LegacyTexas Financial Group, Inc. Reports Third Quarter 2017 Earnings of $28.7 million

PLANO, Texas, Oct. 24, 2017 /PRNewswire/ -- LegacyTexas Financial Group, Inc. (Nasdaq: LTXB) (the "Company"), the holding company for LegacyTexas Bank (the "Bank"), today announced net income of $28.7 million for the third quarter of 2017, an increase of $774,000 from the second quarter of 2017 and $1.5 million from the third quarter of 2016.

"We are pleased to announce yet another solid quarter for our company," said President and CEO Kevin Hanigan.  "We continue to grow our customer base as evidenced by strong growth in both loans and deposits.  Our team continues to execute on our strategy of growing while managing costs and risk."

Third Quarter 2017 Performance Highlights

• Company assets of $9.07 billion generated basic earnings per share for the third quarter of 2017 of $0.61 on both a GAAP and core (non-GAAP) basis.
• Gross loans held for investment at September 30, 2017, excluding Warehouse Purchase Program loans, grew $208.6 million from June 30, 2017, while total deposits grew $197.9 million for the same period.
• Efficiency ratio improved to 44.19% for the quarter ended September 30, 2017, compared to 44.96% for the quarter ended June 30, 2017.
• Return on average assets for the quarter ended September 30, 2017 was 1.29%, compared to 1.32% for the quarter ended June 30, 2017 and 1.33% for the quarter ended September 30, 2016.

Core (non-GAAP) net income (which is net income adjusted for the impact of infrequent or non-recurring items) totaled $28.5 million for the quarter ended September 30, 2017, up $537,000 from the second quarter of 2017 and up $286,000 from the third quarter of 2016.  Basic earnings per share for the quarter ended September 30, 2017 was $0.61, an increase of $0.01 from the second quarter of 2017 and $0.02 from the third quarter of 2016.  Basic core earnings per share for the third quarter of 2017 was $0.61, up $0.01 from the second quarter of 2017 and unchanged from the third quarter of 2016.

Net interest income for the quarter ended September 30, 2017 was $79.0 million, a $3.2 million increase from the second quarter of 2017 and a $5.5 million increase from the third quarter of 2016.  The average balance of commercial real estate loans increased by $72.9 million to $2.85 billion from the second quarter of 2017, resulting in a $1.2 million increase in interest income, while the average balance of consumer real estate loans increased by $50.2 million to $1.18 billion for the same period, resulting in a $422,000 increase in interest income.  The average yield earned on commercial and industrial loans during the quarter ended September 30, 2017 was 4.89%, a 26 basis point increase from the linked quarter, which was primarily related to the current rising interest rate environment, as well as $295,000 in unamortized loan origination fees that were recognized as interest income during the third quarter of 2017 on the pay off of an energy loan.  This linked-quarter increase in average yield, as well as a $27.0 million increase in the average balance of commercial and industrial loans to $2.02 billion from the second quarter of 2017, resulted in a $1.9 million increase in interest income.  The average balance of Warehouse Purchase Program loans increased by $124.7 million to $1.02 billion from the second quarter of 2017, resulting in a $1.6 million increase in interest income.  Interest income on loans for the third quarter of 2017 included $750,000 in accretion of purchase accounting fair value adjustments on acquired loans, which included $281,000 on acquired commercial real estate loans, $88,000 on acquired commercial and industrial loans, $53,000 on acquired construction and land loans and $328,000 on acquired consumer loans.

The $5.5 million increase in net interest income compared to the third quarter of 2016 was primarily due to a $10.1 million increase in interest income on loans, which was driven by increased volume in the commercial real estate, commercial and industrial and consumer real estate loan portfolios, as well as higher yields earned on commercial and industrial and Warehouse Purchase Program loans.  The average balance of commercial real estate loans increased by $306.1 million from the third quarter of 2016, resulting in a $3.1 million increase in interest income.  The average balance of commercial and industrial loans increased by $312.5 million from the third quarter of 2016, while the average yield earned on this portfolio increased by 42 basis points for the same period, resulting in a $5.7 million increase in interest income.  The average balance of consumer real estate loans increased by $121.2 million compared to the third quarter of 2016, leading to a $908,000 increase in interest income. Despite a $111.3 million decline in the average balance compared to the prior year period, interest income on Warehouse Purchase Program loans increased by $607,000 due to a 58 basis point increase in the average yield earned for the third quarter of 2017, compared to the same quarter last year.

Interest expense for the quarter ended September 30, 2017 increased by $2.5 million compared to the linked quarter, which was primarily due to higher average deposit and borrowing rates, as well as increases of $154.5 million, $62.4 million and $25.5 million in the average balances of savings and money market, time and interest-bearing demand deposits, respectively, compared to the second quarter of 2017.  A 12 basis point increase in the average rate paid for borrowings and a $35.0 million increase in the average balance of borrowings from the second quarter of 2017 resulted in a $560,000 increase in interest expense on borrowed funds.

Compared to the third quarter of 2016, interest expense for the quarter ended September 30, 2017 increased by $6.1 million, primarily due to higher average deposit and borrowing rates and increased volume in all deposit products.  The average balance of savings and money market and time deposits increased by $442.8 million and $45.7 million, respectively, compared to the third quarter of 2016, while the average rates paid on these deposits increased by 35 basis points and 30 basis points, respectively, compared to the prior year period.  These increases in volume and rate on savings and money market and time deposits increased interest expense compared to the third quarter of 2016 by $2.9 million and $1.2 million, respectively.  The average rate paid on interest-bearing demand deposits increased by 18 basis points compared to the third quarter of 2016, while the average balance of interest-bearing demand deposits increased by $53.6 million for the same period.  A $155.4 million decrease in the average balance of borrowings from the third quarter of 2016 was more than offset by a 66 basis point increase in the average rate, resulting in a $1.6 million increase in interest expense on borrowed funds.

The net interest margin for the third quarter of 2017 was 3.71%, a six basis point decrease from the second quarter of 2017 and a seven basis point decrease from the third quarter of 2016.  The average yield on earning assets for the third quarter of 2017 was 4.44%, a two basis point increase from the second quarter of 2017 and a 17 basis point increase from the third quarter of 2016.  The cost of deposits for the third quarter of 2017 was 0.61%, up eight basis points from the linked quarter and up 22 basis points from the third quarter of 2016.

Non-interest Income

Non-interest income for the third quarter of 2017 was $12.2 million, a $99,000 decrease from the second quarter of 2017 and a $949,000 increase from the third quarter of 2016.  Service charges and other fees decreased by $605,000 from the second quarter of 2017, which was primarily due to a $308,000 decrease in title premiums and a $207,000 decrease in commercial loan fee income (consisting of syndication, arrangement, non-usage and pre-payment fees).  The Company recognized $2.0 million in net gains on the sale of mortgage loans held for sale during the third quarter of 2017, which includes gains recognized on $52.4 million of one-to four-family mortgage loans that were sold or committed for sale during the third quarter of 2017 and fair value changes on mortgage derivatives and mortgage fees collected, compared to $2.2 million in comparable net gains recorded during the second quarter of 2017 on $56.4 million of one-to four-family mortgage loans sold or committed for sale.  Other non-interest income for the third quarter of 2017 included a $134,000 net increase in the value of investments in community development-oriented private equity funds used for Community Reinvestment Act purposes (the "CRA Funds"), compared to a $368,000 net decrease in the CRA Funds for the second quarter of 2017.  Gain (loss) on sale and disposition of assets for the third quarter of 2017 included a $365,000 gain on the sale of a branch location, compared to a $139,000 gain on the sale of foreclosed properties recorded in the second quarter of 2017. 

The $949,000 increase in non-interest income from the third quarter of 2016 was primarily due to a $1.8 million increase in gain (loss) on sale and disposition of assets due to a loss of $1.5 million recorded in the third quarter of 2016 on the sale of the Company's Federal Housing Administration ("FHA") loan portfolio, compared to a $365,000 gain on the sale of a branch location recorded in the third quarter of 2017.  Service charges and other fees decreased by $379,000, which was driven by a $355,000 decrease in commercial loan fee income (consisting of syndication, arrangement, non-usage and pre-payment fees).  Net gains on the sale of mortgage loans held for sale during the third quarter of 2017 decreased by $401,000 compared to the third quarter of 2016, which included gains recognized on $60.2 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 2016 period, compared to $52.4 million for the third quarter of 2017.

Non-interest Expenses

Non-interest expense for the quarter ended September 30, 2017 was $40.3 million, a $706,000 increase from the second quarter of 2017 and a $621,000 increase from the third quarter of 2016.  Salaries and employee benefits expense increased by $784,000 from the second quarter of 2017, which was primarily driven by increased health care costs and decreased deferred salary costs related to loan originations that will be accounted for over the lives of the related loans.  Compared to the second quarter of 2017, data processing expense increased by $410,000 due to increased costs for system upgrades to enhance customer service and increase operating efficiency, while other non-interest expense increased by $327,000, primarily due to increased lending expenses.  Occupancy and equipment expense decreased by $357,000 compared to the second quarter of 2017, primarily resulting from an early termination fee collected from a tenant.   Regulatory assessments expense for the quarter ended September 30, 2017 decreased by $260,000 due to a lower FDIC assessment rate for the third quarter of 2017, while advertising expense decreased by $199,000 for the same period due to a lower number of events and sponsorships compared to the linked quarter. 

The $621,000 increase in non-interest expense from the third quarter of 2016 was primarily related to a $298,000 increase in data processing expense due to increased costs for system upgrades to enhance customer service and increase operating efficiency and a $290,000 increase in outside professional services expense related to higher consulting, legal and compliance costs.  Salaries and employee benefits expense also increased by $257,000 compared to the 2016 period, which was driven by merit increases, as well as increased health care costs and higher share-based compensation expense related to new stock awards granted in the 2017 period. 

Financial Condition - Loans

Gross loans held for investment at September 30, 2017, excluding Warehouse Purchase Program loans, grew $208.6 million from June 30, 2017, which included growth in commercial real estate, construction and land and consumer real estate loans.  Commercial real estate and construction and land loans at September 30, 2017 increased by $199.1 million and $12.5 million, respectively, from June 30, 2017, and consumer real estate loans increased by $43.6 million for the same period.  These linked-quarter increases were partially offset by a $45.0 million decline in commercial and industrial loans.

Compared to September 30, 2016, gross loans held for investment at September 30, 2017, excluding Warehouse Purchase Program loans, grew $860.7 million, which included growth in commercial real estate, commercial and industrial and consumer real estate loans.  On a year-over-year basis, commercial real estate, commercial and industrial and consumer real estate loans increased by $483.1 million, $262.1 million and $151.5 million, respectively.  These year-over-year increases were partially offset by declines of $25.2 million and $10.9 million in construction and land and other consumer loans, respectively. 

At September 30, 2017, Warehouse Purchase Program loans decreased by $128.8 million compared to June 30, 2017 and by $217.9 million compared to September 30, 2016. 

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 $526.8 million at September 30, 2017, up $11.3 million from $515.5 million at June 30, 2017 and up $93.3 million from $433.5 million at September 30, 2016.  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 from declining commodity prices.  At September 30, 2017, "Midstream and Other" loans had a total outstanding balance of $27.8 million, down $2.6 million from $30.4 million at June 30, 2017 and down $26.1 million from $53.9 million at September 30, 2016.

Financial Condition - Deposits

Total deposits at September 30, 2017 increased by $197.9 million from June 30, 2017, which included growth in non-interest-bearing demand deposits, which increased by $6.2 million, and growth in savings and money market balances, which increased by $282.0 million.  These increases were partially offset by an $86.5 million decline in time deposits and a $3.9 million decline in interest-bearing demand balances. 

Compared to September 30, 2016, total deposits increased by $632.3 million, which includes growth in all deposit categories with the exception of time deposit balances, which declined by $87.2 million.  Savings and money market deposits and non-interest-bearing demand deposits increased by $525.2 million and $153.2 million, respectively, while interest-bearing demand deposits increased by $41.1 million from September 30, 2016.

The Company recorded a provision for credit losses of $7.2 million for the quarter ended September 30, 2017, an increase of $902,000 from the quarter ended June 30, 2017 and $3.7 million from the quarter ended September 30, 2016.  The increase in provision expense on a linked-quarter and year-over-year basis was primarily related to $11.9 million in charge-offs recorded during the third quarter of 2017 on the resolution of two reserve-based energy relationships.  These relationships, which totaled  $22.6 million at June 30, 2017, were rated as substandard and were non-performing; therefore, the resolution of these credits drove the $22.3 million decline in non-performing loans compared to June 30, 2017.

The below table shows criticized (rated "special mention") and classified (rated "substandard" or "doubtful") loans at September 30, 2017, June 30, 2017 and September 30, 2016. 

At September 30, 2017, the allowance for loan losses allocated to the Company's $554.6 million energy loan portfolio totaled $18.4 million, while the allowance for loan losses allocated to the Company's $46.0 million corporate healthcare finance portfolio totaled $4.6 million.

Conference Call

The Company will host an investor conference call to review the results on Wednesday, October 25, 2017 at 8 a.m. Central Time.  Participants may pre-register for the call by visiting http://dpregister.com/10112750 and will receive a unique PIN, that 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) 1-855-669-9657.

The call and corresponding presentation slides will be webcast live on the home page of the Company's website, www.legacytexasfinancialgroup.com.  An audio replay will be available one hour after the conclusion of the call at 877-344-7529, Conference #10112750.  This replay will be available until November 25, 2017.

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 44 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 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.