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LegacyTexas Financial Group, Inc. Reports Second Quarter 2018 Earnings

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LegacyTexas Financial Group, Inc. Reports Second Quarter 2018 Earnings

PR Newswire

PLANO, Texas, July 17, 2018 /PRNewswire/ -- LegacyTexas Financial Group, Inc. (NASDAQ:LTXB) (the "Company"), the holding company for LegacyTexas Bank (the "Bank"), today announced net income of $27.8 million for the second quarter of 2018, an increase of $2.1 million from the first quarter of 2018 and a decrease of $98,000 from the second quarter of 2017.

www.LegacyTexasFinancialGroup.com . (PRNewsFoto/) (PRNewsFoto/LegacyTexas Financial Group, Inc)" alt="LegacyTexas Financial Group, Inc. is the holding company for LegacyTexas Bank, a commercially oriented community bank based in Plano, Texas. LegacyTexas Bank operates 43 banking offices in the Dallas/Fort Worth Metroplex and surrounding counties. For more information, visit www.LegacyTexasFinancialGroup.com . (PRNewsFoto/) (PRNewsFoto/LegacyTexas Financial Group, Inc)">

"During the second quarter we continued to grow our customer base and franchise while positioning the Company for improved performance," said President and CEO Kevin Hanigan.  "We will soon roll out enhancements to our digital product offerings and a new treasury management platform.  We believe our customers, employees and shareholders will all benefit from our focus on building a top-tier performing bank."

Second Quarter 2018 Performance Highlights

  • Company assets of $9.25 billion generated basic earnings per share for the second quarter of 2018 of $0.59 on a GAAP basis and core (non-GAAP) basis.
  • Net interest margin for the second quarter of 2018 improved to 3.93%, up eight basis points from the first quarter of 2018 and up 16 basis points from the second quarter of 2017.
  • Warehouse Purchase Program loans at June 30, 2018 grew $271.3 million from March 31, 2018, while gross loans held for investment, excluding Warehouse Purchase Program loans, grew $102.0 million for the same period.
  • Non-performing loans declined by $30.2 million, or 60.7%, from March 31, 2018, totaling $19.6 million at June 30, 2018. Non-performing loans to total loans held for investment improved to 0.25% at June 30, 2018, compared to 0.66% at March 31, 2018 and 1.29% at June 30, 2017.
  • The Company's efforts to grow non-interest-bearing demand deposits resulted in a linked-quarter increase in these deposits of $40.3 million to $1.72 billion at June 30, 2018. Non-interest-bearing deposits totaled 25.0% of total deposits at June 30, 2018.
  • GAAP efficiency ratio improved to 44.51% for the quarter ended June 30, 2018, compared to 47.95% for the quarter ended March 31, 2018, while return on average assets improved to 1.24% for the quarter ended June 30, 2018, compared to 1.19% for the quarter ended March 31, 2018.

Financial Highlights



At or For the Quarters Ended

(unaudited)

Jun 30, 2018


Mar 31, 2018


Jun 30, 2017


(Dollars in thousands, except per share amounts)

Net interest income

$

83,929



$

78,613



$

75,720


Provision for credit losses

17,478



15,663



6,255


Non-interest income

10,852



12,898



12,325


Non-interest expense

42,191



43,879



39,589


Income tax expense

7,275



6,207



14,266


Net income

$

27,837



$

25,762



$

27,935








Basic earnings per common share

$

0.59



$

0.55



$

0.60


Basic core (non-GAAP) earnings per common share1

$

0.59



$

0.52



$

0.60


Weighted average common shares outstanding - basic

47,000,405



46,872,333



46,596,467


Estimated Tier 1 common equity risk-based capital ratio2

9.78

%


9.91

%


8.92

%

Total equity to total assets

10.83

%


11.05

%


10.31

%

Tangible common equity to tangible assets - Non-GAAP1

9.07

%


9.22

%


8.49

%



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.

Core (non-GAAP) net income (which is net income adjusted for the impact of infrequent or non-recurring items) totaled $28.0 million for the quarter ended June 30, 2018, up $3.4 million from the first quarter of 2018 and up $28,000 from the second quarter of 2017.  Basic earnings per share for the quarter ended June 30, 2018 was $0.59, an increase of $0.04 from the first quarter of 2018 and down $0.01 from the second quarter of 2017.  Basic core (non-GAAP) earnings per share for the second quarter of 2018 was $0.59, up $0.07 from the first quarter of 2018 and down $0.01 from the second quarter of 2017.  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.

Net Interest Income and Net Interest Margin



For the Quarters Ended

(unaudited)

June 30, 2018


March 31, 2018


June 30, 2017


(Dollars in thousands)

Interest income:






Loans held for investment, excluding Warehouse Purchase Program loans 1

$

86,105



$

80,348



$

73,840


Warehouse Purchase Program loans 1

12,137



10,071



9,852


Loans held for sale

328



212



225


Securities

4,324



4,066



3,875


Interest-earning deposit accounts

1,097



969



955


Total interest income

$

103,991



$

95,666



$

88,747


Net interest income

$

83,929



$

78,613



$

75,720


Net interest margin

3.93

%


3.85

%


3.77

%

Selected average balances:






Total earning assets

$

8,566,131



$

8,252,997



$

8,052,636


Total loans held for investment

7,636,235



7,343,539



7,060,044


Total securities

667,183



648,534



645,605


Total deposits

6,859,944



6,726,289



6,319,171


Total borrowings

1,018,945



877,502



1,142,998


Total non-interest-bearing demand deposits

1,694,082



1,576,792



1,410,566


Total interest-bearing liabilities

6,184,807



6,026,999



6,051,603




1

Interest income for the quarter ended June 30, 2017 included a $1.6 million reclassification of three Warehouse relationships from the commercial and industrial category to the Warehouse Purchase Program category.

Net interest income for the quarter ended June 30, 2018 was $83.9 million, a $5.3 million increase from the first quarter of 2018 and an $8.2 million increase from the second quarter of 2017.  The average balance of commercial and industrial loans increased by $98.0 million from the first quarter of 2018, while the average yield earned on this portfolio increased by 44 basis points for the same period, resulting in a $3.7 million increase in interest income.  The average yield earned on the commercial and industrial portfolio for the quarter ended June 30, 2018 was positively impacted by a 25 basis point increase in the Fed Funds rate in March 2018.  The average balance of the commercial real estate portfolio increased by $62.1 million from the first quarter of 2018 to $3.06 billion, resulting in a $1.2 million increase in interest income.  The average balance of the consumer real estate portfolio increased by $38.2 million and the average yield on the portfolio increased by ten basis points from the first quarter of 2018, which drove a $770,000 increase in interest income.  While the average balances of the construction and land and other consumer loan portfolios declined on a linked-quarter basis, the average yields earned on these portfolios increased by 18 and 12 basis points, respectively, from the first quarter of 2018.

Interest income earned on Warehouse Purchase Program loans increased by $2.1 million from the first quarter of 2018, as the average balance increased by $109.9 million and the average yield increased by 30 basis points compared to the linked quarter.  Interest income on loans for the second quarter of 2018 included $634,000 in accretion of purchase accounting fair value adjustments on acquired loans, which primarily consisted of $162,000 on acquired commercial real estate loans and $411,000 on acquired consumer loans.

The $8.2 million increase in net interest income compared to the second quarter of 2017 was primarily due to a $14.7 million increase in interest income on loans, which was driven by increased volume in all loan portfolios with the exception of construction and land and other consumer loans, as well as higher yields earned on all loan portfolios.  The average balance of commercial and industrial loans increased by $178.1 million from the second quarter of 2017, while the average yield earned on this portfolio increased by 100 basis points for the same period, resulting in a $7.0 million increase in interest income.  The average yield earned on the commercial and industrial portfolio for the quarter ended June 30, 2018 was positively impacted by three increases in the Fed Funds rate totaling 75 basis points since June 2017, as well as the resolution of multiple non-performing relationships over the past year.  The average balance of commercial real estate loans increased by $273.7 million from the second quarter of 2017, resulting in a $3.5 million increase in interest income, while the average balance of consumer real estate loans increased by $139.0 million for the same period, which led to a $1.8 million increase in interest income.  While the average balances of the construction and land and other consumer loan portfolios declined from the second quarter of 2017, the average yields earned on these portfolios increased by 23 and 17 basis points, respectively, from the second quarter of 2017.

The average balance of Warehouse Purchase Program loans increased by $7.8 million from the second quarter of 2017, while the average yield earned on this portfolio increased by 83 basis points, resulting in a $2.3 million increase in interest income compared to the second quarter of 2017.

Interest expense for the quarter ended June 30, 2018 increased by $3.0 million compared to the linked quarter, which was primarily due to higher average deposit and borrowing rates, as well as increases of $199.4 million and $141.4 million in the average balances of time deposits and borrowings, respectively, compared to the first quarter of 2018.

Compared to the second quarter of 2017, interest expense for the quarter ended June 30, 2018 increased by $7.0 million, primarily due to higher average deposit and borrowing rates, as well as increases of $277.0 million and $105.3 million in the average balances of time and interest-bearing demand deposits, respectively, compared to the second quarter of 2017.  A $124.1 million decrease in the average balance of borrowings from the second quarter of 2017 was more than offset by an 85 basis point increase in the average rate, resulting in a $1.7 million year-over-year increase in interest expense on borrowed funds.

The net interest margin for the second quarter of 2018 was 3.93%, an eight basis point increase from the first quarter of 2018 and a 16 basis point increase from the second quarter of 2017.  The average yield on earning assets for the second quarter of 2018 was 4.87%, an 18 basis point increase from the first quarter of 2018 and a 45 basis point increase from the second quarter of 2017.  The cost of deposits for the second quarter of 2018 was 0.80%, up seven basis points from the linked quarter and up 27 basis points from the second quarter of 2017.

Non-interest Income

Non-interest income for the second quarter of 2018 was $10.9 million, a $2.0 million decrease from the first quarter of 2018 and a $1.5 million decrease from the second quarter of 2017.  Gain (loss) on sale and disposition of assets for the second quarter of 2018 included a $160,000 loss on the disposition of a leased branch location, while this line item for the first quarter of 2018 included $2.3 million in proceeds resulting from an insurance settlement related to a misappropriation of approximately $2.5 million in vault cash from one of the former LegacyTexas Bank branches acquired in 2015.  Service charges and other fees increased by $917,000 from the first quarter of 2018, resulting from increases in debit card interchange income, commercial loan fee income (consisting of syndication, arrangement, non-usage and pre-payment fees), title premiums, Warehouse Purchase Program fee income, commercial account analysis fees, and insufficient funds fees.

The increase in service charges and other fees on a linked-quarter basis was partially offset by a $616,000 decrease in other non-interest income from the first quarter of 2018, primarily caused by a $402,000 yield maintenance fee on a bond pre-payment received in the first quarter of 2018 that was not repeated in the second quarter of 2018.

The $1.5 million decrease in non-interest income from the second quarter of 2017 was primarily due to a $1.1 million decrease in service charges and other fees, which was driven by decreases in commercial loan fee income (consisting of syndication, arrangement, non-usage and pre-payment fees), title premiums, Warehouse Purchase Program fee income, insufficient funds fees, and brokerage income after the Company discontinued its brokerage services in the third quarter of 2017.  These decreases in service charges and other fees were partially offset by increased debit card interchange income and commercial account analysis fees.  Gain (loss) on sale and disposition of assets for the second quarter of 2018 included the above-mentioned $160,000 loss on the disposition of a leased branch location, compared to a $139,000 gain on the sale of foreclosed properties recorded in the second quarter of 2017.  Other non-interest income for the second quarter of 2017 included a $368,000 net decrease in the value of investments in community development-oriented private equity funds used for Community Reinvestment Act purposes (the "CRA Funds"), compared to a $15,000 net decrease in the CRA Funds for the second quarter of 2018.  Net gains on the sale of mortgage loans held for sale during the second quarter of 2018 decreased by $488,000 compared to the second quarter of 2017, which included gains recognized on $56.4 million of one-to four-family mortgage loans that were sold or committed for sale and fair value changes on mortgage derivatives and mortgage fees collected during the second quarter of 2017, compared to $50.8 million for the second quarter of 2018.

Non-interest Expenses

Non-interest expense for the quarter ended June 30, 2018 was $42.2 million, a $1.7 million decrease from the first quarter of 2018 and a $2.6 million increase from the second quarter of 2017.  Salaries and employee benefits expense decreased by $2.8 million from the first quarter of 2018, driven by a $960,000 decrease in payroll taxes, as more employees have reached the wage base limit for Social Security tax for the year, as well as increased deferred salary costs related to loan originations that will be accounted for over the lives of the related loans.  In connection with the enactment of the Tax Cuts and Jobs Act, in the first quarter of 2018, the Company awarded all full-time employees whose salary was under $100,000 a $1,000 bonus, which resulted in $679,000 of additional salary expense, and increased the Company's minimum wage to $15 from $11 per hour for all non-commission-based employees.  Regulatory assessments expense decreased by $423,000 from the first quarter of 2018 due to a lower assessment rate used for the second quarter of 2018 related to a lower level of non-performing loans and higher capital ratios.  These linked-quarter decreases in salaries and employee benefits expense and regulatory assessments expense were partially offset by increased advertising expense of $470,000, increased data processing expense of $442,000 due to technology refreshments and system upgrades, and increased other non-interest expense of $410,000 due to higher debit card fraud and lending expenses.

The $2.6 million increase in non-interest expense from the second quarter of 2017 was primarily due to a $1.3 million increase in data processing expense as the Company has outsourced certain segments of its data processing operations.  This outsourcing cost was partially offset by a reduction in full-time equivalent employees in the technology area.   Salaries and employee benefits expense increased by $922,000 from the second quarter of 2017, which was driven by decreased deferred salary costs related to loan originations that will be accounted for over the lives of the related loans, as well as higher severance and health care costs. Merit increases awarded in the 2018 period, as well as the above-mentioned bonus and minimum wage increase related to 2018 tax reform, also contributed to higher salary expense compared to the second quarter of 2017 and was partially offset by lower share-based compensation expense in the 2018 period.  Other non-interest expense increased by $450,000 compared to the second quarter of 2017, primarily due to higher debit card fraud and lending expenses, while occupancy and equipment expense increased by $324,000 for the same period due to increased rent expense and lower rental income.  These increased expenses compared to the second quarter of 2017 were partially offset by a $540,000 reduction in regulatory assessment expense due to a lower assessment rate used for the 2018 period.

Financial Condition - Loans

Gross loans held for investment at June 30, 2018, excluding Warehouse Purchase Program loans, grew $102.0 million from March 31, 2018, which included growth in commercial and industrial, consumer real estate, construction and land, and other consumer loans.  At June 30, 2018, commercial and industrial and consumer real estate loans increased by $84.5 million and $35.3 million, respectively, from March 31, 2018, while construction and land and other consumer loans increased by $13.5 million and $1.3 million, respectively, for the same period.  These increases were partially offset by a $32.6 million linked-quarter decline in commercial real estate loans.

Compared to June 30, 2017, gross loans held for investment, excluding Warehouse Purchase Program loans, grew $502.3 million, which included growth in commercial real estate, commercial and industrial and consumer real estate loans. Commercial real estate, commercial and industrial and consumer real estate loans increased by $203.7 million, $172.7 million and $133.4 million, respectively, at June 30, 2018, compared to June 30, 2017.  These increases were partially offset by declines of $4.3 million and $3.1 million in construction and land and other consumer loans, respectively.

At June 30, 2018, Warehouse Purchase Program loans increased by $271.3 million compared to March 31, 2018 but decreased by $206.1 million compared to June 30, 2017.

Reserve-based energy loans, which are secured by deeds of trust on properties containing proven oil and natural gas reserves and included in the Company's commercial and industrial loan portfolio, totaled $486.8 million at June 30, 2018, down $37.3 million from $524.1 million at March 31, 2018 and down $28.7 million from $515.5 million at June 30, 2017.  In addition to reserve-based energy loans, the Company has loans categorized as "Midstream and Other," which are typically related to the transmission of oil and natural gas and would only be indirectly impacted by declining commodity prices.  At June 30, 2018, "Midstream and Other" loans had a total outstanding balance of $28.7 million, up $5.5 million from $23.2 million at March 31, 2018 and down $1.7 million from $30.4 million at June 30, 2017.

Financial Condition - Deposits

Total deposits at June 30, 2018 decreased by $73.1 million from March 31, 2018, which included declines of $129.4 million and $127.0 million in interest-bearing demand and savings and money market balances, respectively.  These declines were partially offset by growth of $143.1 million in time deposits and $40.3 million in non-interest-bearing demand deposits from March 31, 2018.

Compared to June 30, 2017, total deposits increased by $318.8 million, which included growth in time and non-interest-bearing demand deposits of $252.1 million and $198.5 million, respectively, while savings and money market and interest-bearing demand deposits decreased by $105.6 million and $26.2 million, respectively, from June 30, 2017.

Credit Quality



At or For the Quarters Ended

(unaudited)

Jun 30, 2018


Mar 31, 2018


Jun 30, 2017


(Dollars in thousands)

Net charge-offs

$

27,663



$

12,428



$

1,765


Net charge-offs/Average loans held for investment, excluding Warehouse Purchase Program loans1

1.69

%


0.78

%


0.12

%

Net charge-offs/Average loans held for investment

1.45



0.68



0.10


Provision for credit losses

$

17,478



$

15,663



$

6,255


Non-performing loans ("NPLs")

19,610



49,836



99,196


NPLs/Total loans held for investment, excluding Warehouse Purchase Program loans1

0.29

%


0.76

%


1.61

%

NPLs/Total loans held for investment

0.25



0.66



1.29


Non-performing assets ("NPAs")

$

26,951



$

57,996



$

112,479


NPAs to total assets

0.29

%


0.65

%


1.25

%

NPAs/Loans held for investment and foreclosed assets, excluding Warehouse Purchase Program loans1

0.40



0.88



1.82


NPAs/Loans held for investment and foreclosed assets

0.34



0.76



1.46


Allowance for loan losses

$

64,445



$

74,508



$

75,091


Allowance for loan losses/Total loans held for investment, excluding Warehouse Purchase Program loans1

0.97

%


1.13

%


1.22

%

Allowance for loan losses/Total loans held for investment

0.81



0.98



0.98


Allowance for loan losses/Total loans held for investment, excluding acquired loans & Warehouse Purchase Program loans1,2

1.02



1.20



1.32


Allowance for loan losses/NPLs

328.63



149.51



75.70




1

The 2017 period included a reclassification of three Warehouse relationships from the commercial and industrial category to the Warehouse Purchase Program category.

2

Excludes loans acquired in previous bank acquisitions, which were initially recorded at fair value.

The Company recorded a provision for credit losses of $17.5 million for the quarter ended June 30, 2018, an increase of $1.8 million from the quarter ended March 31, 2018 and an increase of $11.2 million from the quarter ended June 30, 2017.  The increase in provision expense on a linked-quarter and year-over-year basis was primarily due to a $12.5 million charge-off on the resolution of an impaired energy relationship, as well as charge-offs totaling $14.7 million on two impaired corporate healthcare finance relationships.  As a result of these charge-offs and the resolution of other non-performing loans, total non-performing loans declined by $30.2 million on a linked-quarter basis and by $79.6 million compared to the quarter ended June 30, 2017.

The below table shows criticized (rated "special mention") and classified (rated "substandard" or "doubtful") loans at June 30, 2018, March 31, 2018 and June 30, 2017.


June 30,
 2018


March 31,
 2018


June 30,
 2017


Linked-Quarter

 Change


Year-over-Year

 Change


(Dollars in thousands)

Commercial real estate

$

25,540



$

19,929



$

28,598



$

5,611



$

(3,058)


Commercial and industrial, excluding energy

11,065



11,037



18,771



28



(7,706)


Energy

24,975



27,255



59,608



(2,280)



(34,633)


Consumer

1,501



1,377



1,514



124



(13)


Total criticized (all performing)

$

63,081



$

59,598



$

108,491



$

3,483



$

(45,410)












Commercial real estate

$

3,846



$

3,865



$

6,822



$

(19)



$

(2,976)


Commercial and industrial, excluding energy

1,234



1,325



8,470



(91)



(7,236)


Energy

28,804



38,456





(9,652)



28,804


Construction and land





82





(82)


Consumer

1,993



2,627



2,423



(634)



(430)


Total classified performing

35,877



46,273



17,797



(10,396)



18,080












Commercial real estate

3,656



3,748



4,201



(92)



(545)


Commercial and industrial, excluding energy

8,860



25,037



13,193



(16,177)



(4,333)


Energy

1,365



15,418



74,406



(14,053)



(73,041)


Consumer

5,729



5,633



7,396



96



(1,667)


Total classified non-performing

19,610



49,836



99,196



(30,226)



(79,586)












Total classified loans

$

55,487



$

96,109



$

116,993



$

(40,622)



$

(61,506)



Conference Call

The Company will host an investor conference call to review the results on Wednesday, July 18, 2018 at 8 a.m. Central Time. Participants may pre-register for the call by visiting http://dpregister.com/10121511 and will receive a unique PIN, 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) 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) 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 877-344-7529, Conference #10121511.  This replay will be available until August 18, 2018.

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 43 banking offices in the Dallas/Fort Worth Metroplex and surrounding counties. For more information, please visit www.LegacyTexasFinancialGroup.com or www.LegacyTexas.com.

This document and other filings by LegacyTexas Financial Group, Inc. (the "Company") with the Securities and Exchange Commission (the "SEC"), as well as press releases or other public or stockholder communications released by the Company, may contain forward-looking statements, including, but not limited to, (i) statements regarding the financial condition, results of operations and business of the Company, (ii) statements about the Company's plans, objectives, expectations and intentions and other statements that are not historical facts and (iii) other statements identified by the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions that are intended to identify "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on current beliefs and expectations of the Company's management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: the expected cost savings, synergies and other financial benefits from acquisition or disposition transactions 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; changes in the regulatory and tax environments in which the Company operates, including the impact of the "Tax Cuts and Jobs Act" (the "TCJA") on the Company's deferred tax asset, and the anticipated impact of the TCJA on the Company's future earnings; and other factors set forth in the Company's filings with the SEC.

The factors listed above could materially affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.  When considering forward-looking statements, you should keep in mind these risks and uncertainties. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. You should refer to our periodic and current reports filed with the SEC for specific risks that could cause actual results to be significantly different from those expressed or implied by any forward-looking statements.

LegacyTexas Financial Group, Inc. Consolidated Balance Sheets (unaudited)


(Dollars in thousands)

ASSETS

June 30,
 2018


March 31,
 2018


December 31,
 2017


September 30,
 2017


June 30,
 2017

Cash and due from financial institutions

$

60,104



$

51,824



$

61,713



$

58,776



$

61,989


Short-term interest-bearing deposits in other financial institutions

199,807



243,080



231,743



268,567



256,251


Total cash and cash equivalents

259,911



294,904



293,456



327,343



318,240


Securities available for sale, at fair value

445,613



431,413



419,717



410,450



397,957


Securities held to maturity

155,252



156,898



173,509



180,968



191,578


Total securities

600,865



588,311



593,226



591,418



589,535


Loans held for sale

33,548



31,123



16,707



25,955



19,374


Loans held for investment:










Loans held for investment - Warehouse Purchase Program 1

1,291,129



1,019,840



1,320,846



1,360,219



1,497,211


Loans held for investment 1

6,671,139



6,569,123



6,483,192



6,385,602



6,168,790


Gross loans

7,995,816



7,620,086



7,820,745



7,771,776



7,685,375


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

(55,321)



(66,878)



(64,921)



(64,632)



(70,642)


Net loans

7,940,495



7,553,208



7,755,824



7,707,144



7,614,733


FHLB stock and other restricted securities, at cost

66,061



46,842



64,790



50,333



56,618


Bank-owned life insurance

58,345



57,999



57,684



57,383



57,078


Premises and equipment, net

70,893



70,427



69,693



70,052



71,068


Goodwill

178,559



178,559



178,559



178,559



178,559


Other assets

73,957



75,374



72,964



86,380



84,544


Total assets

$

9,249,086



$

8,865,624



$

9,086,196



$

9,068,612



$

8,970,375












LIABILITIES AND SHAREHOLDERS' EQUITY







Non-interest-bearing demand

$

1,721,380



$

1,681,067



$

1,635,622



$

1,529,052



$

1,522,856


Interest-bearing demand

867,323



996,737



1,029,375



889,627



893,544


Savings and money market

2,580,017



2,707,046



2,735,296



2,967,672



2,685,627


Time

1,712,628



1,569,557



1,367,390



1,374,017



1,460,479


Total deposits

6,881,348



6,954,407



6,767,683



6,760,368



6,562,506


FHLB advances

1,065,941



604,562



1,043,163



998,146



1,151,682


Repurchase agreements

41,330



76,610



84,676



81,073



73,433


Subordinated debt

134,767



134,645



134,522



134,400



134,277


Accrued expenses and other liabilities

124,250



115,906



96,278



144,533



123,194


Total liabilities

8,247,636



7,886,130



8,126,322



8,118,520



8,045,092


Common stock

483



483



481



480



480


Additional paid-in capital

611,967



609,046



603,884



598,820



595,730


Retained earnings

409,765



389,653



370,858



363,890



342,384


Accumulated other comprehensive income (loss), net

(9,109)



(7,899)



(3,429)



(1,045)



(1,125)


Unearned Employee Stock Ownership Plan (ESOP) shares

(11,656)



(11,789)



(11,920)



(12,053)



(12,186)


Total shareholders' equity

1,001,450



979,494



959,874



950,092



925,283


Total liabilities and shareholders' equity

$

9,249,086



$

8,865,624



$

9,086,196



$

9,068,612



$

8,970,375



1 All 2017 periods include a reclassification of three Warehouse relationships from the commercial and industrial category to the Warehouse Purchase Program category.


 

LegacyTexas Financial Group, Inc.

Consolidated Quarterly Statements of Income (unaudited)






For the Quarters Ended


Second Quarter 2018 Compared to:


Jun 30,
 2018


Mar 31,
 2018


Dec 31,
 2017


Sep 30,
 2017


Jun 30,
 2017


First Quarter

 2018


Second Quarter

2017

Interest and dividend income


(Dollars in thousands)


Loans, including fees

$

98,570



$

90,631



$

91,334



$

89,084



$

83,917



$

7,939


8.8

%


$

14,653


17.5

%

Taxable securities

3,132



2,911



2,819



2,694



2,725



221


7.6



407


14.9


Nontaxable securities

641



675



700



713



739



(34)


(5.0)



(98)


(13.3)


Interest-bearing deposits in other financial institutions

1,097



969



798



1,524



955



128


13.2



142


14.9


FHLB and Federal Reserve Bank stock and other

551



480



460



448



411



71


14.8



140


34.1



103,991



95,666



96,111



94,463



88,747



8,325


8.7



15,244


17.2


Interest expense















Deposits

13,732



12,032



10,954



10,271



8,359



1,700


14.1



5,373


64.3


FHLB advances

4,131



2,680



2,647



2,944



2,427



1,451


54.1



1,704


70.2


Repurchase agreements and other borrowings

2,199



2,341



2,311



2,284



2,241



(142)


(6.1)



(42)


(1.9)



20,062



17,053



15,912



15,499



13,027



3,009


17.6



7,035


54.0


Net interest income

83,929



78,613



80,199



78,964



75,720



5,316


6.8



8,209


10.8


Provision for credit losses

17,478



15,663



3,743



7,157



6,255



1,815


11.6



11,223


179.4


Net interest income after provision for credit losses

66,451



62,950



76,456



71,807



69,465



3,501


5.6



(3,014)


(4.3)


Non-interest income















Service charges and other fees

8,844



7,927



8,124



9,291



9,896



917


11.6



(1,052)


(10.6)


Net gain on sale of mortgage loans held for sale

1,668



1,809



1,556



1,982



2,156



(141)


(7.8)



(488)


(22.6)


Bank-owned life insurance income

479



447



430



435



440



32


7.2



39


8.9


Net gain (loss) on securities transactions



(128)





(20)





128


(100.0)





Gain (loss) on sale and disposition of assets

(153)



2,213



(3,480)



352



157



(2,366)


N/M



(310)


N/M


Other

14



630



271



186



(324)



(616)


(97.8)



338


N/M



10,852



12,898



6,901



12,226



12,325



(2,046)


(15.9)



(1,473)


(12.0)


















Non-interest expense


(Dollars in thousands)


Salaries and employee benefits

24,313



27,076



23,126



24,175



23,391



(2,763)


(10.2)



922


3.9


Advertising

1,358



888



1,402



980



1,179



470


52.9



179


15.2


Occupancy and equipment

3,980



3,860



3,776



3,299



3,656



120


3.1



324


8.9


Outside professional services

1,382



1,250



1,300



1,230



1,203



132


10.6



179


14.9


Regulatory assessments

731



1,154



1,212



1,011



1,271



(423)


(36.7)



(540)


(42.5)


Data processing

5,145



4,703



4,737



4,287



3,877



442


9.4



1,268


32.7


Office operations

2,224



2,300



2,180



2,378



2,404



(76)


(3.3)



(180)


(7.5)


Other

3,058



2,648



2,975



2,935



2,608



410


15.5



450


17.3



42,191



43,879



40,708



40,295



39,589



(1,688)


(3.8)



2,602


6.6


Income before income tax expense

35,112



31,969



42,649



43,738



42,201



3,143


9.8



(7,089)


(16.8)


Income tax expense

7,275



6,207



27,989



15,029



14,266



1,068


17.2



(6,991)


(49.0)


Net income

$

27,837



$

25,762



$

14,660



$

28,709



$

27,935



$

2,075


8.1

%


$

(98)


(0.4)%



N/M - Not meaningful


 

LegacyTexas Financial Group, Inc.

Selected Quarterly Financial Highlights (unaudited)




At or For the Quarters Ended


June 30,
 2018


March 31,
 2018


June 30,
 2017

SHARE DATA:

(Dollars in thousands, except per share amounts)

Weighted average common shares outstanding- basic

47,000,405



46,872,333



46,596,467


Weighted average common shares outstanding- diluted

47,618,157



47,564,587



47,005,554


Shares outstanding at end of period

48,311,220



48,264,966



48,009,379


Income available to common shareholders1

$

27,770



$

25,687



$

27,837


Basic earnings per common share

0.59



0.55



0.60


Basic core (non-GAAP) earnings per common share2

0.59



0.52



0.60


Diluted earnings per common share

0.58



0.54



0.59


Dividends declared per share

0.16



0.16



0.15


Total shareholders' equity

1,001,450



979,494



925,283


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

20.73



20.29



19.27


Tangible book value per share - Non-GAAP2

17.03



16.59



15.54


Market value per share for the quarter:






High

43.92



45.82



40.18


Low

38.80



41.68



35.22


Close

39.02



42.82



38.13


KEY RATIOS:






Return on average common shareholders' equity

11.20

%


10.59

%


12.22

%

Core (non-GAAP) return on average common shareholders' equity2

11.25



10.08



12.22


Return on average assets

1.24



1.19



1.32


Core (non-GAAP) return on average assets2

1.24



1.13



1.32


Efficiency ratio (GAAP basis)

44.51



47.95



44.96


Core (non-GAAP) efficiency ratio2

44.44



48.40



44.96


Estimated Tier 1 common equity risk-based capital ratio3

9.78



9.91



8.92


Estimated total risk-based capital ratio3

12.14



12.49



11.43


Estimated Tier 1 risk-based capital ratio3

9.93



10.06



9.06


Estimated Tier 1 leverage ratio3

9.56



9.64



9.14


Total equity to total assets

10.83



11.05



10.31


Tangible equity to tangible assets - Non-GAAP2

9.07



9.22



8.49


Number of employees- full-time equivalent

847



851



862














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 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 or for the Quarter Ended


June 30,
 2018


March 31,
 2018


December 31,
 2017


September 30,
 2017


June 30,
 2017

Loans held for investment:

(Dollars in thousands)

Commercial real estate

$

3,021,148



$

3,053,750



$

3,019,339



$

3,016,533



$

2,817,443


Warehouse Purchase Program 1

1,291,129



1,019,840



1,320,846



1,360,219



1,497,211


Commercial and industrial 1

2,051,955



1,967,443



1,927,049



1,842,345



1,879,209


Construction and land

265,745



252,213



277,864



282,536



270,050


Consumer real estate

1,287,703



1,252,433



1,213,434



1,197,911



1,154,353


Other consumer

44,588



43,284



45,506



46,277



47,735


Gross loans held for investment

$

7,962,268



$

7,588,963



$

7,804,038



$

7,745,821



$

7,666,001


Non-performing assets:










Commercial real estate

$

3,656



$

3,748



$

4,134



$

4,064



$

4,201


Commercial and industrial

10,225



40,455



84,003



65,560



87,599


Consumer real estate

5,652



5,548



6,190



7,175



7,265


Other consumer

77



85



76



116



131


Total non-performing loans

19,610



49,836



94,403



76,915



99,196


Foreclosed assets

7,341



8,160



8,432



13,585



13,283


Total non-performing assets

$

26,951



$

57,996



$

102,835



$

90,500



$

112,479


Total non-performing assets to total assets

0.29

%


0.65

%


1.13

%


1.00

%


1.25

%

Total non-performing loans to total loans held for investment, excluding Warehouse Purchase Program loans 1

0.29

%


0.76

%


1.46

%


1.20

%


1.61

%

Total non-performing loans to total loans held for investment

0.25

%


0.66

%


1.21

%


0.99

%


1.29

%

Allowance for loan losses to non-performing loans

328.63

%


149.51

%


75.53

%


91.07

%


75.70

%

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

0.97

%


1.13

%


1.10

%


1.10

%


1.22

%

Allowance for loan losses to total loans held for investment

0.81

%


0.98

%


0.91

%


0.90

%


0.98

%

Allowance for loan losses to total loans held for investment, excluding acquired loans and Warehouse Purchase Program loans 1, 2

1.02

%


1.20

%


1.17

%


1.17

%


1.32

%

Troubled debt restructured loans ("TDRs"):


(Dollars in thousands)



Performing TDRs:










Commercial real estate

$

141



$

143



$

145



$

147



$

150


Commercial and industrial



1



2






Consumer real estate

561



574



600



263



265


Other consumer

9



14



21



20



23


Total performing TDRs

$

711



$

732



$

768



$

430



$

438


Non-performing TDRs:3










Commercial real estate

$

33



$

35



$

36



$

37



$

39


Commercial and industrial

2,095



16,183



16,328



7,984



22,946


Consumer real estate

789



890



916



1,343



1,401


Other consumer

7



9



14



25



31


Total non-performing TDRs

$

2,924



$

17,117



$

17,294



$

9,389



$

24,417


Allowance for loan losses:










Balance at beginning of period

$

74,508



$

71,301



$

70,044



$

75,091



$

70,656


Provision expense for loans

17,600



15,635



3,900



7,300



6,200


Charge-offs

(27,737)



(12,527)



(2,840)



(12,496)



(2,160)


Recoveries

74



99



197



149



395


Balance at end of period

$

64,445



$

74,508



$

71,301



$

70,044



$

75,091


Net charge-offs (recoveries):









Commercial real estate

$

236



$

3



$



$



$


Commercial and industrial

27,261



12,214



2,386



12,215



1,350


Construction and land









(75)


Consumer real estate

(9)



(11)



36



(10)



5


Other consumer

175



222



221



142



485


Total net charge-offs

$

27,663



$

12,428



$

2,643



$

12,347



$

1,765


Allowance for off-balance sheet lending-related commitments







Provision expense (benefit) for credit losses

$

(122)



$

28



$

(157)



$

(143)



$

55




1   

All 2017 periods include a reclassification of three Warehouse relationships from the commercial and industrial category to the Warehouse Purchase Program category.

2   

Excludes loans acquired in previous bank acquisitions, which were initially recorded at fair value.

3   

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,
 2018


March 31,
 2018


December 31,
 2017


September 30,
 2017


June 30,
 2017

Loans:

(Dollars in thousands)

Commercial real estate

$

3,055,139



$

2,993,024



$

3,030,778



$

2,854,343



$

2,781,472


Warehouse Purchase Program 1

1,075,262



965,320



1,162,890



1,192,920



1,067,512


Commercial and industrial 1

2,002,490



1,904,515



1,864,686



1,850,645



1,824,388


Construction and land

260,560



270,899



287,965



279,189



278,986


Consumer real estate

1,265,751



1,227,556



1,206,371



1,176,955



1,126,744


Other consumer

43,779



44,891



46,094



47,169



49,721


Less: deferred fees and allowance for loan loss

(66,746)



(62,666)



(65,612)



(70,048)



(68,779)


Total loans held for investment

7,636,235



7,343,539



7,533,172



7,331,173



7,060,044


Loans held for sale

29,378



20,988



20,642



23,154



22,581


Securities

667,183



648,534



648,917



652,841



645,605


Overnight deposits

233,335



239,936



223,608



444,310



324,406


Total interest-earning assets

$

8,566,131



$

8,252,997



$

8,426,339



$

8,451,478



$

8,052,636


Deposits:










Interest-bearing demand

$

954,960



$

970,998



$

925,506



$

875,097



$

849,633


Savings and money market

2,578,205



2,745,192



2,911,726



2,857,790



2,703,291


Time

1,632,697



1,433,307



1,353,467



1,418,108



1,355,681


FHLB advances and other borrowings

1,018,945



877,502



1,007,747



1,178,031



1,142,998


Total interest-bearing liabilities

$

6,184,807



$

6,026,999



$

6,198,446



$

6,329,026



$

6,051,603












Total assets

$

8,996,036



$

8,682,461



$

8,865,517



$

8,889,914



$

8,491,696


Non-interest-bearing demand deposits

$

1,694,082



$

1,576,792



$

1,568,665



$

1,481,654



$

1,410,566


Total deposits

$

6,859,944



$

6,726,289



$

6,759,364



$

6,632,649



$

6,319,171


Total shareholders' equity

$

994,574



$

973,187



$

963,512



$

940,606



$

914,564












Yields/Rates:










Loans:










Commercial real estate

5.09

%


5.09

%


5.05

%


5.06

%


5.08

%

Warehouse Purchase Program 1

4.53

%


4.23

%


3.95

%


3.82

%


3.70

%

Commercial and industrial 1

5.71

%


5.27

%


4.89

%


5.00

%


4.71

%

Construction and land

5.35

%


5.17

%


5.04

%


5.16

%


5.12

%

Consumer real estate

4.66

%


4.56

%


4.54

%


4.54

%


4.59

%

Other consumer

5.74

%


5.62

%


5.67

%


5.64

%


5.57

%

Total loans held for investment

5.16

%


4.98

%


4.81

%


4.81

%


4.75

%

Loans held for sale

4.46

%


4.04

%


3.92

%


3.89

%


3.99

%

Securities

2.59

%


2.51

%


2.45

%


2.36

%


2.40

%

Overnight deposits

1.89

%


1.64

%


1.42

%


1.36

%


1.18

%

Total interest-earning assets

4.87

%


4.69

%


4.53

%


4.44

%


4.42

%

Deposits:










Interest-bearing demand

0.88

%


0.81

%


0.71

%


0.67

%


0.58

%

Savings and money market

0.79

%


0.75

%


0.70

%


0.68

%


0.56

%

Time

1.62

%


1.43

%


1.21

%


1.10

%


0.99

%

FHLB advances and other borrowings

2.49

%


2.32

%


1.95

%


1.76

%


1.64

%

Total interest-bearing liabilities

1.30

%


1.15

%


1.02

%


0.97

%


0.86

%

Net interest spread

3.57

%


3.54

%


3.51

%


3.47

%


3.56

%

Net interest margin

3.93

%


3.85

%


3.78

%


3.71

%


3.77

%

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

0.80

%


0.73

%


0.64

%


0.61

%


0.53

%



1

All 2017 periods include a reclassification of three Warehouse relationships from the commercial and industrial category to the Warehouse Purchase Program category.

 

LegacyTexas Financial Group, Inc.

Supplemental Information- Non-GAAP Financial Measures

(unaudited)



At or For the Quarters Ended


June 30,
 2018


March 31,
 2018


December 31,
 2017


September 30,
 2017


June 30,
 2017


(Dollars in thousands, except per share amounts)

Reconciliation of Core (non-GAAP) to GAAP Net Income and Earnings per Share (net of estimated tax, except as otherwise noted)







GAAP net income available to common shareholders1

$

27,770



$

25,687



$

14,613



$

28,617



$

27,837


Distributed and undistributed earnings to participating securities1

67



75



47



92



98


GAAP net income

27,837



25,762



14,660



28,709



27,935


Insurance settlement proceeds from pre-acquisition fraud2



(1,778)








One-time employee bonus related to tax law change2



537








(Gain) loss on one-time tax adjustments3





13,493






(Gain) loss on sale of branch locations and land4

126







(237)




Core (non-GAAP) net income

$

27,963



$

24,521



$

28,153



$

28,472



$

27,935


Average shares for basic earnings per share

47,000,405


46,872,333


46,729,160


46,664,233



46,596,467


Basic GAAP earnings per share

$

0.59



$

0.55



$

0.31



$

0.61



$

0.60


Basic core (non-GAAP) earnings per share

$

0.59



$

0.52



$

0.60



$

0.61



$

0.60


Average shares for diluted earnings per share

47,618,157


47,564,587


47,290,308


47,158,729



47,005,554


Diluted GAAP earnings per share

$

0.58



$

0.54



$

0.31



$

0.61



$

0.59


Diluted core (non-GAAP) earnings per share

$

0.59



$

0.52



$

0.60



$

0.60



$

0.59


Reconciliation of Core (non-GAAP) to GAAP Non-Interest Income and Non-interest Expense (gross of tax)







GAAP non-interest income

$

10,852



$

12,898



$

6,901



$

12,226



$

12,325


Insurance settlement proceeds from pre-acquisition fraud



(2,250)








(Gain) loss on sale of branch locations and land

160







(365)




Core (non-GAAP) non-interest income

$

11,012



$

10,648



$

6,901



$

11,861



$

12,325


GAAP non-interest expense

$

42,191



$

43,879



$

40,708



$

40,295



$

39,589


One-time employee bonus related to tax law change



(679)








Core (non-GAAP) non-interest expense

$

42,191



$

43,200



$

40,708



$

40,295



$

39,589




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.

2

Calculated net of estimated tax using a tax rate of 21%.

3

This one-time income tax expense adjustment consists of an adjustment to the Company's deferred tax asset related to the December 22, 2017 enactment of the Tax Cuts and Jobs Act.

4

2018 amount calculated net of estimated tax using a tax rate of 21%; 2017 amount calculated net of estimated tax using a tax rate of 35%

 


At or For the Quarters Ended


June 30,
 2018


March 31,
 2018


December 31,
 2017


September 30,
 2017


June 30,
 2017

Reconciliation of Core (non-GAAP) to GAAP Efficiency Ratio (gross of tax)


(Dollars in thousands)



GAAP efficiency ratio:










Non-interest expense

$

42,191



$

43,879



$

40,708



$

40,295



$

39,589


Net interest income plus non-interest income

94,781



91,511



87,100



91,190



88,045


Efficiency ratio- GAAP basis

44.51

%


47.95

%


46.74

%


44.19

%


44.96

%

Core (non-GAAP) efficiency ratio:










Core (non-GAAP) non-interest expense

$

42,191



$

43,200



$

40,708



$

40,295



$

39,589


Net interest income plus core (non-GAAP) non-interest income

94,941



89,261



87,100



90,825



88,045


Efficiency ratio- core (non-GAAP) basis

44.44

%


48.40

%


46.74

%


44.37

%


44.96

%

Calculation of Tangible Book Value per Share:









Total shareholders' equity

$

1,001,450



$

979,494



$

959,874



$

950,092



$

925,283


Less: Goodwill

(178,559)



(178,559)



(178,559)



(178,559)



(178,559)


Identifiable intangible assets, net

(313)



(347)



(402)



(463)



(524)


Total tangible shareholders' equity

$

822,578



$

800,588



$

780,913



$

771,070



$

746,200


Shares outstanding at end of period

48,311,220


48,264,966


48,117,390


48,040,059



48,009,379


Book value per share- GAAP

$

20.73



$

20.29



$

19.95



$

19.78



$

19.27


Tangible book value per share- Non-GAAP

17.03



16.59



16.23



16.05



15.54


Calculation of Tangible Equity to Tangible Assets:









Total assets

$

9,249,086



$

8,865,624



$

9,086,196



$

9,068,612



$

8,970,375


Less: Goodwill

(178,559)



(178,559)



(178,559)



(178,559)



(178,559)


Identifiable intangible assets, net

(313)



(347)



(402)



(463)



(524)


Total tangible assets

$

9,070,214



$

8,686,718



$

8,907,235



$

8,889,590



$

8,791,292


Equity to assets- GAAP

10.83

%


11.05

%


10.56

%


10.48

%


10.31

%

Tangible equity to tangible assets- Non-GAAP

9.07



9.22



8.77



8.67



8.49


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

Net income

$

27,837



$

25,762



$

14,660



$

28,709



$

27,935


Core (non-GAAP) net income

27,963



24,521



28,153



28,472



27,935


Average total equity

994,574



973,187



963,512



940,606



914,564


Average total assets

8,996,036



8,682,461



8,865,517



8,889,914



8,491,696


Return on average common shareholders' equity

11.20

%


10.59

%


6.09

%


12.21

%


12.22

%

Core (non-GAAP) return on average common shareholders' equity

11.25



10.08



11.69



12.11



12.22


Return on average assets

1.24



1.19



0.66



1.29



1.32


Core (non-GAAP) return on average assets

1.24



1.13



1.27



1.28



1.32


 

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SOURCE LegacyTexas Financial Group, Inc.

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