UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36580

Green Bancorp, Inc.

(Exact name of registrant as specified in its charter)




TEXAS (State or other jurisdiction of incorporation or organization)	42-1631980 (I.R.S. Employer Identification No.)

4000 Greenbriar

Houston, Texas 77098

(Address of principal executive offices, including zip code)

(713) 275 - 8220

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨		Accelerated filer x
Non-accelerated filer ¨	(Do not check if a smaller reporting company)	Smaller reporting company ¨
Emerging growth company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~August~~November 6, 2018, there were 37,~~308~~370,~~313~~188 outstanding shares of the registrant’s Common Stock, par value $0.01 per share.

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GREEN BANCORP, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

Special Cautionary Notice Regarding Forward-Looking Statements		3
PART I—FINANCIAL INFORMATION
Item 1.	Interim Condensed Consolidated Financial Statements	6
	Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 (Unaudited)	6
	Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 (Unaudited)	6
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	7
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	7
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	8
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	8
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	9
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	9
	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	10
	Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	10
	Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	1112
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5557
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7880
Item 4.	Controls and Procedures	7981
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	7981
Item 1A.	Risk Factors	7981
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8183
Item 3.	Defaults upon Senior Securities	8183
Item 4.	Mine Safety Disclosures	8183
Item 5.	Other Information	8183
Item 6.	Exhibits	8284
Signatures		8385

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Special Cautionary Notice Regarding Forward-Looking Statements

Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on various facts and derived utilizing numerous important assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:


•	risks related to the concentration of our business within our geographic areas of operation in Texas, including the continued impact of downturns in the energy sector, as well as risks associated with the technology and real estate sectors within our geographic areas of operation in Texas;


•	risks related to our energy reserve exposure and energy-related service industry exposure of our total funded loans and the decline in oil prices and our ability to successfully execute our strategy to mitigate these risks;


•	our ability to execute on our growth strategy, including through the identification of acquisition candidates that will be accretive to our financial condition and results of operation;

•

risks related to the integration of any acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions;


•	our ability to comply with various governmental and regulatory requirements applicable to financial institutions;

• our ability to meet the supervisory expectations of our regulators and the impact of any regulatory restrictions or supervisory actions imposed on us, including on our ability to grow, conduct acquisitions orand pay dividends;


•	market conditions and economic trends nationally, regionally and in our target markets, particularly in Texas and the geographic areas in which we operate;


•	our ability to attract and retain successful bankers that meet our expectations in terms of customer relationships and profitability;


•	risks related to our strategic focus on lending to small to medium-sized businesses;


•	risks associated with our commercial and industrial loan portfolio, including the risk for deterioration in value of the general business assets that generally secure such loans;


•	potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;


•	the sufficiency of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates;


•	risks related to our concentration of loans to a limited number of borrowers and in a limited geographic area;


•	our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy, operations or to meet increased minimum regulatory capital levels;


•	changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;


•	accounting estimates and risk management processes that rely on analytical and forecasting models;


•	our ability to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting;


•	the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;


•	potential fluctuations in the market value and liquidity of the securities we hold for sale;

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• loss of our executive officers or other key employees could impair our relationship with our customers, employees or vendors and adversely affect our business;


•	potential impairment on the goodwill we may record in connection with business acquisitions;


•	risks associated with system failures or failures to prevent breaches of our network security;


•	a failure in or breach of operational or security systems of the Company’s infrastructure, or those of its third-party vendors and other service providers, including as a result of cyber attacks;

• our ability to keep pace with technological changes orand difficulties when implementing new technologies;

• risks associated with data processing system failures, breaches and errors;


•	risks associated with fraudulent and negligent acts by our customers, employees or vendors;


•	the institution and outcome of litigation and other legal proceeding against us or to which we become subject;


•	our new lines of business or new products and services may subject us to additional risks;


•	legal and regulatory proceedings or the results of regulatory examinations could adversely affect our business, financial condition, and results of operation;

• we are subject to allegations, claims and litigation pertaining to intellectual property from time to time;

• we could experience allegations, claims and litigation pertaining to fiduciary responsibility;


•	the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, such as the Dodd-Frank Act;


•	governmental monetary and fiscal policies, including the policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve");


•	the failure of the Company’s enterprise risk management framework to identify or address risks adequately;

• the ability of the Company or Veritex Holdings, Inc. (“Veritex”) to obtain regulatory approvals and meet other closing conditions to the proposed Merger Transactions, including approval of the Merger by the Company’s shareholders and approval of the Share Issuance by ~~Vertiex~~Veritex’s shareholders;


•	the impact of, and our ability to comply with, formal or informal regulatory actions by federal banking agencies, including any requirements or limitations imposed on us as a result of our confidential supervisory ratings or the results of any regulatory examination;


•	many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth;


•	financial institutions, such as the Bank, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti‑money laundering statutes and regulations;

• substantial regulatory limitations on changes of control of bank holding companies and banks;


•	changes in the scope and cost of Federal Deposit Insurance Corporation (the "FDIC") insurance and other coverages;

• future financial and operating results of ~~Vertiex~~Veritex, the Company or the combined company following the proposed Merger Transactions;


•	systemic risks associated with the soundness of other financial institutions;


•	acts of terrorism, an outbreak of hostilities or other international or domestic calamities, weather or other acts of God and other matters beyond the Company’s control; and


•	other risks and uncertainties listed from time to time in the Company’s reports and documents filed with the Securities and Exchange Commission (the "SEC").

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Other factors not identified above, including those described in our Annual Report on Form 10-K for year ended December 31, 2017 under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Quarterly Reports on Form 10-Q for each quarter ended in 2018 under the heading “Risk Factors,” may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GREEN BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

(Unaudited)

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
ASSETS
Cash and due from banks	$	2527,~~486~~124		$	26,562
Interest bearing deposits in financial institutions and fed funds sold	~~205~~113,~~765~~966			114,119
Total cash and cash equivalents	~~231~~141,~~251~~090			140,681
Available-for-sale securities, at fair value	~~635~~610,~~333~~494			705,539
Held-to-maturity securities, at amortized cost (fair value of $63,993 and $13,146, respectively)	64,530			13,275
Held-to-maturity securities, at amortized cost (fair value of $61,667 and $13,146, respectively)	62,595			13,275
Investment in Patriot Bancshares Capital Trusts I and II	666			666
Federal Reserve Bank stock	11,~~809~~845			11,702
Federal Home Loan Bank of Dallas stock	1921,~~711~~571			14,915
Other investments	10,~~776~~693			—
Total securities and other investments	~~742~~717,~~825~~864			746,097
Loans held for sale	47,~~992~~627			7,156
Loans held for investment	3,~~222~~363,~~108~~354			3,190,485
Allowance for loan losses	(35,~~086~~186		)	(31,220		)
Loans, net	3,~~192~~335,~~014~~795			3,166,421
Premises and equipment, net	2928,~~178~~873			24,002
Goodwill	85,291			85,291
Core deposit intangibles, net of accumulated amortization	7,~~881~~584			8,503
Accrued interest receivable	1113,~~855~~438			11,109
Deferred tax asset, net	12,~~528~~700			8,758
Real estate acquired by foreclosure	~~802~~2,532			802
Bank owned life insurance	56,~~066~~457			55,302
Other assets	2118,~~986~~250			14,950
TOTAL ASSETS	$	4,~~391~~419,~~677~~874		$	4,261,916
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	~~824~~833,~~753~~827		$	803,210
Interest-bearing transaction and savings	1,~~281~~221,~~255~~640			1,331,601
Certificates and other time deposits	1,~~320~~359,~~042~~005			1,262,332
Total deposits	3,~~426~~414,~~050~~472			3,397,143
Securities sold under agreements to repurchase	43,~~141~~502			5,173
Other borrowed funds	~~412~~437,000			325,000
Subordinated debentures and subordinated notes	48,~~019~~161			47,737
Accrued interest payable	35,~~785~~295			2,841
Other liabilities	1821,~~189~~240			20,227
Total liabilities	3,~~912~~929,~~184~~670			3,798,121
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding	—			—
Common stock, $0.01 par value, 90,000,000 shares authorized; 37,467,477 and 37,280,822 shares issued at June 30, 2018 and December 31, 2017, respectively; 37,289,477 and 37,102,822 shares outstanding at June 30, 2018 and December 31, 2017, respectively	375			373
Common stock, $0.01 par value, 90,000,000 shares authorized; 37,545,688 and 37,280,822 shares issued at September 30, 2018 and December 31, 2017, respectively; 37,367,688 and 37,102,822 shares outstanding at September 30, 2018 and December 31, 2017, respectively	375			373
Capital surplus	~~392~~393,~~010~~476			387,891
Retained earnings	~~106~~118,~~416~~276			83,263
Accumulated other comprehensive income, net	(1820,~~055~~670		)	(6,479		)
Less treasury stock, at cost, 178,000 shares at both June 30, 2018 and December 31, 2017	(1,253		)	(1,253		)
Less treasury stock, at cost, 178,000 shares at both September 30, 2018 and December 31, 2017	(1,253		)	(1,253		)
Total shareholders’ equity	~~479~~490,~~493~~204			463,795
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	4,~~391~~419,~~677~~874		$	4,261,916

See notes to interim condensed consolidated financial statements.

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GREEN BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

~~Six~~Nine Months Ended

June 30,

September 30,

2018

2017

2018

2017

INTEREST INCOME:

Loans, including fees

4446,~~479~~612

3839,~~476~~549

86132,~~278~~890

74114,~~847~~396

Securities

4,~~734~~277

34,~~928~~337

913,~~292~~569

610,~~511~~848

Other investments

~~341~~360

~~197~~221

~~641~~1,001

~~385~~606

Deposits in financial institutions and fed funds sold

~~659~~651

~~331~~432

1,~~152~~803

~~740~~1,172

Total interest income

5051,~~213~~900

4244,~~932~~539

97149,~~363~~263

82127,~~483~~022

INTEREST EXPENSE:

Transaction and savings deposits

3,~~023~~393

2,~~230~~502

58,~~487~~880

46,~~208~~710

Certificates and other time deposits

45,~~712~~671

34,~~786~~042

814,~~783~~454

711,~~393~~435

Subordinated debentures and subordinated notes

1,~~109~~120

1,~~051~~059

23,~~188~~308

23,~~092~~151

Other borrowed funds

12,~~608~~197

~~560~~657

25,~~902~~099

~~842~~1,499

Total interest expense

1012,~~452~~381

78,~~627~~260

1931,~~360~~741

1422,~~535~~795

NET INTEREST INCOME

39,~~761~~519

3536,~~305~~279

78117,~~003~~522

67104,~~948~~227

PROVISION FOR LOAN LOSSES

~~1,897~~320

12,~~510~~300

11,~~560~~880

79,~~655~~955

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

3739,~~864~~199

33,~~795~~979

66105,~~443~~642

6094,~~293~~272

NONINTEREST INCOME:

Customer service fees

2,~~578~~874

2,~~199~~365

47,~~973~~847

46,~~465~~830

Loan fees

~~996~~942

~~1,106~~871

12,~~829~~771

12,~~940~~811

Gain on sale of available-for-sale securities, net

66—

~~294~~(332

)

~~294~~(38

)

Gain on held-for-sale loans, net

—

~~222~~(1,294

)

—

84(1,210

)

Gain on sale of guaranteed portion of loans, net

~~1,112~~705

~~878~~1,302

2,~~053~~758

24,~~805~~107

Other

~~733~~952

~~1,000~~478

12,~~722~~674

12,~~606~~084

Total noninterest income

5,~~485~~473

53,~~699~~390

1016,~~643~~116

1114,~~194~~584

NONINTEREST EXPENSE:

Salaries and employee benefits

13,~~640~~729

12,~~653~~487

2740,~~241~~970

2537,~~059~~546

Occupancy

2,~~263~~068

2,~~048~~080

46,~~340~~408

46,~~045~~125

Professional and regulatory fees

21,~~172~~359

12,~~899~~331

45,~~433~~792

46,~~296~~627

Data processing

~~1,029~~923

~~995~~924

2,~~001~~924

12,~~903~~827

Software license and maintenance

~~703~~732

~~438~~464

12,~~419~~151

~~927~~1,391

Marketing

~~257~~354

~~163~~154

~~433~~787

~~362~~516

Loan related

~~467~~587

~~301~~271

~~514~~1,101

~~901~~1,172

Real estate acquired by foreclosure, net

223

515

Merger costs

2,955

—

2,955

—

Other

21,~~110~~425

~~891~~1,356

45,~~301~~742

24,~~442~~313

Total noninterest expense

2224,~~645~~132

1920,~~611~~067

4468,~~698~~830

4060,~~450~~517

INCOME BEFORE INCOME TAXES

20,~~704~~540

1917,~~883~~302

3252,~~388~~928

3148,~~037~~339

PROVISION FOR INCOME TAXES

4,~~283~~943

65,~~985~~895

611,~~605~~548

1016,~~927~~822

NET INCOME

1615,~~421~~597

1211,~~898~~407

2541,~~783~~380

2031,~~110~~517

EARNINGS PER SHARE:

Basic

0.4442

0.3531

01.6911

0.5485

Diluted

0.4441

0.3531

01.6910

0.5485

See notes to interim condensed consolidated financial statements.

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GREEN BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	June 30,						June 30,
	September 30,						September 30,
	2018			2017			2018			2017
NET INCOME	$	1615,~~421~~597		$	1211,~~898~~407		$	2541,~~783~~380		$	2031,~~110~~517
OTHER COMPREHENSIVE LOSS, BEFORE TAX:
Securities available-for-sale:
Change in net unrealized gains (losses) on securities available-for-sale	(43,~~967~~412		)	(1,~~562~~857		)	(1216,~~793~~205		)	(141,871		)
Reclassification of net gains (losses) included in net income	66—			—			66			—
Reclassification of unrealized losses on securities transferred to held-to-maturity	—			—			2,188			—
Tax effect	(~~1,029~~717		)	~~547~~(650		)	(2,~~213~~930		)	(5655		)
Other comprehensive loss, net of tax, for securities available-for-sale	(32,~~872~~695		)	(1,~~015~~207		)	(811,~~326~~021		)	(91,216		)
Securities held-to-maturity:
Reclassification of unrealized losses on securities transferred from available-for-sale	—			—			(2,188		)	—
Amortization of unrealized losses on securities transferred from available-for-sale	7980			—			98178			—
Other comprehensive loss, net of tax, for securities held-to-maturity	7980			—			(2,~~090~~010		)	—
OTHER COMPREHENSIVE LOSS, NET OF TAX	(32,~~793~~615		)	(1,~~015~~207		)	(1013,~~416~~031		)	(91,216		)
COMPREHENSIVE INCOME	$	12,~~628~~982		$	1310,~~913~~200		$	1528,~~367~~349		$	2030,~~101~~301

See notes to interim condensed consolidated financial statements.

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GREEN BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Common Stock			Capital		Retained			AccumulatedOtherComprehensive			Treasury
	Shares	Amount		Surplus		Earnings			Income (Loss)			Stock			Total
BALANCE — January 1, 2017	36,988	$	372	$	382,961	$	49,127		$	(725	)	$	(1,253	)	$	430,482
Net income	—	—		—		2031,~~110~~517			—			—			2031,~~110~~517
Other comprehensive income (loss)	—	—		—		—			(91,216		)	—			(91,216		)
Purchase of treasury stock	—	—		—		—			—			—			—
Issuance of common stock in connection with exercise of stock options	286	1		469		—			—			—			470
Issuance of common stock in connection with exercise of stock options	225	—		456		—			—			—			456
Stock-based compensation expense	—	—		1,058		—			—			—			1,058
Stock-based compensation expense	—	—		702		—			—			—			702
BALANCE — September 30, 2017	37,274	$	373	$	384,488	$	80,644		$	(1,941	)	$	(1,253	)	$	462,311
BALANCE — June 30, 2017	37,213	$	372	$	384,119	$	69,237		$	(734	)	$	(1,253	)	$	451,741
BALANCE — January 1, 2018	37,103	$	373	$	387,891	$	83,263		$	(6,479	)	$	(1,253	)	$	463,795
Reclassification upon adoption of ASU 2018-02(1)	—	—		—		1,396			(1,396		)	—			—
Reclassification upon adoption of ASU 2016-01(1)	—	—		—		(299		)	236			—			(63		)
Net income	—	—		—		2541,~~783~~380			—			—			2541,~~783~~380
Other comprehensive income (loss)	—	—		—					(1013,~~416~~031		)	—			(1013,~~416~~031		)
Issuance of common stock in connection with exercise of stock options	~~186~~265	2		12,~~759~~882		—			—			—			12,~~761~~884
Stock-based compensation expense	—	—		2,~~360~~703		—			—			—			2,~~360~~703
Cash dividend declared, $0.10 per share	—	—		—		(37,~~727~~464		)	—			—			(37,~~727~~464		)
BALANCE — June 30, 2018	37,289	$	375	$	392,010	$	106,416		$	(18,055	)	$	(1,253	)	$	479,493
BALANCE — September 30, 2018	37,368	$	375	$	393,476	$	118,276		$	(20,670	)	$	(1,253	)	$	490,204


⁽¹⁾	Adoption of Accounting Standards Updates 2018-02 and 2016-01. See Notes 3 and 14 to interim condensed consolidated financial statements for additional information.

See notes to interim condensed consolidated financial statements.

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GREEN BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended
	Nine Months Ended
	June 30,
	September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2541,~~783~~380		$	2031,~~110~~517
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Amortization and accretion of premiums and discounts on securities, net	12,~~253~~286			~~542~~1,126
Accretion of loan discounts, net	(23,~~917~~363		)	(23,~~470~~752		)
Amortization of deposit premiums	(~~415~~578		)	(~~567~~781		)
Amortization of core deposit intangibles	~~622~~919			~~760~~1,140
Amortization and accretion of borrowing and debt valuation allowance, net	~~210~~315			~~210~~315
Amortization of issuance costs of subordinated notes	72109			72109
Provision for loan losses	11,~~560~~880			79,~~655~~955
Depreciation	~~955~~1,378			1,~~048~~558
Net gain on sale of available-for-sale securities	(66		)	~~(294~~38		)
Net loss on sale of real estate acquired by foreclosure	—			147
Net gain on loans held-for-sale	—			~~(84~~1,210		)
Net gain on sale of guaranteed portion of loans	(2,~~053~~758		)	(24,~~805~~107		)
Net market value loss on equity investments	~~262~~345			—
Originations of goverment guaranteed loans held-for-sale	(22,595		)	—
Originations of government guaranteed loans held-for-sale	(31,083		)	—
Proceeds from sales of and principal collected on loans held-for-sale	2633,~~812~~370			1315,~~903~~136
Writedown of real estate acquired by foreclosure	—			~~185~~304
Stock-based compensation expense	2,~~471~~853			1,~~059~~700
Deferred tax benefit	(3,~~770~~942		)	(12,~~201~~062		)
Net change in accrued interest receivable and other assets, net	(63,~~165~~606		)	1517,~~222~~340
Net change in accrued interest payable and other liabilities, net	(13,~~205~~317		)	(32,~~473~~281		)
Net cash provided by operating activities	3052,~~814~~756			5073,~~019~~174
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the maturities or calls and paydowns of available-for-sale securities	3665,~~322~~197			3755,~~329~~811
Proceeds from the sale of available-for-sale securities	24,424			~~279~~349,~~168~~374
Purchases of available-for-sale securities	(6574,~~686~~191		)	(~~729~~811,~~200~~919		)
Proceeds from the maturities or calls and paydowns of held-to-maturity securities	24,~~433~~392			35,~~815~~833
Purchases of held-to-maturity securities	(3,627		)	—
Proceeds from sales of guaranteed portion of loans	—			3345,~~606~~957
Proceeds from sales of real estate acquired by foreclosure	—			3,967
Purchases of Federal Home Loan Bank of Dallas stock, net of redemptions	(46,~~796~~656		)	(73,~~329~~399		)
Purchases of Federal Reserve Bank stock	(~~107~~143		)	(24395		)
Net increase in loans held for investment	(42185,~~363~~113		)	(6829,~~624~~778		)
Investment in construction of premises and purchases of other fixed assets	(~~168~~286		)	(~~212~~347		)
Net cash used in investing activities	(53176,~~568~~003		)	(~~447~~384,~~504~~896		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts	29,322			(13,711		)
Net (decrease) increase in securities sold under agreements to repurchase	(1,032		)	1,728
Net proceeds from other short-term borrowed funds	87,000			155,000
Proceeds from issuance of common stock due to exercise of stock options	1,761			456
Payments of cash dividends	(3,727		)	—
Net cash provided by financing activities	113,324			143,473
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	90,570		$	(254,012	)
CASH AND CASH EQUIVALENTS:
Beginning of period	140,681			389,007
End of period	$	231,251		$	134,995
NONCASH ACTIVITIES:
Noncash investing and financing activities - acquisition of real estate through foreclosure of collateral	$	5,963		$	5,270
Transfer of loans to held-for-sale	$	—		$	7,860
SUPPLEMENTAL INFORMATION:
Interest paid	$	18,548		$	15,108
Income taxes paid	$	8,000		$	7,300

See notes to interim condensed consolidated financial statements.

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



	Nine Months Ended
	September 30,
	2018			2017

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts	17,907			34,334
Net (decrease) increase in securities sold under agreements to repurchase	(1,671		)	2,374
Net proceeds from other short-term borrowed funds	112,000			65,000
Proceeds from other long-term borrowed funds	50,000			—
Repayment of other long-term borrowed funds	(50,000		)	—
Proceeds from issuance of common stock due to exercise of stock options	2,884			470
Payments of cash dividends	(7,464		)	—
Net cash provided by financing activities	123,656			102,178
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	409		$	(209,544	)
CASH AND CASH EQUIVALENTS:
Beginning of period	140,681			389,007
End of period	$	141,090		$	179,463

NONCASH ACTIVITIES:
Noncash investing and financing activities - acquisition of real estate through foreclosure of collateral	$	7,693		$	5,270
Transfer of loans to held-for-sale	$	—		$	10,030
Transfer of securities to available-for-sale	$	—		$	15,883

SUPPLEMENTAL INFORMATION:
Interest paid	$	29,442		$	29,498
Income taxes paid	$	12,000		$	11,700

See notes to interim condensed consolidated financial statements.

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

1. BASIS OF PRESENTATION

The interim condensed consolidated financial statements include the accounts of Green Bancorp, Inc. (“Green Bancorp”), together with Green Bank, N.A., its subsidiary bank, (the “Company”). All intercompany transactions and balances have been eliminated.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are of a normal recurring nature. These financial statements and the accompanying notes should be read in conjunction with the financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other period.

Organization—Green Bancorp is a Texas corporation that was incorporated on October 20, 2004. In 2006 Green Bancorp entered into an agreement and plan of merger with Redstone Bank, National Association (“Redstone Bank”), a national banking association located in Houston, Texas, for the purpose of acquiring all of the issued and outstanding stock of Redstone Bank. The acquisition was completed on December 31, 2006, and Green Bancorp became a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

Green Bank, N.A. (the “Bank”) is a national banking association, which was chartered under the laws of the United States of America as a national bank on February 17, 1999, as Redstone Bank. On September 14, 2007, the name was changed to Green Bank, N.A. The Bank provides commercial and consumer banking services in the greater Houston and Dallas metropolitan areas, and Austin, Louisville and Honey Grove.

Merger Agreement—On July 23, 2018, the Company, Veritex, the parent holding company of Veritex Community Bank (“Veritex Bank”), and MustMS, Inc. (“Merger Sub”), a wholly owned subsidiary of Veritex, entered into an Agreement and Plan of Reorganization (the “Merger Agreement”), pursuant to which, subject to the terms and conditions of the Merger Agreement, among other things, (i) Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Veritex, (ii) immediately thereafter, the Company (as the surviving corporation in the Merger) will merge with and into Veritex (together with the Merger, the “Holdco Mergers”), with Veritex being the surviving corporation and (iii) immediately thereafter, Green Bank will merge with and into Veritex Bank, with Veritex Bank continuing as the surviving bank (together with the Holdco Mergers, the “Merger Transactions”).

Upon the consummation of the Merger, each share of Company common stock will be converted into the right to receive 0.79 shares of common stock (the “Exchange Ratio”), par value $0.01 per share, of Veritex (“Veritex Common Stock”).

The Merger Agreement contains customary representations and warranties and covenants by the Company and Veritex, including, among others, covenants relating to (1) the conduct of each party’s business during the period prior to the consummation of the Merger, (2) each party’s obligations to facilitate its shareholders’ consideration of, and voting upon, the Merger Agreement and the Merger, in the case of the Company, and the issuance of shares of Veritex Common Stock in connection with the Merger (the “Share Issuance”), in the case of Veritex, (3) the recommendation by the parties’ respective boards of directors in favor of approval of the Merger Agreement and the Merger Transactions, in the case of the Company, and the Share Issuance, in the case of Veritex, and (4) the Company’s non-solicitation obligations relating to alternative business combination transactions. Furthermore, the Merger Agreement provides that, following the consummation of the Merger, the Veritex board will consist of nine members, six of whom are current members of the Veritex board and three of whom are current members of the Company board.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

The transaction is subject to customary closing conditions, including, among others, (1) approval of the Merger by the shareholders of the Company and the approval of the Share Issuance by the shareholders of Veritex, (2) receipt of required regulatory approvals, (3) the absence of any law or order prohibiting the consummation of the transactions contemplated by the Merger Agreement (including the Merger Transactions), (4) the effectiveness of the registration statement for the Veritex Common Stock to be issued in the Merger, (5) the approval of the listing on the Nasdaq Global Market of the Veritex Common Stock to be issued in the Merger and (6) the receipt of regulatory approvals without the imposition of a condition that would reasonably be expected to be materially financially burdensome to the business, operations, financial condition or results of operations of the surviving corporation.

Each party’s obligation to consummate the Merger Transactions is also subject to certain additional customary conditions, including (1) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (2) performance in all material respects by the other party of its obligations under the Merger Agreement and (3) receipt by such party of an opinion from its counsel to the effect that the Holdco Mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

The Merger Agreement provides certain termination rights for both the Company and Veritex and further provides that a termination fee of $40,000,000 will be payable by either the Company or Veritex, as applicable, upon termination of the Merger Agreement under certain circumstances.

In connection with the proposed Merger Transactions, on August 31, 2018, Veritex filed a registration statement on Form S-4 with the SEC, which was amended on October 10, 2018 and became effective on October 12, 2018. Veritex and Green will hold meetings of their respective shareholders on November 15, 2018, at which meetings their respective shareholders may vote upon the Merger Agreement and the Merger, in the case of the Company, and the Share Issuance, in the case of Veritex. In connection therewith, Green and Veritex began mailing a joint proxy statement/prospectus to their respective shareholders on or around October 15, 2018.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The calculation of the allowance for loan losses, the valuation of goodwill and available for sale securities, acquired assets and liabilities and the calculation of stock based compensation are estimates particularly susceptible to significant change in the near term. Actual results could differ from those estimates.

2. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period.

Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method. Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average shares. In the event of a net loss, the outstanding stock options are excluded from the diluted earnings per common share calculation due to their anti-dilutive effect and the diluted net loss per common share would equal the basic net loss per common share.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

The following table illustrates the computation of basic and diluted earnings per share:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

Amount

PerShareAmount

Amount

PerShareAmount

Amount

PerShareAmount

Amount

PerShareAmount

(Amounts in thousands, except per share amounts)

Net income

1615,~~421~~597

1211,~~898~~407

2541,~~783~~380

2031,~~110~~517

Basic:

Weighted average shares outstanding

37,~~274~~339

0.4442

37,~~023~~056

0.3531

37,~~219~~259

01.6911

37,~~007~~023

0.5485

Diluted:

Add incremental shares for:

Effect of dilutive securities - options

~~372~~387

~~241~~276

~~394~~393

~~227~~250

Total

37,~~646~~726

0.4441

37,~~264~~332

0.3531

37,~~613~~652

01.6910

37,~~234~~273

0.5485

On April 30, 2015, the Company announced the Board of Directors approved a stock repurchase program under which it authorized the Company to repurchase, in the aggregate, up to $15.0 million of the Company’s outstanding common stock. The repurchase program remains in place, but may be limited or terminated at any time without prior notice. Under the authorized stock repurchase agreement, the Company could repurchase shares in open-market purchases or through privately negotiated transactions as permitted under Rule 10b-18 promulgated under the Exchange Act. As of ~~June~~September 30, 2018, the Company had repurchased an aggregate of $1.3 million of the Company’s outstanding common stock under this program at an average price of $7.04 per share.

3. RECENT ACCOUNTING STANDARDS

Accounting Standards Updates (“ASU”)

FASB ASU 2018-0313 - — "~~Technical~~Fair ~~Corrections~~Value ~~and~~Measurement ~~Improvements to Financial Instruments - Overall~~ (~~Subtopic~~Topic ~~825-10~~820)~~" The~~ ~~amendments~~- inChanges ~~this ASU provide clarification on certain aspects related~~ to the ~~guidance~~Disclosure ~~issued~~Requirements infor ~~ASU~~Fair ~~2016-01, Financial~~Value ~~Instruments~~Measurement." -eliminates ~~Overall~~the ~~(Subtopic~~requirements ~~825-10):~~to ~~Recognition~~disclose ~~and~~the ~~Measurement~~amount ~~of Financial Assets~~ and ~~Financial~~reasons ~~Liabilities. The areas~~ for ~~correction~~transfers orbetween ~~improvement~~Level ~~include (~~1) ~~equity~~and ~~securities~~Level ~~without~~2 ~~a readily determinable~~ fair value -methodology, ~~discontinuation;~~the ~~(2)~~policy ~~equity~~for ~~securities~~the ~~without~~timing aof ~~readily~~transfers ~~determinable~~between ~~fair~~levels ~~value - adjustments; (3) forward contracts~~ and ~~purchased~~the ~~options;~~valuation ~~(4)~~processes ~~presentation requirements~~ for ~~certain~~Level ~~fair~~3 ~~value option liabilities; (5)~~ fair value ~~option~~measurements. ~~liabilities~~The ~~denominated~~ASU inrequires athe ~~foreign~~entity ~~currency;~~to ~~and~~disclose ~~(6)~~relevant ~~transition~~quantitative ~~guidance~~information ~~for~~used ~~equity~~to ~~securities~~develop ~~without~~Level a3 ~~readily determinable~~ fair value measurements.~~This~~ ASU is2018-13 ~~effective~~will ~~for~~become ~~public~~effective ~~business entities~~ for ~~fiscal~~the ~~years~~Company ~~beginning~~on ~~after~~January ~~December 15~~1, ~~2017,~~2020 and ~~interim periods within those fiscal years beginning after June 15, 2018. Early adoption~~ is ~~permitted. The adoption of this guidance is~~ not expected to behave ~~material~~a tosignificant impact on the ~~consolidated~~Company’s financial statements.

FASB ASU ~~No.~~ 2018-0203 -— "Technical ~~“Income~~Corrections ~~Statement-Reporting~~and ~~Comprehensive~~Improvements ~~Income~~to ~~(Topic~~Financial ~~220):~~Instruments ~~Reclassification~~- ofOverall ~~Certain~~(Subtopic ~~Tax Effects from Accumulated Other Comprehensive Income.”~~ 825-10)" The amendments ofin this ASU ~~2018-02~~provide ~~allow~~clarification ~~reclassification~~on ~~from~~certain ~~accumulated~~aspects ~~other~~related ~~comprehensive income~~ to ~~retained~~the ~~earnings~~guidance ~~for~~issued ~~stranded~~in ~~tax~~ASU ~~effects~~2016-01, Financial ~~resulting~~Instruments ~~from~~- ~~the~~Overall ~~Tax~~(Subtopic ~~Cuts~~825-10): Recognition and ~~Jobs~~Measurement ~~Act,~~of ~~which~~Financial ~~was~~Assets ~~signed~~and ~~into~~Financial ~~law on December 22, 2017~~Liabilities. The ~~amendments~~areas ~~also~~for ~~require~~correction ~~certain~~or ~~disclosures~~improvement ~~about~~include ~~stranded~~(1) ~~tax~~equity ~~effects.~~securities ~~This~~without ~~update~~a ~~will~~readily bedeterminable ~~effective~~fair ~~for~~value ~~all~~- ~~annual~~discontinuation; ~~and~~(2) ~~interim~~equity ~~periods~~securities ~~beginning~~without ~~January~~a 1,readily ~~2019,~~determinable ~~with~~fair ~~early~~value ~~adoption~~- ~~permitted,~~adjustments; ~~and~~(3) ~~the~~forward ~~guidance~~contracts ~~should~~and bepurchased ~~applied~~options; ~~either~~(4) inpresentation ~~the~~requirements ~~period~~for ofcertain ~~adoption~~fair orvalue ~~retrospectively~~option toliabilities; ~~each~~(5) ~~period~~fair ~~impacted~~value byoption ~~the~~liabilities ~~change~~denominated in ~~the~~a ~~U.S.~~foreign ~~federal~~currency; ~~corporate~~and ~~income~~(6) ~~tax~~transition ~~rate~~guidance infor ~~the~~equity ~~Tax~~securities ~~Cuts~~without ~~and~~a ~~Job~~readily ~~Acts~~determinable isfair ~~recognized~~value. This ~~The~~ASU ~~Company~~is ~~early~~effective ~~adopted~~for ~~the~~public ~~new~~business ~~guidance~~entities infor ~~the~~fiscal ~~first~~years ~~quarter~~beginning ofafter ~~2018~~December 15, ~~which~~2017, ~~resulted~~and ininterim aperiods ~~cumulative~~within ~~effect~~those ~~adjustment~~fiscal toyears ~~the~~beginning ~~consolidated~~after ~~balance~~June ~~sheet as of January 1~~15, 2018. toEarly ~~reclass~~adoption ~~approximately~~was $1permitted.4 ASU ~~million~~2018-03 ofdid ~~tax~~not ~~expense~~have ~~from~~a ~~accumulated~~material ~~other~~impact ~~comprehensive~~on ~~loss~~the toCompany’s consolidated financial statements.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

FASB ASU No. 2018-02 — “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments of ASU 2018-02 allow reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. The amendments also require certain disclosures about stranded tax effects. This update will be effective for all annual and interim periods beginning January 1, 2019, with early adoption permitted, and the guidance should be applied either in the period of adoption or retrospectively to each period impacted by the change in the U.S. federal corporate income tax rate in the Tax Cuts and Job Acts is recognized. The Company early adopted the new guidance in the first quarter of 2018, which resulted in a cumulative effect adjustment to the consolidated balance sheet as of January 1, 2018 to reclass approximately $1.4 million of tax expense from accumulated other comprehensive loss to retained earnings. This reclassification is presented in the condensed consolidated statement of changes in shareholders equity for the period ended ~~June~~September 30, 2018.

FASB ASU No. 2017-12 — “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” Issued in August 2017, the ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815. The amendments objectives are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and to simplify the application of hedge accounting by preparers. For public entities, ASU 2017-12 is effective for interim and annual periods beginning after December 15, 2018; however, early adoption is permitted. The Company adopted the ASU in the third quarter of 2017 and reclassified $15.9 million of securities from held-to-maturity to available-for-sale classification pursuant to the transition election. The amount of net unrealized loss at the date of transfer was recorded in accumulated other comprehensive income. The early adoption did not have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.

FASB ASU No. 2017-09 — “Compensation-Stock Compensation (Topic 718) - Scope of Modification Accounting.” Issued in May 2017, ASU 2017-09 clarifies when changes to terms or conditions of a share-based payment award must be accounted for as a modification. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the fair value of the award, (ii) the vesting conditions of the award, and (iii) the classification of the award as either an equity or liability instrument. ASU 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The guidance requires companies to apply the requirements prospectively to awards modified on or after the adoption date. ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements.

FASB ASU No. 2017-08 — “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” Issued in March 2017, ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the potential impact of ASU 2017-08 on the Company’s consolidated financial statements.

FASB ASU No. 2017-04 — “Intangibles—Goodwill and Other (Topic 350).” ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test, which required computing the implied fair value of goodwill. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for the Company on January 1, 2020 and is not expected to have a significant impact on the Company’s consolidated financial statements.

FASB ASU No. 2017-01 — “Business Combinations (Topic 805).” ASU 2017-01 is intended to clarify or correct unintended applications of ASU 2014-09 “Revenue from Contract with Customers (Topic 606).” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Additionally, the amendments in this update provide a more robust framework to assist entities in evaluating whether a set of assets and activities constitutes a business. Lastly, the amendments in this update narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. ASU 2017-01 became effective for the Company on January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.15

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

FASB ASU No. 2016-18 — “Statement of Cash Flows (Topic 230) – Restricted Cash.” ASU 2016-18 requires the Statement of Cash Flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, restricted cash or cash equivalents should be included with cash and cash equivalents when recording the beginning-of-period and end-of-period total amounts on the Statement of Cash Flows. ASU 2016-18 became effective for the Company on January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

FASB ASU No. 2016-15 — "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 provides classification guidance on certain cash receipts and cash payments, including, but not limited to, debt prepayment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of bank-owned life insurance policies and distributions received from equity method investees. ASU 2016-15 became effective for the Company on January 1, 2018, and did not have a material impact on the Company’s consolidated financial statements.

FASB ASU No. 2016-13 —"Financial Instruments - Credit Losses (Topic 326)" ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 will be effective for the Company on January 1, 2020. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the potential impact of ASU 2016-13 on the Company’s consolidated financial statements.

FASB ASU No. 2016-09 — “Compensation - Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. This ASU covers accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 was effective for the Company beginning January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.

FASB ASU No. 2016-02 — “Leases (Topic 842).” In February 2016, the Financial Accounting Standards Board issued ASU 2016-02 to supersede nearly all existing lease guidance under GAAP. ~~The~~It ~~guidance~~is ~~would~~intended ~~require~~to aimprove ~~lessee~~the toreporting ~~record~~of aleasing ~~right-~~transactions to~~-use~~ ~~asset~~provide ~~and~~users ~~liability~~of ~~representing~~financial ~~the~~statements ~~obligation~~with tomore ~~make~~decision-useful ~~lease~~information. ~~payments~~Topic ~~for~~842 ~~long~~was subsequently amended by ASU 2018-~~term~~11, ~~leases~~“Targeted Improvements.” ASU 2016-02 iswill ~~effective~~require ~~for~~organizations ~~public~~that ~~business~~lease ~~entities~~assets ~~for~~to ~~fiscal~~recognize ~~years,~~a right-of-use (“ROU”) asset and ~~interim~~lease ~~periods~~liability ~~within~~on ~~those~~the ~~fiscal~~balance ~~years,~~sheet ~~beginning~~for ~~after~~all ~~December~~leases ~~15,~~with ~~2018~~a ~~and~~term ~~must~~longer bethan ~~adopted~~12 ~~using~~months. aLeases ~~modified~~will ~~retrospective~~be ~~approach.~~classified ~~The~~as ~~Company~~finance isor ~~currently~~operating, ~~evaluating~~with ~~the~~classification ~~impact~~affecting ofthe ~~its~~pattern ~~pending~~and ~~adoption~~classification of ~~ASU~~expense ~~2016-02~~recognition onin ~~its~~the ~~consolidated~~income ~~financial statements~~statement.

~~FASB~~ ASU ~~No.~~ 2016-0102 —is ~~“Financial~~effective ~~Instruments─Overall~~for ~~(Subtopic~~fiscal ~~825-10)– Recognition~~years ~~and~~beginning ~~Measurement~~after ofDecember ~~Financial Assets and Financial Liabilities.” ASU 2016-01 addresses certain aspects of recognition~~15, ~~measurement~~2018, ~~presentation,~~including ~~and~~interim ~~disclosure~~periods ofwithin ~~financial instruments. ASU 2016-01 (i) requires equity investments (except~~ those ~~accounted~~fiscal ~~for~~years. ~~under~~Early ~~the~~adoption ~~equity~~is ~~method~~permitted. ofA ~~accounting~~modified orretrospective ~~those~~transition ~~that~~approach ~~result~~is inrequired, ~~consolidation~~applying of the ~~investee)~~new standard to beall ~~measured~~leases existing at ~~fair value with changes in fair value recognized in net income; (ii) simplifies~~ the ~~impairment~~date ~~assessment~~ of ~~equity~~initial ~~investments~~application. ~~without~~An ~~readily~~entity ~~determinable~~may ~~fair~~choose ~~values by requiring a qualitative assessment~~ to ~~identify~~use ~~impairment;~~either (~~iii~~i) ~~eliminates~~ ~~the~~its ~~requirement~~effective todate ~~disclose~~or ~~the fair value of financial instruments measured at amortized cost for entities that are not public business entities;~~ (ivii) ~~eliminates~~ the ~~requirement~~beginning ~~for~~of ~~public business entities to disclose~~ the ~~method(s)~~earliest ~~and~~comparative ~~significant~~period ~~assumptions~~presented ~~used~~in ~~to estimate~~ the ~~fair value that is required to be disclosed for~~ financial ~~instruments~~statements ~~measured~~as atits ~~amortized~~date ~~cost~~of oninitial ~~the~~application. ~~balance~~If ~~sheet;~~an ~~(v) requires~~entity ~~public~~chooses ~~business entities to use~~ the ~~exit~~second ~~price~~option, ~~notion when measuring~~ the ~~fair~~transition ~~value~~requirements ~~of financial instruments~~ for ~~disclosure~~existing ~~purposes;~~leases ~~(vi) requires~~also anapply ~~entity~~ to ~~present~~leases ~~separately~~entered ininto ~~other~~between ~~comprehensive income~~ the ~~portion~~date of ~~the~~initial ~~total~~application ~~change~~and in the ~~fair~~effective ~~value~~date. ofThe ~~a liability resulting from a change in the instrument-specific credit risk when the~~ entity ~~has~~must ~~elected~~also torecast ~~measure~~its ~~the~~comparative ~~liability~~period ~~at fair value in accordance with the fair value option for~~ financial ~~instruments;~~statements ~~(vii) requires separate presentation of financial assets~~ and ~~financial~~provide ~~liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on~~ the ~~balance~~disclosures ~~sheet~~required orby the ~~accompanying~~new ~~notes~~standard tofor the ~~financial~~comparative ~~statements;~~periods. ~~and~~The ~~(viii) clarifies~~Company ~~that~~expects anto ~~entity~~adopt ~~should evaluate~~ the ~~need~~new ~~for~~standard ~~a valuation allowance~~ on aJanuary ~~deferred~~1, ~~tax~~2019 ~~asset~~and ~~related~~use tothe ~~available-for-sale~~effective ~~securities~~date inas ~~combination~~its ~~with~~date ~~the~~of ~~entity’s~~initial ~~other deferred tax assets~~application. ~~The~~Consequently, ~~amendments~~financial ininformation ~~this~~will ~~update~~not ~~affect~~be ~~all~~updated ~~entities~~and ~~that~~the ~~hold~~disclosures ~~financial~~required

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(Unaudited)

~~assets~~under orthe ~~owe~~new ~~financial~~standard ~~liabilities.~~will ~~ASU~~not ~~2016-01~~be ~~became~~provided ~~effective~~ for ~~the~~dates ~~Company~~and ~~beginning~~periods before January 1, ~~2018, and did not have a material impact on the Company’s consolidated financial statements~~2019.

ASU 2016-02 provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’ as both the lessee and lessor, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently expects to elect the short-term lease recognition exemption for leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets and leases liabilities for any lease that has a lease term at commencement date of 12 months or less and does not include a purchase option. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for all leases. The Company expects that this standard will increase its consolidated assets and liabilities but will not have a material impact on its consolidated statements of income. While the Company continued to assess all the effects of adoption, it currently believes the most significant effects relate to (i) the recognition of new ROU assets and lease liabilities on our balance sheet for our property and equipment operating leases and (ii) providing significant new disclosures about our lease activities. The Company does not expect a significant change in its leasing activities between now and adoption.

FASB ASU No. 2016-01 — “Financial Instruments─Overall (Subtopic 825-10)– Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (v) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (vi) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update affect all entities that hold financial assets or owe financial liabilities. ASU 2016-01 became effective for the Company beginning January 1, 2018, and did not have a material impact on the Company’s consolidated financial statements.

FASB ASU No. 2015-17 — “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” In November 2015, the FASB issued ASU 2015-17, as part of its simplification initiative. The ASU requires entities to present deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) as noncurrent in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or noncurrent in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. ASU 2015-17 was effective for the Company beginning January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.

FASB ASU No. 2014-09 — “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 is a comprehensive new revenue recognition standard that superseded nearly all existing revenue recognition guidance under GAAP and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. The Company’s primary sources of revenue are comprised of net interest income on financial assets and liabilities, which are not within the scope of ASU 2014-09. The Company adopted ASU 2014-09, effective January 1, 2018, and had no material effect on how we recognize revenue or to our consolidated financial statements and disclosures. See below for additional information related to revenue generated from contracts with customers.

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Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of non-interest income are as follows:

•

Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity- or-transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.


•	Gains/losses on the sale of other real estate owned - generally recognized when the performance obligation is complete which is typically at delivery of control over the property to the buyer at the time of each real estate closing.

4. ACQUISITIONS

Acquisitions have been in the past ~~and may be in the future~~ an important part of the Company’s growth strategy. All acquisitions were accounted for using the acquisition method of accounting. Accordingly, the assets and liabilities of the acquired entities were recorded at their fair values at the acquisition date. The excess of the purchase price over the estimated fair value of the net assets for tax-free acquisitions is recorded as goodwill, none of which is deductible for tax purposes. The excess of the purchase price over the estimated fair value of the net assets for taxable acquisitions was recorded as goodwill, and is deductible for tax purposes. The identified core deposit intangibles for each acquisition are being amortized using an accelerated basis over an estimated life of six to nineteen years. The results of operations for each acquisition have been included in the Company’s consolidated financial results beginning on the respective acquisition date.

165. CASH AND CASH EQUIVALENTS

The Bank, as a correspondent of the Federal Reserve Bank, is required to maintain average reserve balances. Interest-bearing deposits in financial institutions include restricted amount of $87.0 million and $76.0 million at September 30, 2018 and December 31, 2017, respectively, as a result of this requirement.

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The measurement period for the Company to determine the fair values of acquired identifiable assets and assumed liabilities will end at the earlier of (1) twelve months from the date of the acquisition or (2) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable.

Pursuant to the terms of the Merger Agreement, the Company is restricted from certain acquisition activities without the consent of Veritex. Veritex has agreed not to unreasonably withhold any such consent.

5. CASH AND CASH EQUIVALENTS

The Bank, as a correspondent of the Federal Reserve Bank, is required to maintain average reserve balances. Interest-bearing deposits in financial institutions include restricted amount of $86.2 million and $76.0 million at June 30, 2018 and December 31, 2017, respectively, as a result of this requirement.

6. SECURITIES

The amortized cost and fair value of securities as of the dates set forth were as follows:

	June 30, 2018
	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale:
SBA guaranteed securities	$	9995,~~125~~638	$	7413	$	(12,~~982~~296	)	$	9793,~~217~~355
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	~~227~~219,~~164~~222		—		(78,~~095~~852		)	~~220~~210,~~069~~370
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: commercial	6554,~~823~~792		—		(2,~~823~~955		)	6351,~~000~~837
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	~~211~~212,~~291~~400		—		(78,~~035~~005		)	204,~~256~~395
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: commercial	35,~~990~~910		—		(1,~~341~~466		)	34,~~649~~444
Corporate debt securities	15,~~913~~917		5317		(6177		)	15,~~905~~857
Obligations of municipal subdivisions	236		1—		—			~~237~~236
Total	$	~~655~~634,~~542~~115	$	~~128~~30	$	(2023,~~337~~651	)	$	~~635~~610,~~333~~494
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	$	1110,~~352~~794	$	2515	$	(~~389~~483	)	$	10,~~988~~326
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: commercial	2,488		—		(90142		)	2,~~398~~346
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	4443,~~499~~130		6081		(~~138~~289		)	4442,~~421~~922
Obligations of municipal subdivisions	6,~~191~~183		—		(5110		)	6,~~186~~073
Total	$	6462,~~530~~595	$	8596	$	(~~622~~1,024	)	$	6361,~~993~~667

Securities with fair value of $50.0 million were transferred from available-for-sale to held-to-maturity classification during the quarter ended March 31, 2018. The related unrealized loss at the date of transfer of $2.2 million remained in accumulated other comprehensive income and will be amortized over the remaining term of the securities. The net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive income as of ~~June~~September 30, 2018 totaled $2.10 million.

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	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale:
SBA guaranteed securities	$	104,111	$	129	$	(948	)	$	103,292
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	250,580		297		(1,701		)	249,176
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: commercial	65,986		—		(500		)	65,486
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	234,881		—		(6,434		)	228,447
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: commercial	36,151		—		(472		)	35,679
Corporate debt securities	5,789		5		—			5,794
Obligations of municipal subdivisions	6,672		—		(45		)	6,627
CRA qualified investment fund	11,337		—		(299		)	11,038
Total	$	715,507	$	431	$	(10,399	)	$	705,539

Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	$	10,841	$	61	$	(170	)	$	10,732
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	2,434		—		(20		)	2,414
Total	$	13,275	$	61	$	(190	)	$	13,146

Expected maturities of securities will differ from contractual maturities because the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. The following table sets forth, as of the date indicated, contractual maturities of securities:

	June 30, 2018
	September 30, 2018
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	4,~~913~~917		4,~~871~~867		—		—
Due after five years through ten years	11,236		11,~~271~~226		—		—
Due after ten years	—		—		6,~~191~~183		6,~~186~~073
	16,149		16,142		6,191		6,186
	16,153		16,093		6,183		6,073
Mortgage-backed securities and collateralized mortgage obligations	~~540~~522,~~268~~324		~~521~~501,~~974~~046		5856,~~339~~412		5755,~~807~~594
SBA guaranteed securities	9995,~~125~~638		9793,~~217~~355		—		—
Total	$	~~655~~634,~~542~~115	$	~~635~~610,~~333~~494	$	6462,~~530~~595	$	6361,~~993~~667

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There were twenty-nine and ~~thirty~~seventy-~~one~~eight sales of securities classified as available-for-sale during the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2018, proceeds of $24.4 million were received from sales of securities classified as available-for-sale. The sales resulted in a net gain of $66 thousand, which is comprised of $172 thousand in gross realized gains, offset by $106 thousand in gross realized losses. During the ~~six~~nine months ended ~~June~~September 30, 2017, proceeds of $~~279~~349.24 million were received from sales of securities classified as available-for-sale. The sales resulted in a net ~~gain~~loss of $~~294~~38 thousand, which is comprised of $~~777~~910 thousand in gross realized gains, offset by $~~483~~948 thousand in gross realized losses.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available-for-sale or held-to-maturity are evaluated for OTTI under FASB ASC 320, Investments—Debt and Equity Securities.

In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the other-than-temporary impairment recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.

As of ~~June~~September 30, 2018, the Company does not intend to sell any debt securities classified as held-to-maturity and management believes that the Company more likely than not will not be required to sell any debt securities that are in a loss position before their anticipated recovery, at which time the Company will receive full value for the securities. Furthermore, as of ~~June~~September 30, 2018, management does not have the intent to sell any of its securities classified as available-for-sale that are in a loss position and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of ~~June~~September 30, 2018, management believes any impairment in the Company’s securities is temporary and no impairment loss has been realized in the Company’s consolidated statements of income.

Declines in the fair value of individual securities below their cost that are other-than-temporary would result in writedowns, as a realized loss, to their fair value. In evaluating other-than-temporary impairment losses, management considers several factors including the severity and the duration that the fair value has been less than cost, the credit quality of the issuer, and whether it is more likely than not that the Company will be required to sell the security before a recovery in value. The Company has not realized any losses due to other-than-temporary impairment of securities as of ~~June~~September 30, 2018.

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~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

Securities with unrealized losses segregated by length of continuous unrealized loss position as of the dates set forth were as follows:

	June 30, 2018
	September 30, 2018
	Less than 12 Months							12 Months or More
	Amortized Cost		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale:
SBA guaranteed securities	$	8932,~~688~~936	$	(~~1,892~~351	)	$	8732,~~796~~585	$	458,~~979~~385	$	(901,945	)	$	456,~~889~~440
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	~~227~~131,~~164~~434		(74,~~095~~956		)	~~220~~126,~~069~~478		—87,788		—(3,896		)	—83,892
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: commercial	5232,~~887~~888		(21,~~340~~848		)	5031,~~547~~040		1221,~~936~~904		(~~483~~1,107		)	1220,~~453~~797
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	7259,~~794~~079		(1,~~481~~366		)	7157,~~313~~713		~~138~~144,~~497~~981		(56,~~554~~639		)	~~132~~138,~~943~~342
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: commercial	354,~~990~~971		(~~1,341~~223		)	344,~~649~~748		—30,940		—(1,243		)	—29,697
Corporate debt securities	8,~~913~~917		(6177		)	8,~~852~~840		—		—			—
Total	$	~~487~~270,~~436~~225	$	(148,~~210~~821	)	$	~~473~~261,~~226~~404	$	~~156~~343,~~412~~998	$	(614,~~127~~830	)	$	~~150~~329,~~285~~168
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	$	32,~~893~~657	$	(7874	)	$	32,~~815~~583	$	6,~~017~~869	$	(~~311~~409	)	$	56,~~706~~460
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: commercial	2,488		(90142		)	2,~~398~~346		—		—			—
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	4224,~~531~~321		(~~138~~233		)	4224,~~393~~088		—1,977		—(56		)	—1,921
Municipal bonds	6,~~191~~183		(5110		)	6,~~186~~073		—		—			—
Total	$	5535,~~103~~649	$	(~~311~~559	)	$	5435,~~792~~090	$	68,~~017~~846	$	(~~311~~465	)	$	58,~~706~~381

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~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)



	December 31, 2017
	Less than 12 Months							12 Months or More
	Amortized Cost		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Losses			Fair Value

	(Dollars in thousands)
Available-for-sale:
SBA guaranteed securities	$	76,603	$	(948	)	$	75,655	$	—	$	—		$	—
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	192,105		(1,608		)	190,497		9,152		(93		)	9,059
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: commercial	65,986		(500		)	65,486		—		—			—
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	210,034		(6,183		)	203,851		9,037		(251		)	8,786
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: commercial	36,151		(472		)	35,679		—		—			—
Obligations of municipal subdivisions	6,436		(45		)	6,391		—		—			—
CRA qualified investment fund	—		—			—		11,337		(299		)	11,038
Total	$	587,315	$	(9,756	)	$	577,559	$	29,526	$	(643	)	$	28,883

Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises: residential	$	1,086	$	(9	)	$	1,077	$	6,265	$	(161	)	$	6,104
Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises: residential	2,434		(20		)	2,414		—		—			—
Total	$	3,520	$	(29	)	$	3,491	$	6,265	$	(161	)	$	6,104

The average loss on securities in an unrealized loss position was 23.9775% and 1.69% of the amortized cost basis at ~~June~~September 30, 2018 and December 31, 2017, respectively. There were ~~nineteen~~forty-one and eighteen securities in an unrealized loss position of greater than 12 months at ~~June~~September 30, 2018 and December 31, 2017, respectively.

The Company did not own securities of any one issuer (other than the U.S. government and its agencies or sponsored enterprises) for which the aggregate adjusted cost exceeds 10% of the consolidated shareholders’ equity at ~~June~~September 30, 2018 or December 31, 2017.

Securities with an amortized cost of $5.41 million and $6.3 million and fair value of $54.29 million and $6.3 million were pledged and available to be sold under repurchase agreements at ~~June~~September 30, 2018 and December 31, 2017, respectively. Securities with an amortized cost of $7482.4 million and $55.7 million and fair value of $7380.49 million and $55.5 million were pledged to various Federal Reserve Districts related to deposits of bankruptcy trustees at ~~June~~September 30, 2018 and December 31, 2017, respectively. In addition, securities with an amortized cost of $3.31 million and $3.4 million and fair value of $3.20 million and $3.3 million were pledged as collateral for the Company’s derivative instruments at ~~June~~September 30, 2018 and December 31, 2017, respectively.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

7. LOANS

The loan portfolio classified by type and class as of the dates set forth were as follows:

June 30, 2018

September 30, 2018

Originated

Acquired

Total

(Dollars in thousands)

Commercial & industrial

1,~~034~~114,~~821~~467

3528,~~599~~266

1,~~070~~142,~~420~~733

Mortgage warehouse

~~244~~236,~~041~~307

—

~~244~~236,~~041~~307

Real estate:

Owner occupied commercial real estate

~~373~~382,~~692~~886

6252,~~461~~781

~~436~~435,~~153~~667

Commercial real estate

~~949~~1,~~099~~013,927

~~142~~119,~~937~~500

1,~~092~~133,~~036~~427

Construction, land & land development

~~105~~137,~~926~~634

2415,~~607~~623

~~130~~153,~~533~~257

Residential mortgage

~~158~~177,~~531~~168

7671,~~661~~878

~~235~~249,~~192~~046

Consumer and other

12,~~854~~185

~~879~~732

1312,~~733~~917

Total loans held for investment

23,~~878~~074,~~964~~574

~~343~~288,~~144~~780

3,~~222~~363,~~108~~354

Total loans held for sale

47,~~992~~627

—

47,~~992~~627



	December 31, 2017
	Originated		Acquired		Total

	(Dollars in thousands)
Commercial & industrial	$	1,002,797	$	63,469	$	1,066,266
Mortgage warehouse	220,230		—		220,230
Real estate:
Owner occupied commercial real estate	327,906		87,324		415,230
Commercial real estate	823,361		244,418		1,067,779
Construction, land & land development	136,998		27,954		164,952
Residential mortgage	149,021		89,559		238,580
Consumer and other	16,178		1,270		17,448
Total loans held for investment	$	2,676,491	$	513,994	$	3,190,485

Total loans held for sale	$	7,156	$	—	$	7,156

The loan portfolio is comprised of four types, commercial and industrial loans, mortgage warehouse, real estate loans and consumer and other loans. The real estate loans are further segregated into owner occupied commercial real estate, commercial real estate, which includes multi-family loans, construction, land and land development, which includes both commercial construction and loans for the construction of residential properties and residential mortgage, which includes first and second liens and home equity lines. Consumer and other loans includes various types of loans to consumers and overdrafts. Loans are further separated between loans originated by the Company and loans acquired.

Included in the loans held for investment balance was $13.65 million of net deferred loan origination fees and unamortized premium and discount at both ~~June~~September 30, 2018 and December 31, 2017. Also included in loans at ~~June~~September 30, 2018 and December 31, 2017 was $~~234~~232 thousand and $1.4 million, respectively, in nonaccretable discount on acquired credit impaired loans. Accrued interest receivable on loans was $910.38 million and $8.8 million at ~~June~~September 30, 2018 and December 31, 2017, respectively. Consumer and other loans include overdrafts of $5542 thousand and $48 thousand as of ~~June~~September 30, 2018 and December 31, 2017, respectively.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

The loan portfolio consists of various types of loans made to borrowers principally located in the Houston and Dallas metropolitan areas. Although the portfolio is diversified and generally secured by various types of collateral, a substantial portion of its debtors’ ability to honor their obligations is dependent on local economic conditions, including conditions affecting the energy industry. The risks created by this geographic concentration have been considered by management in the determination of the adequacy of the allowance for loan losses. The Company does not have any significant concentration to any one industry or customer. As of ~~June~~September 30, 2018 and December 31, 2017, there were no concentrations of loans related to any single industry in excess of 10% of total loans.

Reserved-based energy loans outstanding represented approximately 0.4% and 0.6% of total funded loans as of ~~June~~September 30, 2018 and December 31, 2017, respectively. Energy-related service industry loans represented approximately 0.87% and 1.1% of total funded loans as of ~~June~~September 30, 2018 and December 31, 2017, respectively. As of ~~June~~September 30, 2018, and December 31, 2017, $14.3 million and $19.2 million of reserved-based energy loans and $10.10 million and $17.5 million of energy-related service industry loans were impaired, respectively.

Loan maturities and rate sensitivity of the loans held for investment, as of the date indicated, were as follows:

June 30, 2018

September 30, 2018

Due inOne Yearor Less

Due AfterOne YearThroughFive Years

Due AfterFive Years

Total

(Dollars in thousands)

Commercial & industrial

~~390~~406,~~500~~028

~~620~~663,~~518~~102

5973,~~402~~603

1,~~070~~142,~~420~~733

Mortgage warehouse

126,~~702~~581

~~117~~109,~~339~~726

—

~~244~~236,~~041~~307

Real estate:

Owner occupied commercial real estate

2015,~~561~~099

~~169~~174,~~800~~652

245,~~792~~916

~~436~~435,~~153~~667

Commercial real estate

~~164~~151,~~160~~071

~~669~~716,~~033~~864

~~258~~265,~~843~~492

1,~~092~~133,~~036~~427

Construction, land & land development

4135,~~620~~854

5683,~~203~~126

3234,~~710~~277

~~130~~153,~~533~~257

Residential mortgage

1819,~~921~~517

4746,~~200~~408

~~169~~183,~~071~~121

~~235~~249,~~192~~046

Consumer and Other

3,~~854~~856

2,~~262~~217

76,~~617~~844

1312,~~733~~917

Total loans held for investment

~~766~~758,~~318~~006

1,~~682~~796,~~355~~095

~~773~~809,~~435~~253

3,~~222~~363,~~108~~354

Fixed rate

~~141~~116,~~480~~653

~~429~~528,~~239~~920

~~103~~108,~~806~~931

~~674~~754,~~525~~504

Adjustable rate(1)

~~624~~641,~~838~~353

1,~~253~~267,~~116~~175

~~669~~700,~~629~~322

2,~~547~~608,~~583~~850

Total loans held for investment

~~766~~758,~~318~~006

1,~~682~~796,~~355~~095

~~773~~809,~~435~~253

3,~~222~~363,~~108~~354


⁽¹⁾	Includes all adjustable rate loans irrespective of the time period to next interest rate reset.

In the ordinary course of business, the Company has granted loans to certain directors, officers and their affiliates. In the opinion of management, all transactions entered into between the Bank and such related parties have been and are in the ordinary course of business, made on the same terms and conditions as similar transactions with unaffiliated persons.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

An analysis of activity with respect to these related-party loans for the ~~six~~nine months ended ~~June~~September 30, 2018 and the year ended December 31, 2017 was as follows:

	June 30, 2018		December 31, 2017
	September 30, 2018		December 31, 2017
	(Dollars in thousands)
Beginning balance	$	—	$	5,813
Advances	—		—
Repayments	—		(5,813		)
Ending Balance	$	—	$	—

Acquired Loans — The outstanding principal balance and recorded investment in the total acquired loans from all completed acquisitions, as of the dates set forth, was as follows:

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
	(Dollars in thousands)
Credit impaired acquired loans:
Outstanding principal balance	$	117,~~378~~621		$	18,498
Recorded investment	107,~~717~~037			15,965
Discount, net	$	~~661~~584		$	2,533
Other acquired loans:
Outstanding principal balance	~~333~~282,~~433~~476			499,939
Deferred fees, net	(4033		)	(72		)
Recorded investment	~~332~~281,~~427~~743			498,029
Discount, net	$	~~966~~700		$	1,838
Total acquired loans:
Outstanding principal balance	~~344~~290,~~811~~097			518,437
Deferred fees, net	(4033		)	(72		)
Recorded investment	~~343~~288,~~144~~780			513,994
Discount, net	$	1,~~627~~284		$	4,371

Changes in the accretable yield for credit impaired acquired loans for the periods indicated, were as follows:

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2018			2017
	(Dollars in thousands)
Balance at beginning of period	$	1,125		$	2,544
Reclassifications from non-accretable discount	~~989~~991			~~327~~(422		)
Accretion	(1,~~687~~763		)	(~~695~~1,166		)
Balance at period end	$	~~427~~353		$	~~2,176~~956

Purchased credit impaired loans are evaluated on an ongoing basis after acquisition. Reclassifications between nonaccretable discount and accretable yield are recorded based on the current estimates of the timing and amount of expected future cash flows.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

Nonaccrual and Past Due Loans — When management doubts a borrower’s ability to meet payment obligations, which typically occurs when principal or interest payments are more than 90 days past due, the loans are placed on nonaccrual status.

The age analysis of loans, segregated by class, as of the dates set forth was as follows:

June 30, 2018

September 30, 2018

Loans Past Due and Still Accruing

30 - 89 DaysPast Due

90 Daysor MorePast Due

Total

Nonaccrual

PurchasedCreditImpaired

Current

TotalLoans

(Dollars in thousands)

Originated Loans

Commercial & industrial

410,~~396~~960

—2,413

413,~~396~~373

4135,~~033~~824

—

~~989~~1,~~392~~065,270

1,~~034~~114,~~821~~467

Mortgage warehouse

—

~~244~~236,~~041~~307

Real estate:

Owner occupied commercial real estate

—428

—

—428

53,~~225~~494

—

~~368~~378,~~467~~964

~~373~~382,~~692~~886

Commercial real estate

141,~~800~~201

—

141,~~800~~201

~~175~~13,379

—

~~934~~999,~~124~~347

~~949~~1,~~099~~013,927

Construction, land & land development

—1,622

—

—1,622

~~107~~1,457

—

~~105~~134,~~819~~555

~~105~~137,~~926~~634

Residential mortgage

~~968~~943

59490

1,~~027~~433

3,~~859~~658

—

~~153~~172,~~645~~077

~~158~~177,~~531~~168

Consumer and other

~~157~~184

26—

~~183~~184

4543

—

1211,~~626~~958

12,~~854~~185

Total originated loans

2015,~~321~~338

852,903

2018,~~406~~241

5057,~~444~~855

—

2,~~808~~998,~~114~~478

23,~~878~~074,~~964~~574

Acquired Loans

Commercial & industrial

~~4,310~~—

~~438~~—

~~4,748~~—

1,~~746~~795

1,~~730~~563

2724,~~375~~908

3528,~~599~~266

Real estate:

Owner occupied commercial real estate

~~1,837~~778

—

~~1,837~~778

1,~~727~~671

~~3,394~~14

5550,~~503~~318

6252,~~461~~781

Commercial real estate

81,~~290~~942

~~268~~976

82,~~558~~918

~~105~~—

3,~~591~~594

~~130~~112,~~683~~988

~~142~~119,~~937~~500

Construction, land & land development

—

~~700~~695

—

2314,~~907~~928

2415,~~607~~623

Residential mortgage

1,~~144~~425

97946

12,~~241~~371

~~104~~101

21,~~002~~866

7367,~~314~~540

7671,~~661~~878

Consumer and other

—47

19—

1947

—

~~857~~681

~~879~~732

Total acquired loans

154,~~581~~192

~~822~~1,922

166,~~403~~114

4,~~385~~266

107,~~717~~037

~~311~~271,~~639~~363

~~343~~288,~~144~~780

Total loans held for investment

3519,~~902~~530

~~907~~4,825

3624,~~809~~355

5462,~~829~~121

107,~~717~~037

3,~~119~~269,~~753~~841

3,~~222~~363,~~108~~354

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)



	December 31, 2017
	Loans Past Due and Still Accruing
	30 - 89 Days Past Due		90 Days or More Past Due		Total		Nonaccrual		Purchased Credit Impaired		Current		Total Loans

	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	15,917	$	242	$	16,159	$	45,413	$	—	$	941,225	$	1,002,797
Mortgage warehouse	—		—		—		—		—		220,230		220,230
Real estate:
Owner occupied commercial real estate	1,109		—		1,109		—		—		326,797		327,906
Commercial real estate	16,250		—		16,250		—		—		807,111		823,361
Construction, land & land development	2,255		133		2,388		3,287		—		131,323		136,998
Residential mortgage	1,311		—		1,311		3,111		—		144,599		149,021
Consumer and other	127		—		127		49		—		16,002		16,178
Total originated loans	$	36,969	$	375	$	37,344	$	51,860	$	—	$	2,587,287	$	2,676,491

Acquired Loans
Commercial & industrial	$	—	$	—	$	—	$	1,901	$	3,237	$	58,331	$	63,469
Real estate:
Owner occupied commercial real estate	233		—		233		1,886		4,062		81,143		87,324
Commercial real estate	1,885		—		1,885		312		6,437		235,784		244,418
Construction, land & land development	204		—		204		714		—		27,036		27,954
Residential mortgage	804		—		804		454		2,229		86,072		89,559
Consumer and other	—		—		—		211		—		1,059		1,270
Total acquired loans	3,126		—		3,126		5,478		15,965		489,425		513,994
Total loans held for investment	$	40,095	$	375	$	40,470	$	57,338	$	15,965	$	3,076,712	$	3,190,485

Impaired Loans — The following is a summary of information related to impaired, nonaccrual and restructured loans and accruing loans past due 90 days or more as of the dates set forth:

June 30, 2018

September 30, 2018

Originated

Acquired

Total

(Dollars in thousands)

Nonaccrual loans

4956,~~543~~956

3,~~342~~255

5260,~~885~~211

Accruing loans past due 90 days or more

852,903

~~822~~1,922

~~907~~4,825

Restructured loans - nonaccrual

~~901~~899

1,~~043~~011

1,~~944~~910

Restructured loans - accruing

3,~~047~~002

3,~~055~~009

Total nonperforming loans

5060,~~537~~765

89,~~254~~190

5869,~~791~~955



	December 31, 2017
	Originated		Acquired		Total

	(Dollars in thousands)
Nonaccrual loans	$	43,797	$	4,095	$	47,892
Accruing loans past due 90 days or more	375		—		375
Restructured loans - nonaccrual	8,063		1,383		9,446
Restructured loans - accruing	4,255		8,838		13,093
Total nonperforming loans	$	56,490	$	14,316	$	70,806

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

Impaired loans of $5462.81 million and $57.3 million at ~~June~~September 30, 2018 and December 31, 2017 respectively, have been categorized by management as nonaccrual loans. Interest foregone on nonaccrual loans for the three months ended ~~June~~September 30, 2018 and 2017 was approximately $1.34 million and $1.10 million, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 was approximately $23.48 million and $23.8 million, respectively.

Based on an analysis of impaired loans at ~~June~~September 30, 2018 and December 31, 2017, an allowance of $109.42 million and $5.7 million, respectively, was allocated to impaired loans. The following tables present, for the periods indicated, the average recorded investment in impaired loans and the approximate amount of interest recognized on impaired loans. Interest recognized includes interest accrued on restructured loans that have performed based on their restructured terms and interest collected on nonaccrual loans that were paid in full during the period.

	Three Months Ended
	June 30, 2018				June 30, 2017
	September 30, 2018				September 30, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	4940,~~277~~139	$	55—	$	4041,~~013~~829	$	347
Owner occupied commercial real estate	24,~~318~~642		—		—		—
Commercial real estate	213,~~186~~382		—140		~~1,993~~723		—
Construction, land & land development	~~2,432~~486		—		—3,016		—
Residential mortgage	3,~~619~~807		—		21,~~251~~023		2097
Consumer and other	4743		—		~~124~~75		1
Total originated loans	$	5962,~~879~~499	$	55140	$	4446,~~381~~666	$	24145
Acquired Loans
Commercial & industrial	$	84,~~956~~847	$	~~119~~53	$	1916,~~949~~693	$	~~133~~77
Owner occupied commercial real estate	1,~~733~~688		—46		86,~~141~~918		—
Commercial real estate	~~107~~67		—9		~~1,266~~42		—
Construction, land & land development	~~703~~695		—		1,~~440~~021		1530
Residential mortgage	45101		—		~~1,052~~212		923
Consumer and other	~~207~~205		—		~~216~~214		—
Total acquired loans	$	117,~~751~~603	$	~~119~~108	$	3225,~~064~~100	$	~~157~~130
Total	$	7170,~~630~~102	$	~~174~~248	$	7671,~~445~~766	$	~~181~~275

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

	Six Months Ended
	Nine Months Ended
	June 30, 2018				June 30, 2017
	September 30, 2018				September 30, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	5047,~~893~~309	$	~~115~~116	$	3839,~~924~~892	$	1159
Owner occupied commercial real estate	12,~~159~~320		—		—		—
Commercial real estate	15,~~186~~251		—140		32,~~752~~744		—
Construction, land & land development	2,~~918~~107		—		—1,005		—
Residential mortgage	3,~~358~~508		—		21,~~455~~977		26123
Consumer and other	5148		—		~~167~~136		23
Total originated loans	$	5960,~~565~~543	$	~~115~~256	$	45,~~298~~754	$	39185
Acquired Loans
Commercial & industrial	$	98,~~940~~242	$	~~242~~295	$	2421,~~636~~989	$	~~272~~348
Owner occupied commercial real estate	1,~~762~~737		—46		87,~~507~~977		—
Commercial real estate	~~111~~97		312		1,~~619~~093		—
Construction, land & land development	~~707~~703		—		1,~~268~~186		1545
Residential mortgage	~~176~~151		—		~~1,244~~900		932
Consumer and other	~~210~~208		—		~~145~~168		—
Total acquired loans	$	1211,~~906~~138	$	~~245~~353	$	3733,~~419~~313	$	~~296~~425
Total	$	7271,~~471~~681	$	~~360~~609	$	8279,~~717~~067	$	~~335~~610

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

The following tables present additional information regarding impaired loans that were individually evaluated for impairment as of the dates indicated:

	June 30, 2018
	September 30, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
Originated Loans
With no related allowance recorded:
Commercial & industrial	$	1610,~~215~~354	$	1610,~~423~~530	$	—
Owner occupied commercial real estate	1,731		1,738
Commercial real estate	13,379		13,379		—
Commercial real estate	175		175		—
Construction, land & land development	1,457		1,470		—
Construction, land & land development	107		108		—
Residential mortgage	3,658		3,658		—
Residential mortgage	3,859		3,859		—
Total with no related allowance recorded:	$	28,848	$	29,037	$	—
Total with no related allowance recorded:	$	22,087	$	22,303	$	—
With an allowance recorded:
Commercial & industrial	$	2425,~~826~~478	$	2425,~~889~~571	$	98,~~652~~594
Owner occupied commercial real estate	3,494		3,494		531
Consumer and other	4542		4542		3029
Total with an allowance recorded:	$	2829,~~365~~014	$	2829,~~428~~107	$	109,~~213~~154
Total originated loans	$	5057,~~452~~862	$	5058,~~731~~144	$	109,~~213~~154
Acquired Loans
With no related allowance recorded:
Commercial & industrial	$	4,~~594~~491	$	4,~~594~~491	$	—
Owner occupied commercial real estate	1,~~043~~671		1,~~053~~696		—
Commercial real estate	105		105		—
Construction, land & land development	695		697		—
Construction, land & land development	700		702		—
Residential mortgage	101		102		—
Residential mortgage	104		105		—
Consumer and other	195		189		—
Consumer and other	200		194		—
Total with no related allowance recorded:	$	7,153	$	7,175	$	—
Total with no related allowance recorded:	$	6,746	$	6,753	$	—
With an allowance recorded:
Owner occupied commercial real estate	$	684	$	699	$	153
Commercial & industrial	$	111	$	112	$	12
Consumer and other	24		34		24
Total with an allowance recorded:	$	~~686~~115	$	~~702~~116	$	~~155~~16
Total acquired loans	$	7,~~432~~268	$	7,~~455~~291	$	~~155~~16
Total:
Commercial & industrial	$	4540,~~635~~434	$	4540,~~906~~704	$	98,~~652~~606
Real estate	1224,~~002~~455		1224,~~038~~496		~~684~~531
Consumer and other	~~247~~241		~~242~~235		3233
Total	$	5765,~~884~~130	$	5865,~~186~~435	$	109,~~368~~170

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)



	December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance

	(Dollars in thousands)
Originated Loans
With no related allowance recorded:
Commercial & industrial	$	32,794	$	32,974	$	—
Construction, land & land development	111		111		—
Residential mortgage	3,111		3,111		—
Consumer and other	12		12		—
Total with no related allowance recorded:	$	36,028	$	36,208	$	—

With an allowance recorded:
Commercial & industrial	$	16,862	$	16,943	$	5,409
Construction, land & land development	3,176		3,176		224
Consumer and other	49		49		30
Total with an allowance recorded:	$	20,087	$	20,168	$	5,663
Total originated loans	$	56,115	$	56,376	$	5,663

Acquired Loans
With no related allowance recorded:
Commercial & industrial	$	10,738	$	10,738	$	—
Owner occupied commercial real estate	1,886		1,910		—
Commercial real estate	312		312		—
Construction, land & land development	714		716		—
Residential mortgage	454		455		—
Consumer and other	208		202		—
Total with no related allowance recorded:	$	14,312	$	14,333	$	—

With an allowance recorded:
Consumer and other	$	4	$	4	$	4
Total with an allowance recorded:	$	4	$	4	$	4
Total acquired loans	$	14,316	$	14,337	$	4

Total:
Commercial & Industrial	$	60,394	$	60,655	$	5,409
Real Estate	9,764		9,791		224
Consumer and other	273		267		34
Total	$	70,431	$	70,713	$	5,667

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~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

Credit Quality — Internally assigned risk grades for loans are defined as follows:

Grade 1 (Highest Quality — No Apparent Risk) — This category includes loans to borrowers of unquestioned credit standing which are secured by readily marketable collateral of undisputed value, with appropriate margin. It also includes loans to borrowing entities with: excellent capitalization, liquidity and earnings levels; quality management; positive financial trends; and favorable industry conditions.

Grade 2 (Good Quality — Minimal Risk) — This category includes loans to investment grade entities with: good liquidity and financial condition, nominal term debt, strong debt service capability, solid management, and quality financial information. These loans are usually secured with current assets, but may be unsecured. Alternative financing from other lenders is generally available to these borrowers.

Grade 3 (Satisfactory Quality — Acceptable Risk — Tier One) — This category includes loans to entities maintaining fair liquidity and acceptable financial conditions. The level of term debt is moderate, with adequate debt service capability. Earnings may be volatile, but borrowers in this category generally do not show a loss within the last three years. Primary debt service must be supported by identified secondary repayment sources or by guarantors with adequate and proven responsibility and capacity.

Grade 4 (Satisfactory Quality — Acceptable Risk — Tier Two) — This category includes loans to borrowers maintaining acceptable financial conditions; however, borrowers may exhibit certain characteristics of leverage or asset dependency that reflect a greater level of risk than Tier One credits. This category may also include borrowers exhibiting explainable interim losses within the previous three years and/or industry characteristics that warrant frequent monitoring.

Grade 5 (Monitored Loans) — This category includes loans with trends or characteristics which, if continued, could result in impaired repayment ability. The borrower may exhibit a low degree of liquidity and relatively high leverage, erratic earnings history (including the possibility of a reported loss in the past four years), significant term debt and a nominal cushion for debt service capacity. Loans in this category may also include financing to start-up borrowers backed by experienced management and significant capital investment or established companies in distressed industry conditions.

Grade 6 (Other Assets Especially Mentioned) — This category includes loans which have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or a weakening of the Company’s credit position at some future date. Grade 6 loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Grade 7 (Substandard — Accruing) — This category includes loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any, or loans with identified weaknesses but where there is sufficient collateral value and/or cash flow coverage. This category includes loans that: (1)may require a secondary source of repayment (liquidation of collateral or repayment by a guarantor); (2) lack current financial information or appraisals; and/or (3) have collateral deficiencies such that the Company would be in an unsecured position with an obligor not deserving unsecured credit. This category may also include borrowers with operating losses in recent periods.

Grade 8 (Substandard — Nonaccrual) — This category includes loans with the same basic characteristics as Grade 7 loans that also meet the Company’s criteria for nonaccrual status, but do not warrant a Grade 9 or Grade 10 classification.

Grade 9 (Doubtful/Exposure) — This category includes loans with all the Grade 7 or 8 characteristics but with weaknesses that make collection (or liquidation) highly questionable and improbable.

Grade 10 (Loss) — This category includes loans which are considered uncollectible, or of such little value that they should no longer be carried as an asset of the Company.

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~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

The credit risk profile of loans aggregated by class and internally assigned risk grades as of the dates set forth were as follows:

	June 30, 2018
	September 30, 2018
	Grade 1 - 4(Pass)		Grade 5(Watch)		Grade 6(Special Mention)		Grade 7(Substandard-Accrual)		Grade 8(Substandard-Nonaccrual)		Grade 9(Doubtful)		PCI		Total
	(Dollars in thousands)
Originated Loans
Commercial & Industrial	$	~~895~~972,~~299~~237	$	6568,~~009~~791	$	22,~~153~~179	$	1115,~~327~~436	$	4135,~~033~~824	$	—	$	—	$	1,~~034~~114,~~821~~467
Mortgage Warehouse	~~244~~236,~~041~~307		—		—		—		—		—		—		~~244~~236,~~041~~307
Owner Occupied Commercial Real Estate	~~342~~353,~~441~~041		189,~~036~~546		49,~~649~~918		36,~~341~~887		53,~~225~~494		—		—		~~373~~382,~~692~~886
Commercial Real Estate	~~799~~851,~~637~~864		7790,~~763~~208		2322,~~652~~091		4736,~~872~~385		~~175~~13,379		—		—		~~949~~1,~~099~~013,927
Construction & Land Development	94121,~~902~~480		38,~~686~~300		~~1,457~~—		56,~~774~~397		~~107~~1,457		—		—		~~105~~137,~~926~~634
Residential Mortgage	~~153~~171,~~588~~997		14424		59—		1,~~011~~089		3,~~859~~658		—		—		~~158~~177,~~531~~168
Other Consumer	12,~~783~~142		—		—		26—		4543		—		—		12,~~854~~185
Total originated loans	$	2,~~542~~719,~~691~~068	$	~~164~~177,~~508~~269	$	5154,~~970~~188	$	6966,~~351~~194	$	5057,~~444~~855	$	—	$	—	$	23,~~878~~074,~~964~~574
Acquired Loans
Commercial & Industrial	$	1716,~~645~~044	$	65,~~596~~171	$	73,~~750~~638	$	~~132~~55	$	1,~~746~~795	$	—	$	1,~~730~~563	$	3528,~~599~~266
Owner Occupied Commercial Real Estate	4744,~~744~~106		76,~~314~~550		~~2,003~~162		~~279~~278		1,~~727~~671		—		~~3,394~~14		6252,~~461~~781
Commercial Real Estate	~~107~~90,~~919~~396		414,~~232~~186		2611,~~822~~324		~~268~~—		~~105~~—		—		3,~~591~~594		~~142~~119,~~937~~500
Construction & Land Development	112,~~401~~505		11,~~951~~893		—		~~555~~530		~~700~~695		—		—		2415,~~607~~623
Residential Mortgage	7368,~~597~~635		~~202~~101		~~197~~1,141		~~559~~34		~~104~~101		—		21,~~002~~866		7671,~~661~~878
Other Consumer	~~657~~519		—		~~200~~194		1915		34		—		—		~~879~~732
Total acquired loans	$	~~258~~222,~~963~~205	$	3037,~~295~~901	$	3616,~~972~~459	$	~~1,812~~912	$	4,~~385~~266	$	—	$	107,~~717~~037	$	~~343~~288,~~144~~780
Total loans	$	2,~~801~~941,~~654~~273	$	~~194~~215,~~803~~170	$	8870,~~942~~647	$	7167,~~163~~106	$	5462,~~829~~121	$	—	$	107,~~717~~037	$	3,~~222~~363,~~108~~354



	December 31, 2017
	Grade 1 - 4 (Pass)		Grade 5 (Watch)		Grade 6 (Special Mention)		Grade 7 (Substandard-Accrual)		Grade 8 (Substandard-Nonaccrual)		Grade 9 (Doubtful)		PCI		Total

	(Dollars in thousands)
Originated Loans
Commercial & Industrial	$	889,709	$	22,648	$	5,605	$	39,422	$	45,413	$	—	$	—	$	1,002,797
Mortgage Warehouse	220,230		—		—		—		—		—		—		220,230
Owner Occupied Commercial Real Estate	314,497		3,096		7,658		2,655		—		—		—		327,906
Commercial Real Estate	681,691		45,149		85,431		11,090		—		—		—		823,361
Construction & Land Development	121,893		970		—		10,848		3,287		—		—		136,998
Residential Mortgage	138,239		6,529		—		1,142		3,111		—		—		149,021
Other Consumer	16,113		2		—		14		49		—		—		16,178
Total originated loans	$	2,382,372	$	78,394	$	98,694	$	65,171	$	51,860	$	—	$	—	$	2,676,491
Acquired Loans
Commercial & Industrial	$	38,000	$	3,172	$	11,101	$	6,058	$	1,901	$	—	$	3,237	$	63,469
Owner Occupied Commercial Real Estate	72,592		8,499		—		285		1,886		—		4,062		87,324
Commercial Real Estate	173,765		43,775		20,129		—		312		—		6,437		244,418
Construction & Land Development	14,549		12,136		—		555		714		—		—		27,954
Residential Mortgage	85,461		1,023		202		190		454		—		2,229		89,559
Other Consumer	1,059		—		—		—		211		—		—		1,270
Total acquired loans	$	385,426	$	68,605	$	31,432	$	7,088	$	5,478	$	—	$	15,965	$	513,994
Total loans	$	2,767,798	$	146,999	$	130,126	$	72,259	$	57,338	$	—	$	15,965	$	3,190,485

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

Troubled Debt Restructurings — The restructuring of a loan is considered a troubled debt restructuring if both the borrower is experiencing financial difficulties and the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

Troubled debt restructurings identified during the periods indicated were as follows:

	Six Months Ended
	Nine Months Ended
	June 30, 2018					June 30, 2017
	September 30, 2018					September 30, 2017
	Number of Contracts	Pre-ModificationOutstandingRecordedInvestment		Recorded Investment		Number ofContracts	Pre-ModificationOutstandingRecordedInvestment		Recorded Investment
	(Dollars in thousands)
Commercial & industrial	—	$	—	$	—	3	$	2,526	$	2,~~509~~468
Owner occupied commercial real estate	—	—		—		3	5,501		5,~~492~~448
Construction, land & land development	—	—		—		2	831		~~820~~814
Consumer and other	—	—		—		1	208		~~214~~208
Total	—	$	—	$	—	9	$	9,066	$	98,~~035~~938

The modifications primarily relate to extending the maturity date of the loans, which includes loans modified post-bankruptcy. The Company did not forgive any principal or interest on the restructured loans. For the ~~six~~nine months ended ~~June~~September 30, 2018, the Company did not add any new troubled debt restructuring. For the ~~six~~nine months ended ~~June~~September 30, 2017, the Company added $9.1 million in new troubled debt restructuring and $98.09 million was outstanding on ~~June~~September 30, 2017.

Troubled debt restructurings are individually evaluated for impairment. The allowance for loan losses included specific reserves of $~~244~~243 thousand related to $~~901~~899 thousand of these loans at ~~June~~September 30, 2018.

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~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

8. ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses for the periods indicated, and the balance of loans receivable by the method of impairment evaluation for those periods were as follows:

	BalanceMarch 31, 2018		Provision			Charge-offs			Recoveries		BalanceJune 30, 2018
	BalanceJune 30, 2018		Provision			Charge-offs			Recoveries		BalanceSeptember 30, 2018
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	2320,~~113~~527	$	~~2,713~~(542	)	$	(~~5,300~~178	)	$	12	$	2019,~~527~~809
Owner occupied commercial real estate	23,~~871~~351		~~480~~9			—			—		3,~~351~~360
Commercial real estate	78,~~766~~151		~~385~~533			—			—		8,~~151~~684
Construction, land & land development	~~1,461~~848		~~(613~~226		)	—			—		~~848~~1,074
Residential mortgage	1,~~159~~110		~~(52~~120		)	—			34		1,~~110~~234
Consumer and other	165		39149			(46113		)	723		~~165~~224
Total originated loans	$	3634,~~535~~152	$	~~2,952~~495		$	(~~5,346~~291	)	$	1129	$	34,~~152~~385
Acquired Loans
Commercial & industrial	$	4219	$	(26	)	$	—(1	)	$	32	$	1946
Owner occupied commercial real estate	~~513~~153		(~~360~~153		)	—			—		~~153~~—
Commercial real estate	~~574~~290		~~(289~~15		)	—			52		~~290~~307
Construction, land & land development	2038		18(8		)	—			—		3830
Residential mortgage	~~539~~430		(~~396~~54		)	—			~~287~~38		~~430~~414
Consumer and other	104		(21		)	(6—		)	21		4
Total acquired loans	$	~~1,698~~934	$	(~~1,055~~175	)	$	(61	)	$	~~297~~43	$	~~934~~801
Total	$	3835,~~233~~086	$	~~1,897~~320		$	(~~5,352~~292	)	$	~~308~~72	$	35,~~086~~186

	Balance March 31, 2017		Provision			Charge-offs			Recoveries		BalanceJune 30, 2017
	Balance June 30, 2017		Provision			Charge-offs			Recoveries		BalanceSeptember 30, 2017
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	1516,~~155~~606	$	12,~~736~~031		$	(~~308~~836	)	$	235	$	1617,~~606~~806
Owner occupied commercial real estate	2,~~763~~825		6285			—			—		2,~~825~~910
Commercial real estate	8,~~347~~185		~~(162~~131		)	—			—		8,~~185~~316
Construction, land & land development	1,~~536~~576		40255			—			—		1,~~576~~831
Residential mortgage	1,~~119~~165		37(6		)	—			913		1,~~165~~172
Consumer and other	~~191~~172		~~103~~(17		)	(~~126~~9		)	4—		~~172~~146
Total originated loans	$	2930,~~111~~529	$	12,~~816~~479		$	(~~434~~845	)	$	3618	$	3032,~~529~~181
Acquired Loans
Commercial & industrial	$	~~586~~157	$	(~~321~~145	)	$	(~~158~~4	)	$	507	$	~~157~~15
Owner occupied commercial real estate	1,064		(103		)	(961		)	—		—
Commercial real estate	487		167			—			4		658
Commercial real estate	340		144			—			3		487
Construction, land & land development	3		19			—			1		23
Construction, land & land development	9		(6		)	—			—		3
Residential mortgage	598		(10		)	—			8		596
Residential mortgage	611		(20		)	—			7		598
Consumer and other	217		(210		)	(1		)	1		7
Consumer and other	215		—			—			2		217
Total acquired loans	$	1,462	$	(179	)	$	(5	)	$	21	$	1,299
Total acquired loans	$	2,825	$	(306	)	$	(1,119	)	$	62	$	1,462
Total	$	31,991	$	2,300		$	(850	)	$	39	$	33,480
Total	$	31,936	$	1,510		$	(1,553	)	$	98	$	31,991

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~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

	BalanceDecember 31, 2017		Provision			Charge-offs			Recoveries		~~BalanceJune~~BalanceSeptember 30, 2018
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	16,654	$	11,~~869~~327		$	(78,~~999~~177	)	$	35	$	2019,~~527~~809
Owner occupied commercial real estate	2,748		~~603~~612			—			—		3,~~351~~360
Commercial real estate	7,738		~~413~~946			—			—		8,~~151~~684
Construction, land & land development	1,481		(~~633~~407		)	—			—		~~848~~1,074
Residential mortgage	1,136		~~(31~~89		)	—			59		1,~~110~~234
Consumer and other	221		~~(54~~95		)	(56169		)	5477		~~165~~224
Total originated loans	$	29,978	$	12,~~167~~662		$	(8,~~055~~346	)	$	6291	$	34,~~152~~385
Acquired Loans
Commercial & industrial	$	35	$	~~(25~~1	)	$	—(1	)	$	911	$	1946
Owner occupied commercial real estate	—		153			—			—		153
Commercial real estate	658		(360		)	—			9		307
Commercial real estate	658		(375		)	—			7		290
Construction, land & land development	—		30			—			—		30
Construction, land & land development	—		38			—			—		38
Residential mortgage	542		(466		)	—			338		414
Residential mortgage	542		(412		)	—			300		430
Consumer and other	7		13			(20		)	4		4
Consumer and other	7		14			(20		)	3		4
Total acquired loans	$	1,242	$	(782	)	$	(21	)	$	362	$	801
Total acquired loans	$	1,242	$	(607	)	$	(20	)	$	319	$	934
Total	$	31,220	$	11,880		$	(8,367	)	$	453	$	35,186
Total	$	31,220	$	11,560		$	(8,075	)	$	381	$	35,086

	Balance December 31, 2016		Provision			Charge-offs			Recoveries		~~BalanceJune~~BalanceSeptember 30, 2017
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	9,491	$	710,~~970~~002		$	(12,~~443~~280	)	$	~~588~~593	$	1617,~~606~~806
Owner occupied commercial real estate	2,609		~~216~~301			—			—		2,~~825~~910
Commercial real estate	8,576		(~~391~~260		)	—			—		8,~~185~~316
Construction, land & land development	1,852		(~~276~~21		)	—			—		1,~~576~~831
Residential mortgage	1,134		(39		)	—			3447		1,~~165~~172
Consumer and other	193		(927		)	(~~134~~142		)	122		~~172~~146
Total originated loans	$	23,855	$	79,~~507~~986		$	(12,~~577~~422	)	$	~~744~~762	$	3032,~~529~~181
Acquired Loans
Commercial & industrial	$	1,260	$	(~~838~~984	)	$	(~~335~~338	)	$	7077	$	~~157~~15
Owner occupied commercial real estate	—		957			(961		)	4		—
Commercial real estate	437		47214			—			37		~~487~~658
Construction, land & land development	115		(9172		)	(95		)	7475		323
Residential mortgage	685		(~~126~~136		)	—			3947		~~598~~596
Consumer and other	12		~~199~~(10		)	—(2		)	67		~~217~~7
Total acquired loans	$	2,509	$	~~148~~(31	)	$	(1,~~391~~396	)	$	~~196~~217	$	1,~~462~~299
Total	$	26,364	$	79,~~655~~955		$	(23,~~968~~818	)	$	~~940~~979	$	3133,~~991~~480

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

An analysis of activity in the allowance for loan losses for the periods indicated, and the balance of loans receivable by the method of impairment evaluation for those periods were as follows:

	June 30, 2018
	September 30, 2018
	Loans evaluated for impairment								Allowance for loan losses evaluated
	Collectively evaluated for impairment		Individually evaluated for impairment		Purchased credit impaired		Total loans		Collectively evaluated for impairment		Individually evaluated for impairment		Purchased credit impaired		Total allowance for loan losses
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	1,~~237~~314,~~821~~942	$	4135,~~041~~832	$	—	$	1,~~278~~350,~~862~~774	$	1011,~~875~~215	$	98,~~652~~594	$	—	$	2019,~~527~~809
Owner occupied commercial real estate	~~368~~379,~~467~~392		53,~~225~~494		—		~~373~~382,~~692~~886		2,~~820~~829		531		—		3,~~351~~360
Commercial real estate	~~948~~1,~~924~~000,548		~~175~~13,379		—		~~949~~1,~~099~~013,927		8,~~151~~684		—		—		8,~~151~~684
Construction, land & land development	~~105~~136,~~819~~177		~~107~~1,457		—		~~105~~137,~~926~~634		~~848~~1,074		—		—		~~848~~1,074
Residential mortgage	~~154~~173,~~672~~510		3,~~859~~658		—		~~158~~177,~~531~~168		1,~~110~~234		—		—		1,~~110~~234
Consumer and other	12,~~809~~143		4542		—		12,~~854~~185		~~136~~195		29		—		~~165~~224
Total originated loans	$	23,~~828~~016,~~512~~712	$	5057,~~452~~862	$	—	$	23,~~878~~074,~~964~~574	$	2325,~~940~~231	$	109,~~212~~154	$	—	$	34,~~152~~385
Acquired Loans
Commercial & industrial	$	2922,~~275~~101	$	4,~~594~~602	$	1,~~730~~563	$	3528,~~599~~266	$	1934	$	—12	$	—	$	1946
Owner occupied commercial real estate	5751,~~340~~096		1,~~727~~671		~~3,394~~14		6252,~~461~~781		—		~~153~~—		—		~~153~~—
Commercial real estate	~~139~~115,~~241~~906		~~105~~—		3,~~591~~594		~~142~~119,~~937~~500		~~290~~307		—		—		~~290~~307
Construction, land & land development	2314,~~907~~928		~~700~~695		—		2415,~~607~~623		3830		—		—		3830
Residential mortgage	7469,~~555~~911		~~104~~101		21,~~002~~866		7671,~~661~~878		~~320~~304		—		110		~~430~~414
Consumer and other	~~677~~533		~~202~~199		—		~~879~~732		1—		34		—		4
Total acquired loans	$	~~324~~274,~~995~~475	$	7,~~432~~268	$	107,~~717~~037	$	~~343~~288,~~144~~780	$	~~668~~675	$	~~156~~16	$	110	$	~~934~~801
Total	$	3,~~153~~291,~~507~~187	$	5765,~~884~~130	$	107,~~717~~037	$	3,~~222~~363,~~108~~354	$	2425,~~608~~906	$	109,~~368~~170	$	110	$	35,~~086~~186

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~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)



	December 31, 2017
	Loans evaluated for impairment								Allowance for loan losses evaluated
	Collectively evaluated for impairment		Individually evaluated for impairment		Purchased credit impaired		Total loans		Collectively evaluated for impairment		Individually evaluated for impairment		Purchased credit impaired		Total allowance for loan losses

	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	1,173,371	$	49,656	$	—	$	1,223,027	$	11,245	$	5,409	$	—	$	16,654
Owner occupied commercial real estate	327,906		—		—		327,906		2,748		—		—		2,748
Commercial real estate	823,361		—		—		823,361		7,738		—		—		7,738
Construction, land & land development	133,711		3,287		—		136,998		1,257		224		—		1,481
Residential mortgage	145,910		3,111		—		149,021		1,136		—		—		1,136
Consumer and other	16,116		62		—		16,178		191		30		—		221
Total originated loans	$	2,620,375	$	56,116	$	—	$	2,676,491	$	24,315	$	5,663	$	—	$	29,978

Acquired Loans
Commercial & industrial	$	49,494	$	10,738	$	3,237	$	63,469	$	35	$	—	$	—	$	35
Owner occupied commercial real estate	81,376		1,886		4,062		87,324		—		—		—		—
Commercial real estate	237,669		312		6,437		244,418		658		—		—		658
Construction, land & land development	27,240		714		—		27,954		—		—		—		—
Residential mortgage	86,876		454		2,229		89,559		467		—		75		542
Consumer and other	1,059		211		—		1,270		3		4		—		7
Total acquired loans	$	483,714	$	14,315	$	15,965	$	513,994	$	1,163	$	4	$	75	$	1,242
Total	$	3,104,089	$	70,431	$	15,965	$	3,190,485	$	25,478	$	5,667	$	75	$	31,220

	June 30, 2017
	September 30, 2017
	Loans evaluated for impairment								Allowance for loan losses evaluated
	Collectively evaluated for impairment		Individually evaluated for impairment		Purchased credit impaired		Total loans		Collectively evaluated for impairment		Individually evaluated for impairment		Purchased credit impaired		Total allowance for loan losses
	(Dollars in thousands)
Originated Loans
Commercial & industrial	$	1,~~010~~025,~~269~~109	$	4241,~~085~~606	$	—	$	1,~~052~~066,~~354~~715	$	910,~~556~~391	$	7,~~050~~415	$	—	$	1617,~~606~~806
Owner occupied commercial real estate	~~306~~312,~~514~~162		—		—		~~306~~312,~~514~~162		2,~~825~~910		—		—		2,~~825~~910
Commercial real estate	~~805~~806,~~362~~125		~~1,979~~202		—		~~807~~806,~~341~~327		8,~~185~~316		—		—		8,~~185~~316
Construction, land & land development	~~153~~143,~~522~~385		—3,137		—		~~153~~146,522		1,~~576~~523		—308		—		1,~~576~~831
Residential mortgage	~~135~~136,~~879~~588		21,~~039~~507		—		~~137~~138,~~918~~095		1,~~165~~172		—		—		1,~~165~~172
Consumer and other	1915,~~024~~346		8172		—		1915,~~105~~418		~~143~~117		29		—		~~172~~146
Total originated loans	$	2,~~430~~438,~~570~~715	$	46,~~184~~524	$	—	$	2,~~476~~485,~~754~~239	$	2324,~~450~~429	$	7,~~079~~752	$	—	$	3032,~~529~~181
Acquired Loans
Commercial & industrial	$	7461,~~661~~035	$	1517,~~029~~761	$	23,~~288~~339	$	9182,~~978~~135	$	—15	$	~~157~~—	$	—	$	~~157~~15
Owner occupied commercial real estate	8885,~~714~~073		6,~~958~~880		54,~~131~~283		~~100~~96,~~803~~236		—		—		—		—
Commercial real estate	~~291~~251,~~289~~965		—127		10,~~607~~323		~~301~~262,~~896~~415		~~487~~569		—		—89		~~487~~658
Construction, land & land development	46,~~984~~396		~~1,468~~921		1817		4847,~~470~~334		323		—		—		323
Residential mortgage	9994,~~052~~503		~~402~~37		2,~~462~~454		~~101~~96,~~916~~994		~~561~~532		2019		1745		~~598~~596
Consumer and other	1,~~323~~196		~~215~~212		—		1,~~538~~408		54		~~212~~3		—		~~217~~7
Total acquired loans	$	~~602~~540,~~023~~168	$	2425,~~072~~938	$	20,~~506~~416	$	~~646~~586,~~601~~522	$	1,~~056~~143	$	~~389~~22	$	17134	$	1,~~462~~299
Total	$	32,~~032~~978,~~593~~883	$	7072,~~256~~462	$	20,~~506~~416	$	3,~~123~~071,~~355~~761	$	2425,~~506~~572	$	7,~~468~~774	$	17134	$	3133,~~991~~480

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(Unaudited)

9. PREMISES AND EQUIPMENT

Premises and equipment as of the dates indicated are summarized as follows:

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
	(Dollars in thousands)
Land	$	8,457		$	7,660
Buildings and improvements	28,~~563~~613			23,598
Furniture, fixtures and equipment	10,~~479~~352			10,484
	47,499			41,742
	47,422			41,742
Less accumulated depreciation	(18,~~321~~549		)	(17,740		)
Total	$	2928,~~178~~873		$	24,002

Depreciation of premises and equipment totaled $~~453~~424 thousand and $~~515~~509 thousand for the three months ended ~~June~~September 30, 2018 and 2017, respectively, and $1.04 million ~~for~~and ~~both~~$1.6 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017.

10. GOODWILL AND CORE DEPOSIT INTANGIBLES

The Company has historically performed its annual goodwill impairment test as of December 31 each year. During 2017, the Company voluntarily changed its annual impairment assessment date from December 31 to October 31. The Company accelerated the impairment test to earlier during the quarter to better align the impairment testing work with year-end financial statements. The change in measurement date represents a change in the method of applying an accounting principle, however, the Company does not consider the change material, intends to utilize the same valuation approach and does not expect the change in valuation date to produce different impairment results.

The Company reviews its goodwill for impairment annually, or more frequently, if indicators of impairment exist. At ~~June~~September 30, 2018 and December 31, 2017, management determined that goodwill, as reflected in the Company’s financial statements, was not impaired. The most recent goodwill impairment test was as of October 31, 2017. Subsequent to the date of the test, management has determined that no triggering events have occurred that would result in impairment.

Changes in the carrying amount of goodwill and core deposit intangibles for the periods set forth were as follows:

	Goodwill		Core Deposit Intangibles
	(Dollars in thousands)
Balance - December 31, 2016	$	85,291	$	9,975
Less - amortization	—		(1,472		)
Balance - December 31, 2017	$	85,291	$	8,503
Less amortization	—		(~~622~~919		)
Balance - June 30, 2018	$	85,291	$	7,881
Balance - September 30, 2018	$	85,291	$	7,584

Amortization of core deposit intangibles was $~~306~~297 thousand and $380 thousand for the three months ended ~~June~~September 30, 2018 and 2017, respectively, and $~~622~~919 thousand and $~~760~~1.1 ~~thousand~~million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

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The Company initially records the total premium paid on acquisitions as goodwill. After finalizing the valuation, core deposit intangibles are identified and reclassified from goodwill to core deposit intangibles on the balance sheet. This reclassification has no effect on total assets, liabilities, shareholders’ equity, net income or cash flows. The measurement period for the Company to determine the fair value of acquired identifiable assets and assumed liabilities will be at the end of the earlier of (1)twelve months from the date of acquisition or (2) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the date of acquisition. The Company may record subsequent adjustments to goodwill for amounts undeterminable at acquisition date, such as deferred taxes and real estate valuations.

Core deposit intangibles are amortized on an accelerated basis over their estimated lives, which the Company believes is approximately six to nineteen years. The estimated future amortization expense for the core deposit intangibles remaining as of ~~June~~September 30, 2018 is as follows (dollars in thousands):

2018	$	~~573~~276
2019	1,080
2020	993
2021	905
2022	818
Thereafter	3,512
Total	$	7,~~881~~584

11. DEPOSITS

Scheduled maturities of certificates and other time deposits for the next five years were as follows:

	June 30, 2018		December 31, 2017
	September 30, 2018		December 31, 2017
	(Dollars in thousands)
2018	$	~~493~~246,~~872~~666	$	889,231
2019	~~629~~885,~~791~~241		247,595
2020	~~138~~164,~~430~~528		83,005
2021	2025,~~699~~105		13,922
2022	2624,~~780~~154		28,579
Thereafter	1013,~~470~~311		—
Total	$	1,~~320~~359,~~042~~005	$	1,262,332

Certificates and other time deposits that meet or exceed the FDIC Insurance limit of $250,000 at ~~June~~September 30, 2018 and December 31, 2017, were $~~609~~656.06 million and $482.0 million, respectively.

The Company had $~~179~~196.53 million and $123.4 million in brokered time deposits at ~~June~~September 30, 2018 and December 31, 2017, respectively. At ~~June~~September 30, 2018, the Company also had $75.1 million in brokered interest-bearing transaction accounts and $3937.12 million in noninterest-bearing escrow accounts classified as brokered. Brokered deposits represented 89.60% and 4.7% of total deposits at ~~June~~September 30, 2018 and December 31, 2017, respectively. The Company utilizes brokered deposits to enhance liquidity.

There are no major concentrations of deposits with any one depositor.

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12. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS

Other borrowed funds as of the dates indicated were as follows:

	June 30, 2018		December 31, 2017
	September 30, 2018		December 31, 2017
	(Dollars in thousands)
Federal Home Loan Bank advances	~~412~~437,000		$	325,000
Repurchase agreements	43,~~141~~502		5,173
Total	$	~~416~~440,~~141~~502	$	330,173

Federal Home Loan Bank Advances — The Company has an available borrowing arrangement with the Federal Home Loan Bank (the “FHLB”), which allows the Company to borrow on a collateralized basis. At ~~June~~September 30, 2018 and December 31, 2017, total unused borrowing capacity of $~~777~~670.73 million and $948.2 million, respectively, was available under this arrangement. At ~~June~~September 30, 2018, $~~412~~437.0 million was outstanding with an average interest rate of 2.1688% and all of the Company’s FHLB advances will mature within two years. At December 31, 2017, $325.0 million was outstanding with an average interest rate of 1.41% and all of the Company’s FHLB advances will mature within one year. These borrowings are collateralized by a blanket lien on certain real estate loans and unpledged securities in safekeeping. The total borrowing capacity decreased due to increased utilization. The Company utilizes these borrowings to meet liquidity needs and to fund certain loans in its loan portfolio.

Federal Reserve Bank — The Company has an available borrower in custody arrangement with the Federal Reserve Bank of Dallas (the “Dallas Fed”), which allows the Company to borrow, on a collateralized basis. Certain commercial and consumer loans are pledged under this arrangement. The Company maintains this borrowing arrangement to meet liquidity needs pursuant to its liquidity risk management program. At ~~June~~September 30, 2018 and December 31, 2017, $~~487~~524.94 million and $384.5 million, respectively, were available under this arrangement and no borrowings were outstanding.

Securities Sold Under Agreements to Repurchase — Securities sold by the Company under agreements to repurchase represent the purchase of interests in securities by its customers. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. Repurchase agreements are settled on the following business day. All securities sold under agreements to repurchase are collateralized by pledged securities. The securities underlying the repurchase agreements are held in safekeeping by the Bank’s safekeeping agent.

Federal Funds Purchased — The Company has available federal funds lines of credit with its correspondent banks. As of ~~June~~September 30, 2018 and December 31, 2017, there were no federal funds purchased outstanding.

13. SUBORDINATED DEBENTURES AND SUBORDINATED NOTES

Subordinated Notes — On December 8, 2016, the Company issued $35.0 million of 8.50% Fixed-to-Floating Rate Subordinated Notes (the “Notes”) that mature on December 15, 2026 through a private placement to certain institutional accredited investors. The Notes, which qualify as Tier 2 capital under the Federal Reserve’s capital guidelines in effect at ~~June~~September 30, 2018, have an interest rate of 8.50% per annum, during the fixed-rate period from date of issuance through December 15, 2021. Interest is payable semi-annually on each June 15 and December 15, from June 15, 2017 through December 15, 2021.

During the floating rate period from December 15, 2021, but excluding the maturity date or date of earlier redemption, the Notes will bear interest at a rate per annum equal to three-month LIBOR for the related interest period plus 6.685%, payable quarterly on each March 15, June 15, September 15 and December 15. The Notes are subordinated in right of payment to all of the Company's senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Company's subsidiary bank. The Company may elect to redeem the Notes (subject to regulatory approval), in whole or in part, on any early redemption date which is any interest payment date on or after December 15, 2021 at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest. Other than on an early redemption date, the Notes cannot be accelerated except in the event of bankruptcy or the occurrence of certain other events of bankruptcy, insolvency or reorganization. The sale of the Notes yielded net proceeds of approximately $33.9 million. The Company utilized $32.8 million of the proceeds to transfer several energy loans to the holding company to provide flexibility to resolve these loans.

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Unamortized debt issuance costs related to these Notes, which are included in Subordinated Debentures and Subordinated Notes, totaled $1.2 million at ~~June~~September 30, 2018. Net issuance costs associated with issuing these Notes are amortized to interest expense over the respective terms using the straight-line method.

In connection with the issuance of the Notes, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the purchasers of the Notes. Under the Registration Rights Agreement, we were required to, among other things, use commercially reasonable efforts to (1) file with the SEC on or prior to March 31, 2017, a registration statement (the “Exchange Offer Registration Statement”) with respect to an offer to exchange the Notes for new notes with identical terms (except for the provisions relating to the transfer restrictions and payment of additional interest) (the “Exchange Offer”), (2) cause the Exchange Offer Registration Statement to be declared effective by the SEC no later than June 15, 2017 and (3) consummate the Exchange Offer no later than 45 days following the effective date of the Exchange Offer Registration Statement. The Exchange Offer Registration Statement was declared effective by the SEC on April 13, 2017, and we completed the Exchange Offer on May 19, 2017, such that $34,000,000 aggregate principal amount of the Notes was exchanged for $34,000,000 aggregate principal amount of 8.50% Fixed-to-Floating Rate Subordinated Notes due 2026 that were registered under the Securities Act of 1933, as amended, and $1,000,000 aggregate principal amount of the Notes remained unregistered.

A summary of pertinent information related to the Company’s issues of subordinated Notes outstanding as of the dates indicated were as follows:

	June 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
	(Dollars in thousands)
Subordinated notes fixed to floating rate, 8.50% per annum, maturity date December 15, 2026	$	35,000		$	35,000
Less: unamortized debt issuance costs	(1,~~218~~182		)	(1,291		)
Total subordinated notes	$	33,~~782~~818		$	33,709

Subordinated Debentures Trust Preferred Securities — At ~~June~~September 30, 2018, the Company had outstanding $22.2 million in subordinated debentures, which is offset by a $7.98 million purchase discount. On October 1, 2015, the Company acquired Patriot Bancshares, Inc., and assumed the obligations related to the subordinated debentures issued to Capital Trust I and Capital Trust II.

A summary of pertinent information related to the Company’s two issues of subordinated debentures outstanding at ~~June~~September 30, 2018 is set forth in the table below:

Description

Issuance Date

Trust Preferred Securities Outstanding

Interest Rate⁽¹⁾

Subordinated Debt Owed to Trusts

Maturity Date⁽²⁾

(Dollars in thousands)

Patriot Bancshares Capital Trust I

March 31, 2006

5,000

3 month LIBOR +1.85%, not to exceed 11.90%

5,155

April 7, 2036

Patriot Bancshares Capital Trust II

August 2, 2007

16,500

3 month LIBOR +1.80%, not to exceed 11.90%

17,011

September 15, 2037

(1) The 3-month LIBOR in effect as of ~~June~~September 30, 2018 was 2.~~336~~398%.


⁽²⁾	All debentures are callable five years from issuance date.

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Each of the trusts is a capital trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s junior subordinated debentures. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are 100% owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of the Company’s present and future senior indebtedness. The Company has fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by such trust to the extent not paid or made by each trust, provided such trust has funds available for such obligations.

Under the provisions of each issue of the debentures, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on either issue of the debentures are deferred, the distributions on the applicable trust preferred securities and common securities will also be deferred.

14. INCOME TAXES

Income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Income tax expense for the period	$	4,~~283~~943		$	65,~~985~~895		$	611,~~605~~548		$	1016,~~927~~822
Effective Tax Rate	2024.71		%	3534.1		%	2021.48		%	3534.28		%

Effective January 1, 2018, the federal statutory corporate income tax rates was reduced from 35% to 21% pursuant to the Tax Cuts and Jobs Act described below.

The effective tax rates differ from the statutory federal tax rates of 21% and 35% for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively, largely due to the nontaxable earnings on bank owned life insurance, tax exempt interest income earned on certain investment securities and loans and excess tax benefits on exercised stock options and vested restricted stock units, less state tax expense, net of federal effect, and ~~other~~ non-deductible expenses, including merger costs.

Net deferred tax assets totaled $12.57 million and $8.8 million at ~~June~~September 30, 2018 and December 31, 2017, respectively. No valuation allowance was recorded against deferred tax assets as of those dates, as management believes it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years.

Tax Cuts and Jobs Act - The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat, federal statutory corporate income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee compensation to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums for banks in excess of $5 billion in assets.

The Company completed its accounting under ASU 740, Income Taxes, for all material deferred tax assets and liabilities during the quarter ended December 31, 2017. Provisional amounts were recorded for certain immaterial items including Schedules K-1 from CRA related partnership investments. As a result of the revaluation, we recorded $5.8 million in income tax expense for 2017. Material adjustment to provisional amounts are not expected.

During the three months ended March 31, 2018, the Company elected early adoption of the provisions of ASU 2018-02, which allowed the Company to reclassify the effects of the statutory tax rate change on items within accumulated other comprehensive income to retained earnings. This reclassification, which reduced other comprehensive income and increased retained earnings by $1.4 million, related entirely to unrealized gains and losses on available-for-sale securities.

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15. EMPLOYEE BENEFITS

Equity Incentive Plans — The 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) was approved by the Company’s Board of Directors and shareholders on July 28, 2014 and became effective immediately prior to the initial public offering on August 7, 2014. A total of 1,273,838 shares of common stock were reserved for issuance under the 2014 Plan, which permits the grant of incentive stock options, within the meaning of Section 422 of the IRS Code, to the Company’s employees, and the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and other forms of equity-based awards to the Company’s employees, directors, consultants and independent contractors. The 2014 Plan is administered by the Compensation Committee of the Board of Directors, who may select which eligible participants receive awards, the types of awards to be granted, the purchase price, if any, to be paid for shares covered by the awards and the vesting, forfeiture, cancellation and other terms and conditions of the awards.

During the period from December 29, 2017 through January 23, 2018, the Compensation Committee restructured performance options under the 2010 Option Plan in order to more appropriately align the incentives of the grantees with the success of the Company. As a part of this restructuring, 256,242 outstanding performance options under the 2010 Option Plan were vested and 586,119 outstanding performance options under the 2010 Option Plan were cancelled and new grants of time-based and performance based restricted stock units or "RSUs" were granted under the 2014 Plan. As of March 30, 2018, 3,393 shares were available for future grant under the 2014 Plan. On April 3, 2018, our Board approved an amendment to the 2014 Plan and at the annual meeting of shareholders held May 23, 2018 our shareholders approved the amendment to the 2014 Plan, to increase the number of shares reserved for issuance under the 2014 Plan by 650,000 shares.

Stock Options. At ~~June~~September 30, 2018 and December 31, 2017 there were 403,503 and 428,168 time based options outstanding under the 2014 Plan, respectively.

Restricted Stock Units. In connection with the initial public offering, 275,000 restricted stock units were granted under the 2014 Plan. At ~~June~~September 30, 2018, there were 502,181 time based restricted stock units and 207,859 performance based restricted stock units outstanding under the 2014 Plan. At December 31, 2017, there were 322,875 time based restricted stock units outstanding under the 2014 Plan.

The Company has two additional stock options plans, both of which are frozen to further issuance.

The Green Bancorp, Inc. 2010 Stock Option Plan (the “2010 Option Plan”), which was approved by the Company’s Board of Directors on June 30, 2010, permitted the grant of up to 2,239,906 options. The non-qualified stock options granted were in the form of time-based options and performance options and may have been granted to a director, officer or employee of the Company. Time-based options under the 2010 Option Plan vest over a period of four years and expire on the tenth anniversary of the date of the grant. Performance options under the 2010 Option Plan vest upon the occurrence of a liquidity event, with the vested amounts determined based on the achievement of specified performance and market metrics. The 2010 Option Plan was frozen to further issuance upon approval of the 2014 Omnibus Plan. At ~~June~~September 30, 2018 there were 433,094 time based options, 237,999 performance options and 305,694 super-performance options outstanding under the 2010 Option Plan. At December 31, 2017 there were 367,213 time based options, 992,864 performance options and 308,054 super-performance options outstanding under the 2010 Option Plan.

The Green Bancorp, Inc. 2006 Stock Option Plan (the “2006 Option Plan”), which was approved by the shareholders of the Company on June 21, 2006, permitted the grant of up to 450,000 options. The options granted may have been in the form of nonqualified stock options, which may have been granted to a director, officer or employee of the Company, or incentive stock options, which may have been granted only to officers of the Company. Awards under the 2006 Option Plan vest over a four-year period, which began on the first anniversary of the grant date, and must be exercised within 10 years from the grant date. The 2006 Option Plan was frozen to further issuance upon approval of the 2010 Option Plan. At ~~June~~September 30, 2018 and December 31, 2017, there were 27,500 and 87,500 options outstanding under the 2006 Option Plan, respectively.

For the three months ended ~~June~~September 30, 2018 and 2017, $~~451~~449 thousand and $~~159~~170 thousand of stock based compensation expense was recorded for the stock options, respectively, and $~~893~~1.3 ~~thousand~~million and $~~296~~467 thousand for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. Total restricted stock units compensation expense was $~~753~~768 thousand and $~~196~~186 thousand for the three months ended ~~June~~September 30, 2018 and 2017, respectively, and $12.53 million and $~~406~~592 thousand for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

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Stock Appreciation Rights Plan — On May 18, 2007, the Company’s Board of Directors adopted the Green Bancorp Stock Appreciation Rights Plan (the “SAR Plan”). The SAR Plan provided for the issuance of up to 200,000 units to plan participants at an exercise price of no less than the fair market value of the common stock of the Company at the time of grant. Units are redeemable by SAR Plan participants under certain circumstances whereby the participant will be paid the excess, if any, of the market value of the Company’s common stock at the time of exercise over the exercise price. The SAR Plan provides for a 10-year maximum term for units issued, vesting and exercisability limitations and accelerated vesting and deemed exercise in the event of a change of control. The SAR Plan was frozen to further issuance upon approval of the 2014 Omnibus Plan. As of ~~June~~September 30, 2018 and December 31, 2017, there were 4126,500 and 63,000 units outstanding under the SAR Plan, respectively.

For the three and ~~six~~nine months ended ~~June~~September 30, 2018, a $1639 thousand ~~reversal~~ and $~~111~~150 thousand of stock based compensation expense to reflect the fair value of the SARs was recorded, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2017, $~~169~~285 thousand and $~~357~~642 thousand of stock based compensation expense to reflect the fair value of the SARs was recorded.

Benefit Plan — The Company sponsors a 401(k) plan (the “401k Plan”), which is a defined contribution plan available to substantially all employees. Participants in the 401k Plan may make salary deferral contributions up to the amount allowed by law.

The Company makes safe harbor matching contributions to the 401k Plan equal to 100% of the participant’s elective contribution for the plan year up to a maximum of 6% of the participant’s salary. The Company contributions are fully vested at the date of contribution. The total of Company contributions for the three months ended ~~June~~September 30, 2018 and 2017, were $~~386~~394 thousand and $~~348~~349 thousand, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, were $~~759~~1.2 million ~~thousand~~ and $~~704 thousand~~1.1 million, respectively.

16. OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTINGENCIES

The following table summarizes the Company’s contractual obligations and other commitments to make future payments as of the date indicated (other than securities sold under agreements to repurchase). The Company’s future cash payments associated with its contractual obligations pursuant to its certificates and other time deposits, FHLB advances, subordinated debentures and subordinated notes and operating leases, as of the date indicated are as follows:

June 30, 2018

September 30, 2018

1 year or less

More than1 year but lessthan 3 years

3 years or morebut lessthan 5 years

5 years or more

Total

(Dollars in thousands)

Certificates and other time deposits

1,~~001~~075,~~668~~282

~~274~~244,~~123~~428

4439,~~251~~295

—

1,~~320~~359,~~042~~005

Federal Home Loan Bank advances

~~365~~390,~~502~~062

50,~~874~~549

—

~~416~~440,~~376~~611

Subordinated debentures and subordinated notes

4,~~019~~023

3,~~884~~888

109,~~077~~345

82,~~560~~465

~~100~~99,~~540~~721

Operating leases

12,~~690~~143

23,~~587~~377

12,~~781~~611

2,~~493~~283

810,~~551~~414

Total

1,~~372~~471,~~879~~510

~~331~~302,~~468~~242

5651,~~109~~251

8584,~~053~~748

1,~~845~~909,~~509~~751

Payments for the FHLB advances include interest of $43.46 million that will be paid in future years. Payments for subordinated debentures and subordinated notes include interest of $4342.46 million that will be paid in future years. The future interest payments were calculated using the current rate in effect at ~~June~~September 30, 2018. Payments related to leases are based on actual payments specified in underlying contracts.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

Leases — A summary as of ~~June~~September 30, 2018, of the Company’s noncancelable future operating lease commitments (in thousands):

2018	$	~~877~~543
2019	12,~~610~~107
2020	1,~~237~~692
2021	1,~~099~~564
2022	~~817~~1,293
Thereafter	23,~~911~~215
Total	$	810,~~551~~414

The Company leases certain office facilities and equipment under operating leases. Rent expense under all noncancelable operating lease obligations, net of income from noncancelable subleases aggregated, was approximately $~~594~~610 thousand and $~~578~~581 thousand for the three months ended ~~June~~September 30, 2018 and 2017, respectively, and $1.28 million ~~for~~and ~~both~~$1.7 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

Litigation — The Company from time to time is involved in routine litigation arising from the normal course of business. Management does not believe that there are any pending or threatened proceedings against the Company which, upon resolution, would have a material effect on the consolidated financial statements.

Financial Instruments with Off-Balance Sheet Risk — In the normal course of business, the Company is a party to various financial instruments with off-balance sheet risk to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual or notional amount of these instruments. The Company uses the same credit policies in making these commitments and conditional obligations as it does for on-balance sheet instruments.

The following is a summary of the various financial instruments outstanding as of the date set forth:

June 30, 2018

September 30, 2018

1 year or less

More than1 year but lessthan 3 years

3 years or morebut lessthan 5 years

5 years or more

Total

(Dollars in thousands)

Commitments to extend credit

~~325~~284,~~665~~861

~~190~~208,~~944~~383

85108,~~515~~841

8784,~~085~~337

~~689~~686,~~209~~422

Standby and commercial letters of credit

915,~~612~~476

~~314~~259

100

~~640~~480

1016,~~666~~315

Total

~~335~~300,~~277~~337

~~191~~208,~~258~~642

85108,~~615~~941

8784,~~725~~817

~~699~~702,~~875~~737

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the customer.

Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, the Company has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The credit risk to the Company in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

17. DERIVATIVE FINANCIAL INSTRUMENTS

In order to accommodate the borrowing needs of certain commercial customers, the Company has entered into interest rate swap or cap agreements with those customers. These interest rate derivative contracts effectively allow our customers to convert a variable rate loan to a fixed rate. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because we act as an intermediary for our customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on our results of operations. The fair value amounts are included in other assets and other liabilities.

The following is a summary of the interest rate swaps outstanding as of the dates set forth:

June 30, 2018

September 30, 2018

Notional Amount

Fixed Rate

Floating Rate

Maturity

Fair Value

(Dollars in thousands)

Non-hedging derivative instruments:

Customer interest rate derivative:

Interest rate swaps - receive fixed/pay floating

~~159~~181,~~205~~341

42.3894 - 67.9416%

LIBOR 1 month + 30.00% - 4.25%

Wtd. Avg.3.97 years

2,~~515~~828

Interest rate caps and collars

37,~~030~~506

43.5510 - 6.00%

LIBOR 1 month + 3.00% - 3.75%

Wtd. Avg.1.20 years

~~185~~304

Correspondent interest rate swap:

Interest rate swaps - receive fixed/pay floating

~~159~~181,~~205~~341

42.3894 - 67.9416%

LIBOR 1 month + 30.00% - 4.25%

Wtd. Avg.3.97 years

(2,~~564~~814

)

Interest rate caps and collars

37,~~030~~506

43.5510 - 6.00%

LIBOR 1 month + 3.00% - 3.75%

Wtd. Avg.1.20 years

(~~185~~304

)



	December 31, 2017
	Notional Amount		Fixed Rate	Floating Rate	Maturity	Fair Value

	(Dollars in thousands)
Non-hedging derivative instruments:
Customer interest rate derivative:
Interest rate swaps - receive fixed/pay floating	$	173,304	2.19 - 5.72%	LIBOR 1 month + 0% - 4.25%	Wtd. Avg. 2.8 years	$	880
Interest rate caps and collars	$	37,466	4.55 - 6.00%	LIBOR 1 month + 3% - 3.75%	Wtd. Avg. 1.7 years	$	75

Correspondent interest rate swap:
Interest rate swaps - receive fixed/pay floating	$	173,304	2.19 - 5.72%	LIBOR 1 month + 0% - 4.25%	Wtd. Avg. 2.8 years	$	(901	)
Interest rate caps and collars	$	37,466	4.55 - 6.00%	LIBOR 1 month + 3% - 3.75%	Wtd. Avg. 1.7 years	$	(75	)

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

The estimated fair values of non-hedging derivative instruments are reflected within Company’s consolidated balance sheet (included in other assets and other liabilities) on a net basis when a right of offset exits, based on transactions with a single counterparty that are subject to a legally enforceable master netting agreement. The notional amounts and estimated fair values of the non-hedging derivative instruments by classification as the dates set forth were as follows:

	June 30, 2018								December 31, 2017
	September 30, 2018								December 31, 2017
			Estimated Fair Value								Estimated Fair Value
	NotionalAmount		Asset Derivative			Liability Derivative			NotionalAmount		Fair Value			Liability Derivative
	(Dollars in thousands)
Non-hedging interest rate derivatives:
Correspondent counterparty:
Interest rate swaps	$	~~159~~181,~~205~~341	$	23,~~757~~182		$	~~242~~354		$	173,304	$	1,326		$	448
Interest rate caps and collars	37,~~030~~506		~~185~~304			—			37,466		75			—
Customer counterparty:
Interest rate swaps	~~159~~181,~~205~~341		~~188~~356			23,~~752~~147			173,304		423			1,325
Interest rate caps and collars	37,~~030~~506		—			~~185~~304			37,466		—			75
Gross derivatives			3,~~130~~842			3,~~179~~805					1,824			1,848
Offsetting derivatives assets/liabilities			(~~122~~102		)	(~~122~~102		)			(369		)	(369		)
Net derivatives included in the consolidated balance sheets			$	3,~~008~~740		$	3,~~057~~703				$	1,455		$	1,479

18. REGULATORY MATTERS

Capital Requirements — The Company is subject to various regulatory capital requirements administered by federal banking agencies. Any institution that fails to meet its minimum capital requirements is subject to actions by regulators that could have a direct material effect on its financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines based on the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amount and classification under the regulatory framework for prompt corrective action are also subject to qualitative judgments by the regulators.

In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the "Basel III Capital Rules"). The Basel III Capital Rules, among other things, (i) introduced a new capital measure called "Common Equity Tier 1" ("CET 1"), (ii) specify that Tier 1 capital consist of CET 1 and "Additional Tier 1 Capital" instruments meeting specified requirements, (iii) define CET 1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET 1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments as compared to existing regulations. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions to be fully phased in by January 1, 2019.

Beginning on January 1, 2016, the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019. The required phase-in capital conservation buffer during 2018 is 1.875%. The capital conservation buffer, composed entirely of CET 1, is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of ~~June~~September 30, 2018 and December 31, 2017. Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well capitalized. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios. Any such changes could result in reducing one or more capital ratios below well-capitalized status. In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material effect on condition and results of operations.

To meet the capital adequacy requirements, the Company and the Bank must maintain minimum capital amounts and ratios as defined in the regulations. Management believes, as of ~~June~~September 30, 2018 and December 31, 2017, that the Company and the Bank met all capital adequacy requirements to which they are subject.

The most recent notification from the regulatory banking agencies categorized Green Bank as “well capitalized” under the regulatory capital framework for prompt corrective action and there have been no events since that notification that management believes have changed the Bank’s category.

The Company’s consolidated capital ratios and the Bank’s capital ratios as of the dates set forth are presented in the following table:

June 30, 2018

September 30, 2018

Actual

For CapitalAdequacy Purposes

To be Categorized as "WellCapitalized" under PromptCorrective Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

The Company(1):

Total capital (to risk weighted assets)

~~487~~500,~~002~~596

13.21

~~295~~306,~~174~~722

8.0

N/A

Tier 1 capital (to risk weighted assets)

~~417~~430,~~047~~819

11.32

~~221~~230,~~380~~041

6.0

N/A

Common equity tier 1 capital

~~403~~417,~~475~~142

10.9

~~166~~172,~~035~~531

4.5

N/A

Tier I capital (to average assets)

~~417~~430,~~047~~819

10.01

~~167~~171,~~184~~459

4.0

N/A

The Bank(2):

Total capital (to risk weighted assets)

~~477~~494,~~452~~108

1312.09

~~294~~306,~~851~~408

8.0

~~368~~383,~~564~~010

10.0

Tier 1 capital (to risk weighted assets)

~~441~~458,~~279~~148

12.0

~~221~~229,~~138~~806

6.0

~~294~~306,~~851~~408

8.0

Common equity tier 1 capital

~~441~~458,~~279~~148

12.0

~~165~~172,~~854~~354

4.5

~~239~~248,~~566~~956

6.5

Tier I capital (to average assets)

~~441~~458,~~279~~148

10.67

~~167~~171,~~123~~366

4.0

~~208~~214,~~904~~207

5.0

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GREEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2018

(Unaudited)

December 31, 2017

Actual

For Capital

Adequacy Purposes

To be Categorized as "Well

Capitalized" under Prompt

Corrective Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

Filing Compare · Green Bancorp, Inc.