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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K
 
(Mark One)
 
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
OR
 
o   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
  27-2176993
(State or other jurisdiction of incorporation or organization)
  (I.R.S. Employer Identification No.)
     
1309 W. 15th Street, Plano, Texas
  75075
(Address of Principal Executive Offices)
  (Zip Code)
 
Registrant’s telephone number, including area code: (972) 578-5000
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of Each Class
 
Name of Each Exchange on Which Registered
 
Common Stock, par value $0.01 per share
  Nasdaq Global Select Market
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
 
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 filing requirements for the past 90 days. Yes þ No o
 
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 o No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
 
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
  o       Accelerated filer o
Non-accelerated filer
  þ   (Do not check if a smaller reporting company)   Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
 
The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the Registrant was $140.7 million as of June 30, 2010, the last business day of the Registrant’s most recently completed second fiscal quarter. Solely for the purpose of this computation, it has been assumed that executive officers and directors of the Registrant are “affiliates”.
 
There were issued and outstanding 34,839,491 shares of the Registrant’s common stock as of March 1, 2011.
 
DOCUMENTS INCORPORATED BY REFERENCE:
 
     
Document
 
Part of Form 10-K
 
Portions of the definitive Proxy Statement to
be used in conjunction with the Registrant’s
Annual Meeting of Shareholders
  Part III
 


 

 
VIEWPOINT FINANCIAL GROUP, INC.
 
FORM 10-K
 
December 31, 2010
 
INDEX
 
                 
        Page
 
 
PART I
             
  Item 1     Business     3  
             
  Item 1A     Risk Factors     35  
             
  Item 1B     Unresolved Staff Comments     40  
             
  Item 2     Properties     40  
             
  Item 3     Legal Proceedings     44  
             
  Item 4     (Removed and Reserved)     44  
 
PART II
             
  Item 5     Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities     45  
             
  Item 6     Selected Financial Data     47  
             
  Item 7     Management’s Discussion and Analysis of Financial Condition and Results of Operations     49  
             
  Item 7A     Quantitative and Qualitative Disclosures about Market Risk     69  
             
  Item 8     Financial Statements and Supplementary Data     73  
             
  Item 9     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     126  
             
  Item 9A     Controls and Procedures     126  
             
  Item 9B     Other Information     127  
 
PART III
             
  Item 10     Directors, Executive Officers and Corporate Governance     128  
             
  Item 11     Executive Compensation     128  
             
  Item 12     Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters     128  
             
  Item 13     Certain Relationships and Related Transactions, and Director Independence     128  
             
  Item 14     Principal Accountant Fees and Services     128  
 
PART IV
             
  Item 15     Exhibits, Financial Statement Schedules     129  
                 
  Signatures         131  
 EX-21
 EX-23.1
 EX-23.2
 EX-31.1
 EX-31.2
 EX-32


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PART I
 
Item 1.  Business
 
Special Note Regarding Forward-Looking Statements
 
When used in filings by ViewPoint Financial Group, Inc. (“the Company”) with the Securities and Exchange Commission (the “SEC”) in the Company’s press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions, legislative changes, changes in policies by regulatory agencies, fluctuations in interest rates, the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, the Company’s ability to access cost-effective funding, fluctuations in real estate values and both residential and commercial real estate market conditions, demand for loans and deposits in the Company’s market area, competition, changes in management’s business strategies and other factors set forth under Risk Factors in this 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 Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
 
The Company does not undertake – and specifically declines any obligation – to publicly release the result of any revisions 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.
 
General
 
The Company, a Maryland corporation, is a full stock holding company for its wholly owned subsidiary, ViewPoint Bank (the “Bank”.) The Bank’s operations include its wholly owned subsidiary, ViewPoint Bankers Mortgage, Inc. (doing business as ViewPoint Mortgage) (“VPM”). On July 6, 2010, the Company completed a public offering and share exchange as part of the Bank’s conversion from the mutual holding company structure and the elimination of ViewPoint Financial Group and ViewPoint MHC (the “Conversion”). Please see Note 2 of the Notes to Consolidated Financial Statements under Item 8 of this report for more information. All share and per share information in this report for periods prior to the Conversion has been adjusted to reflect the 1.4:1 exchange ratio on publicly traded shares, which resulted in a 4,287,752 increase in outstanding shares.
 
Unless the context otherwise requires, references in this document to the “Company” refer to ViewPoint Financial Group, Inc. and its predecessor, ViewPoint Financial Group, a United States corporation, and references to the “Bank” refer to ViewPoint Bank. References to “we,” “us,” and “our” means ViewPoint Financial Group, Inc. or ViewPoint Bank and its subsidiary, unless the context otherwise requires.
 
The Company and the Bank are examined and regulated by the Office of Thrift Supervision (“OTS”), its primary federal regulator. In 2011, the regulatory oversight of the Company will transfer to the Federal Reserve Board, and of the Bank will transfer to the Office of the Comptroller of the Currency (“OCC”.) The Bank is also regulated by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is required to have certain reserves set by the Federal Reserve Board 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 non-mortgage 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 finance their inventory of these closed loans until the loans are sold to investors approved by the Company (the “Warehouse


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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.
 
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.
 
Market Areas
 
We are headquartered in Plano, Texas, and have 23 community bank offices in our primary market area, the Dallas/Fort Worth Metroplex. We also have 14 loan production offices located in the Dallas/Fort Worth Metroplex, as well as in Houston, San Antonio, Austin, other Texas cities and in Oklahoma. (Please see Item 2 under Part 1 of this Annual Report on Form 10-K for location details.) Based on the most recent branch deposit data provided by the FDIC (as of June 2010), we ranked third in deposit share in Collin County, with 10.2% of total deposits, and eleventh in the Dallas/Fort Worth Metropolitan Statistical Area, with 1.3% of total deposits.
 
Our market area includes a diverse population of management, professional and sales personnel, office employees, manufacturing and transportation workers, service industry workers, government employees and self-employed individuals. The population includes a skilled work force with a wide range of education levels and ethnic backgrounds. Major employment sectors include financial services, manufacturing, education, health and social services, retail trades, transportation and professional services. 24 companies headquartered in the Dallas/Fort Worth Metroplex were included on the Fortune 500 list for 2010, giving our market area the fourth-highest concentration of such companies among U.S. metropolitan areas. Large employers headquartered in our market area include Exxon Mobil, AT&T, Kimberly-Clark, American Airlines, Texas Instruments, J.C. Penney, Dean Foods and Southwest Airlines.
 
For December 2010, the Dallas/Fort Worth Metroplex reported an unemployment rate (not seasonally adjusted) of 7.9%, compared to the national average of 9.1% (source is Bureau of Labor Statistics Local Area Unemployment Statistics Unemployment Rates for Metropolitan Areas, using the Dallas-Fort Worth-Arlington, Texas Metropolitan Statistical Area.) Housing prices in the Dallas/Fort Worth Metroplex have compared favorably to the national average. From December 2005 to December 2010, the Standards and Poors/Case-Schiller Home Price Index for the Dallas metropolitan area has decreased by 6.2%, while the U.S. National Home Price Index has declined by 30.3% during the same period.


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Lending Activities
 
The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for deferred fees and discounts and allowances for losses) as of the dates indicated.
 
                                                                                 
    December 31,  
    2010     2009     2008     2007     2006  
    Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent  
    (Dollars in thousands)  
 
Real estate loans:
                                                                               
One- to four- family
  $ 393,896       35.58%     $ 421,935       37.62%     $ 498,961       39.92%     $ 332,780       36.40%     $ 282,918       29.21%  
Commercial
    479,071       43.28       453,604       40.44       436,483       34.92       251,915       27.56       179,635       18.55  
Home equity
    115,418       10.43       116,138       10.35       101,021       8.08       85,064       9.31       83,899       8.66  
Construction
    12,004       1.08       7,074       0.63       503       0.04       225       0.02       5,181       0.54  
                                                                                 
Total real estate loans
    1,000,389       90.37       998,751       89.04       1,036,968       82.96       669,984       73.29       551,633       56.96  
                                                                                 
Other loans:
                                                                               
Consumer loans:
                                                                               
Automobile indirect
    1,606       0.15       10,711       0.96       38,837       3.11       104,156       11.39       219,147       22.63  
Automobile direct
    40,944       3.70       57,186       5.10       73,033       5.84       98,817       10.81       151,861       15.68  
Other secured
    10,619       0.96       12,217       1.09       14,107       1.13       12,626       1.38       14,678       1.52  
Lines of credit/unsecured
    14,197       1.28       14,781       1.32       15,192       1.21       16,351       1.79       21,284       2.20  
                                                                                 
Total consumer loans
    67,366       6.09       94,895       8.47       141,169       11.29       231,950       25.37       406,970       42.03  
                                                                                 
Commercial non-mortgage
    39,279       3.54       27,983       2.49       71,8451       5.75       12,278       1.34       9,780       1.01  
                                                                                 
Total loans
    1,107,034       100.00%       1,121,629       100.00%       1,249,982       100.00%       914,212       100.00%       968,383       100.00%  
                                                                                 
Less:
                                                                               
Deferred fees and discounts
    (73)               (1,160)               (1,206)               603               3,576          
Allowance for loan losses
    (14,847)               (12,310)               (9,068)               (6,165)               (6,507)          
                                                                                 
Total loans receivable, net
  $ 1,092,114             $ 1,108,159             $ 1,239,708             $ 908,650             $ 965,452          
                                                                                 
Loans held for sale
  $ 491,985             $ 341,431             $ 159,884             $ 13,172             $ 3,212          
                                                                                 
 
 
(1) Includes $53.3 million of warehouse lines of credit, which are classified as secured commercial lines of credit. These lines were originated between July 2008 and August 2009.

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The following table shows the composition of our loan portfolio by fixed and adjustable rate as of the dates indicated. Of the $492.0 million of loans held for sale at December 31, 2010, $460.9 million were Warehouse Purchase Program loans purchased for sale under our standard loan participation agreement. Warehouse Purchase Program facilities adjust with changes to the daily London Interbank Offering Rate (“LIBOR”). These facilities have a yield that is based on the daily LIBOR, with a floor of either 2.00% or 2.50% per annum, plus a margin rate.
 
                                                                                 
    December 31,  
    2010     2009     2008     2007     2006  
    Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent  
    (Dollars in thousands)  
 
Fixed rate loans:
                                                                               
Real estate loans:
                                                                               
One- to four- family
  $ 300,007       27.10%     $ 304,810       27.18%     $ 375,421       30.04%     $ 302,193       33.06%     $ 247,910       25.60%  
Commercial
    299,849       27.09       284,741       25.39       271,830       21.75       179,826       19.67       140,797       14.54  
Home equity
    80,013       7.23       83,368       7.43       84,124       6.73       70,643       7.73       68,795       7.10  
Construction
    -       -       -       -       -       -       -       -       1,660       0.17  
                                                                                 
Total real estate loans
    679,869       61.42       672,919       60.00       731,375       58.52       552,662       60.46       459,162       47.41  
                                                                                 
Other loans:
                                                                               
Consumer loans:
                                                                               
Automobile indirect
    1,606       0.15       10,711       0.96       38,837       3.11       104,156       11.39       219,115       22.63  
Automobile direct
    40,944       3.70       57,186       5.10       73,033       5.84       98,817       10.81       151,816       15.68  
Other secured
    4,346       0.39       4,844       0.43       5,238       0.42       5,454       0.60       7,050       0.73  
Lines of credit/unsecured
    3,333       0.30       3,361       0.30       3,456       0.27       4,168       0.46       7,652       0.79  
                                                                                 
Total consumer loans
    50,229       4.54       76,102       6.79       120,564       9.64       212,595       23.26       385,633       39.83  
Commercial non-mortgage
    26,744       2.41       10,901       0.97       10,213       0.82       9,359       1.02       7,979       0.82  
                                                                                 
Total fixed rate loans
    756,842       68.37       759,922       67.76       862,152       68.98       774,616       84.74       852,774       88.06  
                                                                                 
Adjustable rate loans:
                                                                               
Real estate loans:
                                                                               
One- to four- family
    93,889       8.48       117,125       10.44       123,540       9.88       30,587       3.34       35,008       3.61  
Commercial
    179,222       16.19       168,863       15.05       164,653       13.17       72,089       7.89       38,838       4.01  
Home equity
    35,405       3.20       32,770       2.92       16,897       1.35       14,421       1.58       15,104       1.56  
Construction
    12,004       1.08       7,074       0.63       503       0.04       225       0.02       3,521       0.37  
                                                                                 
Total real estate loans
    320,520       28.95       325,832       29.04       305,593       24.44       117,322       12.83       92,471       9.55  
                                                                                 
Other loans:
                                                                               
Consumer loans:
                                                                               
Automobile indirect
    -       -       -       -       -       -       -       -       32       -  
Automobile direct
    -       -       -       -       -       -       -       -       45       -  
Other secured
    6,273       0.57       7,373       0.66       8,869       0.71       7,172       0.78       7,628       0.79  
Lines of credit/unsecured
    10,864       0.98       11,420       1.02       11,736       0.94       12,183       1.33       13,632       1.41  
                                                                                 
Total consumer loans
    17,137       1.55       18,793       1.68       20,605       1.65       19,355       2.11       21,337       2.20  
Commercial non-mortgage
    12,535       1.13       17,082       1.52       61,6321       4.93       2,919       0.32       1,801       0.19  
                                                                                 
Total adjustable rate loans
    350,192       31.63       361,707       32.24       387,830       31.02       139,596       15.26       115,609       11.94  
                                                                                 
Total loans
    1,107,034       100.00%       1,121,629       100.00%       1,249,982       100.00%       914,212       100.00%       968,383       100.00%  
                                                                                 
Less:
                                                                               
Deferred fees and discounts
    (73)               (1,160)               (1,206)               603               3,576          
                                                                                 
Allowance for loan losses
    (14,847)               (12,310)               (9,068)               (6,165)               (6,507)          
                                                                                 
Total loans receivable, net
  $ 1,092,114             $ 1,108,159             $ 1,239,708             $ 908,650             $ 965,452          
                                                                                 
                                                                                 
Loans held for sale
  $ 491,985             $ 341,431             $ 159,884             $ 13,172             $ 3,212          
                                                                                 
 
 
1 Includes $53.3 million of warehouse lines of credit, which are classified as secured commercial lines of credit. These lines were originated between July 2008 and August 2009.
 


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The following schedule illustrates the contractual maturity of our loan portfolio (not including loans held for sale) at December 31, 2010. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.
 
                                                                                                 
    One- to Four- Family and
                               
    Home Equity     Commercial Real Estate     Construction     Consumer     Commercial Non-Mortgage     Total  
          Weighted
          Weighted
          Weighted
          Weighted
          Weighted
          Weighted
 
Due During Years
        Average
          Average
          Average
          Average
          Average
          Average
 
Ending December 31,
  Amount     Rate     Amount     Rate     Amount     Rate     Amount     Rate     Amount     Rate     Amount     Rate  
    (Dollars in thousands)              
 
2011(1)
  $   2,330       5.56 %   $   52,733       6.54 %   $   11,435       6.28 %   $   19,464       9.34 %   $   10,894       6.55 %   $   96,856       6.88 %
2012
    2,387       6.53       51,483       6.61       -       -       8,262       7.15       4,441       4.88       66,573       6.56  
2013
    4,084       5.80       29,323       6.77       -       -       12,090       6.70       1,069       6.68       46,566       6.66  
2014-2015
    9,424       6.21       170,615       6.65       -       -       24,000       6.26       8,142       6.91       212,181       6.60  
2016-2020
    52,322       5.62       158,916       6.47       569       6.75       3,112       7.13       14,733       7.69       229,652       6.37  
2021-2025
    86,381       5.20       6,315       5.11       -       -       438       8.59       -       -       93,134       5.21  
2026 and following
    352,386       5.70       9,686       6.38       -       -       -       -       -       -       362,072       5.72  
                                                                                                 
Total
  $ 509,314             $ 479,071             $ 12,004             $ 67,366             $ 39,279             $ 1,107,034          
                                                                                                 
 
 
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
 
The total amount of loans due after December 31, 2011 which have fixed interest rates is $697.7 million, or 69.1%. The total amount of loans due after December 31, 2011 which have floating or adjustable interest rates is $312.4 million, or 30.9%.
 
Lending Authority. Residential real estate loans up to $1.5 million and commercial real estate loans up to $1.0 million may be approved by our Chief Credit Officer. Our Chief Executive Officer may approve residential and commercial real estate loans up to $2.0 million. The Management Loan Committee generally may approve loans up to $5.0 million, with the exception of Warehouse Purchase Program relationships, which it can approve up to $20.0 million. Loans over these amounts must be approved by the Director Loan Committee. Loans outside our general underwriting guidelines must be approved by the Board of Directors.
 
At December 31, 2010, the maximum amount under federal regulation that we could lend to any one borrower and the borrower’s related entities was approximately $44.8 million. Our five largest lending relationships (excluding Warehouse Purchase Program relationships) totaled $89.8 million in the aggregate, or 8.1% of our $1.11 billion loan portfolio (not including loans held for sale) at December 31, 2010. The loans making up these lending relationships were with commercial borrowers and were secured by office buildings and retail centers located in Texas. The largest relationship at December 31, 2010, totaled $18.7 million. At December 31, 2010, none of the above referenced loans were classified and all were performing according to their stated terms. At December 31, 2010, we had 58 additional relationships that exceeded $2.0 million, for a total amount of $351.5 million. One of these loans with an outstanding balance of $2.9 million was 30 days delinquent at December 31, 2010 and three of these loans totaling $7.4 million were on nonaccrual status at December 31, 2010. See “Asset Quality” for more information.
 
One- to Four-Family Real Estate Lending. We primarily originate loans secured by first mortgages on owner-occupied, one- to four-family residences in our market area. We originate one- to four-family residential mortgage loans through our wholly owned subsidiary, VPM. All of the one- to four-family loans we originate are funded by us and either retained in our portfolio or sold into the secondary market. We sell a majority of our residential mortgage loans on a servicing released basis. See “Loan Originations, Purchases, Sales, Repayments and Servicing.” An evaluation is conducted at the time of origination based on yield, term, price, credit, marketability, and servicing released premium to determine if the loan is to be sold or retained. Sales of one- to four-family real estate loans can increase liquidity, provide funds for additional lending activities, and generate income.
 
At December 31, 2010, one- to four-family residential mortgage loans (which included a limited amount of home improvement loans) totaled $393.9 million, or 35.6% of our gross loan portfolio, of which $300.0 million were fixed rate loans and $93.9 million were adjustable rate loans. In 2010, the Company sold $402.0 million, or 83.7%, of the one- to four-family loans it originated to investors. These loans were sold servicing released. The remainder of one- to four-family loans originated were retained in the Company’s loan portfolio.

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We underwrite one- to four-family owner-occupied loans based on the applicant’s ability to repay. This includes evaluating their employment, credit history and the value of the subject property. We lend up to 95% of the lesser of the value or purchase price for one- to four-family residential loans, and up to 80% for non-owner-occupied residential loans. For certain Federal Housing Administration (“FHA”) loans, we generally lend up to 96.5% with FHA insurance. For conventional loans with a loan-to-value ratio in excess of 80%, we require private mortgage insurance in order to mitigate the higher risk level associated with higher loan-to-value loans. Properties securing our one- to four-family loans are appraised by independent fee appraisers who are selected in accordance with industry and regulatory standards. We require our borrowers to obtain title and hazard insurance, and flood insurance, if necessary.
 
We currently originate one- to four-family mortgage loans on a fixed and adjustable rate basis as consumer demand dictates. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with other local financial institutions and consistent with our asset/liability management objectives. Fixed rate loans secured by one- to four-family residences generally have contractual maturities of up to 30 years and are generally fully amortizing, with payments due monthly.
 
In 2010, VPM originated $449.7 million of one- to four-family fixed rate mortgage loans, $23.0 million of one- to four-family adjustable rate mortgage (ARM) loans and $15.0 million in residential construction loans. Additionally, the Bank originated $7.8 million in fixed rate home improvement loans. All ARM loans are offered with annual adjustments that begin after the initial reset date, which is typically three or five years, and lifetime rate caps that vary based on the product, generally with a maximum annual rate change of 2.0% and a maximum overall rate change of 6.0%. We use a variety of indices to reprice our ARM loans. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as our cost of funds. As of December 31, 2010, 96% of the ARM loans in our portfolio will reset in the next five years.
 
ARM loans generally pose different credit risks than fixed rate loans, primarily because as interest rates rise, the borrower’s payment rises, increasing the potential for default. Our loans, which are generally underwritten using guidelines established by the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“FHLMC”), the U.S. Department of Housing and Urban Development (“HUD”) and other mortgage investors, are readily saleable to investors. Our real estate loans generally contain a “due on sale” clause, allowing us to declare the unpaid principal balance due and payable upon the sale of the security property. In 2010, the average size of our one- to four-family residential loans at origination was approximately $168,000, while the average size of the one- to four-family residential loans in our portfolio at December 31, 2009, was approximately $128,000.
 
We originate residential construction loans to individuals for the construction and acquisition of personal residences. At December 31, 2010, we had $11.4 million in outstanding balances on residential construction loans with an additional $5.9 million of outstanding commitments to make residential construction fundings. Our residential construction loans generally provide for the payment of interest only during the construction phase, which is typically up to 12 months.
 
We periodically review and inspect each property prior to disbursement of funds during the term of the construction loan. Loan proceeds are disbursed after inspection based on the percentage of completion method. At the end of the construction phase, the residential construction loan generally either converts to a longer-term mortgage loan or is paid off through a permanent loan from another lender. Residential construction loans can be made with a maximum loan-to-value ratio of 90%. Before making a commitment to fund a residential construction loan, we require an “as-complete” appraisal of the property by an independent licensed appraiser.
 
Residential construction lending is generally considered to involve a higher degree of credit risk than longer-term financing on existing, owner-occupied real estate. Risk of loss on a residential construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimated construction costs are inaccurate, we may be required to advance funds beyond the amount originally committed in order to ensure completion and protect the value of the property. This scenario can also lead to a project that, when completed, has a value that is below the cost of construction.


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Warehouse Purchase Program. Our Warehouse Purchase Program enables our mortgage banking company customers to close conforming and some jumbo one- to four-family real estate loans in their own name and temporarily finance their inventory of these closed loans until the loans are sold to investors approved by the Company. We initiated the Warehouse Purchase Program in July 2008 and began funding these types of facilities in October 2008. At December 31, 2010, the Warehouse Purchase Program had 29 clients, compared to eight clients at December 31, 2008. The approved maximum borrowing amounts for our existing Warehouse Purchase Program clients ranged from $10.0 million to $30.0 million at December 31, 2010. During 2010, the average daily outstanding balance per client was $14.8 million and the average daily balance of this portfolio was $368.3 million. The underwriting standards for Warehouse Purchase Program relationships require a minimum tangible net worth of at least $2.0 million and a requirement for personal guarantees and historical profitability of the mortgage banking company client. Warehouse Purchase Program loans, which are made under our standard loan participation agreement, are secured by one- to four-family mortgage loans and are classified as mortgage loans held for sale. This type of lending has a lower risk profile than other one- to four-family loans because the loans are conforming (and a limited number of jumbo) one- to four-family real estate loans that are subject to purchase commitments from an approved investor, and are subject to specific curtailments. If the loan is not sold within 90 days, the mortgage banking company client buys back the loan.
 
At December 31, 2010, Warehouse Purchase Program loans totaled $460.9 million. During 2010, the Company purchased $7.79 billion and sold $7.32 billion in mortgage loans made under these loan participation agreements. Warehouse Purchase Program facilities adjust with changes to the daily LIBOR, with a floor of either 2.00% or 2.50% per annum, plus a margin rate. The margin rate, which is an agreed upon value stated in the pricing schedule of each Warehouse Purchase Program client, typically ranged between 1.75% and 2.75% at December 31, 2010, which resulted in a minimum total rate for Warehouse Purchase Program facilities of 3.75%. For the year ended December 31, 2010, the average yield earned on Warehouse Purchase Program facilities was 4.88%. All loans in this portfolio were performing at December 31, 2010.
 
Commercial Real Estate Lending. We offer a variety of commercial real estate loans. These loans are generally secured by commercial, income-producing, multi-tenanted properties located primarily in our market area or elsewhere in Texas. These properties primarily include office buildings, retail centers, light industrial facilities, warehouses and multifamily properties. This category also includes small business real estate loans for owner-occupied or single tenant properties. At December 31, 2010, commercial real estate loans totaled $479.1 million, or 43.3% of our gross loan portfolio. Our commercial real estate loans are originated internally by our Commercial Real Estate Lending and Business Lending departments.
 
Our loans secured by commercial real estate are primarily originated with a fixed interest rate for terms between three and ten years, 25 to 30-year amortization periods and balloon payments due at maturity. Most loans with a fixed interest rate are generally originated with a term of five years or less. Commercial real estate adjustable rate loans generally have fixed rates for the first three to five years, then have a one-time rate adjustment to a new fixed rate for the remaining term (generally an additional three to five years.) Loan-to-value ratios on our commercial real estate loans typically do not exceed 75% of the appraised value of the property securing the loan. At December 31, 2010, the average loan-to-value ratio of our commercial real estate portfolio was 58.2%, using the current loan balances and collateral values at origination (or adjusted values for those properties which have required updated appraisals as a result of loan modification requests or evaluations of classified assets.) Loans for non-owner-occupied properties are generally originated at lower loan-to-value ratios to single purpose entities and are generally accompanied by personal guaranties that are limited to cases of breach of representation, warranty or covenant. Loans for owner-occupied or single tenant properties may have higher loan-to-value ratios, but often require unlimited personal guaranties. At December 31, 2010, $28.5 million, or 6.0%, of the $479.1 million


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commercial real estate portfolio was owner-occupied. The below table illustrates our commercial real estate portfolio by collateral type and loan-to-value ratio based on the most recent data available.
 
                         
Property Type
  $ Amount     % of Total     LTV  
    (Dollars in Thousands)        
 
Office
  $   202,350       42.24 %     62.2 %
Retail
    146,768       30.64       57.0  
Industrial
    34,976       7.30       61.0  
Office/Warehouse
    35,642       7.44       64.5  
Storage Facility
    13,719       2.86       47.1  
Medical Office
    10,809       2.25       53.0  
Mixed Use
    8,814       1.84       29.9  
Hotel
    7,381       1.54       66.3  
Mobile Home Park
    5,829       1.22       50.0  
Multifamily
    3,864       0.81       61.9  
Church
    3,669       0.76       41.0  
Land
    143       0.03       60.2  
Other
    5,107       1.07       49.6  
                         
    $ 479,071       100.00 %     58.2 %
                         
 
Loans secured by commercial real estate are generally underwritten based on the net operating income of the property and the financial strength of the borrower/guarantor. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt plus an additional coverage requirement. Appraisals on properties securing commercial real estate loans are performed by independent state certified or licensed fee appraisers. See “Loan Originations, Purchases, Sales, Repayments and Servicing.”
 
We generally maintain an insurance and/or tax escrow for loans on non-owner-occupied properties; however, we generally do not require them for owner-occupied properties. Loans over $250,000 that are secured by owner-occupied properties are monitored through an insurance tracking service, and the tax information for all commercial real estate loans is pulled annually to ensure that real estate taxes are current. In order to monitor the adequacy of cash flows on income-producing properties, the borrower is generally required to provide annual financial information.
 
Loans secured by commercial real estate properties generally involve a greater degree of credit risk than one- to four-family residential mortgage loans. These loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation or management of the properties, repayment of these loans may be impacted by adverse conditions in the real estate market or the economy. If the cash flow from the property is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired. See “Asset Quality – Non-performing Assets.” Our largest commercial real estate lending relationship at December 31, 2010, was $18.7 million. At December 31, 2010, the loans making up this relationship were performing in accordance with their terms.
 
Home Equity Lending. Our home equity loans totaled $115.4 million and comprised 10.4% of our gross loan portfolio at December 31, 2010, including $25.3 million of home equity lines of credit. All of our home equity loans are secured by Texas real estate. Under Texas law, home equity borrowers are allowed to borrow a maximum of 80% (combined loan-to-value of the first lien, if any, plus the home equity loan) of the fair market value of their primary residence. The same 80% combined loan-to-value maximum applies to home equity lines of credit, which are further limited to 50% of the fair market value of the home. As a result, our home equity loans and home equity lines of credit have low loan-to-value ratios compared to similar loans in other states. Home equity lines of credit are originated with an adjustable rate of interest, based on the Wall Street Journal Prime (“Prime”) rate of interest plus a margin.


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Home equity lines of credit have up to a ten year draw period and amounts may be reborrowed after payment at any time during the draw period. While the rate of interest continues to float, once the draw period has lapsed, the payment is amortized over a ten year period based on the loan balance at that time. At December 31, 2010, unfunded commitments on these lines of credit totaled $19.9 million.
 
Consumer Lending. We offer a variety of secured consumer loans, including new and used automobile loans, recreational vehicle loans and loans secured by savings deposits. We also offer unsecured consumer loans. We originate our consumer loans primarily in our market areas. At December 31, 2010, our consumer loan portfolio totaled $67.4 million, or 6.1% of our gross loan portfolio.
 
We currently originate automobile loans on a direct basis only. Automobile loans totaled $42.5 million at December 31, 2010, or 3.9% of our gross loan portfolio, with $40.9 million in direct loans and $1.6 million in indirect loans. New automobile loans may be written for a term of up to six years and have fixed rates of interest. Loan-to-value ratios are up to 110% of the manufacturer’s suggested retail price for new auto loans and 110% of the National Automobile Dealers Association (“NADA”) retail value for used auto loans.
 
We follow our internal underwriting guidelines in evaluating direct automobile loans, which includes a maximum debt-to-income ratio of 55%. At December 31, 2010, the average borrower credit score in our automobile portfolio at origination was 731.
 
We also originate unsecured consumer loans. At December 31, 2010, our unsecured consumer loans totaled $14.2 million, or 1.3% of our gross loan portfolio. These loans have either a fixed rate of interest for a maximum term of 48 months or are revolving lines of credit with an adjustable rate of interest tied to the Prime rate of interest. At December 31, 2010, unfunded commitments on our unsecured lines of credit totaled $40.3 million, and the average outstanding balance of the individual lines was approximately $4,000.
 
Consumer loans generally entail greater risk than do one- to four-family residential mortgage loans, particularly in the case of loans that are secured by rapidly depreciable assets, such as automobiles. In the case of automobile loans, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability. As a result, these loans are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
 
Commercial Non-Mortgage Lending. At December 31, 2010, commercial non-mortgage loans totaled $39.3 million, or 3.5% of our gross loan portfolio. Our commercial non-mortgage lending activities encompass loans with a variety of purposes and security, including loans to finance business working capital, commercial vehicles and equipment, as well as lines of credit.
 
Approximately $9.0 million of our commercial non-mortgage loans are unsecured. Our commercial non-mortgage lending policy includes requirements related to credit file documentation and analysis of the borrower’s background, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of other conditions affecting the borrower. A review of the borrower’s past, present and future cash flows is also an important aspect of our credit analysis. We generally obtain personal guarantees on both our secured and unsecured commercial non-mortgage loans.
 
At December 31, 2010, $15.5 million of our commercial non-mortgage loans were comprised of two loans secured by promissory notes, which are in turn secured by commercial real estate. Commercial non-mortgage loans are typically made on the basis of the borrower’s ability to make repayment from the profitable operation of the borrower’s business and, therefore, are of higher credit risk. Commercial non-mortgage loans are generally secured by business assets, such as accounts receivable, inventory, equipment and commercial vehicles. To the extent that the collateral depreciates over time, the collateral may be difficult to appraise and may fluctuate in value based on the specific type of business and equipment used. As a result, the availability of funds for the repayment of commercial non-mortgage loans are substantially dependent on the success of the business itself (which, in turn, is often dependent in part upon general economic conditions.) The majority of our commercial non-mortgage loans are to borrowers in our market area. We intend to continue our commercial non-mortgage lending within this geographic area.


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Loan Originations, Purchases, Sales, Repayments and Servicing
 
We originate both fixed rate and adjustable rate loans. Our ability to originate loans, however, is dependent upon customer demand for loans in our market area. In addition to interest earned on loans and loan origination fees, we receive fees for loan commitments, late payments and other miscellaneous services. These fees vary from time to time, generally depending on the supply of funds and other competitive conditions in the market. Fees for late payments and other miscellaneous services totaled $521,000, $628,000 and $853,000 for the years ended December 31, 2010, 2009 and 2008, respectively. The decline in fees for late payments and other services has been primarily due to the decline in our consumer lending portfolio.
 
We also may purchase whole loans and loan participations from other financial institutions. These purchase transactions are governed by participation agreements entered into by the originators and participant (the Bank) containing guidelines as to ownership, control and servicing rights, among others. The originators may retain all rights with respect to enforcement, collection and administration of the loan. This may limit our ability to control our credit risk when we purchase participations in these loans. For instance, we may not have direct access to the borrower, and the institution administering the loan may have some discretion in the administration of performing loans and the collection of non-performing loans. At December 31, 2010, approximately $50.7 million, or 4.6% of our total loan portfolio, consisted of purchased loans or loan participations. At December 31, 2010, $34.7 million of purchased loans consisted of one- to four- family real estate loan pools purchased from Bank of America (formerly Countrywide) and Citimortgage (formerly ABN Amro,) while $16.0 million consisted of individual participations in commercial real estate loans. At December 31, 2010, the delinquency percentage for purchased one- to four- family real estate loans was 10.00%, compared to 1.86% for one- to four- family real estate loans originated by the Company.
 
From time to time we sell non-residential loan participations to private investors, including other banks, thrifts and credit unions (participants). These sales transactions are governed by participation agreements entered into by the originator (the Bank) and participants containing guidelines as to ownership, control and servicing rights, among others. We service these participations sold. These participations are generally sold without recourse, except in cases of breach of representation, warranty or covenant.
 
We also sell whole residential real estate loans to private investors, such as other banks, thrifts and mortgage companies, generally subject to a provision for repurchase upon breach of representation, warranty or covenant. These loans are generally sold for cash in amounts equal to the unpaid principal amount of the loans determined using present value yields to the buyer. The sale amounts generally produce gains to us. Our residential real estate loans are currently being sold on a servicing released basis.
 
Sales of one- to four- family real estate loans originated by VPM and participations in commercial real estate loans can be beneficial to us since these sales generally generate income at the time of sale, produce future servicing income on loans where servicing is retained or a servicing release premium when servicing is sold, reduce our loan exposure to one borrower, provide funds for additional lending and other investments, and/or increase liquidity. The total volume of loans sold in 2010 and 2009 increased due to the growth of our Warehouse Purchase Program.
 
Gains, losses and transfer fees on sales of loans and loan participations are recognized at the time of the sale. Net gains and transfer fees on sales of loans for 2010, 2009, and 2008 were $13.0 million, $16.6 million and $9.4 million, respectively. In 2009, the Company experienced heavy refinance volume that drove the increase in one-to four-family originations and related income.
 
The Asset/Liability Management Committee directs the Company’s mortgage secondary marketing unit to evaluate, in accordance with guidelines, whether to keep loans in portfolio, sell with a servicing release premium, or sell with servicing retained based on price, yield and duration. We held servicing rights of approximately $636,000, $872,000 and $1.4 million at December 31, 2010, 2009 and 2008, respectively, for loans sold to others. The servicing of these loans generated net servicing fees to us for the years ended December 31, 2010, 2009 and 2008 of $235,000, $239,000 and $252,000, respectively. At December 31, 2010, the Company serviced $275.3 million of loans for others that were not reported as assets. The Company held servicing rights on $110.7 million of these loans. The remaining $164.6 million consisted of mortgage loan portfolios subserviced for third parties; no mortgage servicing asset was recorded related to these loans as the Company does not own such rights.


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The following table shows the loan origination, purchase, sales and repayment activities (including loans held for sale) of the Company for the periods indicated.
 
                         
    Year Ended December 31,  
    2010     2009     2008  
    (Dollars in thousands)  
 
Originations by type:
                       
Adjustable rate loans:
                       
Real estate loans:
                       
One- to four- family
  $ 23,008     $ 37,998     $ 109,124  
Construction
    14,427       10,664       3,753  
Commercial
    24,889       7,134       106,756  
Home equity
    5,742       11,095       8,939  
                         
Total real estate loans
    68,066       66,891       228,572  
                         
Other loans:
                       
Consumer:
                       
Automobile indirect
    -       -       -  
Automobile direct
    -       -       -  
Other secured
    1,951       3,778       1,278  
Lines of credit/unsecured
    594       617       1,155  
                         
Total consumer loans
    2,545       4,395       2,433  
Commercial non-mortgage
    6,272       38,682 (1)     105,905 (1)
                         
Total adjustable rate loans
    76,883       109,968       336,910  
                         
Fixed rate loans:
                       
Real estate loans:
                       
One- to four- family
    457,490       647,014       393,927  
Construction
    1,152       -       -  
Commercial
    69,994       61,019       159,303  
Home equity
    20,872       12,394       34,599  
                         
Total real estate loans
    549,508       720,427       587,829  
                         
Other loans:
                       
Consumer:
                       
Automobile indirect
    -       -       -  
Automobile direct
    16,534       25,626       31,643  
Other secured
    1,503       2,680       2,882  
Lines of credit/unsecured
    2,542       2,556       2,881  
                         
Total consumer loans
    20,579       30,862       37,406  
Commercial non-mortgage
    19,107       4,853       8,692  
                         
Total fixed rate loans
    589,194       756,142       633,927  
                         
Total loans originated
    666,077       866,110       970,837  
                         
Purchases:
                       
Real estate loans:
                       
One- to four- family
    7,785,854 (2)     5,242,511 (2)     296,572 (2)
Commercial
    -       -       3,376  
                         
Total loans purchased
    7,785,854       5,242,511       299,948  
                         
Sales and Repayments:
                       
Real estate loans:
                       
One- to four- family
    7,726,951 (2)     5,561,052 (2)     444,506 (2)
Commercial
    7,452       29,322       30,200  
Other loans:
                       
Consumer
    1,344       3,418       813  
                         
Total loans sold
    7,735,747       5,593,792       475,519  
Principal repayments
    580,225       461,635       312,784  
                         
Total reductions
    8,315,972       6,055,427       788,303  
                         
Increase (decrease) in other items, net
    (1,450 )     (3,196 )     (4,712 )
                         
Net increase (decrease)
  $ 134,509     $ 49,998     $ 477,770  
                         
 
 
(1) Includes $22.0 million and $93.4 million of warehouse lines of credit originated from July 2008 to August 2009, respectively, which are classified as secured commercial lines of credit.
 
(2) Includes Warehouse Purchase Program loans.


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Asset Quality
 
When a borrower fails to make a required payment on a residential real estate loan, we attempt to cure the delinquency by contacting the borrower. A late notice is sent 15 days after the due date, and the borrower is contacted by phone beginning 16 days after the due date. When the loan is 31 days past due, a delinquency letter is mailed to the borrower. All delinquent accounts are reviewed by a collector who attempts to cure the delinquency by working with the borrower. When the loan is 50 days past due, the borrower is sent a Notice of Intent to Accelerate via certified mail and regular mail. Between 50 and 90 days past due, a loss mitigation officer reviews the loan to identify possible workout, cure, or loss mitigation opportunities.
 
If the account becomes 90 days delinquent and an acceptable repayment plan has not been agreed upon, a collection officer will generally refer the account to legal counsel with instructions to prepare a notice of intent to foreclose. The notice of intent to foreclose allows the borrower up to 20 days to bring the account current. If foreclosed, generally we take title to the property and sell it directly using a real estate broker.
 
Delinquent consumer loans are handled in a similar manner, except that late notices are sent at 10 and 20 days after the due date. Our procedures for repossession and sale of consumer collateral are subject to various requirements under the applicable consumer protection laws as well as other applicable laws and the determination by us that it would be beneficial from a cost basis.
 
The Credit Administration department works with commercial loan officers to see that the necessary steps are taken to collect delinquent commercial real estate and commercial non-mortgage loans and ensures that standard delinquency notices and letters are mailed to the borrower. In addition, we have a management loan committee that meets as needed and reviews past due and classified commercial real estate loans, as well as other loans that management feels may present possible collection problems. If an acceptable workout of a delinquent commercial loan cannot be reached, we generally initiate foreclosure or repossession proceedings on any collateral securing the loan.
 
Prospective clients of the Warehouse Purchase Program undergo a thorough risk analysis process that includes a three year review of financial statements to assess trends, financial condition, and historical performance. Operational documents are also reviewed to assess the soundness of the loan origination process. A risk rating is assigned to the prospect based upon the results of the due diligence review and are presented to the Management Loan Committee or Director Loan Committee, depending on the facility amount.
 
Once accepted, clients are subject to monthly financial monitoring to compare trends and performance, production volume and type, repurchase and/or indemnification requests, and litigation. Financial covenant ratios from the compliance certificate are verified to the financial statements. An annual audit of financial statements is required, for each client performed by an independent auditing firm.
 
Prospective clients of the Commercial Real Estate group also undergo a thorough analysis, focusing both on the sponsorship of the credit as well as the project itself. Borrowers and sponsor/guarantors must provide detailed financial information, including tax returns, so that global cash flow and debt service coverage can be analyzed. The project itself is thoroughly underwritten, based on historical leasing information and conservative projections for both income and expenses. Reserves for future leasing expenses and for deferred maintenance are often required. Third party appraisals and environmental assessments are required and reviewed for risk in the project. Once the analysis is complete, a risk assessment is completed and a rating is assigned. The loan is presented to the Management Loan Committee or the Director Loan Committee for approval, or both, depending upon the size of the transaction.
 
Once a loan is approved, it is subject to ongoing monitoring on a quarterly basis. Rent roll and operating income information is collected and analyzed to ascertain a current risk profile of the project and assign a new risk rating, if applicable. These quarterly loan reviews are incorporated into periodic portfolio reviews where interest rate and value stresses are applied.


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Delinquent Loans. The following table sets forth our loan delinquencies by type, by amount and by percentage of type at December 31, 2010.
 
                                                                         
    Loans Delinquent For:                    
    30-89 Days     90 Days and Over     Total Loans Delinquent 30 Days or More  
                Percent of
                                     
                Loan
                Percent of Loan
                Percent of Loan
 
    Number     Amount     Category     Number     Amount     Category     Number     Amount     Category  
    (Dollars in thousands)  
 
Real estate loans:
                                                                       
One- to four- family
    59     $ 6,543       1.66 %     30     $ 4,092       1.04 %     89     $ 10,635       2.70 %
Commercial
    1       2,869       0.60       2       1,645       0.34       3       4,514       0.94  
Home equity
    26       957       0.83       6       907       0.79       32       1,864       1.62  
                                                                         
Total real estate loans
    86       10,369       1.04       38       6,644       0.66       124       17,013       1.70  
                                                                         
                                                                         
Other loans:
                                                                       
Consumer loans:
                                                                       
Automobile indirect
    17       59       3.67       12       78       4.86       29       137       8.53  
Automobile direct
    28       208       0.51       8       64       0.16       36       272       0.67  
Other secured
    1       32       0.30       1       2       0.02       2       34       0.32  
Lines of credit/unsecured
    27       131       0.92       16       108       0.76       43       239       1.68  
                                                                         
Total consumer loans
    73       430       0.64       37       252       0.37       110       682       1.01  
                                                                         
                                                                         
Commercial non-mortgage
    6       174       0.44       1       52       0.13       7       226       0.57  
                                                                         
Total loans
    165     $ 10,973       0.99 %     76     $ 6,948       0.63 %     241     $ 17,921       1.62 %
                                                                         
 

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Non-performing Assets. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio. 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. Troubled debt restructurings, which are accounted for under ASC 310-40, are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a lower interest rate, a reduction in principal, or a longer term to maturity. All troubled debt restructurings are initially classified as nonaccruing loans, regardless of whether the loan was performing at the time it was restructured. Once a troubled debt restructuring has performed according to its modified terms for six months and the collection of principal and interest under the revised terms is deemed probable, the Company places the loan back on accruing status. When the loan has performed according to its modified terms for one year, it is no longer considered a troubled debt restructuring. At December 31, 2010, $8.7 million of troubled debt restructurings were classified as nonaccrual, including $6.3 million of commercial real estate loans.
 
                                         
    Year Ended December 31,  
    2010     2009     2008     2007     2006  
    (Dollars in thousands)  
 
Nonaccruing loans:
                                       
One- to four- family real estate
  $   5,938     $   6,151     $   1,423     $   689     $   -  
Commercial real estate
    9,812       4,682       -       989       -  
Home equity
    1,306       418       173       22       72  
Automobile indirect
    84       124       190       185       207  
Automobile direct
    95       136       124       86       145  
Consumer other secured
    13       4       5       1       -  
Consumer lines of credit/unsecured
    108       116       128       63       177  
Commercial non-mortgage
    272       44       174       67       703  
                                         
Total
    17,628       11,675       2,217       2,102       1,304  
                                         
Accruing loans more than 90 days delinquent:
                                       
Automobile direct
    -       -       -       -       30  
                                         
Total non-performing loans
    17,628       11,675       2,217       2,102       1,334  
                                         
Foreclosed assets:
                                       
One- to four- family real estate
    449       462       718       615       460  
Commercial real estate
    2,219       3,455       843       -       -  
Automobile indirect
    -       -       56       212       146  
Automobile direct
    -       -       24       13       45  
Other consumer
    11       -       3       -       -  
Commercial non-mortgage
    -       -       -       -       4  
                                         
Total
    2,679       3,917       1,644       840       655  
                                         
Total non-performing assets
  $ 20,307     $ 15,592     $ 3,861     $ 2,942     $ 1,989  
                                         
Total non-performing assets as a percentage of total assets
    0.69 %     0.66 %     0.17 %     0.18 %     0.13 %
Total non-performing loans as a percentage of total loans
    1.59 %     1.04 %     0.18 %     0.23 %     0.14 %
                                         
Performing troubled debt restructurings:
                                       
One- to four- family real estate
    143       343       93       -       -  
Commercial real estate
    1,119       -       1,796       -       -  
Home equity
    -       113       67       -       -  
Automobile indirect
    4       162       231       607       592  
Automobile direct
    22       185       209       759       1,365  
Consumer other secured
    -       -       -       5       4  
Consumer lines of credit/unsecured
    -       96       132       40       76  
Commercial non-mortgage
    -       79       -       -       -  
                                         
Total
  $ 1,288     $ 978     $ 2,528     $ 1,411     $   2,037  
                                         
 
For the years ended December 31, 2010, 2009 and 2008, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $1.3 million, $670,000 and $226,000, respectively. The amount that was included in interest income on these loans for the years ended December 31, 2010, 2009 and 2008 was $150,000, $112,000 and $32,000, respectively.
 
At December 31, 2010, $18.9 million in non-performing loans were individually impaired; $2.0 million of the allowance for loan losses was allocated to impaired loans at period-end. A loan is impaired when it is probable,

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based on current information and events, that the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreements. Troubled debt restructurings are also considered impaired. Impaired loans are measured on an individual basis for individually significant loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses as a specific loss reserve. Please see “Comparison of Financial Condition at December 31, 2010, and December 31, 2009 – Loans” contained in Item 7 of this report for more information.
 
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 non-mortgage loans that are classified as “special mention,” meaning that these loans have potential weaknesses that deserve management’s 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 management’s determination of our allowance for loan losses. Excluding the non-performing assets set forth in the table above, as of December 31, 2010, there was an aggregate of $3.5 million of these potential problem loans. Of the $3.5 million, two commercial real estate loans totaling $2.5 million were not delinquent at December 31, 2010, but are being monitored due to circumstances such as low occupancy rate, low debt service coverage or prior payment history problems.
 
Classified Assets. The classification of loans and other assets, such as debt and equity securities, considered by management to be of lesser quality, 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 5.4% of our equity capital and 0.73% of our assets at December 31, 2010, compared to 7.9% of our equity capital and 0.68% of our assets at December 31, 2009. The aggregate amount of classified assets at the dates indicated was as follows:
 
                 
    At December 31,  
    2010     2009  
    (Dollars in thousands)  
 
Loss
  $ -     $ -  
Doubtful
    4,185       4,153  
Substandard
    17,410       12,049  
                 
Total
  $  21,595     $  16,202  
                 
 
Classified assets increased by $5.4 million, to $21.6 million at December 31, 2010, from $16.2 million at December 31, 2009. This increase was primarily attributable to five substandard commercial real estate loans totaling $6.4 million.
 
Allowance for Loan Losses. We establish provisions for loan losses, which are charged to earnings, at a level required to reflect estimated credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and current factors.
 
For the general component of the allowance for loan losses, 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


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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 and how this information could impact the Company’s 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 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 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 of the allowance for loan losses, the allowance for loan losses on individually analyzed impaired loans includes commercial non-mortgage and one- to four-family and commercial real estate loans where management has concerns about the borrower’s 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.
 
At December 31, 2010, our allowance for loan losses was $14.8 million, or 1.34% of the total loan portfolio. Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, reflects estimated credit losses in our loan portfolio. See Notes 1 and 6 of the Notes to Consolidated Financial Statements under Item 8 of this report.


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The following table sets forth an analysis of our allowance for loan losses. Allowance for loan losses for construction loans have been included in the one- to four- family and commercial real estate line items, as appropriate.
 
                                         
    Year Ended December 31,  
    2010     2009     2008     2007     2006  
    (Dollars in thousands)  
 
Balance at beginning of period
  $   12,310     $   9,068     $   6,165     $   6,507     $   7,697  
                                         
Charge-offs:
                                       
Real estate loans:
                                       
One- to four- family
    320       460       164       120       83  
Commercial
    624       835       180       -       -  
Home equity
    82       54       41       32       62  
                                         
Total real estate loans
    1,026       1,349       385       152       145  
                                         
Other loans:
                                       
Consumer loans:
                                       
Automobile indirect
    150       917       1,493       2,251       2,670  
Automobile direct
    240       530       424       620       518  
Other secured
    1       23       39       31       21  
Lines of credit/unsecured
    939       1,456       1,232       1,862       1,510  
                                         
Total consumer loans
    1,330       2,926       3,188       4,764       4,719  
                                         
Commercial non-mortgage
    638       720       453       164       102  
                                         
Total charge-offs
    2,994       4,995       4,026       5,080       4,966  
                                         
Recoveries:
                                       
Real estate loans:
                                       
One- to four- family
    17       32       13       14       29  
Commercial
    -       -       -       -       -  
Home equity
    2       -       4       13       39  
                                         
Total real estate loans
    19       32       17       27       68  
                                         
Other loans:
                                       
Consumer loans:
                                       
Automobile indirect
    70       219       305       700       744  
Automobile direct
    77       106       142       305       230  
Other secured
    1       1       23       14       8  
Lines of credit/unsecured
    178       190       249       376       156  
                                         
Total consumer loans
    326       516       719       1,395       1,138  
                                         
Commercial non-mortgage
    67       37       22       48       5  
                                         
Total recoveries
    412       585       758       1,470       1,211  
                                         
Net charge-offs
    2,582       4,410       3,268       3,610       3,755  
Provision for loan losses
    5,119       7,652       6,171       3,268       2,565  
                                         
Balance at end of period
  $ 14,847     $ 12,310     $ 9,068     $ 6,165     $ 6,507  
                                         
Ratio of net charge-offs during the period to average loans outstanding during the period
    0.17%       0.31%       0.30%       0.39%       0.37%  
Ratio of net charge-offs during the period to average non- performing assets
    14.38%       45.34%       96.08%       146.41%       147.25%  
Allowance as a percentage of non-performing loans
    84.22%       105.44%       409.02%       293.29%       487.78%  
Allowance as a percentage of total loans (end of period)
    1.34%       1.10%       0.73%       0.67%       0.67%  


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The distribution of our allowance for losses on loans at the dates indicated is summarized as follows:
 
                                                                                 
    December 31,  
    2010     2009     2008     2007     2006  
          Percent of
          Percent of
          Percent of
          Percent of
          Percent of
 
          Loans in
          Loans in
          Loans in
          Loans in
          Loans in
 
          Each
          Each
          Each
          Each
          Each
 
          Category to
          Category to
          Category to
          Category to
          Category to
 
    Amount     Total Loans     Amount     Total Loans     Amount     Total Loans     Amount     Total Loans     Amount     Total Loans  
    (Dollars in thousands)  
 
Real estate loans:
                                                                               
One- to four- family
  $   3,467       36.61 %   $   2,553       38.17 %   $   1,675       39.96 %   $ 1,201         36.40 %   $   449       29.33 %
Commercial
    7,949       43.33       6,457       40.52       4,175       34.92       2,597       27.58       2,025       18.97  
Home equity
    776       10.43       556       10.35       460       8.08       170       9.31       182       8.66  
Consumer loans:
                                                                               
Automobile indirect
    44       0.15       262       0.96       503       3.11       946       11.39       2,232       22.63  
Automobile direct
    263       3.70       374       5.10       262       5.84       278       10.81       526       15.68  
Other secured
    39       0.96       25       1.09       15       1.13       13       1.38       9       1.52  
Lines of credit/unsecured
    657       1.28       701       1.32       639       1.21       626       1.79       694       2.20  
Commercial non-mortgage
    1,652       3.54       1,382       2.49       1,339       5.75       334       1.34       390       1.01  
                                                                                 
Total
  $ 14,847       100.00 %   $ 12,310       100.00 %   $ 9,068       100.00 %   $ 6,165       100.00 %   $ 6,507       100.00 %
                                                                                 
 

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Investment Activities
 
Federally chartered savings banks have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, including callable agency securities, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. Subject to various restrictions, federally chartered savings banks may also invest their assets in investment grade commercial paper and corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings bank is otherwise authorized to make directly. See “How We Are Regulated – ViewPoint Bank” and “Qualified Thrift Lender Test” for a discussion of additional restrictions on our investment activities.
 
The Executive Vice President/Chief Financial Officer delegates the basic responsibility for the management of our investment portfolio to the Vice President/Director of Finance, subject to the direction and guidance of the Asset/Liability Management Committee. The Vice President/Director of Finance considers various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The amount, mix, and maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.
 
The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to optimize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk. Our investment securities currently consist primarily of agency collateralized mortgage obligations, agency mortgage-backed securities, bonds from government sponsored enterprises, such as Freddie Mac and Fannie Mae, Small Business Administration securitized loan pools consisting of only the U.S. government guaranteed portion, and Texas entity municipal bonds. These securities are of investment grade, possess minimal credit risk and have an aggregate market value in excess of total amortized cost as of December 31, 2010. For more information, please see Note 5 of the Notes to Consolidated Financial Statements under Item 8 of this report and “Asset/Liability Management” under Item 7A of this report. As a member of the FHLB of Dallas, we had also $20.6 million in stock of the FHLB of Dallas at December 31, 2010. For the year ended December 31, 2010, we received $68,000 in dividends from the FHLB of Dallas.

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The following table sets forth the composition of our securities portfolio and other investments at the dates indicated. At December 31, 2010, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies or United States GSEs.
 
                                                 
    December 31,  
    2010     2009     2008  
    Amortized
          Amortized
          Amortized
       
    Cost     Fair Value     Cost     Fair Value     Cost     Fair Value  
                (Dollars in thousands)              
 
Available for sale:
                                               
US Government and agency bonds
  $ -     $ -     $ 47,994     $ 47,438     $ 18,502     $ 18,740  
SBA Pools
    5,084       5,108       6,565       6,492       8,313       8,100  
Collateralized debt obligations
    -       -       -       -       7,940       7,940  
Agency collateralized mortgage obligations
    357,340       357,892       226,242       228,501       313,391       310,065  
Agency mortgage-backed securities
    351,385       354,497       197,437       201,627       137,338       138,171  
                                                 
Total available for sale
    713,809       717,497       478,238       484,058       485,484       483,016  
                                                 
                                                 
Held to maturity:
                                               
US Government and agency bonds
    9,997       10,165       14,991       15,131       9,992       10,143  
Municipal bonds
    50,488       50,085       29,306       29,900       9,384       9,642  
Agency collateralized mortgage obligations
    209,193       206,280       56,414       57,390       12,304       12,696  
Agency mortgage-backed securities
    162,841       167,766       154,013       158,393       140,663       144,098  
                                                 
Total held to maturity
    432,519       434,296       254,724       260,814       172,343       176,579  
                                                 
                                                 
Total investment securities
    1,146,328       1,151,793       732,962       744,872       657,827       659,595  
                                                 
FHLB stock
    20,569       20,569       14,147       14,147       18,069       18,069  
                                                 
                                                 
Total securities
  $  1,166,897     $  1,172,362     $  747,109     $  759,019     $  675,896     $  677,664  
                                                 


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The composition and contractual maturities of the investment securities portfolio as of December 31, 2010, excluding FHLB stock, are indicated in the following table. However, it is expected that investment securities with prepayment optionality characteristics will generally repay their principal in full prior to contractual maturity. Prepayment optionality exists for the SBA pools, agency collateralized mortgage obligations and agency mortgage-backed securities. In addition, the U.S. Government and agency bonds are callable, as are the municipal bonds in the “over 10 years” category and a portion of those in the “over 5 to 10 years category.”
 
                                                                                         
    1 year or less     Over 1 to 5 years     Over 5 to 10 years     Over 10 years     Total Securities  
          Weighted
          Weighted
          Weighted
          Weighted
          Weighted
       
    Amortized
    Average
    Amortized
    Average
    Amortized
    Average
    Amortized
    Average
    Amortized
    Average
       
    Cost     Yield     Cost     Yield     Cost     Yield     Cost     Yield     Cost     Yield     Fair Value  
    (Dollars in thousands)  
 
Available for sale:
                                                                                       
US Government and agency bonds
  $ -       - %   $ -       - %   $ -       - %   $ -       - %   $ -       - %   $ -  
SBA pools
    -       -       -       -       5,084       2.37       -       -       5,084       2.37       5,108  
Agency collateralized mortgage obligations
    -       -       -       -       13,892       5.22       343,448       2.42       357,340       2.53       357,892  
Agency mortgage-backed securities
    4,218       5.27       -       -       11,671       4.02       335,496       2.58       351,385       2.66       354,497  
                                                                                         
Total available for sale
    4,218       5.27       -       -       30,647       4.29       678,944       2.50       713,809       2.59       717,497  
                                                                                         
Held to maturity:
                                                                                       
US Government and agency bonds
    -       -       9,997       3.17       -       -       -       -       9,997       3.17       10,165  
Municipal bonds
    -       -       1,653       3.53       9,586       3.68       39,249       3.77       50,488       3.75       50,085  
Agency collateralized mortgage obligations
    -       -       -       -       39,340       3.76       169,853       2.02       209,193       2.35       206,280  
Agency mortgage-backed securities
    -       -       -       -       60,244       3.50       102,597       3.81       162,841       3.70       167,766  
                                                                                         
Total held to maturity
    -       -       11,650       3.22       109,170       3.61       311,699       2.83       432,519       3.04       434,296  
                                                                                         
                                                                                         
Total investment securities
  $  4,218       - %   $  11,650       3.22 %   $  139,817       3.76 %   $  990,643       2.60 %   $ 1,146,328        2.76 %   $ 1,151,793  
                                                                                         
 


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Sources of Funds
 
General. Our sources of funds are deposits, borrowings, payments of principal and interest on loans and investments, sales of loans and funds provided from operations.
 
Deposits. We offer a variety of deposit accounts with a wide range of interest rates and terms to both consumers and businesses. Our deposits consist of savings, money market and demand accounts and certificates of deposit. We solicit deposits primarily in our market areas. At December 31, 2010 and 2009, we had $47.0 million and $74.0 million in reciprocal deposits, respectively, which consisted entirely of certificates of deposit made under our participation in the Certificate of Deposit Account Registry Service (CDARS®). Through CDARS, the Company can provide a depositor the ability to place up to $50.0 million on deposit with the Company while receiving FDIC insurance on the entire deposit by placing customer funds in excess of the FDIC deposit limits with other financial institutions in the CDARS network. In return, these financial institutions place customer funds with the Company on a reciprocal basis. Regulators consider reciprocal deposits to be brokered deposits.
 
We primarily rely on competitive pricing policies, marketing, and customer service to attract and retain deposits. The flow of deposits is influenced significantly by general economic conditions, prevailing interest rates and competition. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are relatively stable sources of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paid on them has been and will continue to be significantly affected by market conditions.
 
The following table sets forth our deposit flows during the periods indicated.
 
                         
    Year Ended December 31,  
    2010     2009     2008  
    (Dollars in thousands)  
 
Opening balance
  $  1,796,665     $  1,548,090     $  1,297,593  
Net deposits and withdrawals
    189,870       214,209       214,968  
Interest
    31,015       34,366       35,529  
                         
                         
Ending balance
  $ 2,017,550     $ 1,796,665     $ 1,548,090  
                         
                         
Net increase
  $  220,885     $  248,575     $  250,497  
                         
                         
Percent increase
    12.29%       16.06%       19.30%  

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Table of Contents

The following table sets forth the dollar amount of deposits in the various types of deposit programs offered at the dates indicated.
 
                                                 
    December 31,  
    2010     2009     2008  
          Percent of
          Percent of
          Percent of
 
    Amount     Total     Amount     Total     Amount     Total  
    (Dollars in thousands)  
 
Transaction and Savings Deposits:
                                               
Non-interest bearing demand
  $ 201,998       10.01%     $ 193,581       10.77%     $ 172,395       11.13%  
Interest bearing demand
    438,719       21.74       268,063       14.92       98,884       6.39  
Savings
    148,399       7.36       143,506       7.99       144,530       9.34  
Money market
    554,261       27.47       549,619       30.59       482,525       31.17  
IRA
    9,251       0.46       8,710       0.49       8,188       0.53  
                                                 
Total non-certificates
    1,352,628       67.04       1,163,479       64.76       906,522       58.56  
                                                 
Certificates:
                                               
0.00-1.99
    407,564       20.20       343,476       19.12       11,078       0.71  
2.00-3.99
    201,291       9.98       208,042       11.58       411,501       26.58  
4.00-5.99
    56,067       2.78       81,438       4.53       218,989       14.15  
6.00 and over
    -       -       230       0.01       -       -  
                                                 
Total certificates
    664,922       32.96       633,186       35.24       641,568       41.44  
                                                 
                                                 
Total deposits
  $  2,017,550       100.00%     $  1,796,665       100.00%     $  1,548,090       100.00%  
                                                 


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Table of Contents

 
The following table shows rate and maturity information for our certificates of deposit at December 31, 2010.
 
                                         
    0.00-1.99%     2.00-3.99%     4.00-5.99%     Total     Percent of Total  
    (Dollars in thousands)  
 
Certificates maturing in quarter ending:
                                       
March 31, 2011
    48,853       10,286       1,267       60,406       9.09 %
June 30, 2011
    106,830       26,972       2,267       136,069       20.46  
September 30, 2011
    112,556       12,745       1,738       127,039       19.11  
December 31, 2011
    66,491       88,534       2,389       157,414       23.67  
March 31, 2012
    11,951       40,368       983       53,302       8.02  
June 30, 2012
    31,198       4,123       4,104       39,425       5.93  
September 30, 2012
    9,699       1,205       1,597       12,501       1.88  
December 31, 2012
    5,368       1,201       897       7,466       1.12  
Thereafter
    14,618       15,857       40,825       71,300       10.72  
                                         
Total
  $  407,564     $  201,291     $  56,067     $  664,922       100.00 %
                                         
                                         
Percent of Total
    61.30 %     30.27 %     8.43 %     100.00 %        
                                         
 
The following table indicates the amount of our certificates of deposit and other deposits by time remaining until maturity as of December 31, 2010.
 
                                         
    Maturity        
    3 Months
          Over 6 to
             
    or less     Over 3 to 6 Months     12 Months     Over 12 Months     Total  
    (Dollars in thousands)  
 
Certificates less than $100,000
  $  20,991     $ 22,020     $  30,025     $  45,194     $ 118,230  
Certificates of $100,000 or more
    12,916       23,846       60,925       55,664       153,351  
Public funds(1)
    26,499       90,203       193,503       83,136       393,341  
                                         
Total certificates
  $  60,406     $  136,069     $  284,453     $  183,994     $  664,922  
                                         
 
 
(1) Deposits from governmental and other public entities.
 


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Borrowings. Although deposits are our primary source of funds, we may utilize borrowings to manage interest rate risk or as a cost-effective source of funds when they can be invested at a positive interest rate spread for additional capacity to fund loan demand according to our asset/liability management goals. Our borrowings consist primarily of advances from the FHLB of Dallas and a $25.0 million repurchase agreement with Credit Suisse. Additionally, in October 2009, the Company entered into four promissory notes for unsecured loans totaling $10.0 million obtained from local private investors to increase funds available at the Company level. Of this amount, $7.5 million has been used to increase the capital of the Bank to support loan demand and continued growth.
 
We may obtain advances from the FHLB of Dallas upon the security of certain mortgage loans and mortgage-backed and other securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features, and all long-term advances are required to provide funds for residential home financing. At December 31, 2010, we had $466.5 million in FHLB advances outstanding and the ability to borrow an additional $756.4 million. In addition to FHLB advances, the Company may also use the discount window at the Federal Reserve Bank or fed funds purchased from correspondent banks as a source of short-term funding. These funding sources were utilized during 2010 but had no balances outstanding at December 31, 2010. See Notes 13 and 14 of the Notes to Consolidated Financial Statements contained in Item 8 of this report for more information about FHLB advances, the repurchase agreement, the $10.0 million in four promissory notes and other borrowings.
 
In November 2010, $91.6 million in fixed-rate FHLB advances were modified. These advances had a weighted average rate of 4.15% and an average term to maturity of approximately 2.6 years. These advances were prepaid and restructured with $91.6 million of new, lower-cost FHLB advances with a weighted average rate of 1.79% and an average term to maturity of approximately 5.0 years. The early repayment of the debt resulted in a prepayment penalty of $5.4 million, which will be amortized to interest expense in future periods as an adjustment to the cost of the new FHLB advances. The effective rate of the new advances after accounting for the prepayment penalty is 2.98%.
 
The following table sets forth the maximum month-end balance and daily average balance of FHLB advances, the repurchase agreement and other borrowings for the periods indicated.
 
                         
    Year Ended December 31,  
    2010     2009     2008  
    (Dollars in thousands)  
 
Maximum balance:
                       
FHLB advances
  $  513,231     $  424,872     $  410,841  
Repurchase agreement
    25,000       25,000       25,000  
Other borrowings
    10,323       10,000       -  
Average balance outstanding:
                       
FHLB advances
  $  364,720     $  346,274     $  242,399  
Repurchase agreement
    25,000       25,000       18,056  
Other borrowings
    10,027       2,083       -  


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The following table sets forth certain information as to FHLB advances, the repurchase agreement and other borrowings at the dates indicated.
 
                         
    At December 31,  
    2010     2009     2008  
    (Dollars in thousands)  
 
FHLB advances at end of period
  $  461,219     $  312,504     $  410,841  
Repurchase agreement at end of period
    25,000       25,000       25,000  
Other borrowings at end of period
    10,000       10,000       -  
Weighted average rate of FHLB advances during the period
    3.21%       4.06%       4.27%  
Weighted average rate of FHLB advances at end of period
    1.95%       4.13%       3.80%  
Weighted average rate of repurchase agreement during the period
    3.22%       2.83%       1.62%  
Weighted average rate of repurchase agreement at end of period
    3.22%       3.22%       1.62%  
Weighted average rate of other borrowings during the period
    5.99%       6.00%       -  
Weighted average rate of other borrowings at end of period
    6.00%       6.00%       -  
 
How We Are Regulated
 
General. Set forth below is a brief description of certain laws and regulations that are applicable to the Company and the Bank The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.
 
Legislation is introduced from time to time in the United States Congress that may affect our operations. In addition, the regulations governing the Company and the Bank may be amended from time to time by the OTS, the FDIC, and the Board of Governors of the Federal Reserve System or the SEC, as appropriate. The Dodd-Frank Wall Street Reform and Consumer Protection Act that was enacted on July 21, 2010 (“Dodd-Frank Act”), provides, among other things, for new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies, including the Company and the Bank. Under the new law, the Bank’s primary regulator, the OTS, will be eliminated, and the Bank will be subject to regulation and supervision by the OCC, which currently oversees national banks. In addition, beginning in 2011, all financial institution holding companies, including the Company, will be regulated by the Board of Governors of the Federal Reserve System, including imposing federal capital requirements on the Company. This change may result in additional restrictions on investments and other holding company activities. The law also creates a new consumer financial protection bureau that will have the authority to promulgate rules intended to protect consumers in the financial product and services market. The creation of this independent bureau could result in new regulatory requirements and raise the cost of regulatory compliance. In addition, new regulations mandated by the law could require changes in regulatory capital requirements, loan loss provisioning practices, and compensation practices, and require holding companies to serve as a source of strength for their financial institution subsidiaries. Effective July 21, 2011, financial institutions may pay interest on business demand deposits, which could increase our interest expense. We cannot determine the full impact of the new law on our business and operations at this time. Any legislative or regulatory changes in the future could adversely affect our operations and financial condition.
 
ViewPoint Bank
 
The OTS has extensive authority over the operations of savings institutions. As part of this authority, we are required to file periodic reports with the OTS and we are subject to periodic examinations by the OTS and the FDIC, which insures the deposits of the Bank to the maximum extent permitted by law. This regulation and supervision primarily is intended for the protection of depositors and not for the purpose of protecting shareholders. As noted above, this regulatory authority will be transferred to the OCC in 2011.
 
The OTS also has extensive enforcement authority over all savings institutions and their holding companies, including the Bank and the Company. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed


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with the OTS. Except under certain circumstances, public disclosure of final enforcement actions by the OTS is required.
 
In addition, the investment, lending and branching authority of the Bank is prescribed by federal laws and it is prohibited from engaging in any activities not permitted by such laws. For instance, no savings institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by federal institutions in loans secured by non-residential real property may not exceed 400% of total capital, except with approval of the OTS. Federal savings institutions are also generally authorized to branch nationwide. The Bank is in compliance with the noted restrictions.
 
The Bank is subject to a 35% of total assets limit on consumer loans, commercial paper and corporate debt securities, and a 20% limit on commercial non-mortgage loans. At December 31, 2010, the Bank had 2.3% of its assets in consumer loans, commercial paper and corporate debt securities and 1.3% of its assets in commercial non-mortgage loans.
 
The Bank’s general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus including allowance for loan losses (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At December 31, 2010, the Bank’s lending limit under this restriction was $44.8 million. The Bank is in compliance with the loans-to-one-borrower limitation.
 
The OTS’s oversight of the Bank includes reviewing its compliance with the customer privacy requirements imposed by the Gramm-Leach-Bliley Act of 1999 and the anti-money laundering provisions of the USA Patriot Act. The Gramm-Leach-Bliley privacy requirements place limitations on the sharing of consumer financial information with unaffiliated third parties. They also require each financial institution offering financial products or services to retail customers to provide such customers with its privacy policy and with the opportunity to “opt out” of the sharing of their personal information with unaffiliated third parties. The USA Patriot Act significantly expands the responsibilities of financial institutions in preventing the use of the United States financial system to fund terrorist activities. Its anti-money laundering provisions require financial institutions operating in the United States to develop anti-money laundering compliance programs and due diligence policies and controls to ensure the detection and reporting of money laundering. These compliance programs are intended to supplement existing compliance requirements under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations.
 
The OTS, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a compliance plan.
 
FDIC Regulation and Insurance of Accounts.
 
The Bank’s deposits are insured up to the applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. Our deposit insurance premiums for the year ended December 31, 2010 were $2.5 million. Those premiums have increased due to recent strains on the FDIC deposit insurance fund due to the cost of large bank failures and an increase in the number of troubled banks.
 
The Bank is a member of the deposit insurance fund administered by the FDIC. Deposits are insured up to the applicable limits by the FDIC. Effective July 21, 2010, the basic deposit insurance is $250,000.
 
The FDIC assesses deposit insurance premiums quarterly on each FDIC-insured institution based on annualized rates for one of four risk categories applied to its deposits, subject to certain adjustments. Each institution is assigned to one of four risk categories based on its capital, supervisory ratings and other factors. Its deposit insurance premiums are based on these risk categories, with higher risk institutions paying higher premiums.
 
The FDIC has issued new regulations setting insurance premium assessments based on an institution’s total assets minus its Tier 1 capital instead of its deposits, as required by the Dodd-Frank Act. These regulations are


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effective for assessments for the second quarter of 2011 and payable at the end of September 2011. The intent of the proposal at this time is not to substantially change the level of premiums paid notwithstanding the use of assets as the calculation base instead of deposits. Under this proposal, the Bank’s premiums would be based on its same assignment under one of four risk categories based on capital, supervisory ratings and other factors; however, the premium rates for those risk categories would be revised to maintain similar premium levels under the new calculation as currently exist.
 
As a result of a decline in the reserve ratio (the ratio of the net worth of the deposit insurance fund to estimated insured deposits) and concerns about expected failure costs and available liquid assets in the deposit insurance fund, the FDIC required most of the insured institutions to prepay on December 30, 2009, the estimated amount of its quarterly assessments for the fourth quarter of 2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which is due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments are measured at the institution’s assessment rate as of September 30, 2009, with a uniform increase of 3 basis points effective January 1, 2011, and are based on the institution’s assessment base for the third quarter of 2009, with growth assumed quarterly at an annual rate of 5%. If events cause actual assessments during the prepayment period to vary from the prepaid amount, institutions will pay excess assessments in cash, or receive a rebate of prepaid amounts not exhausted after collection of assessments due on January 13, 2013, as applicable. Collection of the prepayment does not preclude the FDIC from changing assessment rates or revising the risk-based assessment system in the future. The rule includes a process for exemption from the prepayment for institutions whose safety and soundness would be affected adversely. The FDIC estimates that the reserve ratio will reach the designated reserve ratio of 1.15% by 2017 as required by statute.
 
Transactions with Affiliates. Transactions between the Bank and its affiliates are required to be on terms as favorable to the institution as transactions with non-affiliates, and certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the Bank’s capital, and may require eligible collateral in specified amounts. In addition, the Bank may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. VPM and the Company are affiliates of the Bank.
 
ViewPoint Financial Group, Inc. As a savings and loan holding company, the Company is subject to regulation, supervision and examination by the OTS, and to semiannual assessments. Applicable federal law and regulations limit the activities of the Company and require the approval of the OTS for any acquisition or divestiture of a subsidiary, including another financial institution or holding company thereof. Effective in 2011, the authority of the OTS to regulate the company will be transferred to the Board of Governors of the Federal Reserve System.
 
Capital Requirements for ViewPoint Bank. The Bank is required to maintain specified levels of regulatory capital under regulations of the OTS. It became subject to these capital requirements on January 1, 2006, when it became a federally chartered savings bank. OTS regulations state that to be “adequately capitalized,” an institution must have a leverage ratio of at least 4.0%, a Tier 1 risk-based capital ratio of at least 4.0% and a total risk-based capital ratio of at least 8.0%. To be “well capitalized,” an institution must have a leverage ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0% and a total risk-based capital ratio of at least 10.0%.
 
The term “leverage ratio” means the ratio of Tier 1 capital to adjusted total assets. The term “Tier 1 risk-based capital ratio” means the ratio of Tier 1 capital to risk-weighted assets. The term “total risk-based capital ratio” means the ratio of total capital to risk-weighted assets.
 
The term “Tier 1 capital” generally consists of common shareholders’ equity and retained earnings and certain noncumulative perpetual preferred stock and related earnings, excluding most intangible assets. At December 31, 2010, the Bank had $847,000 of goodwill and other assets, $64,000 in disallowed servicing assets and deferred tax assets and $4.1 million in investments in nonincludable subsidiaries excluded from Tier 1 capital.
 
“Total capital” consists of the sum of an institution’s Tier 1 capital and the amount of its Tier 2 capital up to the amount of its Tier 1 capital. Tier 2 capital consists generally of certain cumulative and other perpetual preferred stock, certain subordinated debt and other maturing capital instruments, the amount of the institution’s allowance for loan and lease losses up to 1.25% of risk-weighted assets and certain unrealized gains on equity securities.


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Risk-weighted assets are determined under the OTS capital regulations, which assign to every asset, including certain off-balance sheet items, a risk weight ranging from 0% to 200% based on the inherent risk of the asset. The OTS is authorized to require the Bank to maintain an additional amount of total capital to account for concentrations of credit risk, levels of interest rate risk, equity investments in non-financial companies and the risks of non-traditional activities. Institutions that are not well capitalized are subject to certain restrictions on brokered deposits and interest rates on deposits.
 
The OTS is authorized and, under certain circumstances, required to take certain actions against savings banks that fail to meet the minimum ratios for an “adequately capitalized institution.” Any such institution must submit a capital restoration plan and, until such plan is approved by the OTS, may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The OTS is authorized to impose the additional restrictions on institutions that are less than adequately capitalized.
 
OTS regulations state that any institution that fails to comply with its capital plan or has Tier 1 risk-based or core capital ratios of less than 3.0% or a total risk-based capital ratio of less than 6.0% is considered “significantly undercapitalized” and must be made subject to one or more additional specified actions and operating restrictions that may cover all aspects of its operations and may include a forced merger or acquisition of the institution. An institution with tangible equity to total assets of less than 2.0% is “critically undercapitalized” and becomes subject to further mandatory restrictions on its operations. The OTS generally is authorized to reclassify an institution into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The imposition by the OTS of any of these measures on the Bank may have a substantial adverse effect on its operations and profitability. In general, the FDIC must be appointed receiver for a critically undercapitalized institution whose capital is not restored within the time provided. When the FDIC as receiver liquidates an institution, the claims of depositors and the FDIC as their successor (for deposits covered by FDIC insurance) have priority over other unsecured claims against the institution.
 
At December 31, 2010, the Bank was considered a “well-capitalized” institution under OTS regulations. Regulatory capital is discussed further in Note 20 of the Notes to Consolidated Financial Statements contained herein.
 
Capital Requirements for ViewPoint Financial Group, Inc. Currently, the Company is not subject to any capital requirements. The OTS, however, expects the Company to support the Bank, including providing additional capital to the Bank when it does not meet its capital requirements.
 
Community Reinvestment and Consumer Protection Laws. In connection with its lending activities, the Bank is subject to a number of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. These include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Community Reinvestment Act (“CRA”). In addition, federal banking regulators, pursuant to the Gramm-Leach-Bliley Act, have enacted regulations limiting the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.
 
The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank’s record in meeting the credit needs of the communities served by the bank, including low and moderate income neighborhoods. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” The Bank received an “outstanding” rating in its most recent CRA evaluation in 2008.
 
Bank Secrecy Act / Anti-Money Laundering Laws. The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. These laws and regulations require the Bank to implement policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing mergers and acquisitions.


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Limitations on Dividends and Other Capital Distributions. OTS regulations impose various restrictions on the ability of savings institutions, including the Bank, to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. The Bank must file a notice or application with the OTS before making any capital distribution. The Bank generally may make capital distributions during any calendar year in an amount up to 100% of net income for the year-to-date plus retained net income for the two preceding years, so long as it is well-capitalized after the distribution. If the Bank, however, proposes to make a capital distribution when it does not meet its capital requirements (or will not following the proposed capital distribution) or that will exceed these net income-based limitations, it must obtain OTS approval prior to making such distribution. The OTS may always object to any distribution based on safety and soundness concerns.
 
Dividends from the Company may depend, in part, upon its receipt of dividends from the Bank. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized.
 
Federal Securities Law. The stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended. The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Securities Exchange Act of 1934.
 
The Company’s stock held by persons who are affiliates of the Company may not be resold without registration unless sold in accordance with certain resale restrictions. Affiliates are generally considered to be officers, directors and principal shareholders. If the Company meets specified current public information requirements, each affiliate of the Company will be able to sell in the public market, without registration, a limited number of shares in any three-month period.
 
The SEC and the NASDAQ have adopted regulations and policies under the Sarbanes-Oxley Act of 2002 that apply to the Company as a registered company under the Securities Exchange Act of 1934 and a NASDAQ-traded company. The stated goals of these Sarbanes-Oxley requirements are to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The SEC and NASDAQ Sarbanes-Oxley-related regulations and policies include very specific additional disclosure requirements and new corporate governance rules.
 
Taxation
 
Federal Taxation
 
General. The Company and the Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company or the Bank.
 
Method of Accounting. For federal income tax purposes, the Bank currently reports its income and expenses on the accrual method of accounting and uses a fiscal year ending on December 31 for filing its federal income tax return.
 
Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income. The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of the regular tax. Net operating losses can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Bank has not been subject to the alternative minimum tax, nor do we have any such amounts available as credits for carryover.
 
Net Operating Loss Carryovers. A financial institution may carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. This provision applies to losses incurred in taxable years beginning after August 6, 1997. In 2009, Internal Revenue Code Section 172 (b) (1) was amended to allow businesses to carry back losses incurred in 2008 and 2009 for up to five years to offset 50% of the available


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income from the fifth year and 100% of the available income for the other four years. This change in tax law allowed the Company to carry its 2009 tax net operating loss back to 2007 and 2008, which fully utilized the Company’s net operating losses.
 
Corporate Dividends-Received Deduction. The Company files a consolidated return with the Bank; therefore, dividends it receives from the Bank will not be included as income to the Company.
 
State Taxation
 
We are subject to the Texas Margins Tax. The tax base is the taxable entity’s margin, which equals the lesser of three calculations: total revenue minus cost of goods sold; total revenue minus compensation; or total revenue times 70%. The calculation for 2010 was total revenue minus cost of goods sold. For a financial institution, cost of goods sold equals interest expense. The tax rate applied to the Texas portion of the tax base is 1%. Taxes paid in other states that we do business are not significant.
 
Subsidiary and Other Activities
 
As a federally chartered savings bank, the Company is permitted by OTS regulations to invest up to 2% of our assets, or $58.8 million at December 31, 2010, in the stock of, or unsecured loans to, service corporation subsidiaries. We may invest an additional 1% of our assets in service corporations where such additional funds are used for inner-city or community development purposes.
 
The Bank’s operations include its wholly owned subsidiary, VPM, which originates residential mortgages through its retail employees and wholesale division and sells all loans it originates to the Bank or to outside investors. In 2010, VPM changed its OTS classification from a service corporation to an operating subsidiary of the Bank.
 
In 2010, the Bank’s equity investments in two community development-oriented venture capital funds were organized as a service corporation. At December 31, 2010, the Bank’s investment in this service corporation was $4.1 million.
 
Competition
 
We face strong competition in originating real estate and other loans and in attracting deposits. Competition in originating residential and commercial real estate loans comes primarily from other savings institutions, commercial banks, conduit lenders, credit unions, life insurance companies and mortgage bankers. Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending. Commercial non-mortgage competition is primarily from local commercial banks. We compete for deposits by offering personal service and a variety of deposit accounts at competitive rates. Based on the most recent branch deposit data provided by the FDIC, the Bank’s share of deposits was approximately 10.2% in Collin County and less than 1.0% in all other market area counties.
 
Executive Officers of ViewPoint Financial Group, Inc. and ViewPoint Bank
 
Officers are elected annually to serve for a one year term. There are no arrangements or understandings between the officers and any other person pursuant to which he or she was or is to be selected as an officer.
 
Garold (Gary) R. Base. Mr. Base, age 63, has served as the President and Chief Executive Officer of ViewPoint Financial Group, Inc. (including its predecessor entity, ViewPoint Financial Group) since its inception in 2006 and ViewPoint Bank (including its predecessor entity) since 1987. He is on the Board of Directors of both institutions and serves as Chairman of VPM. Additionally, he serves as a charter member of the Federal Reserve Bank of Dallas’s newly established Community Depository Institutions Counsel and has served as a Director of the North Texas Tollway Authority, Trustee of the Plano Independent School District, Member of the Thrift Advisory Board of the Federal Reserve, Advisory Board Member of Fannie Mae, Chairman of the Plano Chamber of Commerce, Board Member of the North Dallas Chamber of Commerce, Chairman of a Texas State Commission, Director of the Texas Bankers Association, member of the OTS’s Mutual Savings Association Advisory Committee and in a number of other positions locally and nationally. During his tenure with ViewPoint Bank, Mr. Base has


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overseen the Bank’s growth from two locations and $179 million in assets to the $2.9 billion community bank that it is today. Mr. Base’s over 40 years of executive management experience in financial institutions, combined with his drive for innovation and excellence, position him well to serve as a director and as President and Chief Executive Officer of ViewPoint Financial Group, Inc.
 
Mark E. Hord. Mr. Hord, age 48, has served as Executive Vice President, General Counsel and Secretary of ViewPoint Financial Group, Inc. (including its predecessor, ViewPoint Financial Group) since 2006 and ViewPoint Bank (including its predecessor entity) since 1999. He also serves as Secretary of ViewPoint Financial Group, Inc. and ViewPoint Bank. Mr. Hord’s responsibilities include, among others, legal, commercial real estate lending, real estate acquisitions, shareholder relations and retail investments. He also serves on the Board of Directors of VPM.
 
Pathie (Patti) E. McKee. Ms. McKee, age 45, has served as Executive Vice President, Chief Financial Officer and Treasurer of ViewPoint Financial Group, Inc. (including its predecessor, ViewPoint Financial Group) since 2006 and ViewPoint Bank (including its predecessor entity) since 1997. Ms. McKee oversees our finance, investment and marketing operations and serves on the Board of VPM. Since 1983, prior to being appointed Chief Financial Officer, Ms. McKee held various other positions with the Company, including Director of Internal Audit, Controller and accountant. Ms. McKee is a certified public accountant and holds a Master of Business Administration degree.
 
Jim Parks. Mr. Parks, age 58, joined ViewPoint Bank in May 2006 as the Company’s Executive Vice President, Chief Operations Officer and Chief Information Officer. Prior to joining ViewPoint Bank, Mr. Parks served as Executive Vice President of Bank Operations for Texas Bank, an independent regional bank in Fort Worth, Texas. Mr. Parks’ responsibilities at ViewPoint Bank include information systems, technologies, deposit operations, facilities, human resources, compliance, risk management and the mortgage warehouse lending portfolio. Mr. Parks has 34 years of experience in information systems and bank operations and previously served as President of Frost Financial Processors, a division of Frost National Bank – San Antonio, managing data processing and servicing for 25 independent community banks.
 
Mark L. Williamson. Mr. Williamson, age 56, joined ViewPoint Bank in September 2010 as its Executive Vice President and Chief Credit Officer. Mr. Williamson’s responsibilities include business and consumer underwriting, loan operations, portfolio analysis, default management, and all credit policy matters. Mr. Williamson has over 30 years of credit, lending and risk management experience in markets throughout Texas, including Dallas, Houston, Midland and Lubbock. Most recently he served as EVP and Chief Credit Officer for the Dallas and Lubbock markets of PlainsCapital Bank. Prior to that, he served in both lending and risk management capacities at Guaranty Bank and Chase Bank of Texas.
 
Employees
 
At December 31, 2010, we had a total of 581 full-time employees and 32 part-time employees, including employees of VPM. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.
 
Internet Website
 
We maintain three websites with the addresses viewpointbank.com, viewpointfinancialgroup.com and viewpointmortgage.com. The information contained on our websites is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own Internet access charges, we make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the Securities and Exchange Commission.


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Item 1A.  Risk Factors
 
An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included and incorporated by reference in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment.
 
The United States economy remains weak and unemployment levels are high. A prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our business and financial results.
 
The United States experienced a severe economic recession in 2008 and 2009. While economic growth has resumed recently, the rate of growth has been slow and unemployment remains at very high levels and is not expected to improve in the near future. Loan portfolio quality has deteriorated at many financial institutions reflecting, in part, the weak U.S. economy and high unemployment. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. The continuing real estate downturn also has resulted in reduced demand for the construction of new housing and increased delinquencies in construction, residential and commercial mortgage loans for many lenders.
 
Continued negative developments in the financial services industry and the domestic and international credit markets may significantly affect the markets in which we do business, the market for and value of our loans and investments, and our ongoing operations, costs and profitability. Moreover, continued declines in the stock market in general, or stock values of financial institutions and their holding companies specifically, could adversely affect our stock performance.
 
If economic conditions deteriorate in the State of Texas, our results of operations and financial condition could be adversely impacted as borrowers’ ability to repay loans declines and the value of the collateral securing loans decreases.
 
Substantially all of our loans are located in the State of Texas. Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events. Decreases in real estate values in the State of Texas could adversely affect the value of property used as collateral for our mortgage loans. As a result, the market value of the real estate underlying the loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans. In the event that we are required to foreclose on a property securing a mortgage loan, we may not recover funds in an amount equal to the remaining loan balance. Consequently, we would sustain loan losses and potentially incur a higher provision for loan loss expense, which would have an adverse impact on earnings. In addition, adverse changes in the Texas economy may have a negative effect on the ability of borrowers to make timely repayments of their loans, which would also have an adverse impact on earnings.
 
Our loan portfolio possesses increased risk due to our percentage of commercial real estate and commercial non-mortgage loans.
 
Over the last several years, we have increased our commercial lending in order to diversify our loan mix and improve the yield on our assets. At December 31, 2010, our loan portfolio included $518.4 million of commercial real estate loans and commercial non-mortgage loans, or 46.8% of total loans, compared to $189.4 million, or 19.6% of total loans, at December 31, 2006. The credit risk related to these types of loans is considered to be greater than the risk related to one-to four-family residential loans because the repayment of commercial real estate loans and commercial non-mortgage loans typically is dependent on the successful operation and income stream of the borrowers’ business and the real estate securing the loans as collateral, which can be significantly affected by economic conditions. Additionally, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. If loans that are collateralized by real estate


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become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could require us to increase our provision for loan losses and adversely affect our operating results and financial condition.
 
Several of our borrowers have more than one commercial real estate loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Finally, if we foreclose on a commercial real estate loan, our holding period for the collateral, if any, typically is longer than for one- to four-family residential property because there are fewer potential purchasers of the collateral. Since we plan to continue to increase our originations of these loans, it may be necessary to increase the level of our allowance for loan losses due to the increased risk characteristics associated with these types of loans. Any increase to our allowance for loan losses would adversely affect our earnings. Any delinquent payments or the failure to repay these loans would hurt our earnings.
 
Our consumer loan portfolio possesses increased risk.
 
Our consumer loans accounted for approximately $67.4 million, or 6.1%, of our total loan portfolio as of December 31, 2010, of which $42.5 million consisted of automobile loans. Generally, we consider these types of loans to involve a higher degree of risk compared to first mortgage loans on one- to four-family, owner-occupied residential properties, particularly in the case of loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result of this portfolio of consumer loans, it may become necessary to increase the level of our provision for loan losses, which could hurt our profits.
 
Our business may be adversely affected by credit risk associated with residential property.
 
As of December 31, 2010, residential mortgage loans, including home equity loans and lines of credit, totaled $509.4 million, or 46.0%, of total loans. This type of lending is generally sensitive to regional and local economic conditions that may significantly affect the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. The decline in residential real estate values resulting from the downturn in local housing markets has reduced the value of the real estate collateral securing many of our loans and has increased the risk that we would incur losses if borrowers default on their loans. Continued declines in both the volume of real estate sales and sales prices, coupled with high levels and increases in unemployment, may result in higher loan delinquencies or problem assets, a decline in demand for our products and services, or a decrease in our deposits. These potential negative events may cause us to incur losses, which would adversely affect our capital and liquidity and damage our financial condition and business operations. These declines may have a greater impact on our earnings and capital than on the earnings and capital of financial institutions that have more diversified loan portfolios.
 
We are subject to credit risks in connection with the concentration of adjustable rate loans in our portfolio.
 
Approximately 31.6% of our loan portfolio (excluding loans held for sale) is adjustable rate loans. Borrowers with adjustable rate loans are exposed to increased monthly payments when the related interest rate adjusts upward under the terms of the loan from the initial fixed to the rate computed in accordance with the applicable index and margin. Any rise in prevailing market interest rates may result in increased payments for borrowers who have adjustable rate loans, increasing the possibility of default. Borrowers seeking to avoid these increased monthly payments by refinancing their loans may no longer be able to find available replacement loans at comparably lower interest rates. In addition, a decline in housing prices may leave borrowers with insufficient equity in their homes to permit them to refinance. Borrowers who intend to sell their homes on or before the expiration of the fixed rate period on their mortgage loans may also find that they cannot sell their properties for an amount equal to or greater than the unpaid principal balance of their loans. These events, alone or in combination, may contribute to higher delinquency rates and negatively impact our earnings.
 
If our non-performing assets increase, our earnings will suffer.
 
At December 31, 2010, our non-performing assets (which consist of non-accrual loans, loans 90 days or more delinquent and foreclosed real estate assets) totaled $20.3 million, which was an increase of $4.7 million, or 30.2%,


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over non-performing assets at December 31, 2009. Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or real estate owned. We must reserve for estimated credit losses, which are established through a current period charge to the provision for loan losses, and from time to time, if appropriate, write down the value of properties in our other real estate owned portfolio to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to our other real estate owned. Further, the resolution of non-performing assets requires the active involvement of management, which can distract them from the overall supervision of our operations and other income-producing activities. Finally, if our estimate of the allowance for loan losses is inadequate, we will have to increase the allowance accordingly.
 
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
 
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. Management recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover actual losses, resulting in additions to our allowance. Additions to our allowance decrease our net income. Our allowance for loan losses was 1.34% of gross loans and 84.22% of non-performing loans at December 31, 2010, compared to 1.10% of gross loans and 105.44% of non-performing loans at December 31, 2009.
 
Our emphasis on originating commercial and one- to four- family real estate and commercial non-mortgage loans is one of the more significant factors in evaluating the allowance for loan losses. As we continue to increase our originations of these loans, increased provisions for loan losses may be necessary, which would decrease our earnings.
 
Our banking regulators and external auditor periodically review our allowance for loan losses. These entities 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. Any increase in our allowance for loan losses or loan charge-offs as required by these authorities may have a material adverse effect on our financial condition and results of operations.
 
Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income.
 
The Bank and the Company are subject to extensive regulation, supervision and examination by the OTS and the FDIC. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Because our business is highly regulated, the laws and applicable regulations are subject to frequent change. Any change in these regulations and oversight, whether in the form of regulatory policy, new regulations or legislation or additional deposit insurance premiums, could have a material impact on our operations.
 
In response to the financial crisis of 2008 and early 2009, Congress has taken actions that are intended to strengthen confidence and encourage liquidity in financial institutions, and the FDIC has taken actions to increase insurance coverage on deposit accounts. The recently enacted Dodd-Frank Act provides for the creation of a consumer protection division at the Board of Governors of the Federal Reserve System that will have broad authority to issue regulations governing the services and products we provide consumers. This additional regulation could increase our compliance costs and otherwise adversely impact our operations. That legislation also contains provisions that, over time, could result in higher regulatory capital requirements and loan loss provisions for the Company and the Bank and may increase interest expense due to the ability in July 2011 to pay interest on all business demand deposits. In addition, there have been proposals made by members of Congress and others that would reduce the amount delinquent borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. Recent regulatory changes impose limits on our ability to charge overdraft fees, which may decrease our non-interest income as compared to more recent


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prior periods. The potential exists for additional federal or state laws and regulations, or changes in policy, affecting lending and funding practices and liquidity standards. See “How We Are Regulated.”
 
In this recent economic downturn, federal banking regulators have been active in responding to concerns and trends identified in examinations and have issued many formal enforcement orders requiring capital ratios in excess of regulatory requirements. Bank regulatory agencies, such as the OTS, govern the activities in which the Bank may engage, primarily for the protection of depositors and not for the protection or benefit of potential investors. In addition, new laws and regulations may increase our costs of regulatory compliance and of doing business and otherwise affect our operations. New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and our ongoing operations, costs and profitability.
 
Changes in interest rates could adversely affect our results of operations and financial condition.
 
Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of operations depend substantially on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. Because interest-bearing liabilities generally reprice or mature more quickly than interest-earning assets, an increase in interest rates generally would tend to result in a decrease in net interest income.
 
Changes in interest rates may also affect the average life of loans and mortgage-related securities. Decreases in interest rates can result in increased levels of prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable rate loans. Also, increases in interest rates may extend the average life of fixed-rate assets, which would limit the funds we have available to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so long as the early withdrawal penalty is less than the interest they could receive as a result of the higher interest rates.
 
Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2010, the fair value of our portfolio of available-for-sale securities totaled $717.5 million. Gross unrealized gains on these securities totaled $7.6 million, while gross unrealized losses on these securities totaled $3.9 million, resulting in a net unrealized gain of $3.7 million at December 31, 2010.
 
At December 31, 2010, the Company’s internal asset/liability software simulation model indicated that our net portfolio value would decrease by 14.9% if there was an instantaneous parallel 200 basis point increase in market interest rates. See the “Asset/Liability Management” discussion under Item 7A of this Form 10-K.
 
Additionally, approximately 31.6% or our loan portfolio (excluding loans held for sale) is adjustable-rate loans. Any rise in the associated market index interest rates may result in increased payments for borrowers who have adjustable rate mortgage loans, increasing the possibility of default.
 
The Company had $492.0 million of loans held for sale at December 31, 2010, of which $460.9 million were Warehouse Purchase Program loans purchased for sale under our standard loan participation agreement. The interest rates on Warehouse Purchase Program facilities adjust daily with changes to the 30 day LIBOR, subject to the impact of any applicable floor rate, as discussed below. These facilities have an interest rate that is based on the 30 day LIBOR, with a floor of 2.00% or 2.50% per annum, plus a margin rate. The margin rate, which is an agreed upon value stated in the pricing schedule of each Warehouse Purchase Program client, typically ranged between 1.75% and 2.75% at December 31, 2010, which resulted in a minimum total rate for Warehouse Purchase Program facilities of 3.75%. During 2010, these rates were at their floors and established loan rate spreads which were higher than the contractual rate spreads would have otherwise been. As the 30 day LIBOR interest rate increases, many of these interest rate floors will not adjust until the 30 day LIBOR exceeds 2.00%. At that time, the interest rates on the facilities will adjust according to their normal contractual interest rate spread terms. For the year ended December 31, 2010, the average yield earned on Warehouse Purchase Program facilities was 4.88% versus an


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average 30 day LIBOR of 0.26% plus the average margin of 2.28%, which results in a positive difference of 234 basis points between the average yield and the average 30 day LIBOR plus average margin.
 
Our strategies to modify our interest rate risk profile may be difficult to implement.
 
Our asset/liability management strategies are designed to manage and decrease our interest rate risk sensitivity. One such strategy is increasing the amount of adjustable rate and/or short-term assets. The Company offers adjustable rate loan products as a means to achieve this strategy. However, comparatively low fixed interest rates would generally create a decrease in borrower demand for adjustable rate assets. Additionally, there is no guarantee that any adjustable rate assets obtained will not prepay. At December 31, 2010, 31.6% of our loan portfolio (excluding loans held for sale) consisted of adjustable rate loans, compared to 32.2% at December 31, 2009.
 
We are also managing our liabilities to moderate our interest rate risk sensitivity. Customer demand is often primarily for short-term maturity certificates of deposit. Using short-term liabilities to fund long-term fixed rate assets will increase the interest rate sensitivity of any financial institution. We are utilizing FHLB advances to mitigate the impact of customer demand by lengthening the maturities of these advances or may enter into longer term repurchase agreements, depending on liquidity or investment opportunities.
 
FHLB advances and repurchase agreements are entered into as liquidity is needed or to fund assets that provide for a spread considered sufficient by management. If we are unable to originate adjustable rate assets at favorable rates or fund fixed rate loan originations or securities purchases with comparative long-term advances or structured borrowings, we may have difficulty executing this asset/liability management strategy and/or it may result in a reduction in profitability.
 
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
 
Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets, or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations, or deterioration in credit markets.
 
Additionally, at December 31, 2010, public funds totaled $393.3 million, representing 59.2% of our time deposits and 19.5% of our total deposits. Public funds are bank deposits of state and local municipalities. These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these funds historically have been a relatively stable source of funds for us, availability depends on the individual municipality’s fiscal policies and cash flow needs.
 
Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates, which may have an adverse effect on our financial condition.
 
Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Our securities portfolio is evaluated for other-than-temporary impairment on at least a quarterly basis. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or


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decrease our shareholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes. At December 31, 2010, the net unrealized gain on securities available-for-sale was $3.7 million, a $2.1 million decrease from the December 31, 2009 net unrealized gains on securities available for sale of $5.8 million.
 
Higher FDIC insurance premiums and special assessments will affect our earnings.
 
In accordance with the Dodd-Frank Act, the FDIC has adopted a new deposit insurance premium assessment system to be effective April 1, 2011, in which assessments are calculated based on total assets minus Tier 1 capital, not just deposits at assessment rates that are intended to keep current levels of assessments substantially the same. To the extent we increase our non-deposit liabilities or are determined to bear certain additional risk to the deposit insurance fund, future increases in our assessment rate or levels or any special assessments would decrease our earnings.
 
Strong competition within our market area may limit our growth and profitability.
 
Competition in the banking and financial services industry is intense. We compete with numerous commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Many of our competitors have substantially greater resources and lending limits than we have, have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest earning assets.
 
System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.
 
The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations.
 
Item 1B.  Unresolved Staff Comments
 
None.
 
Item 2.  Properties
 
At December 31, 2010, we had 23 community bank offices and 14 loan production offices, which consisted of 13 ViewPoint Mortgage loan production offices and one commercial real estate loan production office. We own the majority of the space in which our administrative offices are located. At December 31, 2010, we owned 18 of our community bank offices, and leased the remaining facilities. The net book value of our investment in premises, equipment and leaseholds, excluding computer equipment, was approximately $44.6 million at December 31, 2010.
 
In 2010, the Company opened a VPM mortgage loan production office in Tulsa, OK and closed its VPM mortgage loan production offices in Ennis and the Houston Gulfgate Center.


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For more information about the Company’s premises and equipment, please see Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this report.
 
The following table provides information about the Company’s main and branch offices and indicates whether the properties are owned or leased.
 
                                 
                Lease
       
    Square
          Expiration
    Net Book Value at
 
Location    Footage      Owned or Leased     Date     12/31/10  
                      (Dollars in thousands)  
 
ADMINISTRATIVE OFFICES:
                               
                                 
Contact Center
    31,762       Owned       N/A     $ 2,456  
2101 Custer Road
                               
Plano, TX 75075
                               
                                 
Pitman East
    54,409       Owned       N/A       3,875  
1201 West 15th Street
                               
Plano, TX 75075
                               
                                 
Pitman West (Main Office)
    53,022       Owned       N/A       1,459  
1309 West 15th Street
                               
Plano, TX 75075
                               
                                 
ViewPoint Mortgage Operations Office
    N/A       Owned       N/A       N/A  
(located inside Richardson Bank Office)
                               
720 E. Arapaho Road
                               
Richardson, TX 75081
                               
                                 
Richardson Annex
    3,800       Owned       N/A       42  
700 East Arapaho Road
                               
Richardson, TX 75081
                               
                                 
Warehouse Purchase Program office
    884       Leased       1/31/20111       N/A  
13984 West Bowles Avenue, Suite 100
                               
Littleton, CO 80127
                               
                                 
BANK OFFICES:
                               
                                 
Addison
    6,730       Leased       4/30/2013       N/A  
4560 Beltline Road, Suite 100
                               
Addison, TX 75001
                               
                                 
Allen
    4,500       Owned       N/A       355  
321 East McDermott Drive
                               
Allen, TX 75002
                               
                                 
Carrollton
    6,800       Owned       N/A       1,060  
1801 Keller Springs Road
                               
Carrollton, TX 75006
                               
                                 
Coppell
    5,674       Owned       N/A       1,478  
687 North Denton Tap Road
                               
Coppell, TX 75019
                               
                                 
East Plano
    5,900       Owned       N/A       1,132  
2501 East Plano Parkway
                               
Plano, TX 75074
                               
                                 
Frisco
    4,800       Owned       N/A       929  
3833 Preston Road
                               
Frisco, TX 75034
                               


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                Lease
       
    Square
          Expiration
    Net Book Value at
 
Location    Footage      Owned or Leased     Date     12/31/10  
                      (Dollars in thousands)  
 
Garland
    4,800       Owned       N/A     $ 766  
2218 North Jupiter Road
                               
Garland, TX 75046
                               
                                 
Grand Prairie Albertsons (in-store location)     452       Leased       8/8/2012       N/A  
215 North Carrier Parkway
                               
Grand Prairie, TX 75050
                               
                                 
Grapevine
    3,708       Leased       12/31/2028       N/A  
301 South Park Boulevard
                               
Grapevine, TX 76051
                               
                                 
Lake Highlands Albertsons (in-store location)     391       Leased       11/14/2011       N/A  
10203 East Northwest Highway
                               
Dallas, TX 75238
                               
                                 
McKinney
    4,500       Owned       N/A       624  
2500 West Virginia Parkway
                               
McKinney, TX 75071
                               
                                 
McKinney Mini
    1,800       Owned       N/A       78  
231 North Chestnut Street
                               
McKinney, TX 75069
                               
                                 
Northeast Tarrant County
    4,338       Owned with Ground Lease       6/30/2018       1,581  
3040 State Highway 121
                               
Euless, TX 76039
                               
                                 
Oak Cliff
    2,800       Leased       9/30/2013       N/A  
2498 West Illinois Avenue
                               
Dallas, TX 75233
                               
                                 
Plano Central
    1,681       Owned       N/A       758  
(Located inside Pitman East admin. office)
                               
1201 West 15th Street
                               
Plano, TX 75075
                               
                                 
Richardson
    22,000       Owned       N/A       633  
720 East Arapaho Road
                               
Richardson, TX 75081
                               
                                 
Richardson Mini
    2,500       Owned       N/A       83  
1775 North Plano Road
                               
Richardson, TX 75081
                               
                                 
Tollroad Express
    2,000       Owned       N/A       501  
5900 West Park Boulevard
                               
Plano, TX 75093
                               
                                 
West Allen
    4,800       Owned       N/A       736  
225 South Custer Road
                               
Allen, TX 75013
                               
                                 
West Frisco
    4,338       Owned       N/A       1,752  
2975 Main Street
                               
Frisco, TX 75034
                               

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                Lease
       
    Square
          Expiration
    Net Book Value at
 
Location    Footage      Owned or Leased     Date     12/31/10  
                      (Dollars in thousands)  
 
West Plano
    22,800       Owned       N/A     $ 1,742  
5400 Independence Parkway
                               
Plano, TX 75075
                               
                                 
West Richardson
    4,500       Owned       N/A       535  
1280 West Campbell Road
                               
Richardson, TX 75080
                               
                                 
Wylie
    4,338       Owned       N/A       1,762  
3490 FM 544
                               
Wylie, TX 75098
                               
                                 
VIEWPOINT MORTGAGE LOAN PRODUCTION OFFICES:                                
                                 
Arlington LPO
    1,074       Leased       8/31/2011       N/A  
2340 West Interstate 20 Suites 210 and 212
                               
Arlington, TX 76017
                               
                                 
Austin LPO
    2,331       Leased       8/31/2013       N/A  
11130 Jollyville Road Suite 302
                               
Austin, TX 78759
                               
                                 
Clear Lake/Nassau Bay LPO
    2,419       Leased       8/31/2013       N/A  
1120 NASA Parkway Suites 308 and 320
                               
Houston, TX 77058
                               
                                 
Coppell LPO
    2,540       Leased       8/31/2012       N/A  
275 South Denton Tap Road Suite 100
                               
Coppell, TX 75019
                               
                                 
Dallas LPO 2
    7,670       Leased       MTM*       N/A  
13101 Preston Road Suite 100
                               
Dallas, TX 75240
                               
                                 
Park Cities LPO
    4,654       Leased       4/30/2011       N/A  
5944 Luther Lane Suite 1000
                               
Dallas, TX 75225
                               
                                 
Plano LPO
                               
(Located inside Pitman East admin. office)
    N/A       Owned       N/A       N/A  
1309 West 15th Street
                               
Plano, TX 75075
                               
                                 
San Antonio LPO
    3,212       Leased       11/30/2012       N/A  
6800 Park Ten Boulevard Suite 194W
                               
San Antonio, TX 78213
                               
                                 
Sonterra LPO
    2,136       Leased       MTM*       N/A  
325 Sonterra Boulevard East Suite 220
                               
San Antonio, TX 78258
                               
                                 
Southlake LPO
    2,400       Leased       3/31/2014       N/A  
751 East Southlake Boulevard Suite 120
                               
Southlake, TX 76092
                               

43


Table of Contents

                                 
                Lease
       
    Square
          Expiration
    Net Book Value at
 
Location    Footage      Owned or Leased     Date     12/31/10  
                      (Dollars in thousands)  
 
Tulsa LPO
    1,000       Leased       3/31/2013       N/A  
1107 North Kalanchoe
                               
Broken Arrow, OK 74012