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Veritex Holdings, Inc. Reports Third Quarter Operating Results

DALLAS, Oct. 27, 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 September 30, 2020.

“Despite the economic headwinds resulting from the pandemic, we delivered a strong quarter.  Loans on active deferral have declined 87% since late July.  We remain optimistic about the current recovery and the long-term strength of the DFW and Houston economies,” 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, slower building of our allowance for credit losses, higher capital levels and positive loan and deposit growth. I couldn’t be more proud and encouraged by what the team has accomplished during 2020 which is proving to be a challenging operating period.”

Third Quarter Highlights

  • Net income of $22.9 million, or $0.46 diluted earnings per share (“EPS”), compared to $24.0 million, or $0.48 diluted EPS, for the quarter ended June 30, 2020 and $27.4 million, or $0.51 diluted EPS, for the quarter ended September 30, 2019;
  • Pre-tax, pre-provision operating earnings1 totaled $39.3 million, compared to $45.7 million for the quarter ended June 30, 2020 and $45.7 million for the quarter ended September 30, 2019;
  • Provision for credit losses and unfunded commitments was $10.1 million, compared to $19.0 million for the quarter ended June 30, 2020;
  • Allowance for credit losses (“ACL”) to total loans held for investments (“LHI”), excluding mortgage warehouse and Paycheck Protection Program (“PPP”) loans, was 2.10% for the quarter ended September 30, 2020 compared to 2.01% for the quarter ended June 30, 2020.
  • Total loans, excluding PPP loans, grew $165.3 million from the second quarter of 2020, or 10.7% annualized.
  • Total deposits grew $97.0 million from the second quarter of 2020, or 6.3% annualized, with the average cost of total deposits decreasing to 0.46% for the three months ended September 30, 2020 from 0.59% for the three months ended June 30, 2020;
  • Growth of $20.9 million in total common equity tier 1 capital for the three months ended September 30, 2020;
  • Declared quarterly cash dividend of $0.17 payable on November 19, 2020;
  • On October 5, 2020, issued $125 million in subordinated debt initially bearing a fixed interest rate of 4.125%; and
  • On October 27, 2020, extended the expiration date of the Stock Buyback Program from December 31, 2020 to March 31, 2021.
Financial Highlights QTD   YTD
  Q3 2020   Q2 2020   Q3 2020   Q3 2019
               
  (Dollars in thousands) 
(unaudited)
GAAP              
Net income $ 22,920     $ 24,028     $ 51,082     $ 61,688  
Diluted EPS 0.46     0.48     1.02     1.13  
Return on average assets2 1.06 %   1.11 %   0.81 %   1.04 %
Efficiency ratio 48.12     46.02     47.19     59.42  
Book value per common share $ 23.87     $ 23.45     $ 23.87     $ 23.02  
Non-GAAP1              
Operating earnings $ 22,928     $ 21,188     $ 48,250     $ 93,542  
Diluted operating EPS 0.46     0.43     0.96     1.71  
Pre-tax, pre-provision operating earnings 39,265     45,668     124,040     136,118  
Pre-tax, pre-provision operating return on average assets 1.82 %   2.11 %   1.96 %   2.30 %
Tangible book value per common share $ 15.19     $ 14.71     $ 15.19     $ 14.61  

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

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

Net Interest Income

For the three months ended September 30, 2020, net interest income before provision for credit losses was $65.9 million and net interest margin was 3.32% compared to $65.8 million and 3.31%, respectively, for the three months ended June 30, 2020. Net interest margin increased 1 basis point from the three months ended June 30, 2020 primarily due to decreases in the average rates paid on interest-bearing demand and savings deposits and certificate and other time deposits which is slightly offset by decreases in the average yields earned on loans the three months ended September 30, 2020. As a result, the average cost of interest-bearing deposits decreased 17 basis points to 0.67% for the three months ended September 30, 2020 from 0.84% for the three months ended June 30, 2020.

Net interest income before provision for credit losses decreased by $5.0 million from $70.9 million to $65.9 million and net interest margin decreased by 58 basis points from 3.90% to 3.32% for the three months ended September 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 $17.1 million decrease in interest income on loans, partially offset by $8.3 million and $5.3 million decrease in interest expenses on transaction and savings deposits and certificates and other time deposits, respectively, during the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Net interest margin decreased 58 basis points from the three months ended September 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 and certificates and other time deposits for the three months ended September 30, 2020. As a result, the average cost of interest-bearing deposits decreased 112 basis points to 0.67% for the three months ended September 30, 2020 from 1.79% for the three months ended September 30, 2019.

Noninterest Income

Noninterest income for the three months ended September 30, 2020 was $9.8 million, a decrease of $11.5 million, or 54.0%, compared to the three months ended June 30, 2020. The decrease was primarily due to a $8.7 million decrease in government guaranteed loan income, net. In the second and third quarter of 2020, 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 fee income of $295 thousand in the third quarter of 2020 compared to $12.5 million in the second quarter of 2020. The recognized fee income on PPP loans 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 September 30, 2019, noninterest income for the three months ended September 30, 2020 increased by $1.4 million, or 16.2%. The increase was primarily due to a $1.3 million increase in government guaranteed loan income, net, as a result of the fee income earned on PPP loans.

Noninterest Expense

Noninterest expense was $36.4 million for the three months ended September 30, 2020, compared to $40.1 million for the three months ended June 30, 2020, a decrease of $3.7 million, or 9.1%. The decrease was primarily driven by a $1.6 million decrease in pre-payment fees on Federal Home Loan Bank (“FHLB”) advances paid in the second quarter of 2020 with no corresponding  pre-payment fees during the three months ended September 30, 2020. The decrease was also driven by a $1.2 million decrease in COVID related expenses primarily related to Community Reinvestment Act donations, lender incentives, employee overtime and cleaning services that were paid in the second quarter of 2020 with nominal COVID expenses for the three months ended September 30, 2020.

Compared to the three months ended September 30, 2019, noninterest expense for the three months ended September 30, 2020 increased by $1.8 million, or 5.1%. The increase was primarily driven by a $3.0 million increase in salaries and employee benefits offset by a $1.0 million decrease in merger and acquisition expenses.

Financial Condition

Total loans were $6.8 billion at September 30, 2020, an increase of $157.7 million, or 9.6% annualized, compared to June 30, 2020. The increase was the result of the continued execution and success of our loan growth strategy.

Total deposits were $6.2 billion at September 30, 2020, an increase of $97.0 million, or 6.3% annualized, compared to June 30, 2020. The increase was primarily the result of increases of $107.8 million and $13.0 million in interest-bearing transaction and savings deposits and noninterest-bearing demand deposits, respectively, partially offset by a decrease of $23.8 million in certificates and other time deposits.

Asset Quality

Nonperforming assets totaled $96.4 million, or 1.11% of total assets at September 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 $2.5 million for the quarter, which is primarily the result of one relationship charge-off that was fully reserved against in the second quarter of 2020.

The Company recorded a provision for credit losses for the three months ended September 30, 2020 of $8.7 million, compared to $16.2 million and $9.7 million for the three months ended June 30, 2020 and September 30, 2019, respectively. The decrease in the recorded provision for credit losses for the three months ended September 30, 2020, compared to the three months ended June 30, 2020, was primarily attributable to improvement in the Texas economic forecasts used in the Current Expected Credit Losses (“CECL”) model in the third quarter of 2020 to reflect the expected impact of the COVID-19 pandemic as of September 30, 2020, as compared to our Texas economic forecasts and expected impact of the COVID-19 pandemic as of June 30, 2020. Changes to the Texas economic forecasts were offset by a $13.2 million increase in specific reserves on certain lending relationships that moved onto nonaccrual status during the three months ended September 30, 2020. In the third quarter of 2020, we also recorded a $1.4 million provision for unfunded commitments which was attributable to higher unfunded balances compared to a $2.8 million provision for unfunded commitments recorded for the three months ended June 30, 2020. Allowance for credit losses as a percentage of LHI, excluding mortgage warehouse and PPP loans, was 2.10%, 2.01% and 0.46% of total loans at September 30, 2020, June 30, 2020 and September 30, 2019, respectively.

Dividend Information

On October 27, 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 November 19, 2020 to stockholders of record as of the close of business on November 5, 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, October 28, 2020 at 8:30 a.m. Central Time. Participants may pre-register for the call by visiting https://edge.media-server.com/mmc/p/yb2kmpoq 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
#1172928. This replay, as well as the webcast, will be available until November 4, 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.


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(Unaudited)

  For the Three Months Ended   For the Nine Months Ended
  Sep 30,
2020
  Jun 30,
2020
  Mar 31,
2020
  Dec 31,
2019
  Sep 30,
2019
  Sep 30,
2020
  Sep 30,
2019
                           
  (Dollars and shares in thousands)
Per Share Data (Common Stock):                          
Basic EPS $ 0.46     $ 0.48     $ 0.08     $ 0.56     $ 0.52     $ 1.02     $ 1.15  
Diluted EPS 0.46     0.48     0.08     0.56     0.51     1.02     1.13  
Book value per common share 23.87     23.45     23.19     23.32     23.02     23.87     23.02  
Tangible book value per common share1 15.19     14.71     14.39     14.73     14.61     15.19     14.61  
                           
Common Stock Data:                          
Shares outstanding at period end 49,650     49,633     49,557     51,064     52,373     49,650     52,373  
Weighted average basic shares outstanding for the period 49,647     49,597     50,725     51,472     52,915     49,989     53,721  
Weighted average diluted shares outstanding for the period 49,775     49,727     51,056     52,263     53,873     50,176     54,633  
                           
Summary of Credit Ratios:                          
ACL to total LHI, excluding mortgage warehouse and PPP loans 2.10 %   2.01 %   1.73 %   0.52 %   0.46 %   2.10 %   0.46 %
Nonperforming assets to total assets 1.11     0.62     0.60     0.50     0.21     1.11     0.21  
Net charge-offs to average loans outstanding 0.04     0.03             0.14     0.04     0.19  
                           
Summary Performance Ratios:                          
Return on average assets2 1.06     1.11     0.20     1.43     1.36     0.81     1.04  
Return on average equity2 7.74     8.36     1.41     9.63     8.98     5.91     6.88  
Return on average tangible common equity1, 2 13.27     14.49     3.27     16.22     15.15     10.56     11.93  
Efficiency ratio 48.12     46.02     47.61     47.12     43.67     47.19     59.42  
                           
Selected Performance Metrics - Operating:                          
Diluted operating EPS1 $ 0.46     $ 0.43     $ 0.08     $ 0.58     $ 0.53     $ 0.96     $ 1.71  
Pre-tax, pre-provision operating return on average assets1, 2 1.82 %   2.11 %   1.94 %   2.07 %   2.26 %   1.96 %   2.30 %
Operating return on average assets1, 2 1.06     0.98     0.20     1.49     1.42     0.76     1.58  
Operating return on average tangible common equity1, 2 13.27     12.90     3.27     16.87     15.78     10.04     17.57  
Operating efficiency ratio1 48.11     45.74     47.61     45.67     42.36     47.10     43.19  
                           
Veritex Holdings, Inc. Capital Ratios:                          
Tier 1 capital to average assets (leverage) 9.54     9.16     9.49     10.17     10.33     9.54     10.33  
Common equity tier 1 capital 9.67     9.66     9.53     10.60     10.82     9.67     10.82  
Tier 1 capital to risk-weighted assets 10.05     10.05     9.92     11.02     11.26     10.05     11.26  
Total capital to risk-weighted assets 12.70     12.71     12.48     13.10     12.26     12.70     12.26  
Tangible common equity to tangible assets1 9.12     8.96     8.81     10.01     10.17     9.12     10.17  

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)

  Sep 30, 2020   Jun 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019
  (unaudited)   (unaudited)   (unaudited)       (unaudited)
ASSETS                  
Cash and cash equivalents $ 128,767     $ 160,306     $ 430,842     $ 251,550     $ 252,592  
Securities 1,091,440     1,112,061     1,117,804     997,330     1,023,393  
Other securities 98,023     104,213     112,775     84,063     85,007  
                   
Loans held for sale 13,928     28,041     15,048     14,080     10,715  
PPP loans, at fair value 405,465     398,949              
Loans held for investment, mortgage warehouse 544,845     441,992     371,161     183,628     233,577  
Loans held for investment 5,789,293     5,726,873     5,853,735     5,737,577     5,654,027  
Total loans 6,753,531     6,595,855     6,239,944     5,935,285     5,898,319  
Allowance for credit losses (121,591 )   (115,365 )   (100,983 )   (29,834 )   (26,243 )
Bank-owned life insurance 82,366     81,876     81,395     80,915     80,411  
Bank premises, furniture and equipment, net 115,794     115,560     116,056     118,536     118,449  
Other real estate owned 5,796     7,716     7,720     5,995     4,625  
Intangible assets, net 64,716     66,705     69,444     72,263     75,363  
Goodwill 370,840     370,840     370,840     370,840     370,463  
Other assets 112,693     88,091     85,787     67,994     80,504  
Total assets $ 8,702,375     $ 8,587,858     $ 8,531,624     $ 7,954,937     $ 7,962,883  
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
Deposits:                  
Noninterest-bearing deposits $ 1,920,715     $ 1,907,697     $ 1,549,260     $ 1,556,500     $ 1,473,126  
Interest-bearing transaction and savings deposits 2,821,945     2,714,149     2,536,865     2,654,972     2,528,293  
Certificates and other time deposits 1,479,896     1,503,701     1,713,820     1,682,878     1,876,427  
Total deposits 6,222,556     6,125,547     5,799,945     5,894,350     5,877,846  
Accounts payable and other liabilities 66,096     64,625     56,339     37,427     45,475  
Accrued interest payable 3,444     4,088     5,407     6,569     6,054  
Advances from Federal Home Loan Bank 1,082,756     1,087,794     1,377,832     677,870     752,907  
Subordinated debentures and subordinated notes 140,158     140,283     140,406     145,571     72,284  
Securities sold under agreements to repurchase 2,028     1,772     2,426     2,353     2,787  
Total liabilities 7,517,038     7,424,109     7,382,355     6,764,140     6,757,353  
Commitments and contingencies                  
Stockholders’ equity:                  
Common stock 555     555     554     549     524  
Additional paid-in capital 1,124,148     1,122,063     1,119,757     1,117,879     1,114,659  
Retained earnings 157,639     143,277     127,812     147,911     125,344  
Accumulated other comprehensive income 47,155     42,014     45,306     19,061     23,837  
Treasury stock (144,160 )   (144,160 )   (144,160 )   (94,603 )   (58,834 )
Total stockholders’ equity 1,185,337     1,163,749     1,149,269     1,190,797     1,205,530  
Total liabilities and stockholders’ equity $ 8,702,375     $ 8,587,858     $ 8,531,624     $ 7,954,937     $ 7,962,883  


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands, except per share data)

  For the Three Months Ended   For the Nine Months Ended
  Sep 30,
2020
  Jun 30,
2020
  Mar 31,
2020
  Dec 31,
2019
  Sep 30,
2019
  Sep 30,
2020
  Sep 30,
2019
Interest income:                          
Loans, including fees $ 68,685     $ 70,440     $ 77,861     $ 82,469     $ 85,811     $ 216,986     $ 258,344  
Investment securities 7,852     7,825     7,397     7,168     7,687     23,074     22,316  
Deposits in financial institutions and Fed Funds sold 65     186     871     1,285     1,329     1,122     4,255  
Other investments 827     891     850     820     816     2,568     2,129  
Total interest income 77,429     79,342     86,979     91,742     95,643     243,750     287,044  
Interest expense:                          
Transaction and savings deposits 2,105     2,471     6,552     8,203     10,381     11,128     32,152  
Certificates and other time deposits 5,004     6,515     8,240     9,455     10,283     19,759     29,220  
Advances from FHLB 2,707     2,801     2,879     2,661     3,081     8,387     7,323  
Subordinated debentures and subordinated notes 1,743     1,798     1,903     1,559     1,024     5,444     3,116  
Total interest expense 11,559     13,585     19,574     21,878     24,769     44,718     71,811  
Net interest income 65,870     65,757     67,405     69,864     70,874     199,032     215,233  
Provision for credit losses 8,692     16,172     31,776     3,493     9,674     56,640     18,021  
Provision for unfunded commitments 1,447     2,799     3,881             8,127      
Net interest income after provisions 55,731     46,786     31,748     66,371     61,200     134,265     197,212  
Noninterest income:                          
Service charges and fees on deposit accounts 3,130     2,960     3,642     3,728     3,667     9,732     10,606  
Loan fees 1,260     1,240     845     1,921     1,536     3,345     4,026  
(Loss) gain on sales of investment securities (8 )   2,879         (438 )       2,871     (1,414 )
Gain on sales of mortgage loans held for sale 472     308     142     81     853     922     394  
Government guaranteed loan income, net 2,257     11,006     439     560     930     13,702     4,148  
Rental income 502     547     551     371     643     1,600     1,629  
Other 2,182     2,350     1,628     909     801     6,160     3,559  
Total noninterest income 9,795     21,290     7,247     7,132     8,430     38,332     22,948  
Noninterest expense:                          
Salaries and employee benefits 20,553     20,019     18,870     18,917     17,530     59,442     53,874  
Occupancy and equipment 3,980     3,994     4,273     4,198     4,044     12,247     12,187  
Professional and regulatory fees 3,159     2,796     2,196     2,615     2,750     8,151     8,982  
Data processing and software expense 2,452     2,434     2,089     1,880     2,252     6,975     6,485  
Marketing 1,062     561     1,083     971     708     2,706     2,288  
Amortization of intangibles 2,840     2,696     2,696     2,696     2,712     8,232     8,191  
Telephone and communications 345     308     319     466     361     972     1,381  
Merger and acquisition expense             918     1,035         38,042  
COVID expenses 132     1,245                 1,377      
Other 1,885     6,008     4,019     3,623     3,238     11,912     10,089  
Total noninterest expense 36,408     40,061     35,545     36,284     34,630     112,014     141,519  
Income before income tax expense 29,118     28,015     3,450     37,219     35,000     60,583     78,641  
Income tax (benefit) expense 6,198     3,987     (684 )   8,168     7,595     9,501     16,953  
Net income $ 22,920     $ 24,028     $ 4,134     $ 29,051     $ 27,405     $ 51,082     $ 61,688  
                           
Basic EPS $ 0.46     $ 0.48     $ 0.08     $ 0.56     $ 0.52     $ 1.02     $ 1.15  
Diluted EPS $ 0.46     $ 0.48     $ 0.08     $ 0.56     $ 0.51     $ 1.02     $ 1.13  
Weighted average basic shares outstanding 49,647     49,597     50,725     51,472     52,915     49,989     53,721  
Weighted average diluted shares outstanding 49,775     49,727     51,056     52,263     53,873     50,176     54,633  


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands except percentages)

  For the Three Months Ended
  September 30, 2020   June 30, 2020   September 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 $ 5,753,859     $ 64,958     4.49 %   $ 5,797,989     $ 67,404     4.68 %   $ 5,702,696     $ 84,022     5.85 %
Loans held for investment, mortgage warehouse 358,248     2,705     3.00     304,873     2,279     3.01     182,793     1,789     3.88  
PPP loans 407,112     1,022     1.00     303,223     757     1.00              
Securities 1,101,469     7,852     2.84     1,117,964     7,825     2.82     1,022,289     7,687     2.98  
Interest-bearing deposits in other banks 175,201     65     0.15     366,764     186     0.20     234,087     1,329     2.25  
Other investments 103,948     827     3.17     110,672     891     3.24     71,901     816     4.50  
Total interest-earning assets 7,899,837     77,429     3.90     8,001,485     79,342     3.99     7,213,766     95,643     5.26  
Allowance for loan losses (116,859 )           (110,483 )           (22,539 )        
Noninterest-earning assets 802,948             798,772             818,150          
Total assets $ 8,585,926             $ 8,689,774             $ 8,009,377          
                                   
Liabilities and Stockholders’ Equity                                  
Interest-bearing liabilities:                                  
Interest-bearing demand and savings deposits $ 2,735,170     $ 2,105     0.31 %   $ 2,684,897     $ 2,471     0.37 %   $ 2,621,701     $ 10,381     1.57 %
Certificates and other time deposits 1,459,046     5,004     1.36     1,625,971     6,515     1.61     1,953,084     10,283     2.09  
Advances from FHLB 1,067,771     2,707     1.01     1,206,930     2,801     0.93     632,754     3,081     1.93  
Subordinated debentures and subordinated notes 142,432     1,743     4.87     142,549     1,798     5.07     74,869     1,024     5.43  
Total interest-bearing liabilities 5,404,419     11,559     0.85     5,660,347     13,585     0.97     5,282,408     24,769     1.86  
                                   
Noninterest-bearing liabilities:                                  
Noninterest-bearing deposits 1,937,921             1,826,327             1,467,127          
Other liabilities 65,704             47,302             49,695          
Total liabilities 7,408,044             7,533,976             6,799,230          
Stockholders’ equity 1,177,882             1,155,798             1,210,147          
Total liabilities and stockholders’ equity $ 8,585,926             $ 8,689,774             $ 8,009,377          
                                   
Net interest rate spread2         3.05 %           3.02 %           3.40 %
Net interest income     $ 65,870             $ 65,757             $ 70,874      
Net interest margin3         3.32 %           3.31 %           3.90 %

1 Includes average outstanding balances of loans held for sale of $15,404, $22,958 and $8,525 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse and PPP loans.
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)

  Nine Months Ended
  September 30, 2020   September 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 $ 5,779,469     $ 208,889   4.83 %   $ 5,731,902     $ 253,247   5.91 %
Loans held for investment, mortgage warehouse 275,890     6,318   3.06     152,617     5,097   4.47  
PPP loans 236,778     1,779   1.00            
Securities 1,086,185     23,074   2.84     968,616     22,316   3.08  
Interest-bearing deposits in other banks 283,108     1,122   0.53     242,119     4,255   2.35  
Other investments 102,185     2,568   3.36     56,438     2,129   5.04  
Total interest-earning assets 7,763,615     243,750   4.19     7,151,692     287,044   5.37  
Allowance for loan losses (90,633 )           (22,173 )        
Noninterest-earning assets 776,790             799,509          
Total assets $ 8,449,772             $ 7,929,028          
                       
Liabilities and Stockholders’ Equity                      
Interest-bearing liabilities:                      
Interest-bearing demand and savings deposits $ 2,680,925     $ 11,128   0.55 %   $ 2,657,195     $ 32,152   1.62 %
Certificates and other time deposits 1,579,114     19,759   1.67     2,067,032     29,220   1.89  
Advances from FHLB 1,070,856     8,387   1.05     427,306     7,323   2.29  
Subordinated debentures and subordinated notes 143,387     5,444   5.07     75,298     3,116   5.53  
Total interest-bearing liabilities 5,474,282     44,718   1.09     5,226,831     71,811   1.84  
                       
Noninterest-bearing liabilities:                      
Noninterest-bearing deposits 1,763,289             1,459,904          
Other liabilities 57,737             42,853          
Total liabilities 7,295,308             6,729,588          
Stockholders’ equity 1,154,464             1,199,440          
Total liabilities and stockholders’ equity $ 8,449,772             $ 7,929,028          
                       
Net interest rate spread2         3.10 %           3.53 %
Net interest income     $ 199,032           $ 215,233    
Net interest margin3         3.42 %           4.02 %

1 Includes average outstanding balances of loans held for sale of $16,448 and $8,127 for the nine months ended September 30, 2020 and September 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse and PPP loans.
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

Yield Trend

  For the Three Months Ended
  September 30,
2020
  June 30
2020
  March 31
2020
  December 31
2019
  September 30,
2019
Average yield on interest-earning assets:                  
Loans1 4.49  %   4.68  %   5.32  %   5.63  %   5.85  %
Loans held for investment, mortgage warehouse 3.00      3.01      3.28      3.51      3.88   
PPP loans 1.00      1.00      —      —      —   
Securities 2.84      2.82      2.86      2.83      2.98   
Interest-bearing deposits in other banks 0.15      0.20      1.14      1.63      2.25   
Other investments 3.17      3.24      3.72      4.53      4.50   
Total interest-earning assets 3.90  %   3.99  %   4.74  %   5.00  %   5.26  %
                   
Average rate on interest-bearing liabilities:                  
Interest-bearing demand and savings deposits 0.31  %   0.37  %   1.00  %   1.24  %   1.57  %
Certificates and other time deposits 1.36      1.61      2.01      2.10      2.09   
Advances from FHLB 1.01      0.93      1.23      1.45      1.93   
Subordinated debentures and subordinated notes 4.87      5.07      5.27      5.23      5.43   
Total interest-bearing liabilities 0.85  %   0.97  %   1.47  %   1.65  %   1.86  %
                   
Net interest rate spread2 3.05  %   3.02  %   3.27  %   3.35  %   3.40  %
Net interest margin3 3.32  %   3.31  %   3.67  %   3.81  %   3.90  %

  1Includes average outstanding balances of loans held for sale of $15,404, $22,958, $10,995, $10,643 and $8,525 for the three months ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse and PPP loans.
  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
  September 30,
2020
  June 30
2020
  March 31
2020
  December 31
2019
  September 30,
2019
Average cost of interest-bearing deposits 0.67 %   0.84 %   1.39 %   1.59 %   1.79 %
Average costs of total deposits, including noninterest-bearing 0.46     0.59     1.02     1.18     1.36  


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands except percentages)

Total LHI and Deposit Portfolio Composition

  September 30,
2020
  June 30
2020
  March 31
2020
  December 31
2019
  September 30,
2019
                   
  (Dollars in thousands)
LHI1                                      
Commercial $ 1,623,249   28.0 %   $ 1,555,300   27.2 %   $ 1,777,603   30.4 %   $ 1,712,838   29.9 %   $ 1,711,256   30.3 %
Real Estate:                                      
Owner occupied commercial 734,939   12.7     769,952   13.4     723,839   12.4     706,782   12.3     716,130   12.7  
Commercial 1,817,013   31.4     1,847,480   32.3     1,828,386   31.2     1,784,201   31.1     1,710,510   30.3  
Construction and land 623,496   10.8     599,510   10.5     566,470   9.7     629,374   11.0     623,622   11.0  
Farmland 14,413   0.2     14,723   0.3     14,930   0.3     16,939   0.3     7,986   0.1  
1-4 family residential 548,953   9.5     528,688   9.2     536,892   9.2     549,811   9.6     559,310   9.9  
Multi-family residential 412,412   7.1     394,829   6.9     388,374   6.6     320,041   5.6     306,966   5.4  
Consumer 14,127   0.2     14,932   0.2     15,771   0.2     17,457   0.2     18,113   0.3  
Total LHI $ 5,788,602   100 %   $ 5,725,414   100 %   $ 5,852,265   100 %   $ 5,737,443   100 %   $ 5,653,893   100 %
                                       
Mortgage warehouse 544,845       441,992       373,161       183,628       233,577    
PPP loans 405,465       398,949                      
                                       
Total LHI1 $ 6,738,912       $ 6,566,355       $ 6,225,426       $ 5,921,071       $ 5,887,470    
                                       
Deposits                                      
Noninterest-bearing $ 1,920,715   31.0 %   $ 1,907,697   31.2 %   $ 1,549,260   26.7 %   $ 1,556,500   26.4 %   $ 1,473,126   25.1 %
Interest-bearing transaction 450,739   7.2     343,640   5.6     306,641   5.3     388,877   6.6     373,997   6.4  
Money market 2,267,191   36.4     2,272,520   37.1     2,143,874   37.0     2,180,017   37.0     2,066,315   35.2  
Savings 104,015   1.7     97,989   1.6     86,350   1.5     86,078   1.5     87,981   1.5  
Certificates and other time deposits 1,479,896   23.8     1,503,701   24.5     1,713,820   29.5     1,682,878   28.5     1,876,427   31.8  
Total deposits $ 6,222,556   100 %   $ 6,125,547   100 %   $ 5,799,945   100 %   $ 5,894,350   100 %   $ 5,877,846   100 %
                                       
Loan to Deposit Ratio 108.3%       107.2%       107.3%       100.5%       100.2%    
Loan to Deposit Ratio, excluding mortgage warehouse and PPP loans 93.0 %       93.5 %       100.9 %       97.3 %       96.2 %    

1 Total LHI does not include deferred fees of $691 thousand at September 30, 2020, deferred costs of $1.5 million and $1.5 million at June 30, 2020 and March 31, 2020, respectively, deferred fees of $134 thousand at March 31, 2020 and December 31, 2019, respectively, and $134 thousand at September 30, 2019.


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands except percentages)

Asset Quality

  For the Three Months Ended   For the Nine Months Ended
  Sep 30,
2020
  Jun 30,
2020
  Mar 31,
2020
  Dec 31,
2019
  Sep 30,
2019
  Sep 30,
2020
  Sep 30,
2019
                           
  (Dollars in thousands)        
Nonperforming Assets (“NPAs”):                          
Nonaccrual loans $ 88,877     $ 43,594     $ 38,836     $ 29,779     $ 10,172     $ 88,877     $ 10,172  
Accruing loans 90 or more days past due1 1,689     2,021     4,764     3,660     2,194     1,689     2,194  
Total nonperforming loans held for investment (“NPLs”) 90,566     45,615     43,600     33,439     12,366     90,566     12,366  
Other real estate owned 5,796     7,716     7,720     5,995     4,625     5,796     4,625  
Total NPAs $ 96,362     $ 53,331     $ 51,320     $ 39,434     $ 16,991     $ 96,362     $ 16,991  
                           
Charge-offs:                          
Residential $     $     $     $     $     $     $ (157 )
Owner occupied commercial real estate (2,421 )                   (2,421 )    
Commercial (68 )   (1,740 )           (8,101 )   (1,808 )   (10,898 )
Consumer (11 )   (57 )   (68 )   (48 )   (113 )   (136 )   (217 )
Total charge-offs (2,500 )   (1,797 )   (68 )   (48 )   (8,214 )   (4,365 )   (11,272 )
                           
Recoveries:                          
Residential 7         1     5         8     62  
Commercial 14     7     29     135     71     50     91  
Consumer 13         274     6         287     86  
Total recoveries 34     7     304     146     71     345     239  
                           
Net charge-offs $ (2,466 )   $ (1,790 )   $ 236     $ 98     $ (8,143 )   $ (4,020 )   $ (11,033 )
                           
CECL transition adjustment $     $     $ 39,137     $     $     $ 39,137     $  
                           
Allowance for credit  losses (“ACL”) at end of period $ 121,591     $ 115,365     $ 100,983     $ 29,834     $ 26,243     $ 121,591     $ 26,243  
                           
Asset Quality Ratios:                          
NPAs to total assets 1.11 %   0.62 %   0.60 %   0.50 %   0.21 %   1.11 %   0.21 %
NPLs to total LHI, excluding mortgage warehouse and PPP loans 1.56     0.80     0.75     0.58     0.22     1.56     0.22  
ACL to total LHI, excluding mortgage warehouse and PPP loans 2.10     2.01     1.73     0.52     0.46     2.10     0.46  
Net charge-offs to average loans outstanding 0.04     0.03             0.14     0.07     0.19  

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
  Sep 30, 2020   Jun 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019
                   
  (Dollars in thousands, except per share data)
Tangible Common Equity                  
Total stockholders' equity $ 1,185,337     $ 1,163,749     $ 1,149,269     $ 1,190,797     $ 1,205,530  
Adjustments:                  
Goodwill (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,463 )
Core deposit intangibles (60,209 )   (62,661 )   (65,112 )   (67,563 )   (70,014 )
Tangible common equity $ 754,288     $ 730,248     $ 713,317     $ 752,394     $ 765,053  
Common shares outstanding 49,650     49,633     49,557     51,064     52,373  
                   
Book value per common share $ 23.87     $ 23.45     $ 23.19     $ 23.32     $ 23.02  
Tangible book value per common share $ 15.19     $ 14.71     $ 14.39     $ 14.73     $ 14.61  


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
  Sep 30, 2020   Jun 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019
                   
  (Dollars in thousands)
Tangible Common Equity                  
Total stockholders' equity $ 1,185,337       $ 1,163,749       $ 1,149,269       $ 1,190,797       $ 1,205,530    
Adjustments:                  
Goodwill (370,840 )     (370,840 )     (370,840 )     (370,840 )     (370,463 )  
Core deposit intangibles (60,209 )     (62,661 )     (65,112 )     (67,563 )     (70,014 )  
Tangible common equity $ 754,288       $ 730,248       $ 713,317       $ 752,394       $ 765,053    
Tangible Assets                  
Total assets $ 8,702,375       $ 8,587,858       $ 8,531,624       $ 7,954,937       $ 7,962,883    
Adjustments:                  
Goodwill (370,840 )     (370,840 )     (370,840 )     (370,840 )     (370,463 )  
Core deposit intangibles (60,209 )     (62,661 )     (65,112 )     (67,563 )     (70,014 )  
Tangible Assets $ 8,271,326       $ 8,154,357       $ 8,095,672       $ 7,516,534       $ 7,522,406    
Tangible Common Equity to Tangible Assets 9.12   %   8.96   %   8.81   %   10.01   %   10.17   %


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) net income available for common stockholders adjusted for amortization of core deposit intangibles (which we refer to as “return”) 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 Nine Months Ended
  Sep 30, 2020   Jun 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   Sep 30, 2020   Sep 30, 2019
                           
  (Dollars in thousands)        
Net income available for common stockholders adjusted for amortization of core deposit intangibles                          
Net income $ 22,920       $ 24,028       $ 4,134       $ 29,051       $ 27,405       $ 51,082       $ 61,688    
Adjustments:                          
Plus: Amortization of core deposit intangibles 2,451       2,451       2,451       2,451       2,451       7,353       7,379    
Less: Tax benefit at the statutory rate 515       515       515       515       515       1,545       1,550    
Net income available for common stockholders adjusted for amortization of core deposit intangibles $ 24,856       $ 25,964       $ 6,070       $ 30,987       $ 29,341       $ 56,890       $ 67,517    
                           
Average Tangible Common Equity                          
Total average stockholders' equity $ 1,177,882       $ 1,155,798       $ 1,183,116       $ 1,197,191       $ 1,210,147       $ 1,154,464       $ 1,199,440    
Adjustments:                          
Average goodwill (370,840 )     (370,840 )     (370,840 )     (370,463 )     (370,224 )     (370,840 )     (369,097 )  
Average core deposit intangibles (61,666 )     (64,151 )     (66,439 )     (68,913 )     (71,355 )     (64,077 )     (73,965 )  
Average tangible common equity $ 745,376       $ 720,807       $ 745,837       $ 757,815       $ 768,568       $ 719,547       $ 756,378    
Return on Average Tangible Common Equity (Annualized) 13.27   %   14.49   %   3.27   %   16.22   %   15.15   %   10.56   %   11.93   %


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, pre-tax, pre-provision operating earnings and the performance metrics calculated using these metrics, listed below, 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, 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) diluted operating earnings per share as operating earnings as described in clause (a) divided by weighted average diluted shares outstanding. We calculate (c) 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 (d) pre-tax, pre-provision operating return on average assets as pre-tax, pre-provision operating earnings as described in clause (a) divided by average total assets. We calculate (e) operating return on average assets as operating earnings as described in clause (a) divided by average total assets. We calculate (f) operating return on average tangible common equity as operating earnings as described in clause (a), adjusted for the amortization of intangibles and tax benefit at the statutory rate, divided by total average tangible common equity (average stockholders’ equity less average goodwill and average core deposit intangibles, net of accumulated amortization). We calculate (g) 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 Nine Months Ended
  Sep 30,
2020
  Jun 30,
2020
  Mar 31,
2020
  Dec 31,
2019
  Sep 30,
2019
  Sep 30,
2020
  Sep 30,
2019
                           
  (Dollars in thousands)
Operating Earnings                          
Net income $ 22,920     $ 24,028     $ 4,134     $ 29,051     $ 27,405     $ 51,082     $ 61,688  
Plus: Loss (gain) on sale of securities, net 8     (2,879 )       438         (2,871 )   1,414  
Plus: Loss on sale of disposed branch assets1                         359  
Plus: FHLB pre-payment fees     1,561                 1,561      
Plus: Merger and acquisition expenses             918     1,035         37,683  
Operating pre-tax income 22,928     22,710     4,134     30,407     28,440     49,772     101,144  
Less: Tax impact of adjustments     (277 )       (23 )   217     (277 )   8,285  
Plus: Other M&A tax items2             829     406         683  
Plus: Discrete tax adjustments3     (1,799 )       (965 )       (1,799 )    
Operating earnings $ 22,928     $ 21,188     $ 4,134     $ 30,294     $ 28,629     $ 48,250     $ 93,542  
                           
Weighted average diluted shares outstanding 49,775     49,727     51,056     52,263     53,873     50,176     54,633  
Diluted EPS $ 0.46     $ 0.48     $ 0.08     $ 0.56     $ 0.51     $ 1.02     $ 1.13  
Diluted operating EPS 0.46     0.43     0.08     0.58     0.53     0.96     1.71  

1 Loss on sale of disposed branch assets for the nine months ended September 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 and $406 thousand recorded during the three months ended December 31, 2019 and September 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 Nine Months Ended
  Sep 30, 2020   Jun 30, 2020   Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   Sep 30, 2020   Sep 30, 2019
                           
  (Dollars in thousands)
Pre-Tax, Pre-Provision Operating Earnings                          
Net income $ 22,920       $ 24,028       $ 4,134       $ 29,051       $ 27,405       $ 51,082       $ 61,688    
Plus: Provision (benefit) for income taxes 6,198       3,987       (684 )     8,168       7,595       9,501       16,953    
Pus: Provision for credit losses and unfunded commitments 10,139       18,971       35,657       3,493       9,674       64,767       18,021    
Plus: Loss (gain) on sale of securities, net 8       (2,879 )           438             (2,871 )     1,414    
Plus: Loss on sale of disposed branch assets1                                     359    
Plus: FHLB pre-payment fees       1,561                         1,561          
Plus: Merger and acquisition expenses                   918       1,035             37,683    
Pre-tax, pre-provision operating earnings $ 39,265       $ 45,668       $ 39,107       $ 42,068       $ 45,709       $ 124,040       $ 136,118    
                           
Average total assets $ 8,585,926       $ 8,689,774       $ 8,125,782       $ 8,043,505       $ 8,009,377       $ 8,449,772       $ 7,929,028    
Pre-tax, pre-provision operating return on average assets2 1.82   %   2.11   %   1.94   %   2.07   %   2.26   %   1.96   %   2.30   %
                           
Average total assets $ 8,585,926       $ 8,689,774       $ 8,125,782       $ 8,043,505       $ 8,009,377       $ 8,449,772       $ 7,929,028    
Return on average assets2 1.06   %   1.11   %   0.20   %   1.43   %   1.36   %   0.81   %   1.04   %
Operating return on average assets2 1.06       0.98       0.20       1.49       1.42       0.76       1.58    
                           
Operating earnings adjusted for amortization of core deposit intangibles                          
Operating earnings $ 22,928       $ 21,188       $ 4,134       $ 30,294       $ 28,629       $ 48,250       $ 93,542    
Adjustments:                          
Plus: Amortization of core deposit intangibles 2,451       2,451       2,451       2,451       2,451       7,353       7,379    
Less: Tax benefit at the statutory rate 515       515       515       515       515       1,545       1,550    
Operating earnings adjusted for amortization of core deposit intangibles $ 24,864       $ 23,124       $ 6,070       $ 32,230       $ 30,565       $ 54,058       $ 99,371    
                           
Average Tangible Common Equity                          
Total average stockholders' equity $ 1,177,882       $ 1,155,798       $ 1,183,116       $ 1,197,191       $ 1,210,147       $ 1,154,464       $ 1,199,440    
Adjustments:                          
Less: Average goodwill (370,840 )     (370,840 )     (370,840 )     (370,463 )     (370,224 )     (370,840 )     (369,097 )  
Less: Average core deposit intangibles (61,666 )     (64,151 )     (66,439 )     (68,913 )     (71,355 )     (64,077 )     (73,965 )  
Average tangible common equity $ 745,376       $ 720,807       $ 745,837       $ 757,815       $ 768,568       $ 719,547       $ 756,378    
Operating return on average tangible common equity2 13.27   %   12.90   %   3.27   %   16.87   %   15.78   %   10.04   %   17.57   %
                           
Efficiency ratio 48.12   %   46.02   %   47.61   %   47.12   %   43.67   %   47.19   %   59.42   %
Operating efficiency ratio 48.11   %   45.74   %   47.61   %   45.67   %   42.36   %   47.10   %   43.19   %

1 Loss on sale of disposed branch assets for the nine months ended September 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.

Veritex Member.  FDIC  Equal Housing Lender .

NMLS Number 414688

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