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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 March 31, 2019
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 every Interactive Data File required to be submitted 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 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:
    
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
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 April 22, 2019:
 
 
48,704,070




LEGACYTEXAS FINANCIAL GROUP, INC.
FORM 10-Q
March 31, 2019
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)
 
March 31,
2019
 
December 31,
2018
ASSETS
(unaudited)
 
 
Cash and due from financial institutions
$
55,472

 
$
60,416

Short-term interest-bearing deposits in other financial institutions
219,051

 
208,777

Total cash and cash equivalents
274,523

 
269,193

Securities available for sale, at fair value
479,426

 
471,746

Securities held to maturity (fair value: March 31, 2019 — $135,460;
December 31, 2018— $144,791)
135,276

 
146,046

Loans held for sale, at fair value
11,380

 
23,193

Loans held for investment:
 
 
 
Loans held for investment (net of allowance for loan losses of $77,530 at March 31, 2019 and $67,428 at December 31, 2018)
6,878,019

 
6,733,692

Loans held for investment - Warehouse Purchase Program
1,096,160

 
960,404

Total loans held for investment
7,974,179

 
7,694,096

Federal Home Loan Bank (“FHLB”) stock and other restricted securities, at cost
56,044

 
56,226

Bank-owned life insurance
59,377

 
59,036

Premises and equipment, net
107,684

 
73,073

Goodwill
178,559

 
178,559

Other assets
69,624

 
79,974

Total assets
$
9,346,072

 
$
9,051,142

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits
 
 
 
Non-interest-bearing demand
$
1,752,694

 
$
1,773,762

Interest-bearing demand
884,494

 
826,755

Savings and money market
2,492,226

 
2,455,787

Time
1,948,011

 
1,785,411

Total deposits
7,077,425

 
6,841,715

FHLB advances
820,084

 
825,409

Repurchase agreements
37,277

 
50,340

Subordinated debt
135,135

 
135,012

Accrued expenses and other liabilities
155,064

 
104,299

Total liabilities
8,224,985

 
7,956,775

Commitments and contingent liabilities (See Note 11)


 


Shareholders’ equity
 
 
 
Preferred stock, $.01 par value; 10,000,000 shares authorized; 0 shares issued — March 31, 2019 and December 31, 2018

 

Common stock, $.01 par value; 90,000,000 shares authorized; 48,704,070 shares issued —
March 31, 2019 and 48,505,261 shares issued — December 31, 2018
487

 
485

Additional paid-in capital
625,405

 
619,983

Retained earnings
508,887

 
491,948

Accumulated other comprehensive income (loss), net
(2,433
)
 
(6,658
)
Unearned Employee Stock Ownership Plan (ESOP) shares; 1,125,902 shares at March 31, 2019 and 1,139,140 shares at December 31, 2018
(11,259
)
 
(11,391
)
Total shareholders’ equity
1,121,087

 
1,094,367

Total liabilities and shareholders’ equity
$
9,346,072

 
$
9,051,142

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 March 31,
 
2019
 
2018
Interest and dividend income
 
 
 
Loans, including fees
$
100,301

 
$
90,631

Taxable securities
3,602

 
2,911

Nontaxable securities
343

 
675

Interest-bearing deposits in other financial institutions
1,277

 
969

FHLB and FRB stock and other
581

 
480

 
106,104

 
95,666

Interest expense
 
 
 
Deposits
18,215

 
12,032

FHLB advances
4,456

 
2,680

Repurchase agreements and other borrowings
2,269

 
2,341

 
24,940

 
17,053

Net interest income
81,164

 
78,613

Provision for credit losses
9,800

 
15,663

Net interest income after provision for credit losses
71,364

 
62,950

Non-interest income
 
 
 
Service charges and other fees
7,255

 
7,927

Net gain on sale of mortgage loans held for sale
1,525

 
1,809

Bank-owned life insurance income
482

 
447

Net gain (loss) on securities transactions
6

 
(128
)
Gain (loss) on sale and disposition of assets
(14
)
 
2,213

Other
640

 
630

 
9,894

 
12,898

Non-interest expense
 
 
 
Salaries and employee benefits
26,871

 
27,076

Advertising
903

 
888

Occupancy and equipment
3,899

 
3,860

Outside professional services
1,285

 
1,250

Regulatory assessments
618

 
1,154

Data processing
5,933

 
4,703

Office operations
2,335

 
2,300

Other
2,463

 
2,648

 
44,307

 
43,879

Income before income tax expense
36,951

 
31,969

Income tax expense
7,871

 
6,207

Net income
$
29,080

 
$
25,762

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.61

 
$
0.55

Diluted
$
0.61

 
$
0.54

Dividends declared per share
$
0.25

 
$
0.16

 
 
 
 
See accompanying notes to consolidated financial statements.



4


LEGACYTEXAS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Dollars in thousands)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Net income
$
29,080

 
$
25,762

Change in unrealized gains (losses) on securities available for sale
5,353

 
(4,845
)
Reclassification of amount realized through securities transactions
(6
)
 
128

Tax effect
(1,122
)
 
988

Reclassification of income tax effects of the Tax Cuts and Jobs Act
(see Note 10 for more information)

 
(741
)
Other comprehensive income (loss), net of tax
4,225

 
(4,470
)
Comprehensive income
$
33,305

 
$
21,292

 
 
 
 
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 three months ended March 31, 2019
 
 
 
 
 
 
 
 
Balance at January 1, 2019
$
485

 
$
619,983

 
$
491,948

 
$
(6,658
)
 
$
(11,391
)
 
$
1,094,367

Net income

 

 
29,080

 

 

 
29,080

Other comprehensive income, net of tax

 

 

 
4,225

 

 
4,225

Dividends declared ($0.25 per share)

 

 
(12,141
)
 

 

 
(12,141
)
ESOP shares earned (13,238 shares)

 
385

 

 

 
132

 
517

Share-based compensation expense

 
2,550

 

 

 

 
2,550

Activity in employee stock plans (198,809 shares)
2

 
2,487

 

 

 

 
2,489

Balance at March 31, 2019
$
487

 
$
625,405

 
$
508,887

 
$
(2,433
)
 
$
(11,259
)
 
$
1,121,087

 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended March 31, 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 10 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


See accompanying notes to consolidated financial statements.

6


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

 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
29,080

 
$
25,762

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
9,800

 
15,663

Depreciation and amortization
2,760

 
1,738

Deferred tax benefit
(4,614
)
 
(460
)
Premium amortization and accretion of securities, net
980

 
1,031

Accretion related to acquired loans
(255
)
 
(513
)
Net (gain) loss on securities transactions
(6
)
 
128

ESOP compensation expense
517

 
578

Share-based compensation expense
2,550

 
2,055

Excess tax benefit on vesting of stock awards
74

 
528

Net gain on loans held for sale
(1,525
)
 
(1,809
)
Loans originated or purchased for sale
(32,172
)
 
(49,428
)
Proceeds from sale of loans held for sale
45,510

 
36,821

FHLB stock dividends
(287
)
 
(171
)
Bank-owned life insurance income
(482
)
 
(447
)
(Gain) loss on sale and disposition of repossessed assets, premises and equipment
14

 
64

Net change in deferred loan fees/costs
(421
)
 
(1,250
)
Net change in accrued interest receivable
(4,403
)
 
274

Net change in other assets
12,406

 
(2,338
)
Net change in other liabilities
19,628

 
19,979

Net cash provided by operating activities
79,154

 
48,205

Cash flows from investing activities
 
 
 
Available-for-sale securities:
 
 
 
Maturities, prepayments and calls
320,617

 
118,661

Purchases
(347,545
)
 
(136,007
)
Proceeds from sale of AFS securities
23,886

 

Held-to-maturity securities:
 
 
 
Maturities, prepayments and calls
10,507

 
16,385

Originations of Warehouse Purchase Program loans
(3,874,762
)
 
(4,972,238
)
Proceeds from pay-offs of Warehouse Purchase Program loans
3,739,006

 
5,273,244

Net change in loans held for investment, excluding Warehouse Purchase Program loans
(153,830
)
 
(97,968
)
Redemption of FHLB and Federal Reserve Bank stock and other
469

 
18,119

Purchases of premises and equipment
(728
)
 
(2,320
)
Proceeds from sale of assets
886

 
356

Net cash provided by (used in) investing activities
(281,494
)
 
218,232


7


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

 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from financing activities
 
 
 
Net change in deposits
235,710

 
186,724

Proceeds from FHLB advances
815,000

 
390,000

Repayments on FHLB advances
(820,325
)
 
(828,601
)
Repayments of borrowings
(13,063
)
 
(8,066
)
Payment of dividends
(12,141
)
 
(7,708
)
Activity in employee stock plans
2,489

 
2,662

Net cash provided by (used in) financing activities
207,670

 
(264,989
)
Net change in cash and cash equivalents
5,330

 
1,448

Beginning cash and cash equivalents
269,193

 
293,456

Ending cash and cash equivalents
$
274,523

 
$
294,904

Supplemental noncash disclosures:
 
 
 
Transfers from loans to other real estate owned
$
286

 
$
122

Leased assets obtained in exchange for new operating lease liabilities
$
36,503

 
$

See accompanying notes to consolidated financial statements.

8

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, 2018 (“2018 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 2018 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.

9

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 months ended March 31, 2019 and 2018, are below:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Card services income
(a)
$
3,012

 
$
3,058

Service charges on deposits
(b)
1,972

 
1,773

Title income
(c)
786

 
1,057

Losses on the sale of other real estate owned
(d)
(5
)
 
(40
)

(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.


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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.



11

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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 months ended March 31, 2019 and 2018 is as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Basic earnings per share:
 
 
 
Numerator:
 
 
 
Net income
$
29,080

 
$
25,762

Distributed and undistributed earnings to participating securities
(125
)
 
(75
)
Income available to common shareholders
$
28,955

 
$
25,687

Denominator:
 
 
 
Weighted average common shares outstanding
48,585,553

 
48,197,596

Less: Average unallocated ESOP shares
(1,134,580
)
 
(1,187,533
)
  Average unvested restricted stock awards
(204,691
)
 
(137,730
)
Average shares for basic earnings per share
47,246,282

 
46,872,333

Basic earnings per common share
$
0.61

 
$
0.55

Diluted earnings per share:
 
 
 
Numerator:
 
 
 
Income available to common shareholders
$
28,955

 
$
25,687

Denominator:
 
 
 
Average shares for basic earnings per share
47,246,282

 
46,872,333

Dilutive effect of share-based compensation plan
589,411

 
692,254

Average shares for diluted earnings per share
47,835,693

 
47,564,587

Diluted earnings per common share
$
0.61

 
$
0.54

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
469,208

 
184,000




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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:
March 31, 2019
Amortized Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Fair Value
Agency residential mortgage-backed securities 1
$
143,072

 
$
244

 
$
2,134

 
$
141,182

Agency commercial mortgage-backed securities 1
8,436

 

 
88

 
8,348

Agency residential collateralized mortgage obligations 1
308,655

 
1,435

 
2,649

 
307,441

Municipal bonds
22,343

 
166

 
54

 
22,455

Total securities
$
482,506

 
$
1,845

 
$
4,925

 
$
479,426

December 31, 2018
 
 
 
 
 
 
 
Agency residential mortgage-backed securities 1
$
153,671

 
$
283

 
$
4,083

 
$
149,871

Agency commercial mortgage-backed securities 1
9,063

 

 
143

 
8,920

Agency residential collateralized mortgage obligations 1
284,886

 
603

 
4,850

 
280,639

US government and agency securities
1,500

 
43

 

 
1,543

Municipal bonds
31,053

 
87

 
367

 
30,773

Total securities
$
480,173

 
$
1,016

 
$
9,443

 
$
471,746

1 
Mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
The amortized cost (carrying amount), related gross unrealized gains and losses and fair value of securities held to maturity (“HTM”) were as follows:
March 31, 2019
Amortized Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Fair Value
Agency residential mortgage-backed securities 1
$
50,791

 
$
489

 
$
595

 
$
50,685

Agency commercial mortgage-backed securities 1
21,740

 
177

 
15

 
21,902

Agency residential collateralized mortgage obligations 1
15,813

 
49

 
76

 
15,786

Municipal bonds
46,932

 
305

 
150

 
47,087

Total securities
$
135,276

 
$
1,020

 
$
836

 
$
135,460

December 31, 2018
 
 
 
 
 
 
 
Agency residential mortgage-backed securities 1
$
53,377

 
$
266

 
$
1,151

 
$
52,492

Agency commercial mortgage-backed securities 1
21,872

 
60

 
167

 
21,765

Agency residential collateralized mortgage obligations 1
17,645

 
25

 
124

 
17,546

Municipal bonds
53,152

 
305

 
469

 
52,988

Total securities
$
146,046

 
$
656

 
$
1,911

 
$
144,791

1 
Mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


13

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

The amortized cost (carrying amount) and fair value of held to maturity debt securities and the fair value of available for sale debt securities at March 31, 2019 by contractual maturity are set forth in the table below. Securities with contractual payments not due at a single maturity date, including mortgage-backed securities and collateralized mortgage obligations, are shown separately. During the quarter ended March 31, 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-08, Premium Amortization on Purchased Callable Debt, which required certain premiums on callable debt securities to be amortized to the earliest call date. The amortization period for callable debt securities purchased at a discount was not impacted by this ASU. The adoption of this ASU did not have a significant impact on the Company’s financial statements and disclosures.
 
HTM
 
AFS
 
Amortized Cost
 
Fair Value
 
Fair Value
Due in one year or less
$
966

 
$
973

 
$
1,802

Due after one to five years
17,904

 
18,046

 
7,093

Due after five to ten years
27,168

 
27,166

 
11,360

Due after ten years
894

 
902

 
2,200

Agency residential mortgage-backed securities
50,791

 
50,685

 
141,182

Agency commercial mortgage-backed securities
21,740

 
21,902

 
8,348

Agency residential collateralized mortgage obligations
15,813

 
15,786

 
307,441

Total
$
135,276

 
$
135,460

 
$
479,426


Securities with a carrying value of $217,063 and $211,198 at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes required or permitted by law.
At March 31, 2019 and December 31, 2018, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies of U.S. Government Sponsored Enterprises, in an amount greater than 10% of shareholders’ equity.
Securities sales activity during the three months ended March 31, 2019 or 2018 is shown below. All securities sold were classified as available for sale, and gains and losses are recorded using the specific-identification method.
 
Three Months Ended March 31,
 
2019
 
2018
Proceeds
$
23,886

 
$

Gross gains
161

 

Gross losses
155

 

Tax expense of securities gains/losses
1

 





14

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

Securities with unrealized losses at March 31, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:
AFS
Less than 12 Months
 
12 Months or More
 
Total
March 31, 2019
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Agency residential mortgage-backed securities 1
$
1,112

 
$
6

 
$
121,158

 
$
2,128

 
$
122,270

 
$
2,134

Agency commercial mortgage-backed securities 1

 

 
8,348

 
88

 
8,348

 
88

Agency residential collateralized mortgage obligations 1
5,456

 
6

 
165,800

 
2,643

 
171,256

 
2,649

Municipal bonds
988

 
7

 
8,734

 
47

 
9,722

 
54

Total temporarily impaired
$
7,556

 
$
19

 
$
304,040

 
$
4,906

 
$
311,596

 
$
4,925

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities 1
$
4,770

 
$
27

 
$
123,413

 
$
4,056

 
$
128,183

 
$
4,083

Agency commercial mortgage-backed securities 1

 

 
8,921

 
143

 
8,921

 
143

Agency residential collateralized mortgage obligations 1
32,668

 
195

 
153,131

 
4,655

 
185,799

 
4,850

Municipal bonds
6,326

 
59

 
16,260

 
308

 
22,586

 
367

Total temporarily impaired
$
43,764

 
$
281

 
$
301,725

 
$
9,162

 
$
345,489

 
$
9,443



HTM
Less than 12 Months
 
12 Months or More
 
Total
March 31, 2019
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Agency residential mortgage-backed securities 1
$

 
$

 
$
29,206

 
$
595

 
$
29,206

 
$
595

Agency commercial mortgage-backed securities 1

 

 
11,960

 
15

 
11,960

 
15

Agency residential collateralized mortgage obligations 1

 

 
7,088

 
76

 
7,088

 
76

Municipal bonds

 

 
15,581

 
150

 
15,581

 
150

Total temporarily impaired
$

 
$

 
$
63,835

 
$
836

 
$
63,835


$
836

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities 1
$
5,002

 
$
15

 
$
30,180

 
$
1,136

 
$
35,182

 
$
1,151

Agency commercial mortgage-backed securities 1
6,465

 
41

 
6,964

 
126

 
13,429

 
167

Agency residential collateralized mortgage obligations 1
3,994

 
11

 
6,213

 
113

 
10,207

 
124

Municipal bonds
7,131

 
17

 
20,244

 
452

 
27,375

 
469

Total temporarily impaired
$
22,592

 
$
84

 
$
63,601

 
$
1,827

 
$
86,193

 
$
1,911

1 
Mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
Other-than-Temporary Impairment
In determining other-than-temporary impairment for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the financial condition and near-term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions; and (4) whether the Company has the intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
As of March 31, 2019, 243 securities had unrealized losses, 238 of which had been in an unrealized loss position for over 12 months at March 31, 2019. The Company does not believe these unrealized losses are other-than-temporary and expects full collection of the carrying amount of these securities. At March 31, 2019, the Company does not intend to sell the securities in an unrealized loss position, and it is not more-likely-than-not that the Company will be required to sell the securities prior to recovery of amortized cost. All principal and interest payments are being received on time and in full.


15

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

Note 5 - Loans
Loans consist of the following.
 
March 31,
2019
 
December 31,
2018
Loans held for sale, at fair value
$
11,380

 
$
23,193

 
 
 
 
Loans held for investment:
 
 
 
Commercial real estate
$
3,122,726

 
$
3,026,754

Commercial and industrial
2,070,715

 
2,057,791

Construction and land
282,463

 
270,629

Consumer real estate
1,423,095

 
1,390,378

Other consumer
45,732

 
45,171

Gross loans held for investment, excluding Warehouse Purchase Program
6,944,731

 
6,790,723

Net of:
 
 
 
Deferred costs (fees) and discounts, net
10,818

 
10,397

Allowance for loan losses
(77,530
)
 
(67,428
)
Net loans held for investment, excluding Warehouse Purchase Program
6,878,019

 
6,733,692

Warehouse Purchase Program
1,096,160

 
960,404

Total loans held for investment
$
7,974,179

 
$
7,694,096



Activity in the allowance for loan losses for the three months ended March 31, 2019 and 2018, segregated by portfolio segment and evaluation for impairment, is set forth below. The below activity does not include Warehouse Purchase Program loans, which are collectively evaluated for impairment and are purchased under several contractual requirements, providing safeguards to the Company. To date, the Company has not experienced a loss on its Warehouse Purchase Program loans and no allowance for loan losses has been allocated to them. At March 31, 2019 and 2018, the allowance for loan impairment related to purchased credit impaired (“PCI”) loans totaled $252 and $314, respectively.
For the three months ended March 31, 2019
Commercial Real Estate
 
Commercial and Industrial
 
Construction and Land
 
Consumer Real Estate
 
Other Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
20,045

 
$
36,398

 
$
3,910

 
$
5,843

 
$
1,232

 
$
67,428

Charge-offs

 
(92
)
 

 
(23
)
 
(244