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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .

Commission File Number: 001-36682
VERITEX HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Texas 27-0973566
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
   
8214 Westchester Drive, Suite 800  
Dallas,Texas 75225
(Address of principal executive offices) (Zip code)
(972)349-6200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01VBTXNasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒ Accelerated filer ☐
   
Non-accelerated filer☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 7, 2024, there were 54,483,871 outstanding shares of the registrant’s common stock, par value $0.01 per share.




VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Page
































2



Glossary of Acronyms, Abbreviations, and Terms
The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q, including “Part I, Item 1. Financial Statements” and “Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

ACLAllowance for Credit LossGreenGreen Bank
AFSAvailable-For-SaleGAAPGenerally Accepted Accounting Principles in the United States of America
AOCIAccumulated Other Comprehensive IncomeHTMHeld-To-Maturity
APICAdditional Paid-In CapitalLHFSLoans Held for Sale
ASCAccounting Standards CodificationLHILoans Held for Investment
ASUAccounting Standard UpdateLIBORLondon Interbank Offered Rate
BOLIBank-Owned Life InsuranceLowerLower Holding Company
BoardBoard of Directors of Veritex Holdings, Inc.M&AMergers and acquisitions
bpsBasis PointsMBSMortgage-backed Securities
BTFPBank Term Funding ProgramMWMortgage Warehouse
CBLRCommunity Bank Leverage RatioNOOCRENon-owner Occupied CRE
CDCertificates of DepositOBSOff-Balance Sheet
CECLCurrent Expected Credit LossesOOCREOwner Occupied CRE
CET1Common Equity Tier 1OREOOther Real Estate Owned
CMOCollateralized Mortgage ObligationPCAPrompt Corrective Action
CRACommunity Reinvestment ActPCDPurchased Credit Deteriorated
CRECommercial Real EstatePSUPerformance-based Restricted stock units
DCFDiscounted Cash FlowRBCRisk-Based Capital
DFWDallas-Fort WorthRSURestricted stock units
EPSEarnings Per ShareRWARisk-Weighted Assets
Exchange ActSecurities Exchange Act of 1934, as amendedSBAU. S. Small Business Administration
FASBFinancial Accounting Standards BoardSECSecurities and Exchange Commission
FDICFederal Deposit Insurance CorporationSOFRSecured Overnight Financing Rate
Federal ReserveThe Federal Reserve SystemTDBTexas Department of Banking
FHLBFederal Home Loan BankThriveThrive Mortgage, LLC
FRBFederal Reserve Bank of DallasUSDAUnited States Department of Agriculture
3



PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements
4

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
as of September 30, 2024 and December 31, 2023
(Dollars in thousands, except par value and share information) 
September 30,December 31,
20242023
(Unaudited)
ASSETS
Cash and due from banks$54,165 $58,914 
Interest bearing deposits in other banks1,046,625 570,149 
Total cash and cash equivalents1,100,790 629,063 
Debt securities AFS, at fair value1,243,246 1,076,639 
Debt securities HTM (fair value of $161,271 and $160,021, at September 30, 2024 and December 31, 2023, respectively)
180,364 180,403 
Equity securities22,377 21,521 
Investment in unconsolidated subsidiaries1,018 1,018 
FHLB Stock and FRB Stock47,862 53,699 
Total investments1,494,867 1,333,280 
LHFS48,496 79,072 
LHI, MW630,650 377,796 
LHI, excluding MW 9,028,575 9,206,544 
Less: ACL(117,162)(109,816)
Total LHI, net9,542,063 9,474,524 
BOLI84,776 84,833 
Premises and equipment, net114,202 105,727 
OREO9,034 — 
Intangible assets, net of accumulated amortization32,825 41,753 
Goodwill404,452 404,452 
Other assets211,471 241,633 
Total assets$13,042,976 $12,394,337 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Deposits:  
Noninterest-bearing deposits$2,643,894 $2,218,036 
Interest-bearing transaction and savings deposits4,204,708 4,348,385 
Certificates and other time deposits3,625,920 3,191,737 
Correspondent money market deposits561,489 580,037 
Total deposits11,036,011 10,338,195 
Accounts payable and other liabilities168,415 195,036 
Advances from FHLB— 100,000 
Subordinated debentures and subordinated notes230,536 229,783 
Total liabilities11,434,962 10,863,014 
Stockholders’ equity:  
Common stock, $0.01 par value:
Authorized shares - 75,000,000
Issued shares - 61,261,938 and 60,976,462 at September 30, 2024 and December 31, 2023, respectively
613 610 
APIC1,324,929 1,317,516 
Retained earnings493,921 444,242 
 AOCI(40,330)(63,463)
Treasury stock, 6,815,764 and 6,638,094 shares, at cost, at September 30, 2024 and December 31, 2023, respectively
(171,119)(167,582)
Total stockholders’ equity1,608,014 1,531,323 
Total liabilities and stockholders’ equity$13,042,976 $12,394,337 

See accompanying Notes to Consolidated Financial Statements.
5

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For the Three and Nine Months Ended September 30, 2024 and 2023
(Dollars in thousands, except per share amounts)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
INTEREST AND DIVIDEND INCOME
Interest and fees on loans$167,261 $167,368 $496,182 $482,802 
Debt securities15,830 10,928 44,933 32,082 
Deposits in financial institutions and Federal Funds sold12,571 7,128 28,343 20,169 
Equity securities and other investments1,001 1,691 3,039 4,217 
Total interest and dividend income196,663 187,115 572,497 539,270 
INTEREST EXPENSE
Transaction and savings deposits47,208 39,936 139,611 102,750 
Certificates and other time deposits46,230 36,177 131,533 85,244 
Advances from FHLB47 8,523 2,906 38,443 
Subordinated debentures and subordinated notes3,116 3,118 9,343 9,252 
Total interest expense96,601 87,754 283,393 235,689 
NET INTEREST INCOME100,062 99,361 289,104 303,581 
Provision for credit losses4,000 8,627 19,750 33,012 
Benefit for credit losses on unfunded commitments— (909)(1,541)(541)
Net interest income after provision (benefit) for credit losses96,062 91,643 270,895 271,110 
NONINTEREST INCOME
Service charges and fees on deposit accounts5,442 5,159 15,312 15,448 
Loan fees3,278 1,564 7,995 5,148 
Loss on sales of debt securities— — (6,304)(5,321)
Government guaranteed loan income, net780 1,772 4,714 15,604 
Equity method investment loss— (136)— (1,172)
Customer swap income271 202 1,046 1,380 
Other3,335 1,113 7,583 5,810 
Total noninterest income13,106 9,674 30,346 36,897 
NONINTEREST EXPENSE
Salaries and employee benefits37,370 30,949 103,525 91,464 
Occupancy and equipment4,789 4,881 14,051 14,681 
Professional and regulatory fees4,903 7,283 16,573 18,540 
Data processing and software expense5,268 4,541 15,221 13,970 
Marketing2,781 2,353 6,303 6,759 
Amortization of intangibles2,438 2,438 7,314 7,401 
Telephone and communications335 362 961 1,195 
Other12,216 6,607 31,409 19,216 
Total noninterest expense70,100 59,414 195,357 173,226 
Income before income tax expense39,068 41,903 105,884 134,781 
Provision for income taxes8,067 9,282 23,525 30,019 
NET INCOME$31,001 $32,621 $82,359 $104,762 
Basic EPS$0.57 $0.60 $1.51 $1.93 
Diluted EPS$0.56 $0.60 $1.50 $1.92 
See accompanying Notes to Consolidated Financial Statements.
6

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Nine Months Ended September 30, 2024 and 2023
(Dollars in thousands)
Three Months Ended September 30,Nine Months Ended
September 30,
2024202320242023
NET INCOME$31,001 $32,621 $82,359 $104,762 
OTHER COMPREHENSIVE INCOME
Net unrealized gains (losses) on debt securities AFS:
Change in net unrealized gains (losses) on debt securities AFS during the period, net35,720 (19,068)20,700 (38,496)
(Accretion) amortization from transfer of debt securities from AFS to HTM(163)(168)2,599 3,289 
Reclassification adjustment for net losses included in net income— — 6,304 5,321 
Net unrealized gains (losses) on debt securities AFS35,557 (19,236)29,603 (29,886)
Net unrealized gains (losses) on derivative instruments designated as cash flow hedges10,541 (11,917)(182)(19,872)
Other comprehensive income (loss), before tax46,098 (31,153)29,421 (49,758)
Income tax expense (benefit)9,715 (6,507)6,288 (11,328)
Other comprehensive income (loss), net of tax36,383 (24,646)23,133 (38,430)
COMPREHENSIVE INCOME$67,384 $7,975 $105,492 $66,332 

See accompanying Notes to Consolidated Financial Statements.


7

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) 
For the Three and Nine Months Ended September 30, 2024 and 2023
(Dollars in thousands, except share data)
Three Months Ended September 30, 2024
 Common StockTreasury StockAPICRetained
Earnings		AOCITotal 
 SharesAmountSharesAmount
Balance at June 30, 202454,350,350 $612 6,813,782 $(171,079)$1,321,995 $473,801 $(76,713)$1,548,616 
RSUs vested, net of 28,981 shares withheld to cover taxes
73,419 1 — — (613)— — (612)
Exercise of employee stock options, net of 492 and 1,798 shares withheld to cover taxes and exercise, respectively.
24,387 — — — 350 — — 350 
Stock buyback(1,982)— 1,982 (40)— — — (40)
Stock based compensation— — — — 3,197 — — 3,197 
Net income— — — — — 31,001 — 31,001 
Dividends paid— — — — — (10,881)— (10,881)
Other comprehensive income— — — — — — 36,383 36,383 
Balance at September 30, 202454,446,174 $613 6,815,764 $(171,119)$1,324,929 $493,921 $(40,330)$1,608,014 


Three Months Ended September 30, 2023
 Common StockTreasury StockAPICRetained
Earnings		AOCI 
 SharesAmountSharesAmountTotal
Balance at June 30, 202354,260,792 $609 6,638,094 $(167,582)$1,311,687 $429,753 $(83,187)$1,491,280 
RSUs vested, net of 12,354 shares withheld to cover taxes
41,249 — — — (226)— — (226)
Exercise of employee stock options2,748 — — — 38 — — 38 
Stock based compensation— — — — 2,960 — — 2,960 
Net income— — — — — 32,621 — 32,621 
Dividends paid— — — — — (10,861)— (10,861)
Other comprehensive loss— — — — — — (24,646)(24,646)
Balance at September 30, 202354,304,789 $609 6,638,094 $(167,582)$1,314,459 $451,513 $(107,833)$1,491,166 

See accompanying Notes to Consolidated Financial Statements.


8

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) 
For the Three and Nine Months Ended September 30, 2024 and 2023
(Dollars in thousands, except share data)

Nine Months Ended September 30, 2024
 Common StockTreasury StockAPICRetained
Earnings		AOCI 
 SharesAmountSharesAmountTotal
Balance at December 31, 202354,338,368 $610 6,638,094 $(167,582)$1,317,516 $444,242 $(63,463)$1,531,323 
RSUs vested, net of 113,694 shares withheld to cover taxes
261,089 3 — — (2,190)— — (2,187)
Exercise of employee stock options, net of 492 and 1,798 shares withheld to cover taxes and exercise, respectively
24,387 — — — 350 — — 350 
Stock buyback(177,670)— 177,670 (3,537)— — — (3,537)
Stock based compensation— — — — 9,253 — — 9,253 
Net income— — — — — 82,359 — 82,359 
Dividends paid— — — — — (32,680)— (32,680)
Other comprehensive income— — — — — — 23,133 23,133 
Balance at September 30, 202454,446,174 $613 6,815,764 $(171,119)$1,324,929 $493,921 $(40,330)$1,608,014 


Nine Months Ended September 30, 2023
 Common StockTreasury StockAPICRetained
Earnings		AOCI 
 SharesAmountSharesAmountTotal
Balance at December 31, 202254,029,955 $607 6,638,094 $(167,582)$1,306,852 $379,299 $(69,403)$1,449,773 
RSUs vested, net of 86,779 shares withheld to cover taxes
220,755 2 — — (2,210)— — (2,208)
Exercise of employee stock options, net of 121 and 9,729 shares withheld to cover taxes and exercise, respectively
54,079 — — — 803 — — 803 
Stock based compensation— — — — 9,014 — — 9,014 
Net income— — — — — 104,762 — 104,762 
Dividends paid— — — — — (32,548)— (32,548)
Other comprehensive loss— — — — — — (38,430)(38,430)
Balance at September 30, 202354,304,789 $609 6,638,094 $(167,582)$1,314,459 $451,513 $(107,833)$1,491,166 

See accompanying Notes to Consolidated Financial Statements.
9

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2024 and 2023
(Dollars in thousands)

 For the Nine Months Ended September 30,
 20242023
Cash flows from operating activities:
Net income$82,359 $104,762 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles14,185 14,899 
Net (accretion) amortization of time deposit premium, debt discount and debt issuance costs(2,540)722 
Provision for credit losses and unfunded commitments18,209 32,471 
Accretion of loan discount(1,663)(2,884)
Stock-based compensation expense9,253 9,014 
Excess tax expense from stock compensation501 259 
Net (accretion) amortization of premiums on debt securities(609)1,925 
Unrealized (gain) loss on equity securities recognized in earnings(209)335 
Change in cash surrender value and mortality rates of BOLI57 (371)
Loss on sales of debt securities6,304 5,321 
Change in fair value of government guaranteed loans using fair value option1,455 (2,006)
Gain on sales of mortgage LHFS(84)(67)
Gain on sales of government guaranteed loans(6,164)(13,593)
Servicing asset recoveries, net (401)(407)
Originations of LHFS(27,690)(52,629)
Proceeds from sales of LHFS50,243 37,138 
Equity method investment loss— 1,172 
Decrease (increase) in other assets36,169 (34,572)
(Decrease) increase in accounts payable and other liabilities(36,366)36,579 
Net cash provided by operating activities143,009 138,068 
Cash flows from investing activities:  
Purchases of AFS debt securities(638,172)(439,633)
Proceeds from sales of AFS debt securities113,794 109,793 
Proceeds from maturities, calls and pay downs of AFS debt securities382,728 511,343 
Purchases of HTM debt securities(4,620)— 
Maturity, calls and paydowns of HTM debt securities3,610 3,196 
Proceeds of other investments5,190 41,246 
Net loans originated(115,709)(232,978)
Proceeds from sale of government guaranteed loans30,928 82,950 
Net (disposals) additions to premises and equipment(12,086)(1,019)
Net cash (used in) provided by investing activities(234,337)74,898 
Cash flows from financing activities:  
Net increase in deposits701,109 1,073,318 
Net (decrease) in advances from FHLB(100,000)(975,000)
Payments to tax authorities for stock-based compensation(2,187)(2,208)
Proceeds from exercise of employee stock options350 803 
Purchase of treasury stock(3,537)— 
Dividends paid(32,680)(32,548)
Net cash provided by financing activities563,055 64,365 
Net increase in cash and cash equivalents471,727 277,331 
Cash and cash equivalents at beginning of period629,063 436,077 
Cash and cash equivalents at end of period$1,100,790 $713,408 
See accompanying Notes to Consolidated Financial Statements.
10

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts) 

1. Operations and Summary of Significant Accounting Policies
Organization and Nature of Business
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 19 branches located in the DFW metroplex and 12 branches in the Houston metropolitan area. The Bank provides a full range of banking services, including commercial and retail lending and the acceptance of checking and savings deposits, to individual and corporate customers. The TDB and the Board of Governors of the Federal Reserve are the primary regulators of the Company and the Bank, and both regulatory agencies perform periodic examinations to ensure regulatory compliance.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Veritex Holdings, Inc. and its subsidiaries, including the Bank.

The accompanying unaudited consolidated financial statements have been prepared in accordance with 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 consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s consolidated balance sheets at September 30, 2024 and December 31, 2023, consolidated statements of income, consolidated statements of comprehensive income (loss) and consolidated changes in stockholders’ equity for the three and nine months ended September 30, 2024 and 2023 and consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023.

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 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 SEC. These unaudited 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, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2024.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the 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.

11

EPS
EPS is based upon the 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, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Numerator:
Net income$31,001 $32,621 $82,359 $104,762 
Denominator:
Weighted average shares outstanding for basic EPS54,409 54,300 54,437 54,233 
Dilutive effect of employee stock-based awards523 297 429 330 
Adjusted weighted average shares outstanding54,932 54,597 54,866 54,563 
EPS:
Basic$0.57 $0.60 $1.51 $1.93 
Diluted$0.56 $0.60 $1.50 $1.92 
Antidilutive shares498 1,339 948 1,314 
For the three months ended September 30, 2024, there were 498 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 136 relating to RSUs and 362 relating to stock options. For the nine months ended September 30, 2024, there were 948 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 338 relating to RSUs and 610 relating to stock options.

For the three months ended September 30, 2023, there were 1,339 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 671 related to RSUs and 668 related to stock options. For the nine months ended September 30, 2023, there were 1,314 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 645 related to RSUs and 669 related to stock options.

Cost Method Accounting

The Company follows ASC 325-20, Cost Method Investments, to account for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments). Investments of this nature are initially recorded at cost. Income is recorded for dividends received that are distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost of the investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

2. Supplemental Statement of Cash Flows
Other supplemental cash flow information is presented below:

 Nine Months Ended September 30,
 20242023
(in thousands)
Cash paid for interest$283,619 $208,668 
Cash paid for income taxes9,766 38,893 

12

3. Share Transactions    
Stock Buyback Program

    On March 26, 2024, the Board 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 Stock Buyback Program has an expiration date of March 31, 2025 and may be suspended, terminated, amended or modified by the Board at any time without prior notice at the Board’s discretion. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any shares and the program may be terminated or amended by the Board at any time prior to its expiration.

Shares repurchased through the periods indicated are as follows:

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Numbers of shares repurchased1,982 — 177,670 — 
Weighted average price per share$20.24 $— $19.91 $— 


13

4. Securities
Equity Securities With a Readily Determinable Fair Value
The Company held equity securities with a fair value of $10,106 and $9,897 at September 30, 2024 and December 31, 2023, respectively. The Company did not realize a loss on equity securities with a readily determinable fair value during the three or nine months ended September 30, 2024 or 2023. The gross unrealized gain (loss) recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s consolidated statements of income were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Unrealized gain (loss) recognized on equity securities with a readily determinable fair value$356 $(304)$209 $(335)
Equity Securities Without a Readily Determinable Fair Value
The Company held equity securities without a readily determinable fair value and measured at aggregate cost of $48,582 and $11,624 as of September 30, 2024 and December 31, 2023, respectively.
Debt Securities
Debt securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, ACL and the fair value of AFS and HTM debt securities are as follows:
 September 30, 2024
 Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
AFS
Corporate bonds$271,207 $1,754 $21,515 $— $251,446 
Municipal securities14,230 — 2,617 — 11,613 
MBS231,561 6,101 10,664 — 226,998 
CMO599,201 7,056 33,975 — 572,282 
Asset-backed securities113,882 1,477 1,892 — 113,467 
Collateralized loan obligations67,578 112 250 — 67,440 
 $1,297,659 $16,500 $70,913 $— $1,243,246 
Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
HTM
MBS$31,277 $— $5,175 $— $26,102 
CMO33,114 — 3,836 — 29,278 
Municipal securities115,973 58 10,140 — 105,891 
$180,364 $58 $19,151 $— $161,271 

14

 December 31, 2023
 Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
AFS
Corporate bonds$244,652 $1,034 $29,566 $— $216,120 
Municipal securities46,631 108 3,258 — 43,481 
MBS194,486 4,430 13,465 — 185,451 
CMO563,421 4,634 46,999 — 521,056 
Asset-backed securities47,738 1,045 2,130 — 46,653 
Collateralized loan obligations64,250 — 372 — 63,878 
 $1,161,178 $11,251 $95,790 $— $1,076,639 
Amortized CostGross Unrealized GainsGross Unrealized LossesACLFair Value
HTM
MBS$33,716 $— $6,037 $— $27,679 
CMO34,483 — 4,567 — 29,916 
Municipal securities112,204 86 9,864 — 102,426 
$180,403 $86 $20,468 $— $160,021 
MBS are commercial MBS, secured by commercial properties, and residential MBS, generally secured by single-family residential properties. All MBS included in the table above were issued by U.S. government agencies or corporations.
The Company did not transfer any debt securities from AFS to HTM during the nine months ended September 30, 2024. For the year ended December 31, 2022, the Company elected to transfer 25 AFS debt securities with an aggregate fair value of $117,001 to a classification of HTM debt securities on January 1, 2022. In accordance with FASB ASC 320-10-35-10, the transfer from AFS to HTM was recorded at the fair value of the AFS debt securities at the time of transfer. The net unrealized holding gain retained in AOCI for securities transferred from AFS to HTM was $2,599 and $3,122 at September 30, 2024 and December 31, 2023, respectively.
The following tables disclose the Company’s debt securities in an unrealized loss position, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position:
15

 September 30, 2024
 Less Than 12 Months12 Months or MoreTotals
 Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
AFS
Corporate bonds$45,852 $4,038 $169,253 $17,477 $215,105 $21,515 
Municipal securities9,489 2,552 2,124 65 11,613 2,617 
MBS— — 86,119 10,664 86,119 10,664 
CMO18,018 496 336,408 33,479 354,426 33,975 
Asset-backed securities39,701 201 13,997 1,691 53,698 1,892 
Collateralized loan obligations12,012 250 — — 12,012 250 
 $125,072 $7,537 $607,901 $63,376 $732,973 $70,913 
HTM
MBS$— $— $26,102 $5,175 $26,102 $5,175 
CMO— — 29,278 3,836 29,278 3,836 
Municipal securities22,877 3,652 70,932 6,488 93,809 10,140 
 $22,877 $3,652 $126,312 $15,499 $149,189 $19,151 
 December 31, 2023
 Less Than 12 Months12 Months or MoreTotals
 Fair
Value		Unrealized LossFair
Value		Unrealized LossFair
Value		Unrealized Loss
AFS
Corporate bonds$34,989 $5,970 $162,148 $23,596 $197,137 $29,566 
Municipal securities6,792 45 22,052 3,213 28,844 3,258 
MBS— — 104,486 13,465 104,486 13,465 
CMO— — 419,044 46,999 419,044 46,999 
Asset-backed securities9,011 1,559 8,847 571 17,858 2,130 
Collateralized loan obligations— — 63,878 372 63,878 372 
 $50,792 $7,574 $780,455 $88,216 $831,247 $95,790 
HTM
MBS$— $— $27,679 $6,037 $27,679 $6,037 
CMO— — 29,916 4,567 29,916 4,567 
Municipal securities7,845 270 79,713 9,594 87,558 9,864 
$7,845 $270 $137,308 $20,198 $145,153 $20,468 

Management evaluates AFS debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
The number of AFS debt securities in an unrealized loss position totaled 122 and 142 at September 30, 2024 and December 31, 2023, respectively. Management does not have the intent to sell any of these debt securities and believes that it is more likely than not that the Company will not have to sell any such debt securities before a recovery of cost. The fair value is expected to recover as the debt securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of September 30, 2024, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company’s consolidated statements of income.
16

The following table presents the activity in the ACL for AFS debt securities:
Three Months ended September 30, Nine Months ended September 30,
2024202320242023
ACL on debt securities:
   Beginning balance$— $885 $— $— 
   Credit loss recovery— (885)— — 
Ending balance$— $— $— $— 

    The amortized costs and estimated fair values of AFS and HTM debt securities, 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. MBS, CMOs, asset-backed securities, and collateralized loan obligations typically are issued with stated principal amounts, and the securities are backed by pools of mortgage loans and other loans that have varying maturities. The terms of MBS, CMOs, asset-backed securities, and collateralized loan obligations 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, 2024
AFSHTM
Amortized CostFair ValueAmortized CostFair Value
Due in one year or less$— $— $3,939 $3,939 
Due from one year to five years73,247 72,887 894 868 
Due from five years to ten years181,966 165,765 19,512 19,153 
Due after ten years30,224 24,407 91,628 81,931 
285,437 263,059 115,973 105,891 
MBS and CMO830,762 799,280 64,391 55,380 
Asset-backed securities113,882 113,467 — — 
Collateralized loan obligations67,578 67,440 — — 
$1,297,659 $1,243,246 $180,364 $161,271 
December 31, 2023
AFSHTM
Amortized CostFair ValueAmortized CostFair Value
Due in one year or less$2,018 $1,906 $— $— 
Due from one year to five years46,645 46,682 4,445 4,448 
Due from five years to ten years188,526 163,397 12,806 12,628 
Due after ten years54,094 47,616 94,953 85,350 
291,283 259,601 112,204 102,426 
MBS and CMO757,907 706,507 68,199 57,595 
Asset-backed securities47,738 46,653 — — 
Collateralized loan obligations64,250 63,878 — — 
$1,161,178 $1,076,639 $180,403 $160,021 
17

Proceeds from sales of debt securities AFS and gross gains and losses for the nine months ended September 30, 2024 and 2023 were as follows:
Nine Months ended September 30,
20242023
Proceeds from sales $113,794 $109,793 
Gross realized losses 6,304 5,321 
As of September 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders' equity. There was a blanket floating lien on all debt securities held by the Company to secure FHLB advances as of September 30, 2024 and December 31, 2023.
5. LHI and ACL
LHI in the accompanying consolidated balance sheets are summarized as follows:
 September 30, 2024December 31, 2023
LHI, carried at amortized cost:
Real estate:        
Construction and land$1,436,540 $1,734,254 
Farmland32,254 31,114 
1 - 4 family residential944,755 937,119 
Multi-family residential738,090 605,817 
OOCRE807,223 794,088 
NOOCRE2,338,094 2,350,725 
Commercial
2,728,544 2,752,063 
MW630,650 377,796 
Consumer11,292 10,149 
$9,667,442 $9,593,125 
Deferred loan fees, net(8,217)(8,785)
ACL(117,162)(109,816)
Total LHI, net$9,542,063 $9,474,524 
Included in the total LHI, net, as of September 30, 2024 and December 31, 2023 was an accretable discount related to purchased performing and PCD loans acquired in the approximate amounts of $4,330 and $5,334, respectively. The discount is being accreted into income on a level-yield basis over the life of the loans. In addition, included in the net loan portfolio as of September 30, 2024 and December 31, 2023 is a discount on retained loans from sale of originated SBA and USDA loans of $8,806 and $7,629, respectively.
During the year ended December 31, 2022, the Company purchased $223,924 in pooled residential real estate loans at a net discount, with a remaining balance of $156,918 as of September 30, 2024. The remaining net purchase discount of $2,553 and $3,231 related to these 1-4 family residential loans purchased is included in the total LHI, net, as of September 30, 2024 and December 31, 2023, respectively. No additional pooled residential real estate loans have been repurchased since 2022.
ACL
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The activity in the ACL related to LHI is as follows:
18

 Three Months Ended September 30, 2024
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialMWConsumerTotal
Balance at beginning of the period$20,894 $99 $9,181 $5,754 $13,100 $33,363 $29,561 $1,275 $204 $113,431 
Credit (benefit) loss expense non-PCD loans(1,524)(1)356 (132)3,671 7,169 (5,385)(240)(48)3,866 
Credit (benefit) loss expense PCD loans— — (1)— 136 — (1)— — 134 
Charge-offs— — — — — — (2,259)— (54)(2,313)
Recoveries— — 3 — — — 1,962 46 33 2,044 
Ending Balance$19,370 $98 $9,539 $5,622 $16,907 $40,532 $23,878 $1,081 $135 $117,162 
 Three Months Ended September 30, 2023
 Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialMWConsumerTotal
Balance at beginning of the period$18,145 $170 $9,209 $4,707 $7,519 $27,875 $34,197 $— $328 $102,150 
Credit loss (benefit) expense non-PCD loans1,304 21 150 133 581 947 5,072 465 57 8,730 
Credit (benefit) loss expense PCD loans— — — — (6)797 (9)— — 782 
Charge-offs— — — — (375)— (1,929)— (49)(2,353)
Recoveries— — — — — 200 308 — 14 522 
Ending Balance$19,449 $191 $9,359 $4,840 $7,719 $29,819 $37,639 $465 $350 $109,831 
Nine Months Ended September 30, 2024
Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialMWConsumerTotal
Balance at beginning of the period$21,032 $101 $9,539 $4,882 $10,252 $27,729 $35,886 $260 $135 $109,816 
Credit (benefit) loss expense non-PCD loans(1,662)(3)24 938 6,810 23,017 (5,510)775 (424)23,965 
Credit loss (benefit) expense PCD loans— — 3 — (155)(3,952)(111)— — (4,215)
Charge-offs— — (31)(198)(120)(6,262)(8,806)— (155)(15,572)
Recoveries— — 4 — 120 — 2,419 46 579 3,168 
Ending Balance$19,370 $98 $9,539 $5,622 $16,907 $40,532 $23,878 $1,081 $135 $117,162 

19

Nine Months Ended September 30, 2023
Construction and LandFarmlandResidentialMultifamilyOOCRENOOCRECommercialMWConsumerTotal
Balance at beginning of the period$13,120 $127 $9,533 $2,607 $8,707 $26,704 $30,142 $— $112 $91,052 
Credit loss (benefit) expense non-PCD loans6,375 64 (169)2,233 (467)10,362 13,709 465 375 32,947 
Credit loss (benefit) expense PCD loans(46)— (7)— (30)618 (470)— — 65 
Charge-offs— — — — (491)(8,215)(6,520)— (203)(15,429)
Recoveries— — 2 — — 350 778 — 66 1,196 
Ending Balance$19,449 $191 $9,359 $4,840 $7,719 $29,819 $37,639 $465 $350 $109,831 
The majority of the Company's loan portfolio consists of loans to businesses and individuals in the DFW metroplex and the Houston metropolitan area. This geographic concentration subjects the loan portfolio to the general economic conditions within these areas. The risks created by this concentration have been considered by management in the determination of the adequacy of the ACL.
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:
September 30, 2024December 31, 2023
 Real PropertyACL AllocationReal PropertyACL Allocation
        
OOCRE$— $— $3,059 $47 
NOOCRE9,449 — 21,169 — 
Commercial972 197 20,711 3,339 
Total$10,421 $197 $44,939 $3,386 

Nonaccrual and Past Due Loans
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. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
20

Nonaccrual loans aggregated by class of loans, as of September 30, 2024 and December 31, 2023, were as follows:
 September 30, 2024December 31, 2023
NonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACL
        
Construction and land$6,578 $6,578 $6,793 $6,793 
1 - 4 family residential1,995 1,995 1,965 1,965 
OOCRE5,653 5,653 9,719 9,493 
NOOCRE13,970 13,970 33,479 33,479 
Commercial27,191 9,646 40,868 10,610 
Consumer17 17 24 24 
Total$55,404 $37,859 $92,848 $62,364 
    There were $70 and $13,715 of PCD loans that are not accounted for on a pooled basis included in nonaccrual loans at September 30, 2024 and December 31, 2023, respectively.
    During the three months ended September 30, 2024 and 2023, interest income not recognized on nonaccrual loans was $638 and $1,921, respectively. During the nine months ended September 30, 2024 and 2023, interest income not recognized on non-accrual loans was $2,182 and $4,689, respectively.
An age analysis of past due loans, aggregated by class of loans and including past due nonaccrual loans, as of September 30, 2024 and December 31, 2023, is as follows:
 September 30, 2024
 30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentTotal
Loans		Total 90 Days Past Due and Still Accruing
Real estate:                            
    Construction and land$— $— $6,578 $6,578 $1,429,962 $1,436,540 $— 
    Farmland— — — — 32,254 32,254 — 
    1 - 4 family residential790 1,290 3,862 5,942 938,813 944,755 2,137 
    Multi-family residential— 566 — 566 737,524 738,090 — 
    OOCRE905 776 6,376 8,057 799,166 807,223 723 
    NOOCRE14,983 2,595 11,886 29,464 2,308,630 2,338,094 — 
Commercial632 3,295 10,655 14,582 2,713,962 2,728,544 — 
MW— — — — 630,650 630,650 — 
Consumer84 — — 84 11,208 11,292 — 
Total$17,394 $8,522 $39,357 $65,273 $9,602,169 $9,667,442 $2,860 


21

 December 31, 2023
 30 to 59 Days60 to 89 Days90 Days or GreaterTotal Past DueTotal CurrentTotal
Loans		Total 90 Days Past Due and Still Accruing
Real estate:                            
Construction and land$29,379 $— $6,793 $36,172 $1,698,082 $1,734,254 $— 
Farmland— — — — 31,114 31,114 — 
1 - 4 family residential4,359 2,535 3,691 10,585 926,534 937,119 1,726 
Multi-family residential15,095 — — 15,095 590,722 605,817 — 
OOCRE916 114 10,185 11,215 782,873 794,088 466 
NOOCRE3,182 642 20,547 24,371 2,326,354 2,350,725 783 
Commercial3,485 1,394 9,122 14,001 2,738,062 2,752,063 — 
MW— — — — 377,796 377,796 — 
Consumer76 — — 76 10,073 10,149 — 
Total$56,492 $4,685 $50,338 $111,515 $9,481,610 $9,593,125 $2,975 

Loans 90 days past due and still accruing interest are considered well-secured and in the process of collection as of the reporting date with plans in place for the borrowers to bring the notes fully current. The Company believes that it will collect all principal and interest due on each of the loans 90 days past due and still accruing.
Modifications to Borrowers Experiencing Financial Difficulty
The Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.
An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ACL (due to the measurement methodologies used to estimate the allowance), a change to the ACL is generally not recorded upon modification.
The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted during the nine months ended September 30, 2024:
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Interest Rate ReductionFinancial Impact
 Amortized Cost Basis% of Loan Class
NOOCRE$28,331 1.2 %Interest rate reduced longer than 3 months
Term Extension
Amortized Cost Basis% of Loan ClassFinancial Impact
Construction and land$12,206 0.8 %Principal and interest payments deferred longer than three months
NOOCRE3,406 0.1 Principal and interest payments deferred longer than three months
Commercial872 — Principal and interest payments deferred longer than three months
$16,484 
22


Combination - Interest Rate Reduction and Term Extension
Amortized Cost Basis% of Loan ClassFinancial Impact
NOOCRE$56,635 2.4 %Principal payments deferred and interest rate reduced longer than three months
Commercial4,631 0.2 Principal payments deferred and interest rate reduced longer than three months
$61,266 
No modifications to borrowers in financial difficulty had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial difficulty.
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months:
Payment Status
 Current30-59 Days Past Due60-89 Days Past Due90+ Days Past Due
Construction and land$12,206 $— $— $— 
NOOCRE86,965 — — 1,407 
Commercial18,375 121 — 1,921 
Total$117,546 $121 $— $3,328 
The Company has not committed to lend additional amounts to customers with outstanding loans classified as Troubled Loan Modifications as of September 30, 2024 or December 31, 2023.
Credit Quality Indicators
    From a credit risk standpoint, the Company classifies its loans in one of the following categories: (i) pass, (ii) special mention, (iii) substandard or (iv) doubtful. Loans classified as loss are charged-off. Loans not rated special mention, substandard, doubtful or loss are classified as pass loans.
    The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on criticized credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period. All classified credits are evaluated for impairment. If impairment is determined to exist, a specific reserve is established. The Company’s methodology is structured so that specific reserves are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
    Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are generally not so pronounced that the Company expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.
    Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. PCA is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
23

    Credits rated doubtful are those in which full collection of principal appears highly questionable, and in which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual.
    Credits classified as PCD are those that, at acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. All loans considered to be purchased-credit impaired loans prior to January 1, 2020 were converted to PCD loans upon 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. Loans are only removed from the existing pools if they are foreclosed, written off, paid off, or sold.
The Company considers the guidance in ASC 310-20 when determining whether a modification, extension or renewal of a loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. Based on the most recent analysis performed, the risk category of loans by class of loans based on year or origination as of September 30, 2024 and December 31, 2023 is as follows:
 
Term Loans Amortized Cost Basis by Origination Year1
 20242023202220212020PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of September 30, 2024
Construction and land:
Pass$87,067 $89,894 $791,290 $169,396 $25,816 $5,698 $216,710 $— $1,385,871 
Special mention— 12,206 7,016 24,869 — — — — 44,091 
Substandard— — 6,547 — 31 — — — 6,578 
Total construction and land$87,067 $102,100 $804,853 $194,265 $25,847 $5,698 $216,710 $— $1,436,540 
Construction and land gross charge-offs$— $— $— $— $— $— $— $— $— 
Farmland:
Pass$2,704 $2,492 $2,350 $— $17,591 $4,474 $2,643 $— $32,254 
Total farmland$2,704 $2,492 $2,350 $— $17,591 $4,474 $2,643 $— $32,254 
Farmland gross charge-offs$— $— $— $— $— $— $— $— $— 
1 - 4 family residential:
Pass$64,790 $73,948 $193,889 $352,162 $87,010 $125,022 $37,991 $601 $935,413 
Special mention— 3,704 — — — 1,576 103 — 5,383 
Substandard— — 135 841 50 1,358 517 — 2,901 
PCD— — — — — 1,058 — — 1,058 
Total 1 - 4 family residential$64,790 $77,652 $194,024 $353,003 $87,060 $129,014 $38,611 $601 $944,755 
1-4 family residential gross charge-offs$— $— $31 $— $— $— $— $— $31 
Multi-family residential:
Pass$25,113 $11,699 $123,366 $360,601 $199,468 $17,277 $— $— $737,524 
Substandard— — 566 — — — — — 566 
Total multi-family residential$25,113 $11,699 $123,932 $360,601 $199,468 $17,277 $— $— $738,090 
Multi-family residential gross charge-offs$— $— $— $— $— $198 $— $— $198 
OOCRE:
Pass$50,199 $160,135 $181,759 $96,974 $77,140 $197,946 $5,022 $— $769,175 
Special mention— — 465 1,151 953 6,184 — — 8,753 
Substandard— 5,375 — 5,418 3,356 5,120 — — 19,269 
PCD— — — — — 10,026 — — 10,026 
Total OOCRE$50,199 $165,510 $182,224 $103,543 $81,449 $219,276 $5,022 $— $807,223 
24

OOCRE gross charge-offs$— $— $— $— $— $120 $— $— $120 
NOOCRE:
Pass$172,655 $64,694 $639,733 $505,463 $167,724 $502,665 $35,042 $423 $2,088,399 
Special mention— — 8,960 4,267 39,296 78,276 — — 130,799 
Substandard— — 59,068 3,096 15,286 41,020 — — 118,470 
PCD— — — — — 426 — — 426 
Total NOOCRE$172,655 $64,694 $707,761 $512,826 $222,306 $622,387 $35,042 $423 $2,338,094 
NOOCRE gross charge-offs$— $— $— $— $— $6,262 $— $— $6,262 
Commercial:
Pass$140,482 $254,307 $296,002 $81,845 $29,061 $66,609 $1,710,690 $1,246 $2,580,242 
Special mention8,592 656 24,121 337 5 499 60,008 209 94,427 
Substandard1,147 4,914 14,919 2,187 530 14,599 15,239 — 53,535 
PCD— — — — — 340 — — 340 
Total commercial$150,221 $259,877 $335,042 $84,369 $29,596 $82,047 $1,785,937 $1,455 $2,728,544 
Commercial gross charge-offs$— $217 $1,192 $1,532 $— $5,865 $— $— $8,806 
MW:
Pass$— $— $— $— $— $— $630,650 $— $630,650 
Substandard— — — — — — — — — 
Total MW$— $— $— $— $— $— $630,650 $— $630,650 
MW gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer:
Pass$4,215 $2,357 $704 $213 $433 $1,388 $1,836 $— $11,146 
Special mention— — — — — 75 — — 75 
Substandard— — — — 4 58 — — 62 
PCD— — — — — 9 — — 9 
Total consumer$4,215 $2,357 $704 $213 $437 $1,530 $1,836 $— $11,292 
Consumer gross charge-offs$24 $— $— $— $— $131 $— $— $155 
Total Pass$547,225 $659,526 $2,229,093 $1,566,654 $604,243 $921,079 $2,640,584 $2,270 $9,170,674 
Total Special Mention8,592 16,566 40,562 30,624 40,254 86,610 60,111 209 283,528 
Total Substandard1,147 10,289 81,235 11,542 19,257 62,155 15,756 — 201,381 
Total PCD— — — — — 11,859 — — 11,859 
Total$556,964 $686,381 $2,350,890 $1,608,820 $663,754 $1,081,703 $2,716,451 $2,479 $9,667,442 
Current period gross charge-offs$24 $217 $1,223 $1,532 $— $12,576 $— $— $15,572 
1 Term loans amortized cost basis by origination year excludes $8,217 of deferred loan fees, net.

 
Term Loans Amortized Cost Basis by Origination Year1
 20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2023
Construction and land:
Pass$116,333 $740,244 $538,946 $109,017 $3,089 $3,661 $181,940 $— $1,693,230 
Special mention593 13,782 4,980 3,439 — 8,760 2,677 — 34,231 
Substandard— 6,547 — 246 — — — — 6,793 
Total construction and land$116,926 $760,573 $543,926 $112,702 $3,089 $12,421 $184,617 $— $1,734,254 
Construction and land gross charge-offs$— $— $— $— $— $— $— $— $— 
Farmland:
Pass$2,531 $4,398 $— $17,999 $15 $4,944 $1,227 $— $31,114 
25

Total farmland$2,531 $4,398 $— $17,999 $15 $4,944 $1,227 $— $31,114 
Farmland gross charge-offs$— $— $— $— $— $— $— $— $— 
1 - 4 family residential:
Pass$73,289 $140,824 $193,914 $79,767 $38,589 $270,193 $114,275 $17,255 $928,106 
Special mention3,732 531 — — — 238 — — 4,501 
Substandard— 144 902 — 106 1,701 529 — 3,382 
PCD— — — — — 1,130 — — 1,130 
Total 1 - 4 family residential$77,021 $141,499 $194,816 $79,767 $38,695 $273,262 $114,804 $17,255 $937,119 
1-4 Family gross charge-offs$— $— $— $— $21 $— $— $— $21 
Multi-family residential:
Pass$9,441 $82,040 $257,714 $196,575 $8,054 $14,570 $10,627 $— $579,021 
Special mention— — — — — 11,701 — — 11,701 
Substandard— — — — — 15,095 — — 15,095 
Total multi-family residential$9,441 $82,040 $257,714 $196,575 $8,054 $41,366 $10,627 $— $605,817 
Multifamily gross charge-offs$— $— $— $— $192 $— $— $— $192 
OOCRE:
Pass$129,463 $178,777 $113,207 $90,219 $39,876 $166,270 $4,618 $— $722,430 
Special mention5,481 — 2,479 1,019 1,961 14,775 210 — 25,925 
Substandard— 9,357 2,131 3,644 736 11,695 — — 27,563 
PCD— — — — — 18,170 — — 18,170 
Total OOCRE$134,944 $188,134 $117,817 $94,882 $42,573 $210,910 $4,828 $— $794,088 
OOCRE gross charge-offs$— $— $— $369 $5 $481 $— $— $855 
NOOCRE:
Pass$33,525 $724,110 $500,354 $247,385 $148,046 $381,559 $30,524 $577 $2,066,080 
Special mention— 5,950 25,985 26,175 68,616 55,805 — — 182,531 
Substandard— 3,858 2,774 364 2,620 78,414 — — 88,030 
PCD— — — — — 14,084 — — 14,084 
Total NOOCRE$33,525 $733,918 $529,113 $273,924 $219,282 $529,862 $30,524 $577 $2,350,725 
NOOCRE gross charge-offs$— $— $— $— $— $13,649 $— $— $13,649 
Commercial:
Pass$314,939 $384,713 $86,757 $38,554 $43,535 $45,812 $1,725,663 $1,044 $2,641,017 
Special mention4,584 13,583 12,794 541 — 10,144 9,392 35 51,073 
Substandard640 16,974 3,978 545 3,767 15,843 15,244 74 57,065 
PCD— — — — — 2,908 — — 2,908 
Total commercial$320,163 $415,270 $103,529 $39,640 $47,302 $74,707 $1,750,299 $1,153 $2,752,063 
Commercial gross charge-offs$— $2,158 $— $2,572 $1,083 $4,600 $— $— $10,413 
MW:
Pass$1,905 $— $— $— $— $— $375,891 $— $377,796 
Total MW$1,905 $— $— $— $— $— $375,891 $— $377,796 
MW gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer:
Pass$4,552 $1,045 $276 $604 $89 $1,678 $1,728 $— $9,972 
Special mention— — — — — 85 — — 85 
Substandard— — 4 — 12 63 — — 79 
PCD— — — — — 13 — — 13 
Total consumer$4,552 $1,045 $280 $604 $101 $1,839 $1,728 $— $10,149 
26

Consumer gross charge-offs$— $29 $2 $— $— $205 $— $— $236 
Total Pass$685,978 $2,256,151 $1,691,168 $780,120 $281,293 $888,687 $2,446,493 $18,876 $9,048,766 
Total Special Mention14,390 33,846 46,238 31,174 70,577 101,508 12,279 35 310,047 
Total Substandard640 36,880 9,789 4,799 7,241 122,811 15,773 74 198,007 
Total PCD— — — — — 36,305 — — 36,305 
Total$701,008 $2,326,877 $1,747,195 $816,093 $359,111 $1,149,311 $2,474,545 $18,985 $9,593,125 
Current year gross charge-offs$— $2,187 $2 $2,941 $1,301 $18,935 $— $— $25,366 
1 Term loans amortized cost basis by origination year excludes $8,785 of deferred loan fees, net.
Servicing Assets
The Company was servicing loans of approximately $585,887 and $577,802 as of September 30, 2024 and 2023, respectively. A summary of the changes in the related servicing assets are as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Balance at beginning of period$12,198 $14,923 $13,258 $14,880 
Increase from loan sales338 90 1,245 1,863 
Servicing asset impairment, net recoveries122 (455)401 407 
Amortization charged as a reduction to income(1,014)(1,197)(3,260)(3,789)
Balance at end of period$11,644 $13,361 $11,644 $13,361 
Fair value of servicing assets is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current market rates over the expected lives of the loans being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset. As of September 30, 2024 and 2023 there was a valuation allowance of $1,132 and $2,043, respectively.
The Company may also receive a portion of subsequent interest collections on loans sold that exceed the contractual servicing fees. In that case, the Company records an interest-only strip based on its relative fair market value and the other components of the loans. There was no interest-only strip receivable recorded at September 30, 2024 and December 31, 2023.
The following table reflects principal sold and related gain for SBA and USDA LHI. The gain on sale of these loans is recorded in government guaranteed loan income, net in the Company’s consolidated statements of income.
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
SBA LHI principal sold$10,787 $2,896 $25,762 $9,826 
Gain on sale of SBA LHI920 243 2,264 822 
USDA LHI principal sold— — 2,850 62,640 
Gain on sale of USDA LHI— — 52 9,663 





27


LHFS
The following table reflects LHFS.
September 30, 2024December 31, 2023
SBA/USDA construction and land$22,066 $41,492 
1 - 4 family residential1,098 788 
SBA OOCRE7,567 16,758 
NOOCRE— 10,500 
SBA commercial17,765 9,534 
Total LHFS$48,496 $79,072 
28

6. Fair Value
The following table summarizes assets measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
September 30, 2024
 Level 1
Inputs		Level 2
Inputs		Level 3
Inputs		Total
Fair Value
Financial Assets:
AFS debt securities$— $1,243,246 $— $1,243,246 
Equity securities with a readily determinable fair value10,106 — — 10,106 
LHFS(1)
— 47,398 — 47,398 
Interest rate swap designated as hedging instruments— 10,052 — 10,052 
Correspondent interest rate swaps not designated as hedging instruments— 14,846 — 14,846 
Customer interest rate swaps not designated as hedging instruments— 4,494 — 4,494 
Correspondent interest rate caps and collars not designated as hedging instruments— 190 — 190 
Financial Liabilities:
Interest rate swap designated as hedging instruments$— $36,478 $— $36,478 
Correspondent interest rate swaps not designated as hedging instruments— 4,790 — 4,790 
Customer interest rate swaps not designated as hedging instruments— 14,135 — 14,135 
Customer interest rate caps and collars not designated as hedging instruments— 190 — 190 
1Represents LHFS elected to be carried at fair value upon origination or acquisition.
 December 31, 2023
 Level 1
Inputs		Level 2
Inputs		Level 3
Inputs		Total
Fair Value
Financial Assets:
 AFS debt securities$— $1,076,639 $— $1,076,639 
Equity securities with a readily determinable fair value9,897 — — 9,897 
LHFS(1)
— 67,784 — 67,784 
Interest rate swap designated as hedging instruments— 18,814 — 18,814 
Correspondent interest rate swaps not designated as hedging instruments— 28,007 — 28,007 
Customer interest rate swaps not designated as hedging instruments— 2,118 — 2,118 
Correspondent interest rate caps and collars not designated as hedging instruments— 1,344 — 1,344 
Financial Liabilities:
Interest rate swap designated as hedging instruments$— $47,121 $— $47,121 
Correspondent interest rate swaps not designated as hedging instruments— 2,322 — 2,322 
Customer interest rate swaps not designated as hedging instruments— 27,288 — 27,288 
Customer interest rate caps and collars not designated as hedging instruments— 1,344 — 1,344 
(1) Represents LHFS 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, 2024 and December 31, 2023.
29

The following table summarizes assets measured at fair value on a non-recurring basis as of September 30, 2024 and December 31, 2023, 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, 2024                
  Assets:    
Collateral dependent loans with an ACL$— $— $700 $700 
Servicing assets with a valuation allowance— — 3,309 3,309 
OREO— — 9,034 9,034 
As of December 31, 2023
  Assets:
Collateral dependent loans with an ACL$— $— $14,274 $14,274 
Servicing assets with a valuation allowance— — 6,682 6,682 
At September 30, 2024, collateral dependent loans with an allowance had a recorded investment of $897, with $197 specific ACL allocated. At December 31, 2023, collateral dependent loans with an allowance had a carrying value of $17,660, with $3,386 of specific ACL allocated.
At September 30, 2024, servicing assets of $4,441 had a valuation allowance totaling $1,132. At December 31, 2023, servicing assets of $8,214 had a valuation allowance totaling $1,532.
OREO primarily consists of four properties recorded with a fair value of approximately $9,034 in total at September 30, 2024. There were no OREO properties recorded as of December 31, 2023.
There were no liabilities measured at fair value on a non-recurring basis as of September 30, 2024 or December 31, 2023.
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, 2023. 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, 2024 and December 31, 2023 were as follows:
30

Fair Value
Carrying
Amount		Level 1Level 2Level 3
September 30, 2024
Financial assets:
Cash and cash equivalents$1,100,790 $— $1,100,790 $— 
HTM debt securities180,364 — 161,271 — 
LHFS(1)
1,098 — 1,098 — 
LHI(2)
9,541,363 — — 9,491,260 
Accrued interest receivable47,392 — 47,392 — 
BOLI84,776 — 84,776 — 
Servicing asset8,335 — 8,335 — 
Equity securities without a readily determinable fair value48,582 N/AN/AN/A
FHLB and FRB stock47,862 N/AN/AN/A
Financial liabilities:
Noninterest-bearing deposits$2,643,894 $— $2,643,894 $— 
Interest-bearing deposits8,392,117 — 8,260,577 — 
Advances from FHLB— — — — 
Accrued interest payable39,555 — 39,555 — 
Subordinated debentures and subordinated notes230,536 — 230,536 — 
December 31, 2023
Financial assets:
Cash and cash equivalents$629,063 $— $629,063 $— 
HTM debt securities180,403 — 160,021 — 
LHFS(1)
11,288 — 11,288 — 
LHI(2)
9,577,180 — — 9,322,744 
Accrued interest receivable53,313 — 53,313 — 
BOLI84,833 — 84,833 — 
Servicing asset6,576 — 6,576 — 
Equity securities without a readily determinable fair value11,624 N/AN/AN/A
FHLB and FRB stock53,699 N/AN/AN/A
Financial liabilities:
Noninterest-bearing deposits$2,218,036 $— $2,218,036 $— 
Interest-bearing deposits8,120,159 — 8,096,209 — 
Advances from FHLB100,000 — 100,051 — 
Accrued interest payable41,948 — 41,948 — 
Subordinated debentures and subordinated notes229,783 — 229,783 — 
(1) LHFS primarily represent mortgage LHFS that are carried at lower of cost or market.
(2) LHI includes MW and is carried at amortized cost.
7. Derivative Financial Instruments
The Company primarily uses derivatives to manage exposure to market risk, including interest rate risk and credit risk and to assist customers with their risk management objectives. Management will designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship. The Company’s remaining derivatives consist of derivatives held for customer accommodation or other purposes.
The fair value of derivative positions outstanding is included in other assets and accounts payable and other liabilities on the accompanying consolidated balance sheets and in the net change in each of these financial statement line items in the
31

accompanying consolidated statements of cash flows. For derivatives not designated as hedging instruments, swap fee income and gains and losses due to changes in fair value are included in other noninterest income and the operating section of the consolidated statement of cash flows. For derivatives designated as hedging instruments, 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 or interest expense when the forecasted transaction affects income. The notional amounts and estimated fair values as of September 30, 2024 and December 31, 2023 are as shown in the table below.

 September 30, 2024December 31, 2023
Estimated Fair ValueEstimated Fair Value
 Notional
Amount		Asset DerivativeLiability DerivativeNotional
Amount		Asset DerivativeLiability Derivative
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on money market deposit account payments$250,000 $4,693 $— $250,000 $12,208 $— 
Interest rate swaps on variable rate funding sources275,000 — 4,773 200,000 — 4,296 
Interest rate swaps on customer loan interest payments375,000 — 30,989 375,000 — 40,055 
Interest rate collars on customer loan interest payments450,000 1,925 716 450,000 2,304 2,770 
Interest rate floor on customer loan interest payments200,000 3,434 — 200,000 4,302 — 
Total derivatives designated as hedging instruments$1,550,000 $10,052 $36,478 $1,475,000 $18,814 $47,121 
Derivatives not designated as hedging instruments:      
Financial institution counterparty:      
Interest rate swaps$862,120 $14,846 $4,790 $893,702 $28,007 $2,322 
Interest rate caps and corridors127,870 190 — 285,370 1,344 — 
Commercial customer counterparty:
Interest rate swaps862,120 4,494 14,135 893,702 2,118 27,288 
Interest rate caps and corridors127,870 — 190 285,370 — 1,344 
Total derivatives not designated as hedging instruments$1,979,980 $19,530 $19,115 $2,358,144 $31,469 $30,954 
Offsetting derivative assets/liabilities— (22,218)(22,218)— (29,463)(29,463)
Total derivatives$3,529,980 $7,364 $33,375 $3,833,144 $20,820 $48,612 

Pre-tax (loss) gain included in the consolidated statements of income and related to derivative instruments for the three and nine months ended September 30, 2024 and 2023 were as follows.
32

 For the Three Months Ended
September 30, 2024		For the Three Months Ended
September 30, 2023
 (Loss) gain recognized in other comprehensive income on derivativeGain (loss) reclassified from AOCI into incomeLocation of (loss) gain reclassified from AOCI into income(Loss) gain recognized in other comprehensive income on derivativeGain (loss) reclassified from AOCI into incomeLocation of (loss) gain reclassified from AOCI into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances$(1,106)$1,106 Interest Expense$(1,105)$1,105 Interest Expense
Interest rate swap on money market deposit account payments(8,007)3,535 Interest Expense(1,751)3,035 Interest Expense
Interest rate swaps, collars and floors on customer loan interest payments19,654 (5,668)Interest Income(9,060)(5,260)Interest Income
Total$10,541 $(1,027)$(11,916)$(1,120)
Net gain recognized in other noninterest incomeNet gain recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars$271 $180 

For the Nine Months Ended September 30, 2024For the Nine Months Ended September 30, 2023
(Loss) gain recognized in other comprehensive income on derivativeGain (loss) reclassified from AOCI into incomeLocation of (loss) gain reclassified from AOCI into incomeGain (loss) recognized in other comprehensive income on derivativeGain (loss) reclassified from AOCI into incomeLocation of (loss) gain reclassified from AOCI into income
Derivatives designated as hedging instruments (cash flow hedges):
Interest rate swap on borrowing advances$(3,293)$3,293 Interest Expense$(3,281)$3,281 Interest Expense
Interest rate swap on money market deposit account payments(7,993)10,491 Interest Expense(4,358)8,469 Interest Expense
Interest rate swaps, collars and floors on customer loan interest payments11,104 (16,535)Interest Income(12,233)(13,773)Interest Income
Total$(182)$(2,751)$(19,872)$(2,023)
Net gain recognized in other noninterest incomeNet gain recognized in other noninterest income
Derivatives not designated as hedging instruments:
Interest rate swaps, caps and collars$1,046 $1,375 



33

Cash Flow Hedges
We enter into cash flow hedge relationships to 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. To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the cash flow hedge. At inception a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in AOCI is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and other liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax. Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability.    
Interest Rate Swap, Floor, Cap and Collar Agreements Not Designated as Hedging Derivatives
    In order to accommodate the borrowing needs of certain commercial customers, the Company has entered into interest rate swap or cap agreements with those customers. These interest rate derivative contracts effectively allow the Company’s customers to convert a variable rate loan into a fixed rate loan. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on the Company’s results of operations. The fair value amounts are included in other assets and other liabilities.
34

The following is a summary of the interest rate swaps, caps and collars outstanding as of September 30, 2024 and December 31, 2023.
 September 30, 2024
 Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:     
Customer interest rate derivative:     
Interest rate swaps - receive fixed/pay floating$862,120 
2.4% - 7.4%
LIBOR 1 month + 3.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
3.5 years
$(9,642)
Interest rate caps and corridors$127,870 
3.5% - 7.5%
SOFR CME 1 month + 0.0% - 2.5%
SOFR + 0.0%
Wtd. Avg.
0.1 years
$(190)
Correspondent interest rate derivative:     
Interest rate swaps - pay fixed/receive floating$862,120 
2.4% - 7.4%
LIBOR 1 month + 3.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
3.5 years
$10,056 
Interest rate caps and corridors$127,870 
3.5% - 7.5%
SOFR CME 1 month + 0.0% - 2.5%
SOFR + 0.0%
Wtd. Avg.
0.1 years
$190 
December 31, 2023
Notional AmountFixed RateFloating RateMaturityFair Value
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating$893,702 
2.4% - 7.4%
LIBOR 1 month + 3.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.1 years
$(25,170)
Interest rate caps and corridors$285,370 
3.5% - 7.5%
SOFR CME 1 month $0.0% - 2.5%
SOFR + $0.0%
Wtd. Avg.
0.8 years
$(1,344)
Correspondent interest rate derivative:
Interest rate swaps - pay fixed/receive floating$893,702 
2.4% - 7.4%
LIBOR 1 month + 3.0%
SOFR CME 1 month + 0.0% - 3.8%
SOFR-NYFD 30 day avg + 2.5% - 3.0%
Wtd. Avg.
4.1 years
$25,685 
Interest rate caps and corridors$285,370 
3.5% - 7.5%
SOFR CME 1 month + 0.0% - 2.5%
SOFR + 0.0%
Wtd. Avg.
0.8 years
$1,344 

8. OBS Loan Commitments
The Company is party to financial instruments with OBS risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, MW commitments and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the 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, MW commitments and standby and commercial 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, 2024 and December 31, 2023:
35

 September 30,December 31,
 20242023
Commitments to extend credit$2,816,528 $3,083,501 
MW commitments487,350 803,704 
Standby and commercial letters of credit113,780 111,590 
Total$3,417,658 $3,998,795 
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 and substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of future loan funding. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower.
MW commitments are unconditionally cancellable and represent the unused capacity on MW facilities the Company has approved. The Company reserves the right to refuse to buy any mortgage loans offered for sale by a customer, for any reason, at the Company’s sole and absolute discretion.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby and commercial 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.
The table below presents the activity in the allowance for unfunded commitment credit losses related to those financial instruments discussed above. This ACL on unfunded commitments is recorded in accounts payable and other liabilities on the consolidated balance sheets:
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Beginning balance for ACL on unfunded commitments$6,504 $10,454 $8,045 $10,086 
Benefit for credit losses on unfunded commitments— (909)(1,541)(541)
Ending balance of ACL on unfunded commitments$6,504 $9,545 $6,504 $9,545 

36

9. Stock-Based Awards
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, 2024 and 2023.
A summary of option activity under the 2010 Incentive Plan for the nine months ended September 30, 2023, and changes during the periods then ended, is presented below. There was no activity under the 2010 Incentive Plan for the nine months ended September 30, 2024.
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, 20231,000 $10.43 1.07 years
Exercised(1,000)10.43 
Outstanding and exercisable at September 30, 2023— $— — $— 
A summary of the fair value of the Company’s stock options exercised under the 2010 Incentive Plan for the nine months ended September 30, 2024 and 2023 is presented below:
Fair Value of Options Exercised as of September 30,
 20242023
Nonperformance-based stock options exercised$— $16 
2022 Equity Plan, Veritex (Green) 2014 Plan and Green 2010 Plan
Grants of RSU
    During the three and nine months ending September 30, 2024, the Company granted non-performance-based RSUs and PSUs under the 2022 Amended and Restated Omnibus Incentive Plan (the “2022 Equity Plan”) and the Veritex (Green) 2014 Omnibus Equity Incentive Plan (the “Veritex (Green) 2014 Plan”). The majority of the RSUs granted to employees during the nine months ending September 30, 2024 have an annual graded vesting over a three year period from the grant date.
    The PSUs granted in February 2024 are subject to a service, performance and market conditions. The performance and market condition determine the number of awards to vest. The service period is from February 1, 2024 to January 31, 2027, the performance conditions performance period is from January 1, 2024 to December 31, 2026 and the market condition performance period is from February 1, 2024 to January 31, 2027. A Monte Carlo simulation was used to estimate the fair value of PSUs on the grant date.
Stock Compensation Expense
Stock compensation expense for options, RSUs and PSUs granted under the 2022 Equity Plan and the Veritex (Green) 2014 Plan were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
2022 Equity Plan$2,923 $2,471 $8,139 $7,616 
Veritex (Green) 2014 Plan274 489 1,114 1,398 


37

2022 Equity Plan
A summary of the status of the Company’s stock options under the 2022 Equity Plan as of September 30, 2024 and 2023, and changes during the nine months then ended, is as follows:
 2022 Equity Plan
 Non-performance Based Stock Options
 Shares
Underlying
Options		Weighted
Exercise
Price		Weighted
Average
Contractual
Term		Aggregate Intrinsic Value
Outstanding at January 1, 2023657,494 $24.47 
Forfeited(1,666)17.38 
Cancelled(3,804)29.13 
Exercised(17,285)18.29 
Outstanding at September 30, 2023634,739 $24.63 4.84 years
Options exercisable at September 30, 2023608,739 $24.79 4.78 years
Outstanding at January 1, 2024602,573 $24.40 
Cancelled(1,263)23.86 
Exercised(3,114)14.17 
Outstanding at September 30, 2024598,196 $24.45 4.10 years$1,599,454 
Options exercisable at September 30, 2024598,196 $24.45 4.10 years$1,599,454 

There was no unrecognized compensation expense related to options awarded under the 2022 Equity Plan as of September 30, 2024 and December 31, 2023. As of September 30, 2023, there was $36 of total unrecognized compensation expense related to options awarded under the 2022 Equity Plan.

A summary of the status of the Company’s RSUs under the 2022 Equity Plan as of September 30, 2024 and 2023, and changes during the nine months then ended, is as follows:
 2022 Equity Plan
Non-performance-Based
 RSUs
 UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2023955,104 $28.38 
Granted289,252 27.17 
Vested into shares(237,940)29.58 
Forfeited(30,533)32.23 
Outstanding at September 30, 2023975,883 $27.61 
Outstanding at January 1, 2024982,513 $27.52 
Granted190,018 21.94 
Vested into shares(282,785)27.92 
Forfeited(5,558)30.53 
Outstanding at September 30, 2024884,188 $25.79 

38

A summary of the status of the Company’s PSUs under the 2022 Equity Plan as of September 30, 2024 and 2023, and changes during the nine months then ended, is as follows:

 2022 Equity Plan
Performance-Based
 PSUs
 UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2023126,707 $31.19 
Granted53,310 27.55 
Vested into shares(41,781)26.42 
Forfeited(8,468)30.90 
Outstanding at September 30, 2023129,768 $30.28 
Outstanding at January 1, 2024129,768 $30.28 
Granted113,144 18.84 
Vested into shares(79,367)26.49 
Outstanding at September 30, 2024163,545 $24.62 
As of September 30, 2024, December 31, 2023 and September 30, 2023, there was $14,685, $14,692 and $16,869 of total unrecognized compensation related to RSUs and PSUs awarded under the 2022 Equity Plan, respectively. The unrecognized compensation expense at September 30, 2024 is expected to be recognized over the remaining weighted average requisite service period of 2.22 years.
    A summary of the fair value of the Company’s stock options exercised, RSUs and PSUs vested under the 2022 Equity Plan during the nine months ended September 30, 2024 and 2023 is presented below:
Fair Value of Options Exercised or RSUs Vested in the Nine Months Ended September 30,
 20242023
Non-performance-based stock options exercised$32 $66 
RSUs vested4,547 3,800 
PSUs vested1,608 1,070 
39

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, 2024 and 2023, 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, 2023155,212 $19.83 
Cancelled(9,717)21.38 
Exercised(13,266)22.74 
Outstanding at September 30, 2023132,229 $21.89 3.91 years
Options exercisable at September 30, 2023132,229 $21.89 3.91 years
Outstanding at January 1, 2024124,499 $19.78 
Exercised(23,563)16.46 
Outstanding at September 30, 2024100,936 $20.56 3.55 years$669,145 
Options exercisable at September 30, 2024100,936 $20.56 3.55 years$669,145 
Weighted average fair value of options granted during the period$— 
As of September 30, 2024, December 31, 2023 and September 30, 2023 there was no unrecognized compensation expense related to options awarded under the Veritex (Green) 2014 Plan.

40

A summary of the status of the Company’s RSUs under the Veritex (Green) 2014 Plan as of September 30, 2024 and 2023 and changes during the nine months then ended, is as follows:

Veritex (Green) 2014 Plan
Non-performance-Based
RSUs
UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 202386,233 $21.09 
Vested into shares(19,282)29.66 
Forfeited(2,232)29.13 
Outstanding at September 30, 202364,719 $18.26 
Outstanding at January 1, 202464,719 $18.26 
Vested into shares(5,154)32.20 
Outstanding at September 30, 202459,565 $17.51 

A summary of the status of the Company’s PSUs under the Veritex (Green) 2014 Plan as of September 30, 2024 and 2023 and changes during the nine months then ended, is as follows:
 Veritex (Green) 2014 Plan
Performance-Based
 PSUs
 UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 1, 202319,173 $30.74 
Vested into shares(8,531)25.94 
Outstanding at September 30, 202310,642 $31.93 
Outstanding at January 1, 202410,642 $31.93 
Granted1,246 18.84 
Vested into shares(7,477)25.94 
Outstanding at September 30, 20244,411 $40.38 
As of September 30, 2024, December 31, 2023 and September 30, 2023, there was $636, $1,781, and $2,232, respectively, of total unrecognized compensation related to outstanding RSUs and PSUs awarded under the Veritex (Green) 2014 Plan to be recognized over a remaining weighted average requisite service period of 0.71 years.
41

    A summary of the fair value of the Company’s stock options exercised, RSUs and PSUs vested under the Veritex (Green) 2014 Plan during the nine months ended September 30, 2024 and 2023 presented below:
Fair Value of Options Exercised or RSUs Vested in the Nine Months Ended September 30,
 20242023
Non-performance-based stock options exercised$178 $18 
RSUs vested1,420 2,169 
PSUs vested149 227 
Green 2010 Plan
In addition to the Veritex (Green) 2014 Plan discussed earlier in this Note, the Company assumed the Green Bancorp Inc. 2010 Stock Option Plan (“Green 2010 Plan”).
A summary of the status of the Company’s stock options under the Green 2010 Plan as of September 30, 2024 and 2023, and changes during the nine months then ended, is as follows:
 Green 2010 Plan
 Non-performance Based Stock Options
 Shares
Underlying
Options		Weighted
Exercise
Price		Weighted
Average
Contractual
Term		Aggregate Intrinsic Value
Outstanding at January 1, 202343,162 $13.11 
Exercised(32,378)13.26 
Outstanding at September 30, 202310,784 $12.65 4.32 years
Outstanding at January 1, 202410,784 $12.65 
Outstanding at September 30, 202410,784 $12.65 3.32 years$147 
A summary of the fair value of the Company’s stock options exercised under the Green 2010 Plan during the nine months ended September 30, 2024 and 2023 presented below:
Fair Value of Options Exercised as of September 30,
 20242023
Nonperformance-based stock options exercised$— $379 
10. Income Taxes
    Income tax expense for the three and nine months ended September 30, 2024 and 2023 was as follows:
Three Months Ended
September 30,		Nine Months Ended September 30,
 2024202320242023
Income tax expense for the period$8,067 $9,282 $23,525 $30,019 
Effective tax rate20.6 %22.2 %22.2 %22.3 %
For the three months ended September 30, 2024, the Company had an effective tax rate of 20.6%. The Company had a one-time tax expense for return to provision of $224 and a $941 benefit related to the release of the change in the Company’s valuation allowance during the three months ended September 30, 2024. The Company had a net discrete tax expense of $91 associated with the recognition of an excess tax expense realized on share-based payment awards during the three months ended September 30, 2024. Excluding these discrete tax items, the Company had an effective tax rate of 22.2% for the three months ended September 30, 2024.
42

For the three months ended September 30, 2023, the Company had an effective tax rate of 22.2%. The Company had a net discrete tax expense of $505 associated with return to provision adjustments during the three months ended September 30, 2023. Excluding this discrete tax item, the Company had an effective tax rate of 20.9% for the three months ended September 30, 2023.
For the nine months ended September 30, 2024, the Company had an effective tax rate of 22.2%. The Company had a one-time tax expense for return to provision of $224 and a $941 benefit related to the release of the change in the Company’s valuation allowance during the nine months ended September 30, 2024. The Company had a net discrete tax expense of $501 associated with the recognition of an excess tax expense realized on share-based payment awards during the nine months ended September 30, 2024. Excluding these discrete tax items, the Company had an effective tax rate of 22.4% for the nine months ended September 30, 2024.
For the nine months ended September 30, 2023, the Company had an effective tax rate of 22.3%. The Company had a net discrete tax expense of $658, of which $505 was associated with a return to provision adjustment and $153 associated with the recognition of an excess tax expense realized on share-based payment awards during the nine months ended September 30, 2023. Excluding this discrete tax item, the Company had an effective tax rate of 21.8% for the nine months ended September 30, 2023.
At December 31, 2023, we determined it was more likely than not that a portion of our deferred tax assets would not be realized in their entirety. Thus, the Company recorded a $4,249 valuation allowance in continuing operations relating to the impairment on our investment in Thrive. The deferred tax asset is not realizable due to the capital loss that will not be recognized. As of September 30, 2024, the Company released $941 of the valuation allowance related to a capital gain recognized on the 2023 tax return. The deferred tax asset is not realizable due to the capital loss that will not be recognized. The position was upheld as of September 30, 2024. There was no valuation allowance in the comparable period in 2023.

11. 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.
12. Capital Requirements and Restrictions on Retained Earnings
Under applicable U.S. banking laws, there are legal restrictions limiting the amount of dividends the Company can declare. Approval of the regulatory authorities is required if, among other things, the effect of the dividends declared would cause regulatory capital of the Company to fall below specified minimum levels.
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 triggers certain mandatory actions and may lead to 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 PCA, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain OBS items as calculated under regulatory accounting practices. The Bank’s capital amounts and PCA classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings of assets, and other factors. In addition, an institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.

As a result of our no longer using the CBLR framework, we are subject to various quantitative measures established by regulation to ensure capital adequacy. These generally applicable capital requirements require a banking organization that does not operate under the CBLR framework to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital, and CET1 capital to RWA, and of Tier 1 capital to average assets. The capital rules implementing Basel III also include a “capital conservation buffer” of 2.5% on top of each of the minimum RBC ratios, and a banking organization with any RBC ratio that meets or exceeds the minimum requirement but does not meet the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments based on the amount of the shortfall. Additionally, to be categorized as “well capitalized,” a bank that does not operate under the CBLR framework is required to
43

maintain minimum total risk-based CET1, Tier 1, and total capital ratios and Tier 1 leverage ratios as set forth in the table below.

As of September 30, 2024 and December 31, 2023, the Company’s and the Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized”. There are no conditions or events since September 30, 2024 that management believes have changed the Company’s category.

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, the Company elected to utilize the five-year CECL transition. As a result, the effects of CECL on the Company’s and the Bank’s regulatory capital was delayed through the year 2021, with the effects phased-in over a three-year period from January 1, 2022 through December 31, 2024.

A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios as of September 30, 2024 and December 31, 2023 is presented in the following table:
 Actual For Capital 
Adequacy Purposes		 To Be Well
Capitalized Under
PCA Provisions
 AmountRatio Amount Ratio Amount Ratio
As of September 30, 2024
Total capital (to RWA)
Company$1,570,044 13.91 %$902,973 8.0 %$1,128,716 10.0 %
Bank1,499,516 13.34 899,260 8.0 1,124,075 10.0 
Tier 1 capital (to RWA)
Company1,256,685 11.13 677,458 6.0 677,458 6.0 
Bank1,385,620 12.33 674,268 6.0 899,024 8.0 
CET1 (to RWA)
Company1,226,630 10.86 508,272 4.5 n/an/a
Bank1,385,620 12.33 505,701 4.5 730,457 6.5 
Tier 1 capital (to average assets)
Company1,256,685 10.06 499,676 4.0 n/an/a
Bank1,385,620 11.13 497,977 4.0 622,471 5.0 
As of December 31, 2023
Total capital (to RWA)
Company$1,500,703 13.18 %$910,897 8.0 %n/an/a
Bank1,467,960 12.90 910,363 8.0 $1,137,953 10.0 %
Tier 1 capital (to RWA)
Company1,202,252 10.56 683,098 6.0 n/an/a
Bank1,368,384 12.03 682,486 6.0 909,981 8.0 
CET1 (to RWA)
Company1,172,362 10.29 512,695 4.5 n/an/a
Bank1,368,384 12.03 511,864 4.5 739,360 6.5 
Tier 1 capital (to average assets)
Company1,202,252 10.03 479,462 4.0 n/an/a
Bank1,368,384 11.43 478,875 4.0 598,593 5.0 
    


44

Dividend Restrictions

Dividends paid by the Bank are subject to certain restrictions imposed by regulatory agencies. Capital requirements further limit the amount of dividends that may be paid by the Bank. Dividends of $6,000 and $83,500 were paid by the Bank to the Holdco during the three and nine months ending September 30, 2024, respectively. Dividends of $20,000 and $40,000 were paid by the Bank to the Holdco during the three and nine months ended September 30, 2023.

Dividends of $10,881, or $0.20 per outstanding share of the Company’s common stock, and $32,680, or $0.60 per outstanding share of the Company’s common stock, were paid by the Company during the three and nine months ended September 30, 2024, respectively. Dividends of $10,861, or $0.20 per outstanding share, and $32,548, or $0.60 per outstanding share of the Company’s common stock were paid by the Company during the three and nine months ended September 30, 2023, respectively.

The Bank is subject to limitations on dividend payouts if, among other things, it does not have a capital conservation buffer of 2.5% or more. The Bank had a capital conservation buffer of 5.34% as of September 30, 2024.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) as well as with our consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the year ended December 31, 2023. Except where the content otherwise requires or when otherwise indicated, the terms “Veritex,” the “Company,” “we,” “us,” “our,” and “our business” refer to the combined entities of Veritex Holdings, Inc. and its subsidiaries, including Veritex Community Bank.

This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Special Cautionary Notice Regarding Forward-Looking Statements,” may cause actual results to differ materially from the projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements. For additional information concerning forward-looking statements, please read “Special Cautionary Notice Regarding Forward-Looking Statements” below.

Overview

    We are a Texas state banking organization with corporate offices in Dallas, Texas. Through our wholly owned subsidiary, Veritex Community Bank, a Texas state-chartered bank, we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals. Beginning at our operational inception in 2010, we initially targeted customers and focused our acquisitions primarily in the Dallas metropolitan area, which we consider to be Dallas and the adjacent communities in North Dallas. Our current primary markets includes the broader DFW metroplex and the Houston metropolitan area. As we continue to grow, we may expand to other metropolitan banking markets in Texas.

    Our business is conducted through one reportable segment, community banking, which generates the majority of our revenues from interest income on loans, customer service and loan fees, gains on sale of government guaranteed loans and mortgage loans and interest income from securities. We incur interest expense on deposits and other borrowed funds and noninterest expense, such as salaries, employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through net interest margin. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets.

    Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, and interest-bearing and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas and, specifically, in the DFW metroplex and Houston metropolitan area, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the state of Texas.



In accordance with Item 303(c)(2)(ii) of Regulation S-K, the Company is providing a comparison of the quarter ended September 30, 2024 against the preceding sequential quarter. The Company has elected to provide this comparison because it believes providing a sequential discussion of its results of operations provides more relevant information for investors and stakeholders to understand and analyze the business. The Company continues to present the required comparison of current year-to-date results with the same period of the prior year.

Financial information for the three months ended June 30, 2024, may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024.
46


Results of Operations for the Three Months Ended September 30, 2024 and June 30, 2024

General

    Net income for the three months ended September 30, 2024 was $31.0 million, an increase of $3.8 million, or 14.0%, from net income of $27.2 million for the three months ended June 30, 2024.
    Basic EPS for the three months ended September 30, 2024 was $0.57, an increase of $0.07 from $0.50 for the three months ended June 30, 2024. Diluted EPS for the three months ended September 30, 2024 was $0.56, an increase of $0.06 from $0.50 for the three months ended June 30, 2024.
Net Interest Income

For the three months ended September 30, 2024, net interest income totaled $100.1 million and net interest margin and net interest spread were 3.30% and 2.03%, respectively. For the three months ended June 30, 2024, net interest income totaled $96.2 million and net interest margin and net interest spread were 3.29% and 2.04%, respectively. The increase in net interest income was primarily due to an increase in interest income of $4.8 million on deposits in financial institutions and Fed Funds sold, a $422 thousand increase in interest income on debt securities and a $1.4 million decrease in interest expense on advances from FHLB. The increase was partially offset by a $1.6 million increase in interest expense on transaction and savings deposits and a $1.4 million increase in interest expense on certificates and other time deposits during the three months ended September 30, 2024, compared to the three months ended June 30, 2024. Net interest margin increased 1 bps to 3.30% from 3.29% for the three months ended September 30, 2024, compared to the three months ended June 30, 2024, primarily due to an increase in yields on MW loans during the three months ended September 30, 2024. The average cost of interest-bearing deposits decreased to 4.44% for the three months ended September 30, 2024 from 4.46% for the three months ended June 30, 2024.

For the three months ended September 30, 2024, interest expense totaled $96.6 million and the average rate paid on interest-bearing liabilities was 4.46%. For the three months ended June 30, 2024, interest expense totaled $95.0 million and the average rate paid on interest-bearing liabilities was 4.50%. The quarter-over-quarter decrease rate paid on interest-bearing liabilities was primarily due to decrease in the average rates paid on subordinated debentures and subordinated debt.

The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rates earned on interest-earning assets, the average rates paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended September 30, 2024 and three months ended June 30, 2024, interest income not recognized on nonaccrual loans was $638 thousand and $763 thousand, respectively. Any nonaccrual loans have been included in the table as loans carrying a zero yield.

47

For the Three Months Ended
September 30, 2024June 30, 2024
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$9,184,182 $159,163 6.89 %$9,344,482 $160,323 6.90 %
LHI, MW477,592 8,098 6.75 420,946 6,656 6.36 
Debt Securities1,384,835 15,830 4.55  1,352,293 15,408 4.58 
Interest-earning deposits in other banks924,685 12,571 5.41  560,586 7,722 5.54 
Equity securities and other investments75,884 1,001 5.25  78,964 1,138 5.80 
Total interest-earning assets12,047,178 196,663 6.49  11,757,271 191,247 6.54 
ACL(115,510)   (115,978)
Noninterest-earning assets930,250   937,413
Total assets$12,861,918   $12,578,706 
Liabilities and Stockholders’ Equity      
Interest-bearing liabilities:      
Interest-bearing demand and savings deposits$4,700,196 $47,208 4.00 %$4,570,329 $45,619 4.01 %
Certificates and other time deposits3,678,718 46,230 5.00 3,591,035 44,811 5.02 
Advances from FHLB3,261 47 5.73 106,648 1,468 5.54 
Subordinated debentures and subordinated debt230,393 3,116 5.38 230,141 3,113 5.44 
Total interest-bearing liabilities8,612,568 96,601 4.46 8,498,153 95,011 4.50 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,486,676 2,346,908 
Other liabilities179,273 192,036 
Total liabilities11,278,517 11,037,097 
Stockholders’ equity1,583,401 1,541,609 
Total liabilities and stockholders’ equity$12,861,918 $12,578,706 
Net interest rate spread(2)
2.03 %2.04 %
Net interest income$100,062 $96,236 
Net interest margin(3)
3.30 %3.29 %
(1) Includes average outstanding balances of LHFS of $54.3 million and $58.5 million for the three months ended September 30, 2024 and three months ended June 30, 2024, respectively, and average balances of LHI, excluding MW loans.
(2) Net interest rate spread is equal to the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets.

48

The following table presents the changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
 For the Three Months Ended
 September 30, 2024 vs. June 30, 2024
 Increase (Decrease) 
 Due to Change in 
 VolumeRateTotal
 (In thousands)
Interest-earning assets:
Loans$(2,743)$1,583 $(1,160)
LHI, MW893 549 1,442 
Debt Securities370 52 422 
Equity securities and other investments5,002 (153)4,849 
Interest-bearing deposits in other banks(44)(93)(137)
Total increase in interest income3,478 1,938 5,416 
Interest-bearing liabilities:
Interest-bearing demand and savings deposits1,293 296 1,589 
Certificates and other time deposits1,091 328 1,419 
Advances from FHLB(1,419)(2)(1,421)
Subordinated debentures and subordinated notes3 — 3 
Total increase in interest expense968 622 1,590 
Increase in net interest income$2,510 $1,316 $3,826 
Provision for Credit Losses
Our provision for credit losses is a charge to income in order to bring our ACL to a level deemed appropriate by management. We recorded a provision for credit losses of $4.0 million for the three months ended September 30, 2024, compared to $8.3 million provision for the three months ended June 30, 2024. The change was primarily attributable to a decrease in loan production and changes in economic factors. We recorded no benefit or provision for unfunded commitments, for the three months ended September 30, 2024 and the three months ended June 30, 2024, as the balance of unfunded commitments remained relatively flat quarter over quarter.

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Noninterest Income
Our primary sources of recurring noninterest income are service charges and fees on deposit accounts, loan fees, loss on sales of debt securities, government guaranteed loan income, net, customer swap income, and other income. Noninterest income does not include loan origination fees, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.
The following table presents, for the periods indicated, the major categories of noninterest income:
For the Three Months Ended
September 30,June 30,Increase
 20242024(Decrease)
 (In thousands)
Noninterest income:
Service charges and fees on deposit accounts$5,442 $4,974 $468 
Loan fees3,278 2,207 1,071 
Government guaranteed loan income, net780 1,320 (540)
Customer swap income271 326 (55)
Other3,335 1,751 1,584 
Total noninterest income$13,106 $10,578 $2,528 
Noninterest income for the three months ended September 30, 2024 increased $2.5 million, or 23.9%, to $13.1 million compared to noninterest income of $10.6 million for the three months ended June 30, 2024. The primary drivers of the increase were as follows
Loan fees. Certain loan fees are earned in connection with funding and servicing loans. The increase in loan fees of $1.1 million, or 48.5%, during the three months ended September 30, 2024, compared to the three months ended June 30, 2024 were primarily due to an increase of $555 thousand in syndication fees and an increase of $449 thousand in loan fee income.
Other. Other includes other noninterest income from fees. Other noninterest income was $3.3 million for the three months ended September 30, 2024, an increase of $1.6 million, or 90.5%, as compared to the three months ended June 30, 2024. The increase was primarily driven by an increase in OREO income of $1.2 million. The remaining changes were nominal amongst individual other noninterest income accounts.

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Noninterest Expense
Noninterest expense is composed of all employee expenses and costs associated with operating our facilities, acquiring and retaining customer relationships and providing bank services. The major component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees and regulatory fees, data processing and software expenses, marketing expenses, amortization of intangibles, telephone and communications expenses and other expenses.
The following table presents, for the periods indicated, the major categories of noninterest expense:
For the Three Months Ended
September 30,June 30,Increase
 20242024(Decrease)
 (In thousands)
Salaries and employee benefits$37,370 $32,790 $4,580 
Occupancy and equipment4,789 4,585 204 
Professional and regulatory fees4,903 5,617 (714)
Data processing and software expense5,268 5,097 171 
Marketing2,781 1,976 805 
Amortization of intangibles2,438 2,438 — 
Telephone and communications335 365 (30)
Other12,216 10,273 1,943 
Total noninterest expense$70,100 $63,141 $6,959 
 
Noninterest expense for the three months ended September 30, 2024 increased $7.0 million, or 11.0%, to $70.1 million compared to noninterest expense of $63.1 million for the three months ended June 30, 2024. The most significant components of the increase were as follows:

Salaries and employee benefits. Salaries and employee benefits include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. These expenses are impacted by the amount of direct loan origination costs, which are required to be deferred in accordance with ASC 310-20. Salaries and employee benefits were $37.4 million for the three months ended September 30, 2024, an increase of $4.6 million, or 14.0%, compared to the three months ended June 30, 2024. The increase was primarily attributable to a $1.7 million increase in general bonuses, an increase of $985 thousand in salaries, $707 thousand increase in severance costs and a $638 thousand increase in lender incentives. The remaining changes were nominal amongst individual other salaries and employee benefits expense accounts.

Other noninterest expense. This category includes loan operations and collections, supplies and printing, automatic teller and online expenses and other miscellaneous expenses. Other noninterest expense was $12.2 million for the three months ended September 30, 2024, compared to $10.3 million for the three months ended June 30, 2024, an increase of $1.9 million, or 18.9%. This increase was primarily due to an increase of $1.1 million in OREO expenses and an increase of $972 thousand in earned credit rebates. The remaining changes were nominal amongst individual other noninterest expense accounts

Income Tax Expense 

51

Income tax expense is a function of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of December 31, 2023, a $4.2 million valuation allowance was established relating to an impairment on our investment in Thrive. The valuation allowance decreased by $941 thousand as of September 30, 2024.

For the three months ended September 30, 2024, income tax expense totaled $8.1 million, a decrease of $154 thousand, compared to an income tax expense of $8.2 million for the three months ended June 30, 2024. For the three months ended September 30, 2024, we had an effective tax rate of 20.6%. The Company had a one-time tax expense for return to provision of $224 thousand and a $941 thousand benefit related to the release of the change in the Company’s valuation allowance during the three months ended September 30, 2024. The Company had a net discrete tax expense of $91 thousand associated with the recognition of an excess tax expense realized on share-based payment awards during the three months ended September 30, 2024. Excluding these discrete tax items, the Company had an effective tax rate of 22.2% for the three months ended September 30, 2024.

For the three months ended June 30, 2024, income tax expense totaled $8.2 million. For the three months ended June 30, 2024, we had an effective tax rate of 23.2%. The increase was primarily due to a one-time tax expense of $527 thousand. The Company also had a net discrete tax expense of $26 thousand associated with the recognition of an excess tax expense realized on share-based payment awards made during the three months ended June 30, 2024. Excluding this discrete tax item, the Company had an effective tax rate of 23.1% for the three months ended June 30, 2024.

52

Results of Operations for the Nine Months Ended September 30, 2024 and September 30, 2023

General

    Net income for the nine months ended September 30, 2024 was $82.4 million, a decrease of $22.3 million, or 21.3%, from net income of $104.8 million for the nine months ended September 30, 2023.
    Basic EPS for the nine months ended September 30, 2024 was $1.51, a decrease of $0.42 from $1.93 for the nine months ended September 30, 2023. Diluted EPS for the nine months ended September 30, 2024 was $1.50, a decrease of $0.42 from $1.92 for the nine months ended September 30, 2023.
Net Interest Income

For the nine months ended September 30, 2024, net interest income before provisions for credit losses totaled $289.1 million and net interest margin and net interest spread were 3.28% and 2.01%, respectively. For the nine months ended September 30, 2023, net interest income before provision for credit losses totaled $303.6 million and net interest margin and net interest spread were 3.55% and 2.51%, respectively. Net interest margin decreased 27 bps from the nine months ended September 30, 2023, primarily due to an increase in the average rate paid on interest-bearing liabilities. The decrease in net interest income of $14.5 million was primarily attributable to an increase of $46.3 million in interest expense on certificates and other time deposits and a $36.9 million increase in interest expense on transaction accounts. The increase was partially offset by a $35.5 million decrease in interest expense on advances from FHLB, an increase in interest income on loans of $13.4 million due to an increase in loan yields and higher average balances, a $12.9 million increase in interest income on debt securities and a $8.2 million increase in interest income on deposits in financial institutions and fed funds sold during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The $83.2 million increase in interest expense on deposit accounts was due to an increase in average funding costs of total deposits. As a result, the average cost of interest-bearing deposits increased 82 bps to 4.44% for the nine months ended September 30, 2024 from 3.62% for the nine months ended September 30, 2023. The average costs of total deposits, including noninterest-bearing deposits, for the nine months ended September 30, 2024 increased 140 bps to 3.43% compared to 2.03% for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, interest expense totaled $283.4 million and the average rate paid on interest-bearing liabilities was 4.48%. For the nine months ended September 30, 2023, interest expense totaled $235.7 million and the average rate paid on interest-bearing liabilities was 3.80%. The increase of $47.8 million in interest expense was primarily due increases in the average rates paid on interest-bearing demand and savings deposits, certificates and other time deposits driven by the impact of rising interest rates year over year.


53

    The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest–bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as non-accrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the nine months ended September 30, 2024 and September 30, 2023, interest income not recognized on non-accrual loans was $2.2 million and $4.7 million, respectively. Any non-accrual loans have been included in the table as loans carrying a zero yield.

For the Nine Months Ended September 30,
20242023
InterestInterest
AverageEarned/AverageAverageEarned/Average
OutstandingInterestYield/OutstandingInterestYield/
BalancePaidRateBalancePaidRate
(Dollars in thousands)
Assets                                                       
Interest-earning assets:
Loans(1)
$9,270,510 $477,071 6.87 %$9,231,814 $467,101 6.76 %
LHI, MW393,008 19,111 6.50 363,182 15,701 5.78 
Debt securities1,344,190 44,933 4.47 1,168,860 32,082 3.67 
Interest-bearing deposits in other banks692,434 28,343 5.47 527,805 20,169 5.11 
Equity securities and other investments77,035 3,039 5.27 132,895 4,217 4.24 
Total interest-earning assets11,777,177 572,497 6.49 11,424,556 539,270 6.31 
ACL(114,576)  (100,228)  
Noninterest-earning assets930,605   950,369   
Total assets$12,593,206   $12,274,697   
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits$4,636,889 $139,611 4.02 %$4,079,436 $102,750 3.37 %
Certificates and other time deposits3,518,417 131,533 4.99 2,873,388 85,244 3.97 
Advances from FHLB70,055 2,906 5.54 1,105,592 38,443 4.65 
Subordinated debentures and subordinated notes230,139 9,343 5.42 229,923 9,252 5.38 
Total interest-bearing liabilities8,455,500 283,393 4.48 8,288,339 235,689 3.80 
Noninterest-bearing liabilities:      
Noninterest-bearing deposits2,396,629   2,305,745   
Other liabilities188,007   182,040   
Total liabilities11,040,136   10,776,124   
Stockholders’ equity1,553,070   1,498,573   
Total liabilities and stockholders’ equity$12,593,206   $12,274,697   
Net interest rate spread(2)
 2.01 % 2.51 %
Net interest income $289,104  $303,581 
Net interest margin(3)
 3.28 % 3.55 %
(1) Includes average outstanding balances of LHFS of $55.5 million and $23.8 million for the nine months ended September 30, 2024 and September 30, 2023, respectively, and average balances of LHI, excluding MW.
(2) Net interest rate spread is equal to the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets.
54

The following table presents the changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
 For the Nine Months Ended
September 30, 2024 vs September 30, 2023
 Increase (Decrease) 
 Due to Change in 
 VolumeRateTotal
 (In thousands)
Interest-earning assets:
Loans$1,960 $8,010 $9,970 
LHI, MW1,291 2,119 3,410 
Debt securities4,817 8,034 12,851 
Interest-bearing deposits in other banks6,297 1,877 8,174 
Equity securities and other investments(1,774)596 (1,178)
Total increase in interest income12,591 20,636 33,227 
Interest-bearing liabilities:
Interest-bearing demand and savings deposits14,054 22,807 36,861 
Certificates and other time deposits19,154 27,135 46,289 
Advances from FHLB(36,040)503 (35,537)
Subordinated debentures and subordinated notes9 82 91 
Total (decrease) increase in interest expense(2,823)50,527 47,704 
Increase (decrease) in net interest income$15,414 $(29,891)$(14,477)
Provision for Credit Losses
Our provision for credit losses is a charge to income in order to bring our ACL to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the ACL see “—Financial Condition—ACL on LHI”. The provision for credit loan losses was $19.8 million for the nine months ended September 30, 2024, compared to a $33.0 million provision for credit loan losses for the nine months ended September 30, 2023, a decrease of $13.3 million. The decrease in the recorded provision for credit losses for the nine months ended September 30, 2024 was primarily attributable to changes in economic factors, qualitative factors and specific reserves on loans that do not share similar risk characteristics. For the nine months ended September 30, 2024, we also recorded a $1.5 million benefit for unfunded commitments compared to a $541 thousand benefit for unfunded commitments for nine months ended September 30, 2023.

55

Noninterest Income
The following table presents, for the periods indicated, the major categories of noninterest income:
 For the  
 Nine Months Ended 
 September 30,Increase
 20242023(Decrease)
 (In thousands)
Noninterest income:
Service charges and fees on deposit accounts$15,312 $15,448 $(136)
Loan fees7,995 5,148 2,847 
Loss on sales of debt securities(6,304)(5,321)(983)
Government guaranteed loan income, net4,714 15,604 (10,890)
Equity method investment loss— (1,172)1,172 
Customer swap income1,046 1,380 (334)
Other7,583 5,810 1,773 
Total noninterest income$30,346 $36,897 $(6,551)

Noninterest income for the nine months ended September 30, 2024 decreased $6.6 million, or 17.8%, to $30.3 million compared to noninterest income of $36.9 million for the nine months ended September 30, 2023. The primary drivers of the decrease were as follows:
Loan fees. The increase in loan fees of $2.8 million is primarily due to an increase of $1.2 million of syndication and related fees, a $562 thousand increase in late charges on CRE loans, a $307 thousand increase in letter of credit fees, a $296 thousand increase in unused lines consumer fees, a $209 thousand increase in warehouse C&I file fees and a $202 thousand increase in loan fee income.
Loss on sales of debt securities. The decrease in the loss on sale of debt securities during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was due to a $6.3 million loss on sales of debt securities due to as a result of a strategic restructuring in which we sold $120.1 million of lower-yielding AFS debt securities, at amortized cost, with a 3.11% average yield during the nine months ended September 30, 2024 compared to a $5.3 million loss on sales of debt securities due to the Company selling $116.2 million of debt securities in March 2023.
Government guaranteed loan income, net. Government guaranteed loan income, net, includes income related to the sales of SBA and USDA loans. The decrease in government guaranteed loan income, net, of $10.9 million during the nine months ended September 30, 2024 was primarily due to a $9.8 million decrease in the gain on sale of USDA loans and a decrease of $3.5 million in government guaranteed LHFS loan valuation, compared to the nine months ended September 30, 2023. The decrease was partially offset by an increase of $2.3 million in the gain on sale of SBA loans.
Equity method investment loss. Equity method investment loss is comprised of losses and gains primarily related to our previous investment in Thrive. The change in equity method investment loss is related to the Company divesting of our equity method investment in Thrive related to Thrive’s entry into a definitive agreement in December 2023 to be acquired by Lower, which acquisition closed in March of 2024. Our subsequent investment in Lower is accounted for under cost method accounting.
Other. Other includes other noninterest income from fees. Other noninterest income was $7.6 million during the nine months ended September 30, 2024, an increase of $1.8 million, or 30.5%, compared to the same period in 2023. The increase is primarily due to an increase of $1.2 million in OREO income. The remaining changes were nominal amongst individual other noninterest income accounts.

56

Noninterest Expense

The following table presents, for the periods indicated, the major categories of noninterest expense:
For the
 Nine Months Ended
 September 30,Increase
 20242023(Decrease)
 (In thousands)
Noninterest expense
Salaries and employee benefits$103,525 $91,464 $12,061 
Occupancy and equipment14,051 14,681 (630)
Professional and regulatory fees16,573 18,540 (1,967)
Data processing and software expense15,221 13,970 1,251 
Marketing6,303 6,759 (456)
Amortization of intangibles7,314 7,401 (87)
Telephone and communications961 1,195 (234)
Other31,409 19,216 12,193 
Total noninterest expense$195,357 $173,226 $22,131 
 
Noninterest expense for the nine months ended September 30, 2024 increased $22.1 million, or 12.8%, to $195.4 million compared to noninterest expense of $173.2 million for the nine months ended September 30, 2023. The most significant components of the increase were as follows:
 
Salaries and employee benefits. Salaries and employee benefits include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. These expenses are impacted by the amount of direct loan origination costs, which are required to be deferred in accordance with ASC 310-20. Salaries and employee benefits were $103.5 million for the nine months ended September 30, 2024, an increase of $12.1 million, or 13.2%, compared to the nine months ended September 30, 2023. The increase was primarily attributable to a $6.5 million increase in officer salaries, a $1.8 million increase in lender incentives, an increase of $1.6 million in contra origination costs, a $966 thousand increase in stock grant expense, and $738 thousand increase in general bonuses. The remaining changes were nominal amongst individual other noninterest expense accounts.

Occupancy and equipment. This category includes expenses related to our buildings, equipment and leases. Occupancy and equipment expenses were $14.1 million for the nine months ended September 30, 2024, a decrease of $630 thousand or 4.3% compared to the nine months ended September 30, 2023. The decrease was primarily due to a decrease of $400 thousand in building repairs and maintenance, $160 thousand decrease in property and casualty insurance, and a decrease in of $142 thousand in depreciation FF&E. Partially offset by an increase in building expenses of $112 thousand.

Professional and regulatory fees. This category includes legal, professional, audit, regulatory, and FDIC assessment fees. Professional and regulatory fees were $16.6 million for the nine months ended September 30, 2024, a decrease of $2.0 million or 10.6% compared to the nine months ended September 30, 2023. The decrease is primarily due to a decrease in FDIC assessment fees of $2.6 million; partially offset by a $378 thousand increase in compliance and internal audit expense. The remaining changes were nominal amongst individual professional and regulatory fees expense accounts.

Data processing and software expense. This category of expenses includes expense related to data processing and software expenses. Data processing and software expense was $15.2 million for the nine months ended September 30, 2024, an increase of $1.3 million or 9.0% compared to the nine months ended September 30, 2023. The increase is primarily due to an increase of $804 thousand in data processing expenses and $448 thousand increase in software expense.

57

Other noninterest expense. This category includes loan operations and collections, supplies and printing, automatic teller and online expenses and other miscellaneous expenses. Other noninterest expense was $31.4 million for the nine months ended September 30, 2024, compared to $19.2 million for the same period in 2023, an increase of $12.2 million, or 63.5%. This increase was primarily due to an increase of $9.7 million in earned credit rebates and an increase of $1.3 million in OREO and repo asset expenses and write downs during the nine months ended September 30, 2024 as compared to the same period in 2023. The remaining changes were nominal amongst individual other noninterest expense accounts.

Income Tax Expense
 
Income tax expense is a function of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or statutory tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision of income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of December 31, 2023, a $4.2 million valuation allowance was established relating to an impairment on our investment in Thrive. The valuation allowance decreased $941 thousand to $3.3 million as of September 30, 2024.

For the nine months ended September 30, 2024, income tax expense totaled $23.5 million, a decrease of $6.4 million or 21.6% , compared to an income tax expense of $30.0 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, we had an effective tax rate of 22.2%. The Company had a one-time tax expense for return to provision of $224 thousand and a $941 thousand benefit related to the release of the change in the Company’s valuation allowance during the nine months ended September 30, 2024. The Company had a net discrete tax expense of $501 thousand associated with the recognition of an excess tax expense realized on share-based payment awards during the nine months ended September 30, 2024. Excluding these discrete tax items, the Company had an effective tax rate of 22.4% for the nine months ended September 30, 2024.

For the nine months ended September 30, 2023, we had an effective tax rate of 22.3% which includes a discrete tax expense of $658 thousand, of which $505 thousand was associated with a return to provision adjustment and $153 thousand associated with the recognition of an excess tax expense realized on share-based payment awards. Excluding these discrete tax items, the Company had an effective tax rate of 21.8%.
58

Financial Condition
 
Our total assets increased $648.6 million, or 5.2%, from $12.39 billion as of December 31, 2023 to $13.04 billion as of September 30, 2024. Our asset growth was due to the continued execution of our strategy to establish deep relationships in the DFW metroplex and the Houston metropolitan area. We believe these relationships will continue to bring in new customer accounts and grow balances from existing loan and deposit customers.
 
Loan Portfolio
 
Our primary source of income is interest on loans to individuals, professionals, small to medium-sized businesses and commercial companies primarily located in the DFW metroplex and Houston metropolitan area. Our loan portfolio consists primarily of commercial loans and real estate loans secured by CRE properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our interest-earning asset base.
 
As of September 30, 2024, total LHI, excluding ACL, was $9.67 billion, an increase of $74.3 million, or 0.8%, compared to $9.59 billion as of December 31, 2023. The increase was the result of the continued execution and success of our loan growth strategy. In addition to these amounts, $48.5 million and $79.1 million in loans were classified as LHFS as of September 30, 2024 and December 31, 2023, respectively.
 
Total LHI as a percentage of deposits were 87.6% and 92.8% as of September 30, 2024 and December 31, 2023, respectively. Total LHI, excluding MW loans, as a percentage of deposits were 81.9% and 89.1% as of September 30, 2024 and December 31, 2023, respectively. Total LHI as a percentage of assets were 74.1% and 77.4% as of September 30, 2024 and December 31, 2023, respectively.

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

 As of September 30,As of December 31,
 20242023Increase (Decrease)
 Amount% of TotalAmount% of TotalAmount% Change Quarter over Quarter
 (Dollars in thousands)
Commercial$2,728,544 28.3 %$2,752,063 28.7 %$(23,519)(0.9)%
MW630,650 6.5 377,796 3.9 252,854 66.9 
Real estate:  
OOCRE807,223 8.3 794,088 8.3 13,135 1.7 
NOOCRE2,338,094 24.2 2,350,725 24.5 (12,631)(0.5)
Construction and land1,436,540 14.9 1,734,254 18.1 (297,714)(17.2)
Farmland32,254 0.3 31,114 0.3 1,140 3.7 
1-4 family residential944,755 9.8 937,119 9.8 7,636 0.8 
Multifamily738,090 7.6 605,817 6.3 132,273 21.8 
Consumer11,292 0.1 10,149 0.1 1,143 11.3 
Total LHI, carried at amortized cost(1)
$9,667,442 100.0 %$9,593,125 100.0 %$74,317 0.8 %
Total LHFS$48,496 $79,072 
(1) Total LHI, carried at amortized cost, excludes $8.2 million and $8.8 million of deferred loan fees, net, as of September 30, 2024 and December 31, 2023, respectively.




59

CRE Portfolio Composition
The majority of our CRE loan portfolio consists of multifamily residential, NOOCRE and construction and land loans. The table below details the composition of the multifamily residential, NOOCRE and construction and land loan portfolio's by borrower type and geographic location.
As of September 30,
2024
Property TypeDFWHouston
Secondary Texas(1)
Out of StateTotal% of Total Loans
Industrial$382,227 $254,307 $172,898 $305,485 $1,114,917 11.5 %
Multifamily419,579 429,274 203,190 136,810 1,188,853 12.3 
Office337,357 115,753 31,978 32,393 517,481 5.4 
Retail181,524 177,562 122,022 182,310 663,418 6.9 
Hotel168,467 23,469 111,739 111,462 415,137 4.3 
SFR228,026 29,973 62,254 11,853 332,106 3.4 
Other81,080 63,879 75,857 59,996 280,812 2.9 
Total CRE$1,798,260 $1,094,217 $779,938 $840,309 $4,512,724 46.7 %
As of December 31,
2023
Property TypeDFWHouston
Secondary Texas(1)
Out of StateTotal% of Total Loans
Industrial$409,899 $263,880 $151,780 $265,138 $1,090,697 11.4 %
Multifamily395,344 506,761 165,340 125,890 1,193,335 12.4 
Office361,612 137,486 31,914 32,627 563,639 5.9 
Retail192,770 188,582 138,176 179,536 699,064 7.3 
Hotel166,356 22,764 110,795 141,054 440,969 4.6 
SFR250,151 29,556 89,582 8,201 377,490 3.9 
Other81,981 108,512 53,438 81,671 325,602 3.4 
Total CRE$1,858,113 $1,257,541 $741,025 $834,117 $4,690,796 48.9 %
(1)Includes loans made to markets in the state of Texas outside of DFW and Houston.









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Out of State Concentration
The majority of the Company's loan portfolio consists of loans to businesses and individuals in the DFW metroplex and the Houston metropolitan area. The following table provides details on our out of state portfolio concentration:
As of September 30,As of December 31,
20242023
Out of State Loan PortfolioAmountPercent of Total LoansAmountPercent of Total Loans
(Dollars in thousands)
CRE$815,910 8.4 %$784,523 8.2 %
Lender Finance531,137 5.5 536,568 5.6 
Commercial350,696 3.6 355,626 3.7 
MW300,802 3.1 141,329 1.5 
Mortgage Servicing Rights240,323 2.5 227,002 2.4 
1-4 Family Residential249,603 2.6 259,745 2.7 
USDA and SBA201,997 2.1 199,184 2.1 
Other801 — 370 — 
Total Out of State Loans$2,691,269 27.8 %$2,504,347 26.1 %
Nonperforming Assets

The following table presents information regarding nonperforming assets by category as of the dates indicated:
 As of September 30,As of December 31,
 20242023
(Dollars in thousands)
Nonperforming loans(1)
Construction and land$6,578 $6,793 
1-4 family residential1,995 1,965 
OOCRE5,653 9,719 
NOOCRE13,970 33,479 
    Commercial27,191 40,868 
    Consumer17 24 
Accruing loans 90 or more days past due2,860 2,975 
        Total nonperforming loans58,264 95,823 
OREO9,034 — 
         Total nonperforming assets$67,298 $95,823 
Nonperforming assets to total assets0.52 %0.77 %
Nonperforming assets to total loans and OREO0.70 %0.99 %
Nonperforming loans to total loans0.60 %1.00 %
(1) At September 30, 2024 and December 31, 2023, nonaccrual loans included $70 thousand and $13.7 million, respectively, of PCD loans that are accounted for on a pooled basis.


61

Potential Problem Loans

The following tables summarize our internal ratings of our loans as of the dates indicated.
 September 30, 2024
 PassSpecial
Mention		Substandard
PCD1
Total
(Dollars in thousands)
Real estate:
Construction and land$1,385,871 $44,091 $6,578 $— $1,436,540 
Farmland32,254 — — — 32,254 
1 - 4 family residential935,413 5,383 2,901 1,058 944,755 
Multi-family residential737,524 — 566 — 738,090 
OOCRE769,175 8,753 19,269 10,026 807,223 
NOOCRE2,088,399 130,799 118,470 426 2,338,094 
Commercial2,580,242 94,427 53,535 340 2,728,544 
MW630,650 — — — 630,650 
Consumer11,146 75 62 9 11,292 
Total$9,170,674 $283,528 $201,381 $11,859 $9,667,442 
1 Within PCD loans, $555 are considered classified credits.
 December 31, 2023
 PassSpecial
Mention		SubstandardPCDTotal
(Dollars in thousands)
Real estate:
Construction and land$1,693,230 $34,231 $6,793 $— $1,734,254 
Farmland31,114 — — — 31,114 
1 - 4 family residential928,106 4,501 3,382 1,130 937,119 
Multi-family residential579,021 11,701 15,095 — 605,817 
OOCRE722,430 25,925 27,563 18,170 794,088 
NOOCRE2,066,080 182,531 88,030 14,084 2,350,725 
Commercial2,641,017 51,073 57,065 2,908 2,752,063 
MW377,796 — — — 377,796 
Consumer9,972 85 79 13 10,149 
Total$9,048,766 $310,047 $198,007 $36,305 $9,593,125 
 
ACL on LHI
We maintain an ACL that represents management’s best estimate of the credit losses and risks inherent in the loan portfolio. In determining the ACL, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the ACL is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.
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The following table presents, as of and for the periods indicated, an analysis of the ACL and other related data:
 September 30, 2024June 30, 2024December 31, 2023
 Allocated Allowance% of Loan PortfolioACL to LoansAllocated Allowance% of Loan PortfolioACL to LoansAllocated Allowance% of Loan PortfolioACL to Loans
 
Construction and land$19,370 14.9 %1.35 %$20,894 15.7 %1.36 %$21,032 18.1 %1.21 %
Farmland98 0.3 0.30 99 0.3 0.32 101 0.3 0.32 
1 - 4 family residential9,539 9.9 1.01 9,181 9.4 1.00 9,539 9.8 1.02 
Multi-family residential5,622 7.6 0.76 5,754 7.7 0.77 4,882 6.3 0.81 
OOCRE16,907 8.3 2.09 13,100 8.2 1.62 10,252 8.3 1.29 
NOOCRE40,532 24.2 1.73 33,363 24.2 1.41 27,729 24.5 1.18 
Commercial23,878 28.2 0.88 29,561 28.6 1.06 35,886 28.7 1.30 
MW1,081 6.5 0.17 1,275 5.8 0.22 260 3.9 0.07 
Consumer135 0.1 1.20 204 0.1 2.21 135 0.1 1.33 
Total$117,162 100.0 %1.21 %$113,431 100.0 %1.16 %$109,816 100.0 %1.14 %

The ACL increased $7.3 million to $117.2 million as of September 30, 2024 from December 31, 2023. The increase in the ACL compared to December 31, 2023, was primarily attributable to changes in economic factors resulting in increases in both general and qualitative factor reserves.


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(Dollars in thousands)Net (Charge-offs) RecoveriesAverage LoansAnnualized Net (Charge-off) Recoveries to Average Loans
Nine Months Ended September 30, 2024
Construction and land$— $1,646,724 — %
Farmland— 31,379 — 
1 - 4 family residential(27)944,262 — 
Multi-family residential(198)751,445 (0.04)
OOCRE— 781,414 — 
NOOCRE(6,262)2,272,786 (0.37)
Commercial(6,387)2,796,061 (0.31)
MW46 393,008 0.02 
Consumer424 8,989 6.30 
Total$(12,404)$9,626,068 (0.17)%
Nine Months Ended September 30, 2023
Construction and land$— $1,855,861 — %
Farmland— 50,845 — 
1 - 4 family residential2 902,353 — 
Multi-family residential— 499,698 — 
OOCRE(491)694,378 (0.09)
NOOCRE(7,865)2,369,293 (0.44)
Commercial(5,742)2,850,762 (0.27)
MW— 363,182 — 
Consumer(137)8,624 (2.12)
Total$(14,233)$9,594,996 (0.20)%
Net charge-offs decreased $1.8 million, or 3 bps, to average loans annualized. Although we believe that we have established our ACL in accordance with GAAP and that the ACL was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.
OBS Credit exposure
The ACL on OBS credit exposures totaled $6.5 million and $8.0 million at September 30, 2024 and December 31, 2023, respectively. The level of the ACL on OBS credit exposures depends upon the volume of outstanding commitments, underlying risk grades, the expected utilization of available funds and forecasted economic conditions impacting our loan portfolio.  
Equity Securities
As of September 30, 2024, we held equity securities with a readily determinable fair value of $10.1 million compared to $9.9 million as of December 31, 2023. These equity securities primarily represent investments in a publicly traded CRA fund and are subject to market pricing volatility, with changes in fair value recorded in earnings.

The Company held equity securities without a readily determinable fair values and measured at cost of $48.6 million at September 30, 2024, compared to $11.6 million at December 31, 2023. The Company measures equity securities that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.




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FHLB Stock and FRB Stock

As of September 30, 2024, we held FHLB stock and FRB stock of $47.9 million compared to $53.7 million as of December 31, 2023. The Bank is a member of its regional FRB and of the FHLB system. FHLB members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. Both FRB and FHLB stock are carried at cost, restricted for sale, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Debt Securities
We use our debt securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of September 30, 2024, the carrying amount of debt securities totaled $1.42 billion, an increase of $166.6 million, or 13.3%, compared to $1.26 billion as of December 31, 2023. The increase was primarily due purchases of AFS debt securities of $638.2 million. The increase was partially offset by the sale of debt securities of $113.8 million at a loss of $6.3 million, an unrealized loss of $30.1 million and $382.6.0 million in paydowns. Debt securities represented 10.9% and 10.1% of total assets as of September 30, 2024 and December 31, 2023, respectively.
All of our MBS and CMOs are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, structured investment vehicles, private label CMOs, subprime, Alt-A, or second lien elements in our investment portfolio. As of September 30, 2024, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.
 
Management evaluates AFS debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. The Company has 122 AFS debt securities that were in an unrealized loss position totaling $70.9 million as of September 30, 2024. The Company evaluated all debt securities and no ACL on debt securities was recognized in the Company’s consolidated balance sheets as of September 30, 2024. The Company recorded no ACL for its held to maturity debt securities as of September 30, 2024 and December 31, 2023, respectively.

    As of September 30, 2024 and December 31, 2023, we did not own securities of any one issuer other than U.S. government agency securities for which aggregate cost exceeded 10.0% of our stockholders’ equity as of such respective dates
Deposits

Total deposits as of September 30, 2024 were $11.04 billion, an increase of $697.8 million, or 6.7%, compared to $10.34 billion as of December 31, 2023. The increase from December 31, 2023 was primarily the result of increases of $434.2 million in certificates and other time deposits, $425.9 million in noninterest-bearing transactions. The increase was partially offset by a decrease of $143.7 million in interest-bearing demand deposits and a decrease of $18.5 million in correspondent money market deposits.

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September 30, 2024
Ending Balance% of TotalAverage
Outstanding Balance
Noninterest-bearing$2,643,894 24.0 %$2,486,676 
Interest-bearing transaction421,059 3.8 524,298 
Money market3,462,709 31.4 3,372,252 
Savings320,940 2.9 238,521 
   Certificates and other time deposits > $250k1,117,215 10.1 1,167,562 
   Certificates and other time deposits < $250k 2,508,705 22.7 2,511,156 
Correspondent money market accounts561,489 5.1 565,125 
Total deposits$11,036,011 100.0 %$10,865,590 
December 31, 2023
Ending Balance% of TotalAverage
Outstanding Balance
Noninterest-bearing$2,218,036 21.4 %$2,322,556 
Interest-bearing transaction927,193 9.0 851,375 
Money market3,284,324 31.8 3,061,472 
Savings136,868 1.3 115,519 
 Certificates and other time deposits > $250k1,312,032 12.7 1,240,834 
 Certificates and other time deposits < $250k1,879,705 18.2 2,044,330 
Correspondent money market accounts580,037 5.6 519,544 
Total deposits$10,338,195 100.0 %$10,155,630 
Borrowings
We utilize short- and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
FHLB Advances 
The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of September 30, 2024 and December 31, 2023, total available borrowing capacity of $2.28 billion and $2.19 billion, respectively, was available under this arrangement with no outstanding balance as of September 30, 2024 and an outstanding balance of $100.0 million as of December 31, 2023. The weighted average interest rate was 5.54% for the nine months ended September 30, 2024 and 4.70% for the year ended December 31, 2023. The FHLB has also issued standby letters of credit to the Company for $1.16 billion and $1.38 billion as of September 30, 2024 and December 31, 2023, respectively. We had no other short-term borrowings at the dates indicated.
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FRB  
The FRB has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain commercial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. The following table outlines the FRB availability:
Nine Months Ended
September 30,December 31,
20242023
FRB loans pledged as collateral at period end$2,291,309 $2,143,269 
FRB securities pledged as collateral at period end1,019,118 328,919 
BTFP availability at period end(1)
— 455,361 
Total FRB availability$3,310,427 $2,927,549 
(1) There were no borrowings against the BTFP at the end of the respective periods.
Junior subordinated debentures and subordinated notes
The table below details our junior subordinated debentures and subordinated notes. Refer to Note 13 “Subordinated Debentures and Subordinated Notes” in our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the details of our junior subordinated debentures and subordinated notes.
September 30, 2024
BalanceRate
(Dollars in thousands)
Junior subordinated debentures
Parkway National Capital Trust I$3,093 7.06%
SovDallas Capital Trust I8,609 9.59
Patriot Bancshares Capital Trust I5,155 7.41
Patriot Bancshares Capital Trust II17,011 7.01
Subordinated notes
4.75% Fixed-to-Floating Rate Subordinated Notes75,000 4.75
4.125% Fixed-to-Floating Rate Subordinated Notes125,000 4.125

Liquidity and Capital Resources
Liquidity
Liquidity management involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the nine months ended September 30, 2024 and the year ended December 31, 2023, our liquidity needs were primarily met by core deposits, wholesale borrowings, security and loan maturities and amortizing investment and loan portfolios. Use of brokered deposits, purchased funds from correspondent banks and overnight advances from the FHLB and the FRB are available and have been utilized to take advantage of the cost of these funding sources.
We maintained five lines of credit with commercial banks that provide for extensions of credit with an availability to borrow up to an aggregate of $150.0 million as of September 30, 2024. We maintained five lines of credit with commercial banks that provide for extensions of credit with an availability to borrow up to an aggregate of $125.0 million as of December 31, 2023. There were no advances under these lines of credit outstanding as of September 30, 2024 and December 31, 2023.
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The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of our average total assets for the period indicated. Average assets totaled $12.59 billion for the nine months ended September 30, 2024 and $12.28 billion for the year ended December 31, 2023.
 For theFor the
 Nine Months EndedYear Ended
 September 30, 2024December 31, 2023
Sources of Funds:
Deposits:
Noninterest-bearing19.1 %18.8 %
Interest-bearing36.8 34.2 
Certificates and other time deposits27.9 24.2 
Advances from FHLB0.6 7.1 
Other borrowings1.8 1.9 
Other liabilities1.5 1.6 
Stockholders’ equity12.3 12.2 
Total100.0 %100.0 %
Uses of Funds:
Loans75.8 %77.3 %
Debt Securities10.7 9.6 
Interest-bearing deposits in other banks5.5 1.0 
Other noninterest-earning assets8.0 12.1 
Total100.0 %100.0 %
Average noninterest-bearing deposits to average deposits22.7 %24.4 %
Average loans, excluding MW, to average deposits87.9 %97.5 %
Our primary source of funds is deposits and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future and believe that funds provided by such means will be sufficient to satisfy our anticipated cash requirements for the next twelve months and foreseeable future. Our average LHI increased 0.6% for the nine months ended September 30, 2024, compared to the year ended December 31, 2023. We used excess deposits to pay down FHLB borrowings to reduce wholesale funding.
As of September 30, 2024, we had $2.82 billion in outstanding commitments to extend credit, $487.4 million in unconditionally cancellable MW commitments and $113.8 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2023, we had $3.08 billion in outstanding commitments to extend credit, $803.7 million in MW commitments and $111.6 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
As of September 30, 2024, we had cash and cash equivalents of $1.10 billion compared to $629.1 million as of December 31, 2023.

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Analysis of Cash Flows
 For the Nine Months Ended
 September 30, 2024September 30, 2023
(In thousands)
Net cash provided by operating activities$143,009 $138,068 
Net cash (used in) provided by investing activities(234,337)74,898 
Net cash provided by financing activities563,055 64,365 
Net change in cash and cash equivalents$471,727 $277,331 
Net Cash Flows Provided by Operating Activities
    For the nine months ended September 30, 2024, net cash provided by operating activities increased by $4.9 million when compared to the same period in 2023. The increase in cash provided by operating activities was primarily attributable to an increase in proceeds from sales of LHFS.
Net Cash Flows (Used in) Provided by Investing Activities
    For the nine months ended September 30, 2024, net cash (used in) provided by investing activities increased by $309.2 million when compared to the same period in 2023. The increase in cash used in investing activities was primarily attributable to a $198.5 million increase in purchases of AFS debt securities and a $52.0 million decrease in proceeds from sale of government guaranteed loans. This was partially offset by a $117.3 million decrease in net loans originated and a $36.1 million decrease in purchases of other investments.
Net Cash Flows Provided by Financing Activities
    For the nine months ended September 30, 2024, net cash provided by financing activities increased by $498.7 million when compared to the same period in 2023. The increase in cash provided by financing activities was primarily attributable to an increase in deposits slightly offset by a lower balance of FHLB advances as compared to the nine months ended September 30, 2023.
    As of the nine months ended September 30, 2024 and 2023, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
Share Repurchases
On March 28, 2024, the Board 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 Stock Buyback Program has an expiration date of March 31, 2025 and may be suspended, terminated, amended or modified by the Board at any time without prior notice at the Board’s discretion. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the SEC. The Stock Buyback Program does not obligate the Company to purchase any share and the program may be terminated or amended by the Board at any time prior to its expiration.
Shares repurchased through the periods indicated are as follows:

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Numbers of shares repurchased1,982 — 177,670 — 
Weighted average price per share$20.24 $— $19.91 $— 
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Capital Resources
Total stockholders’ equity increased to $1.61 billion as of September 30, 2024, compared to $1.53 billion as of December 31, 2023, an increase of $76.7 million, or 5.0%. The increase from December 31, 2023 to September 30, 2024 was primarily the result of $82.4 million of net income recognized, $23.1 million in AOCI and $9.3 million in stock-based compensation. This increase was partially offset by $32.7 million in dividends declared and paid, $3.5 million in stock buybacks and $2.2 million of RSUs vesting during the nine months ended September 30, 2024.
By comparison, total stockholders’ equity increased to $1.49 billion as of September 30, 2023, compared to $1.45 billion as of December 31, 2022, an increase of $41.4 million, or 2.9%. The increase from December 31, 2022 to September 30, 2023 was primarily the result of $104.8 million of net income recognized, $9.0 million in stock-based compensation and a $803 thousand increase due to the exercise of employee stock options during the nine months ended September 30, 2023. This increase was partially offset by $32.5 million in dividends declared and paid, $38.4 million in other comprehensive income and $2.2 million of RSUs vesting during the nine months ended September 30, 2023.
Capital management consists of providing equity to support our current and future operations. Our regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank holding company and bank levels. See Note 12 – “Capital Requirements and Restrictions on Retained Earnings” in the notes to our consolidated financial statements for additional discussion regarding the regulatory capital requirements applicable to us and the Bank. As of September 30, 2024 and December 31, 2023, we and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for purposes of the PCA regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.
The following table presents the actual capital amounts and regulatory capital ratios for us and the Bank as of the dates indicated.
 As of September 30,As of December 31,
 20242023
 AmountRatioAmountRatio
 (Dollars in thousands)
Veritex Holdings, Inc.
Total capital (to RWA)$1,570,044 13.91 %$1,500,703 13.18 %
Tier 1 capital (to RWA)1,256,685 11.13 1,202,252 10.56 
CET1 (to RWA)1,226,630 10.86 1,172,362 10.29 
Tier 1 capital (to average assets)1,256,685 10.06 1,202,252 10.03 
Veritex Community Bank
Total capital (to RWA)$1,499,516 13.34 %$1,467,960 12.90 %
Tier 1 capital (to RWA)1,385,620 12.33 1,368,384 12.03 
CET1 (to RWA)1,385,620 12.33 1,368,384 12.03 
Tier 1 capital (to average assets)1,385,620 11.13 1,368,384 11.43 
Contractual Obligations
In the ordinary course of the Company’s operations, we have entered into contractual obligations and have made other commitments to make future payments. Other than normal changes in the ordinary course of business and changes discussed within “Financial Condition—Borrowings,” there have been no significant changes in the types of contractual obligations or amounts due as of September 30, 2024 since December 31, 2023 as reported in our Annual Report on Form 10-K for the year ended December 31, 2023.

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Non-GAAP Financial Measures
Our accounting and reporting policies conform to GAAP and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Quarterly Report on Form 10-Q that we identify as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.
The non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this Quarterly Report on Form 10-Q when comparing such non-GAAP financial measures.
Tangible Book Value Per Common Share. Tangible book value is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders’ equity less goodwill and core deposit intangibles, net of accumulated amortization; and (b) tangible book value per common share as tangible common equity (as described in clause (a)) divided by number of common shares outstanding. For tangible book value per common share, the most directly comparable financial measure calculated in accordance with GAAP is book value per common share.
We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in core deposit intangibles. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and presents our tangible book value per common share compared with our book value per common share:
 As of
Sep 30, 2024Sep 30, 2023
(Dollars in thousands, except per share data)
Tangible Common Equity 
Total stockholders' equity$1,608,014 $1,491,166 
Adjustments:
Goodwill(404,452)(404,452)
Core deposit intangibles(21,182)(30,933)
Tangible common equity$1,182,380 $1,055,781 
Common shares outstanding54,446 54,305 
Book value per common share$29.53 $27.46 
Tangible book value per common share$21.72 $19.44 

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

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

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets and presents our tangible common equity to tangible assets:
 As of
Sep 30, 2024Sep 30, 2023
(Dollars in thousands)
Tangible Common Equity 
Total stockholders' equity$1,608,014 $1,491,166 
Adjustments:
Goodwill(404,452)(404,452)
Core deposit intangibles(21,182)(30,933)
Tangible common equity$1,182,380 $1,055,781 
Tangible Assets
Total assets$13,042,976 $12,346,331 
Adjustments:
Goodwill(404,452)(404,452)
Core deposit intangibles(21,182)(30,933)
Tangible Assets$12,617,342 $11,910,946 
Tangible Common Equity to Tangible Assets9.37 %8.86 %

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

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

The following table reconciles, as of the dates set forth below, average tangible common equity to average common equity and net income available for common stockholders adjusted for amortization of core deposit intangibles, net of taxes to net income and presents our return on average tangible common equity:
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 For the Quarter EndedFor the Nine Months Ended
Sep 30, 2024Sep 30, 2023Sep 30, 2024Sep 30, 2023
Net income available for common stockholders adjusted for amortization of core deposit intangibles
Net income$31,001 $32,621 $82,359 $104,762 
Adjustments:
Plus: Amortization of core deposit intangibles2,438 2,438 7,314 7,314 
Less: Tax benefit at the statutory rate512 512 1,536 1,536 
Net income available for common stockholders adjusted for amortization of core deposit intangibles$32,927 $34,547 $88,137 $110,540 
Average Tangible Common Equity
Total average stockholders' equity$1,583,401 $1,508,170 $1,553,070 $1,498,573 
Adjustments:
Average goodwill(404,452)(404,452)(404,452)(404,452)
Average core deposit intangibles(22,789)(32,540)(25,212)(34,939)
Average tangible common equity$1,156,160 $1,071,178 $1,123,406 $1,059,182 
Return on Average Tangible Common Equity (Annualized)11.33 %12.80 %10.48 %13.95 %

Operating Earnings. Operating earnings and the performance metrics calculated using these metrics, listed below, are non-GAAP measures used by management to evaluate the Company’s financial performance. We calculate (a) operating earnings as net income plus severance payments, plus loss on sale of debt securities AFS, net, plus M&A expenses less tax impact of adjustments, plus nonrecurring tax adjustments. We calculate (b) diluted operating EPS as operating earnings as described in clause (a) divided by weighted average diluted shares outstanding.

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

The following tables reconcile, as of the dates set forth below, operating earnings and related metrics:
 For the Quarter EndedFor the Nine Months Ended
Sep 30, 2024Sep 30, 2023Sep 30, 2024Sep 30, 2023
Operating Earnings
Net income$31,001 $32,621 $82,359 $104,762 
Plus: Severance payments1
1,487 — 2,100 1,950 
Plus: Loss on sale of AFS securities, net— — 6,304 5,321 
Plus: FDIC special assessment— — 134 — 
Operating pre-tax income32,488 32,621 90,897 112,033 
Less: Tax impact of adjustments307 — 1,796 1,544 
Plus: Nonrecurring tax adjustments— — 527 — 
Operating earnings$32,181 $32,621 $89,628 $110,489 
Weighted average diluted shares outstanding54,932 54,597 54,866 54,563 
Diluted EPS$0.56 $0.60 $1.50 $1.92 
Diluted operating EPS$0.59 $0.60 $1.63 $2.02 
1 Severance payments relate to certain restructurings made during the periods disclosed.


Pre-tax, Pre-provision Operating Earnings. Pre-provision operating earnings is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate pre-tax, pre-provision operating earnings as operating earnings as described in clause (a), plus provision for income taxes and plus provision (benefit) for credit losses.

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

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

 For the Quarter EndedFor the Nine Months Ended
Sep 30, 2024Sep 30, 2023Sep 30, 2024Sep 30, 2023
Pre-Tax, Pre-Provision Operating Earnings
Net income$31,001 $32,621 $82,359 $104,762 
Plus: Provision for income taxes8,067 9,282 23,525 30,019 
Plus: Provision for credit losses and unfunded commitments4,000 7,718 18,209 32,471 
Plus: Severance payments1
1,487 — 2,100 1,950 
Plus: Loss on sale of AFS securities, net— — 6,304 5,321 
Plus: FDIC special assessment— — 134 — 
Pre-tax, pre-provision operating earnings$44,555 $49,621 $132,631 $174,523 
1 Severance payments relate to certain restructurings made during the periods disclosed.

Critical Accounting Policies
    Our accounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial condition. We have identified certain significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. The significant accounting policies which we believe to be the most critical in preparing our consolidated financial statements relate to ACL, business combinations, debt securities and goodwill. Since December 31, 2023, there have been no changes in critical accounting policies as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Form 10-K for the year ended December 31, 2023, except for those updates discussed in Note 1 - Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in this report.

Cautionary Notice Regarding Forward-Looking Statements
    This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on various facts and derived utilizing assumptions, current expectations, estimates and projections and are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include, without limitation, statements relating to the expected payment date of our quarterly cash dividend, impact of certain changes in our accounting policies, standards and interpretations, a continuation of recent turmoil in the banking industry, responsive measures to mitigate and manage it and related supervisory and regulatory actions and costs and our future financial performance, business and growth strategy, projected plans and objectives, as well as other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact broader economic and industry trends, and any such variations may be material. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “seeks,” “projects,” “estimates,” “targets,” “outlooks,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing words. You should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:

•risks related to the concentration of our business in Texas, and specifically within the DFW metroplex and the Houston metropolitan area, including risks associated with any downturn in the real estate sector and risks associated with a decline in the values of single family homes in the DFW metroplex and the Houston metropolitan area;
•Uncertain market conditions and economic trends nationally, regionally and particularly in the DFW metroplex and Texas;
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•the effects of regional or national civil unrest;
•the effects of war or other conflicts, including, but not limited to, the current conflicts between Russia and Ukraine and Israel and Hamas, acts of terrorism, cyber attacks or other catastrophic events, including natural disasters such as storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions;
•changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;
•risks related to our strategic focus on lending to small to medium-sized businesses;
•the sufficiency of the assumptions and estimates we make in establishing reserves for potential loan losses;
•our ability to implement our growth strategy, including identifying and consummating suitable acquisitions;
•our ability to recruit and retain successful bankers that meet our expectations in terms of customer relationships and profitability;
•changes in our accounting policies, standards and interpretations;
•our ability to retain executive officers and key employees and their customer and community relationships;
•risks associated with our CRE and construction loan portfolios, including the risks inherent in the valuation of the collateral securing such loans;
•risks associated with our commercial loan portfolio, including the risk of deterioration in value of the general business assets that generally secure such loans;
•our level of nonperforming assets and the costs associated with resolving problem loans, if any, and complying with government-imposed foreclosure moratoriums;
•potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;
•risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area;
•changes in the financial performance and/or condition of our borrowers;
•our ability to maintain adequate liquidity (including the effect of the transition to the CECL methodology for allowances and related adjustments) and to raise necessary capital to fund our strategies and operations or to meet increased minimum regulatory capital levels;
•potential fluctuations in the market value and liquidity of our debt securities;
•the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;
•our ability to maintain an effective system of disclosure controls and procedures and internal control over financial reporting;
•risks associated with fraudulent and negligent acts by our customers, employees or vendors;
•our ability to keep pace with technological change or difficulties when implementing new technologies;
•risks associated with difficulties and/or terminations with third-party service providers and the services they provide;
•risks associated with unauthorized access, cyber-crime and other threats to data security;
•potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;
•our ability to comply with various governmental and regulatory requirements applicable to financial institutions and lenders;
•the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, and economic stimulus programs;
•of the discontinuation of LIBOR and implementation of any replacement alternatives on our business;
•changes in consumer spending, borrowing and saving habits;
•the potential impact of climate change;
•the impact of pandemics, epidemics and any other health-related crisis;
•the effects of changes in governmental monetary and fiscal policies and laws, including the policies of the Federal Reserve;
•our ability to comply with supervisory actions by federal and state banking agencies;
•changes in the scope and cost of FDIC, insurance and other coverage; and
•systemic risks associated with the soundness of other financial institutions.
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Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2023, may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. Any forward-looking statement speaks only as of the date on which it is made. You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation, and specifically decline any obligation to, publicly release any supplement, update or revision to any forward-looking statements, to report events or to report the occurrence of unanticipated events, whether as a result of new information, future developments or otherwise, unless we are required to do so by law.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

    As a financial institution, our primary component of market risk is interest rate volatility. Our asset, liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.
    Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
    We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. With exception of our cash flow hedges designated as a hedging instrument, we do not enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. We enter into interest rate swaps, caps and collars as an accommodation to our customers in connection with our interest rate swap program. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
    Our exposure to interest rate risk is managed by the Asset-Liability Committee of the Bank in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.
We use an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and the balance sheet, respectively. Contractual maturities and repricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio.
We utilize static balance sheet rate shocks to estimate the potential impact on net interest income of changes in interest
rates under various rate scenarios. This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet.  Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 5.0% for a 100 bps shift, 10.0% for a 200 bps shift, and 15.0% for a 300 bps shift.

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    The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:
 As of September 30, 2024As of December 31, 2023
 Percent ChangePercent ChangePercent ChangePercent Change
Change in Interestin Net Interestin Fair Valuein Net Interestin Fair Value
Rates (BPS)Incomeof EquityIncomeof Equity
+ 30010.27 %(6.24)%11.39 %(6.15)%
+ 2006.98 (3.28)7.70 (3.23)
+ 1003.53 (1.18)3.92 (1.05)
Base— — — — 
−100(2.94)(0.60)(4.16)(1.65)
−200(5.68)(3.54)(10.01)(6.48)
    The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and Federal Funds Rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.
Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures — As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its CEO and CFO, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.

There were no significant changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves vigorously against any pending or future claims and litigation.

At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

Item 1A.  Risk Factors

In evaluating an investment in our common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, as well as the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC.
    There has been no material change in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On March 26, 2024, the Board authorized a stock buyback program (the “Stock Buyback Program”) pursuant to which the Company is authorized to purchase up to $50.0 million shares of the Company’s outstanding common stock. The Stock Buyback Program has an expiration date of March 31, 2025, and may be suspended, terminated, amended or modified by the Board at any time without prior notice at the Board’s discretion. Repurchases under the Stock Buyback Program may be made, from time to time, in amounts and at prices the Company deems appropriate. The Stock Buyback Program does not obligate the Company to purchase any shares of its common stock. Repurchases by the Company under the Stock Buyback Program will be subject to general market and economic conditions, applicable legal and regulatory requirements and other considerations. During the three months ended September 30, 2024, the Company repurchased shares of its common stock in the following amounts:

(a)(b)(c)(d)
PeriodTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programsMaximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
Beginning $ balance— $— — $50,000,000 
July 1, 2024 - July 31, 20241,982 20.24 1,982 46,462,852 
August 1, 2024 - August 31, 2024— — — 46,462,852 
September 1, 2024 - September 30, 2024— — — 46,462,852 
Quarterly totals and remaining $ balance available to repurchase177,670 20.24 177,670 $46,462,852 
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Item 6.  Exhibits
 
Exhibit
Number		    Description of Exhibit

 
 
 
 
 
101* 
The following materials from Veritex Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Cover Page, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Income, (iv) Consolidated Statements of Comprehensive Income, (v) Consolidated Statements of Changes in Stockholders’ Equity, (vi) Consolidated Statements of Cash Flows, and (vii) Notes to Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
______________________________
* Filed with this Quarterly Report on Form 10-Q
** Furnished with this Quarterly Report on Form 10-Q
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure, other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   
  VERITEX HOLDINGS, INC.
  (Registrant)
   
   
   
   
   
Date: November 8, 2024 /s/ C. Malcolm Holland, III
  C. Malcolm Holland, III
  Chairman and Chief Executive Officer
  (Principal Executive Officer)
   
   
   
   
Date: November 8, 2024 /s/ Terry S. Earley
  Terry S. Earley
  Chief Financial Officer
  (Principal Financial and Accounting Officer)
   
   
   

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Document
EXHIBIT 31.1
 


CERTIFICATION
 
I, C. Malcolm Holland, III, certify that:
 
1.I have reviewed this report on Form 10-Q of Veritex Holdings, Inc. for the period ended September 30, 2024;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: November 8, 2024
 
 
/s/ C. Malcolm Holland, III
C. Malcolm Holland, III
Chairman of the Board & Chief Executive Officer

Document
EXHIBIT 31.2


CERTIFICATION
 
I, Terry S. Earley, certify that:
 
1.I have reviewed this report on Form 10-Q of Veritex Holdings, Inc. for the period ended September 30, 2024;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2024
 
 
/s/ Terry S. Earley
Terry S. Earley
Chief Financial Officer


Document
Exhibit 32.1


CERTIFICATION

    In connection with the report on Form 10-Q of Veritex Holdings, Inc. (the “Company”) for the period ended September 30, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, C. Malcolm Holland, III, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ C. Malcolm Holland, III
C. Malcolm Holland, III
Chairman of the Board & Chief Executive Officer
Date: November 8, 2024

Document
Exhibit 32.2


CERTIFICATION

    In connection with the report on Form 10-Q of Veritex Holdings, Inc. (the “Company”) for the period ended September 30, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Terry S. Earley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 

/s/ Terry S. Earley
Terry S. Earley
Chief Financial Officer
Date: November 8, 2024