Veritex (VBTX) - 2022 Q3 - Quarterly Report

FORM 10-Q Registrant Information 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] - As of November 4, 2022, the company had 54,005,123 shares of common stock outstanding[2] Table of Contents 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] - 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] - Part II covers legal proceedings, risk factors, unregistered sales of equity securities and use of proceeds, and exhibits[4] PART I — FINANCIAL INFORMATION Item 1. Financial Statements – Unaudited 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 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 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 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] Consolidated Statements of Changes in Stockholders' Equity 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] - Dividends paid for the nine months ended September 30, 2022, totaled $31.496 million[20] Consolidated Statements of Cash Flows 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] - 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] Notes to Consolidated Financial Statements 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 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][28] 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] 2. Supplemental Statement of Cash Flows 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 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] - The Inflation Reduction Act of 2022 (IRA) imposes a 1% excise tax on stock repurchases made after December 31, 2022[40] 4. Securities 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] 5. LHI and ACL 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 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] 7. Derivative Financial Instruments 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] 8. Off-Balance Sheet Loan Commitments 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] 9. Stock-Based Awards 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] - 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] 10. Income Taxes 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] 11. Legal Contingencies 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] - 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] 12. Capital Requirements and Restrictions on Retained Earnings 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] - 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] 13. Business Combinations 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][146] 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][149] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - 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] Recent Developments 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] - Despite inflation and recession concerns, the economic conditions and growth prospects in the company's markets (Texas) generally remain robust and positive[161] - 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] Results of Operations for the Three Months Ended September 30, 2022 and 2021 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 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 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 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] Noninterest Income 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] - Customer swap income increased by $2.265 million, primarily due to higher transaction volumes[176] Noninterest Expense 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] - 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] Income Tax Expense 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 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 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 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 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] Noninterest Income 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] - 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] Noninterest Expense 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] - 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] Income Tax Expense 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] Financial Condition 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 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 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] - The company's loan portfolio internal ratings include "pass," "special mention," "substandard," and "doubtful" categories, reviewed monthly to reflect credit risk[73][216] Nonperforming Assets 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 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 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 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 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 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] - 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] Equity Method Investments 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] 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 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] 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 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 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] - As of September 30, 2022, the company held $433.9 million in cash and cash equivalents[242] Analysis of Cash Flows 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 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] - 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] Critical Accounting Policies 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] - No material changes to critical accounting policies have occurred since December 31, 2021, other than updates discussed in Note 1[256] Special Cautionary Notice Regarding Forward-Looking Statements 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] - 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][259] - The company undertakes no obligation to publicly revise any forward-looking statements, except as required by law[259] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] 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 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] - No material changes in the company's internal control over financial reporting occurred during the quarter ended September 30, 2022[268] PART II — OTHER INFORMATION Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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