Veritex Holdings, Inc. Reports Fourth Quarter and Year-End

DALLAS, Jan. 25, 2022 (GLOBE NEWSWIRE) — Veritex Holdings, Inc. (“Veritex” or the “Company”) (Nasdaq: VBTX), the holding company for Veritex Community Bank, today announced the results for the fourth quarter and full year of 2021.

“We reported strong fourth quarter and 2021 results as the Texas economy continues to improve and we remained focused on our organic growth strategy,” said President and Chief Executive Officer, Malcolm C. Holland, III. “Deposit growth remained strong and loan balances increased for the sixth quarter in a row with loan balances, excluding our mortgage warehouse and PPP loans, growing approximately 16% during 2021.”

“We remained laser focused and delivered on one of our main strategies as a company….be transformative and deliver top tier financial results. With our 49% investment in Thrive Mortgage, LLC (“Thrive”), which has contributed $6 million of increased noninterest income since July 2021, and our acquisition of North Avenue Capital, LLC (“NAC”), the nation’s leader in USDA lending, which has contributed $1.3 million of increased noninterest income since November 1, 2021, we transformed, delivered and positioned Veritex to further diversify revenue streams as we continue to organically grow.”

“Asset quality continues to improve, with loss rates driven by economic forecasts approaching pre-pandemic levels, leading to a release in credit reserves. Nonperforming assets (“NPAs”) to total assets improved 26 basis points to 0.51% during the fourth quarter, the lowest level since December 31, 2019.”

“Business momentum, continued organic growth, investment in talent, revenue diversification, improving credit metrics, a recovering economy, maintaining our strong culture and pursuit of opportunities to further scale have me excited for 2022 and the future of this Company.”

Financial Highlights   Quarter to Date   Year to Date
    Q4 2021   Q3 2021     2021       2020  
    (Dollars in thousands, except per share data)
(unaudited)
GAAP                
Net income   $ 41,506     $ 36,835     $ 139,584     $ 73,883  
Diluted EPS     0.82       0.73       2.77       1.48  
Book value per common share     26.64       26.09       26.64       24.39  
Return on average assets2     1.68 %     1.56 %     1.49 %     0.87 %
Efficiency ratio     48.53       47.55       49.45       50.90  
Return on average equity2     12.65       11.32       11.01       6.34  
Non-GAAP1                
Operating earnings   $ 42,410     $ 35,072     $ 139,647     $ 77,980  
Diluted operating EPS     0.84       0.70       2.77       1.56  
Tangible book value per common share     17.49       17.53       17.49       15.70  
Pre-tax, pre-provision operating earnings     48,640       43,858       171,205       162,447  
Pre-tax, pre-provision operating return on average assets2     1.97 %     1.85 %     1.83 %     1.91 %
Operating return on average assets2     1.72       1.48       1.49       0.91  
Operating efficiency ratio     47.64       48.51       49.27       47.69  
Return on average tangible common equity2     20.06       17.72       17.57       11.16  
Operating return on average tangible common equity2     20.48       16.92       17.58       11.72  

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.

Other Fourth Quarter and 2021 Highlights:

  • Total loans held for investment (“LHI”), excluding Paycheck Protection Program (“PPP”) and mortgage warehouse (“MW”) loans, grew $150.1 million, from the third quarter of 2021, or 9.1% annualized, and grew $918.1 million, or 15.7%, year-over-year;
  • Total deposits grew $184.9 million for the fourth quarter of 2021, or 10.3% annualized, with the average cost of total deposits decreasing to 0.18% for the three months ended December 31, 2021 from 0.20% for the three months ended September 30, 2021. Total deposits grew $850.8 million, or 13.1%, year-over-year;
  • NPAs to total assets decreased to 0.51% , or 26 basis points from September 30, 2021, and decreased 48 basis points from December 31, 2020;
  • Announced the completion of the Company’s 49% investment in Thrive during the third quarter of 2021 and recognized $5.8 million of equity method investment income, which includes $1.9 million of PPP loan forgiveness income;
  • Closed the acquisition of NAC on November 1, 2021; and
  • Declared quarterly cash dividend of $0.20 per share of outstanding common stock payable on February 25, 2022.

Result of Operations for the Three Months Ended December 31, 2021

Net Interest Income

For the three months ended December 31, 2021, net interest income before provision for credit losses was $76.7 million and net interest margin was 3.37% compared to $71.3 million and 3.26%, respectively, for the three months ended September 30, 2021. The $5.4 million increase in net interest income before provision for credit losses was primarily due to a $3.0 million increase in interest income on loans driven by an increase in average balances and the recognition of $2.1 million of prepayment penalty income on debt securities during three months ended December 31, 2021. Net interest margin increased 11 basis points from the three months ended September 30, 2021 primarily due to the increase in yields earned on debt securities as a result of the recognition of $2.1 million of prepayment penalty income during three months ended December 31, 2021. The average cost of interest-bearing deposits decreased 4 basis points to 0.26% for the three months ended December 31, 2021 from 0.30% for the three months ended September 30, 2021.

Net interest income before provision for credit losses increased by $9.9 million from $66.8 million to $76.7 million and net interest margin increased 8 basis points from 3.29% to 3.37% for the three months ended December 31, 2021 as compared to the same period in 2020. The increase in net interest income before provision for credit losses was primarily due to a $4.6 million increase in interest income on loans driven by an increase in average balances, the recognition of $2.1 million of prepayment penalty income on debt securities and a $2.3 million decrease in interest expenses on certificates and other time deposits during the three months ended December 31, 2021 compared to the three months ended December 31, 2020. Net interest margin increased 8 basis points compared to the three months ended December 31, 2020 primarily due to an increase in yields earned on debt securities as a result of the recognition of $2.1 million of prepayment penalty income and decreases in the average rate paid on interest-bearing demand and savings deposits and certificates and other time deposits for the three months ended December 31, 2021. As a result, the average cost of interest-bearing deposits decreased to 0.26% for the three months ended December 31, 2021 from 0.55% for the three months ended December 31, 2020.

Noninterest Income

Noninterest income for the three months ended December 31, 2021 was $16.2 million, an increase of $523 thousand, or 3.3% compared to the three months ended September 30, 2021. The increase in noninterest income was primarily due to a $1.1 million increase in government guaranteed loan income, net, and a $951 thousand increase in loan fees. These increases were partially offset by a $3.2 million decrease in equity method investment income.

Compared to the three months ended December 31, 2020, noninterest income for the three months ended December 31, 2021 grew $7.1 million, or 79.2%. The increase was primarily due to a $3.0 million increase in government guaranteed loan income, a $2.0 million increase in loan fees, a $1.2 million increase in equity method investment income and a $811 thousand increase in service charges and fees on deposit accounts.

Noninterest Expense

Noninterest expense was $45.1 million for the three months ended December 31, 2021, compared to $41.3 million for the three months ended September 30, 2021, an increase of $3.8 million, or 9.1%. The increase was primarily driven by a $2.4 million increase in salaries and employee benefits and a $826 thousand increase in merger and acquisition expenses incurred as a result of the acquisition of NAC in November of 2021.

Noninterest expense was $45.1 million for the three months ended December 31, 2021, compared to $47.4 million for the three months ended December 31, 2020, a decrease of $2.3 million, or 4.8%. The decrease in noninterest expense was primarily due to debt extinguishment costs of $9.7 million incurred in the three months ended December 31, 2020 with no corresponding expense in the same period in 2021. The decrease was partially offset by an increase of $5.4 million in salaries and employee benefits, a $826 thousand increase in merger and acquisition expenses incurred related to the acquisition of NAC, a $498 thousand increase in marketing expense and a $359 thousand increase in data processing and software expense.

Financial Condition

Total LHI, excluding MW and PPP, were $6.8 billion at December 31, 2021, an increase of $150.1 million, or 9.1% annualized, compared to September 30, 2021, and an increase of $918.1 million, or 15.7%, compared to December 31, 2020. These increases were the result of the continued execution and success of our loan growth strategy.

Total deposits were $7.4 billion at December 31, 2021, an increase of $184.9 million, or 10.3% annualized, compared to September 30, 2021 and an increase of $850.8 million, or 13.1%, compared to December 31, 2020. The increase from September 30, 2021 was primarily the result of increase of $207.8 million in non-interest bearing demand deposits and an increase of $48.0 million in interest-bearing transaction and savings deposits accounts. The increase from December 31, 2020 was primarily the result of increases of $413.6 million, $317.9 million and $119.3 million in non-interest bearing demand deposits, interest-bearing transaction and savings deposits accounts and certificates and other time deposits, respectively.

Asset Quality

NPAs decreased to $50.1 million, or 0.51% of total assets, at December 31, 2021, compared to $74.0 million, or 0.77% of total assets, at September 30, 2021. The Company had net charge-offs of $12.7 million for the quarter, which were substantially reserved against in prior quarters under our allowance for credit loss model.

The Company recorded a benefit for credit losses of $3.3 million for the three months ended December 31, 2021, compared to no provision for credit losses for the three months ended September 30, 2021 and December 31, 2020. The benefit for credit losses reported for the three months ended December 31, 2021, compared to the three months ended September 30, 2021 and December 31, 2020, was attributable to improvement in the Texas economic forecasts used in the Current Expected Credit Losses (“CECL”) model in the fourth quarter of 2021 to reflect the expected impact of the COVID-19 pandemic as of December 31, 2021, as compared to our Texas economic forecasts and expected impact of the COVID-19 pandemic as of September 30, 2021 and December 31, 2020. During the three months ended December 31, 2021, we recorded a $1.0 million benefit for unfunded commitments, which was also attributable to improvement in the Texas economic forecasts.

Allowance for credit losses (“ACL”) as a percentage of LHI, excluding MW and PPP loans, was 1.15%, 1.42% and 1.80% at December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

Dividend Information

On January 25, 2022, Veritex’s Board of Directors declared a quarterly cash dividend of $0.20 per share on its outstanding shares of common stock. The dividend will be paid on or after February 25, 2022 to stockholders of record as of the close of business on February 11, 2022.

Non-GAAP Financial Measures

Veritex’s management uses certain non-GAAP (U.S. 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 per common share, operating earnings, 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.

Conference Call

The Company will host an investor conference call to review the results on Wednesday, January 26, 2021 at 8:30 a.m. Central Time. Participants may pre-register for the call by visiting https://edge.media-server.com/mmc/p/rcmgsdby and will receive a unique PIN number, 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, www.veritexbank.com. An audio replay will be available one hour after the conclusion of the call at (855) 859-2056, Conference #9296970. This replay, as well as the webcast, will be available until February 2, 2021.

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.

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 expected payment date of Veritex’s quarterly cash dividend, the impact of certain changes in Veritex’s accounting policies, standards and interpretations, the effects of the COVID-19 pandemic and actions taken in response thereto, 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 important factors could affect future results and cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, that the businesses of the Company and NAC 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 the Company or NAC have business relationships, diversion of management time on acquisition-related issues, the reaction to the transaction of the companies’ customers, employees and counterparties and other factors, many of which are beyond the control of the Company and NAC. Further, certain important factors could affect future results and cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, that the businesses of the Company and NAC 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 the Company or NAC have business relationships, diversion of management time on acquisition-related issues, the reaction to the transaction of the companies’ customers, employees and counterparties and other factors, many of which are beyond the control of the Company and NAC. 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, 2020 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, except as required by law. 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 SUBSIDIARIES
Financial Highlights
(Unaudited)

    For the Quarter Ended   For the Year Ended
    Dec 31, 2021   Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Dec 31, 2021   Dec 31, 2020
    (Dollars and shares in thousands, except per-share data)
Per Share Data (Common Stock):                            
Basic EPS   $ 0.84     $ 0.75     $ 0.60     $ 0.64     $ 0.46     $ 2.83     $ 1.48  
Diluted EPS     0.82       0.73       0.59       0.64       0.46       2.77       1.48  
Book value per common share     26.64       26.09       25.72       24.96       24.39       26.64       24.39  
Tangible book value per common share1     17.49       17.53       17.16       16.34       15.70       17.49       15.70  
Dividends paid per common share outstanding2     0.20       0.20       0.20       0.17       0.17       0.77       0.68  
                             
Common Stock Data:                            
Shares outstanding at period end     49,372       49,229       49,498       49,433       49,340       49,372       49,340  
Weighted average basic shares outstanding for the period     49,329       49,423       49,476       49,394       49,571       49,405       49,884  
Weighted average diluted shares outstanding for the period     50,441       50,306       50,331       49,998       49,837       50,352       50,036  
                             
Summary of Credit Ratios:                            
ACL to total LHI, excluding MW and PPP loans     1.15 %     1.42 %     1.59 %     1.76 %     1.80 %     1.15 %     1.80 %
NPAs to total assets     0.51       0.77       0.85       0.92       0.99       0.51       0.99  
Net charge-offs to average loans outstanding     0.19       0.09       0.09             0.28       0.38       0.36  
                             
Summary Performance Ratios:                            
Return on average assets3     1.68 %     1.56 %     1.27 %     1.44 %     1.04 %     1.49 %     0.87 %
Return on average equity3     12.65       11.32       9.42       10.53       7.58       11.01       6.34  
Return on average tangible common equity1, 3     20.06       17.72       15.18       17.17       12.84       17.57       11.16  
Efficiency ratio     48.53       47.55       52.42       49.62       62.52       49.45       50.90  
Net interest margin     3.37 %     3.26 %     3.11 %     3.22 %     3.29 %     3.24 %     3.39 %
                             
Selected Performance Metrics – Operating:                            
Diluted operating EPS1   $ 0.84     $ 0.70     $ 0.60     $ 0.64     $ 0.60     $ 2.77     $ 1.56  
Pre-tax, pre-provision operating return on average assets1, 2     1.97 %     1.85 %     1.66 %     1.82 %     1.75 %     1.83 %     1.91 %
Operating return on average assets1, 3     1.72       1.48       1.29       1.46       1.35       1.49       0.91  
Operating return on average tangible common equity1, 3     20.48       16.92       15.42       17.39       16.44       17.58       11.72  
Operating efficiency ratio1     47.64       48.51       51.63       49.62       49.49       49.27       47.69  
                             
Veritex Holdings, Inc. Capital Ratios:                            
Average stockholders’ equity to average total assets     13.30 %     13.75 %     13.46 %     13.69 %     13.67 %     13.54 %     13.66 %
Tangible common equity to tangible assets1     9.28       9.43       9.51       9.17       9.23       9.28       9.23  
Tier 1 capital to average assets (leverage)     9.05       9.54       9.38       9.50       9.43       9.05       9.43  
Common equity tier 1 capital     8.58       8.75       9.03       9.27       9.30       8.58       9.30  
Tier 1 capital to risk-weighted assets     8.89       9.06       9.36       9.61       9.66       8.89       9.66  
Total capital to risk-weighted assets     11.60       12.31       12.86       13.38       13.56       11.60       13.56  

Refer to “Reconciliation of Non-GAAP Financial Measures” after the financial highlights for a reconciliation of this non-GAAP financial measure to its most directly comparable GAAP measure.
2 Dividend amount represents dividend paid per common share subsequent to each respective quarter end.
Annualized ratio for quarterly metrics.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Financial Highlights
(in thousands)

    Dec 31, 2021   Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020
    (unaudited)   (unaudited)   (unaudited)   (unaudited)    
ASSETS                    
Cash and cash equivalents   $ 379,784     $ 229,712     $ 390,027     $ 468,029     $ 230,825  
Debt securities     1,052,494       1,103,745       1,125,877       1,077,860       1,055,201  
Other investments     190,591       191,786       87,558       87,226       87,192  
                     
Loans held for sale     26,007       18,896       12,065       19,864       21,414  
LHI PPP loans, carried at fair value     53,369       135,842       291,401       407,353       358,042  
LHI, MW     565,645       615,045       559,939       599,001       577,594  
LHI, excluding MW and PPP     6,766,009       6,615,905       6,272,087       5,963,493       5,847,862  
Total loans     7,411,030       7,385,688       7,135,492       6,989,711       6,804,912  
ACL     (77,754 )     (93,771 )     (99,543 )     (104,936 )     (105,084 )
Bank-owned life insurance     83,194       83,781       83,304       83,318       82,855  
Bank premises, furniture and equipment, net     109,271       116,063       123,504       114,585       115,063  
Other real estate owned (“OREO”)                 2,467       2,337       2,337  
Intangible assets, net of accumulated amortization     66,017       54,682       57,143       59,236       61,733  
Goodwill     403,771       370,840       370,840       370,840       370,840  
Other assets     138,851       129,774       72,856       89,304       114,997  
Total assets   $ 9,757,249     $ 9,572,300     $ 9,349,525     $ 9,237,510     $ 8,820,871  
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Deposits:                    
Noninterest-bearing deposits   $ 2,510,723     $ 2,302,925     $ 2,388,068     $ 2,171,719     $ 2,097,099  
Interest-bearing transaction and savings deposits     3,276,312       3,228,306       3,112,974       3,189,693       2,958,456  
Certificates and other time deposits     1,576,580       1,647,521       1,477,860       1,543,158       1,457,291  
Total deposits     7,363,615       7,178,752       6,978,902       6,904,570       6,512,846  
Accounts payable and other liabilities     69,160       66,571       55,499       55,902       61,928  
Advances from Federal Home Loan Bank (“FHLB”)     777,562       777,601       777,640       777,679       777,718  
Subordinated debentures and subordinated notes     227,764       262,761       262,766       262,774       262,778  
Securities sold under agreements to repurchase     4,069       2,455       1,811       2,777       2,225  
Total liabilities     8,442,170       8,288,140       8,076,618       8,003,702       7,617,495  
Commitments and contingencies                    
Stockholders’ equity:                    
Common stock     560       559       558       557       555  
Additional paid-in capital     1,142,758       1,137,889       1,134,603       1,131,324       1,126,437  
Retained earnings     275,273       243,633       216,704       195,661       172,232  
Accumulated other comprehensive income     64,070       69,661       77,189       62,413       56,225  
Treasury stock     (167,582 )     (167,582 )     (156,147 )     (156,147 )     (152,073 )
Total stockholders’ equity     1,315,079       1,284,160       1,272,907       1,233,808       1,203,376  
Total liabilities and stockholders’ equity   $ 9,757,249     $ 9,572,300     $ 9,349,525     $ 9,237,510     $ 8,820,871  

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
Financial Highlights
(in thousands, except per share data)

    For the Quarter Ended   For the Year Ended
    Dec 31, 2021   Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Dec 31, 2021   Dec 31, 2020
Interest income:                            
Loans, including fees   $ 74,174     $ 71,139     $ 67,814   $ 67,399     $ 69,597     $ 280,526     $ 286,583
Debt securities     9,553       7,613       7,529     7,437       7,652       32,132       30,726
Deposits in financial institutions and Fed Funds sold     165       130       167     127       99       589       1,221
Equity securities and other investments     1,004       898       672     663       752       3,237       3,320
Total interest income     84,896       79,780       76,182     75,626       78,100       316,484       321,850
Interest expense:                            
Transaction and savings deposits     1,629       1,588       1,661     1,980       2,105       6,858       13,233
Certificates and other time deposits     1,661       1,934       2,423     3,061       3,919       9,079       23,678
Advances from FHLB     1,847       1,848       1,829     1,812       2,222       7,336       10,609
Subordinated debentures and subordinated notes     3,018       3,134       3,138     3,138       3,088       12,428       8,532
Total interest expense     8,155       8,504       9,051     9,991       11,334       35,701       56,052
Net interest income     76,741       71,276       67,131     65,635       66,766       280,783       265,798
(Benefit) provision for credit losses     (3,349 )                           (3,349 )     56,640
(Benefit) provision for unfunded commitments     (1,040 )     (448 )     577     (570 )     902       (1,481 )     9,029
Net interest income after provisions     81,130       71,724       66,554     66,205       65,864       285,613       200,129
Noninterest income:                            
Service charges and fees on deposit accounts     4,782       4,484       3,847     3,629       3,971       16,742       13,703
Loan fees     2,697       1,746       1,823     1,341       684       7,607       4,556
(Loss) gain on sales of investment securities           (188 )               (256 )     (188 )     2,615
Gain on sales of mortgage loans held for sale     293       407       385     507       317       1,592       1,239
Government guaranteed loan income, net     3,423       2,341       3,448     6,548       448       15,760       14,150
Equity method investment income     1,238       4,522                       5,760      
Other     3,717       2,315       2,953     2,147       3,848       11,132       11,081
Total noninterest income     16,150       15,627       12,456     14,172       9,012       58,405       47,344
Noninterest expense:                            
Salaries and employee benefits     25,401       22,964       23,451     22,932       20,011       94,748       79,453
Occupancy and equipment     4,398       4,536       4,233     4,096       4,116       17,263       16,363
Professional and regulatory fees     3,017       3,401       3,086     3,441       3,578       12,945       11,729
Data processing and software expense     2,597       2,494       2,536     2,319       2,238       9,946       9,213
Marketing     1,443       1,151       1,841     909       945       5,344       3,651
Amortization of intangibles     2,494       2,509       2,517     2,537       2,558       10,057       10,790
Telephone and communications     380       380       337     337       340       1,434       1,312
Merger and acquisition expense     826                             826      
COVID expenses                                       1,377
Debt extinguishment costs                           9,746             11,307
Other     4,521       3,886       3,716     3,026       3,841       15,149       14,192
Total noninterest expense     45,077       41,321       41,717     39,597       47,373       167,712       159,387
Income before income tax expense     52,203       46,030       37,293     40,780       27,503       176,306       88,086
Income tax expense     10,697       9,195       7,837     8,993       4,702       36,722       14,203
Net income   $ 41,506     $ 36,835     $ 29,456   $ 31,787     $ 22,801     $ 139,584     $ 73,883
                             
Basic EPS   $ 0.84     $ 0.75     $ 0.60   $ 0.64     $ 0.46     $ 2.83     $ 1.48
Diluted EPS   $ 0.82     $ 0.73     $ 0.59   $ 0.64     $ 0.46     $ 2.77     $ 1.48
Weighted average basic shares outstanding     49,329       49,423       49,476     49,394       49,571       49,405       49,884
Weighted average diluted shares outstanding     50,441       50,306       50,331     49,998       49,837       50,352       50,036

 

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

    For the Quarter Ended
    December 31, 2021   September 30, 2021   December 31, 2020
    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
    (Dollars in thousands)
Assets                                    
Interest-earning assets:                                    
Loans1   $ 6,777,397     $ 70,334   4.12 %   $ 6,384,856     $ 66,911   4.16 %   $ 5,798,692     $ 65,259   4.48 %
LHI, MW     483,850       3,629   2.98       465,945       3,697   3.15       446,027       3,355   2.99  
PPP loans     83,553       211   1.00       210,092       531   1.00       390,509       983   1.00  
Debt securities     1,092,089       9,553   3.47       1,119,952       7,613   2.70       1,076,031       7,652   2.83  
Interest-earning deposits in other banks     417,266       165   0.16       336,289       130   0.15       258,687       99   0.15  
Equity securities and other investments     191,031       1,004   2.09       167,242       898   2.13       95,706       752   3.13  
Total interest-earning assets     9,045,186       84,896   3.72       8,684,376       79,780   3.64       8,065,652       78,100   3.85  
ACL     (95,218 )             (99,482 )             (121,162 )        
Noninterest-earning assets     838,703               800,576               805,651          
Total assets   $ 9,788,671             $ 9,385,470             $ 8,750,141          
                                     
Liabilities and Stockholders’ Equity                                    
Interest-bearing liabilities:                                    
Interest-bearing demand and savings deposits   $ 3,357,958       1,629   0.19 %   $ 3,201,409     $ 1,588   0.20 %   $ 2,862,084       2,105   0.29 %
Certificates and other time deposits     1,615,066       1,661   0.41       1,519,824       1,934   0.50       1,467,250       3,919   1.06  
Advances from FHLB     777,577       1,847   0.94       777,617       1,848   0.94       885,014       2,222   1.00  
Subordinated debentures and subordinated notes     259,191       3,018   4.62       264,714       3,134   4.70       259,581       3,088   4.73  
Total interest-bearing liabilities     6,009,792       8,155   0.54       5,763,564       8,504   0.59       5,473,929       11,334   0.82  
                                     
Noninterest-bearing liabilities:                                    
Noninterest-bearing deposits     2,413,443               2,271,197               2,011,995          
Other liabilities     63,760               60,181               67,943          
Total liabilities     8,486,995               8,094,942               7,553,867          
Stockholders’ equity     1,301,676               1,290,528               1,196,274          
Total liabilities and stockholders’ equity   $ 9,788,671             $ 9,385,470             $ 8,750,141          
                                     
Net interest rate spread2           3.18 %           3.05 %           3.03 %
Net interest income and margin3       $ 76,741   3.37 %       $ 71,276   3.26 %       $ 66,766   3.29 %

1 Includes average outstanding balances of loans held for sale of $8,987, $8,542 and $11,938 for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively, and average balances of LHI, excluding MW and PPP loans.
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.

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

    For the Year Ended December 31,
      2021       2020  
    Average
Outstanding
Balance
  Interest
Earned/
Interest
Paid
  Average
Yield/
Rate
  Average
Outstanding
Balance
  Interest
Earned/
Interest
Paid
  Average
Yield/
Rate
    (Dollars in thousands)
Assets                        
Interest-earning assets:                        
Loans1   $ 6,285,510     $ 263,583   4.19 %   $ 5,770,228     $ 273,999   4.97 %
LHI, MW     468,001       14,219   3.04       318,657       9,672   3.04  
PPP loans     272,770       2,724   1.00       290,851       2,912   1.00  
Debt securities     1,092,967       32,132   2.94       1,083,633       30,726   2.84  
Interest-earning deposits in other banks     410,785       589   0.14       276,970       1,221   0.44  
Equity securities and other investments     133,594       3,237   2.42       100,556       3,320   3.30  
Total interest-earning assets     8,663,627       316,484   3.65       7,840,895       321,850   4.10  
ACL     (101,383 )             (98,527 )        
Noninterest-earning assets     799,334               782,907          
Total assets   $ 9,361,578             $ 8,525,275          
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing demand and savings deposits   $ 3,198,225       6,858   0.21     $ 2,726,462       13,233   0.49  
Certificates and other time deposits     1,540,188       9,079   0.59       1,550,995       23,678   1.53  
Advances from FHLB     777,635       7,336   0.94       1,024,142       10,609   1.04  
Subordinated debentures and subordinated notes     263,535       12,428   4.72       172,594       8,532   4.94  
Total interest-bearing liabilities     5,779,583       35,701   0.62       5,474,193       56,052   1.02  
                         
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits     2,256,546               1,825,806          
Other liabilities     57,457               60,303          
Total liabilities     8,093,586               7,360,302          
Stockholders’ equity     1,267,992               1,164,973          
Total liabilities and stockholders’ equity   $ 9,361,578             $ 8,525,275          
                         
Net interest rate spread2           3.03 %           3.08 %
Net interest income and margin3       $ 280,783   3.24 %       $ 265,798   3.39 %

1Includes average outstanding balances of loans held for sale of $12,093 and $15,315 for the twelve months ended December 31, 2021 and 2020, respectively, and average balances of LHI, excluding MW and PPP loans.
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.

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

Yield Trend

    For the Quarter Ended
    Dec 31,
2021
  Sep 30,
2021
  Jun 30,
2021
  Mar 31,
2021
  Dec 31,
2020
Average yield on interest-earning assets:                    
Loans1   4.12 %   4.16 %   4.16 %   4.31 %   4.48 %
LHI, MW   2.98     3.15     3.06     3.03     2.99  
PPP loans   1.00     1.00     1.00     1.00     1.00  
Debt securities   3.47     2.70     2.76     2.84     2.83  
Interest-bearing deposits in other banks   0.16     0.15     0.12     0.15     0.15  
Equity securities and other investments   2.09     2.13     3.08     3.08     3.13  
Total interest-earning assets   3.72 %   3.64 %   3.53 %   3.71 %   3.85 %
                     
Average rate on interest-bearing liabilities:                    
Interest-bearing demand and savings deposits   0.19 %   0.20 %   0.21 %   0.26 %   0.29 %
Certificates and other time deposits   0.41     0.50     0.64     0.82     1.06  
Advances from FHLB   0.94     0.94     0.94     0.94     1.00  
Subordinated debentures and subordinated notes   4.62     4.70     4.75     4.80     4.73  
Total interest-bearing liabilities   0.54 %   0.59 %   0.63 %   0.72 %   0.82 %
                     
Net interest rate spread2   3.18 %   3.05 %   2.90 %   2.99 %   3.03 %
Net interest margin3   3.37 %   3.26 %   3.11 %   3.22 %   3.29 %

1 Includes average outstanding balances of loans held for sale of $8,987, $8,542, $14,364, $16,602 and $11,938 for the three months ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively, and average balances of LHI, excluding MW and PPP loans.
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 Quarter Ended
    Dec 31,
2021
  Sep 30,
2021
  Jun 30,
2021
  Mar 31,
2021
  Dec 31,
2020
Average cost of interest-bearing deposits   0.26 %   0.30 %   0.35 %   0.45 %   0.55 %
Average costs of total deposits, including noninterest-bearing   0.18     0.20     0.23     0.31     0.38  

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

LHI and Deposit Portfolio Composition

    Dec 31, 2021   Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020
    (Dollars in thousands)
LHI1                                        
Commercial   $ 2,006,876     29.6 %   $ 1,793,740     27.1 %   $ 1,771,100     28.2 %   $ 1,632,040     27.4 %   $ 1,559,546     26.7 %
Real Estate:                                        
Owner occupied commercial (“OOCRE”)     665,537     9.8       711,476     10.7       744,899     11.9       733,310     12.3       717,472     12.3  
Non-owner occupied commercial (“NOOCRE”)     2,120,309     31.3       2,194,438     33.1       1,986,538     31.6       1,970,945     33.0       1,904,132     32.5  
Construction and land     1,062,144     15.7       936,174     14.1       871,765     13.9       723,444     12.1       693,030     11.8  
Farmland     55,827     0.8       73,550     1.1       13,661     0.2       14,751     0.2       13,844     0.2  
1-4 family residential     542,566     8.0       543,518     8.2       513,635     8.2       492,609     8.3       524,344     9.0  
Multi-family residential     310,241     4.6       356,885     5.4       367,445     5.9       386,844     6.5       424,962     7.3  
Consumer     11,998     0.2       14,266     0.2       10,530     0.1       12,431     0.2       13,000     0.2  
Total LHI   $ 6,775,498     100 %   $ 6,624,047     100 %   $ 6,279,573     100 %   $ 5,966,374     100 %   $ 5,850,330     100 %
                                         
MW     565,645           615,045           559,939           599,001           577,594      
PPP loans     53,369           135,842           291,401           407,353           358,042      
                                         
Total LHI1   $ 7,394,512         $ 7,374,934         $ 7,130,913         $ 6,972,728         $ 6,785,966      
                                         
Deposits                                        
Noninterest-bearing   $ 2,510,723     34.1 %   $ 2,302,925     32.1 %   $ 2,388,068     34.3 %   $ 2,171,719     31.6 %   $ 2,097,099     32.2 %
Interest-bearing transaction     579,408     7.9       514,537     7.2       451,307     6.5       463,343     6.7       453,110     7.0  
Money market     2,568,843     34.9       2,585,926     36.0       2,539,061     36.4       2,602,903     37.7       2,398,526     36.8  
Savings     128,061     1.7       127,843     1.8       122,606     1.8       123,447     1.8       106,820     1.6  
Certificates and other time deposits     1,576,580     21.4       1,647,521     22.9       1,477,860     21.2       1,543,158     22.2       1,457,291     22.4  
Total deposits   $ 7,363,615     100 %   $ 7,178,752     100 %   $ 6,978,902     100 %   $ 6,904,570     100 %   $ 6,512,846     100 %
                                         
Loan to Deposit Ratio     100.4 %         102.7 %         102.2 %         101.0 %         104.2 %    
Loan to Deposit Ratio, excluding MW and PPP loans     92.0 %         92.3 %         90.0 %         86.4 %         89.8 %    

1 Total LHI does not include deferred fees of $8.1 million September 30, 2021 and deferred costs of $9.5 million, $7.5 million, $2.9 million and $2.5 million at December 31, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

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

Asset Quality

  For the Quarter Ended   For the Year Ended
  Dec 31,
2021
  Sep 30,
2021
  Jun 30,
2021
  Mar 31,
2021
  Dec 31,
2020
  Dec 31,
2021
  Dec 31,
2020
  (Dollars in thousands)
NPAs:                          
Nonaccrual loans $ 49,687     $ 72,317     $ 76,994     $ 73,594     $ 81,096     $ 49,687     $ 81,096  
Accruing loans 90 or more days past due1   441       1,711       462       9,093       4,204       441       4,204  
Total nonperforming loans held for investment (“NPLs”)   50,128       74,028       77,456       82,687       85,300       50,128       85,300  
OREO               2,467       2,337       2,337             2,337  
Total NPAs $ 50,128     $ 74,028     $ 79,923     $ 85,024     $ 87,637     $ 50,128     $ 87,637  
                           
Charge-offs:                          
Residential $     $ (64 )   $ (300 )   $ (15 )   $ (18 )   $ (379 )   $ (18 )
OOCRE   (898 )     (813 )     (689 )                 (2,400 )     (2,421 )
NOOCRE   (7,936 )                       (2,865 )     (7,936 )     (2,865 )
Commercial   (4,114 )     (5,508 )     (5,608 )     (346 )     (13,699 )     (15,576 )     (15,507 )
Consumer   (44 )     (17 )     (20 )     (18 )     (26 )     (99 )     (162 )
Total charge-offs   (12,992 )     (6,402 )     (6,617 )     (379 )     (16,608 )     (26,390 )     (20,973 )
                           
Recoveries:                          
Residential   6       26       29       3       49       64       57  
OOCRE               500                   500        
Commercial   61       596       659       226       52       1,542       102  
Consumer   257       8       36       2             303       287  
Total recoveries   324       630       1,224       231       101       2,409       446  
                           
Net charge-offs $ (12,668 )   $ (5,772 )   $ (5,393 )   $ (148 )   $ (16,507 )   $ (23,981 )   $ (20,527 )
                           
CECL transition adjustment $     $     $     $     $     $     $ 39,137  
                           
ACL at end of period $ 77,754     $ 93,771     $ 99,543     $ 104,936     $ 105,084     $ 77,754     $ 105,084  
                           
Asset Quality Ratios:                          
NPAs to total assets   0.51 %     0.77 %     0.85 %     0.92 %     0.99 %     0.51 %     0.99 %
NPLs to total LHI, excluding MW and PPP loans   0.74       1.12       1.23       1.39       1.46       0.74       1.46  
ACL to total LHI, excluding MW and PPP loans   1.15       1.42       1.59       1.76       1.80       1.15       1.80  
Net charge-offs to average loans outstanding   0.19       0.09       0.09             0.28       0.38       0.36  

1 Accruing loans greater than 90 days past due exclude purchase credit deteriorated loans greater than 90 days past due that are accounted for on a pooled basis.

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
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 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 per common share 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
    Dec 31, 2021   Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020
    (Dollars in thousands, except per share data)
Tangible Common Equity                    
Total stockholders’ equity   $ 1,315,079     $ 1,284,160     $ 1,272,907     $ 1,233,808     $ 1,203,376  
Adjustments:                    
Goodwill     (403,771 )     (370,840 )     (370,840 )     (370,840 )     (370,840 )
Core deposit intangibles     (47,998 )     (50,436 )     (52,873 )     (55,311 )     (57,758 )
Tangible common equity   $ 863,310     $ 862,884     $ 849,194     $ 807,657     $ 774,778  
Common shares outstanding     49,372       49,229       49,498       49,433       49,340  
                     
Book value per common share   $ 26.64     $ 26.09     $ 25.72     $ 24.96     $ 24.39  
Tangible book value per common share   $ 17.49     $ 17.53     $ 17.16     $ 16.34     $ 15.70  

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
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
    Dec 31, 2021   Sep 30, 2021   Jun 30, 2021   Mar 31, 2021   Dec 31, 2020
    (Dollars in thousands)
Tangible Common Equity                    
Total stockholders’ equity   $ 1,315,079     $ 1,284,160     $ 1,272,907     $ 1,233,808     $ 1,203,376  
Adjustments:                    
Goodwill     (403,771 )     (370,840 )     (370,840 )     (370,840 )     (370,840 )
Core deposit intangibles     (47,998 )     (50,436 )     (52,873 )     (55,311 )     (57,758 )
Tangible common equity   $ 863,310     $ 862,884     $ 849,194     $ 807,657     $ 774,778  
Tangible Assets                    
Total assets   $ 9,757,249     $ 9,572,300     $ 9,349,525     $ 9,237,510     $ 8,820,871  
Adjustments:                    
Goodwill     (403,771 )     (370,840 )     (370,840 )     (370,840 )     (370,840 )
Core deposit intangibles     (47,998 )     (50,436 )     (52,873 )     (55,311 )     (57,758 )
Tangible Assets   $ 9,305,480     $ 9,151,024     $ 8,925,812     $ 8,811,359     $ 8,392,273  
Tangible Common Equity to Tangible Assets     9.28 %     9.43 %     9.51 %     9.17 %     9.23 %

VERITEX HOLDINGS, INC. AND SUBSIDIARIES
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) net income available for common stockholders adjusted for amortization of core deposit intangibles (which we refer to as “return”) 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 Quarter Ended   For the Year Ended
    Dec 31,
2021
  Sep 30,
2021
  Jun 30,
2021
  Mar 31,
2021
  Dec 31,
2020
  Dec 31,
2021
  Dec 31,
2020
    (Dollars in thousands)
Net income available for common stockholders adjusted for amortization of core deposit intangibles                            
Net income   $ 41,506     $ 36,835     $ 29,456     $ 31,787     $ 22,801     $ 139,584     $ 73,883  
Adjustments:                            
Plus: Amortization of core deposit intangibles     2,438       2,438       2,438       2,447       2,451       9,761       9,804  
Less: Tax benefit at the statutory rate     512       512       512       514       515       2,050       2,060  
Net income available for common stockholders adjusted for amortization of core deposit intangibles   $ 43,432     $ 38,761     $ 31,382     $ 33,720     $ 24,737     $ 147,295     $ 81,627  
                             
Average Tangible Common Equity                            
Total average stockholders’ equity   $ 1,301,676     $ 1,290,528     $ 1,254,371     $ 1,224,294     $ 1,196,274     $ 1,267,992     $ 1,164,973  
Adjustments:                            
Average goodwill     (393,220 )     (370,840 )     (370,840 )     (370,840 )     (370,840 )     (376,480 )     (370,840 )
Average core deposit intangibles     (49,596 )     (52,043 )     (54,471 )     (56,913 )     (59,010 )     (53,233 )     (62,803 )
Average tangible common equity   $ 858,860     $ 867,645     $ 829,060     $ 796,541     $ 766,424     $ 838,279     $ 731,330  
Return on Average Tangible Common Equity (Annualized)     20.06 %     17.72 %     15.18 %     17.17 %     12.84 %     17.57 %     11.16 %

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

Operating Earnings, Pre-tax, Pre-provision Operating Earnings and performance metrics calculated using Operating Earnings and Pre-tax, Pre-provision Operating Earnings, 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, pre-tax, pre-provision operating earnings and the performance metrics calculated using these metrics, listed below, are non-GAAP measures used by management to evaluate the Company’s financial performance. We calculate (a) operating earnings as net income plus severance payments, plus loss (gain) on sale of securities, net, plus debt extinguishment costs, less Thrive PPP loan forgiveness income, plus merger and acquisition expenses, less tax impact of adjustments, plus nonrecurring tax adjustments. We calculate (b) diluted operating earnings per share as operating earnings as described in clause (a) divided by weighted average diluted shares outstanding. We calculate (c) pre-tax, pre-provision operating earnings as operating earnings as described in clause (a) plus provision for income taxes, plus benefit (provision) for credit losses and unfunded commitments. We calculate (d) pre-tax, pre-provision operating return on average assets as pre-tax, pre-provision operating earnings as described in clause (a) divided by total average assets. We calculate (e) operating return on average assets as operating earnings as described in clause (a) divided by total average assets. We calculate (f) operating return on average tangible common equity as operating earnings as described in clause (a), adjusted for the amortization of intangibles and tax benefit at the statutory rate, divided by total average tangible common equity (average stockholders’ equity less average goodwill and average core deposit intangibles, net of accumulated amortization). We calculate (g) operating efficiency ratio as non interest expense plus adjustments to operating non interest expense divided by non interest income plus adjustments to operating non interest income, plus 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 Quarter Ended   For the Year Ended
    Dec 31,
2021
  Sep 30,
2021
  Jun 30,
2021
  Mar 31,
2021
  Dec 31,
2020
  Dec 31,
2021
  Dec 31,
2020
    (Dollars in thousands)
Operating Earnings                            
Net income   $ 41,506     $ 36,835   $ 29,456   $ 31,787   $ 22,801     $ 139,584   $ 73,883  
Plus: Severance payments1               627               627      
Plus: Loss (gain) on sale of securities available for sale, net           188             256       188     (2,615 )
Plus: Debt extinguishment costs2                       9,746           11,307  
Less: Thrive PPP loan forgiveness income3           1,912                   1,912      
Plus: Merger and acquisition expenses     826                         826      
Operating pre-tax income     42,332       35,111     30,083     31,787     32,803       139,313     82,575  
Less: Tax impact of adjustments     (78 )     39     131         2,100       92     1,823  
Plus: Nonrecurring tax adjustments4                   426     (973 )     426     (2,772 )
Operating earnings   $ 42,410     $ 35,072   $ 29,952   $ 32,213   $ 29,730     $ 139,647   $ 77,980  
                             
Weighted average diluted shares outstanding     50,441       50,306     50,331     49,998     49,837       50,352     50,036  
Diluted EPS   $ 0.82     $ 0.73   $ 0.59   $ 0.64   $ 0.46     $ 2.77   $ 1.48  
Diluted operating EPS   $ 0.84     $ 0.70   $ 0.60   $ 0.64   $ 0.60     $ 2.77   $ 1.56  

1 Severance payments relate to branch restructurings made during the three months ended June 30, 2021.
2 Debt extinguishment costs relate to prepayment penalties paid in connection with the early payoff of FHLB structured advances.
3 During the third quarter of 2021, Thrive’s PPP loan with another bank was 100% forgiven by the Small Business Administration. As a result of our 49% investment in Thrive, the $1.9 million represents our portion of the PPP loan forgiveness. PPP fee income is not taxable and as such has no tax impact.
4 A nonrecurring tax adjustment of $426 thousand recorded in the first quarter of 2021 was due to a true-up of a deferred tax liability. A nonrecurring tax adjustment of $973 thousand recorded in the fourth quarter of 2020 was primarily due the reversal of acquired deferred tax liabilities resulting in a tax benefit of $1.2 million offset by tax expense of $281 thousand for the setup of an uncertain tax position liability relating to state tax exposure for tax years prior to the year ending December 31, 2020. A nonrecurring tax adjustment of $1,799 was recorded in the second quarter of 2020 as a result of the Company amending a prior year Green Bancorp, Inc. tax return to carry back a net operating loss (“NOL”) incurred by Green Bancorp, Inc. on January 1, 2019. The Company was allowed to carry back this NOL as result of a provision in the Coronavirus Aid, Relief, and Economic Security Act, which permits NOL generated in tax years 2018, 2019 or 2020 to be carried back five years.

    For the Quarter Ended   For the Year Ended
    Dec 31,
2021
  Sep 30,
2021
  Jun 30,
2021
  Mar 31,
2021
  Dec 31,
2020
  Dec 31,
2021
  Dec 31,
2020
    (Dollars in thousands)
Pre-Tax, Pre-Provision Operating Earnings                            
Net Income   $ 41,506     $ 36,835     $ 29,456     $ 31,787     $ 22,801     $ 139,584     $ 73,883  
Plus: Provision for income taxes     10,697       9,195       7,837       8,993       4,702       36,722       14,203  
Plus: (Benefit) provision for credit losses and unfunded commitments     (4,389 )     (448 )     577       (570 )     902       (4,830 )     65,669  
Plus: Severance payments                 627                   627        
Plus: Loss (gain) on sale of securities, net           188                   256       188       (2,615 )
Less: Thrive PPP loan forgiveness income           1,912                         1,912        
Plus: Debt extinguishment costs                             9,746             11,307  
Plus: Merger and acquisition expenses     826                               826        
Net pre-tax, pre-provision operating earnings   $ 48,640     $ 43,858     $ 38,497     $ 40,210     $ 38,407     $ 171,205     $ 162,447  
                             
Total average assets   $ 9,788,671     $ 9,385,470     $ 9,321,279     $ 8,941,271     $ 8,750,141     $ 9,361,578     $ 8,525,275  
Pre-tax, pre-provision operating return on average assets1     1.97 %     1.85 %     1.66 %     1.82 %     1.75 %     1.83 %     1.91 %
                             
Average Total Assets   $ 9,788,671     $ 9,385,470     $ 9,321,279     $ 8,941,271     $ 8,750,141     $ 9,361,578     $ 8,525,275  
Return on average assets1     1.68 %     1.56 %     1.27 %     1.44 %     1.04 %     1.49 %     0.87 %
Operating return on average assets1     1.72       1.48       1.29       1.46       1.35       1.49       0.91  
                             
Operating earnings adjusted for amortization of core deposit intangibles                            
Operating earnings   $ 42,410     $ 35,072     $ 29,952     $ 32,213     $ 29,730     $ 139,647     $ 77,980  
Adjustments:                            
Plus: Amortization of core deposit intangibles     2,438       2,438       2,438       2,447       2,451       9,761       9,804  
Less: Tax benefit at the statutory rate     512       512       512       514       515       2,050       2,060  
Operating earnings adjusted for amortization of core deposit intangibles   $ 44,336     $ 36,998     $ 31,878     $ 34,146     $ 31,666     $ 147,358     $ 85,724  
                             
Average Tangible Common Equity                            
Total average stockholders’ equity   $ 1,301,676     $ 1,290,528     $ 1,254,371     $ 1,224,294     $ 1,196,274     $ 1,267,992     $ 1,164,973  
Adjustments:                            
Average goodwill     (393,220 )     (370,840 )     (370,840 )     (370,840 )     (370,840 )     (376,480 )     (370,840 )
Average core deposit intangibles     (49,596 )     (52,043 )     (54,471 )     (56,913 )     (59,010 )     (53,233 )     (62,803 )
Average tangible common equity   $ 858,860     $ 867,645     $ 829,060     $ 796,541     $ 766,424     $ 838,279     $ 731,330  
Operating return on average tangible common equity1     20.48 %     16.92 %     15.42 %     17.39 %     16.44 %     17.58 %     11.72 %
                             
Efficiency ratio     48.53 %     47.55 %     52.42 %     49.62 %     62.52 %     49.45 %     50.90 %
Operating efficiency ratio                            
Net interest income   $ 76,741     $ 71,276     $ 67,131     $ 65,635     $ 66,766     $ 280,783     $ 265,798  
Noninterest income     16,150       15,627       12,456       14,172       9,012       58,405       47,344  
Plus: Loss (gain) on sale of securities available for sale, net           188                   256       188       (2,615 )
Less: Thrive’s PPP loan forgiveness income           1,912                         1,912        
Operating noninterest income     16,150       13,903       12,456       14,172       9,268       56,681       49,959  
Noninterest expense     45,077       41,321       41,717       39,597       47,373       167,712       159,387  
Less: Severance payments                 627                   627        
Less: Debt extinguishment costs                             9,746             11,307  
Less: Merger and acquisition expenses     826                               826        
Operating noninterest expense   $ 44,251     $ 41,321     $ 41,090     $ 39,597     $ 37,627     $ 166,259     $ 148,080  
Operating efficiency ratio     47.64 %     48.51 %     51.63 %     49.62 %     49.49 %     49.27 %     47.69 %

1 Annualized ratio for quarterly metrics.

        

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