Veritex Holdings, Inc. Reports Third Quarter Operating Results

DALLAS, Oct. 27, 2020 (GLOBE NEWSWIRE) -- Veritex Holdings, Inc. (“Veritex” or the “Company”) (Nasdaq: VBTX), the holding company for Veritex Community Bank, today announced the results for the quarter ended September 30, 2020.

“Despite the economic headwinds resulting from the pandemic, we delivered a strong quarter.  Loans on active deferral have declined 87% since late July.  We remain optimistic about the current recovery and the long-term strength of the DFW and Houston economies,” said C. Malcolm Holland, III, the Company’s Chairman and Chief Executive Officer. “Our quarterly results reflect strong pre-tax, pre-provision operating net revenue, slower building of our allowance for credit losses, higher capital levels and positive loan and deposit growth. I couldn’t be more proud and encouraged by what the team has accomplished during 2020 which is proving to be a challenging operating period.”

Third Quarter Highlights

  • Net income of $22.9 million, or $0.46 diluted earnings per share (“EPS”), compared to $24.0 million, or $0.48 diluted EPS, for the quarter ended June 30, 2020 and $27.4 million, or $0.51 diluted EPS, for the quarter ended September 30, 2019;
  • Pre-tax, pre-provision operating earnings1 totaled $39.3 million, compared to $45.7 million for the quarter ended June 30, 2020 and $45.7 million for the quarter ended September 30, 2019;
  • Provision for credit losses and unfunded commitments was $10.1 million, compared to $19.0 million for the quarter ended June 30, 2020;
  • Allowance for credit losses (“ACL”) to total loans held for investments (“LHI”), excluding mortgage warehouse and Paycheck Protection Program (“PPP”) loans, was 2.10% for the quarter ended September 30, 2020 compared to 2.01% for the quarter ended June 30, 2020.
  • Total loans, excluding PPP loans, grew $165.3 million from the second quarter of 2020, or 10.7% annualized.
  • Total deposits grew $97.0 million from the second quarter of 2020, or 6.3% annualized, with the average cost of total deposits decreasing to 0.46% for the three months ended September 30, 2020 from 0.59% for the three months ended June 30, 2020;
  • Growth of $20.9 million in total common equity tier 1 capital for the three months ended September 30, 2020;
  • Declared quarterly cash dividend of $0.17 payable on November 19, 2020;
  • On October 5, 2020, issued $125 million in subordinated debt initially bearing a fixed interest rate of 4.125%; and
  • On October 27, 2020, extended the expiration date of the Stock Buyback Program from December 31, 2020 to March 31, 2021.
Financial HighlightsQTD YTD
 Q3 2020 Q2 2020 Q3 2020 Q3 2019
        
 (Dollars in thousands) 
(unaudited)
GAAP       
Net income$22,920  $24,028  $51,082  $61,688 
Diluted EPS0.46  0.48  1.02  1.13 
Return on average assets21.06% 1.11% 0.81% 1.04%
Efficiency ratio48.12  46.02  47.19  59.42 
Book value per common share$23.87  $23.45  $23.87  $23.02 
Non-GAAP1       
Operating earnings$22,928  $21,188  $48,250  $93,542 
Diluted operating EPS0.46  0.43  0.96  1.71 
Pre-tax, pre-provision operating earnings39,265  45,668  124,040  136,118 
Pre-tax, pre-provision operating return on average assets1.82% 2.11% 1.96% 2.30%
Tangible book value per common share$15.19  $14.71  $15.19  $14.61 

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

Results of Operations for the Three Months Ended September 30, 2020

Net Interest Income

For the three months ended September 30, 2020, net interest income before provision for credit losses was $65.9 million and net interest margin was 3.32% compared to $65.8 million and 3.31%, respectively, for the three months ended June 30, 2020. Net interest margin increased 1 basis point from the three months ended June 30, 2020 primarily due to decreases in the average rates paid on interest-bearing demand and savings deposits and certificate and other time deposits which is slightly offset by decreases in the average yields earned on loans the three months ended September 30, 2020. As a result, the average cost of interest-bearing deposits decreased 17 basis points to 0.67% for the three months ended September 30, 2020 from 0.84% for the three months ended June 30, 2020.

Net interest income before provision for credit losses decreased by $5.0 million from $70.9 million to $65.9 million and net interest margin decreased by 58 basis points from 3.90% to 3.32% for the three months ended September 30, 2020 as compared to the same period in 2019. The decrease in net interest income before provision for credit losses was primarily due to a $17.1 million decrease in interest income on loans, partially offset by $8.3 million and $5.3 million decrease in interest expenses on transaction and savings deposits and certificates and other time deposits, respectively, during the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Net interest margin decreased 58 basis points from the three months ended September 30, 2019 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 for the three months ended September 30, 2020. As a result, the average cost of interest-bearing deposits decreased 112 basis points to 0.67% for the three months ended September 30, 2020 from 1.79% for the three months ended September 30, 2019.

Noninterest Income

Noninterest income for the three months ended September 30, 2020 was $9.8 million, a decrease of $11.5 million, or 54.0%, compared to the three months ended June 30, 2020. The decrease was primarily due to a $8.7 million decrease in government guaranteed loan income, net. In the second and third quarter of 2020, the Company earned fee income of 5% on PPP loans under $350 thousand, 3% on PPP loans between $350 thousand and $2 million and 1% on PPP loans greater than $2 million totaling fee income of $295 thousand in the third quarter of 2020 compared to $12.5 million in the second quarter of 2020. The recognized fee income on PPP loans was partially offset by a valuation allowance on the PPP loans of $2.0 million as the Company elected to carry these loans at fair value.

Compared to the three months ended September 30, 2019, noninterest income for the three months ended September 30, 2020 increased by $1.4 million, or 16.2%. The increase was primarily due to a $1.3 million increase in government guaranteed loan income, net, as a result of the fee income earned on PPP loans.

Noninterest Expense

Noninterest expense was $36.4 million for the three months ended September 30, 2020, compared to $40.1 million for the three months ended June 30, 2020, a decrease of $3.7 million, or 9.1%. The decrease was primarily driven by a $1.6 million decrease in pre-payment fees on Federal Home Loan Bank (“FHLB”) advances paid in the second quarter of 2020 with no corresponding  pre-payment fees during the three months ended September 30, 2020. The decrease was also driven by a $1.2 million decrease in COVID related expenses primarily related to Community Reinvestment Act donations, lender incentives, employee overtime and cleaning services that were paid in the second quarter of 2020 with nominal COVID expenses for the three months ended September 30, 2020.

Compared to the three months ended September 30, 2019, noninterest expense for the three months ended September 30, 2020 increased by $1.8 million, or 5.1%. The increase was primarily driven by a $3.0 million increase in salaries and employee benefits offset by a $1.0 million decrease in merger and acquisition expenses.

Financial Condition

Total loans were $6.8 billion at September 30, 2020, an increase of $157.7 million, or 9.6% annualized, compared to June 30, 2020. The increase was the result of the continued execution and success of our loan growth strategy.

Total deposits were $6.2 billion at September 30, 2020, an increase of $97.0 million, or 6.3% annualized, compared to June 30, 2020. The increase was primarily the result of increases of $107.8 million and $13.0 million in interest-bearing transaction and savings deposits and noninterest-bearing demand deposits, respectively, partially offset by a decrease of $23.8 million in certificates and other time deposits.

Asset Quality

Nonperforming assets totaled $96.4 million, or 1.11% of total assets at September 30, 2020, compared to $39.4 million, or 0.50% of total assets, at December 31, 2019. The Company had a net charge-off of $2.5 million for the quarter, which is primarily the result of one relationship charge-off that was fully reserved against in the second quarter of 2020.

The Company recorded a provision for credit losses for the three months ended September 30, 2020 of $8.7 million, compared to $16.2 million and $9.7 million for the three months ended June 30, 2020 and September 30, 2019, respectively. The decrease in the recorded provision for credit losses for the three months ended September 30, 2020, compared to the three months ended June 30, 2020, was primarily attributable to improvement in the Texas economic forecasts used in the Current Expected Credit Losses (“CECL”) model in the third quarter of 2020 to reflect the expected impact of the COVID-19 pandemic as of September 30, 2020, as compared to our Texas economic forecasts and expected impact of the COVID-19 pandemic as of June 30, 2020. Changes to the Texas economic forecasts were offset by a $13.2 million increase in specific reserves on certain lending relationships that moved onto nonaccrual status during the three months ended September 30, 2020. In the third quarter of 2020, we also recorded a $1.4 million provision for unfunded commitments which was attributable to higher unfunded balances compared to a $2.8 million provision for unfunded commitments recorded for the three months ended June 30, 2020. Allowance for credit losses as a percentage of LHI, excluding mortgage warehouse and PPP loans, was 2.10%, 2.01% and 0.46% of total loans at September 30, 2020, June 30, 2020 and September 30, 2019, respectively.

Dividend Information

On October 27, 2020, Veritex’s Board of Directors declared a quarterly cash dividend of $0.17 per share on its outstanding shares of common stock.  The dividend will be paid on or after November 19, 2020 to stockholders of record as of the close of business on November 5, 2020.

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, October 28, 2020 at 8:30 a.m. Central Time. Participants may pre-register for the call by visiting https://edge.media-server.com/mmc/p/yb2kmpoq and will receive a unique PIN, which can be used when dialing in for the call. This will allow attendees to access the call immediately. Alternatively, participants may call toll-free at (877) 703-9880.

The call and corresponding presentation slides will be webcast live on the home page of the Company's website, https://ir.veritexbank.com/. An audio replay will be available one hour after the conclusion of the call at (855) 859-2056, Conference
#1172928. This replay, as well as the webcast, will be available until November 4, 2020.

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. 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, 2019 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 SUBSIDIARY

Financial Highlights
(Unaudited)

 For the Three Months Ended For the Nine Months Ended
 Sep 30,
2020
 Jun 30,
2020
 Mar 31,
2020
 Dec 31,
2019
 Sep 30,
2019
 Sep 30,
2020
 Sep 30,
2019
              
 (Dollars and shares in thousands)
Per Share Data (Common Stock):             
Basic EPS$0.46  $0.48  $0.08  $0.56  $0.52  $1.02  $1.15 
Diluted EPS0.46  0.48  0.08  0.56  0.51  1.02  1.13 
Book value per common share23.87  23.45  23.19  23.32  23.02  23.87  23.02 
Tangible book value per common share115.19  14.71  14.39  14.73  14.61  15.19  14.61 
              
Common Stock Data:             
Shares outstanding at period end49,650  49,633  49,557  51,064  52,373  49,650  52,373 
Weighted average basic shares outstanding for the period49,647  49,597  50,725  51,472  52,915  49,989  53,721 
Weighted average diluted shares outstanding for the period49,775  49,727  51,056  52,263  53,873  50,176  54,633 
              
Summary of Credit Ratios:             
ACL to total LHI, excluding mortgage warehouse and PPP loans2.10% 2.01% 1.73% 0.52% 0.46% 2.10% 0.46%
Nonperforming assets to total assets1.11  0.62  0.60  0.50  0.21  1.11  0.21 
Net charge-offs to average loans outstanding0.04  0.03      0.14  0.04  0.19 
              
Summary Performance Ratios:             
Return on average assets21.06  1.11  0.20  1.43  1.36  0.81  1.04 
Return on average equity27.74  8.36  1.41  9.63  8.98  5.91  6.88 
Return on average tangible common equity1, 213.27  14.49  3.27  16.22  15.15  10.56  11.93 
Efficiency ratio48.12  46.02  47.61  47.12  43.67  47.19  59.42 
              
Selected Performance Metrics - Operating:             
Diluted operating EPS1$0.46  $0.43  $0.08  $0.58  $0.53  $0.96  $1.71 
Pre-tax, pre-provision operating return on average assets1, 21.82% 2.11% 1.94% 2.07% 2.26% 1.96% 2.30%
Operating return on average assets1, 21.06  0.98  0.20  1.49  1.42  0.76  1.58 
Operating return on average tangible common equity1, 213.27  12.90  3.27  16.87  15.78  10.04  17.57 
Operating efficiency ratio148.11  45.74  47.61  45.67  42.36  47.10  43.19 
              
Veritex Holdings, Inc. Capital Ratios:             
Tier 1 capital to average assets (leverage)9.54  9.16  9.49  10.17  10.33  9.54  10.33 
Common equity tier 1 capital9.67  9.66  9.53  10.60  10.82  9.67  10.82 
Tier 1 capital to risk-weighted assets10.05  10.05  9.92  11.02  11.26  10.05  11.26 
Total capital to risk-weighted assets12.70  12.71  12.48  13.10  12.26  12.70  12.26 
Tangible common equity to tangible assets19.12  8.96  8.81  10.01  10.17  9.12  10.17 

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


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands)

 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019
 (unaudited) (unaudited) (unaudited)   (unaudited)
ASSETS         
Cash and cash equivalents$128,767  $160,306  $430,842  $251,550  $252,592 
Securities1,091,440  1,112,061  1,117,804  997,330  1,023,393 
Other securities98,023  104,213  112,775  84,063  85,007 
          
Loans held for sale13,928  28,041  15,048  14,080  10,715 
PPP loans, at fair value405,465  398,949       
Loans held for investment, mortgage warehouse544,845  441,992  371,161  183,628  233,577 
Loans held for investment5,789,293  5,726,873  5,853,735  5,737,577  5,654,027 
Total loans6,753,531  6,595,855  6,239,944  5,935,285  5,898,319 
Allowance for credit losses(121,591) (115,365) (100,983) (29,834) (26,243)
Bank-owned life insurance82,366  81,876  81,395  80,915  80,411 
Bank premises, furniture and equipment, net115,794  115,560  116,056  118,536  118,449 
Other real estate owned5,796  7,716  7,720  5,995  4,625 
Intangible assets, net64,716  66,705  69,444  72,263  75,363 
Goodwill370,840  370,840  370,840  370,840  370,463 
Other assets112,693  88,091  85,787  67,994  80,504 
Total assets$8,702,375  $8,587,858  $8,531,624  $7,954,937  $7,962,883 
LIABILITIES AND STOCKHOLDERS’ EQUITY         
Deposits:         
Noninterest-bearing deposits$1,920,715  $1,907,697  $1,549,260  $1,556,500  $1,473,126 
Interest-bearing transaction and savings deposits2,821,945  2,714,149  2,536,865  2,654,972  2,528,293 
Certificates and other time deposits1,479,896  1,503,701  1,713,820  1,682,878  1,876,427 
Total deposits6,222,556  6,125,547  5,799,945  5,894,350  5,877,846 
Accounts payable and other liabilities66,096  64,625  56,339  37,427  45,475 
Accrued interest payable3,444  4,088  5,407  6,569  6,054 
Advances from Federal Home Loan Bank1,082,756  1,087,794  1,377,832  677,870  752,907 
Subordinated debentures and subordinated notes140,158  140,283  140,406  145,571  72,284 
Securities sold under agreements to repurchase2,028  1,772  2,426  2,353  2,787 
Total liabilities7,517,038  7,424,109  7,382,355  6,764,140  6,757,353 
Commitments and contingencies         
Stockholders’ equity:         
Common stock555  555  554  549  524 
Additional paid-in capital1,124,148  1,122,063  1,119,757  1,117,879  1,114,659 
Retained earnings157,639  143,277  127,812  147,911  125,344 
Accumulated other comprehensive income47,155  42,014  45,306  19,061  23,837 
Treasury stock(144,160) (144,160) (144,160) (94,603) (58,834)
Total stockholders’ equity1,185,337  1,163,749  1,149,269  1,190,797  1,205,530 
Total liabilities and stockholders’ equity$8,702,375  $8,587,858  $8,531,624  $7,954,937  $7,962,883 


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands, except per share data)

 For the Three Months Ended For the Nine Months Ended
 Sep 30,
2020
 Jun 30,
2020
 Mar 31,
2020
 Dec 31,
2019
 Sep 30,
2019
 Sep 30,
2020
 Sep 30,
2019
Interest income:             
Loans, including fees$68,685  $70,440  $77,861  $82,469  $85,811  $216,986  $258,344 
Investment securities7,852  7,825  7,397  7,168  7,687  23,074  22,316 
Deposits in financial institutions and Fed Funds sold65  186  871  1,285  1,329  1,122  4,255 
Other investments827  891  850  820  816  2,568  2,129 
Total interest income77,429  79,342  86,979  91,742  95,643  243,750  287,044 
Interest expense:             
Transaction and savings deposits2,105  2,471  6,552  8,203  10,381  11,128  32,152 
Certificates and other time deposits5,004  6,515  8,240  9,455  10,283  19,759  29,220 
Advances from FHLB2,707  2,801  2,879  2,661  3,081  8,387  7,323 
Subordinated debentures and subordinated notes1,743  1,798  1,903  1,559  1,024  5,444  3,116 
Total interest expense11,559  13,585  19,574  21,878  24,769  44,718  71,811 
Net interest income65,870  65,757  67,405  69,864  70,874  199,032  215,233 
Provision for credit losses8,692  16,172  31,776  3,493  9,674  56,640  18,021 
Provision for unfunded commitments1,447  2,799  3,881      8,127   
Net interest income after provisions55,731  46,786  31,748  66,371  61,200  134,265  197,212 
Noninterest income:             
Service charges and fees on deposit accounts3,130  2,960  3,642  3,728  3,667  9,732  10,606 
Loan fees1,260  1,240  845  1,921  1,536  3,345  4,026 
(Loss) gain on sales of investment securities(8) 2,879    (438)   2,871  (1,414)
Gain on sales of mortgage loans held for sale472  308  142  81  853  922  394 
Government guaranteed loan income, net2,257  11,006  439  560  930  13,702  4,148 
Rental income502  547  551  371  643  1,600  1,629 
Other2,182  2,350  1,628  909  801  6,160  3,559 
Total noninterest income9,795  21,290  7,247  7,132  8,430  38,332  22,948 
Noninterest expense:             
Salaries and employee benefits20,553  20,019  18,870  18,917  17,530  59,442  53,874 
Occupancy and equipment3,980  3,994  4,273  4,198  4,044  12,247  12,187 
Professional and regulatory fees3,159  2,796  2,196  2,615  2,750  8,151  8,982 
Data processing and software expense2,452  2,434  2,089  1,880  2,252  6,975  6,485 
Marketing1,062  561  1,083  971  708  2,706  2,288 
Amortization of intangibles2,840  2,696  2,696  2,696  2,712  8,232  8,191 
Telephone and communications345  308  319  466  361  972  1,381 
Merger and acquisition expense      918  1,035    38,042 
COVID expenses132  1,245        1,377   
Other1,885  6,008  4,019  3,623  3,238  11,912  10,089 
Total noninterest expense36,408  40,061  35,545  36,284  34,630  112,014  141,519 
Income before income tax expense29,118  28,015  3,450  37,219  35,000  60,583  78,641 
Income tax (benefit) expense6,198  3,987  (684) 8,168  7,595  9,501  16,953 
Net income$22,920  $24,028  $4,134  $29,051  $27,405  $51,082  $61,688 
              
Basic EPS$0.46  $0.48  $0.08  $0.56  $0.52  $1.02  $1.15 
Diluted EPS$0.46  $0.48  $0.08  $0.56  $0.51  $1.02  $1.13 
Weighted average basic shares outstanding49,647  49,597  50,725  51,472  52,915  49,989  53,721 
Weighted average diluted shares outstanding49,775  49,727  51,056  52,263  53,873  50,176  54,633 


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands except percentages)

 For the Three Months Ended
 September 30, 2020 June 30, 2020 September 30, 2019
 Average 
Outstanding 
Balance
 Interest 
Earned/ 
Interest 
Paid
 Average 
Yield/ 
Rate
 Average 
Outstanding 
Balance
 Interest 
Earned/ 
Interest 
Paid
 Average 
Yield/
Rate
 Average 
Outstanding 
Balance
 Interest 
Earned/ 
Interest 
Paid
 Average 
Yield/ 
Rate
Assets                 
Interest-earning assets:                 
Loans1$5,753,859  $64,958  4.49% $5,797,989  $67,404  4.68% $5,702,696  $84,022  5.85%
Loans held for investment, mortgage warehouse358,248  2,705  3.00  304,873  2,279  3.01  182,793  1,789  3.88 
PPP loans407,112  1,022  1.00  303,223  757  1.00       
Securities1,101,469  7,852  2.84  1,117,964  7,825  2.82  1,022,289  7,687  2.98 
Interest-bearing deposits in other banks175,201  65  0.15  366,764  186  0.20  234,087  1,329  2.25 
Other investments103,948  827  3.17  110,672  891  3.24  71,901  816  4.50 
Total interest-earning assets7,899,837  77,429  3.90  8,001,485  79,342  3.99  7,213,766  95,643  5.26 
Allowance for loan losses(116,859)     (110,483)     (22,539)    
Noninterest-earning assets802,948      798,772      818,150     
Total assets$8,585,926      $8,689,774      $8,009,377     
                  
Liabilities and Stockholders’ Equity                 
Interest-bearing liabilities:                 
Interest-bearing demand and savings deposits$2,735,170  $2,105  0.31% $2,684,897  $2,471  0.37% $2,621,701  $10,381  1.57%
Certificates and other time deposits1,459,046  5,004  1.36  1,625,971  6,515  1.61  1,953,084  10,283  2.09 
Advances from FHLB1,067,771  2,707  1.01  1,206,930  2,801  0.93  632,754  3,081  1.93 
Subordinated debentures and subordinated notes142,432  1,743  4.87  142,549  1,798  5.07  74,869  1,024  5.43 
Total interest-bearing liabilities5,404,419  11,559  0.85  5,660,347  13,585  0.97  5,282,408  24,769  1.86 
                  
Noninterest-bearing liabilities:                 
Noninterest-bearing deposits1,937,921      1,826,327      1,467,127     
Other liabilities65,704      47,302      49,695     
Total liabilities7,408,044      7,533,976      6,799,230     
Stockholders’ equity1,177,882      1,155,798      1,210,147     
Total liabilities and stockholders’ equity$8,585,926      $8,689,774      $8,009,377     
                  
Net interest rate spread2    3.05%     3.02%     3.40%
Net interest income  $65,870      $65,757      $70,874   
Net interest margin3    3.32%     3.31%     3.90%

1 Includes average outstanding balances of loans held for sale of $15,404, $22,958 and $8,525 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse 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 SUBSIDIARY

Financial Highlights
(In thousands except percentages)

 Nine Months Ended
 September 30, 2020 September 30, 2019
 Average
Outstanding
Balance
 Interest
Earned/
Interest Paid
 Average Yield/
Rate
 Average
Outstanding
Balance
 Interest
Earned/
Interest Paid
 Average Yield/
Rate
Assets           
Interest-earning assets:           
Loans1$5,779,469  $208,889 4.83% $5,731,902  $253,247 5.91%
Loans held for investment, mortgage warehouse275,890  6,318 3.06  152,617  5,097 4.47 
PPP loans236,778  1,779 1.00      
Securities1,086,185  23,074 2.84  968,616  22,316 3.08 
Interest-bearing deposits in other banks283,108  1,122 0.53  242,119  4,255 2.35 
Other investments102,185  2,568 3.36  56,438  2,129 5.04 
Total interest-earning assets7,763,615  243,750 4.19  7,151,692  287,044 5.37 
Allowance for loan losses(90,633)     (22,173)    
Noninterest-earning assets776,790      799,509     
Total assets$8,449,772      $7,929,028     
            
Liabilities and Stockholders’ Equity           
Interest-bearing liabilities:           
Interest-bearing demand and savings deposits$2,680,925  $11,128 0.55% $2,657,195  $32,152 1.62%
Certificates and other time deposits1,579,114  19,759 1.67  2,067,032  29,220 1.89 
Advances from FHLB1,070,856  8,387 1.05  427,306  7,323 2.29 
Subordinated debentures and subordinated notes143,387  5,444 5.07  75,298  3,116 5.53 
Total interest-bearing liabilities5,474,282  44,718 1.09  5,226,831  71,811 1.84 
            
Noninterest-bearing liabilities:           
Noninterest-bearing deposits1,763,289      1,459,904     
Other liabilities57,737      42,853     
Total liabilities7,295,308      6,729,588     
Stockholders’ equity1,154,464      1,199,440     
Total liabilities and stockholders’ equity$8,449,772      $7,929,028     
            
Net interest rate spread2    3.10%     3.53%
Net interest income  $199,032     $215,233  
Net interest margin3    3.42%     4.02%

1 Includes average outstanding balances of loans held for sale of $16,448 and $8,127 for the nine months ended September 30, 2020 and September 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse 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 SUBSIDIARY

Financial Highlights

Yield Trend

 For the Three Months Ended
 September 30,
2020
 June 30, 
2020
 March 31, 
2020
 December 31, 
2019
 September 30,
2019
Average yield on interest-earning assets:         
Loans14.49 % 4.68 % 5.32 % 5.63 % 5.85 %
Loans held for investment, mortgage warehouse3.00   3.01   3.28   3.51   3.88  
PPP loans1.00   1.00   —   —   —  
Securities2.84   2.82   2.86   2.83   2.98  
Interest-bearing deposits in other banks0.15   0.20   1.14   1.63   2.25  
Other investments3.17   3.24   3.72   4.53   4.50  
Total interest-earning assets3.90 % 3.99 % 4.74 % 5.00 % 5.26 %
          
Average rate on interest-bearing liabilities:         
Interest-bearing demand and savings deposits0.31 % 0.37 % 1.00 % 1.24 % 1.57 %
Certificates and other time deposits1.36   1.61   2.01   2.10   2.09  
Advances from FHLB1.01   0.93   1.23   1.45   1.93  
Subordinated debentures and subordinated notes4.87   5.07   5.27   5.23   5.43  
Total interest-bearing liabilities0.85 % 0.97 % 1.47 % 1.65 % 1.86 %
          
Net interest rate spread23.05 % 3.02 % 3.27 % 3.35 % 3.40 %
Net interest margin33.32 % 3.31 % 3.67 % 3.81 % 3.90 %

  1Includes average outstanding balances of loans held for sale of $15,404, $22,958, $10,995, $10,643 and $8,525 for the three months ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, respectively, and average balances of loans held for investment, excluding mortgage warehouse 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 Three Months Ended
 September 30,
2020
 June 30, 
2020
 March 31, 
2020
 December 31, 
2019
 September 30,
2019
Average cost of interest-bearing deposits0.67% 0.84% 1.39% 1.59% 1.79%
Average costs of total deposits, including noninterest-bearing0.46  0.59  1.02  1.18  1.36 


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands except percentages)

Total LHI and Deposit Portfolio Composition

 September 30,
2020
 June 30, 
2020
 March 31, 
2020
 December 31, 
2019
 September 30,
2019
          
 (Dollars in thousands)
LHI1                   
Commercial$1,623,249 28.0% $1,555,300 27.2% $1,777,603 30.4% $1,712,838 29.9% $1,711,256 30.3%
Real Estate:                   
Owner occupied commercial734,939 12.7  769,952 13.4  723,839 12.4  706,782 12.3  716,130 12.7 
Commercial1,817,013 31.4  1,847,480 32.3  1,828,386 31.2  1,784,201 31.1  1,710,510 30.3 
Construction and land623,496 10.8  599,510 10.5  566,470 9.7  629,374 11.0  623,622 11.0 
Farmland14,413 0.2  14,723 0.3  14,930 0.3  16,939 0.3  7,986 0.1 
1-4 family residential548,953 9.5  528,688 9.2  536,892 9.2  549,811 9.6  559,310 9.9 
Multi-family residential412,412 7.1  394,829 6.9  388,374 6.6  320,041 5.6  306,966 5.4 
Consumer14,127 0.2  14,932 0.2  15,771 0.2  17,457 0.2  18,113 0.3 
Total LHI$5,788,602 100% $5,725,414 100% $5,852,265 100% $5,737,443 100% $5,653,893 100%
                    
Mortgage warehouse544,845   441,992   373,161   183,628   233,577  
PPP loans405,465   398,949           
                    
Total LHI1$6,738,912   $6,566,355   $6,225,426   $5,921,071   $5,887,470  
                    
Deposits                   
Noninterest-bearing$1,920,715 31.0% $1,907,697 31.2% $1,549,260 26.7% $1,556,500 26.4% $1,473,126 25.1%
Interest-bearing transaction450,739 7.2  343,640 5.6  306,641 5.3  388,877 6.6  373,997 6.4 
Money market2,267,191 36.4  2,272,520 37.1  2,143,874 37.0  2,180,017 37.0  2,066,315 35.2 
Savings104,015 1.7  97,989 1.6  86,350 1.5  86,078 1.5  87,981 1.5 
Certificates and other time deposits1,479,896 23.8  1,503,701 24.5  1,713,820 29.5  1,682,878 28.5  1,876,427 31.8 
Total deposits$6,222,556 100% $6,125,547 100% $5,799,945 100% $5,894,350 100% $5,877,846 100%
                    
Loan to Deposit Ratio108.3%   107.2%   107.3%   100.5%   100.2%  
Loan to Deposit Ratio, excluding mortgage warehouse and PPP loans93.0 %   93.5 %   100.9 %   97.3 %   96.2 %  

1 Total LHI does not include deferred fees of $691 thousand at September 30, 2020, deferred costs of $1.5 million and $1.5 million at June 30, 2020 and March 31, 2020, respectively, deferred fees of $134 thousand at March 31, 2020 and December 31, 2019, respectively, and $134 thousand at September 30, 2019.


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Financial Highlights
(In thousands except percentages)

Asset Quality

 For the Three Months Ended For the Nine Months Ended
 Sep 30,
2020
 Jun 30,
2020
 Mar 31,
2020
 Dec 31,
2019
 Sep 30,
2019
 Sep 30,
2020
 Sep 30,
2019
              
 (Dollars in thousands)    
Nonperforming Assets (“NPAs”):             
Nonaccrual loans$88,877  $43,594  $38,836  $29,779  $10,172  $88,877  $10,172 
Accruing loans 90 or more days past due11,689  2,021  4,764  3,660  2,194  1,689  2,194 
Total nonperforming loans held for investment (“NPLs”)90,566  45,615  43,600  33,439  12,366  90,566  12,366 
Other real estate owned5,796  7,716  7,720  5,995  4,625  5,796  4,625 
Total NPAs$96,362  $53,331  $51,320  $39,434  $16,991  $96,362  $16,991 
              
Charge-offs:             
Residential$  $  $  $  $  $  $(157)
Owner occupied commercial real estate(2,421)         (2,421)  
Commercial(68) (1,740)     (8,101) (1,808) (10,898)
Consumer(11) (57) (68) (48) (113) (136) (217)
Total charge-offs(2,500) (1,797) (68) (48) (8,214) (4,365) (11,272)
              
Recoveries:             
Residential7    1  5    8  62 
Commercial14  7  29  135  71  50  91 
Consumer13    274  6    287  86 
Total recoveries34  7  304  146  71  345  239 
              
Net charge-offs$(2,466) $(1,790) $236  $98  $(8,143) $(4,020) $(11,033)
              
CECL transition adjustment$  $  $39,137  $  $  $39,137  $ 
              
Allowance for credit  losses (“ACL”) at end of period$121,591  $115,365  $100,983  $29,834  $26,243  $121,591  $26,243 
              
Asset Quality Ratios:             
NPAs to total assets1.11% 0.62% 0.60% 0.50% 0.21% 1.11% 0.21%
NPLs to total LHI, excluding mortgage warehouse and PPP loans1.56  0.80  0.75  0.58  0.22  1.56  0.22 
ACL to total LHI, excluding mortgage warehouse and PPP loans2.10  2.01  1.73  0.52  0.46  2.10  0.46 
Net charge-offs to average loans outstanding0.04  0.03      0.14  0.07  0.19 

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 SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

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

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

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

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

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

 As of
 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019
          
 (Dollars in thousands, except per share data)
Tangible Common Equity         
Total stockholders' equity$1,185,337  $1,163,749  $1,149,269  $1,190,797  $1,205,530 
Adjustments:         
Goodwill(370,840) (370,840) (370,840) (370,840) (370,463)
Core deposit intangibles(60,209) (62,661) (65,112) (67,563) (70,014)
Tangible common equity$754,288  $730,248  $713,317  $752,394  $765,053 
Common shares outstanding49,650  49,633  49,557  51,064  52,373 
          
Book value per common share$23.87  $23.45  $23.19  $23.32  $23.02 
Tangible book value per common share$15.19  $14.71  $14.39  $14.73  $14.61 


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Reconciliation of Non-GAAP Financial Measures
(Unaudited)

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

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

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

 As of
 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019
          
 (Dollars in thousands)
Tangible Common Equity         
Total stockholders' equity$1,185,337   $1,163,749   $1,149,269   $1,190,797   $1,205,530  
Adjustments:         
Goodwill(370,840)  (370,840)  (370,840)  (370,840)  (370,463) 
Core deposit intangibles(60,209)  (62,661)  (65,112)  (67,563)  (70,014) 
Tangible common equity$754,288   $730,248   $713,317   $752,394   $765,053  
Tangible Assets         
Total assets$8,702,375   $8,587,858   $8,531,624   $7,954,937   $7,962,883  
Adjustments:         
Goodwill(370,840)  (370,840)  (370,840)  (370,840)  (370,463) 
Core deposit intangibles(60,209)  (62,661)  (65,112)  (67,563)  (70,014) 
Tangible Assets$8,271,326   $8,154,357   $8,095,672   $7,516,534   $7,522,406  
Tangible Common Equity to Tangible Assets9.12 % 8.96 % 8.81 % 10.01 % 10.17 %


VERITEX HOLDINGS, INC. AND SUBSIDIARY

Reconciliation of Non-GAAP Financial Measures
(Unaudited)

Return on Average Tangible Common Equity. Return on average tangible common equity is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) 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 Three Months Ended For the Nine Months Ended
 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Sep 30, 2020 Sep 30, 2019
              
 (Dollars in thousands)    
Net income available for common stockholders adjusted for amortization of core deposit intangibles             
Net income$22,920   $24,028   $4,134   $29,051   $27,405   $51,082   $61,688  
Adjustments:             
Plus: Amortization of core deposit intangibles2,451   2,451   2,451   2,451   2,451   7,353   7,379  
Less: Tax benefit at the statutory rate515   515   515   515   515   1,545   1,550  
Net income available for common stockholders adjusted for amortization of core deposit intangibles$24,856   $25,964   $6,070   $30,987   $29,341   $56,890   $67,517  
              
Average Tangible Common Equity             
Total average stockholders' equity$1,177,882   $1,155,798   $1,183,116   $1,197,191   $1,210,147   $1,154,464   $1,199,440  
Adjustments:             
Average goodwill(370,840)  (370,840)  (370,840)  (370,463)  (370,224)  (370,840)  (369,097) 
Average core deposit intangibles(61,666)  (64,151)  (66,439)  (68,913)  (71,355)  (64,077)  (73,965) 
Average tangible common equity$745,376   $720,807   $745,837   $757,815   $768,568   $719,547   $756,378  
Return on Average Tangible Common Equity (Annualized)13.27 % 14.49 % 3.27 % 16.22 % 15.15 % 10.56 % 11.93 %


VERITEX HOLDINGS, INC. AND SUBSIDIARY

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 loss (gain) on sale of securities, net, plus loss (gain) on sale of disposed branch assets, plus FHLB pre-payment fees, plus merger and acquisition expenses, less tax impact of adjustments, plus other merger and acquisition tax items, plus re-measurement of deferred tax assets as a result of the reduction in the corporate income tax rate under the Tax Cuts and Jobs Act. 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 provision for loan losses. 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 average total assets. We calculate (e) operating return on average assets as operating earnings as described in clause (a) divided by average total 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 (i) non interest income plus adjustments to operating non interest income plus (ii) net interest income.

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

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

 For the Three Months Ended For the Nine Months Ended
 Sep 30,
2020
 Jun 30,
2020
 Mar 31,
2020
 Dec 31,
2019
 Sep 30,
2019
 Sep 30,
2020
 Sep 30,
2019
              
 (Dollars in thousands)
Operating Earnings             
Net income$22,920  $24,028  $4,134  $29,051  $27,405  $51,082  $61,688 
Plus: Loss (gain) on sale of securities, net8  (2,879)   438    (2,871) 1,414 
Plus: Loss on sale of disposed branch assets1            359 
Plus: FHLB pre-payment fees  1,561        1,561   
Plus: Merger and acquisition expenses      918  1,035    37,683 
Operating pre-tax income22,928  22,710  4,134  30,407  28,440  49,772  101,144 
Less: Tax impact of adjustments  (277)   (23) 217  (277) 8,285 
Plus: Other M&A tax items2      829  406    683 
Plus: Discrete tax adjustments3  (1,799)   (965)   (1,799)  
Operating earnings$22,928  $21,188  $4,134  $30,294  $28,629  $48,250  $93,542 
              
Weighted average diluted shares outstanding49,775  49,727  51,056  52,263  53,873  50,176  54,633 
Diluted EPS$0.46  $0.48  $0.08  $0.56  $0.51  $1.02  $1.13 
Diluted operating EPS0.46  0.43  0.08  0.58  0.53  0.96  1.71 

1 Loss on sale of disposed branch assets for the nine months ended September 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Other M&A tax items of $829 thousand and $406 thousand recorded during the three months ended December 31, 2019 and September 30, 2019, respectively, relate to permanent tax expense recognized by the Company as a result of deduction limitations on compensation paid to covered employees in excess of the 162(m) limitation directly due to change-in-control payments made to covered employees in connection with the Green acquisition.
3 Discrete tax adjustments of $965 thousand were recorded during the fourth quarter of 2019 primarily due to the Company recording a net tax benefit of $1.6 million as a result of the Company settling an audit with the IRS. The Company released an uncertain tax position reserve that was assumed in the Green acquisition resulting in a $2.2 million tax benefit, offset by tax expense totaling $598 thousand that were recorded due to the Tax Cuts and Jobs Act rate change on deferred tax assets resulting from the IRS audit settlement.  The net IRS settlement was offset by various discrete, non-recurring tax expenses totaling $0.6 million. A discrete tax benefit of $1,799 was recorded in the second quarter of 2020 as a result of the Company amending a prior year Green tax return to carry back a net operating loss ("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 which permits NOLs generated in tax years 2018, 2019 or 2020 to be carried back five years.

 For the Three Months Ended For the Nine Months Ended
 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Sep 30, 2020 Sep 30, 2019
              
 (Dollars in thousands)
Pre-Tax, Pre-Provision Operating Earnings             
Net income$22,920   $24,028   $4,134   $29,051   $27,405   $51,082   $61,688  
Plus: Provision (benefit) for income taxes6,198   3,987   (684)  8,168   7,595   9,501   16,953  
Pus: Provision for credit losses and unfunded commitments10,139   18,971   35,657   3,493   9,674   64,767   18,021  
Plus: Loss (gain) on sale of securities, net8   (2,879)     438      (2,871)  1,414  
Plus: Loss on sale of disposed branch assets1                  359  
Plus: FHLB pre-payment fees   1,561            1,561     
Plus: Merger and acquisition expenses         918   1,035      37,683  
Pre-tax, pre-provision operating earnings$39,265   $45,668   $39,107   $42,068   $45,709   $124,040   $136,118  
              
Average total assets$8,585,926   $8,689,774   $8,125,782   $8,043,505   $8,009,377   $8,449,772   $7,929,028  
Pre-tax, pre-provision operating return on average assets21.82 % 2.11 % 1.94 % 2.07 % 2.26 % 1.96 % 2.30 %
              
Average total assets$8,585,926   $8,689,774   $8,125,782   $8,043,505   $8,009,377   $8,449,772   $7,929,028  
Return on average assets21.06 % 1.11 % 0.20 % 1.43 % 1.36 % 0.81 % 1.04 %
Operating return on average assets21.06   0.98   0.20   1.49   1.42   0.76   1.58  
              
Operating earnings adjusted for amortization of core deposit intangibles             
Operating earnings$22,928   $21,188   $4,134   $30,294   $28,629   $48,250   $93,542  
Adjustments:             
Plus: Amortization of core deposit intangibles2,451   2,451   2,451   2,451   2,451   7,353   7,379  
Less: Tax benefit at the statutory rate515   515   515   515   515   1,545   1,550  
Operating earnings adjusted for amortization of core deposit intangibles$24,864   $23,124   $6,070   $32,230   $30,565   $54,058   $99,371  
              
Average Tangible Common Equity             
Total average stockholders' equity$1,177,882   $1,155,798   $1,183,116   $1,197,191   $1,210,147   $1,154,464   $1,199,440  
Adjustments:             
Less: Average goodwill(370,840)  (370,840)  (370,840)  (370,463)  (370,224)  (370,840)  (369,097) 
Less: Average core deposit intangibles(61,666)  (64,151)  (66,439)  (68,913)  (71,355)  (64,077)  (73,965) 
Average tangible common equity$745,376   $720,807   $745,837   $757,815   $768,568   $719,547   $756,378  
Operating return on average tangible common equity213.27 % 12.90 % 3.27 % 16.87 % 15.78 % 10.04 % 17.57 %
              
Efficiency ratio48.12 % 46.02 % 47.61 % 47.12 % 43.67 % 47.19 % 59.42 %
Operating efficiency ratio48.11 % 45.74 % 47.61 % 45.67 % 42.36 % 47.10 % 43.19 %

1 Loss on sale of disposed branch assets for the nine months ended September 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Annualized ratio.

Media Contact:
LaVonda Renfro
972-349-6200
lrenfro@veritexbank.com 

Investor Relations:
Susan Caudle
972-349-6132
scaudle@veritexbank.com

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