Viewpoint Financial 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

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 number001-32992

VIEWPOINT FINANCIAL GROUP

(Exact name of registrant as specified in its charter)

United States	6035	20-4484783
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

1309 W. 15^thStreet, Plano, Texas 75075
(972) 578-5000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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 requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock	24,929,157
Class	Shares Outstanding as of August 5, 2008

	Page
	Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 2008, (unaudited) and December 31, 2007		3
Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008, and 2007		4
Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2008, and 2007		5
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2008, and 2007		6
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008, and 2007		7
Condensed Notes to Unaudited Consolidated Interim Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures about Market Risk		35
Item 4. Controls and Procedures		38
PART II—OTHER INFORMATION
Item 1. Legal Proceedings		39
Item 1.A. Risk Factors		39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 3. Defaults Upon Senior Securities		40
Item 4. Submission of Matters to a Vote of Security Holders		40
Item 5. Other Information		40
Item 6. Exhibits		41
SIGNATURE PAGE		42
EXHIBIT INDEX		43
Exhibit 31.1
Exhibit 31.2
Exhibit 32

Page 2 of 43

PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements
VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share and per share data)

	June 30,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Cash and due from financial institutions	$	18,011		$	25,427
Short-term interest-bearing deposits in other financial institutions		53,492			48,051
Total cash and cash equivalents		71,503			73,478
Securities available for sale		487,020			542,875
Securities held to maturity (fair value June 30, 2008 — $142,958, December 31, 2007 — $20,202)		145,361			20,091
Loans held for sale		23,179			13,172
Loans, net of allowance of $7,278-June 30, 2008, $6,165-December 31, 2007		1,027,237			908,650
Federal Home Loan Bank stock, at cost		8,810			6,241
Bank-owned life insurance		27,045			26,497
Mortgage servicing rights		1,501			1,648
Foreclosed assets, net		1,208			840
Premises and equipment, net		40,803			40,862
Membership capital account at corporate credit union		—			1,000
Goodwill		1,089			1,089
Accrued interest receivable		7,364			6,778
Other assets		17,155			14,983
Total assets	$	1,859,275		$	1,658,204
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest-bearing demand	$	176,337		$	185,149
Interest-bearing demand		86,905			76,948
Savings and money market		604,692			578,728
Time		539,152			456,768
Total deposits		1,407,086			1,297,593
Federal Home Loan Bank advances		189,311			128,451
Repurchase agreement		25,000			—
Other liabilities		36,769			28,366
Total liabilities		1,658,166			1,454,410
Commitments and contingent liabilities		—			—
Shareholders’ equity
Common stock, $.01 par value; 75,000,000 shares authorized; 26,208,958 shares issued — June 30, 2008; 26,208,958 shares issued — December 31, 2007		262			262
Additional paid-in capital		114,457			113,612
Retained earnings		116,344			114,801
Accumulated other comprehensive income (loss)		(3,489	)		861
Unearned Employee Stock Ownership Plan (ESOP) shares; 765,926 shares — June 30, 2008; 812,346 shares — December 31, 2007		(7,712	)		(8,176	)
Treasury stock, at cost; 1,080,257 shares — June 30, 2008; 1,000,455 shares — December 31, 2007		(18,753	)		(17,566	)
Total shareholders’ equity		201,109			203,794
Total liabilities and shareholders’ equity	$	1,859,275		$	1,658,204

See accompanying notes to unaudited consolidated financial statements.

Page 3 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Interest and dividend income
Loans, including fees	$	15,281	$	13,751	$	29,606	$	27,255
Taxable securities		7,384		6,214		14,749		11,342
Nontaxable securities		10		—		10		—
Interest-bearing deposits in other financial institutions		413		759		791		1,987
Federal Home Loan Bank stock		117		48		181		98
		23,205		20,772		45,337		40,682
Interest expense
Deposits		8,888		9,306		17,990		17,957
Federal Home Loan Bank advances		1,796		822		3,441		1,523
Repurchase agreement		92		—		92		—
		10,776		10,128		21,523		19,480
Net interest income		12,429		10,644		23,814		21,202
Provision for loan losses		1,506		590		2,637		1,582
Net interest income after provision for loan losses		10,923		10,054		21,177		19,620
Noninterest income
Service charges and fees		5,134		5,591		9,884		10,992
Brokerage fees		104		148		220		292
Net gain on sales of loans		2,314		61		4,168		72
Loan servicing fees		69		72		127		147
Bank-owned life insurance income		269		—		548		—
Gain on redemption of Visa, Inc. shares		—		—		771		—
Other		308		353		519		714
		8,198		6,225		16,237		12,217
Noninterest expense
Salaries and employee benefits		10,373		7,371		20,240		14,997
Advertising		806		691		1,370		1,133
Occupancy and equipment		1,309		1,271		2,622		2,632
Outside professional services		825		1,098		1,354		2,023
Data processing		1,012		1,021		2,071		1,982
Office operations		1,464		1,544		3,009		3,079
Deposit processing charges		251		306		510		592
Other		809		948		1,542		1,598
		16,849		14,250		32,718		28,036
Income before income tax expense		2,272		2,029		4,696		3,801
Income tax expense		833		714		1,719		1,387
Net income	$	1,439	$	1,315	$	2,977	$	2,414
Earnings per share:
Basic	$	0.06	$	0.05	$	0.12	$	0.09
Diluted	$	0.06	$	0.05	$	0.12	$	0.09

See accompanying notes to unaudited consolidated financial statements.

Page 4 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollar amounts in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Net income	$	1,439		$	1,315		$	2,977		$	2,414
Other comprehensive income (loss):
Change in unrealized gains (losses) on securities available for sale		(5,376	)		(5,036	)		(6,657	)		(3,615	)
Tax effect		1,863			1,746			2,307			1,253
Other comprehensive income (loss), net of tax		(3,513	)		(3,290	)		(4,350	)		(2,362	)
Comprehensive income (loss)	$	(2,074	)	$	(1,975	)	$	(1,373	)	$	52

See accompanying notes to unaudited consolidated financial statement.

Page 5 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollar amounts in thousands, except per share data)

												Accumulated
			Additional			Unearned						Other
	Common		Paid-In			ESOP			Retained			Comprehensive			Treasury			Total
For the six months ended June 30, 2007	Stock		Capital			Shares			Earnings			Income (Loss)			Stock			Equity
Balance at January 1, 2007	$	258	$	111,844		$	(9,104	)	$	111,849		$	(69	)	$	—		$	214,778
ESOP shares earned, 46,420 shares		—		335			440			—			—			—			775
Treasury stock purchased at cost, 246,227 shares		—		—			—			—			—			(4,516	)		(4,516	)
Share- based compensation expense		—		200			—			—			—			—			200
Restricted stock granted, 420,208 shares		4		(4	)		—			—			—			—			—
Dividends declared ($0.10 per share)		—		—			—			(1,160	)		—			—			(1,160	)
Comprehensive income:
Net income		—		—			—			2,414			—			—			2,414
Change in net unrealized gains (losses) on securities available for sale		—		—			—			—			(2,362	)		—			(2,362	)
Total comprehensive income																			52
Balance at June 30, 2007	$	262	$	112,375		$	(8,664	)	$	113,103		$	(2,431	)	$	(4,516	)	$	210,129

												Accumulated
			Additional			Unearned						Other
	Common		Paid-In			ESOP			Retained			Comprehensive			Treasury			Total
For the six months ended June 30, 2008	Stock		Capital			Shares			Earnings			Income (Loss)			Stock			Equity
Balance at January 1, 2008	$	262	$	113,612		$	(8,176	)	$	114,801		$	861		$	(17,566	)	$	203,794
ESOP shares earned, 46,420 shares		—		267			464			—			—			—			731
Treasury stock purchased at cost, 89,802 shares		—		—			—			—			—			(1,357	)		(1,357	)
Share- based compensation expense		—		748			—			—			—			—			748
Restricted stock granted, 10,000 shares		—		(170	)		—			—			—			170			—
Dividends declared ($0.13 per share)		—		—			—			(1,434	)		—			—			(1,434	)
Comprehensive income:
Net income		—		—			—			2,977			—			—			2,977
Change in net unrealized gains (losses) on securities available for sale		—		—			—			—			(4,350	)		—			(4,350	)
Total comprehensive income																			(1,373	)
Balance at June 30, 2008	$	262	$	114,457		$	(7,712	)	$	116,344		$	(3,489	)	$	(18,753	)	$	201,109

See accompanying notes to unaudited consolidated financial statements.

Page 6 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollar amounts in thousands)

	Six Months Ended
	June 30,
	2008			2007
Cash flows from operating activities
Net income	$	2,977		$	2,414
Adjustments to reconcile net income to net cash from operating activities
Provision for loan losses		2,637			1,582
Depreciation and amortization		2,158			2,232
Premium amortization and accretion of securities, net		(428	)		(418	)
ESOP compensation expense		731			775
Share-based compensation expense		748			200
Loss on new markets equity fund		35			101
Amortization of mortgage servicing rights		152			156
Net (gain) loss on loans held for sale		(4,168	)		(72	)
Loans originated for sale		(138,413	)		(10,710	)
Proceeds from sale of loans held for sale		132,574			11,639
FHLB stock dividends		(117	)		(98	)
Increase in bank-owned life insurance		(548	)		—
Gain on disposition of property and equipment		2			—
Net loss (gain) on sales of other real estate owned		52			(7	)
Net change in deferred loan costs		915			1,814
Net change in accrued interest receivable		(586	)		(622	)
Net change in other assets		(299	)		474
Net change in other liabilities		8,858			4,711
Net cash from operating activities		7,280			14,171
Cash flows from investing activities
Contribution to new markets equity fund		—			(640	)
Available-for-sale securities:
Maturities, prepayments and calls		64,655			50,243
Purchases		(15,075	)		(217,568	)
Held-to-maturity securities:
Maturities, prepayments and calls		9,275			3,387
Purchases		(134,499	)		—
Proceeds from member capital account		1,000			—
Loans purchased		(3,376	)		(44,737	)
Net change in loans		(119,565	)		87,113
Purchase of FHLB stock		(2,452	)		(610	)
Purchases of premises and equipment		(2,115	)		(1,268	)
Proceeds from sale of fixed assets		14			—
Proceeds on sale of other real estate owned		321			467
Net cash from investing activities		(201,817	)		(123,613	)

See accompanying notes to unaudited consolidated financial statements.

Page 7 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollar amounts in thousands)

	Six Months Ended
	June 30,
	2008			2007
Cash flows from financing activities
Net change in deposits		109,493			60,604
Proceeds from Federal Home Loan Bank advances		72,000			20,187
Repayments on Federal Home Loan Bank advances		(11,140	)		(5,244	)
Proceeds from repurchase agreement		25,000			—
Treasury stock purchased		(1,357	)		(4,516	)
Payment of dividends		(1,434	)		(1,160	)
Net cash from financing activities		192,562			69,871
Net change in cash and cash equivalents		(1,975	)		(39,571	)
Beginning cash and cash equivalents		73,478			155,855
Ending cash and cash equivalents	$	71,503		$	116,284
Supplemental cash flow information:
Interest paid	$	21,608		$	19,269
Income taxes paid	$	1,917		$	1,523
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	$	896		$	736

See accompanying notes to unaudited consolidated financial statements.

Page 8 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

1. Basis of Financial Statement Presentation

The accompanying consolidated financial statements of ViewPoint Financial Group (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles 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. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2007 Annual Report on 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 Company’s 2007 Annual Report on Form 10-K.

The accompanying Unaudited Consolidated Interim Financial Statements include the accounts of ViewPoint Financial Group, whose business currently consists of the operations of its wholly-owned subsidiary, ViewPoint Bank (the “Bank”). The Bank’s operations include its wholly owned subsidiary, Community Financial Services, Inc. (“CFS”). All significant intercompany transactions and balances are eliminated in consolidation. Some items in prior years have been reclassified to conform to current presentation.

As of June 30, 2008, ViewPoint MHC (the “MHC”) was the majority (56%) shareholder of the Company. The MHC is a mutual institution, whose members are the depositors of the Bank. The financial statements included in this Form 10-Q do not include the transactions and balances of the MHC.

2. Earnings per Common Share

Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unearned restricted stock awards. 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 unearned restricted stock awards. The dilutive effect of the unexercised stock options and unearned 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 six month periods ended June 30, 2008, and June 30, 2007, follows.

Page 9 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Basic
Net income	$	1,439	$	1,315	$	2,977	$	2,414
Weighted average common shares outstanding		25,211,327		25,897,586		25,214,915		25,843,469
Less: Average unallocated ESOP shares		781,144		873,984		792,749		885,523
Average unvested restricted stock awards		393,264		184,707		411,736		92,864
Average shares		24,036,919		24,838,895		24,010,430		24,865,082
Basic earnings per common share	$	0.06	$	0.05	$	0.12	$	0.09
Diluted
Net income	$	1,439	$	1,315	$	2,977	$	2,414
Weighted average common shares outstanding for basic earnings per common share		24,036,919		24,838,895		24,010,430		24,865,082
Add: Dilutive effects of assumed exercises of stock options		—		—		—		—
Dilutive effects of full vesting of stock awards		—		—		—		—
Average shares and dilutive potential common shares		24,036,919		24,838,895		24,010,430		24,865,082
Diluted earnings per common share	$	0.06	$	0.05	$	0.12	$	0.09

Stock options for 256,811 shares of common stock outstanding were not considered in computing diluted earnings per share for the three and six months ended June 30, 2008, because the options’ exercise prices were greater than the average market price of the common stock and were, therefore, anti-dilutive. There were also 346,161 shares of unearned restricted stock awards at June 30, 2008, that were anti-dilutive.

Stock options for 235,318 shares of common stock outstanding were not considered in computing diluted earnings per share for the three and six months ended June 30, 2007, because the options’ exercise prices were greater than the average market price of the common stock and were, therefore, anti-dilutive. There were also 420,208 shares of unearned restricted stock awards at June 30, 2007, that were anti-dilutive.

3. Dividends

On January 22, 2008, the Company’s Board of Directors declared a quarterly cash dividend of $0.06 per share. The dividend was payable on February 19, 2008, to shareholders of record as of February 5, 2008. On April 22, 2008, the Company’s Board of Directors declared a quarterly cash dividend of $0.07 per share. The dividend was payable on May 20, 2008, to shareholders of record as of May 6, 2008. ViewPoint MHC, which owns 56% of the common stock of ViewPoint Financial Group, elected to waive these dividends after filing a notice with and receiving no objection from the Office of Thrift Supervision.

4. Share-Based Compensation

At its annual meeting held May 22, 2007, the Company’s shareholders approved the ViewPoint Financial Group 2007 Equity Incentive Plan. The Company is accounting for this plan under Statement of Financial Accounting Standard (“FAS”) No. 123, Revised, which requires companies to record compensation cost for share-based payment transactions with employees in return for employment service. Under this plan, 1,160,493 options to purchase shares of common stock and 464,198 restricted shares of common stock were made available.

The compensation cost that has been charged against income for the restricted stock portion of the Equity Incentive Plan was $390 and $783 for the three and six months ended June 30, 2008, respectively. The compensation cost that has been charged against income for the stock options portion of the Equity Incentive Plan for the three months ended June 30, 2008, was $59, which was offset by a compensation expense adjustment of $62 to true up the Company’s forfeiture rate estimates for stock options granted from May 2007 to May 2008.

Page 10 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

This adjustment resulted in a net credit of $3 for the three months ended June 30, 2008. For the six months ended June 30, 2008, compensation cost that has been charged against income for the stock option portion of the Equity Incentive Plan was $44. The total income tax benefit recognized in the income statement for share-based compensation was $132 and $281 for the three and six months ended June 30, 2008, respectively.

The compensation cost that has been charged against income for the restricted stock portion of the Equity Incentive Plan was $170 for both the three and six months ended June 30, 2007. The compensation cost that has been charged against income for the stock option portion of the Equity Incentive Plan was $30 for the three and six months ended June 30, 2007, respectively. The total income tax benefit recognized in the income statement for share-based compensation was $68 for the three and six months ended June 30, 2007, respectively.

A summary of the status of the non-vested shares of the restricted stock portion of the Equity Incentive Plan at June 30, 2008, is presented below:

			Weighted-
			Average
			Grant Date
	Shares		Fair Value
Outstanding at December 31, 2007		420,208	$	18.47
Granted January 1, 2008		10,000		16.53
Vested		84,047		18.47
Forfeited		—		—
Non-vested at June 30, 2008		346,161	$	18.41

The weighted-average grant date fair value is the last sale price as quoted on the NASDAQ Stock Market on the grant date. As of June 30, 2008, there was $6,192 of total unrecognized compensation expense related to non-vested shares awarded under the restricted stock portion of the Equity Incentive Plan. That expense is expected to be recognized over a weighted-average period of 3.9 years.

A summary of the activity under the stock option portion of the Equity Incentive Plan as of June 30, 2008, and changes for the six months then ended is presented below. All of the stock option forfeitures occurred in the current year.

					Weighted-
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
Options	Shares		Price		Term		Value
Outstanding at December 31, 2007		202,942	$	18.44		9.4	$	—
Granted		78,250		16.32		10		—
Exercised		—		—		—		—
Forfeited		24,381		18.38		—		—
Outstanding at June 30, 2008		256,811	$	17.80		9.2	$	—
Exercisable at June 30, 2008		14,999	$	18.47		8.9	$	—

Of the 78,250 stock options granted during the six months ended June 30, 2008, 76,250 of the grants have graded performance-based vesting conditions, meaning that in order for each annual tranche of the stock option award to vest, the Company must achieve a specific financial goal before the optionee can earn that portion of the award. At June 30, 2008, the Company believes that it is probable that the performance-based vesting conditions will be met for the 2008 tranche.

The weighted-average fair value of each stock option awarded during the period was estimated to be $4.62 on the date of grant. As of June 30, 2008, there was $739 of total unrecognized compensation expense related to non-exercisable shares awarded under the stock options portion of the Equity Incentive Plan.

Page 11 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

That expense is expected to be recognized over a weighted-average period of 3.5 years. The fair value is derived by using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	3.32 to 3.45	%
Expected term of stock options (years)	7.50
Expected stock price volatility	25.84 to 26.20	%
Expected dividends	1.84 to 1.86	%

The risk-free interest rate is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the stock option in effect at the time of the grant. Although the contractual term of the stock options granted is ten years, the expected term of the stock is less because option restrictions do not permit recipients to sell or hedge their options, and therefore, we believe, encourage exercise of the option before the end of the contractual term. The Company does not have sufficient historical information about its own employees vesting behavior; therefore, the expected term of stock options was estimated using the average of the vesting period and contractual term. The expected stock price volatility is estimated by considering the Company’s own stock volatility for the period since October 3, 2006, the initial trading date. Expected dividends are the estimated dividend rate over the expected term of the stock options. At June 30, 2008, the Company used a forfeiture rate of 11% that is based on historical activity.

The Compensation Committee may grant stock appreciation rights, which give the recipient of the award the right to receive the excess of the market value of the shares represented by the stock appreciation rights on the date exercised over the exercise price. As of June 30, 2008, the Company has not granted any stock appreciation rights.

5. Loans

Loans consist of the following:

	June 30,			December 31,
	2008			2007
Mortgage loans:
One-to four-family	$	429,185		$	332,780
Commercial real estate		327,600			251,915
One-to four-family construction		—			—
Commercial construction		800			225
Home equity		89,871			85,064
Total mortgage loans		847,456			669,984
Automobile indirect loans		64,435			104,156
Automobile direct loans		81,465			98,817
Government-guaranteed student loans		5,378			5,422
Business non-mortgage loans		14,590			12,278
Consumer lines of credit and unsecured loans		14,964			16,351
Other consumer loans, secured		6,539			7,204
Total non-mortgage loans		187,371			244,228
Gross loans		1,034,827			914,212
Deferred net loan origination (fees) costs		(312	)		603
Allowance for loan losses		(7,278	)		(6,165	)
Net loans	$	1,027,237		$	908,650

Page 12 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

Activity in the allowance for loan losses was as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Beginning balance	$	6,549		$	6,261		$	6,165		$	6,507
Provision for loan losses		1,506			590			2,637			1,582
Loans charged-off		(952	)		(1,122	)		(1,957	)		(2,838	)
Recoveries		175			437			433			915
Ending balance	$	7,278		$	6,166		$	7,278		$	6,166

6. Fair Value

Statement 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at June 30, 2008, Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
	June 30, 2008		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale	$	487,020	$	—	$	487,020	$	—

Page 13 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at June 30, 2008, Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
	June 30, 2008		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans	$	2,649	$	—	$	2,649	$	—

Impaired loans, which are measured for impairment using the fair value of the collateral (as determined by third party appraisals using recent comparative sales data) for collateral dependent loans, had a carrying value of $2,944, with a valuation allowance of $295, resulting in an additional provision for loan losses of $257 that is included in the amount reported on the income statement.

7. Repurchase Agreement

Securities sold under agreements to repurchase are financing agreements that mature within 10 years. The arrangement outstanding as of June 30, 2008 was entered into on April 7, 2008. The securities sold under agreements to repurchase had an average balance of $29.8 million and $30.2 million and an average interest rate of 3.51% and 3.77% during the three and six month periods ended June 30, 2008, respectively. The maximum month-end balance during the three and six month periods ended June 30, 2008 was $30.6 million. At maturity, the securities underlying the agreement are returned to the Company. There were $29.5 million and $0 of securities sold under agreements to repurchase outstanding as of June 30, 2008 and December 31, 2007, respectively. The fair value of these securities was $29.0 million as of June 30, 2008. The Bank retains the right to substitute securities under the terms of the agreements.

8. Segment Information

The reportable segments are determined by the products and services offered, primarily distinguished between banking and mortgage banking. Loans, investments and deposits generate the revenues in the banking segment; secondary marketing sales generate the revenue in the mortgage banking segment. Segment performance is evaluated using segment profit (loss). Segment information is not given for the three and six months ended June 30, 2007, because the data was immaterial. Information reported internally for performance assessment for the three and six months ended June 20, 2008, follows:

	Three Months Ended
	June 30, 2008
					Eliminations
			Mortgage		and			Total
	Banking		Banking		Adjustments			Segments
Net interest income	$	12,512	$	205	$	(288	)	$	12,429
Other revenue		5,905		—		(21	)		5,884
Net gain on sales of loans		3		3,645		(1,334	)		2,314
Noncash items:
Depreciation		1,040		36		—			1,076
Provision for loan loss		1,506		—		—			1,506
Income tax expense		603		231		(1	)		833
Segment profit		1,442		398		(401	)		1,439
Segment assets		1,856,231		26,868		(23,824	)		1,859,275

Page 14 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

	Six Months Ended
	June 30, 2008
					Eliminations
			Mortgage		and			Total
	Banking		Banking		Adjustments1			Segments
Net interest income	$	23,930	$	311	$	(427	)	$	23,814
Other revenue		12,105		—		(36	)		12,069
Net gain on sales of loans		38		6,109		(1,979	)		4,168
Noncash items:
Depreciation		2,093		65		—			2,158
Provision for loan loss		2,637		—		—			2,637
Income tax expense		1,337		371		11			1,719
Segment profit		2,956		648		(627	)		2,977
Segment assets		1,856,231		26,868		(23,824	)		1,859,275

¹ Includes eliminating entries for intercompany transactions and stand-alone expenses of ViewPoint Financial Group

9. Recent Accounting Developments

In September 2006, the FASB issued Statement No. 157,Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumption used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. This standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2,Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material.

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008, the effective date of the standard.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This issue is effective for fiscal years beginning after December 15, 2007. The impact of adoption was not material.

On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109,Written Loan Commitments Recorded at Fair Value through Earnings(“SAB 109”). Previously, SAB 105, Application of Accounting Principles to Loan Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of this standard was not material.

Page 15 of 43

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement 133(SFAS No. 161). This statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures for hedged items accounted for under SFAS 133,Accounting for Derivative and Hedging Activities. Currently the Company has no items that are required to be accounted for under SFAS 133.

In June 2008, the FASB Emerging Issues Task Force finalized Issue No. 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This issue addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128,Earnings per Share. This issue is effective for fiscal years beginning after December 31, 2008. The Company is currently analyzing the impact of adoption of this issue.

Page 16 of 43

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Private Securities Litigation Reform Act Safe Harbor Statement

This report may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements, in addition to historical information, which involve risk and uncertainties, are based on the beliefs, assumptions and expectations 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 are intended to identify such forward-looking statements. Examples of forward-looking statements include, but are not limited to, possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and business of the Company, including earnings growth; revenue growth in retail banking, lending and other areas; origination volume in the Company’s real estate, commercial and other lending businesses; current and future capital management programs; non-interest income levels, including fees from banking services as well as product sales; tangible capital generation; market share; expense levels; and other business operations and strategies. For this presentation, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

Factors that could cause future results to vary from current management expectations include, but are not limited to, changing economic conditions; legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in tax policies; rates and regulations of federal, state and local tax authorities; changes in interest rates; deposit flows; the cost of funds; demand for loan products; demand for financial services; competition; changes in the quality and composition of the Company’s loan and investment portfolios; changes in management’s business strategies; changes in accounting principles, policies or guidelines; changes in real estate values and other factors discussed elsewhere in this report and factors set forth under Risk Factors in our Annual Report on Form 10-K. The forward-looking statements are made as of the date of this report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Overview

ViewPoint Financial Group (or the “Company”) is a federally chartered stock holding company and is subject to regulation by the Office of Thrift Supervision (“OTS”). The Company was organized on September 29, 2006, as part of ViewPoint Bank’s reorganization into the mutual holding company form of organization. As part of the reorganization, ViewPoint Bank (i) converted to a stock savings bank as the successor to the Bank in its mutual form; (ii) organized ViewPoint Financial Group, which owns 100% of the common stock of ViewPoint Bank; and (iii) organized ViewPoint MHC, which currently owns 56% of the common stock of ViewPoint Financial Group. ViewPoint MHC has no other activities or operations other than its ownership of ViewPoint Financial Group. ViewPoint Bank succeeded to the business and operations of the Bank in its mutual form and ViewPoint Financial Group sold a minority interest in its common stock in a public stock offering.

ViewPoint Bank was originally chartered in 1952 as a credit union. Through the years, the institution evolved into a full-service, multi-branch community credit union serving primarily Collin and Dallas Counties and surrounding communities in North Texas, as well as businesses and other entities located in these areas. We completed the conversion from a Texas credit union charter to a federally chartered savings bank as of January 1, 2006. The objective of the charter conversion was to convert to a banking charter that was more appropriate to carry out our business strategy, which will in turn allow us to better serve customers and the local community.

Our principal business consists of attracting retail deposits from the general public and the business community and investing those funds along with borrowed funds in permanent loans secured by first and second mortgages on owner-occupied, one- to four-family residences and commercial real estate, as well as by commercial business assets and automobiles. Our current emphasis is on the origination of one- to four-family residential and commercial real estate loans, along with an increased focus on business banking. We also offer brokerage services for the purchase and sale of non-deposit investment and insurance products through a third party brokerage arrangement.

Page 17 of 43

Our operating revenues are derived principally from earnings on net interest-earning assets, service charges and fees. Our primary sources of funds are deposits, FHLB advances and other borrowings, and payments on loans and securities. We offer a variety of deposit accounts having a wide range of interest rates and terms, which generally include savings, money market, term certificate, and demand accounts.

At June 30, 2008, the Company had 43 locations consisting of four administrative offices, 28 full-service branches and 11 loan production offices. A new branch in northeast Tarrant County is under construction and scheduled to open in the third quarter of 2008 with an estimated future commitment of $647,000. We have signed leases for two additional sites and expect these branches to open in the fourth quarter of 2008. We also have four potential branch sites under contract; the agreements pertaining to these four sites are not final, so consummation of these proposed transactions is not assured. The Dallas and Grapevine loan production offices — the leases for which expire in 2009 — have been closed due to unsatisfactory performance.

Second Quarter Highlights

• Total assets increased by 12.1% from December 31, 2007, to June 30, 2008.

• Total deposits increased by 8.4% from December 31, 2007, to June 30, 2008.

• Total net loans (including loans held for sale) increased by 13.9% from December 31, 2007, to June 30, 2008.

• Net income for the six months ended June 30, 2008, increased by 23.3% to $3.0 million from the six months ended June 30, 2007.

• Basic and diluted earnings per share for the three months ended June 30, 2008, was $0.06 per share.

• Basic and diluted earnings per share for the six months ended June 30, 2008, was $0.12 per share.

Critical Accounting Policies

Certain of our accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and other-than-temporary impairments in our securities portfolio.

Allowance for Loan Loss. We believe that the allowance for loan losses and related provision expense are susceptible to change in the near term, as a result of changes in our credit quality, which are evidenced by charge-offs and nonperforming loan trends. Our loan mix is also changing as we increase residential and commercial real estate loan originations and have discontinued our indirect automobile lending program. Generally, one- to four-family residential real estate lending has a lower credit risk profile compared to consumer lending, such as automobile loans. Commercial real estate and business lending, however, have higher credit risk profiles than consumer and one- to four- family residential real estate loans due to these loans being larger in amount and non-homogenous. Changes in economic conditions, the mix and size of the loan portfolio and individual borrower conditions can dramatically impact our level of allowance for loan losses in relatively short periods of time. Management believes that the allowance for loan losses is maintained at a level that represents our best estimate of probable losses in the loan portfolio. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, our banking regulators, as an integral part of their examination process, periodically review our allowance for loan losses. These regulatory agencies may require us to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Management evaluates current information and events regarding a borrower’s ability to repay its obligations and considers a loan to be impaired when the ultimate collectibility of amounts due, according the contractual terms of the loan agreement, is in doubt. If an impaired loan is collateral-dependent, the fair value of the collateral is used to determine the amount of impairment. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income.

Page 18 of 43

Other-than-Temporary Impairments.The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The unrealized losses are primarily related to recent events in the mortgage market more so than to current levels of interest rates or changes in credit quality. Additionally, we have the ability to hold these securities until they recover their fair value, which may be at maturity; therefore we did not consider these securities to be other-than-temporarily impaired at June 30, 2008, or December 31, 2007.

Business Strategy

Our principle objective is to remain an independent, community-oriented financial institution serving customers in our primary market area. Our Board of Directors has sought to accomplish this objective through the adoption of a strategy designed to maintain profitability, a strong capital position and high asset quality. This strategy primarily involves:

• Controlling operating expenses while continuing to provide quality personal service to our customers;

• Growing and diversifying our loan portfolio by emphasizing the origination of one- to four-family residential mortgage loans, commercial real estate loans and secured business loans;

• Selectively emphasizing products and services to provide diversification of revenue sources and to capture our customers’ full relationship. We intend to continue to expand our business by cross-selling our loan and deposit products and services to our customers;

• Expanding our banking network with de novo branches, and potentially by selectively acquiring branch offices and other financial institutions;

• Enhancing our focus on core retail and business deposits, including savings and checking accounts;

• Borrowing from the Federal Home Loan Bank of Dallas for interest rate risk management purposes; and

• Maintaining a high level of asset quality.

Comparison of Financial Condition at June 30, 2008, and December 31, 2007

General. Total assets increased by $201.1 million, or 12.1%, to $1.86 billion at June 30, 2008, from $1.66 billion at December 31, 2007. The increase primarily resulted from growth of $128.6 million in our net loan portfolio and $125.3 million in securities held to maturity. The growth in loans and securities held to maturity was partially offset by a decline of $55.9 million in securities available for sale due to normal maturities and paydowns.

Loans. Our net loan portfolio, including loans held for sale, increased by $128.6 million, or 13.9%, from $921.8 million at December 31, 2007, to $1.05 billion at June 30, 2008. This increase was primarily due to escalated loan production in our residential and commercial real estate portfolios. Through our mortgage banking division, Bankers Financial Mortgage Group (operated through our wholly-owned subsidiary, Community Financial Services, Inc.), we have originated $246.3 million in one-to four-family mortgage loans during 2008, of which $129.7 million has been sold or committed for sale to outside investors, and $116.6 million has been retained in our loan portfolio. As a result, our one-to four-family mortgage loan portfolio, including loans held for sale, has grown to $452.4 million at June 30, 2008, an increase of $106.4 million, or 30.8%, from December 31, 2007. Also, we have experienced significant growth in our commercial real estate loans, as this portfolio has increased $76.3 million from $252.1 million at December 31, 2007, to $328.4 million at June 30, 2008.

The increase in net loans was partially offset by a reduction in consumer loans, which decreased by $59.2 million, or 25.5%, from December 31, 2007. This decline has been an ongoing element of our previously announced strategy to transition our loan portfolio away from consumer loans, especially indirect automobile loans, into one- to four-family and commercial real estate loans and business loans. We discontinued our indirect automobile lending program in 2007, and as a result, our indirect automobile loan portfolio has declined by $39.8 million, or 38.1%, from $104.2 million at December 31, 2007, to $64.4 million at June 30, 2008. Direct automobile loans have also declined by $17.3 million, or 17.6%, from $98.8 million at December 31, 2007, to $81.5 million at June 30, 2008.

Page 19 of 43

Bankers Financial Mortgage Group.At June 30, 2008, Bankers Financial Mortgage Group had total assets of $26.9 million, which primarily consisted of $23.2 million in one- to four- family mortgage loans held for sale. During 2008, Bankers Financial Mortgage Group originated $246.3 million in one-to four-family mortgage loans, of which $129.7 million were sold or committed for sale to outside investors, and $116.6 million were retained in the Bank portfolio. Bankers Financial Mortgage Group’s net income for the six months ended June 30, 2008, was $648,000, which primarily consisted of gains on sales of mortgage loans and was partially offset by salary and other operating expenses. Acquired by the Company in September 2007, Bankers Financial Mortgage Group operates ten loan production offices in North Texas and has 94 employees.

Allowance for Loan Losses. The allowance for loan losses is maintained to cover losses that are probable and can be estimated on the date of the evaluation in accordance with U.S. generally accepted accounting principles. It is our estimate of probable incurred credit losses in our loan portfolio.

Our methodology for analyzing the allowance for loan losses consists of specific and general components. We stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and apply an appropriate loss ratio to the homogeneous pools of loans to estimate the probable incurred losses in the loan portfolio. The amount of probable loan losses incurred in our consumer portfolio is estimated by using historical loss ratios for major loan collateral types adjusted for current factors. We use historical loss ratios, as well as qualitative factors such as industry and economic indicators, to establish loss allocations on our commercial business, one-to four-family, and commercial real estate loans due to the less-seasoned nature of this portion of our loan portfolio. The historical loss experience is generally defined as an average percentage of net loan losses to loans outstanding. These factors allow for losses that may result from economic indicators, seasonality and increased origination volume in these areas of lending. We also utilize a qualitative factor on purchased real estate loans based on peer group averages, as well as the same economic, seasonality and volume factors applied to the originated real estate portfolio. A separate valuation of known losses for individual classified large-balance, non-homogeneous loans is also conducted in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 114.

The allowance for loan losses on individually analyzed loans includes commercial business loans, one-to four-family and commercial real estate loans, where management has concerns about the borrower’s ability to repay. Loss estimates include the difference between the current fair value of the collateral and the loan amount due.

Net charge-offs have declined from $1.9 million for the six months ended June 30, 2007, to $1.5 million for the six months ended June 30, 2008. Our asset quality remains solid. We do not originate any subprime loans and the vast majority of our residential real estate loans are full-documentation, standard “A” type products. The loans that we originate are subject to stringent underwriting guidelines and are carefully evaluated before being placed in our portfolio. In 2008, the loans originated by Bankers Financial Mortgage Group and retained in our portfolio had an average loan-to-value ratio of 73.88% and an average credit score of 748.

Our allowance for loan losses at June 30, 2008, was $7.3 million, or 0.69% of gross loans, compared to $6.2 million, or 0.66% of loans, at December 31, 2007. The $1.1 million increase in our allowance for loan losses was primarily due to the $182.7 million growth in our residential and commercial real estate loan portfolios. The increase in allowance for loan loss coverage due to our growing real estate loan portfolio was partially offset by a decline of $57.1 million in our automobile loan portfolio. Nonperforming loans decreased by $56,000, or 1.6%, from December 31, 2007, to $3.5 million at June 30, 2008. Our nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Troubled debt restructurings, which consist entirely of consumer loans, decreased by $117,000 from December 31, 2007, while nonaccrual loans increased by $61,000. The ratio of nonperforming loans to total loans was 0.33% at June 30, 2008, down five basis points from 0.38% at December 31, 2007.

Page 20 of 43

Impaired loans related to Statement of Financial Accounting Standards No. 114 were as follows:

	June 30, 2008		December 31, 2007
	(Dollars in Thousands)
Period-end loans with no allocated allowance for loan losses	$	602	$	2,729
Period-end loans with allocated allowance for loan losses		2,944		3,042
Total	$	3,546	$	5,771
Amount of the allowance for loan losses allocated to impaired loans at period end	$	295	$	328

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Average of individually impaired loans during the period	$	3,670	$	4,043	$	3,977	$	4,126

Nonperforming loans were as follows:

	June 30, 2008		December 31, 2007
	(Dollars in Thousands)
Loans past due over 90 days still on accrual	$	—	$	—
Nonaccrual loans		2,163		2,102
Troubled debt restructurings		1,294		1,411
Total	$	3,457	$	3,513

At June 30, 2008, nonperforming loans consisted of the following loan types:

Mortgage loans:
One-to four- family	$	715	20.68	%
Commercial real estate		980	28.35
Home equity		136	3.93
Total mortgage loans		1,831	52.96
Automobile indirect loans		653	18.89
Automobile direct loans		579	16.75
Business non-mortgage loans		89	2.58
Consumer lines of credit and unsecured loans		304	8.79
Other consumer loans, secured		1	0.03
Total non-mortgage loans		1,626	47.04
Total nonperforming loans	$	3,457	100.00	%

Securities. The securities portfolio increased by $69.4 million, or 12.3%, to $632.4 million at June 30, 2008, from $563.0 million at December 31, 2007. During the six months ended June 30, 2008, we purchased $149.6 million in securities, including $116.6 million of 15-year agency mortgage-backed securities, which we designated as held to maturity. We also purchased $15.9 million in agency collateralized mortgage obligations, a $5.0 million agency bond, $3.0 million in municipal bonds and $9.1 million in pools of securities backed by the guaranteed portion of SBA loans. These purchases had a weighted average yield of 4.66% with a weighted average life of 4.2 years. The increase in the securities portfolio was partially offset by maturities and paydowns totaling $73.9 million during the six months ended June 30, 2008.

Page 21 of 43

A summary of our securities portfolio follows:

	June 30, 2008									December 31, 2007
	Amortized		Unrealized					Estimated		Amortized		Unrealized					Estimated
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value
Available for sale:
U.S. Government and federal agency	$	26,002	$	247	$	—		$	26,249	$	35,006	$	189	$	(43	)	$	35,152
Agency mortgage-backed securities		117,684		1,100		(45	)		118,739		137,678		1,195		—			138,873
Agency collateralized mortgage obligations		318,180		3,212		(2,422	)		318,970		347,376		2,956		(1,098	)		349,234
SBA Pools		9,009		—		(88	)		8,921		—		—		—			—
Collateralized debt obligations		21,484		—		(7,343	)		14,141		21,496		—		(1,880	)		19,616
Total available for sale		492,359		4,559		(9,898	)		487,020		541,556		4,340		(3,021	)		542,875
Held to maturity:
U.S. Government and federal agency		5,000		—		(9	)		4,991		—		—		—			—
Agency mortgage-backed securities		123,745		5		(2,249	)		121,501		14,403		116		—			14,519
Agency collateralized mortgage obligations		13,649		—		(72	)		13,577		5,688		—		(5	)		5,683
Municipal bonds		2,967		—		(78	)		2,889		—		—		—			—
Total held to maturity		145,361		5		(2,408	)		142,958		20,091		116		(5	)		20,202
Total securities	$	637,720	$	4,564	$	(12,306	)	$	629,978	$	561,647	$	4,456	$	(3,026	)	$	563,077

Page 22 of 43

Deposits. Total deposits increased by $109.5 million, or 8.4%, to $1.41 billion at June 30, 2008, compared to $1.30 billion at December 31, 2007. Time deposits increased by $82.4 million, while savings and money market deposits increased by $26.0 million. Interest-bearing demand accounts have increased by $10.0 million as a result of the introduction of new interest-bearing checking products, while non-interest-bearing demand accounts decreased by $8.8 million. We offer a variety of consumer and business deposit accounts to serve our customers’ diverse needs, ranging from free to interest-bearing checking accounts and savings and money market products with a wide range of minimum opening deposits and withdrawal options. We also use public funds as a source of deposit growth and plan to continue to develop this line of business. At June 30, 2008, we had $299.0 million of public funds included in time deposits, compared to $200.2 million at December 31, 2007.

Borrowings. Federal Home Loan Bank advances increased $60.8 million, or 47.4%, to $189.3 million at June 30, 2008, from $128.5 million at December 31, 2007. The Company utilizes advances to leverage the balance sheet and as an asset/liability management tool by extending the duration of liabilities to more closely match the duration of assets. At June 30, 2008, the Company was eligible to borrow an additional $395.8 million. In April 2008, the Company entered into a ten-year term structured repurchase callable agreement for $25 million to leverage the balance sheet and increase liquidity. The interest rate is fixed at 1.62% for the first year of the agreement. After the first year, the interest rate adjusts quarterly to 6.25% less the three month Libor rate, subject to a lifetime cap. At June 30, 2008, the average balance of borrowings had a weighted average rate of 4.24%.

Shareholders’ Equity. Total shareholders’ equity decreased by $2.7 million, or 1.3%, to $201.1 million at June 30, 2008, from $203.8 million at December 31, 2007. The decrease in shareholders’ equity was primarily due to a decrease in accumulated other comprehensive income of $4.4 million, which was partially offset by net income of $3.0 million. The decrease in accumulated other comprehensive income was primarily caused by an unrealized market value loss in collateralized debt obligations held in our securities portfolio. Depository institutions comprise at least 75% of the underlying issuers in each of these securities, with the remainder being insurance companies. The unrealized losses in these collateralized debt obligations are primarily related to recent events in the mortgage market more so than to current levels of interest rates or changes in credit quality. These events have lowered investor demand, which has resulted in lower prices, causing these securities to have unrealized losses. We have not recognized any impairment charges related to our securities portfolio. During the six months ended June 30, 2008, we repurchased 89,802 shares of our common stock, resulting in a $1.4 million increase in treasury stock. Shareholders’ equity was further reduced by dividend payments of $0.06 per share in the first quarter of 2008 and $0.07 per share in the second quarter of 2008 to minority shareholders totaling $1.4 million.

Comparison of Results of Operations for the Three Months Ended June 30, 2008, and 2007

General.The Company recognized net income of $1.4 million for the three months ended June 30, 2008, compared to net income of $1.3 million for the three months ended June 30, 2007. The increase in net income resulted from a $2.4 million, or 11.7%, increase in interest income and a $2.0 million, or 31.7%, increase in noninterest income. These amounts were partially offset by a $2.5 million, or 18.2%, increase in noninterest expense, a $916,000, or 155.3%, increase in provision for loan losses and a $648,000, or 6.4%, increase in interest expense.

Net income for the quarter ended June 30, 2008, included a $96,000 benefit related to the Visa, Inc. (“Visa”) initial public offering. A portion of the initial public offering proceeds were deposited in escrow for covered litigation according to the retrospective responsibility plan that Visa has with its member institutions. In the first quarter of 2008, this deposit allowed the Company to reverse $350,000 of an outside litigation liability recorded in the fourth quarter of 2007 in connection with separate settlements between Visa and American Express, Discover and other interchange litigants. In the quarter ended June 30, 2008, the Company reversed the remaining $96,000 in the outside litigation liability, bringing the liability balance to zero. The Company recognized no similar Visa-related gains in the quarter ended June 30, 2007. Excluding the tax-effected Visa benefit, net income for the quarter ended June 30, 2008, would have been $1.4 million, an increase of $61,000, or 4.6%, over the quarter ended June 30, 2007.

Interest Income.Interest income increased by $2.4 million, or 11.7%, to $23.2 million for the quarter ended June 30, 2008, from $20.8 million for the quarter ended June 30, 2007. Interest income on loans increased by $1.5 million, or 11.1%, as the average balance of loans outstanding grew by $96.4 million to $1.03 billion for the three months ended June 30, 2008, compared to $935.7 million for the same period last year. The yield earned on loans increased four basis points to 5.92% for the quarter ended June 30, 2008, from 5.88% for the same period last year. An increase of $142.6 million in the average balance of our investment portfolio contributed to a $1.2 million increase in investment interest income.

Page 23 of 43

This increase in interest income was partially offset by a $346,000 decline in interest earned on interest-bearing deposits at other financial institutions, as the yield earned on these deposits decreased 311 basis points to 2.24% for the quarter ended June 30, 2008, from 5.35% for the same period last year. The Federal Open Market Committee has reduced its target for the federal funds rate by 325 basis points from June 30, 2007, to June 30, 2008, which has driven the decrease in the yield earned on interest-bearing deposits at other financial institutions.

Interest Expense.Interest expense increased by $648,000, or 6.4%, to $10.8 million for the quarter ended June 30, 2008, from $10.1 million for the quarter ended June 30, 2007. The increase in interest expense was partially due to an increase of $127.5 million in the average outstanding balance of Federal Home Loan Bank advances and other borrowings, which we use to leverage our balance sheet and to extend the duration of our liabilities to more closely match our assets. We also experienced increased interest expense due to a $156.0 million increase in the average balance of time accounts.

These increases were partially offset by a decrease in the interest paid on savings and money market accounts, as the average balance of these accounts declined by $43.0 million, or 6.8%, to $593.2 million for the three months ended June 30, 2008, from $636.2 million for the three months ended June 30, 2007. The rate paid on savings and money market accounts also declined 56 basis points from 2.87% for the three months ended June 30, 2007, to 2.31% for the three months ended June 30, 2008. In addition, the rates paid on time deposits and borrowings declined from 4.88% and 4.97%, respectively, for the three months ended June 30, 2007, to 3.95% and 3.90%, respectively, for the three months ended June 30, 2008. Overall, the rate paid on average interest-bearing liabilities decreased 41 basis points, from 3.45% for the quarter ended June 30, 2007, to 3.04% for the quarter ended June 30, 2008.

Net Interest Income.Net interest income increased by $1.8 million, or 16.8%, to $12.4 million for the quarter ended June 30, 2008, from $10.6 million for the quarter ended June 30, 2007. The net interest rate spread increased 14 basis points to 2.28% for the quarter ended June 30, 2008, from 2.14% for the same period last year. The net interest margin decreased two basis points to 2.85% for the three months ended June 30, 2008, from 2.87% for the three months ended June 30, 2007.

Provision for Loan Losses.We establish provisions for loan losses, which are charged to earnings, at a level required to reflect probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, peer group data, prevailing economic conditions, and current factors.

Large groups of smaller balance homogeneous loans, such as residential real estate, small commercial real estate, home equity and consumer loans, are evaluated in the aggregate using historical loss factors adjusted for current economic conditions and other relevant data.

Larger non-homogeneous loans, such as commercial loans for which management has concerns about the borrowers’ ability to repay, are evaluated individually, and specific loss allocations are provided for these loans when necessary.

Based on management’s evaluation, provisions of $1.5 million and $590,000 were made during the three months ended June 30, 2008, and June 30, 2007, respectively. The $916,000 increase in the provision for loan losses was primarily due to the growth in our loan portfolio: our average loans receivable for the three months ended June 30, 2008, increased $96.4 million, or 10.3%, from $935.7 million at June 30, 2007, to $1.03 billion at June 30, 2008.

Noninterest Income.Noninterest income increased by $2.0 million, or 31.7%, to $8.2 million for the quarter ended June 30, 2008, from $6.2 million for the quarter ended June 30, 2007. The increase in noninterest income was due to an increase of $2.3 million in our net gain on sales of loans, resulting from $66.0 million of loans sold to outside investors by Bankers Financial Mortgage Group. Also, in the quarter ended June 30, 2008, we recognized $269,000 of bank-owned life insurance income from a policy purchased in September 2007, with no corresponding income in the second quarter of 2007. The increase in noninterest income was partially offset by a $457,000 decline in fee income primarily due to decreased non-sufficient funds fees.

Noninterest Expense. Noninterest expense increased by $2.5 million, or 18.2%, to $16.8 million for the quarter ended June 30, 2008, from $14.3 million for the quarter ended June 30, 2007. The increase in noninterest expense was primarily due to higher salaries and benefits expense of $3.0 million, including the salary and benefit costs from the operations of Bankers Financial Mortgage Group acquired in September 2007.

Page 24 of 43

We also added experienced staff to our retail banking and commercial lending teams and had higher share-based compensation expense of $187,000. The increase in noninterest expense was partially offset by lower outside professional services expense of $273,000 due to the reversal of $96,000 of the VISA litigation liability recorded in the fourth quarter of 2007 and decreased management and consulting fees.

Income Tax Expense.In the three months ended June 30, 2008, we incurred income tax expense of $833,000 on our pre-tax income compared to income tax expense of $714,000 for the three months ended June 30, 2007. The effective tax rate increased from 35.2% for the three months ended June 30, 2007, to 36.7% for the three months ended June 30, 2008.

Analysis of Net Interest Income — Three Months Ended June 30, 2008, and 2007

Net interest income, the primary contributor to earnings, represents the difference between income on interest-earning assets and expenses on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

Page 25 of 43

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Also presented are the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

	Three Months Ended June 30,
	2008								2007
	Average								Average
	Outstanding			Interest					Outstanding			Interest
	Balance			Earned/Paid		Yield/Rate			Balance			Earned/Paid		Yield/Rate
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable	$	1,032,089		$	15,281		5.92	%	$	935,678		$	13,751		5.88	%
Agency mortgage-backed securities		239,333			2,891		4.83			136,726			1,689		4.94
Agency collateralized mortgage obligations		334,701			3,854		4.61			313,735			4,255		5.42
Investment securities and collateralized debt obligations		57,498			649		4.51			38,468			270		2.81
FHLB stock		8,077			117		5.79			4,128			48		4.65
Interest-earning deposit accounts		73,679			413		2.24			56,770			759		5.35
Total interest-earning assets		1,745,377			23,205		5.32			1,485,505			20,772		5.59
Noninterest -earning assets		107,230								105,712
Total assets	$	1,852,607							$	1,591,217
Interest-bearing liabilities:
Interest-bearing demand		93,453			161		0.69			89,288			89		0.40
Savings and money market		593,203			3,429		2.31			636,191			4,565		2.87
Time		537,025			5,298		3.95			381,068			4,652		4.88
Borrowings		193,643			1,888		3.90			66,147			822		4.97
Total interest-bearing liabilities		1,417,324			10,776		3.04			1,172,694			10,128		3.45
Noninterest- bearing liabilities		231,175								203,151
Total liabilities		1,648,499								1,375,845
Total capital		204,108								215,372
Total liabilities and capital	$	1,852,607							$	1,591,217
Net interest income				$	12,429							$	10,644
Net interest rate spread							2.28	%							2.14	%
Net earning assets	$	328,053							$	312,811
Net interest margin							2.85	%							2.87	%
Average interest-earning assets to average interest-bearing liabilities		123.15	%							126.67	%

Page 26 of 43

Rate/Volume Analysis

The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the later period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Three Months Ended June 30,
	2008 versus 2007
	Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)
Interest-earning assets:
Loans receivable	$	1,427		$	103		$	1,530
Agency mortgage-backed securities		1,240			(38	)		1,202
Agency collateralized mortgage obligations		271			(672	)		(401	)
Investment securities and collateralized debt obligations		170			209			379
FHLB stock		55			14			69
Interest-earning deposit accounts		182			(528	)		(346	)
Total interest-earning assets		3,345			(912	)		2,433
Interest-bearing liabilities:
Interest-bearing demand		4			68			72
Savings and money market		(293	)		(843	)		(1,136	)
Time		1,655			(1,009	)		646
Borrowings		1,277			(211	)		1,066
Total interest-bearing liabilities		2,643			(1,995	)		648
Net interest income	$	702		$	1,083		$	1,785

Page 27 of 43

Comparison of Results of Operations for the Six Months Ended June 30, 2008, and 2007

General.The Company recognized net income of $3.0 million for the six months ended June 30, 2008, compared to net income of $2.4 million for the six months ended June 30, 2007. The increase in net income resulted from a $4.6 million, or 11.4%, increase in interest income and a $4.0 million, or 32.9%, increase in noninterest income. These amounts were partially offset by a $2.0 million, or 10.5%, increase in interest expense, a $4.7 million, or 16.7%, increase in noninterest expense and a $1.0 million, or 66.7%, increase in provision for loan losses.

Net income for the six months ended June 30, 2008, included a $1.2 million benefit related to the Visa initial public offering. A portion of the initial public offering proceeds were deposited in escrow for covered litigation according to the retrospective responsibility plan that Visa has with its member institutions. This deposit allowed the Company to reverse the entire amount, $446,000, of an outside litigation liability recorded in the fourth quarter of 2007 in connection with separate settlements between Visa and American Express, Discover and other interchange litigants. Also, Visa used initial public offering proceeds not used for the retrospective responsibility plan to redeem additional shares of its stock, for which the Company recognized a $771,000 gain in noninterest income. The Company recognized no similar Visa related gains in the six months ended June 30, 2007. Excluding the tax-effected Visa benefit, net income for the six months ended June 30, 2008, would have been $2.2 million, a decrease of $235,000, or 9.7%, over the six months ended June 30, 2007.

Interest Income. Interest income increased by $4.6 million, or 11.4%, to $45.3 million for the six months ended June 30, 2008, from $40.7 million for the six months ended June 30, 2007. Investment interest income increased by $3.4 million due to increases in the average balances of agency mortgage-backed securities, agency collateralized mortgage obligations and other investment securities. Also, interest earned on loans increased by $2.4 million, as the average balance of loans outstanding increased $51.0 million to $993.8 million for the six months ended June 30, 2008, compared to $942.8 million for the same period last year. The yield earned on loans increased by 18 basis points, to 5.96% for the six months ended June 30, 2008, from 5.78% for the same period last year. This increase in interest income was partially offset by a decrease of $1.2 million in interest earned on interest-bearing deposits at other financial institutions, as the yield earned on these deposits decreased 267 basis points to 2.63% for the six months ended June 30, 2008, from 5.30% for the same period last year. The Federal Open Market Committee has reduced its target for the federal funds rate by 325 basis points from June 30, 2007, to June 30, 2008 which has driven the decrease in the yield earned on interest-bearing deposits at other financial institutions.

Interest Expense.Interest expense increased by $2.0 million, or 10.5%, to $21.5 million for the six months ended June 30, 2008, from $19.5 million for the six months ended June 30, 2007. The increase in interest expense was primarily due to increases of $151.0 and $104.6 million in the average outstanding balances of time deposits and borrowings, respectively.

The increase in interest expense was partially offset by a $2.2 million decrease in the interest paid on savings and money market accounts, due to a $54.0 million decline in the average balance from the six months ended June 30, 2007, and a decline in rate of 47 basis points. In addition, the rates paid on time deposits and borrowings declined from 4.83% and 4.93%, respectively, for the six months ended June 30, 2007, to 4.21% and 4.24% for the six months ended June 30, 2008. Overall, the rate paid on average interest-bearing liabilities decreased 20 basis points, from 3.38% for the six months ended June 30, 2007, to 3.18% for the six months ended June 30, 2008.

Net Interest Income.Net interest income increased by $2.6 million, or 12.3%, to $23.8 million for the six months ended June 30, 2008, from $21.2 million for the six months ended June 30, 2007. The net interest rate spread increased six basis points to 2.25% for the six months ended June 30, 2008, from 2.19% for the same period last year. The net interest margin decreased five basis points to 2.85% for the six months ended June 30, 2008, from 2.90% for the six months ended June 30, 2007.

Provision for Loan Losses.We establish provisions for loan losses, which are charged to earnings, at a level required to reflect probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, peer group data, prevailing economic conditions, and current factors.

Large groups of smaller balance homogeneous loans, such as residential real estate, small commercial real estate, home equity and consumer loans, are evaluated in the aggregate using historical loss factors adjusted for current economic conditions and other relevant data.

Page 28 of 43

Larger non-homogeneous loans, such as commercial loans for which management has concerns about the borrowers’ ability to repay, are evaluated individually, and specific loss allocations are provided for these loans when necessary.

Based on management’s evaluation, provisions of $2.6 million and $1.6 million were made during the six months ended June 30, 2008, and June 30, 2007, respectively. The $1.0 million increase in the provision for loan losses was primarily due to the growth in our loan portfolio: our average loans receivable for the six months ended June 30, 2008, increased $51.0 million, or 5.4%, from $942.8 million at June 30, 2007, to $993.8 billion at June 30, 2008.

Noninterest Income.Noninterest income increased by $4.0 million, or 32.9%, to $16.2 million for the six months ended June 30, 2008, from $12.2 million for the six months ended June 30, 2007. The increase in noninterest income was due to an increase of $4.1 million in our net gain on sales of loans, resulting from $125.4 million of loans sold to outside investors by Bankers Financial Mortgage Group. Additionally, in March 2008, we recognized a gain of $771,000 resulting from the redemption of 18,029 shares of Visa Class B stock in association with Visa’s initial public offering. During the six months ended June 30, 2008, we also recognized $548,000 of bank-owned life insurance income from a policy purchased in September 2007, with no corresponding income in 2007. The increase in noninterest income was partially offset by a $1.1 million decline in fee income primarily due to decreased non-sufficient funds fees and lower savings account service charges.

Noninterest Expense.Noninterest expense increased by $4.7 million, or 16.7%, to $32.7 million for the six months ended June 30, 2008, from $28.0 million for the six months ended June 30, 2007. The increase in noninterest expense was primarily due to higher salaries and benefits expense of $5.2 million, including salary and benefit costs from the operations of Bankers Financial Mortgage Group. We added experienced staff to our retail banking and commercial lending teams and had higher share-based compensation expense of $627,000. The increase in share-based compensation expense was attributable to having six months of expense in 2008, compared to approximately two months of expense in 2007, as the Equity Incentive Plan was adopted in May 2007. The increase in noninterest expense was partially offset by lower outside professional services expense of $669,000 due to the reversal of $446,000 of the VISA litigation liability recorded in the fourth quarter of 2007 and decreased management and consulting fees.

Income Tax Expense.In the six months ended June 30, 2008, we incurred income tax expense of $1.7 million on our pre-tax income compared to income tax expense of $1.4 million for the six months ended June 30, 2007. The effective tax rate increased from 36.5% for the six months ended June 30, 2007, to 36.6% for the six months ended June 30, 2008.

Analysis of Net Interest Income — Six Months Ended June 30, 2008, and 2007

Net interest income, the primary contributor to earnings, represents the difference between income on interest-earning assets and expenses on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

Page 29 of 43

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Also presented are the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

	Six Months Ended June 30,
	2008								2007
	Average								Average
	Outstanding			Interest					Outstanding			Interest
	Balance			Earned/Paid		Yield/Rate			Balance			Earned/Paid		Yield/Rate
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable	$	993,814		$	29,606		5.96	%	$	942,754		$	27,255		5.78	%
Agency mortgage-backed securities		211,987			5,197		4.90			109,397			2,747		5.02
Agency collateralized mortgage obligations		342,013			8,186		4.79			294,903			8,020		5.44
Investment securities and collateralized debt obligations		55,235			1,376		4.98			35,833			575		3.21
FHLB stock		7,389			181		4.90			3,926			98		4.99
Interest-earning deposit accounts		60,076			791		2.63			75,017			1,987		5.30
Total interest-earning assets		1,670,514			45,337		5.43			1,461,830			40,682		5.57
Noninterest -earning assets		109,138								101,599
Total assets	$	1,779,652							$	1,563,429
Interest-bearing liabilities:
Interest-bearing demand		90,154			285		0.63			92,398			147		0.32
Savings and money market		583,802			6,917		2.37			637,846			9,073		2.84
Time		512,999			10,788		4.21			362,043			8,737		4.83
Borrowings		166,487			3,533		4.24			61,846			1,523		4.93
Total interest-bearing liabilities		1,353,442			21,523		3.18			1,154,133			19,480		3.38
Noninterest- bearing liabilities		221,407								193,905
Total liabilities		1,574,849								1,348,038
Total capital		204,803								215,391
Total liabilities and capital	$	1,779,652							$	1,563,429
Net interest income				$	23,814							$	21,202
Net interest rate spread							2.25	%							2.19	%
Net earning assets	$	317,072							$	307,697
Net interest margin							2.85	%							2.90	%
Average interest-earning assets to average interest-bearing liabilities		123.43	%							129.66	%

Page 30 of 43

Rate/Volume Analysis

The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the later period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Six Months Ended June 30,
	2008 versus 2007
	Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)
Interest-earning assets:
Loans receivable	$	1,505		$	846		$	2,351
Agency mortgage-backed securities		2,517			(67	)		2,450
Agency collateralized mortgage obligations		1,193			(1,027	)		166
Investment securities and collateralized debt obligations		396			405			801
FHLB stock		85			(2	)		83
Interest-earning deposit accounts		(339	)		(857	)		(1,196	)
Total interest-earning assets		5,357			(702	)		4,655
Interest-bearing liabilities:
Interest-bearing demand		(4	)		142			138
Savings and money market		(726	)		(1,430	)		(2,156	)
Time		3,285			(1,234	)		2,051
Borrowings		2,247			(237	)		2,010
Total interest-bearing liabilities		4,802			(2,759	)		2,043
Net interest income	$	555		$	2,057		$	2,612

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Liquidity

Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. The Bank relies on a number of different sources in order to meet its potential liquidity demands. The primary sources are increases in deposit accounts and cash flows from loan payments and the securities portfolio. Management believes that our securities portfolio is of high quality and the securities would therefore be marketable. In addition, we have historically sold mortgage loans in the secondary market to reduce interest rate risk and to create still another source of liquidity.

In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of June 30, 2008, the Bank had an additional borrowing capacity of $395.8 million with the Federal Home Loan Bank of Dallas. In April 2008, the Company entered into a ten-year term structured repurchase callable agreement for $25 million, which also increased liquidity. Additionally, the Bank has classified 77.0%, or $487.0 million, of its securities portfolio as available for sale, providing an additional source of liquidity.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities. Participation loans sold include commercial real estate loans. These participations are sold to manage borrower concentration risk as well as interest rate risk. The Bank uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments.

It is management’s policy to manage deposit rates so they are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with the Bank.

During the six months ended June 30, 2008, cash and cash equivalents decreased $2.0 million, or 2.7%, from $73.5 million at December 31, 2007, to $71.5 million at June 30, 2008. Cash outflows from investing activities of $201.8 million were greater than cash inflows from financing activities and operating activities of $192.5 million and $7.3 million, respectively, for the six months ended June 30, 2008. Primary sources of cash for the six months ended June 30, 2008, included an increase in deposits of $109.5 million, proceeds from sales of loans held for sale of $132.6 million and proceeds from Federal Home Loan Bank advances of $72.0 million. Primary uses of cash included funding of loans originated for sale of $138.4 million, purchases of held-to-maturity securities of $134.5 million and a net change in loans of $120.0 million.

Management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have, a material negative impact on liquidity, capital resources or operations. Further, management is not aware of any current recommendations by regulatory agencies which, if they were to be implemented, would have this effect.

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Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

The following table presents our longer term, non-deposit related contractual obligations and commitments to extend credit to our borrowers, in the aggregate and by payment due dates.

	June 30, 2008
					Four
					through
	Less than		One through		Five		After Five
	One Year		Three Years		Years		Years		Total
			(Dollars in Thousands)
Contractual obligations:
Federal Home Loan Bank advances	$	31,670	$	62,252	$	75,354	$	20,035	$	189,311
Operating leases (premises)		1,017		1,450		942		74		3,483
New markets equity fund		640		—		—		—		640
Total borrowings and operating leases	$	33,327	$	63,702	$	76,296	$	20,109		193,434
Off-balance sheet loan commitments:
Undisbursed portions of loans closed		—		—		—		—		32,331
Commitments to originate loans		—		—		—		—		85,811
Unused lines of credit		—		—		—		—		71,885
Total loan commitments		—		—		—		—		190,027
Total contractual obligations and loan commitments									$	383,461

Capital Resources

ViewPoint Bank is subject to minimum capital requirements imposed by the Office of Thrift Supervision. Based on its capital levels at June 30, 2008, the Bank exceeded these requirements as of that date. Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank to maintain a “well capitalized” status under the capital categories of the Office of Thrift Supervision. Based on capital levels at June 30, 2008, the Bank was considered to be well-capitalized.

At June 30, 2008, the Bank’s GAAP equity totaled $165.8 million. Management monitors the capital levels of the Bank to provide for current and future business opportunities and to meet regulatory guidelines for “well capitalized” institutions. The following table displays the Bank’s capital position relative to its Office of Thrift Supervision capital requirements at June 30, 2008, and December 31, 2007. The definitions of the terms used in the table are those provided in the capital regulations issued by the Office of Thrift Supervision.

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The Company’s equity totaled $201.1 million, or 10.8% of total assets, at June 30, 2008. ViewPoint Financial Group is not subject to any specific capital requirements; however, the Office of Thrift Supervision expects ViewPoint Financial Group to support ViewPoint Bank, including providing additional capital to the Bank if it does not meet capital requirements.

											To Be Well Capitalized
						Required for Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in Thousands)
As of June 30, 2008:
Total capital (to risk weighted assets)	$	172,660		15.16	%	$	91,102		8.00	%	$	113,877		10.00	%
Tier 1 (core) capital (to risk weighted assets)		165,677		14.55			45,551		4.00			68,326		6.00
Tier 1 (core) capital (to adjusted total assets)		165,677		8.90			74,441		4.00			93,051		5.00
As of December 31, 2007:
Total capital (to risk weighted assets)	$	167,002		16.36	%	$	81,649		8.00	%	$	102,061		10.00	%
Tier 1 (core) capital (to risk weighted assets)		161,167		15.79			40,824		4.00			61,236		6.00
Tier 1 (core) capital (to adjusted total assets)		161,167		9.75			66,099		4.00			82,624		5.00

Impact of Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the consumer price index (“CPI”) coincides with changes in interest rates. The price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding affect on interest rates or upon the cost of those goods and services normally purchased by the Bank. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the opposite may occur.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management

Our Risk When Interest Rates Change.The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market rates change over time. Like other financial institutions, our results of operations are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes.As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In doing so, we analyze and manage assets and liabilities based on their interest rates and contractual cash flows, timing of maturities, repricing opportunities, and sensitivity to actual or potential changes in market interest rates.

The Bank is subject to interest rate risk to the extent that its interest-bearing liabilities, primarily deposits and Federal Home Loan Bank advances and other borrowings, reprice more rapidly or at different rates than its interest-earning assets, primarily loans and investment securities. In order to minimize the potential for adverse effects of material prolonged increases or decreases in interest rates on our results of operations, the Bank has adopted an asset and liability management policy. The Board of Directors sets the asset and liability policy for the Bank, which is implemented by the Asset/Liability Management Committee.

The purpose of the Asset/Liability Management Committee is to communicate, coordinate, and control asset/liability management consistent with our business plan and board-approved policies. The committee establishes and monitors the volume and mix of assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk, and profitability goals.

The committee generally meets on a bimonthly basis to, among other things, protect capital through earnings stability over the interest rate cycle; maintain our well-capitalized status; and provide a reasonable return on investment. The committee recommends appropriate strategy changes based on this review. The committee is responsible for reviewing and reporting the effects of the policy implementations and strategies to the Board of Directors at least quarterly. Senior managers oversee the process on a daily basis.

A key element of the Bank’s asset/liability management plan is to protect net earnings by managing the inherent maturity and repricing mismatches between its interest-earning assets and interest-bearing liabilities. The Bank manages earnings exposure by entering into appropriate term Federal Home Loan Bank advance agreements, through the addition of adjustable rate loans and investment securities, and through the sale of certain fixed rate loans in the secondary market.

As part of its efforts to monitor and manage interest rate risk, the Bank uses the net portfolio value (“NPV”) methodology adopted by the Office of Thrift Supervision as part of its capital regulations. In essence, this approach calculates the difference between the present value of expected cash flows from assets and liabilities. Management and the Board of Directors review NPV measurements on a quarterly basis to determine whether the Bank’s interest rate exposure is within the limits established by the Board of Directors.

The Bank’s asset/liability management strategy dictates acceptable limits to the percentage change in NPV given changes in interest rates. For instantaneous, parallel, and sustained interest rate increases and decreases of 100, 200, and 300 basis points, the Bank’s policy dictates that the NPV ratio should not fall below 8.00%, 7.00%, and 6.00%, respectively. As illustrated in the tables below, the Bank is in compliance with this policy.

The tables presented below, as of June 30, 2008, and December 31, 2007, are internal analyses of our interest rate risk as measured by changes in NPV for instantaneous, parallel, and sustained shifts in the yield curve, in 100 basis point increments, up and down 300 basis points.

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As illustrated in the tables below, our NPV would be positively impacted by a decrease in market rates of interest. Conversely, our NPV would be negatively impacted by an increase in interest rates. An increase in rates would negatively impact our NPV as a result of the duration of assets, including fixed rate residential mortgage loans, being longer than the duration of liabilities, primarily deposit accounts and Federal Home Loan Bank borrowings. As interest rates rise, the market value of fixed rate loans declines due to both higher discount rates and slowing loan prepayments.

In response to the changes in our NPV ratios over the past six months, which are discussed below, we are implementing a tactical plan to mitigate interest rate risk. This plan includes the ongoing review of our mix of fixed rate versus variable rate loans, investments, deposits, and borrowings. When available, high quality adjustable rate assets will be purchased. These assets will reduce our sensitivity to upward interest rate shocks. On the liability side of the balance sheet, term borrowings will be added. These borrowings will be of a term so as to lengthen the duration of liabilities sufficiently to impact NPV calculations. Such borrowings will also reduce our sensitivity to upward interest rate shocks. These strategies will be implemented as opportunities arise to mitigate interest rate risk without sacrificing earnings requirements.

June 30, 2008
Change in
Interest
Rates in			Net Portfolio Value								NPV
Basis Points			$ Amount		$ Change			% Change			Ratio %
(Dollars in Thousands)
	300			104,648		(65,830	)		(38.61	)		6.01
	200			126,149		(44,329	)		(26.00	)		7.09
	100			148,666		(21,812	)		(12.79	)		8.16
	0			170,478		—			—			9.16
	(100	)		190,375		19,897			11.67			10.03
	(200	)		207,068		36,590			21.46			10.74
	(300	)		225,172		54,694			32.08			11.49

December 31, 2007
Change in
Interest
Rates in			Net Portfolio Value								NPV
Basis Points			$ Amount		$ Change			% Change			Ratio %
(Dollars in Thousands)
	300			110,428		(48,605	)		(30.56	)		7.10
	200			126,159		(32,874	)		(20.67	)		7.95
	100			142,872		(16,161	)		(10.16	)		8.82
	0			159,033		—			—			9.62
	(100	)		174,047		15,014			9.44			10.35
	(200	)		186,643		27,610			17.36			10.93
	(300	)		199,493		40,460			25.44			11.52

The Bank’s NPV was $170.5 million or 9.16% of the market value of portfolio assets as of June 30, 2008, an $11.5 million increase from the $159.0 million or 9.62% of the market value of portfolio assets as of December 31, 2007. Based upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in a $44.3 million decrease in our NPV at June 30, 2008, an increase from $32.9 million at December 31, 2007, and would result in a 207 basis point decrease in our NPV ratio to 7.09% at June 30, 2008, as compared to a 167 basis point decrease to 7.95% at December 31, 2007. An immediate 200 basis point decrease in market interest rates would result in a $36.6 million increase in our NPV at June 30, 2008, an increase from $27.6 million at December 31, 2007, and would result in a 158 basis point increase in our NPV ratio to 10.74% at June 30, 2008, as compared to a 131 basis point increase in our NPV ratio to 10.93% at December 31, 2007.

The Bank’s NPV calculation increased $11.5 million for the six months ended June 30, 2008, as portfolio values for real estate loans and investments increased $59.8 million and $71.9 million, respectively. Our NPV ratios have decreased as a result of the pace of asset growth exceeding the pace of equity growth. The growth in real estate loans has increased the duration of assets, as compared to liabilities, and increased the sensitivity ratio, which is the change in the NPV ratio from the Base scenario to +200 basis points.

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In addition to monitoring selected measures of NPV, management also monitors effects on net interest income resulting from increases or decrease in rates. This process is used in conjunction with NPV measures to identify interest rate risk on both a global and account level basis. In managing our mix of assets and liabilities, while considering the relationship between long and short term interest rates, market conditions and consumer preferences, we may place somewhat greater emphasis on increasing the Bank’s net interest margin than on strictly matching the interest rate sensitivity of its assets and liabilities.

Management also believes that the increased net income which may result from an acceptable mismatch in the actual maturity or repricing of its asset and liability portfolios can provide sufficient returns to justify the increased exposure to sudden and unexpected increases in interest rates which may result from such a mismatch. Management believes that the Bank’s level of interest rate risk is acceptable under this approach.

In evaluating the Bank’s exposure to interest rate movements, certain shortcomings inherent in the method of analysis presented in the foregoing table must be considered.

For example, although certain assets and liabilities may have similar maturities or repricing characteristics, their interest rate drivers may react in different degrees to changes in market interest rates (basis risk). Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in interest rates. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset (initial, periodic, and lifetime caps and floors). Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed above. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. The Bank considers all of these factors in monitoring its exposure to interest rate risk.

The Board of Directors and management believe that certain factors afford the Bank the ability to successfully mitigate its exposure to interest rate risk. The Bank manages its interest rate risk by originating and retaining adjustable rate loans in its portfolio, by selling certain fixed rate residential mortgage loans, by borrowing from the Federal Home Loan Bank to manage any mismatch between the asset and liability portfolios, and by using the investment securities portfolio as an effective interest rate risk management tool.

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Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2008. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. There has been no change in the Company’s internal controls over financial reporting during the quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goals, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual actions of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

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PART 2 — OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business the Company may be involved in various legal proceedings from time to time. The Company does not believe it is currently involved in any claim or action the ultimate disposition of which would have a material adverse effect on the Company’s financial statements.

Item 1.A. Risk Factors

If Economic Conditions Deteriorate in our Primary Market, Our Results of Operations and Financial Condition Could be Adversely Impacted as Borrowers’ Ability to Repay Loans Declines and the Value of the Collateral Securing Loans Decreases.

Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events. Decreases in real estate values could adversely affect the value of property used as collateral for our mortgage loans. As a result, the market value of the real estate underlying the loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans. In the event that we are required to foreclose on a property securing a mortgage loan, we may not recover funds in an amount equal to any remaining loan balance. Consequently, we would sustain loan losses and potentially incur a higher provision for loan loss expense, which would have an adverse impact on earnings. In addition, adverse changes in the economy may have a negative effect on the ability of borrowers to make timely repayments of their loans, which would also have an adverse impact on earnings.

Our Securities Portfolio May be Negatively Impacted by Fluctuations in Market Value.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by decreases in interest rates, lower market prices for securities and limited investor demand. Our securities portfolio is evaluated for other-than-temporary impairment on at least a quarterly basis. If this evaluation shows an impairment to cash flow connected with one or more securities, a potential loss to earnings may occur.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth information regarding the Company’s common stock repurchases during the quarter pursuant to its existing stock repurchase plan.

							Maximum
					Total Number of		Number of Shares
	Total				Shares Purchased		that May Yet Be
	Number		Average		as Part of Publicly		Purchased Under
	of Shares		Price Paid		Announced Plans		the Plans or
Period	Purchased		per Share		or Programs		Programs
April 1, 2008 through April 30, 2008		—	$	—		—		550,000
May 1, 2008 through May 31, 2008		—		—		—		550,000
June 1, 2008 through June 30, 2008		89,802		15.20		89,802		460,198
Total		89,802	$	15.20		89,802		460,198

On March 17, 2008, the Company announced its intention to repurchase up to 550,000 shares of its common stock in the open market, at prevailing market prices, over a period beginning on April 28, 2008, continuing until the earlier of the completion of the repurchase or December 31, 2008, depending upon market conditions.

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Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

Exhibit
Number		Description
	3.1	Charter of the Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 0-24566-01))
	3.2	Bylaws of the Registrant (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2007 (File No. 001-32992))
	4.1	Certificate of Registrant’s Common Stock (incorporated herein by reference to Exhibit 4.0 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 0-24566-01))
	10.1	Employment Agreement by and between the Registrant and Garold R. Base (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October  4, 2006 (File No. 001-32992))
	10.2	Amendment to Employment Agreement by and between the Registrant and Garold R. Base (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 10, 2008 (File No. 001-32992))
	10.3	Employment Agreement by and between ViewPoint Bank, the Registrant’s wholly owned operating subsidiary, and Garold R. Base (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 4, 2006 (File No. 001-32992))
	10.4	Amendment to Employment Agreement by and between ViewPoint Bank, the Registrant’s wholly owned operating subsidiary, and Garold R. Base (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 10, 2008 (File No. 001-32992))
	10.5	Amendment to Employment Agreement by and between ViewPoint Bank, the Registrant’s wholly owned operating subsidiary, and Garold R. Base (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 6, 2008 (File No. 001-32992))
	10.6	Form of Severance Agreement (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 1, 2007 (File No. 001-32992))
	10.7	Summary of Director Board Fee Arrangements (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2007 (File No. 001-32992))
	10.8	ViewPoint Bank Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 0-24566-01))
	10.9	Amended and Restated ViewPoint Bank Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1, as amended (File No.  0-24566-01))
	10.10	ViewPoint Bank 2007 Executive Officer Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 31, 2007 (File No. 001-32992))
	11	Statement regarding computation of per share earnings (See Note 2 of the Condensed Notes to Unaudited Consolidated Interim Financial Statements included in this Form 10-Q).
	31.1	Rule 13a — 14(a)/15d — 14(a) Certification (Chief Executive Officer)
	31.2	Rule 13a — 14(a)/15d — 14(a) Certification (Chief Financial Officer)
	32	Section 1350 Certifications

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ViewPoint Financial Group (Registrant)
Date: August 5, 2008	/s/ Garold R. Base
	Garold R. Base
	President and Chief Executive Officer (Duly Authorized Officer)
Date: August 5, 2008	/s/ Pathie E. McKee
	Pathie E. McKee
	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibits:

31.1	Certification of the Chief Executive Officer
31.2	Certification of the Chief Financial Officer
32	Section 1350 Certifications

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