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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-34737
LEGACYTEXAS FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
 
 
27-2176993
(State or other jurisdiction of incorporation or organization)
 
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
5851 Legacy Circle, Plano, Texas
 
 
 
75024
(Address of Principal Executive Offices)
 
 
 
(Zip Code)
Registrant’s telephone number, including area code: (972) 578-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
    
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class: Common Stock
 
Shares Outstanding as of October 22, 2018:
 
 
48,492,319




LEGACYTEXAS FINANCIAL GROUP, INC.
FORM 10-Q
September 30, 2018
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






PART 1 - FINANCIAL INFORMATION        Item 1. Financial Statements
LEGACYTEXAS FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
 
September 30,
2018
 
December 31,
2017
ASSETS
(unaudited)
 
 
Cash and due from financial institutions
$
64,681

 
$
61,713

Short-term interest-bearing deposits in other financial institutions
189,634

 
231,743

Total cash and cash equivalents
254,315

 
293,456

Securities available for sale, at fair value
455,454

 
419,717

Securities held to maturity (fair value: September 30, 2018 — $142,746;
December 31, 2017— $174,926)
145,148

 
173,509

Loans held for sale, at fair value
22,175

 
16,707

Loans held for investment:
 
 
 
Loans held for investment (net of allowance for loan losses of $66,354 at September 30, 2018 and $71,301 at December 31, 2017)
6,707,553

 
6,418,271

Loans held for investment - Warehouse Purchase Program
1,054,505

 
1,320,846

Total loans held for investment
7,762,058

 
7,739,117

Federal Home Loan Bank ("FHLB") stock and other restricted securities, at cost
60,596

 
64,790

Bank-owned life insurance
58,692

 
57,684

Premises and equipment, net
72,291

 
69,693

Goodwill
178,559

 
178,559

Other assets
73,504

 
72,964

Total assets
$
9,082,792

 
$
9,086,196

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits
 
 
 
Non-interest-bearing demand
$
1,798,109

 
$
1,635,622

Interest-bearing demand
780,474

 
1,029,375

Savings and money market
2,562,399

 
2,735,296

Time
1,638,776

 
1,367,390

Total deposits
6,779,758

 
6,767,683

FHLB advances
932,317

 
1,043,163

Repurchase agreements
40,408

 
84,676

Subordinated debt
134,890

 
134,522

Accrued expenses and other liabilities
155,820

 
96,278

Total liabilities
8,043,193

 
8,126,322

Commitments and contingent liabilities (See Note 10)


 


Shareholders’ equity
 
 
 
Preferred stock, $.01 par value; 10,000,000 shares authorized; 0 shares issued — September 30, 2018 and December 31, 2017

 

Common stock, $.01 par value; 90,000,000 shares authorized; 48,491,169 shares issued —
September 30, 2018 and 48,117,390 shares issued — December 31, 2017
485

 
481

Additional paid-in capital
617,270

 
603,884

Retained earnings
444,848

 
370,858

Accumulated other comprehensive income (loss), net
(11,481
)
 
(3,429
)
Unearned Employee Stock Ownership Plan (ESOP) shares; 1,152,378 shares at September 30, 2018 and 1,192,093 shares at December 31, 2017
(11,523
)
 
(11,920
)
Total shareholders’ equity
1,039,599

 
959,874

Total liabilities and shareholders’ equity
$
9,082,792

 
$
9,086,196

See accompanying notes to consolidated financial statements.

3


LEGACYTEXAS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Dollars in thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Interest and dividend income
 
 
 
 
 
 
 
Loans, including fees
$
102,267

 
$
89,084

 
$
291,468

 
$
256,104

Taxable securities
3,254

 
2,694

 
9,297

 
7,981

Nontaxable securities
614

 
713

 
1,930

 
2,207

Interest-bearing deposits in other financial institutions
1,368

 
1,524

 
3,434

 
3,211

FHLB and FRB stock and other
644

 
448

 
1,675

 
1,243

 
108,147

 
94,463

 
307,804

 
270,746

Interest expense
 
 
 
 
 
 
 
Deposits
15,077

 
10,271

 
40,841

 
25,740

FHLB advances
5,198

 
2,944

 
12,009

 
7,003

Repurchase agreements and other borrowings
2,205

 
2,284

 
6,745

 
6,771

 
22,480

 
15,499

 
59,595

 
39,514

Net interest income
85,667

 
78,964

 
248,209

 
231,232

Provision for credit losses
2,656

 
7,157

 
35,797

 
35,713

Net interest income after provision for credit losses
83,011

 
71,807

 
212,412

 
195,519

Non-interest income
 
 
 
 
 
 
 
Service charges and other fees
8,626

 
9,291

 
25,397

 
27,618

Net gain on sale of mortgage loans held for sale
1,597

 
1,982

 
5,074

 
5,766

Bank-owned life insurance income
482

 
435

 
1,408

 
1,297

Net gain (loss) on securities transactions
(10
)
 
(20
)
 
(138
)
 
(39
)
Gain on sale and disposition of assets
977

 
352

 
3,037

 
1,908

Other
1,555

 
186

 
2,199

 
131

 
13,227

 
12,226

 
36,977

 
36,681

Non-interest expense
 
 
 
 
 
 
 
Salaries and employee benefits
25,053

 
24,175

 
76,442

 
72,010

Advertising
824

 
980

 
3,070

 
2,976

Occupancy and equipment
3,960

 
3,299

 
11,800

 
10,609

Outside professional services
1,151

 
1,230

 
3,783

 
3,589

Regulatory assessments
750

 
1,011

 
2,635

 
3,267

Data processing
5,362

 
4,287

 
15,210

 
12,059

Office operations
2,232

 
2,378

 
6,756

 
7,058

Other
2,860

 
2,935

 
8,566

 
8,068

 
42,192

 
40,295

 
128,262

 
119,636

Income before income tax expense
54,046

 
43,738

 
121,127

 
112,564

Income tax expense
11,225

 
15,029

 
24,707

 
37,730

Net income
$
42,821

 
$
28,709

 
$
96,420

 
$
74,834

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.91

 
$
0.61

 
$
2.05

 
$
1.60

Diluted
$
0.89

 
$
0.61

 
$
2.02

 
$
1.58

Dividends declared per share
$
0.16

 
$
0.15

 
$
0.48

 
$
0.45

 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.



4


LEGACYTEXAS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
42,821

 
$
28,709

 
$
96,420

 
$
74,834

Change in unrealized gains (losses) on securities available for sale
(3,013
)
 
103

 
(9,390
)
 
2,529

Reclassification of amount realized through securities transactions
10

 
20

 
138

 
39

Tax effect
631

 
(43
)
 
1,941

 
(900
)
Reclassification of income tax effects of the Tax Cuts and Jobs Act
(see Note 9 for more information)

 

 
(741
)
 

Other comprehensive income (loss), net of tax
(2,372
)
 
80

 
(8,052
)
 
1,668

Comprehensive income
$
40,449

 
$
28,789

 
$
88,368

 
$
76,502

 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.


5



LEGACYTEXAS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
(Dollars in thousands, except share and per share data)
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Unearned
ESOP Shares
 
Total
Shareholders’
Equity
For the nine months ended September 30, 2018
 
 
 
 
 
 
 
 
Balance at January 1, 2018
$
481

 
$
603,884

 
$
370,858

 
$
(3,429
)
 
$
(11,920
)
 
$
959,874

Net income

 

 
25,762

 

 

 
25,762

Other comprehensive (loss), net of tax

 

 

 
(4,470
)
 

 
(4,470
)
Reclassification of income tax effects of the Tax Cuts and Jobs Act (see Note 9 for more information)

 

 
741

 

 

 
741

Dividends declared, ($0.16 per share)

 

 
(7,708
)
 

 

 
(7,708
)
ESOP shares earned, (13,238 shares)

 
447

 

 

 
131

 
578

Share-based compensation expense

 
2,055

 

 

 

 
2,055

Activity in employee stock plans, (147,576 shares)
2

 
2,660

 

 

 

 
2,662

Balance at March 31, 2018
$
483

 
$
609,046

 
$
389,653

 
$
(7,899
)
 
$
(11,789
)
 
$
979,494

Net income

 

 
27,837

 

 

 
27,837

Other comprehensive (loss), net of tax

 

 

 
(1,210
)
 

 
(1,210
)
Dividends declared, ($0.16 per share)

 

 
(7,725
)
 

 

 
(7,725
)
ESOP shares earned, (13,238 shares)

 
427

 

 

 
133

 
560

Share-based compensation expense

 
1,398

 

 

 

 
1,398

Activity in employee stock plans, (46,254 shares)

 
1,096

 

 

 

 
1,096

Balance at June 30, 2018
$
483

 
$
611,967

 
$
409,765

 
$
(9,109
)
 
$
(11,656
)
 
$
1,001,450

Net income

 

 
42,821

 

 

 
42,821

Other comprehensive (loss), net of tax

 

 

 
(2,372
)
 

 
(2,372
)
Dividends declared, ($0.16 per share)

 

 
(7,738
)
 

 

 
(7,738
)
ESOP shares earned, (13,238 shares)

 
450

 

 

 
133

 
583

Share-based compensation expense

 
2,385

 

 

 

 
2,385

Activity in employee stock plans, (179,949 shares)
2

 
2,468

 

 

 

 
2,470

Balance at September 30, 2018
$
485

 
$
617,270

 
$
444,848

 
$
(11,481
)
 
$
(11,523
)
 
$
1,039,599

 
 
 
 
 
 
 
 
 
 
 
 

6


 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Unearned
ESOP Shares
 
Total
Shareholders’
Equity
For the nine months ended September 30, 2017
 
 
 
 
 
 
 
 
Balance at January 1, 2017
$
479

 
$
589,408

 
$
310,641

 
$
(2,713
)
 
$
(12,450
)
 
$
885,365

Net income

 

 
18,190

 

 

 
18,190

Other comprehensive income, net of tax

 

 

 
662

 

 
662

Dividends declared, ($0.15 per share)

 

 
(7,183
)
 

 

 
(7,183
)
ESOP shares earned, (13,238 shares)

 
420

 

 

 
132

 
552

Share-based compensation expense

 
1,562

 

 

 

 
1,562

Activity in employee stock plans, (63,935 shares)

 
769

 

 

 

 
769

Balance at March 31, 2017
$
479

 
$
592,159

 
$
321,648

 
$
(2,051
)
 
$
(12,318
)
 
$
899,917

Net income

 

 
27,935

 

 

 
27,935

Other comprehensive income, net of tax

 

 

 
926

 

 
926

Dividends declared, ($0.15 per share)

 

 
(7,199
)
 

 

 
(7,199
)
ESOP shares earned, (13,238 shares)

 
361

 

 

 
132

 
493

Share-based compensation expense

 
1,843

 

 

 

 
1,843

Activity in employee stock plans, (69,246 shares)
1

 
1,367

 

 

 

 
1,368

Balance at June 30, 2017
$
480

 
$
595,730

 
$
342,384

 
$
(1,125
)
 
$
(12,186
)
 
$
925,283

Net income

 

 
28,709

 

 

 
28,709

Other comprehensive income, net of tax

 

 

 
80

 

 
80

Dividends declared, ($0.15 per share)

 

 
(7,203
)
 

 

 
(7,203
)
ESOP shares earned, (13,238 shares)

 
366

 

 

 
133

 
499

Share-based compensation expense

 
2,014

 

 

 

 
2,014

Activity in employee stock plans, (30,680 shares)

 
710

 

 

 

 
710

Balance at September 30, 2017
$
480

 
$
598,820

 
$
363,890

 
$
(1,045
)
 
$
(12,053
)
 
$
950,092

 
 
 
 
 
 
 
 
 
 
 
 

See accompanying notes to consolidated financial statements.

7


LEGACYTEXAS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)

 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
96,420

 
$
74,834

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
35,797

 
35,713

Depreciation and amortization
5,125

 
5,369

Deferred tax benefit
2,489

 
(4,277
)
Premium amortization and accretion of securities, net
2,949

 
3,273

Accretion related to acquired loans
(1,478
)
 
(2,567
)
Net (gain) loss on securities transactions
138

 
39

ESOP compensation expense
1,721

 
1,544

Share-based compensation expense
5,838

 
5,419

Excess tax benefit on vesting of stock awards
894

 
1,307

Net gain on loans held for sale
(5,074
)
 
(5,766
)
Loans originated or purchased for sale
(138,702
)
 
(148,853
)
Proceeds from sale of loans held for sale
138,308

 
149,943

FHLB stock dividends
(675
)
 
(375
)
Bank-owned life insurance income
(1,408
)
 
(1,297
)
(Gain) on sale and disposition of repossessed assets, premises and equipment
(811
)
 
(1,723
)
Net change in deferred loan fees/costs
(3,475
)
 
(7,663
)
Net change in accrued interest receivable
(4,782
)
 
(1,256
)
Net change in other assets
(6,257
)
 
1,275

Net change in other liabilities
61,317

 
87,013

Net cash provided by operating activities
188,334

 
191,952

Cash flows from investing activities
 
 
 
Available-for-sale securities:
 
 
 
Maturities, prepayments and calls
1,859,278

 
2,010,107

Purchases
(1,906,774
)
 
(2,066,094
)
Held-to-maturity securities:
 
 
 
Maturities, prepayments and calls
33,132

 
28,729

Purchases
(5,388
)
 

Originations of Warehouse Purchase Program loans
(16,416,019
)
 
(16,110,560
)
Proceeds from pay-offs of Warehouse Purchase Program loans
16,682,360

 
16,037,972

Net change in loans held for investment, excluding Warehouse Purchase Program loans
(320,481
)
 
(586,200
)
Redemption (purchase) of FHLB and Federal Reserve Bank stock and other
4,869

 
(6,692
)
Purchases of premises and equipment
(7,681
)
 
(2,321
)
Proceeds from sale of assets
9,211

 
6,238

Net cash (used in) investing activities
(67,493
)
 
(688,821
)

8


CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)

 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from financing activities
 
 
 
Net change in deposits
12,075

 
394,892

Proceeds from FHLB advances
925,000

 
175,000

Repayments on FHLB advances
(1,035,846
)
 
(10,536
)
Repayments of borrowings
(44,268
)
 
(5,618
)
Payment of dividends
(23,171
)
 
(21,585
)
Activity in employee stock plans
6,228

 
2,847

Net cash provided by (used in) financing activities
(159,982
)
 
535,000

Net change in cash and cash equivalents
(39,141
)
 
38,131

Beginning cash and cash equivalents
293,456

 
289,212

Ending cash and cash equivalents
$
254,315

 
$
327,343

Supplemental noncash disclosures:
 
 
 
Transfers from loans to other real estate owned
$
25

 
$
4,360

See accompanying notes to consolidated financial statements.

9

Table of Contents
LEGACYTEXAS FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)


Note 1 - Basis of Financial Statement Presentation
The accompanying consolidated interim financial statements of LegacyTexas Financial Group, Inc. (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all normal and recurring adjustments which are considered necessary to fairly present the results for the interim periods presented have been included. Certain items in prior periods were reclassified to conform to the current presentation. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”). Interim results are not necessarily indicative of results for a full year.
In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from those estimates. For further information with respect to significant accounting policies followed by the Company in preparation of its consolidated financial statements, refer to the 2017 Form 10-K.
The accompanying Unaudited Consolidated Interim Financial Statements include the accounts of the Company, whose business primarily consists of the operations of its wholly owned subsidiary, LegacyTexas Bank (the “Bank”). All significant intercompany transactions and balances are eliminated in consolidation.

10

Table of Contents
LEGACYTEXAS FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Note 2 - Revenue Recognition

Revenue recognized from contracts with customers, which is accounted for under Accounting Standards Codification ("ASC") 606, is entirely included in the Company's non-interest income. Interest income and certain types of non-interest income are not accounted for under ASC 606 as it is accounted for under other accounting standards. Significant revenue streams recognized by the Company from contracts with customers accounted for under ASC 606 for the three and nine months ended September 30, 2018 and 2017, are below:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Card services income
(a)
$
3,270

 
$
3,015

 
$
9,623

 
$
8,959

Service charges on deposits
(b)
2,129

 
1,858

 
5,859

 
5,496

Title income
(c)
836

 
1,260

 
3,089

 
4,257

Gains (losses) on the sale of other real estate owned
(d)
1,263

 
(15
)
 
1,232

 
169


(a) Card services income -
Card services income includes interchange income, which is income earned by the Company for each transaction a cardholder performs at a merchant. This performance obligation is settled on a daily basis as transactions are processed. Card services income also includes revenue earned from companies who provide our customers with debit cards and/or provide card processing services in exchange for the Company’s promotion of their card programs to the Company's depositors. These payments are remitted based on contractual terms that dictate how much payment is remitted based on volume expectations. This performance obligation settles on a daily basis as our customers use cards and card processing services at merchants.

(b) Service charges on deposits -
The Company receives non-interest income for providing services related to deposit accounts, including fee income generated from non-sufficient funds transactions, wire transfers, ATM activity and treasury management services. This income is recorded when incurred in the case of deposit account service charges or when collected in the case of miscellaneous one-time fees, like wire transfer fees. Since most deposit agreements have a day-to-day term, the performance obligation between the Company and the depositor is satisfied on a daily basis, or as incurred.

(c) Title income -
Title services offered by the Company through its wholly-owned subsidiary, LegacyTexas Title, consists of referring title insurance policies to other title companies and performing real estate closing duties for a set fee. The performance obligation (referring title policies to other title insurance agencies and handling customary closing services) settles daily at each real estate closing.

(d) Gains/losses on the sale of other real estate owned -
The performance obligation in the sale of other real estate owned typically will be delivery of control over the property to the buyer. If the Company is not providing financing, the transaction price is typically identified in the purchase and sale agreement. However, if the Company provides seller financing, the Company must determine a transaction price, depending on if the sale contract is at market terms and taking into account the credit risk inherent in the sales arrangement.

The performance obligations described in (b), (c), and (d) above are typically related to contracts that have an original expected duration of less than one year.

In regards to card services income, because the Company has a right to consideration from card service providers in the form of transaction-based and support income, and from cardholders in the form of interchange income in an amount that corresponds directly with the value to the card service provider and cardholder of the Company's performance completed to date, the Company recognizes revenue as incurred when transactions with merchants settle on a daily basis.

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.


11

Table of Contents
LEGACYTEXAS FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The Company has applied ASC 606 using the modified retrospective approach effective on January 1, 2018 to all existing contracts with customers covered under the scope of the standard. The Company did not have an aggregate effect of modification resulting from adoption of ASC 606, and no financial statement line items were affected by this change in accounting standard.                         

  


12

Table of Contents
LEGACYTEXAS FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Note 3 - Earnings Per Common Share
Basic earnings per common share is computed by dividing net income (which has been adjusted for distributed and undistributed earnings to participating securities) by the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards. Unvested restricted stock awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method described in ASC 260-10-45-60B. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock, or resulted in the issuance of common stock that then shared in the Company’s earnings. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested restricted stock awards. The dilutive effect of the unexercised stock options and unvested restricted stock awards is calculated under the treasury stock method utilizing the average market value of the Company’s stock for the period. A reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation for the three and nine months ended September 30, 2018 and 2017 is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Basic earnings per share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income
$
42,821

 
$
28,709

 
$
96,420

 
$
74,834

Distributed and undistributed earnings to participating securities
(149
)
 
(92
)
 
(284
)
 
(275
)
Income available to common shareholders
$
42,672

 
$
28,617

 
$
96,136

 
$
74,559

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
48,431,637

 
48,028,265

 
48,306,520

 
47,971,249

Less: Average unallocated ESOP shares
(1,161,108
)
 
(1,214,061
)
 
(1,174,216
)
 
(1,227,169
)
  Average unvested restricted stock awards
(164,874
)
 
(149,971
)
 
(138,651
)
 
(171,856
)
Average shares for basic earnings per share
47,105,655

 
46,664,233

 
46,993,653

 
46,572,224

Basic earnings per common share
$
0.91

 
$
0.61

 
$
2.05

 
$
1.60

Diluted earnings per share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Income available to common shareholders
$
42,672

 
$
28,617

 
$
96,136

 
$
74,559

Denominator:
 
 
 
 
 
 
 
Average shares for basic earnings per share
47,105,655

 
46,664,233

 
46,993,653

 
46,572,224

Dilutive effect of share-based compensation plan
649,786

 
494,496

 
646,829

 
515,604

Average shares for diluted earnings per share
47,755,441

 
47,158,729

 
47,640,482

 
47,087,828

Diluted earnings per common share
$
0.89

 
$
0.61

 
$
2.02

 
$
1.58

Share awards excluded in the computation of diluted earnings per share because the exercise price was greater than the common stock average market price and were therefore antidilutive
133,310

 
514,487

 
349,753

 
563,116




13

Table of Contents
LEGACYTEXAS FINANCIAL GROUP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Note 4 - Securities
The amortized cost, related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and the fair value of securities available for sale ("AFS") were as follows:
September 30, 2018
Amortized Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Fair Value
Agency residential mortgage-backed securities 1
$
161,897

 
$
291

 
$
5,655

 
$
156,533

Agency commercial mortgage-backed securities 1
9,078

 

 
225

 
8,853

Agency residential collateralized mortgage obligations 1
266,393

 

 
8,379

 
258,014

US government and agency securities
1,500

 
20

 

 
1,520

Municipal bonds
31,119

 
10

 
595

 
30,534

Total securities
$
469,987

 
$
321

 
$
14,854

 
$
455,454

December 31, 2017