ViewPoint Financial Group, Inc. Reports Second Quarter 2013 Earnings, Advances Commercial Bank Strategy

PLANO, Texas, July 23, 2013 /PRNewswire/ -- ViewPoint Financial Group, Inc. (NASDAQ: VPFG) (the "Company"), the holding company for ViewPoint Bank, N.A. (the "Bank"), today announced net income of $8.2 million for the quarter ended June 30, 2013, an increase of $1.7 million, or 25.9%, from the quarter ended June 30, 2012. Compared to the first quarter of 2013, net income increased by $116,000, or 1.4%. Basic and diluted earnings per share increased $0.04 to $0.21 for the quarter ended June 30, 2013, from $0.17 for the quarter ended June 30, 2012, while earnings per share did not change on a linked quarter basis.

Second Quarter 2013 Results

• Solid commercial loan growth continues, driving shift in earning asset revenue: Our commercial loan portfolio, consisting of commercial real estate and commercial and industrial loans, totaled $1.3 billion at June 30, 2013, up $117.8 million, or 9.8%, from March 31, 2013, and up $359.5 million, or 37.5%, from June 30, 2012. Interest income on the commercial loan portfolio increased $3.6 million, or 24.9%, from the quarter ended June 30, 2012, representing a shift in earning asset revenue. Commercial loans generated 50.7% of the Company's interest income earned during the second quarter of 2013, compared to 40.8% of interest income earned during the same quarter in 2012.
• Net interest margin increased by ten basis points compared to the second quarter of 2012: Improvements in the earning asset mix and lower deposit and borrowing rates drove a ten basis point increase in the net interest margin to 3.72% for the three months ended June 30, 2013, compared to 3.62% for the same period in 2012.  Compared to the first quarter of 2013, the net interest margin increased by eight basis points, from 3.64% for the three months ended March 31, 2013.
• Asset quality improved, positively impacting earnings: During the second quarter of 2013, two commercial real estate loans that were classified as troubled debt restructurings were paid in full, resulting in the recovery of $480,000 of accumulated interest, as well as the recapture of $91,000 in allowance for loan losses that was previously allocated to these two loans. These transactions reduced troubled debt restructurings by $5.9 million, which includes a $2.5 million reduction in non-performing loans.
• Linked quarter increase in Warehouse Purchase Program loans: Warehouse Purchase Program loans totaled $904.2 million at June 30, 2013, up $146.8 million from March 31, 2013. Compared to June 30, 2012, balances declined by $4.3 million.

"I am very pleased with our quarter," said President and CEO Kevin Hanigan. "Our key ratios (NIM, Efficiency Ratio, ROA, and ROE) are all appreciably up from the second quarter of 2012, resulting in a 24% earnings per share increase that was fueled by a 38% increase in commercial loans."

Financial Highlights

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended June 30, 2013, was $30.4 million, a $1.3 million increase from the second quarter of 2012 and a $1.9 million increase from the first quarter of 2013. The increase from the second quarter of 2012 was primarily due to a $1.9 million increase in interest income on loans and a $1.1 million decrease in interest expense, partially offset by a $1.7 million decrease in interest income on securities. 

The increase in interest income on loans for the current quarter compared to the quarter ended June 30, 2012, was primarily due to an increase in the average balance of commercial loans, which increased by $367.4 million, or 40.4%. Additionally, the average balance of loans held for sale increased by $74.5 million compared to the second quarter of 2012. This increase was partially offset by the 43 basis point decline in the average yield on loans to 5.05% for the quarter ended June 30, 2013, from 5.48% for the same period in 2012.

The decrease in interest expense primarily reflects lower deposit and borrowing rates, as well as a decline in the average balance of interest-bearing liabilities for the quarter ended June 30, 2013, compared to the same quarter in 2012. Average interest-bearing liabilities decreased by $80.7 million to $2.47 billion for the quarter ended June 30, 2013, compared to $2.55 billion for the same period in 2012, while the average cost of interest-bearing liabilities declined by 14 basis points to 0.79% for the quarter ended June 30, 2013, compared to 0.93% for the same period in 2012. 

The average balance of securities declined by $295.7 million, or 30.3%, for the second quarter of 2013 compared to the same period in 2012, while the average yield on securities declined by 14 basis points for the comparable periods. The decline in the securities portfolio over the past year was primarily due to normal paydowns and the sale of securities that were not consistent with our portfolio requirements.

The increase in net interest income for the current period compared to the first quarter of 2013 was primarily due to a $1.8 million increase in interest income earned on loans, driven primarily by higher average balances in our commercial loan portfolio and loans held for sale. The average yield earned on the loan portfolio remained constant at 5.05% for the linked quarters and was positively impacted by the $480,000 interest recovery on two commercial real estate loans that were paid in full during the second quarter of 2013. Compared to the quarter ended March 31, 2013, the average balance of commercial loans increased by $155.1 million, or 13.8%, while the average balance of loans held for sale increased by $17.3 million for the quarter ended June 30, 2013, compared to the quarter ended March 31, 2013.

Interest income on the commercial loan portfolio increased $3.6 million, or 24.9%, for the quarter ended June 30, 2013, compared to the same quarter last year, representing a shift in earning asset revenue as we continue our commercial banking strategy. Commercial loans generated 50.7% of the Company's interest income earned during the second quarter of 2013, compared to 40.8% of interest income earned during the same quarter in 2012.

The net interest margin for the second quarter of 2013 was 3.72%, a ten basis point increase from the second quarter of 2012 and an eight basis point increase from the first quarter of 2013. Accretion of interest related to the Highlands acquisition contributed nine basis points to the net interest margin for the quarter ended June 30, 2013, compared to 11 basis points for the quarter ended March 31, 2013. The average yield on earning assets for the quarter ended June 30, 2013 was 4.32%, a four basis point decrease from the second quarter of 2012 and a five basis point increase from the first quarter of 2013. 

Non-interest Income

Non-interest income for the quarter ended June 30, 2013, was $5.7 million, a $2.8 million decrease from the second quarter of 2012 and a $116,000 decrease from the first quarter of 2013. The decrease from the second quarter of 2012 was primarily attributable to a $2.2 million gain on the sale of mortgage loans and a $1.8 million increase in the value of an investment in a community development-oriented private equity fund used for Community Reinvestment Act purposes recorded in 2012 with no comparable gains in the 2013 period. These gains were offset by an $818,000 goodwill impairment charge recorded in the second quarter of 2012 due to the sale of ViewPoint Mortgage ("VPM"), which closed in the third quarter of 2012. Also, offsetting the decline in non-interest income was a $500,000 increase in gain on sale and disposition of assets for the second quarter of 2013 compared to the same period last year, primarily due to gains on the disposition of purchased credit impaired loans (acquired from Highlands) during the second quarter of 2013, as well as write-offs of VPM assets recorded during the second quarter of 2012.

The decrease in non-interest income compared to the first quarter of 2013 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 recorded in the first quarter of 2013 with no comparable gain recorded in the second quarter of 2013, partially offset by a $477,000 increase in service charges and fees in the second quarter of 2013 compared to the first quarter of 2013. This increase in service charges and fees was primarily due to a $260,000 increase in commercial loan pre-payment penalty fee income.

Non-interest Expenses

Non-interest expense for the quarter ended June 30, 2013, was $21.7 million, a $4.6 million decrease from the second quarter of 2012 and an $830,000 increase from the first quarter of 2013. The decrease in non-interest expense compared to the second quarter of 2012 was primarily due to acquisition costs of $3.7 million reflected in the quarter ended June 30, 2012, with no comparable expense recorded in the same period in 2013, and a $1.6 million decrease in salary and benefits expense primarily due to savings resulting from the sale of VPM, as well as severance costs incurred during the second quarter of 2012 due to the Highlands acquisition and the sale of VPM. These decreases were partially offset by $400,000 in director retirement payments made during the second quarter of 2013, which are reflected in other non-interest expense.

The $830,000 increase in non-interest expense for the second quarter of 2013 compared to the first quarter of 2013 was primarily due to director retirement payments, as well as increases in advertising, data processing, and occupancy and equipment expense as the Company continues to make investments in its infrastructure to support its commercial banking strategy.

Financial Condition

Gross loans held for investment at June 30, 2013, increased by $89.5 million, or 5.1%, from March 31, 2013, and 14.7% from June 30, 2012. Loans held for sale at June 30, 2013 increased by $146.8 million, or 19.4%, from March 31, 2013. Compared to June 30, 2012, loans held for sale decreased by 2.3%. Commercial real estate balances at June 30, 2013, increased by $107.2 million, or 11.9%, from March 31, 2013, and 32.1% from June 30, 2012, while commercial and industrial loans at June 30, 2013, increased by $10.6 million, or 3.5%, from March 31, 2013, and 58.4% from June 30, 2012. 

Oil and gas loans, which are included in our commercial and industrial loans, totaled $57.5 million at June 30, 2013. To further develop this line of business, in May 2013, the Company announced the formation of a new energy lending group. The Energy Finance group will focus on providing loans to private and public oil and gas companies throughout the United States, with an emphasis on reserve-based transactions for development drilling, capital expenditures against oil and gas reserves, and acquisitions of oil and gas reserves. The group's offerings will also include the Bank's full array of commercial services, including Treasury Management and Letters of Credit. 

Total deposits decreased by $23.9 million, or 1.1%, to $2.19 billion at June 30, 2013, from $2.21 billion at March 31, 2013, which includes declines in all deposit categories except for time deposits. Compared to June 30, 2012, deposits decreased by $40.2 million, or 1.8%, which includes a $42.6 million increase in non-interest-bearing demand deposits that was offset by declines in interest-bearing demand and time deposits.

In line with our commercial banking strategy, commercial non-interest-bearing demand deposits totaled $248.4 million at June 30, 2013, compared to $212.3 million at June 30, 2012, and helped to generate $196,000 in billed analysis treasury management fee income during the six months ended June 30, 2013.

Total shareholders' equity increased by $2.5 million to $533.4 million at June 30, 2013, from $531.0 million at March 31, 2013.  The Company's tangible common equity ratio was 14.1% at June 30, 2013, a decrease of 85 basis points from March 31, 2013, and an increase of 114 basis points from June 30, 2012. During the quarter ended June 30, 2013, the Company repurchased 83,800 shares of its common stock, resulting in a $1.6 million reduction in equity. 

Credit Quality

Non-performing loans to total loans at June 30, 2013, was 1.30%, compared to 1.59%  at March 31, 2013, and 1.41% at June 30, 2012. Non-performing loans decreased by $3.9 million to $23.8 million at June 30, 2013, from $27.7 million at March 31, 2013. Non-performing loans increased by $1.2 million from June 30, 2012, primarily due to increases in commercial and industrial and consumer real estate non-performing loans, which were partially offset by a decrease in commercial real estate non-performing loans for the comparable periods. During the second quarter of 2013, two commercial real estate loans that were classified as substandard troubled debt restructurings were paid in full, resulting in the recovery of $480,000 of accumulated interest, as well as the recapture of $91,000 in allowance for loan losses that was previously allocated to these two loans. These transactions reduced troubled debt restructurings by $5.9 million, which includes a $2.5 million reduction in non-performing loans.

Net charge-offs totaled $1.2 million for the second quarter of 2013, compared to $292,000 for the first quarter of 2013 and $241,000 for the second quarter of 2012. Charge-offs for the second quarter of 2013 included charge-offs related to two commercial real estate loans that totaled $716,000, which settled the remaining balance of the loans. These two loans previously had $941,000 of reserves allocated, which resulted in a net reduction of reserves totaling $225,000.  Provision expense for the quarter ended June 30, 2013, totaled $1.9 million, up $411,000 from the quarter ended June 30, 2012, and up $975,000 from the quarter ended March 31, 2013, 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 quarter ended June 30, 2013, 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 June 30, 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, July 24, 2013, 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 #10030672. 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.