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

Condensed Consolidated Statements of Cash Flows(Unaudited)

For the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020

(Dollars in thousands)

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


	For the Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	31,787	$	4,134
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles	3,765		4,087
Net accretion of time deposit premium, debt discount and debt issuance costs	(80)		(588)
Provision for credit losses	(570)		35,657

Accretion of loan purchase discount	(1,911)		(4,320)
Stock-based compensation expense	2,478		1,958

Excess tax benefit from stock compensation	(154)		(1,388)
Net amortization of premiums on debt securities	730		895
Unrealized loss on equity securities recognized in earnings	199		249
Change in cash surrender value and mortality rates of bank-owned life insurance	(463)		(480)

Change in fair value of government guaranteed loans using fair value option	(917)		(165)
(Gain) loss on sales of mortgage loans held for sale	(507)		142
Gain on sales of government guaranteed loans	0		604


Net recovery on servicing asset	(128)		0
Originations of loans held for sale	(1,096)		(11,634)
Proceeds from sales of loans held for sale	4,070		10,689




Termination of derivatives designated as hedging instruments	43,900		0
Decrease (increase) in other assets	10,554		(13,141)
(Decrease) increase in accounts payable and other liabilities	(8,437)		13,031
Net cash provided by operating activities	83,220		39,730
Cash flows from investing activities:


Purchases of available for sale debt securities	(79,816)		(200,682)

Proceeds from maturities, calls and pay downs of available for sale debt securities	40,102		107,743
Purchases of held to maturity debt securities	(4,335)		0
Maturity, calls and paydowns of held to maturity debt securities	1,222		57
Purchases of other investments	(233)		(28,712)

Net loans originated	(184,586)		(291,262)
Proceeds from sale of government guaranteed loans	0		8,384
Net additions to bank premises, furniture and equipment	(661)		1,342


Net cash used in investing activities	(228,307)		(403,130)
Cash flows from financing activities:
Net increase (decrease) in deposits	391,799		(93,983)
Net (decrease) increase in advances from FHLB	(39)		699,962
Redemption of subordinated debt	0		(5,000)
Net change in securities sold under agreement to repurchase	552		73
Payments to tax authorities for stock-based compensation	(468)		(3,606)
Proceeds from exercise of employee stock options	2,879		3,422
Proceeds from exercise of stock warrants	0		109
Purchase of treasury stock	(4,074)		(49,557)
Dividends paid	(8,358)		(8,728)


Net cash provided by financing activities	382,291		542,692
Net increase in cash and cash equivalents	237,204		179,292
Cash and cash equivalents at beginning of period	230,825		251,550
Cash and cash equivalents at end of period	$	468,029	$	430,842

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

Condensed Consolidated Financial Statements.

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

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except for per share amounts)

1. Summary of Significant Accounting Policies

Nature of Organization

In this report, the words “Veritex”, “the Company,” “we,” “us,” and “our” refer to the combined entities of Veritex Holdings, Inc. ~~(“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,~~subsidiaries, including Veritex Community ~~Bank, formerly known as~~Bank. The word “Holdco” refers to Veritex Holdings, Inc. The word “the Bank” refers to Veritex Community ~~Bank, National Association (the “Bank”),~~Bank.

Veritex is a Texas state banking organization, with corporate offices in Dallas, Texas, and currently operates 2125 branches and ~~one~~1 mortgage office ~~17 of which are~~ located in the Dallas-Fort Worth metroplex, ~~with two branches in the Austin, Texas metropolitan area and two~~12 branches in the Houston ~~Texas~~ metropolitan ~~area.~~area and 1 branch in Louisville, Kentucky. The Bank provides a full range of banking services, ~~to individual and corporate customers, which include~~including commercial and retail lending and the acceptance of checking and savings ~~deposits.~~deposits, to individual and corporate customers. The Texas Department of Banking (the “TDB”) and the Board of Governors of the Federal Reserve System (the “Federal Reserve”) are the primary regulators of the Company and the Bank, ~~which~~and both regulatory agencies perform periodic examinations to ensure regulatory compliance.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Veritex Holdings, Inc. and ~~the Bank as~~ its ~~wholly-owned subsidiary.~~subsidiaries, including Veritex Community Bank.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), but do not include all of the information and footnotes required for complete financial statements. Intercompany transactions and balances are eliminated in consolidation. In management’s opinion, these ~~interim~~ unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s condensed consolidated financial position at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, condensed consolidated results of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, condensed consolidated stockholders’ equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 and condensed consolidated cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown ~~in this report~~herein are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Quarterly Reports on Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2020 included ~~within~~in the Company’s Annual Report on Form 10-K, as filed with the ~~Securities and Exchange Commission~~SEC on ~~March 10, 2017.~~February 26, 2021.

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

Segment Reporting

The Company has ~~one~~1 reportable segment. All of the Company’s activities are interrelated, and each activity is dependent ~~on the other~~ and assessed based on how each ~~of the activities~~activity of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and borrowings while managing interest rate and credit risk. Accordingly, all significant operating decisions are based upon an analysis of the ~~Company~~Bank as ~~one~~1 segment or unit. The Company’s chief operating decision-maker, the ~~CEO,~~Chief Executive Officer, uses the consolidated results to make operating and strategic decisions.

Reclassifications

~~Effective January 1, 2017,~~Certain items in the ~~Company adopted ASU 2016-09. Per ASU 2016-09 cash paid by an employer when directly withholding shares~~Company’s prior year financial statements were reclassified to conform to the current presentation including (i) the reclassification on the condensed consolidated statements of income from net gain on sales of loans and other assets owned for ~~tax-withholding purposes should be classified as a financing activity~~$746 to government guaranteed loan income, net for $439, gain on sale of mortgage loans held for sale for $142 and other income for ~~presentation purposes be applied retrospectively.~~$165 during the three months ended March 31, 2020, and (ii) the reclassification on the condensed consolidated statements of income from rental income to other income for $551 during the three months ended March 31, 2020.

Earnings Per Share

~~Earnings per share~~ (“EPS”)

EPS are based upon the ~~weighted-average~~weighted average shares outstanding. The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted EPS for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016:~~2020:


	Three Months Ended March 31,
		2021		2020
Earnings (numerator)
Net income		$	31,787	$	4,134


Shares (denominator)
Weighted average shares outstanding for basic EPS		49,394		50,725
Dilutive effect of employee stock-based awards		604		331
Adjusted weighted average shares outstanding		49,998		51,056
EPS:
Basic		$	0.64	$	0.08
Diluted		$	0.64	$	0.08

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, 2021, there were ~~no exclusions~~75 antidilutive shares excluded from the diluted EPS weighted average ~~shares.~~shares outstanding, 23 relating to restricted stock units and 52 relating to stock options. For the three months ended March 31, 2020, there were 1,341 antidilutive shares excluded from the diluted EPS weighted average shares outstanding.

Recent Accounting Pronouncements

ASU 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) eliminates Step 2 from the goodwill impairment test. In addition, the amendment eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is in 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~~2019-12, "Income Taxes (Topic ~~805): Clarifying the Definition of a Business” (“~~740)" ("ASU ~~2017-01”~~2019-12") 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 becausesimplifies the accounting for ~~a business combination differs from that~~income taxes by removing certain exceptions and improves the consistent application 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 businessGAAP by clarifying 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,amending other existing guidance. ASU ~~2017-01 is~~2019-12 was effective for interim and annual periods beginning after December 15, 2017 and shall be applied prospectively. The Company early adopted ASU 2017-01 as of July 1, 2017, which had no significant impact on the Company's financial statements as of and for the three and nine months ended September 31, 2017.

ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”) requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. For public companies, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is in process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on the consolidated financial statements.

ASU 2016-13 “Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This Accounting Standards Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods therein. The Company is continuing to evaluate the impact of the adoption of ASU 2016-13 and is uncertain of the impact on the consolidated financial statements at this point in time.

ASU 2016-02 “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 measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. This update will be effective for the Companyus on January 1, ~~2018. The Company is in process of evaluating the impact of this pronouncement, which is~~2021 and did not ~~expected to have a significant impact on the consolidated financial statements.~~

ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. The original effective date for ASU 2014-09 was for annual and interim periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date by one year, therefore it is now effective for interim and annual reporting periods beginning after December 15, 2017. The Company will adopt 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 consolidated financial ~~statements.~~

statements and related disclosures.

ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.

ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs ("ASU 2020-08") clarifies the accounting for the amortization of purchase premiums for callable debt securities with multiple call dates. ASU 2020-08 was effective for us on January 1, 2021 and did not have a significant impact on our consolidated financial statements and related disclosures.

2. Supplemental Statement of Cash Flows

Other supplemental cash flow information is presented below:


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	7,602	$	18,489
Cash paid for income taxes	15		2,330
Supplemental Disclosures of Non-Cash Flow Information:



Net foreclosure of other real estate owned and repossessed assets	0		1,725

3. Share Transactions

On January 28, 2019, the Company's Board of Directors (the “Board”) originally authorized a stock buyback program (the "Stock Buyback Program") pursuant to which the Company could, from time to time, purchase up to $50,000 of its outstanding common stock in the aggregate. The Board authorized increases of $50,000 on September 3, 2019 and $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, 2021. 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, 2021, there were 147,622 shares repurchased through the Stock Buyback Program and held as treasury stock at an average price of $26.83. 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.

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

⁽¹⁾ ~~Accounts payable~~4. Securities

Equity Securities With a Readily Determinable Fair Value

The Company held equity securities with a fair value of $11,164 and ~~accrued expenses includes accrued preferred stock dividends~~$11,363 at March 31, 2021 and December 31, 2020, respectively. The Company did not realize a loss on equity securities with a readily determinable fair value during the three months ended March 31, 2021 or 2020. The gross unrealized loss recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s condensed consolidated statements of ~~$185.~~

income were as follows:


	Three Months Ended March 31,
		2021		2020
Unrealized loss recognized on equity securities with a readily determinable fair value		$	199	$	249

~~3. Investment~~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 as of March 31, 2021 and December 31, 2020.

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),~~allowance for credit losses and the fair value of available for sale and held to maturity securities are as follows:


	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Available for sale

Corporate bonds	$	173,198	$	6,206	$	276	$	0	$	179,128
Municipal securities	117,704		7,579		849		0		124,434
Mortgage-backed securities	249,950		11,748		1,887		0		259,811
Collateralized mortgage obligations	396,158		12,806		1,425		0		407,539
Asset-backed securities	71,367		2,139		467		0		73,039
	$	1,008,377	$	40,478	$	4,904	$	0	$	1,043,951


	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Held to maturity
Mortgage-backed securities	$	10,863	$	608	$	99	$	0	$	11,372
Collateralized mortgage obligations	1,547		49		0		0		1,596
Municipal securities	21,499		2,060		0		0		23,559
	$	33,909	$	2,717	$	99	$	0	$	36,527

The Company did not transfer any debt securities from available for sale to held to maturity at fair value during the three months ended March 31, 2021.


										December 31, 2020
	September 30, 2017									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Available for sale									Available for sale
	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	Corporate bonds	$	173,050	$	6,417	$	1,297	$	0	$	178,170
Municipal securities	52,392		269		141		52,520		Municipal securities	115,533		10,129		6		0		125,656
Mortgage-backed securities	81,454		98		447		81,105		Mortgage-backed securities	240,320		16,047		42		0		256,325
Collateralized mortgage obligations	52,062		99		395		51,766		Collateralized mortgage obligations	388,080		20,895		66		0		408,909
Asset-backed securities	649		10		—		659		Asset-backed securities	52,335		2,934		0		0		55,269
	$	204,884	$	898	$	994	$	204,788		$	969,318	$	56,422	$	1,411	$	0	$	1,024,329

										December 31, 2020
										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Held to maturity									Held to maturity
Mortgage-backed securities									Mortgage-backed securities	$	6,982	$	849	$	0	$	0	$	7,831
Collateralized mortgage obligations									Collateralized mortgage obligations	1,620		103		0		0		1,723
Municipal securities									Municipal securities	22,270		2,459		0		0		24,729
										$	30,872	$	3,411	$	0	$	0	$	34,283

13. ~~Business Combinations~~Subsequent Events

~~Merger with Sovereign Bancshares, Inc.~~

On ~~August 1, 2017,~~April 27, 2021, the Company ~~acquired Sovereign Bancshares, Inc.~~announced the execution by the Bank of a definitive agreement pursuant to which the Bank will acquire a 49% interest in Thrive Mortgage, LLC (“~~Sovereign”~~Thrive”)~~, 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~~ for $53.9 million 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 uponcash. 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 securities 166,307
Loans 750,856
Accrued interest receivable 3,437
Bank premises, furniture and equipment 21,512
Non-marketable equity securities 6,751
Other real estate owned 282
Intangible assets 8,662
Goodwill 108,967
Other assets 10,331
Total Assets $ 1,121,880

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

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

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

~~Merger-related 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
Commercial 27,115
184,473
211,588
Consumer —
1,243
1,243
Total fair value 33,021
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~~

~~The following table discloses the preliminary fair value of intangible assets acquired from Sovereign on August 1, 2017:~~

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

~~Advances from Federal Home Loan Bank~~

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

~~Junior Subordinated Debentures~~

In connection with the acquisition of Sovereign on August 1, 2017, the Company assumed $8,609 in floating rate junior subordinated debentures underlying common securities and preferred capital securities, or the Trust Securities, issued by SovDallas Capital Trust I (“Trust”), a statutory business trust and acquired wholly-owned subsidiary of the Company. The Company assumed the guarantor position and as such, unconditionally guarantees payment of accrued and unpaid distributions required to be paid on the Trust Securities subject to certain exceptions, the redemption price when a capital security is 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 guaranteed by the Company and are subject to redemption. The Company may redeem the debt securities, in whole or in part, at any time at an amount equal to the principal amount of the debt securities being redeemed plus any accrued and unpaid interest.

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

~~Redemption of Veritex Series D Preferred Stock~~

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

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

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

~~14. Intangible Assets and Goodwill~~

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

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

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

~~For the nine months ended September 30, 2017 and September 30, 2016,amortization expense related to intangible 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:~~

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

~~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,investment, which is expected to close in the ~~fourth quarter~~middle of ~~2017.~~2021, is subject to receipt of required regulatory approvals and other customary closing conditions.

Thrive, headquartered in Georgetown, Texas, is a family-owned business and an industry leader in transforming the home financing process into a customer centered digital experience and is the first company in Texas to close a fully electronic note with a remote notary. Thrive’s markets include, among others, Texas, Ohio, Colorado, Kentucky, North Carolina, Kansas, Virginia, Florida, Maryland and Indiana.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) as well as with our ~~condensed~~consolidated financial statements and notes thereto appearing in ourAnnual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.Except where the content otherwise requires or when otherwise indicated, the terms “Veritex,” the “Company,” “we,” “us,” “our,” and “our business” refer to the combined entities of Veritex Holdings, Inc. and ~~our banking subsidiary,~~its subsidiaries, including Veritex Community Bank.

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

Overview

We are a ~~bank holding company headquartered~~Texas state banking organization with corporate offices in Dallas, Texas. Through our ~~wholly-owned~~wholly owned subsidiary, Veritex Community Bank, a Texas state chartered bank, we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals. ~~Since~~Beginning at our operational inception in 2010, we ~~have~~initially targeted customers and focused our acquisitions primarily in the Dallas metropolitan area, which we consider to be Dallas and the adjacent communities in North Dallas. ~~As a result of our acquisition of Sovereign, our~~Our current primary market now includes the broader Dallas-Fort Worth metroplex ~~which also encompasses Fort Worth~~ and ~~Arlington, as well as~~ the Houston and Austin metropolitan areas. We currently operate twenty-one branches and one mortgage office, 17 of which are located in the Dallas-Fort Worth metroplex, with two branches in the Austin, Texas metropolitan area and two branches in the Houston, Texas metropolitan area. As we continue to grow, we may expand to other metropolitan banking markets ~~within the State of~~in Texas.

On August 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 one~~reportable segment, community banking, ~~we generate most~~which generates the majority of our revenues from interest income on loans, customer service and loan fees, gains on sale of ~~Small Business Administration (“SBA”)~~government guaranteed loans and mortgage loans and interest income from securities. We incur interest expense on deposits and other borrowed funds and noninterest expense, such as salaries, ~~and~~ employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through ~~our~~ net interest margin. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets.

Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, and interest-bearing and noninterest-bearing liabilities, ~~and stockholders’ equity,~~ are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas and, specifically, in the Dallas-Fort Worth metroplex and Houston metropolitan area, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target market and throughout the ~~State~~state of Texas.

Recent Developments

Impact of COVID-19

The 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. Possible additional waves of COVID-19 may adversely affect the re-opening process. Conversely, ongoing virus containment efforts and vaccination progress, as well as the possibility of further government stimulus, could accelerate the macroeconomic recovery.

We have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities during the COVID-19 pandemic, including increasing our liquidity and reserves supported by a strong capital

position. In order to protect the health of our customers and employees, and to comply with applicable governmental directives, we have implemented our operational response and preparedness plan, which includes, among other things, dispersion of critical operation processes, increased monitoring focused on higher risk operations, enhanced remote access security and further restricted internet access, enhanced security around wire transfer execution and flexible scheduling provided to employees who are unable to work from home.

On March 27, 2020, the 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 PPP, a loan program administered by the SBA. Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals may apply for forgivable loans from existing SBA lenders and other approved lenders that enroll in the program, subject to numerous limitations and eligibility criteria. Subsequent legislation, including as noted below, has allocated additional funding to the PPP. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, provided additional funding for the PPP and allowed eligible borrowers, including certain borrowers who already received a PPP loan, to apply for PPP loans through March 31, 2021. The SBA began accepting PPP applications under the Consolidated Appropriations Act, 2021 on January 13, 2021. The American Rescue Plan Act of 2021, enacted on March 11, 2021, expanded the eligibility criteria for PPP loans and revised the exclusions from payroll costs for purposes of loan forgiveness. The PPP Extension Act of 2021, enacted on March 30, 2021, extended the PPP through May 31, 2021.

Beginning in early April 2020, we began processing loan applications under the PPP, and in January 2021 we began processing applications under this latest round of the PPP. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. If a loan is fully forgiven, the SBA will repay the lending bank in full. If a loan is partially forgiven or not forgiven at all, a bank must look to the borrower for repayment of unforgiven principal and interest. If the borrower defaults, the loan is guaranteed by the SBA. In order to obtain loan forgiveness, a PPP borrower must submit a forgiveness application to us, which we must review and submit to the SBA. The SBA began approving forgiveness applications on October 2, 2020. As of March 31, 2021, we had funded approvals for approximately 2,557 clients totaling approximately $407.4 million in PPP loans carried at fair value.

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 principal and/or interest payments for 90 days (“Round 1 Deferments”), which we may extend for an additional 90 days (“Round 2 Deferments”), 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. The CARES Act, as amended by the Consolidated Appropriations Act, 2021, specified that COVID-19 related loan modifications executed between March 1, 2020 and the earlier of (i) 60 days after the date of termination of the national emergency declared by the President and (ii) January 1, 2022, on loans that were current as of December 31, 2019 are not TDRs.Additionally, under guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers that were current prior to any relief are not TDRs under ASC Subtopic 310-40, “Troubled Debt Restructuring by Creditors.”These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant.Under the loan deferment program, Company had 12 and 754 modifications of loans in 2021 and 2020, respectively with aggregate principal balances of $4.8 million and $1.1 billion in 2021 and 2020, respectively, that qualified for temporary suspension of TDR requirements under Section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act, 2021, and the interagency guidance. As of April 30, 2021, we had $19.6 million in loans with remaining deferments.

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. 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 2021 is highly uncertain.

Financial position and results of operations

The COVID-19 pandemic had a material impact on our allowance for credit losses during 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 is significantly impacted by changes in the Texas economic forecasts used in the CECL model throughout 2020 and 2021 to reflect the expected impact of the COVID-19 pandemic. Should economic conditions worsen, we could experience increases in our ACL 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 the COVID-19 pandemic are further prolonged.

Our fee income could be reduced due to the COVID-19 pandemic. In keeping with guidance from regulators, we are working with customers affected by the COVID-19 pandemic 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 pandemic. 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 the COVID-19 pandemic and the associated 1.00% yield earned on PPP loans. In keeping with guidance from regulators, we are actively working with borrowers affected by the COVID-19 pandemic 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, 2021, all of our and the Bank’s capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by further credit losses. We rely on cash on hand as well as dividends from the Bank to service our debt. If our capital deteriorates such that the Bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.

We maintain access to multiple sources of liquidity, including the Paycheck Protection Program Liquidity Facility (“PPPLF”) which is a lending facility offered by the Federal Reserve toextend credit to financial institutions that originate PPP loans, while taking the PPP loans as collateral. As of March 31, 2021, we have not utilized the PPPLF. Wholesale funding markets have remained open to us with stable and low rates for short term funding. If an economic recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

Asset valuation

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

Results of Operations for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~September 30, 2016~~2020

General

Net income for the three months ended March 31, 2021 was $31.8 million, an increase of $27.7 million, or 668.9%, from net income of $4.1 million for the three months ended March 31, 2020.

Basic EPS for the three months ended March 31, 2021 was $0.64, an increase of $0.56 from $0.08 for the three months ended March 31, 2020. Diluted EPS for the three months ended March 31, 2021 was $0.64, an increase of $0.56 from $0.08 for the three months ended March 31, 2020.

Net Interest Income

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

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

For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, net interest income totaled ~~$42.8~~$65.6 million and net interest margin and net interest spread were ~~3.54%~~3.22% and ~~3.24%~~2.99%, respectively. For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2020, net interest income totaled ~~$30.4~~$67.4 million and net interest margin and net interest spread were ~~3.82%~~3.67% and ~~3.58%~~3.27%, respectively. The ~~increase~~decrease in net interest income ~~of $12.4 million~~ was primarily due to ~~$12.6~~a $10.5 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 milliondecrease in interest income on loans ~~also included~~ ~~$585 thousand~~and a $1.2 million increase in ~~estimated accretion~~interest expense on subordinated debentures and subordinated debt, partially offset by $4.6 million and $5.2 million decreases in interest expenses on interest-bearing demand and savings deposits and certificates and other time deposits, respectively, during the ~~third quarter of 2017 on loans acquired from Sovereign.~~ ~~Average loan balances increased $334.2 million~~three months ended March 31, 2021 compared to the ~~nine~~three months ended ~~September 30, 2016. The decline in net~~March 31, 2020. Net interest margin ~~and net interest spread was~~decreased 45 basis points from the three months ended March 31, 2020 primarily ~~attributable~~due to a ~~20 basis point~~ decrease in average yields earned on loan balances, partially offset by decreases in the average ~~yield~~rate paid on ~~interest-earning assets. This decrease was due to a change~~interest-bearing demand and savings deposits and certificate and other

time 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~~ ~~nine~~three months ended ~~September 30, 2017 compared~~March 31, 2021. As a result, the average cost of interest-bearing deposits decreased to ~~7.0%~~0.45% 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, 2021 from 1.37% for the three months ended March 31, 2020.

For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, interest expense totaled ~~$6.9~~$10.0 million and the average rate paid on interest-bearing liabilities was ~~0.87%~~0.72%. For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2020, interest expense totaled ~~$3.9~~$19.6 million and the average rate paid on interest-bearing liabilities was ~~0.73%~~1.47%. The ~~increase in interest expense of $3.0 million~~year-over-year decrease was ~~primarily~~ due to a $2.8 million increase in deposit-related interest expense resulting from average interest-bearing deposit increases of $352.5 million to $1.0 billion for the nine months ended September 30, 2017 from $656.8 million for the nine months ended September 30, 2016.

~~The increase in interest expense was primarily 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 increase~~decreases in the average ~~rate~~rates paid on interest-bearing ~~liabilities of 14 basis points was primarily due to~~ demand and savings deposits and certificates and other time deposits and a ~~13 basis point increase~~change 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 re~~sult 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.deposit mix.

The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and ~~interest–bearing~~interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average ~~rate~~rates earned on interest-earning assets, the average ~~rate~~rates paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as ~~non-accrual~~nonaccrual is not recognized in ~~income,~~income; however, the balances are reflected in average outstanding balances for the period. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, interest income not recognized on ~~non-accrual~~nonaccrual loans was ~~minimal.~~$1.1 million and $173 thousand, respectively. Any ~~non-accrual~~nonaccrual loans have been included in the table as loans carrying a zero yield.


	For the Three Months Ended March 31,
	2021						2020
			Interest						Interest
	Average		Earned/		Average		Average		Earned/		Average
	Outstanding		Interest		Yield/		Outstanding		Interest		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)	$	5,897,815	$	62,702	4.31	%	$	5,784,965	$	76,527	5.32	%
Loans held for investment, MW	510,678		3,815		3.03		163,646		1,334		3.28
PPP loans	356,356		882		1.00		—		—		—
Debt Securities	1,063,538		7,437		2.84		1,038,954		7,397		2.86
Interest-earning deposits in other banks	341,483		127		0.15		308,546		871		1.14
Equity securities and other investments	87,178		663		3.08		91,917		850		3.72
Total interest-earning assets	8,257,048		75,626		3.71		7,388,028		86,979		4.74
ACL	(105,972)						(44,270)
Noninterest-earning assets	790,195						782,024
Total assets	$	8,941,271					$	8,125,782

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	$	3,038,586	$	1,980	0.26	%	$	2,638,633	$	6,552	1.00	%
Certificates and other time deposits	1,509,836		3,061		0.82		1,650,678		8,240		2.01
Advances from FHLB	777,694		1,812		0.94		937,901		2,879		1.23
Subordinated debentures and subordinated debt	265,356		3,138		4.80		145,189		1,903		5.27
Total interest-bearing liabilities	5,591,472		9,991		0.72		5,372,401		19,574		1.47

Noninterest-bearing liabilities:
Noninterest-bearing deposits	2,069,233						1,523,702
Other liabilities	56,272						46,563
Total liabilities	7,716,977						6,942,666
Stockholders’ equity	1,224,294						1,183,116
Total liabilities and stockholders’ equity	$	8,941,271					$	8,125,782
Net interest rate spread(2)					2.99	%					3.27	%
Net interest income			$	65,635					$	67,405
Net interest margin(3)					3.22	%					3.67	%

(1) Includes average outstanding balances of loans held for sale of $16,602 and $10,995 for the three months ended March 31, 2021 and March 31, 2020, respectively, and average balances of loans held for investment, excluding MW and PPP loans.

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.~~

(2) Net interest rate spread is equal to the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

(3) Net interest margin is equal to net interest income divided by average interest-earning assets.

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

For the Nine Months Ended
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


	For the Three Months Ended March 31,
	2021 vs. 2020
	Increase (Decrease)

	Due to Change in
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	1,480	$	(15,305)	$	(13,825)
Loans held for investments, mortgage warehouse	2,807		(326)		2,481
PPP loans	882		—		882
Securities	173		(133)		40
Other investments	93		(837)		(744)
Interest-bearing deposits in other banks	(43)		(144)		(187)
Total increase (decrease) in interest income	5,392		(16,745)		(11,353)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	985		(5,557)		(4,572)
Certificates and other time deposits	(697)		(4,482)		(5,179)
Advances from FHLB	(488)		(579)		(1,067)
Subordinated debentures and subordinated notes	1,562		(327)		1,235
Total increase (decrease) in interest expense	1,362		(10,945)		(9,583)
Increase (decrease) in net interest income	$	4,030	$	(5,800)	$	(1,770)

Provision for ~~Loan~~Credit Losses

Our provision for ~~loan~~credit losses is a charge to income in order to bring our allowance for ~~loan~~credit 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~~We recorded no provision for ~~loan~~credit losses ~~was $2.6 million~~ for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, compared to ~~$1.6~~$31.8 million for the same period in ~~2016, an increase~~2020, a decrease of ~~$975 thousand,~~$31.8 million, or ~~60.6%~~100.0%. The ~~increase in~~decreased provision ~~expense~~for credit losses was ~~due mainly to loan growth as well as an increase in general reserves due~~primarily attributable to changes in ~~qualitative factors around~~ the ~~nature, volume and mix~~Texas economic forecasts used in the CECL model during the three months ended March 31, 2021 to reflect the expected impact of the ~~loan portfolio, which includes a qualitative risk factor adjustment related to the potential impact of Hurricane Harvey, for the nine months ended September 30, 2017 as~~COVID-19 pandemic compared to the ~~same period~~Texas economic forecasts utilized in ~~2016. In addition, net charge-offs increased $337 thousand~~the CECL model for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020. Prior to the three months ended March 31, 2021, significant deterioration in these forecasted Texas economic indicators was brought on by the projected economic impact of the COVID-19 pandemic on the reasonable and supportable forecast period. In the first quarter of 2021, we also recorded a $570 thousand recovery in our provision for unfunded commitments, which was also attributable to improvement in the Texas economic forecasts, compared to a $3.9 million provision for unfunded commitments recorded for the ~~same period in 2016.~~ three months ended March 31, 2020.

Noninterest Income

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

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


	For the
	Three Months Ended March 31,				Increase
	March 31,				Increase
	2021		2020		(Decrease)
	(In thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	3,629	$	3,642	$	(13)
Loan fees	1,341		845		496

Gain on sales of mortgage loans	507		142		365
Government guaranteed loan income, net	6,548		439		6,109



Other	2,147		2,179		(32)
Total noninterest income	$	14,172	$	7,247	$	6,925

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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 increased ~~$599 thousand,~~$6.9 million, or ~~12.8%~~95.6%, to ~~$5.3~~$14.2 million compared to noninterest income of ~~$4.7~~$7.2 million for the same period in ~~2016.~~2020. The primary ~~components~~driver of the increase ~~were~~was as follows:

~~Service charges and fees~~Government guaranteed loan income, net.Government guaranteed loan income, net includes non-interest income earned on ~~deposit accounts.~~ ~~We earn service charges and fees from our customers for deposit-related activities. The~~PPP loans as well as income from these deposit activities constitute a significant and predictable component of our noninterest income. Service charges and fees from deposit account activities were $1.7 million for the nine months ended September 30, 2017, an increase of $424 thousand over the same period in 2016. The increase was primarily attributablerelated 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, 2017 compared to $15 thousand for the same period of 2016. The increase of $190 thousand resulted from the sale of Sovereign investment securities that did not fit our investment strategy.

~~Gain on sales of loans.~~ ~~We originate SBA guaranteed loans and long-term fixed-rate mortgage loans for resale into the secondary market. Income from~~ the sales of government guaranteed loans ~~was $2.3 million for the nine months ended September 30, 2017 compared to $2.3 million for the same period~~. The increase in government guaranteed loan income, net of ~~2016. This decrease of $59 thousand~~$6.1 million was primarily due to ~~a decrease~~the increase in ~~gain~~fees earned on ~~sale of mortgage~~PPP loans ~~by $355 thousand~~originated and the ~~absence~~impact of ~~a one-time $193 thousand gain~~the fair value option election on ~~sale of~~these loans ~~acquired with~~for the ~~IBT loan portfolio which was recorded in~~three months ended March 31, ~~2016, offset by an increase in sales of SBA-guaranteed loans resulting in incremental gains of $496 thousand.~~2021 with no corresponding PPP loan originations during the three months ended March 31, 2020.

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

amortization of intangibles..

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


	For the Nine Months Ended				Increase
	September 30,				(Decrease)				For the Three Months Ended March 31,				Increase (Decrease)
	2017		2016		2017 vs. 2016				2021		2020
	(Dollars in thousands)								(In thousands)
Salaries and employee benefits	$	13,471	$	10,683	$	2,788		Salaries and employee benefits	$	22,932	$	18,870	$	4,062
Non-staff expenses:								Non-staff expenses:
Occupancy and equipment	3,622		2,718		904			Occupancy and equipment	4,096		4,273		(177)
Professional fees	3,959		1,861		2,098
Professional and regulatory fees								Professional and regulatory fees	3,441		2,196		1,245
Data processing and software expense	1,451		850		601			Data processing and software expense	2,319		2,089		230
FDIC assessment fees	1,061		447		614
Marketing	905		704		201			Marketing	909		1,083		(174)
Other assets owned expenses and write-downs	109		139		(30		)
Amortization of intangibles	413		285		128			Amortization of intangibles	2,537		2,696		(159)
Telephone and communications	438		295		143			Telephone and communications	337		319		18

Other	2,325		1,323		1,002			Other	3,026		4,019		(993)
Total noninterest expense	$	27,754	$	19,305	$	8,449		Total noninterest expense	$	39,597	$	35,545	$	4,052

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~~nonperforming assets at the dates indicated:


	As of March 31,			As of December 31,
	2021			2020
	(Dollars in thousands)
Nonaccrual loans(1)	$	73,594		$	81,096
Accruing loans 90 or more days past due	9,093			3,660
Total nonperforming loans	82,687			84,756
Other real estate owned:

Commercial real estate, construction, land and land development	2,377			2,337

Total other real estate owned	2,377			2,337
Total nonperforming assets	$	85,064		$	87,093
Troubled debt restructured loans—nonaccrual	22,870			23,225
Troubled debt restructured loans—accruing	5,899			5,932
Ratio of nonperforming loans to total loans	1.39		%	1.46		%
Ratio of nonperforming assets to total assets	0.92		%	0.99		%

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~~ At March 31, 2021 and December 31, ~~2016, respectively. We had $1.9 million in nonperforming~~2020, nonaccrual loans asincluded PCD loans of ~~September 30, 2017 compared to $1.8 million as of December 31, 2016.~~$1,386 and $1,508 not accounted for on a pooled basis.

The following table presents information regarding ~~non-accrual~~nonaccrual loans by category as of the dates indicated:


	As of March 31,		As of December 31,
	2021		2020
	(In thousands)
Commercial	$	26,177	$	29,318

Real estate:
OOCRE	5,781		6,266
NOOCRE	37,131		40,830


1-4 family residential	3,282		3,308

Consumer	1,223		1,374
Total	$	73,594	$	81,096

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, 2021
	Pass		Special Mention		Substandard		PCD		Total
Real estate:
Construction and land	$	718,748	$	1,511	$	510	$	2,675	$	723,444
Farmland	14,751		—		—		—		14,751
1 - 4 family residential	477,925		1,917		4,111		8,656		492,609
Multi-family residential	373,699		13,145		—		—		386,844
OOCRE	614,935		44,087		36,372		37,916		733,310
NOOCRE	1,734,213		152,686		55,417		28,629		1,970,945
Commercial	1,509,022		32,977		71,516		18,525		1,632,040
MW	596,423		2,578		—		—		599,001
Consumer	10,956		95		1,184		196		12,431
Total	$	6,050,672	$	248,996	$	169,110	$	96,597	$	6,565,375

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, 2020
	Pass		Special Mention		Substandard		Doubtful		PCI	Total			Pass		Special Mention		Substandard		Doubtful		PCD		Total
Real estate:												Real estate:
Construction and land	$	162,614	$	—	$	—	$	—	—	$	162,614	Construction and land	$	687,169	$	2,666	$	510	$	—	$	2,685	$	693,030
Farmland	8,262		—		—		—		—	8,262		Farmland	13,844		—		—		—		—		13,844
1 - 4 family residential	139,212		710		215		—		—	140,137		1 - 4 family residential	511,191		2,678		1,734		—		8,741		524,344
Multi-family residential	14,683		—		—		—		—	14,683		Multi-family residential	412,282		12,680		—		—		—		424,962
Commercial Real Estate	368,370		2,326		—		—		—	370,696
OOCRE												OOCRE	595,598		44,560		39,323		—		37,991		717,472
NOOCRE												NOOCRE	1,650,917		153,090		56,949				43,176		1,904,132
Commercial	289,589		686		1,034		107		—	291,416		Commercial	1,406,766		56,060		77,260		—		19,460		1,559,546
MW												MW	577,594		—		—		—		—		577,594
Consumer	4,078		—		11		—		—	4,089		Consumer	11,357		252		1,189		—		202		13,000
Total	$	986,808	$	3,722	$	1,260	$	107	—	$	991,897	Total	$	5,866,718	$	271,986	$	176,965	$	—	$	112,255	$	6,427,924

~~Allowance~~ACL on loans held for ~~loan losses~~investment

We maintain an ~~allowance for loan losses~~ACL that represents management’s best estimate of the ~~loan~~credit losses and risks inherent in the loan portfolio. In determining the ~~allowance for loan losses,~~ACL, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the ~~allowance for loan losses~~ACL is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. ~~For additional discussion of our methodology, please refer to “—Critical Accounting Policies— Loans and Allowance for Loan Losses.”~~

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:

•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 loan losses~~ACL and other related data:


	As of				As of
	March 31, 2021				December 31, 2020
			Percent				Percent
	Amount		of Total		Amount		of Total
	(Dollars in thousands)
Real estate:
Construction and land	$	6,805	6.5	%	$	7,768	7.4	%
Farmland	47		—		56		0.1
1 - 4 family residential	6,968		6.6		8,148		7.8
Multi-family residential	4,814		4.6		6,231		5.9
OOCRE	9,122		8.7		9,719		9.2
NOOCRE	39,503		37.6		35,237		33.5
Total real estate	$	67,259	64.1	%	$	67,159	63.9	%
Commercial	37,381		35.6		37,554		35.7
Consumer	296		0.3		371		0.4
Total allowance for credit losses	$	104,936	100.0	%	$	105,084	100.0	%

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


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

~~We believe the successful execution~~The ACL decreased $148 thousand to $104.9 million of ~~our growth strategy through key acquisitions, including Sovereign, and organic growth is demonstrated by the upward trend in loan balances~~March 31, 2021 from December 31, ~~2016 to September 30, 2017. Loan balances~~

increased from $991.9 million as of December 31, 2016 to $1.9 billion as of September 30, 2017. The allowance for loan losses as a percentage of total loans was determined by the qualitative factors around the nature, volume and mix of the loan portfolio.2020. The decrease in the ~~allowance~~ACL compared to December 31, 2020 was primarily attributable to net charge-offs of $148 thousand and changes in projected Texas economic forecasts using our CECL model which resulted in no calculated required provision for ~~loan loss as a percentage of loans~~credit losses as of ~~September 30, 2017 from December~~March 31, ~~2016~~2021 offset by increases in reserves for net loan growth and ~~September 30, 2016 was attributable to~~increases in specific reserves on nonaccrual loans during the ~~Sovereign acquisition~~three months ended March 31, 2021.

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


	Three Months Ended			Three Months Ended
	March 31, 2021			March 31, 2020
	(Dollars in thousands)
Average loans outstanding, excluding PPP loans(1)	$	6,391,891		$	5,948,611
Amortized costs of loans outstanding at end of period excluding MW and PPP loans(1)	5,963,493			5,847,862
Amortized costs of loans outstanding at end of period, excluding PPP loans(1)	6,563,185			6,200,086
ACL at beginning of period	105,084			29,834
Impact of adopting ASC 326	—			39,137
Provision for credit losses	—			31,776
Charge-offs:
Real estate:

Residential	(15)			—


Commercial	(346)			—
Consumer	(18)			(68)
Total charge-offs	(379)			(68)
Recoveries:
Real estate:

Residential	3			1


Commercial	226			29
Consumer	2			274
Total recoveries	231			304
Net charge-offs	(148)			236
Allowance for credit losses at end of period	$	104,936		$	100,983
Ratio of allowance to end of period loans excluding MW and PPP loans	1.76		%	1.73		%
Ratio of net charge-offs to average loans	—		%	—		%

(1)Excludes loans ~~are recorded at fair value.~~held for sale.

Although we believe that we have established our ~~allowance for loan losses~~ACL in accordance with ~~accounting principles generally accepted in the United States (“GAAP”)~~GAAP and that the ~~allowance for loan losses~~ACL was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.

~~The following table shows the allowance for loan losses by loan category and certain other information~~

Equity Securities

As of March 31, 2021, we held equity securities with a readily determinable fair value of $11.2 million compared to $11.4 million as of December 31, 2020. These equity securities primarily represent investments in a publicly traded Community Reinvestment Act fund and are subject to market pricing volatility, with changes in fair value recorded in earnings.

The Company held equity securities without a readily determinable fair values and measured at cost of $3.6 million at March 31, 2021 and December 31, 2020, respectively. The Company measures equity securities that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the ~~dates indicated. The allocation~~identical or a similar investment of the ~~allowance~~same issuer.

FHLB Stock and FRB Stock

As of March 31, 2021, we held FHLB stock and FRB stock of $71.5 million compared to $71.2 million as of December 31, 2020. The Bank is a member of its regional FRB and of the FHLB system. FHLB members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. Both FRB

and FHLB stock are carried at cost, restricted for ~~loan losses~~sale, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.income.

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 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, 2021, the carrying amount of ~~investment~~debt securities totaled ~~$204.8 million,~~$1.1 billion, an increase of ~~$102.2~~$22.7 million, or ~~99.7%~~2.1%, compared to ~~$102.6 million~~$1.1 billion as of December 31, ~~2016 which is~~2020. The increase was primarily due to ~~securities~~ purchases of ~~$70.6~~debt securities of $84.2 million ~~during 2017~~ and ~~$48.1~~net unrealized gains $19.4 million, ~~of acquired Sovereign securities remaining as of September 30, 2017. This increase is~~ partially offset by maturities, calls, and paydowns of $41.3 million. Debt securities represented 11.7% and ~~maturities of $17.3 million during 2017. Securities represented 8.2% and 7.3%~~12.0% of total assets as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, 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:

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, 2021, 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-temporary~~in unrealized loss positions to determine whether the impairment ~~at least on a quarterly basis, and more frequently when economic~~is due to credit-related factors or ~~market conditions warrant such an evaluation.~~

~~The following table sets forth~~noncredit-related factors. Consideration is given to (1) the extent to which the fair value ~~maturities~~is 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 as~~near-term prospects of the ~~dates indicated. The contractual maturity of a mortgage-backed security is~~issuer, 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 obligations~~intent 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 due~~Company 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. During~~security for a period of ~~increasing~~time sufficient to allow for any anticipated recovery in fair value. As of March 31, 2021, 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-backed~~and other market conditions, and therefore no allowance for credit losses have been recognized in the Company’s condensed consolidated balance sheets. The Company also recorded no allowance for credit losses for its held to maturity 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, 2017~~March 31, 2021.

As of March 31, 2021 and December 31, ~~2016, respectively.~~

~~As of September 30, 2017 and December 31, 2016,~~2020, 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 consolidated~~our 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, 2017~~March 31, 2021 were ~~$2.0~~$6.9 billion, an increase of ~~$866.0~~$391.7 million, or ~~77.3%~~6.0%, compared to ~~$1.1~~$6.5 billion as of December 31, ~~2016.~~2020. The increase from December 31, ~~2016~~2020 was primarily ~~due to $809.4~~the result of increases of $231.2 million ofin interest-bearing transaction and savings deposits, ~~assumed from Sovereign.~~$85.9 million in certificates and other time deposits, and $74.6 million in noninterest-bearing demand deposits.

Borrowings

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

~~Federal Home Loan Bank (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, 2017~~each of March 31, 2021 and December 31, ~~2016,~~2020, total borrowing capacity of ~~$484.1~~$638.9 million and ~~$369.4~~$766.4 million, respectively, was available under this arrangement and ~~$38.2~~$777.7 million and ~~$38.3~~$777.7 million, respectively, was outstanding with a weighted average interest rate of ~~1.19%~~0.94% for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~0.60%~~1.04% for the year ended December 31, ~~2016.~~2020. FHLB has also issued standby letters of credit to the Company for $965.6 million and $567.9 million as of each of March 31, 2021 and December 31, 2020, respectively. Our current FHLB advances mature within ~~six~~fifteen 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-end 1.26 %
Maximum month-end balance during the period 38,294
Average balance outstanding during the period 43,313
Weighted average interest rate during the period 0.98 %
December 31, 2016
Amount outstanding at period-end $ 38,306
Weighted average interest rate at period-end 0.77 %
Maximum month-end balance during the period 88,398
Average balance outstanding during the period 43,649
Weighted average interest rate during the period 0.60 %

Federal Reserve Bank of Dallas.

The Federal Reserve Bank of Dallas has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain securities and commercial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016, $214.7~~2020, $454.0 million and ~~$197.3~~$871.5 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, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, no borrowings were outstanding under this arrangement.

Junior subordinated ~~debentures.~~ ~~As of September 30, 2017, we have $11.7 million in fixed/floating rate~~debentures and subordinated notes

The table below details our 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~~subordinated notes. Refer to Note 14 “Borrowed Funds” 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 paidour 2020 10-K for further discussion 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 meetingsdetails 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 booksjunior subordinated debentures and ~~records provided to holders our common stock under Texas law.~~subordinated notes.

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.


	March 31, 2021
	Balance		Rate
	(Dollars in thousands)
Junior subordinated debentures
Parkway National Capital Trust I	$	3,093	2.03%
SovDallas Capital Trust I	8,609		4.24%
Patriot Bancshares Capital Trust I	5,155		2.09%
Patriot Bancshares Capital Trust II	17,011		1.98%
Subordinated notes
8.50% Fixed-to-Floating Rate Subordinated Notes	$	35,000	8.50%
4.75% Fixed-to-Floating Rate Subordinated Notes	75,000		4.75%
4.125% Fixed-to-Floating Rate Subordinated Notes	125,000		4.13%

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 management involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and the year ended December 31, ~~2016,~~ 2020, 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~~FRB are available and have been utilized to take advantage of the cost of these funding sources. We maintained ~~two~~five lines of credit with commercial banks that provide for extensions of credit with an availability to borrow up to an aggregate ~~$14.6~~of $175.0 million as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020. There were no advances under these lines of credit outstanding as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020.

In addition, $409.4 million was available in conjunction with the PPPLF which is a lending facility offered by the FRB to facilitate lending to small businesses under the PPP. As of March 31, 2021, we have not utilized the PPPLF.

The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of our average total assets for the period indicated. Average assets totaled ~~$1.7~~$8.9 billion for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~$1.2~~$8.5 billion for the year ended December 31, ~~2016.~~2020.


	For the		For the
	Three Months Ended		Year Ended
	March 31, 2021		December 31, 2020
Sources of Funds:
Deposits:
Noninterest-bearing	23.1	%	21.4	%
Interest-bearing	34.0		32.0
Certificates and other time deposits	16.9		18.2
Advances from FHLB	8.7		12.0
Other borrowings	3.0		2.0
Other liabilities	0.6		0.7
Stockholders’ equity	13.7		13.7
Total	100.0	%	100.0	%
Uses of Funds:
Loans	74.6	%	72.7	%
Securities available-for-sale	11.8		13.2
Interest-bearing deposits in other banks	3.8		1.2
Other noninterest-earning assets	9.8		12.9
Total	100.0	%	100.0	%
Average noninterest-bearing deposits to average deposits	31.3	%	29.9	%

Average loans, excluding PPP and MW, to average deposits	88.9	%	94.5	%

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~~held for ~~loan loss~~investment increased ~~36.9%~~12.7% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 compared to the ~~same period in 2016.~~year ended December 31, 2020. 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, 2021, we had $3.1 billion in outstanding ~~$546.0 million in~~ commitments to extend credit, $353.9 million in unconditionally cancellable MW commitments and ~~$6.4~~$50.2 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, ~~2016,~~2020, we had $2.7 billion in outstanding ~~$236.9 million in~~ commitments to extend credit, $354.6 million in MW commitments and ~~$6.9~~$44.4 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, 2021, we had cash and cash equivalents of ~~$151.4~~$468.0 million compared to ~~$234.8~~$230.8 million as of December 31, ~~2016. The decrease was primarily due~~2020.

Analysis of Cash Flows


	For the		For the
	Three Months Ended		Three Months Ended
	March 31, 2021		March 31, 2020
	(In thousands)
Net cash provided by operating activities	$	83,220	$	39,730
Net cash used in investing activities	(228,307)		(403,130)
Net cash provided by financing activities	382,291		542,692
Net change in cash and cash equivalents	$	237,204	$	179,292

Cash Flows Provided by Operating Activities

For the three months ended March 31, 2021, net cash provided by operating activities increased by $43.5 million when compared to the ~~$56.2 million of~~same period in 2020. The increase in cash ~~consideration paid~~from operating activities was primarily related to the ~~Sovereign acquisition~~cash received for the termination of derivatives designated as hedging instruments of $43.9 million and ~~due~~a decrease in originations of loans held for sale of $10.5 million.

Cash Flows Used in Investing Activities

For the three months ended March 31, 2021, net cash used in investing activities decreased by $174.8 million when compared to ~~funding loan~~the same period in 2020. The decrease in cash used in investing activities was primarily attributable to a $120.9 million decrease in purchases of available for sale debt securities and ~~investment growth over~~a $106.7 million decrease in originations of net loans held for investment. This decrease was partially offset by a decrease of $67.6 million of maturities of securities available for sale.

Cash Flows Provided by Financing Activities

For the ~~period.~~three months ended March 31, 2021, net cash provided by financing activities decreased by $160.4 million when compared to the same period in 2020. The decrease in cash provided by financing activities was primarily attributable to a $700.0 million decrease in advances from the FHLB. This decrease was partially offset by a $485.8 million increase in deposits and a decrease in treasury stock repurchases of $45.5 million.

As of the three months ended March 31, 2021 and 2020, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.

Share Repurchases

On January 28, 2019, the Company's Board originally authorized 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, 2021. 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 and capital and dividend guidelines of the Federal Reserve. 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, 2021, 147,622 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $26.83. 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.

Capital Resources

Total stockholders’ equity increased to ~~$445.9 million~~$1.23 billion as of ~~September 30, 2017,~~March 31, 2021, compared to ~~$239.1 million~~$1.20 billion as of December 31, ~~2016,~~2020, an increase of ~~$206.8~~$30.4 million, or ~~86.5%~~2.5%. The increase from December 31, ~~2016~~2020 to March 31, 2021 was primarily the result of ~~the Company’s issuance~~$31.8 million of ~~5,117,642 shares for $136.0~~net income recognized, an increase of $6.2 million ~~net of offering costs,~~ in ~~connection~~other comprehensive income, a $2.9 million increase due to the ~~Sovereign acquisition, the Company raise~~exercise of ~~$56.7 million of common~~employee stock ~~in our public offering, net of offering costs,~~options, and ~~$11.9~~$2.5 million in ~~net income~~stock-based compensation recognized during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2021. This increase was partially offset by $4.1 million in stock buybacks and $8.4 million in dividends declared and paid during the three months ended March 31, 2021.

By comparison, total stockholders’ equity decreased to $1.15 billion as of March 31, 2020, compared to $1.19 billion as of December 31, 2019, a decrease of $41.5 million, or 3.5%. The decrease 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.

Capital management consists of providing equity to support our current and future operations. ~~The bank~~Our regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank holding company and bank levels. See Note 12 ~~“Capital~~– “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, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, we and the Bank ~~and we complied~~were in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well ~~capitalized,”~~capitalized” for purposes of the ~~prompt corrective action~~PCA regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.

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


	As of March 31,				As of December 31,
	2021				2020
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Veritex Holdings, Inc.
Total capital (to risk-weighted assets)	$	1,124,859	13.38	%	$	1,099,031	13.57	%
Tier 1 capital (to risk-weighted assets)	808,338		9.61		782,487		9.66
Common equity tier 1 (to risk-weighted assets)	779,057		9.27		753,261		9.30
Tier 1 capital (to average assets)	808,338		9.50		782,487		9.43
Veritex Community Bank
Total capital (to risk-weighted assets)	$	998,704	11.89	%	$	968,481	11.96	%
Tier 1 capital (to risk-weighted assets)	914,656		10.89		884,471		10.92
Common equity tier 1 (to risk-weighted assets)	914,656		10.89		884,471		10.92
Tier 1 capital (to average assets)	914,656		10.76		884,471		10.66

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 ~~obligations for~~our non-cancelable future operating leases, ~~and other arrangements~~time deposits, future cash payments associated with ~~respect~~our contractual obligations pursuant to ~~deposit liabilities,~~our FHLB advances, junior subordinated debentures, subordinated debt, securities sold under agreements to repurchase and ~~other borrowed funds.~~qualified affordable housing investments. 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 as of March 31, 2021 since December 31, ~~2016.~~2020 as reported in our Annual Report on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Items

In the normal course of business, ~~the Company enters~~we enter into various transactions which, in accordance with GAAP, are not included in ~~the Company’s~~our consolidated balance sheets. However, ~~the Company~~we have 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~~our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. ~~The Company enters~~We enter into these transactions to meet the financing needs of ~~its~~our customers. These transactions include commitments to extend credit and ~~issue~~ standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The Company’s commitments to extend credit, MW commitments and outstanding standby and commercial letters of credit were ~~$546.0~~$3.1 billion, $353.9 million and ~~$6.4~~$50.2 million, respectively, as of ~~September 30, 2017.~~March 31, 2021. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. The Company manages ~~the Company’s~~its liquidity in light of the aggregate amounts of commitments to extend credit and outstanding standby

and commercial 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.

MW commitments

Mortgage warehouse commitments are unconditionally cancellable and represent the unused capacity on MW facilities the Company has approved. The Company reserves the right to refuse to buy any mortgage loans offered for sale by a customer, for any reason, at the Company’s sole and absolute discretion.

Standby and Commercial Letters of Credit

Standby and commercial 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 and commercial 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 Report~~herein have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.

Subsequent Events

On April 27, 2021, the Company announced the execution by the Bank of a definitive agreement pursuant to which the Bank will acquire a 49% interest in Thrive for $53.9 million in cash. Upon completion of the investment, the Company will obtain the right to designate a member to Thrive’s board of directors. The investment, which is expected to close in the middle of 2021, is subject to receipt of required regulatory approvals and other customary closing conditions.

LIBOR Transition

On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, confirmed that the publication of most LIBOR term rates will end on June 30, 2023 (excluding 1-week U.S. LIBOR and 2-month U.S. LIBOR, the publication of which will end on December 31, 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, 2021, the Company had approximately $1.4 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 (“SOFR”) as its preferred rate as an alternative to LIBOR. In 2019 and 2020, 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 and private student loans. On April 6, 2021, New York Governor Cuomo signed into law legislation that provides for the substitution of SOFR as an alternative reference rate in any LIBOR-based contract governed by New York state law that does not include clear fallback language, once LIBOR is discontinued. The ARRC also has published other recommendations relating to the spread adjustment between LIBOR and SOFR and other transition matters. The International Swaps and Derivatives Association, Inc. has announced a protocol for the transition of derivative instruments away from LIBOR..

Due to the uncertainty surrounding the future of LIBOR, it is expected that the transition will span several reporting periods through at least the end of 2021. One of the major identified risks is inadequate fallback language in various existing 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.

Critical Accounting Policies

Our ~~consolidated~~accounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial ~~statements are prepared~~condition. We have identified certain significant accounting policies which 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 make~~making certain estimates and assumptions that affect ~~the~~ amounts reported in ~~the~~our consolidated financial ~~statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that~~statements. The significant accounting policies which we believe to be ~~reasonable under current circumstances. These assumptions form~~ the ~~basis for~~most 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. Gains and losses on sales of loans held for sale are based on the difference between the selling price and the carrying value of the related loan sold.

~~Loans and Allowance for Loan Losses~~

Loans, excluding certain purchased loans that have shown evidence of deterioration since origination as of the date of the acquisition, that we have the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at 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~~business combinations, investment securities, and loans ~~that may be uncollectible based upon review~~held for sale. Since December 31, 2020, there have been no changes in critical accounting policies as described under “Management’s Discussion and ~~evaluation~~Analysis of ~~the loan portfolio. Our periodic evaluation~~Financial Condition and Results 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 determinedOperations—Critical Accounting Policies” in ~~accordance with current authoritative accounting guidance. The Company’s calculation of the general reserve considers historical loss rates~~our Form 10-K for the ~~last three years adjusted~~year ended December 31, 2020, except for ~~qualitative factors based upon general economic conditions and other qualitative risk factors both internal and external~~those updates discussed in Note 1 - Summary of Significant Accounting Policies in the accompanying 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 experiencing~~condensed 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 contains certain “forward-looking statements” within the meaning of the 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 concerning~~proposed investment in Thrive by Veritex, the expected 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, Houston metropolitan area and Texas, including as a result of the COVID-19 pandemic;

•risks related to the impact of the COVID-19 pandemic on our business and operations, especially as a vaccine becomes widely available;

•possible additional loan losses and impairment of the collectability of loans, particularly as a result of the COVID-19 pandemic and the programs implemented by the CARES Act, including its automatic loan forbearance provisions, and our PPP lending activities;

•the effects of regional or national civil unrest;

•changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;

•risks related to our strategic focus on lending to small to medium-sized businesses;

•the sufficiency of the assumptions and estimates we make in establishing reserves for potential loan losses;

•our ability to implement our growth strategy, including identifying and consummating suitable acquisitions;

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 and economic trends nationally, regionally and particularly in the Dallas-Fort Worth metroplex and Texas;~~

~~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;~~

~~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~~CRE and construction loan portfolios, including the risks inherent in the valuation of the collateral securing such loans;

•risks associated with our commercial loan portfolio, including the risk of deterioration in value of the general business assets that generally secure such loans;

•our level of nonperforming assets and the costs associated with resolving problem loans, if any, and complying with government-imposed foreclosure moratoriums;

•potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;

•risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area;

•our ability to maintain adequate liquidity (including in compliance with CBLR standards and the effect of the transition to the CECL methodology for allowances and related adjustments) and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels;

~~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~~debt securities;

•the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;

•our ability to maintain an effective system of disclosure controls and procedures and internal ~~controls~~control over financial reporting;

•risks associated with fraudulent and negligent acts by our customers, employees or vendors;

•our ability to keep pace with technological change or difficulties when implementing new technologies;

•risks associated with ~~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~~and economic stimulus programs;

•uncertainty regarding the ~~Dodd-Frank Wall Street Reform~~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.

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,~~2020, 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, through~~volatility. Our asset, liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.

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

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

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

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

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

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

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


	As of March 31, 2021				As of December 31, 2020
	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	15.98	%	9.97	%	18.91	%	29.38	%
+ 200	10.33	%	7.49	%	12.06	%	19.93	%
+ 100	4.77	%	4.34	%	5.37	%	9.64	%
Base	—	%	—	%	—	%	—	%
−100	(2.26)	%	(9.09)	%	(1.77)	%	(10.87)	%

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 ~~changes~~fluctuations in market interest rates on ~~other financial metrics. See “Management’s Discussion~~net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and ~~Analysis~~frequency of ~~Financial Condition~~interest rate changes as well as changes in market conditions and ~~Results~~the application and timing of ~~Operations—Interest Rate Sensitivity and Market Risk” herein for a discussion of how we manage market risk.~~various strategies.

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. In making this determination, our management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, considered a reportable event on a Current Report on Form 8-K that occurred during the period covered by this report, which was untimely but eventually filed with the SEC one day late due to an oversight, and which management believes does not change the effectiveness of our disclosure controls as of the end of the period covered by this report.

~~Changes in internal control over financial reporting~~ ~~—There~~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, 2017~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 ~~combined~~consolidated results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

Item 1A.Risk Factors

In evaluating an investment in our common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, 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 adverse weather events in Texas can have an adverse impact on Veritex’s and/or Liberty’s business, financial condition and operations.~~

Hurricanes, tropical storms, natural disasters and other adverse weather events can have an adverse impact on Veritex’s and/or Liberty’s 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 There has been no material change in the ~~region. Veritex and Liberty cannot predict~~risk factors previously disclosed in our Annual Report on Form 10-K for 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.year ended December 31, 2020.

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

~~None.~~On January 28, 2019, the Company's Board originally authorized 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, 2021. 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, 2021:


	(a)	(b)		(c)	(d)
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
January 1, 2021 - January 31, 2021	25,865	$	25.40	25,865	$	22,226,000
February 1, 2021 - February 28, 2021	121,757	27.14		121,757	18,922,000
March 1, 2021 - March 31, 2021	—	—		—	18,922,000






	147,622	$	26.83	147,622	$	18,922,000

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
~~2.1~~2.3						Agreement and Plan of Reorganization dated ~~December 14, 2016,~~July 23, 2018, by and ~~between~~among Veritex Holdings, Inc., ~~Spartan Merger Sub,~~MustMS, Inc., and ~~Sovereign Bancshares,~~Green Bancorp, Inc. (incorporated ~~herein~~ by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed ~~December 14, 2016)~~July 24, 2018).
~~3.1~~3.2						~~Second~~Third Amended and Restated ~~Certificate of Formation~~Bylaws of Veritex Holdings, Inc. (incorporated by reference to Exhibit ~~3.1 to Amendment No. 1~~3.2 to the Company’s ~~Registration Statement~~Quarterly Report on Form ~~S-1~~10-Q filed ~~September 22, 2014 (File No. 333-198484))~~July 25, 2017).
~~3.2~~10.1						~~Third Amended~~Executive Employment Agreement, dated April 16, 2021, by and ~~Restated Bylaws of~~among Veritex Community Bank, Veritex Holdings, Inc. and C. Malcolm Holland (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
~~3.3~~10.2						~~Third Amended~~Executive Employment Agreement, dated April 16, 2021, by and ~~Restated Bylaws of~~among Veritex Community Bank, Community Bank, Veritex Holdings, Inc.~~, marked~~ and Jeff Kesler (incorporated by reference to ~~show amendments effective as of May 18, 2017.~~Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
10.3						Executive Employment Agreement, dated April 16, 2021, by and among Veritex Community Bank, Community Bank, Veritex Holdings, Inc. and Jon Heine (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
10.4						Executive Employment Agreement, dated April 16, 2021, by and among Veritex Community Bank, Community Bank, Veritex Holdings, Inc. and Clay Riebe (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed April 23, 2021)
31.1*						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						The following materials from Veritex ~~Holdings’~~Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017,~~March 31, 2021, formatted in Inline XBRL ~~(Extensible~~(Inline eXtensible Business Reporting Language)~~, furnished herewith:~~: (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, ~~(ii)~~(iii) Condensed Consolidated Statements of ~~Operations, (iii)~~Income, (iv) Condensed Consolidated Statements of Comprehensive Income, ~~(Loss), (iv)~~(v) Condensed Consolidated Statements of Changes in ~~Shareholders’~~Stockholders’ Equity, ~~(v)~~(vi) Condensed Consolidated Statements of Cash Flows, and ~~(vi)~~(vii) Notes to Condensed Consolidated Financial Statements.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed with this Quarterly Report on Form 10-Q

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

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, 2017~~May 6, 2021						/s/ C. Malcolm Holland, III
						C. Malcolm Holland, III
						Chairman and Chief Executive Officer
						(Principal Executive Officer)




Date: ~~October 26, 2017~~May 6, 2021						/s/ ~~Noreen E. Skelly~~Terry S. Earley
						~~Noreen E. Skelly~~Terry S. Earley
						Chief Financial Officer
						(Principal Financial and Accounting Officer)



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

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


	March 31,		December 31,
	2021		2020
	(Unaudited)
ASSETS
Cash and due from banks	$	45,869	$	44,337
Interest bearing deposits in other banks	422,160		186,488
Total cash and cash equivalents	468,029		230,825
Debt securities available-for-sale, at fair value	1,043,951		1,024,329
Debt securities held-to-maturity (fair value of $36,527 and $34,283, at March 31, 2021 and December 31, 2020, respectively)	33,909		30,872
Equity securities	14,739		14,938
Investment in unconsolidated subsidiaries	1,018		1,018
Federal Home Loan Bank of Dallas Stock (“FHLB”) and Federal Reserve Bank (“FRB”) Stock	71,469		71,236
Total investments	1,165,086		1,142,393
Loans held for sale	19,864		21,414
Loans held for investment, Paycheck Protection Program (“PPP”) loans, carried at fair value	407,353		358,042
Loans held for investment, mortgage warehouse (“MW”)	599,001		577,594
Loans held for investment, excluding MW and PPP	5,963,493		5,847,862
Less: Allowance for credit losses (“ACL”)	(104,936)		(105,084)
Total loans held for investment, net	6,864,911		6,678,414
Bank-owned life insurance	83,318		82,855
Bank premises, furniture and equipment, net	114,585		115,063
Other real estate owned	2,337		2,337
Intangible assets, net of accumulated amortization	59,236		61,733
Goodwill	370,840		370,840
Other assets	89,304		114,997

Total assets	$	9,237,510	$	8,820,871
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing deposits	$	2,171,719	$	2,097,099
Interest-bearing transaction and savings deposits	3,189,693		2,958,456
Certificates and other time deposits	1,543,158		1,457,291
Total deposits	6,904,570		6,512,846
Accounts payable and other liabilities	55,902		61,928

Advances from FHLB	777,679		777,718
Subordinated debentures and subordinated notes	262,774		262,778
Securities sold under agreements to repurchase	2,777		2,225

Total liabilities	8,003,702		7,617,495
Commitments and contingencies (Notes 8 and 11)	0		0
Stockholders’ equity:
Common stock, $0.01 par value; 75,000,000 shares authorized; 55,742,722 and 55,500,118 shares issued at March 31, 2021 and December 31, 2020, respectively; 49,432,750 and 49,337,768 shares outstanding at March 31, 2021 and December 31, 2020, respectively	557		555
Additional paid-in capital	1,131,324		1,126,437
Retained earnings	195,661		172,232
Accumulated other comprehensive income	62,413		56,225
Treasury stock, 6,309,972 and 6,162,350 shares at cost at March 31, 2021 and December 31, 2020, respectively	(156,147)		(152,073)
Total stockholders’ equity	1,233,808		1,203,376
Total liabilities and stockholders’ equity	$	9,237,510	$	8,820,871



	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


	Three Months Ended March 31,
		2021		2020
Net income		$	31,787	$	4,134
Other comprehensive income:
Net unrealized gains (losses) on securities available-for-sale:
Change in net unrealized gains (losses) on securities available-for-sale during the period, net		(19,437)		28,487

Net unrealized gains (losses) on securities available-for-sale		(19,437)		28,487

Net unrealized gains on derivative instruments designated as cash flow hedges		27,271		3,732

Other comprehensive income, before tax		7,834		32,219
Income tax expense		1,646		5,974
Other comprehensive income, net of tax		6,188		26,245
Comprehensive income		$	37,975	$	30,379


	March 31, 2021
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due from one year to five years	$	5,179	$	5,340	$	0	$	0
Due from five years to ten years	154,476		160,043		3,882		4,177
Due after ten years	131,247		138,179		17,617		19,382
	290,902		303,562		21,499		23,559
Mortgage-backed securities and collateralized mortgage obligations	646,108		667,350		12,410		12,968
Asset-backed securities	71,367		73,039		0		0
	$	1,008,377	$	1,043,951	$	33,909	$	36,527



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



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




	Page
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements – (Unaudited)	3
		Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020	34
		Condensed Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	45
		Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	56
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	6 7
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	78
		Notes to Condensed Consolidated Financial Statements	89
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3940
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	7061
Item 4.		Controls and Procedures	7062

PART II — OTHER INFORMATION
Item 1.		Legal Proceedings	7163
Item 1A.		Risk Factors	7163
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	7163
Item 3.		Defaults Upon Senior Securities	7163
Item 4.		Mine Safety Disclosures	7164
Item 5.		Other Information	7264
Item 6.		Exhibits	7264
SIGNATURES			7365



	Three Months Ended September 30,				Nine Months Ended September 30,
	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 expense:
Interest on deposit accounts	2,812		1,381		6,201		3,388
Interest on borrowings	338		156		696		491
Total interest expense	3,150		1,537		6,897		3,879
Net interest income	19,129		10,517		42,758		30,435
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
Noninterest income:
Service charges and fees on deposit accounts	669		433		1,733		1,309
Gain on sales of investment securities	205		—		205		15
Net gain on sales of loans and other assets owned	705		1,036		2,259		2,318
Bank-owned life insurance	188		193		561		577
Other	210		231		520		460
Total noninterest income	1,977		1,893		5,278		4,679
Noninterest expense:
Salaries and employee benefits	5,921		3,920		13,471		10,683
Occupancy and equipment	1,596		923		3,622		2,718
Professional fees	1,973		785		3,959		1,861
Data processing and software expense	719		296		1,451		850
FDIC assessment fees	410		179		1,061		447
Marketing	436		293		905		704
Other assets owned expenses and write-downs	71		9		109		139
Amortization of intangibles	223		95		413		285
Telephone and communications	230		98		438		295
Other	943		431		2,325		1,323
Total noninterest expense	12,522		7,029		27,754		19,305
Net income from operations	7,832		5,143		17,697		14,199
Income tax expense	2,650		1,768		5,802		4,837
Net income	$	5,182	$	3,375	$	11,895	$	9,362
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
Diluted earnings per share	$	0.25	$	0.31	$	0.69	$	0.85


	Three Months Ended March 31,
		2021		2020
Interest and dividend income:
Loans, including fees		$	67,399	$	77,861
Debt securities		7,437		7,397
Deposits in financial institutions and Fed Funds sold		127		871
Equity securities and other investments		663		850
Total interest and dividend income		75,626		86,979
Interest expense:
Transaction and savings deposits		1,980		6,552
Certificates and other time deposits		3,061		8,240
Advances from FHLB		1,812		2,879
Subordinated debentures and subordinated notes		3,138		1,903
Total interest expense		9,991		19,574
Net interest income		65,635		67,405
Provision for credit losses		0		31,776
Provision for credit losses on unfunded commitments		(570)		3,881
Net interest income after provision for credit losses		66,205		31,748
Noninterest income:
Service charges and fees on deposit accounts		3,629		3,642
Loan fees		1,341		845

Gain on sale of mortgage loans held for sale		507		142
Government guaranteed loan income, net		6,548		439

Other		2,147		2,179
Total noninterest income		14,172		7,247
Noninterest expense:
Salaries and employee benefits		22,932		18,870
Occupancy and equipment		4,096		4,273
Professional and regulatory fees		3,441		2,196
Data processing and software expense		2,319		2,089
Marketing		909		1,083
Amortization of intangibles		2,537		2,696
Telephone and communications		337		319


Other		3,026		4,019
Total noninterest expense		39,597		35,545
Income before income tax expense		40,780		3,450
Income tax expense (benefit)		8,993		(684)
Net income		$	31,787	$	4,134


Basic earnings per share		$	0.64	$	0.08
Diluted earnings per share		$	0.64	$	0.08



	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



Three Months Ended March 31, 2021
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	49,337,768	$	555	6,162,350	$	(152,073)	$	1,126,437	$	172,232	$	56,225	$	1,203,376
Restricted stock units vested, net of 16,587 shares withheld to cover taxes	58,110	—		—	—		(468)		—		—		(468)
Exercise of employee stock options, net of 18,052 and 3,474 shares withheld to cover taxes and exercise, respectively	184,494	2		—	—		2,877		—		—		2,879
Stock buyback	(147,622)	—		147,622	(4,074)		—		—		—		(4,074)
Stock based compensation	—	—		—	—		2,478		—		—		2,478

Net income	—	—		—	—		—		31,787		—		31,787
Dividends paid	—	—		—	—		—		(8,358)		—		(8,358)
Other comprehensive income	—	—		—	—		—		—		6,188		6,188
Balance at March 31, 2021	49,432,750	$	557	6,309,972	$	(156,147)	$	1,131,324	$	195,661	$	62,413	$	1,233,808


Three Months Ended March 31, 2020																								Three Months Ended March 31, 2020
																												Common Stock							Treasury Stock			Additional Paid-In Capital		Retained Earnings				Accumulated Other Comprehensive Income
																												Shares					Amount		Shares	Amount												Total
Balance at December 31, 2019																								Balance at December 31, 2019				51,063,869					$	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 taxes																								Restricted stock units vested, net of 18,679 shares withheld to cover taxes				68,832					1		—	—		(603)		—				—					(602)
Exercise of employee stock options, net of 98,836 and 139,715 shares withheld to cover taxes and exercise, respectively																								Exercise of employee stock options, net of 98,836 and 139,715 shares withheld to cover taxes and exercise, respectively				416,874					4		—	—		414		—				—					418
Stock warrants exercised																								Stock warrants exercised				10,000					—		—	—		109		—				—					109
Stock buyback																								Stock buyback				(2,002,211)					—		2,002,211	(49,557)		—		—				—					(49,557)
Stock based compensation																								Stock based compensation				—					—		—	—		1,958		—				—					1,958
	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			Net income				—					—		—	—		—		4,134				—					4,134
Dividends paid																								Dividends paid				—					—		—	—		—		(8,728)				—					(8,728)
Current Expected Credit Losses (“CECL”) impact on date of adoption																								Current Expected Credit Losses (“CECL”) impact on date of adoption				—					—		—	—		—		(15,505)				—					(15,505)
Other comprehensive income	—	—		—				—			421				—			—			421			Other comprehensive income				—					—		—	—		—		—				26,245					26,245
Balance at September 30, 2016	10,736,037	$	107	$	116,315			$	26,101		$	279			$	(309	)	$	(70	)	$	142,423
Balance at March 31, 2020																								Balance at March 31, 2020				49,557,364					$	554	5,814,922	$	(144,160)	$	1,119,757	$	127,812			$	45,306				$	1,149,269



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


	March 31, 2021
	Less Than 12 Months				12 Months or More				Totals
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available for sale

Corporate bonds	$	30,724	$	276	$	0	$	0	$	30,724	$	276
Municipal securities	14,640		806		2,495		43		17,135		849
Mortgage-backed securities	67,186		1,887		0		0		67,186		1,887
Collateralized mortgage obligations	56,420		1,425		0		0		56,420		1,425
Asset-backed securities	11,602		467		0		0		11,602		467
	$	180,572	$	4,861	$	2,495	$	43	$	183,067	$	4,904



			FORM ~~10-Q~~			10-Q



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


								March 31, 2021		December 31, 2020
	September 30, 2017			December 31, 2016
Loans held for investment, carried at amortized cost:							Loans held for investment, carried at amortized cost:
Real estate:							Real estate:
Construction and land	$	276,670		$	162,614		Construction and land	$	723,444	$	693,030
Farmland	6,572			8,262			Farmland	14,751		13,844
1 - 4 family residential	185,473			140,137			1 - 4 family residential	492,609		524,344
Multi-family residential	54,475			14,683			Multi-family residential	386,844		424,962
Commercial Real Estate	802,432			370,696
OOCRE							OOCRE	733,310		717,472
NOOCRE							NOOCRE	1,970,945		1,904,132
Commercial	577,758			291,416			Commercial	1,632,040		1,559,546
MW							MW	599,001		577,594
Consumer	4,129			4,089			Consumer	12,431		13,000
	1,907,509			991,897				6,565,375		6,427,924
Deferred loan fees	(28		)	(55		)
Allowance for loan losses	(10,492		)	(8,524		)
	$	1,896,989		$	983,318
Deferred loan fees, net							Deferred loan fees, net	(2,881)		(2,468)
Allowance for credit losses							Allowance for credit losses	(104,936)		(105,084)
Loans held for investment carried at amortized cost, net							Loans held for investment carried at amortized cost, net	6,457,558		6,320,372

Loans held for investment, carried at fair value:							Loans held for investment, carried at fair value:
PPP loans							PPP loans	407,353		358,042

Total loans held for investment, net							Total loans held for investment, net	$	6,864,911	$	6,678,414


	March 31, 2021					December 31, 2020
		Real Property(1)		ACL Allocation			Real Property(1)		ACL Allocation
Real estate:


1 - 4 family residential		$	199	$	13		$	199	$	11


NOOCRE		21,861		2,142			16,080		0
Commercial		7,349		4,184			8,666		4,668

Consumer		0		0			143		50
Total		$	29,409	$	6,339		$	25,088	$	4,729


	March 31, 2021				December 31, 2020
	Nonaccrual		Nonaccrual With No ACL			Nonaccrual		Nonaccrual With No ACL
Real estate:


1 - 4 family residential	$	3,282	$	3,173		$	3,308	$	3,199

OOCRE	5,781		4,948			6,266		5,645
NOOCRE	37,131		15,836			40,830		19,213
Commercial	26,177		1,057			29,318		1,015

Consumer	1,223		1,212			1,374		1,220
Total	$	73,594	$	26,226		$	81,096	$	30,292



	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


	September 30, 2017															March 31, 2021
	30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current ⁽¹⁾		Total Loans		Total 90 Days Past Due and Still Accruing⁽²⁾			30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)
Real estate:															Real estate:
Construction and land	$	—	$	—	$	—	$	—	$	276,670	$	276,670	$	—	Construction and land	$	444	$	0	$	0	$	444	$	720,325	$	2,675	$	723,444	$	0
Farmland	—		—		—		—		6,572		6,572		—		Farmland	0		0		0		0		14,751		0		14,751		0
1 - 4 family residential	366		—		54		420		185,053		185,473		54		1 - 4 family residential	2,820		325		5,073		8,218		475,735		8,656		492,609		1,899
Multi-family residential	—		—		—		—		54,475		54,475		—		Multi-family residential	0		0		0		0		386,844		0		386,844		0
Commercial Real Estate	66		—		727		793		801,639		802,432		—
OOCRE															OOCRE	452		743		451		1,646		693,748		37,916		733,310		0
NOOCRE															NOOCRE	505		0		10,429		10,934		1,931,382		28,629		1,970,945		7,040
Commercial	2,138		447		1,037		3,622		574,136		577,758				Commercial	6,878		2,953		14,507		24,338		1,589,177		18,525		1,632,040		73
MW															MW	0		0		0		0		599,001		0		599,001		0
Consumer	27		15		6		48		4,081		4,129		—		Consumer	115		42		1,215		1,372		10,863		196		12,431		81
	$	2,597	$	462	$	1,824	$	4,883	$	1,902,626	$	1,907,509	$	54
Total															Total	$	11,214	$	4,063	$	31,675	$	46,952	$	6,421,826	$	96,597	$	6,565,375	$	9,093



	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


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






Commercial	$	240	0		$	240	1


Total	$	240	$	0	$	240	1



				During the nine months ended September 30, 2016
				Post-Modification Outstanding Recorded Investment
	Number of Loans	Pre- Modification Outstanding Recorded Investment		Adjusted Interest Rate		Extended Maturity		Extended Maturity and Restructured Payments		Extended Maturity, Restructured Payments and Adjusted Interest Rate
Real estate loans:
Construction and land	—	$	—	$	—	$	—	$	—	$	—
Farmland	—	—		—		—		—		—
1 - 4 family residential	—	—		—		—		—		—
Multi-family residential	—	—		—		—		—		—
Nonfarm nonresidential	—	—		—		—		—		—
Commercial	2	175		—		—		169		—
Consumer	—	—		—		—		—		—
Total	2	$	175	$	—	$	—	$	169	$	—



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



	For the 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


	Term Loans Amortized Cost Basis by Origination Year1
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of March 31, 2021
Construction and land:
Pass	$	37,642	$	205,166	$	282,702	$	125,256	$	9,728	$	37,673	$	20,581	$	0	$	718,748
Special mention	0		0		0		1,511		0		0		0		0		1,511
Substandard	0		0		0		510		0		0		0		0		510
PCD	0		0		0		0		0		2,675		0		0		2,675
Total construction and land	$	37,642	$	205,166	$	282,702	$	127,277	$	9,728	$	40,348	$	20,581	$	0	$	723,444

Farmland:
Pass	$	1,550	$	854	$	526	$	3,367	$	3,650	$	3,606	$	1,198	$	0	$	14,751



Total farmland	$	1,550	$	854	$	526	$	3,367	$	3,650	$	3,606	$	1,198	$	0	$	14,751

1 - 4 family residential:
Pass	$	26,738	$	117,110	$	68,660	$	81,977	$	39,154	$	125,524	$	17,897	$	865	$	477,925
Special mention	0		0		576		153		758		430		0		0		1,917
Substandard	0		0		0		130		1,018		2,039		924		0		4,111
PCD	0		0		0		0		0		8,656		0		0		8,656
Total 1 - 4 family residential	$	26,738	$	117,110	$	69,236	$	82,260	$	40,930	$	136,649	$	18,821	$	865	$	492,609

Multi-family residential:
Pass	$	32,825	$	65,896	$	106,294	$	115,094	$	13,890	$	39,645	$	55	$	0	$	373,699
Special mention	0		0		0		13,145		0		0		0		0		13,145


Total multi-family residential	$	32,825	$	65,896	$	106,294	$	128,239	$	13,890	$	39,645	$	55	$	0	$	386,844

OOCRE:
Pass	$	26,935	$	124,381	$	75,566	$	72,364	$	74,326	$	234,997	$	6,366	$	0	$	614,935
Special mention	0		0		941		22,389		3,698		17,059		0		0		44,087
Substandard	0		421		0		13,156		1,221		15,299		170		6,105		36,372
PCD	0		1,442		0		0		7,338		29,136		0		0		37,916
Total OOCRE	$	26,935	$	126,244	$	76,507	$	107,909	$	86,583	$	296,491	$	6,536	$	6,105	$	733,310

NOOCRE:
Pass	$	79,082	$	361,319	$	250,909	$	470,531	$	111,088	$	445,504	$	15,780	$	0	$	1,734,213
Special mention	0		238		33,501		37,652		17,221		63,581		493		0		152,686
Substandard	0		1,495		9,634		2,783		4,025		24,912		12,568		0		55,417
PCD	0		0		0		18,771		0		9,858		0		0		28,629


Total NOOCRE	$	79,082	$	363,052	$	294,044	$	529,737	$	132,334	$	543,855	$	28,841	$	0	$	1,970,945

Commercial:
Pass	$	142,114	$	221,280	$	155,091	$	90,098	$	51,810	$	53,463	$	782,443	$	12,723	$	1,509,022
Special mention	411		1,303		2,539		8,058		9,963		2,743		4,395		3,565		32,977
Substandard	0		873		3,828		21,840		6,616		4,613		30,473		3,273		71,516
PCD	0		0		0		567		4,787		13,171		0		0		18,525
Total commercial	$	142,525	$	223,456	$	161,458	$	120,563	$	73,176	$	73,990	$	817,311	$	19,561	$	1,632,040

MW:
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	596,423	$	0	$	596,423
Special mention	0		0		0		0		0		0		2,578		0		2,578


Total MW	$	0	$	0	$	0	$	0	$	0	$	0	$	599,001	$	0	$	599,001

Consumer:
Pass	$	877	$	2,165	$	1,045	$	898	$	3,690	$	1,219	$	1,062	$	0	$	10,956
Special mention	0		0		0		0		0		95		0		0		95
Substandard	0		0		0		0		59		61		1,064		0		1,184
PCD	0		0		0		0		34		162		0		0		196
Total consumer	$	877	$	2,165	$	1,045	$	898	$	3,783	$	1,537	$	2,126	$	0	$	12,431

Total Pass	$	347,763	$	1,098,171	$	940,793	$	959,585	$	307,336	$	941,631	$	1,441,805	$	13,588	$	6,050,672
Total Special Mention	411		1,541		37,557		82,908		31,640		83,908		7,466		3,565		248,996
Total Substandard	0		2,789		13,462		38,419		12,939		46,924		45,199		9,378		169,110
Total PCD	0		1,442		0		19,338		12,159		63,658		0		0		96,597
Total	$	348,174	$	1,103,943	$	991,812	$	1,100,250	$	364,074	$	1,136,121	$	1,494,470	$	26,531	$	6,565,375


	March 31, 2021
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial Assets:
Available for sale debt securities	$	0	$	1,043,951	$	0	$	1,043,951
Equity securities with a readily determinable fair value	11,164		0		0		11,164
PPP loans	0		407,353		0		407,353
Loans held for sale(1)	0		7,628		0		7,628
Interest rate swap designated as hedging instruments	0		1,839		0		1,839
Correspondent interest rate swaps not designated as hedging instruments	0		1,307		0		1,307
Customer interest rate swaps not designated as hedging instruments	0		5,548		0		5,548
Correspondent interest rate caps and collars not designated as hedging instruments	0		1		0		1

Financial Liabilities:
Interest rate swap designated as hedging instruments	$	0	$	2,124	$	0	$	2,124
Correspondent interest rate swaps not designated as hedging instruments	0		5,844		0		5,844
Customer interest rate swaps not designated as hedging instruments	0		1,248		0		1,248

Customer interest rate caps and collars not designated as hedging instruments	0		1		0		1



	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



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	%


			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
March 31, 2021
Financial assets:
Cash and cash equivalents	$	468,029	$	0	$	468,029	$	0
Held to maturity debt securities	33,909		0		36,527		0
Loans held for sale(1)	12,236		0		12,236		0


Loans held for investment(2)	6,442,233		0		0		6,491,166
Accrued interest receivable	27,661		0		27,661		0
Bank-owned life insurance	83,318		0		83,318		0
Servicing asset	624		0		624		0
Equity securities without a readily determinable fair value	3,575		N/A		N/A		N/A
FHLB and FRB stock	71,469		N/A		N/A		N/A
Financial liabilities:
Deposits	$	6,904,570	$	0	$	6,794,051	$	0
Advances from FHLB	777,679		0		791,021		0
Accrued interest payable	2,132		0		2,132		0
Subordinated debentures and subordinated notes	262,774		0		262,774		0
Securities sold under agreement to repurchase	2,777		0		2,727		0

December 31, 2020
Financial assets:
Cash and cash equivalents	$	230,825	$	0	$	230,825	$	0
Held to maturity debt securities	30,872		0		34,283		0
Loans held for sale(1)	14,733		0		14,733		0

Loans held for investment(2)	6,317,986		0		0		6,335,402
Accrued interest receivable	23,798		0		23,798		0
Bank-owned life insurance	82,855		0		82,855		0
Servicing asset	388		0		486		0
Equity securities without a readily determinable fair value	3,575		N/A		N/A		N/A
FHLB and FRB stock	71,236		N/A		N/A		N/A
Financial liabilities:
Deposits	$	6,512,846	$	0	$	6,608,849	$	0
Advances from FHLB	777,718		0		782,321		0
Accrued interest payable	2,665		0		2,665		0
Subordinated debentures and subordinated notes	262,778		0		262,778		0
Securities sold under agreement to repurchase	2,225		0		2,199		0


	March 31, 2021						December 31, 2020
			Estimated Fair Value						Estimated Fair Value
	Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	0	$	0	$	0	$	500,000	$	17,543	$	0
Interest rate swap on money market deposit account payments	250,000		1,839		0		250,000		0		2,255
Interest rate swap on customer loan interest payments	125,000		0		1,140		0		0		0
Interest rate swap on customer loan interest payments	125,000		0		792		0		0		0
Interest rate swap on customer loan interest payments	125,000		0		192		—		—		—
Total derivatives designated as hedging instruments	$	625,000	$	1,839	$	2,124	$	750,000	$	17,543	$	2,255

Derivatives not designated as hedging instruments:
Financial institution counterparty:
Interest rate swaps	$	236,551	$	1,307	$	5,844	$	303,918	$	0	$	11,666
Interest rate caps and collars	41,916		1		0		41,916		1		0
Commercial customer counterparty:
Interest rate swaps	236,551		5,548		1,248		303,918		10,937		0
Interest rate caps and collars	41,916		0		1		41,916		0		1
Total derivatives not designated as hedging instruments	$	556,934	$	6,856	$	7,093	$	691,668	$	10,938	$	11,667
Offsetting derivative assets/liabilities			(2,466)		(2,466)				1		1
Total derivatives	$	1,181,934	$	6,229	$	6,751	$	1,441,668	$	28,482	$	13,923


	For the Three Months Ended March 31, 2021						For the Three Months Ended March 31, 2020
	Gain (loss) recognized in other comprehensive income on derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location of gain (loss) reclassified from accumulated other comprehensive income into income		Gain recognized in other comprehensive income on derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location of gain (loss) reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	26,357	$	0	Interest Expense		$	1,022	$	284	Interest Expense
Interest rate swap on money market deposit account payments	3,895		(199)		Interest Expense		2,710		0		Interest Income
Commercial loan interest rate floor	0		541		Interest Income		0		0
Interest rate swaps on customer loan interest payments	(2,981)		224		Interest Income		0		0
Total	$	27,271	$	566			$	3,732	$	284

					Net gain recognized in other noninterest income						Net gain recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars					$	98					$	501