UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
OR


☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto.
Commission File Number: 001-36682
VERITEX HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Texas27-0973566
(State or other jurisdiction of(I.R.S. employer
incorporation or organization)identification no.)
8214 Westchester Drive, Suite 400800
Dallas, TexasTexas75225
(Address of principal executive offices)(Zip code)

(972)
349-6200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01VBTXNasdaq Global Market

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


Indicate by check mark whether the registrant has submitted electronically 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 ☐
Emerging growth company ☐
Large accelerated filer ☐Accelerated filer ☒
Non-accelerated filer ☐Smaller reporting company ☐
(Do not check if a smaller reporting company)
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

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


As of October 25, 2017,May 6, 2020, there were 22,648,71850,378,796 outstanding shares ofof the registrant’s common stock, par value $0.01 per share.




VERITEX HOLDINGS, INC.
AND SUBSIDIARY
Page
PART I — FINANCIAL INFORMATION 
3
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2020 and December 31, 20162019
34
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019
45
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019
56
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Three Months Ended September 30, 2017March 31, 2020 and 20162019
67
Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019
78
Notes to Condensed Consolidated Financial Statements
89
3948
70
7072
PART II — OTHER INFORMATION 
73
7173
Risk Factors
71
Item 2. 
7174
7175
7175
7275
7275
7376




2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
3

VERITEX HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 2017as of March 31, 2020 and December 31, 20162019
(Dollars in thousands, except par value information)
March 31,December 31,
20202019
(Unaudited)
ASSETS
Cash and due from banks$70,007  $65,151  
Interest bearing deposits in other banks360,835  186,399  
Total cash and cash equivalents430,842  251,550  
Debt securities available-for-sale, at fair value1,084,962  964,365  
Debt securities held-to-maturity (fair value of $35,513 and $34,810, at March 31, 2020 and December 31, 2019, respectively)32,842  32,965  
Equity securities18,948  14,697  
Federal Home Loan Bank of Dallas Stock and Federal Reserve Bank Stock92,809  68,348  
Investment in trusts1,018  1,018  
Total investments1,230,579  1,081,393  
Loans held for sale15,048  14,080  
Loans held for investment, mortgage warehouse371,161  183,628  
Loans held for investment5,853,735  5,737,577  
Less: Allowance for credit losses(100,983) (29,834) 
Total loans held for investment, net6,123,913  5,891,371  
Bank-owned life insurance81,395  80,915  
Bank premises, furniture and equipment, net116,056  118,536  
Other real estate owned7,720  5,995  
Intangible assets, net of accumulated amortization of $22,946 and $19,997, at March 31, 2020 and December 31, 2019, respectively)69,444  72,263  
Goodwill370,840  370,840  
Other assets85,787  67,994  
Total assets$8,531,624  $7,954,937  
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Deposits:  
Noninterest-bearing deposits$1,549,260  $1,556,500  
Interest-bearing transaction and savings deposits2,536,865  2,654,972  
Certificates and other time deposits1,713,820  1,682,878  
Total deposits5,799,945  5,894,350  
Accounts payable and other liabilities56,339  37,427  
Accrued interest payable5,407  6,569  
Advances from Federal Home Loan Bank1,377,832  677,870  
Subordinated debentures and subordinated notes140,406  145,571  
Securities sold under agreements to repurchase2,426  2,353  
Total liabilities7,382,355  6,764,140  
Commitments and contingencies (Note 11)   
Stockholders’ equity:  
Common stock, $0.01 par value; 75,000,000 shares authorized; 55,372,286 and 54,876,580 shares issued at March 31, 2020 and December 31, 2019, respectively; 49,557,364 and 51,063,869 shares outstanding at March 31, 2020 and December 31, 2019, respectively554  549  
Additional paid-in capital1,119,757  1,117,879  
Retained earnings127,812  147,911  
Accumulated other comprehensive income45,306  19,061  
Treasury stock, 5,814,922 and 3,812,711 shares at cost at March 31, 2020 and December 31, 2019, respectively(144,160) (94,603) 
Total stockholders’ equity1,149,269  1,190,797  
Total liabilities and stockholders’ equity$8,531,624  $7,954,937  
  September 30, December 31,
  2017 2016
ASSETS    
Cash and due from banks $21,879
 $15,631
Interest bearing deposits in other banks 129,497
 219,160
Total cash and cash equivalents 151,376
 234,791
Investment securities 204,788
 102,559
Loans held for sale 2,179
 5,208
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
Bank-owned life insurance 20,517
 20,077
Bank premises, furniture and equipment, net 40,129
 17,413
Non-marketable equity securities 10,283
 7,366
Investment in unconsolidated subsidiary 352
 93
Other real estate owned 738
 662
Intangible assets, net of accumulated amortization of $2,783 and $2,198, respectively 10,531
 2,181
Goodwill 135,832
 26,865
Other assets 14,760
 5,067
Total assets $2,494,861
 $1,408,507
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Deposits:    
Noninterest-bearing $495,627
 $327,614
Interest-bearing 1,490,031
 792,016
Total deposits 1,985,658
 1,119,630
Accounts payable and accrued expenses 4,017
 2,914
Accrued interest payable and other liabilities 4,368
 534
Advances from Federal Home Loan Bank 38,200
 38,306
Junior subordinated debentures 11,702
 3,093
Subordinated notes 4,987
 4,942
Total liabilities 2,048,932
 1,169,419
Commitments and contingencies (Note 6) 
  
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
Additional paid-in capital 404,900
 211,173
Retained earnings 41,143
 29,290
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)
Total stockholders’ equity 445,929
 239,088
Total liabilities and stockholders’ equity $2,494,861
 $1,408,507


See accompanying notesNotes to condensed consolidated financial statements.

Condensed Consolidated Financial Statements.

4

VERITEX HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
For the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
 Three Months Ended
September 30,		 Nine Months Ended
September 30,		20202019
 2017 2016 2017 2016
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:Interest and dividend income:
Loans, including feesLoans, including fees$77,861  $85,747  
Investment securitiesInvestment securities7,397  7,232  
Deposits in financial institutions and Fed Funds soldDeposits in financial institutions and Fed Funds sold871  1,554  
Other investmentsOther investments850  691  
Total interest and dividend incomeTotal interest and dividend income86,979  95,224  
Interest expense:        Interest expense:
Interest on deposit accounts 2,812
 1,381
 6,201
 3,388
Interest on borrowings 338
 156
 696
 491
Transaction and savings depositsTransaction and savings deposits6,552  10,366  
Certificates and other time depositsCertificates and other time deposits8,240  8,792  
Advances from FHLBAdvances from FHLB2,879  2,055  
Subordinated debentures and subordinated notesSubordinated debentures and subordinated notes1,903  1,094  
Total interest expense 3,150
 1,537
 6,897
 3,879
Total interest expense19,574  22,307  
Net interest income 19,129
 10,517
 42,758
 30,435
Net interest income67,405  72,917  
Provision for loan losses 752
 238
 2,585
 1,610
Net interest income after provision for loan losses 18,377
 10,279
 40,173
 28,825
Provision for credit lossesProvision for credit losses31,776  5,012  
Provision for unfunded commitmentsProvision for unfunded commitments3,881  —  
Net interest income after provision for credit lossesNet interest income after provision for credit losses31,748  67,905  
Noninterest income:        Noninterest income:
Service charges and fees on deposit accounts 669
 433
 1,733
 1,309
Service charges and fees on deposit accounts3,642  3,517  
Gain on sales of investment securities 205
 —
 205
 15
Loan feesLoan fees845  1,677  
Loss on sales of investment securitiesLoss on sales of investment securities—  (772) 
Net gain on sales of loans and other assets owned 705
 1,036
 2,259
 2,318
Net gain on sales of loans and other assets owned746  2,370  
Bank-owned life insurance 188
 193
 561
 577
Rental incomeRental income551  368  
Other 210
 231
 520
 460
Other1,463  1,324  
Total noninterest income 1,977
 1,893
 5,278
 4,679
Total noninterest income7,247  8,484  
Noninterest expense:        Noninterest expense:
Salaries and employee benefits 5,921
 3,920
 13,471
 10,683
Salaries and employee benefits18,870  18,885  
Occupancy and equipment 1,596
 923
 3,622
 2,718
Occupancy and equipment4,273  4,129  
Professional fees 1,973
 785
 3,959
 1,861
Professional and regulatory feesProfessional and regulatory fees2,196  3,418  
Data processing and software expense 719
 296
 1,451
 850
Data processing and software expense2,089  1,924  
FDIC assessment fees 410
 179
 1,061
 447
Marketing 436
 293
 905
 704
Marketing1,083  619  
Other assets owned expenses and write-downs 71
 9
 109
 139
Amortization of intangibles 223
 95
 413
 285
Amortization of intangibles2,696  2,760  
Telephone and communications 230
 98
 438
 295
Telephone and communications319  395  
Merger and acquisition expenseMerger and acquisition expense—  31,217  
Other 943
 431
 2,325
 1,323
Other4,019  3,646  
Total noninterest expense 12,522
 7,029
 27,754
 19,305
Total noninterest expense35,545  66,993  
Net income from operations 7,832
 5,143
 17,697
 14,199
Income tax expense 2,650
 1,768
 5,802
 4,837
Income before income tax (benefit) expenseIncome before income tax (benefit) expense3,450  9,396  
Income tax (benefit) expenseIncome tax (benefit) expense(684) 1,989  
Net income $5,182
 $3,375
 $11,895
 $9,362
Net income$4,134  $7,407  
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
Basic earnings per share$0.08  $0.14  
Diluted earnings per share $0.25
 $0.31
 $0.69
 $0.85
Diluted earnings per share$0.08  $0.13  
See accompanying notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

5



VERITEX HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income(Unaudited)
For the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019
(Dollars in thousands)
Three Months Ended March 31,
20202019
Net income$4,134  $7,407  
Other comprehensive income (loss):
Net unrealized gains on securities available-for-sale:
Change in net unrealized gains on securities available-for-sale during the period28,487  11,797  
Reclassification adjustment for net gains included in net income—  (772) 
Net unrealized gains on securities available-for-sale28,487  12,569  
Net unrealized gains on derivative instruments designated as cash flow hedges3,732  —  
Other comprehensive income, before tax32,219  12,569  
Income tax expense5,974  2,623  
Other comprehensive income, net of tax26,245  9,946  
Comprehensive income$30,379  $17,353  
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Net income $5,182
 $3,375
 $11,895
 $9,362
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
Income tax expense (benefit) 60
 (3) 609
 217
Other comprehensive income (loss), net of tax 113
 (6) 1,186
 421
Comprehensive income $5,295
 $3,369
 $13,081
 $9,783


See accompanying notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.





6


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Changes in Stockholders’ Equity(Unaudited) 
For the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019
(Dollars in thousands)

Three Months Ended March 31, 2020
 Common StockTreasury StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		 
 SharesAmountSharesAmountTotal
Balance at December 31, 201951,063,869  $549  3,812,711  $(94,603) $1,117,879  $147,911  $19,061  $1,190,797  
Restricted stock units vested, net of 18,679 shares withheld to cover tax withholdings68,832  1  —  —  (603) —  —  (602) 
Exercise of employee stock options, net of 98,836 and 139,715 shares withheld to cover tax withholdings and exercise price, respectively416,874  4  —  —  414  —  —  418  
Stock warrants exercised10,000  —  —  —  109  —  —  109  
Stock buyback(2,002,211) —  2,002,211  (49,557) —  —  —  (49,557) 
Stock based compensation—  —  —  —  1,958  —  —  1,958  
Net income—  —  —  —  —  4,134  —  4,134  
Dividends paid—  —  —  —  —  (8,728) —  (8,728) 
CECL impact on date of adoption—  —  —  —  —  (15,505) —  (15,505) 
Other comprehensive income—  —  —  —  —  —  26,245  26,245  
Balance at March 31, 202049,557,364  $554  5,814,922  $(144,160) $1,119,757  $127,812  $45,306  $1,149,269  

  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
Three Months Ended March 31, 2019
 Common StockTreasury StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		 
 SharesAmountSharesAmountTotal
Balance at December 31, 201824,253,894  $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 $78829,532,957  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 taxes497,594  5  —  —  12,479  —  —  12,484  
Restricted stock units vested, net of 52,720 shares withheld to cover tax withholdings194,735  2  —  —  (1,281) —  —  (1,279) 
Exercise of employee stock options, net of 9,946 shares withheld to cover taxes73,468  1  —  —  872  —  —  873  
Stock buyback(316,600) (3) 316,600  (7,729) —  —  —  (7,732) 
Stock based compensation—  —  —  —  17,557  —  —  17,557  
Net income—  —  —  —  —  7,407  —  7,407  
Dividends paid—  —  —  —  —  (6,816) —  (6,816) 
Other comprehensive loss—  —  —  —  —  —  9,946  9,946  
Balance at March 31, 201954,236,048  $543  326,600  $(7,799) $1,109,386  $84,559  $7,016  $1,193,705  


  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

See accompanying notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

7



VERITEX HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows(Unaudited)
For the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019
(Dollars in thousands)
 For the Nine Months Ended September 30, For the Three Months Ended March 31,
 2017 2016 20202019
Cash flows from operating activities:    Cash flows from operating activities:
Net income $11,895
 $9,362
Net income$4,134  $7,407  
Adjustments to reconcile net income to net cash provided by operating activities:    Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 1,588
 1,212
Provision for loan losses 2,585
 1,610
Depreciation and amortization of fixed assets and intangiblesDepreciation and amortization of fixed assets and intangibles4,087  4,006  
Net accretion of time deposit premium, debt discount, net and debt issuance costsNet accretion of time deposit premium, debt discount, net and debt issuance costs(588) (2,936) 
Provision for credit lossesProvision for credit losses31,776  5,012  
Provision for unfunded commitmentsProvision for unfunded commitments3,881  —  
Accretion of loan purchase discount (828) (363)Accretion of loan purchase discount(4,320) (6,516) 
Stock-based compensation expense 1,199
 702
Stock-based compensation expense1,958  17,557  
Compensation expense - liability-classified awardsCompensation expense - liability-classified awards—  708  
Excess tax benefit from stock compensation (233) —
Excess tax benefit from stock compensation(1,388) (25) 
Net amortization of premiums on investment securities 1,217
 710
Net amortization of premiums on investment securities895  502  
Unrealized loss (gain) on equity securities recognized in earningsUnrealized loss (gain) on equity securities recognized in earnings249  (136) 
Change in cash surrender value of bank-owned life insurance (440) (463)Change in cash surrender value of bank-owned life insurance(480) (492) 
Net gain on sales of investment securities (205) (15)
Gain on sales of loans held for sale (705) (2,318)
Net loss on sales of investment securitiesNet loss on sales of investment securities—  772  
Change in fair value of held for sale Small Business Administration ("SBA") loans using fair value optionChange in fair value of held for sale Small Business Administration ("SBA") loans using fair value option(165) (62) 
Gain on sales of mortgage loans held for saleGain on sales of mortgage loans held for sale142  (113) 
Gain on sales of SBA loans (1,562) —
Gain on sales of SBA loans604  (2,195) 
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)
Originations of loans held for saleOriginations of loans held for sale(11,634) (6,918) 
Proceeds from sales of loans held for sale 34,709
 49,708
Proceeds from sales of loans held for sale10,689  9,709  
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
(Increase) decrease in accrued interest receivable and other assets(Increase) decrease in accrued interest receivable and other assets(13,141) 3,733  
Increase (decrease) in accounts payable and other liabilities and accrued interest payableIncrease (decrease) in accounts payable and other liabilities and accrued interest payable13,031  (12,156) 
Net cash provided by operating activities 16,340
 8,516
Net cash provided by operating activities39,730  17,876  
Cash flows from investing activities:    Cash flows from investing activities:  
Cash paid in excess of cash received for the acquisition of Sovereign Bancshares, Inc. (11,440) —
Cash received in excess of cash paid for the acquisition of GreenCash received in excess of cash paid for the acquisition of Green—  112,710  
Purchases of securities available for sale (70,621) (34,420)Purchases of securities available for sale(200,682) (146,134) 
Sales of securities available for sale 118,165
 8,378
Sales of securities available for sale—  108,865  
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)
Proceeds from maturities, calls and pay downs of available for sale securitiesProceeds from maturities, calls and pay downs of available for sale securities107,743  21,620  
Maturity, calls and paydowns of securities held to maturityMaturity, calls and paydowns of securities held to maturity57  —  
Purchases of other investments, netPurchases of other investments, net(28,712) (12,478) 
Net loans originated (187,283) (105,098)Net loans originated(291,262) 6,244  
Proceeds from sale of SBA loans 24,273
 —
Proceeds from sale of SBA loans8,384  24,534  
Net additions to bank premises and equipment (2,208) (879)Net additions to bank premises and equipment1,342  (2,590) 
Proceeds from sales of other real estate owned 161
 —
Net cash used in investing activities (107,802) (120,184)
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(403,130) 112,771  
Cash flows from financing activities:    Cash flows from financing activities:  
Net change in deposits 56,662
 208,807
Net change in deposits(93,983) 214,816  
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) —
Net change in advances from Federal Home Loan BankNet change in advances from Federal Home Loan Bank699,962  (75,037) 
Redemption of subordinated debtRedemption of subordinated debt(5,000) —  
Net change in securities sold under agreement to repurchaseNet change in securities sold under agreement to repurchase73  (448) 
Payments to tax authorities for stock-based compensation
Payments to tax authorities for stock-based compensation
(3,606) (1,279) 
Proceeds from exercise of employee stock options 175
 —
Proceeds from exercise of employee stock options3,422  873  
Payments to tax authorities for stock-based compensation
 (212) —
Offering costs paid in connection with acquisition (426) —
Proceeds from exercise of stock warrantsProceeds from exercise of stock warrants109  —  
Purchase of treasury stockPurchase of treasury stock(49,557) (7,732) 
Dividends paidDividends paid(8,728) (6,816) 
Net cash provided by financing activities 8,047
 218,704
Net cash provided by financing activities542,692  124,377  
Net (decrease) increase in cash and cash equivalents (83,415) 107,036
Net increase in cash and cash equivalentsNet increase in cash and cash equivalents179,292  255,024  
Cash and cash equivalents at beginning of period 234,791
 71,551
Cash and cash equivalents at beginning of period251,550  84,449  
Cash and cash equivalents at end of period $151,376
 $178,587
Cash and cash equivalents at end of period$430,842  $339,473  
See accompanying notesNotes to condensed consolidated financial statements.

Condensed Consolidated Financial Statements.

8

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 2125 branches and one1 mortgage office 17 of which are located in the Dallas-Fort Worth metroplex, with two branches in the Austin, Texas metropolitan area and two12 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, whichand both perform periodic examinations to ensure regulatory compliance.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Veritex and the Bank, as its wholly-ownedwholly 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, 2017March 31, 2020 and December 31, 2016,2019, condensed consolidated results of operations for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, condensed consolidated stockholders’ equity for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 and condensed consolidated cash flows for the ninethree months ended September 30, 2017March 31, 2020 and 2016.2019. Certain prior period balances have been reclassified to conform to the current period presentation.


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 reportherein 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, 20162019 included withinin the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 10, 2017.February 28, 2020.


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 one1 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 activitiesactivity 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 CompanyBank as one1 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.

9


Reclassifications

Effective January 1, 2017, the Company adopted ASU 2016-09. Per ASU 2016-09 cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity and for presentation purposes be applied retrospectively.
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, 2017March 31, 2020 and 2016:2019:
Three Months Ended March 31,
20202019
Earnings (numerator)
Net income$4,134  $7,407  
Shares (denominator)
Weighted average shares outstanding for basic EPS50,725  54,293  
Dilutive effect of employee stock-based awards331  1,146  
Adjusted weighted average shares outstanding51,056  55,439  
EPS:
Basic$0.08  $0.14  
Diluted$0.08  $0.13  
  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 and 2016,March 31, 2020, there were no exclusions1,341 antidilutive shares excluded from the diluted EPS weighted average shares.

Recent Accounting Pronouncements
ASU 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifyingshares outstanding. For the Test for Goodwill Impairment” (“ASU 2017-04”) eliminates Step 2three months ended March 31, 2019, there were 0 antidilutive shares excluded 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 2diluted EPS weighted average shares outstanding.

Adoption 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 afterNew Accounting Standards

On January 1, 2017. The2020, 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 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business”adopted Accounting Standard Update (“ASU 2017-01”ASU”) 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 “FinancialFinancial Instruments —Credit- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”Instruments,whichreplaces the incurred loss methodology with an expected loss methodology that is referred to as thecurrent expected credit loss (“ASU 2016-13”CECL”) amends guidance on reportingmethodology. The measurement of expected credit losses forunder theCECL methodology is applicable to financial assets heldmeasured at amortized cost, including loanreceivables and held-to-maturity debt securities. It also applies to off-balance sheet (“OBS”) credit exposures notaccounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and othersimilar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842on leases. In addition, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities.One such change is to require credit losses to be presented as an allowance rather than as a write-downon available-for-sale debt securities management does not intend to sell or believes that it is more likelythan not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, net investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $15,505 as of January 1, 2020 for the cumulative effect of adopting ASC 326.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $19,710 of the allowance for credit losses (“ACL”). The remaining noncredit discount will be accreted into interest income at the effective interest rate. As allowed by ASC 326, the Company elected to maintain pools of loans accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption.

10

The following table illustrates the impact of ASC 326.


January 1, 2020
As Reported
Under
ASC 326		Pre-ASC 326
Adoption		Impact of ASC 326 Adoption
Assets:
Allowance for credit losses on debt securities held-to-maturity$—  $—  $—  
Allowance for credit losses on loans
Construction and land3,760  3,822  (62) 
Farmland65  61  4  
1 - 4 family residential6,002  1,378  4,624  
Multi-family residential2,593  1,965  628  
Owner Occupied Commercial Real Estate13,066  1,978  11,088  
Non-Owner Occupied Commercial Real Estate15,314  8,139  7,175  
Commercial27,729  12,369  15,360  
Consumer442  122  320  
Allowance for credit losses on loans$68,971  $29,834  $39,137  
Liabilities:
Allowance for credit losses on OBS credit exposures$1,718  $878  840  

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.

11

On March 22 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modification using ASC 310-40. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered troubled debt restructurings (“TDRs”). This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress. Section 4013 of the CARES Act provides financial institutions with an option to suspend the application of ASC 310-40 to eligible loan restructurings. A loan restructuring is eligible under Section 4013 if the loan restructuring is related to COVID-19, if the loan was not more than 30 days past due as of December 31, 2019, and if the restructuring occurs between March 1, 2020 and the earlier of 60 days after the termination of the national emergency or December 31, 2020. If a loan restructuring is not eligible under Section 4013, or if the financial institution does not elect to avail itself of the optional relief in Section 4013, the financial institution should evaluate the loan restructuring under ASC 310-40 considering the guidance in the interagency statement.

For the month ending March 31, 2020, the Company had 85 modifications of loans with aggregate principal balances totaling $57,807 that qualified for temporary suspension of TDR requirements under Section 4013 of the CARES Act. The majority of these modifications allow 90-day deferment of principal and/or interest payments. More of these types of modifications are likely to be executed in the second quarter of 2020.

Debt Securities

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

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

The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in other assets on the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2020 and 2019.

Allowance for Credit Losses – Available for Sale Securities

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

12

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

Allowance for Credit Losses – HeldtoMaturity Securities

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

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

Loans Held for Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the ACL. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis Topicof loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets.

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

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due in accordance with the terms of the loan agreement. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payment obligations as they come 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 a loan is placed on non-accrual status, all interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Acquired Loans

Prior to January 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered purchased credit impaired. PCI loans were accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit grade, loan type, and date of origination.

All loans considered to be PCI loans prior to January 1, 2020 were converted to PCD loans upon the Company’s adoption of ASC 326. The Company elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are foreclosed, written off, paid off, or sold. Upon adoption of ASC 326, eliminates the probable initial recognition thresholdACL was determined for each loan or pool and added to the loan or pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the loan or pool and the new amortized cost basis is the noncredit premium or discount which will be accreted into interest income over the remaining life of the loan or pool. Changes to the ACL after adoption are recorded through provision expense.

13

Subsequent to January 1, 2020, loans acquired in current GAAP and, instead, requiresa business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. At the acquisition date, an entity to reflect its current estimate of all expected credit losses. Thelosses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.

For acquired loans not deemed purchased credit deteriorated at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense.

The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Credit Losses - Loans

The ACL is a valuation account that is deducted from the loans' amortized cost basis of the financial assets to present the net amount expected to be collected. Forcollected on the loans.

The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the ACL through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, an asset will typically be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method or a loss-rate method to estimate expected credit losses. The Company will utilize a probability of default/loss given default (PD/LGD) model to estimate expected credit losses for our PCD loans and pools.

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

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

Real Estate — This category of loans consists of the following loan types:

Construction and land — This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale debt securities,after the completion of construction of owner occupied and non-owner occupied residential and commercial properties, and loans secured by raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third party. Repayment of land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt.

Farmland — These loans are principally loans to purchase farmland.
14


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

Multi-family residential — This category of loans is primarily secured by non-owner occupied apartment or multifamily residential buildings. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions.

Owner occupied commercial real estate (“OOCRE”) — This category of loans includes real estate loans for a variety of commercial property types and purposes. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be measuredmore adversely affected by conditions in a manner similarthe real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are generally diverse in terms of type and geographic location, throughout the Dallas-Fort Worth metroplex and Houston metropolitan area. This diversity helps reduce the exposure to current GAAP, however Topic 326 will requireadverse economic events that credit losses be presented as an allowance rather than as a write-down.may affect any single market or industry.

Non-owner occupied commercial real estate (“NOOCRE”) — This Accounting Standards Update affects entities holding financial assets and netcategory of loans includes investment in leasesreal estate loans that are not accountedprimarily secured by office and industrial buildings, retail shopping centers and various special purpose properties. Generally, these types of loans are thought to involve a greater degree of credit risk than OOCRE as they are more sensitive to adverse economic conditions.

Commercial — This category of loans is for at fair value through net income.commercial, corporate and business purposes. The amendments affectCompany’s commercial business loan portfolio is comprised of loans debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables,for a variety of purposes and anyacross a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, agriculture operating loans and other financialbusiness loans for working capital and operational purposes. Most commercial loans are secured by the assets not excluded frombeing financed or other business assets, such as accounts receivable or inventory.

Mortgage warehouse - Mortgage warehouse facilities are provided to unaffiliated mortgage origination companies and are collateralized by 1-4 family residential loans. The originator closes new mortgage loans with the scope that haveintent to sell these loans to third party investors for a profit. The Company provides funding to the contractual right to receive cash. For public business entities, this ASU is effectivemortgage companies for financial statements issued for fiscal years beginning after December 15, 2019,the period between the origination and interim periods therein.their sale of the loan. The Company is continuing to evaluaterepaid with the impactproceeds received from sale of the adoptionmortgage loan to the final investor.

Consumer — This category of ASU 2016-13 andloans is uncertainused for personal use typically for consumer purposes.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the impactcollateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based 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 to have a significant impact on the consolidated financial statements.
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, 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 measuringdifference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

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

15

Troubled-debt Restructurings (TDRs)

From time to time, the Company may modify its loan agreement with a borrower. A modified loan is considered a TDR, using Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. The ACL on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring. In addition, when management has a reasonable expectation of executing a TDR the expected effect of the modification is included in the estimate of the ACL.

Contractual Term

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

Discounted Cash Flow Method

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

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

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

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis. The ACL is further increased for qualitative loss factors based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Loss-Rate Method

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

16

Probability of Default/Loss Given Default Method

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

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

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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

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

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

Derivative Financial Instruments (Designated as Cash Flow Hedges)

Cash flow hedge relationships mitigate exposure to present separatelythe 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 portionforecasted transaction affects income.
.
The Company assesses the “effectiveness” of hedging derivatives on the totaldate 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 liabilityrange 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. Gains or losses resulting from the termination or sale of a derivative accounted for as a cash flow hedge remain in other comprehensive income and are accreted or amortized to earnings over the remaining period of the former hedging relationship unless the forecasted transaction becomes probable of not occurring.

17

Goodwill
        Goodwill resulting from a change inbusiness combination represents the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance withexcess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized but is reviewed for potential impairment annually on October 31 of each fiscal year or when a triggering event occurs. The Company may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company has an unconditional option to bypass the qualitative assessment for financial instruments, (vi) requires separate presentation of financial assetsany reporting unit in any period and financial liabilities by measurement categoryproceed directly to performing the quantitative goodwill impairment test, and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. This update will be effective for the Company on January 1, 2018.may resume performing the qualitative assessment in any subsequent period. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform the quantitative goodwill impairment test. The Company is in processquantitative goodwill impairment test, used to identify both the existence of evaluatingpotential impairment and the impactamount of this pronouncement, which is not expected to haveimpairment loss, compares the fair value of a significant impact onreporting unit with its carrying amount, including goodwill. If the consolidated financial statements.
ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) implementscarrying amount of a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is thatreporting unit exceeds its fair value, an entity should recognize revenue to depict the transfer of promised goods or services to customersimpairment loss shall be recognized in an amount equal to that reflectsexcess, limited to the considerationtotal amount of goodwill allocated to that reporting unit. Any such adjustments to goodwill are reflected in the results of operations in the periods in which 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.they become known. The Company will adoptevaluated events and circumstances as of March 31, 2020 and determined that it was not more likely than not that impairment existed as of that date. The Company recorded 0 impairments of goodwill during the guidance in 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 applicable 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, the Company does not believe the adoption of ASU 2014-09 will have a significant impact on our financial statements.

three months ended March 31, 2020.


18

2. Supplemental Statement of Cash Flows
Other supplemental cash flow information is presented below:
 Three Months Ended March 31,
 20202019
(in thousands)
Supplemental Disclosures of Cash Flow Information:  
Cash paid for interest$18,489  $14,975  
Cash paid for income taxes2,330  —  
Supplemental Disclosures of Non-Cash Flow Information:  
Setup of ROU asset and lease liability upon adoption of ASC 842$—  $9,380  
Reclassification of deferred offering costs paid in 2018 from other assets to additional paid in capital—  788  
Reclassification of lease intangibles, cease-use liability and deferred rent liability to ROU asset upon adoption of ASC 842—  (48) 
Net foreclosure of other real estate owned and repossessed assets1,725  —  
Non-cash assets acquired in business combination
Investment securities$—  $661,032  
Non-marketable equity securities—  40,287  
Loans held for sale—  9,360  
Loans held for investment—  3,245,492  
Accrued interest receivable—  11,673  
Bank-owned life insurance—  56,841  
Bank premises, furniture and equipment—  39,426  
Investment in trusts—  666  
Intangible assets, net—  65,718  
Goodwill—  206,821  
Other assets  —  12,245  
Right of use asset—  9,373  
Deferred taxes—  11,535  
Current taxes—  1,799  
Assets held for sale—  85,307  
Total assets$—  $4,457,575  
Non-cash liabilities assumed in business combination
Non-interest-bearing deposits$—  $825,364  
Interest-bearing deposits—  1,300,825  
Certificates and other time deposits—  1,346,915  
Accounts payable and accrued expenses
—  26,587  
Lease liability—  9,373  
Accrued interest payable and other liabilities—  5,181  
Securities sold under agreements to repurchase—  3,226  
Advances from Federal Home Loan Bank—  300,000  
Subordinated debentures and subordinated notes—  56,233  
Liabilities held for sale—  52,682  
Total liabilities$—  $3,926,386  

19
  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 payable3. 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. The Board authorized increases of $50,000 on September 3, 2019 and accrued expenses includes accrued preferred$75,000 on December 12, 2019, resulting in an aggregate authorization to purchase up to $175,000 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 December 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 other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. The Stock Buyback Program does not obligate the Company to purchase any share and the program may be terminated or amended by the Board at any time prior to its expiration.

        During the three months ended March 31, 2020, 2,002,211 shares were repurchased through the Stock Buyback Program and held as treasury stock dividendsat an average price of $185.

$24.78. During the three months ended March 31, 2019, 316,600 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $24.42.


3. Investment
4. Securities
Equity Securities With a Readily Determinable Fair Value
The Company held equity securities with a fair value of $15,373 and $11,122 at March 31, 2020 and December 31, 2019, respectively. The Company had 0 realized gains or losses on equity securities with a readily determinable fair value during the three months ended March 31, 2020 and 2019. The gross unrealized (loss) gain recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s condensed consolidated statements of income were as follows:
Three Months Ended March 31,
20202019
Unrealized (loss) gain recognized on equity securities with a readily determinable fair value$(249) $136  
Equity Securities Without a Readily Determinable Fair Value
The Company held equity securities without a readily determinable fair values and measured at cost of $3,575 and $3,575 at March 31, 2020 and December 31, 2019, respectively.
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:
 March 31, 2020
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair Value
Available for sale
Corporate bonds$107,802  $4,592  $298  $—  $112,096  
Municipal securities97,945  5,332  246  —  103,031  
Mortgage-backed securities313,077  19,020  —  —  332,097  
Collateralized mortgage obligations450,490  18,700  300  —  468,890  
Asset-backed securities64,927  3,921  —  —  68,848  
 $1,034,241  $51,565  $844  $—  $1,084,962  


20

  September 30, 2017
  Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
Available for Sale        
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
  $204,884
 $898
 $994
 $204,788
March 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAllowance for Credit Losses
Held to maturity
Mortgage-backed securities$8,589  $783  $—  $9,372  $—  
Collateralized mortgage obligations1,784  152  —  1,936  —  
Municipal securities22,469  1,736  —  24,205  —  
$32,842  $2,671  $—  $35,513  $—  

The Company did not transfer any securities from available for sale to held to maturity at fair value during the three months ended March 31, 2020.
December 31, 2019
 December 31, 2016 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Available for saleAvailable for sale
 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
Available for Sale        
U.S. government agencies $732
 $—
 $36
 $696
Corporate bondsCorporate bonds$76,997  $1,974  $—  $78,971  
Municipal securities 14,540
 2
 500
 14,042
Municipal securities74,956  3,724  —  78,680  
Mortgage-backed securities 49,907
 83
 871
 49,119
Mortgage-backed securities288,938  9,512  260  298,190  
Collateralized mortgage obligations 38,507
 32
 612
 37,927
Collateralized mortgage obligations431,276  6,465  1,503  436,238  
Asset-backed securities 764
 11
 —
 775
Asset-backed securities69,964  2,322  —  72,286  
 $104,450
 $128
 $2,019
 $102,559
 $942,131  $23,997  $1,763  $964,365  
Held to maturityHeld to maturity
Mortgage-backed securitiesMortgage-backed securities$8,621  $452  $—  $9,073  
Collateralized mortgage obligationsCollateralized mortgage obligations1,809  43  —  1,852  
Municipal securitiesMunicipal securities22,535  1,350  —  23,885  
$32,965  $1,845  $—  $34,810  

The following tables disclose the Company’s available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities that have been in a continuous loss position:
 March 31, 2020
 Less Than 12 Months12 Months or MoreTotals
 Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available for sale
Corporate bonds$14,134  $298  $—  $—  $14,134  $298  
Municipal securities17,120  246  —  —  17,120  246  
Mortgage-backed securities24,425  300  —  —  24,425  300  
 $55,679  $844  $—  $—  $55,679  $844  

21

 December 31, 2019
 Less Than 12 Months12 Months or MoreTotals
 FairUnrealizedFairUnrealizedFairUnrealized
 ValueLossValueLossValueLoss
Available for sale
Municipal securities$468  $1  $—  $—  $468  $1  
Mortgage-backed securities28,883  370  —  —  28,883  370  
Collateralized mortgage obligations109,749  1,392  —  —  109,749  1,392  
 $139,100  $1,763  $—  $—  $139,100  $1,763  

Management evaluates available for sale debt securities in unrealized loss position forpositions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than 12 monthscost, (2) the financial condition and those that have beennear-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a continuous unrealized loss positionperiod of time sufficient to allow for 12 or more months:
  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


  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

any anticipated recovery in fair value.
The number of investment positionsavailable for sale debt securities in an unrealized loss position totaled 7910 and 7211 at September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The Company does not believe these unrealized losses are “other than temporary” as (i) the CompanyManagement does not have the intent to sell investmentany of these securities prior to recovery and (ii)believes that it is more likely than not that the Company will not have to sell theseany such securities priorbefore a recovery of cost. The fair value is expected to recovery. Therecover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of March 31, 2020, management believes that the unrealized losses noteddetailed in the previous table are interest rate related due to the level ofnoncredit-related factors, including changes in interest rates at September 30, 2017. The Company has reviewedand other market conditions, and therefore no losses have been recognized in the ratingsCompany’s condensed consolidated statements of the issuers and has not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities.income.
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 prepaymentsprepayment 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 termterms of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities thus approximates the termterms of the underlying mortgages and loans and can vary significantly due to prepayments. Therefore, these securities are not included in the maturity categories below.
.
March 31, 2020
Available for SaleHeld to Maturity
Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Due in one year or less$—  $—  $—  $—  
Due from one year to five years4,912  5,042  —  —  
Due from five years to ten years105,390  109,583  2,833  2,974  
Due after ten years95,445  100,502  19,636  21,231  
205,747  215,127  22,469  24,205  
Mortgage-backed securities and collateralized mortgage obligations763,567  800,987  10,373  11,308  
Asset-backed securities64,927  68,848  —  —  
$1,034,241  $1,084,962  $32,842  $35,513  

22

��September 30, 2017December 31, 2019
 Available For SaleAvailable for SaleHeld to Maturity
 Amortized
Cost		 Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Due in one year or less $—
 $—
Due in one year or less$—  $—  $—  $—  
Due from one year to five years 27,145
 27,649
Due from one year to five years4,904  5,100  —  —  
Due from five years to ten years 24,408
 24,432
Due from five years to ten years74,596  76,403  1,204  1,219  
Due after ten years 19,166
 19,177
Due after ten years72,453  76,148  21,331  22,666  
 70,719
 71,258
151,953  157,651  22,535  23,885  
Mortgage-backed securities 81,454
 81,105
Collateralized mortgage obligations 52,062
 51,766
Mortgage-backed securities and collateralized mortgage obligationsMortgage-backed securities and collateralized mortgage obligations720,214  734,428  10,430  10,925  
Asset-backed securities 649
 659
Asset-backed securities69,964  72,286  —  —  
 $204,884
 $204,788
$942,131  $964,365  $32,965  $34,810  


  December 31, 2016
  Available For Sale
  Amortized
Cost		 Fair
Value
Due in one year or less $—
 $—
Due from one year to five years 4,009
 3,974
Due from five years to ten years 3,522
 3,346
Due after ten years 7,741
 7,418
  15,272
 14,738
Mortgage-backed securities 49,907
 49,119
Collateralized mortgage obligations 38,507
 37,927
Asset-backed securities 764
 775
  $104,450
 $102,559

Proceeds from sales of investmentdebt securities available for sale and gross gains and losses for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 were as follows:
 Three Months Ended March 31,
 20202019
Proceeds from sales$—  $108,865  
Gross realized gains—  1  
Gross realized losses—  772  
  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        As of March 31, 2020 and December 31, 2019, there were no gross gains from callsholdings of investment securities includedof any one issuer, other than the U.S. government and its agencies, in gain on salean amount greater than 10% 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.

shareholders' equity. There was a blanket floating lien on all debt securities held by the Company to secure Federal Home Loan Bank (“FHLB”) advances as of September 30, 2017March 31, 2020 and December 31, 2016.2019.


4.5. Loans and Allowance for LoanCredit Losses
Loans Held for Investment
Loans held for investment in the accompanying condensed consolidated balance sheets are summarized as follows:
 March 31, 2020December 31, 2019
Loans held for investment:
Real estate:        
Construction and land$566,470  $629,374  
Farmland14,930  16,939  
1 - 4 family residential536,892  549,811  
Multi-family residential388,374  320,041  
OOCRE723,839  706,782  
NOOCRE1,828,386  1,784,201  
Commercial1,777,603  1,712,838  
Mortgage warehouse371,161  183,628  
Consumer15,771  17,457  
6,223,426  5,921,071  
Deferred loan costs, net1,470  134  
Allowance for credit losses(100,983) (29,834) 
Total loans held for investment$6,123,913  $5,891,371  
23
  September 30,
2017		 December 31,
2016
Real estate:    
Construction and land $276,670
 $162,614
Farmland 6,572
 8,262
1 - 4 family residential 185,473
 140,137
Multi-family residential 54,475
 14,683
Commercial Real Estate 802,432
 370,696
Commercial 577,758
 291,416
Consumer 4,129
 4,089
  1,907,509
 991,897
Deferred loan fees (28) (55)
Allowance for loan losses (10,492) (8,524)
  $1,896,989
 $983,318

Included in the net loan portfolio as of September 30, 2017March 31, 2020 and December 31, 2016 is2019 was an accretable discount related to purchased performing and PCD loans, previously called PCI loans prior to the Company’s adoption of ASU 2016-13, acquired within a business combination in the approximate amounts of $6,432$25,167 and $566,$57,811, respectively. The discount is being accreted into income using the interest methodon a level-yield basis over the life of the loans.


For the three months ended March 31, 2020 and 2019, the Company recognized $3,260 and $4,355, respectively, of accretion on non-PCD loans into interest income. For the three months ended March 31, 2020 and 2019, the Company recognized $1,060 and $2,545, respectively, of accretion on PCD/PCI loans into interest income. In addition, included in the net loan portfolio as of March 31, 2020 and December 31, 2019 is a discount on retained loans from sale of originated SBA loans of $2,264 and $2,193, respectively.
The majority of the Company’s loan portfolio is comprisedconsists 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.ACL. Management believes the allowance for loan lossesACL was adequate to cover estimated losses on loans as of September 30, 2017March 31, 2020 and December 31, 2016.2019.
Allowance for Credit Losses
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The activity in the ACL related to loans held for investment is as follows:
 Three Months Ended March 31, 2020
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of year$3,822  $61  $1,378  $1,965  $1,978  $8,139  $12,369  $122  $29,834  
Impact of adopting ASC 326 non-PCD loans(707) 4  3,716  628  3,406  5,138  7,025  217  19,427  
Impact of adoption ASC 326 PCD loans645  —  908  —  7,682  2,037  8,335  103  19,710  
Credit loss expense non-PCD loans2,965  (7) 2,488  2,306  918  9,955  10,226  (15) 28,836  
Credit loss expense PCD loans113  —  (173) —  2,477  412  126  (15) 2,940  
Charge-offs—  —  —  —  —  —  —  (68) (68) 
Recoveries—  —  1  —  —  —  29  274  304  
Ending Balance$6,838  0$58  $8,318  $4,899  $16,461  $25,681  $38,110  $618  $100,983  


 Three Months Ended March 31, 2019
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialConsumerTotal
Balance at beginning of year$2,188  $56  $1,614  $361  $1,393  $5,070  $8,554  $19  $19,255  
Credit Loss Expense501  6  (5) (80) 124  626  3,785  55  5,012  
Charge-offs—  —  —  —  —  —  (2,654) (74) (2,728) 
Recoveries—  —  8  —  —  —  10  46  64  
Ending Balance$2,689  $62  $1,617  $281  $1,517  $5,696  $9,695  $46  $21,603  


24

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of March 31, 2020:



 
Business Assets1
Real Property1
ACL Allocation
Real estate:            
Construction and land$785  $—  $93  
1 - 4 family residential—  594  13  
OOCRE—  3,927  —  
NOOCRE—  18,904  —  
Commercial13,647  —  5,815  
Consumer56  —  —  
Total$14,488  $23,425  $5,921  
1 Loans reported exclude PCD loans that transitioned upon adoption of ASC 326. Refer to Note 1 for further discussion.


The following table presents loans individually and collectively evaluated for impairment, as well as PCD loans, and their respective allowance for credit loss allocations as of December 31, 2019, as determined in accordance with ASC 310 prior to the Company’s adoption of ASU 2016-13:
 December 31, 2019
 Real Estate   
 Construction,
Land and
Farmland		ResidentialCommercial Real EstateCommercialConsumerTotal
Loans individually evaluated for impairment$567  $156  $21,644  $5,188  $61  $27,616  
Loans collectively evaluated for impairment641,799  865,927  2,372,485  1,869,259  17,267  5,766,737  
PCD loans3,947  3,769  96,854  22,019  129  126,718  
Total$646,313  $869,852  $2,490,983  $1,896,466  $17,457  $5,921,071  
ACL Allocations
Loans individually evaluated for impairment$128  $37  $395  $1,042  $—  $1,602  
Loans collectively evaluated for impairment3,755  3,306  9,702  10,754  122  27,639  
PCD loans—  —  20  573  —  593  
Total$3,883  $3,343  $10,117  $12,369  $122  $29,834  

25

The following table presents information on impaired loans as of December 31, 2019, as determined in accordance with ASC 310 prior to the Company’s adoption of ASU 2016-13: 
 
December 31, 2019(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$567  $—  $567  $567  $128  $1,793  
Farmland—  —  —  —  —  —  
1 - 4 family residential156  —  156  156  37  158  
Multi-family residential—  —  —  —  —  —  
Commercial real estate21,644  21,040  604  21,644  395  22,529  
Commercial5,188  2,011  3,177  5,188  1,042  8,546  
Consumer61  61  —  61  —  62  
Total$27,616  $23,112  $4,504  $27,616  $1,602  $33,088  
(1) Loans reported exclude PCI loans.

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.due in accordance with the terms of the loan agreement.. 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 theinterest 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, 2017March 31, 2020 and December 31, 2016, are2019, were as follows:
 March 31, 2020December 31, 2019
NonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACL
Real estate:        
Construction and land$785  $—  $567  $—  
Farmland—  —  —  —  
1 - 4 family residential912  912  1,581  1,581  
Multi-family residential—  —  —  —  
OOCRE3,794  3,794  3,029  2,778  
NOOCRE18,876  18,876  18,876  18,876  
Commercial14,395  2,852  5,672  2,747  
Mortgage warehouse—  —  —  —  
Consumer74  74  54  54  
Total$38,836  $26,508  $29,779  $26,036  
  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
        There were 0 PCD loans included in non-accrual loans at March 31, 2020 and December 31, 2019.
(1) Excludes purchased credit impaired (“PCI”)        During the three months ended March 31, 2020, interest income not recognized on non-accrual loans measured at fair value at September 30, 2017.was $173. During the three months ended March 31, 2019, interest income not recognized on non-accrual loans, excluding PCI loans, are generally reported as accrual loans unless significant concerns exist related to the predictability of the timing and amount of future cash flows. The fair value on these PCI loans are subject to change based on management finalizing its purchase accounting adjustments.was $151.

26

An agingage analysis of past due loans, aggregated by class of loans, as of September 30, 2017March 31, 2020 and December 31, 20162019, is as follows:

 September 30, 2017 March 31, 2020
 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 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
Real estate:                                   Real estate:                            
Construction and land $—
 $—
 $—
 $—
 $276,670
 $276,670
 $—
Construction and land$327  $1,322  $—  $1,649  $559,216  $5,605  $566,470  $—  
Farmland —
 —
 —
 —
 6,572
 6,572
 —
Farmland—  —  —  —  14,930  —  14,930  —  
1 - 4 family residential 366
 —
 54
 420
 185,053
 185,473
 54
1 - 4 family residential4,400  62  210  4,672  527,410  4,810  536,892  210  
Multi-family residential —
 —
 —
 —
 54,475
 54,475
 —
Multi-family residential—  —  —  —  388,374  —  388,374  —  
Commercial Real Estate 66
 —
 727
 793
 801,639
 802,432
 —
OOCREOOCRE1,471  1  1,992  3,464  720,375  63,182  723,839  1,992  
NOOCRENOOCRE3,773  —  —  3,773  1,771,909  52,704  1,828,386  —  
Commercial 2,138
 447
 1,037
 3,622
 574,136
 577,758
 

Commercial16,433  1,295  2,545  20,273  1,727,278  30,052  1,777,603  2,545  
Mortgage warehouseMortgage warehouse—  —  —  —  371,161  —  371,161  —  
Consumer 27
 15
 6
 48
 4,081
 4,129
 —
Consumer135  4  17  156  15,386  229  15,771  17  
 $2,597
 $462
 $1,824
 $4,883
 $1,902,626
 $1,907,509
 $54
TotalTotal$26,539  $2,684  $4,764  $33,987  $6,096,039  $156,582  $6,223,426  $4,764  
(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$68,325 of PCIPCD loans as of September 30, 2017. No PCI loans were considered non-performingMarch 31, 2020 that transitioned upon adoption of ASC 326. Refer to Note 1 for further discussion.

 December 31, 2019
 30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentPCDTotal
Loans
Total 90 Days Past Due and Still Accruing(1)
Real estate:                            
Construction and land$—  $—  $—  $—  $629,374  $3,947  $629,374  $800  
Farmland—  —  —  —  16,939  —  16,939  —  
1 - 4 family residential2,595  520  1,155  4,270  541,772  3,769  549,811  959  
Multi-family residential—  —  —  —  320,041  —  320,041  —  
Commercial real estate12  3,834  868  4,714  2,389,415  96,854  2,490,983  511  
Commercial3,572  1,707  1,497  6,776  1,684,043  22,019  1,712,838  1,317  
Mortgage warehouse—  —  —  —  183,628  —  183,628  —  
Consumer30  2,641  140  2,811  14,646  129  17,457  73  
Total$6,209  $8,702  $3,660  $18,571  $5,779,858  $126,718  $5,921,071  $3,660  
(1) Loans 90 days past due and still accruing excludes $41,328 of PCD loans as of September 30, 2017.December 31, 2019.



  December 31, 2016
  30 to 59 Days 60 to 89 Days 90 Days or Greater Total Past Due Total Current Total
Loans		 Total 90 Days Past Due and Still Accruing
Real estate:              
Construction and land $1,047
 $—
 $—
 $1,047
 $161,567
 $162,614
 $—
Farmland —
 —
 —
 —
 8,262
 8,262
 —
1 - 4 family residential 510
 214
 —
 724
 139,413
 140,137
 —
Multi-family residential —
 —
 —
 —
 14,683
 14,683
 —
Commercial Real Estate —
 —
 754
 754
 369,942
 370,696
 754
Commercial 1,344
 438
 532
 2,314
 289,102
 291,416
 81
Consumer 41
 —
 —
 41
 4,048
 4,089
 —
  $2,942
 $652
 $1,286
 $4,880
 $987,017
 $991,897
 $835


Loans past due 90 days and still accruing decreased from $835increased to $4,764 as of DecemberMarch 31, 2016 to $54 as of September 30, 2017.2020. 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
Impaired loans are those loans where 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; the loan’s observable market 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 TDRs, at September 30, 2017 and December 31, 2016 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.



  December 31, 2016
  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 164
 164
 —
 164
 —
 265
Multi-family residential —
 —
 —
 —
 —
 —
Commercial Real Estate 382
 382
 —
 382
 —
 440
Commercial 955
 381
 574
 955
 246
 463
Consumer 92
 81
 11
 92
 4
 12
Total $1,593
 $1,008
 $585
 $1,593
 $250
 $1,180

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$3,142 and $822$2,142 as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
There were no loans restructured during
27

        The following table presents the nine months ended September 30, 2017pre- and two loans restructured during the nine months ended September 30, 2016. The termspost-modification amortized cost of certain loansloan modified as TDRs during the ninethree 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 restructuredMarch 31, 2020. There were 0 new TDRs during the ninethree 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 loans that were modified during the nine months ended September 30, 2016.March 31, 2019. The Company did not grant principal reductions or interest rate concessions on any TDRs.



 Extended Amortization PeriodPayment DeferralsTotal ModificationsNumber of Loans
Commercial$—  $970  $970  1  
Total$—  $970  $970  $1  

There were no0 loans modified as TDR loans within the previous 12 months and for which there was a payment default during the ninethree months ended September 30, 2017March 31, 2020 and 2016.2019. 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 months ended March 31, 2020 and 2019 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, 2017March 31, 2020 or December 31, 2016.2019.
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 loansLoans 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 believedfelt 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 impairedPCD are those that, at acquisition date, had the characteristicshave experienced a more-than-insignificant deterioration in credit quality since origination. All loans considered to be PCI loans prior to January 1, 2020 were converted to PCD loans upon adoption of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected.ASC 326. The Company evaluateselected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are foreclosed, written off, paid off, or sold.
28

The Company considers the guidance in ASC 310-20 when determining whether a modification, extension or renewal of a loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. Based on the most recent analysis performed, the risk category of loans by class of loans based on a projected cash flow basis with this evaluation performed quarterly.year or origination is as follows:   

 Term Loans Amortized Cost Basis by Origination Year
 20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of March 31, 2020
Construction and land:
Pass$10,095  $183,309  $245,362  $37,572  $13,121  $22,578  $42,786  $—  $554,823  
Special mention—  —  —  —  —  3,935  —  —  3,935  
Substandard—  —  855  785  467  —  —  —  2,107  
PCD—  —  476  995  938  3,196  —  —  5,605  
Total construction and land$10,095  $183,309  $246,693  $39,352  $14,526  $29,709  $42,786  $—  $566,470  
Farmland:
Pass$290  $1,004  $3,367  $4,415  $—  $4,470  $1,384  $—  $14,930  
Total farmland$290  $1,004  $3,367  $4,415  $—  $4,470  $1,384  $—  $14,930  
1 - 4 family residential:
Pass$16,974  $95,380  $118,905  $75,229  $41,458  $148,332  $29,490  $3,056  $528,824  
Special mention—  —  155  119  —  552  —  —  826  
Substandard—  —  —  103  629  1,700  —  —  2,432  
PCD—  —  —  —  —  4,810  —  —  4,810  
Total 1 - 4 family residential$16,974  $95,380  $119,060  $75,451  $42,087  $155,394  $29,490  $3,056  $536,892  
Multi-family residential:
Pass$—  $113,249  $172,526  $32,779  $43,606  $8,931  $219  $—  $371,310  
Special mention—  17,064  —  —  —  —  —  —  17,064  
Total multi-family residential$—  $130,313  $172,526  $32,779  $43,606  $8,931  $219  $—  $388,374  
OOCRE:
Pass$19,057  $60,032  $108,442  $85,128  $123,511  $226,995  $1,632  $7,411  $632,208  
Special mention—  —  4,296  92  4,176  4,869  —  —  13,433  
Substandard—  —  1,664  2,692  8,109  2,551  —  —  15,016  
PCD—  —  9,788  —  7,978  45,416  —  —  63,182  
Total commercial real estate$19,057  $60,032  $124,190  $87,912  $143,774  $279,831  $1,632  $7,411  $723,839  
NOOCRE:
Pass$135,824  $311,588  $522,931  $116,413  $231,653  $405,536  $27,677  $—  $1,751,622  
Special mention—  —  —  —  —  5,184  —  —  5,184  
Substandard—  —  —  —  —  18,876  —  —  18,876  
PCD—  —  18,655  —  6,756  27,293  —  —  52,704  
Total commercial real estate$135,824  $311,588  $541,586  $116,413  $238,409  $456,889  $27,677  $—  $1,828,386  

29

Commercial:
Pass$62,944  $208,011  $201,677  $115,757  $31,351  $47,577  $1,024,341  $18,252  $1,709,910  
Special mention67  1,440  9,924  233  174  1,852  —  5,961  19,651  
Substandard—  —  3,729  3,883  7,347  2,839  —  192  17,990  
PCD—  —  —  5,040  3,689  21,323  —  —  30,052  
Total commercial$63,011  $209,451  $215,330  $124,913  $42,561  $73,591  $1,024,341  $24,405  $1,777,603  
Mortgage warehouse:
Pass$—  $—  $—  $—  $—  $—  $371,161  $—  $371,161  
Total mortgage warehouse$—  $—  $—  $—  $—  $—  $371,161  $—  $371,161  
Consumer:
Pass$1,986  $2,079  $1,620  $4,896  $952  $733  $3,136  $—  $15,402  
Substandard—  —  —  18  —  122  —  —  140  
PCD—  —  —  41  —  188  —  —  229  
Total consumer$1,986  $2,079  $1,620  $4,955  $952  $1,043  $3,136  $—  $15,771  
Total Pass$247,170  $974,652  $1,374,830  $472,189  $485,652  $865,152  $1,501,826  $28,719  $5,950,190  
Total Special Mention67  18,504  14,375  444  4,350  16,392  —  5,961  60,093  
Total Substandard—  —  6,248  7,481  16,552  26,088  —  192  56,561  
Total PCD—  —  28,919  6,076  19,361  102,226  —  —  156,582  
Total$247,237  $993,156  $1,424,372  $486,190  $525,915  $1,009,858  $1,501,826  $34,872  $6,223,426  

The following tables summarizetable summarizes the Company’s internal ratings of its loans, including purchased credit impairedPCD loans, as of September 30, 2017 and December 31, 2016:                                        2019:

 December 31, 2019
 PassSpecial
Mention		SubstandardDoubtfulPCDTotal
Real estate:
Construction and land$618,773  $3,965  $2,689  $—  $3,947  $629,374  
Farmland16,939  —  —  —  —  16,939  
1 - 4 family residential541,787  795  3,460  —  3,769  549,811  
Multi-family residential320,041  —  —  —  —  320,041  
Commercial real estate2,332,357  23,494  38,278  —  96,854  2,490,983  
Commercial1,610,150  51,999  28,670  —  22,019  1,712,838  
Mortgage warehouse183,628  —  —  —  —  183,628  
Consumer17,106  40  182  —  129,000  17,457  
Total$5,640,781  $80,293  $73,279  $—  $126,718  $5,921,071  
30

  September 30, 2017
  Pass Special
Mention		 Substandard Doubtful 
PCI(1)
 Total
Real estate: 
 
 
 
 
 
Construction and land $276,060
 $610
 $—
 $—
 —
 $276,670
Farmland 6,572
 —
 —
 —
 —
 6,572
1 - 4 family residential 185,216
 —
 257
 —
 —
 185,473
Multi-family residential 54,475
 —
 —
 —
 —
 54,475
Commercial Real Estate 775,129
 8,142
 13,403
 —
 5,758
 802,432
Commercial 528,803
 16,328
 6,065
 116
 26,446
 577,758
Consumer 4,043
 —
 86
 —
 —
 4,129
Total $1,830,298
 $25,080
 $19,811
 $116
 $32,204
 $1,907,509

(1) Management is continuingPurchased Credit Impaired Loans (Prior to evaluate the fair valueAdoption of SovereignASU 2016-13)
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 fair value on thesecarrying amount of PCI loans included in the condensed consolidated balance sheets and the related outstanding balances at December 31, 2019 are subject to change based on management finalizing its purchase accounting adjustments.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, 2019
Carrying amount$126,125 
Outstanding balance157,417 
  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
An analysis of        Changes in the allowanceaccretable yield for loan lossesPCI loans for the ninethree months ended September 30, 2017 and 2016 and yearMarch 31, 2019 are included in table below.
Three Months Ended
March 31, 2019
Balance at beginning of period$18,747 
Additions18,073 
Reclassifications (to) from nonaccretable(413)
Accretion(2,545)
Balance at end of period$33,862 
        During the three months ended DecemberMarch 31, 2016 is as follows:
  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
The allowance for loan losses as a percentage2019, the Company received cash collections in excess of total loans was 0.55%,  0.86% and 0.87% as of September 30, 2017, December 31, 2016, and September 30, 2016, respectively.


The following tables summarize the activity in the allowance for loan losses by portfolio segment for the periods indicated:
  For the Nine Months Ended September 30, 2017
  Real Estate      
  Construction,
Land and
Farmland		 Residential Commercial Real Estate Commercial Consumer Total
Balance at beginning of period $1,415
 $1,116
 $3,003
 $2,955
 $35
 $8,524
Provision (recapture) charged to earnings (252) 415
 973
 1,462
 (13) 2,585
Charge-offs —
 (11) —
 (611) —
 (622)
Recoveries —
 —
 —
 5
 —
 5
Net charge-offs (recoveries) —
 (11) —
 (606) —
 (617)
Balance at end of period $1,163
 $1,520
 $3,976
 $3,811
 $22
 $10,492
Period-end amount allocated to:            
  Specific reserves:            
Impaired loans $—
 $—
 $—
 $156
 $—
 $156
Total specific reserves —
 —
 —
 156
 —
 156
  General reserves 1,163
 1,520
 3,976
 3,655
 22
 10,336
Total $1,163
 $1,520
 $3,976
 $3,811
 $22
 $10,492

  For the Year Ended December 31, 2016
  Real Estate      
  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
Provision (recapture) charged to earnings 311
 (8) 814
 913
 20
 2,050
Charge-offs —
 —
 —
 (314) (19) (333)
Recoveries —
 —
 —
 32
 3
 35
Net charge-offs (recoveries) —
 —
 —
 (282) (16) (298)
Balance at end of period $1,415
 $1,116
 $3,003
 $2,955
 $35
 $8,524
Period-end amount allocated to:            
  Specific reserves:            
Impaired loans $—
 $—
 $—
 $246
 $4
 $250
Total specific reserves —
 —
 —
 246
 4
 250
  General reserves 1,415
 1,116
 3,003
 2,709
 31
 8,274
Total $1,415
 $1,116
 $3,003
 $2,955
 $35
 $8,524



  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 and December 31, 2016 related to the balance in the allowance for loan losses on the basis of the Company’s impairment methodology is as follows:
  September 30, 2017
  Real Estate      
  Construction,
Land and
Farmland		 Residential Commercial Real Estate Commercial Consumer Total
Loans individually evaluated for impairment $—

$162

$1,169

$1,071

$83

$2,485
Loans collectively evaluated for impairment 283,242

239,786

795,505

550,241

4,046

$1,872,820
PCI loans —

—

5,758

26,446

—

32,204
Total $283,242

$239,948

$802,432

$577,758

$4,129

$1,907,509

  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
The Company has acquired certain loans which experienced credit deterioration since origination which are PCI loans. Accretionexpected cash flows on PCI loans is based on estimated future cash flows, regardlessaccounted for individually and not aggregated into loan pools of contractual maturity.


$390.
Servicing Assets
At September 30, 2017, theThe Company was servicing loans of approximately $70,392.$211,941 and $228,638 as of March 31, 2020 and 2019, respectively. A summary of the changes in the related servicing assets are as follows:
Three Months Ended March 31,
 Nine Months Ended September 30, 20202019
 2017 2016
Balance at beginning of year $601
 $426
Balance at beginning of periodBalance at beginning of period$3,113  $1,304  
Servicing asset acquired through acquisition 454
 —
Servicing asset acquired through acquisition—  2,382  
Increase from loan sales 273
 231
Increase from loan sales109  461  
Amortization charged to income (130) (81)Amortization charged to income(232) (175) 
Balance at end of period $1,198
 $576
Balance at end of period$2,990  $3,972  
The estimated fair value of the servicing assets approximated the carrying amount at September 30, 2017,March 31, 2020, December 31, 2016,2019 and September 30, 2016.March 31, 2019. 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, 2017March 31, 2020 and December 31, 2016.2019.

5. Income Taxes
31
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.
6. Commitments and Contingencies
Litigation
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, 2017March 31, 2020 and December 31, 2016,2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 March 31, 2020
 Level 1
Inputs		Level 2
Inputs		Level 3
Inputs		Total
Fair Value
Financial Assets:
Available for sale securities$—  $1,084,962  $—  $1,084,962  
Equity securities with a readily determinable fair value15,373  —  —  15,373  
Loans held for sale(1)
—  15,048  —  15,048  
Interest rate swaps designated as hedging instruments—  —  —  —  
Customer interest rate swaps not designated as hedging instruments—  14,654  —  14,654  
Correspondent interest rate caps and collars not designated as hedging instruments—  7  —  7  
Financial Liabilities:
Interest rate swaps designated as hedging instruments—  1,903  —  1,903  
Correspondent interest rate swaps not designated as hedging instruments—  15,743  —  15,743  
Customer interest rate caps and collars not designated as hedging instruments—  7  —  7  
  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
 $—
 $102,559
(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.
 December 31, 2019
 Level 1
Inputs		Level 2
Inputs		Level 3
Inputs		Total
Fair Value
Financial Assets:
Available for sale securities$—  $964,365  $—  $964,365  
Equity securities with a readily determinable fair value11,122  —  —  11,122  
Loans held for sale(1)
—  10,068  —  10,068  
Correspondent interest rate swaps—  105  —  105  
Customer interest rate swaps—  4,393  —  4,393  
Correspondent interest rate caps and collars—  11  —  11  
Commercial loan interest rate floor—  3,353  —  3,353  
Financial Liabilities:
Correspondent interest rate swaps—  4,736  —  4,736  
Customer interest rate swaps—  84  —  84  
Customer interest rate caps and collars—  11  —  11  
(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.
There were no liabilities measured at fair value on a recurring basis as of September 30, 2017 or December 31, 2016.
There were no0 transfers between Level 2 and Level 3 during the ninethree months ended September 30, 2017March 31, 2020 and 2016.2019.
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).
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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, 2017March 31, 2020 and December 31, 2016,2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Fair Value
Measurements Using		 
 Fair Value
Measurements Using		   Level 1
Inputs		Level 2
Inputs		Level 3
Inputs		Total
Fair Value
 Level 1
Inputs		 Level 2
Inputs		 Level 3
Inputs		 Total
Fair Value
As of September 30, 2017                    
As of March 31, 2020As of March 31, 2020                
Assets: Assets:    
Collateral dependent loansCollateral dependent loans$—  $—  $12,370  $12,370  
Other real estate ownedOther real estate owned—  —  7,720  7,720  
As of December 31, 2019As of December 31, 2019    
Assets:         Assets:    
Impaired loans $—
 $—
 $2,329
 $2,329
Impaired loans—  —  4,504  4,504  
As of December 31, 2016        
Assets:        
Impaired loans $—
 $—
 $1,343
 $1,343
Other real estate ownedOther real estate owned—  —  5,995  5,995  
At September 30, 2017,March 31, 2020, collateral dependent loans with an allowance had a recorded investment of $12,370, with $5,921 specific allowance for credit loss allocated. At December 31, 2019, impaired loans had a carrying value of $2,485,$4,504, with $156$1,602 specific allowance for loancredit loss allocated.
AtOther real estate owned consisted of 5 properties recorded with a fair value of approximately $7,720 at March 31, 2020. Other real estate owned consisted of 4 properties recorded with a fair value of approximately $5,995 at December 31, 2016, impaired loans had a carrying value of $1,593, with $250 specific allowance for loan loss allocated.2019.
There were no0 liabilities measured at fair value on a non-recurring basis as of September 30, 2017March 31, 2020 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%
2019.
Fair Value of Financial Instruments
The Company is required under current authoritative guidance to disclose the estimatedCompany’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 ofin 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 in an exchange transaction.
The estimated fair value amounts of financial instruments have been determined byAnnual Report on Form 10-K for the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required 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:  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 terms to borrowers 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 at September 30, 2017 andyear ended December 31, 2016. Fair value is estimated by discounting estimated future cash flows from2019, with the servicing assets using discount rates that approximate current market rates over the expected livesexception 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.
Non-marketable equity securities: The carrying value of restricted securities such as stocksold under agreements to repurchase. Please refer to Note 17 in the Federal Home Loan Bank of Dallas and Independent Bankers Financial Corporation approximates fair value.Company’s Annual Report on Form 10-K for information on these methods.
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.
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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, 2017March 31, 2020 and December 31, 20162019 were as follows:
Fair Value
Carrying
Amount		Level 1Level 2Level 3
March 31, 2020
Financial assets:
Cash and cash equivalents$430,842  $—  $430,842  $—  
Held to maturity investments32,842  —  35,512  —  
Loans held for sale15,048  —  15,048  —  
Loans held for investment, mortgage warehouse371,161  —  —  373,759  
Loans held for investment5,853,735  —  —  5,799,072  
Accrued interest receivable22,059  —  22,059  —  
Bank-owned life insurance81,395  —  81,395  —  
Servicing asset2,991  —  2,991  —  
Equity securities without a readily determinable fair value3,575  N/A  N/A  N/A  
Federal Home Loan Bank and Federal Reserve Bank stock92,809  N/A  N/A  N/A  
Financial liabilities:
Deposits$5,799,945  $—  $5,783,125  $—  
Advances from FHLB1,377,832  —  1,129,409  —  
Accrued interest payable7,881  —  7,881  —  
Subordinated debentures and subordinated notes140,406  —  140,406  —  
Securities sold under agreement to repurchase2,426  —  2,426  —  
December 31, 2019
Financial assets:
Cash and cash equivalents$251,550  $—  $251,550  $—  
Held to maturity investments32,965  —  34,810  —  
Loans held for sale14,080  —  14,080  —  
Loans held for investment, mortgage warehouse183,628  —  —  185,060  
Loans held for investment5,737,577  —  —  5,714,885  
Accrued interest receivable19,508  —  19,508  —  
Bank-owned life insurance80,915  —  80,915  —  
Servicing asset3,113  —  3,113  —  
Equity securities without a readily determinable fair value3,575  N/A  N/A  N/A  
Federal Home Loan Bank and Federal Reserve Bank stock68,348  N/A  N/A  N/A  
Financial liabilities:
Deposits$5,894,350  $—  $5,692,217  $—  
Advances from FHLB677,870  —  708,692  —  
Accrued interest payable5,893  —  5,893  —  
Subordinated debentures and subordinated notes145,571  —  145,571  —  
Other borrowings2,353  —  2,353  —  

34
  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 other liabilities 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 condensed 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 March 31, 2020 and December 31, 2019 are as shown in the table below.


 March 31, 2020December 31, 2019
  Estimated Fair Value Estimated Fair Value
 Notional
Amount		Derivative AssetsDerivative LiabilitiesNotional
Amount		Derivative AssetsDerivative Liabilities
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances$500,000  $4,613  $—  $—  $—  $—  
Interest rate swap on money market deposit account payments250,000—  1,903  —  —  —  
Commercial loan interest rate floor—  —  —  275,000  3,353  —  
Total derivatives designated as hedging instruments750,000  4,613  1,903  275,000  3,353  $—  
Derivatives not designated as hedging instruments:      
Financial institution counterparty:      
Interest rate swaps272,636  —  15,743  222,394  105  4,736  
Interest rate caps and collars72,894  7  —  90,093  11  —  
Commercial customer counterparty:      
Interest rate swaps272,636  14,654  —  222,394  4,393  84  
Interest rate caps and collars72,894  —  7  90,093  —  11  
Total derivatives not designated as hedging instruments691,060  14,661  15,750  624,974  4,509  4,831  
Offsetting derivative assets/liabilities4,620  4,620  (2,895) (2,895) 
Total derivatives$1,441,060  $23,894  $22,273  $899,974  $4,967  $1,936  

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Pre-tax gain (loss) included in the condensed consolidated statements of income and related to derivative instruments for the three months ended March 31, 2020 was as follows. We had no cash flow hedges for the three months ended March 31, 2019.
 For the Three Months Ended
March 31, 2020		For the Three Months Ended
March 31, 2019
 Net Gain recognized in other comprehensive income on derivativeGain reclassified from accumulated other comprehensive income into interest incomeGain recognized in other noninterest incomeNet Gain recognized in other comprehensive income on derivativeGain reclassified from accumulated other comprehensive income into interest incomeGain recognized in other noninterest income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate floor$1,022  $284  $—  $—  $—  $—  
Interest rate swaps2,710  —  —  —  —  —  
Total$3,732  $284  $—  $—  $—  $—  
Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars$—  $—  $501  $—  $—  $250  

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.
In March 2020, the Company entered into an interest rate swap for a notional amount of $500,000 to hedge the variability of cash flow payments attributable to changes in interest rates in regards to forecasted issuances of three-month term debt arrangements every three months from March 2022 through March 2032. These forecasted borrowings can be sourced from an FHLB advance, repurchase agreement, brokered certificate of deposit or some combination.

In March 2020, the Company entered into an interest rate swap for a notional amount of $250,000 to hedge the variability of cash flow payments attributable to changes in interest rates in regards to forecasted money market account borrowings from March 2020 through March 2025.

In May 2019, the Company entered into a $275,000 notional interest rate floor for commercial loans with a two-year term. The interest rate floor had a purchased floor strike of 2.43%. In February 2020, the Company terminated this interest rate floor. The gain resulting from the termination of the interest rate floor will remain in other comprehensive income (loss) and will be accreted into earnings over the remaining period of the former hedging relationship unless the forecasted transaction becomes probable of not occurring.
Interest Rate Swap, Floor, Cap and Collar Agreements Not Designated as Hedging Derivatives
        In order to accommodate the borrowing needs of certain commercial customers, the Company has entered into interest rate swap or cap agreements with those customers. These interest rate derivative contracts effectively allow the Company’s customers to convert a variable rate loan into a fixed rate loan. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on the Company’s results of operations. The fair value amounts are included in other assets and other liabilities.
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The following is a summary of the interest rate swaps, caps and collars outstanding as of March 31, 2020 and December 31, 2019.
 March 31, 2020
 Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:     
Customer interest rate derivatives:     
Interest rate swaps - receive fixed/pay floating$272,636  3.140 - 8.470%LIBOR 1 month + 0% - 5.00%
PRIME H15 - 0.250%		Wtd. Avg.
4.3 years		$(15,743) 
Interest rate caps and collars$72,894  2.500% / 3.100%LIBOR 1 month + 0%Wtd. Avg.
1.7 years		$7  
Correspondent interest rate derivatives:     
Interest rate swaps - pay fixed/receive floating$272,636  3.140 - 8.470%LIBOR 1 month + 0% - 5.00%
PRIME H.15 - 0.250%		Wtd. Avg.
4.3 years		$14,654  
Interest rate caps and collars$72,894  3.000% / 5.000%LIBOR 1 month + 0% - 2.50%Wtd. Avg.
1.7 years		$(7) 
December 31, 2019
Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:
Customer interest rate derivatives:
Interest rate swaps - receive fixed/pay floating$222,394  2.944 - 8.470%LIBOR 1 month + 0% - 5.00%
PRIME H15 - 0.250%		Wtd. Avg.
3.3 years		$(4,632) 
Interest rate caps and collars$90,093  2.430% / 5.800%LIBOR 1 month + 0% - 3.75%Wtd. Avg.
1.5 years		$11  
Correspondent interest rate derivatives:
Interest rate swaps - pay fixed/receive floating$222,394  2.944 - 8.470%LIBOR 1 month + 0% - 5.00%
PRIME H15 - 0.250%		Wtd. Avg.
3.3 years		$4,309  
Interest rate caps and collars$90,093  3.000% / 5.800%LIBOR 1 month + 0% - 3.75%Wtd. Avg.
1.5 years		$(11) 



37

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 thea 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 balanceon-balance sheet instruments.
The following table sets forth the approximate amounts of these financial instruments as of September 30, 2017March 31, 2020 and December 31, 2016:2019:
 September 30, December 31, March 31,December 31,
 2017 2016 20202019
Commitments to extend credit $545,999
 $236,919
Commitments to extend credit$1,607,683  $1,950,350  
Standby and commercial letters of credit 6,417
 6,933
Standby and commercial letters of credit34,529  27,196  
 $552,416
 $243,852
TotalTotal$1,642,212  $1,977,546  
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 essentiallysubstantially the same as that involved in making commitments to extend credit.
AlthoughThe table below presents our financial instruments with off-balance sheet risk, as well as the maximum exposureactivity in the allowance for unfunded commitment credit losses related to lossthose financial instruments. This allowance is the amount of such commitments, management currently anticipates no material losses from such activities.
9. Employee Benefits

Defined Contribution Plan
The Company maintains a retirement savings 401(k) profit sharing plan (“Plan”)recorded in which substantially all employees may participate. The Plan provides for “before tax” employee contributions through salary reductions under section 401(k) of the Internal Revenue Code. The Company may make a discretionary match of employees’ contributions basedaccounts payable and other liabilities on a percentage of salary deferrals and certain discretionary profit sharing contributions. No matching contributions to the Plan were made for the nine months ended September 30, 2017 and 2016.
ESOP
Effective January 1, 2012, the Company adopted the Veritex Community Bank Employee Stock Ownership Plan (“ESOP”) covering all employees that meet certain age and service requirements. Plan assets are held and managed by the Company. Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants. Shares released are allocated to each eligible participant based on the participant’s 401(k) contribution made during that year. Compensation expense is measured based upon the expected amount of the Company’s discretionary contribution that is determined on an annual basis and is accrued ratably over the year. Shares are committed to be released to settle the liability upon formal declaration of the contribution at the end of the year. The number of shares released to settle the liability is based upon fair value of the shares and become outstanding shares for earnings per share computations. The cost of shares issued to the ESOP, but not yet committed to be released, is shown as a reduction of stockholders’ equity. To the extent that the fair value of the ESOP shares differs from the cost of such shares, the difference is charged or credited to stockholders’ equity as additional paid in capital.
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.sheets:
Compensation expense attributed to the ESOP contributions recorded in the accompanying condensed consolidated statements of income for the nine months ended September 30, 2017 and 2016 was approximately $171 and $143, respectively.
 March 31,December 31,
 20202019
Beginning balance for allowance for unfunded commitments$878  $878  
Impact of CECL adoption840  —  
Provision for unfunded commitments3,881  —  
Ending balance of allowance for unfunded commitments$5,599  $878  
The following is a summary of ESOP shares as of September 30, 2017 and December 31, 2016:
38
  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



9. Stock-Based Awards
10. Stock and Incentive Plan
2010 Stock Option and Equity Incentive Plan
In 2010, the Company adopted theVeritex 2010 Stock Option and Equity Incentive Plan (the “2010(“2010 Incentive Plan”), which the Company’s shareholders approved in 2011. The maximum number of shares of common stock that may be issued pursuant to grants or options under the 2010 Incentive Plan is 1,000,000.  The 2010 Incentive Plan is administered by 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 defined in the 2010 Incentive Plan.
The Company may grant either incentiverecognized 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 recognized in the accompanying condensed consolidated statements of income totaled $20 and $62 for the three and nine months ended September 30, 2017 and $29 and $86March 31, 2020. The Company recognized stock compensation expense related to the 2010 Incentive Plan of $2 for the three and nine months ended September 30, 2016, respectively.March 31, 2019.
A summary of option activity under the 2010 Incentive Plan for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, and changes during the periodperiods 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, 2019275,000  $10.12  2.39 years
Exercised(15,000) 10.28  
Outstanding and exercisable at March 31, 2019260,000  $10.12  2.11 years
Outstanding at January 1, 2020257,500  $10.28  1.37 years$4,971  
Exercised(202,500) 10.14  3,691  
Outstanding and exercisable at March 31, 202055,000  $10.77  2.02 years$232  
  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,March 31, 2020, December 31, 20162019 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, DecemberMarch 31, 2016 and September 30, 2016,2019 there was approximately $12, $21 and $28, respectively, of0 unrecognized stock compensation expense related to non-performance-basednon-performance based stock options. The unrecognized compensation expense at September 30, 2017 is expected to be recognized over the remaining weighted average requisite service period of 1.44 years.
A summary of the statusfair value of the Company’s restricted stock unitsoptions exercised under the 2010 Incentive Plan as of September 30, 2017 and 2016, and changes duringfor the nine months then ended is as follows:
  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, December 31, 2016 and September 30, 2016, there was $37,  $90, and $111, respectively, of total unrecognized compensation expense related to nonvested restricted stock units. The unamortized compensation expense as 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 stock options that were exercised during the ninethree months ended September 30, 2017March 31, 2020 and 2016 was $4882019 is presented below:
Fair Value of Options Exercised as of March 31,
 20202019
Non-performance based stock options exercised5,745  390  
2019 Amended Plan and $0, respectively. The fair valueGreen Acquired Omnibus Plans
2020 Grants of Restricted Stock Units
During the three months ending March 31, 2020, the Company granted non-performance-based and performance-based restricted stock units that vested during(“RSUs”) under the nine months ended September 30, 20172019 Amended and 2016 was $26Restated Omnibus Incentive Plan, which amended and $194, respectively.
2014 Omnibus Plan
In September of 2014, the Company adopted an omnibus incentive plan orrestated the 2014 Omnibus Incentive Plan (the “2014(“2019 Amended Plan”), and the Veritex (Green) 2014 Omnibus Equity Incentive Plan (“Veritex (Green) 2014 Plan”). The purposemajority of the 2014 Omnibus Plan isnon-performance-based RSUs granted to alignemployees during the long-term 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 the ninethree months ended September 30, 2017, the Company awarded 37,625 non-performance restricted stock units, 25,522 performance based restricted stock units, and 70,440 non-performance-based stock options under the 2014 Omnibus Plan. During the nine months ended September 30, 2016, the Company awarded 25,060 non-performance based restricted stock units, and 34,190 market condition restricted stock units, and 76,286 non-performance-based stock options under the 2014 Omnibus Plan.

The non-performance options generally vest equally over threeMarch 31, 2020 are subject to “cliff” vesting after 3 years from the grant date. There were also non-performance-based RSUs granted to the Company’s directors that vest in four equal quarterly installments from the grant date.
The performance-based restricted stock unitsRSUs granted in January 2020 are subject to “cliff” vesting, with a vesting date of January 1, 2023, based on a performance period starting on December 31, 2019 and ending on December 31, 2022. The vesting percentage is determined based on the Company’s total shareholder return (“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 RSUs based on the Company’s TSR percentile rank.
39

Vesting %
Below the 24.9th percentile of Peer Group TSR

—%
Within the 25th to 49.9th percentile of Peer Group TSR

50%
Within the 50th the 74.9th percentile of Peer Group TSR



100%
At or above the 75th percentile of Peer Group TSR

150%

        A Monte Carlo simulation was used to estimate the fair value of performance-based RSUs on the grant date that include a market condition based on the Company’s total shareholder returnTSR relative to a market index thatits Peer Group, which determines the eligible number of restricted stock units that may vest equally over a three-year period fromRSUs to vest.
2020 Grant of Stock Options
In January 2020, the date of grant. The non-performance restricted stock units fullyCompany granted non-performance-based options under the 2019 Amended Plan and the Veritex (Green) 2014 Plan, which vest over the requisite service period generally ranging from one to five years.

Stock based compensation expense is measured based upon the fair market value3 years in equal installments on each anniversary 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 granted under the 2014 Omnibus Plan was approximately $102 and $296, respectively. For 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.date.
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.
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 three months ended March 31, 2020:
  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%
Three Months Ended March 31, 2020
Dividend yield2.33% to 2.40%
Expected life5.0 to 6.5 years
Expected volatility27.49% to 28.78%
Risk-free interest rate1.65% to 1.76%
The expected life is based on the amount of time that options grantedbeing valued are expected to beremain outstanding. The dividend yield assumption is based on the Company’s dividend 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.

Stock Compensation Expense and Liability Award Compensation Expense

Stock compensation expense for equity awards under the 2019 Amended Plan was approximately $1,488 for the three months ended March 31, 2020. For the three months ended March 31, 2019, the Company recognized $1,508 in stock compensation expense.
Stock compensation expense for options and RSUs granted under the Veritex (Green) 2014 Plan was approximately $470 and $385 for the three months ended March 31, 2020 and March 31, 2019, respectively.
There was 0 compensation expense for liability-classified awards under the 2019 Amended Plan during the three months ended March 31, 2020. Compensation expense for liability-classified awards was $708 for the three months ended March 31, 2019.
40

2019 Amended Plan
A summary of the status of the Company’s stock options under the 2014 Omnibus2019 Amended Plan as of September 30, 2017March 31, 2020 and 2016,2019, and changes during the ninethree months then ended, is as follows:

  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
  
 2019 Amended Plan
 Non-performance Based Stock Options
Equity AwardsLiability Awards
 Shares
Underlying
Options		Weighted
Exercise
Price		Weighted
Average
Contractual
Term		Aggregate Intrinsic ValueShares
Underlying
Options		Weighted
Exercise
Price		Weighted
Average
Contractual
Term		Aggregate Intrinsic Value
Outstanding at January 1, 2019449,520  $24.47  8.24 years—  $—  
Granted75,928  21.38  253,633  21.38  
Forfeited(4,445) 21.38  —  —  
Exercised(11,848) 15.37  —  —  
Outstanding at March 31, 2019509,155  $23.28  8.28 years253,633  $21.38  9.76 years
Options exercisable at March 31, 2019437,672  $24.71  8.04 years—  $—  
Outstanding at January 1, 2020849,768  $23.61  8.24 years$4,687  —  $—  
Granted144,025  29.13  —  —  
Forfeited(21,891) 28.17  —  —  
Exercised(33,439) 19.19  —  —  
Outstanding at March 31, 2020938,463  $24.51  8.28 years$—  —  $—  $—  
Options exercisable at March 31, 2020469,983  $24.15  7.50 years$—  —  $—  
Weighted average fair value of options granted during the period$29.13  $—  


As of September 30, 2017,March 31, 2020, December 31, 20162019 and September 30, 2016 the aggregate intrinsic value was $1,482,  $1,462 and $266, respectively, for outstanding stock options under the 2014 Omnibus Plan. As of September 30, 2017, DecemberMarch 31, 2016 and September 30, 2016 the aggregate intrinsic value was $643, $203, and $51, respectively, for exercisable stock options outstanding under the 2014 Omnibus Plan.

A summary of the status of the Company’s non-performance based restricted stock units under the 2014 Omnibus Plan as of September 30, 2017 and 2016, and changes during the nine months 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

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

  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, December 31, 2016 and September 30, 20162019, there was $832,  $425$3,563, $2,948 and $478$497 of total unrecognized compensation expense related to equity options awarded under the 2014 Omnibus2019 Amended Plan, respectively. As of September 30, 2017, DecemberMarch 31, 2016 and September 30, 20162020, there was $1,805, $1,089 and $1,373 of total0 unrecognized compensation related to restricted stock units awarded under the 2014 Omnibus Plan, respectively.
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 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 theseliability options and restricted stock unitsawarded under the 2019 Amended Plan. The unrecognized compensation expense at March 31, 2020 is expected to be recognized over the remaining weighted average requisite service periodsperiod of 2.28 years and 2.21 years, respectively.2.34 years.
41

11. Significant Concentrations
A summary of Credit Risk
Mostthe status of the Company’s non-performance-based RSUs under the 2019 Amended Plan as of March 31, 2020 and 2019, and changes during the three months then ended, is as follows:
 2019 Amended Plan
Non-performance-Based
 RSUs
Equity AwardsLiability Awards
 UnitsWeighted
Average
Grant Date
Fair Value		UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2019133,455  $19.67  —  $—  
Granted66,327  21.38  165,739  21.38  
Vested into shares(196,171) 23.41  —  —  
Outstanding at March 31, 20193,611  $21.81  165,739  $21.38  
Outstanding at January 1, 2020175,688  $21.65  —  $—  
Granted95,885  29.10  —  —  
Vested into shares(46,926) 28.99  —  —  
Outstanding at March 31, 2020224,647  $24.97  —  $—  

A summary of the status of the Company’s performance-based RSUs under the 2019 Amended Plan as of March 31, 2020 and 2019, and changes during the three months then ended, is as follows:

 2019 Amended Plan
Performance-Based
 RSUs
Equity AwardsLiability Awards
 UnitsWeighted
Average
Grant Date
Fair Value		UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 201963,988  $21.28  —  $—  
Granted29,282  21.38  32,249  21.38  
Vested into shares(51,284) 25.31  —  —  
Forfeited(14,418) 26.85  —  —  
Outstanding at March 31, 201927,568  $23.11  32,249  $21.38  
Outstanding at January 1, 202063,727  $22.76  —  $—  
Granted39,398  29.13  —  —  
Vested into shares(1,841) 26.65  —  —  
Outstanding at March 31, 2020101,284  $25.22  —  $—  
As of March 31, 2020, December 31, 2019 and March 31, 2019 there was $7,209, $4,329 and $498 of total unrecognized compensation related to equity RSUs awarded under the 2019 Amended Plan, respectively. As of March 31, 2020, there was 0 of unrecognized compensation related to liability RSUs awarded under the 2019 Amended Plan. The unrecognized compensation expense at March 31, 2020 is expected to be recognized over the remaining weighted average requisite service period of 2.3 years.
42

        A summary of the fair value of the Company’s stock options exercised and RSUs vested under the 2019 Amended Plan during the three months ended March 31, 2020 and 2019 is presented below:
Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
 20202019
Non-performance-based stock options exercised943  315  
Non-performance-based RSUs vested116  1,096  
Performance-based RSUs vested18  4,346  

Veritex (Green) 2014 Plan
A summary of the status of the Company’s stock options under the Veritex (Green) 2014 Plan as of March 31, 2020 and 2019, and changes during the three 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 Green304,778  15.41  
Granted211,793  21.38  
Exercised(28,033) 12.89  
Outstanding at March 31, 2019488,538  $23.28  8.35 years
Options exercisable at March 31, 2019276,745  $15.67  7.27 years
Outstanding at January 1, 2020386,969  $19.30  7.86 years
Granted31,075  29.13  
Forfeited(23,736) 21.38  
Exercised(32,526) 19.81  
Outstanding at March 31, 2020361,782  $19.97  7.77 years$—  
Options exercisable at March 31, 2020214,342  $17.87  6.94 years$—  
Weighted average fair value of options granted during the period$29.13  

As of March 31, 2020, December 31, 2019 and March 31, 2019, there was $1,047, $1,062, and $1,474 of total unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan, respectively. The unrecognized compensation expense at March 31, 2020 is expected to be recognized over the remaining weighted average requisite service period of 1.9 years.

43


A summary of the status of the Company’s non-performance-based RSUs under the Veritex (Green) 2014 Plan as of March 31, 2020 and 2019 and changes during the three months then ended, is as follows:


Veritex (Green) 2014 Plan
Non-performance-Based
RSUs
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2019—  $—  
Granted116,250  21.38  
Outstanding at March 31, 2019116,250  $21.38  
Outstanding at January 1, 2020116,250  $21.38  
Granted33,918  29.13  
Vested into shares(38,744) 29.13  
Forfeited(3,492) 29.13  
Outstanding at March 31, 2020107,932  $24.45  

A summary of the status of the Company’s performance-based RSUs under the Veritex (Green) 2014 Plan as of March 31, 2020 and 2019 and changes during the three months then ended, is as follows:

 Veritex (Green) 2014 Plan
Performance-Based
 RSUs
 UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2019—  $—  
Granted26,145  $21.38  
Outstanding at March 31, 201926,145  $21.38  
Outstanding at January 1, 202025,320  $21.38  
Granted8,531  29.13  
Outstanding at March 31, 202033,851  $23.33  
As of March 31, 2020, December 31, 2019 and March 31, 2019, there was $2,577, $1,991, and $2,750, respectively, of total unrecognized compensation related to outstanding performance-based RSUs awarded under the Veritex (Green) 2014 Plan to be recognized over a remaining weighted average requisite service period of 2.0 years.
        A summary of the fair value of the Company’s stock options exercised and RSUs vested under the Veritex (Green) 2014 Plan during the three months ended March 31, 2020 and 2019 s presented below:
Fair Value of Options Exercised or RSUs Vested in the Three Months Ended March 31,
 20202019
Non-performance-based stock options exercised$950  $558  
Non-performance-based RSUs vested142  —  
44

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 three months ended March 31, 2019. NaN stock options or restricted stock units were awarded from these plans during the three months ended March 31, 2020 or 2019. During the three months ended March 31, 2020, 386,960 stock options granted under the Green 2010 Plan were exercised and 0 stock options granted under the Green 2006 Plan were exercised. As of March 31, 2020, 179,976 exercisable stock options remain outstanding in the Green 2010 Plan and 0 exercisable stock options remain outstanding in the Green 2006 Plan.

10. Income Taxes
        Income tax expense for the three months ended March 31, 2020 and 2019 was as follows:
Three Months Ended March 31,
 20202019
Income tax expense (benefit) for the period$(684) $1,989  
Effective tax rate(19.8)%21.2 %
For the three months ended March 31, 2020, the Company had an effective tax rate of (19.8)%. The decrease in the effective tax rate was primarily due to a net discrete tax benefit of $1,388 primarily associated with the recognition of excess tax benefit realized on share-based payment awards pursuant to ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, Compensation - Stock Compensation (Topic 718). Excluding the discrete tax item, the Company had an effective tax rate of 22.1% for the three month ended March 31, 2020.

11. 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 withinactivities. Management believes that the Dallas-Fort Worth metroplex and Houston metropolitan area. Such customers are normally also depositorsultimate 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 March 31, 2020 and December 31, 2019, the balance of the investment for qualified affordable housing projects was $3,194 and $3,292, respectively. This balance is reflected in other investments on the condensed consolidated balance sheets. The distributiontotal unfunded commitment related to the investment in certain qualified housing projects totaled $622 and $1,091 as of March 31, 2020 and December 31, 2019, respectively. The Company expects to fulfill these commitments to extend credit approximatesduring the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers.year ended 2034.
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.
12. 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 initiatelead 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 balanceoff-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.
45

In July 2013, the Federal Reserve publishedfirst quarter of 2020, U.S. federal regulatory authorities issued an interim final rulesrule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the adoptionestimated impact of the Basel IIICECL on 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/adjustmentsrelative to regulatory capital measures be madedetermined under the prior incurred loss methodology, followed by a three-year transition period to Common Equity Tier 1 and not tophase out the other components of capital and (iv) expand the scopeaggregate amount of the deductions/adjustments as compared to existing regulations. The Basel III Capital Rules became effective forcapital benefit provided during the Companyinitial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2015 with certain transition provisions2020, we have elected to be fully phased in by January 1, 2019.
Starting in January 2016,utilize 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. five-year CECL transition.
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, 2017March 31, 2020 and December 31, 20162019, that the Company and the Bank met all capital adequacy requirements to which they were subject.
As of September 30, 2017March 31, 2020 and December 31, 2016,2019, 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, 2017March 31, 2020 that management believes have changed the Company’s categorization as “well capitalized.”
46

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
 AmountRatio Amount Ratio Amount Ratio
As of March 31, 2020
Total capital (to risk-weighted assets)
Company$918,866  12.48 %$589,017  8.0 %n/an/a
Bank912,112  12.37 %589,887  8.0 %$737,358  10.0 %
Tier 1 capital (to risk-weighted assets)
Company730,461  9.92 %441,811  6.0 %n/an/a
Bank834,035  11.31 %442,459  6.0 %589,945  8.0 %
Common equity tier 1 to risk-weighted assets
Company701,401  9.53 %331,197  4.5 %n/an/a
Bank834,035  11.31 %331,844  4.5 %479,330  6.5 %
Tier 1 capital (to average assets)
Company730,461  9.49 %307,887  4.0 %n/an/a
Bank834,035  10.83 %308,046  4.0 %385,058  5.0 %
As of December 31, 2019
Total capital (to risk-weighted assets)
Company$917,939  13.10 %$560,573  8.0 %n/an/a
Bank870,838  12.44 %560,024  8.0 %$700,031  10.0 %
Tier 1 capital (to risk-weighted assets)
Company771,679  11.02 %420,152  6.0 %n/an/a
Bank840,126  12.00 %420,063  6.0 %560,084  8.0 %
Common equity tier 1 to risk-weighted assets
Company742,675  10.60 %315,287  4.5 %n/an/a
Bank840,126  12.00 %315,047  4.5 %455,068  6.5 %
Tier 1 capital (to average assets)
Company771,679  10.17 %303,512  4.0 %n/an/a
Bank840,126  11.07 %303,569  4.0 %379,461  5.0 %
  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


13. Business Combinations
Merger with Sovereign Bancshares, Inc.
On August 1, 2017,Dividend Restrictions — Dividends paid by the Company acquired Sovereign Bancshares, Inc. (“Sovereign”), a Texas corporation and parent company 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”).
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 exceeded the provisional value of the net assets acquired, goodwill of $108,967 was recorded related to the Merger. This goodwill resulted from the combination of expected operational synergies and increased market share in the Dallas-Fort Worth and Houston metroplexes. Goodwill is not tax deductible. The Merger also resulted in a core deposit intangible of $8,662, which will be amortized on an accelerated basis over the estimated life, currently expected to be 10 years.
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 months from the date of the acquisition 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 have been recorded for the acquisition as independent valuations have not been finalized. 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:


 As of August 1, 2017
Assets 
Cash and cash equivalents$44,775
Investment securities166,307
Loans750,856
Accrued interest receivable3,437
Bank premises, furniture and equipment21,512
Non-marketable equity securities6,751
Other real estate owned282
Intangible assets8,662
Goodwill108,967
Other assets10,331
Total Assets$1,121,880
 
Liabilities
Deposits$809,366
Accounts payable and accrued expenses5,189
Accrued interest payable and other liabilities1,616
Advances from Federal Home Loan Bank80,000
Junior subordinated debentures8,609
Total liabilities$904,780
  
Preferred stock - series D24,500
Total stockholders’ equity24,500
 
Consideration
Market value of common stock issued$136,385
Cash paid56,215
Total fair value of consideration$192,600
Merger-related Expenses
For the nine months ended September 31, 2017 and 2016, the Company incurred $1,435 and $195, respectively, of pre-tax merger and acquisition expenses related to the Merger. Merger and acquisition expenses are included in other non-interest expense on the Company’s statement 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.
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 on August 1, 2017:
 PCI loans Other acquired loans Total Acquired Loans
Real Estate$5,906
 $532,119
 $538,025
Commercial27,115
 184,473
 211,588
Consumer—
 1,243
 1,243
     Total fair value33,021
 717,835
 750,856
Contractual principal balance$50,527
 $724,529
 $775,056

The following table presents additional preliminary information about PCI loans acquired from Sovereign on August 1, 2017:
 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
certain restrictions imposed by regulatory agencies. The following table disclosesBasel III Capital Rules further limit the preliminary fair valueamount of intangible assets acquired from Sovereign on August 1, 2017:
 Gross
 Intangible
 Asset
Core deposit intangibles$7,703
Servicing asset454
Intangible lease assets505
 $8,662
Advances from Federal Home Loandividends that may be paid by the Bank. There are no dividend payment limitations by the Bank
if the Bank’s capital conservation buffer is greater than 2.5%. The Company assumed from Sovereign $80,000 in advances from the Federal Home Loan Bank had a capital conservation buffer of 4.37% as of August 1, 2017 that matured in full from August 1, 2017 to September 30, 2017.
Junior Subordinated Debentures
In connection with the acquisitionMarch 31, 2020. Dividends of Sovereign on August 1, 2017, the Company assumed $8,609 in floating rate junior subordinated debentures underlying common securities and preferred capital securities,$8,728, 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$0.17 per outstanding share on the Trust Securities subject to certain exceptions, the redemption price when a capital security is called for redemption and amounts due if a trust is liquidated or terminated. 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 guaranteedapplicable record date, were paid by the Company and are subject to redemption. The Company may redeemduring the debt securities, in whole or in part, at any time at an amount equalthree months ended March 31, 2020. Dividends of $25,000 were paid by the Bank 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 intangibles9.4 years $11,162
 $2,340
 $8,822
Servicing asset6.7 years 1,541
 343
 1,198
Intangible lease assets3.8 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 intangibles6.2 years $3,459
 $1,914
 $1,545
Servicing asset7.9 years 814
 213
 601
Intangible lease assets4.3 years 106
 71
 35
   $4,379
 $2,198
 $2,181
For the ninethree months ended September 30, 2017 and September 30, 2016,amortization expense related to intangible assetsof approximately $585 and $421, respectively, is included within amortization of intangibles, occupancy and equipment, and other income within the consolidated statements of income.


Changes in the carrying amount of goodwill are summarized as follows:March 31, 2020.
47
 September 30, 2017 December 31, 2016
Beginning of year$26,865
 $26,865
Effect of acquisition108,967
 —
End of period$135,832
 $26,865


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 condensedconsolidated financial statements and notes thereto appearing in ourAnnual Report on Form 10-K for the year ended December 31, 2016.2019.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”,Statements,” may cause actual results to differ materially from thosethe 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-ownedwholly owned subsidiary, Veritex Community Bank (the “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. SinceBeginning at our operational inception in 2010, we haveinitially 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, ourOur current primary market now includes the broader Dallas-Fort Worth metroplex which also encompasses Fort Worth 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 ofin Texas.

On August 1, 2017, we acquired Sovereign, a Texas corporation and parent company of Sovereign Bank. We issued 5,117,642 shares of its common stock and paid out $56.2 million in cash to Sovereign in consideration for the acquisition. Additionally, under the terms of the merger agreement, each of Sovereign’s 24,500 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C into        Our business is conducted through one share of our Senior Non-Cumulative Perpetual, Series D Preferred Stock. We acquired an estimated $1.1 billion in assets and assumed $904.8 million of liabilities as a result of this acquisition as of the closing date. As of September 30, 2017, we had total assets of $2.5 billion, total loans of $1.9 billion, total deposits of $2.0 billion and total stockholders’ equity of $445.9 million, which includes the fair value estimates from the Sovereign acquisition.



As a bank holding company operating through onereportable segment, community banking, where we generate mostthe 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 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 Statestate of Texas.

48

Recent Developments

Impact of COVID-19

The novel coronavirus (“COVID-19”) pandemic has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. Governmental responses to the pandemic have included orders closing businesses not deemed essential and directing individuals to observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that the policy of the Board of Governors of the Federal Reserve (the “Federal Reserve”) will maintain a low interest rate environment for the foreseeable future.

We have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities during the COVID-19 pandemic, including increasing our liquidity and reserves supported by a strong capital position. Our commercial and consumer customers are experiencing varying degrees of financial distress due to the pandemic and related governmental actions taken in response to the pandemic. In order to protect the health of our customers and employees, and to comply with applicable governmental directives, we have implemented our operational preparedness plan and modified our business practices, including by dispersing critical operation processes, increasing work-from-home capacity, including essential employees for critical processes, and flexible scheduling provided to those that are unable to work from home, as well as implementing our business continuity plans and protocols to the extent necessary.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was enacted. The CARES Act contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic, including the SBA Paycheck Protection Program ("PPP"), a nearly $350 billion program designed to aid small- and medium-sized businesses through federally guaranteed, forgivable loans distributed through banks. These loans are intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. We have recently partnered with a web-based commercial and SBA lending software platform that manages the origination, processing, closing and monitoring of SBA loans and have provided our customers the ability to apply and qualify for PPP loans through this platform. On April 16, 2020, the SBA announced that all available funds had been exhausted and applications were no longer being accepted. As of April 24, 2020, we had obtained approvals for approximately 1,142 clients totaling approximately $324.9 million in approved loans. On April 24, 2020, the President signed into law the Paycheck Protection Program and Health Care Enhancement Act (PPHCE Act), which provides an additional $310 billion for the PPP and supplements certain other programs

In response to the COVID-19 pandemic, we have also implemented a loan deferment program to provide temporary payment relief to certain of our borrowers who meet the program's qualifications. This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative basis. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of April 24, 2020, we have granted temporary modifications on approximately 454 loans, resulting in the deferral of approximately $766.5 million. The CARES Act requires that, for certain residential mortgage loans, we grant forbearance for 180 days at the request of the borrower. Through April 24, 2020 we have received 542 requests that cover a total principal amount of $893.5 million.

Significant uncertainties as to future economic conditions exist, and we have taken deliberate actions in response to these uncertainties, including increased levels of on balance sheet liquidity and increased capital ratio levels. Additionally, the economic pressures, coupled with our implementation in January 2020 of the current expected credit loss (“CECL”) methodology for determining our provision for credit losses, have contributed to an increased provision for credit losses for the first quarter of 2020. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act; however, the extent to which the COVID-19 pandemic will impact our operations and financial results during the remainder of 2020 is highly uncertain.

49

Financial position and results of operations

COVID-19 had a material impact on our allowance for credit losses for the first quarter of 2020. While we have not yet experienced any charge-offs related to COVID-19, our allowance for credit losses calculation and resulting provision for credit losses were significantly impacted by the change in the economic forecasts used in the CECL model late in the first quarter of 2020 to reflect the expected impact of COVID-19. Given that forecasted economic scenarios have deteriorated significantly since the pandemic was declared in early March, our need for additional reserve for credit loss increased significantly. Refer to our further discussion of the allowance for credit losses below as well as in Note 1, “Summary of Significant Accounting Policies,” and Note 5, “Loans and Allowance for Credit Losses,” in the accompanying notes to the condensed consolidated financial statements. Should economic conditions worsen, we could experience further increases in our allowance for credit losses and record additional credit loss expense. We could also see an increase in our ratio of past due loans to total loans, although the execution of our loan deferment program might temporarily improve this ratio. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

Our fee income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with customers affected by COVID-19 to waive fees from a variety of sources, including, but not limited to, insufficient funds and overdraft fees, ATM fees and account maintenance fees. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact our fee income in future periods.

Our interest income could also be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with borrowers affected by COVID-19 to defer their payments, interest, and fees. While interest and fees will still accrue to income, should eventual credit losses on these deferred payments emerge, our interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

Capital and liquidity

As of March 31, 2020, all of our capital ratios, and the Bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses. We rely on cash on hand as well as dividends from the Bank to service our debt. If our capital deteriorates such that the Bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.

We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us, but rates for short term funding have recently been volatile. If funding costs are elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an economic recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

Asset valuation

Currently, we do not expect COVID-19 to affect our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with generally accepted accounting principles in the United States (“GAAP”).

As of March 31, 2020, our goodwill was not impaired. While our stock traded above book value for most of the first quarter of 2020, it traded below book value at quarter end. The effects of the COVID-19 pandemic could cause a further and sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. At March 31, 2020, we had goodwill of $370.8 million, representing approximately 32% of equity.

50

As of March 31, 2020, we did not have any impairment with respect to our intangible assets, premises and equipment, equity investments or other long-lived assets. It is possible that the lingering effects of the COVID-19 pandemic could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. At March 31, 2020, we had intangible assets of $69.4 million, representing approximately 6% of equity.

Credit

Hospitality Exposure

The Company’s exposure to hospitality at March 31, 2020 was $344.3 million, or 5.9% of total loans held for investment, excluding mortgage warehouse. 27% of the Company’s hospitality borrowers are top tier hotels, 49% are national brands, 20% are luxury boutique hotels and 4% are no flag hotels.

Restaurant Exposure

The Company’s exposure to restaurants at March 31, 2020 was $115.9 million, or 2.0% of total loans held for investment, excluding mortgage warehouse. 59% of the Company’s restaurant borrowers are quick service restaurants and 41% are full service restaurants.

Energy Exposure

The Company’s exposure to energy at March 31, 2020 was $15.7 million, or 0.3% of total loans held for investment, excluding mortgage warehouse.

Healthcare Exposure

The Company’s exposure to healthcare at March 31, 2020 was $65.9 million, or 1.1% of total loans held for investment, excluding mortgage warehouse. Healthcare loans do not include loans to practice professionals.

Retail Exposure

The Company’s exposure to retail at March 31, 2020 was $436.3 million, or 7.5% of total loans held for investment, excluding mortgage warehouse. Included in this balance is $55.0 million of grocery-anchored retail centers.

Adoption of New Accounting Standard for Allowance for Credit Losses

On January 1, 2020, the Company adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”),whichreplaces the incurred loss methodology with an expected loss methodology that is referred to as CECL. The measurement of expected credit losses under theCECL methodology is applicable to financial assets measured at amortized cost, including loanreceivables and held-to-maturity debt securities. It also applies to off-balance sheet (“OBS”) credit exposures notaccounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and othersimilar instruments) and net investments in leases recognized by a lessor. In addition, ASU 2016-13 made changes to the accounting for available-for-sale debt securities.One such change is to require credit losses to be presented as an allowance rather than as a write-downon available-for-sale debt securities management does not intend to sell or believes that it is more likelythan not they will be required to sell.

A summary of the impact of the adoption of ASU 2016-13 is as follows:

•Net decrease in retained earnings of $15.5 million as of January 1, 2020 for the cumulative effect of adopting ASC 326.
•On January 1, 2020, the amortized cost basis of assets purchased with credit deterioration were adjusted to reflect the addition of $19.7 million to the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.
•Increase in the allowance for credit losses of $39.1 million as of January 1, 2020.
•Increase in our allowance for unfunded commitments of $840 thousand as of January 1, 2020. The allowance for unfunded commitments is recorded in accounts payable and other liabilities in the condensed consolidated balance sheets.


51

Results of Operations for the NineThree Months Ended September 30, 2017March 31, 2020 and September 30, 20162019


General

        Net income for the three months ended March 31, 2020 was $4.1 million, a decrease of $3.3 million, or 44.2%, from net income of $7.4 million for the three months ended March 31, 2019.
        Basic earnings per share (“EPS”) for the three months ended March 31, 2020 was $0.08, a decrease of $0.06 from $0.14 for the three months ended March 31, 2019. Diluted EPS for the three months ended March 31, 2020 was $0.08, a decrease of $0.05 from $0.13 for the three months ended March 31, 2019.
Net Interest Income


Our operating results depend primarily on ourFor the three months ended March 31, 2020, 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, net interest incomebefore provisions for credit losses totaled $42.8$67.4 million and net interest margin and net interest spread were 3.54%3.67% and 3.24%3.27%, respectively. For the ninethree months ended September 30, 2016,March 31, 2019, net interest income totaled $30.4$72.9 million and net interest margin and net interest spread were 3.82%4.17% and 3.58%3.70%, respectively. The increasedecrease in net interest income of $12.4$5.5 million was primarily due to $12.6a $7.9 million in increased interest income on loans resulting from organic growth, increased volumes in all loan categories resulting from loans acquired from Sovereign 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 September 30, 2016. The increase of $12.6 million decrease in interest income on loans, also included $585 thousandpartially offset by a $3.8 million decrease in estimated accretioninterest expense on interest-bearing demand and savings deposits during the third quarter of 2017 on loans acquired from Sovereign. Average loan balances increased $334.2 millionthree months ended March 31, 2020 compared to the ninethree months ended September 30, 2016.March 31, 2019. The declinedecrease in netinterest income on loans was due to lower loan yields. The$4.4 million decrease in interest expense on deposit accounts was due to lower rates on deposit accounts. Net interest margin and net interest spread wasdecreased 50 basis points from the three months ended March 31, 2019 primarily attributabledue to a 20 basis point decrease in yields earned on loan balances, partially offset by decreases in the average yieldrate paid on interest-earning assets. This decrease was due to a changeinterest-bearing demand and savings deposits in 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 ninethree months ended September 30, 2017 comparedMarch 31, 2020. As a result, the average cost of interest-bearing deposits decreased to 7.0%1.39% for the nine three months ended September 30, 2016. Interest-earning deposits in other banks traditionally provide lower average yields than other interest earning assets such as loans and investment securities.March 31, 2020 from 1.62% for the three months ended March 31, 2019.


For the ninethree months ended September 30, 2017,March 31, 2020, interest expense totaled $6.9$19.6 million and the average rate paid on interest-bearing liabilities was 0.87%1.47%. For the ninethree months ended September 30, 2016,March 31, 2019, interest expense totaled $3.9$22.3 million and the average rate paid on interest-bearing liabilities was 0.73%1.74%. The increasedecrease in interest expense of $3.0$2.7 million was primarily due to a $2.8$3.8 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 the result of increases in money market accounts as balances increased $240.1 million and interest expense paid on these balances increased $2.2 million. The increasedecrease in the average rate paid on interest-bearing liabilities of 14 basis points was primarily due to demand and savings deposits, partially offset by a 13 basis point$1.6 million 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 from 0.77% for the nine months ended September 30, 2016 to 0.94% for the nine months ended September 30, 2017.borrowings.

52

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 ninethree months ended September 30, 2017 and 2016,March 31, 2020 interest income not recognized on non-accrual loans was minimal.$173 thousand. For the three months ended March 31, 2019, interest income not recognized on non-accrual loans was $151 thousand. Any non-accrual loans have been included in the table as loans carrying a zero yield.


For the Three Months Ended March 31,
20202019
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans1
$5,784,965  $76,527   5.32 %$5,731,062  $84,194   5.96 %
Loans held for investment, mortgage warehouse163,646  1,334  3.28  119,781  1,553  5.26  
Investment securities1,038,954  7,397   2.86  926,347  7,232   3.17  
Interest-bearing deposits in other banks308,546  850  1.14  264,138  691  2.39  
Other investments91,917  871   3.72  56,909  1,554   4.92  
Total interest-earning assets7,388,028  86,979   4.74  7,098,237  95,224   5.44  
Allowance for credit losses(44,270)   (20,065)   
Noninterest-earning assets782,024    763,095    
Total assets$8,125,782    $7,841,267    
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits$2,638,633  $6,552   1.00 %$2,562,304  $10,366   1.64 %
Certificates and other time deposits1,650,678  8,240  2.01  2,244,194  8,792  1.59  
Advances from FHLB937,901  2,879   1.23  310,697  2,055   2.68  
Subordinated debentures and subordinated notes145,189  1,903   5.27  75,813  1,094   5.85  
Total interest-bearing liabilities5,372,401  19,574   1.47  5,193,008  22,307   1.74  
Noninterest-bearing liabilities:      
Noninterest-bearing deposits1,523,702    1,427,970    
Other liabilities46,563    30,023    
Total liabilities6,942,666    6,651,001    
Stockholders’ equity1,183,116    1,190,266    
Total liabilities and stockholders’ equity$8,125,782    $7,841,267    
Net interest rate spread2
  3.27 %  3.70 %
Net interest income $67,405   $72,917  
Net interest margin3
  3.67 %  4.17 %

1 Includes average outstanding balances of loans held for sale of $10,995 and $7,709 for the three months ended March 31, 2020 and March 31, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
3 Net interest margin is equal to net interest income divided by average interest-earning assets.

53

  For the Nine 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) $1,242,706
 $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
Total interest-earning assets 1,613,478
 49,655
 4.11
 1,063,855
 34,314
 4.31
Allowance for loan losses (9,200)     (7,539)    
Noninterest-earning assets 137,315
     92,797
    
Total assets $1,741,593
     $1,149,113
    
Liabilities and Stockholders’ Equity 
     
    
Interest-bearing liabilities: 
     
    
Interest-bearing deposits $1,009,313
 $6,201
 0.82% $656,811
 $3,388
 0.69%
Advances from FHLB 43,313
 319
 0.98
 45,435
 202
 0.59
Other borrowings 9,995
 377
 5.04
 8,077
 289
 4.78
Total interest-bearing liabilities 1,062,621
 6,897
 0.87
 710,323
 3,879
 0.73
Noninterest-bearing liabilities:            
Noninterest-bearing deposits 385,428
     298,035
    
Other liabilities 4,438
     2,866
    
Total noninterest-bearing liabilities 389,866
     300,901
    
Stockholders’ equity 289,106
     137,889
    
Total liabilities and stockholders’ equity $1,741,593
     $1,149,113
    
Net interest rate spread(2)     3.24%     3.58%
Net interest income   $42,758
     $30,435
  
Net interest margin(3)     3.54%     3.82%

(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.




The following table presents the changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
 For the Three Months Ended
 March 31, 2020 vs. 2019
 Increase (Decrease) 
 Due to Change in 
 VolumeRateTotal
 (Dollars in thousands)
Interest-earning assets:
Loans$798  $(8,465) $(7,667) 
Loans held for investment, mortgage warehouse574  (793) (219) 
Securities886  (721) 165  
Interest-bearing deposits in other banks264  (968) 180  
Other investments428  (248) (704) 
Total increase in interest income2,950  (11,195) (8,245) 
Interest-bearing liabilities:   
Interest-bearing demand and savings deposits311  (4,125) (3,814) 
Certificates and other time deposits143  (695) (552) 
Advances from FHLB4,183  (3,359) 824  
Subordinated debentures and subordinated notes1,009  (200) 809  
Total increase in interest expense5,646  (8,379) (2,733) 
Increase in net interest income$(2,696) $(2,816) $(5,512) 
  For the Nine Months Ended
  September 30, 2017 vs. 2016
  Increase  
  Due to Change in  
  Volume Rate Total
  (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
Total increase in interest income 13,584
 1,757
 15,341
Interest-bearing liabilities:      
Interest-bearing deposits 1,817
 996
 2,813
Advances from FHLB (9) 126
 117
Other borrowings 69
 19
 88
Total increase in interest expense 1,877
 1,141
 3,018
Increase in net interest income $11,707
 $616
 $12,323

Provision for LoanCredit Losses
Our provision for loancredit losses is a charge to income in order to bring our allowance for loancredit losses to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the allowance for loancredit losses see “—Financial Condition—Allowance for LoanCredit Losses.” The provision for loancredit losses was $2.6$31.8 million for the ninethree months ended September 30, 2017,March 31, 2020, compared to $1.6$5.0 million for the same period in 2016,2019, an increase of $975 thousand,$26.8 million, or 60.6%534.0%. The increase in the recorded provision expensefor credit losses for the three months ended March 31, 2020 was due mainlyprimarily attributable to loan growth as well as an increasethe incorporated change in general reserves duethe economic forecasts used in the CECL model late in the first quarter of 2020 to changes in qualitative factors aroundreflect the nature, volume and mixexpected impact of the loan portfolio, which includes a qualitative risk factor adjustment related to the potential impactCOVID-19 pandemic as of Hurricane Harvey, for the nine months ended September 30, 2017March 31, 2020, as compared to our initial adoption of CECL. In the same period in 2016. In addition, net charge-offs increased $337 thousandfirst quarter of 2020, we also recorded a $3.9 million provision for the nine months ended September 30, 2017 comparedunfunded commitments, which was also attributable to the same periodchange in 2016. the economic forecasts as a result of the COVID-19 pandemic. Allowance for credit losses as a percentage of loans held for investment, excluding mortgage warehouse, was 1.73%, 0.52% and 0.38% of total loans at March 31, 2020, December 31, 2019 and March 31, 2019, respectively.


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Noninterest Income
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.



The following table presents, for the periods indicated, the major categories of noninterest income:
 For the  
 Three Months Ended 
 March 31,Increase
 20202019(Decrease)
 (Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts$3,642  $3,517  $125  
Loan fees845  1,677  (832) 
Loss on sales of investment securities—  (772) 772  
Gain on sales of loans746  2,370  (1,624) 
Rental income551  368  183  
Other1,463  1,324  139  
Total noninterest income$7,247  $8,484  $(1,237) 
  For the   
  Nine Months Ended  
  September 30,  
      Increase
  2017 2016 (Decrease)
  (Dollars in thousands)
Noninterest income:      
Service charges and fees on deposit accounts $1,733
 $1,309
 $424
Gain on sales of investment securities 205
 15
 190
Gain on sales of loans 2,259
 2,318
 (59)
Bank-owned life insurance 561
 577
 (16)
Other 520
 460
 60
Total noninterest income $5,278
 $4,679
 $599

Noninterest income for the ninethree months ended September 30, 2017 increased $599 thousand,March 31, 2020 decreased $1.2 million, or 12.8%14.6%, to $5.3$7.2 million compared to noninterest income of $4.7$8.5 million for the same period in 2016.2019. The primary componentsdriver of the increase were as follows:

Service charges and feesdecrease was a decrease in gains on deposit accounts.loans sold. We earn service charges and fees from our customers for deposit-related activities. The income from these deposit activities constitute a significant and predictable componentrealized gains on loans sold of our noninterest income. Service charges and fees from deposit account activities were $1.7 million for$746 thousandduring the ninethree months ended September 30, 2017, an increase of $424 thousand over the same period in 2016. The increase was primarily attributable to organic growth in the number of deposit accounts and accounts acquired from Sovereign.

Gain on sales of investment securities. Gain on sales of investment securities were $205 thousand for the nine months ended September 30, 2017March 31, 2020 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 million for the nine months ended September 30, 2017 compared to $2.3$2.4 million for the same period of 2016. Thisin 2019. The decrease of $59 thousand was primarily due to a $1.6 million decrease inon gain on sale of mortgageSBA loans by $355 thousand and the absenceas a result 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 indecreased sales of SBA-guaranteed loans resulting in incremental gains of $496 thousand.SBA loans.
        
Noninterest Expense
Noninterest expense is composed of all employee expenses and costs associated with operating our facilities, acquiring and retaining customer relationships and providing bank services. The major 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.




The following table presents, for the periods indicated, the major categories of noninterest expense:
For the
 For the Nine Months Ended Increase Three Months EndedIncrease
 September 30, (Decrease) March 31,(Decrease)
 2017 2016 2017 vs. 2016 202020192020 vs. 2019
 (Dollars in thousands) (Dollars in thousands)
Salaries and employee benefits $13,471
 $10,683
 $2,788
Salaries and employee benefits$18,870  $18,885  $(15) 
Non-staff expenses:      Non-staff expenses:
Occupancy and equipment 3,622
 2,718
 904
Occupancy and equipment4,273  4,129  144  
Professional fees 3,959
 1,861
 2,098
Professional and regulatory feesProfessional and regulatory fees2,196  3,418  (1,222) 
Data processing and software expense 1,451
 850
 601
Data processing and software expense2,089  1,924  165  
FDIC assessment fees 1,061
 447
 614
Marketing 905
 704
 201
Marketing1,083  619  464  
Other assets owned expenses and write-downs 109
 139
 (30)
Amortization of intangibles 413
 285
 128
Amortization of intangibles2,696  2,760  (64) 
Telephone and communications 438
 295
 143
Telephone and communications319  395  (76) 
Merger and acquisition expenseMerger and acquisition expense—  31,217  (31,217) 
Other 2,325
 1,323
 1,002
Other4,019  3,646  373  
Total noninterest expense $27,754
 $19,305
 $8,449
Total noninterest expense$35,545  $66,993  $(31,448) 
 
Noninterest expense for the ninethree months ended September 30, 2017 increased $8.5March 31, 2020 decreased $31.4 million, or 43.8%46.9%, to $27.8$35.5 million compared to noninterest expense of $19.3$67.0 million for the ninethree months ended September 30, 2016.March 31, 2019. The most significant components of the increasedecrease were as follows:

Salaries
55

Professional 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 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 million for the nine months ended September 30, 2017, an increase of $2.8 million, or 26.1%, compared to the same period in 2016. The increase was primarily attributable to increased employee compensation of $2.9 million resulting from higher headcount including the addition 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 costs also increased $948 thousand which included lender incentive increases of $527 thousand as a result of organic loan growth during the period and employee stock compensation increases of $322 thousand. Employee benefits and payroll taxes also increased $213 thousand and $284 thousand, respectively, compared to the same period in 2016. These increases in salaries and employee benefits were partially offset by direct origination costs which increased $1.6 million as a result of the growth in loans during the nine months ended September 30, 2017 compared to the same period in 2016.
Occupancy and equipment. Occupancy and equipment expense includes lease expense, building depreciation and related facilities costs as well as furniture, fixture and equipment depreciation, small equipment purchases and maintenance expense. Our expense associated with occupancy and equipment was $3.6 million for the nine months ended September 30, 2017 compared to $2.7 million for the same period in 2016. The increase of $904 thousand was primarily due to the leasing of additional office space beginning June 1, 2016 at the corporate headquarters location, additional lease expense associated with the opening of the Turtle Creek branch beginning January 2017 and the addition of six owned buildings and five property leases from the Sovereign acquisition.
Professionalregulatory 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 expensesfees were $4.0$2.2 million for the ninethree months ended September 30, 2017March 31, 2020 compared to $1.9$3.4 million for the same period in 2016, an increase2019, a decrease of $2.1$1.2 million, or 112.7%35.8%. This increase wasdecrease was primarily the result of $1.7 million of legal and other professional services associated with the Sovereign and Liberty mergers.

 FDIC assessment fees. FDICdecreases in Federal Deposit Insurance Corporation (“FDIC”) assessment fees were $1.1 million for the nine months ended September 30, 2017of $672 thousand, information technology support fees of $203 thousand, audit and $447regulatory services of $130 thousand, for the same period in 2016. The increase in FDIC assessment fees is primarily a resultand legal expense of a catch-up in prior period assessments, the Sovereign$106 thousand.

Merger and acquisition and the resulting increase in average assets for the nine months ended September 30, 2017.



Other.expense. This category includes operatinglegal, professional, audit, regulatory, severance and administrativechange-in-control payments, stock-based compensation, conversion related data processing and software expense and other expenses including loan operationsincurred in connection with a merger or acquisition. No merger and collections, supplies and printing, online and card interchange expense, ATM/debit card processing, postage and delivery, BOLI mortality expense, insurance and security expenses. Other noninterest expense increased $1.0 million, or 75.7%, to $2.3 million foracquisition expenses were incurred in the nine months ended September 30, 2017, compared to $1.3 million for the same periodfirst quarter of 2020, as our acquisition of Green Bancorp, Inc. (“Green”) was completed in 2016 primarily related to increases in ATM and interchange expense of $183 thousand, corporate insurance of $178 thousand and dues and memberships of $164 thousand.2019.

Noninterest Income Tax Expense
The amount of income tax expense is a function of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or statutory tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision of income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of September 30, 2017, the Company did not believe a valuation allowance was necessary.
For the nine months ended September 30, 2017, income tax expense totaled $5.8 million, an increase of $965 thousand, or 20.0%, compared to $4.8 million for the same period in 2016. The change in income tax expense from the nine months ended September 30, 2016 was primarily due to the $3.5 million increase in net income from operations offset by 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% 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.
Results of Operations for the Three Months Ended September 30, 2017 and September 30, 2016
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.


Compared to the three months ended September 30, 2016, net interest income increased by $8.6 million from $10.5 million to $19.1 million for the three months ended September 30, 2017. The increase in net interest income before provision for loan losses was primarily due to a $9.1 million increase in interest income on loans resulting from average loan balance increases of $689.0 million compared to the three months ended September 30, 2016. The net interest margin increased to 3.78% for the three months ended September 30, 2017 from 3.70% 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, 2017compared 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 thethree months ended September 30, 2017.
For the three months ended September 30, 2017, interest expense totaled $3.2 million and the average rate paid on interest-bearing liabilities was 0.92%. For the three months ended September 30, 2016, interest expense totaled $1.5 million and the average rate paid on interest-bearing liabilities was 0.79%. The increase in interest expense of $1.7 million was primarily due to a $1.4 million increase in deposit-related interest expense 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 the result of increases 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.


The following table presents, for the periods indicated, an analysisthe major categories of net interestnoninterest income:
 For the  
 Three Months Ended 
 March 31,Increase
 20202019(Decrease)
 (Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts$3,642  $3,517  $125  
Loan fees845  1,677  (832) 
Loss on sales of investment securities—  (772) 772  
Gain on sales of loans746  2,370  (1,624) 
Rental income551  368  183  
Other1,463  1,324  139  
Total noninterest income$7,247  $8,484  $(1,237) 

Noninterest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as non-accrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended September 30, 2017 and 2016, interestMarch 31, 2020 decreased $1.2 million, or 14.6%, to $7.2 million compared to noninterest income not recognizedof $8.5 million for the same period in 2019. The primary driver of the decrease was a decrease in gains on non-accrual loans sold. We realized gains on loans sold of $746 thousandduring the three months ended March 31, 2020 compared to $2.4 million for the same period in 2019. The decrease was minimal. Any non-accrualprimarily due to a $1.6 million decrease on gain on sale of SBA loans have been included in the table as loans carrying a zero yield.result of decreased sales of SBA loans.
  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%

(1)Includes average outstanding balances of loans held for sale of $1,553 and $6,047 and deferred loan fees of $18 and $46 for the three 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.Noninterest Expense




The following table presents, the changes in interest income and interest expense for the periods indicated, for eachthe major componentcategories 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.noninterest expense:
For the
 Three Months EndedIncrease
 March 31,(Decrease)
 202020192020 vs. 2019
 (Dollars in thousands)
Salaries and employee benefits$18,870  $18,885  $(15) 
Non-staff expenses:
Occupancy and equipment4,273  4,129  144  
Professional and regulatory fees2,196  3,418  (1,222) 
Data processing and software expense2,089  1,924  165  
Marketing1,083  619  464  
Amortization of intangibles2,696  2,760  (64) 
Telephone and communications319  395  (76) 
Merger and acquisition expense—  31,217  (31,217) 
Other4,019  3,646  373  
Total noninterest expense$35,545  $66,993  $(31,448) 
  For the Three Months Ended
  September 30, 2017 vs. 2016
  Increase  
  Due to Change in  
  Volume Rate Total
  (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
Interest-bearing deposits in other banks 105
 395
 500
Total increase in interest income 8,936
 1,289
 10,225
Interest-bearing liabilities:   
  
Interest-bearing deposits 1,081
 350
 1,431
Advances from FHLB 23
 78
 101
Other borrowings 69
 12
 81
Total increase in interest expense 1,173
 440
 1,613
Increase in net interest income $7,763
 $849
 $8,612
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 $752 thousandNoninterest expense for the three months ended September 30, 2017March 31, 2020 decreased $31.4 million, or 46.9%, to $35.5 million compared to noninterest expense of $67.0 million for the three months ended March 31, 2019. The most significant components of the decrease were as follows:
55

Professional and $238 thousandregulatory fees. This category includes legal, investment bank, director, stock transfer agent fees and other public company services, information technology support, audit services and regulatory assessment expense. Professional fees were $2.2 million for the three months ended March 31, 2020 compared to $3.4 million for the same period in 2016, an increase2019, a decrease of $514$1.2 million, or 35.8%. This decrease was primarily the result of decreases in Federal Deposit Insurance Corporation (“FDIC”) assessment fees of $672 thousand, information technology support fees of $203 thousand, audit and regulatory services of $130 thousand, and legal expense of $106 thousand. The increase

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 provision expenseconnection with a merger or acquisition. No merger and acquisition expenses were incurred in the first quarter of 2020, as our acquisition of Green Bancorp, Inc. (“Green”) was due primarily to loan growth as well as an increasecompleted 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.2019.

Noninterest Income
Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, gains on the sale of loans, gain 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.



The following table presents, for the periods indicated, the major categories of noninterest income:
 For the  
 Three Months Ended 
 March 31,Increase
 20202019(Decrease)
 (Dollars in thousands)
Noninterest income:
Service charges and fees on deposit accounts$3,642  $3,517  $125  
Loan fees845  1,677  (832) 
Loss on sales of investment securities—  (772) 772  
Gain on sales of loans746  2,370  (1,624) 
Rental income551  368  183  
Other1,463  1,324  139  
Total noninterest income$7,247  $8,484  $(1,237) 
  For the Three Months Ended  Increase
  September 30, (Decrease)
  2017 2016 2017 vs. 2016
  (Dollars in thousands)
                
Service charges and fees on deposit accounts $669
 $433
 $236
Gain on sales of investment securities 205
 —
 205
Gain on sales of loans 705
 1,036
 (331)
Bank-owned life insurance 188
 193
 (5)
Other 210
 231
 (21)
Total noninterest income $1,977
 $1,893
 $84


Noninterest income for the three months ended September 30, 2017 increased $84 thousand,March 31, 2020 decreased $1.2 million, or 4.4%14.6%, to $2.0$7.2 million compared to noninterest income of $1.9$8.5 million for the same period in 2016.2019. The primary componentsdriver of the increase were as follows:
Service charges and feesdecrease was a decrease in gains on deposit accounts.loans sold. We earn fees from our customers for deposit-related services, and these fees constitute a significant and predictable componentrealized gains on loans sold of our noninterest income. Service charges on deposit accounts were $669$746 thousand and $433 thousand forduring the three months ended September 30, 2017 and 2016, respectively. The increase of $236 thousand was attributable to growth in the number of deposit accounts, accounts acquired from Sovereign and an increase transaction fees and service charges from new and existing customers.
Gain on sales of investment securities. Gain on sales of investment securities were $205 thousand for the nine months ended September 30, 2017 with no comparative gain for the same period of 2016. The increase of $205 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 $705 thousand for the three months ended September 30, 2017March 31, 2020 compared to $1.0$2.4 million for the same period of 2016.in 2019. The decrease of $331 thousand was primarily due to a $1.6 million decrease inon gain on sale of mortgageSBA loans by $287 thousand and decrease in gain on saleas a result of SBA-guaranteed loans by $44 thousand.decreased sales of SBA loans.
Noninterest Expense        
Noninterest expense is composed of all employee expenses and costs associated with operating our facilities, acquiring and retaining customer relationships and providing bank services. The major component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of office equipment, professional and regulatory fees, including Federal Deposit Insurance Corporation (“FDIC”) assessments, data processing expenses, and advertising and promotion expenses.Expense




The following table presents, for the periods indicated, the major categories of noninterest expense:
For the
 Three Months EndedIncrease
 March 31,(Decrease)
 202020192020 vs. 2019
 (Dollars in thousands)
Salaries and employee benefits$18,870  $18,885  $(15) 
Non-staff expenses:
Occupancy and equipment4,273  4,129  144  
Professional and regulatory fees2,196  3,418  (1,222) 
Data processing and software expense2,089  1,924  165  
Marketing1,083  619  464  
Amortization of intangibles2,696  2,760  (64) 
Telephone and communications319  395  (76) 
Merger and acquisition expense—  31,217  (31,217) 
Other4,019  3,646  373  
Total noninterest expense$35,545  $66,993  $(31,448) 
  For the Three Months Ended  Increase
  September 30, (Decrease)
  2017 2016 2017 vs. 2016
  (Dollars in thousands)
Salaries and employee benefits $5,921
 $3,920
 $2,001
Non-staff expenses:    
  
Occupancy and equipment 1,596
 923
 673
Professional fees 1,973
 785
 1,188
Data processing and software expense 719
 296
 423
FDIC assessment fees 410
 179
 231
Marketing 436
 293
 143
Other assets owned expenses and write-downs 71
 9
 62
Amortization of intangibles 223
 95
 128
Telephone and communications 230
 98
 132
Other 943
 431
 512
Total noninterest expense $12,522
 $7,029
 $5,493
Noninterest expense for the three months ended September 30, 2017 increased $5.5March 31, 2020 decreased $31.4 million, or 78.1%46.9%, to $12.5$35.5 million compared to noninterest expense of $7.0$67.0 million for the same period in 2016.three months ended March 31, 2019. The most significant components of the increasedecrease were as follows:
Salaries
55

Professional 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 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 $5.9 million for the three months ended September 30, 2017, an increase of $2.0 million, or 51.0%, compared to the same period in 2016. The increase was primarily attributable to increased employee compensation of $2.7 million due to the addition of 100 full-time equivalent employees related to the merger with Sovereign. This increase in salaries and employee benefits was partially offset by the deferral of direct origination costs which increased $665 thousand as a result of the growth in loans during the three months ended September 30, 2017 compared to the same period in 2016.

Occupancy and equipment. Occupancy and equipment expense includes lease expense, building depreciation and related facilities costs as well as furniture, fixture and equipment depreciation, small equipment purchases and maintenance expense. Our expense associated with occupancy and equipment was $1.6 million for the three months ended September 30, 2017 compared to $923 thousand for the same period in 2016. The increase of $673 thousand was primarily due to the additional lease expense associated with the opening of the Turtle Creek branch beginning January 2017 and the addition of six owned buildings and five property leases from the Sovereign merger.

Data processing and software expenses. Data processing expenses were $719 thousand for the three months ended September 30, 2017, an increase of $423 thousand, or 142.9%, compared to the same period in 2016. The increase was attributable to the Company converting Sovereign’s operating systems into the Veritex information technology infrastructure.
Professionalregulatory 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 expensesfees were $2.0$2.2 million for the three months ended September 30, 2017March 31, 2020 compared to $785 thousand$3.4 million for the same period in 2016, an increase2019, a decrease of $1.2 million, or 151.3%35.8%. This increase wasdecrease was primarily the result of $1.4 milliondecreases in Federal Deposit Insurance Corporation (“FDIC”) assessment fees of $672 thousand, information technology support fees of $203 thousand, audit and regulatory services of $130 thousand, and legal expense of $106 thousand.

Merger and other professional services associated with the Sovereign and Liberty mergers.


Other.acquisition expense. This category includes operatinglegal, professional, audit, regulatory, severance and administrativechange-in-control payments, stock-based compensation, conversion related data processing and software expense and other expenses including loan operationsincurred in connection with a merger or acquisition. No merger and collections, supplies and printing, online and card interchange expense, ATM/debit card processing, postage and delivery, BOLI mortality expense, insurance and security expenses. Other noninterest expense increased $512 thousand, or 118.8%, to $943 thousand foracquisition expenses were incurred in the three months ended September 30, 2017, compared to $431 thousand for the same periodfirst quarter of 2020, as our acquisition of Green Bancorp, Inc. (“Green”) was completed in 2016 primarily related to increases in corporate insurance of $93 thousand, auto and travel of $72 thousand and ATM and interchange expense of $68 thousand.2019.

Income Tax Expense
The amount of income
Income tax expense is influenced by the amountsa function of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enactedreflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or statutory tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision forof income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of March 31, 2020, we did not believe a valuation allowance was necessary.
Income tax expense for
For the three months ended September 30, 2017March 31, 2020, income tax benefit totaled $684 thousand, a decrease of $2.7 million, an increase of $882 thousand, or 49.9%134.4%, compared to $1.8a income tax expense of $2.0 million for the same period in 2016.2019. The change in income tax expense from the three months ended September 30, 2016decrease was primarily dueattributable to the $2.7 million increasedecrease in net income from operations offset byto $3.5 million for the impactthree months ended March 31, 2020 from $9.4 million for the same period in 2019.

For the three months ended March 31, 2020, the Company had an effective tax rate of (19.8)%. The decrease in the effective tax rate was primarily due to a net discrete tax benefit of $30 thousand$1.4 million primarily associated with the recognition of excess tax benefit realized on share-based payment awards duringpursuant to ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, Compensation- Stock Compensation (Topic 718). Excluding the three months ended September 30, 2017 compared to no net discrete tax benefit duringitem, the three months ended September 30, 2016.
The Company’sCompany had an effective tax rate before the net impact of discrete items, was approximately 34.2%22.1% for the three monthsmonth ended September 30, 2017 compared to 34.4% for the three months ended September 30, 2016. The Company’s effective tax rate, after the net impact of discrete items, was approximately 33.8% and 34.4% for the three months ended September 30, 2017 and 2016, respectively.March 31, 2020.


56

Financial Condition
 
Our total assets increased $1.1$0.5 billion, or 77.1%7.2%, from $1.4$8.0 billion as of December 31, 20162019 to $2.5$8.5 billion as of September 30, 2017.March 31, 2020. Our asset growth was due to the successful acquisition of Sovereign in which we acquired $1.1 billion in assets. Additionally, our asset growth was due to the successfulcontinued execution of our strategy to establish deep relationships in the DallasDallas-Fort Worth metroplex and the Houston metropolitan area. We believe these relationships will continue to bring in new customer accounts and grow balances from existing loan and deposit customers.
 
Loan Portfolio
 
Our primary source of income is interest on loans to individuals, professionals, small to medium-sized businesses and commercial companies located in the Dallas-Fort Worth metroplex.metroplex and Houston metropolitan area. Our loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate properties located in our primary market area. Our loan portfolio represents the highest yielding component of our earning asset base.
 
As of September 30, 2017,March 31, 2020, total loans were $1.9$6.2 billion, an increase of $915.6 million,$0.3 billion, or 92.3%5.1%, compared to $991.9 million$5.9 billion as of December 31, 2016, with $750.9 million2019. The increase was the result of the continued execution and success of our loan growth resulting from loans acquired from Sovereign.strategy. In addition to these amounts, $2.2$15.0 million and $5.2$14.1 million in loans were classified as held for sale as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
 
Total loans held for investment as a percentage of deposits were 96.1%107.3% and 88.6%100.5% as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. Total loans held for investmentexcluding mortgage warehouse loans as a percentage of deposits were 100.9% and 97.3% as of March 31, 2020 and December 31, 2019, respectively.Total loans as a percentage of assets were 76.5%72.9% and 70.4%74.4% as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.




The following table summarizes our loan portfolio by type of loan as of the dates indicated:
 As of March 31,As of December 31,
 20202019
 TotalPercentTotalPercent
 (Dollars in thousands)
Commercial$1,777,603  28.6 %$1,712,838  28.9 %
Mortgage warehouse371,161  6.0 %183,628  3.1 %
Real estate:    
Owner Occupied CRE (“OOCRE”)723,839  11.6 %706,782  11.8 %
Non-owner Occupied CRE (“NOOCRE”)1,828,386  29.4 %1,784,201  30.1 %
Construction and land566,470  9.1 %629,374  10.6 %
Farmland14,930  0.2 %16,939  0.3 %
1-4 family residential536,892  8.6 %549,811  9.3 %
Multifamily388,374  6.2 %320,041  5.4 %
Consumer15,771  0.3 %17,457  0.3 %
Total loans held for investment$6,223,426  100.0 %$5,921,071  100.0 %
Total loans held for sale$15,048  100.0 %$14,080  100.0 %

57
  As of September 30, As of December 31,
  2017 2016
  Amount Percent Amount Percent
  (Dollars in thousands)
Commercial $577,758
 30.3% $291,416
 29.4%
Real estate:        
Construction and land 276,670
 14.5% 162,614
 16.4%
Farmland 6,572
 0.3% 8,262
 0.8%
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%
Consumer 4,129
 0.2% 4,089
 0.4%
Total loans held for investment $1,907,509
 100.0% $991,897
 100%
Total loans held for sale $2,179
   $5,208
  

Nonperforming Assets
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 interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
We have several procedures in place to assist us in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. Nevertheless, our loan portfolio could become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets.


The following table presents information regarding non-performing assets at the dates indicated: 
 As of March 31,As of December 31,
 20202019
 (Dollars in thousands)
Non-accrual loans$38,836  $29,779  
Accruing loans 90 or more days past due4,764  3,660  
Total nonperforming loans43,600  33,439  
Other real estate owned: 
Commercial—  4,242  
Commercial real estate, construction, land and land development6,071  1,087  
Residential real estate1,649  666  
Total other real estate owned7,720  5,995  
Total nonperforming assets$51,320  $39,434  
Restructured loans—non-accrual1,500  1,457  
Restructured loans—accruing1,641  686  
Ratio of nonperforming loans to total loans0.75 %0.56 %
Ratio of nonperforming assets to total assets0.60 %0.50 %
  As of September 30, As of December 31,
  2017 2016
  (Dollars in thousands)
Non-accrual loans(1)
 $1,856
 $941
Accruing loans 90 or more days past due(1)
 54
 835
Total nonperforming loans 1,910
 1,776
Other real estate owned:    
Commercial real estate, construction, land and land development 738
 493
Residential real estate —
 169
Total other real estate owned 738
 662
Total nonperforming assets $2,648
 $2,438
Restructured loans—non-accrual 19
 170
Restructured loans—accruing 607
 652
Ratio of nonperforming loans to total loans 0.10% 0.18%
Ratio of nonperforming assets to total assets 0.11% 0.17%
(1) Excludes PCI loans measured at fair value at September 30, 2017.



We had $2.6 million and $2.4 million in nonperforming assets as of September 30, 2017 and December 31, 2016, respectively. We had $1.9 million in nonperforming loans as of September 30, 2017 compared to $1.8 million as of December 31, 2016.
The following table presents information regarding non-accrual loans by category as of the dates indicated:
 As of March 31,As of December 31,
 20202019
(Dollars in thousands)
Commercial$14,395  $5,672  
Mortgage warehouse—  —  
Real estate:
OOCRE18,876  18,876  
NOOCRE—  —  
Construction and land785  567  
Farmland—  —  
1-4 family residential912  1,581  
Multifamily—  —  
Consumer74  54  
Total$35,042  $29,779  

58
  As of September 30, As of December 31,
  2017 2016
  (Dollars in thousands)
Real estate:    
Construction and land $—
 $—
Farmland —
 —
1 - 4 family residential —
 —
Multi-family residential —
 —
Commercial Real Estate 794
 —
Commercial 1,048
 930
Consumer 14
 11
Total $1,856
 $941

Potential Problem Loans
From a credit risk standpoint, we classify non-PCI loans in one of four categories: pass, special mention, substandard or doubtful. Non-PCI loans classified as loss are charged-off. Non-PCI loans not rated special mention, substandard, doubtful or loss are classified as pass loans. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings on credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that we expect to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating. 
Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen our position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual.
Credits classified as purchased credit impaired are those that, at acquisition date, had the characteristics of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly.



The following tables summarize our internal ratings of our loans as of the dates indicated.
 March 31, 2020
 PassSpecial
Mention		SubstandardDoubtfulPCDTotal
Real estate:
Construction and land$554,823  $3,935  $2,107  $—  $5,605  $566,470  
Farmland14,930  —  —  —  —  14,930  
1 - 4 family residential528,824  826  2,432  —  4,810  536,892  
Multi-family residential371,310  17,064  —  —  —  388,374  
Nonfarm nonresidential2,377,677  24,578  34,084  —  115,886  2,552,225  
Commercial1,716,063  13,690  17,798  —  30,052  1,777,603  
Mortgage warehouse371,161  —  —  —  —  371,161  
Consumer15,402  —  140  —  229  15,771  
Total$5,950,190  $60,093  $56,561  $—  $156,582  $6,223,426  
 
September 30, 2017
 
Pass
Special
Mention
Substandard
Doubtful
PCI(1)

Total
Real estate:











Construction and land
$276,060

$610

$—

$—

—

$276,670
Farmland
6,572

—

—

—

—

6,572
1 - 4 family residential
185,216

—

257

—

—

185,473
Multi-family residential
54,475

—

—

—

—

54,475
Commercial Real Estate
775,129

8,142

13,403

—

5,758

802,432
Commercial
528,803

16,328

6,065

116

26,446

577,758
Consumer
4,043

—

86

—

—

4,129
Total
$1,830,298

$25,080

$19,811

$116

$32,204

$1,907,509

(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.

 December 31, 2016 December 31, 2019
 Pass 
Special
Mention
 Substandard Doubtful PCI Total PassSpecial
Mention		SubstandardDoubtfulPCDTotal
Real estate:            Real estate:
Construction and land $162,614
 $—
 $—
 $—
 —
 $162,614
Construction and land$618,773  $3,965  $2,689  $—  $3,947  $629,374  
Farmland 8,262
 —
 —
 —
 —
 8,262
Farmland16,939  —  —  —  —  16,939  
1 - 4 family residential 139,212
 710
 215
 —
 —
 140,137
1 - 4 family residential541,787  795  3,460  —  3,769  549,811  
Multi-family residential 14,683
 —
 —
 —
 —
 14,683
Multi-family residential320,041  —  —  —  —  320,041  
Commercial Real Estate 368,370
 2,326
 —
 —
 —
 370,696
Commercial real estateCommercial real estate2,332,357  23,494  38,278  —  96,854  2,490,983  
Commercial 289,589
 686
 1,034
 107
 —
 291,416
Commercial1,610,150  51,999  28,670  —  22,019  1,712,838  
Consumer 4,078
 —
 11
 —
 —
 4,089
Consumer17,106  40  182  —  129  17,457  
Total $986,808
 $3,722
 $1,260
 $107
 —
 $991,897
Total$5,640,781  $80,293  $73,279  $—  $126,718  $5,921,071  
 
Allowance for credit losses (“ACL”) on loans held for investment
The ACL is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. When the Company deems all or a portion of a loan losses
We maintain an allowance for loan losses that represents management’s best estimateto be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See Note 1 – “Summary of the loan losses and risks inherentSignificant Accounting Policies” in the loan portfolio. In determiningnotes to the allowancecondensed consolidated financial statements included elsewhere in this report for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. For additional discussion of our ACL methodology please refer to “—Critical Accounting Policies— Loans and Allowance for Loan Losses.”on loans.
In connection with our review of the loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:
59
•for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;

•for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;


•for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of the collateral; and
•for construction, land development and other land loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio.
As of September 30, 2017, the allowance for loan losses totaled $10.5 million, or 0.55%, of total loans. As of December 31, 2016, the allowance for loan losses totaled $8.5 million, or 0.86%, of total loans. The increase in the allowance compared to December 31, 2016 was primarily due to loan growth and an increase in the general reserves from changes in qualitative factors around the nature, volume and mix of the loan portfolio. Ending balances for the purchase discount related to non-impaired acquired loans were $6.4 million and $566 thousand, as of September 30, 2017 and December 31, 2016, respectively. Purchased credit impaired loans are not considered nonperforming loans.
The following table presents, as of and for the periods indicated, an analysis of the allowance for loancredit losses and other related data:

 As ofAs of
 March 31, 2020December 31, 2019
  Percent Percent
 Amountof TotalAmountof Total
 (Dollars in thousands)
Real estate:                
Construction and land$6,838  6.8 %$3,822  12.8 %
Farmland58  0.1  61  0.2  
1 - 4 family residential8,318  8.2  1,378  4.6  
Multi-family residential4,899  4.9  1,965  6.6  
OOCRE16,461  16.3  1,978  6.6  
NOOCRE25,681  25.4  8,139  27.3  
Total real estate$62,255  61.7 %$17,343  58.1 %
Commercial38,110  37.7  12,369  41.5  
Consumer618  0.6  122  0.4  
Total allowance for credit losses$100,983  100.0 %$29,834  100.0 %

The ACL increased $71.2 million, or 238.5%, as of March 31, 2020 from December 31, 2019. Upon adoption of ASU 2016-13 on January 1, 2020, the Company recorded an increase of $39.1 million to the ACL. The primary reasons for the increase in required ACL are the Company’s adoption of CECL on January 1, 2020 and significant projected deterioration of the loss drivers that the Company forecasts to calculate expected losses. This deterioration was brought on by the projected economic impact of COVID-19 on the Company’s loss drivers over the reasonable and supportable forecast period and created the need for $31.8 million of additional ACL.

The Company uses the discounted cash flow (DCF) method to estimate ACL for non-PCD owner occupied and non-owner occupied commercial real estate, construction and land development, 1-4 family residential, commercial and consumer loan pools. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. See Note 1 – “Summary of Significant Accounting Policies” in the notes to the condensed consolidated financial statements included elsewhere in this report for discussion of our DCF methodology and economic projections.

Consistent forecasts of the loss drivers are used across the loan segments. For all DCF models at March 31, 2020, the Company has determined that four quarters represents a reasonable and supportable forecast period and the Company will revert back to a historical loss rate over an additional four quarters on a straight-line basis. At March 31, 2020 the Company forecasted a significant increase in Texas unemployment and a year over year percentage decrease in Texas gross domestic product growth. The Company projected gradual improvement in the loss drivers over the next three quarters with these loss drivers remaining below historical trends over the past several years.

The following table provides an analysis of the provisions for loan losses, net charge-offs and recoveries and the effects of those items on our ACL:
60

 For the Nine Months Ended For the Nine Months Ended For the Year Ended Three Months EndedThree Months Ended
 September 30, 2017 September 30, 2016 December 31, 2016 March 31, 2020March 31, 2019
 (Dollars in thousands) (Dollars in thousands)
Average loans outstanding(1)
 $1,240,461
 $903,581
 $919,441
Average loans outstanding(1)
$5,948,611  $5,850,323  
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
Amortized costs of loans outstanding at end of period(1)
Amortized costs of loans outstanding at end of period(1)
$6,200,086  $5,778,200  
Allowance for credit losses at beginning of periodAllowance for credit losses at beginning of period$29,834  $19,255  
Impact of adopting ASC 326Impact of adopting ASC 32639,137  —  
Provision for credit lossesProvision for credit losses31,776  5,012  
Charge-offs:      Charge-offs:  
Real estate:      Real estate:  
Construction, land and farmland —
 —
 —
Residential (11) —
 —
Commercial Real Estate —
 —
 —
Commercial (611) (300) (314)Commercial—  (2,654) 
Consumer —
 (9) (19)Consumer(68) (74) 
Total charge-offs (622) (309) (333)Total charge-offs(68) (2,728) 
Recoveries:      Recoveries:  
Real estate:      Real estate:  
Construction, land and farmland —
 —
 —
Residential —
 —
 —
Residential1  8  
Commercial Real Estate —
 —
 —
Commercial 5
 28
 32
Commercial29  10  
Consumer —
 1
 3
Consumer274  46  
Total recoveries 5
 29
 35
Total recoveries304  64  
Net charge-offs (617) (280) (298)Net charge-offs236  (2,664) 
Allowance for loan losses at end of period $10,492
 $8,102
 $8,524
Allowance for credit losses at end of periodAllowance for credit losses at end of period$100,983  $21,603  
Ratio of allowance to end of period loans 0.55% 0.87% 0.86%Ratio of allowance to end of period loans1.63 %0.38 %
Ratio of net charge-offs to average loans 0.05% 0.03% 0.03%Ratio of net charge-offs to average loans— %0.05 %

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

(1)Excludes loans held for sale.

We believe the successful execution of our growth strategy through key acquisitions including Sovereign, and organic growth is demonstrated by the upward trend in loan balances from December 31, 20162019 to September 30, 2017.March 31, 2020. Loan balances


increased from $991.9$5.9 billion as of December 31, 2019 to $6.2 billion as of March 31, 2020. Net charge-offs represented 0.00% and 0.05% of average loan balances for the three months ended March 31, 2020 and 2019, respectively.
Equity Securities
As of March 31, 2020, we held equity securities with a readily determinable fair value of $15.4 million compared to $11.1 million as of December 31, 20162019. These equity securities primariliy represent investments in a publicly traded Community Reinvestment Act fund and are subject to $1.9 billion asmarket pricing volatility, with changes in fair value recorded in earnings.

The Company held equity securities without a readily determinable fair values and measured at cost of September 30, 2017.$3.6 million at March 31, 2020 and December 31, 2019, respectively. The allowanceCompany measures equity securities that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for loan losses asthe identical or a percentage of total loans was determined by the qualitative factors around the nature, volume and mixsimilar investment of the loan portfolio. The decrease in the allowance for loan loss as a percentage of loans as of September 30, 2017 from December 31, 2016 and September 30, 2016 was attributable to the Sovereign acquisition as acquired loans are recorded at fair value.same issuer.

Although we believe that we have established our allowance for loan losses in accordance with accounting principles generally accepted in the United States (“GAAP”) and that the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.
The following table shows the allowance for loan losses by loan category and certain other information as of the dates indicated. The allocation of the allowance for loan losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.
  As of As of
  September 30, 2017 December 31, 2016
    Percent   Percent
  Amount of Total Amount of Total
  (Dollars in thousands)
Real estate:                    
Construction and land $1,125
 10.7% $1,346
 15.8%
Farmland 39
 0.4
 69
 0.8
1 - 4 family residential 1,223
 11.7
 999
 11.7
Multi-family residential 296
 2.8
 117
 1.4
Commercial Real Estate 3,976
 37.9
 3,003
 35.2
Total real estate $6,659
 63.5% $5,534
 64.9%
Commercial 3,811
 36.3
 2,955
 34.7
Consumer 22
 0.2
 35
 0.4
Total allowance for loan losses $10,492
 100.0% $8,524
 100.0%
Debt Securities
We use our debt securities portfolio, which includes both available for sale and held to maturity debt securities, to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of September 30, 2017,March 31, 2020, the carrying amount of investmentdebt securities totaled $204.8 million,$1.1 billion, an increase of $102.2$120.5 million, or 99.7%12.1%, compared to $102.6$997.3 million as of December 31, 2016 which is2019. The increase was primarily due to securities purchases of $70.6securities of $200.7 million, during 2017 and $48.1 million of acquired Sovereign securities remaining as of September 30, 2017. This increase is partially offset by maturities, calls, and paydowns and maturities of $17.3 million during 2017.$107.7 million. Securities represented 8.2%13.1% and 7.3%12.1% of total assets as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
Our investment portfolio consists entirely of securities classified as available for sale. As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of accumulated other comprehensive income in stockholders’ equity. The following table summarizes the amortized cost and estimated fair value of our investment securities as of the dates shown:


61
  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
All of our mortgage-backed securities and collateralized mortgage obligations are agency securities.issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt– A,Alt-A, or second lien elements in our investment portfolio. As of September 30, 2017,March 31, 2020, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.
 
Management evaluates available for sale debt securities for other-than-temporaryin unrealized loss positions to determine whether the impairment at least on a quarterly basis, and more frequently when economicis due to credit-related factors or market conditions warrant such an evaluation.
The following table sets forthnoncredit-related factors. Consideration is given to (1) the extent to which the fair value maturitiesis less than cost, (2) the financial condition and approximated weighted average yield based on estimated annual income divided by the average amortized cost of our securities portfolio asnear-term prospects of the dates indicated. The contractual maturity of a mortgage-backed security isissuer, and (3) the date at which the last underlying mortgage matures.
  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%


  As of December 31, 2016
      After One Year After Five Years        
  Within but Within but Within        
  One Year Five Years Ten Years After Ten Years Total
  Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
  (Dollars in thousands)
U.S. government agencies $—
 —% $345
 1.62% $351
 2.02% $—
 —% $696
 1.82%
Municipal securities —
 —
 3,630
 2.13
 2,995
 1.96
 7,417
 2.51
 14,042
 2.29
Mortgage-backed securities —
 —
 37,307
 1.63
 11,731
 2.22
 81
 2.10
 49,119
 1.77
Collateralized mortgage obligations 262
 2.98
 36,850
 1.73
 815
 2.42
 —
 —
 37,927
 1.75
Asset-backed securities —
 —
 775
 1.40
 —
 —
 —
 —
 775
 1.40
Total $262
 2.98% $78,907
 1.70% $15,892
 2.18% $7,498
 2.51% $102,559
 1.83%
The contractual maturity of mortgage-backed securities, collateralized mortgage obligationsintent and asset backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities, collateralized mortgage obligations and asset-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The termability of the underlying mortgages and loans may vary significantly dueCompany to retain its investment in the ability of a borrower to pre-pay. Monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. Duringsecurity for a period of increasingtime sufficient to allow for any anticipated recovery in fair value. As of March 31, 2020, management believes that available for sale securities in a unrealized loss position are due to noncredit-related factors, including changes in interest rates fixed rate mortgage-backedand other market conditions, and therefore no provision for credit losses have been recognized in the Company’s condensed consolidated statements of income. The Company also recored no allowance for credit losses for its held to matury debt securities do not tend to experience heavy prepayments of principal and consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 3.90 years and 4.39 years with an estimated effective duration of 3.00 years and 3.30 years as of September 30, 2017March 31, 2020.
        As of March 31, 2020 and December 31, 2016, respectively.

As of September 30, 2017 and December 31, 2016,2019, we did not own securities of any one issuer other than U.S. government agency securities for which aggregate adjusted cost exceeded 10.0% of the condensed consolidatedour stockholders’ equity as of such respective dates.

Deposits
We offer a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.
Total deposits as of September 30, 2017March 31, 2020 were $2.0$5.8 billion, an increasea decrease of $866.0$94.4 million, or 77.3%1.6%, compared to $1.1$5.9 billion as of December 31, 2016.2019. The increasedecrease from December 31, 20162019 was primarily due to $809.4the result of decreases of $118.1 million and $7.2 million in financial institution money market accounts and noninterest-bearing demand deposits, respectively, partially offset by an increase in time deposits of deposits assumed from Sovereign.$30.9 million.
Borrowings
We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
Subordinated Debentures and Subordinated Notes
        Subordinated Notes - In connection with our acquisition of Green, on January 1, 2019, we assumed $35 million of 8.50% Fixed-to-Floating Rate Subordinated Notes (the “Fixed-to-Floating Notes”) that mature on December 15, 2026. The Fixed-to-Floating 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, to but excluding the maturity date or date of earlier redemption, the Fixed-to-Floating 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 Fixed-to-Floating Notes are subordinated in right of payment to all of our senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Bank. We may elect to redeem the Fixed-to-Floating 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. We may also redeem (subject to regulatory approval), in whole but not in part, the Fixed-to Floating Notes prior to an early redemption date upon the occurrence of certain events 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 Fixed-to-Floating Notes cannot be accelerated except in the event of bankruptcy or the occurrence of certain other events of bankruptcy, insolvency or reorganization.
A summary of pertinent information related to our issues of subordinated notes outstanding at the dates indicated is set forth in the table below:
62

 March 31, 2020December 31, 2019
(Dollars in thousands)
Subordinated notes$108,508  $113,467  
Unamortized debt premium1,820  2,081  
Total subordinated notes$110,328  $115,548  
Subordinated Debentures Trust Preferred Securities. The following subordinated debentures trust preferred securities were outstanding at the dates indicated in the table below:
 March 31, 2020December 31, 2019
(Dollars in thousands)
Subordinated debentures$33,868  $33,868  
Debt discount(3,790) (3,845) 
Total subordinated debentures$30,078  $30,023  

A summary of pertinent information related to our issues of subordinated debentures outstanding at March 31, 2020 is set forth in the table below:
DescriptionSubordinated Debt Owed to Trusts
Interest Rate(1)
Maturity Date
(Dollars in thousands)
Parkway National Capital Trust I$3,093 3-month LIBOR +1.85%December 2036
SovDallas Capital Trust I$8,609 3-month LIBOR +4.0%July 2038
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 March 31, 2020 was 1.5%.
        Each of the trusts is a capital trust organized for the sole purpose of issuing trust securities and investing the proceeds in our junior subordinated debentures. The preferred trust 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 wholly owned by us. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon our making payment on the related junior subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of our present and future senior indebtedness. We have 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.
        Under the provisions of each issue of the debentures, we have 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.
63

Federal Home Loan Bank (FHLB) advances.(“FHLB”) Advances
        The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of September 30, 2017each of March 31, 2020 and December 31, 2016,2019, total borrowing capacity of $484.1$429.3 million and $369.4$752.7 million, respectively, was available under this arrangement and $38.2 million$1.4 billion and $38.3$677.9 million, respectively, was outstanding with a weighted average interest rate of 1.19%0.95% for the three months ended September 30, 2017March 31, 2020 and 0.60%1.99% for the year ended December 31, 2016. Our2019. FHLB has also issued standby letters of credit to the Company for $513.4 million and $481.7 as of each of March 31, 2020 and December 31, 2019, respectively.Our current FHLB advances mature within sixfifteen years. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio.
The following table presents our FHLB borrowings at the dates indicated. Other than FHLB borrowings, we had no other short-term borrowings at the dates indicated.


  
 FHLB Advances
 (Dollars in thousands)
September 30, 2017 
Amount outstanding at period-end$38,200
Weighted average interest rate at period-end1.26%
Maximum month-end balance during the period38,294
Average balance outstanding during the period43,313
Weighted average interest rate during the period0.98%
December 31, 2016 
Amount outstanding at period-end$38,306
Weighted average interest rate at period-end0.77%
Maximum month-end balance during the period88,398
Average balance outstanding during the period43,649
Weighted average interest rate during the period0.60%
Federal Reserve Bank of Dallas.
The Federal Reserve Bank of Dallas ("FRB") has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain commercial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. As of September 30, 2017March 31, 2020 and December 31, 2016, $214.72019, $888.6 million and $197.3$843.9 million, respectively, were available under this arrangement.arrangement based on collateral values of pledged commercial and consumer loans. As of September 30, 2017, approximately $282.2 million in commercial loans were pledged as collateral. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, no borrowings were outstanding under this arrangement.
Junior subordinated debentures. As of September 30, 2017, we have $11.7 million in fixed/floating rate junior subordinated debentures underlying common securities and preferred capital securities, or the Trust Securities. In connection with the acquisition of Fidelity Resource Company during 2011, we assumed $3.1 million in Trust Securities issued by Parkway National Capital Trust I, a statutory business trust and acquired wholly-owned subsidiary. We assumed the guarantor position and as such, unconditionally guarantee 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 called for redemption and amounts due if a trust is liquidated or terminated. 
We own all of the outstanding common securities of each trust. Parkway National Capital Trust I used the proceeds from the issuance of its Trust Securities to buy the debentures originally issued by Fidelity Resource Company. These debentures are the trust’s only assets and the interest payments from the debentures finance the distributions paid on the Trust Securities.
The Trust Securities pay cumulative cash distributions quarterly at a rate per annum equal to the three-month LIBOR plus 1.85% percent. The effective rate as of September 30, 2017 and December 31, 2016 was 1.67% and 2.70%, respectively. The Trust Securities are subject to mandatory redemption in whole or in part, upon repayment of the debentures at the stated maturity in the year 2036 or their earlier redemption, in each case at a redemption price equal to the aggregate liquidation preference of the Trust Securities plus any accumulated and unpaid distributions thereon to the date of redemption. Prior redemption is permitted under certain circumstances.
The remaining $8.6 million in Trust Securities was assumed in the acquisition of Sovereign. Sovereign issued $8.4 million of Floating Rate Cumulative Trust Preferred Securities (TruPS) through a newly formed, unconsolidated, wholly-owned subsidiary, SovDallas Capital Trust I (the Trust). The Company had an investment of 100% of the common shares of the Trust, totaling $0.2 million.
The Trust invested the total proceeds from the sale of the TruPS and the investment in common shares in floating rate Junior Subordinated Debentures (the Debentures) issued by the Company. Interest on the TruPS is payable quarterly at a rate equal to three-month LIBOR plus 4.0%. Principal payments are due to maturity in July 2038. The TruPS 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.
Subordinated notes. On December 23, 2013, we completed a private offering of $5.0 million in aggregate principal amount of subordinated promissory notes. The notes were structured to qualify as Tier 2 capital under applicable rules and regulations of the Federal Reserve. The proceeds from the offering were used to support our continued growth. The notes are unsecured, with quarterly interest payable at a fixed rate of 6.0% per annum, and unpaid principal and interest on the notes is due at the stated maturity on December 31, 2023. We may redeem the notes in whole or in part on any interest payment date that occurs on or after December 23, 2018 subject to approval of the Federal Reserve.
Under the terms of the notes, if we have not paid interest on the notes within 30 days of any interest payment date, or if our classified assets to total tangible capital ratio exceeds 40.0%, then the note holder that holds the greatest aggregate principal amount of the notes may appoint one representative to attend meetings of our board of directors as an observer. The board observation rights terminate when such overdue interest is paid or our classified assets to total tangible capital ratio no longer exceeds 40.0%. In addition, the terms of the notes provide that the note holders will have the same rights to inspect our books and records provided to holders our common stock under Texas law.
In connection with the issuance of the notes, we also issued warrants to purchase 25,000 shares of our common stock, at an exercise price of $11.00 per share, exercisable at any time, in whole or in part, on or prior to December 31, 2023.
  As of September 30, As of December 31,
  2017 2016
  (Dollars in thousands)
Junior subordinated debentures $11,702
 $3,093
Subordinated notes 4,987
 4,942
Total $16,689
 $8,035

Liquidity and Capital Resources
Liquidity
Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the ninethree months ended September 30, 2017March 31, 2020 and the year ended December 31, 2016,2019, our liquidity needs were primarily met by core deposits, wholesale borrowings, security and loan maturities and amortizing investment and loan portfolios. Use of brokered deposits, purchased funds from correspondent banks and overnight advances from the FHLB and the Federal Reserve Bank of Dallas are available and have been utilized to take advantage of the cost of these funding sources. We maintained twofive lines of credit with commercial banks that provide for extensions of credit with an availability to borrow up to an aggregate $14.6$175.0 million and $150.0 million as of September 30, 2017March 31, 2020 and December 31, 2016.2019, respectively. There were no advances under these lines of credit outstanding as of September 30, 2017March 31, 2020 and December 31, 2016.2019.

64


The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of our average total assets for the period indicated. Average assets totaled $1.7$8.1 billion for the ninethree months ended September 30, 2017March 31, 2020 and $1.2$8.0 billion for the year ended December 31, 2016.2019.
 For theFor the
 Three Months EndedYear Ended
 March 31, 2020December 31, 2019
Sources of Funds:
Deposits:
Noninterest-bearing18.8 %18.6 %
Interest-bearing32.5  33.3  
Certificates and other time deposits20.3  25.1  
Advances from FHLB11.5  6.3  
Other borrowings1.8  1.1  
Other liabilities0.5  0.6  
Stockholders’ equity14.6  15.0  
Total100.0 %100.0 %
Uses of Funds:
Loans72.7 %73.6 %
Securities available-for-sale12.8  12.3  
Interest-bearing deposits in other banks3.8  0.8  
Other noninterest-earning assets10.7  13.3  
Total100.0 %100.0 %
Average noninterest-bearing deposits to average deposits26.2 %35.9 %
Average loans to average deposits101.6 %96.1 %
  For the For the
  Nine Months Ended Year Ended
  September 30, 2017 December 31, 2016
Sources of Funds:    
Deposits:    
Noninterest-bearing 22.1% 25.5%
Interest-bearing 58.0
 57.9
Advances from FHLB 2.4
 3.7
Other borrowings 0.6
 0.7
Other liabilities 0.3
 0.2
Stockholders’ equity 16.6
 12.0
Total 100.0% 100.0%
Uses of Funds:    
Loans 70.7% 77.2%
Securities available for sale 8.6
 7.1
Interest-bearing deposits in other banks 12.7
 7.8
Other noninterest-earning assets 8.0
 7.9
Total 100.0% 100.0%
Average noninterest-bearing deposits to average deposits 27.6% 30.5%
Average loans to average deposits 88.4% 92.5%

Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average loans net of allowance for loancredit loss increased 36.9%0.7% for the ninethree months ended September 30, 2017March 31, 2020 compared to the same period in 2016.year ended December 31, 2019. We invest excess deposits in interest-bearing deposits at other banks, the Federal Reserve or liquid investments securities until these monies are needed to fund loan growth.
As of September 30, 2017,March 31, 2020, we had $1.6 billion in outstanding $546.0 million in commitments to extend credit and $6.4$34.5 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2016,2019, we had $2.0 billion in outstanding $236.9 million in commitments to extend credit and $6.9$27.2 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
As of September 30, 2017,March 31, 2020, we had cash and cash equivalents of $151.4$430.8 million compared to $234.8$251.6 million as of December 31, 2016.2019.
Analysis of Cash Flows
 For theFor the
 Three Months EndedThree Months Ended
 March 31, 2020March 31, 2019
Net cash provided by operating activities$39,730  $17,876  
Net cash (used in) provided by investing activities(403,130) 112,771  
Net cash provided by financing activities542,692  124,377  
Net change in cash and cash equivalents$179,292  $255,024  

65

Cash Flows Provided by Operating Activities
        For the three months ended March 31, 2020, net cash provided by operating activities increased by $21.9 million when compared to the same period in 2019. The decreaseincrease in cash from operating activities was primarily duerelated to the $56.2Company having no merger and acquisition expenses in the three months ended March 31, 2020 as compared to $31.2 million of merger and acquisition expenses in the three months ending March 31, 2019.
Cash Flows(Used in) Provided by Investing Activities
        For the three months ended March 31, 2020, net cash used in investing activities increased by $515.9 million when compared to the same period in 2019. The increase in cash used in investing activities was primarily attributable to a $297.5 million increase in net loans held for investment, $112.7 million of cash considerationreceived in excess of cash paid relatedfor the acquisition of Green during 219 with no corresponding cash received in excess of cash paid in 2020, and a decrease of $108.9 million in cash from sales of securities available for sale for the three months ended March 31, 2020.
Cash Flows Provided by Financing Activities
        For the three months ended March 31, 2020, net cash provided by financing activities increased by $418.3 million when compared to the Sovereign acquisitionsame period in 2019. The increase in cash provided by financing activities was primarily attributable to a $775.0 million increase in advances from the FHLB, partially offset by a $308.8 million decrease in deposits for the three months ended March 31, 2020.
        As of the three months ended March 31, 2020 and due2019, we had no exposure to funding loanfuture cash requirements associated with known uncertainties or capital expenditures of a material nature.
Share Repurchases
        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 million of its outstanding common stock in the aggregate. The Board authorized increases of $50 million on September 3, 2019 and investment growth over$75 million on December 12, 2019, resulting in an aggregate authorization to purchase up to $175 million under the period.Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2019 to December 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 other factors, and in accordance with applicable regulations of the Securities and Exchange Commission (“SEC”). The Stock Buyback Program does not obligate the Company to purchase any shares, and the program may be terminated or amended by the Board at any time prior to its expiration.
During the three months ended March 31, 2020, 2,002,211 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $24.78. During the three months ended March 31, 2019, 316,600 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $24.42.

Capital Resources
Total stockholders’ equity decreased to $1.1 billion as of March 31, 2020, compared to $1.2 billion as of both March 31, 2019 and December 31, 2019, a decrease of $41.5 million, or 3.5%. The decrease from both March 31, 2019 and December 31, 2019 was primarily the result of $49.6 million in stock buybacks, $8.7 million in dividends declared and paid and $15.5 million in CECL transition during the three months ended March 31, 2020. By comparison, total stockholders’ equity increased to $445.9 million$1.2 billion as of September 30, 2017,March 31, 2019, compared to $239.1$530.6 million as of December 31, 2016,2019, an increase of $206.8$663.1 million, or 86.5%125.0%. The increase from December 31, 20162019 was primarily the result of the Company’s issuanceacquisition of 5,117,642 shares for $136.0 million, net of offering costs, in connection to the Sovereign acquisition, the Company raise of $56.7 million of common stock in our public offering, net of offering costs,Green and $11.9$7.4 million in net income during the ninethree months ended September 30, 2017.March 31, 2019.

66


Capital management consists of providing equity to support our current and future operations. The bank regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank holding company and bank levels. See Note 12 “Capital– “Capital Requirements and Restrictions on Retained Earnings” in the notes to our condensed consolidated financial statements in this Report for additional discussion regarding the regulatory capital requirements applicable to us and the Bank. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company and the Bank and we compliedwere in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized,”capitalized” for purposes of the prompt corrective action regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.
The following table presents the actual capital amounts and regulatory capital ratios for us and the Bank as of the dates indicated.
 As of March 31,As of December 31,
 20202019
 AmountRatioAmountRatio
 (Dollars in thousands)
Veritex Holdings, Inc.
Total capital (to risk-weighted assets)$918,866  12.48 %$917,939  13.10 %
Tier 1 capital (to risk-weighted assets)730,461  9.92  771,679  11.02  
Common equity tier 1 (to risk-weighted assets)701,401  9.53  742,675  10.60  
Tier 1 capital (to average assets)730,461  9.49  771,679  10.17  
Veritex Community Bank
Total capital (to risk-weighted assets)$912,112  12.37 %$870,838  12.44 %
Tier 1 capital (to risk-weighted assets)834,035  11.31  840,126  12.00  
Common equity tier 1 (to risk-weighted assets)834,035  11.31  840,126  12.00  
Tier 1 capital (to average assets)834,035  10.83  840,126  11.07  
  As of September 30, As of December 31,
  2017 2016
  Amount Ratio Amount Ratio
  (Dollars in thousands)
Veritex Holdings, Inc.        
Total capital (to risk-weighted assets) $328,915
 14.87% $228,566
 22.02%
Tier 1 capital (to risk-weighted assets) 313,437
 14.17
 215,057
 20.72
Common equity tier 1 (to risk-weighted assets) 301,735
 13.65
 211,964
 20.42
Tier 1 capital (to average assets) 313,437
 15.26
 215,057
 16.82
Veritex Community Bank        
Total capital (to risk-weighted assets) $255,756
 11.57% $130,237
 12.55%
Tier 1 capital (to risk-weighted assets) 245,264
 11.10
 121,713
 11.73
Common equity tier 1 (to risk-weighted assets) 245,264
 11.10
 121,713
 11.73
Tier 1 capital (to average assets) 245,264
 11.95
 121,713
 9.52

Contractual Obligations
In the ordinary course of the Company’s operations, the Company enters into certain contractual obligations, such as future cash payments associated with its contractual obligations forpursuant to its FHLB advance, non-cancelable future operating leases and other arrangements with respect to deposit liabilities, FHLB advancesqualified affordable housing investment and other borrowed funds. The Company believes that it will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels. The Company expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. The Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Other than normal changes in the ordinary course of business and changes discussed within “Financial Condition—Borrowings,” there have been no significant changes in the types of contractual obligations or amounts due since December 31, 2016.2019 as reported in our Annual Report on Form 10-K for the year ended December 31, 2019.
Off-Balance Sheet Items
In the normal course of business, the Company enters into various transactions, which, in accordance with GAAP, are not included in the Company’sits condensed consolidated balance sheets. However, the Company has only limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and issue standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the condensed consolidated balance sheets.
The Company’s commitments to extend credit and outstanding standby letters of credit were $546.0 million$1.6 billion and $6.4$34.5 million, respectively, as of September 30, 2017.March 31, 2020. Since commitments associated with letters of credit and commitments to extend
67

credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. The Company manages the Company’s liquidity in light of the aggregate amounts of commitments to extend credit and outstanding standby


letters of credit in effect from time to time to ensure that the Company will have adequate sources of liquidity to fund such commitments and honor drafts under such letters of credit.
Commitments to Extend Credit
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
Standby Letters of Credit
Standby letters of credit are written conditional commitments that the Company issues to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the customer is obligated to reimburse the Company for the amount paid under this standby letter of credit.
Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those that have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
Our exposure to interest rate risk is managed by the Asset-Liability Committee of the Bank, in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk that include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.
We use interest rate risk simulation models and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model, as are prepayment assumptions, maturity data and call options within the investment portfolio. Average life of our non-maturity deposit accounts are based on standard regulatory decay assumptions and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.


On a quarterly basis, we run two simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rate changes over a twelve-month and twenty-four month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 12.5% for a 100 basis point shift, 15.0% for a 200 basis point shift, and 20.0% for a 300 basis point shift.
The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the date indicated:
 
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)%
The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.
Impact of Inflation
Our condensed consolidated financial statements and related notes included elsewhere in this Reportherein have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.
Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
Subsequent Events
        On April 28, 2020, we announced that our Board of Directors declared a regular cash dividend of $0.17 per share on our outstanding common stock, payable on or after May 21, 2020 to shareholders of record as of May 7, 2020.
LIBOR Transition
        On July 27, 2017, the Financial Conduct Authority of the United Kingdom (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after 2021. Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including to the Company. The Company’s commercial and consumer businesses issue, trade and hold various products that are currently indexed to LIBOR. As of March 31, 2020, the Company had approximately $1.1 billion of loans indexed to LIBOR that mature after 2021. The Company’s products that are indexed to LIBOR are significant, and if not sufficiently planned for, the discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks to the Company.
        The Alternative Reference Rates Committee (“ARRC”) has proposed the Secured Overnight Financing Rate as its preferred rate as an alternative to LIBOR. In 2019, the ARRC released final recommended fallback contract language for new issuances of LIBOR indexed bilateral business loans, syndicated loans, floating rate notes, securitizations, and adjustable rate mortgage loans. The International Swaps and Derivatives Association, Inc. has developed fallback language that it expects to complete later in 2020.
        Due to the uncertainty surrounding the future of LIBOR, it is expected that the transition will span several reporting periods through the end of 2021. One of the major identified risks is inadequate fallback language in the various instruments’ contracts that may result in issues establishing the alternative index and adjusting the margin as applicable. The Company continues to monitor this activity and evaluate the related risks to its business.
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Critical Accounting Policies
Our consolidatedaccounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial statements are preparedcondition. We have identified certain significant accounting policies that involve a higher degree of judgment and complexity in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to makemaking certain estimates and assumptions that affect the amounts reported in theour consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions thatstatements. The significant accounting policies which we believe to be reasonable under current circumstances. These assumptions form the basis formost critical in preparing our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of ourconsolidated financial statements relate to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate.


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


Investment Securities
Securities are classified as held to maturity and carried at amortized cost when we have the positive intent and ability to hold them until maturity. Securities to be held for indefinite periods of time are classified as available for sale and carried at fair value, with the unrealized holding gains and losses reported in other comprehensive income, net of tax. We determined the appropriate classification of securities at the time of purchase. Interest income includes amortization of purchase premiums and discounts. Realized gains and losses are derived from the amortized cost of the security sold. Credit related declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses, with the remaining unrealized loss recognized as a component of other comprehensive income. In estimating other-than-temporary impairment losses, we consider, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and our ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Loans Held for Sale
Loans held for sale consist of certain mortgage loans originated and intended for sale in the secondary market and are carried at the lower of cost or estimated fair value on an individual loan basis. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. We obtain purchase commitments from secondary market investors prior to closing the loans and do not retain the servicing obligations related to any such loans upon their sale. Gainsallowance for credit losses, business combinations, investment securities, and losses on sales of loans held for sale are basedsale. On January 1, 2020, we adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on the difference between the selling priceFinancial Instruments (“ASU 2016-13”). The impact of adopting this standard resulted in an increase in our allowance for credit losses of $39.1 million. Since December 31, 2019, there have been no other changes in critical accounting policies as described under “Management’s Discussion and the carrying valueAnalysis of the related loan sold.
LoansFinancial Condition and Allowance for Loan Losses
Loans, excluding certain purchased loans that have shown evidenceResults of deterioration since origination as of the date of the acquisition, that we have the intent and ability to holdOperations—Critical Accounting Policies” in our Annual Report on Form 10-K for the foreseeable future or until maturity or pay-off are stated atyear ended December 31, 2019, except for those updates discussed in Note 1 - “Summary of Significant Accounting Policies” in the amount of unpaid principal, reduced by unearned income and an allowance for loan losses. Interest on loans is recognized using the effective-interest method on the daily balances of the principal amounts outstanding. Fees associated with the originating of loans and certain direct loan origination costs are netted and the net amount is deferred and recognized over the life of the loan as an adjustment of yield.
The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be collectible. If collectability is questionable, then cash payments are applied to principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured in accordance with the terms of the loan agreement.
The allowance for loan losses is an estimated amount we believe is adequate to absorb inherent losses on existing loans that may be uncollectible based upon review and evaluation of the loan portfolio. Our periodic evaluation of the allowance is based on general economic conditions, the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experience, and the results of periodic reviews of the portfolio. The allowance for loan losses is comprised of two components: the general reserve and specific reserves. The general reserve is determined in accordance with current authoritative accounting guidance. The Company’s calculation of the general reserve considers historical loss rates for the last three years adjusted for qualitative factors based upon general economic conditions and other qualitative risk factors both internal and externalaccompanying notes to the Company. Such qualitative factors include current local economic conditions and trends including unemployment, changes in lending staff, policies and procedures, changes in credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors. For purposes of determining the general reserve, the loan portfolio, less cash secured loans, government guaranteed loans and impaired loans, is multiplied by our adjusted historical loss rate. Specific reserves are determined in accordance with current authoritative accounting guidance based on probable losses on specific classified loans.
The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).
Due to the growth of the Bank over the past several years, a portion of the loans in our portfolio and our lending relationships are of relatively recent origin. The new loan portfolios have limited delinquency and credit loss history and have not yet exhibited an observable loss trend. The credit quality of loans in these loan portfolios are impacted by delinquency status and debt service coverage generated by the borrowers’ business and fluctuations in the value of real estate collateral. We consider delinquency


status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity loans and lines of credit and other consumer loans. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning”. As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. Because the majority of our portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels.
Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial, construction, and commercial real estate loans. Internal risk ratings are a key factor in identifying loans that are individually evaluated for impairment and impact our estimates of loss factors used in determining the amount of the allowance for loan losses. Internal risk ratings are updated on a continuous basis.
Loans are considered impaired when, based on current information and events, it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral. Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price. At September 30, 2017 and December 31, 2016, all significant impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral.
From time to time, we may modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (1) the borrower is experiencingcondensed consolidated financial difficulty and (2) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. All troubled debt restructurings are considered impaired loans. We review each troubled debt restructured loan and determine on a case by case basis if a specific allowance for loan loss is required. An allowance for loan loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.
We have certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. We review and approve these policies and procedures on a regular basis and makes changes as appropriate. We receive frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.
Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.
Real estate loans are also subject to underwriting standards and processes similar to commercial loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are generally diverse in terms of type and geographic location, throughout the Dallas metropolitan area. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry.
We utilize methodical credit standards and analysis to supplement our policies and procedures in underwriting consumer loans. Our loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes our risk.


Certain Acquired Loans
As part of its business acquisitions, we evaluated each of the acquired loans under ASC 310-30 to determine whether (i) there was evidence of credit deterioration since origination, and (ii) it was probable that we would not collect all contractually required payments receivable. We determined the best indicator of such evidence was an individual loan’s payment status and/or whether a loan was determined to be classified based on a review of each individual loan. Therefore, generally each individual loan that should have been or was on non-accrual at the acquisition date and each individual loan that was deemed impaired were included subject to ASC 310-30 accounting. These loans were recorded at the discounted expected cash flows of the individual loan.
Loans that were evaluated under ASC 310-30, and where the timing and amount of cash flows can be reasonably estimated, were accounted for in accordance with ASC 310-30-35. We apply the interest method for these loans under this subtopic and the loans are excluded from non-accrual. If, at acquisition, we identified loans that they could not reasonably estimate cash flows or, if subsequent to acquisition, such cash flows could not be estimated, such loans would bestatements included in non-accrual and accounted for under the cost recovery method. These acquired loans are recorded at the allocated fair value, such that there is no carryover of the seller’s allowance for loan losses. Such acquired loans are accounted for individually.this report.
We estimate the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a 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.
Loans to which ASC 310-30 accounting is applied are deemed purchased credit impaired (“PCI”) loans.
Emerging Growth Company
The JOBS Act permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we have “opted out” of this provision. As a result, we will comply with new or revised accounting standards to the same extent that compliance is required for non-emerging growth companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Special Cautionary Notice Regarding Forward-Looking Statements
        This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Private Securities Litigation Reform Act of 1995. Forward-looking statements included in this Report are based on various facts and derived utilizing numerous important assumptions, current expectations, estimates and projections and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include, without limitation, statements relating to the information concerningexpected payment date of our quarterly cash dividend, impact of certain changes in our accounting policies, standards and interpretations, the effects of the COVID-19 pandemic and actions taken in response thereto, our future financial performance, business and growth strategy, projected plans and objectives, as well as other projections ofbased on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact broader economic and industry trends, and any such variations may be material. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing.foregoing words. You should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:
•risks related to the concentration of our business in Texas, and specifically within the Dallas-Fort Worth metroplex and the Houston metropolitan area, including risks associated with any downturn in the real estate sector and risks associated with a decline in the values of single family homes in the Dallas-Fort Worth metroplex and the Houston metropolitan area;
•uncertain market conditions and economic trends nationally, regionally and particularly in the Dallas-Fort Worth metroplex and Texas;
•changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;
•risks related to our strategic focus on lending to small to medium-sized businesses;
•the sufficiency of the assumptions and estimates we make in establishing reserves for potential loan losses;
•our ability to implement our growth strategy, including identifying and consummating suitable acquisitions;
risks related to the integration of any acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions;


•our ability to recruit and retain successful bankers that meet our expectations in terms of customer relationships and profitability;
•changes in our accounting policies, standards and interpretations;
•our ability to retain executive officers and key employees and their customer and community relationships;
•risks associated with our limited operating history and the relatively unseasoned nature of a significant portion of our loan portfolio;
market conditions•risks associated with our commercial real estate and economic trends nationally, regionally and particularlyconstruction loan portfolios, including the risks inherent in the Dallas-Fort Worth metroplex and Texas;
risks related to our strategic focus on lending to small to medium-sized businesses;
the sufficiencyvaluation of the assumptions and estimates we make in establishing reserves for potential loan losses;collateral securing such loans;
•risks associated with our commercial loan portfolio, including the risk for deterioration in value of the general business assets that generally secure such loans;
risks associated with our commercial real estate and construction loan portfolios, including the risks inherent in the valuation of the collateral securing such loans;
•potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;
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•risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area;
•our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels;
changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;
•potential fluctuations in the market value and liquidity of our investment securities;
•the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;
•our ability to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting;
•risks associated with fraudulent and negligent acts by our customers, employees or vendors;
•our ability to keep pace with technological change or difficulties when implementing new technologies;
•risks associated with system failures difficulties and/or failures to prevent breaches of our network security;terminations with third-party service providers and the services they provide;
•risks associated with unauthorized access, cyber-crime and other threats to data processing system failures and errors;security;
our actual cost savings resulting from the acquisition of Liberty are less than expected, we are unable to realize those cost savings as soon as expected or we incur additional or unexpected costs;
our revenues after the Liberty acquisition are less than expected;
•potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;
the institution and outcome of litigation and other legal proceedings against us or to which we become subject;
•our ability to comply with various governmental and regulatory requirements applicable to financial institutions;


•the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, such as the Dodd-Frank Wall Street ReformAct;
•uncertainty regarding the future of LIBOR and Consumer Protection Act of 2010, or the Dodd-Frank Act;any replacement alternatives on our business;
•governmental monetary and fiscal policies, including the policies of the Federal Reserve;
•our ability to comply with supervisory actions by federal and state banking agencies;
•changes in the scope and cost of FDIC, insurance and other coverage; and
•systemic risks associated with the soundness of other financial institutions.institutions

Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as well as the information contained in this Quarterly Report on Form 10-Q, may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.law.

Item 3.Quantitative and Qualitative Disclosures About Market Risk


The Company manages market risk, which, as        As a financial institution, our primary component of market risk is primarily interest rate volatility, throughvolatility. Our asset, liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.
        Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
        We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
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        Our exposure to interest rate risk is managed by the Asset-Liability Committee of the Bank in accordance with policies approved by its board of directors. The Company usescommittee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.
        We use interest rate risk simulation modelmodels and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. See “Management’s DiscussionContractual maturities and Analysisre-pricing opportunities of Financial Conditionloans are incorporated in the model as are prepayment assumptions, maturity data and Resultscall options within the investment portfolio. Average life of Operations—Interest Rate Sensitivityour non-maturity deposit accounts are based on standard regulatory decay assumptions and Market Risk” hereinare incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
        On a quarterly basis, we run two simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rate changes over a 12-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 12.5% for a discussion100 basis point shift, 15.0% for a 200 basis point shift, and 20.0% for a 300 basis point shift.
        The following table summarizes the simulated change in net interest income and fair value of how we manageequity over a 12-month horizon as of the dates indicated:
 As of March 31, 2020As of December 31, 2019
 Percent ChangePercent ChangePercent ChangePercent Change
Change in Interestin Net Interestin Fair Valuein Net Interestin Fair Value
Rates (Basis Points)Incomeof EquityIncomeof Equity
+ 30015.51 %14.34 %14.51 %12.01 %
+ 20010.21 %11.45 %9.89 %9.42 %
+ 1005.59 %7.16 %5.17 %5.76 %
Base— %— %— %— %
−100(4.50)%(8.29)%(3.99)%(8.03)%
        The results are primarily due to behavior of demand, money market risk.and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.


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Item 4.Controls and Procedures


Evaluation of disclosure controls and procedures — As of the end of the period covered by this Report,report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this Report.


Changes in internal control over financial reporting —There — In connection with the adoption of ASC 326 effective January 1, 2020, the Company has made appropriate design and implementation updates to its business processes, systems and internal controls to support recognition and disclosure under the new standard. The Company’s adoption and implementation of ASU 2016-13 is discussed in Note 1 - “Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in Item 1. Financial Statements.

Except as discussed above, there were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2017March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II. OTHER INFORMATION


Item 1. Legal Proceedings


We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves vigorously against any pending or future claims and litigation.


At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on our combinedconsolidated results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.


Item 1A.Risk Factors


In evaluating an investment in our common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as well as the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC.
Hurricanes or other        There has been no material change in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of:

The novel coronavirus (“COVID-19”) and the impact of actions to mitigate it could have a material adverse weather events in Texas can have an adverse impact on Veritex’s and/or Liberty’seffect our business, financial condition and operations.results of operations, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.


Hurricanes, tropical storms, natural disastersCOVID-19 has led to federal, state and local governments enacting various restrictions in an attempt to limit the spread of the virus, including the declaration of a federal National Emergency; multiple cities’ and states’ declarations of states of emergency; school and business closings; limitations on social or public gatherings and other adverse weathersocial distancing measures, such as working remotely, travel restrictions, quarantines and shelter in place orders. Such measures have significantly contributed to rising unemployment and reductions in consumer and business spending. In response to the economic and financial effects of COVID-19, the Federal Reserve has sharply reduced interest rates and instituted quantitative easing measures as well as domestic and global capital market support programs. In addition, the Trump Administration, Congress, various federal agencies and state governments have taken measures to address the economic and social consequences of the pandemic, including the passage of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, and the Main Street Lending Program. The CARES Act, among other things, provides certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing, loan forgiveness and automatic forbearance. Beginning in early April 2020, we began processing loan applications under the Paycheck Protection Program created under the CARES Act. The Federal Reserve’s Main Street Lending Program will offer deferred interest on 4-year loans to small and mid-sized businesses. Other banking regulatory agencies have encouraged lenders to extend additional loans, and the federal government is considering additional stimulus and support legislation focused on providing aid to various sectors, including small businesses.The full impact on our business activities as a result of new government and regulatory policies, programs and guidelines, as well as regulators’ reactions to such activities, remains uncertain..

The economic effects of the COVID-19 outbreakhave had a destabilizing effect on financial markets, key market indices and overall economic activity. The uncertainty regarding the duration of the pandemic and the resulting economic disruption has caused increased market volatility and may lead to an economic recession and/or a significant decrease in consumer confidence and business generally. The continuation of these conditions caused by the outbreak, including the impacts of the CARES Act and other federal and state measures, specifically with respect to loan forbearances, can be expected to adversely impact our businesses and results of operations and the operations of our borrowers, customers and business partners. In particular, these events can be expected to, among other things:

•impair the ability of borrowers to repay outstanding loans or other obligations, resulting in increases in delinquencies;
•impair the value of collateral securing loans (particularly with respect to real estate);
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•impair the value of our securities portfolio;
•require an increase in our allowance for credit losses or unfunded commitments;
•adversely affect the stability of our deposit base, or otherwise impair our liquidity;
•result in a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded;
•reduce our wealth management revenues and the demand for our products and services;
•create stress on our operations and systems associated with our participation in the Paycheck Protection Program as a result of high demand and volume of applications;
•result in increased compliance risk as we become subject to new regulatory and other requirements associated with the Paycheck Protection Program and other new programs in which we participate;
•impair the ability of loan guarantors to honor commitments;
•negatively impact our regulatory capital ratios;
•negatively impact the productivity and availability of key personnel and other employees necessary to conduct our business, and of third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions;
•increase cyber and payment fraud risk, given increased online and remote activity; and
•broadly result in lost revenue and income.

Prolonged measures by health or other governmental authorities encouraging or requiring significant restrictions on travel, assembly or other core business practices could further harm our business and those of our customers, in particular our small to medium-sized business customers. Although we have an adversebusiness continuity plans and other safeguards in place, there is no assurance that they will be effective.

The ultimate impact of these factors is highly uncertain at this time and we do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the decline in economic conditions generally and a prolonged negative impact on Veritex’s and/or Liberty’ssmall to medium-sized businesses, in particular, due to COVID-19 may result in a material adverse effect to our business, financial condition and operations, cause widespread property damage and significantly depress the local economies in which Veritex and Liberty operate. Veritex operates one branch and a loan production office in Houston, an area which is susceptible to hurricanes, tropical storms and other natural disasters and adverse weather conditions. For example, in late August 2017, Hurricane Harvey, a Category 4 hurricane, caused extensive and costly damage across Southeast Texas. Most notably, the Houston metropolitan area in Texas received over 40 inches of rainfall, which resulted in catastrophic flooding and unprecedented damage to residences and businesses.

Veritex continues to evaluate Hurricane Harvey’s impact on its customers and its business, including its properties, assets and loan portfolios. While Veritex does not anticipate that Hurricane Harvey will have significant long-term effects on its business, financial condition or operations, Veritex is unable to predict with certainty the short- and long-term impact that Hurricane Harvey may have on the local region in which it operates, including the impact on loan and deposit activities and credit exposures. Veritex will continue to monitor the residual effects of Hurricane Harvey on its business and customers.

Similar future adverse weather events in Texas could potentially result in extensive and costly property damage to businesses and residences, force the relocation of residents and significantly disrupt economic activity in the region. Veritex and Liberty cannot predict the extent of damage that may result from such adverse weather events, which will depend on a variety of factors that are beyond the control of Veritex and Liberty, including, but not limited to, the severity and duration of the event, the timing and level of government responsiveness and the pace of economic recovery. If a significant adverse weather event were to occur, it could have a materially adverse impact on Veritex’s and/or Liberty’s financial condition, results of operations and business, as well as potentially increase Veritex’s and/or Liberty’s exposure to credit and liquidity risks.may heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.



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


None.On January 28, 2019, the Company's 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 million of its outstanding common stock in the aggregate. The Board authorized increases of $50 million on September 3, 2019 and $75 million on December 12, 2019, resulting in an aggregate authorization to purchase up to $175 million 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 December 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 other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any shares and may be terminated or amended by the Board at any time prior to its expiration date. The following repurchases were made under the Stock Buyback Program during the three months ended March 31, 2020:

(a)(b)(c)(d)
PeriodTotal number of shares purchasedAverage 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, 2020 - January 31, 202077,800  $28.22  77,800  $78,272,000  
February 1, 2020 - February 28, 20201,052,506  27.89  1,052,506  48,912,000  
March 1, 2020 - March 31, 2020871,905  20.72  871,905  30,850,000  
2,002,211  $24.78  2,002,211  $30,850,000  
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1 The Board authorized increases of $50 million on September 3, 2019 and $75 million on December 12, 2019 in the dollar amount authorized for repurchase, resulting in an aggregate authorization to purchase up to $175 million 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 December 31, 2020.



Item 3. Defaults Upon Senior Securities


None.


Item 4. Mine Safety Disclosures


Not Applicable.




Item 5.Other Information


None.

Item 6.Exhibits
 
Exhibit

Number
Description of Exhibit
2.12.3

3.1
3.2
3.3
31.1*
31.2*
32.1**
32.2**
101*The following materials from Veritex Holdings’Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,March 31, 2020, 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.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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




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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VERITEX HOLDINGS, INC.
(Registrant)
Date: October 26, 2017May 7, 2020/s/ C. Malcolm Holland, III
C. Malcolm Holland, III
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: October 26, 2017May 7, 2020/s/ Noreen E. SkellyTerry S. Earley
Noreen E. SkellyTerry S. Earley
Chief Financial Officer
(Principal Financial and Accounting Officer)


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