LegacyTexas Financial Group, Inc. Reports Second Quarter 2018 Earnings

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.

"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.

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 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.

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.

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.

 

 

 

 

 

 

 

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SOURCE LegacyTexas Financial Group, Inc.