VERITEX: Management report and analysis of the financial situation and operating results (form 10-Q)

0


The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and notes thereto appearing in Item 1 of Part I of this
Quarterly Report on Form 10-Q (this "Report") as well as with our consolidated
financial statements and notes thereto appearing in our Annual Report on Form
10-K for the year ended December 31, 2020. Except where the content otherwise
requires or when otherwise indicated, the terms "Veritex," the "Company," "we,"
"us," "our," and "our business" refer to the combined entities of Veritex
Holdings, Inc. and its subsidiaries, including Veritex Community Bank.

This discussion and analysis contains forward-looking statements that are
subject to certain risks and uncertainties and are based on certain assumptions
that we believe are reasonable but may prove to be inaccurate. Certain risks,
uncertainties and other factors, including those set forth under "Special
Cautionary Notice Regarding Forward-Looking Statements," may cause actual
results to differ materially from the projected results discussed in the
forward-looking statements appearing in this discussion and analysis. We assume
no obligation to update any of these forward-looking statements. For additional
information concerning forward-looking statements, please read "Special
Cautionary Notice Regarding Forward-Looking Statements" below.

Overview

  We are a Texas state banking organization with corporate offices in Dallas,
Texas. Through our wholly owned subsidiary, Veritex Community Bank, a Texas
state chartered bank, we provide relationship-driven commercial banking products
and services tailored to meet the needs of small to medium-sized businesses and
professionals. Beginning at our operational inception in 2010, we initially
targeted customers and focused our acquisitions primarily in the Dallas
metropolitan area, which we consider to be Dallas and the adjacent communities
in North Dallas. Our current primary market now includes the broader Dallas-Fort
Worth metroplex and the Houston metropolitan area. As we continue to grow, we
may expand to other metropolitan banking markets in Texas.
  Our business is conducted through one reportable segment, community banking,
which generates the majority of our revenues from interest income on loans,
customer service and loan fees, gains on sale of government guaranteed loans and
mortgage loans and interest income from securities. We incur interest expense on
deposits and other borrowed funds and noninterest expense, such as salaries,
employee benefits and occupancy expenses. We analyze our ability to maximize
income generated from interest earning assets and expense of our liabilities
through net interest margin. Net interest margin is a ratio calculated as net
interest income divided by average interest-earning assets. Net interest income
is the difference between interest income on interest-earning assets, such as
loans and securities, and interest expense on interest-bearing liabilities, such
as deposits and borrowings, which are used to fund those assets.
  Changes in the market interest rates and interest rates we earn on
interest-earning assets or pay on interest-bearing liabilities, as well as the
volume and types of interest-earning assets, and interest-bearing and
noninterest-bearing liabilities, are usually the largest drivers of periodic
changes in net interest spread, net interest margin and net interest income.
Fluctuations in market interest rates are driven by many factors, including
governmental monetary policies, inflation, deflation, macroeconomic
developments, changes in unemployment, the money supply, political and
international conditions and conditions in domestic and foreign financial
markets. Periodic changes in the volume and types of loans in our loan portfolio
are affected by, among other factors, economic and competitive conditions in
Texas and, specifically, in the Dallas-Fort Worth metroplex and Houston
metropolitan area, as well as developments affecting the real estate,
technology, financial services, insurance, transportation, manufacturing and
energy sectors within our target market and throughout the state of Texas.
Recent Developments

Impact of COVID-19

The COVID-19 pandemic has created a global public health crisis that has
resulted in continued unprecedented uncertainty, volatility and disruption in
financial markets and in governmental, commercial and consumer activity in the
United States and globally, including the markets that we serve. Possible
additional waves of COVID-19, including variant strains thereof, may adversely
affect the re-opening process. Conversely, ongoing virus containment efforts and
vaccination progress, as well as the possibility of further government stimulus,
could accelerate the macroeconomic recovery.

                                       45
--------------------------------------------------------------------------------

We have taken deliberate actions to ensure that we have the balance sheet
strength to serve our clients and communities during the COVID-19 pandemic,
including increasing our liquidity and reserves supported by a strong capital
position. In order to protect the health of our customers and employees, and to
comply with applicable governmental directives, we implemented our operational
response and preparedness plan, which includes, among other things, dispersion
of critical operation processes, increased monitoring focused on higher risk
operations, enhanced remote access security and further restricted internet
access, enhanced security around wire transfer execution and flexible scheduling
provided to employees who are unable to work from home.

On March 27, 2020, the CARES Act was enacted. The CARES Act contains substantial
tax and spending provisions intended to address the impact of the COVID-19
pandemic, including the Paycheck Protection Program ("PPP"), a loan program
administered by the SBA. Under the PPP, small businesses, sole proprietorships,
independent contractors and self-employed individuals may apply for forgivable
loans from existing SBA lenders and other approved lenders that enroll in the
program, subject to numerous limitations and eligibility criteria. Subsequent
legislation, including as noted below, has allocated additional funding to the
PPP. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020,
provided additional funding for the PPP and allowed eligible borrowers,
including certain borrowers who already received a PPP loan, to apply for PPP
loans through March 31, 2021. The SBA began accepting PPP applications under the
Consolidated Appropriations Act, 2021 on January 13, 2021. The American Rescue
Plan Act of 2021, enacted on March 11, 2021, expanded the eligibility criteria
for PPP loans and revised the exclusions from payroll costs for purposes of loan
forgiveness. The PPP Extension Act of 2021, enacted on March 30, 2021, extended
the PPP through May 31, 2021.

Beginning in early April 2020, we began processing loan applications under the
PPP, and in January 2021 we began processing applications under the latest round
of the PPP. The Company believes that the majority of these loans will
ultimately be forgiven by the SBA in accordance with the terms of the program.
If a loan is fully forgiven, the SBA will repay the lending bank in full. If a
loan is partially forgiven or not forgiven at all, a bank must look to the
borrower for repayment of unforgiven principal and interest. If the borrower
defaults, the loan is guaranteed by the SBA. In order to obtain loan
forgiveness, a PPP borrower must submit a forgiveness application. The SBA began
approving forgiveness applications on October 2, 2020.

In response to the COVID-19 pandemic, we also implemented a loan deferment
program to provide temporary payment relief to certain of our borrowers who meet
the program's qualifications. This program allows for a deferral of principal
and/or interest payments for 90 days ("Round 1 Deferments"), which we may extend
for an additional 90 days ("Round 2 Deferments"), for a maximum of 180 days on a
cumulative basis. The deferred payments along with interest accrued during the
deferral period are due and payable on the maturity date of the existing loan.
The CARES Act, as amended by the Consolidated Appropriations Act, 2021,
specified that COVID-19 related loan modifications executed between March 1,
2020 and the earlier of (i) 60 days after the date of termination of the
national emergency declared by the President and (ii) January 1, 2022, on loans
that were current as of December 31, 2019 are not TDRs. Additionally, under
guidance from the federal banking agencies, other short-term modifications made
on a good faith basis in response to the COVID-19 pandemic to borrowers that
were current prior to any relief are not TDRs under ASC Subtopic 310-40,
"Troubled Debt Restructuring by Creditors." These modifications include
short-term (e.g., up to six months) modifications such as payment deferrals, fee
waivers, extensions of repayment terms, or delays in payment that are
insignificant. Under the loan deferment program, Company had 12 and 754
modifications of loans in 2021 and 2020, respectively with aggregate principal
balances of $4.8 million and $1.1 billion in 2021 and 2020, respectively, that
qualified for temporary suspension of TDR requirements under Section 4013 of the
CARES Act, as amended by the Consolidated Appropriations Act, 2021, and the
interagency guidance. As of June 30, 2021, the Company had 2 loans with an
aggregate principal balance of $6.9 million remaining on deferment under Section
4013 of the CARES Act.

Significant uncertainties as to future economic conditions exist, and we have
taken deliberate actions in response to these uncertainties, including increased
levels of on balance sheet liquidity and increased capital ratio levels. We
continue to monitor the impact of COVID-19 closely, as well as any effects that
may result from the CARES Act; however, the extent to which the COVID-19
pandemic will impact our operations and financial results during 2021 is highly
uncertain.

Financial situation and operating results

The COVID-19 pandemic had a material impact on our ACL during 2020. Our ACL
calculation and resulting provision for credit losses is significantly impacted
by changes in the Texas economic forecasts used in the current expected credit
losses ("CECL") model throughout 2020 and 2021 to reflect the expected impact of
the COVID-19 pandemic. Should economic conditions worsen, we could experience
increases in our ACL and record additional credit loss expense. We could also
see an increase in our ratio of past due loans to total loans and an increase in
charge-offs related to COVID-19. It is possible that our asset quality measures
could worsen at future measurement periods if the effects of the COVID-19
pandemic are further prolonged.

                                       46
--------------------------------------------------------------------------------

Our fee income could be reduced due to the COVID-19 pandemic. In keeping with
guidance from regulators, we are working with customers affected by the COVID-19
pandemic to waive fees from a variety of sources, including, but not limited to,
insufficient funds and overdraft fees, ATM fees and account maintenance fees.
These reductions in fees are thought, at this time, to be temporary in
conjunction with the length of the expected COVID-19 pandemic. At this time, we
are unable to project the materiality of such an impact, but recognize the
breadth of the economic impact is likely to impact our fee income in future
periods.

Our interest income could also be reduced due to the COVID-19 pandemic and the
associated 1.00% yield earned on PPP loans. In keeping with guidance from
regulators, we are actively working with borrowers affected by the COVID-19
pandemic to defer their payments, interest, and fees. While interest and fees
will still accrue to income, should eventual credit losses on these deferred
payments emerge, our interest income and fees accrued would need to be reversed.
In such a scenario, interest income in future periods could be negatively
impacted. At this time, we are unable to project the materiality of such an
impact, but recognize the breadth of the economic impact may affect our
borrowers' ability to repay in future periods.

Capital and liquidity

As of June 30, 2021, all of our and the Bank's capital ratios were in excess of
all regulatory requirements. While we believe that we have sufficient capital to
withstand an extended economic recession brought about by the COVID-19 pandemic,
our reported and regulatory capital ratios could be adversely impacted by
further credit losses. We rely on cash on hand as well as dividends from the
Bank to service our debt. If our capital deteriorates such that the Bank is
unable to pay dividends to us for an extended period of time, we may not be able
to service our debt.

We maintain access to multiple sources of liquidity. As of June 30, 2021, we
have not utilized the PPPLF. Wholesale funding markets have remained open to us
with stable and low rates for short term funding. If an economic recession
caused large numbers of our deposit customers to withdraw their funds, we might
become more reliant on volatile or more expensive sources of funding.

Asset valuation

Currently, we do not expect the COVID-19 pandemic to affect our ability to
account timely for the assets on our balance sheet; however, this could change
in future periods. While certain valuation assumptions and judgments will change
to account for pandemic-related circumstances such as widening credit spreads,
we do not anticipate significant changes in methodology used to determine the
fair value of assets measured in accordance with GAAP.


Operating results for the three months ended June 30, 2021 and 2020

General

Net income for the three months ended June 30, 2021 has been $ 29.5 million, an augmentation of $ 5.4 million, or 22.6%, of the net income of $ 24.0 million for the three months ended June 30, 2020.

  Basic earnings per share ("EPS") for the three months ended June 30, 2021 was
$0.60, an increase of $0.12 from $0.48 for the three months ended June 30, 2020.
Diluted EPS for the three months ended June 30, 2021 was $0.59, an increase of
$0.11 from $0.48 for the three months ended June 30, 2020.
                                       47
--------------------------------------------------------------------------------

Net interest income

For the three months ended June 30, 2021, net interest income totaled $67.1
million and net interest margin and net interest spread were 3.11% and 2.90%,
respectively. For the three months ended June 30, 2020, net interest income
totaled $65.8 million and net interest margin and net interest spread were 3.31%
and 3.02%, respectively. The increase in net interest income was due to a $4.5
million decrease in interest expense, partially offset by a $3.2 million
decrease in interest income. The decrease in interest income was primarily due
to a $2.6 million decrease in interest income on loans due to a decrease in the
average yields earned on loans. The decrease in interest expense resulted from
$810 thousand and $4.1 million decreases in interest expenses on
interest-bearing demand and savings deposits and certificates and other time
deposits, respectively, during the three months ended June 30, 2021 compared to
the three months ended June 30, 2020, partially offset by a $1.3 million
increase in interest expense on subordinated debentures and subordinated debt.
Net interest margin decreased 20 basis points from the three months ended June
30, 2020 primarily due to a decrease in average yields earned on loan balances,
partially offset by decreases in the average rate paid on interest-bearing
demand and savings deposits and certificate and other time deposits in the three
months ended June 30, 2021. As a result, the average cost of interest-bearing
deposits decreased to 0.35% for the three months ended June 30, 2021 from 0.84%
for the three months ended June 30, 2020.

For the three months ended June 30, 2021, interest expense totaled $9.1 million
and the average rate paid on interest-bearing liabilities was 0.63%. For the
three months ended June 30, 2020, interest expense totaled $13.6 million and the
average rate paid on interest-bearing liabilities was 0.97%. The year-over-year
decrease was due to decreases in the average rates paid on interest-bearing
demand and savings deposits and certificates and other time deposits and a
change in deposit mix.

                                       48
--------------------------------------------------------------------------------

The following table presents, for the periods indicated, an analysis of net
interest income by each major category of interest-earning assets and
interest-bearing liabilities, the average amounts outstanding and the interest
earned or paid on such amounts. The table also sets forth the average rates
earned on interest-earning assets, the average rates paid on interest-bearing
liabilities, and the net interest margin on average total interest-earning
assets for the same periods. Interest earned on loans that are classified as
nonaccrual is not recognized in income; however, the balances are reflected in
average outstanding balances for the period. For the three months ended June 30,
2021 and 2020, interest income not recognized on nonaccrual loans was
$255 thousand and $536 thousand, respectively. Any nonaccrual loans have been
included in the table as loans carrying a zero yield.
                                                                                         For the Three Months Ended June 30,
                                                                          2021                                                        2020
                                                                        Interest                                                    Interest
                                                     Average             Earned/            Average              Average             Earned/            Average
                                                   Outstanding          Interest             Yield/            Outstanding          Interest             Yield/
                                                     Balance              Paid                Rate               Balance              Paid                Rate
                                                                                               (Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)                                          $ 6,108,527          $ 63,427                 4.16  %       $ 5,797,989          $ 67,404                 4.68  %
Loans held for investment, MW                         455,334             3,476                 3.06              304,873             2,279                 3.01
PPP loans                                             364,020               911                 1.00              303,223               757                 1.00
Debt Securities                                     1,095,678             7,529                 2.76            1,117,964             7,825                 2.82
Interest-earning deposits in other banks              548,087               167                 0.12              366,764               186             

0.20

Equity securities and other investments                87,413               672                 3.08              110,672               891             

3.24

Total interest-earning assets                       8,659,059            76,182                 3.53            8,001,485            79,342                 3.99
ACL                                                  (105,050)                                                   (110,483)
Noninterest-earning assets                               767,270                                                  798,772
Total assets                                      $ 9,321,279                                                 $ 8,689,774

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand and savings
deposits                                          $ 3,191,405          $  1,661                 0.21  %       $ 2,684,897          $  2,471                 0.37  %
Certificates and other time deposits                1,515,092             2,423                 0.64            1,625,971             6,515                 1.61
Advances from FHLB                                    777,655             1,829                 0.94            1,206,930             2,801                 0.93
Subordinated debentures and subordinated
debt                                                  264,931             3,138                 4.75              142,549             1,798           

5.07

Total interest-bearing liabilities                  5,749,083             9,051                 0.63            5,660,347            13,585           

0.97

Noninterest-bearing liabilities:
Noninterest-bearing deposits                        2,266,470                                                   1,826,327
Other liabilities                                      51,355                                                      47,302
Total liabilities                                   8,066,908                                                   7,533,976
Stockholders' equity                                1,254,371                                                   1,155,798
Total liabilities and stockholders' equity        $ 9,321,279                                                 $ 8,689,774
Net interest rate spread(2)                                                                      2.9  %                                                     3.02  %
Net interest income                                                    $ 67,131                                                    $ 65,757
Net interest margin(3)                                                                          3.11  %                                                     3.31  %


(1) Includes average outstanding balances of loans held for sale of $14,364 and
$22,958 for the three months ended June 30, 2021 and June 30, 2020,
respectively, and average balances of loans held for investment, excluding MW
and PPP loans.
(2) Net interest rate spread is equal to 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.

                                       49
--------------------------------------------------------------------------------

The following table presents the changes in interest income and interest expense
for the periods indicated for each major component of interest-earning assets
and interest-bearing liabilities and distinguishes between the changes
attributable to changes in volume and interest rates. For purposes of this
table, changes attributable to both rate and volume that cannot be segregated
have been allocated to rate.
                                                                                   For the Three Months Ended June 30,
                                                                                              2021 vs. 2020
                                                                                  Increase (Decrease)

                                                                                   Due to Change in
                                                                               Volume               Rate              Total
                                                                                             (In thousands)
Interest-earning assets:
Loans                                                                      $      3,661          $ (8,395)         $ (4,734)
Loans held for investments, MW                                                    1,129                68             1,197
PPP loans                                                                             -               154               154
Debt securities                                                                    (157)             (139)             (296)
Interest-bearing deposits in other banks                                             90              (109)              (19)
Equity securities and other investments                                            (188)              (31)             (219)
Total increase (decrease) in interest income                                      4,535            (8,452)           (3,917)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits                                        467            (1,277)             (810)
Certificates and other time deposits                                               (445)           (3,647)           (4,092)
Advances from FHLB                                                                 (999)               27              (972)
Subordinated debentures and subordinated notes                                    1,548              (208)            1,340
Total increase (decrease) in interest expense                                       571            (5,105)           (4,534)
Increase (decrease) in net interest income                                 

$ 3,964 $ (3,347) $ 617



Provision for Credit Losses
Our provision for credit losses is a charge to income in order to bring our ACL
to a level deemed appropriate by management. We recorded no provision for credit
losses for the three months ended June 30, 2021, compared to $16.2 million for
the same period in 2020, a decrease of $16.2 million, or 100.0%. The decreased
provision for credit losses was primarily attributable to changes in the Texas
economic forecasts used in the Current Expected Credit Losses ("CECL") model
during the three months ended June 30, 2021 to reflect the expected impact of
the COVID-19 pandemic as of June 30, 2021 compared to the Texas economic
forecasts utilized in the CECL model for the three months ended June 30, 2020.
Prior to the three months ended June 30, 2021, significant deterioration in
these forecasted Texas economic indicators was brought on by the projected
economic impact of the COVID-19 pandemic on the reasonable and supportable
forecast period. In the second quarter of 2021, we also recorded a $577 thousand
provision for unfunded commitments, which was attributable to higher unfunded
balances slightly offset by improving Texas economic forecasts utilized in the
unfunded commitments loss rates, compared to a $2.8 million provision for
unfunded commitments recorded for the three months ended June 30, 2020.



                                       50
--------------------------------------------------------------------------------

Noninterest Income
Our primary sources of recurring noninterest income are service charges and fees
on deposit accounts, loan fees, gain on the sale of securities, gains on the
sale of mortgage loans held for sale, government guaranteed loan income, net and
other income. Noninterest income does not include loan origination fees, which
are generally recognized over the life of the related loan as an adjustment to
yield using the interest method.
The following table presents, for the periods indicated, the major categories of
noninterest income:
                                                                                   For the
                                                                          Three Months Ended June 30,                       Increase
                                                                            2021                 2020                      (Decrease)
                                                                                   (In thousands)
Noninterest income:
Service charges and fees on deposit accounts                          $        3,847          $  2,960                   $       887
Loan fees                                                                      1,823             1,240                           583
Gain on sales of securities                                                        -             2,879                        (2,879)
Gain on sales of mortgage loans held for sale                                    385               308                            77
Government guaranteed loan income, net                                         3,448            11,006                        (7,558)

Other                                                                          2,953             2,897                            56
Total noninterest income                                              $       12,456          $ 21,290                   $    (8,834)


Noninterest income for the three months ended June 30, 2021 decreased $8.8
million, or 41.5%, to $12.5 million compared to noninterest income of $21.3
million for the same period in 2020. The primary drivers of the decrease were as
follows:
Service charges and fees on deposit accounts. We earn service charges and fees
from our customers for deposit-related activities. The income from these deposit
activities constitutes a significant and predictable component of our
noninterest income. Service charges and fees on deposit accounts were $3.8
million for the three months ended June 30, 2021, an increase of $887 thousand,
over the same period in 2020. This increase was primarily due to a $580 thousand
increase in analysis charges resulting from additional deposit accounts being
serviced for the three months ended June 30, 2021 compared to the same period in
2020.
Gain on sales of securities. There were no sales of securities during the three
months ended June 30, 2021 resulting in no gains or losses recognized compared
to gains of $2.9 million for the same period in 2020.
Government guaranteed loan income, net. Government guaranteed loan income, net
includes non-interest income earned on PPP loans as well as income related to
the sales of government guaranteed loans. The decrease in government guaranteed
loan income, net of $7.6 million from the three months ended June 30, 2020 to
the three months ended June 30, 2021 was driven by a $11.5 million decrease in
fee income earned on PPP loans during the three months ended June 30, 2021
compared the same period in 2020, partially offset by a $2.6 million increase in
the valuation of PPP loans held at fair value and a $2.0 million increase in
gain on sale of SBA loans during the three months ended June 30, 2021.

                                       51
--------------------------------------------------------------------------------

Noninterest Expense
Noninterest expense is composed of all employee expenses and costs associated
with operating our facilities, acquiring and retaining customer relationships
and providing bank services. The major component of noninterest expense is
salaries and employee benefits. Noninterest expense also includes operational
expenses, such as occupancy expenses, depreciation and amortization of office
equipment, professional fees and regulatory fees, data processing and software
expenses, marketing expenses and amortization of intangibles.
The following table presents, for the periods indicated, the major categories of
noninterest expense:
                                                                        For the Three Months Ended June
                                                                                      30,                        Increase
                                                                            2021               2020             (Decrease)
                                                                                           (In thousands)
Salaries and employee benefits                                          $   23,451          $ 20,019          $      3,432
Non-staff expenses:
Occupancy and equipment                                                      4,233             3,994                   239
Professional and regulatory fees                                             3,086             2,796                   290
Data processing and software expense                                         2,536             2,434                   102
Marketing                                                                    1,841               561                 1,280
Amortization of intangibles                                                  2,517             2,696                  (179)
Telephone and communications                                                   337               308                    29

COVID expenses                                                                   -             1,245                (1,245)
Other                                                                        3,716             6,008                (2,292)
Total noninterest expense                                               $   41,717          $ 40,061          $      1,656


Non-interest charges for the three months ended June 30, 2021 increases $ 1.7 million, or 4.1%, to $ 41.7 million in relation to the non-interest expenses of $ 40.1 million for the three months ended June 30, 2020. The most significant elements of the increase are as follows:

Salaries and employee benefits. Salaries and employee benefits include payroll
expense, the cost of incentive compensation, benefit plans, health insurance and
payroll taxes. These expenses are impacted by the amount of direct loan
origination costs, which are required to be deferred in accordance with ASC
310-20 (formerly FAS91). Salaries and employee benefits were $23.5 million for
the three months ended June 30, 2021, an increase of $3.4 million, or 17.1%,
compared to the same period in 2020. The increase was primarily attributable to
an increase in accrued employee bonus of $1.6 million, an increase in salaries
of $1.4 million and an increase in employee stock based compensation of $786
thousand for the three months ended June 30, 2021 as compared to the same period
in 2020. This increase was offset by an increase of $828 thousand in direct loan
origination costs which are required to be deferred in accordance with ASC
310-20.

Marketing. This category of expenses includes expenses related to advertising
and promotions, which increased $1.3 million for the three months ended June 30,
2021 compared to the same period in 2020. This increase is primarily due to $842
thousand increase in annual sponsorship fees.
COVID expenses. This category of expenses includes expenses related to the
COVID-19 pandemic. There were no COVID-19 pandemic related expenses for the
three months ended June 30, 2021 compared to $1.3 million for the three months
ended June 30, 2020 that primarily related to PPP incentive compensation of $500
thousand, Community Reinvestment Act ("CRA") donations of $406 thousand,
employee salaries of $273 thousand and janitorial expenses of $22 thousand.

Other noninterest expense. This category includes loan and collection expenses,
supplies and printing, postage, automatic teller and online expenses and other
miscellaneous expenses. Other noninterest expense was $3.7 million for the three
months ended June 30, 2021 compared to $6.0 million for the same period in 2020,
a decrease of $2.3 million, or 38.1%. This decrease was primarily due to a
decrease in bank service charges resulting from pre-payment fees on FHLB
advances paid off early of $1.6 million during the three months ended June 30,
2020 with no corresponding expense during the same period in 2021. The decrease
was also driven by a decrease in problem loan fees of $1.1 million during the
three months ended June 30, 2021 as compared to the same period in 2020.
                                       52
--------------------------------------------------------------------------------

Income tax expense

Income tax expense is a function of our pre-tax income, tax-exempt income and
other nondeductible expenses. Deferred tax assets and liabilities reflect
current statutory income tax rates in effect for the period in which the
deferred tax assets and liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. As of June 30, 2021, we did not believe a valuation allowance
was necessary.

For the three months ended June 30, 2021, the tax charge amounts to $ 7.8 million, an augmentation of $ 3.9 million, compared to $ 4.0 million for the same period in 2020.

For the three months ended June 30, 2021, the Company had an effective tax rate
of 21.0%. The Company had a net discrete tax benefit of $115 thousand for excess
tax benefit realized on share-based payment award during the tree months ended
June 30, 2021.Excluding this discrete tax item, the Company had an effective tax
rate of 21.3% for the three months ended June 30, 2021.
For the three months ended June 30, 2020, the Company had an effective tax rate
of 14.2%. The Company had a net discrete tax benefit of $1.8 million as a result
of the Company amending a prior year Green tax return to carry back a net
operating loss ("NOL") incurred by Green Bancorp, Inc. on January 1, 2019 during
the three months ended June 30, 2020. Excluding this discrete tax item, the
Company had an effective tax rate of 20.7% for the three months ended June 30,
2020.
                                       53
--------------------------------------------------------------------------------

Operating results for the half-year ended June 30, 2021 and 2020

General

Net income for the half-year ended June 30, 2021 has been $ 61.2 million, an augmentation of $ 33.1 million, or 117.5%, of the net income of $ 28.2 million for the six months ended June 30, 2020.

  Basic EPS for the six months ended June 30, 2021 was $1.24, an increase of
$0.68 from $0.56 for the six months ended June 30, 2020. Diluted EPS for the six
months ended June 30, 2021 was $1.22, an increase of $0.66 from $0.56 for the
six months ended June 30, 2020.
Net Interest Income

For the six months ended June 30, 2021, net interest income before provisions
for credit losses totaled $132.8 million and net interest margin and net
interest spread were 3.16% and 2.94%, respectively. For the six months ended
June 30, 2020, net interest income totaled $133.2 million and net interest
margin and net interest spread were 3.48% and 3.14%, respectively. The decrease
in net interest income of $396 thousand was primarily due to a $13.1 million
decrease in interest income on loans, partially offset by $5.4 million and $9.3
million decreases in interest expense on interest-bearing demand and savings
deposits and certificates and other time deposits, respectively, during the six
months ended June 30, 2021 compared to the six months ended June 30, 2020. The
decrease in interest income on loans was due to a decrease in average yields
earned on loans. Net interest margin decreased 32 basis points from the six
months ended June 30, 2020 primarily due to a decrease in yields earned on loan
balances, partially offset by decreases in the average rate paid on
interest-bearing demand and savings deposits and certificates and other time
deposits in the six months ended June 30, 2021 and an unfavorable shift in the
mix of earning assets compared to the six months ended June 30, 2020. As a
result, the average cost of interest-bearing deposits decreased 77 basis points
to 0.40% for the six months ended June 30, 2021 from 1.11% for the six months
ended June 30, 2020.

For the six months ended June 30, 2021, interest expense totaled $19.0 million
and the average rate paid on interest-bearing liabilities was 0.68%. For the six
months ended June 30, 2020, interest expense totaled $33.2 million and the
average rate paid on interest-bearing liabilities was 1.21%. The decrease in
interest expense of $14.1 million was due to a $5.4 million decrease in the
average rate paid on interest-bearing demand and savings deposits and a $9.3
million decrease in the average rate paid on time deposits, partially offset by
a $536 thousand increase in interest paid on borrowings.

                                       54
--------------------------------------------------------------------------------

  The following table presents, for the periods indicated, an analysis of net
interest income by each major category of interest-earning assets and
interest-bearing liabilities, the average amounts outstanding and the interest
earned or paid on such amounts. The table also sets forth the average rate
earned on interest-earning assets, the average rate paid on interest-bearing
liabilities, and the net interest margin on average total interest-earning
assets for the same periods. Interest earned on loans that are classified as
non-accrual is not recognized in income; however, the balances are reflected in
average outstanding balances for the period. For the six months ended June 30,
2021 and 2020, interest income not recognized on non-accrual loans was
$1.4 million and $536 thousand, respectively. Any non-accrual loans have been
included in the table as loans carrying a zero yield.

                                                                                            For the Six Months Ended June 30,
                                                                            2021                                                         2020
                                                                          Interest                                                     Interest
                                                      Average             Earned/             Average              Average             Earned/             Average
                                                    Outstanding           Interest             Yield/            Outstanding           Interest             Yield/
                                                      Balance               Paid                Rate               Balance               Paid                Rate
                                                                                                 (Dollars in thousands)
Assets
Interest-earning assets:
Loans(1)                                           $ 6,003,754          $ 126,128                 4.24  %       $ 5,790,227          $ 143,931                 5.00  %
Loans held for investment, MW                          482,853              7,292                 3.05              234,260              3,613                 3.10
PPP loans                                              360,209              1,793                 1.00              152,861                757                 1.00
Debt securities                                      1,079,697             14,966                 2.80            1,078,459             15,222                 2.84
Interest-bearing deposits in other banks               445,356                294                 0.13              337,655              1,057          

0.63

Equity securities and other investments                 87,296              1,335                 3.08              101,294              1,741          

3.46

Total interest-earning assets                        8,459,165            151,808                 3.62            7,694,756            166,321                 4.35
ACL                                                   (105,509)                                                     (77,376)
Noninterest-earning assets                             778,691                                                      763,567
Total assets                                       $ 9,132,347                                                  $ 8,380,947

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand and savings deposits       $ 3,115,417          $   3,641                 0.24  %       $ 2,668,726          $   9,023                 0.68  %
Certificates and other time deposits                 1,512,479              5,484                 0.73            1,639,807             14,755                 1.81
Advances from FHLB                                     777,675              3,641                 0.94            1,072,416              5,680                 1.07
Subordinated debentures and subordinated
notes                                                  265,142              6,276                 4.77              143,869              3,701          

5.17

Total interest-bearing liabilities                   5,670,713             19,042                 0.68            5,524,818             33,159         

1.21

Noninterest-bearing liabilities:
Noninterest-bearing deposits                         2,168,396                                                    1,675,015
Other liabilities                                       53,823                                                       38,488
Total liabilities                                    7,892,932                                                    7,238,321
Stockholders' equity                                 1,239,415                                                    1,142,626
Total liabilities and stockholders' equity         $ 9,132,347                                                  $ 8,380,947

Net interest rate spread(2)                                                                       2.94  %                                                      3.14  %
Net interest income                                                     $ 132,766                                                    $ 133,162
Net interest margin(3)                                                                            3.16  %                                                      3.48  %

________________________________

(1) Includes average outstanding balances of loans held for sale of $15,476 and
$16,977 for the six months ended June 30, 2021 and June 30, 2020, respectively,
and average balances of loans held for investment, excluding MW and PPP loans.
(2) Net interest rate spread is equal to 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.
                                       55
--------------------------------------------------------------------------------


The following table presents the changes in interest income and interest expense
for the periods indicated for each major component of interest-earning assets
and interest-bearing liabilities and distinguishes between the changes
attributable to changes in volume and interest rates. For purposes of this
table, changes attributable to both rate and volume that cannot be segregated
have been allocated to rate.
                                                             For the Six Months Ended
                                                              June 30, 2021 vs. 2020
                                                        Increase (Decrease)

                                                         Due to Change in
                                                       Volume          Rate           Total
                                                                  (In thousands)
Interest-earning assets:
Loans                                               $    5,293      $ (23,096)     $ (17,803)
Loans held for investment, MW                            3,822           (143)         3,679
PPP loans                                                1,793              -          1,036
Debt securities                                             17           (273)          (256)
Interest-bearing deposits in other banks                   336         (1,099)          (763)
Equity securities and other investments                   (240)          (166)          (406)
Total increase (decrease) in interest income            11,021        (24,777)       (14,513)
Interest-bearing liabilities:
Interest-bearing demand and savings deposits             1,506         (6,888)        (5,382)
Certificates and other time deposits                    (1,143)        (8,128)        (9,271)
Advances from FHLB                                      (1,557)          (482)        (2,039)
Subordinated debentures and subordinated notes           3,111           (536)         2,575
Total increase (decrease) in interest expense            1,917        

(16,034) (14,117) Increase (decrease) in net interest income $ 9,104 $ (8,743) $ (396)



Provision for Credit Losses
Our provision for credit losses is a charge to income in order to bring our ACL
to a level deemed appropriate by management. For a description of the factors
taken into account by management in determining the ACL see "-Financial
Condition-Allowance for Credit Losses on Loans Held for Investment." No
provision for credit losses was recorded for the six months ended June 30, 2021,
compared to $47.9 million for the same period in 2020, a decrease of $47.9
million, or 100%.

The decrease in the recorded provision for credit losses for the six months
ended June 30, 2021 was primarily attributable to improvement in the Texas
economic forecasts used in the CECL model in 2021 to reflect the expected impact
of the COVID-19 pandemic as of June 30, 2021, as compared to the Texas economic
forecasts utilized in the CECL model and expected impact of the COVID-19
pandemic as of June 30, 2020. In the six months ended June 30, 2021, we also
recorded an $7 thousand provision for unfunded commitments, which was also
primarily attributable to higher unfunded balances slightly offset by improving
Texas economic forecasts utilized in the unfunded commitments loss rates. In the
six months ended June 30, 2020, we recorded a $6.7 million provision for
unfunded commitments, which was attributable to the change in the economic
forecasts as a result of the COVID-19 pandemic. Allowance for credit losses as a
percentage of loans held for investment, excluding MW and PPP loans, was 1.59%,
1.76% and 2.01% of total loans at June 30, 2021, March 31, 2021 and June 30,
2020, respectively.

                                       56
--------------------------------------------------------------------------------

Noninterest Income
The following table presents, for the periods indicated, the major categories of
noninterest income:
                                                           For the
                                                       Six Months Ended
                                                           June 30,                       Increase
                                                      2021          2020                 (Decrease)
                                                           (In thousands)
Noninterest income:
Service charges and fees on deposit accounts       $  7,476      $  6,602               $       874
Loan fees                                             3,164         2,085                     1,079
Gain on sales of securities                               -         2,879                    (2,879)
Gain on sales of mortgage loans held for sale           892           450                       442
Government guaranteed loan income, net                9,996        11,445                    (1,449)

Other                                                 5,100         5,076                        24
Total noninterest income                           $ 26,628      $ 28,537               $    (1,909)



Noninterest income for the six months ended June 30, 2021 decreased $1.9
million, or 6.7%, to $26.6 million compared to noninterest income of $28.5
million for the same period in 2020. The primary drivers of the decrease were as
follows:
Service charges and fees on deposit accounts. We earn service charges and fees
from our customers for deposit-related activities. The income from these deposit
activities constitutes a significant and predictable component of our
noninterest income. Service charges and fees on deposit accounts were $7,476 for
the six months ended June 30, 2021, an increase of $874, over the same period in
2020. This increase was primarily due to a $375 thousand increase in analysis
charges resulting from additional deposit accounts being serviced for the six
months ended June 30, 2021 compared to the same period in 2020.
Loan fees. We earn certain loan fees in connection with funding and servicing
loans. Loan fees were $3.2 million for the six months ended June 30, 2021
compared to $2.1 million for the same period in 2020. The increase of $1.1
million was primarily attributable to a $418 thousand increase in syndication
loan fees and an increase of $278 thousand in unused credit line fees.
Gain on sales of securities. There were no sales of securities during the six
months ended June 30, 2021 resulting in no gains or losses recognized compared
to gains of $2.9 million for the same period in 2020 which primarily due to a
decrease in market interest rates below coupon rates for securities sold during
the six months ended June 30, 2020.
Government guaranteed loan income, net. Government guaranteed loan income, net,
includes noninterest income earned on PPP loans as well as income related to the
sales of SBA loans. The decrease in government guaranteed loan income, net, of
$1.4 million was driven by a $4.9 million decrease in fee income earned on PPP
loans during the six months ended June 30, 2021 compared the same period in 2020
partially offset by a $2.3 million increase in the valuation of PPP loans held
at fair value and a $1.3 million increase in gain on sale of SBA loans during
the six months ended June 30, 2021.

                                       57
--------------------------------------------------------------------------------

Non-interest charges

The following table presents, for the periods indicated, the major categories of
noninterest expense:
                                                  For the
                                              Six Months Ended
                                                  June 30,              Increase
                                             2021          2020        (Decrease)
                                                       (In thousands)
Salaries and employee benefits            $ 46,383      $ 38,889      $     

7,494

Non-staff expenses:
Occupancy and equipment                      8,329         8,267            

62

Professional and regulatory fees             6,527         4,992            

1,535

Data processing and software expense         4,855         4,523              332
Marketing                                    2,750         1,644            1,106
Amortization of intangibles                  5,054         5,392             (338)
Telephone and communications                   674           627               47

COVID expenses                                   -         1,245           (1,245)
Other                                        6,742        10,027           (3,285)
Total noninterest expense                 $ 81,314      $ 75,606      $     5,708


Non-interest charges for the closed semester June 30, 2021 increases $ 5.7 million, or 7.5%, to $ 81.3 million in relation to the non-interest expenses of $ 75.6 million for the six months ended June 30, 2020. The most significant elements of the increase are as follows:

Salaries and employee benefits. Salaries and employee benefits include payroll
expense, the cost of incentive compensation, benefit plans, health insurance and
payroll taxes. These expenses are impacted by the amount of direct loan
origination costs, which are required to be deferred in accordance with ASC
310-20 (formerly FAS91). Salaries and employee benefits were $46.4 million for
the six months ended June 30, 2021, an increase $7.5 million, or 19.3%, compared
to the same period in 2020. The increase was primarily attributable to a $3.5
million increase in accrued employee bonus, $2.2 million increase in salaries, a
$1.3 million increase in employee stock based compensation, a $582 thousand
increase in employee benefit costs and a $334 thousand increase in payroll taxes
during the six months ended June 30, 2021 compared to the same period in 2020.
This increase was offset by an increase of $1.1 million in direct loan
origination costs which are required to be deferred in accordance with ASC
310-20.

Professional and regulatory fees. This category includes legal, professional,
audit, regulatory, and Federal Deposit Insurance Corporation ("FDIC") assessment
fees. Professional and regulatory fees were $6.5 million for the six months
ended June 30, 2021 compared to $5.0 million for the same period in 2020, an
increase of $1.5 million. The increase was primarily due to FDIC assessment fees
which were $2.0 million for the six months ended June 30, 2021 compared to $908
thousand for the same period in 2020 driven by an increase in average assets,
total equity and FDIC assessment rates.

Marketing. This category of expenses includes expenses related to advertising
and promotions, which increased $1.1 million primarily related to an increase in
annual sponsorship fees for the six months ended June 30, 2021 compared to the
same period in 2020.

COVID expenses. This category of expenses includes expenses related to the
COVID-19 pandemic. There were no COVID-19 pandemic related expenses for the six
months ended June 30, 2021 compared to $1.3 million for the six months ended
June 30, 2020 primarily related to PPP incentive compensation of $500 thousand,
CRA donations of $406 thousand, employee salaries of $273 thousand and increased
janitorial expenses of $22 thousand.

                                       58
--------------------------------------------------------------------------------

Other noninterest expense. This category includes loan operations and
collections, supplies and printing, automatic teller and online expenses and
other miscellaneous expenses. Other noninterest expense was $6.7 million for the
six months ended June 30, 2021 compared to $10.0 million for the same period in
2020, a decrease $3.3 million, or 32.8%. This decrease was primarily due to a
decrease in bank service charges resulting from pre-payment fees on FHLB
advances paid off early of $1.6 million during the six months ended June 30,
2020 with no corresponding expense during the same period in 2021. The decrease
was also driven by a decrease in problem loan fees of $1.2 million during the
six months ended June 30, 2021 as compared to the same period in 2020.


Income tax expense

For the past six months June 30, 2021, the tax charge amounts to $ 16.8 million, an augmentation of $ 13.5 million, i.e. 409.5%, compared to a tax charge of $ 3.3 million for the same period in 2020.

For the six months ended June 30, 2021, the Company had an effective tax rate of
21.6%. The Company had a net discrete tax expense of $157 thousand. This
discrete tax expense related to a true-up of a deferred tax liability of $426
thousand offset by $269 thousand of an excess tax benefit realized on
share-based payment awards during six months ended June 30, 2021. Excluding
these discrete tax items, the Company had an effective tax rate of 21.4% for the
six months ended June 30, 2021.
For the six months ended June 30, 2020, the Company had an effective tax rate of
10.5%. The decrease in the effective tax rate during the six months ended was
primarily due to a net discrete tax benefit of $1.8 million as a result of the
Company amending a prior year Green tax return to carry back a NOL incurred by
Green on January 1, 2019. The Company was allowed to carry back this NOL as
result of a provision in the CARES Act that permits NOLs generated in tax years
2018, 2019 or 2020 to be carried back five years. In addition to this, during
the six months ended June 30, 2020, the Company recognized a net discrete tax
benefit of $1.4 million primarily associated with the recognition of excess tax
benefit realized on share-based payment awards. Excluding these discrete tax
items, the Company had an effective tax rate of 20.9% for the six months ended
June 30, 2020.
                                       59
--------------------------------------------------------------------------------

Financial condition

Our total assets increased $528.7 million, or 6.0%, from $8.8 billion as of
December 31, 2020 to $9.3 billion as of June 30, 2021. Our asset growth was due
to the continued execution of our strategy to establish deep relationships in
the Dallas-Fort Worth metroplex and the Houston metropolitan area as well as our
PPP loan portfolio, with which we serve small businesses impacted by the
COVID-19 pandemic. We believe these relationships will continue to bring in new
customer accounts and grow balances from existing loan and deposit customers.

Loan portfolio

Our primary source of income is interest on loans to individuals, professionals,
small to medium-sized businesses and commercial companies located in the
Dallas-Fort Worth metroplex and Houston metropolitan area. Our loan portfolio
consists primarily of commercial loans and real estate loans secured by
commercial real estate ("CRE") properties located in our primary market areas.
Our loan portfolio represents the highest yielding component of our
interest-earning asset base.

As of June 30, 2021, total loans held for investment, excluding ACL, was $7.1
billion, an increase of $330.6 million, or 4.9%, compared to $6.8 billion as of
December 31, 2020. The increase was the result of the continued execution and
success of our loan growth strategy. In addition to these amounts, $12.1 million
and $21.4 million in loans were classified as held for sale as of June 30, 2021
and December 31, 2020, respectively.

Total loans held for investment, excluding MW and PPP loans, as a percentage of
deposits were 90.0% and 89.8% as of June 30, 2021 and December 31, 2020,
respectively. Total loans held for investment, excluding MW and PPP loans, as a
percentage of assets were 67.1% and 66.3% as of June 30, 2021 and December 31,
2020, respectively.

The following table summarizes our loan portfolio by type of loan as of the
dates indicated:
                                                                       As of June 30,                              As of December 31,
                                                                            2021                                          2020
                                                                 Total                Percent                  Total                  Percent
                                                                                           (Dollars in thousands)
Commercial                                                 $    1,771,100                 25.9  %       $       1,559,546                 24.3  %
MW                                                                559,939                  8.2  %                 577,594                  9.0  %
Real estate:
Owner Occupied CRE ("OOCRE")                                      744,899                 10.9  %                 717,472                 11.1  %
Non-owner Occupied CRE ("NOOCRE")                               1,986,538                 29.0  %               1,904,132                 29.6  %
Construction and land                                             871,765                 12.7  %                 693,030                 10.8  %
Farmland                                                           13,661                  0.2  %                  13,844                  0.2  %
1-4 family residential                                            513,635                  7.5  %                 524,344                  8.2  %
Multifamily                                                       367,445                  5.4  %                 424,962                  6.6  %
Consumer                                                           10,530                  0.2  %                  13,000                  0.3  %
Total loans held for investment, carried at
amortized cost1                                            $    6,839,512                100.0  %       $       6,427,924                100.0  %

Held for investment PPP loans, recorded at fair value $ 291,401

             100.0  %       $         358,042                100.0  %

Total loans held for sale                                  $       12,065                100.0  %       $          21,414                100.0  %

1 The total loans held for investment purposes, carried at amortized cost, exclude $ 7.5 million and $ 2.5 million deferred credit commissions, net, at June 30, 2021 and
December 31, 2020, respectively.

                                       60
--------------------------------------------------------------------------------

Non-performing assets

The following table presents information regarding nonperforming assets at the
dates indicated:
                                                                              As of June 30,         As of December 31,
                                                                                   2021                     2020
                                                                                       (Dollars in thousands)
Nonaccrual loans(1)                                                          $      76,994          $         81,096
Accruing loans 90 or more days past due                                                462                     3,660
Total nonperforming loans                                                           77,456                    84,756
Other real estate owned:

Commercial real estate and 1-4 family residential                                    2,467                     2,337

Total other real estate owned                                                        2,467                     2,337
Total nonperforming assets                                                  

$ 79,923 $ 87,093

 Troubled debt restructured loans-nonaccrual                                        22,777                    23,225
 Troubled debt restructured loans-accruing                                           5,866                     5,932
Ratio of nonperforming loans to total loans held for investment                       1.23  %                   1.46   %
Ratio of nonperforming assets to total assets                                         0.85  %                   0.99   %


(1) To June 30, 2021 and December 31, 2020, unrecorded loans included LGD loans of $ 12,515 and $ 1,508 not counted on a pooled basis.

The following table presents information regarding nonaccrual loans by category
as of the dates indicated:
                                         As of June 30,       As of December 31,
                                              2021                   2020
                                                      (In thousands)
            Commercial                  $        22,424      $            29,318

            Real estate:
            OOCRE                                16,960                    6,266
            NOOCRE                               35,181                   40,830

            1-4 family residential                1,201                    3,308

            Consumer                              1,228                    1,374
            Total                       $        76,994      $            81,096



                                       61
--------------------------------------------------------------------------------

Potential problem loans

The following tables summarize our internal ratings of our loans as of the dates
indicated.
                                                          June 30, 2021
                                                   Special
                                    Pass           Mention       Substandard               PCD            Total
  Real estate:
  Construction and land         $   867,818      $     321      $      1,185            $  2,441      $   871,765
  Farmland                           13,661              -                 -                   -           13,661
  1 - 4 family residential          509,728            573             2,125               1,209          513,635
  Multi-family residential          346,258         21,187                 -                   -          367,445
  OOCRE                             628,545         29,879            57,589              28,886          744,899
  NOOCRE                          1,767,664         87,204           103,048              28,622        1,986,538
  Commercial                      1,673,283         33,528            49,085              15,204        1,771,100
  MW                                558,400          1,539                 -                   -          559,939
  Consumer                            9,092             16             1,236                 186           10,530
  Total                         $ 6,374,449      $ 174,247      $    214,268            $ 76,548      $ 6,839,512


                                                         December 31, 2020
                                                   Special
                                    Pass           Mention       Substandard                PCD            Total
  Real estate:
  Construction and land         $   687,169      $   2,666      $        510            $   2,685      $   693,030
  Farmland                           13,844              -                 -                    -           13,844
  1 - 4 family residential          511,191          2,678             1,734                8,741          524,344
  Multi-family residential          412,282         12,680                 -                    -          424,962
  OOCRE                             595,598         44,560            39,323               37,991          717,472
  NOOCRE                          1,650,917        153,090            56,949               43,176        1,904,132
  Commercial                      1,406,766         56,060            77,260               19,460        1,559,546
  MW                                577,594              -                 -                    -          577,594
  Consumer                           11,357            252             1,189                  202           13,000
  Total                         $ 5,866,718      $ 271,986      $    176,965            $ 112,255      $ 6,427,924



ACL on loans held for investment
We maintain an ACL that represents management's best estimate of the credit
losses and risks inherent in the loan portfolio. In determining the ACL, we
estimate losses on specific loans, or groups of loans, where the probable loss
can be identified and reasonably determined. The balance of the ACL is based on
internally assigned risk classifications of loans, historical loan loss rates,
changes in the nature of the loan portfolio, overall portfolio quality, industry
concentrations, delinquency trends, current economic factors and the estimated
impact of current economic conditions on certain historical loan loss rates.
                                       62
--------------------------------------------------------------------------------

The following table presents, for and for the periods indicated, an analysis of the ACL and other related data:

                                               As of                             As of
                                           June 30, 2021                   December 31, 2020
                                                       Percent                             Percent
                                       Amount          of Total           Amount           of Total
                                                        (Dollars in thousands)
     Real estate:
     Construction and land         $       7,280          7.3  %    $          7,768          7.4  %
     Farmland                                 46          0.1                     56          0.1
     1 - 4 family residential              6,660          6.7              

8,148 7.8

     Multi-family residential              4,187          4.2              
   6,231          5.9
     OOCRE                                11,324         11.4                  9,719          9.2
     NOOCRE                               37,242         37.4                 35,237         33.5
     Total real estate             $      66,739         67.1  %    $         67,159         63.9  %
     Commercial                           32,560         32.7                 37,554         35.7
     Consumer                                244          0.2                    371          0.4
     Total ACL                     $      99,543        100.0  %    $        105,084        100.0  %



The ACL decreased $5.5 million to $99.5 million as of June 30, 2021 from $105.1
million as of December 31, 2020. The decrease in the ACL compared to December
31, 2020 was primarily attributable to net charge-offs of $5.5 million and
changes in projected Texas economic forecasts using our CECL model which
resulted in no calculated required provision for credit losses as of June 30,
2021 partially offset by increases in reserves for net loan growth and increases
in specific reserves on certain nonaccrual loans during the six months ended
June 30, 2021.

                                       63
--------------------------------------------------------------------------------

The following table presents, for and for the periods indicated, an analysis of the ACL and other related data:

                                                                      Six Months Ended          Six Months Ended
                                                                        June 30, 2021             June 30, 2020
                                                                                (Dollars in thousands)
Average loans outstanding, excluding PPP loans(1)                    $      

6 486 607 $ 6,024,487
Amortized costs of loans in progress at the end of the period, excluding MW and PPP loans (1)

                                               6,272,087                 5,847,862

Amortized costs of outstanding loans at the end of the period, excluding PPP loans (1)

                                                      6,832,026                 5,726,873
ACL at beginning of period                                                    105,084                    29,834
Impact of adopting ASC 326                                                          -                    39,137
Provision for credit losses                                                         -                    47,948
Charge-offs:
Real estate:

Residential                                                                      (303)                        -
OOCRE                                                                            (689)                        -

Commercial                                                                     (5,966)                   (1,740)
Consumer                                                                          (38)                     (125)
Total charge-offs                                                              (6,996)                   (1,865)
Recoveries:
Real estate:

Residential                                                                        26                         1
OOCRE                                                                             500                         -

Commercial                                                                        885                        36
Consumer                                                                           44                       274
Total recoveries                                                                1,455                       311
Net charge-offs                                                                (5,541)                   (1,554)
ACL at end of period                                                 $         99,543          $        115,365
Ratio of ACL to end of period loans excluding MW and PPP loans                   1.59  %                   2.01  %
Ratio of net charge-offs to average loans                                        0.09  %                   0.03  %


(1)Excludes loans held for sale.
Although we believe that we have established our ACL in accordance with GAAP and
that the ACL was adequate to provide for known and inherent losses in the
portfolio at all times shown above, future provisions will be subject to ongoing
evaluations of the risks in our loan portfolio. If we experience economic
declines or if asset quality deteriorates, material additional provisions could
be required.

Equity Securities
As of June 30, 2021, we held equity securities with a readily determinable fair
value of $11.2 million compared to $11.4 million as of December 31, 2020. These
equity securities primarily represent investments in a publicly traded Community
Reinvestment Act fund and are subject to market pricing volatility, with changes
in fair value recorded in earnings.

The Company held equity securities without a readily determinable fair values
and measured at cost of $3.8 million and $3.6 million at June 30, 2021 and
December 31, 2020, respectively. The Company measures equity securities that do
not have readily determinable fair values at cost minus impairment, if any, plus
or minus changes resulting from observable price changes in orderly transactions
for the identical or a similar investment of the same issuer.






                                       64
--------------------------------------------------------------------------------

Stock FHLB and Stock FRB

As of June 30, 2021, we held FHLB stock and FRB stock of $71.6 million compared
to $71.2 million as of December 31, 2020. The Bank is a member of its regional
FRB and of the FHLB system. FRB member banks are required to hold a percentage
of their capital as stock in their regional FRB. FHLB members are required to
own a certain amount of stock based on the level of borrowings and other
factors, and may invest in additional amounts. Both FRB and FHLB stock are
carried at cost, restricted for sale, and periodically evaluated for impairment
based on ultimate recovery of par value. Both cash and stock dividends are
reported as income.

Debt Securities
We use our debt securities portfolio to provide a source of liquidity, provide
an appropriate return on funds invested, manage interest rate risk, meet
collateral requirements and meet regulatory capital requirements. As of June 30,
2021, the carrying amount of debt securities totaled $1.1 billion, an increase
of $70.7 million, or 6.7%, compared to $1.1 billion as of December 31, 2020. The
increase was primarily due to purchases of debt securities of $171.7 million
partially offset by maturities, calls, and paydowns of $90.3 million. Debt
securities represented 12.0% and 12.0% of total assets as of June 30, 2021 and
December 31, 2020, respectively.
All of our mortgage-backed securities and collateralized mortgage obligations
are issued and/or guaranteed by U.S. government agencies or U.S.
government-sponsored entities. We do not hold any Fannie Mae or Freddie Mac
preferred stock, corporate equity, collateralized debt obligations, structured
investment vehicles, private label collateralized mortgage obligations,
subprime, Alt-A, or second lien elements in our investment portfolio. As of June
30, 2021, our investment portfolio did not contain any securities that are
directly backed by subprime or Alt-A mortgages.

  Management evaluates available for sale debt securities in unrealized loss
positions to determine whether the impairment is due to credit-related factors
or noncredit-related factors. Consideration is given to (1) the extent to which
the fair value is less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain
its investment in the security for a period of time sufficient to allow for any
anticipated recovery in fair value. As of June 30, 2021, management believes
that available for sale securities in a unrealized loss position are due to
noncredit-related factors, including changes in interest rates and other market
conditions, and therefore no ACL have been recognized in the Company's condensed
consolidated balance sheets. The Company also recorded no ACL for its held to
maturity debt securities as of June 30, 2021.
  As of June 30, 2021 and December 31, 2020, we did not own securities of any
one issuer other than U.S. government agency securities for which aggregate cost
exceeded 10.0% of our stockholders' equity as of such respective dates.
Deposits
Total deposits as of June 30, 2021 were $7.0 billion, an increase of $466.1
million, or 7.2%, compared to $6.5 billion as of December 31, 2020. The increase
from December 31, 2020 was primarily the result of increases of $154.5 million
in interest-bearing transaction and savings deposits, $20.6 million in
certificates and other time deposits, and $291.0 million in noninterest-bearing
demand deposits.
Borrowings
We utilize short-term and long-term borrowings to supplement deposits to fund
our lending and investment activities, each of which is discussed below.
FHLB Advances
  The FHLB allows us to borrow on a blanket floating lien status collateralized
by certain securities and loans. As of each of June 30, 2021 and December 31,
2020, total borrowing capacity of $646.9 million and $766.4 million,
respectively, was available under this arrangement and $777.6 million and $777.7
million, respectively, was outstanding with a weighted average interest rate of
0.94% for the six months ended June 30, 2021 and 1.04% for the year ended
December 31, 2020. The FHLB has also issued standby letters of credit to the
Company for $956.3 million and $567.9 million as of each of June 30, 2021 and
December 31, 2020, respectively. Our current FHLB advances mature within
fourteen years. Other than FHLB borrowings, we had no other short-term
borrowings at the dates indicated.
                                       65
--------------------------------------------------------------------------------

Federal Reserve Bank of Dallas.
The FRB of Dallas has an available borrower in custody arrangement, which allows
us to borrow on a collateralized basis. Certain securities and commercial and
consumer loans are pledged under this arrangement. We maintain this borrowing
arrangement to meet liquidity needs pursuant to our contingency funding plan. As
of June 30, 2021 and December 31, 2020, $455.7 million and $871.5 million,
respectively, were available under this arrangement based on collateral values
of pledged commercial and consumer loans. As of June 30, 2021 and December 31,
2020, no borrowings were outstanding under this arrangement.
Junior subordinated debentures and subordinated notes
The table below details our junior subordinated debentures and subordinated
notes. Refer to Note 14, "Borrowed Funds" in our 2020 10-K for further
discussion on the details of our junior subordinated debentures and subordinated
notes.
                                                                                   June 30, 2021
                                                                           Balance                Rate
                                                                               (Dollars in thousands)
Junior subordinated debentures:
Parkway National Capital Trust I                                        $     3,093               1.97%
SovDallas Capital Trust I                                                     8,609               4.24%
Patriot Bancshares Capital Trust I                                            5,155               2.09%
Patriot Bancshares Capital Trust II                                          17,011               1.92%
                                                                            

33,868

Discount on junior subordinated debentures                                  

(3,513)

Total junior subordianted debentures                                    $   

30 355

Subordinated notes:
8.50% Fixed-to-Floating Rate Subordinated Notes                         $    35,000               8.50%
4.75% Fixed-to-Floating Rate Subordinated Notes                              75,000               4.75%
4.125% Fixed-to-Floating Rate Subordinated Notes                            125,000               4.13%
                                                                            

235,000

Net debt issuance costs and premium on subordinated notes                   

(2,589)

Total subordinated notes                                                $   

232 411

Total subordinated debentures and subordinated notes                    $   

262 766



Liquidity and Capital Resources
Liquidity
Liquidity management involves our ability to raise funds to support asset growth
and acquisitions or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate on an
ongoing basis and manage unexpected events. For the six months ended June 30,
2021 and the year ended December 31, 2020, our liquidity needs were primarily
met by core deposits, wholesale borrowings, security and loan maturities and
amortizing investment and loan portfolios. Use of brokered deposits, purchased
funds from correspondent banks and overnight advances from the FHLB and the FRB
are available and have been utilized to take advantage of the cost of these
funding sources. We maintained five lines of credit with commercial banks that
provide for extensions of credit with an availability to borrow up to an
aggregate of $175.0 million as of June 30, 2021 and December 31, 2020. There
were no advances under these lines of credit outstanding as of June 30, 2021 and
December 31, 2020.
                                       66
--------------------------------------------------------------------------------

The following table illustrates, during the periods presented, the mix of our
funding sources and the average assets in which those funds are invested as a
percentage of our average total assets for the period indicated. Average assets
totaled $9.1 billion for the six months ended June 30, 2021 and $8.5 billion for
the year ended December 31, 2020.
                                                                                For the                    For the
                                                                           Six Months Ended               Year Ended
                                                                             June 30, 2021            December 31, 2020
Sources of Funds:
Deposits:
Noninterest-bearing                                                                   23.7  %                      21.4  %
Interest-bearing                                                                      34.1                         32.0
Certificates and other time deposits                                                  16.6                         18.2
Advances from FHLB                                                                     8.5                         12.0
Other borrowings                                                                       2.9                          2.0
Other liabilities                                                                      0.6                          0.7
Stockholders' equity                                                                  13.6                         13.7
Total                                                                                100.0  %                     100.0  %
Uses of Funds:
Loans                                                                                 73.8  %                      72.7  %
Debt securities                                                                       11.8                         13.2
Interest-bearing deposits in other banks                                               4.9                          1.2
Other noninterest-earning assets                                                       9.4                         12.9
Total                                                                                100.0  %                     100.0  %
Average noninterest-bearing deposits to average deposits                              31.9  %                      29.9  %

Average loans, excluding PPP and MW, to average deposits                              88.3  %                      94.5  %


Our primary source of funds is deposits, and our primary use of funds is loans.
We do not expect a change in the primary source or use of our funds in the
foreseeable future. Our average loans held for investment increased 12.6% for
the six months ended June 30, 2021 compared to the year ended December 31, 2020.
We invest excess deposits in interest-bearing deposits at other banks, the FRB
of Dallas or liquid investments securities until these monies are needed to fund
loan growth.
As of June 30, 2021, we had $3.6 billion in outstanding commitments to extend
credit, $575.7 million in unconditionally cancellable MW commitments and $53.9
million in commitments associated with outstanding standby and commercial
letters of credit. As of December 31, 2020, we had $2.7 billion in outstanding
commitments to extend credit, $354.6 million in MW commitments and $44.4 million
in commitments associated with outstanding standby and commercial letters of
credit. Since commitments associated with letters of credit and commitments to
extend credit may expire unused, the total outstanding may not necessarily
reflect the actual future cash funding requirements.
As of June 30, 2021, we had cash and cash equivalents of $390.0 million compared
to $230.8 million as of December 31, 2020.

© Edgar online, source Previews


Leave A Reply

Your email address will not be published.