Financial Data and Key Metrics Changes - For Q2 2023, the company reported net operating income of $34.7 million or $0.64 per share, with a pre-tax pre-provision of $58.5 million or 1.9% [6] - The company experienced a decline in income due to two charge-offs totaling $11.4 million and a lack of USDA fee income, but still achieved a 1.13% return on average assets and a 13.7% return on total common equity [7][8] - Operating earnings increased by 23% to $78 million from 2022 to 2023, with operating EPS up 19% and pre-tax pre-provision operating earnings rising 41% to $125 million [14] Business Line Data and Key Metrics Changes - Loan growth was flat for the first time in many years, with pay-offs reaching $400 million, up 58% from the previous quarter, primarily in commercial real estate [10][11] - The company shifted focus from commercial real estate to C&I and small businesses, with a goal to improve deposit relationships [16] - The loan portfolio saw a decline in acquisition, development, and construction (ADC) loans by $172 million or 9.4% during Q2 [20] Market Data and Key Metrics Changes - Deposits grew by $200 million or 8.8% annualized in Q2, with a reduction in reliance on wholesale funding from 32% to 29% [9] - The average deposit account balance was around $124,000, with uninsured and uncollateralized deposits at about 33% [19] - The net interest margin decreased by 18 basis points to 3.51%, impacted by higher cash balances and interest reversals on problem credits [22] Company Strategy and Development Direction - The company has focused on improving its deposit funding side, with strategies showing positive results in a challenging market [9] - Marketing spend has been reallocated to deposit products, and a direct marketing campaign launched in February has yielded impressive results [17] - The company aims to continue reducing its concentration in commercial real estate and improve its liquidity profile [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the marketplace but noted progress in various areas, with expectations for mid-single-digit loan growth in Q3 [6][11] - The company anticipates that deposit betas will continue to increase due to competitive pressures [19] - Management expressed confidence that the net interest margin is nearing the bottom, assuming stable deposit mix [22] Other Important Information - The company has grown CET1 by 51 basis points to 9.76% over the last year while growing loans by $1.1 billion [14] - The company’s liquidity capacity exceeds uninsured deposits by $2.2 billion, representing over 70% of uninsured [17] Q&A Session Summary - The conference call was concluded prematurely due to technical difficulties, and no questions were addressed during the Q&A session [24][25]

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 March 31, 2023 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 ...

Financial Data and Key Metrics Changes - For Q1 2023, the company reported net operating income of $43.3 million or $0.79 per share [6] - The pretax pre-provision income was $66.4 million, representing a 2.2% return on average assets [7] - Return on average tangible common equity exceeded 17.7%, while return on average assets was 1.44% [7] - Efficiency ratio remained at 45.6% [7] - Tangible book value per share increased by 5.1% quarter-over-quarter and 9.3% year-over-year to $19.43 [14] - Net interest income decreased by $2.7 million or 2.6% to $103.4 million [23] - Net interest margin decreased by 18 basis points to 3.69% [24] Business Line Data and Key Metrics Changes - Loan production declined by 73% from Q4 to Q1 due to rising interest rates and economic uncertainty [22] - C&I and owner-occupied real estate accounted for 48% of loan production, up from 41% in Q4 [22] - Non-interest income increased by $4.5 million to $18.9 million, excluding losses from investment portfolio trades [27] - Non-interest expense decreased by $949,000 to just under $56 million [28] Market Data and Key Metrics Changes - Overall deposits decreased by $88 million or 1% for the quarter, with a significant loss of 51% in correspondent money market deposits [17] - Uninsured and uncollateralized deposits decreased to 38.4% from 44.1% at the end of Q4 2022 [21] - The average account balance for deposits was $132,000 [21] Company Strategy and Development Direction - The company is focusing on transforming its balance sheet by slowing loan growth and shifting focus from commercial real estate (CRE) to C&I and small business [18] - A new banking incentive program was implemented to prioritize deposit value and volume [18] - The company aims to achieve a CET1 ratio of over 10% by the end of 2023 [34] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the market but emphasized the importance of liquidity management [8] - The company expects loan growth to decline to mid-single digits going forward [10] - Management expressed optimism about the USDA business and the potential for revenue growth in the second half of the year [45] Other Important Information - The company has reduced non-core funding by $258 million, improving liquidity capacity [19] - The allowance for credit losses increased by 5 basis points to 1.07% due to economic uncertainty [35] Q&A Session Summary Question: Concerns about USDA funding running out - Management indicated that there is a lobbying effort to prevent funding issues and expressed optimism for Q2 compared to last year [44] Question: Pressure on net interest margin (NIM) - Management expects most pressure on NIM to occur in Q2, depending on Fed actions and deposit returns [48] Question: Stock buyback considerations - Management is considering stock buybacks but believes it is not prudent to act at this time [52] Question: Changes in criticized assets - A significant reduction in criticized assets was noted, primarily due to surveillance efforts [54] Question: Confidence in multifamily construction - Management expressed confidence in the multifamily construction portfolio due to high-quality products and strong metrics [56] Question: Strategy for deposit growth - The company is focusing on digital marketing for money market accounts and shorter-term CDs, aiming to reduce reliance on brokered deposits [59] Question: Expense control and future trajectory - Management believes expenses will remain stable, with no significant increases expected [68] Question: Breakeven volume for Thrive - Thrive needs approximately $450 million in funded volume to reach breakeven [80]

Exhibit 99.2 1 4/25/2023 First Quarter Earnings TRUTH | INTEGRITY | TRANSPARENCY Safe Harbor and Non-GAAP Measures Forward-looking statements This presentation 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, which change over time ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual Report to Section 13 OR 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2022 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 No. 001-36682 | Texas | 27-0973566 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer | | incorporation or organization) | Identification No.) | | ...

Exhibit 99.2 1 1/24/2023 Full Year and Fourth Quarter /ERITA 2 TRUTH | INTEGRITY | TRANSPARENCY Safe Harbor and Non-GAAP Measures Forward-looking statements This presentation 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, which ch ...

Veritex Holdings, Inc. (NASDAQ:VBTX) Q4 2022 Earnings Conference Call January 25, 2023 9:30 AM ET Company Participants Susan Caudle - Investor Relations Officer and Secretary to the Board Malcolm Holland - Chairman and Chief Executive Officer, President, Veritex Holdings, Inc and Veritex Community Bank Terry Earley - Senior Executive Vice President and Chief Financial Officer Clay Riebe - Chief Credit Officer Conference Call Participants Brady Gailey - KBW Gary Tenner - D.A. Davidson Brett Rabatin - Hovde G ...

FORM 10-Q [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides Veritex Holdings, Inc.'s registration details, including its status as a large accelerated filer and the number of common shares outstanding as of November 4, 2022 - Veritex Holdings, Inc. is designated as a large accelerated filer[2](index=2&type=chunk) - As of November 4, 2022, the company had **54,005,123 shares of common stock** outstanding[2](index=2&type=chunk) [Table of Contents](index=2&type=section&id=Table%20of%20Contents) This section outlines the Form 10-Q report's structure, detailing key items in Part I Financial Information and Part II Other Information with corresponding page numbers - The report is divided into two main parts: Part I Financial Information and Part II Other Information[4](index=4&type=chunk) - Part I includes unaudited financial statements, management's discussion and analysis of financial condition and results of operations, quantitative and qualitative disclosures about market risk, and controls and procedures[4](index=4&type=chunk) - Part II covers legal proceedings, risk factors, unregistered sales of equity securities and use of proceeds, and exhibits[4](index=4&type=chunk) PART I — FINANCIAL INFORMATION [Item 1. Financial Statements – Unaudited](index=4&type=section&id=Item%201.%20Financial%20Statements%20%E2%80%93%20Unaudited) This section presents Veritex Holdings, Inc.'s unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income statements, statements of changes in stockholders' equity, and cash flow statements, along with related notes, covering financial positions as of September 30, 2022, and December 31, 2021, and operating results for the three and nine months ended September 30, 2022, and 2021 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets reached **$11.714 billion**, a **20.06% increase** from December 31, 2021, driven by growth in loans and available-for-sale debt securities, with corresponding increases in liabilities and stockholders' equity | Metric | September 30, 2022 (USD thousands) | December 31, 2021 (USD thousands) | Change (USD thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | **Assets** | | | | | | Cash and cash equivalents | 433,897 | 379,784 | 54,113 | 14.25 | | Available-for-sale debt securities | 1,114,886 | 993,058 | 121,828 | 12.27 | | Held-to-maturity debt securities | 188,118 | 59,436 | 128,682 | 216.50 | | Loans held for sale | 17,644 | 26,007 | (8,363) | (32.16) | | Loans held for investment (LHI), net | 8,952,022 | 7,307,269 | 1,644,753 | 22.51 | | Total Assets | 11,714,454 | 9,757,249 | 1,957,205 | 20.06 | | **Liabilities** | | | | | | Total deposits | 8,748,444 | 7,363,615 | 1,384,829 | 18.81 | | Accounts payable and other liabilities | 173,198 | 69,160 | 104,038 | 150.43 | | FHLB advances | 1,150,000 | 777,562 | 372,438 | 47.89 | | Total Liabilities | 10,302,555 | 8,442,170 | 1,860,385 | 22.04 | | **Stockholders' Equity** | | | | | | Total stockholders' equity | 1,411,899 | 1,315,079 | 96,820 | 7.36 | | Total Liabilities and Stockholders' Equity | 11,714,454 | 9,757,249 | 1,957,205 | 20.06 | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) For the three months ended September 30, 2022, net income was **$43.322 million**, a **17.6% year-over-year increase**, driven by significant net interest income growth, despite increased provision for credit losses and noninterest expenses; for the nine months, net income was **$106.42 million**, up **8.5%** | Metric (USD thousands) | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Total interest and dividend income | 123,225 | 79,780 | 43,445 | 54.46 | | Total interest expense | 22,185 | 8,504 | 13,681 | 160.88 | | Net interest income | 101,040 | 71,276 | 29,764 | 41.76 | | Provision for credit losses | 6,650 | — | 6,650 | — | | Provision for credit losses on unfunded commitments | 850 | (448) | 1,298 | (289.73) | | Net interest income after provision for credit losses | 93,540 | 71,724 | 21,816 | 30.42 | | Total noninterest income | 13,021 | 15,627 | (2,606) | (16.68) | | Total noninterest expense | 50,991 | 41,321 | 9,670 | 23.40 | | Income tax expense | 12,248 | 9,195 | 3,053 | 33.20 | | Net income | 43,322 | 36,835 | 6,487 | 17.61 | | Basic earnings per share (EPS) | 0.80 | 0.75 | 0.05 | 6.67 | | Diluted earnings per share (EPS) | 0.79 | 0.73 | 0.06 | 8.22 | | Metric (USD thousands) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Total interest and dividend income | 297,196 | 231,588 | 65,608 | 28.33 | | Total interest expense | 38,636 | 27,546 | 11,090 | 40.26 | | Net interest income | 258,560 | 204,042 | 54,518 | 26.72 | | Provision for credit losses | 15,150 | — | 15,150 | — | | Provision for credit losses on unfunded commitments | 1,343 | (441) | 1,784 | (404.54) | | Net interest income after provision for credit losses | 242,067 | 204,483 | 37,584 | 18.38 | | Total noninterest income | 38,496 | 42,255 | (3,759) | (8.90) | | Total noninterest expense | 145,716 | 122,635 | 23,081 | 18.82 | | Income tax expense | 28,429 | 26,025 | 2,404 | 9.24 | | Net income | 106,418 | 98,078 | 8,340 | 8.50 | | Basic earnings per share (EPS) | 2.01 | 1.98 | 0.03 | 1.52 | | Diluted earnings per share (EPS) | 1.98 | 1.95 | 0.03 | 1.54 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) For the three and nine months ended September 30, 2022, the company reported a comprehensive loss, primarily due to unrealized losses on available-for-sale debt securities and derivatives designated as cash flow hedges | Metric (USD thousands) | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :------------- | | Net income | 43,322 | 36,835 | 6,487 | | Other comprehensive (loss) income, before tax | (67,142) | (9,529) | (57,613) | | Income tax (benefit) expense | (14,067) | (2,001) | (12,066) | | Other comprehensive (loss) income, net of tax | (53,075) | (7,528) | (45,547) | | Comprehensive (loss) income | (9,753) | 29,307 | (39,060) | | Metric (USD thousands) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :------------- | | Net income | 106,418 | 98,078 | 8,340 | | Other comprehensive (loss) income, before tax | (176,442) | 17,009 | (193,451) | | Income tax (benefit) expense | (37,881) | 3,573 | (41,454) | | Other comprehensive (loss) income, net of tax | (138,561) | 13,436 | (151,997) | | Comprehensive (loss) income | (32,143) | 111,514 | (143,657) | - Unrealized losses on available-for-sale debt securities were the primary driver of other comprehensive losses for the three and nine months ended September 30, 2022[12](index=12&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) As of September 30, 2022, total stockholders' equity was **$1.412 billion**, a **7.36% increase** from December 31, 2021, primarily due to common stock offerings, net income, and stock-based awards, partially offset by other comprehensive losses and dividends paid | Metric (USD thousands) | September 30, 2022 | December 31, 2021 | Change (USD thousands) | | :----------------------- | :------------- | :------------- | :------------- | | Common stock | 606 | 560 | 46 | | Additional paid-in capital (APIC) | 1,303,171 | 1,142,758 | 160,413 | | Retained earnings | 350,195 | 275,273 | 74,922 | | Accumulated other comprehensive (loss) income (AOCI) | (74,491) | 64,070 | (138,561) | | Treasury stock | (167,582) | (167,582) | 0 | | Total stockholders' equity | 1,411,899 | 1,315,079 | 96,820 | - For the nine months ended September 30, 2022, a public offering of common stock generated **$153.87 million** in net proceeds[20](index=20&type=chunk) - Dividends paid for the nine months ended September 30, 2022, totaled **$31.496 million**[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, net cash provided by operating activities was **$149.39 million**, net cash used in investing activities was **$1.97077 billion**, and net cash provided by financing activities was **$1.8755 billion**, resulting in a net increase of **$54.113 million** in cash and cash equivalents | Cash Flow Activities (USD thousands) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | :------------- | | Net cash provided by operating activities | 149,388 | 190,047 | (40,659) | | Net cash used in investing activities | (1,970,773) | (818,736) | (1,152,037) | | Net cash provided by financing activities | 1,875,498 | 627,576 | 1,247,922 | | Net increase in cash and cash equivalents | 54,113 | (1,113) | 55,226 | | Cash and cash equivalents at end of period | 433,897 | 229,712 | 204,185 | - Cash outflow from investing activities significantly increased, primarily due to a **$1.1 billion** increase in net loan originations and **$269.2 million** in purchases of available-for-sale debt securities[245](index=245&type=chunk) - Cash inflow from financing activities rose significantly, driven by a **$718.8 million** increase in deposits, **$372.6 million** in FHLB advances, and **$153.9 million** from common stock issuance[246](index=246&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to the consolidated financial statements, covering significant accounting policies, supplemental cash flow information, share transactions, securities, loans held for investment and allowance for credit losses, fair value measurements, derivative financial instruments, off-balance sheet loan commitments, stock-based awards, income taxes, legal contingencies, capital requirements and restrictions on retained earnings, and business combinations [1. Summary of Significant Accounting Policies](index=10&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's organizational nature, consolidation basis, GAAP-compliant financial statement preparation, use of estimates and assumptions, and provides information on earnings per share (EPS) calculation and recent accounting standard updates (ASU) - The consolidated financial statements of Veritex Holdings, Inc. and its subsidiaries, including Veritex Community Bank, are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP)[27](index=27&type=chunk)[28](index=28&type=chunk) **Earnings Per Share (EPS) Calculation:** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net Income (USD thousands) | 43,322 | 36,835 | 106,418 | 98,078 | | Basic EPS | 0.80 | 0.75 | 2.01 | 1.98 | | Diluted EPS | 0.79 | 0.73 | 1.98 | 1.95 | - The company is evaluating the impact of ASU 2022-02 (Financial Instruments—Credit Losses), effective January 1, 2023, on its consolidated financial statements and related disclosures[37](index=37&type=chunk) [2. Supplemental Statement of Cash Flows](index=12&type=section&id=2.%20Supplemental%20Statement%20of%20Cash%20Flows) This note provides supplemental cash flow disclosures, including interest and income taxes paid, and non-cash transaction information such as transfers of available-for-sale debt securities to held-to-maturity **Supplemental Cash Flow Disclosures:** | Metric (USD thousands) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :-------------- | :--------------------- | :--------------------- | | Interest paid | 34,647 | 25,784 | | Income taxes paid | 26,000 | 8,215 | **Non-Cash Flow Supplemental Disclosures:** | Metric (USD thousands) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :-------------- | :--------------------- | :--------------------- | | Transfers of available-for-sale debt securities to held-to-maturity debt securities | 117,001 | — | | Net foreclosures of OREO and repossessed assets | 1,032 | 334 | | Non-cash assets acquired in business combinations | (681) | — | | Goodwill | 681 | — | [3. Share Transactions](index=12&type=section&id=3.%20Share%20Transactions) This note details the company's share repurchase program and common stock offerings, noting no repurchases in 2022 but a public offering of common stock in March 2022 with net proceeds of approximately **$153.83 million** **Share Repurchase Program:** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :----------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Number of shares repurchased | — | 328,122 | — | 475,744 | | Weighted average price per share | — | $34.85 | — | $32.36 | - In March 2022, the company completed a public offering of common stock, generating approximately **$153.83 million** in net proceeds for general corporate purposes, supporting continued growth, investments in the bank, and future strategic acquisitions[42](index=42&type=chunk) - The Inflation Reduction Act of 2022 (IRA) imposes a **1% excise tax** on stock repurchases made after December 31, 2022[40](index=40&type=chunk) [4. Securities](index=13&type=section&id=4.%20Securities) This note provides detailed information on the company's equity and debt securities, including amortized cost, unrealized gains/losses, and fair value for available-for-sale (AFS) and held-to-maturity (HTM) debt securities, with AFS unrealized losses as of September 30, 2022, primarily due to non-credit-related factors like interest rate changes **Equity Securities Fair Value:** | Type | September 30, 2022 (USD thousands) | December 31, 2021 (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | | Equity securities with readily determinable fair values | 9,740 | 11,038 | | Equity securities without readily determinable fair values | 9,459 | 4,355 | **AFS and HTM Debt Securities Fair Value:** | Type | September 30, 2022 (USD thousands) | December 31, 2021 (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | | AFS debt securities (fair value) | 1,114,886 | 993,058 | | HTM debt securities (fair value) | 155,551 | 61,446 | | Total AFS debt securities unrealized losses | 107,618 | 5,134 | | Total HTM debt securities unrealized losses | 32,567 | 610 | - As of September 30, 2022, unrealized losses on AFS debt securities were primarily due to non-credit-related factors like interest rate changes and other market conditions, and management does not intend to sell these securities[51](index=51&type=chunk) [5. LHI and ACL](index=18&type=section&id=5.%20LHI%20and%20ACL) This note details the company's loans held for investment (LHI) portfolio, changes in allowance for credit losses (ACL), nonperforming and past due loans, troubled debt restructurings (TDRs), and credit quality indicators; as of September 30, 2022, total LHI (excluding ACL) was **$9.052 billion**, a **22.2% increase** from December 31, 2021 **LHI Portfolio (Amortized Cost):** | Loan Type | September 30, 2022 (USD thousands) | December 31, 2021 (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | | Construction and land | 1,673,997 | 1,062,144 | | 1-4 family residential | 858,693 | 542,566 | | Non-owner occupied commercial real estate (NOOCRE) | 2,273,305 | 2,120,309 | | Commercial loans | 2,740,948 | 2,006,876 | | Mortgage warehouse (MW) | 523,805 | 565,645 | | Total LHI (amortized cost) | 9,051,731 | 7,341,143 | **ACL Changes (Nine Months Ended September 30, 2022):** | Metric (USD thousands) | Amount | | :----------------------- | :----- | | Beginning ACL balance | 77,754 | | Provision for credit losses | 15,150 | | Net charge-offs | (7,867) | | Ending ACL balance | 85,037 | | ACL as a percentage of period-end loans (excluding MW and PPP) | 1.00% | **Nonperforming Loans:** | Metric (USD thousands) | September 30, 2022 | December 31, 2021 | | :----------------------- | :------------- | :------------- | | Total nonperforming loans | 30,592 | 49,922 | | Nonperforming loans as a percentage of total loans | 0.36% | 0.74% | | Nonperforming assets as a percentage of total assets | 0.26% | 0.51% | [6. Fair Value](index=28&type=section&id=6.%20Fair%20Value) This note provides fair value measurement information for the company's financial instruments, including recurring and non-recurring assets categorized by fair value hierarchy (Level 1, Level 2, Level 3); as of September 30, 2022, available-for-sale debt securities and interest rate swaps were the primary financial assets measured at fair value on a recurring basis **Recurring Fair Value Measured Assets (September 30, 2022, USD thousands):** | Asset Type | Level 1 | Level 2 | Level 3 | Total Fair Value | | :----------------------- | :------ | :------ | :------ | :--------- | | Available-for-sale debt securities | — | 1,114,886 | — | 1,114,886 | | Equity securities with readily determinable fair values | 9,740 | — | — | 9,740 | | PPP loans | — | — | 2,821 | 2,821 | | Interest rate swaps designated as hedging instruments | — | 22,108 | — | 22,108 | | Customer interest rate swaps not designated as hedging instruments | — | 134 | — | 134 | **Non-Recurring Fair Value Measured Assets (September 30, 2022, USD thousands):** | Asset Type | Level 1 | Level 2 | Level 3 | Total Fair Value | | :----------------------- | :------ | :------ | :------ | :--------- | | Collateral-dependent loans with ACL | — | — | 7,191 | 7,191 | | Servicing assets with valuation allowance | — | — | 9,835 | 9,835 | - No transfers occurred between Level 2 and Level 3 for the periods ended September 30, 2022, and December 31, 2021[87](index=87&type=chunk) [7. Derivative Financial Instruments](index=31&type=section&id=7.%20Derivative%20Financial%20Instruments) This note discloses the company's derivative financial instruments used for market risk management and client needs, including interest rate swaps, caps, and floors, both designated and undesignated as hedging instruments; as of September 30, 2022, the notional amount for designated derivatives was **$975 million**, and for undesignated derivatives, it was **$1.32959 billion** **Derivative Instruments Notional Amounts and Fair Values (September 30, 2022, USD thousands):** | Type | Notional Amount | Estimated Fair Value of Derivative Assets | Estimated Fair Value of Derivative Liabilities | | :----------------------------------- | :------- | :----------------------- | :----------------------- | | Total derivatives designated as hedging instruments | 975,000 | 22,108 | 57,417 | | Total derivatives not designated as hedging instruments | 1,329,594 | 39,443 | 39,135 | | Offsetting derivative assets/liabilities | — | (32,094) | (32,094) | | Total derivatives | 2,304,594 | 29,457 | 64,458 | **Derivative Instruments Pre-Tax (Loss) Gain (Nine Months Ended September 30, 2022, USD thousands):** | Type | (Loss) Gain Recognized in Comprehensive Income | Gain Reclassified from Accumulated Other Comprehensive Income | Net Gain Recognized in Other Noninterest Income | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | | Total derivatives designated as hedging instruments | (43,370) | 4,350 | — | | Total derivatives not designated as hedging instruments | — | — | 5,165 | - As an intermediary for customer interest rate swaps, changes in the fair value of the company's derivative instruments do not materially impact its operating results[103](index=103&type=chunk) [8. Off-Balance Sheet Loan Commitments](index=35&type=section&id=8.%20Off-Balance%20Sheet%20Loan%20Commitments) This note discloses the company's off-balance sheet financial instruments undertaken in the ordinary course of business to meet customer financing needs, including commitments to extend credit, mortgage warehouse (MW) commitments, and standby and commercial letters of credit; as of September 30, 2022, total off-balance sheet commitments were **$5.739 billion**, a **24.99% increase** from December 31, 2021 **Off-Balance Sheet Financial Instruments (USD thousands):** | Commitment Type | September 30, 2022 | December 31, 2021 | Change (USD thousands) | | :----------------------- | :------------- | :------------- | :------------- | | Commitments to extend credit | 4,539,906 | 3,809,509 | 730,397 | | MW commitments | 1,102,362 | 716,370 | 385,992 | | Standby and commercial letters of credit | 96,949 | 65,881 | 31,068 | | Total | 5,739,217 | 4,591,760 | 1,147,457 | **ACL Changes for Unfunded Commitments (USD thousands):** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Beginning balance | 9,759 | 10,754 | 9,266 | 10,747 | | Provision for credit losses (benefit) | 850 | (448) | 1,343 | (441) | | Ending balance | 10,609 | 10,306 | 10,609 | 10,306 | - MW commitments are unconditionally cancellable, and the company retains the right to refuse to purchase any mortgage loans offered by customers[110](index=110&type=chunk) [9. Stock-Based Awards](index=36&type=section&id=9.%20Stock-Based%20Awards) This note details stock options, restricted stock units (RSUs), and performance stock units (PSUs) under the company's various stock-based award plans (including the 2010 Incentive Plan, 2022 Equity Plan, and Veritex (Green) 2014 Plan), covering grants, exercises, vesting, and unrecognized compensation expense **Stock-Based Compensation Expense (USD thousands):** | Plan | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | 2022 Equity Plan | 2,918 | 2,172 | 8,266 | 6,355 | | Veritex (Green) 2014 Plan | 197 | 494 | 811 | 1,481 | - As of September 30, 2022, total unrecognized compensation expense under the 2022 Equity Plan was **$14.327 million**, expected to be recognized over the next **2.48 years**[121](index=121&type=chunk) - As of September 30, 2022, total unrecognized compensation expense under the Veritex (Green) 2014 Plan was **$1.024 million**, expected to be recognized over the next **1.80 years**[125](index=125&type=chunk) [10. Income Taxes](index=41&type=section&id=10.%20Income%20Taxes) This note discloses the company's income tax expense and effective tax rates for the three and nine months ended September 30, 2022, and 2021, and explains discrete tax items impacting the effective tax rate **Income Tax Expense and Effective Tax Rate:** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Income tax expense (USD thousands) | 12,248 | 9,195 | 28,429 | 26,025 | | Effective tax rate | 22.0% | 20.0% | 21.1% | 21.0% | - For the nine months ended September 30, 2022, the company recognized **$1.065 million** in net discrete tax benefits, primarily related to excess tax benefits from stock-based awards[129](index=129&type=chunk) [11. Legal Contingencies](index=42&type=section&id=11.%20Legal%20Contingencies) This note describes potential legal proceedings and claims arising in the company's ordinary course of business, which management believes are unlikely to have a material adverse effect on the company's financial condition, liquidity, or results of operations - The company may be involved in legal proceedings and claims arising in the ordinary course of business from time to time[132](index=132&type=chunk) - Management believes that the likelihood of any adverse outcome having a material impact on the company's financial condition, liquidity, or results of operations is remote[132](index=132&type=chunk) [12. Capital Requirements and Restrictions on Retained Earnings](index=42&type=section&id=12.%20Capital%20Requirements%20and%20Restrictions%20on%20Retained%20Earnings) This note details regulatory capital requirements, PCA classification, and CECL transition impacts for the company and its bank subsidiary, along with dividend payments; as of September 30, 2022, both the company and the bank exceeded "well-capitalized" levels for all capital ratios **Company and Bank Actual Capital Ratios (September 30, 2022, USD thousands):** | Metric | Company Actual Amount | Company Actual Ratio | Bank Actual Amount | Bank Actual Ratio | | :----------------------- | :----------- | :----------- | :----------- | :----------- | | Total Capital (as a percentage of risk-weighted assets) | 1,354,690 | 11.68% | 1,331,963 | 11.49% | | Tier 1 Capital (as a percentage of risk-weighted assets) | 1,084,444 | 9.35% | 1,259,609 | 10.87% | | Common Equity Tier 1 Capital (as a percentage of risk-weighted assets) | 1,054,831 | 9.09% | 1,259,609 | 10.87% | | Tier 1 Capital (as a percentage of average assets) | 1,084,444 | 9.79% | 1,259,609 | 11.38% | - As of September 30, 2022, both the company and the bank's capital ratios exceeded the "well-capitalized" levels[138](index=138&type=chunk) - The company has elected to utilize the CECL five-year transition period, delaying the impact of CECL on regulatory capital in 2020-2021, with a three-year phase-in from January 1, 2022, to December 31, 2024[139](index=139&type=chunk) [13. Business Combinations](index=44&type=section&id=13.%20Business%20Combinations) This note details the company's acquisition of North Avenue Capital, LLC (NAC) on November 1, 2021, including the purchase consideration, recognized goodwill, and final fair values of acquired assets and assumed liabilities, aiming to position the bank as a leading participant in USDA Business and Industry loan programs and diversify revenue streams - The company completed the acquisition of NAC on November 1, 2021, for **$57.5 million** in cash, with the right to an additional **$5 million** in contingent consideration after three years[144](index=144&type=chunk)[146](index=146&type=chunk) **NAC Acquisition Final Fair Values (USD thousands):** | Metric | Final Fair Value | | :----------------------- | :----------- | | Total assets acquired | 45,238 | | Total liabilities assumed | 16,350 | | Fair value of net assets acquired | 28,888 | | Total consideration | 62,500 | | Goodwill | 33,612 | - The acquisition generated **$33.612 million** in goodwill, primarily from anticipated operational synergies and increased market share in the fragmented USDA lending market[144](index=144&type=chunk)[149](index=149&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's detailed discussion and analysis of the company's financial condition and results of operations, covering an overview, recent developments, operating results for the three and nine months ended September 30, 2022, financial condition, liquidity and capital resources, and critical accounting policies [Overview](index=47&type=section&id=Overview) The company is a Dallas, Texas-based state-chartered bank primarily offering commercial banking products and services through its wholly-owned subsidiary, Veritex Community Bank, focusing on small to medium-sized businesses and professionals in the Dallas-Fort Worth and Houston metropolitan areas, with primary revenue sources including loan interest income, customer service and loan fees, and securities interest income - The company primarily provides commercial banking services through Veritex Community Bank in the Dallas-Fort Worth and Houston metropolitan areas[157](index=157&type=chunk) - The company's revenue primarily derives from loan interest income, customer service and loan fees, gains on sales of government-guaranteed loans and mortgages, and securities interest income[158](index=158&type=chunk) - Changes in net interest income, net interest spread, and net interest margin are primarily influenced by market interest rates and the volume and type of interest-earning assets and interest-bearing liabilities[159](index=159&type=chunk) [Recent Developments](index=47&type=section&id=Recent%20Developments) This section discusses the ongoing impact of the COVID-19 pandemic on the company's business and current economic conditions; despite inflation and recession concerns, the company's market economic outlook remains robust, though rising interest rates and construction costs have slowed some real estate markets - The COVID-19 pandemic continues to have an uncertain impact on the company's customers, employees, vendors, the financial services industry, and the overall economy[160](index=160&type=chunk) - Despite inflation and recession concerns, the economic conditions and growth prospects in the company's markets (Texas) generally remain robust and positive[161](index=161&type=chunk) - Rising interest rates and increased construction costs have led to a slowdown in the single-family housing market, yet housing shortages persist in several Texas markets[161](index=161&type=chunk) [Results of Operations for the Three Months Ended September 30, 2022 and 2021](index=48&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20September%2030%2C%202022%20and%202021) For the three months ended September 30, 2022, the company's net income was **$43.3 million**, a **17.6% year-over-year increase**, driven by significant net interest income growth, despite increased provision for credit losses and noninterest expenses [General](index=48&type=section&id=General) For the three months ended September 30, 2022, the company's net income was **$43.3 million**, a **17.6% increase** from the prior year, with both basic and diluted EPS showing growth **Net Income and EPS (USD thousands, per share amounts):** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Net income | 43,300 | 36,800 | 6,500 | 17.6 | | Basic EPS | 0.80 | 0.75 | 0.05 | 6.7 | | Diluted EPS | 0.79 | 0.73 | 0.06 | 8.2 | [Net Interest Income](index=48&type=section&id=Net%20Interest%20Income) For the three months ended September 30, 2022, net interest income was **$101.04 million**, a **41.76% increase** from the prior year, with net interest margin rising **51 basis points to 3.77%**, primarily due to increased average loan balances and yields, partially offset by higher funding costs **Net Interest Income and Yields (USD thousands, percentages):** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Net interest income | 101,040 | 71,276 | 29,764 | 41.76 | | Net interest margin | 3.77% | 3.26% | 0.51% | 15.64 | | Net interest spread | 3.32% | 3.05% | 0.27% | 8.85 | | Average cost of interest-bearing deposits | 1.15% | 0.30% | 0.85% | 283.33 | **Net Interest Income Change Attributed to Volume and Rate (Three Months Ended September 30, 2022 vs. 2021, USD thousands):** | Category | Attributed to Volume | Attributed to Rate | Total | | :----------------------- | :------- | :------- | :----- | | Total increase in interest income | 21,024 | 22,421 | 43,445 | | Total increase in interest expense | 554 | 13,127 | 13,681 | | Increase in net interest income | 20,470 | 9,294 | 29,764 | [Provision for Credit Losses](index=50&type=section&id=Provision%20for%20Credit%20Losses) For the three months ended September 30, 2022, the company recorded a **$6.7 million** provision for credit losses, compared to none in the prior year, primarily due to downside risks in Texas economic forecasts and loan growth, partially offset by charge-offs and reduced nonperforming loans; the provision for credit losses on unfunded commitments was **$0.85 million** **Provision for Credit Losses (USD thousands):** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | :------------- | | Provision for credit losses | 6,700 | — | 6,700 | | Provision for credit losses on unfunded commitments | 850 | (448) | 1,298 | - The increase in provision for credit losses was primarily due to downside risks in Texas economic forecasts and loan growth, partially offset by charge-offs and reduced nonperforming loans[170](index=170&type=chunk) [Noninterest Income](index=51&type=section&id=Noninterest%20Income) For the three months ended September 30, 2022, total noninterest income was **$13 million**, a **16.7% decrease** from the prior year, primarily impacted by lower equity method investment income and net gains on government-guaranteed loans, partially offset by increased customer swap income and loan fees **Noninterest Income (USD thousands):** | Category | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Deposit account service charges and fees | 5,217 | 4,484 | 733 | 16.35 | | Loan fees | 2,786 | 1,746 | 1,040 | 59.56 | | Net gains on government-guaranteed loans | 572 | 2,341 | (1,769) | (75.57) | | Equity method investment income | (1,058) | 4,522 | (5,580) | (123.40) | | Customer swap income | 3,358 | 1,093 | 2,265 | 207.23 | | Other | 2,130 | 1,222 | 908 | 74.30 | | Total noninterest income | 13,021 | 15,627 | (2,606) | (16.68) | - Equity method investment income decreased by **$5.58 million**, primarily due to the high interest rate environment and the inclusion of PPP loan forgiveness gains from Thrive Mortgage, LLC in the prior year period[175](index=175&type=chunk) - Customer swap income increased by **$2.265 million**, primarily due to higher transaction volumes[176](index=176&type=chunk) [Noninterest Expense](index=52&type=section&id=Noninterest%20Expense) For the three months ended September 30, 2022, total noninterest expense was **$51 million**, a **23.4% increase** from the prior year, driven by higher salaries and employee benefits, data processing and software expenses, and marketing costs **Noninterest Expense (USD thousands):** | Category | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Salaries and employee benefits | 29,714 | 22,964 | 6,750 | 29.39 | | Data processing and software expense | 3,509 | 2,494 | 1,015 | 40.70 | | Marketing | 1,845 | 1,151 | 694 | 60.29 | | Merger and acquisition expense | 384 | — | 384 | — | | Other | 4,323 | 3,886 | 437 | 11.25 | | Total noninterest expense | 50,991 | 41,321 | 9,670 | 23.40 | - Salaries and employee benefits increased by **$6.75 million**, primarily due to talent investments, higher stock-based compensation, and increased employee benefits expenses[178](index=178&type=chunk) - Data processing and software expense increased by **$1.015 million**, mainly for the implementation of a new online account opening platform and system security enhancements[179](index=179&type=chunk) [Income Tax Expense](index=53&type=section&id=Income%20Tax%20Expense) For the three months ended September 30, 2022, income tax expense was **$12.2 million**, an increase of **$3.1 million** from the prior year, with an effective tax rate of **22.0%** **Income Tax Expense and Effective Tax Rate (USD thousands, percentages):** | Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | :------------- | | Income tax expense | 12,200 | 9,200 | 3,000 | | Effective tax rate | 22.0% | 20.0% | 2.0% | [Results of Operations for the Nine Months Ended September 30, 2022 and 2021](index=54&type=section&id=Results%20of%20Operations%20for%20the%20Nine%20Months%20Ended%20September%2030%2C%202022%20and%202021) For the nine months ended September 30, 2022, the company's net income was **$106.4 million**, an **8.5% increase** from the prior year, driven by significant net interest income growth, despite increased provision for credit losses and noninterest expenses [General](index=54&type=section&id=General) For the nine months ended September 30, 2022, the company's net income was **$106.4 million**, an **8.5% increase** from the prior year, with both basic and diluted EPS showing growth **Net Income and EPS (USD thousands, per share amounts):** | Metric | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Net income | 106,400 | 98,100 | 8,300 | 8.5 | | Basic EPS | 2.01 | 1.98 | 0.03 | 1.5 | | Diluted EPS | 1.98 | 1.95 | 0.03 | 1.5 | [Net Interest Income](index=54&type=section&id=Net%20Interest%20Income) For the nine months ended September 30, 2022, net interest income was **$258.6 million**, a **26.72% increase** from the prior year, with net interest margin rising **28 basis points to 3.48%**, primarily due to increased loan balances and yields, partially offset by higher average rates on interest-bearing liabilities **Net Interest Income and Yields (USD thousands, percentages):** | Metric | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Net interest income | 258,560 | 204,042 | 54,518 | 26.72 | | Net interest margin | 3.48% | 3.20% | 0.28% | 8.75 | | Net interest spread | 3.20% | 2.98% | 0.22% | 7.38 | | Average cost of interest-bearing deposits | 0.64% | 0.36% | 0.28% | 77.78 | **Net Interest Income Change Attributed to Volume and Rate (Nine Months Ended September 30, 2022 vs. 2021, USD thousands):** | Category | Attributed to Volume | Attributed to Rate | Total | | :----------------------- | :------- | :------- | :----- | | Total increase in interest income | 47,859 | 17,749 | 65,608 | | Total increase in interest expense | 456 | 10,634 | 11,090 | | Increase in net interest income | 47,403 | 7,115 | 54,518 | [Provision for Credit Losses](index=56&type=section&id=Provision%20for%20Credit%20Losses) For the nine months ended September 30, 2022, the company recorded a **$15.2 million** provision for credit losses, compared to none in the prior year, primarily due to downside risks in Texas economic forecasts and loan growth; the provision for credit losses on unfunded commitments was **$1.3 million** **Provision for Credit Losses (USD thousands):** | Metric | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | :------------- | | Provision for credit losses | 15,200 | — | 15,200 | | Provision for credit losses on unfunded commitments | 1,300 | (441) | 1,741 | | ACL as a percentage of LHI (excluding MW and PPP) | 1.00% | 1.42% | (0.42%) | - The increase in provision for credit losses was primarily due to downside risks in Texas economic forecasts and loan growth, partially offset by charge-offs and reduced nonperforming loans[193](index=193&type=chunk) [Noninterest Income](index=57&type=section&id=Noninterest%20Income) For the nine months ended September 30, 2022, total noninterest income was **$38.5 million**, an **8.9% decrease** from the prior year, primarily impacted by lower net gains on government-guaranteed loans and equity method investment income, partially offset by increased deposit account service charges, loan fees, and customer swap income **Noninterest Income (USD thousands):** | Category | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Deposit account service charges and fees | 14,966 | 11,960 | 3,006 | 25.13 | | Loan fees | 7,965 | 4,910 | 3,055 | 62.22 | | Net gains on government-guaranteed loans | 6,252 | 12,337 | (6,085) | (49.32) | | Equity method investment income | 275 | 4,522 | (4,247) | (93.92) | | Customer swap income | 5,625 | 1,694 | 3,931 | 232.05 | | Other | 2,867 | 5,721 | (2,854) | (49.88) | | Total noninterest income | 38,496 | 42,255 | (3,759) | (8.90) | - Net gains on government-guaranteed loans decreased by **$6.085 million**, primarily due to a **$7.7 million** reduction in PPP loan fees, partially offset by a **$3.7 million** increase in USDA loan sale gains[197](index=197&type=chunk) - Equity method investment income decreased by **$4.247 million**, primarily due to the high interest rate environment and the inclusion of PPP loan forgiveness gains from Thrive Mortgage, LLC in the prior year period[198](index=198&type=chunk) [Noninterest Expense](index=58&type=section&id=Noninterest%20Expense) For the nine months ended September 30, 2022, total noninterest expense was **$145.72 million**, an **18.8% increase** from the prior year, driven by higher salaries and employee benefits, data processing and software expenses, marketing costs, and merger and acquisition expenses **Noninterest Expense (USD thousands):** | Category | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------- | :--------- | | Salaries and employee benefits | 84,151 | 69,347 | 14,804 | 21.35 | | Data processing and software expense | 9,816 | 7,349 | 2,467 | 33.57 | | Marketing | 5,338 | 3,901 | 1,437 | 36.84 | | Merger and acquisition expense | 1,379 | — | 1,379 | — | | Other | 13,053 | 10,628 | 2,425 | 22.82 | | Total noninterest expense | 145,716 | 122,635 | 23,081 | 18.82 | - Salaries and employee benefits increased by **$14.804 million**, primarily due to talent investments, higher stock-based compensation, and increased loan originator incentives[201](index=201&type=chunk) - Merger and acquisition expense was **$1.379 million**, primarily related to legal and professional service fees for the terminated acquisition of StoneCastle Insured Sweep, LLC[204](index=204&type=chunk) [Income Tax Expense](index=59&type=section&id=Income%20Tax%20Expense) For the nine months ended September 30, 2022, income tax expense was **$28.4 million**, a **9.2% increase** from the prior year, with an effective tax rate of **21.1%** **Income Tax Expense and Effective Tax Rate (USD thousands, percentages):** | Metric | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | :------------- | | Income tax expense | 28,400 | 26,000 | 2,400 | | Effective tax rate | 21.1% | 21.0% | 0.1% | - For the nine months ended September 30, 2022, the company recognized **$1.1 million** in net discrete tax benefits, primarily related to excess tax benefits from stock-based awards[207](index=207&type=chunk) [Financial Condition](index=60&type=section&id=Financial%20Condition) This section analyzes the company's financial condition, including total asset growth, loan portfolio composition, nonperforming asset trends, changes in allowance for credit losses (ACL), equity and debt securities portfolios, FHLB and FRB stock holdings, equity method investments, and deposit and borrowing profiles [Total Assets](index=60&type=section&id=Total%20Assets) As of September 30, 2022, total assets were **$11.71 billion**, an increase of **$1.95 billion** or **20.0%** from December 31, 2021, primarily due to continued execution of client relationship strategies in the Dallas-Fort Worth and Houston metropolitan areas **Total Assets (USD thousands):** | Metric | September 30, 2022 | December 31, 2021 | Change (USD thousands) | Change (%) | | :------- | :------------- | :------------- | :------------- | :--------- | | Total assets | 11,710,000 | 9,760,000 | 1,950,000 | 20.0 | [Loan Portfolio](index=60&type=section&id=Loan%20Portfolio) As of September 30, 2022, total loans held for investment (LHI) (excluding ACL) were **$9.05 billion**, a **22.2% increase** from December 31, 2021, driven by growth in commercial, construction and land, and 1-4 family residential loans; LHI represented **97.5% of deposits** **LHI Portfolio (Amortized Cost, USD thousands):** | Loan Type | September 30, 2022 | December 31, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :------------- | :------------- | :------------- | :--------- | | Commercial loans | 2,740,948 | 2,006,876 | 734,072 | 36.58 | | Construction and land | 1,673,997 | 1,062,144 | 611,853 | 57.61 | | 1-4 family residential | 858,693 | 542,566 | 316,127 | 58.27 | | Total LHI (amortized cost) | 9,051,731 | 7,341,143 | 1,710,588 | 23.30 | - As of September 30, 2022, LHI (excluding MW and PPP loans) represented **97.5% of deposits** and **72.6% of assets**[212](index=212&type=chunk) - The company's loan portfolio internal ratings include "pass," "special mention," "substandard," and "doubtful" categories, reviewed monthly to reflect credit risk[73](index=73&type=chunk)[216](index=216&type=chunk) [Nonperforming Assets](index=61&type=section&id=Nonperforming%20Assets) As of September 30, 2022, total nonperforming loans were **$30.592 million**, a **38.69% decrease** from December 31, 2021; nonperforming loans as a percentage of total loans decreased from **0.74% to 0.36%**, and nonperforming assets as a percentage of total assets decreased from **0.51% to 0.26%** **Nonperforming Assets (USD thousands):** | Metric | September 30, 2022 | December 31, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :------------- | :------------- | :------------- | :--------- | | Total nonperforming loans | 30,592 | 49,922 | (19,330) | (38.72) | | Total nonperforming assets | 30,592 | 49,922 | (19,330) | (38.72) | | Nonperforming loans as a percentage of total loans | 0.36% | 0.74% | (0.38%) | (51.35) | | Nonperforming assets as a percentage of total assets | 0.26% | 0.51% | (0.25%) | (49.02) | **Nonperforming Loans by Category (USD thousands):** | Category | September 30, 2022 | December 31, 2021 | | :----------------------- | :------------- | :------------- | | Commercial loans | 9,691 | 15,267 | | Owner-occupied commercial real estate (OOCRE) | 11,558 | 14,236 | | Non-owner occupied commercial real estate (NOOCRE) | 8,332 | 17,978 | | 1-4 family residential | 875 | 990 | | Consumer loans | 136 | 1,216 | | Total | 30,592 | 49,687 | [ACL on LHI](index=62&type=section&id=ACL%20on%20LHI) As of September 30, 2022, the allowance for credit losses (ACL) increased by **$7.3 million** to **$85 million**, primarily due to loan growth and changes in economic factors, partially offset by reduced specific reserves and charge-offs; ACL as a percentage of period-end loans (excluding MW and PPP loans) was **1.00%** **ACL Composition (USD thousands):** | Category | September 30, 2022 | December 31, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :------------- | :------------- | :------------- | :--------- | | Total real estate | 56,022 | 55,889 | 133 | 0.24 | | Commercial loans | 26,698 | 21,632 | 5,066 | 23.42 | | Consumer loans | 2,317 | 233 | 2,084 | 894.42 | | Total ACL | 85,037 | 77,754 | 7,283 | 9.37 | **ACL and Related Data (USD thousands):** | Metric | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :----------------------- | :--------------------- | :--------------------- | | Beginning ACL balance | 77,754 | 105,084 | | Provision for credit losses | 15,150 | — | | Net charge-offs | (7,867) | (11,313) | | Ending ACL balance | 85,037 | 93,771 | | ACL as a percentage of period-end loans (excluding MW and PPP) | 1.00% | 1.42% | | Net charge-offs as a percentage of average loans | 0.10% | 0.18% | [Equity Securities](index=64&type=section&id=Equity%20Securities) As of September 30, 2022, the company held **$9.7 million** in equity securities with readily determinable fair values and **$9.5 million** in equity securities without readily determinable fair values; those with determinable fair values are primarily invested in publicly traded Community Reinvestment Act funds **Equity Securities (USD thousands):** | Type | September 30, 2022 | December 31, 2021 | | :----------------------- | :------------- | :------------- | | Equity securities with readily determinable fair values | 9,700 | 11,000 | | Equity securities without readily determinable fair values | 9,500 | 4,400 | [Securities Purchased Under Agreements to Resell](index=65&type=section&id=Securities%20purchased%20under%20agreements%20to%20resell) As of September 30, 2022, the company held no securities purchased under agreements to resell, compared to **$103.7 million** on September 30, 2021; for the nine months ended September 30, 2022, the company recognized **$1.4 million** in interest income **Securities Purchased Under Agreements to Resell (USD thousands):** | Metric | September 30, 2022 | September 30, 2021 | | :----------------------- | :------------- | :------------- | | Balance held | — | 103,700 | | Interest income (nine months) | 1,400 | 227 | [FHLB Stock and FRB Stock](index=65&type=section&id=FHLB%20Stock%20and%20FRB%20Stock) As of September 30, 2022, the company held **$95.3 million** in Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, an increase from December 31, 2021; these stocks are carried at cost, restricted from sale, and periodically evaluated for impairment **FHLB and FRB Stock (USD thousands):** | Metric | September 30, 2022 | December 31, 2021 | | :----------------------- | :------------- | :------------- | | FHLB and FRB stock | 95,300 | 71,900 | [Debt Securities](index=65&type=section&id=Debt%20Securities) As of September 30, 2022, total debt securities book value was **$1.3 billion**, a **23.8% increase** from December 31, 2021, primarily due to debt security purchases and unrealized gains; debt securities represented **11.1% of total assets** **Debt Securities (USD thousands):** | Metric | September 30, 2022 | December 31, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :------------- | :------------- | :------------- | :--------- | | Total debt securities book value | 1,300,000 | 1,050,000 | 250,000 | 23.8 | | Debt securities as a percentage of total assets | 11.1% | 10.8% | 0.3% | 2.78 | - The increase in the debt securities portfolio was primarily due to **$470.1 million** in debt security purchases and **$133.1 million** in unrealized gains, partially offset by **$83.3 million** in maturities, calls, and paydowns[224](index=224&type=chunk) - Management believes that unrealized losses on available-for-sale debt securities are due to non-credit-related factors, thus no provision for credit losses has been recognized[226](index=226&type=chunk) [Equity Method Investments](index=65&type=section&id=Equity%20Method%20Investments) As of September 30, 2022, the company held **$61 million** in equity method investments and recognized **$0.275 million** in investment income for the nine months ended September 30, 2022, primarily from its investment in Thrive Mortgage, LLC **Equity Method Investments (USD thousands):** | Metric | September 30, 2022 | | :----------------------- | :------------- | | Total equity method investments | 61,000 | | Investment income (nine months) | 275 | - On July 16, 2021, the company acquired a **49% equity interest** in Thrive Mortgage, LLC for **$54.9 million** in cash[228](index=228&type=chunk) [Deposits](index=65&type=section&id=Deposits) As of September 30, 2022, total deposits were **$8.75 billion**, an **18.8% increase** from December 31, 2021, primarily driven by growth in interest-bearing transaction and savings deposits, noninterest-bearing demand deposits, and time deposits **Deposit Composition (USD thousands):** | Deposit Type | September 30, 2022 | December 31, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :------------- | :------------- | :------------- | :--------- | | Noninterest-bearing deposits | 2,811,412 | 2,510,723 | 300,689 | 11.98 | | Interest-bearing transaction and savings deposits | 4,269,668 | 3,276,312 | 993,356 | 30.32 | | Time deposits | 1,667,364 | 1,576,580 | 90,784 | 5.76 | | Total deposits | 8,748,444 | 7,363,615 | 1,384,829 | 18.81 | [Borrowings](index=67&type=section&id=Borrowings) The company uses short-term and long-term borrowings to supplement deposits and support lending and investment activities; as of September 30, 2022, FHLB advances totaled **$1.15 billion**, the FRB had **$1.09 billion** in available borrowing capacity, and the company held subordinated debt and notes **FHLB Advances (USD thousands):** | Metric | September 30, 2022 | December 31, 2021 | | :----------------------- | :------------- | :------------- | | Total FHLB advances | 1,150,000 | 777,562 | | Weighted average interest rate (nine months/annual) | 1.26% | 0.94% | - As of September 30, 2022, the FRB had **$1.09 billion** in available borrowing capacity, with no outstanding borrowings[234](index=234&type=chunk) **Subordinated Debt and Notes (September 30, 2022, USD thousands):** | Type | Balance | Interest Rate | | :----------------------- | :----- | :----- | | Junior subordinated debt | 25,868 | 4.36%-6.28% | | Subordinated notes | 200,000 | 4.13%-4.75% | [Liquidity and Capital Resources](index=68&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity management strategies, sources and uses of funds, cash flow analysis, and capital resources, noting that liquidity needs are primarily met through core deposits and wholesale borrowings, while maintaining adequate regulatory capital levels [Liquidity](index=68&type=section&id=Liquidity) The company primarily meets liquidity needs through core deposits, wholesale borrowings, maturing securities and loans, and amortizing investment and loan portfolios; as of September 30, 2022, the company had **$454 million** in commitments to extend credit and **$1.102 billion** in mortgage warehouse commitments **Sources and Uses of Funds (as a percentage of average total assets):** | Category | Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | | :----------------------- | :--------------------- | :--------------------- | | **Sources of Funds:** | | | | Total deposits | 75.9% | 74.8% | | FHLB advances | 7.8% | 8.3% | | Other borrowings | 2.2% | 2.8% | | Stockholders' equity | 13.2% | 13.5% | | **Uses of Funds:** | | | | Loans | 74.2% | 73.2% | | Debt securities | 11.9% | 12.0% | | Interest-bearing bank deposits | 3.9% | 1.5% | | Other noninterest-earning assets | 10.0% | 13.3% | - As of September 30, 2022, the company had **$4.54 billion** in commitments to extend credit, **$1.10 billion** in unconditionally cancellable MW commitments, and **$96.9 million** in standby and commercial letters of credit commitments[241](index=241&type=chunk) - As of September 30, 2022, the company held **$433.9 million** in cash and cash equivalents[242](index=242&type=chunk) [Analysis of Cash Flows](index=69&type=section&id=Analysis%20of%20Cash%20Flows) For the nine months ended September 30, 2022, net cash provided by operating activities decreased by **$40.7 million**, net cash used in investing activities increased by **$1.15 billion**, and net cash provided by financing activities increased by **$1.25 billion**, resulting in a net increase of **$54.1 million** in cash and cash equivalents **Cash Flow Analysis (USD thousands):** | Cash Flow Activity | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Change (USD thousands) | | :----------------------- | :--------------------- | :--------------------- | :------------- | | Net cash provided by operating activities | 149,388 | 190,047 | (40,659) | | Net cash used in investing activities | (1,970,773) | (818,736) | (1,152,037) | | Net cash provided by financing activities | 1,875,498 | 627,576 | 1,247,922 | | Net change in cash and cash equivalents | 54,113 | (1,113) | 55,226 | [Capital Resources](index=69&type=section&id=Capital%20Resources) As of September 30, 2022, total stockholders' equity increased to **$1.41 billion**, a **7.4% rise** from December 31, 2021, driven by common stock issuance, net income, and stock-based awards, partially offset by other comprehensive losses and dividends paid; both the company and its bank subsidiary met all applicable regulatory capital requirements, with the bank classified as "well-capitalized" **Stockholders' Equity (USD thousands):** | Metric | September 30, 2022 | December 31, 2021 | Change (USD thousands) | Change (%) | | :----------------------- | :------------- | :------------- | :------------- | :--------- | | Total stockholders' equity | 1,410,000 | 1,320,000 | 90,000 | 7.4 | - As of September 30, 2022, both the company and the bank met all applicable regulatory capital requirements, and the bank was classified as "well-capitalized"[250](index=250&type=chunk) - In March 2022, the company received approximately **$153.8 million** in net proceeds from a public offering of common stock, intended for general corporate purposes and supporting continued growth[251](index=251&type=chunk) [Critical Accounting Policies](index=71&type=section&id=Critical%20Accounting%20Policies) This section confirms no material changes to the company's critical accounting policies, including allowance for credit losses, business combinations, debt securities, and goodwill, since December 31, 2021, except for updates discussed in Note 1 - The company's critical accounting policies include allowance for credit losses (ACL), business combinations, debt securities, and goodwill[256](index=256&type=chunk) - No material changes to critical accounting policies have occurred since December 31, 2021, other than updates discussed in Note 1[256](index=256&type=chunk) [Special Cautionary Notice Regarding Forward-Looking Statements](index=71&type=section&id=Special%20Cautionary%20Notice%20Regarding%20Forward-Looking%20Statements) This section provides a special cautionary notice regarding forward-looking statements, indicating that such statements in the report are based on assumptions and subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from expectations - Forward-looking statements are based on assumptions, current expectations, estimates, and projections, and are subject to known and unknown risks, uncertainties, and other factors[257](index=257&type=chunk) - Important factors that could cause actual results to differ materially from forward-looking statements include: concentration of business in Texas, market conditions and economic trends, impact of the COVID-19 pandemic, potential loan losses, changes in interest rates, ability to execute growth strategies, and changes in regulatory requirements[258](index=258&type=chunk)[259](index=259&type=chunk) - The company undertakes no obligation to publicly revise any forward-looking statements, except as required by law[259](index=259&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discloses the company's strategies for managing market risk, primarily interest rate volatility, by monitoring and managing interest-sensitive positions through asset/liability management policies and interest rate risk simulation models to minimize inherent risk and maximize income - The primary component of the company's market risk is interest rate volatility[260](index=260&type=chunk) - The company uses interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and the balance sheet[264](index=264&type=chunk) **Simulated Changes in Net Interest Income and Fair Value of Equity (As of September 30, 2022):** | Interest Rate Change (Basis Points) | Percentage Change in Net Interest Income | Percentage Change in Fair Value of Equity | | :--------------- | :------------------- | :------------------- | | +300 | 10.05% | 4.58% | | +200 | 6.73% | 3.67% | | +100 | 3.40% | 2.26% | | Base | —% | —% | | -100 | (4.34)% | (3.18)% | [Item 4. Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) This section presents the assessment results of the company's management, including the Chief Executive Officer and Chief Financial Officer, on disclosure controls and procedures, confirming no material changes in internal controls during the reporting period - The company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[267](index=267&type=chunk) - No material changes in the company's internal control over financial reporting occurred during the quarter ended September 30, 2022[268](index=268&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=75&type=section&id=Item%201.%20Legal%20Proceedings) This section discloses potential legal proceedings and claims arising in the company's ordinary course of business, which management believes are unlikely to have a material adverse effect on the company's consolidated results of operations, financial condition, or cash flows - The company is subject to claims and lawsuits arising in the ordinary course of business from time to time, including allegations of violations of banking regulations, competition laws, labor laws, and consumer protection laws[269](index=269&type=chunk) - Management believes that the likelihood of these proceedings, individually or in the aggregate, having a material adverse effect on the company's consolidated results of operations, financial condition, or cash flows is remote[270](index=270&type=chunk) [Item 1A. Risk Factors](index=75&type=section&id=Item%201A.%20Risk%20Factors) This section advises investors to carefully consider the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, and confirms no material changes to these factors since that report - Investors should carefully consider the risk factors disclosed in the company's Annual Report on Form 10-K for the y

Financial Data and Key Metrics Changes - The company reported a net income of $43.6 million or $0.80 per share, an increase from $0.55 per share in Q2 [7] - Pre-tax pre-provision income rose to $63 million, representing 2.2% of average assets [7] - The efficiency ratio improved to under 45%, reflecting a strong business model and growth [15] - Net interest income increased by $16.6 million or almost 20% from Q2 to $101 million in Q3 [21] - The net interest margin (NIM) increased by 35 basis points from Q2 to 3.77% [22] Business Line Data and Key Metrics Changes - Loan growth for Q3 was $595 million or 30%, with a year-to-date annualized growth of 31% [8] - Deposit growth was $231 million or 10.7% for the quarter, with noninterest-bearing deposits up $300 million or 16% over the last 12 months [10][11] - Noninterest income increased by $2.7 million to $13 million, primarily due to customer interest rate swaps [25] Market Data and Key Metrics Changes - The company noted a slowdown in growth in the DFW and Houston markets, indicating a potential market share grab rather than economic growth [10] - The pipeline for loans has decreased by one-third from the previous quarter, with over $150 million in payoffs in early October [8] Company Strategy and Development Direction - The company aims to align deposit growth with loan generation numbers, focusing on improving funding mix and deposit flows [57] - There is a strategic initiative to enhance deposit growth, including hiring consultants and focusing on community banking [56][60] - The company plans to maintain a loan-to-deposit ratio around 100% in the near term, with a longer-term goal of reaching 85% [63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow both loans and deposits despite a challenging economic environment [37] - The company is preparing for potential economic downturns by conducting stress tests on its portfolio [13] - Management anticipates slower loan growth in 2023, projecting growth in the low double digits [8] Other Important Information - The company has seen a decline in nonperforming assets (NPAs) to 0.26%, marking the eighth consecutive quarter of decline [12] - The tangible book value per share declined by 1.6% but grew by 6.7% over the last four quarters when accounting for dividends [18] Q&A Session Summary Question: How should we think about total fee income going into 4Q and 2023? - Management indicated that it would be hard to replicate a strong swap quarter but expects increases in SBA and USDA income, with overall fee income remaining stable [39] Question: What are the expectations for expense growth in 2023? - Management projected high single-digit expense growth for 2023, with a focus on managing variable compensation as loan production decreases [40][41] Question: Is there still room for margin expansion? - Management believes there is still room for NIM expansion, especially with potential Fed rate hikes, but anticipates pressure on margins in Q1 as deposit betas catch up [46][47] Question: What are the deposit initiatives for the longer term? - The company is focusing on improving its funding mix and has initiated a team to enhance deposit growth, particularly in community banking [56][58] Question: Thoughts on capital return and buybacks? - Management is cautious about buybacks in the current economic climate and is focused on achieving a CET1 target of 10% before considering aggressive capital returns [86] Question: What is the outlook for loan growth and mix in 2023? - The company expects higher loan growth in the commercial and industrial (C&I) sector, with a shift away from real estate lending due to market conditions [94]

PART I — FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited consolidated financial statements show significant asset and deposit growth, stable net income, and a strong capital position, despite an other comprehensive loss from rising interest rates [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased by **15.8%** to **$11.30 billion**, driven by loan and investment growth, funded by deposits and FHLB advances, with AOCI decreasing significantly Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Assets** | **$11,304,811** | **$9,757,249** | **+15.8%** | | Total LHI, net | $8,471,846 | $7,307,269 | +15.9% | | Total Investments | $1,557,088 | $1,243,085 | +25.3% | | **Total Deposits** | **$8,517,706** | **$7,363,615** | **+15.7%** | | Advances from FHLB | $1,000,000 | $777,562 | +28.6% | | **Total Stockholders' Equity** | **$1,429,442** | **$1,315,079** | **+8.7%** | | AOCI | $(21,416) | $64,070 | -133.4% | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net income remained stable at **$29.6 million** for Q2 2022, driven by increased net interest income, offset by higher credit loss provisions and noninterest expenses Key Income Statement Data (in thousands, except EPS) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $84,480 | $67,131 | $157,520 | $132,766 | | Provision for Credit Losses | $9,000 | $0 | $8,500 | $0 | | Noninterest Income | $10,378 | $12,456 | $25,475 | $26,628 | | Noninterest Expense | $48,153 | $41,717 | $94,725 | $81,314 | | **Net Income** | **$29,626** | **$29,456** | **$63,096** | **$61,243** | | **Diluted EPS** | **$0.54** | **$0.59** | **$1.19** | **$1.22** | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating activities provided **$99.2 million** cash, while investing used **$1.57 billion** for loans and securities, largely funded by **$1.51 billion** from financing activities - Significant cash was used for organic growth through net loan originations (**$1.20 billion**) and investment portfolio expansion (**$432.7 million** in AFS purchases)[20](index=20&type=chunk) - Growth was funded by a substantial increase in deposits (**$1.15 billion**), FHLB advances (**$221.1 million**), and proceeds from a common stock public offering (**$153.9 million**)[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes cover securities portfolio unrealized losses, loan growth, stable credit quality, strong capital ratios, and specifics on business combinations and compensation plans - On January 1, 2022, the company transferred **25 AFS debt securities** with a fair value of **$117.0 million** to the Held-to-Maturity (HTM) category[41](index=41&type=chunk) - In March 2022, the company completed a public offering of common stock, raising net proceeds of approximately **$153.8 million** to support continued growth and for general corporate purposes[37](index=37&type=chunk) - The company's loan portfolio is geographically concentrated in the Dallas-Fort Worth metroplex and the Houston metropolitan area, subjecting it to the economic conditions of these regions[52](index=52&type=chunk) Capital Ratios as of June 30, 2022 | Ratio (Company) | Actual | For Capital Adequacy | To Be Well Capitalized (Bank) | | :--- | :--- | :--- | :--- | | Total capital (to RWA) | 11.95% | 8.0% | 10.0% | | Tier 1 capital (to RWA) | 9.52% | 6.0% | 8.0% | | Common equity tier 1 (to RWA) | 9.25% | 4.5% | 6.5% | | Tier 1 capital (to average assets) | 10.14% | 4.0% | 5.0% | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q2 2022 net interest income growth and margin expansion, asset growth to **$11.3 billion**, stable credit quality, and funding from deposits and equity offering [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Q2 2022 net income was **$29.6 million**, driven by a **25.8%** increase in net interest income and a **3.42%** net interest margin, offset by credit loss provisions and higher expenses Net Interest Margin Analysis (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Interest Income | $84,480 thousand | $67,131 thousand | | Average Interest-Earning Assets | $9,893,829 thousand | $8,659,059 thousand | | Net Interest Margin | 3.42% | 3.11% | | Net Interest Spread | 3.21% | 2.90% | - The provision for credit losses was **$9.0 million** for Q2 2022, compared to zero in Q2 2021, primarily due to loan growth[182](index=182&type=chunk) - Noninterest income decreased by **16.7%** in Q2 2022 compared to Q2 2021, mainly due to a **$2.7 million (77.1%)** drop in government guaranteed loan income, net[185](index=185&type=chunk)[186](index=186&type=chunk) - Noninterest expense increased by **15.4%** in Q2 2022, largely due to a **$3.5 million (14.8%)** increase in salaries and employee benefits from investment in talent and higher stock-based compensation[189](index=189&type=chunk) [Financial Condition](index=64&type=section&id=Financial%20Condition) Total assets grew **15.8%** to **$11.30 billion**, with loans increasing **15.6%**; nonperforming assets decreased to **0.40%** of total assets, and deposits rose **15.7%** Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Commercial | $2,450,403 | $2,006,876 | | Non-owner Occupied CRE | $2,203,970 | $2,120,309 | | Construction and land | $1,532,997 | $1,062,144 | | 1-4 family residential | $765,260 | $542,566 | | **Total LHI (amortized cost)** | **$8,560,115** | **$7,341,143** | Nonperforming Assets (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total nonperforming loans | $43,995 | $49,922 | | Total nonperforming assets | $45,027 | $49,922 | | Ratio of nonperforming assets to total assets | 0.40% | 0.51% | - Total deposits increased by **$1.15 billion (15.7%)** since December 31, 2021, primarily from growth in interest-bearing transaction and savings deposits (**+$730.9 million**) and noninterest-bearing deposits (**+$437.1 million**)[241](index=241&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=73&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate volatility, managed by the Asset-Liability Committee through simulation models, with the balance sheet positioned to benefit from rising rates Interest Rate Sensitivity Analysis (as of June 30, 2022) | Change in Interest Rates (bps) | % Change in Net Interest Income | % Change in Fair Value of Equity | | :--- | :--- | :--- | | +300 | 15.02% | 7.62% | | +200 | 10.01% | 5.57% | | +100 | 4.99% | 3.10% | | -100 | (5.06)% | (4.15)% | - The company manages interest rate risk by structuring its balance sheet and does not use leveraged derivatives or other complex instruments for this purpose, though it does enter into swaps and caps as an accommodation for customers[273](index=273&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[279](index=279&type=chunk) - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2022[280](index=280&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=76&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims and litigation in the ordinary course of business, with management deeming a material adverse effect on financials as remote - In the opinion of management, the likelihood is remote that the impact of current legal proceedings would have a material adverse effect on the company's financial position[283](index=283&type=chunk) [Risk Factors](index=76&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred in the risk factors since the filing of the Annual Report on Form 10-K for the year ended December 31, 2021[285](index=285&type=chunk) [Other Items](index=76&type=section&id=Other%20Items) This section covers standard disclosures, reporting no unregistered sales of equity securities, no defaults on senior securities, and no other material unreported information - The company reported no activity under Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), or Item 5 (Other Information)[286](index=286&type=chunk)[287](index=287&type=chunk)[289](index=289&type=chunk)