permanent financing with financially sound investors. Substantially all loans are conforming loans or loans eligible for sale to federal agencies or government sponsored entities. However, for accounting purposes, these loans are deemed to be loans to the originator and, as such, are classified as LHI.

MW loans decreased $68.4 million, or 15.3%, to $377.8 million as of December 31, ~~2017~~2023 from ~~$291.4~~$446.2 million as of December 31, ~~2016.~~2022. The ~~increase was~~decrease is due to ~~the acquisition~~an increase in mortgage rates which has resulted in a decrease in volume of ~~commercial~~originations and refinancing of MW loans.

CRE. Our CRE loans ~~in our acquisitions with Sovereign~~include owner occupied and ~~Liberty as well as growth in origination volumes in the Dallas-Fort Worth metroplex.~~

~~Construction~~non-owner occupied properties, and ~~land.~~ Our construction and land development loans consist of loans to fund construction, land acquisition and land development construction. The properties securing the portfolio are primarily located throughout north Texas and are generally diverse in terms of type.

Construction and land loans increased $115.2 million, or 70.8%, to $277.8 million as of December 31, 2017 from $162.6 million as of December 31, 2016. This increase was due to the acquisition of construction and land loans in our acquisitions with Sovereign and Liberty as well as a robust business environment in the Dallas-Fort Worth metroplex.

~~1-4 family residential.~~ Our 1-4 family residential loans consist of loans secured by single family homes, which are both owner-occupied and investor owned. Our 1-4 family residential loans have a relatively small balance spread between many individual borrowers.

1-4 family residential loans increased $111.5 million, or 79.6%, to $251.7 million as of December 31, 2017 from $140.1 million as of December 31, 2016. This increase is a result of the acquisition of 1-4 family residential loans in our acquisitions with Sovereign and Liberty as well as strong housing demand in our primary market areas.

~~Commercial Real Estate.~~ ~~Our commercial real estate loans~~ are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the portfolio are located throughout ~~north~~ Texas and are generally diverse in terms of type. This diversity helps reduce the exposure to adverse economic events that affect any single industry.

~~Commercial real estate~~OOCRE loans increased ~~$538.6~~$78.3 million, or ~~145.3%~~10.9%, to ~~$909.3~~$794.1 million as of December 31, ~~2017~~2023 from ~~$370.7~~$715.8 million as of December 31, ~~2016.~~2022. NOOCRE loans increased $9.3 million, or 0.4%, to $2.35 billion as of December 31, 2023 from $2.34 billion as of December 31, 2022. The increase iswas primarily due to normal fluctuations in the NOOCRE loan portfolio, conversion of ADC loans in NOOCRE and new loan origination activity for the period that outpaced paydowns during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Construction and land. Our construction and land development loans consist of loans to fund construction, land acquisition and land development construction. The properties securing the portfolio are primarily located throughout Texas and are generally diverse in terms of type.

Construction and land loans decreased $53.1 million, or 3.0%, to $1.73 billion as of December 31, 2023 from $1.79 billion as of December 31, 2022. This decrease was due to the ~~acquisition~~loans being converted from construction and land loans to NOOCRE and a decrease in loan volume in the construction and land portfolio due to rising rates during the year ended December 31, 2023 compared to the year ended December 31, 2022.

1-4 family residential. Our 1-4 family residential loans consist of ~~commercial~~ loans secured by single family homes, which are both owner-occupied and investor owned. Our 1-4 family residential loans have a relatively small balance spread between many individual borrowers.

1-4 family residential loans increased $42.7 million, or 4.8%, to $937.1 million as of December 31, 2023 from $894.5 million as of December 31, 2022. The increase was primarily due to normal fluctuations in ~~our acquisitions with Sovereign~~the 1-4 family residential loan portfolio and ~~Liberty as well as continued demand within our primary market areas.~~new loan origination activity for the period that outpaced paydowns during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Other loan categories. Other categories of loans ~~included~~ in our loan portfolio include farmland and agricultural loans made to farmers and ranchers relating to their operations, multi-family residential loans, consumer loans and ~~consumer loans.~~purchased receivables financing. None of these categories of loans represents a significant portion of our total loan portfolio.

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 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 December 31,
	2023				2022
Out of State Loan Portfolio	Amount		Percent of Total Loans		Amount		Percent of Total Loans
(Dollars in thousands)
Commercial Real Estate	$	784,523	8.2	%	$	780,833	8.2	%
Lender Finance	536,568		5.6		580,372		6.1
Commercial	355,626		3.7		346,761		3.6
MW	141,329		1.5		300,895		3.2
Mortgage Servicing Rights	227,002		2.4		—		—
1-4 Family Residential	259,745		2.7		260,911		2.7
USDA and SBA	199,184		2.1		160,739		1.7
Other	370		—		377		—
Total Out of State Loans	$	2,504,347	26.1	%	$	2,430,888	25.5	%

Loans by Maturity and Interest Rate Sensitivity

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of date indicated are summarized in the following tables:


	As of December 31, 2023
	One Year		One Through		Five Through		After
	or Less		Five Years		Fifteen Years		Fifteen Years		Total
	(Dollars in thousands)
Commercial	$	1,391,352	$	1,246,128	$	101,958	$	12,625	$	2,752,063

Construction and land	522,420		996,734		35,436		179,664		1,734,254
Farmland	1,965		22,347		6,802		—		31,114
1 - 4 family residential	193,868		97,579		34,376		611,296		937,119
Multi-family residential	189,708		411,143		4,715		251		605,817
OOCRE	40,006		339,210		269,542		145,330		794,088
NOOCRE	558,591		1,511,305		262,190		18,639		2,350,725
Consumer	3,090		5,887		1,015		157		10,149
Total LHI, excluding MW	$	2,901,000	$	4,630,333	$	716,034	$	967,962	$	9,215,329
LHI, MW	377,796		—		—		—		377,796
Total LHI (1)	$	3,278,796	$	4,630,333	$	716,034	$	967,962	$	9,593,125

(1) Total LHI at December 31, 2023 excludes $8,785 of deferred loan fees, net.

The interest rate composition of loans with a maturity date over one year are presented below based on contractual terms.

As of December 31, 2017
One Year One Through After
or Less Five Years Five Years Total
(Dollars in thousands)
Commercial $ 309,400
$ 296,078
$ 79,073
$ 684,551
Real estate:
Construction and land 156,681
105,943
15,201
277,825
Farmland 1,596
7,695
94
9,385
1 - 4 family residential 23,327
65,562
162,776
251,665
Multi-family residential 59,289
27,155
4,708
91,152
Commercial Real Estate 146,159
560,715
202,418
909,292
Consumer 2,430
6,403
815
9,648
Total loans $ 698,882
$ 1,069,551
$ 465,085
$ 2,233,518
Amounts with fixed rates $ 196,492
$ 478,764
$ 126,149
$ 801,405
Amounts with floating rates $ 502,390
$ 590,787
$ 338,936
$ 1,432,113


	As of December 31, 2023
	One Year		One Through		Five Through		After
	or Less		Five Years		Fifteen Years		Fifteen Years		Total
	(Dollars in thousands)
Amounts with fixed rates
Commercial	$	49,596	$	133,547	$	26,271	$	—	$	209,414
Construction and land	28,717		42,836		10,958		—		82,511
Farmland	1,965		20,979		599		—		23,543
1 - 4 family residential	112,542		83,639		11,574		2,285		210,040
Multi-family residential	21,764		53,476		4,715		—		79,955
OOCRE	16,409		207,933		103,677		6,062		334,081
NOOCRE	223,151		803,424		49,215		—		1,075,790
Consumer	2,628		5,399		888		157		9,072
Total fixed	$	456,772	$	1,351,233	$	207,897	$	8,504	$	2,024,406

Amounts with floating rates
Commercial	$	1,341,756	$	1,112,581	$	75,687	$	12,625	$	2,542,649
Construction and land	493,703		953,898		24,478		179,664		1,651,743
Farmland	—		1,368		6,203		—		7,571
1 - 4 family residential	81,326		13,940		22,802		609,011		727,079
Multi-family residential	167,944		357,667		—		251		525,862
OOCRE	23,597		131,277		165,865		139,268		460,007
NOOCRE	335,440		707,881		212,975		18,639		1,274,935
Consumer	462		488		127		—		1,077
Total floating, excluding MW	2,444,228		3,279,100		508,137		959,458		7,190,923
MW	377,796		—		—		—		377,796
Total	$	3,278,796	$	4,630,333	$	716,034	$	967,962	$	9,593,125

We generally structure commercial loans with shorter-term maturities in order to match our funding sources and to enable us to effectively manage the loan portfolio by providing the flexibility to respond to liquidity needs, changes in interest rates and changes in underwriting standards and loan structures, among other things. Due to the shorter-term nature of such loans, from time to time in the ordinary course of business and without any contractual obligation on our part, we will renew/extend maturing lines of credit or refinance existing loans at their maturity dates. Some loans may renew multiple times in a given year as a result of general customer practice and need. These renewals, extensions and refinancings are made in the ordinary course of business for customers that meet our normal level of credit standards. Such borrowers typically request renewals to support their on-going working capital needs to finance their operations. Such borrowers are not experiencing financial difficulties and generally could obtain similar financing from another financial institution. In connection with each renewal, extension or refinancing, we may require a principal reduction, adjust the rate of interest and/or modify the structure and other terms to reflect the current market pricing/structuring for such loans or to maintain competitiveness with other financial institutions. In such cases, we do not generally grant concessions, and, except for those reported in Note 6 - LHI and ACL in the accompanying notes to consolidated financial statements included elsewhere in this report, any such renewals, extensions or refinancings that occurred during the reported periods were not deemed to be modifications to borrowers experiencing financial difficulty pursuant to applicable accounting guidance.

December 31, 2016
One Year One Through After
or Less Five Years Five Years Total
(Dollars in thousands)
Commercial $ 192,357
$ 65,793
$ 33,266
$ 291,416
Real estate:
Construction and land 100,766
48,813
13,035
162,614
Farmland 5,692
2,549
20
8,261
1 - 4 family residential 16,211
98,945
24,981
140,137
Multi-family residential 2,860
11,824
—
14,684
Commercial Real Estate 90,547
210,628
69,521
370,696
Consumer 1,094
2,583
412
4,089
Total loans $ 409,527
$ 441,135
$ 141,235
$ 991,897
Amounts with fixed rates $ 93,468
$ 223,068
$ 82,953
$ 399,489
Amounts with floating rates $ 316,059
$ 218,067
$ 58,282
$ 592,408

Nonperforming Assets

We have established procedures to assist us in maintaining the overall quality of our loan portfolio. In addition, we have adopted underwriting guidelines to be followed by our lending officers and require senior management review of proposed extensions of credit exceeding certain thresholds. When delinquencies exist, we monitor them for any negative or adverse trends. Our loan review procedures include approval of lending policies and underwriting guidelines, independent loan review, approval of large credit relationships by our Executive Loan Committee and loan quality documentation procedures. We, like other financial institutions, are subject to the risk that our loan portfolio will be subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. We classify nonperforming assets as nonaccrual loans, accruing loans 90 or more days past due, loans modified under restructurings as a result of the borrower experiencing financial difficulties on nonaccrual status, OREO, and other repossessed assets. The balances of nonperforming loans reflect the recorded investment in these assets, including deductions for purchase discounts:


	As of December 31,
	2023			2022
	(Dollars in thousands)
Nonperforming loans(1):
Construction and land	$	6,793		$	—

1 - 4 family residential	1,965			862

OOCRE	9,719			9,737
NOOCRE	33,479			21,377
Commercial	40,868			11,397

Consumer	24			169
Accruing loans 90 or more days past due	2,975			125
Total nonperforming loans	95,823			43,667
OREO	—			—
Total nonperforming assets	$	95,823		$	43,667

Nonperforming assets to total assets	0.77		%	0.36		%
Nonperforming loans to total loans	1.00		%	0.46		%

(1) At December 31, 2023 and 2022, nonaccrual loans included $13,715 and $13,178, respectively, of PCD loans that are accounted for on a pooled basis.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on ~~non-accrual~~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 ~~non-accrual~~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.

~~We have several procedures in place to assist us in maintaining~~

The following table presents accruing loans by category at the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. Nevertheless, our loan portfolio could become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.dates indicated:


			Accruing Loans 30-89 Days Past Due				Accruing Loans 90 or more Days Past Due				Total Accruing Past Due Loans
	Total Loans		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category
December 31, 2023
Construction and land	$	1,734,254	$	29,379	1.69	%	$	—	—	%	$	29,379	1.69	%
Farmland	31,114		—		—		—		—		—		—
1 - 4 family residential	937,119		6,894		0.74		1,726		0.18		8,620		0.92
Multi-family residential	605,817		15,095		2.49		—		—		15,095		2.49
OOCRE	794,088		1,030		0.13		466		0.06		1,496		0.19
NOOCRE	2,350,725		3,824		0.16		783		0.03		4,607		0.20
Commercial	2,752,063		4,879		0.18		—		—		4,879		0.18
MW	377,796		—		—		—		—		—		—
Consumer	10,149		76		0.75		—		—		76		0.75
Total	$	9,593,125	$	61,177	0.64	%	$	2,975	0.03	%	$	64,152	0.67	%
December 31, 2022
Construction and land	$	1,787,400	$	3,232	0.18	%	$	—	—	%	$	3,232	0.18	%
Farmland	43,500		—		—		—		—		—		—
1 - 4 family residential	894,456		4,448		0.50		123		0.01		4,571		0.51
Multi-family residential	322,679		1,000		0.31		—		—		1,000		0.31
OOCRE	715,829		4,528		0.63		—		—		4,528		0.63
NOOCRE	2,341,379		5,156		0.22		—		—		5,156		0.22
Commercial	2,942,348		5,276		0.18		—		—		5,276		0.18
MW	446,227		—		—		—		—		—		—
Consumer	7,806		352		4.51		2		0.03		354		4.53
Total	$	9,501,624	$	23,992	0.25	%	$	125	—	%	$	24,117	0.25	%

We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We had ~~$0.9 million in nonperforming assets as of December 31, 2017 compared to $2.4 million in nonperforming assets as of December 31, 2016. We had $0.5~~$95.8 million in nonperforming loans as of December 31, ~~2017~~2023 compared to ~~$1.8~~$43.7 million as of December 31, ~~2016.~~

~~After the year ended~~2022. The increase of $52.2 million in nonperforming assets compared to December 31, ~~2017 and within~~2022 was primarily due to the measurement period to determine fair values of acquired identified assets and assumed liabilities from the Sovereign acquisition, we obtained new information on an acquired loan regarding conditions that existed as of the acquisition date and determined that the loan met the criteria to be classified as purchased credit impaired (“PCI”). PCIa $49.3 million increase in nonaccrual loans. The increase in nonaccrual loans ~~are generally reported as accrual loans unless significant concerns exist~~is related to ~~the predictability of the timing and amount of future cash flows. As a result of this change in loan classification, there was a $13.4 million decrease in non-accrual~~risk rating changes on NAC loans ~~after the year-ended~~which were placed on nonaccrual during December ~~31, 2017 since there are not significant concerns that exist regarding the predictability of the timing and amount of future cash flows for this acquired loan.~~2023.

The following table presents ~~information regarding nonperforming loans at the dates indicated:~~

As of December 31,
2017 2016 2015 2014 2013
(Dollars in thousands)
Non-accrual loans⁽¹⁾
$ 465
$ 941
$ 591
$ 436
$ 1,117
Accruing loans 90 or more days past due 18
835
84
—
9
Total nonperforming loans 483
1,776
675
436
1,126
Other real estate owned:
Commercial real estate, construction, land and land development 449
493
493
55
1,797
Residential real estate —
169
—
50
—
Total other assets owned 449
662
493
105
1,797
Total nonperforming assets $ 932
$ 2,438
$ 1,168
$ 541
$ 2,923
Restructured loans—non-accrual $ 15
$ 170
$ 288
$ 597
$ 1,611
Restructured loans—accruing $ 603
$ 652
$ 1,439
$ 1,080
$ 2,465
Ratio of nonperforming loans to total loans 0.02 % 0.18 % 0.08 % 0.07 % 0.23 %
Ratio of nonperforming assets to total assets 0.03 % 0.17 % 0.11 % 0.07 % 0.44 %

~~(1) Does not include PCI loans.~~

~~The following table presents non-accrual~~nonaccrual loans by category at the dates indicated:

As of December 31,
2017 2016 2015 2014 2013
(Dollars in thousands)
Real estate:
Construction and land $ —
$ —
$ —
$ —
$ 76
1 - 4 family residential —
—
187
—
1,041
Nonfarm residential 61
—
—
375
—
Commercial 398
930
383
34
—
Consumer 6
11
21
27
—
Total $ 465
$ 941
$ 591
$ 436
$ 1,117


	December 31, 2023							December 31, 2022
			Non-Accrual Loans							Non-Accrual Loans
	Total Loans		Amount			Percent of Loans in Category		Total Loans		Amount			Percent of Loans in Category

Construction and land	$	1,734,254	$	6,793		0.39	%	$	1,787,400	$	—		—	%
Farmland	31,114		—			—		43,500		—			—
1 - 4 family residential	937,119		1,965			0.21		894,456		862			0.10
Multi-family residential	605,817		—			—		322,679		—			—
OOCRE	794,088		9,719			1.22		715,829		9,737			1.36
NOOCRE	2,350,725		33,479			1.42		2,341,379		21,377			0.91
Commercial	2,752,063		40,868			1.48		2,942,348		11,397			0.39
MW	377,796		—			—		446,227		—			—
Consumer	10,149		24			0.24		7,806		169			2.17
Total LHI(1)	$	9,593,125	$	92,848		0.97	%	$	9,501,624	$	43,542		0.46	%
ACL on loans LHI			$	109,816						$	91,052
Ratio of ACL to nonaccrual loans			118		%					209		%

(1) At December 31, 2023 and 2022, the non-accrual loans amount related to NAC included in total LHI was $15,615 and $8,545, respectively.

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of four categories: pass, special mention, substandard or 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. We review the ratings on 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 impairments. If impairment is determined to exist, a specific reserve is established. Our methodology is structured so that specific allocations 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 not so pronounced that we generally expect 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 our 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 purchased credit impaired are those that, at acquisition date, had the characteristics of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly.

The following ~~table summarizes~~tables summarize our internal ~~loan ratings, including PCI~~rating of our loans as of the dates indicated.


	December 31, 2023
	Pass		Special Mention		Substandard		PCD		Total
	(Dollars in thousands)
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


	As of December 31, 2017
				Special										December 31, 2022
	Pass			Mention		Substandard		Doubtful		PCI		Total			Pass	Special Mention	Substandard		PCD	Total
	(Dollars in thousands)
Real estate:
			(Dollars in thousands)															(Dollars in thousands)
Construction and land	$	277,186		$	639	$	—	$	—	—		$	277,825
Farmland	9,336			—		—		—		49		9,385
1 - 4 family residential	250,904			462		200		—		99		251,665
Multi-family residential	91,152			—		—		—		—		91,152
Commercial Real Estate	882,523			8,771		681		—		17,317		909,292
OOCRE
NOOCRE
Commercial	634,796			18,337		1,155		116		30,147		684,551
MW
Consumer	9,540			—		108		—		—		9,648
Total	$	2,155,437		$	28,209	$	2,144	$	116	$	47,612	$	2,233,518

ACL

As of December 31, 2016
Special
Pass Mention Substandard Doubtful Total
(Dollars in thousands)
Real estate:
Construction and land $ 162,614
$ —
$ —
$ —
$ 162,614
Farmland 8,262
—
—
—
8,262
1 - 4 family residential 139,212
710
215
—
140,137
Multi-family residential 14,683
—
—
—
14,683
Commercial Real Estate 368,370
2,326
—
—
370,696
Commercial 289,589
686
1,034
107
291,416
Consumer 4,078
—
11
—
4,089
Total $ 986,808
$ 3,722
$ 1,260
$ 107
$ 991,897

~~Allowance for Loan Losses~~

~~We maintain an~~Our ACL on loans is calculated in accordance with ASC Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. The ACL is a valuation allowance ~~for~~estimated at each balance sheet date that is deducted from the LHFIs’ amortized cost basis to present the net amount expected to be collected on the loans. When the Company deems all or a portion of a loan ~~losses that represents management’s best estimate of~~to be uncollectible the loan losses and risks inherent in the loan portfolio. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan lossesappropriate amount 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 factorswritten off and the ~~estimated impact~~ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. Refer to Note 1 "Summary of ~~current economic conditions on certain historical loan loss rates. For additional discussion of our methodology, please refer to~~Significant Accounting Policies" and “—Critical Accounting Policies—Loans and Allowance for ~~Loan Losses.”~~

~~In connection with~~Credit Losses” for further discussion of our ~~review~~ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan ~~portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:~~

for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that, ~~category and the value, nature and marketability of collateral;~~

for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the ~~case~~Company’s judgment, should be charged-off. Loan loss valuation allowances are recorded on specific at-risk balances, typically consisting of ~~owner occupied properties,~~collateral dependent loans.

The following table sets forth the ~~loan to value ratio, the age and condition~~ACL by category of ~~the collateral and the volatility of income, property value and future operating results typical of properties of that type;~~loan:

for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of the collateral; and

for construction, land development and other land loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio.


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

Construction and land	$	21,032	18.1	%	1.21	%	$	13,120	19.7	%	0.73	%
Farmland	101		0.3		0.32		127		0.4		0.29
1 - 4 family residential	9,539		9.8		1.02		9,533		9.9		1.07
Multi-family residential	4,882		6.3		0.81		2,607		3.6		0.81
OOCRE	10,252		8.3		1.29		8,707		7.9		1.22
NOOCRE	27,729		24.5		1.18		26,704		25.9		1.14
Commercial	35,886		28.7		1.30		30,142		32.5		1.02
MW	260		3.9		0.07		—		—		—
Consumer	135		0.1		1.33		112		0.1		1.43
Total	$	109,816	100.0	%	1.14	%	$	91,052	100.0	%	0.96	%

As of December 31, ~~2017,~~2023, the ~~allowance for loan losses~~ACL totaled ~~$12.8~~$109.8 million, or ~~0.57%~~1.14%, of total loans. As of December 31, ~~2016,~~2022, the ~~allowance for loan losses~~ACL totaled ~~$8.5~~$91.1 million, or ~~0.86%~~0.96%, of total loans. The ~~decrease~~increase in the percentage of ~~allowance of loan losses~~ACL to total loans compared to December 31, ~~2016~~2022 was primarily ~~was~~ attributable to an additional $15.6 million in provision for loan losses for the ~~completion~~year ending December 31, 2023. The increase in provision for loan losses was primarily attributable to an increase in general reserves as a result of changes in economic factors driving an increase in general reserves, which includes an increase in qualitative factors applied in our CRE office portfolio, and increase in individually analyzed loans receiving specific reserves.

The Company measures expected credit losses of financial assets on a collective, or pool, basis when the financial assets share similar risk characteristics. Depending on the nature of the ~~Sovereign acquisition on August~~pool of financial assets with similar risk characteristics,

the Company uses a DCF method or a loss-rate method to estimate expected credit losses. The Company uses a PD/LGD model to estimate expected credit losses for our PCD loans and pools acquired prior to January 1, ~~2017~~2020.

The Company’s methodologies for estimating the ACL take into account available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, to the ~~Liberty acquisition on December 1, 2017, as acquired loans~~identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed, adjusted for asset-specific characteristics, economic conditions at the measurement date and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are ~~recorded at fair value. Ending balances~~reasonable and supportable.

The Company uses the DCF method to estimate expected credit losses for the ~~purchase discount related~~CRE, construction and land, 1-4 family residential, commercial (excluding liquid credit and premium finance) and consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, curtailment rates, time to ~~non-impaired acquired~~recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates and time to recovery are based on historical internal data. Consistent forecasts of the loss drivers are used across the loan segments. The Company also forecasts prepayments speeds for use in the DCF models with higher prepayment speeds resulting in lower required ACL levels and vice versa for shorter prepayment speeds. These assumed prepayment speeds are based upon our historical prepayment speeds by loan type adjusted for the expected impact of the current interest rate environment. Generally, the impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions.

For all DCF models at December 31, 2023, the Company determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. At December 31, 2023 as compared to December 31, 2022, there was relatively little change to forecasted Texas unemployment and a decrease in year over year percentage change in Texas gross domestic product. At December 31, 2023 for Texas unemployment, the Company projected a low percentage in the first quarter followed by a gradual rise in the following three quarters. For year-over-year percentage change in Texas gross domestic product, the Company projected a high year-over-year percentage change in the first quarter, followed by a decrease in the second and third quarters and an increase in the fourth quarter. At December 31, 2023, the Company overall decreased its historical prepayment speeds in response to the rising interest rate environment in the macro economy.

The Company uses a loss-rate method to estimate expected credit losses for the farmland and MW loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, ~~were $12.1 million,~~ and ~~$0.5 million~~reasonable and supportable forecasts of economic conditions. Loss factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above.

In estimating expected credit losses as of December 31, ~~2017~~2023, we utilized the Moody’s Analytics December 2023 forecast the macroeconomic variables used in our models. A weighting of forecast scenarios from December 2023 were based on the review of a variety of surveys of forecasts of the U.S. economy. The December 2023 baseline scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 2.00% in the first quarter of 2024, followed by annualized quarterly growth rates in the range of 1.64% to 1.96% during the remainder of 2024 and ~~2016, respectively. PCI loans are not considered nonperforming loans. PCI loans were $47.6 million as~~an average annualized growth rate of ~~December 31, 2017~~2.32% through the end of the forecast period in the fourth quarter of 2025; (ii) U.S. unemployment rate of 4.08% in the first quarter of 2024 and ~~insignificant as~~an average quarterly U.S. unemployment rate of ~~December 31, 2016. The increase~~3.96% through the end of the forecast period in ~~PCI loans~~the fourth quarter of 2025; (iii) Texas CRE price index change of -3.26% in the first quarter of 2024 and an average quarterly Texas CRE price index change of -2.44% through the end of the forecast period in the fourth quarter of 2025; and (iv) projected average 10 year Treasury rate of 4.30% in the first quarter of 2024 and average projected rates of 4.15% during ~~2017 were~~ the ~~result~~remainder of ~~our acquisitions of Sovereign~~2024 and ~~Liberty.~~4.50% in 2025.

The following ~~table presents, as of~~tables show our credit ratios and ~~for the periods indicated,~~ an analysis of ~~the allowance for loan losses~~our credit loss expense and ~~other related data:~~net (charge-offs) recoveries:


	For the Years Ended December 31,
	2023			2022
ACL	$	109,816		$	91,052
Total LHI	9,593,125			9,501,624
ACL to Total LHI	1.14		%	0.96		%

Nonaccrual loans	$	92,848		$	43,542
Total LHI	9,593,125			9,501,624
Nonaccruals to Total LHI	0.97		%	0.46		%

ACL	$	109,816		$	91,052
Nonaccrual loans	92,848			43,542
ACL to nonaccrual loans	118.28		%	209.11		%

For the Years Ended December 31,
2017 2016 2015 2014 2013
Average loans outstanding⁽¹⁾
$ 1,441,295
$ 919,387
$ 694,305
$ 546,041
$ 433,612
Gross loans outstanding at end of period⁽¹⁾
$ 2,233,518
$ 991,897
$ 820,567
$ 603,310
$ 495,270

Allowance for loan losses at beginning of period $ 8,524
$ 6,772
$ 5,981
$ 5,018
$ 3,238
Provision for loan losses 5,114
2,050
868
1,423
1,883
Charge-offs:
Real estate:
Construction, land and farmland —
—
(48 ) (28 ) —
Residential (11 ) —
—
(30 ) (85 )
Nonfarm non-residential —
—
—
—
—
Commercial (828 ) (314 ) (87 ) (448 ) (110 )
Consumer —
(19 ) (5 ) (4 ) (45 )
Total charge-offs (839 ) (333 ) (140 ) (510 ) (240 )
Recoveries:
Real estate:
Construction, land and farmland —
—
—
—
—
Residential —
—
—
—
60
Nonfarm non-residential —
—
5
2
—
Commercial 9
32
57
46
32
Consumer —
3
1
2
45
Total recoveries 9
35
63
50
137
Net charge-offs (830 ) (298 ) (77 ) (460 ) (103 )
Allowance for loan losses at end of period $ 12,808
$ 8,524
$ 6,772
$ 5,981
$ 5,018
Ratio of allowance to end of period loans 0.57 % 0.86 % 0.83 % 0.99 % 1.01 %
Ratio of net charge-offs to average loans 0.06 % 0.03 % 0.01 % 0.08 % 0.02 %


⁽¹⁾	~~Excluding loans held for sale and deferred loan fees.~~

~~We believe~~

Additional information related to credit loss expense and net (charge-offs) recoveries is presented in the successful execution of our growth strategy through key acquisitions and organic growth is demonstrated by the upward trend in loan balances from December 31, 2013 to December 31, 2017. Loan balancestable below:


(Dollars in thousands)	Net (Charge-offs) Recoveries		Average Loans		Annualized Net (Charge-off) Recoveries to Average Loans
2023
Construction and land	$	—	$	1,842,624	—	%
Farmland	—		46,901		—
1 - 4 family residential	(18)		910,061		—
Multi-family residential	(192)		533,661		(0.04)
OOCRE	(855)		709,322		(0.12)
NOOCRE	(13,299)		2,348,303		(0.57)
Commercial	(9,248)		2,844,269		(0.33)
MW	—		347,596		—
Consumer	(136)		8,929		(1.52)
Total	$	(23,748)	$	9,591,666	(0.25)	%

2022
Construction and land	$	—	$	1,524,434	—	%
Farmland	—		48,235		—
1 - 4 family residential	31		733,059		—
Multi-family residential	—		274,408		—
OOCRE	(2,375)		719,649		(0.33)
NOOCRE	(1,685)		2,156,008		(0.08)
Commercial	(8,423)		2,429,899		(0.35)
MW	—		433,062		—
Consumer	(1,200)		8,443		(14.21)
Total	$	(13,652)	$	8,327,197	(0.16)	%

2021
Construction and land	$	—	$	862,465	—	%
Farmland	—		28,861		—
1 - 4 family residential	(315)		519,632		(0.06)
Multi-family residential	—		376,405		—
OOCRE	(1,900)		744,572		(0.26)
NOOCRE	(7,936)		2,030,825		(0.39)
Commercial	(14,034)		1,996,970		(0.70)
MW	—		468,001		—
Consumer	204		11,099		1.84
Total	$	(23,981)	$	7,038,830	(0.34)	%

Net loans charged off increased ~~from $495.3~~$10.1 million, as of December 31, 2013, to $2.2 billion as of December 31, 2017. Our allowance has increased consistently with the growth in our loan portfolio during the same period. Further, net charge-offs have been immaterial, representing less than 0.10% of average loan balances from December 31, 2013 to December 31, 2017.

or 74.0%. Although we believe that we have established our ~~allowance for loan losses~~ACL in accordance with ~~accounting principles generally accepted in the United States (“GAAP”)~~GAAP and that the ~~allowance for loan losses~~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.

OBS Credit exposure

The ~~following table shows the allocation~~ACL on OBS credit exposures totaled $8.0 million and $10.1 million at December 31, 2023 and December 31, 2022, respectively. The level of the ~~allowance for loan losses among~~ACL on OBS 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 ~~categories and certain other information~~portfolio. The $2.1 million decrease in the ACL on OBS credit exposure is primarily attributable to a $1.20 billion, or 64.3%, decrease in total CRE ADC unfunded commitments during 2023 which is slightly offset by an increase in the loss rates applied to the CRE ADC portfolio.

As of December 31, 2023, we held equity securities with a readily determinable fair value of $9.9 million compared to $9.8 million as of December 31, 2022. These equity securities represent investments in a publicly traded 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 $11.6 million at December 31, 2023 compared to $10.1 million as of December 31, 2022. The Company measures equity securities that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the ~~dates indicated. The allocation~~identical or a similar investment of the ~~allowance~~same issuer.

FHLB Stock and FRB Stock

As of December 31, 2023, we held FHLB stock and FRB stock of $53.7 million compared to $101.6 million as of December 31, 2022. The change is driven by a decrease in FHLB stock of $48.2 million. 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 ~~loan losses~~sale, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.income. Other non-marketable equity securities are carried at their cost, which approximates fair value.

As of December 31,
2017 2016 2015 2014
2013⁽¹⁾
Percent Percent Percent Percent Percent
Amount to Total Amount to Total Amount to Total Amount to Total Amount to Total
(Dollars in thousands)
Real estate:
Construction and land $ 1,269
9.9 % $ 1,346
15.8 % $ 1,007
14.9 % $ 675
11.3 % 660
13.2
Farmland 46
0.4
69
0.8
97
1.4
94
1.6
n/a
n/a
1 - 4 family residential 1,192
9.3
999
11.7
1,058
16
1,077
18.0
861
17.1
Multi-family residential 281
2.2
117
1.4
66
1.0
89
1.5
109
2.2
Commercial Real Estate 4,410
34.4
3,003
35.2
2,189
32.3
1,890
31.6
1,726
34.4
Total real estate $ 7,198
56.2 % $ 5,534
64.9 % $ 4,417
65.2 % $ 3,825
64.0 % $ 3,356
66.9 %
Commercial 5,588
43.6
2,955
34.7
2,324
34.3
2,092
34.9
1,585
31.6
Consumer 22
0.2
35
0.4
31
0.5
64
1.1
77
1.5
Total allowance for loan losses $ 12,808
100 % $ 8,524
100 % $ 6,772
100 % $ 5,981
100 % $ 5,018
100 %
Debt Securities


⁽¹⁾	~~In 2013, allowance for loan loss related to farmland was included in the construction and land category.~~

~~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 December 31, ~~2017,~~2023, the carrying amount of ~~investment~~debt securities totaled ~~$228.1 million, an increase~~$1.26 billion, a decrease of ~~$125.5~~$25.4 million, or ~~122.4%~~2.0%, compared to ~~$102.6 million~~$1.28 billion as of December 31, ~~2016.~~2022. The ~~increases~~decrease in our ~~investment~~debt securities in ~~2017~~2023 was primarily ~~resulted~~due to purchases of debt securities of $1.38 billion and net unrealized gains $14.2 million, offset by maturities, calls and paydowns of $1.30 billion and proceeds from ~~our acquisitions~~sales of ~~Sovereign~~$109.8 million. Debt securities represented 10.1% and ~~Liberty during 2017. Securities represented 7.7% and 7.3%~~10.6% of total assets as of December 31, ~~2017~~2023 and ~~2016,~~2022, respectively.

Our investment portfolio consists ~~entirely~~ of debt securities classified as ~~available for sale.~~AFS and HTM. As a result, the carrying values of our ~~investment~~AFS debt securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in stockholders’ equity. Our HTM debt securities are recorded at their amortized cost. The following table summarizes the amortized cost and estimated fair value of our ~~investment~~AFS debt securities, excluding HTM debt securities, as of the dates shown:


	As of December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		ACL		Fair Value
	(Dollars in thousands)

Corporate bonds	$	244,652	$	1,034	$	29,566	$	—	$	216,120
Municipal securities	46,631		108		3,258		—		43,481
Mortgage-backed securities	194,486		4,430		13,465		—		185,451
Collateralized mortgage obligations	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
Total	$	1,161,178	$	11,251	$	95,790	$	—	$	1,076,639

As of December 31, 2017
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
(Dollars in thousands)
U.S. government agencies $ 10,829
$ 9
$ 18
$ 10,820
Corporate bonds 17,500
330
—
17,830
Municipal securities 55,499
189
211
55,477
Mortgage-backed securities 91,734
58
1,068
90,724
Collateralized mortgage obligations 53,559
9
925
52,643
Asset-backed securities 616
7
—
623
Total $ 229,737
$ 602
$ 2,222
$ 228,117


	As of December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		ACL		Fair Value
	(Dollars in thousands)
Corporate bonds	$	268,179	$	1,445	$	17,379	$	—	$	252,245
Municipal securities	49,886		3		4,198		—		45,691
Mortgage-backed securities	156,408		23		17,420		—		139,011
Collateralized mortgage obligations	609,456		—		55,850		—		553,606
Asset-backed securities	42,015		289		2,613		—		39,691
Collateralized loan obligations	69,750		—		3,702		—		66,048

Total	$	1,195,694	$	1,760	$	101,162	$	—	$	1,096,292

As of December 31, 2016
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
(Dollars in thousands)
U.S. government agencies $ 732
$ —
$ 36
$ 696
Municipal securities 14,540
2
500
14,042
Mortgage-backed securities 49,907
83
871
49,119
Collateralized mortgage obligations 38,507
32
612
37,927
Asset-backed securities 764
11
—
775
Total $ 104,450
$ 128
$ 2,019
$ 102,559

All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, ~~collateralized loan obligations,~~ structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt-A or second lien elements in our investment portfolio. As of December 31, ~~2017,~~2023, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.

~~Certain investment~~Management evaluates AFS debt securities ~~have a~~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 at less than their historical cost. Management evaluates securities for other-than-temporary impairment (OTTI) on at least a quarterly basis and more frequently when economic of market conditions warrant such an evaluation. Management does not (i) have the intent to sell any investment securities prior to recovery and/or maturity and, (ii) believe it is ~~more likely than not that the Company will not have to sell these securities prior to recovery and/or maturity and (iii) believe that the length of time and extent that fair value has been~~ less than cost, ~~is not indicative~~(2) the financial condition and near-term prospects of ~~recoverability. For those~~the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. As of December 31, 2023, management believes that AFS debt securities in an unrealized loss position ~~the unrealized losses~~ are ~~largely~~ due to noncredit-related factors, including changes in interest ~~rate changes. Management believes any unrealized loss in the Company’s securities at December 31, 2017 is temporary~~rates and other market conditions, and therefore no allowance for credit ~~impairment has~~losses have been ~~realized~~recognized in the Company’s consolidated ~~financial statements.~~balance sheets. The Company also recorded no allowance for credit losses for its HTM debt securities as of December 31, 2023.

The following table sets forth the fair value and amortized cost for AFS securities and HTM debt securities, respectively, maturities and approximated weighted average yield based on estimated annual income divided by the average fair value of AFS debt securities and amortized cost of ~~our~~HTM debt securities ~~portfolio~~ as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.


	As of December 31, 2023
					After One Year				After Five Years
	Within				but Within				but Within
	One Year				Five Years				Ten Years				After Ten Years				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Total		Yield
	(Dollars in thousands)

Corporate bonds	$	1,906	4.28	%	$	44,924	9.19	%	$	156,569	4.33	%	$	12,721	5.99	%	$	216,120	5.44	%
Municipal securities	—		—		6,202		2.77		19,636		2.83		129,847		2.69		155,685		2.71
Mortgage-backed securities	—		—		5		3.37		25,386		2.91		193,776		3.52		219,167		3.45
Collateralized mortgage obligations	—		—		77,081		2.46		146,807		3.17		331,651		4.29		555,539		3.74
Asset-backed securities	—		—		3,211		3.54		20,382		6.05		23,060		3.94		46,653		4.83
Collateralized loan obligations	—		—		—		—		24,158		7.28		39,720		7.26		63,878		7.27
Total	$	1,906	4.28	%	$	131,423	4.80	%	$	392,938	4.00	%	$	730,775	3.98	%	$	1,257,042	4.07	%

As of December 31, 2017
After One Year After Five Years
Within but Within but Within
One Year Five Years Ten Years After Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
(Dollars in thousands)
U.S. government agencies $ —
— % $ 10,509
2.46 % $ 311
2.05 % $ —
— % $ 10,820
2.45 %
Corporate bonds —
—
7,830
5.62
10,000
5.15
—
—
17,830
5.36
Municipal securities 2,330
2.27
11,652
1.98
24,163
2.32
17,332
2.72
55,477
2.37
Mortgage-backed securities —
—
52,461
1.90
34,595
2.51
3,668
3.07
90,724
2.18
Collateralized mortgage obligations 208
2.25
39,408
2.05
13,027
2.34
—
—
52,643
2.12
Asset-backed securities —
—
623
2.16
—
—
—
—
623
2.16
Total $ 2,538
2.27 % $ 122,483
1.88 % $ 82,096
2.12 % $ 21,000
2.78 % $ 228,117
2.06 %


	As of December 31, 2022
					After One Year				After Five Years
	Within				but Within				but Within
	One Year				Five Years				Ten Years				After Ten Years				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Total		Yield
	(Dollars in thousands)

Corporate bonds	$	—	—	%	$	53,944	5.54	%	$	183,252	4.44	%	$	15,049	6.01	%	$	252,245	4.77	%
Municipal securities	—		—		235		3.00		15,428		2.68		143,685		2.13		159,348		2.18
Mortgage-backed securities	—		—		17		3.34		33,560		2.93		141,776		2.28		175,353		2.40
Collateralized mortgage obligations	35,761		2.77		91,615		2.81		144,781		2.16		317,618		2.79		589,775		2.64
Asset-backed securities	—		—		4,006		3.28		7,436		6.44		28,249		3.59		39,691		4.09
Collateralized loan obligations	—		—		—		—		20,658		1.63		45,390		1.74		66,048		1.71
Total	$	35,761	2.77	%	$	149,817	3.81	%	$	405,115	3.33	%	$	691,767	2.58	%	$	1,282,460	2.97	%

As of December 31, 2016
After One Year After Five Years
Within but Within but Within
One Year Five Years Ten Years After Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
(Dollars in thousands)
U.S. government agencies $ —
— % $ 345
1.62 % $ 351
2.02 % $ —
— % $ 696
1.82 %
Municipal securities —
—
3,630
2.13
2,995
1.96
7,417
2.51
$ 14,042
2.29
Mortgage-backed securities —
—
37,307
1.63
11,731
2.22
81
2.10
$ 49,119
1.77
Collateralized mortgage obligations 262
2.98
36,850
1.73
815
2.42
—
—
$ 37,927
1.75
Asset-backed securities —
—
775
1.40
—
—
—
—
$ 775
1.40
Total $ 262
2.98 % $ 78,907
1.70 % $ 15,892
2.18 % $ 7,498
2.51 % $ 102,559
1.83 %

The contractual maturity of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities, collateralized mortgage obligations and asset-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to ~~pre-pay.~~prepay amounts outstanding. Monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed-rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of these ~~securities.~~securities. The weighted average life of our investment portfolio was ~~4.35~~6.56 years with an estimated effective duration of ~~2.69~~4.12 years as of December 31, ~~2017.~~ 2023. The average yield of the securities portfolio was ~~2.03%~~3.78% during ~~2017~~2023 compared to ~~1.67%~~3.03% during ~~2016.~~2022.

As of December 31, ~~2017~~2023 and December 31, ~~2016,~~2022, we did not own securities of any one issuer other than U.S. government agency securities, for which aggregate adjusted cost exceeded 10.0% of the consolidated stockholders’ equity as of such respective dates.

Deposits

We offer a variety of deposit ~~accounts~~products having a wide range of interest rates and terms, including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.

Total deposits as of December 31, ~~2017~~2023 were ~~$2.3~~$10.34 billion, an increase of ~~$1.2~~$1.21 billion, or ~~103.5%~~13.3%, compared to ~~$1.1~~$9.12 billion as of December 31, ~~2016,~~2022, due primarily to increases of ~~$380.2~~$1.11 billion in certificates of deposit, $304.4 million ~~$302.6 million,~~in interest-bearing demand accounts and ~~$334.0~~$209.5 million in money market ~~accounts,~~accounts. The increase was partially offset by a decrease of $422.6 million in noninterest-bearing deposit ~~accounts, and certificates of deposit, respectively.~~accounts. Our deposit growth was primarily ~~due~~related to ~~the acquisitions of Sovereign and Liberty in 2017 as well as~~ our continued penetration in our primary market areas, the increase in commercial lending relationships for which we also seek deposit balances and increases in our financial institution money market accounts.

~~Noninterest-bearing deposits as of December 31, 2017 were $612.8 million compared to $327.6 million as of December 31, 2016, an increase of $285.2 million, or 87.1%.~~

~~Money market accounts as of December 31, 2017 were $960.1 million compared to $580.0 million as of December 31, 2016, an increase of $380.2 million, or 65.6%.~~

Average deposits for the year ended December 31, ~~2017~~2023 were ~~$1.6~~$9.48 billion, an increase of ~~$584.6 million,~~$1.17 billion, or ~~59.0%~~14.0% over ~~the year~~ average deposits of $8.32 billion for the year ended December 31, ~~2016 of $991.5 million.~~2022. The average rate paid on total interest-bearing deposits increased ~~this period~~ from ~~0.72%~~1.05% for the year ended December 31, ~~2016~~2022 to ~~0.86%~~3.82% for the year ended December 31, ~~2017.~~2023. The increase in the average rate paid on interest-bearing deposits was due to the overall market condition, ~~the introduction of our correspondent banking division,~~and an increase in the prime rate during ~~2017, as well as an increase in time deposits which typically pay a higher rate.~~2023.

The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated:


	For Year Ended December 31,									For Year Ended December 31,
	2017				2016					2023						2022
	Average		Average		Average		Average			Average			Average				Average					Average
	Balance		Rate		Balance		Rate			Balance			Rate				Balance					Rate
	(Dollars in thousands)									(Dollars in thousands)
Interest-bearing demand accounts	$	98,177	0.20	%	$	71,026	0.22	%	Interest-bearing demand accounts	$	770,666	3.23		3.23	%			$	613,318	0.40			0.40	%
Savings accounts	87,565		0.10		10,309		0.10
Money market accounts	690,225		0.98		489,793		0.76
Certificates and other time deposits > $100k	230,143		1.08		101,170		0.91
Certificates and other time deposits < $100k	44,923		0.79		16,680		0.88
Certificates and other time deposits > $250,000
Certificates and other time deposits < $250,000
Total interest-bearing deposits	1,151,033		0.86		688,978		0.72
Noninterest-bearing demand accounts	425,124				302,548				Noninterest-bearing demand accounts	2,309,983				2,782,077							2,782,077
Total deposits	$	1,576,157	0.63	%	$	991,526	0.50	%	Total deposits	$	9,484,678	2.89		2.89	%			$	8,318,690	0.70			0.70	%

Our ratio of average noninterest-bearing deposits to average total deposits was ~~27.0%~~24.4% and ~~30.5%~~33.4% for the years ended December 31, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively.

Factors affecting the cost of funding of our interest-bearing assets include the volume of ~~noninterest~~noninterest- and interest-bearing deposits, changes in market interest rates (including increases in fed fund rates) and economic conditions in our target markets and their impact on interest paid on our deposits, change in deposit mix, as well as the ongoing execution of our balance sheet management strategy. Our cost of funds was ~~0.63%~~2.89% in ~~2017, 0.50%~~2023 and 0.70% in ~~2016 and 0.39% in 2015.~~2022. Average rates on interest-bearing deposits were ~~0.86%~~3.82% in ~~2017, 0.72%~~2023 and 1.05% in ~~2016 and 0.61% in 2015.~~2022.

Borrowings

We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.

~~Federal Home Loan Bank advances.~~FHLB Advance

The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of December 31, ~~2017, December 31, 2016~~2023, 2022 and ~~December 31, 2015,~~2021, total borrowing capacity of ~~$721.6 million, $369.4~~$2.19 billion, $787.3 million and ~~$300.5~~$777.5 million, respectively, was available under this arrangement and ~~$71.2~~$100.0 million, ~~$38.3 million~~$1.18 billion and ~~$28.4~~$777.6 million, respectively, was outstanding, with an average interest rate of ~~1.04%~~4.70% as of December 31, ~~2017, 0.60%~~2023, 1.73% as of December 31, ~~2016~~2022 and ~~0.88%~~0.94% as of December 31, ~~2015. Our current FHLB advances mature within six years.~~2021. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. The following table presents our current FHLB advances based on year of maturity as of December 31, 2023.


Maturity Year	FHLB Advances
	(Dollars in thousands)

2024	100,000


Total	$	100,000

The following table presents our FHLB borrowings at the dates indicated. Other than FHLB borrowings, we had no other short-term borrowings at the dates indicated.


	FHLB Advances
	(Dollars in thousands)
December 31, 2023
Amount outstanding at period end	$	100,000
Additional availability at period end	2,191,608
Weighted average interest rate at period end	5.54		%
Maximum month-end balance during the period	$	1,680,000
Average balance outstanding during the period	873,617
Weighted average interest rate during the period	4.70		%
December 31, 2022
Amount outstanding at period end	$	1,175,000
Additional availability at period end	1,765,197
Weighted average interest rate at period end	4.67		%
Maximum month-end balance during the period	$	1,200,000
Average balance outstanding during the period	896,687
Weighted average interest rate during the period	1.73		%
December 31, 2021
Amount outstanding at period end	$	777,562
Additional availability at period end	777,466
Weighted average interest rate at period-end	0.94		%
Maximum month-end balance during the period	$	777,654
Average balance outstanding during the period	777,635
Weighted average interest rate during the period	0.94		%

FHLB Advances
(Dollars in thousands)
December 31, 2017
Amount outstanding at period-end $ 71,164
Weighted average interest rate at period-end 1.36 %
Maximum month-end balance during the period 71,164
Average balance outstanding during the period 51,196
Weighted average interest rate during the period 1.04 %
December 31, 2016
Amount outstanding at period-end $ 38,306
Weighted average interest rate at period-end 0.77 %
Maximum month-end balance during the period 88,398
Average balance outstanding during the period 43,649
Weighted average interest rate during the period 0.60 %
Fed Funds Borrowings

~~Federal Reserve Bank of Dallas.~~The Company maintains credit facilities with commercial banks that provided federal funds credit extensions. The following table outlines the credit facilities and the federal funds credit availability for each period presented:


	For the Year Ended
	December 31,
	2023		2022		2021

Credit facilities (count of facilities)	5		5		5
Total outstanding at period end	$	—	$	—	$	—
Additional availability at period end	125,000		175,000		175,000

FRB

The FRB has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain commercial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. ~~As of December 31, 2017, 2016 and 2015, $338.6 million, $197.3 million, and $162.9 million, respectively,~~The following table outlines the FRB availability:


	For the Year Ended
	December 31,
	2023		2022		2021
FRB loans pledged as collateral at period end	$	2,143,269	$	2,384,492	$	805,747
FRB securities pledged as collateral at period end	328,919		261,319		—
BTFP availability at period end(1)	455,361		434,349		—
Total FRB availability	$	2,927,549	$	3,080,160	$	805,747

(1) There were ~~available under this arrangement. As of December 31, 2017, approximately $423.1 million in commercial loans were pledged as collateral. As of December 31, 2017, 2016 and 2015,~~ no borrowings ~~were outstanding under this arrangement.~~

~~Junior subordinated debentures.~~ ~~The Company assumed in a previous acquisition $3.1 million in fixed/floating rate junior subordinated debentures underlying common securities and preferred capital securities, or~~against the ~~Parkway Trust Securities, issued by Parkway National Capital Trust I (“Parkway Trust”), a statutory business trust and acquired wholly-owned subsidiary~~BTFP at the end of the ~~Company.~~ respective periods.

Subordinated Notes

The ~~Company assumed the guarantor position~~table below details our subordinated notes, Refer to Note 13 "Subordinated Debentures and ~~as such, unconditionally guarantees payment of accrued and unpaid distributions required to be paid~~Subordinated Notes" for further discussion on the ~~Parkway Trust Securities subject to certain exceptions, the redemption price when a capital security is called for redemption and amounts due if a trust is liquidated or terminated.~~details of our subordinated notes.


	Face Value		Maturity Date	Current Rate	Repricing Date	Variable Interest Rate at Repricing Date
4.75% Fixed-to-Floating Rate Subordinated Notes	$	75,000	2029	4.75%	11/15/2024	Three Month SOFR+347bps
4.125% Fixed-to-Floating Rate Subordinated Notes	125,000		2030	4.125%	10/15/2025	Three Month SOFR+399.5bps
Total	$	200,000

The ~~Company owns all of~~subordinated notes bear interest payable semi-annually in arrears to, but excluding the outstanding common securities of the Parkway Trust. The Parkway Trust used the proceeds from the issuance of its Parkway Trust Securities to buy the debentures originally issued by Fidelity Resource Company. These debentures are the Parkway Trust’s only assetsfirst repricing date, and ~~the interest payments from the debentures finance the distributions paid~~thereafter payable quarterly in arrears at an annual floating rate. We may, at our option, beginning on the ~~Parkway Trust Securities.~~

~~The Parkway Trust Securities pay cumulative cash distributions quarterly at a rate per annum equal to~~respective first repricing date and on any scheduled interest payment date thereafter, redeem the 3-month LIBOR plus 1.85%. So long as no event of default leading to an acceleration event has occurred, the Company has the right at any time and from time to time during the term of the debenture to defer payments of interest by extending the interest distribution period for up to twenty consecutive quarterly periods. The effective rate as of December 31, 2017 and 2016 was 3.44% and 2.70%, respectively. The Parkway Trust Securities are subject to mandatory redemptionsubordinated notes, in whole or in part, ~~upon repayment of the debentures at the stated maturity in the year 2036 or their earlier redemption, in each case~~ at a redemption price equal to the ~~aggregate liquidation preference~~outstanding principal amount of the ~~Parkway Trust Securities~~subordinated notes to be redeemed plus ~~any accumulated~~accrued and unpaid ~~distributions thereon~~interest to, but excluding, the date of redemption. ~~Prior redemption~~

The subordinated notes are included on the consolidated balance sheets as liabilities at their carrying values; however, for regulatory purposes, the carrying value of these obligations were eligible for inclusion in Tier 2 regulatory capital. Issuance costs related to the subordinated notes have been netted against the subordinated notes liability on the balance sheet. The debt issuance costs are being amortized using the effective interest method through maturity and recognized as a component of interest expense.

The subordinated notes, which are held at Veritex, of $75.0 million and $125.0 million have a repricing date of November 15, 2024 and October 15, 2025, respectively. The Company is ~~permitted under certain circumstances.~~evaluating the impact of such repricing and specifically its impact on capital ratios and earnings per share to determine the most appropriate decision upon each respective repricing date.

~~In connection~~

Junior subordinated debentures

The table below details our junior subordinated debentures. Refer to Note 13 "Subordinated Debentures and Subordinated Notes" for further discussion on the details of our junior subordinated debentures.


	Balance		Maturity Date	Variable Interest Rate	Interest Rate at December 31, 2023
Parkway Trust Securities	$	3,093	2036	SOFR + 1.85%	7.50	%
SovDallas Trust Securities	8,609		2038	SOFR + 4.00%	9.66
Patriot I Capital Trust I	5,155		2037	SOFR + 1.85%	7.51
Patriot II Capital Trust II	17,011		2038	SOFR + 1.80%	7.45
Total	$	33,868

These debentures are unsecured obligations and were issued to trusts that are unconsolidated subsidiaries. The trusts in turn issued trust preferred securities with ~~the acquisition of Sovereign on August 1, 2017,~~identical payment terms to unrelated investors. The debentures may be called by the Company assumed $8.6 million in floating rate junior subordinated debentures underlying common securities and preferred capital securities, or the SovDallas Trust Securities, issued by SovDallas Capital Trust I (“SovDallas Trust”), a statutory business trust and acquired wholly-owned subsidiary of the Company. The Company assumed the guarantor position and as such, unconditionally guarantees payment ofat par plus any accrued ~~and~~but unpaid ~~distributions required~~interest; however, we have no current plans to ~~be paid on the SovDallas Trust Securities subject~~redeem them prior to certain exceptions, the redemption price when a capital security is called for redemption and amounts due if a trust is liquidated or terminated. The Company also owns all of the outstanding common securities of the SovDallas Trust.

The SovDallas Trust invested the total proceeds from the sale of the SovDallas Trust Securities and the investment in common shares in floating rate junior subordinated debentures originally issued by Sovereign.maturity. Interest on the ~~SovDallas Trust Securities~~debentures is ~~payable~~calculated quarterly, atbased on a rate equal to ~~3-month LIBOR~~three month SOFR plus ~~4.0%~~a weighted average spread of 2.37%. ~~Principal payments~~

The debentures are ~~due at maturity~~included on our consolidated balance sheet as liabilities; however, for regulatory purposes, these obligations are eligible for inclusion in ~~July 2038. The effective rate~~regulatory capital, subject to certain limitations. All of the carrying value of $33.9 million was allowed in the calculation of Tier I capital as of December 31, 2017 was 5.34%. The SovDallas Trust Securities are guaranteed by the Company and are subject to redemption. The Company may redeem the debt securities, in whole or in part, at any time at an amount equal to the principal amount of the debt securities being redeemed plus any accrued and unpaid interest.2023

~~The Parkway Trust Securities and SovDallas Trust Securities qualify as Tier 1 capital, subject to regulatory limitations, under guidelines established by the Federal Reserve.~~

~~Subordinated notes.~~ During 2013, the Company issued, in the aggregate principal amount of $5.0 million, subordinated promissory notes (“Notes”) via a private offering. The Notes were issued to certain entities controlled by an affiliate of the Company for the purpose of using the proceeds to support the growth of the Company. The Notes are unsecured, with interest payable quarterly at a fixed rate of 6.0% per annum, and unpaid principal and interest on the notes is due at the stated maturity on December 31, 2023. The Notes qualify as Tier 2 Capital, subject to regulatory limitations, under guidelines established by the Federal Reserve. In addition, we may redeem the Notes in whole or in part on any interest payment date that occurs on or after December 23, 2018 subject to approval of the Federal Reserve in compliance with applicable statutes and regulations.

Under the terms of the Notes, if we have not paid interest on the Notes within 30 days of any interest payment date, or if our classified assets to total tangible capital ratio exceeds 40.0%, then the Note holder that holds the greatest aggregate principal amount of the Notes may appoint one representative to attend meetings of our board of directors as an observer. The board observation rights terminate when such overdue interest is paid or our classified assets to total tangible capital ratio no longer exceeds 40.0%. In addition, the terms of the Notes provide that the Note holders will have the same rights to inspect our books and records provided to holders our common stock under Texas law.

In connection with the issuance of the Notes, we also issued warrants to purchase 25,000 shares of our common stock, at an exercise price of $11.00 per share, exercisable at any time, in whole or in part, on or prior to December 31, 2023.

As of December 31,
2017 2016 2015
Junior subordinated debentures $ 11,702
$ 3,093
$ 3,093
Subordinated notes⁽¹⁾
4,987
4,942
4,934
Total $ 16,689
$ 8,035
$ 8,027

~~(1) Excludes discount of $13, $15, and $19 and issuance costs of $36, $43, and $55 as of December 31, 2017, 2016, and 2015 respectively.~~

~~Branch assets and liabilities held for sale~~

On October 23, 2017, the Company entered into a Purchase and Assumption Agreement to sell certain assets and liabilities associated with two branch locations in the Austin metropolitan market. On January 1, 2018, the Company completed the sale of these assets and liabilities to Horizon Bank, SSB. The Company determined that this transaction met the criteria for held for sale as of December 31, 2017 with branch assets held for sale primarily comprised of $26.3 million in loans held for sale and branch liabilities primarily comprised of $64.3 million in deposits held for sale. The completion of this sale resulted in the Company exiting the Austin market. For further information, see Note 1 – Summary of Significant Accounting Policies and Note 25 – Branch Assets and Liabilities Held for Sale in the accompanying Notes to the Consolidated Financial Statements included in Item 8 of this report.

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. The Company’s liquidity strategy is guided by policies, formulated and monitored by senior management and the Asset and Liability Management Committee which take into account the demonstrated marketability of the Company’s assets, the sources and stability of its funding and the level of unfunded commitments. The Company regularly evaluates all of its various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. For the years ended December 31, ~~2017, 2016~~2023, 2022 and ~~2015,~~2021, our liquidity needs were primarily met by core deposits, wholesale borrowings, ~~proceeds from the sale of common stock in an underwritten public offering during 2017,~~ 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 ~~two~~five lines of credit with commercial banks that provide for extensions of credit with an availability to borrow up to an aggregate ~~$55~~amount of $125.0 million as of December 31, ~~2017~~2023 and ~~$14.6~~$175.0 million as of December 31, ~~2016 and 2015.~~2022. There were no advances under these lines of credit outstanding as of December 31, ~~2017, 2016~~2023 and ~~2015.~~2022.

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 ~~$2.0~~$12.28 billion for the year ended December 31, ~~2017, $1.2~~2023, $10.99 billion for the year ended December 31, ~~2016~~2022 and ~~$898.8 million~~$9.36 billion for the year ended December 31, ~~2015.~~2021.


	For the Years Ended							For the Years Ended
	December 31,							December 31,
	2017		2016		2015			2023		2022		2021
Sources of Funds:							Sources of Funds:
Deposits:							Deposits:
Noninterest-bearing	21.5	%	25.5	%	29.8	%	Noninterest-bearing	18.8	%	25.3	%	24.1	%
Interest-bearing	58.0		57.9		52.8
Certificates and other time deposits
Advances from FHLB	2.6		3.7		2.0
Other borrowings	0.7		0.7		1.0
Other liabilities	0.3		0.2		0.3
Stockholders’ equity	16.9		12.0		14.1
Total	100	%	100	%	100	%	Total	100	%	100	%	100	%
Uses of Funds:							Uses of Funds:
Loans	72.3	%	77.2	%	77.6	%	Loans	77.3	%	74.9	%	73.2	%
Securities available for sale	8.6		7.1		6.6
Securities AFS
Interest-bearing deposits in other banks	10.2		7.8		7.9
Other noninterest-earning assets	8.9		7.9		7.9
Total	100	%	100	%	100	%	Total	100	%	100	%	100	%
Average noninterest-bearing deposits to average deposits	27.0	%	30.5	%	36.0	%	Average noninterest-bearing deposits to average deposits	24.4	%	33.4	%	32.3	%
Average loans to average deposits	90.8	%	92.5	%	93.9	%
Average loans, to average deposits							Average loans, to average deposits	97.5	%	94.6	%	89.9	%

VERITEX HOLDINGS, INC. AND ~~SUBSIDIARY~~SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Years Ended December 31, ~~2017, 2016~~2023, 2022 and ~~2015~~2021

(Dollars in thousands)

Year Ended December 31,
2017 2016 2015
Net income $ 15,152
$ 12,551
$ 8,790
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale arising during the period, net 493
(1,661 ) (469 )
Reclassification adjustment for net gains included in net income 222
15
7
Other comprehensive income (losses) before tax 271
(1,676 ) (476 )
Income tax expense (benefit) 76
(570 ) (162 )
Other comprehensive income (loss), net of tax 195
(1,106 ) (314 )
Comprehensive income $ 15,347
$ 11,445
$ 8,476


	Year Ended December 31,
	2023		2022		2021
NET INCOME	$	108,261	$	146,315	$	139,584
OTHER COMPREHENSIVE INCOME
Net unrealized gains (losses) on debt securities AFS:
Change in net unrealized gains (losses) on debt securities AFS during the period, net	5,752		(131,005)		(23,596)
Amortization from transfer of debt securities from AFS to HTM	3,122		3,790		—
Reclassification adjustment for net losses included in net income	5,321		—		188
Net unrealized gains (losses) on securities AFS	14,195		(127,215)		(23,408)

Net unrealized (losses) gains on derivative instruments designated as cash flow hedges	(7,744)		(41,499)		33,338
Other comprehensive income (loss), before tax	6,451		(168,714)		9,930
Income tax expense (benefit)	511		(35,241)		2,085
Other comprehensive income (loss), net of tax	5,940		(133,473)		7,845
COMPREHENSIVE INCOME	$	114,201	$	12,842	$	147,429

See accompanying Notes to Consolidated Financial Statements

VERITEX HOLDINGS, INC. AND ~~SUBSIDIARY~~SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

Years Ended December 31, ~~2017, 2016~~2023, 2022 and ~~2015~~2021

(Dollars in ~~thousands)~~

Preferred
Stock
Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Unallocated
Employee
Stock
Ownership
Plan Shares

Treasury
Stock

Shares Amount Total
Balance at January 1, 2015 $ 8,000
9,470,832
$ 95
$ 97,469
$ 8,047
$ 172
$ (401 ) (70 ) $ 113,312
Restricted stock units vested, net of 10,025 shares withheld to cover tax withholdings —
26,426
—
(159 ) —
—
—
—
(159 )
Exercise of employee stock options —
21,000
—
210
—
—
—
—
210
Preferred stock dividend Series C —
—
—
—
(98 ) —
—
—
(98 )
Redemption of SBLF preferred stock Series C (8,000 ) —
—
—
—
—
—
—
(8,000 )
Issuance of shares to ESOP —
9,147
—
115
—
—
(5 ) —
110
ESOP Shares Allocated —
—
—
12
—
—
97
—
109
Common stock issued for acquisition of IBT Bancorp, Inc., net of offering costs of $252 —
1,185,067
12
17,441
—
—
—
—
17,453
Stock based compensation —
—
—
633
—
—
—
—
633
Net income —
—
—
—
8,790
—
—
—
8,790
Other comprehensive loss —
—
—
—
—
(314 ) —
—
(314 )
Balance at December 31, 2015 $ —
10,712,472
$ 107
$ 115,721
$ 16,739
$ (142 ) $ (309 ) $ (70 ) $ 132,046
Restricted stock units vested, net of 10,384 shares withheld to cover tax withholdings —
38,106
—
(175 ) —
—
—
—
(175 )
Stock issued for acquisition of bank, net offering cost of $489 —
4,444,750
45
94,473
—
—
—
—
94,518
Stock based compensation —
—
—
983
—
—
—
—
983
Excess tax benefit from stock compensation —
—
—
162
—
—
—
—
162
ESOP Shares Allocated —
—
—
9
—
—
100
—
109
Net income —
—
—
—
12,551
—
—
—
12,551
Other comprehensive loss —
—
—
—
—
(1,106 ) —
—
(1,106 )
Balance at December 31, 2016 $ —
15,195,328
$ 152
$ 211,173
$ 29,290
$ (1,248 ) $ (209 ) $ (70 ) $ 239,088
Restricted stock units vested, net of 11,601 shares withheld to cover tax withholdings —
43,602
—
(312 ) —
—
—
—
(312 )
Exercise of employee stock options, net of 1,095 shares withheld to cover taxes —
17,949
—
169
—
—
—
—
169
Issuance of common shares in connection to Sovereign Bancshares, Inc. merger, net of offering costs of $438 —
5,117,642
51
135,896
—
—
—
—
135,947
Issuance of common shares in connection to Liberty merger, net of offering costs of $334 —
1,449,944
14
39,989
—
—
—
—
40,003
Sale of common stock in public offering, net of offering costs of $288 —
2,285,050
24
56,657
—
—
—
—
56,681
Issuance of preferred stock, series D in connection with the acquisition of Sovereign Bancshares, Inc. 24,500
—
—
24,500
—
—
—
—
49,000
Redemption of preferred stock, series D (24,500 ) —
—
(24,500 ) —
—
—
—
(49,000 )
Stock based compensation —
—
—
1,939
—
—
—
—
1,939
ESOP Shares Allocated —
—
—
6
—
—
103
—
109
Net income —
—
—
—
15,152
—
—
—
15,152
Preferred stock, series D dividend —
—
—
—
(42 ) —
—
—
(42 )
Reclassification of certain deferred tax effects —
—
—
��
227
(227 ) —
—
—
Other comprehensive income —
—
—
—

195
—
—
195
Balance at December 31, 2017 $ —
24,109,515
$ 241
$ 445,517
$ 44,627
$ (1,280 ) $ (106 ) $ (70 ) $ 488,929
thousands, except share data)


		Common Stock					Treasury Stock				APIC		Retained Earnings		AOCI
	Shares		Amount			Shares		Amount									Total
Balance at December 31, 2020		49,337,768		$	555		6,162,350		$	(152,073)	$	1,126,437	$	172,232	$	56,225		$	1,203,376
RSUs vested, net of 23,613 shares withheld to cover taxes		118,454		2			—		—		(579)		—		—			(577)
Exercise of employee stock options, net of 13,015 and 71,089 shares withheld to cover taxes and exercise, respectively		376,851		3			—		—		6,162		—		—			6,165
Stock warrants exercised		15,000		—			—		—		165		—		—			165
Stock buyback		(475,744)		—			475,744		(15,509)		—		—		—			(15,509)
Stock based compensation				—			—		—		10,573		—		—			10,573
Net income		—		—			—		—		—		139,584		—			139,584
Dividends paid		—		—			—		—		—		(36,543)		—			(36,543)

Other comprehensive income		—		—			—		—		—		—		7,845			7,845
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 83,447 shares withheld to cover taxes		259,733		3			—		—		(3,366)		—		—			(3,363)
Exercise of employee stock options, net of 6,904 and 28,064 shares withheld to cover taxes and exercise, respectively		83,419		1			—		—		1,159		—		—			1,160
Common stock follow on offering		4,314,474		43			—		—		154,372		—		—			154,415

Stock based compensation		—		—			—		—		11,929		—		—			11,929
Net income		—		—			—		—		—		146,315		—			146,315
Dividends paid		—		—			—		—		—		(42,289)		—			(42,289)
Other comprehensive loss		—		—			—		—		—		—		(133,473)			(133,473)
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 92,134 shares withheld to cover taxes		246,604		3			—		—		(2,310)		—		—			(2,307)
Exercise of employee stock options, net of 121 and 9,729 shares withheld to cover taxes and exercise, respectively		61,809		—			—		—		924		—		—			924



Stock based compensation		—		—			—		—		12,050		—		—			12,050
Net income		—		—			—		—		—		108,261		—			108,261
Dividends paid		—		—			—		—		—		(43,318)		—			(43,318)
Other comprehensive income		—		—			—		—		—		—		5,940			5,940
Balance at December 31, 2023		54,338,368		$	610		6,638,094		$	(167,582)	$	1,317,516	$	444,242	$	(63,463)		$	1,531,323

See accompanying Notes to Consolidated Financial Statements

VERITEX HOLDINGS, INC. AND ~~SUBSIDIARY~~SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended December 31, ~~2017, 2016~~2023, 2022 and ~~2015~~2021

(Dollars in thousands)

Year Ended December 31,
2017 2016 2015
Cash flows from operating activities:
Net income $ 15,152
$ 12,551
$ 8,790
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,836
1,704
1,418
Provision for loan losses 5,114
2,050
868
Accretion of loan purchase discount (3,783 ) (425 ) (194 )
Stock-based compensation expense 1,939
983
633
Excess tax benefit from stock compensation (268 ) (162 ) —
Deferred tax expense (benefit) 5,143
(1,366 ) (375 )
Net amortization of premiums on investment securities 1,771
1,025
498
Change in cash surrender value of bank-owned life insurance (589 ) (618 ) (613 )
Net gain on sales of investment securities (222 ) (15 ) (7 )
Gain on sales of loans held for sale (942 ) (3,288 ) (1,254 )
Gain on sales of SBA loans (1,940 ) —
—
Net gain on sales of other real estate owned (259 ) —
(19 )
Amortization of subordinated note discount and debt issuance costs 45
8
2
Net originations of loans held for sale (48,567 ) (70,773 ) (39,614 )
Proceeds from sale of loans held for sale 53,876
69,801
46,344
Write down on real estate owned 37
114
—
Decrease (increase) in accrued interest receivable and other assets (1,204 ) (1,728 ) (342 )
(Decrease) increase in accounts payable, accrued expenses, accrued interest payable and other liabilities (1,477 ) 999
72
Net cash provided by operating activities 26,662
10,860
16,207
Cash flows from investing activities:
Cash paid in excess of cash received for the acquisition of Sovereign Bancshares, Inc. (11,440 ) —
—
Cash received in excess of cash paid for the acquisition of Liberty Bancshares, Inc. 32,375
—
—
Cash received in excess of cash paid for the acquisition of IBT Bancorp, Inc. —
—
11,150
Purchases of securities available for sale (839,963 ) (357,187 ) (344,813 )
Sales of securities available for sale 159,869
8,378
3,779
Proceeds from maturities, calls and pay downs of investment securities 773,702
319,377
314,029
Sales (purchases) of non-marketable equity securities, net 2,481
(3,199 ) 762
Net loans originated (229,402 ) (190,184 ) (135,977 )
Proceeds from sale of SBA loans 30,355
20,574
7,365
Net additions to bank premises and equipment (40,571 ) (1,075 ) (2,392 )
Net intangible assets and lease obligations related to the purchase of our corporate building (4,181 ) —
—
Proceeds from sales of other real estate owned 1,920
—
124
Net cash used in investing activities (124,855 ) (203,316 ) (145,973 )
Cash flows from financing activities:
Net change in deposits 18,065
251,220
132,241
Net (decrease) increase in advances from Federal Home Loan Bank (47,142 ) 9,862
(15,059 )
Net proceeds from sale of common stock in public offering 56,681
94,518
—
Net change in other borrowings 10,375
—
(926 )
Redemption of preferred stock (24,500 ) —
(8,000 )
Dividends paid on preferred stock (227 ) —
(98 )
Proceeds from exercise of employee stock options 175
—
210
Payments to tax authorities for stock-based compensation (318 ) (175 ) (159 )
Excess tax benefit from stock compensation —
162
—
Proceeds from payments on ESOP Loan 109
109
109
Offering costs paid in connection with acquisitions (772 ) —
(252 )
Net cash provided by financing activities 12,446
355,696
108,066
Net (decrease) increase in cash and cash equivalents (85,747 ) 163,240
(21,700 )
Cash and cash equivalents at beginning of year 234,791
71,551
93,251
Cash and cash equivalents at end of year $ 149,044
$ 234,791
$ 71,551


	Year Ended December 31,
	2023		2022		2021
OPERATING ACTIVITIES:
Net income	$	108,261	$	146,315	$	139,584
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles	19,485		18,668		15,731
Net accretion of time deposit premium, debt discount and debt issuance costs	(134)		977		(713)
Provision (benefit) for credit losses and unfunded commitments	40,471		27,770		(4,830)
Accretion of loan discounts	(3,882)		(5,047)		(7,193)
Stock-based compensation expense	12,050		11,929		10,573
Deferred tax (benefit) expense	(2,649)		(5,662)		4,647
Excess tax expense (benefit) from stock compensation	340		(1,056)		(838)
Net amortization of premiums on debt securities	2,135		4,708		2,885
Unrealized (gain) loss on equity securities recognized in earnings	(105)		1,246		325
Change in cash surrender value and mortality rates of BOLI	(337)		(1,302)		(339)
Net loss on sales of debt securities	5,321		—		188
Change in fair value of government guaranteed loans using fair value option	(4,417)		(1,072)		(1,845)
Gain on sales of mortgage LHFS	(77)		(550)		(1,592)
Gain on sales of government guaranteed loans	(15,565)		(12,988)		(6,194)
Originations of LHFS	(92,375)		(52,991)		(119,989)
Proceeds from sales of LHFS	53,410		61,130		112,606
Servicing asset (recoveries) impairment, net	(919)		1,823		71
Loss on sales of OREO	—		—		416
Equity method investment loss (income)	1,172		5,141		(5,760)
Impairment on equity method investment	29,417		—		—

Termination of derivatives designated as hedging instruments	—		—		43,900



(Increase) decrease in other assets	(44,484)		(55,770)		11,139
Increase in accounts payable and other liabilities	36,969		49,457		719
Net cash provided by operating activities	144,087		192,726		193,491
INVESTING ACTIVITIES:


Net cash paid for acquisitions	—		—		(55,522)
Purchases of AFS debt securities	(1,377,537)		(452,599)		(201,385)
Proceeds from sales of AFS debt securities	109,793		—		13,300
Proceeds from maturities, calls and pay downs of AFS debt securities	1,295,897		103,683		193,227
Purchases of HTM debt securities	—		(17,460)		(32,286)
Maturity, calls and paydowns on HTM debt securities	4,004		4,487		3,370
Purchases of equity method securities	—		—		(54,970)
Purchases of other investments	46,317		(35,393)		(1,436)
Sales (purchases) of securities under agreements to resell	—		102,288		(102,288)

Net loans originated	(215,899)		(2,193,503)		(626,512)
Proceeds from sale of government guaranteed loans	91,776		93,739		44,912

Net additions to premises and equipment	(1,854)		(4,620)		(13,575)
Proceeds from sales of premises and equipment	—		—		14,551
Proceeds from sales of OREO and repossessed assets	—		—		2,225
Net cash used in investing activities	(47,503)		(2,399,378)		(816,389)
FINANCING ACTIVITIES:
Net increase in deposits	1,216,103		1,759,653		851,468
Proceeds from FHLB advances	48,817,233		35,049,938		—
Repayments of FHLB advances	(49,892,233)		(34,652,500)		(156)
Redemption of subordinated debt	—		—		(35,000)

Net change in securities sold under agreement to repurchase	—		(4,069)		1,844
Net proceeds on sale of common stock in public offering	—		154,415		—
Proceeds from exercise of employee stock options	924		1,160		6,313
Payments to tax authorities for stock-based compensation	(2,307)		(3,363)		(725)
Proceeds from exercise of stock warrants	—		—		165
Purchase of treasury stock	—		—		(15,509)
Dividends paid	(43,318)		(42,289)		(36,543)



Net cash provided by financing activities	96,402		2,262,945		771,857
Net increase in cash and cash equivalents	192,986		56,293		148,959
Cash and cash equivalents at beginning of year	436,077		379,784		230,825
Cash and cash equivalents at end of year	$	629,063	$	436,077	$	379,784

See accompanying Notes to Consolidated Financial Statements

VERITEX HOLDINGS, INC. AND ~~SUBSIDIARY~~SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except for per share amounts)

1. ~~Summary of Significant Accounting Policies~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of ~~Operations~~Organization

In this report, the words, "Veritex," "the Company," "we," "us," and ~~Principles~~"our" refer to the combined entities of ~~Consolidated Financial Statements~~

~~The consolidated financial statements include~~ Veritex Holdings, Inc. ~~(“Veritex” or the “Company”), whose business at December 31, 2017 primarily consisted of the operations of~~and its ~~wholly owned subsidiary,~~subsidiaries, including Veritex Community ~~Bank (the “Bank”).~~Bank. The word "Holdco" refers to Veritex Holdings, Inc.. The words "the Bank" refers to Veritex Community Bank.

The accounting principles followed by the Company and the methods of applying them are in conformity with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices of the banking industry. Intercompany transactions and balances are eliminated in consolidation.

Veritex is a Texas state banking organization, with corporate offices in Dallas, Texas, and currently operates ~~twenty~~18 branches ~~and one mortgage office~~ located in the Dallas-Fort Worth metroplex and ~~one branch~~11 branches in the Houston metropolitan area. The Bank provides a full range of banking services to individual and corporate customers, which include commercial and retail lending, and the acceptance of checking and savings deposits. The ~~Texas Department of Banking~~TDB and the Board of Governors of the Federal Reserve ~~System~~ are the primary regulators of the Company and the Bank, ~~which~~and both regulatory agencies perform periodic examinations to ensure regulatory compliance.

~~Accounting Standards Codification~~The accounting principles followed by the Company and the methods of applying them are in conformity with U.S. GAAP and prevailing practices of the banking industry. Intercompany transactions and balances are eliminated in consolidation.

ASC

The ~~Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)~~FASB ASC is the officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

Segment Reporting

The Company has one reportable segment. All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each ~~of the activities~~activity of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and borrowings while managing ~~the~~ interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Bank as one segment or unit. The Company’s chief operating decision-maker, the Chief Executive Officer, uses the consolidated results to make operating and strategic decisions.

Reclassifications

Effective January 1, 2017, the Company adopted ASU 2016-09. Per ASU 2016-09, cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity and for presentation purposes be applied retrospectively. We have retrospectively reclassified $175 and $159 of shares withheld for tax-withholding purposes from an operating activity to a financing activity in our consolidated statements of cash flows for December 31, 2016 and December 31, 2015, respectively.

~~The Company also early adopted ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of~~ Certain ~~Tax Effects from Accumulated Other Comprehensive Income” (ASU 2018-02)~~items in the ~~fourth quarter 2017. ASU 2018-02, issued in February 2018, provides for~~Company's prior year financial statements were reclassified to conform to the reclassification of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income (“AOCI”) to retained earnings resulting from the Tax Cuts and Jobs Act (the “Tax Act”) of 2017. As a result, the Company reclassified $227 from AOCI to retained earnings.current presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates. The allowance for ~~loan~~credit losses, the fair values of financial instruments, realization of deferred tax assets, and the status of contingencies are particularly subject to change.

Cash and Cash Equivalents

~~For the purposes of reporting cash flows, cash~~Cash and cash equivalents include ~~cash on hand,~~ amounts due from banks, interest-bearing deposits in other banks and federal funds sold.

The Bank maintains deposits with other financial institutions in amounts that exceed federal deposit insurance coverage. Furthermore, federal funds sold are essentially uncollateralized loans to other financial institutions. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Company is not exposed to any significant credit risks on cash and cash equivalents.

~~Restrictions on Cash~~

The Bank is required to maintain regulatory reserve balances with the Federal Reserve Bank. The reserve balances required as of December 31, 2017 and 2016 were approximately $64.3 million and $26.4 million, respectively.

~~Investment~~Debt Securities

~~Securities~~Debt securities that the Company has both the positive intent and ability to hold to maturity are classified as ~~held to maturity~~HTM and are carried at amortized cost. ~~Securities~~Debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity, are classified as ~~available for sale~~AFS and are carried at fair value. Unrealized gains and losses on debt securities classified as ~~available for sale~~AFS have been accounted for as accumulated other comprehensive income (loss), net of taxes. Management determines the appropriate classification of debt securities at the time of purchase.

Interest income includes amortization of purchase premiums and ~~discounts.~~discounts over the period to maturity using a level-yield method, except for premiums on callable debt securities. Realized gains and losses are ~~derived~~recorded on the sale of debt securities in noninterest income.

The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in other assets on the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the years ended December 31, 2023, 2022 and 2021.

Transfers of debt securities from AFS to HTM

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

Equity Securities

Equity securities are recorded at fair value, with unrealized gains and losses included in other noninterest income. 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 ~~available~~the same issuer. Dividends on equity securities are recorded in interest income for equity securities and other investments. Realized gains and losses are recorded on the sale of equity securities ~~below their cost that are deemed to be other than temporary are reflected~~ in ~~earnings as realized losses, with the remaining unrealized loss recognized as~~gain (loss) on sales of securities. The Company recorded no impairment for equity securities without a ~~component of other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the~~readily determinable fair value ~~has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer~~ for ~~a period of time sufficient to allow for any anticipated recovery in fair value. For~~ the years ended December 31, ~~2017, 2016~~2023 and ~~2015 there were~~2022.

ACL – AFS Debt Securities

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

Changes in the ACL are recorded as provision for (or benefit of) credit loss expense. Losses are charged against the allowance when management believes the non-collectability of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on AFS debt securities is excluded from the estimate of credit losses.

ACL – HTM Debt Securities

Management measures expected credit losses on HTM debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on HTM debt securities is excluded from the estimate of credit losses.

Management classifies the HTM portfolio into the following major security types: mortgage-backed securities, collateralized mortgage obligations and municipal securities. All of the mortgage-backed securities and collateralized mortgage obligations held by the Company are issued by U.S. government entities and agencies. These debt securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no ~~other-than-temporary~~credit losses.

FHLB and FRB Stock

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 ~~losses reflected~~based on ultimate recovery of par value. Dividends are recorded in ~~earnings as realized losses.~~interest income for equity securities and other investments.

LHFS

Loans ~~Held for Sale~~

~~Loans held for sale~~are classified as held-for-sale when management has positively determined that the loans will be sold in the foreseeable future and the Company has the intent and ability to do so. The Company’s held-for-sale loans typically consist of certain government guaranteed loans or mortgage loans. The classification may be made upon origination or subsequent to origination or purchase. Once a decision has been made to sell loans ~~originated~~not previously classified as held-for-sale, such loans are transferred into the held-for-sale classification and ~~intended for sale in the secondary market and are~~ carried at the lower of cost or estimated fair value on an individual loan ~~basis.~~basis, except for those held-for-sale loans for which the Company elects to use the fair value option. The fair value of loans held-for-sale is based on commitments from investors or prevailing market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. The Company obtains commitments to purchase the loans from ~~the~~ secondary market investors prior to closing of the loans. ~~Loans held for sale~~Mortgage LHFS are sold with servicing released. Gains and losses on sales of ~~loans held for sale~~LHFS are based on the difference between the selling price and the carrying value of the related loan sold.

~~Loans and Allowance~~Fair Value Option

On a specific identification basis, the Company may elect the fair value option for ~~Loan Losses~~

~~Loans, excluding~~ certain ~~purchased~~financial instruments in the period the financial instrument was originated or acquired. As of December 31, 2023, the Company had held for sale government guaranteed loans that ~~have shown evidence~~the Company has elected to carry at fair value. Changes in fair value for instruments using the fair value option are recorded in noninterest income. The Company had an increase in fair value for loans the Company elected to carry at fair value of ~~deterioration since origination~~$4,417 for the year ended December 31, 2023 as compared to a decrease in the fair value for loans the Company elected to carry at fair value of $1,072 for the year ended December 31, 2022. There was an increase of $1,845 in fair value for loans using the fair value option for the year ended December 31, 2021.

Gain on Sale of Guaranteed Portion of SBA and USDA Loans

The Company originates loans to customers under government guaranteed programs that generally provide for guarantees of 50% to 90% of each loan, subject to a maximum guaranteed amount. The Company can sell the guaranteed portion of the loan in an active secondary market and retains the unguaranteed portion in its portfolio.

All sales of government guaranteed loans are executed on a servicing retained basis, and the Company retains the rights and obligations to service the loans. The standard sale structure provides for the Company to retain a portion of the cash flow from the interest payment received on the loan. When a loan sale involves the transfer of an interest less than the entire loan, the controlling accounting method under FASB ASC 860, Transfers and Servicing, requires the seller to reallocate the carrying basis between the assets transferred and the assets retained based on the relative fair value of the respective assets as of

the date of sale. The maximum gain on sale that can be recognized is the ~~acquisition,~~difference between the fair value of the assets sold and the reallocated basis of the assets sold. The gain on sale, which is recognized in gain on sale of SBA LHFS and gain on sale of USDA LHFS on the consolidated statements of income, is the sum of the cash premium on the guaranteed loan and the fair value of the servicing assets recognized, less the discount recorded on the unguaranteed portion of the loan retained by the Company. For the years ended December 31, 2023, 2022 and 2021, the Company recognized $15,565, $12,988, and $6,194, respectively, of gain on sales of government guaranteed loans.

Gain on Sale of Mortgage LHFS

Certain mortgage LHFS are sold with servicing released. Gains and losses on sales of mortgage LHFS are based on the difference between the selling price and the carrying value of the loan sold.

LHI

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or ~~pay-off~~payoff are ~~stated~~reported at amortized cost, net of the ~~amount~~ACL. Amortized cost is the principal balance outstanding, net of ~~unpaid principal, reduced by unearned income~~purchase premiums and ~~an allowance for~~discounts, fair value hedge accounting adjustments, deferred loan ~~losses.~~ fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the Consolidated Balance Sheets.

Interest on loans is recognized using the effective-interest method on the daily balances of the principal amounts outstanding. ~~Fees associated with the~~Loan origination fees, net of ~~loans and~~ certain direct ~~loan~~ origination costs, are ~~netted and the net amount is~~ deferred and recognized ~~over~~in interest income using the ~~life~~level-yield method without anticipating prepayments.

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 ~~as an adjustment of yield.~~

agreement. The accrual of interest on loans is discontinued when, ~~there is a clear indication that~~in management’s opinion, the ~~borrower’s cash flow~~borrower may ~~not~~ be ~~sufficient~~unable to meet ~~payments~~payment obligations as they ~~become~~come due, ~~which is generally no later than~~as well as when ~~a loan is 90 days~~required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When a loan is placed on ~~non-accrual~~nonaccrual status, all ~~previously~~interest accrued ~~and unpaid~~but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is ~~reversed. Interest~~accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is ~~subsequently~~not recognized ~~on a cash basis as long as~~until the ~~remaining book~~loan balance ofis reduced to zero. Under the ~~asset~~cash-basis method, interest income is ~~deemed to be collectible. If collectability~~recorded when the payment is ~~questionable, then cash payments are applied to principal.~~received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably ~~assured in accordance with the terms of the loan agreement.~~assured.

ACL - Loans

The ~~allowance for loan losses~~ACL is ~~an estimated~~a valuation account that is deducted from the LHI amortized cost basis to present the net amount ~~management believes is adequate~~expected to ~~absorb inherent losses~~be collected on ~~existing loans that may be uncollectible based upon review and evaluation of~~LHI.

The Company estimates the ~~loan portfolio. Management’s periodic evaluation of the allowance is~~ACL on LHI based on ~~general economic conditions,~~ the ~~financial condition of borrowers,~~underlying assets’ amortized cost basis, which is the ~~value and liquidity of collateral, delinquency, prior loan loss experience, and~~amount at which the ~~results of periodic reviews of the portfolio. The allowance for loan losses~~financing receivable is comprised of two components: the general reserve and specific reserves. The general reserve is determined in accordance with current authoritative accounting guidance. The Company’s calculation of the general reserve considers historical loss rates for the last three yearsoriginated or acquired, adjusted for ~~qualitative factors based upon general economic conditions~~applicable accretion or amortization of premium, discount, and ~~other qualitative risk factors both internal~~net deferred fees or costs, collection of cash, and ~~external~~charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the ~~Company. Such qualitative factors include current local economic conditions and trends including unemployment, changes in lending staff, policies and procedures, changes in~~Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio thatlosses are ~~not~~ reflected in the ~~Company’s historic~~ACL through a charge to provision for credit loss ~~factors. For purposes of determining~~expense. When the general reserve, the loan portfolio, less cash secured loans, government guaranteed loans and impaired loans, is multiplied by the Company’s adjusted historical loss rate. Specific reserves are determined in accordance with current authoritative accounting guidance based on probable losses on specific classified loans.

~~The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).~~

~~Due to the growth of the Bank over the past several years,~~Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, an asset will typically be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective, or pool, basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a DCF method or a loss-rate method to estimate expected credit losses. The Company uses a PD/LGD model to estimate expected credit losses for our PCD loans ~~in its portfolio~~ and ~~its lending relationships~~pools acquired prior to January 1, 2020.

at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of ~~relatively recent origin.~~ financial assets with similar risk characteristics for which the historical loss experience was observed.

The ~~new loan portfolios have limited delinquency and~~Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit ~~loss history and have not yet exhibited an observable loss trend. The credit quality~~losses:

Real Estate — This category of loans ~~in theses~~consists of the following loan ~~portfolios are impacted~~types:

Construction and land — This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of owner occupied and non-owner occupied residential and commercial properties, and loans secured by ~~delinquency status and debt service coverage generated~~raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the ~~borrowers’ business and fluctuations in~~builder for the ~~value of real estate collateral. Management considers delinquency status to be the most meaningful indicator~~end user, or sale of the ~~credit quality~~property to a third party. Repayment of ~~one-to-four single~~land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt.

Farmland — These loans are principally loans to purchase farmland.

1-4 family residential ~~home~~— This category of loans includes both first and junior liens on residential real estate. Home equity ~~loans and~~revolving lines of credit and ~~other consumer~~home equity term loans are included in this group of loans. ~~In general,~~

Multi-family residential — This category of loans ~~do not begin~~is primarily secured by non-owner occupied apartment or multifamily residential buildings. Generally, these types of loans are thought to ~~show signs~~involve a greater degree of credit ~~deterioration or default until~~risk than owner occupied CRE as they ~~have been outstanding for some period~~are more sensitive to adverse economic conditions.

OOCRE — This category of ~~time, a process the Company refers to as “seasoning.” As a result, a portfolio of older~~ loans will usually behave more predictably than a portfolio of newer loans. Because the majority of the portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels.

~~Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial, construction, and commercial~~includes real estate ~~loans. Internal risk ratings are a key factor in identifying~~ loans that are individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the allowance for loan losses. Internal risk ratings are updated on a continuous basis.

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is recorded, if necessary. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

The Company’s policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral. Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price. At December 31, 2017 and 2016, all significant impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral.

From time to time, the Company modifies its loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by the Company that would not otherwise be considered for a ~~borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction~~variety of ~~principal, or a longer term to maturity. All troubled debt restructurings are considered impaired loans. The Company reviews each troubled debt restructured loan~~commercial property types and determines on a case by case basis if a specific valuation allowance is required. A specific valuation allowance is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.

The Company has certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.

Real estate loans are also subject to underwriting standards and processes similar to commercial loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate.purposes. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are generally diverse in terms of type and geographic location, throughout the Dallas-Fort Worth metroplex and Houston metropolitan area. This diversity helps reduce the exposure to adverse economic events that may affect any single market or industry.

~~The Company utilizes methodical credit standards and analysis to supplement its policies and procedures in underwriting consumer loans. The Company’s loan policy addresses types~~

NOOCRE — This category of ~~consumer~~ loans ~~that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer~~includes investment real estate loans that are ~~spread over numerous~~primarily secured by office and industrial buildings, retail shopping centers and various special purpose properties. Generally, these types of loans are thought to involve a greater degree of credit risk than OOCRE as they are more sensitive to adverse economic conditions.

Commercial — This category of loans is for commercial, corporate and business purposes. The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, agriculture operating loans and other business loans for working capital and operational purposes. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory.

Mortgage warehouse — Mortgage warehouse facilities are provided to unaffiliated mortgage origination companies and are collateralized by 1-4 family residential loans. The originator closes new mortgage loans with the intent to sell these loans to third party investors for a profit. The Company provides funding to the mortgage companies for the period between the origination and their sale of the loan. The Company is repaid with the proceeds received from sale of the mortgage loan to the final investor.

Consumer — This category of loans is used for personal use typically for consumer purposes.

Collateral Dependent Financial Assets

Loans that do not share similar risk characteristics are evaluated on an individual ~~borrowers also minimizes the Company’s risk.~~

~~Certain Acquired Loans~~

~~As part of business acquisitions,~~basis. For collateral dependent financial assets where the Company ~~evaluated each~~has determined that foreclosure of the ~~acquired loans under ASC 310-30 to determine whether (i) there was evidence of credit deterioration since origination,~~collateral is probable, or where the borrower is experiencing financial difficulty and ~~(ii) it was probable that~~ the Company ~~would not collect all contractually required payments receivable. The Company determined~~expects repayment of the ~~best indicator of such evidence was an individual loan’s payment status and/or whether a loan was determined~~financial asset to be ~~classified~~provided substantially through the operation or sale of the collateral, the ACL is measured based on ~~a review of each individual loan. Therefore, generally each individual loan that should have been or was on non-accrual at~~ the ~~acquisition date and each individual loan that was deemed impaired were included subject to ASC 310-30 accounting. These loans were recorded at~~difference between the ~~discounted expected cash flows~~fair value of the ~~individual loan.~~collateral and

~~Loans which were evaluated under ASC 310-30, and where~~

the timing and amount of cash flows can be reasonably estimated, were accounted for in accordance with ASC 310-30-35. The Company applies the interest method for these loans under this subtopic and the loans are excluded from non-accrual. If, at acquisition, the Company identified loans that they could not reasonably estimate cash flows or, if subsequent to acquisition, such cash flows could not be estimated, such loans would be included in non-accrual and accounted for under theamortized cost ~~recovery method. These acquired loans are recorded at the allocated fair value, such that there is no carryover~~basis of the ~~seller’s allowance for loan losses. Such acquired loans~~asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are ~~accounted for individually. The Company estimates~~calculated as the amount ~~and timing of expected cash flows for each purchased loan, and~~by which the ~~expected cash flows in excess~~amortized cost basis of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected cash flows continue to be estimated. Iffinancial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less ~~than~~estimated costs to sell. The ACL may be zero if the ~~carrying amount,~~fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

For collateralized financial assets that are not collateral dependent, the Company will consider the nature of the collateral, potential future changes in collateral values, and historical loss information for financial assets secured with similar collateral to determine the ACL.

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted 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 ~~loss~~borrower is ~~recorded through~~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 the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. 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.

Contractual Term

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected TLM.

Discounted Cash Flow Method

The Company uses the DCF method to estimate expected credit losses for the CRE, construction and land, 1-4 family residential, commercial (excluding liquid credit and premium finance), and consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, curtailment rates, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates and time to recovery are based on historical internal data.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts Texas unemployment as a loss driver. Management also utilizes and forecasts either one-year percentage change in Texas gross domestic product or one-year percentage change in the CRE property index as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. If

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis as of the reporting period. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment speeds, curtailment rates and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is ~~greater than~~established for the ~~carrying amount, any related allowance~~difference between the instrument’s NPV and amortized cost basis. The ACL is further refined for ~~loan~~qualitative loss ~~is reversed, with the remaining yield being recognized prospectively through interest income. Accretion of purchase discounts on PCI loans is~~factors based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Loss-Rate Method

The Company uses a loss-rate method to estimate expected credit losses for its farmland and MW loan pool. For these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Probability of Default/Loss Given Default Method

The Company uses the PD/LGD method to estimate expected credit losses for the construction and land, 1-4 family residential, OOCRE, NOOCRE, commercial and consumer PCD loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, time to recovery, probability of default, and loss given default.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment and time to recovery) produces an expected cash flow stream at the instrument level. An ACL is established for the difference between the instrument’s undiscounted cash flows and amortized cost basis. The ACL is further refined for qualitative loss factors based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Loan Commitments and ACL on Off-Balance Sheet Credit Exposures

Financial instruments include OBS credit instruments, such as commitments to make loans, MW commitments and standby and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for OBS loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an ACL on OBS credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for credit losses for unfunded commitments included in the Company’s consolidated statements of income. The ACL on OBS credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in accounts payable and other liabilities on the Company’s consolidated balance sheets.

Derivative Financial Instruments (Not Designated as Accounting Hedges)

The Company has entered into certain derivative instruments pursuant to a customer accommodation program under which the Company enters into an interest rate swap, cap or collar agreement with a commercial customer and an agreement with offsetting terms with a correspondent bank. These derivative instruments are not designated as accounting hedges and the swap fees and changes in net fair value are recognized in noninterest income or expense on the Company’s consolidated statements of income and the fair value amounts are included in other assets and accounts payable and other liabilities on the Company’s consolidated balance sheets.

Derivative Financial Instruments (Designated as Accounting Hedges)

Cash flow hedge relationships mitigate exposure to the variability of future cash flows ~~regardless of contractual maturities, that include undiscounted expected principal and interest payments and use credit risk,~~or other forecasted transactions. The Company uses interest rate swaps, floors, caps and ~~prepayment~~collars to manage overall cash flow changes related to interest rate risk ~~models~~exposure on benchmark interest rate loans. The entire change in the fair value related to ~~incorporate management’s best estimate of current key assumptions such as default rates, loss severity and payment speeds. Accretion of purchase discounts on acquired non-impaired loans~~the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified into interest income when the forecasted transaction affects income.

The Company assesses the “effectiveness” of hedging derivatives on the date an arrangement was entered into and on a ~~level-yield~~prospective basis ~~based on contractual maturity of individual loans per ASC 310-20.~~

~~Loans~~at least quarterly. Hedge “effectiveness” is determined by the extent to which ~~ASC 310-30~~changes in the fair value of a derivative instrument offset changes in the fair value, cash flows or carrying value attributable to the risk being hedged. If the relationship between the change in the fair value of the derivative instrument and the change in the hedged item falls within a range considered to be the industry norm, the hedge is considered “highly effective” and qualifies for hedge accounting. A hedge is “ineffective” if the relationship between the changes falls outside the acceptable range. In that case, hedge accounting is ~~applied are deemed purchased credit impaired (“PCI”) loans. Revolving loans, including lines~~discontinued on a prospective basis. The time value of ~~credit, are~~the option is excluded from ~~PCI loan accounting.~~the assessment of effectiveness and is

~~For acquired loans not deemed to be PCI loans at acquisition, the differences between the initial fair value and the unpaid principal balance are~~

recognized ~~as interest income on~~in earnings using a ~~level-yield basis~~straight-line amortization method over the ~~lives~~life of the ~~related loans. Subsequent~~hedge arrangement. Gains or losses resulting from the termination or sale of a derivative accounted for as a cash flow hedge remain in other comprehensive income and are accreted or amortized to earnings over the ~~acquisition date, methods utilized to estimate~~remaining period of the ~~required allowance for loan losses for these loans is similar to originated loans; however, a provision for loan losses will be recorded only to~~former hedging relationship unless the ~~extent the required allowance exceeds any remaining purchase discounts.~~forecasted transaction becomes probable of not occurring.

Transfers of Financial Assets

Transfers of financial assets (generally consisting of sales of ~~loans held for sale~~LHFS and loan ~~participations~~participation with unaffiliated banks) are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Equity Method Investments

The Company applies the equity method of accounting to investments when the Company has significant influence, but not a controlling interest in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.

The Company’s equity method investments are reported at cost and include direct transaction costs to make the investment. Equity method investments are subsequently adjusted each period for the Company’s proportionate share of the investee’s income or loss, which includes an elimination by the Company of any intra-entity profits and losses In addition, the Company’s subsequent proportionate share of other comprehensive income or loss is reported in the Company’s consolidated statements of comprehensive income with a corresponding adjustment to the equity method investment. Any dividends received on the investment are recognized as a reduction to the carrying amount of the investment.

On July 16, 2021, the Bank acquired a 49% interest in Thrive for $54,914 in cash and obtained the right to designate a member to Thrive’s board of directors. As a result of the investment, the Company has a $35,816 basis difference which is being accounted for as equity method goodwill.

The difference between the cost of an investment and the amount of underlying equity in net assets of the investee represents an equity method basis difference, which shall be accounted for as if the investee were consolidated. The Company accounts for the equity method basis difference as equity method goodwill. The Company assesses equity method investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. The Company recorded an impairment of $29.4 million on our equity method investment in Thrive related to Thrive’s entry into a definitive agreement in December 2023 to be acquired by Lower and the negative impact of rising rates on the fair value and volume of loans originated by Thrive.

Bank Premises and Equipment

Buildings and improvements, furniture and equipment are carried at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives of the respective assets as follows:



Buildings and improvements	10 - 40 years
Site improvements		15 years
Tenant improvements		Lease term
Leasehold improvements		Lease term
Furniture and equipment		3 - 10 years

Major replacements and betterments are capitalized while maintenance and repairs are charged to expense when incurred. Gains or losses on dispositions are reflected in the consolidated statements of income as incurred.

~~Non-Marketable Equity Securities~~Bank premises and equipment with definite lives are tested for impairment when a triggering event occurs. No impairment charges related to bank premises and equipment assets were recorded during the years ended December 31, 2023, 2022 and 2021.

Leases

The ~~Bank is a member of its regional Federal Reserve Bank~~Company’s operating leases relate primarily to office space and bank branches. Right-of-use (“~~FRB”~~ROU”) assets and ~~of the Federal Home Loan Bank system (“FHLB”). FHLB members~~operating lease liabilities are ~~required to own a certain amount of stock~~recognized at lease commencement based on the ~~level~~present value of ~~borrowings~~the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives, deferred rent and prepaid rent. Operating lease expense, which consists of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy and equipment expense in the consolidated statements of income. Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease liabilities as they are not reasonably certain to be exercised. The ROU asset and operating lease liability are recorded in other assets and other ~~factors, and may invest~~liabilities, respectively, in the consolidated balance sheets. See Note 8 - Leases for additional ~~amounts. Both FRB and FHLB stock~~information.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase represent the purchase of interests in securities by the Company’s customers. Securities sold under agreements to repurchase are ~~carried~~stated at ~~cost, restricted~~the amount of cash received in connection with the transaction. The Company does not account for ~~sale, and periodically evaluated~~any of its repurchase agreements as sales for ~~impairment based~~accounting purposes in its financial statements. Repurchase agreements are settled on ~~ultimate recovery of par value. Both cash and stock dividends~~the following business day. All securities sold under agreements to repurchase are ~~reported as income. Other non-marketable equity~~collateralized by pledged debt securities. The debt securities underlying the repurchase agreements are ~~carried at cost which approximates fair value.~~held in safekeeping by the Bank’s safekeeping agent.

~~Other Real Estate Owned~~

~~Other real estate owned~~OREO

OREO represents properties acquired through or in lieu of loan foreclosure and ~~are~~is initially recorded at fair value less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Bank’s recorded investment in the related loan, a write-down is recognized through a charge to the ~~allowance for loan losses.~~ACL. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

~~Bank-Owned Life Insurance~~BOLI

The Company has purchased life insurance policies on certain employees. These ~~bank-owned life insurance (“BOLI”)~~BOLI policies are recorded in the accompanying consolidated balance sheets at their cash surrender values. Income from these policies and changes in the cash surrender values are recorded in noninterest income in the ~~accompanying~~Company's consolidated statements of income. Death benefit proceeds in excess of cash surrender are recorded when realized in noninterest income in the Company's consolidated statements of income.

Goodwill and Intangible Assets

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 ~~December~~October 31 of each fiscal year or when a triggering event occurs. The ~~Company’s goodwill test involves~~Company may first assess qualitative factors to determine whether it is more likely than not (that is, a ~~two-step process. Under~~likelihood of more than 50%) that the ~~first step, the estimation of~~ fair value of ~~the~~a reporting unit is ~~compared to~~less than its carrying ~~value~~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 ~~step one indicates~~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 ~~the second step is performed to measure~~and the amount of impairment ~~if any.~~loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of ~~the~~a reporting ~~goodwill~~unit exceeds ~~the implied~~its fair value, ~~of that goodwill,~~ an impairment loss isshall be recognized in an amount equal to that ~~excess.~~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.

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, and therefore goodwill was not impaired. During the third quarter of 2023, the Company evaluated current conditions and concluded there have been no significant changes in the economic environment or projections, and no decline in fair value during the quarter.

The Company performed its annual goodwill impairment test as of October 31, 2023 using a quantitative impairment assessment and determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying amount. The Company also did not identify any potential impairment indicators subsequent to our annual assessment. Management will continue to monitor events that could impact this conclusion in the future.

Intangible assets consist of core deposit intangibles ~~intangible assets related to operating leases with favorable market terms acquired in business combinations,~~ and in-place lease intangibles associated with the purchase of our corporate office.

Intangible assets are initially recognized based on a valuation performed as of the acquisition date and are amortized on a straight-line basis over their estimated useful lives of the respective intangible ~~asset~~assets as ~~follows::~~follows. All in-place lease intangibles were fully amortized in 2023.



Core deposit intangible	7 - 10 years
~~Operating lease intangible~~		~~Lease term~~
In-place lease intangible	Lease term

All indefinite lived intangible assets are tested annually for potential impairment or when triggering events occur. Intangible assets with definite lives are tested for impairment when a triggering event occurs. No impairment charges related to goodwill and intangible assets were recorded during the years ended December 31, ~~2017, 2016~~2023, 2022 and ~~2015.~~2021.

Servicing Assets

The Company accounts for its servicing assets at amortized cost in accordance with ASC 860, “"Servicing Assets and Liabilities.”" The codification requires that servicing rights acquired through the origination of loans, which are sold with servicing rights retained, are recognized as separate assets. Servicing assets are recorded as the difference between the contractual servicing fees and adequate compensation for performing the servicing, and are periodically reviewed and adjusted for any impairment. The amount of impairment recognized, if any, is the amount by which the servicing assets exceed their fair value. The amount of recovery, if any, cannot exceed the previous impairment recognized. Fair value of the servicing assets is estimated using discounted cash flows based on current market interest rates. Servicing rights are amortized over their estimated lives.

~~Branch Assets and Liabilities Held for Sale~~

The Company reports long-lived assets including other assets and liabilities as part of a disposal group as held for sale when management has approved or received approval to sell the assets and liabilities, the Company is committed to a formal plan, the assets and liabilities are available for immediate sale, the assets and liabilities are being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specific criteria are met. Assets and liabilities held for sale are recorded at the lower of its carrying amount or estimated fair value less costs to sell. If the carrying amount of the assets and liabilities exceeds its estimated fair value, a loss is recognized. Depreciation and amortization expense is not recorded on the assets held for sale after it is classified as held for sale.

Marketing Expense

The Company expenses all marketing costs as they are incurred. Marketing expenses were ~~$1,293, $983~~$8,704, $7,179 and ~~$799~~$5,344 in ~~2017, 2016~~2023, 2022 and ~~2015,~~2021, respectively.

Income Taxes

The Company files a consolidated income tax return with its ~~subsidiary.~~subsidiaries. Federal income tax expense or benefit is allocated on a separate return basis.

The Company accounts for income taxes using the asset and liability approach for financial accounting and reporting. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to 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. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years.

The ~~Tax Cuts~~tax effect of unrealized gains and ~~Jobs Act (the "Tax Act"), enacted~~losses on ~~December 22, 2017, reduced the U.S. federal corporate tax rate from 35%~~available-for-sale debt securities and derivative instruments designated as hedges is recorded to ~~21%. On December 23, 2017, the Securities~~other comprehensive income and ~~Exchange Commission’s Office~~is not a component of the Chief Accountant ("SEC staff") issued SAB 118, which expresses the views of the SEC staff regarding the application of the FASB ASC Topic 740 (Income Taxes), in the reporting period that includes December 22, 2017, the date on which the Tax Act was signed into law. SAB 118 provides guidance for registrants under three scenarios: (1) When measurement of certain income tax ~~effects is complete. Registrants must reflect~~expense/(benefit).

GAAP does not permit the adjustment of tax ~~effects of the Tax Act~~amounts in AOCI for which the accounting is complete; (2) When measurement of certain income tax effects can be reasonably estimated. Registrants must report provisional amounts for those specific income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate can be determined. Provisional amounts or adjustments to provisional amounts identified in the measurement period, as defined, should be included as an adjustment to tax expense or benefit from continuing operations in the period the amounts are determined; and (3) When measurement of certain income tax effects cannot be reasonably estimated. Registrants are not required to report provisional amounts for any specific income tax effects of the Tax Act for which a reasonable estimate cannot be determined, and would continue to apply ASC Topic 740 based on the provisions of the tax laws that were in effect immediately prior to the enactment of the Tax Act. Registrants would report the provisional amounts of the tax effects of the Tax Act in the first reporting period in which a reasonable estimate can be determined. SAB 118 further provides that the measurement period is complete when a company's accounting is complete and in no circumstances should the measurement period extend beyond one year from the enactment date. A registrant may be able to complete the accounting for some provisions earlier than others. As a result, it may need to apply all three scenarios in determining the accounting for the Tax Act based on the information that is available. The ultimate impact of the Tax Act on our consolidated financial statements and related disclosures for 2017 and beyond may differ from our current estimates, possibly materially, due to, among other things, changes in ~~interpretations and assumptions we have made, guidance that may be issued, and other actions we may take~~tax rates; as a result of the ~~Tax Act that differ from those presently contemplated. Based on~~effects become “stranded” in AOCI. Stranded tax effects caused by the information available and current interpretation of the rules, the Company has made reasonable estimates of the impact of the reduction in the corporate tax rate and re-measurement of certain deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, generally 21 percent. The Company is still analyzing certain provisional estimates for the Liberty and Sovereign acquisitions with respect to loans, bank premises, furniture and equipment, goodwill, intangible assets, deposits and deferred taxes. Any changes to these provisional estimates and re-measurementrevaluation of deferred taxes ~~could potentially have an impact on our future~~are reclassified from AOCI to retained earnings ~~and effective tax rate. The provisional amount recorded related to the re-measurement~~in accordance with ASU 2018-02 “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of ~~the Corporation's deferred tax balance was $3,051 for the year ended December 31, 2017.~~Certain Tax Effects from Accumulated Other Comprehensive Income.”

The Company may recognize the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements would be the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For the years ended December 31, ~~2017~~2023 and ~~2016,~~2022, management has determined there are no material uncertain tax positions.

When necessary, the Company would include interest assessed by taxing authorities in ~~“Interest~~“interest expense” and penalties related to income taxes in ~~“Other~~“other expense” on its ~~consolidated statements~~Consolidated Statements of ~~income.~~Income. The Company ~~did not record any~~recorded $103, $22 and $126 of interest or penalties related to income tax for the years ended December 31, ~~2017, 2016,~~2023, 2022 and ~~2015.~~2021, respectively. With few exceptions, such as state examinations, the Company is generally no longer subject to U.S. federal income tax examinations by tax authorities for the years before ~~2014.~~2020 and state income tax examinations for tax years prior to 2019.

Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on and off-balance sheet financial instruments do not include the value of anticipated future business or the value of assets and liabilities not considered financial instruments.

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, debt and equity securities and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the consolidated statements of income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, the Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from contracts with customers.

Stock Based Compensation

Compensation cost is recognized for stock options and ~~stock~~other equity awards (performance and non-performance based) issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. The market price of the Company’s common stock aton the date of grant is used to estimate fair value for ~~stock~~other nonperformance based equity awards. A Monte Carlo simulation is used to estimate the fair value of performance-based restricted stock units ~~which~~that include a vesting condition and a market condition ~~that determines the number of restricted stock units which will vest~~ based on the Company’s total shareholder return relative to a ~~market index.~~

peer group comprised of commercial banks in similar markets, which determines the number of shares of Company common stock subject to the restricted stock unit.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Treasury Stock

Treasury stock is stated at cost, which is determined by the first-in, first-out method.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period, except those resulting from transactions with stockholders. In addition to net income, comprehensive income includes the net effect of changes in the fair value of AFS debt securities, ~~available for sale,~~ net of ~~tax.~~tax, and the net effect of changes in fair value of derivative instruments designated as cash flow hedges. Gains and losses on AFS debt securities are reclassified to net income as the gains or losses are realized upon sale of the securities. For securities transferred from AFS to the HTM classification, the remaining pre-tax gains and losses will be amortized over the remaining life of the securities, as an adjustment of yield on the transferred securities. For cash flow hedges, gains and losses on the derivative(s) are recorded in accumulated other comprehensive income and subsequently reclassified into interest income in the same period that the hedged transaction affects earnings. Comprehensive income is reported in the accompanying consolidated statements of comprehensive income.

~~Employee Stock Ownership Plan~~

Effective January 1, 2012, the Company adopted the Veritex Community Bank Employee Stock Ownership Plan (“ESOP”) covering all employees that meet certain age and service requirements. Plan assets are held and managed by the Company. Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants. Shares released are allocated to each eligible participant based on the participant’s 401(k) contribution made during that year. Compensation expense is measured based upon the expected amount of the Company’s discretionary contribution that is determined on an annual basis and is accrued ratably over the year. Shares are committed to be released to settle the liability upon formal declaration of the contribution at the end of the year. The number of shares released to settle the liability is based upon fair value of the shares and become outstanding shares for earnings per share computations. The cost of shares issued to the ESOP, but not yet committed to be released, is shown as a reduction of stockholders’ equity. To the extent that the fair value of the ESOP shares differs from the cost of such shares, the difference is charged or credited to stockholders’ equity as additional paid in capital.

~~Business Combinations~~

The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred.

Earnings Per Share ("EPS")

~~Earnings per share (“EPS”)~~EPS are based upon the weighted-average number of shares outstanding. The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted EPS for the years ended December 31, ~~2017, 2016~~2023, 2022 and ~~2015.~~2021.

Year Ended December 31,
2017 2016 2015
Earnings (numerator)
Net income $ 15,152
$ 12,551
$ 8,790
Less: preferred stock dividends 42
—
98
Net income allocated to common stockholders $ 15,110
$ 12,551
$ 8,692
Shares (denominator)
Weighted average shares outstanding for basic EPS (thousands) 18,404
10,849
10,061
Dilutive effect of employee stock-based awards 406
209
271
Adjusted weighted average shares outstanding 18,810
11,058
10,332
Earnings per share:
Basic $ 0.82
$ 1.16
$ 0.86
Diluted $ 0.80
$ 1.13
$ 0.84


	Year Ended December 31,
	2023		2022		2021
Earnings (numerator)


Net income	$	108,261	$	146,315	$	139,584
Shares (denominator)
Weighted average shares outstanding for basic EPS (thousands)	54,256		53,170		49,405
Dilutive effect of employee stock-based awards	340		782		947
Adjusted weighted average shares outstanding	$	54,596	$	53,952	$	50,352
EPS:
Basic	$	2.00	$	2.75	$	2.83
Diluted	$	1.98	$	2.71	$	2.77

For the ~~years~~year ended December 31, ~~2017, 2016 and 2015,~~2023, there were no1,268 antidilutive shares excluded from the diluted EPS weighted average shares, 604 of these relate to antidilutive RSUs and the remaining 664 relate to stock options excluded from the diluted EPS weighted average shares. For the year ended December 31, 2022, there were 177 antidilutive RSUs excluded from the diluted EPS weighted average shares. For the year ended December 31, 2021, there were 29 antidilutive RSUs excluded from the diluted EPS weighted average shares.

2. ~~Supplemental Statement of Cash Flows~~SUPPLEMENTAL STATEMENT OF CASH FLOWS

Other supplemental cash flow information is presented below:


	Year Ended December 31,
	2023		2022		2021
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	294,539	$	77,298	$	37,139
Cash paid for income taxes	53,584		36,165		14,349
Supplemental Disclosures of Non-Cash Flow Information:

Setup of ROU asset and lease liability	$	7,492	$	—	$	6,232

Contingent consideration in connection with acquisitions	—		—		5,000





Transfer of AFS debt securities to HTM debt securities	—		117,001		—
Net foreclosure of OREO and repossessed assets	—		—		334
LHI transferred to LHFS	10,500		—		10,890

Year Ended December 31,
2017 2016 2015
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 10,680
$ 5,607
$ 3,520
Cash paid for income taxes $ 9,761
$ 8,250
$ 4,100
Supplemental Disclosures of Non-Cash Flow Information:
Issuance of stock to ESOP $ —
$ —
$ 110
Net issuance of common stock for vesting of restricted stock units $ 312
$ 175
$ 159
Net foreclosure of other real estate owned $ 1,037
$ 283
$ 493
Transfers to assets held for sale $ 33,552
$ —
$ —
Transfers to liabilities held for sale $ 64,627
$ —
$ —


	Adjustments to Purchase Price Accounting Related to M&A
	Year Ended December 31,
	2023		2022		2021
Noncash assets acquired1




LHI	$	—	$	(681)	$	29,338





Intangible assets, net	—		—		13,913
Goodwill	—		681		32,931
Other assets	—		—		690




Total assets	$	—	$	—	$	76,872
Noncash liabilities assumed1



Accounts payable and other liabilities	—		—		16,350






Total liabilities	$	—	$	—	$	16,350


Total equity

1 Noncash assets acquired and noncash liabilities assumed during 2021 related to our acquisition of NAC.

Year Ended December 31,
2017 2016 2015
Noncash assets acquired
Investment securities $ 220,444
$ —
$ 5,436
Loans 1,065,058
—
88,459
Accrued interest receivable 4,293
—
250
Bank premises, furniture and equipment 23,950
—
4,947
Non-marketable equity securities 8,847
—
—
Other real estate owned 448
—
—
Intangible assets 15,973
—
1,078
Goodwill 132,587
—
7,717
Other assets 15,657
—
1,347
Total assets $ 1,487,257
$ —
$ 109,234
Noncash liabilities assumed:
Deposits $ 1,205,217
$ —
$ 97,426
Accounts payable and accrued expenses⁽¹⁾
7,571
—

Accrued interest payable and other liabilities 948
—
824
Advances from FHLB 80,000
3,503
Other borrowings 13,234
—
926
Total liabilities $ 1,306,970
$ —
$ 102,679
Non-cash equity assumed
Preferred stock - series D $ 24,500
$ —
$ —
Total equity assumed $ 24,500
$ —
$ —
5,117,642 shares of common stock exchanged in connection with the Sovereign acquisition $ 136,385
$ —
$ —
1,449,944 shares of common stock exchanged in connection with the Liberty acquisition $ 40,337
$ —

1,185,067 shares of common stock exchanged in connection with the IBT acquisition $ —
$ —
$ 17,705

⁽¹⁾ ~~Accounts payable and accrued expenses includes accrued preferred stock dividends of $185.~~

3. ~~Recent Accounting Pronouncements~~NEW ACCOUNTING PRONOUNCEMENTS

ASU 2023-06, “Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” amends the ASC to incorporate certain disclosure requirements from SEC Release No. ~~2018-02, “Income Statement~~33-10532 - ~~Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”),~~Disclosure Update and Simplification that was issued in ~~February 2018, provides~~2018. The effective date for each amendment will be the ~~reclassification~~date on which the SEC’s removal of ~~the effect of remeasuring deferred tax balances~~that related ~~to items within AOCI to retained earnings resulting~~disclosure from ~~the Tax Act. The Company early adopted ASU No. 2018-02 in the fourth quarter of 2017. As a result, the Company reclassified $227 from AOCI to retained earnings.~~

ASU 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) eliminates Step 2 from the goodwill impairment test. In addition, the amendment eliminates the requirements for any reporting unit with a zeroRegulation S-X or ~~negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, ASU 2017-04 is~~Regulation S-K becomes effective, ~~for fiscal years beginning after December 15, 2019~~ with early adoption ~~permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is in process of evaluating the impact of this pronouncement, which~~prohibited. ASU 2023-06 is not expected to have a significant impact on ~~the consolidated~~our financial statements.

ASU ~~2017-01 “Business Combinations (Topic 805): Clarifying~~2023-07, “Segment Reporting - Improvement to Reportable Segment Disclosures” amends the ~~Definition~~disclosure requirements related to segment reporting primarily through enhanced disclosure about significant segment expenses and by requiring disclosure of ~~a Business” (“~~segment information on an annual and interim basis. ASU 2017-01”) changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is deemed to be a business. Determining whether a transferred set constitutes a business is important because the accounting for a business combination differs from that of an asset acquisition. The definition of a business also affects the accounting for dispositions. Under the new standard, when substantially all of the fair value of assets acquired is concentrated in a single asset, or a group of similar assets, the assets acquired would not represent a business and business combination accounting would not be required. The new standard may result in more transactions being accounted for as asset acquisitions rather than business combinations. For public companies, ASU 2017-012023-07 is effective for interim and annual periods beginning after December 15, 2017 and shall be applied prospectively. The Company early adopted ASU 2017-01 as of July 1, 2017 and the new definition is used for accounting purposes.

ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”) requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. For public companies, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company determined the adoption of ASU 2016-18 will not have a significant impact on the consolidated financial statements.

ASU 2016-13 “Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities, ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods therein. The Company is continuing to evaluate the impact of the adoption of ASU 2016-13 and is uncertain of the impact on the consolidated financial statements at this point in time.

ASU 2016-09 “Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Per ASU 2016-09: (1) all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement, rather than in additional paid-in capital under current guidance; (2) excess tax benefits should be classified along with other income tax cash flows as an operating activity on the statement of cash flows, rather than as a separate cash inflow from financing activities and cash outflow from operating activities under current guidance; (3) cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity; and (4) an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, as under current guidance, or account for forfeitures when they occur. For public business entities, ASU 2016-09 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein.

~~Effective~~ January 1, ~~2017, the Company adopted ASU 2016-09. The Company prospectively applied the guidance for the presentation of excess tax benefits as an operating cash flow~~2024 and included the $268 excess income tax benefit as an operating activity on the consolidated statement of cash flows for the year ended December 31, 2017. In addition, the Company retrospectively applied the guidance for the presentation of the cash paid by an employer when directly withholding shares for tax-withholding purposes be classified as a financing activity on the consolidated statement of cash flows for the years ended December 31, 2017, 2016 and 2015. Finally, the Company elected to account for forfeitures as they occur.

ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”) is intended to improve the reporting of leasing transactions to provide users of financial statements with more decision-useful information. ASU 2016-02 will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is in process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on ~~the consolidated~~our financial statements.

ASU ~~2016-01 “Financial Instruments─Overall (Subtopic 825-10): Recognition~~2023-09, “Income Taxes - Improvements to Income Tax Disclosures” enhances the transparency and ~~Measurement~~decision usefulness of ~~Financial Assets and Financial Liabilities” (“~~income tax disclosures. ASU 2016-01”) amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to2023-09 will require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. Entities will also be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entitiesrequired to disclose ~~the methods~~income/(loss) from continuing operations before income tax expense/(benefit) disaggregated between domestic and ~~significant assumptions used to estimate the fair value that~~foreign, as well as income tax expense/(benefit) from continuing operations disaggregated by federal, state and foreign. ASU 2023-09 is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. This update will be effective ~~for the Company on~~ January 1, ~~2018. The Company does~~2025 and is not ~~expect the adoption of ASU 2016-01~~expected to have a significant impact on ~~the consolidated~~our financial statements.

~~ASU 2014-09 “Revenue~~

100

4. SHARE TRANSACTIONS

The Company's Board authorized the purchase of up to $250,000 of the Company's outstanding common stock under a stock buyback program (the "Stock Buyback Program") with the expiration date of December 31, 2022. The shares were repurchased in the open market or in privately negotiated transactions from ~~Contracts~~time to time, depending upon market conditions and other factors, and in accordance with ~~Customers (Topic 606)” (“ASU 2014-09”) implements~~applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any shares. The Stock Buyback Program may have been terminated or amended by the Board at any time prior to its expiration. The Company did not repurchase any shares during the year ended December 31, 2023 or 2022.

In August 2022, the IRA was enacted. Among other things, the IRA imposed a ~~common revenue standard that clarifies~~new 1% excise tax on the ~~principles for recognizing revenue. The core principle~~fair market value of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. The original effective date for ASU 2014-09 was for annual and interim periods beginningstock repurchased after December ~~15, 2016. However,~~31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in ~~August 2015,~~ the ~~FASB issued ASU 2015-14,~~year, including pursuant to compensatory arrangements.

Common Stock Offering

On March 8, 2022, the Company completed an underwritten public offering of 3,947,369 shares of its common stock at $38.00 per share. On March 10, 2022, the representatives of the underwriters delivered to the Company a written notice of exercise by the underwriters of the underwriters' option to purchase an additional 367,105 shares of the Company's common stock at $38.00 per share, which ~~deferred~~subsequently closed on March 14, 2022. Net proceeds, after deducting underwriting discounts and offering expenses, of such offering were approximately $154,372. The Company intends to use the ~~effective date by one~~net proceeds from the offering for general corporate purposes and to support its continued growth, including investments in the Bank and future strategic acquisitions.

5. SECURITIES

Equity Securities With a Readily Determinable Fair Value

The Company held equity securities with a fair value of $9,897 and $9,792 at December 31, 2023 and 2022, respectively. No gains or losses on equity securities with a readily determinable fair value were realized during the year ~~therefore it is now effective for interim~~ended December 31, 2023, 2022 or 2021.

The gross unrealized gain (loss) recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s consolidated statements of income were as follows:


	2023		2022		2021
Unrealized gain (loss) recognized on equity securities with a readily determinable fair value	$	105	$	(1,246)	$	(325)

Equity Securities Without a Readily Determinable Fair Value

The Company held equity securities without a readily determinable fair values and ~~annual reporting periods beginning after~~measured at cost of $11,624 and $10,072 at December ~~15, 2017. Our revenue is comprised~~31, 2023 and 2022, respectively.

Securities purchased under agreements to resell

The Company held no securities purchased under agreements to resell as of December 31, 2023 and 2022. During the twelve months ended December 31, 2023, there was no interest income ~~on financial assets, which is explicitly excluded~~recorded in equity securities and other investments in the Company’s consolidated statements of income. During the twelve months ended December 31, 2022, interest income recorded in equity securities and other investments in the Company's consolidated statements of income was $1,386. Interest income of securities purchased under agreements to resell typically mature 30 days from the ~~scope of ASU 2014-09,~~settlement date, qualify as a secured borrowing and non-interest income. We have completed our evaluation of the impact of ASU 2014-09 on components of our non-interest income and have not found any significant changes to our methodology of recognizing revenue. As required by ASU 2014-09, we will adopt the standard in the first quarter of 2018 and,are measured at the time of this filing, there will be no cumulative effect adjustment to opening retained earnings. We will include newly applicable revenue disclosures in our Form 10-Q for the quarter ended March 31, 2018.

amortized cost.

~~4. Investment~~Debt Securities

Debt ~~and equity~~ securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, ~~recognized in accumulated other comprehensive income (loss),~~ACL and the fair value of AFS and HTM debt securities are as follows:

101


											December 31, 2023
	December 31, 2017												Gross
				Gross		Gross					Amortized		Unrealized
	Amortized			Unrealized		Unrealized					Cost	Gains		Losses	ACL	Fair Value
	Cost			Gains		Losses		Fair Value
Available for Sale
U.S. government agencies	$	10,829		$	9	$	18	$	10,820
AFS										AFS
Corporate bonds	17,500			330		—		17,830
Municipal securities	55,499			189		211		55,477
Mortgage-backed securities	91,734			58		1,068		90,724
Collateralized mortgage obligations	53,559			9		925		52,643
Asset-backed securities	616			7		—		623
Collateralized loan obligations
	$	229,737		$	602	$	2,222	$	228,117

						Gross
						Gross
						Gross
			Amortized
			Amortized
			Amortized
			Cost
			Cost
			Cost									Gains		Losses	ACL	Fair Value
HTM
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securities
Collateralized mortgage obligations
Municipal securities
	$


Texas
~~Texas~~	27-0973566
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
8214 Westchester Drive, Suite ~~400~~800
Dallas, Texas		75225
(Address of principal executive offices)		Zip 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

Securities registered pursuant to Section 12(g) of the Act: None


Large Accelerated Filer ☒		Accelerated filer ☐
~~Large accelerated filer~~ ¨		~~Accelerated filer~~ x
Non-accelerated filer ¨ ~~(Do not check if a smaller reporting company)~~	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. ☒☐


Glossary of Acronyms, Abbreviations, and Terms			2
Cautionary Note Regarding Forward-Looking Statements		3
PART I
Item 1.	Business	25
Item 1A.	Risk Factors	1722
Item 1B.	Unresolved Staff Comments	3442
Item 1C.	Cybersecurity	42
Item 2.	Properties	3443
Item 3.	Legal Proceedings	3443
Item 4.	Mine Safety Disclosures	3444
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3444
Item 6.	~~Selected Financial Data~~[Reserved]	3746
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3847
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	7279
Item 8.	Financial Statements and Supplementary Data	7380
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	73142
Item 9A.	Controls and Procedures	73143
Item 9B.	Other Information	74145
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	145
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	75146
Item 11.	Executive Compensation	75146
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75146
Item 13.	Certain Relationships and Related Transactions, and Director Independence	75146
Item 14.	Principal Accountant Fees and Services	75146
PART IV
Item 15.	Exhibits and Financial Statement Schedules	75146
	Signatures	~~S-1~~ 151



	Date	Acquired		Acquired		Number of
	Completed	Assets⁽¹⁾		Loans⁽¹⁾		Branches	Locations
Bank Acquired		(Dollars in millions)
Professional Bank, N.A. through Professional Capital, Inc.	September 2010	$	181.8	$	91.7	3	Park Cities, Lakewood and Garland
Fidelity Bank through Fidelity Resources Company	March 2011	166.3		108.1		3	Preston Center, SMU and Plano
Bank of Las Colinas	October 2011	53.8		40.4		1	Las Colinas
Independent Bank of Texas through IBT Bancorp, Inc.	July 2015	124.4		88.5		2	Irving and Frisco
Sovereign Bank through Sovereign Bancshares, Inc.	August 2017	1,122.2		752.5		9	Dallas, Fort Worth, Houston and Austin
Liberty Bank through Liberty Bancshares, Inc.	December 2017	467.3		312.6		5	Fort Worth


☒
☒	Annual Report to Section 13 OR 15(d) of the Securities Exchange Act of 1934


☐
¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



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



	2017				2016
	High		Low		High		Low
First Quarter	$	29.25	$	25.64	$	17.00	$	12.35
Second Quarter	28.47		25.39		16.25		14.35
Third Quarter	27.54		24.22		17.48		13.91
Fourth Quarter	28.60		25.75		27.76		15.46



	October 9, 2014		December 31, 2014		June 30, 2015		December 31, 2015		June 30, 2016		December 31, 2016		June 30, 2017		December 31, 2017
Veritex Holdings, Inc.	$	100.00	$	101.58	$	107.06	$	116.20	$	114.84	$	191.47	$	188.75	$	197.78
S&P 500	100.00		106.78		107.00		106.00		108.85		116.11		125.68		138.66
Nasdaq Bank	100.00		110.05		118.56		117.34		112.44		158.44		154.46		164.00



	For the Year Ended December 31, 2017
	Compared to 2016
	Increase (Decrease) Due To
	Volume		Rate			Total
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	26,462	$	2,652		$	29,114
Securities available for sale	1,740		313			2,053
Other investments	4		2			6
Interest-earning deposits in other banks	1,233		551			1,784
Total increase in interest income	29,439		3,518			32,957
Interest-bearing liabilities:
Interest-bearing deposits	3,974		916			4,890
Advances from FHLB	78		193			271
Other borrowings	266		(23		)	243
Total increase in interest expense	4,318		1,086			5,404
Increase (decrease) in net interest income	$	25,121	$	2,432		$	27,553



	For the Year Ended
	December 31,
					Increase
	2017		2016		(Decrease)
	(Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	2,502	$	1,846	$	656
Gain on sales of investment securities	222		15		207
Gain on sales of loans	3,141		3,288		(147		)
Bank-owned life insurance	753		771		(18		)
Other	958		583		375
Total noninterest income	$	7,576	$	6,503	$	1,073



	For the Year Ended
	December 31, 2016 vs. 2015
	Increase
	(Decrease)
	Due to Change in
	Volume		Rate			Total
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	7,552	$	(1,108	)	$	6,444
Securities available for sale	172		(14		)	158
Other investments	—		(1		)	(1		)
Interest-earning deposits in other banks	22		37			59
Total increase (decrease) in interest income	7,746		(1,086		)	6,660
Interest-bearing liabilities:
Interest-bearing deposits	654		(158		)	496
Advances from FHLB	16		25			41
Other borrowings	53		(48		)	5
Total increase (decrease) in interest expense	723		(181		)	542
Increase (decrease) in net interest income	$	7,023	$	(905	)	$	6,118



	For the
	Year Ended
	December 31,
					Increase
	2016		2015		(Decrease)
	(Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	1,846	$	1,326	$	520
Gain on sales of investment securities	15		7		8
Gain on sales of loans	3,288		1,273		2,015
Gain on sales of other assets owned	—		—		—
Bank-owned life insurance	771		747		24
Other	583		351		232
Total noninterest income	$	6,503	$	3,704	$	2,799



	As of December 31, 2016
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real estate:
Construction and land	$	162,614	$	—	$	—	$	—	$	162,614
Farmland	8,262		—		—		—		8,262
1 - 4 family residential	139,212		710		215		—		140,137
Multi-family residential	14,683		—		—		—		14,683
Commercial Real Estate	368,370		2,326		—		—		370,696
Commercial	289,589		686		1,034		107		291,416
Consumer	4,078		—		11		—		4,089
Total	$	986,808	$	3,722	$	1,260	$	107	$	991,897



	As of December 31, 2017
			More than		3 years or
	1 year		1 year but less		more but less		5 years
	or less		than 3 years		than 5 years		or more		Total
	(Dollars in thousands)
Non-cancelable future operating leases	$	2,349	$	3,918	$	1,580	$	2,134	$	9,981
Time deposits	413,269		48,296		3,748		—		465,313
Advances from FHLB	68,000		—		—		3,164		71,164
Junior subordinated debentures	—		—		—		11,702		11,702
Subordinated debt	—		—		—		4,987		4,987
Other borrowings	15,000		—		—		—		15,000
Qualified affordable housing agreement	$	794	$	897	$	22	$	52	$	1,765
Total	$	499,412	$	53,111	$	5,350	$	22,039	$	579,912


~~(1)~~	~~Intangible assets as of December 31, 2017 include branch intangible assets held for sale of $1.7 million.~~


~~(2)~~	Excludes the dilutive effect, if any, of 514,000 and 454,000 shares of common stock issuable upon exercise of outstanding stock options as of December 31, 2017and 2016, respectively, and 152,000 and 147,000 shares of common stock issuable upon vesting of outstanding restricted stock units as of December 31, 2017 and 2016, respectively.



	For the Year Ended
	December 31, 2017			December 31, 2016			December 31, 2015
Net interest income (as reported)	$	68,508		$	40,955		$	31,459
Adjustment:
Income recognized on acquired loans	3,782			425			194
Core net interest income	64,726			40,530			31,265
Provision for loan losses (as reported)	5,114			2,050			868
Noninterest income (as reported)	7,576			6,503			3,704
Noninterest expense (as reported)	42,789			26,390			21,388
Adjustment:
Merger and acquisition ("M&A") costs	(2,691		)	(472		)	(416		)
Core noninterest expense	40,098			25,918			20,972
Core net income from operations	27,090			19,065			13,129
Income tax expense (as reported)	13,029			6,467			4,117
Adjustments:
Tax impact of adjustments	(382		)	16			78
Tax Act re-measurement	(3,051		)	—			—
Other M&A discrete tax items	(398		)	—			—
Core income tax expense	9,198			6,483			4,195
Core net income	$	17,892		$	12,582		$	8,934
Preferred stock dividends (as reported)	42			—			98
Core net income available to common stockholders	$	17,850		$	12,582		$	8,836

Weighted average diluted shares outstanding	18,810			11,058			10,332

Diluted earnings per share (as reported)	0.80			1.13			0.84
Core diluted earnings per share	0.95			1.14			0.86

Efficiency Ratio
Efficiency ratio (as reported)	56.24		%	55.61		%	60.83		%
Core efficiency ratio	55.46		%	55.11		%	59.97		%

Net Interest Margin
Net interest margin (as reported)	3.77		%	3.72		%	3.80		%
Core net interest margin	3.56		%	3.68		%	3.78		%


~~(a)~~	~~The following documents are filed as part of this report:~~


2.	Financial Statement Schedules: All supplemental schedules to the consolidated financial statements have been omitted as inapplicable or because the required information is included in our consolidated financial statements or the notes thereto included in this Annual Report on Form 10-K.



	Preferred Stock			Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unallocated Employee Stock Ownership Plan Shares			Treasury Stock
	Preferred Stock			Shares	Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unallocated Employee Stock Ownership Plan Shares			Treasury Stock			Total
Balance at January 1, 2015	$	8,000		9,470,832	$	95	$	97,469		$	8,047		$	172		$	(401	)	(70		)	$	113,312
Restricted stock units vested, net of 10,025 shares withheld to cover tax withholdings	—			26,426	—		(159		)	—			—			—			—			(159		)
Exercise of employee stock options	—			21,000	—		210			—			—			—			—			210
Preferred stock dividend Series C	—			—	—		—			(98		)	—			—			—			(98		)
Redemption of SBLF preferred stock Series C	(8,000		)	—	—		—			—			—			—			—			(8,000		)
Issuance of shares to ESOP	—			9,147	—		115			—			—			(5		)	—			110
ESOP Shares Allocated	—			—	—		12			—			—			97			—			109
Common stock issued for acquisition of IBT Bancorp, Inc., net of offering costs of $252	—			1,185,067	12		17,441			—			—			—			—			17,453
Stock based compensation	—			—	—		633			—			—			—			—			633
Net income	—			—	—		—			8,790			—			—			—			8,790
Other comprehensive loss	—			—	—		—			—			(314		)	—			—			(314		)
Balance at December 31, 2015	$	—		10,712,472	$	107	$	115,721		$	16,739		$	(142	)	$	(309	)	$	(70	)	$	132,046
Restricted stock units vested, net of 10,384 shares withheld to cover tax withholdings	—			38,106	—		(175		)	—			—			—			—			(175		)
Stock issued for acquisition of bank, net offering cost of $489	—			4,444,750	45		94,473			—			—			—			—			94,518
Stock based compensation	—			—	—		983			—			—			—			—			983
Excess tax benefit from stock compensation	—			—	—		162			—			—			—			—			162
ESOP Shares Allocated	—			—	—		9			—			—			100			—			109
Net income	—			—	—		—			12,551			—			—			—			12,551
Other comprehensive loss	—			—	—		—			—			(1,106		)	—			—			(1,106		)
Balance at December 31, 2016	$	—		15,195,328	$	152	$	211,173		$	29,290		$	(1,248	)	$	(209	)	$	(70	)	$	239,088
Restricted stock units vested, net of 11,601 shares withheld to cover tax withholdings	—			43,602	—		(312		)	—			—			—			—			(312		)
Exercise of employee stock options, net of 1,095 shares withheld to cover taxes	—			17,949	—		169			—			—			—			—			169
Issuance of common shares in connection to Sovereign Bancshares, Inc. merger, net of offering costs of $438	—			5,117,642	51		135,896			—			—			—			—			135,947
Issuance of common shares in connection to Liberty merger, net of offering costs of $334	—			1,449,944	14		39,989			—			—			—			—			40,003
Sale of common stock in public offering, net of offering costs of $288	—			2,285,050	24		56,657			—			—			—			—			56,681
Issuance of preferred stock, series D in connection with the acquisition of Sovereign Bancshares, Inc.	24,500			—	—		24,500			—			—			—			—			49,000
Redemption of preferred stock, series D	(24,500		)	—	—		(24,500		)	—			—			—			—			(49,000		)
Stock based compensation	—			—	—		1,939			—			—			—			—			1,939
ESOP Shares Allocated	—			—	—		6			—			—			103			—			109
Net income	—			—	—		—			15,152			—			—			—			15,152
Preferred stock, series D dividend	—			—	—		—			(42		)	—			—			—			(42		)
Reclassification of certain deferred tax effects	—			—	—		��			227			(227		)	—			—			—
Other comprehensive income	—			—	—		—						195			—			—			195
Balance at December 31, 2017	$	—		24,109,515	$	241	$	445,517		$	44,627		$	(1,280	)	$	(106	)	$	(70	)	$	488,929


	December 31, 2023
	Less Than 12 Months				12 Months or More				Totals
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
AFS

Corporate bonds	$	34,989	$	5,970	$	162,148	$	23,596	$	197,137	$	29,566
Municipal securities	6,792		45		22,052		3,213		28,844		3,258
Mortgage-backed securities	—		—		104,486		13,465		104,486		13,465
Collateralized mortgage obligations	—		—		419,044		46,999		419,044		46,999
Asset-backed securities	9,011		1,559		8,847		571		17,858		2,130
Collateralized loan obligations	—		—		63,878		372		63,878		372
	$	50,792	$	7,574	$	780,455	$	88,216	$	831,247	$	95,790

HTM
Mortgage-backed securities	$	—	$	—	$	27,679	$	6,037	$	27,679	$	6,037
Collateralized mortgage obligations	—		—		29,916		4,567		29,916		4,567
Municipal securities	7,845		270		79,713		9,594		87,558		9,864
	$	7,845	$	270	$	137,308	$	20,198	$	145,153	$	20,468


	December 31, 2023					December 31, 2022
		Real Property		ACL Allocation			Real Property		ACL Allocation





OOCRE		$	3,059	$	47		$	1,193	$	129
NOOCRE		21,169		—			20,896		2,138
Commercial		20,711		3,339			1,240		396

Consumer		—		—			15		—
Total		$	44,939	$	3,386		$	23,344	$	2,663


	December 31, 2023				December 31, 2022
	Nonaccrual		Nonaccrual With No ACL			Nonaccrual		Nonaccrual With No ACL
Construction and land	$	6,793	$	6,793		$	—	$	—

1 - 4 family residential	1,965		1,965			862		862

OOCRE	9,719		9,493			9,737		8,545
NOOCRE	33,479		33,479			21,377		13,178
Commercial	40,868		10,610			11,397		2,521

Consumer	24		24			169		169
Total	$	92,848	$	62,364		$	43,542	$	25,275



	December 31,		December 31,
	2017⁽¹⁾		2016
Real estate:
Construction and land	$	—	$	—
Farmland	—		—
1 - 4 family residential	—		—
Multi-family residential	—		—
Commercial Real Estate	61		—
Commercial	398		930
Consumer	6		11
	$	465	$	941


	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)
Construction and land	$	29,379	$	—	$	6,793	$	36,172	$	1,698,082	$	—	$	1,734,254	$	—
Farmland	—		—		—		—		31,114		—		31,114		—
1 - 4 family residential	4,359		2,535		3,691		10,585		925,404		1,130		937,119		1,726
Multi-family residential	15,095		—		—		15,095		590,722		—		605,817		—
OOCRE	916		114		10,185		11,215		764,703		18,170		794,088		466
NOOCRE	3,182		642		20,547		24,371		2,312,270		14,084		2,350,725		783
Commercial	3,485		1,394		8,446		13,325		2,735,830		2,908		2,752,063		—
MW	—		—		—		—		377,796		—		377,796		—
Consumer	76		—		—		76		10,060		13		10,149		—
	$	56,492	$	4,685	$	49,662	$	110,839	$	9,445,981	$	36,305	$	9,593,125	$	2,975


	Term Extension
	Amortized Cost Basis		% of Loan Class		Financial Impact
NOOCRE	$	23,624	1.0	%	Principal and interest deferred over three months
Commercial	24,733		0.9	%	Principal and interest deferred over three months
	$	48,357



	December 31, 2017⁽¹⁾
	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment YTD
Real estate:
Construction and land	$	—	$	—	$	—	$	—	$	—	$	—
Farmland	—		—		—		—		—		—
1 - 4 family residential	161		161		—		161		—		163
Multi-family residential	—		—		—		—		—		—
Commercial Real Estate	434		434		—		434		—		445
Commercial	398		282		116		398		12		499
Consumer	75		75		—		75		—		87
Total	$	1,068	$	952	$	116	$	1,068	$	12	$	1,194



				During the year ended December 31, 2016
				Post-Modification Outstanding Recorded Investment
	Number of Loans	Pre- Modification Outstanding Recorded Investment		Adjusted Interest Rate		Extended Maturity		Extended Maturity and Restructured Payments		Extended Maturity, Restructured Payments and Adjusted Interest Rate
Commercial	2	$	175	$	—	$	—	$	169	$	—
Consumer	1	81		—		—		81		—
Total	3	$	256	$	—	$	—	$	250	$	—



				During the year ended December 31, 2015
				Post-Modification Outstanding Recorded Investment
	Number of Loans	Pre- Modification Outstanding Recorded Investment		Adjusted Interest Rate		Extended Maturity		Extended Maturity and Restructured Payments		Extended Maturity, Restructured Payments and Adjusted Interest Rate
Commercial Real Estate	1	$	399	$	—	$	—	$	—	$	391
Commercial	1	268		—		—		246		—
Total	2	$	667	$	—	$	—	$	246	$	391


Payment Status
	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due
1-4 Family Residential Rentals	$	41,066	$	—	$	—	$	—
NOOCRE	23,624		—		—		—
Commercial	23,346		—		—		1,387
Total	$	88,036	$	—	$	—	$	1,387



	December 31, 2017
	Real Estate
	Construction, Land and Farmland			Residential			Commercial Real Estate		Commercial			Consumer			Total
Balance at beginning of year	$	1,415		$	1,116		$	3,003	$	2,955		$	35		$	8,524
Provision (recapture) charged to earnings	(100		)	368			1,407		3,452			(13		)	5,114
Charge-offs	—			(11		)	—		(828		)	—			(839		)
Recoveries	—			—			—		9			—			9
Net charge-offs (recoveries)	—			(11		)	—		(819		)	—			(830		)
Balance at end of year	$	1,315		$	1,473		$	4,410	$	5,588		$	22		$	12,808

Period-end amount allocated to:
Specific reserves:	$	—		$	—		$	—	$	12		$	—		$	12
General reserves	1,315			1,473			4,410		5,576			22			12,796
Total	$	1,315		$	1,473		$	4,410	$	5,588		$	22		$	12,808


	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 December 31,
Construction and land:
Pass	$	116,333	$	740,244	$	538,946	$	109,017	$	3,089	$	3,661	$	181,940	$	—	$	1,693,230
Special mention	593		13,782		4,980		3,439		—		8,760		2,677		—		34,231
Substandard	—		6,547		—		246		—		—		—		—		6,793

Total construction and land	$	116,926	$	760,573	$	543,926	$	112,702	$	3,089	$	12,421	$	184,617	$	—	$	1,734,254
Construction and land gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Farmland:
Pass	$	2,531	$	4,398	$	—	$	17,999	$	15	$	4,944	$	1,227	$	—	$	31,114



Total farmland	$	2,531	$	4,398	$	—	$	17,999	$	15	$	4,944	$	1,227	$	—	$	31,114
Farmland gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1 - 4 family residential:
Pass	$	73,289	$	140,824	$	193,914	$	79,767	$	38,589	$	270,193	$	114,275	$	17,255	$	928,106
Special mention	3,732		531		—		—		—		238		—		—		4,501
Substandard	—		144		902		—		106		1,701		529		—		3,382
PCD	—		—		—		—		—		1,130		—		—		1,130
Total 1-4 family residential	$	77,021	$	141,499	$	194,816	$	79,767	$	38,695	$	273,262	$	114,804	$	17,255	$	937,119
1-4 Family gross charge-offs	$	—	$	—	$	—	$	—	$	21	$	—	$	—	$	—	$	21

Multi-family residential:
Pass	$	9,441	$	82,040	$	257,714	$	196,575	$	8,054	$	14,570	$	10,627	$	—	$	579,021
Special mention	—		—		—		—		—		11,701		—		—		11,701
Substandard	—		—		—		—		—		15,095		—		—		15,095

Total multi-family residential	$	9,441	$	82,040	$	257,714	$	196,575	$	8,054	$	41,366	$	10,627	$	—	$	605,817



	Year Ended December 31, 2017
Carrying amount	$	47,612
Outstanding balance	63,940