Viewpoint Financial 10-Q 2009 Q1 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 March 31, 2009

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	(Primary Standard Industrial	(I.R.S. Employer Identification No.)
incorporation or organization)	Classification Code Number)

1309 W. 15^th Street, 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).o Yes o No

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 May 5, 2009

	Page
	Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 2009, (unaudited) and December 31, 2008		3
Unaudited Consolidated Statements of Income for the Three Months Ended March 31, 2009, and 2008		4
Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2009, and 2008		5
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2009, and 2008		6
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009, and 2008		7
Condensed Notes to Unaudited Consolidated Interim Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures about Market Risk		36
Item 4. Controls and Procedures		39
PART II—OTHER INFORMATION
Item 1. Legal Proceedings		40
Item 1.A. Risk Factors		40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40
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

Page 2 of 47

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)

	March 31,			December 31,
	2009			2008
	(Unaudited)		��
ASSETS
Cash and due from financial institutions	$	15,060		$	20,886
Short-term interest-bearing deposits in other financial institutions		30,365			11,627
Total cash and cash equivalents		45,425			32,513
Securities available for sale		449,392			483,016
Securities held to maturity (fair value March 31, 2009 — $169,691, December 31, 2008 — $176,579)		164,474			172,343
Loans held for sale		220,793			159,884
Loans, net of allowance of $9,498- March 31, 2009, $9,068-December 31, 2008		1,231,525			1,239,708
Federal Home Loan Bank stock, at cost		15,322			18,069
Bank-owned life insurance		27,742			27,578
Mortgage servicing rights		1,075			1,372
Foreclosed assets, net		1,637			1,644
Premises and equipment, net		49,036			45,937
Goodwill		1,089			1,089
Accrued interest receivable		8,305			8,519
Other assets		20,805			21,743
Total assets	$	2,236,620		$	2,213,415
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest-bearing demand	$	178,274		$	172,395
Interest-bearing demand		119,316			98,884
Savings and money market		671,508			635,243
Time		666,105			641,568
Total deposits		1,635,203			1,548,090
Federal Home Loan Bank advances		348,901			410,841
Repurchase agreement		25,000			25,000
Accrued interest payable		2,125			1,769
Other liabilities		29,452			33,576
Total liabilities		2,040,681			2,019,276
Commitments and contingent liabilities		—			—
Shareholders’ equity
Common stock, $.01 par value; 75,000,000 shares authorized; 26,208,958 shares issued — March 31, 2009; 26,208,958 shares issued — December 31, 2008		262			262
Additional paid-in capital		116,481			115,963
Retained earnings		111,560			108,332
Accumulated other comprehensive income (loss)		(3,794	)		(1,613	)
Unearned Employee Stock Ownership Plan (ESOP) shares; 680,955 shares — March 31, 2009; 704,391 shares — December 31, 2008		(6,862	)		(7,097	)
Treasury stock, at cost; 1,279,801 shares — March 31, 2009; 1,279,801 shares — December 31, 2008		(21,708	)		(21,708	)
Total shareholders’ equity		195,939			194,139
Total liabilities and shareholders’ equity	$	2,236,620		$	2,213,415

See accompanying notes to unaudited consolidated financial statements.

Page 3 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollar amounts in thousands, except per share data)

	Three Months Ended
	March 31,
	2009			2008
Interest and dividend income
Loans, including fees	$	20,738		$	14,325
Taxable securities		6,637			7,365
Nontaxable securities		86			—
Interest-bearing deposits in other financial institutions		59			378
Federal Home Loan Bank stock		—			64
		27,520			22,132
Interest expense
Deposits		9,145			9,102
Federal Home Loan Bank advances		3,776			1,645
Federal Reserve Bank borrowings		29			—
Repurchase agreement		101			—
		13,051			10,747
Net interest income		14,469			11,385
Provision for loan losses		1,442			1,132
Net interest income after provision for loan losses		13,027			10,253
Noninterest income
Service charges and fees		4,436			4,750
Brokerage fees		75			116
Net gain on sales of loans		3,728			1,854
Loan servicing fees		53			58
Bank-owned life insurance income		164			279
Gain on redemption of Visa, Inc. shares		—			771
Valuation adjustment on mortgage servicing rights		(211	)		—
Impairment of collateralized debt obligation (all credit)		(465	)		—
Loss on sale of foreclosed assets		(165	)		(2	)
Gain (loss) on disposition of assets		(416	)		8
Other		243			205
		7,442			8,039
Noninterest expense
Salaries and employee benefits		12,095			9,926
Advertising		255			564
Occupancy and equipment		1,602			1,313
Outside professional services		1,076			530
Data processing		1,004			1,058
Office operations		1,506			1,545
Deposit processing charges		235			259
Lending and collection		288			241
Other		580			492
		18,641			15,928
Income before income tax expense		1,828			2,364
Income tax expense		584			865
Net income	$	1,244		$	1,499
Earnings per share:
Basic	$	0.05		$	0.06
Diluted	$	0.05		$	0.06

See accompanying notes to unaudited consolidated financial statements.

Page 4 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollar amounts in thousands)

	Three Months Ended
	March 31,
	2009			2008
Net income	$	1,244		$	1,499
Other comprehensive income (loss):
Change in unrealized gains (losses) on securities available for sale		1,014			(1,281	)
Tax effect		(352	)		444
Other comprehensive income (loss), net of tax		662			(837	)
Comprehensive income	$	1,906		$	662

See accompanying notes to unaudited consolidated financial statements.

Page 5 of 47

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 three months ended March 31, 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, 26,989 shares		—		150			270			—			—			—			420
Share- based compensation expense		—		440			—			—			—			—			440
Restricted stock granted, 10,000 shares		—		(170	)		—			—			—			170			—
Dividends declared ($0.06 per share)		—		—			—			(662	)		—			—			(662	)
Comprehensive income:
Net income		—		—			—			1,499			—			—			1,499
Change in unrealized gains (losses) on securities available for sale, net of reclassifications and taxes		—		—			—			—			(837	)		—			(837	)
Total comprehensive income																			662
Balance at March 31, 2008	$	262	$	114,032		$	(7,906	)	$	115,638		$	24		$	(17,396	)	$	204,654
												Accumulated
			Additional			Unearned						Other
	Common		Paid-In			ESOP			Retained			Comprehensive			Treasury			Total
For the three months ended March 31, 2009	Stock		Capital			Shares			Earnings			Income (Loss)			Stock			Equity
Balance at December 31, 2008, as previously reported	$	262	$	115,873		$	(7,248	)	$	108,491		$	(1,613	)	$	(21,708	)	$	194,057
SAB 108 adjustment (see Note 2)		—		90			151			(159	)		—			—			82
Balance at January 1, 2009, as adjusted	$	262		115,963			(7,097	)		108,332			(1,613	)	$	(21,708	)		194,139
Cumulative effect of change in accounting principle, adoption of FSP FAS 115-2 and 124-2 (net of tax)		—		—			—			2,843			(2,843	)		—			—
ESOP shares earned, 23,436 shares		—		84			235			—			—			—			319
Share- based compensation expense		—		434			—			—			—			—			434
Dividends declared ($0.08 per share)		—		—			—			(859	)		—			—			(859	)
Comprehensive income:
Net income		—		—			—			1,244			—			—			1,244
Change in unrealized gains (losses) on securities available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings, net of reclassifications and taxes		—		—			—			—			(3,596	)		—			(3,596	)
Change in unrealized gains (losses) on securities available for sale, net of reclassifications and taxes		—		—			—			—			4,258			—			4,258
Total comprehensive income																			1,906
Balance at March 31, 2009	$	262	$	116,481		$	(6,862	)	$	111,560		$	(3,794	)	$	(21,708	)	$	195,939

See accompanying notes to unaudited consolidated financial statements.

Page 6 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollar amounts in thousands)

	Three Months Ended
	March 31,
	2009			2008
Cash flows from operating activities
Net income	$	1,244		$	1,499
Adjustments to reconcile net income to net cash from operating activities
Provision for loan losses		1,442			1,132
Depreciation and amortization		1,027			1,082
Premium amortization and accretion of securities, net		(16	)		(211	)
Impairment of collateralized debt obligation		465			—
ESOP compensation expense		319			420
Share-based compensation expense		434			440
Loss (gain) on new markets equity fund		(9	)		—
Amortization of mortgage servicing rights		86			82
Net (gain) loss on loans held for sale		(3,728	)		(1,854	)
Loans originated for sale		(960,513	)		(69,952	)
Proceeds from sale of loans held for sale		903,332			63,410
FHLB stock dividends		—			(64	)
Increase in bank-owned life insurance		(164	)		(279	)
Loss (gain) on disposition of property and equipment		215			(8	)
Net loss (gain) on sales of other real estate owned		156			—
Write-down of other real estate owned		—			19
Impairment of mortgage servicing rights		211			—
Net change in deferred loan fees		(105	)		765
Net change in accrued interest receivable		214			(47	)
Net change in other assets		731			(350	)
Net change in other liabilities		(3,768	)		(282	)
Net cash from operating activities		(58,427	)		(4,198	)
Cash flows from investing activities
Available-for-sale securities:
Maturities, prepayments and calls		34,214			35,903
Purchases		—			(1,375	)
Held-to-maturity securities:
Maturities, prepayments and calls		7,844			2,885
Purchases		—			(85,277	)
Net change in loans		6,236			(32,879	)
Redemption/(purchase) of FHLB stock		2,769			(1,223	)
Purchases of premises and equipment		(4,343	)		(499	)
Proceeds from sale of fixed assets		2			10
Proceeds on sale of other real estate owned		303			—
Net cash from investing activities		47,025			(82,455	)

See accompanying notes to unaudited consolidated financial statements.

Page 7 of 47

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

	Three Months Ended
	March 31,
	2009			2008
Cash flows from financing activities
Net change in deposits		87,113			79,671
Proceeds from Federal Home Loan Bank advances		—			36,000
Repayments on Federal Home Loan Bank advances		(61,940	)		(4,774	)
Payment of dividends		(859	)		(662	)
Net cash from financing activities		24,314			110,235
Net change in cash and cash equivalents		12,912			23,582
Beginning cash and cash equivalents		32,513			73,478
Ending cash and cash equivalents	$	45,425		$	97,060
Supplemental cash flow information:
Interest paid	$	12,695		$	10,850
Income taxes paid	$	800		$	—
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	$	609		$	446

See accompanying notes to unaudited consolidated financial statements.

Page 8 of 47

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 2008 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 2008 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, ViewPoint Bankers Mortgage, Inc. (“VPBM”). 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 March 31, 2009, ViewPoint MHC (the “MHC”) was the majority (57%) 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. SAB 108 Adjustment

The Company revised its consolidated balance sheet as of December 31, 2008, and the beginning balance in the consolidated statement of changes in shareholders’ equity for the three months ended March 31, 2009, to reflect a SAB 108 adjustment made during the three months ended March 31, 2009. The SAB 108 adjustment related to a correction of the Company’s allocation of ESOP shares. For 2008, the Company allocated 15,116 shares more than scheduled under the ESOP plan as a result of an additional principal payment, causing an understatement of compensation expense for 2008. Due to this correction, retained earnings was decreased by $159, income taxes payable (disclosed under other liabilities) was decreased by $82, additional paid-in capital was increased by $90 and unearned ESOP shares was decreased by $151.

The relevant information included in the consolidated statement of income for the three months ended March 31, 2008, the consolidated statement of changes in shareholders’ equity for the three months ended March 31, 2008, and the consolidated statement of cash flows for the three months ended March 31, 2008, were revised in this Quarterly Report on Form 10-Q to reflect the above correction. As a result, salaries and employee benefits expense was increased by $59, which had a net effect of decreasing net income by $39. Loss per share for the year ended December 31, 2008, increased by $0.01 to $ (0.14) from $ (0.13) due to this SAB 108 adjustment; the adjustment did not change the earnings per share of $0.06 for the three months ended March 31, 2008.

The relevant information included in the consolidated statement of income, the consolidated statement of changes in shareholders’ equity, and the consolidated statement of cash flows for the six, nine and twelve month periods of 2008 will be revised in future filings to reflect the above correction. As a result, salaries and employee benefits expense will be increased by $60, $61 and $61 for the six, nine and twelve month periods of 2008, respectively, which had a net effect of decreasing net income by $40, $40 and $40 for the six, nine and twelve month periods of 2008, respectively. Earnings per share for the three months ended June 30, 2008, of $0.06 and for the six months ended June 30, 2008, of $0.12 were unchanged as a result of this correction. Earnings per share for the three months ended September 30, 2008, decreased by $0.01 to $0.05 from $0.06 due to this SAB 108 adjustment, while earnings per share for the nine months ended September 30, 2008, decreased by $0.01 to $0.17 from $0.18. Loss per share for the three months ended December 31, 2008, of $ (0.31) was unchanged as a result of this SAB 108 adjustment.

Page 9 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

3. 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. On January 1, 2009, the Company adopted FSP EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,as described in Note 11. The impact of the adoption of this FSP for the three months ended March 31, 2009, and March 31, 2008, had no impact on the earnings per common share for these periods. A reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation for the three month periods ended March 31, 2009, and March 31, 2008, follows:

	Three Months Ended
	March 31,
	2009		2008
Basic
Net income	$	1,244	$	1,499
Weighted average common shares outstanding		24,929,157		25,218,503
Less: Average unallocated ESOP shares		696,319		803,053
Average unvested restricted stock awards		344,161		430,208
Average shares		23,888,677		23,985,242
Basic earnings per common share	$	0.05	$	0.06
Diluted
Net income	$	1,244	$	1,499
Weighted average common shares outstanding for basic earnings per common share		23,888,677		23,985,242
Add: Dilutive effects of assumed exercises of stock options		—		—
Dilutive effects of full vesting of stock awards		—		—
Average shares and dilutive potential common shares		23,888,677		23,985,242
Diluted earnings per common share	$	0.05	$	0.06

Stock options for 229,276 shares of common stock outstanding were not considered in computing diluted earnings per share for the three months ended March 31, 2009, because the options’ exercise prices were greater than the average market price of the common stock and were, therefore, anti-dilutive.

Stock options for 183,828 shares of common stock outstanding were not considered in computing diluted earnings per share for the three months ended March 31, 2008, because the options’ exercise prices were greater than the average market price of the common stock and were, therefore, anti-dilutive.

Page 10 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

4. Dividends

On January 20, 2009, the Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share. The dividend was payable on February 17, 2009, to shareholders of record as of February 3, 2009. ViewPoint MHC, which owns 57% of the common stock of ViewPoint Financial Group, elected to waive this dividend after filing a notice with and receiving no objection from the Office of Thrift Supervision.

5. 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 $391 for the three months ended March 31, 2009. The compensation cost that has been charged against income for the stock option portion of the Equity Incentive Plan was $43 for the three months ended March 31, 2009. The total income tax benefit recognized in the income statement for share-based compensation was $148 for the three months ended March 31, 2009.

The compensation cost that has been charged against income for the restricted stock portion of the Equity Incentive Plan was $393 for the three months ended March 31, 2008. The compensation cost that has been charged against income for the stock option portion of the Equity Incentive Plan was $47 for the three months ended March 31, 2008. The total income tax benefit recognized in the income statement for share-based compensation was $150 for the three months ended March 31, 2008.

A summary of the status of the non-vested shares of the restricted stock portion of the Equity Incentive Plan at March 31, 2009, is presented below:

			Weighted-
			Average
			Grant Date
	Shares		Fair Value
Outstanding at December 31, 2008		346,161	$	18.41
Granted		—		—
Vested		2,000		16.53
Forfeited		—		—
Non-vested at March 31, 2009		344,161	$	18.42

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 March 31, 2009, there was $5,002 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 3.2 years.

Page 11 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

A summary of the activity under the stock option portion of the Equity Incentive Plan as of March 31, 2009, and changes for the three 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, 2008		235,661	$	17.91		8.7	$	—
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited		6,385		17.73		—		—
Outstanding at March 31, 2009		229,276	$	17.92		8.4	$	—
Fully vested and expected to vest		220,199	$	17.96		8.4	$	—
Exercisable at March 31, 2009		16,143	$	18.40		7.9	$	—

As of March 31, 2009, there was $502 of total unrecognized compensation expense related to non-exercisable shares awarded under the stock option portion of the Equity Incentive Plan. That expense is expected to be recognized over a weighted-average period of 3.1 years. At March 31, 2009, 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 March 31, 2009, the Company has not granted any stock appreciation rights.

6. Loans

Loans consist of the following:

	March 31,			December 31,
	2009			2008
Mortgage loans:
One-to four-family	$	495,422		$	498,961
Commercial real estate		425,971			436,483
One-to four-family construction		2,187			503
Commercial construction		—			—
Home equity		100,769			101,021
Total mortgage loans		1,024,349			1,036,968
Automobile indirect loans		28,854			38,837
Automobile direct loans		69,349			73,033
Government-guaranteed student loans		8,033			7,399
Commercial non-mortgage loans		19,584			18,574
Warehouse lines of credit		71,167			53,271
Consumer lines of credit and unsecured loans		14,502			15,192
Other consumer loans, secured		6,286			6,708
Total non-mortgage loans		217,775			213,014
Gross loans		1,242,124			1,249,982
Deferred net loan origination fees		(1,101	)		(1,206	)
Allowance for loan losses		(9,498	)		(9,068	)
Net loans	$	1,231,525		$	1,239,708

Page 12 of 47

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
	March 31,
	2009			2008
Beginning balance	$	9,068		$	6,165
Provision for loan losses		1,442			1,132
Loans charged-off		(1,206	)		(1,006	)
Recoveries		194			258
Ending balance	$	9,498		$	6,549

7. Securities

The amortized cost and fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2009	Cost		Gains		Losses			Fair Value
U.S. government and federal agency	$	10,497	$	130	$	—		$	10,627
Agency residential mortgage-backed securities		130,841		2,793		(134	)		133,500
Agency residential collateralized mortgage obligations		294,084		4,917		(3,446	)		295,555
SBA pools		7,814		—		(210	)		7,604
Collateralized debt obligations		11,961		—		(9,855	)		2,106
Total debt securities	$	455,197	$	7,840	$	(13,645	)	$	449,392

			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2008	Cost		Gains		Losses			Fair Value
U.S. government and federal agency	$	18,502	$	238	$	—		$	18,740
Agency residential mortgage-backed securities		137,338		1,492		(659	)		138,171
Agency residential collateralized mortgage obligations		313,391		4,199		(7,525	)		310,065
SBA pools		8,313		—		(213	)		8,100
Collateralized debt obligations		7,940		—		—			7,940
Total debt securities	$	485,484	$	5,929	$	(8,397	)	$	483,016

The amortized cost, unrecognized gains and losses, and fair value of securities held to maturity were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2009	Cost		Gains		Losses			Fair Value
U.S. government and federal agency	$	9,996	$	72	$	—		$	10,068
Agency residential mortgage-backed securities		133,745		4,488		—			138,233
Agency residential collateralized mortgage obligations		11,341		426		(16	)		11,751
Municipal bonds		9,392		267		(20	)		9,639
Total debt securities	$	164,474	$	5,253	$	(36	)	$	169,691

Page 13 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2008	Cost		Gains		Losses			Fair Value
U.S. government and federal agency	$	9,992	$	151	$	—		$	10,143
Agency residential mortgage-backed securities		140,663		3,491		(56	)		144,098
Agency residential collateralized mortgage obligations		12,304		417		(25	)		12,696
Municipal bonds		9,384		258		—			9,642
Total debt securities	$	172,343	$	4,317	$	(81	)	$	176,579

There were no sales of securities during the three months ended March 31, 2009, and March 31, 2008.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic, market, or security specific 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(s), 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.

For the collateralized debt obligations, the unrealized losses are due to a once active market becoming inactive and credit quality issues. The Company’s collateralized debt obligations consist of five trust preferred securities. Depository institutions comprise at least 75% of the underlying issuers in each of these securities, with the remainder being insurance companies. The Company owns the Mezzanine Class D tranche in the four securities that are known as PreTSLs. In the other security, called Soloso, the Company owns the B1L tranche. All five of these securities were rated BBB by Fitch at issuance and purchase. Their ratings were downgraded to C on April 9, 2009. The PreTSLs are currently in Payment in Kind (P.I.K.) status, with accrued interest receivable being capitalized into the security’s par value each quarter rather than being paid out. The Soloso’s interest receivable is being recorded by the trustee, with payment scheduled to take place once coverage ratios are passed for the more senior tranches of the security.

For the three months ended March 31, 2009, the Company recognized a $465 pre-tax charge for the other-than-temporary decline in fair value of the Soloso. This non-cash charge was determined by applying an EITF 99-20 discounted cash flow analysis to the security and reduced its fair value to zero. The analysis of all collateralized debt obligations included a review of the financial condition of each of the issuers, with issuer specific and non-specific estimates of future deferrals, defaults, recoveries, and prepayments of principal being factored into the analysis. As of March 31, 2009, no actual loss of principal or interest had occurred. As required by EITF 99-20-2, when an adverse change in estimated cash flows has occurred, the credit component of the unrealized loss must be recognized as a charge to earnings.

The table below presents a reconciliation of the credit portion of other-than-temporary impairment charges relating to the collateralized debt obligations.

	March 31, 2009
Beginning balance, January 1, 2009	$	9,408
Additional credit losses not recorded previously		465
Reductions for securities sold		—
Reductions for securities that are planned to be sold		—
Additional credit losses on previous other-than- temporary impairment reported in accumulated other comprehensive loss		—
Reductions for increases in cash flows		—
Ending balance, March 31, 2009	$	9,873

Page 14 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

The fair value of debt securities and carrying amount, if different, at March 31, 2009, by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized mortgage obligations, are shown separately.

					Available
	Held-to-maturity				for sale
	Carrying Amount		Fair Value		Fair Value
Due in one year or less	$	—	$	—	$	10,627
Due from one to five years		11,284		11,393		—
Due from five to ten years		8,104		8,314		7,604
Due after ten years		—		—		2,106
Agency residential mortgage-backed securities		133,745		138,233		133,500
Agency residential collateralized mortgage obligations		11,341		11,751		295,555
Total	$	164,474	$	169,691	$	449,392

Securities with unrealized losses at March 31, 2009, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
SBA pools	$	6,526	$	(179	)	$	1,078	$	(31	)	$	7,604	$	(210	)
Municipal bonds		1,457		(20	)		—		—			1,457		(20	)
Agency mortgage-backed and collateralized mortgage obligations		17,317		(239	)		110,809		(3,357	)		128,126		(3,596	)
Collateralized debt obligations		2,106		(9,855	)		—		—			2,106		(9,855	)
Total temporarily impaired	$	27,406	$	(10,293	)	$	111,887	$	(3,388	)	$	139,293	$	(13,681	)

8. 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) for 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: Prices or valuation techniques that require inputs that are both significant and unobservable in the market. These instruments are valued using the best available data, some of which is internally developed and reflects a reporting entity’s own assumptions, and considers risk premiums that market participants would generally require.

Page 15 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

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).

The Level 3 investments consist of five collateralized debt obligations known as trust preferred securities. Depository institutions comprise at least 75% of the underlying issuers in each of these securities, with the remainder being insurance companies. No one entity represents more than 5% of the underlying issuers in any of the securities. Once priced using Level 2 inputs, the decline in the level of observable inputs and market activity in this class of investments by the measurement date has been significant and resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely. The once active market is comparatively inactive.

For the three months ended March 31, 2009, the Company recognized a $465 pre-tax charge for the other-than-temporary decline in fair value of one of these collateralized debt obligations, reducing its fair value to zero. This non-cash charge was determined by applying an EITF 99-20 discounted cash flow model analysis to the securities. The analysis included a review of the financial condition of each of the underlying issuers, with issuer specific and non-specific estimates of future deferrals, defaults, recoveries, and prepayments of principal being factored into the model, resulting in a waterfall distribution of estimated future cash flows to each tranche of the collateralized debt obligation. As of March 31, 2009, no actual loss of principal or interest had occurred.

The Company has developed an internal model for pricing these securities. Information such as historical and current performance of the underlying collateral, deferral/default rates, collateral coverage ratios, break in yield calculations, cash flow projections, liquidity and credit premiums required, and financial trend analysis with respect to the individual issuing financial institutions and insurance companies, are utilized in determining individual security valuations. Due to current market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility.

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 March 31, 2009, Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
	March 31,		Identical Assets		Observable Inputs		Unobservable
	2009		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Securities available for sale	$	449,392	$	—	$	447,286	$	2,106

			Fair Value Measurements at December 31, 2008, Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
	December 31,		Identical Assets		Observable Inputs		Unobservable
	2008		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Securities available for sale	$	483,016	$	—	$	475,076	$	7,940

Page 16 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2009:

	Securities
	available for
	sale
Beginning balance, January 1, 2009	$	7,940
Adjustment due to adoption of FSP FAS 115-2 and 124-2, non-credit portion of impairment previously recorded		4,351
Total gains or losses (realized /unrealized)
Included in earnings
Interest income on securities		135
Impairment of collateralized debt obligations (all credit)		(465	)
Other changes in fair value		—
Gains (losses) on sales of securities		—
Included in other comprehensive income		(9,855	)
Ending balance, March 31, 2009	$	2,106

Assets and Liabilities Measured on a Non-Recurring Basis

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

			Fair Value Measurements at March 31, 2009, Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
	March 31,		Identical Assets		Observable Inputs		Unobservable
	2009		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Impaired loans	$	3,585	$	—	$	3,585	$	—
Mortgage servicing rights		1,075		—		—		1,075

			Fair Value Measurements at December 31, 2008, Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
	December 31,		Identical Assets		Observable Inputs		Unobservable
	2008		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Impaired loans	$	1,269	$	—	$	1,269	$	—

Impaired loans 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. Impaired loans with allocated allowance for loan losses at March 31, 2009, had an outstanding balance of $4,355, with a valuation allowance of $770, resulting in an additional provision for loan losses of $704 that is included in the amount reported on the income statement. Impaired loans with allocated allowance for loan losses at December 31, 2008, had an outstanding balance of $1,597, with a valuation allowance of $328, resulting in an additional provision for loan losses of $55.

Mortgage servicing rights, which are carried at lower of cost or fair value, were written down to their fair value of $1.1 million at March 31, 2009. A charge of $211 was included in earnings for the three months ended March 31, 2009. Mortgage servicing rights were carried at cost at December 31, 2008 and accordingly are not included in this disclosure.

Page 17 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

Activity for capitalized mortgage servicing rights for the three months ended March 31, 2009, and the related valuation allowance follows:

Mortgage servicing rights:
Balance at January 1, 2009	$	1,372
Amortized to expense		(86	)
Change in valuation allowance		(211	)
Balance at March 31, 2009	$	1,075
Valuation allowance:
Balance at January 1, 2009	$	—
Additions expensed		211
Balance at March 31, 2009	$	211

Carrying amount and estimated fair values of financial instruments at March 31, 2009 were as follows:

	March 31, 2009						December 31, 2008
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Financial assets
Cash and cash equivalents	$	45,425		$	45,425		$	32,513		$	32,513
Securities available for sale		449,392			449,392			483,016			483,016
Securities held to maturity		164,474			169,691			172,343			176,579
Loans held for sale		220,793			220,793			159,884			159,884
Loans, net		1,231,525			1,235,912			1,239,708			1,247,457
Federal Home Loan Bank stock		15,322			N/A			18,069			N/A
Accrued interest receivable		8,305			8,305			8,519			8,519
Financial liabilities
Deposits		(1,635,203	)		(1,638,078	)		(1,548,090	)		(1,558,107	)
Federal Home Loan Bank advances		(348,901	)		(362,471	)		(410,841)			(427,243	)
Repurchase agreement		(25,000	)		(24,998	)		(25,000	)		(24,980	)
Accrued interest payable		(2,125	)		(2,125	)		(1,769	)		(1,769	)

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, bank-owned life insurance and accrued interest receivable and payable. For loans, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of loans held for sale approximates cost. For deposits and borrowings, fair value is based on discounted cash flows using the FHLB advance curve to the estimated life. Fair value of debt is based on discounting the estimated cash flows using the current rate at which similar borrowings would be made with similar rates and maturities. It was not practicable to determine the fair value of FHLB stock due to restrictions on its transferability. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements and are not considered significant to this presentation.

9. Repurchase Agreement

In April 2008, the Company entered into a ten-year term structured repurchase callable agreement with Credit Suisse Securities (U.S.A.) LLC 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 of 3.22%. The securities sold under agreements to repurchase had an average balance of $33.5 million and an average interest rate of 2.56% during the three month period ended March 31, 2009. The maximum month-end balance during the three month period ended March 31, 2009 was $33.7 million. At maturity, the securities underlying the agreement are returned to the Company. The fair value of these securities sold under agreements to repurchase was $32.4 million at March 31, 2009. The Company retains the right to substitute securities under the terms of the agreements.

Page 18 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

10. 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). Information reported internally for performance assessment for the three months ended March 31, 2009, and 2008, follows:

	Three Months Ended
	March 31, 2009
					Eliminations			Total Segments
			Mortgage		and			(Consolidated
	Banking		Banking		Adjustments1			Total)
Results of Operations:
Total interest income	$	27,643	$	506	$	(629	)	$	27,520
Total interest expense		13,149		369		(467	)		13,051
Provision for loan losses		1,442		—		—			1,442
Net interest income after provision for loan losses		13,052		137		(162	)		13,027
Other revenue		3,741		—		(27	)		3,714
Net gain on sales of loans		—		4,267		(539	)		3,728
Total noninterest expense		15,143		3,998		(500	)		18,641
Income before income tax expense		1,650		406		(228	)		1,828
Income tax expense		427		146		11			584
Net income	$	1,223	$	260	$	(239	)	$	1,244
Segment assets	$	2,238,015	$	53,593	$	(54,988	)	$	2,236,620
Net gain on sales of loans		—		4,267		(539	)		3,728
Noncash items:
Depreciation		947		60		—			1,007
Provision for loan losses		1,442		—		—			1,442

Page 19 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

	Three Months Ended
	March 31, 2008
					Eliminations			Total Segments
			Mortgage		and			(Consolidated
	Banking		Banking		Adjustments1			Total)
Results of Operations:
Total interest income	$	22,276	$	223	$	(367	)	$	22,132
Total interest expense		10,858		117		(228	)		10,747
Provision for loan losses		1,132		—		—			1,132
Net interest income after provision for loan losses		10,286		106		(139	)		10,253
Other revenue		6,200		—		(15	)		6,185
Net gain on sales of loans		35		2,464		(645	)		1,854
Total noninterest expense		14,332		2,181		(585	)		15,928
Income before income tax expense		2,189		389		(214	)		2,364
Income tax expense		714		139		12			865
Net income	$	1,475	$	250	$	(226	)	$	1,499
Segment assets	$	1,766,890	$	24,228	$	(21,439	)	$	1,769,679
Net gain on sales of loans		35		2,464		(645	)		1,854
Noncash items:
Depreciation		1,053		29		—			1,082
Provision for loan losses		1,132		—		—			1,132

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

11. Recent Accounting Developments

In January 2009, the FASB Emerging Issues Task Force finalized Issue No. 99-20-1,Amendments to the Impairment Guidance of EITF Issue No. 99-20. This issue amends the impairment guidance in EITF Issue No. 99-20,Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. If the fair value of an available-for-sale or held-to-maturity debt security is less than its cost basis at the measurement date, generally accepted accounting principles require that the reporting entity assess the impaired security to determine whether the impairment is other than temporary. Other-than-temporary impairments are recognized through earnings.

This amendment allows for changes which include using reasonable judgment of the probability that the holder will be unable to collect amounts due rather than using the EITF 99-20’s previous requirement to estimate a “market participant’s” view of cash flows. At March 31, 2009, the Company has applied this FSP in determining if our securities have any other-than-temporary impairments.

In April 2009, the FASB issued Staff Position No. 115-2 and No. 124-2,Recognition and Presentation of Other-Than-Temporary Impairments, which amends existing guidance for determining whether impairment is other-than-temporary for debt securities. The FSP requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment related to other factors is recognized in other comprehensive income. Additionally, the FSP expands and increases the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities. This FSP is effective for interim and annual reporting periods after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company elected to early-adopt this FSP as of January 1, 2009. During the year ended December 31, 2008, the Company recognized an other-than-temporary impairment charge of $13.8 million for collateralized debt obligations. At adoption of this FSP, the Company reversed $4.4 million (gross of tax) of this impairment charge, representing the non-credit portion, which resulted in a $9.4 million gross impairment charge related to credit at January 1, 2009. During the three months ended March 31, 2009, the Company recognized a $465 non-cash impairment charge to write off one of our collateralized debt obligations due to other-than-temporary impairment, which was credit-related. Please see Note 7, Securities, of the Condensed Notes to the Unaudited Consolidated Interim Financial Statements included in this Quarterly Report on Form 10-Q.

Page 20 of 47

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

In April 2009, the FASB issued Staff Position No. 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The FSP provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The FSP also requires increased disclosures. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Company elected to early-adopt this FSP as of January 1, 2009. The adoption of this FSP did not have a significant impact to the Company’s financial statements.

In April 2009, the FASB issued Staff Position No. 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107,Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28,Interim Financial Reporting, to require these disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company elected to early-adopt this FSP for the three months ended March 31, 2009, and the fair value disclosures are included in this Form 10-Q.

In April 2009, the FASB issued Staff Position No. 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies. This FSP amends and clarifies FASB Statement No. 141 (revised 2007),Business Combinations, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This FSP is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In June 2008, the FASB issued Staff Position EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This FSP 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. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented shall be adjusted retrospectively. The Company has adopted this FSP for the three months ended March 31, 2009. There was no material impact to earnings per share. Please see Note 3, Earnings per Common Share, of the Condensed Notes to the Unaudited Consolidated Interim Financial Statements included in this Quarterly Report on Form 10-Q.

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

Private Securities Litigation Reform Act Safe Harbor Statement

When used in filings by ViewPoint Financial Group (“the Company”) with the Securities and Exchange Commission (the “SEC”) in the Company’s press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions, legislative changes, changes in policies by regulatory agencies, fluctuations in interest rates, the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, the Company’s ability to access cost-effective funding, fluctuations in real estate values and both residential and commercial real estate market conditions, demand for loans and deposits in the Company’s market area, competition, changes in management’s business strategies and other factors set forth under Risk Factors in our Form 10-K, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above could materially affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake — and specifically declines any obligation — to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

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 57% 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-location 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 would 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 first liens on business non-mortgage assets and automobiles. Additionally, our new warehouse lending program provides credit facilities to mortgage loan originators for the funding of one-to four-family real estate loans. These advances enable the mortgage banking customer to close one-to four-family real estate loans in their own name and temporarily finance their inventory of these closed loans until the loans are sold to investors approved by the Company. These credit facilities may be structured as a warehouse line of credit, a loan repurchase agreement, or a master loan participation agreement (any one or all of which are referred to as “warehouse lines”). We also offer brokerage services for the purchase and sale of non-deposit investment and insurance products through a third party brokerage arrangement.

Our operating revenues are derived principally from earnings on interest-earning assets, service charges and fees, and gains on the sale of loans. Our primary sources of funds are deposits, Federal Home Loan Bank (“FHLB”) advances and other borrowings, and payments received on loans and securities. We offer a variety of deposit accounts which provide a wide range of interest rates and terms, generally including savings, money market, term certificate, and demand accounts.

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At March 31, 2009, the Company operated 22 community bank offices in the Dallas/Fort Worth Metroplex and 14 loan production offices throughout Texas. During the past quarter, we closed our Cedar Creek loan production office, and, in March 2009, we closed eight in-store banking centers located in Carrollton, Dallas, Garland, Plano and McKinney as part of our strategy to expand our community banking network by opening more free-standing, full-service community bank offices and transitioning away from limited-service grocery store banking centers. We recognized $400,000 of loss relating to leasehold improvements and lease termination costs during the three months ended March 31, 2009, due to the closures of these in-store banking centers. In the second quarter of 2009, the Company will be closing an additional in-store banking center located in Frisco, leaving three in-store banking centers open in Grand Prairie, Lake Highlands and Wylie.

A new community bank office in Grapevine with an estimated future commitment of $462,000 at March 31, 2009, opened in April 2009. Two additional community bank offices are also under construction: one in Frisco with an estimated future commitment of $869,000 and an anticipated opening date in May 2009, and one in Wylie with an estimated future commitment of $2.0 million and an anticipated opening date in the third quarter of 2009.

First Quarter Highlights

• Total assets of $2.24 billion, an increase of $23.2 million, or 1.0%, from December 31, 2008

• Total net loans (including loans held for sale) of $1.45 billion, an increase of $52.7 million, or 3.8%, from December 31, 2008

• Total deposits of $1.64 billion, an increase of $87.1 million, or 5.6%, from December 31, 2008

• $0.05 basic and diluted earnings per share for the three months ended March 31, 2009

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 if credit quality changes, which is evidenced by charge-offs and nonperforming loan trends. Our loan mix is also changing as we increase our residential and commercial real estate loan portfolios after discontinuing our indirect automobile lending program in 2006. 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 collectability 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.

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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.

Other-than-Temporary Impairments.The Company evaluates all securities for other-than-temporary impairment on at least a quarterly basis. The evaluation is done more frequently when economic, market, or security specific concerns warrant such evaluation. In estimating other-than-temporary losses, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer(s), and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

For collateralized debt obligations, estimates of future cash flows are calculated using a discounted cash flow model which incorporates EITF 99-20-2 methodology. Projected or future deferrals, defaults, recoveries, and prepayments of principal are modeled based on issuers’ financial condition, payment history, and ability to pay interest and repay principal according to the terms of the financial instrument. For multi-issuer securities, the analysis is conducted for each issuer. In analyzing an issuer’s financial condition, the Company reviews relevant balance sheet, income statement, and ratio information. Industry and market information are also considered. Through this analysis, issuer specific and non-specific estimates of future deferrals, defaults, recoveries, and prepayments of principal are factored into the discounted cash flow model, resulting in a waterfall distribution of estimated future cash flows to each tranche of the collateralized debt obligation.

The Company conducts regular reviews of the bond agency ratings of securities and considers whether the securities were issued by or have principal and interest payments guaranteed by the federal government or its agencies. These reviews focus on the underlying rating of the issuer and also include the insurance rating of securities that have an insurance component. The ratings and financial condition of the issuers are monitored as well.

For periods in which other-than-temporary impairment of a debt security is recognized, the credit portion of the amount is determined by subtracting the present value of the stream of estimated cash flows as calculated in the discounted cash flow model and discounted at book yield from the prior period’s ending carrying value. The non-credit portion of the amount is determined by subtracting the credit portion of the impairment from the difference between the book value and fair value of the security. Please see Note 11 of the Condensed Notes to the Unaudited Consolidated Interim Financial Statements included in this Quarterly Report on Form 10-Q for recent changes in the accounting of other-than-temporary impairments.

Business Strategy

Our principal 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, warehouse lines, 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, full-service community bank offices, and potentially by selectively acquiring production 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 and liquidity purposes; and

• Maintaining a high level of asset quality.

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Comparison of Financial Condition at March 31, 2009, and December 31, 2008

General. Total assets increased by $23.2 million, or 1.0%, to $2.24 billion at March 31, 2009, from $2.21 billion at December 31, 2008. The rise in total assets was primarily caused by a $52.7 million, or 3.8%, increase in net loans (including loans held for sale) and an $18.7 million, or 161.2%, increase in short-term interest-bearing deposits in other financial institutions. This increase was partially offset by a $41.5 million, or 6.3%, reduction in our securities portfolio.

Loans. Net loans (including $220.8 million in mortgage loans held for sale) increased $52.7 million, or 3.8%, from $1.40 billion at December 31, 2008 to $1.45 billion at March 31, 2009. This increase was primarily due to a $60.9 million increase in mortgage loans held for sale: $24.5 million of the increase in loans held for sale was contributed by ViewPoint Bankers Mortgage, while $36.4 million of growth was attributable to mortgage warehouse lines originated for sale under our standard loan participation agreement. Warehouse lines of credit increased by $17.9 million, or 33.6%, from $53.3 million at December 31, 2008, to $71.2 million at March 31, 2009, while commercial non-mortgage loans increased by $1.0 million, or 5.4%.

These increases were partially offset by a $14.2 million, or 10.0%, overall decline in consumer lending balances, as consumer loans decreased from $141.2 million at December 31, 2008, to $127.0 million at March 31, 2009. We have reduced our emphasis on consumer lending as we focus on building our balance sheet with residential real estate and commercial loans and investments.

Over the past year, we significantly expanded our one-to four-family and commercial real estate loan portfolios: since March 31, 2008, one-to four-family mortgage loans increased by $130.9 million, or 35.7%, from $366.7 million at March 31, 2008, to $497.6 million at March 31, 2009. Commercial real estate loans increased by $142.5 million, or 50.3%, from $283.5 million at March 31, 2008 to $426.0 million at March 31, 2009. One-to four-family loan production has increased: during the three months ended March 31, 2009, one-to four-family mortgage loan originations totaled $187.3 million, compared to $115.7 million for the three months ended December 31, 2008, and $104.9 million for the three months ended March 31, 2008. Our mortgage subsidiary, VPBM, is currently selling a larger portion of its one-to four-family loan production. For the three months ended March 31, 2009, VPBM sold or designated for sale 88.6% of the one- to four-family loans it originated, compared to 76.3% for the three months ended December 31, 2008, and 62.2% for the three months ended March 31, 2008.

ViewPoint Bankers Mortgage.At March 31, 2009, VPBM had total assets of $53.6 million, which primarily consisted of $46.9 million in one- to four- family mortgage loans held for sale. VPBM’s net income for the three months ended March 31, 2009, was $260,000, which primarily consisted of gains on sales of mortgage loans. These gains were partially offset by salary and other operating expenses. VPBM operates 13 loan production offices in Texas and has 124 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. For the general component, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and apply an appropriate loss ratio to these groups 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 non-mortgage loans and 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 ratio 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, seasonal and volume factors applied to the originated real estate portfolio. A separate valuation of known losses for individually classified, large-balance, non-homogeneous loans is also conducted in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 114.

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For the specific component, the allowance for loan losses on individually analyzed loans includes commercial non-mortgage loans and 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.

As we continue to expand our loan portfolio, we are focused on maintaining our solid asset quality by applying stringent underwriting guidelines to all loans that we originate. The vast majority of our residential real estate loans are full-documentation, standard “A” type products. We do not offer any subprime loan origination products. Our mortgage lending subsidiary, VPBM, has been providing mortgage loans since 1988, while performing in-house underwriting and closing for all loans originated. Our asset quality data is a direct reflection of our conservative approach to loan origination.

Our non-performing loans, which consist of nonaccrual loans and troubled debt restructurings, include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Troubled debt restructurings, which are accounted for under SFAS No. 114, are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a lower interest rate, a reduction in principal, or a lengthier term to maturity.

Our non-performing loans to total loans ratio at March 31, 2009, was 0.49% compared to 0.38% at December 31, 2008. Nonaccrual loans increased by $3.2 million, from $2.2 million at December 31, 2008, to $5.4 million at March 31, 2009, while troubled debt restructurings decreased by $1.9 million, from $2.5 million at December 31, 2008, to $674,000 at March 31, 2009. Two commercial real estate loans totaling $1.8 million were reported as troubled debt restructurings at December 31, 2008, but have since been placed into nonaccrual status during the quarter ended March 31, 2009. These two loans are delinquent and are currently graded as substandard. Based on current valuations, $84,000 of specific reserve has been allocated to these two loans. Additionally, one-to four-family mortgage nonaccruals increased from $1.4 million at December 31, 2008, to $2.6 million at March 31, 2009. At March 31, 2009, our non-performing assets made up 0.34% of total assets, compared to 0.29% of total assets at December 31, 2008.

Our allowance for loan losses at March 31, 2009, was $9.5 million, or 0.76% of gross loans, compared to $9.1 million, or 0.73% of gross loans, at December 31, 2008. The $430,000, or 4.7%, increase in our allowance for loan losses was primarily due to a $442,000 increase in specific allowance as our individually analyzed impaired loans increased by $1.2 million, from $4.7 million at December 31, 2008, to $5.9 million at March 31, 2009. Net charge-offs for the three months ended March 31, 2009, were $1.0 million, compared to $1.1 million for the three months ended December 31, 2008, and $748,000 for the three months ended March 31, 2008.

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

	March 31, 2009		December 31, 2008
	(Dollars in Thousands)
Period-end loans with no allocated allowance for loan losses	$	1,550	$	3,068
Period-end loans with allocated allowance for loan losses		4,355		1,597
Total	$	5,905	$	4,665
Amount of the allowance for loan losses allocated to impaired loans at period-end	$	770	$	328

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	Three Months Ended
	March 31,
	2009		2008
	(Dollars in Thousands)
Average of individually impaired loans during the period	$	5,580	$	4,284

Nonperforming loans were as follows:

	March 31, 2009		December 31, 2008
	(Dollars in Thousands)
Loans past due over 90 days still on accrual	$	—	$	—
Nonaccrual loans		5,355		2,217
Troubled debt restructurings		674		2,528
Total	$	6,029	$	4,745

At March 31, 2009, nonaccrual loans consisted of the following loan types:

	(Dollars in Thousands)
	Amount		Percent of Total
Mortgage loans:
One-to four- family	$	2,598		48.52	%
Commercial real estate		1,796		33.53
Home equity		171		3.20
Total mortgage loans		4,565		85.25
Automobile indirect loans		166		3.11
Automobile direct loans		126		2.34
Commercial non-mortgage loans		313		5.85
Consumer secured loans		5		0.09
Consumer lines of credit and unsecured loans		180		3.36
Total non-mortgage loans		790		14.75
Total nonaccrual loans	$	5,355		100.00	%

At March 31, 2009, troubled debt restructurings (excluding those loans on nonaccrual, which are reported above) consisted of the following loan types:

	(Dollars in Thousands)
	Amount		Percent of Total
Mortgage loans:
Home equity	$	115		17.07	%
Total mortgage loans		115		17.07
Automobile indirect loans		206		30.53
Automobile direct loans		243		36.10
Consumer lines of credit and unsecured loans		110		16.30
Total non-mortgage loans		559		82.93
Total troubled debt restructurings	$	674		100.00	%

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Cash and Cash Equivalents.Cash and cash equivalents increased by $12.9 million, or 39.7%, to $45.4 million at March 31, 2009, from $32.5 million at December 31, 2008. This increase in cash position was primarily due to a $87.1 million increase in deposits and paydowns of securities.

Securities. Our securities portfolio decreased by $41.5 million, or 6.3%, to $613.9 million at March 31, 2009, from $655.4 million at December 31, 2008. We have not sold any securities. The decline in our securities portfolio was primarily caused by maturities and principal paydowns.

Deposits. Total deposits increased by $87.1 million, or 5.6%, to $1.64 billion at March 31, 2009, from $1.55 billion at December 31, 2008. We experienced growth in all of our deposit products, primarily in our savings and money market accounts, which increased by $36.3 million, or 5.7%, and our time accounts, which increased by $24.5 million, or 3.8%. The growth in time deposits is primarily attributable to certificates from the CDARS^® network. Through CDARS^®, the Company can provide a depositor the ability to place up to $50.0 million on deposit with the Company while receiving FDIC insurance on the entire deposit by virtue of the Company placing customer funds in excess of FDIC deposit insurance limits with other financial institutions in the CDARS^® network. In return, these financial institutions place customer funds with the Company on a reciprocal basis. We also saw a significant increase in our interest-bearing demand accounts, which increased by $20.4 million, or 20.7%, from $98.9 million at December 31, 2008, to $119.3 million at March 31, 2009; this growth was due to our Absolute Checking product, which currently provides a 4.0% annual percentage yield on account balances up to $50,000 when certain stipulations are met.

Borrowings. Federal Home Loan Bank advances decreased by $61.9 million, or 15.1%, from $410.8 million at December 31, 2008, to $348.9 million at March 31, 2009. The outstanding balance of borrowings decreased during the quarter due to monthly principal paydowns. During the three months ended March 31, 2009, the Company used deposit growth to fund loans rather than utilizing borrowings as a funding source. At March 31, 2009, the Company was eligible to borrow an additional $415.2 million from the Federal Home Loan Bank. Additionally, the Company is eligible to borrow from the Federal Reserve Bank discount window and has two available Federal Funds lines of credit with other financial institutions totaling $66.0 million.

Shareholders’ Equity. Total shareholders’ equity increased by $1.8 million, or 0.93%, from $194.1 million at December 31, 2008, to $195.9 million at March 31, 2009. This increase was primarily caused by net income of $1.2 million for the three months ended March 31, 2009 and a decrease in unrealized losses on securities available for sale of $662,000. These changes were partially offset by the payment of an $0.08 per share dividend, which resulted in an $859,000 reduction to shareholders’ equity. On April 9, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2, which allowed the Company to reverse the non-credit portion of an impairment charge booked to earnings relating to the Company’s collateralized debt obligations in December 2008. The $2.8 million after-tax amount was reflected as a cumulative effect adjustment that increased retained earnings and increased accumulated other comprehensive loss. This reclassification had a positive impact on regulatory capital and no impact on tangible common equity.

Comparison of Results of Operations for the Three Months Ended March 31, 2009 and 2008

General.Net income for the three months ended March 31, 2009, was $1.2 million, a decrease of $255,000, or 17.0%, from $1.5 million for the three months ended March 31, 2008. While net interest income increased by $3.0 million, or 27.1%, noninterest expense increased by $2.7 million, or 17.0%, noninterest income declined by $597,000, or 7.4%, and provision for loan losses increased by $310,000, or 27.4%.

Interest Income.Interest income increased by $5.4 million, or 24.3%, from $22.1 million for the three months ended March 31, 2008, to $27.5 million for the three months ended March 31, 2009. This increase was primarily due to a $6.4 million, or 44.8%, increase in interest income on loans, as the average balance of our loan portfolio increased by $504.2 million, or 52.8%, from $955.5 million for the three months ended March 31, 2008, to $1.46 billion for the three months ended March 31, 2009. Also, the average balance of mortgage-backed securities increased by $90.8 million, or 49.1%, from $184.6 million for the three months ended March 31, 2008, to $275.4 million for the three months ended March 31, 2009. These increases were partially offset by a $30.9 million, or 8.9%, decrease in the average balance of collateralized mortgage obligations, which decreased from $349.3 million for the three months ended March 31, 2008, to $318.4 million for the three months ended March 31, 2009. Overall, due to the lower interest rate environment, the yield on interest-earning assets decreased 42 basis points to 5.13% for the three months ended March 31, 2009, from 5.55% for the three months ended March 31, 2008.

Interest Expense.Interest expense increased by $2.4 million, or 21.4%, from $10.7 million for the three months ended March 31, 2008, to $13.1 million for the three months ended March 31, 2009. This increase was primarily caused by a $278.9 million, or 200.1%, increase in the average balance of our borrowings, from $139.3 million for the three months ended March 31, 2008, to $418.2 million for the three months ended March 31, 2009. We utilize borrowings from the Federal Home Loan Bank and the Federal Reserve, as well as our repurchase agreement with Credit Suisse, to leverage the balance sheet, increase liquidity, and extend the duration of our liabilities to more closely match our assets. At March 31, 2009, we had $348.9 million in outstanding Federal Home Loan Bank advances and $25.0 million outstanding for our repurchase agreement. We had no Federal Reserve borrowings outstanding at the end of the quarter due to the short-term nature of these borrowings.

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In addition to the $2.3 million increase in interest expense on borrowings, interest expense paid on deposits increased by $43,000, or 0.47%. Although the average balances in all of our deposit products grew by a combined $280.9 million from the three months ended March 31, 2008, to the three months ended March 31, 2009, decreased rates helped to offset any additional expense associated with the balance increases. Overall, the rate paid on average interest-bearing liabilities decreased 54 basis points to 2.85% for the three months ended March 31, 2009, compared to 3.39% for the three months ended March 31, 2008, due to the lower interest rate environment.

Net Interest Income.Net interest income increased by $3.0 million, or 27.1%, to $14.5 million for the three months ended March 31, 2009, from $11.4 million for the three months ended March 31, 2008. The net interest rate spread increased 12 basis points to 2.28% for the three months ended March 31, 2009, from 2.16% for the same period last year. The net interest margin decreased 15 basis points to 2.70% for the three months ended March 31, 2009, from 2.85% for the three months ended March 31, 2008.

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 large commercial loans, are evaluated individually, and specific loss allocations are provided for these loans when management has concerns about the borrowers’ ability to repay.

Based on management’s evaluation, provisions for loan losses of $1.4 million and $1.1 million were made during the three months ended March 31, 2009, and March 31, 2008, respectively. The $310,000, or 27.4%, increase in provisions for loan losses was primarily caused by the growth of our loan portfolio, as well as an increase in impaired loans. Compared to the three months ended March 31, 2008, our average loans have increased by $504.2 million, or 52.8%, with the growth being driven by residential and commercial real estate loans and warehouse lines of credit. In addition, net charge-offs have increased from $748,000 for the three months ended March 31, 2008, to $1.0 million for the three months ended March 31, 2009 due to increased commercial non-mortgage, one-to four-family and direct automobile charge-offs. Additionally, impaired loans have increased by $1.9 million, from $4.0 million at March 31, 2008, to $5.9 million at March 31, 2009, with specific reserves allocated to impaired loans increasing by $430,000, from $340,000 at March 31, 2008, to $770,000 at March 31, 2009. At March 31, 2009, our allowance for loans losses to total loans was 0.76%, compared to 0.73% at December 31, 2008, and 0.69% at March 31, 2008.

Noninterest Income.Noninterest income decreased by $597,000, or 7.4%, from $8.0 million for the three months ended March 31, 2008, to $7.4 million for the three months ended March 31, 2009. This decrease was primarily caused by a $465,000 non-cash impairment charge to write off one of our collateralized debt obligations due to other-than-temporary impairment, which was credit-related. When modeled using projected assumptions for defaults, deferrals, recoveries and prepayments, this security was projected to return no future cash flows. An April 2009 report showed that additional deferrals and an increase in probable bank defaults warranted this impairment. Also, in March 2009, we booked $400,000 of loss relating to the closure of eight in-store banking centers as we expand our community banking network by opening more free-standing, full-service community bank offices and transition away from limited service grocery store banking centers. Additionally, during the three months ended March 31, 2009, we booked a valuation adjustment of $211,000 to write down our mortgage servicing rights to $1.1 million.

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Comparatively, 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, with no similar transactions in 2009. These decreases in noninterest income were partially offset by a $1.9 million, or 101.1%, increase in the net gain on sales of loans; VPBM sold $140.2 million in mortgage loans to outside investors during the three months ended March 31, 2009, compared to $59.3 million for the three months ended March 31, 2008.

Noninterest Expense. Noninterest expense increased by $2.7 million, or 17.0%, from $15.9 million for the three months ended March 31, 2008, to $18.6 million for the three months ended March 31, 2009. This increase was primarily due to a $2.2 million, or 21.9%, increase in salaries and employee benefits expense; since March 2008, we have added staff due to the opening of our Northeast Tarrant County community bank office in August 2008 and our Oak Cliff community bank office in October 2008. Overall, our full-time employee equivalent count has increased from 544 at March 31, 2008, to 633 at March 31, 2009. The $2.2 million increase in salaries and employee benefits expense included a $779,000 increase in variable incentives based on higher mortgage loan production in 2009. Additionally, outside professional services expense increased by $546,000, or 103.0%, due to higher FDIC and OTS assessments in 2009 and the $350,000 reversal of a Visa litigation liability during the three months ended March 31, 2008, with no corresponding transaction in 2009. These increases in noninterest expense were partially offset by lower advertising expense of $309,000, or 54.8%.

Income Tax Expense.During the three months ended March 31, 2009, we incurred income tax expense of $584,000 on our pre-tax income compared to income tax expense of $865,000 for the three months ended March 31, 2008. The effective tax rate decreased from 36.6% for the three months ended March 31, 2008, to 31.9% for the three months ended March 31, 2009. The decline in the effective tax rate was primarily attributable to tax benefits relating to our bank-owned life insurance policy and the purchase of municipal bonds.

Analysis of Net Interest Income — Three Months Ended March 31, 2009, and 2008

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.

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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 March 31,
	2009								2008
	Average								Average
	Outstanding			Interest					Outstanding			Interest
	Balance			Earned/Paid		Yield/Rate			Balance			Earned/Paid		Yield/Rate
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable	$	1,459,716		$	20,738		5.68	%	$	955,538		$	14,325		6.00	%
Agency mortgage-backed securities		275,387			3,172		4.61			184,641			2,306		5.00
Agency collateralized mortgage obligations		318,363			3,104		3.90			349,326			4,332		4.96
Investment securities and collateralized debt obligations		49,094			447		3.64			52,987			727		5.49
FHLB stock		16,632			—		—			6,700			64		3.82
Interest-earning deposit accounts		27,994			59		0.84			46,474			378		3.25
Total interest-earning assets		2,147,186			27,520		5.13			1,595,666			22,132		5.55
Noninterest -earning assets		89,227								111,030
Total assets	$	2,236,413							$	1,706,696
Interest-bearing liabilities:
Interest-bearing demand		104,381			407		1.56			66,762			124		0.74
Savings and money market		644,216			3,376		2.10			574,402			3,488		2.43
Time		662,419			5,362		3.24			488,973			5,490		4.49
Borrowings		418,152			3,906		3.74			139,331			1,645		4.72
Total interest-bearing liabilities		1,829,168			13,051		2.85			1,269,468			10,747		3.39
Noninterest- bearing liabilities		211,767								231,730
Total liabilities		2,040,935								1,501,198
Total capital		195,478								205,498
Total liabilities and capital	$	2,236,413							$	1,706,696
Net interest income				$	14,469							$	11,385
Net interest rate spread							2.28	%							2.16	%
Net earning assets	$	318,018							$	326,198
Net interest margin							2.70	%							2.85	%
Average interest-earning assets to average interest-bearing liabilities		117.39	%							125.70	%

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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 March 31,
	2009 versus 2008
	Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)
Interest-earning assets:
Loans receivable	$	7,198		$	(785	)	$	6,413
Agency mortgage-backed securities		1,057			(191	)		866
Agency collateralized mortgage obligations		(360	)		(868	)		(1,228	)
Investment securities and collateralized debt obligations		(50	)		(230	)		(280	)
FHLB stock		—			(64	)		(64	)
Interest-earning deposit accounts		(111	)		(208	)		(319	)
Total interest-earning assets		7,734			(2,346	)		5,388
Interest-bearing liabilities:
Interest-bearing demand		96			187			283
Savings and money market		397			(509	)		(112	)
Time		1,643			(1,771	)		(128	)
Borrowings		2,669			(408	)		2,261
Total interest-bearing liabilities		4,805			(2,501	)		2,304
Net interest income	$	2,929		$	155		$	3,084

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. ViewPoint 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.

In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of March 31, 2009, ViewPoint Bank had an additional borrowing capacity of $415.2 million with the Federal Home Loan Bank of Dallas (FHLB). In addition to FHLB advances, the Company may also use the discount window at the Federal Reserve Bank as a source of short-term funding; Federal Reserve Bank borrowing capacity varies based upon collateral pledged to the discount window line. Also, at March 31, 2009, the Company had $66.0 million in Federal Funds lines of credits available with other financial institutions.

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ViewPoint Bank has classified 73.2% of its securities portfolio as available for sale, providing an additional source of liquidity. With the exception of collateralized debt obligations, which comprise 0.47% of our available for sale securities portfolio, management believes that because active markets exist and our securities portfolio is of high quality, our available for sale securities are 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.

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 portions of commercial real estate loans. These participations are sold to manage borrower concentration risk as well as interest rate risk. ViewPoint Bank uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. At March 31, 2009, the total approved loan commitments and unused lines of credit (including warehouse line commitments) outstanding amounted to $107.0 million and $233.2 million, respectively, as compared to $127.7 million and $102.5 million, respectively, as of December 31, 2008. Certificates of deposit scheduled to mature in one year or less at March 31, 2009, totaled $563.5 million.

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

For the three months ended March 31, 2009, cash and cash equivalents increased $12.9 million, or 39.7%, from $32.5 million as of December 31, 2008, to $45.4 million as of March 31, 2009. Cash provided by investing activities of $47.0 million and cash provided by financing activities of $24.3 million more than offset cash used for operating activities of $58.4 million. Primary sources of cash for the three months ended March 31, 2009 included proceeds from the sale of loans held for sale of $903.3 million and increased deposits of $87.1 million. Primary uses of cash for the three months ended March 31, 2009, included loans originated for sale of $960.5 million and repayments on FHLB advances of $61.9 million.

For the three months ended March 31, 2008, cash and cash equivalents increased $23.6 million, or 32.1%, from $73.5 million as of December 31, 2007, to $97.1 million as of March 31, 2008. Cash provided by financing activities of $110.2 million more than offset cash used for operating activities of $4.2 million and cash used for investing activities of $82.4 million. Primary sources of cash for the three months ended March 31, 2008 included an increase in deposits of $79.7 million, proceeds from the sale of loans held for sale of $63.4 million, and proceeds from FHLB advances of $36.0 million. Primary uses of cash for the three months ended March 31, 2008, included purchases of held-to-maturity securities of $85.3 million, loans originated for sale of $70.0 million, and a net increase in loans of $32.9 million.

Please see Item 1A (Risk Factors) under Part 1 of the Company’s 2008 Annual Report on Form 10-K for information regarding liquidity risk.

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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.

	March 31, 2009
	Less		One		Four
	than		through		through		After
	One		Three		Five		Five
	Year		Years		Years		Years		Total
	(Dollars in Thousands)
Contractual obligations:
Federal Home Loan Bank advances	$	36,397	$	97,834	$	106,841	$	107,829	$	348,901
Repurchase agreement		—		—		—		25,000		25,000
Operating leases (premises)		1,575		2,481		1,454		3,510		9,020
Total advances and operating leases	$	37,972	$	100,315	$	108,295	$	136,339		382,921
Off-balance sheet loan commitments:
Undisbursed portions of loans closed		—		—		—		—		31,799
Commitments to originate loans		—		—		—		—		75,183
Unused lines of credit and warehouse line commitments		—		—		—		—		233,220
Total loan commitments		—		—		—		—		340,202
Total contractual obligations and loan commitments									$	723,123

Capital Resources

ViewPoint Bank is subject to minimum capital requirements imposed by the OTS. Based on its capital levels at March 31, 2009, 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 OTS. Based on capital levels at March 31, 2009, the Bank was considered to be well-capitalized.

At March 31, 2009, the Bank’s GAAP equity totaled $166.9 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 Company’s equity totaled $195.9 million, or 8.8% of total assets, at March 31, 2009. ViewPoint Financial Group is not subject to any specific capital requirements; however, the OTS expects ViewPoint Financial Group to support ViewPoint Bank, including providing additional capital to the Bank if it does not meet capital requirements. During the three months ended March 31, 2009, ViewPoint Financial Group contributed $2.0 million in capital to ViewPoint Bank. While the Bank never fell below well-capitalized status, the Company completed the capital contribution to ensure that the Bank’s capital levels remain high. The following table displays the Bank’s capital position relative to its OTS capital requirements at March 31, 2009. The definitions of the terms used in the table are those provided in the capital regulations issued by the OTS.

											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 March 31, 2009:
Total capital (to risk weighted assets)	$	168,845		10.97	%	$	123,122		8.00	%	$	153,903		10.00	%
Tier 1 (core) capital (to risk weighted assets)		160,118		10.40			61,561		4.00			92,342		6.00
Tier 1 (core) capital (to adjusted total assets)		160,118		7.17			89,271		4.00			111,589		5.00
As of December 31, 2008:
Total capital (to risk weighted assets)	$	163,596		11.17	%	$	117,146		8.00	%	$	146,432		10.00	%
Tier 1 (core) capital (to risk weighted assets)		154,856		10.58			58,573		4.00			87,859		6.00
Tier 1 (core) capital (to adjusted total assets)		154,856		7.02			88,258		4.00			110,323		5.00

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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 ViewPoint 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, prepayment potential, repricing opportunities, and sensitivity to actual or potential changes in market interest rates.

The Company 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 OTS 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 sets 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 indicates that the NPV ratio should not fall below 7.00%, 6.00%, and 5.00%, respectively. As illustrated in the tables below, the Bank was within policy limits for all scenarios tested. The tables presented below, as of March 31, 2009, and December 31, 2008, 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 of 200 basis points or more. 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, in the upward rate change scenarios. As interest rates rise, the market value of fixed rate loans declines due to both higher discount rates and slowing loan prepayments.

We have implemented a strategic 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 as appropriate. These borrowings will be of a term so as to lengthen the duration of liabilities sufficiently to impact duration mismatches. 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.

March 31, 2009
Change in
Interest
Rates in	Net Portfolio Value								NPV
Basis Points	$ Amount		$ Change			% Change			Ratio %
(Dollars in Thousands)
300		142,281		(37,758	)		(20.97	)		6.73
200		159,389		(20,650	)		(11.47	)		7.38
100		173,858		(6,181	)		(3.43	)		7.88
0		180,039		—			—			8.02
(100)		178,536		(1,503	)		(0.83	)		7.84
(200)		182,002		1,963			1.09			7.86
(300)		195,012		14,973			8.32			8.28

December 31, 2008
Change in
Interest
Rates in	Net Portfolio Value								NPV
Basis Points	$ Amount		$ Change			% Change			Ratio %
(Dollars in Thousands)
300		116,243		(55,211	)		(32.20	)		5.61
200		138,395		(33,059	)		(19.28	)		6.51
100		158,694		(12,760	)		(7.44	)		7.28
0		171,454		—			—			7.70
(100)		173,147		1,693			0.99			7.65
(200)		171,964		510			0.30			7.48
(300)		179,152		7,698			4.49			7.67

The Bank’s NPV was $180.0 million, or 8.02%, of the market value of portfolio assets as of March 31, 2009, an $8.5 million increase from the $171.5 million, or 7.70%, of the market value of portfolio assets as of December 31, 2008. Based upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in a $20.7 million decrease in our NPV at March 31, 2009, a decrease from $33.1 million at December 31, 2008, and would result in a 64 basis point decrease in our NPV ratio to 7.38% at March 31, 2009, as compared to a 119 basis point decrease to 6.51% at December 31, 2008. An immediate 200 basis point decrease in market interest rates would result in a $2.0 million increase in our NPV at March 31, 2009, compared to $510,000 at December 31, 2008, and would result in a 16 basis point decrease in our NPV ratio to 7.86% at March 31, 2009, as compared to a 22 basis point decrease in our NPV ratio to 7.48% at December 31, 2008.

In addition to monitoring selected measures of NPV, management also calculates and monitors effects on net interest income resulting from increases or decreases 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 maintaining or increasing the Bank’s net interest margin than on strictly matching the interest rate sensitivity of its assets and liabilities.

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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 current historically low interest rate environment has resulted in asymmetrical interest rate risk. Certain repricing liabilities cannot be fully shocked downward. Assets with prepayment options are being monitored. Market and customer behavior are being considered in the management of 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 March 31, 2009. 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

Set forth below are updates and additions to the market risk information provided in Item 1.A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. These updates and additions should be read in conjunction with the 2008 Form 10-K information.

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

Not applicable.

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 Current Report on Form 8-K filed with the SEC on November 24, 2008 (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))
	10.11	Amendment to ViewPoint Bank 2007 Executive Officer Incentive Plan (incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on March 6, 2008 (File No. 001-32992))
	11	Statement regarding computation of per share earnings (See Note 3 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: May 5, 2009	/s/ Garold R. Base
	Garold R. Base
	President and Chief Executive Officer (Duly Authorized Officer)
Date: May 5, 2009	/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		Description
	31.1	Certification of the Chief Executive Officer
	31.2	Certification of the Chief Financial Officer
	32.0	Section 1350 Certifications

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