UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the
fiscal year ended December 31, 2010
OR
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o |
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number
001-34737
VIEWPOINT FINANCIAL GROUP,
INC.
(Exact name of registrant as
specified in its charter)
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Maryland
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27-2176993
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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1309 W. 15th
Street, Plano, Texas
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75075
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants telephone number, including area code:
(972) 578-5000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
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Nasdaq Global Select Market
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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 registrants 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):
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Large accelerated filer
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o
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Accelerated
filer o
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Non-accelerated filer
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þ
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(Do not check if a smaller reporting company)
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Smaller reporting
company o
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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 Registrants 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
Registrants common stock as of March 1, 2011.
DOCUMENTS INCORPORATED BY
REFERENCE:
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Document
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Part of Form 10-K
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Portions of the definitive Proxy Statement to
be used in conjunction with the Registrants
Annual Meeting of Shareholders
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Part III
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VIEWPOINT
FINANCIAL GROUP, INC.
FORM 10-K
December 31,
2010
INDEX
PART I
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 Companys press
releases or other public or shareholder communications, and in
oral statements made with the approval of an authorized
executive officer, the words or phrases will likely
result, are expected to, will
continue, is anticipated,
estimate, project, intends
or similar expressions are intended to identify
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties,
including, among other things, changes in economic conditions,
legislative changes, changes in policies by regulatory agencies,
fluctuations in interest rates, the risks of lending and
investing activities, including changes in the level and
direction of loan delinquencies and write-offs and changes in
estimates of the adequacy of the allowance for loan losses, the
Companys ability to access cost-effective funding,
fluctuations in real estate values and both residential and
commercial real estate market conditions, demand for loans and
deposits in the Companys market area, competition, changes
in managements business strategies 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 Companys
financial performance and could cause the Companys actual
results for future periods to differ materially from any
opinions or statements expressed with respect to future periods
in any current statements.
The Company does not undertake and specifically
declines any obligation to publicly release the
result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or
unanticipated events.
General
The Company, a Maryland corporation, is a full stock holding
company for its wholly owned subsidiary, ViewPoint Bank (the
Bank.) The Banks 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 Banks 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
3
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.
4
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.
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December 31,
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2010
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2009
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2008
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2007
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2006
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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(Dollars in thousands)
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Real estate loans:
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One- to four- family
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$
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393,896
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35.58%
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$
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421,935
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37.62%
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$
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498,961
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39.92%
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$
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332,780
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36.40%
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$
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282,918
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29.21%
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Commercial
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479,071
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43.28
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453,604
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40.44
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436,483
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34.92
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251,915
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27.56
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179,635
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18.55
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Home equity
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115,418
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10.43
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116,138
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10.35
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101,021
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8.08
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85,064
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9.31
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83,899
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8.66
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Construction
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12,004
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1.08
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7,074
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0.63
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503
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0.04
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225
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0.02
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5,181
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0.54
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Total real estate loans
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1,000,389
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90.37
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998,751
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89.04
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1,036,968
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82.96
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669,984
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73.29
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551,633
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56.96
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Other loans:
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Consumer loans:
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Automobile indirect
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1,606
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0.15
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10,711
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0.96
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38,837
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3.11
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104,156
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11.39
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219,147
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22.63
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Automobile direct
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40,944
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3.70
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57,186
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5.10
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73,033
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5.84
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98,817
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10.81
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151,861
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15.68
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Other secured
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10,619
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0.96
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12,217
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1.09
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14,107
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1.13
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12,626
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1.38
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14,678
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1.52
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Lines of credit/unsecured
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14,197
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1.28
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14,781
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1.32
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15,192
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1.21
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16,351
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1.79
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21,284
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2.20
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Total consumer loans
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67,366
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6.09
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94,895
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8.47
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141,169
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11.29
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231,950
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25.37
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406,970
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42.03
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Commercial non-mortgage
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39,279
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3.54
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27,983
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2.49
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71,8451
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5.75
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12,278
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1.34
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9,780
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1.01
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Total loans
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1,107,034
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100.00%
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1,121,629
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100.00%
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1,249,982
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100.00%
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914,212
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100.00%
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968,383
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100.00%
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Less:
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Deferred fees and discounts
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(73)
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(1,160)
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(1,206)
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603
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3,576
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Allowance for loan losses
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(14,847)
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(12,310)
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(9,068)
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(6,165)
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(6,507)
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Total loans receivable, net
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$
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1,092,114
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$
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1,108,159
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$
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1,239,708
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$
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908,650
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$
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965,452
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Loans held for sale
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$
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491,985
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$
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341,431
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$
|
159,884
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$
|
13,172
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$
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3,212
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(1) |
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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.
|
5
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.
|
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
borrowers 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 Companys
loan portfolio.
7
We underwrite one- to four-family owner-occupied loans based on
the applicants 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
borrowers 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.
8
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
9
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 borrowers 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.
10
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 manufacturers 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
borrowers 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 borrowers background, capacity to repay
the loan, the adequacy of the borrowers capital and
collateral, as well as an evaluation of other conditions
affecting the borrower. A review of the borrowers 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 borrowers ability to make repayment from the
profitable operation of the borrowers 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.
11
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
Companys 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.
12
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.
|
13
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.
14
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
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,
16
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 loans
effective interest rate or, as a practical expedient, at the
loans 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 managements close
attention. These loans are not adversely classified according to
regulatory classifications and do not expose the Company to
sufficient risk to warrant adverse classification. These loans
have been considered in managements determination of our
allowance for loan losses. 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
17
estimate the credit losses in the loan portfolio. We use both
historical loss ratios and qualitative loss factors assigned to
major loan collateral types to establish loss allocations. The
historical loss ratio is generally defined as an average
percentage of net annual loan losses to loans outstanding.
Qualitative loss factors are based on managements judgment
of company-specific data and external economic indicators and
how this information could impact the Companys specific
loan portfolios. The Allowance for Loan Loss Committee sets and
adjusts qualitative loss factors by reviewing changes in loan
composition and the seasonality of specific portfolios. The
Committee also considers credit quality and trends relating to
delinquency, non-performing
and/or
classified loans and bankruptcy within the Companys loan
portfolio when evaluating qualitative loss factors.
Additionally, the 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 borrowers ability to repay. Loss estimates
include the negative difference, if any, between the current
fair value of the collateral or the estimated discounted cash
flows and the loan amount due.
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.
18
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%
|
|
19
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
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.
21
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
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%
|
|
24
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
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.
|
26
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
|
|
|
|
-
|
|
27
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 Banks 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
28
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 Banks 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 Banks lending
limit under this restriction was $44.8 million. The Bank is
in compliance with the
loans-to-one-borrower
limitation.
The OTSs 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 Banks 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 institutions total assets minus
its Tier 1 capital instead of its deposits, as required by
the Dodd-Frank Act. These regulations are
29
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
Banks 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 institutions assessment rate as of September 30,
2009, with a uniform increase of 3 basis points effective
January 1, 2011, and are based on the institutions
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
Banks 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
institutions 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
institutions allowance for loan and lease losses up to
1.25% of risk-weighted assets and certain unrealized gains on
equity securities.
30
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
banks 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
institutions anti-money laundering activities when
reviewing mergers and acquisitions.
31
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 Companys 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
32
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 Companys 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 entitys 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 Banks 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 Banks equity investments in two community
development-oriented venture capital funds were organized as a
service corporation. At December 31, 2010, the Banks
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 Banks 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
Dallass 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
OTSs Mutual Savings Association Advisory Committee and in
a number of other positions locally and nationally. During his
tenure with ViewPoint Bank, Mr. Base has
33
overseen the Banks growth from two locations and
$179 million in assets to the $2.9 billion community
bank that it is today. Mr. Bases 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. Hords 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 Companys
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. Williamsons 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 investors 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.
34
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
35
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%,
36
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 banks operations,
reclassify assets, determine the adequacy of a banks
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 institutions 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
37
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 Companys 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
38
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
municipalitys 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
39
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.
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Item 1B.
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Unresolved
Staff Comments
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None.
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
$44.6 million at December 31, 2010.
In 2010, the Company opened a VPM mortgage loan production
office in Tulsa, OK and closed its VPM mortgage loan production
offices in Ennis and the Houston Gulfgate Center.
40
For more information about the Companys premises and
equipment, please see Note 11 of the Notes to Consolidated
Financial Statements contained in Item 8 of this report.
The following table provides information about the
Companys main and branch offices and indicates whether the
properties are owned or leased.
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Lease
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Square
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Expiration
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Net Book Value at
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Location
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Footage
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Owned or Leased
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Date
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12/31/10
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(Dollars in thousands)
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ADMINISTRATIVE OFFICES:
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Contact Center
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31,762
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Owned
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N/A
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$
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2,456
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2101 Custer Road
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Plano, TX 75075
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Pitman East
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54,409
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Owned
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N/A
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3,875
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1201 West 15th Street
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Plano, TX 75075
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Pitman West (Main Office)
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53,022
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Owned
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N/A
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1,459
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1309 West 15th Street
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Plano, TX 75075
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ViewPoint Mortgage Operations Office
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N/A
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Owned
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N/A
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N/A
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(located inside Richardson Bank Office)
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720 E. Arapaho Road
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Richardson, TX 75081
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Richardson Annex
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3,800
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Owned
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N/A
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42
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700 East Arapaho Road
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Richardson, TX 75081
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Warehouse Purchase Program office
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884
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Leased
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1/31/20111
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N/A
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13984 West Bowles Avenue, Suite 100
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Littleton, CO 80127
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BANK OFFICES:
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Addison
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6,730
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Leased
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4/30/2013
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N/A
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4560 Beltline Road, Suite 100
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Addison, TX 75001
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Allen
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4,500
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Owned
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N/A
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355
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321 East McDermott Drive
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Allen, TX 75002
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Carrollton
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6,800
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Owned
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N/A
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1,060
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1801 Keller Springs Road
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Carrollton, TX 75006
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Coppell
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5,674
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Owned
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N/A
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1,478
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687 North Denton Tap Road
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Coppell, TX 75019
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waxahachie LPO
|
|
|
1,273
|
|
|
|
Leased
|
|
|
|
5/31/2011
|
|
|
|
N/A
|
|
102 Professional Place Suite 101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waxahachie, TX 75165
|
|
|
|
|
|
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|
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|
|
|
|
|
|
Weatherford LPO
|
|
|
1,422
|
|
|
|
Leased
|
|
|
|
6/30/2013
|
|
|
|
N/A
|
|
300 South Main Street Suite 204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford, TX 76086
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL REAL ESTATE LOAN PRODUCTION OFFICE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston LPO
|
|
|
400
|
|
|
|
Leased
|
|
|
|
MTM*(3
|
)
|
|
|
N/A
|
|
7500 San Felipe Road Suite 600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX 77063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Month-to-month
|
|
1 |
|
New lease signed on
February 1, 2011 expires on January 31, 2012
|
|
2 |
|
Office relocated to 5151 Beltline
Road Suite 725, Dallas, TX 75254 on January 18, 2011
|
|
3 |
|
New lease signed on
January 31, 2011 expires on December 31, 2011
|
We believe that our current administrative facilities are
adequate to meet the present and immediately foreseeable needs
of the Bank and the Company.
We currently utilize IBM and FiServ Signature in-house data
processing systems. The net book value of all of our data
processing and computer equipment at December 31, 2010, was
$4.2 million.
|
|
Item 3.
|
Legal
Proceedings
|
We are involved from time to time as plaintiff or defendant in
various legal actions arising in the normal course of our
businesses. While the ultimate outcome of pending proceedings
cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing us in
such proceedings, that the resolution of these proceedings
should not have a material adverse effect on our consolidated
financial position or results of operations.
|
|
Item 4.
|
(Removed
and Reserved).
|
44
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock is listed on the NASDAQ Global Select Market
under the symbol VPFG. There were 1,817 holders of
record of our common stock as of March 1, 2011.
The following table presents quarterly market high and low
closing sales price information and cash dividends paid per
share for our common stock for the two years ended
December 31, 2010. All share prices and dividends for
periods prior to the Conversion have been adjusted to reflect
the 1.4:1 exchange ratio on publicly traded shares applied as a
result of our July 2010 second-step public offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price Range
|
|
|
Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2010
|
|
$
|
11.70
|
|
|
$
|
9.73
|
|
|
$
|
0.04
|
|
Quarter ended June 30, 2010
|
|
|
12.69
|
|
|
|
9.89
|
|
|
|
0.04
|
|
Quarter ended September 30, 2010
|
|
|
9.65
|
|
|
|
8.88
|
|
|
|
0.04
|
|
Quarter ended December 31, 2010
|
|
|
11.71
|
|
|
|
9.16
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2009
|
|
$
|
11.21
|
|
|
$
|
7.55
|
|
|
$
|
0.06
|
|
Quarter ended June 30, 2009
|
|
|
11.45
|
|
|
|
9.25
|
|
|
|
0.04
|
|
Quarter ended September 30, 2009
|
|
|
10.53
|
|
|
|
8.91
|
|
|
|
0.04
|
|
Quarter ended December 31, 2009
|
|
|
10.29
|
|
|
|
9.24
|
|
|
|
0.04
|
|
The timing and amount of cash dividends paid depends on our
earnings, capital requirements, financial condition and other
relevant factors. The primary source for dividends paid to
shareholders is the net proceeds retained by the Company from
our initial public offering in 2006 and our second-step public
offering in 2010. We also have the ability to receive dividends
or capital distributions from the Bank, our wholly owned
subsidiary. There are regulatory restrictions on the ability of
the Bank, a federally chartered savings bank, to pay dividends.
See How We Are Regulated Limitations on
Dividends and Other Capital Distributions under
Item 1 of this report and Note 20 of Notes to
Consolidated Financial Statements contained in Item 8 of
this report.
The Company did not repurchase any shares of its outstanding
common stock during the fourth quarter of the year ended
December 31, 2010 and had no outstanding share repurchase
programs at December 31, 2010.
Equity
Compensation Plans
Set forth below is information, at December 31, 2010,
regarding the equity compensation plan that was approved by
shareholders at the Companys 2007 annual meeting of
shareholders. This is our only equity compensation plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Number of Securities
|
|
|
|
Number of Securities to be Issued upon
|
|
|
Exercise
|
|
|
Remaining Available for
|
|
|
|
Exercise of Outstanding Options
|
|
|
Price
|
|
|
Issuance under Plan
|
|
|
2007 Equity Incentive Plan
|
|
|
457,555
|
|
|
$
|
12.01
|
|
|
|
1,240,033(1
|
)
|
|
|
|
(1) |
|
Includes 72,898 shares under
the plan that may be awarded as restricted stock.
|
45
Shareholder
Return Performance Graph Presentation
The line graph below compares the cumulative total shareholder
return on the Companys common stock to the cumulative
total return of a broad index of the NASDAQ Stock Market and two
savings and loan industry indices (Morningstar Group Index and
Hemscott Group Index) for the period October 3, 2006 (the
date the Companys common stock commenced trading on the
NASDAQ Global Select Market), through December 31, 2010.
The information presented below assumes $100 was invested on
October 3, 2006, in the Companys common stock and in
each of the indices and assumes the reinvestment of all
dividends. Historical stock price performance is not necessarily
indicative of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
|
Company/Market/Peer Group
|
|
|
10/3/2006
|
|
|
|
12/31/2006
|
|
|
|
12/31/2007
|
|
|
|
12/31/2008
|
|
|
|
12/31/2009
|
|
|
|
12/31/2010
|
|
ViewPoint Financial Group, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
113.01
|
|
|
|
$
|
111.20
|
|
|
|
$
|
109.06
|
|
|
|
$
|
99.08
|
|
|
|
$
|
113.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Composite Index
|
|
|
$
|
100.00
|
|
|
|
$
|
107.84
|
|
|
|
$
|
119.21
|
|
|
|
$
|
71.49
|
|
|
|
$
|
103.89
|
|
|
|
$
|
122.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morningstar Group Index
|
|
|
$
|
100.00
|
|
|
|
$
|
119.10
|
|
|
|
$
|
101.09
|
|
|
|
$
|
94.56
|
|
|
|
$
|
85.41
|
|
|
|
$
|
74.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hemscott Group Index
|
|
|
$
|
100.00
|
|
|
|
$
|
106.88
|
|
|
|
$
|
62.63
|
|
|
|
$
|
44.18
|
|
|
|
$
|
36.87
|
|
|
|
$
|
29.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
Item 6.
|
Selected
Financial Data
|
The summary information presented below under Selected
Financial Condition Data and Selected Operations
Data for each of the years ended December 31 is derived
from our audited consolidated financial statements. The
following information is only a summary and you should read it
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
under Item 7 of this report and Financial Statements
and Supplementary Data under Item 8 of this report
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for The Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Selected Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,941,995
|
|
|
$
|
2,379,504
|
|
|
$
|
2,213,415
|
|
|
$
|
1,658,204
|
|
|
$
|
1,529,760
|
|
Loans held for sale
|
|
|
491,985
|
|
|
|
341,431
|
|
|
|
159,884
|
|
|
|
13,172
|
|
|
|
3,212
|
|
Loans receivable, net
|
|
|
1,092,114
|
|
|
|
1,108,159
|
|
|
|
1,239,708
|
|
|
|
908,650
|
|
|
|
965,452
|
|
Securities available for sale, at fair value
|
|
|
717,497
|
|
|
|
484,058
|
|
|
|
483,016
|
|
|
|
542,875
|
|
|
|
324,523
|
|
Securities held to maturity, at amortized cost
|
|
|
432,519
|
|
|
|
254,724
|
|
|
|
172,343
|
|
|
|
20,091
|
|
|
|
11,271
|
|
FHLB stock
|
|
|
20,569
|
|
|
|
14,147
|
|
|
|
18,069
|
|
|
|
6,241
|
|
|
|
3,724
|
|
Bank-owned life insurance
|
|
|
28,501
|
|
|
|
28,117
|
|
|
|
27,578
|
|
|
|
26,497
|
|
|
|
-
|
|
Deposits
|
|
|
2,017,550
|
|
|
|
1,796,665
|
|
|
|
1,548,090
|
|
|
|
1,297,593
|
|
|
|
1,234,881
|
|
Borrowings
|
|
|
496,219
|
|
|
|
347,504
|
|
|
|
435,841
|
|
|
|
128,451
|
|
|
|
55,762
|
|
Shareholders equity
|
|
|
396,589
|
|
|
|
205,682
|
|
|
|
194,139
|
|
|
|
203,794
|
|
|
|
214,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
115,385
|
|
|
$
|
107,906
|
|
|
$
|
96,795
|
|
|
$
|
84,232
|
|
|
$
|
72,726
|
|
Total interest expense
|
|
|
44,153
|
|
|
|
49,286
|
|
|
|
46,169
|
|
|
|
41,121
|
|
|
|
31,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
71,232
|
|
|
|
58,620
|
|
|
|
50,626
|
|
|
|
43,111
|
|
|
|
41,340
|
|
Provision for loan losses
|
|
|
5,119
|
|
|
|
7,652
|
|
|
|
6,171
|
|
|
|
3,268
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
66,113
|
|
|
|
50,968
|
|
|
|
44,455
|
|
|
|
39,843
|
|
|
|
38,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
18,505
|
|
|
|
18,954
|
|
|
|
19,779
|
|
|
|
22,389
|
|
|
|
20,589
|
|
Net gain on sale of loans
|
|
|
13,041
|
|
|
|
16,591
|
|
|
|
9,390
|
|
|
|
1,298
|
|
|
|
199
|
|
Gain on redemption of Visa, Inc. shares
|
|
|
-
|
|
|
|
-
|
|
|
|
771
|
|
|
|
-
|
|
|
|
-
|
|
Impairment of collateralized debt obligations
|
|
|
-
|
|
|
|
(12,246
|
)
|
|
|
(13,809
|
)
|
|
|
-
|
|
|
|
-
|
|
Gain on sale of available for sale securities
|
|
|
-
|
|
|
|
2,377
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other non-interest income
|
|
|
1,918
|
|
|
|
1,523
|
|
|
|
2,733
|
|
|
|
2,238
|
|
|
|
2,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
33,464
|
|
|
|
27,199
|
|
|
|
18,864
|
|
|
|
25,925
|
|
|
|
23,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
73,146
|
|
|
|
74,537
|
|
|
|
68,911
|
|
|
|
57,957
|
|
|
|
56,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
26,431
|
|
|
|
3,630
|
|
|
|
(5,592
|
)
|
|
|
7,811
|
|
|
|
6,129
|
|
Income tax expense
(benefit)(1)
|
|
|
8,632
|
|
|
|
960
|
|
|
|
(2,277
|
)
|
|
|
2,744
|
|
|
|
(3,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)(1)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
|
$
|
5,067
|
|
|
$
|
9,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Until its conversion to a federally
chartered savings bank on January 1, 2006, the Bank was a
credit union, generally exempt from federal and state income
taxes. As a result of the change in tax status on
January 1, 2006, the Bank recorded a deferred tax asset in
the amount of $6.6 million, as well as a related tax
benefit in the income statement of $6.1 million.
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Selected Financial Ratios and Other Data (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets (ratio of net income (loss) to average total
assets)
|
|
|
0.66%
|
|
|
|
0.12%
|
|
|
|
|
|
|
|
-0.17%
|
|
|
|
0.32%
|
|
|
|
0.65%
|
|
Return on equity (ratio of net income (loss) to average equity)
|
|
|
5.69%
|
|
|
|
1.34%
|
|
|
|
|
|
|
|
-1.65%
|
|
|
|
2.40%
|
|
|
|
6.76%
|
|
Interest rate spread:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average during period
|
|
|
2.49%
|
|
|
|
2.37%
|
|
|
|
|
|
|
|
2.28%
|
|
|
|
2.14%
|
|
|
|
2.41%
|
|
End of period
|
|
|
2.20%
|
|
|
|
2.29%
|
|
|
|
|
|
|
|
2.09%
|
|
|
|
2.14%
|
|
|
|
2.19%
|
|
Net interest margin
|
|
|
2.80%
|
|
|
|
2.72%
|
|
|
|
|
|
|
|
2.85%
|
|
|
|
2.92%
|
|
|
|
3.00%
|
|
Non-interest income to operating revenue
|
|
|
22.48%
|
|
|
|
20.13%
|
|
|
|
|
|
|
|
16.31%
|
|
|
|
23.53%
|
|
|
|
24.37%
|
|
Operating expense to average total assets
|
|
|
2.71%
|
|
|
|
3.26%
|
|
|
|
|
|
|
|
3.63%
|
|
|
|
3.62%
|
|
|
|
3.79%
|
|
Efficiency
ratio(1)
|
|
|
69.87%
|
|
|
|
76.01%
|
|
|
|
|
|
|
|
82.73%
|
|
|
|
83.95%
|
|
|
|
86.58%
|
|
Average interest earning assets to average interest bearing
liabilities
|
|
|
118.11%
|
|
|
|
115.14%
|
|
|
|
|
|
|
|
121.73%
|
|
|
|
127.92%
|
|
|
|
125.57%
|
|
Dividend payout ratio
|
|
|
21.70%
|
|
|
|
92.58%
|
|
|
|
|
|
|
|
N/M*
|
|
|
|
41.74%
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets to total assets at end of period
|
|
|
0.69%
|
|
|
|
0.66%
|
|
|
|
|
|
|
|
0.17%
|
|
|
|
0.18%
|
|
|
|
0.13%
|
|
Non-performing loans to total loans
|
|
|
1.59%
|
|
|
|
1.04%
|
|
|
|
|
|
|
|
0.18%
|
|
|
|
0.23%
|
|
|
|
0.14%
|
|
Allowance for loan losses to non-performing loans
|
|
|
84.22%
|
|
|
|
105.44%
|
|
|
|
|
|
|
|
409.02%
|
|
|
|
293.29%
|
|
|
|
487.78%
|
|
Allowance for loan losses to total loans
|
|
|
1.34%
|
|
|
|
1.10%
|
|
|
|
|
|
|
|
0.73%
|
|
|
|
0.67%
|
|
|
|
0.67%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity to total assets at end of period
|
|
|
13.48%
|
|
|
|
8.64%
|
|
|
|
|
|
|
|
8.77%
|
|
|
|
12.29%
|
|
|
|
14.04%
|
|
Average equity to average assets
|
|
|
11.59%
|
|
|
|
8.73%
|
|
|
|
|
|
|
|
10.59%
|
|
|
|
13.22%
|
|
|
|
9.69%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of community bank offices
|
|
|
23
|
|
|
|
23
|
(2)
|
|
|
|
|
|
|
30
|
|
|
|
28
|
|
|
|
31
|
|
Number of loan production offices
|
|
|
14
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
9
|
|
|
|
3
|
|
|
|
|
*
|
|
Number is not meaningful
|
|
|
|
(1) |
|
Calculated by dividing total
non-interest expense by net interest income plus non-interest
income, excluding impairment on securities.
|
|
(2) |
|
In 2009, we opened three new
full-service community bank offices in Grapevine, Frisco and
Wylie. On January 2, 2009, we announced plans to expand our
community banking network by opening more free-standing,
full-service community bank offices and transition away from
limited-service grocery store banking centers. As a result, we
closed ten in-store banking centers located in Carrollton,
Dallas, Garland, Plano, McKinney, Frisco and Wylie in 2009.
|
48
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
General
Our principal business consists of attracting retail deposits
from the general public and the business community and investing
those funds, along with borrowed funds, in 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, through our Warehouse Purchase Program, we
allow mortgage banking companies 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. 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 earnings on
interest-earning assets, service charges and fees, 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.
Critical
Accounting Policies
Certain of our accounting policies are important to the
portrayal of our financial condition, since they require
management to make difficult, complex or subjective judgments,
some of which may relate to matters that are inherently
uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts
and circumstances. Facts and circumstances which could affect
these judgments include, but are not limited to, changes in
interest rates, changes in the performance of the economy and
changes in the financial condition of borrowers. Management
believes that its critical accounting policies include
determining the allowance for loan losses and
other-than-temporary
impairments in our securities portfolio. Our accounting policies
are discussed in detail in Note 1 of the Notes to
Consolidated Financial Statements contained in Item 8 of
this report.
Allowance for Loan Loss. The allowance for loan
losses and related provision expense are susceptible to change
if the credit quality of our loan portfolio changes, which is
evidenced by many factors including charge-offs and
non-performing loan trends. Generally, one-to four-family
residential real estate lending has a lower credit risk profile
compared to consumer lending (such as automobile or personal
line of credit loans). Commercial real estate and non-mortgage
lending, however, have higher credit risk profiles than consumer
and one- to four- family residential real estate loans due to
these loans being larger in amount and non-homogenous in
structure and term. Changes in economic conditions, the mix and
size of the loan portfolio and individual borrower conditions
can dramatically impact our level of allowance for loan losses
in relatively short periods of time. Management believes that
the allowance for loan losses is maintained at a level that
represents our best estimate of credit losses in the loan
portfolio. While management uses available information to
recognize losses on loans, future additions to the allowance for
loan losses may be necessary based on changes in economic
conditions. In addition, our banking regulators periodically
review our allowance for loan losses and may require us to
recognize additions to the allowance for loan losses based on
their judgments about information available to them at the time
of their review.
Management evaluates current information and events regarding a
borrowers ability to repay its obligations and considers a
loan to be impaired when the ultimate collectability of amounts
due, according to the contractual terms of the loan agreement,
is in doubt. If an impaired loan is collateral-dependent, the
fair value of the collateral, less the cost to acquire and sell,
is used to determine the amount of impairment. The amount of the
impairment can be adjusted, based on current data, until such
time as the actual basis is established by acquisition of the
collateral. Impairment losses are reflected in the allowance for
loan losses through a charge to the provision for loan losses.
Subsequent recoveries are credited to the allowance for loan
losses. Cash receipts for accruing loans are applied to
principal and interest under the contractual terms of the loan
agreement. Cash receipts on impaired loans for which the accrual
of interest has been discontinued are applied first to principal
and then to interest income.
Other-than-Temporary
Impairments. The Company evaluates securities for
other-than-temporary
impairment on at least a quarterly basis and more frequently
when economic, market, or security specific concerns warrant
such
49
evaluation. Consideration is given to the length of time and the
extent to which the fair value has been less than amortized
cost, the financial condition and near-term prospects of the
issuer, and the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value. In analyzing
an issuers financial condition, the Company may consider
whether the securities are issued by the federal government or
its agencies, whether downgrades by bond rating agencies have
occurred, and the results of reviews of the issuers
financial condition. The Company conducts regular reviews of the
bond agency ratings of securities and considers whether the
securities were issued by or have principal and interest
payments guaranteed by the federal government or its agencies.
These reviews focus on the underlying rating of the issuer and
also include the insurance rating of securities that have an
insurance component. The ratings and financial condition of the
issuers are monitored, as well as the financial condition and
ratings of the insurers.
For periods in which
other-than-temporary
impairment of a debt security is recognized, the credit portion
of the amount is determined by subtracting the present value of
the stream of estimated cash flows as calculated in a discounted
cash flow model and discounted at book yield from the prior
periods ending carrying value. The non-credit portion of
the amount is determined by subtracting the credit portion of
the impairment from the difference between the book value and
fair value of the security. The credit related portion of the
impairments is charged against income and the non-credit related
portion is charged to equity as a component of other
comprehensive income.
Business
Strategy
Our principal objective is to remain an independent,
community-oriented financial institution serving customers in
our primary market area. Our Board of Directors has sought to
accomplish this objective through the adoption of a strategy
designed to maintain profitability, a strong capital position
and high asset quality. This strategy primarily involves:
|
|
|
Continuing the growth and diversification of our loan
portfolio.
|
During the past five years, we have successfully transitioned
our lending activities from a predominantly consumer-driven
model to become a more diversified consumer and business lender
by emphasizing three key lending initiatives: our Warehouse
Purchase Program, through which we fund third party mortgage
bankers; residential mortgage lending through our own mortgage
banking company; and commercial real estate lending.
Additionally, we are diversifying our loan portfolio by
increasing secured commercial and industrial lending to small to
mid-size businesses in our market area. Loan diversification
improves our earnings because commercial real estate and
commercial and industrial loans generally have higher interest
rates than residential mortgage loans. Another benefit of
commercial lending is that it improves the sensitivity of our
interest-earning assets because commercial loans typically have
shorter terms than residential mortgage loans and in some cases
have variable interest rates.
|
|
|
Maintaining our historically high level of asset quality.
|
We believe that strong asset quality is a key to long-term
financial success. We have sought to maintain a high level of
asset quality and moderate credit risk by strictly adhering to
our strong lending policies, as evidenced by historical low
charge-off ratios and non-performing assets. Although we intend
to continue our efforts to grow our loan portfolio, including
through commercial real estate and business lending, we intend
to continue our philosophy of managing credit exposures through
our conservative approach to lending.
|
|
|
Capturing our customers full relationship.
|
We offer a wide range of products and services that provide
diversification of revenue sources and solidify our relationship
with our customers. We focus on core retail and business
deposits, including savings and checking accounts, that lead to
long-term customer retention. For example, our Absolute Checking
account product, which offers a higher rate of interest when
electronic transaction volume and other requirements are
satisfied, provides cost savings and drives fee revenue while
providing what we believe to be a stable customer relationship.
As part of our commercial lending process we cross-sell the
entire business banking relationship, including
non-interest-bearing deposits and business banking products,
such as online cash management, treasury management, wires, and
direct deposit /payment processing.
50
In addition to deepening our relationships with existing
customers, we intend to expand our business to new customers by
leveraging our well-established involvement in the community and
by selectively emphasizing products and services designed to
meet their banking needs. We also intend to continue to pursue
expansion in our market area by growing our branch network. We
may also consider the acquisition of other financial
institutions or open branches of other banks in or contiguous to
our market area, although currently no specific transactions are
planned.
Comparison
of Financial Condition at December 31, 2010, and
December 31, 2009
General. Total assets increased by
$562.5 million, or 23.6%, to $2.94 billion at
December 31, 2010, from $2.38 billion at
December 31, 2009. The increase in total assets was
primarily due to a $233.4 million increase in securities
available for sale, a $177.8 million increase in securities
held to maturity and a $150.6 million increase in mortgage
loans held for sale. Asset growth was funded by a
$220.9 million increase in deposits, a $174.9 million
increase in shareholders equity as a result of our public
stock offering and a $148.7 million increase in FHLB
advances.
Loans. Gross loans (including
$492.0 million in mortgage loans held for sale) increased
by $136.0 million, or 9.3%, from $1.46 billion at
December 31, 2009 to $1.60 billion at
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
393,896
|
|
|
$
|
421,935
|
|
|
$
|
(28,039
|
)
|
|
|
(6.6
|
%)
|
Commercial real estate
|
|
|
479,071
|
|
|
|
453,604
|
|
|
|
25,467
|
|
|
|
5.6
|
|
One- to four-family construction
|
|
|
11,435
|
|
|
|
6,195
|
|
|
|
5,240
|
|
|
|
84.6
|
|
Commercial construction
|
|
|
569
|
|
|
|
879
|
|
|
|
(310
|
)
|
|
|
(35.3
|
)
|
Loans held for sale
|
|
|
491,985
|
|
|
|
341,431
|
|
|
|
150,554
|
|
|
|
44.1
|
|
Home equity
|
|
|
115,418
|
|
|
|
116,138
|
|
|
|
(720
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
1,492,374
|
|
|
|
1,340,182
|
|
|
|
152,192
|
|
|
|
11.4
|
|
Automobile loans
|
|
|
42,550
|
|
|
|
67,897
|
|
|
|
(25,347
|
)
|
|
|
(37.3
|
)
|
Other consumer loans
|
|
|
24,816
|
|
|
|
26,998
|
|
|
|
(2,182
|
)
|
|
|
(8.1
|
)
|
Commercial non-mortgage loans
|
|
|
39,279
|
|
|
|
27,983
|
|
|
|
11,296
|
|
|
|
40.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other loans
|
|
|
106,645
|
|
|
|
122,878
|
|
|
|
(16,233
|
)
|
|
|
(13.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
$
|
1,599,019
|
|
|
$
|
1,463,060
|
|
|
$
|
135,959
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale increased by $150.6 million,
or 44.1%, from December 31, 2009, and consisted of
$460.9 million of Warehouse Purchase Program loans
purchased for sale under our standard loan participation
agreement and $31.1 million of loans originated for sale by
our mortgage banking subsidiary, VPM. 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. The Warehouse Purchase Program had 29
clients with approved maximum borrowing amounts ranging from
$10.0 million to $30.0 million at December 31,
2010. During 2010, the average outstanding balance per client
was $14.8 million. For the year ended December 31,
2010, the Warehouse Purchase Program generated $2.7 million
in fee income and $18.0 million in interest income. VPM
originated $487.7 million in one-to four-family mortgage
loans during the year ended December 31, 2010, and sold
$402.0 million to investors, generating a net gain on sale
of loans of $13.0 million. Also, $74.3 million in
VPM-originated loans were retained in our portfolio. One- to
four- family mortgage loans held in our portfolio declined by
$28.0 million, or 6.6%, from December 31, 2009, since
paydowns and maturities exceeded new loans added to the
portfolio. For asset/liability and interest rate risk
management, the Company follows guidelines set forth by the
Companys Asset/Liability Management Committee to determine
whether to keep loans in portfolio or sell them with a servicing
release premium. The Company evaluates price, yield, duration
and credit when determining the amount of loans sold or retained.
51
In 2010, the Company established a mortgage repurchase liability
related to various representations and warranties that reflect
managements estimate of losses for loans for which the
Company could have repurchase obligation based on historical
investor repurchase and indemnification demand and historical
loss ratios. Although investors may demand repurchase at any
time, the Companys historical demands have occurred within
12 months of the investor purchase. The Company had three
repurchases and ten indemnifications in 2009. In 2010, there
were two repurchases and seven indemnifications. Actual losses
were $59,000 and $79,000 during the years ended
December 31, 2010 and 2009, respectively.
Commercial real estate loans increased by $25.5 million, or
5.6%, from December 31, 2009. For the year ended
December 31, 2010, commercial real estate loans generated
$32.0 million in interest income. Our commercial real
estate portfolio consists almost exclusively of loans secured by
existing, multi-tenanted commercial buildings. 89% of our
commercial real estate loan balances are secured by properties
located in Texas, a market that we do not believe has
experienced the same level of economic pressure experienced in
certain other geographic areas in the United States. The below
table illustrates the geographic concentration of our commercial
real estate portfolio at December 31, 2010:
|
|
|
|
|
Texas
|
|
|
89
|
%
|
Oklahoma
|
|
|
4
|
|
Louisiana
|
|
|
2
|
|
Illinois
|
|
|
2
|
|
California
|
|
|
2
|
|
Other*
|
|
|
1
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
*
|
|
Other consists of
Arizona, Georgia, Nevada, New Mexico, Oregon, and Washington
|
Our commercial non-mortgage portfolio increased by
$11.3 million, or 40.4%, compared to the prior year, while
consumer loans, including direct and indirect automobile, other
secured installment loans, and unsecured lines of credit,
decreased by $27.5 million, or 29.0%, from
December 31, 2009. As a means to diversify our loan
portfolio, we have continued to reduce our emphasis on direct
automobile lending and eliminated indirect automobile lending,
and are instead focused on originating residential real estate
and commercial loans. Nevertheless, we remain committed to
meeting all of the banking needs of our customers, which
includes offering them competitive consumer lending products.
Allowance for Loan Losses. The allowance for
loan losses is maintained to cover losses that are estimated in
accordance with U.S. generally accepted accounting
principles. It is our estimate of credit losses in our loan
portfolio. Our methodology for analyzing the allowance for loan
losses consists of general and specific components.
For the general component, we stratify the loan portfolio into
homogeneous groups of loans that possess similar loss potential
characteristics and apply a loss ratio to these groups of loans
to estimate the credit losses in the loan portfolio. We use both
historical loss ratios and qualitative loss factors assigned to
major loan collateral types to establish loss allocations. The
historical loss ratio is generally defined as an average
percentage of net annual loan losses to loans outstanding.
Qualitative loss factors are based on managements judgment
of company-specific data and external economic indicators and
how this information could impact the Companys specific
loan portfolios. The Allowance for Loan Loss Committee sets and
adjusts qualitative loss factors by reviewing changes in loan
composition and the seasonality of specific portfolios. The
Committee also considers credit quality and trends relating to
delinquency, non-performing
and/or
classified loans and bankruptcy within the Companys loan
portfolio when evaluating qualitative loss factors.
Additionally, the Committee adjusts qualitative factors to
account for the potential impact of external economic factors,
including the unemployment rate, housing price, vacancy rates
and inventory levels specific to our primary market area.
For the specific component, the allowance for loan losses on
individually analyzed impaired loans includes commercial
non-mortgage and one- to four-family and commercial real estate
loans where management has
52
concerns about the borrowers ability to repay. Loss
estimates include the negative difference, if any, between the
current fair value of the collateral or the estimated discounted
cash flows and the loan amount due.
We are focused on maintaining our asset quality by applying
strong underwriting guidelines to all loans that we originate
(see Item 1 Lending Activities of
this report for more information about our loan underwriting).
Substantially all of our residential real estate loans generally
are full-documentation, standard A type products. We
do not offer any
sub-prime
loan products.
Our non-performing loans, which consist of nonaccrual loans,
include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually
classified impaired loans. Loans are placed on nonaccrual status
when the collection of principal
and/or
interest becomes doubtful or other factors involving the loan
warrant placing the loan on nonaccrual status. 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. At December 31, 2010,
$1.3 million in troubled debt restructurings were accruing
interest. 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. Of
the $8.7 million, $6.2 million were performing under
the revised terms, while $2.5 million were past due.
Our non-performing loans to total loans ratio at
December 31, 2010, was 1.59%, compared to 1.04% at
December 31, 2009. Non-performing loans increased by
$5.9 million, from $11.7 million at December 31,
2009, to $17.6 million at December 31, 2010. The
increase in non-performing loans from December 2009 to December
2010 was primarily due to the addition of four commercial real
estate loans totaling $8.2 million that were placed on
nonaccrual during the year ended December 31, 2010. These
four loans, two of which are troubled debt restructurings, were
current at December 31, 2010.
The commercial real estate nonaccrual loans at December 31,
2010, consisted of six loans, including the four loans discussed
above that were added in 2010. The remaining two nonaccrual
loans, totaling $1.6 million, have been on nonaccrual since
2009. Both are troubled debt restructurings and were greater
than 90 days delinquent under their modified loan terms at
December 31, 2010.
Our allowance for loan losses at December 31, 2010, was
$14.8 million, or 1.34% of gross loans, compared to
$12.3 million, or 1.10% of gross loans, at
December 31, 2009. The $2.5 million, or 20.6%,
increase in our allowance for loan losses was primarily due to a
higher level of non-performing loans. Our allowance for loan
losses to non-performing loans was 84.22% at December 31,
2010 compared to 105.44% as of December 31, 2009.
Securities. Our securities portfolio
increased by $411.2 million, or 55.7%, to
$1.15 billion at December 31, 2010, from
$738.8 million at December 31, 2009. The increase in
our securities portfolio resulted from increases to deposits and
shareholders equity. During 2010, $1.05 billion of
securities purchased was partially offset by maturities and
paydowns totaling $632.7 million. The purchases consisted
of $801.3 million of securities deemed available for sale
and $248.6 million of securities that were recorded as held
to maturity. The classification of these purchased securities
was determined in accordance with
ASC 320-10.
The available for sale securities purchased consisted of
short-term U.S. government agency discount notes,
adjustable rate government and agency mortgage-backed
securities, floating rate agency collateralized mortgage
obligations, fixed rate government and agency collateralized
mortgage obligations, fixed rate mortgage-backed securities, and
callable agency
step-up
bonds. The held to maturity securities purchased consisted of
fixed rate government and agency mortgage backed securities and
collateralized mortgage obligations, and municipal bonds with
final maturities of less than fifteen years. This mix was
determined due to its strong cash flow characteristics in
various interest rate environments. Since 2008, the municipal
bond portfolio has increased from $9.4 million to
$50.5 million. Consisting solely of the investment grade,
non-taxable bonds of Texas entities, this well-diversified
portfolio provides tax-free income at comparatively attractive
tax-equivalent yields.
53
Deposits. Total deposits increased by
$220.9 million, or 12.3%, to $2.02 billion at
December 31, 2010, from $1.80 billion at
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
201,998
|
|
|
$
|
193,581
|
|
|
$
|
8,417
|
|
|
|
4.3
|
%
|
Interest bearing demand
|
|
|
438,719
|
|
|
|
268,063
|
|
|
|
170,656
|
|
|
|
63.7
|
|
Savings
|
|
|
148,399
|
|
|
|
143,506
|
|
|
|
4,893
|
|
|
|
3.4
|
|
Money Market
|
|
|
554,261
|
|
|
|
549,619
|
|
|
|
4,642
|
|
|
|
0.8
|
|
IRA savings
|
|
|
9,251
|
|
|
|
8,710
|
|
|
|
541
|
|
|
|
6.2
|
|
Time
|
|
|
664,922
|
|
|
|
633,186
|
|
|
|
31,736
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,017,550
|
|
|
$
|
1,796,665
|
|
|
$
|
220,885
|
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in deposits was primarily attributable to a
$170.7 million, or 63.7%, increase in interest-bearing
demand deposits, which was principally in our Absolute Checking
product. This product currently provides a 4.0% annual
percentage yield (APY) on account balances up to $25,000 (prior
to November 1, 2010, up to $50,000) if certain conditions
are met. These conditions include using direct deposit or online
bill pay, receiving statements online and having at least 15
Visa Check Card transactions per month for purchases. Absolute
Checking encourages relationship accounts with required
electronic transactions that are intended to reduce the expense
of maintaining this product. At December 31, 2010, 71% of
Absolute Checking customers received online statements, compared
to an average of 40% in other consumer checking accounts.
Additionally, at December 31, 2010, Absolute Checking
customers that represented new households generated 315 new
loans totaling more than $11.2 million and 1,241 new
deposit accounts for more than $39.2 million since
inception of the product. If the conditions described above are
not met, the rate paid decreases to 0.04%. The average rate paid
on Absolute Checking accounts during the year ended
December 31, 2010 was 2.77%. Prior to November 1,
2010, the 4.0% APY had been paid on account balances up to
$50,000.
Time deposits increased by $31.7 million, or 5.0%, due to
an increase of $57.1 million in deposits from public funds.
Public fund certificates totaled $393.3 million at
December 31, 2010, and were pledged by securities with a
market value of $423.2 million as of December 31,
2010. 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
municipalitys fiscal policies and cash flow needs.
Borrowings. FHLB advances increased by
$148.7 million, or 47.6%, from $312.5 million at
December 31, 2009, to $461.2 million at
December 31, 2010. The outstanding balance of FHLB advances
increased due to a strategic decision to fund a portion of
mortgage purchase program average balances with short term
advances. This strategy began in September 2010. During the year
ended December 31, 2010, the Company used deposit growth to
fund loans more than utilizing borrowings as a funding source.
At December 31, 2010, the Company was eligible to borrow an
additional $756.4 million from the FHLB. Additionally, the
Company is eligible to borrow from the Federal Reserve Bank
discount window and has two available federal funds lines of
credit with other financial institutions totaling
$66.0 million.
In November 2010, $91.6 million in fixed-rate FHLB advances
were modified. These 22 advances that were modified 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%.
54
In addition to FHLB advances, the Company has a
$25.0 million repurchase agreement with Credit Suisse and
four promissory notes for unsecured loans totaling
$10.0 million obtained from local private investors. The
Company has used the proceeds from these loans for general
working capital and to support the growth of the Bank.
The below table shows FHLB advances by maturity and weighted
average rate at the end of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Less than 90 days
|
|
|
204,058
|
|
|
|
0.25
|
%
|
Less than one year
|
|
|
14,299
|
|
|
|
3.91
|
|
One to three years
|
|
|
53,854
|
|
|
|
2.94
|
|
Three to five years
|
|
|
98,259
|
|
|
|
3.36
|
|
After five years
|
|
|
96,008
|
|
|
|
3.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466,478
|
|
|
|
1.95
|
%
|
Restructuring prepayment penalty
|
|
|
(5,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
461,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity. Total
shareholders equity increased by $190.9 million, or
92.8%, from $205.7 million at December 31, 2009, to
$396.6 million at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Common stock
|
|
$
|
349
|
|
|
$
|
305
|
|
|
$
|
44
|
|
|
|
14.4
|
%
|
Additional paid-in capital
|
|
|
289,591
|
|
|
|
118,254
|
|
|
|
171,337
|
|
|
|
144.9
|
|
Retained Earnings
|
|
|
125,125
|
|
|
|
111,188
|
|
|
|
13,937
|
|
|
|
12.5
|
|
Accumulated other comprehensive income (loss)
|
|
|
2,373
|
|
|
|
3,802
|
|
|
|
(1,429
|
)
|
|
|
(37.6
|
)
|
Unearned ESOP shares
|
|
|
(20,849
|
)
|
|
|
(6,159
|
)
|
|
|
(14,690
|
)
|
|
|
238.5
|
|
Treasury stock
|
|
|
-
|
|
|
|
(21,708
|
)
|
|
|
21,708
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
396,589
|
|
|
$
|
205,682
|
|
|
$
|
190,907
|
|
|
|
92.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in shareholders equity was primarily due to
the Conversion and related stock offering, which occurred on
July 6, 2010. As part of the Conversion, shares of the
Companys common stock were issued and sold in an offering
to certain depositors of the Bank and others. Concurrent with
the offering, each share of ViewPoint Financial Groups
common stock owned by public shareholders was exchanged for
1.4 shares of the Companys common stock. In lieu of
issuing fractional shares, shareholders were paid in cash.
The Company sold a total of 19,857,337 shares of common
stock in the offering at $10.00 per share. Proceeds from the
offering, net of $7.8 million in expenses, totaled
$190.8 million, with $15.9 million of the proceeds
being used to fund the ESOP purchase. Half of the net proceeds
were provided to the Bank. The Company may use the remaining
proceeds from the offering to pay cash dividends to
shareholders, to support internal growth through lending in the
communities we serve, to improve our capital position, to
finance the acquisition of branches from other financial
institutions or build or lease new branch facilities, to enhance
existing products and services and support the development of
new products and services, to invest in securities, to finance
the acquisition of financial institutions or other financial
service companies and for other general corporate purposes. We
do not currently have any agreements or understandings regarding
any specific acquisition transactions. Under current OTS
regulations, we may not repurchase shares of our common stock
during the first year following the completion of the
Conversion, except to fund certain share-based plans or, with
prior regulatory approval, when extraordinary circumstances
exist.
55
Comparison
of Results of Operation for the Years Ended December 31,
2010 and 2009
General. Net income for the year ended
December 31, 2010 was $17.8 million, an increase of
$15.1 million from net income of $2.7 million for the
year ended December 31, 2009. The $15.1 million
increase is partly due to an $8.1 million (net of tax,
using a tax rate of 34%) impairment charge for the year ended
December 31, 2009. The $7.0 million increase in net
income during the 2010 period compared to 2009 results,
excluding the 2009 impairment charge, was driven by higher net
interest and noninterest income, a lower provision for loan
losses and lower non-interest expense. Our basic and diluted
earnings per share for the year ended December 31, 2010 was
$0.59 compared to $0.10 for the year ended December 31,
2009.
Interest Income. Interest income increased by
$7.5 million, or 6.9%, from $107.9 million for the
year ended December 31, 2009, to $115.4 million for
the year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in Thousands)
|
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
88,550
|
|
|
$
|
83,802
|
|
|
$
|
4,748
|
|
|
|
5.7
|
%
|
Securities
|
|
|
26,365
|
|
|
|
23,436
|
|
|
|
2,929
|
|
|
|
12.5
|
|
Interest bearing deposits in other financial institutions
|
|
|
402
|
|
|
|
652
|
|
|
|
(250
|
)
|
|
|
(38.3
|
)
|
FHLB stock
|
|
|
68
|
|
|
|
16
|
|
|
|
52
|
|
|
|
325.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,385
|
|
|
$
|
107,906
|
|
|
$
|
7,479
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This increase in interest income was driven by a
$4.7 million, or 5.7%, increase in interest income on loans
and a $2.9 million, or 12.5%, increase in interest income
on securities. The average balance of loans (including loans
held for sale) increased by $85.9 million, or 6.1%, from
$1.4 billion for the year ended December 31, 2009, to
$1.5 billion for the year ended December 31, 2010.
This was primarily attributable to $156.9 million of growth
in the average balance of Warehouse Purchase Program loans.
Warehouse Purchase Program facilities had an average yield of
4.88% for the year ended December 31, 2010. Also, in the
fourth quarter of 2010, a $20.4 million commercial real
estate loan pre-paid, resulting in a $411,000 credit to interest
income from the accelerated amortization of the origination fee.
We also earned $133,000 in an early termination fee resulting
from this payoff. Additionally, increased volume in all of our
securities categories contributed to the increase in interest
income, with the majority of the increase being driven by a
$166.5 million increase in the average balance of
mortgage-backed securities.
Overall, the yield on interest-earning assets for year ended
December 31, 2010 decreased by 47 basis points, from
5.01% for the year ended December 31, 2009, to 4.54% for
the year ended December 31, 2010; this decrease was
primarily due to lower yields earned on mortgage-backed
securities, collateralized mortgage obligations and
interest-earning deposit accounts.
Interest Expense. Interest expense decreased
by $5.1 million, or 10.4%, from $49.3 million for the
year ended December 31, 2009, to $44.2 million for the
year ended December 31, 2010. Overall, the cost of
interest-bearing
56
liabilities decreased 59 basis points, from 2.64% for the
year ended December 31, 2009, to 2.05% for the year ended
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
31,015
|
|
|
$
|
34,366
|
|
|
$
|
(3,351
|
)
|
|
|
(9.8
|
%)
|
FHLB advances
|
|
|
11,723
|
|
|
|
14,056
|
|
|
|
(2,333
|
)
|
|
|
(16.6
|
)
|
Repurchase agreement
|
|
|
816
|
|
|
|
707
|
|
|
|
109
|
|
|
|
15.4
|
|
Other borrowings
|
|
|
599
|
|
|
|
157
|
|
|
|
442
|
|
|
|
281.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,153
|
|
|
$
|
49,286
|
|
|
$
|
(5,133
|
)
|
|
|
(10.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This decrease was primarily caused by a $3.4 million, or
9.8%, decrease in the interest expense paid on deposits.
Although volume has increased in our interest-bearing demand and
money market accounts, lower rates paid on money market and time
accounts caused the decrease in interest expense. The reduction
in interest expense caused by these lower rates was partially
offset by an increase in volume and rate paid on our
interest-bearing demand accounts, which was principally
attributable to our Absolute Checking product. Effective
November 1, 2010, the maximum balance that could qualify
for the 4.0% APY paid on our Absolute Checking product was
reduced from $50,000 to $25,000. This change resulted in
interest expense savings of approximately $691,000 in the two
months since the tier change. Also, on November 1, 2010,
the Company decreased the rate paid on certain money market
accounts. These accounts, which are not open to new accounts or
additional deposits, previously provided APYs ranging from 4.50%
to 5.50%. Effective November 1, the APYs range from 1.05%
to 1.25%. Additionally, interest expense on FHLB advances
decreased by $2.3 million, or 16.6%, as the average rate
paid for borrowings declined by 70 basis points during the
year ended December 31, 2010, compared to last year.
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 $599,000 of interest expense reflected as other borrowings
is primarily attributable to four promissory notes that were
executed in October 2009 by the Company for unsecured loans
totaling $10.0 million obtained from local private
investors. The lenders are all members of the same family and
long-time customers of the Bank. Each of the four promissory
notes bears interest at 6% per annum for the first two years,
thereafter being adjusted quarterly to a rate equal to the
national average
2-year jumbo
CD rate plus 2%, with a floor of 6% and a ceiling of 9%.
Net Interest Income. Net interest income
increased by $12.6 million, or 21.5%, to $71.2 million
for the year ended December 31, 2010, from
$58.6 million for the year ended December 31, 2009.
The net interest rate spread increased 12 basis points to
2.49% for the year ended December 31, 2010, from 2.37% for
last year. The net interest margin increased eight basis points
to 2.80% for the year ended December 31, 2010, from 2.72%
for the year ended December 31, 2009. The increase in the
net interest margin was primarily attributable to lower deposit
and borrowing rates.
Provision 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.
57
The provision for loan losses was $5.1 million for the year
ended December 31, 2010, a decrease of $2.6 million,
or 33.1%, from $7.7 million for last year. This decrease
was primarily due to an improvement in net charge-offs, which
declined by $1.8 million during the year ended
December 31, 2010, compared to last year. During 2010, we
had commercial real estate charge-offs totaling $624,000
resulting from the partial charge-off of two commercial real
estate loans. One of these properties was sold, while the other
loan was modified due to bankruptcy. Also, the average balance
of our portfolio loans for the year ended December 31, 2010
(not including loans held for sale, which are not included in
the allowance for loan loss calculation) decreased by
$68.5 million from the year ended December 31, 2009,
which may be a factor contributing to our lower charge-offs.
Non-interest Income. Non-interest income
increased by $6.3 million, or 23.0%, from
$27.2 million for the year ended December 31, 2009, to
$33.5 million for the year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in Thousands)
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
18,505
|
|
|
$
|
18,954
|
|
|
$
|
(449
|
)
|
|
|
(2.4
|
%)
|
Brokerage fees
|
|
|
476
|
|
|
|
347
|
|
|
|
129
|
|
|
|
37.2
|
|
Net gain on sale of loans
|
|
|
13,041
|
|
|
|
16,591
|
|
|
|
(3,550
|
)
|
|
|
(21.4
|
)
|
Loan servicing fees
|
|
|
235
|
|
|
|
239
|
|
|
|
(4
|
)
|
|
|
(1.7
|
)
|
Bank-owned life insurance income
|
|
|
384
|
|
|
|
539
|
|
|
|
(155
|
)
|
|
|
(28.8
|
)
|
Valuation adjustment on mortgage servicing rights
|
|
|
15
|
|
|
|
(191
|
)
|
|
|
206
|
|
|
|
N/M
|
|
Impairment of collateralized debt obligation (all credit)
|
|
|
-
|
|
|
|
(12,246
|
)
|
|
|
12,246
|
|
|
|
N/M
|
|
Gain on sale of available for sale securities
|
|
|
-
|
|
|
|
2,377
|
|
|
|
(2,377
|
)
|
|
|
N/M
|
|
Gain (loss) on sale of foreclosed assets
|
|
|
(296
|
)
|
|
|
179
|
|
|
|
(475
|
)
|
|
|
N/M
|
|
Gain (loss) on disposition of assets
|
|
|
(69
|
)
|
|
|
(1,220
|
)
|
|
|
1,151
|
|
|
|
94.3
|
|
Other
|
|
|
1,173
|
|
|
|
1,630
|
|
|
|
(457
|
)
|
|
|
(28.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,464
|
|
|
$
|
27,199
|
|
|
$
|
6,265
|
|
|
|
23.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in non-interest income for the year ended
December 31, 2010 compared to last year was primarily due
to the $12.2 million impairment of collateralized debt
obligations during the year ended December 31, 2009, that
were impaired to their fair value and sold in June 2009. This
impairment charge was partially offset by $2.4 million in
gain on the sale of securities that also occurred in June 2009.
There were no similar transactions in 2010. Net gain on sale of
loans decreased by $3.6 million, or 21.4%, as VPM sold
$402.0 million in loans to outside investors during the
year ended December 31, 2010, compared to
$636.0 million for 2009. The decrease in sales can be
attributed to the lower volume of one- to four-family loan
originations in 2010 compared to the refinance-driven volume
experienced during the prior year.
Non-interest income for the year ended December 31, 2009
included losses of $1.2 million on disposition of assets
relating to the closure of most of our in-store banking centers
as we transitioned away from limited service grocery store
banking centers. We had no similar transactions in 2010.
Additionally, gain (loss) on sale of foreclosed assets decreased
$475,000 from the prior year. This change is related to a
$395,000 decrease this year in the value of our one commercial
REO, compared to a $440,000 recovery recognized in 2009 on a
one-to four-family REO property.
Service charges and fees decreased by $449,000, or 2.4%,
primarily due to a $2.6 million decline in non-sufficient
funds fees. Several different factors impact non-sufficient
funds fee income, including the recent legislative actions
requiring consumers to opt-in for overdraft protection and the
ongoing trend of declining non-sufficient fund transaction
volume. The decline was partially offset by an $837,000 increase
in Warehouse Purchase Program fees and a $640,000 increase in
debit card income, which primarily resulted from our Absolute
Checking product that requires at least 15 Visa Check Card
transactions per month for purchases.
Other non-interest income declined by $457,000, or 28.0%,
primarily due to a $200,000 decline in mortgage subservicing
income as one of our subservicing clients left in February 2010
and fluctuations in the value of equity
58
investments in two community development-oriented venture
capital funds. This equity investment increased in value by
$422,000 during the year ended December 31, 2009, compared
to a value increase of $140,000 for 2010.
Non-interest Expense. Non-interest expense
decreased by $1.4 million, or 1.9%, from $74.5 million
for the year ended December 31, 2009, to $73.1 million
for the year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
46,203
|
|
|
$
|
46,777
|
|
|
$
|
(574
|
)
|
|
|
(1.2
|
%)
|
Advertising
|
|
|
1,285
|
|
|
|
1,284
|
|
|
|
1
|
|
|
|
0.1
|
|
Occupancy and equipment
|
|
|
5,907
|
|
|
|
5,999
|
|
|
|
(92
|
)
|
|
|
(1.5
|
)
|
Outside professional services
|
|
|
2,369
|
|
|
|
1,882
|
|
|
|
487
|
|
|
|
25.9
|
|
Regulatory assessments
|
|
|
3,235
|
|
|
|
4,018
|
|
|
|
(783
|
)
|
|
|
(19.5
|
)
|
Data processing
|
|
|
4,232
|
|
|
|
4,209
|
|
|
|
23
|
|
|
|
0.5
|
|
Office operations
|
|
|
5,790
|
|
|
|
5,984
|
|
|
|
(194
|
)
|
|
|
(3.2
|
)
|
Deposit processing charges
|
|
|
744
|
|
|
|
862
|
|
|
|
(118
|
)
|
|
|
(13.7
|
)
|
Lending and collection
|
|
|
1,033
|
|
|
|
883
|
|
|
|
150
|
|
|
|
17.0
|
|
Other
|
|
|
2,348
|
|
|
|
2,639
|
|
|
|
(291
|
)
|
|
|
(11.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,146
|
|
|
$
|
74,537
|
|
|
$
|
(1,391
|
)
|
|
|
(1.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in non-interest expense was primarily attributable
to a $783,000, or 19.5%, decline in regulatory assessments due
to a $1.1 million FDIC special assessment paid in the
second quarter of 2009, which was charged to all FDIC-insured
banks at a rate of five basis points on a base of total assets
less Tier One capital. No similar special assessments
occurred in 2010.
Additionally, salaries and employee benefits expense for the
year ended December 31, 2010 declined by $574,000 compared
to last year. The decrease in salaries and employee benefits
expense was primarily attributable to $1.7 million in lower
variable incentives paid to VPM staff as they closed
$487.7 million of loans during the year ended
December 31, 2010, compared to $701.1 million for last
year. This $213.4 million, or 30.4%, decline in production
was a result of the heavy refinance volume experienced in 2009
that was not repeated in 2010. Lower salary expenses incurred
during the year helped to offset the $3.6 million decline
in net gain on sale of loans.
Outside professional services expense increased by $487,000, or
25.9%, primarily due to $288,000 in recruiting fees and $219,000
in one-time consulting fees. Other noninterest expense declined
by $291,000, or 11.0%, due to an increase in regulatory
compliance expense associated with VPM that was recognized in
2009 with no similar transaction during 2010.
Income Tax Expense. During the year ended
December 31, 2010, we recognized income tax expense of
$8.6 million on our pre-tax income, which was an effective
tax rate of 32.7%, compared to income tax expense of $960,000,
which was an effective tax rate of 26.5%, for the year ended
December 31, 2009. The variance in pre-tax income from 2009
to 2010 caused the increase in income tax expense. The effective
tax rate was lower than the Companys federal tax rate of
35% due to tax benefits relating to our bank-owned life
insurance policy, the purchase of municipal bonds, generally
tax-exempt revenue, and a tax credit received on an equity
investment in a community development-oriented venture capital
fund.
Comparison
of Results of Operation for the Years Ended December 31,
2009 and 2008
General. The Company reported net income of
$2.7 million for the year ended December 31, 2009, an
increase of $6.0 million from a net loss of
$3.3 million for the year ended December 31, 2008. The
net loss for 2008 was caused by a $13.8 million pre-tax
impairment charge on the Companys collateralized debt
obligations. These collateralized debt obligations were sold in
June 2009, and the Company no longer owns any collateralized
debt obligations. Prior to the sale, in 2009, the Company
recognized a $12.2 million pre-tax charge for the
59
other-than-temporary
decline in the fair value of the collateralized debt
obligations. Please see Note 5 Securities of
the Notes to Consolidated Financial Statements contained in
Item 8 of this report for more information. Excluding the
effects of these two impairment charges, net income for the year
ended December 31, 2009 was $10.8 million, an increase
of $5.0 million, or 85.4%, from $5.8 million for the
year ended December 31, 2008. The increase in net income
was primarily due to higher net interest income, increased net
gain on sale of loans and a lower effective tax rate, and was
partially offset by a higher provision for loan losses and
noninterest expense.
Interest Income. Interest income increased by
$11.1 million, or 11.5%, from $96.8 million for the
year ended December 31, 2008, to $107.9 million for
the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
83,802
|
|
|
$
|
65,938
|
|
|
$
|
17,864
|
|
|
|
27.1
|
%
|
Securities
|
|
|
23,436
|
|
|
|
29,391
|
|
|
|
(5,955
|
)
|
|
|
(20.3
|
)
|
Interest bearing deposits in other financial institutions
|
|
|
652
|
|
|
|
1,195
|
|
|
|
(543
|
)
|
|
|
(45.4
|
)
|
FHLB stock
|
|
|
16
|
|
|
|
271
|
|
|
|
(255
|
)
|
|
|
(94.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,906
|
|
|
$
|
96,795
|
|
|
$
|
11,111
|
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in interest income was primarily due to a
$17.9 million, or 27.1%, increase in interest income earned
on loans compared to the prior year. The average balance of
loans (including loans held for sale) increased by
$313.9 million, or 28.4%, from $1.1 billion for the
year ended December 31, 2008, to $1.4 billion for the
year ended December 31, 2009. This was driven by a
$225.6 million increase in the average balance of mortgage
loans held for sale, which was primarily attributable to
$202.8 million of growth in the average balance of
Warehouse Purchase Program loans and the addition of adjustable
rate loans which will better position us for a rising rate
environment. Warehouse Purchase Program facilities had an
average yield of 4.88% for the year ended December 31,
2009. Additionally, the average balance of commercial real
estate loans increased by $76.6 million, or 21.6%, while
the yield earned on these loans increased by 43 basis
points to 6.67% from 6.24%.
This increase in interest income was partially offset by a
$6.0 million, or 20.3%, decrease in interest income earned
on securities: although the average balance of our securities
portfolio increased, lower yields led to the decline in interest
income. The decline in yields earned on securities was due to
lower market rates in 2009 for securities purchased and for
existing adjustable rate securities that repriced during the
year. Overall, the yield earned on interest earning assets
decreased by 43 basis points, from 5.44% for the year ended
December 31, 2008, to 5.01% for the year ended
December 31, 2009.
Interest Expense. Interest expense increased
by $3.1 million, or 6.8%, from $46.2 million for the
year ended December 31, 2008, to $49.3 million for the
year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
34,366
|
|
|
$
|
35,529
|
|
|
$
|
(1,163
|
)
|
|
|
(3.3
|
%)
|
FHLB advances
|
|
|
14,056
|
|
|
|
10,340
|
|
|
|
3,716
|
|
|
|
35.9
|
|
Repurchase agreement
|
|
|
707
|
|
|
|
300
|
|
|
|
407
|
|
|
|
135.7
|
|
Other borrowings
|
|
|
157
|
|
|
|
-
|
|
|
|
157
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,286
|
|
|
$
|
46,169
|
|
|
$
|
3,117
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in interest expense was primarily due to a
$3.7 million increase in interest expense paid on FHLB
advances, as the average balance of these advances increased by
$98.9 million. From July 2008 to December 2008, the Company
increased the average balance of FHLB advances by
$83.6 million; therefore, in 2009, the Company
60
recognized a full years worth of interest expense on the
higher average balance of borrowings compared to only six months
of increased interest expense in 2008. Additionally, interest
expense on the repurchase agreement increased by $407,000, or
135.7%, because the agreement repriced to 3.22% from 1.62% in
April 2009 and the repurchase agreement was entered into in
April 2008; therefore, nine months of interest expense is
reflected in 2008, compared to twelve months of interest expense
reflected in 2009. $128,000 of interest expense reflected as
other borrowings is attributable to four promissory notes that
were executed in October 2009 for unsecured loans totaling
$10.0 million obtained from local private investors. The
lenders are all members of the same family and long-time
customers of the Bank. Each of the four promissory notes
initially bears interest at 6% per annum, thereafter being
adjusted quarterly to a rate equal to the national average
2-year jumbo
CD rate plus 2%, with a floor of 6% and a ceiling of 9%.
The increase in interest expense related to borrowings was
partially offset by a $1.2 million, or 3.3%, decrease in
interest expense paid on deposits; although the average balance
of interest-bearing deposits increased by $299.4 million,
or 25.0%, lower rates paid on savings, money market and time
accounts led to this decrease. Overall, the rate paid on
interest bearing liabilities decreased by 52 basis points,
from 3.16% for the year ended December 31, 2008, to 2.64%
for the year ended December 31, 2009.
Net Interest Income. Net interest income
increased by $8.0 million, or 15.8%, to $58.6 million
for the year ended December 31, 2009, from
$50.6 million for the year ended December 31, 2008.
The net interest rate spread increased nine basis points to
2.37% for the year ended December 31, 2009, from 2.28% for
the same period last year. The net interest margin decreased
13 basis points to 2.72% for the year ended
December 31, 2009, from 2.85% for the year ended
December 31, 2008. The decrease in the net interest margin
was primarily attributable to Warehouse Purchase Program loans
with an average balance of $211.4 million that were added
to our loan portfolio at an average rate of 4.88%. Warehouse
Purchase Program facilities adjust with changes to the daily
LIBOR. These facilities have a yield that is based on the daily
LIBOR, with a floor of 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, ranges
between 2.00% and 3.00% per annum, which results in a minimum
total rate for Warehouse Purchase Program loans of 4.50%. All of
these facilities ended the year at their contractual floor
rates. Additionally, we have purchased an increased amount of
variable-rate securities over the past year, which will better
position us for a rising rate environment.
Provision 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.
The provision for loan losses was $7.7 million for the year
ended December 31, 2009, an increase of $1.5 million,
or 24.0%, from $6.2 million for the year ended
December 31, 2008. This increase was primarily due to an
increase in our qualitative factors due to the downturn in the
U.S. economy and a trend of increasing non-performing and
classified loans in our loan portfolio. This was not based on
any specific loan losses on our classified assets. Also, net
charge-offs increased by $1.1 million, while specific
valuation allowances on impaired loans increased by $410,000.
Provision for loan losses for the year ended December 31,
2008, reflected overall loan growth during 2008 that was absent
in 2009. In 2009, the net increase in loans was
$50.0 million, compared to a net increase of
$477.8 million for 2008. This change was primarily caused
by an increase in one- to four-family loans that were sold
rather than added to our loan portfolio. In 2009, the Company
sold $629.9 million in loans originated by VPM to outside
investors, compared to $285.4 million for 2008.
Net charge-offs for the year ended December 31, 2009,
totaled $4.4 million, an increase of 34.9% from
$3.3 million for the year ended December 31, 2008. In
2009, the Company recorded a charge-off of $835,000 for a
commercial real estate loan, which led to the increase in
charge-offs for that year.
61
Non-interest Income. Non-interest income
increased by $8.3 million, or 44.2%, from
$18.9 million for the year ended December 31, 2008, to
$27.2 million for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in Thousands)
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
18,954
|
|
|
$
|
19,779
|
|
|
$
|
(825
|
)
|
|
|
(4.2
|
%)
|
Brokerage fees
|
|
|
347
|
|
|
|
434
|
|
|
|
(87
|
)
|
|
|
(20.0
|
)
|
Net gain on sale of loans
|
|
|
16,591
|
|
|
|
9,390
|
|
|
|
7,201
|
|
|
|
76.7
|
|
Loan servicing fees
|
|
|
239
|
|
|
|
252
|
|
|
|
(13
|
)
|
|
|
(5.2
|
)
|
Bank-owned life insurance income
|
|
|
539
|
|
|
|
1,081
|
|
|
|
(542
|
)
|
|
|
(50.1
|
)
|
Gain on redemption of Visa, Inc. shares
|
|
|
-
|
|
|
|
771
|
|
|
|
(771
|
)
|
|
|
(100.0
|
)
|
Valuation adjustment on mortgage servicing rights
|
|
|
(191
|
)
|
|
|
-
|
|
|
|
(191
|
)
|
|
|
N/M
|
|
Impairment of collateralized debt obligation (all credit)
|
|
|
(12,246
|
)
|
|
|
(13,809
|
)
|
|
|
1,563
|
|
|
|
11.3
|
|
Gain on sale of available for sale securities
|
|
|
2,377
|
|
|
|
-
|
|
|
|
2,377
|
|
|
|
N/M
|
|
Gain (loss) on sale of foreclosed assets
|
|
|
179
|
|
|
|
(43
|
)
|
|
|
222
|
|
|
|
N/M
|
|
Gain (loss) on disposition of assets
|
|
|
(1,220
|
)
|
|
|
16
|
|
|
|
(1,236
|
)
|
|
|
N/M
|
|
Other
|
|
|
1,630
|
|
|
|
993
|
|
|
|
637
|
|
|
|
64.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,199
|
|
|
$
|
18,864
|
|
|
$
|
8,335
|
|
|
|
44.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sale of loans increased by $7.2 million, or
76.7%, as the Company sold $636.0 million in loans
originated by VPM to outside investors during the year ended
December 31, 2009, compared to $285.4 million for the
year ended December 31, 2008. Also, in June 2009, we
recognized $2.4 million in gain on the sale of 22 agency
residential collateralized mortgage obligations and two agency
residential mortgage-backed securities, with a cost basis of
$71.2 million. Other non-interest income increased by
$725,000, primarily due to a $421,000 increase in the value of
equity investments in two community development-oriented venture
capital funds.
Non-interest income for the years ended December 31, 2009,
and 2008 included pre-tax impairment charges of
$12.2 million and $13.8 million, respectively, on
collateralized debt obligations, which were impaired to their
fair value and sold in June 2009. During the year ended
December 31, 2008, the Company recognized an
other-than-temporary
impairment charge of $13.8 million for collateralized debt
obligations. In April 2009, the FASB issued Staff Position
No. 115-2
and
No. 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (ASC
320-10),
which amended existing guidance for determining whether
impairment is
other-than-temporary
for debt securities. The Company elected to early-adopt this FSP
as of January 1, 2009, and the Company reversed
$4.4 million (gross of tax) of this impairment charge
through retained earnings, representing the non-credit portion,
which resulted in a $9.4 million gross impairment charge
related to credit at January 1, 2009. In addition,
accumulated other comprehensive loss was increased by the
corresponding amount, net of tax. During the first quarter of
2009, the Company recognized a $465,000 non-cash impairment
charge to write off one of our collateralized debt obligations
due to
other-than-temporary
impairment, which was credit-related.
During the second quarter of 2009, the Company updated its
analysis and recognized $11.8 million in impairment charges
to write off our collateralized debt obligations due to
other-than-temporary
impairment, which was determined to be all credit-related. This
charge was determined by applying an
ASC 325-40
discounted cash flow analysis, which included estimates based on
current sales price data, to the securities and reduced their
value to fair value. As required by
ASC 325-40,
when an adverse change in estimated cash flows has occurred, the
credit component of the unrealized loss must be recognized as a
charge to earnings. The analysis of all collateralized debt
obligations in our portfolio included a review of the financial
condition of each of the issuers, with issuer specific and
non-specific estimates of future deferrals, defaults,
recoveries, and prepayments of principal being factored into the
analysis. Prior to the date of sale, no actual loss of principal
or interest had occurred.
These securities were sold in late June 2009. The decision to
sell all of the Companys collateralized debt obligations
was made after considering the following: (1) June
valuation reports from the trustee showed significantly higher
levels of new defaults among the underlying issuers than
previously reported, further reducing
62
collateral coverage ratios; (2) an analysis of underlying
issuers current return on assets ratios, Tier One
capital ratios, leverage ratios, change in leverage ratios, and
non-performing loans ratios showed ongoing and worsening credit
deterioration, suggesting probable and possible future defaults;
(3) the modeling of Level 3 projections of future cash
flows, using internally defined assumptions for future
deferrals, defaults, recoveries, and prepayments, showed no
expected future cash flows; (4) a ratings downgrade from
BBB to C for each of the securities during the quarter; and
(5) the expected cash realization of tax benefits as a
result of the actual sale of the securities. The sale of the
collateralized debt obligation securities generated proceeds of
$224,000. The Company used the sales proceeds as the estimated
fair value of the securities in determining the impairment
charge. Therefore, no gain or loss was recognized on the sale of
the securities.
Also, non-interest income for the year ended December 31,
2009, included $1.2 million in lease termination fees and
leasehold improvement write-offs for ten in-store banking
centers closed during the year, which were reported as losses on
disposition of assets.
During the year ended December 31, 2009, we recognized a
net valuation adjustment of $191,000 to write down our mortgage
servicing rights due to industry-wide increased prepayment
speeds and lower interest rates, with no similar adjustment made
in 2008. Comparatively, in March 2008, we recognized a gain of
$771,000 resulting from the redemption of 18,029 shares of
Visa, Inc. Class B stock in association with Visas
initial public offering, with no similar transactions in 2009.
Fee income of $1.9 million generated by our Warehouse
Purchase Program partially offset the decrease in service
charges and fees, which was primarily attributable to a
$1.8 million decrease in non-sufficient funds fees and a
$326,000 decline in debit card income. The decrease in
non-sufficient funds fees and debit card income was primarily
due to a trend of lower volume in these types of transactions.
Also, fees for late loan payments and other miscellaneous
lending services declined by $225,000 primarily due to the
decline in our consumer lending portfolio. Bank-owned life
insurance income declined by $542,000 due to a decrease in the
average crediting rate, which is the yield that the Company
receives on the bank-owned life insurance balance carried on the
Companys balance sheet. The average crediting rate
declined due to lower market rates of interest during the year.
Non-interest Expense. Non-interest expense
increased by $5.6 million, or 8.2%, from $68.9 million
for the year ended December 31, 2008, to $74.5 million
for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
Non-interest expense
|
|
(Dollars in Thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
46,777
|
|
|
$
|
43,560
|
|
|
$
|
3,217
|
|
|
|
7.4
|
%
|
Advertising
|
|
|
1,284
|
|
|
|
2,296
|
|
|
|
(1,012
|
)
|
|
|
(44.1
|
)
|
Occupancy and equipment
|
|
|
5,999
|
|
|
|
5,772
|
|
|
|
227
|
|
|
|
3.9
|
|
Outside professional services
|
|
|
1,882
|
|
|
|
2,004
|
|
|
|
(122
|
)
|
|
|
(6.1
|
)
|
Regulatory assessments
|
|
|
4,018
|
|
|
|
1,225
|
|
|
|
2,793
|
|
|
|
228.0
|
|
Data processing
|
|
|
4,209
|
|
|
|
4,001
|
|
|
|
208
|
|
|
|
5.2
|
|
Office operations
|
|
|
5,984
|
|
|
|
6,111
|
|
|
|
(127
|
)
|
|
|
(2.1
|
)
|
Deposit processing charges
|
|
|
862
|
|
|
|
990
|
|
|
|
(128
|
)
|
|
|
(12.9
|
)
|
Lending and collection
|
|
|
883
|
|
|
|
828
|
|
|
|
55
|
|
|
|
6.6
|
|
Other
|
|
|
2,639
|
|
|
|
2,124
|
|
|
|
515
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,537
|
|
|
$
|
68,911
|
|
|
$
|
5,626
|
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in non-interest expense was primarily due to a
$3.2 million, or 7.4%, increase in salaries and employee
benefits expense and a $2.8 million, or 228.0%, increase in
regulatory assessments. The increase in salaries and employee
benefits expense was chiefly attributable to $2.2 million
of increased salary and commission expense for VPM.
$1.2 million of the increase was due to increased
commissions due to higher mortgage loan originations, while
$989,000 was due to an increase in the salaried employee
headcount, primarily attributable to new loan production offices
opened and a change in salary structure. This increase in VPM
expense is more than offset by a $7.2 million increase in
the net gain on sale of loans, which is reported in non-interest
income.
63
In 2009, we opened three new full-service community bank offices
in Grapevine, Frisco and Wylie and incurred a full years
worth of expense for our community bank offices in Oak Cliff and
Northeast Tarrant County, which were opened in 2008.
Additionally, we initiated our Warehouse Purchase Program in
July 2008; therefore 2009 salary expense includes a full year of
expense for this department compared to six months of expense in
2008. These staffing increases led to additional salary expense
of $1.3 million; however, this additional expense was
partially offset by $1.2 million in expense savings due to
the closure of ten in-store banking centers in 2009. Also
contributing to the increase in salaries and employee benefits
expense was a $416,000 increase in healthcare benefits expense
as the Company experienced increased claims in 2009 compared to
2008.
Advertising expense decreased by $1.0 million, or 44.1%, as
we shifted our focus to emphasize community marketing efforts
rather than mass branding campaigns. Regulatory assessments
expense included a $1.1 million FDIC special assessment
booked as expense in the second quarter of 2009. This special
assessment, adopted in May 2009, assessed FDIC-insured banks
five basis points on a base of total assets less Tier One
capital. Additionally, regulatory assessments were higher in
2009 due to a higher assessment rate and an increased deposit
base. Other non-interest expense increased by $515,000,
primarily due to an increase in regulatory compliance expense
associated with VPM.
Income Tax Expense. During the year ended
December 31, 2009, we recognized income tax expense of
$960,000 on our pre-tax income compared to an income tax benefit
of $2.3 million for the year ended December 31, 2008.
In 2008, the Company recognized a pre-tax loss of
$5.6 million due to the $13.8 million impairment
charge on collateralized debt obligations. The variance in
pre-tax income from 2008 to 2009 caused the increase in income
tax expense. The effective tax rate for the year ended
December 31, 2009 was 26.4%; this was lower than the
Companys federal tax rate of 34.0% due to tax benefits
relating to our bank-owned life insurance policy, the purchase
of municipal bonds and a tax credit received on an equity
investment in a community development-oriented venture capital
fund.
64
Average
Balances, Net Interest Income, Yields Earned and Rates
Paid
The following table presents, for the periods indicated, the
total dollar amount of interest income from average interest
earning assets and the resultant yields, as well as the interest
expense on average interest bearing liabilities, expressed both
in dollars and rates. Also presented are the weighted average
yields on interest earning assets, rates paid on interest
bearing liabilities and the resultant spread. All average
balances are daily average balances. Non-accruing loans have
been included in the table as loans carrying a zero yield.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Interest
|
|
|
|
|
|
Outstanding
|
|
|
Interest
|
|
|
|
|
|
Outstanding
|
|
|
Interest
|
|
|
|
|
|
|
Balance
|
|
|
Earned/Paid
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Earned/Paid
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Earned/Paid
|
|
|
Yield/Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four- family real estate
|
|
$
|
413,625
|
|
|
$
|
22,934
|
|
|
|
5.54%
|
|
|
$
|
472,291
|
|
|
$
|
26,769
|
|
|
|
5.67%
|
|
|
$
|
431,155
|
|
|
$
|
24,279
|
|
|
|
5.63%
|
|
Loans held for sale
|
|
|
407,287
|
|
|
|
19,781
|
|
|
|
4.86
|
|
|
|
249,553
|
|
|
|
12,080
|
|
|
|
4.84
|
|
|
|
23,959
|
|
|
|
1,186
|
|
|
|
4.95
|
|
Commercial real estate
|
|
|
473,400
|
|
|
|
32,006
|
|
|
|
6.76
|
|
|
|
431,914
|
|
|
|
28,788
|
|
|
|
6.67
|
|
|
|
355,332
|
|
|
|
22,169
|
|
|
|
6.24
|
|
Home equity
|
|
|
108,705
|
|
|
|
6,513
|
|
|
|
5.99
|
|
|
|
99,376
|
|
|
|
5,977
|
|
|
|
6.01
|
|
|
|
91,842
|
|
|
|
5,784
|
|
|
|
6.30
|
|
Consumer
|
|
|
80,298
|
|
|
|
5,038
|
|
|
|
6.27
|
|
|
|
115,937
|
|
|
|
7,202
|
|
|
|
6.21
|
|
|
|
176,779
|
|
|
|
10,771
|
|
|
|
6.09
|
|
Commercial non-mortgage
|
|
|
35,283
|
|
|
|
2,278
|
|
|
|
6.46
|
|
|
|
60,275
|
|
|
|
2,986
|
|
|
|
4.95
|
|
|
|
33,136
|
|
|
|
1,749
|
|
|
|
5.28
|
|
Less: deferred fees and allowance for loan loss
|
|
|
(14,352
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,015
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,723
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(1)
|
|
|
1,504,246
|
|
|
|
88,550
|
|
|
|
5.89
|
|
|
|
1,418,331
|
|
|
|
83,802
|
|
|
|
5.91
|
|
|
|
1,104,480
|
|
|
|
65,938
|
|
|
|
5.97
|
|
Agency mortgage-backed securities
|
|
|
466,536
|
|
|
|
13,959
|
|
|
|
2.99
|
|
|
|
300,006
|
|
|
|
12,131
|
|
|
|
4.04
|
|
|
|
224,057
|
|
|
|
10,881
|
|
|
|
4.86
|
|
Agency collateralized mortgage obligations
|
|
|
361,453
|
|
|
|
9,025
|
|
|
|
2.50
|
|
|
|
291,949
|
|
|
|
9,601
|
|
|
|
3.29
|
|
|
|
330,580
|
|
|
|
15,505
|
|
|
|
4.69
|
|
Investment securities
|
|
|
100,879
|
|
|
|
3,381
|
|
|
|
3.35
|
|
|
|
52,754
|
|
|
|
1,704
|
|
|
|
3.23
|
|
|
|
57,311
|
|
|
|
3,005
|
|
|
|
5.24
|
|
FHLB stock
|
|
|
16,939
|
|
|
|
68
|
|
|
|
0.40
|
|
|
|
15,469
|
|
|
|
16
|
|
|
|
0.10
|
|
|
|
11,509
|
|
|
|
271
|
|
|
|
2.35
|
|
Interest earning deposit accounts
|
|
|
90,614
|
|
|
|
402
|
|
|
|
0.44
|
|
|
|
74,356
|
|
|
|
652
|
|
|
|
0.88
|
|
|
|
50,766
|
|
|
|
1,195
|
|
|
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,540,667
|
|
|
|
115,385
|
|
|
|
4.54
|
|
|
|
2,152,865
|
|
|
|
107,906
|
|
|
|
5.01
|
|
|
|
1,778,703
|
|
|
|
96,795
|
|
|
|
5.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
157,703
|
|
|
|
|
|
|
|
|
|
|
|
132,361
|
|
|
|
|
|
|
|
|
|
|
|
117,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,698,370
|
|
|
|
|
|
|
|
|
|
|
$
|
2,285,226
|
|
|
|
|
|
|
|
|
|
|
$
|
1,895,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
|
|
374,083
|
|
|
|
8,976
|
|
|
|
2.40%
|
|
|
|
163,996
|
|
|
|
3,350
|
|
|
|
2.04%
|
|
|
|
78,396
|
|
|
|
868
|
|
|
|
1.11%
|
|
Savings and money market
|
|
|
718,224
|
|
|
|
9,102
|
|
|
|
1.27
|
|
|
|
670,518
|
|
|
|
12,007
|
|
|
|
1.79
|
|
|
|
599,659
|
|
|
|
14,442
|
|
|
|
2.41
|
|
Time
|
|
|
658,988
|
|
|
|
12,937
|
|
|
|
1.96
|
|
|
|
661,231
|
|
|
|
19,009
|
|
|
|
2.87
|
|
|
|
518,302
|
|
|
|
20,219
|
|
|
|
3.90
|
|
Borrowings
|
|
|
399,880
|
|
|
|
13,138
|
|
|
|
3.29
|
|
|
|
374,029
|
|
|
|
14,920
|
|
|
|
3.99
|
|
|
|
264,834
|
|
|
|
10,640
|
|
|
|
4.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,151,175
|
|
|
|
44,153
|
|
|
|
2.05
|
|
|
|
1,869,774
|
|
|
|
49,286
|
|
|
|
2.64
|
|
|
|
1,461,191
|
|
|
|
46,169
|
|
|
|
3.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing checking
|
|
|
183,720
|
|
|
|
|
|
|
|
|
|
|
|
175,797
|
|
|
|
|
|
|
|
|
|
|
|
170,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
50,853
|
|
|
|
|
|
|
|
|
|
|
|
40,096
|
|
|
|
|
|
|
|
|
|
|
|
63,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,385,748
|
|
|
|
|
|
|
|
|
|
|
|
2,085,667
|
|
|
|
|
|
|
|
|
|
|
|
1,695,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
312,622
|
|
|
|
|
|
|
|
|
|
|
|
199,559
|
|
|
|
|
|
|
|
|
|
|
|
200,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital
|
|
$
|
2,698,370
|
|
|
|
|
|
|
|
|
|
|
$
|
2,285,226
|
|
|
|
|
|
|
|
|
|
|
$
|
1,895,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin
|
|
|
|
|
|
$
|
71,232
|
|
|
|
2.80%
|
|
|
|
|
|
|
$
|
58,620
|
|
|
|
2.72%
|
|
|
|
|
|
|
$
|
50,626
|
|
|
|
2.85%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin (tax-equivalent
basis)(2)
|
|
|
|
|
|
$
|
72,096
|
|
|
|
2.84%
|
|
|
|
|
|
|
$
|
58,886
|
|
|
|
2.74%
|
|
|
|
|
|
|
$
|
50,690
|
|
|
|
2.85%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.49%
|
|
|
|
|
|
|
|
|
|
|
|
2.37%
|
|
|
|
|
|
|
|
|
|
|
|
2.28%
|
|
Net earning assets
|
|
$
|
389,492
|
|
|
|
|
|
|
|
|
|
|
$
|
283,091
|
|
|
|
|
|
|
|
|
|
|
$
|
317,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average interest-bearing
liabilities
|
|
|
118.11%
|
|
|
|
|
|
|
|
|
|
|
|
115.14%
|
|
|
|
|
|
|
|
|
|
|
|
121.73%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated net of deferred fees,
loan discounts, loans in process and allowance for loan losses.
Includes loans held for sale. Construction loans have been
included in the one- to four- family and commercial real estate
line items, as appropriate.
|
(2) |
|
In order to make pretax income and
resultant yields on tax-exempt investments and loans comparable
to those on taxable investments and loans, a tax-equivalent
adjustment has been computed using a federal income tax rate of
35% for 2010 and 34% for 2009 and 2008. Tax-exempt investments
and loans had an average balance of $41.7 million,
$13.8 million and $3.4 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
|
65
Rate/Volume
Analysis
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of
interest earning assets and interest bearing liabilities. It
distinguishes between the changes related to outstanding
balances and those due to changes in interest rates. The change
in interest attributable to rate has been determined by applying
the change in rate between periods to average balances
outstanding in the earlier period. The change in interest due to
volume has been determined by applying the rate from the earlier
period to the change in average balances outstanding between
periods. Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionately based
on the changes due to rate and the changes due to volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010 versus 2009
|
|
|
2009 versus 2008
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Increase (Decrease) Due to
|
|
|
Increase
|
|
|
Increase (Decrease) Due to
|
|
|
Increase
|
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four- family real estate
|
|
$
|
(3,264
|
)
|
|
$
|
(571
|
)
|
|
$
|
(3,835
|
)
|
|
$
|
2,331
|
|
|
$
|
159
|
|
|
$
|
2,490
|
|
Loans held for sale
|
|
|
7,661
|
|
|
|
40
|
|
|
|
7,701
|
|
|
|
10,921
|
|
|
|
(27
|
)
|
|
|
10,894
|
|
Commercial real estate
|
|
|
2,800
|
|
|
|
418
|
|
|
|
3,218
|
|
|
|
5,026
|
|
|
|
1,593
|
|
|
|
6,619
|
|
Home equity
|
|
|
559
|
|
|
|
(23
|
)
|
|
|
536
|
|
|
|
461
|
|
|
|
(268
|
)
|
|
|
193
|
|
Consumer
|
|
|
(2,235
|
)
|
|
|
71
|
|
|
|
(2,164
|
)
|
|
|
(3,776
|
)
|
|
|
207
|
|
|
|
(3,569
|
)
|
Commercial non-mortgage
|
|
|
(1,455
|
)
|
|
|
747
|
|
|
|
(708
|
)
|
|
|
1,351
|
|
|
|
(114
|
)
|
|
|
1,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
|
4,066
|
|
|
|
682
|
|
|
|
4,748
|
|
|
|
16,314
|
|
|
|
1,550
|
|
|
|
17,864
|
|
Agency mortgage-backed securities
|
|
|
5,541
|
|
|
|
(3,713
|
)
|
|
|
1,828
|
|
|
|
3,275
|
|
|
|
(2,025
|
)
|
|
|
1,250
|
|
Agency collateralized mortgage obligations
|
|
|
2,012
|
|
|
|
(2,588
|
)
|
|
|
(576
|
)
|
|
|
(1,660
|
)
|
|
|
(4,244
|
)
|
|
|
(5,904
|
)
|
Investment securities
|
|
|
1,611
|
|
|
|
66
|
|
|
|
1,677
|
|
|
|
(223
|
)
|
|
|
(1,078
|
)
|
|
|
(1,301
|
)
|
FHLB stock
|
|
|
2
|
|
|
|
50
|
|
|
|
52
|
|
|
|
70
|
|
|
|
(325
|
)
|
|
|
(255
|
)
|
Interest earning deposit accounts
|
|
|
121
|
|
|
|
(371
|
)
|
|
|
(250
|
)
|
|
|
407
|
|
|
|
(950
|
)
|
|
|
(543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
13,353
|
|
|
|
(5,874
|
)
|
|
|
7,479
|
|
|
|
18,183
|
|
|
|
(7,072
|
)
|
|
|
11,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
|
|
4,951
|
|
|
|
675
|
|
|
|
5,626
|
|
|
|
1,399
|
|
|
|
1,083
|
|
|
|
2,482
|
|
Savings and money market
|
|
|
805
|
|
|
|
(3,710
|
)
|
|
|
(2,905
|
)
|
|
|
1,568
|
|
|
|
(4,003
|
)
|
|
|
(2,435
|
)
|
Time
|
|
|
(64
|
)
|
|
|
(6,008
|
)
|
|
|
(6,072
|
)
|
|
|
4,825
|
|
|
|
(6,035
|
)
|
|
|
(1,210
|
)
|
Borrowings
|
|
|
980
|
|
|
|
(2,762
|
)
|
|
|
(1,782
|
)
|
|
|
4,356
|
|
|
|
(76
|
)
|
|
|
4,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
6,672
|
|
|
|
(11,805
|
)
|
|
|
(5,133
|
)
|
|
|
12,148
|
|
|
|
(9,031
|
)
|
|
|
3,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
6,681
|
|
|
$
|
5,931
|
|
|
$
|
12,612
|
|
|
$
|
6,035
|
|
|
$
|
1,959
|
|
|
$
|
7,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
Management maintains a liquidity position that it believes will
adequately provide funding for loan demand and deposit run-off
that may occur in the normal course of business. The Company
relies on a number of different sources in order to meet its
potential liquidity demands. The primary sources are increases
in deposit accounts and cash flows from loan payments and the
securities portfolio.
Planning for the Companys normal business liquidity needs,
both expected and unexpected, is done on a daily and short-term
basis through the cash management function. On a longer-term
basis it is accomplished through the budget and strategic
planning functions, with support from internal asset/liability
management software model projections.
66
The Liquidity Committee adds liquidity contingency planning to
the process by focusing on possible scenarios that would stress
liquidity beyond the Banks normal business liquidity
needs. These scenarios may include local/regional adversity and
national adversity situations while focusing on high
probability-high impact, high probability-low impact, and low
probability-high impact stressors.
Management recognizes that the events and their severity of
liquidity stress leading up to and occurring during a liquidity
stress event cannot be precisely defined or listed.
Nevertheless, management believes that liquidity stress events
can be categorized into sources and levels of severity, with
responses that apply to various situations.
In addition to the primary sources of funds, management has
several secondary sources available to meet potential funding
requirements. As of December 31, 2010, the Company had an
additional borrowing capacity of $756.4 million with the
FHLB. The Company may also use the discount window at the
Federal Reserve Bank as a source of short-term funding. Federal
Reserve Bank borrowing capacity varies based upon collateral
pledged to the discount window line. As of December 31,
2010, collateral pledged had a market value of
$58.9 million. Also, at December 31, 2010, the Company
had $66.0 million in federal funds lines of credit
available with other financial institutions.
As of December 31, 2010, the Company had classified 62.4%
of its securities portfolio as available for sale, providing an
additional source of liquidity. Management believes that because
active markets exist and our securities portfolio is of high
quality, our available for sale securities are marketable. In
addition, we have historically sold mortgage loans in the
secondary market to reduce interest rate risk and to create
still another source of liquidity.
Liquidity management is both a daily and long-term function of
business management. Excess liquidity is generally invested in
short-term investments, such as overnight deposits and federal
funds. On a longer term basis, we maintain a strategy of
investing in various lending products and investment securities,
including mortgage-backed securities. Participations in loans we
originate, including portions of commercial real estate loans,
are sold to manage borrower concentration risk as well as
interest rate risk.
The Company is a separate legal entity from the Bank and must
provide for its own liquidity. In addition to its operating
expenses, the Company is responsible for paying any dividends
declared to its shareholders and interest and principal on
outstanding debt. The Companys primary source of funds
consists of the net proceeds retained by the Company from our
initial public offering in 2006 and our Conversion and offering,
which concluded in July 2010. We also have the ability to
receive dividends or capital distributions from the Bank,
although there are regulatory restrictions on the ability of the
Bank to pay dividends. At December 31, 2010, the Company
(on an unconsolidated basis) had liquid assets of
$90.6 million.
The Company uses its sources of funds primarily to meet its
ongoing commitments, pay maturing deposits and fund withdrawals,
and to fund loan commitments. At December 31, 2010, the
total approved loan commitments (including Warehouse Purchase
Program commitments) and unused lines of credit outstanding
amounted to $463.8 million and $79.2 million,
respectively, as compared to $283.3 million and
$79.8 million, respectively, as of December 31, 2009.
It is managements policy to offer deposit rates that are
competitive with other local financial institutions. Based on
this management strategy, we believe that a majority of maturing
deposits will remain with the Company. Certificates of deposit
scheduled to mature in one year or less at December 31,
2010 totaled $480.9 million with a weighted average rate of
1.45%.
During 2010, cash and cash equivalents increased by
$13.2 million, or 23.8%, from $55.5 million as of
December 31, 2009, to $68.7 million as of
December 31, 2010. Cash provided by financing activities of
$540.5 million more than offset cash used for investing
activities of $413.0 million and cash used for operating
activities of $114.3 million. Primary sources of cash for
the year ended December 31, 2010 included proceeds from the
sale of loans held for sale of $7.74 billion (primarily
related to our Warehouse Purchase Program), maturities,
prepayments and calls of
available-for-sale
securities of $562.9 million, proceeds from FHLB advances
of $291.6 million, an increase in deposits of
$220.9 million and net proceeds from our stock offering of
$190.8 million. Primary uses of cash for the year ended
December 31, 2010, included loans originated or purchased
for sale of $7.88 billion (primarily related to our
Warehouse Purchase Program), purchases of
available-for-sale
securities of $562.9 million, purchases of
held-to-maturity
securities of $248.6 million and repayments on FHLB
advances of $142.9 million.
67
During 2009, cash and cash equivalents increased by
$23.0 million, or 70.6%, from $32.5 million as of
December 31, 2008, to $55.5 million as of
December 31, 2009. Cash provided by investing activities of
$34.5 million and cash provided by financing activities of
$157.8 million more than offset cash used for operating
activities of $169.3 million. Primary sources of cash for
the year ended December 31, 2009 included proceeds from the
sale of loans held for sale of $5.58 billion (primarily
related to our Warehouse Purchase Program), increased deposits
of $248.6 million, and maturities, prepayments and calls of
available-for-sale
securities of $509.4 million. Primary uses of cash for the
year ended December 31, 2009, included loans originated or
purchased for sale of $5.74 billion (primarily related to
our Warehouse Purchase Program) and purchases of securities
totaling $714.5 million.
Please see Item 1A (Risk Factors) under Part 1 of this
Form 10-K
for information regarding liquidity risk.
Off-Balance
Sheet Arrangements, Contractual Obligations and
Commitments
The following table presents our longer term, non-deposit
related, contractual obligations and commitments to extend
credit to our borrowers, in aggregate and by payment due dates
(not including any interest amounts). In addition to the
commitments below, the Company had overdraft protection
available in the amounts of $72.4 million and
$73.0 million at December 31, 2010, and 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
One
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
Four
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
Three
|
|
|
through
|
|
|
After Five
|
|
|
|
|
|
|
One Year
|
|
|
Years
|
|
|
Five Years
|
|
|
Years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances (gross of restructuring prepayment penalty of
$5,259)
|
|
$
|
218,357
|
|
|
$
|
53,854
|
|
|
$
|
98,259
|
|
|
$
|
96,008
|
|
|
$
|
466,478
|
|
Repurchase agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
25,000
|
|
Other borrowings
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
Operating leases (premises)
|
|
|
1,079
|
|
|
|
1,592
|
|
|
|
724
|
|
|
|
2,851
|
|
|
|
6,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advances and operating leases
|
|
$
|
219,436
|
|
|
$
|
55,446
|
|
|
$
|
108,983
|
|
|
$
|
123,859
|
|
|
$
|
507,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet loan
commitments:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed portions of loans closed
|
|
$
|
41,800
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
41,800
|
|
Commitments to originate loans
|
|
|
64,864
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,864
|
|
Unused commitment on Warehouse Purchase Program loans
|
|
|
289,088
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
289,088
|
|
Unused lines of credit
|
|
|
79,170
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan commitments
|
|
$
|
474,922
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
474,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations and loan commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
982,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Loans having no stated maturity are reported in the Less
than One Year category. |
Capital
Resources
The Bank is subject to minimum capital requirements imposed by
the OTS. Consistent with our goal to operate a sound and
profitable organization, our policy is for the Bank to maintain
a well-capitalized status under the capital
categories of the OTS. Based on capital levels at
December 31, 2010, and 2009, the Bank was considered to be
well-capitalized. See How We Are Regulated
Regulatory Capital Requirements.
At December 31, 2010, the Banks equity totaled
$292.9 million. Management monitors the capital levels of
the Bank to provide for current and future business
opportunities and to meet regulatory guidelines for
well-capitalized institutions. The total risk-based
capital ratio for December 31, 2010, and December 31,
2009, was
68
18.42% and 15.27%, respectively. The tier one capital ratio for
December 31, 2010, and December 31, 2009, was 9.73%
and 7.99%, respectively.
The Companys equity totaled $396.6 million, or 13.5%
of total assets, at December 31, 2010. The Company is not
subject to any specific capital requirements; however, the OTS
expects the Company to support the Bank, including providing
additional capital to the Bank when appropriate. As part of the
Conversion, the Company distributed 50% of the net offering
proceeds after funding of the ESOP to the Bank, which resulted
in a $95.4 million increase to the Banks equity.
Impact of
Inflation
The effects of price changes and inflation can vary
substantially for most financial institutions. While management
believes that inflation affects the economic value of total
assets, it believes that it is difficult to assess the overall
impact. Management believes this to be the case due to the fact
that generally neither the timing nor the magnitude of changes
in the consumer price index (CPI) coincides with
changes in interest rates or asset values. For example, the
price of one or more of the components of the CPI may fluctuate
considerably, influencing composite CPI, without having a
corresponding affect on interest rates, asset values, or the
cost of those goods and services normally purchased by the Bank.
In years of high inflation and high interest rates, intermediate
and long-term interest rates tend to increase, adversely
impacting the market values of investment securities, mortgage
loans and other long-term fixed rate loans. In addition, higher
short-term interest rates tend to increase the cost of funds. In
other years, the opposite may occur.
Recent
Accounting Pronouncements
For discussion of Recent Accounting Pronouncements, please see
Note 1 Adoption of New Accounting Standards and
Note 1 Effect of Newly Issued But Not Yet
Effective Accounting Standards of the Notes to Consolidated
Financial Statements under Item 8 of this report.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Asset/Liability
Management
Our Risk When Interest Rates Change. The
rates of interest we earn on assets and pay on liabilities
generally are established contractually for a period of time.
Market rates change over time. Like other financial
institutions, our results of operations are impacted by changes
in interest rates and the interest rate sensitivity of our
assets and liabilities. The risk associated with changes in
interest rates and our ability to adapt to these changes is
known as interest rate risk and is our most significant market
risk.
How We Measure Our Risk of Interest Rate
Changes. As part of our attempt to manage our
exposure to changes in interest rates and comply with applicable
regulations, we monitor our interest rate risk. In doing so, we
analyze and manage assets and liabilities based on their
interest rates and contractual cash flows, timing of maturities,
prepayment potential, repricing opportunities, and sensitivity
to actual or potential changes in market interest rates.
The Company is subject to interest rate risk to the extent that
its interest bearing liabilities, primarily deposits and FHLB
advances and other borrowings, reprice more rapidly or slowly,
or at different rates than its interest earning assets,
primarily loans and investment securities. The Bank calculates
interest rate risk by entering relevant contractual and
projected information into the asset/liability management
software simulation model. Data required by the model includes
balance, rate, pay down schedule, and maturity. For items that
contractually reprice, the repricing index, spread, and
frequency are entered, including any initial, periodic, and
lifetime interest rate caps and floors.
In order to manage and monitor the potential for adverse effects
of material prolonged increases or decreases in interest rates
on our results of operations, the Bank has adopted an asset and
liability management policy. The Board of Directors sets the
asset and liability policy for the Bank, which is implemented by
the Asset/Liability Management Committee.
69
The purpose of the Asset/Liability Management Committee is to
monitor, communicate, coordinate, and direct asset/liability
management consistent with our business plan and board-approved
policies. The committee directs and monitors the volume and mix
of assets and funding sources, taking into account relative
costs and spreads, interest rate sensitivity and liquidity
needs. The objectives are to manage assets and funding sources
to produce results that are consistent with liquidity, capital
adequacy, growth, risk, and profitability goals.
The Committee generally meets on a bimonthly basis to, among
other things, protect capital through earnings stability over
the interest rate cycle; maintain our well-capitalized status;
and provide a reasonable return on investment. The Committee
recommends appropriate strategy changes based on this review.
The Committee is responsible for reviewing and reporting the
effects of the policy implementations and strategies to the
Board of Directors at least quarterly. In addition, two outside
members of the Board of Directors are on the Asset/Liability
Management Committee. Senior managers oversee the process on a
daily basis.
A key element of the Banks asset/liability management
strategy is to protect net earnings by managing the inherent
maturity and repricing mismatches between its interest earning
assets and interest bearing liabilities. The Bank manages
earnings exposure through the addition of adjustable rate loans
and investment securities, through the sale of certain fixed
rate loans in the secondary market, and by entering into
appropriate term FHLB advance agreements.
As part of its efforts to monitor and manage interest rate risk,
the Bank uses the net portfolio value (NPV)
methodology adopted by the OTS as part of its capital
regulations. In essence, this approach calculates the difference
between the present value of expected cash flows from assets and
liabilities. Management and the Board of Directors review NPV
measurements at least quarterly to determine whether the
Banks interest rate exposure is within the limits
established by the Board of Directors.
The Banks asset/liability management strategy sets
acceptable limits to the percentage change in NPV given changes
in interest rates. For instantaneous, parallel, and sustained
interest rate increases and decreases of 100 and 200 basis
points, the Banks policy indicates that the NPV ratio
should not fall below 7.00% and 6.00%, respectively, and for an
increase of 300 basis points the NPV ratio should not fall
below 5.00%. As illustrated in the tables below, the Bank was
within policy limits for all scenarios tested. The tables
presented below, as of December 31, 2010, and
December 31, 2009, are internal analyses of our interest
rate risk as measured by changes in NPV for instantaneous,
parallel, and sustained shifts for all market rates and yield
curves, in 100 basis point increments, up 300 basis
points and down 200 basis points.
As illustrated in the tables below, our NPV would be negatively
impacted by a parallel, instantaneous, and sustained increase in
market rates. Such an increase in rates would negatively impact
NPV as a result of the duration of assets, including fixed rate
residential mortgage loans, extending longer than the duration
of liabilities, primarily deposit accounts and FHLB borrowings.
As interest rates rise, the market value of fixed rate loans
declines due to both higher discount rates and anticipated
slowing loan prepayments.
We have implemented a strategic plan to mitigate interest rate
risk. This plan includes the ongoing review of our mix of fixed
rate versus variable rate loans, investments, deposits, and
borrowings. When available and appropriate, high quality
adjustable rate assets are purchased. These assets reduce our
sensitivity to upward interest rate shocks. On the liability
side of the balance sheet, term borrowings are added as
appropriate. These borrowings will be of a size and term so as
to impact and mitigate duration mismatches, reducing our
sensitivity to upward
70
interest rate shocks. These strategies are implemented as needed
and as opportunities arise to mitigate interest rate risk
without materially sacrificing earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
Change in Interest
|
|
|
|
|
|
|
Rates in Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Points
|
|
Net Portfolio Value
|
|
|
NPV
|
|
|
|
$ Amount
|
|
|
$ Change
|
|
|
% Change
|
|
|
Ratio %
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
300
|
|
|
|
244,653
|
|
|
|
(80,376
|
)
|
|
|
(24.73
|
)
|
|
|
8.84
|
|
|
200
|
|
|
|
276,441
|
|
|
|
(48,588
|
)
|
|
|
(14.95
|
)
|
|
|
9.75
|
|
|
100
|
|
|
|
304,179
|
|
|
|
(20,850
|
)
|
|
|
(6.41
|
)
|
|
|
10.48
|
|
|
-
|
|
|
|
325,029
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10.96
|
|
|
(100)
|
|
|
|
327,497
|
|
|
|
2,468
|
|
|
|
0.76
|
|
|
|
10.89
|
|
|
(200)
|
|
|
|
326,489
|
|
|
|
1,460
|
|
|
|
0.45
|
|
|
|
10.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
Change in Interest
|
|
|
|
|
|
|
Rates in Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Points
|
|
Net Portfolio Value
|
|
|
NPV
|
|
|
|
$ Amount
|
|
|
$ Change
|
|
|
% Change
|
|
|
Ratio %
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
300
|
|
|
|
174,615
|
|
|
|
(42,468
|
)
|
|
|
(19.56
|
)
|
|
|
7.82
|
|
|
200
|
|
|
|
192,168
|
|
|
|
(24,915
|
)
|
|
|
(11.48
|
)
|
|
|
8.41
|
|
|
100
|
|
|
|
207,861
|
|
|
|
(9,222
|
)
|
|
|
(4.25
|
)
|
|
|
8.90
|
|
|
-
|
|
|
|
217,083
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9.11
|
|
|
(100)
|
|
|
|
218,003
|
|
|
|
920
|
|
|
|
0.42
|
|
|
|
9.00
|
|
|
(200)
|
|
|
|
221,750
|
|
|
|
4,667
|
|
|
|
2.15
|
|
|
|
9.01
|
|
The Banks NPV was $325.0 million, or 10.96%, of the
market value of portfolio assets as of December 31, 2010, a
$107.9 million increase from $217.1 million, or 9.11%,
of the market value of portfolio assets as of December 31,
2009. The majority of this increase was the result of the
Companys successful second-step stock offering. The Bank
received half of the net proceeds of the offering, or
$95.4 million. Based upon the assumptions utilized, an
immediate 200 basis point increase in market interest rates
would result in a $48.6 million decrease in our NPV at
December 31, 2010, an increase from $24.9 million at
December 31, 2009, and would result in a 121 basis
point decrease in our NPV ratio to 9.75% at December 31,
2010, as compared to a 70 basis point decrease to 8.41% at
December 31, 2009. An immediate 200 basis point
decrease in market interest rates would result in a
$1.5 million increase in our NPV at December 31, 2010,
compared to $4.7 million at December 31, 2009, and
would result in a 22 basis point decrease in our NPV ratio
to 10.74% at December 31, 2010, as compared to a ten basis
point decrease in our NPV ratio to 9.01% at December 31,
2un009. The increase to the changes in our NPV ratios were
primarily a result of slowing prepayment speeds for mortgage
loans and mortgage-backed securities. To mitigate the increased
interest rate sensitivity, the Company will seek to shorten
asset duration
and/or
lengthen liability duration.
In addition to monitoring selected measures of NPV, management
also calculates and monitors potential effects on net interest
income resulting from increases or decreases in rates. This
process is used in conjunction with NPV measures to identify
interest rate risk on both a global and account level basis. In
managing our mix of assets and liabilities, while considering
the relationship between long and short term interest rates,
market conditions, and consumer preferences, we may place
somewhat greater emphasis on maintaining or increasing the
Banks net interest margin than on strictly matching the
interest rate sensitivity of its assets and liabilities.
Management also believes that at times the increased net income
which may result from an acceptable mismatch in the actual
maturity or repricing of its asset and liability portfolios can
provide sufficient returns to justify the increased exposure to
sudden and unexpected increases in interest rates which may
result from such a mismatch. Management believes that the
Banks level of interest rate risk is acceptable under this
approach.
71
In evaluating the Banks exposure to interest rate
movements, certain shortcomings inherent in the method of
analysis presented in the foregoing table must be considered.
For example, although certain assets and liabilities may have
similar maturities or repricing characteristics, their interest
rate drivers may react in different degrees to changes in market
interest rates (basis risk). Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other
types may lag behind changes in market interest rates.
Additionally, certain assets, such as adjustable rate mortgages,
have features which restrict changes in interest rates on a
short-term basis and over the life of the asset (initial,
periodic, and lifetime caps and floors). Further, in the event
of a significant change in interest rates, prepayment and early
withdrawal levels may deviate significantly from those assumed
above. Finally, the ability of many borrowers to service their
debt may decrease in the event of an interest rate increase. The
Bank considers all of these factors in monitoring its exposure
to interest rate risk. Also of note, the current historically
low interest rate environment has resulted in asymmetrical
interest rate risk. Certain repricing liabilities cannot be
fully shocked downward. Assets with prepayment options are being
monitored. Current market rates and customer behavior are being
considered in the management of interest rate risk.
The Board of Directors and management believe that the
Banks ability to successfully manage and mitigate its
exposure to interest rate risk is strengthened by several key
factors. For example, the Bank manages its balance sheet
duration and overall interest rate risk by placing a preference
on originating and retaining adjustable rate loans and selling
originated fixed rate residential mortgage loans. In addition,
the Bank borrows at various maturities from the FHLB to mitigate
mismatches between the asset and liability portfolios.
Furthermore, the investment securities portfolio is used as a
primary interest rate risk management tool through the duration
and repricing targeting of purchases and sales.
72
Report of
Ernst & Young LLP
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
ViewPoint Financial Group, Inc.
We have audited the accompanying consolidated balance sheet of
ViewPoint Financial Group, Inc. (the Company) as of
December 31, 2010 and the related consolidated statements
of income (loss), comprehensive income (loss), changes in
shareholders equity, and cash flows for the year then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of ViewPoint Financial Group, Inc. at
December 31, 2010 and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
ViewPoint Financial Group, Inc.s internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 3, 2011
expressed an unqualified opinion thereon.
Dallas, Texas
March 3, 2011
74
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee and
Board of Directors
ViewPoint Financial Group, Inc.
Plano, Texas
We have audited the accompanying consolidated balance sheet of
ViewPoint Financial Group, Inc. (the Company) as of
December 31, 2009, and the related consolidated statements
of income (loss), comprehensive income (loss), changes in
shareholders equity and cash flows for each of the years
in the two-year period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of ViewPoint Financial Group, Inc. as of
December 31, 2009, and the results of its operations and
its cash flows for each of the years in the two-year period
ended December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
Crowe Horwath LLP
Oak Brook, Illinois
March 4, 2010
75
CONSOLIDATED
BALANCE SHEETS
December 31,
(Dollar amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash and due from financial institutions
|
|
$
|
16,465
|
|
|
$
|
17,507
|
|
Short-term interest-bearing deposits in other financial
institutions
|
|
|
52,185
|
|
|
|
37,963
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
68,650
|
|
|
|
55,470
|
|
Securities available for sale, at fair value
|
|
|
717,497
|
|
|
|
484,058
|
|
Securities held to maturity (fair value: December 31,
2010 $434,296,
|
|
|
|
|
|
|
|
|
December 31, 2009 $260,814)
|
|
|
432,519
|
|
|
|
254,724
|
|
Loans held for sale (includes $16,877 carried at fair value at
December 31, 2010)
|
|
|
491,985
|
|
|
|
341,431
|
|
Loans held for investment (includes allowance for loan losses of
$14,847 at December 31, 2010 and $12,310 at
December 31, 2009)
|
|
|
1,092,114
|
|
|
|
1,108,159
|
|
FHLB stock, at cost
|
|
|
20,569
|
|
|
|
14,147
|
|
Bank-owned life insurance
|
|
|
28,501
|
|
|
|
28,117
|
|
Mortgage servicing rights
|
|
|
636
|
|
|
|
872
|
|
Foreclosed assets, net
|
|
|
2,679
|
|
|
|
3,917
|
|
Premises and equipment, net
|
|
|
48,731
|
|
|
|
50,440
|
|
Goodwill
|
|
|
1,089
|
|
|
|
1,089
|
|
Accrued interest receivable
|
|
|
9,248
|
|
|
|
8,099
|
|
Prepaid FDIC assessment
|
|
|
6,606
|
|
|
|
9,134
|
|
Other assets
|
|
|
21,171
|
|
|
|
19,847
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,941,995
|
|
|
$
|
2,379,504
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand
|
|
|
201,998
|
|
|
|
193,581
|
|
Interest-bearing demand
|
|
|
438,719
|
|
|
|
268,063
|
|
Savings and money market
|
|
|
711,911
|
|
|
|
701,835
|
|
Time
|
|
|
664,922
|
|
|
|
633,186
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,017,550
|
|
|
|
1,796,665
|
|
FHLB advances (net of prepayment penalty of $5,259 at
December 31, 2010)
|
|
|
461,219
|
|
|
|
312,504
|
|
Repurchase agreement
|
|
|
25,000
|
|
|
|
25,000
|
|
Other borrowings
|
|
|
10,000
|
|
|
|
10,000
|
|
Accrued interest payable
|
|
|
1,541
|
|
|
|
1,884
|
|
Other liabilities
|
|
|
30,096
|
|
|
|
27,769
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,545,406
|
|
|
|
2,173,822
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 90,000,000 shares
|
|
|
|
|
|
|
|
|
authorized; 34,839,491 shares issued
December 31, 2010
|
|
|
|
|
|
|
|
|
and 30,496,710 shares issued December 31,
2009
|
|
|
349
|
|
|
|
305
|
|
Additional paid-in capital
|
|
|
289,591
|
|
|
|
118,254
|
|
Retained earnings
|
|
|
125,125
|
|
|
|
111,188
|
|
Accumulated other comprehensive income, net
|
|
|
2,373
|
|
|
|
3,802
|
|
Unearned Employee Stock Ownership Plan (ESOP) shares;
2,286,428 shares
|
|
|
|
|
|
|
|
|
at December 31, 2010 and 854,906 shares at
December 31, 2009
|
|
|
(20,849
|
)
|
|
|
(6,159
|
)
|
Treasury stock, at cost; 1,279,801 shares at
December 31, 2009
|
|
|
-
|
|
|
|
(21,708
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
396,589
|
|
|
|
205,682
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
2,941,995
|
|
|
$
|
2,379,504
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
88,550
|
|
|
$
|
83,802
|
|
|
$
|
65,938
|
|
Taxable securities
|
|
|
24,837
|
|
|
|
22,919
|
|
|
|
29,266
|
|
Nontaxable securities
|
|
|
1,528
|
|
|
|
517
|
|
|
|
125
|
|
Interest bearing deposits in other financial institutions
|
|
|
402
|
|
|
|
652
|
|
|
|
1,195
|
|
FHLB stock
|
|
|
68
|
|
|
|
16
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,385
|
|
|
|
107,906
|
|
|
|
96,795
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
31,015
|
|
|
|
34,366
|
|
|
|
35,529
|
|
FHLB advances
|
|
|
11,723
|
|
|
|
14,056
|
|
|
|
10,340
|
|
Repurchase agreement
|
|
|
816
|
|
|
|
707
|
|
|
|
300
|
|
Other borrowings
|
|
|
599
|
|
|
|
157
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,153
|
|
|
|
49,286
|
|
|
|
46,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
71,232
|
|
|
|
58,620
|
|
|
|
50,626
|
|
Provision for loan losses
|
|
|
5,119
|
|
|
|
7,652
|
|
|
|
6,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
66,113
|
|
|
|
50,968
|
|
|
|
44,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
18,505
|
|
|
|
18,954
|
|
|
|
19,779
|
|
Brokerage fees
|
|
|
476
|
|
|
|
347
|
|
|
|
434
|
|
Net gain on sale of loans
|
|
|
13,041
|
|
|
|
16,591
|
|
|
|
9,390
|
|
Loan servicing fees
|
|
|
235
|
|
|
|
239
|
|
|
|
252
|
|
Bank-owned life insurance income
|
|
|
384
|
|
|
|
539
|
|
|
|
1,081
|
|
Gain on redemption of Visa, Inc. shares
|
|
|
-
|
|
|
|
-
|
|
|
|
771
|
|
Fair value adjustment on mortgage servicing rights
|
|
|
15
|
|
|
|
(191
|
)
|
|
|
-
|
|
Impairment of collateralized debt obligations (all credit)
|
|
|
-
|
|
|
|
(12,246
|
)
|
|
|
(13,809
|
)
|
Gain on sale of available for sale securities
|
|
|
-
|
|
|
|
2,377
|
|
|
|
-
|
|
Gain (loss) on sale of foreclosed assets
|
|
|
(296
|
)
|
|
|
179
|
|
|
|
(43
|
)
|
Gain (loss) on disposition of assets
|
|
|
(69
|
)
|
|
|
(1,220
|
)
|
|
|
16
|
|
Other
|
|
|
1,173
|
|
|
|
1,630
|
|
|
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,464
|
|
|
|
27,199
|
|
|
|
18,864
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
46,203
|
|
|
|
46,777
|
|
|
|
43,560
|
|
Advertising
|
|
|
1,285
|
|
|
|
1,284
|
|
|
|
2,296
|
|
Occupancy and equipment
|
|
|
5,907
|
|
|
|
5,999
|
|
|
|
5,772
|
|
Outside professional services
|
|
|
2,369
|
|
|
|
1,882
|
|
|
|
2,004
|
|
Regulatory assessments
|
|
|
3,235
|
|
|
|
4,018
|
|
|
|
1,225
|
|
Data processing
|
|
|
4,232
|
|
|
|
4,209
|
|
|
|
4,001
|
|
Office operations
|
|
|
5,790
|
|
|
|
5,984
|
|
|
|
6,111
|
|
Deposit processing charges
|
|
|
744
|
|
|
|
862
|
|
|
|
990
|
|
Lending and collection
|
|
|
1,033
|
|
|
|
883
|
|
|
|
828
|
|
Other
|
|
|
2,348
|
|
|
|
2,639
|
|
|
|
2,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,146
|
|
|
|
74,537
|
|
|
|
68,911
|
|
Income (loss) before income tax expense (benefit)
|
|
|
26,431
|
|
|
|
3,630
|
|
|
|
(5,592
|
)
|
Income tax expense (benefit)
|
|
|
8,632
|
|
|
|
960
|
|
|
|
(2,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.59
|
|
|
$
|
0.10
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.59
|
|
|
$
|
0.10
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on securities available for
sale
|
|
|
(2,132
|
)
|
|
|
1,261
|
|
|
|
(17,545
|
)
|
Reclassification of amount realized through impairment charges
|
|
|
-
|
|
|
|
12,246
|
|
|
|
13,809
|
|
Reclassification of amount realized through sale of securities
|
|
|
-
|
|
|
|
(2,377
|
)
|
|
|
-
|
|
Tax effect
|
|
|
703
|
|
|
|
(2,872
|
)
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
(1,429
|
)
|
|
|
8,258
|
|
|
|
(2,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
16,370
|
|
|
$
|
10,928
|
|
|
$
|
(5,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Unearned
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
ESOP Shares
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Treasury Stock
|
|
|
Equity
|
|
|
Balance at January 1, 2008
|
|
$
|
305
|
|
|
$
|
113,569
|
|
|
$
|
(8,176
|
)
|
|
$
|
114,801
|
|
|
$
|
861
|
|
|
$
|
(17,566
|
)
|
|
$
|
203,794
|
|
ESOP shares earned, 151,137 shares
|
|
|
-
|
|
|
|
881
|
|
|
|
1,079
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,960
|
|
Treasury stock purchased at cost, 289,346 shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,312
|
)
|
|
|
(4,312
|
)
|
Share-based compensation expense
|
|
|
-
|
|
|
|
1,719
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,719
|
|
Adjustment to deferred tax asset for difference between fair
value of vested restricted stock and expense booked
|
|
|
-
|
|
|
|
(79
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(79
|
)
|
Restricted stock granted (14,000 shares)
|
|
|
-
|
|
|
|
(170
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
170
|
|
|
|
-
|
|
Dividends declared ($0.21 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,154
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,154
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,315
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,315
|
)
|
Change in unrealized gains (losses) on securities available for
sale, net of reclassifications and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,474
|
)
|
|
|
-
|
|
|
|
(2,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
305
|
|
|
|
115,920
|
|
|
|
(7,097
|
)
|
|
|
108,332
|
|
|
|
(1,613
|
)
|
|
|
(21,708
|
)
|
|
|
194,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle, initial
application of
other-than-temporary
impairment guidance (net of tax)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,843
|
|
|
|
(2,843
|
)
|
|
|
-
|
|
|
|
-
|
|
ESOP shares earned, 131,242 shares
|
|
|
-
|
|
|
|
707
|
|
|
|
938
|
|
|
|
(185
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,460
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
1,763
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,763
|
|
Adjustment to deferred tax asset for difference between fair
value of vested restricted stock and expense booked
|
|
|
-
|
|
|
|
(136
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(136
|
)
|
Dividends declared ($0.18 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,472
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,472
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,670
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,670
|
|
Change in unrealized gains (losses) on securities available for
sale for which a portion of an
other-than-temporary
impairment has been recognized in earnings, net of
reclassifications and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,101
|
|
|
|
-
|
|
|
|
7,101
|
|
Change in unrealized gains (losses) on securities available for
sale, net of reclassifications and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,157
|
|
|
|
-
|
|
|
|
1,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
305
|
|
|
|
118,254
|
|
|
|
(6,159
|
)
|
|
|
111,188
|
|
|
|
3,802
|
|
|
|
(21,708
|
)
|
|
|
205,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
Years ended December 31,
(Dollar amounts in thousands, except per share and share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Unearned
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
ESOP Shares
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Treasury Stock
|
|
|
Equity
|
|
|
Balance at December 31, 2009
|
|
|
305
|
|
|
|
118,254
|
|
|
|
(6,159
|
)
|
|
|
111,188
|
|
|
|
3,802
|
|
|
|
(21,708
|
)
|
|
|
205,682
|
|
ESOP shares earned, 157,065 shares
|
|
|
-
|
|
|
|
686
|
|
|
|
1,196
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,882
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
1,802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,802
|
|
Restricted stock forfeiture
|
|
|
-
|
|
|
|
334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(334
|
)
|
|
|
-
|
|
Treasury stock purchased at cost, 25,634 shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(407
|
)
|
|
|
(407
|
)
|
Treasury stock retired, 25,309 shares
|
|
|
-
|
|
|
|
(334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
-
|
|
Dividends declared ($0.16 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,862
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,862
|
)
|
Items relating to Conversion and stock offering:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger of ViewPoint MHC pursuant to reorganization
|
|
|
-
|
|
|
|
207
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
207
|
|
Treasury stock retired pursuant to reorganization
(1,305,435 shares)
|
|
|
(13
|
)
|
|
|
(22,102
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,115
|
|
|
|
-
|
|
Cancellation of ViewPoint MHC shares (14,183,812 shares)
|
|
|
(142
|
)
|
|
|
142
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from stock offering (19,857,337 shares), net of
expense of $7,773
|
|
|
199
|
|
|
|
190,602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190,801
|
|
Purchase of shares by ESOP pursuant to reorganization
(1,588,587 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,886
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,886
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,799
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,799
|
|
Change in unrealized gains (losses) on securities available for
sale, net of reclassifications and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,429
|
)
|
|
|
-
|
|
|
|
(1,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,370
|
|
Balance at December 31, 2010
|
|
$
|
349
|
|
|
$
|
289,591
|
|
|
$
|
(20,849
|
)
|
|
$
|
125,125
|
|
|
$
|
2,373
|
|
|
$
|
-
|
|
|
$
|
396,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
Adjustments to reconcile net income (loss) to net cash from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
5,119
|
|
|
|
7,652
|
|
|
|
6,171
|
|
Depreciation and amortization
|
|
|
3,571
|
|
|
|
3,784
|
|
|
|
4,365
|
|
Deferred tax expense (benefit)
|
|
|
(794
|
)
|
|
|
3,951
|
|
|
|
(5,304
|
)
|
Premium amortization and accretion of securities, net
|
|
|
3,832
|
|
|
|
1,034
|
|
|
|
(767
|
)
|
Gain on sale of available for sale securities
|
|
|
-
|
|
|
|
(2,377
|
)
|
|
|
-
|
|
Impairment of collateralized debt obligations
|
|
|
-
|
|
|
|
12,246
|
|
|
|
13,809
|
|
ESOP compensation expense
|
|
|
1,882
|
|
|
|
1,460
|
|
|
|
1,960
|
|
Share-based compensation expense
|
|
|
1,802
|
|
|
|
1,763
|
|
|
|
1,719
|
|
Amortization of mortgage servicing rights
|
|
|
251
|
|
|
|
309
|
|
|
|
292
|
|
Net gain on loans held for sale
|
|
|
(13,041
|
)
|
|
|
(16,591
|
)
|
|
|
(9,390
|
)
|
Loans originated or purchased for sale
|
|
|
(7,877,505
|
)
|
|
|
(5,742,599
|
)
|
|
|
(591,218
|
)
|
Proceeds from sale of loans held for sale
|
|
|
7,739,992
|
|
|
|
5,577,643
|
|
|
|
453,896
|
|
FHLB stock dividends
|
|
|
(68
|
)
|
|
|
(16
|
)
|
|
|
(271
|
)
|
Increase in bank-owned life insurance
|
|
|
(384
|
)
|
|
|
(539
|
)
|
|
|
(1,081
|
)
|
Loss (gain) on disposition of property and equipment
|
|
|
250
|
|
|
|
34
|
|
|
|
(16
|
)
|
Write off of leasehold improvements related to in-store location
closings
|
|
|
-
|
|
|
|
337
|
|
|
|
-
|
|
Net loss (gain) on sales of other real estate owned
|
|
|
296
|
|
|
|
(195
|
)
|
|
|
106
|
|
Valuation adjustment on mortgage servicing rights
|
|
|
(15
|
)
|
|
|
191
|
|
|
|
-
|
|
Net change in deferred loan fees
|
|
|
(1,087
|
)
|
|
|
(46
|
)
|
|
|
1,809
|
|
Net change in accrued interest receivable
|
|
|
(1,149
|
)
|
|
|
420
|
|
|
|
(1,741
|
)
|
Net change in other assets
|
|
|
2,279
|
|
|
|
(14,757
|
)
|
|
|
916
|
|
Net change in other liabilities
|
|
|
2,687
|
|
|
|
(5,692
|
)
|
|
|
7,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
(114,283
|
)
|
|
|
(169,318
|
)
|
|
|
(120,359
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution from (contribution to) new markets equity fund
|
|
|
458
|
|
|
|
-
|
|
|
|
(1,554
|
)
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities, prepayments and calls
|
|
|
562,924
|
|
|
|
509,350
|
|
|
|
109,051
|
|
Purchases
|
|
|
(801,282
|
)
|
|
|
(582,025
|
)
|
|
|
(66,098
|
)
|
Proceeds from sale of AFS securities
|
|
|
-
|
|
|
|
73,785
|
|
|
|
-
|
|
Held-to-maturity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities, prepayments and calls
|
|
|
69,788
|
|
|
|
49,649
|
|
|
|
24,506
|
|
Purchases
|
|
|
(248,628
|
)
|
|
|
(132,446
|
)
|
|
|
(176,630
|
)
|
Proceeds from member capital account
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
Net change in loans
|
|
|
8,259
|
|
|
|
118,266
|
|
|
|
(341,728
|
)
|
Redemption/(purchase) of FHLB stock
|
|
|
(6,354
|
)
|
|
|
3,965
|
|
|
|
(11,605
|
)
|
Purchases of premises and equipment
|
|
|
(2,114
|
)
|
|
|
(8,667
|
)
|
|
|
(9,460
|
)
|
Proceeds from sale of fixed assets
|
|
|
2
|
|
|
|
9
|
|
|
|
36
|
|
Proceeds on sale of other real estate owned
|
|
|
3,957
|
|
|
|
2,623
|
|
|
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(412,990
|
)
|
|
|
34,509
|
|
|
|
(471,027
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
220,885
|
|
|
|
248,575
|
|
|
|
250,497
|
|
Net proceeds from stock offering
|
|
|
190,801
|
|
|
|
-
|
|
|
|
-
|
|
Purchase of shares by ESOP pursuant to reorganization
|
|
|
(15,886
|
)
|
|
|
-
|
|
|
|
-
|
|
Merger of ViewPoint MHC pursuant to reorganization
|
|
|
207
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from FHLB advances
|
|
|
291,645
|
|
|
|
-
|
|
|
|
313,000
|
|
Repayments on FHLB advances
|
|
|
(142,930
|
)
|
|
|
(98,337
|
)
|
|
|
(30,610
|
)
|
Proceeds from other borrowings
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
Proceeds from repurchase agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
Treasury stock purchased
|
|
|
(407
|
)
|
|
|
-
|
|
|
|
(4,312
|
)
|
Payment of dividends
|
|
|
(3,862
|
)
|
|
|
(2,472
|
)
|
|
|
(3,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
540,453
|
|
|
|
157,766
|
|
|
|
550,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
13,180
|
|
|
|
22,957
|
|
|
|
(40,965
|
)
|
Beginning cash and cash equivalents
|
|
|
55,470
|
|
|
|
32,513
|
|
|
|
73,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
68,650
|
|
|
$
|
55,470
|
|
|
$
|
32,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
44,496
|
|
|
$
|
49,171
|
|
|
$
|
45,382
|
|
Income taxes paid
|
|
$
|
5,948
|
|
|
$
|
1,790
|
|
|
$
|
1,917
|
|
Supplemental noncash disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from loans to other real estate owned
|
|
$
|
3,754
|
|
|
$
|
5,677
|
|
|
$
|
2,690
|
|
See accompanying notes to consolidated financial statements.
81
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Operations and Principles of Consolidation: The
consolidated financial statements include ViewPoint Financial
Group, Inc. (the Company), whose business currently
consists of the operations of its wholly-owned subsidiary,
ViewPoint Bank (the Bank). At December 31,
2010, the Banks operations included its wholly-owned
subsidiary, ViewPoint Bankers Mortgage, Inc. (doing business as
ViewPoint Mortgage) (VPM). Intercompany transactions
and balances are eliminated in consolidation.
The Company provides financial services through 23 community
bank offices and 14 loan production offices. Its primary deposit
products are checking, savings, and term certificate accounts,
and its primary lending products are residential mortgage,
commercial real estate, commercial non-mortgage and consumer
loans. Most loans are secured by specific items of collateral,
including business assets, consumer assets and commercial and
residential real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. There are
no significant concentrations of loans to any one industry or
customer. However, the customers ability to repay their
loans is dependent on the real estate and general economic
conditions in the Companys geographic markets.
Use of Estimates: To prepare financial statements in
conformity with U.S. generally accepted accounting
principles, management makes estimates and assumptions based on
available information. These estimates and assumptions affect
the amounts reported in the financial statements and the
disclosures provided, and actual results could differ. The
allowance for loan losses, valuation of other real estate owned,
other-than-temporary
impairment of securities, realization of deferred tax assets,
and fair values of financial instruments are particularly
subject to change.
Cash Flows: Cash and cash equivalents include cash,
deposits with other financial institutions with maturities less
than 90 days, and federal funds sold. Net cash flows are
reported for customer loan and deposit transactions, interest
bearing deposits in other financial institutions, federal funds
purchased, and repurchase agreements.
Securities: Securities that the Company has both the
positive intent and ability to hold to maturity are classified
as held to maturity and are carried at amortized cost.
Securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity, are classified
as available for sale and are carried at fair value. Unrealized
gains and losses on securities classified as available for sale
have been accounted for as accumulated other comprehensive
income (loss), net of taxes.
Gains and losses on the sale of securities available for sale
are recorded on the trade date determined using the
specific-identification method. Amortization of premiums and
discounts are recognized in interest income over the period to
maturity. Premiums and discounts on securities are amortized on
the level-yield method without anticipating prepayment, except
for mortgage-backed securities where prepayments are anticipated.
The Company evaluates securities for
other-than-temporary
impairment on at least a quarterly basis and more frequently
when economic, market, or security specific concerns warrant
such evaluation. Consideration is given to the length of time
and the extent to which the fair value has been less than
amortized cost, the financial condition and near-term prospects
of the issuer, and the intent and ability of the Company to
retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
In analyzing an issuers financial condition, the Company
may consider whether the securities are issued by the federal
government or its agencies, whether downgrades by bond rating
agencies have occurred, and the results of reviews of the
issuers financial condition. The Company conducts regular
reviews of the bond agency ratings of securities and considers
whether the securities were issued by or have principal and
interest payments guaranteed by the federal government or its
agencies. These reviews focus on the underlying rating of the
issuer and also include the insurance rating of securities that
have an insurance component. The ratings and financial condition
of the issuers are monitored, as well as the financial condition
and ratings of the insurers.
For periods in which
other-than-temporary
impairment of a debt security is recognized, the credit portion
of the amount is determined by subtracting the present value of
the stream of estimated cash flows as calculated in a
82
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
discounted cash flow model and discounted at book yield from the
prior periods ending carrying value. The non-credit
portion of the amount is determined by subtracting the credit
portion of the impairment from the difference between the book
value and fair value of the security. The credit related portion
of the impairment is charged against income and the non-credit
related portion is charged to equity as a component of other
comprehensive income.
Loans Held for Sale: The majority of mortgage loans
originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or market, as determined
by outstanding commitments from investors. Net unrealized
losses, if any, are recorded as a valuation allowance and
charged to earnings. Most mortgage loans held for sale are
generally sold with servicing rights released. The carrying
value of mortgage loans sold with servicing rights retained is
reduced by the amount allocated to the servicing right. Gains
and losses on sales of mortgage loans are based on the
difference between the selling price and the carrying value of
the related loan sold. Sales in the secondary market are
recognized when full acceptance and funding has been received.
The Company elected the fair value option for certain
residential mortgage loans held for sale originated after
May 1, 2010 in accordance with Statement of Financial
Accounting Standard No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, as of
May 1, 2010 (as codified in ASC 820.) This election
allows for a more effective offset of the changes in fair values
of the loans and the derivative instruments used to economically
hedge them without the burden of complying with the requirements
for hedge accounting under ASC 815, Derivatives and
Hedging. The Company has not elected the fair value option
for other loans held for sale primarily because they are not
economically hedged using derivative instruments.
Loans: Loans that management has the intent and ability
to hold for the foreseeable future or until maturity or payoff
are reported at the principal balance outstanding, net of
unearned interest, purchase premiums and discounts, deferred
loan fees and costs, and an allowance for loan losses. Interest
income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are
deferred and recognized in interest income using the level-yield
method without anticipating prepayments.
Loans that are past due 30 days or greater are considered
delinquent. Interest income on loans is discontinued at the time
the loan is 90 days delinquent unless the loan is
well-secured and in process of collection. Consumer loans are
typically charged off no later than 120 days past due. Past
due status is based on the contractual terms of the loan. In all
cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is
considered doubtful. Nonaccrual loans include both smaller
balance homogeneous loans that are collectively evaluated for
impairment and individually classified impaired loans. A loan is
moved to nonaccrual status in accordance with the Companys
policy, typically after 90 days of non-payment.
All interest accrued but not received for loans placed on
nonaccrual is reversed against interest income. Interest
received on such loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and
future payments are reasonably assured.
Concentration of Credit Risk: Most of the Companys
business activity is with customers located within the North
Texas region. Therefore, the Companys exposure to credit
risk is significantly affected by changes in the economy of the
North Texas area.
Allowance for Loan Losses: The allowance for loan losses
is a valuation allowance for estimated credit losses, increased
by the provision for loan losses and decreased by charge-offs
less recoveries. Management estimates the allowance balance
required using past loan loss experience, the nature and volume
of the portfolio, information about specific borrower situations
and estimated collateral values, economic conditions and other
factors. Allocations of the allowance may be made for specific
loans, but the entire allowance is available for any loans that,
83
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
in managements judgment, should be charged off. Loan
losses are charged against the allowance when management
believes the uncollectability of a loan balance is confirmed.
The allowance consists of specific and general components. The
specific component relates to loans that are individually
classified as impaired or loans otherwise classified as
substandard or doubtful. The general component covers
non-classified
loans and is based on historical loss experience adjusted for
current factors.
Management evaluates current information and events regarding a
borrowers ability to repay its obligations and considers a
loan to be impaired when the ultimate collectability of amounts
due, according to the contractual terms of the loan agreement,
is in doubt. 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 loans
effective interest rate or, as a practical expedient, at the
loans observable market price or the fair value of the
collateral if the loan is collateral dependent. The amount of
the impairment can be adjusted, based on current data, until
such time as the actual basis is established by acquisition of
the collateral. If the loan is not collateral dependent, it is
then evaluated at the present value of estimated future cash
flows using the loans effective interest rate at
inception. Impairment losses are reflected in the allowance for
loan losses through a charge to the provision for loan losses.
Subsequent recoveries are credited to the allowance for loan
losses. Loans for which terms have been modified and for which
the borrower is experiencing financial difficulties are
considered troubled debt restructurings and are classified as
impaired until the loan performs under its modified terms for a
period of six months.
Large groups of smaller-balance homogeneous loans are
collectively evaluated for impairment. Accordingly, the Company
does not separately identify individual consumer loans for
impairment disclosures. Loans reported as troubled debt
restructurings are evaluated in accordance with
ASC 310-40
Receivables Troubled Debt Restructurings by
Creditors and
ASC 310-10-35-2
through 30, Receivables Overall
Subsequent Measurement Impairment.
The allowance for loan losses and related provision expense are
susceptible to change if the credit quality of our loan
portfolio changes, which is evidenced by many factors including
charge-offs and non-performing loan trends. Generally, one- to
four-family residential real estate lending has a lower credit
risk profile compared to consumer lending (such as automobile or
personal line of credit loans). Commercial real estate and
non-mortgage lending, however, have higher credit risk profiles
than consumer and one- to four- family residential real estate
loans due to these loans being larger in amount and
non-homogenous in structure and term. Changes in economic
conditions, the mix and size of the loan portfolio and
individual borrower conditions can dramatically impact our level
of allowance for loan losses in relatively short periods of
time. Management believes that the allowance for loan losses is
maintained at a level that represents our best estimate of
credit losses in the loan portfolio. While management uses
available information to recognize losses on loans, future
additions to the allowance for loan losses may be necessary
based on changes in economic conditions.
Servicing Rights: Servicing rights are recognized
separately when they are acquired through sales of loans. When
mortgage loans are sold, servicing rights are initially recorded
at fair value with the income statement effect recorded in gains
on sales of loans. Fair value is determined using prices for
similar assets with similar characteristics, when available, or
based upon discounted cash flows using market-based assumptions.
Any impairment of a grouping is reported as a valuation
allowance, to the extent that fair value is less than the
capitalized amount for a grouping.
Servicing assets represent the fair value of retained servicing
rights on loans sold (as well as the cost of purchased rights).
Servicing assets are expensed in proportion to, and over the
period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the assets, using groupings
of the underlying loans as to interest rates and then,
secondarily, as to loan type and investor.
84
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Servicing assets are evaluated for impairment based upon the
fair value of the rights as compared to the carrying amount.
Impairment is determined by stratifying rights into groupings
based on predominant risk characteristics, such as interest
rate, loan type and investor type. Impairment is recognized
through a valuation allowance for an individual grouping, to the
extent that fair value is less than the capitalized amount. If
the Company later determines that all or a portion of the
impairment no longer exists for a particular grouping, a
reduction of the allowance may be recorded as an increase to
income.
Servicing fee income is recorded for fees earned for servicing
loans. The fees are based on a contractual percentage of the
outstanding principal or a fixed amount per loan and are
recorded as income when earned. The amortization of mortgage
servicing rights is netted against loan servicing fee income.
Transfers of Financial Assets: Transfers of financial
assets are accounted for as sales, when control over the assets
has been surrendered. Control over transferred assets is deemed
to be surrendered when the assets have been isolated from the
Company, the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and the Company does not
maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
Foreclosed Assets: Assets acquired through or instead of
loan foreclosure are initially recorded at fair value less costs
to sell when acquired, establishing a new cost basis. If fair
value declines subsequent to foreclosure, a valuation allowance
is recorded through expense. Operating costs after acquisition
are expensed.
Premises and Equipment: Land is carried at cost. Premises
and equipment are stated at cost less accumulated depreciation.
Buildings and related components are depreciated using the
straight-line method with useful lives ranging from 10 to
30 years. Furniture, fixtures and equipment are depreciated
using the straight-line method with useful lives ranging from 3
to 7 years. The cost of leasehold improvements is amortized
over the shorter of the lease term or useful life using the
straight-line method.
Federal Home Loan Bank (FHLB) stock: The Company is a
member of the FHLB system. Members are required to own a certain
amount of stock based on the level of borrowings and other
factors, and may invest in additional amounts. FHLB stock is
carried at cost, classified as a restricted security, and
periodically evaluated for impairment based on the ultimate
recoverability of the par value. Both cash and stock dividends
are reported as interest income.
Bank-Owned Life Insurance: The Company has purchased life
insurance policies on certain key employees. The purchase of
these life insurance policies allows the Company to use
tax-advantaged rates of return. Bank-owned life insurance is
recorded at the amount that can be realized under the insurance
contract at the balance sheet date, which is the cash surrender
value adjusted for other charges or other amounts due that are
probable at settlement.
Goodwill: Goodwill resulting from business combinations
prior to January 1, 2009 represents the excess of the
purchase price over the fair value of the net assets of
businesses acquired. Goodwill resulting from business
combinations after January 1, 2009 represents the future
economic benefits arising from other assets acquired that are
individually identified and separately recognized. Goodwill and
intangible assets acquired in a purchase business combination
and determined to have an indefinite useful life are not
amortized, but tested for impairment at least annually.
Intangible assets with definite useful lives are amortized over
their estimated useful lives to their estimated residual values.
Goodwill is the only intangible asset with an indefinite life on
our balance sheet.
Long-term Assets: Premises and equipment and other
long-term assets are reviewed for impairment when events
indicate their carrying amount may not be recoverable from
future undiscounted cash flows. If impaired, the assets are
recorded at fair value.
85
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Brokerage Fee Income: Acting as an agent, the Company
earns brokerage income by buying and selling securities on
behalf of its customers through an independent third party and
earning fees on the transactions. These fees are recorded on the
trade date.
Mortgage Subservicing Revenue: The Company performs
mortgage subservicing operations for other financial
institutions. These subservicing activities include payment
processing and recordkeeping for mortgage loans funded by these
other financial institutions. The Company records subservicing
fee income based upon a stated percentage of the unpaid
principal balance outstanding or a fixed amount per loan. These
fees are recorded as the services are performed.
Deferred Revenue: Included in other liabilities on the
Companys consolidated balance sheets are amounts related
to fees received in connection with contract renewals with
vendors.
Advertising Expense: The Company expenses all advertising
costs as they are incurred.
Loan Commitments and Related Financial Instruments:
Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and commercial
letters of credit, issued to meet customer financing needs. The
face amount for these items represents the exposure to loss,
before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded.
Income Taxes: Income tax expense is the total of the
current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to
the amount expected to be realized.
A tax position is recognized as a benefit only if it is
more likely than not that the tax position would be
sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the more
likely than not test, no tax benefit is recorded. The
Company did not have any amount accrued with respect to
uncertainty in income taxes at December 31, 2010 and 2009.
The Company recognizes interest
and/or
penalties related to income tax matters in income tax expense
and did not have any amounts accrued for interest and penalties
for the years ended December 31, 2010, 2009 and 2008.
Share-Based Compensation: Compensation cost is recognized
for stock options and restricted stock awards issued to
employees and directors, based on the fair value of these awards
at the date of grant. A Black-Scholes model is utilized to
estimate the fair value of stock options, while the market price
of the Companys common stock at the date of grant is used
for restricted stock awards. Compensation cost is recognized
over the required service period, generally defined as the
vesting period. For awards with graded vesting, compensation
cost is recognized on a straight-line basis over the requisite
service period for the entire award. For awards with
performance-based vesting conditions, compensation cost is
recognized when the achievement of the performance condition is
considered probable of achievement. If a performance condition
is subsequently determined to be improbable of achievement,
compensation cost is reversed.
Retirement Plans: Employee 401(k) and profit sharing plan
expense is the amount of matching contributions as determined by
formula. Deferred compensation and supplemental retirement plan
expense allocates the benefits over years of service.
Comprehensive Income (Loss): Comprehensive income (loss)
consists of net income and other comprehensive income (loss).
Other comprehensive income (loss) includes unrealized gains and
losses on securities available for sale, net of taxes, which are
also recognized as a separate component of equity.
86
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Loss Contingencies: Loss contingencies, including claims
and legal actions arising in the ordinary course of business,
are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such
matters that will have a material effect on the financial
statements.
Restrictions on Cash: Cash on hand or on deposit with the
Federal Reserve Bank of $1,000 and $1,000 was required to meet
regulatory reserve and clearing requirements at
December 31, 2010 and 2009. The Federal Reserve Bank pays
interest on required reserve balances and on excess balances.
Cash balances equaling or exceeding escrow amounts are
maintained at correspondent banks.
Earnings (loss) per common share: Basic earnings (loss)
per common share is computed by dividing net income (loss) by
the weighted-average number of common shares outstanding for the
period, reduced for unallocated ESOP shares and average unvested
restricted stock awards. All outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends
are considered participating securities for this calculation.
Diluted earnings (loss) per common share is computed by dividing
net income (loss) by the weighted-average number of common
shares outstanding for the period increased for the dilutive
effect of unvested stock options and stock awards, if any.
Employee stock ownership plan (ESOP): The Company
accounts for its ESOP in accordance with ASC
718-40,
Employee Stock Ownership Plans. Accordingly, since the
Company sponsors the ESOP with an employer loan, neither the
ESOPs loan payable nor the Companys loan receivable
are reported in the Companys consolidated balance sheet.
Likewise the Company does not recognize interest income or
interest cost on the loan.
Unallocated shares held by the ESOP are recorded as unearned
ESOP shares in the consolidated statement of changes in
shareholders equity. As shares are committed to be
released for allocation, the Company recognizes compensation
expense equal to the average market price of the shares for the
period. Dividends on allocated ESOP shares reduce retained
earnings; dividends on unearned ESOP shares reduce debt and
accrued interest.
Dividend Restriction: Banking regulations require
maintaining certain capital levels and may limit the dividends
paid by the bank to the holding company or by the holding
company to shareholders.
Fair Value of Financial Instruments: Fair values of
financial instruments are estimated using market information and
other assumptions, as more fully disclosed in a separate note.
Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of
broad markets for particular items. Changes in assumptions or in
market conditions could significantly affect the estimates.
Operating Segments: The reportable segments are
determined by the products and services offered, primarily
distinguished between banking and mortgage banking. Loans,
investments and deposits generate the revenues in the banking
segment; secondary marketing sales generate the revenue in the
mortgage banking segment. Segment performance is evaluated using
segment profit (loss).
Reclassifications: Some items in the prior year financial
statements were reclassified to conform to the current
presentation.
Adoption of New Accounting Standards:
In June 2009, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 166, Accounting for
Transfers of Financial Assets, an Amendment of FASB Statement
No. 140 (Accounting Standards Codification
(ASC) 860). The new accounting requirement amended
previous guidance relating to the transfers of financial assets
and eliminated the concept of a qualifying special purpose
entity. This Statement was applicable as of the beginning of
each reporting entitys first annual reporting period that
began after November 15, 2009, for interim
87
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
periods within that first annual reporting period and for
interim and annual reporting periods thereafter. This Statement
was applicable to transfers occurring on or after the effective
date. Additionally, on and after the effective date, the concept
of a qualifying special-purpose entity was no longer relevant
for accounting purposes. Therefore, formerly qualifying
special-purpose entities were evaluated for consolidation by
reporting entities on and after the effective date in accordance
with the applicable consolidation guidance. Additionally, the
disclosure provisions of this Statement were also amended and
applied to transfers that occurred both before and after the
effective date of this Statement. The adoption of this Statement
did not have a significant impact to the Companys
financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46 (R) (ASC
810), which amended guidance for consolidation of variable
interest entities by replacing the quantitative-based risks and
rewards calculation for determining which enterprise, if any,
has a controlling financial interest in a variable interest
entity with an approach focused on identifying which enterprise
has the power to direct the activities of a variable interest
entity that most significantly impact the entitys economic
performance and (1) the obligation to absorb losses of the
entity or (2) the right to receive benefits from the
entity. Additional disclosures about an enterprises
involvement in variable interest entities were also required.
This guidance was effective as of the beginning of each
reporting entitys first annual reporting period that began
after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual
reporting periods thereafter. Early adoption was prohibited. The
adoption of this Statement did not have a significant impact to
the Companys financial statements.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Measurements. This ASU provided amendments to Subtopic
820-10 that
require new disclosures as follows: a reporting entity should
disclose separately the amounts of significant transfers in and
out of Level 1 and Level 2 fair value measurements and
describe the reasons for the transfers, and in the
reconciliation for fair value measurements using significant
unobservable inputs (Level 3), a reporting entity should
present separately information about purchases, sales, issuances
and settlements (that is, on a gross basis rather than as one
net number.) This ASU provided amendments to Subtopic
820-10 that
clarified existing disclosures regarding the level of
disaggregation, input and valuation techniques. The new
disclosures and clarifications of existing disclosures were
effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward
of activity in Level 3 fair value measurements. Those
disclosures were effective for fiscal years beginning after
December 15, 2009, and for interim periods within those
fiscal years. The adoption of this ASU did not have a
significant impact to the Companys financial statements.
In February 2010, the FASB issued ASU
No. 2010-09,
Subsequent Events (Topic 855) Amendments to
Certain Recognition and Disclosure Requirements. This ASU
amended Subtopic
855-10 to
state that an entity that is an SEC filer is not required to
disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between
Subtopic
855-10 and
the SECs requirements. The amendments in this ASU were
effective upon issuance. The adoption of this ASU did not have a
significant impact to the Companys financial statements.
In March 2010 the FASB issued ASU
No. 2010-11,
Derivatives and Hedging (Topic 815): Scope Exception Related to
Embedded Credit Derivatives. This ASU clarified the type of
embedded credit derivative that is exempt from embedded
derivative bifurcation requirements. Specifically, only one form
of embedded credit derivative qualifies for the
exemption one that is related only to the
subordination of one financial instrument to another. As a
result, entities that have contracts containing an embedded
credit derivative feature in a form other than such
subordination may need to separately account for the embedded
credit derivative feature. The amendments in this ASU were
effective for each reporting entity at the beginning of its
first fiscal quarter beginning after June 15,
88
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
2010. Early adoption was permitted at the beginning of each
entitys first fiscal quarter beginning after March 5,
2010. The adoption of this ASU did not have a significant impact
to the Companys financial statements.
In April 2010, the FASB issued ASU
No. 2010-18,
Receivables (Topic 310): Effect of a Loan Modification When
the Loan Is Part of a Pool That Is Accounted for as a Single
Asset. This ASU codified the consensus reached in EITF Issue
No. 09-I,
Effect of a Loan Modification When the Loan Is Part of a Pool
That Is Accounted for as a Single Asset. The
amendments to the FASB Accounting Standards
Codificationtm
(Codification) provided that modifications of loans that are
accounted for within a pool under Subtopic
310-30 do
not result in the removal of those loans from the pool even if
the modification of those loans would otherwise be considered a
troubled debt restructuring. An entity is required to consider
whether the pool of assets in which the loan is included is
impaired if expected cash flows for the pool change. ASU
2010-18 did
not affect the accounting for loans under the scope of Subtopic
310-30 that
are not accounted for within pools. Loans accounted for
individually under Subtopic
310-30
continued to be subject to the troubled debt restructuring
accounting provisions within Subtopic
310-40. The
adoption of this ASU did not have a significant impact on the
Companys financial statements.
In July 2010, the FASB issued ASU
No. 2010-20,
Receivables (Topic 310): Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit
Losses. This ASU required entities to provide extensive
disclosures in their financial statements about their financing
receivables, including credit risk exposures and the allowance
for credit losses. According to the ASU, an entity should
provide disclosures on a disaggregated basis. The ASU defines
two levels of disaggregation portfolio segment and
class of financing receivable. Entities with financing
receivables will be required to disclose, among other things, a
roll-forward of the allowance for credit losses, credit quality
information such as credit risk scores or external credit agency
ratings, impaired loan information, modification information,
and nonaccrual and past due information. For public entities,
the disclosures as of the end of the reporting period were
effective for interim and annual reporting periods ending on or
after December 15, 2010.
The disclosures about activity that occurs during a reporting
period are effective for interim and annual reporting periods
beginning on or after December 15, 2010. The Company has
included the required credit quality and allowance for credit
losses disclosures in Note 6 Loans in this
Annual Report on
Form 10-K
for the year ended December 31, 2010.
Effect of Newly Issued But Not Yet Effective Accounting
Standards
In December 2010, the FASB issued ASU
No. 2010-28,
Intangibles, Goodwill and Other (Topic 350): When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with
Zero or Negative Carrying Amounts (a consensus of the FASB
Emerging Issues Task Force). The amendments in this update
modify Step 1 of the goodwill impairment test for entities with
reporting units whose carrying amount for purposes of performing
the Step 1 test is zero or negative. For these reporting units,
an entity is required to perform Step 2 of the goodwill
impairment test if it is more likely than not that a goodwill
impairment exists. In determining whether it is more than likely
than not that a goodwill impairment exists, an entity should
consider whether there are any adverse qualitative factors
indicating that an impairment may exist. The qualitative factors
are consistent with existing guidance, which requires that
goodwill of a reporting unit be tested for impairment between
annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting
unit below its carrying amount. Amendments in this update are
effective for fiscal years and interim periods within those
years, beginning after December 15, 2010. Early adoption is
not permitted. The Company does not expect the adoption of this
ASU to have a significant impact to the Companys financial
statements.
In January 2011, the FASB issued ASU
No. 2011-01,
Receivables (Topic310): Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update
No. 2010-20.
The amendments in this update temporarily delay the effective
date of the disclosures about troubled debt restructurings in
ASU
No. 2010-20,
Receivables
89
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
(Topic 310): Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses,
for public entities. The delay is intended to allow the FASB
time to complete its deliberations on what constitutes a
troubled debt restructuring. The effective date of the new
disclosures about troubled debt restructurings for public
entities and the guidance for determining what constitutes a
troubled debt restructuring will then be coordinated. Currently,
that guidance is anticipated to be effective for interim and
annual periods ending after June 15, 2011.
|
|
NOTE 2
|
SHARE
TRANSACTIONS
|
The Company, a Maryland corporation, was organized by ViewPoint
MHC (the MHC), ViewPoint Financial Group and
ViewPoint Bank to facilitate the second-step conversion of the
Bank from the mutual holding company structure to the stock
holding company structure (the Conversion). Upon
consummation of the Conversion, which occurred on July 6,
2010, the Company became the holding company for the Bank and
now owns all of the issued and outstanding shares of the
Banks common stock. As part of the Conversion, shares of
the Companys common stock were issued and sold in an
offering to certain depositors of the Bank and others.
Concurrent with the offering, each share of ViewPoint Financial
Groups common stock owned by public shareholders was
exchanged for 1.4 shares of the Companys common
stock, with cash being paid in lieu of issuing any fractional
shares.
The Company holds a liquidation account for the benefit of
certain depositors of the Bank who remain depositors of the Bank
at the time of liquidation. The liquidation account is designed
to provide payments to these depositors of their liquidation
interests in the event of a liquidation of the Company and the
Bank, or the Bank alone. In the unlikely event that the Company
and the Bank were to liquidate, all claims of creditors,
including those of depositors, would be paid first, followed by
distribution of the liquidation account maintained by the
Company, with any assets remaining thereafter distributed to the
Company as the holder of the Banks common stock.
In a liquidation of both entities, or of the Bank, when the
Company has insufficient assets to fund the distribution due to
Eligible Account Holders and Supplemental Eligible Account
Holders and the Bank has positive net worth, the Bank shall pay
amounts necessary to fund the Companys remaining
obligations under the liquidation account.
After two years from the date of conversion and upon the written
request of the OTS, the Company will eliminate or transfer the
liquidation account and the interests in such account to the
Bank and the liquidation account shall thereupon become the
liquidation account of the Bank and not be subject in any manner
or amount to the Companys creditors.
Each Eligible Account Holder and Supplemental Eligible Account
Holder would have an initial interest in the liquidation account
for each deposit account, including savings accounts,
transaction accounts such as negotiable order of withdrawal
accounts, money market deposit accounts, and certificates of
deposit, with a balance of $50.00 (dollar amount not in
thousands) or more held in the Bank on December 31, 2008,
or March 31, 2010. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have a pro rata
interest in the total liquidation account for each such deposit
account, based on the proportion that the balance of each such
deposit account on December 31, 2008 or March 31, 2010
bears to the balance of all deposit accounts in the Bank on such
dates.
If, however, on any December 31 annual closing date commencing
after the effective date of the conversion, the amount in any
such deposit account is less than the amount in the deposit
account on December 31, 2008 or March 31, 2010 or any
other annual closing date, then the interest in the liquidation
account relating to such deposit account would be reduced from
time to time by the proportion of any such reduction, and the
interest will cease to exist if the deposit account is closed.
In addition, no interest in the liquidation account would ever
be increased despite any subsequent increase in the related
deposit account. Payment pursuant to liquidation rights of
Eligible
90
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 2
|
SHARE
TRANSACTIONS
(Continued)
|
Account Holders and Supplemental Eligible Account Holders would
be separate and apart from the payment of any insured deposit
accounts to such depositor. Any assets remaining after the above
liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to
the Company as the sole shareholder of the Bank.
The Company sold a total of 19,857,337 shares of common
stock in the offering at $10.00 per share. Proceeds from the
offering, net of $7,773 in expenses, totaled $190,800. The
Company used $15,886 of the proceeds to fund the ESOP. All share
and per share information in this report for periods prior to
the Conversion has been revised to reflect the 1.4:1 conversion
ratio on publicly traded shares, which resulted in a 4,287,752
increase in outstanding shares.
|
|
NOTE 3
|
EARNINGS
(LOSS) PER SHARE
|
Basic earnings (loss) per common share is computed by dividing
net income (loss) by the weighted-average number of common
shares outstanding for the period, reduced for average
unallocated ESOP shares and average unvested restricted stock
awards. Diluted earnings (loss) per common share reflects the
potential dilution that could occur if securities or other
contracts to issue common stock (such as stock awards and
options) were exercised or converted to common stock, or
resulted in the issuance of common stock that then shared in the
Companys earnings. Diluted earnings (loss) per common
share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding for the
period increased for the dilutive effect of unexercised stock
options and unvested restricted stock awards. The dilutive
effect of the unexercised stock options and unvested restricted
stock awards is calculated under the treasury stock method
utilizing the average market value of the Companys stock
for the period. All share and per share information 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.
Unvested share-based payments awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings (loss) per share pursuant to the
two-class method. The two-class method of earnings (loss) per
share calculation is described in
ASC 260-10-45-60B.
The two-class method calculation for 2010, 2009 and 2008 had no
impact on the earnings
91
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 3
|
EARNINGS
(LOSS) PER
SHARE
(Continued)
|
(loss) per common share for these periods. A reconciliation of
the numerator and denominator of the basic and diluted earnings
(loss) per common share computation for 2010, 2009 and 2008
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
31,977,020
|
|
|
|
29,216,909
|
|
|
|
29,366,350
|
|
Less: Average unallocated ESOP shares
|
|
|
(1,567,687
|
)
|
|
|
(925,351
|
)
|
|
|
(1,067,428
|
)
|
Average unvested restricted stock awards
|
|
|
(280,348
|
)
|
|
|
(409,617
|
)
|
|
|
(530,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares
|
|
|
30,128,985
|
|
|
|
27,881,941
|
|
|
|
27,768,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
0.59
|
|
|
$
|
0.10
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings (loss) per common share
|
|
|
30,128,985
|
|
|
|
27,881,941
|
|
|
|
27,768,645
|
|
Add: Dilutive effects of assumed exercises of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Dilutive effects of full vesting of stock awards
|
|
|
2,975
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares and dilutive potential common shares
|
|
|
30,131,960
|
|
|
|
27,881,941
|
|
|
|
27,768,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.59
|
|
|
$
|
0.10
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the options outstanding at December 31, 2010, 2009
and 2008 were excluded in the computation of diluted earnings
(loss) per share because the options exercise prices were
greater than the average market price of the common stock and
were, therefore, antidilutive.
|
|
NOTE 4
|
CONCENTRATION
OF FUNDS
|
At December 31, 2010 and 2009, the Company had the
following balances on deposit at other financial institutions:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Federal Reserve Bank of Dallas
|
|
$
|
44,183
|
|
|
$
|
12,729
|
|
FHLB of Dallas
|
|
|
2,806
|
|
|
|
2,233
|
|
Texas Capital Bank
|
|
|
5,027
|
|
|
|
23,063
|
|
JPMorgan Chase & Co.
|
|
|
199
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,215
|
|
|
$
|
38,025
|
|
|
|
|
|
|
|
|
|
|
On July 21, 2010, President Barack Obama signed the
Dodd-Frank Wall Street Reform and Consumer Protection Act into
law, which, in part, permanently raises the current standard
maximum deposit insurance amount (SMDIA) to $250. The FDIC
insurance coverage limit applies per depositor, per insured
depository institution for each account ownership category.
Cash on hand or on deposit with the Federal Reserve Bank of
$1,000 was required to meet regulatory reserve and clearing
requirements at both December 31, 2010 and 2009.
92
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 4
|
CONCENTRATION
OF
FUNDS
(Continued)
|
At both December 31, 2010 and 2009, the Company maintained
a compensating balance for official check processing of $1,369.
These balances are included in the other assets on the
consolidated balance sheets.
The fair value of
available-for-sale
securities and the related gross unrealized gains and losses
recognized in accumulated other comprehensive income (loss), net
of tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
December 31, 2010
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. government and federal agency
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Agency residential mortgage-backed securities
|
|
|
351,385
|
|
|
|
4,545
|
|
|
|
(1,433
|
)
|
|
|
354,497
|
|
Agency residential collateralized mortgage obligations
|
|
|
357,340
|
|
|
|
3,031
|
|
|
|
(2,479
|
)
|
|
|
357,892
|
|
SBA pools
|
|
|
5,084
|
|
|
|
24
|
|
|
|
-
|
|
|
|
5,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
713,809
|
|
|
$
|
7,600
|
|
|
$
|
(3,912
|
)
|
|
$
|
717,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
|
|
December 31, 2009
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. government and federal agency
|
|
$
|
47,994
|
|
|
$
|
-
|
|
|
$
|
(556
|
)
|
|
$
|
47,438
|
|
Agency residential mortgage-backed securities
|
|
|
197,437
|
|
|
|
4,377
|
|
|
|
(187
|
)
|
|
|
201,627
|
|
Agency residential collateralized mortgage obligations
|
|
|
226,242
|
|
|
|
3,588
|
|
|
|
(1,329
|
)
|
|
|
228,501
|
|
SBA pools
|
|
|
6,565
|
|
|
|
-
|
|
|
|
(73
|
)
|
|
|
6,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
478,238
|
|
|
$
|
7,965
|
|
|
$
|
(2,145
|
)
|
|
$
|
484,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amount, unrecognized gains and losses, and fair
value of securities held to maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
December 31, 2010
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. government and federal agency
|
|
$
|
9,997
|
|
|
$
|
168
|
|
|
$
|
-
|
|
|
$
|
10,165
|
|
Agency residential mortgage-backed securities
|
|
|
162,841
|
|
|
|
5,305
|
|
|
|
(380
|
)
|
|
|
167,766
|
|
Agency residential collateralized mortgage obligations
|
|
|
209,193
|
|
|
|
1,951
|
|
|
|
(4,864
|
)
|
|
|
206,280
|
|
Municipal bonds
|
|
|
50,488
|
|
|
|
578
|
|
|
|
(981
|
)
|
|
|
50,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
432,519
|
|
|
$
|
8,002
|
|
|
$
|
(6,225
|
)
|
|
$
|
434,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
December 31, 2009
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. government and federal agency
|
|
$
|
14,991
|
|
|
$
|
140
|
|
|
$
|
-
|
|
|
$
|
15,131
|
|
Agency residential mortgage-backed securities
|
|
|
154,013
|
|
|
|
4,555
|
|
|
|
(175
|
)
|
|
|
158,393
|
|
Agency residential collateralized mortgage obligations
|
|
|
56,414
|
|
|
|
978
|
|
|
|
(2
|
)
|
|
|
57,390
|
|
Municipal bonds
|
|
|
29,306
|
|
|
|
698
|
|
|
|
(104
|
)
|
|
|
29,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
254,724
|
|
|
$
|
6,371
|
|
|
$
|
(281
|
)
|
|
$
|
260,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 5
|
SECURITIES
(Continued)
|
The fair value of debt securities and carrying amount, if
different, at year end 2010 by contractual maturity were as
follows. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
|
|
|
|
Held to maturity
|
|
|
for sale
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due from one to five years
|
|
|
11,650
|
|
|
|
11,893
|
|
|
|
-
|
|
Due from five to ten years
|
|
|
9,586
|
|
|
|
10,001
|
|
|
|
5,108
|
|
Due after ten years
|
|
|
39,249
|
|
|
|
38,356
|
|
|
|
-
|
|
Agency residential mortgage-backed securities
|
|
|
162,841
|
|
|
|
167,766
|
|
|
|
354,497
|
|
Agency residential collateralized mortgage obligations
|
|
|
209,193
|
|
|
|
206,280
|
|
|
|
357,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
432,519
|
|
|
$
|
434,296
|
|
|
$
|
717,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities at year-end 2010 and 2009 with a carrying amount of
$507,477 and $465,380 were pledged to secure public deposits,
the repurchase agreement, discount window borrowings, and
treasury tax and loan deposits.
At year end 2010 and 2009, there were no holdings of securities
of any one issuer, other than the U.S. Government and its
agencies or U.S. Government Sponsored Enterprises, in an
amount greater than 10% of shareholders equity.
Sales activity of securities and net impairment loss recognized
in earnings for the years ended December 31, 2009 and 2008
was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Proceeds
|
|
$
|
73,785
|
|
|
$
|
-
|
|
Gross gains
|
|
|
2,377
|
|
|
|
-
|
|
Gross losses
|
|
|
-
|
|
|
|
-
|
|
Net impairment loss recognized in earnings
|
|
|
(12,246
|
)
|
|
|
(13,809
|
)
|
The tax provision related to these realized gains for the year
ended December 31, 2009 was $808. There was no sale
activity during 2010 and 2008.
Securities with unrealized losses at year-end 2010 and 2009,
aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss
position, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
December 31, 2010
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
$
|
161,854
|
|
|
$
|
(1,433
|
)
|
|
|
32
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
161,854
|
|
|
$
|
(1,433
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
|
|
125,819
|
|
|
|
(2,372
|
)
|
|
|
18
|
|
|
|
32,358
|
|
|
|
(107
|
)
|
|
|
11
|
|
|
|
158,177
|
|
|
|
(2,479
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
287,673
|
|
|
$
|
(3,805
|
)
|
|
|
50
|
|
|
$
|
32,358
|
|
|
$
|
(107
|
)
|
|
|
11
|
|
|
$
|
320,031
|
|
|
$
|
(3,912
|
)
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
December 31, 2010
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
$
|
28,394
|
|
|
$
|
(380
|
)
|
|
|
4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
28,394
|
|
|
$
|
(380
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
|
|
137,099
|
|
|
|
(4,864
|
)
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137,099
|
|
|
|
(4,864
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
30,316
|
|
|
|
(981
|
)
|
|
|
72
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,316
|
|
|
|
(981
|
)
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
195,809
|
|
|
$
|
(6,225
|
)
|
|
|
91
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
195,809
|
|
|
$
|
(6,225
|
)
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 5
|
SECURITIES
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
December 31, 2009
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
$
|
47,438
|
|
|
$
|
(556
|
)
|
|
|
10
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
47,438
|
|
|
$
|
(556
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
|
40,651
|
|
|
|
(187
|
)
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,651
|
|
|
|
(187
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
|
|
3,793
|
|
|
|
(32
|
)
|
|
|
1
|
|
|
|
89,956
|
|
|
|
(1,297
|
)
|
|
|
20
|
|
|
|
93,749
|
|
|
|
(1,329
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA pools
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,492
|
|
|
|
(73
|
)
|
|
|
2
|
|
|
|
6,492
|
|
|
|
(73
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
91,882
|
|
|
$
|
(775
|
)
|
|
|
22
|
|
|
$
|
96,448
|
|
|
$
|
(1,370
|
)
|
|
|
22
|
|
|
$
|
188,330
|
|
|
$
|
(2,145
|
)
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
December 31, 2009
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Number
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
$
|
30,231
|
|
|
$
|
(175
|
)
|
|
|
7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
30,231
|
|
|
$
|
(175
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
|
|
4
|
|
|
|
-
|
|
|
|
1
|
|
|
|
687
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
691
|
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
4,333
|
|
|
|
(104
|
)
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,333
|
|
|
|
(104
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
34,568
|
|
|
$
|
(279
|
)
|
|
|
20
|
|
|
$
|
687
|
|
|
$
|
(2
|
)
|
|
|
3
|
|
|
$
|
35,255
|
|
|
$
|
(281
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-Temporary
Impairment
In determining
other-than-temporary
impairment for debt securities, management considers many
factors, including: (1) the length of time and the extent
to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer,
(3) whether the market decline was affected by
macroeconomic conditions, and (4) whether the Company has
the intent to sell the debt security or more likely than not
will be required to sell the debt security before its
anticipated recovery. The assessment of whether an
other-than-temporary
decline exists involves a high degree of subjectivity and
judgment and is based on the information available to management
at a point in time. In analyzing an issuers financial
condition, the Company will consider whether the securities are
issued by the federal government or its agencies, whether
downgrades by bond rating agencies have occurred, and the
results of reviews of the issuers financial condition.
When
other-than-temporary
impairment occurs, the amount of the
other-than-temporary
impairment recognized in earnings depends on whether the Company
intends to sell the security or it is more likely than not it
will be required to sell the security before recovery of its
amortized cost basis, less any current period credit loss. If
the Company intends to sell or it is more likely than not it
will be required to sell the security before recovery of its
amortized cost basis, less any current period credit loss, the
other-than-temporary
impairment shall be recognized in earnings equal to the entire
difference between the investments amortized cost basis
and its fair value at the balance sheet date. If the Company
does not intend to sell the security and it is not more likely
than not that the Company will be required to sell the security
before recovery of its amortized cost basis less any current
period loss, the
other-than-temporary
impairment shall be separated into the amount representing the
credit loss and the amount related to all other factors. The
amount of the total
other-than-temporary
impairment related to the credit loss is determined based on the
present value of cash flows expected to be collected and is
recognized in earnings. The amount of the total
other-than-temporary
impairment related to other factors is recognized in other
comprehensive income, net of applicable taxes.
The previous amortized cost basis less the
other-than-temporary
impairment recognized in earnings becomes the new amortized cost
basis of the investment.
During the year ended December 31, 2008, the Company
recognized an
other-than-temporary
impairment charge of $13,809 for collateralized debt
obligations. In April 2009, the FASB issued Staff Position
No. 115-2
and
No. 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (ASC
320-10),
which amended existing guidance for determining whether
impairment is
other-than-temporary
for debt securities. The Company elected to early-adopt this FSP
as of January 1, 2009, and the Company reversed $4,351
(gross of tax) of this impairment charge through retained
earnings, representing the non-credit portion, which resulted in
a $9,458 gross impairment charge related to credit at
January 1, 2009. In addition, accumulated other
comprehensive loss was
95
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 5
|
SECURITIES
(Continued)
|
increased by the corresponding amount, net of tax. During the
first quarter of 2009, the Company recognized a $465 non-cash
impairment charge to write off one of our collateralized debt
obligations due to
other-than-temporary
impairment, which was credit-related.
During the second quarter of 2009, the Company updated its
analysis and recognized $11,781 in impairment charges to write
off our collateralized debt obligations due to
other-than-temporary
impairment, which was determined to be all credit-related. This
charge was determined by applying an
ASC 325-40
discounted cash flow analysis, which included estimates based on
current sales price data, to the securities and reduced their
value to fair value. As required by
ASC 325-40,
when an adverse change in estimated cash flows has occurred, the
credit component of the unrealized loss must be recognized as a
charge to earnings. The analysis of all collateralized debt
obligations in our portfolio included a review of the financial
condition of each of the issuers, with issuer specific and
non-specific estimates of future deferrals, defaults,
recoveries, and prepayments of principal being factored into the
analysis. Prior to the date of sale, no actual loss of principal
or interest had occurred.
These securities were sold in late June 2009. The decision to
sell all of the Companys collateralized debt obligations
was made after considering the following: (1) June
valuation reports from the trustee showed significantly higher
levels of new defaults among the underlying issuers than
previously reported, further reducing collateral coverage
ratios; (2) an analysis of underlying issuers current
return on assets ratios, Tier One capital ratios, leverage
ratios, change in leverage ratios, and non-performing loans
ratios showed ongoing and worsening credit deterioration,
suggesting probable and possible future defaults; (3) the
modeling of Level 3 projections of future cash flows, using
internally defined assumptions for future deferrals, defaults,
recoveries, and prepayments, showed no expected future cash
flows; (4) a ratings downgrade from BBB to C for each of
the securities during the quarter; and (5) the expected
cash realization of tax benefits as a result of the actual sale
of the securities. The sale of the collateralized debt
obligation securities generated proceeds of $224. The Company
used the sales proceeds as the estimated fair value of the
securities in determining the previously recorded impairment
charge. Therefore, no gain or loss was recognized on the sale of
the securities at the time of sale.
There was no credit portion of
other-than-temporary
impairment charges related to the investment securities in 2010.
The Companys SBA pools are guaranteed as to principal and
interest by the U.S. government. The agency residential
mortgage-backed securities and agency collateralized mortgage
obligations were issued and are backed by the Government
National Mortgage Association (GNMA), a U.S. government
agency, or by Fannie Mae or the FHLMC, both U.S. government
sponsored agencies. They carry the explicit or implicit
guarantee of the U.S. government. The Company does not own
any non-agency mortgage-backed securities or collateralized
mortgage obligations.
The Company conducts regular reviews of the municipal bond
agency ratings of securities and receives market alerts whenever
a rating changes. These reviews focus on the underlying rating
of the issuer and also include the insurance rating of
securities that have an insurance component. The ratings and
financial condition of the issuers are monitored as well,
including reviews of official statements and other available
municipal reports. The Companys municipal bonds, which
include both the ratings of the underlying issuers and the
ratings with credit support, are all of investment grade and
rated at least A by Standard and Poors or A3 by
Moodys. All issuers are municipal entities located in
Texas.
96
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
Loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
393,896
|
|
|
$
|
421,935
|
|
Commercial real estate
|
|
|
479,071
|
|
|
|
453,604
|
|
One- to four-family construction
|
|
|
11,435
|
|
|
|
6,195
|
|
Commercial construction
|
|
|
569
|
|
|
|
879
|
|
Home equity
|
|
|
115,418
|
|
|
|
116,138
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
1,000,389
|
|
|
|
998,751
|
|
|
|
|
|
|
|
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
Automobile indirect loans
|
|
|
1,606
|
|
|
|
10,711
|
|
Automobile direct loans
|
|
|
40,944
|
|
|
|
57,186
|
|
Government-guaranteed student loans
|
|
|
4,557
|
|
|
|
5,818
|
|
Commercial non-mortgage loans
|
|
|
39,279
|
|
|
|
27,983
|
|
Consumer lines of credit and unsecured loans
|
|
|
14,197
|
|
|
|
14,781
|
|
Other consumer loans, secured
|
|
|
6,062
|
|
|
|
6,399
|
|
|
|
|
|
|
|
|
|
|
Total other loans
|
|
|
106,645
|
|
|
|
122,878
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
1,107,034
|
|
|
|
1,121,629
|
|
Deferred net loan origination fees
|
|
|
(73
|
)
|
|
|
(1,160
|
)
|
Allowance for loan losses
|
|
|
(14,847
|
)
|
|
|
(12,310
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
1,092,114
|
|
|
$
|
1,108,159
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
12,310
|
|
|
$
|
9,068
|
|
|
$
|
6,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
5,119
|
|
|
|
7,652
|
|
|
|
6,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off
|
|
|
(2,994
|
)
|
|
|
(4,995
|
)
|
|
|
(4,026
|
)
|
Recoveries
|
|
|
412
|
|
|
|
585
|
|
|
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,582
|
)
|
|
|
(4,410
|
)
|
|
|
(3,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,847
|
|
|
$
|
12,310
|
|
|
$
|
9,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 6
|
LOANS
(Continued)
|
Impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Unpaid Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four- family
|
|
$
|
3,188
|
|
|
$
|
3,188
|
|
|
$
|
-
|
|
|
$
|
3,651
|
|
|
$
|
107
|
|
Home equity/home
improvement(1)
|
|
|
455
|
|
|
|
455
|
|
|
|
-
|
|
|
|
366
|
|
|
|
16
|
|
Commercial
|
|
|
1,635
|
|
|
|
1,635
|
|
|
|
-
|
|
|
|
2,710
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
5,278
|
|
|
|
5,278
|
|
|
|
-
|
|
|
|
6,727
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with no related allowance recorded
|
|
|
5,278
|
|
|
|
5,278
|
|
|
|
-
|
|
|
|
6,781
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four- family
|
|
|
2,893
|
|
|
|
2,893
|
|
|
|
474
|
|
|
|
1,631
|
|
|
|
59
|
|
Home equity/home improvement
|
|
|
851
|
|
|
|
851
|
|
|
|
95
|
|
|
|
381
|
|
|
|
2
|
|
Commercial
|
|
|
9,295
|
|
|
|
9,295
|
|
|
|
1,407
|
|
|
|
6,432
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
13,039
|
|
|
|
13,039
|
|
|
|
1,976
|
|
|
|
8,444
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile indirect
|
|
|
88
|
|
|
|
88
|
|
|
|
6
|
|
|
|
141
|
|
|
|
-
|
|
Automobile direct
|
|
|
117
|
|
|
|
117
|
|
|
|
10
|
|
|
|
145
|
|
|
|
-
|
|
Other secured
|
|
|
13
|
|
|
|
13
|
|
|
|
2
|
|
|
|
8
|
|
|
|
-
|
|
Lines of credit/unsecured
|
|
|
108
|
|
|
|
108
|
|
|
|
5
|
|
|
|
120
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
326
|
|
|
|
326
|
|
|
|
23
|
|
|
|
414
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
|
|
272
|
|
|
|
272
|
|
|
|
8
|
|
|
|
299
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with allowance recorded
|
|
|
13,637
|
|
|
|
13,637
|
|
|
|
2,007
|
|
|
|
9,157
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
7,387
|
|
|
|
7,387
|
|
|
|
569
|
|
|
|
6,029
|
|
|
|
184
|
|
Commercial real estate
|
|
|
10,930
|
|
|
|
10,930
|
|
|
|
1,407
|
|
|
|
9,142
|
|
|
|
337
|
|
Consumer
|
|
|
326
|
|
|
|
326
|
|
|
|
23
|
|
|
|
414
|
|
|
|
-
|
|
Commercial non-mortgage
|
|
|
272
|
|
|
|
272
|
|
|
|
8
|
|
|
|
353
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,915
|
|
|
$
|
18,915
|
|
|
$
|
2,007
|
|
|
$
|
15,938
|
|
|
$
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For purposes of assessing and monitoring the risk and
performance of the loan portfolio, home equity and home
improvement loans are aggregated as a portfolio segment.
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Period-end loans with no allocated allowance for loan losses
|
|
$
|
8,240
|
|
Period-end loans with allocated allowance for loan losses
|
|
|
4,352
|
|
|
|
|
|
|
Total
|
|
$
|
12,592
|
|
|
|
|
|
|
Amount of the allowance for loan losses allocated to impaired
loans at period-end
|
|
$
|
738
|
|
98
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 6
|
LOANS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Average of individually impaired loans during the year
|
|
$
|
9,349
|
|
|
$
|
4,225
|
|
Interest income recognized during impairment
|
|
|
366
|
|
|
|
258
|
|
Non-performing loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Loans past due over 90 days still on accrual
|
|
$
|
-
|
|
|
$
|
-
|
|
Nonaccrual loans
|
|
|
17,628
|
|
|
|
11,675
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,628
|
|
|
$
|
11,675
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans includes both smaller balance homogeneous
loans that are collectively evaluated for impairment and
individually classified impaired loans. At December 31,
2010, $8,669 of the $17,628 reported for nonaccrual loans are
troubled debt restructurings that are on nonaccrual status. An
additional $1,287 of performing troubled debt restructurings are
not included as non-performing loans; these loans have been
performing for at least six months and the Company is accruing
interest on these loans. These performing troubled debt
restructurings will be removed from troubled debt restructuring
status after performing for one year.
The Company has recorded $947 of specific reserves to customers
whose loan terms have been modified in troubled debt
restructurings as of December 31, 2010. Management does not
have any outstanding commitments to lend additional funds to
debtors with loans whose terms have been modified in troubled
debt restructurings. If interest income had been accrued on
nonaccrual loans during the periods presented, such income would
have approximated $1,265, $670, and $226 for the years ended
December 31, 2010, 2009 and 2008, respectively. The amount
that was included in interest income on these loans for the
years ended December 31, 2010, 2009 and 2008 was $150, $112
and $32, respectively.
Nonaccrual loans by type were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
One- to four- family
|
|
$
|
5,938
|
|
|
$
|
6,007
|
|
Commercial
|
|
|
9,812
|
|
|
|
4,682
|
|
Home equity/home improvement
|
|
|
1,306
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
17,056
|
|
|
|
11,251
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
Automobile indirect
|
|
|
84
|
|
|
|
124
|
|
Automobile direct
|
|
|
95
|
|
|
|
136
|
|
Consumer other secured
|
|
|
13
|
|
|
|
4
|
|
Consumer lines of credit/unsecured
|
|
|
108
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
Total consumer Loans
|
|
|
300
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
|
|
272
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,628
|
|
|
$
|
11,675
|
|
|
|
|
|
|
|
|
|
|
99
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 6
|
LOANS
(Continued)
|
Below is an analysis of the age of recorded investment in loans
that are past due for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days and
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days Past
|
|
|
60-89 Days Past
|
|
|
Greater Past
|
|
|
Total Loans
|
|
|
|
|
|
|
|
|
|
Due
|
|
|
Due
|
|
|
Due
|
|
|
Past Due
|
|
|
Current Loans
|
|
|
Total Loans
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four- family
|
|
$
|
3,248
|
|
|
$
|
3,068
|
|
|
$
|
3,952
|
|
|
$
|
10,268
|
|
|
$
|
371,316
|
|
|
$
|
381,584
|
|
Commercial
|
|
|
2,869
|
|
|
|
|
|
|
|
1,645
|
|
|
|
4,514
|
|
|
|
475,126
|
|
|
|
479,640
|
|
Home equity/home improvement
|
|
|
1,009
|
|
|
|
175
|
|
|
|
1,047
|
|
|
|
2,231
|
|
|
|
136,934
|
|
|
|
139,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
7,126
|
|
|
|
3,243
|
|
|
|
6,644
|
|
|
|
17,013
|
|
|
|
983,376
|
|
|
|
1,000,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile indirect
|
|
|
56
|
|
|
|
3
|
|
|
|
78
|
|
|
|
137
|
|
|
|
1,469
|
|
|
|
1,606
|
|
Automobile direct
|
|
|
193
|
|
|
|
15
|
|
|
|
64
|
|
|
|
272
|
|
|
|
40,672
|
|
|
|
40,944
|
|
Other secured
|
|
|
32
|
|
|
|
|
|
|
|
2
|
|
|
|
34
|
|
|
|
10,585
|
|
|
|
10,619
|
|
Lines of credit/unsecured
|
|
|
84
|
|
|
|
47
|
|
|
|
108
|
|
|
|
239
|
|
|
|
13,958
|
|
|
|
14,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
365
|
|
|
|
65
|
|
|
|
252
|
|
|
|
682
|
|
|
|
66,684
|
|
|
|
67,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-mortgage
|
|
|
174
|
|
|
|
|
|
|
|
52
|
|
|
|
226
|
|
|
|
39,053
|
|
|
|
39,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,665
|
|
|
$
|
3,308
|
|
|
$
|
6,948
|
|
|
$
|
17,921
|
|
|
$
|
1,089,113
|
|
|
$
|
1,107,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no accruing loans that were greater than 90 days
past due at December 31, 2010.
For loans collateralized by real property and commercial
non-mortgage loans, credit exposure is monitored by internally
assigned grades used for classification of loans and other
assets. A loan is considered special mention if it
is a potential problem loan that is currently performing and
does not meet the criteria for impairment, but where some
concern exists. A loan is considered substandard if
it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any.
Substandard loans include those characterized by the
distinct possibility that the insured institution
will sustain some loss if the deficiencies are not
corrected. Loans classified as doubtful have all of
the weaknesses of those classified as substandard,
with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly
questionable and improbable. All other loans that do not
fall into the above mentioned categories are considered
pass loans. Updates to internally assigned grades
are made monthly
and/or upon
significant developments.
For consumer loans, credit exposure is monitored by payment
history of the loans. Non-performing consumer loans are on
nonaccrual and are generally greater than 90 days past due.
100
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 6
|
LOANS
(Continued)
|
The recorded investment in loans by credit quality indicators at
December 31, 2010 are as follows:
Real
Estate and Commercial Non-Mortgage Credit Exposure
Credit
Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real
|
|
|
Commercial Real
|
|
|
Commercial Non-
|
|
|
Home Equity/Home
|
|
|
|
Estate
|
|
|
Estate
|
|
|
Mortgage
|
|
|
Improvement
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
374,790
|
|
|
$
|
466,230
|
|
|
$
|
38,768
|
|
|
$
|
137,796
|
|
Special Mention
|
|
|
713
|
|
|
|
2,479
|
|
|
|
239
|
|
|
|
63
|
|
Substandard
|
|
|
3,663
|
|
|
|
10,185
|
|
|
|
220
|
|
|
|
337
|
|
Doubtful
|
|
|
2,418
|
|
|
|
746
|
|
|
|
52
|
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
381,584
|
|
|
$
|
479,640
|
|
|
$
|
39,279
|
|
|
$
|
139,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Credit Exposure
Credit
Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of
|
|
|
|
Automobile Indirect
|
|
|
Automobile Direct
|
|
|
Other Secured
|
|
|
Credit/Unsecured
|
|
|
Performing
|
|
$
|
1,522
|
|
|
$
|
40,849
|
|
|
$
|
10,606
|
|
|
$
|
14,089
|
|
Non-performing
|
|
|
84
|
|
|
|
95
|
|
|
|
13
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,606
|
|
|
$
|
40,944
|
|
|
$
|
10,619
|
|
|
$
|
14,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC 820, Fair Value Measurements and Disclosures, establishes a
fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or
liabilities in active markets that the entity has the ability to
access as of the measurement date.
Level 2: Significant other observable inputs other than
Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by
observable market data.
Level 3: Prices or valuation techniques that require inputs
that are both significant and unobservable in the market. These
instruments are valued using the best information available,
some of which is internally developed, and reflects a reporting
entitys own assumptions about the risk premiums that
market participants would generally require and the assumptions
they would use.
The fair values of securities available for sale are determined
by obtaining quoted prices on nationally recognized securities
exchanges (Level 1 inputs) or matrix pricing, which is a
mathematical technique widely used in the industry to value debt
securities without relying exclusively on quoted prices for the
specific securities but rather by relying on the
securities relationship to other benchmark quoted
securities (Level 2 inputs).
The Company elected the fair value option for certain
residential mortgage loans held for sale originated after
May 1, 2010 in accordance with Statement of Financial
Accounting Standard No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, as of
May 1, 2010 (as codified in ASC 820.) This election
allows for a more effective offset of the changes in fair values
of the loans and the derivative instruments used to economically
101
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 7
|
FAIR
VALUE
(Continued)
|
hedge them without the burden of complying with the requirements
for hedge accounting under ASC 815, Derivatives and
Hedging. The Company has not elected the fair value option
for other loans held for sale primarily because they are not
economically hedged using derivative instruments.
Fair values of certain loans held for sale are based on traded
market prices of similar assets, where available,
and/or
discounted cash flows at market interest rates. At
December 31, 2010, certain loans held for sale for which
the fair value option was elected had an aggregate fair value of
$16,877 and an aggregate outstanding principal balance of
$17,092 and were recorded in loans held for sale in the
consolidated balance sheet. Interest income on certain mortgage
loans held for sale is recognized based on contractual rates and
reflected in interest income on loans held for sale in the
consolidated income statement. Net gains of $1,619 resulting
from changes in fair value of these loans were recorded in
mortgage income during 2010, offset by economic hedging losses
in the amount of $1,176.
Mortgage loans held for sale are typically pooled together and
sold into certain exit markets, depending upon underlying
attributes of the loan, such as agency eligibility, product
type, interest rate, and credit quality. Mortgage loans held for
sale are valued predominantly using quoted market prices for
similar instruments. As these prices are derived from quoted
market prices, the Company classifies these valuations as
Level 2 in the fair value disclosures.
The Company enters into a variety of derivative financial
instruments as part of its hedging strategy. The majority of
these derivatives are exchange-traded or traded within highly
active dealer markets. In order to determine the fair value of
these instruments, the Company utilizes the exchange price or
dealer market price for the particular derivative contract;
therefore, these contracts are classified as Level 2.
Assets
and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring
basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010, Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable
|
|
|
|
December 31, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Agency residential mortgage-backed securities
|
|
|
354,497
|
|
|
|
-
|
|
|
|
354,497
|
|
|
|
-
|
|
Agency residential collateralized mortgage obligations
|
|
|
357,892
|
|
|
|
-
|
|
|
|
357,892
|
|
|
|
-
|
|
SBA pools
|
|
|
5,108
|
|
|
|
-
|
|
|
|
5,108
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
717,497
|
|
|
$
|
-
|
|
|
$
|
717,497
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
16,877
|
|
|
|
-
|
|
|
|
16,877
|
|
|
|
-
|
|
Derivative instruments
|
|
|
116
|
|
|
|
-
|
|
|
|
116
|
|
|
|
-
|
|
102
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 7
|
FAIR
VALUE
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009, Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable
|
|
|
|
December 31, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
$
|
47,438
|
|
|
$
|
-
|
|
|
$
|
47,438
|
|
|
$
|
-
|
|
Agency residential mortgage-backed securities
|
|
|
201,627
|
|
|
|
-
|
|
|
|
201,627
|
|
|
|
-
|
|
Agency residential collateralized mortgage obligations
|
|
|
228,501
|
|
|
|
-
|
|
|
|
228,501
|
|
|
|
-
|
|
SBA pools
|
|
|
6,492
|
|
|
|
-
|
|
|
|
6,492
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
484,058
|
|
|
$
|
-
|
|
|
$
|
484,058
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents a reconciliation and income statement
classification of gains and losses for all assets measured at
fair value on a recurring basis using significant unobservable
inputs (Level 3) for the year ended December 31,
2009. There were no assets measured at fair value on a recurring
basis using Level 3 inputs for the year ended
December 31, 2010.
|
|
|
|
|
|
|
Securities available
|
|
|
|
for sale
|
|
|
Beginning balance, January 1, 2009
|
|
$
|
7,940
|
|
Adjustment due to adoption of
ASC 320-10-65,
non-credit portion of impairment previously recorded
|
|
|
4,351
|
|
Proceeds from sale of securities
|
|
|
(224
|
)
|
Total gains or losses (realized /unrealized)
|
|
|
|
|
Included in earnings
|
|
|
|
|
Interest income on securities
|
|
|
159
|
|
Impairment of collateralized debt obligations (all credit)
|
|
|
(12,246
|
)
|
Gains (losses) on sale of securities
|
|
|
20
|
|
Included in other comprehensive income
|
|
|
-
|
|
|
|
|
|
|
Ending balance, December 31, 2009
|
|
$
|
-
|
|
|
|
|
|
|
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring
basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010, Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable
|
|
|
|
December 31, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
11,630
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,630
|
|
Other real estate owned
|
|
|
2,668
|
|
|
|
-
|
|
|
|
2,219
|
|
|
|
449
|
|
103
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 7
|
FAIR
VALUE
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009, Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable
|
|
|
|
December 31, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
3,614
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,614
|
|
Other real estate owned
|
|
|
3,917
|
|
|
|
-
|
|
|
|
3,517
|
|
|
|
400
|
|
Impaired loans, which primarily consist of one- to four-family
residential, home equity, commercial real estate and commercial
non-mortgage loans, are measured for impairment using the fair
value of the collateral (as determined by third party appraisals
using recent comparative sales data and other measures) for
collateral dependent loans. Impaired loans with allocated
allowance for loan losses at December 31, 2010, had a
carrying amount of $11,630, which is made up of the outstanding
balance of $13,637, net of a valuation allowance of $2,007.
Impaired loans with an allocated allowance for loan losses at
December 31, 2009, had a carrying amount of $3,614 which is
made up of the outstanding balance of $4,352, net of a valuation
allowance of $738.
At December 31, 2010, other real estate owned, which is
measured at the lower of book or fair value less costs to sell,
had a net book value of $2,668, which is made up of the
outstanding balance of $3,120, net of a valuation allowance of
$452, resulting in net write-downs of $502 for the year ended
December 31, 2010. At December 31, 2009, other real
estate owned had a net book value of $3,917, which is made up of
the outstanding balance of $3,954, net of a valuation allowance
of $37, resulting in net write-downs of $188 for the year ended
December 31, 2009.
Activity for other real estate owned for the years ended
December 31, 2010 and 2009, and the related valuation
allowances follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance at January 1
|
|
$
|
3,917
|
|
|
$
|
1,561
|
|
Transfers in at fair value
|
|
|
3,506
|
|
|
|
4,487
|
|
Change in valuation allowance
|
|
|
(416
|
)
|
|
|
181
|
|
Sale of property (gross)
|
|
|
(4,339
|
)
|
|
|
(2,312
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
2,668
|
|
|
$
|
3,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
37
|
|
|
$
|
218
|
|
Sale of property
|
|
|
(87
|
)
|
|
|
(369
|
)
|
Valuation adjustment
|
|
|
502
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
452
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
104
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 7
|
FAIR
VALUE
(Continued)
|
Carrying amount and estimated fair values of financial
instruments at year end were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,650
|
|
|
$
|
68,650
|
|
|
$
|
55,470
|
|
|
$
|
55,470
|
|
Securities available for sale
|
|
|
717,497
|
|
|
|
717,497
|
|
|
|
484,058
|
|
|
|
484,058
|
|
Securities held to maturity
|
|
|
432,519
|
|
|
|
434,296
|
|
|
|
254,724
|
|
|
|
260,814
|
|
Loans held for sale
|
|
|
491,985
|
|
|
|
492,367
|
|
|
|
341,431
|
|
|
|
342,663
|
|
Loans, net
|
|
|
1,092,114
|
|
|
|
1,107,640
|
|
|
|
1,108,159
|
|
|
|
1,105,979
|
|
FHLB stock
|
|
|
20,569
|
|
|
|
N/A
|
|
|
|
14,147
|
|
|
|
N/A
|
|
Bank-owned life insurance
|
|
|
28,501
|
|
|
|
28,501
|
|
|
|
28,117
|
|
|
|
28,117
|
|
Accrued interest receivable
|
|
|
9,248
|
|
|
|
9,248
|
|
|
|
8,099
|
|
|
|
8,099
|
|
Derivative instruments
|
|
|
116
|
|
|
|
116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
(2,017,550
|
)
|
|
$
|
(2,087,160
|
)
|
|
$
|
(1,796,665
|
)
|
|
$
|
(1,771,080
|
)
|
FHLB advances
|
|
|
(461,219
|
)
|
|
|
(470,729
|
)
|
|
|
(312,504
|
)
|
|
|
(319,052
|
)
|
Repurchase agreement
|
|
|
(25,000
|
)
|
|
|
(27,255
|
)
|
|
|
(25,000
|
)
|
|
|
(25,277
|
)
|
Other borrowings
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
Accrued interest payable
|
|
|
(1,541
|
)
|
|
|
(1,541
|
)
|
|
|
(1,884
|
)
|
|
|
(1,884
|
)
|
The methods and assumptions used to estimate fair value are
described as follows:
Estimated fair value is the carrying amount for cash and cash
equivalents, bank-owned life insurance and accrued interest
receivable and payable. For loans, fair value is based on
discounted cash flows using current market offering rates,
estimated life, and applicable credit risk. For deposits and
borrowings, fair value is calculated using the FHLB advance
curve to discount cash flows for the estimated life for deposits
and according to the contractual repayment schedule for
borrowings. Fair value of debt is based on discounting the
estimated cash flows using the current rate at which similar
borrowings would be made with similar terms and remaining
maturities. It was not practicable to determine the fair value
of FHLB stock due to restrictions on its transferability. The
fair value of off-balance sheet items is based on the current
fees or costs that would be charged to enter into or terminate
such arrangements and are not considered significant to this
presentation.
|
|
NOTE 8
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
In May 2010, the Company began entering into interest rate lock
commitments (IRLCs) with prospective residential
mortgage borrowers whereby the interest rate on the loan is
determined prior to funding and the borrowers have locked into
that interest rate. These commitments are carried at fair value
in accordance with SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities, as
codified in ASC 820, Fair Value Measurements and
Disclosures. The estimated fair values of IRLCs are based on
quoted market values and are recorded in other assets in the
consolidated balance sheets. The initial and subsequent changes
in the value of IRLCs are a component of net gain on sale of
loans.
The Company actively manages the risk profiles of its IRLCs and
mortgage loans held for sale on a daily basis. To manage the
price risk associated with IRLCs, the Company enters into
forward sales of mortgage-backed securities in an amount equal
to the portion of the IRLC expected to close, assuming no change
in mortgage interest rates. In addition, to manage the interest
rate risk associated with mortgage loans held for sale, the
Company enters
105
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 8
|
DERIVATIVE
FINANCIAL
INSTRUMENTS
(Continued)
|
into forward sales of mortgage-backed securities to deliver
mortgage loan inventory to investors. The estimated fair values
of forward sales of mortgage-backed securities and forward sale
commitments are based on quoted market values and are recorded
as an other asset or an accrued liability in the consolidated
balance sheets. The initial and subsequent changes in value on
forward sales of mortgage-backed securities are a component of
net gain on sale of loans.
The following table provides the outstanding notional balances
and fair values of outstanding positions for the dates
indicated, and recorded gains (losses) during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
Expiration
|
|
|
Notional
|
|
|
|
|
|
Recorded
|
|
December 31, 2010
|
|
Dates
|
|
|
Balance
|
|
|
Fair Value
|
|
|
Gains/(Losses)
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
|
|
2011
|
|
|
$
|
16,082
|
|
|
$
|
11
|
|
|
$
|
11
|
|
Loan sale commitments
|
|
|
2011
|
|
|
|
10,207
|
|
|
|
(79
|
)
|
|
|
1,367
|
|
Forward mortgage-backed securities trades
|
|
|
2011
|
|
|
|
23,102
|
|
|
|
105
|
|
|
|
(1,176
|
)
|
|
|
NOTE 9
|
LOAN
SALES AND SERVICING
|
Loans held for sale activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance at January 1
|
|
$
|
341,431
|
|
|
$
|
159,884
|
|
Loans originated for sale
|
|
|
7,877,505
|
|
|
|
5,742,599
|
|
Proceeds from sale of loans held for sale
|
|
|
(7,739,992
|
)
|
|
|
(5,577,643
|
)
|
Net gain on sale of loans held for sale
|
|
|
13,041
|
|
|
|
16,591
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale, net at December 31
|
|
$
|
491,985
|
|
|
$
|
341,431
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans serviced for others are not reported as assets,
although there is a servicing asset associated with loans
serviced for a third party. The principal balances of these
loans at year-end are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Serviced loans
|
|
$
|
110,691
|
|
|
$
|
145,762
|
|
|
$
|
178,611
|
|
Subserviced loans
|
|
|
164,648
|
|
|
|
249,709
|
|
|
|
256,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans serviced for others
|
|
$
|
275,339
|
|
|
$
|
395,471
|
|
|
$
|
435,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has recorded a mortgage servicing asset related to
the loans sold to a third party. The Company also provides
mortgage subservicing operations for third parties. There is no
mortgage servicing asset recorded related to the subserviced
loans as the Company does not own such rights. Custodial escrow
balances maintained in connection with serviced and subserviced
loans and included in deposits were $1,012 and $1,439 at
year-end 2010 and 2009.
Mortgage servicing rights, which are carried at lower of cost or
fair value, were carried at their fair value of $636 at
December 31, 2010, which is made up of the outstanding
balance of $812, net of a valuation allowance of
106
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 9
|
LOAN
SALES AND
SERVICING
(Continued)
|
$176 at December 31, 2010. Activity for capitalized
mortgage servicing rights for the years ended December 31,
2010 and 2009, and the related valuation allowance follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance at January 1
|
|
$
|
872
|
|
|
$
|
1,372
|
|
Amortized to expense
|
|
|
(251
|
)
|
|
|
(309
|
)
|
Change in valuation allowance
|
|
|
15
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
636
|
|
|
$
|
872
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
191
|
|
|
$
|
-
|
|
Additions expensed
|
|
|
-
|
|
|
|
300
|
|
Valuation adjustment
|
|
|
(15
|
)
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
176
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
Management periodically evaluates servicing assets for
impairment. At December 31, 2010, the fair value of
servicing assets was determined using a weighted-average
discount rate of 11% and an average prepayment speed of 17.89%.
At December 31, 2009, the fair value of servicing assets
was determined using a weighted-average discount rate of 11% and
an average prepayment speed of 16.7%. For purposes of measuring
impairment, servicing assets are stratified by loan type. An
impairment is recognized if the carrying value of servicing
assets exceeds the fair value of the stratum.
The fair values of servicing assets were approximately $636 and
$872 at December 31, 2010 and 2009, respectively, on
serviced loans totaling $110,691 and $145,762 at
December 31, 2010 and 2009.
The weighted average amortization period for servicing assets is
2.4 years. Estimated amortization expense for each of the
next five years is:
|
|
|
|
|
2011
|
|
$
|
200
|
|
2012
|
|
|
152
|
|
2013
|
|
|
115
|
|
2014
|
|
|
87
|
|
2015
|
|
|
65
|
|
|
|
NOTE 10
|
ACCRUED
INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE
|
Accrued interest consists of the following:
|
|
|
|
|
|
|
|
|
Accrued Interest Receivable:
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Loans
|
|
$
|
5,324
|
|
|
$
|
5,217
|
|
Securities and overnight funds
|
|
|
3,924
|
|
|
|
2,882
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,248
|
|
|
$
|
8,099
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest Payable:
|
|
|
|
|
|
|
Time deposits
|
|
$
|
483
|
|
|
$
|
491
|
|
Borrowings
|
|
|
1,055
|
|
|
|
1,390
|
|
Other liabilities
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,541
|
|
|
$
|
1,884
|
|
|
|
|
|
|
|
|
|
|
107
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 11
|
PREMISES
AND EQUIPMENT
|
Premises and equipment were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Land
|
|
$
|
17,197
|
|
|
$
|
17,197
|
|
Buildings
|
|
|
42,922
|
|
|
|
42,911
|
|
Furniture, fixtures and equipment
|
|
|
36,209
|
|
|
|
35,398
|
|
Leasehold improvements
|
|
|
2,133
|
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,461
|
|
|
|
97,733
|
|
Less: accumulated depreciation
|
|
|
(49,730
|
)
|
|
|
(47,293
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,731
|
|
|
$
|
50,440
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $3,571, $3,784, and $4,365 for 2010,
2009, and 2008, respectively.
Operating Leases: The Company leases certain bank or
loan production office properties and equipment under operating
leases. Rent expense was $1,531, $1,662, and $1,415 for 2010,
2009, and 2008, respectively.
Rent commitments, before considering renewal options that
generally are present, as of December 31, 2010, were as
follows:
|
|
|
|
|
2011
|
|
|
1,079
|
|
2012
|
|
|
925
|
|
2013
|
|
|
667
|
|
2014
|
|
|
364
|
|
2015
|
|
|
360
|
|
Thereafter
|
|
|
2,851
|
|
|
|
|
|
|
Total
|
|
$
|
6,246
|
|
|
|
|
|
|
At December 31, 2010, the Company had no commitments for
future locations and held two parcels of land for future
development.
Time deposits of $100 or more were $554,189 and $499,385 at
year-end 2010 and 2009. On July 21, 2010, President Barack
Obama signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act into law, which, in part, permanently raises the
current standard maximum deposit insurance amount (SMDIA) to
$250. The FDIC insurance coverage limit applies per depositor,
per insured depository institution for each account ownership
category.
At December 31, 2010 and 2009, we had $46,990 and $74,039
in reciprocal deposits, respectively. This 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 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.
108
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 12
|
DEPOSITS
(Continued)
|
At December 31, 2010, scheduled maturities of time deposits
for the next five years with the weighted average rate at the
end of the period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
2011
|
|
|
480,928
|
|
|
|
1.45
|
%
|
2012
|
|
|
112,694
|
|
|
|
2.09
|
|
2013
|
|
|
51,491
|
|
|
|
4.03
|
|
2014
|
|
|
14,410
|
|
|
|
4.22
|
|
2015
|
|
|
5,399
|
|
|
|
2.20
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
664,922
|
|
|
|
1.83
|
%
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 and 2009, the Companys deposits
included public funds totaling $393,341 and $336,277.
Interest expense on deposits is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest bearing demand
|
|
$
|
8,976
|
|
|
$
|
3,350
|
|
|
$
|
868
|
|
Savings and money market
|
|
|
9,102
|
|
|
|
12,007
|
|
|
|
14,442
|
|
Time
|
|
|
12,937
|
|
|
|
19,009
|
|
|
|
20,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,015
|
|
|
$
|
34,366
|
|
|
$
|
35,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13
|
REPURCHASE
AGREEMENT
|
In April 2008, the Company entered into a ten-year term
structured repurchase callable agreement with Credit Suisse
Securities (U.S.A.) LLC for $25,000 to leverage the balance
sheet and increase liquidity. The interest rate was fixed at
1.62% for the first year of the agreement. The interest rate now
adjusts quarterly to 6.25% less the 90 day LIBOR, subject
to a lifetime cap of 3.22%. The rate was 3.22% at
December 31, 2010. At maturity, the securities underlying
the agreement are returned to the Company. The fair value of
these securities sold under agreements to repurchase was $33,504
at December 31, 2010 and $32,755 at December 31, 2009.
The Company retains the right to substitute securities under the
terms of the agreements. Information concerning the securities
sold under agreements to repurchase is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Average balance during the year
|
|
$
|
32,328
|
|
|
$
|
31,967
|
|
|
$
|
37,366
|
|
Average interest rate during the year
|
|
|
1.87
|
%
|
|
|
2.18
|
%
|
|
|
3.90
|
%
|
Maximum month-end balance during the year
|
|
$
|
34,053
|
|
|
$
|
33,747
|
|
|
$
|
39,835
|
|
Weighted average interest rate at year-end
|
|
|
2.17
|
%
|
|
|
1.69
|
%
|
|
|
3.05
|
%
|
NOTE 14
BORROWINGS
Federal Home Loan Bank Advances
At December 31, 2010, advances from the FHLB totaled
$461,219, net of a restructuring prepayment penalty of $5,259,
and had interest rates ranging from 0.16% to 5.99% with a
weighted average rate of 3.21%. At
109
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
NOTE 14
BORROWINGS
(Continued)
December 31, 2009, advances from the FHLB totaled $312,504
and had interest rates ranging from 0.20% to 7.35% with a
weighted average rate of 4.06%. At December 31, 2010 and
2009, the Company had $22,000 in variable rate FHLB advances;
the remainder of FHLB advances at those dates had fixed rates.
In November 2010, $91,644 in fixed-rate FHLB advances were
modified. The 22 advances that were modified 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 $91,644 of new, lower-cost FHLB advances with
a weighted average rate of 1.79% and an average term to maturity
of approximately 4.9 years. The early repayment of the debt
resulted in a prepayment penalty of $5,421, 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%.
Each advance is payable at its maturity date and is subject to
prepayment penalties. The advances were collateralized by
mortgage and commercial loans with FHLB collateral values of
$654,913 and $508,580 under a blanket lien arrangement at the
years ended December 31, 2010 and 2009. Based on this
collateral, the Company was eligible to borrow an additional
$756,432 and $438,070 at year-end 2010 and 2009.
In addition, FHLB stock also secures debts to the FHLB. The
current agreement provided for a maximum borrowing amount of
approximately $1,223,035 and $750,699 at December 31, 2010
and 2009.
At December 31, 2010, the advances are structured to
contractually pay down as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
2011
|
|
|
218,357
|
|
|
|
0.49
|
%
|
2012
|
|
|
36,720
|
|
|
|
2.22
|
|
2013
|
|
|
17,134
|
|
|
|
4.47
|
|
2014
|
|
|
36,517
|
|
|
|
2.86
|
|
2015
|
|
|
61,742
|
|
|
|
3.66
|
|
Thereafter
|
|
|
96,008
|
|
|
|
3.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466,478
|
|
|
|
1.95
|
%
|
Restructuring prepayment penalty
|
|
|
(5,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
461,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Borrowings
At December 31, 2010, the Company had borrowing
availability through the Federal Reserve Bank of $58,859, the
collateral value assigned to the securities pledged to the
discount window. Additionally, uncommitted, unsecured fed funds
lines of credit of $41,000 and $25,000 were available at
December 31, 2010 from correspondent banks. The borrowing
availability at the Federal Reserve Bank and the two lines of
credit were also available at December 31, 2009.
In October 2009, the Company entered into four promissory notes
for unsecured loans totaling $10,000 obtained from local private
investors to increase funds available at the Company level. The
lenders are all members of the same family and long-time
customers of the Bank. One of the notes has an original
principal amount of $7,000 and the other three notes have
principal amounts of $1,000 each. Each of the four promissory
notes initially bears interest at 6% per annum, thereafter being
adjusted quarterly to a rate equal to the national average
2-year jumbo
CD rate plus 2%, with a floor of 6% and a ceiling of 9%.
Interest-only payments under the notes are due quarterly. The
unpaid principal balance and all accrued but unpaid interest
under each of the notes are due and
110
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
NOTE 14
BORROWINGS
(Continued)
payable on October 15, 2014. Upon at least 180 days
notice to the Company, the lender under each note may require
the Company to prepay the note in part or in full as of the
second
and/or
fourth anniversaries of the note. The notes cannot be prepaid by
the Company during the first two years of the loan term, but
thereafter can be prepaid in whole or in part at any time
without fee or penalty.
Post-Retirement Healthcare Plan: Employees are
currently eligible to receive, during retirement, specified
company-paid medical benefits. Upon retirement, the Company will
provide certain amounts toward the eligible participants
group medical coverage. Eligibility is determined by age and
length of service. Employees are eligible for this benefit if
they have attained a minimum age of 55 and have a minimum of
10 years of service, and their combined age plus their
years of service equals a minimum of 75. This benefit would be
provided only until the participant becomes eligible for
Medicare. The Companys benefit expense under this program
was $35, $22, and $21 for 2010, 2009, and 2008.
The discount rate used to measure the projected benefit
obligation was 4.50%, 5.54%, and 5.80% for 2010, 2009, and 2008.
The Companys projected benefit obligation is not affected
by increases in future health premiums as the Companys
contribution to the plan is a fixed monthly amount. Accrued
post-retirement benefit obligations for the retiree health plan
at December 31, 2010 and 2009, were approximately $225 and
$196.
401(k) Plan: The Company offers a KSOP plan with a 401(k)
match. Employees are eligible for the match if they have one
year of service with 1,000 hours worked and become eligible
each quarter once they meet the eligibility requirements.
Employees may participate on their own without meeting the
service requirements; however, in this case, employees do not
qualify for the match. Employees may contribute between 2% and
75% of their compensation subject to certain limitations. A
matching contribution will be paid to eligible employees
accounts, which is equal to 100% of the first 5% of the
employees contribution up to a maximum of 5% of the
employees qualifying compensation. Matching expense for
2010, 2009 and 2008 was $735, $712 and $583.
The Companys mortgage banking subsidiary, VPM, offers a
401(k) plan with an employer match. Employees are eligible on
the first day of the quarter after a six month waiting period
following date of hire. Employees may contribute between 2% and
75% of their compensation subject to certain limitations. A
matching contribution will be paid to eligible employee
accounts; this contribution is equal to 60% of the first 6% of
the employees contribution with a maximum amount of $3.
Matching expense for 2010, 2009 and 2008 was $125, $132 and $96.
Deferred Compensation Plan: The Company has entered
into certain non-qualified deferred compensation agreements with
members of the executive management team, directors, and certain
employees. These agreements, which are subject to the rules of
section 409(a) of the Internal Revenue Code, relate to the
voluntary deferral of compensation received and do not have an
employer contribution. The accrued liability as of
December 31, 2010 and 2009 is $1,338 and $1,124.
The Company has entered into a deferred compensation agreement
with the President of the Company that provides benefits payable
based on specified terms of the agreement. A portion of the
benefit is subject to forfeiture if the President willfully
leaves employment or employment is terminated for cause as
defined in this agreement. The estimated liability under the
agreement is being accrued over the remaining years specified in
the agreement. The accrued liability as of December 31,
2010 and 2009 is approximately $1,163 and $1,021. The expense
for this deferred compensation agreement was $142 for the year
ended December 31, 2010, $126 for the year ended
December 31, 2009, and a credit of $101 for the year ended
December 31, 2008. The deferred compensation per the
agreement is based upon the performance of specified assets
whose market value declined in 2008; the performance of these
assets improved in 2009 and 2010.
111
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 15
|
BENEFITS
(Continued)
|
Included in other assets is a universal life insurance policy as
well as variable and fixed annuity contracts totaling $2,663 and
$2,361 at December 31, 2010 and 2009. The Company is the
owner and beneficiary of the policy. The policy pays interest on
the funds invested. The life insurance is recorded at the net
cash surrender value, or the amount that can be realized.
Interest income on the investment is included in the statements
of income.
Bank-Owned Life Insurance: Bank-owned life insurance
policies were purchased on September 4, 2007, for $26,037.
A bank-owned life insurance program is an insurance arrangement
in which the Company purchases a life insurance policy insuring
a group of key personnel. The purchase of these life insurance
policies allows the Company to use tax-advantaged rates of
return.
The Company provided those who agreed to be insured under the
bank-owned life insurance plan with a share of the death benefit
while they remain actively employed with the Company. The
benefit will equal 200% of each participating employees
base salary at the time of plan implementation and 200% of each
participating directors annual base fees. Imputed taxable
income will be based on the death benefit. In the event of death
while actively employed with the Company, the deceased
employees or directors designated beneficiary will
receive an income tax free death benefit paid directly from the
insurance carrier.
The balance of the bank-owned life insurance policy, reported as
an asset, at December 31, 2010, and 2009 totaled $28,501
and $28,117, and income for 2010, 2009 and 2008 totaled $384,
$539 and $1,081.
Directors Agreements: In May 2007, certain directors
entered into separation agreements with the Company in
connection with the conclusion of their service as directors.
The agreements, in recognition of the directors past
service, provide for separation compensation. Payments under
these agreements commenced on the first day of the month
following the service completion date and were made on each
anniversary of that date thereafter during the payout period. On
each anniversary of the first payment, the annual benefit
increased at a rate of 6% per annum. The final payment under
this agreement took place in June 2010. The accrued liability as
of December 31, 2010, and 2009, was approximately $0 and
$70. The expense for these agreements was $70, $5 and $13 for
2010, 2009 and 2008.
In connection with the 2006 minority stock offering, the Company
established an Employee Stock Ownership Plan (ESOP)
for the benefit of its employees with an effective date of
October 1, 2006. The ESOP purchased 928,395 shares of
common stock with proceeds from a ten year note in the amount of
$9,284 from the Company. After the 2010 Conversion and stock
offering, the unearned shares held by the ESOP were adjusted to
reflect the 1.4:1 exchange ratio on publicly traded shares.
Additionally, in connection with the 2010 Conversion and stock
offering, the ESOP purchased 1,588,587 shares of common
stock with proceeds from a 30 year note in the amount of
$15,886 from the Company.
The Companys Board of Directors determines the amount of
contribution to the ESOP annually but is required to make
contributions sufficient to service the ESOPs debt. Shares
are released for allocation to employees as the ESOP debt is
repaid. Eligible employees receive an allocation of released
shares at the end of the calendar year on a relative
compensation basis. Employees are eligible if they had one year
of service with 1,000 hours worked and become eligible each
quarter once they meet the eligibility requirements. The
dividends paid on allocated shares will be paid to employee
accounts. Dividends on unallocated shares held by the ESOP will
be applied to the ESOP note payable.
Contributions to the ESOP during 2010, 2009, and 2008 were
$1,629, $1,218, and $1,403 and expense was $1,624, $1,297 and
$1,721 for December 31, 2010, 2009 and 2008.
112
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 16
|
ESOP
PLAN
(Continued)
|
Shares held by the ESOP were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Allocated to participants
|
|
|
601,912
|
|
|
|
444,847
|
|
Unearned
|
|
|
2,286,428
|
|
|
|
854,906
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
2,888,340
|
|
|
|
1,299,753
|
|
|
|
|
|
|
|
|
|
|
Fair value of unearned shares at December 31
|
|
$
|
26,728
|
|
|
$
|
8,799
|
|
|
|
NOTE 17
|
SHARE-BASED
COMPENSATION
|
At its annual meeting held May 22, 2007, the Companys
shareholders approved the ViewPoint Financial Group 2007 Equity
Incentive Plan. The Company is accounting for this plan under
ASC 718, Compensation Stock
Compensation, which requires companies to record
compensation cost for share-based payment transactions with
employees in return for employment service. Under this plan,
1,624,690 options to purchase shares of common stock and 649,877
restricted shares of common stock were made available. All share
and per share information for periods prior to the Conversion
has been adjusted to reflect the 1.4:1 exchange ratio on
publicly traded shares.
The compensation cost that has been charged against income for
the restricted stock portion of the Equity Incentive Plan was
$1,483, $1,585 and $1,582 for 2010, 2009 and 2008. The
compensation cost that has been charged against income for the
stock option portion of the Equity Incentive Plan was $319, $178
and $137 for 2010, 2009 and 2008.
The total income tax benefit recognized in the income statement
for share-based compensation was $631, $599 and $584 for 2010,
2009 and 2008.
The restricted stock portion of the plan allows the Company to
grant restricted stock to directors, advisory directors,
officers and other employees. Compensation expense is recognized
over the vesting period of the awards based on the fair value of
the stock at issue date, which is determined using the last sale
price as quoted on the NASDAQ Stock Market. Awarded shares vest
at a rate of 20% of the initially awarded amount per year,
beginning on the first anniversary date of the award, and are
contingent upon continuous service by the recipient through the
vesting date. Under the terms of the Equity Incentive Plan,
awarded shares are restricted as to transferability and may not
be sold, assigned, or transferred prior to vesting. The
Compensation Committee established a vesting period of five
years, subject to acceleration of vesting upon a change in
control of the Company or upon the termination of the award
recipients service due to death or disability. Total
restricted shares issuable under the plan are 72,898 at year-end
2010, and 602,288 shares had been issued under the plan
through December 31, 2010. 25,309 unvested shares were
forfeited during 2010.
A summary of changes in the Companys nonvested shares for
the year follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Non-vested at January 1, 2010
|
|
|
364,161
|
|
|
$
|
13.15
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(120,459
|
)
|
|
|
13.16
|
|
Forfeited
|
|
|
(25,309
|
)
|
|
|
13.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2010
|
|
|
218,393
|
|
|
$
|
13.14
|
|
|
|
|
|
|
|
|
|
|
113
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 17
|
SHARE-BASED
COMPENSATION
(Continued)
|
As of December 31, 2010, there was $1,990 of total
unrecognized compensation expense related to non-vested shares
awarded under the restricted stock plan. That expense is
expected to be recognized over a weighted-average period of
1.4 years. The total fair value of shares vested during the
year ended December 31, 2010, was $1,361.
The stock option portion of the plan permits the grant of stock
options to its directors, advisory directors, officers and other
employees for up to 1,624,690 shares of common stock. Under
the terms of the stock option plan, stock options may not be
granted with an exercise price less than the fair market value
of the Companys common stock on the date the option is
granted and may not be exercised later than ten years after the
grant date. The fair market value is the last sale price as
quoted on the NASDAQ Stock Market on the date of grant. All
stock options granted must vest over at least five years,
subject to acceleration of vesting upon a change in control,
death or disability. The Stock Option Plan became effective on
May 22, 2007, and remains in effect for a term of ten years.
The fair value of each option award is estimated on the date of
grant using a closed form option valuation (Black-Scholes) model
that uses the assumptions noted in the table below. The
risk-free interest rate is the implied yield available on
U.S. Treasury zero-coupon issues with a remaining term
equal to the expected term of the stock option in effect at the
time of the grant. Although the contractual term of the stock
options granted is ten years, the expected term of the stock is
less because option restrictions do not permit recipients to
sell or hedge their options, and therefore, we believe,
encourage exercise of the option before the end of the
contractual term. The Company does not have sufficient
historical information about its own employees vesting
behavior; therefore, the expected term of stock options is
estimated using the average of the vesting period and
contractual term. Expected volatilities are based on historical
volatilities of the Companys common stock. Expected
dividends are the estimated dividend rate over the expected term
of the stock options.
For awards with performance-based vesting conditions,
compensation cost is recognized when the achievement of the
performance condition is considered probable of achievement. If
a performance condition is subsequently determined to be
improbable of achievement, compensation cost is reversed.
The weighted average fair value of each stock option granted
during 2010, 2009 and 2008 was $4.09, $3.91 and $3.30,
respectively. The fair value of options granted was determined
using the following weighted-average assumptions as of grant
date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free interest rate
|
|
|
2.60%
|
|
|
|
2.69%
|
|
|
|
3.45%
|
|
Expected term of stock options (years)
|
|
|
7.5
|
|
|
|
7.5
|
|
|
|
7.5
|
|
Expected stock price volatility
|
|
|
35.80%
|
|
|
|
37.00%
|
|
|
|
26.19%
|
|
Expected dividends
|
|
|
1.29%
|
|
|
|
1.53%
|
|
|
|
1.84%
|
|
114
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 17
|
SHARE-BASED
COMPENSATION
(Continued)
|
A summary of activity in the stock option portion of the plan
for 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Outstanding at January 1, 2010
|
|
|
366,376
|
|
|
$
|
12.25
|
|
|
|
8.1
|
|
|
$
|
114
|
|
Granted
|
|
|
117,072
|
|
|
|
11.08
|
|
|
|
10.0
|
|
|
|
71
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(25,893
|
)
|
|
|
11.30
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
457,555
|
|
|
$
|
12.01
|
|
|
|
7.6
|
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested and expected to vest
|
|
|
414,050
|
|
|
$
|
12.15
|
|
|
|
7.5
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
62,059
|
|
|
$
|
12.93
|
|
|
|
6.6
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were exercised in 2010, 2009 or 2008. As of
December 31, 2010, there was $508 of total unrecognized
compensation expense related to non-vested stock options. That
expense is expected to be recognized over a weighted-average
period of 2.2 years. At December 31, 2010, the Company
applied an estimated forfeiture rate of 11% based on historical
activity. The intrinsic value for stock options is calculated
based on the difference between the exercise price of the
underlying awards and the market price of our common stock as of
the reporting date.
The Compensation Committee may grant stock appreciation rights,
which give the recipient of the award the right to receive the
excess of the market value of the shares represented by the
stock appreciation rights on the date exercised over the
exercise price. As of December 31, 2010, the Company has
not granted any stock appreciation rights.
The Companys pre-tax income is subject to federal income
tax and state margin tax at a combined rate of 36% for 2010 and
35% for 2009 and 2008.
Income tax expense (benefit) for 2010, 2009, and 2008 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current expense (benefit)
|
|
$
|
9,426
|
|
|
$
|
(2,991
|
)
|
|
$
|
3,027
|
|
Deferred expense (benefit)
|
|
|
(794
|
)
|
|
|
3,951
|
|
|
|
(5,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
8,632
|
|
|
$
|
960
|
|
|
$
|
(2,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 18
|
INCOME
TAXES
(Continued)
|
At December 31, 2010 and 2009, deferred tax assets and
liabilities were due to the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
5,295
|
|
|
$
|
4,266
|
|
Other real estate owned
|
|
|
161
|
|
|
|
376
|
|
Depreciation
|
|
|
1,497
|
|
|
|
1,549
|
|
Deferred compensation arrangements
|
|
|
763
|
|
|
|
599
|
|
Self-funded health insurance
|
|
|
110
|
|
|
|
88
|
|
Non-accrual interest
|
|
|
173
|
|
|
|
162
|
|
Restricted stock and stock options
|
|
|
638
|
|
|
|
426
|
|
Other
|
|
|
336
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,973
|
|
|
|
7,578
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Mortgage servicing assets
|
|
|
(227
|
)
|
|
|
(302
|
)
|
Net unrealized gain on securities available for sale
|
|
|
(1,315
|
)
|
|
|
(2,017
|
)
|
Partnership Lone Star New Markets Fund
|
|
|
(774
|
)
|
|
|
|
|
Other
|
|
|
(77
|
)
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,393
|
)
|
|
|
(2,494
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
6,580
|
|
|
$
|
5,084
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax asset is recorded on the consolidated
balance sheets under other assets. Management
performed an analysis related to the Companys deferred tax
asset for each of the years ended December 31, 2010 and
2009 and, based upon these analyses, no valuation allowance was
deemed necessary as of December 31, 2010 or 2009.
Effective tax rates differ from the federal statutory rate of
35% in 2010 and 34% in 2009 and 2008 applied to income before
income taxes due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate times financial statement income
|
|
$
|
9,251
|
|
|
$
|
1,234
|
|
|
$
|
(1,901)
|
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
|
29
|
|
|
|
98
|
|
|
|
72
|
|
New market tax credit
|
|
|
(119)
|
|
|
|
(113)
|
|
|
|
(106)
|
|
Bank-owned life insurance income
|
|
|
(134)
|
|
|
|
(183)
|
|
|
|
(368)
|
|
Municipal interest income
|
|
|
(535)
|
|
|
|
(156)
|
|
|
|
(37)
|
|
Other
|
|
|
140
|
|
|
|
80
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
8,632
|
|
|
$
|
960
|
|
|
$
|
(2,277)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
|
|
|
32.66%
|
|
|
|
26.45%
|
|
|
|
(40.72)%
|
|
116
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 19
|
RELATED
PARTY TRANSACTIONS
|
Loans to executive officers, directors, and their affiliates
during 2010 were as follows:
|
|
|
|
|
Beginning balance
|
|
$
|
1,584
|
|
New loans
|
|
|
614
|
|
Effect of changes in composition of related parties
|
|
|
|
|
Repayments
|
|
|
(722
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
1,476
|
|
|
|
|
|
|
None of the above loans were considered non-performing or
potential problem loans. These loans are made in the ordinary
course of business and on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other unaffiliated
persons and do not involve more than normal risk of
collectability. Deposits from executive officers, directors, and
their affiliates at year-end 2010 and 2009 were $3,286 and
$2,899.
|
|
NOTE 20
|
REGULATORY
CAPITAL MATTERS
|
Banks and bank holding companies are subject to regulatory
capital requirements administered by federal banking agencies.
Capital adequacy guidelines and, additionally for banks, prompt
corrective action regulations, involve quantitative measures of
assets, liabilities, and certain off-balance sheet items
calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative
judgments by regulators. Failure to meet capital requirements
can initiate regulatory action.
Prompt corrective action regulations provide five
classifications: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized, although these terms are not used to represent
overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset
growth and expansion, and capital restoration plans are
required. At year-end 2010, the most recent regulatory
notification categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management
believes have changed the institutions category.
Management believes that, at December 31, 2010, the Bank
met all capital adequacy requirements to which it is subject.
117
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 20
|
REGULATORY
CAPITAL MATTERS
(Continued)
|
At December 31, 2010 and 2009, actual and required capital
levels and ratios were as follows for the Bank only:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required for Capital
|
|
|
To Be Well-Capitalized Under Prompt Corrective
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Action Regulations
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
As of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
298,739
|
|
|
|
18.42
|
%
|
|
$
|
129,717
|
|
|
|
8.00
|
%
|
|
$
|
162,147
|
|
|
|
10.00
|
%
|
Tier 1 (core) capital (to risk-weighted assets)
|
|
|
285,494
|
|
|
|
17.61
|
%
|
|
|
64,859
|
|
|
|
4.00
|
%
|
|
|
97,288
|
|
|
|
6.00
|
%
|
Tier 1 (core) capital (to adjusted total assets)
|
|
|
285,494
|
|
|
|
9.73
|
%
|
|
|
117,320
|
|
|
|
4.00
|
%
|
|
|
146,650
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
201,250
|
|
|
|
15.27
|
%
|
|
$
|
105,450
|
|
|
|
8.00
|
%
|
|
$
|
131,812
|
|
|
|
10.00
|
%
|
Tier 1 (core) capital (to risk-weighted assets)
|
|
|
189,678
|
|
|
|
14.39
|
%
|
|
|
52,725
|
|
|
|
4.00
|
%
|
|
|
79,087
|
|
|
|
6.00
|
%
|
Tier 1 (core) capital (to adjusted total assets)
|
|
|
189,678
|
|
|
|
7.99
|
%
|
|
|
94,900
|
|
|
|
4.00
|
%
|
|
|
118,626
|
|
|
|
5.00
|
%
|
The following is a reconciliation of the Banks equity
under accounting principles generally accepted in the United
States to regulatory capital (as defined by the OTS and FDIC) as
of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
GAAP equity
|
|
$
|
292,870
|
|
|
$
|
194,491
|
|
Investment in nonincludable subsidiary
|
|
|
(4,092
|
)
|
|
|
|
|
Disallowed servicing and deferred tax assets
|
|
|
(64
|
)
|
|
|
(88
|
)
|
Unrealized loss (gain) on securities available for sale
|
|
|
(2,373
|
)
|
|
|
(3,802
|
)
|
Goodwill and other assets
|
|
|
(847
|
)
|
|
|
(923
|
)
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
|
|
|
285,494
|
|
|
|
189,678
|
|
|
|
|
|
|
|
|
|
|
General allowance for loan losses
|
|
|
13,245
|
|
|
|
11,572
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
$
|
298,739
|
|
|
$
|
201,250
|
|
|
|
|
|
|
|
|
|
|
As part of the Conversion, the Company distributed 50% of the
net offering proceeds after funding of the ESOP to the Bank,
which resulted in a $95,400 increase to the Banks equity.
During the year ended December 31, 2009, the Company
contributed $19,500 in capital to the Bank. The Company made the
capital contribution to ensure that the Bank remained
well-capitalized to support continued growth.
As a federally chartered savings bank, the Bank is required to
meet a qualified thrift lender test. This test requires the Bank
to have at least 65% of its portfolio assets, as defined by
regulation, in qualified thrift investments on a monthly average
for nine out of every 12 months on a rolling basis. As an
alternative, the Bank may maintain 60% of its assets in those
assets specified in Section 7701(a) (19) of the
Internal Revenue Code. Under either test, the Bank is required
to maintain a significant portion of its assets in
residential-housing-related loans and investments. Any
institution that fails to meet the qualified thrift lender test
must either become a
118
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 20
|
REGULATORY
CAPITAL MATTERS
(Continued)
|
national bank or be subject to certain restrictions on its
operations and must convert to a national bank charter, unless
it re-qualifies as, and thereafter remains, a qualified thrift
lender.
If such an institution has not requalified or converted to a
national bank within three years after it ceases to qualify
under the test, it must divest all investments and cease all
activities not permissible for both a national bank and a
savings association. Management believes that this test was met
at December 31, 2010.
Dividend Restrictions and Information Banking
regulations limit the amount of dividends that may be paid by
the Bank to the Company without prior approval of regulatory
agencies. Historically, the Company has maintained adequate
liquidity to pay dividends to its shareholders and anticipates
the continued ability to do so for the foreseeable future
without the need for receiving dividends from the Bank. The Bank
may pay dividends to the Company within the limitations of the
regulations. The regulations limit dividends when the proposed
distribution, combined with dividends already paid for the year,
would exceed the Banks net income for the calendar
year-to-date
plus retained net income for the previous two years. As a result
of the regulations, during 2011, the Bank could, without prior
approval, declare dividends to the Company of approximately
$21,139 plus any 2011 net profits retained to the date of
the dividend declaration.
|
|
NOTE 21
|
LOAN
COMMITMENTS, CONTINGENT LIABILITIES AND OTHER RELATED
ACTIVITIES
|
Some financial instruments, such as loan commitments, credit
lines, letters of credit, and overdraft protection, are issued
to meet customer financing needs. These are agreements to
provide credit or to support the credit of others, as long as
conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used.
Off-balance sheet risk to credit loss exists up to the face
amount of these instruments, although material losses are not
anticipated. The same credit policies are used to make such
commitments as are used for loans, including obtaining
collateral at exercise of the commitment.
The contractual amounts of financial instruments with
off-balance sheet risk at year-end were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Commitments to make loans
|
|
$
|
85,387
|
|
|
$
|
21,277
|
|
|
$
|
60,263
|
|
|
$
|
24,396
|
|
Unused lines of credit
|
|
|
6,136
|
|
|
|
73,034
|
|
|
|
6,347
|
|
|
|
73,403
|
|
Unused commitment on Warehouse Purchase Program loans
|
|
|
|
|
|
|
289,088
|
|
|
|
|
|
|
|
198,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,523
|
|
|
$
|
383,399
|
|
|
$
|
66,610
|
|
|
$
|
296,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the commitments above, the Company has overdraft
protection available in the amounts of $72,391 and $73,017 for
December 31, 2010 and 2009. As of December 31, 2010,
the Company had sold $311,519 of loans into the secondary market
that contain certain credit recourse provisions that range from
four months to ten months. The amount subject to recourse was
approximately $166,454 as of year-end 2010. The risk of loss
exists up to the total value of the outstanding loan balance
although material losses are not anticipated.
At December 31, 2010 and 2009, the Company also had standby
letters of credit in the amounts of $635 and $563 that do not
have an attached rate. These commitments are not reflected in
the financial statements.
Commitments to make loans are generally made for periods of
60 days or less at December 31, 2010. The fixed rate
loan commitments have interest rates ranging from 3.25% to 9.99%
and maturities ranging from less than 1 year to
approximately 30 years.
119
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
NOTE 21
LOAN COMMITMENTS, CONTINGENT LIABILITIES AND OTHER RELATED
ACTIVITIES
(Continued)
Liability
for Mortgage Loan Repurchase Losses
The Company sells whole residential real estate loans to private
investors, such as other banks, thrifts and mortgage companies.
The agreements under which the Company sells mortgage loans
contain provisions that include various representations and
warranties regarding the origination and characteristics of the
mortgage loans. Although the specific representations and
warranties vary among investor agreements, they typically cover
ownership of the loan, compliance with loan criteria set forth
in the applicable agreement, validity of the lien securing the
loan, absence of delinquent taxes or liens against the property
securing the loan, compliance with applicable origination laws,
and other matters. The Company may be required to repurchase
mortgage loans, indemnify the investor or insurer, or reimburse
the investor or insurer for credit losses incurred on loans in
the event of a breach of such contractual representations or
warranties that is not remedied within the time period specified
in the applicable agreement after we receive notice of the
breach. Typically, it is a condition to repurchase or indemnify
a loan that the breach must have had a material and adverse
effect on the value of the mortgage loan or to the interests of
the security holders in the mortgage loan. Agreements under
which the Company sells mortgage loans require the delivery of
various documents to the investor, and the Company may be
obligated to repurchase or indemnify any mortgage loan as to
which the required documents are not delivered or are defective.
Upon receipt of a repurchase or indemnification request, the
Company works with investors to arrive at a mutually agreeable
resolution. These demands are typically reviewed on an
individual loan by loan basis to validate the claims made by the
investor and determine if a contractual event occurred. The
Company manages the risk associated with potential repurchases
or other forms of settlement through underwriting and quality
assurance practices.
In the fourth quarter of 2010, the Company established a
mortgage repurchase liability related to various representations
and warranties that reflect managements estimate of losses
for loans for which the Company could have repurchase obligation
based on historical investor repurchase and indemnification
demand and historical loss ratios. Although investors may demand
repurchase at any time, the Companys historical demands
have occurred within 12 months of the investor purchase.
The Company had three repurchases and ten indemnifications in
2009. In 2010, there were two repurchases and seven
indemnifications. Actual losses were $59 and $79 during the
years ended December 31, 2010 and 2009, respectively.
The liability, included in Other Liabilities in the
consolidated balance sheet, was $38 at December 31, 2010.
Additions to the liability reduced net gains on mortgage loan
origination/sales.
The mortgage repurchase liability of $38 at December 31,
2010, represents the Companys best estimate of the loss
that may be incurred for various representations and warranties
in the contractual provisions of sales of mortgage loans. There
may be a range of reasonably possible losses in excess of the
estimated liability that cannot be estimated with confidence.
Because the level of mortgage loan repurchase losses are
dependent on economic factors, investor demand strategies and
other external conditions that may change over the life of the
underlying loans, the level of the liability for mortgage loan
repurchase losses is difficult to estimate and requires
considerable management judgment.
Goodwill totaled $1,089 at December 31, 2010 and 2009 and
resulted from the Companys 2007 acquisition of
substantially all of the assets and the loan origination
business of Bankers Financial Mortgage Group, now known as VPM.
There was no change in goodwill during the years ended
December 31, 2010, 2009 and 2008. The Company had no
goodwill prior to the 2007 acquisition of Bankers Financial
Mortgage Group. Goodwill is evaluated for impairment annually as
of December 31.
120
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 23
|
SEGMENT
INFORMATION
|
The reportable segments are determined by the products and
services offered, primarily distinguished between banking and
VPM, our mortgage banking subsidiary. Loans, investments and
deposits generate the revenues in the banking segment; secondary
marketing sales generate the revenue in the VPM segment. Segment
performance is evaluated using segment profit (loss).
Information reported internally for performance assessment for
years ended December 31, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Segments
|
|
|
|
|
|
|
|
|
|
and
|
|
|
(Consolidated
|
|
Results of Operations:
|
|
Banking
|
|
|
VPM
|
|
|
Adjustments(1)
|
|
|
Total)
|
|
|
Total interest income
|
|
$
|
115,069
|
|
|
$
|
2,277
|
|
|
$
|
(1,961
|
)
|
|
$
|
115,385
|
|
Total interest expense
|
|
|
44,156
|
|
|
|
1,961
|
|
|
|
(1,964
|
)
|
|
|
44,153
|
|
Provision for loan losses
|
|
|
5,054
|
|
|
|
65
|
|
|
|
|
|
|
|
5,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
65,859
|
|
|
|
251
|
|
|
|
3
|
|
|
|
66,113
|
|
Other revenue
|
|
|
20,796
|
|
|
|
(38
|
)
|
|
|
(335
|
)
|
|
|
20,423
|
|
Net gain (loss) on sale of loans
|
|
|
(2,061
|
)
|
|
|
15,102
|
|
|
|
|
|
|
|
13,041
|
|
Total non-interest expense
|
|
|
57,430
|
|
|
|
14,990
|
|
|
|
726
|
|
|
|
73,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
|
27,164
|
|
|
|
325
|
|
|
|
(1,058
|
)
|
|
|
26,431
|
|
Income tax expense (benefit)
|
|
|
8,752
|
|
|
|
70
|
|
|
|
(190
|
)
|
|
|
8,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,412
|
|
|
$
|
255
|
|
|
$
|
(868
|
)
|
|
$
|
17,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
2,943,794
|
|
|
$
|
51,382
|
|
|
$
|
(53,181
|
)
|
|
$
|
2,941,995
|
|
Noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sale of loans
|
|
|
(2,061
|
)
|
|
|
15,102
|
|
|
|
|
|
|
|
13,041
|
|
Depreciation
|
|
|
3,272
|
|
|
|
299
|
|
|
|
|
|
|
|
3,571
|
|
Provision for loan losses
|
|
|
5,054
|
|
|
|
65
|
|
|
|
|
|
|
|
5,119
|
|
121
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 23
|
SEGMENT
INFORMATION
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Segments
|
|
|
|
|
|
|
|
|
|
and
|
|
|
(Consolidated
|
|
Results of Operations:
|
|
Banking
|
|
|
VPM
|
|
|
Adjustments1
|
|
|
Total)
|
|
|
Total interest income
|
|
$
|
108,413
|
|
|
$
|
1,932
|
|
|
$
|
(2,439
|
)
|
|
$
|
107,906
|
|
Total interest expense
|
|
|
49,550
|
|
|
|
1,583
|
|
|
|
(1,847
|
)
|
|
|
49,286
|
|
Provision for loan losses
|
|
|
7,652
|
|
|
|
|
|
|
|
|
|
|
|
7,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
51,211
|
|
|
|
349
|
|
|
|
(592
|
)
|
|
|
50,968
|
|
Other revenue
|
|
|
22,967
|
|
|
|
(4
|
)
|
|
|
(109
|
)
|
|
|
22,854
|
|
Net gain (loss) on sale of loans
|
|
|
(1,024
|
)
|
|
|
17,615
|
|
|
|
|
|
|
|
16,591
|
|
Impairment of collateralized debt obligations (all credit)
|
|
|
(12,246
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,246
|
)
|
Total non-interest expense
|
|
|
57,641
|
|
|
|
16,664
|
|
|
|
232
|
|
|
|
74,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
|
3,267
|
|
|
|
1,296
|
|
|
|
(933
|
)
|
|
|
3,630
|
|
Income tax expense (benefit)
|
|
|
541
|
|
|
|
440
|
|
|
|
(21
|
)
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,726
|
|
|
$
|
856
|
|
|
$
|
(912
|
)
|
|
$
|
2,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
2,380,938
|
|
|
$
|
41,391
|
|
|
$
|
(42,825
|
)
|
|
$
|
2,379,504
|
|
Noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sale of loans
|
|
|
(1,024
|
)
|
|
|
17,615
|
|
|
|
|
|
|
|
16,591
|
|
Depreciation
|
|
|
3,554
|
|
|
|
230
|
|
|
|
|
|
|
|
3,784
|
|
Provision for loan losses
|
|
|
7,652
|
|
|
|
|
|
|
|
|
|
|
|
7,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Segments
|
|
|
|
|
|
|
|
|
|
and
|
|
|
(Consolidated
|
|
Results of Operations:
|
|
Banking
|
|
|
VPM
|
|
|
Adjustments1
|
|
|
Total)
|
|
|
Total interest income
|
|
$
|
96,488
|
|
|
$
|
1,272
|
|
|
$
|
(965
|
)
|
|
$
|
96,795
|
|
Total interest expense
|
|
|
46,604
|
|
|
|
603
|
|
|
|
(1,038
|
)
|
|
|
46,169
|
|
Provision for loan losses
|
|
|
6,171
|
|
|
|
|
|
|
|
|
|
|
|
6,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
43,713
|
|
|
|
669
|
|
|
|
73
|
|
|
|
44,455
|
|
Other revenue
|
|
|
23,359
|
|
|
|
(3
|
)
|
|
|
(73
|
)
|
|
|
23,283
|
|
Net gain (loss) on sale of loans
|
|
|
61
|
|
|
|
13,138
|
|
|
|
(3,809
|
)
|
|
|
9,390
|
|
Impairment of collateralized debt obligations (all credit)
|
|
|
(13,809
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,809
|
)
|
Total non-interest expense
|
|
|
59,281
|
|
|
|
13,168
|
|
|
|
(3,538
|
)
|
|
|
68,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
|
(5,957
|
)
|
|
|
636
|
|
|
|
(271
|
)
|
|
|
(5,592
|
)
|
Income tax expense (benefit)
|
|
|
(2,582
|
)
|
|
|
274
|
|
|
|
31
|
|
|
|
(2,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(3,375
|
)
|
|
$
|
362
|
|
|
$
|
(302
|
)
|
|
$
|
(3,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
2,214,463
|
|
|
$
|
26,831
|
|
|
$
|
(27,879
|
)
|
|
$
|
2,213,415
|
|
Noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sale of loans
|
|
|
61
|
|
|
|
13,138
|
|
|
|
(3,809
|
)
|
|
|
9,390
|
|
Depreciation
|
|
|
4,184
|
|
|
|
181
|
|
|
|
|
|
|
|
4,365
|
|
Provision for loan losses
|
|
|
6,171
|
|
|
|
|
|
|
|
|
|
|
|
6,171
|
|
(1) Includes
eliminating entries for intercompany transactions and
stand-alone expenses of the Company.
122
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 24
|
PARENT
COMPANY ONLY CONDENSED FINANCIAL INFORMATION
|
Condensed financial information of ViewPoint Financial Group,
Inc. follows:
CONDENSED
BALANCE SHEETS
December 31,
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash on deposit at subsidiary
|
|
$
|
90,570
|
|
|
$
|
8,331
|
|
Investment in banking subsidiary
|
|
|
292,870
|
|
|
|
194,491
|
|
Receivable from banking subsidiary
|
|
|
1,531
|
|
|
|
6,255
|
|
ESOP note receivable and other assets
|
|
|
21,743
|
|
|
|
6,732
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
406,714
|
|
|
$
|
215,809
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Borrowings Note 14
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Income tax payable
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
125
|
|
|
|
127
|
|
Shareholders equity
|
|
|
396,589
|
|
|
|
205,682
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
406,714
|
|
|
$
|
215,809
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
STATEMENTS OF INCOME (LOSS)
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest income on ESOP loan
|
|
$
|
602
|
|
|
$
|
391
|
|
|
$
|
435
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
600
|
|
|
|
127
|
|
|
|
|
|
Operating expenses
|
|
|
806
|
|
|
|
341
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense and equity in
undistributed earnings (loss) of subsidiary
|
|
|
(804
|
)
|
|
|
(77
|
)
|
|
|
91
|
|
Income tax expense (benefit)
|
|
|
(190
|
)
|
|
|
(21
|
)
|
|
|
31
|
|
Equity in undistributed earnings (loss) of subsidiary
|
|
|
18,413
|
|
|
|
2,726
|
|
|
|
(3,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 24
|
PARENT
COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
|
CONDENSED
STATEMENTS OF CASH FLOWS
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,799
|
|
|
$
|
2,670
|
|
|
$
|
(3,315
|
)
|
Adjustments to reconcile net income (loss) to net cash from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed (earnings) loss of subsidiary
|
|
|
(18,413
|
)
|
|
|
(2,726
|
)
|
|
|
3,375
|
|
Vesting of restricted stock
|
|
|
1,455
|
|
|
|
1,501
|
|
|
|
1,601
|
|
Net change in intercompany receivable
|
|
|
5,000
|
|
|
|
(5,000
|
)
|
|
|
|
|
Net change in other assets
|
|
|
(79
|
)
|
|
|
(137
|
)
|
|
|
(25
|
)
|
Net change in other liabilities
|
|
|
(2
|
)
|
|
|
79
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
5,760
|
|
|
|
(3,613
|
)
|
|
|
1,449
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of 50% of proceeds of stock offering to subsidiary
|
|
|
(95,400
|
)
|
|
|
|
|
|
|
|
|
Fund ESOP note receivable from Conversion and stock offering
|
|
|
(15,886
|
)
|
|
|
|
|
|
|
|
|
Capital contributuion to subsidiary
|
|
|
|
|
|
|
(19,500
|
)
|
|
|
|
|
Payments received on ESOP notes receivable
|
|
|
1,026
|
|
|
|
828
|
|
|
|
968
|
|
Additional principal payments received on ESOP notes receivable
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(110,260
|
)
|
|
|
(18,488
|
)
|
|
|
968
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from stock offering
|
|
|
190,801
|
|
|
|
|
|
|
|
|
|
Merger of ViewPoint MHC pursuant to reorganization
|
|
|
207
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowing
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
Treasury stock purchased
|
|
|
(407
|
)
|
|
|
|
|
|
|
(4,312
|
)
|
Payment of dividends
|
|
|
(3,862
|
)
|
|
|
(2,472
|
)
|
|
|
(3,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
186,739
|
|
|
|
7,528
|
|
|
|
(7,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
82,239
|
|
|
|
(14,573
|
)
|
|
|
(5,049
|
)
|
Beginning cash and cash equivalents
|
|
|
8,331
|
|
|
|
22,904
|
|
|
|
27,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
90,570
|
|
|
$
|
8,331
|
|
|
$
|
22,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
VIEWPOINT
FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share and share data)
|
|
NOTE 25
|
QUARTERLY
FINANCIAL DATA
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
Net Interest
|
|
|
|
|
|
for Loan
|
|
|
Net Income
|
|
|
|
|
|
Earnings (Loss) per Share
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
Expense
|
|
|
Income
|
|
|
|
|
|
Losses
|
|
|
(Loss)
|
|
|
|
|
|
Basic
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
26,209
|
|
|
|
(2
|
)
|
|
$
|
11,117
|
|
|
$
|
15,092
|
|
|
|
(2
|
)
|
|
$
|
1,146
|
|
|
$
|
2,705
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
(3
|
)
|
|
$
|
0.10
|
|
|
|
(3
|
)
|
Second quarter
|
|
|
27,718
|
|
|
|
(2
|
)
|
|
|
11,265
|
|
|
|
16,453
|
|
|
|
(2
|
)
|
|
|
1,888
|
|
|
|
3,196
|
|
|
|
|
|
|
|
0.11
|
|
|
|
(3
|
)
|
|
|
0.11
|
|
|
|
(3
|
)
|
Third quarter
|
|
|
30,101
|
|
|
|
|
|
|
|
11,582
|
|
|
|
18,519
|
|
|
|
|
|
|
|
756
|
|
|
|
5,408
|
|
|
|
|
|
|
|
0.17
|
|
|
|
|
|
|
|
0.17
|
|
|
|
|
|
Fourth quarter
|
|
|
31,357
|
|
|
|
|
|
|
|
10,189
|
|
|
|
21,168
|
|
|
|
|
|
|
|
1,329
|
|
|
|
6,490
|
|
|
|
|
|
|
|
0.20
|
|
|
|
|
|
|
|
0.20
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
27,420
|
|
|
|
(2
|
)
|
|
$
|
13,051
|
|
|
$
|
14,369
|
|
|
|
(2
|
)
|
|
$
|
1,442
|
|
|
$
|
1,244
|
|
|
|
|
|
|
$
|
0.04
|
|
|
|
(3
|
)
|
|
$
|
0.04
|
|
|
|
(3
|
)
|
Second quarter
|
|
|
27,173
|
|
|
|
(2
|
)
|
|
|
12,494
|
|
|
|
14,679
|
|
|
|
(2
|
)
|
|
|
1,494
|
|
|
|
(3,831
|
)
|
|
|
(1
|
)
|
|
|
(0.14
|
)
|
|
|
(1
|
),(3)
|
|
|
(0.14
|
)
|
|
|
(1
|
),(3)
|
Third quarter
|
|
|
26,287
|
|
|
|
(2
|
)
|
|
|
12,172
|
|
|
|
14,115
|
|
|
|
(2
|
)
|
|
|
1,775
|
|
|
|
2,893
|
|
|
|
|
|
|
|
0.10
|
|
|
|
(3
|
)
|
|
|
0.10
|
|
|
|
(3
|
)
|
Fourth quarter
|
|
|
27,026
|
|
|
|
(2
|
)
|
|
|
11,569
|
|
|
|
15,457
|
|
|
|
(2
|
)
|
|
|
2,941
|
|
|
|
2,364
|
|
|
|
|
|
|
|
0.08
|
|
|
|
(3
|
)
|
|
|
0.08
|
|
|
|
(3
|
)
|
|
|
(1)
|
During the second quarter of 2009,
the Company recognized a $12,246 non-cash, pre-tax charge for
the
other-than-temporary
impairment of collateralized debt obligations. This impairment
charge was partially offset by the sale of 22 agency residential
collateralized mortgage obligations and two agency residential
mortgage-backed securities, which resulted in a $2,377 pre-tax
gain during the second quarter of 2009.
|
|
(2)
|
In the third quarter of 2010, the
Company reclassified a portion of interest income associated
with mortgage loans held for sale to lending expense. The impact
of this classification was $41 for the first two quarters of
2010 and $395 for the year ended December 31, 2009.
|
|
(3)
|
All share and per share information
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.
|
NOTE 26-
SUBSEQUENT EVENTS
In February 2011, the Company sold 17 mortgage-backed securities
and six collateralized mortgage obligations at a face value
totaling $89,006. These
available-for-sale
securities had a fair value of $99,815 and an amortized cost of
$95,956 at December 31, 2010. The sale resulted in a
pre-tax gain of $3,415.
125
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
|
|
(a)
|
Evaluation of Disclosure Controls and Procedures: An
evaluation of our disclosure controls and procedures (as defined
in
Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Act))
was carried out as of December 31, 2010, under the
supervision and with the participation of our Chief Executive
Officer, Chief Financial Officer and several other members of
our senior management. Our Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2010,
our disclosure controls and procedures were effective in
ensuring that the information we are required to disclose in the
reports we file or submit under the Act is (i) accumulated
and communicated to our management (including the Chief
Executive Officer and Chief Financial Officer) in a timely
manner, and (ii) recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms.
|
|
|
|
|
(b)
|
Managements Report on Internal Control Over Financial
Reporting: Management of the Company is responsible for
establishing and maintaining an effective system of internal
control over financial reporting. The Companys system of
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. There are inherent limitations in the
effectiveness of any system of internal control over financial
reporting, including the possibility of human error and
circumvention or overriding of controls. Accordingly, even an
effective system of internal control over financial reporting
can provide only reasonable assurance with respect to financial
statement preparation. Projections of any evaluation of
effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions
or that the degree of compliance with the policies or procedures
may deteriorate.
|
|
|
|
Management assessed the Companys systems of internal
control over financial reporting as of December 31, 2010.
This assessment was based on criteria for effective internal
control over financial reporting described in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
this assessment, management believes that, as of
December 31, 2010, the Company maintained effective
internal control over financial reporting based on those
criteria. The Companys independent registered public
accounting firm that audited the financial statements included
in this annual report on
Form 10-K
has issued an attestation report on the Companys internal
control over financial reporting. The attestation report of
Ernst & Young LLP appears below.
|
Report of
Ernst & Young LLP
Independent
Registered Public Accounting Firm
The Board of Directors and Shareholders
ViewPoint Financial Group, Inc.
We have audited ViewPoint Financial Group, Inc.s (the
Company) internal control over financial reporting
as of December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). ViewPoint Financial Group, Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the
126
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, ViewPoint Financial Group, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
the consolidated balance sheet as of December 31, 2010, and
the related consolidated statements of income (loss),
comprehensive income (loss), changes in shareholders
equity, and cash flows for the year then ended of ViewPoint
Financial Group, Inc. and our report dated March 3, 2011
expressed an unqualified opinion thereon.
Dallas, Texas
March 3, 2011
|
|
|
|
(c)
|
Changes in Internal Control Over Financial Reporting:
During the quarter ended December 31, 2010, no change
occurred in our internal control over financial reporting that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
|
Item 9B.
|
Other
Information
|
Not applicable.
127
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Directors and Executive Officers. The information
concerning our directors required by this item is incorporated
herein by reference from our definitive proxy statement for our
Annual Meeting of Shareholders being held on May 24, 2011,
a copy of which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of our
fiscal year. Information required by this item regarding the
audit committee of the Companys Board of Directors,
including information regarding the audit committee financial
expert serving on the audit committee, is incorporated herein by
reference from our definitive proxy statement for our Annual
Meeting of Shareholders being held on May 24, 2011, a copy
of which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of our
fiscal year. Information about our executive officers is
contained under the caption Executive Officers in
Part I of this
Form 10-K,
and is incorporated herein by this reference.
Section 16(a) Beneficial Ownership Reporting
Compliance. The information concerning compliance with
the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 by our directors, officers and
ten percent shareholders required by this item is incorporated
herein by reference from our definitive proxy statement for our
Annual Meeting of Shareholders being held on May 24, 2011,
a copy of which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of our
fiscal year.
Code of Ethics. We have adopted a code of ethics
that applies to our principal executive officer, principal
financial officer, principal accounting officer, and persons
performing similar functions, and to all of our other employees
and our directors. A copy of our code of ethics is available on
our Internet website address, www.viewpointbank.com.
|
|
Item 11.
|
Executive
Compensation
|
The information concerning compensation required by this item is
incorporated herein by reference from our definitive proxy
statement for our Annual Meeting of Shareholders being held on
May 24, 2011, a copy of which will be filed with the
Securities and Exchange Commission not later than 120 days
after the end of our fiscal year.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
|
The information concerning security ownership of certain
beneficial owners and management required by this item is
incorporated herein by reference from our definitive proxy
statement for our Annual Meeting of Shareholders being held on
May 24, 2011, a copy of which will be filed with the
Securities and Exchange Commission not later than 120 days
after the end of our fiscal year. Information concerning our
equity incentive plan is contained under Item 5 of the
Form 10-K
and incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information concerning certain relationships and related
transactions and director independence required by this item is
incorporated herein by reference from our definitive proxy
statement for our Annual Meeting of Shareholders being held on
May 24, 2011, a copy of which will be filed with the
Securities and Exchange Commission not later than 120 days
after the end of our fiscal year.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information concerning principal accountant fees and
services is incorporated herein by reference from our definitive
proxy statement for our Annual Meeting of Shareholders being
held in May 24, 2011, a copy of which will be filed not
later than 120 days after the end of our fiscal year.
128
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
|
|
|
|
(a)(1)
|
|
Financial Statements: See Part II Item 8.
Financial Statements and Supplementary Data.
|
|
|
|
(a)(2)
|
|
Financial Statement Schedules: All financial statement schedules
have been omitted as the information is included in the notes to
the consolidated financial statements or is not required under
the related instructions or is not applicable.
|
|
|
|
(a)(3)
|
|
Exhibits: See below.
|
|
|
|
(b)
|
|
Exhibits:
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Amended and Restated Plan of Conversion and Reorganization of
ViewPoint MHC (incorporated herein by reference to
Exhibit 2.1 to the Registrants Annual Report on
Form 10-K
filed with the SEC on March 4, 2010 (File
No. 001-32992))
|
|
3
|
.1
|
|
Charter of the Registrant (incorporated herein by reference to
Exhibit 3.1 to the Registrants Registration Statement
on
Form S-1,
as amended (File
No. 333-165509))
|
|
3
|
.2
|
|
Bylaws of the Registrant (incorporated herein by reference to
Exhibit 3.2 to the Registrants Registration Statement
on
Form S-1
(File
No. 333-165509))
|
|
4
|
.0
|
|
Certificate of Registrants Common Stock (incorporated
herein by reference to Exhibit 4.0 to the Registrants
Registration Statement on
Form S-1,
as amended (File
No. 333-165509))
|
|
10
|
.1
|
|
Employment Agreement by and between the Registrant and Garold R.
Base (incorporated herein by reference to Exhibit 10.1 to
the Registrants Current Report on
Form 8-K
filed with the SEC on October 4, 2006 (File
No. 001-32992))
|
|
10
|
.2
|
|
Amendment to Employment Agreement by and between the Registrant
and Garold R. Base (incorporated herein by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on January 10, 2008 (File
No. 001-32992))
|
|
10
|
.3
|
|
Employment Agreement by and between ViewPoint Bank, the
Registrants wholly owned operating subsidiary, and Garold
R. Base (incorporated herein by reference to Exhibit 10.2
to the Registrants Current Report on
Form 8-K
filed with the SEC on October 4, 2006 (File
No. 001-32992))
|
|
10
|
.4
|
|
Amendment to Employment Agreement by and between ViewPoint Bank,
the Registrants wholly owned operating subsidiary, and
Garold R. Base (incorporated herein by reference to
Exhibit 10.2 to the Registrants Current Report on
Form 8-K
filed with the SEC on January 10, 2008 (File
No. 001-32992))
|
|
10
|
.5
|
|
Amendment to Employment Agreement by and between ViewPoint Bank,
the Registrants wholly owned operating subsidiary, and
Garold R. Base (incorporated herein by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on March 6, 2008 (File
No. 001-32992))
|
|
10
|
.6
|
|
Form of Severance Agreement between ViewPoint Bank and the
following executive officers: Pathie E. McKee, Mark E. Hord,
James C. Parks and Mark L. Williamson (incorporated herein by
reference to Exhibit 10.1 to the Registrants Current
Report on
Form 8-K
filed with the SEC on February 17, 2011 (File
No. 001-34737))
|
|
10
|
.7
|
|
Summary of Director Board Fee Arrangements (incorporated herein
by reference to Exhibit 3.2 to the Registrants
Quarterly Report on
Form 10-Q
filed with the SEC on August 9, 2007 (File
No. 001-32992))
|
|
10
|
.8
|
|
ViewPoint Bank Deferred Compensation Plan (incorporated herein
by reference to Exhibit 10.7 to the Registrants
Registration Statement on
Form S-1,
as amended (File
No. 0-24566-01))
|
|
10
|
.9
|
|
Amended and Restated ViewPoint Bank Supplemental Executive
Retirement Plan (incorporated herein by reference to
Exhibit 10.8 to the Registrants Registration
Statement on
Form S-1,
as amended (File
No. 0-24566-01))
|
|
10
|
.10
|
|
Executive Officer Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Registrants Current
Report on
Form 8-K
filed with the SEC on January 26, 2011 (File
No. 001-34737))
|
|
10
|
.11
|
|
Form of promissory note between ViewPoint Financial Group and
four lenders, totaling $10 million (incorporated herein by
reference to Exhibit 10.1 to the Registrants Current
Report on
Form 8-K
filed with the SEC on October 22, 2009 (File
No. 001-32992))
|
129
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
11
|
|
|
Statement regarding computation of per share earnings (See
Note 3 of the Notes to Consolidated Financial Statements
included in this
Form 10-K).
|
|
21
|
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
23
|
.2
|
|
Consent of Independent Registered Public Accounting Firm
|
|
24
|
|
|
Power of Attorney (on signature page)
|
|
31
|
.1
|
|
Rule 13a 14(a)/15d 14(a)
Certification (Chief Executive Officer)
|
|
31
|
.2
|
|
Rule 13a 14(a)/15d 14(a)
Certification (Chief Financial Officer)
|
|
32
|
|
|
Section 1350 Certifications
|
130
SIGNATURES
Pursuant to the requirements of Section 13 or 15
(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIEWPOINT FINANCIAL GROUP, INC.
(Registrant)
|
|
|
Date: March 1, 2011
|
|
|
|
|
Garold R. Base
|
|
|
President and Chief
Executive Officer
(Principal Executive Officer)
|
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Garold R. Base
and Pathie E. McKee his or her true and lawful attorney-in-fact
and agent, with full power of substitution and re-substitution,
for him/her and in
his/her
name, place and stead, in any and all capacities, to sign any
amendment to ViewPoint Financial Group Inc.s Annual Report
on
Form 10-K
for the year ended December 31, 2010, and to file the same,
with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming said attorney-in-fact and agent or his
or her substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
|
/s/ Garold
R. Base
Garold
R. Base, President, Chief Executive Officer and Director
(Duly authorized representative and Principal
Executive Officer)
|
|
Date: March 1, 2011
|
|
|
|
/s/ Gary
D. Basham
Gary
D. Basham, Vice Chairman of the Board and Director
|
|
Date: March 1, 2011
|
|
|
|
/s/ Jack
D. Ersman
Jack
D. Ersman, Director
|
|
Date: March 1, 2011
|
|
|
|
/s/ Anthony
J. LeVecchio
Anthony
J. LeVecchio, Director
|
|
Date: March 1, 2011
|
|
|
|
/s/ Karen
H. OShea
Karen
H. OShea, Director
|
|
Date: March 1, 2011
|
|
|
|
/s/ Pathie
E. McKee
Pathie
E. McKee, Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial and
Accounting Officer)
|
|
Date: March 1, 2011
|
131
EXHIBIT INDEX
Exhibits:
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of Accountants
|
|
|
|
|
|
|
23
|
.2
|
|
Consent of Accountants
|
|
|
|
|
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer
|
|
|
|
|
|
|
32
|
|
|
Section 1350 Certifications
|
132