UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
OR
¨ | 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 001-34737
VIEWPOINT FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland | 6021 | 27-2176993 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
1309 W. 15th Street, Plano, Texas 75075
(972) 578-5000
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
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 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 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. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class: Common Stock | Shares Outstanding as of July 24, 2012: 39,368,167 |
VIEWPOINT FINANCIAL GROUP, INC.
FORM 10-Q
June 30, 2012
PART 1 FINANCIAL INFORMATION
VIEWPOINT FINANCIAL GROUP, INC.
(Dollar amounts in thousands, except share data)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Cash and due from financial institutions |
$ | 30,407 | $ | 16,661 | ||||
Short-term interest-bearing deposits in other financial institutions |
39,571 | 29,687 | ||||||
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|
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Total cash and cash equivalents |
69,978 | 46,348 | ||||||
Securities available for sale, at fair value |
467,515 | 433,745 | ||||||
Securities held to maturity (fair value: June 30, 2012 $447,698, December 31, 2011 $518,142) |
430,368 | 500,488 | ||||||
Loans held for sale (includes $10,161 and $16,607 carried at fair value at June 30, 2012, and December 31, 2011) |
925,637 | 834,352 | ||||||
Loans held for investment (net of allowance for loan losses of $19,229 at June 30, 2012 and $17,487 at December 31, 2011) |
1,581,734 | 1,211,057 | ||||||
FHLB and Federal Reserve Bank stock, at cost |
45,241 | 37,590 | ||||||
Bank-owned life insurance |
34,491 | 29,007 | ||||||
Foreclosed assets, net |
3,323 | 2,293 | ||||||
Premises and equipment, net |
53,725 | 50,261 | ||||||
Goodwill |
29,203 | 818 | ||||||
Accrued interest receivable |
9,784 | 8,982 | ||||||
Prepaid FDIC assessment |
5,719 | 4,967 | ||||||
Other assets |
36,138 | 20,670 | ||||||
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Total assets |
$ | 3,692,856 | $ | 3,180,578 | ||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Deposits |
||||||||
Non-interest-bearing demand |
$ | 342,228 | $ | 211,670 | ||||
Interest-bearing demand |
509,650 | 498,253 | ||||||
Savings and money market |
885,550 | 759,576 | ||||||
Time |
491,978 | 493,992 | ||||||
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Total deposits |
2,229,406 | 1,963,491 | ||||||
FHLB advances (net of prepayment penalty of $3,707 at June 30, 2012 and $4,222 at December 31, 2011) |
875,102 | 746,398 | ||||||
Repurchase agreements |
38,682 | 25,000 | ||||||
Accrued interest payable |
1,298 | 1,220 | ||||||
Other liabilities |
42,793 | 38,160 | ||||||
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Total liabilities |
3,187,281 | 2,774,269 | ||||||
Commitments and contingent liabilities |
| | ||||||
Shareholders equity |
||||||||
Preferred stock, $.01 par value; 10,000,000 shares authorized; |
||||||||
0 shares issued June 30, 2012 and December 31, 2011 |
| | ||||||
Common stock, $.01 par value; 90,000,000 shares authorized; |
||||||||
39,344,167 shares issued June 30, 2012 and 33,700,399 shares issued December 31, 2011 |
393 | 337 | ||||||
Additional paid-in capital |
367,938 | 279,473 | ||||||
Retained earnings |
153,722 | 144,535 | ||||||
Accumulated other comprehensive income, net |
2,171 | 1,347 | ||||||
Unearned Employee Stock Ownership Plan (ESOP) shares; 2,010,137 shares at June 30, 2012 and 2,102,234 shares at December 31, 2011 |
(18,649 | ) | (19,383 | ) | ||||
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Total shareholders equity |
505,575 | 406,309 | ||||||
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Total liabilities and shareholders equity |
$ | 3,692,856 | $ | 3,180,578 | ||||
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See accompanying notes to consolidated financial statements.
VIEWPOINT FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except share and per share data)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Interest and dividend income |
||||||||||||||||
Loans, including fees |
$ | 30,290 | $ | 20,833 | $ | 54,610 | $ | 41,294 | ||||||||
Taxable securities |
4,185 | 6,639 | 8,643 | 13,507 | ||||||||||||
Nontaxable securities |
473 | 473 | 946 | 946 | ||||||||||||
Interest-bearing deposits in other financial institutions |
38 | 28 | 57 | 100 | ||||||||||||
FHLB and Federal Reserve Bank stock |
141 | 13 | 247 | 34 | ||||||||||||
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35,127 | 27,986 | 64,503 | 55,881 | |||||||||||||
Interest expense |
||||||||||||||||
Deposits |
3,247 | 6,260 | 6,476 | 12,343 | ||||||||||||
FHLB advances |
2,415 | 2,407 | 4,869 | 4,893 | ||||||||||||
Repurchase agreements |
251 | 204 | 454 | 405 | ||||||||||||
Other borrowings |
28 | 150 | 28 | 298 | ||||||||||||
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5,941 | 9,021 | 11,827 | 17,939 | |||||||||||||
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Net interest income |
29,186 | 18,965 | 52,676 | 37,942 | ||||||||||||
Provision for loan losses |
1,447 | 1,065 | 2,342 | 2,160 | ||||||||||||
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Net interest income after provision for loan losses |
27,739 | 17,900 | 50,334 | 35,782 | ||||||||||||
Non-interest income |
||||||||||||||||
Service charges and fees |
4,827 | 4,721 | 9,065 | 9,368 | ||||||||||||
Other charges and fees |
165 | 225 | 293 | 400 | ||||||||||||
Net gain on sale of mortgage loans |
2,174 | 1,879 | 4,406 | 3,828 | ||||||||||||
Bank-owned life insurance income |
165 | 167 | 274 | 285 | ||||||||||||
Gain on sale of available for sale securities |
116 | | 116 | 3,415 | ||||||||||||
Loss on sale and disposition of assets |
(56 | ) | (6 | ) | (137 | ) | (216 | ) | ||||||||
Impairment of goodwill |
(818 | ) | (271 | ) | (818 | ) | (271 | ) | ||||||||
Other |
1,940 | 921 | 2,044 | 1,294 | ||||||||||||
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8,513 | 7,636 | 15,243 | 18,103 | |||||||||||||
Non-interest expense |
||||||||||||||||
Salaries and employee benefits |
14,110 | 11,542 | 25,834 | 23,396 | ||||||||||||
Acquisition costs |
3,741 | | 3,885 | | ||||||||||||
Advertising |
490 | 510 | 775 | 866 | ||||||||||||
Occupancy and equipment |
1,952 | 1,399 | 3,422 | 2,822 | ||||||||||||
Outside professional services |
691 | 704 | 1,174 | 1,357 | ||||||||||||
Regulatory assessments |
624 | 498 | 1,205 | 1,457 | ||||||||||||
Data processing |
1,617 | 1,129 | 2,862 | 2,198 | ||||||||||||
Office operations |
1,934 | 1,477 | 3,479 | 2,931 | ||||||||||||
Other |
1,164 | 1,009 | 2,139 | 2,102 | ||||||||||||
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26,323 | 18,268 | 44,775 | 37,129 | |||||||||||||
Income before income tax expense |
9,929 | 7,268 | 20,802 | 16,756 | ||||||||||||
Income tax expense |
3,437 | 2,411 | 7,238 | 5,345 | ||||||||||||
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Net income |
$ | 6,492 | $ | 4,857 | $ | 13,564 | $ | 11,411 | ||||||||
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Earnings per share: |
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Basic |
$ | 0.17 | $ | 0.15 | $ | 0.39 | $ | 0.35 | ||||||||
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Diluted |
$ | 0.17 | $ | 0.15 | $ | 0.39 | $ | 0.35 | ||||||||
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See accompanying notes to consolidated financial statements.
2
VIEWPOINT FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income |
$ | 6,492 | $ | 4,857 | $ | 13,564 | $ | 11,411 | ||||||||
Change in unrealized gains on securities available for sale |
1,064 | 4,672 | 1,396 | 3,995 | ||||||||||||
Reclassification of amount realized through sale of securities |
(116 | ) | | (116 | ) | (3,415 | ) | |||||||||
Tax effect |
(338 | ) | (1,666 | ) | (456 | ) | (207 | ) | ||||||||
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Other comprehensive income, net of tax |
610 | 3,006 | 824 | 373 | ||||||||||||
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Comprehensive income |
$ | 7,102 | $ | 7,863 | $ | 14,388 | $ | 11,784 | ||||||||
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See accompanying notes to consolidated financial statements
3
VIEWPOINT FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited)
(Dollar amounts in thousands, except share and per share data)
Common Stock |
Additional Paid-In Capital |
Unearned ESOP Shares |
Retained Earnings |
Accumulated Other Comprehensive Income |
Total Shareholders Equity |
|||||||||||||||||||
For the six months ended June 30, 2011 |
||||||||||||||||||||||||
Balance at January 1, 2011 |
$ | 349 | $ | 289,591 | $ | (20,849 | ) | $ | 125,125 | $ | 2,373 | $ | 396,589 | |||||||||||
ESOP shares earned, 92,097 shares |
| 447 | 733 | | | 1,180 | ||||||||||||||||||
Share-based compensation |
| 937 | | | | 937 | ||||||||||||||||||
Dividends declared ($0.10 per share) |
| | | (3,484 | ) | | (3,484 | ) | ||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
| | | 11,411 | | 11,411 | ||||||||||||||||||
Change in unrealized gains on securities available for sale, net of reclassifications and taxes |
| | | | 373 | 373 | ||||||||||||||||||
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Total comprehensive income |
11,784 | |||||||||||||||||||||||
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Balance at June 30, 2011 |
$ | 349 | $ | 290,975 | $ | (20,116 | ) | $ | 133,052 | $ | 2,746 | $ | 407,006 | |||||||||||
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For the six months ended June 30, 2012 |
||||||||||||||||||||||||
Balance at January 1, 2012 |
$ | 337 | $ | 279,473 | $ | (19,383 | ) | $ | 144,535 | $ | 1,347 | $ | 406,309 | |||||||||||
ESOP shares earned, 92,097 shares |
| 653 | 734 | | | 1,387 | ||||||||||||||||||
Share-based compensation expense |
| 1,039 | | | | 1,039 | ||||||||||||||||||
Exercise of stock options (58,621 shares) |
1 | 714 | | | | 715 | ||||||||||||||||||
Dividends declared ($0.12 per share) |
| | | (4,377 | ) | | (4,377 | ) | ||||||||||||||||
Acquisition of Highlands Bancshares, Inc. |
55 | 86,059 | | | | 86,114 | ||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
| | | 13,564 | | 13,564 | ||||||||||||||||||
Change in unrealized gains on securities available for sale, net of reclassifications and taxes |
| | | | 824 | 824 | ||||||||||||||||||
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Total comprehensive income |
14,388 | |||||||||||||||||||||||
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Balance at June 30, 2012 |
$ | 393 | $ | 367,938 | $ | (18,649 | ) | $ | 153,722 | $ | 2,171 | $ | 505,575 | |||||||||||
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See accompanying notes to consolidated financial statements.
4
VIEWPOINT FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities |
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Net income |
$ | 13,564 | $ | 11,411 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
2,342 | 2,160 | ||||||
Depreciation and amortization |
1,737 | 1,756 | ||||||
Deferred tax expense (benefit) |
2,406 | 140 | ||||||
Premium amortization and accretion of securities, net |
2,723 | 2,321 | ||||||
Accretion of loan purchase discount |
(1,382 | ) | | |||||
Gain on sale of available for sale securities |
(116 | ) | (3,415 | ) | ||||
ESOP compensation expense |
1,387 | 1,180 | ||||||
Share-based compensation |
1,039 | 937 | ||||||
Net gain on loans held for sale |
(4,406 | ) | (3,828 | ) | ||||
Loans originated or purchased for sale |
(6,420,681 | ) | (3,404,976 | ) | ||||
Proceeds from sale of loans held for sale |
6,333,802 | 3,480,172 | ||||||
FHLB stock dividends |
(58 | ) | (34 | ) | ||||
Bank-owned life insurance (BOLI) income |
(274 | ) | (285 | ) | ||||
Loss (gain) on sale and disposition of assets |
137 | 72 | ||||||
Impairment of goodwill |
818 | 271 | ||||||
Net change in deferred loan fees |
109 | (319 | ) | |||||
Net change in accrued interest receivable |
909 | 770 | ||||||
Net change in other assets |
(2,787 | ) | 1,829 | |||||
Net change in other liabilities |
1,138 | 12,536 | ||||||
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Net cash provided by (used in) operating activities |
(67,593 | ) | 102,698 | |||||
Cash flows from investing activities |
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Available-for-sale securities: |
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Maturities, prepayments and calls |
353,732 | 72,671 | ||||||
Purchases |
(316,139 | ) | (129,232 | ) | ||||
Proceeds from sale of AFS securities |
15,165 | 93,008 | ||||||
Held-to-maturity securities: |
||||||||
Maturities, prepayments and calls |
68,600 | 41,678 | ||||||
Purchases |
| (155,260 | ) | |||||
Net change in loans held for investment |
(88,675 | ) | (40,525 | ) | ||||
Redemption/(purchase) of FHLB and Federal Reserve Bank stock |
(5,124 | ) | 2,251 | |||||
Cash and cash equivalents acquired in acquisition of Highlands Bancshares, Inc. |
98,469 | | ||||||
Purchases of premises and equipment |
(874 | ) | (1,039 | ) | ||||
Proceeds from sale of assets |
2,106 | 682 | ||||||
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Net cash provided by (used in) investing activities |
127,260 | (115,766 | ) | |||||
Cash flows from financing activities |
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Net change in deposits |
(112,549 | ) | 53,344 | |||||
Proceeds from FHLB advances |
601,000 | 153,000 | ||||||
Repayments on FHLB advances |
(472,296 | ) | (207,617 | ) | ||||
Repayments of borrowings |
(48,530 | ) | | |||||
Payment of dividends |
(4,377 | ) | (3,484 | ) | ||||
Proceeds from stock option exercises |
715 | | ||||||
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Net cash used in financing activities |
(36,037 | ) | (4,757 | ) | ||||
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Net change in cash and cash equivalents |
23,630 | (17,825 | ) | |||||
Beginning cash and cash equivalents |
46,348 | 68,650 | ||||||
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Ending cash and cash equivalents |
$ | 69,978 | $ | 50,825 | ||||
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Supplemental cash flow information: |
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Interest paid |
$ | 11,749 | $ | 18,025 | ||||
Income taxes paid |
$ | 9,790 | $ | 5,880 | ||||
Supplemental noncash disclosures: |
||||||||
Transfers from loans to other real estate owned |
$ | 997 | $ | 521 | ||||
Net noncash liabilities assumed in stock acquisition of Highlands Bancshares, Inc. |
$ | 12,355 | $ | |
See accompanying notes to consolidated financial statements.
5
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 1 BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements of ViewPoint Financial Group, Inc. (the Company) have been prepared in accordance with U.S. generally accepted accounting principles and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all normal and recurring adjustments which are considered necessary to fairly present the results for the interim periods presented have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in ViewPoint Financial Group, Inc.s 2011 Annual Report on Form 10-K (2011 Form 10-K). Interim results are not necessarily indicative of results for a full year.
In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from those estimates. For further information with respect to significant accounting policies followed by the Company in preparation of its consolidated financial statements, refer to the 2011 Form 10-K.
The accompanying Unaudited Consolidated Interim Financial Statements include the accounts of ViewPoint Financial Group, Inc., whose business primarily consists of the operations of its wholly owned subsidiary, ViewPoint Bank, National Association (the Bank). The Banks operations include its wholly owned subsidiary, ViewPoint Bankers Mortgage, Inc., doing business as ViewPoint Mortgage (VPM). All significant intercompany transactions and balances are eliminated in consolidation.
NOTE 2 EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock, or resulted in the issuance of common stock that then shared in the Companys earnings. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested restricted stock awards. The dilutive effect of the unexercised stock options and unvested restricted stock awards is calculated under the treasury stock method utilizing the average market value of the Companys stock for the period. Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method described in Accounting Standards Codification (ASC) 260-10-45-60B. A reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation for the three and six months ended June 30, 2012 and 2011 is as follows:
6
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 2 EARNINGS PER COMMON SHARE (Continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Basic earnings per share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net income |
$ | 6,492 | $ | 4,857 | $ | 13,564 | $ | 11,411 | ||||||||
Distributed and undistributed earnings to participating securities |
(10 | ) | (25 | ) | (25 | ) | (67 | ) | ||||||||
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Income available to common shareholders |
$ | 6,482 | $ | 4,832 | $ | 13,539 | $ | 11,344 | ||||||||
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Denominator: |
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Weighted average common shares outstanding |
39,215,084 | 34,839,491 | 36,458,007 | 34,839,491 | ||||||||||||
Less: Average unallocated ESOP shares |
(2,040,330 | ) | (2,224,524 | ) | (2,063,354 | ) | (2,247,419 | ) | ||||||||
Average unvested restricted stock awards |
(58,432 | ) | (169,440 | ) | (63,617 | ) | (192,389 | ) | ||||||||
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Average shares for basic earnings per share |
37,116,322 | 32,445,527 | 34,331,036 | 32,399,683 | ||||||||||||
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Basic earnings per common share |
$ | 0.17 | $ | 0.15 | $ | 0.39 | $ | 0.35 | ||||||||
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Diluted earnings per share: |
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Numerator: |
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Income available to common shareholders |
$ | 6,482 | $ | 4,832 | $ | 13,539 | $ | 11,344 | ||||||||
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Denominator: |
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Average shares for basic earnings per share |
37,116,322 | 32,445,527 | 34,331,036 | 32,399,683 | ||||||||||||
Dilutive effect of share-based awards |
119,891 | 64,607 | 118,598 | 71,678 | ||||||||||||
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Average shares for diluted earnings per share |
37,236,213 | 32,510,134 | 34,449,634 | 32,471,361 | ||||||||||||
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|
|
|
|||||||||
Diluted earnings per common share |
$ | 0.17 | $ | 0.15 | $ | 0.39 | $ | 0.35 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Anti-dilutive share-based awards excluded from calculation |
209,671 | 553,475 | 252,521 | 553,475 |
NOTE 3 ACQUISITION
On April 2, 2012, the Company completed its acquisition of Highlands Bancshares, Inc. (Highlands), parent company of The First National Bank of Jacksboro, which operated in Dallas under the name Highlands Bank. This was a strategic, in-market acquisition to provide growth opportunities in North Texas. As part of the acquisition, Highlands President and CEO Kevin Hanigan joined the Company and the Bank as president and chief executive officer. He also was appointed to the Companys and the Banks Board of Directors, along with Highlands board member Bruce Hunt.
In this stock-for-stock transaction, Highlands shareholders received 0.6636 shares of the Companys common stock in exchange for each share of Highlands common stock. As a result, the Company issued 5,513,061 common shares with an acquisition date fair value of total consideration paid of $86,114, based on the Companys closing stock price of $15.62 on April 2, 2012 including an insignificant amount of cash paid in lieu of fractional shares.
The assets acquired and liabilities assumed were recorded on the consolidated balance sheet at estimated fair value on the acquisition date. Pending further review and analysis of tangible and intangible asset valuation and receipt of final valuations, the purchase price allocation may change. The acquisition was not considered to be a significant business combination. The following table presents the amounts recorded on the consolidated balance sheet on the acquisition date.
7
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 3 ACQUISITION (Continued)
Initial Allocation | ||||
Fair value of total consideration paid: |
||||
Common stock issued (5,513,061 shares) |
$ | 86,114 | ||
|
|
|||
Fair value of identifiable assets acquired: |
||||
Cash and cash equivalents |
98,469 | |||
Securities |
86,335 | |||
Loans |
284,068 | |||
Premises and equipment |
4,916 | |||
Core deposit intangible |
1,745 | |||
Other assets |
25,591 | |||
|
|
|||
Total identifiable assets acquired |
501,124 | |||
Fair value of liabilities assumed: |
||||
Deposits |
378,464 | |||
Borrowings |
62,632 | |||
Other liabilities |
3,117 | |||
|
|
|||
Total liabilities assumed |
444,213 | |||
|
|
|||
Fair value of net identifiable assets acquired |
56,911 | |||
|
|
|||
Goodwill resulting from acquisition |
$ | 29,203 | ||
|
|
Initial goodwill of $29,203 was recorded after adjusting for the fair value of net identifiable assets acquired. The goodwill resulting from the acquisition represents the inherent long-term value expected from the business opportunities created from acquiring Highlands. None of the goodwill recognized will be deductible for income tax purposes. The core deposit intangible is being amortized on a sum-of-years-digits basis over the estimated life, currently expected to be seven years.
In connection with the acquisition of Highlands, the Company acquired loans both with and without evidence of credit deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable the Company would not be able to collect all contractual amounts due were accounted for as purchased credit-impaired (PCI). The Company aggregated the acquired PCI loans into a pool of loans and the portfolio was accounted for at estimated fair value on the acquisition date as follows:
Acquired PCI loans | ||||
Contractually required principal and interest 1 |
$ | 29,408 | ||
Contractual cash flows not expected to be collected (nonaccretable difference) |
5,366 | |||
|
|
|||
Expected cash flows |
24,042 | |||
Less: Interest component of expected cash flows (accretable yield) |
9,322 | |||
|
|
|||
Fair value at acquisition |
$ | 14,720 | ||
|
|
1 Excludes loans fully charged off prior to acquisition date with no expectation of future cash flows.
8
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
The Company estimated the total cash flows expected to be collected from the pool of acquired PCI loans, which included undiscounted expected principal and interest, using credit risk, interest rate and prepayment risk models that incorporated managements best estimate of current key assumptions such as default rates, loss severity and payment speeds.
9
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 3 ACQUISITION (Continued)
The carrying amount of acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at June 30, 2012, was as follows. The outstanding balance represents the total amount owed as of June 30, 2012, including accrued but unpaid interest and any amounts previously charged-off. No allowance for loan losses was required on the acquired PCI loan pool at June 30, 2012.
June 30, 2012 | ||||
Acquired PCI loans: |
||||
Carrying amount |
$ | 12,614 | ||
Outstanding contractual balance |
17,239 |
Changes in the accretable yield for acquired PCI loans for the three and six months ended June 30, 2012 were as follows:
Three and Six Months | ||||
Ended June 30, 2012 | ||||
Balance at beginning of period |
$ | | ||
Additions |
9,322 | |||
Reclassifications from nonaccretable |
771 | |||
Disposals of loans |
(35 | ) | ||
Accretion |
(463 | ) | ||
|
|
|||
Balance at June 30, 2012 |
$ | 9,595 | ||
|
|
Information regarding acquired loans not deemed credit-impaired at acquisition date was as follows:
Nonimpaired loans | ||||
Contractually required principal and interest |
$ | 306,941 | ||
Contractual cash flows not expected to be collected |
$ | 7,216 | ||
Fair value at acquisition |
$ | 269,348 |
The following table summarized changes in the purchase discount for acquired loans not deemed credit-impaired at acquisition for the three- and six-month periods ended June 30, 2012:
Three and Six Months | ||||
Ended June 30, 2012 | ||||
Balance at beginning of period |
$ | | ||
Additions |
7,726 | |||
Disposals of loans |
(771 | ) | ||
Accretion |
(918 | ) | ||
|
|
|||
Balance at June 30, 2012 |
$ | 6,037 | ||
|
|
10
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 4 SECURITIES
The fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss), net of tax, were as follows:
June 30, 2012 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
Agency bonds |
$ | 2,007 | $ | 3 | $ | | $ | 2,010 | ||||||||
Agency residential mortgage-backed securities |
198,189 | 2,142 | 118 | 200,213 | ||||||||||||
Agency residential collateralized mortgage obligations |
260,227 | 1,762 | 529 | 261,460 | ||||||||||||
SBA pools |
3,719 | 113 | | 3,832 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities |
$ | 464,142 | $ | 4,020 | $ | 647 | $ | 467,515 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
Agency residential mortgage-backed securities |
$ | 133,907 | $ | 1,125 | $ | 179 | $ | 134,853 | ||||||||
Agency residential collateralized mortgage obligations |
293,584 | 1,676 | 590 | 294,670 | ||||||||||||
SBA pools |
4,161 | 61 | | 4,222 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities |
$ | 431,652 | $ | 2,862 | $ | 769 | $ | 433,745 | ||||||||
|
|
|
|
|
|
|
|
The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows:
June 30, 2012 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
Agency residential mortgage-backed securities |
$ | 141,057 | $ | 7,251 | $ | | $ | 148,308 | ||||||||
Agency commercial mortgage-backed securities |
9,320 | 1,047 | | 10,367 | ||||||||||||
Agency residential collateralized mortgage obligations |
229,526 | 4,379 | 226 | 233,679 | ||||||||||||
Municipal bonds |
50,465 | 4,879 | | 55,344 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities |
$ | 430,368 | $ | 17,556 | $ | 226 | $ | 447,698 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
Agency residential mortgage-backed securities |
$ | 171,103 | $ | 7,501 | $ | 23 | $ | 178,581 | ||||||||
Agency commercial mortgage-backed securities |
9,396 | 742 | | 10,138 | ||||||||||||
Agency residential collateralized mortgage obligations |
269,516 | 4,712 | 218 | 274,010 | ||||||||||||
Municipal bonds |
50,473 | 4,940 | | 55,413 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities |
$ | 500,488 | $ | 17,895 | $ | 241 | $ | 518,142 | ||||||||
|
|
|
|
|
|
|
|
11
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 4 SECURITIES (Continued)
The carrying amount and fair value of held to maturity debt securities and the fair value of available-for-sale debt securities at June 30, 2012, by contractual maturity were as follows. Securities with contractual payments not due at a single maturity date, including mortgage-backed securities and collateralized mortgage obligations, are shown separately.
Held to maturity | Available for sale |
|||||||||||
Carrying Amount |
Fair Value | Fair Value | ||||||||||
Due from one to five years |
$ | 5,397 | $ | 5,812 | $ | | ||||||
Due from five to ten years |
11,888 | 13,081 | 5,842 | |||||||||
Due after ten years |
33,180 | 36,451 | | |||||||||
Agency residential mortgage-backed securities |
141,057 | 148,308 | 200,213 | |||||||||
Agency commercial mortgage-backed securities |
9,320 | 10,367 | | |||||||||
Agency residential collateralized mortgage obligations |
229,526 | 233,679 | 261,460 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 430,368 | $ | 447,698 | $ | 467,515 | ||||||
|
|
|
|
|
|
Sales activity during the three and six months ended June 30, 2012 and 2011 is summarized below. The specific identification method was used to determine cost in order to compute the realized gains.
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Proceeds from sales activity |
$ | 15,165 | $ | | $ | 15,165 | $ | 93,008 | ||||||||
Gross gains from sales activity |
116 | | 116 | 3,415 |
Information regarding pledged securities is summarized below.
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Public fund certificates |
$ | 152,281 | $ | 236,933 | ||||
Repurchase agreements |
38,682 | 25,000 | ||||||
Carrying value of securities pledged on above funds |
211,393 | 300,820 |
12
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 4 SECURITIES (Continued)
Securities with unrealized losses at June 30, 2012, and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
AFS | Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
June 30, 2012 |
Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | |||||||||||||||||||||||||||
Agency residential mortgage-backed securities |
$ | 30,781 | $ | 117 | 5 | $ | 1,288 | $ | 1 | 1 | $ | 32,069 | $ | 118 | 6 | |||||||||||||||||||||
Agency residential collateralized mortgage obligations |
21,332 | 394 | 4 | 26,464 | 135 | 12 | 47,796 | 529 | 16 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired |
$ | 52,113 | $ | 511 | 9 | $ | 27,752 | $ | 136 | 13 | $ | 79,865 | $ | 647 | 22 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
HTM | Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
June 30, 2012 |
Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | |||||||||||||||||||||||||||
Agency residential mortgage-backed securities |
$ | | $ | | | $ | | $ | | | $ | | $ | | | |||||||||||||||||||||
Agency residential collateralized mortgage obligations |
20,119 | 105 | 6 | 2,119 | 121 | 1 | 22,238 | 226 | 7 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired |
$ | 20,119 | $ | 105 | 6 | $ | 2,119 | $ | 121 | 1 | $ | 22,238 | $ | 226 | 7 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
AFS | Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
December 31, 2011 |
Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | |||||||||||||||||||||||||||
Agency residential mortgage-backed securities |
$ | 11,745 | $ | 24 | 4 | $ | 30,248 | $ | 155 | 5 | $ | 41,993 | $ | 179 | 9 | |||||||||||||||||||||
Agency residential collateralized mortgage obligations |
49,318 | 393 | 9 | 29,635 | 197 | 12 | 78,953 | 590 | 21 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired |
$ | 61,063 | $ | 417 | 13 | $ | 59,883 | $ | 352 | 17 | $ | 120,946 | $ | 769 | 30 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
HTM | Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
December 31, 2011 |
Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | Fair Value | Unrealized Loss |
Number | |||||||||||||||||||||||||||
Agency residential mortgage-backed securities |
$ | 5,897 | $ | 23 | 1 | $ | | $ | | | $ | 5,897 | $ | 23 | 1 | |||||||||||||||||||||
Agency residential collateralized mortgage obligations |
27,390 | 66 | 6 | 3,788 | 152 | 1 | 31,178 | 218 | 7 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired |
$ | 33,287 | $ | 89 | 7 | $ | 3,788 | $ | 152 | 1 | $ | 37,075 | $ | 241 | 8 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses at June 30, 2012, and December 31, 2011, were substantially due to changes in market interest rates since the date of purchase that adversely affected the market values of those securities. The unrealized losses were not due to credit impairment. The Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be maturity.
13
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS
Loans consist of the following:
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Real estate loans: |
||||||||
One- to four-family |
$ | 435,486 | $ | 379,944 | ||||
Commercial |
760,609 | 585,328 | ||||||
Home equity/home improvement |
144,147 | 140,966 | ||||||
|
|
|
|
|||||
Total real estate loans |
1,340,242 | 1,106,238 | ||||||
Consumer loans: |
||||||||
Automobile |
37,376 | 33,027 | ||||||
Other consumer |
25,267 | 18,143 | ||||||
|
|
|
|
|||||
Total consumer loans |
62,643 | 51,170 | ||||||
Commercial and industrial |
197,671 | 70,620 | ||||||
Gross loans |
1,600,556 | 1,228,028 | ||||||
Deferred loan origination fees, net |
407 | 516 | ||||||
Allowance for loan losses |
(19,229 | ) | (17,487 | ) | ||||
|
|
|
|
|||||
Net loans held for investment |
$ | 1,581,734 | $ | 1,211,057 | ||||
|
|
|
|
|||||
Mortgage loans held for sale: |
||||||||
ViewPoint Mortgage |
$ | 17,083 | $ | 33,417 | ||||
Warehouse Purchase Program |
908,554 | 800,935 | ||||||
|
|
|
|
|||||
Total mortgage loans held for sale |
$ | 925,637 | $ | 834,352 | ||||
|
|
|
|
14
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
Activity in the allowance for loan losses for the three and six months ended June 30, 2012 and 2011, segregated by portfolio segment and evaluated for impairment, was as follows. Allowance for loan losses for construction loans have been included in the one- to four-family and commercial real estate line items, as appropriate.
Three Months Ended June 30, 2012 |
One-to Four- Family |
Home Equity/Home Improvement |
Commercial Real Estate |
Commercial and Industrial |
Consumer | Total | ||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Beginning balanceApril 1, 2012 |
$ | 3,009 | $ | 1,014 | $ | 11,182 | $ | 2,164 | $ | 654 | $ | 18,023 | ||||||||||||
Charge-offs |
(62 | ) | (64 | ) | | (22 | ) | (210 | ) | (358 | ) | |||||||||||||
Recoveries |
5 | 1 | | 12 | 99 | 117 | ||||||||||||||||||
Provision expense |
124 | 235 | 736 | 213 | 139 | 1,447 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balanceJune 30, 2012 |
$ | 3,076 | $ | 1,186 | $ | 11,918 | $ | 2,367 | $ | 682 | $ | 19,229 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Six Months Ended June 30, 2012 |
One-to Four- Family |
Home Equity/Home Improvement |
Commercial Real Estate |
Commercial and Industrial |
Consumer | Total | ||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Beginning balanceJanuary 1, 2012 |
$ | 3,027 | $ | 1,043 | $ | 10,621 | $ | 2,090 | $ | 706 | $ | 17,487 | ||||||||||||
Charge-offs |
(146 | ) | (64 | ) | | (237 | ) | (407 | ) | (854 | ) | |||||||||||||
Recoveries |
12 | 1 | | 35 | 206 | 254 | ||||||||||||||||||
Provision expense |
183 | 206 | 1,297 | 479 | 177 | 2,342 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balanceJune 30, 2012 |
$ | 3,076 | $ | 1,186 | $ | 11,918 | $ | 2,367 | $ | 682 | $ | 19,229 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 566 | $ | 278 | $ | 2,453 | $ | 135 | $ | 10 | $ | 3,442 | ||||||||||||
Collectively evaluated for impairment |
2,510 | 908 | 9,465 | 2,232 | 672 | 15,787 | ||||||||||||||||||
Loans: |
||||||||||||||||||||||||
Individually evaluated for impairment |
4,639 | 1,156 | 19,465 | 378 | 115 | 25,753 | ||||||||||||||||||
Collectively evaluated for impairment |
429,368 | 142,991 | 733,347 | 194,334 | 62,149 | 1,562,189 | ||||||||||||||||||
PCI Loans |
1,479 | | 7,797 | 2,959 | 379 | 12,614 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 435,486 | $ | 144,147 | $ | 760,609 | $ | 197,671 | $ | 62,643 | $ | 1,600,556 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
15
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
Three Months Ended June 30, 2011 |
One-to Four- Family |
Home Equity/Home Improvement |
Commercial Real Estate |
Commercial and Industrial |
Consumer | Total | ||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Beginning balanceApril 1, 2011 |
$ | 3,220 | $ | 893 | $ | 8,668 | $ | 1,845 | $ | 868 | $ | 15,494 | ||||||||||||
Charge-offs |
(62 | ) | (61 | ) | | (154 | ) | (250 | ) | (527 | ) | |||||||||||||
Recoveries |
7 | | | 13 | 107 | 127 | ||||||||||||||||||
Provision expense |
(142 | ) | 41 | 891 | 193 | 82 | 1,065 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balanceJune 30, 2011 |
$ | 3,023 | $ | 873 | $ | 9,559 | $ | 1,897 | $ | 807 | $ | 16,159 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Six Months Ended June 30, 2011 |
One-to Four- Family |
Home Equity/Home Improvement |
Commercial Real Estate |
Commercial and Industrial |
Consumer | Total | ||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Beginning balanceJanuary 1, 2011 |
$ | 3,307 | $ | 936 | $ | 7,949 | $ | 1,652 | $ | 1,003 | $ | 14,847 | ||||||||||||
Charge-offs |
(74 | ) | (138 | ) | (15 | ) | (342 | ) | (531 | ) | (1,100 | ) | ||||||||||||
Recoveries |
23 | | 27 | 17 | 185 | 252 | ||||||||||||||||||
Provision expense |
(233 | ) | 75 | 1,598 | 570 | 150 | 2,160 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balanceJune 30, 2011 |
$ | 3,023 | $ | 873 | $ | 9,559 | $ | 1,897 | $ | 807 | $ | 16,159 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 609 | $ | 101 | $ | 1,600 | $ | 51 | $ | 9 | $ | 2,370 | ||||||||||||
Collectively evaluated for impairment |
2,414 | 772 | 7,959 | 1,846 | 798 | 13,789 | ||||||||||||||||||
Loans: |
||||||||||||||||||||||||
Individually evaluated for impairment |
5,564 | 1,292 | 11,556 | 266 | 79 | 18,757 | ||||||||||||||||||
Collectively evaluated for impairment |
379,894 | 141,036 | 510,292 | 44,175 | 52,036 | 1,127,433 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 385,458 | $ | 142,328 | $ | 521,848 | $ | 44,441 | $ | 52,115 | $ | 1,146,190 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
16
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
The allowance for loan losses and related provision expense are susceptible to change if the credit quality of our loan portfolio changes, which is evidenced by many factors, including but not limited to charge-offs and non-performing loan trends. Generally, one- to four-family residential real estate lending has a lower credit risk profile compared to consumer lending (such as automobile or personal line of credit loans). Commercial real estate and commercial and industrial lending, however, have higher credit risk profiles than consumer and one- to four- family residential real estate loans due to these loans being larger in amount and non-homogenous in structure and term. Changes in economic conditions, the mix and size of the loan portfolio and individual borrower conditions can dramatically impact our level of allowance for loan losses in relatively short periods of time.
Management evaluates current information and events regarding a borrower's ability to repay its obligations and considers a loan to be impaired when the ultimate collectability of amounts due, according to the contractual terms of the loan agreement, is in doubt. If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated cost to sell, is used to determine the amount of impairment. If an impaired loan is not collateral-dependent, the impairment amount is determined using the negative difference, if any, between the estimated discounted cash flows and the loan amount due. For impaired loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established by acquisition of the collateral or until the basis is collected. Impairment losses are reflected in the allowance for loan losses through a charge to the provision for loan losses. Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal.
The allowance for loan losses is maintained to cover losses that are estimated in accordance with U.S. generally accepted accounting principles. It is our estimate of credit losses inherent in our loan portfolio at each balance sheet date. Our methodology for analyzing the allowance for loan losses consists of general and specific components.
For the general component, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and apply a loss ratio to these groups of loans to estimate the credit losses in the loan portfolio. We use both historical loss ratios and qualitative loss factors assigned to major loan collateral types to establish loss allocations. The historical loss ratio is generally defined as a percentage of net annual loan losses to average loans outstanding utilizing a 24 month rolling average. Qualitative loss factors are based on managements judgment of company-specific data and external economic indicators, which may not yet be reflected in the historical loss ratios, and how this information could impact the Companys specific loan portfolios. The Allowance for Loan Loss Committee sets and adjusts qualitative loss factors by regularly reviewing changes in loan composition and the seasonality of specific portfolios. The Allowance for Loan Loss Committee also considers credit quality and trends relating to delinquency, non-performing and/or classified loans and bankruptcy within the Companys loan portfolio when evaluating qualitative loss factors. Additionally, the Allowance for Loan Loss Committee adjusts qualitative factors to account for the potential impact of external economic factors, including the unemployment rate, housing price, vacancy rates and inventory levels specific to our primary market area.
For the specific component, the allowance for loan losses on individually analyzed impaired loans includes loans secured by mortgage and commercial and industrial loans where management has concerns about the borrowers ability to repay. Loss estimates include the negative difference, if any, between the current fair value of the collateral or the estimated discounted cash flows and the loan amount due.
17
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
Impaired loans at June 30, 2012, and December 31, 2011, were as follows: (1)
June 30, 2012 | ||||||||||||||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Current Quarter Average Recorded Investment |
Year-to-Date Average Recorded Investment |
Current Quarter Interest Income Recognized |
Year-to-Date Interest Income Recognized |
||||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||
One- to four- family |
$ | 1,935 | $ | 1,935 | $ | | $ | 2,028 | $ | 1,954 | $ | 7 | $ | 22 | ||||||||||||||
Home equity/home improvement |
250 | 250 | | 279 | 560 | 2 | 4 | |||||||||||||||||||||
Commercial |
3,087 | 3,087 | | 3,087 | 3,152 | 43 | 95 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total real estate loans |
5,272 | 5,272 | | 5,394 | 5,666 | 52 | 121 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Commercial and industrial |
44 | 44 | | 45 | 52 | 1 | 1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Impaired loans with no related allowance recorded |
5,316 | 5,316 | | 5,439 | 5,718 | 53 | 122 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
With an allowance recorded: |
||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||
One- to four- family |
2,704 | 2,704 | 566 | 3,053 | 3,134 | | 5 | |||||||||||||||||||||
Home equity/home improvement |
906 | 906 | 278 | 878 | 659 | | | |||||||||||||||||||||
Commercial |
16,378 | 16,378 | 2,453 | 15,931 | 15,900 | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total real estate loans |
19,988 | 19,988 | 3,297 | 19,862 | 19,693 | | 5 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Consumer loans: |
||||||||||||||||||||||||||||
Automobile |
61 | 61 | 4 | 72 | 90 | | | |||||||||||||||||||||
Lines of credit/unsecured |
54 | 54 | 6 | 54 | 55 | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer loans |
115 | 115 | 10 | 126 | 145 | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Commercial and industrial |
334 | 334 | 135 | 326 | 403 | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Impaired loans with allowance recorded |
20,437 | 20,437 | 3,442 | 20,314 | 20,241 | | 5 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total: |
||||||||||||||||||||||||||||
Residential real estate |
5,795 | 5,795 | 844 | 6,238 | 6,307 | 9 | 31 | |||||||||||||||||||||
Commercial real estate |
19,465 | 19,465 | 2,453 | 19,018 | 19,052 | 43 | 95 | |||||||||||||||||||||
Consumer |
115 | 115 | 10 | 126 | 145 | | | |||||||||||||||||||||
Commercial and industrial |
378 | 378 | 135 | 371 | 455 | 1 | 1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 25,753 | $ | 25,753 | $ | 3,442 | $ | 25,753 | $ | 25,959 | $ | 53 | $ | 127 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(1) | Loans reported do not include PCI loans. |
18
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
December 31, 2011 | ||||||||||||||||||||
Unpaid | Average | Interest | ||||||||||||||||||
Recorded Investment |
Principal Balance |
Related Allowance |
Recorded Investment |
Income Recognized |
||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||
One- to four- family |
$ | 1,664 | $ | 1,664 | $ | | $ | 1,757 | $ | 54 | ||||||||||
Home equity/home improvement |
844 | 844 | | 942 | 22 | |||||||||||||||
Commercial |
2,860 | 2,860 | | 1,364 | 85 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total real estate loans |
5,368 | 5,368 | | 4,063 | 161 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commercial and industrial |
55 | 55 | | 10 | 1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans with no related allowance recorded |
5,423 | 5,423 | | 4,073 | 162 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
With an allowance recorded: |
||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||
One- to four- family |
3,812 | 3,812 | 750 | 3,248 | 55 | |||||||||||||||
Home equity/home improvement |
489 | 489 | 290 | 338 | 8 | |||||||||||||||
Commercial |
16,076 | 16,076 | 2,358 | 10,935 | 540 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total real estate loans |
20,377 | 20,377 | 3,398 | 14,521 | 603 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans: |
||||||||||||||||||||
Automobile |
111 | 111 | 7 | 142 | | |||||||||||||||
Other secured |
| | | 7 | | |||||||||||||||
Lines of credit/unsecured |
57 | 57 | 6 | 42 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consumer loans |
168 | 168 | 13 | 191 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commercial and industrial |
401 | 401 | 87 | 374 | 13 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans with allowance recorded |
20,946 | 20,946 | 3,498 | 15,086 | 616 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
||||||||||||||||||||
Residential real estate |
6,809 | 6,809 | 1,040 | 6,285 | 139 | |||||||||||||||
Commercial real estate |
18,936 | 18,936 | 2,358 | 12,299 | 625 | |||||||||||||||
Consumer |
168 | 168 | 13 | 191 | | |||||||||||||||
Commercial and industrial |
456 | 456 | 87 | 384 | 14 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 26,369 | $ | 26,369 | $ | 3,498 | $ | 19,159 | $ | 778 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Loans that are past due 30 days or greater are considered delinquent. Interest income on loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with the Companys policy, typically after 90 days of non-payment.
19
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
All interest accrued, but not received for loans placed on nonaccrual status, is reversed against interest income. Interest received on such loans is accounted for on the cost-recovery or cash-basis method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Non-performing (nonaccrual) loans were as follows. Loans past due over 90 days that were still accruing interest totaled $2,255 at June 30, 2012, and there were no loans over 90 days still accruing interest at December 31, 2011. These loans consisted entirely of acquired loans. No construction loans were non-performing at June 30, 2012, or December 31, 2011. At June 30, 2012, there were no PCI loans that were considered non-performing loans. $560 of purchased performing loans were considered non-performing at June 30, 2012.
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Real Estate loans: |
||||||||
One- to four-family |
$ | 4,158 | $ | 5,340 | ||||
Commercial |
16,378 | 16,076 | ||||||
Home equity/home improvement |
1,112 | 1,226 | ||||||
|
|
|
|
|||||
Total real estate loans |
21,648 | 22,642 | ||||||
Consumer |
36 | 26 | ||||||
Commercial and industrial |
873 | 430 | ||||||
|
|
|
|
|||||
Total |
$ | 22,557 | $ | 23,098 | ||||
|
|
|
|
A modified loan is considered a troubled debt restructuring (TDR) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower or collateral with similar credit risk characteristics. Modifications to loan terms may include a modification of the contractual interest rate to a below-market rate (even if the modified rate is higher than the original rate), forgiveness of accrued interest, forgiveness of a portion of principal, an extended repayment period or a deed in lieu of foreclosure or other transfer of assets other than cash to fully or partially satisfy a debt. The Companys policy is to place all TDRs on nonaccrual for a minimum period of six months. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months and the collection of principal and interest under the revised terms is deemed probable.
The outstanding balances of TDRs are shown below:
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
TDRs |
||||||||
Nonaccrual TDRs |
$ | 10,411 | $ | 10,420 | ||||
Performing TDRs (1) |
3,757 | 3,271 | ||||||
|
|
|
|
|||||
Total |
$ | 14,168 | $ | 13,691 | ||||
|
|
|
|
|||||
Specific reserves on TDRs |
$ | 2,179 | $ | 2,115 | ||||
Outstanding commitments to lend additional funds to borrowers with TDR loans |
$ | | $ | |
(1) | Performing TDR loans are loans that have been performing under the restructured terms for at least six month and the Company is accruing interest on these loans. |
20
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
All TDRs are individually analyzed for impairment. Loss estimates include the negative difference, if any, between the current fair value of the collateral or the estimated discounted cash flows and the loan amount due. The following tables provide information on loans modified as a TDR during the three and six months ended June 30, 2012. These tables do not reflect the end of period recorded investment.
Three Months Ended June 30, 2012 | Six Months Ended June 30, 2012 | |||||||||||||||||||||||
Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
Modification | Modification | Modification | Modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
Contracts | Investment | Investment | Contracts | Investment | Investment | |||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
One- to four- family |
1 | $ | 200 | $ | 255 | 6 | $ | 821 | $ | 892 | ||||||||||||||
Commercial and industrial |
0 | | | 3 | 83 | 83 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
1 | $ | 200 | $ | 255 | 9 | $ | 904 | $ | 975 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | Six Months Ended | |||||||
June 30, 2012 | June 30, 2012 | |||||||
One- to four- family real estate |
||||||||
Combination of rate and maturity date adjustment: |
$ | | $ | 383 | ||||
Other |
255 | 509 | ||||||
Commercial and industrial |
||||||||
Payment adjustment |
| 36 | ||||||
Other |
| 47 | ||||||
|
|
|
|
|||||
Total |
$ | 255 | $ | 975 | ||||
|
|
|
|
|||||
Loans modified as a TDR within the last 12 months that had a payment default (1) |
$ | | $ | |
(1) | A payment default is defined as a loan that was 90 days or more past due. |
21
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
Below is an analysis of the age of recorded investment in loans that were past due at June 30, 2012, and December 31, 2011.
June 30, 2012 |
30-59 Days Past Due |
60-89 Days Past Due |
90 Days and Greater Past Due |
Total Loans Past Due |
Current Loans (a) |
Total Loans | ||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
One- to four- family |
$ | 267 | $ | 2,629 | $ | 2,464 | $ | 5,360 | $ | 430,126 | $ | 435,486 | ||||||||||||
Commercial |
297 | | 6,675 | 6,972 | 753,637 | 760,609 | ||||||||||||||||||
Home equity/home improvement |
| 601 | 837 | 1,438 | 142,709 | 144,147 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total real estate loans |
564 | 3,230 | 9,976 | 13,770 | 1,326,472 | 1,340,242 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other loans: |
||||||||||||||||||||||||
Consumer loans: |
||||||||||||||||||||||||
Automobile |
294 | 73 | 79 | 446 | 36,930 | 37,376 | ||||||||||||||||||
Other consumer |
215 | 215 | 30 | 460 | 24,807 | 25,267 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer loans |
509 | 288 | 109 | 906 | 61,737 | 62,643 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Commercial and industrial |
1,063 | 243 | 1,731 | 3,037 | 194,634 | 197,671 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,136 | $ | 3,761 | $ | 11,816 | $ | 17,713 | $ | 1,582,843 | $ | 1,600,556 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2011 |
30-59 Days Past Due |
60-89 Days Past Due |
90 Days and Greater Past Due |
Total Loans Past Due |
Current Loans | Total Loans | ||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
One- to four- family |
$ | 4,325 | $ | 1,676 | $ | 3,663 | $ | 9,664 | $ | 370,280 | $ | 379,944 | ||||||||||||
Commercial |
13,038 | 852 | 899 | 14,789 | 570,539 | 585,328 | ||||||||||||||||||
Home equity/home improvement |
654 | 123 | 983 | 1,760 | 139,206 | 140,966 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total real estate loans |
18,017 | 2,651 | 5,545 | 26,213 | 1,080,025 | 1,106,238 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other loans: |
||||||||||||||||||||||||
Consumer loans: |
||||||||||||||||||||||||
Automobile |
137 | 63 | 13 | 213 | 32,814 | 33,027 | ||||||||||||||||||
Other consumer |
19 | 62 | | 81 | 18,062 | 18,143 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer loans |
156 | 125 | 13 | 294 | 50,876 | 51,170 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Commercial and industrial |
236 | 25 | 143 | 404 | 70,216 | 70,620 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 18,409 | $ | 2,801 | $ | 5,701 | $ | 26,911 | $ | 1,201,117 | $ | 1,228,028 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Includes acquired PCI loans with a total carrying value of $12.6 million at June 30, 2012. |
22
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
For loans collateralized by real property and commercial and industrial loans, credit exposure is monitored by internally assigned grades used for classification of loans and other assets. A loan is considered special mention if it is a potential problem loan that is currently performing and does not meet the criteria for impairment, but where some concern exists. A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all of the weaknesses of those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. All other loans that do not fall into the above mentioned categories are considered pass loans. Updates to internally assigned grades are made monthly and/or upon significant developments.
For consumer loans, credit exposure is monitored by payment history of the loans. Non-performing consumer loans are on nonaccrual and are generally greater than 90 days past due.
The recorded investment in loans by credit quality indicators at June 30, 2012, and December 31, 2011, was as follows.
Real Estate and Commercial and Industrial Credit Exposure
Credit Risk Profile by Internally Assigned Grade
June 30, 2012 |
One-to Four- Family |
Commercial Real Estate |
Commercial and Industrial |
Home Equity/Home Improvement |
||||||||||||
Grade: |
||||||||||||||||
Pass |
$ | 424,299 | $ | 701,008 | $ | 185,395 | $ | 140,257 | ||||||||
Special Mention |
3,503 | 30,759 | 581 | 1,297 | ||||||||||||
Substandard (a) |
4,362 | 27,952 | 11,695 | 1,610 | ||||||||||||
Doubtful |
3,322 | 890 | | 983 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 435,486 | $ | 760,609 | $ | 197,671 | $ | 144,147 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011 |
One-to Four- Family |
Commercial Real Estate |
Commercial and Industrial |
Home Equity/Home Improvement |
||||||||||||
Grade: |
||||||||||||||||
Pass |
$ | 370,935 | $ | 535,536 | $ | 70,140 | $ | 138,080 | ||||||||
Special Mention |
1,349 | 29,934 | 50 | 147 | ||||||||||||
Substandard |
4,528 | 18,959 | 315 | 1,726 | ||||||||||||
Doubtful |
3,132 | 899 | 115 | 1,013 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 379,944 | $ | 585,328 | $ | 70,620 | $ | 140,966 | ||||||||
|
|
|
|
|
|
|
|
(a) | PCI loans are included in the substandard category. This category is generally consistent with the substandard category as defined by regulatory authorities. |
23
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 5 LOANS (Continued)
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
June 30, 2012 |
Automobile | Other Consumer | ||||||
Performing |
$ | 37,346 | $ | 25,261 | ||||
Non-performing |
30 | 6 | ||||||
|
|
|
|
|||||
Total |
$ | 37,376 | $ | 25,267 | ||||
|
|
|
|
|||||
December 31, 2011 |
Automobile | Other Consumer | ||||||
Performing |
$ | 33,001 | $ | 18,143 | ||||
Non-performing |
26 | | ||||||
|
|
|
|
|||||
Total |
$ | 33,027 | $ | 18,143 | ||||
|
|
|
|
NOTE 6FAIR VALUE
ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Prices or valuation techniques that require inputs that are both significant and unobservable in the market. These instruments are valued using the best information available, some of which is internally developed, and reflects a reporting entitys own assumptions about the risk premiums that market participants would generally require and the assumptions they would use.
The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs.) The Company elects the fair value option for certain residential mortgage loans held for sale at VPM in accordance with ASC 825. This election allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under ASC 815, Derivatives and Hedging. The Company has not elected the fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments.
24
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE (Continued)
Fair values of certain loans held for sale at VPM are based on traded market prices of similar assets, where available, and/or discounted cash flows at market interest rates.
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Aggregate fair value |
$ | 10,161 | $ | 16,607 | ||||
Aggregate outstanding principal |
9,982 | 16,379 |
Interest income on certain mortgage loans held for sale is recognized based on contractual rates and reflected in interest income on mortgage loans held for sale in the consolidated income statement. A summary of the income is shown below.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net gain from change in loan fair value |
$ | 595 | $ | 455 | $ | 966 | $ | 373 | ||||||||
Economic hedging losses |
531 | 423 | 742 | 260 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net gain included in mortgage income |
$ | 64 | $ | 32 | $ | 224 | $ | 113 | ||||||||
|
|
|
|
|
|
|
|
Mortgage loans held for sale for which the fair value option was elected are typically pooled together and sold into the mortgage market, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. These mortgage loans held for sale are valued predominantly using quoted market prices for similar instruments. As these prices are derived from quoted market prices, the Company classifies these valuations as Level 2 in the fair value disclosures.
The Company enters into a variety of derivative financial instruments as part of its hedging strategy. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2.
25
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE (Continued)
Assets and Liabilities Measured on a Recurring Basis
Assets measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011 are summarized below. There were no liabilities measured at fair value on a recurring basis as of June 30, 2012 or December 31, 2011.
Fair Value Measurements Using | ||||
Significant Other Observable Inputs | ||||
June 30, 2012 |
(Level 2) | |||
Agency bonds |
$ | 2,010 | ||
Agency residential mortgage-backed securities |
200,213 | |||
Agency residential collateralized mortgage obligations |
261,460 | |||
SBA pools |
3,832 | |||
|
|
|||
Total securities available for sale |
$ | 467,515 | ||
|
|
|||
Loans held for sale |
10,161 | |||
Derivative instruments |
8 | |||
Fair Value Measurements Using | ||||
Significant Other Observable Inputs | ||||
December 31, 2011 |
(Level 2) | |||
Agency residential mortgage-backed securities |
$ | 134,853 | ||
Agency residential collateralized mortgage obligations |
294,670 | |||
SBA pools |
4,222 | |||
|
|
|||
Total securities available for sale |
$ | 433,745 | ||
|
|
|||
Loans held for sale |
16,607 | |||
Derivative instruments |
16 |
Assets and Liabilities Measured on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis are summarized below. There were no liabilities measured at fair value on a recurring basis as of June 30, 2012 or December 31, 2011.
Fair Value Measurements Using | ||||||||||||
Significant Other | Significant | |||||||||||
Observable Inputs | Unobservable Inputs | |||||||||||
June 30, 2012 |
Total | (Level 2) | (Level 3) | |||||||||
Assets: |
||||||||||||
Impaired loans |
$ | 16,995 | $ | | $ | 16,995 | ||||||
Other real estate owned (a) |
1,674 | 71 | 1,603 | |||||||||
Fair Value Measurements Using | ||||||||||||
Significant Other | Significant | |||||||||||
Observable Inputs | Unobservable Inputs | |||||||||||
December 31, 2011 |
Total | (Level 2) | (Level 3) | |||||||||
Assets: |
||||||||||||
Impaired loans |
$ | 17,448 | $ | | $ | 17,448 | ||||||
Other real estate owned |
2,286 | 549 | 1,737 |
(a) | Does not include other real estate acquired with the acquisition of Highlands Bank, which had a fair value of $1,621 as of June 30, 2012. |
26
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE (Continued)
Unobservable inputs used in nonrecurring Level 3 fair value measurements at June 30, 2012, are summarized below:
Quantitative Information about Level 3 Fair Value Measurements
Range | ||||||||||
Fair Value at | (Weighted | |||||||||
June 30, 2012 | Valuation Techniques | Unobservable Input | Average) | |||||||
Impaired loans |
$ | 16,092 | Third Party Appraisal | Discount of market value | 0%-20% (8%) | |||||
| ||||||||||
Estimated marketing costs | 0%-10% (7%) | |||||||||
Estimated legal expenses | $0-$7 ($2) | |||||||||
Estimated property maintainance | 0%-1% (1%) | |||||||||
| ||||||||||
903 | Discounted Cash Flow Analysis | Interest rate | 4%-5% (5%) | |||||||
Loan term (in months) | 12-251 (110) | |||||||||
| ||||||||||
Other real estate owned |
1,603 | Third Party Appraisal | Discount of market value | 8% | ||||||
Estimated marketing costs | 5%-7% (6%) | |||||||||
|
Impaired loans that are collateral dependent are measured for impairment using the fair value of the collateral as determined by third party appraisals using recent comparative sales data. The fair value of the collateral is then adjusted for the Level 3 inputs described above. Impaired loans that are not collateral dependent are measured for impairment by a discounted cash flow analysis using a net present value calculation utilizing data from the loan file before and after the modification.
Other real estate owned is measured at the lower of book or fair value less costs to sell. Other real estate owned that was valued using third party appraisals, listing agreements or sales contracts less actual costs to sell is classified as Level 2, while other real estate owned that was valued using third party appraisals, listing agreements or sales contracts less costs to sell and other Level 3 valuation inputs described in the above table is classified as Level 3.
The Credit Administration department evaluates the valuations on impaired loans and other real estate owned at least monthly. These valuations are reviewed at least monthly by the Allowance for Loan Loss Committee and are considered in the calculation of the allowance for loan losses. Unobservable inputs are monitored and adjusted if market conditions change.
27
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE (Continued)
Activity in other real estate owned for the three and six months ended June 30, 2012 and 2011, and the related valuation allowances were as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Beginning balance |
$ | 2,021 | $ | 2,465 | $ | 2,286 | $ | 2,668 | ||||||||
Transfers in at fair value (a) |
2,343 | 389 | 2,983 | 521 | ||||||||||||
Change in valuation allowance |
(17 | ) | (69 | ) | (97 | ) | (39 | ) | ||||||||
Sale of property (gross) |
(1,052 | ) | (459 | ) | (1,877 | ) | (824 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 3,295 | $ | 2,326 | $ | 3,295 | $ | 2,326 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Valuation allowance: |
||||||||||||||||
Beginning balance |
$ | 1,156 | $ | 422 | $ | 1,076 | $ | 452 | ||||||||
Sale of property |
(9 | ) | (27 | ) | (24 | ) | (77 | ) | ||||||||
Valuation adjustment |
26 | 96 | 121 | 116 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 1,173 | $ | 491 | $ | 1,173 | $ | 491 | ||||||||
|
|
|
|
|
|
|
|
(a) | Includes other real estate owned acquired in the acquisition of Highlands of $1,986 as of the date of acquisition. |
Carrying amount and fair value information of financial instruments at June 30, 2012 were as follows:
June 30, 2012 | ||||||||||||||||
Fair Value | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
Carrying | for Identical | Observable | Unobservable | |||||||||||||
Amount | Assets (Level 1) | Inputs (Level 2) | Inputs (Level 3) | |||||||||||||
Financial assets |
||||||||||||||||
Cash and cash equivalents |
$ | 69,978 | $ | 69,978 | $ | | $ | | ||||||||
Securities available for sale |
467,515 | | 467,515 | | ||||||||||||
Securities held to maturity |
430,368 | | 447,698 | | ||||||||||||
Loans held for sale |
925,637 | | 10,114 | 916,283 | ||||||||||||
Loans held for investment, net |
1,581,734 | | | 1,596,886 | ||||||||||||
FHLB and Federal Reserve Bank stock |
45,241 | N/A | N/A | N/A | ||||||||||||
Bank-owned life insurance |
34,491 | 34,491 | | | ||||||||||||
Accrued interest receivable |
9,784 | 9,784 | | | ||||||||||||
Derivative instruments |
8 | | 8 | | ||||||||||||
Financial liabilities |
||||||||||||||||
Deposits |
$ | 2,229,406 | $ | | $ | | $ | 2,164,932 | ||||||||
FHLB advances |
875,102 | | | 894,888 | ||||||||||||
Repurchase agreement |
38,682 | | | 42,194 | ||||||||||||
Accrued interest payable |
1,298 | 1,298 | | |
28
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE (Continued)
Carrying amount and estimated fair values of financial instruments at December 31, 2011, were as follows:
December 31, 2011 | ||||||||
Carrying Amount |
Fair Value | |||||||
Financial assets |
||||||||
Cash and cash equivalents |
$ | 46,348 | $ | 46,348 | ||||
Securities available for sale |
433,745 | 433,745 | ||||||
Securities held to maturity |
500,488 | 518,142 | ||||||
Loans held for sale |
834,352 | 834,878 | ||||||
Loans held for investment, net |
1,211,057 | 1,235,248 | ||||||
FHLB and Federal Reserve Bank stock |
37,590 | N/A | ||||||
Bank-owned life insurance |
29,007 | 29,007 | ||||||
Accrued interest receivable |
8,982 | 8,982 | ||||||
Derivative instruments |
16 | 16 | ||||||
Financial liabilities |
||||||||
Deposits |
$ | 1,963,491 | $ | 1,891,661 | ||||
FHLB advances |
746,398 | 764,772 | ||||||
Repurchase agreement |
25,000 | 28,267 | ||||||
Accrued interest payable |
1,220 | 1,220 |
The methods and assumptions used to estimate fair value are described as follows:
Estimated fair value is the carrying amount for cash and cash equivalents, bank-owned life insurance and accrued interest receivable and payable. For loans held for investment and for loans held for sale at a Level 3 fair value measurement, fair value is based on discounted cash flows using current market offering rates, estimated life, and applicable credit risk. Fair values of certain loans held for sale on which the Company elects the fair value option, which are valued at a Level 2 fair value measurement, are based on traded market prices of similar assets, where available, and/or discounted cash flows at market interest rates. For deposits and borrowings, fair value is calculated using the FHLB advance curve to discount cash flows for the estimated life for deposits and according to the contractual repayment schedule for borrowings. Fair value of repurchase agreements is based on discounting the estimated cash flows using the current rate at which similar agreements would be made with similar terms and remaining maturities. It was not practicable to determine the fair value of FHLB and Federal Reserve Bank stock due to restrictions on their transferability. The fair value of off-balance sheet items listed in the table is based on the current fees or costs that would be charged to enter into or terminate such arrangements and are not considered significant to this presentation.
29
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 7 GOODWILL AND CORE DEPOSIT INTANGIBLES
Changes in the carrying amount of the Companys goodwill and core deposit intangibles (CDI) for three and six months ended June 30, 2012, were as follows:
Core Deposit | ||||||||
Goodwill | Intangible | |||||||
Balance as of December 31, 2011 |
$ | 818 | $ | | ||||
Impairment |
(818 | ) | | |||||
Highlands acquisition |
29,203 | 1,745 | ||||||
Amortization |
| (120 | ) | |||||
|
|
|
|
|||||
Balance as of June 30, 2012 |
$ | 29,203 | $ | 1,625 | ||||
|
|
|
|
Goodwill is recorded on the acquisition date of each entity. The Company may record subsequent adjustments to goodwill for amounts undeterminable at acquisition date, such as deferred taxes and real estate valuations, and therefore the goodwill amounts reflected in the table above may change accordingly. 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. Management performs an evaluation annually, and more frequently if a triggering event occurs, of whether any impairment of the goodwill or other intangibles has occurred. If any such impairment is determined, a write-down is recorded. As a result of the execution of an agreement to sell substantially all of the assets of VPM in the second quarter of 2012, VPM recognized an impairment charge of $818 that brought its goodwill balance to $0 (see Note 12- Subsequent Events for more information). CDI are amortized on an accelerated basis over their estimated lives, which the Company believes is seven years. Gross and net core deposit intangibles outstanding were $1,745 and $1,625 at June 30, 2012, respectively. There was no core deposit intangible at December 31, 2011. Amortization expense related to intangible assets totaled $120 for the three and six months ended June 30, 2012. The estimated aggregate future amortization expense for intangible assets remaining as of June 30, 2012 is as follows:
Remaining 2012 |
$ | 200 | ||
2013 |
429 | |||
2014 |
352 | |||
2015 |
276 | |||
2016 |
199 | |||
Thereafter |
168 |
30
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 8 DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate lock commitments (IRLCs) with prospective residential mortgage borrowers whereby the interest rate on the loan is determined prior to funding and the borrowers have locked into that interest rate. These commitments are carried at fair value in accordance with ASC 815, Derivatives and Hedging. The estimated fair values of IRLCs are based on quoted market values and are recorded in other assets in the consolidated balance sheets. The initial and subsequent changes in the fair value of IRLCs are a component of net gain on sale of loans.
The Company actively manages the risk profiles of its IRLCs and mortgage loans held for sale on a daily basis. To manage the price risk associated with IRLCs, the Company enters into forward sales of mortgage-backed securities in an amount similar to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, the Company enters into forward sales of mortgage-backed securities to deliver mortgage loan inventory to investors. The estimated fair values of forward sales of mortgage-backed securities and forward sale commitments are based on quoted market values and are recorded as another asset or an accrued liability in the consolidated balance sheets.
The initial and subsequent changes in value on forward sales of mortgage-backed securities are a component of net gain on sale of loans.
The following table provides the outstanding notional balances and fair values of outstanding positions for the dates indicated, and recorded gains (losses) during the six months ended June 30, 2012, and the year ended December 31, 2011.
June 30, 2012 |
Expiration Dates | Outstanding Notional Balance |
Fair Value | Recorded Gains/(Losses) |
||||||||||||
Other Assets |
||||||||||||||||
IRLCs |
2012 | $ | 4,980 | $ | 66 | $ | (24 | ) | ||||||||
Loan sale commitments |
2012 | 2,908 | 47 | 974 | ||||||||||||
Forward mortgage-backed securities trades |
2012 | 5,750 | (58 | ) | (726 | ) | ||||||||||
December 31, 2011 |
Expiration Dates | Outstanding Notional Balance |
Fair Value | Recorded Gains/(Losses) |
||||||||||||
Other Assets |
||||||||||||||||
IRLCs |
2012 | $ | 11,432 | $ | 90 | $ | 79 | |||||||||
Loan sale commitments |
2012 | 1,590 | 20 | 1,503 | ||||||||||||
Forward mortgage-backed securities trades |
2012 | 9,750 | (74 | ) | (1,428 | ) |
31
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 9 SHARE-BASED COMPENSATION
Compensation cost charged to income for share-based compensation is presented below:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Restricted stock |
$ | 606 | $ | 353 | $ | 831 | $ | 703 | ||||||||
Stock options |
101 | 155 | 209 | 235 | ||||||||||||
Income tax benefit |
247 | 178 | 364 | 328 |
A summary of changes in the Companys non-vested restricted stock awards for the six months ended June 30, 2012 is presented below:
Weighted- | ||||||||
Average Grant | ||||||||
Shares | Date Fair Value | |||||||
Non-vested at January 1 |
71,603 | $ | 13.08 | |||||
Granted |
72,086 | 15.70 | ||||||
Vested |
(97,393 | ) | 13.84 | |||||
Forfeited |
| | ||||||
|
|
|||||||
Non-vested at June 30 |
46,296 | $ | 15.55 | |||||
|
|
32
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 9 SHARE-BASED COMPENSATION (Continued)
The grant date fair value is based on the last sale price as quoted on the NASDAQ Stock Market on the grant date. As of June 30, 2012, there was $675 of total unrecognized compensation expense related to non-vested shares awarded under the restricted stock portion of the Equity Incentive Plan. That expense is expected to be recognized over a weighted-average period of 3.22 years.
A summary of stock option activity as of June 30, 2012, and changes for the six months then ended is presented below.
Options |
Shares | Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term |
Aggregate Intrinsic Value |
||||||||||||
Outstanding at December 31, 2011 |
535,384 | $ | 12.17 | 7.1 | $ | 483 | ||||||||||
Granted |
147,200 | 15.79 | 10.0 | | ||||||||||||
Exercised |
(58,621 | ) | 12.19 | | 199 | |||||||||||
Cancelled |
(2,100 | ) | 11.16 | | | |||||||||||
Forfeited |
(23,000 | ) | 11.82 | | | |||||||||||
|
|
|||||||||||||||
Outstanding at June 30, 2012 |
598,863 | $ | 13.08 | 7.5 | $ | 1,557 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fully vested and expected to vest |
587,175 | $ | 13.05 | 7.4 | $ | 1,540 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at June 30, 2012 |
272,183 | $ | 12.53 | 5.8 | $ | 845 | ||||||||||
|
|
|
|
|
|
|
|
As of June 30, 2012, there was $1,092 of total unrecognized compensation expense related to non-vested shares awarded under the stock option portion of the Equity Incentive Plan. That expense is expected to be recognized over a weighted-average period of 3.32 years.
NOTE 10 INCOME TAXES
The net deferred tax assets totaled $16,294 and $6,956 at June 30, 2012, and December 31, 2011, respectively. No valuation allowance was provided on deferred tax assets as of June 30, 2012, or December 31, 2011, as the Company expects to realize the future tax benefits. The Company estimates the annual effective tax rate for 2012 will be between 33% and 34%. The actual effective tax rate for the three and six months ended June 30, 2012, is different than the estimated annual effective tax rate due to various immaterial adjustments to income tax expense recorded during the quarter.
33
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 11 SEGMENT INFORMATION
The reportable segments are determined by the products and services offered, primarily distinguished between banking and VPM, our mortgage banking subsidiary. Loans, investments and deposits generate the revenues in the banking segment; secondary marketing sales generate the revenue in the VPM segment. Segment performance is evaluated using segment profit (loss). Information reported internally for performance assessment for the three and six months ended June 30, 2012 and 2011, was as follows:
Three Months Ended June 30, 2012 | ||||||||||||||||
Banking | VPM | Eliminations
and Adjustments1 |
Total Segments (Consolidated Total) |
|||||||||||||
Results of Operations: | ||||||||||||||||
Total interest income |
$ | 35,117 | $ | 349 | $ | (339 | ) | $ | 35,127 | |||||||
Total interest expense |
6,105 | 339 | (503 | ) | 5,941 | |||||||||||
Provision for loan losses |
1,463 | (16 | ) | | 1,447 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for loan losses |
27,549 | 26 | 164 | 27,739 | ||||||||||||
Other revenue |
6,596 | (1,067 | ) | 810 | 6,339 | |||||||||||
Net gain (loss) on sale of loans |
(368 | ) | 2,542 | | 2,174 | |||||||||||
Total non-interest expense |
22,504 | 2,718 | 1,101 | 26,323 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense (benefit) |
11,273 | (1,217 | ) | (127 | ) | 9,929 | ||||||||||
Income tax expense (benefit) |
4,141 | (396 | ) | (308 | ) | 3,437 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 7,132 | $ | (821 | ) | $ | 181 | $ | 6,492 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Segment assets |
$ | 3,691,661 | $ | 43,073 | $ | (41,878 | ) | $ | 3,692,856 | |||||||
Noncash items: |
||||||||||||||||
Net gain (loss) on sale of loans |
(368 | ) | 2,542 | | 2,174 | |||||||||||
Depreciation |
964 | 63 | | 1,027 | ||||||||||||
Provision for loan losses |
1,463 | (16 | ) | | 1,447 |
Three Months Ended June 30, 2011 | ||||||||||||||||
Banking | VPM | Eliminations
and Adjustments1 |
Total Segments (Consolidated Total) |
|||||||||||||
Results of Operations: | ||||||||||||||||
Total interest income |
$ | 27,916 | $ | 410 | $ | (340 | ) | $ | 27,986 | |||||||
Total interest expense |
9,077 | 340 | (396 | ) | 9,021 | |||||||||||
Provision for loan losses |
1,085 | (20 | ) | | 1,065 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for loan losses |
17,754 | 90 | 56 | 17,900 | ||||||||||||
Other revenue |
5,459 | (273 | ) | 571 | 5,757 | |||||||||||
Net gain (loss) on sale of loans |
(356 | ) | 2,235 | | 1,879 | |||||||||||
Total non-interest expense |
15,061 | 2,915 | 292 | 18,268 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense (benefit) |
7,796 | (863 | ) | 335 | 7,268 | |||||||||||
Income tax expense (benefit) |
2,771 | (279 | ) | (81 | ) | 2,411 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 5,025 | $ | (584 | ) | $ | 416 | $ | 4,857 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Segment assets |
$ | 2,964,412 | $ | 34,794 | $ | (35,324 | ) | $ | 2,963,882 | |||||||
Noncash items: |
||||||||||||||||
Net gain (loss) on sale of loans |
(356 | ) | 2,235 | | 1,879 | |||||||||||
Depreciation |
800 | 76 | | 876 | ||||||||||||
Provision for loan losses |
1,085 | (20 | ) | | 1,065 |
1 | Includes eliminating entries for intercompany transactions and stand-alone expenses of the Company |
34
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 11 SEGMENT INFORMATION (Continued)
Six Months Ended June 30, 2012 | ||||||||||||||||
Banking | VPM | Eliminations and Adjustments1 |
Total Segments (Consolidated Total) |
|||||||||||||
Results of Operations: | ||||||||||||||||
Total interest income |
$ | 64,473 | $ | 759 | $ | (729 | ) | $ | 64,503 | |||||||
Total interest expense |
12,182 | 729 | (1,084 | ) | 11,827 | |||||||||||
Provision for loan losses |
2,362 | (20 | ) | | 2,342 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for loan losses |
49,929 | 50 | 355 | 50,334 | ||||||||||||
Other revenue |
11,157 | (1,067 | ) | 747 | 10,837 | |||||||||||
Net gain (loss) on sale of loans |
(939 | ) | 5,345 | | 4,406 | |||||||||||
Total non-interest expense |
37,770 | 5,466 | 1,539 | 44,775 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense (benefit) |
22,377 | (1,138 | ) | (437 | ) | 20,802 | ||||||||||
Income tax expense (benefit) |
7,998 | (369 | ) | (391 | ) | 7,238 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 14,379 | $ | (769 | ) | $ | (46 | ) | $ | 13,564 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Segment assets |
$ | 3,691,661 | $ | 43,073 | $ | (41,878 | ) | $ | 3,692,856 | |||||||
Noncash items: |
||||||||||||||||
Net gain (loss) on sale of loans |
(939 | ) | 5,345 | | 4,406 | |||||||||||
Depreciation |
1,815 | 127 | | 1,942 | ||||||||||||
Provision for loan losses |
2,362 | (20 | ) | | 2,342 |
Six Months Ended June 30, 2011 | ||||||||||||||||
Banking | VPM | Eliminations and Adjustments1 |
Total Segments (Consolidated Total) |
|||||||||||||
Results of Operations: | ||||||||||||||||
Total interest income |
$ | 55,745 | $ | 859 | $ | (723 | ) | $ | 55,881 | |||||||
Total interest expense |
18,051 | 723 | (835 | ) | 17,939 | |||||||||||
Provision for loan losses |
2,178 | (18 | ) | | 2,160 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for loan losses |
35,516 | 154 | 112 | 35,782 | ||||||||||||
Other revenue |
13,594 | (272 | ) | 953 | 14,275 | |||||||||||
Net gain (loss) on sale of loans |
(891 | ) | 4,719 | | 3,828 | |||||||||||
Total non-interest expense |
30,521 | 6,046 | 562 | 37,129 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense (benefit) |
17,698 | (1,445 | ) | 503 | 16,756 | |||||||||||
Income tax expense (benefit) |
5,965 | (467 | ) | (153 | ) | 5,345 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 11,733 | $ | (978 | ) | $ | 656 | $ | 11,411 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Segment assets |
$ | 2,964,412 | $ | 34,794 | $ | (35,324 | ) | $ | 2,963,882 | |||||||
Noncash items: |
||||||||||||||||
Net gain (loss) on sale of loans |
(891 | ) | 4,719 | | 3,828 | |||||||||||
Depreciation |
1,604 | 152 | | 1,756 | ||||||||||||
Provision for loan losses |
2,178 | (18 | ) | | 2,160 |
1 | Includes eliminating entries for intercompany transactions and stand-alone expenses of the Company |
35
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
NOTE 12 SUBSEQUENT EVENTS
On June 5, 2012, the Bank and VPM entered into a definitive agreement (the Agreement) with Highlands Residential Mortgage, Ltd. (HRM) to sell substantially all of the assets of VPM to HRM, subject to certain closing conditions. The terms of the Agreement provide for HRM to, subject to certain conditions contained in the Agreement, (i) purchase VPMs loan pipeline and all of VPMs existing construction loan portfolio, together with certain furniture, fixtures and equipment, (ii) assume substantially all of VPMs loan production office leases and its equipment leases, (iii) hire no less than 95% of the current VPM employees and satisfactorily release VPM from certain employment contracts, and (iv) make additional earn out payments to VPM. Following completion of the sale, the Agreement provides an opportunity for the Bank to partner with HRM to continue providing the Banks customers with residential mortgage services.
The transaction is expected to close in the third quarter of 2012. As a result of the execution of the Agreement, in the second quarter of 2012, VPM recognized $1,190 in one-time write-offs and expenses relating to the sale, including $818 of goodwill that was impaired to $0 and $250 in fixed asset losses.
NOTE 13 RECENT ACCOUNTING DEVELOPMENTS
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820)Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRSs. ASU 2011-04 amends Topic 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarified the application of existing fair value measurement requirements, changed certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 was effective for annual and interim periods beginning after December 15, 2011. The adoption of this ASU did not have a significant impact to the Companys financial statements and the updated disclosures are included in this Form 10-Q.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. An entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments in this ASU did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This ASU was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU did not have a significant impact to the Companys financial statements.
In September 2011, the FASB issued ASU 2011-08, IntangiblesGoodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU simplified how entities test goodwill for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Previous guidance under Topic 350 required an entity to test goodwill for impairment on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This ASU was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU did not have a significant impact to the Companys financial statements.
36
VIEWPOINT FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. Under the amendments in ASU 2011-05, entities were required to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. In addition, the amendments in Update 2011-05 required that reclassification adjustments be presented in interim financial periods. The amendments in this Update superseded changes to those paragraphs in ASU 2011-05 that pertain to how, when, and where reclassification adjustments are presented. This ASU was effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU did not have a significant impact to the Companys financial statements.
37
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Private Securities Litigation Reform Act Safe Harbor Statement
When used in filings by ViewPoint Financial Group, Inc. (the Company) with the Securities and Exchange Commission (the SEC) in the Companys 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 Companys 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 Companys market area, competition, changes in managements business strategies, our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may in the future 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 Companys Form 10-K, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above could materially affect the Companys financial performance and could cause the Companys 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 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.
Overview
The Company, a Maryland corporation, is a full stock holding company for its wholly owned subsidiary, ViewPoint Bank, National Association (the Bank). The Banks operations include its wholly owned subsidiary, ViewPoint Bankers Mortgage, Inc. (doing business as ViewPoint Mortgage) (VPM). Unless the context otherwise requires, references in this document to the Company refer to ViewPoint Financial Group, Inc., and references to the Bank refer to ViewPoint Bank, N.A. References to we, us, and our means ViewPoint Financial Group, Inc. or ViewPoint Bank, N.A. and its subsidiary, unless the context otherwise requires.
Previously, the Company and the Bank were examined and regulated by the Office of Thrift Supervision (OTS), its primary federal regulator. In July 2011, the regulatory oversight of the Company transferred to the Board of Governors of the Federal Reserve System (FRB), and regulatory oversight of the Bank transferred to the thrift division of the Office of the Comptroller of the Currency (OCC). On December 19, 2011, the Bank converted its charter from a federal thrift charter to a national banking charter, with regulatory oversight by the OCC. The Bank is also regulated by the Federal Deposit Insurance Corporation (FDIC). The Bank is required to have certain reserves and stock set by the FRB and is a member of the Federal Home Loan Bank of Dallas, which is one of the 12 regional banks in the Federal Home Loan Bank (FHLB) System.
Our principal business consists of attracting retail deposits from the general public and the business community and investing those funds, along with borrowed funds, in permanent loans secured by first and second mortgages on owner-occupied, one- to four-family residences and on commercial real estate, as well as in secured and unsecured commercial and industrial and consumer loans. Additionally, we have an active program with mortgage banking companies that allows them to close one- to four-family real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Company (the Warehouse Purchase Program). We also offer brokerage services for the purchase and sale of non-deposit investment and insurance products through a third party brokerage arrangement.
38
Our operating revenues are derived principally from interest earnings on interest-earning assets, including loans and investment securities, service charges and fees on deposits, and gains on the sale of loans. Our primary sources of funds are deposits, FHLB advances and other borrowings, and payments received on loans and securities. We offer a variety of deposit accounts that provide a wide range of interest rates and terms, generally including savings, money market, term certificate and demand accounts.
On April 2, 2012, the Company announced the completion of its acquisition of Highlands Bancshares, Inc. (Highlands), parent company of The First National Bank of Jacksboro, which operated in Dallas under the name Highlands Bank. Under the terms of the all-stock transaction, each outstanding share of Highlands common stock, which totaled 8,307,911 at the time of the transaction, was exchanged for 0.6636 shares of Company stock, resulting in an increase of 5,513,061 shares of Company common stock. As a part of the acquisition, Highlands President and CEO Kevin Hanigan joined the Company and the Bank as president and chief executive officer. He also was appointed to the Companys and the Banks Boards of Directors, along with Highlands board member Bruce Hunt. The acquisition was not considered to be a significant business combination.
Performance Highlights
| Net interest margin increased by 79 basis points for the three months ended June 30, 2012 year-over-year. Due to changes in the earning asset mix, lower deposit and borrowing rates, and the impact of the Highlands acquisition, the net interest margin increased by 79 basis points, from 2.83% for the three months ended June 30, 2011, to 3.62% for the three months ended June 30, 2012. The net interest margin increased by 65 basis points for the year-to-date periods, increasing from 2.82% for the six months ended June 30, 2011, to 3.47% for the six months ended June 30, 2012. |
| Solid loan growth in 2012: Gross loans increased $463.8 million, or 22.5%, at June 30, 2012 compared to December 31, 2011, including $284.1 million in loans from the Highlands acquisition at fair value. Warehouse Purchase Program balances increased by $107.7 million, or 13.4%, from $800.9 million at December 31, 2011, to $908.6 million at June 30, 2012, while commercial real estate balances increased by $175.3 million, or 29.9%, from $585.3 million at December 31, 2011, to $760.6 million at June 30, 2012. Commercial and Industrial balances increased by $127.1 million, or 179.9%, from $70.6 million at December 31, 2012 to $197.7 million at June 30, 2012. |
| Quarterly net income increased by $1.6 million, or 33.7%. Net income for the three months ended June 30, 2012, was $6.5 million, up $1.6 million from $4.9 million for the three months ended June 30, 2011. This includes net gains of $897,000 and expenses of $4.7 million relating to the Highlands acquisition, the sale of VPM, severance costs and restricted stock vesting. |
| Non-performing loans decreased and net charge-offs declined. Non-performing loans decreased by $541,000, to $22.6 million at June 30, 2012, from $23.1 million at December 31, 2011, while net charge-offs declined to $241,000 for the second quarter of 2012, from $400,000 for the second quarter of 2011. Net charge-offs declined to $600,000 for the six months ended June 30, 2012, from $848,000 for the six months ended June 30, 2011. |
Critical Accounting Estimates
Certain accounting estimates are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. These estimates are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Management believes that its critical accounting estimates include determining the allowance for loan losses and other-than-temporary impairments in our securities portfolio. Our accounting policies relating to these estimates are discussed in detail in Note 1 of the Notes to Consolidated Financial Statements contained in our 2011 Annual Report on Form 10-K.
39
Allowance for Loan Loss. The allowance for loan losses and related provision expense are susceptible to change if the credit quality of our loan portfolio changes, which is evidenced by many factors, including but not limited to charge-offs and non-performing loan trends. Generally, one- to four-family residential mortgage lending has a lower credit risk profile compared to consumer lending (such as automobile or personal line of credit loans). Commercial real estate and commercial and industrial lending, however, have higher credit risk profiles than consumer and one- to four- family residential mortgage loans due to these loans being larger in amount and non-homogenous in structure and term. While management uses available information to recognize losses on loans, changes, in economic conditions, the mix and size of the loan portfolio and individual borrower conditions can dramatically impact our level of allowance for loan losses in relatively short periods of time. Management believes that the allowance for loan losses is maintained at a level that represents our best estimate of inherent credit losses in the loan portfolio as of June 30, 2012. In addition, our banking regulators periodically review our allowance for loan losses and may require us to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their review.
Management evaluates current information and events regarding a borrowers ability to repay its obligations and considers a loan to be impaired when the ultimate collectability of amounts due, according to the contractual terms of the loan agreement, is in doubt. If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated cost to sell, is used to determine the amount of impairment. If an impaired loan is not collateral-dependent, the impairment amount is determined using the negative difference, if any, between the estimated discounted cash flows and the loan amount due. For impaired loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established by acquisition of the collateral or until the basis is collected. Impairment losses are reflected in the allowance for loan losses through a charge to the provision for loan losses. Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal.
Other-than-Temporary Impairments. The Company evaluates securities for other-than-temporary impairment on at least a quarterly basis and more frequently when economic, market, or security specific concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value of the security has been less than its amortized cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value of the security. In analyzing an issuers financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers financial condition. The Company conducts regular reviews of the bond agency ratings of securities and considers whether the securities were issued by or have principal and interest payments guaranteed by the federal government or its agencies. These reviews focus on the underlying rating of the issuer and also include the insurance rating of securities that have an insurance component. The ratings and financial condition of the issuers are monitored, as well as the financial condition and ratings of the insurers.
For periods in which other-than-temporary impairment of a debt security is recognized, the credit portion of the amount is determined by subtracting the present value of the stream of estimated cash flows as calculated in a discounted cash flow model and discounted at book yield from the prior periods ending carrying value. The non-credit portion of the amount is determined by subtracting the credit portion of the impairment from the difference between the book value and fair value of the security. The credit related portion of the impairments is charged against income and the non-credit related portion is charged to equity as a component of other comprehensive income, net of applicable taxes.
40
Comparison of Financial Condition at June 30, 2012, and December 31, 2011
General. Total assets increased by $512.3 million, or 16.1%, to $3.69 billion at June 30, 2012, from $3.18 billion at December 31, 2011, primarily due to the acquisition of Highlands on April 2, 2012, which added $501.1 million in identifiable assets initially recorded at fair value.
Loans. Gross loans (including $925.6 million in mortgage loans held for sale at June 30, 2012) increased by $463.8 million, or 22.5%, to $2.53 billion at June 30, 2012 from $2.06 billion at December 31, 2011. $284.1 million of the increase in gross loans was attributable to loans obtained in the Highlands acquisition initially recorded at fair value.
June 30, 2012 |
December 31, 2011 |
Dollar Change |
Percent Change |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Real estate loans: |
||||||||||||||||
One- to four-family |
$ | 435,486 | $ | 379,944 | $ | 55,542 | 14.6 | % | ||||||||
Commercial |
760,609 | 585,328 | 175,281 | 29.9 | ||||||||||||
Home equity/home improvement |
144,147 | 140,966 | 3,181 | 2.3 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total real estate loans |
1,340,242 | 1,106,238 | 234,004 | 21.2 | ||||||||||||
Consumer loans: |
||||||||||||||||
Automobile |
37,376 | 33,027 | 4,349 | 13.2 | ||||||||||||
Other consumer loans |
25,267 | 18,143 | 7,124 | 39.3 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total consumer loans |
62,643 | 51,170 | 11,473 | 22.4 | ||||||||||||
Commercial and industrial |
197,671 | 70,620 | 127,051 | 179.9 | ||||||||||||
Gross loans held for investment |
1,600,556 | 1,228,028 | 372,528 | 30.3 | ||||||||||||
|
|
|
|
|
|
|||||||||||
ViewPoint Mortgage |
17,083 | 33,417 | (16,334 | ) | (48.9 | ) | ||||||||||
Warehouse Purchase Program |
908,554 | 800,935 | 107,619 | 13.4 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total mortgage loans held for sale |
925,637 | 834,352 | 91,285 | 10.9 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Gross loans |
$ | 2,526,193 | $ | 2,062,380 | $ | 463,813 | 22.5 | % | ||||||||
|
|
|
|
|
|
The commercial real estate portfolio increased by $175.3 million, or 29.9%, to $760.6 million at June 30, 2012, from $585.3 million at December 31, 2011, with $94.0 million of this increase being due to the addition of Highlands commercial real estate loans. The remaining $81.3 million increase was due to organic growth. Our commercial real estate portfolio consists almost exclusively of loans secured by existing, multi-tenanted commercial real estate. 93% of our commercial real estate loan balances are secured by properties located in Texas, a market that we do not believe has experienced the same level of economic pressure experienced in certain other geographic areas in the United States. The below table illustrates the geographic concentration of our commercial real estate portfolio at June 30, 2012:
Texas |
93 | % | ||
Oklahoma |
2 | |||
Louisiana |
2 | |||
California |
1 | |||
Illinois |
1 | |||
Other* |
1 | |||
|
|
|||
100 | % | |||
|
|
* Other consists of Arizona, Georgia, Kansas, Minnesota, Missouri, Nevada, New Mexico, Oregon, Washington, and Alaska.
41
Commercial and industrial (C&I) loans increased by $127.1 million, or 179.9%, to $197.7 million at June 30, 2012, from $70.6 million at December 31, 2011, with $100.1 million of this increase due to the addition of Highlands C&I loans initially recorded at fair value. Net of the impact of the Highlands acquisition, C&I loans increased by $27.0 million from December 31, 2011, by virtue of loans originated in the second quarter of 2012. Additionally, $21.2 million and $16.1 million of warehouse lines of credit to mortgage bankers are included in the C&I loan balances as of June 30, 2012 and December 31, 2011, respectively.
One- to four-family loans increased by $55.6 million, or 14.6%, to $435.5 million at June 30, 2012, from $379.9 million at December 31, 2011, with $70.7 million of the growth attributable to the addition of Highlands loans initially recorded at fair value. Net of the acquisition, the one- to four-family loan portfolio decreased by $15.1 million. VPM originated $168.7 million in one- to four-family mortgage loans during the six months ended June 30, 2012, compared to $167.6 million for the same period in 2011. Of the $168.7 million originated during the six months ended June 30, 2012, $119.3 million was sold or committed to be sold to investors, generating a net gain on sale of loans of $4.4 million during the six month period ended June 30, 2012. The remaining $49.4 million of VPM production was retained in the Companys loan portfolio.
Mortgage loans held for sale increased by $91.3 million, or 10.9%, to $925.6 million at June 30, 2012, from $834.3 million at December 31, 2011, and consisted of $908.6 million of Warehouse Purchase Program loans purchased for sale under our standard loan participation agreement and $17.0 million of loans originated for sale by our mortgage banking subsidiary, VPM.
The Warehouse Purchase Program had 38 clients with approved maximum borrowing amounts ranging from $10.0 million to $38.5 million at June 30, 2012, compared to 36 clients at December 31, 2011, and 30 clients at June 30, 2011. The average approved borrowing amount for all clients was $29.9 million at June 30, 2012. At June 30, 2012, the loans collateralizing Warehouse Purchase Program facilities were made up of 49% in conforming loans, 50% in government loans and 1% in jumbo loans, with properties located in 49 states. The average turn time on the Warehouse Purchase Program was 17.5 days for June, and the average utilization rate for the quarter was 61%. Warehouse Purchase Program balances increased $107.7 million, or 13.4%, from $800.9 million at December 31, 2011, to $908.6 million at June 30, 2012.
The Company, through VPM, maintains a mortgage repurchase liability that reflects managements estimate of losses for loans for which the Company could have repurchase obligations based on historical investor repurchase and indemnification demands and historical loss ratios. Although investors may demand repurchase at any time, the Companys historical demands have mainly occurred within 12 months of the investor purchase. The Company had no repurchases or indemnifications during the six months ended June 30, 2012, compared to one repurchase and four indemnifications for the same period in 2011. There is one pending repurchase at the date of this filing. This mortgage repurchase liability, included in Other Liabilities in the consolidated balances sheet, was $83,000 at June 30, 2012, compared to $52,000 at December 31, 2011. Additions to the liability reduced net gains on mortgage loan origination/sales. Actual losses were $0 and $30,000 for the six months ended June 30, 2012 and 2011, respectively.
Allowance for Loan Losses and Non-Performing Loans. The allowance for loan losses is maintained to cover losses that are estimated in accordance with U.S. generally accepted accounting principles. It is our estimate of credit losses in our loan portfolio at each balance sheet date. Our methodology for analyzing the allowance for loan losses consists of general and specific components.
42
For the general component, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and apply a loss ratio to these groups of loans to estimate the credit losses in the loan portfolio. We use both historical loss ratios and qualitative loss factors assigned to major loan collateral types to establish loss allocations. The historical loss ratio is generally defined as an average percentage of net annual loan losses to loans outstanding. Qualitative loss factors are based on managements judgment of company-specific data and external economic indicators which may not yet be reflective in the historical loss ratios and how this information could impact the Companys specific loan portfolios. The Allowance for Loan Loss Committee sets and adjusts qualitative loss factors by reviewing changes in loan composition and the seasonality of specific portfolios. The Allowance for Loan Loss Committee also considers credit quality and trends relating to delinquency, non-performing and/or classified loans and bankruptcy within the Companys loan portfolio when evaluating qualitative loss factors. Additionally, the Allowance for Loan Loss Committee adjusts qualitative factors periodically to account for the potential impact of external economic factors, including the unemployment rate, housing price, vacancy rates and inventory levels specific to our primary market area.
For the specific component, the allowance for loan losses on individually analyzed impaired loans includes commercial and industrial and one- to four-family and commercial real estate loans where management has concerns about the borrowers ability to repay. Loss estimates include the negative difference, if any, between the current fair value of the collateral or the estimated discounted cash flows and the loan amount due.
We are focused on maintaining our asset quality by applying strong underwriting guidelines to all loans that we originate. Substantially all of our residential mortgage loans are full-documentation, standard A type products. We do not offer any sub-prime loan products.
Our non-performing loans, which consist of nonaccrual loans, include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Loans are placed on nonaccrual status when the collection of principal and/or interest becomes doubtful or other factors involving the loan warrant placing the loan on nonaccrual status.
Our non-performing loans to total loans ratio at June 30, 2012, was 1.41%, compared to 1.88% at December 31, 2011. Non-performing loans decreased by $541,000, to $22.6 million at June 30, 2012, from $23.1 million at December 31, 2011. This decrease was primarily caused by a $1.2 million decline in non-performing one- to four-family mortgage loans, and was partially offset by a $443,000 increase in non-performing C&I loans and a $302,000 increase in non-performing commercial real estate loans. At June 30, 2012, no purchased credit impaired loans from the Highlands transaction were included in non-performing loans. $560,000 of loans acquired from Highlands which were not classified as purchased credit impaired were included in the $22.6 million of non-performing loans, including $515,000 in C&I loans.
A modified loan is considered a troubled debt restructuring (TDR) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower or collateral with similar credit risk characteristics. Modifications to loan terms may include a modification of the contractual interest rate to a below-market rate (even if the modified rate is higher than the original rate), forgiveness of accrued interest, forgiveness of a portion of principal, an extended repayment period or a deed in lieu of foreclosure or other transfer of assets other than cash to fully or partially satisfy a debt. The Companys policy is to place all TDRs on nonaccrual for a minimum period of six months. Loans qualify for a return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months and the collection of principal and interest under the revised terms is deemed probable. At June 30, 2012, of our $14.2 million in TDRs, $3.8 million was accruing interest and $10.4 million was classified as nonaccrual, including $9.0 million attributable to five commercial real estate loans. All five of these loans were performing in accordance with their restructured terms at June 30, 2012.
Our allowance for loan losses at June 30, 2012, was $19.2 million, or 1.20% of total loans, compared to $17.5 million, or 1.42% of total loans, at December 31, 2011. Our allowance for loan losses to non-performing loans ratio was 85.25% at June 30, 2012, compared to 75.71% as of December 31, 2011.
43
Other Loans of Concern. The Company has other potential problem loans that are currently performing and do not meet the criteria for impairment, but where some concern exists. These possible credit problems may result in the future inclusion of these items in the non-performing asset categories. These loans consist of residential and commercial real estate and commercial and industrial loans that are classified as special mention, meaning that these loans have potential weaknesses that deserve managements close attention. These loans are not adversely classified according to regulatory classifications and do not expose the Company to sufficient risk to warrant adverse classification. These loans have been considered in managements determination of our allowance for loan losses. As of June 30, 2012, there was an aggregate of $36.2 million of these potential problem loans, compared to $31.5 million at December 31, 2011. The $36.2 million includes $556,000 of loans acquired from Highlands. Of the $36.2 million, $30.7 million is comprised of seven commercial real estate loans that were not delinquent at June 30, 2012, but are being monitored due to circumstances such as a decline in the occupancy rate or debt service coverage.
Classified Assets. Loans and other assets, such as securities and foreclosed assets that are considered by management to be of lesser quality, are classified as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses of those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
We regularly review the problem assets in our portfolio to determine whether any assets require classification. The total amount classified represented 10.8% of our equity capital and 1.48% of our assets at June 30, 2012, compared to 8.2% of our equity capital and 1.04% of our assets at December 31, 2011. The aggregate amount of classified assets at the dates indicated was as follows:
June 30, 2012 | December 31, 2011 | |||||||
(Dollars in thousands) | ||||||||
Loss |
$ | | $ | | ||||
Doubtful |
5,195 | 5,159 | ||||||
Substandard |
49,545 | 28,023 | ||||||
|
|
|
|
|||||
Total |
$ | 54,740 | $ | 33,182 | ||||
|
|
|
|
At June 30, 2012, $12.6 million in purchased credit impaired loans acquired in connection with the Highlands transaction were included in the $49.5 million reported as Substandard. Additionally, at June 30, 2012, $10.4 million in loans acquired from Highlands that were not considered purchased credit impaired were included in the Substandard total.
Securities. Our securities portfolio decreased by $36.3 million, or 3.9%, to $897.9 million at June 30, 2012, from $934.2 million at December 31, 2011. The decrease in our securities portfolio resulted from paydowns and maturities totaling $422.3 million and sales of $15.2 million, which were partially offset by purchases totaling $316.1 million. In addition, $86.3 million in securities were acquired in the Highlands transaction.
44
Deposits. Total deposits increased by $265.9 million, or 13.5%, to $2.23 billion at June 30, 2012, from $1.96 billion at December 31, 2011.
June 30, 2012 |
December 31, 2011 |
Dollar Change |
Percent Change |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Non-interest bearing demand |
$ | 342,228 | $ | 211,670 | $ | 130,558 | 61.7 | % | ||||||||
Interest bearing demand |
509,650 | 498,253 | 11,397 | 2.3 | ||||||||||||
Savings |
176,504 | 155,276 | 21,228 | 13.7 | ||||||||||||
Money Market |
695,607 | 592,979 | 102,628 | 17.3 | ||||||||||||
IRA savings |
13,439 | 11,321 | 2,118 | 18.7 | ||||||||||||
Time |
491,978 | 493,992 | (2,014 | ) | (0.4 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total deposits |
$ | 2,229,406 | $ | 1,963,491 | $ | 265,915 | 13.5 | % | ||||||||
|
|
|
|
|
|
The increase in deposits was primarily due to $378.4 million in deposits acquired in the Highlands transaction, which included $140.0 million in savings and money market, $121.2 million in time, $78.7 million in non-interest bearing demand and $38.5 million in interest bearing demand.
Excluding the impact of the Highlands acquisition, deposits decreased by $112.5 million from December 31, 2011, to June 30, 2012. This decrease was primarily due to a $123.2 million decline in time deposits, which resulted from a pricing strategy designed to reduce our time deposit rates and improve our net interest margin. The growth in non-interest bearing demand deposits, excluding the impact of Highlands deposits, was primarily due to a $22.2 million increase in Warehouse Purchase Program checking deposits and an $11.2 million increase in commercial free checking. The decline in interest bearing demand deposits included a $23.5 million decline in Absolute Checking deposits.
Borrowings. FHLB advances, net of a $3.7 million restructuring prepayment penalty, increased by $128.7 million, or 17.2%, to $875.1 million at June 30, 2012, from $746.4 million at December 31, 2011. The outstanding balance of FHLB advances increased due to a higher Warehouse Purchase Program balance at June 30, 2012, of which a portion was strategically funded with short term advances. At June 30, 2012, the Company was eligible to borrow an additional $254.4 million from the FHLB. Additionally, the Company was eligible to borrow $163.8 million from the Federal Reserve Bank discount window and has three available federal funds lines of credit with other financial institutions totaling $76.0 million. In addition to FHLB advances, at June 30, 2012, the Company had $38.7 million in outstanding repurchase agreements, including a $25.0 million repurchase agreement outstanding with Credit Suisse and a $10.0 million repurchase agreement outstanding with CitiGroup Global Markets, Inc., which was acquired in the Highlands transaction.
The below table shows FHLB advances by maturity and weighted average rate at June 30, 2012:
Balance | Weighted Average Rate |
|||||||
(Dollars in thousands) | ||||||||
Less than 90 days |
$ | 613,192 | 0.19 | % | ||||
90 days to one year |
62,729 | 1.51 | ||||||
One to three years |
54,127 | 3.38 | ||||||
Three to five years |
122,069 | 3.08 | ||||||
After five years |
26,692 | 4.61 | ||||||
|
|
|||||||
878,809 | 1.01 | % | ||||||
Restructuring prepayment penalty |
(3,707 | ) | ||||||
|
|
|||||||
Total |
$ | 875,102 | ||||||
|
|
45
Shareholders Equity. Total shareholders equity increased by $99.3 million, or 24.4%, to $505.6 at June 30, 2012, from $406.3 million at December 31, 2011.
June 30, 2012 |
December 31, 2011 |
Dollar Change |
Percent Change |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Common stock |
$ | 393 | $ | 337 | $ | 56 | 16.6 | % | ||||||||
Additional paid-in capital |
367,938 | 279,473 | 88,465 | 31.7 | ||||||||||||
Retained earnings |
153,722 | 144,535 | 9,187 | 6.4 | ||||||||||||
Accumulated other comprehensive income |
2,171 | 1,347 | 824 | 61.2 | ||||||||||||
Unearned ESOP shares |
(18,649 | ) | (19,383 | ) | 734 | (3.8 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Total shareholders equity |
$ | 505,575 | $ | 406,309 | $ | 99,266 | 24.4 | % | ||||||||
|
|
|
|
|
|
The increase in shareholders equity was primarily due to the Highlands acquisition, which was an all-stock transaction. Each outstanding share of Highlands common stock, which totaled 8,307,911 shares at the time of the transaction, was exchanged for 0.6636 shares of Company stock, resulting in an increase of 5,513,061 shares of Company common stock. The transaction increased common stock by $55,000 and increased additional paid-in capital by $86.1 million. Additionally, equity was increased by net income of $13.6 million recognized during the six months ended June 30, 2012, which was partially offset by the payment of two quarterly dividends totaling $0.12 per common share. The dividends reduced retained earnings by $4.4 million during the six months ended June 30, 2012.
Comparison of Results of Operations for the Three Months ended June 30, 2012 and 2011
General. Net income for the three months ended June 30, 2012, was $6.5 million, an increase of $1.6 million, or 33.7%, from net income of $4.9 million for the three months ended June 30, 2011. The increase in net income was driven by an increase in net interest income of $10.2 million and an $877,000 increase in noninterest income, partially offset by an $8.1 million increase in noninterest expense. The increased noninterest expenses included acquisition costs of $3.7 million related to the Highlands transaction, $136,000 in costs related to the sale of VPM, and $493,000 in severance costs related to both Highlands and VPM, as well as $308,000 of expense related to the immediately vested restricted stock awarded to the Companys newly appointed CEO. Increases in noninterest expense were partially offset by net gains of $897,000. Basic and diluted earnings per share for the three months ended June 30, 2012, were $0.17, a $0.02 increase from $0.15 for the three months ended June 30, 2011. Earnings per share for the three months ended June 30, 2012, was reduced by $0.07 due to the increases in noninterest expense relating to the Highlands acquisition, the sale of VPM, severance costs and restricted stock vesting, partially offset by the net gains of $897,000.
46
Interest Income. Interest income increased by $7.1 million, or 25.5%, to $35.1 million for the three months ended June 30, 2012, from $28.0 million for the three months ended June 30, 2011.
Three Months Ended June 30, |
Dollar | Percent | ||||||||||||||
2012 | 2011 | Change | Change | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Interest and dividend income |
||||||||||||||||
Loans, including fees |
$ | 30,290 | $ | 20,833 | $ | 9,457 | 45.4 | % | ||||||||
Securities |
4,658 | 7,112 | (2,454 | ) | (34.5 | ) | ||||||||||
Interest-bearing deposits in other financial institutions |
38 | 28 | 10 | 35.7 | ||||||||||||
FHLB and FRB stock |
141 | 13 | 128 | 984.6 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 35,127 | $ | 27,986 | $ | 7,141 | 25.5 | % | |||||||||
|
|
|
|
|
|
The increase in interest income for the three months ended June 30, 2012, compared to the three months ended June 30, 2011, was primarily due to a $9.5 million, or 45.4%, increase in interest income on loans. Accretion of the Highlands purchase discount contributed $1.4 million to the increase for the comparable periods.
Interest income on Warehouse Purchase Program loans increased $3.5 million, as the average balance increased by $380.3 million from the three months ended June 30, 2011, to the three months ended June 30, 2012. Additionally, the average balance of commercial real estate loans increased by $219.5 million during the three months ended June 30, 2012, compared to the three months ended June 30, 2011, which led to a $3.0 million increase in interest income. The average balance of C&I loans for the three months ended June 30, 2012, increased by $147.1 million from the same period in 2011, leading to a $2.1 million increase in interest income. The average balance of one- to four-family loans increased $50.5 million compared to the three months ended June 30, 2011, increasing interest income by $844,000.
These increases were partially offset by a $2.5 million, or 34.5%, decline in interest on securities, which resulted from the sale of securities and normal paydowns. Overall, the yield on interest-earning assets increased by 18 basis points, to 4.36% for the three months ended June 30, 2012, from 4.18% for the three months ended June 30, 2011.
Interest Expense. Interest expense decreased by $3.1 million, or 34.1%, to $5.9 million for the three months ended June 30, 2012, from $9.0 million for the three months ended June 30, 2011.
Three Months Ended June 30, |
Dollar | Percent | ||||||||||||||
2012 | 2011 | Change | Change | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Interest expense |
||||||||||||||||
Deposits |
$ | 3,247 | $ | 6,260 | $ | (3,013 | ) | (48.1 | %) | |||||||
FHLB advances |
2,415 | 2,407 | 8 | 0.3 | ||||||||||||
Repurchase agreements |
251 | 204 | 47 | 23.0 | ||||||||||||
Other borrowings |
28 | 150 | (122 | ) | (81.3 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
$ | 5,941 | $ | 9,021 | $ | (3,080 | ) | (34.1 | %) | ||||||||
|
|
|
|
|
|
The decrease in interest expense for the three months ended June 30, 2012, compared to the three months ended June 30, 2011, was primarily due to a $3.0 million, or 48.1%, decrease in interest expense on deposits.
47
The decrease in interest expense on deposits was primarily due to a $1.3 million decrease in interest expense on time accounts, which was primarily caused by a $124.9 million decline in the average balance during the three months ended June 30, 2012, compared to the three months ended June 30, 2011, and a 58 basis point decline in the average rate for the same periods. Additionally, interest expense on interest-bearing demand deposits declined by $1.3 million, primarily due to a 118 basis point decline in the average rate, from 2.02% for the three months ended June 30, 2011, to 0.84% for the three months ended June 30, 2012. Over the past year, the rate on the Absolute Checking product has been gradually reduced: at June 30, 2011, the Absolute Checking product paid an Annual Percentage Yield (APY) of 4.00% on balances up to $25,000, 0.95% on balances between $25,001 and $100,000, and 0.04% on balances greater than $100,000. At June 30, 2012, Absolute Checking paid an APY of 2.00% on balances up to $25,000 and 0.10% on balances greater than $25,000.
The Highlands acquisition added interest expense on borrowings of $74,000, which consisted of interest expense paid on repurchase agreements and other borrowings with an average balance of $39.1 million. The average balance of borrowings increased by $309.5 million during the three months ended June 30, 2012, compared to the three months ended June 30, 2011; however, this increase was more than offset by a 177 basis point decline in the average rate for the same periods.
Net Interest Income. Net interest income increased by $10.2 million, or 53.9%, to $29.2 million for the three months ended June 30, 2012, from $19.0 million for the three months ended June 30, 2011. $1.4 million of this increase was attributable to the accretion of the Highlands purchase discount. The net interest margin increased 79 basis points to 3.62% for the three months ended June 30, 2012, from 2.83% for the same period last year. The net interest rate spread increased 91 basis points to 3.43% for the three months ended June 30, 2012, from 2.52% for the same period last year. The increase in the net interest rate spread and margin was primarily attributable to changes in the earning asset mix, lower deposit and borrowing rates, and the impact of the Highlands acquisition.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents, for the periods indicated, the total dollar amount of interest income earned on average interest earning assets interest expense paid on average interest bearing liabilities. Also presented are the weighted average yields on interest earning assets, and rates paid on interest bearing liabilities, and the resultant spread. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.
48
Three Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Average Outstanding Balance |
Interest Earned/Paid |
Yield/ Rate |
Average Outstanding Balance |
Interest Earned/Paid |
Yield/ Rate |
|||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
One- to four- family real estate |
$ | 430,696 | $ | 5,955 | 5.53 | % | $ | 380,152 | $ | 5,111 | 5.38 | % | ||||||||||||
Loans held for sale: |
||||||||||||||||||||||||
Warehouse Purchase Program |
662,584 | 6,769 | 4.09 | 282,266 | 3,251 | 4.61 | ||||||||||||||||||
ViewPoint Mortgage loans |
18,511 | 212 | 4.58 | 20,894 | 284 | 5.44 | ||||||||||||||||||
Commercial real estate |
724,775 | 11,618 | 6.41 | 505,290 | 8,634 | 6.83 | ||||||||||||||||||
Home equity/home improvement |
145,095 | 2,024 | 5.58 | 141,349 | 2,047 | 5.79 | ||||||||||||||||||
Consumer |
62,192 | 999 | 6.43 | 53,903 | 884 | 6.56 | ||||||||||||||||||
Commercial and industrial |
185,580 | 2,713 | 5.85 | 38,523 | 622 | 6.46 | ||||||||||||||||||
Less: deferred fees and allowance for loan loss |
(17,803 | ) | | 0.00 | (15,264 | ) | | 0.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Loans receivable 1 |
2,211,630 | 30,290 | 5.48 | 1,407,113 | 20,833 | 5.92 | ||||||||||||||||||
Agency mortgage-backed securities |
368,736 | 2,232 | 2.42 | 456,791 | 3,181 | 2.79 | ||||||||||||||||||
Agency collateralized mortgage obligations |
515,353 | 1,920 | 1.49 | 692,189 | 3,350 | 1.94 | ||||||||||||||||||
Investment securities |
57,547 | 506 | 3.52 | 65,283 | 581 | 3.56 | ||||||||||||||||||
FHLB and FRB stock |
34,975 | 141 | 1.61 | 13,803 | 13 | 0.38 | ||||||||||||||||||
Interest earning deposit accounts |
33,241 | 38 | 0.46 | 41,969 | 28 | 0.27 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-earning assets |
3,221,482 | 35,127 | 4.36 | 2,677,148 | 27,986 | 4.18 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-interest-earning assets |
206,325 | 145,043 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 3,427,807 | $ | 2,822,191 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing demand |
$ | 505,569 | 1,061 | 0.84 | $ | 468,964 | 2,366 | 2.02 | ||||||||||||||||
Savings and money market |
892,844 | 637 | 0.29 | 733,517 | 1,037 | 0.57 | ||||||||||||||||||
Time |
529,928 | 1,549 | 1.17 | 654,852 | 2,857 | 1.75 | ||||||||||||||||||
Borrowings |
626,055 | 2,694 | 1.72 | 316,518 | 2,761 | 3.49 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-bearing liabilities |
2,554,396 | 5,941 | 0.93 | 2,173,851 | 9,021 | 1.66 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-interest-bearing checking |
316,237 | 195,765 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-interest-bearing liabilities |
52,578 | 38,399 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities |
2,923,211 | 2,408,015 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total shareholders equity |
504,596 | 414,176 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities and shareholders equity |
$ | 3,427,807 | $ | 2,822,191 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income and margin |
$ | 29,186 | 3.62 | % | $ | 18,965 | 2.83 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income and margin (tax-equivalent basis) 2 |
$ | 29,358 | 3.65 | % | $ | 19,139 | 2.86 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest rate spread |
3.43 | % | 2.52 | % | ||||||||||||||||||||
Net earning assets |
$ | 667,086 | $ | 503,297 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities |
126.12 | % | 123.15 | % |
1 | Calculated net of deferred fees, loan discounts, loans in process and allowance for loan losses. Construction loans have been included in the one- to four- family and commercial real estate line items, as appropriate. |
2 | In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 35% for 2012 and 2011. Tax-exempt investments and loans had average balances of $52.4 and $52.7 million for the three months ended June 30, 2012 and 2011, respectively. |
49
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.
Three Months Ended June 30, | ||||||||||||
2012 versus 2011 | ||||||||||||
Increase (Decrease) Due to | ||||||||||||
Volume | Rate | Total Increase (Decrease) |
||||||||||
(Dollars in thousands) | ||||||||||||
Interest-earning assets: |
||||||||||||
One- to four- family real estate |
$ | 695 | $ | 149 | $ | 844 | ||||||
Loans held for sale: |
||||||||||||
Warehouse Purchase Program |
3,924 | (406 | ) | 3,518 | ||||||||
ViewPoint Mortgage loans |
(30 | ) | (42 | ) | (72 | ) | ||||||
Commercial real estate |
3,547 | (563 | ) | 2,984 | ||||||||
Home equity/home improvement |
53 | (76 | ) | (23 | ) | |||||||
Consumer |
133 | (18 | ) | 115 | ||||||||
Commercial and industrial |
2,155 | (64 | ) | 2,091 | ||||||||
|
|
|
|
|
|
|||||||
Loans receivable |
10,477 | (1,020 | ) | 9,457 | ||||||||
Agency mortgage-backed securities |
(565 | ) | (384 | ) | (949 | ) | ||||||
Agency collateralized mortgage obligations |
(752 | ) | (678 | ) | (1,430 | ) | ||||||
Investment securities |
(68 | ) | (7 | ) | (75 | ) | ||||||
FHLB and FRB stock |
41 | 87 | 128 | |||||||||
Interest earning deposit accounts |
(7 | ) | 17 | 10 | ||||||||
|
|
|
|
|
|
|||||||
Total interest-earning assets |
9,126 | (1,985 | ) | 7,141 | ||||||||
|
|
|
|
|
|
|||||||
Interest-bearing liabilities: |
||||||||||||
Interest-bearing demand |
172 | (1,477 | ) | (1,305 | ) | |||||||
Savings and money market |
191 | (591 | ) | (400 | ) | |||||||
Time |
(479 | ) | (829 | ) | (1,308 | ) | ||||||
Borrowings |
1,799 | (1,866 | ) | (67 | ) | |||||||
|
|
|
|
|
|
|||||||
Total interest bearing liabilities |
1,683 | (4,763 | ) | (3,080 | ) | |||||||
|
|
|
|
|
|
|||||||
Net interest income |
$ | 7,443 | $ | 2,778 | $ | 10,221 | ||||||
|
|
|
|
|
|
Provision for Loan Losses. The provision for loan losses was $1.4 million for the three months ended June 30, 2012, an increase of $382,000, or 35.9%, compared to the three months ended June 30, 2011. The balance of the allowance for loan losses increased by $3.0 million, to $19.2 million at June 30, 2012, from $16.2 million at June 30, 2011, as management increased qualitative factors considered in determining the appropriateness of the allowance due to subdued economic conditions. Also, the provision for loan losses and the balance of the allowance for loan losses increased due to increased loan production. Net charge-offs declined to $241,000 for the second quarter of 2012, from $400,000 for the second quarter of 2011.
50
Non-interest Income. Non-interest income increased by $877,000, or 11.5%, to $8.5 million for the three months ended June 30, 2012, from $7.6 million for the three months ended June 30, 2011.
Three Months Ended | ||||||||||||||||
June 30, | Dollar | Percent | ||||||||||||||
2012 | 2011 | Change | Change(1) | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Non-interest income |
||||||||||||||||
Service charges and fees |
$ | 4,827 | $ | 4,721 | $ | 106 | 2.2 | % | ||||||||
Other charges and fees |
165 | 225 | (60 | ) | (26.7 | ) | ||||||||||
Net gain on sale of mortgage loans |
2,174 | 1,879 | 295 | 15.7 | ||||||||||||
Bank-owned life insurance income |
165 | 167 | (2 | ) | (1.2 | ) | ||||||||||
Gain on sale of available for sale securities |
116 | | 116 | N/M | ||||||||||||
Loss on sale and disposition of assets |
(56 | ) | (6 | ) | (50 | ) | (833.3 | ) | ||||||||
Impairment of goodwill |
(818 | ) | (271 | ) | (547 | ) | (201.8 | ) | ||||||||
Other |
1,940 | 921 | 1,019 | 110.6 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 8,513 | $ | 7,636 | $ | 877 | 11.5 | % | |||||||||
|
|
|
|
|
|
(1) | NM - Not meaningful |
The increase in non-interest income for the comparable quarters ended June 30, 2012 and 2011, was attributable to net gains of $897,000, which included 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, a $116,000 gain on the sale of available for sale securities acquired from Highlands, and a $95,000 gain on the unwinding of $40 million in repurchase agreements acquired from Highlands. These gains totaling $2.0 million were partially offset by $1.1 million in losses associated with the scheduled sale of VPM, including the full impairment of VPMs remaining goodwill of $818,000 and $250,000 from fixed asset disposals. The net gain on the sale of mortgage loans increased by $295,000, or 15.7%, due to improved loan pricing on the secondary market as well as increased volume, selling $65.6 million in the quarter ended June 30, 2012 compared to $62.5 million in the quarter ended June 30, 2011.
Non-interest Expense. Non-interest expense increased by $8.1 million, or 44.1%, to $26.3 million for the three months ended June 30, 2012, from $18.3 million for the three months ended June 30, 2011.
Three Months Ended | ||||||||||||||||
June 30, | Dollar | Percent | ||||||||||||||
2012 | 2011 | Change | Change(1) | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Non-interest expense |
||||||||||||||||
Salaries and employee benefits |
$ | 14,110 | $ | 11,542 | $ | 2,568 | 22.2 | % | ||||||||
Acquisition costs |
3,741 | | 3,741 | N/M | ||||||||||||
Advertising |
490 | 510 | (20 | ) | (3.9 | ) | ||||||||||
Occupancy and equipment |
1,952 | 1,399 | 553 | 39.5 | ||||||||||||
Outside professional services |
691 | 704 | (13 | ) | (1.8 | ) | ||||||||||
Regulatory assessments |
624 | 498 | 126 | 25.3 | ||||||||||||
Data processing |
1,617 | 1,129 | 488 | 43.2 | ||||||||||||
Office operations |
1,934 | 1,477 | 457 | 30.9 | ||||||||||||
Other |
1,164 | 1,009 | 155 | 15.4 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 26,323 | $ | 18,268 | $ | 8,055 | 44.1 | % | |||||||||
|
|
|
|
|
|
(1) | NM - Not meaningful |
The increased non-interest expenses included Highlands-related acquisition costs of $3.7 million and $493,000 in severance costs related to the Highlands acquisition and the scheduled sale of VPM. Excluding these expense increases, salaries and employee benefits increased $1.8 million due to the addition of Highlands employees as well as adding the three new ViewPoint Bank banking center locations that opened in 2011. Occupancy and equipment increased $553,000, $325,000 of which was due to the addition of the Highland rents. Data processing expenses increased $488,000, of which $286,000 related to the Highlands acquisition, as well as increased software renewal costs. $201,000 of the increased office operations expenses were also related to the Highlands added costs.
51
Management has committed to a cost savings plan associated with the Highlands acquisition. The cost savings plan, which is expected to be substantially complete by the end of the third quarter of 2012 once the Highlands data processing conversion has been completed, is intended to streamline operations across the combined organization. The cost savings plan encompasses systems integration, employee-related charges and transaction-related costs. The Company is on track to achieve the anticipated cost savings and to begin seeing the impacts of the fully integrated, combined organization.
Income Tax Expense. During the three months ended June 30, 2012, we recognized income tax expense of $3.4 million on our pre-tax income, which resulted in an effective tax rate of 34.6%, compared to income tax expense of $2.4 million, which was an effective tax rate of 33.2%, for the three months ended June 30, 2011. The increase in the effective tax rate was primarily due to various immaterial adjustments to income tax expense recorded during the period.
Comparison of Results of Operations for the Six Months ended June 30, 2012 and 2011
General. Net income for the six months ended June 30, 2012, was $13.6 million, an increase of $2.2 million, or 18.9%, from net income of $11.4 million, for the six months ended June 30, 2011. The increase in net income was driven by an increase in net interest income of $14.8 million, partially offset by a $7.6 million increase in noninterest expense, and a $2.9 million decrease in noninterest income. The increased noninterest expenses included acquisition costs of $3.9 million related to the Highlands acquisition, $136,000 in costs related to the sale of VPM, and $514,000 in severance costs related to both Highlands and VPM, as well as $308,000 in immediately vested restricted stock awarded to the Companys newly appointed CEO.
The six months ended June 30, 2011, included a $3.4 million gain on the sale of available for sale securities and $735,000 in gains on a community development-oriented private equity fund used for Community Reinvestment Act purposes, which was partially offset by net gains of $897,000 in the six months ended June 30, 2012. Basic and diluted earnings per share for the six months ended June 30, 2012, were $0.39, a $0.04 increase from $0.35 for the six months ended June 30, 2011. Earnings per share for the six months ended June 30, 2012, was reduced by $0.07 due to the increases in noninterest expense relating to the Highlands acquisition, the sale of VPM, severance costs and restricted stock vesting, partially offset by the net gains of $897,000.
Interest Income. Interest income increased by $8.6 million, or 15.4%, to $64.5 million for the six months ended June 30, 2012, from $55.9 million for the six months ended June 30, 2011.
Six Months Ended | ||||||||||||||||
June 30, | Dollar | Percent | ||||||||||||||
2012 | 2011 | Change | Change | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Interest and dividend income |
||||||||||||||||
Loans, including fees |
$ | 54,610 | $ | 41,294 | $ | 13,316 | 32.2 | % | ||||||||
Securities |
9,589 | 14,453 | (4,864 | ) | (33.7 | ) | ||||||||||
Interest-bearing deposits in other financial institutions |
57 | 100 | (43 | ) | (43.0 | ) | ||||||||||
FHLB and FRB stock |
247 | 34 | 213 | 626.5 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 64,503 | $ | 55,881 | $ | 8,622 | 15.4 | % | |||||||||
|
|
|
|
|
|
The increase in interest income for the six months ended June 30, 2012, compared to the six months ended June 30, 2011, was primarily due to a $13.3 million, or 32.2%, increase in interest income on loans. Accretion of the Highlands purchase discount contributed $1.4 million to the increase for the comparable periods.
Interest income on Warehouse Purchase Program loans increased $6.9 million, as the average balance increased by $372.1 million from the six months ended June 30, 2011. Additionally, the average balance of commercial real estate loans increased by $159.7 million during the six months ended June 30, 2012, compared to the six months ended June 30, 2011, which led to a $3.9 million increase in interest income. The average balance of C&I loans for the six months ended June 30, 2012, increased by $88.5 million from the same period in 2011, leading to a $2.3 million increase in interest income. The average balance of one- to four-family loans increased $23.0 million compared to the three months ended June 30, 2011, increasing interest income by $514,000.
52
These increases were partially offset by a $4.9 million, or 33.7%, decline in interest on securities, which resulted from the sale of securities and normal paydowns. Overall, the yield on interest-earning assets increased by 10 basis points, to 4.25% for the six months ended June 30, 2012, from 4.15% for the six months ended June 30, 2011.
Interest Expense. Interest expense decreased by $6.1 million, or 34.1%, to $11.8 million for the six months ended June 30, 2012, from $17.9 million for the six months ended June 30, 2011.
Six Months Ended | ||||||||||||||||
June 30, | Dollar | Percent | ||||||||||||||
2012 | 2011 | Change | Change | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Interest expense |
||||||||||||||||
Deposits |
$ | 6,476 | $ | 12,343 | $ | (5,867 | ) | (47.5 | %) | |||||||
FHLB advances |
4,869 | 4,893 | (24 | ) | (0.5 | ) | ||||||||||
Repurchase agreements |
454 | 405 | 49 | 12.1 | ||||||||||||
Other borrowings |
28 | 298 | (270 | ) | (90.6 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
$ | 11,827 | $ | 17,939 | $ | (6,112 | ) | (34.1 | %) | ||||||||
|
|
|
|
|
|
The decrease in interest expense for the six months ended June 30, 2012, compared to the six months ended June 30, 2011, was primarily due to a $5.9 million, or 47.5%, decrease in interest expense on deposits.
The decrease in interest expense on deposits was primarily due to a $2.7 million decrease in interest expense on time accounts, which was primarily caused by a $158.0 million decline in the average balance during the six months ended June 30, 2012, compared to the six months ended June 30, 2011, and a 50 basis point decline in the average rate for the same periods. Additionally, interest expense on interest-bearing demand deposits declined by $2.3 million, primarily due to a 108 basis point decline in the average rate, from 1.97% for the six months ended June 30, 2011, to 0.89% for the six months ended June 30, 2012. Over the past year, the rate on the Absolute Checking product has been gradually reduced: at June 30, 2011, the Absolute Checking product paid an Annual Percentage Yield (APY) of 4.00% on balances up to $25,000, 0.95% on balances between $25,001 and $100,000, and 0.04% on balances greater than $100,000. At June 30, 2012, Absolute Checking paid an APY of 2.00% on balances up to $25,000 and 0.10% on balances greater than $25,000.
The Highlands acquisition added interest expense on borrowings of $74,000, which consisted of interest expense paid on repurchase agreements and other borrowings with an average balance of $39.1 million. The average balance of borrowings increased by $251.5 million during the six months ended June 30, 2012, compared to the six months ended June 30, 2011; however, this increase was more than offset by a 132 basis point decline in the average rate for the same periods.
Net Interest Income. Net interest income increased by $14.8 million, or 38.8%, to $52.7 million for the six months ended June 30, 2012, from $37.9 million for the six months ended June 30, 2011. The net interest margin increased 65 basis points to 3.47% for the six months ended June 30, 2012, from 2.82% for the same period last year. The net interest rate spread increased 76 basis points to 3.28% for the six months ended June 30, 2012, from 2.52% for the same period last year. The increase in the net interest rate spread and margin was primarily attributable to changes in the earning asset mix, lower deposit and borrowing rates, and the impact of the Highlands acquisition.
53
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents, for the periods indicated, the total dollar amount of interest income earned on average interest earning assets the interest expense paid on average interest bearing liabilities, over the first six months of 2012 and 2011. Also presented are the weighted average yields on interest earning assets and rates paid on interest bearing liabilities, and the resultant spread. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.
Six Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Average Outstanding Balance |
Interest Earned/Paid |
Yield/ Rate |
Average Outstanding Balance |
Interest Earned/Paid |
Yield/ Rate |
|||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
One- to four- family real estate |
$ | 400,977 | $ | 10,666 | 5.32 | % | $ | 377,931 | $ | 10,152 | 5.37 | % | ||||||||||||
Loans held for sale: |
||||||||||||||||||||||||
Warehouse Purchase Program |
650,055 | 13,401 | 4.12 | 277,943 | 6,491 | 4.67 | ||||||||||||||||||
ViewPoint Mortgage loans |
21,337 | 495 | 4.64 | 22,013 | 604 | 5.49 | ||||||||||||||||||
Commercial real estate |
653,742 | 20,672 | 6.32 | 494,089 | 16,764 | 6.79 | ||||||||||||||||||
Home equity/home improvement |
142,924 | 3,979 | 5.57 | 140,684 | 4,070 | 5.79 | ||||||||||||||||||
Consumer |
56,414 | 1,776 | 6.30 | 58,334 | 1,919 | 6.58 | ||||||||||||||||||
Commercial and industrial |
127,549 | 3,621 | 5.68 | 39,085 | 1,294 | 6.62 | ||||||||||||||||||
Less: deferred fees and allowance for loan loss |
(17,308 | ) | | 0.00 | (15,241 | ) | | 0.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Loans receivable 1 |
2,035,690 | 54,610 | 5.37 | 1,394,838 | 41,294 | 5.92 | ||||||||||||||||||
Agency mortgage-backed securities |
338,530 | 4,356 | 2.57 | 471,131 | 6,563 | 2.79 | ||||||||||||||||||
Agency collateralized mortgage obligations |
533,784 | 4,229 | 1.58 | 667,788 | 6,728 | 2.02 | ||||||||||||||||||
Investment securities |
57,180 | 1,004 | 3.51 | 65,400 | 1,162 | 3.55 | ||||||||||||||||||
FHLB and FRB stock |
34,264 | 247 | 1.44 | 15,663 | 34 | 0.43 | ||||||||||||||||||
Interest earning deposit accounts |
33,525 | 57 | 0.34 | 77,660 | 100 | 0.26 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-earning assets |
3,032,973 | 64,503 | 4.25 | 2,692,480 | 55,881 | 4.15 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-interest-earning assets |
168,839 | 141,473 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 3,201,812 | $ | 2,833,953 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing demand |
$ | 489,628 | 2,169 | 0.89 | $ | 453,758 | 4,468 | 1.97 | ||||||||||||||||
Savings and money market |
826,217 | 1,123 | 0.27 | 720,999 | 2,030 | 0.56 | ||||||||||||||||||
Time |
501,012 | 3,184 | 1.27 | 659,020 | 5,845 | 1.77 | ||||||||||||||||||
Borrowings |
618,155 | 5,351 | 1.73 | 366,672 | 5,596 | 3.05 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-bearing liabilities |
2,435,012 | 11,827 | 0.97 | 2,200,449 | 17,939 | 1.63 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-interest-bearing checking |
264,728 | 191,401 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-interest-bearing liabilities |
44,249 | 33,681 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities |
2,743,989 | 2,425,531 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total shareholders equity |
457,823 | 408,422 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities and shareholders equity |
$ | 3,201,812 | $ | 2,833,953 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income and margin |
$ | 52,676 | 3.47 | % | $ | 37,942 | 2.82 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income and margin (tax-equivalent basis) 2 |
$ | 53,021 | 3.50 | % | $ | 38,291 | 2.84 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest rate spread |
3.28 | % | 2.52 | % | ||||||||||||||||||||
Net earning assets |
$ | 597,961 | $ | 492,031 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities |
124.56 | % | 122.36 | % |
1 | Calculated net of deferred fees, loan discounts, loans in process and allowance for loan losses. Construction loans have been included in the one- to four- family and commercial real estate line items, as appropriate. |
2 | In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 35% for 2012 and 2011. Tax-exempt investments and loans had average balances of $52.5 million and $52.7 million for the six months ended June 30, 2012 and 2011, respectively. |
54
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.
Six Months Ended June 30, | ||||||||||||
2012 versus 2011 | ||||||||||||
Increase (Decrease) Due to | ||||||||||||
Total Increase | ||||||||||||
Volume | Rate | (Decrease) | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest-earning assets: |
||||||||||||
One- to four- family real estate |
$ | 614 | $ | (100 | ) | $ | 514 | |||||
Loans held for sale: |
| |||||||||||
Warehouse Purchase Program |
7,753 | (843 | ) | 6,910 | ||||||||
ViewPoint Mortgage loans |
(18 | ) | (91 | ) | (109 | ) | ||||||
Commercial real estate |
5,112 | (1,204 | ) | 3,908 | ||||||||
Home equity/home improvement |
64 | (155 | ) | (91 | ) | |||||||
Consumer |
(62 | ) | (81 | ) | (143 | ) | ||||||
Commercial and industrial |
2,536 | (209 | ) | 2,327 | ||||||||
|
|
|
|
|
|
|||||||
Loans receivable |
15,999 | (2,683 | ) | 13,316 | ||||||||
Agency mortgage-backed securities |
(1,736 | ) | (471 | ) | (2,207 | ) | ||||||
Agency collateralized mortgage obligations |
(1,210 | ) | (1,289 | ) | (2,499 | ) | ||||||
Investment securities |
(144 | ) | (14 | ) | (158 | ) | ||||||
FHLB and FRB stock |
72 | 141 | 213 | |||||||||
Interest earning deposit accounts |
(68 | ) | 25 | (43 | ) | |||||||
|
|
|
|
|
|
|||||||
Total interest-earning assets |
12,913 | (4,291 | ) | 8,622 | ||||||||
|
|
|
|
|
|
|||||||
Interest-bearing liabilities: |
||||||||||||
Interest-bearing demand |
329 | (2,628 | ) | (2,299 | ) | |||||||
Savings and money market |
263 | (1,170 | ) | (907 | ) | |||||||
Time |
(1,219 | ) | (1,442 | ) | (2,661 | ) | ||||||
Borrowings |
2,820 | (3,065 | ) | (245 | ) | |||||||
|
|
|
|
|
|
|||||||
Total interest bearing liabilities |
2,193 | (8,305 | ) | (6,112 | ) | |||||||
|
|
|
|
|
|
|||||||
Net interest income |
$ | 10,720 | $ | 4,014 | $ | 14,734 | ||||||
|
|
|
|
|
|
Provision for Loan Losses. The provision for loan losses was $2.3 million for the six months ended June 30, 2012, an increase of $182,000, or 8.4%, compared to the six months ended June 30, 2011. The balance of the allowance for loan losses increased by $3.0 million to $19.2 million at June 30, 2012, from $16.2 million at June 30, 2011, as management increased qualitative factors considered in determining the appropriateness of the allowance due to subdued economic conditions. Also, the provision for loan losses and the balance of the allowance for loan losses increased due to increased loan production. Net charge-offs declined to $600,000 for the six months ended June 30, 2012, from $848,000 for the six months ended June 30, 2011.
55
Non-interest Income. Non-interest income decreased by $2.9 million, or 15.8%, to $15.2 million for the six months ended June 30, 2012, from $18.1 million for the six months ended June 30, 2011.
Six Months Ended | ||||||||||||||||
June 30, | Dollar | Percent | ||||||||||||||
2012 | 2011 | Change | Change | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Non-interest income |
||||||||||||||||
Service charges and fees |
$ | 9,065 | $ | 9,368 | $ | (303 | ) | (3.2 | %) | |||||||
Other charges and fees |
293 | 400 | (107 | ) | (26.8 | ) | ||||||||||
Net gain on sale of mortgage loans |
4,406 | 3,828 | 578 | 15.1 | ||||||||||||
Bank-owned life insurance income |
274 | 285 | (11 | ) | (3.9 | ) | ||||||||||
Gain on sale of available for sale securities |
116 | 3,415 | (3,299 | ) | N/M | |||||||||||
Loss on sale and disposition of assets |
(137 | ) | (216 | ) | 79 | 36.6 | ||||||||||
Impairment of goodwill |
(818 | ) | (271 | ) | (547 | ) | (201.8 | ) | ||||||||
Other |
2,044 | 1,294 | 750 | 58.0 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 15,243 | $ | 18,103 | $ | (2,860 | ) | (15.8 | %) | ||||||||
|
|
|
|
|
|
The decrease in non-interest income for the six months ended June 30, 2012 compared to the six months ended June 30, 2011, was attributable to net gains of $4.1 million in 2011 compared to $897,000 in 2012. For the period ending 2011, a $3.4 million gain was recognized on the sale of available for sale securities, plus the value of an equity investment in a community development-oriented private equity fund used for Community Reinvestment Act purposes increased $735,000 in value. For the period ending 2012, a $116,000 gain was recognized on the sale of available for sale securities acquired by Highlands, the value of an equity investment in a community development-oriented private equity fund used for Community Reinvestment Act purposes increased $1.8 million, and a $95,000 gain was recognized on the unwinding of $40 million in repurchase agreements acquired from Highlands. These gains were partially offset by $1.1 million in losses associated with the scheduled sale of VPM, including the full impairment of VPMs remaining goodwill of $818,000 and $250,000 from fixed asset disposals. The net gain on the sale of mortgage loans increased by $578,000, or 15.1%, due to improved loan pricing on the secondary market as well as increased volume, as VPM sold $137.8 million in the six months ended June 30, 2012 compared to $135.5 million in the six months ended June 30, 2011. Service charges and fees decreased $303,000 primarily due to a $506,000 decline in non-sufficient funds fees as less items were returned in 2012 compared to 2011 and lower debit card interchange $302,000 in lower debit card interchange, partially offset by a $672,000 increase in Warehouse Purchase Program fee income.
56
Non-interest Expense. Non-interest expense increased by $7.7 million, or 20.6%, to $44.8 million for the six months ended June 30, 2012, from $37.1 million for the six months ended June 30, 2011.
Six Months Ended | ||||||||||||||||
June 30, | Dollar Change |
Percent | ||||||||||||||
2012 | 2011 | Change(1) | ||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Non-interest expense |
||||||||||||||||
Salaries and employee benefits |
$ | 25,834 | $ | 23,396 | $ | 2,438 | 10.4 | % | ||||||||
Acquisition costs |
3,885 | | 3,885 | N/M | ||||||||||||
Advertising |
775 | 866 | (91 | ) | (10.5 | ) | ||||||||||
Occupancy and equipment |
3,422 | 2,822 | 600 | 21.3 | ||||||||||||
Outside professional services |
1,174 | 1,357 | (183 | ) | (13.5 | ) | ||||||||||
Regulatory assessments |
1,205 | 1,457 | (252 | ) | (17.3 | ) | ||||||||||
Data processing |
2,862 | 2,198 | 664 | 30.2 | ||||||||||||
Office operations |
3,479 | 2,931 | 548 | 18.7 | ||||||||||||
Other |
2,139 | 2,102 | 37 | 1.8 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 44,775 | $ | 37,129 | $ | 7,646 | 20.6 | % | |||||||||
|
|
|
|
|
|
(1) | NM - Not meaningful |
The increased non-interest expenses included Highlands-related acquisition costs of $3.9 million and $514,000 in severance costs related to the Highlands acquisition and the scheduled sale of VPM. Excluding these expenses, salaries and employee benefits increased $1.6 million due to the addition of Highlands employees as well as adding the three new VPB banking center locations that opened in 2011. Occupancy and equipment increased $600,000, of which $325,000 was due to the addition of Highland rent expenses. Data processing expenses increased $664,000, of which $286,000 related to the Highlands acquisition, as well as increased software renewal costs. $201,000 of the increased office operations expenses were also related to the Highlands operations. Regulatory assessments declined $252,000 due to the new FDIC fee structure, which uses assets less Tier One capital as an assessment base and resulted in a lower rate.
Management has committed to a cost savings plan associated with the Highlands acquisition. The cost savings plan, which is expected to be substantially complete by the end of the third quarter of 2012 once the Highlands data processing conversion has been completed, is intended to streamline operations across the combined organization. The cost savings plan encompasses systems integration, employee-related charges and transaction-related costs. The Company is on track to achieve the anticipated cost savings and to begin seeing the impacts of the fully integrated, combined organization.
Income Tax Expense. During the six months ended June 30, 2012, we recognized income tax expense of $7.2 million on our pre-tax income, which was an effective tax rate of 34.8%, compared to income tax expense of $5.3 million, which was an effective tax rate of 31.9%, for the six months ended June 30, 2011. The increase in the effective tax rate was primarily due to various immaterial adjustments to income tax expense recorded during the period.
Liquidity
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. The Company relies on a number of different sources in order to meet its potential liquidity demands. The primary sources are increases in deposit accounts and cash flows from loan payments and the securities portfolio.
Planning for the Companys normal business liquidity needs, both expected and unexpected, is done on a daily and short-term basis through the cash management function. On a longer-term basis it is accomplished through the budget and strategic planning functions, with support from internal asset/liability management software model projections.
57
The Liquidity Committee monitors liquidity positions and projections, and adds liquidity contingency planning to the process by focusing on possible scenarios that would stress liquidity beyond the Banks normal business liquidity needs. These scenarios may include stressing loan demand and borrowing ability while focusing on high probability-high impact, high probability-low impact, low probability-high impact, and low probability-low impact stressors.
Management recognizes that the events and their severity of liquidity stress leading up to and occurring during a liquidity stress event cannot be precisely defined or listed. Nevertheless, management believes that liquidity stress events can be categorized into sources and uses of liquidity, and levels of severity, with responses that apply to various situations.
In addition to the primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of June 30, 2012, the Company had an additional borrowing capacity of $254.4 million with the FHLB. Also, at June 30, 2012, the Company had $76.0 million in federal funds lines of credit available with other financial institutions. The Company may also use the discount window at the Federal Reserve Bank as a source of short-term funding. Federal Reserve Bank borrowing capacity varies based upon securities pledged to the discount window line. As of June 30, 2012, securities pledged had a collateral value of $163.8 million.
As of June 30, 2012, the Company had classified 52.1% of its securities portfolio as available for sale, providing an additional source of liquidity. Management believes that because active markets exist and our securities portfolio is of high quality, our available for sale securities are marketable. In addition, we have historically sold mortgage loans in the secondary market to create another source of liquidity and to manage interest rate risk. Participations in loans we originate, including portions of commercial real estate loans, are sold to create still another source of liquidity and to manage borrower concentration risk as well as interest rate risk.
Liquidity management is both a daily and long-term function of business management. Short term excess liquidity is generally placed in short-term investments, such as overnight deposits and federal funds sold. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities.
The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Companys primary source of funds consists of the net proceeds retained by the Company from our initial public offering in 2006 and our second-step offering in July 2010. We also have the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. At June 30, 2012, the Company (on an unconsolidated basis) had liquid assets of $54.2 million.
The Company uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. The total approved loan commitments (including Warehouse Purchase Program commitments) and unused lines of credit outstanding amounted to $358.5 million and $104.7 million, respectively, compared to $337.8 million and $98.8 million, respectively, as of June 30, 2012 and December 31, 2011. It is managements policy to offer deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with the Company. Certificates of deposit scheduled to mature in one year or less at June 30, 2012 totaled $323.7 million with a weighted average rate of 0.82%.
During the six months ended June 30, 2012, cash and cash equivalents increased by $23.7 million, or 51.0%, to $70.0 million as of June 30, 2012, from $46.3 million as of December 31, 2011. Cash provided by investing activities of $127.3 million offset cash used by financing activities of $36.0 million and cash used in operating activities of $67.6 million. Primary sources of cash for the six months ended June 30, 2012 included proceeds from the sale of loans held for sale of $6.33 billion (primarily related to our Warehouse Purchase Program), maturities, prepayments and calls of available-for-sale securities of $353.7 million and proceeds from FHLB advances of $601.0 million. Primary uses of cash for the six months ended June 30, 2012, included loans originated or purchased for sale of $6.42 billion (primarily related to our Warehouse Purchase Program), purchases of available-for-sale securities of $316.1 million and repayments on FHLB advances of $472.3 million.
58
Please see Item 1A (Risk Factors) under Part 1 of the Companys 2011 Form 10-K for information regarding liquidity risk.
Off-Balance Sheet Arrangements, Contractual Obligations and Commitments
The following table presents our longer term, non-deposit related, contractual obligations and commitments to extend credit to our borrowers, in aggregate and by payment due dates (not including any interest amounts). In addition to the commitments below, the Company had overdraft protection available to its depositors in the amount of $72.5 million at June 30, 2012.
June 30, 2012 | ||||||||||||||||||||
Less than One Year |
One through Three Years |
Four through Five Years |
After Five Years |
Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Contractual obligations: |
||||||||||||||||||||
FHLB advances (gross of restructuring prepayment penalty of $3,707) |
$ | 675,921 | $ | 54,127 | $ | 122,069 | $ | 26,692 | $ | 878,809 | ||||||||||
Repurchase agreement |
13,682 | | | 25,000 | 38,682 | |||||||||||||||
Operating leases (premises) |
2,329 | 4,373 | 3,783 | 6,214 | 16,699 | |||||||||||||||
|
|
|
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|
|
|
|
|
|||||||||||
Total advances and operating leases |
$ | 691,932 | $ | 58,500 | $ | 125,852 | $ | 57,906 | 934,190 | |||||||||||
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|
|
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Off-balance sheet loan commitments: 1 |
||||||||||||||||||||
Unused commitments to extend credit |
$ | 291,838 | | | | 291,838 | ||||||||||||||
Unused commitment on Warehouse Purchase Program loans |
227,446 | | | | 227,446 | |||||||||||||||
Standby letters of credit |
6,691 | | | | 6,691 | |||||||||||||||
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|
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Total loan commitments |
$ | 525,975 | $ | | $ | | $ | | $ | 525,975 | ||||||||||
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|
|
|
|
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Total contractual obligations and loan commitments |
$ | 1,460,165 | ||||||||||||||||||
|
|
1 | Loans having no stated maturity are reported in the Less than One Year category. |
Capital Resources
The Bank and the Company are subject to minimum capital requirements imposed by the OCC and the FRB. Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank and the Company to maintain well-capitalized status under the capital categories of the OCC and the FRB. Based on capital levels at June 30, 2012, and December 31, 2011, the Bank and the Company were considered to be well-capitalized.
At June 30, 2012, the Banks equity totaled $396.0 million. The Companys equity totaled $505.6 million, or 13.7% of total assets, at June 30, 2012.
59
Actual | Required for Capital Adequacy Purposes |
To Be Well-Capitalized Under Prompt Corrective Action Regulations |
||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
As of June 30, 2012: |
||||||||||||||||||||||||
Total risk-based capital |
||||||||||||||||||||||||
the Company |
$ | 491,346 | 23.47 | % | $ | 167,488 | 8.00 | % | $ | 209,360 | 10.00 | % | ||||||||||||
the Bank |
381,729 | 18.25 | 167,352 | 8.00 | 209,191 | 10.00 | ||||||||||||||||||
Tier 1 risk-based capital |
||||||||||||||||||||||||
the Company |
472,116 | 22.55 | 83,744 | 4.00 | 125,616 | 6.00 | ||||||||||||||||||
the Bank |
362,500 | 17.33 | 83,676 | 4.00 | 125,514 | 6.00 | ||||||||||||||||||
Tier 1 leverage |
||||||||||||||||||||||||
the Company |
472,116 | 13.95 | 135,409 | 4.00 | 169,261 | 5.00 | ||||||||||||||||||
the Bank |
362,500 | 10.74 | 135,024 | 4.00 | 168,781 | 5.00 | ||||||||||||||||||
As of December 31, 2011 |
||||||||||||||||||||||||
Total risk-based capital |
||||||||||||||||||||||||
the Company |
$ | 421,185 | 25.46 | % | $ | 132,336 | 8.00 | % | $ | 165,421 | 10.00 | % | ||||||||||||
the Bank |
336,694 | 20.36 | 132,279 | 8.00 | 165,349 | 10.00 | ||||||||||||||||||
Tier 1 risk-based capital |
||||||||||||||||||||||||
the Company |
403,698 | 24.40 | 66,168 | 4.00 | 99,252 | 6.00 | ||||||||||||||||||
the Bank |
319,207 | 19.31 | 66,140 | 4.00 | 99,209 | 6.00 | ||||||||||||||||||
Tier 1 leverage |
||||||||||||||||||||||||
the Company |
403,698 | 12.58 | 128,398 | 4.00 | 160,498 | 5.00 | ||||||||||||||||||
the Bank |
319,207 | 9.94 | 128,517 | 4.00 | 160,647 | 5.00 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Asset/Liability Management
Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. However, market rates change over time. Like other financial institutions, our results of operations are impacted by changes in market interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in market interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.
How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in market interest rates and comply with applicable regulations, we calculate and monitor our interest rate risk. In doing so, we analyze and manage assets and liabilities based on their interest rates, contractual cash flows, timing of maturities, prepayment potential, repricing opportunities, periodic and lifetime caps and floors, and sensitivity to actual or potential changes in market interest rates.
The Company is subject to interest rate risk to the extent that its interest bearing liabilities, primarily deposits, FHLB advances and other borrowings, reprice more rapidly or slowly, or at different rates (basis risk) than its interest earning assets, primarily loans and investment securities.
The Bank calculates interest rate risk by entering relevant contractual and projected information into the asset/liability management software simulation model. Data required by the model includes balance, rate, pay down schedule, and maturity. For items that contractually reprice, the repricing index, spread, and frequency are entered, including any initial, periodic, and lifetime interest rate caps and floors.
60
The Bank has adopted an asset and liability management policy. This policy sets the foundation for monitoring and managing the potential for adverse effects of material, prolonged increases or decreases in interest rates on our results of operations. The Board of Directors sets the asset and liability policy for the Bank, which is implemented by the Asset/Liability Management Committee.
The purpose of the Asset/Liability Management Committee is to monitor, communicate, coordinate, and direct asset/liability management consistent with our business plan and board-approved policies. The committee directs and monitors the volume and mix of assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, interest rate risk, growth, and profitability goals.
The Committee meets on a bimonthly basis to, among other things, protect capital through earnings stability over the interest rate cycle; maintain our well-capitalized status; and provide a reasonable return on investment. The Committee recommends appropriate strategy changes based on this review. The Committee is responsible for reviewing and reporting the effects of policy implementation and strategies to the Board of Directors at least quarterly. In addition, three outside members of the Board of Directors are on the Asset/Liability Management Committee. Senior managers oversee the process on a daily basis.
A key element of the Banks asset/liability management strategy is to protect earnings by managing the inherent maturity and repricing mismatches between its interest earning assets and interest bearing liabilities. The Bank generally manages such earnings exposure through the addition of adjustable rate loans and investment securities, through the sale of certain fixed rate loans in the secondary market, and by entering into appropriate term FHLB advance agreements.
As part of its efforts to monitor and manage interest rate risk, the Bank uses the economic value of equity (EVE) methodology adopted by the OCC as part of its capital regulations. In essence, the EVE approach calculates the difference between the present value of expected cash flows from assets and liabilities. In addition to monitoring selected measures of EVE, management also calculates and monitors potential effects on net interest income resulting from increases or decreases in market interest rates. This approach uses the earnings at risk (EAR) methodology adopted by the OCC as part of its capital regulations. EAR calculates estimated net interest income using a flat balance sheet approach over a twelve month time horizon. The EAR process is used in conjunction with EVE measures to identify interest rate risk on both a global and account level basis. Management and the Board of Directors review EVE and EAR measurements at least quarterly to determine whether the Banks interest rate exposure is within the limits established by the Board of Directors.
The Banks asset/liability management strategy sets acceptable limits for the percentage change in EVE and EAR given changes in interest rates. For an instantaneous, parallel, and sustained interest rate increase or decrease of 100 basis points, the Banks policy indicates that the EVE ratio should not fall below 7.00%, and for increases of 200, 300 and 400 basis points, the EVE ratio should not fall below 6.00%, 5.25% and 5.00%, respectively. For an instantaneous, parallel, and sustained interest rate increase or decrease of 100 basis points, the Banks policy indicates that EAR should not decrease by more than 7%, and for increases of 200, 300, and 400 basis points, EAR should not decrease by more than 10%, 13%, and 15%, respectively.
As illustrated in the tables below, the Bank was within policy limits for all scenarios tested. The tables presented below, as of June 30, 2012, and December 31, 2011, are internal analyses of our interest rate risk as measured by changes in EVE and EAR for instantaneous, parallel, and sustained shifts for all market rates and yield curves, in 100 basis point increments, up 400 basis points and down 100 basis points.
As illustrated in the June 30, 2012, table below, our EVE would be positively impacted by a parallel, instantaneous, and sustained increase in market rates of 100, 200, 300 or 400 basis points. Such an increase in rates would positively impact EVE as a result of the duration of assets, including variable rate loans acquired in the Highlands transaction, being less than the duration of liabilities, primarily deposit accounts and FHLB borrowings. As illustrated in the June 30, 2012, table below, our EAR would be positively impacted by a parallel, instantaneous, and sustained increase in market rates of 200, 300, or 400 basis points. As market interest rates rise and variable loan rates move above their floors, the interest rate repricing of variable rate and maturing loans and securities increases net interest income.
61
Economic Value of Equity and Earnings at Risk
(Dollar amounts in thousands)
June 30, 2012 |
Economic Value of Equity | Earnings at Risk (12 months) | ||||||||||||||||||||||||||
Change in Interest Rates in Basis Points |
Estimated EVE |
Estimated Increase / (Decrease) in EVE |
EVE Ratio |
Estimated Net Interest Income |
Increase /(Decrease) in Estimated Net Interest Income |
|||||||||||||||||||||||
$ Amount | $ Change | % Change | $ Amount | $ Change | % Change | |||||||||||||||||||||||
400 |
489,032 | 17,598 | 3.73 | 14.03 | 118,076 | 12,141 | 11.46 | |||||||||||||||||||||
300 |
498,297 | 26,862 | 5.70 | 14.02 | 112,440 | 6,505 | 6.14 | |||||||||||||||||||||
200 |
501,592 | 30,157 | 6.40 | 13.86 | 106,682 | 746 | 0.70 | |||||||||||||||||||||
100 |
494,265 | 22,830 | 4.84 | 13.44 | 102,738 | (3,197 | ) | (3.02 | ) | |||||||||||||||||||
0 |
471,434 | | | 12.66 | 105,935 | | | |||||||||||||||||||||
(100) |
444,332 | (27,102 | ) | (5.75 | ) | 11.79 | 107,272 | 1,337 | 1.26 |
December 31, 2011 |
Economic Value of Equity | Earnings at Risk (12 months) | ||||||||||||||||||||||||||
Change in Interest Rates in Basis Points |
Estimated EVE |
Estimated Increase / (Decrease) in EVE |
EVE Ratio |
Estimated Net Interest Income |
Increase / (Decrease) in Estimated Net Interest Income |
|||||||||||||||||||||||
$ Amount | $ Change | % Change | $ Amount | $ Change | % Change | |||||||||||||||||||||||
400 |
392,825 | (17,571 | ) | (4.28 | ) | 13.22 | 93,440 | 10,734 | 12.98 | |||||||||||||||||||
300 |
410,840 | 444 | 0.11 | 13.51 | 89,242 | 6,536 | 7.90 | |||||||||||||||||||||
200 |
420,598 | 10,202 | 2.49 | 13.54 | 84,896 | 2,190 | 2.65 | |||||||||||||||||||||
100 |
421,130 | 10,734 | 2.62 | 13.30 | 80,798 | (1,908 | ) | (2.31 | ) | |||||||||||||||||||
0 |
410,396 | | | 12.75 | 82,706 | | | |||||||||||||||||||||
(100) |
383,397 | (26,999 | ) | (6.58 | ) | 11.76 | 85,652 | 2,946 | 3.56 |
The Banks EVE was $471.4 million, or 12.66%, of the economic value of assets as of June 30, 2012, a $61.0 million increase from $410.4 million, or 12.75%, of the economic value of assets as of December 31, 2011. Based upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in a $30.2 million increase in our EVE at June 30, 2012, compared to a $10.2 million increase at December 31, 2011, and would result in a 120 basis point increase in our EVE ratio to 13.86% at June 30, 2012, as compared to a 79 basis point increase to 13.54% at December 31, 2011. An immediate 100 basis point decrease in market interest rates would result in a $27.1 million decrease in our EVE at June 30, 2012, compared to a $27.0 million decrease at December 31, 2011, and would result in an 87 basis point decrease in our EVE ratio to 11.79% at June 30, 2012, as compared to a 99 basis point decrease in our EVE ratio to 11.76% at December 31, 2011.
The Banks EAR for the twelve months ending June 30, 2013 is measured at $105.9 million, compared to $82.7 million for the twelve months ending December 31, 2012. Based on the assumptions utilized, an immediate 200 basis point increase in market rates would result in an $746 thousand, or 0.70%, increase in net interest income for the twelve months ending June 30, 2013, compared to a $2.2 million, or 2.65%, increase for the twelve months ending December 31, 2012. An immediate 100 basis point decrease in market rates would result in a $1.3 million increase in net interest income for the twelve months ending June 30, 2013, compared to a $2.9 million increase for the twelve months ending December 31, 2012.
62
We have implemented a strategic plan to mitigate interest rate risk. This plan includes the ongoing review of our mix of fixed rate versus variable rate loans, investments, deposits, and borrowings. When available and appropriate, high quality adjustable rate assets are purchased or originated. These assets reduce our EVE sensitivity to upward interest rate shocks. On the liability side of the balance sheet, term borrowings are added as appropriate. These borrowings will be of a size and term so as to mitigate the impact of duration mismatches, reducing our sensitivity to upward interest rate shocks. These strategies are implemented as needed and as opportunities arise to mitigate interest rate risk without materially sacrificing earnings.
In managing our mix of assets and liabilities, while considering the relationship between long and short term interest rates, market conditions, and consumer preferences, we may place somewhat greater emphasis on maintaining or increasing the Banks net interest margin than on strictly matching the interest rate sensitivity of its assets and liabilities.
Management also believes that at times the increased net income which may result from a mismatch in the actual maturity, repricing, or duration of its asset and liability portfolios can provide sufficient returns to justify the increased exposure to sudden increases or decreases in interest rates which may result from such a mismatch. Management believes that the Banks approach to interest rate risk is acceptable under these circumstances.
In evaluating the Banks exposure to market interest rate movements, certain shortcomings inherent in the method of analysis presented in the foregoing table must be considered. For example, although certain assets and liabilities may have similar maturities or repricing characteristics, their interest rate drivers may react in different degrees to changes in market interest rates (basis risk). Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag changes in market interest rates. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates over the life of the asset (time to initial interest rate reset; interest rate reset frequency; initial, periodic, and lifetime caps and floors). Further, in the event of a significant change in market interest rates, loan and securities prepayment levels, time deposit early withdrawal levels, and the duration of non-maturity deposits may deviate significantly from those assumed in the table above. Assets with prepayment options and liabilities with early withdrawal options are being monitored. Current market rates and historical customer behavior are being considered in the management of interest rate risk. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. The Bank considers all of these factors in monitoring its exposure to interest rate risk. Of note, the current historically low interest rate environment has resulted in a degree of asymmetrical interest rate risk. The interest rates on certain repricing assets and liabilities cannot be fully shocked downward.
The Board of Directors and management believe that the Banks ability to successfully manage and mitigate its exposure to interest rate risk is strengthened by several key factors. For example, the Bank manages its balance sheet duration and overall interest rate risk by placing a preference on originating and retaining adjustable rate loans and selling originated fixed rate residential mortgage loans. In addition, the Bank borrows at various maturities from the FHLB to mitigate mismatches between the asset and liability portfolios. Furthermore, the investment securities portfolio is used as a primary interest rate risk management tool through the duration and repricing targeting of purchases and sales.
63
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2012. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. There has been no change in the Companys internal controls over financial reporting during the quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goals, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual actions of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
64
We are involved from time to time as plaintiff or defendant in various legal actions arising in the normal course of our businesses. While the ultimate outcome of pending proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing us in such proceedings, that the resolution of these proceedings should not have a material adverse effect on our consolidated financial position or results of operations.
There have been no material changes from risk factors as previously disclosed in the Companys 2011 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not repurchase any of its common stock during the three months ended June 30, 2012.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
65
Exhibit |
Description | |
2.1 | Agreement and Plan of Merger by and between the Registrant and Highlands Bancshares, Inc. (incorporated herein by reference to Exhibit 2.1 of the Registrants Current Report on Form 8-K filed with the SEC on December 9, 2011 (File No. 001-34737)) | |
3.1 | Charter of the Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrants Registration Statement on Form S-1, as amended (File No. 333-165509)) | |
3.2 | Bylaws of the Registrant (incorporated herein by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-1 (File No. 333-165509)) | |
4.0 | Certificate of Registrants Common Stock (incorporated herein by reference to Exhibit 4.0 to the Registrants Registration Statement on Form S-1, as amended (File No. 333-165509)) | |
10.1 | Form of Severance Agreement between ViewPoint Bank and the following executive officers: Pathie E. McKee, James C. Parks and Mark L. Williamson (incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on February 17, 2011 (File No. 001-34737)) | |
10.2 | Summary of Director Board Fee Arrangements (incorporated herein by reference to Exhibit 3.2 to the Registrants Quarterly Report on Form 10-Q filed with the SEC on August 9, 2007 (File No. 001-32992)) | |
10.3 | ViewPoint Bank Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.7 to the Registrants Registration Statement on Form S-1, as amended (File No. 0-24566-01)) | |
10.4 | Amended and Restated ViewPoint Bank Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.8 to the Registrants Registration Statement on Form S-1, as amended (File No. 0-24566-01)) | |
10.5 | Executive Officer Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on January 26, 2011 (File No. 001-34737)) | |
10.6 | Resignation, Consulting, Noncompetition, Non-solicitation and Confidentiality Agreement and Release between the Registrant and Garold R. Base (incorporated herein by reference to Exhibit 10.11 to the Registrants Annual Report on Form 10-K filed with the SEC on February 28, 2012 (File No. 001-34737)) | |
10.7 | Employment Agreement between the Registrant and ViewPoint Bank, N.A. and Kevin Hanigan (incorporated herein by reference to Exhibit 10.1 to the Registrants Registration Statement on Form S-4 filed with the SEC on January 17, 2012 (File No. 333-179037)) | |
10.8 | Form of General Release between the Registrant and Mark E. Hord (incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on July 5, 2012 (File No. 001-34737)) | |
11 | Statement regarding computation of per share earnings (See Note 2 of the Condensed Notes to Unaudited Consolidated Interim Financial Statements included in this Form 10-Q). | |
31.1 | Rule 13a 14(a)/15d 14(a) Certification (Chief Executive Officer) | |
31.2 | Rule 13a 14(a)/15d 14(a) Certification (Chief Financial Officer) | |
32 | Section 1350 Certifications | |
101* | Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended June 30, 2012, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Condensed Notes to Unaudited Consolidated Interim Financial Statements.* |
* | As provided in Rule 406T of Regulation S-T, this information shall not be deemed filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections. |
66
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ViewPoint Financial Group, Inc.
(Registrant)
Date: July 24, 2012 |
/s/ Kevin J. Hanigan | |||||
Kevin J. Hanigan | ||||||
President and Chief Executive Officer | ||||||
(Duly Authorized Officer) |
Date: July 24, 2012 | /s/ Pathie E. McKee | |||||
Pathie E. McKee | ||||||
Executive Vice President, Chief Financial Officer and Treasurer | ||||||
(Principal Financial and Accounting Officer) |
67
Exhibits: |
||
31.1 | Certification of the Chief Executive Officer | |
31.2 | Certification of the Chief Financial Officer | |
32.0 | Section 1350 Certifications | |
101* | Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended June 30, 2012, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Condensed Notes to Unaudited Consolidated Interim Financial Statements.* |
* | As provided in Rule 406T of Regulation S-T, this information shall not be deemed filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections. |
68
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Kevin J. Hanigan, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of ViewPoint Financial Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: July 24, 2012 | /s/ Kevin J. Hanigan | |||||
Kevin J. Hanigan | ||||||
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Pathie E. McKee, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of ViewPoint Financial Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: July 24, 2012 | /s/ Pathie E. McKee | |||||
Pathie E. McKee | ||||||
Executive Vice President, Chief Financial Officer and Treasurer |
EXHIBIT 32
STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of ViewPoint Financial Group, Inc. on Form 10-Q for the quarterly period ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Kevin J. Hanigan, President and Chief Executive Officer of the Company, and Pathie E. McKee, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of the dates and for the periods presented in the financial statements included in such Report. |
Date: July 24, 2012 | By: | /s/ Kevin J. Hanigan | ||||
Kevin J. Hanigan, President and Chief Executive Officer |
Date: July 24, 2012 | By: | /s/ Pathie E. McKee | ||||
Pathie E. McKee, Executive Vice President, Chief Financial Officer and Treasurer |
Acquisition (Details Textual) (USD $)
In Thousands, except Share data, unless otherwise specified |
6 Months Ended | |
---|---|---|
Jun. 30, 2012
|
Apr. 02, 2012
Number_Of_Shares
|
|
Acquired Finite Lived Intangible Assets [Line Items] | ||
Estimated life expected | 7 years | |
Acquisition (Textual) [Abstract] | ||
Common stock ratio | 0.6636 | |
Common stock, shares issued | 5,513,061 | |
Common stock, value issued | $ 86,114 | |
Closing stock, price | $ 15.62 | |
Core deposit intangible [Member]
|
||
Acquired Finite Lived Intangible Assets [Line Items] | ||
Estimated life expected | 7 years |
Share-Based Compensation (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Compensation cost charged to income for: | ||||
Income tax benefit | $ 247 | $ 178 | $ 364 | $ 328 |
Restricted Stock [Member]
|
||||
Compensation cost charged to income for: | ||||
Compensation cost | 606 | 353 | 831 | 703 |
Stock Options [Member]
|
||||
Compensation cost charged to income for: | ||||
Compensation cost | $ 101 | $ 155 | $ 209 | $ 235 |
Loans (Details 9) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Consumer Credit Exposure Credit Risk Profile Based on Payment Activity | ||
Total | $ 62,643 | $ 51,170 |
Automobile [Member]
|
||
Consumer Credit Exposure Credit Risk Profile Based on Payment Activity | ||
Total | 37,376 | 33,027 |
Automobile [Member] | Performing [Member]
|
||
Consumer Credit Exposure Credit Risk Profile Based on Payment Activity | ||
Total | 37,346 | 33,001 |
Automobile [Member] | Non-performing [Member]
|
||
Consumer Credit Exposure Credit Risk Profile Based on Payment Activity | ||
Total | 30 | 26 |
Other consumer [Member]
|
||
Consumer Credit Exposure Credit Risk Profile Based on Payment Activity | ||
Total | 25,267 | 18,143 |
Other consumer [Member] | Performing [Member]
|
||
Consumer Credit Exposure Credit Risk Profile Based on Payment Activity | ||
Total | 25,261 | 18,143 |
Other consumer [Member] | Non-performing [Member]
|
||
Consumer Credit Exposure Credit Risk Profile Based on Payment Activity | ||
Total | $ 6 |
Loans (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Mar. 31, 2012
|
Dec. 31, 2011
|
Jun. 30, 2011
|
Mar. 31, 2011
|
Dec. 31, 2010
|
---|---|---|---|---|---|---|
Real estate loans: | ||||||
Real estate loans, Home equity/home improvement | $ 144,147 | $ 140,966 | ||||
Total real estate loans | 1,340,242 | 1,106,238 | ||||
Consumer loans: | ||||||
Total consumer loans | 62,643 | 51,170 | ||||
Commercial and industrial | 197,671 | 70,620 | ||||
Gross loans | 1,600,556 | 1,228,028 | 1,146,190 | |||
Deferred loan origination fees, net | 407 | 516 | ||||
Allowance for loan losses | (19,229) | (18,023) | (17,487) | (16,159) | (15,494) | (14,847) |
Net loans held for investment | 1,581,734 | 1,211,057 | ||||
Mortgage loans held for sale: | ||||||
Mortgage loans held for sale | 925,637 | 834,352 | ||||
ViewPoint Mortgage [Member]
|
||||||
Mortgage loans held for sale: | ||||||
Mortgage loans held for sale | 17,083 | 33,417 | ||||
Warehouse Purchase Program [Member]
|
||||||
Mortgage loans held for sale: | ||||||
Mortgage loans held for sale | 908,554 | 800,935 | ||||
Automobile [Member]
|
||||||
Consumer loans: | ||||||
Total consumer loans | 37,376 | 33,027 | ||||
Other consumer [Member]
|
||||||
Consumer loans: | ||||||
Total consumer loans | 25,267 | 18,143 | ||||
One-to Four-Family [Member]
|
||||||
Real estate loans: | ||||||
Real estate loans, One- to four-family | 435,486 | 379,944 | ||||
Consumer loans: | ||||||
Gross loans | 435,486 | 385,458 | ||||
Allowance for loan losses | (3,076) | (3,009) | (3,027) | (3,023) | (3,220) | (3,307) |
Commercial [Member]
|
||||||
Real estate loans: | ||||||
Real estate loans, Commercial | 760,609 | 585,328 | ||||
Home Equity/Home Improvement [Member]
|
||||||
Real estate loans: | ||||||
Real estate loans, Home equity/home improvement | 144,147 | 140,966 | ||||
Consumer loans: | ||||||
Gross loans | 144,147 | 142,328 | ||||
Allowance for loan losses | $ (1,186) | $ (1,014) | $ (1,043) | $ (873) | $ (893) | $ (936) |
Share-Based Compensation (Details Textual) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Stock Options [Member]
|
|
Share Based Compensation (Textual) [Abstract] | |
Total unrecognized compensation expense related to non-vested shares | $ 1,092 |
Weighted-average period | 3 years 3 months 26 days |
Restricted Stock [Member]
|
|
Share Based Compensation (Textual) [Abstract] | |
Total unrecognized compensation expense related to non-vested shares | $ 675 |
Weighted-average period | 3 years 2 months 19 days |
Fair Value (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Loans held for sale accounted for using the fair value option | ||
Aggregate fair value | $ 10,161 | $ 16,607 |
Aggregate outstanding principal | $ 9,982 | $ 16,379 |
Subsequent Events (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Subsequent Events (Textual) [Abstract] | ||||
Percentage Of Current Employees To Hire Under Terms Of Agreement | no less than 95% | |||
Percentage of current VPBM employees to hire under employment contracts | 95.00% | |||
Written off goodwill associated with VPBM | $ 818 | $ 271 | $ 818 | $ 271 |
Amount of expenses relating to sale in one time write offs | 1,190 | |||
Balance of Goodwill after impairment | 0 | 0 | ||
Amount of fixed asset losses | $ 250 |
Recent Accounting Developments (Details)
|
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Recent accounting developments (Textual) [Abstract] | |
Percentage of goodwill | 50.00% |
Share-Based Compensation (Details 1) (Restricted Stock [Member], USD $)
|
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Restricted Stock [Member]
|
|
Shares | |
Non-vested at January 1 | 71,603 |
Granted | 72,086 |
Vested | (97,393) |
Forfeited | 0 |
Non-vested at June 30 | 46,296 |
Weighted- Average Grant Date Fair Value | |
Non-vested at January 1 | $ 13.08 |
Granted | $ 15.70 |
Vested | $ 13.84 |
Forfeited | $ 0.00 |
Non-vested at June 30 | $ 15.55 |
Securities (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
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Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of available-for-sale securities and the related gross unrealized gains and losses |
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Carrying amount, unrecognized gains and losses, and fair value of securities held to maturity |
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Carrying amount and fair value of held to maturity debt securities and the fair value of available-for-sale debt securities |
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Summarized sales activity |
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Summarized of Information regarding pledged securities |
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Securities with unrealized losses aggregated by investment and length of time that individual securities have been in a continuous unrealized loss position category |
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Loans (Details 4) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
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Dec. 31, 2011
|
---|---|---|
Summary of outstanding balances of Troubled Debt Restructuring | ||
Troubled Debt Restructuring | $ 14,168 | $ 13,691 |
Specific reserves on TDR's | 2,179 | 2,115 |
Outstanding commitments to lend additional funds to borrowers with TDR loans | ||
Nonaccrual troubled debt restructuring [Member]
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Summary of outstanding balances of Troubled Debt Restructuring | ||
Troubled Debt Restructuring | 10,411 | 10,420 |
Performing troubled debt restructuring [Member]
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Summary of outstanding balances of Troubled Debt Restructuring | ||
Troubled Debt Restructuring | $ 3,757 | $ 3,271 |
Segment Information (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
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Jun. 30, 2011
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Jun. 30, 2012
|
Jun. 30, 2011
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Results of Operations: | ||||
Total interest income | $ 35,127 | $ 27,986 | $ 64,503 | $ 55,881 |
Total interest expense | 5,941 | 9,021 | 11,827 | 17,939 |
Provision for loan losses | 1,447 | 1,065 | 2,342 | 2,160 |
Net interest income after provision for loan losses | 27,739 | 17,900 | 50,334 | 35,782 |
Other revenue | 6,339 | 5,757 | 10,837 | 14,275 |
Net gain (loss) on sale of loans | 2,174 | 1,879 | 4,406 | 3,828 |
Total non-interest expense | 26,323 | 18,268 | 44,775 | 37,129 |
Income before income tax expense (benefit) | 9,929 | 7,268 | 20,802 | 16,756 |
Income tax expense/Income tax expense (benefit) | 3,437 | 2,411 | 7,238 | 5,345 |
Net income | 6,492 | 4,857 | 13,564 | 11,411 |
Segment assets | 3,692,856 | 2,963,882 | 3,692,856 | 2,963,882 |
Noncash items: | ||||
Net gain (loss) on sale of loans | 2,174 | 1,879 | 4,406 | 3,828 |
Depreciation | 1,027 | 876 | 1,942 | 1,756 |
Provision for loan losses | 1,447 | 1,065 | 2,342 | 2,160 |
Banking [Member]
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Results of Operations: | ||||
Total interest income | 35,117 | 27,916 | 64,473 | 55,745 |
Total interest expense | 6,105 | 9,077 | 12,182 | 18,051 |
Provision for loan losses | 1,463 | 1,085 | 2,362 | 2,178 |
Net interest income after provision for loan losses | 27,549 | 17,754 | 49,929 | 35,516 |
Other revenue | 6,596 | 5,459 | 11,157 | 13,594 |
Net gain (loss) on sale of loans | (368) | (356) | (939) | (891) |
Total non-interest expense | 22,504 | 15,061 | 37,770 | 30,521 |
Income before income tax expense (benefit) | 11,273 | 7,796 | 22,377 | 17,698 |
Income tax expense/Income tax expense (benefit) | 4,141 | 2,771 | 7,998 | 5,965 |
Net income | 7,132 | 5,025 | 14,379 | 11,733 |
Segment assets | 3,691,661 | 2,964,412 | 3,691,661 | 2,964,412 |
Noncash items: | ||||
Net gain (loss) on sale of loans | (368) | (356) | (939) | (891) |
Depreciation | 964 | 800 | 1,815 | 1,604 |
Provision for loan losses | 1,463 | 1,085 | 2,362 | 2,178 |
VPM [Member]
|
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Results of Operations: | ||||
Total interest income | 349 | 410 | 759 | 859 |
Total interest expense | 339 | 340 | 729 | 723 |
Provision for loan losses | (16) | (20) | (20) | (18) |
Net interest income after provision for loan losses | 26 | 90 | 50 | 154 |
Other revenue | (1,067) | (273) | (1,067) | (272) |
Net gain (loss) on sale of loans | 2,542 | 2,235 | 5,345 | 4,719 |
Total non-interest expense | 2,718 | 2,915 | 5,466 | 6,046 |
Income before income tax expense (benefit) | (1,217) | (863) | (1,138) | (1,445) |
Income tax expense/Income tax expense (benefit) | (396) | (279) | (369) | (467) |
Net income | (821) | (584) | (769) | (978) |
Segment assets | 43,073 | 34,794 | 43,073 | 34,794 |
Noncash items: | ||||
Net gain (loss) on sale of loans | 2,542 | 2,235 | 5,345 | 4,719 |
Depreciation | 63 | 76 | 127 | 152 |
Provision for loan losses | (16) | (20) | (20) | (18) |
Eliminations and Adjustments [Member]
|
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Results of Operations: | ||||
Total interest income | (339) | (340) | (729) | (723) |
Total interest expense | (503) | (396) | (1,084) | (835) |
Net interest income after provision for loan losses | 164 | 56 | 355 | 112 |
Other revenue | 810 | 571 | 747 | 953 |
Total non-interest expense | 1,101 | 292 | 1,539 | 562 |
Income before income tax expense (benefit) | (127) | 335 | (437) | 503 |
Income tax expense/Income tax expense (benefit) | (308) | (81) | (391) | (153) |
Net income | 181 | 416 | (46) | 656 |
Segment assets | $ (41,878) | $ (35,324) | $ (41,878) | $ (35,324) |
Acquisition (Details 4) (Nonimpaired loans [Member], USD $)
In Thousands, unless otherwise specified |
Apr. 02, 2012
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Nonimpaired loans [Member]
|
|
Acquired Non PCI loan | |
Contractually required principal and interest | $ 306,941 |
Contractual cash flows not expected to be collected | 7,216 |
Fair value at acquisition | $ 269,348 |
Loans (Details 6) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2012
|
Jun. 30, 2012
|
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Information on loans modified as a Troubled Debt Restructuring | ||
Total | $ 225 | $ 975 |
Loans modified as a TDR within the last 12 months that had a payment default (1) | ||
One-to Four-Family [Member]
|
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Information on loans modified as a Troubled Debt Restructuring | ||
Combination of rate and maturity date adjustment: | 383 | |
Other | 225 | 509 |
Commercial and Industrial [Member]
|
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Information on loans modified as a Troubled Debt Restructuring | ||
Payment adjustment | 36 | |
Other | $ 47 |
Goodwill and Core Deposit Intangibles (Details 1) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
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Estimated aggregate future amortization expense for intangible assets remaining | |
Remaining 2012 | $ 200 |
2013 | 429 |
2014 | 352 |
2015 | 276 |
2016 | 199 |
Thereafter | $ 168 |
Basis of Financial Statement Presentation
|
6 Months Ended |
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Jun. 30, 2012
|
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Basis of Financial Statement Presentation [Abstract] | |
BASIS OF FINANCIAL STATEMENT PRESENTATION |
NOTE 1 – BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements of ViewPoint Financial Group, Inc. (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all normal and recurring adjustments which are considered necessary to fairly present the results for the interim periods presented have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in ViewPoint Financial Group, Inc.’s 2011 Annual Report on Form 10-K (“2011 Form 10-K”). Interim results are not necessarily indicative of results for a full year. In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from those estimates. For further information with respect to significant accounting policies followed by the Company in preparation of its consolidated financial statements, refer to the 2011 Form 10-K. The accompanying Unaudited Consolidated Interim Financial Statements include the accounts of ViewPoint Financial Group, Inc., whose business primarily consists of the operations of its wholly owned subsidiary, ViewPoint Bank, National Association (the “Bank”). The Bank’s operations include its wholly owned subsidiary, ViewPoint Bankers Mortgage, Inc., doing business as ViewPoint Mortgage (“VPM”). All significant intercompany transactions and balances are eliminated in consolidation. |
Fair Value (Details 5) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
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Other real estate owned [Member]
|
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Activity for other real estate owned and the related valuation allowances | ||||
Beginning balance | $ 2,021 | $ 2,465 | $ 2,286 | $ 2,668 |
Transfers in at fair value | 2,343 | 389 | 2,983 | 521 |
Change in valuation allowance | -17 | -69 | -97 | -39 |
Sale of property (gross) | (1,052) | (459) | (1,877) | (824) |
Ending balance | 3,295 | 2,326 | 3,295 | 2,326 |
Valuation allowance [Member]
|
||||
Valuation allowance: | ||||
Beginning balance | 1,156 | 422 | 1,076 | 452 |
Sale of property | (9) | (27) | (24) | (77) |
Valuation adjustment | 26 | 96 | 121 | 116 |
Ending balance | $ 1,173 | $ 491 | $ 1,173 | $ 491 |
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