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

Condensed Consolidated Statements of Comprehensive Income(Unaudited)

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

(Dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	36,835	$	22,920	$	98,078	$	51,082
Other comprehensive (loss) income:
Net unrealized (losses) gains on securities available-for-sale:
Change in net unrealized (losses) gains on securities available-for-sale during the period, net	(6,886)		2,400		(16,020)		35,660
Reclassification adjustment for net losses (gains) included in net income	188		—		188		(2,879)
Net unrealized (losses) gains on securities available-for-sale	(6,698)		2,400		(15,832)		32,781

Net unrealized (losses) gains on derivative instruments designated as cash flow hedges	(2,831)		4,105		32,841		3,170

Other comprehensive (loss) income, before tax	(9,529)		6,505		17,009		35,951
Income tax (benefit) expense	(2,001)		1,364		3,573		7,857
Other comprehensive (loss) income, net of tax	(7,528)		5,141		13,436		28,094
Comprehensive income	$	29,307	$	28,061	$	111,514	$	79,176

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 5,182
$ 3,375
$ 11,895
$ 9,362
Other comprehensive income:
Unrealized gains (losses) on securities available for sale arising during the period, net 378
(9 ) 2,000
653
Reclassification adjustment for net gains included in net income 205
—
205
15
Other comprehensive income (loss) before tax 173
(9 ) 1,795
638
Income tax expense (benefit) 60
(3 ) 609
217
Other comprehensive income (loss), net of tax 113
(6 ) 1,186
421
Comprehensive income $ 5,295
$ 3,369
$ 13,081
$ 9,783

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

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

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

For the Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)



Three Months Ended September 30, 2021
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares	Amount
Balance at June 30, 2021	49,498,295	$	558	6,309,972	$	(156,147)	$	1,134,603	$	216,704	$	77,189	$	1,272,907
Restricted stock units (“RSUs”) vested, net of 2,755 shares withheld to cover tax withholdings	22,354	—		—	—		(97)		—		—		(97)
Exercise of employee stock options (no shares withheld to cover tax withholdings or exercise price)	21,501	1		—	—		552		—		—		553
Stock warrants exercised	15,000	—		—	—		165		—		—		165
Stock buyback	(328,122)	—		328,122	(11,435)		—		—		—		(11,435)
Stock based compensation	—	—		—	—		2,666		—		—		2,666

Net income	—	—		—	—		—		36,835		—		36,835
Dividends paid	—	—		—	—		—		(9,906)				(9,906)
Other comprehensive loss	—	—		—	—		—		—		(7,528)		(7,528)
Balance at September 30, 2021	49,229,028	$	559	6,638,094	$	(167,582)	$	1,137,889	$	243,633	$	69,661	$	1,284,160


Three Months Ended September 30, 2020
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income
	Shares	Amount		Shares	Amount								Total
Balance at June 30, 2020	49,632,747	$	555	5,814,922	$	(144,160)	$	1,122,063	$	143,277	$	42,014		$	1,163,749
RSUs vested, net of 1,224 shares withheld to cover tax withholdings	14,585	—		—	—		(21)		—		—			(21)
Exercise of employee stock options (no shares withheld to cover tax withholdings or exercise price)	2,706	—		—	—		28		—		—			28


Stock based compensation	—	—		—	—		2,078		—		—			2,078

Net income	—	—		—	—		—		22,920		—			22,920
Dividends paid	—	—		—	—		—		(8,558)		—			(8,558)

Other comprehensive income	—	—		—	—		—		—		5,141			5,141
Balance at September 30, 2020	49,650,038	$	555	5,814,922	$	(144,160)	$	1,124,148	$	157,639	$	47,155		$	1,185,337

See accompanying Notes to Condensed Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

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

For the Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)


Nine Months Ended September 30, 2021
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income
	Shares	Amount		Shares	Amount								Total
Balance at December 31, 2020	49,337,768	$	555	6,162,350	$	(152,073)	$	1,126,437	$	172,232	$	56,225		$	1,203,376


RSUs vested, net of 21,744 shares withheld to cover tax withholdings	101,410	2		—	—		(648)		—		—			(646)
Exercise of employee stock options, net of 37,668 and 7,305 shares withheld to cover tax withholdings and exercise price, respectively	250,594	2		—	—		4,099		—		—			4,101
Stock warrants exercised	15,000	—		—	—		165		—		—			165
Stock buyback	(475,744)	—		475,744	(15,509)		—		—		—			(15,509)
Stock based compensation	—	—		—	—		7,836		—		—			7,836
Net income	—	—		—	—		—		98,078		—			98,078
Dividends paid	—	—		—	—		—		(26,677)		—			(26,677)

Other comprehensive income	—	—		—	—		—		—		13,436			13,436
Balance at September 30, 2021	49,229,028	$	559	6,638,094	$	(167,582)	$	1,137,889	$	243,633	$	69,661		$	1,284,160


Nine Months Ended September 30, 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	51,063,869	$	549	3,812,711	$	(94,603)	$	1,117,879	$	147,911	$	19,061		$	1,190,797


RSUs vested, net of 22,404 shares withheld to cover tax withholdings	100,864	1		—	—		(665)		—		—			(664)
Exercise of employee stock options, net of 98,836 and 139,715 shares withheld to cover tax withholdings and exercise price, respectively	477,516	5		—	—		944		—		—			949
Stock warrants exercised	10,000	—		—	—		109		—		—			109
Stock buyback	(2,002,211)	—		2,002,211	(49,557)		—		—		—			(49,557)
Stock based compensation	—	—		—	—		5,881		—		—			5,881

Net income	—	—		—	—		—		51,082		—			51,082
Dividends paid	—	—		—	—		—		(25,849)		—			(25,849)
CECL impact on date of adoption	—	—		—	—		—		(15,505)		—			(15,505)
Other comprehensive income	—	—		—	—		—		—		28,094			28,094
Balance at September 30, 2020	49,650,038	$	555	5,814,922	$	(144,160)	$	1,124,148	$	157,639	$	47,155		$	1,185,337

See accompanying Notes to Condensed Consolidated Financial Statements.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows(Unaudited)

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

(Dollars in thousands)

Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Unallocated
Employee
Stock
Ownership
Plan Shares

Treasury
Stock

Shares Amount Total
Balance at December 31, 2016 15,195,328
$ 152
$ 211,173
$ 29,290
$ (1,248 ) $ (209 ) $ (70 ) $ 239,088
Restricted stock units vested, net of 7,667 shares withheld to cover tax withholdings 27,744
—
(206 ) —
—
—
—
(206 )
Exercise of employee stock options, net of 1,095 shares withheld to cover tax withholdings 17,949
—
169
—
—
—
—
169
Issuance of common stock for acquisition of Sovereign Bancshares, Inc., net of offering costs of $426 5,117,642
51
135,908
—
—
—
—
135,959
Sale of common stock in public offering, net of offering costs of $304 2,285,050
24
56,657

56,681
Issuance of preferred stock, series D in connection with the acquisition of Sovereign Bancshares, Inc. —
—
24,500
—
—
—
—
24,500
Redemption of preferred stock, series D —
—
(24,500 ) —
—
—
—
(24,500 )
Stock based compensation —
—
1,199
—
—
—
—
1,199
Net income —
—
—
11,895
—
—
—
11,895
Preferred stock, series D dividend —
—
—
(42 ) —
—
—
(42 )
Other comprehensive income —
—
—
—
1,186
—
—
1,186
Balance at September 30, 2017 22,643,713
$ 227
$ 404,900
$ 41,143
$ (62 ) $ (209 ) $ (70 ) $ 445,929

Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Unallocated
Employee
Stock
Ownership
Plan Shares

Treasury
Stock

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


	For the Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	98,078	$	51,082
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles	11,976		11,910
Net accretion of time deposit premium, debt discount and debt issuance costs	(140)		(1,208)
(Benefit) provision for credit losses	(441)		64,767

Accretion of loan discount	(5,351)		(11,407)
Stock-based compensation expense	7,836		5,881
Excess tax benefit from stock compensation	(322)		(1,391)
Net amortization of premiums on debt securities	2,264		2,483
Unrealized loss (gain) on equity securities recognized in earnings	220		(512)
Change in cash surrender value and mortality rates of BOLI	(926)		(1,451)
Net loss (gain) on sales of debt securities	188		(2,871)
Change in fair value of government guaranteed loans using fair value option	(1,828)		2,351
Gain on sales of mortgage loans held for sale	(1,299)		(923)
Gain on sales of government guaranteed loans	(2,812)		(3,242)



Originations of loans held for sale	(76,148)		(97,490)
Proceeds from sales of loans held for sale	83,488		101,494
Loss on sale of other real estate owned	219		83
Equity method investment income	(4,522)		—
Loss (gain) on sale of bank premises, furniture and equipment	6		(358)


Writedown of other real estate owned	197		—
Termination of derivatives designated as hedging instruments	43,900		—
Decrease (increase) in other assets	23,574		(35,012)
Increase in accounts payable and other liabilities	11,890		9,700
Net cash provided by operating activities	190,047		93,886
Cash flows from investing activities:


Purchases of available for sale debt securities	(183,377)		(491,724)
Proceeds from sales of available for sale debt securities	13,300		90,897
Proceeds from maturities, calls and pay downs of available for sale debt securities	127,883		338,146
Purchases of held to maturity debt securities	(27,131)		—
Maturity, calls and paydowns of held to maturity debt securities	2,496		1,748
Purchases of other investments	(1,122)		(13,477)
Purchases of equity method investments	(54,914)		—
Purchases of securities under agreements to resell	(103,692)		—
Proceeds from sales of equity securities	—		21

Net loans originated	(592,682)		(842,847)
Proceeds from sale of government guaranteed loans	2,812		43,404
Net additions to bank premises, furniture and equipment	(12,067)		(2,433)
Proceeds from sales of bank premises, furniture and equipment	7,533		2,157
Proceeds from sales of other real estate owned	2,225		3,890
Net cash used in investing activities	(818,736)		(870,218)
Cash flows from financing activities:
Net increase in deposits	666,029		329,000
Net (decrease) increase in advances from FHLB	(117)		404,886
Redemption of subordinated debt	—		(5,000)
Net change in securities sold under agreement to repurchase	230		(325)
Payments to tax authorities for stock-based compensation	(646)		(3,783)
Proceeds from exercise of employee stock options	4,101		4,068
Proceeds from exercise of stock warrants	165		109
Purchase of treasury stock	(15,509)		(49,557)
Dividends paid	(26,677)		(25,849)


Net cash provided by financing activities	627,576		653,549
Net increase in cash and cash equivalents	(1,113)		(122,783)
Cash and cash equivalents at beginning of period	230,825		251,550
Cash and cash equivalents at end of period	$	229,712	$	128,767

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

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

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

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

~~(Dollars in thousands)~~

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

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

~~VERITEX HOLDINGS, INC. AND SUBSIDIARY~~

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except for per share amounts)

1. Summary of Significant Accounting Policies

Nature of Organization

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 “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 2120 branches and ~~one~~1 mortgage office ~~17 of which are~~ located in the Dallas-Fort Worth metroplex ~~with two~~and 10 branches in the ~~Austin, Texas metropolitan area and two branches in the~~ Houston ~~Texas~~ metropolitan area. 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~~balance sheets at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, condensed consolidated ~~results~~statements of ~~operations~~income and comprehensive income for the three and nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, condensed consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30, ~~2017~~2021 and ~~2016~~2020 and condensed consolidated statements of cash flows for the nine months ended September 30, ~~2017~~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 for tax-withholding purposes should be classified as a financing activity~~Company’s prior year financial statements were reclassified to conform to the current presentation including the reclassification on the condensed consolidated statements of income from rental income to other income of $502 and ~~for presentation purposes be applied retrospectively.~~$1,600 during the three and nine months ended September 30, 2020, respectively.

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~~2021 and ~~2016:~~2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Earnings (numerator)
Net income	$	36,835	$	22,920	$	98,078	$	51,082


Shares (denominator)
Weighted average shares outstanding for basic EPS	49,423		49,647		49,431		49,989
Dilutive effect of employee stock-based awards	883		128		799		188
Adjusted weighted average shares outstanding	50,306		49,775		50,230		50,177
EPS:
Basic	$	0.75	$	0.46	$	1.98	$	1.02
Diluted	$	0.73	$	0.46	$	1.95	$	1.02

There were no antidilutive shares excluded from the diluted EPS weighted average shares outstanding for the three months ended September 30, 2021. For the nine months ended September 30, 2021, there were 16 antidilutive shares excluded from the diluted EPS weighted average shares outstanding related to RSUs.

For the three months ended September 30, 2020, there were 1,360 antidilutive shares excluded from the diluted weighted average shares outstanding, 193 relating to RSUs and 1,167 relating to stock options. For the nine months ended September 30, 2020, there were 1,525 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 359 relating to RSUs and 1,166 relating to stock options.

Equity Method Investments

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

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

The difference between the cost of an investment and the amount of underlying equity in net assets of the investee represents an equity method basis difference, which shall be accounted for as if the investee were consolidated. The Company accounts for the equity method basis difference as equity method goodwill. The Company assesses equity method investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.

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

~~For~~The Company had $59,436 in equity method investments as of September 30, 2021 reported in “other assets” in the condensed consolidated balance sheets. The Company’s proportionate share of the income (loss) resulting from these investments for the three and nine months ended September 30, ~~2017~~2021 was $4,522 and ~~2016, there were no exclusions from~~is reported under the ~~diluted EPS weighted average shares.~~line item captioned “equity method investment income (loss)” in the Company’s condensed consolidated statements of income.

Recent Accounting Pronouncements

ASU ~~2017-04 “Intangibles - Goodwill~~2019-12, "Income Taxes (Topic 740)" ("ASU 2019-12") simplifies the accounting for income taxes by removing certain exceptions and ~~Other (Topic 350): Simplifying~~improves the ~~Test for Goodwill Impairment” (“~~consistent application of GAAP by clarifying and amending other existing guidance. 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 is2019-12 was effective for ~~fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed~~us on ~~testing dates after~~ January 1, ~~2017. 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~~our consolidated financial ~~statements.~~statements and related disclosures.

ASU ~~2017-01 “Business Combinations~~2020-04, "Reference Rate Reform (Topic ~~805)~~848): ~~Clarifying~~Facilitation of the ~~Definition~~Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") amendments provide optional guidance for a ~~Business” (“ASU 2017-01”~~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") ~~changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is deemed~~or another reference rate expected to be ~~a business. Determining whether a transferred set constitutes a business is important because~~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 adoption of ASU 2020-04 did not significantly impact our 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 ~~business combination differs~~significant impact on our consolidated financial statements and related disclosures.

2. Supplemental Statement of Cash Flows

Other supplemental cash flow information is presented below:


	Nine Months Ended September 30,
	2021		2020
	(in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	25,784	$	45,720
Cash paid for income taxes	8,215		32,590
Supplemental Disclosures of Non-Cash Flow Information:
Setup of ROU asset and lease liability	$	4,552	$	—


Net foreclosure of other real estate owned and repossessed assets	334		4,100
Transfer of other real estate owned to other assets for losses incurred upon sale and expected to be collected from the SBA	—		327

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 ~~that~~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, $75,000 on December 12, 2019, and $75,000 on September 14, 2021 resulting in an ~~asset acquisition.~~aggregate authorization to purchase up to $250,000 under the Stock Buyback Program. The ~~definition of a business~~Board also ~~affects the accounting for dispositions. Under the new standard, when substantially all~~authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2021 to December 31, 2022. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any share and the program may be terminated or amended by the Board at any time prior to its expiration.

Share repurchases during the periods indicated are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Number of shares repurchased	328,122		—		475,744		2,002,211
Weighted average price per share	$	34.85	$	—	$	32.36	$	24.78

4. Securities

Equity Securities With a Readily Determinable Fair Value

The Company held equity securities with a fair value of ~~assets acquired is concentrated in a single asset, or a group of similar assets, the assets acquired would not represent a business~~$11,143 and business combination accounting would not be required. The new standard may result in more transactions being accounted for as asset acquisitions rather than business combinations. For public companies, ASU 2017-01 is effective for interim$11,363 at September 30, 2021 and ~~annual periods beginning after~~ December ~~15, 2017 and shall be applied prospectively.~~31, 2020, respectively. The Company ~~early adopted ASU 2017-01 as of July 1, 2017, which had no significant impact~~did not realize a gain or loss on ~~the Company's financial statements as of and for~~equity securities with a readily determinable fair value during the three and nine months ended September ~~31, 2017.~~

~~ASU 2016-18 “Statement~~30, 2021. The Company realized a loss of ~~Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”) requires that the statement of cash flows explain the change~~$8 on equity securities with a readily determinable fair value during the same 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.2020. The ~~Company is in process of evaluating the impact of this pronouncement, which is not expected to have a significant impact~~gross unrealized (loss) gain recognized 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 debtequity 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~~recorded in other noninterest income in the Company’s condensed consolidated statements of income were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Unrealized (loss) gain recognized on equity securities with a readily determinable fair value	$	(84)	$	299	$	(220)	$	512

Equity Securities Without a ~~qualitative assessment~~Readily Determinable Fair Value

The Company held equity securities without a readily determinable fair values and measured at cost of $4,130 and $3,575 as of September 30, 2021 and December 31, 2020, respectively.

Securities purchased under agreements to ~~identify impairment, (iii) eliminates~~resell

The Company held securities purchased under agreements to resell of $103,692 as of September 30, 2021. The Company recognized interest income of $227 recorded in equity securities and other investments in the ~~requirement for public business entities~~Company’s condensed consolidated statements of income during the three and nine months ended September 30, 2021. The Company had no securities purchased under agreements to ~~disclose~~resell as of or during the ~~methods~~year ended December 31, 2020. Securities purchased under agreements to resell typically mature 30 days from the settlement date, qualify as a secured borrowing and ~~significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments~~are measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. This update will be effective for the Company on January 1, 2018. The Company is in process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on the consolidated financial statements.cost.

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 financial statements.

~~2. Statement of Cash Flows~~

~~Other supplemental cash flow information is presented below:~~

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 and accrued expenses includes accrued preferred stock dividends of $185.~~

~~3. Investment~~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 (“ACL”) and the fair value of available for sale and held to maturity securities are as follows:


										September 30, 2021
	September 30, 2017									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		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	$	195,494	$	10,723	$	97	$	—	$	206,120
Municipal securities	52,392		269		141		52,520		Municipal securities	116,495		7,627		271		—		123,851
Mortgage-backed securities	81,454		98		447		81,105		Mortgage-backed securities	134,160		5,379		1,497		—		138,042
Collateralized mortgage obligations	52,062		99		395		51,766		Collateralized mortgage obligations	457,209		17,523		1,857		—		472,875
Asset-backed securities	649		10		—		659		Asset-backed securities	55,816		2,015		320		—		57,511
Collateralized loan obligations									Collateralized loan obligations	50,135		7		53		—		50,089
	$	204,884	$	898	$	994	$	204,788		$	1,009,309	$	43,274	$	4,095	$	—	$	1,048,488


	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
Held to maturity
Mortgage-backed securities	$	21,483	$	72	$	336	$	—	$	21,219
Collateralized mortgage obligations	5,512		626		—		—		6,138
Municipal securities	28,262		1,949		98		—		30,113
	$	55,257	$	2,647	$	434	$	—	$	57,470

The Company did not transfer any debt securities from available for sale to held to maturity at fair value during the three and nine months ended September 30, 2021.


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
Available for sale

Corporate bonds	$	173,050	$	6,417	$	1,297	$	—	$	178,170
Municipal securities	115,533		10,129		6		—		125,656
Mortgage-backed securities	240,320		16,047		42		—		256,325
Collateralized mortgage obligations	388,080		20,895		66		—		408,909
Asset-backed securities	52,335		2,934		—		—		55,269
	$	969,318	$	56,422	$	1,411	$	—	$	1,024,329

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

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

The following tables disclose the Company’s available for sale debt securities in an unrealized loss position for which an ACL has not been recorded, aggregated by investment category and length of time that individual securities ~~that~~ have been in a continuous loss position:


	September 30, 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	$	7,153	$	97	$	—	$	—	$	7,153	$	97
Municipal securities	15,165		262		2,225		9		17,390		271
Mortgage-backed securities	46,939		1,497		0		0		46,939		1,497
Collateralized mortgage obligations	91,055		1,857		—		—		91,055		1,857
Asset-backed securities	11,560		320		—		—		11,560		320
Collateralized loan obligations	32,714		53		—		—		32,714		53
	$	204,586	$	4,086	$	2,225	$	9	$	206,811	$	4,095
Held to maturity
Mortgage-backed securities	$	19,743	$	336	$	—	$	—	$	19,743	$	336
Municipal securities	6,794		98		—		—		6,794		98
	$	26,537	$	434	$	—	$	—	$	26,537	$	434


	December 31, 2020
	Less Than 12 Months				12 Months or More				Totals
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
Available for sale

Municipal securities	$	2,667	$	6	$	—	$	—	$	2,667	$	6
Corporate bonds	31,953		1,297		—		—		31,953		1,297
Mortgage-backed securities	34,402		108		—		—		34,402		108

	$	69,022	$	1,411	$	—	$	—	$	69,022	$	1,411

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

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

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

any anticipated recovery in fair value.

The number of ~~investment positions~~available for sale debt securities in an unrealized loss position totaled 7928 and 7211 at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. ~~The Company does not believe these unrealized losses are “other than temporary” as (i) the Company~~Management does not have the intent to sell ~~investment~~any of these debt securities ~~prior to recovery~~ and ~~(ii)~~believes that it is more likely than not that the Company will not have to sell ~~these~~any such debt securities ~~prior~~before a recovery of cost. The fair value is expected to ~~recovery. The~~recover as the debt securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of September 30, 2021, management believes that the unrealized losses ~~noted~~detailed in the previous tables are ~~interest rate related~~ due to ~~the level of~~noncredit-related factors, including changes in interest rates ~~at September 30, 2017. The Company has reviewed~~and other market conditions, and therefore no losses have been recognized in the ~~ratings~~Company’s condensed consolidated statements of ~~the issuers and has not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities.~~income.

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


	September 30, 2021
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due from one year to five years	$	5,193	$	5,273	$	—	$	—
Due from five years to ten years	175,310		184,513		3,860		4,141
Due after ten years	131,486		140,185		24,402		25,972
	311,989		329,971		28,262		30,113
Mortgage-backed securities and collateralized mortgage obligations	591,369		610,917		26,995		27,357
Asset-backed securities	55,816		57,511		—		—
Collateralized loan obligations	50,135		50,089		—		—
	$	1,009,309	$	1,048,488	$	55,257	$	57,470


							December 31, 2020
	��	September 30, 2017					Available for Sale				Held to Maturity
		Available For Sale					Amortized Cost		Fair Value		Amortized Cost		Fair Value
		Amortized Cost		Fair Value
Due in one year or less		$	—	$	—
Due from one year to five years		27,145		27,649		Due from one year to five years	$	4,935	$	5,139	$	—	$	—
Due from five years to ten years		24,408		24,432		Due from five years to ten years	154,576		158,510		3,334		3,591
Due after ten years		19,166		19,177		Due after ten years	129,072		140,177		18,936		21,138
		70,719		71,258			288,583		303,826		22,270		24,729
Mortgage-backed securities		81,454		81,105
Collateralized mortgage obligations		52,062		51,766
Mortgage-backed securities and collateralized mortgage obligations						Mortgage-backed securities and collateralized mortgage obligations	628,400		665,234		8,602		9,554
Asset-backed securities		649		659		Asset-backed securities	52,335		55,269		—		—
		$	204,884	$	204,788		$	969,318	$	1,024,329	$	30,872	$	34,283

13. ~~Business Combinations~~Subsequent Events

~~Merger with Sovereign Bancshares, Inc.~~

On ~~August~~November 1, ~~2017,~~2021, the Company ~~acquired Sovereign Bancshares, Inc.~~completed its acquisition of North Avenue Capital, LLC (“~~Sovereign”~~NAC”), a Texas corporation and parent company of Sovereign Bank (“the Merger”). The Company issued 5,117,642 shares of its common stock and paid out $56,215 in cash to Sovereign in consideration for the Merger. Additionally, underwhich was announced on September 21, 2021. Under the terms of the ~~merger~~definitive agreement ~~each~~for the acquisition, the Bank paid $57,500 in cash to existing shareholders 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~~NAC. Three years after the ~~effective time was converted into one share of Senior Non-Cumulative Perpetual, Series D Preferred Stock~~completion of the ~~Company (“Veritex Series D Preferred Stock”).~~

~~The business combination was accounted for under the acquisition method~~transaction, existing shareholders of ~~accounting. Under this method~~NAC as 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~~have the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Provisional estimates for loans, goodwill, intangible assets, deferred tax assets and deposits have been recorded for the acquisition as independent valuations have not been finalized. The Company does not expect any significant differences from estimated values upon completion of the valuations. Estimated fair values of the assets acquired and liabilities assumed in this transaction as of the closing date are as follows:

As of August 1, 2017
Assets
Cash and cash equivalents $ 44,775
Investment 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~~right, 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~~adjustment, to receive an additional $5,000 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 Securitiescash subject to certain ~~exceptions, the redemption price when a capital security is called for redemption~~performance measures. NAC will continue to operate under its current name 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~~brand 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~~its current office space, 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~~Bank. The required disclosures under ASC 805 are omitted herein since the ~~merger, Liberty~~initial accounting for the business combination is not available. These disclosures will ~~merge with and into~~be included in our Annual Report on Form 10-K for the ~~Company with~~year ended December 31, 2021.

The transaction makes 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 branchesleading player in the ~~Dallas-Forth Worth metroplex. Under~~United States Department of Agriculture Business and Industry lending program. It furthers the ~~terms~~Company’s strategy of diversifying revenue streams and providing meaningful gain on sale and loan servicing fees. The Company will leverage NAC’s loan sourcing technology to further enhance the ~~merger agreement,~~Company’s products and services. Additionally, the Company will ~~issue 1,450,000 shares of its common stock~~provide additional resources and ~~will pay approximately $25.0 million in cash for all of the shares of Liberty’s common stock, subject~~expertise to certain conditions and potential adjustments as described in the merger agreement. The merger agreement contains customary representations, warranties and covenants by the Company and Liberty. The transaction received regulatory approval on October 18, 2017 and is subject to customary closing conditions, including approval of the merger agreement by the shareholders of Liberty and the approval by the shareholders of the Company of issuance of the shares of the Company’s common stock. The transaction is expected to close during the fourth quarter of 2017.

~~14. Intangible Assets and Goodwill~~

~~Intangible assets in the accompanying consolidated balance sheets are summarized as follows:~~complement NAC’s experienced team.

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, which is expected to close in the fourth quarter of 2017.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) as well as with our ~~condensed~~consolidated financial statements and notes thereto appearing in ourAnnual Report on Form 10-K for the year ended December 31, ~~2016.~~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 created a global public health crisis that resulted in continued 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, including variant strains thereof, may adversely affect the ongoing 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 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 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”), a loan program administered by the U.S. Small Business Administration (“SBA”). Under the PPP, small businesses, sole proprietorship’s, independent contractors and self-employed individuals were eligible to apply for forgivable loans from existing SBA lenders and other approved lenders that enrolled in the program, subject to numerous limitations and eligibility criteria. Subsequent legislation, including as noted below, 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 the 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. The SBA began approving forgiveness applications on October 2, 2020.

In response to the COVID-19 pandemic, we 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 troubled debt restructuring (“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, the 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 September 30, 2021, the Company had one loan with an aggregate principal balance of $131 thousand remaining on deferment under Section 4013 of the CARES Act.

Uncertainties in certain 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 (“ACL”) during 2020. Our ACL calculation and resulting provision for credit losses is significantly impacted by changes in the Texas economic forecasts used in the current expected credit losses (“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 and an increase in charge-offs related to COVID-19. 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 September 30, 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. 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~~2021 and 2020

General

Net income for the three months ended September 30, ~~2016~~2021 was $36.8 million, an increase of $13.9 million, or 60.7%, from net income of $22.9 million for the three months ended September 30, 2020.

Basic earnings per share (“EPS”) for the three months ended September 30, 2021 was $0.75, an increase of $0.29 from $0.46 for the three months ended September 30, 2020. Diluted EPS for the three months ended September 30, 2021 was $0.73, an increase of $0.27 from $0.46 for the three months ended September 30, 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,~~2021, net interest income totaled ~~$42.8~~$71.3 million and net interest margin and net interest spread were ~~3.54%~~3.26% and ~~3.24%~~3.05%, respectively. For the ~~nine~~three months ended September 30, ~~2016,~~2020, net interest income totaled ~~$30.4~~$65.9 million and net interest margin and net interest spread were ~~3.82%~~3.32% and ~~3.58%~~3.05%, respectively. The increase in net interest income ~~of $12.4 million~~ was due to ~~$12.6~~a $3.1 million decrease in ~~increased~~interest expense on certificate and other time deposits and a $2.4 million increase in interest income. The increase in 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. Thewas primarily due to a $2.5 million increase ~~of $12.6 million~~ in interest income on loans ~~also included~~ ~~$585 thousand~~due to loan growth, with $2.0 million attributable to total loans excluding mortgage warehouse (“MW”) and PPP loans. The decrease in ~~estimated accretion~~interest expense resulted from $3.1 million decrease in interest expense on certificates and other time deposits, during the ~~third quarter of 2017 on loans acquired from Sovereign.~~ ~~Average loan balances increased $334.2 million compared to the nine~~three months ended September 30, ~~2016. The decline in net interest margin and net interest spread was primarily attributable~~2021 compared to ~~a 20 basis point decrease in~~ the average yield on interest-earning assets. This decrease was due to a change 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 to~~ ~~7.0%for~~2020. Net interest margin decreased 6 basis points from the ~~nine~~ three months ended September 30, ~~2016. Interest-earning deposits~~2020 primarily due to a decrease in ~~other banks traditionally provide lower~~ average yields ~~than~~earned on loan balances, partially offset by decreases in the average rate paid on interest-bearing demand and savings deposits and certificate and other ~~interest earning assets such as loans and investment securities.~~

~~For~~time deposits during the ~~nine~~three months ended September 30, ~~2017,~~2021. As a result, the average cost of interest-bearing deposits decreased to 0.30% for the three months ended September 30, 2021 from 0.67% for the three months ended September 30, 2020. The average cost of total deposits including noninterest-bearing deposits decreased to 0.20% for the three months ended September 30, 2021 from 0.46% for the three months ended September 30, 2020.

For the three months ended September 30, 2021, interest expense totaled ~~$6.9~~$8.5 million and the average rate paid on interest-bearing liabilities was ~~0.87%~~0.59%. For the ~~nine~~three months ended September 30, ~~2016,~~2020, interest expense totaled ~~$3.9~~$11.6 million and the average rate paid on interest-bearing liabilities was ~~0.73%~~0.85%. The ~~increase in interest expense~~year-over-year decrease of ~~$3.0 million~~26 basis points, 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~~2021 and ~~2016,~~2020, interest income not recognized on ~~non-accrual~~nonaccrual loans was ~~minimal.~~$674 thousand and $2.5 million, respectively. Any ~~non-accrual~~nonaccrual loans have been included in the table as loans carrying a zero yield.


	For the Three Months Ended September 30,
	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)	$	6,384,856	$	66,911	4.16	%	$	5,753,859	$	64,958	4.49	%
Loans held for investment (“LHI”), MW	465,945		3,697		3.15		358,248		2,705		3.00
PPP loans	210,092		531		1.00		407,112		1,022		1.00
Debt Securities	1,119,952		7,613		2.70		1,101,469		7,852		2.84
Interest-earning deposits in other banks	336,289		130		0.15		175,201		65		0.15
Equity securities and other investments	167,242		898		2.13		103,948		827		3.17
Total interest-earning assets	8,684,376		79,780		3.64		7,899,837		77,429		3.90
ACL	(99,482)						(116,859)
Noninterest-earning assets	800,576						802,948
Total assets	$	9,385,470					$	8,585,926

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	$	3,201,409	$	1,588	0.20	%	$	2,735,170	$	2,105	0.31	%
Certificates and other time deposits	1,519,824		1,934		0.50		1,459,046		5,004		1.36
Advances from Federal Home Loan Bank of Dallas (“FHLB”)	777,617		1,848		0.94		1,067,771		2,707		1.01
Subordinated debentures and subordinated debt	264,714		3,134		4.70		142,432		1,743		4.87
Total interest-bearing liabilities	5,763,564		8,504		0.59		5,404,419		11,559		0.85

Noninterest-bearing liabilities:
Noninterest-bearing deposits	2,271,197						1,937,921
Other liabilities	60,181						65,704
Total liabilities	8,094,942						7,408,044
Stockholders’ equity	1,290,528						1,177,882
Total liabilities and stockholders’ equity	$	9,385,470					$	8,585,926
Net interest rate spread(2)					3.05	%					3.05	%
Net interest income			$	71,276					$	65,870
Net interest margin(3)					3.26	%					3.32	%

(1) Includes average outstanding balances of loans held for sale of $8,542 and $15,404 for the three months ended September 30, 2021 and September 30, 2020, respectively, and average balances of LHI, excluding MW and PPP loans.

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

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

For the Nine Months Ended September 30,
2017 2016
Interest Interest
Average Earned/ Average Average Earned/ Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Total loans(1) $ 1,242,706
$ 45,613
4.91 % $ 908,512
$ 32,996
4.85 %
Securities available for sale 149,026
2,251
2.02
80,443
1,014
1.68
Investment in subsidiary 151
4
3.54
93
2
2.87
Interest-earning deposits in other banks 221,595
1,787
1.08
74,807
302
0.54
Total interest-earning assets 1,613,478
49,655
4.11
1,063,855
34,314
4.31
Allowance for loan losses (9,200 ) (7,539 )
Noninterest-earning assets 137,315
92,797

Total assets $ 1,741,593
$ 1,149,113

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Interest-bearing deposits $ 1,009,313
$ 6,201
0.82 % $ 656,811
$ 3,388
0.69 %
Advances from FHLB 43,313
319
0.98
45,435
202
0.59
Other borrowings 9,995
377
5.04
8,077
289
4.78
Total interest-bearing liabilities 1,062,621
6,897
0.87
710,323
3,879
0.73
Noninterest-bearing liabilities:
Noninterest-bearing deposits 385,428
298,035

Other liabilities 4,438
2,866

Total noninterest-bearing liabilities 389,866
300,901

Stockholders’ equity 289,106
137,889

Total liabilities and stockholders’ equity $ 1,741,593
$ 1,149,113

Net interest rate spread(2) 3.24 % 3.58 %
Net interest income $ 42,758
$ 30,435

Net interest margin(3) 3.54 % 3.82 %


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


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


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

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

For the 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 September 30,
	2021 vs. 2020
	Increase (Decrease)

	Due to Change in
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	7,143	$	(5,190)	$	1,953
LHI, MW	814		178		992
PPP loans	(491)		—		(491)
Debt securities	132		(371)		(239)
Interest-bearing deposits in other banks	61		4		65
Equity securities and other investments	506		(435)		71
Total increase (decrease) in interest income	8,165		(5,814)		2,351
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	360		(877)		(517)
Certificates and other time deposits	209		(3,279)		(3,070)
Advances from FHLB	(738)		(121)		(859)
Subordinated debentures and subordinated notes	1,501		(110)		1,391
Total increase (decrease) in interest expense	1,332		(4,387)		(3,055)
Increase (decrease) in net interest income	$	6,833	$	(1,427)	$	5,406

Provision for ~~Loan~~Credit Losses

Our provision for ~~loan~~credit losses is a charge to income in order to bring our ~~allowance for loan losses~~ACL to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the ~~allowance for loan losses~~ACL see “—Financial Condition—Allowance for ~~Loan Losses.~~Credit Losses on LHI.” ~~The~~We recorded no provision for ~~loan~~credit losses ~~was $2.6 million~~ for the ~~nine~~three months ended September 30, ~~2017,~~2021, compared to ~~$1.6~~$8.7 million for the same period in ~~2016, an increase~~2020, a decrease of ~~$975 thousand,~~$8.7 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 of~~Texas economic forecasts used in the ~~loan portfolio, which includes a qualitative risk factor adjustment related to~~CECL model during the ~~potential impact of Hurricane Harvey, for the nine~~three months ended September 30, ~~2017~~2021 to reflect the expected impact of the COVID-19 pandemic as of September 30, 2021 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~~2020. Prior to the three months ended September 30, 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 third quarter of 2021, we also recorded a $448 thousand benefit for unfunded commitments, which was attributable to improving Texas economic forecasts utilized in the unfunded commitments loss rates slightly offset by higher unfunded balances, compared to a $1.4 million provision for unfunded commitments recorded for the ~~same period in 2016.~~ three months ended September 30, 2020.

Noninterest Income

Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, loan fees, gain on the sale of securities, gains on the sale of mortgage loans ~~gains on the~~held for sale, ofgovernment guaranteed loan income, net, equity method investment ~~securities,~~income 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
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


	For the
	Three Months Ended September 30,				Increase
	2021		2020		(Decrease)
	(In thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	4,484	$	3,130	$	1,354
Loan fees	1,746		1,787		(41)
Loss on sales of securities	(188)		(8)		(180)
Gain on sales of mortgage loans held for sale	407		472		(65)
Government guaranteed loan income, net	2,341		2,257		84



Equity method investment income	4,522		—		4,522
Other	2,315		2,157		158
Total noninterest income	$	15,627	$	9,795	$	5,832

Noninterest income for the ~~nine~~three months ended September 30, ~~2017~~2021 increased ~~$599 thousand,~~$5.8 million, or ~~12.8%~~59.5%, to ~~$5.3~~$15.6 million compared to noninterest income of ~~$4.7~~$9.8 million for the same period in ~~2016.~~2020. The primary ~~components~~drivers of the increase were as follows:

Service charges and fees on deposit accounts.We earn service charges and fees from our customers for deposit-related activities. The income from these deposit activities ~~constitute~~constitutes a significant and predictable component of our noninterest income. Service charges and fees ~~from~~on deposit ~~account activities~~accounts were ~~$1.7~~$4.5 million for the ~~nine~~three months ended September 30, ~~2017,~~2021, an increase of ~~$424 thousand~~$1.4 million, over the same period in ~~2016. The~~2020. This increase was primarily ~~attributable~~due to ~~organic growth~~an increase in ~~the number~~analysis charges of $772 thousand resulting from additional deposit accounts being serviced and ~~accounts acquired from Sovereign.~~

~~Gain on sales~~an increase in service deposit charges of ~~investment securities.~~ ~~Gain on sales of investment securities were~~ ~~$205~~$405 thousand for the ~~nine~~three months ended September 30, ~~2017~~2021 compared to ~~$15 thousand~~the same period in 2020.

Equity method investment income. Equity method investment income is comprised of income earned on equity method investments, specifically our investment in Thrive Mortgage, LLC (“Thrive”), of which the Bank holds a 49% interest. The income from this investment was $4.5 million for the three months ended September 30, 2021. During the third quarter of 2021, Thrive’s PPP loan, originated and serviced by another bank, was 100% forgiven by the SBA. As a result of our 49% investment in Thrive, $1.9 million of the $4.5 million represents our portion of the PPP loan forgiveness. There was no income from equity method investments 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.~~in 2020.

~~Gain on sales of loans.~~ ~~We originate SBA guaranteed loans and long-term fixed-rate mortgage loans for resale into the s~~econdary market. Income from the sales of loans was $2.3 million for the nine months ended September 30, 2017 compared to $2.3 million for the same period of 2016. This decrease of $59 thousand was primarily due to a decrease in gain on sale of mortgage loans by $355 thousand and the absence of a one-time $193 thousand gain on sale of loans acquired with the IBT loan portfolio which was recorded in March 31, 2016, offset by an increase in sales of SBA-guaranteed loans resulting in incremental gains of $496 thousand.

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 Three Months Ended September 30,				Increase (Decrease)
	2021		2020
	(In thousands)
Salaries and employee benefits	$	22,964	$	20,553	$	2,411
Non-staff expenses:
Occupancy and equipment	4,536		3,980		556
Professional and regulatory fees	3,401		3,159		242
Data processing and software expense	2,494		2,452		42
Marketing	1,151		1,062		89
Amortization of intangibles	2,509		2,840		(331)
Telephone and communications	380		345		35

COVID expenses	—		132		(132)
Other	3,886		1,885		2,001
Total noninterest expense	$	41,321	$	36,408	$	4,913

For the Nine Months Ended Increase
September 30, (Decrease)
2017 2016 2017 vs. 2016
(Dollars in thousands)
Salaries and employee benefits $ 13,471
$ 10,683
$ 2,788
Non-staff expenses:
Occupancy and equipment 3,622
2,718
904
Professional fees 3,959
1,861
2,098
Data processing and software expense 1,451
850
601
FDIC assessment fees 1,061
447
614
Marketing 905
704
201
Other assets owned expenses and write-downs 109
139
(30 )
Amortization of intangibles 413
285
128
Telephone and communications 438
295
143
Other 2,325
1,323
1,002
Total noninterest expense $ 27,754
$ 19,305
$ 8,449

Noninterest expense for the ~~nine~~three months ended September 30, ~~2017~~2021 increased ~~$8.5~~$4.9 million, or ~~43.8%~~13.5%, to ~~$27.8~~$41.3 million compared to noninterest expense of ~~$19.3~~$36.4 million for the ~~nine~~three months ended September 30, ~~2016.~~2020. The most significant components of the increase were as follows:

Salaries and employee benefits. Salaries and employee benefits include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. ~~The level of employee expense is~~These expenses are impacted by the amount of direct loan origination costs, which are required to be deferred in accordance with ASC 310-20 (formerly FAS91). Salaries and employee benefits were ~~$13.5~~$23.0 million for the ~~nine~~three months ended September 30, ~~2017,~~2021, an increase of ~~$2.8~~$2.4 million, or ~~26.1%~~11.7%, compared to the same period in ~~2016.~~2020. The increase was primarily attributable to ~~increased employee compensation~~an increase in incentive costs of ~~$2.9~~$4.1 million ~~resulting from higher headcount including~~and salaries of $1.4 million for the ~~addition of 100 full-time equivalent employees related to the merger with Sovereign that closed during the third quarter of 2017 and annual merit increases given to employees during the nine~~three months ended September 30, ~~2017. Incentive costs also increased $948 thousand which included lender incentive increases of $527 thousand~~2021 as a result of organic loan growth during the period and employee stock compensation increases of $322 thousand. Employee benefits and payroll taxes also increased $213 thousand and $284 thousand, respectively, compared to the same period in ~~2016.~~2020. These increases ~~in salaries and employee benefits~~ were partially offset by an increase of $2.8 million in direct loan origination costs which ~~increased $1.6~~are required to be deferred in accordance with ASC 310-20.

Other noninterest expense. This category includes loan and collection expenses, supplies and printing, postage, automatic teller and online expenses and other miscellaneous expenses. Other noninterest expense was $3.9 million ~~as a result of~~for the ~~growth in loans during the nine~~three months ended September 30, ~~2017 compared to the same period in 2016.~~

~~Occupancy and equipment.~~ Occupancy and equipment expense includes lease expense, building depreciation and related facilities costs as well as furniture, fixture and equipment depreciation, small equipment purchases and maintenance expense. Our expense associated with occupancy and equipment was $3.6 million for the nine months ended September 30, 2017 compared to $2.7 million for the same period in 2016. The increase of $904 thousand was primarily due to the leasing of additional office space beginning June 1, 2016 at the corporate headquarters location, additional lease expense associated with the opening of the Turtle Creek branch beginning January 2017 and the addition of six owned buildings and five property leases from the Sovereign acquisition.

~~FDIC assessment fees.~~ ~~FDIC assessment fees were $1.1 million for the nine months ended September 30, 2017 and $447 thousand for the same period in 2016. The~~due to an increase in ~~FDIC assessment~~problem loan fees ~~is primarily a result~~ of ~~a catch-up in prior period assessments, the Sovereign acquisition and the resulting increase in average assets for the nine months ended September 30, 2017.~~

~~Other.~~ ~~This category includes operating and administrative~~$499 thousand, legal settlements of $128 thousand, travel related expenses including loan operations and collections, supplies and printing, online and card interchange expense, ATM/debit card processing, postage and delivery, BOLI mortality expense, insurance and security expenses. Other noninterest expense increased $1.0 million, or 75.7%, to $2.3 million for the nine months ended September 30, 2017, compared to $1.3 million for the same period in 2016 primarily related to increases in ATM and interchange expense of ~~$183~~$113 thousand, ~~corporate insurance~~FHLB fees of ~~$178~~$80 thousand and ~~dues and memberships~~SBA fees of ~~$164 thousand.~~$76 thousand, .

Income Tax Expense

~~The amount of income~~Income tax expense is a function of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or ~~statutory tax~~ rates are enacted, deferred tax assets and liabilities are adjusted through the provision offor income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of September 30, ~~2017, the Company~~2021, we did not believe a valuation allowance was necessary.

For the three months ended September 30, 2021, income tax expense totaled $9.2 million, an increase of $3.0 million, or 48.4%, compared to $6.2 million for the same period in 2020.

For the three months ended September 30, 2021, the Company had an effective tax rate of 20.0%. The Company had a net discrete tax benefit of $53 thousand for excess tax benefit realized on share-based payment award during the three months ended September 30, 2021. Excluding this discrete tax item, the Company had an effective tax rate of 20.1% for the three months ended September 30, 2021.

For the three months ended September 30, 2020, the Company had an effective tax rate of 21.3%. The Company had a net discrete tax expense of $32 thousand primarily associated with the recognition of an excess tax expense realized on share-based payment awards during the three months ended September 30, 2020. Excluding this discrete tax item, the Company had an effective tax rate of 21.2% for the three months ended September 30, 2020.

Results of Operations for the Nine Months Ended September 30, 2021 and 2020

General

Net income for the nine months ended September 30, 2021 was $98.1 million, an increase of $47.0 million, or 92.0%, from net income of $51.1 million for the nine months ended September 30, 2020.

Basic EPS for the nine months ended September 30, 2021 was $1.98, an increase of $0.96 from $1.02 for the nine months ended September 30, 2020. Diluted EPS for the nine months ended September 30, 2021 was $1.95, an increase of $0.93 from $1.02 for the nine months ended September 30, 2020.

Net Interest Income

For the nine months ended September 30, ~~2017,~~2021, net interest income ~~tax~~before provisions for credit losses totaled $204.0 million and net interest margin and net interest spread were 3.20% and 2.98%, respectively. For the nine months ended September 30, 2020, net interest income totaled $199.0 million and net interest margin and net interest spread were 3.42% and 3.10%, respectively. The increase in net interest income of $5.0 million was primarily due to $5.9 million and $12.3 million decreases in interest expense ~~totaled $5.8~~on interest-bearing demand and savings deposits and certificates and other time deposits, respectively, partially offset by a $10.6 million ~~an increase of $965 thousand, or 20.0%,~~decrease in interest income on loans during the nine months ended September 30, 2021 compared to ~~$4.8 million for~~ the ~~same period~~nine months ended September 30, 2020. The decrease in ~~2016. The change~~interest income on loans was due to a decrease in ~~income tax expense~~average yields earned on loans. Net interest margin decreased 22 basis points from the nine months ended September 30, ~~2016 was~~2020 primarily due to ~~the $3.5 million increase~~a decrease in ~~net income from operations~~yields earned on loan balances, partially offset by decreases in the ~~impact of the net discrete tax benefit of $285 primarily associated with the recognition of excess tax benefit~~average rate paid on ~~share-based payment awards during~~interest-bearing demand and savings deposits and certificates and other time deposits in the nine months ended September 30, ~~2017~~2021 and an unfavorable shift in the mix of earning assets compared to ~~no net discrete tax benefit during~~ the nine months ended September 30, ~~2016.~~

~~The Company’s estimated annual effective tax rate, before reporting~~2020. As a result, the ~~net impact~~average cost of ~~discrete items, was approximately 34.4% and 34.2%~~interest-bearing deposits decreased 61 basis points to 0.36% for the nine months ended September 30, ~~2017 and 2016, respectively. The Company’s estimated effective tax rate, after including the net impact of discrete tax items, was approximately 32.8% and 34.1%~~2021 from 0.97% for the nine months ended September 30, ~~2017 and 2016, respectively.~~2020.

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

~~Net Interest Income~~

~~Compared to the three~~nine months ended September 30, 2016, net interest income increased by $8.6 million from $10.5 million to $19.1 million for the three months ended September 30, 2017. The increase in net interest income before provision for loan losses was primarily due to a $9.1 million increase in interest income on loans resulting from average loan balance increases of $689.0 million compared to the three months ended September 30, 2016. The net interest margin increased to 3.78% for the three months ended September 30, 2017 from 3.70% for the same three-month period in 2016. The 8 basis point increase in net interest margin was primarily due to a change in mix of interest-earning assets resulting from increases in loan balances. The average yield on loan balances increased to 5.00% from 4.83% for the ~~three months ended September 30, 2017~~compared to the same period during 2016. The increase in the average yield for loans was primarily driven by $585 thousand in estimated accretion during the third quarter of 2017 on loans acquired from Sovereign. The estimated accretion on the estimated purchase discount for loans acquired from Sovereign increased the average yield on loans by approximately 14 basis points for the~~three months ended September 30, 2017.~~

~~For the three months ended September 30, 2017,~~2021, interest expense totaled ~~$3.2~~$27.5 million and the average rate paid on interest-bearing liabilities was ~~0.92%~~0.65%. For the ~~three~~nine months ended September 30, ~~2016,~~2020, interest expense totaled ~~$1.5~~$44.7 million and the average rate paid on interest-bearing liabilities was ~~0.79%~~1.09%. The ~~increase~~decrease in interest expense of ~~$1.7~~$17.2 million was ~~primarily~~ due to a ~~$1.4~~$5.9 million increase in deposit-related interest expense resulting from average interest-bearing deposit increases of $567.2 million to $1.3 billion for the three months ended September 30, 2017 from $727.0 million for the three months ended September 30, 2016. The increase in interest expense was primarily the result of increases in money market accounts as interest expense paid on these balances increased $828 thousand. The increasedecrease in the average rate paid on interest-bearing ~~liabilities of 13 basis points was primarily due to~~demand and savings deposits and a ~~10 basis point increase~~$12.3 million decrease in the average cost of interest-bearing deposits to 0.86% for the three months ended September 30, 2017 from 0.76% for the three months ended September 30, 2016. This increase was the result of a 18 basis point increase in the average interest rate paid on ~~money market accounts from 0.82% for the three months ended September 30, 2016 to 1.00% for the three months ended September 30, 2017.~~time deposits, partially offset by a $1.1 million increase in interest paid on borrowings.

The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and ~~interest-bearing~~interest–bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as non-accrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the ~~three~~nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, interest income not recognized on non-accrual loans was ~~minimal.~~$2.0 million and $3.0 million, respectively. Any non-accrual loans have been included in the table as loans carrying a zero yield.


	For the Three Months Ended September 30,															For the Nine Months Ended September 30,
	2017							2016								2021						2020
				Interest							Interest							Interest						Interest
	Average			Earned/		Average		Average			Earned/		Average			Average		Earned/		Average		Average		Earned/		Average
	Outstanding			Interest		Yield/		Outstanding			Interest		Yield/			Outstanding		Interest		Yield/		Outstanding		Interest		Yield/
	Balance			Paid		Rate		Balance			Paid		Rate			Balance		Paid		Rate		Balance		Paid		Rate
	(Dollars in thousands)															(Dollars in thousands)
Assets															Assets
Interest-earning assets:															Interest-earning assets:
Total loans(1)	$	1,643,077		$	20,706	5.00	%	$	954,053		$	11,589	4.83	%
Securities available for sale	191,265			941		1.95		83,233			335		1.60
Investment in subsidiary	265			3		4.49		93			1		4.28
Loans(1)															Loans(1)	$	6,118,880	$	193,040	4.22	%	$	5,779,469	$	208,889	4.83	%
LHI, MW															LHI, MW	477,319		10,988		3.08		275,890		6,318		3.06
PPP loans															PPP loans	309,620		2,324		1.00		236,778		1,779		1.00
Debt securities															Debt securities	1,093,263		22,579		2.76		1,086,185		23,074		2.84
Interest-bearing deposits in other banks	171,461			629		1.46		94,596			129		0.54		Interest-bearing deposits in other banks	408,601		424		0.14		283,108		1,122		0.53
Equity securities and other investments															Equity securities and other investments	114,237		2,233		2.61		102,185		2,568		3.36
Total interest-earning assets	2,006,068			22,279		4.41		1,131,975			12,054		4.24		Total interest-earning assets	8,521,920		231,588		3.63		7,763,615		243,750		4.19
Allowance for loan losses	(9,910		)					(8,115		)
ACL															ACL	(103,478)						(90,633)
Noninterest-earning assets	202,352							95,901							Noninterest-earning assets	799,207						776,790
Total assets	$	2,198,510						$	1,219,761						Total assets	$	9,217,649					$	8,449,772

Liabilities and Stockholders’ Equity															Liabilities and Stockholders’ Equity
Interest-bearing liabilities:															Interest-bearing liabilities:
Interest-bearing deposits	$	1,294,187		$	2,812	0.86	%	$	726,958		$	1,381	0.76	%
Interest-bearing demand and savings deposits															Interest-bearing demand and savings deposits	$	3,144,395	$	5,229	0.22	%	$	2,680,925	$	11,128	0.55	%
Certificates and other time deposits															Certificates and other time deposits	1,514,954		7,418		0.65		1,579,114		19,759		1.67
Advances from FHLB	53,222			160		1.19		38,363			59		0.61		Advances from FHLB	777,655		5,489		0.94		1,070,856		8,387		1.05
Other borrowings	13,793			178		5.12		8,078			97		4.78
Subordinated debentures and subordinated notes															Subordinated debentures and subordinated notes	264,998		9,410		4.75		143,387		5,444		5.07
Total interest-bearing liabilities	1,361,202			3,150		0.92		773,399			1,537		0.79		Total interest-bearing liabilities	5,702,002		27,546		0.65		5,474,282		44,718		1.09

Noninterest-bearing liabilities:															Noninterest-bearing liabilities:
Noninterest-bearing deposits	452,426							301,740							Noninterest-bearing deposits	2,198,551						1,763,289
Other liabilities	6,898							3,284							Other liabilities	60,456						57,737
Total noninterest-bearing liabilities	459,324							305,024
Total liabilities															Total liabilities	7,961,009						7,295,308
Stockholders’ equity	377,984							141,338							Stockholders’ equity	1,256,640						1,154,464
Total liabilities and stockholders’ equity	$	2,198,510						$	1,219,761						Total liabilities and stockholders’ equity	$	9,217,649					$	8,449,772
Net interest rate spread(2)						3.49	%						3.45	%

Net interest rate spread(2)															Net interest rate spread(2)					2.98	%					3.10	%
Net interest income				$	19,129						$	10,517			Net interest income			$	204,042					$	199,032
Net interest margin(3)						3.78	%						3.70	%
Net interest margin(3)															Net interest margin(3)					3.20	%					3.42	%

(1) Includes average outstanding balances of loans held for sale of $13,140 and $16,448 for the nine months ended September 30, 2021 and September 30, 2020, respectively, and average balances of LHI, excluding MW and PPP loans.


~~(1)~~	~~Includes average outstanding balances of loans held for sale of $1,553 and $6,047 and deferred loan fees of $18 and $46 for the three months ended September 30, 2017 and 2016, respectively.~~

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

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

For the Three Months Ended
September 30, 2017 vs. 2016
Increase
Due to Change in
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Total loans $ 8,393
$ 724
$ 9,117
Securities available for sale 436
170
606
Investment in subsidiary 2
—
2
Interest-bearing deposits in other banks 105
395
500
Total increase in interest income 8,936
1,289
10,225
Interest-bearing liabilities:

Interest-bearing deposits 1,081
350
1,431
Advances from FHLB 23
78
101
Other borrowings 69
12
81
Total increase in interest expense 1,173
440
1,613
Increase in net interest income $ 7,763
$ 849
$ 8,612


	For the Nine Months Ended
	September 30, 2021 vs. 2020
	Increase (Decrease)

	Due to Change in
	Volume		Rate		Total
	(In thousands)
Interest-earning assets:
Loans	$	12,256	$	(28,105)	$	(15,849)
LHI, MW	4,610		60		4,670
PPP loans	545		—		545
Debt securities	150		(645)		(495)
Interest-bearing deposits in other banks	497		(1,195)		(698)
Equity securities and other investments	303		(638)		(335)
Total increase (decrease) in interest income	18,361		(30,523)		(12,162)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits	1,922		(7,821)		(5,899)
Certificates and other time deposits	(802)		(11,539)		(12,341)
Advances from FHLB	(2,294)		(604)		(2,898)
Subordinated debentures and subordinated notes	4,613		(647)		3,966
Total increase (decrease) in interest expense	3,439		(20,611)		(17,172)
Increase (decrease) in net interest income	$	14,922	$	(9,912)	$	5,010

Provision for ~~Loan~~Credit Losses

The ~~increase~~decrease in the recorded provision ~~expense~~for credit losses for the nine months ended September 30, 2021 was ~~due~~ primarily attributable to ~~loan growth as well as an increase~~improvement in ~~general reserves due~~the Texas economic forecasts used in the CECL model in 2021 to ~~changes in qualitative factors around~~reflect the ~~nature, volume, and mix~~expected impact of the ~~loan portfolio, which includes a qualitative risk factor adjustment related~~COVID-19 pandemic as of September 30, 2021, as compared to the ~~potential~~Texas economic forecasts utilized in the CECL model and expected impact of ~~Hurricane Harvey.~~the COVID-19 pandemic as of September 30, 2020. During the nine months ended September 30, 2021, we also recorded an $441 thousand benefit for unfunded commitments, which was also primarily attributable to improving Texas economic forecasts utilized in the unfunded commitments loss rates slightly offset by higher unfunded balances. In the nine months ended September 30, 2020, we recorded an $8.1 million provision for unfunded commitments, which was attributable to the change in the economic forecasts as a result of the COVID-19 pandemic. Allowance for credit losses as a percentage of LHI, excluding MW and PPP loans, was 1.42%, 1.59% and 2.10% of total loans at September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

Noninterest Income

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

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


	For the
	Nine Months Ended
	September 30,				Increase
	2021		2020		(Decrease)
	(In thousands)
Noninterest income:
Service charges and fees on deposit accounts	$	11,960	$	9,732	$	2,228
Loan fees	4,910		5,027		(117)
(Loss) gain on sales of securities	(188)		2,871		(3,059)
Gain on sales of mortgage loans held for sale	1,299		922		377
Government guaranteed loan income, net	12,337		13,702		(1,365)

Equity method investment income	4,522		—		4,522
Other	7,415		6,078		1,337
Total noninterest income	$	42,255	$	38,332	$	3,923

For the Three Months Ended Increase
September 30, (Decrease)
2017 2016 2017 vs. 2016
(Dollars in thousands)

Service charges and fees on deposit accounts $ 669
$ 433
$ 236
Gain on sales of investment securities 205
—
205
Gain on sales of loans 705
1,036
(331 )
Bank-owned life insurance 188
193
(5 )
Other 210
231
(21 )
Total noninterest income $ 1,977
$ 1,893
$ 84

Noninterest income for the ~~three~~nine months ended September 30, ~~2017~~2021 increased ~~$84 thousand,~~$4.0 million, or ~~4.4%~~10.2%, to ~~$2.0~~$42.3 million compared to noninterest income of ~~$1.9~~$38.3 million for the same period in ~~2016.~~2020. The primary ~~components~~drivers of the increase were as follows:

Service charges and fees on deposit accounts.We earn service charges and fees from our customers for deposit-related ~~services, and~~activities. The income from these ~~fees constitute~~deposit activities constitutes a significant and predictable component of our noninterest income. Service charges and fees on deposit accounts were ~~$669 thousand and $433 thousand~~$12.0 million for the ~~three~~nine months ended September 30, ~~2017 and 2016, respectively. The~~2021, an increase of ~~$236 thousand~~$2.2 million over the same period in 2020. This increase was ~~attributable~~primarily due to ~~growth~~a $2.2 million increase in ~~the number of~~service and analysis charges resulting from additional deposit accounts ~~accounts acquired from Sovereign and an increase transaction fees and service charges from new and existing customers.~~being serviced for the nine months ended September 30, 2021 compared to the same period in 2020.

~~Gain~~(Loss) gain on sales of ~~investment~~ securities. ~~Gain~~Sales of securities during the nine months ended September 30, 2021 resulted in a loss recognized of $188 thousand compared to gains of $2.9 million for the same period in 2020 primarily due a decrease in the volume of security sales during the nine months ended September 30, 2021 compared to same period in 2020 and a decrease in market interest rates below coupon rates for securities sold during the nine months ended September 30, 2020.

Government guaranteed loan income, net. Government guaranteed loan income, net, includes noninterest income earned on PPP loans as well as income related to the sales of SBA loans. The decrease in government guaranteed loan income, net, of $1.4 million was driven by a $5.1 million decrease in fee income earned on PPP loans during the nine months ended September 30, 2021 compared the same period in 2020, partially offset by a $4.0 million increase in the change in fair value of PPP loans held at fair value and a $1.0 million increase in valuation of loans held for sale during the nine months ended September 30, 2021.

Equity method investment ~~securities were~~ ~~$205~~ ~~thousand~~income. Equity method investment income is comprised of income earned on equity method investments, specifically our 49% investment in Thrive. The income from these investments was $4.5 million for the nine months ended September 30, ~~2017 with~~2021. There was no ~~comparative gain~~income from equity method investments for the same period ~~of 2016. The increase of $205 thousand resulted from~~in 2020.

Other noninterest income. Other noninterest income increased $1.3 million during the ~~sale of Sovereign investment securities that did not fit our investment strategy.~~

~~Gain on sales of loans.~~ ~~We originate SBA guaranteed loans and long-term fixed-rate mortgage loans for resale into the secondary market. Income from the sales of loans was $705 thousand for the three~~nine months ended September 30, ~~2017~~2021 compared to ~~$1.0 million for~~ the same period ~~of 2016.~~in 2020. The ~~decrease of $331 thousand~~increase was primarily ~~due to~~driven by an increase of $790 thousand in insurance income and an increase of $732 thousand in equity securities. This increase was partially offset by a decrease in ~~gain on sale~~rental revenue of ~~mortgage loans by $287~~$234 thousand ~~and decrease~~during the nine months ended September 30, 2021 compared to the same period in ~~gain on sale of SBA-guaranteed loans by $44 thousand.~~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 component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of office equipment, professional and regulatory fees, including Federal Deposit Insurance Corporation (“FDIC”) assessments, data processing expenses, and advertising and promotion expenses.Expense

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

For the Three Months Ended Increase
September 30, (Decrease)
2017 2016 2017 vs. 2016
(Dollars in thousands)
Salaries and employee benefits $ 5,921
$ 3,920
$ 2,001
Non-staff expenses:

Occupancy and equipment 1,596
923
673
Professional fees 1,973
785
1,188
Data processing and software expense 719
296
423
FDIC assessment fees 410
179
231
Marketing 436
293
143
Other assets owned expenses and write-downs 71
9
62
Amortization of intangibles 223
95
128
Telephone and communications 230
98
132
Other 943
431
512
Total noninterest expense $ 12,522
$ 7,029
$ 5,493


	For the
	Nine Months Ended
	September 30,				Increase
	2021		2020		(Decrease)
	(In thousands)
Salaries and employee benefits	$	69,347	$	59,442	$	9,905
Non-staff expenses:
Occupancy and equipment	12,865		12,247		618
Professional and regulatory fees	9,928		8,151		1,777
Data processing and software expense	7,349		6,975		374
Marketing	3,901		2,706		1,195
Amortization of intangibles	7,563		8,232		(669)
Telephone and communications	1,054		972		82

COVID expenses	—		1,377		(1,377)
Other	10,628		11,912		(1,284)
Total noninterest expense	$	122,635	$	112,014	$	10,621

Noninterest expense for the ~~three~~nine months ended September 30, ~~2017~~2021 increased ~~$5.5~~$10.6 million, or ~~78.1%~~9.5%, to ~~$12.5~~$122.6 million compared to noninterest expense of ~~$7.0~~$112.0 million for the ~~same period in 2016.~~nine months ended September 30, 2020. The most significant components of the increase were as follows:

Salaries and employee benefits. Salaries and employee benefits include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. ~~The level of employee expense is~~These expenses are impacted by the amount of direct loan origination costs, which are required to be deferred in accordance with ASC 310-20 (formerly FAS91). Salaries and employee benefits were ~~$5.9~~$69.3 million for the ~~three~~nine months ended September 30, ~~2017,~~2021, an increase of ~~$2.0~~$9.9 million, or ~~51.0%~~16.7%, compared to the same period in ~~2016.~~2020. The increase was primarily attributable to ~~increased employee compensation of $2.7~~a $5.3 million ~~due to the addition of 100 full-time equivalent employees related to the merger with Sovereign. This~~ increase in ~~salaries and~~accrued employee ~~benefits was partially offset by the deferral of direct origination costs which increased $665 thousand~~bonus, a $3.7 million increase in salaries as a result of ~~the growth~~increased head count and merit increases, a $1.9 million increase in ~~loans~~employee stock based compensation, a $1.7 million increase in lender incentive, a $714 thousand increase in employee benefit costs and a $523 thousand increase in payroll taxes during the ~~three~~nine months ended September 30, ~~2017~~2021 compared to the same period in ~~2016.~~2020. This increase was partially offset by an increase of $3.9 million in direct loan origination costs, which are required to be deferred in accordance with ASC 310-20.

~~Occupancy~~Professional and ~~equipment.~~ ~~Occupancy~~regulatory fees. This category includes legal, professional, audit, regulatory, and ~~equipment expense includes lease expense, building depreciation~~Federal Deposit Insurance Corporation (“FDIC”) assessment fees. Professional and ~~related facilities costs as well as furniture, fixture and equipment depreciation, small equipment purchases and maintenance expense. Our expense associated with occupancy and equipment was $1.6~~regulatory fees were $9.9 million for the ~~three~~nine months ended September 30, ~~2017~~2021 compared to ~~$923 thousand~~$8.2 million for the same period in ~~2016.~~2020, an increase of $1.8 million. The increase ~~of $673 thousand~~ was primarily due to ~~the additional lease expense associated with the opening of the Turtle Creek branch beginning January 2017 and the addition of six owned buildings and five property leases from the Sovereign merger.~~

~~Data processing and software expenses.~~ ~~Data processing expenses~~FDIC assessment fees, which were ~~$719 thousand~~$3.2 million for the ~~three~~nine months ended September 30, ~~2017,~~2021 compared to $2.0 million for the same period in 2020 driven by an increase in average assets, total equity and FDIC assessment rates.

Marketing. This category of ~~$423 thousand, or 142.9%,~~expenses includes expenses related to advertising and promotions, which increased $1.2 million, primarily related to an increase in annual sponsorship fees for the nine months ended September 30, 2021 compared to the same period in ~~2016. The increase was attributable~~2020.

COVID expenses. This category of expenses includes expenses related to the ~~Company converting Sovereign’s operating systems into the Veritex information technology infrastructure.~~

~~Professional fees.~~ This category includes legal, investment bank, director, stock transfer agent fees and other public company services, information technology support, audit services and regulatory assessment expense. Professional servicesCOVID-19 pandemic. There were no COVID-19 pandemic related expenses ~~were $2.0 million~~ for the ~~three~~nine months ended September 30, ~~2017~~2021 compared to ~~$785 thousand~~$1.4 million for the ~~same period in 2016, an increase~~nine months ended September 30, 2020 primarily related to PPP incentive compensation of ~~$1.2 million or 151.3%. This increase was primarily the result~~$500 thousand, Community Reinvestment Act related donations of ~~$1.4 million~~$406 thousand, employee salaries of ~~legal~~$273 thousand and ~~other professional services associated with the Sovereign and Liberty mergers.~~increased janitorial expenses of $22 thousand.

~~Other.~~Other noninterest expense. This category includes ~~operating and administrative expenses including~~ loan operations and collections, supplies and printing, automatic teller and online expenses and ~~card interchange expense, ATM/debit card processing, postage and delivery, BOLI mortality expense, insurance and security~~other miscellaneous expenses. Other noninterest expense ~~increased $512 thousand, or 118.8%, to $943 thousand~~was $10.6 million for the ~~three~~nine months ended September 30, ~~2017,~~2021 compared to ~~$431 thousand~~$11.9 million for the same period in ~~2016~~2020, a decrease of $1.3 million, or 10.8%. This decrease was primarily ~~related~~due to ~~increases~~a decrease in ~~corporate insurance~~bank service charges resulting from pre-payment fees on FHLB advances paid off early of ~~$93 thousand, auto and travel of $72 thousand and ATM and interchange~~$1.6 million during the nine months ended September 30, 2020 with no corresponding expense ~~of $68 thousand.~~during the same period in 2021.

Income Tax Expense

~~The amount of income tax expense is influenced by~~

For the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

~~Income tax expense for the three~~nine months ended September 30, ~~2017~~2021, income tax expense totaled ~~$2.7~~$26.0 million, an increase of ~~$882 thousand,~~$16.5 million, or ~~49.9%~~173.9%, compared to ~~$1.8~~an income tax expense of $9.5 million for the same period in ~~2016. The change in income tax expense from~~2020.

For the ~~three~~nine months ended September 30, ~~2016 was primarily due~~2021, the Company had an effective tax rate of 21.0%. The Company had a net discrete tax expense of $104 thousand. This discrete tax expense related to ~~the $2.7 million increase in net income from operations~~a true-up of a deferred tax liability of $426 thousand, partially offset by $322 thousand of an excess tax benefit realized on share-based payment awards during nine months ended September 30, 2021. Excluding these discrete tax items, the ~~impact~~Company had an effective tax rate of 20.9% for the nine months ended September 30, 2021.

For the nine months ended September 30, 2020, the Company had an effective tax rate of 15.7%. The decrease in the effective tax rate was driven by a net discrete tax benefit of ~~$30 thousand~~$1.8 million as a result of the Company amending a prior year Green Bancorp, Inc. (“Green”)tax return to carry back a net operating loss ("NOL") incurred by Green on January 1, 2019 and a net discrete tax benefit of $1.4 million primarily associated with the recognition of excess tax benefit realized on share-based payment awards during the ~~three~~nine months ended September 30, ~~2017 compared to no net~~2020. Excluding these discrete tax ~~benefit during~~items, the ~~three~~Company had an effective tax rate of 21.0% for the nine months ended September 30, ~~2016.~~2020.

The Company’s effective tax rate, before the net impact of discrete items, was approximately 34.2% for the three months ended September 30, 2017 compared to 34.4% for the three months ended September 30, 2016. The Company’s effective tax rate, after the net impact of discrete items, was approximately 33.8% and 34.4% for the three months ended September 30, 2017 and 2016, respectively.

Financial Condition

Our total assets increased ~~$1.1 billion,~~$751.4 million, or ~~77.1%~~8.5%, from ~~$1.4~~$8.8 billion as of December 31, ~~2016~~2020 to ~~$2.5~~$9.6 billion as of September 30, ~~2017.~~2021. Our asset growth was due to the ~~successful acquisition of Sovereign in which we acquired $1.1 billion in assets. Additionally, our asset growth was due to the successful~~continued execution of our strategy to establish deep relationships in the ~~Dallas~~Dallas-Fort Worth metroplex and the Houston metropolitan area. We believe these relationships will continue to bring in new customer accounts and grow balances from existing loan and deposit customers.

Loan Portfolio

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

As of September 30, ~~2017,~~2021, total ~~loans were $1.9~~LHI, excluding ACL, was $7.4 billion, an increase of ~~$915.6~~$583.3 million, or ~~92.3%~~8.6%, compared to ~~$991.9 million~~$6.8 billion as of December 31, ~~2016, with $750.9 million~~2020. The increase was the result of the continued execution and success of our loan growth ~~resulting from loans acquired from Sovereign.~~strategy. In addition to these amounts, ~~$2.2~~$18.9 million and ~~$5.2~~$21.4 million in loans were classified as held for sale as of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively.

Total LHI, excluding MW and PPP loans, ~~held for investment~~ as a percentage of deposits were ~~96.1%~~92.2% and ~~88.6%~~89.8% as of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. Total LHI, excluding MW and PPP loans, ~~held for investment~~ as a percentage of assets were ~~76.5%~~69.1% and ~~70.4%~~66.3% as of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively.

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


	As of September 30,				As of December 31,
	2021				2020
	Total		Percent		Total		Percent
	(Dollars in thousands)
Commercial	$	1,793,740	24.8	%	$	1,559,546	24.3	%
MW	615,045		8.5		577,594		9.0
Real estate:
Owner Occupied CRE (“OOCRE”)	711,476		9.8		717,472		11.1
Non-owner Occupied CRE (“NOOCRE”)	2,194,438		30.3		1,904,132		29.6
Construction and land	936,174		12.9		693,030		10.8
Farmland	73,550		1.0		13,844		0.2
1-4 family residential	543,518		7.5		524,344		8.2
Multifamily	356,885		4.9		424,962		6.6
Consumer	14,266		0.2		13,000		0.3
Total LHI carried at amortized cost1	$	7,239,092	100.0	%	$	6,427,924	100.0	%

Held for investment PPP loans, carried at fair value	$	135,842	100.0	%	$	358,042	100.0	%

Total loans held for sale	$	18,896	100.0	%	$	21,414	100.0	%

1 Total LHI, carried at amortized cost, excludes $8.1 million and $2.5 million of deferred loan fees, net, as of September 30, 2021 and December 31, 2020, respectively.

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 September 30,			As of December 31,
	2021			2020
	(Dollars in thousands)
Nonaccrual loans(1)	$	72,317		$	81,096
Accruing loans 90 or more days past due	1,711			4,204
Total nonperforming loans	74,028			85,300
Other real estate owned:

Commercial real estate	—			2,337

Total other real estate owned	—			2,337
Total nonperforming assets	$	74,028		$	87,637
Troubled debt restructured loans—nonaccrual	22,232			23,225
Troubled debt restructured loans—accruing	5,856			5,932
Ratio of nonperforming loans to total LHI	1.12		%	1.46		%
Ratio of nonperforming assets to total assets	0.77		%	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~~ At September 30, ~~2017.~~

~~We had $2.6 million and $2.4 million in nonperforming assets as of September 30, 2017~~2021 and December 31, ~~2016, respectively. We had $1.9 million in nonperforming~~2020, nonaccrual loans asincluded purchased credit deteriorated (“ PCD”) loans of ~~September 30, 2017 compared to $1.8 million as of December 31, 2016.~~$12,295 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 September 30,		As of December 31,
	2021		2020
	(Dollars in thousands)
Commercial	$	20,411	$	29,318
Mortgage warehouse	—		—
Real estate:
OOCRE	16,890		6,266
NOOCRE	31,630		40,830
Construction and land	1,185		—

1-4 family residential	998		3,308

Consumer	1,203		1,374
Total	$	72,317	$	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.


	September 30, 2021
	Pass		Special Mention		Substandard		PCD		Total
Real estate:
Construction and land	$	930,673	$	1,890	$	1,185	$	2,426	$	936,174
Farmland	73,550		—		—		—		73,550
1 - 4 family residential	538,368		360		3,584		1,206		543,518
Multi-family residential	335,593		21,292		—		—		356,885
OOCRE	613,589		29,283		39,848		28,756		711,476
NOOCRE	1,988,946		89,488		90,165		25,839		2,194,438
Commercial	1,689,423		33,279		60,342		10,696		1,793,740
MW	613,727		—		1,318		—		615,045
Consumer	12,714		98		1,273		181		14,266
Total	$	6,796,583	$	175,690	$	197,715	$	69,104	$	7,239,092

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		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 for loan losses~~ACL on LHI

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
	September 30, 2021				December 31, 2020
			Percent				Percent
	Amount		of Total		Amount		of Total
	(Dollars in thousands)
Real estate:
Construction and land	$	7,011	7.5	%	$	7,768	7.4	%
Farmland	236		0.2		56		0.1
1 - 4 family residential	6,519		7.0		8,148		7.8
Multi-family residential	3,663		3.9		6,231		5.9
OOCRE	10,988		11.7		9,719		9.2
NOOCRE	37,304		39.8		35,237		33.5
Total real estate	$	65,721	70.1	%	$	67,159	63.9	%
Commercial	27,824		29.7		37,554		35.7
Consumer	226		0.2		371		0.4
Total ACL	$	93,771	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 $11.3 million to $93.8 million as of ~~our growth strategy through key acquisitions, including Sovereign, and organic growth is demonstrated by the upward trend in loan balances from December 31, 2016 to~~ September 30, ~~2017. Loan balances~~

~~increased~~2021 from ~~$991.9~~$105.1 million as of December 31, ~~2016~~2020. The decrease in the ACL compared to ~~$1.9 billion~~December 31, 2020 was primarily attributable to net charge-offs of $11.3 million that were fully reserved against in previous periods and changes in projected Texas economic forecasts using our CECL model which resulted in no calculated required provision for credit losses as of September 30, ~~2017.~~ 2021 partially offset by increases in reserves for net loan growth and increases in specific reserves on certain nonaccrual loans during the nine months ended September 30, 2021.

The ~~allowance~~following table presents, as of and for ~~loan losses as a percentage of total loans was determined by~~ the ~~qualitative factors around the nature, volume and mix~~periods indicated, an analysis of the ~~loan portfolio. The decrease in the allowance~~ACL and other related data:


	Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020
	(Dollars in thousands)
Average loans outstanding, excluding PPP loans(1)	$	6,596,199		$	6,055,359
Amortized costs of loans outstanding at end of period, excluding MW and PPP loans(1)	6,615,905			5,847,862
Amortized costs of loans outstanding at end of period, excluding PPP loans(1)	7,230,950			5,789,293
ACL at beginning of period	105,084			29,834
Impact of adopting ASC 326	—			39,137
Provision for credit losses	—			56,640
Charge-offs:
Real estate:

Residential	(367)			—
OOCRE	(1,502)			(2,421)

Commercial	(11,474)			(1,808)
Consumer	(55)			(136)
Total charge-offs	(13,398)			(4,365)
Recoveries:
Real estate:

Residential	52			8
OOCRE	500			—

Commercial	1,481			50
Consumer	52			287
Total recoveries	2,085			345
Net charge-offs	(11,313)			(4,020)
ACL at end of period	$	93,771		$	121,591
Ratio of ACL to end of period loans excluding MW and PPP loans	1.42		%	2.01		%
Ratio of net charge-offs to average loans	0.19		%	0.07		%

(1)Excludes loans held for ~~loan loss as a percentage of loans as of September 30, 2017 from December 31, 2016 and September 30, 2016 was attributable to the Sovereign acquisition as acquired loans are recorded at fair value.~~

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 September 30, 2021, we held equity securities with a readily determinable fair value of $11.1 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 $4.1 million and $3.6 million at September 30, 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.

Securities purchased under agreements to resell

As of September 30, 2021, we held securities purchased under agreements to resell of $103.7 million and we recognized interest income of $227 thousand during the three and nine months ended September 30, 2021. We had no securities purchased under agreements to resell as of or during the year ended December 31, 2020. Securities purchased under agreements to resell typically mature 30 days from the settlement date, qualify as a secured borrowing and are measured at amortized cost.

FHLB Stock and FRB Stock

As of September 30, 2021, we held FHLB stock and Federal Reserve Bank (“FRB”) stock of $71.8 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. Federal Reserve System member banks are required to hold a percentage of their capital as stock in their regional FRB. 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,~~2021, the carrying amount of ~~investment~~debt securities totaled ~~$204.8 million,~~$1.1 billion, an increase of ~~$102.2~~$48.5 million, or ~~99.7%~~4.6%, 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 $210.5 million, ~~during 2017 and $48.1 million of acquired Sovereign securities remaining as of September 30, 2017. This increase is~~ partially offset by maturities, calls, and paydowns of $130.4 million. Debt securities represented 11.5% 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~~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,~~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 September 30, 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 ACL have been recognized in the Company’s condensed consolidated balance sheets. The Company also recorded no ACL 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 and December 31, 2016, respectively.~~2021.

As of September 30, ~~2017~~2021 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.

Equity Method Investments

On July 16, 2021, the Bank completed an investment to acquire a 49% interest in Thrive Mortgage, LLC (“Thrive”) for $54.9 million in cash and obtained the right to designate a member to Thrive’s board of directors. As a result of the investment, we have a $35.8 million basis difference which is being accounted for as equity method goodwill.

We had $59.4 million in equity method investments as of September 30, 2021 and reported $4.5 million of income resulting from these investments for the three and nine months ended September 30, 2021 which represents our proportionate share of our investee’s income.

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~~2021 were ~~$2.0~~$7.2 billion, an increase of ~~$866.0~~$665.9 million, or ~~77.3%~~10.2%, 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 $269.9 million ofin interest-bearing transaction and savings deposits, ~~assumed from Sovereign.~~$190.2 million in certificates and other time deposits, and $205.8 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~~2021 and December 31, ~~2016,~~2020, total borrowing capacity of ~~$484.1~~$657.7 million and ~~$369.4~~$766.4 million, respectively, was available under this arrangement and ~~$38.2~~$777.6 million and ~~$38.3~~$777.7 million, respectively, was outstanding with a weighted average interest rate of ~~1.19%~~0.94% for the ~~three~~nine months ended September 30, ~~2017~~2021 and ~~0.60%~~1.04% for the year ended December 31, ~~2016.~~2020. The FHLB has also issued standby letters of credit to the Company for $1.2 billion and $567.9 million as of September 30, 2021 and December 31, 2020, respectively. Our current FHLB advances mature within ~~six~~14 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~~FRB 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~~2021 and December 31, ~~2016, $214.7~~2020, $870.8 million and ~~$197.3~~$871.5 million, respectively, ~~were~~was 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~~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~~subordinated notes. Refer to Note 14, “Borrowed Funds” in our Annual Report on Form 10-K for the Trust Securities. In connection with the acquisition of Fidelity Resource Company during 2011, we assumed $3.1 million in Trust Securities issued by Parkway National Capital Trust I, a statutory business trust and acquired wholly-owned subsidiary. We assumed the guarantor position and as such, unconditionally guarantee payment of accrued and unpaid distributions required to be paidyear ended December 31, 2020 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.


	September 30, 2021
	Balance		Rate
	(Dollars in thousands)
Junior subordinated debentures:
Parkway National Capital Trust I	$	3,093	1.97%
SovDallas Capital Trust I	8,609		4.14%
Patriot Bancshares Capital Trust I	5,155		1.98%
Patriot Bancshares Capital Trust II	17,011		1.92%
	33,868
Discount on junior subordinated debentures	(3,458)
Total junior subordinated debentures	$	30,410

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%
	235,000
Net debt issuance costs and premium on subordinated notes	(2,649)
Total subordinated notes	$	232,351

Total subordinated debentures and subordinated notes	$	262,761

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 months ended September 30, ~~2017~~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~~2021 and December 31, ~~2016.~~2020. There were no advances under these lines of credit outstanding as of September 30, ~~2017~~2021 and December 31, ~~2016.~~

2020.

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~~$9.2 billion for the nine months ended September 30, ~~2017~~2021 and ~~$1.2~~$8.5 billion for the year ended December 31, ~~2016.~~2020.


	For the		For the			For the		For the
	Nine Months Ended		Year Ended			Nine Months Ended		Year Ended
	September 30, 2017		December 31, 2016			September 30, 2021		December 31, 2020
Sources of Funds:					Sources of Funds:
Deposits:					Deposits:
Noninterest-bearing	22.1	%	25.5	%	Noninterest-bearing	23.9	%	21.4	%
Interest-bearing	58.0		57.9		Interest-bearing	34.1		32.0
Certificates and other time deposits					Certificates and other time deposits	16.4		18.2
Advances from FHLB	2.4		3.7		Advances from FHLB	8.4		12.0
Other borrowings	0.6		0.7		Other borrowings	2.9		2.0
Other liabilities	0.3		0.2		Other liabilities	0.7		0.7
Stockholders’ equity	16.6		12.0		Stockholders’ equity	13.6		13.7
Total	100.0	%	100.0	%	Total	100.0	%	100.0	%
Uses of Funds:					Uses of Funds:
Loans	70.7	%	77.2	%	Loans	73.8	%	72.7	%
Securities available for sale	8.6		7.1
Debt securities					Debt securities	11.8		13.2
Interest-bearing deposits in other banks	12.7		7.8		Interest-bearing deposits in other banks	4.4		1.2
Other noninterest-earning assets	8.0		7.9		Other noninterest-earning assets	10.0		12.9
Total	100.0	%	100.0	%	Total	100.0	%	100.0	%
Average noninterest-bearing deposits to average deposits	27.6	%	30.5	%	Average noninterest-bearing deposits to average deposits	32.1	%	29.9	%
Average loans to average deposits	88.4	%	92.5	%

Average loans, excluding PPP and MW, to average deposits					Average loans, excluding PPP and MW, to average deposits	89.2	%	94.5	%

Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average ~~loans net of allowance for loan loss~~LHI increased ~~36.9%~~13.7% for the nine months ended September 30, ~~2017~~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,~~FRB of Dallas or liquid investments securities until these monies are needed to fund loan growth.

As of September 30, ~~2017,~~2021, we had $3.7 billion in outstanding ~~$546.0 million in~~ commitments to extend credit, $659.3 million in unconditionally cancellable MW commitments and ~~$6.4~~$65.8 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,~~2021, we had cash and cash equivalents of ~~$151.4~~$229.7 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
	Nine Months Ended		Nine Months Ended
	September 30, 2021		September 30, 2020
	(In thousands)
Net cash provided by operating activities	$	190,047	$	93,886
Net cash used in investing activities	(818,736)		(870,218)
Net cash provided by financing activities	627,576		653,549
Net change in cash and cash equivalents	$	(1,113)	$	(122,783)

Cash Flows Provided by Operating Activities

During the nine months ended September 30, 2021, net cash provided by operating activities increased by $96.2 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~~$21.3 million decrease in originations of loans held for sale and ~~due~~cash received for the termination of derivatives designated as hedging instruments of $43.9 million.

Cash Flows Used in Investing Activities

During the nine months ended September 30, 2021, net cash used in investing activities decreased by $51.5 million when compared to ~~funding loan~~the same period in 2020. The decrease in cash used in investing activities was primarily attributable to a $308.3 million decrease in purchases of available for sale debt securities and ~~investment growth over~~a $250.2 million decrease in originations of net loans held for investment. This decrease was partially offset by a $210.3 million decrease for proceeds from maturities, calls and pay downs of available for sale debt securities and a $103.7 million increase in securities purchased under agreements to resell.

Cash Flows Provided by Financing Activities

During the ~~period.~~nine months ended September 30, 2021, net cash provided by financing activities decreased by $26.0 million when compared to the same period in 2020. The decrease in cash provided by financing activities was primarily attributable to a $405.0 million decrease in advances from the FHLB. This decrease was partially offset by a $337.0 million increase in deposits and a decrease in treasury stock repurchases of $34.0 million.

As of the nine months ended September 30, 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 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, $75,000 on December 12, 2019, and $75,000 on September 14, 2021 resulting in an aggregate authorization to purchase up to $250,000 under the Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2021 to December 31, 2022. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission (the “SEC”). The Stock Buyback Program does not obligate the Company to purchase any share and the program may be terminated or amended by the Board at any time prior to its expiration.

Share repurchases during the periods ended are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Number of shares repurchased	328,122		—		475,744		2,002,211
Weighted average price per share	$	34.85	$	—	$	32.36	$	24.78

Capital Resources

Total stockholders’ equity increased to ~~$445.9 million~~$1.28 billion as of September 30, ~~2017,~~2021, compared to ~~$239.1 million~~$1.20 billion as of December 31, ~~2016,~~2020, an increase of ~~$206.8~~$80.8 million, or ~~86.5%~~6.7%. The increase from December 31, ~~2016~~2020 to September 30, 2021 was primarily the result of ~~the Company’s issuance~~$98.1 million of ~~5,117,642 shares for $136.0~~net income recognized, $7.8 million ~~net of offering costs,~~ in ~~connection~~stock based compensation, a $4.1 million increase due to the ~~Sovereign acquisition, the Company raise~~exercise of ~~$56.7 million~~employee stock options, and an increase of ~~common stock in our public offering, net of offering costs, and $11.9~~$13.4 million in ~~net~~other comprehensive income, each recognized during the nine months ended September 30, ~~2017.~~2021. This increase was partially offset by $26.7 million in dividends declared and paid during the nine months ended September 30, 2021 and $15.5 million of stock buybacks during the nine months ended September 30, 2021.

By comparison, total stockholders’ equity decreased to $1.19 billion as of September 30, 2020, compared to $1.19 billion as of December 31, 2019, a decrease of $5.5 million, or 0.5%. The decrease was primarily the result of $49.6 million in stock buybacks, $25.8 million in dividends declared and paid and a $15.5 million increase in ACL attributable to the CECL transition during the nine months ended September 30, 2020. These decreases were partially offset by $51.1 million net income recognized and an increase of $28.1 million in other comprehensive income recognized during the nine months ended September 30, 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~~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 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 September 30,				As of December 31,
	2021				2020
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Veritex Holdings, Inc.
Total capital (to risk-weighted assets)	$	1,160,589	12.31	%	$	1,099,031	13.57	%
Tier 1 capital (to risk-weighted assets)	854,393		9.06		782,487		9.66
Common equity tier 1 (to risk-weighted assets)	825,001		8.75		753,261		9.30
Tier 1 capital (to average assets)	854,393		9.54		782,487		9.43
Veritex Community Bank
Total capital (to risk-weighted assets)	$	1,068,655	11.34	%	$	968,481	11.96	%
Tier 1 capital (to risk-weighted assets)	994,810		10.56		884,471		10.92
Common equity tier 1 (to risk-weighted assets)	994,810		10.56		884,471		10.92
Tier 1 capital (to average assets)	994,810		11.12		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 September 30, 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 has~~we have 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~~$3.7 billion, $659.3 million and ~~$6.4~~$65.8 million, respectively, as of September 30, ~~2017.~~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

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

Standby and Commercial Letters of Credit

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

~~Critical Accounting Policies~~

~~Our consolidated financial statements are prepared in accordance with GAAP and with general practices within~~On November 1, 2021, the ~~financial services industry. Application~~Company completed its acquisition of ~~these principles requires management to make estimates and assumptions that affect~~NAC, which was announced on September 21, 2021. Under the ~~amounts reported in~~terms of the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basisdefinitive agreement for 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 our financial statements 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~~the Bank paid $57.5 million in cash to existing shareholders of ~~accounting for business combinations. Under~~NAC. Three years after the ~~acquisition method, the acquiring entity in a business combination recognizes 100%~~completion 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 excesstransaction, existing shareholders 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~~NAC as of the date of the acquisition ~~that we~~ have the ~~intent~~right, subject to adjustment,toreceiveanadditional$5 millionincashsubjecttocertainperformancemeasures.NACwillcontinuetooperate under its current name 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~~brand and ~~an allowance for loan losses. Interest on loans is recognized using the effective-interest method on the daily balances~~in its current office space, as a wholly owned subsidiary of the ~~principal amounts outstanding. Fees associated with~~Bank.

The transaction makes the ~~originating~~Bank a leading player in the United States Department of ~~loans~~Agriculture Business and ~~certain direct~~Industry lending program. It furthers the Company’sstrategyofdiversifyingrevenuestreamsandprovidingmeaningfulgainonsaleandloanservicingfees.The Company will leverage NAC’s loan ~~origination costs are netted~~sourcing technology to further enhance the Company’s products and services. Additionally, the ~~net amount is deferred~~Company will provide additional resources and ~~recognized over~~expertise to complement NAC’s experienced team.

LIBOR Transition

On March 5, 2021, the ~~life of~~United Kingdom’s Financial Conduct Authority, which regulates the ~~loan as an adjustment of yield.~~

~~The accrual of interest on loans is discontinued when there is a clear indication~~London Inter-Bank Offered Rate (“LIBOR”) , confirmed that the ~~borrower’s cash flow may not be sufficient~~publication of most LIBOR term rates will end on June 30, 2023. The federal banking agencies have encouraged banks to ~~meet payments~~transition away from LIBOR 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~~soon as practicable but no later than December 31, 2021. Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents various risks 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~~challenges to ~~be collectible. If collectability is questionable, then cash payments are applied to principal. Loans are returned to accrual status when all the principal~~financial markets and ~~interest amounts contractually due are brought current and future payments are reasonably assured in accordance with the terms of the loan agreement.~~

The allowance for loan losses is an estimated amount we believe is adequate to absorb inherent losses on existing loans that may be uncollectible based upon review and evaluation of the loan portfolio. Our periodic evaluation of the allowance is based on general economic conditions, the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experience, and the results of periodic reviews of the portfolio. The allowance for loan losses is comprised of two components: the general reserve and specific reserves. The general reserve is determined in accordance with current authoritative accounting guidance. The Company’s calculation of the general reserve considers historical loss rates for the last three years adjusted for qualitative factors based upon general economic conditions and other qualitative risk factors both internal and externalinstitutions, including to the Company. ~~Such qualitative factors include current local economic conditions~~The Company’s commercial and ~~trends including unemployment, changes~~consumer businesses issue, trade and hold various products that are currently indexed to LIBOR. As of September 30, 2021, the Company had approximately $1.31 billion of loans indexed to LIBOR that mature after June 30, 2023. The Company’s products that are indexed to LIBOR are significant, and if not sufficiently planned for, the discontinuation of LIBOR could result in ~~lending staff, policies~~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 ~~procedures, changes in credit concentrations, changes in~~2020, the ~~trends~~ARRC released final recommended fallback contract language for new issuances of LIBOR indexed bilateral business loans, syndicated loans, floating rate notes, securitizations, and ~~severity of problem~~adjustable rate mortgage loans and ~~changes~~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 ~~trends in volume~~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 ~~terms~~SOFR and other transition matters. The International Swaps and Derivatives Association, Inc. has announced a protocol for the transition 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.derivative instruments away from LIBOR.

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

Due to the ~~growth~~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 ~~Bank over~~major identified risks is inadequate fallback language in various existing instruments’ contracts that may result in issues establishing the ~~past several years,~~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 accounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial condition. We have identified certain significant accounting policies which involve a ~~portion~~higher degree of ~~the loans~~judgment and complexity in making certain estimates and assumptions that affect amounts reported in our ~~portfolio and our lending relationships are of relatively recent origin.~~consolidated financial statements. 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~~significant accounting policies which we believe to be the most ~~meaningful indicator of the credit quality of 1-4 single family residential, home equity~~critical in preparing our consolidated financial statements relate to loans and ~~lines of credit~~ACL, business combinations, debt securities and ~~other consumer loans. In general, loans do not begin to show signs of credit deterioration or default until they~~goodwill. Since December 31, 2020, there have been ~~outstanding~~no changes in critical accounting policies as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K 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 year ended December 31, ~~2016, all significant impaired loans have been determined to be collateral dependent and the allowance~~2020, except for ~~loss has been measured utilizing the estimated fair value~~those updates discussed in Note 1 - Summary 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 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. DiversificationSignificant Accounting Policies 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~~accompanying notes to 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 becondensed consolidated financial statements 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, the ~~information concerning~~expected payment date of our quarterly cash dividend, the integration of the businesses of the Company and NAC, the 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. Further, certain important factors could affect future results and cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, that the businesses of the Company and NAC will not be integrated successfully, that the cost savings and any synergies from the proposed acquisition may not be fully realized or may take longer to realize than expected, disruption from the proposed acquisition making it more difficult to maintain relationships with employees, customers or other parties with whom the Company or NAC have business relationships, diversion of management time on acquisition-related issues, the reaction to the transaction of the companies’ customers, employees and counterparties and other factors, many of which are beyond the control of the Company and NAC. 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, including variants thereof such as the delta variant, on our business and operations, even as a vaccine becomes widely available, and considering the potential of resurgences or additional waves of infection;

•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 with respect to 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 Board of Governors of the Federal ~~Reserve;~~Reserve System;

•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 and our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2021 and June 30, 2021, 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 September 30, 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	15.29	%	11.78	%	18.91	%	29.38	%
+ 200	9.40	%	8.62	%	12.06	%	19.93	%
+ 100	3.73	%	4.76	%	5.37	%	9.64	%
Base	—	%	—	%	—	%	—	%
−100	(1.26)	%	(9.68)	%	(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.

~~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~~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 results~~condensed consolidated balance sheets, statements of ~~operations, financial condition~~income and comprehensive income, statements of changes in stockholders’ equity or statements of 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 Board originally authorized 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, $75,000 on December 12, 2019, and $75,000 on September 14, 2021 resulting in an aggregate authorization to purchase up to $250,000 under the Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2021 to December 31, 2022. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any shares and the program may be terminated or amended by the Board at any time prior to its expiration.


	(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
July 1, 2021 - July 31, 2021	—	$	—	—	$	18,922,687
August 1, 2021 - August 31, 2021	186,632	34.66		186,632	12,453,569
September 1, 2021 - September 30, 2021	141,490	35.09		141,490	82,488,205
	328,122	$	34.85	328,122	$	82,488,205

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~~31.1*		Agreement and Plan of Reorganization dated December 14, 2016, by and between Veritex Holdings, Inc., Spartan Merger Sub, Inc., and Sovereign Bancshares, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed December 14, 2016).
~~3.1~~	Second Amended and Restated Certificate of Formation of Veritex Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed September 22, 2014 (File No. 333-198484)).
~~3.2~~	~~Third Amended and Restated Bylaws of Veritex Holdings, Inc.~~
~~3.3~~	~~Third Amended and Restated Bylaws of Veritex Holdings, Inc., marked to show amendments effective as of May 18, 2017.~~
31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following materials from Veritex ~~Holdings’~~Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017,~~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~~November 5, 2021						/s/ C. Malcolm Holland, III
						C. Malcolm Holland, III
						Chairman and Chief Executive Officer
						(Principal Executive Officer)




Date: ~~October 26, 2017~~November 5, 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)


	September 30,		December 31,
	2021		2020
	(Unaudited)
ASSETS
Cash and due from banks	$	43,126	$	44,337
Interest bearing deposits in other banks	186,586		186,488
Total cash and cash equivalents	229,712		230,825
Debt securities available-for-sale, at fair value	1,048,488		1,024,329
Debt securities held-to-maturity (fair value of $57,470 and $34,283 at September 30, 2021 and December 31, 2020, respectively)	55,257		30,872
Equity securities	15,273		14,938
Securities purchased under agreements to resell	103,692		—
Investment in unconsolidated subsidiaries	1,018		1,018
Federal Home Loan Bank of Dallas (“FHLB”) Stock and Federal Reserve Bank (“FRB”) Stock	71,803		71,236
Total investments	1,295,531		1,142,393
Loans held for sale	18,896		21,414
Loans held for investment, Paycheck Protection Program (“PPP”) loans, carried at fair value	135,842		358,042
Loans held for investment, mortgage warehouse (“MW”)	615,045		577,594
Loans held for investment, excluding MW and PPP	6,615,905		5,847,862
Less: Allowance for credit losses (“ACL”)	(93,771)		(105,084)
Total loans held for investment, net	7,273,021		6,678,414
Bank-owned life insurance (“BOLI”)	83,781		82,855
Bank premises, furniture and equipment, net	116,063		115,063
Other real estate owned	—		2,337
Intangible assets, net of accumulated amortization	54,682		61,733
Goodwill	370,840		370,840
Other assets	129,774		114,997

Total assets	$	9,572,300	$	8,820,871
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing deposits	$	2,302,925	$	2,097,099
Interest-bearing transaction and savings deposits	3,228,306		2,958,456
Certificates and other time deposits	1,647,521		1,457,291
Total deposits	7,178,752		6,512,846
Accounts payable and other liabilities	66,571		61,928

Advances from FHLB	777,601		777,718
Subordinated debentures and subordinated notes	262,761		262,778
Securities sold under agreements to repurchase	2,455		2,225

Total liabilities	8,288,140		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; 55,867,122 and 55,500,118 shares issued at September 30, 2021 and December 31, 2020, respectively; 49,229,028 and 49,337,768 shares outstanding at September 30, 2021 and December 31, 2020, respectively	559		555
Additional paid-in capital	1,137,889		1,126,437
Retained earnings	243,633		172,232
Accumulated other comprehensive income	69,661		56,225
Treasury stock, 6,638,094 and 6,162,350 shares at cost at September 30, 2021 and December 31, 2020, respectively	(167,582)		(152,073)
Total stockholders’ equity	1,284,160		1,203,376
Total liabilities and stockholders’ equity	$	9,572,300	$	8,820,871



			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~~, 2021 and December 31, ~~2016~~2020	34
		Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30 ~~2017~~, 2021 and ~~2016~~2020	45
		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	56
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	67
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	79
		Notes to Condensed Consolidated Financial Statements	810
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3946
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	7074
Item 4.		Controls and Procedures	7075

PART II — OTHER INFORMATION
Item 1.		Legal Proceedings	7177
Item 1A.		Risk Factors	7177
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	7177
Item 3.		Defaults Upon Senior Securities	7177
Item 4.		Mine Safety Disclosures	7178
Item 5.		Other Information	7278
Item 6.		Exhibits	7278
SIGNATURES			7379



	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



	September 30, 2017			December 31, 2016
Real estate:
Construction and land	$	276,670		$	162,614
Farmland	6,572			8,262
1 - 4 family residential	185,473			140,137
Multi-family residential	54,475			14,683
Commercial Real Estate	802,432			370,696
Commercial	577,758			291,416
Consumer	4,129			4,089
	1,907,509			991,897
Deferred loan fees	(28		)	(55		)
Allowance for loan losses	(10,492		)	(8,524		)
	$	1,896,989		$	983,318


	September 30, 2021		December 31, 2020
Loans held for investment, carried at amortized cost:
Real estate:
Construction and land	$	936,174	$	693,030
Farmland	73,550		13,844
1 - 4 family residential	543,518		524,344
Multi-family residential	356,885		424,962
Owner occupied commercial (“OOCRE”)	711,476		717,472
Non-owner occupied commercial (“NOOCRE”)	2,194,438		1,904,132
Commercial	1,793,740		1,559,546
MW	615,045		577,594
Consumer	14,266		13,000
	7,239,092		6,427,924

Deferred loan fees, net	(8,142)		(2,468)
ACL	(93,771)		(105,084)
Loans held for investment carried at amortized cost, net	7,137,179		6,320,372

Loans held for investment, carried at fair value:
PPP loans	135,842		358,042



Total loans held for investment, net	$	7,273,021	$	6,678,414


	September 30, 2021					September 30, 2020
		Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
PPP fee income		$	69	$	7,697	$	295	$	12,811
Net gain (loss) due to the change in fair value		782		1,117		(33)		(2,038)


	September 30, 2021					December 31, 2020
		Real Property(1)		ACL Allocation			Real Property(1)		ACL Allocation
Real estate:


1 - 4 family residential		$	1,185	$	—		$	199	$	11


NOOCRE		19,023		6,147			16,080		—
Commercial		2,366		1,134			8,666		4,668

Consumer		1,063		—			143		50
Total		$	23,637	$	7,281		$	25,088	$	4,729


	September 30, 2021				December 31, 2020
	Nonaccrual		Nonaccrual With No ACL			Nonaccrual		Nonaccrual With No ACL
Real estate:
Construction and land	$	1,185	$	1,185		$	—	$	—

1 - 4 family residential	998		998			3,308		3,199

OOCRE	16,890		16,317			6,266		5,645
NOOCRE	31,630		201			40,830		19,213
Commercial	20,411		2,617			29,318		1,015

Consumer	1,203		1,191			1,374		1,220
Total	$	72,317	$	22,509		$	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



			FORM ~~10-Q~~			10-Q


	September 30, 2021
	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:
Construction and land	$	—	$	—	$	1,185	$	1,185	$	932,563	$	2,426	$	936,174	$	—
Farmland	—		—		—		—		73,550		—		73,550		—
1 - 4 family residential	93		179		2,615		2,887		539,425		1,206		543,518		1,711
Multi-family residential	—		—		—		—		356,885		—		356,885		—
OOCRE	3,154		2,727		11,728		17,609		665,110		28,757		711,476		—
NOOCRE	2,740		—		12,607		15,347		2,153,336		25,755		2,194,438		—
Commercial	11,809		347		8,439		20,595		1,758,630		14,515		1,793,740		—
MW	119		—		—		119		614,926		—		615,045		—
Consumer	108		86		1,074		1,268		12,817		181		14,266		—
Total	$	18,023	$	3,339	$	37,648	$	59,010	$	7,107,242	$	72,840	$	7,239,092	$	1,711



	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 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	$	—


	Adjusted Payment Structure		Payment Deferrals		Total Modifications		Number of Loans
Three and Nine Months Ended September 30, 2021
Commercial	$	192	$	—	$	192	1

Three Months Ended September 30, 2020
Commercial real estate	$	5,145	$	19,359	$	24,504	8


Nine Months Ended September 30, 2020
Commercial real estate	$	5,145	$	19,359	$	24,504	8
Commercial	1,440		1,337		2,777		3
	$	6,585	$	20,696	$	27,281	11



	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 September 30, 2021
Construction and land:
Pass	$	221,411	$	416,653	$	165,620	$	79,393	$	5,819	$	32,833	$	7,956	$	988	$	930,673
Special mention	—		1,574		—		316		—		—		—		—		1,890
Substandard	—		—		—		1,185		—		—		—		—		1,185
PCD	—		—		—		—		—		2,426		—		—		2,426
Total construction and land	$	221,411	$	418,227	$	165,620	$	80,894	$	5,819	$	35,259	$	7,956	$	988	$	936,174

Farmland:
Pass	$	61,549	$	528	$	428	$	3,367	$	2,990	$	3,453	$	1,235	$	—	$	73,550



Total farmland	$	61,549	$	528	$	428	$	3,367	$	2,990	$	3,453	$	1,235	$	—	$	73,550

1 - 4 family residential:
Pass	$	141,686	$	110,136	$	67,341	$	71,399	$	29,487	$	99,293	$	13,076	$	5,950	$	538,368
Special mention	—		—		—		—		—		360		—		—		360
Substandard	—		—		—		1,711		81		903		889		—		3,584
PCD	—		—		—		—		—		1,206		—		—		1,206
Total 1 - 4 family residential	$	141,686	$	110,136	$	67,341	$	73,110	$	29,568	$	101,762	$	13,965	$	5,950	$	543,518

Multi-family residential:
Pass	$	60,933	$	66,493	$	86,509	$	80,777	$	13,634	$	27,196	$	51	$	—	$	335,593


	September 30, 2021
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial Assets:
Available for sale debt securities	$	—	$	1,048,488	$	—	$	1,048,488
Equity securities with a readily determinable fair value	11,143		—		—		11,143
PPP loans	—		135,842		—		135,842
Loans held for sale(1)	—		15,252		—		15,252
Interest rate swaps designated as hedging instruments	—		5,095		—		5,095
Correspondent interest rate swaps not designated as hedging instruments	—		581		—		581
Customer interest rate swaps not designated as hedging instruments	—		4,951		—		4,951
Correspondent interest rate caps and collars not designated as hedging instruments	—		—		—		—

Financial Liabilities:

Correspondent interest rate swaps not designated as hedging instruments	$	—	$	5,250	$	—	$	5,250
Customer interest rate swaps not designated as hedging instruments	—		531		—		531

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



	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
September 30, 2021
Financial assets:
Cash and cash equivalents	$	229,712	$	—	$	229,712	$	—
Held to maturity debt securities	55,257		—		57,470		—
Securities purchased under agreements to resell	103,692		—		103,692		—
Loans held for sale(1)	3,644		—		3,644		—


Loans held for investment(2)	7,226,209		—		—		7,172,716
Accrued interest receivable	21,985		—		21,985		—
Bank-owned life insurance	83,781		—		83,781		—
Servicing asset	631		—		631		—
Equity securities without a readily determinable fair value	4,130		N/A		N/A		N/A

FHLB and FRB stock	71,803		N/A		N/A		N/A
Financial liabilities:
Deposits	$	7,178,752	$	—	$	7,058,094	$	—
Advances from FHLB	777,601		—		788,525		—
Accrued interest payable	1,231		—		1,231		—
Subordinated debentures and subordinated notes	262,761		—		262,761		—
Securities sold under agreement to repurchase	2,455		—		2,433		—

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

Loans held for investment(2)	6,317,986		—		—		6,335,402
Accrued interest receivable	23,798		—		23,798		—
Bank-owned life insurance	82,855		—		82,855		—
Servicing asset	388		—		486		—
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	$	—	$	6,608,849	$	—
Advances from FHLB	777,718		—		782,321		—
Accrued interest payable	2,665		—		2,665		—
Subordinated debentures and subordinated notes	262,778		—		262,778		—
Securities sold under agreement to repurchase	2,225		—		2,199		—


	September 30, 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	$	—	$	—	$	—	$	500,000	$	17,543	$	—
Interest rate swap on money market deposit account payments	250,000		1,712		—		250,000		—		2,255
Interest rate swap on customer loan interest payments	125,000		159		—		—		—		—
Interest rate swap on customer loan interest payments	125,000		496		—		—		—		—
Interest rate swap on customer loan interest payments	125,000		2,728		—		—		—		—
Total derivatives designated as hedging instruments	$	625,000	$	5,095	$	—	$	750,000	$	17,543	$	2,255

Derivatives not designated as hedging instruments:
Financial institution counterparty:
Interest rate swaps	$	310,738	$	581	$	5,250	$	303,918	$	—	$	11,666
Interest rate caps and collars	41,916		—		—		41,916		1		—
Commercial customer counterparty:
Interest rate swaps	310,738		4,951		531		303,918		10,937		—
Interest rate caps and collars	41,916		—		—		41,916		—		1
Total derivatives not designated as hedging instruments	$	705,308	$	5,532	$	5,781	$	691,668	$	10,938	$	11,667
Offsetting derivative assets/liabilities			(4,500)		(4,500)				1		1
Total derivatives	$	1,330,308	$	6,127	$	1,281	$	1,441,668	$	28,482	$	13,923


	For the Three Months Ended September 30, 2021						For the Three Months Ended September 30, 2020
	(Loss) gain recognized in other comprehensive income on derivative		(Loss) gain reclassified from accumulated other comprehensive income into income		Location of (loss) gain reclassified from accumulated other comprehensive income into income		(Loss) recognized in other comprehensive income on derivative		(Loss) gain reclassified from accumulated other comprehensive income into income		Location of (loss) gain reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	—	$	—	Interest Expense		$	4,096	$	—	Interest Expense
Interest rate swap on money market deposit account payments	403		(195)		Interest Expense		562		(194)		Interest Income
Commercial loan interest rate floor	—		—		Interest Income		(553)		553		Interest Income
Interest rate swaps on customer loan interest payments	(3,234)		2,325		Interest Income		—		—
Total	$	(2,831)	$	2,130			$	4,105	$	359

					Net gain recognized in other noninterest income						Net gain recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars					$	1,023					$	1,651


	For the Nine Months Ended September 30, 2021						For the Nine Months Ended September 30, 2020
	Gain recognized in other comprehensive income on derivative		(Loss) gain reclassified from accumulated other comprehensive income into income		Location of (loss) gain reclassified from accumulated other comprehensive income into income		Gain (loss) recognized in other comprehensive income on derivative		(Loss) gain reclassified from accumulated other comprehensive income into income		Location of (loss) gain reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	26,357	$	—	Interest Expense		$	6,621	$	—	Interest Expense
Interest rate swap on money market deposit account payments	4,167		(601)		Interest Expense		(3,373)		(409)		Interest Expense
Commercial loan interest rate floor	—		866		Interest Income		(78)		1,384		Interest Income
Interest rate swaps on customer loan interest payments	2,317		2,541		Interest Income		—		—
Total	$	32,841	$	2,806			$	3,170	$	975


Derivatives not designated as hedging instruments:					Net gain recognized in other noninterest income						Net gain recognized in other noninterest income
Interest rate swaps, caps and collars					$	1,213					$	575


	September 30, 2021
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating	$	310,738	3.140% - 8.470%	LIBOR 1 month + 0.000% - 5.000%	Wtd. Avg. 4.9 years	$	(4,669)
Interest rate caps and collars	$	41,916	2.500% / 3.000%	LIBOR 1 month + 0.00%	Wtd. Avg. 0.8 years	$	—

Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating	$	310,738	3.140% - 8.470%	LIBOR 1 month + 0.000% - 5.000%	Wtd. Avg. 4.9 years	$	4,420
Interest rate caps and collars	$	41,916	3.000% / 5.000%	LIBOR 1 month + 0.000% - 2.500%	Wtd. Avg. 0.8 years	$	—

	December 31, 2020
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating	$	303,918	3.140% - 8.470%	LIBOR 1 month + 0.000% - 5.000% PRIME H15 - 0.250%	Wtd. Avg. 4.1 years	$	(11,666)
Interest rate caps and collars	$	41,916	2.500% / 3.000%	LIBOR 1 month + 0.000%	Wtd. Avg. 1.6 years	$	1

Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating	$	303,918	3.140% - 8.470%	LIBOR 1 month + 0.000% - 5.000% PRIME H15 - 25	Wtd. Avg. 4.1 years	$	10,937
Interest rate caps and collars	$	41,916	3.000% / 5.000%	LIBOR 1 month + 0.000% - 2.500%	Wtd. Avg. 1.6 years	$	(1)


	2010 Incentive Plan
	Non-Performance Based Stock Options
	Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2020	257,500	$	10.28	1.37 years



Exercised	(207,500)	10.14
Outstanding and exercisable at September 30, 2020	50,000	$	10.84	1.91 years


Outstanding at January 1, 2021	20,000	$	10.09	1.06 years	$	374



Exercised	(19,000)	10.00
Outstanding and exercisable at September 30, 2021	1,000	$	10.43	1.32 years	$	145



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


	Fair Value of Options Exercised as of September 30,
	2021		2020
Nonperformance-based stock options exercised	$	568	$	5,851


	2019 Amended Plan
	Non-performance Based Stock Options
	Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2020	849,768	$	23.61	8.24 years
Granted	170,025	27.31

Forfeited	(23,735)	27.70

Exercised	(33,439)	19.19
Outstanding at September 30, 2020	962,619	$	24.32	7.77 years
Options exercisable at September 30, 2020	492,204	$	24.23	6.94 years

Outstanding at January 1, 2021	975,801	$	24.26	7.45 years	$	2,422
Granted	500	36.54


Cancelled	(13,996)	25.93
Exercised	(149,808)	23.42
Outstanding at September 30, 2021	812,497	$	24.40	7.07 years	$	11,929
Options exercisable at September 30, 2021	507,597	$	24.49	6.58 years	$	7,293
Weighted average fair value of options granted during the period		$	36.54