LegacyTexas Financial 10-Q 2014 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

OR

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

For the transition period from to

Commission file number 001-34737

VIEWPOINT FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Maryland	6021	27-2176993
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)
1309 W. 15thStreet, Plano, Texas		75075
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (972) 578-5000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(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 Act). Yes o No x

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

Class: Common Stock	Shares Outstanding as of October 27, 2014:
	40,006,941

VIEWPOINT FINANCIAL GROUP, INC.

FORM 10-Q

September 30, 2014

INDEX

PART I -- FINANCIAL INFORMATION	3
Item 1. Financial Statements:	3
Consolidated Balance Sheets at September 30, 2014 (unaudited) and December 31, 2013	3
Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013	4
Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013	5
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2014 and 2013	6
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	7
Condensed Notes to Unaudited Consolidated Interim Financial Statements	9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures about Market Risk	53
Item 4. Controls and Procedures	56
PART II—OTHER INFORMATION	57
Item 1. Legal Proceedings	57
Item 1.A. Risk Factors	57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3. Defaults Upon Senior Securities	57
Item 4. Mine Safety Disclosures	57
Item 5. Other Information	57
Item 6. Exhibits	58
SIGNATURE PAGE	60
EXHIBIT INDEX	61

PART 1 - FINANCIAL INFORMATION        Item 1. Financial Statements

VIEWPOINT FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	September 30,			December 31,
	2014			2013
ASSETS	(unaudited)
Cash and due from financial institutions	$	27,669		$	30,012
Short-term interest-bearing deposits in other financial institutions	62,616			57,962
Total cash and cash equivalents	90,285			87,974
Securities available for sale, at fair value	211,364			248,012
Securities held to maturity (fair value: September 30, 2014 — $264,105, December 31, 2013— $301,739)	254,665			294,583
Loans held for investment:
Loans held for investment (net of allowance for loan losses of $22,585 at September 30, 2014 and $19,358 at December 31, 2013)	2,464,290			2,029,277
Loans held for investment - Warehouse Purchase Program	736,624			673,470
Total loans held for investment	3,200,914			2,702,747
FHLB and Federal Reserve Bank stock, at cost	41,473			34,883
Bank-owned life insurance	36,010			35,565
Premises and equipment, net	51,118			53,272
Goodwill	29,650			29,650
Other assets	35,045			38,546
Total assets	$	3,950,524		$	3,525,232
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest-bearing demand	$	483,784		$	410,933
Interest-bearing demand	454,416			474,515
Savings and money market	1,057,912			904,576
Time	500,356			474,615
Total deposits	2,496,468			2,264,639
FHLB advances	799,704			639,096
Repurchase agreement	25,000			25,000
Other liabilities	65,225			52,037
Total liabilities	3,386,397			2,980,772
Commitments and contingent liabilities	—			—
Shareholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized; 0 shares issued — September 30, 2014 and December 31, 2013	—			—
Common stock, $.01 par value; 90,000,000 shares authorized; 40,006,941 shares issued — September 30, 2014 and 39,938,816 shares issued — December 31, 2013	400			399
Additional paid-in capital	383,779			377,657
Retained earnings	194,663			183,236
Accumulated other comprehensive income (loss), net	635			(383		)
Unearned Employee Stock Ownership Plan (ESOP) shares; 1,595,699 shares at September 30, 2014 and 1,733,845 shares at December 31, 2013	(15,350		)	(16,449		)
Total shareholders’ equity	564,127			544,460
Total liabilities and shareholders’ equity	$	3,950,524		$	3,525,232
See accompanying notes to consolidated financial statements.

3

VIEWPOINT FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Interest and dividend income
Loans, including fees	$	35,872		$	30,805		$	100,148		$	93,334
Taxable securities	2,225			2,337			7,243			7,197
Nontaxable securities	562			568			1,687			1,571
Interest-bearing deposits in other financial institutions	57			32			185			88
FHLB and Federal Reserve Bank stock	139			133			405			400
	38,855			33,875			109,668			102,590
Interest expense
Deposits	2,021			2,411			6,047			7,293
FHLB advances	1,957			2,066			5,832			6,530
Repurchase agreement	205			206			610			610
Other borrowings	2			4			2			6
	4,185			4,687			12,491			14,439
Net interest income	34,670			29,188			97,177			88,151
Provision (benefit) for loan losses	2,511			(158		)	4,084			2,583
Net interest income after provision (benefit) for loan losses	32,159			29,346			93,093			85,568
Non-interest income
Service charges and fees	4,571			4,460			13,743			13,519
Other charges and fees	227			300			676			691
Bank-owned life insurance income	147			148			445			463
Loss on sale of available-for-sale securities (reclassified from accumulated other comprehensive income for unrealized losses on available-for-sale securities)	—			—			—			(177		)
Gain (loss) on sale and disposition of assets	(85		)	41			643			715
Other	198			277			(58		)	1,617
	5,058			5,226			15,449			16,828
Non-interest expense
Salaries and employee benefits	13,661			13,546			41,920			38,989
Merger and acquisition costs	1,188			—			2,009			—
Advertising	262			666			1,110			1,930
Occupancy and equipment	1,807			1,830			5,518			5,558
Outside professional services	569			682			1,580			1,936
Regulatory assessments	698			629			2,013			1,858
Data processing	1,739			1,733			5,109			4,980
Office operations	1,566			1,603			4,963			5,002
Other	1,301			1,484			4,074			4,496
	22,791			22,173			68,296			64,749
Income before income tax expense	14,426			12,399			40,246			37,647
Income tax expense (items reclassified from accumulated other comprehensive income include an income tax benefit of $62 for the nine months ended September 30, 2013)	5,114			4,187			14,434			13,203
Net income	$	9,312		$	8,212		$	25,812		$	24,444
Earnings per share:
Basic	$	0.24		$	0.22		$	0.67		$	0.64
Diluted	$	0.24		$	0.21		$	0.67		$	0.64
Dividends declared per share 1	$	0.12		$	0.10		$	0.36		$	0.20
See accompanying notes to consolidated financial statements.

¹ In 2012, the Company prepaid the quarterly dividend for the first quarter of 2013 in December 2012, distributing an additional $0.10 per common share.

4

VIEWPOINT FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	9,312		$	8,212		$	25,812		$	24,444
Change in unrealized gains (losses) on securities available for sale	(206		)	(179		)	1,569			(2,884		)
Reclassification of amount realized through sale of securities	—			—			—			177
Tax effect	71			63			(551		)	967
Other comprehensive income (loss), net of tax	(135		)	(116		)	1,018			(1,740		)
Comprehensive income	$	9,177		$	8,096		$	26,830		$	22,704
See accompanying notes to consolidated financial statements.

5

VIEWPOINT FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

(Dollars in thousands, except per share data)

For the nine months ended September 30, 2013	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income, Net			Unearned ESOP Shares			Total Shareholders’ Equity
Balance at January 1, 2013	$	396		$	372,168		$	164,328		$	1,895		$	(17,916	)	$	520,871
Net income	—			—			24,444			—			—			24,444
Other comprehensive income (loss), net of tax	—			—			—			(1,740		)	—			(1,740		)
Share repurchase (83,800 shares)	(1		)	(1,553		)	—			—			—			(1,554		)
Dividends declared ($0.20 per share)	—			—			(7,985		)	—			—			(7,985		)
ESOP shares earned (138,146 shares)	—			1,721			—			—			1,100			2,821
Share-based compensation expense	—			2,325			—			—			—			2,325
Net issuance of common stock under employee stock plans (422,773 shares)	5			902			—			—			—			907
Balance at September 30, 2013	$	400		$	375,563		$	180,787		$	155		$	(16,816	)	$	540,089

For the nine months ended September 30, 2014
Balance at January 1, 2014	$	399	$	377,657	$	183,236		$	(383	)	$	(16,449	)	$	544,460
Net income	—		—		25,812			—			—			25,812
Other comprehensive income, net of tax	—		—		—			1,018			—			1,018
Dividends declared ($0.36 per share)	—		—		(14,385		)	—			—			(14,385		)
ESOP shares earned (138,146 shares)	—		2,482		—			—			1,099			3,581
Share-based compensation expense	—		2,698		—			—			—			2,698
Net issuance of common stock under employee stock plans (68,125 shares)	1		942		—			—			—			943
Balance at September 30, 2014	$	400	$	383,779	$	194,663		$	635		$	(15,350	)	$	564,127

See accompanying notes to consolidated financial statements.

6

VIEWPOINT FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities
Net income	$	25,812		$	24,444
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,084			2,583
Depreciation and amortization	3,301			3,383
Deferred tax expense	2,042			289
Premium amortization and accretion of securities, net	2,653			4,781
Accretion related to acquired loans	(1,198		)	(2,294		)
Loss on sale of available for sale securities	—			177
ESOP compensation expense	3,581			2,821
Share-based compensation expense	2,698			2,325
FHLB stock dividends	(70		)	(88		)
Bank-owned life insurance income	(445		)	(463		)
Gain (loss) on sale and disposition of assets	134			(715		)
Net change in deferred loan fees	921			1,130
Net change in accrued interest receivable	(284		)	658
Net change in other assets	1,279			11,934
Net change in other liabilities	12,638			13,204
Net cash provided by operating activities	57,146			64,169
Cash flows from investing activities
Available-for-sale securities:
Maturities, prepayments and calls	1,176,311			847,353
Purchases	(1,139,501		)	(840,941		)
Proceeds from sale of AFS securities	—			10,614
Held-to-maturity securities:
Maturities, prepayments and calls	44,590			85,871
Purchases	(5,919		)	(35,453		)
Originations of Warehouse Purchase Program loans	(8,708,357		)	(11,249,770		)
Proceeds from pay-offs of Warehouse Purchase Program loans	8,645,203			11,670,462
Net change in loans held for investment, excluding Warehouse Purchase Program loans	(439,229		)	(243,776		)
Redemption (purchase) of FHLB and Federal Reserve Bank stock	(6,520		)	15,481
Purchases of premises and equipment	(916		)	(2,631		)
Proceeds from sale of assets	508			3,489
Net cash provided by (used in) investing activities	(433,830		)	260,699

7

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands)
	Nine Months Ended September 30,
	2014			2013
Cash flows from financing activities
Net change in deposits	231,829			70,136
Proceeds from FHLB advances	620,000			315,000
Repayments on FHLB advances	(459,392		)	(696,042		)
Share repurchase	—			(1,554		)
Payment of dividends	(14,385		)	(7,985		)
Proceeds from stock option exercises	943			907
Net cash provided by (used in) financing activities	378,995			(319,538		)
Net change in cash and cash equivalents	2,311			5,330
Beginning cash and cash equivalents	87,974			68,696
Ending cash and cash equivalents	$	90,285		$	74,026
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	$	409		$	1,405
See accompanying notes to consolidated financial statements.

8

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying consolidated financial statements of ViewPoint Financial Group, Inc. (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all normal and recurring adjustments which are considered necessary to fairly present the results for the interim periods presented have been included. Certain items in prior periods were reclassified to conform to the current presentation. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 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 2013 Form 10-K.

The accompanying Unaudited Consolidated Interim Financial Statements include the accounts of the Company, whose business primarily consists of the operations of its wholly owned subsidiary, ViewPoint Bank, N.A. (the “Bank”). All significant intercompany transactions and balances are eliminated in consolidation.

9

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 2 - ADJUSTMENTS TO FINANCIAL STATEMENTS

The Company previously reported Warehouse Purchase Program loans as held for sale as we believed that was the most meaningful presentation to our financial statement users given that the collection of the loan was based upon the sale of the loan. Effective December 31, 2013, the Company concluded that, under US GAAP, these loans should be accounted for as held for investment. This correction changed the accounting for Warehouse Purchase Program loans from a lower-of-cost-or-market accounting method to accounting for the loans under Accounting Standards Codification ("ASC") 310, with any credit losses incurred as of the balance sheet date recognized in the allowance for loan losses. As we had not reported any valuation decreases below cost in prior periods, and we have experienced no credit losses on these loans, this correction had no impact on net income, comprehensive income, earnings per share or income taxes. Additionally, total assets and shareholders' equity remained unchanged. However, this correction did impact the statement of cash flows by moving cash flows associated with the Warehouse Purchase Program from operating cash flows to investing cash flows.

The table below illustrates the impact of this change on the Company's Consolidated Statement of Cash Flows for the nine months ended September 30, 2013. There was no impact to the Company's Consolidated Statements of Income for the three or nine months ended September 30, 2013.

Impact to the Consolidated Statement of Cash Flows
	Nine Months Ended September 30, 2013
	As Originally Presented				As Adjusted
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Loans originated or purchased for sale	$	(11,249,770	)		$	—
Proceeds from sale of loans held for sale	11,670,462				—
Net cash provided by operating activities	484,861				64,169
Cash flows from investing activities
Originations of Warehouse Purchase Program loans	N/A			1	(11,249,770		)
Proceeds from pay-offs of Warehouse Purchase Program loans	N/A			1	11,670,462
Net change in loans held for investment, excluding Warehouse Purchase Program loans	(243,776		)		(243,776		)
Net cash provided by (used in) investing activities	(159,993		)		260,699
Cash flows from financing activities
Net cash used in financing activities	(319,538		)		(319,538		)
Net change in cash and cash equivalents	5,330				5,330
Beginning cash and cash equivalents	68,696				68,696
Ending cash and cash equivalents	$	74,026			$	74,026

¹ Not applicable

10

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 3 - EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income (which has been adjusted for distributed and undistributed earnings to participating securities) by the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards. Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method described in ASC 260-10-45-60B. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock, or resulted in the issuance of common stock that then shared in the Company’s earnings. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested restricted stock awards. The dilutive effect of the unexercised stock options and unvested restricted stock awards is calculated under the treasury stock method utilizing the average market value of the Company’s stock for the period. A reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation for the three and nine months ended September 30, 2014 and 2013 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Basic earnings per share:
Numerator:
Net income	$	9,312		$	8,212		$	25,812		$	24,444
Distributed and undistributed earnings to participating securities	(97		)	(116		)	(285		)	(296		)
Income available to common shareholders	$	9,215		$	8,096		$	25,527		$	24,148
Denominator:
Weighted average common shares outstanding	39,998,205			39,943,555			39,969,234			39,872,915
Less: Average unallocated ESOP shares	(1,626,065		)	(1,810,259		)	(1,671,660		)	(1,855,854		)
Average unvested restricted stock awards	(400,350		)	(538,595		)	(423,144		)	(460,309		)
Average shares for basic earnings per share	37,971,790			37,594,701			37,874,430			37,556,752
Basic earnings per common share	$	0.24		$	0.22		$	0.67		$	0.64
Diluted earnings per share:
Numerator:
Income available to common shareholders	$	9,215		$	8,096		$	25,527		$	24,148
Denominator:
Average shares for basic earnings per share	37,971,790			37,594,701			37,874,430			37,556,752
Dilutive effect of share-based compensation plan	231,718			179,699			246,667			149,709
Average shares for diluted earnings per share	38,203,508			37,774,400			38,121,097			37,706,461
Diluted earnings per common share	$	0.24		$	0.21		$	0.67		$	0.64
Share awards excluded in the computation of diluted earnings per share because the exercise price was greater than the common stock average market price and were therefore antidilutive	367,780			870,130			416,890			1,203,050

11

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 4 - SECURITIES

The 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:

September 30, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency residential mortgage-backed securities 1	$	151,524	$	1,591	$	1,020	$	152,095
Agency residential collateralized mortgage obligations 2	55,209		320		46		55,483
US government and agency securities	3,652		134		—		3,786
Total securities	$	210,385	$	2,045	$	1,066	$	211,364
December 31, 2013
Agency residential mortgage-backed securities 1	$	175,693	$	1,322	$	2,306	$	174,709
Agency residential collateralized mortgage obligations 2	70,257		423		105		70,575
US government and agency securities	2,652		76		—		2,728
Total securities	$	248,602	$	1,821	$	2,411	$	248,012

¹ Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

² Collateralized mortgage obligations issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

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

September 30, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency residential mortgage-backed securities 1	$	67,547	$	3,198	$	40	$	70,705
Agency commercial mortgage-backed securities 2	25,412		900		129		26,183
Agency residential collateralized mortgage obligations 3	94,682		2,134		43		96,773
Municipal bonds	67,024		3,676		256		70,444
Total securities	$	254,665	$	9,908	$	468	$	264,105
December 31, 2013
Agency residential mortgage-backed securities 1	$	83,177	$	3,523	$	130	$	86,570
Agency commercial mortgage-backed securities 2	24,828		523		310		25,041
Agency residential collateralized mortgage obligations 3	118,757		2,772		107		121,422
Municipal bonds	67,821		2,292		1,407		68,706
Total securities	$	294,583	$	9,110	$	1,954	$	301,739

¹ Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

² Commercial mortgage-backed securities issued and /or guaranteed by U.S. government agencies or government-sponsored enterprises.

³ Collateralized mortgage obligations issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

12

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The carrying amount and fair value of held to maturity debt securities and the fair value of available for sale debt securities at September 30, 2014 by contractual maturity are set forth in the table below. Securities with contractual payments not due at a single maturity date, including mortgage backed securities and collateralized mortgage obligations, are shown separately.

	Held to maturity				Available for sale
	Carrying Amount		Fair Value		Fair Value
Due in one year or less	$	145	$	146	$	—
Due after one to five years	7,913		8,461		2,214
Due after five to ten years	34,835		37,510		1,572
Due after ten years	24,131		24,327		—
Agency residential mortgage-backed securities 1	67,547		70,705		152,095
Agency commercial mortgage-backed securities 2	25,412		26,183		—
Agency residential collateralized mortgage obligations 3	94,682		96,773		55,483
Total	$	254,665	$	264,105	$	211,364

¹ Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

² Commercial mortgage-backed securities issued and /or guaranteed by U.S. government agencies or government-sponsored enterprises.

³ Collateralized mortgage obligations issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

Information regarding pledged securities is summarized below:

	September 30, 2014		December 31, 2013
Public fund certificates of deposit	$	139,923	$	156,731
Public fund demand deposit accounts	6,387		15,068
Commercial demand deposit accounts	2,579		4,439
Repurchase agreements	25,000		25,000
Federal Reserve Bank primary credit - collateral value	55,292		68,686
Carrying value of securities pledged on above funds	265,989		308,652

Sales activity of securities for the three and nine months ended September 30, 2014 and 2013, was as follows. All securities sold were classified as available for sale.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Proceeds	$	—	$	—	$	—	$	10,614
Gross losses	—		—		—		177

Gains and losses on the sale of securities classified as available for sale are recorded on the trade date using the specific-identification method.

13

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Securities with unrealized losses at September 30, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

AFS	Less than 12 Months					12 Months or More					Total
September 30, 2014	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number
Agency residential mortgage-backed securities 1	$	6,717	$	18	6	$	55,642	$	1,002	10	$	62,359	$	1,020	16
Agency residential collateralized mortgage obligations 2	3,999		5		1	5,203		41		4	9,202		46		5
Total temporarily impaired	$	10,716	$	23	7	$	60,845	$	1,043	14	$	71,561	$	1,066	21
December 31, 2013
Agency residential mortgage-backed securities 1	$	83,461	$	2,306	19	$	—	$	—	—	$	83,461	$	2,306	19
Agency residential collateralized mortgage obligations 2	13,975		50		6	6,780		55		5	20,755		105		11
Total temporarily impaired	$	97,436	$	2,356	25	$	6,780	$	55	5	$	104,216	$	2,411	30

¹ Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

² Collateralized mortgage obligations issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

HTM	Less than 12 Months					12 Months or More					Total
September 30, 2014	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number
Agency residential mortgage-backed securities 1	$	—	$	—	—	$	3,471	$	40	1	$	3,471	$	40	1
Agency commercial mortgage-backed securities 2	—		—		—	3,833		129		1	3,833		129		1
Agency residential collateralized mortgage obligations 3	4,635		21		2	5,306		22		3	9,941		43		5
Municipal bonds	3,710		5		4	11,982		251		17	15,692		256		21
Total temporarily impaired	$	8,345	$	26	6	$	24,592	$	442	22	$	32,937	$	468	28
December 31, 2013
Agency residential mortgage-backed securities 1	$	5,779	$	130	2	$	—	$	—	—	$	5,779	$	130	2
Agency commercial mortgage-backed securities 2	4,940		310		2	—		—		—	4,940		310		2
Agency residential collateralized mortgage obligations 3	10,453		91		2	1,679		16		3	12,132		107		5
Municipal bonds	17,784		1,406		29	280		1		1	18,064		1,407		30
Total temporarily impaired	$	38,956	$	1,937	35	$	1,959	$	17	4	$	40,915	$	1,954	39

¹ Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

² Commercial mortgage-backed securities issued and /or guaranteed by U.S. government agencies or government-sponsored enterprises.

³ Collateralized mortgage obligations issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

Other-than-Temporary Impairment

In determining other-than-temporary impairment for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The Company does not believe these unrealized losses are other-than-temporary. All principal and interest payments are being received on time and in full.

14

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 5 - LOANS

Loans consist of the following:

	September 30, 2014			December 31, 2013
Commercial real estate	$	1,219,436		$	1,091,200
Commercial and industrial loans:
Commercial	668,421			425,030
Warehouse lines of credit	27,122			14,400
Total commercial and industrial loans	695,543			439,430
Construction and land loans
Commercial construction and land	13,206			27,619
Consumer construction and land	3,694			2,628
Total construction and land loans	16,900			30,247
Consumer:
Consumer real estate	515,706			441,226
Other consumer loans	41,478			47,799
Total consumer	557,184			489,025
Gross loans held for investment, excluding Warehouse Purchase Program	2,489,063			2,049,902
Net of:
Deferred fees and discounts, net	(2,188		)	(1,267		)
Allowance for loan losses	(22,585		)	(19,358		)
Net loans held for investment, excluding Warehouse Purchase Program	2,464,290			2,029,277
Warehouse Purchase Program	736,624			673,470
Total loans held for investment	$	3,200,914		$	2,702,747

15

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Activity in the allowance for loan losses for the three and nine months ended September 30, 2014 and 2013, segregated by portfolio segment and evaluation for impairment, is set forth below. All Warehouse Purchase Program loans are collectively evaluated for impairment and are purchased under several contractual requirements, providing safeguards to the Company. These safeguards include the requirement that our mortgage company customers have a takeout commitment for each loan and multiple investors identified for purchases. To date, the Company has never experienced a loss on these loans and no allowance for loan losses has been allocated to them. At September 30, 2014 and 2013, $182 and $239, respectively, of the allowance for loan losses individually evaluated for impairment was allocated to purchased credit impaired ("PCI") loans.

For the three months ended September 30, 2014	Commercial Real Estate		Commercial and Industrial			Construction and Land			Consumer Real Estate			Other Consumer			Total
Allowance for loan losses:
Beginning balance - July 1, 2014	$	11,186	$	5,285		$	252		$	3,339		$	378		$	20,440
Charge-offs	—		(171		)	(51		)	(81		)	(190		)	(493		)
Recoveries	—		19			1			12			95			127
Provision expense (benefit)	488		1,058			(59		)	910			114			2,511
Ending balance - September 30, 2014	$	11,674	$	6,191		$	143		$	4,180		$	397		$	22,585

For the nine months ended September 30, 2014	Commercial Real Estate		Commercial and Industrial			Construction and Land			Consumer Real Estate			Other Consumer			Total
Allowance for loan losses:
Beginning balance - January 1, 2014	$	10,944	$	4,536		$	212		$	3,280		$	386		$	19,358
Charge-offs	—		(473		)	(51		)	(237		)	(497		)	(1,258		)
Recoveries	—		76			1			37			287			401
Provision expense (benefit)	730		2,052			(19		)	1,100			221			4,084
Ending balance - September 30, 2014	$	11,674	$	6,191		$	143		$	4,180		$	397		$	22,585
Allowance ending balance:
Individually evaluated for impairment	$	835	$	1,595		$	—		$	416		$	4		$	2,850
Collectively evaluated for impairment	10,839		4,596			143			3,764			393			19,735
Loans:
Individually evaluated for impairment	8,158		6,485			104			5,393			340			20,480
Collectively evaluated for impairment	1,206,151		688,868			16,796			509,206			40,973			2,461,994
PCI loans	5,127		190			—			1,107			165			6,589
Ending balance	$	1,219,436	$	695,543		$	16,900		$	515,706		$	41,478		$	2,489,063

For the three months ended September 30, 2013	Commercial Real Estate			Commercial and Industrial			Construction and Land			Consumer Real Estate		Other Consumer			Total
Allowance for loan losses:
Beginning balance - July 1, 2013	$	10,525		$	4,739		$	119		$	3,463	$	431		$	19,277
Charge-offs	(34		)	(221		)	—			—		(101		)	(356		)
Recoveries	—			17			—			18		71			106
Provision expense (benefit)	(21		)	(72		)	(28		)	11		(48		)	(158		)
Ending balance - September 30, 2013	$	10,470		$	4,463		$	91		$	3,492	$	353		$	18,869

16

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

For the nine months ended September 30, 2013	Commercial Real Estate			Commercial and Industrial			Construction and Land			Consumer Real Estate			Other Consumer			Total
Allowance for loan losses:
Beginning balance - January 1, 2013	$	11,182		$	2,574		$	149		$	3,528		$	618		$	18,051
Charge-offs	(806		)	(555		)	(31		)	(355		)	(479		)	(2,226		)
Recoveries	—			115			—			30			316			461
Provision expense (benefit)	94			2,329			(27		)	289			(102		)	2,583
Ending balance - September 30, 2013	$	10,470		$	4,463		$	91		$	3,492		$	353		$	18,869
Allowance ending balance:
Individually evaluated for impairment	$	1,030		$	1,877		$	—		$	289		$	1		$	3,197
Collectively evaluated for impairment	9,440			2,586			91			3,203			352			15,672
Loans:
Individually evaluated for impairment	7,770			5,979			3			4,401			521			18,674
Collectively evaluated for impairment	1,023,373			384,088			13,724			436,521			49,418			1,907,124
PCI loans	4,240			679			1,625			1,151			176			7,871
Ending balance	$	1,035,383		$	390,746		$	15,352		$	442,073		$	50,115		$	1,933,669

The allowance for loan losses and related provision expense are susceptible to change if the credit quality of our loan portfolio changes, which is evidenced by many factors, including but not limited to charge-offs and non-performing loan trends. Generally, consumer real estate lending has a lower credit risk profile compared to other consumer lending (such as automobile loans). Commercial real estate and commercial and industrial lending, however, can have higher risk profiles than consumer loans due to these loans being larger in amount and non-homogeneous in structure and term. 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.

The allowance for loan losses is maintained to cover losses that are estimated in accordance with US GAAP. It is our estimate of credit losses inherent in our loan portfolio at each balance sheet date. Our methodology for analyzing the allowance for loan losses consists of general and specific components. For the general component, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and apply a loss ratio to these groups of loans to estimate the credit losses in the loan portfolio. We use both historical loss ratios and qualitative loss factors assigned to major loan collateral types to establish general component loss allocations. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data and external economic indicators, which may not yet be reflected in the historical loss ratios, and that could impact the Company's specific loan portfolios. The Allowance for Loan Loss Committee sets and adjusts qualitative loss factors by regularly reviewing changes in underlying loan composition and the seasonality of specific portfolios. The Allowance for Loan Loss Committee also considers credit quality and trends relating to delinquency, non-performing and/or classified loans and bankruptcy within the Company's loan portfolio when evaluating qualitative loss factors. Additionally, the Allowance for Loan Loss Committee adjusts qualitative factors to account for the potential impact of external economic factors, including the unemployment rate, housing prices, vacancy rates and inventory levels specific to our primary market area.

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 to the contractual terms of the loan agreement, is in doubt. If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated cost to sell, is used to determine the amount of impairment. If an impaired loan is not collateral-dependent, the impairment amount is determined using the negative difference, if any, between the estimated discounted cash flows and the loan amount due. For impaired loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established by acquisition of the collateral or until the basis is collected. Impairment losses are reflected in the allowance for loan losses through a charge to the provision for loan losses. Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal.

For the specific component, the allowance for loan losses includes loans where management has concerns about the borrower's ability to repay and on individually analyzed loans found to be impaired (as that term is defined.) For example, all troubled debt restructurings are considered to be impaired. Loss estimates include the negative difference, if any, between the

17

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

estimated discounted cash flows of the loan, or, if the loan is collateral dependent, the current fair value of the collateral and the loan amount due.

Impaired loans at September 30, 2014, and December 31, 2013, were as follows ¹:

September 30, 2014	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial real estate	$	9,083	$	4,882	$	3,276	$	8,158	$	793
Commercial and industrial	7,514		2,824		3,661		6,485		1,529
Construction and land	109		104		—		104		—
Consumer:
Consumer real estate	5,746		4,337		1,056		5,393		344
Other consumer	389		338		2		340		2
Total	$	22,841	$	12,485	$	7,995	$	20,480	$	2,668
December 31, 2013
Commercial real estate	$	8,328	$	3,619	$	3,986	$	7,605	$	897
Commercial and industrial	6,058		539		4,786		5,325		1,669
Construction and land	2		2		—		2		—
Consumer:
Consumer real estate	5,050		3,725		1,087		4,812		155
Other consumer	579		550		—		550		—
Total	$	20,017	$	8,435	$	9,859	$	18,294	$	2,721

¹ No Warehouse Purchase Program loans were impaired at September 30, 2014 or December 31, 2013. Loans reported do not include PCI loans.

18

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Income on impaired loans at September 30, 2014 and 2013 was as follows¹:

September 30, 2014	Current Quarter Average Recorded Investment		Year-to-Date Average Recorded Investment		Current Quarter Interest Income Recognized		Year-to-Date Interest Income Recognized
Commercial real estate	$	8,114	$	8,043	$	9	$	12
Commercial and industrial	6,209		6,018		3		9
Construction and land	94		31		—		—
Consumer:
Consumer real estate	5,252		4,802		8		31
Other consumer	396		482		2		4
Total	$	20,065	$	19,376	$	22	$	56
September 30, 2013
Commercial real estate	$	8,317	$	12,599	$	—	$	124
Commercial and industrial	6,023		6,252		3		9
Construction and land	3		54		—		—
Consumer:
Consumer real estate	5,691		7,565		12		45
Other consumer	519		444		—		—
Total	$	20,553	$	26,914	$	15	$	178

¹ Loans reported do not include PCI loans.

Past due status is based on the contractual terms of the loan. Loans that are past due 30 days are considered delinquent. A loan is moved to nonaccrual status in accordance with the Company's policy, typically after 90 days of non-payment. Interest income on loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Non-mortgage consumer loans are typically charged off no later than 120 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and larger individually classified impaired loans.

All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

19

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Loans past due over 90 days that were still accruing interest totaled $593 at September 30, 2014 and $266 at December 31, 2013, which consisted entirely of PCI loans. At September 30, 2014 and December 31, 2013, no PCI loans were considered non-performing loans. Purchased performing loans that were non-performing as of September 30, 2014 and December 31, 2013 totaled $3,519 and $4,201, respectively. Those loans included $1,334 and $1,698 at September 30, 2014 and December 31, 2013, respectively, of commercial lines of credit that did not qualify for PCI accounting due to their revolving nature. No Warehouse Purchase Program loans were non-performing at September 30, 2014 or December 31, 2013. Non-performing (nonaccrual) loans were as follows:

	September 30, 2014		December 31, 2013
Commercial real estate	$	7,452	$	7,604
Commercial and industrial	6,328		5,141
Construction and land	150		—
Consumer:
Consumer real estate	10,106		8,812
Other consumer	346		567
Total	$	24,382	$	22,124

A modified loan is considered a troubled debt restructuring (“TDR”) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. Modifications to loan terms may include a modification of the contractual interest rate to a below-market rate (even if the modified rate is higher than the original rate), forgiveness of accrued interest, forgiveness of a portion of principal, an extended repayment period or a deed in lieu of foreclosure or other transfer of assets other than cash to fully or partially satisfy a debt. The Company's policy is to place all TDRs on nonaccrual for a minimum period of six months. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months and the collection of principal and interest under the revised terms is deemed probable. All TDRs are considered to be impaired loans.

Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment. As a result, the Company does not separately identify consumer real estate loans less than $417 or individual consumer non-real estate secured loans for impairment disclosures.

20

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The outstanding balances of TDRs are shown below:

	September 30, 2014		December 31, 2013
Nonaccrual TDRs(1)	$	12,781	$	11,368
Performing TDRs (2)	1,312		971
Total	$	14,093	$	12,339
Specific reserves on TDRs	$	1,204	$	1,191
Outstanding commitments to lend additional funds to borrowers with TDR loans	—		—

¹ Nonaccrual TDR loans are included in the nonaccrual loan totals.

² Performing TDR loans are loans that have been performing under the restructured terms for at least six months and the Company is accruing interest on these loans.

The following tables provide the recorded balances of loans modified as a TDR during the three and nine months ended September 30, 2014 and 2013.

	Three Months Ended September 30, 2014								Nine Months Ended September 30, 2014
	Principal Deferrals (1)		Combination of Rate Reduction and Principal Deferral		Other		Total		Principal Deferrals (1)		Combination of Rate Reduction and Principal Deferral		Other		Total
Commercial and industrial	$	—	$	29	$	—	$	29	$	—	$	29	$	1,831	$	1,860
Construction and land	—		—		—		—		—		—		104		104
Consumer real estate	38		67		—		105		164		332		112		608
Other consumer	2		—		—		2		13		6		—		19
Total	$	40	$	96	$	—	$	136	$	177	$	367	$	2,047	$	2,591

	Three Months Ended September 30, 2013								Nine months ended September 30, 2013
	Principal Deferrals (1)		Combination of Rate Reduction and Principal Deferral		Other		Total		Principal Deferrals (1)		Combination of Rate Reduction and Principal Deferral		Other		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	61	$	—	$	—	$	61
Commercial and industrial	159		45		3		207		166		74		3		243
Consumer real estate	—		116		250		366		—		234		506		740
Other consumer	108		98		—		206		222		171		2		395
Total	$	267	$	259	$	253	$	779	$	449	$	479	$	511	$	1,439

¹ Principal deferrals include Chapter 7 bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt. Such loans are placed on non-accrual status.

TDRs modified during the previous 12 months which experienced a subsequent default during the three and nine months ended September 30, 2014 and 2013 are shown below. A payment default is defined as a loan that was 90 days or more past due.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Commercial and industrial	$	—	$	—	$	61	$	—
Consumer real estate	108		225		108		579
Total	$	108	$	225	$	169	$	579

21

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Below is an analysis of the age of recorded investment in loans that were past due at September 30, 2014 and December 31, 2013. No Warehouse Purchase Program loans were delinquent at September 30, 2014 or December 31, 2013.

September 30, 2014	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Loans Past Due		Current Loans 1		Total Loans
Commercial real estate	$	915	$	—	$	667	$	1,582	$	1,217,854	$	1,219,436
Commercial and industrial	2,254		4		486		2,744		692,799		695,543
Construction and land	89		—		—		89		16,811		16,900
Consumer loans:
Consumer real estate	255		2,578		3,997		6,830		508,876		515,706
Other consumer	157		33		11		201		41,277		41,478
Total	$	3,670	$	2,615	$	5,161	$	11,446	$	2,477,617	$	2,489,063

December 31, 2013	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Loans Past Due		Current Loans 1		Total Loans
Commercial real estate	$	552	$	1,315	$	57	$	1,924	$	1,089,276	$	1,091,200
Commercial and industrial	4,518		129		2,835		7,482		431,948		439,430
Construction and land	152		—		—		152		30,095		30,247
Consumer loans:
Consumer real estate	6,579		3,295		3,651		13,525		427,701		441,226
Other consumer	460		106		53		619		47,180		47,799
Total	$	12,261	$	4,845	$	6,596	$	23,702	$	2,026,200	$	2,049,902

¹ Includes acquired PCI loans with a total carrying value of $5,951 and $5,218 at September 30, 2014 and December 31, 2013, respectively.

For loans collateralized by real property and commercial and industrial loans, credit exposure is monitored by internally assigned grades used for classification of loans. A loan is considered “special mention” when management has determined that there is a potential weakness that deserves management's close attention. Loans rated as "special mention" are not adversely classified according to regulatory classifications and do not expose the Company to sufficient risk to warrant adverse classification. A loan is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. “Substandard” loans include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected, and the loan may or may not meet the criteria for impairment. Loans classified as “doubtful” have all of the weaknesses of those classified as “substandard”, with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” All other loans that do not fall into the above mentioned categories are considered “pass” loans. Updates to internally assigned grades are made monthly and/or upon significant developments.

For consumer loans, credit exposure is monitored by payment history of the loans. Non-performing consumer loans are on nonaccrual status and are generally greater than 90 days past due.

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VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The recorded investment in loans by credit quality indicators at September 30, 2014 and December 31, 2013, was as follows.

Real Estate and Commercial and Industrial Credit Exposure

Credit Risk Profile by Internally Assigned Grade

September 30, 2014	Commercial Real Estate		Commercial and Industrial		Construction and Land		Consumer Real Estate
Grade: 1
Pass	$	1,190,224	$	680,047	$	16,588	$	498,197
Special Mention	9,892		6,406		161		3,807
Substandard	18,487		9,051		104		9,514
Doubtful	833		39		47		4,188
Total	$	1,219,436	$	695,543	$	16,900	$	515,706

December 31, 2013	Commercial Real Estate		Commercial and Industrial		Construction and Land		Consumer Real Estate
Grade: 1
Pass	$	1,055,872	$	424,110	$	28,146	$	424,174
Special Mention	16,030		1,672		161		3,661
Substandard	18,444		13,492		1,940		9,110
Doubtful	854		156		—		4,281
Total	$	1,091,200	$	439,430	$	30,247	$	441,226

¹ PCI loans are included in the substandard or doubtful categories. These categories are consistent with the "substandard" and "doubtful" categories as defined by regulatory authorities.

Warehouse Purchase Program Credit Exposure

All Warehouse Purchase Program loans were graded pass as of September 30, 2014 and December 31, 2013.

Consumer Other Credit Exposure

Credit Risk Profile Based on Payment Activity

	September 30, 2014		December 31, 2013
Performing	$	41,132	$	47,232
Non-performing	346		567
Total	$	41,478	$	47,799

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VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 6 - FAIR VALUE

ASC 820, “Fair Value Measurements and Disclosures”, 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 information available, some of which is internally developed, and reflects a reporting entity’s own assumptions about the risk premiums that market participants would generally require and the assumptions they would use.

The fair values of securities available for sale are determined by 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 estimated fair value of interest rate swaps are obtained from a pricing service that provides the swaps' unwind value (Level 2 inputs). In September 2013, we entered into certain interest rate derivative positions that are not designated as hedging instruments. The fair value of these derivative positions outstanding are included in other assets and other liabilities in the accompanying consolidated balance sheets. Please see Note 7 - Derivative Financial Instruments for more information.

24

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Assets and Liabilities Measured on a Recurring Basis

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

September 30, 2014	Fair Value Measurements Using Significant Other Observable Inputs (Level 2)
Assets:
Agency residential mortgage-backed securities	$	152,095
Agency residential collateralized mortgage obligations	55,483
US government and agency securities	3,786
Total securities available for sale	$	211,364
Derivative asset 1	$	31
Derivative liability 1	$	31
December 31, 2013
Assets:
Agency residential mortgage-backed securities	$	174,709
Agency residential collateralized mortgage obligations	70,575
US government and agency securities	2,728
Total securities available for sale	$	248,012
Derivative asset 1	$	33
Derivative liability 1	$	33

¹ Derivative assets and liabilities are measured at fair value on a recurring basis, generally quarterly. Please see Note 7 - Derivative Financial Instruments for more information.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below. There were no liabilities measured at fair value on a non-recurring basis at September 30, 2014 or December 31, 2013.

September 30, 2014	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans	$	5,327
Foreclosed assets	106
December 31, 2013
Assets:
Impaired loans	$	7,138
Foreclosed assets	480

Impaired loans that are collateral dependent are measured for impairment using the fair value of the collateral adjusted by additional Level 3 inputs, such as discounts of market value, estimated marketing costs and estimated legal expenses. At September 30, 2014, impaired loans secured by real estate had an average discount of 5% applied to the appraised value of the collateral, and impaired loans secured by receivables or inventory had discounts determined by management on an individual loan basis. Impaired loans that are not collateral dependent are measured for impairmentby a discounted cash flow analysis using a net present value calculation that utilizes data from the loan file before and after the modification.

Foreclosed assets are measured at the lower of book or fair value less costs to sell using third party appraisals, listing agreements or sale contracts, which may be adjusted by additional Level 3 inputs, such as discounts of market value, estimated

25

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

marketing costs and estimated legal expenses. Management may also consider additional adjustments on specific properties due to the age of the appraisal, expected holding period, lack of comparable sales, or if the other real estate owned is a special use property.

The Credit Administration department evaluates the valuations on impaired loans and foreclosed assets at least quarterly. The valuations on impaired loans are reviewed at least quarterly by the Allowance for Loan Loss Committee and are considered in the calculation of the allowance for loan losses. Unobservable inputs, such as discounts to collateral, are monitored and adjusted if market conditions change.

The carrying amount and fair value information of financial instruments not recorded at fair value in their entirety on a recurring basis on the Company's consolidated balance sheets at September 30, 2014 and at December 31, 2013, were as follows:

			Fair Value
September 30, 2014	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$	90,285	$	90,285	$	—	$	—
Securities held to maturity	254,665		—		264,105		—
Loans held for investment, net	2,464,290		—		—		2,475,856
Loans held for investment - Warehouse Purchase Program	736,624		—		—		736,906
FHLB and Federal Reserve Bank stock	41,473		—		41,473		—
Accrued interest receivable	10,188		10,188		—		—
Financial liabilities
Deposits	$	2,496,468	$	—	$	—	$	2,345,843
FHLB advances	799,704		—		—		807,836
Repurchase agreement	25,000		—		—		26,796
Accrued interest payable	1,065		1,065		—		—

26

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

			Fair Value
December 31, 2013	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$	87,974	$	87,974	$	—	$	—
Securities held to maturity	294,583		—		301,739		—
Loans held for investment, net	2,029,277		—		—		2,054,460
Loans held for investment - Warehouse Purchase Program	673,470		—		—		673,785
FHLB and Federal Reserve Bank stock	34,883		—		34,883		—
Accrued interest receivable	9,904		9,904		—		—
Financial liabilities
Deposits	$	2,264,639	$	—	$	—	$	2,123,846
FHLB advances	639,096		—		—		650,976
Repurchase agreement	25,000		—		—		27,430
Accrued interest payable	1,066		1,066		—		—

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

Estimated fair value is the carrying amount for cash and cash equivalents and accrued interest receivable and payable. The fair values of securities held to maturity are determined by 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). For loans held for investment (including Warehouse Purchase Program loans), fair value is based on discounted cash flows using current market offering rates, estimated life, and applicable credit risk. For deposits and FHLB advances, fair value is calculated using the FHLB advance curve to discount cash flows for the estimated life for deposits and according to the contractual repayment schedule for FHLB advances. Fair value of the repurchase agreement is based on discounting the estimated cash flows using the current rate at which similar borrowings would be made with similar terms and remaining maturities. It is not practicable to determine the fair value of FHLB and Federal Reserve Bank stock due to restrictions on its transferability. The fair value of off-balance sheet items is based on the current fees or costs that would be charged to enter into or terminate such arrangements and are not considered significant to this presentation.

27

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS

In September 2013, we entered into certain interest rate derivative positions that are not designated as hedging instruments. These derivative positions related to transactions in which we entered into an interest rate swap with a customer, while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate. Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on our results of operations. The Company presents derivative instruments at fair value in other assets and other liabilities in the accompanying consolidated balance sheets.

The notional amounts and estimated fair values of interest rate derivative positions outstanding and weighted-average receive and pay interest rates at September 30, 2014 and December 31, 2013 are presented in the following table.

Non-hedging interest rate contracts - commercial loan interest rate swaps:	Outstanding Notional Amount			Estimated Fair Value		Weighted-Average Interest Rate
						Received		Paid
September 30, 2014
Loan customer counterparty	$	6,252		31		4.38	%	2.91	%
Financial institution counterparty	(6,252		)	(31	)	2.91		4.38
December 31, 2013
Loan customer counterparty	$	6,406		33		4.38	%	2.92	%
Financial institution counterparty	(6,406		)	(33	)	2.92		4.38

Our credit exposure on interest rate swaps is limited to the net favorable value of all swaps by each counterparty. In some cases, collateral may be required from the counterparties involved if the net value of the swaps exceed a nominal amount considered to be immaterial. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. At September 30, 2014, our cash collateral pledged for these derivatives totaled $150, which was in excess of our credit exposure. This collateral is reported in our interest-bearing deposits in other financial institutions in the accompanying consolidated balance sheets.

28

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 8 - SHARE-BASED COMPENSATION

Compensation cost charged to income for share-based compensation is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Restricted stock	$	602	$	630	$	1,897	$	1,656
Stock options	261		272		801		669
Income tax benefit	302		316		944		814

A summary of activity in the restricted stock portion of the Company's stock plans is presented below:

	Nine Months Ended September 30, 2014
	Time-Vested Shares				Performance-Based Shares
	Shares		Weighted-Average Grant Date Fair Value 1		Shares	Weighted-Average Grant Date Fair Value 2
Non-vested at December 31, 2013	381,402		$	20.39	82,400	$	27.45
Granted	20,000		24.69		—	—
Vested	(103,799	)	20.32		—	—
Non-vested at September 30, 2014	297,603		$	20.46	82,400	$	23.94

¹For restricted stock awards with time-based vesting conditions, the grant date fair value is based on the closing stock price as quoted on the NASDAQ Stock Market on the grant date.

² For restricted stock awards with performance-based vesting conditions, the value of the award is based upon the closing stock price as quoted on the NASDAQ Stock Market on the date of vesting. Until the final value is determined on the vesting date, the Company estimates the fair value quarterly based upon the closing stock price as quoted on the NASDAQ Stock Market near the last business day of each calendar quarter end.

As of September 30, 2014, there was $6,909 of total unrecognized compensation expense related to non-vested shares awarded under the restricted stock plans. That expense is expected to be recognized over a weighted-average period of 2.67 years.

A summary of activity in the stock option portion of the Company's stock plans as of September 30, 2014 is presented below:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2013	1,173,618		$	18.16	8.4	$	10,903
Granted	328,750		26.09		10.0	—
Exercised	(48,125	)	13.28		0.0	569
Forfeited	(44,480	)	16.86		0.0	—
Outstanding at September 30, 2014	1,409,763		20.22		8.3	5,956
Fully vested and expected to vest	1,386,280		20.15		8.3	5,921
Exercisable at September 30, 2014	336,037		$	16.34	6.8	$	2,555

As of September 30, 2014, there was $5,794 of total unrecognized compensation expense related to non-vested stock options. That expense is expected to be recognized over a weighted-average period of 3.77 years.

29

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 9 - INCOME TAXES    

A summary of the net deferred tax assets as of September 30, 2014 and December 31, 2013, is presented below:

	September 30, 2014			December 31, 2013
Net deferred tax assets	$	9,728		$	12,320
Estimated annual effective tax rate	36		%

30

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of business, the Company enters into various transactions which, in accordance with US GAAP, are not included in its consolidated balance sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit which involve, to varying degrees, elements of credit and interest rate risk. Credit losses up to the face amount of these instruments could occur, although material losses are not anticipated. The Company's credit policies applied to loan originations are also applied to these commitment requests, including obtaining collateral at the exercise of the commitment.

The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Company. Substantially all of the Company's commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of future loan funding. Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would seek payment from the customer under pre-arranged terms. The Company's policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

The contractual amounts of financial instruments with off‑balance sheet risk at September 30, 2014 and December 31, 2013, are summarized below. Please see Part I-Item 2-"Off-Balance Sheet Arrangements, Contractual Obligation and Commitments" of this Form 10-Q for information related to commitment maturities.

	September 30, 2014		December 31, 2013
Unused commitments to extend credit	$	452,495	$	425,324
Unused capacity on Warehouse Purchase Program loans	410,488		562,030
Standby letters of credit	1,017		1,354
Total unused commitments/capacity	$	864,000	$	988,708

In addition to the commitments above, the Company guarantees the credit card debt of certain customers to the merchant bank that issues the credit cards. These guarantees are in place for as long as the guaranteed credit card is open. At September 30, 2014 and December 31, 2013, these credit card guarantees totaled $382 and $1,307, respectively. This amount represents the maximum potential amount of future payments under the guarantee. At September 30, 2014, the Company had set aside a reserve of $6 for its credit card guarantees.

    Also, the Company had overdraft protection available in the amounts of $71,483 and $87,772 at September 30, 2014 and December 31, 2013, respectively.

In regards to unused capacity on Warehouse Purchase Program loans, the Company has established maximum purchase facility amounts, but reserves the right, at any time, to refuse to buy any mortgage loans offered for sale with each customer, for any reason in the Company's sole and absolute discretion.

At September 30, 2014, the Company had $3,480 of unfunded commitments recorded in other liabilities in its consolidated balance sheet related to investments in community development -oriented private equity funds used for Community Reinvestment Act purposes.

31

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 11 - RECENT ACCOUNTING DEVELOPMENTS    

In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. This ASU permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. For public entities, the amendments are effective, with retrospective application, for annual periods, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.

In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. This ASU is intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. For public entities, the amendments are effective for annual periods, and interim periods within those years, beginning after December 15, 2014. An entity can elect to adopt the amendments in this update using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.  �� 

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU states that only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results. In addition, this ASU requires expanded disclosures about discontinued operations and disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. For public entities, the amendments are effective prospectively for annual periods, and interim periods within those years, beginning on or after December 15, 2014. Early adoption is permitted, but only for disposals that have not been reported in financial statements previously issued. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.    

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU affects entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. For public entities, the amendments are effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.

In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements by accounting for these transactions as secured borrowings. This ASU also requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return of the transferred financial assets throughout the term of the transaction. For public entities, the amendments are effective for annual periods, and interim periods within those years, beginning after December 15, 2014. Early adoption is not permitted. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments are effective for annual periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.

In August 2014, the FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. This ASU requires that a mortgage loan be derecognized and that a separate other receivable be recognized if certain conditions are met in the case of government guarantees. The amendments are effective for annual periods, and interim periods within those years, beginning after December 15, 2014. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.

32

VIEWPOINT FINANCIAL GROUP, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This ASU requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments are effective for annual periods, and interim periods within those years, beginning after December 15, 2016. The adoption of this ASU does not impact the Company's financial statements, as management does not have any concerns about the Company's ability to continue as a going concern.

NOTE 12 — SUBSEQUENT EVENTS

The Company evaluated events from the date of the consolidated financial statements on September 30, 2014 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q dated October 28, 2014. No additional events were identified requiring recognition in and/or disclosures in the consolidated financial statements.

33

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, Inc. (“ViewPoint" or the "Company”) with the Securities and Exchange Commission (the “SEC”), in ViewPoint’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 that could cause actual results to differ materially from historical earnings and those presently anticipated or projected, including, among other things: the expected cost savings, synergies and other financial benefits from the ViewPoint-LegacyTexas merger (the “Merger”) might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters might be greater than expected; the requisite regulatory approvals might not be obtained or other conditions to completion of the merger set forth in the merger agreement might not be satisfied or waived; 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; ViewPoint’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 ViewPoint’s market area; the industry-wide decline in mortgage production; competition; changes in management’s business strategies and other factors set forth in ViewPoint’s filings with the SEC.

ViewPoint 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, a Maryland corporation, is the stock holding company for its wholly owned subsidiary, ViewPoint Bank, N.A. (the “Bank”). Unless the context otherwise requires, references in this document to the “Company” refer to ViewPoint Financial Group, Inc. and references to the “Bank” refer to ViewPoint Bank, N.A. References to “we,” “us,” and “our” means ViewPoint Financial Group, Inc. or ViewPoint Bank, N.A. , as the context requires. The Company is regulated by the Board of Governors of the Federal Reserve System ("FRB") and the Bank is regulated by the Office of the Comptroller of the Currency (“OCC”) with certain back-up oversight by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is required to have certain reserves and stock set by the FRB and is a member of the Federal Home Loan Bank of Dallas, which is one of the 12 regional banks in the Federal Home Loan Bank (“FHLB”) System.

On November 25, 2013, the Company and LegacyTexas Group, Inc. (“LegacyTexas”) announced that they had entered into a definitive merger agreement whereby LegacyTexas will merge into the Company and, immediately thereafter, the Bank will merge into LegacyTexas’ subsidiary bank, LegacyTexas Bank. The merger was approved by LegacyTexas' shareholders on May 19, 2014, and will result in one of the largest independent banks in the state of Texas, with 51 branches and pro forma assets of over $5 billion. On August 29, 2014, the Company and LegacyTexas announced that additional time was needed to obtain regulatory approvals and have extended the merger agreement to December 31, 2014.

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 commercial real estate loans, secured and unsecured commercial and industrial loans, as well as permanent loans secured by first and second mortgages on owner-occupied, one- to four-family residences and consumer loans. Additionally, the Warehouse Purchase Program allows mortgage banking company customers to close one- to four-family real estate loans in their own name and manage its cash flow needs until the loans are sold to investors. 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 interest earned on interest-earning assets including loans and investment securities and service charges and fees on deposits and other account services. Our primary sources of funds are deposits, FHLB advances and other borrowings, and payments received on loans and securities. We offer a variety of deposit accounts that provide a wide range of interest rates and terms, generally including savings, money market, term certificate and demand accounts. Our principal objective is to remain an independent, community-oriented financial institution, providing outstanding service and innovative products to customers in our primary market area.

34

Performance Highlights

• Loans held for investment, excluding Warehouse Purchase Program loans, grew $439.2 million, or 21.4%, from December 31, 2013 with commercial loans increasing by $369.9 million, or 23.7%, to $1.93 billion at September 30, 2014.

• Warehouse Purchase Program loans increased by $63.2 million, or 9.4%, from December 31, 2013 to $736.6 million at September 30, 2014.

• The $1.1 million, or 13.4%, increase in net income for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was driven by a $5.1 million, or 16.4%, increase in interest income on loans and a $502,000, or 10.7%, decrease in interest expense.

• Deposits increased by $231.8 million, or 10.2%, from December 31, 2013 with growth being driven by savings, money market and non-interest-bearing demand deposits.

• Net interest margin for the three months ended September 30, 2014 was 3.80%, a 17 basis point increase from the three months ended September 30, 2013.

Critical Accounting Estimates

Certain of our accounting estimates 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 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 estimates include determining the allowance for loan losses and other-than-temporary impairments in our securities portfolio. Our accounting policies are discussed in detail in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 of our 2013 Form 10-K.

Allowance for Loan Loss. The allowance for loan losses and related provision expense are susceptible to change if the credit quality of our loan portfolio changes, which is evidenced by many factors, including but not limited to charge-offs and non-performing loan trends. Generally, consumer real estate lending has a lower risk profile compared to other consumer lending (such as automobile loans). Commercial real estate and commercial and industrial lending, however, can have higher risk profiles than consumer loans due to these loans being larger in amount and more susceptible to fluctuations in industry, market and economic conditions. While management uses available information to recognize losses on loans, 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 coverage of our best estimate of inherent credit losses in the loan portfolio as of September 30, 2014.

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 to the contractual terms of the loan agreement, is in doubt. If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated cost to sell, is used to determine the amount of impairment. If an impaired loan is not collateral-dependent, the impairment amount is determined using the negative difference, if any, between the estimated discounted cash flows and the loan amount due. For impaired loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established by acquisition of the collateral or until the basis is collected. Impairment losses are reflected in the allowance for loan losses through a charge to the provision for loan losses. Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal.

Other-than-Temporary Impairments. The Company evaluates securities for other-than-temporary impairment on at least 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 amortized cost, the financial condition and near-term prospects of the issuer, adverse conditions specifically related to the security, issuer, or geographic area, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The Company conducts regular reviews of the bond

35

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 or guarantee rating of securities that have an insurance or guarantee component. The ratings and financial condition of the issuers are monitored, as well as the financial condition and ratings of the insurers and guarantors.

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

General. Total assets increased by $425.3 million, or 12.1%, to $3.95 billion at September 30, 2014 from $3.53 billion at December 31, 2013 primarily due to an increase of $256.1 million, or 58.3%, in commercial and industrial loans, a $128.2 million, or 11.8%, increase in commercial real estate loans, a $74.5 million, or 16.9%, increase in consumer real estate loans and a $63.2 million, or 9.4%, increase in Warehouse Purchase Program loans. These increases were partially offset by a $76.6 million, or 14.1%, decrease in the securities portfolio.

Loans. Gross loans increased by $502.3 million, or 18.4%, to $3.23 billion at September 30, 2014 from $2.72 billion at December 31, 2013.

	September 30, 2014		December 31, 2013		Dollar Change			Percent Change
	(Dollars in thousands)
Commercial real estate	$	1,219,436	$	1,091,200	$	128,236		11.8	%
Commercial and industrial loans:
Commercial	668,421		425,030		243,391			57.3
Warehouse lines of credit	27,122		14,400		12,722			88.3
Total commercial and industrial loans	695,543		439,430		256,113			58.3
Construction and land loans
Commercial construction and land	13,206		27,619		(14,413		)	(52.2	)
Consumer construction and land	3,694		2,628		1,066			40.6
Total construction and land loans	16,900		30,247		(13,347		)	(44.1	)
Consumer:
Consumer real estate	515,706		441,226		74,480			16.9
Other consumer	41,478		47,799		(6,321		)	(13.2	)
Total consumer loans	557,184		489,025		68,159			13.9
Gross loans held for investment, excluding Warehouse Purchase Program loans	2,489,063		2,049,902		439,161			21.4
Warehouse Purchase Program loans	736,624		673,470		63,154			9.4
Gross loans	$	3,225,687	$	2,723,372	$	502,315		18.4	%

During the nine months ended September 30, 2014, the increase in gross loans, excluding Warehouse Purchase Program loans, was primarily driven by growth in our commercial lending portfolio, as commercial loans (essentially commercial real estate and commercial and industrial loans) increased a combined $369.9 million, or 23.7%, from December 31, 2013. Our commercial real estate portfolio consists almost exclusively of loans secured by well-established, multi-tenanted commercial real estate properties. Approximately 89% of our commercial real estate loan balances are secured by properties located in Texas.

The Company has historically participated in several energy loan transactions, but to further develop this line of business, in May 2013, the Company announced the formation of a new energy lending group. The Energy Finance group focuses on providing loans to private and public oil and gas companies throughout the United States, with an emphasis on reserve-based transactions for development drilling, capital expenditures to enhance oil and gas reserves, and acquisitions of oil and gas reserves. The group also offers the Bank's full array of commercial services, including Treasury Management and letters of credit, to its customers. Energy loans, which are reported as commercial and industrial loans, totaled $283.6 million at September 30, 2014 up $117.1 million from $166.5 million at December 31, 2013.

Warehouse Purchase Program loans increased by $63.2 million, or 9.4%, to $736.6 million at September 30, 2014 from $673.5 million at December 31, 2013. Although not bound by any legally binding commitment, when a purchase decision is made, the Company purchases a 100% participation interest in the loans originated by our mortgage banking company

36

customers, which are then held as one- to four- family mortgage loans. The mortgage banking company closes mortgage loans consistent with underwriting standards established by approved investors and, once all pertinent documents are received, the participation interest is delivered by the Company to the investor selected by the originator and approved by the Company. Loans funded by the Warehouse Purchase Program during the third quarter of 2014 consisted of 53% conforming and 47% government loans.

Prior to December 31, 2013, the Company reported Warehouse Purchase Program loans as held for sale, as the Company believed that was the most meaningful presentation to our financial statement users given that the collection of the loan was based upon the sale of the loan. Effective December 31, 2013, the Company concluded that, under US GAAP, these loans should be accounted for as held for investment. This correction changed the accounting for Warehouse Purchase Program loans from a lower of cost or market accounting method to accounting for the loans under ASC 310, with any credit losses incurred as of the balance sheet date recognized in the allowance for loan losses. As we had not reported any valuation decreases below cost in prior periods and we have experienced no credit losses on these loans, this correction had no impact on net income, comprehensive income, earnings per share or income taxes. Additionally, total assets and shareholders' equity remained unchanged. However, this correction did impact the statement of cash flows by moving cash flows associated with the Warehouse Purchase Program from operating cash flows to investing cash flows.

Consumer real estate loans increased by $74.5 million, or 16.9%, to $515.7 million at September 30, 2014 from $441.2 million at December 31, 2013. The Company does not originate one- to four- family real estate loans but does periodically purchase these loans from correspondents on both a servicing retained and servicing released basis. Also, the Company originates consumer home equity and home improvement loans.

Mortgage reform rules mandated by the Dodd-Frank Act became effective in January 2014, requiring lenders to make a reasonable, good faith determination of a borrower’s ability to repay any consumer closed-end credit transaction secured by a dwelling and to limit prepayment penalties. Increased risks of legal challenge, private right of action and regulatory enforcement are presented by these rules. The Company originates and purchases loans that do not meet the definition of a “qualified mortgage” (“QM”). At September 30, 2014, the Company had $36.5 million in non-QM loans, consisting of home equity and home improvement loans totaling $27.3 million, residential mortgage loans totaling $8.9 million and $277,000 in Warehouse Purchase Program loans. To mitigate the risks involved with non-QM loans, the Company has implemented systems, processes, procedural and product changes, and maintains its underwriting standards, to ensure that the “ability-to-repay” requirements of the new rules are adequately addressed.

Allowance for Loan Losses. The allowance for loan losses is maintained to cover losses that are estimated in accordance with US GAAP. It is our estimate of credit losses in our loan portfolio at each balance sheet date. Our methodology for analyzing the allowance for loan losses consists of general and specific components. For more information about the Company's calculation of its allowance for loan losses, please see Item 1 (Financial Statements) - Note 5 - "Loans" under Part 1 of this report.

Acquired loans are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. An allowance may be recorded in later periods if additional losses are subsequently anticipated. Methods utilized to estimate the required allowance for loan losses for acquired loans not deemed credit−impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance less the remaining purchase discount.

PCI loans are not considered nonperforming loans, and accordingly, are not included in the non-performing loans to total loans ratio as a numerator, but are included in total loans reflected in the denominator. The result is a downward trend in the ratio when compared to prior periods, assuming all other factors stay the same. Similarly, other asset quality ratios, such as the allowance for loan losses to total loans ratio will reflect a downward trend, assuming all other factors stay the same, due to the impact of PCI loans on the denominator with no corresponding impact in the numerator.

Our non-performing loans, which consist of nonaccrual loans, include both smaller balance homogeneous loans that are collectively evaluated for impairment and larger individually classified impaired loans. Loans are placed on nonaccrual status when the collection of principal and/or interest becomes doubtful or other factors involving the loan warrant placing the loan on nonaccrual status.

At September 30, 2014, of our $14.1 million in TDRs, $1.3 million were accruing interest and $12.8 million were classified as nonaccrual. Nonaccrual TDRs included $6.6 million attributable to three commercial real estate loans, all of which were performing in accordance with their restructured terms at September 30, 2014. For more information about the Company's TDRs, please see Item 1 (Financial Statements) - Note 5 - "Loans" under Part 1 of this report.

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Non-performing loans to total loans held for investment, excluding Warehouse Purchase Program loans, was 0.98% at September 30, 2014 compared to 1.08% at December 31, 2013. Including Warehouse Purchase Program loans, non-performing loans to total loans held for investment was 0.76% at September 30, 2014 compared to 0.81% at December 31, 2013. Non-performing loans increased by $2.3 million to $24.4 million at September 30, 2014 from $22.1 million at December 31, 2013. This increase was primarily attributable to a commercial and industrial loan totaling $1.8 million that was placed on nonaccrual status in 2014. The $1.8 million commercial and industrial loan, which was not past due at September 30, 2014, was placed on nonaccrual solely due to its designation as a troubled debt restructuring. Additionally, non-performing consumer real estate loans increased by $1.3 million from December 31, 2013.

Our allowance for loan losses was $22.6 million at September 30, 2014 compared to $19.4 million at December 31, 2013, or 0.70% of total loans held for investment (including Warehouse Purchase Program loans) at September 30, 2014 compared to 0.71% at December 31, 2013. Our allowance for loan losses to non-performing loans was 92.63% at September 30, 2014 compared to 87.50% at December 31, 2013.

Classified Assets. Loans and other assets, such as securities and foreclosed assets that are considered by management to be of lesser quality, are classified as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses of those classified as "substandard," with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as "loss" are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. PCI loans are included in the "substandard" and "doubtful" categories.

We regularly review the assets in our portfolio to determine whether any should be considered as classified. The total amount of classified assets represented 7.6% of our total equity and 1.1% of our total assets at September 30, 2014 compared to 9.1% of our total equity and 1.4% of our total assets at December 31, 2013. The aggregate amount of classified assets at the dates indicated was as follows:

	September 30, 2014		December 31, 2013
	(Dollars in thousands)
Doubtful	$	5,113	$	5,307
Substandard	37,708		43,827
Total classified loans	42,821		49,134
Foreclosed assets	106		480
Total classified assets	$	42,927	$	49,614

The Company has potential problem loans, considered "other loans of concern," that are currently performing and do not meet the criteria for impairment, but where there is the distinct possibility that we could sustain some loss if credit deficiencies are not corrected. These possible credit problems may result in the future inclusion of these loans in the non-performing asset categories and consisted of $11.7 million in loans that were classified as "substandard" but were still accruing interest and were not considered impaired at September 30, 2014. These loans have been considered in management's analysis of potential loan losses.

Securities. Our securities portfolio decreased by $76.6 million, or 14.1%, to $466.0 million at September 30, 2014 from $542.6 million at December 31, 2013. The decrease in our securities portfolio primarily resulted from paydowns and maturities totaling $1.2 billion, which were partially offset by purchases totaling $1.1 billion. The majority of these purchases were done for tax strategy purposes. Proceeds from paydowns and maturities of securities were used to fund loan growth.

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Deposits. Total deposits increased by $231.8 million, or 10.2%, to $2.50 billion at September 30, 2014 from $2.26 billion at December 31, 2013.

	September 30, 2014		December 31, 2013		Dollar Change			Percent Change
	(Dollars in thousands)
Non-interest-bearing demand	$	483,784	$	410,933	$	72,851		17.7	%
Interest-bearing demand	454,416		474,515		(20,099		)	(4.2	)
Savings and money market	1,057,912		904,576		153,336			17.0
Time	500,356		474,615		25,741			5.4
Total deposits	$	2,496,468	$	2,264,639	$	231,829		10.2	%

The increase in deposits from December 31, 2013 was primarily due to a $153.3 million, or 17.0%, increase in savings and money market deposits. This growth in savings and money market deposits includes $75.9 million in savings deposits from other financial institutions (a program initiated in the second quarter of 2014), as well as increases in both consumer and commercial savings and money market deposit balances. Non-interest-bearing demand deposits increased by $72.9 million, or 17.7%, to $483.8 million at September 30, 2014 which was driven by higher balances in commercial checking products, while time deposits increased by $25.7 million, or 5.4%. The increased deposit balances were used to fund loan growth.

Borrowings. FHLB advances, net of a $1.4 million restructuring prepayment penalty, increased by $160.6 million, or 25.1%, to $799.7 million at September 30, 2014 from $639.1 million at December 31, 2013. The outstanding balance of FHLB advances increased due to higher Warehouse Purchase Program balances at September 30, 2014, of which a portion had been strategically funded with short-term advances. At September 30, 2014, the Company was eligible to borrow an additional $264.9 million from the FHLB. Additionally, the Company has five available federal funds lines of credit with other financial institutions totaling $125.0 million and was eligible to borrow $55.3 million from the Federal Reserve Bank discount window. In addition to FHLB advances, at September 30, 2014 the Company had a $25.0 million outstanding repurchase agreement with Credit Suisse.

The table below shows FHLB advances by maturity and weighted average rate at September 30, 2014:

	Balance			Weighted Average Rate
	(Dollars in thousands)
Less than 90 days	$	649,011		0.22	%
90 days to less than one year	38,570			4.60
One to three years	90,387			2.74
After three to five years	18,695			4.42
After five years	4,451			5.49
	801,114			0.84	%
Restructuring prepayment penalty	(1,410		)
Total	$	799,704

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Shareholders’ Equity. Total shareholders' equity increased by $19.7 million, or 3.6%, to $564.1 million at September 30, 2014 from $544.5 million at December 31, 2013.

	September 30, 2014			December 31, 2013			Dollar Change		Percent Change
	(Dollars in thousands)
Common stock	$	400		$	399		$	1	0.3	%
Additional paid-in capital	383,779			377,657			6,122		1.6
Retained earnings	194,663			183,236			11,427		6.2
Accumulated other comprehensive income (loss), net	635			(383		)	1,018		N/M 1
Unearned ESOP shares	(15,350		)	(16,449		)	1,099		(6.7	)
Total shareholders’ equity	$	564,127		$	544,460		$	19,667	3.6	%

¹ N/M - not meaningful

Retained earnings were increased by net income of $25.8 million recognized during the nine months ended September 30, 2014. The increase due to net income was partially offset by the payment of three quarterly dividends totaling $0.36 per common share, or $14.4 million, during the nine months ended September 30, 2014.

Comparison of Results of Operations for the Three Months Ended September 30, 2014 and 2013

General. Net income for the three months ended September 30, 2014 was $9.3 million, an increase of $1.1 million, or 13.4%, from net income of $8.2 million for the three months ended September 30, 2013. The increase in net income was driven by a $5.1 million increase in interest income on loans and a $502,000 decrease in interest expense, partially offset by a $2.7 million increase in the provision for loan losses, a decrease in non-interest income of $168,000 and a $618,000 increase in non-interest expense. Basic and diluted earnings per share for the three months ended September 30, 2014 was $0.24, a $0.02 increase from $0.22 for the three months ended September 30, 2013.

Interest Income. Interest income increased by $5.0 million, or 14.7%, to $38.9 million for the three months ended September 30, 2014 from $33.9 million for the three months ended September 30, 2013.

	Three Months Ended September 30,				Dollar Change			Percent Change
	2014		2013
	(Dollars in thousands)
Interest and dividend income
Loans, including fees	$	35,872	$	30,805	$	5,067		16.4	%
Securities	2,787		2,905		(118		)	(4.1	)
Interest-bearing deposits in other financial institutions	57		32		25			78.1
FHLB and Federal Reserve Bank stock	139		133		6			4.5
	$	38,855	$	33,875	$	4,980		14.7	%

The $5.0 million increase in interest income compared to the three months ended September 30, 2013 was primarily due to a $5.1 million, or 16.4%, increase in interest income on loans, which was driven by higher commercial loan volume. For the three months ended September 30, 2014 the average balance of commercial and industrial loans increased by $324.9 million, or 96.2%, compared to the three months ended September 30, 2013 which resulted in a $3.2 million increase in interest income. Additionally, the average balance of commercial real estate loans increased by $180.5 million, or 17.9%, for the three months ended September 30, 2014 compared to the same period in 2013, contributing $2.4 million of the increase in loan interest income. The increases in loan interest income related to commercial loan volume were partially offset by a $40.7 million, or 5.9%, decrease in the average balance of Warehouse Purchase Program loans for the three months ended September 30, 2014 compared to the same period in 2013, as well as reductions in yields on all loan portfolios.

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Interest Expense. Interest expense decreased by $502,000, or 10.7%, to $4.2 million for the three months ended September 30, 2014 from $4.7 million for the three months ended September 30, 2013.

	Three Months Ended September 30,				Dollar Change			Percent Change
	2014		2013
	(Dollars in thousands)
Interest expense
Deposits	$	2,021	$	2,411	$	(390	)	(16.2	)%
FHLB advances	1,957		2,066		(109		)	(5.3	)
Repurchase agreement	205		206		(1		)	(0.5	)
Other borrowings	2		4		(2		)	(50.0	)
	$	4,185	$	4,687	$	(502	)	(10.7	)%

The decrease in interest expense for the three months ended September 30, 2014 compared to the same period in 2013, was primarily due to a $390,000, or 16.2%, decrease in interest expense on deposits, as well as a $109,000, or 5.3%, decrease in interest expense on FHLB advances. These declines resulted from a 53 basis point reduction in the average rate paid on time deposits, as well as a 37 basis point decrease in the average rate paid on borrowings. Average balances of all deposit categories and borrowings increased compared to the three months ended September 30, 2013 which partially offset the decline in interest expense related to lower rates. The average cost of interest-bearing liabilities decreased by 18 basis points to 0.61% for the three months ended September 30, 2014 compared to 0.79% for the same period in 2013.

Net Interest Income. Net interest income increased by $5.5 million, or 18.8%, to $34.7 million for the three months ended September 30, 2014 from $29.2 million for the three months ended September 30, 2013. The net interest margin increased by 17 basis points to 3.80% for the three months ended September 30, 2014 from 3.63% for the same period last year. The net interest rate spread increased by 22 basis points to 3.65% for the three months ended September 30, 2014 from 3.43% for the same period last year. The increases in the net interest margin and spread were primarily attributable to changes in the earning asset mix, as we increased volume in higher-yielding commercial loans, as well as lowered rates on borrowings and time and interest-bearing demand deposits. Also, the 17 basis point increase in the net interest margin compared to the three months ended September 30, 2013 included $377,000 of interest income reversed in September 2013 on three non-performing commercial real estate loans that were sold at par in the same month. Accretion of interest related to the 2012 Highlands acquisition contributed three basis points to the net interest margin for the three months ended September 30, 2014 compared to seven basis points for the three months ended September 30, 2013.

Provision for Loan Losses. The Company recorded a provision for loan losses of $2.5 million for the three months ended September 30, 2014 compared to a benefit of $158,000 for the three months ended September 30, 2013. The increase in the provision for loan losses compared to the three months ended September 30, 2013 was primarily related to increased commercial loan production, as commercial balances increased by $489.0 million from September 30, 2013. Net charge-offs totaled $366,000 for the three months ended September 30, 2014 compared to $250,000 for the three months ended September 30, 2013.

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Non-interest Income. Non-interest income decreased by $168,000, or 3.2%, to $5.1 million for the three months ended September 30, 2014 from $5.2 million for the three months ended September 30, 2013.

	Three Months Ended September 30,					Dollar Change			Percent Change
	2014			2013
	(Dollars in thousands)
Non-interest income
Service charges and fees	$	4,571		$	4,460	$	111		2.5	%
Other charges and fees	227			300		(73		)	(24.3	)
Bank-owned life insurance income	147			148		(1		)	(0.7	)
Gain (loss) on sale and disposition of assets	(85		)	41		(126		)	N/M 1
Other	198			277		(79		)	(28.5	)
	$	5,058		$	5,226	$	(168	)	(3.2	)%

¹ N/M - not meaningful

The $168,000 decrease in non-interest income from the three months ended September 30, 2013 was primarily due to a $126,000 change in the gain (loss) on sale and disposition of assets, which was primarily attributable to $85,000 in write-downs on other real estate owned during the three months ended September 30, 2014 compared to a $38,000 gain on other real estate owned during the three months ended September 30, 2013. A $111,000, or 2.5%, increase in service charges and fees from the three months ended September 30, 2013 primarily related to higher commercial loan pre-prepayment fees and debit card income, was offset by a $70,000 decrease in brokerage income (reported in other charges and fees) and a $79,000 decrease in other non-interest income.

Non-interest Expense. Non-interest expense increased by $618,000, or 2.8%, to $22.8 million for the three months ended September 30, 2014 from $22.2 million for the three months ended September 30, 2013.

	Three Months Ended September 30,				Dollar Change			Percent Change
	2014		2013
	(Dollars in thousands)
Non-interest expense
Salaries and employee benefits	$	13,661	$	13,546	$	115		0.8	%
Merger and acquisition costs	1,188		—		1,188			N/M 1
Advertising	262		666		(404		)	(60.7	)
Occupancy and equipment	1,807		1,830		(23		)	(1.3	)
Outside professional services	569		682		(113		)	(16.6	)
Regulatory assessments	698		629		69			11.0
Data processing	1,739		1,733		6			0.3
Office operations	1,566		1,603		(37		)	(2.3	)
Other	1,301		1,484		(183		)	(12.3	)
	$	22,791	$	22,173	$	618		2.8	%

¹ N/M - not meaningful

The increase in non-interest expense from the three months ended September 30, 2013 was primarily attributable to merger and acquisition costs related to the pending merger with LegacyTexas totaling $1.2 million during the three months ended September 30, 2014 with no comparable costs recognized during the three months ended September 30, 2013. Additionally, salaries and employee benefits expense increased by $115,000 compared to the three months ended September 30, 2013 primarily due to increased performance-based incentive accruals due to higher loan production, as well as increased ESOP expense due to a rise in the Company's stock price over the past year. Reductions in advertising, other non-interest expense and outside professional services expense partially offset these increases in non-interest expense for the three months ended September 30, 2014 compared to the same period in 2013.

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Income Tax Expense. For the three months ended September 30, 2014 we recognized income tax expense of $5.1 million on our pre-tax income, which was an effective tax rate of 35.4%, compared to income tax expense of $4.2 million for the three months ended September 30, 2013 which was an effective tax rate of 33.8%. The difference in the effective tax rate was primarily due to permanent book-tax differences.

Comparison of Results of Operations for the Nine Months EndedSeptember 30, 2014 and 2013

General. Net income for the nine months ended September 30, 2014 was $25.8 million, an increase of $1.4 million, or 5.6%, from net income of $24.4 million for the nine months ended September 30, 2013. The increase in net income was driven by a $9.0 million increase in net interest income, partially offset by a $1.5 million increase in the provision for loan losses, a decrease in non-interest income of $1.4 million and a $3.5 million increase in non-interest expense. Basic and diluted earnings per share for the nine months ended September 30, 2014 was $0.67, an increase of $0.03 from $0.64 for the nine months ended September 30, 2013.

Interest Income. Interest income increased by $7.1 million, or 6.9%, to $109.7 million for the nine months ended September 30, 2014 from $102.6 million for the nine months ended September 30, 2013.

	Nine Months Ended September 30,				Dollar Change		Percent Change
	2014		2013
	(Dollars in thousands)
Interest and dividend income
Loans, including fees	$	100,148	$	93,334	$	6,814	7.3	%
Securities	8,930		8,768		162		1.8
Interest-bearing deposits in other financial institutions	185		88		97		110.2
FHLB and Federal Reserve Bank stock	405		400		5		1.3
	$	109,668	$	102,590	$	7,078	6.9	%

The increase in interest income for the nine months ended September 30, 2014 compared to the same period in 2013, was primarily due to a $6.8 million, or 7.3%, increase in interest income on loans, which was driven by higher commercial loan volume. For the nine months ended September 30, 2014 the average balance of commercial and industrial loans increased by $261.7 million, or 83.7%, compared to the nine months ended September 30, 2013 which resulted in a $7.2 million increase in interest income. Additionally, the average balance of commercial real estate loans increased by $226.1 million, or 24.1%, for the nine months ended September 30, 2014 compared to the same period in 2013, contributing $7.2 million of the increase in interest income. The increases in interest income related to commercial loan volume were partially offset by a $171.0 million, or 23.5%, decrease in the average balance of Warehouse Purchase Program loans for the nine months ended September 30, 2014 compared to the same period in 2013, as well as reductions in yields on all commercial and real estate loan portfolios.

The $162,000 increase in interest income on securities for the nine months ended September 30, 2014 compared to the same period in 2013, was primarily due to an 86 basis point increase in the average yield earned on agency collateralized mortgage obligations, which increased to 2.19% for the nine months ended September 30, 2014 from 1.33% for the nine months ended September 30, 2013.

Interest Expense. Interest expense decreased by $1.9 million, or 13.5%, to $12.5 million for the nine months ended September 30, 2014 from $14.4 million for the nine months ended September 30, 2013.

43

	Nine Months Ended September 30,				Dollar Change			Percent Change
	2014		2013
	(Dollars in thousands)
Interest expense
Deposits	$	6,047	$	7,293	$	(1,246	)	(17.1	)%
FHLB advances	5,832		6,530		(698		)	(10.7	)
Repurchase agreement	610		610		—			—
Other borrowings	2		6		(4		)	(66.7	)
	$	12,491	$	14,439	$	(1,948	)	(13.5	)%

The decrease in interest expense for the nine months ended September 30, 2014 compared to the same period in 2013, was primarily due to a $1.2 million, or 17.1%, decrease in interest expense on deposits, as well as a $698,000, or 10.7%, decrease in interest expense on FHLB advances. While volume was up in all deposit categories, a 51 basis point reduction in the average rate paid on time deposits, as well as a four basis point decline in the average rate paid on interest-bearing demand deposits, drove the decrease in interest expense on deposits for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The average rate paid on borrowings decreased by 17 basis points from the nine months ended September 30, 2013 also contributing to the reduction in interest expense. The average cost of interest-bearing liabilities decreased by 15 basis points to 0.65% for the nine months ended September 30, 2014 compared to 0.80% for the same period in 2013.

Net Interest Income. Net interest income increased by $9.0 million, or 10.2%, to $97.2 million for the nine months ended September 30, 2014 from $88.2 million for the nine months ended September 30, 2013. The net interest margin increased by nine basis points to 3.76% for the nine months ended September 30, 2014 from 3.67% for the same period last year. The net interest rate spread increased by 13 basis points to 3.60% for the nine months ended September 30, 2014 from 3.47% for the same period last year. The increases in the net interest margin and spread were primarily attributable to changes in the earning asset mix, as we increased volume in higher-yielding commercial loans, as well as lowered time and interest-bearing demand deposit rates.

Provision for Loan Losses. The provision for loan losses was $4.1 million for the nine months ended September 30, 2014, an increase of $1.5 million, or 58.1%, from $2.6 million for the nine months ended September 30, 2013. The increase in the provision for loan losses compared to the nine months ended September 30, 2013 was primarily related to increased commercial loan production, as commercial balances increased by $489.0 million from September 30, 2013. Net charge-offs totaled $857,000 for the nine months ended September 30, 2014 compared to $1.8 million for the nine months ended September 30, 2013.

Non-interest Income. Non-interest income decreased by $1.4 million, or 8.2%, to $15.4 million for the nine months ended September 30, 2014 from $16.8 million for the nine months ended September 30, 2013.

	Nine Months Ended September 30,						Dollar Change			Percent Change
	2014			2013
	(Dollars in thousands)
Non-interest income
Service charges and fees	$	13,743		$	13,519		$	224		1.7	%
Other charges and fees	676			691			(15		)	(2.2	)
Bank-owned life insurance income	445			463			(18		)	(3.9	)
Loss on sale of available for sale securities	—			(177		)	177			(100.0	)
Gain on sale and disposition of assets	643			715			(72		)	(10.1	)
Other	(58		)	1,617			(1,675		)	N/M 1
	$	15,449		$	16,828		$	(1,379	)	(8.2	)%

¹ N/M - not meaningful

44

The $1.4 million decrease in non-interest income from the nine months ended September 30, 2013 was primarily attributable to a $1.7 million decrease in other non-interest income, caused by a net increase of $825,000 in a community development-oriented private equity fund used for Community Reinvestment Act purposes recognized during the 2013 period that was not repeated in the 2014 period. This decrease was partially offset by a $177,000 loss on the sale of available-for-sale securities recorded in the 2013 period with no comparable loss recorded in the 2014 period, as well as a $224,000 increase in service charges and fees from the nine months ended September 30, 2013 primarily due to higher commercial loan syndication fees and debit card income.

Non-interest Expense. Non-interest expense increased by $3.5 million, or 5.5%, to $68.3 million for the nine months ended September 30, 2014 from $64.7 million for the nine months ended September 30, 2013.

	Nine Months Ended September 30,				Dollar Change			Percent Change
	2014		2013
	(Dollars in thousands)
Non-interest expense
Salaries and employee benefits	$	41,920	$	38,989	$	2,931		7.5	%
Merger and acquisition costs	2,009		—		2,009			N/M 1
Advertising	1,110		1,930		(820		)	(42.5	)
Occupancy and equipment	5,518		5,558		(40		)	(0.7	)
Outside professional services	1,580		1,936		(356		)	(18.4	)
Regulatory assessments	2,013		1,858		155			8.3
Data processing	5,109		4,980		129			2.6
Office operations	4,963		5,002		(39		)	(0.8	)
Other	4,074		4,496		(422		)	(9.4	)
	$	68,296	$	64,749	$	3,547		5.5	%

¹ N/M - not meaningful

The increase in non-interest expense from the nine months ended September 30, 2013 was primarily attributable to a $2.9 million, or 7.5%, increase in salaries and employee benefits expense, resulting from increased performance-based incentive accruals due to higher loan production, as well as increased ESOP and share-based compensation expense due to the rise in the Company's stock price. The Company incurred merger and acquisition costs related to the pending merger with LegacyTexas totaling $2.0 million during the nine months ended September 30, 2014 with no comparable costs recognized during the nine months ended September 30, 2013. Reductions in advertising, outside professional services and other non-interest expense for the nine months ended September 30, 2014 compared to the same period in 2013, partially offset these increases in non-interest expense.

Income Tax Expense. For the nine months ended September 30, 2014 we recognized income tax expense of $14.4 million on our pre-tax income, which was an effective tax rate of 35.9%, compared to income tax expense of $13.2 million for the nine months ended September 30, 2013 which was an effective tax rate of 35.1%. The difference in the effective tax rate was primarily due to permanent book-tax differences.

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

The following tables present, 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 yields 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.

45

		Three Months Ended September 30,
		2014							2013
		Average Outstanding Balance			Interest Earned/Paid		Yield/ Rate		Average Outstanding Balance			Interest Earned/Paid		Yield/ Rate
		(Dollars in thousands)
Interest-earning assets:
	Commercial real estate	$	1,187,982		$	16,258	5.47	%	$	1,007,449		$	13,841	5.50	%
	Warehouse Purchase Program	645,148			5,738		3.56		685,852			6,617		3.86
	Commercial and industrial	662,504			6,923		4.18		337,583			3,711		4.40
	Consumer real estate	513,768			6,315		4.92		453,939			5,840		5.15
	Other consumer	42,308			638		6.03		51,414			796		6.19
	Less: deferred fees and allowance for loan loss	(22,663		)	—		—		(18,982		)	—		—
	Loans receivable 1	3,029,047			35,872		4.74		2,517,255			30,805		4.90
	Agency mortgage-backed securities	254,338			1,366		2.15		303,316			1,523		2.01
	Agency collateralized mortgage obligations	158,645			841		2.12		225,946			794		1.41
	Investment securities	78,901			580		2.94		75,271			588		3.12
	FHLB and FRB stock	41,066			139		1.35		35,508			133		1.50
	Interest-earning deposit accounts	90,246			57		0.25		54,860			32		0.23
Total interest-earning assets		3,652,243			38,855		4.26		3,212,156			33,875		4.22
Non-interest-earning assets		185,181							178,681
Total assets		$	3,837,424						$	3,390,837
Interest-bearing liabilities:
	Interest-bearing demand	$	460,192		407		0.35		$	448,241		438		0.39
	Savings and money market	1,060,311			812		0.31		892,355			617		0.28
	Time	492,864			802		0.65		458,431			1,356		1.18
	Borrowings	733,615			2,164		1.18		587,651			2,276		1.55
Total interest-bearing liabilities		2,746,982			4,185		0.61		2,386,678			4,687		0.79
Non-interest-bearing demand		456,115							405,344
Non-interest-bearing liabilities		72,305							60,914
Total liabilities		3,275,402							2,852,936
Total shareholders’ equity		562,022							537,901
Total liabilities and shareholders’ equity		$	3,837,424						$	3,390,837
Net interest income and margin					$	34,670	3.80	%				$	29,188	3.63	%
Net interest income and margin (tax-equivalent basis) 2					$	34,867	3.82	%				$	29,390	3.66	%
Net interest rate spread							3.65	%						3.43	%
Net earning assets		$	905,261						$	825,478
Average interest-earning assets to average interest-bearing liabilities		132.95		%					134.59		%
1	Calculated net of deferred fees, loan discounts, loans in process and allowance for loan losses.
2	In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 35% for 2014 and 2013. Tax-exempt investments and loans had an average balance of $67.4 million and $69.5 million for the three months ended September 30, 2014 and 2013, respectively.

46

		Nine Months Ended September 30,
		2014							2013
		Average Outstanding Balance			Interest Earned/Paid		Yield/ Rate		Average Outstanding Balance			Interest Earned/Paid		Yield/ Rate
		(Dollars in thousands)
Interest-earning assets:
	Commercial real estate	$	1,162,802		$	47,460	5.44	%	$	936,695		$	40,250	5.73	%
	Warehouse Purchase Program	555,394			14,894		3.58		726,363			21,166		3.89
	Commercial and industrial	574,283			18,022		4.18		312,625			10,814		4.61
	Consumer real estate	478,582			17,772		4.95		478,190			18,675		5.21
	Other consumer	44,292			2,000		6.02		54,091			2,429		5.99
	Less: deferred fees and allowance for loan loss	(21,711		)	—		—		(18,297		)	—		—
	Loans receivable 1	2,793,642			100,148		4.78		2,489,667			93,334		5.00
	Agency mortgage-backed securities	265,629			4,378		2.20		306,650			4,589		2.00
	Agency collateralized mortgage obligations	171,313			2,813		2.19		255,984			2,546		1.33
	Investment securities	73,960			1,739		3.14		66,181			1,633		3.29
	FHLB and FRB stock	36,157			405		1.49		36,087			400		1.48
	Interest-earning deposit accounts	101,766			185		0.24		51,591			88		0.23
Total interest-earning assets		3,442,467			109,668		4.25		3,206,160			102,590		4.27
Non-interest-earning assets		184,346							183,234
Total assets		$	3,626,813						$	3,389,394
Interest-bearing liabilities:
	Interest-bearing demand	$	463,071		1,257		0.36		$	457,624		1,374		0.40
	Savings and money market	993,582			2,199		0.30		884,571			1,806		0.27
	Time	496,364			2,591		0.70		453,234			4,113		1.21
	Borrowings	626,703			6,444		1.37		619,184			7,146		1.54
Total interest-bearing liabilities		2,579,720			12,491		0.65		2,414,613			14,439		0.80
Non-interest-bearing demand		428,744							388,932
Non-interest-bearing liabilities		63,720							52,894
Total liabilities		3,072,184							2,856,439
Total shareholders’ equity		554,629							532,955			��
Total liabilities and shareholders’ equity		$	3,626,813						$	3,389,394
Net interest income and margin					$	97,177	3.76	%				$	88,151	3.67	%
Net interest income and margin (tax-equivalent basis) 2					$	97,771	3.79	%				$	88,712	3.69	%
Net interest rate spread							3.60	%						3.47	%
Net earning assets		$	862,747						$	791,547
Average interest-earning assets to average interest-bearing liabilities		133.44		%					132.78		%
1	Calculated net of deferred fees, loan discounts, loans in process and allowance for loan losses.
2	In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 35% for 2014 and 2013. Tax-exempt investments and loans had an average balance of $67.7 million and $61.2 million for the nine months ended September 30, 2014 and 2013, respectively.

47

Rate/Volume Analysis

The following tables present 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 earlier 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 September 30,
	2014 versus 2013
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(Dollars in thousands)
Interest-earning assets:
Commercial real estate	$	2,471		$	(54	)	$	2,417
Warehouse Purchase Program	(379		)	(500		)	(879		)
Commercial and industrial	3,404			(192		)	3,212
Consumer real estate	744			(269		)	475
Other consumer	(138		)	(20		)	(158		)
Loans receivable	6,102			(1,035		)	5,067
Agency mortgage-backed securities	(258		)	101			(157		)
Agency collateralized mortgage obligations	(281		)	328			47
Investment securities	28			(36		)	(8		)
FHLB and FRB stock	20			(14		)	6
Interest-earning deposit accounts	22			3			25
Total interest-earning assets	5,633			(653		)	4,980
Interest-bearing liabilities:
Interest-bearing demand	11			(42		)	(31		)
Savings and money market	124			71			195
Time	95			(649		)	(554		)
Borrowings	497			(609		)	(112		)
Total interest-bearing liabilities	727			(1,229		)	(502		)
Net interest income	$	4,906		$	576		$	5,482

48

	Nine Months Ended September 30,
	2014 versus 2013
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(Dollars in thousands)
Interest-earning assets:
Commercial real estate	$	9,312		$	(2,102	)	$	7,210
Warehouse Purchase Program	(4,685		)	(1,587		)	(6,272		)
Commercial and industrial	8,295			(1,087		)	7,208
Consumer real estate	15			(918		)	(903		)
Other consumer	(442		)	13			(429		)
Loans receivable	12,495			(5,681		)	6,814
Agency mortgage-backed securities	(649		)	438			(211		)
Agency collateralized mortgage obligations	(1,027		)	1,294			267
Investment securities	185			(79		)	106
FHLB and FRB stock	1			4			5
Interest-earning deposit accounts	91			6			97
Total interest-earning assets	11,096			(4,018		)	7,078
Interest-bearing liabilities:
Interest-bearing demand	16			(133		)	(117		)
Savings and money market	234			159			393
Time	361			(1,883		)	(1,522		)
Borrowings	86			(788		)	(702		)
Total interest-bearing liabilities	697			(2,645		)	(1,948		)
Net interest income	$	10,399		$	(1,373	)	$	9,026

Liquidity

Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. The Company 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 the primary sources of funds, management has several secondary sources available to meet potential funding requirements. At September 30, 2014, the Company had an additional borrowing capacity of $264.9 million with the FHLB. Also, at September 30, 2014, the Company had $125.0 million in federal funds lines of credit available with other financial institutions. 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 securities pledged to the discount window line. At September 30, 2014, securities pledged had a collateral value of $55.3 million.

At September 30, 2014, the Company had classified 45.4% of its securities portfolio as available for sale (including pledged securities), providing an additional source of liquidity. Management believes that because active markets exist and our securities portfolio is of high quality, our available for sale securities are marketable. Participations in loans we originate, including portions of commercial real estate loans, are sold to create another source of liquidity and to manage borrower concentration risk as well as interest rate risk.

Liquidity management is both a daily and long-term function of business management. Short term excess liquidity is generally placed in short-term investments, such as overnight deposits at the Federal Reserve Bank and correspondent banks. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities.

49

Planning for the Company's normal business liquidity needs, both expected and unexpected, is done on a daily and short-term basis through the cash management function. On a longer-term basis it is accomplished through the budget and strategic planning functions, with support from internal asset/liability management software model projections.

The Liquidity Committee monitors liquidity positions and projections. Liquidity contingency planning is added to the Committee's process by focusing on possible scenarios that would stress liquidity beyond the Bank's normal business liquidity needs. These scenarios may include macro-economic and bank specific situations focusing on high probability-high impact, high probability-low impact, low probability-high impact, and low probability-low impact stressors.

Management recognizes that the events and their severity of liquidity stress leading up to and occurring during a liquidity stress event cannot be precisely defined or listed. Nevertheless, management believes that liquidity stress events can be categorized into sources and uses of liquidity, and levels of severity, with responses that apply to various situations.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Company has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. At September 30, 2014, the Company (on an unconsolidated basis) had liquid assets of $49.5 million.

On November 25, 2013, the Company and LegacyTexas announced that they had entered into a definitive merger agreement whereby LegacyTexas will merge into the Company and, immediately thereafter, the Bank will merge into LegacyTexas’ subsidiary bank, LegacyTexas Bank. Under the terms of the agreement, the Company will issue 7.85 million shares of the Company's common stock and pay approximately $115 million in cash for all the outstanding stock of LegacyTexas. LegacyTexas' shareholders approved the merger on May 19, 2014, and on August 29, 2014, the Company and LegacyTexas announced that additional time will be required to obtain regulatory approvals and to satisfy customary closing conditions necessary to complete the merger, and have amended their merger agreement to extend the agreement to December 31, 2014.

The Company uses its sources of funds primarily to meet its expenses, pay maturing deposits and fund withdrawals, and to fund loan commitments. Total approved loan commitments (including Warehouse Purchase Program commitments, unused lines of credit and letters of credit) amounted to $864.0 million and $988.7 million at September 30, 2014, and December 31, 2013, respectively. 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 the Company. Certificates of deposit scheduled to mature in one year or less at September 30, 2014 totaled $349.0 million with a weighted average rate of 0.54%.

During the nine months ended September 30, 2014, cash and cash equivalents increased by $2.3 million, or 2.6%, to $90.3 million at September 30, 2014 from $88.0 million at December 31, 2013. Operating activities provided cash of $57.1 million and financing activities provided cash of $379.0 million, which was partially offset by cash used in investing activities of $433.8 million. Primary sources of cash for the nine months ended September 30, 2014 included pay-offs of Warehouse Purchase Program loans totaling $8.6 billion, proceeds from FHLB advances of $620.0 million and maturities, prepayments and calls of available-for-sale securities of $1.2 billion. Primary uses of cash for the nine months ended September 30, 2014 included originations of Warehouse Purchase Program loans totaling $8.7 billion, repayments on FHLB advances of $459.4 million, net funding of loans held for investment of $439.2 million and purchases of available-for-sale securities of $1.1 billion.

Please see Item 1A (Risk Factors) under Part 1 of the Company's 2013 Form 10-K for information regarding liquidity risk.

50

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 aggregate and by payment due dates (not including any interest amounts). In addition to the commitments below, the Company had overdraft protection available to its depositors in the amount of $71.5 million and credit card guarantees outstanding in the amount of $382,000 at September 30, 2014.

	September 30, 2014
	Less than One Year		One through Three Years		Four through Five Years		After Five Years		Total
	(Dollars in thousands)
Contractual obligations:
Deposits without a stated maturity	$	1,996,112	$	—	$	—	$	—	$	1,996,112
Certificates of deposit	348,955		138,864		10,589		1,948		500,356
FHLB advances (gross of restructuring prepayment penalty of $1,410)	687,581		90,387		18,695		4,451		801,114
Repurchase agreement	—		—		25,000		—		25,000
Private equity fund for Community Reinvestment Act purposes	3,480		—		—		—		3,480
Operating leases (premises)	2,449		3,946		1,691		4,657		12,743
Total contractual obligations	$	3,038,577	$	233,197	$	55,975	$	11,056	3,338,805
Off-balance sheet loan commitments: 1
Unused commitments to extend credit	$	130,791	$	128,319	$	137,045	$	56,340	452,495
Unused capacity on Warehouse Purchase Program loans	410,488		—		—		—		410,488
Standby letters of credit	913		104		—		—		1,017
Total loan commitments	$	542,192	$	128,423	$	137,045	$	56,340	864,000
Total contractual obligations and loan commitments									$	4,202,805
1  Loans having no stated maturity are reported in the “Less than One Year” category.

51

Capital Resources

The Bank and the Company are subject to minimum capital requirements imposed by the OCC and the FRB. Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank and the Company to maintain “well-capitalized” status under the capital categories of the OCC and the FRB. Based on capital levels at September 30, 2014, and December 31, 2013 the Bank and the Company were considered to be well-capitalized.

At September 30, 2014, the Bank's equity totaled $461.0 million. The Company's consolidated equity totaled $564.1 million, or 14.3% of total assets, at September 30, 2014.

	Actual				Required for Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2014	(Dollars in thousands)
Total risk-based capital
the Company	$	555,569	16.72	%	$	265,821	8.00	%	$	332,276	10.00	%
the Bank	452,440		13.62		265,724		8.00		332,155		10.00
Tier 1 risk-based capital
the Company	532,984		16.04		132,911		4.00		199,366		6.00
the Bank	429,855		12.94		132,862		4.00		199,293		6.00
Tier 1 leverage
the Company	532,984		14.03		151,977		4.00		189,971		5.00
the Bank	429,855		11.31		151,992		4.00		189,990		5.00
December 31, 2013
Total risk-based capital
the Company	$	533,266	18.85	%	$	226,316	8.00	%	$	282,895	10.00	%
the Bank	431,442		15.26		226,181		8.00		282,727		10.00
Tier 1 risk-based capital
the Company	513,908		18.17		113,158		4.00		169,737		6.00
the Bank	412,084		14.58		113,091		4.00		169,636		6.00
Tier 1 leverage
the Company	513,908		15.67		131,197		4.00		163,996		5.00
the Bank	412,084		12.56		131,217		4.00		164,021		5.00

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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. However, market rates change over time. Like other financial institutions, our results of operations are impacted by changes in market interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in market 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 market interest rates and comply with applicable regulations, we calculate and 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, FHLB advances and other borrowings, reprice more rapidly or slowly, or at different rates (basis risk) than its interest earning assets, primarily loans and investment securities.

The Bank calculates interest rate risk by entering relevant contractual and projected information into the asset/liability management software simulation model. Data required by the model includes balance, rate, pay down schedule, and maturity. For items that contractually reprice, the repricing index, spread, and frequency are entered, including any initial, periodic, and lifetime interest rate caps and floors.

The Bank has adopted an asset and liability management policy. This policy sets the foundation for monitoring and managing the potential for adverse effects of material prolonged increases or decreases in interest rates on our results of operations. 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 monitor, communicate, coordinate, and direct asset/liability management consistent with our business plan and board-approved policies. The committee directs 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, interest rate risk, growth, and profitability goals.

The Committee 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 policy implementation 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 strategy is to protect earnings by managing the inherent maturity and repricing mismatches between its interest earning assets and interest bearing liabilities. The Bank generally manages such earnings exposure through the addition of loans, investment securities and deposits with risk mitigating characteristics and by entering into appropriate term FHLB advance agreements.

As part of its efforts to monitor and manage interest rate risk, the Bank uses the economic value of equity (“EVE”) methodology adopted by the OCC as part of its capital regulations. In essence, the EVE approach calculates the difference between the present value of expected cash flows from assets and liabilities. In addition to monitoring selected measures of EVE, management also calculates and monitors potential effects on net interest income resulting from increases or decreases in market interest rates. This approach uses the earnings at risk (“EAR”) methodology adopted by the OCC as part of its capital regulations. EAR calculates estimated net interest income using a flat balance sheet approach over a twelve month time horizon. The EAR process is used in conjunction with EVE measures to identify interest rate risk on both a global and account level basis. Management and the Board of Directors review EVE and EAR measurements at least quarterly to review historical trends, projected measurements, and to determine whether the Bank's interest rate exposure is within the limits established by the Board of Directors.

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The Bank's asset/liability management strategy sets acceptable limits for the percentage change in EVE and EAR given changes in interest rates. For an instantaneous, parallel, and sustained interest rate increase or decrease of 100 basis points, the Bank's policy indicates that the EVE ratio should not fall below 7.00%, and for increases of 200, 300 and 400 basis points, the EVE ratio should not fall below 6.00%, 5.25% and 5.00%, respectively. For an instantaneous, parallel, and sustained interest rate increase or decrease of 100 basis points, the Bank's policy indicates that EAR should not decrease by more than 7%, and for increases of 200, 300, and 400 basis points, EAR should not decrease by more than 10%, 13%, and 15%, respectively.

As illustrated in the tables below, the Bank was within policy limits for all scenarios tested. The tables presented below, as of September 30, 2014, and December 31, 2013, are internal analyses of our interest rate risk as measured by changes in EVE and EAR for instantaneous, parallel, and sustained shifts for all market rates and yield curves, in 100 basis point increments, up 400 basis points and down 100 basis points.

As illustrated in the tables below, our EVE would be negatively impacted by a parallel, instantaneous, and sustained increase in market rates. Such an increase in rates would negatively impact EVE as a result of the duration of assets, including loans and investments, being longer than the duration of liabilities, primarily deposit accounts and FHLB borrowings. As illustrated in the table below at September 30, 2014 our EAR would be positively impacted by a parallel, instantaneous, and sustained increase in market rates of 200, 300, or 400 basis points. As market interest rates rise and variable loan rates move above their floors, the interest rate repricing of variable rate and maturing loans and securities increases net interest income.

September 30, 2014
Change in Interest Rates in Basis Points		Economic Value of Equity						Earnings at Risk (12 months)
		Estimated EVE	Estimated Increase / (Decrease) in EVE				EVE Ratio %	Estimated Net Interest Income	Increase / (Decrease) in Estimated Net Interest Income
		$ Amount	$ Change		% Change			$ Amount	$ Change		% Change
		(Dollars in thousands)
400		574,766	(48,210	)	(7.74	)	15.61	157,507	17,737		12.69
300		594,092	(28,884	)	(4.64	)	15.82	151,564	11,794		8.44
200		604,416	(18,560	)	(2.98	)	15.80	145,684	5,914		4.23
100		615,552	(7,424	)	(1.19	)	15.79	139,712	(58	)	(0.04	)
—		622,976	—		—		15.69	139,770	—		—
(100	)	634,211	11,235		1.80		15.63	136,695	(3,075	)	(2.20	)

December 31, 2013
Change in Interest Rates in Basis Points		Economic Value of Equity						Earnings at Risk (12 months)
		Estimated EVE	Estimated Increase / (Decrease) in EVE				EVE Ratio %	Estimated Net Interest Income	Increase / (Decrease) in Estimated Net Interest Income
		$ Amount	$ Change		% Change			$ Amount	$ Change		% Change
		(Dollars in thousands)
400		549,795	(51,978	)	(8.64	)	16.73	133,556	11,026		9.00
300		567,418	(34,355	)	(5.71	)	16.92	129,170	6,640		5.42
200		580,197	(21,576	)	(3.59	)	16.96	124,779	2,249		1.84
100		592,724	(9,049	)	(1.50	)	16.99	120,245	(2,285	)	(1.86	)
—		601,773	—		—		16.92	122,530	—		—
(100	)	604,473	2,700		0.45		16.67	120,556	(1,974	)	(1.61	)

The Bank's EVE was $623.0 million, or 15.69%, of the market value of portfolio assets as of September 30, 2014, a $21.2 million increase from $601.8 million, or 16.92%, of the market value of portfolio assets as of December 31, 2013. Based

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upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in an $18.6 million decrease in our EVE at September 30, 2014 compared to a $21.6 million decrease at December 31, 2013, and would result in an 11 basis point increase in our EVE ratio at September 30, 2014 as compared to a four basis point increase to 16.96% at December 31, 2013. An immediate 100 basis point decrease in market interest rates would result in an $11.2 million increase in our EVE at September 30, 2014 compared to a $2.7 million increase at December 31, 2013, and would result in a six basis point decrease in our EVE ratio to 15.63% at September 30, 2014, as compared to a 25 basis point decrease in our EVE ratio to 16.67% at December 31, 2013.

The Bank's projected EAR for the twelve months ending September 30, 2015 is $139.8 million, compared to $122.5 million for the twelve months ending December 31, 2014. Based on the assumptions utilized, an immediate 200 basis point increase in market rates would result in a $5.9 million, or 4.23%, increase in net interest income for the twelve months ending September 30, 2015 compared to a $2.2 million, or 1.84%, increase for the twelve months ending December 31, 2014. An immediate 100 basis point decrease in market rates would result in a $3.1 million decrease in net interest income for the twelve months ending September 30, 2015 compared to a $2.0 million decrease for the twelve months ending December 31, 2014.

We have implemented a strategic plan to mitigate interest rate risk. This plan includes the ongoing review of our current and projected mix of fixed rate versus variable rate loans, investments, deposits, and borrowings. When available and appropriate, high quality adjustable rate assets are purchased or originated. These assets generally may reduce our sensitivity to upward interest rate shocks. On the liability side of the balance sheet, borrowings are added as appropriate. These borrowings will be of a size and term so as to mitigate the impact of duration mismatches, reducing our sensitivity to upward interest rate shocks. These strategies are implemented as needed and as opportunities arise to mitigate interest rate risk without materially sacrificing earnings.

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.

Management also believes that at times the increased net income which may result from a mismatch in the actual maturity, repricing, or duration of its asset and liability portfolios can provide sufficient returns to justify the increased exposure to sudden and unexpected increases or decreases 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 market 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 market interest rates. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates over the life of the asset (time to initial interest rate reset; interest rate reset frequency; initial, periodic, and lifetime caps and floors). Further, in the event of a significant change in market interest rates, loan and securities prepayment and time deposit early withdrawal levels may deviate significantly from those assumed in the table above. Assets with prepayment options and liabilities with early withdrawal options are being monitored, with assumptions stress tested on a regular basis. Current market rates and customer behavior are being considered in the management of interest rate risk. 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. Of note, the current historically low interest rate environment has resulted in asymmetrical interest rate risk. The interest rates on certain repricing assets and liabilities cannot be fully shocked downward.

The Board of Directors and management believe that the Bank’s ability to successfully manage and mitigate its exposure to interest rate risk is strengthened by several key factors. For example, the Bank manages its balance sheet duration and overall interest rate risk by placing a preference on originating and retaining adjustable rate loans. In addition, the Bank borrows at various maturities from the FHLB to mitigate mismatches between the asset and liability portfolios. Furthermore, the investment securities portfolio is used as a primary interest rate risk management tool through the duration and repricing targeting of purchases and sales.

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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 Principal 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 September 30, 2014. Based on that evaluation, the Company's Chief Executive Officer and Principal 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 II - OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time as plaintiff or defendant in various legal actions arising in the normal course of our businesses. While the ultimate outcome of pending proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing us in such proceedings, that the resolution of these proceedings should not have a material adverse effect on our consolidated financial position or results of operations.

Item 1A. Risk Factors

Set forth below is an updated risk factor related to our business. This risk factor should be read in conjunction with the Company's risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

New rules issued by the Consumer Financial Protection Bureau (the “CFPB”)may have a negative impact on our residential loan origination process and foreclosure proceedings, which could adversely affect our business, operating results, and financial condition.

The CFPB issued a rule effective in January 2014 to implement the “qualified mortgage” provisions of the Dodd-Frank Act requiring that mortgage lenders consider consumers’ ability to repay home loans before extending them credit. This new rule describes certain minimum requirements for lenders making so-called “ability-to-repay” determinations, but does not dictate that they follow particular underwriting models. Loans that meet the terms of the “qualified mortgage” provisions under the rule will be presumed to have complied with the new ability-to-repay standard. Loans that do not meet the ability-to-repay standard can be challenged in court by borrowers who default and the absence of ability-to-repay status can be used against a lender in foreclosure proceedings. The CFPB’s rule on “qualified mortgages” could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive/and or time consuming to make these loans, which could limit our growth or profitability. In addition, any loans that we make outside of the “qualified mortgage” criteria could expose us to an increased risk of liability and reduce or delay our ability to foreclose on the underlying property. It is difficult to predict how the CFPB’s “qualified mortgage” rule will impact us, but any decreases in loan origination volume or increases in compliance and foreclosure costs caused by the rule could negatively affect our business, operating results and financial condition.

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

The Company did not repurchase any of its common stock during the quarter ended September 30, 2014.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

Exhibit
Number	Description
2.1	Agreement and Plan of Merger by and between the Registrant and Highlands Bancshares, Inc. (incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 9, 2011 (File No. 001-34737))
2.2	Agreement and Plan of Merger, dated as of November 25, 2013, by and between the Registrant and LegacyTexas Group, Inc. (incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 25, 2013 (File No. 001-34737))
2.3	Amendment No. One to the Agreement and Plan of Merger, dated as of February 19, 2014, by and between the Registrant and LegacyTexas Group, Inc. (incorporated herein by reference to Exhibit 2.3 of the Registrant’s Annual Report on Form 10-K filed with the SEC on February 26, 2014 (File No. 001-34737))
2.4	Amendment No. Two to the Agreement and Plan of Merger, dated as of August 29, 2014, by and between the Registrant and LegacyTexas Group, Inc. (incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on August 29, 2014 (File No. 001-34737))
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. 333-165509))
3.2	Bylaws of the Registrant (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-165509))
4.0	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. 333-165509))
10.1	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))
10.2	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))
10.3	2013 Executive Annual 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 March 6, 2013 (File No. 001-34737))
10.4	Form of Director's Agreement between the Registrant and James B. McCarley (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on March 6, 2013 (File No. 001-34737))
10.5	Form of Director's Agreement between the Registrant and Gary D. Basham (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on March 6, 2013 (File No. 001-34737))
10.6	Form of Director's Agreement between the Registrant and Jack D. Ersman (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on March 6, 2013 (File No. 001-34737))
10.7	Form of Director's Agreement between the Registrant and V. Keith Sockwell (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on March 6, 2013 (File No. 001-34737))
10.8	Resignation, Release and Consulting Agreement between the Registrant and Pathie E. McKee (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on July 3, 2013 (File No. 001-34737))

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10.9	Change in Control and Severance Benefits Agreement entered into between the Registrant and Mays Davenport (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on November 25, 2013 (File No. 001-34737)).
10.10	Form of Change In Control and Severance Benefits Agreement entered into between the Registrant and the following executive officers: Scott A. Almy, Charles D. Eikenberg, Thomas S. Swiley, and Mark L. Williamson (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on December 2, 2013 (File No. 001-34737)).
10.11	Amended and Restated Executive Employment Agreement entered into by the Registrant on December 2, 2013 with Kevin J. Hanigan (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on December 2, 2013 (File No. 001-34737)).
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 (Principal Financial Officer)
32	Section 1350 Certifications
101*	Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended September 30, 2014, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Condensed Notes to Unaudited Consolidated Interim Financial Statements.
	*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

59

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, Inc.

(Registrant)

Date:	October 28, 2014	By:	/s/ Kevin J. Hanigan
			Kevin J. Hanigan,
			President and Chief Executive Officer
			(Duly Authorized Officer)
Date:	October 28, 2014	By:	/s/ Kari J. Anderson
			Kari J. Anderson,
			Chief Accounting Officer
			(Interim Principal Financial Officer)

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EXHIBIT INDEX

Exhibits:

31.1	Certification of the Chief Executive Officer
31.2	Certification of the Principal Financial Officer
32.0	Section 1350 Certifications
101*	Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended September 30, 2014, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Condensed Notes to Unaudited Consolidated Interim Financial Statements.*
	* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

61