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LegacyTexas Financial Group, Inc. Reports Third Quarter 2019 Earnings

PLANO, Texas, Oct. 23, 2019 /PRNewswire/ -- LegacyTexas Financial Group, Inc. (LTXB) (the "Company"), the holding company for LegacyTexas Bank (the "Bank"), today announced net income of $42.4 million for the third quarter of 2019, an increase of $15.4 million from the second quarter of 2019 and a decrease of $397,000 from the third quarter of 2018.  Core (non-GAAP) net income totaled $42.7 million for the third quarter of 2019, up $13.8 million from the second quarter of 2019 and down $518,000 from the third quarter of 2018.*

LegacyTexas Financial Group, Inc. is the holding company for LegacyTexas Bank, a commercially oriented community bank based in Plano, Texas. LegacyTexas Bank operates 42 banking offices in the Dallas/Fort Worth Metroplex and surrounding counties. For more information, visit www.LegacyTexasFinancialGroup.com . (PRNewsFoto/) (PRNewsFoto/LegacyTexas Financial Group, Inc)

On June 17, 2019, the Company and Prosperity Bancshares, Inc.® ("Prosperity") jointly announced the signing of a definitive merger agreement pursuant to which the Company will merge with Prosperity.  Under the terms of the merger agreement, stockholders of the Company will receive 0.5280 shares of Prosperity common stock and $6.28 cash for each share of Company common stock.  The merger is expected to be effective as of November 1, 2019, subject to the approval of the shareholders of Prosperity and the stockholders of the Company and the satisfaction or waiver of the other closing conditions described in the merger agreement.  For additional information regarding the Company's proposed merger with Prosperity, see the Company's Current Reports filed on Form 8-K with the SEC on June 17, 2019 and October 9, 2019 and the Company's and Prosperity's joint proxy statement/prospectus filed with the SEC by the Company and Prosperity on September 17, 2019.

Third Quarter 2019 Performance Highlights

  • Assets of $10.46 billion generated basic earnings per share for the third quarter of 2019 of $0.89 on a GAAP basis and $0.90 on a core (non-GAAP) basis.*
  • Gross loans held for investment at September 30, 2019, excluding Warehouse Purchase Program loans, grew $44.6 million, or 0.6%, from June 30, 2019, which includes linked-quarter increases in consumer real estate, commercial and industrial and construction and land loans.
  • Warehouse Purchase Program loans at September 30, 2019 grew $411.4 million, or 26.7%, from June 30, 2019.
  • Return on average assets on an annualized basis improved to 1.72% for the third quarter of 2019, compared to 1.13% for the second quarter of 2019, while core (non-GAAP) return on average assets for the third quarter of 2019 was 1.73%, compared to 1.21% for the second quarter of 2019.*
  • GAAP efficiency ratio improved to 44.72% for the third quarter of 2019, compared to 48.60% for the second quarter of 2019, while core (non-GAAP) efficiency ratio improved to 44.40% for the third quarter of 2019, compared to 46.19% for the second quarter of 2019.*

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

Financial Highlights



At or For the Quarters Ended

(unaudited)

September 30, 2019


June 30, 2019


September 30, 2018


(Dollars in thousands, except per share amounts)

Net interest income

$

85,341



$

85,554



$

85,667


Provision for credit losses

1,200



16,100



2,656


Non-interest income

13,349



12,232



13,227


Non-interest expense

44,133



47,526



42,192


Income tax expense

10,933



7,177



11,225


Net income

$

42,424



$

26,983



$

42,821








Basic earnings per common share

$

0.89



$

0.57



$

0.91


Basic core (non-GAAP) earnings per common share1

$

0.90



$

0.61



$

0.92


Weighted average common shares outstanding - basic

47,607,076



47,383,314



47,105,655


Estimated Tier 1 common equity risk-based capital ratio2

10.48

%


10.48

%


10.46

%

Total equity to total assets

11.35

%


11.50

%


11.45

%

Tangible common equity to tangible assets - Non-GAAP1

9.81

%


9.88

%


9.67

%



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.

Basic earnings per share for the quarter ended September 30, 2019 was $0.89, an increase of $0.32 from the second quarter of 2019 and a decrease of $0.02 from the third quarter of 2018.  Basic core (non-GAAP) earnings per share for the third quarter of 2019 was $0.90, an increase of $0.29 from the second quarter of 2019 and a decrease of $0.02 from the third quarter of 2018.

Net Interest Income and Net Interest Margin



For the Quarters Ended

(unaudited)

September 30, 2019


June 30, 2019


September 30, 2018

Interest income:

(Dollars in thousands)

Loans held for investment, excluding Warehouse Purchase Program loans

$

92,280



$

92,903



$

89,034


Warehouse Purchase Program loans

17,025



14,927



12,938


Loans held for sale

475



324



295


Securities

4,326



4,553



4,512


Interest-earning deposit accounts

1,212



1,370



1,368


Total interest income

$

115,318



$

114,077



$

108,147


Net interest income

$

85,341



$

85,554



$

85,667


Net interest margin

3.60

%


3.77

%


3.90

%

Selected average balances:






Total earning assets

$

9,414,989



$

9,091,192



$

8,736,076


Total loans held for investment

8,480,816



8,158,810



7,758,802


Total securities

659,152



668,948



678,483


Total deposits

6,898,654



7,134,996



6,851,449


Total borrowings

1,622,283



1,101,559



1,154,079


Total non-interest-bearing demand deposits

1,742,265



1,812,042



1,752,095


Total interest-bearing liabilities

6,778,673



6,424,513



6,253,433


Net interest income for the quarter ended September 30, 2019 was $85.3 million, a $213,000, or 0.2%, decrease from the second quarter of 2019 and a $326,000, or 0.4%, decrease from the third quarter of 2018.  The $213,000 decrease from the second quarter of 2019 was primarily driven by increased borrowing volume compared to the linked quarter, as well as lower yields earned on the commercial real estate and commercial and industrial loan portfolios.  A $520.7 million increase in the average balance of borrowings from the second quarter of 2019, partially offset by a 36 basis point decrease in the average rate paid on borrowed funds, resulted in a $2.5 million increase in interest expense.  A $27.8 million increase in the average balance of the commercial real estate portfolio from the second quarter of 2019 was offset by a 15 basis point decrease in the average yield, which resulted in a $371,000 decrease in interest income.  The average balance of commercial and industrial loans decreased by $10.4 million from the second quarter of 2019, while the average yield declined by 20 basis points, resulting in an $879,000 decrease in interest income.

These declines in interest income on the commercial real estate and commercial and industrial loan portfolios were partially offset by increased volume in Warehouse Purchase Program and consumer real estate loans compared to the linked quarter.  Interest income earned on Warehouse Purchase Program loans increased by $2.1 million from the second quarter of 2019, as the average balance increased by $255.2 million, which was partially offset by a 30 basis point decrease in the average yield earned compared to the second quarter of 2019.  Interest income earned on the consumer real estate portfolio increased by $582,000, driven by a $50.8 million linked-quarter increase in the average balance.

The $326,000 decrease in net interest income compared to the third quarter of 2018 was primarily due to higher rates paid on time and savings and money market deposits, which increased by 60 basis points and 28 basis points, respectively, compared to the same period last year.  Additionally, the average balance of borrowings increased by $468.2 million from the third quarter of 2018, resulting in a $3.1 million increase in interest expense.

This increase in interest expense compared to the third quarter of 2018 was partially offset by increased volume in Warehouse Purchase Program, consumer real estate and commercial real estate loans compared to the same period last year. The average balance of Warehouse Purchase Program loans increased by $410.6 million from the third quarter of 2018, while the average yield earned on this portfolio decreased by 20 basis points, resulting in a $4.1 million increase in interest income compared to the third quarter of 2018.  The average balance of consumer real estate loans increased by $190.3 million from the third quarter of 2018, while the average yield earned on this portfolio increased by nine basis points, which led to a $2.6 million increase in interest income.  A $130.1 million increase in the average balance of commercial real estate loans compared to the third quarter of 2018 was partially offset by a nine basis point decrease in the average yield, which resulted in a $1.0 million increase in interest income. The average balance of commercial and industrial loans decreased by $12.9 million from the third quarter of 2018, while the average yield earned on this portfolio decreased by 17 basis points from the same period, resulting in a $1.1 million decrease in interest income.

The net interest margin for the third quarter of 2019 was 3.60%, a 17 basis point decrease from the second quarter of 2019 and a 30 basis point decrease from the third quarter of 2018.  The average yield on earning assets for the third quarter of 2019 was 4.87%, a 16 basis point decrease from the second quarter of 2019 and a five basis point decrease from the third quarter of 2018.  The cost of deposits for the third quarter of 2019 was 1.12%, down three basis points from the linked quarter and up 25 basis points from the third quarter of 2018.

Non-interest Income

Non-interest income for the third quarter of 2019 was $13.3 million, a $1.1 million, or 9.1%, increase from the second quarter of 2019 and a $122,000, or 0.9%, increase from the third quarter of 2018.  Other non-interest income for the second quarter of 2019 included a $1.2 million 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 $181,000 net increase in the CRA Funds for the third quarter of 2019.  Service charges and other fees decreased by $516,000 compared to the second quarter of 2019, primarily resulting from lower title company income and lower commercial loan fee income (consisting of syndication, arrangement, non-usage and pre-payment fees), partially offset by increased Warehouse Purchase Program income and insufficient funds fees.  Net gains on the sale of mortgage loans held for sale during the third quarter of 2019 increased by $172,000 compared to the linked quarter, which included gains recognized on $97.3 million of consumer real estate loans that were sold or committed for sale, fair value changes on mortgage derivatives and mortgage fees collected during the third quarter of 2019, compared to $74.8 million for the second quarter of 2019.

The $122,000 increase in non-interest income from the third quarter of 2018 was primarily due to a $1.5 million increase in net gains on the sale of mortgage loans held for sale, related to $97.3 million of consumer real estate loans that were sold or committed for sale, fair value changes on mortgage derivatives and mortgage fees collected during the 2019 period, compared to $38.7 million for the 2018 period.  Service charges and other fees increased by $740,000 from the third quarter of 2018, which was driven by higher title company income, debit card interchange income, Warehouse Purchase Program income and insufficient funds fees, partially offset by lower commercial loan fee income (consisting of syndication, arrangement, non-usage and pre-payment fees).  Other non-interest income for the third quarter of 2019 included a $181,000 net increase in the CRA Funds, up from a $1.1 million net decrease in the CRA Funds for the third quarter of 2018.

Non-interest Expenses

Non-interest expense for the third quarter of 2019 was $44.1 million, down $3.4 million, or 7.1%, from the second quarter of 2019 and up $1.9 million, or 4.6%, from the third quarter of 2018.  The third quarter of 2019 included $318,000 in merger costs compared to $2.4 million in the second quarter of 2019, related to the proposed merger with Prosperity, which was announced on June 17, 2019.  Regulatory assessments expense for the third quarter of 2019 decreased by $712,000 from the second quarter of 2019, due to the application of an FDIC assessment credit.  Outside professional services expense for the third quarter of 2019 decreased by $280,000 from the second quarter of 2019, primarily due to lower legal expenses, while other non-interest expense decreased by $288,000 from the linked quarter, primarily due to lower lending and recruiting expenses. These linked-quarter decreases were partially offset by a $218,000 increase in salaries and employee benefits expense from the second quarter of 2019, which was driven by higher healthcare claims in the third quarter of 2019.

The $1.9 million increase in non-interest expense from the third quarter of 2018 was primarily due to a $1.8 million increase in salaries and employee benefits expense, which was primarily related to higher mortgage commissions paid in the 2019 period attributable to increased mortgage loan production, as well as higher healthcare claims and 401K matching expenses.  Additionally, merit increases granted in the 2019 period also contributed to the increased salary expense compared to the third quarter of 2018.  The third quarter of 2019 included $318,000 in merger costs with no comparable charges in the third quarter of 2018, related to the above-described proposed merger with Prosperity.  Data processing expense increased by $303,000 from the third quarter of 2018 due to system upgrades and outsourcing certain segments of its data processing. These increases in non-interest expense compared to the 2018 period were partially offset by a $631,000 decrease in regulatory assessments expense and a $314,000 decrease in other non-interest expense, primarily related to lower debit card fraud compared to the third quarter of 2018.

Financial Condition - Loans

Gross loans held for investment at September 30, 2019, excluding Warehouse Purchase Program loans, grew $44.6 million from June 30, 2019, which included growth in all loan portfolios, with the exception of commercial real estate, which declined by $27.0 million from the linked quarter.  At September 30, 2019, consumer real estate loans increased by $56.5 million from June 30, 2019, while commercial and industrial and construction and land loans increased by $7.4 million and $7.0 million, respectively, for the same period.

Compared to September 30, 2018, gross loans held for investment at September 30, 2019, excluding Warehouse Purchase Program loans, grew $360.6 million, which included growth in all loan portfolios, with the exception of commercial and industrial, which declined by $1.2 million.  Consumer real estate and commercial real estate loans increased by $198.9 million and $141.2 million, respectively, at September 30, 2019, compared to September 30, 2018.  Additionally, construction and land and other consumer loans increased by $17.2 million and $4.4 million, respectively, compared to September 30, 2018.

At September 30, 2019, Warehouse Purchase Program loans increased by $411.4 million compared to June 30, 2019 and by $899.6 million compared to September 30, 2018.

Reserve-based energy loans, which are secured by deeds of trust on properties containing proven oil and natural gas reserves and are included in the Company's commercial and industrial loan portfolio, totaled $512.0 million at September 30, 2019, down $6.6 million from $518.6 million at June 30, 2019 and down $35.4 million from $547.4 million at September 30, 2018.  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 September 30, 2019, "Midstream and Other" loans had a total outstanding balance of $23.0 million, up $2.4 million from $20.6 million at June 30, 2019 and down $11.8 million from $34.8 million at September 30, 2018.

Financial Condition - Deposits

Total deposits at September 30, 2019 decreased by $509.9 million from June 30, 2019, which included declines of $213.9 million and $202.6 million in time and savings and money market deposits, respectively, while non-interest-bearing demand deposits decreased by $78.1 million compared to the linked quarter.

Compared to September 30, 2018, total deposits decreased by $233.8 million, which included declines of $216.0 million and $48.1 million in savings and money market and time deposits, respectively, which was partially offset by a $59.3 million increase in interest-bearing demand deposits compared to the same period last year.

Credit Quality



At or For the Quarters Ended

(unaudited)

September 30,
2019


June 30,
2019


September 30,
2018


(Dollars in thousands)

Net charge-offs (recoveries)

$

26,656



$

1,434



$

791


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

1.53

%


0.08

%


0.05

%

Net charge-offs (recoveries)/Average loans held for investment

1.26



0.07



0.04


Provision for credit losses

$

1,200



$

16,100



$

2,656


Non-performing loans ("NPLs")

35,188



62,056



17,584


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

0.49

%


0.88

%


0.26

%

NPLs/Total loans held for investment

0.39



0.72



0.22


Non-performing assets ("NPAs")

$

40,841



$

62,640



$

18,282


NPAs to total assets

0.39

%


0.63

%


0.20

%

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

0.57



0.88



0.27


NPAs/Loans held for investment and foreclosed assets

0.45



0.73



0.23


Allowance for loan losses

$

66,763



$

92,219



$

66,354


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

0.94

%


1.30

%


0.98

%

Allowance for loan losses/Total loans held for investment

0.74



1.07



0.85


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

0.97



1.35



1.03


Allowance for loan losses/NPLs

189.73



148.61



377.35




1   

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

The Company recorded a provision for credit losses of $1.2 million for the quarter ended September 30, 2019, compared to $16.1 million for the quarter ended June 30, 2019 and $2.7 million for the quarter ended September 30, 2018.  The decrease in provision expense on a linked-quarter basis was primarily due to increased specific reserves allocated to corporate healthcare finance and energy loans during the quarter ended June 30, 2019, with no similar reserve build occurring during the quarter ended September 30, 2019.  Net charge-offs totaled $26.7 million for the three months ended September 30, 2019, compared to net charge-offs totaling $1.4 million for the three months ended June 30, 2019 and $791,000 for the three months ended September 30, 2018. The $26.7 million of net charge-offs for the quarter ended September 30, 2019 included charge-offs of the Company's one remaining corporate healthcare finance relationship ($15.3 million), an energy relationship ($8.7 million) and a commercial real estate loan ($2.1 million.)

The below table shows criticized (rated "special mention") and classified (rated "substandard" or "doubtful") loans at September 30, 2019, June 30, 2019 and September 30, 2018.


September 30,
2019


June 30,
2019


September 30,
 2018


Linked-Quarter
 Change


Year-over-Year
 Change


(Dollars in thousands)

Commercial real estate

$

1,165



$

18,074



$

16,750



$

(16,909)



$

(15,585)


Commercial and industrial, excluding energy

6,886



9,275



7,884



(2,389)



(998)


Energy

44,500



44,644



51,983



(144)



(7,483)


Consumer

1,021



2,711



1,313



(1,690)



(292)


Total criticized (all performing)

$

53,572



$

74,704



$

77,930



$

(21,132)



$

(24,358)












Commercial real estate

$

1,412



$

1,421



$

1,757



$

(9)



$

(345)


Commercial and industrial, excluding energy

851



869



1,059



(18)



(208)


Energy

59,480



70,775



40,156



(11,295)



19,324


Consumer

2,595



2,688



1,527



(93)



1,068


Total classified (performing)

64,338



75,753



44,499



(11,415)



19,839












Commercial real estate

31



7,293



3,739



(7,262)



(3,708)


Commercial and industrial, excluding energy

11,999



28,471



5,861



(16,472)



6,138


Energy

15,312



19,896



1,317



(4,584)



13,995


Construction and land

228



228







228


Consumer

7,618



6,168



6,667



1,450



951


Total classified (non-performing)

35,188



62,056



17,584



(26,868)



17,604












Total classified loans

$

99,526



$

137,809



$

62,083



$

(38,283)



$

37,443


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 42 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 our proposed merger with Prosperity 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; the requisite shareholder and regulatory approvals and other closing conditions for the proposed merger of the Company and Prosperity may be delayed or may not be obtained or the merger agreement may be terminated; business disruption may occur following or in connection with the proposed merger of the Company and Prosperity; the Company's businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities; the diversion of managements' attention from ongoing business operations and opportunities as a result of the proposed merger or otherwise; 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, keep in mind these risks and uncertainties. Undue reliance should not be placed on any forward-looking statement, which speaks only as of the date made. Refer to the Company's 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.

Additional Information about the Merger and Where to Find It

In connection with the proposed merger of the Company into Prosperity, Prosperity has filed with the SEC a registration statement on Form S-4 to register the shares of Prosperity common stock to be issued to the stockholders of the Company. The registration statement includes a joint proxy statement/prospectus which has been sent to the stockholders of the Company and the shareholders of Prosperity seeking their approval of the proposed transaction.

WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT PROSPERITY, THE COMPANY AND THE PROPOSED TRANSACTION.

Investors and security holders may obtain free copies of these documents through the website maintained by the SEC at http://www.sec.gov. Documents filed with the SEC by Prosperity will be available free of charge by directing a request by telephone or mail to Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027 Attn: Investor Relations, (281) 269-7199 and documents filed with the SEC by the Company will be available free of charge by directing a request by telephone or mail to LegacyTexas Financial Group, Inc., 5851 Legacy Circle, Suite 1200, Plano, Texas 75024, (972) 578-5000.

Participants in the Solicitation

Prosperity, the Company and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Prosperity and stockholders of the Company in connection with the proposed transaction. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus regarding the proposed transaction when it becomes available. Additional information about Prosperity and its directors and executive officers may be found in the definitive proxy statement of Prosperity relating to its 2019 Annual Meeting of Shareholders filed with the SEC on March 14, 2019, and other documents filed by Prosperity with the SEC. Additional information about the Company and its directors and executive officers may be found in the definitive proxy statement of the Company relating to its 2019 Annual Meeting of Stockholders filed with the SEC on April 12, 2019, and other documents filed by the Company with the SEC. These documents can be obtained free of charge from the sources described above.

No Offer or Solicitation

This communication is for informational purposes only and is not intended to and does not constitute an offer to subscribe for, buy or sell, or the solicitation of an offer to subscribe for, buy or sell, or an invitation to subscribe for, buy or sell any securities or a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in which such offer, invitation, sale or solicitation would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

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


(Dollars in thousands)

ASSETS

September 30,
2019


June 30,
2019


March 31,
2019


December 31,
2018


September 30,
2018

Cash and due from financial institutions

$

59,099



$

56,949



$

55,472



$

60,416



$

64,681


Short-term interest-bearing deposits in other financial institutions

233,991



206,894



219,051



208,777



189,634


Total cash and cash equivalents

293,090



263,843



274,523



269,193



254,315


Securities available for sale, at fair value

428,551



459,749



479,426



471,746



455,454


Securities held to maturity

116,022



127,836



135,276



146,046



145,148


Total securities

544,573



587,585



614,702



617,792



600,602


Loans held for sale

56,254



46,571



11,380



23,193



22,175


Loans held for investment:










Loans held for investment - Warehouse Purchase Program

1,954,114



1,542,684



1,096,160



960,404



1,054,505


Loans held for investment

7,124,676



7,080,075



6,944,731



6,790,723



6,764,052


Gross loans

9,135,044



8,669,330



8,052,271



7,774,320



7,840,732


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

(53,142)



(80,468)



(66,712)



(57,031)



(56,499)


Net loans

9,081,902



8,588,862



7,985,559



7,717,289



7,784,233


FHLB stock and other restricted securities, at cost

117,939



79,195



56,044



56,226



60,596


Bank-owned life insurance

59,776



59,724



59,377



59,036



58,692


Premises and equipment, net

105,195



106,313



107,684



73,073



72,291


Goodwill

178,559



178,559



178,559



178,559



178,559


Other assets

79,040



71,853



69,624



79,974



73,504


Total assets

$

10,460,074



$

9,935,934



$

9,346,072



$

9,051,142



$

9,082,792












LIABILITIES AND SHAREHOLDERS' EQUITY





Non-interest-bearing demand

$

1,769,117



$

1,847,229



$

1,752,694



$

1,773,762



$

1,798,109


Interest-bearing demand

839,789



855,026



884,494



826,755



780,474


Savings and money market

2,346,374



2,548,966



2,492,226



2,455,787



2,562,399


Time

1,590,630



1,804,569



1,948,011



1,785,411



1,638,776


Total deposits

6,545,910



7,055,790



7,077,425



6,841,715



6,779,758


FHLB advances

2,329,451



1,384,765



820,084



825,409



932,317


Repurchase agreements

50,976



52,414



37,277



50,340



40,408


Subordinated debt

135,380



135,257



135,135



135,012



134,890


Accrued expenses and other liabilities

210,907



165,063



155,064



104,299



155,820


Total liabilities

9,272,624



8,793,289



8,224,985



7,956,775



8,043,193


Common stock

493



488



487



485



485


Additional paid-in capital

642,515



628,730



625,405



619,983



617,270


Retained earnings

553,891



523,693



508,887



491,948



444,848


Accumulated other comprehensive income (loss), net

1,545



860



(2,433)



(6,658)



(11,481)


Unearned Employee Stock Ownership Plan (ESOP) shares

(10,994)



(11,126)



(11,259)



(11,391)



(11,523)


Total shareholders' equity

1,187,450



1,142,645



1,121,087



1,094,367



1,039,599


Total liabilities and shareholders' equity

$

10,460,074



$

9,935,934



$

9,346,072



$

9,051,142



$

9,082,792


 

LegacyTexas Financial Group, Inc.

Consolidated Quarterly Statements of Income (unaudited)



For the Quarters Ended


Third Quarter 2019 Compared to:


Sep 30,
2019


Jun 30,
2019


Mar 31,
2019


Dec 31,
2018


Sep 30,
2018


Second Quarter
 2019


Third Quarter
2018

Interest and dividend income


(Dollars in thousands)




Loans, including fees

$

109,780



$

108,154



$

100,301



$

101,031



$

102,267



$

1,626


1.5

%


$

7,513


7.3

%

Taxable securities

3,093



3,460



3,602



3,463



3,254



(367)


(10.6)



(161)


(4.9)


Nontaxable securities

367



410



343



595



614



(43)


(10.5)



(247)


(40.2)


Interest-bearing deposits in other financial institutions

1,212



1,370



1,277



1,507



1,368



(158)


(11.5)



(156)


(11.4)


FHLB and Federal Reserve Bank stock and other

866



683



581



582



644



183


26.8



222


34.5



115,318



114,077



106,104



107,178



108,147



1,241


1.1



7,171


6.6


Interest expense













Deposits

19,425



20,444



18,215



16,634



15,077



(1,019)


(5.0)



4,348


28.8


FHLB advances

8,273



5,794



4,456



4,000



5,198



2,479


42.8



3,075


59.2


Repurchase agreements and other borrowings

2,279



2,285



2,269



2,245



2,205



(6)


(0.3)



74


3.4



29,977



28,523



24,940



22,879



22,480



1,454


5.1



7,497


33.3


Net interest income

85,341



85,554



81,164



84,299



85,667



(213)


(0.2)



(326)


(0.4)


Provision for credit losses

1,200



16,100



9,800





2,656



(14,900)


(92.5)



(1,456)


(54.8)


Net interest income after provision for credit losses

84,141



69,454



71,364



84,299



83,011



14,687


21.1



1,130


1.4


Non-interest income













Service charges and other fees

9,366



9,882



7,255



9,923



8,626



(516)


(5.2)



740


8.6


Net gain on sale of mortgage loans held for sale

3,051



2,879



1,525



1,499



1,597



172


6.0



1,454


91.0


Bank-owned life insurance income

456



489



482



482



482



(33)


(6.7)



(26)


(5.4)


Net gain (loss) on securities transactions





6





(10)






10


(100.0)


Gain (loss) on sale and disposition of assets

65



18



(14)



(56)



977



47


261.1



(912)


(93.3)


Other

411



(1,036)



640



416



1,555



1,447


N/M



(1,144)


(73.6)



13,349



12,232



9,894



12,264



13,227



1,117


9.1



122


0.9


















Non-interest expense

(Dollars in thousands)


Salaries and employee benefits

26,804



26,586



26,871



23,728



25,053



218


0.8



1,751


7.0


Merger costs

318



2,362









(2,044)


(86.5)



318


100.0


Advertising

740



982



903



1,301



824



(242)


(24.6)



(84)


(10.2)


Occupancy and equipment

4,084



3,950



3,899



3,843



3,960



134


3.4



124


3.1


Outside professional services

1,394



1,674



1,285



2,021



1,151



(280)


(16.7)



243


21.1


Regulatory assessments

119



831



618



886



750



(712)


(85.7)



(631)


(84.1)


Data processing

5,665



5,739



5,933



6,168



5,362



(74)


(1.3)



303


5.7


Office operations

2,463



2,568



2,335



2,249



2,232



(105)


(4.1)



231


10.3


Other

2,546



2,834



2,463



2,672



2,860



(288)


(10.2)



(314)


(11.0)



44,133



47,526



44,307



42,868



42,192



(3,393)


(7.1)



1,941


4.6


Income before income tax expense (benefit)

53,357



34,160



36,951



53,695



54,046



19,197


56.2



(689)


(1.3)


Income tax expense (benefit)

10,933



7,177



7,871



(4,074)



11,225



3,756


52.3



(292)


(2.6)


Net income

$

42,424



$

26,983



$

29,080



$

57,769



$

42,821



$

15,441


57.2

%


$

(397)


(0.9)

%


 N/M - Not meaningful

 

LegacyTexas Financial Group, Inc.

Selected Quarterly Financial Highlights (unaudited)



At or For the Quarters Ended


September 30,
2019


June 30,
2019


September 30,
2018

SHARE DATA:

(Dollars in thousands, except per share amounts)

Weighted average common shares outstanding - basic

47,607,076



47,383,314



47,105,655


Weighted average common shares outstanding - diluted

48,149,900



47,923,391



47,755,441


Shares outstanding at end of period

49,255,006



48,833,238



48,491,169


Income available to common shareholders1

$

42,206



$

26,837



$

42,672


Basic earnings per common share

0.89



0.57



0.91


Basic core (non-GAAP) earnings per common share2

0.90



0.61



0.92


Diluted earnings per common share

0.88



0.56



0.89


Dividends declared per share

0.25



0.25



0.16


Total shareholders' equity

1,187,450



1,142,645



1,039,599


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

24.11



23.40



21.44


Tangible book value per share - Non-GAAP2

20.48



19.74



17.75


Market value per share for the quarter:






High

44.07



41.22



46.86


Low

38.85



36.50



38.53


Close

43.53



40.71



42.60


KEY RATIOS:






Return on average common shareholders' equity

14.63

%


9.52

%


16.76

%

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

14.72



10.18



16.90


Return on average assets

1.72



1.13



1.87


Core (non-GAAP) return on average assets2

1.73



1.21



1.88


Efficiency ratio (GAAP basis)

44.72



48.60



42.66


Core (non-GAAP) efficiency ratio2

44.40



46.19



42.46


Estimated Tier 1 common equity risk-based capital ratio3

10.48



10.48



10.46


Estimated total risk-based capital ratio3

12.58



12.97



12.88


Estimated Tier 1 risk-based capital ratio3

10.60



10.62



10.60


Estimated Tier 1 leverage ratio3

10.53



10.42



9.83


Total equity to total assets

11.35



11.50



11.45


Tangible equity to tangible assets - Non-GAAP2

9.81



9.88



9.67


Number of employees - full-time equivalent

858



883



859














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 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


September 30,
2019


June 30,
2019


March 31,
2019


December 31,
2018


September 30,
2018

Loans held for investment:

(Dollars in thousands)



Commercial real estate

$

3,153,576



$

3,180,582



$

3,122,726



$

3,026,754



$

3,012,352


Warehouse Purchase Program

1,954,114



1,542,684



1,096,160



960,404



1,054,505


Commercial and industrial

2,110,335



2,102,917



2,070,715



2,057,791



2,111,510


Construction and land

295,522



288,491



282,463



270,629



278,278


Consumer real estate

1,516,958



1,460,417



1,423,095



1,390,378



1,318,038


Other consumer

48,285



47,668



45,732



45,171



43,874


Gross loans held for investment

$

9,078,790



$

8,622,759



$

8,040,891



$

7,751,127



$

7,818,557


Non-performing assets:









Commercial real estate

$

31



$

7,293



$

6,623



$

159



$

3,739


Commercial and industrial

27,311



48,367



49,261



16,710



7,178


Construction and land

228



228








Consumer real estate

7,566



6,144



5,123



5,506



6,617


Other consumer

52



24



21



46



50


Total non-performing loans

35,188



62,056



61,028



22,421



17,584


Foreclosed assets

5,653



584



782



1,333



698


Total non-performing assets

$

40,841



$

62,640



$

61,810



$

23,754



$

18,282


Total non-performing assets to total assets

0.39

%


0.63

%


0.66

%


0.26

%


0.20

%

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

0.49

%


0.88

%


0.88

%


0.33

%


0.26

%

Total non-performing loans to total loans held for investment

0.39

%


0.72

%


0.76

%


0.29

%


0.22

%

Allowance for loan losses to non-performing loans

189.73

%


148.61

%


127.04

%


300.74

%


377.35

%

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

0.94

%


1.30

%


1.12

%


0.99

%


0.98

%

Allowance for loan losses to total loans held for investment

0.74

%


1.07

%


0.96

%


0.87

%


0.85

%

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

0.97

%


1.35

%


1.16

%


1.04

%


1.03

%

Troubled debt restructured loans ("TDRs"):

(Dollars in thousands)



Performing TDRs:










Commercial real estate

$

129



$

132



$

134



$

136



$

139


Consumer real estate

688



704



722



788



786


Other consumer

1



1



1



2



4


Total performing TDRs

$

818



$

837



$

857



$

926



$

929


Non-performing TDRs:2









Commercial real estate

$

26



$

27



$

29



$

31



$

3,605


Commercial and industrial

7,776



7,870



7,999



661



2,299


Consumer real estate

1,015



1,037



447



467



495


Other consumer

3



4



4



1



2


Total non-performing TDRs

$

8,820



$

8,938



$

8,479



$

1,160



$

6,401


Allowance for loan losses:








Balance at beginning of period

$

92,219



$

77,530



$

67,428



$

66,354



$

64,445


Provision expense for loans

1,200



16,123



9,839





2,700


Charge-offs

(27,031)



(1,624)



(359)



(2,590)



(922)


Recoveries

375



190



622



3,664



131


Balance at end of period

$

66,763



$

92,219



$

77,530



$

67,428



$

66,354


Net charge-offs (recoveries):







Commercial real estate

$

2,082



$



$



$



$


Commercial and industrial

24,315



1,236



(463)



(1,355)



537


Consumer real estate

26



(4)



3



37



47


Other consumer

233



202



197



244



207


Total net charge-offs (recoveries)

$

26,656



$

1,434



$

(263)



$

(1,074)



$

791


Allowance for off-balance sheet lending-related commitments





Provision expense (benefit) for credit losses

$



$

(23)



$

(39)



$



$

(44)




1   

Excludes loans acquired in previous bank 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


September 30,
2019


June 30,
2019


March 31,
2019


December 31,
2018


September 30,
2018

Loans:

(Dollars in thousands)

Commercial real estate

$

3,146,968



$

3,119,147



$

3,048,087



$

2,977,919



$

3,016,889


Warehouse Purchase Program

1,508,449



1,253,262



724,070



864,012



1,097,879


Commercial and industrial

2,075,406



2,085,820



2,088,056



2,024,676



2,088,318


Construction and land

289,858



286,163



276,642



272,631



271,829


Consumer real estate

1,485,633



1,434,812



1,404,292



1,327,912



1,295,353


Other consumer

47,343



47,014



45,339



44,559



44,508


Less: deferred fees and allowance for loan loss

(72,841)



(67,408)



(57,955)



(56,899)



(55,974)


Total loans held for investment

8,480,816



8,158,810



7,528,531



7,454,810



7,758,802


Loans held for sale

49,596



30,572



15,347



24,279



26,121


Securities

659,152



668,948



670,599



667,939



678,483


Overnight deposits

225,425



232,862



218,608



266,434



272,670


Total interest-earning assets

$

9,414,989



$

9,091,192



$

8,433,085



$

8,413,462



$

8,736,076


Deposits:










Interest-bearing demand

$

832,528



$

855,948



$

800,557



$

775,921



$

760,889


Savings and money market

2,635,615



2,581,816



2,487,833



2,532,732



2,654,990


Time

1,688,247



1,885,190



1,776,829



1,703,421



1,683,475


FHLB advances and other borrowings

1,622,283



1,101,559



882,061



851,084



1,154,079


Total interest-bearing liabilities

$

6,778,673



$

6,424,513



$

5,947,280



$

5,863,158



$

6,253,433












Total assets

$

9,865,805



$

9,540,365



$

8,891,059



$

8,850,435



$

9,167,607


Non-interest-bearing demand deposits

$

1,742,265



$

1,812,042



$

1,688,937



$

1,778,681



$

1,752,095


Total deposits

$

6,898,654



$

7,134,996



$

6,754,156



$

6,790,754



$

6,851,449


Total shareholders' equity

$

1,159,824



$

1,134,001



$

1,107,719



$

1,062,331



$

1,022,032












Yields/Rates:










Loans:










Commercial real estate

5.06

%


5.21

%


5.18

%


5.20

%


5.15

%

Warehouse Purchase Program

4.48

%


4.78

%


4.91

%


4.81

%


4.68

%

Commercial and industrial

5.61

%


5.81

%


5.98

%


6.00

%


5.78

%

Construction and land

6.01

%


6.13

%


6.03

%


5.87

%


5.41

%

Consumer real estate

4.76

%


4.77

%


4.81

%


4.81

%


4.67

%

Other consumer

5.75

%


5.66

%


5.88

%


5.80

%


5.81

%

Total loans held for investment

5.12

%


5.30

%


5.38

%


5.37

%


5.22

%

Loans held for sale

3.83

%


4.25

%


4.43

%


4.71

%


4.52

%

Securities

2.63

%


2.72

%


2.70

%


2.78

%


2.66

%

Overnight deposits

2.13

%


2.36

%


2.37

%


2.24

%


1.99

%

Total interest-earning assets

4.87

%


5.03

%


5.09

%


5.06

%


4.92

%

Deposits:










Interest-bearing demand

0.60

%


0.71

%


0.76

%


0.69

%


0.65

%

Savings and money market

1.20

%


1.22

%


1.13

%


1.02

%


0.92

%

Time

2.40

%


2.35

%


2.23

%


2.05

%


1.80

%

FHLB advances and other borrowings

2.58

%


2.94

%


3.09

%


2.91

%


2.55

%

Total interest-bearing liabilities

1.75

%


1.78

%


1.70

%


1.55

%


1.43

%

Net interest spread

3.12

%


3.25

%


3.39

%


3.51

%


3.49

%

Net interest margin

3.60

%


3.77

%


3.89

%


3.98

%


3.90

%

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

1.12

%


1.15

%


1.09

%


0.97

%


0.87

%

 

LegacyTexas Financial Group, Inc.

Supplemental Information- Non-GAAP Financial Measures

(unaudited)



At or For the Quarters Ended


September 30,

2019


June 30,

2019


March 31,

2019


December 31,

2018


September 30,

2018


(Dollars in thousands, except per share amounts)

Reconciliation of Core (non-GAAP) to GAAP Net Income and Earnings per Share (calculated net of estimated tax rate of 21%)





GAAP net income available to common shareholders1

$

42,206



$

26,837



$

28,955



$

57,534



$

42,672


Distributed and undistributed earnings to participating securities1

218



146



125



235



149


GAAP net income

42,424



26,983



29,080



57,769



42,821


Merger costs

251



1,866








(Gain) on one-time tax adjustment2







(15,289)




Expenses related to above tax adjustment







202




Loss on sale of branch locations and land









372


Core (non-GAAP) net income

$

42,675



$

28,849



$

29,080



$

42,682



$

43,193


Average shares for basic earnings per share

47,607,076


47,383,314


47,246,282


47,159,578



47,105,655


Basic GAAP earnings per share

$

0.89



$

0.57



$

0.61



$

1.22



$

0.91


Basic core (non-GAAP) earnings per share

$

0.90



$

0.61



$

0.62



$

0.91



$

0.92


Average shares for diluted earnings per share

48,149,900


47,923,391


47,835,693


47,714,421



47,755,441


Diluted GAAP earnings per share

$

0.88



$

0.56



$

0.61



$

1.21



$

0.89


Diluted core (non-GAAP) earnings per share

$

0.89



$

0.60



$

0.61



$

0.89



$

0.90


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







GAAP non-interest income

$

13,349



$

12,232



$

9,894



$

12,264



$

13,227


Loss on sale of branch locations and land









471


Core (non-GAAP) non-interest income

$

13,349



$

12,232



$

9,894



$

12,264



$

13,698


GAAP non-interest expense

$

44,133



$

47,526



$

44,307



$

42,868



$

42,192


Merger costs

(318)



(2,362)








Expenses related to above tax adjustments







(256)




Core (non-GAAP) non-interest expense

$

43,815



$

45,164



$

44,307



$

42,612



$

42,192




1      

Unvested share-based awards that contain nonforfeitable rights to dividends are participating securities and are included in the computation of GAAP earnings per share pursuant to prescribed accounting guidance.

2      

This one-time income tax benefit resulted from tax rate changes and the favorable outcome of the Company's change in its tax method of accounting for its loan portfolio, related to the December 22, 2017 enactment of the Tax Cuts and Jobs Act.

 


At or For the Quarters Ended


September 30,

2019


June 30,

2019


March 31,

2019


December 31,

2018


September 30,

2018

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


(Dollars in thousands, except per share amounts)

GAAP efficiency ratio:










Non-interest expense

$

44,133



$

47,526



$

44,307



$

42,868



$

42,192


Net interest income plus non-interest income

98,690



97,786



91,058



96,563



98,894


Efficiency ratio - GAAP basis

44.72

%


48.60

%


48.66

%


44.39

%


42.66

%

Core (non-GAAP) efficiency ratio:









Core (non-GAAP) non-interest expense

$

43,815



$

45,164



$

44,307



$

42,612



$

42,192


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

98,690



97,786



91,058



96,563



99,365


Efficiency ratio - core (non-GAAP) basis

44.40

%


46.19

%


48.66

%


44.13

%


42.46

%

Calculation of Tangible Book Value per Share:







Total shareholders' equity

$

1,187,450



$

1,142,645



$

1,121,087



$

1,094,367



$

1,039,599


Less: Goodwill

(178,559)



(178,559)



(178,559)



(178,559)



(178,559)


Identifiable intangible assets, net

(169)



(193)



(218)



(245)



(279)


Total tangible shareholders' equity

$

1,008,722



$

963,893



$

942,310



$

915,563



$

860,761


Shares outstanding at end of period

49,255,006


48,833,238


48,704,070


48,505,261



48,491,169


Book value per share - GAAP

$

24.11



$

23.40



$

23.02



$

22.56



$

21.44


Tangible book value per share - Non-GAAP

20.48



19.74



19.35



18.88



17.75


Calculation of Tangible Equity to Tangible Assets:






Total assets

$

10,460,074



$

9,935,934



$

9,346,072



$

9,051,142



$

9,082,792


Less: Goodwill

(178,559)



(178,559)



(178,559)



(178,559)



(178,559)


Identifiable intangible assets, net

(169)



(193)



(218)



(245)



(279)


Total tangible assets

$

10,281,346



$

9,757,182



$

9,167,295



$

8,872,338



$

8,903,954


Equity to assets - GAAP

11.35

%


11.50

%


12.00

%


12.09

%


11.45

%

Tangible equity to tangible assets - Non-GAAP

9.81



9.88



10.28



10.32



9.67


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

Net income

$

42,424



$

26,983



$

29,080



$

57,769



$

42,821


Core (non-GAAP) net income

42,675



28,849



29,080



42,682



43,193


Average total equity

1,159,824



1,134,001



1,107,719



1,062,331



1,022,032


Average total assets

9,865,805



9,540,365



8,891,059



8,850,435



9,167,607


Return on average common shareholders' equity

14.63

%


9.52

%


10.50

%


21.75

%


16.76

%

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

14.72



10.18



10.50



16.07



16.90


Return on average assets

1.72



1.13



1.31



2.61



1.87


Core (non-GAAP) return on average assets

1.73



1.21



1.31



1.93



1.88


 

Cision

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