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CST: 16/11/2019 17:43:42   

Veritex Holdings, Inc. Reports Third Quarter Operating Results

26 Days ago

DALLAS, Oct. 21, 2019 (GLOBE NEWSWIRE) -- Veritex Holdings, Inc. (“Veritex” or the “Company”) (Nasdaq: VBTX), the holding company for Veritex Community Bank, today announced the results for the quarter ended September 30, 2019. The Company reported net income of $27.4 million, or $0.51 diluted earnings per share (“EPS”), compared to $26.9 million, or $0.49 diluted EPS, for the quarter ended June 30, 2019 and $8.9 million, or $0.36 diluted EPS, for the quarter ended September 30, 2018. Operating net income totaled $28.6 million, or $0.53 diluted operating EPS1, compared to $32.2 million, or $0.59 diluted operating EPS1, for the quarter ended June 30, 2019 and $10.4 million, or $0.42 diluted operating EPS1, for the quarter ended September 30, 2018.

C. Malcolm Holland, III, the Company’s Chairman and Chief Executive Officer said: “I am excited about the 3rd quarter and year-to-date financial results of Veritex. The quarterly earnings power of the Company has been consistent throughout the year. These results have been accomplished while integrating and converting Green Bank and now much of the execution risk is behind us. We are focused on rebuilding our growth momentum, maintaining our asset quality and returning our excess capital to our shareholders.”


Third Quarter 2019 Highlights:

• Diluted EPS was $0.51 and diluted operating EPS1 was $0.53 for the third quarter of 2019, resulting in a 26.2% increase in diluted operating EPS compared to the third quarter of 2018;

• Book value per common share was $23.02 and tangible book value per common share1 was $14.61 for the third quarter of 2019, reflecting operating net income, merger expenses, dividends and share repurchase activity;

• Return on average assets was 1.36%, operating return on average assets1 was 1.42% and pre-tax, pre-provision operating return on average assets1 was 2.26% for the third quarter of 2019;

• Efficiency ratio was 43.67% and operating efficiency ratio1 was 42.36% for the third quarter of 2019, reflecting three consecutive quarters of operating efficiency ratio1 below 44%;

• Increased and extended previously announced stock buyback program.  In the third quarter of 2019, Veritex repurchased 1,177,241 shares of its outstanding common stock under its stock buyback program for an aggregate of $29.0 million resulting in an aggregate of 2,349,103 shares as of September 30, 2019;

• Declared quarterly cash dividend of $0.125 payable on November 21, 2019; and

• Received American Banker’s “Best Banks to Work For” for the sixth consecutive year.

Summary of Financial Data

    QTD   YTD
    Q3 2019   Q2 2019   Q3 2019   Q3 2018
    (Dollars in thousands)
GAAP                
Net income   $ 27,405     $ 26,876     $ 61,688     $ 29,516  
Diluted EPS   0.51     0.49     1.13     1.20  
Return on average assets2   1.36 %   1.36 %   1.04 %   1.28 %
Efficiency ratio   43.67     51.49     59.42     55.15  
Book value per common share   $ 23.02     $ 22.55     $ 23.02     $ 21.38  
Non-GAAP1                
Operating net income   $ 28,629     $ 32,234     $ 93,542     $ 33,794  
Diluted operating EPS   0.53     0.59     1.71     1.37  
Pre-tax, pre-provision operating return on average assets   2.26 %   2.22 %   2.30 %   2.05 %
Operating return on average assets2   1.42     1.63     1.58     1.46  
Operating efficiency ratio   42.36     43.66     43.19     49.45  
Return on average tangible common equity2   15.15     15.26     11.93     12.36  
Operating return on average tangible common equity2   15.78     18.09     17.57     14.09  
Tangible book value per common share   $ 14.61     $ 14.27     $ 14.61     $ 14.27  

1 Refer to the section titled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures.
2 Annualized ratio.


Results of Operations for the Three Months Ended September 30, 2019

Net Interest Income

For the three months ended September 30, 2019, net interest income before provision for loan losses was $70.9 million and net interest margin was 3.90% compared to $71.4 million and 4.00%, respectively, for the three months ended June 30, 2019. The $568 thousand decrease in net interest income was primarily due to a $1.0 million decrease in interest income on loans and a $894 thousand increase in interest expense on advances from the Federal Home Loan Bank (“FHLB”), and was partially offset by a $1.0 million decrease in interest expense on transaction and savings deposits. Net interest margin decreased 10 basis points from the three months ended June 30, 2019 primarily due to a decrease in yields earned on loan balances and an increase in the average rates paid on certificate and other time deposits, partially offset by a decrease in the average rate paid on interest-bearing demand and savings deposits during the three months ended September 30, 2019. As a result, the average cost of interest-bearing deposits was unchanged at 1.79% for the three months ended September 30, 2019 and June 30, 2019.

Net interest income before provision for loan losses increased by $41.6 million from $29.3 million to $70.9 million and net interest margin decreased by 9 basis points from 3.99% to 3.90% for the three months ended September 30, 2019 as compared to the same period in 2018. The increase in net interest income before provision for loan losses was primarily driven by higher loan balances and interest income resulting from loans acquired from Green Bancorp, Inc. (“Green”) and organic loan growth during the three months ended September 30, 2019 compared to the three months ended September 30, 2018. For the three months ended September 30, 2019, average loan balance increased by $3.3 billion compared to the three months ended September 30, 2018, which contributed to a $57.7 million increase in interest income. This was partially offset by an increase in the average rate paid on interest-bearing liabilities, which resulted in a $12.9 million increase in interest on deposit accounts. Net interest margin decreased 9 basis points from the three months ended September 30, 2018 primarily due to an increase in the average rate paid on interest-bearing liabilities for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. As a result, the average cost of interest-bearing deposits increased to 1.79% for the three months ended September 30, 2019 from 1.59% for the three months ended September 30, 2018.


Noninterest Income

Noninterest income for the three months ended September 30, 2019 was $8.4 million, an increase of $2.4 million, or 39.7%, compared to the three months ended June 30, 2019. The increase was primarily due to a $594 thousand increase in derivative income and a $245 thousand increase in service charges and fees on deposit accounts earned during the three months ended September 30, 2019. Further, the increase was due to a $642 thousand loss on sales of investment securities as a result of the Company’s repositioning strategy and a $434 thousand decrease in the value of investments in community development-oriented private equity funds used for Community Reinvestment Act purposes recorded for the three months ended June 30, 2019 with no corresponding loss or decrease in value for the three months ended September 30, 2019.

Compared to the three months ended September 30, 2018, noninterest income for the three months ended September 30, 2019 grew by $6.0 million, or 250.1%. The increase was primarily due to a $2.9 million increase in service charges and fees on acquired deposit accounts resulting from our acquisition of Green deposit accounts and the associated income from these accounts, a $1.8 million increase in loan fees, a $723 thousand increase in the gain on sale of Small Business Administration loans and a $578 thousand increase in derivative income earned during the three months ended September 30, 2019.


Noninterest Expense

Noninterest expense was $34.6 million for the three months ended September 30, 2019, compared to $39.9 million for the three months ended June 30, 2019, a decrease of $5.3 million, or 13.2%. The decrease was primarily driven by a $4.8 million decrease in merger and acquisition expenses related to our acquisition of Green, which were recorded in the second quarter of 2019. Merger and acquisition expenses recognized during the three months ended September 30, 2019 were primarily related to continued data processing expenses as a result of our system conversion, which was completed in the second quarter of 2019, conversion of our mobile banking platform and severance payments following our acquisition of Green.

Compared to the three months ended September 30, 2018, noninterest expense for the three months ended September 30, 2019 increased by $16.4 million, or 89.8%. The increase was primarily driven by a $10.1 million increase in salaries and employee benefits due to the addition of new Green employees, and a $1.9 million, $1.6 million, $1.2 million and  $857 thousand increase in amortization of intangibles, data processing and software expenses, occupancy and equipment expenses and professional fees, respectively, related to our acquisition of Green.


Financial Condition

Total loans were $5.9 billion at September 30, 2019, a decrease of $41.1 million, or 0.7%, compared to June 30, 2019 due to normal loan activity and paydowns.

Total deposits were $5.9 billion at September 30, 2019, a decrease of $287.2 million, or 4.7%, compared to June 30, 2019. The decrease was primarily the result of a decrease of $165.8 million in certificates and other time deposits, and decreases of $117.9 million and $3.5 million in interest-bearing accounts and noninterest-bearing demand deposits, respectively, due to normal course of business.


Asset Quality

Allowance for loan losses as a percentage of loans held for investment, including mortgage warehouse, was 0.45%, 0.42% and 0.73% of total loans at September 30, 2019, June 30, 2019 and September 30, 2018, respectively. The allowance for loan losses as a percentage of total loans for each of the three quarters was determined by evaluating the qualitative factors around the nature, volume and mix of the loan portfolio. The increase in the allowance for loan losses as a percentage of loans held for investment from June 30, 2019 was primarily attributable to the general provision required from an increase of loans acquired from Green that were re-underwritten in the third quarter of 2019. Once an acquired loan undergoes new underwriting and meets the criteria for a new loan, any remaining fair value adjustments become interest income and the loan becomes fully subject to our allowance for loan loss methodology. The decrease in the allowance for loan losses as a percentage of loans held for investment from September 30, 2018 was attributable to our acquisition of Green, as acquired loans are recorded at fair value. Our allowance for loan losses and remaining purchase discount on acquired loans as a percentage of loans held for investment, including mortgage warehouse, was 1.44%, 1.77% and 1.28% of total loans at September 30, 2019, June 30, 2019 and September 30, 2018, respectively.

We recorded a provision for loan losses for the three months ended September 30, 2019 of $9.7 million compared to $3.3 million and $3.1 million for the three months ended June 30, 2019 and September 30, 2018, respectively. The increase in the recorded provision for loan losses for the three months ended September 30, 2019 was primarily attributable to a $6.1 million charge-off related to a commercial loan relationship acquired from Sovereign Bancshares, Inc. in 2017. The acquired commercial loan relationship consists of a $7.8 million loan to an independent oil and gas exploration company that filed for bankruptcy protection in 2018 and recently entered into a sales process pursuant to Section 363 of the Bankruptcy Code. Additionally, the increase in the recorded provision for loan losses for the three months ended September 30, 2019 was caused by a $937 thousand increase in specific reserves on certain non-performing loans and an increase in acquired loans that were re-underwritten (as discussed above) during the three months ended September 30, 2019.

Nonperforming assets totaled $17.0 million, or 0.21%, of total assets at September 30, 2019 compared to $43.3 million, or 0.54%, of total assets at June 30, 2019 and $26.1 million, or 0.80%, of total assets at September 30, 2018. The decrease of $26.3 million compared to June 30, 2019 was driven by a $11.9 million and $11.7 million decrease in originated accruing loans 90 days or more past due and acquired accruing loans 90 days or more past due, respectively, as well as $5.9 million decrease in acquired nonaccrual loans primarily driven by the $6.1 million charge-off discussed above. This decrease was partially offset by a $2.9 million increase in other real estate owned. For the quarter ended September 30, 2019, no purchased credit impaired loans were on non-accrual status.


Dividend Information

On October 21, 2019, Veritex’s Board of Directors declared a quarterly cash dividend of $0.125 per share on its outstanding shares of common stock. The dividend will be paid on or after November 21, 2019 to stockholders of record as of the close of business on November 7, 2019.


Non-GAAP Financial Measures

Veritex’s management uses certain non-GAAP (generally accepted accounting principles) financial measures to evaluate its operating performance and provide information that is important to investors. However, non-GAAP financial measures are supplemental and should be viewed in addition to, and not as an alternative for, Veritex’s reported results prepared in accordance with GAAP. Specifically, Veritex reviews and reports tangible book value, tangible book value per common share, operating net income, tangible common equity to tangible assets, return on average tangible common equity, pre-tax, pre-provision operating earnings, pre-tax, pre-provision operating return on average assets, diluted operating earnings per share, operating return on average assets, operating return on average tangible common equity and operating efficiency ratio. Veritex has included in this earnings release information related to these non-GAAP financial measures for the applicable periods presented. Please refer to “Reconciliation of Non-GAAP Financial Measures” after the financial highlights at the end of this earnings release for a reconciliation of these non-GAAP financial measures.

Business Combinations Measurement Period

The measurement period for the Company to determine the fair values of acquired identifiable assets and assumed liabilities for Green will end at the earlier of (i) twelve months from the date of the acquisition or (ii) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Provisional estimates have been recorded for the Green acquisition as independent valuations have not been finalized. The Company does not expect any significant differences from estimated values upon completion of the valuations.

Conference Call

The Company will host an investor conference call to review the results on Tuesday, October 22, 2019 at 8:30 a.m. Central Time. Participants may pre-register for the call by visiting https://edge.media-server.com/mmc/p/9ewhfxdv and will receive a unique PIN, which can be used when dialing in for the call. This will allow attendees to enter the call immediately. Alternatively, participants may call toll-free at (877) 703-9880.

The call and corresponding presentation slides will be webcast live on the home page of the Company's website, https://veritexholdingsinc.gcs-web.com. An audio replay will be available one hour after the conclusion of the call at (855) 859-2056, Conference #3966936. This replay, as well as the webcast, will be available until October 29, 2019.

About Veritex Holdings, Inc.

Headquartered in Dallas, Texas, Veritex is a bank holding company that conducts banking activities through its wholly owned subsidiary, Veritex Community Bank, with locations throughout the Dallas-Fort Worth metroplex and in the Houston metropolitan area. Veritex Community Bank is a Texas state chartered bank regulated by the Texas Department of Banking and the Board of Governors of the Federal Reserve System. For more information, visit www.veritexbank.com.


Media Contact:
LaVonda Renfro
972-349-6200

Investor Relations:
Susan Caudle
972-349-6132

Forward-Looking Statements

This earnings release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on various facts and derived utilizing assumptions, current expectations, estimates and projections and are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Forward-looking statements include, without limitation, statements relating to the impact Veritex expects its acquisition of Green to have on its operations, financial condition and financial results and Veritex’s expectations about its ability to successfully integrate the combined businesses of Veritex and Green and the amount of cost savings and overall operational efficiencies Veritex expects to realize as a result of the acquisition of Green.  The forward-looking statements in this earnings release also include statements about the expected payment date of Veritex’s quarterly cash dividend, Veritex’s future financial performance, business and growth strategy, projected plans and objectives, as well as other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact broader economic and industry trends, and any such variations may be material.  Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing words.  Further, certain factors that could affect future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to, the possibility that the businesses of Veritex and Green will not be integrated successfully, that the cost savings and any synergies from the acquisition may not be fully realized or may take longer to realize than expected, disruption from the acquisition making it more difficult to maintain relationships with employees, customers or other parties with whom Veritex has (or Green had) business relationships, diversion of management time on integration-related issues, the reaction to the acquisition by Veritex’s and Green’s customers, employees and counterparties and other factors, many of which are beyond the control of Veritex.  We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Veritex’s Annual Report on Form 10-K for the year ended December 31, 2018 and any updates to those risk factors set forth in Veritex’s Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at www.sec.gov.  If one or more events related to these or other risks or uncertainties materialize, or if Veritex’s underlying assumptions prove to be incorrect, actual results may differ materially from what Veritex anticipates.  Accordingly, you should not place undue reliance on any such forward-looking statements.  Any forward-looking statement speaks only as of the date on which it is made.  Veritex does not undertake any obligation, and specifically declines any obligation, to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. All forward-looking statements, expressed or implied, included in this earnings release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Veritex or persons acting on Veritex’s behalf may issue.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(Unaudited)

    For the Three Months Ended   Nine Months Ended
    Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sep 30,
2018
  Sep 30,
2019
  Sep 30,
2018
    (Dollars and shares in thousands)        
Per Share Data (Common Stock):                            
Basic EPS   $ 0.52     $ 0.50     $ 0.14     $ 0.41     $ 0.37     $ 1.15     $ 1.22  
Diluted EPS   0.51     0.49     0.13     0.40     0.36     1.13     1.20  
Book value per common share   23.02     22.55     21.88     21.88     21.38     23.02     21.38  
Tangible book value per common share1   14.61     14.27     13.76     14.74     14.21     14.61     14.21  
                             
Common Stock Data:                            
Shares outstanding at period end   52,373     53,457     54,236     24,254     24,192     52,373     24,192  
Weighted average basic shares outstanding for the period   52,915     53,969     54,293     24,224     24,176     53,721     24,151  
Weighted average diluted shares outstanding for the period   53,873     54,929     55,439     24,532     24,613     54,633     24,587  
                             
Summary Performance Ratios:                            
Return on average assets2   1.36 %   1.36 %   0.38 %   1.20 %   1.10 %   1.04 %   1.28 %
Return on average equity2   8.98     8.98     2.52     7.44     6.88     6.88     7.83  
Return on average tangible common equity1, 2   15.15     15.26     5.09     11.52     10.79     11.93     12.36  
Efficiency ratio   43.67     51.49     82.30     54.27     57.58     59.42     55.15  
                             
Selected Performance Metrics - Operating:                            
Diluted operating EPS1   0.53     0.59     0.59     0.47     0.42     1.71     1.37  
Pre-tax, pre-provision operating return on average assets1, 2   2.26     2.22     2.40     1.95     1.98     2.30     2.05  
Operating return on average assets1, 2   1.42 %   1.63 %   1.69 %   1.40 %   1.28 %   1.58 %   1.46 %
Operating return on average tangible common equity1, 2   15.78     18.09     18.81     13.37     12.49     17.57     14.09  
Operating efficiency ratio1   42.36     43.66     43.54     50.65     49.09     43.19     49.45  
                             
Veritex Holdings, Inc. Capital Ratios:                            
Average stockholders' equity to average total assets   15.11 %   15.13 %   15.18 %   16.14 %   15.92 %   15.13 %   16.29 %
Tier 1 capital to average assets (leverage)   10.33     10.47     10.57     12.04     11.74     10.35     11.74  
Common equity tier 1 capital   10.82     11.32     11.07     11.80     12.02     10.83     12.02  
Tier 1 capital to risk-weighted assets   11.26     11.77     11.50     12.18     12.43     11.28     12.43  
Total capital to risk-weighted assets   12.26     12.80     12.45     12.98     13.22     12.28     13.22  
Tangible common equity to tangible assets1   10.17     10.08     10.02     11.78     11.08     10.17     11.08  
                             
Veritex Bank Capital Ratios:                            
Tier 1 capital to average assets (leverage)   10.64 %   10.80 %   10.65 %   10.87 %   10.53 %   10.65 %   10.53 %
Common equity tier 1 capital   11.61 %   12.16 %   11.61 %   11.01 %   11.13 %   11.63 %   11.13 %
Tier 1 capital to risk-weighted assets   11.61 %   12.16 %   11.61 %   11.01 %   11.13 %   11.63 %   11.13 %
Total capital to risk-weighted assets   12.00 %   12.54 %   11.93 %   11.64 %   11.75 %   12.02 %   11.75 %

1Refer to the section titled “Reconciliation of Non-GAAP Financial Measures” after the financial highlights for a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures.
2Annualized ratio.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands)

    Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Sep 30, 2018
    (unaudited)   (unaudited)   (unaudited)       (unaudited)
ASSETS                    
Cash and cash equivalents   $ 252,592     $ 265,822     $ 339,473     $ 84,449     $ 261,790  
Securities   1,023,393     1,020,279     950,671     262,695     256,237  
Other investments   89,795     81,088     75,920     23,174     27,769  
                     
Loans held for sale   10,715     7,524     8,002     1,258     1,425  
Loans held for investment, mortgage warehouse   233,577     200,017     114,158          
Loans held for investment   5,654,027     5,731,833     5,663,721     2,555,494     2,444,499  
Total loans   5,898,319     5,939,374     5,785,881     2,556,752     2,445,924  
Allowance for loan losses   (26,243 )   (24,712 )   (21,603 )   (19,255 )   (17,909 )
Bank-owned life insurance   80,411     79,899     79,397     22,064     21,915  
Bank premises, furniture and equipment, net   118,449     115,373     119,354     78,409     77,346  
Other real estate owned   4,625     1,748     151          
Intangible assets, net   75,363     78,347     81,245     15,896     16,603  
Goodwill   370,463     370,221     368,268     161,447     161,447  
Other assets   75,716     82,667     69,474     22,919     24,724  
Branch assets held for sale           83,516          
Total assets   $ 7,962,883     $ 8,010,106     $ 7,931,747     $ 3,208,550     $ 3,275,846  
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Deposits:                    
Noninterest-bearing   $ 1,473,126     $ 1,476,668     $ 1,439,630     $ 626,283     $ 661,754  
Interest-bearing   2,528,293     2,646,154     2,617,117     1,313,161     1,346,264  
Certificates and other time deposits   1,876,427     2,042,266     2,240,968     682,984     648,236  
Total deposits   5,877,846     6,165,088     6,297,715     2,622,428     2,656,254  
Accounts payable and accrued expenses   45,475     44,414     42,621     5,413     6,875  
Accrued interest payable and other liabilities   6,054     7,069     6,846     5,361     5,759  
Advances from FHLB   752,907     512,945     252,982     28,019     73,055  
Subordinated debentures and subordinated notes   72,284     72,486     72,719     16,691     16,691  
Securities sold under agreements to repurchase   2,787     2,811     2,778          
Branch liabilities held for sale           62,381          
Total liabilities   6,757,353     6,804,813     6,738,042     2,677,912     2,758,634  
Commitments and contingencies                    
Stockholders’ equity:                    
Common stock   524     535     546     243     242  
Additional paid-in capital   1,114,659     1,112,238     1,109,386     449,427     448,117  
Retained earnings   125,344     104,652     84,559     83,968     74,143  
Unallocated Employee Stock Ownership Plan shares                   (106 )
Accumulated other comprehensive income (loss)   23,837     17,741     7,016     (2,930 )   (5,114 )
Treasury stock   (58,834 )   (29,873 )   (7,802 )   (70 )   (70 )
Total stockholders’ equity   1,205,530     1,205,293     1,193,705     530,638     517,212  
Total liabilities and stockholders’ equity   $ 7,962,883     $ 8,010,106     $ 7,931,747     $ 3,208,550     $ 3,275,846  


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands, except per share data)

    For the Three Months Ended   For the Nine Months
Ended
    Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sep 30,
2018
  Sep 30,
2019
  Sep 30,
2018
Interest income:                            
Loans, including fees   $ 85,811     $ 86,786     $ 85,747     $ 35,028     $ 35,074     $ 258,344     $ 99,432  
Securities   7,687     7,397     7,232     1,908     1,722     22,316     4,697  
Deposits in financial institutions and Fed Funds sold   1,329     1,372     1,554     833     1,016     4,255     2,316  
Other investments   816     622     691     413     108     2,129     442  
Total interest income   95,643     96,177     95,224     38,182     37,920     287,044     106,887  
Interest expense:                            
Transaction and savings deposits   10,381     11,405     10,366     5,412     4,694     32,152     12,187  
Certificates and other time deposits   10,283     10,145     8,792     3,394     3,068     29,220     6,320  
Advances from FHLB   3,081     2,187     2,055     377     630     7,323     1,324  
Subordinated debentures and subordinated notes   1,024     998     1,094     304     250     3,116     727  
Total interest expense   24,769     24,735     22,307     9,487     8,642     71,811     20,558  
Net interest income   70,874     71,442     72,917     28,695     29,278     215,233     86,329  
Provision for loan losses   9,674     3,335     5,012     1,364     3,057     18,021     5,239  
Net interest income after provision for loan losses   61,200     68,107     67,905     27,331     26,221     197,212     81,090  
Noninterest income:                            
Service charges and fees on deposit accounts   3,667     3,422     3,517     832     809     10,606     2,588  
Loan fees   2,252     1,932     1,677     387     410     5,861     945  
Loss on sales of investment securities       (642 )   (772 )   (42 )   (34 )   (1,414 )   (22 )
Gain on sales of loans   853     1,104     2,370     1,789     270     4,327     1,267  
Rental income   369     373     368     310     414     1,110     1,343  
Other   1,289     (155 )   1,324     343     539     2,458     1,335  
Total noninterest income   8,430     6,034     8,484     3,619     2,408     22,948     7,456  
Noninterest expense:                            
Salaries and employee benefits   17,530     17,459     18,885     8,278     7,394     53,874     22,981  
Occupancy and equipment   4,044     4,014     4,129     2,412     2,890     12,187     8,267  
Professional and regulatory fees   2,750     2,814     3,418     1,889     1,893     8,982     5,525  
Data processing and software expense   2,252     2,309     1,924     888     697     6,485     2,214  
Marketing   708     961     619     570     306     2,288     1,213  
Amortization of intangibles   2,712     2,719     2,760     835     798     8,191     2,632  
Telephone and communications   361     625     395     223     236     1,381     1,076  
Merger and acquisition expense   1,035     5,790     31,217     1,150     2,692     38,042     4,070  
Other   3,238     3,205     3,646     1,293     1,340     10,089     3,743  
Total noninterest expense   34,630     39,896     66,993     17,538     18,246     141,519     51,721  
Net income from operations   35,000     34,245     9,396     13,412     10,383     78,641     36,825  
Income tax expense   7,595     7,369     1,989     3,587     1,448     16,953     7,309  
Net income   $ 27,405     $ 26,876     $ 7,407     $ 9,825     $ 8,935     $ 61,688     $ 29,516  
                             
Basic EPS   $ 0.52     $ 0.50     $ 0.14     $ 0.41     $ 0.37     $ 1.15     $ 1.22  
Diluted EPS   $ 0.51     $ 0.49     $ 0.13     $ 0.40     $ 0.36     $ 1.13     $ 1.20  
Weighted average basic shares outstanding   52,915     53,969     54,293     24,224     24,176     53,721     24,151  
Weighted average diluted shares outstanding   53,873     54,929     55,439     24,532     24,613     54,633     24,587  



VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

    For the Three Months Ended
    September 30, 2019   June 30, 2019   September 30, 2018
    Average
Outstanding
Balance
  Interest
Earned/
Interest
Paid
  Average
Yield/
Rate
  Average
Outstanding
Balance
  Interest
Earned/
Interest
Paid
  Average
Yield/
Rate
  Average
Outstanding
Balance
  Interest
Earned/
Interest
Paid
  Average
Yield/
Rate
Assets                                    
Interest-earning assets:                                    
Loans1   $ 5,702,696     $ 84,022     5.85 %   $ 5,762,257     $ 85,030     5.92 %   $ 2,432,095     $ 35,074     5.72 %
Loans held for investment, mortgage warehouse   182,793     1,789     3.88     154,586     1,756     4.56              
Securities   1,022,289     7,687     2.98     956,160     7,397     3.10     254,242     1,722     2.69  
Interest-bearing deposits in other banks   234,087     1,329     2.25     228,461     1,372     2.41     203,750     1,016     1.98  
Other investments2   71,901     816     4.50     59,508     622     4.19     20,044     108     2.14  
Total interest-earning assets   7,213,766     95,643     5.26     7,160,972     96,177     5.39     2,910,131     37,920     5.17  
Allowance for loan losses   (22,539 )           (23,891 )           (16,160 )        
Noninterest-earning assets   818,150             800,238             331,826          
Total assets   $ 8,009,377             $ 7,937,319             $ 3,225,797          
                                     
Liabilities and Stockholders’ Equity                                    
Interest-bearing liabilities:                                    
Interest-bearing demand and savings deposits   $ 2,621,701     $ 10,381     1.57 %   $ 2,713,735     $ 11,405     1.69 %   $ 1,278,797     $ 4,694     1.46 %
Certificates and other time deposits   1,953,084     10,283     2.09     2,107,567     10,145     1.93     655,035     3,068     1.86  
Advances from FHLB   632,754     3,081     1.93     334,926     2,187     2.62     120,114     630     2.08  
Subordinated debentures and subordinated notes   74,869     1,024     5.43     75,252     998     5.32     16,690     250     5.94  
Total interest-bearing liabilities   5,282,408     24,769     1.86     5,231,480     24,735     1.90     2,070,636     8,642     1.66  
                                     
Noninterest-bearing liabilities:                                    
Noninterest-bearing deposits   1,467,127             1,456,538             635,952          
Other liabilities   49,695             48,669             11,750          
Total liabilities   6,799,230             6,736,687             2,718,338          
Stockholders’ equity   1,210,147             1,200,632             514,876          
Total liabilities and stockholders’ equity   $ 8,009,377             $ 7,937,319             $ 3,233,214          
                                     
Net interest rate spread3           3.40 %           3.49 %           3.51 %
Net interest income       $ 70,874             $ 71,442             $ 29,278      
Net interest margin4           3.90 %           4.00 %           3.99 %

1 Includes average outstanding balances of loans held for sale of $8,525, $8,140 and $1,091 for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 The Company historically reported dividend income in other noninterest income and has re-classed $102 of dividend income into other investments as of September 30, 2018 in order to align with industry peers for comparability purposes.
3 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
4 Net interest margin is equal to net interest income divided by average interest-earning assets.

VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

    For the Nine Months Ended
 
  September 30, 2019   September 30, 2018
 
  Average
Outstanding
Balance
  Interest
Earned/
Interest
Paid
  Average
Yield/
Rate
  Average
Outstanding
Balance
  Interest
Earned/
Interest
Paid
  Average
Yield/
Rate
Assets                        
Interest-earning assets:                        
Loans1   $ 5,731,902     $ 253,247     5.91 %   $ 2,342,797     $ 99,432     5.67 %
Loans held for investment, mortgage warehouse   152,617     5,097     4.47              
Securities   968,616     22,316     3.08     241,764     4,697     2.60  
Interest-bearing deposits in other banks   242,119     4,255     2.40     168,329     2,316     1.84  
Other investments2   56,438     2,129     5.04     16,390     442     3.61  
Total interest-earning assets   7,151,692     287,044     5.37     2,769,280     106,887     5.16  
Allowance for loan losses   (22,173 )           (14,309 )        
Noninterest-earning assets   799,509             340,136          
Total assets   $ 7,929,028             $ 3,095,107          
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing demand and savings deposits   $ 2,657,195     $ 32,152     1.62 %   $ 1,256,726     $ 12,187     1.30 %
Certificates and other time deposits   2,067,032     29,220     1.89     591,953     6,320     1.43  
Advances from FHLB   427,306     7,323     2.29     99,138     1,324     1.79  
Subordinated debentures and subordinated notes   75,298     3,116     5.53     16,768     727     5.80  
Total interest-bearing liabilities   5,226,831     71,811     1.84     1,964,585     20,558     1.40  
                         
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits   1,459,904             614,107          
Other liabilities   42,853             12,310          
Total liabilities   6,729,588             2,591,002          
Stockholders’ equity   1,199,440             504,105          
Total liabilities and stockholders’ equity   $ 7,929,028             $ 3,095,107          
                         
Net interest rate spread3           3.53 %           3.76 %
Net interest income       $ 215,233             $ 86,329      
Net interest margin4           4.02 %           4.17 %

1 Includes average outstanding balances of loans held for sale of $8,127 and $1,258 for the nine months ended September 30, 2019 and September 30, 2018, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 The Company historically reported dividend income in other noninterest income and has re-classed $427 of dividend income into other investments as of September 30, 2018 in order to align with industry peers for comparability purposes.
3 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
4 Net interest margin is equal to net interest income divided by average interest-earning assets.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights

Yield Trend

    For the Three Months Ended
    September 30,
 2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
 2018
Average yield on interest-earning assets:                    
Loans1   5.85 %   5.92 %   5.96 %   5.55 %   5.72 %
Loans held for investment, mortgage warehouse   3.88     4.56     5.26          
Securities   2.98     3.10     3.17     2.88     2.69  
Interest-bearing deposits in other banks   2.25     2.41     2.39     2.41     1.98  
Other investments   4.50     4.19     4.92     6.36     2.14  
Total interest-earning assets   5.26 %   5.39 %   5.44 %   5.17 %   5.17 %
                     
Average rate on interest-bearing liabilities:                    
Interest-bearing demand and savings deposits   1.57 %   1.69 %   1.64 %   1.60 %   1.46 %
Certificates and other time deposits   2.09     1.93     1.59     2.05     1.86  
Advances from FHLB   1.93     2.62     2.68     2.85     2.08  
Subordinated debentures and subordinated notes   5.43     5.32     5.85     7.23     5.94  
Total interest-bearing liabilities   1.86 %   1.90 %   1.74 %   1.82 %   1.66 %
                     
Net interest rate spread2   3.40 %   3.49 %   3.70 %   3.35 %   3.51 %
Net interest margin3   3.90 %   4.00 %   4.17 %   3.89 %   3.99 %

  1Includes average outstanding balances of loans held for sale of $8,525, $8,140, $7,709, $1,019 and $1,091 for the three months ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
  2 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
  3 Net interest margin is equal to net interest income divided by average interest-earning assets.

Supplemental Yield Trend

    For the Three Months Ended
    September 30,
 2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
 2018
Average cost of interest-bearing deposits   1.79 %   1.79 %   1.62 %   1.75 %   1.59 %
Average costs of total deposits, including noninterest-bearing   1.36     1.38     1.25     1.32     1.20  


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

Loans Held for Investment (“LHI”) and Deposit Portfolio Composition

    September 30,
 2019

  June 30,
2019

  March 31,
2019

  December 31,
2018

  September 30,
 2018

    (Dollars in thousands)
Loans Held for Investment2                                        
Originated Loans                                        
Commercial   $ 1,027,433     33.4 %   $ 878,970     32.2 %   $ 836,792     33.3 %   $ 697,906     33.0 %   $ 646,978     33.3 %
Real Estate:                                        
Owner occupied commercial   253,043     8.2     229,243     8.4     215,088     8.6     188,847     8.9     179,422     9.2  
Commercial   877,669     28.5     800,506     29.3     752,628     30.0     636,200     30.0     592,959     30.5  
Construction and land   490,389     15.9     405,323     14.8     364,812     14.5     303,315     14.3     254,258     13.1  
Farmland   7,986     0.3     15,944     0.6     8,247     0.3     7,898     0.4     8,181     0.5  
1-4 family residential   315,839     10.3     290,808     10.7     274,880     10.9     235,092     11.0     210,702     10.9  
Multi-family residential   95,258     3.1     101,973     3.7     48,777     1.9     47,371     2.2     46,240     2.3  
Consumer   8,471     0.2     7,714     0.3     8,587     0.3     4,304     0.2     3,123     0.2  
Total originated LHI   $ 3,076,088     100 %   $ 2,730,481     100 %   $ 2,509,811     100 %   $ 2,120,933     100 %   $ 1,941,863     100 %
                                         
Acquired Loans                                        
Commercial   $ 683,823     26.5 %   $ 909,074     30.3 %   $ 975,878     30.9 %   $ 62,866     14.4 %   $ 76,162     15.3 %
Real Estate:                                        
Owner occupied commercial   463,087     18.0     517,525     17.2     530,026     16.8     132,432     30.5     133,865     26.6  
Commercial   832,841     32.3     927,019     30.9     948,815     30.1     145,553     33.5     162,842     32.4  
Construction and land   133,233     5.2     138,527     4.6     149,897     4.8     21,548     5.0     39,885     7.9  
Farmland           1,528     0.1     1,781     0.1     2,630     0.6     2,672     0.5  
1-4 family residential   243,471     9.4     266,248     8.9     295,719     9.4     62,825     14.5     79,106     15.7  
Multi-family residential   211,708     8.2     228,904     7.6     238,936     7.6     3,914     0.9     4,077     0.8  
Consumer   9,642     0.4     12,848     0.4     13,180     0.4     2,808     0.6     4,043     0.8  
Total acquired LHI   $ 2,577,805     100 %   $ 3,001,673     100 %   $ 3,154,232     100 %   $ 434,576     100 %   $ 502,652     100 %
                                         
Mortgage warehouse   233,577         200,017         114,157                      
                                         
Total LHI1   $ 5,887,470         $ 5,932,171         $ 5,778,200         $ 2,555,509         $ 2,444,515      
                                         
Deposits2                                        
Noninterest-bearing   $ 1,473,126     25.1 %   $ 1,476,668     24.0 %   $ 1,439,630     22.9 %   $ 626,283     23.8 %   $ 661,754     24.9 %
Interest-bearing transaction   373,997     6.4     373,982     6.1     334,868     5.3     146,969     5.6     144,328     5.4  
Money market   2,066,315     35.2     2,178,274     35.3     2,169,049     34.4     1,133,045     43.2     1,168,262     44.0  
Savings   87,981     1.5     93,898     1.5     113,200     1.8     33,147     1.3     33,674     1.3  
Certificates and other time deposits   1,876,427     31.8     2,042,266     33.1     2,240,968     35.6     682,984     26.1     648,236     24.4  
Total deposits   $ 5,877,846     100 %   $ 6,165,088     100 %   $ 6,297,715     100 %   $ 2,622,428     100 %   $ 2,656,254     100 %
                                         
Loan to Deposit Ratio   100.2 %       96.2 %       91.8 %       97.4 %       92.0 %    

1 Total LHI does not include deferred (costs) fees of ($134 thousand) at September 30, 2019, $321 thousand at June 30, 2019, $321 thousand at March 31, 2019, $15 thousand at December 31, 2018 and $16 thousand at September 30, 2018.
2 LHI and deposit portfolio composition exclude assets and liabilities held for sale as of March 31, 2019.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)

Asset Quality

  For the Three Months Ended   For the Nine Months Ended
 
  Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Sep 30, 2018   Sep 30, 2019   Sep 30, 2018
 
  (Dollars in thousands) 
Nonperforming Assets (“NPAs”):                          
Originated nonaccrual loans1 $ 5,081     $ 4,751     $ 5,739     $ 5,358     $ 2,307     $ 5,081     $ 2,307  
Acquired nonaccrual loans1 5,091     10,982     12,944     19,387     19,515     5,091     19,515  
Originated accruing loans 90 or more days past due2 815     12,738     2,329         4,302     815     4,302  
Acquired accruing loans 90 or more days past due2 1,379     13,036     1,974             1,379      
Total nonperforming loans held for investment (“NPLs”) 12,366     41,507     22,986     24,745     26,124     12,366     26,124  
Other real estate owned 4,625     1,748     151             4,625      
Total NPAs $ 16,991     $ 43,255     $ 23,137     $ 24,745     $ 26,124     $ 16,991     $ 26,124  
                           
Charge-offs:                          
Residential $     $ (157 )   $     $     $     $ (157 )   $  
Commercial (8,101 )   (143 )   (2,654 )   (26 )       (10,898 )   (149 )
Consumer (113 )   (30 )   (74 )           (217 )   (22 )
Total charge-offs (8,214 )   (330 )   (2,728 )   (26 )       (11,272 )   (171 )
                           
Recoveries:                          
Residential     54     8             62      
Commercial 71     10     10     7     10     91     34  
Consumer     40     46             86      
Total recoveries 71     104     64     7     10     239     34  
                           
Net charge-offs $ (8,143 )   $ (226 )   $ (2,664 )   $ (19 )   $ 10     $ (11,033 )   $ (137 )
                           
Allowance for loan losses (“ALLL”) at end of period $ 26,243     $ 24,712     $ 21,603     $ 19,255     $ 17,909     $ 26,243     $ 17,909  
                           
Remaining purchase discount (“PD”) on acquired loans3 $ 58,503     $ 80,365     $ 83,365     $ 12,098     $ 13,389     58,503     13,389  
                           
Asset Quality Ratios:                          
NPAs to total assets 0.21 %   0.54 %   0.29 %   0.77 %   0.80 %   0.21 %   0.80 %
NPLs to total LHI 0.21     0.70     0.40     0.97     1.07     0.21     1.07  
ALLL to total LHI 0.45     0.42     0.37     0.75     0.73     0.45     0.73  
ALLL and remaining PD on acquired loans to total LHI3 1.44     1.77     1.82     1.23     1.28     1.44     1.28  
Net charge-offs to average loans outstanding 0.14         0.05             0.19     0.01  

1 The Company historically reported in the acquired nonaccrual loans line item in the table above only acquired purchased credit impaired (“PCI”) loans that were deemed to be on nonaccrual status subsequent to the respective acquisition date. The Company has reclassed $3,158, $5,040 and $2,485 for the three months ended June 30, 2019, March 31, 2019 and December 31, 2018, respectively, and $2,357 for the three and nine months ended September 30, 2018 of acquired non-PCI loans deemed to be on nonaccrual status subsequent to acquisition date from the originated nonaccrual line item into the acquired nonaccrual loans line item. As a result, both acquired PCI loans and acquired non-PCI loans are reflected in the acquired nonaccrual loans line item in order to align with industry peers for comparability purposes.
2 Accruing loans greater than 90 days past due exclude PCI loans greater than 90 days past due.
3 Remaining PD on acquired loans includes non-accretable and accretable purchase discount on purchased performing and purchased credit impaired loans for each quarter presented in the table.


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

We identify certain financial measures discussed in this earnings release as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States (“GAAP”), in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios calculated using exclusively either one or both of (i) financial measures calculated in accordance with GAAP and (ii) operating measures or other measures that are not non-GAAP financial measures.

The non-GAAP financial measures that we present in this earnings release should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we present in this earnings release may differ from that of other companies reporting measures with similar names. You should understand how such other financial institutions calculate their financial measures that appear to be similar or have similar names to the non-GAAP financial measures we have discussed in this earnings release when comparing such non-GAAP financial measures.

Tangible Book Value Per Common Share. Tangible book value is a non-GAAP measure generally used by financial analysts and
investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders’ equity less goodwill and core deposit intangibles, net of accumulated amortization; and (b) tangible book value per common share as tangible common equity (as described in clause (a)) divided by number of common shares outstanding. For tangible book value per common share, the most directly comparable financial measure calculated in accordance with GAAP is book value per common share.

We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in core deposit intangibles. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and presents our tangible book value per common share compared with our book value per common share:

    As of
 
  Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Sep 30, 2018
 
  (Dollars in thousands, except per share data)
Tangible Common Equity
                   
Total stockholders' equity   $ 1,205,530     $ 1,205,293     $ 1,193,705     $ 530,638     $ 517,212  
Adjustments:                    
Goodwill   (370,463 )   (370,221 )   (368,268 )   (161,447 )   (161,447 )
Core deposit intangibles   (70,014 )   (72,465 )   (74,916 )   (11,675 )   (12,107 )
Tangible common equity   $ 765,053     $ 762,607     $ 750,521     $ 357,516     $ 343,658  
Common shares outstanding   52,373     53,457     54,236     24,254     24,192  
                     
Book value per common share   $ 23.02     $ 22.55     $ 21.88     $ 21.88     $ 21.38  
Tangible book value per common share   $ 14.61     $ 14.27     $ 13.76     $ 14.74     $ 14.21  


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

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

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

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets and presents our tangible common equity to tangible assets:

    As of
 
  Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Sep 30, 2018
 
  (Dollars in thousands)
Tangible Common Equity
                   
Total stockholders' equity   $ 1,205,530     $ 1,205,293     $ 1,193,705     $ 530,638     $ 517,212  
Adjustments:                    
Goodwill   (370,463 )   (370,221 )   (368,268 )   (161,447 )   (161,447 )
Core deposit intangibles   (70,014 )   (72,465 )   (74,916 )   (11,675 )   (12,107 )
Tangible common equity   $ 765,053     $ 762,607     $ 750,521     $ 357,516     $ 343,658  
Tangible Assets                    
Total assets   $ 7,962,883     $ 8,010,106     $ 7,931,747     $ 3,208,550     $ 3,275,846  
Adjustments:                    
Goodwill   (370,463 )   (370,221 )   (368,268 )   (161,447 )   (161,447 )
Core deposit intangibles   (70,014 )   (72,465 )   (74,916 )   (11,675 )   (12,107 )
Tangible Assets   $ 7,522,406     $ 7,567,420     $ 7,488,563     $ 3,035,428     $ 3,102,292  
Tangible Common Equity to Tangible Assets   10.17 %   10.08 %   10.02 %   11.78 %   11.08 %


VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

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

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

The following table reconciles, as of the dates set forth below, average tangible common equity to average common equity and net income available for common stockholders adjusted for amortization of core deposit intangibles, net of taxes to net income and presents our return on average tangible common equity:

    For the Three Months Ended   For the Nine Months Ended
 
  Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Sep 30, 2018   Sep 30, 2019   Sep 30, 2018
 
  (Dollars in thousands)        
Net income available for common stockholders adjusted for amortization of core deposit intangibles                            
Net income   $ 27,405     $ 26,876     $ 7,407     $ 9,825     $ 8,935     $ 61,688     $ 29,516  
Adjustments:                            
Plus: Amortization of core deposit intangibles   2,451     2,451     2,477     432     431     7,379     1,250  
Less: Tax benefit at the statutory rate   515     515     520     91     91     1,550     263  
Net income available for common stockholders adjusted for amortization of intangibles   $ 29,341     $ 28,812     $ 9,364     $ 10,166     $ 9,275     $ 67,517     $ 30,503  
                             
Average Tangible Common Equity                            
Total average stockholders' equity   $ 1,210,147     $ 1,200,632     $ 1,190,266     $ 523,590     $ 514,876     $ 1,199,440     $ 504,105  
Adjustments:                            
Average goodwill   (370,224 )   (369,255 )   (366,795 )   (161,447 )   (161,447 )   (369,097 )   (160,725 )
Average core deposit intangibles   (71,355 )   (73,875 )   (76,727 )   (11,932 )   (12,354 )   (73,965 )   (13,370 )
Average tangible common equity   $ 768,568     $ 757,502     $ 746,744     $ 350,211     $ 341,075     $ 756,378     $ 330,010  
Return on Average Tangible Common Equity (Annualized)   15.15 %   15.26 %   5.09 %   11.52 %   10.79 %   11.93 %   12.36 %



VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

Operating Net Income, Pre-tax, Pre-provision Operating Earnings and performance metrics calculated using Operating Earnings and Pre-tax, Pre-provision Operating Net Income, including Diluted Operating Earnings per Share, Operating Return on Average Assets, Pre-tax, Pre-Provision Operating Return on Average Assets, Operating Return on Average Tangible Common Equity and Operating Efficiency Ratio. Operating earnings and pre-tax, pre-provision operating earnings are non-GAAP measures used by management to evaluate the Company’s financial performance. We calculate (a) operating net income as net income plus loss on sale of securities available for sale, net, plus loss (gain) on sale of disposed branch assets, plus lease exit costs, net, plus branch closure expenses, plus one-time issuance of shares to all employees, plus merger and acquisition expenses, less tax impact of adjustments, plus re-measurement of deferred tax assets as a result of the reduction in the corporate income tax rate under the Tax Cuts and Jobs Act, plus other merger and acquisition discrete tax items. We calculate (b) pre-tax, pre-provision operating earnings as operating earnings as described in clause (a) plus provision for income taxes, plus provision for loan losses. We calculate (c) diluted operating earnings per share as operating earnings as described in clause (a) divided by weighted average diluted shares outstanding. We calculate (d) operating return on average tangible common equity as operating earnings as described in clause (a) divided by total average tangible common equity (average stockholders' equity less average goodwill and average core deposit intangibles, net of accumulated amortization.) We calculate (e) operating efficiency ratio as non interest expense plus adjustments to operating non interest expense divided by (i) non interest income plus adjustments to operating non interest income plus (ii) net interest income.

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

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

    For the Three Months Ended
      For the Nine Months Ended
                                         
  Sep 30, 2019     Jun 30, 2019     Mar 31, 2019     Dec 31, 2018     Sep 30, 2018     Sep 30, 2019     Sep 30, 2018  
   
  (Dollars in thousands)
Operating Net Income                                                        
                                                         
Net income   $ 27,405     $ 26,876     $ 7,407     $ 9,825     $ 8,935     $ 61,688     $ 29,516  
Plus: Loss on sale of securities available for sale, net       642     772     42         1,414      
Plus: Loss (gain) on sale of disposed branch assets1       359                 359     (388 )
Plus: Lease exit costs, net2                           1,071  
Plus: Branch closure expenses                           172  
Plus: One-time issuance of shares to all employees                           421  
Plus: Merger and acquisition expenses   1,035     5,431     31,217     1,150     2,692     37,683     4,070  
Operating pre-tax income   28,440     33,308     39,396     11,017     11,627     101,144     34,862  
Less: Tax impact of adjustments3   217     1,351     6,717     (440 )   538     8,285     1,073  
Plus: Tax Act re-measurement                   (688 )       5  
Plus: Other M&A tax items   406     277                 683      
Operating net income   $ 28,629     $ 32,234     $ 32,679     $ 11,457     $ 10,401     $ 93,542     $ 33,794  
                             
Weighted average diluted shares outstanding   53,873     54,929     55,439     24,532     24,613     54,633     24,587  
Diluted EPS   $ 0.51     $ 0.49     $ 0.13     $ 0.40     $ 0.36     $ 1.13     $ 1.20  
Diluted operating EPS   0.53     0.59     0.59     0.47     0.42     1.71     1.37  

1 Loss on sale of disposed branch assets for the nine months ended September 30, 2019 and for the three months ended June 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Lease exit costs, net for the nine months ended September 30, 2018 includes a $1.5 million consent fee and $240 thousand in professional services paid in January 2018 to separately assign and sublease two of our branch leases that we ceased using in 2017 offset by the reversal of the corresponding assigned lease cease-use liability totaling $669 thousand.
3 During the fourth quarter of 2018, we initiated a transaction cost study, which through December 31, 2018 resulted in $727 thousand of expenses paid that are non-deductible merger and acquisition expenses. As such, the $727 thousand of non-deductible expenses are reflected in the nine months ended September 30, 2018 tax impact of adjustments amounts reported. All other non-merger related adjustments to operating net income are taxed at the statutory rate.

    For the Three Months Ended
  For the Nine Months Ended
                                     
  Sep 30, 2019   Jun 30, 2019     Mar 31, 2019   Dec 31, 2018     Sep 30, 2018     Sep 30, 2019     Sep 30, 2018  
   
  (Dollars in thousands)
Pre-Tax, Pre-Provision Operating Earnings                                                        
                                                         
Net income   $ 27,405     $ 26,876     $ 7,407     $ 9,825     $ 8,935     $ 61,688     $ 29,516  
Plus: Provision for income taxes   7,595     7,369     1,989     3,587     1,448     16,953     7,309  
Pus: Provision for loan losses   9,674     3,335     5,012     1,364     3,057     18,021     5,239  
Plus: Loss on sale of securities available for sale, net       642     772     42         1,414      
Plus: Loss (gain) on sale of disposed branch assets1       359                 359     (388 )
Plus: Lease exit costs, net2                           1,071  
Plus: Branch closure expenses                           172  
Plus: One-time issuance of shares to all employees                           421  
Plus: Merger and acquisition expenses   1,035     5,431     31,217     1,150     2,692     37,683     4,070  
Pre-tax, pre-provision operating earnings   $ 45,709     $ 44,012     $ 46,397     $ 15,968     $ 16,132     $ 136,118     $ 47,410  
                             
Average total assets   $ 8,009,377     $ 7,937,319     $ 7,841,267     $ 3,243,168     $ 3,225,797     $ 7,929,028     $ 3,095,107  
Pre-tax, pre-provision operating return on average assets3   2.26 %   2.22 %   2.40 %   1.95 %   1.98 %   2.30 %   2.05 %
                             
Average total assets   $ 8,009,377     $ 7,937,319     $ 7,841,267     $ 3,243,168     $ 3,225,797     $ 7,929,028     $ 3,095,107  
Return on average assets3   1.36 %   1.36 %   0.38 %   1.20 %   1.10 %   1.04 %   1.28 %
Operating return on average assets3   1.42     1.63     1.69     1.40     1.28     1.58     1.46  
                             
Operating earnings adjusted for amortization of intangibles                            
Operating net income   $ 28,629     $ 32,234     $ 32,679     $ 11,457     $ 10,401     $ 93,542     $ 33,794  
Adjustments:                            
Plus: Amortization of core deposit intangibles   2,451     2,451     2,477     432     431     7,379     1,250  
Less: Tax benefit at the statutory rate   515     515     520     91     91     1,550     263  
Operating earnings adjusted for amortization of intangibles   $ 30,565     $ 34,170     $ 34,636     $ 11,798     $ 10,741     $ 99,371     $ 34,781  
                             
Average Tangible Common Equity                            
Total average stockholders' equity   $ 1,210,147     $ 1,200,632     $ 1,190,266     $ 523,590     $ 514,876     $ 1,199,440     $ 504,105  
Adjustments:                            
Less: Average goodwill   (370,224 )   (369,255 )   (366,795 )   (161,447 )   (161,447 )   (369,097 )   (160,725 )
Less: Average core deposit intangibles   (71,355 )   (73,875 )   (76,727 )   (11,932 )   (12,354 )   (73,965 )   (13,370 )
Average tangible common equity   $ 768,568     $ 757,502     $ 746,744     $ 350,211     $ 341,075     $ 756,378     $ 330,010  
Operating return on average tangible common equity3   15.78 %   18.09 %   18.81 %   13.37 %   12.49 %   17.57 %   14.09 %
                             
Efficiency ratio   43.67 %   51.49 %   82.30 %   54.27 %   57.58 %   59.42 %   55.15 %
Operating efficiency ratio   42.36 %   43.66 %   43.54 %   50.65 %   49.09 %   43.19 %   49.45 %

1 Loss on sale of disposed branch assets for the nine months ended September 30, 2019 and for the three months ended June 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Lease exit costs, net for the nine months ended September 30, 2018 includes a $1.5 million consent fee and $240 thousand in professional services paid in January 2018 to separately assign and sublease two of our branch leases that we ceased using in 2017 offset by the reversal of the corresponding assigned lease cease-use liability totaling $669 thousand.
3 Annualized ratio.

lrenfro@veritexbank.com
scaudle@veritexbank.com

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