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Veritex Holdings, Inc. Reports Third Quarter Operating Results

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DALLAS, Oct. 21, 2019 (GLOBE NEWSWIRE) -- Veritex Holdings, Inc. (“Veritex” or the “Company”) (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