LegacyTexas Financial Group, Inc. Reports Second Quarter 2015 Earnings

EPS Increases to $0.44 per Share, Net Income Up 24% Linked Quarter to $20.3 million for the Second Quarter of 2015

Jul 21, 2015, 16:15 ET from LegacyTexas Financial Group, Inc.

PLANO, Texas, July 21, 2015 /PRNewswire/ -- LegacyTexas Financial Group, Inc. (NASDAQ: LTXB) (the "Company"), the holding company for LegacyTexas Bank (the "Bank"), today announced net income of $20.3 million, an increase of $3.9 million from the first quarter of 2015 and an increase of $11.4 million from the second quarter of 2014.  Core (non-GAAP) net income (which is net income adjusted for the impact of merger and acquisition costs and certain other items) totaled $20.1 million for the quarter ended June 30, 2015, up $2.4 million from the first quarter of 2015 and up $10.2 million from the second quarter of 2014.  Basic earnings per share for the quarter ended June 30, 2015 was $0.44, an increase of $0.09 from the first quarter of 2015 and an increase of $0.21 from the second quarter of 2014.  Core earnings per share for the second quarter of 2015 was also $0.44, up $0.05 from the first quarter of 2015 and up $0.18 from the second quarter of 2014.  The reconciliation of non-GAAP measures, which the Company believes facilitates the assessment of its banking operations and peer comparability, is included in tabular form at the end of this release.

 

Second Quarter 2015 Performance Highlights

  • Return on average assets for the second quarter of 2015 was 1.28%, up 20 basis points from the first quarter of 2015 and up 32 basis points from the second quarter of 2014.
  • Gross loans held for investment at June 30, 2015, excluding Warehouse Purchase Program loans, grew $198.1 million, or 4.7%, from March 31, 2015, with $135.6 million of growth in commercial real estate and commercial and industrial loans.  Excluding $1.17 billion of net growth resulting from loans acquired from LegacyTexas Group, Inc., gross loans held for investment, excluding Warehouse Purchase Program loans, increased by $872.9 million, or 24.8%, from June 30, 2014.
  • Warehouse Purchase Program loans at June 30, 2015 totaled $1.08 billion, a $46.1 million, or 4.4%, increase from March 31, 2015, and a $315.4 million, or 41.0%, increase from June 30, 2014.
  • Deposits at June 30, 2015 increased by $134.7 million, or 3.1%, from March 31, 2015, with $53.3 million of growth in non-interest-bearing demand and $52.2 million of growth in time deposits.  Excluding $1.63 billion of growth resulting from deposits acquired from LegacyTexas Group, Inc., deposits increased by $462.3 million, or 11.4%, from June 30, 2014. 
  • Net interest margin for the quarter ended June 30, 2015 was 4.06%, a three basis point increase from the linked quarter and a 30 basis point increase compared to the second quarter of 2014, which includes 20 basis points of accretion of interest related to purchase accounting fair value adjustments for the second quarter of 2015.

"As a team, we continue to execute on our strategy to be the bank of choice for DFW-based businesses and families," said President and CEO Kevin Hanigan.  "The exceptional results of the quarter are a reflection of many things: the strength of the DFW market place, our presence within the market, the many benefits of the merger with LegacyTexas Group, Inc. and the dedication of our team to march toward the goals we have set for ourselves."

Financial Highlights

At or For the Quarters Ended

June

March

June

(unaudited)

2015

2015

2014

(Dollars in thousands, except per share amounts)

Net interest income

$

59,821

$

56,326

$

32,922

Provision for loan losses

3,750

3,000

1,197

Non-interest income

11,964

9,407

5,429

Non-interest expense

36,908

37,777

23,350

Income tax expense

10,876

8,632

4,986

Net income

$

20,251

$

16,324

$

8,818

Basic earnings per common share

$

0.44

$

0.35

$

0.23

Basic core (non-GAAP) earnings per common share1

$

0.44

$

0.39

$

0.26

Weighted average common shares outstanding - basic

45,760,232

45,824,812

37,873,671

Estimated Tier 1 common risk-based capital ratio2

10.18

%

10.44

%

16.42

%

Total equity to total assets

11.65

%

11.69

%

14.11

%

Tangible common equity to tangible assets - Non-GAAP 1

9.17

%

9.17

%

13.44

%

1

See the section labeled "Supplemental Information- Non-GAAP Financial Measures" at the end of this document

2

Calculated at the Company level, which is subject to the capital adequacy requirements of the Federal Reserve

 

Net Interest Income and Net Interest Margin

For the Quarters Ended

June

March

June

(unaudited)

2015

2015

2014

(Dollars in thousands)

Interest income:

Loans held for investment, excluding Warehouse Purchase Program loans

$

53,654

$

52,082

$

28,794

Warehouse Purchase Program loans

7,720

5,775

5,094

Loans held for sale

177

178

Securities

3,277

3,425

3,150

Interest-earning deposit accounts

139

158

71

Total interest income

$

64,967

$

61,618

$

37,109

Net interest income

$

59,821

$

56,326

$

32,922

Net interest margin

4.06

%

4.03

%

3.76

%

Selected average balances:

Total earning assets

$

5,893,515

$

5,590,808

$

3,499,223

Total loans held for investment

5,089,531

4,728,487

2,834,750

Total securities

620,071

620,490

545,944

Total deposits

4,372,161

4,306,641

2,386,307

Total borrowings

1,112,198

882,461

678,817

Total non-interest-bearing demand deposits

1,024,108

975,067

414,746

Total interest-bearing liabilities

4,460,251

4,214,035

2,650,378

Net interest income for the quarter ended June 30, 2015 was $59.8 million, a $3.5 million increase from the first quarter of 2015 and a $26.9 million increase from the second quarter of 2014.  The $3.5 million increase from the linked quarter was primarily due to an increase in interest income on loans, which was driven by increased volume in Warehouse Purchase Program, commercial and industrial, commercial real estate and consumer real estate loan balances.   The average balance of Warehouse Purchase Program loans increased by $232.5 million to $920.0 million from the first quarter of 2015, which resulted in a $1.9 million increase in interest income.  The average balance of commercial and industrial loans increased by $113.4 million to $1.25 billion from the first quarter of 2015, resulting in a $902,000 increase in interest income. The average balance of consumer real estate loans increased by $18.7 million to $805.6 million from the first quarter of 2015, resulting in a $913,000 increase in interest income.  A ten basis point linked-quarter reduction in the average yield earned on commercial real estate loans, which was partially offset by a $14.9 million increase in the average balance, led to a $238,000 decline in interest income on commercial real estate loans compared to the first quarter of 2015.

Interest income on loans for the second quarter of 2015 increased by $2.6 million in accretion of purchase accounting fair value adjustments on loans acquired from LegacyTexas Group, Inc., which included $1.1 million in accretion income recorded on acquired commercial and industrial loans, $686,000 in accretion income recorded on acquired commercial real estate loans, $278,000 in accretion income recorded on acquired construction and land loans, and $566,000 recorded on acquired consumer real estate loans.  The amount of accretion income recognized on these loans in the second quarter of 2015 decreased by $481,000 from the $3.1 million recorded during the first quarter of 2015.  Accretion of purchase accounting fair value adjustments related to the LegacyTexas Group, Inc. acquisition, as well as a smaller amount related to the Highlands Bank acquisition in 2012, contributed 17 basis points, 37 basis points and 43 basis points to the average yields on commercial real estate, commercial and industrial and consumer real estate loans, respectively, for the second quarter of 2015, compared to 11 basis points, 52 basis points and 47 basis points, respectively, for the first quarter of 2015.

The $26.9 million increase in net interest income compared to the second quarter of 2014 was primarily due to a $27.7 million increase in interest income on loans, which was driven by increased volume in all loan categories resulting from loans acquired from LegacyTexas Group, Inc. on January 1, 2015, as well as organic growth.  The average balance of commercial real estate loans increased by $703.1 million to $1.85 billion from the second quarter of 2014, resulting in an $8.4 million increase in interest income.  The $703.1 million in growth includes $551.0 million in commercial real estate loans acquired from LegacyTexas Group, Inc.; excluding these loans, the average balance of commercial real estate loans increased by $152.1 million from the second quarter of 2014.  The average balance of commercial and industrial loans increased by $658.1 million to $1.25 billion from the second quarter of 2014, resulting in an $8.6 million increase in interest income.  The $658.1 million in growth includes $337.1 million in commercial and industrial loans acquired from LegacyTexas Group, Inc.; excluding these loans, the average balance of commercial and industrial loans increased by $321.0 million from the second quarter of 2014.  The average balance of consumer real estate loans increased by $328.1 million to $805.6 million from the second quarter of 2014, resulting in a $4.4 million increase in interest income.  The $328.1 million in growth includes $264.0 million in consumer real estate loans acquired from LegacyTexas Group, Inc.; excluding these loans, the average balance of consumer real estate loans increased by $64.1 million from the second quarter of 2014.  The average balance of Warehouse Purchase Program loans increased by $348.1 million to $920.0 million from the second quarter of 2014, which resulted in a $2.6 million increase in interest income.

Interest expense for the quarter ended June 30, 2015 decreased by $146,000 compared to the linked quarter.  Compared to the second quarter of 2014, interest expense for the quarter ended June 30, 2015 increased by $959,000, primarily due to an increase in interest expense on deposits, which was driven by increased volume in all deposit categories resulting from deposits acquired from LegacyTexas Group, Inc. on January 1, 2015, as well as organic growth during the 2015 period in savings and money market deposit balances.  An $806.6 million increase in the average balance of savings and money market deposits to $1.81 billion from the second quarter of 2014 was partially offset by a 13 basis point reduction in the average rate, resulting in a $10,000 increase in interest expense.  The $806.6 million in growth includes $534.6 million in savings and money market deposits acquired from LegacyTexas Group, Inc.; excluding these deposits, the average balance of savings and money market deposits increased by $272.0 million from the second quarter of 2014. The average balance of time deposits increased by $336.6 million to $839.6 million from the second quarter of 2014, resulting in a $594,000 increase in interest expense.  The $336.6 million in growth includes $336.8 million in time deposits acquired from LegacyTexas Group, Inc.; excluding these deposits, the average balance of time deposits decreased by $262,000 from the second quarter of 2014.  The average balance of interest-bearing demand deposits increased by $233.3 million to $701.6 million from the second quarter of 2014, resulting in a $410,000 increase in interest expense.  The $233.3 million in growth includes $258.7 million in interest-bearing demand deposits acquired from LegacyTexas Group, Inc.; excluding these deposits, the average balance of interest-bearing demand deposits decreased by $25.4 million from the second quarter of 2014.

The net interest margin for the second quarter of 2015 was 4.06%, a three basis point increase from the first quarter of 2015 and a 30 basis point increase from the second quarter of 2014.  Accretion of interest resulting from the merger with LegacyTexas Group, Inc. on January 1, 2015, as well as the 2012 Highlands acquisition, contributed 20 basis points to the net interest margin and average yield on earning assets for the quarter ended June 30, 2015, compared to 23 basis points for the quarter ended March 31, 2015, and four basis points for the quarter ended June 30, 2014.  The average yield on earning assets for the second quarter of 2015 was 4.41%, unchanged from the first quarter of 2015 and a 17 basis point increase from the second quarter of 2014.  The cost of deposits for the second quarter of 2015 was 0.28%, down one basis point from the first quarter of 2015 and down six basis points from the second quarter of 2014.

Non-interest Income

Non-interest income for the second quarter of 2015 was $12.0 million, a $2.6 million increase from the first quarter of 2015 and a $6.5 million increase from the second quarter of 2014.  Core non-interest income for the second quarter of 2015, excluding one-time gains and losses on assets, was $11.7 million, up $1.7 million from the first quarter of 2015 and up $5.7 million from the second quarter of 2014.  Service charges and other fees increased by $1.2 million from the first quarter of 2015, which includes a $457,000 increase in services charges generated by LegacyTexas Title, as well as increases in debit card income and Warehouse Purchase Program fee income.  Additionally, other non-interest income increased by $1.1 million, primarily driven by a $674,000 net decrease in the value of investments in community development-oriented private equity funds used for Community Reinvestment Act purposes (the "CRA Funds") recorded in the first quarter of 2015 with no comparable loss recorded in the second quarter of 2015.  The $401,000 increase in gain on sale and disposition of assets during the second quarter of 2015 was primarily related to the sale of an other real estate owned property and one of the Company's branch buildings in the second quarter of 2015.  These increases were partially offset by a $211,000 gain on the sale of securities recognized in the first quarter of 2015, with no comparable sales occurring during the second quarter of 2015.  Non-interest income for the second quarter of 2015 includes $2.1 million in non-interest income from the Company's title and insurance subsidiaries.

The $6.5 million increase in non-interest income from the second quarter of 2014 was primarily due to a $2.8 million increase in service charges and other fees, which was driven by the addition of $1.3 million of title income, as well as increased debit card income, Warehouse Purchase Program fee income, and service charges related to accounts acquired from LegacyTexas Group, Inc.  Additionally, the Company recognized $2.1 million in net gains on the sale of mortgage loans during the second quarter of 2015, which includes the gain recognized on $61.5 million of one-to four-family mortgage loans that were sold or committed for sale during the second quarter of 2015, fair value changes on mortgage derivatives and mortgage fees collected.  Prior to the January 1, 2015 merger with LegacyTexas Group, Inc., the Company did not originate or sell mortgage loans to outside investors; therefore, a comparable gain was not recorded in the second quarter of 2014.  Other non-interest income increased by $1.6 million from the second quarter of 2014, primarily due to a $637,000 net decrease in the CRA Funds recorded in the second quarter of 2014 with no comparable charge recorded in the 2015 period, as well as $790,000 of insurance income added through the acquisition of LegacyTexas Group, Inc.

Non-interest Expenses

Non-interest expense for the quarter ended June 30, 2015 was $36.9 million, an $869,000 decrease from the first quarter of 2015 and a $13.6 million increase from the second quarter of 2014.  The linked-quarter comparison includes a $1.5 million decrease in merger and acquisition costs related to the merger with LegacyTexas Group, Inc., which was completed on January 1, 2015.  Excluding the impact of these merger costs, core non-interest expense, which totaled $36.9 million for the quarter ended June 30, 2015, increased by $668,000 compared to the linked quarter.  Other non-interest expense for the second quarter of 2015 increased by $752,000 compared to the linked quarter, primarily due to a $540,000 increase in debit card fraud losses resulting from card compromises at two retailers leading to several fraud cases, as well as an increase in fraud alerts from MasterCard.  These increases were partially offset by a $422,000 decline in salaries and benefits expense from the first quarter of 2015, primarily resulting from a decline in salary expense and payroll taxes due to terminations, several of which were related to the Company's reorganization following the merger with LegacyTexas Group, Inc. and will not be replaced.  Additionally, certain senior managers of LegacyTexas Group, Inc. who joined the Company, received immediately-vested stock awards, which resulted in $600,000 of share-based compensation expense recognized during the first quarter of 2015, without a comparable charge in the second quarter of 2015.  Non-interest expense for the second quarter of 2015 includes $1.5 million of non-interest expense from the Company's title and insurance subsidiaries. 

The $13.6 million increase in non-interest expense from the second quarter of 2014 was partially offset by a $644,000 decrease in merger and acquisition costs related to the merger with LegacyTexas Group, Inc.  Excluding the impact of these merger costs and one-time payroll and severance costs incurred during the second quarter of 2014, core non-interest expense increased by $14.6 million, which was driven by an $8.4 million increase in salaries and employee benefits expense, primarily due to the addition of employees and grants of share-based compensation related to the merger with LegacyTexas Group, Inc. Compared to the quarter ended June 30, 2014, non-interest expense increased due to the merger with LegacyTexas Group, Inc., including a $2.0 million increase in occupancy and equipment expense, an $829,000 increase in data processing expense, a $555,000 increase in advertising expense and a $935,000 increase in office operations expense.  

Financial Condition - Loans

Gross loans held for investment at June 30, 2015, excluding Warehouse Purchase Program loans, grew $198.1 million from March 31, 2015 and by $2.05 billion from June 30, 2014.  Excluding $1.17 billion in loans acquired from LegacyTexas Group, Inc. and Warehouse Purchase Program loans, gross loans held for investment increased by $872.9 million from June 30, 2014.   Compared to March 31, 2015, gross loans held for investment grew in all loan categories with the exception of the other consumer portfolio.  Commercial and industrial and commercial real estate loans at June 30, 2015 increased by $95.8 million and $39.7 million, respectively, from March 31, 2015, while consumer real estate loans increased by $53.0 million for the same period.  Warehouse Purchase Program loans at June 30, 2015 increased by $46.1 million from March 31, 2015 and by $315.4 million compared to June 30, 2014.

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

Acquired from LegacyTexas Group, Inc. 1

Organic Growth

Total

Growth from June 30, 2014

% Change excluding Acquired Loans

% Change including Acquired Loans

(Dollars in thousands)

Commercial real estate

$

523,229

$

244,992

$

768,221

14.5

%

66.1

%

Commercial and industrial

242,565

454,616

697,181

53.3

114.1

Construction and land

126,233

72,408

198,641

45.8

621.9

Consumer

280,340

100,894

381,234

12.2

70.0

Total year-over-year growth

$

1,172,367

$

872,910

$

2,045,277

24.8

87.1

1

Balances for loans acquired from LegacyTexas Group, Inc. are shown as of June 30, 2015

 

Energy loans, which are reported as commercial and industrial loans, totaled $402.6 million at June 30, 2015, up $31.5 million from $371.1 million at March 31, 2015 and up $180.4 million from June 30, 2014.  In May 2013, the Company formed its Energy Finance group, which is comprised of a group of seasoned lenders, executives and credit risk professionals with more than 100 years of combined Texas energy experience, to focus on providing loans to private and public oil and gas companies throughout the United States. The group also offers the Bank's full array of commercial services, including Treasury Management and letters of credit, to its customers.  Substantially all of the loans in the Energy portfolio are reserve based loans, secured by deeds of trust on properties containing proven oil and natural gas reserves. Three loans managed by the Energy Finance group are not secured by oil and gas reserves. These loans, with a combined commitment of $51.5 million and a total outstanding balance of $21.3 million at June 30, 2015, are categorized as "Midstream and Other" loans. Loans in this category are typically related to the transmission of oil and natural gas and would only be indirectly impacted from declining commodity prices.

Financial Condition - Deposits

Total deposits at June 30, 2015 increased by $134.7 million from March 31, 2015, and by $2.09 billion from June 30, 2014, with $1.63 billion of growth resulting from deposits acquired from LegacyTexas Group, Inc.  All deposit categories increased on a linked-quarter basis, with non-interest-bearing demand deposits growing by $53.3 million due to higher balances in commercial checking deposits and time deposits increasing by $52.2 million.  At June 30, 2015, non-interest-bearing demand deposits comprised 24.0% of total deposits, compared to 17.8% of total deposits at June 30, 2014.  Interest-bearing demand and savings and money market deposits increased by $21.2 million and $8.0 million, respectively, compared to March 31, 2015. 

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

Acquired from LegacyTexas Group, Inc.

Organic Change

Total Growth from June 30,

 2014

% Change excluding Acquired Deposits

% Change including Acquired Deposits

(Dollars in thousands)

Non-interest-bearing demand

$

499,684

$

151,268

$

650,952

16.2

%

150.3

%

Interest-bearing demand

258,713

(486)

258,227

(0.1)

54.2

Savings and money market

534,554

267,025

801,579

17.0

77.6

Time

336,831

44,468

381,299

5.4

77.2

Total year-over-year growth

$

1,629,782

$

462,275

$

2,092,057

11.4

85.9

 

Credit Quality

At or For the Quarters Ended

June

March

June

(unaudited)

2015

2015

2014

(Dollars in thousands)

Net charge-offs

$

1,159

$

273

$

159

Net charge-offs/Average loans held for investment, excluding Warehouse Purchase Program loans

0.11

%

0.03

%

0.03

%

Net charge-offs/Average loans held for investment

0.09

0.02

0.02

Provision for loan losses

$

3,750

$

3,000

$

1,197

Non-performing loans ("NPLs")

26,850

22,869

23,605

NPLs/Total loans held for investment, excluding Warehouse Purchase Program loans

0.61

%

0.54

%

1.00

%

NPLs/Total loans held for investment

0.49

0.44

0.76

Non-performing assets ("NPAs")

$

31,403

$

29,143

$

23,845

NPAs to total assets

0.47

%

0.45

%

0.60

%

NPAs/Loans held for investment and foreclosed assets, excluding Warehouse Purchase Program loans

0.71

0.69

1.01

NPAs/Loans held for investment and foreclosed assets

0.57

0.56

0.76

Allowance for loan losses

$

30,867

$

28,276

$

20,440

Allowance for loan losses/Total loans held for investment, excluding Warehouse Purchase Program loans

0.70

%

0.67

%

0.87

%

Allowance for loan losses/Total loans held for investment

0.56

0.54

0.66

Allowance for loan losses/Total Loans held for investment, excluding acquired loans & Warehouse Purchase Program loans 1

0.98

1.00

0.90

Allowance for loan losses/NPLs

114.96

123.64

86.59

1

Excludes loans acquired in the Highlands and LegacyTexas transactions, which were initially recorded at fair value

 

The Company recorded a provision for loan losses of $3.8 million for the quarter ended June 30, 2015, compared to $3.0 million for the quarter ended March 31, 2015 and $1.2 million for the quarter ended June 30, 2014.  The increase in the provision for loan losses on a linked-quarter basis, as well as compared to the second quarter of 2014, was primarily related to increased organic loan production, as well as loans acquired from LegacyTexas Group, Inc. that were re-underwritten following completion of the merger.  Once an acquired loan undergoes new underwriting and meets the criteria for a new loan, any remaining fair value adjustments are taken into interest income and the loan becomes fully subject to the Company's allowance for loan loss methodology.   

Consistent with prior quarters, the Company has continued to apply qualitative reserve factors to provide for additional allowance for loan losses due to the economic uncertainty in Texas related to the recent decline in the price of oil.  To date, the Company has not recognized a loss from loans in the Energy portfolio, which we believe is a reflection of prudent risk mitigation techniques.  These techniques include sound underwriting (reasonable advance rates based on number and diversification of wells), sound policy (requiring hedges on production sales) and conservative collateral valuations (frequent borrowing base determinations at prices below NYMEX posted rates).  All borrowing base valuations are performed by experienced and nationally recognized third party firms intimately familiar with the properties and their production history.  At June 30, 2015, 1.5% of the Company's loan portfolio (excluding Warehouse Purchase Program loans) consisted of criticized energy loans, and all but one of these energy loans were performing.  One energy loan totaling $5.2 million was placed on non-accrual status during the second quarter of 2015 and was considered impaired at June 30, 2015; however, the Company does not have a specific reserve set aside for this loan and does not currently anticipate a loss.  Four energy lending relationships totaling $58.6 million at June 30, 2015 have been downgraded to substandard as a result of collateral value deterioration due to commodity price declines. As a result of the deterioration the Company has taken action to improve the risk profile of the loans. These actions range from instituting monthly commitment reductions, obtaining additional collateral, obtaining additional guarantor support, and requiring additional equity injections or asset sales.  Borrower response to these actions has been favorable and the Company believes the loans will be paid off or paid down to acceptable risk levels within a reasonable time frame.  These four relationships, which were performing at June 30, 2015, have been considered in management's analysis of potential loan losses.

Subsequent Events

The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended June 30, 2015 on Form 10-Q.  As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of June 30, 2015 and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an investor conference call to review the results on Wednesday, July 22, 2015 at 8 a.m. Central Time.  Participants may pre-register for the call by visiting http://dpregister.com/10067048 and will receive a unique pin number, which can be used when dialing in for the call.  This will allow attendees to enter the call immediately.  Alternatively,  participants may call (toll-free) 1-877-513-4119 at least five minutes prior to the call to be placed into the call by an operator.  International participants are asked to call 1-412-902-4148 and participants in Canada are asked to call (toll-free) 1-855-669-9657.

The call and corresponding presentation slides will be webcast live on the home page of the Company's website, www.legacytexasfinancialgroup.com.  An audio replay will be available one hour after the conclusion of the call at 1-877-344-7529, Conference #10067048.   This replay, as well as the webcast, will be available until August 22, 2015.

About LegacyTexas Financial Group, Inc.

LegacyTexas Financial Group, Inc. is the holding company for LegacyTexas Bank, a commercially oriented community bank based in Plano, Texas. LegacyTexas Bank operates 47 banking offices in the Dallas/Fort Worth Metroplex and surrounding counties. For more information, please visit www.legacytexasfinancialgroup.com or www.legacytexas.com.

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

The Company does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

LegacyTexas Financial Group, Inc.

Consolidated Balance Sheets

June 30,

 2015

March 31,

 2015

December 31, 2014

September 30, 2014

June 30,

 2014

(Dollars in thousands)

ASSETS

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash and due from financial institutions

$

48,911

$

53,739

$

28,416

$

27,669

$

35,276

Short-term interest-bearing deposits in other financial institutions

143,106

230,175

103,605

62,616

130,632

Total cash and cash equivalents

192,017

283,914

132,021

90,285

165,908

Securities available for sale, at fair value

314,040

290,615

199,699

211,364

224,184

Securities held to maturity

254,526

261,670

241,920

254,665

267,614

Total securities

568,566

552,285

441,619

466,029

491,798

Loans held for sale

19,903

23,983

Loans held for investment:

Loans held for investment - Warehouse Purchase Program

1,084,997

1,038,886

786,416

736,624

769,566

Loans held for investment

4,394,786

4,196,710

2,633,680

2,489,063

2,349,509

  Gross loans

5,499,686

5,259,579

3,420,096

3,225,687

3,119,075

Less: allowance for loan losses and deferred fees on loans held for investment

(34,264)

(31,565)

(28,476)

(24,773)

(22,139)

Net loans

5,465,422

5,228,014

3,391,620

3,200,914

3,096,936

FHLB and Federal Reserve Bank stock, at cost

69,224

65,470

44,084

41,473

44,532

Bank-owned life insurance

54,614

54,339

36,193

36,010

35,863

Premises and equipment, net

80,095

81,853

48,743

51,118

51,955

Goodwill

180,632

179,258

29,650

29,650

29,650

Other assets

59,054

65,818

40,184

35,045

34,602

  Total assets

$

6,669,624

$

6,510,951

$

4,164,114

$

3,950,524

$

3,951,244

LIABILITIES AND SHAREHOLDERS' EQUITY

Non-interest-bearing demand

$

1,084,146

$

1,030,861

$

494,376

$

483,784

$

433,194

Interest-bearing demand

734,430

713,199

472,703

454,416

476,203

Savings and money market

1,834,075

1,826,097

1,176,749

1,057,912

1,032,496

Time

875,132

822,904

513,981

500,356

493,833

Total deposits

4,527,783

4,393,061

2,657,809

2,496,468

2,435,726

FHLB advances

1,217,305

1,171,623

862,907

799,704

874,866

Repurchase agreements

66,172

89,772

25,000

25,000

25,000

Subordinated debt

11,474

26,840

Accrued expenses and other liabilities

69,966

68,596

50,175

65,225

58,240

Total liabilities

5,892,700

5,749,892

3,595,891

3,386,397

3,393,832

Shareholders' equity

Common stock

476

476

400

400

400

Additional paid-in capital

571,083

568,396

386,549

383,779

381,808

Retained earnings

219,493

205,431

195,327

194,663

190,150

Accumulated other comprehensive income, net

122

1,372

930

635

770

Unearned Employee Stock Ownership Plan (ESOP) shares

(14,250)

(14,616)

(14,983)

(15,350)

(15,716)

  Total shareholders' equity

776,924

761,059

568,223

564,127

557,412

  Total liabilities and shareholders' equity

$

6,669,624

$

6,510,951

$

4,164,114

$

3,950,524

$

3,951,244

 

LegacyTexas Financial Group, Inc.

Consolidated Quarterly Statements of Income (unaudited)

For the Quarters Ended

Second Quarter 2015 Compared to:

Jun 30, 2015

Mar 31, 2015

Dec 31, 2014

Sep 30, 2014

Jun 30, 2014

First Quarter

 2015

Second Quarter

2014

Interest and dividend income

(Dollars in thousands)

Loans, including fees

$

61,551

$

58,035

$

37,107

$

35,872

$

33,888

$

3,516

6.1

%

$

27,663

81.6

%

Taxable securities

2,252

2,499

2,109

2,225

2,453

(247)

(9.9)

(201)

(8.2)

Nontaxable securities

724

718

561

562

561

6

0.8

163

29.1

Interest-bearing deposits in other financial institutions

139

158

64

57

71

(19)

(12.0)

68

95.8

FHLB and Federal Reserve Bank stock and other

301

208

138

139

136

93

44.7

165

121.3

64,967

61,618

39,979

38,855

37,109

3,349

5.4

27,858

75.1

Interest expense

Deposits

3,049

3,127

2,165

2,021

2,035

(78)

(2.5)

1,014

49.8

FHLB advances

1,774

1,706

1,778

1,957

1,948

68

4.0

(174)

(8.9)

Repurchase agreement and other borrowings

323

459

206

207

204

(136)

(29.6)

119

58.3

5,146

5,292

4,149

4,185

4,187

(146)

(2.8)

959

22.9

Net interest income

59,821

56,326

35,830

34,670

32,922

3,495

6.2

26,899

81.7

Provision for loan losses

3,750

3,000

2,637

2,511

1,197

750

25.0

2,553

213.3

Net interest income after provision for loan losses

56,071

53,326

33,193

32,159

31,725

2,745

5.1

24,346

76.7

Non-interest income

Service charges and other fees

7,941

6,759

4,963

4,798

5,113

1,182

17.5

2,828

55.3

Net gain on sale of mortgage loans

2,121

2,072

49

2.4

2,121

N/M 1

Bank-owned life insurance income

424

419

183

147

145

5

1.2

279

192.4

Gain on sale of available for sale securities

211

(211)

N/M 1

Gain (loss) on sale and disposition of assets

429

28

15

(85)

727

401

1,432.1

(298)

(41.0)

Other

1,049

(82)

133

198

(556)

1,131

N/M 1

1,605

N/M 1

11,964

9,407

5,294

5,058

5,429

2,557

27.2

6,535

120.4

Non-interest expense

Salaries and employee benefits

22,549

22,971

13,137

13,661

14,127

(422)

(1.8)

8,422

59.6

Merger and acquisition costs

8

1,545

8,282

1,188

652

(1,537)

(99.5)

(644)

(98.8)

Advertising

1,048

940

425

262

493

108

11.5

555

112.6

Occupancy and equipment

3,838

3,808

1,856

1,807

1,819

30

0.8

2,019

111.0

Outside professional services

625

750

711

569

486

(125)

(16.7)

139

28.6

Regulatory assessments

1,146

822

700

698

687

324

39.4

459

66.8

Data processing

2,537

2,795

1,753

1,739

1,708

(258)

(9.2)

829

48.5

Office operations

2,652

2,393

1,621

1,566

1,717

259

10.8

935

54.5

Other

2,505

1,753

1,311

1,301

1,661

752

42.9

844

50.8

36,908

37,777

29,796

22,791

23,350

(869)

(2.3)

13,558

58.1

Income before income tax expense

31,127

24,956

8,691

14,426

13,804

6,171

24.7

17,323

125.5

Income tax expense

10,876

8,632

3,225

5,114

4,986

2,244

26.0

5,890

118.1

Net income

$

20,251

$

16,324

$

5,466

$

9,312

$

8,818

$

3,927

24.1

%

$

11,433

129.7

%

1N/M - not meaningful

 

LegacyTexas Financial Group, Inc.

Selected Financial Highlights (unaudited)

At or For the Quarters Ended

June 30,

 2015

March 31,

 2015

June 30,

 2014

(Dollars in thousands, except per share amounts)

SHARE DATA:

Weighted average common shares outstanding- basic

45,760,232

45,824,812

37,873,671

Weighted average common shares outstanding- diluted

46,031,267

46,002,821

38,121,374

Shares outstanding at end of period

47,619,493

47,602,721

39,995,720

Income available to common shareholders1

$

20,091

$

16,186

$

8,721

Basic earnings per common share

0.44

0.35

0.23

Basic core (non-GAAP) earnings per common share2

0.44

0.39

0.26

Diluted earnings per common share

0.44

0.35

0.23

Dividends declared per share

0.13

0.13

0.12

Total shareholders' equity

776,924

761,059

557,412

Common shareholders' equity per share (book value per share)

16.32

15.99

13.94

Tangible book value per share- Non-GAAP2

12.50

12.20

13.17

Market value per share for the quarter:

High

30.86

25.09

29.34

Low

22.67

19.82

23.95

Close

30.20

22.73

26.91

KEY RATIOS:

Return on average common shareholders' equity

10.62

%

8.59

%

6.36

%

Core return on average common shareholders' equity2

10.55

9.34

7.14

Return on average assets

1.28

1.08

0.96

Core return on average assets2

1.27

1.18

1.07

Efficiency ratio3

51.61

54.58

59.11

Estimated Tier 1 common risk-based capital ratio4

10.18

10.44

16.42

Estimated total risk-based capital ratio4

10.91

11.43

17.06

Estimated Tier 1 leverage ratio4

9.91

10.40

14.43

Total equity to total assets

11.65

11.69

14.11

Tangible equity to tangible assets- Non-GAAP2

9.17

9.17

13.44

Number of employees- full-time equivalent

812

794

523

1

Net of distributed and undistributed earnings to participating securities.

2

See the section labeled "Supplemental Information- Non-GAAP Financial Measures" at the end of this document.

3

Calculated by dividing total non-interest expense by net interest income plus non-interest income, excluding gain (loss) on foreclosed and fixed assets, changes in value of the CRA Funds, amortization of intangible assets, gains (losses) from securities transactions and merger and acquisition costs.

4

Calculated at the Company level, which is subject to the capital adequacy requirements of the Federal Reserve.

 

LegacyTexas Financial Group, Inc.

Selected Loan Data (unaudited)

At the Quarter Ended

June 30,

2015

March 31,

 2015

December 31,

 2014

September 30,

 2014

June 30,

 2014

Loans held for investment:

(Dollars in thousands)

Commercial real estate

$

1,930,256

$

1,890,518

$

1,265,868

$

1,219,436

$

1,162,035

Warehouse Purchase Program

1,084,997

1,038,886

786,416

736,624

769,566

Commercial and industrial

1,308,168

1,212,328

781,824

695,543

610,987

Construction and land

230,582

215,752

21,298

16,900

31,941

Consumer real estate

845,982

792,995

524,199

515,706

501,328

Other consumer

79,798

85,117

40,491

41,478

43,218

Gross loans held for investment

$

5,479,783

$

5,235,596

$

3,420,096

$

3,225,687

$

3,119,075

Non-performing assets:

Commercial real estate

$

3,549

$

6,745

$

6,703

$

7,452

$

7,386

Commercial and industrial

12,498

5,691

5,778

6,328

6,245

Construction and land

141

141

149

150

213

Consumer real estate

10,419

9,946

10,591

10,106

9,304

Other consumer

243

346

286

346

457

  Total non-performing loans

26,850

22,869

23,507

24,382

23,605

Foreclosed assets

4,553

6,274

551

106

240

  Total non-performing assets

$

31,403

$

29,143

$

24,058

$

24,488

$

23,845

Total non-performing assets to total assets

0.47

%

0.45

%

0.58

%

0.62

%

0.60

%

Total non-performing loans to total loans held for investment, excluding Warehouse Purchase Program loans

0.61

%

0.54

%

0.89

%

0.98

%

1.00

%

Total non-performing loans to total loans held for investment

0.49

%

0.44

%

0.69

%

0.76

%

0.76

%

Allowance for loan losses to non-performing loans

114.96

%

123.64

%

108.69

%

92.63

%

86.59

%

Allowance for loan losses to total loans held for investment, excluding Warehouse Purchase Program loans

0.70

%

0.67

%

0.97

%

0.91

%

0.87

%

Allowance for loan losses to total loans held for investment

0.56

%

0.54

%

0.75

%

0.70

%

0.66

%

Allowance for loan losses to total loans held for investment, excluding acquired loans and Warehouse Purchase Program loans 1

0.98

%

1.00

%

1.00

%

0.94

%

0.90

%

Troubled debt restructured loans ("TDRs"):

(Dollars in thousands)

Performing TDRs:

Commercial real estate

$

733

$

738

$

702

$

706

$

666

Commercial and industrial

142

147

153

158

162

Consumer real estate

202

203

204

407

729

Other consumer

35

37

39

41

43

  Total performing TDRs

$

1,112

$

1,125

$

1,098

$

1,312

$

1,600

Non-performing TDRs:2

Commercial real estate

$

3,240

$

6,616

$

6,569

$

6,646

$

6,694

Commercial and industrial

1,862

1,985

2,031

2,125

2,194

Construction and land

101

101

103

104

Consumer real estate

3,608

3,936

4,034

3,606

3,199

Other consumer

155

201

245

300

411

  Total non-performing TDRs

$

8,966

$

12,839

$

12,982

$

12,781

$

12,498

Allowance for loan losses:

Balance at beginning of period

$

28,276

$

25,549

$

22,585

$

20,440

$

19,402

  Provision expense

3,750

3,000

2,637

2,511

1,197

  Charge-offs

(1,357)

(504)

(203)

(493)

(294)

  Recoveries

198

231

530

127

135

Balance at end of period

$

30,867

$

28,276

$

25,549

$

22,585

$

20,440

Net charge-offs (recoveries):

Commercial real estate

$

78

$

(17)

$

(435)

$

$

Commercial and industrial

935

5

77

152

53

Construction and land

50

Consumer real estate

13

142

(1)

69

54

Other consumer

133

143

32

95

52

  Total net charge-offs

$

1,159

$

273

$

(327)

$

366

$

159

1

Excludes loans acquired in the Highlands and LegacyTexas acquisitions, which were initially recorded at fair value.

2

Non-performing TDRs are included in the non-performing assets reported above.

 

LegacyTexas Financial Group, Inc.

Average Balances and Yields/Rates (unaudited)

For the Quarters Ended

June 30,

 2015

March 31,

 2015

December 31,

 2014

September 30,

 2014

June 30,

 2014

Loans:

(Dollars in thousands)

Commercial real estate

$

1,850,134

$

1,835,205

$

1,216,348

$

1,163,271

$

1,147,028

Warehouse Purchase Program

920,034

687,496

619,736

645,148

571,922

Commercial and industrial

1,248,447

1,135,074

730,629

662,504

590,353

Construction and land

214,038

223,815

19,140

28,344

25,517

Consumer real estate

805,573

786,872

518,472

510,135

477,451

Other consumer

83,296

89,123

41,169

42,308

44,162

Less: deferred fees and allowance for loan loss

(31,991)

(29,098)

(25,280)

(22,663)

(21,683)

Total loans held for investment

5,089,531

4,728,487

3,120,214

3,029,047

2,834,750

Loans held for sale

19,414

19,672

Securities

620,071

620,490

505,692

532,950

545,944

Overnight deposits

164,499

222,159

106,152

90,246

118,529

  Total interest-earning assets

$

5,893,515

$

5,590,808

$

3,732,058

$

3,652,243

$

3,499,223

Deposits:

Interest-bearing demand

$

701,592

$

702,333

$

455,210

$

460,192

$

468,283

Savings and money market

1,806,857

1,809,191

1,169,133

1,060,311

1,000,243

Time

839,604

820,050

513,786

492,864

503,035

FHLB advances and other borrowings

1,112,198

882,461

654,396

733,615

678,817

  Total interest-bearing liabilities

$

4,460,251

$

4,214,035

$

2,792,525

$

2,746,982

$

2,650,378

Total assets

$

6,315,710

$

6,021,795

$

3,910,111

$

3,837,424

$

3,683,042

Non-interest-bearing demand deposits

$

1,024,108

$

975,067

$

473,996

$

456,115

$

414,746

Total deposits

$

4,372,161

$

4,306,641

$

2,612,125

$

2,469,482

$

2,386,307

Total shareholders' equity

$

762,497

$

760,130

$

570,120

$

562,022

$

554,501

Yields/Rates:

Loans:

Commercial real estate

5.20

%

5.30

%

5.42

%

5.46

%

5.46

%

Warehouse Purchase Program

3.36

%

3.36

%

3.51

%

3.56

%

3.56

%

Commercial and industrial

4.75

%

4.90

%

4.38

%

4.18

%

4.18

%

Construction and land

6.25

%

5.92

%

5.63

%

6.13

%

5.91

%

Consumer real estate

5.11

%

4.77

%

4.83

%

4.91

%

4.96

%

Other consumer

5.49

%

5.30

%

6.23

%

6.03

%

6.07

%

Total loans held for investment

4.82

%

4.89

%

4.76

%

4.74

%

4.78

%

Loans held for sale

3.65

%

3.62

%

%

%

%

Securities

2.11

%

2.21

%

2.22

%

2.20

%

2.31

%

Overnight deposits

0.34

%

0.28

%

0.24

%

0.25

%

0.24

%

  Total interest-earning assets

4.41

%

4.41

%

4.28

%

4.26

%

4.24

%

Deposits:

Interest-bearing demand

0.48

%

0.41

%

0.35

%

0.35

%

0.37

%

Savings and money market

0.17

%

0.22

%

0.32

%

0.31

%

0.30

%

Time

0.70

%

0.68

%

0.64

%

0.65

%

0.69

%

FHLB advances and other borrowings

0.75

%

0.98

%

1.21

%

1.18

%

1.27

%

  Total interest-bearing liabilities

0.46

%

0.50

%

0.59

%

0.61

%

0.63

%

Net interest spread

3.95

%

3.91

%

3.69

%

3.65

%

3.61

%

Net interest margin

4.06

%

4.03

%

3.84

%

3.80

%

3.76

%

Cost of deposits (including non-interest-bearing demand)

0.28

%

0.29

%

0.33

%

0.33

%

0.34

%

 

LegacyTexas Financial Group, Inc.

Supplemental Information- Non-GAAP Financial Measures

(unaudited and net of tax, calculated using a 35% estimated tax rate)

At or For the Quarters Ended

June 30,

 2015

March 31,

 2015

December 31,

 2014

September 30,

 2014

June 30,

 2014

Reconciliation of Core (non-GAAP) to GAAP Net Income and Earnings per Share:

(Dollars in thousands, except per share amounts)

GAAP net income available to common shareholders 1

$

20,091

$

16,186

$

5,412

$

9,215

$

8,721

Distributed and undistributed earnings to participating securities 1

160

138

54

97

97

GAAP net income

20,251

16,324

5,466

9,312

8,818

Merger and acquisition costs

5

1,004

5,765

772

424

One-time payroll and severance costs

234

One-time (gain) loss on assets

(142)

554

(45)

(58)

415

Gain on sale of available for sale securities

(137)

Core (non-GAAP) net income

$

20,114

$

17,745

$

11,186

$

10,026

$

9,891

Average shares for basic earnings per share

45,760,232

45,824,812

38,051,511

37,971,790

37,873,671

GAAP basic earnings per share

$

0.44

$

0.35

$

0.14

$

0.24

$

0.23

Core (non-GAAP) basic earnings per share

$

0.44

$

0.39

$

0.29

$

0.26

$

0.26

Average shares for diluted earnings per share

46,031,267

46,002,821

38,275,814

38,203,508

38,121,374

GAAP diluted earnings per share

$

0.44

$

0.35

$

0.14

$

0.24

$

0.23

Core (non-GAAP) diluted earnings per share

$

0.44

$

0.39

$

0.29

$

0.26

$

0.26

Calculation of Tangible Book Value per Share:

Total shareholders' equity

$

776,924

$

761,059

$

568,223

$

564,127

$

557,412

Less: Goodwill

(180,632)

(179,258)

(29,650)

(29,650)

(29,650)

Identifiable intangible assets, net

(1,280)

(1,042)

(813)

(910)

(1,005)

Total tangible shareholders' equity

$

595,012

$

580,759

$

537,760

$

533,567

$

526,757

Shares outstanding at end of period

47,619,493

47,602,721

40,014,851

40,006,941

39,995,720

Book value per share- GAAP

$

16.32

$

15.99

$

14.20

$

14.10

$

13.94

Tangible book value per share- Non-GAAP

$

12.50

$

12.20

$

13.44

$

13.34

$

13.17

Calculation of Tangible Equity to Tangible Assets:

Total assets

$

6,669,624

$

6,510,951

$

4,164,114

$

3,950,524

$

3,951,244

Less: Goodwill

(180,632)

(179,258)

(29,650)

(29,650)

(29,650)

Identifiable intangible assets, net

(1,280)

(1,042)

(813)

(910)

(1,005)

Total tangible assets

$

6,487,712

$

6,330,651

$

4,133,651

$

3,919,964

$

3,920,589

Equity to assets- GAAP

11.65

%

11.69

%

13.65

%

14.28

%

14.11

%

Tangible equity to tangible assets- Non-GAAP

9.17

%

9.17

%

13.01

%

13.61

%

13.44

%

At or For the Quarters Ended

June 30,

 2015

March 31,

 2015

December 31,

 2014

September 30,

 2014

June 30,

 2014

(Dollars in thousands)

Calculation of Return on Average Assets and Return on Average Equity Ratios (GAAP and core) (unaudited)

Net income

$

20,251

$

16,324

$

5,466

$

9,312

$

8,818

Core (non-GAAP) net income

20,114

17,745

11,186

10,026

9,891

Average total equity

762,497

760,130

570,120

562,022

554,501

Average total assets

6,315,710

6,021,795

3,910,111

3,837,424

3,683,042

Return on average common shareholders' equity

10.62

%

8.59

%

3.83

%

6.63

%

6.36

%

Core return on average common shareholders' equity

10.55

9.34

7.85

7.14

7.14

Return on average assets

1.28

1.08

0.56

0.97

0.96

Core return on average assets

1.27

1.18

1.14

1.05

1.07

1

Unvested share-based awards that contain nonforfeitable rights to dividends (whether paid or unpaid) are participating securities and are included in the computation of GAAP earnings per share pursuant to the two-class method described in ASC 260-10-45-60B

 

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SOURCE LegacyTexas Financial Group, Inc.



RELATED LINKS

http://www.legacytexasfinancialgroup.com