ViewPoint Financial Group, Inc. Reports Third Quarter 2013 Earnings

PLANO, Texas, Oct. 22, 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 September 30, 2013, a decrease of $3.1 million, or 27.4%, from the quarter ended September 30, 2012.  Compared to the second quarter of 2013, net income increased by $38,000, or 0.5%.  Basic earnings per share for the quarter ended September 30, 2013, increased $.01 on a linked quarter basis to $0.22.  Compared to the quarter ended September 30, 2012, basic earnings per share declined by $0.08. Diluted earnings per share for the quarter ended September 30, 2013, was $0.21.

Third Quarter 2013 Results

• Continued shift in earning asset revenue as commercial loan portfolio grows: Our commercial loan portfolio, consisting of commercial real estate and commercial and industrial ("C&I") loans, totaled $1.4 billion at September 30, 2013, up $392.2 million, or 37.5%, from September 30, 2012, and up $121.4 million, or 9.2%, from June 30, 2013. Interest income on the commercial loan portfolio increased $2.3 million, or 15.1%, from the quarter ended September 30, 2012, with commercial loans generating 51.8% of the Company's interest income during the third quarter of 2013, compared to 41.2% of interest income earned during the same quarter in 2012.
• Strong growth in energy lending portfolio: In May 2013, the Company formed its Energy Finance group, which provides loans to oil and gas companies throughout the United States.Oil and gas loans, which are included in our commercial and industrial loan portfolio, totaled $114.2 million at September 30, 2013, up from $57.5 million at June 30, 2013.
• Non-performing loans hit lowest level in eight quarters: Non-performing loans totaled $22.3 million at September 30, 2013, which is the lowest level in eight quarters. Net charge-offs for the quarter ended September 30, 2013 totaled $250,000, down from $1.2 million for the quarter ended June 30, 2013, and up $42,000 from the quarter ended September 30, 2012.
• Announced quarterly cash dividend of $0.12 per share, up 20% from prior quarter: The Company today announced a quarterly cash dividend of $0.12 per share, up $0.02, or 20%, from $0.10 per share in the prior quarter.

"I continue to be pleased with the results of our commercial banking strategy," said President and CEO Kevin Hanigan. "Once again, our commercial lending team produced solid loan growth, as well as increased valuable non-interest-bearing deposits. I'm also encouraged by the strong performance of our new Energy Finance group. We're in the right place, we've got the right team, and I'm excited about our future."

Financial Highlights

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended September 30, 2013, was $29.2 million, a $2.4 million decrease from the third quarter of 2012 and a $1.3 million decrease from the second quarter of 2013. The year-over-year decrease was primarily due to a $1.9 million decrease in interest income on loans and a $1.2 million decrease in interest income on securities, partially offset by a $702,000 decrease in interest expense. 

The decrease in interest income on loans from the quarter ended September 30, 2012, was primarily due to a $2.5 million decrease in interest income from loans held for sale, as well as a decline in yields earned on most loan portfolios.  The average balance of loans held for sale decreased by $200.9 million, or 22.7%, compared to the third quarter of 2012. (The 2012 period included $11.1 million in loans held for sale at our former mortgage subsidiary, ViewPoint Mortgage.) This decline was more than offset by a $376.0 million, or 38.8%, increase in the average balance of commercial loans. 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 94 and 135 basis points, respectively, from the third quarter of 2012. The average yield on loans decreased 44 basis points to 4.90% for the third quarter of 2013, compared to 5.34% for the third quarter of 2012.

The average balance of securities declined $274.8 million, or 30.0%, during the third quarter of 2013 compared to the same period in 2012, while the average yield on securities increased by five 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.

Third quarter 2013 interest expense decreased $702,000 from the 2012 third quarter, primarily due to a $449,000, or 17.9%, decrease in the interest paid on FHLB advances, and a $245,000, or 9.2%, decrease in interest paid on deposits. The average balances of FHLB advances and other borrowings declined by $276.3 million, or 32.0%, from the comparable prior year period, primarily due to lower Warehouse Purchase Program balances during the 2013 period, of which a portion was strategically funded with short-term advances. Additionally, the average rate paid on interest-bearing demand deposits declined by 22 basis points to 0.39% for the quarter ended September 30, 2013, from 0.61% for the quarter ended September 30, 2012.  Average interest-bearing liabilities decreased by $323.2 million to $2.4 billion for the quarter ended September 30, 2013, compared to $2.7 billion for the same period in 2012, while the average cost of interest-bearing liabilities declined by one basis point to 0.79% for the quarter ended September 30, 2013.

The decrease in net interest income for the current period compared to the second quarter of 2013 was primarily due to a $1.3 million decrease in interest income from loans, driven primarily by lower yields earned on most loan portfolios. A $67.3 million increase in the average balance of commercial loans compared to the second quarter of 2013 partially offset a $69.7 million decline in the average balance of loans held for sale.

The average yield on the loan portfolio decreased by 15 basis points from 5.05% for the second quarter of 2013. The yield on loans was negatively impacted in the third quarter of 2013 by $377,000 of interest income reversed in September 2013 on three non-performing commercial real estate loans that were sold at par in the same month. Conversely, the yield on loans was positively impacted in the second quarter of 2013 by a $480,000 interest recovery on two commercial real estate loans that were paid in full, $154,000 in deferred fees immediately amortized due to the early payoff of two C&I loans, and $109,000 in accretion related to a purchased credit impaired C&I loan that was paid in full.

The net interest margin for the third quarter of 2013 was 3.63%, a seven basis point decrease from the third quarter of 2012 and a nine basis point decrease from the second quarter of 2013. Accretion of interest related to the Highlands acquisition contributed seven basis points to the net interest margin for the quarter ended September 30, 2013, compared to nine basis points for the quarter ended June 30, 2013. The average yield on earning assets for the 2013 third quarter was 4.22%, a 12 basis point decrease from the third quarter of 2012 and a ten basis point decrease from the second quarter of 2013. 

Non-interest Income

Non-interest income for the quarter ended September 30, 2013, was $5.2 million, a $2.6 million decrease from the third quarter of 2012 and a $517,000 decrease from the second quarter of 2013. The decrease from the third quarter of 2012 was primarily attributable to a $1.0 million gain on the sale of mortgage loans and an $898,000 gain on the sale of available-for-sale securities recorded in 2012, with no comparable gains in the 2013 period.  The Company no longer sells one- to four- family real estate loans due to the sale of ViewPoint Mortgage in the third quarter of 2012.  Additionally, service charges and fees decreased $425,000 from the third quarter of 2012, primarily due to a decline in Warehouse Purchase Program collateral and wire fees, as well as $122,000 in ATM surcharge refunds, with no corresponding refunds in the 2012 period.  In the fourth quarter of 2012, the Company began offering ATM refunds on certain checking products.

The decrease in non-interest income from second quarter 2013 was primarily due to a $403,000 decrease in gain on sale and disposition of assets and a $308,000 decrease in service charges and fees. The decrease in gain on sale and disposition of assets was primarily due to gains on the disposition of purchased credit impaired loans (acquired from Highlands) during the second quarter of 2013, with no corresponding gains during the third quarter. The decrease in service charges and fees was primarily due to a $230,000 decline in commercial loan pre-payment penalty fee income, as well as a decline in Warehouse Purchase Program collateral and wire fees.

Non-interest Expenses

Non-interest expense for the quarter ended September 30, 2013, was $22.2 million, a $963,000 increase from the third quarter of 2012 and a $470,000 increase from the second quarter of 2013. The year-over-year increase in non-interest expense was primarily due to an $861,000 increase in salaries and employee benefits expense. This was partially offset by acquisition costs of $242,000 recognized in the 2012 period, with no corresponding costs in the 2013 period.  The increase in salaries and employee benefits expenses primarily reflected increased health benefit costs as well as an increase in share-based compensation expense for the comparable periods due to additional share-based grants in 2013 and a rise in the price of the Company's stock, which impacts expense amounts.

The $470,000 increase in non-interest expense from the second quarter of 2013 was primarily due to a $1.0 million increase in salaries and employee benefits expense, which was partially offset by a $302,000 decrease in other non-interest expense. The increase in salaries and employee benefits expense primarily reflected a $577,000 increase in health benefit costs and an approximate $244,000 increase due to new hires and an additional pay day in the third quarter of 2013. Also, salary and employee benefit costs increased by $122,000 due to higher share-based compensation expenses resulting from new grants and a rise in the Company's average stock price. Other non-interest expense decreased for the comparable quarters primarily due to $400,000 in director retirement payments made during the second quarter of 2013.

Financial Condition

Gross loans held for investment at September 30, 2013, increased by $98.5 million, or 5.4%, from June 30, 2013, and 17.1% from September 30, 2012. Loans held for sale at September 30, 2013, decreased by $264.2 million, or 29.2%, from June 30, 2013, and 36.9% from September 30, 2012.  Commercial real estate loan balances at September 30, 2013, increased by $43.7 million, or 4.4%, from June 30, 2013, and 31.9% from September 30, 2012, while commercial and industrial loans at September 30, 2013, increased by $77.7 million, or 24.8%, from June 30, 2013, and 54.9% from September 30, 2012. 

Oil and gas loans, which are included in our commercial and industrial loans, totaled $114.2 million at September 30, 2013, up from $57.5 million at June 30, 2013.  To further develop this line of business, the Company formed a new energy lending group in May 2013. The Energy Finance group focuses 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 also include the Bank's full array of commercial services, including Treasury Management and Letters of Credit. 

Total deposits increased by $58.8 million, or 2.7%, to $2.2 billion from June 30, 2013. The total reflects increases in all deposit categories except for interest-bearing demand deposits. Compared to September 30, 2012, deposits increased by $55.0 million, or 2.5%, which included a $51.3 million increase in non-interest-bearing demand deposits. Non-interest-bearing demand deposits totaled $401.1 million, or 17.8%, of total deposits at September 30, 2013, reaching a new high for the category.

In line with our commercial banking strategy, commercial non-interest-bearing demand deposits totaled $270.4 million at September 30, 2013, compared to $221.9 million at September 30, 2012, and helped to generate $315,000 in billed analysis treasury management fee income during the nine months ended September 30, 2013.

Total shareholders' equity increased by $6.7 million to $540.1 million at September 30, 2013, from $533.4 million at June 30, 2013.  The Company's tangible common equity ratio was 15.18% at September 30, 2013, an increase of 108 basis points from June 30, 2013, and 173 basis points from September 30, 2012. 

Credit Quality

The Company recorded a provision benefit of $158,000 for the quarter ended September 30, 2013, compared to a provision expense of $1.9 million for the 2013 second quarter and $814,000 for the quarter ended September 30, 2012. Non-performing loans to total loans at September 30, 2013, was 1.15%, compared to 1.30% at June 30, 2013, and 1.70% at September 30, 2012. Non-performing loans decreased by $1.5 million to $22.3 million at September 30, 2013, from $23.8 million at June 30, 2013, and decreased $5.8 million from $28.1 million at September 30, 2012. At September 30, 2013, non-performing loans were at their lowest level in eight 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 these three loans. 

Net charge-offs totaled $250,000 for the third quarter of 2013, compared to $1.2 million for the second quarter and $208,000 for the third quarter of 2012.  Second quarter charge-offs included $716,000 to settle the remaining balances of two commercial real estate loans.  We believe that our credit quality has continued to improve due to sound underwriting of new transactions, enhancements in loan oversight and improved economic conditions in our market area. 

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 September 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 September 30, 2013, and will adjust amounts preliminarily reported, if necessary.

On October 7, 2013, 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. We are currently evaluating the impact of the FFIEC Supplemental Instructions on our financial reporting.  If we were to change our consolidated balance sheet classification from loans held for sale to loans held for investment, the change would have no material impact in net income or the balance sheet. In addition, the activity from the program would be reclassified out of operating activities to investing activities within our consolidated statement of cash flows. 

Conference Call

The Company will also host an investor conference call to review these results on Wednesday, October 23, 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 #10030674. 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.