LegacyTexas Financial Group, Inc. Reports Third Quarter 2015 Earnings

PLANO, Texas, Oct. 20, 2015 /PRNewswire/ -- LegacyTexas Financial Group, Inc. (Nasdaq: LTXB) (the "Company"), the holding company for LegacyTexas Bank (the "Bank"), today announced net income of $17.9 million for the third quarter of 2015, a decrease of $2.4 million from the second quarter of 2015 and an increase of $8.6 million from the third quarter of 2014.  The decrease from the second quarter of 2015 was primarily due to a $3.8 million increase in the provision for loan losses.  Core (non-GAAP) net income (which is net income adjusted for the impact of merger and acquisition costs and certain other items) totaled $17.8 million for the quarter ended September 30, 2015, down $2.3 million from the second quarter of 2015 and up $7.8 million from the third quarter of 2014.  Basic earnings per share for the quarter ended September 30, 2015 was $0.39, a decrease of $0.05 from the second quarter of 2015 and an increase of $0.15 from the third quarter of 2014.  Core earnings per share for the third quarter of 2015 was also $0.39, down $0.05 from the second quarter of 2015 and up $0.13 from the third 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.

Third Quarter 2015 Performance Highlights

• Gross loans held for investment at September 30, 2015, excluding Warehouse Purchase Program loans, grew $294.0 million, or 6.7%, from June 30, 2015, with $234.4 million of growth in commercial real estate and commercial and industrial loans. Excluding $1.00 billion of net growth resulting from the merger with LegacyTexas Group, Inc., gross loans held for investment, excluding Warehouse Purchase Program loans, increased by $1.20 billion, or 34.3%, from September 30, 2014.
• LegacyTexas Bank moves to #2 overall deposit market share in fast-growing, affluent Collin County; remains at #3 deposit market share among Dallas-based banks in Dallas-Fort Worth.
• Deposits at September 30, 2015 increased by $242.3 million, or 5.4%, from June 30, 2015, with $52.1 million of growth in non-interest-bearing demand and $148.7 million of growth in savings and money market deposits. Excluding $1.63 billion of growth resulting from the merger with LegacyTexas Group, Inc., deposits increased by $643.8 million, or 15.6%, from September 30, 2014.
• Net interest margin for the quarter ended September 30, 2015 was 4.00%, a six basis point decrease from the linked quarter and a 20 basis point increase compared to the third quarter of 2014. Net interest margin excluding accretion of purchase accounting fair value adjustments on acquired loans was 3.88% for the quarter ended September 30, 2015, up two basis points from 3.86% for the quarter ended June 30, 2015.

"We are very pleased with another solid quarter for the company," said President and CEO Kevin Hanigan.  "The quarter marked a new high for organic loan production and resulted in loans held for investment growth (excluding Warehouse Purchase Program) of $294 million.  This continued strong growth of our franchise reflects the excellent economic activity in Dallas/Fort Worth and the talent of our commercial bankers."

 

 

Net interest income for the quarter ended September 30, 2015 was $61.2 million, a $1.4 million increase from the second quarter of 2015 and a $26.5 million increase from the third quarter of 2014.  The $1.4 million increase from the linked quarter was primarily due to an increase in interest income on loans, which was driven by increased volume in commercial real estate and commercial and industrial loan balances.  The average balance of commercial real estate loans increased by $118.9 million to $1.97 billion from the second quarter of 2015, resulting in a $2.1 million increase in interest income.  The average balance of commercial and industrial loans increased by $91.7 million to $1.34 billion from the second quarter of 2015, which was partially offset by a 27 basis point linked-quarter decrease in the average yield earned on this portfolio, and resulted in a $199,000 increase in interest income.  The increased interest income related to commercial loan volume was partially offset by a $74.2 million linked-quarter decline in the average balance of Warehouse Purchase Program balances, which reduced interest income by $647,000.

Interest income on loans for the third quarter of 2015 included $2.0 million in accretion of purchase accounting fair value adjustments on loans acquired through the merger with LegacyTexas Group, Inc., a decrease of $627,000 from the $2.6 million in accretion income recorded on these loans for the second quarter of 2015. The $2.0 million includes $670,000 in accretion income recorded on acquired commercial and industrial loans, $840,000 in accretion income recorded on acquired commercial real estate loans, $64,000 in accretion income recorded on acquired construction and land loans and $435,000 recorded on acquired consumer loans.  Accretion of purchase accounting fair value adjustments related to the LegacyTexas Group, Inc. acquisition, as well as a smaller amount related to the Highlands Bank acquisition in 2012, contributed 18 basis points, 12 basis points and 22 basis points to the average yields on commercial real estate, commercial and industrial and consumer real estate loans, respectively, for the third quarter of 2015, compared to 17 basis points, 37 basis points and 43 basis points, respectively, for the second quarter of 2015.

The $26.5 million increase in net interest income compared to the third quarter of 2014 was primarily due to a $27.2 million increase in interest income on loans, which was driven by increased volume in all loan categories resulting from the merger with LegacyTexas Group, Inc. on January 1, 2015, as well as organic growth.  The average balance of commercial real estate loans increased by $805.8 million from the third quarter of 2014, resulting in a $10.3 million increase in interest income.  The $805.8 million in growth includes $551.0 million in commercial real estate loans acquired through the merger with LegacyTexas Group, Inc.; excluding these loans, the average balance of commercial real estate loans increased by $254.8 million from the third quarter of 2014.  The average balance of commercial and industrial loans increased by $677.7 million from the third quarter of 2014, resulting in an $8.1 million increase in interest income.  The $677.7 million in growth includes $337.1 million in commercial and industrial loans acquired through the merger with LegacyTexas Group, Inc.; excluding these loans, the average balance of commercial and industrial loans increased by $340.6 million from the third quarter of 2014.  The average balance of consumer real estate loans increased by $344.9 million from the third quarter of 2014, resulting in a $4.0 million increase in interest income.  The $344.9 million in growth includes $264.0 million in consumer real estate loans acquired through the merger with LegacyTexas Group, Inc.; excluding these loans, the average balance of consumer real estate loans increased by $80.9 million from the third quarter of 2014.  The average balance of Warehouse Purchase Program loans increased by $200.6 million to $845.8 million from the third quarter of 2014, which resulted in a $1.3 million increase in interest income.

Interest expense for the quarter ended September 30, 2015 increased by $191,000 compared to the linked quarter.  Compared to the third quarter of 2014, interest expense for the quarter ended September 30, 2015, increased by $1.2 million, primarily due to an increase in interest expense on deposits, which was driven by increased volume in all deposit categories resulting from the merger with LegacyTexas Group, Inc. on January 1, 2015, as well as organic growth since September 30, 2014.  An $875.8 million increase in the average balance of savings and money market deposits to $1.94 billion from the third quarter of 2014 was partially offset by a 12 basis point reduction in the average rate paid on such deposits, resulting in a $96,000 increase in interest expense.  The $875.8 million in growth includes $534.6 million in savings and money market deposits acquired through the merger with LegacyTexas Group, Inc.; excluding these deposits, the average balance of savings and money market deposits increased by $341.2 million from the third quarter of 2014. The average balance of time deposits increased by $409.3 million to $902.2 million from the third quarter of 2014, resulting in an $808,000 increase in interest expense.  The $409.3 million in growth includes $336.8 million in time deposits acquired through the merger with LegacyTexas Group, Inc.; excluding these deposits, the average balance of time deposits increased by $72.5 million from the third quarter of 2014.  The average balance of interest-bearing demand deposits increased by $276.0 million to $736.1 million from the third quarter of 2014, resulting in a $457,000 increase in interest expense.  The $276.0 million in growth includes $258.7 million in interest-bearing demand deposits acquired through the merger with LegacyTexas Group, Inc.; excluding these deposits, the average balance of interest-bearing demand deposits increased by $17.3 million from the third quarter of 2014.

The net interest margin for the third quarter of 2015 was 4.00%, a six basis point decrease from the second quarter of 2015 and a 20 basis point increase from the third quarter of 2014.  Accretion of interest resulting from the merger with LegacyTexas Group, Inc. on January 1, 2015, as well as the 2012 Highlands acquisition, contributed 12 basis points to the net interest margin and average yield on earning assets for the quarter ended September 30, 2015, compared to 20 basis points for the quarter ended June 30, 2015, and three basis points for the quarter ended September 30, 2014.  The average yield on earning assets for the third quarter of 2015 was 4.35%, a six basis point decline from the second quarter of 2015 and a nine basis point increase from the third quarter of 2014.  The cost of deposits for the third quarter of 2015 was 0.29%, up one basis point from the second quarter of 2015 and down four basis points from the third quarter of 2014.

Non-interest Income

Non-interest income for the third quarter of 2015 was $11.9 million, a $113,000 decrease from the second quarter of 2015 and a $6.8 million increase from the third quarter of 2014.  Core non-interest income for the third quarter of 2015, which excludes one-time gains and losses on assets and security sales, was $11.7 million, down $70,000 from the second quarter of 2015 and up $6.7 million from the third quarter of 2014.  Service charges and other fees increased by $254,000 from the second quarter of 2015, which includes a $626,000 increase in commercial loan fee income.  This increase in commercial loan fee income was partially offset by linked-quarter declines in LegacyTexas Title and Warehouse Purchase Program fee income. Gain on sale and disposition of assets during the third quarter of 2015 decreased by $201,000, primarily related to the sale of an other real estate owned property and one of the Company's branch buildings in the second quarter of 2015 with no corresponding sale during the third quarter of 2015.

The $6.8 million increase in non-interest income from the third quarter of 2014 was primarily due to a $3.4 million increase in service charges and other fees, which was driven by the addition of $1.2 million of title income, as well as increased commercial loan fee income, debit card income and service charges related to accounts acquired through the merger with LegacyTexas Group, Inc.  Additionally, the Company recognized $1.9 million in net gains on the sale of mortgage loans during the third quarter of 2015, which includes the gain recognized on $59.5 million of one-to four-family mortgage loans that were sold or committed for sale during the third quarter of 2015, fair value changes on mortgage derivatives and mortgage fees collected.  Prior to the January 1, 2015 merger with LegacyTexas Group, Inc., the Company did not originate or sell mortgage loans to outside investors; therefore, a comparable gain was not recorded in the third quarter of 2014.  Other non-interest income increased by $887,000 from the third quarter of 2014, primarily due to $695,000 of insurance income added through the acquisition of LegacyTexas Group, Inc.

Non-interest Expenses

Non-interest expense for the quarter ended September 30, 2015 was $37.8 million, a $919,000 increase from the second quarter of 2015 and a $15.0 million increase from the third quarter of 2014.  Salaries and employee benefits expense increased by $1.1 million from the second quarter of 2015, primarily due to increased production-based incentive accruals and higher health care costs compared to the second quarter of 2015, as well as an increase in full-time equivalent employees to 831 at September 30, 2015, from 812 at June 30, 2015.  Other non-interest expense for the third quarter of 2015 decreased by $247,000 compared to the linked quarter, primarily due to debit card fraud losses incurred during the second quarter of 2015 that resulted from card compromises at two retailers leading to several customer fraud cases.

The $15.0 million increase in non-interest expense from the third quarter of 2014 was partially offset by a $1.2 million decrease in merger and acquisition costs related to the merger with LegacyTexas Group, Inc.  Excluding the impact of these merger costs, core non-interest expense increased by $16.2 million, which was driven by a $10.0 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 Group, Inc. The merger with LegacyTexas Group, Inc. also resulted in a $1.8 million increase in occupancy and equipment expense, a $1.3 million increase in office operations expense and a $1.1 million increase in data processing expense for the quarter ended September 30, 2015, compared to the same period in 2014.   

Financial Condition - Loans

Gross loans held for investment at September 30, 2015, excluding Warehouse Purchase Program loans, grew $294.0 million from June 30, 2015 and by $2.20 billion from September 30, 2014.  Excluding $1.00 billion in loans acquired from LegacyTexas Group, Inc. and Warehouse Purchase Program loans, gross loans held for investment increased by $1.20 billion from September 30, 2014.   Compared to June 30, 2015, gross loans held for investment grew in all loan categories with the exception of the Warehouse Purchase Program and other consumer portfolios.  Commercial and industrial and commercial real estate loans at September 30, 2015 increased by $129.1 million and $105.4 million, respectively, from June 30, 2015, while consumer real estate and construction and land loans increased by $34.6 million and $29.9 million, respectively, for the same period.  Warehouse Purchase Program loans at September 30, 2015 decreased by $124.6 million from June 30, 2015 and increased by $223.8 million compared to September 30, 2014.

The below table breaks out the growth in gross loans held for investment at September 30, 2015, excluding Warehouse Purchase Program balances, and shows the percentage change from September 30, 2014.

 

Energy loans, which are reported as commercial and industrial loans, totaled $431.4 million at September 30, 2015, up $28.8 million from $402.6 million at June 30, 2015 and up $147.8 million from September 30, 2014. 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. Five loans managed by the Energy Finance group are not secured by oil and gas reserves and are reported as commercial and industrial loans (outside of the $431.4 million reported as energy loans.) These loans, with a combined commitment of $76.7 million and a total outstanding balance of $31.1 million at September 30, 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 only be indirectly impacted from declining commodity prices.

Financial Condition - Deposits

Total deposits at September 30, 2015 increased by $242.3 million from June 30, 2015, and by $2.27 billion from September 30, 2014, with $1.63 billion of growth resulting from the merger with LegacyTexas Group, Inc.  All deposit categories increased on a linked-quarter basis, with savings and money market deposits increasing by $148.7 million and non-interest-bearing demand deposits growing by $52.1 million due to higher balances in commercial checking deposits.  At September 30, 2015, non-interest-bearing demand deposits comprised 23.8% of total deposits, compared to 19.4% of total deposits at September 30, 2014.  Interest-bearing demand and time deposits increased by $16.1 million and $25.4 million, respectively, compared to June 30, 2015. 

The below table breaks out the growth in deposits at September 30, 2015 and shows the percentage change from September 30, 2014:

 

 

The Company recorded a provision for loan losses of $7.5 million for the quarter ended September 30, 2015, compared to $3.8 million for the quarter ended June 30, 2015 and $2.5 million for the quarter ended September 30, 2014.  The increase in the provision for loan losses on a linked-quarter basis, as well as compared to the third quarter of 2014, was primarily related to increased organic loan production, as well as loans acquired through the merger with LegacyTexas Group, Inc. that were re-underwritten following completion of the merger.  Once an acquired loan undergoes new underwriting and meets the criteria for a new loan, any remaining fair value adjustments are taken into interest income. Without the corresponding fair value adjustment, the newly originated loan drives an increase in the allowance for loan losses.  During the third quarter of 2015, the Company added $473.4 million in net loan production that required additional allowance for loan losses, which includes loans acquired through the merger with LegacyTexas Group, Inc. that were re-underwritten pursuant to this process.

Net charge-offs for the third quarter of 2015 totaled $2.0 million, an increase of $841,000 from the second quarter of 2015 and an increase of $1.6 million from the third quarter of 2014.  This increase was primarily due to a $1.2 million charge-off of a commercial and industrial loan acquired from LegacyTexas Group, Inc.  The $1.2 million charge-off was recorded net of $473,000 in remaining fair value adjustments on the credit.  

At September 30, 2015, $44.2 million, or 0.94%, of the Company's loan portfolio (excluding Warehouse Purchase Program loans) consisted of criticized energy loans, which is down from $58.6 million at June 30, 2015.  Of the $44.2 million, three energy loans totaling $36.2 million were on non-accrual status at September 30, 2015 and were considered impaired; however, the Company does not have any specific reserves set aside and does not currently anticipate any losses on these three loans.  $31.0 million of the $36.2 million in non-performing energy loans were placed on non-accrual status during the third quarter of 2015, while $5.2 million was placed on non-accrual in the second quarter of 2015.  Additionally, an $8.0 million energy loan rated as substandard at September 30, 2015, was on accrual status and considered performing.   The above energy credits were downgraded as a result of collateral value deterioration due to commodity price declines. As a result of the deterioration, the Company has taken action to improve the risk profile of the criticized energy loans. These actions range from instituting monthly commitment reductions, obtaining additional collateral, obtaining additional guarantor support, and requiring additional equity injections or asset sales.  Borrower response to these actions has been favorable and the Company believes the loans will be paid off or paid down to acceptable risk levels within a reasonable time frame.

The $39.6 million increase in non-performing loans from the second quarter of 2015 was primarily due to $31.0 million in energy loans discussed above, as well as a $10.1 million commercial real estate loan secured by a medical facility that was placed on non-accrual in the third quarter of 2015.   The Company has not set aside any specific reserves for this loan and does not currently anticipate a loss.

Consistent with prior quarters, during the third quarter of 2015, the Company increased 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.

Subsequent Events

The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended September 30, 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 September 30, 2015 and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an investor conference call to review these results on Wednesday, October 21, 2015 at 8 a.m. Central Time.  Participants may pre-register for the call by visiting http://dpregister.com/10072609 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 #10072609.   This replay, as well as the webcast, will be available until November 21, 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 47 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.