Veritex Holdings, Inc. Reports Second Quarter Operating Results

July 28, 2020
PDF Version

DALLAS, July 28, 2020 (GLOBE NEWSWIRE) -- Veritex Holdings, Inc. (“Veritex” or the “Company”) (Nasdaq: VBTX), the holding company for Veritex Community Bank, today announced the results for the quarter ended June 30, 2020.

“The second quarter was dominated by significant pandemic and economic challenges. Despite those headwinds, we delivered solid results while supporting our employees, customers and communities,” said C. Malcolm Holland, III, the Company’s Chairman and Chief Executive Officer. “Our quarterly results reflect strong pre-tax, pre-provision operating net revenue, continued building of our allowance for credit losses and higher capital levels.  I couldn’t be more proud of what the team accomplished during such a disruptive operating period.”

Second Quarter Highlights

  • Net income of $24.0 million, or $0.48 diluted earnings per share (“EPS”), compared to $4.1 million, or $0.08 diluted EPS, for the quarter ended March 31, 2020 and $26.9 million, or $0.49 diluted EPS, for the quarter ended June 30, 2019;
  • Pre-tax, pre-provision operating earnings1 totaled $45.7 million, compared to $39.1 million for the quarter ended March 31, 2020 and $44.0 million for the quarter ended June 30, 2019;
  • Provision for credit losses and unfunded commitments was $19.0 million, compared to $35.7 million for the quarter ended March 31, 2020, as a result of continued disruptions in the global economy from the COVID-19 pandemic and its impact on the Texas economic forecasts that drive the Company’s current expected credit loss (“CECL”) model;
  • Allowance for credit losses (“ACL”) to total loans held for investments (“LHI”), excluding mortgage warehouse (“MW”) and Paycheck Protection Program (“PPP”) loans, was 2.01% for the quarter ended June 30, 2020 compared to 1.73% for the quarter ended March 31, 2020. Net charge-offs to average loans outstanding and nonperforming assets to total assets remained essentially flat quarter over quarter at 3 basis points and 62 basis points, respectively;
  • During the second quarter of 2020, the Company funded $400.9 million of PPP loans through the Small Business Administration (“SBA”) as a result of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company elected to carry these loans at fair value, and as a result, the Company recognized $12.5 million of PPP fee income, gross, during the second quarter of 2020;
  • Total deposits grew $325.6 million from the first quarter of 2020, or 22.4% annualized, with the average cost of interest-bearing deposits decreasing to 0.84% for the three months ended June 30, 2020 from 1.39% for the three months ended March 31, 2020;
  • Declared quarterly cash dividend of $0.17 payable on August 20, 2020.



Financial Highlights   QTD   YTD
    Q2 2020   Q1 2020   Q2 2020   Q2 2019
    (Dollars in thousands)
(unaudited)
GAAP                
Net income   $ 24,028      $ 4,134      $ 28,162      $ 34,283   
Diluted EPS   0.48      0.08      0.56      0.62   
Return on average assets2   1.11  %   0.20  %   0.68  %   0.88  %
Efficiency ratio   46.02      47.61      46.76      67.28   
Book value per common share   $ 23.45      $ 23.19      $ 23.45      $ 22.55   
Non-GAAP1                
Operating earnings   $ 21,188      $ 4,134      $ 25,322      $ 64,913   
Diluted operating EPS   0.43      0.08      0.50      1.18   
Pre-tax, pre-provision operating earnings   45,668      39,107      84,775      90,409   
Pre-tax, pre-provision operating return on average assets   2.11  %   1.94  %   2.03  %   2.31  %
Operating return on average assets2   0.98      0.20      0.61      1.66   
Operating efficiency ratio   45.74      47.61      46.62      43.60   
Tangible book value per common share   $ 14.71      $ 14.39      $ 14.71      $ 14.27   

1 Refer to the section titled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures.
2 Annualized ratio.

Second Quarter Global Economic Developments

The COVID-19 pandemic has caused significant disruptions to the global economy and the communities which we serve. In response to the pandemic, we have implemented our operational response and preparedness plan during the first and second quarters of 2020, which includes dispersion of critical operational 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. Additionally, we are focused on taking care of our clients and communities who may be experiencing financial hardship due to the pandemic, including through our loan deferment program and participation in the PPP designed to provide a direct incentive for small businesses.

Results of Operations for the Three Months Ended June 30, 2020 

Net Interest Income

For the three months ended June 30, 2020, net interest income before provision for credit losses was $65.8 million and net interest margin was 3.31% compared to $67.4 million and 3.67%, respectively, for the three months ended March 31, 2020. The $1.6 million decrease in net interest income was primarily due to a $7.4 million decrease in interest income on loans, slightly offset by a $4.1 million decrease in interest expense on transaction and savings deposits. Net interest margin decreased 36 basis points from the three months ended March 31, 2020 primarily due to a decrease in yields earned on loan balances and an unfavorable increase in the mix of lower yielding assets, partially offset by decreases in the average rates paid on interest-bearing demand and savings deposits and certificate and other time deposits during the three months ended June 30, 2020. As a result, the average cost of interest-bearing deposits decreased 55 basis points to 0.84% for the three months ended June 30, 2020 from 1.39% for the three months ended March 31, 2020.

Net interest income before provision for credit losses decreased by $5.6 million from $71.4 million to $65.8 million and net interest margin decreased by 69 basis points from 4.00% to 3.31% for the three months ended June 30, 2020 as compared to the same period in 2019. The decrease in net interest income before provision for credit losses was primarily due to a $16.3 million decrease in interest income on loans, partially offset by an $8.9 million decrease in interest expenses on transaction and savings deposits during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Net interest margin decreased 69 basis points from the three months ended June 30, 2019 primarily due to a decrease in yields earned on loan balances, partially offset by decreases in the average rate paid on interest-bearing demand and savings deposits for the three months ended June 30, 2020 and an unfavorable shift in the mix of earning assets compared to the three months ended June 30, 2019. As a result, the average cost of interest-bearing deposits decreased 95 basis points to 0.84% for the three months ended June 30, 2020 from 1.79% for the three months ended June 30, 2019.

Noninterest Income

Noninterest income for the three months ended June 30, 2020 was $21.3 million, an increase of $14.0 million, or 193.8%, compared to the three months ended March 31, 2020. The increase was primarily due to a $10.6 million of increase in government guaranteed loan income, net. In the second quarter, the Company earned fee income of 5% on PPP loans under $350 thousand, 3% on PPP loans between $350 thousand and $2 million and 1% on PPP loans greater than $2 million totaling $12.5 million. The recognized fee was partially offset by a valuation allowance on the PPP loans of $2.0 million as the Company elected to carry these loans at fair value. 

Compared to the three months ended June 30, 2019, noninterest income for the three months ended June 30, 2020 increased by $15.3 million, or 252.8%. The increase was primarily due to a $10.0 million increase in government guaranteed loan income, net, as a result of the fee income earned PPP loans discussed above and a $3.5 million increase in gain on sales of investment securities.

Noninterest Expense

Noninterest expense was $40.1 million for the three months ended June 30, 2020, compared to $35.5 million for the three months ended March 31, 2020, an increase of $4.5 million, or 12.7%. The increase was primarily driven by a $1.1 million increase in salaries and employee benefits, a $0.6 million increase in Federal Deposit Insurance Corporation (“FDIC”) assessment fees, and a $1.6 million increase in bank service charges resulting from pre-payment fees on Federal Home Loan Bank (“FHLB”) advances paid off early in the second quarter of 2020. Noninterest expense for the three months ended June 30, 2020 includes $1.2 million of COVID related expenses primarily related to Community Reinvestment Act donations, lender incentives, employee overtime and cleaning services.

Compared to the three months ended June 30, 2019, noninterest expense for the three months ended June 30, 2020 increased by $165 thousand, or 0.4%.

Financial Condition

Total loans were $6.6 billion at June 30, 2020, an increase of $355.9 million, or 22.8% annualized, compared to March 31, 2020. The net increase was primarily the result of the Company’s origination of $400.9 million of loans in the second quarter of 2020 under the PPP. The Company has elected to carry such PPP loans at fair value, which represent $398.9 million of the Company’s outstanding loan balance as of the second quarter 2020.

Total deposits were $6.1 billion at June 30, 2020, an increase of $325.6 million, or 22.4% annualized, compared to March 31, 2020. The increase was primarily the result of increases of $177.3 million and $358.4 million in interest-bearing transaction and savings deposits and noninterest-bearing demand deposits, respectively, partially offset by a decrease of $210.1 million in certificates and other time deposits.

Goodwill

During the second quarter of 2020, the Company observed a significant decline in the market valuation of our common shares as a result of sustained economic disruption occurring after the first quarter of 2020, including but not limited to the COVID-19 pandemic. As a result of the sustained economic disruption, the Company determined a triggering event had occurred that required an interim quantitative impairment assessment for the Company’s reporting unit to determine if it is more likely than not that the fair value is less than the carrying value as a result of a sustained price decrease. The Company determined the fair value of its reporting unit using a combination of a market and income approach. The fair value of our reporting unit exceeded its related carrying value by approximately 26%.

Asset Quality and Adoption of ASU 2016-13

Nonperforming assets totaled $53.3 million, or 0.62% of total assets at June 30, 2020, compared to $39.4 million, or 0.50% of total assets, at December 31, 2019. The Company had a net charge-off of $1.8 million for the quarter, which is primarily the result of one relationship charge-off that was fully reserved against in the first quarter of 2020.

The Company recorded a provision for credit losses for the three months ended June 30, 2020 of $16.2 million, compared to $31.8 million and $3.3 million for the three months ended March 31, 2020 and June 30, 2019, respectively. The decrease in the recorded provision for credit losses for the three months ended June 30, 2020 was primarily attributable to changes in the Texas economic forecasts used in the CECL model in the second quarter of 2020 to reflect the expected impact of the COVID-19 pandemic as of June 30, 2020, as compared to our Texas economic forecasts and expected impact of the COVID-19 pandemic as of March 31, 2020. In the second quarter of 2020, we also recorded a $2.8 million provision for unfunded commitments which was also attributable to the change in the Texas economic forecasts as a result of the COVID-19 pandemic compared to a $3.9 million provision for unfunded commitments recorded for the three months ended March 31, 2020. Allowance for credit losses as a percentage of loans HFI, excluding MW and PPP loans, was 2.01%, 1.73% and 0.43% of total loans at June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

Dividend Information

On July 28, 2020, Veritex’s Board of Directors declared a quarterly cash dividend of $0.17 per share on its outstanding shares of common stock.  The dividend will be paid on or after August 20, 2020 to stockholders of record as of the close of business on August 6, 2020.

Non-GAAP Financial Measures

Veritex’s management uses certain non-GAAP (U.S. generally accepted accounting principles) financial measures to evaluate its operating performance and provide information that is important to investors. However, non-GAAP financial measures are supplemental and should be viewed in addition to, and not as an alternative for, Veritex’s reported results prepared in accordance with GAAP. Specifically, Veritex reviews and reports tangible book value per common share, operating earnings, tangible common equity to tangible assets, return on average tangible common equity, pre-tax, pre-provision operating earnings, pre-tax, pre-provision operating return on average assets, diluted operating earnings per share, operating return on average assets, operating return on average tangible common equity and operating efficiency ratio. Veritex has included in this earnings release information related to these non-GAAP financial measures for the applicable periods presented. Please refer to “Reconciliation of Non-GAAP Financial Measures” after the financial highlights at the end of this earnings release for a reconciliation of these non-GAAP financial measures.

Conference Call

The Company will host an investor conference call to review the results on Wednesday, July 29, 2020 at 8:30 a.m. Central Time. Participants may pre-register for the call by visiting https://edge.media-server.com/mmc/p/pckpzcgt and will receive a unique PIN, which can be used when dialing in for the call. This will allow attendees to access the call immediately. Alternatively, participants may call toll-free at (877) 703-9880.

The call and corresponding presentation slides will be webcast live on the home page of the Company's website, https://ir.veritexbank.com/. An audio replay will be available one hour after the conclusion of the call at (855) 859-2056, Conference #3693902. This replay, as well as the webcast, will be available until August 5, 2020.

About Veritex Holdings, Inc.

Headquartered in Dallas, Texas, Veritex is a bank holding company that conducts banking activities through its wholly owned subsidiary, Veritex Community Bank, with locations throughout the Dallas-Fort Worth metroplex and in the Houston metropolitan area. Veritex Community Bank is a Texas state chartered bank regulated by the Texas Department of Banking and the Board of Governors of the Federal Reserve System. For more information, visit www.veritexbank.com.

 

Forward-Looking Statements

This earnings release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on various facts and derived utilizing assumptions, current expectations, estimates and projections and are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Forward-looking statements include, without limitation, statements relating to the expected payment date of Veritex’s quarterly cash dividend, the impact of certain changes in Veritex’s accounting policies, standards and interpretations, the effects of the COVID-19 pandemic and actions taken in response thereto, Veritex’s future financial performance, business and growth strategy, projected plans and objectives, as well as other projections based 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 words. We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Veritex’s Annual Report on Form 10-K for the year ended December 31, 2019 and any updates to those risk factors set forth in Veritex’s Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at www.sec.gov.  If one or more events related to these or other risks or uncertainties materialize, or if Veritex’s underlying assumptions prove to be incorrect, actual results may differ materially from what Veritex anticipates.  Accordingly, you should not place undue reliance on any such forward-looking statements.  Any forward-looking statement speaks only as of the date on which it is made.  Veritex does not undertake any obligation, and specifically declines any obligation, to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law. All forward-looking statements, expressed or implied, included in this earnings release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Veritex or persons acting on Veritex’s behalf may issue.


14.49- VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(Unaudited)

    For the Three Months Ended   Six Months Ended
    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019   June 30, 2020   June 30, 2019
    (Dollars and shares in thousands)        
Per Share Data (Common Stock):                            
Basic EPS   $ 0.48      $ 0.08      $ 0.56      $ 0.52      $ 0.50      $ 0.56      $ 0.63   
Diluted EPS   0.48      0.08      0.56      0.51      0.49      0.56      0.62   
Book value per common share   23.45      23.19      23.32      23.02      22.55      23.45      22.55   
Tangible book value per common share1   14.71      14.39      14.73      14.61      14.27      14.71      14.27   
                             
Common Stock Data:                            
Shares outstanding at period end   49,633      49,557      51,064      52,373      53,457      49,633      53,457   
Weighted average basic shares outstanding for the period   49,597      50,725      51,472      52,915      53,969      50,161      54,130   
Weighted average diluted shares outstanding for the period   49,727      51,056      52,263      53,873      54,929      50,383      54,929   
                             
Summary of Credit Ratios:                            
ACL to total LHI, excluding mortgage warehouse and PPP loans   2.01  %   1.73  %   0.52  %   0.46  %   0.43  %   2.01  %   0.43  %
Nonperforming assets to total assets   0.62  %   0.60  %   0.50  %   0.21  %   0.54  %   0.62  %   0.60  %
Net charge-offs to average loans outstanding   0.03      —      —      0.14      —      0.03      —   
                             
Summary Performance Ratios:                            
Return on average assets2   1.11      0.20      1.43      1.36      1.36      0.68      0.88   
Return on average equity2   8.36      1.41      9.63      8.98      8.98      4.96      5.79   
Return on average tangible common equity1, 2   14.49      3.27      16.22      15.15      15.26      9.12      10.26   
Efficiency ratio   46.02      47.61      47.12      43.67      51.49      46.76      67.28   
                             
Selected Performance Metrics - Operating:                            
Diluted operating EPS1   $ 0.43      $ 0.08      $ 0.58      $ 0.53      $ 0.59      $ 0.50      $ 1.18   
Pre-tax, pre-provision operating return on average assets1, 2   2.11  %   1.94  %   2.07  %   2.26  %   2.22  %   2.03  %   2.31  %
Operating return on average assets1, 2   0.98      0.20      1.49      1.42      1.63      0.61      1.66   
Operating return on average tangible common equity1, 2   12.90      3.27      16.87      15.78      18.09      8.31      18.50   
Operating efficiency ratio1   45.74      47.61      45.67      42.36      43.66      46.62      43.60   
                             
Veritex Holdings, Inc. Capital Ratios:                            
Tier 1 capital to average assets (leverage)   9.16      9.49      10.17      10.33      10.47      9.16      10.47   
Common equity tier 1 capital   9.66      9.53      10.60      10.82      11.32      9.66      11.32   
Tier 1 capital to risk-weighted assets   10.05      9.92      11.02      11.26      11.77      10.05      11.77   
Total capital to risk-weighted assets   12.71      12.48      13.10      12.26      12.80      12.71      12.80   
Tangible common equity to tangible assets1   8.96      8.81      10.01      10.17      10.08      8.96      10.08   

1Refer to the section titled “Reconciliation of Non-GAAP Financial Measures” after the financial highlights for a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures.
2Annualized ratio.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands)

    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019
    (unaudited)   (unaudited)       (unaudited)   (unaudited)
ASSETS                    
Cash and cash equivalents   $ 160,306        $ 430,842        $ 251,550        $ 252,592        $ 265,822     
Securities   1,112,061        1,117,804        997,330        1,023,393        1,020,279     
Other securities   104,213        112,775        84,063        85,007        76,016     
                     
Loans held for sale   28,041        15,048        14,080        10,715        7,524     
PPP loans, at fair value   398,949        —        —        —        —     
Loans held for investment, mortgage warehouse   441,992        371,161        183,628        233,577        200,017     
Loans held for investment   5,726,873        5,853,735        5,737,577        5,654,027        5,731,833     
Total loans   6,595,855        6,239,944        5,935,285        5,898,319        5,939,374     
Allowance for credit losses   (115,365 )     (100,983 )     (29,834 )     (26,243 )     (24,712 )  
Bank-owned life insurance   81,876        81,395        80,915        80,411        79,899     
Bank premises, furniture and equipment, net   115,560        116,056        118,536        118,449        115,373     
Other real estate owned   7,716        7,720        5,995        4,625        1,748     
Intangible assets, net   66,705        69,444        72,263        75,363        78,347     
Goodwill   370,840        370,840        370,840        370,463        370,221     
Other assets   88,091        85,787        67,994        80,504        87,739     
Total assets   $ 8,587,858        $ 8,531,624        $ 7,954,937        $ 7,962,883        $ 8,010,106     
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Deposits:                    
Noninterest-bearing deposits   $ 1,907,697        $ 1,549,260        $ 1,556,500        $ 1,473,126        $ 1,476,668     
Interest-bearing transaction and savings deposits   2,714,149        2,536,865        2,654,972        2,528,293        2,646,154     
Certificates and other time deposits   1,503,701        1,713,820        1,682,878        1,876,427        2,042,266     
Total deposits   6,125,547        5,799,945        5,894,350        5,877,846        6,165,088     
Accounts payable and other liabilities   64,625        56,339        37,427        45,475        44,414     
Accrued interest payable   4,088        5,407        6,569        6,054        7,069     
Advances from Federal Home Loan Bank   1,087,794        1,377,832        677,870        752,907        512,945     
Subordinated debentures and subordinated notes   140,283        140,406        145,571        72,284        72,486     
Securities sold under agreements to repurchase   1,772        2,426        2,353        2,787        2,811     
Total liabilities   7,424,109        7,382,355        6,764,140        6,757,353        6,804,813     
Commitments and contingencies                    
Stockholders’ equity:                    
Common stock   555        554        549        524        535     
Additional paid-in capital   1,122,063        1,119,757        1,117,879        1,114,659        1,112,238     
Retained earnings   143,277        127,812        147,911        125,344        104,652     
Accumulated other comprehensive income   42,014        45,306        19,061        23,837        17,741     
Treasury stock   (144,160 )     (144,160 )     (94,603 )     (58,834 )     (29,873 )  
Total stockholders’ equity   1,163,749        1,149,269        1,190,797        1,205,530        1,205,293     
  Total liabilities and stockholders’ equity   $ 8,587,858        $ 8,531,624        $ 7,954,937        $ 7,962,883        $ 8,010,106     



VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands, except per share data)

    For the Three Months Ended   For the Six Months Ended
    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019   June 30, 2020   June 30, 2019
Interest income:                            
Loans, including fees   $ 70,440      $ 77,861        $ 82,469        $ 85,811      $ 86,786        $ 148,301      $ 172,533     
Investment securities   7,825      7,397        7,168        7,687      7,397        15,222      14,629     
Deposits in financial institutions and Fed Funds sold   186      871        1,285        1,329      1,372        1,057      2,926     
Other investments   891      850        820        816      622        1,741      1,313     
Total interest income   79,342      86,979        91,742        95,643      96,177        166,321      191,401     
Interest expense:                            
Transaction and savings deposits   2,471      6,552        8,203        10,381      11,405        9,023      21,771     
Certificates and other time deposits   6,515      8,240        9,455        10,283      10,145        14,755      18,937     
Advances from FHLB   2,801      2,879        2,661        3,081      2,187        5,680      4,242     
Subordinated debentures and subordinated notes   1,798      1,903        1,559        1,024      998        3,701      2,092     
Total interest expense   13,585      19,574        21,878        24,769      24,735        33,159      47,042     
Net interest income   65,757      67,405        69,864        70,874      71,442        133,162      144,359     
Provision for credit losses   16,172      31,776        3,493        9,674      3,335        47,948      8,347     
Provision for unfunded commitments   2,799      3,881        —        —      —        6,680      —     
Net interest income after provisions   46,786      31,748        66,371        61,200      68,107        78,534      136,012     
Noninterest income:                            
Service charges and fees on deposit accounts   2,960      3,642        3,728        3,667      3,422        6,602      6,939     
Loan fees   1,240      845        1,921        2,252      1,932        2,085      3,609     
Gain (loss) on sales of investment securities   2,879      —        (438 )     —      (642 )     2,879      (1,414 )  
Gain on sales of mortgage loans held for sale   308      142        81        138      143        450      256     
Government guaranteed loan income, net   11,006      439        560        930      961        11,445      3,218     
Rental income   547      551        371        369      373        1,098      741     
Other   2,350      1,628        909        1,074      (155 )     3,978      1,169     
Total noninterest income   21,290      7,247        7,132        8,430      6,034        28,537      14,518     
Noninterest expense:                            
Salaries and employee benefits   20,019      18,870        18,917        17,530      17,459        38,889      36,344     
Occupancy and equipment   3,994      4,273        4,198        4,044      4,014        8,267      8,143     
Professional and regulatory fees   2,796      2,196        2,615        2,750      2,814        4,992      6,232     
Data processing and software expense   2,434      2,089        1,880        2,252      2,309        4,523      4,233     
Marketing   561      1,083        971        708      961        1,644      1,580     
Amortization of intangibles   2,696      2,696        2,696        2,712      2,719        5,392      5,479     
Telephone and communications   308      319        466        361      625        627      1,020     
Merger and acquisition expense   —      —        918        1,035      5,790        —      37,007     
COVID expenses   1,245      —        —        —      —        1,245      —     
Other   6,008      4,019        3,623        3,238      3,205        10,027      6,851     
Total noninterest expense   40,061      35,545        36,284        34,630      39,896        75,606      106,889     
Income before income tax expense   28,015      3,450        37,219        35,000      34,245        31,465      43,641     
Income tax (benefit) expense   3,987      (684 )     8,168        7,595      7,369        3,303      9,358     
Net income   $ 24,028      $ 4,134        $ 29,051        $ 27,405      $ 26,876        $ 28,162      $ 34,283     
                             
Basic EPS   $ 0.48      $ 0.08        $ 0.56        $ 0.52      $ 0.50        $ 0.56      $ 0.63     
Diluted EPS   $ 0.48      $ 0.08        $ 0.56        $ 0.51      $ 0.49        $ 0.56      $ 0.62     
Weighted average basic shares outstanding   49,597      50,725        51,472        52,915      53,969        50,161      54,130     
Weighted average diluted shares outstanding   49,727      51,056        52,263        53,873      54,929        50,383      54,929     



VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

    For the Three Months Ended
    June 30, 2020   March 31, 2020   June 30, 2019
    Average
Outstanding
Balance		   Interest
Earned/
Interest
Paid		   Average
Yield/
Rate		   Average
Outstanding
Balance		   Interest
Earned/
Interest
Paid		   Average
Yield/
Rate		   Average
Outstanding
Balance		   Interest
Earned/
Interest
Paid		   Average
Yield/
Rate
Assets                                    
Interest-earning assets:                                    
Loans1   $ 5,797,989        $ 67,404      4.68  %   $ 5,784,965        $ 76,527      5.32  %   $ 5,762,257        $ 85,030      5.92  %
Loans held for investment, mortgage warehouse   304,873        2,279      3.01      163,646        1,334      3.28      154,586        1,756      4.56   
PPP loans   303,223        757      1.00      —        —      —      —            —   
Securities   1,117,964        7,825      2.82      1,038,954        7,397      2.86      956,160        7,397      3.10   
Interest-bearing deposits in other banks   366,764        186      0.20      308,546        871      1.14      228,461        1,372      2.41   
Other investments2   110,672        891      3.24      91,917        850      3.72      59,508        622      4.19   
Total interest-earning assets   8,001,485        79,342      3.99      7,388,028        86,979      4.74      7,160,972        96,177      5.39   
Allowance for loan losses   (110,483 )             (44,270 )             (23,891 )          
Noninterest-earning assets   798,772                782,024                800,238             
Total assets   $ 8,689,774                $ 8,125,782                $ 7,937,319             
                                     
Liabilities and Stockholders’ Equity                                    
Interest-bearing liabilities:                                    
Interest-bearing demand and savings deposits   $ 2,684,897        $ 2,471      0.37  %   $ 2,638,633        $ 6,552      1.00  %   $ 2,713,735        $ 11,405      1.69  %
Certificates and other time deposits   1,625,971        6,515      1.61      1,650,678        8,240      2.01      2,107,567        10,145      1.93   
Advances from FHLB   1,206,930        2,801      0.93      937,901        2,879      1.23      334,926        2,187      2.62   
Subordinated debentures and subordinated notes   142,549        1,798      5.07      145,189        1,903      5.27      75,252        998      5.32   
Total interest-bearing liabilities   5,660,347        13,585      0.97      5,372,401        19,574      1.47      5,231,480        24,735      1.90   
                                     
Noninterest-bearing liabilities:                                    
Noninterest-bearing deposits   1,826,327                1,523,702                1,456,538             
Other liabilities   47,302                46,563                48,669             
Total liabilities   7,533,976                6,942,666                6,736,687             
Stockholders’ equity   1,155,798                1,183,116                1,200,632             
Total liabilities and stockholders’ equity   $ 8,689,774                $ 8,125,782                $ 7,937,319             
                                     
Net interest rate spread2           3.02  %           3.27  %           3.49  %
Net interest income       $ 65,757              $ 67,405              $ 71,442       
Net interest margin3           3.31  %           3.67  %           4.00  %

1 Includes average outstanding balances of loans held for sale of $22,958, $10,995 and $8,140 for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
3 Net interest margin is equal to net interest income divided by average interest-earning assets.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

    Six Months Ended  
    June 30, 2020   June 30, 2019  
    Average Outstanding Balance   Interest Earned/ Interest Paid   Average Yield/ Rate   Average Outstanding Balance   Interest Earned/ Interest Paid   Average Yield/ Rate  
Assets                          
Interest-earning assets:                          
Loans1   $ 5,790,227      $ 143,931      5.00  %   $ 5,746,746      $ 169,224      5.94  %  
Loans held for investment, mortgage warehouse   234,260     3,613   3.10      137,280     3,309   4.86     
PPP loans   152,861     757   1.00      —      —      —     
Securities   1,078,459     15,222   2.84      941,336     14,629   3.13     
Interest-bearing deposits in other banks   337,655     1,057   0.63      246,201     2,926   2.40     
Other investments2   101,294     1,741   3.46      48,578     1,313   5.45     
Total interest-earning assets   7,694,756     166,321   4.35      7,120,141     191,401   5.42     
Allowance for loan losses   (77,376 )           (21,988 )          
Noninterest-earning assets   763,567             789,890            
Total assets   $ 8,380,947              $ 7,888,043             
                           
Liabilities and Stockholders’ Equity                          
Interest-bearing liabilities:                          
Interest-bearing demand and savings deposits   $ 2,668,726      $ 9,023      0.68  %   $ 2,675,237      $ 21,771      1.64  %  
Certificates and other time deposits   1,639,807     14,755      1.81      2,124,951     18,937   1.80     
Advances from FHLB   1,072,416     5,680      1.07      322,879     4,242   2.65     
Subordinated debentures and subordinated notes   143,869     3,701      5.17      75,515     2,092   5.59     
Total interest-bearing liabilities   5,524,818     33,159   1.21      5,198,582     47,042   1.82     
                           
Noninterest-bearing liabilities:                          
Noninterest-bearing deposits   1,675,015             1,456,086            
Other liabilities   38,488             39,385            
Total liabilities   7,238,321             6,694,053            
Stockholders’ equity   1,142,626             1,193,990            
Total liabilities and stockholders’ equity   $ 8,380,947              $ 7,888,043             
                           
Net interest rate spread3           3.14  %           3.60  %  
Net interest income       $ 133,162              $ 144,359         
Net interest margin4           3.48  %           4.09  %  

1 Includes average outstanding balances of loans held for sale of $16,977 and $7,925 for the six months ended June 30, 2020 and June 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 The Company historically reported dividend income in other noninterest income and has re-classed $1,287 of dividend income into other investments as of June 30, 2019 in order to align with industry peers for comparability purposes.
3 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
4 Net interest margin is equal to net interest income divided by average interest-earning assets.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights

Yield Trend

    For the Three Months Ended
    June 30, 2020   March 31,
2020		   December 31,
2019		   September 30,
2019		   June 30, 2019
Average yield on interest-earning assets:                    
Loans1   4.68  %   5.32  %   5.63  %   5.85  %   5.92  %
Loans held for investment, mortgage warehouse   3.01      3.28      3.51      3.88      4.56   
PPP loans   1.00      —      —      —      —   
Securities   2.82      2.86      2.83      2.98      3.10   
Interest-bearing deposits in other banks   0.20      1.14      1.63      2.25      2.41   
Other investments   3.24      3.72      4.53      4.50      4.19   
Total interest-earning assets   3.99  %   4.74  %   5.00  %   5.26  %   5.39  %
                     
Average rate on interest-bearing liabilities:                    
Interest-bearing demand and savings deposits   0.37  %   1.00  %   1.24  %   1.57  %   1.69  %
Certificates and other time deposits   1.61      2.01      2.10      2.09      1.93   
Advances from FHLB   0.93      1.23      1.45      1.93      2.62   
Subordinated debentures and subordinated notes   5.07      5.27      5.23      5.43      5.32   
Total interest-bearing liabilities   0.97  %   1.47  %   1.65  %   1.86  %   1.90  %
                     
Net interest rate spread2   3.02  %   3.27  %   3.35  %   3.40  %   3.49  %
Net interest margin3   3.31  %   3.67  %   3.81  %   3.90  %   4.00  %

  1Includes average outstanding balances of loans held for sale of $22,958, $10,995, $10,643, $8,525 and $8,140 for the three months ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
  2 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
  3 Net interest margin is equal to net interest income divided by average interest-earning assets.

Supplemental Yield Trend

    For the Three Months Ended
    June 30, 2020   March 31,
2020		   December 31,
2019		   September 30,
2019		   June 30, 2019
Average cost of interest-bearing deposits   0.84  %   1.39  %   1.59  %   1.79  %   1.79  %
Average costs of total deposits, including noninterest-bearing   0.59      1.02      1.18      1.36      1.38   


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

Total LHI and Deposit Portfolio Composition

    June 30, 2020   March 31,
2020		   December 31,
2019		   September 30,
2019		   June 30, 2019
    (Dollars in thousands)
LHI1                                        
Commercial   $ 1,555,300      27.2  %   $ 1,777,603      30.4  %   $ 1,712,838      29.9  %   $ 1,711,256      30.3  %   $ 1,788,044      31.2  %
Real Estate:                                        
Owner occupied commercial   769,952      13.4      723,839      12.4      706,782      12.3      716,130      12.7      746,768      13.0   
Commercial   1,847,480      32.3      1,828,386      31.2      1,784,201      31.1      1,710,510      30.3      1,727,525      30.1   
Construction and land   599,510      10.5      566,470      9.7      629,374      11.0      623,622      11.0      543,850      9.5   
Farmland   14,723      0.3      14,930      0.3      16,939      0.3      7,986      0.1      17,472      0.3   
1-4 family residential   528,688      9.2      536,892      9.2      549,811      9.6      559,310      9.9      557,056      9.7   
Multi-family residential   394,829      6.9      388,374      6.6      320,041      5.6      306,966      5.4      330,877      5.8   
Consumer   14,932      0.2      15,771      0.2      17,457      0.2      18,113      0.3      20,562      0.4   
Total LHI   $ 5,725,414      100  %   $ 5,852,265      100  %   $ 5,737,443      100  %   $ 5,653,893      100  %   $ 5,732,154      100  %
                                         
Mortgage warehouse   441,992          373,161          183,628          233,577          200,017       
PPP loans   398,949          —          —          —          —       
                                         
Total LHI1   $ 6,566,355          $ 6,225,426          $ 5,921,071          $ 5,887,470          $ 5,932,171       
                                         
Deposits                                        
Noninterest-bearing   $ 1,907,697      31.2  %   $ 1,549,260      26.7  %   $ 1,556,500      26.4  %   $ 1,473,126      25.1  %   $ 1,476,668      24.0  %
Interest-bearing transaction   343,640      5.6      306,641      5.3      388,877      6.6      373,997      6.4      373,982      6.1   
Money market   2,272,520      37.1      2,143,874      37.0      2,180,017      37.0      2,066,315      35.2      2,178,274      35.3   
Savings   97,989      1.6      86,350      1.5      86,078      1.5      87,981      1.5      93,898      1.5   
Certificates and other time deposits   1,503,701      24.5      1,713,820      29.5      1,682,878      28.6      1,876,427      31.8      2,042,266      33.1   
Total deposits   $ 6,125,547      100  %   $ 5,799,945      100  %   $ 5,894,350      100  %   $ 5,877,846      100  %   $ 6,165,088      100  %
                                         
Loan to Deposit Ratio   107.2  %       107.3  %       100.5  %       100.2  %       96.2  %    
Loan to Deposit Ratio, excluding mortgage warehouse and PPP loans   93.5  %       100.9  %       97.3  %       96.2  %       93.0  %    

1 Total LHI does not include deferred costs of $1.5 million at June 30, 2020 and $1.5 million at March 31, 2020, deferred fees of $134 thousand at December 31, 2019 and September 30, 2019, respectively, and $321 thousand at June 30, 2019.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

Asset Quality

  For the Three Months Ended   For the Six Months Ended
  June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019   June 30, 2020   June 30, 2019
  (Dollars in thousands)        
Nonperforming Assets (“NPAs”):                          
Nonaccrual loans $ 43,594        $ 38,836        $ 29,779        $ 10,172        $ 15,733        $ 43,594        $ 15,733     
Accruing loans 90 or more days past due1 2,021        4,764        3,660        2,194        25,774        2,021        25,774     
Total nonperforming loans held for investment (“NPLs”) 45,615        43,600        33,439        12,366        41,507        45,615        41,507     
Other real estate owned 7,716        7,720        5,995        4,625        1,748        7,716        1,748     
Total NPAs $ 53,331        $ 51,320        $ 39,434        $ 16,991        $ 43,255        $ 53,331        $ 43,255     
                           
Charge-offs:                          
Residential $ —        $ —        $ —        $ —        $ (157 )     $ —        $ (157 )  
Commercial (1,740 )     —        —        (8,101 )     (143 )     (1,740 )     (2,797 )  
Consumer (57 )     (68 )     (48 )     (113 )     (30 )     (125 )     (104 )  
Total charge-offs (1,797 )     (68 )     (48 )     (8,214 )     (330 )     (1,865 )     (3,058 )  
                           
Recoveries:                          
Residential —        1        5        —        54        1        62     
Commercial 7        29        135        71        10        36        20     
Consumer —        274        6        —        40        274        86     
Total recoveries 7        304        146        71        104        311        168     
                           
Net charge-offs $ (1,790 )     $ 236        $ 98        $ (8,143 )     $ (226 )     $ (1,554 )     $ (2,890 )  
                           
CECL transition adjustment $ —        $ 39,137        $ —        $ —        $ —        $ 39,137        $ —     
                           
Allowance for credit  losses (“ACL”) at end of period $ 115,365        $ 100,983        $ 29,834        $ 26,243        $ 24,712        $ 115,365        $ 24,712     
                           
Asset Quality Ratios:                          
NPAs to total assets 0.62    %   0.60    %   0.50    %   0.21    %   0.54    %   0.62    %   0.54    %
NPLs to total LHI, excluding mortgage warehouse and PPP loans 0.80        0.75        0.58        0.22        0.72        0.80        0.72     
ACL to total LHI, excluding mortgage warehouse and PPP loans 2.01        1.73        0.52        0.46        0.43        2.01        0.43     
Net charge-offs to average loans outstanding 0.03        —        —        0.14        —        0.03        0.05     

1 Accruing loans greater than 90 days past due exclude purchase credit deteriorated loans greater than 90 days past due that are accounted for on a pooled basis.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

We identify certain financial measures discussed in this earnings release as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States (“GAAP”), in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios calculated using exclusively either one or both of (i) financial measures calculated in accordance with GAAP and (ii) operating measures or other measures that are not non-GAAP financial measures.

The non-GAAP financial measures that we present in this earnings release should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we present in this earnings release may differ from that of other companies reporting measures with similar names. You should understand how such other financial institutions calculate their financial measures that appear to be similar or have similar names to the non-GAAP financial measures we have discussed in this earnings release when comparing such non-GAAP financial measures.

Tangible Book Value Per Common Share. Tangible book value is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders’ equity less goodwill and core deposit intangibles, net of accumulated amortization; and (b) tangible book value per common share as tangible common equity (as described in clause (a)) divided by number of common shares outstanding. For tangible book value per common share, the most directly comparable financial measure calculated in accordance with GAAP is book value per common share.

We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in core deposit intangibles. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and presents our tangible book value per common share compared with our book value per common share:

    As of
    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019
    (Dollars in thousands, except per share data)
Tangible Common Equity                    
Total stockholders' equity   $ 1,163,749        $ 1,149,269        $ 1,190,797        $ 1,205,530        $ 1,205,293     
Adjustments:                    
Goodwill   (370,840 )     (370,840 )     (370,840 )     (370,463 )     (370,221 )  
Core deposit intangibles   (62,661 )     (65,112 )     (67,563 )     (70,014 )     (72,465 )  
Tangible common equity   $ 730,248        $ 713,317        $ 752,394        $ 765,053        $ 762,607     
Common shares outstanding   49,633        49,557        51,064        52,373        53,457     
                     
Book value per common share   $ 23.45        $ 23.19        $ 23.32        $ 23.02        $ 22.55     
Tangible book value per common share   $ 14.71        $ 14.39        $ 14.73        $ 14.61        $ 14.27     


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders’ equity, less goodwill and core deposit intangibles, net of accumulated amortization; (b) tangible assets as total assets less goodwill and core deposit intangibles, net of accumulated amortization; and (c) tangible common equity to tangible assets as tangible common equity (as described in clause (a)) divided by tangible assets (as described in clause (b)). For tangible common equity to tangible assets, the most directly comparable financial measure calculated in accordance with GAAP is total stockholders’ equity to total assets.

We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, in each case, exclusive of changes in core deposit intangibles. Goodwill and other intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets.

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets and presents our tangible common equity to tangible assets:

    As of
    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019
    (Dollars in thousands)
Tangible Common Equity                    
Total stockholders' equity   $ 1,163,749        $ 1,149,269        $ 1,190,797        $ 1,205,530        $ 1,205,293     
Adjustments:                    
Goodwill   (370,840 )     (370,840 )     (370,840 )     (370,463 )     (370,221 )  
Core deposit intangibles   (62,661 )     (65,112 )     (67,563 )     (70,014 )     (72,465 )  
Tangible common equity   $ 730,248        $ 713,317        $ 752,394        $ 765,053        $ 762,607     
Tangible Assets                    
Total assets   $ 8,587,858        $ 8,531,624        $ 7,954,937        $ 7,962,883        $ 8,010,106     
Adjustments:                    
Goodwill   (370,840 )     (370,840 )     (370,840 )     (370,463 )     (370,221 )  
Core deposit intangibles   (62,661 )     (65,112 )     (67,563 )     (70,014 )     (72,465 )  
Tangible Assets   $ 8,154,357        $ 8,095,672        $ 7,516,534        $ 7,522,406        $ 7,567,420     
Tangible Common Equity to Tangible Assets   8.96    %   8.81    %   10.01    %   10.17    %   10.08    %


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

Return on Average Tangible Common Equity. Return on average tangible common equity is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) return as net income available for common stockholders adjusted for amortization of core deposit intangibles as net income, plus amortization of core deposit intangibles, less tax benefit at the statutory rate; (b) average tangible common equity as total average stockholders’ equity less average goodwill and average core deposit intangibles, net of accumulated amortization; and (c) return (as described in clause (a)) divided by average tangible common equity (as described in clause (b)). For return on average tangible common equity, the most directly comparable financial measure calculated in accordance with GAAP is return on average equity.

We believe that this measure is important to many investors in the marketplace who are interested in the return on common equity, exclusive of the impact of core deposit intangibles. Goodwill and core deposit intangibles have the effect of increasing total stockholders’ equity while not increasing our tangible common equity. This measure is particularly relevant to acquisitive institutions that may have higher balances in goodwill and core deposit intangibles than non-acquisitive institutions.

The following table reconciles, as of the dates set forth below, average tangible common equity to average common equity and net income available for common stockholders adjusted for amortization of core deposit intangibles, net of taxes to net income and presents our return on average tangible common equity:

    For the Three Months Ended   For the Six Months Ended
    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019   June 30, 2020   June 30, 2019
    (Dollars in thousands)        
Net income available for common stockholders adjusted for amortization of core deposit intangibles                            
Net income   $ 24,028        $ 4,134        $ 29,051        $ 27,405        $ 26,876        $ 28,162        $ 34,283     
Adjustments:                            
Plus: Amortization of core deposit intangibles   2,451        2,451        2,451        2,451        2,451        4,902        4,928     
Less: Tax benefit at the statutory rate   515        515        515        515        515        1,030        1,035     
Net income available for common stockholders adjusted for amortization of core deposit intangibles   $ 25,964        $ 6,070        $ 30,987        $ 29,341        $ 28,812        $ 32,034        $ 38,176     
                             
Average Tangible Common Equity                            
Total average stockholders' equity   $ 1,155,798        $ 1,183,116        $ 1,197,191        $ 1,210,147        $ 1,200,632        $ 1,142,626        $ 1,193,990     
Adjustments:                            
Average goodwill   (370,840 )     (370,840 )     (370,463 )     (370,224 )     (369,255 )     (370,840 )     (368,524 )  
Average core deposit intangibles   (64,151 )     (66,439 )     (68,913 )     (71,355 )     (73,875 )     (65,296 )     (75,293 )  
Average tangible common equity   $ 720,807        $ 745,837        $ 757,815        $ 768,568        $ 757,502        $ 706,490        $ 750,173     
Return on Average Tangible Common Equity (Annualized)   14.49    %   3.27    %   16.22    %   15.15    %   15.26    %   9.12    %   10.26    %



VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

Operating Earnings, Pre-tax, Pre-provision Operating Earnings and performance metrics calculated using Operating Earnings and Pre-tax, Pre-provision Operating Earnings, including Diluted Operating Earnings per Share, Operating Return on Average Assets, Pre-tax, Pre-Provision Operating Return on Average Assets, Operating Return on Average Tangible Common Equity and Operating Efficiency Ratio. Operating earnings and pre-tax, pre-provision operating earnings are non-GAAP measures used by management to evaluate the Company’s financial performance. We calculate (a) operating earnings as net income plus loss(gain) on sale of securities available for sale, net, plus loss (gain) on sale of disposed branch assets, plus FHLB pre-payment fees, plus merger and acquisition expenses, less tax impact of adjustments, plus other merger and acquisition tax items, plus re-measurement of deferred tax assets as a result of the reduction in the corporate income tax rate under the Tax Cuts and Jobs Act. We calculate (b) pre-tax, pre-provision operating earnings as operating earnings as described in clause (a) plus provision for income taxes, plus provision for loan losses. We calculate (c) diluted operating earnings per share as operating earnings as described in clause (a) divided by weighted average diluted shares outstanding. We calculate (d) operating return on average tangible common equity as operating earnings as described in clause (a), adjusted for the amortization of intangibles, divided by total average tangible common equity (average stockholders' equity less average goodwill and average core deposit intangibles, ((net of accumulated amortization.) We calculate (e) operating efficiency ratio as non interest expense plus adjustments to operating non interest expense divided by (i) non interest income plus adjustments to operating non interest income plus (ii) net interest income.

We believe that these measures and the operating metrics calculated utilizing these measures are important to management and many investors in the marketplace who are interested in understanding the ongoing operating performance of the Company and provide meaningful comparisons to its peers.

The following tables reconcile, as of the dates set forth below, operating net income and pre-tax, pre-provision operating earnings and related metrics:

    For the Three Months Ended   For the Six Months Ended
    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019   June 30, 2020   June 30, 2019
    (Dollars in thousands)
Operating Earnings                            
Net income   $ 24,028        $ 4,134      $ 29,051        $ 27,405      $ 26,876      $ 28,162        $ 34,283   
Plus: (Gain) loss on sale of securities available for sale, net   (2,879 )     —      438        —      642      (2,879 )     1,414   
Plus: Loss on sale of disposed branch assets1   —        —      —        —      359      —        359   
Plus: FHLB pre-payment fees   1,561        —      —        —      —      1,561        —   
Plus: Merger and acquisition expenses   —        —      918        1,035      5,431      —        36,648   
Operating pre-tax income   22,710        4,134      30,407        28,440      33,308      26,844        72,704   
Less: Tax impact of adjustments   (277 )     —      (23 )     217      1,351      (277 )     8,068   
Plus: Other M&A tax items2   —        —      829        406      277      —        277   
Plus: Discrete tax adjustments3   (1,799 )     —      (965 )     —      —      (1,799 )     —   
Operating earnings   $ 21,188        $ 4,134      $ 30,294        $ 28,629      $ 32,234      $ 25,322        $ 64,913   
                             
Weighted average diluted shares outstanding   49,727        51,056      52,263        53,873      54,929      50,383        54,929   
Diluted EPS   $ 0.48        $ 0.08      $ 0.56        $ 0.51      $ 0.49      $ 0.56        $ 0.62   
Diluted operating EPS   0.43        0.08      0.58        0.53      0.59      0.50        1.18   

1 Loss on sale of disposed branch assets for the three months ended June 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Other M&A tax items of $829 thousand, $406 thousand and $277 thousand recorded during the three months ended December 31, 2019, September 30, 2019 and June 30, 2019, respectively, relate to permanent tax expense recognized by the Company as a result of deduction limitations on compensation paid to covered employees in excess of the 162(m) limitation directly due to change-in-control payments made to covered employees in connection with the Green acquisition.
3 Discrete tax adjustments of $965 thousand were recorded during the fourth quarter of 2019 primarily due to the Company recording a net tax benefit of $1.6 million as a result of the Company settling an audit with the IRS. The Company released an uncertain tax position reserve that was assumed in the Green acquisition resulting in a $2.2 million tax benefit, offset by tax expense totaling $598 thousand that were recorded due to the Tax Cuts and Jobs Act rate change on deferred tax assets resulting from the IRS audit settlement.  The net IRS settlement was offset by various discrete, non-recurring tax expenses totaling $0.6 million. A discrete tax benefit of $1,799 was recorded in the second quarter of 2020 as a result of the Company amending a prior year Green tax return to carry back a net operating loss ("NOL") incurred by Green on January 1, 2019.  The Company was allowed to carry back this NOL as result of a provision in the CARES Act which permits NOLs generated in tax years 2018, 2019 or 2020 to be carried back five years.

    For the Three Months Ended   For the Six Months Ended
    June 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   June 30, 2019   June 30, 2020   June 30, 2019
    (Dollars in thousands)
Pre-Tax, Pre-Provision Operating Earnings                            
Net income   $ 24,028        $ 4,134        $ 29,051        $ 27,405        $ 26,876        $ 28,162        $ 34,283     
Plus: Provision (benefit) for income taxes   3,987        (684 )     8,168        7,595        7,369        3,303        9,358     
Pus: Provision for credit losses and unfunded commitments   18,971        35,657        3,493        9,674        3,335        54,628        8,347     
Plus: (Gain) loss on sale of securities available for sale, net   (2,879 )     —        438        —        642        (2,879 )     1,414     
Plus: Loss on sale of disposed branch assets1   —        —        —        —        359        —        359     
Plus: FHLB pre-payment fees   1,561        —        —        —        —        1,561        —     
Plus: Merger and acquisition expenses   —        —        918        1,035        5,431        —        36,648     
Pre-tax, pre-provision operating earnings   $ 45,668        $ 39,107        $ 42,068        $ 45,709        $ 44,012        $ 84,775        $ 90,409     
                             
Average total assets   $ 8,689,774        $ 8,125,782        $ 8,043,505        $ 8,009,377        $ 7,937,319        $ 8,380,947        $ 7,888,043     
Pre-tax, pre-provision operating return on average assets2   2.11    %   1.94    %   2.07    %   2.26    %   2.22    %   2.03    %   2.31    %
                             
Average total assets   $ 8,689,774        $ 8,125,782        $ 8,043,505        $ 8,009,377        $ 7,937,319        $ 8,380,947        $ 7,888,043     
Return on average assets2   1.11    %   0.20    %   1.43    %   1.36    %   1.36    %   0.68    %   0.88    %
Operating return on average assets2   0.98        0.20        1.49        1.42        1.63        0.61        1.66     
                             
Operating earnings adjusted for amortization of core deposit intangibles                            
Operating earnings   $ 21,188        $ 4,134        $ 30,294        $ 28,629        $ 32,234        $ 25,322        $ 64,913     
Adjustments:                            
Plus: Amortization of core deposit intangibles   2,451        2,451        2,451        2,451        2,451        4,902        4,928     
Less: Tax benefit at the statutory rate   515        515        515        515        515        1,030        1,035     
Operating earnings adjusted for amortization of core deposit intangibles   $ 23,124        $ 6,070        $ 32,230        $ 30,565        $ 34,170        $ 29,194        $ 68,806     
                             
Average Tangible Common Equity                            
Total average stockholders' equity   $ 1,155,798        $ 1,183,116        $ 1,197,191        $ 1,210,147        $ 1,200,632        $ 1,142,626        $ 1,193,990     
Adjustments:                            
Less: Average goodwill   (370,840 )     (370,840 )     (370,463 )     (370,224 )     (369,255 )     (370,840 )     (368,524 )  
Less: Average core deposit intangibles   (64,151 )     (66,439 )     (68,913 )     (71,355 )     (73,875 )     (65,296 )     (75,293 )  
Average tangible common equity   $ 720,807        $ 745,837        $ 757,815        $ 768,568        $ 757,502        $ 706,490        $ 750,173     
Operating return on average tangible common equity2   12.90    %   3.27    %   16.87    %   15.78    %   18.09    %   8.31    %   18.50    %
                             
Efficiency ratio   46.02    %   47.61    %   47.12    %   43.67    %   51.49    %   46.76    %   67.28    %
Operating efficiency ratio   45.74    %   47.61    %   45.67    %   42.36    %   43.66    %   46.62    %   43.60    %

1 Loss on sale of disposed branch assets for the three months ended June 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Annualized ratio.

 


Media Contact:
LaVonda Renfro
972-349-6200
lrenfro@veritexbank.com

Investor Relations:
Susan Caudle
972-349-6132
scaudle@veritexbank.com

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Source: Veritex Holdings, Inc.