LegacyTexas Financial Group, Inc. Reports First Quarter 2015 Earnings

PLANO, Texas, April 21, 2015 /PRNewswire/ -- LegacyTexas Financial Group, Inc. (NASDAQ: LTXB) (the "Company"), the holding company for LegacyTexas Bank (the "Bank"), today announced net income of $16.3 million, an increase of $10.9 million from the fourth quarter of 2014 and an increase of $8.6 million from the first quarter of 2014.  Core net income (which is net income adjusted for the impact of merger and acquisition costs and certain other items) totaled $17.7 million for the quarter ended March 31, 2015, up $6.6 million from the fourth quarter of 2014 and up $9.9 million from the first quarter of 2014.  Basic earnings per share for the quarter ended March 31, 2015 was $0.35, an increase of $0.21 from the fourth quarter of 2014 and an increase of $0.15 from the first quarter of 2014.  Core earnings per share for the same period was $0.39, up $0.10 from the fourth quarter of 2014 and up $0.18 from the first quarter of 2014.  The reconciliation of non-GAAP measures, which the Company believes facilitates the assessment of its banking operations and peer comparability, is included in tabular form at the end of this release.

First Quarter 2015 Performance Highlights

• Gross loans held for investment at March 31, 2015, excluding Warehouse Purchase Program loans, grew $1.56 billion from December 31, 2014, with $1.40 billion of growth resulting from loans acquired from LegacyTexas Group, Inc.  Excluding loans acquired from LegacyTexas Group, Inc., gross loans held for investment, excluding Warehouse Purchase Program loans, increased by $163.3 million, or 4.0%, from December 31, 2014.
• Warehouse Purchase Program loans at March 31, 2015 totaled $1.04 billion, a $252.5 million, or 32.1%, increase from December 31, 2014, and a $448.0 million, or 75.8%, increase from March 31, 2014.
• Deposits increased by $1.74 billion from December 31, 2014, with $1.63 billion of growth resulting from deposits acquired from LegacyTexas Group, Inc.  Excluding deposits acquired from LegacyTexas Group, Inc., deposits increased by $110.6 million, or 2.6%. 
• Net interest margin for the quarter ended March 31, 2015 was 4.04%, a 20 basis point increase from the linked quarter and a 31 basis point increase compared to the first quarter of 2014, which includes 23 basis points of accretion of interest related to purchase accounting fair value adjustments for the first quarter of 2015.
• During the first quarter of 2015, the Company repurchased and retired 357,950 shares of its common stock at an average price of $22.32 per share, reducing shareholders' equity by $8.0 million at March 31, 2015.

"We are excited to report our first quarterly results since completing the merger on January 1st," said President and CEO Kevin Hanigan.  "Our impressive operating results are an early sign of the success of this financially attractive deal.  With annualized organic loan growth of 16%, core EPS of $0.39, a net interest margin of 4.04% and a core return on assets of 1.18%, we are well on our way to the successful integration and execution of our strategic plans."

On January 1, 2015, the Company completed its merger with LegacyTexas Group, Inc. ("LegacyTexas") and changed its name from ViewPoint Financial Group, Inc. to LegacyTexas Financial Group, Inc. On January 2, the Company's common stock began trading on the NASDAQ Global Select Market under the ticker symbol LTXB. The Company's bank subsidiary, ViewPoint Bank, N.A., was merged into LegacyTexas Bank, the banking subsidiary of LegacyTexas.  On February 17, 2015, we completed our core system conversion and branch integration, allowing all ViewPoint and LegacyTexas customers to conduct business at any of the Bank's 48 branches and to have access to the Bank's complete line of products and services.

Financial Highlights

 

Net Interest Income and Net Interest Margin

 

Net interest income for the quarter ended March 31, 2015 was $56.3 million, a $20.5 million increase from the fourth quarter of 2014 and a $26.7 million increase from the first quarter of 2014.  The $20.5 million increase from the linked quarter was primarily due to an increase in interest income on loans, which was driven by increased volume in all loan categories resulting from loans acquired from LegacyTexas on January 1, 2015, as well as organic growth during the first quarter of 2015.  The average balance of commercial real estate loans increased by $801.4 million to $2.03 billion from the fourth quarter of 2014, resulting in a $10.5 million increase in interest income.  The $801.4 million in growth includes $737.3 million in commercial real estate and commercial construction and land loans acquired from LegacyTexas; excluding these loans, the average balance of commercial real estate loans increased by $64.1 million from the linked quarter.  The average balance of commercial and industrial loans increased by $404.2 million to $1.13 billion from the fourth quarter of 2014, resulting in a $5.9 million increase in interest income.  The $404.2 million in growth includes $337.1 million in commercial and industrial loans acquired from LegacyTexas; excluding these loans, the average balance of commercial and industrial loans increased by $67.1 million from the linked quarter.  The average balance of consumer real estate loans increased by $289.5 million to $813.5 million from the fourth quarter of 2014, resulting in a $3.4 million increase in interest income.  The $289.5 million in growth includes $276.0 million in consumer real estate loans acquired from LegacyTexas; excluding these loans, the average balance of consumer real estate loans increased by $13.5 million from the linked quarter.  The average balance of Warehouse Purchase Program loans increased by $67.8 million, or 10.9%, to $687.5 million from the fourth quarter of 2014, which resulted in a $335,000 increase in interest income.

Interest income on loans was impacted by $3.1 million in accretion of purchase accounting fair value adjustments recorded during the first quarter of 2015 on loans acquired from LegacyTexas, which included $1.5 million in accretion income recorded on acquired commercial and industrial loans, $852,000 in accretion income recorded on acquired commercial real estate loans and $701,000 recorded on acquired consumer real estate loans.  Accretion of purchase accounting fair value adjustments related to the LegacyTexas acquisition, as well as a smaller amount related to the Highlands Bank acquisition in 2012, increased the average yields on commercial real estate, commercial and industrial and consumer real estate loans by approximately 18 basis points, 53 basis points and 34 basis points, respectively, for the three months ended March 31, 2015.

The $26.7 million increase in net interest income compared to the first quarter of 2014 was primarily due to a $27.6 million increase in interest income on loans, which was driven by higher loan balances resulting from the merger with LegacyTexas and organic growth.  For the quarter ended March 31, 2015, the average balance of commercial and industrial loans increased by $667.0 million compared to the quarter ended March 31, 2014, which resulted in a $9.0 million increase in interest income.  Additionally, the average balance of commercial real estate loans increased by $901.1 million for the quarter ended March 31, 2015, compared to the same period in 2014, contributing $12.0 million of the increase in interest income.  Increased volume in all other loan categories also added to the growth in interest income on a year-over-year basis, which was partially offset by reductions in yields earned on commercial real estate and Warehouse Purchase Program loans.

Interest expense for the quarter ended March 31, 2015 increased by $1.1 million compared to the linked quarter, primarily due to an increase in interest expense on deposits, which was driven by increased volume in all deposit categories resulting from deposits acquired from LegacyTexas on January 1, 2015, as well as organic growth during the first quarter of 2015 in interest-bearing demand, savings and money market deposit balances.  The average balance of savings and money market deposits increased by $635.8 million to $1.8 billion from the fourth quarter of 2014, resulting in a $342,000 increase in interest expense.  The $635.8 million in growth includes $546.8 million in savings and money market deposits acquired from LegacyTexas; excluding these deposits, the average balance of savings and money market deposits increased by $89.0 million from the linked quarter.  The average balance of interest-bearing demand deposits increased by $340.4 million to $795.6 million from the fourth quarter of 2014, resulting in a $177,000 increase in interest expense.  The $340.4 million in growth includes $271.2 million in interest-bearing demand deposits acquired from LegacyTexas; excluding these deposits, the average balance of interest-bearing demand deposits increased by $69.2 million from the linked quarter. The average balance of time deposits increased by $271.5 million to $785.3 million from the fourth quarter of 2014, resulting in a $443,000 increase in interest expense.  The $271.5 million in growth includes $312.1 million in time deposits acquired from LegacyTexas; excluding these deposits, the average balance of time deposits decreased by $40.6 million from the linked quarter. The increased interest expense attributable to higher volume was partially offset by linked quarter decreases in the average rate paid on interest-bearing demand, savings and money market deposits.

Compared to the first quarter of 2014, interest expense for the quarter ended March 31, 2015 increased by $1.2 million, which was primarily due to increased average balances in all deposit categories resulting from the merger with LegacyTexas.  The increase in deposit balances was partially offset by lower rates paid on interest-bearing demand and time deposits.      

The net interest margin for the first quarter of 2015 was 4.04%, a 20 basis point increase from the fourth quarter of 2014 and a 31 basis point increase from the first quarter of 2014.  Accretion of interest related to the merger with LegacyTexas on January 1, 2015, as well as the 2012 Highlands acquisition, contributed 23 basis points to the net interest margin and average yield on earning assets for the quarter ended March 31, 2015, compared to three basis points for the quarter ended December 31, 2014, and five basis points for the quarter ended March 31, 2014.  The average yield on earning assets for the first quarter of 2015 was 4.42%, a 14 basis point increase from the fourth quarter of 2014 and a 17 basis point increase from the first quarter of 2014.  The cost of deposits for the first quarter of 2015 was 0.29%, down four basis points from the fourth quarter of 2014 and down six basis points from the first quarter of 2014.

Non-interest Income

Non-interest income for the first quarter of 2015 was $8.4 million, a $3.1 million increase from the fourth quarter of 2014 and a $3.4 million increase from the first quarter of 2014.  Core non-interest income for the first quarter of 2015, excluding one-time gains and losses on assets, was $9.0 million, up $3.8 million from the fourth quarter of 2014 and up $4.1 million from the first quarter of 2014.  The Company recognized $2.1 million in net gains on the sale of mortgage loans, which includes the gain recognized on $54.5 million of one-to four-family mortgage loans that were sold or committed for sale during the first quarter of 2015, fair value changes on mortgage derivatives and mortgage fees collected.  Prior to the January 1, 2015 merger with LegacyTexas, the Company did not originate or sell mortgage loans to outside investors; therefore, a comparable gain was not recorded in the fourth quarter of 2014.  A $924,000 increase in service charges and fees was driven by a $673,000 increase in non-sufficient funds fees and debit card income and a $215,000 increase in service charges related to accounts acquired from LegacyTexas. These increases were partially offset by a $364,000 decrease in other non-interest income, which was primarily caused by a $674,000 net decrease in the value of investments in community development-oriented private equity funds used for Community Reinvestment Act purposes (the "CRA Funds") recorded in the first quarter of 2015.

The $3.4 million increase in non-interest income from the first quarter of 2014 was primarily due to the $2.1 million in net gains recognized on the sale of mortgage loans described above. Additionally, compared to the first quarter of 2014, services charges and fees increased by $1.4 million, which was driven by a $413,000 increase in non-sufficient funds fees and debit card income, a $298,000 increase in commercial loan pre-payment fees, a $170,000 increase in Warehouse Purchase Program fees and a $256,000 increase in service charges related to accounts acquired from LegacyTexas.  These increases were partially offset by the $674,000 net decrease from the first quarter of 2014 in the value of the CRA Funds.

Non-interest Expenses

Non-interest expense for the quarter ended March 31, 2015 was $36.8 million, a $7.0 million increase from the fourth quarter of 2014 and a $14.6 million increase from the first quarter of 2014.  The linked-quarter comparison includes a $6.7 million decrease in merger and acquisition costs related to the merger with LegacyTexas, which was completed on January 1, 2015.  Excluding the impact of these merger costs, core non-interest expense, which totaled $35.2 million for the quarter ended March 31, 2015, increased by $13.7 million, which was driven by an $8.8 million increase in salaries and employee benefits expense, primarily due to the addition of 277 full-time equivalent employees related to the merger with LegacyTexas.  Additionally, shortly following the completion of the LegacyTexas merger, certain senior managers from LegacyTexas who joined the Company received immediately-vested stock awards, which resulted in $600,000 of share-based compensation expense recognized during the first quarter of 2015.  Compared to the fourth quarter of 2014, occupancy and equipment expense increased by $2.1 million and office operations expense increased by $721,000, primarily due to the addition of LegacyTexas' 11 owned buildings and 14 leased spaces.  Data processing expense increased by $1.0 million on a linked-quarter basis, as the Company added LegacyTexas into their information technology infrastructure and upgraded various systems to enhance customer service and increase efficiency. 

The increase in non-interest expense from the first quarter of 2014 includes a $1.4 million increase in merger and acquisition costs related to the merger with LegacyTexas.  Excluding the impact of these merger costs, core non-interest expense increased by $13.2 million, which was driven by a $7.8 million increase in salaries and employee benefits expense, primarily due to the addition of employees and grants of share-based compensation related to the merger with LegacyTexas. Compared to the quarter ended March 31, 2014, non-interest expense increased due to the merger with LegacyTexas, including increases in occupancy and equipment expense ($2.1 million), data processing expense ($1.1 million) and office operations expense ($662,000.)  

Financial Condition - Loans

Gross loans held for investment at March 31, 2015, excluding Warehouse Purchase Program loans, grew $1.56 billion from December 31, 2014 and by $1.99 billion from March 31, 2014, with $1.40 billion of growth resulting from loans acquired from LegacyTexas.  Excluding loans acquired from LegacyTexas and Warehouse Purchase Program loans, gross loans held for investment increased by $163.3 million, or 4.0%, from December 31, 2014 and by $589.4 million, or 16.3%, from March 31, 2014.  The below table breaks out the growth in gross loans held for investment, excluding Warehouse Purchase Program, compared to December 31, 2014:

 

The below table breaks out the growth in gross loans held for investment, excluding Warehouse Purchase Program, compared to March 31, 2014:

 

Energy loans, which are reported as commercial and industrial loans, totaled $371.1 million at March 31, 2015, up $11.5 million from $359.6 million at December 31, 2014 and up $158.3 million from March 31, 2014.  The growth includes $5.6 million in energy loans acquired from LegacyTexas.  In May 2013, the Company formed its Energy Finance group, which is comprised of a group of seasoned lenders, executives and credit risk professionals with more than 100 years of combined Texas energy experience, to focus on providing loans to private and public oil and gas companies throughout the United States. The group also offers the Bank's full array of commercial services, including Treasury Management and letters of credit, to its customers.  Substantially all of the loans in the Energy portfolio are reserve based loans, secured by deeds of trust on properties containing proven oil and natural gas reserves. Two loans managed by the Energy Finance group are not secured by oil and gas reserves. These loans, with a combined commitment of $29.5 million and a total outstanding balance of $12.7 million at March 31, 2015, are categorized as "Midstream and Other" loans. Loans in this category are typically related to the transmission of oil and natural gas and would have only an indirect impact from declining commodity prices.

Financial Condition - Deposits

The below table breaks out the growth in deposits compared to December 31, 2014:

 

The below table breaks out the growth in deposits compared to March 31, 2014:

 

Credit Quality

 

The Company recorded a provision for loan losses of $3.0 million for the quarter ended March 31, 2015, compared to $2.6 million for the quarter ended December 31, 2014 and $376,000 for the quarter ended March 31, 2014.  The increase in the provision for loan losses on a linked-quarter basis, as well as compared to the first quarter of 2014, was primarily related to increased organic loan production, as well as loans acquired from LegacyTexas that were re-underwritten during the first quarter of 2015.  Once an acquired loan undergoes new underwriting and meets the criteria for a new loan, any remaining fair value adjustments are taken to interest income and the loan becomes subject to the Company's allowance for loan loss methodology.   

Consistent with the fourth quarter of 2014, the Company continued to apply qualitative reserve factors to provide for additional allowance for loan losses due to the economic uncertainty in Texas related to the recent decline in the price of oil.  To date, the Company has not recognized a loss from loans in the Energy portfolio, which we believe is a reflection of prudent risk mitigation techniques.  These techniques include sound underwriting (reasonable advance rates based on number and diversification of wells), sound policy (requiring hedges on production sales) and conservative collateral valuations (frequent borrowing base determinations at prices below NYMEX posted rates).  All borrowing base valuations are performed by experienced and nationally recognized third party firms intimately familiar with the properties and their production history.  At March 31, 2015, less than 1% of the Company's loan portfolio (excluding Warehouse Purchase Program loans) consisted of criticized energy loans, and all energy loans were performing.

Subsequent Events

The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended March 31, 2015 on Form 10-Q.  As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of March 31, 2015 and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an investor conference call to review the results on Wednesday, April 22, 2015 at 8 a.m. Central Time.  Participants may pre-register for the call by visiting http://dpregister.com/10063456 and will receive a unique pin number, which can be used when dialing in for the call.  This will allow attendees to enter the call immediately.  Alternatively, participants may call (toll-free) 1-877-513-4119 at least five minutes prior to the call to be placed into the call by an operator.  International participants are asked to call 1-412-902-4148, and participants in Canada are asked to call (toll-free) 1-855-669-9657.

The call and corresponding presentation slides will be webcast live on the home page of the Company's website, www.legacytexasfinancialgroup.com.  An audio replay will be available one hour after the conclusion of the call at 1-877-344-7529, Conference #10063456.   This replay, as well as the webcast, will be available until May 13, 2015.

About LegacyTexas Financial Group, Inc.

LegacyTexas Financial Group, Inc. is the holding company for LegacyTexas Bank, a commercially oriented community bank based in Plano, Texas. LegacyTexas Bank operates 48 banking offices in the Dallas/Fort Worth Metroplex and surrounding counties. For more information, please visit www.legacytexasfinancialgroup.com or www.legacytexas.com.

When used in filings by LegacyTexas Financial Group, Inc. (the "Company") with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected, including, among other things: the expected cost savings, synergies and other financial benefits from the Company-LegacyTexas Group, Inc. merger (the "Merger") might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters might be greater than expected; changes in economic conditions; legislative changes; changes in policies by regulatory agencies; fluctuations in interest rates; the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; the Company's ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in the Company's market area; fluctuations in the price of oil, natural gas and other commodities; competition; changes in management's business strategies and other factors set forth in the Company's filings with the SEC.

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.

 

 

 

 

 

 

 

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SOURCE LegacyTexas Financial Group, Inc.