SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒ QUARTERLY REPORT PURSUANT 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



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



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

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



Title of each class	~~(972) 349-6200~~ ~~(Registrant’s telephone number, including area code)~~ Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01	VBTX	Nasdaq Global Market

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

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

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



Large accelerated filer ☐	☒		Accelerated filer ☒	☐


Non-accelerated filer	☐		Smaller reporting company ☐
~~(Do not check if a smaller reporting company)~~			☐
			Emerging growth company	☐
		~~Emerging growth company ☒~~

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

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

As of October ~~25, 2017,~~24, 2019, there were ~~22,648,718~~51,903,818 outstanding shares of the registrant’s common stock, par value $0.01 per share.

VERITEX HOLDINGS, INC.




		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements – (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018	34
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018	45
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018	56
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018	67
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018	79
	Notes to Condensed Consolidated Financial Statements	810
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3952
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7076
Item 4.	Controls and Procedures	7077

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	7178
Item 1A.	Risk Factors	7178
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7178
Item 3.	Defaults Upon Senior Securities	7179
Item 4.	Mine Safety Disclosures	7179
Item 5.	Other Information	7279
Item 6.	Exhibits	7279
SIGNATURES		7380

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITEX HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets ~~(Unaudited)~~

as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018

(Dollars in thousands, except par value information)


							September 30,			December 31,
	September 30,			December 31,			2019			2018
	2017			2016			(Unaudited)
ASSETS
Cash and due from banks	$	21,879		$	15,631		$	72,107		$	19,598
Interest bearing deposits in other banks	129,497			219,160			180,485			64,851
Total cash and cash equivalents	151,376			234,791			252,592			84,449
Investment securities	204,788			102,559
Securities available-for-sale, at fair value							990,274			262,695
Securities held-to-maturity (fair value of $35,177 at September 30, 2019)							33,119			—
Trust preferred securities							1,018			352
Federal Reserve Bank stock							33,782			12,324
Federal Home Loan Bank of Dallas stock							34,347			2,957
Other investments							20,648			7,541
Total investments							1,113,188			285,869
Loans held for sale	2,179			5,208			10,715			1,258
Loans, net of allowance for loan losses of $10,492 and $8,524, respectively	1,896,989			983,318
Accrued interest receivable	6,387			2,907
Loans held for investment, mortgage warehouse							233,577			—
Loans held for investment							5,654,027			2,555,494
Less: Allowance for loan losses							(26,243		)	(19,255		)
Loans held for investment, net							5,861,361			2,536,239
Bank-owned life insurance	20,517			20,077			80,411			22,064
Bank premises, furniture and equipment, net	40,129			17,413			118,449			78,409
Non-marketable equity securities	10,283			7,366
Investment in unconsolidated subsidiary	352			93
Other real estate owned	738			662			4,625			—
Intangible assets, net of accumulated amortization of $2,783 and $2,198, respectively	10,531			2,181
Intangible assets, net of accumulated amortization of $16,450 and $7,528, at September 30, 2019 and December 31, 2018							75,363			15,896
Goodwill	135,832			26,865			370,463			161,447
Other assets	14,760			5,067			75,716			22,919
Total assets	$	2,494,861		$	1,408,507		$	7,962,883		$	3,208,550
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	495,627		$	327,614
Interest-bearing	1,490,031			792,016
Noninterest-bearing deposits							$	1,473,126		$	626,283
Interest-bearing transaction and savings deposits							2,528,293			1,313,161
Certificates and other time deposits							1,876,427			682,984
Total deposits	1,985,658			1,119,630			5,877,846			2,622,428
Accounts payable and accrued expenses	4,017			2,914			45,475			5,413
Accrued interest payable and other liabilities	4,368			534
Accrued interest payable							6,054			5,361
Advances from Federal Home Loan Bank	38,200			38,306			752,907			28,019
Junior subordinated debentures	11,702			3,093
Subordinated notes	4,987			4,942
Subordinated debentures and subordinated notes							72,284			16,691
Securities sold under agreements to repurchase							2,787			—
Total liabilities	2,048,932			1,169,419			6,757,353			2,677,912
Commitments and contingencies (Note 6)
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common stock, $0.01 par value; 75,000,000 shares authorized at September 30, 2017 and December 31, 2016; 22,643,713 and 15,195,328 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively (excluding 10,000 shares held in treasury)	227			152
Common stock, $0.01 par value; 75,000,000 shares authorized; 54,732,272 and 24,263,894 shares issued at September 30, 2019 and December 31, 2018, respectively; 52,373,169 and 24,253,894 shares outstanding at September 30, 2019 and December 31, 2018, respectively							524			243
Additional paid-in capital	404,900			211,173			1,114,659			449,427
Retained earnings	41,143			29,290			125,344			83,968
Unallocated Employee Stock Ownership Plan shares; 18,783 shares at September 30, 2017 and December 31, 2016	(209		)	(209		)
Accumulated other comprehensive loss	(62		)	(1,248		)
Treasury stock, 10,000 shares at cost	(70		)	(70		)
Accumulated other comprehensive income (loss)							23,837			(2,930		)
Treasury stock, 2,359,103 and 10,000 shares at cost at September 30, 2019 and December 31, 2018, respectively							(58,834		)	(70		)
Total stockholders’ equity	445,929			239,088			1,205,530			530,638
Total liabilities and stockholders’ equity	$	2,494,861		$	1,408,507		$	7,962,883		$	3,208,550

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (Unaudited)

For the Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018

(Dollars in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		2017		2016		2019		2018			2019			2018
Interest income:
Interest and fees on loans	$	20,706	$	11,589	$	45,613	$	32,996
Interest on investment securities	941		335		2,251		1,014
Interest on deposits in other banks	629		129		1,787		302
Interest on other	3		1		4		2
Total interest income	22,279		12,054		49,655		34,314
Interest and dividend income:
Loans, including fees									$	85,811	$	35,074		$	258,344		$	99,432
Securities									7,687		1,722			22,316			4,697
Deposits in financial institutions and Fed Funds sold									1,329		1,016			4,255			2,316
Other investments									816		108			2,129			442
Total interest and dividend income									95,643		37,920			287,044			106,887
Interest expense:
Interest on deposit accounts	2,812		1,381		6,201		3,388
Interest on borrowings	338		156		696		491
Transaction and savings deposits									10,381		4,694			32,152			12,187
Certificates and other time deposits									10,283		3,068			29,220			6,320
Advances from FHLB									3,081		630			7,323			1,324
Subordinated debentures and subordinated notes									1,024		250			3,116			727
Total interest expense	3,150		1,537		6,897		3,879		24,769		8,642			71,811			20,558
Net interest income	19,129		10,517		42,758		30,435		70,874		29,278			215,233			86,329
Provision for loan losses	752		238		2,585		1,610		9,674		3,057			18,021			5,239
Net interest income after provision for loan losses	18,377		10,279		40,173		28,825		61,200		26,221			197,212			81,090
Noninterest income:
Service charges and fees on deposit accounts	669		433		1,733		1,309		3,667		809			10,606			2,588
Gain on sales of investment securities	205		—		205		15
Loan fees									2,252		410			5,861			945
Loss on sales of investment securities									—		(34		)	(1,414		)	(22		)
Net gain on sales of loans and other assets owned	705		1,036		2,259		2,318		853		270			4,327			1,267
Bank-owned life insurance	188		193		561		577
Rental income									369		414			1,110			1,343
Other	210		231		520		460		1,289		539			2,458			1,335
Total noninterest income	1,977		1,893		5,278		4,679		8,430		2,408			22,948			7,456
Noninterest expense:
Salaries and employee benefits	5,921		3,920		13,471		10,683		17,530		7,394			53,874			22,981
Occupancy and equipment	1,596		923		3,622		2,718		4,044		2,890			12,187			8,267
Professional fees	1,973		785		3,959		1,861
Professional and regulatory fees									2,750		1,893			8,982			5,525
Data processing and software expense	719		296		1,451		850		2,252		697			6,485			2,214
FDIC assessment fees	410		179		1,061		447
Marketing	436		293		905		704		708		306			2,288			1,213
Other assets owned expenses and write-downs	71		9		109		139
Amortization of intangibles	223		95		413		285		2,712		798			8,191			2,632
Telephone and communications	230		98		438		295		361		236			1,381			1,076
Merger and acquisition expense									1,035		2,692			38,042			4,070
Other	943		431		2,325		1,323		3,238		1,340			10,089			3,743
Total noninterest expense	12,522		7,029		27,754		19,305		34,630		18,246			141,519			51,721
Net income from operations	7,832		5,143		17,697		14,199		35,000		10,383			78,641			36,825
Income tax expense	2,650		1,768		5,802		4,837		7,595		1,448			16,953			7,309
Net income	$	5,182	$	3,375	$	11,895	$	9,362	$	27,405	$	8,935		$	61,688		$	29,516
Preferred stock dividends	42		—		42		—
Net income available to common stockholders	$	5,140	$	3,375	$	11,853	$	9,362
Basic earnings per share	$	0.26	$	0.32	$	0.70	$	0.88	$	0.52	$	0.37		$	1.15		$	1.22
Diluted earnings per share	$	0.25	$	0.31	$	0.69	$	0.85	$	0.51	$	0.36		$	1.13		$	1.20

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income(Unaudited)

For the Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018

(Dollars in thousands)


	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016		2019		2018			2019		2018
Net income	$	5,182	$	3,375		$	11,895	$	9,362	$	27,405	$	8,935		$	61,688	$	29,516
Other comprehensive income:
Unrealized gains (losses) on securities available for sale arising during the period, net	378		(9		)	2,000		653
Reclassification adjustment for net gains included in net income	205		—			205		15
Other comprehensive income (loss) before tax	173		(9		)	1,795		638
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale:
Change in net unrealized gains (losses) on securities available for sale during the period, net										7,212		(1,359		)	29,892		(4,875		)
Reclassification adjustment for net losses (gains) included in net income										—		34			1,414		22
Net unrealized gains (losses) on securities available for sale										7,212		(1,325		)	31,306		(4,853		)

Net unrealized gains on derivative instruments designated as cash flow hedges										413		—			2,033		—
Other comprehensive income (loss), before tax										7,625		(1,325		)	33,339		(4,853		)
Income tax expense (benefit)	60		(3		)	609		217		1,529		(278		)	6,572		(1,019		)
Other comprehensive income (loss), net of tax	113		(6		)	1,186		421		6,096		(1,047		)	26,767		(3,834		)
Comprehensive income	$	5,295	$	3,369		$	13,081	$	9,783	$	33,501	$	7,888		$	88,455	$	25,682

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Summary of VERITEX HOLDINGS, INC. AND SUBSIDIARY

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

For the Three and Nine Months Ended September 30, 2019 and 2018

(Dollars in thousands)



Three Months Ended September 30, 2019
	Common Stock					Treasury Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total
	Shares		Amount			Shares	Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total
Balance at June 30, 2019	53,457,486		$	535		1,181,862	$	(29,873	)	$	1,112,238		$	104,652		$	17,741	$	1,205,293
Restricted stock units vested, net of 148 shares withheld to cover tax withholdings	352		—			—	—			(6		)	—			—		(6		)
Exercise of employee stock options	92,572		1			—	—			998			—			—		999
Stock buyback	(1,177,241	)	(12		)	1,177,241	(28,961		)	—			—			—		(28,973		)
Stock based compensation	—		—			—	—			1,429			—			—		1,429
Net income	—		—			—	—			—			27,405			—		27,405
Dividends paid	—		—			—	—			—			(6,713		)	—		(6,713		)
Other comprehensive income	—		—			—	—			—			—			6,096		6,096
Balance at September 30, 2019	52,373,169		$	524		2,359,103	$	(58,834	)	$	1,114,659		$	125,344		$	23,837	$	1,205,530



Three Months Ended September 30, 2018
	Common Stock			Treasury Stock				Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Unallocated Employee Stock Ownership Plan Shares
	Shares	Amount		Shares	Amount			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Unallocated Employee Stock Ownership Plan Shares			Total
Balance at June 30, 2018	24,181,401	$	242	10,000	$	(70	)	$	447,234		$	65,208	$	(4,067	)	$	(106	)	$	508,441
Restricted stock units vested, net of 1,379 shares withheld to cover tax withholdings	10,221	—		—	—			(56		)	—		—			—			(56		)
Stock based compensation	—	—		—	—			939			—		—			—			939
Net income	—	—		—	—			—			8,935		—			—			8,935
Other comprehensive loss	—	—		—	—			—			—		(1,047		)	—			(1,047		)
Balance at September 30, 2018	24,191,622	$	242	10,000	$	(70	)	$	448,117		$	74,143	$	(5,114	)	$	(106	)	$	517,212

Summary of VERITEX HOLDINGS, INC. AND SUBSIDIARY

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

For the Three and Nine Months Ended September 30, 2019 and 2018

(Dollars in thousands)



Nine Months Ended September 30, 2019
	Common Stock					Treasury Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income
	Shares		Amount			Shares	Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total
Balance at December 31, 2018	24,253,894		$	243		10,000	$	(70	)	$	449,427		$	83,968		$	(2,930	)	$	530,638
Issuance of common shares in connection with the acquisition of Green Bancorp, Inc. ("Green"), net of offering costs of $788	29,532,957		295			—	—			630,332			—			—			630,627
Issuance of common stock in connection with the acquisition of Green for vested restricted stock units, net of 25,872 shares for taxes	497,594		5			—	—			12,479			—			—			12,484
Restricted stock units vested, net of 53,734 shares withheld to cover tax withholdings	226,581		2			—	—			(1,291		)	—			—			(1,289		)
Exercise of employee stock options, net of 13,709 shares withheld to cover tax withholdings	211,246		2			—	—			2,389			—			—			2,391
Stock buyback	(2,349,103	)	(23		)	2,349,103	(58,764		)	—			—			—			(58,787		)
Stock based compensation	—		—			—	—			19,920			—			—			19,920
Reclassification of liability-classified awards to equity awards	—		—			—	—			1,403			—			—			1,403
Net income	—		—			—	—			—			61,688			—			61,688
Dividends paid	—		—			—	—			—			(20,312		)	—			(20,312		)
Other comprehensive income	—		—			—	—			—			—			26,767			26,767
Balance at September 30, 2019	52,373,169		$	524		2,359,103	$	(58,834	)	$	1,114,659		$	125,344		$	23,837		$	1,205,530



Nine Months Ended September 30, 2018
	Common Stock			Treasury Stock				Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Unallocated Employee Stock Ownership Plan Shares
	Shares	Amount		Shares	Amount			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Unallocated Employee Stock Ownership Plan Shares			Total
Balance at December 31, 2017	24,109,515	$	241	10,000	$	(70	)	$	445,517		$	44,627	$	(1,280	)	$	(106	)	$	488,929
Restricted stock units vested, net of 14,978 shares withheld to cover tax withholdings	74,706	1		—	—			(446		)	—		—			—			(445		)
Exercise of employee stock options, net of 4,391 and 1,691 shares withheld for cashless exercise and to cover tax withholdings, respectively	7,401	—		—	—			(29		)	—		—			—			(29		)
Stock based compensation	—	—		—	—			3,075			—		—			—			3,075
Net income	—	—		—	—			—			29,516		—			—			29,516
Other comprehensive loss	—	—		—	—			—			—		(3,834		)	—			(3,834		)
Balance at September 30, 2018	24,191,622	$	242	10,000	$	(70	)	$	448,117		$	74,143	$	(5,114	)	$	(106	)	$	517,212

See accompanying Notes to Condensed Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows(Unaudited)

For the Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018

(Dollars in thousands)

Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Unallocated
Employee
Stock
Ownership
Plan Shares

Treasury
Stock

Shares Amount Total
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 7,667 shares withheld to cover tax withholdings 27,744
—
(206 ) —
—
—
—
(206 )
Exercise of employee stock options, net of 1,095 shares withheld to cover tax withholdings 17,949
—
169
—
—
—
—
169
Issuance of common stock for acquisition of Sovereign Bancshares, Inc., net of offering costs of $426 5,117,642
51
135,908
—
—
—
—
135,959
Sale of common stock in public offering, net of offering costs of $304 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
Redemption of preferred stock, series D —
—
(24,500 ) —
—
—
—
(24,500 )
Stock based compensation —
—
1,199
—
—
—
—
1,199
Net income —
—
—
11,895
—
—
—
11,895
Preferred stock, series D dividend —
—
—
(42 ) —
—
—
(42 )
Other comprehensive income —
—
—
—
1,186
—
—
1,186
Balance at September 30, 2017 22,643,713
$ 227
$ 404,900
$ 41,143
$ (62 ) $ (209 ) $ (70 ) $ 445,929

Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Unallocated
Employee
Stock
Ownership
Plan Shares

Treasury
Stock

Shares Amount Total
Balance at December 31, 2015 10,712,472
$ 107
$ 115,721
$ 16,739
$ (142 ) $ (309 ) $ (70 ) $ 132,046
Restricted stock units vested, net 6,398 shares withheld to cover tax withholdings 23,565
—
(108 ) —
—
—
—
(108 )
Stock based compensation —
—
702
—
—
—
—
702
Net income —
—
—
9,362
—
—
—
9,362
Other comprehensive income —
—
—
—
421
—
—
421
Balance at September 30, 2016 10,736,037
$ 107
$ 116,315
$ 26,101
$ 279
$ (309 ) $ (70 ) $ 142,423



	For the Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	61,688		$	29,516
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles	12,372			5,350
Net accretion of time deposit and debt premium	(6,495		)	—
Provision for loan losses	18,021			5,239
Accretion of loan purchase discount	(20,241		)	(6,882		)
Stock-based compensation expense	19,920			3,075
Compensation expense - liability-classified awards	1,403			—
Excess tax benefit from stock compensation	94			(168		)
Net amortization of premiums on investment securities	1,887			1,478
Change in cash surrender value of bank-owned life insurance	(1,506		)	(439		)
Net loss (gain) on sales of investment securities	1,414			(22		)
Change in fair value of held for sale Small Business Administration ("SBA") loans using fair value option	(215		)	—
Gain on sales of mortgage loans held for sale	(394		)	(566		)
Gain on sales of SBA loans	(3,933		)	(701		)
Impairment on servicing asset	188			—
Net originations of loans held for sale	(28,414		)	(28,361		)
Proceeds from sales of loans held for sale	28,926			28,343
Write down on other real estate owned	—			156
Net loss (gain) on sale of branches	474			(349		)
(Increase) decrease in accrued interest receivable and other assets	(1,064		)	670
(Decrease) increase in accounts payable, accrued expenses and accrued interest payable	(8,623		)	2,502
Net cash provided by operating activities	75,502			38,841
Cash flows from investing activities:
Cash received in excess of cash paid for the acquisition of Green	112,710			—
Cash settlement for sale of held for sale branches	7,153			(31,810		)
Purchases of securities available for sale	(409,453		)	(90,005		)
Sales of securities available for sale	254,397			30,961
Proceeds from maturities, calls and pay downs of investment securities	90,079			24,615
Purchases of securities held to maturity	(8,137		)	—
Maturity, calls and paydowns of securities held to maturity	1,214			—
Purchases of non-marketable equity securities, net	(26,332		)	(13,685		)
Net loans originated	(103,790		)	(217,055		)
Proceeds from sale of SBA loans	47,748			9,443
Net additions to bank premises and equipment	(6,395		)	(3,194		)
Proceeds from sales of other real estate owned	—			291
Net cash used in investing activities	(40,806		)	(290,439		)
Cash flows from financing activities:
Net change in deposits	(213,005		)	377,927
Net change in advances from Federal Home Loan Bank	424,888			1,891
Net change in other borrowings	—			(15,000		)
Net change in securities sold under agreement to repurchase	(439		)	—
Payments to tax authorities for stock-based compensation	(1,289		)	(501		)
Proceeds from exercise of employee stock options	2,391			27
Purchase of treasury stock	(58,787		)	—
Dividends paid	(20,312		)	—
Net cash provided by financing activities	133,447			364,344
Net increase in cash and cash equivalents	168,143			112,746
Cash and cash equivalents at beginning of period	84,449			149,044
Cash and cash equivalents at end of period	$	252,592		$	261,790

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~

~~VERITEX HOLDINGS, INC. AND SUBSIDIARY~~

Condensed Consolidated ~~Statements of Cash Flows(Unaudited)~~Financial Statements.

~~For the Nine Months Ended September 30, 2017 and 2016~~

~~(Dollars in thousands)~~

For the Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net income $ 11,895
$ 9,362
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,588
1,212
Provision for loan losses 2,585
1,610
Accretion of loan purchase discount (828 ) (363 )
Stock-based compensation expense 1,199
702
Excess tax benefit from stock compensation (233 ) —
Net amortization of premiums on investment securities 1,217
710
Change in cash surrender value of bank-owned life insurance (440 ) (463 )
Net gain on sales of investment securities (205 ) (15 )
Gain on sales of loans held for sale (705 ) (2,318 )
Gain on sales of SBA loans (1,562 ) —
Net loss on sales of other real estate owned 8
—
Amortization of subordinated note discount 45
1
Net originations of loans held for sale (30,975 ) (50,673 )
Proceeds from sales of loans held for sale 34,709
49,708
Write down on foreclosed assets 37
114
Increase in accrued interest receivable and other assets (312 ) (1,410 )
(Decrease) increase in accounts payable, accrued expenses, accrued interest payable and other liabilities (1,683 ) 339
Net cash provided by operating activities 16,340
8,516
Cash flows from investing activities:
Cash paid in excess of cash received for the acquisition of Sovereign Bancshares, Inc. (11,440 ) —
Purchases of securities available for sale (70,621 ) (34,420 )
Sales of securities available for sale 118,165
8,378
Proceeds from maturities, calls and pay downs of investment securities 17,317
15,026
Sales of non-marketable equity securities, net 3,834
(3,191 )
Net loans originated (187,283 ) (105,098 )
Proceeds from sale of SBA loans 24,273
—
Net additions to bank premises and equipment (2,208 ) (879 )
Proceeds from sales of other real estate owned 161
—
Net cash used in investing activities (107,802 ) (120,184 )
Cash flows from financing activities:
Net change in deposits 56,662
208,807
Net (decrease) increase in advances from Federal Home Loan Bank (80,106 ) 9,897
Net proceeds from sale of common stock in public offering
56,681
—
Redemption of preferred stock - series D (24,500 ) —
Dividends paid on preferred stock - series D (227 ) —
Proceeds from exercise of employee stock options 175
—
Payments to tax authorities for stock-based compensation
(212 ) —
Offering costs paid in connection with acquisition (426 ) —
Net cash provided by financing activities 8,047
218,704
Net (decrease) increase in cash and cash equivalents (83,415 ) 107,036
Cash and cash equivalents at beginning of period 234,791
71,551
Cash and cash equivalents at end of period $ 151,376
$ 178,587

~~See accompanying notes to condensed consolidated financial statements.~~

VERITEX HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except for per share amounts)

1. Summary of Significant Accounting Policies

Nature of Organization

Veritex Holdings, Inc. (“Veritex” or the “Company”), a Texas corporation and bank holding company, was incorporated in July 2009 and was formed for the purpose of acquiring one or more financial institutions located in Dallas, Texas and surrounding areas.

Veritex, through its wholly-owned subsidiary, Veritex Community Bank ~~formerly known as Veritex Community Bank, National Association~~ (the “Bank”), is a Texas state banking organization, with corporate offices in Dallas, Texas, and currently operates 2126 branches and ~~one~~1 mortgage office ~~17 of which are~~ located in the Dallas-Fort Worth metroplex, ~~with two branches in the Austin, Texas metropolitan area and two~~12 branches in the Houston ~~Texas~~ metropolitan ~~area.~~area and 1 branch in Louisville, Kentucky. 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 and the Board of Governors of the Federal Reserve System are the primary regulators of the Company and the Bank, ~~which~~and both perform periodic examinations to ensure regulatory compliance.

On January 1, 2019 (the “close date”), the Company completed its acquisition of Green Bancorp, Inc. (“Green”), the parent holding company of Green Bank, N.A, a nationally chartered commercial bank headquartered in Houston, Texas. See additional information on the acquisition in Note 19 - Business Combinations.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Veritex and the Bank, as its wholly-owned subsidiary.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), but do not include all of the information and footnotes required for complete financial statements. Intercompany transactions and balances are eliminated in consolidation. In management’s opinion, these ~~interim~~ unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s condensed consolidated financial position at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, condensed consolidated results of operations for the three and nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, condensed consolidated stockholders’ equity for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 and condensed consolidated cash flows for the nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown ~~in this report~~herein are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These ~~interim~~ unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2018 included ~~within~~in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on ~~March 10, 2017.~~February 27, 2019.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Segment Reporting

The Company has ~~one~~1 reportable segment. All of the Company’s activities are interrelated, and each activity is dependent ~~on the other~~ 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 interest rate and credit risk. Accordingly, all significant operating decisions are based upon an analysis of the ~~Company~~Bank as one segment or unit. The Company’s chief operating decision-maker, the ~~CEO,~~Chief Executive Officer, uses the consolidated results to make operating and strategic decisions.

Reclassifications

~~Effective January 1, 2017,~~Some items in the ~~Company adopted ASU 2016-09. Per ASU 2016-09 cash paid by an employer when directly withholding shares~~Company’s prior year financial statements were reclassified to conform to the current presentation, including (i) the reclassification of dividend income from other noninterest income into interest on other investments of $102 and $427 for ~~tax-withholding~~the three and nine months ended September 30, 2018, respectively, in order to align with industry peers for comparability purposes ~~should be classified as a financing activity~~ and (ii) the reclassification of $2,692 and $4,070 from professional and regulatory fees to merger and acquisition expense on the condensed consolidated statements of income for ~~presentation purposes be applied retrospectively.~~the three and nine months ended September 30, 2018, respectively.

Earnings Per Share

Earnings per share (“EPS”) are based upon the Company’s weighted-average shares outstanding. The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted EPS for the three and nine months ended September 30, ~~2017~~2019 and ~~2016:~~2018:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands except per share amounts)
Earnings (numerator)
Net income	$	27,405	$	8,935	$	61,688	$	29,516
Shares (denominator)
Weighted average shares outstanding for basic EPS	52,915		24,176		53,721		24,151
Dilutive effect of employee stock-based awards	953		437		912		436
Adjusted weighted average shares outstanding	53,868		24,613		54,633		24,587
EPS:
Basic	$	0.52	$	0.37	$	1.15	$	1.22
Diluted	$	0.51	$	0.36	$	1.13	$	1.20

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Earnings (numerator)
Net income $ 5,182

$ 3,375

$ 11,895

$ 9,362
Less: preferred stock dividends 42

—

42

—
Net income available to common stockholders

$ 5,140

$ 3,375

$ 11,853

$ 9,362
Shares (denominator)
Weighted average shares outstanding for basic EPS (thousands) 19,976
10,705
16,813
10,698
Dilutive effect of employee stock-based awards 416
320
419
294
Adjusted weighted average shares outstanding 20,392
11,025
17,232
10,992
Earnings per share:
Basic $ 0.26
$ 0.32
$ 0.70
$ 0.88
Diluted $ 0.25
$ 0.31
$ 0.69
$ 0.85

For the three and nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, there were ~~no exclusions~~0 antidilutive shares excluded from the diluted EPS weighted average ~~shares.~~shares outstanding.

Certain Purchased Loans

The Company purchases individual loans and groups of loans, through both acquisitions of other banks and the normal course of its operations, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at fair value at acquisition in a business combination, such that there is no carryover of the seller’s allowance for loan losses. After consummation of the acquisition, losses are recognized by an increase in the provision for loan losses.

These PCI loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit grade, loan type, and date of origination. On the date of acquisition, the Company estimates the amount and timing of expected cash flows for each purchased loan or pool, and the expected cash flows in excess of carrying value are recorded as interest income over the estimated life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, except for present value changes solely due to changes in timing of cash flows, an impairment loss is recorded through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, any related allowance for loan loss is reversed, with the remaining yield being recognized prospectively through interest income.

Derivative Financial Instruments

The Company has entered into certain derivative instruments pursuant to a customer accommodation program under which the Company enters into an interest rate swap, floor, 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 changes in net fair value are recognized in noninterest income or expense and the fair value amounts are included in other assets and other liabilities.

Interest Rate Swap, Floor, Cap and Collar Agreements Designated as Cash Flow Hedges

Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, floors, caps and collars to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans. The entire change in the fair value related to the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified into interest income 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 prospective basis at least quarterly. Hedge “effectiveness” is determined by the extent to which 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 discontinued on a prospective basis. The time value of the option is excluded from the assessment of effectiveness and is recognized in earnings using a straight-line amortization method over the life of the hedge arrangement.

Loans Held-for-Sale

Loans 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 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 not previously classified as held-for-sale, such loans are transferred into the held-for-sale classification and carried at the lower of cost or estimated fair value on an individual loan 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, For the Company’s accounting policy on loans held-for-sale for which the fair value option is not elected, refer to Note 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Fair Value Option

On a specific identification basis, the Company may elect the fair value option for certain financial instruments in the period the financial instrument was originated or acquired. Changes in fair value for instruments using the fair value option are recorded in noninterest income.

Gain on Sale of Guaranteed Portion of SBA 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 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 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.

Gain on Sale of Mortgage Loans Held for Sale

Certain mortgage loans held for sale are sold with servicing released. Gains and losses on sales of mortgage loans held for sale are based on the difference between the selling price and the carrying value of the related loan sold.

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 stated at the amount of cash received in connection with the transaction. The Company does not account for any of its repurchase agreements as sales for accounting purposes in its financial statements. Repurchase agreements are settled on the following business day. All securities sold under agreements to repurchase are collateralized by pledged securities. The securities underlying the repurchase agreements are held in safekeeping by the Bank’s safekeeping agent.

Securities Held-to-Maturity

Securities classified as held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts. The Company has the positive intent, and the ability, to hold these assets until their respective maturities.

Goodwill

The Company evaluates goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of the goodwill below its carrying amount, in accordance with ASC 350-20. During the first quarter of 2019, the Company changed its annual goodwill impairment testing date from December 31 to October 31. The Company believes that the new date is preferable as it provides additional time prior to the Company’s fiscal year end to complete the annual goodwill impairment test, especially in the event the Company pursues potential future acquisitions or experiences growth. This change does not accelerate, delay, avoid or cause an impairment charge, nor does this change result in adjustments to the Company’s previously issued financial statements. There were 0 impairments of goodwill recorded during the three and nine months ended September 30, 2019 and 2018.

Liability-Classified Awards

The fair value of a liability award is determined on a quarterly basis beginning at the grant date until final vesting. Changes in the fair value of liability awards are recorded over the vesting period of the award. Changes in the fair value of liability awards that occur during the requisite service period are recognized as compensation cost over that period. The percentage of the fair value that is accrued as compensation cost at the end of each period equals the percentage of the requisite service that has been rendered at that date. Changes in the fair value of a liability award that occur after the end of the requisite service period are recognized as compensation cost in the period in which the changes occur. Any difference between the amount for which a liability award is settled and its fair value at the settlement date is an adjustment of compensation cost in the period of settlement. Compensation cost for liability awards is recorded in salaries and employee benefits and the associated liability is recorded in accounts payable and accrued expenses.

For liability to equity award modifications, the aggregate amount of compensation cost recognized is the fair value based measure of the award on the modification date. On the modification date, the Company reclassifies the previously recorded share-based compensation liability to additional paid-in capital.

Adoption of New Accounting Standards

FASB Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-11, Targeted Improvements. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption. The Company elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and will not restate comparative periods. The Company has no material leasing arrangements for which it is the lessor of property or equipment. The Company has made an accounting policy election not to apply the recognition requirements in the new standard to short-term leases. The Company has elected to apply the package of practical expedients as both the lessor and lessee allowed by the new standard under which the Company need not reassess whether any expired or existing contracts are or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases. The Company has also elected to use

the practical expedient to make an accounting policy election for leases of certain underlying assets to include both lease and nonlease components as a single component and account for that single component as a lease.

The Company’s operating leases relate primarily to office space and bank branches. Right-of-use (“ROU”) assets and operating lease liabilities are recognized at lease commencement based on the present value of 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. As a result of implementing ASU 2016-02, the Company recognized an operating lease ROU asset of $18,705 and an operating lease liability of $18,753 on January 1, 2019, with no impact on the consolidated statement of income or consolidated statement of cash flows compared to the prior lease accounting model. The ROU asset and operating lease liability amounts recorded upon implementing ASU 2016-02 include the ROU asset and lease liability acquired/assumed from Green. Refer to Note 19 - Business Combinations for additional information. The ROU asset and operating lease liability are recorded in other assets and other liabilities, respectively, in the condensed consolidated balance sheets. See Note 9 - Leases for additional information.

Recent Accounting Pronouncements

ASU 2017-04, ~~“Intangibles~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ~~Impairment”~~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 zero 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 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 the process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on the consolidated financial statements.

ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“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 2017-01 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, which had no significant impact on the Company's financial statements as of and for the three and nine months ended September 31, 2017.

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 is in process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on the consolidated financial statements.

ASU 2016-13, ~~“Financial Instruments —Credit~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments”~~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~~ASU 2016-13 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~~ASU 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. ~~This Accounting Standards Update~~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~~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, ~~this~~ 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~~therein, with early adoption ~~of ASU 2016-13 and is uncertain of the impact on the consolidated financial statements at this point in time.~~

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~~expects ASU 2016-13 to have a significant impact on the ~~consolidated~~Company’s accounting policies, internal control over financial ~~statements.~~reporting and footnote disclosures.

ASU 2016-01 “Financial Instruments─Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“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,The Company’s working group that includes individuals from various functional areas continues to 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 entities to disclose the methods and significant assumptions used to estimate the fair value that 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 valuemake progress in accordance with the ~~fair value option~~implementation plan for ~~financial instruments, (vi) requires separate presentation~~adoption of the standard. For loans held for investment, early implementation activities focused on data capture and portfolio segmentation, which were substantially completed during the third quarter of 2019. The Company has developed new expected credit loss estimation models. Depending on the nature of each identified segment of financial assets with similar risk characteristics, the Company currently plans on implementing a discounted cash flow method or a loss-rate method to estimate expected credit losses on non-purchased credit deteriorated loans. The Company also plans to use peer historical loss data to supplement its own limited historical loss data. Incorporating reasonable and ~~financial liabilities by measurement category~~supportable forecasts of economic conditions into the estimate of expected credit losses will require significant judgment, such as selecting economic variables and ~~form~~forecast scenarios as well as determining the appropriate length of ~~financial asset~~the forecast horizon. Management will estimate credit losses over a selected forecast period and revert to long term historical loss experience over the remaining contractual life of the loans. Management will select economic variables it believes to be most relevant based on the ~~balance sheet or~~correlation of an economic factor to losses of each loan segment, which will likely include forecasted levels of employment, pricing indexes, and gross domestic product. Management currently intends to leverage economic projections from a reputable and independent third party to develop its reasonable and supportable forecasts over the ~~accompanying notes to~~forecast period. Other internal and external indicators of economic forecasts will also be considered by management when developing 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.forecast metrics. The Company is ~~in process~~still finalizing the final loss model to be utilized for purchase credit deteriorated loans and held-to-maturity debt securities. Additionally, the Company’s primary expected loss model is being validated during the fourth quarter of ~~evaluating~~2019.

The ultimate impact of ASU 2016-13 will depend on the composition of the portfolio and economic conditions and forecasts at the time of adoption. It could also be subject to further regulatory or accounting guidance and other management validation and judgments. Based on our loan portfolio at September 30, 2019 and management’s current expectation of future economic conditions, the allowance for credit losses as a percentage of total loans is expected to increase from 0.45% to between 1.15% and 1.35% as of the date of adoption. This estimated impact includes additional provision required on recently acquired loans that have not required a provision under the incurred loss model and the impact of ~~this pronouncement, which is~~transitioning of loans previously accounted for under subtopic ASC 310-30 to the purchased credit deteriorated model in ASC 326. The transition to the purchased credit deteriorated model will result in adding our estimate of expected credit losses on such loans to both a) the amortized cost basis of those assets and b) the allowance for credit losses. We do not ~~expected to have~~expect a ~~significant~~material impact on the ~~consolidated financial statements.~~

~~ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) implements~~net carrying amount of these assets as a ~~common revenue standard that clarifies~~result of the ~~principles~~transition. Additionally, this estimated impact at adoption also includes certain qualitative adjustments to the allowance for recognizing revenue. The core principle 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 beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date by one year, therefore it is now effective for interim and annual reporting periods beginning after December 15, 2017.credit losses. The Company ~~will adopt~~is still assessing the ~~guidance in~~estimated impact to the first quarter of 2018 using the modified retrospective application with a cumulative-effect adjustment, if such adjustment is significant. While the guidance will replace most existing revenue recognition guidance in GAAP, the ASU is not applicableallowance for credit losses as it relates to ~~financial instruments and, therefore, will not impact a majority of~~ the Company’s revenue, including net interest income. Our implementation efforts to date include identification of non-interest income revenue streams within the scope of the guidance and review of revenue contracts. Based on our evaluation,held-to-maturity debt securities, but the Company does not ~~believe~~expect a material impact to the allowance. The Company is currently running parallel computations in 2019 and continues to evaluate the final impact of adoption of ~~ASU 2014-09 will have a significant impact on our financial statements.~~this ASU.

2. Supplemental Statement of Cash Flows

Other supplemental cash flow information is presented below:



	Nine Months Ended September 30,
	2019			2018
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	65,897		$	19,939
Cash paid for income taxes	13,400			6,025
Supplemental Disclosures of Non-Cash Flow Information:
Setup of ROU asset and lease liability upon adoption of ASC 842	$	9,380		$	—
Reclassification of lease intangibles, cease-use liability and deferred rent liability to ROU asset upon adoption of ASC 842	788			—
Reclassification of deferred offering costs paid in 2018 from other assets to additional paid-in-capital	(48		)	—
Net foreclosure of other real estate owned and repossessed assets	4,625			8
Reclassification of branch assets held for sale to loans held for investment	26,171			—
Reclassification of branch liabilities held for sale to interest-bearing transaction and savings deposits	1,173			—
Non-cash assets acquired in business combination
Investment securities	$	660,792		$	—
Non-marketable equity securities	40,287			—
Loans held for sale	9,360			—
Loans held for investment	3,245,248			(4,050		)
Accrued interest receivable	11,395			—
Bank-owned life insurance	56,841			—
Bank premises, furniture and equipment	36,855			1,162
Investment in unconsolidated subsidiaries	666			—
Intangible assets, net	65,718			(956		)
Goodwill	209,016			1,995
Other assets	12,649			1,806
Right of use asset	9,373			—
Deferred taxes	11,930			—
Current taxes	1,812			—
Assets held for sale	85,307			—
Total assets	$	4,457,249		$	(43	)
Non-cash liabilities assumed in business combination
Non-interest-bearing deposits	$	825,364		$	303
Interest-bearing deposits	1,300,825			—
Certificates and other time deposits	1,346,915			—
Accounts payable and accrued expenses	26,261			—
Lease liability	9,373			—
Accrued interest payable and other liabilities	5,181			(260		)
Securities sold under agreements to repurchase	3,226			—
Advances from Federal Home Loan Bank	300,000			—
Subordinated debentures and subordinated notes	56,233			—
Liabilities held for sale	52,682			—
Total liabilities	$	3,926,060		$	43

Nine Months Ended September 30,
2017 2016
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 6,714
$ 3,858
Cash paid for income taxes 6,025
6,100
Supplemental Disclosures of Non-Cash Flow Information:
Net foreclosure of other real estate owned and repossessed assets $ —
$ 283
Non-cash assets acquired
Investment securities $ 166,307
$ —
Loans 750,856
—
Accrued interest receivable 3,437
—
Bank premises, furniture and equipment 21,512
—
Non-marketable equity securities 6,751
—
Other real estate owned 282
—
Intangible assets 8,662
—
Goodwill 108,967
—
Other assets 10,331
—
Total assets $ 1,077,105
$ —
Non-cash liabilities assumed
Deposits $ 809,366
$ —
Accounts payable and accrued expenses⁽¹⁾
5,189
—
Accrued interest payable and other liabilities 1,616
—
Advances from Federal Home Loan Bank 80,000
—
Junior subordinated debentures 8,609
—
Total liabilities $ 904,780
$ —
Non-cash equity assumed
Preferred stock - series D 24,500
—
Total equity assumed $ 24,500
$ —
5,117,642 shares of common stock issued in connection with acquisition $ 136,385
$ —

⁽¹⁾ ~~Accounts payable~~3. Share Transactions

On January 28, 2019, the Company's Board of Directors (the “Board”) originally authorized a stock buyback program (the "Stock Buyback Program") pursuant to which the Company could, from time to time, purchase up to $50,000 of its outstanding common stock in the aggregate. On September 3, 2019, the Board authorized an increase of $50,000 in the dollar amount authorized for repurchase, resulting in an aggregate authorization to purchase up to $100,000 under the Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2019 to August 31, 2020. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and ~~accrued expenses includes accrued preferred~~other factors, and in accordance with applicable regulations of the Securities and Exchange Commission (“SEC”). The Stock Buyback Program expires on December 31, 2019 and 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 the three and nine months ended September 30, 2019, 1,177,241 and 2,349,103 shares were repurchased through the Stock Buyback Program and held as treasury stock ~~dividends~~at an average price of ~~$185.~~$24.61 and $25.03, respectively.

~~3. Investment~~4. Debt Securities

Debt ~~and equity~~ securities have been classified in the condensed consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, ~~recognized in accumulated other comprehensive income (loss),~~ and the fair value of available for sale and held to maturity securities are as follows:


	September 30, 2017								September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale
U.S. government agencies	$	10,827	$	92	$	11	$	10,908
Available for sale
Corporate bonds	7,500		330		—		$	7,830	$	77,005	$	1,909	$	90	$	78,824
Municipal securities	52,392		269		141		52,520		75,112		3,982		—		79,094
Mortgage-backed securities	81,454		98		447		81,105		338,144		10,175		59		348,260
Collateralized mortgage obligations	52,062		99		395		51,766		398,665		9,135		253		407,547
Asset-backed securities	649		10		—		659
Small Business Administration ("SBA") guaranteed securities									73,751		2,798		—		76,549
	$	204,884	$	898	$	994	$	204,788	$	962,677	$	27,999	$	402	$	990,274

Held to maturity
Mortgage-backed securities									$	10,540	$	661	$	—	$	11,201
Municipal securities									22,579		1,397		—		23,976
									$	33,119	$	2,058	$	—	$	35,177

The Company reassessed the classification of certain investments and, effective January 1, 2019, the Company transferred $4,758 of municipal securities and $3,045 of mortgage-backed securities from available for sale to held to maturity at fair value. The related unrealized gain was minimal. NaN gain or loss was recorded at the time of the transfer.

December 31, 2016
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Available for Sale
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
$ 104,450
$ 128
$ 2,019
$ 102,559



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale
U.S. government agencies	$	9,096	$	—	$	118	$	8,978
Corporate bonds	26,518		84		134		26,468
Municipal securities	40,275		10		338		39,947
Mortgage-backed securities	97,117		101		2,167		95,051
Collateralized mortgage obligations	92,906		197		1,344		91,759
Asset-backed securities	492		—		—		492
	$	266,404	$	392	$	4,101	$	262,695

The following tables disclose the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or ~~more months:~~more:

September 30, 2017
Less Than 12 Months 12 Months or More Totals
Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Available for Sale
U.S. government agencies $ —
$ —
$ 633
$ 11
$ 633
$ 11
Municipal securities 7,059
76
5,118
65
12,177
141
Mortgage-backed securities 54,852
398
4,029
49
58,881
447
Collateralized mortgage obligations 32,784
372
1,412
23
34,196
395
$ 94,695
$ 846
$ 11,192
$ 148
$ 105,887
$ 994



	September 30, 2019
	Less Than 12 Months				12 Months or More				Totals
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available for sale
Corporate bonds	$	5,591	$	83	$	3,786	$	7	$	9,377	$	90
Mortgage-backed securities	1,860		7		5,615		52		7,475		59
Collateralized mortgage obligations	22,395		253		—		—		22,395		253
	$	29,846	$	343	$	9,401	$	59	$	39,247	$	402



	December 31, 2018
	Less Than 12 Months				12 Months or More				Totals
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
Available for sale
U.S. government agencies	$	5,671	$	68	$	3,306	$	50	$	8,977	$	118
Municipal securities	16,043		92		10,428		246		26,471		338
Corporate bonds	6,689		134		—		—		6,689		134
Mortgage-backed securities	24,277		279		59,637		1,888		83,914		2,167
Collateralized mortgage obligations	18,765		71		42,536		1,273		61,301		1,344
	$	71,445	$	644	$	115,907	$	3,457	$	187,352	$	4,101

December 31, 2016
Less Than 12 Months 12 Months or More Totals
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
Available for Sale
U.S. government agencies $ —
$ —
$ 696
$ 36
$ 696
$ 36
Municipal securities 12,060
478
518
22
12,578
500
Mortgage-backed securities 37,274
802
6,848
69
44,122
871
Collateralized mortgage obligations 29,618
584
1,618
28
31,236
612
$ 78,952
$ 1,864
$ 9,680
$ 155
$ 88,632
$ 2,019

The number of investment positions in an unrealized loss position totaled 7910 and 72142 at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The Company does not believe these unrealized losses are “other than ~~temporary” as~~temporary.” In estimating other than temporary impairment losses, management considers, among other things, the length of time and the extent to which the fair value has been less than cost and the Company’s financial condition and near-term prospects. Additionally, (i) the Company does not have the intent to sell investment securities prior to recovery ~~and~~and/or maturity, (ii) it is more likely than not that the Company will not have to sell these securities prior to ~~recovery.~~recovery and/or maturity and (iii) the length of time and extent that fair value has been less than cost is not indicative of recoverability. The unrealized losses noted are interest ~~rate related~~rate-related due to the level of interest rates at September 30, ~~2017.~~2019 compared to the rates time of purchase. The Company has reviewed the ratings of the issuers and has not identified any issues related to the ultimate repayment of principal as a result of credit concerns onregarding these securities. The Company from time to time may dispose of an impaired security in response to asset/liability management decisions, future market movements or business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time. In 2019, the Company sold 142 fixed maturity securities from its available for sale portfolio as part of a repositioning strategy recommended by the Company’s asset manager.

The amortized costs and estimated fair values of securities available for sale, by contractual maturity, as of the dates indicated, are shown in the table below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or ~~prepayments~~prepayment penalties. Mortgage-backed securities, collateralized mortgage obligations and asset-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgage loans and other loans that have varying maturities. The ~~term~~terms of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities thus approximates the ~~term~~terms of the underlying mortgages and loans and can vary significantly due to prepayments. Therefore, these securities are not included in the maturity categories below.

�� September 30, 2017
Available For Sale
Amortized
Cost Fair
Value
Due in one year or less $ —
$ —
Due from one year to five years 27,145
27,649
Due from five years to ten years 24,408
24,432
Due after ten years 19,166
19,177
70,719
71,258
Mortgage-backed securities 81,454
81,105
Collateralized mortgage obligations 52,062
51,766
Asset-backed securities 649
659
$ 204,884
$ 204,788


	December 31, 2016				September 30, 2019
	Available For Sale				Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	—	$	—	$	—	$	—
Due from one year to five years	4,009		3,974		4,897		5,090		—		—
Due from five years to ten years	3,522		3,346		68,614		70,271		1,209		1,225
Due after ten years	7,741		7,418		78,606		82,557		21,370		22,751
	15,272		14,738		152,117		157,918		22,579		23,976
Mortgage-backed securities	49,907		49,119
Collateralized mortgage obligations	38,507		37,927
Asset-backed securities	764		775
Mortgage-backed securities and collateralized mortgage obligations					736,809		755,807		10,540		11,201
SBA guaranteed securities					73,751		76,549		—		—
	$	104,450	$	102,559	$	962,677	$	990,274	$	33,119	$	35,177



	December 31, 2018
	Available for Sale
	Amortized Cost		Fair Value
Due in one year or less	$	2,963	$	2,966
Due from one year to five years	34,933		34,854
Due from five years to ten years	19,682		19,468
Due after ten years	18,311		18,105
	75,889		75,393
Mortgage-backed securities and collateralized mortgage obligations	190,023		186,810
Asset-backed securities	492		492
	$	266,404	$	262,695

Proceeds from sales of investment securities available for sale and gross gains and losses for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 were as follows:



	Nine Months Ended September 30,
	2019		2018
Proceeds from sales	$	254,397	$	30,961
Gross realized gains	522		335
Gross realized losses	1,936		357

Nine Months Ended September 30,
2017 2016
Proceeds from sales $ 118,165
$ 8,378
Gross realized gains 335
43
Gross realized losses 130
40

There were no gross gains from calls of investment securities included in gain on sale of investment securities in the accompanying condensed consolidated statements for the nine months ended September 30, 2017 and $12 gross gains from calls of investment securities included in the condensed consolidated statements for the nine months ended September 30, 2016.

There was a blanket floating lien on all securities held by the Company to secure Federal Home Loan Bank (“FHLB”) advances as of September 30, ~~2017~~2019 and December 31, ~~2016.~~2018.

5. Loans and Allowance for Loan Losses

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


	September 30, 2017			December 31, 2016			September 30, 2019			December 31, 2018
Loans held for investment:
Real estate:
Construction and land	$	276,670		$	162,614		$	614,974		$	324,863
Farmland	6,572			8,262			16,633			10,528
1 - 4 family residential	185,473			140,137			559,310			297,917
Multi-family residential	54,475			14,683			306,965			51,285
Commercial Real Estate	802,432			370,696
Commercial real estate							2,426,641			1,103,032
Commercial	577,758			291,416			1,711,256			760,772
Mortgage warehouse							233,577			—
Consumer	4,129			4,089			18,114			7,112
	1,907,509			991,897			5,887,470			2,555,509
Deferred loan fees	(28		)	(55		)	134			(15		)
Allowance for loan losses	(10,492		)	(8,524		)	(26,243		)	(19,255		)
	$	1,896,989		$	983,318
Total loans held for investment							$	5,861,361		$	2,536,239

Included in the net loan portfolio as of September 30, ~~2017~~2019 and December 31, ~~2016 is~~2018 was an accretable discount related to purchased performing and purchased credit impaired (“PCI”) loans acquired within a business combination in the approximate amounts of ~~$6,432~~$61,744 and ~~$566,~~$22,309, respectively. The discount is being accreted into income ~~using the interest method~~on a level-yield basis over the life of the loans.

In addition, included in the net loan portfolio as of September 30, 2019 and December 31, 2018 is a discount on retained loans from sale of originated SBA loans of $2,871 and $2,398, respectively.

The majority of the Company’s loan portfolio ~~is comprised~~consists of loans to businesses and individuals in the Dallas-Fort Worth metroplex and the Houston metropolitan area. This geographic concentration subjects the loan portfolio to the general economic conditions within these areas. The risks created by this concentration have been considered by management in the determination of the adequacy of the allowance for loan losses. Management believes the allowance for loan losses was adequate to cover estimated losses on loans as of September 30, ~~2017~~2019 and December 31, ~~2016.~~2018.

Non-Accrual and Past Due Loans

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

Non-accrual loans aggregated by class of loans, as of September 30, ~~2017~~2019 and December 31, ~~2016, are~~2018, were as follows:



	Non-Accrual Loans
	September 30, 2019		December 31, 2018
Real estate:
Construction and land	$	1,850	$	2,399
Farmland	—		—
1 - 4 family residential	1,188		—
Multi-family residential	—		—
Commercial real estate	2,859		2,575
Commercial	4,190		19,769
Mortgage warehouse	—		—
Consumer	85		2
Total	$	10,172	$	24,745

Non-Accrual Loans

September 30, 2017 ⁽¹⁾
December 31,
2016
Real estate:
Construction and land $ —
$ —
Farmland —
—
1 - 4 family residential —
—
Multi-family residential —
—
Commercial Real Estate 794
—
Commercial 1,048
930
Consumer 14
11
$ 1,856
$ 941

⁽¹⁾~~Excludes purchased credit impaired (“PCI”)~~At December 31, 2018, non-accrual loans ~~measured at fair value~~included PCI loans of $16,902 for which discount accretion has been suspended because the extent and timing of cash flows from these PCI loans can no longer be reasonably estimated. There were 0 PCI loans included in non-accrual loans at September 30, ~~2017.~~2019.

During the three and nine months ended September 30, 2019, interest income not recognized on non-accrual loans, excluding PCI loans, ~~are generally reported as accrual~~was $243 and $530, respectively. During the three and nine months ended September 30, 2018, interest income not recognized on non-accrual loans, ~~unless significant concerns exist related to the predictability of the timing and amount of future cash flows. The fair value on these~~excluding PCI loans, ~~are subject to change based on management finalizing its purchase accounting adjustments.~~was $331 and $371, respectively.

An ~~aging~~age analysis of past due loans, aggregated by class of loans, as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018, is as follows:


	September 30, 2017														September 30, 2019
	30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current ⁽¹⁾		Total Loans		Total 90 Days Past Due and Still Accruing⁽²⁾		30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCI		Total Loans		Total 90 Days Past Due and Still Accruing⁽¹⁾
Real estate:
Construction and land	$	—	$	—	$	—	$	—	$	276,670	$	276,670	$	—	$	850	$	—	$	1,896	$	2,746	$	607,821	$	4,407	$	614,974	$	47
Farmland	—		—		—		—		6,572		6,572		—		—		—		—		—		16,633		—		16,633		—
1 - 4 family residential	366		—		54		420		185,053		185,473		54		138		3,168		1,156		4,462		550,236		4,612		559,310		482
Multi-family residential	—		—		—		—		54,475		54,475		—		—		—		—		—		306,965		—		306,965		—
Commercial Real Estate	66		—		727		793		801,639		802,432		—
Commercial real estate															4,927		23,165		1,078		29,170		2,300,288		97,183		2,426,641		398
Commercial	2,138		447		1,037		3,622		574,136		577,758				3,851		435		3,838		8,124		1,660,994		42,138		1,711,256		1,129
Mortgage warehouse															—		—		—		—		233,577		—		233,577		—
Consumer	27		15		6		48		4,081		4,129		—		176		39		223		438		17,540		136		18,114		138
	$	2,597	$	462	$	1,824	$	4,883	$	1,902,626	$	1,907,509	$	54
Total															$	9,942	$	26,807	$	8,191	$	44,940	$	5,694,054	$	148,476	$	5,887,470	$	2,194

⁽¹⁾~~Includes PCI loans measured at fair value as of September 30, 2017. The fair value on these PCI loans are subject to change based on management finalizing its purchase accounting adjustments.~~

⁽²⁾ Loans 90 days past due and still accruing excludes ~~$3.3 million~~$30,294 of PCI loans as of September 30, ~~2017. No~~2019.



	December 31, 2018
	30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCI		Total Loans		Total 90 Days Past Due and Still Accruing⁽¹⁾
Real estate:
Construction and land	$	305	$	—	$	—	$	305	$	324,558	$	—	$	324,863	$	—
Farmland	—		—		—		—		10,528		—		10,528		—
1 - 4 family residential	131		266		—		397		297,435		85		297,917		—
Multi-family residential	—		—		—		—		51,285		—		51,285		—
Commercial real estate	3,465		—		—		3,465		1,082,559		17,008		1,103,032		—
Commercial	816		828		—		1,644		735,391		23,737		760,772		—
Consumer	10		—		—		10		7,102		—		7,112		—
Total	$	4,727	$	1,094	$	—	$	5,821	$	2,508,858	$	40,830	$	2,555,509	$	—

⁽¹⁾ Loans 90 days past due and still accruing excludes $527 of PCI ~~loans were considered non-performing~~ loans as of ~~September 30, 2017.~~December 31, 2018.

Loans past due 90 days and still accruing ~~decreased from $835 as of December 31, 2016~~increased to ~~$54~~$2,194 as of September 30, ~~2017.~~2019. These loans are also considered well-secured, and are in the process of collection with plans in place for the borrowers to bring the notes fully ~~current.~~current or to subsequently be renewed. The Company believes that it will collect all principal and interest due on each of the loans past due 90 days and still accruing.

Impaired loans are those loans ~~where~~for which 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. All troubled debt restructurings (“TDRs”) are considered impaired loans. Impaired loans are measured based on either the present value of expected future cash flows discounted at the loan’s effective interest ~~rate;~~rate, the loan’s observable market ~~price;~~price or the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company’s impaired loans are measured at the fair value of the collateral. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Impaired loans ~~including~~and TDRs at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 are summarized in the following tables.

September 30, 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 162
162
—
162
—
191
Multi-family residential —
—
—
—
—
—
Commercial Real Estate 1,169
1,169
—
1,169
—
1,191
Commercial 1,071
855
216
1,071
156
1,122
Consumer 83
83
—
83
—
94
Total $ 2,485
$ 2,269
$ 216
$ 2,485
$ 156
$ 2,598

⁽¹⁾Excludes PCI loans measured at fair value at September 30, 2017 that have not experienced further deterioration in credit quality subsequent to the acquisition date. The fair value on these PCI loans are subject to change based on management finalizing its purchase accounting adjustments.

September 30, 2019⁽¹⁾

⁽¹⁾Loans reported exclude PCI loans.



	December 31, 2018⁽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	$	2,016	$	2,016	$	—	$	2,016	$	—	$	2,262
Farmland	—		—		—		—		—		—
1 - 4 family residential	542		542		—		542		—		565
Multi-family residential	—		—		—		—		—		—
Commercial real estate	2,939		2,939		—		2,939		—		3,032
Commercial	3,228		644		2,584		3,228		368		3,351
Consumer	66		66		—		66		—		79
Total	$	8,791	$	6,207	$	2,584	$	8,791	$	368	$	9,289

⁽¹⁾Loans reported exclude PCI loans.

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.

~~During the nine months ended September 30, 2017 and 2016, total interest income and cash-based interest income recognized on impaired loans was minimal.~~

Troubled Debt Restructuring

Modifications of terms for the Company’s loans and their inclusion as TDRs are based on individual facts and circumstances. Loan modifications that are included as TDRs may involve a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk, or deferral of principal payments, regardless of the period of the modification. The recorded investment in TDRs was ~~$626~~$1,132 and ~~$822~~$1,171 as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

There were ~~no loans restructured during the nine months ended September 30, 2017 and two loans restructured during the nine months ended September 30, 2016. The terms of certain loans modified as~~0 new TDRs during the nine months ended September 30, ~~2016 are summarized in the following table:~~

During the nine months ended September 30, 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
Real estate loans:
Construction and land —
$ —
$ —
$ —
$ —
$ —
Farmland —
—
—
—
—
—
1 - 4 family residential —
—
—
—
—
—
Multi-family residential —
—
—
—
—
—
Nonfarm nonresidential —
—
—
—
—
—
Commercial 2
175
—
—
169
—
Consumer —
—
—
—
—
—
Total 2
$ 175
$ —
$ —
$ 169
$ —

~~The two loans restructured during~~2019. During the nine months ended September 30, ~~2016 were performing as agreed to the modified terms. A specific allowance of $38 for loan losses was recorded for one of the~~2018 certain loans ~~that~~ were modified ~~during~~as TDRs, the ~~nine months ended September 30, 2016.~~terms of which are summarized in the following table.



				Nine months ended September 30, 2018
				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	3	628		—		612		—		—
Total	3	$	628	$	—	$	612	$	—	$	—

There were no0 loans modified as TDR loans within the previous 12 months and for which there was a payment default during the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral.

Interest income recorded during the three and nine months ended September 30, 2019 and 2018 on TDR loans and interest income that would have been recorded had the terms of the loans not been modified was minimal.

The Company has not committed to lend additional amounts to customers with outstanding loans classified as TDRs as of September 30, ~~2017~~2019 or December 31, ~~2016.~~2018.

Credit Quality Indicators

From a credit risk standpoint, the Company classifies its ~~non-PCI~~ loans in one of the following categories: (i) pass, (ii) special mention, (iii) substandard or (iv) doubtful. ~~Non-PCI loans~~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 ~~by management~~ about the risks of default and loss associated with the loan. The Company reviews the ratings on criticized credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is ~~believed~~felt to be inherent in each credit as of each monthly reporting period. All classified credits are evaluated for ~~impairments.~~impairment. If impairment is determined to exist, a specific reserve is established. The Company’s methodology is structured so that specific reserves are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

Credits rated ~~“special mention”~~special mention show clear signs of financial weaknesses or deterioration in credit ~~worthiness;~~worthiness, however, such concerns are generally not so pronounced that the Company ~~generally~~ expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits ~~rated more harshly.~~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 ~~the~~ collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

Credits rated doubtful are those in which full collection of principal appears highly questionable, and in which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual.

Credits classified as ~~purchased credit impaired~~PCI 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 quarterly on a projected cash flow ~~basis with this evaluation performed quarterly.~~

The following tables summarize the Company’s internal ratings of its loans, including ~~purchased credit impaired~~PCI loans, as of September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

⁽¹⁾Management is continuing to evaluate the fair value of Sovereign acquired PCI loans. The fair value on these PCI loans are subject to change based on management finalizing its purchase accounting adjustments.

December 31, 2016
Pass
Special
Mention
Substandard Doubtful Total
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



	December 31, 2018
	Pass		Special Mention		Substandard		Doubtful		PCI		Total
Real estate:
Construction and land	$	320,987	$	1,860	$	2,016	$	—	$	—	$	324,863
Farmland	10,528		—		—		—		—		10,528
1 - 4 family residential	296,870		236		726		—		85		297,917
Multi-family residential	51,285		—		—		—		—		51,285
Commercial real estate	1,065,982		7,056		12,986		—		17,008		1,103,032
Commercial	720,583		8,900		7,552		—		23,737		760,772
Consumer	6,950		—		162		—		—		7,112
Total	$	2,473,185	$	18,052	$	23,442	$	—	$	40,830	$	2,555,509

An analysis of the allowance for loan losses for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 and the year ended December 31, ~~2016~~2018 is as follows:



	Nine Months Ended September 30, 2019			Year Ended December 31, 2018			Nine Months Ended September 30, 2018
Balance at beginning of period	$	19,255		$	12,808		$	12,808
Provision charged to earnings	18,021			6,603			5,239
Charge-offs	(11,272		)	(197		)	(171		)
Recoveries	239			41			33
Net charge-offs	(11,033		)	(156		)	(138		)
Balance at end of period	$	26,243		$	19,255		$	17,909

The allowance for loan losses as a percentage of total loans was ~~0.55%~~0.45%, ~~0.86%~~0.75% and ~~0.87%~~0.73% as of September 30, ~~2017,~~2019, December 31, ~~2016,~~2018 and September 30, ~~2016,~~2018, respectively.

The following tables summarize the activity in the allowance for loan losses by portfolio segment for the periods ~~indicated:~~indicated.



	For the Nine Months Ended September 30, 2018
	Real Estate
	Construction, Land and Farmland		Residential		Commercial Real Estate		Commercial			Consumer			Total
Balance at beginning of year	$	1,315	$	1,473	$	4,410	$	5,588		$	22		$	12,808
Provision (recapture) charged to earnings	552		324		1,726		2,633			4			5,239
Charge-offs	—		—		—		(150		)	(21		)	(171		)
Recoveries	—		—		—		33			—			33
Net charge-offs (recoveries)	—		—		—		(117		)	(21		)	(138		)
Balance at end of period	$	1,867	$	1,797	$	6,136	$	8,104		$	5		$	17,909
Period-end amount allocated to:
Specific reserves	—		—		—		378			—			378
PCI reserves	—		—		—		1,302			—			1,302
General reserves	1,867		1,797		6,136		6,424			5			16,229
Total	$	1,867	$	1,797	$	6,136	$	8,104		$	5		$	17,909

For the Nine Months Ended September 30, 2016
Real Estate
Construction,
Land and
Farmland Residential Commercial Real Estate Commercial Consumer Total
Balance at beginning of year $ 1,104
$ 1,124
$ 2,189
$ 2,324
$ 31
$ 6,772
Provision (recapture) charged to earnings 368
(38 ) 532
741
7
1,610
Charge-offs —
—
—
(300 ) (9 ) (309 )
Recoveries —
—
—
28
1
29
Net charge-offs (recoveries) —
—
—
(272 ) (8 ) (280 )
Balance at end of year $ 1,472
$ 1,086
$ 2,721
$ 2,793
$ 30
$ 8,102
Period-end amount allocated to:
Specific reserves:
Impaired loans $ —
$ —
$ —
$ 221
$ 4
$ 225
Total specific reserves —
—
—
221
4
225
General reserves 1,472
1,086
2,721
2,572
26
7,877
Total $ 1,472
$ 1,086
$ 2,721
$ 2,793
$ 30
$ 8,102

The Company’s recorded investment in loans as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 related to the balance in the allowance for loan losses on the basis of the Company’s impairment methodology is as follows:



	December 31, 2018
	Real Estate
	Construction, Land and Farmland		Residential		Commercial Real Estate		Commercial		Consumer		Total
Loans individually evaluated for impairment	$	2,016	$	542	$	2,939	$	3,228	$	66	$	8,791
Loans collectively evaluated for impairment	333,375		348,575		1,083,085		733,807		7,046		2,505,888
PCI loans	—		85		17,008		23,737		—		40,830
Total	$	335,391	$	349,202	$	1,103,032	$	760,772	$	7,112	$	2,555,509

Loans acquired with evidence of credit quality deterioration at acquisition, for which it was probable that the Company would not be able to collect all contractual amounts due, were accounted for as PCI loans. The carrying amount of PCI loans included in the condensed consolidated balance sheets and the related outstanding balances at September 30, 2019 and December 31, 2018 are set forth in the table below. The outstanding balance represents the total amount owed, including accrued but unpaid interest, and any amounts previously charged off.

December 31, 2016
Real Estate
Construction,
Land and
Farmland Residential Commercial Real Estate Commercial Consumer Total
Loans individually evaluated for impairment $ —
$ 164
$ 382
$ 955
$ 92
$ 1,593
Loans collectively evaluated for impairment 170,876
154,656
370,314
290,461
3,997
990,304
PCI loans —
—
—
—
—
—
Total $ 170,876
$ 154,820
$ 370,696
$ 291,416
$ 4,089
$ 991,897



	September 30, 2019		December 31, 2018
Carrying amount	$	148,055	$	39,528
Outstanding balance	185,787		49,902

~~The~~Changes in the accretable yield for PCI loans for the three and nine months ended September 30, 2019 and 2018 are included in table below.



	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Balance at beginning of period	$	33,709		$	7,335		$	18,747		$	2,723
Additions	—			—			18,073			1,459
Reclassifications (to) from nonaccretable	9,309			278			11,195			6,499
Accretion	(4,149		)	(820		)	(9,146		)	(3,888		)
Balance at end of period	$	38,762		$	6,793		$	38,762		$	6,793

During the three and nine months ended September 30, 2019, the Company ~~has acquired certain loans which experienced credit deterioration since origination which are PCI loans. Accretion~~received cash collections in excess of expected cash flows on PCI loans ~~is based on estimated future~~accounted for individually and not aggregated into loan pools of $28 and $441, respectively. During the three and nine months ended September 30, 2018, the Company received cash collections in excess of expected cash flows ~~regardless~~on PCI loans accounted for individually and not aggregated into loan pools of ~~contractual maturity.~~

$1,999 and $3,759, respectively.

~~At September 30, 2017, the~~The Company was servicing loans of approximately ~~$70,392.~~$241,733 and $71,609 as of September 30, 2019 and 2018, respectively. A summary of the changes in the related servicing assets are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Balance at beginning of period	$	3,793		$	1,183		$	1,304		$	1,215
Servicing asset acquired through acquisition	—			—			2,382			—
Increase from loan sales	534			27			995			204
Servicing asset impairment	(188		)	—			(188		)	—
Amortization charged to income	(618		)	(69		)	(972		)	(278		)
Balance at end of period	$	3,521		$	1,141		$	3,521		$	1,141

Nine Months Ended September 30,
2017 2016
Balance at beginning of year $ 601
$ 426
Servicing asset acquired through acquisition 454
—
Increase from loan sales 273
231
Amortization charged to income (130 ) (81 )
Balance at end of period $ 1,198
$ 576

The estimated fair value of the servicing assets approximated the carrying amount at September 30, ~~2017,~~2019, December 31, ~~2016,~~2018 and September 30, ~~2016.~~2018. Fair value is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current market rates over the expected lives of the loans being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset. ~~At September 30, 2017, there was no valuation allowance recorded.~~

The Company may also receive a portion of subsequent interest collections on loans sold that exceed the contractual servicing ~~fee.~~fees. In that case, the Company records an interest-only strip based on its relative fair market value and the other components of the loans. There was no0 interest-only strip receivable recorded at September 30, ~~2017~~2019 and December 31, ~~2016.~~

The Company’s estimated annual effective tax rate, before the net impact of discrete items, was approximately 34.4% and 34.2% for the nine months ended September 30, 2017 and 2016, respectively. The Company’s effective tax rate, after including the net impact of discrete tax items, was approximately 32.8% and 34.1%, respectively, for the nine months ended September 30, 2017 and 2016. The Company’s provision was impacted by a net discrete tax benefit of $285 primarily associated with the recognition of excess tax benefit on share-based payment awards for the nine months ended September 30, 2017.

The Company’s estimated annual effective tax rate, before the net impact of discrete items, was approximately 34.2% and 34.4% for the three months ended September 30, 2017 and 2016, respectively. The Company’s effective tax rate, after including the net impact of discrete tax items, was approximately 33.8% and 34.4%, respectively, for the three months ended September 30, 2017 and 2016. The Company’s provision was impacted by a net discrete tax benefit of $30 primarily associated with the recognition of excess tax benefit on share-based payment awards for the three months ended September 30, 2017.

Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes, and the amounts used for income tax purposes. Included in the accompanying condensed consolidated balance sheet as of September 30, 2017 is a current tax receivable of approximately $4,878 and a net deferred tax asset of approximately $7,566 in other assets. Included in the accompanying condensed consolidated balance sheets as of December 31, 2016 is a current tax receivable of $91 and a net deferred tax asset of $3,467 in other assets.2018.

6. ~~Commitments and Contingencies~~

The Company may from time to time be involved in legal actions arising from normal business activities. Management believes that these actions are without merit or that the ultimate liability, if any, resulting from them will not materially affect the financial position or results of operations of the Company.

~~Operating Leases~~

The Company leases several of its banking facilities under operating leases. Rental expense related to these leases was approximately $1,595 and $1,051 for the nine months ended September 30, 2017 and 2016, respectively.

~~Qualified Affordable Housing Investment~~

On July 26, 2017, the Company began investing in a qualified housing project. At September 30, 2017, the balance of the investment for qualified affordable housing projects was $1,991. This balance is reflected in non-marketable equity securities on the condensed consolidated balance sheets. The total unfunded commitment related to the investment in a qualified housing project totaled $1,875 at September 30, 2017. The Company expects to fulfill this commitment during the year ending 2031.

7. Fair Value ~~Disclosures~~

The authoritative guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The authoritative guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

~~Level 1 Inputs.~~ ~~Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.~~

~~Level 2 Inputs.~~ Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 investments consist primarily of obligations of U.S. government sponsored enterprises and agencies, obligations of state and municipal subdivisions, corporate bonds, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities.

~~Level 3 Inputs.~~ ~~Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.~~

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

~~Assets and liabilities measured at fair value on a recurring basis include the following:~~

~~Investment Securities Available For Sale:~~ Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For those securities classified as Level 2, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels or trade execution data for similar securities, market consensus prepayments speeds, credit information and the bond’s terms and conditions, among other things.

The following table summarizes assets measured at fair value on a recurring basis as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	September 30, 2019
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial Assets:
Available for sale securities	$	—	$	990,274	$	—	$	990,274
Loans held for sale⁽¹⁾	—		8,468		—		8,468
Correspondent interest rate swaps	—		7		—		7
Customer interest rate swaps	—		5,437		—		5,437
Correspondent interest rate caps and collars	—		20		—		20
Commercial loan interest rate floor	—		4,225		—		4,225
Financial Liabilities:
Correspondent interest rate swaps	—		5,909		—		5,909
Customer interest rate caps and collars	—		20		—		20

Fair Value
Measurements Using
Level 1
Inputs Level 2
Inputs Level 3
Inputs Total
Fair Value
As of September 30, 2017
Investment securities available for sale $ —
$ 204,788
$ —
$ 204,788
As of December 31, 2016
Investment securities available for sale $ —
$ 102,559
$ —
$ 102,559
⁽¹⁾ Represents loans held for sale elected to be carried at fair value upon origination or acquisition.



	December 31, 2018
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial Assets:
Available for sale securities	$	—	$	262,695	$	—	$	262,695

There were no0 liabilities measured at fair value on a recurring basis as of ~~September 30, 2017 or~~ December 31, ~~2016.~~2018.

There were no0 transfers between Level 2 and Level 3 during the nine months ended September 30, ~~2017~~2019 and ~~2016.~~

Certain assets and liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Assets measured at fair value on a non-recurring basis include impaired loans and other real estate owned. The fair value of impaired loans with specific allocations of the allowance for loan losses and other real estate owned is based upon recent real estate appraisals less estimated costs of sale. For residential real estate impaired loans and other real estate owned, appraised values are based on the comparative sales approach. For commercial and commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. Adjustments to appraisals may be made to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair value of impaired loans and other real estate owned are considered a Level 3 in the fair value hierarchy.

The Company recovers the carrying value of other real estate owned through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond the Company’s control and may impact the estimated fair value of a property.

Appraisals for impaired loans and other real estate owned are performed by certified general appraisers whose qualifications and licenses have been reviewed and verified by the Company. Once reviewed, a member of the credit department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparisons to independent data sources such as recent market data or industry wide-statistics. On a periodic basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal value to arrive at fair value.

The following table summarizes assets measured at fair value on a non-recurring basis as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	Fair Value Measurements Using
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
As of September 30, 2019
Assets:
Impaired loans	$	—	$	—	$	5,571	$	5,571
Other real estate owned	—		—		4,625		4,625
As of December 31, 2018
Assets:
Impaired loans	—		—		2,584		2,584

Fair Value
Measurements Using
Level 1
Inputs Level 2
Inputs Level 3
Inputs Total
Fair Value
As of September 30, 2017
  Assets:
Impaired loans $ —
$ —
$ 2,329
$ 2,329
As of December 31, 2016
  Assets:
Impaired loans $ —
$ —
$ 1,343
$ 1,343

At September 30, ~~2017,~~2019, impaired loans with an allowance had a recorded investment of $5,571, with $1,584 specific allowance for loan loss allocated. At December 31, 2018, impaired loans had a carrying value of ~~$2,485,~~$2,584, with ~~$156~~$368 specific allowance for loan loss allocated.

AtOther real estate owned consisted of 2 properties recorded with a fair value of approximately $4,625 at September 30, 2019. There were 0 real estate owned properties recorded at fair value at December 31, ~~2016, impaired loans had a carrying value of $1,593, with $250 specific allowance for loan loss allocated.~~2018.

There were no0 liabilities measured at fair value on a non-recurring basis as of September 30, ~~2017~~2019 or December 31, ~~2016.~~

~~For Level 3 financial assets measured at fair value as of September 30, 2017 and December 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows:~~

September 30, 2017
Valuation Unobservable Weighted
Assets/Liabilities Fair Value Technique Input(s) Average
Impaired loans $ 2,329
Collateral Method Adjustments for selling costs 8 %

December 31, 2016
Valuation Unobservable Weighted
Assets/Liabilities Fair Value Technique Input(s) Average
Impaired loans $ 1,343
Collateral Method Adjustments for selling costs 8 %
2018.

Fair Value of Financial Instruments

The ~~Company is required under current authoritative guidance to disclose the estimated~~Company’s methods of determining fair value of its financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments ~~as defined. Many of~~in this Note are consistent with its methodologies disclosed in the Company’s ~~financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging~~Annual Report on Form 10-K for the year ended December 31, 2018, with the exception of securities sold under agreements to repurchase. Please refer to Note 16 in ~~an exchange transaction.~~the Company’s Annual Report on Form 10-K for information on these methods.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is requiredSecurities sold under agreements to interpret data to develop an estimate of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or valuation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

The methods and assumptions used by the Company in estimating fair values of financial instruments as disclosed herein in accordance with ASC Topic 825, Financial Instruments, other than for those measured at fair value on a recurring and nonrecurring basis discussed above, are as follows:

~~Cash and cash equivalents:~~repurchase: The carrying amount of ~~cash and cash equivalents approximates their fair value.~~

~~Loans and loans held for sale:~~ For variable-rate loans that reprice frequently and have no significant changes in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (for example, 1-4 family residential), commercial real estate and commercial loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar termssecurities sold under agreements to ~~borrowers~~repurchase is a reasonable estimate of ~~similar credit quality.~~

~~Accrued interest:~~ ~~The carrying amounts of accrued interest approximate their fair values due to short-term maturity.~~

~~Bank-owned life insurance:~~ ~~The carrying amounts of bank-owned life insurance approximate their fair value.~~

~~Servicing assets: The estimated~~ fair value ~~of the servicing assets approximated the carrying amount~~because these borrowings reprice at ~~September 30, 2017 and December 31, 2016. Fair value is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current~~ market rates over the expected lives of the loans being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset. At September 30, 2017 and December 31, 2016 no valuation allowance was recorded.generally daily.

~~Non-marketable equity securities:~~ ~~The carrying value of restricted securities such as stock in the Federal Home Loan Bank of Dallas and Independent Bankers Financial Corporation approximates fair value.~~

~~Deposits:~~ The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is their carrying amounts). The carrying amounts of variable-rate certificates of deposit (“CDs”) approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

~~Advances from Federal Home Loan Bank:~~ ~~The fair value of advances maturing within 90 days approximates carrying value. Fair value of other advances is based on the Company’s current borrowing rate for similar arrangements.~~

~~Junior subordinated debentures and subordinated notes:~~ ~~The fair values are based upon prevailing rates on similar debt in the market place.~~

~~Off-balance sheet instruments:~~ ~~Commitments to extend credit and standby letters of credit are generally priced at market at the time of funding and were not material to the Company’s condensed consolidated financial statements.~~

The estimated fair values and carrying values of all financial instruments under current authoritative guidance as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 were as follows:



			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
September 30, 2019
Financial assets:
Cash and cash equivalents	$	252,592	$	—	$	252,592	$	—
Held to maturity investments	33,119		—		35,177		—
Loans held for sale	10,715		—		10,715		—
Loans held for investment, mortgage warehouse	233,577		—		—		237,945
Loans held for investment	5,654,027		—		—		5,681,565
Accrued interest receivable	19,893		—		19,893		—
Bank-owned life insurance	80,411		—		80,411		—
Servicing asset	3,521		—		3,521		—
Other investments	89,795		—		89,795		—
Financial liabilities:
Deposits	$	5,877,846	$	—	$	5,772,171	$	—
Advances from FHLB	752,907		—		778,243		—
Accrued interest payable	7,355		—		7,355		—
Subordinated debentures and subordinated notes	72,284		—		72,284		—
Securities sold under agreement to repurchase	2,787		—		2,787		—
December 31, 2018
Financial assets:
Cash and cash equivalents	$	84,449	$	—	$	84,449	$	—
Loans held for sale	1,258		—		1,258		—
Loans held for investment	2,555,494		—		—		2,553,376
Accrued interest receivable	8,828		—		8,828		—
Bank-owned life insurance	22,064		—		22,064		—
Servicing asset	834		—		834		—
Other investments	22,822		—		22,822		—
Financial liabilities:
Deposits	$	2,622,428	$	—	$	2,506,379	$	—
Advances from FHLB	28,019		—		28,063		—
Accrued interest payable	1,135		—		1,135		—
Subordinated debentures and subordinated notes	16,691		—		16,691		—

September 30, December 31,
2017 2016
Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Financial assets:
Level 1 inputs:
Cash and cash equivalents $ 151,376
$ 151,376
$ 234,791
$ 234,791
Level 2 inputs:
Loans held for sale 2,179
2,179
5,208
5,208
Accrued interest receivable 6,387
6,387
2,907
2,907
Bank-owned life insurance 20,517
20,517
20,077
20,077
Servicing asset 1,198
1,198
601
601
Non-marketable equity securities 10,283
10,283
7,366
7,366
Level 3 inputs:
Loans, net 1,896,989
1,907,203
983,318
987,021
Financial liabilities:
Level 2 inputs:
Deposits $ 1,985,658
$ 1,986,342
$ 1,119,630
$ 1,085,888
Advances from FHLB 38,200
38,244
38,306
38,570
Accrued interest payable 324
324
141
141
Junior subordinated debentures 11,702
11,702
3,093
3,093
Subordinated notes 4,987
4,987
4,942
4,942

7. Derivative Financial Instruments

The Company primarily uses derivatives to manage exposure to market risk, including interest rate risk and credit risk and to assist customers with their risk management objectives. Management will designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship. The Company’s remaining derivatives consist of derivatives held for customer accommodation or other purposes.

The fair value of derivative positions outstanding is included in “other assets” and “accounts payable and accrued expenses” on the accompanying condensed consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying condensed consolidated statements of cash flows. For derivatives not designated as hedging instruments, gains and losses due to changes in fair value are included in noninterest income and the operating section of the consolidated

statement of cash flows. For derivatives designated as hedging instruments, the entire change in the fair value related to the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified into interest income when the forecasted transaction affects income. The notional amounts and estimated fair values as of September 30, 2019 were as shown in the table below. The Company did not have hedging or non-hedging derivative instruments as of December 31, 2018.



	September 30, 2019
			Estimated Fair Value
	Notional Amount		Asset Derivative		Liability Derivative
Derivatives designated as hedging instruments (cash flow hedges):
Commercial loan interest rate floor	$	275,000	$	4,225	$	—
Total derivatives designated as hedging instruments	275,000		4,225		—

Derivatives not designated as hedging instruments:
Financial institution counterparty:
Interest rate swaps	227,438		7		5,909
Interest rate caps and collars	84,211		20		—
Commercial customer counterparty:
Interest rate swaps	227,438		5,437		—
Interest rate caps and collars	84,211		—		20
Total derivatives not designated as hedging instruments	623,298		5,464		5,929
Offsetting derivative assets/liabilities			28		28
Total derivatives	$	898,298	$	9,717	$	5,957

Pre-tax gain (loss) included in the condensed consolidated statements of income and related to derivative instruments for the three and nine months ended September 30, 2019 was as follows:



	For the Three Months Ended September 30, 2019							For the Nine Months Ended September 30, 2019
	Gain recognized in other comprehensive income on cash flow derivative		Loss recognized in interest income on cash flow derivative (amount excluded from effectiveness testing)			Loss recognized in noninterest income		Gain recognized in other comprehensive income on cash flow derivative		Loss recognized in interest income on cash flow derivative (amount excluded from effectiveness testing)			Gain recognized in noninterest income
Derivatives designated as hedging instruments (cash flow hedges):
Commercial loan interest rate floors	$	413	$	(334	)	$	—	$	2,033	$	(473	)	$	—

Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars	$	—	$	—		$	604	$	—	$	—		$	474

In May 2019, the Company entered into a $275,000 notional interest rate floor with a two-year term. The interest rate floor has a purchased floor strike of 2.43%. The purchased option price was $2,665, which is reflected within “accrued interest receivable and other assets“ in the condensed consolidated statements of cash flows.

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



��	September 30, 2019
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair Value
Non-hedging derivative instruments:
Customer interest rate derivatives:
Interest rate swaps - receive fixed/pay floating	$	227,438	2.944 - 8.470%	LIBOR 1 month + 0% - 5.00% PRIME H15 - 0.250%	Wtd. Avg. 3.2 years	$	(5,902	)
Interest rate caps and collars	$	84,211	2.500% / 5.800%	LIBOR 1 month + 0% - 3.75%	Wtd. Avg. 1.8 years	$	20

Correspondent interest rate derivatives:
Interest rate swaps - pay fixed/receive floating	$	227,438	2.944 - 8.470%	LIBOR 1 month + 0% - 5.00% PRIME H15 - 0.250%	Wtd. Avg. 3.2 years	$	5,439
Interest rate caps and collars	$	84,211	3.000% / 5.800%	LIBOR 1 month + 0% - 3.75%	Wtd. Avg. 1.8 years	$	(20	)

8. Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to ~~the~~a financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for ~~on balance~~on-balance sheet instruments.

The following table sets forth the approximate amounts of these financial instruments as of September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:



	September 30,		December 31,
	2019		2018
Commitments to extend credit	$	1,909,221	$	962,436
Standby and commercial letters of credit	33,360		5,431
Total	$	1,942,581	$	967,867

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s policy for obtaining collateral and the nature of such collateral is ~~essentially~~substantially the same as that involved in making commitments to extend credit.

Although the maximum exposure to loss is the amount of such commitments, management currently anticipates no material losses from such activities.

9. ~~Employee Benefits~~Leases

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in other assets and accounts payable and accrued expenses, respectively, on the Company’s condensed consolidated balance sheets. The Company does not currently have finance leases in which it is the lessee.

~~Defined Contribution Plan~~

Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating liabilities represent its obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of 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. Operating lease expense, which is comprised 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 net occupancy expense in the condensed consolidated statements of income and other comprehensive income.

The ~~Company maintains a retirement savings 401(k) profit sharing plan (“Plan”)~~Company’s leases related primarily to office space and bank branches with remaining lease terms generally ranging from one to 8 years. Certain lease arrangements contain extension options which typically range from 5 to 10 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in ~~which substantially all employees may participate.~~ the lease term. As of September 30, 2019, operating lease ROU assets and liabilities were $15,278 and $16,125, respectively.

The ~~Plan provides for “before tax” employee contributions through salary reductions under section 401(k)~~table below summarizes the Company’s net lease cost:



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	1,157	$	3,920
Variable lease cost	293		700
Net lease cost	$	1,450	$	4,620

The table below summarized other information related to the Company’s operating leases:



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,399
Weighted average remaining lease term - operating leases, in years	3.9 years
Weighted average discount rate - operating leases	1.5		%

A maturity analysis of operating lease liabilities and reconciliation of the Internal Revenue Code. The Company may make a discretionary match of employees’ contributions based on a percentage of salary deferrals and certain discretionary profit sharing contributions. No matching contributionsundiscounted cash flows to the ~~Plan~~total operating lease liability is as follows:



	September 30, 2019
Lease payments due:
Within one year	$	3,908
After one but within two years	3,390
After two but within three years	2,819
After three but within four years	2,586
After four but within five years	1,938
After five years	2,549
Total undiscounted cash flows	17,190
Less: Discount on cash flows	(1,065		)
Total lease liability	$	16,125

There were ~~made for~~no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the nine months ended September 30, ~~2017 and 2016.~~

~~Effective January 1, 2012,~~2019. As of September 30, 2019, the Company ~~adopted~~did not have additional operating leases for office space that were anticipated to commence during the ~~Veritex Community Bank Employee Stock Ownership Plan (“ESOP”) covering all employees that meet certain age~~fourth quarter of 2019.

10. Intangible Assets and ~~service requirements. Plan~~Goodwill

Intangible 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.

In January 2014, the ESOP borrowed $500 from the Company and purchased 46,082 shares of the Company’s common stock. The ESOP debt is secured by shares of the Company. The loan will be repaid from contributions to the ESOP from the Company. As the debt is repaid, shares are released from collateral and allocated to employees’ accounts. The shares pledged as collateral are reported as unearned ESOP shares in the condensed consolidated balance sheets.

~~Compensation expense attributed to the ESOP contributions recorded~~ in the accompanying condensed consolidated ~~statements of income for~~balance sheets are summarized as follows:



	As of December 31, 2018
	Weighted	Gross				Net
	Amortization	Intangible		Accumulated		Intangible
	Period	Assets		Amortization		Assets
Core deposit intangibles	7.7 years	$	16,051	$	4,376	$	11,675
Servicing asset	6.8 years	2,091		787		1,304
Intangible lease assets	2.7 years	5,282		2,365		2,917
		$	23,424	$	7,528	$	15,896



	September 30, 2019
Balance as of December 31, 2018	$	161,447
Effect of Green acquisition	209,016
Balance as of September 30, 2019	$	370,463

Deposits in the accompanying condensed consolidated balance sheets are summarized as follows:



	September 30, 2019		December 31, 2018
Noninterest-bearing demand accounts	$	1,473,126	$	626,283
Interest-bearing demand accounts	373,997		146,969
Savings accounts	87,981		33,147
Limited access money market accounts	2,066,315		1,133,045
Certificates of deposit, greater than $100	1,212,718		392,935
Certificates of deposit, less than $100	663,709		290,049
Total	$	5,877,846	$	2,622,428

As of September 30, 2019, the scheduled maturities of certificates of deposit were as follows:



Year	Amount
2019	$	519,916
2020	1,092,676
2021	198,091
2022	38,773
2023	26,971
Total	$	1,876,427

The ~~following is a summary~~aggregate amount of ~~ESOP shares~~demand deposit overdrafts that have been reclassified as loans were $168 and $153 as of September 30, ~~2017~~2019 and December 31, ~~2016:~~2018, respectively. Brokered deposits at September 30, 2019 and December 31, 2018 totaled approximately $416,125 and $234,190, respectively.

September 30, December 31,
2017 2016
Allocated shares 44,257
44,257
Unearned shares 18,783
18,783
Total ESOP shares 63,040
63,040
Fair value of unearned shares $ 506
$ 502

12. Advances from the Federal Home Loan Bank

Advances from the FHLB totaled $752,907 and $28,019 at September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, the advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average rate of 1.51% and scheduled to mature on various dates from 2019 to 2034. The Company had the availability to borrow additional funds of approximately $822,980 as of September 30, 2019.

Contractual maturities of FHLB advances at September 30, 2019 were as follows:



2019	$	225,000
2020	425,000
2021	75,000
2022	27,907
Total	$	752,907

13. Subordinated Debentures and Subordinated Notes

~~10. Stock~~Subordinated Notes

Total subordinated notes as of September 30, 2019 and ~~Incentive Plan~~December 31, 2018 were as follows:

~~2010 Stock Option and Equity Incentive Plan~~



	September 30, 2019		December 31, 2018
Subordinated notes	$	40,000	$	5,000
Unamortized debt premium (discount)	2,315		(11		)
Total subordinated notes	$	42,315	$	4,989

In ~~2010,~~connection with the Company’s acquisition of Green, the Company ~~adopted~~assumed $35,000 of 8.50% Fixed-to-Floating Rate Subordinated Notes (the “Notes”) that mature on December 15, 2026. The Notes, which qualify as Tier 2 capital under the Federal Reserve’s capital guidelines, have an interest rate of 8.50% per annum during the fixed-rate period from date of issuance through December 15, 2021. Interest is payable semi-annually on each June 15 and December 15 through December 15, 2021.

During the floating rate period from December 15, 2021, but excluding the maturity date or date of earlier redemption, the Notes will bear interest at a rate per annum equal to three-month LIBOR for the related interest period plus 6.685%, payable quarterly on each March 15, June 15, September 15 and December 15. The Notes are subordinated in right of payment to all of the Company's senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Bank. The Company may elect to redeem the Notes (subject to regulatory approval), in whole or in part, on any early redemption date which is any interest payment date on or after December 15, 2021 at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest. Other than on an early redemption date, the Notes cannot be accelerated except in the event of bankruptcy or the occurrence of certain other events of bankruptcy, insolvency or reorganization.

Subordinated Debentures Trust Preferred Securities

Total subordinated debentures as of September 30, 2019 and December 31, 2018 were as follows:



	September 30, 2019			December 31, 2018
Subordinated debentures	$	33,868		$	11,702
Debt discount	(3,899		)	—
Total subordinated debentures	$	29,969		$	11,702

In connection with the Company’s acquisition of Green, the Company assumed obligations related to the subordinated debentures issued to Patriot Bancshares Capital Trust I and Patriot Bancshares Capital Trust II. A summary of information related to these 2 issues of subordinated debentures is set forth in the table below:



Description	Subordinated Debt Owed to Trusts		Interest Rate⁽¹⁾	Maturity Date
Patriot Bancshares Capital Trust I	$	5,155	3-month LIBOR +1.85%, not to exceed 11.90%	April 7, 2036
Patriot Bancshares Capital Trust II	$	17,011	3-month LIBOR +1.80%, not to exceed 11.90%	September 15, 2037

⁽¹⁾The 3-month LIBOR in effect as of September 30, 2019 was 2.1%.

Each of the trusts is a capital trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s junior subordinated debentures. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of the Company’s present and future senior indebtedness. The Company has fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by such trust to the extent not paid or made by each trust, provided such trust has funds available for such obligations. The trust preferred securities issued by each of the trusts as of September 30, 2019 may be redeemed at the Company’s option.

Under the provisions of each issue of the debentures, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on either issue of the debentures are deferred, the distributions on the applicable trust preferred securities and common securities will also be deferred.

14. Stock-Based and Liability-Classified Awards

Veritex 2010 Stock Option and Equity Incentive Plan ~~(the “2010~~(“2010 Incentive Plan”)~~, which~~

The closing of the ~~Company’s shareholders approved in 2011. The maximum number of shares of common stock that may be issued pursuant to grants or options~~Green acquisition on January 1, 2019 constituted a change-in-control under the 2010 Incentive ~~Plan is 1,000,000. The 2010 Incentive Plan is administered by~~Plan. As a result, all unvested awards as of December 31, 2018 were accelerated to fully vest on the Board of Directors and provides for both the direct award of stock and the grant of stock options to eligible directors, officers, employees and outside consultants of the Company or its affiliates as definedclose date in accordance with the 2010 Incentive Plan. The Company ~~may grant either incentive~~recognized 0 stock ~~options or nonqualified stock options as directed in the 2010 Incentive Plan.~~

The Board of Directors authorized the 2010 Incentive Plan to provide for the award of 100,000 shares of direct stock awards (restricted shares) and 900,000 shares of stock options, of which 500,000 shares are performance-based stock options. Options are generally granted with an exercise price equal to the market price of the Company’s stock at the date of the grant; those option awards generally vest based on 5 years of continuous service and have 10-year contractual terms for non-controlling participants as defined by the 2010 Incentive Plan, and forfeiture of unexercised options upon termination of employment with the Company. Other grant terms can vary for controlling participants as defined by the 2010 Incentive Plan. Restricted share awards generally vest after 4 years of continuous service. The terms of the Incentive Plan include a provision whereby all unearned non-performance options and restricted shares become immediately exercisable and fully vested upon a change in control.

~~With the adoption of the 2014 Omnibus Plan, which is discussed below, the Company does not plan to award any additional grants or options under the 2010 Incentive Plan.~~

During the nine months ended September 30, 2017 and 2016, the Company did not award any restricted stock units, non-performance-based stock options or performance-based stock options under the 2010 Incentive Plan.

Stock based compensation expense is measured based upon the fair market value of the award at the grant date and is recognized ratably over the period during which the shares are earned (the requisite service period). Stock compensation expense related to the 2010 Incentive Plan three months ended September 30, 2019. The Company recognized instock compensation expense related to the ~~accompanying condensed consolidated statements~~2010 Incentive Plan of ~~income totaled $20~~$2 for the nine months ended September 30, 2019. The Company recognized stock compensation expense related to the 2010 Incentive Plan of $11 and ~~$62~~$21, respectively, for the three and nine months ended September 30, ~~2017 and $29 and $86 for the three and nine months ended September 30, 2016, respectively.~~2018.

A summary of option activity under the 2010 Incentive Plan for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, and changes during the ~~period~~periods then ended is presented below:



	2010 Incentive Plan
	Non-Performance Based Stock Options
	Shares Underlying Options		Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2018	305,000		$	10.16	3.59 years
Exercised	(11,500	)	10.48
Outstanding at September 30, 2018	293,500		$	10.15	2.78 years
Options exercisable at September 30, 2018	289,500		$	10.13	2.75 years

Outstanding at January 1, 2019	275,000		$	10.12	2.39 years	$	3,098
Exercised	(17,500	)	10.24
Outstanding and exercisable at September 30, 2019	257,500		$	10.28	1.62 years	$	3,699

For the Nine Months Ended September 30, 2017
Non-performance-based Stock Options

Shares
Underlying
Options

Weighted
Exercise
Price

Weighted
Average
Contractual
Term
Outstanding at beginning of year 325,500
$ 10.15
4.56 years
Granted during the period —
—

Forfeited during the period —
—

Canceled during the period —
—

Exercised during the period (17,500 ) 10.00

Outstanding at the end of period 308,000
$ 10.16
3.84 years
Options exercisable at end of period 300,000
$ 10.12
3.77 years
Weighted average fair value of options granted during the period $ —

For the Nine Months Ended September 30, 2016
Non-performance-based Stock Options

Shares
Underlying
Options

Weighted
Exercise
Price

Weighted
Average
Contractual
Term
Outstanding at beginning of year 325,500
$ 10.15
5.56 years
Granted during the period —
—

Forfeited during the period —
—

Exercised during the period —
—

Outstanding at the end of period 325,500
$ 10.15
4.81 years
Options exercisable at end of period 303,700
$ 10.09
4.68 years
Weighted average fair value of options granted during the period
$ —

As of September 30, ~~2017,~~2019, there was 0 unrecognized stock compensation expense related to non-performance based stock options. As of December 31, ~~2016~~2018 and September 30, 2016, the aggregate intrinsic value was $5,174, $5,390 and $2,357, respectively, for outstanding non-performance-based stock options, and $5,052, $5,086 and $2,217, respectively, for exercisable non-performance-based stock options.

~~As of September 30, 2017, December 31, 2016 and September 30, 2016,~~2018, there was approximately ~~$12, $21~~$2 and ~~$28,~~$4, respectively, of unrecognized compensation expense related to ~~non-performance-based~~non-performance based stock options. ~~The unrecognized compensation expense at~~

No restricted stock units were granted or forfeited under the 2010 Incentive Plan during 2019 and 0 restricted stock units were outstanding as of September 30, ~~2017 is expected to be recognized over the remaining weighted average requisite service period of 1.44 years.~~

2019. A summary of the status of the Company’s restricted stock units under the 2010 Incentive Plan as of September 30, ~~2017 and 2016,~~2018, and changes during the nine months then ended is as follows:



	2010 Incentive Plan
	Nonperformance-based restricted stock units
	Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018	24,250		$	13.19
Vested into shares	(23,750	)	12.14
Forfeited	(500	)	10.85
Outstanding at September 30, 2018	—		$	—

2017 2016
Shares
Weighted
Average
Grant Date
Fair Value
Shares Weighted
Average
Grant Date
Fair Value
Nonvested at January 1, 27,750
$ 11.92
39,750
$ 11.34
Granted during the period —
—
—
—
Vested during the period (1,000 ) 10.85
(12,000 ) 10.00
Forfeited during the period (500 ) 10.85
—
—
Nonvested at September 30, 26,250
$ 11.98
27,750
$ 11.92

As of September 30, ~~2017,~~2019 and December 31, ~~2016 and~~2018, there was 0 remaining unrecognized compensation expense related to non-vested restricted stock units. As of September 30, ~~2016,~~2018, there was ~~$37, $90, and $111, respectively,~~$4 of total unrecognized compensation expense related to ~~nonvested~~unvested restricted stock units. ~~The unamortized compensation expense as~~

A summary of ~~September 30, 2017 is expected to be recognized over~~ the ~~remaining weighted average requisite service period of 0.49 years.~~

~~The~~ fair value of ~~non-performance-based~~the Company’s stock options ~~that were~~ exercised ~~during~~and restricted stock units vested under the 2010 Incentive Plan for the nine months ended September 30, ~~2017~~2019 and ~~2016 was $488~~2018 is presented below:

Veritex 2014 Omnibus Incentive Plan (“2014 Omnibus Plan”) and ~~$0, respectively.~~Green Acquired Omnibus Plans

Accelerated Vesting of 2014 Omnibus Plan Awards

In connection with the acquisition of Green, which closed on January 1, 2019, the Company approved the full acceleration of vesting of all unvested 2014 Omnibus Plan awards on the close date. The ~~fair value~~consummation of the acquisition constituted a change in control of the Company under the 2014 Omnibus Plan. Under its terms, accelerated vesting upon a change in control is permissible, and the Board approved that all unvested equity awards issued under the 2014 Omnibus Plan would fully vest as of the consummation of the acquisition on January 1, 2019. The Company accounted for the discretionary vesting of awards as a modification of the original awards. This modification resulted in the accelerated vesting of 133,455 non-performance based restricted stock units, ~~that vested during~~51,284 performance based restricted stock units and 320,405 non-performance based stock options on January 1, 2019, the modification date. The incremental compensation cost resulting from these modifications was nominal for the three and nine months ended September 30, 2019. The accelerated vesting of awards on January 1, 2019 resulted in the immediate recognition of $5,535 of stock compensation expense for the nine months ended September 30, ~~2017~~2019. This stock compensation expense is included in merger and ~~2016 was $26 and $194, respectively.~~acquisition expenses in the condensed consolidated statements of income.

~~2014 Omnibus Plan~~

Post-combination Expense of Green Awards

In ~~September~~connection with the acquisition of ~~2014,~~Green and pursuant to the terms of the related definitive agreement, all of Green’s outstanding and unvested equity awards prior to the close date, including stock options and restricted stock units, became fully vested as of the close date. The acceleration of vesting of Green’s restricted stock units according to the terms of the acquisition consisted of a modification of the original awards, with exception of certain awards that had original accelerated vesting terms. The accounting treatment for the outstanding Green awards in the context of the business combination was to allocate the fair market value of Green’s stock options and restricted stock units at the close date attributable to pre-combination service to the aggregate merger consideration. The difference between the fair market value of the replacement options as well as the fully vested restricted stock units and the amount allocable to pre-combination service was considered a post-combination expense to the Company ~~adopted an omnibus incentive plan or~~after the ~~2014 Omnibus Plan (the “2014 Omnibus Plan”).~~close date. The ~~purpose~~post combination expense to the Company as a result of the ~~2014 Omnibus Plan is to align~~business combination was $10,129, which was immediately expensed in the ~~long-term~~post-combination financial interests of the employees, directors, consultants and other service providers with those of the shareholders, to attract and retain those employees, directors, consultants and other service providers by providing compensation opportunities that are competitive with other companies and to provide incentives to those individuals who contribute significantly to the Company’s long-term performance and growth. To accomplish these goals, the 2014 Omnibus Plan permits the issuance of stock options, share appreciation rights, restricted shares, restricted share units, deferred shares, unrestricted shares and cash-based awards. The maximum number of shares of the Company’s common stock that may be issued pursuant to grants or options under the 2014 Omnibus Plan is 1,000,000.

~~During~~statements for the nine months ended September 30, ~~2017,~~2019, as there were no further service conditions. This compensation expense is included in merger and acquisition expenses in the condensed consolidated statements of income.

2018 Performance-Based Restricted Stock Units

The Company ~~awarded 37,625 non-performance~~determined in January 2019 that 67% of the performance-based restricted stock units ~~25,522~~granted during the year ended December 31, 2018, or 12,704 units, should be forfeited in January 2019 based on the performance results of the Company’s total shareholder return (“TSR”) relative to the SNL Micro Cap US Bank Index for the performance period starting on December 31, 2017 and ending on December 31, 2018.

2019 Grants of Restricted Stock Units

In January 2019, the Company granted non-performance-based and performance based restricted stock units ~~and 70,440 non-performance-based stock options~~ under the 2014 Omnibus ~~Plan. During~~Plan and the ~~nine months ended September 30, 2016, the Company awarded 25,060 non-performance based~~Veritex (Green) 2014 Omnibus Equity Incentive Plan (“Veritex (Green) 2014 Plan”). The non-performance-based restricted stock units ~~and 34,190 market condition~~vest in 3 or 5 equal installments on each anniversary of the grant date. There were also non-performance-based restricted stock units ~~and 76,286 non-performance-based stock options under the 2014 Omnibus Plan.~~

~~The non-performance options generally vest equally over three years from~~granted with no vesting conditions on the grant date.

The performance-based restricted stock units granted in January 2019 cliff vest on January 1, 2022 with the performance period starting on December 31, 2018 and ending on December 31, 2021. The vesting percentage is determined based on the Company’s TSR relative to the TSR of 15 peer companies (“Peer Group”) over the performance period. Below is a table showing the range of vesting percentages for the performance-based restricted stock units based on the Company’s TSR percentile rank.



	Vesting %
Below the 24.9^th percentile of Peer Group TSR	—%
Within the 25^th to 49.9^th percentile of Peer Group TSR	50%
Within the 50^th the 74.9^th percentile of Peer Group TSR	100%
At or above the 75^th percentile of Peer Group TSR	150%

Certain non-performance and performance-based restricted stock units granted under the 2014 Omnibus Plan in January 2019 had terms requiring cash settlement of the awards unless and until the awards were approved by the shareholders of the Company. At the Company’s 2019 annual meeting of shareholders, the Company sought approval from its shareholders to authorize the amendment and restatement of the 2014 Omnibus Plan to increase the aggregate number of shares that are available for grant thereunder, among certain other terms, as well as approval of the 2019 equity awards so they may be settled in shares rather than in cash (the “Shareholder Approval”). Other terms amended in the 2014 Omnibus Plan included allowing the Compensation Committee to delegate to any of the Company’s officers certain limited authority to grant awards under the 2014 Omnibus Plan except to himself or herself. The Compensation Committee of the Board approved the amendment and restatement of the 2014 Omnibus Plan in April 2019, and the Shareholder Approval was received in May 2019. Pursuant to the 2014 Omnibus Plan amendments, the Compensation Committee also delegated to the Chief Executive Officer of the Company the authority to grant time-based restricted stock unit awards or time-based stock option awards representing up to an aggregate 100,000 shares, which are to be ratified by the Compensation Committee after the grant date. The Chief Executive Officer may not grant to any single individual (a) time-based stock option awards to any representing an aggregate of more than 10,000 shares or (b) time-based restricted stock unit awards representing an aggregate of more than 15,000 shares. Awards granted pursuant to this delegation of authority may have vesting periods of up to 5 years, as determined by the Chief Executive Officer.

Given the requirement to settle the 2019 equity awards in cash until Shareholder Approval was obtained, the Company accounted for these awards as liability-classified awards and measured them at fair value through the date of Shareholder Approval. On the date of Shareholder Approval, known as the modification date, the Company reclassified the liability-classified awards to equity awards at fair value.

A Monte Carlo simulation was used to estimate the fair value of performance-based restricted stock units on the grant date that include a market condition based on the Company’s ~~total shareholder return~~TSR relative to ~~a market index that~~its Peer Group, which determines the eligible number of restricted stock units ~~that may vest equally over a three-year period from~~to vest. A similar Monte Carlo valuation was also obtained on the date of ~~grant. The~~Shareholder Approval, when the awards were reclassified from liability to equity awards.

2019 Grant of Stock Options and Tandem Stock Appreciation Rights

In January 2019, the Company granted non-performance ~~restricted stock units fully vest over the requisite service period generally ranging from one to five years.~~

Stock based compensation expense is measured based upon the fair market value of the award at the grant date and is recognized ratably over the period during which the shares are earned (the requisite service period). For the three and nine months ended September 30, 2017, compensation expense for option awards grantedoptions under the 2014 Omnibus Plan ~~was approximately $102~~ and ~~$296, respectively. For~~Veritex (Green) 2014 Plan that vest in 3 equal installments on each anniversary of the ~~three and nine months ended September 30, 2017, compensation expense for restricted stock unit awards granted under the 2014 Omnibus Plan was approximately $286 and $841 respectively.~~

For the three and nine months ended September 30, 2016, compensation expense for option awards granted under the 2014 Omnibus Plan was approximately $55 and $159, respectively. For the three and nine months ended September 30, 2016, compensation expense for restricted stock unit awards granted under the 2014 Omnibus Plan was approximately $198 and $302, respectively.grant date.

The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for the ~~grants:~~grants for the nine months ended September 30, 2019 and 2018:



	Nine Months Ended September 30, 2019
	2019	2018
Dividend yield	1.87% to 2.01%	0.00%
Expected life	5.0 to 7.51 years	5.0 to 7.5 years
Expected volatility	29.13% to 29.65%	27.87% to 37.55%
Risk-free interest rate	1.72% to 2.51%	1.06% to 2.94%

For the Nine Months Ended September 30,
2017 2016
Dividend yield 0.00% 0.00%
Expected life 5.0 to 7.5 years 5.0 to 6.5 years
Expected volatility 31.60% to 37.55% 33.37% to 37.55%
Risk-free interest rate 1.06% to 2.32% 1.06% to 2.01%

The expected life is based on the amount of time that options granted are expected to be outstanding. The dividend yield assumption is based on the Company’s history. The expected volatility is based on historical volatility of the ~~Company as well as the volatility of certain comparable public company peers.~~Company. The risk-free interest rates are based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.

In addition, in January 2019 the Company granted certain non-performance based stock options and tandem stock appreciation rights ("SARs"). The terms of the SARs provided that the SARs would become effective only if the Board and/or the shareholders of the Company failed to approve the issuance of shares with respect to the corresponding non-performance based stock options. In May 2019, the non-performance based stock options were approved by an affirmative vote of the Board and by shareholders at the Company's 2019 annual meeting of shareholders, at which time the SARs automatically became null and void in accordance with their terms. The corresponding non-performance based stock options will become exercisable in accordance with the vesting schedules set forth in each award agreement, which range between 3 and 5 years.

Stock Compensation Expense and Liability Award Compensation Expense

Stock compensation expense for non-vested equity awards as of September 30, 2019 under the 2014 Omnibus Plan was approximately $1,054 and $1,691 for the three and nine months ended September 30, 2019. The Company also incurred accelerated stock compensation expense of $5,533 for awards granted under the 2014 Omnibus Plan before January 1, 2019 and $1,418 related to non-performance based restricted stock units granted in January 2019 with no vesting conditions for which the stock compensation is included in merger and acquisition expenses in the condensed consolidated statements of income during the nine months ended September 30, 2019. For the three and nine months ended September 30, 2018, the Company recognized $928 and $3,054 in stock compensation expense.

Stock compensation expense for options and restricted stock unit awards granted under the Veritex (Green) 2014 Plan was approximately $376 and $1,147 for the three and nine months ended September 30, 2019, excluding the post-combination stock compensation expense of $10,129 associated with all of Green’s fully vested replacement awards discussed above in this Note.

There was 0 compensation expense for liability-classified awards under the 2014 Omnibus Plan during the three months ended September 30, 2019 and $1,403 for the nine months ended September 30, 2019. As noted above, in May 2019, following the Shareholder Approval, certain awards were modified and the classification of the awards was modified from liability to equity, resulting in a reclassification of $1,403 to additional paid-in capital in the second quarter of 2019.

2014 Omnibus Plan

A summary of the status of the Company’s stock options under the 2014 Omnibus Plan as of September 30, ~~2017~~2019 and ~~2016,~~2018, and changes during the nine months then ended, is as follows:



	2014 Omnibus Plan
	Non-performance Based Stock Options
	Equity Awards								Liability Awards
	Shares Underlying Options		Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value			Shares Underlying Options		Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2018	332,706		$	22.71	8.86 years				—		$	—
Granted	125,593		27.95						—		—
Forfeited	(2,076	)	27.59						—		—
Exercised	(1,983	)	14.95						—		—
Outstanding at September 30, 2018	454,240		$	24.12	8.42 years						$	—
Options exercisable at September 30, 2018	122,329		$	18.38	7.29 years				—		$	—

Outstanding at January 1, 2019	449,520		$	24.47	8.24 years				—		$	—
Granted	166,971		23.91						253,633		21.38
Conversion to equity awards	253,633		21.38						(253,633	)	21.38
Forfeited	(28,240	)	25.82						—		—
Exercised	(12,610	)	15.42						—		—
Outstanding at September 30, 2019	829,274		$	23.50	8.42 years	$	632		—		$	—		$	—
Options exercisable at September 30, 2019	417,183		$	24.59	7.53 years	$	(135	)	—		$	—
Weighted average fair value of options granted during the period			$	22.38							$	—

2017 2016
Non-performance-based Stock Options Non-performance-based Stock Options
Shares
Underlying
Options Weighted
Exercise
Price Weighted
Average
Contractual
Term Shares
Underlying
Options Weighted
Average
Exercise
Price Weighted
Average
Contractual
Term
Outstanding at beginning of year 128,366
$ 15.32
8.69 years 52,080
$ 14.35
9.12 years
Granted during the period 70,440
26.87
76,286
15.98

Forfeited during the period (3,465 ) 21.24
—
—

Canceled during the period —
—
—
—

Exercised during the period (1,544 ) 15.00
—
—

Outstanding at the end of period 193,797
$ 19.34
8.45 years 128,366
$ 15.32
8.94 years
Options exercisable at end of period 53,804
$ 15.01
7.74 years 16,293
$ 14.28
8.33 years
Weighted average fair value of options granted during the period $ 11.38
$ 5.69

As of September 30, ~~2017,~~2019, December 31, ~~2016~~2018 and September 30, ~~2016~~2018, there was $1,296, $2,103 and $2,330 of total unrecognized compensation expense related to equity options awarded under the ~~aggregate intrinsic value~~2014 Omnibus Plan, respectively. As of September 30, 2019, there was ~~$1,482, $1,462 and $266, respectively, for outstanding stock~~0 unrecognized compensation expense related to liability options awarded under the 2014 Omnibus Plan. ~~As of~~The unrecognized compensation expense at September 30, ~~2017, December 31, 2016 and September 30, 2016~~2019 is expected to be recognized over the ~~aggregate intrinsic value was $643, $203, and $51, respectively, for exercisable stock options outstanding under the 2014 Omnibus Plan.~~remaining weighted average requisite service period of 2.62 years.

A summary of the status of the Company’s ~~non-performance based~~non-performance-based restricted stock units under the 2014 Omnibus Plan as of September 30, ~~2017~~2019 and ~~2016,~~2018, and changes during the nine months then ended, is as follows:

2017 2016
Non-performance Based Non-performance Based
Restricted Stock Units Restricted Stock Units
Units
Weighted
Average
Grant Date
Fair Value
Units Weighted
Average
Grant Date
Fair Value
Nonvested at January 1, 67,956
$ 13.79
70,919
$ 13.29
Granted during the period 37,625
27.37
25,060
15.83
Vested during the period (14,550 ) 24.67
(9,716 ) 16.04
Forfeited during the period (2,250 ) 27.93
—
—
Nonvested at September 30, 88,781
$ 17.41
86,263
$ 13.72



	2014 Omnibus Plan
	Non-performance Based
	Restricted Stock Units
	Equity Awards				Liability Awards
	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018	150,722		$	13.29	—		$	—
Granted	54,650		29.29		—		—
Vested into shares	(39,311	)	27.19		—		—
Forfeited	(3,929	)	26.85		—		—
Outstanding at September 30, 2018	162,132		$	23.85	—		$	—

Outstanding at January 1, 2019	133,455		$	19.67	—		$	—
Granted	104,827		23.09		165,739		21.38
Conversion to equity awards	165,739		21.38		(165,739	)	21.38
Vested into shares	(229,031	)	22.06		—		—
Outstanding at September 30, 2019	174,990		$	21.55	—		$	—

A summary of the status of the Company’s performance based restricted stock units under the 2014 Omnibus Plan as of September 30, ~~2017~~2019 and ~~2016,~~2018, and changes during the nine months then ended, is as follows:



	2014 Omnibus Plan
	Performance Based
	Restricted Stock Units
	Equity Awards				Liability Awards
	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018	53,594		$	8.72	—		$	—
Granted	40,269		27.59		—		—
Vested into shares	(26,623	)	18.83		—		—
Forfeited	(898	)	27.59		—		—
Outstanding at September 30, 2018	66,342		$	25.56	—		$	—

Outstanding at January 1, 2019	63,988		$	21.28	—		$	—
Granted	38,360		22.47		32,249		21.38
Conversion to equity award	32,249		21.38		(32,249	)	21.38
Vested into shares	(51,284	)	25.31		—		—
Forfeited	(17,827	)	21.38		—		—
Outstanding at September 30, 2019	65,486		$	22.73	—		$	—

2017 2016
Performance Based Performance Based
Restricted Stock Units Restricted Stock Units
Units
Weighted
Average
Grant Date
Fair Value
Units Weighted
Average
Grant Date
Fair Value
Nonvested at January 1, 51,197
$ 8.72
25,474
$ 9.45
Granted during the period 25,522
24.34
34,190
9.52
Vested during the period (19,861 ) 15.34
(8,467 ) 14.17
Forfeited during the period (2,014 ) 15.68
—
—
Nonvested at September 30, 54,844
$ 13.33
51,197
$ 8.72

As of September 30, ~~2017,~~2019, December 31, ~~2016~~2018 and September 30, ~~2016~~2018 there was ~~$832, $425~~$2,484, $3,430 and ~~$478~~$3,928 of total unrecognized compensation ~~expense~~ related to ~~options~~equity restricted stock units awarded under the 2014 Omnibus Plan, respectively. As of September 30, ~~2017, December 31, 2016 and September 30, 2016~~2019, there was ~~$1,805, $1,089 and $1,373~~0 of ~~total~~ unrecognized compensation related to liability restricted stock units awarded under the 2014 Omnibus ~~Plan, respectively.~~

Plan. The ~~fair value of the exercised non-performance-based stock options, vested non-performance restricted stock units, and vested performance based restricted stock units during the nine months ended~~unrecognized compensation expense at September 30, 2017 was $41, $395, and $530, respectively. For the same period in 2016 the fair value of exercised non-performance-based stock options, vested non-performance restricted stock units, and vested performance based restricted stock units was $0, $159, and $137, respectively.

~~The compensation expense related to these options and restricted stock units~~2019 is expected to be recognized over the remaining weighted average requisite service ~~periods~~period of ~~2.28 years~~2.3 years.

A summary of the fair value of the Company’s stock options exercised and ~~2.21 years, respectively.~~restricted stock units vested under the 2014 Omnibus Plan during the nine months ended September 30, 2019 and 2018 is presented below:



	Fair Value of Options Exercised or Restricted Stock Units Vested in the nine months ended September 30,
	2019	2018
Non-performance-based stock options exercised	335	54
Non-performance-based restricted stock units vested	5,669	1,173
Performance-based restricted stock units vested	1,089	745

Veritex (Green) 2014 Plan

A summary of the status of the Company’s stock options under the Veritex (Green) 2014 Plan as of September 30, 2019, and changes during the nine months then ended, is as follows:



	Veritex (Green) 2014 Plan
	Non-performance Based Stock Options
	Shares Underlying Options		Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2019	—		$	—
Converted in acquisition of Green	304,778		15.41
Granted	211,793		21.38
Forfeited	(10,217	)	12.21
Exercised	(82,451	)	13.43			—
Outstanding at September 30, 2019	423,903		$	18.85	8.01 years	$	2,293
Options exercisable at September 30, 2019	213,427		$	16.36	6.89 years	$	1,686
Weighted average fair value of options granted during the period			$	24.22

As of September 30, 2019, there was $1,198 of total unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan. The unrecognized compensation expense at September 30, 2019 is expected to be recognized over the remaining weighted average requisite service period of 2.3 years.

A summary of the status of the Company’s non-performance based restricted stock units under the Veritex (Green) 2014 Plan as of September 30, 2019 and changes during the nine months then ended, is as follows:



	Veritex (Green) 2014 Plan
	Non-performance Based
	Restricted Stock Units
	Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019	—	$	—
Granted	116,250	21.38
Outstanding at September 30, 2019	116,250	$	21.38

A summary of the status of the Company’s performance based restricted stock units under the Veritex (Green) 2014 Plan as of September 30, 2019 and changes during the nine months then ended, is as follows:



	Veritex (Green) 2014 Plan
	Performance Based
	Restricted Stock Units
	Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019	—		$	—
Granted	26,145		21.38
Forfeited	(508	)	21.38
Outstanding at September 30, 2019	25,637		$	21.38

As of September 30, 2019, there was $2,243 of total unrecognized compensation related to outstanding performance based restricted stock units awarded under the Veritex (Green) 2014 Plan to be recognized over a remaining weighted average requisite service period of 2.3 years.

A summary of the fair value of the Company’s stock options exercised and restricted stock units vested under the Veritex (Green) 2014 Plan during the nine months ended September 30, 2019 is presented below:



	Fair Value of Options Exercised or Restricted Stock Units Vested in the nine months ended September 30,
	2019
Non-performance-based stock options exercised	$	2,088

Green Bancorp Inc. 2010 Stock Option Plan and Green Bancorp Inc. 2006 Stock Option Plan

In addition to the Veritex (Green) 2014 Plan discussed earlier in this Note, the Company assumed 2 stock and incentive plans in the Green acquisition, the Green Bancorp Inc. 2010 Stock Option Plan (“Green 2010 Plan”) and the Green Bancorp Inc. 2006 Stock Option Plan (“Green 2006 Plan”). For the Green 2010 Plan and the Green 2006 Plan, 768,628 and 11,850 of stock options, respectively, were converted in the acquisition of Green during the nine months ended September 30, 2019. NaN stock options or restricted stock units were awarded from these plans during the nine months ended September 30, 2019. During the nine months ended September 30, 2019, 100,544 stock options were exercised from the Green 2010 Plan and 11,850 stock options were exercised from the Green 2006 Plan. As of September 30, 2019, 661,843 exercisable stock options remain outstanding in the Green 2010 Plan and 0 exercisable stock options remain outstanding in the Green 2006 Plan.

~~11. Significant Concentrations~~15. Income Taxes

Income tax expense for the three and nine months ended September 30, 2019 and 2018 was as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Income tax expense for the period	$	7,595		$	1,448		$	16,953		$	7,309
Effective tax rate	21.7		%	13.9		%	21.6		%	19.8		%

In connection with the acquisition of ~~Credit Risk~~

~~Most~~Green, the Company assumed a liability of $2,155 for an uncertain tax position. This liability would, if recognized in full, affect the Company’s effective tax rate. The Company did not have any new uncertain tax positions as of September 30, 2018 or any new uncertain tax positions as of September 30, 2019.

16. Commitments and Contingencies

Litigation

The Company may from time to time be involved in legal actions arising from normal business ~~activity is with customers located within~~activities. Management believes that the ~~Dallas-Fort Worth metroplex and Houston metropolitan area. Such customers are normally also depositors~~ultimate liability, if any, resulting from these actions will not materially affect the financial position or results of operations of the Company.

Qualified Affordable Housing Investment

As of September 30, 2019 and December 31, 2018, the balance of the investment for qualified affordable housing projects was $3,385 and $3,663, respectively. This balance is reflected in other investments on the condensed consolidated balance sheets. The ~~distribution~~total unfunded commitment related to the investment in certain qualified housing projects totaled $1,554 and $2,510 as of September 30, 2019 and December 31, 2018, respectively. The Company expects to fulfill these commitments ~~to extend credit approximates~~during the ~~distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers.~~

The contractual amounts of credit related financial instruments such as commitments to extend credit, credit card arrangements, and letters of credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless.year ended 2034.

~~12.~~17. Capital Requirements and Restrictions on Retained Earnings

Under U.S. banking law, there are legal restrictions limiting the amount of dividends the Company can declare. Approval of the regulatory authorities is required if the effect of the dividends declared would cause regulatory capital of the Company to fall below specified minimum levels.

The Company, on a consolidated basis, and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can ~~initiate~~lead to the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain ~~off balance~~off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the “Basel III Capital Rules”). The Basel III Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consist of Common Equity Tier 1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) define Common Equity Tier 1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to Common Equity Tier 1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments as compared to existing regulations. The Basel III Capital Rules became effective for the Company on January 1, 2015 with certain transition provisions to be fully phased in by January 1, 2019.

Starting in January 2016, the implementation of the capital conservation buffer became effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, CET1 and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).

Management believes, as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 that the Company and the Bank met all capital adequacy requirements to which they were subject.

As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company’s and the Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Company and the Bank must maintain minimum total risk-based, CET1, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the ~~table.~~table below. There are no conditions or events since September 30, ~~2017~~2019 that management believes have changed the Company’s categorization as “well capitalized.”

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



	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2019
Total capital (to risk-weighted assets)
Company	$	850,136	12.26	%	$	554,738	8.0	%	n/a		n/a
Bank	831,796		12.00	%	554,531		8.0	%	$	693,163	10.0	%
Tier 1 capital (to risk-weighted assets)
Company	780,700		11.26	%	416,004		6.0	%	n/a		n/a
Bank	804,675		11.61	%	415,853		6.0	%	554,470		8.0	%
Common equity tier 1 to risk-weighted assets
Company	749,913		10.82	%	311,886		4.5	%	n/a		n/a
Bank	804,675		11.61	%	311,890		4.5	%	450,507		6.5	%
Tier 1 capital (to average assets)
Company	780,700		10.33	%	302,304		4.0	%	n/a		n/a
Bank	804,675		10.64	%	302,509		4.0	%	378,137		5.0	%
As of December 31, 2018
Total capital (to risk-weighted assets)
Company	$	394,419	12.98	%	$	243,093	8.0	%	n/a		n/a
Bank	353,640		11.64	%	243,052		8.0	%	$	303,814	10.0	%
Tier 1 capital (to risk-weighted assets)
Company	370,175		12.18	%	182,352		6.0	%	n/a		n/a
Bank	334,385		11.01	%	182,226		6.0	%	242,968		8.0	%
Common equity tier 1 to risk-weighted assets
Company	358,473		11.80	%	136,706		4.5	%	n/a		n/a
Bank	334,385		11.01	%	136,670		4.5	%	197,412		6.5	%
Tier 1 capital (to average assets)
Company	370,175		12.04	%	122,982		4.0	%	n/a		n/a
Bank	334,385		10.87	%	123,049		4.0	%	153,811		5.0	%

Dividend Restrictions — Dividends paid by the Bank are subject to certain restrictions imposed by regulatory agencies. The Basel III Capital Rules further limit the amount of dividends that may be paid by the Bank. Dividends of $6,713 and $20,312, or $0.125 per outstanding share on the applicable record date, were paid by the Bank to the Company during the three and nine months ended September 30, 2019. NaN dividends were paid by the Bank to the Company during the year ended December 31, 2018.

Actual
For Capital
Adequacy Purposes

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2017
Total capital (to risk-weighted assets)
Company $ 328,915
14.87 % $ 176,955
8.0 % n/a
n/a
Bank 255,756
11.57 % 176,841
8.0 % $ 221,051
10.0 %
Tier 1 capital (to risk-weighted assets)
Company 313,437
14.17 % 132,719
6.0 % n/a
n/a
Bank 245,264
11.10 % 132,575
6.0 % 176,767
8.0
Common equity tier 1 to risk-weighted assets
Company 301,735
13.65 % 99,473
4.5 % n/a
n/a
Bank 245,264
11.10 % 99,431
4.5 % 143,623
6.5
Tier 1 capital (to average assets)
Company 313,437
15.26 % 82,159
4.0 % n/a
n/a
Bank 245,264
11.95 % 82,097
4.0 % 102,621
5.0
As of December 31, 2016
Total capital (to risk-weighted assets)
Company $ 228,566
22.02 % $ 83,039
8.0 % n/a
n/a
Bank 130,237
12.55 % 83,020
8.0 % $ 103,775
10.0 %
Tier 1 capital (to risk-weighted assets)
Company 215,057
20.72 % 62,275
6.0 % n/a
n/a
Bank 121,713
11.73 % 62,257
6.0 % 83,010
8.0
Common equity tier 1 to risk-weighted assets
Company 211,964
20.42 % 46,711
4.5 % n/a
n/a
Bank 121,713
11.73 % 46,693
4.5 % 67,445
6.5
Tier 1 capital (to average assets)
Company $ 215,057
16.82 % 51,143
4.0 % n/a
n/a
Bank 121,713
9.52 % 51,140
4.0 % 63,925
5.0

18. Branch Assets and Liabilities Held for Sale

Upon the closing of the Green acquisition, the Company acquired branch assets held for sale and assumed branch liabilities held for sale pursuant to a purchase and assumption agreement entered into by Green with Keystone Bank, N.A. ("Keystone") prior the acquisition date, pursuant to which Green had agreed to sell certain assets and deposits associated with one branch in the Austin metropolitan market. On May 10, 2019, the Company completed the sale of these assets and liabilities to Keystone, resulting in a cash settlement payment of $7,153 from Keystone and the recognition of a loss on the sale of $474 reported in merger and acquisition expense on the condensed consolidated statements of income for the nine months ended September 30, 2019. The completion of the sale resulted in the Company exiting the Austin metropolitan market.

There were no branch assets and liabilities held for sale as of September 30, 2019 or December 31, 2018.

~~13.~~

19. Business Combinations

~~Merger with Sovereign Bancshares,~~Green Bancorp, Inc.

On ~~August~~January 1, ~~2017,~~2019, the Company ~~acquired Sovereign Bancshares, Inc. (“Sovereign”), a Texas corporation and parent company~~completed its acquisition of Sovereign Bank (“the Merger”). The Company issued 5,117,642 shares of its common stock and paid out $56,215 in cash to Sovereign in consideration for the Merger. Additionally, under the terms of the merger agreement, each of Sovereign’s 24,500 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C, (“Sovereign Series C Preferred Stock”) no par value issued and outstanding immediately prior to the effective time was converted into one share of Senior Non-Cumulative Perpetual, Series D Preferred Stock of the Company (“Veritex Series D Preferred Stock”).

Green. The business combination was accounted for under the acquisition method of accounting. Under this method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair values. The excess cost over fair value of net assets acquired is recorded as goodwill. As the consideration paid for ~~Sovereign~~Green exceeded the provisional value of the net assets acquired, goodwill of ~~$108,967 was recorded~~$209,016 related to the ~~Merger.~~acquisition was recorded. This goodwill resulted from the combination of expected operational synergies and increased market share in the Dallas-Fort Worth metroplex and Houston ~~metroplexes.~~metropolitan area. Goodwill is not tax deductible.

Consideration

Under the terms of the definitive agreement for the acquisition, each outstanding share of Green common stock and Green’s outstanding restricted stock units that accelerated vesting at maximum levels at the close date was converted into the right to receive 0.79 shares of the Company’s common stock, with cash paid in lieu of fractional shares. In addition, Green’s options that accelerated vesting at maximum levels on the close date were exchanged for an option to purchase Veritex common stock at the same 0.79 conversion rate. The ~~Merger also resulted~~Company issued 497,594 shares of Veritex common stock in ~~a core deposit intangible~~regards to Green’s fully vested restricted stock units. In addition, the Company was obligated to replace Green’s unvested options with 1,085,256 fully vested Veritex options. The following table presents the fair value of ~~$8,662, which will be amortized on an accelerated basis over~~each class of consideration transferred at the ~~estimated life, currently expected to be 10 years.~~close date.



Equivalent shares of Veritex common stock issued in exchange for Green outstanding shares	29,532,957
Veritex common stock price per share as of close date	$	21.38
Fair value of Veritex common stock issued in exchange for Green outstanding shares	$	631,415
Fair value of Green equity-based awards attributed to pre-combination service	12,484
Cash consideration to Green shareholders	10
Total consideration transferred	$	643,909

Fair Value

The measurement period for the Company to determine the fair values of acquired identifiable assets and assumed liabilities will end at the earlier of (i) ~~twelve~~12 months from the date of the acquisition of Green or (ii) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Provisional estimates for ~~loans, goodwill, intangible assets,~~ deferred ~~tax assets~~ and ~~deposits~~current taxes have been recorded for the acquisition ~~as independent valuations have not been finalized.~~while the Company finalizes deferred reconciliation procedures. The Company does not expect any significant differences from estimated values upon completion of the valuations. Estimated fair values of the assets acquired and liabilities assumed in this transaction as of the closing date are as follows:



	Estimate at January 1, 2019		Measurement Period Adjustments			Revised Fair Value
Assets
Cash and cash equivalents	$	112,720	$	—		$	112,720
Investment securities	661,032		(240		)	660,792
Other securities	40,287		—			40,287
Loans held for sale	9,360		—			9,360
Loans held for investment	3,245,492		(244		)	3,245,248
Accrued interest receivable	11,673		(278		)	11,395
Bank owned life insurance	56,841		—			56,841
Bank premises, furniture and equipment	39,426		(2,571		)	36,855
Investment in unconsolidated subsidiaries	666		—			666
Intangible assets	65,718		—			65,718
Goodwill	206,821		2,195			209,016
Other assets	12,245		404			12,649
Right of use asset	9,373		—			9,373
Deferred Taxes	11,535		395			11,930
Current taxes	1,799		13			1,812
Branch assets held for sale	85,307		—			85,307
Total assets	$	4,570,295	$	(326	)	$	4,569,969
Liabilities
Non-interest-bearing deposits	$	825,364	$	—		$	825,364
Interest-bearing deposits	1,300,825		—			1,300,825
Certificates and other time deposits	1,346,915		—			1,346,915
Accounts payable and other accrued expenses	26,587		(326		)	26,261
Lease liability	9,373		—			9,373
Accrued interest payable	5,181		—			5,181
Securities sold under agreements to repurchase	3,226		—			3,226
Advances from Federal Home Loan Bank	300,000		—			300,000
Subordinated debentures and subordinated notes	56,233		—			56,233
Branch liabilities held for sale	52,682		—			52,682
Total liabilities	$	3,926,386	$	(326	)	$	3,926,060

As of August 1, 2017
Assets
Cash and cash equivalents $ 44,775
Investment securities 166,307
Loans 750,856
Accrued interest receivable 3,437
Bank premises, furniture and equipment 21,512
Non-marketable equity securities 6,751
Other real estate owned 282
Intangible assets 8,662
Goodwill 108,967
Other assets 10,331
Total Assets $ 1,121,880

Liabilities
Deposits $ 809,366
Accounts payable and accrued expenses 5,189
Accrued interest payable and other liabilities 1,616
Advances from Federal Home Loan Bank 80,000
Junior subordinated debentures 8,609
Total liabilities $ 904,780

Preferred stock - series D 24,500
Total stockholders’ equity 24,500

Consideration
Market value of common stock issued $ 136,385
Cash paid 56,215
Total fair value of consideration $ 192,600

~~Merger-related~~Acquisition-related Expenses

For the three and nine months ended September ~~31, 2017 and 2016,~~30, 2019, the Company incurred ~~$1,435~~$1,035 and ~~$195, respectively,~~$38,042 of pre-tax merger and acquisition expenses, respectively, related to the ~~Merger. Merger~~Green acquisition. The amounts incurred during the three months ended September 30, 2019 primarily consist of data processing expenses as a result of core system conversion and severance payments related to the acquisition. The amounts incurred during the nine months ended September 30, 2019 primarily consist of stock-based compensation due to the accelerated vesting of outstanding restricted stock units and stock options of $17,082, severance and retention payments of $9,491, legal and professional fees of $5,297 and data processing expenses of $1,824 as a result of the core system conversion. The Company incurred $2,692 and $3,104 of acquisition expenses related to the Green acquisition for the three and nine months ended September 30, 2018, respectively. Acquisition expenses are included in ~~other non-interest expense~~merger and acquisition expenses on the ~~Company’s statement~~condensed consolidated statements of income.

Acquired Loans and Purchased Credit Impaired Loans

Acquired loans were ~~preliminarily~~ recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, projected default rates, loss given defaults and recovery rates. No allowance for credit losses was carried over from ~~Sovereign.~~Green.

The Company has identified certain acquired loans as PCI. PCI loan identification considers payment history and past due status, debt service coverage, loan grading, collateral values and other factors that may indicate deterioration of credit quality since origination. Accretion of purchase discounts on PCI loans is based on estimated future cash flows, regardless of contractual maturities, that include undiscounted expected principal and interest payments and use credit risk, interest rate and prepayment risk models 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 will be recognized on a level-yield basis based on contractual maturity of individual loans per ASC 310-20.

The following table discloses the ~~preliminary~~ fair value and contractual value of loans acquired from ~~Sovereign~~Green on ~~August~~January 1, ~~2017:~~2019:


	PCI loans		Other acquired loans		Total Acquired Loans		PCI loans		Other acquired loans		Total Acquired Loans
Real Estate	$	5,906	$	532,119	$	538,025	$	132,006	$	1,783,938	$	1,915,944
Commercial	27,115		184,473		211,588		50,057		1,099,012		1,149,069
Mortgage warehouse							—		166,850		166,850
Consumer	—		1,243		1,243		184		13,201		13,385
Total fair value	33,021		717,835		750,856		182,247		3,063,001		3,245,248
Contractual principal balance	$	50,527	$	724,529	$	775,056	$	242,013	$	3,093,047	$	3,335,060

The following table presents additional ~~preliminary~~ information about PCI loans acquired from ~~Sovereign~~Green on ~~August~~January 1, ~~2017:~~2019:



	PCI Loans
Contractually required principal and interest	$	277,773
Non-accretable difference	75,656
Cash flows expected to be collected	$	202,117
Accretable difference	19,870
Fair value of PCI loans	$	182,247

PCI Loans
Contractually required principal and interest $ 56,809
Non-accretable and accretable difference ⁽¹⁾
23,788
Fair value of PCI loans $ 33,021

⁽¹⁾ ~~Management is still evaluating the non-accretable and accretable difference. The values allocated to accretable and non-accretable are subject to change.~~

Intangible Assets

The acquisition resulted in a core deposit intangible of $65,718, which will be amortized on a straight line basis over the estimated life of 8 years.

Branch assets and liabilities held for sale

Branch assets and liabilities held for sale as of the close date are valued at fair value less cost to sell. The following table discloses the ~~preliminary~~ fair value information about branch assets and liabilities that met the definition of ~~intangible assets acquired from Sovereign~~held for sale on ~~August~~January 1, ~~2017:~~2019:



	January 1, 2019
Assets
Cash and cash equivalents	$	392
Loans	78,366
Bank premises, furniture and equipment	19
Intangible assets	6,013
Other assets	517
Total assets	$	85,307
Liabilities
Noninterest-bearing deposits	$	52,319
Accounts payable and accrued expenses	40
Accrued interest payable and other liabilities¹	323
Total liabilities	$	52,682

¹ Accrued interest payable and other liabilities includes $90 in expected selling costs.

Certificates and other time deposits

Gross
Intangible
Asset
Core deposit intangibles $ 7,703
Servicing asset 454
Intangible lease assets 505
$ 8,662
The Green acquisition resulted in a premium on time deposits of $7,318, which will be accreted on a straight line basis over the contractual lives of certificates and other time deposits, or an estimated weighted average life of 1.7 years.

~~Advances from Federal Home Loan Bank~~Subordinated debt and subordinated debentures

The Green acquisition resulted in a premium on subordinated debt of $3,134 and a discount on subordinated debentures of $4,066, which will be accreted/amortized on a straight line basis over the estimated life of 2 years and 17.5 years, respectively.

Supplemental Pro Forma Information (unaudited)

The ~~Company assumed from Sovereign $80,000 in advances from the Federal Home Loan Bank as of August 1, 2017 that matured in full from August 1, 2017 to September 30, 2017.~~

~~Junior Subordinated Debentures~~

In connection with the acquisition of Sovereign on August 1, 2017, the Company assumed $8,609 in floating rate junior subordinated debentures underlying common securities and preferred capital securities, or the Trust Securities, issued by SovDallas Capital Trust I (“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 of accrued and unpaid distributions required to be paid on the Trust Securities subject to certain exceptions, the redemption price when a capital security is calledfollowing table presents supplemental pro forma information for ~~redemption and amounts due if a trust is liquidated or terminated. The Company also owns all of the outstanding common securities of the Trust.~~

The Trust invested the total proceeds from the sale of the Trust Securities and the investment in common shares in floating rate Junior Subordinated Debentures (the “Debentures”) originally issued by Sovereign. Interest on the Trust Securities is payable quarterly at a rate equal to three-month LIBOR plus 4.0%. Principal payments are due at maturity in July 2038. The 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.

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

~~Redemption of Veritex Series D Preferred Stock~~

On August 8, 2017, the Company redeemed all 24,500 shares of the Veritex Series D Preferred Stock at its liquidation value of $1,000 per share plus accrued dividends for a total redemption amount of $24,727. The Company assumed $185 of accrued dividends in connection with the acquisition of Sovereign on August 1, 2017 out of the $227 in dividends paid in the quarter ended September 30, 2017. The redemption was approved by the Company’s primary federal regulator and was funded with the Company’s surplus capital. The redemption terminates the Company’s participation in the Small Business Lend Fund (“SBLF”) program.

~~Pending Merger with Liberty Bancshares, Inc.~~

On August 1, 2017, the Company entered into a definitive agreement ("the merger agreement") with Fort Worth-based Liberty Bancshares, Inc. ("Liberty") and its wholly-owned subsidiary Liberty Bank. The merger agreement provides for the merger of Freedom Merger Sub, Inc., a wholly owned subsidiary of the Company, with and into Liberty. Following the merger, Liberty will merge with and into the Company with the Company surviving and Liberty Bank will merge with and into Veritex Community Bank with Veritex Community Bank surviving. As of June 30, 2017, Liberty reported, on a consolidated basis, total assets of $459.3 million and total deposits of $389.4 million. Upon the completion of the proposed merger with Liberty, the Company expects to acquire Liberty’s five branches in the Dallas-Forth Worth metroplex. Under the terms of the merger agreement, the Company will issue 1,450,000 shares of its common stock and will pay approximately $25.0 million in cash for all of the shares of Liberty’s common stock, subject to certain conditions and potential adjustments as described in the merger agreement. The merger agreement contains customary representations, warranties and covenants by the Company and Liberty. The transaction received regulatory approval on October 18, 2017 and is subject to customary closing conditions, including approval of the merger agreement by the shareholders of Liberty and the approval by the shareholders of the Company of issuance of the shares of the Company’s common stock. The transaction is expected to close during the fourth quarter of 2017.

~~14. Intangible Assets and Goodwill~~

~~Intangible assets in the accompanying consolidated balance sheets are summarized as follows:~~

September 30, 2017
Weighted Gross Net
Amortization Intangible Accumulated Intangible
Period Assets Amortization Assets
Core deposit intangibles 9.4 years $ 11,162
$ 2,340
$ 8,822
Servicing asset 6.7 years 1,541
343
1,198
Intangible lease assets 3.8 years 611
100
—
511
$ 13,314
$ 2,783
$ 10,531

December 31, 2016
Weighted Gross Net
Amortization Intangible Accumulated Intangible
Period Assets Amortization Assets
Core deposit intangibles 6.2 years $ 3,459
$ 1,914
$ 1,545
Servicing asset 7.9 years 814
213
601
Intangible lease assets 4.3 years 106
71
35
$ 4,379
$ 2,198
$ 2,181

~~For~~ the nine months ended September 30, ~~2017 and September 30, 2016,amortization expense related to intangible assets~~2018 as if the Green acquisition was completed as of ~~approximately~~ ~~$585~~ ~~and $421~~, ~~respectively, is included within amortization~~January 1, 2018. The pro forma results combine the historical results of ~~intangibles, occupancy and equipment, and other income within~~Green into the Company's condensed consolidated statements of ~~income.~~

~~Changes in~~income, including the ~~carrying amount~~impact of ~~goodwill~~certain purchase accounting adjustments, including loan and investment discount accretion and intangible assets amortization. The pro forma results have been prepared for comparative purposes only and are ~~summarized as follows:~~not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2018:



Net Interest Income	$	200,821
Net Income	78,359

Basic earnings per share	$	1.45
Diluted earnings per share	1.42

September 30, 2017 December 31, 2016
Beginning of year $ 26,865
$ 26,865
Effect of acquisition 108,967
—
End of period $ 135,832
$ 26,865
Revenues and earnings of the acquired company since the acquisition date have not been disclosed as Green was merged into the Company and separate financial information is not readily available.

~~15. Subsequent Events~~

On October 23, 2017, the Company announced that Veritex Community Bank entered into a Purchase and Assumption Agreement with Horizon Bank, SSB to sell certain assets associated with its Austin and Cedar Park branches located in Austin, Texas, which is expected to close in the fourth quarter of 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) as well as with our ~~condensed~~consolidated financial statements and notes thereto appearing in ourAnnual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.Except where the content otherwise requires or when otherwise indicated, the terms “Company,” “we,” “us,” “our,” and “our business” refer to Veritex Holdings, Inc. and our wholly owned banking subsidiary, Veritex Community Bank.

This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Special Cautionary Notice Regarding Forward-Looking Statements”, may cause actual results to differ materially from ~~those~~the projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements. For additional information concerning forward-looking statements, please read ~~“—Special~~“Special Cautionary Notice Regarding Forward-Looking Statements” below.

Overview

~~We are~~Veritex Holdings, Inc. is a Texas corporation and bank holding company headquartered in Dallas, Texas. Through our ~~wholly-owned~~wholly owned subsidiary, Veritex Community Bank, a Texas state chartered bank, we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals. ~~Since~~Beginning at our inception, we ~~have~~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 acquisition of Sovereign, our~~Our current primary market now includes the broader Dallas-Fort Worth metroplex, which also encompasses ~~Fort Worth~~Arlington, and ~~Arlington, as well as~~ the Houston and Austin metropolitan areas. We currently operate twenty-one branches and one mortgage office, 17 of which are located in the Dallas-Fort Worth metroplex, with two branches in the Austin, Texas metropolitan area and two branches in the Houston, Texas metropolitan area. As we continue to grow, we may expand to other metropolitan banking markets ~~within the State of~~in Texas.

On ~~August~~January 1, ~~2017,~~2019, we acquired ~~Sovereign,~~Green Bancorp, Inc. (“Green”), a Texas corporation and the parent holding company of ~~Sovereign Bank.~~Green Bank, a national banking association headquartered in Houston, Texas. We issued ~~5,117,642~~a total of 30,030,551 shares of ~~its~~ common stock ~~and paid out $56.2 million in cash~~ to ~~Sovereign~~Green 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 into one share of our Senior Non-Cumulative Perpetual, Series D Preferred Stock.merger. We acquired an estimated ~~$1.1~~$4.6 billion in assets and assumed ~~$904.8 million~~$3.9 billion of liabilities as a result of this ~~acquisition as of the closing date.~~acquisition. As of September 30, ~~2017,~~2019, we had total assets of ~~$2.5~~$8.0 billion, total loans of ~~$1.9~~$5.9 billion, total deposits of ~~$2.0~~$5.9 billion and total stockholders’ equity of ~~$445.9 million,~~$1.2 billion, which includes the fair value estimates from the ~~Sovereign~~Green acquisition. It is our understanding that the only remaining legacy private equity investors in Green with an ownership interest in the common stock of the Company are affiliates of Pine Brook Road Partners, LLC, which own 3.2 million shares of common stock, or approximately 5.8%, of the Company based on a Schedule 13G filing as of January 10, 2019.

~~As a bank holding company operating~~Our business is conducted through one reportable segment, community banking, where we generate ~~most~~the majority of our revenues from interest income on loans, customer service and loan fees, gains on sale of Small Business Administration (“SBA”) 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~~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.

Results of Operations for the Nine Months Ended September 30, ~~2017~~2019 and 2018

General

Net income for the nine months ended September 30, ~~2016~~2019 was $61.7 million, an increase of $32.2 million, or 109.0%, from net income of $29.5 million for the nine months ended September 30, 2018.

Basic earnings per share (“EPS”) for the nine months ended September 30, 2019 was $1.15, a decrease of $0.07 from $1.22 for the nine months ended September 30, 2018. Diluted EPS for the nine months ended September 30, 2019 was $1.13, a decrease of $0.07 from $1.20 for the nine months ended September 30, 2018.

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 nine months ended September 30, ~~2017,~~2019, net interest income totaled ~~$42.8~~$215.2 million and net interest margin and net interest spread were ~~3.54%~~4.02% and ~~3.24%~~3.53%, respectively. For the nine months ended September 30, ~~2016,~~2018, net interest income totaled ~~$30.4~~$86.3 million and net interest margin and net interest spread were ~~3.82%~~4.17% and ~~3.58%~~3.76%, respectively. The increase in net interest income of ~~$12.4~~$128.9 million was primarily due to ~~$12.6 million~~an increase in ~~increased~~ interest income on loans, ~~resulting from organic growth,~~which was driven by increased ~~volumes~~volume in all loan categories resulting from loans acquired from ~~Sovereign~~Green and organic loan growth during the ~~third quarter of 2017, as well as the associated increases in the targeted Fed Funds rate which resulted in increases in yields in prime-based loans since~~nine months ended September 30, ~~2016. The increase of $12.6 million in interest income on loans also included~~ ~~$585 thousand in estimated accretion during~~2019 compared to the ~~third quarter of 2017 on loans acquired from Sovereign.~~ ~~Average~~nine months ended September 30, 2018. For the nine months ended September 30, 2019, average loan ~~balances~~ balance increased ~~$334.2 million~~by $3.4 billion compared to the nine months ended September 30, ~~2016. The decline~~2018, which resulted in ~~net~~a $158.9 million increase in interest ~~margin and net~~income. This increase in interest ~~spread~~income was ~~primarily attributable to a 20 basis point decrease~~partially offset by an increase in the average ~~yield~~rate paid on ~~interest-earning assets. This decrease was due to~~interest-bearing liabilities, which resulted in a ~~change~~$42.9 million increase in interest on deposit accounts. Net interest margin decreased 15 basis points from the ~~mix of interest-earning assets as average interest-earning deposits in other banks as a percentage of total average interest-earning assets represented~~ ~~13.7%for the~~nine months ended September 30, ~~2017 compared~~2018 primarily due to ~~7.0%for~~an increase in the average rate paid on interest-bearing liabilities in the nine months ended September 30, ~~2016. Interest-earning~~2019. As a result, the average cost of interest-bearing deposits ~~in other banks traditionally provide lower average yields than other interest earning assets such as loans and investment securities.~~increased to 1.74% for the nine months ended September 30, 2019 from 1.34% for the nine months ended September 30, 2018.

For the nine months ended September 30, ~~2017,~~2019, interest expense totaled ~~$6.9~~$71.8 million and the average rate paid on interest-bearing liabilities was ~~0.87%~~1.84%. For the nine months ended September 30, ~~2016,~~2018, interest expense totaled ~~$3.9~~$20.6 million and the average rate paid on interest-bearing liabilities was ~~0.73%~~1.40%. The increase in interest expense of ~~$3.0~~$51.2 million was due to growth in average interest bearing-liabilities of $3.3 billion, or166.1%, primarily due to ~~a $2.8 million increase in deposit-related interest expense resulting from average interest-bearing deposit increases of $352.5 million to $1.0 billion for~~ the ~~nine months ended September 30, 2017 from $656.8 million for the nine months ended September 30, 2016.~~

~~The~~ increase in interest ~~expense was primarily~~bearing-liabilities assumed from the ~~result~~acquisition of ~~increases~~Green, as discussed above, organic growth in ~~money market accounts as balances increased $240.1 million and interest expense paid on these balances increased $2.2 million.~~ ~~The increase in the average rate paid on interest-bearing liabilities of 14 basis points was primarily due to~~ ~~a 13 basis point increase in the average cost of interest-bearing deposits to0.82%~~ ~~for the nine months ended September 30, 2017 from 0.69% for the nine months ended September 30, 2016. This increase was the result of a 17 basis point increase in the~~ average interest ~~rate paid on money market accounts~~bearing deposits, advances from ~~0.77% for~~ the ~~nine months ended September 30, 2016 to 0.94% for the nine months ended September 30, 2017.~~Federal Home Loan Bank (“FHLB”) and other borrowings.

The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest–bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as non-accrual is not recognized in ~~income,~~income; however, the balances are reflected in average outstanding balances for the period. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, interest income not recognized on non-accrual loans was ~~minimal.~~$288 thousand. Any non-accrual loans have been included in the table as loans carrying a zero yield.


	For the Nine Months Ended September 30,														For the Nine Months Ended September 30,
	2017							2016							2019							2018
				Interest							Interest							Interest							Interest
	Average			Earned/		Average		Average			Earned/		Average		Average			Earned/		Average		Average			Earned/		Average
	Outstanding			Interest		Yield/		Outstanding			Interest		Yield/		Outstanding			Interest		Yield/		Outstanding			Interest		Yield/
	Balance			Paid		Rate		Balance			Paid		Rate		Balance			Paid		Rate		Balance			Paid		Rate
	(Dollars in thousands)														(Dollars in thousands)
Assets
Interest-earning assets:
Total loans(1)	$	1,242,706		$	45,613	4.91	%	$	908,512		$	32,996	4.85	%
Securities available for sale	149,026			2,251		2.02		80,443			1,014		1.68
Investment in subsidiary	151			4		3.54		93			2		2.87
Interest-earning deposits in other banks	221,595			1,787		1.08		74,807			302		0.54
Loans¹															$	5,731,902		$	253,247	5.91	%	$	2,342,797		$	99,432	5.67	%
Loans held for investment, mortgage warehouse															152,617			5,097		4.47		—			—		—
Securities															968,616			22,316		3.08		241,764			4,697		2.60
Interest-bearing deposits in other banks															242,119			4,255		2.40		168,329			2,316		1.84
Other investments²															56,438			2,129		5.04		16,390			442		3.61
Total interest-earning assets	1,613,478			49,655		4.11		1,063,855			34,314		4.31		7,151,692			287,044		5.37		2,769,280			106,887		5.16
Allowance for loan losses	(9,200		)					(7,539		)					(22,173		)					(14,309		)
Noninterest-earning assets	137,315							92,797							799,509							340,136
Total assets	$	1,741,593						$	1,149,113						$	7,929,028						$	3,095,107

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	1,009,313		$	6,201	0.82	%	$	656,811		$	3,388	0.69	%
Interest-bearing demand and savings deposits															$	2,657,195		$	32,152	1.62	%	$	1,256,726		$	12,187	1.30	%
Certificates and other time deposits															2,067,032			29,220		1.89		591,953			6,320		1.43
Advances from FHLB	43,313			319		0.98		45,435			202		0.59		427,306			7,323		2.29		99,138			1,324		1.79
Other borrowings	9,995			377		5.04		8,077			289		4.78
Subordinated debentures and subordinated notes															75,298			3,116		5.53		16,768			727		5.80
Total interest-bearing liabilities	1,062,621			6,897		0.87		710,323			3,879		0.73		5,226,831			71,811		1.84		1,964,585			20,558		1.40

Noninterest-bearing liabilities:
Noninterest-bearing deposits	385,428							298,035							1,459,904							614,107
Other liabilities	4,438							2,866							42,853							12,310
Total noninterest-bearing liabilities	389,866							300,901
Total liabilities															6,729,588							2,591,002
Stockholders’ equity	289,106							137,889							1,199,440							504,105
Total liabilities and stockholders’ equity	$	1,741,593						$	1,149,113						$	7,929,028						$	3,095,107
Net interest rate spread(2)						3.24	%						3.58	%

Net interest rate spread³																				3.53	%						3.76	%
Net interest income				$	42,758						$	30,435						$	215,233						$	86,329
Net interest margin(3)						3.54	%						3.82	%
Net interest margin⁴																				4.02	%						4.17	%


~~(1)~~	~~Includes average outstanding balances of loans held for sale of $2,270 and $4,931~~ ~~and deferred loan fees of $25 and~~ ~~$55 for the nine months ended September 30, 2017 and 2016, respectively.~~


~~(2)~~	~~Net interest 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.~~

¹ Includes average outstanding balances of loans held for sale of $8,127 and $1,258 for the nine months ended September 30, 2019 and September 30, 2018, respectively, and average balances of loans held for investment, excluding mortgage warehouse.

² The Company historically reported dividend income in other noninterest income and has reclassified $427 of dividend income into other investments as of September 30, 2018, respectively, in order to align with industry peers for comparability purposes.

³ Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

⁴Net interest margin is equal to net interest income divided by average interest-earning assets.

The following table presents the changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.


	For the Nine Months Ended							For the Nine Months Ended
	September 30, 2017 vs. 2016							September 30, 2019 vs. 2018
	Increase							Increase (Decrease)
	Due to Change in							Due to Change in
	Volume			Rate		Total		Volume		Rate			Total
	(Dollars in thousands)							(Dollars in thousands)
Interest-earning assets:
Total loans	$	12,126		$	491	$	12,617
Securities available for sale	864			373		1,237
Investment in subsidiary	1			1		2
Interest-earning deposits in other banks	593			892		1,485
Loans								$	143,839	$	9,976		$	153,815
Loans held for investment, mortgage warehouse								—		5,097			5,097
Securities								14,121		3,498			17,619
Interest-bearing deposits in other banks								1,016		923			1,939
Other investments								1,081		606			1,687
Total increase in interest income	13,584			1,757		15,341		160,057		20,100			180,157
Interest-bearing liabilities:
Interest-bearing deposits	1,817			996		2,813
Interest-bearing demand and savings deposits								13,581		6,384			19,965
Certificates and other time deposits								15,777		7,123			22,900
Advances from FHLB	(9		)	126		117		4,383		1,616			5,999
Other borrowings	69			19		88
Subordinated debentures and subordinated notes								2,538		(149		)	2,389
Total increase in interest expense	1,877			1,141		3,018		36,279		14,974			51,253
Increase in net interest income	$	11,707		$	616	$	12,323	$	123,778	$	5,126		$	128,904

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 ~~$2.6~~$18.0 million for the nine months ended September 30, ~~2017,~~2019, compared to ~~$1.6~~$5.2 million for the same period in ~~2016,~~2018, an increase of ~~$975 thousand,~~$12.8 million, or ~~60.6%~~244.0%. The increase in provision ~~expense was due mainly to~~for loan growth as well as an increase in general reserves due to changes in qualitative factors around the nature, volume and mix of the loan portfolio, which includes a qualitative risk factor adjustment related to the potential impact of Hurricane Harvey,losses recorded for the nine months ended September 30, ~~2017 as compared~~2019 was primarily due to a $6.1 million charge-off of a commercial loan relationship acquired from Sovereign Bancshares, Inc. in 2017. The acquired commercial loan relationship was a loan to an independent oil and gas exploration company that filed for bankruptcy protection in 2018 and entered into a sales process pursuant to Section 363 of the ~~same period~~Bankruptcy Code during the third quarter of 2019. Additionally, the increase in ~~2016. In addition, net charge-offs increased $337 thousand~~the recorded provision for loan losses for the nine months ended September 30, ~~2017 compared~~2019 was due to a $1.2 million increase in specific reserves on certain non-performing loans and an increase in acquired loans that were re-underwritten during the ~~same period in 2016.~~ nine months ended September 30, 2019. 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.

Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, gains on the sale of loans, gains on the sale of investment securities, and income from bank-owned life insurance. Noninterest income does not include loan origination fees to the extent they exceed direct loan origination costs, which we generally recognize over the life of the related loan as an adjustment to yield using the interest method.

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 ~~constitute~~constitutes a significant and ~~predictable~~generally stable component of our noninterest income. Service charges and fees from deposit account activities were ~~$1.7~~$10.6 million for the nine months ended September 30, ~~2017,~~2019, an increase of ~~$424 thousand~~$8.0 million, or 309.8%, over the same period in ~~2016.~~2018. The increase was primarily ~~attributable~~ due to ~~organic growth~~an increase in ~~the number~~deposit accounts earning fees as a result of our acquisition of Green deposit accounts and ~~accounts acquired~~the associated income from ~~Sovereign.~~these accounts.

~~Gain on sales of investment securities.~~ ~~Gain on sales of investment securities~~Loan fees. Loan fees were ~~$205~~ thousand for the nine months ended September 30, 2017 compared to $15 thousand for the same period of 2016. The increase of $190 thousand resulted from the sale of Sovereign investment securities 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 the sales of loans was $2.3~~$5.9 million for the nine months ended September 30, ~~2017~~2019 compared to ~~$2.3~~$945 thousand for the same period in 2018. The increase of $4.9 million was primarily attributable to an increase in loans earning fees as a result of our acquisition of Green.

Loss on sales of investment securities. During thenine months ended September 30, 2019, we incurred a loss on securities sold of $1.4 million as a result of a repositioning strategy following the acquisition of Green with a minimal corresponding loss for the nine months ended September 30, 2018.

Gain on sales of loans. We realized gains on loans sold of $4.3 millionduring the nine months ended September 30, 2019 compared to $1.3 million for the same period ~~of 2016. This decrease of $59 thousand~~in 2018. The increase was primarily due to a ~~decrease in~~$3.2 million increase on gain on sale of ~~mortgage~~Small Business Administration (“SBA”) loans as a result of increased volumes driven by ~~$355 thousand~~assumed and originated held for sale SBA loans in the absence of a one-time $193 thousand gain on sale of loans acquired with the IBT loan portfolio which was recorded in March 31, 2016, offset by an increase in sales of SBA-guaranteed loans resulting in incremental gains of $496 thousand.Green acquisition.

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 components of noninterest expense are salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of office equipment, professional and regulatory fees, including Federal Deposit Insurance Corporation (“FDIC”) assessments, data processing expenses, and advertising and promotion expenses.

Salaries and employee benefits. Salaries and employee benefits include payroll expense, 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 ~~$13.5~~$53.9 million for the nine months ended September 30, ~~2017,~~2019, an increase of ~~$2.8~~$30.9 million, or ~~26.1%~~134.4%, compared to the same period in ~~2016.~~2018. The increase was primarily attributable to increased employee compensation of ~~$2.9~~$24.6 million and incentive costs of $3.1 million resulting from ~~higher~~the increased employee headcount ~~including the addition~~resulting from our acquisition of 100 full-time equivalent employees related to the merger with Sovereign that closed during the third quarter of 2017 and annual merit increases given to employees during the nine months ended September 30, 2017. Incentive costsGreen. Employee benefits also increased ~~$948 thousand which included lender incentive increases of $527 thousand~~$3.9 million as a result of ~~organic loan growth during the period and employee stock compensation increases~~our acquisition of ~~$322 thousand. Employee benefits and payroll taxes also increased $213 thousand and $284 thousand, respectively, compared to the same period in 2016.~~Green. These increases in salaries and employee benefits were partially offset by deferred direct origination costs, which increased ~~$1.6~~$2.1 million as a result of ~~the~~organic growth in loans during the nine months ended September 30, ~~2017~~2019 compared to the same period in ~~2016.~~2018.

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 ~~$3.6~~$12.2 million for the nine months ended September 30, ~~2017~~2019 compared to ~~$2.7~~$8.3 million for the same period in ~~2016.~~2018. The increase of ~~$904 thousand was~~$3.9 million, or 47.4%, 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~~an increase in branches leased and branches owned as a result of the ~~Turtle Creek branch beginning January 2017 and the addition~~acquisition of ~~six owned buildings and five property leases from the Sovereign acquisition.~~Green.

Professional and regulatory 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 ~~services expenses~~fees were ~~$4.0~~$9.0 million for the nine months ended September 30, ~~2017~~2019 compared to ~~$1.9~~$5.5 million for the same period in ~~2016,~~2018, an increase of ~~$2.1~~$3.5 million, or ~~112.7%~~62.6%. This increase ~~was~~was primarily the result of ~~$1.7~~increases in audit and regulatory services of $1.1 million, information technology support of $914 thousand, loan-related legal expenses of $872 thousand, and ~~other professional services~~Federal Deposit Insurance Corporation (“FDIC”) assessment fees of $340 thousand.

Data processing and software expense. Data processing and software expense was $6.5 million for the nine months ended September 30, 2019, an increase of $4.3 million, or 192.9%, compared to the same period in 2018. The increase was attributable to core processing expense incurred as a result of the increase in account transaction volumes associated with the ~~Sovereign~~Green acquisition.

Amortization of intangibles.Amortization of intangibles includes the amortization associated with core deposit intangibles, servicing assets and ~~Liberty mergers.~~

~~FDIC assessment fees.~~ ~~FDIC assessment fees were $1.1~~other intangible assets. Our expense associated with the amortization of intangibles was $8.2 million for the nine months ended September 30, ~~2017 and $447 thousand~~2019 compared to $2.6 million for the same period in ~~2016.~~2018. The increase of $5.6 million was

primarily due to the addition of intangible assets associated with our purchased corporate building but partially offset by a reduction in ~~FDIC assessment fees is primarily~~amortization expense of $498 thousand related to tenant original lease terms.

Merger and acquisition expense.This category includes legal, professional, audit, regulatory, severance and change-in-control payments, stock-based compensation, conversion related data processing and software expense and other expenses incurred in connection with a ~~result of a catch-up in prior period assessments, the Sovereign~~merger or acquisition. Merger and acquisition ~~and the resulting increase in average assets~~expense was $38.0 million for the nine months ended September 30, ~~2017.~~2019, an increase of $34.0 million, or 834.7%, compared to the same period in 2018. These expenses were primarily driven by a $17.1 million increase in stock-based compensation due to the accelerated vesting of outstanding restricted stock units and stock options related to the Green acquisition, a $9.0 million increase in severance and change-in-control payments, a $3.1 million increase in professional services expenses and a $1.6 million increase in data processing expense as a result of our system conversions in connection with our acquisition of Green.

Other.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 $1.0~~was $10.1 million ~~or 75.7%, to $2.3 million~~ for the nine months ended September 30, ~~2017,~~2019 compared to ~~$1.3~~$3.7 million for the same period in ~~2016~~2018, an increase of $6.3 million, or 169.5%. This increase was primarily ~~related~~due to ~~increases~~the growth of the bank through our acquisition of Green in 2019. This resulted in increased loan and collection expense of $1.2 million, third party banking services of $886 thousand, brokered certificate of deposit expenses of $532 thousand, auto and travel expenses of $429 thousand, bank-owned life insurance (“BOLI”) mortality costs of $398 thousand, bank service charges of $399 thousand, online ATM and ~~interchange expense~~card expenses of ~~$183 thousand, corporate insurance of $178~~$529 thousand and ~~dues and memberships~~insurance expenses of ~~$164 thousand.~~$274 thousand as compared to the same period in 2018.

For the nine months ended September 30, ~~2017,~~2019, income tax expense totaled ~~$5.8~~$17.0 million, an increase of ~~$965 thousand,~~$9.6 million, or ~~20.0%~~ 131.9%, compared to ~~$4.8~~$7.3 million for the same period in ~~2016.~~2018. The ~~change in income tax expense from the nine months ended September 30, 2016~~increase was primarily ~~due~~attributable to the ~~$3.5 million~~ increase in net income from operations ~~offset by~~of $78.6 million for the ~~impact of the net discrete tax benefit of $285 primarily associated with the recognition of excess tax benefit on share-based payment awards during the~~ nine months ended September 30, ~~2017 compared to no net discrete tax benefit during the nine months ended September 30, 2016.~~

~~The Company’s estimated annual effective tax rate, before reporting the net impact of discrete items, was approximately 34.4% and 34.2%~~2019from $36.8 million for the nine months ended September 30, 2017 and 2016, respectively. The Company’s estimated effective tax rate, after including the net impact of discrete tax items, was approximately 32.8% and 34.1% for the nine months ended September 30, 2017 and 2016, respectively.same period in 2018.

Results of Operations for the Three Months Ended September 30, ~~2017~~2019 and ~~September 30, 2016~~2018

Net ~~Interest Income~~

~~Compared to~~for the three months ended September 30, ~~2016,~~2019 was $27.4 million, an increase of $18.3 million, or 206.7%, from net ~~interest~~ income ~~increased by $8.6 million from $10.5 million to $19.1~~of $8.9 million for the three months ended September 30, ~~2017.~~2018.

Basic EPS for the three months ended September 30, 2019 was $0.52, an increase of $0.15 from $0.37 for the three months ended September 30, 2018. Diluted EPS for the three months ended September 30, 2019 was $0.51, an increase of $0.15 from $0.36 for the three months ended September 30, 2018.

For the three months ended September 30, 2019, net interest income totaled $70.9 million and net interest margin and net interest spread were 3.90% and 3.40%, respectively. For the three months ended September 30, 2018, net interest income totaled $29.3 million and net interest margin and net interest spread were 3.99% and 3.51%, respectively. The increase in net interest income ~~before provision for loan losses~~ was primarily due to ~~a $9.1 million~~an increase in interest income on loans, which was driven by increased volume in all loan categories resulting from ~~average~~loans acquired from Green and organic loan ~~balance increases of $689.0 million~~growth during the three months ended September 30, 2019 compared to the three months ended September 30, ~~2016.~~ ~~The~~2018. For the three months ended September 30, 2019, average loan balance increased by $3.3 billion compared to the three months ended September 30, 2018, which resulted in a $57.7 million increase in interest income. This increase in net interest income was partially offset by an increase in the average rate paid on interest-bearing liabilities, which resulted in a $12.9 million increase in interest on deposit accounts. Net interest margin decreased 9 basis points from the three months ended September 30, 2018 primarily due to an increase in the average rate paid on interest-bearing liabilities

compared to the three months ended September 30, 2018. As a result, the average cost of interest-bearing deposits increased to ~~3.78%~~1.79% for the three months ended September 30, ~~2017~~2019 from ~~3.70%~~1.59% for the same three-month period in 2016. The 8 basis point increase in net interest margin was primarily due to a change in mix of interest-earning assets resulting from increases in loan balances. The average yield on loan balances increased to 5.00% from 4.83% for the three months ended September 30, ~~2017~~compared to the same period during 2016. The increase in the average yield for loans was primarily driven by $585 thousand in estimated accretion during the third quarter of 2017 on loans acquired from Sovereign. The estimated accretion on the estimated purchase discount for loans acquired from Sovereign increased the average yield on loans by approximately 14 basis points for the~~three months ended September 30, 2017.~~2018.

For the three months ended September 30, ~~2017,~~2019, interest expense totaled ~~$3.2~~$24.8 million and the average rate paid on interest-bearing liabilities was ~~0.92%~~1.86%. For the three months ended September 30, ~~2016,~~2018, interest expense totaled ~~$1.5~~$8.6 million and the average rate paid on interest-bearing liabilities was ~~0.79%~~1.66%. The increase in interest expense of ~~$1.7~~$16.2 million was ~~primarily~~ due to ~~a $1.4 million increase~~growth in ~~deposit-related~~average interest ~~expense~~bearing-liabilities of$3.2 billion, or 155.1%, primarily resulting from ~~average interest-bearing deposit increases of $567.2 million to $1.3 billion for~~ the ~~three months ended September 30, 2017 from $727.0 million for the three months ended September 30, 2016. The~~ increase in interest ~~expense was primarily~~bearing-liabilities assumed from the ~~result~~acquisition of ~~increases~~Green, organic growth in money market accounts as interest expense paid on these balances increased $828 thousand. The increase in the average rate paid on interest-bearing liabilities of 13 basis points was primarily due to a 10 basis point increase in the average cost of interest-bearing deposits to 0.86% for the three months ended September 30, 2017 from 0.76% for the three months ended September 30, 2016. This increase was the result of a 18 basis point increase in the average interest ~~rate paid on money market accounts from 0.82% for the three months ended September 30, 2016 to 1.00% for the three months ended September 30, 2017.~~bearing deposits, FHLB advances and other borrowings.

The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and ~~interest-bearing~~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 three months ended September 30, ~~2017 and 2016,~~2019, interest income not recognized on non-accrual loans was $243 thousand. For the three months ended September 30, 2018, 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 Three Months Ended September 30,
2017 2016
Interest Interest
Average Earned/ Average Average Earned/ Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Total loans(1) $ 1,643,077
$ 20,706
5.00 % $ 954,053
$ 11,589
4.83 %
Securities available for sale 191,265
941
1.95
83,233
335
1.60
Investment in subsidiary 265
3
4.49
93
1
4.28
Interest-bearing deposits in other banks 171,461
629
1.46
94,596
129
0.54
Total interest-earning assets 2,006,068
22,279
4.41
1,131,975
12,054
4.24
Allowance for loan losses (9,910 )

(8,115 )

Noninterest-earning assets 202,352

95,901

Total assets $ 2,198,510

$ 1,219,761

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Interest-bearing deposits $ 1,294,187
$ 2,812
0.86 % $ 726,958
$ 1,381
0.76 %
Advances from FHLB 53,222
160
1.19
38,363
59
0.61
Other borrowings 13,793
178
5.12
8,078
97
4.78
Total interest-bearing liabilities 1,361,202
3,150
0.92
773,399
1,537
0.79
Noninterest-bearing liabilities:

Noninterest-bearing deposits 452,426

301,740

Other liabilities 6,898

3,284

Total noninterest-bearing liabilities 459,324

305,024

Stockholders’ equity 377,984

141,338

Total liabilities and stockholders’ equity $ 2,198,510

$ 1,219,761

Net interest rate spread(2)
3.49 %
3.45 %
Net interest income $ 19,129

$ 10,517

Net interest margin(3) 3.78 % 3.70 %

Provision for Loan Losses



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

8214 Westchester Drive, Suite ~~400~~800
Dallas,	Texas	75225
(Address of principal executive offices)		(Zip code)



	Non-Accrual Loans
	September 30, 2017 ⁽¹⁾		December 31, 2016
Real estate:
Construction and land	$	—	$	—
Farmland	—		—
1 - 4 family residential	—		—
Multi-family residential	—		—
Commercial Real Estate	794		—
Commercial	1,048		930
Consumer	14		11
	$	1,856	$	941



				During the nine months ended September 30, 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
Real estate loans:
Construction and land	—	$	—	$	—	$	—	$	—	$	—
Farmland	—	—		—		—		—		—
1 - 4 family residential	—	—		—		—		—		—
Multi-family residential	—	—		—		—		—		—
Nonfarm nonresidential	—	—		—		—		—		—
Commercial	2	175		—		—		169		—
Consumer	—	—		—		—		—		—
Total	2	$	175	$	—	$	—	$	169	$	—



	Nine Months Ended September 30, 2017			Year Ended December 31, 2016			Nine Months Ended September 30, 2016
Balance at beginning of year	$	8,524		$	6,772		$	6,772
Provision charged to earnings	2,585			2,050			1,610
Charge-offs	(622		)	(333		)	(309		)
Recoveries	5			35			29
Net charge-offs	(617		)	(298		)	(280		)
Balance at end of year	$	10,492		$	8,524		$	8,102


	For the Year Ended December 31, 2016																For the Year Ended December 31, 2018
	Real Estate																Real Estate
	Construction, Land and Farmland		Residential			Commercial Real Estate		Commercial			Consumer			Total			Construction, Land and Farmland		Residential		Commercial Real Estate		Commercial			Consumer			Total
Balance at beginning of period	$	1,104	$	1,124		$	2,189	$	2,324		$	31		$	6,772		$	1,315	$	1,473	$	4,410	$	5,588		$	22		$	12,808
Provision (recapture) charged to earnings	311		(8		)	814		913			20			2,050			929		502		2,053		3,100			19			6,603
Charge-offs	—		—			—		(314		)	(19		)	(333		)	—		—		—		(175		)	(22		)	(197		)
Recoveries	—		—			—		32			3			35			—		—		—		41			—			41
Net charge-offs (recoveries)	—		—			—		(282		)	(16		)	(298		)	—		—		—		(134		)	(22		)	(156		)
Balance at end of period	$	1,415	$	1,116		$	3,003	$	2,955		$	35		$	8,524		$	2,244	$	1,975	$	6,463	$	8,554		$	19		$	19,255
Period-end amount allocated to:
Specific reserves:
Impaired loans	$	—	$	—		$	—	$	246		$	4		$	250
Total specific reserves	—		—			—		246			4			250
Specific reserves																	—		—		—		368			—			368
PCI reserves																	—		—		—		1,302			—			1,302
General reserves	1,415		1,116			3,003		2,709			31			8,274			2,244		1,975		6,463		6,884			19			17,585
Total	$	1,415	$	1,116		$	3,003	$	2,955		$	35		$	8,524		$	2,244	$	1,975	$	6,463	$	8,554		$	19		$	19,255



September 30, 2017
			Valuation	Unobservable	Weighted
Assets/Liabilities	Fair Value		Technique	Input(s)	Average
Impaired loans	$	2,329	Collateral Method	Adjustments for selling costs	8	%



	For the Nine Months Ended September 30, 2017
	Non-performance-based Stock Options
	Shares Underlying Options		Weighted Exercise Price		Weighted Average Contractual Term
Outstanding at beginning of year	325,500		$	10.15	4.56 years
Granted during the period	—		—
Forfeited during the period	—		—
Canceled during the period	—		—
Exercised during the period	(17,500	)	10.00
Outstanding at the end of period	308,000		$	10.16	3.84 years
Options exercisable at end of period	300,000		$	10.12	3.77 years
Weighted average fair value of options granted during the period			$	—



	As of August 1, 2017
Assets
Cash and cash equivalents	$	44,775
Investment securities	166,307
Loans	750,856
Accrued interest receivable	3,437
Bank premises, furniture and equipment	21,512
Non-marketable equity securities	6,751
Other real estate owned	282
Intangible assets	8,662
Goodwill	108,967
Other assets	10,331
Total Assets	$	1,121,880

Liabilities
Deposits	$	809,366
Accounts payable and accrued expenses	5,189
Accrued interest payable and other liabilities	1,616
Advances from Federal Home Loan Bank	80,000
Junior subordinated debentures	8,609
Total liabilities	$	904,780

Preferred stock - series D	24,500
Total stockholders’ equity	24,500

Consideration
Market value of common stock issued	$	136,385
Cash paid	56,215
Total fair value of consideration	$	192,600



	PCI Loans
Contractually required principal and interest	$	56,809
Non-accretable and accretable difference ⁽¹⁾	23,788
Fair value of PCI loans	$	33,021



	Gross
	Intangible
	Asset
Core deposit intangibles	$	7,703
Servicing asset	454
Intangible lease assets	505
	$	8,662



	September 30, 2017		December 31, 2016
Beginning of year	$	26,865	$	26,865
Effect of acquisition	108,967		—
End of period	$	135,832	$	26,865



	FORM	10-Q


	For the
	Nine Months Ended							For the
	September 30,							Nine Months Ended
					Increase			September 30,						Increase
	2017		2016		(Decrease)			2019			2018			(Decrease)
	(Dollars in thousands)							(Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	1,733	$	1,309	$	424		$	10,606		$	2,588		$	8,018
Gain on sales of investment securities	205		15		190
Loan fees								5,861			945			4,916
Loss on sales of investment securities								(1,414		)	(22		)	(1,392		)
Gain on sales of loans	2,259		2,318		(59		)	4,327			1,267			3,060
Bank-owned life insurance	561		577		(16		)
Other	520		460		60
Rental income								1,110			1,343			(233		)
Other¹								2,458			1,335			1,123
Total noninterest income	$	5,278	$	4,679	$	599		$	22,948		$	7,456		$	15,492


	For the Three Months Ended						For the Three Months Ended September 30,
	September 30, 2017 vs. 2016						2019 vs. 2018
	Increase						Increase (Decrease)
	Due to Change in						Due to Change in
	Volume		Rate		Total		Volume		Rate			Total
	(Dollars in thousands)						(Dollars in thousands)
Interest-earning assets:
Total loans	$	8,393	$	724	$	9,117
Securities available for sale	436		170		606
Investment in subsidiary	2		—		2
Loans							$	47,166	$	1,782		$	48,948
Loans held for investments, mortgage warehouse							—		1,789			1,789
Securities							5,202		763			5,965
Other investments							279		429			708
Interest-bearing deposits in other banks	105		395		500		151		162			313
Total increase in interest income	8,936		1,289		10,225		52,798		4,925			57,723
Interest-bearing liabilities:
Interest-bearing deposits	1,081		350		1,431
Interest-bearing demand and savings deposits							4,929		758			5,687
Certificates and other time deposits							6,086		1,129			7,215
Advances from FHLB	23		78		101		2,689		(238		)	2,451
Other borrowings	69		12		81
Subordinated debentures and subordinated notes							871		(97		)	774
Total increase in interest expense	1,173		440		1,613		14,575		1,552			16,127
Increase in net interest income	$	7,763	$	849	$	8,612	$	38,223	$	3,373		$	41,596


	As of September 30,				As of December 31,				As of September 30,				As of December 31,
	2017				2016				2019				2018
	Amount		Percent		Amount		Percent		Total		Percent		Total		Percent
	(Dollars in thousands)								(Dollars in thousands)
Commercial	$	577,758	30.3	%	$	291,416	29.4	%	$	1,711,256	29.1	%	$	760,772	29.8	%
Mortgage warehouse									233,577		4.0	%	—		—	%
Real estate:
Owner occupied commercial real estate									716,130		12.2	%	321,478		12.5	%
Commercial real estate									1,710,511		29.1	%	781,554		30.6	%
Construction and land	276,670		14.5	%	162,614		16.4	%	614,974		10.4	%	324,863		12.7	%
Farmland	6,572		0.3	%	8,262		0.8	%	16,633		0.3	%	10,528		0.4	%
1 - 4 family residential	185,473		9.7	%	140,137		14.1	%
Multi-family residential	54,475		2.9	%	14,683		1.5	%
Commercial Real Estate	802,432		42.1	%	370,696		37.4	%
1-4 family residential									559,310		9.5	%	297,917		11.7	%
Multifamily									306,965		5.2	%	51,285		2.0	%
Consumer	4,129		0.2	%	4,089		0.4	%	18,114		0.2	%	7,112		0.3	%
Total loans held for investment	$	1,907,509	100.0	%	$	991,897	100	%	$	5,887,470	100.0	%	$	2,555,509	100.0	%

Total loans held for sale	$	2,179			$	5,208			$	10,715	100.0	%	$	1,258	100.0	%



	For the Nine Months Ended			For the Nine Months Ended			For the Year Ended
	September 30, 2017			September 30, 2016			December 31, 2016
	(Dollars in thousands)
Average loans outstanding⁽¹⁾	$	1,240,461		$	903,581		$	919,441
Gross loans outstanding at end of period⁽¹⁾	$	1,907,509		$	926,712		$	991,897
Allowance for loan losses at beginning of period	$	8,524		$	6,772		$	6,772
Provision for loan losses	2,585			1,610			2,050
Charge-offs:
Real estate:
Construction, land and farmland	—			—			—
Residential	(11		)	—			—
Commercial Real Estate	—			—			—
Commercial	(611		)	(300		)	(314		)
Consumer	—			(9		)	(19		)
Total charge-offs	(622		)	(309		)	(333		)
Recoveries:
Real estate:
Construction, land and farmland	—			—			—
Residential	—			—			—
Commercial Real Estate	—			—			—
Commercial	5			28			32
Consumer	—			1			3
Total recoveries	5			29			35
Net charge-offs	(617		)	(280		)	(298		)
Allowance for loan losses at end of period	$	10,492		$	8,102		$	8,524
Ratio of allowance to end of period loans	0.55		%	0.87		%	0.86		%
Ratio of net charge-offs to average loans	0.05		%	0.03		%	0.03		%


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


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


	As of				As of				As of				As of
	September 30, 2017				December 31, 2016				September 30, 2019				December 31, 2018
			Percent				Percent				Percent				Percent
	Amount		of Total		Amount		of Total		Amount		of Total		Amount		of Total
	(Dollars in thousands)								(Dollars in thousands)
Real estate:
Construction and land	$	1,125	10.7	%	$	1,346	15.8	%	$	3,547	13.5	%	$	2,186	11.4	%
Farmland	39		0.4		69		0.8		56		0.2		58		0.3
1 - 4 family residential	1,223		11.7		999		11.7		2,096		8.0		1,613		8.4
Multi-family residential	296		2.8		117		1.4		694		2.6		362		1.9
Commercial Real Estate	3,976		37.9		3,003		35.2
Commercial real estate									8,488		32.4		6,463		33.6
Total real estate	$	6,659	63.5	%	$	5,534	64.9	%	$	14,881	56.7	%	$	10,682	55.6	%
Commercial	3,811		36.3		2,955		34.7		11,238		42.8		8,554		44.3
Consumer	22		0.2		35		0.4		124		0.2		19		0.1
Total allowance for loan losses	$	10,492	100.0	%	$	8,524	100.0	%	$	26,243	100.0	%	$	19,255	100.0	%



	As of September 30, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(Dollars in thousands)
U.S. government agencies	$	10,827	$	92	$	11	$	10,908
Corporate bonds	7,500		330		—		7,830
Municipal securities	52,392		269		141		52,520
Mortgage-backed securities	81,454		98		447		81,105
Collateralized mortgage obligations	52,062		99		395		51,766
Asset-backed securities	649		10		—		659
Total	$	204,884	$	898	$	994	$	204,788



	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



	As of September 30, 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	$	—	—	%	$	10,595	2.45	%	$	313	2.05	%	$	—	—	%	$	10,908	2.44	%
Corporate securities	—		—		7,830		5.63		—		—		—		—		7,830		5.63
Municipal securities	—		—		9,224		2.32		24,119		2.79		19,177		3.05		52,520		2.80
Mortgage-backed securities	—		—		48,789		1.87		32,316		2.32		—		—		81,105		2.05
Collateralized mortgage obligations	267		2.17		37,826		2.00		13,673		2.34		—		—		51,766		2.09
Asset-backed securities	—		—		659		2.18		—		—		—		—		659		2.18
Total	$	267	2.17	%	$	114,923	1.88	%	$	70,421	2.48	%	$	19,177	3.05	%	$	204,788	2.20	%




	FHLB Advances
	(Dollars in thousands)
September 30, 2017
Amount outstanding at period-end	$	38,200
Weighted average interest rate at period-end	1.26		%
Maximum month-end balance during the period	38,294
Average balance outstanding during the period	43,313
Weighted average interest rate during the period	0.98		%
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		%



	As of September 30, 2017				As of December 31, 2016
	Percent Change		Percent Change		Percent Change		Percent Change
Change in Interest	in Net Interest		in Fair Value		in Net Interest		in Fair Value
Rates (Basis Points)	Income		of Equity		Income		of Equity
+ 300	14.67	%	4.11	%	12.60	%	11.67	%
+ 200	10.95	%	4.51	%	9.63	%	12.04	%
+ 100	7.13	%	3.51	%	6.14	%	9.29	%
Base	2.89	%	—	%	0.99	%	—	%
−100	(1.28	)%	(6.48	)%	(2.56	)%	(11.22	)%



	(a)	(b)		(c)	(d)
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs¹	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs¹
January 1, 2019 - January 31, 2019	—	$	—	—	$	50,000,000
February 1, 2019 - February 28, 2019	—	—		—	50,000,000
March 1, 2019 - March 31, 2019	316,600	24.42		316,600	42,268,000
April 1, 2019 - April 30, 2019	1,721	25.80		1,721	42,223,000
May 1, 2019 - May 31, 2019	524,450	25.89		524,450	28,646,000
June 1, 2019 - June 30, 2019	329,091	25.71		329,091	20,185,000
July 1, 2019 - July 31, 2019	310,398	25.59		310,398	12,241,000
August 1, 2019 - August 31, 2019	511,369	23.94		511,369	—
September 1, 2019 - September 30, 2019	355,474	24.72		355,474	41,212,000
	2,349,103	$	25.03	2,349,103	$	41,212,000



Exhibit Number		Description of Exhibit
~~2.1~~2.3		Agreement and Plan of Reorganization dated ~~December 14, 2016,~~July 23, 2018, by and ~~between~~among Veritex Holdings, Inc., ~~Spartan Merger Sub,~~MustMS, Inc., and ~~Sovereign Bancshares,~~Green Bancorp, Inc. (incorporated ~~herein~~ by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed ~~December 14, 2016)~~July 24, 2018).
3.1		Second Amended and Restated Certificate of Formation of Veritex Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed September 22, 2014 (File No. 333-198484)).
3.2		Third Amended and Restated Bylaws of Veritex Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed July 25, 2017).
3.3		Third Amended and Restated Bylaws of Veritex Holdings, Inc., marked to show amendments effective as of May 18, ~~2017.~~2017 (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q filed July 25, 2017).
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following materials from Veritex ~~Holdings’~~Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017,~~2019, formatted in Inline XBRL ~~(Extensible~~(Inline eXtensible Business Reporting Language)~~, furnished herewith:~~: (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, ~~(ii)~~(iii) Condensed Consolidated Statements of ~~Operations, (iii)~~Income, (iv) Condensed Consolidated Statements of Comprehensive Income, ~~(Loss), (iv)~~(v) Condensed Consolidated Statements of Changes in ~~Shareholders’~~Stockholders’ Equity, ~~(v)~~(vi) Condensed Consolidated Statements of Cash Flows, and ~~(vi)~~(vii) Notes to Condensed Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)




		VERITEX HOLDINGS, INC.
		(Registrant)





Date: October ~~26, 2017~~25, 2019		/s/ C. Malcolm Holland, III
		C. Malcolm Holland, III
		Chairman and Chief Executive Officer
		(Principal Executive Officer)




Date: October ~~26, 2017~~25, 2019		/s/ ~~Noreen E. Skelly~~Terry S. Earley
		~~Noreen E. Skelly~~ Terry S. Earley
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Fair Value of Options Exercised or Restricted Stock Units Vested in the nine months ended September 30,

Non-performance based stock options exercised

Non-performance based restricted stock units vested