VPFG (MM)

PLANO, Texas, Feb. 4, 2014 /PRNewswire/ -- ViewPoint Financial Group, Inc. (NASDAQ: VPFG) (the "Company"), the holding company for ViewPoint Bank, N.A. (the "Bank"), today announced net income of $7.2 million for the quarter ended December 31, 2013, a decrease of $968,000, or 11.8%, from the quarter ended September 30, 2013.  Compared to the fourth quarter of 2012, net income decreased by $3.1 million, or 30.1%. Net income for the year ended December 31, 2013, was $31.7 million, a $3.6 million decrease, or 10.1%, from net income of $35.2 million for the year ended December 31, 2012.  Basic and diluted earnings per share for the quarter ended December 31, 2013, was $0.19.  Basic earnings per share was down $0.03 from the linked quarter and down $0.09 from the quarter ended December 31, 2012, reflecting merger costs of $663,000 and severance costs of $210,000, which accounted for a $0.02 per share decline in earnings per share.

In November 2013, the Company announced that it had entered into a definitive agreement under which LegacyTexas Group, Inc. will merge into ViewPoint and, immediately thereafter, ViewPoint's bank subsidiary, ViewPoint Bank, N.A., will merge into LegacyTexas Group's subsidiary bank, LegacyTexas Bank. The merger will result in one of the largest independent banks in the state of Texas, with 51 branches and pro forma assets of over $5 billion. President and CEO Kevin Hanigan, said, "This combination allows ViewPoint to accomplish many of our strategic objectives, including: gaining greater scale in the Dallas-Fort Worth Metroplex; accelerating ViewPoint's transition to a full-service, commercial-oriented community bank; leveraging our excess capital in a financially attractive transaction, and deepening our management and board depth and experience."

Full Year 2013 Performance Highlights

• Merger with LegacyTexas Group announced November 2013; the merger will result in one of the largest independent banks in the state of Texas, with 51 branches and pro forma assets of over $5 billion
• Continued execution of commercial banking strategy with commercial loan portfolio growing 39.3% to a total of $1.6 billion
• The Company formed a new energy lending group in May 2013 with total loans outstanding of $166.5 million at December 31, 2013
• Net interest margin expanded to 3.71% for the year compared to 3.61% for 2012
• Non-performing assets of $22.6 million, or 0.64% of total assets, at December 31, 2013, represents lowest level in nine quarters
• The Company announced today its second consecutive quarterly cash dividend of $0.12 per share, up 20% from the $0.10 per share declared for the four prior quarterly dividend periods

Fourth Quarter 2013 Performance Highlights

• Linked quarter commercial loan growth of $119.1 million or 8.3%; loans held for investment, excluding Warehouse Purchase Program loans, up $116.2 million, or 6.0%
• Net interest margin increased 20 basis points for the linked quarter to 3.83%
• Net charge-offs declined to $127,000—the lowest level since becoming a publicly traded company in 2006

"I'm very pleased with what we accomplished last year—and last quarter," said President and CEO Kevin Hanigan. "We recorded tremendous loan growth, including strong results from our new Energy Finance group. Our non-interest bearing deposits continue to grow, our asset quality is the best it's been in more than two years, and it would be an understatement to say we're thrilled about our upcoming merger with LegacyTexas Bank. I'm looking forward to an exciting 2014."

Financial Highlights

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended December 31, 2013, was $30.1 million, a $1.5 million decrease from the fourth quarter of 2012 and an $881,000 increase from the third quarter of 2013. The year-over-year decrease was primarily due to a $2.1 million decrease in interest income on loans, partially offset by a $523,000 decrease in interest expense and a $70,000 increase in interest income on securities. The increase in net interest income for the current period compared to the third quarter of 2013 was primarily due to a $383,000 and a $235,000 increase in interest income earned on loans and securities, respectively, and a $257,000 decrease in interest expense.

The decrease in interest income on loans from the quarter ended December 31, 2012, was primarily due to a $4.1 million decrease in interest income from Warehouse Purchase Program loans, as well as a decline in yields earned on most loan portfolios.  The average balance of Warehouse Purchase Program loans decreased by $366.2 million, or 40.3%, compared to the fourth quarter of 2012. This decline was more than offset by a $386.1 million, or 35.7%, increase in the average balance of commercial loans.  The average yield earned on the Warehouse Purchase Program loan portfolio was 3.79% for the fourth quarter of 2013, compared to an average yield of 5.37% earned on the commercial loan portfolio. Growth in commercial loan volume was partially offset by lower yields, as the average yield on commercial real estate and commercial and industrial loans declined by 61 and 23 basis points, respectively, from the fourth quarter of 2012. The average yield on loans decreased 17 basis points to 5.03% for the fourth quarter of 2013, compared to 5.20% for the fourth quarter of 2012.

The increase in interest income on loans from the linked quarter was primarily due to an increase in average yields for the comparable periods. Average balances on loans declined $35.0 million, while average yields on loans increased 13 basis points to 5.03% for the fourth quarter of 2013, compared to 4.90% for the third quarter 2013. A $124.0 million increase in the average balance of commercial loans compared to the third quarter of 2013, was more than offset by a $143.5 million decline in the average balance of Warehouse Purchase Program loans. The yield earned on loans was positively impacted in the fourth quarter by a $532,000 recovery of interest on a non-performing loan while the third quarter was negatively impacted by a $377,000 reversal of interest income on three non-performing commercial real estate loans that were sold at par in September 2013.

The average balance of securities declined $141.8 million or 19.3%, during the fourth quarter of 2013 compared to the same period in 2012, while the average yield on securities increased by 47 basis points for the comparable periods. The decline in average balances in our securities portfolio over the past year was primarily due to normal paydowns and the sale of securities that were not consistent with our portfolio strategy. The proceeds from the securities paydowns and sales were re-deployed to support commercial loan growth and to build liquidity in preparation for the merger with LegacyTexas Group expected to close in the second quarter of 2014. Average security balances for the linked quarters declined $47.3 million to $592.8 million, while the average yield on securities increased 31 basis points to 2.21%, compared to 1.90% for the immediately preceding quarter.

Fourth quarter 2013 interest expense decreased $523,000 from the 2012 fourth quarter, primarily due to a $454,000, or 17.2%, decrease in the interest paid on FHLB advances and other borrowings, as a result of lower average balances, partially offset by a 49 basis point increase in interest rate and a $69,000, or 3.0%, decrease in interest paid on deposits. The average balances of FHLB advances and other borrowings declined by $301.8 million, or 39.2%, from the comparable prior year period, primarily due to lower average Warehouse Purchase Program balances during the 2013 period, of which a portion was strategically funded with short-term advances. The average rate paid on interest-bearing deposits declined by two basis points to 0.49% for the quarter ended December 31, 2013, from 0.51% for the quarter ended December 31, 2012.  Average interest-bearing liabilities decreased by $287.2 million to $2.3 billion for the quarter ended December 31, 2013, compared to $2.6 billion for the same period in 2012, while the average cost of interest-bearing liabilities increased by one basis point to 0.77% for the quarter ended December 31, 2013. The decline in interest expense for the linked quarters was driven primarily by lower average FHLB advances and other borrowings, as well as lower average rates on interest-bearing deposits.

The net interest margin for the fourth quarter of 2013 was 3.83%, a six basis point increase from the fourth quarter of 2012 and a 20 basis point increase from the third quarter of 2013. Accretion of interest related to the Highlands acquisition contributed 10 basis points to the net interest margin for the quarter ended December 31, 2013, compared to seven basis points for the quarter ended September 30, 2013, and 12 basis points for the fourth quarter of 2012. The average yield on earning assets for the 2013 fourth quarter was 4.40%, a three basis point increase from the fourth quarter of 2012 and an 18 basis point increase from the third quarter of 2013. 

Non-interest Income

Non-interest income for the quarter ended December 31, 2013, was $5.0 million, a $1.5 million decrease from the fourth quarter of 2012 and a $221,000 decrease from the third quarter of 2013. The decrease from the fourth quarter of 2012 was primarily attributable to a $1.3 million decrease in service charges and fees and a $621,000 decrease in other non-interest income for the comparable periods. Service charges and fees decreased from the fourth quarter of 2012, driven by $722,000 in commercial loan prepayment penalty fees collected in the fourth quarter of 2012 that were not repeated in the fourth quarter of 2013; a $424,000 decline in Warehouse Purchase Program fees primarily due to fewer total loans funded during the comparable periods; and a $226,000 decline in debit card income. The decrease in other non-interest income for the comparable fourth quarter periods was primarily due to $267,000 in higher gains on investments in community development-oriented private equity funds used for Community Reinvestment Act purposes experienced in the fourth quarter of 2012.

The decrease in non-interest income from third quarter 2013 was primarily due to a $201,000 decrease in service charges and fees, primarily due to a decline in Warehouse Purchase Program fees.

Non-interest Expenses

Non-interest expense for the quarter ended December 31, 2013, was $24.1 million, a $2.4 million increase from the fourth quarter of 2012 and a $2.0 million increase from the third quarter of 2013. The year-over-year increase in non-interest expense was primarily due to a $1.1 million increase in salaries and employee benefits expense and $663,000 in merger-related costs.  The increase in salaries and employee benefits expense primarily reflected increased salaries and incentives, partially offset by lower health care costs for the comparable periods. The Company continued its growth strategy by adding high-level revenue producers in lending and treasury management which led to increased loan production and higher incentive-based bonuses.

The $2.0 million increase in non-interest expense from the third quarter of 2013 was primarily due to a $793,000 increase in salaries and employee benefits expense, $663,000 in merger-related costs and a $287,000 increase in occupancy and equipment expense. The increase in salaries and employee benefits expense primarily reflected increased salaries and incentives, offset by a decrease in stock-based compensation and lower health care costs for the comparable periods. Occupancy and equipment expense increased primarily due to increased property taxes and building and landscape maintenance costs.

Financial Condition

As previously disclosed in our 2013 third quarter Form 10-Q, the Federal Financial Institutions Examination Council ("FFIEC") issued Supplemental Instructions for the September 30, 2013 Call Report, stating that certain residential mortgage loan purchase programs (like the Company's Warehouse Purchase Program) should be reported as loans held for investment. The Company has historically reported these loans as loans held for sale in our Call Reports and US GAAP basis financial statements. Based on more interpretation of regulatory guidance, we determined during the fourth quarter of 2013 that these loans should have been reported as loans held for investment on our consolidated balance sheets. We will report these loans as held for investment in our regularly filed financial reports commencing with our Annual Report on Form 10-K for the year ended December 31, 2013, for all periods presented. The financial data included in this release for prior periods reflect these loans as held for investment. This change in classification of Warehouse Purchase Program loans from loans held for sale to loans held for investment had no impact to net income, total assets, or total shareholders' equity.

Gross loans held for investment at December 31, 2013, excluding Warehouse Purchase Program loans, increased by $116.2 million, or 6.0%, from September 30, 2013, and by $359.1 million, or 21.2%, from December 31, 2012. Warehouse Purchase Program loans at December 31, 2013, increased by $33.4 million, or 5.2%, from September 30, 2013, but decreased by $387.3 million, or 36.5%, from December 31, 2012.  Commercial real estate loan balances at December 31, 2013, increased by $55.8 million, or 5.4%, from September 30, 2013, and by $265.9 million or 32.2%, from December 31, 2012. Commercial and industrial loans at December 31, 2013, increased by $48.7 million, or 12.5%, from September 30, 2013, and $160.9 million, or 57.8%, from December 31, 2012.  Commercial construction and land loans totaled $27.6 million, an increase of $14.6 million, or 111.7%, from September 30, 2013, and $13.1 million, or 89.6%, from December 31, 2012.

Energy loans, which are included in our commercial and industrial loans, totaled $166.5 million at December 31, 2013, up from $114.2 million at September 30, 2013. In May 2013, the Company formed its Energy Finance group, which focuses on providing loans to private and public oil and gas companies throughout the United States. The group's offerings also include the Bank's full array of commercial services, including Treasury Management and Letters of Credit.

Total deposits increased by $16.7 million, or 0.7%, to $2.3 billion from September 30, 2013. The total reflects increases in all deposit categories except for time deposits. Compared to December 31, 2012, deposits increased by $86.8 million, or 4.0%, which included a $53.1 million increase in non-interest-bearing demand deposits. Non-interest-bearing demand deposits totaled $410.9 million, or 18.1%, of total deposits at December 31, 2013, reaching a new high for the category.

Total shareholders' equity increased by $4.4 million to $544.5 million at December 31, 2013, from $540.1 million at September 30, 2013.  The Company's tangible common equity ratio was 14.7% at December 31, 2013, a decrease of 48 basis points from September 30, 2013, and an increase of 122 basis points from December 31, 2012. 

Credit Quality

The Company recorded a provision expense of $616,000 for the quarter ended December 31, 2013, compared to provision benefits of $158,000 for the 2013 third quarter and $17,000 for the quarter ended December 31, 2012. Non-performing loans to total loans held for investment, excluding Warehouse Purchase Program loans, at December 31, 2013, was 1.08%, compared to 1.15% at September 30, 2013, and 1.61% at December 31, 2012. Non-performing loans decreased by $183,000 to $22.1 million at December 31, 2013, from $22.3 million at September 30, 2013, and decreased $5.1 million from $27.2 million at December 31, 2012. At December 31, 2013, non-performing loans were at their lowest level in nine quarters.  In the third quarter of 2013, three commercial real estate loans that were placed in nonaccrual status in September were sold at par in the same month, which avoided an increase in non-performing loans, as well as any potential losses on those three loans. 

Net charge-offs totaled $127,000 for the fourth quarter of 2013, compared to $250,000 for the third quarter and $1.8 million for the fourth quarter of 2012. Fourth quarter 2013 charge-offs declined to the lowest level since the Company became publicly traded in 2006. Provision expense for the quarter ended December 31, 2013, totaled $616,000, up $774,000 from the quarter ended September 30, 2013, and up $633,000 from the quarter ended December 31, 2012, primarily due to increased commercial loan production.

Subsequent Events

The Company is required under generally accepted accounting principles to evaluate subsequent events through the filing of its consolidated financial statements for the year ended December 31, 2013, on Form 10-K.  As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2013, and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will also host an investor conference call to review these results on Wednesday, February 5, 2014, at 8 a.m. Central Time. Participants are asked to call (toll-free) 1-888-317-6016 at least five minutes prior to the call.  International participants are asked to call 1-412-317-6016 and participants in Canada are asked to call (toll-free) 1-855-669-9657.  The call and corresponding presentation slides will be webcast live on the home page of the Company's website, www.viewpointfinancialgroup.com. An audio replay will be available one hour after the conclusion of the call at 1-877-344-7529, Conference #10039602. This replay, as well as the webcast, will be available until the Company's next quarterly webcast/conference call.

About ViewPoint Financial Group, Inc.

ViewPoint Financial Group, Inc. is the holding company for ViewPoint Bank, N.A. ViewPoint Bank, N.A. operates 31 banking offices in the Dallas/Fort Worth metropolitan area, including two First National Bank of Jacksboro locations in Jack and Wise Counties. For more information, please visit www.viewpointbank.com or www.viewpointfinancialgroup.com.

When used in filings by the Company with the Securities and Exchange Commission (the "SEC") in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things: changes in economic conditions; legislative changes; changes in policies by regulatory agencies; fluctuations in interest rates; the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; the Company's ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in the Company's market area; the industry-wide decline in mortgage production; competition; changes in management's business strategies; our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; and other factors set forth under Risk Factors in the Company's Form 10-K that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The factors listed above could materially affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake—and specifically declines any obligation—to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances occurring after the date of such statements.