ViewPoint Reports Fourth Quarter and Full Year 2006 Earnings

PLANO, Texas -- ViewPoint Financial Group, the holding company for ViewPointBank, announced unaudited financial results today for the three and twelvemonth periods ended December 31, 2006. Detailed results of the year will beavailable in the Company's Annual Report on Form 10-K, which will be filedin March and posted on our website,http://viewpointbank.com . Highlightsfor this quarter include: * Net income of $1.9 million for the quarter ended December 31, 2006, an increase of 231.3% from the same period in 2005 * $0.08 basic and diluted earnings per share * Total assets of $1.58 billion, an increase of 10.4% from December 31, 2005 * Total equity of $214.8 million, an increase of 112.3% from December 31, 2005 * Announced quarterly dividend of $.05 cents per share payable on February 20, 2007 "After our first year as a public company, we are pleased with ourfourth quarter earnings," said Gary Base, President and Chief ExecutiveOfficer of ViewPoint Financial Group. For the quarter ended December 31, 2006, basic and diluted earnings pershare was $0.08. Our stock offering ended on September 29, 2006; therefore,earnings per share are only given for the quarter ended December 31, 2006.Our return on assets (ROA) and return on equity (ROE) increased from -0.42%and -5.61% for the quarter ended December 31, 2005, to 0.50% and 3.64%,respectively, for the quarter ended December 31, 2006. For the year endedDecember, 31, 2006, ROA and ROE increased to 0.65% and 6.76% from 0.19% and2.72%, respectively, for the same period in 2005. Results of Operations for the Quarter Ended December 31, 2006 Net income for the quarter was $1.9 million, compared to a loss of $1.5million for the same period in 2005. The net loss for the quarter endedDecember 31, 2005, was due to an increase in our provision for loan losses,which was partially related to increased bankruptcy filings due to thechange in bankruptcy laws occurring on October 18, 2005. The changes in thelaw made bankruptcy filings more stringent after October 18, 2005. Also, asa result of our conversion from a credit union to a bank, we changed ourcharge- off requirements to meet regulatory guidelines, and thereforecharged off a higher number of loans in the fourth quarter of 2005. Inaddition to the increase in provision expense, we disposed of fixed assetsin the fourth quarter of 2005 that related to our charter conversion andthe closing of one of our Albertsons' branches. The increase in earningsfor the quarter ended December 31, 2006, from the same period in the prioryear primarily resulted from a lower provision for loan losses, highernoninterest income, and lower noninterest expense. Provision for loan losses declined by $1.2 million, or 53.1%, for thequarter ended December 31, 2006, from the same period in 2005. The declinein the provision for loan losses was primarily attributable to a continueddecrease in the amount of indirect automobile loans in our portfolio,resulting from the strategic diversification of our loan portfolio. Inaddition, improved underwriting standards have led to a decrease in non-performing indirect automobile loans. Interest income increased by $3.0 million, or 17.9%, to $19.6 millionfor the quarter compared to $16.6 million for the same period in 2005. Theincrease in interest income was primarily related to increases in theinterest earned on investments and interest-earning deposits at otherfinancial institutions. This increase in interest income was offset by anincrease in interest expense, which was $8.7 million for the quarter, anincrease of $2.2 million, or 33.7%, from the 2005 same period. The rise ininterest expense was attributable to the rising interest rate environmentand the repricing of deposit accounts to higher interest rates. Because theinverted yield curve has placed pressure on earnings, we will continue tomonitor the volume and mix of assets and funding sources, taking intoaccount relative costs and spreads, interest rate sensitivity and liquidityneeds. Noninterest income was $6.3 million for the quarter, an increase of$810,000, or 14.8%, from the prior period due to an increase of $1.1million in fee income. Noninterest expense was $13.4 million for thequarter, a decline of $1.3 million, or 9.0%, from the 2005 same period.Lower compensation expense due to staffing adjustments designed to improveoverall efficiency contributed to this decline, along with charterconversion expenses recognized in the last quarter of 2005 that were notrepeated in the fourth quarter of 2006. Results of Operations for the Year Ended December 31, 2006 Net income for the year ended December 31, 2006, was $9.7 million ascompared to $2.7 million for the year ended December 31, 2005. An end ofperiod income tax benefit of $3.6 million due to our change in tax statuson January 1, 2006, contributed to this increase in net income. Incomebefore the tax benefit for the year ended December 31, 2006, was $6.1million, an increase of $3.4 million, or 125.0%, from $2.7 million for theyear ended December 31, 2005. The increase in income before income taxbenefit primarily resulted from a reduction in the provision for loanlosses of $3.6 million, or 58.1%, due to a decline in net charge-offs of$3.1 million, as well as an overall decrease in our automobile lendingportfolio. Interest income increased by $8.3 million, or 12.9%, primarily due toincreases in the average balance of collateralized mortgage obligations andmortgage-backed securities of $76.7 million and $55.6 million,respectively, and an increase in the yield on earning assets from 4.91% to5.28%. Noninterest expense declined by $640,000, or 1.1%, primarily due to$1.1 million in charter conversion expenses recognized in 2005, compared to$101,000 of charter expenses incurred in 2006. Also, deposit processingcharges declined by $292,000 due to a decline in item processing andFederal Reserve maintenance fees. Outside professional services expenseincreased by $1.3 million due to increases in audit, supervision, andprofessional consulting fees, which partially offset the decline. These amounts were offset by an increase in interest expense of $8.0million, or 34.5%, which was primarily due to the rising interest rateenvironment and the repricing of deposit accounts to those higher interestrates. Our weighted average yield on interest-bearing liabilities was 2.71%for the year ended December 31, 2006, compared to 2.08% for the same timeperiod in 2005. For the year ended December 31, 2006, noninterest incomedecreased by $1.1 million, or 4.3%, due to income of $855,000 associatedwith the one-time payment received from the gain on sale of membershipinterests in Pulse during the first and second quarter of 2005, with nosuch similar transaction during the 2006 period. A decrease in the gain onsale of loans also contributed to the lower noninterest income. The Company's net interest margin declined from 3.13% at December 31,2005, to 3.00% at December 31, 2006, as a result of the rising short-terminterest rate environment (which impacts our interest-bearing liabilities),with a flatter long-term interest rate environment (which impacts ourinterest-earning assets). Financial Condition as of December 31, 2006 Total assets increased by $148.6 million, or 10.4%, to $1.58 billion atDecember 31, 2006, from $1.43 billion at December 31, 2005. The increasewas primarily a result of growth in investment securities of $192.0 millionand cash and cash equivalents of $77.3 million, which was partially offsetby a decrease in net loans of $106.8 million. Our net loan portfolio decreased $106.8 million, or 9.9%, from $1.08billion at December 31, 2005, to $968.7 million at December 31, 2006. Thiscontinued decline in the portfolio is attributable to our lending strategyto diversify our loan portfolio. We continue to emphasize the originationof residential mortgage loans and decrease originations of consumer loans,particularly indirect automobile loans. In addition, we are focused oncommercial lending, primarily commercial real estate lending. Total deposits increased by $24.1 million, or 1.9%, from $1.26 billionat December 31, 2005, to $1.28 billion at December 31, 2006. Time depositsand demand deposits increased by $110.9 million and $26.0 million,respectively, while savings and money market accounts decreased $112.7million from December 31, 2005. Total equity increased by $113.6 million, or 112.3%, to $214.8 millionat December 31, 2006, from $101.2 million at December 31, 2005. Theincrease in equity was primarily due to the completion of our minoritystock offering, which closed on September 29, 2006. An increase inaccumulated other comprehensive income of $1.2 million associated with theunrealized gain on available for sale securities also contributed to theincrease in equity. Net income for the year ended December 31, 2006,includes recognition of a tax benefit of $6.1 million recognized at thebeginning of 2006 due to the Company's change in tax status, which alsoincreased equity. About ViewPoint Financial Group ViewPoint Financial Group is the holding company for ViewPoint Bank.ViewPoint Bank operates 33 branches, 16 of which are in-store locations and3 of which are loan production offices. ViewPoint Financial Group employs505 full-time equivalent employees. This report may contain statements relating to the future results ofthe Company (including certain projections and business trends) that areconsidered "forward-looking statements" as defined in the PrivateSecurities Litigation Reform Act of 1995 (the "PSLRA"). Suchforward-looking statements, in addition to historical information, whichinvolve risk and uncertainties, are based on the beliefs, assumptions andexpectations of management of the Company. Words such as "expects,""believes," "should," "plans," "anticipates," "will," "potential," "could,""intend," "may," "outlook," "predict," "project," "would," "estimates,""assumes," "likely," and variations of such similar expressions areintended to identify such forward- looking statements. Examples offorward-looking statements include, but are not limited to, possible orassumed estimates with respect to the financial condition, expected oranticipated revenue, and results of operations and business of the Company,including earnings growth; revenue growth in retail banking, lending andother areas; origination volume in the Company's consumer, commercial andother lending businesses; current and future capital management programs;non-interest income levels, including fees from banking services as well asproduct sales; tangible capital generation; market share; expense levels;and other business operations and strategies. For this presentation, theCompany claims the protection of the safe harbor for forward-lookingstatements contained in the PSLRA. Factors that could cause future results to vary from current managementexpectations include, but are not limited to, changing economic conditions;legislative and regulatory changes; monetary and fiscal policies of thefederal government; changes in tax policies; rates and regulations offederal, state and local tax authorities; changes in interest rates;deposit flows; the cost of funds; demand for loan products; demand forfinancial services; competition; changes in the quality and composition ofthe Company's loan and investment portfolios; changes in management'sbusiness strategies; changes in accounting principles, policies orguidelines; changes in real estate values and other factors discussedelsewhere in this release and factors set forth under Risk Factors in ourForm 10-K. The forward-looking statements are made as of the date of thisrelease, and the Company assumes no obligation to update theforward-looking statements or to update the reasons why actual resultscould differ from those projected in the forward-looking statements. VIEWPOINT FINANCIAL GROUP AND SUBSIDIARIES Condensed Consolidated Statements of Condition (In thousands) December 31, December 31, 2006 2005 (unaudited) ASSETS Cash and cash equivalents 202,788 125,513 Certificates of deposit with other financial institutions --- 11,000 Securities available for sale, at fair value 324,523 101,860 Securities held to maturity 11,271 41,962 Loans, net of allowance of $6,507 - December 31, 2006, $7,697 - December 31, 2005 968,664 1,075,473 Federal Home Loan Bank stock 3,724 3,958 Premises and equipment, net 42,262 44,687 Accrued interest receivable and other assets 23,460 23,609 Total Assets $1,576,692 $1,428,062 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Non-interest-bearing demand $258,233 $195,377 Interest-bearing demand 69,711 106,604 Savings and money market 647,706 760,442 Time 306,163 195,304 Total deposits 1,281,813 1,257,727 Federal Home Loan Bank advances 55,762 47,680 Other liabilities 24,339 21,474 Total shareholders' equity 214,778 101,181 Total Liabilities and Shareholders' Equity $1,576,692 $1,428,062 VIEWPOINT FINANCIAL GROUP AND SUBSIDIARIES Condensed Consolidated Statements of Income (In thousands except per share data) Three Months Ended Twelve Months Ended -----December 31,----- ----December 31,---- 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) Interest income 19,585 16,608 72,726 64,421 Interest expense 8,659 6,476 31,386 23,342 Net interest income 10,926 10,132 41,340 41,079 Provision for loan losses 1,085 2,315 2,565 6,120 Net interest income after provision for loan losses 9,841 7,817 38,775 34,959 Noninterest income 6,274 5,463 23,434 24,485 Noninterest expense 13,442 14,764 56,080 56,720 Income (loss) before income tax expense 2,673 (1,484) 6,129 2,724 Income tax expense (benefit) 724 --- (3,557) --- Net income (loss) $1,949 $(1,484) $9,686 $2,724 Basic and diluted earnings per share(1) $0.08 $--- $0.08 $--- (1) Stock offering ended on September 29, 2006. Earnings per share are for September 29, 2006 to December 31, 2006 and are computed by dividing net income for the period by the weighted-average number of common shares outstanding for the period, reduced for unallocated ESOP shares. The following table presents quarterly market price information andcash dividends paid per share for our common stock since it began tradingon the NASDAQ Global Select Market on October 3, 2006: Market Price Range Dividends High Low Paid 2006 Quarter ended December 31, 2006 $17.45 $14.90 $--- Three Months Ended Twelve Months Ended December 31, December 31, 2006 2005 2006 2005 Selected Financial Ratios and Other Data:(2) Performance Ratios: Return on assets (ratio of net income to average total assets)(3) 0.50% -0.42% 0.65% 0.19% Return on equity (ratio of net income to average equity)(3) 3.64% -5.61% 6.76% 2.72% Net interest spread(4) 2.45% 2.67% 2.57% 2.83% Net interest margin(5) 3.08% 3.09% 3.00% 3.13% Noninterest income to operating revenue 24.26% 24.76% 24.37% 27.54% Operating expenses to average total assets 3.43% 4.15% 3.75% 4.00% Average interest-earning assets to average interest-bearing liabilities 126.03% 121.26% 119.01% 117.04% Efficiency ratio(6) 78.16% 94.67% 86.58% 86.51% Asset Quality Ratios: Non-performing loans to gross loans 0.31% 0.43% 0.31% 0.43% Allowance for loan losses to non-performing loans 215.46% 167.51% 215.46% 167.51% Allowance for loan losses to gross loans 0.67% 0.71% 0.67% 0.71% Capital Ratios: Equity to total assets 13.62% 7.09% 13.62% 7.09% Risk-based capital to risk weighted assets 22.01% 10.29% 22.01% 10.29% Tier 1 capital to risk weighted assets 21.38% 9.57% 21.38% 9.57% Other Data: Number of branches (including in-store locations) 34 33 34 33 Number of in-store branches 16 18 16 18 (2) With the exception of end of period ratios, all ratios are based on average monthly balances and are annualized where appropriate. (3) 2005 return on assets and return on equity are not tax-effected because the Company was not a taxable entity in 2005. (4) Net interest spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost on interest-bearing liabilities. (5) Net interest margin represents net interest income as a percentage of average interest-earning assets. (6) Efficiency ratio is calculated as follows: noninterest expense divided by the sum of net interest income and noninterest income.