Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
VPFG > SEC Filings for VPFG > Form 10-K on 26-Feb-2014All Recent SEC Filings

Show all filings for VIEWPOINT FINANCIAL GROUP INC.

Form 10-K for VIEWPOINT FINANCIAL GROUP INC.


26-Feb-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

General
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 commercial real estate, secured and unsecured commercial and industrial loans, as well as permanent loans secured by first and second mortgages on owner-occupied, one- to four-family residences 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 manage its cash flow needs until the loans are sold to investors (the "Warehouse Purchase Program"). The Company purchases a 100% participation interest in the loans originated by our mortgage banking company customers, which are then held as one- to four- family mortgage loans. The mortgage banking company has no obligation to offer and we have no obligation to purchase these participation interests. The mortgage banking company closes mortgage loans consistent with underwriting standards established by approved investors and once the loan closes, the mortgage banking company delivers the loan to a third party investor.
We also offer brokerage services for the purchase and sale of non-deposit investment and insurance products through a third party brokerage arrangement. Our operating revenues are derived principally from interest earned on interest-earning assets including loans and investment securities and service charges and fees on deposits and other account services. 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.
Critical Accounting Estimates
Certain of our 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. 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 are discussed in detail in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 of this report.
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 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 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 December 31, 2013.

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.
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.


Table of Contents

Consideration is given to the length of time and the extent to which the fair value has been less than 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. In analyzing an issuer's 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 issuer's 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 or guarantee rating of securities that have an insurance or guarantee component. The ratings and financial condition of the issuers are monitored, as well as the financial condition and ratings of the insurers. Business Strategy
Our principal objective is to remain an independent, community-oriented financial institution, providing outstanding service and innovative products to customers in our primary market area. Our Board of Directors has sought to accomplish this objective through the adoption of a strategy designed to maintain efficient, growing profitability, strong capital adequacy and high asset quality. Please see Part I, Item 1 - "Business Strategies" for more information.
Comparison of Financial Condition at December 31, 2013 and December 31, 2012 General. Total assets decreased by $137.8 million, or 3.8%, to $3.53 billion at December 31, 2013, from $3.66 billion at December 31, 2012, primarily due to a $387.3 million, or 36.5%, decrease in Warehouse Purchase Program loans and a $105.0 million, or 16.2%, decrease in securities, partially offset by a $439.8 million, or 39.3%, increase in total commercial loans. The decrease in Warehouse Purchase Program loans was primarily due a decrease in refinancing activity due to a 126 basis point increase in the 10-year U.S. Treasury rate during the year, to 3.04% at December 31, 2013, from 1.78% at December 31, 2012. The decline in our securities portfolio resulted primarily from maturities, paydowns and sales of securities that were not consistent with our portfolio strategy. The proceeds from the securities paydowns and sales were re-deployed to support commercial loan growth and to build liquidity in preparation for the merger with LegacyTexas Group expected to close in the second quarter of 2014. Loans. Gross loans, excluding Warehouse Purchase Program loans, increased by $359.1 million, or 21.2%, to $2.05 billion at December 31, 2013, from $1.69 billion at December 31, 2012.

                                                                                        Dollar        Percent
                                       December 31, 2013       December 31, 2012        Change         Change
                                                               (Dollars in thousands)
Commercial real estate               $         1,091,200     $           825,340     $  265,860         32.21  %
Commercial and industrial loans:
Commercial                                       425,030                 245,799        179,231         72.92
Warehouse lines of credit                         14,400                  32,726        (18,326 )      (56.00 )
Total commercial and industrial
loans                                            439,430                 278,525        160,905         57.77
Construction and land loans
Commercial construction and land                  27,619                  14,568         13,051         89.59
Consumer construction and land                     2,628                   6,614         (3,986 )      (60.27 )
Total construction and land loans                 30,247                  21,182          9,065         42.80
Consumer:
Consumer real estate                             441,226                 506,642        (65,416 )      (12.91 )
Other consumer                                    47,799                  59,080        (11,281 )      (19.09 )
Total consumer loans                             489,025                 565,722        (76,697 )      (13.56 )
Gross loans held for investment,
excluding Warehouse Purchase Program
loans                                          2,049,902               1,690,769        359,133         21.24
Warehouse Purchase Program loans                 673,470               1,060,720       (387,250 )      (36.51 )
Gross loans held for investment      $         2,723,372     $         2,751,489     $  (28,117 )       (1.02 )%

The commercial real estate portfolio, including commercial construction and land loans, increased by $278.9 million, or 33.2%, to $1.12 billion at December 31, 2013, from $839.9 million at December 31, 2012. Our commercial real estate


Table of Contents

portfolio consists almost exclusively of loans secured by existing, multi-tenanted commercial real estate. 91% of our commercial real estate loan balances are secured by properties located in Texas.

Commercial and industrial ("C&I") loans increased by $160.9 million, or 57.8%, to $439.4 million at December 31, 2013, from $278.5 million at December 31, 2012. The Highlands acquisition in 2012 accelerated our transition to a commercial bank. In 2013, we continued this focus, adding experienced lenders and treasury management staff and in May 2013, the Company formed the Energy Finance group. This new group focuses on providing loans to private and public oil and gas companies throughout the United States, with an emphasis on reserve-based transactions for development drilling, capital expenditures against oil and gas reserves, and acquisitions of oil and gas reserves. The group's offerings also include the Bank's full array of commercial services, including Treasury Management and Letters of Credit. At December 31, 2013, the Company had $165.7 million in energy (oil and gas) loans outstanding. Warehouse lines of credit decreased by $18.3 million, or 56.0%, to $14.4 million at December 31, 2013, from $32.7 million at December 31, 2012.

Warehouse Purchase Program loans decreased by $387.3 million, or 36.5%, to $673.5 million at December 31, 2013, from $1.06 billion at December 31, 2012. The Company purchases a 100% participation interest in the loans originated by our mortgage banking company customers, which are then held as one- to four- family mortgage loans. The mortgage banking company has no obligation to offer to sell to us and we have no obligation to purchase these participation interests. The mortgage banking company closes mortgage loans consistent with underwriting standards established by approved investors and once the loan closes, the participation interest is delivered by the Company to the investor selected by the originator and approved by the Company. Loans funded by the Warehouse Purchase Program during 2013 consisted of 57% conforming and 43% government, with properties located in 49 states (all states except New York). The Company previously reported the Warehouse Purchase Program loans as held for sale as the Company believed that was the most meaningful presentation to our financial statement users, given the collection of the loan was based on sale of the loan. The Company has now concluded that under US GAAP these loans should be accounted for as held for investment. This correction changes the accounting for the warehouse loans from a lower of cost or market accounting method to accounting for loans under ASC 310 with any credit losses incurred as the balance sheet date recognized in the allowance for loan losses. As we had not reported any valuation decreases below cost in prior periods and we have experienced no credit losses on these loans, this correction had no impact on net income, comprehensive income, earnings per share or income taxes. Additionally, total assets and shareholders' equity remained unchanged. However, this correction does adjust the statement of cash flows by moving cash flows associated with the Warehouse Purchase Program from operating cash flows to investing cash flows.
Pertinent information regarding the Warehouse Purchase Program is reflected below:

                                                    At and For the Year Ended December 31,
                                                   2013                                2012
                                                            (Dollars in thousands)
Fee income generated for the year     $                     4,033         $                      4,453
Interest income generated for the
year                                                       26,304                               31,521
Average outstanding balance per
client                                                     17,190                               28,500
Number of clients                                              45                                   43
Range of approved maximum borrowing

amounts $5 million to $55 million $10 million to $45 million Average utilization 43 % 65 %

Consumer loans decreased by $76.7 million, or 13.6%, to $489.0 million at December 31, 2013, from $565.7 million at December 31, 2012.
Allowance for Loan Losses. 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.
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 management's 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 Company's specific loan portfolios. The


Table of Contents

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 Company's 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 loans where management has concerns about the borrower's ability to repay. This impairment analysis includes all loans secured by commercial real estate and all commercial and industrial loans, as well as certain residential real estate loans. All troubled debt restructurings are considered to be impaired, regardless of collateral type or note amount. 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.
Loans acquired from Highlands were initially recorded at fair value, which included an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses was recorded for these loans at acquisition. Methods utilized to estimate the required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance less the remaining purchase discount. Purchased credit impaired (PCI) loans are not considered nonperforming loans, and accordingly, are not included in the non-performing loans to total loans ratio as a numerator, but are included in total loans reflected in the denominator. The result is a downward trend in the ratio when compared to prior periods, assuming all other factors stay the same. Similarly, other asset quality ratios, such as the allowance for loan losses to total loans ratio will reflect a downward trend, assuming all other factors stay the same, due to the impact of PCI loans on the denominator with no corresponding impact in the numerator.
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. 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 Company's 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. All TDRs are considered to be impaired loans. At December 31, 2013, the Company had $12.3 million in TDRs, $971,000 were accruing interest and $11.4 million were classified as nonaccrual. Nonaccrual TDRs included $5.9 million attributable to two commercial real estate loans, both of which were performing in accordance with their restructured terms at December 31, 2013. Our non-performing loans to total loans held for investment ratio, including Warehouse Purchase Program loans, at December 31, 2013, was 0.81%, compared to 0.99% at December 31, 2012. Non-performing loans decreased by $5.1 million to $22.1 million at December 31, 2013, from $27.2 million at December 31, 2012. Securities. Our securities portfolio decreased by $105.0 million, or 16.2%, to $542.6 million at December 31, 2013, from $647.6 million at December 31, 2012. The decrease in our securities portfolio primarily resulted from paydowns and maturities totaling $1,291.7 million and sales of $10.6 million, which were partially offset by purchases totaling $1,206.8 million. The majority of these purchases were done for tax strategy purposes. The decline in the balances in our securities portfolio over the past year was primarily due to normal paydowns and the sale of securities that were not consistent with our portfolio strategy. The proceeds from the securities paydowns and sales were re-deployed to support commercial loan growth and to build liquidity in preparation for the merger with LegacyTexas Group expected to close in the second quarter of 2014.


Table of Contents

Deposits. Total deposits increased by $86.8 million, or 4.0%, to $2.26 billion at December 31, 2013, from $2.18 billion at December 31, 2012.

                                                                                    Dollar          Percent
                                   December 31, 2013       December 31, 2012        Change          Change
                                                            (Dollars in thousands)
Non-interest-bearing demand      $           410,933     $           357,800     $    53,133           14.8  %
Interest-bearing demand                      474,515                 488,748         (14,233 )         (2.9 )
Savings and money market                     904,576                 880,924          23,652            2.7
Time                                         474,615                 450,334          24,281            5.4
Total deposits                   $         2,264,639     $         2,177,806     $    86,833            4.0  %

Total deposits reflect increases in all deposit categories except for interest bearing demand deposits. Non-interest-bearing demand deposits increased $53.1 million, or 14.8%, while time deposits increased $24.3 million, or 5.4%, and savings and money market deposits increased $23.7 million, or 2.7%, compared to December 31, 2012. Non-interest-bearing demand deposits totaled $410.9 million, or 18.1%, of total deposits at December 31, 2013, reaching a new high for the category. Interest -bearing demand deposits declined $14.2 million, or 2.9%, compared to December 31, 2012. The decline in interest-bearing demand deposits included a $4.7 million decline in Absolute Checking deposits. Our deposits have grown due, in part, to the continued success the Company has experienced in executing our commercial banking strategy.
Borrowings. FHLB advances, net of a $2.2 million restructuring prepayment penalty, decreased by $253.1 million, or 28.4%, to $639.1 million at December 31, 2013, from $892.2 million at December 31, 2012. The outstanding balance of FHLB advances decreased due to reduced need as a result of lower Warehouse Purchase Program balances at December 31, 2013. At December 31, 2013, the Company was eligible to borrow an additional $333.9 million from the FHLB. Additionally, the Company was eligible to borrow $68.7 million from the Federal Reserve Bank discount window and has available federal funds lines of credit from multiple correspondent banks totaling $125.0 million. In addition to FHLB advances, at December 31, 2013, the Company had a $25.0 million outstanding repurchase agreement with Credit Suisse.
The below table shows FHLB advances by maturity and weighted average rate at the end of the period:

                                   Balance      Weighted Average Rate
                                        (Dollars in thousands)
Less than 90 days                $ 451,354                  0.17 %
90 days to less than one year       32,162                  2.64
One to three years                 124,042                  3.10
After three to five years           28,300                  4.42
After five years                     5,409                  5.49
                                   641,267                  1.09 %
Restructuring prepayment penalty    (2,171 )
Total                            $ 639,096


Table of Contents

Shareholders' Equity. Total shareholders' equity increased by $23.6 million, or 4.5%, to $544.5 million at December 31, 2013, from $520.9 million at December 31, 2012.

                                                                                    Dollar        Percent
                                      December 31, 2013     December 31, 2012       Change         Change
                                                             (Dollars in thousands)
Common stock                         $             399     $             396     $        3           0.8  %
Additional paid-in capital                     377,657               372,168          5,489           1.5
Retained earnings                              183,236               164,328         18,908          11.5
Accumulated other comprehensive
income (loss)                                     (383 )               1,895         (2,278 )      (120.2 )
Unearned ESOP shares                           (16,449 )             (17,916 )        1,467          (8.2 )
Total shareholders' equity           $         544,460     $         520,871     $   23,589           4.5  %

The increase in shareholders' equity was primarily due to net income of $31.7 million recognized during 2013, partially offset by the payment of three quarterly dividends totaling $0.32 per common share and the repurchase of $1.6 million of common stock. The first quarter 2013 dividend of $0.10 per common share was paid in December 2012. The dividends reduced retained earnings by $12.8 million. 83,800 shares of common stock were repurchased during the year at an average price of $18.55 per share, resulting in reductions to common stock and additional paid-in capital.
Comparison of Results of Operation for the Years Ended December 31, 2013 and 2012

General. Net income for the year ended December 31, 2013 was $31.7 million, a decrease of $3.6 million, or 10.1%, from net income of $35.2 million for the year ended December 31, 2012. The decrease in net income was primarily driven by a $7.7 million decrease in in non-interest income and a $1.2 million increase in non-interest expense, partially offset by a $2.4 million increase in net interest income. Basic and diluted earnings per share for the year ended December 31, 2013, were $0.83, a $0.15 decrease from $0.98 for the year ended December 31, 2012.

Interest Income. Interest income decreased by $903,000, or 0.7%, to $137.1 million for the year ended December 31, 2013 from $138.0 million for the year ended December 31, 2012.

                                             Year Ended
                                            December 31,              Dollar        Percent
                                         2013           2012          Change         Change
                                                      (Dollars in thousands)
. . .
  Add VPFG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for VPFG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.