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Veritex Holdings, Inc. Reports Third Quarter Operating Results

DALLAS, Oct. 26, 2021 (GLOBE NEWSWIRE) -- Veritex Holdings, Inc. (“Veritex,” the “Company,” “we” or “our”) (Nasdaq: VBTX), the holding company for Veritex Community Bank, today announced the results for the quarter ended September 30, 2021.

“The third quarter was transformational for the growing Veritex family,” said President and CEO, Malcolm C. Holland, III. “We closed our 49% investment in Thrive and announced the acquisition of North Avenue Capital, the nation’s largest producer of USDA loans, which will close on November 1, 2021. We continue to see benefits from our targeted talent hires with record annualized loan growth of 22.1% for Q3-21 and remain focused on revenue diversification, sound underwriting, reducing NPAs, maintaining our strong culture and pursuing opportunities to further scale our Company.”

Third Quarter Highlights

  • Net income of $36.8 million, or $0.73 diluted earnings per share (“EPS”), compared to $29.5 million, or $0.59 diluted EPS, for the quarter ended June 30, 2021 and $22.9 million, or $0.46 diluted EPS, for the quarter ended September 30, 2020;
  • Operating earnings1 of $35.1 million, or $0.70 diluted operating EPS1, compared to $30.0 million, or $0.60 diluted operating EPS1, for the quarter ended June 30, 2021 and $22.9 million, or $0.46 diluted operating EPS1, for the quarter ended September 30, 2020;
  • Total loans held for investment (“LHI”), excluding mortgage warehouse (“MW”) and Paycheck Protection Program (“PPP”) loans, grew $344.5 million from the second quarter of 2021, or 21.9% annualized;
  • Total LHI, excluding MW and PPP, grew $768.0 million from December 31, 2020, or 17.5% annualized, and $826.2 million, or 14.3%, year over year.
  • Total deposits grew $199.9 million from the second quarter of 2021, or 11.4% annualized, with the average cost of total deposits decreasing to 0.20% for the three months ended September 30, 2021 from 0.23% for the three months ended June 30, 2021;
  • Nonperforming assets (“NPAs”) to total assets decreased to 0.77%, or 8 basis points from the second quarter of 2021;
  • Book value per common share increased to $26.09 from $25.72 as of June 30, 2021 and tangible book value per common share1 increased to $17.53 from $17.16 as of June 30, 2021;
  • Repurchased 328,122 shares at an average price of $34.85 during the third quarter of 2021 and extended the Stock Buyback Program to December 31, 2022;
  • Announced the completion of the Company’s 49% investment in Thrive Mortgage, LLC (“Thrive”) during the third quarter and recognized $4.5 million of equity method investment income which includes $1.9 million of PPP loan forgiveness income;
  • Announced the acquisition of North Avenue Capital, LLC on September 21, 2021. Transaction will close November 1, 2021; and
  • Declared quarterly cash dividend of $0.20 per share of outstanding common stock payable on November 23, 2021.
    QTD   YTD
Financial Highlights   Q3 2021   Q2 2021   Q3 2021   Q3 2020
    (Dollars in thousands)
(unaudited)
GAAP                
Net income   $ 36,835     $ 29,456     $ 98,078     $ 51,082  
Diluted EPS   0.73     0.59     1.95     1.02  
Book value per common share   26.09     25.72     26.09     23.87  
Return on average assets2   1.56 %   1.27 %   1.42 %   0.81 %
Efficiency ratio   47.55     52.42     49.79     47.19  
Non-GAAP1                
Operating earnings   $ 35,072     $ 29,952     $ 97,237     $ 48,250  
Diluted operating EPS   0.70     0.60     1.94     0.96  
Tangible book value per common share   17.53     17.16     17.53     15.19  
Pre-tax, pre-provision operating earnings   43,858     38,497     122,565     124,040  
Pre-tax, pre-provision operating return on average assets2   1.85 %   1.66 %   1.78 %   1.96 %
Operating return on average assets2   1.48     1.29     1.41     0.76  
Operating efficiency ratio   48.51     51.63     49.89     47.10  
Return on average tangible common equity2   17.72     15.18     16.70     10.56  
Operating return on average tangible common equity2   16.92     15.42     16.57     10.04  

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, 2021

Net Interest Income

For the three months ended September 30, 2021, net interest income before provision for credit losses was $71.3 million and net interest margin was 3.26% compared to $67.1 million and 3.11%, respectively, for the three months ended June 30, 2021. Net interest margin increased 15 basis points from the three months ended June 30, 2021 primarily due to a change in the mix of interest-earning assets resulting from increases in loans, which tend to yield greater interest rates and decreases in PPP loans, which earned a 1.00% yield and excess liquidity which yields 15 basis points. The average cost of interest-bearing deposits decreased 5 basis points to 0.30% for the three months ended September 30, 2021 from 0.35% for the three months ended June 30, 2021.

Net interest income before provision for credit losses increased by $5.4 million from $65.9 million to $71.3 million and net interest margin decreased by 6 basis points from 3.32% to 3.26% for the three months ended September 30, 2021 as compared to the same period in 2020. The increase in net interest income before provision for credit losses was primarily due to a $3.1 million decrease in interest expense on certificate and other time deposits and a $2.5 million increase in interest income on loans during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Net interest margin decreased 6 basis points from the three months ended September 30, 2020 primarily due to a decrease in the average yields earned on loans, 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, 2021. As a result, the average cost of interest-bearing deposits decreased 37 basis points to 0.30% for the three months ended September 30, 2021 from 0.67% for the three months ended September 30, 2020.

Noninterest Income

Noninterest income for the three months ended September 30, 2021 was $15.6 million, an increase of $3.2 million, or 25.5%, compared to the three months ended June 30, 2021. The increase was primarily due to a $4.5 million increase in equity method investment income related to our 49% investment in Thrive which closed during the third quarter. This increase was partially offset by a $774 thousand decrease in PPP income and a $333 thousand decrease in gain on sale of Small Business Administration (“SBA”) loans during the three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Compared to the three months ended September 30, 2020, noninterest income for the three months ended September 30, 2021 increased by $5.8 million, or 59.5%. The increase was primarily due to the $4.5 million increase in equity method investment income related to the Company’s investment in Thrive discussed above and a $1.4 million increase in service charges and fees on deposit accounts as a result of increased deposits during the three months ended September 30, 2021 , compared to the same period in 2020.

Noninterest Expense

Noninterest expense was $41.3 million for the three months ended September 30, 2021, compared to $41.7 million for the three months ended June 30, 2021, a decrease of $396 thousand, or 0.9%. The decrease was primarily driven by a $690 thousand decrease in marketing expenses as a result of decreased advertising during the three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Compared to the three months ended September 30, 2020, noninterest expense for the three months ended September 30, 2021 increased by $4.9 million, or 13.5%. The increase was primarily driven by a $2.4 million increase in salaries and employee benefits as a result of a $1.8 million increase in accrued employee bonus, a $1.7 million increase in lender incentive, a $1.6 million increase in salaries and a $565 thousand increase in employee stock based compensation which was slightly offset by a $2.8 million increase in direct loan origination costs which are required to be deferred in accordance with ASC 310-20 during the three months ended September 30, 2021 compared to the same period in 2020. The increase in noninterest expense was also a result of a $556 thousand increase in occupancy and equipment, a $461 thousand increase in problem loan fees, a $242 thousand increase in professional and regulatory fees and a $128 thousand increase in legal settlements during the three months ended September 30, 2021 compared to the same period in 2020

Financial Condition

Total LHI, excluding MW and PPP, were $6.6 billion, an increase of $343.8 million, or 21.9%, annualized, compared to June 30, 2021. Total loans were $7.4 billion at September 30, 2021, an increase of $250.2 million, or 14.0% annualized, compared to June 30, 2021. The increases were the result of the continued execution and success of our loan growth strategy.

Total deposits were $7.2 billion at September 30, 2021, an increase of $199.9 million, or 11.4% annualized, compared to June 30, 2021. The increase was primarily the result of an increase of $169.7 million in certificates and other time deposits and an increase of $115.3 million in interest-bearing transaction and savings deposits. This increase was partially offset by a decrease of $85.1 million in noninterest-bearing demand deposits.

Asset Quality

NPAs totaled $74.0 million, or 0.77% of total assets at September 30, 2021, compared to $79.9 million, or 0.85% of total assets, at June 30, 2021. Included in NPAs as of September 30, 2021 are $1.7 million of accruing loans 90 or more days past due that are considered well-secured and in the process of collection. The Company’s net charge-offs for the three months ended September 30, 2021 were $5.8 million, which were fully reserved against in prior periods.

The Company recorded no provision for credit losses for the three months ended September 30, 2021 and June 30, 2021, compared to $8.7 million for the three months ended September 30, 2020. The decrease in the recorded provision for credit losses for the three months ended September 30, 2021, compared to the three months ended September 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 2021 to reflect the expected impact of the COVID-19 pandemic as of September 30, 2021, as compared to our Texas economic forecasts and expected impact of the COVID-19 pandemic as of September 30, 2020. In the third quarter of 2021, we also recorded a $448 thousand benefit for unfunded commitments, which was also attributable to improvement in the Texas economic forecasts.

Allowance for credit losses (“ACL”) as a percentage of LHI, excluding MW and PPP loans, was 1.42%, 1.59% and 2.10% at September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

Dividend Information

On October 26, 2021, Veritex’s Board of Directors declared a quarterly cash dividend of $0.20 per share on its outstanding shares of common stock. The dividend will be paid on or after November 23, 2021 to stockholders of record as of the close of business on November 10, 2021.

Non-GAAP Financial Measures

Veritex’s management uses certain financial measures that are not calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States (“GAAP”) 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 EPS, 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 27, 2021 at 8:30 a.m. Central Time. Participants may pre-register for the call by visiting https://edge.media-server.com/mmc/p/ttpjfm6e 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 #5908627. This replay, as well as the webcast, will be available until November 3, 2021.

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 the Company’s quarterly cash dividend, the expected timing of completion of the Company’s acquisition of North Avenue Capital, LLC (“NAC”), the impact of certain changes in the Company’s accounting policies, standards and interpretations, the effects of the COVID-19 pandemic and actions taken in response thereto, the Company’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. Further, certain important factors could affect future results and cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, the possibility that the Company’s acquisition of NAC does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all, the failure to close for any other reason, that the businesses of the Company and NAC will not be integrated successfully, that the cost savings and any synergies from the proposed acquisition may not be fully realized or may take longer to realize than expected, disruption from the proposed acquisition making it more difficult to maintain relationships with employees, customers or other parties with whom the Company or NAC have business relationships, diversion of management time on acquisition-related issues, the reaction to the transaction of the companies’ customers, employees and counterparties and other factors, many of which are beyond the control of the Company and NAC. We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and any updates to those risk factors set forth in the Company’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 the Company’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company 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. The Company 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 the Company or persons acting on the Company’s behalf may issue.

 
VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Financial Highlights
(Unaudited)
         
    For the Three Months Ended   For the Nine Months Ended
    Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
    (Dollars and shares in thousands, except per-share data)
Per Share Data (Common Stock):                            
Basic EPS   $ 0.75     $ 0.60     $ 0.64     $ 0.46     $ 0.46     $ 1.98     $ 1.02  
Diluted EPS   0.73     0.59     0.64     0.46     0.46     1.95     1.02  
Book value per common share   26.09     25.72     24.96     24.39     23.87     26.09     23.87  
Tangible book value per common share1   17.53     17.16     16.34     15.70     15.19     17.53     15.19  
Dividends paid per common share outstanding2   0.20     0.20     0.17     0.17     0.17     0.57     0.51  
                             
Common Stock Data:                            
Shares outstanding at period end   49,229     49,498     49,433     49,340     49,650     49,229     49,650  
Weighted average basic shares outstanding for the period   49,423     49,476     49,394     49,571     49,647     49,431     49,989  
Weighted average diluted shares outstanding for the period   50,306     50,331     49,998     49,837     49,775     50,230     50,176  
                             
Summary of Credit Ratios:                            
ACL to total LHI, excluding MW and PPP loans   1.42 %   1.59 %   1.76 %   1.80 %   2.10 %   1.42 %   2.10 %
NPAs to total assets   0.77     0.85     0.92     0.99     1.11     0.77     1.11  
Net charge-offs to average loans outstanding   0.09     0.09         0.28     0.04     0.18     0.07  
                             
Summary Performance Ratios:                            
Return on average assets3   1.56     1.27     1.44     1.04     1.06     1.42     0.81  
Return on average equity3   11.32     9.42     10.53     7.58     7.74     10.43     5.91  
Return on average tangible common equity1, 3   17.72     15.18     17.17     12.84     13.27     16.70     10.56  
Efficiency ratio   47.55     52.42     49.62     62.52     48.12     49.79     47.19  
Net interest margin   3.26     3.11     3.22     3.29     3.32     3.20     3.42  
                             
Selected Performance Metrics - Operating:                            
Diluted operating EPS1   $ 0.70     $ 0.60     $ 0.64     $ 0.60     $ 0.46     $ 1.94     $ 0.96  
Pre-tax, pre-provision operating return on average assets1, 2   1.85 %   1.66 %   1.82 %   1.75 %   1.82 %   1.78 %   1.96 %
Operating return on average assets1, 3   1.48     1.29     1.46     1.35     1.06     1.41     0.76  
Operating return on average tangible common equity1, 3   16.92     15.42     17.39     16.44     13.27     16.57     10.04  
Operating efficiency ratio1   48.51     51.63     49.62     49.49     48.11     49.89     47.10  
                             
Veritex Holdings, Inc. Capital Ratios:                            
Average stockholders' equity to average total assets   13.75 %   13.46 %   13.69 %   13.67 %   13.72 %   13.63 %   13.66 %
Tangible common equity to tangible assets1   9.43     9.51     9.17     9.23     9.12     9.43     9.12  
Tier 1 capital to average assets (leverage)   9.54     9.38     9.50     9.43     9.54     9.54     9.54  
Common equity tier 1 capital   8.75     9.03     9.27     9.30     9.67     8.75     9.67  
Tier 1 capital to risk-weighted assets   9.06     9.36     9.61     9.66     10.05     9.06     10.05  
Total capital to risk-weighted assets   12.31     12.86     13.38     13.56     12.70     12.31     12.70  

1 Refer 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.
2 Dividend amount represents dividend paid per common share subsequent to each respective quarter end.
3 Annualized ratio for quarterly metrics.

 
VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Financial Highlights
(In thousands)
                     
    Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020
    (unaudited)   (unaudited)   (unaudited)       (unaudited)
ASSETS                    
Cash and cash equivalents   $ 229,712     $ 390,027     $ 468,029     $ 230,825     $ 128,767  
Debt securities   1,103,745     1,125,877     1,077,860     1,055,201     1,091,440  
Other investments   191,786     87,558     87,226     87,192     98,023  
                     
Loans held for sale   18,896     12,065     19,864     21,414     13,928  
LHI, PPP loans, carried at fair value   135,842     291,401     407,353     358,042     405,465  
LHI, MW   615,045     559,939     599,001     577,594     544,845  
LHI, excluding MW and PPP   6,615,905     6,272,087     5,963,493     5,847,862     5,789,293  
Total loans   7,385,688     7,135,492     6,989,711     6,804,912     6,753,531  
ACL   (93,771 )   (99,543 )   (104,936 )   (105,084 )   (121,591 )
Bank-owned life insurance   83,781     83,304     83,318     82,855     82,366  
Bank premises, furniture and equipment, net   116,063     123,504     114,585     115,063     115,794  
Other real estate owned (“OREO”)       2,467     2,337     2,337     5,796  
Intangible assets, net of accumulated amortization   54,682     57,143     59,236     61,733     64,716  
Goodwill   370,840     370,840     370,840     370,840     370,840  
Other assets   129,774     72,856     89,304     114,997     112,693  
Total assets   $ 9,572,300     $ 9,349,525     $ 9,237,510     $ 8,820,871     $ 8,702,375  
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Deposits:                    
Noninterest-bearing deposits   $ 2,302,925     $ 2,388,068     $ 2,171,719     $ 2,097,099     $ 1,920,715  
Interest-bearing transaction and savings deposits   3,228,306     3,112,974     3,189,693     2,958,456     2,821,945  
Certificates and other time deposits   1,647,521     1,477,860     1,543,158     1,457,291     1,479,896  
Total deposits   7,178,752     6,978,902     6,904,570     6,512,846     6,222,556  
Accounts payable and other liabilities   66,571     55,499     55,902     61,928     69,540  
Advances from Federal Home Loan Bank (“FHLB”)   777,601     777,640     777,679     777,718     1,082,756  
Subordinated debentures and subordinated notes   262,761     262,766     262,774     262,778     140,158  
Securities sold under agreements to repurchase   2,455     1,811     2,777     2,225     2,028  
Total liabilities   8,288,140     8,076,618     8,003,702     7,617,495     7,517,038  
Commitments and contingencies                    
Stockholders’ equity:                    
Common stock   559     558     557     555     555  
Additional paid-in capital   1,137,889     1,134,603     1,131,324     1,126,437     1,124,148  
Retained earnings   243,633     216,704     195,661     172,232     157,639  
Accumulated other comprehensive income   69,661     77,189     62,413     56,225     47,155  
Treasury stock   (167,582 )   (156,147 )   (156,147 )   (152,073 )   (144,160 )
Total stockholders’ equity   1,284,160     1,272,907     1,233,808     1,203,376     1,185,337  
Total liabilities and stockholders’ equity   $ 9,572,300     $ 9,349,525     $ 9,237,510     $ 8,820,871     $ 8,702,375  
                                         


 
VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Financial Highlights
(In thousands, except per share data)
         
    For the Three Months Ended   For the Nine Months Ended
    Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
Interest income:                            
Loans, including fees   $ 71,139     $ 67,814     $ 67,399     $ 69,597     $ 68,685     $ 206,352     $ 216,986  
Debt securities   7,613     7,529     7,437     7,652     7,852     22,579     23,074  
Deposits in financial institutions and Fed Funds sold   130     167     127     99     65     424     1,122  
Equity securities and other investments   898     672     663     752     827     2,233     2,568  
Total interest income   79,780     76,182     75,626     78,100     77,429     231,588     243,750  
Interest expense:                            
Transaction and savings deposits   1,588     1,661     1,980     2,105     2,105     5,229     11,128  
Certificates and other time deposits   1,934     2,423     3,061     3,919     5,004     7,418     19,759  
Advances from FHLB   1,848     1,829     1,812     2,222     2,707     5,489     8,387  
Subordinated debentures and subordinated notes   3,134     3,138     3,138     3,088     1,743     9,410     5,444  
Total interest expense   8,504     9,051     9,991     11,334     11,559     27,546     44,718  
Net interest income   71,276     67,131     65,635     66,766     65,870     204,042     199,032  
Provision for credit losses                   8,692         56,640  
(Benefit) provision for unfunded commitments   (448 )   577     (570 )   902     1,447     (441 )   8,127  
Net interest income after provisions   71,724     66,554     66,205     65,864     55,731     204,483     134,265  
Noninterest income:                            
Service charges and fees on deposit accounts   4,484     3,847     3,629     3,971     3,130     11,960     9,732  
Loan fees   1,746     1,823     1,341     684     1,787     4,910     5,027  
(Loss) gain on sales of investment securities   (188 )           (256 )   (8 )   (188 )   2,871  
Gain on sales of mortgage loans held for sale   407     385     507     317     472     1,299     922  
Government guaranteed loan income, net   2,341     3,448     6,548     448     2,257     12,337     13,702  
Equity method investment income   4,522                     4,522      
Other   2,315     2,953     2,147     3,848     2,157     7,415     6,078  
Total noninterest income   15,627     12,456     14,172     9,012     9,795     42,255     38,332  
Noninterest expense:                            
Salaries and employee benefits   22,964     23,451     22,932     20,011     20,553     69,347     59,442  
Occupancy and equipment   4,536     4,233     4,096     4,116     3,980     12,865     12,247  
Professional and regulatory fees   3,401     3,086     3,441     3,578     3,159     9,928     8,151  
Data processing and software expense   2,494     2,536     2,319     2,238     2,452     7,349     6,975  
Marketing   1,151     1,841     909     945     1,062     3,901     2,706  
Amortization of intangibles   2,509     2,517     2,537     2,558     2,840     7,563     8,232  
Telephone and communications   380     337     337     340     345     1,054     972  
COVID expenses                   132         1,377  
Debt extinguishment costs               9,746              
Other   3,886     3,716     3,026     3,841     1,885     10,628     11,912  
Total noninterest expense   41,321     41,717     39,597     47,373     36,408     122,635     112,014  
Income before income tax expense   46,030     37,293     40,780     27,503     29,118     124,103     60,583  
Income tax expense   9,195     7,837     8,993     4,702     6,198     26,025     9,501  
Net income   $ 36,835     $ 29,456     $ 31,787     $ 22,801     $ 22,920     $ 98,078     $ 51,082  
                             
Basic EPS   $ 0.75     $ 0.60     $ 0.64     $ 0.46     $ 0.46     $ 1.98     $ 1.02  
Diluted EPS   $ 0.73     $ 0.59     $ 0.64     $ 0.46     $ 0.46     $ 1.95     $ 1.02  
Weighted average basic shares outstanding   49,423     49,476     49,394     49,571     49,647     49,431     49,989  
Weighted average diluted shares outstanding   50,306     50,331     49,998     49,837     49,775     50,230     50,176  
                                           


 
VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Financial Highlights
(In thousands except percentages)
     
    For the Three Months Ended
    September 30, 2021   June 30, 2021   September 30, 2020
    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   $ 6,384,856     $ 66,911     4.16 %   $ 6,108,527     $ 63,427     4.16 %   $ 5,753,859     $ 64,958     4.49 %
LHI, MW   465,945     3,697     3.15     455,334     3,476     3.06     358,248     2,705     3.00  
PPP loans   210,092     531     1.00     364,020     911     1.00     407,112     1,022     1.00  
Debt securities   1,119,952     7,613     2.70     1,095,678     7,529     2.76     1,101,469     7,852     2.84  
Interest-bearing deposits in other banks   336,289     130     0.15     548,087     167     0.12     175,201     65     0.15  
Equity securities and other investments   167,242     898     2.13     87,413     672     3.08     103,948     827     3.17  
Total interest-earning assets   8,684,376     79,780     3.64     8,659,059     76,182     3.53     7,899,837     77,429     3.90  
ACL   (99,482 )           (105,050 )           (116,859 )        
Noninterest-earning assets   800,576             767,270             802,948          
Total assets   $ 9,385,470             $ 9,321,279             $ 8,585,926          
                                     
Liabilities and Stockholders’ Equity                                    
Interest-bearing liabilities:                                    
Interest-bearing demand and savings deposits   $ 3,201,409     $ 1,588     0.20 %   $ 3,191,405     $ 1,661     0.21 %   $ 2,735,170     $ 2,105     0.31 %
Certificates and other time deposits   1,519,824     1,934     0.50     1,515,092     2,423     0.64     1,459,046     5,004     1.36  
Advances from FHLB   777,617     1,848     0.94     777,655     1,829     0.94     1,067,771     2,707     1.01  
Subordinated debentures and subordinated notes   264,714     3,134     4.70     264,931     3,138     4.75     142,432     1,743     4.87  
Total interest-bearing liabilities   5,763,564     8,504     0.59     5,749,083     9,051     0.63     5,404,419     11,559     0.85  
                                     
Noninterest-bearing liabilities:                                    
Noninterest-bearing deposits   2,271,197             2,266,470             1,937,921          
Other liabilities   60,181             51,355             65,704          
Total liabilities   8,094,942             8,066,908             7,408,044          
Stockholders’ equity   1,290,528             1,254,371             1,177,882          
Total liabilities and stockholders’ equity   $ 9,385,470             $ 9,321,279             $ 8,585,926          
                                     
Net interest rate spread2           3.05 %           2.90 %           3.05 %
Net interest income       $ 71,276             $ 67,131             $ 65,870      
Net interest margin3           3.26 %           3.11 %           3.32 %

1 Includes average outstanding balances of loans held for sale of $8,542, $14,364 and $15,404 for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively, and average balances of LHI, excluding MW 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 SUBSIDIARIES
Financial Highlights
(In thousands except percentages)
     
    Nine Months Ended
    September 30, 2021   September 30, 2020
    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   $ 6,118,880     $ 193,040     4.22 %   $ 5,779,469     $ 208,889     4.83 %
LHI, MW   477,319     10,988     3.08     275,890     6,318     3.06  
PPP loans   309,620     2,324     1.00     236,778     1,779     1.00  
Debt securities   1,093,263     22,579     2.76     1,086,185     23,074     2.84  
Interest-bearing deposits in other banks   408,601     424     0.14     283,108     1,122     0.53  
Equity securities and other investments   114,237     2,233     2.61     102,185     2,568     3.36  
Total interest-earning assets   8,521,920     231,588     3.63     7,763,615     243,750     4.19  
ACL   (103,478 )           (90,633 )        
Noninterest-earning assets   799,207             776,790          
Total assets   $ 9,217,649             $ 8,449,772          
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing demand and savings deposits   $ 3,144,395     $ 5,229     0.22 %   $ 2,680,925     $ 11,128     0.55 %
Certificates and other time deposits   1,514,954     7,418     0.65     1,579,114     19,759     1.67  
Advances from FHLB   777,655     5,489     0.94     1,070,856     8,387     1.05  
Subordinated debentures and subordinated notes   264,998     9,410     4.75     143,387     5,444     5.07  
Total interest-bearing liabilities   5,702,002     27,546     0.65     5,474,282     44,718     1.09  
                         
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits   2,198,551             1,763,289          
Other liabilities   60,456             57,737          
Total liabilities   7,961,009             7,295,308          
Stockholders’ equity   1,256,640             1,154,464          
Total liabilities and stockholders’ equity   $ 9,217,649             $ 8,449,772          
                         
Net interest rate spread2           2.98 %           3.10 %
Net interest income       $ 204,042             $ 199,032      
Net interest margin3           3.20 %           3.42 %

1 Includes average outstanding balances of loans held for sale of $13,140 and $16,448 for the nine months ended September 30, 2021 and September 30, 2020, respectively, and average balances of loans held for investment, excluding MW 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 SUBSIDIARIES
Financial Highlights

Yield Trend

    For the Three Months Ended
    September 30,
2021
  June 30,
2021
  March 31,
2021
  December 31,
2020
  September 30,
2020
Average yield on interest-earning assets:                    
Loans1   4.16 %   4.16 %   4.31 %   4.48 %   4.49 %
LHI, MW   3.15     3.06     3.03     2.99     3.00  
PPP loans   1.00     1.00     1.00     1.00     1.00  
Debt securities   2.70     2.76     2.84     2.83     2.84  
Interest-bearing deposits in other banks   0.15     0.12     0.15     0.15     0.15  
Equity securities and other investments   2.13     3.08     3.08     3.13     3.17  
Total interest-earning assets   3.64 %   3.53 %   3.71 %   3.85 %   3.90 %
                     
Average rate on interest-bearing liabilities:                    
Interest-bearing demand and savings deposits   0.20 %   0.21 %   0.26 %   0.29 %   0.31 %
Certificates and other time deposits   0.50     0.64     0.82     1.06     1.36  
Advances from FHLB   0.94     0.94     0.94     1.00     1.01  
Subordinated debentures and subordinated notes   4.70     4.75     4.80     4.73     4.87  
Total interest-bearing liabilities   0.59 %   0.63 %   0.72 %   0.82 %   0.85 %
                     
Net interest rate spread2   3.05 %   2.90 %   2.99 %   3.03 %   3.05 %
Net interest margin3   3.26 %   3.11 %   3.22 %   3.29 %   3.32 %

1Includes average outstanding balances of loans held for sale of $8,542, $14,364, $16,602, $11,938 and $15,404 for the three months ended September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020, respectively, and average balances of LHI, excluding MW 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,
2021
  June 30,
2021
  March 31,
2021
  December 31,
2020
  September 30,
2020
Average cost of interest-bearing deposits   0.30 %   0.35 %   0.45 %   0.55 %   0.67 %
Average costs of total deposits, including noninterest-bearing   0.20     0.23     0.31     0.38     0.46  
                               


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

Total LHI and Deposit Portfolio Composition

    September 30, 2021   June 30, 2021   March 31, 2021   December 31, 2020   September 30, 2020
    (Dollars in thousands)
LHI1                                        
Commercial   $ 1,812,679     27.4 %   $ 1,771,100     28.2 %   $ 1,632,040     27.4 %   $ 1,559,546     26.7 %   $ 1,623,249     28.0 %
Real Estate:                                            
Owner occupied commercial (“OOCRE”)   711,476     10.7     744,899     11.9     733,310     12.3     717,472     12.3     734,939     12.7  
Non-owner occupied commercial (“NOOCRE)   2,175,499     32.8     1,986,538     31.6     1,970,945     33.0     1,904,132     32.5     1,817,013     31.4  
Construction and land   936,174     14.1     871,765     13.9     723,444     12.1     693,030     11.8     623,496     10.8  
Farmland   73,550     1.1     13,661     0.2     14,751     0.2     13,844     0.2     14,413     0.2  
1-4 family residential   543,518     8.2     513,635     8.2     492,609     8.3     524,344     9.0     548,953     9.5  
Multi-family residential   356,885     5.4     367,445     5.9     386,844     6.5     424,962     7.3     412,412     7.0  
Consumer   14,266     0.2     10,530     0.1     12,431     0.2     13,000     0.2     14,127     0.2  
Total LHI   $ 6,624,047     100 %   $ 6,279,573     100 %   $ 5,966,374     100 %   $ 5,850,330     100 %   $ 5,788,602     100 %
                                         
MW   615,045         559,939         599,001         577,594         544,845      
PPP loans   135,842         291,401         407,353         358,042         405,465      
                                         
Total LHI1   $ 7,374,934         $ 7,130,913         $ 6,972,728         $ 6,785,966         $ 6,738,912      
                                         
Deposits                                        
Noninterest-bearing   $ 2,302,925     32.1 %   $ 2,388,068     34.3 %   $ 2,171,719     31.6 %   $ 2,097,099     32.2 %   $ 1,920,715     30.9 %
Interest-bearing transaction   514,537     7.2     451,307     6.5     463,343     6.7     453,110     7.0     450,739     7.2  
Money market   2,585,926     36.0     2,539,061     36.4     2,602,903     37.7     2,398,526     36.8     2,267,191     36.4  
Savings   127,843     1.8     122,606     1.8     123,447     1.8     106,820     1.6     104,015     1.7  
Certificates and other time deposits   1,647,521     22.9     1,477,860     21.2     1,543,158     22.3     1,457,291     22.3     1,479,896     23.7  
Total deposits   $ 7,178,752     100 %   $ 6,978,902     100 %   $ 6,904,570     100 %   $ 6,512,846     100 %   $ 6,222,556     100 %
                                         
Loan to Deposit Ratio   102.7 %       102.2 %       101.0 %       104.2 %       108.3 %    
Loan to Deposit Ratio, excluding MW and PPP loans   92.3 %       90.0 %       86.4 %       89.8 %       93.0 %    

1 Total LHI does not include deferred fees of $8.1 million, $7.5 million, $2.9 million and $2.5 million at September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively, or deferred costs of $691 thousand at September 30, 2020.


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

Asset Quality

  For the Three Months Ended   For the Nine Months Ended
  Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
  (Dollars in thousands)        
NPAs:                          
Nonaccrual loans $ 72,317     $ 76,994     $ 73,594     $ 81,096     $ 88,877     $ 72,317     $ 88,877  
Accruing loans 90 or more days past due1 1,711     462     9,093     4,204     1,689     1,711     1,689  
Total nonperforming loans held for investment (“NPLs”) 74,028     77,456     82,687     85,300     90,566     74,028     90,566  
OREO     2,467     2,337     2,337     5,796         5,796  
Total NPAs $ 74,028     $ 79,923     $ 85,024     $ 87,637     $ 96,362     $ 74,028     $ 96,362  
                           
Charge-offs:                          
Residential $ (64 )   $ (300 )   $ (15 )   $ (18 )   $     $ (379 )   $  
OOCRE (813 )   (689 )           (2,421 )   (1,502 )   (2,421 )
NOOCRE             (2,865 )            
Commercial (5,508 )   (5,608 )   (346 )   (13,699 )   (68 )   (11,462 )   (1,808 )
Consumer (17 )   (20 )   (18 )   (26 )   (11 )   (55 )   (136 )
Total charge-offs (6,402 )   (6,617 )   (379 )   (16,608 )   (2,500 )   (13,398 )   (4,365 )
                           
Recoveries:                          
Residential 26     29     3     49     7     58     8  
OOCRE     500                 500      
Commercial 596     659     226     52     14     1,481     50  
Consumer 8     36     2         13     46     287  
Total recoveries 630     1,224     231     101     34     2,085     345  
                           
Net charge-offs $ (5,772 )   $ (5,393 )   $ (148 )   $ (16,507 )   $ (2,466 )   $ (11,313 )   $ (4,020 )
                           
CECL transition adjustment $     $     $     $     $     $     $ 39,137  
                           
ACL at end of period $ 93,771     $ 99,543     $ 104,936     $ 105,084     $ 121,591     $ 93,771     $ 121,591  
                           
Asset Quality Ratios:                          
NPAs to total assets 0.77 %   0.85 %   0.92 %   0.99 %   1.11 %   0.77 %   1.11 %
NPLs to total LHI, excluding MW and PPP loans 1.12     1.23     1.39     1.46     1.56     1.12     1.56  
ACL to total LHI, excluding MW and PPP loans 1.42     1.59     1.76     1.80     2.10     1.42     2.10  
Net charge-offs to average loans outstanding 0.09     0.09         0.28     0.04     0.18     0.07  

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 SUBSIDIARIES
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 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, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020
    (Dollars in thousands, except per share data)
Tangible Common Equity                    
Total stockholders' equity   $ 1,284,160     $ 1,272,907     $ 1,233,808     $ 1,203,376     $ 1,185,337  
Adjustments:                    
Goodwill   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )
Core deposit intangibles   (50,436 )   (52,873 )   (55,311 )   (57,758 )   (60,209 )
Tangible common equity   $ 862,884     $ 849,194     $ 807,657     $ 774,778     $ 754,288  
Common shares outstanding   49,229     49,498     49,433     49,340     49,650  
                     
Book value per common share   $ 26.09     $ 25.72     $ 24.96     $ 24.39     $ 23.87  
Tangible book value per common share   $ 17.53     $ 17.16     $ 16.34     $ 15.70     $ 15.19  
                                         

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
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, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020
    (Dollars in thousands)
Tangible Common Equity                    
Total stockholders' equity   $ 1,284,160     $ 1,272,907     $ 1,233,808     $ 1,203,376     $ 1,185,337  
Adjustments:                    
Goodwill   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )
Core deposit intangibles   (50,436 )   (52,873 )   (55,311 )   (57,758 )   (60,209 )
Tangible common equity   $ 862,884     $ 849,194     $ 807,657     $ 774,778     $ 754,288  
Tangible Assets                    
Total assets   $ 9,572,300     $ 9,349,525     $ 9,237,510     $ 8,820,871     $ 8,702,375  
Adjustments:                    
Goodwill   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )
Core deposit intangibles   (50,436 )   (52,873 )   (55,311 )   (57,758 )   (60,209 )
Tangible Assets   $ 9,151,024     $ 8,925,812     $ 8,811,359     $ 8,392,273     $ 8,271,326  
Tangible Common Equity to Tangible Assets   9.43 %   9.51 %   9.17 %   9.23 %   9.12 %
                               

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
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 on average tangible common equity as 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 goodwill and 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,
2021
  Jun 30,
2021
  Mar 31,
2021
  Dec 31,
2020
  Sep 30,
2020
  Sep 30,
2021
  Sep 30,
2020
    (Dollars in thousands)        
Net income available for common stockholders adjusted for amortization of core deposit intangibles                            
Net income   $ 36,835     $ 29,456     $ 31,787     $ 22,801     $ 22,920     $ 98,078     $ 51,082  
Adjustments:                            
Plus: Amortization of core deposit intangibles   2,438     2,438     2,447     2,451     2,451     7,323     7,353  
Less: Tax benefit at the statutory rate   512     512     514     515     515     1,538     1,545  
Net income available for common stockholders adjusted for amortization of core deposit intangibles   $ 38,761     $ 31,382     $ 33,720     $ 24,737     $ 24,856     $ 103,863     $ 56,890  
                             
Average Tangible Common Equity                            
Total average stockholders' equity   $ 1,290,528     $ 1,254,371     $ 1,224,294     $ 1,196,274     $ 1,177,882     $ 1,256,640     $ 1,154,464  
Adjustments:                            
Average goodwill   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )
Average core deposit intangibles   (52,043 )   (54,471 )   (56,913 )   (59,010 )   (61,666 )   (54,458 )   (64,077 )
Average tangible common equity   $ 867,645     $ 829,060     $ 796,541     $ 766,424     $ 745,376     $ 831,342     $ 719,547  
Return on Average Tangible Common Equity (Annualized)   17.72 %   15.18 %   17.17 %   12.84 %   13.27 %   16.70 %   10.56 %
                                           

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
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 severance payments, plus loss (gain) on sale of securities, net, plus debt extinguishment costs, less Thrive PPP loan forgiveness income, less tax impact of adjustments, plus nonrecurring tax adjustments. 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 noninterest expense plus adjustments to operating noninterest expense divided by (i) noninterest income plus adjustments to operating noninterest 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, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
    (Dollars in thousands)
Operating Earnings                            
Net income   $ 36,835     $ 29,456     $ 31,787     $ 22,801     $ 22,920     $ 98,078     $ 51,082  
Plus: Severance payments1       627                 627      
Plus: Loss (gain) on sale of securities available for sale, net   188             256     8     188     (2,871 )
Plus: Debt extinguishment costs2               9,746             1,561  
Less: Thrive PPP loan forgiveness income3   1,912                     1,912      
Operating pre-tax income   35,111     30,083     31,787     32,803     22,928     96,981     49,772  
Less: Tax impact of adjustments   39     131         2,100         170     (277 )
Plus: Nonrecurring tax adjustments4           426     (973 )       426     (1,799 )
Operating earnings   $ 35,072     $ 29,952     $ 32,213     $ 29,730     $ 22,928     $ 97,237     $ 48,250  
                             
Weighted average diluted shares outstanding   50,306     50,331     49,998     49,837     49,775     50,230     50,176  
Diluted EPS   $ 0.73     $ 0.59     $ 0.64     $ 0.46     $ 0.46     $ 1.95     $ 1.02  
Diluted operating EPS   0.70     0.60     0.64     0.60     0.46     1.94     0.96  

1 Severance payments relate to branch restructurings made during the three months ended June 30, 2021.
2 Debt extinguishment costs relate to prepayment penalties paid in connection with the early payoff of FHLB structured advances.
3 During the third quarter of 2021, Thrive’s PPP loan with another bank was 100% forgiven by the SBA. As a result of our 49% investment in Thrive, the $1.9 million represents our portion of the PPP loan forgiveness. PPP fee income is not taxable and as such has no tax impact.
4 A nonrecurring tax adjustment of $426 thousand recorded in the first quarter of 2021 was due to a true-up of a deferred tax liability. A nonrecurring tax adjustment of $973 thousand recorded in the fourth quarter of 2020 was primarily due the reversal of acquired deferred tax liabilities resulting in a tax benefit of $1.2 million offset by tax expense of $281 thousand for the setup of an uncertain tax position liability relating to state tax exposure for tax years prior to the year ending December 31, 2020. A nonrecurring tax adjustment of $1,799 was recorded in the second quarter of 2020 as a result of the Company amending a prior year Green Bancorp, Inc. tax return to carry back a net operating loss ("NOL") incurred by Green Bancorp, Inc. on January 1, 2019. The Company was allowed to carry back this NOL as result of a provision in the CARES Act, which permits (“NOL”) 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, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
    (Dollars in thousands)
Pre-Tax, Pre-Provision Operating Earnings                            
Net income   $ 36,835     $ 29,456     $ 31,787     $ 22,801     $ 22,920     $ 98,078     $ 51,082  
Plus: Provision (benefit) for income taxes   9,195     7,837     8,993     4,702     6,198     26,025     9,501  
Plus: (Benefit) provision for credit losses and unfunded commitments   (448 )   577     (570 )   902     10,139     (441 )   64,767  
Plus: Severance payments       627                 627      
Plus: Loss (gain) on sale of securities, net   188             256     8     188     (2,871 )
Plus: Debt extinguishment costs               9,746             1,561  
Less: Thrive PPP loan forgiveness income   1,912                     1,912      
Pre-tax, pre-provision operating earnings   $ 43,858     $ 38,497     $ 40,210     $ 38,407     $ 39,265     $ 122,565     $ 124,040  
                             
Average total assets   $ 9,385,470     $ 9,321,279     $ 8,941,271     $ 8,750,141     $ 8,585,926     $ 9,217,649     $ 8,449,772  
Pre-tax, pre-provision operating return on average assets1   1.85 %   1.66 %   1.82 %   1.75 %   1.82 %   1.78 %   1.96 %
                             
Average total assets   $ 9,385,470     $ 9,321,279     $ 8,941,271     $ 8,750,141     $ 8,585,926     $ 9,217,649     $ 8,449,772  
Return on average assets1   1.56 %   1.27 %   1.44 %   1.04 %   1.06 %   1.42 %   0.81 %
Operating return on average assets1   1.48     1.29     1.46     1.35     1.06     1.41     0.76  
                             
Operating earnings adjusted for amortization of core deposit intangibles                            
Operating earnings   $ 35,072     $ 29,952     $ 32,213     $ 29,730     $ 22,928     $ 97,237     $ 48,250  
Adjustments:                            
Plus: Amortization of core deposit intangibles   2,438     2,438     2,447     2,451     2,451     7,323     7,353  
Less: Tax benefit at the statutory rate   512     512     514     515     515     1,538     1,545  
Operating earnings adjusted for amortization of core deposit intangibles   $ 36,998     $ 31,878     $ 34,146     $ 31,666     $ 24,864     $ 103,022     $ 54,058  
                             
Average Tangible Common Equity                            
Total average stockholders' equity   $ 1,290,528     $ 1,254,371     $ 1,224,294     $ 1,196,274     $ 1,177,882     $ 1,256,640     $ 1,154,464  
Adjustments:                            
Less: Average goodwill   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )   (370,840 )
Less: Average core deposit intangibles   (52,043 )   (54,471 )   (56,913 )   (59,010 )   (61,666 )   (54,458 )   (64,077 )
Average tangible common equity   $ 867,645     $ 829,060     $ 796,541     $ 766,424     $ 745,376     $ 831,342     $ 719,547  
Operating return on average tangible common equity1   16.92 %   15.42 %   17.39 %   16.44 %   13.27 %   16.57 %   10.04 %
                             
Efficiency ratio   47.55 %   52.42 %   49.62 %   62.52 %   48.12 %   49.79 %   47.19 %
Operating efficiency ratio                            
Net interest income   71,276     67,131     65,635     66,766     65,870     204,042     199,032  
Noninterest income   15,627     12,456     14,172     9,012     9,795     42,255     38,332  
Plus: Loss (gain) on sale of securities available for sale, net   188             256     8     188     (2,871 )
Less: Thrive’s PPP loan forgiveness income   1,912                     1,912      
Operating noninterest income   13,903     12,456     14,172     9,268     9,803     40,531     35,461  
Noninterest expense   41,321     41,717     39,597     47,373     36,408     122,635     112,014  
Less: Severance payments       627                 627      
Less: Debt extinguishment costs               9,746             1,561  
Operating noninterest expense   $ 41,321     $ 41,090     $ 39,597     $ 37,627     $ 36,408     $ 122,008     $ 110,453  
Operating efficiency ratio   48.51 %   51.63 %   49.62 %   49.49 %   48.11 %   49.89 %   47.10 %

1 Annualized ratio.


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