VPFG (MM)

PLANO, Texas, April 22, 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 $7.7 million for the quarter ended March 31, 2014, an increase of $438,000, or 6.0%, from the quarter ended December 31, 2013.  Compared to the first quarter of 2013, net income decreased by $376,000, or 4.7%.  Basic and diluted earnings per share for the quarter ended March 31, 2014, was $0.20, up $0.01 from the linked quarter and down $0.01 from the quarter ended March 31, 2013.  Core basic and diluted earnings per share for the quarter ended March 31, 2014, was $0.21, up $0.01 from the quarter ended March 31, 2013, and unchanged from the linked quarter.  Please see the table labeled "Supplemental Information- Non-GAAP Financial Measures" at the end of this document to find a reconciliation of earnings per share calculated per generally accepted accounting principles ("GAAP") to core (non-GAAP) earnings per share. 

In November 2013, the Company announced that it had entered into a definitive agreement under which LegacyTexas Group, Inc. ("LegacyTexas") will merge into the Company and, immediately thereafter, the Company's bank subsidiary, ViewPoint Bank, N.A., will merge into LegacyTexas' 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.  Under the terms of the merger agreement, the Company will issue approximately 7.85 million shares of its common stock plus approximately $115 million in cash for all of the outstanding stock of LegacyTexas. Each LegacyTexas shareholder will have the right to elect to receive either Company stock or cash, subject to proration as specified in the merger agreement.  The transaction is expected to close in the second quarter of 2014.

First Quarter 2014 Performance Highlights

• Loans held for investment, excluding Warehouse Purchase Program loans, grew $157.7 million, or 7.7%, from December 31, 2013, with commercial loans increasing by $137.9 million, or 8.8%, to $1.70 billion at March 31, 2014.
• Non-interest-bearing demand deposits increased to a record high of $434.5 million at March 31, 2014, an increase of $23.5 million on a linked quarter basis and $41.7 million year over year.
• Net interest margin increased nine basis points year over year to 3.73%, while the cost of deposits decreased ten basis points year over year, from 0.45% for the first quarter of 2013 to 0.35% for the first quarter of 2014.
• Non-performing loans remained low at $22.8 million at March 31, 2014, down $4.9 million year over year.

"The investments we made last year in our commercial lending talent and infrastructure continues to pay off," said President and CEO Kevin Hanigan. "We once again posted impressive commercial loan growth. In addition, our non-interest bearing demand deposits increased to a record high of $434.5 million, much of this fueled by our commercial banking platform. The completion of our merger with LegacyTexas this year is an important step towards our goal of becoming this state's premier community bank."

Financial Highlights

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended March 31, 2014, was $29.6 million, a $1.1 million increase from the first quarter of 2013 and a $484,000 decrease from the fourth quarter of 2013. The year-over-year increase was primarily due to a $775,000 decrease in interest expense and a $249,000 increase in interest income on securities. The decrease in net interest income for the current period compared to the fourth quarter of 2013 was primarily due to an $800,000 decrease in interest income earned on loans, partially offset by a $311,000 decrease in interest expense.

Interest income earned on securities increased by $249,000, or 8.3%, compared to the first quarter of 2013, primarily due to higher yields earned on collateralized mortgage obligations and mortgage-backed securities, as well as an increase in the average balance of municipal bonds.  Growth of $475.5 million, or 42.3%, in the average balance of commercial loans more than offset a $291.3 million decline in average Warehouse Purchase Program loan balances for the comparable three month periods ended March 31, 2014, and 2013, resulting in a $10,000 increase in interest income earned on loans.  The increase in interest income driven by higher commercial loan volume was also partially offset by lower yields, as the average yield on commercial real estate and commercial and industrial loans declined by 50 and 40 basis points, respectively, from the first quarter of 2013. The average yield on loans decreased by 21 basis points to 4.84% for the first quarter of 2014, compared to 5.05% for the first quarter of 2013.

The $800,000, or 2.6%, decrease in interest income earned on loans on a linked quarter basis was primarily due to lower average yields earned on all loan portfolios for the comparable periods, as well as a $95.4 million decline in the average balance of Warehouse Purchase Program loans.  The decline in yields and Warehouse Purchase Program balances was partially offset by a $129.2 million increase in the average balance of commercial loans compared to the fourth quarter of 2013.  A $532,000 recovery of interest on a non-performing loan recognized in the fourth quarter of 2013 also contributed to the decrease in interest income on a linked quarter basis.

Interest expense for the first quarter of 2014 decreased by $775,000, or 15.8%, from the first quarter of 2013 due to a $441,000, or 18.1%, decrease in interest paid on deposits and a $334,000, or 14.8%, decrease in interest paid on FHLB advances.  The decline in interest paid on deposits was driven by lower average rates paid on time deposits and interest-bearing demand deposits, which declined by 47 basis points and three basis points, respectively, compared to the first quarter of 2013. The average balance of FHLB advances and other borrowings declined by $125.5 million, or 21.3%, from the comparable prior year period, primarily due to lower average Warehouse Purchase Program balances during the 2014 period, of which a portion was strategically funded with short-term FHLB advances.  Average interest-bearing liabilities decreased by $46.1 million to $2.3 billion for the quarter ended March 31, 2014, compared to $2.4 billion for the same period in 2013, while the average cost of interest-bearing liabilities decreased by 12 basis points to 0.70% for the quarter ended March 31, 2014, compared to 0.82% for the same period in 2013. The decline in interest expense on a linked quarter basis was driven primarily by a 24 basis point decline in the average rate paid on time deposits.

The net interest margin for the first quarter of 2014 was 3.73%, a nine basis point increase from the first quarter of 2013 and a ten basis point decrease from the fourth quarter of 2013. Accretion of interest related to the 2012 Highlands acquisition contributed five basis points to the net interest margin for the quarter ended March 31, 2014, compared to ten basis points for the quarter ended December 31, 2013, and 11 basis points for the quarter ended March 31, 2013. The average yield on earning assets for the first quarter of 2014 was 4.25%, a two basis point decrease from the first quarter of 2013 and a 15 basis point decrease from the fourth quarter of 2013.  The cost of deposits for the first quarter of 2014 was 0.35%, a ten basis point decrease from the first quarter of 2013 and a five basis point decrease from the fourth quarter of 2013.

Non-interest Income

Non-interest income for the quarter ended March 31, 2014, was $5.0 million, an $897,000, or 15.3%, decrease from the first quarter of 2013 and a $43,000, or 0.9%, decrease from the fourth quarter of 2013. The $897,000 decrease from the first quarter of 2013 was primarily attributable to an $841,000 decrease in other non-interest income and a $229,000 decrease in gain on the sale and disposition of assets for the comparable periods.  These declines were partially offset by a $177,000 loss on the sale of available-for-sale securities recorded in the first quarter of 2013 with no comparable loss recorded in the 2014 period. The decrease in other non-interest income year over year was primarily due to a $784,000 increase in the value of an investment in a community development-oriented private equity fund used for Community Reinvestment Act purposes recognized in the first quarter of 2013, compared to an increase of $39,000 recognized in the first quarter of 2014. The decrease in gain on the sale and disposition of assets year over year was primarily due to a gain recorded on the payoff of a purchased credit impaired loan recorded during the 2013 period with no comparable gain recorded in the 2014 period.

The $43,000 decrease in non-interest income on a linked quarter basis was primarily due to a $119,000 decrease in the gain on sale and disposition of assets, partially offset by a $106,000 increase in other non-interest income. The decrease in gain on the sale and disposition of assets for the linked quarters was primarily due to a gain recorded on the payoff of a purchased credit impaired loan recorded during the 2013 period with no comparable gain recorded in the 2014 period.  The increase in other non-interest income was primarily due to a $189,000 prepayment penalty received in the first quarter of 2014 on a held-to-maturity security, which was partially offset by a $214,000 increase in the value of an investment in a community development-oriented private equity fund used for Community Reinvestment Act purposes recognized in the fourth quarter of 2013, compared to an increase of $39,000 recognized in the first quarter of 2014.

Non-interest Expenses

Non-interest expense for the quarter ended March 31, 2014, was $22.2 million, a $1.3 million, or 6.1%, increase from the first quarter of 2013 and a $2.0 million, or 8.2%, decrease from the fourth quarter of 2013. The year-over-year increase in non-interest expense was primarily due to a $1.2 million increase in salaries and employee benefits expense and $169,000 in merger and acquisition costs related to the merger with LegacyTexas. The increase in salaries and employee benefits expense primarily reflected increased share-based compensation expense related to grants that were awarded in February 2013, higher ESOP expense resulting from an increase in the Company's stock price, and an increase in performance-based compensation resulting from improvements in performance metrics. Lower expenses related to advertising and outside professional services partially offset the increase in salary expense and merger costs.

The $2.0 million decrease in non-interest expense on a linked quarter basis was primarily due to a $494,000 decrease in merger and acquisition costs related to the merger with LegacyTexas, a $405,000 decrease in advertising expense, a $299,000 decrease in outside professional services expense, and a $225,000 decrease in occupancy and equipment expense. 

Financial Condition

Prior to the December 31, 2013, reporting period, the Company reported Warehouse Purchase Program loans as held for sale as we believed that was the most meaningful presentation to our financial statement users given that the collection of the loan was based upon the sale of the loan.  Effective December 31, 2013, the Company concluded that, under US GAAP, these loans should be accounted for as held for investment. This correction changed the accounting for Warehouse Purchase Program loans from a lower-of-cost-or-market accounting method to accounting for the loans under Accounting Standards Codification ("ASC") 310, with any credit losses incurred as of the balance sheet date recognized in the allowance for loan losses.  As we had not reported any valuation decreases below cost in prior periods, and we have experienced no credit losses on these loans, this correction had no impact on net income, comprehensive income, earnings per share or income taxes. Additionally, total assets and shareholders' equity remained unchanged. However, this correction did impact the statement of cash flows by moving cash flows associated with the Warehouse Purchase Program from operating cash flows to investing cash flows.

Gross loans held for investment at March 31, 2014, excluding Warehouse Purchase Program loans, increased by $157.7 million, or 7.7%, from December 31, 2013, and by $461.8 million, or 26.5%, from March 31, 2013, with increased commercial lending driving the growth.   Commercial real estate loan balances at March 31, 2014, increased by $26.9 million, or 2.5%, from December 31, 2013, and by $235.6 million, or 26.7%, from March 31, 2013. Commercial and industrial loans at March 31, 2014, increased by $104.2 million, or 23.7%, from December 31, 2013, and $241.1 million, or 79.7%, from March 31, 2013.  Warehouse Purchase Program loans at March 31, 2014, decreased by $82.6 million, or 12.3%, from December 31, 2013, and by $166.6 million, or 22.0%, from March 31, 2013.  Consumer loans at March 31, 2014, increased by $19.8 million, or 4.1%, from December 31, 2013, and decreased by $30.3 million, or 5.6%, from March 31, 2013. 

Energy loans, which are reported as commercial and industrial loans, totaled $212.8 million at March 31, 2014, up $46.3 million from $166.5 million at December 31, 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 at March 31, 2014, increased by $104.6 million, or 4.6%, from December 31, 2013, and by $156.2 million, or 7.1%, from March 31, 2013. Since December 31, 2013, non-interest-bearing demand deposits have grown by $23.5 million and totaled $434.5 million at March 31, 2014, or 18.3% of total deposits, which is a record high for the category and was driven by higher balances in commercial checking products. Additionally, compared to December 31, 2013, savings and money market deposits increased by $40.5 million, while time deposits increased by $35.7 million.

Total shareholders' equity increased by $5.6 million to $550.1 million at March 31, 2014, from $544.5 million at December 31, 2013.  The Company's tangible common equity ratio was 14.54% at March 31, 2014, a decrease of 16 basis points from December 31, 2013, and a decrease of 41 basis points from March 31, 2013. 

Credit Quality

The Company recorded a provision for loan losses of $376,000 for the quarter ended March 31, 2014, compared to $616,000 for the quarter ended December 31, 2013, and $883,000 for the quarter ended March 31, 2013. Non-performing loans to total loans held for investment, excluding Warehouse Purchase Program loans, was 1.03% at March 31, 2014, compared to 1.08% at December 31, 2013, and 1.59% at March 31, 2013. Non-performing loans totaled $22.8 million at March 31, 2014, a decrease of $4.9 million from March 31, 2013, and an increase of $705,000 from December 31, 2013. This linked quarter increase was primarily attributable to a commercial and industrial loan totaling $2.0 million and a commercial real estate loan totaling $558,000, both of which were placed on nonaccrual status during the first quarter of 2014.  The $2.0 million commercial and industrial loan, which is not past due, was placed on nonaccrual solely due to its designation as a troubled debt restructuring.  The $558,000 commercial real estate loan is currently past due, but as a result of our collateral position in the loan, no specific reserve has been allocated to this loan. The increase in non-performing loans during the first quarter of 2014 was partially offset by a $609,000 decrease in non-performing consumer real estate loans.

Net charge-offs totaled $332,000 for the first quarter of 2014, compared to $127,000 for the fourth quarter of 2013, and $292,000 for the first quarter of 2013.  The $332,000 in net charge-offs for the first quarter of 2014 included $169,000 of charge-offs related to two Small Business Administration ("SBA") commercial and industrial loans.  Specific reserve allocations were set aside in prior periods to provide for the portions of these loans not guaranteed by the SBA.

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 quarter ended March 31, 2014, on Form 10-Q.  As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of March 31, 2014, and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an investor conference call to review these results on Wednesday, April 23, 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 #10042848. 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 ViewPoint Financial Group, Inc. ("ViewPoint") with the Securities and Exchange Commission (the "SEC") in ViewPoint'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 that could cause actual results to differ materially from historical earnings and those presently anticipated or projected, including, among other things: the expected cost savings, synergies and other financial benefits from the ViewPoint-LegacyTexas merger (the "Merger") might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters might be greater than expected; the requisite regulatory approvals and the approval of the shareholders of LegacyTexas might not be obtained or other conditions to completion of the merger set forth in the merger agreement might not be satisfied or waived; 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; ViewPoint'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 ViewPoint's market area; the industry-wide decline in mortgage production; competition; changes in management's business strategies and other factors set forth in ViewPoint's filings with the SEC.

ViewPoint does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.  ViewPoint has filed with the SEC a registration statement on Form S-4, which was declared effective by the SEC on April 9, 2014.  The registration statement includes a proxy statement/prospectus, which was mailed in definitive form to the shareholders of LegacyTexas on April 15, 2014.  INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE MERGER BECAUSE THEY CONTAIN, OR WILL CONTAIN, IMPORTANT INFORMATION ABOUT LEGACYTEXAS, VIEWPOINT AND THE MERGER.  Investors may obtain these documents free of charge at the SEC's website (www.sec.gov).  In addition, documents filed with the SEC by ViewPoint are available free of charge by accessing ViewPoint's website (www.viewpointfinancialgroup.com, under "SEC Filings") or by contacting Casey Farrell at (972) 801-5871.

The directors, executive officers and certain other members of management and employees of ViewPoint may be deemed to be participants in the solicitation of proxies in favor of the Merger from the shareholders of LegacyTexas.  Information about the directors and executive officers of ViewPoint is included in ViewPoint's proxy statement for its 2014 annual meeting of shareholders, which was filed with the SEC on April 11, 2014.  The directors, executive officers and certain other members of management and employees of LegacyTexas may also be deemed to be participants in the solicitation of proxies in favor of the Merger from the shareholders of LegacyTexas.  Information about the directors and executive officers of LegacyTexas is included in the proxy statement/prospectus for the Merger.