0001501570-20-000283 | 10-Q | XBRL Viewer

Fair Value

The following table summarizes assets measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	September 30, 2020
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial Assets:
Available for sale securities	$	—	$	1,060,456	$	—	$	1,060,456
Equity securities with a readily determinable fair value	11,605		—		—		11,605
PPP loans	—		405,465		—		405,465
Loans held for sale(1)	—		5,778		—		5,778
Interest rate swap designated as hedging instruments	—		6,621		—		6,621
Customer interest rate swaps not designated as hedging instruments	—		13,396		—		13,396
Correspondent interest rate caps and collars not designated as hedging instruments	—		2		—		2

Financial Liabilities:
Interest rate swap designated as hedging instruments	—		3,373		—		3,373
Correspondent interest rate swaps not designated as hedging instruments	—		14,259		—		14,259
Customer interest rate caps and collars not designated as hedging instruments	—		2		—		2

(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.


	December 31, 2019
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial Assets:
Available for sale securities	$	—	$	964,365	$	—	$	964,365
Equity securities with a readily determinable fair value	11,122		—		—		11,122
Loans held for sale(1)	—		10,068		—		10,068
Correspondent interest rate swaps	—		105		—		105
Customer interest rate swaps	—		4,393		—		4,393
Correspondent interest rate caps and collars	—		11		—		11
Commercial loan interest rate floor	—		3,353		—		3,353
Financial Liabilities:
Correspondent interest rate swaps	—		4,736		—		4,736
Customer interest rate swaps	—		84		—		84
Customer interest rate caps and collars	—		11		—		11

(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.

There were no transfers between Level 2 and Level 3 during the nine months ended September 30, 2020 and 2019.

The following table summarizes assets measured at fair value on a non-recurring basis as of September 30, 2020 and December 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	Fair Value Measurements Using
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
As of September 30, 2020
Assets:
Collateral dependent loans with an allowance	$	—	$	—	$	40,486	$	40,486

As of December 31, 2019
Assets:
Impaired loans	—		—		4,504		4,504
Other real estate owned	—		—		5,995		5,995

At September 30, 2020, collateral dependent loans with an allowance had a recorded investment of $40,486, with $18,892 specific allowance for credit loss allocated. At December 31, 2019, impaired loans had a carrying value of $4,504, with $1,602 specific allowance for credit loss allocated.

Other real estate owned consisted of four properties recorded with a fair value of approximately $5,995 at December 31, 2019.

There were no liabilities measured at fair value on a non-recurring basis as of September 30, 2020 or December 31, 2019.

Fair Value of Financial Instruments

The Company’s methods of determining fair value of financial instruments in this Note are consistent with its methodologies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Please refer to Note 17 in the Company’s Annual Report on Form 10-K for information on these methods.

The estimated fair values and carrying values of all financial instruments not measured at fair value on a recurring basis under current authoritative guidance as of September 30, 2020 and December 31, 2019 were as follows:


			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
September 30, 2020
Financial assets:
Cash and cash equivalents	$	128,767	$	—	$	128,767	$	—
Held to maturity investments	30,984		—		34,223		—
Loans held for sale(1)	8,150		—		8,150		—


Loans held for investment(2)	6,334,138		—		—		6,371,257
Accrued interest receivable	28,205		—		28,205		—
Bank-owned life insurance	82,366		—		82,366		—
Servicing asset	3,785		—		3,654		—
Equity securities without a readily determinable fair value	3,575		N/A		N/A		N/A
Federal Home Loan Bank and Federal Reserve Bank stock	81,825		N/A		N/A		N/A
Financial liabilities:
Deposits	$	6,222,556	$	—	$	6,253,626	$	—
Advances from FHLB	1,082,756		—		1,096,643		—
Accrued interest payable	3,444		—		3,444		—
Subordinated debentures and subordinated notes	140,158		—		140,158		—
Securities sold under agreement to repurchase	2,028		—		2,028		—

December 31, 2019
Financial assets:
Cash and cash equivalents	$	251,550	$	—	$	251,550	$	—
Held to maturity investments	32,965		—		34,810		—
Loans held for sale(1)	4,012		—		4,012		—

Loans held for investment(2)	5,921,205		—		—		5,899,945
Accrued interest receivable	19,508		—		19,508		—
Bank-owned life insurance	80,915		—		80,915		—
Servicing asset	3,113		—		3,113		—
Equity securities without a readily determinable fair value	3,575		N/A		N/A		N/A
Federal Home Loan Bank and Federal Reserve Bank stock	68,348		N/A		N/A		N/A
Financial liabilities:
Deposits	$	5,894,350	$	—	$	5,692,217	$	—
Advances from FHLB	677,870		—		708,692		—
Accrued interest payable	5,893		—		5,893		—
Subordinated debentures and subordinated notes	145,571		—		145,571		—
Other borrowings	2,353		—		2,353		—

(1) Loans held for sale represent mortgage loans held for sale that are carried at lower of cost or market.

(2) Loans held for investment includes mortgage warehouse and is carried at amortized cost

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Stock-Based Awards - Veritex Green Omnibus Plan - Fair Value Options Exercised and Restricted Stock Units Vested (Details) - Veritex Green Omnibus Plan - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Non Performance Based Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-performance-based stock options exercised	$ 1,001	$ 2,088
Non-performance based equity restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units vested	$ 828	$ 0

Loans and Allowance for Credit Losses - PCI Accretable Yield Rollforward (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Balance at beginning of period	$ 33,709	$ 18,747
Purchase accounting adjustments	0	18,073
Reclassifications from nonaccretable	9,309	11,195
Accretion	(4,149)	(9,146)
Balance at end of period	38,869	38,869
Cash collections of certain loans acquired in transfer accounted for as debt securities	$ 28	$ 441

Securities - Carrying Amount and Fair Values (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jan. 01, 2020	Dec. 31, 2019
Available for sale
Amortized Cost	$ 1,005,441		$ 942,131
Gross Unrealized Gains	56,771		23,997
Gross Unrealized Losses	1,756		1,763
Allowance for Credit Losses	0
Fair Value	1,060,456		964,365
Held to maturity
Amortized Cost	30,984		32,965
Gross Unrealized Gains	3,239		1,845
Gross Unrealized Losses	0		0
Fair Value	34,223		34,810
Allowance for Credit Losses	0	$ 0
Corporate bonds
Available for sale
Amortized Cost	166,655		76,997
Gross Unrealized Gains	5,322		1,974
Gross Unrealized Losses	1,556		0
Allowance for Credit Losses	0
Fair Value	170,421		78,971
Municipal securities
Available for sale
Amortized Cost	113,553		74,956
Gross Unrealized Gains	8,149		3,724
Gross Unrealized Losses	66		0
Allowance for Credit Losses	0
Fair Value	121,636		78,680
Held to maturity
Amortized Cost	22,337		22,535
Gross Unrealized Gains	2,255		1,350
Gross Unrealized Losses	0		0
Fair Value	24,592		23,885
Allowance for Credit Losses	0
Mortgage-backed securities
Available for sale
Amortized Cost	256,546		288,938
Gross Unrealized Gains	17,620		9,512
Gross Unrealized Losses	94		260
Allowance for Credit Losses	0
Fair Value	274,072		298,190
Held to maturity
Amortized Cost	7,022		8,621
Gross Unrealized Gains	866		452
Gross Unrealized Losses	0		0
Fair Value	7,888		9,073
Allowance for Credit Losses	0
Collateralized mortgage obligations
Available for sale
Amortized Cost	414,430		431,276
Gross Unrealized Gains	22,552		6,465
Gross Unrealized Losses	40		1,503
Allowance for Credit Losses	0
Fair Value	436,942		436,238
Held to maturity
Amortized Cost	1,625		1,809
Gross Unrealized Gains	118		43
Gross Unrealized Losses	0		0
Fair Value	1,743		1,852
Allowance for Credit Losses	0
Asset-backed securities
Available for sale
Amortized Cost	54,257		69,964
Gross Unrealized Gains	3,128		2,322
Gross Unrealized Losses	0		0
Allowance for Credit Losses	0
Fair Value	$ 57,385		$ 72,286

Summary of Significant Accounting Policies - Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Earnings (numerator)
Net income	$ 22,920	$ 27,405	$ 51,082	$ 61,688
Shares (denominator)
Weighted average shares outstanding for basic EPS (in shares)	49,647	52,915	49,989	53,721
Dilutive effect of employee stock based awards (in shares)	128	953	188	912
Adjusted weighted average shares outstanding (in shares)	49,775	53,868	50,177	54,633
EPS:
Basic (in dollars per share)	$ 0.46	$ 0.52	$ 1.02	$ 1.15
Diluted (in dollars per share)	$ 0.46	$ 0.51	$ 1.02	$ 1.13

The amount of net income (loss) for the period per each share of common stock or unit outstanding during the reporting period.

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The amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.

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Schedule of Income Tax Expense

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Securities - Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Available For Sale Amortized Cost
Due in one year or less	$ 0
Due from one year to five years	4,927	$ 4,904
Due from five years to ten years	148,194	74,596
Due after ten years	127,087	72,453
Total investment securities available for sale, single maturity date	280,208	151,953
Amortized Cost	1,005,441	942,131
Available For Sale Fair value
Due in one year or less	0
Due from one year to five years	5,162	5,100
Due from five years to ten years	150,585	76,403
Due after ten years	136,310	76,148
Total investment securities available for sale	292,057	157,651
Fair Value	1,060,456	964,365
Held-to-Maturity Amortized Cost
Due in one year or less	0
Due from one year to five years	0	0
Due from five years to ten years	3,345	1,204
Due after ten years	18,992	21,331
Total investment securities held to maturity, single maturity date	22,337	22,535
Amortized Cost	30,984	32,965
Held-to-Maturity Fair Value
Due in one year or less	0
Due from one year to five years	0	0
Due from five years to ten years	3,596	1,219
Due after ten years	20,996	22,666
Total investment securities held to maturity	24,592	23,885
Fair value	34,223	34,810
Mortgage-backed securities and collateralized mortgage obligations
Available For Sale Amortized Cost
Amortized cost	670,976	720,214
Amortized Cost	256,546	288,938
Available For Sale Fair value
Fair value	711,014	734,428
Fair Value	274,072	298,190
Held-to-Maturity Amortized Cost
Amortized cost	8,647	10,430
Amortized Cost	7,022	8,621
Held-to-Maturity Fair Value
Fair value	9,631	10,925
Fair value	7,888	9,073
Asset-backed securities
Available For Sale Amortized Cost
Amortized cost	54,257	69,964
Amortized Cost	54,257	69,964
Available For Sale Fair value
Fair value	57,385	72,286
Fair Value	57,385	72,286
Held-to-Maturity Amortized Cost
Amortized cost	0	0
Held-to-Maturity Fair Value
Fair value	$ 0	$ 0

Cover Page - shares	9 Months Ended
Cover Page - shares	Sep. 30, 2020	Nov. 03, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-36682
Entity Registrant Name	VERITEX HOLDINGS, INC.
Entity Incorporation, State or Country Code	TX
Entity Tax Identification Number	27-0973566
Entity Address, Address Line One	8214 Westchester Drive, Suite 800
Entity Address, City or Town	Dallas,
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75225
City Area Code	(972)
Local Phone Number	349-6200
Title of 12(b) Security	Common Stock, par value $0.01
Trading Symbol	VBTX
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		49,661,232
Entity Central Index Key	0001501570
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3

Income Taxes (Tables)

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income tax expense for the three and nine months ended September 30, 2020 and 2019 was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Income tax expense for the period	$	6,198		$	7,595		$	9,501		$	16,953
Effective tax rate	21.3		%	21.7		%	15.7		%	21.6		%

Capital Requirements and Restrictions on Retained Earnings

9 Months Ended

Sep. 30, 2020

Banking and Thrift [Abstract]

Capital Requirements and Restrictions on Retained Earnings

The Company, on a consolidated basis, and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can lead to the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we have elected to utilize the five-year CECL transition.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, CET1 and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2020 and December 31, 2019, that the Company and the Bank met all capital adequacy requirements to which they were subject.

As of September 30, 2020 and December 31, 2019, the Company’s and the Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Company and the Bank must maintain minimum total risk-based, CET1, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since September 30, 2020 that management believes have changed the Company’s categorization as “well capitalized.”

A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios is presented in the following table:


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2020
Total capital (to risk-weighted assets)
Company	$	980,761	12.70	%	$	617,802	8.0	%	n/a		n/a
Bank	954,317		12.37	%	617,182		8.0	%	$	771,477	10.0	%
Tier 1 capital (to risk-weighted assets)
Company	776,108		10.05	%	463,348		6.0	%	n/a		n/a
Bank	859,634		11.14	%	462,999		6.0	%	617,331		8.0	%
Common equity tier 1 to risk-weighted assets
Company	746,937		9.67	%	347,592		4.5	%	n/a		n/a
Bank	859,634		11.14	%	347,249		4.5	%	501,582		6.5	%
Tier 1 capital (to average assets)
Company	776,108		9.54	%	325,412		4.0	%	n/a		n/a
Bank	859,634		10.57	%	325,311		4.0	%	406,639		5.0	%
As of December 31, 2019
Total capital (to risk-weighted assets)
Company	$	917,939	13.10	%	$	560,573	8.0	%	n/a		n/a
Bank	870,838		12.44	%	560,024		8.0	%	$	700,031	10.0	%
Tier 1 capital (to risk-weighted assets)
Company	771,679		11.02	%	420,152		6.0	%	n/a		n/a
Bank	840,126		12.00	%	420,063		6.0	%	560,084		8.0	%
Common equity tier 1 to risk-weighted assets
Company	742,675		10.60	%	315,287		4.5	%	n/a		n/a
Bank	840,126		12.00	%	315,047		4.5	%	455,068		6.5	%
Tier 1 capital (to average assets)
Company	771,679		10.17	%	303,512		4.0	%	n/a		n/a
Bank	840,126		11.07	%	303,569		4.0	%	379,461		5.0	%

Dividend Restrictions — Dividends paid by the Bank are subject to certain restrictions imposed by regulatory agencies. The Basel III Capital Rules further limit the amount of dividends that may be paid by the Bank. There are no dividend payment limitations by the Bank if the Bank’s capital conservation buffer is greater than 2.5%. The Bank had a capital conservation buffer of 4.37% as of September 30, 2020. Dividends of $20,000 and $65,000 were paid by the Bank to the Holdco during the three and nine months ended September 30, 2020, respectively. Dividends of $37,000 and $56,750 were paid by the Bank to the Holdco during the three and nine months ended September 30, 2019, respectively.

Dividends of $8,558, or $0.17, and $25,849, or $0.51, were paid by the Company during the three and nine months ended September 30, 2020, respectively. Dividends of $6,713, or $0.125, and $20,312, or $0.38, were paid by the the Company during the three and nine months ended September 30, 2019, respectively.

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef
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Investments, Debt and Equity Securities [Abstract]

Stock-Based Awards - Green Bancorp Inc. 2010 Option Plan (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2019 shares	Sep. 30, 2020 plan shares	Sep. 30, 2019 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock and incentive plans assumed in acquisition \| plan		2
Green Bancorp Inc. 2010 Stock Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Converted in acquisition of Green (in shares)	768,628
Number of shares awarded under stock options (in shares)		0	0
Exercise of employee stock options (in shares)		440,652
Shares outstanding (in shares)		126,284
Green Bancorp Inc. 2006 Stock Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Converted in acquisition of Green (in shares)			11,850
Number of shares awarded under stock options (in shares)		0
Shares outstanding (in shares)		0
Restricted Stock Units \| Green Bancorp Inc. 2010 Stock Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-option equity instruments, granted (in shares)		0	0
Restricted Stock Units \| Green Bancorp Inc. 2006 Stock Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-option equity instruments, granted (in shares)		0	0

Condensed Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Interest and dividend income:
Loans, including fees	$ 68,685	$ 85,811	$ 216,986	$ 258,344
Investment securities	7,852	7,687	23,074	22,316
Deposits in financial institutions and Fed Funds sold	65	1,329	1,122	4,255
Other investments	827	816	2,568	2,129
Total interest and dividend income	77,429	95,643	243,750	287,044
Interest expense:
Transaction and savings deposits	2,105	10,381	11,128	32,152
Certificates and other time deposits	5,004	10,283	19,759	29,220
Advances from FHLB	2,707	3,081	8,387	7,323
Subordinated debentures and subordinated notes	1,743	1,024	5,444	3,116
Total interest expense	11,559	24,769	44,718	71,811
Net interest income	65,870	70,874	199,032	215,233
Provision for credit losses	8,692	9,674	56,640	18,021
Provision for unfunded commitments	1,447	0	8,127	0
Net interest income after provision for credit losses	55,731	61,200	134,265	197,212
Noninterest income:
Service charges and fees on deposit accounts	3,130	3,667	9,732	10,606
Loan fees	1,787	2,252	5,027	5,861
(Loss) gain on sales of investment securities	(8)	0	2,871	(1,414)
Gain on sale of mortgage loans held for sale	472	32	922	394
Government guaranteed loan income, net	2,257	930	13,702	4,148
Rental income	502	643	1,600	1,629
Other	1,655	906	4,478	1,724
Total noninterest income	9,795	8,430	38,332	22,948
Noninterest expense:
Salaries and employee benefits	20,553	17,530	59,442	53,874
Occupancy and equipment	3,980	4,044	12,247	12,187
Professional and regulatory fees	3,159	2,750	8,151	8,982
Data processing and software expense	2,452	2,252	6,975	6,485
Marketing	1,062	708	2,706	2,288
Amortization of intangibles	2,840	2,712	8,232	8,191
Telephone and communications	345	361	972	1,381
Merger and acquisition expense	0	1,035	0	38,042
COVID expenses	132	0	1,377	0
Other	1,885	3,238	11,912	10,089
Total noninterest expense	36,408	34,630	112,014	141,519
Income before income tax expense	29,118	35,000	60,583	78,641
Income tax expense	6,198	7,595	9,501	16,953
Net income	$ 22,920	$ 27,405	$ 51,082	$ 61,688
Basic earnings per share (in dollars per share)	$ 0.46	$ 0.52	$ 1.02	$ 1.15
Diluted earnings per share (in dollars per share)	$ 0.46	$ 0.51	$ 1.02	$ 1.13

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Fair Value	$ 34,223	$ 34,810
Accumulated Amortization	$ 28,531	$ 19,997
Common stock, par value (in dollars per share)	$ 0.01
Common stock, shares authorized (in shares)	75,000,000
Common stock, shares issued (in shares)	55,464,960	54,876,580
Common stock, shares outstanding (in shares)	49,650,038	51,063,869
Treasury stock, shares (in shares)	5,814,922	3,812,711

Securities - Equity Securities (Details) - USD ($)	3 Months Ended		9 Months Ended
Securities - Equity Securities (Details) - USD ($)	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]
Equity securities	$ 11,605,000		$ 11,605,000		$ 11,122,000
Realized gain (loss) on equity securities	8,000	$ 8,000	8,000	$ 8,000
Unrealized gain recognized on equity securities with a readily determinable fair value	299,000	$ 84,000	512,000	$ 377,000
Equity securities without a readily determinable fair value	$ 3,575,000		$ 3,575,000		$ 3,575,000

Securities (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of Gross Unrealized Gain Recognized on Equity Securities

The gross unrealized gain recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s condensed consolidated statements of income were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Unrealized gain recognized on equity securities with a readily determinable fair value	$	299	$	84	$	512	$	377

Schedule of Carrying Amount and Approximate Fair Values of Available-for-Sale Securities

The amortized cost, related gross unrealized gains and losses, allowance for credit losses and the fair value of available for sale and held to maturity securities are as follows:


	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Available for sale

Corporate bonds	$	166,655	$	5,322	$	1,556	$	—	$	170,421
Municipal securities	113,553		8,149		66		—		121,636
Mortgage-backed securities	256,546		17,620		94		—		274,072
Collateralized mortgage obligations	414,430		22,552		40		—		436,942
Asset-backed securities	54,257		3,128		—		—		57,385
	$	1,005,441	$	56,771	$	1,756	$	—	$	1,060,456


	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses
Held to maturity
Mortgage-backed securities	$	7,022	$	866	$	—	$	7,888	$	—
Collateralized mortgage obligations	1,625		118		—		1,743		—
Municipal securities	22,337		2,255		—		24,592		—
	$	30,984	$	3,239	$	—	$	34,223	$	—

The Company did not transfer any securities from available for sale to held to maturity at fair value during the three and nine months ended September 30, 2020.


	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale

Corporate bonds	$	76,997	$	1,974	$	—	$	78,971
Municipal securities	74,956		3,724		—		78,680
Mortgage-backed securities	288,938		9,512		260		298,190
Collateralized mortgage obligations	431,276		6,465		1,503		436,238
Asset-backed securities	69,964		2,322		—		72,286
	$	942,131	$	23,997	$	1,763	$	964,365

Held to maturity
Mortgage-backed securities	$	8,621	$	452	$	—	$	9,073
Collateralized mortgage obligations	1,809		43		—		1,852
Municipal securities	22,535		1,350		—		23,885
	$	32,965	$	1,845	$	—	$	34,810

Schedule of Investment Securities That Have Been in a Continuous Unrealized Loss Position

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


	September 30, 2020
	Less Than 12 Months				12 Months or More				Totals
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available for sale

Corporate bonds	$	57,195	$	1,556	$	—	$	—	$	57,195	$	1,556
Municipal securities	2,920		66		—		—		2,920		66
Mortgage-backed securities	18,453		95		4,603		39		23,056		134


	$	78,568	$	1,717	$	4,603	$	39	$	83,171	$	1,756


	December 31, 2019
	Less Than 12 Months				12 Months or More				Totals
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
Available for sale

Municipal securities	$	468	$	1	$	—	$	—	$	468	$	1

Mortgage-backed securities	28,883		370		—		—		28,883		370
Collateralized mortgage obligations	109,749		1,392		—		—		109,749		1,392
	$	139,100	$	1,763	$	—	$	—	$	139,100	$	1,763

Schedule of Amortized Costs and Estimated Fair Values of Securities Available for Sale, By Contractual Maturity

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


	September 30, 2020
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	—	$	—
Due from one year to five years	4,927		5,162		—		—
Due from five years to ten years	148,194		150,585		3,345		3,596
Due after ten years	127,087		136,310		18,992		20,996
	280,208		292,057		22,337		24,592
Mortgage-backed securities and collateralized mortgage obligations	670,976		711,014		8,647		9,631
Asset-backed securities	54,257		57,385		—		—

	$	1,005,441	$	1,060,456	$	30,984	$	34,223


	December 31, 2019
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due from one year to five years	$	4,904	$	5,100	$	—	$	—
Due from five years to ten years	74,596		76,403		1,204		1,219
Due after ten years	72,453		76,148		21,331		22,666
	151,953		157,651		22,535		23,885
Mortgage-backed securities and collateralized mortgage obligations	720,214		734,428		10,430		10,925
Asset-backed securities	69,964		72,286		—		—
	$	942,131	$	964,365	$	32,965	$	34,810

Schedule of Proceeds From Sales of Investment Securities Available for Sale and Gross Gains and Losses

Proceeds from sales of debt securities available for sale and gross gains and losses for the nine months ended September 30, 2020 and 2019 were as follows:


	Nine Months Ended September 30,
	2020		2019
Proceeds from sales	$	90,897	$	254,397
Gross realized gains	2,879		522
Gross realized losses	—		1,936

Summary of Significant Accounting Policies - Additional Information (Details) $ in Thousands		3 Months Ended		9 Months Ended
	Jan. 01, 2020 USD ($)	Sep. 30, 2020 USD ($) modification shares	Sep. 30, 2019 USD ($) shares	Sep. 30, 2020 USD ($) branch mortgage_office segment modification shares	Sep. 30, 2019 USD ($) shares	Oct. 15, 2020 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments \| segment				1
Reclassification of noninterest income			$ 109		$ 215
Reclassification of net gain on sales and other assets			821		3,933
Gain on sale of mortgage loans held for sale		$ 472	32	$ 922	394
Reclassification of Rental Income			274		519
Equity Securities, FV-NI, Unrealized Gain (Loss)		$ 299	$ 84	$ 512	$ 377
Excluded from diluted EPS weighted average shares (in shares) \| shares		1,360	0	1,525	0
Number of loan modifications \| modification		741		741
Coronavirus Aid Relief And Economic Security Act, Amount Qualified For Temporary Suspension Of TDR Requirements, CARES ACT				$ 1,200,000
Deferred Principle and Interest Payments, Deferment Period One (in days)				90 days
Deferred Principle And Interest Payments, Deferment Period Two (in days)				180 days
Change in fair value of government guaranteed loans and PPP loans - CARES Act		$ 676	$ 108	$ 2,351	$ (215)
Government guaranteed loan income, fee income - CARES Act		$ 295		$ 12,811
Minimum
Segment Reporting Information [Line Items]
Guaranteed portion of SBA Loans (percent)				0.50
Maximum
Segment Reporting Information [Line Items]
Guaranteed portion of SBA Loans (percent)				0.90
Subsequent Event
Segment Reporting Information [Line Items]
Loans Outstanding with Remaining Deferment, CARES Act						$ 155,500
Dallas-Fort Worth
Segment Reporting Information [Line Items]
Number of branches \| branch				25
Number of mortgage offices \| mortgage_office				1
Houston
Segment Reporting Information [Line Items]
Number of branches \| branch				12
Louisville, Kentucky
Segment Reporting Information [Line Items]
Number of branches \| branch				1
Accounting Standards Update 2016-13
Segment Reporting Information [Line Items]
Decrease to retained earnings	$ (15,505)
Impact of adoption ASC 326 PCD loans	19,710
Accounting Standards Update 2016-13 \| Retained Earnings
Segment Reporting Information [Line Items]
Decrease to retained earnings	$ (15,505)

Stock-Based Awards

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Awards

Veritex 2010 Stock Option and Equity Incentive Plan (“2010 Incentive Plan”)

The Company recognized no stock compensation expense related to the 2010 Incentive Plan for the three and nine months ended September 30, 2020. The Company recognized no stock compensation expense related to the 2010 Incentive Plan during the three months ended September 30, 2019 and stock compensation of $2 for the nine months ended September 30, 2019.

A summary of option activity under the 2010 Incentive Plan for the nine months ended September 30, 2020 and 2019, and changes during the periods then ended, is presented below:


	2010 Incentive Plan
	Non-Performance Based Stock Options
	Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2019	275,000	$	10.12	2.39 years



Exercised	(17,500)	10.24
Outstanding and exercisable at September 30, 2019	257,500	$	10.28	1.62 years


Outstanding at January 1, 2020	257,500	$	10.28	1.37 years	$	4,971



Exercised	(207,500)	10.14
Outstanding and exercisable at September 30, 2020	50,000	$	10.84	1.91 years	$	377

As of September 30, 2020, December 31, 2019 and September 30, 2019 there was no unrecognized stock compensation expense related to non-performance based stock options.

A summary of the fair value of the Company’s stock options exercised under the 2010 Incentive Plan for the nine months ended September 30, 2020 and 2019 is presented below:


	Fair Value of Options Exercised as of September 30,
	2020	2019
Non-performance based stock options exercised	5,851	454

2019 Amended Plan and Green Acquired Omnibus Plans

2020 Grants of Restricted Stock Units

During the nine months ending September 30, 2020, the Company granted non-performance-based and performance-based restricted stock units (“RSUs”) under the 2019 Amended and Restated Omnibus Incentive Plan, which amended and restated the 2014 Omnibus Incentive Plan (“2019 Amended Plan”), and the Veritex (Green) 2014 Omnibus Equity Incentive Plan (“Veritex (Green) 2014 Plan”). The majority of the non-performance-based RSUs granted to employees during the nine months ending September 30, 2020 cliff vest after three to five years from the grant date. There were also non-performance-based RSUs granted to the Company’s directors that vest in four equal quarterly installments from the grant date.

The performance-based RSUs granted in January 2020 are subject to “cliff” vesting, with a vesting date of January 1, 2023, based on a performance period starting on December 31, 2019 and ending on December 31, 2022. The vesting percentage is determined based on the Company’s total shareholder return (“TSR”) relative to the TSR of 15 peer companies (“Peer Group”) over the performance period. Below is a table showing the range of vesting percentages for the performance-based RSUs based on the Company’s TSR percentile rank.


			Vesting %
Below the 24.9th percentile of Peer Group TSR			—%
Within the 25th to 49.9th percentile of Peer Group TSR			50%
Within the 50th the 74.9th percentile of Peer Group TSR			100%
At or above the 75th percentile of Peer Group TSR			150%

A Monte Carlo simulation was used to estimate the fair value of performance-based RSUs on the grant date that include a market condition based on the Company’s TSR relative to its Peer Group, which determines the eligible number of RSUs to vest.

2020 Grant of Stock Options

In January 2020, the Company granted non-performance-based options under the 2019 Amended Plan and the Veritex (Green) 2014 Plan, which vest over three years in equal installments on each anniversary of the grant date.

The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for the grants for the nine months ended September 30, 2020:

Nine Months Ended September 30, 2020

Expected life

5 to 6.51 years

Expected volatility

27.49% to 38.88%

Dividend yield

2.33% to 5.14%

Risk-free interest rate

0.36% to 1.76%

The expected life is based on the amount of time that options being valued are expected to remain outstanding. The expected volatility is based on historical volatility of the Company. The dividend yield assumption is based on the Company’s dividend history. The risk-free interest rates are based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.

Stock Compensation Expense and Liability Award Compensation Expense

Stock compensation expense for equity awards under the 2019 Amended Plan was approximately $1,588 and $4,468 for the three and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2019, the Company recognized $1,054 and $1,691 in stock compensation expense, respectively.

Stock compensation expense for options and RSUs granted under the Veritex (Green) 2014 Plan was approximately $490 and $1,413 for the three and nine months ended September 30, 2020, respectively. Stock compensation expense for options and RSUs granted under the Veritex (Green) 2014 Plan was approximately $376 and $1,147 for the three and nine months ended September 30, 2019, respectively.

There was no compensation expense for liability-classified awards under the 2019 Amended Plan during the three and nine months ended September 30, 2020. There was no compensation expense for liability-classified awards for the three months ended September 30, 2019 and $1,403 for the nine months ended September 30, 2019.

2019 Amended Plan

A summary of the status of the Company’s stock options under the 2019 Amended Plan as of September 30, 2020 and 2019, and changes during the nine months then ended, is as follows:


	2019 Amended Plan
	Non-performance Based Stock Options
	Equity Awards						Liability Awards
	Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value		Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2019	449,520	$	24.47	8.24 years			—	$	—
Granted	166,971	23.91					253,633	21.38
Conversion to equity awards	253,633	21.38					(253,633)	21.38
Forfeited	(28,240)	25.82					—	—

Exercised	(12,610)	15.42					—	—
Outstanding at September 30, 2019	829,274	$	23.50	8.42 years			—	$	—		—
Options exercisable at September 30, 2019	417,183	$	24.59	7.53 years			—	$	—

Outstanding at January 1, 2020	849,768	$	23.61	8.24 years	$	4,687	—	$	—
Granted	170,025	27.31					—	—

Forfeited	(23,735)	27.70					—	—

Exercised	(33,439)	19.19					—	—
Outstanding at September 30, 2020	962,619	$	24.32	7.77 years	$	(7,018)	—	$	—		$	—
Options exercisable at September 30, 2020	492,204	$	24.23	6.94 years	$	(5,147)	—	$	—
Weighted average fair value of options granted during the period		$	27.31					$	—

As of September 30, 2020, December 31, 2019 and September 30, 2019, there was $2,801, $2,948 and $1,296 of total unrecognized compensation expense related to equity options awarded under the 2019 Amended Plan, respectively. As of September 30, 2020, there was no unrecognized compensation expense related to liability options awarded under the 2019 Amended Plan. The unrecognized compensation expense at September 30, 2020 is expected to be recognized over the remaining weighted average requisite service period of 1.88 years.

A summary of the status of the Company’s non-performance-based RSUs under the 2019 Amended Plan as of September 30, 2020 and 2019, and changes during the nine months then ended, is as follows:


	2019 Amended Plan
	Non-performance-Based
	RSUs
	Equity Awards			Liability Awards
	Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019	133,455	$	19.67	—	$	—
Granted	104,827	23.09		165,739	21.38
Conversion to equity awards	165,739	21.38		(165,739)	21.38
Vested into shares	(229,031)	22.06

Outstanding at September 30, 2019	174,990	$	21.55	—	$	—

Outstanding at January 1, 2020	175,688	$	21.65	—	$	—
Granted	436,818	26.92		—	—

Vested into shares	(82,683)	23.24		—	—
Forfeited	(470)	29.13		—	—
Outstanding at September 30, 2020	529,353	$	25.16	—	$	—

A summary of the status of the Company’s performance-based RSUs under the 2019 Amended Plan as of September 30, 2020 and 2019, and changes during the nine months then ended, is as follows:


	2019 Amended Plan
	Performance-Based
	RSUs
	Equity Awards			Liability Awards
	Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019	63,988	$	21.28	—	$	—
Granted	38,360	22.47		32,249	21.38
Conversion to equity awards	32,249	21.38		(32,249)	21.38
Vested into shares	(51,284)	25.31		—	—
Forfeited	(17,827)	21.38		—	—
Outstanding at September 30, 2019	65,486	$	22.73	—	$	—

Outstanding at January 1, 2020	63,727	$	22.76	—	$	—
Granted	39,398	29.13		—	—

Vested into shares	(1,841)	26.65		—	—

Outstanding at September 30, 2020	101,284	$	25.22	—	$	—

As of September 30, 2020, December 31, 2019 and September 30, 2019 there was $9,098, $4,329 and $2,484 of total unrecognized compensation related to equity RSUs awarded under the 2019 Amended Plan, respectively. As of September 30, 2020, there was no of unrecognized compensation related to liability RSUs awarded under the 2019 Amended Plan. The unrecognized compensation expense at September 30, 2020 is expected to be recognized over the remaining weighted average requisite service period of 2.9 years.

A summary of the fair value of the Company’s stock options exercised and RSUs vested under the 2019 Amended Plan during the nine months ended September 30, 2020 and 2019 is presented below:


	Fair Value of Options Exercised or RSUs Vested in the Nine Months Ended September 30,
	2020	2019
Non-performance-based stock options exercised	943	335
Non-performance-based RSUs vested	2,225	5,669
Performance-based RSUs vested	36	1,089

Veritex (Green) 2014 Plan

A summary of the status of the Company’s stock options under the Veritex (Green) 2014 Plan as of September 30, 2020 and 2019, and changes during the nine months then ended, is as follows:


	Veritex (Green) 2014 Plan
	Non-performance Based Stock Options
	Shares Underlying Options	Weighted Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2019	—	$	—
Converted in acquisition of Green	304,778	15.41
Granted	211,793	21.38
Forfeited	(10,217)	12.21

Exercised	(82,451)	12.43
Outstanding at September 30, 2019	423,903	$	18.85	8.01 years
Options exercisable at September 30, 2019	213,427	$	16.36	6.89 years

Outstanding at January 1, 2020	386,969	$	19.30	7.86 years	$	3,800

Granted	31,075	29.13
Forfeited	(28,736)	21.38

Exercised	(34,476)	19.54
Outstanding at September 30, 2020	354,832	$	19.95	7.34 years	$	(1,039)
Options exercisable at September 30, 2020	212,676	$	17.84	6.46 years	$	(546)
Weighted average fair value of options granted during the period		$	29.13

As of September 30, 2020, December 31, 2019 and September 30, 2019, there was $759, $1,062, and $1,198 of total unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan, respectively. The unrecognized compensation expense at September 30, 2020 is expected to be recognized over the remaining weighted average requisite service period of 1.4 years.

A summary of the status of the Company’s non-performance-based RSUs under the Veritex (Green) 2014 Plan as of September 30, 2020 and 2019 and changes during the nine months then ended, is as follows:


	Veritex (Green) 2014 Plan
	Non-performance-Based
	RSUs
	Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019	—	$	—
Granted	116,250	21.38


Outstanding at September 30, 2019	116,250	$	21.38

Outstanding at January 1, 2020	116,250	$	21.38
Granted	93,918	21.36
Vested into shares	(38,744)	29.13
Forfeited	(4,402)	29.13
Outstanding at September 30, 2020	167,022	$	22.69

A summary of the status of the Company’s performance-based RSUs under the Veritex (Green) 2014 Plan as of September 30, 2020 and 2019 and changes during the nine months then ended, is as follows:


	Veritex (Green) 2014 Plan
	Performance-Based
	RSUs
	Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019	—	$	—
Granted	26,145	$	21.38

Forfeited	(508)	$	21.38
Outstanding at September 30, 2019	25,637	$	21.38

Outstanding at January 1, 2020	25,320	$	21.38
Granted	8,531	29.13


Outstanding at September 30, 2020	33,851	$	23.33

As of September 30, 2020, December 31, 2019 and September 30, 2019, there was $2,842, $1,991, and $2,243, respectively, of total unrecognized compensation related to outstanding performance-based RSUs awarded under the Veritex (Green) 2014 Plan to be recognized over a remaining weighted average requisite service period of 2.3 years.

A summary of the fair value of the Company’s stock options exercised and RSUs vested under the Veritex (Green) 2014 Plan during the nine months ended September 30, 2020 and 2019 presented below:


	Fair Value of Options Exercised or RSUs Vested in the Nine Months Ended September 30,
	2020		2019
Non-performance-based stock options exercised	$	1,001	$	2,088
Non-performance-based RSUs vested	828		—

Green Bancorp Inc. 2010 Stock Option Plan and Green Bancorp Inc. 2006 Stock Option Plan

In addition to the Veritex (Green) 2014 Plan discussed earlier in this Note, the Company assumed two stock and incentive plans in the Green acquisition, the Green Bancorp Inc. 2010 Stock Option Plan (“Green 2010 Plan”) and the Green Bancorp Inc. 2006 Stock Option Plan (“Green 2006 Plan”). For the Green 2010 Plan and the Green 2006 Plan, 768,628 and 11,850 of stock options, respectively, were converted in the acquisition of Green during the nine months ended September 30, 2019. No stock options or restricted stock units were awarded from these plans during the nine months ended September 30, 2020 or 2019. During the nine months ended September 30, 2020, 440,652 stock options granted under the Green 2010 Plan were exercised and no stock options granted under the Green 2006 Plan were exercised. As of September 30, 2020, 126,284 exercisable stock options remain outstanding in the Green 2010 Plan and no exercisable stock options remain outstanding in the Green 2006 Plan.

Loans and Allowance for Credit Losses (Tables)

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Summary of Loans in the Accompanying Consolidated Balance Sheets

Loans held for investment in the accompanying condensed consolidated balance sheets are summarized as follows:


	September 30, 2020		December 31, 2019
Loans held for investment, carried at amortized cost:
Real estate:
Construction and land	$	623,496	$	629,374
Farmland	14,413		16,939
1 - 4 family residential	548,953		549,811
Multi-family residential	412,412		320,041
OOCRE	734,939		706,782
NOOCRE	1,817,013		1,784,201
Commercial	1,623,249		1,712,838
Mortgage warehouse	544,845		183,628
Consumer	14,127		17,457
	6,333,447		5,921,071

Deferred loan costs, net	691		134
Allowance for credit losses	(121,591)		(29,834)
Loans held for investment carried at amortized cost, net	6,212,547		5,891,371

Loans held for investment, carried at fair value:
PPP loans	405,465		—



Total loans held for investment, net	$	6,618,012	$	5,891,371

The outstanding balance represents the total amount owed, including accrued but unpaid interest, and any amounts previously charged off.


	December 31, 2019
Carrying amount	$	126,125
Outstanding balance	157,417

Changes in the accretable yield for PCI loans for the three and nine months ended September 30, 2019 are included in table below.


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Balance at beginning of period	$	33,709	$	18,747

Additions	—		18,073
Reclassifications from nonaccretable	9,309		11,195

Accretion	(4,149)		(9,146)
Balance at end of period	$	38,869	$	38,869

Schedule of Activity in Allowance for Credit Loss

The activity in the ACL related to loans held for investment is as follows:


	Three Months Ended September 30, 2020
	Construction and Land			Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
Balance at beginning of year	$	9,021		$	63	$	10,777	$	6,428	$	13,886	$	36,067	$	38,577	$	546	$	115,365
Credit loss expense non-PCD loans	610			7		(142)		268		662		(85)		11,425		29		12,774
Credit loss expense PCD loans	(41)			—		(37)		—		(3,578)		(161)		(271)		6		(4,082)
Charge-offs	—			—		—		—		(2,421)		—		(68)		(11)		(2,500)
Recoveries	—			—		7		—		—		—		14		13		34
Ending Balance	$	9,590	0	$	70	$	10,605	$	6,696	$	8,549	$	35,821	$	49,677	$	583	$	121,591


	Three Months Ended September 30, 2019
	Construction and Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
Balance at beginning of year	$	3,096	$	54	$	1,843	$	682	$	1,654	$	6,376	$	10,952	$	55	$	24,712
Credit Loss Expense	453		—		265		—		—		458		8,316		182		9,674
Charge-offs	—		—		—		—		—		—		(8,101)		(113)		(8,214)
Recoveries	—		—		—		—		—		—		71		—		71
Ending Balance	$	3,549	$	54	$	2,108	$	682	$	1,654	$	6,834	$	11,238	$	124	$	26,243


	Nine Months Ended September 30, 2020
	Construction and Land			Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
Balance at beginning of year	$	3,822		$	61	$	1,378	$	1,965	$	1,978	$	8,139	$	12,369	$	122	$	29,834
Impact of adopting ASC 326 non-PCD loans	(707)			4		3,716		628		3,406		5,138		7,025		217		19,427
Impact of adoption ASC 326 PCD loans	645			—		908		—		7,682		2,037		8,335		103		19,710
Credit loss expense non-PCD loans	6,393			5		4,955		4,103		3,177		17,294		22,853		3		58,783
Credit loss expense PCD loans	(563)			—		(360)		—		(5,273)		3,213		853		(13)		(2,143)
Charge-offs	—			—		—		—		(2,421)		—		(1,808)		(136)		(4,365)
Recoveries	—			—		8		—		—		—		50		287		345
Ending Balance	$	9,590	0	$	70	$	10,605	$	6,696	$	8,549	$	35,821	$	49,677	$	583	$	121,591


	Nine Months Ended September 30, 2019
	Construction and Land		Farmland		Residential		Multifamily		OOCRE		NOOCRE		Commercial		Consumer		Total
Balance at beginning of year	$	2,186	$	58	$	1,614	$	361	$	1,393	$	5,070	$	8,554	$	19	$	19,255
Credit Loss Expense	1,363		(4)		589		321		261		1,764		13,491		236		18,021
Charge-offs	—		—		(157)		—		—		—		(10,898)		(217)		(11,272)
Recoveries	—		—		62		—		—		—		91		86		239
Ending Balance	$	3,549	$	54	$	2,108	$	682	$	1,654	$	6,834	$	11,238	$	124	$	26,243


	December 31, 2019
	Real Estate
	Construction, Land and Farmland		Residential		Commercial Real Estate		Commercial		Consumer		Total
Loans individually evaluated for impairment	$	567	$	156	$	21,644	$	5,188	$	61	$	27,616
Loans collectively evaluated for impairment	641,799		865,927		2,372,485		1,869,259		17,267		5,766,737
PCD loans	3,947		3,769		96,854		22,019		129		126,718
Total	$	646,313	$	869,852	$	2,490,983	$	1,896,466	$	17,457	$	5,921,071

ACL Allocations
Loans individually evaluated for impairment	$	128	$	37	$	395	$	1,042	$	—	$	1,602
Loans collectively evaluated for impairment	3,755		3,306		9,702		10,754		122		27,639
PCD loans	—		—		20		573		—		593
Total	$	3,883	$	3,343	$	10,117	$	12,369	$	122	$	29,834

Schedule of Amortized Cost Basis of Collateral Dependent Loans


	Business Assets(1)		Real Property(1)		ACL Allocation
Real estate:
Construction and land	$	785	$	—	$	—

1 - 4 family residential	—		2,366		—

OOCRE	2,530		2,779		49
NOOCRE	3,601		33,447		374
Commercial	16,521		25,662		18,419

Consumer	—		1,186		50
Total	$	23,437	$	65,440	$	18,892

(1) Loans reported exclude PCD loans that transitioned upon adoption of ASC 326 and accounted for on a pooled basis. Refer to Note 1 for further discussion.

Summary of Impaired Loans

The following table presents information on impaired loans as of December 31, 2019, as determined in accordance with ASC 310 prior to the Company’s adoption of ASU 2016-13:


	December 31, 2019(1)
	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment YTD
Real estate:
Construction and land	$	567	$	—	$	567	$	567	$	128	$	1,793
Farmland	—		—		—		—		—		—
1 - 4 family residential	156		—		156		156		37		158
Multi-family residential	—		—		—		—		—		—
Commercial real estate	21,644		21,040		604		21,644		395		22,529
Commercial	5,188		2,011		3,177		5,188		1,042		8,546
Consumer	61		61		—		61		—		62
Total	$	27,616	$	23,112	$	4,504	$	27,616	$	1,602	$	33,088

(1) Loans reported exclude PCI loans.

Schedule of Non-Accrual Loans

Non-accrual loans aggregated by class of loans, as of September 30, 2020 and December 31, 2019, were as follows:


	September 30, 2020				December 31, 2019
	Nonaccrual		Nonaccrual With No ACL			Nonaccrual		Nonaccrual With No ACL
Real estate:
Construction and land	$	785	$	785		$	567	$	—
Farmland	—		—			—		—
1 - 4 family residential	2,366		2,301			1,581		1,581
Multi-family residential	—		—			—		—
OOCRE	5,310		5,567			3,029		2,778
NOOCRE	37,048		35,939			18,876		18,876
Commercial	42,182		3,677			5,672		2,747
Mortgage warehouse	—		—			—		—
Consumer	1,186		122			54		54
Total	$	88,877	$	48,391		$	29,779	$	26,036

Schedule of Age Analysis of Past Due Loans, Aggregated by Class of Loans

An age analysis of past due loans, aggregated by class of loans and including past due non-accrual loans, as of September 30, 2020 and December 31, 2019, is as follows:


	September 30, 2020
	30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)
Real estate:
Construction and land	$	735	$	—	$	785	$	1,520	$	619,291	$	2,685	$	623,496	$	—
Farmland	—		—		—		—		14,413		—		14,413		—
1 - 4 family residential	630		175		3,791		4,596		540,090		4,267		548,953		1,569
Multi-family residential	—		—		—		—		412,412		—		412,412		—
OOCRE	1,124		3,064		462		4,650		690,616		39,673		734,939		—
NOOCRE	—		—		17,697		17,697		1,746,641		52,675		1,817,013		—
Commercial	3,225		7,656		16,707		27,588		1,573,296		22,365		1,623,249		75
Mortgage warehouse	—		—		—		—		544,845		—		544,845		—
Consumer	41		147		1,121		1,309		12,611		207		14,127		45
Total	$	5,755	$	11,042	$	40,563	$	57,360	$	6,154,215	$	121,872	$	6,333,447	$	1,689

(1) Loans 90 days past due and still accruing excludes $33,188 of pooled PCD loans as of September 30, 2020 that transitioned upon adoption of ASC 326. Refer to Note 1 for further discussion.


	December 31, 2019
	30 to 59 Days		60 to 89 Days		90 Days or Greater		Total Past Due		Total Current		PCD		Total Loans		Total 90 Days Past Due and Still Accruing(1)
Real estate:
Construction and land	$	—	$	—	$	—	$	—	$	629,374	$	3,947	$	629,374	$	800
Farmland	—		—		—		—		16,939		—		16,939		—
1 - 4 family residential	2,595		520		1,155		4,270		541,772		3,769		549,811		959
Multi-family residential	—		—		—		—		320,041		—		320,041		—
Commercial real estate	12		3,834		868		4,714		2,389,415		96,854		2,490,983		511
Commercial	3,572		1,707		1,497		6,776		1,684,043		22,019		1,712,838		1,317
Mortgage warehouse	—		—		—		—		183,628		—		183,628		—
Consumer	30		2,641		140		2,811		14,646		129		17,457		73
Total	$	6,209	$	8,702	$	3,660	$	18,571	$	5,779,858	$	126,718	$	5,921,071	$	3,660

(1) Loans 90 days past due and still accruing excludes $41,328 of PCD loans accounted for on a pooled basis as of December 31, 2019.

Schedule of Loans Modified as TDRs


	During the Three Months Ended September 30, 2020
	Adjusted Payment Structure		Payment Deferrals		Total Modifications		Number of Loans





Commercial real estate	$	5,145	$	19,359	$	24,504	8



Total	$	5,145	$	19,359	$	24,504	8


	During the Nine Months Ended September 30, 2020
	Adjusted Payment Structure		Payment Deferrals		Total Modifications		Number of Loans





Commercial real estate	$	5,145	$	19,359	$	24,504	8
Commercial	1,440		1,337		2,777		3


Total	$	6,585	$	20,696	$	27,281	11

Summary of Internal Ratings of Loans, Including Purchased Credit Impaired Loans


	Term Loans Amortized Cost Basis by Origination Year1
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of September 30, 2020
Construction and land:
Pass	$	75,351	$	254,891	$	209,706	$	14,652	$	11,642	$	29,461	$	20,589	$	—	$	616,292
Special mention	—		222		2,657		—		—		—		—		—		2,879
Substandard	—		—		855		785		—		—		—		—		1,640
PCD	—		—		—		—		—		2,685		—		—		2,685
Total construction and land	$	75,351	$	255,113	$	213,218	$	15,437	$	11,642	$	32,146	$	20,589	$	—	$	623,496

Farmland:
Pass	$	552	$	973	$	3,367	$	3,926	$	—	$	4,275	$	1,320	$	—	$	14,413



Total farmland	$	552	$	973	$	3,367	$	3,926	$	—	$	4,275	$	1,320	$	—	$	14,413

1 - 4 family residential:
Pass	$	112,975	$	86,456	$	98,312	$	53,987	$	37,532	$	119,792	$	24,514	$	2,998	$	536,566
Special mention	—		1,082		434		769		—		724		—		—		3,009
Substandard	10		—		143		1,023		—		3,010		925		—		5,111
PCD	—		—		—		—		—		4,267		—		—		4,267
Total 1 - 4 family residential	$	112,985	$	87,538	$	98,889	$	55,779	$	37,532	$	127,793	$	25,439	$	2,998	$	548,953

Multi-family residential:
Pass	$	57,512	$	114,060	$	140,983	$	23,268	$	36,323	$	8,218	$	727	$	—	$	381,091
Special mention	—		—		12,661		—		—		—		—		—		12,661
Substandard	—		18,660		—		—		—		—		—		—		18,660

Total multi-family residential	$	57,512	$	132,720	$	153,644	$	23,268	$	36,323	$	8,218	$	727	$	—	$	412,412

OOCRE:
Pass	$	93,273	$	63,349	$	84,361	$	77,012	$	82,610	$	198,213	$	7,447	$	—	$	606,265
Special mention	—		2,697		24,623		3,698		13,046		4,341		1,992		—		50,397
Substandard	370		—		10,603		2,679		11,515		6,899		232		6,306		38,604
PCD	—		—		10,263		—		7,970		21,440		—		—		39,673


Total OOCRE	$	93,643	$	66,046	$	129,850	$	83,389	$	115,141	$	230,893	$	9,671	$	6,306	$	734,939

NOOCRE:
Pass	$	220,048	$	268,223	$	441,601	$	99,787	$	193,174	$	321,236	$	13,553	$	—	$	1,557,622
Special mention	101		30,115		37,444		19,399		26,125		37,979		493		—		151,656
Substandard	1,110		7,878		4,573		4,229		—		23,174		14,096		—		55,060
PCD	—		—		18,655		—		6,670		27,350		—		—		52,675
Total NOOCRE	$	221,259	$	306,216	$	502,273	$	123,415	$	225,969	$	409,739	$	28,142	$	—	$	1,817,013

Commercial:
Pass	$	182,768	$	178,850	$	139,191	$	64,018	$	27,149	$	44,087	$	794,733	$	13,815	$	1,444,611
Special mention	1,311		2,557		10,547		11,331		1,289		2,294		32,024		3,864		65,217
Substandard	—		4,742		34,363		3,523		7,980		2,378		32,727		5,343		91,056
PCD	—		—		—		3,287		4,280		14,798		—		—		22,365
Total commercial	$	184,079	$	186,149	$	184,101	$	82,159	$	40,698	$	63,557	$	859,484	$	23,022	$	1,623,249

Mortgage warehouse:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	544,845	$	—	$	544,845



Total mortgage warehouse	$	—	$	—	$	—	$	—	$	—	$	—	$	544,845	$	—	$	544,845

Consumer:
Pass	$	2,170	$	1,695	$	1,153	$	4,209	$	934	$	478	$	1,610	$	—	$	12,249
Special mention	—		—		—		45		30		234		5		—		314
Substandard	—		—		—		60		—		234		1,063		—		1,357
PCD	—		—		—		38		—		169		—		—		207
Total consumer	$	2,170	$	1,695	$	1,153	$	4,352	$	964	$	1,115	$	2,678	$	—	$	14,127

Total Pass	$	744,649	$	968,497	$	1,118,674	$	340,859	$	389,364	$	725,760	$	1,409,338	$	16,813	$	5,713,954
Total Special Mention	1,412		36,673		88,366		35,242		40,490		45,572		34,514		3,864		286,133
Total Substandard	1,490		31,280		50,537		12,299		19,495		35,695		49,043		11,649		211,488
Total PCD	—		—		28,918		3,325		18,920		70,709		—		—		121,872
Total	$	747,551	$	1,036,450	$	1,286,495	$	391,725	$	468,269	$	877,736	$	1,492,895	$	32,326	$	6,333,447

1 Term loans amortized cost basis by origination year excludes $691 of deferred loan costs, net.

The following table summarizes the Company’s internal ratings of its loans, including PCD loans, as of December 31, 2019:


	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		PCD		Total
Real estate:
Construction and land	$	618,773	$	3,965	$	2,689	$	—	$	3,947	$	629,374
Farmland	16,939		—		—		—		—		16,939
1 - 4 family residential	541,787		795		3,460		—		3,769		549,811
Multi-family residential	320,041		—		—		—		—		320,041
Commercial real estate	2,332,357		23,494		38,278		—		96,854		2,490,983
Commercial	1,610,150		51,999		28,670		—		22,019		1,712,838
Mortgage warehouse	183,628		—		—		—		—		183,628
Consumer	17,106		40		182		—		129		17,457
Total	$	5,640,781	$	80,293	$	73,279	$	—	$	126,718	$	5,921,071

Schedule of Summary of Changes in Servicing Assets

A summary of the changes in the related servicing assets are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Balance at beginning of period	$	2,940	$	3,793	$	3,113	$	1,304
Servicing asset acquired through acquisition	—		—		—		2,382
Increase from loan sales	705		534		836		995

Recovery or (amortization/impairment) charged to income	140		(806)		(164)		(1,160)
Balance at end of period	$	3,785	$	3,521	$	3,785	$	3,521

Financial Instruments with Off-Balance Sheet Risk

9 Months Ended

Sep. 30, 2020

Off-Balance Sheet Loan Commitments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to a financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The following table sets forth the approximate amounts of these financial instruments as of September 30, 2020 and December 31, 2019:


	September 30,		December 31,
	2020		2019
Commitments to extend credit	$	2,127,728	$	1,744,989
Mortgage warehouse commitments	280,444		205,361
Standby and commercial letters of credit	43,363		27,196
Total	$	2,451,535	$	1,977,546

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s policy for obtaining collateral and the nature of such collateral is substantially the same as that involved in making commitments to extend credit.

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

The table below presents the activity in the allowance for unfunded commitment credit losses related to those financial instruments discussed above. This allowance is recorded in accounts payable and other liabilities on the condensed consolidated balance sheets:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Beginning balance for allowance for unfunded commitments	$	8,398	$	878	$	878	$	878
Impact of CECL adoption	—		—		840		—
Provision for unfunded commitments	1,447		—		8,127		—
Ending balance of allowance for unfunded commitments	$	9,845	$	878	$	9,845	$	878

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Veritex Holdings Holdings, Inc. and its subsidiaries, including Veritex Community Bank.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), but do not include all of the information and footnotes required for complete financial statements. Intercompany transactions and balances are eliminated in consolidation. In management’s opinion, these unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s condensed consolidated financial position at September 30, 2020 and December 31, 2019, condensed consolidated results of operations for the three and nine months ended September 30, 2020 and 2019, condensed consolidated stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and condensed consolidated cash flows for the nine months ended September 30, 2020 and 2019.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown herein are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Quarterly Reports on Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 28, 2020.

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

Segment Reporting

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

Reclassifications

Certain items in the Company’s prior year financial statements were reclassified to conform to the current presentation, including (i) the reclassification on the Condensed Consolidated Statement of Income from other noninterest income of $109 and $215 to government guaranteed loan income, net for the three and nine months ended September 30, 2019, respectively (ii) the reclassification on the Condensed Consolidated Statement of Income from net gain on sales of loans and other assets owned of $821 and $3,933 to government guaranteed loan income, net for the three and nine months ended September 30, 2019, respectively, (iii) the reclassification on the Condensed Consolidated Statement of Income from net gains on sales of loans and other assets owned to gain on sale of mortgage loans held for sale of $32 and $394 for the three and nine months ended September 30, 2019, respectively, (iv) the reclassification on the Condensed Consolidated Statement of Income from other income to rental income for $274 and $519 for the three and nine months ended September 30, 2019, respectively, and (v) the reclassification on the Condensed Consolidated Statement of Cash Flows from change in other assets to unrealized gain on equity securities recognized in earnings of $377 for the nine months ended September 30, 2019.

Earnings Per Share

Earnings Per ShareEarnings per share (“EPS”) are based upon the Company’s weighted average shares outstanding.

Adoption of New Accounting Standards

On January 1, 2020, the Company adopted Accounting Standard Update (“ASU”) 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet (“OBS”) credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, net investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $15,505 as of January 1, 2020 for the cumulative effect of adopting ASC 326.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $19,710 of the allowance for credit losses (“ACL”). The remaining noncredit discount will be accreted into interest income at the effective interest rate. As allowed by ASC 326, the Company elected to maintain pools of loans accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption.

The following table illustrates the impact of ASC 326.


	January 1, 2020
	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
Assets:
Allowance for credit losses on debt securities held-to-maturity	$	—	$	—	$	—
Allowance for credit losses on loans
Construction and land	3,760		3,822		(62)
Farmland	65		61		4
1 - 4 family residential	6,002		1,378		4,624
Multi-family residential	2,593		1,965		628
Owner Occupied Commercial Real Estate	13,066		1,978		11,088
Non-Owner Occupied Commercial Real Estate	15,314		8,139		7,175
Commercial	27,729		12,369		15,360
Consumer	442		122		320
Allowance for credit losses on loans	$	68,971	$	29,834	$	39,137

Liabilities:
Allowance for credit losses on OBS credit exposures	$	1,718	$	878	$	840

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.

Debt Securities, Available-for-sale

Debt Securities

Debt securities that the Company has both the positive intent and ability to hold to maturity are classified as held to maturity and are carried at amortized cost. Debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity, are classified as available for sale and are carried at fair value. Unrealized gains and losses on investment securities classified as available for sale have been accounted for as accumulated other comprehensive income (loss), net of taxes. Management determines the appropriate classification of investment securities at the time of purchase.

Interest income includes amortization of purchase premiums and discounts over the period to maturity using a level-yield method, except for premiums on callable debt securities, which are amortized to their earliest call date. Realized gains and losses are recorded on the sale of debt securities in noninterest income.

The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in other assets on the condensed consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2020 and 2019.

Debt Securities, Held-to-maturity

Debt Securities

Allowance for Credit Losses - Available for Sale Securities

Allowance for Credit Losses – Available for Sale Securities

For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.

Allowance for Credit Losses – Held to Maturity Securities

Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on held to maturity debt securities is excluded from the estimate of credit losses.

Management classifies the held to maturity portfolio into the following major security types: mortgage-backed securities, collateralized mortgage obligations and municipal securities. All of the mortgage-backed securities and collateralized mortgage obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses.

Loans Held for Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the ACL. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets.

Interest on loans is recognized using the effective-interest method on the daily balances of the principal amounts outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due in accordance with the terms of the loan agreement. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payment obligations as they come due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When a loan is placed on non-accrual status, all interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Acquired Loans

Prior to January 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered purchased credit impaired (“PCI”). PCI loans were accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit grade, loan type, and date of origination.

All loans considered to be PCI loans prior to January 1, 2020 were converted to PCD loans upon the Company’s adoption of ASC 326. The Company elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account for all applicable areas of accounting which include credit loss measurement, interest income recognition, non-accrual determination, write-off determination and trouble debt restructuring identification. Loans are only removed from the existing pools if they are foreclosed, written off, paid off, or sold. Upon adoption of ASC 326, the ACL was determined for each loan or pool and added to the loan or pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the loan or pool and the new amortized cost basis is the noncredit premium or discount which will be accreted into interest income over the remaining life of the loan or pool. Changes to the ACL after adoption are recorded through provision expense.

Subsequent to January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.

For acquired loans not deemed purchased credit deteriorated at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense.

The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Credit Losses - Loans

The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the ACL through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, an asset will typically be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method or a loss-rate method to estimate expected credit losses. The Company will utilize a probability of default/loss given default (“PD/LGD”) model to estimate expected credit losses for our PCD loans and pools.

The Company’s methodologies for estimating the ACL take into account available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions

at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed.

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

Real Estate — This category of loans consists of the following loan types:

Construction and land — This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of owner occupied and non-owner occupied residential and commercial properties, and loans secured by raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third party. Repayment of land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt.

Farmland — These loans are principally loans to purchase farmland.

1-4 family residential — This category of loans includes both first and junior liens on residential real estate. Home equity revolving lines of credit and home equity term loans are included in this group of loans.

Multi-family residential — This category of loans is primarily secured by non-owner occupied apartment or multifamily residential buildings. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions.

Owner occupied commercial real estate (“OOCRE”) — This category of loans includes real estate loans for a variety of commercial property types and purposes. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are generally diverse in terms of type and geographic location, throughout the Dallas-Fort Worth metroplex and Houston metropolitan area. This diversity helps reduce the exposure to adverse economic events that may affect any single market or industry.

Non-owner occupied commercial real estate (“NOOCRE”) — This category of loans includes investment real estate loans that are primarily secured by office and industrial buildings, retail shopping centers and various special purpose properties. Generally, these types of loans are thought to involve a greater degree of credit risk than OOCRE as they are more sensitive to adverse economic conditions.

Commercial — This category of loans is for commercial, corporate and business purposes. The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, agriculture operating loans and other business loans for working capital and operational purposes. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory.

Mortgage warehouse - Mortgage warehouse facilities are provided to unaffiliated mortgage origination companies and are collateralized by 1-4 family residential loans. The originator closes new mortgage loans with the intent to sell these loans to third party investors for a profit. The Company provides funding to the mortgage companies for the period between the origination and their sale of the loan. The Company is repaid with the proceeds received from sale of the mortgage loan to the final investor.

Consumer — This category of loans is used for personal use typically for consumer purposes.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral,

expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

For collateralized financial assets that are not collateral dependent, the Company will consider the nature of the collateral, potential future changes in collateral values, and historical loss information for financial assets secured with similar collateral to determine the ACL.

Troubled-debt Restructurings (TDRs)

From time to time, the Company may modify its loan agreement with a borrower. A modified loan is considered a TDR, using Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. The ACL on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring. In addition, when management has a reasonable expectation of executing a TDR the expected effect of the modification is included in the estimate of the ACL.

Contractual Term

Discounted Cash Flow Method

The Company uses the DCF method to estimate expected credit losses for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit and premium finance), and consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts Texas unemployment as a loss driver. Management also utilizes and forecasts either one-year percentage change in Texas gross domestic product or one-year percentage change in the commercial real estate property index as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis as of the reporting period. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis. The ACL is further increased for qualitative loss factors based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Loss-Rate Method

The Company uses a loss-rate method to estimate expected credit losses for its farmland and mortgage warehouse loan pool. For this loan segment, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Probability of Default/Loss Given Default Method

The Company uses the PD/LGD method to estimate expected credit losses for the construction and land, 1-4 family residential, OOCRE, NOOCRE, commercial and consumer PCD loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, time to recovery, probability of default, and loss given default.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment and time to recovery) produces an expected cash flow stream at the instrument level. An ACL is established for the difference between the instrument’s undiscounted cash flows and amortized cost basis. The ACL is further increased for qualitative loss factors based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for credit losses for unfunded commitments included in the Company’s condensed consolidated statements of income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in accounts payable and other liabilities on the Company’s condensed consolidated balance sheets.

Derivative Financial Instruments

Derivative Financial Instruments (Not Designated as Accounting Hedges)

The Company has entered into certain derivative instruments pursuant to a customer accommodation program under which the Company enters into an interest rate swap, cap or collar agreement with a commercial customer and an agreement with offsetting terms with a correspondent bank. These derivative instruments are not designated as accounting hedges and the changes in net fair value are recognized in noninterest income or expense on the Company’s condensed consolidated statements of income and the fair value amounts are included in other assets and accounts payable and other liabilities on the Company’s condensed consolidated balance sheets.

Derivative Financial Instruments (Designated as Cash Flow Hedges)

Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, floors, caps and collars to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans. The entire change in the fair value related to the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified into interest income when the forecasted transaction affects income.

The Company assesses the “effectiveness” of hedging derivatives on the date an arrangement was entered into and on a prospective basis at least quarterly. Hedge “effectiveness” is determined by the extent to which changes in the fair value of a derivative instrument offset changes in the fair value, cash flows or carrying value attributable to the risk being hedged. If the relationship between the change in the fair value of the derivative instrument and the change in the hedged item falls within a range considered to be the industry norm, the hedge is considered “highly effective” and qualifies for hedge accounting. A hedge is “ineffective” if the relationship between the changes falls outside the acceptable range. In that case, hedge accounting is discontinued on a prospective basis. The time value of the option is excluded from the assessment of effectiveness and is recognized in earnings using a straight-line amortization method over the life of the hedge arrangement. Gains or losses resulting from the termination or sale of a derivative accounted for as a cash flow hedge remain in other comprehensive income and are accreted or amortized to earnings over the remaining period of the former hedging relationship unless the forecasted transaction becomes probable of not occurring.

Fair Value Option

Fair Value OptionOn a specific identification basis, the Company may elect the fair value option for certain financial instruments in the period the financial instrument was originated or acquired. As of September 30, 2020, the Company had held for sale government guaranteed loans and held for investment PPP loans that the Company had elected to carry at fair value. Changes in fair value for instruments using the fair value option are recorded in noninterest income. The Company had a change in fair value for loans the Company elected to carry at fair value of $676 and $2,351 for the three and nine months ended September 30, 2020, respectively, as compared to $108 and $215 for the three and nine months ended September 30, 2019, respectively, that was recorded in government guaranteed loan income, net on the Condensed Consolidated Statements of Income. In addition, the Company records upfront costs and fees as incurred that are related to items for which the fair value option is elected through noninterest income. For the three and nine months ended September 30, 2020, respectively, the Company recognized upfront fees of $295 and $12,811 and on PPP loans through government guaranteed loan income, net on the Condensed Consolidated Statements of Income. There were minimal fees recognized on loans electing the fair value option for the three and nine months ended September 30, 2019.

Goodwill

Goodwill Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized but is reviewed for potential impairment annually on October 31 of each fiscal year or when a triggering event occurs. The Company may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test, and the Company may resume performing the qualitative assessment in any subsequent period. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of potential impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Any such adjustments to goodwill are reflected in the results of operations in the periods in which they become known.

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 22,920	$ 27,405	$ 51,082	$ 61,688
Net unrealized gains on securities available-for-sale:
Change in net unrealized gains on securities available-for-sale during the period	2,400	7,212	35,660	29,892
Reclassification adjustment for net (gains) losses included in net income	0	0	(2,879)	1,414
Net unrealized gains on securities available-for-sale	2,400	7,212	32,781	31,306
Net unrealized gains on derivative instruments designated as cash flow hedges	4,105	413	3,170	2,033
Other comprehensive income, before tax	6,505	7,625	35,951	33,339
Income tax expense	1,364	1,529	7,857	6,572
Other comprehensive income, net of tax	5,141	6,096	28,094	26,767
Comprehensive income	$ 28,061	$ 33,501	$ 79,176	$ 88,455

Fair Value - Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Financial assets:
Held to maturity investments	$ 34,223	$ 34,810
Equity securities without a readily determinable fair value	3,575	3,575
Financial liabilities:
Subordinated debentures and subordinated notes	140,158	145,571
Securities sold under agreements to repurchase	2,028	2,353
Carrying Amount
Financial assets:
Cash and cash equivalents	128,767	251,550
Held to maturity investments	30,984	32,965
Loans Held-for-sale	8,150	4,012
Loans held for investment		5,921,205
Accrued interest receivable	28,205	19,508
Bank-owned life insurance	82,366	80,915
Servicing asset	3,785	3,113
Equity securities without a readily determinable fair value	3,575	3,575
Federal Home Loan Bank and Federal Reserve Bank stock	81,825	68,348
Financial liabilities:
Deposits	6,222,556	5,894,350
Advances from FHLB	1,082,756	677,870
Accrued interest payable	3,444	5,893
Subordinated debentures and subordinated notes	140,158	145,571
Securities sold under agreements to repurchase	2,028
Other borrowings		2,353
Level 1 Inputs \| Fair Value
Financial assets:
Cash and cash equivalents	0	0
Held to maturity investments	0	0
Loans Held-for-sale	0	0
Loans held for investment		0
Accrued interest receivable	0	0
Bank-owned life insurance	0	0
Servicing asset	0	0
Financial liabilities:
Deposits	0	0
Advances from FHLB	0	0
Accrued interest payable	0	0
Subordinated debentures and subordinated notes	0	0
Securities sold under agreements to repurchase	0
Other borrowings		0
Level 2 Inputs \| Fair Value
Financial assets:
Cash and cash equivalents	128,767	251,550
Held to maturity investments	34,223	34,810
Loans Held-for-sale	8,150	4,012
Loans held for investment		0
Accrued interest receivable	28,205	19,508
Bank-owned life insurance	82,366	80,915
Servicing asset	3,654	3,113
Financial liabilities:
Deposits	6,253,626	5,692,217
Advances from FHLB	1,096,643	708,692
Accrued interest payable	3,444	5,893
Subordinated debentures and subordinated notes	140,158	145,571
Securities sold under agreements to repurchase	2,028
Other borrowings		2,353
Level 3 Inputs \| Fair Value
Financial assets:
Cash and cash equivalents	0	0
Held to maturity investments	0	0
Loans Held-for-sale	0	0
Loans held for investment		5,899,945
Accrued interest receivable	0	0
Bank-owned life insurance	0	0
Servicing asset	0	0
Financial liabilities:
Deposits	0	0
Advances from FHLB	0	0
Accrued interest payable	0	0
Subordinated debentures and subordinated notes	0	0
Securities sold under agreements to repurchase	0
Other borrowings		$ 0
Real Estate, Commercial and Consumer Portfolio Segments \| Carrying Amount
Financial assets:
Loans held for investment	6,334,138
Real Estate, Commercial and Consumer Portfolio Segments \| Level 1 Inputs \| Fair Value
Financial assets:
Loans held for investment	0
Real Estate, Commercial and Consumer Portfolio Segments \| Level 2 Inputs \| Fair Value
Financial assets:
Loans held for investment	0
Real Estate, Commercial and Consumer Portfolio Segments \| Level 3 Inputs \| Fair Value
Financial assets:
Loans held for investment	$ 6,371,257

Stock-Based Awards - Veritex Green Omnibus Plan Restricted Stock Units (Details) - Veritex Green Omnibus Plan - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Non-performance based equity restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Outstanding at the beginning of the period (in shares)	116,250	0
Granted (in shares)	93,918	116,250
Vested into shares (in shares)	(38,744)
Forfeited (in shares)	(4,402)
Outstanding at the end of the period (in shares)	167,022	116,250
Weighted Average Grant Date Fair Value
Outstanding at the beginning of the period (in dollars per share)	$ 21.38	$ 0
Granted (in dollars per share)	21.36	21.38
Vested into shares (in dollars per share)	29.13
Forfeited (in dollars per share)	29.13
Outstanding at the end of the period (in dollars per share)	$ 22.69	$ 21.38
Performance based equity restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Outstanding at the beginning of the period (in shares)	25,320	0
Granted (in shares)	8,531	26,145
Forfeited (in shares)		(508)
Outstanding at the end of the period (in shares)	33,851	25,637
Weighted Average Grant Date Fair Value
Outstanding at the beginning of the period (in dollars per share)	$ 21.38	$ 0
Granted (in dollars per share)	29.13	21.38
Forfeited (in dollars per share)		21.38
Outstanding at the end of the period (in dollars per share)	$ 23.33	$ 21.38
Restricted Stock Units
Weighted Average Grant Date Fair Value
Unrecognized compensation expense	$ 2,842	$ 2,243	$ 1,991
Requisite service period to recognize compensation cost	2 years 3 months 18 days

Stock-Based Awards - Stock Compensation Expense and Liability Award Compensation Expense (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
2019 Omnibus Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation expense	$ 1,588,000	$ 1,054,000	$ 4,468,000	$ 1,691,000
Veritex Green Omnibus Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation expense	490,000	376,000	1,413,000	1,147,000
Liability Awards \| 2019 Omnibus Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expensed and capitalized amount	$ 0	$ 0	$ 0	$ 1,403,000

Legal Contingencies	9 Months Ended
Legal Contingencies	Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]
Legal Contingencies	Legal Contingencies Litigation The Company may from time to time be involved in legal actions arising from normal business activities. In the opinion of management, there are no claims for which it is reasonably possible that an adverse outcome would have a material effect on the Company's financial position, liquidity or results of operations. The Company is not aware of any material unasserted claims.

Derivative Financial Instruments - AOCI Reclassification (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Designated as hedging instrument
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Net gain (loss) recognized in other comprehensive income on derivative	$ 4,105	$ 413	$ 3,170
Gain (loss) reclassified from accumulated other comprehensive income into income	359	(334)	975
Interest Rate Swap \| Designated as hedging instrument
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Net gain (loss) recognized in other comprehensive income on derivative			6,621
Interest Rate Swap \| Interest Expense \| Designated as hedging instrument
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Net gain (loss) recognized in other comprehensive income on derivative	4,096	413		$ 2,033
Gain (loss) reclassified from accumulated other comprehensive income into income	0	(334)	0	(473)
Interest Rate Swap 2 \| Interest Expense \| Designated as hedging instrument
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Net gain (loss) recognized in other comprehensive income on derivative	562	0	(3,373)	0
Gain (loss) reclassified from accumulated other comprehensive income into income	(194)	0	(409)	0
Interest Rate Floor \| Interest Income \| Designated as hedging instrument
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Net gain (loss) recognized in other comprehensive income on derivative	(553)	0	(78)	0
Gain (loss) reclassified from accumulated other comprehensive income into income	553	0	1,384	0
Interest rate caps and collars \| Non-hedging derivatives
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Other Comprehensive Income (Loss), Derivative, Excluded Component, Increase (Decrease), before Adjustments and Tax	$ 1,651	$ 604	$ 575	$ 474

Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Balance Sheet

The notional amounts and estimated fair values as of September 30, 2020 and December 31, 2019 are as shown in the table below.


	September 30, 2020						December 31, 2019
			Estimated Fair Value						Estimated Fair Value
	Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Asset Derivative		Liability Derivative
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	500,000	$	6,621	$	—	$	—	$	—	$	—
Interest rate swap on money market deposit account payments	250,000		—		3,373		—		—		—
Commercial loan interest rate floor	—		—		—		275,000		3,353		—
Total derivatives designated as hedging instruments	$	750,000	$	6,621	$	3,373	$	275,000	$	3,353	$	—

Derivatives not designated as hedging instruments:
Financial institution counterparty:
Interest rate swaps	$	296,322	$	—	$	14,259	$	222,394	$	105	$	4,736
Interest rate caps and collars	73,094		2		—		90,093		11		—
Commercial customer counterparty:
Interest rate swaps	296,322		13,396		—		222,394		4,393		84
Interest rate caps and collars	73,094		—		2		90,093		—		11
Total derivatives not designated as hedging instruments	738,832		13,398		14,261		$	624,974	4,509		4,831
Offsetting derivative assets/liabilities			2		2				(2,895)		(2,895)
Total Derivatives	$	1,488,832	$	20,021	$	17,636	$	899,974	$	4,967	$	1,936

Derivative Instruments, Gain (Loss)

Pre-tax gain (loss) included in the condensed consolidated statements of income and related to derivative instruments for the three and nine months ended September 30, 2020 and 2019 were as follows.


	For the Three Months Ended September 30, 2020						For the Three Months Ended September 30, 2019
	Net gain (loss) recognized in other comprehensive income on derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location of gain (loss) reclassified from accumulated other comprehensive income into income		Net gain recognized in other comprehensive income on derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location of gain (loss) reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	4,096	$	—	Interest Expense		$	413	$	(334)	Interest Expense
Interest rate swap on money market deposit account payments	562		(194)		Interest Expense		—		—		Interest Income
Commercial loan interest rate floor	(553)		553		Interest Income		—		—		Interest Income
Total	$	4,105	$	359			$	413	$	(334)

					Gain recognized in other noninterest income						Loss recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars					$	1,651					$	604


	For the Nine Months Ended September 30, 2020						For the Nine Months Ended September 30, 2019
	Net gain (loss) recognized in other comprehensive income on derivative		Gain (loss) reclassified from accumulated other comprehensive income into income		Location of gain (loss) reclassified from accumulated other comprehensive income into income		Net gain recognized in other comprehensive income on derivative		Loss reclassified from accumulated other comprehensive income into income		Location of gain or (loss) reclassified from accumulated other comprehensive income into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances	$	6,621	$	—	Interest Expense		$	2,033	$	(473)	Interest Expense
Interest rate swap on money market deposit account payments	(3,373)		(409)		Interest Expense		—		—		Interest Expense
Commercial loan interest rate floor	(78)		1,384		Interest Income		—		—		Interest Income
Total	$	3,170	$	975			$	2,033	$	(473)


Derivatives not designated as hedging instruments:					Gain recognized in other noninterest income						Gain recognized in other noninterest income
Interest rate swaps, caps and collars					$	575					$	474

Schedule of Derivative Instruments Outstanding

The following is a summary of the interest rate swaps, caps and collars outstanding as of September 30, 2020 and December 31, 2019.


	September 30, 2020
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair Value
Non-hedging derivative instruments:
Customer interest rate derivatives:
Interest rate swaps - receive fixed/pay floating	$	296,322	3.140 - 8.470%	LIBOR 1 month + —% - 5.00% PRIME H15 - 0.250%	Wtd. Avg. 3.8 years	$	(14,259)
Interest rate caps and collars	$	73,094	2.500% / 3.100%	LIBOR 1 month + —%	Wtd. Avg. 1.2 years	$	2

Correspondent interest rate derivatives:
Interest rate swaps - pay fixed/receive floating	$	296,322	3.140 - 8.470%	LIBOR 1 month + —% - 5.00% PRIME H15 - 0.250%	Wtd. Avg. 3.8 years	$	13,396
Interest rate caps and collars	$	73,094	3.000% / 5.000%	LIBOR 1 month + —% - 2.50%	Wtd. Avg. 1.2 years	$	(2)

	December 31, 2019
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair Value
Non-hedging derivative instruments:
Customer interest rate derivatives:
Interest rate swaps - receive fixed/pay floating	$	222,394	2.944 - 8.470%	LIBOR 1 month + —% - 5.00% PRIME H15 - 0.250%	Wtd. Avg. 3.3 years	$	(4,632)
Interest rate caps and collars	$	90,093	2.430% / 5.800%	LIBOR 1 month + —% - 3.75%	Wtd. Avg. 1.5 years	$	11

Correspondent interest rate derivatives:
Interest rate swaps - pay fixed/receive floating	$	222,394	2.944 - 8.470%	LIBOR 1 month + —% - 5.00% PRIME H15 - 0.250%	Wtd. Avg. 3.3 years	$	4,309
Interest rate caps and collars	$	90,093	3.000% / 5.800%	LIBOR 1 month + —% - 3.75%	Wtd. Avg. 1.5 years	$	(11)

Tabular disclosure of pertinent information about a derivative or group of derivatives on a disaggregated basis, such as for individual instruments, or small groups of similar instruments. May include a combination of the type of instrument, risks being hedged, notional amount, hedge designation, related hedged item, inception date, maturity date, or other relevant item.

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Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Nature of Organization

In this report, the words “Veritex”, “the Company,” “we,” “us,” and “our” refer to the combined entities of Veritex Holdings, Inc. and its subsidiaries, including Veritex Community Bank. The word “Holdco” refers to Veritex Holdings, Inc. The word “the Bank” refers to Veritex Community Bank.

Veritex is a Texas state banking organization, with corporate offices in Dallas, Texas, and currently operates 25 branches and one mortgage office located in the Dallas-Fort Worth metroplex, 12 branches in the Houston metropolitan area and one branch in Louisville, Kentucky. The Bank provides a full range of banking services to individual and corporate customers, which include commercial and retail lending, and the acceptance of checking and savings deposits. The Texas Department of Banking and the Board of Governors of the Federal Reserve System are the primary regulators of the Company and the Bank, and both perform periodic examinations to ensure regulatory compliance.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Veritex Holdings Holdings, Inc. and its subsidiaries, including Veritex Community Bank.

Segment Reporting

Reclassifications

Earnings Per Share

Earnings per share (“EPS”) are based upon the Company’s weighted average shares outstanding. The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted EPS for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Earnings (numerator)
Net income	$	22,920	$	27,405	$	51,082	$	61,688


Shares (denominator)
Weighted average shares outstanding for basic EPS	49,647		52,915		49,989		53,721
Dilutive effect of employee stock-based awards	128		953		188		912
Adjusted weighted average shares outstanding	49,775		53,868		50,177		54,633
EPS:
Basic	$	0.46	$	0.52	$	1.02	$	1.15
Diluted	$	0.46	$	0.51	$	1.02	$	1.13

For the three and nine months ended September 30, 2020, there were 1,360 and 1,525 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, respectively. For the three and nine months ended September 30, 2019, there were no antidilutive shares excluded from the diluted EPS weighted average shares outstanding.

Adoption of New Accounting Standards

The following table illustrates the impact of ASC 326.


	January 1, 2020
	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
Assets:
Allowance for credit losses on debt securities held-to-maturity	$	—	$	—	$	—
Allowance for credit losses on loans
Construction and land	3,760		3,822		(62)
Farmland	65		61		4
1 - 4 family residential	6,002		1,378		4,624
Multi-family residential	2,593		1,965		628
Owner Occupied Commercial Real Estate	13,066		1,978		11,088
Non-Owner Occupied Commercial Real Estate	15,314		8,139		7,175
Commercial	27,729		12,369		15,360
Consumer	442		122		320
Allowance for credit losses on loans	$	68,971	$	29,834	$	39,137

Liabilities:
Allowance for credit losses on OBS credit exposures	$	1,718	$	878	$	840

On March 22, 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modification using ASC 310-40. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered troubled debt restructurings (“TDRs”). This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress. Section 4013 of the CARES Act provides financial institutions with an option to suspend the application of ASC 310-40 to eligible loan restructurings. A loan restructuring is eligible under Section 4013 if the loan restructuring is related to COVID-19, if the loan was not more than 30 days past due as of December 31, 2019, and if the restructuring occurs between March 1, 2020 and the earlier of 60 days after the termination of the national emergency or December 31, 2020. If a loan restructuring is not eligible under Section 4013, or if the financial institution does not elect to avail itself of the optional relief in Section 4013, the financial institution should evaluate the loan restructuring under ASC 310-40 considering the guidance in the interagency statement.

For the nine months ended September 30, 2020, the Company had 741 modifications of loans with aggregate principal balances $1.2 billion that qualified for temporary suspension of TDR requirements under Section 4013 of the CARES Act. The majority of these modifications allow 90-day deferment of principal and/or interest payments with the ability to request an extension to 180-day deferment of principal and/or interest payments in certain instances. As of October 15, 2020, the Company had $155.5 million in loans with a remaining deferment.

Debt Securities

Allowance for Credit Losses – Available for Sale Securities

Allowance for Credit Losses – Held to Maturity Securities

Loans Held for Investment

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due in accordance with the terms of the loan agreement. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payment obligations as they come due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When a loan is placed on non-accrual status, all interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Acquired Loans

The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Credit Losses - Loans

The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

Real Estate — This category of loans consists of the following loan types:

Farmland — These loans are principally loans to purchase farmland.

Consumer — This category of loans is used for personal use typically for consumer purposes.

Collateral Dependent Financial Assets

Troubled-debt Restructurings (TDRs)

Contractual Term

Discounted Cash Flow Method

Loss-Rate Method

Probability of Default/Loss Given Default Method

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Derivative Financial Instruments (Not Designated as Accounting Hedges)

Derivative Financial Instruments (Designated as Cash Flow Hedges)

Fair Value Option

On a specific identification basis, the Company may elect the fair value option for certain financial instruments in the period the financial instrument was originated or acquired. As of September 30, 2020, the Company had held for sale government guaranteed loans and held for investment PPP loans that the Company had elected to carry at fair value. Changes in fair value for instruments using the fair value option are recorded in noninterest income. The Company had a change in fair value for loans the Company elected to carry at fair value of $676 and $2,351 for the three and nine months ended September 30, 2020, respectively, as compared to $108 and $215 for the three and nine months ended September 30, 2019, respectively, that was recorded in government guaranteed loan income, net on the Condensed Consolidated Statements of Income. In addition, the Company records upfront costs and fees as incurred that are related to items for which the fair value option is elected through noninterest income. For the three and nine months ended September 30, 2020, respectively, the Company recognized upfront fees of $295 and $12,811 and on PPP loans through government guaranteed loan income, net on the Condensed Consolidated Statements of Income. There were minimal fees recognized on loans electing the fair value option for the three and nine months ended September 30, 2019.

Gain on Sale of Guaranteed Portion of SBA Loans

The Company originates loans to customers under government guaranteed programs that generally provide for guarantees of 50% to 90% of each loan, subject to a maximum guaranteed amount. The Company can sell the guaranteed portion of the loan in an active secondary market and retains the unguaranteed portion in its portfolio.

All sales of government guaranteed loans are executed on a servicing retained basis, and the Company retains the rights and obligations to service the loans. The standard sale structure provides for the Company to retain a portion of the cash flow from the interest payment received on the loan. When a loan sale involves the transfer of an interest less than the entire loan, the controlling accounting method under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 860, Transfers and Servicing, requires the seller to reallocate the carrying basis between the assets transferred and the assets retained based on the relative fair value of the respective assets as of the date of sale. The maximum gain on sale that can be recognized is the difference between the fair value of the assets sold and the reallocated basis of the assets sold. The gain on sale, which is recognized in government guaranteed loan income, net on the Condensed Consolidated Statements of Income, is the sum of the cash premium on the guaranteed loan and the fair value of the servicing assets recognized, less the discount recorded on the unguaranteed portion of the loan retained by the Company. For the three and nine months ended September 30, 2020, the Company recognized $2,638 and $3,242 of gain on sales of government guaranteed loans, respectively. For the same periods in 2019, the Company recognized $822 and $3,933 of gain on sales of government guaranteed loans, respectively.

Goodwill

Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized but is reviewed for potential impairment annually on October 31 of each fiscal year or when a triggering event occurs. The Company may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test, and the Company may resume performing the qualitative assessment in any subsequent period. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of potential impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Any such adjustments to goodwill are reflected in the results of operations in the periods in which they become known.

During the second quarter of 2020, the Company observed a sustained decline in the market valuation of the Company’s common stock as a result of continued economic disruption occurring after the first quarter of 2020 primarily due to the COVID-19 pandemic. As a result, the Company determined that it was more likely than not that the fair value of the Company’s sole reporting unit was below its carrying value and proceeded to perform an interim quantitative impairment test. The Company determined the fair value of its reporting unit using a combination of a market and an income approach. Upon completion of quantitative evaluation, the Company determined that, as of June 30, 2020, the fair value of the Company's reporting unit exceeded its related carrying value, and therefore goodwill was not impaired. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment, which could adversely affect earnings in future periods. During the third quarter of 2020, the Company determined that there was no triggering event that required an interim quantitative impairment assessment to determine if it was more likely than not that the fair value of the Company’s sole reporting unit was below its carrying value. Management will continue to monitor events that could impact this conclusion in the future.

Share Transactions	9 Months Ended
Share Transactions	Sep. 30, 2020
Equity [Abstract]
Share Transactions	Share Transactions On January 28, 2019, the Company's Board of Directors (the “Board”) originally authorized a stock buyback program (the "Stock Buyback Program") pursuant to which the Company could, from time to time, purchase up to $50,000 of its outstanding common stock in the aggregate. The Board authorized increases of $50,000 on September 3, 2019 and $75,000 on December 12, 2019, resulting in an aggregate authorization to purchase up to $175,000 under the Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2019 to December 31, 2020. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. The Stock Buyback Program does not obligate the Company to purchase any share and the program may be terminated or amended by the Board at any time prior to its expiration. During the three months ended September 30, 2020, there were no shares repurchased through the Stock Buyback Program. During the nine months ended September 30, 2020, 2,002,211 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $24.78. During the three and nine months ended September 30, 2019, 1,177,241 and 2,349,103 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $24.61 and $25.03, respectively.

Derivative Financial Instruments - Balance Sheet Information (Details) - USD ($)	Sep. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	May 31, 2019
Derivative [Line Items]
Notional Amount	$ 1,488,832,000		$ 899,974,000
Asset Derivative
Gross derivatives	20,021,000		4,967,000
Offsetting derivative assets	2,000		2,895,000
Liability Derivative
Gross derivatives	17,636,000		1,936,000
Offsetting derivative liabilities	(2,000)		(2,895,000)
Interest Rate Swap
Derivative [Line Items]
Notional Amount		$ 500,000
Interest Rate Swap 2
Derivative [Line Items]
Notional Amount		$ 250,000
Interest Rate Floor
Derivative [Line Items]
Notional Amount				$ 275,000
Designated as hedging instrument
Derivative [Line Items]
Notional Amount	750,000,000		275,000,000
Asset Derivative
Gross derivatives	6,621,000		3,353,000
Liability Derivative
Gross derivatives	3,373,000		0
Designated as hedging instrument \| Interest Rate Swap
Derivative [Line Items]
Notional Amount	500,000,000		0
Asset Derivative
Gross derivatives	6,621,000		0
Liability Derivative
Gross derivatives	0		0
Designated as hedging instrument \| Interest Rate Swap 2
Derivative [Line Items]
Notional Amount	250,000,000		0
Asset Derivative
Gross derivatives	0		0
Liability Derivative
Gross derivatives	3,373,000		0
Designated as hedging instrument \| Interest Rate Floor
Derivative [Line Items]
Notional Amount	0		275,000,000
Asset Derivative
Gross derivatives	0		3,353,000
Liability Derivative
Gross derivatives	0		0
Non-hedging derivatives
Derivative [Line Items]
Notional Amount	738,832,000		624,974,000
Asset Derivative
Gross derivatives	13,398,000		4,509,000
Liability Derivative
Gross derivatives	14,261,000		4,831,000
Financial institution counterparty \| Non-hedging derivatives \| Interest Rate Swap
Derivative [Line Items]
Notional Amount	296,322,000		222,394,000
Asset Derivative
Gross derivatives	0		105,000
Liability Derivative
Gross derivatives	14,259,000		4,736,000
Financial institution counterparty \| Non-hedging derivatives \| Interest rate caps and collars
Derivative [Line Items]
Notional Amount	73,094,000		90,093,000
Asset Derivative
Gross derivatives	2,000		11,000
Liability Derivative
Gross derivatives	0		0
Commercial customer counterparty: \| Non-hedging derivatives \| Interest Rate Swap
Derivative [Line Items]
Notional Amount	296,322,000		222,394,000
Asset Derivative
Gross derivatives	13,396,000		4,393,000
Liability Derivative
Gross derivatives	0		84,000
Commercial customer counterparty: \| Non-hedging derivatives \| Interest rate caps and collars
Derivative [Line Items]
Notional Amount	73,094,000		90,093,000
Asset Derivative
Gross derivatives	0		0
Liability Derivative
Gross derivatives	$ 2,000		$ 11,000

Loans and Allowance for Credit Losses - Collateral Dependent Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020	Jan. 01, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	$ 121,591	$ 115,365	$ 29,834	$ 29,834	$ 26,243	$ 24,712	$ 19,255
Real Estate \| Construction and land
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	9,590	9,021	3,822	3,822	3,549	3,096	2,186
Real Estate \| Residential Real Estate
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation				3,343
Real Estate \| Residential Real Estate \| 1 - 4 family residential
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	10,605	10,777	1,378	1,378	2,108	1,843	1,614
Real Estate \| Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation				10,117
Real Estate \| Commercial Real Estate \| Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	8,549	13,886	1,978	1,978	1,654	1,654	1,393
Real Estate \| Commercial Real Estate \| Non-Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	35,821	36,067	8,139	8,139	6,834	6,376	5,070
Commercial
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	49,677	38,577	12,369	12,369	11,238	10,952	8,554
Consumer
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	583	$ 546	$ 122	$ 122	$ 124	$ 55	$ 19
Business Assets
Servicing Asset at Amortized Cost [Line Items]
Total Loans	23,437
Business Assets \| Real Estate \| Construction and land
Servicing Asset at Amortized Cost [Line Items]
Total Loans	785
Business Assets \| Real Estate \| Residential Real Estate \| 1 - 4 family residential
Servicing Asset at Amortized Cost [Line Items]
Total Loans	0
Business Assets \| Real Estate \| Commercial Real Estate \| Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
Total Loans	2,530
Business Assets \| Real Estate \| Commercial Real Estate \| Non-Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
Total Loans	3,601
Business Assets \| Commercial
Servicing Asset at Amortized Cost [Line Items]
Total Loans	16,521
Business Assets \| Consumer
Servicing Asset at Amortized Cost [Line Items]
Total Loans	0
Real Property
Servicing Asset at Amortized Cost [Line Items]
Total Loans	65,440
Real Property \| Real Estate \| Construction and land
Servicing Asset at Amortized Cost [Line Items]
Total Loans	0
Real Property \| Real Estate \| Residential Real Estate \| 1 - 4 family residential
Servicing Asset at Amortized Cost [Line Items]
Total Loans	2,366
Real Property \| Real Estate \| Commercial Real Estate \| Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
Total Loans	2,779
Real Property \| Real Estate \| Commercial Real Estate \| Non-Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
Total Loans	33,447
Real Property \| Commercial
Servicing Asset at Amortized Cost [Line Items]
Total Loans	25,662
Real Property \| Consumer
Servicing Asset at Amortized Cost [Line Items]
Total Loans	1,186
Collateralized
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	18,892
Collateralized \| Real Estate \| Construction and land
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	0
Collateralized \| Real Estate \| Residential Real Estate \| 1 - 4 family residential
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	0
Collateralized \| Real Estate \| Commercial Real Estate \| Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	49
Collateralized \| Real Estate \| Commercial Real Estate \| Non-Owner Occupied Commercial Real Estate
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	374
Collateralized \| Commercial
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	18,419
Collateralized \| Consumer
Servicing Asset at Amortized Cost [Line Items]
ACL Allocation	$ 50

Off-Balance Sheet Loan Commitments (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of the Approximate Amounts of Financial Instruments with Off-Balance Sheet Risk

The following table sets forth the approximate amounts of these financial instruments as of September 30, 2020 and December 31, 2019:


	September 30,		December 31,
	2020		2019
Commitments to extend credit	$	2,127,728	$	1,744,989
Mortgage warehouse commitments	280,444		205,361
Standby and commercial letters of credit	43,363		27,196
Total	$	2,451,535	$	1,977,546

Schedule of Allowance for Unfunded Commitments

This allowance is recorded in accounts payable and other liabilities on the condensed consolidated balance sheets:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Beginning balance for allowance for unfunded commitments	$	8,398	$	878	$	878	$	878
Impact of CECL adoption	—		—		840		—
Provision for unfunded commitments	1,447		—		8,127		—
Ending balance of allowance for unfunded commitments	$	9,845	$	878	$	9,845	$	878

Fair Value - Non-recurring Basis (Details)	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($) property
Assets measured at fair value
Impaired loans, specific allowance	$ 18,892,000	$ 1,602,000
Other real estate owned, number of properties \| property		4
Non-recurring
Assets measured at fair value
Collateral dependent loans with an allowance	40,486,000	$ 4,504,000
Other real estate owned		5,995,000
Liabilities measured at fair value	0	0
Non-recurring \| Level 1 Inputs
Assets measured at fair value
Collateral dependent loans with an allowance	0	0
Other real estate owned		0
Non-recurring \| Level 2 Inputs
Assets measured at fair value
Collateral dependent loans with an allowance	0	0
Other real estate owned		0
Non-recurring \| Level 3 Inputs
Assets measured at fair value
Collateral dependent loans with an allowance	$ 40,486,000	4,504,000
Other real estate owned		$ 5,995,000

Fair Value (Tables)

9 Months Ended

Sep. 30, 2020