☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01

VBTX

Nasdaq Global Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 7, 2023, there were 54,305,922 outstanding shares of the registrant’s common stock, par value $0.01 per share.

Consolidated Statements of Comprehensive Income (Unaudited)

						Three Months Ended June 30,												Six Months Ended June 30,
						2023						2022						2023						2022
NET INCOME						$	33,730					$	29,626					$	72,141					$	63,096
OTHER COMPREHENSIVE INCOME
Net unrealized gains (losses) on debt securities AFS:
Change in net unrealized loss on debt securities AFS during the period, net						(21,975)						(39,374)						(19,428)						(88,450)
Amortization (accretion) from transfer of debt securities from AFS to HTM						(165)						(151)						3,457						4,104
Reclassification adjustment for net losses included in net income						—						—						5,321						—
Net unrealized loss on debt securities AFS						(22,140)						(39,525)						(10,650)						(84,346)
Net unrealized loss on derivative instruments designated as cash flow hedges						(15,033)						(11,572)						(7,955)						(24,953)
Other comprehensive loss, before tax						(37,173)						(51,097)						(18,605)						(109,299)
Income tax expense						(8,494)						(10,699)						(4,821)						(23,813)
Other comprehensive loss, net of tax						(28,679)						(40,398)						(13,784)						(85,486)
COMPREHENSIVE INCOME (LOSS)						$	5,051					$	(10,772)					$	58,357					$	(22,390)

Consolidated Statements of Cash Flows (Unaudited)

						For the Six Months Ended June 30,
						2023						2022
Cash flows from operating activities:
Net income						$	72,141					$	63,096
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets and intangibles						10,041						9,381
Net amortization of time deposit premium, debt discount and debt issuance costs						478						492
Provision for credit losses and unfunded commitments						24,753						8,993
Accretion of loan discount						(1,897)						(2,811)
Stock-based compensation expense						6,054						5,962
Excess tax expense (benefit) from stock compensation						153						(1,075)
Net amortization of premiums on debt securities						1,718						2,016
Unrealized loss on equity securities recognized in earnings						31						869
Change in cash surrender value and mortality rates of BOLI						121						(903)
Loss on sales of debt securities						5,321						—
Change in fair value of government guaranteed loans using fair value option						(616)						209
Gain on sales of mortgage LHFS						(46)						(530)
Gain on sales of government guaranteed loans						(15,598)						(5,427)
Servicing asset (recoveries), net impairment						(862)						1,883
Originations of LHFS						(39,877)						(30,047)
Proceeds from sales of LHFS						34,273						44,115
Equity method investment loss (income)						1,036						(1,333)
Increase in other assets						(6,527)						(16,806)
Increase in accounts payable and other liabilities						7,620						21,157
Net cash provided by operating activities						98,317						99,241
Cash flows from investing activities:
Purchases of AFS debt securities						(189,668)						(432,678)
Proceeds from sales of AFS debt securities						109,793						—
Proceeds from maturities, calls and pay downs of AFS debt securities						197,634						54,530
Purchases of HTM debt securities						—						(11,642)
Maturity, calls and paydowns of HTM debt securities						2,107						1,518
Purchases of other investments						(16,475)						(16,290)
Proceeds from sales of equity securities						—						3,327
Net loans originated						(291,810)						(1,202,273)
Proceeds from sale of government guaranteed loans						79,812						32,041
Net additions (disposals) to premises and equipment						337						(2,026)
Net cash used in investing activities						(108,270)						(1,573,493)
Cash flows from financing activities:
Net increase in deposits						110,701						1,154,107
Net increase in advances from FHLB						150,000						221,080
Net change in securities sold under agreement to repurchase						—						(794)
Net proceeds on sale of common stock in public offering						—						153,869
Payments to tax authorities for stock-based compensation						(1,982)						(2,992)
Proceeds from exercise of employee stock options						765						619
Dividends paid						(21,687)						(20,705)
Net cash provided by financing activities						237,797						1,505,184
Net increase in cash and cash equivalents						227,844						30,932
Cash and cash equivalents at beginning of period						436,077						379,784
Cash and cash equivalents at end of period						$	663,921					$	410,716

Nature of Organization

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

Veritex is a Texas state banking organization, with corporate offices in Dallas, Texas, and currently operates 18 branches located in the Dallas-Fort Worth metroplex and 11 branches in the Houston metropolitan area. The Bank provides a full range of banking services, including commercial and retail lending and the acceptance of checking and savings deposits, to individual and corporate customers. The Texas Department of Banking and the Board of Governors of the Federal Reserve System (the “Federal Reserve”) are the primary regulators of the Company and the Bank, and both regulatory agencies perform periodic examinations to ensure regulatory compliance.

Basis of Presentation

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), but do not include all of the information and footnotes required for complete financial statements. Intercompany transactions and balances are eliminated in consolidation. In management’s opinion, these unaudited consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s consolidated balance sheets at June 30, 2023 and December 31, 2022, consolidated statements of income, consolidated changes in stockholders’ equity and consolidated statements of comprehensive income for the three and six months ended June 30, 2023 and 2022 and consolidated statements of cash flows for the six months ended June 30, 2023 and 2022.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown herein are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Quarterly Reports on Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2023.

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

Reclassifications

Certain items in the Company’s prior year financial statements were reclassified to conform to the current presentation.

EPS is based upon the weighted average shares outstanding. The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted EPS for the three and six months ended June 30, 2023 and 2022:

For the three months ended June 30, 2023, there were 31 antidilutive shares excluded from the diluted EPS weighted average shares outstanding, 18 relating to RSUs and 13 relating to stock options. For the six months ended June 30, 2023, there were 231 antidilutive shares excluded from the diluted EPS weighed average shares outstanding, 180 related to RSUs and 51 relating to stock options.

For the three months ended June 30, 2022, there were 290 antidilutive shares excluded from the diluted EPS weighted average shares outstanding 280 related to RSUs and ten related to stock options. For the six months ended June 30, 2022, there were 205 antidilutive shares excluded from the diluted EPS weighed average shares outstanding, 204 related to RSUs and 1 relating to stock options.

Recent Accounting Pronouncements

There were no accounting standards or updates issued during the second quarter of 2023.

Goodwill

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

During the second quarter of 2023, the Company observed a sustained decline in the market valuation of the Company’s common stock as a result of significant volatility in the banking industry with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. As a result, the Company performed an interim quantitative impairment test with a trigger date of May 31, 2023. The Company determined the fair value of its reporting unit using a combination of a market and an income approach. Upon completion of the quantitative evaluation, the Company determined that the fair value of the Company's reporting unit exceeded its related carrying value by approximately 26%, and therefore goodwill was not impaired. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

Other supplemental cash flow information is presented below:

1 Represents adjustments to provisional estimates recorded during the six months ended June 30, 2022 for the acquisition of North Avenue Capital, LLC (“NAC”).

The Company held equity securities with a fair value of $9,761 and $9,792 at June 30, 2023 and December 31, 2022, respectively. The Company did not realize a loss on equity securities with a readily determinable fair value during the six months ended June 30, 2023 or 2022, respectively. The gross unrealized loss recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s consolidated statements of income were as follows:

The Company held equity securities without a readily determinable fair values and measured at cost of $11,098 and $10,072 as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, we held no securities purchased under agreements to resell and we recognized no interest income during the six months ended June 30, 2023 on securities purchased under agreements to resell. As of June 30, 2022, we held securities purchased under agreements to resell of $99.0 million and we recognized interest income of $585 thousand during the six months ended June 30, 2022 on securities purchased under agreements to resell. Securities purchased under agreements to resell typically mature 30 days from the settlement date, qualify as a secured borrowing and are measured at amortized cost.

Debt securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, ACL and the fair value of AFS and HTM debt securities are as follows:

Mortgage-backed securities (“MBS”) are commercial MBS, secured by commercial properties, and residential MBS, generally secured by single-family residential properties. All mortgage-backed securities included in the table above were issued by U.S. government agencies or corporations.

The Company elected to transfer 25 AFS debt securities with an aggregate fair value of $117,001 to a classification of HTM debt securities on January 1, 2022. In accordance with FASB ASC 320-10-35-10, the transfer from AFS to HTM must be recorded at the fair value of the AFS debt securities at the time of transfer. The net unrealized holding gain retained in AOCI for securities transferred from AFS to HTM was $3,457 and $3,790 at June 30, 2023 and December 31, 2022, respectively.

The following tables disclose the Company’s AFS debt securities in an unrealized loss position, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position:

Management evaluates AFS debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

The number of AFS debt securities in an unrealized loss position totaled 148 and 175 at June 30, 2023 and December 31, 2022, respectively. Management does not have the intent to sell any of these debt securities and believes that it is more likely than not that the Company will not have to sell any such debt securities before a recovery of cost. The fair value is expected to recover as the debt securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of June 30, 2023, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company’s consolidated statements of income.

The following table presents the activity in the allowance for credit losses for AFS debt securities:

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

Proceeds from sales of debt securities AFS and gross gains and losses for the six months ended June 30, 2023 and 2022 were as follows:

						Six Months Ended June 30,
						2023						2022
Proceeds from sales (1)						$	109,793					$	—
Gross realized losses (1)						5,321						—

(1) There were no proceeds from sales or gross realized losses for the three months ended June 30, 2023.

As of June 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders' equity. There was a blanket floating lien on all debt securities held by the Company to secure FHLB advances as of June 30, 2023 and December 31, 2022.

LHI in the accompanying consolidated balance sheets are summarized as follows:

			June 30, 2023						December 31, 2022
LHI, carried at amortized cost:
Real estate:
Construction and land			$	1,659,700					$	1,787,400
Farmland			51,663						43,500
1 - 4 family residential			923,442						894,456
Multi-family residential			592,473						322,679
Owner occupied commercial real estate (“OOCRE”)			671,602						715,829
Non-owner occupied commercial real estate (“NOOCRE”)			2,509,731						2,341,379
Commercial			2,850,084						2,942,348
MW			436,255						446,227
Consumer			11,189						7,806
			9,706,139						9,501,624
Deferred loan fees, net			(12,701)						(18,973)
ACL			(102,150)						(91,052)
Total LHI, net			9,591,288						9,391,599

Included in the total LHI, net, as of June 30, 2023 and December 31, 2022 was an accretable discount related to purchased performing and purchased credit deteriorated (“PCD”) loans acquired in the approximate amounts of $6,798 and $8,260, respectively. The discount is being accreted into income on a level-yield basis over the life of the loans. In addition, included in the net loan portfolio as of June 30, 2023 and December 31, 2022 is a discount on retained loans from sale of originated U.S. Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) loans of $7,602 and $5,238, respectively. During the year ended December 31, 2022, the Company purchased $223,924 in pooled residential real estate loans at a net discount, with a remaining balance of $167,847 as of June 30, 2023. The remaining net purchase discount of $3,683 and $4,135 is included in the total LHI, net, as of June 30, 2023 and December 31, 2022, respectively. No additional pooled residential real estate loans were purchased during the six months ended June 30, 2023.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The activity in the ACL related to LHI is as follows: