ViewPoint Financial Group Inc. (Form: 10-K, Received: 02/26/2014 16:23:46)

Large accelerated filer þ

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller reporting company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



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

For the fiscal year ended December 31, 2013



¨		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		27-2176993
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1309 W. 15 ^th Street, Plano, Texas		75075
(Address of Principal Executive Offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:



		Name of Each Exchange on Which
Title of Each Class		Registered
Common Stock, par value $0.01 per share		Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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 þ No ¨

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 þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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):

I ndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the Registrant was $807.7 million as of June 30, 2013, the last business day of the Registrant’s most recently completed second fiscal quarter. Solely for the purpose of this computation, it has been assumed that executive officers and directors of the Registrant are “affiliates”.

There were issued and outstanding 39,943,680 shares of the Registrant’s common stock as of February 24, 2014

DOCUMENTS INCORPORATED BY REFERENCE: None

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

FORM 10-K

December 31, 2013

INDEX



	Page

PART I	3

Item 1 Business	3

Item 1A Risk Factors	26

Item 1B Unresolved Staff Comments	36

Item 2 Properties	36

Item 3 Legal Proceedings	36

Item 4 Mine Safety Disclosures	37

PART II	38

Item 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	38

Item 6 Selected Financial Data	41

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 7A Quantitative and Qualitative Disclosures about Market Risk	60

Item 8 Financial Statements and Supplementary Data	64

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	119

Item 9A Controls and Procedures	120

Item 9B Other Information	121

PART III	122

Item 10 Directors, Executive Officers and Corporate Governance	122

Item 11 Executive Compensation	125

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	143

Item 13 Certain Relationships and Related Transactions, and Director Independence	145

Item 14 Principal Accountant Fees and Services	146

PART IV	148

Item 15 Exhibits, Financial Statement Schedules	148

Signatures	151

Table of Contents

PART I



Item 1.	Business

Special Note Regarding Forward-Looking Statements

When used in filings by ViewPoint Financial Group, Inc. (the “Company,” “we,” “our” or "ViewPoint" in these financial statements) with the Securities and Exchange Commission (the “SEC”) in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected, including, among other things: the expected cost savings, synergies and other financial benefits from the ViewPoint Financial Group - LegacyTexas Group 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 and the approval of the shareholders of LegacyTexas Group 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; fluctuations in interest rates; the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; the Company's ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in the Company's market area; the industry-wide decline in mortgage production; competition; changes in management's business strategies; our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiary by the Office of the Comptroller of the Currency or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including the revenue impact from, and any mitigation actions taken in response, to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and the other risks set forth under Risk Factors under Item 1A. of this Form 10-K. The factors listed above could materially affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

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

General

The Company, a Maryland corporation, is a full stock holding company for its wholly owned subsidiary, ViewPoint Bank, National Association (the “Bank”).

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 ViewPoint and, immediately thereafter, ViewPoint’s bank subsidiary, ViewPoint Bank, N.A., will merge into LegacyTexas’ subsidiary bank, LegacyTexas Bank. Under the terms of the agreement, ViewPoint will issue 7.85 million shares of ViewPoint common stock plus approximately $115 million in cash for all the outstanding stock of LegacyTexas. Each LegacyTexas shareholder will have the right to elect to receive either ViewPoint stock or cash, subject to proration as specified in the merger agreement. The Company and LegacyTexas expect to complete the transaction in the second quarter of 2014, after receipt of regulatory approvals, the approval of the LegacyTexas Group shareholders and the satisfaction of other customary closing conditions.

Table of Contents

On June 5, 2012, the Bank and ViewPoint Bankers Mortgage, Inc. (doing business as ViewPoint Mortgage) ("VPM"), our wholly owned mortgage banking subsidiary, entered into an agreement (the “Agreement”) with Highlands Residential Mortgage, Ltd. (no relation to Highlands) (“HRM”) to sell substantially all of the assets of VPM to HRM (the "VPM sale"). The terms of the Agreement provided for HRM, subject to certain conditions contained in the Agreement, (i) to purchase VPM's loan pipeline and all of VPM's existing construction loan portfolio, together with certain furniture, fixtures and equipment, (ii) assume substantially all of VPM's loan production office leases and its equipment leases, (iii) hire no less than 95% of the current VPM employees and satisfactorily release VPM from certain employment contracts, and (iv) make additional earn out payments to VPB. Following completion of the sale, the Agreement provided an opportunity for the Bank to partner with HRM to continue providing the Bank's customers with residential mortgage services. The transaction closed in the third quarter of 2012.

On April 2, 2012, the Company completed its acquisition of Highlands Bancshares, Inc. (“Highlands”), parent company of The First National Bank of Jacksboro, which operated in Dallas under the name Highlands Bank (the "Highlands acquisition"). This was a strategic, in-market acquisition to provide growth opportunities in North Texas. As part of the acquisition, Highlands President and CEO Kevin Hanigan joined the Company and the Bank as president and chief executive officer. He also was appointed to the Company's and the Bank's Board of Directors, along with Highlands board member Bruce Hunt. In this stock-for-stock transaction, Highlands' shareholders received 0.6636 shares of the Company's common stock in exchange for each share of Highlands' common stock. As a result, the Company issued 5,513,061 common shares with an acquisition date fair value of total consideration paid of $86.1 million, based on the Company's closing stock price of $15.62 on April 2, 2012 including an insignificant amount of cash paid in lieu of fractional shares.

Unless the context otherwise requires, references in this document to the “Company” refer to ViewPoint Financial Group, Inc. and its predecessor, ViewPoint Financial Group, a United States corporation, 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. , unless the context otherwise requires.

The Company and the Bank were examined and regulated by the Office of Thrift Supervision (“OTS”), its primary federal regulator until July 2011, when regulatory oversight of the Company transferred to the Board of Governors of the Federal Reserve System ("FRB"), and regulatory oversight of the Bank transferred to the thrift division of the Office of the Comptroller of the Currency (“OCC”). On December 19, 2011, the Bank converted its charter from a federal thrift charter to a national banking charter, with regulatory oversight by the OCC and 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.

Business Strategies

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. Our Board of Directors adopted a strategy designed to maintain growth and profitability, a strong capital position and high asset quality. This strategy primarily involves:


•	Continuing the growth and diversification of our loan portfolio

Over the past year, we have continued to successfully transition our lending activities from a predominantly consumer driven model to become a more diversified organization by emphasizing four key business line initiatives: 1) commercial real estate lending, 2) commercial and industrial lending, 3) consumer banking and 4)Warehouse Purchase Program, through which we provide funding for unaffiliated mortgage originators through our purchase of participation interests in mortgage loans in the secondary market. During 2013, a new energy focus was initiated in the commercial and industrial lending portfolio, as

Table of Contents

experienced lenders from our market area were added to the organization. This effort resulted in the improved diversification of the overall loan portfolio, and improved the sensitivity of our interest-earning assets. Our added Treasury Management emphasis provides depository products and services to our commercial customers and serves as a catalyst for deposit growth.


•	Maintaining our historically high asset quality

We believe that asset quality is a key to long-term financial success. We seek to maintain high asset quality and moderate credit risk by strictly adhering to our lending policies, which have historically resulted in low charge-off ratios and low levels of non-performing assets. We intend to continue our efforts to grow and diversify our loan portfolio and to adhere to sound credit management principles.


•	Focusing on the total customer relationship

We offer customers a wide range of products and services that provide us with diversification of revenue sources and solidify customer relationships. We focus on providing our customers with excellent customer service and creative financial solutions. It is our objective to know our customers and their businesses better than our competition, provide effective ideas and solutions for their financial needs, and execute the delivery of these products and services in an efficient and professional manner.


•	Continuing community banking emphasis

We will continue to operate as a community banking organization focused on meeting the needs of consumers and small-to-mid sized businesses in our market areas. We will do so by providing a high degree of service and responsiveness combined with a variety of products and services. In addition to developing deep relationships with our existing customers, we intend to expand our business with potential new customers by leveraging our well-established involvement in the communities that we serve. We are very focused on supporting the communities in which we do business, and in exhibiting exceptional corporate citizenship.

Market Areas

We are headquartered in Plano, Texas, and have 31 full-service branches, 29 located in our primary market area, the Dallas/Fort Worth Metroplex, and two First National Bank of Jacksboro locations in Jack and Wise Counties in Texas. We also have one commercial loan production office located in Houston. Based on the most recent branch deposit data provided by the FDIC (as of June 2013), we ranked fourth in deposit share in Collin County, with 7.98% of total deposits, and eleventh in the Dallas/Fort Worth Metropolitan Statistical Area, with 1.15% of total deposits.

Our market area includes a diverse population of management, professional and sales personnel, office employees, manufacturing and transportation workers, service industry workers, government employees and self-employed individuals. The population includes a skilled work force with a wide range of education levels and ethnic backgrounds. Major employment sectors include financial services, manufacturing, education, health and social services, retail trades, transportation and professional services. There were 18 companies headquartered in the Dallas/Fort Worth Metroplex included on the Fortune 500 list for 2013, giving our market area the sixth-highest concentration of such companies among U.S. metropolitan areas. Large employers headquartered in our market area include Exxon Mobil, AT&T, Kimberly-Clark, Dr. Pepper/Snapple, AMR, Texas Instruments, J.C. Penney, Dean Foods and Southwest Airlines.

For December 2013, the Dallas/Fort Worth Metroplex reported an unemployment rate (not seasonally adjusted) of 5.40% , compared to the national average of 6.50% (source is Bureau of Labor Statistics Local Area Unemployment Statistics Unemployment Rates for Metropolitan Areas, using the Dallas-Fort Worth-Arlington, Texas Metropolitan Statistical Area.)

Table of Contents

Lending Activities

The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for deferred fees and discounts and allowances for losses) as of the dates indicated.



	December 31,
	2013					2012					2011					2010					2009
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Loans held for investment:
Commercial real estate	$	1,091,200		53.23	%	$	825,340		48.81	%	$	583,487		47.51	%	$	478,928		43.26	%	$	453,604		40.44	%
Commercial and industrial:
Commercial	425,030			20.73		245,799			14.54		54,479			4.44		39,279			3.55		27,983			2.49
Warehouse lines of credit	14,400			0.70		32,726			1.94		16,141			1.31		—			—		—			—
Total commercial and industrial	439,430			21.43		278,525			16.48		70,620			5.75		39,279			3.55		27,983			2.49
Construction and land
Commercial construction and land	27,619			1.35		14,568			0.86		1,841			0.15		712			0.06		879			0.08
Consumer construction and land	2,628			0.13		6,614			0.39		10,011			0.82		14,179			1.28		8,249			0.74
Total construction and land	30,247			1.48		21,182			1.25		11,852			0.97		14,891			1.34		9,128			0.82
Consumer:
Consumer real estate	441,226			21.53		506,642			29.97		510,899			41.60		506,570			45.76		536,019			47.79
Other consumer	47,799			2.33		59,080			3.49		51,170			4.17		67,366			6.09		94,895			8.46
Total consumer	489,025			23.86		565,722			33.46		562,069			45.77		573,936			51.85		630,914			56.25

Gross loans held for investment, excluding Warehouse Purchase Program	2,049,902			100.00	%	1,690,769			100.00	%	1,228,028			100.00	%	1,107,034			100.00	%	1,121,629			100.00	%
Net of:
Deferred fees and discounts, net	(1,267		)			486					516					(73		)			(1,160		)
Allowance for loan losses	(19,358		)			(18,051		)			(17,487		)			(14,847		)			(12,310		)
Net loans held for investment, excluding Warehouse Purchase Program	2,029,277					1,673,204					1,211,057					1,092,114					1,108,159
Warehouse Purchase Program	673,470					1,060,720					800,935					460,912					311,374
Total loans held for investment, net	$	2,702,747				$	2,733,924				$	2,011,992				$	1,553,026				$	1,419,533

Loans held for sale:
ViewPoint Mortgage	$	—				$	—				$	33,417				$	31,073				$	30,057

Table of Contents

The following table shows the composition of our loan portfolio by fixed and adjustable rate as of the dates indicated.



	December 31,
	2013					2012					2011					2010					2009
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Fixed rate loans:
Commercial real estate	$	564,312		27.53	%	$	445,885		26.37	%	$	308,820		25.15	%	$	299,706		27.07	%	$	284,741		25.39	%
Commercial and industrial	76,002			3.71		46,805			2.77		25,408			2.07		26,744			2.42		10,901			0.97
Construction and land	8,948			0.43		4,662			0.28		1,966			0.16		2,887			0.26		2,054			0.18
Consumer:
Consumer real estate	326,122			15.91		383,879			22.70		389,064			31.68		377,276			34.08		386,124			34.43
Other consumer	38,705			1.89		49,035			2.90		40,549			3.30		50,229			4.54		76,102			6.78
Total consumer	364,827			17.80		432,914			25.60		429,613			34.98		427,505			38.62		462,226			41.21
Total fixed rate loans	1,014,089			49.47		930,266			55.02		765,807			62.36		756,842			68.37		759,922			67.75
Adjustable rate loans:
Commercial real estate	526,888			25.70		379,455			22.44		274,667			22.37		179,222			16.19		168,863			15.06
Commercial and industrial ¹	363,428			17.73		231,720			13.71		45,212			3.68		12,535			1.13		17,082			1.52
Construction and land	21,299			1.04		16,520			0.98		9,886			0.81		12,004			1.08		7,074			0.63
Consumer:
Consumer real estate	115,104			5.62		122,763			7.26		121,835			9.92		129,294			11.68		149,895			13.36
Other consumer	9,094			0.44		10,045			0.59		10,621			0.86		17,137			1.55		18,793			1.68
Total consumer	124,198			6.06		132,808			7.85		132,456			10.78		146,431			13.23		168,688			15.04
Total adjustable rate loans	1,035,813			50.53		760,503			44.98		462,221			37.64		350,192			31.63		361,707			32.25
Gross loans held for investment, excluding Warehouse Purchase Program	2,049,902			100.00	%	1,690,769			100.00	%	1,228,028			100.00	%	1,107,034			100.00	%	1,121,629			100.00	%
Net of:
Deferred fees and discounts, net	(1,267		)			486					516					(73		)			(1,160		)
Allowance for loan losses	(19,358		)			(18,051		)			(17,487		)			(14,847		)			(12,310		)
Net loans held for investment, excluding Warehouse Purchase Program	$2,029,277					$	1,673,204				$	1,211,057				$	1,092,114				$	1,108,159

Warehouse Purchase Program:
Fixed rate loans	$	234		0.03	%	$	—		—	%	$	—		—	%	$	—		—	%	$	—		—	%
Adjustable rate loans	673,236			99.97		1,060,720			100.00		800,935			100.00		460,912			100.00		311,374			100.00
Total Warehouse Purchase Program	$	673,470		100.00	%	$	1,060,720		100.00	%	$	800,935		100.00	%	$	460,912		100.00	%	$	311,374		100.00	%

Loans held for investment, net	$	2,702,747				$	2,733,924				$	2,011,992				$	1,553,026				$	1,419,533

Loans held for sale:
ViewPoint Mortgage	$	—				$	—				$	33,417				$	31,073				$	30,057

¹ Includes warehouse lines of credit, which are classified as secured commercial lines of credit.

Table of Contents

The following schedules illustrate the contractual maturity and repricing information for the commercial and industrial and the construction and land portion of our loan portfolio at December 31, 2013 . Loans which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. Purchased credit impaired loans are reported at their contractual interest rate. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.



	Due During Years Ending December 31,
	2014 ¹		2015 - 2018		2019 and following		Total
Commercial and industrial	$	270,599	$	152,831	$	16,000	$	439,430
Construction and land	11,132		11,882		7,233		30,247

¹ Includes demand loans and loans having no stated maturity



	Maturities after One Year
Loans with fixed interest rates	$	58,960
Loans with floating or adjustable interest rates	128,986

Lending Authority. The Company's Chief Credit Officer can approve secured loans up to $2 million and unsecured loans up to $500,000, while the Company's Chief Executive Officer can approve either secured or unsecured loans up to $3 million. The Management Loan Committee has authority to approve loans over these signature authority amounts.

At December 31, 2013 , under federal regulation, the maximum amount we could lend to any one borrower and borrower's related entities was approximately $64.7 million. Our five largest relationships, excluding Warehouse Purchase Program customers, consisted of 16 loans that totaled $228.1 million, or 11.1% of total loans held for investment, at December 31, 2013 . The 16 loans making up this total were all secured by commercial real estate, with property types primarily being office, retail and multifamily in nature. The majority of property locations are in Texas, with primary and secondary market exposure. The largest relationship contains five loans totaling $56.1 million secured by office buildings. All of the aforementioned loans were performing in accordance with their terms at December 31, 2013.

Commercial Real Estate Lending. The commercial real estate lending initiative began in 2003 with the Company purchasing participations from financial institutions on a variety of investor owned commercial projects. This business model evolved into what is ongoing today: direct relationships with primarily regional owners of commercial retail and office projects occupied by local, regional, and national tenants. Although the Company has financed other project types (multifamily, industrial, mixed use, etc.) these other project types do not constitute a significant concentration of the commercial real estate portfolio. Our commercial real estate projects are primarily located in Texas, with the majority of the projects being located in major metropolitan markets, such as Dallas, Fort Worth, and Houston.

The Company's commercial real estate lending business model is relatively unique and its success has been tested over many years. The primary focus of the analysis and repayment reliance of the loan is almost exclusively the commercial project itself, as opposed to a combination of project and sponsorship reliance. By choosing this project reliance focus, the Company makes sure the project has ample equity at loan inception rather than relying on it developing in the future when sponsorship liquidity might not equal project liquidity needs. Although most guaranty structures do not include guaranty of payment, the additional equity investment required at loan inception generally ensures that the project ownership is engaged and attentive to the project's ongoing success. Most guaranty structures include guarantees regarding fraud and misrepresentation. The Company also has a Chief Appraiser in house to help order, review, and approve appraisals, both commercial and residential.

The Company's reliance on loan structures that emphasize upfront equity rather than back-end guaranty of payment provides multiple benefits to the Company, most driven by the lower initial loan balance. For example, the lower loan balance typically drives the initial loan to value ratio of each project well below regulatory requirements for commercial projects. This lower ratio also provides a cushion in case appraised values drop as a result of reduced occupancy, reduced cash flow, or increased capitalization rates. The low loan balance also aids in achieving a higher debt yield ratio (net operating income to loan amount), and a higher debt service coverage ratio (net operating income to debt service requirement), both important metrics for the Company. Escrows for taxes and insurance are typically maintained for loans in this portfolio, as well as funds for tenant improvement or leasing commissions as anticipated. Regular financial information is gathered to stay apprised of the financial status of the project. Although a guaranty of payment is not utilized on these transactions, the Company does require annual statements on the sponsors in order to identify other projects likely to cause financial hardship to our borrower.

Table of Contents

This portfolio also includes a smaller portion of commercial real estate loans to owner occupied businesses. These loans are typically characterized by higher loan to value ratios than our other commercial real estate loans but generally come with an unlimited guaranty of payment from the company owner(s). At December 31, 2013 , the commercial real estate lending portfolio totaled $1.09 billion .

Commercial and Industrial Lending. The establishment of the energy lending group is the most recent Company lending initiative. The addition of a staff of experienced loan officers has generated a sizable loan portfolio of loans secured by deeds of trust on proven oil and gas production.

Our commercial and industrial borrowers are typically located within Texas, but often provide their products and services regionally or nationally. Loans are generally secured by a pledge on business assets such as accounts receivable, inventory, equipment, vehicles, etc., with the objective of reducing loan balances more quickly than the decline in useful life or value of the asset. The likelihood of loans being paid depends on the success of the business itself, and economic conditions can play a large role in the long term viability of a company. We generally obtain personal guarantees for privately held companies.

Financial information on these borrowers is required at regular intervals, with company information required on monthly or quarterly terms and annual personal financial statements required on owner/guarantors. Covenants are included in loan structure with the most common being leverage, liquidity and debt service covenants. Leverage covenants generally include debt to tangible net worth or minimum tangible net worth, while liquidity covenants generally include minimum liquidity, minimum Earnings Before Interest, Taxes, Depreciation, and Amortizations (EBITDA), and minimum current ratio.

At December 31, 2013 , the commercial and industrial lending portfolio (excluding warehouse lines of credit) totaled $425.0 million , including the energy loans referenced above.

Warehouse Purchase Program. The Warehouse Purchase Program, which the Company initiated in July 2008, allows unaffiliated mortgage originators 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. The Company purchases a 100% participation interest in the mortgage loans originated by our mortgage banking company customers. The mortgage banking company has no obligation to offer and we have no obligation to purchase these participation interests. The mortgage banking company closes mortgage loans consistent with underwriting standards established by approved investors and once the loan closes, our participation interest is delivered by us to the investor selected by the originator and approved by the Company.

The mortgage banking company customers are located across the U.S. and originate loans primarily through traditional retail and/ or wholesale business models. These customers are strategically targeted for their experienced management teams and thoroughly analyzed to ensure long term and profitable business models. By using this approach the Company believes that this type of lending carries a lower risk profile than one- to four- family loans held for investment based on the short term nature of the held for sale exposure, combined with the additional strength of the mortgage originator sponsorship.

Warehouse Purchase Program maximum aggregate outstanding purchases range in size from $10 million to $55 million, with the "house limit" set at $55 million. T he maximum aggregate outstanding purchases are priced using a combined base rate and a risk premium set for both product type (Prime, Jumbo, etc.) and age of the loan. The typical maximum aggregate outstanding purchase includes the payment guaranty of company owners holding significant ownership positions, along with non-interest bearing pledged deposits in line with the maximum aggregate outstanding purchase limit. Typical covenants include minimum tangible net worth, maximum leverage and minimum liquidity. As loans age, the Company requires loan paydowns to reduce the Company's risk involving loans that are not purchased by investors on a timely basis.

At December 31, 2013 , the Company had 45 mortgage banking company customers with maximum aggregate outstanding amounts of $1.2 billion and an actual aggregate outstanding balance of $673.5 million . The aggregate average outstanding balance during 2013 ( $680.0 million ) decreased over the aggregate average outstanding balance during 2012 ( $771.8 million ) as the volume of refinanced loans decreased. The average mortgage loan being purchased by the Company reflects a blend of both Conforming and Government loan characteristics, including an average loan to value (LTV) of 85%, an average credit score of 723 and an average loan size of $227,000. These characteristics illustrate the lower risk profile of loans purchased under the Warehouse Purchase Program.

Consumer Real Estate Lending. The Company's consumer real estate lending portfolio consists of one- to four-family real estate and home equity/home improvement loans, and at December 31, 2013 , this loan portfolio totaled $441.2 million . The Company has continued its partnership with Highlands Residential Mortgage (HRM) to provide one- to four-

Table of Contents

family residential mortgage services to its customers through a referral program. The Company periodically purchases one- to four- family loans from HRM and other correspondents on both a servicing retained and servicing released basis.

All of our home equity loans are secured by Texas real estate. Under Texas law, home equity borrowers are allowed to borrow a maximum of 80% (combined LTV of the first lien, if any, plus the home equity loan) of the fair market value of their primary residence. The same 80% combined LTV maximum applies to home equity lines of credit, with the home equity line further limited to 50% of the fair market value of the home. As a result, our home equity loans and home equity lines of credit have low LTV ratios compared to similar loans in most other states. Home equity lines of credit are originated with an adjustable rate of interest based on the Wall Street Journal Prime (“Prime”) rate of interest plus a margin. Home equity lines of credit have up to a ten year draw period and amounts may be re-borrowed after payment at any time during the draw period. While the rate of interest continues to float, once the draw period has lapsed, the payment is amortized over a ten year period based on the loan balance at that time.

Other Consumer Lending. We offer a variety of secured and unsecured consumer loans, including new and used automobile loans, recreational vehicle loans and loans secured by savings deposits. We originate our consumer loans primarily in our market areas. At December 31, 2013 , our other consumer loan portfolio totaled $47.8 million .

Loan Originations, Purchases, Sales, Repayments and Servicing

The Company attempts to meet the needs of the markets it serves by originating thoroughly analyzed and documented loans to both businesses and consumers. These loans typically involve a direct relationship with the borrower, owner(s), and management of the borrowing entity in an attempt to better identify borrower needs and better identify risks to the Company that must be mitigated in the loan structure. It is not unusual for a loan request to be so large as to exceed the Company's house limit for transaction size, or for the Company to have an existing concentration to a particular borrower or industry, such that a smaller loan size is preferred.

In these instances the Company will solicit one or more financial partners to take a portion of a transaction by way of purchasing a participation in the loan. The participation agreement outlines the relationship between the Company and the participant with regard to borrower access, loan servicing, loan documents, etc. The participant ends up having an indirect relationship with the borrower through the Company; essentially becoming a “silent partner” in the transaction. The participant's transactional involvement is typically limited to only that provided by the Company as “agent” in the transaction, and the participation interest is sold without recourse.

When a participation arrangement is unacceptable to the financial partner and a direct relationship with the borrower is the only structure acceptable, a syndication arrangement is often formed. In a syndication arrangement the financial partner has a direct relationship with the borrower and has its own documents, with terms that mirror those of the other banks in the syndication group. Just like in a participation, the financial partner shares pro-rata in collateral, but because syndication partners are essentially equal in rights and responsibilities there is usually a designated partner responsible for administering the flow of funds and information between the parties. The Company has entered into the sale of both participations and syndications from warehouse, commercial real estate, and commercial and industrial borrowers in an attempt to meet our borrower's needs and stay within our own risk tolerances.

The Company has also entered into the purchase of both participation and syndication transactions as a means of assisting our financial partners who may have encountered excess loan exposure to their own borrowers. The rights and remedies of these purchases are essentially the same as outlined above for the sale of a participation or syndication. A participation purchased would give the Company little to no access to our financial partner's borrower and we would have to accept the terms outlined and documents used for that borrower.

In 2013 , the Company sold $55.0 million and purchased $209.0 million in participations and syndications.

Asset Quality

An accurate assessment of asset quality is essential to the long term health of the Company. Failure to identify deterioration in the Company's largest asset category, loans, could result in a shortfall of loan loss reserves needed for loans requiring charge off, and a charge against capital would be required. Credit analysts, loan officers, and lending managers are charged with not only proper risk analysis before loans are made, but also after they are booked and performing as expected. The goal is to identify the proper risk status and take actions appropriate to that risk. The Company has a risk rating system and a loss reserve methodology for each category of loan that includes Pass, Special Mention, Substandard, Doubtful, and Loss. The Company also regularly engages the services of third party firms to perform an independent assessment of individual loan risk grades and the processes for risk identification.

Table of Contents

The Company has a variety of monitoring tools that serve as indicators of potential borrower weakness and early warning signs of possible risk grade deterioration. For example, a borrower's inability to provide ongoing loan documentation, maintain positive balances in deposit accounts, and make loan payments as scheduled are all signs of potential deterioration in a borrower's financial condition and the need for a review of the asset risk grade. Borrowers who are unable to meet original loan terms and require concessions on structure that the Company would not ordinarily grant are automatically downgraded and examined for the need of additional reserves to cover specific impairment. Loans are reviewed regularly to ensure that they are properly graded, structured to meet the borrower's cash flow capability, and considered in the Company's calculation of the allowance for loan losses.

Delinquent Loans. The following table sets forth our loan delinquencies by type, by amount and by percentage of type at December 31, 2013 . There were no past due Warehouse Purchase Program loans at December 31, 2013.



	Loans Delinquent For: ¹
	30-89 Days					90 Days and Over					Total Loans Delinquent 30 Days or More
	Number	Amount		Percent of Loan Category		Number	Amount		Percent of Loan Category		Number	Amount		Percent of Loan Category
	(Dollars in thousands)
Commercial real estate	4	$	1,867	0.17	%	1	$	57	0.01	%	5	$	1,924	0.18	%
Commercial and industrial	19	4,647		1.06		10	2,835		0.64		29	7,482		1.70
Construction and land	1	152		0.50		—	—		0.00		1	152		0.50
Consumer:
Consumer real estate	118	9,874		2.24		33	3,651		0.83		151	13,525		3.07
Other consumer	66	566		1.18		4	53		0.11		70	619		1.29
Total consumer	184	10,440		2.13		37	3,704		0.76		221	14,144		2.89

Total loans	208	$	17,106	0.83	%	48	$	6,596	0.32	%	256	$	23,702	1.15

¹ There were no past due warehouse lines of credit or Warehouse Purchase Program loans for the period presented.

Non-performing Assets. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio. 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. Loans that are past due 30 days or greater are considered delinquent. 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. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. 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 individually classified impaired loans.

All interest accrued but not received for loans placed on nonaccrual 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.

Troubled debt restructurings, which are accounted for under ASC 310-40, are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a below market interest rate, a reduction in principal, or a longer term to maturity. All troubled debt restructurings are initially classified as nonaccruing loans, regardless of whether the loan was performing at the time it was restructured. Once a troubled debt restructuring has performed according to its modified terms for six months and the collection of future principal and interest under the revised terms is deemed probable, the Company will consider placing the loan back on accruing status. At December 31, 2013 , the Company had $12.3 million in troubled debt restructurings, of which $971,000 were accruing interest and $11.4 million were classified as nonaccrual. Nonaccrual TDRs included $5.9 million attributable to two commercial real estate loans, both of which were performing in accordance with their restructured terms at December 31, 2013.

Table of Contents



	Year Ended December 31,
	2013			2012			2011			2010			2009
	(Dollars in thousands)
Nonaccruing loans: ¹
Commercial real estate	$	7,604		$	13,567		$	16,076		$	9,812		$	4,682
Commercial and industrial	5,141			5,401			430			272			44
Construction and land	—			134			—			53			—
Consumer:
Consumer real estate	8,812			7,839			6,566			7,191			6,569
Other consumer	567			262			26			300			380
Total non-performing loans	22,124			27,203			23,098			17,628			11,675

Foreclosed assets:
Commercial real estate	102			485			1,553			2,219			3,455
Construction and land	172			177			—			—			—
Consumer:
Consumer real estate	204			1,224			733			449			462
Other consumer	2			15			7			11			—
Total foreclosed assets	480			1,901			2,293			2,679			3,917
Total non-performing assets	$	22,604		$	29,104		$	25,391		$	20,307		$	15,592

Total non-performing assets as a percentage of total assets ²	0.64		%	0.79		%	0.80		%	0.69		%	0.66		%
Total non-performing loans as a percentage of total loans held for investment, excluding Warehouse Purchase Program loans ^{2, 3}	1.08		%	1.61		%	1.88		%	1.59		%	1.04		%

Performing troubled debt restructurings:
Commercial real estate	$	—		$	3,384		$	2,860		$	1,119		$	—
Commercial and industrial	185			207			26			—			79
Construction and land	2			5			7			—			—
Consumer:
Consumer real estate	737			553			236			143			456
Other consumer	47			67			142			26			443
Total	$	971		$	4,216		$	3,271		$	1,288		$	978

¹ There were no non-performing or troubled debt restructured warehouse lines of credit or Warehouse Purchase Program loans for the periods presented.

² Purchased credit impaired (PCI) loans, which were acquired in April 2012 in connection with the Highland's transaction, are not considered non-performing 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 periods prior to 2012, 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. PCI loans totaled $7.4 million and $12.8 million at December 31, 2013 and 2012 , respectively. At December 31, 2013 , loans past due over 90 days that were still accruing interest totaled $266 and consisted entirely of PCI loans.

³ Warehouse Purchase Program loans are now reported as loans held for investment rather than as loans held for sale. Please see "Note 1 - Summary of Significant Accounting Policies, Warehouse Purchase Program Loans" for more information. Prior periods have been reclassified to conform to the current presentation.

For the year ended December 31, 2013 , gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms throughout the entire year amounted to $1.4 million . No interest income on these loans was recorded for the year ended December 31, 2013 .

Table of Contents

At December 31, 2013 , $18.3 million in loans were individually impaired, with $2.9 million of the allowance for loan losses allocated to impaired loans at period-end (these figures do not include purchased credit impaired loans). A loan is impaired when it is probable, based on current information and events, that the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreements. Troubled debt restructurings are also considered impaired. Impaired loans are measured on an individual basis for individually significant loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses as a specific loss reserve. Please see “Comparison of Financial Condition at December 31, 2013 , and December 31, 2012 — Loans” contained in Item 7 of this report for more information.

Classified Assets. Loans and other assets, such as debt and equity securities, 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 obliger or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses of those classified “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.

We regularly review the problem assets in our portfolio to determine the appropriate classification. The aggregate amount of classified assets at the dates indicated was as follows:



	At December 31,
	2013			2012
	(Dollars in thousands)
Loss	$	—		$	—
Doubtful	5,307			5,334
Substandard	43,827			50,351
Total classified loans	49,134			55,685
Foreclosed assets	480			1,901
Total classified assets	$	49,614		$	57,586

Classified assets as a percentage of equity	9.11		%	11.06		%
Classified assets as a percentage of assets	1.41			1.57

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

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 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 reflective 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 reviewing changes in 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 periodically to account for the potential impact of external economic factors, including the unemployment rate, housing price, vacancy rates and inventory levels specific to our primary market area.

For the specific component, the allowance for loan losses on individually analyzed impaired loans includes loans where management has concerns about the borrower's ability to repay. This impairment analysis includes all loans secured by commercial real estate and all commercial and industrial loans, as well as certain residential real estate loans. All troubled debt restructurings are considered to be impaired, regardless of collateral type or note amount. Loss estimates include the negative

Table of Contents

difference, if any, between the current fair value of the collateral, or the estimated discounted cash flows, and the loan amount due.

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 $19.6 million in loans that were classified as "substandard" but were still accruing interest and were not considered impaired at December 31, 2013 . These loans have been considered in management's determination for loan losses.

At December 31, 2013 , our allowance for loan losses was $19.4 million , or 0.94% of the total loans held for investment excluding the Warehouse Purchase Program loans. Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, reflects estimated credit losses in our loan portfolio. See Notes 1 and 6 of the Notes to Consolidated Financial Statements under Item 8 of this report.

The following table sets forth an analysis of our allowance for loan losses.



	Year Ended December 31,
	2013			2012			2011			2010			2009
	(Dollars in thousands)
Balance at beginning of period	$	18,051		$	17,487		$	14,847		$	12,310		$	9,068
Charge-offs: ¹
Commercial real estate	806			187			15			624			835
Commercial and industrial	607			1,178			470			638			720
Construction and land	31			—			—			—			—
Consumer:
Consumer real estate	416			798			487			402			514
Other consumer	621			1,039			850			1,330			2,926
Total charge-offs	2,481			3,202			1,822			2,994			4,995
Recoveries: ¹
Commercial real estate	—			—			29			—			—
Commercial and industrial	124			114			38			67			37
Construction and land	—			—			—			—			—
Consumer:
Consumer real estate	77			70			60			19			32
Other consumer	388			443			365			326			516
Total recoveries	589			627			492			412			585
Net charge-offs	1,892			2,575			1,330			2,582			4,410
Provision for loan losses	3,199			3,139			3,970			5,119			7,652
Balance at end of period	$	19,358		$	18,051		$	17,487		$	14,847		$	12,310
Ratio of net charge-offs during the period to
average loans outstanding during the period	0.08		%	0.11		%	0.09		%	0.17		%	0.31		%
Ratio of net charge-offs during the period to
average non-performing assets	7.32		%	9.45		%	5.82		%	14.38		%	45.34		%
Allowance as a percentage of non-performing loans ²	87.50		%	66.36		%	75.71		%	84.22		%	105.44		%
Allowance as a percentage of total loans, excluding
Warehouse Purchase Program (end of period) ²	0.94		%	1.07		%	1.42		%	1.34		%	1.10		%

¹ There was no net charge-off activity on Warehouse Purchase Program loans or the warehouse lines of credit during the periods presented.

² PCI loans, which were acquired in April 2012 in connection with the Highland's transaction, are not considered non-performing 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 periods prior to 2012, 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. PCI loans totaled $7.4 million and $12.8 million at December 31, 2013 and 2012 , respectively. At December 31, 2013 , loans past due over 90 days that were still accruing interest totaled $266 and consisted entirely of PCI loans .

Table of Contents

The distribution of our allowance for losses on loans at the dates indicated is summarized below.



	December 31,
	2013				2012				2011				2010				2009
	Allocated Allowance		% ¹		Allocated Allowance		% ¹		Allocated Allowance		% ¹		Allocated Allowance		% ¹		Allocated Allowance		% ¹
	(Dollars in thousands)
Commercial real estate	$	10,944	53.23	%	$	11,182	48.81	%	$	10,597	47.51	%	$	7,940	43.26	%	$	6,447	40.44	%
Commercial and industrial	4,501		20.73		2,541		14.54		2,074		4.44		1,652		3.55		1,382		2.49
Warehouse lines of credit	35		0.70		33		1.94		16		1.31		—		—		—		—
Construction and land	212		1.48		149		1.25		103		0.97		123		1.34		48		0.82
Consumer:
Consumer real estate	3,280		21.53		3,528		29.97		3,991		41.60		4,129		45.76		3,071		47.79
Other consumer	386		2.33		618		3.49		706		4.17		1,003		6.09		1,362		8.46
Total	$	19,358	100.00	%	$	18,051	100.00	%	$	17,487	100.00	%	$	14,847	100.00	%	$	12,310	100.00	%

¹ Loans outstanding as a percentage of total loans held for investment, excluding Warehouse Purchase Program loans.

Investment Activities

National banks have broad investment authority, except for corporate equity securities, which are generally limited to stock in subsidiaries, certain housing projects and bank service companies. Debt securities are categorized by law and OCC regulation into various types, with each type subject to different permitted investment levels calculated as percentages of capital, except for government and government-related obligations, which may be invested in without limit.

The Chief Accounting Officer and Interim Principal Financial Officer delegates the basic responsibility for the management of our investment portfolio to the Senior Vice President/Director of Treasury and Finance, subject to the direction and guidance of the Asset/Liability Management Committee. The Senior Vice President/Director of Treasury and Finance considers various factors when making decisions, including the marketability, duration, maturity and tax consequences of the proposed investment. The amount, mix, and maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to optimize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk. Our investment securities currently consist primarily of agency collateralized mortgage obligations, agency mortgage-backed securities, Small Business Administration securitized loan pools consisting of only the U.S. government guaranteed portion, and Texas entity municipal bonds. These securities are of industry investment grade, possess acceptable credit risk and have an aggregate market value in excess of total amortized cost as of December 31, 2013 . For more information, please see Note 5 of the Notes to Consolidated Financial Statements under Item 8 of this report and “Asset/Liability Management” under Item 7A of this report. The table below reflects the regulatory stock holdings at December 31, 2013 and associated dividends earned for the year then ended.



	December 31, 2013
	(Dollars in thousands)
Federal Reserve stock	$	7,099
Federal Home Loan Bank stock	27,784
Total	$	34,883

	Year ended
	December 31, 2013
Federal Reserve cash dividends	$	425
Federal Home Loan Bank stock dividends	115

The following table sets forth the composition of our securities portfolio and other investments at the dates indicated. At December 31, 2013 , our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies or United States GSEs.

Table of Contents



	December 31,
	2013				2012				2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Available for sale:
SBA pools	$	2,652	$	2,728	$	3,342	$	3,448	$	4,161	$	4,222
Agency collateralized mortgage obligations	70,257		70,575		116,723		117,486		293,584		294,670
Agency residential mortgage-backed securities	175,693		174,709		164,023		166,100		133,907		134,853
Total available for sale	248,602		248,012		284,088		287,034		431,652		433,745

Held to maturity:
Municipal bonds	67,821		68,706		50,456		55,472		50,473		55,413
Agency collateralized mortgage obligations	118,757		121,422		186,467		189,423		269,516		274,010
Agency residential mortgage-backed securities	83,177		86,570		114,388		120,712		171,103		178,581
Agency commercial mortgage-backed securities	24,828		25,041		9,243		10,546		9,396		10,138
Total held to maturity	294,583		301,739		360,554		376,153		500,488		518,142

Total investment securities	543,185		549,751		644,642		663,187		932,140		951,887

FHLB and Federal Reserve Bank stock	34,883		34,883		45,025		45,025		37,590		37,590

Total securities	$	578,068	$	584,634	$	689,667	$	708,212	$	969,730	$	989,477

Table of Contents

The composition and contractual maturities of the investment securities portfolio as of December 31, 2013 , excluding FRB stock and FHLB stock, are indicated in the following table. However, it is expected that investment securities with a prepayment option will generally repay their principal in full prior to contractual maturity. Prepayment options exist for the SBA pools, agency collateralized mortgage obligations and agency mortgage-backed securities. In addition, many of the municipal bonds are callable prior to maturity. The weighted average yield is prospective and based on amortized cost.




	1 to 5 years				5 to 10 years				After 10 years				Total Securities
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Fair Value
	(Dollars in thousands)
Available for sale:
SBA pools	$	2,652	2.79	%	$	—	—	%	$	—	—	%	$	2,652	2.79	%	$	2,728
Agency residential collateralized mortgage obligations	—		—		—		—		70,257		1.49		70,257		1.49		70,575
Agency residential mortgage-backed securities	—		—		32,771		1.46		142,922		1.71		175,693		1.67		174,709
Total available for sale	2,652		2.79		32,771		1.46		213,179		1.64		248,602		1.63		248,012

Held to maturity:
Municipal bonds	7,139		3.66		20,359		3.69		40,323		3.06		67,821		3.31		68,706
Agency residential collateralized mortgage obligations	5,931		3.98		5,955		3.73		106,871		2.71		118,757		2.83		121,422
Agency residential mortgage-backed securities	1,767		4.35		40,486		3.74		40,924		3.00		83,177		3.39		86,570
Agency commercial mortgage-backed securities	—		—		24,828		2.76		—		—		24,828		2.76		25,041
Total held to maturity	14,837		3.87		91,628		3.46		188,118		2.85		294,583		3.09		301,739

Total investment securities	$	17,489	3.71	%	$	124,399	2.94	%	$	401,297	2.21	%	$	543,185	2.42	%	$	549,751

Table of Contents

Sources of Funds

General. Our sources of funds are deposits, borrowings, payments of principal and interest on loans and investments, sales of loans and funds provided from operations.

Deposits. The Company's deposit base is our primary source of funding and consists of core deposits from the communities served by our branch and office locations. We offer a variety of deposit accounts with a competitive range of interest rates and terms to both consumers and businesses. Deposits include interest-bearing and non-interest-bearing demand accounts, savings, money market, certificates of deposit and individual retirement accounts. These accounts earn interest at rates established by management based on competitive market factors, management's desire to increase certain product types or maturities, and in keeping with our asset/liability, liquidity and profitability objectives. Competitive products, competitive pricing and high touch customer service are important to attracting and retaining these deposits.

The Company has historically been an active bidder for public fund deposits within the state of Texas. This strategy has been refined to one which will seek to attract future public funds primarily in the direct markets that we serve and only at rates that are consistent with our strategy of providing a low cost source of core funding for the Company. At December 31, 2013 and 2012 , the Company's public fund deposits totaled $217.4 million and $186.5 million , respectively.

The Company has opted to provide an avenue for large depositors to maintain full FDIC insurance coverage for all deposits up to $50 million. Under an agreement with Promontory Interfinancial Network, we participate in the Certificate of Deposit Account Registry Service (CDARS®) and the Insured Cash Sweep (ICS) money market product. These are deposit-matching programs which distribute excess balances on deposit with the Company across other participating banks. In return, those participating financial institutions place their excess customer deposits with the Company in a reciprocal amount. These products are designed to enhance our ability to attract and retain customers and increase deposits by providing additional FDIC insurance for large deposits. Due to the nature of the placement of the funds, CDARS® and ICS deposits are classified as “brokered deposits ” by regulatory agencies. At December 31, 2013 and 2012 , we had $131.5 million and $88.5 million , respectively, in aggregate reciprocal CDARS® and ICS deposits.

The following table sets forth our deposit flows during the periods indicated.



	Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Opening balance	$	2,177,806		$	1,963,491		$	2,017,550
Net deposits (withdrawals)	77,288			202,862			(76,533		)
Interest	9,545			11,453			22,474

Ending balance	$	2,264,639		$	2,177,806		$	1,963,491
Net increase (decrease)	$	86,833		$	214,315		$	(54,059	)
Percent increase (decrease)	3.99		%	10.91		%	(2.68		)%

Table of Contents

The following table sets forth the dollar amount of deposits in the various types of deposit programs offered at the dates indicated.



	December 31,
	2013				2012				2011
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
	(Dollars in thousands)
Transaction and Savings Deposits:
Non-interest-bearing demand	$	410,933	18.15	%	$	357,800	16.43	%	$	211,670	10.78	%
Interest-bearing demand	474,515		20.95		488,748		22.44		498,253		25.37
Savings and money market	904,576		39.94		880,924		40.45		759,576		38.69
Total non-certificates	1,790,024		79.04		1,727,472		79.32		1,469,499		74.84
Certificates:
0.00-1.99%	439,717		19.42		365,704		16.79		372,902		18.99
2.00-3.99%	26,380		1.16		38,991		1.79		70,875		3.61
4.00-5.99%	8,515		0.38		45,636		2.10		50,213		2.56
6.00% and over	3		—		3		—		2		—
Total certificates	474,615		20.96		450,334		20.68		493,992		25.16

Total deposits	$	2,264,639	100.00	%	$	2,177,806	100.00	%	$	1,963,491	100.00	%

The following table shows rate and maturity information for our certificates of deposit at December 31, 2013 .



	0.00-1.99%			2.00-3.99%			4.00-5.99%			6.00% and over			Total			Percent of Total
	(Dollars in thousands)
Certificates maturing in quarter ending:
March 31, 2014	$	57,214		$	3,530		$	—		$	—		$	60,744		12.79	%
June 30, 2014	63,916			1,418			7,921			—			73,255			15.44
September 30, 2014	71,152			1,864			208			—			73,224			15.43
December 31, 2014	57,538			3,312			369			—			61,219			12.90
March 31, 2015	29,409			1,328			—			—			30,737			6.48
June 30, 2015	20,536			1,176			—			—			21,712			4.57
September 30, 2015	84,746			2,782			—			—			87,528			18.44
December 31, 2015	22,568			1,643			—			—			24,211			5.10
Thereafter	32,637			9,327			18			3			41,985			8.85
Total	$	439,716		$	26,380		$	8,516		$	3		$	474,615		100.00	%

Percent of Total	92.65		%	5.56		%	1.79		%	—		%	100.00		%

Table of Contents

The following table indicates the amount of our certificates of deposit by time remaining until maturity as of December 31, 2013 .



	Maturity
	3 Months or less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
	(Dollars in thousands)
Certificates less than $100,000	$	17,584	$	21,506	$	27,585	$	34,344	$	101,019
Certificates of $100,000 or more	21,709		29,441		55,335		62,799		169,284
Public funds¹	21,451		22,308		51,523		109,030		204,312
Total certificates	$	60,744	$	73,255	$	134,443	$	206,173	$	474,615

¹Deposits from governmental and other public entities

Borrowings . Although deposits are our primary source of funds, we may utilize borrowings to manage interest rate risk or as a cost-effective source of funds when they can be invested at a positive interest rate spread for additional capacity to fund loan demand according to our asset/liability management goals. We also fund a portion of our Warehouse Purchase Program fundings with short-term FHLB advances. Our borrowings consist primarily of advances from the FHLB of Dallas and a $25.0 million repurchase agreement with Credit Suisse.

We may obtain advances from the FHLB of Dallas upon the security of certain loans and securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At December 31, 2013 , we had $641.3 million in FHLB advances outstanding and the ability to borrow an additional $333.9 million. In addition to FHLB advances, the Company may also use the discount window at the Federal Reserve Bank or fed funds purchased from correspondent banks as a source of short-term funding. These funding sources were utilized during 2013 but had no balances outstanding at December 31, 2013 . See Notes 13 and 14 of the Notes to Consolidated Financial Statements contained in Item 8 of this report for more information about our borrowings.

The following table sets forth the maximum month-end balance and daily average balance of FHLB advances, the repurchase agreement and other borrowings for the periods indicated.



	Year Ended December 31,
	2013		2012		2011
	(Dollars in thousands)
Maximum balance:
FHLB advances	$	896,549	$	938,396	$	805,187
Repurchase agreement	25,000		84,817		25,000
Other borrowings	20,000		23,200		10,000
Average balance outstanding:
FHLB advances	$	555,368	$	680,674	$	453,434
Repurchase agreement	25,000		36,398		25,000
Other borrowings	925		1,193		8,085

During 2012, the Company acquired $50.0 million in repurchase agreements in the Highlands acquisition. These agreements were unwound or matured prior to December 31, 2012.

Table of Contents

The following table sets forth certain information as to FHLB advances, the repurchase agreement and other borrowings at the dates indicated.



	At December 31,
	2013			2012			2011
	(Dollars in thousands)
FHLB advances at end of period	$	639,096		$	892,208		$	746,398
Repurchase agreement at end of period	25,000			25,000			25,000
Weighted average rate of FHLB advances during the period	1.53		%	1.44		%	2.18		%
Weighted average rate of FHLB advances at end of period	1.09		%	0.95		%	1.21		%
Weighted average rate of repurchase agreement during the period	3.22		%	2.41		%	3.22		%
Weighted average rate of repurchase agreement at end of period	3.22		%	3.22		%	3.22		%
Weighted average rate of other borrowings during the period	0.65		%	2.78		%	5.87		%

How We Are Regulated

The Company was a savings and loan holding company regulated by the OTS through July 20, 2011, and thereafter, as a result of the Dodd-Frank Act, regulated by the FRB through December 18, 2011. The Bank was a federal savings bank regulated by the OTS through July 20, 2011, and thereafter, as a result of the Dodd-Frank Act, regulated by the OCC through December 18, 2011. On December 19, 2011, the Bank converted to a national bank, subject to regulation by the OCC. Due to that charter change, the Company became regulated by the FRB as a bank holding company. As a public company, the Company is subject to the regulation and reporting requirements of the SEC. Also, the Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB”), which has broad authority to promulgate regulations intended to protect consumers with respect to financial products and services, including those provided by the Bank, and to restrict unfair, deceptive or abusive conduct by providers of consumer financial products and services. For the Bank, the OCC has examination and enforcement authority with respect to CFPB regulations.

Set forth below is a brief description of certain laws and regulations that are applicable to the Company and the Bank. This description, as well as other descriptions of laws and regulations contained in this Form 10-K, is not complete and is qualified in its entirety by reference to the applicable laws and regulations.

Legislation is introduced from time to time in the United States Congress that may affect our operations. In addition, the regulations governing the Company and the Bank may be amended from time to time by the OCC, the FRB, the FDIC, the CFPB, the SEC, or other agencies, as appropriate. Any legislative or regulatory changes, including those resulting from the Dodd-Frank Act, in the future could adversely affect our operations and financial condition.

ViewPoint Financial Group, Inc. The Company is a bank holding company subject to regulatory oversight by the FRB. The Company is required to register and file reports with the FRB and is subject to regulation and examination by the FRB, including requirements that the Company serve as a source of financial and managerial strength for the Bank, particularly when the Bank is in financial distress. In addition, the FRB has enforcement authority over the Company and any of its non-bank subsidiaries. The Company’s direct activities and those of its non-bank subsidiaries are subject to FRB regulation and must be closely related to banking, as determined by the FRB. The Company must obtain FRB approval to acquire substantially all the assets of another bank or bank holding company or to merge with another bank holding company. In addition, the Company must obtain FRB authorization to control more than 5% of the shares of any other bank or bank holding company and may not own more than 5% of any other entity engaged in activities not permitted for the Company. The FRB imposes capital requirements on the Company. See “- Regulatory Capital Requirements.”

ViewPoint Bank, N.A. As a national bank, the Bank is subject to regulation, examination and supervision by the OCC. The OCC oversees the Bank’s operations under federal law, regulations and policies, including consumer compliance laws, and ensures that the Bank operates in a safe and sound manner. The OCC extensively regulates many aspects of the Bank’s operations including branching, dividends, interest and fees collected, anti-money laundering activities, confidentiality of customer information, credit card operations, corporate governance, mergers and purchase and assumption transactions, insurance activities, securities investments, real estate investments, trust operations, lending activities, subsidiary operations and required capital levels. It also regulates the Bank’s transactions with affiliates (including the Company) and loans to insiders. This regulation and supervision primarily is intended for the protection of depositors and not for the purpose of protecting shareholders.

Table of Contents

As a result of examinations, the OCC may require the Bank to establish additional reserves for loan losses, which decreases the Company’s net income. The OCC, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a compliance plan. The OCC also has extensive enforcement authority over all national banks and their management, employees and affiliates. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC. Except under certain circumstances, public disclosure of final enforcement actions by the OCC is required.

To fund its operations, the OCC has established a schedule for the assessment of “supervisory fees” for all national banks. These supervisory fees are computed based on the Bank’s total assets and increase if the Bank experiences financial distress. Such fees totaled $650,000 in 2013.

FDIC Regulation and Insurance of Accounts . The Bank’s deposits are insured up to the applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government. The basic deposit insurance level is generally $250,000, as specified in FDIC regulations. As insurer, the FDIC imposes deposit insurance premiums. Our deposit insurance premiums for the year ended December 31, 2013 were $1.8 million. Those premiums may increase due to strains on the FDIC deposit insurance fund due to the cost of bank failures and the number of troubled banks. Also, if the Bank experiences financial distress or operates in an unsafe or unsound manner, these deposit premiums may increase.

In accordance with the Dodd-Frank Act, the FDIC has issued regulations setting insurance premium assessments based on an institution’s total assets minus its Tier 1 capital, instead of based on its deposits. The Bank’s premiums are determined by its assignment to one of four risk categories based on capital, supervisory ratings and other factors.

As a result of a decline in the reserve ratio (the ratio of the net worth of the deposit insurance fund to estimated insured deposits) and concerns about expected failure costs and available liquid assets in the deposit insurance fund, the FDIC required each insured institution to prepay on December 30, 2009, the estimated amount of its quarterly assessments for the fourth quarter of 2009 and all quarters through the end of 2013 (in addition to the regular quarterly assessment for the third quarter which was due on December 30, 2009). The prepaid amount was recorded as an asset with a zero risk weight and each institution continued to record quarterly expenses for deposit insurance. The prepaid FDIC premium was fully expensed during 2013.

As insurer, the FDIC may conduct examinations and some supervision of, require reporting by and exercise back-up enforcement authority against FDIC-insured institutions. It also may prohibit the Bank from engaging in any activity that it determines by regulation or order to pose a serious risk to the deposit insurance fund and may terminate our deposit insurance if it determines that the Bank has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

Regulatory Capital Requirements. Both the Company and the Bank are required to maintain a minimum level of regulatory capital. The OCC has established capital standards for the Bank, including a leverage ratio and a risk-based capital requirement, as well as capital standards for purposes of establishing the threshold for prompt corrective action and also may impose capital requirements in excess of these standards on a case-by-case basis. The FRB has established similar leverage and risk-based capital requirements that the Company must meet as a bank holding company. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation — Capital Resources” for information on the Company’s and the Bank’s compliance with these capital requirements.

Under the OCC capital regulations, the Bank must maintain a minimum leverage capital ratio of 4% Tier 1 capital to adjusted total assets. The OCC can require a higher leverage capital ratio on an individualized basis if it determines the Bank is exposed to undue or excessive risk. The Bank also must meet a minimum risk-based capital ratio of at least 8% qualifying total capital (at least 50% Tier 1 capital plus Tier 2 capital, which includes the loan loss allowance, up to 1.25% of risk-weighted assets) to risk-weighted assets. (Most balance sheet and certain off-balance sheet assets are weighted 0% to 100% based on relevant risks of types of assets).

Under the law and regulations on prompt corrective action, the OCC is authorized and, under certain circumstances, required to take actions against banks that fail to meet their capital requirements. The OCC is generally required to restrict the activities of an “undercapitalized institution,” which is a bank with less than a 4% leverage capital ratio, a 4% Tier 1 risked-based capital ratio or an 8.0% total risk-based capital ratio. Any such institution must submit a capital restoration plan and, until such plan is approved by the OCC, may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions.

Table of Contents

Any bank that fails to comply with its capital plan or has Tier 1 risk-based or leverage capital ratio of less than 3.0% or a risk-based capital ratio of less than 6.0% and is considered “significantly undercapitalized” must be made subject to one or more additional specified actions and operating restrictions which may cover all aspects of its operations and may include a forced merger or acquisition of the institution. A bank that becomes “critically undercapitalized” because it has a tangible capital ratio of 2.0% or less is subject to further restrictions on its activities. In addition, a receiver or conservator must be appointed, with certain limited exceptions, within 90 days after a bank becomes critically undercapitalized.

To be considered well capitalized under the prompt corrective action standards, a bank must have at least a 5% leverage capital ratio, a 6% Tier 1 risk-based capital ratio and a 10% total risk-based capital ratio and no enforceable individualized capital requirement. Banks that are not well capitalized are adequately capitalized under these standards until capital ratios fall below these levels. Once a bank is not well capitalized it generally may not accept brokered deposits and is subject to limits on the rates it offers on deposits.

The FRB has established similar capital ratio requirements that apply to bank holding companies, including the Company, on a consolidated basis. To be considered well capitalized, a bank holding company must have, on a consolidated basis, at least a Tier 1 risk-based capital ratio of 6% and a total risk-based capital ratio of 10% and no enforceable individualized capital requirement.

New Capital Rules. Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), the Company and the Bank will be subject to new capital regulations adopted by the FRB and the OCC, which create a new required ratio for common equity Tier 1 ("CETl ") capital, increase the minimum leverage and Tier 1 capital ratios, change the risk-weightings of certain assets for purposes of the risk-based capital ratios, create an additional capital conservation buffer over the required capital ratios, and change what qualifies as capital for purposes of meeting the capital requirements.

Under the new capital regulations, the minimum capital ratios are: (1) a CETl capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (3) a total capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio (the ratio of Tier 1 capital to average total adjusted assets) of 4.0%. CETl generally consists of common stock; retained earnings; accumulated other comprehensive income ("AOCI") unless we elect to exclude AOCI from regulatory capital, as discussed below; and certain minority interests; all subject to applicable regulatory adjustments and deductions.

There are a number of changes in what constitutes regulatory capital, subject to transition periods. These changes include the phasing-out of certain instruments as qualifying capital. Mortgage servicing and deferred tax assets over designated percentages of CETl will be deducted from capital. In addition, Tier 1 capital will include AOCI, which includes all unrealized gains and losses on available for sale debt and equity securities. Because of our asset size, we have the one-time option of deciding in the first quarter of 2015 whether to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in our capital calculations. We are considering whether to elect this option.

The new requirements also include changes in the risk-weighting of assets to better reflect credit risk and other risk exposure. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non residential mortgage loans that are 90 days past due or otherwise in nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (currently set at 0%); and a 250% risk weight (up from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital.

In addition to the minimum CETl, Tier 1 and total capital ratios, the Company and the Bank will have to maintain a capital conservation buffer consisting of additional CETI capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. The new capital conservation buffer requirement is to be phased in beginning on January 1, 2016 when a buffer greater than 0.625% of risk-weighted assets will be required, which amount will each year until the buffer requirement is fully implemented on January 1, 2019.

The OCC's prompt corrective action standards change when these new capital regulations become effective. Under the new standards, in order to be considered well-capitalized, the Bank must have a ratio of CETl capital to risk-weighted assets of 6.5% (new), a ratio of Tier I capital to risk-weighted assets of 8% (increased from 6%), a ratio of total capital to risk-weighted assets of 10% (unchanged), and a leverage ratio of 5% (unchanged); and in order to be considered adequately capitalized, it must have the minimum capital ratios described above.

Table of Contents

Although we continue to evaluate the impact that the new capital rules will have on the Company and the Bank, we anticipate that the Company and the Bank will remain well-capitalized under the new capital rules, and will meet the capital conservation buffer requirement.

Volcker Rule. Pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the "Volcker Rule"). Generally, subject to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliated companies from engaging in short-term proprietary trading of certain securities, investing in funds with collateral comprised of less than 100% loans that are not registered with the Securities and Exchange Commission ("SEC") and from engaging in hedging activities that do not hedge a specific identified risk. After the transition period, the Volcker Rule prohibitions and restrictions will apply to banking entities unless an exception applies. We are analyzing the impact of the Volcker Rule on our investment portfolio and we anticipate changes to our investment strategies, which could negatively affect our earnings.

Limitations on Dividends and Other Capital Distributions. The Company’s major source of funds consists of the net proceeds retained by the Company from our initial public offering in 2006 and our second-step public offering in 2010. We also have the ability to receive dividends or capital distributions from the Bank, our wholly owned subsidiary. In 2013, the Bank paid the Company dividends in the amount of $12.8 million. The ability of the Bank to pay dividends depends on its earnings and capital levels and may be limited by the OCC directives or orders. The Bank generally must obtain OCC approval of a dividend if the total dividends declared during the current year, including the proposed dividend, exceed net income for the current year and retained net income for the prior two years. It is the Bank’s policy to maintain a strong capital position; so, in times of financial or economic distress, the Bank will be less likely to pay dividends to the Company.

The ability of the Company to pay dividends to its stockholders is dependent on the receipt of dividends from the Bank. Under Maryland law, the Company cannot pay cash dividends if it would render the Company unable to pay its debts (unless they are paid from recent earnings) or become insolvent.

The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB’s view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, a bank holding company may be prohibited from paying any dividends if the holding company’s bank subsidiary is not adequately capitalized.

A bank holding company is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order, or any condition imposed by, or written agreement with, the FRB. This notification requirement does not apply to any company that meets the well-capitalized standard for bank holding companies, is well-managed, and is not subject to any unresolved supervisory issues.

Federal Securities Laws . The common stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act. This includes limits on sales of stock by certain insiders and the filing of insider ownership reports with the SEC. The SEC and Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 that apply to the Company as a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.

Subsidiary and Other Activities

National banks are authorized to invest in various types of subsidiaries, including bank service corporations, operating subsidiaries and financial subsidiaries. There are investment and activity limits on each of these types of subsidiaries.

In July 2012, the Company sold its only operating subsidiary, VPM (please see Item 1 - General under Part 1 of this Annual Report on Form 10-K for more information). Also in 2012, the Bank dissolved its subsidiary housing the Bank’s equity investments in two community development-oriented venture capital funds, which are now housed directly in the Bank. At December 31, 2013, the Bank did not have any subsidiaries.

Competition

Table of Contents

The Texas market for banking services is highly competitive. Texas’ largest banking organizations are headquartered outside of Texas and are controlled by out-of-state organizations. We also compete with other providers of financial services, such as savings and loan associations, credit unions, consumer finance companies, insurance companies and commercial finance and leasing companies. We believe that many middle market companies and successful professionals and entrepreneurs are interested in banking with a company headquartered in, and with decision-making authority based in, Texas and with established Texas bankers who have the expertise to act as trusted advisors to the customer with regard to its banking needs. We believe our bank can offer customers more responsive and personalized service. We believe that, if we service these customers properly, we will be able to establish long-term relationships and provide multiple products to our customers, thereby enhancing our profitability.

Executive Officers of ViewPoint Financial Group, Inc. and ViewPoint Bank, N.A.

Officers are elected annually to serve for a one year term. There are no arrangements or understandings between the officers and any other person pursuant to which he or she was or is to be selected as an officer. As of the date of this report, our executive officers were as follows.

Kevin J. Hanigan. Mr. Hanigan, age 57, is a Director and Chief Executive Officer of the Company and the Bank, positions he has held since the completion of the Highlands Bank acquisition with and into the Company in April 2012. Prior to joining the Company, Mr. Hanigan was the Chairman and Chief Executive Officer of Highlands Bank, serving in those roles since 2010. Prior to joining Highlands Bank, Mr. Hanigan was employed by Guaranty Bank starting in 1996, serving in numerous capacities including Chief Lending Officer, Executive in charge of Retail Banking, and finally as Chairman and Chief Executive Officer of Guaranty Bank and its parent company, Guaranty Financial Group, Inc. Mr. Hanigan began his career with Bank of the Southwest in Houston in June 1980. Mr. Hanigan earned his undergraduate degree and Master of Business Administration from Arizona State University. With more than 30 years of experience working in the banking industry in Texas and serving as chief executive officer of several institutions, Mr. Hanigan brings outstanding leadership skills and a deep understanding of the local banking market and issues facing the banking industry.

Scott A. Almy. Mr. Almy, age 47, has served as Executive Vice President, Chief Risk Officer and General Counsel of the Company and the Bank since July 2012. Mr. Almy oversees the credit, risk, compliance, information technology, internal audit and legal functions of the Company and has more than 20 years of bank regulatory expertise. Prior to joining the Company, Mr. Almy was the managing member of a private law firm in Dallas, where he focused on regulatory and transactional matters affecting banks, bank holding companies and other financial firms. Prior to that, he spent 15 years at Guaranty Financial Group, Inc. serving as general counsel and secretary for the company and its subsidiary, Guaranty Bank. Mr. Almy has a J.D. from Texas Tech University School of Law and a B.B.A. from Texas A&M. He also completed the Executive Education Program in Advanced Risk Management at the Wharton School, University of Pennsylvania.

Kari J. Anderson. Ms. Anderson, age 42, has served as Senior Vice President, Chief Accounting Officer, Assistant Treasurer, and Interim Principal Financial Officer of the Company since August 2013. Ms. Anderson oversees the Company's finance, investment and corporate accounting operations. Ms. Anderson joined the Company in 1993 and served as the Senior Vice President, Controller and Assistant Treasurer since 2002. Ms. Anderson has over 20 years of banking and accounting experience. Ms. Anderson is a certified public accountant and holds a B.B.A. from East Texas State University.

Charles D. Eikenberg. Mr. Eikenberg, age 59, serves as Executive Vice President of Community Banking for the Company and ViewPoint Bank where he oversees the community banking, administrative operations, marketing, and retail investment functions of the Bank. He has over 35 years of experience as a Texas banker, primarily focused on consumer and retail banking. Mr. Eikenberg joined the Company as head of Community Banking in 2012 when the Company merged with Highlands Bank, where he served as Chief Retail Officer. Prior to joining Highlands, Mr. Eikenberg served as Senior Executive Vice President, Retail Banking at Guaranty Bank from 2006-2010. Prior to Guaranty he was with Bank One/Chase since 1990, serving in numerous senior positions for retail credit, investments and branch distribution. Mr. Eikenberg holds an M.B.A. from the University of Houston and a Bachelors Degree from Baylor University.

Thomas S. Swiley. Mr. Swiley, age 64, has served as Executive Vice President and Chief Lending Officer of the Company and the Bank since July 2012. Mr. Swiley oversees the Corporate Banking, Commercial Banking, Entrepreneurial Banking, Commercial Real Estate and Warehouse Lending Divisions of the Company, along with the Treasury Management Sales function. Mr. Swiley's extensive Texas banking career spans over thirty-five years, and includes six years as President, and President and Chief Operating Officer of Bank of Texas, N.A. He has also held various executive positions with other commercial banks, primarily with Bank of America and its predecessors. Mr. Swiley holds both a M.B.A. and B.B.A. from Southern Methodist University and is also a graduate of the Southwestern Graduate School of Banking.

Table of Contents

Mark L. Williamson. Mr. Williamson, age 59, has served as Executive Vice President and Chief Credit Officer of the Company and the Bank since 2010. Mr. Williamson’s responsibilities include business and consumer underwriting, loan operations, portfolio analysis, default management, credit approval and all credit policy matters. Mr. Williamson has over 36 years of credit, lending and risk management experience in markets throughout Texas, including Dallas, Houston, Midland and Lubbock. Most recently he served as EVP and Chief Credit Officer for the Dallas and Lubbock markets of PlainsCapital Bank. Prior to that, he served in both lending and risk management capacities at Guaranty Bank and Chase Bank of Texas. Mr. Williamson holds a M.B.A. from the University of Texas Permian Basin, a B.B.A. from Texas Tech University and is a graduate of the Southwestern Graduate School of Banking.

Kevin Hanigan, Scott Almy and Charles Eikenberg all served as executive officers of Guaranty Bank and its holding company, Guaranty Financial Group, Inc. Guaranty Financial Group, Inc. filed for bankruptcy in August 2009.

On November 25, 2013, the Company entered into a definitive agreement (the “Agreement”) with LegacyTexas Group, Inc. (“LegacyTexas”), pursuant to which LegacyTexas will be merged with and into the Company (the “Merger”). The Agreement provides that J. Mays Davenport, Executive Vice President of LegacyTexas Bank, will become Executive Vice President / Chief Financial Officer of the Company effective upon the closing of the Merger. Aaron Shelby, Executive Vice President of LegacyTexas, will be named Executive Vice President of the Company.

J. Mays Davenport, age 46, has served as Executive Vice President of LegacyTexas Bank since December 2004. Mr. Davenport oversees the Marketing, Human Resource, Mortgage and Treasury Management Sales Divisions of LegacyTexas. He also serves as a Director of LegacyTexas Title and LegacyTexas Insurance Services. Mr. Davenport is a licensed Certified Public Accountant in the State of Texas and has been serving the Texas banking community for over twenty years. The first fourteen years were in the practice of public accountancy with Arthur Andersen, Grant Thornton, Fisk & Robinson and RSM McGladrey and the last nine years with LegacyTexas Bank. Mr. Davenport is a Magna Cum Laude graduate of Texas A&M University with a B.B.A. in Finance and Accounting.

Aaron Shelby, age 42, has served in credit and lending roles for LegacyTexas since 2003, where he currently serves as Executive Vice President. Mr. Shelby has served as a member of the LegacyTexas Board of Directors since 2013. Between 1999 and 2003, he served as President of Mr. Bracket, a distribution company. His prior experience includes service in both the banking and timber industries. Mr. Shelby is active in the community, currently serving on the board of directors of the Dallas Children’s Theater. He holds a B.B.A. in Finance from Santa Clara University.

Other than with respect to Mr. Davenport and Mr. Shelby, there are no arrangements or understandings between any executive officer of the Company and any other person pursuant to which such executive officer was or is to be selected as an officer.

Employees

At December 31, 2013 , we had a total of 546 full-time employees and 30 part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

Internet Website

We maintain three websites with the addresses viewpointbank.com , viewpointfinancialgroup.com and fnbjacksboro.com . The information contained on our websites is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own Internet access charges, we make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the SEC.



Item 1A.	Risk Factors

An investment in our common stock is not an insured deposit and is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included and incorporated by reference in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, capital levels, cash flows, liquidity, results of operations and prospects. The market price of our common stock could decline significantly due to any of these identified or other risks, and you could

Table of Contents

lose some or all of your investment. This report is qualified in its entirety by these risk factors.

Risks Related To Our Business

A return of recessionary conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.

The ongoing debate in Congress regarding the national debt ceiling and federal budget deficit, and concerns over the United States' credit rating (which was downgraded by Standard & Poor's), the European sovereign debt crisis, the overall weakness in the economy and continued high unemployment in the United States, among other economic indicators, have contributed to increased volatility in the capital markets and diminished expectations for the economy.

A return of recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Further declines in real estate values and sales volumes and continued high unemployment levels may result in higher than expected loan delinquencies and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.

Furthermore, the Board of Governors of the Federal Reserve System, in an attempt to help the overall economy, has, among other things, kept interest rates low through its targeted federal funds rate and the purchase of mortgage-backed securities. If the Federal Reserve increases the federal funds rate, overall interest rates will likely rise, which may negatively impact the housing markets and the U.S. economic recovery. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

If economic conditions deteriorate in the state of Texas, the value of our collateral and borrowers' ability to repay loans may decline.

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

Passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act will continue to increase our operational and compliance costs.

The Dodd-Frank Act has significantly changed, and will continue to significantly change, the bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau (“CFPB”) with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets. Banks with $10 billion or less in assets will continue to be examined for compliance with the consumer laws and regulations of the CFPB by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws. The Company does not currently have assets in excess of $10 billion, but it may at some point in the future.

Table of Contents

In January of 2013, the CFPB issued several final regulations and changes to certain consumer protections under existing laws. These final rules, most of the provisions of which (including the qualified mortgage rule) become effective January 10, 2014, generally prohibit creditors from extending mortgage loans without regard for the consumer’s ability-to-repay and add restrictions and requirements to mortgage origination and servicing practices. In addition, these rules limit prepayment penalties and require the creditor to retain evidence of compliance with the ability-to-repay requirement for three years. Compliance with these rules will likely increase our overall regulatory compliance costs and may require changes to our underwriting practices with respect to mortgage loans. Moreover, these rules may adversely affect the volume of mortgage loans that we underwrite and may subject us to increased potential liabilities related to such residential loan origination activities.

The Dodd-Frank Act requires minimum leverage (Tier 1) and risk-based capital requirements for savings and loan holding companies and bank holding companies that are no less stringent than those applicable to banks, which will limit our ability to borrow at the holding company level and invest the proceeds from such borrowings as capital in the Bank, and will exclude certain instruments that previously have been eligible for inclusion by bank holding companies as Tier 1 capital, such as trust preferred securities.

The Dodd-Frank Act also broadens the base for FDIC deposit insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution, rather than deposits. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions, and credit unions to $250 thousand per depositor, retroactive to January 1, 2008. The legislation also increases the required minimum reserve ratio for the DIF, from 1.15% to 1.35% of insured deposits, and directs the FDIC to offset the effects of increased assessments on depository institutions with less than $10 billion in assets.

It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs, which could adversely affect key operating efficiency ratios, and could increase our interest expense.

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income and may decrease our efficiency.

We, directly and indirectly through the Bank, are subject to extensive regulation, supervision and examination by the OCC, the FRB, the SEC and the FDIC, and other regulatory bodies. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank's operations, reclassify assets, determine the adequacy of a bank's allowance for loan losses and its risk weighting of its assets and determine the level of deposit insurance premiums assessed. Our business is highly regulated; therefore, the laws and applicable regulations are subject to frequent change. Any new regulations or legislation, change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator's interpretation of a law or regulation, could have a material impact on our operations.

The potential exists for additional federal or state laws and regulations, or changes in policy or interpretation, affecting lending and funding practices, interest rate risk management and liquidity standards. Moreover, bank regulatory agencies have been active in responding to concerns and trends identified in examinations, and have issued many formal enforcement orders requiring capital ratios in excess of regulatory requirements. Bank regulatory agencies, such as the OCC and the FDIC, govern the activities in which we may engage, primarily for the protection of depositors and not for the protection or benefit of potential investors. In addition, new laws and regulations may increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and our ongoing operations, costs and profitability.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have

Table of Contents

developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

Legal and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.

We, and other participants in the financial services industry upon whom we rely to operate, have been and may in the future become involved in legal and regulatory proceedings. Most of the proceedings we consider to be in the normal course of our business or typical for the industry, however it is inherently difficult to assess the outcome of these matters and there can be no assurance that anyone in particular, including us, will prevail in any proceeding or litigation. There could be substantial cost and management diversion in such litigation and proceedings, and any adverse determination could have a materially adversely affect on our business, brand or image, or our financial condition and results of our operations.

Our business is susceptible to fraud and our customers could be the subject of fraud.

As a financial institution, we experience fraud risk with our borrowers, depositors or employees, directly or indirectly. We rely on information provided by, or on behalf of our customers, which could turn out to be fraudulent. We believe we have controls in place to detect and prevent such fraud but in some cases multi-party collusion or other sophisticated methods of hiding fraud, may not be readily detected or detectable, and could result in losses that affect our financial condition and results of our operations.

Fraud is not limited to the financial services industry. Our customers could experience fraud in their businesses, which could materially impact their ability to repay their loans, and deposit customers in all financial institutions are constantly and unwittingly solicited by others in fraud schemes that vary from easily detectable and obvious attempts to high-level and very complex international schemes that could drain an account of millions of dollars and require detailed financial forensics to unravel. While we have controls in place, contractual agreements with our customers partitioning liability, and insurance to help mitigate the risk, none of these are guarantees that we will not experience a fraud loss, potentially a loss that could have a material adverse affect on our financial condition, reputation and results of our operations.

Our business is reliant on outside vendors.

Our business is highly dependent on the use of certain outside vendors for our day-to-day operations, including such high level vendors as our data processing vendor, our card processing vendor and our on-line banking vendors. Our operations are exposed to risk that a vendor may not perform in accordance with established performance standards required in our agreements for any number of reasons including a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus. While we have comprehensive policies and procedures in place to mitigate risk at all phases of vendor management from selection, to performance monitoring and renewals, the failure of a vendor to perform in accordance with contractual agreements could be disruptive to our business, which could have a material adverse affect on our financial conditions and results of our operations.

Changes in interest rates could adversely affect our results of operations and financial condition.

As with most financial institutions, our results of operations depend substantially on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. Interest rates, which remain largely at historically low levels, are highly sensitive to many factors that are beyond our control such as general economic conditions and policies of the federal government, in particular the Federal Open Market Committee. Changes in monetary policy, including changes in interest rates, could influence (i) the amount of interest we receive on loans and securities, (ii) the amount of interest we pay on deposits and borrowings, (iii) our ability to originate loans and obtain deposits, (iv) the fair value of our assets and liabilities, and (v) the reinvestment risk associated with a reduced duration of our mortgage-backed securities portfolio as borrowers refinance to reduce borrowing costs. When interest-bearing liabilities reprice or mature more quickly than interest-earning assets, an increase in interest rates generally would tend to result in a decrease in net interest income.

Although management believes it has implemented an effective asset and liability management strategy to manage the potential effects of changes in interest rates, including the use of adjustable rate and/or short-term assets, and Federal Home Loan Bank advances or longer term repurchase agreements, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of our operation and/or our strategies may not always be successful in managing the risk associated with changes in interest rates.

Table of Contents

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or deterioration in credit markets.

Additionally, collateralized public funds are bank deposits of state and local municipalities. These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these funds historically have been a relatively stable source of funds for us, availability depends on the individual municipality's fiscal policies and cash flow needs.

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high .

We are required by regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate that our capital resources will satisfy our capital requirements for the foreseeable future. We may at some point need to raise additional capital to support continued growth or losses, both internally and through acquisitions. Any capital we obtain may result in the dilution of the interests of existing holders of our common stock.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time (which are outside our control) and on our financial condition and performance. Accordingly, we cannot make assurances of our ability to raise additional capital if needed, or if the terms will be acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired and our financial condition and liquidity could be materially and negatively affected.

Higher FDIC insurance premiums and special assessments will affect our earnings.

In accordance with the Dodd-Frank Act, the FDIC adopted a new deposit insurance premium assessment system which was effective April 1, 2011. To the extent our non-deposit liabilities are determined to bear certain additional risk to the deposit insurance fund, future increases in our assessment rate or levels or any special assessments would decrease our earnings. Furthermore, market conditions affecting financial institutions led to the failure (or merger into healthier organizations) of many national, regional and community-based financial institutions. These failures, and projected future failures, have a significant negative impact on the legally-required capitalization levels of the FDIC's insurance fund which has led to higher insurance premiums paid by financial institutions, and could lead to significantly higher premiums in the future.

Our ability to attract and retain key employees may change.

Our success depends, in large part, on our ability to attract and retain key employees, competition for which can be intense. We may not be able to hire or retain these employees. The unexpected loss of a key employee could have a material adverse impact on our business as the skills, knowledge of our market and institution, and the years of experience of a departing key employee which are all difficult to quickly replace with qualified personnel.

Furthermore, in 2011 federal regulators imposed limitations on incentive-based compensation for covered financial institutions which the regulators believe encourage inappropriate risk-taking, are deemed by a regulator to be excessive or may lead to material losses. We may be at a disadvantage offering compensation packages in competition with other banks and non-banks that are not subject to the rules.

The soundness of other financial institutions could adversely affect us.

The financial services industry is interrelated. As with all institutions, including commercial and savings banks, credit unions, broker-dealers, investment banks, and other such institutional clients, we routinely engage in financial transactions with other financial institutions including loan syndications and participations, trading and clearing transactions, deposit accounts,

Table of Contents

and many other routine transactions. We rely on other institutions ability to remain commercially viable, that they are being operated in safe and sound manner, and in accordance with all applicable laws and regulations applicable to the transactions in which we engage as well as the operation of their business as a whole. If our reliance is misplaced, or a default, failure or even rumors of such by one of more of those institutions occurs, it may lead to transaction-specific loss, default or credit risk for us, and could lead to further industry-wide liquidity problems, all of which can have a material adverse affect on our financial condition and results of operations.

We are subject to certain risks in connection with our use of technology.

Our security measures may not be sufficient to mitigate the risk of a cyber attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have a security impact. If one or more of these events occur, this could jeopardize our or our customers' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.

Security breaches in our internet banking activities could further expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant legal liability and significant damage to our reputation and our business.

Our security measures may not protect us from systems failures or interruptions. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

Natural disasters, severe weather events, worldwide hostilities, including terrorist attacks, and other external events may adversely affect the general economy, the financial services industry, the industries of our customers, and us in particular.

Natural disasters, severe weather events, including those prominent in our geographic footprint and those prominent in the geographic areas of our vendors and business partners, together with worldwide hostilities, including terrorist attacks, and other external events could have a significant impact on our ability to conduct our business. They could also affect the stability of our deposit base, our borrowers' ability to repay loans, impair collateral, result in a loss of revenue or an increase in expenses. Although management has established disaster recovery and business continuity procedures and plans, the occurrence of any such event may adversely affect our business, which in turn could have a material adverse affect on our financial condition and results of our operations.

Changes in accounting standards, or our own accounting practices or policies, could materially impact our financial statements.

From time to time entities that set accounting standards change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be both difficult to predict and involve judgment and discretion in their interpretation by us, and our independent accounting firms. The changes implemented by the entities in

Table of Contents

setting standards themselves could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.

Our business initiatives and strategies, product lines, revenue enhancement or efficiency improvements may be less successful than anticipated or not realized at all.

We make certain projections and assumptions when we adopt or modify existing business initiatives and strategies, product lines, enter or expand our market presence, attempt to re-balance our loan portfolio, execute our customer retention plan or seek revenue enhancement or efficiency improvements. Our projections and assumptions may not be accurate and may be affected by numerous conditions outside of our control and therefore we may not be able to achieve desired or projected results on the timeline we anticipate, some benefits may not be fully realized or we may not realize any benefit at all.

Our customers may have difficulty weathering a downturn in the economy, which may impair their ability to repay their loans.

Historically we have, and will continue to, target our marketing and business development strategies primarily to local or regional, small-to-medium sized businesses, some of whom are in volatile industries such as energy and real estate. These firms are generally more vulnerable to economic downturns, whether large and sudden downturns or moderate downturns that are more prolonged, and may not have the capital needed to compete against their larger, more capitalized competitors or a particular business sector may be affected significantly more than other sectors or the economy as a whole, and these firms may therefore experience volatile operating results, which may affect their ability to repay their loans. Additionally, the continued success of these firms is frequently contingent on a small group of owners or senior management, and the death, disability or resignation of one or more of such individuals could also have a material adverse affect on the business and its ability to repay its loan obligations. Economic downturns and other events that affect the economy as a whole, or our customers business in particular, could cause us to incur credit losses that would have a material adverse affect on our financial condition and results of our operation.

Our loan portfolio possesses increased risk due to our percentage of commercial real estate and commercial and industrial loans.

Over the last several years, we have been re-balancing our loan portfolio by increasing our commercial lending to diversify our loan mix and improve the yield on our assets, and we anticipate that trend to continue. The credit risk related to these types of loans is considered to be greater than the risk related to our previous target asset of one‑ to four‑family residential loans because the repayment of commercial real estate loans and commercial and industrial loans typically is dependent on the successful operation and income stream of the borrowers' business and the real estate securing the loans as collateral, both of which can be significantly affected by economic conditions. Additionally, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. If loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could require us to increase our provision for loan losses and adversely affect our financial condition and results of our operation.

Several of our borrowers have more than one commercial real estate loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one‑ to four‑family residential mortgage loan. Finally, if we foreclose on a commercial real estate loan, our holding period for the collateral, if any, typically is longer than for one‑ to four‑family residential property because there are fewer potential purchasers of the collateral. Since we plan to continue to increase our originations of these loans, it may be necessary to increase the level of our allowance for loan losses due to the increased risk characteristics associated with these types of loans. Any increase to our allowance for loan losses would adversely affect our earnings. Any delinquent payments or the failure to repay these loans would hurt our earnings.

Our Warehouse Purchase Program balances can fluctuate widely.

We have a high lending concentration in the Warehouse Purchase Program. Because Warehouse Purchase Program balances are contingent upon residential mortgage lending activity, changes in the residential real estate market nationwide can lead to wide fluctuations of balances in this product, materially impacting both interest and non-interest income. Additionally, Warehouse Purchase Program period-end balances are generally higher than the average balance during the period due to increased mortgage activity that occurs at the end of a month.

The credit quality of our loans could decline.

Table of Contents

Although we regularly review credit exposure related to particular customers, industry sectors and product lines, default risk may arise from circumstances that are difficult to predict or detect. In such circumstances, we could experience an increase in our provision for loan loss, reserve for credit loss, nonperforming assets, and net charge-offs any of which could have a material adverse affect on our financial condition and results of our operation.

Specifically, residential mortgage lending, including home equity loans and lines of credit, is generally sensitive to regional and local economic conditions that may significantly affect the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. The decline in residential real estate values resulting from the downturn in local housing markets has reduced the value of the real estate collateral securing many of our loans and has increased the risk that we would incur losses if borrowers default on their loans. Continued declines in both the volume of real estate sales and sales prices, coupled with high levels and increases in unemployment, may result in higher loan delinquencies or problem assets.

Our loan portfolio also contains adjustable rate loans. Borrowers with adjustable rate loans are exposed to increased monthly payments when the related interest rate adjusts upward under the terms of the loan from the initial fixed to the rate computed in accordance with the applicable index and margin. Any rise in prevailing market interest rates may result in increased payments for borrowers who have adjustable rate loans, increasing the possibility of default. Borrowers seeking to avoid these increased monthly payments by refinancing their loans may no longer be able to find available replacement loans at comparably lower interest rates. In addition, a decline in housing prices may leave borrowers with insufficient equity in the collateral to permit them to refinance or the inability to sell the collateral for an amount equal to or greater than the unpaid principal balance of their loans.

These potential negative events, which may have a greater impact on our earnings and capital than on the earnings and capital of other financial institutions due to our product mix, may cause us to incur losses, which would adversely affect our capital and liquidity and damage our financial condition and business operations.

Our allowance for loan losses may not be sufficient to cover actual loan losses and/or our non-performing assets may increase.

In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, evaluate economic conditions and make various assumptions and judgments about the loan portfolio. Management recognizes that significant new growth in loan portfolios such as the increased focus on commercial and industrial loans, new loan products and the refinancing of existing loans can result in portfolios not performing in a historical or projected manner. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover actual losses, resulting in additions to our allowance, which decreases our net income.

Our banking regulators and external auditor periodically review our allowance for loan losses. These entities may require us to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their review. Any increase in our allowance for loan losses or loan charge‑offs as required by these authorities may have a material adverse effect on our financial condition and results of operations.

Our non-performing assets adversely affect our net income in various ways including interest accrual, reserves for credit losses, write-downs and additional costs including carrying costs of other real estate owned assets. Further, the resolution of non-performing assets requires the active involvement of management, which can distract them from the overall supervision of our operations and other income-producing activities, all of which can have a material adverse affect on our financial condition and results of operations.

Our Enterprise Risk Management program may not be able to adequately monitor or control perceived risks

Our enterprise risk management (“ERM”) program is designed to formalize the practice of understanding and controlling the nature and amount of risk we take pursuing our business initiatives and strategies and to establish management accountability for the risks accepted and includes an institution-wide coordination of credit risk, operational risk, market risk, capital management and liquidity management.

In 2012, the Board of Governors of the Federal Reserve System issued proposed rules (“Enhanced Prudential Standards”) for the management of enterprise wide risk applicable to complex or larger financial institutions over $10 billion in assets or are otherwise covered by the Dodd-Frank Act. Some of the requirements of the Enhanced Prudential Standards include a formal board-level risk committee and the establishment of a Chief Risk Officer with oversight of the ERM program. While the Enhanced Prudential Standards may not currently be a requirement for us, management believes that much of the Enhanced Prudential Standards represent industry best-practices and we have already implemented, or are in the process of

Table of Contents

implementing, many of its requirements.

While we have an ERM program with Board-level involvement, we may not be able to monitor or control all risks, which could have a materially adverse affect on our financial condition and results of our operations.

We pursue a strategy of supplementing internal growth by acquiring other financial companies or their assets and liabilities that we believe will help us fulfill our strategic objectives and enhance our earnings. There are risks associated with this strategy, including the following:

• We may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets, and liabilities we acquire. If these issues or liabilities exceed our estimates, our results of operations and financial condition may be materially negatively affected;

• Prices at which acquisitions can be made fluctuate with market conditions. We have experienced times during which acquisitions could not be made in specific markets at prices we considered acceptable and expect that we will experience this condition in the future;

• The acquisition of other entities generally requires integration of systems, procedures and personnel of the acquired entity into our company to make the transaction economically successful. This integration process is complicated and time consuming and can also be disruptive to the customers of the acquired business. If the integration process is not conducted successfully and with minimal effect on the acquired business and its customers, we may not realize the anticipated economic benefits of particular acquisitions within the expected time frame, and we may lose customers or employees of the acquired business. We may also experience greater than anticipated customer losses even if the integration process is successful.

• To the extent our costs of an acquisition exceed the fair value of the net assets acquired, the acquisition will generate goodwill. As discussed below, we are required to assess our goodwill for impairment at least annually, and any goodwill impairment charge could have a material adverse effect on our results of operations and financial condition;

• To finance an acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing stockholders; and

• We completed the Highlands acquisition in April 2012 which enhanced our rate of growth. We may not be able to continue to sustain our past rate of growth or to grow at all in the future.

The success of our pending acquisition of LegacyTexas Group is dependent on uncertain factors.

The success of our pending acquisition of LegacyTexas Group, whereby LegacyTexas Group would be merged with ViewPoint Financial and ViewPoint Bank would be merged with LegacyTexas Group’s subsidiary bank, LegacyTexas Bank, is subject to a number of uncertain factors, including, but not limited to:

• Obtaining the requisite regulatory approvals in order to consummate the transactions. ViewPoint Financial and LegacyTexas Group must obtain approvals from the Federal Reserve Board and the Texas Department of Banking. Other approvals, waivers or consents from regulators may also be required. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the transactions. It is a condition to each company’s obligation to complete the merger that the requisite regulatory approvals be obtained without the imposition of any condition or restriction that would reasonably be expected to have a material adverse effect on, or materially and adversely affect the economic benefits to be realized by ViewPoint Financial (as the surviving corporation of the merger) and its subsidiaries, taken as a whole, after giving effect to the merger;

• Obtaining the requisite shareholder approval from LegacyTexas Group shareholders;

• Our ability to realize expected revenues, cost savings, synergies and other benefits from the acquisition within the expected time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; and

• The credit quality of loans and other assets acquired from LegacyTexas Group.

ViewPoint Financial and LegacyTexas Group have operated and, until the completion of the acquisition, will continue to operate, independently. The success of the acquisition, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine the businesses of ViewPoint Financial and LegacyTexas Group, and their banking

Table of Contents

subsidiaries. To realize these anticipated benefits and cost savings, after the completion of the acquisition, we expect to integrate LegacyTexas Group’s business into our own. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect our ability to successfully conduct business in the markets in which LegacyTexas Group now operates, which could have an adverse effect on ViewPoint Financial’s financial results and the value of its common stock. If we experience difficulties with the integration process, the anticipated benefits of the acquisition may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause ViewPoint Financial and/or LegacyTexas Group to lose customers or cause customers to close their accounts with ViewPoint Financial and/or LegacyTexas Group and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources.

Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Our securities portfolio is evaluated for other-than-temporary impairment. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or decrease our shareholders' equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes.

The value of our goodwill and other intangible assets may decline.

Goodwill and other intangible assets are subject to a decline, perhaps even significantly, for several reasons including if there is a significant decline in our expected future cash flows, change in the business environment, or a material and sustained decline in the market value of our stock, which may require us to take future charges related to the impairment of that goodwill and other intangible assets in the future, which could have a material adverse affect on our financial condition and results of our operations.

Strong competition within our market area may limit our growth and profitability.

Competition in the banking and financial services industry is intense. We compete with numerous commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Many of our competitors have substantially greater resources and lending limits than we have, have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest earning assets.

A reduction in our credit rating could adversely affect us.

Rating agencies regularly evaluate us, based on a number of factors, some of which we control, some of which we do not including economic conditions generally affecting the economy and the financial services industry in particular. There is no assurance that we will maintain our current ratings and a credit rating downgrade could affect our ability to access capital markets, increase costs and adversely affect profitability.

Risks Related To The Company's Common Stock

Regulatory and corporate governance anti-takeover provisions may make it difficult for you to receive a change-in-control premium.

Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire the Company, even if doing so would be perceived to be beneficial to the Company's shareholders. These provisions effectively inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of the Company's common stock. With certain limited exceptions, federal regulations make it difficult for any one person or company or a group of persons from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank

Table of Contents

holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the appropriate federal regulator(s). Certain provisions of our corporate documents are also designed to make merger, tender offer or proxy contest more difficult, even if such events were perceived by many of our stockholders to be beneficial to their interests.

Our stock price can be volatile and its trading volume is generally less than other institutions.

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors including the risk factors discussed elsewhere in this report that our outside of our control and which may occur regardless of our operating results. Also, although our common stock is currently listed for trading on the NASDAQ, the trading volume of our stock is less than that of other, larger financial services companies. Given the lower trading volume of our stock, significant sales of the stock, or the expectation of these sales, could cause the stock price to fall.

We may not continue to pay dividends on our stock.

Our shareholders are only entitled to receive Board declared dividends out of funds legally available for such payments. Although we have historically declared cash dividends, we are not required to do so and may reduce or eliminate future dividends. This could adversely affect the market price of our stock. Also, we are a bank holding company, and our ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the FRB regarding capital adequacy and dividends.

An investment in the Company's common stock is not an insured deposit.

The Company's common stock is not a bank deposit and, therefore, is not insured against loss by the Federal Deposit Insurance Corporation (FDIC), any other deposit insurance fund or by any other public or private entity. Investment in the Company's common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire the Company's common stock, you could lose some or all of your investment.



Item 1B.	Unresolved Staff Comments

None.



Item 2.	Properties

The executive offices of the Company and the Bank are located at 1309 West 15 ^th Street, Plano, Texas. In addition to our executive offices, we have five administrative offices, 31 full-service branches and one commercial loan production office. We own the space in which our executive offices are located and majority of the space in which our administrative offices are located. At December 31, 2013, we owned 20 of our branches, and leased the remaining facilities. The majority of our branches are located in the Dallas/ Fort Worth Metroplex in Texas, and include the cities of Addison, Allen, Carrollton, Coppell, Dallas, Plano, Euless, Flower Mound, Frisco, Garland, Grand Prairie, Grapevine, McKinney, Richardson and Wylie. We also own two First National Bank of Jacksboro locations in Jack and Wise Counties in Texas. We have one commercial loan production office located in Houston, Texas. We lease our Warehouse Purchase Program office located in Littleton, Colorado. The net book value of our investment in premises, equipment and leaseholds, excluding computer equipment, was approximately $49.4 million at December 31, 2013. We believe that our current administrative and executive facilities are adequate to meet the present and immediately foreseeable needs of the Bank and the Company. In July 2012, due to the VPM sale, the seven remaining VPM loan production offices were transitioned to HRM and are no longer operated by the Company.

We currently utilize IBM and FiServ Signature in-house data processing systems. The net book value of all of our data processing and computer equipment at December 31, 2013 , was $3.9 million.

For more information about the Company's premises and equipment, please see Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this report.



Item 3.	Legal Proceedings

Table of Contents

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 4.	Mine Safety Disclosures.

Not applicable.

Table of Contents

PART II



Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the NASDAQ Global Select Market under the symbol “VPFG”. There were 1,931 holders of record of our common stock as of February 24, 2014.

The following table presents quarterly market high and low closing sales price information and cash dividends per share declared for our common stock for the two years ended December 31, 2013.



	Market Price Range				Dividends
	High		Low		Declared
2013
Quarter ended March 31, 2013	$	21.75	$	19.94	$	—	¹
Quarter ended June 30, 2013	20.81		17.97		0.10
Quarter ended September 30, 2013	22.34		19.62		0.10
Quarter ended December 31, 2013	27.66		20.30		0.12

2012
Quarter ended March 31, 2012	$	15.65	$	13.19	$	0.06
Quarter ended June 30, 2012	16.72		14.79		0.06
Quarter ended September 30, 2012	19.50		15.88		0.08
Quarter ended December 31, 2012	21.80		19.30		0.20		¹

¹ The $0.10 per share dividend for the first quarter of 2013 was prepaid in December 2012.

The timing and amount of cash dividends paid depends on our earnings, capital requirements, financial condition and other relevant factors. The primary source for dividends paid to shareholders is the net proceeds retained by the Company from our initial public offering in 2006 and our second-step public offering in 2010. We also have the ability to receive dividends or capital distributions from the Bank, our wholly owned subsidiary. There are regulatory restrictions on the ability of the Bank to pay dividends. See “How We Are Regulated — Limitations on Dividends and Other Capital Distributions” under Item 1 of this report and Note 20 of Notes to Consolidated Financial Statements contained in Item 8 of this report.

Stock Repurchases

On August 22, 2012 , the Company announced its intention to repurchase up to 5% of its total common shares outstanding, or approximately 1,978,871 shares. The stock repurchase program, which was open-ended, commenced on August 27, 2012, and allowed the Company to repurchase its shares from time to time in the open market and in negotiated transactions, depending upon market conditions. The Board of Directors of the Company also authorized management to enter into a trading plan with Sandler O'Neill & Partners, LP in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, to facilitate repurchases of its common stock pursuant to the above- mentioned stock repurchase program. The share repurchases under the plan were halted as a result of the Company’s announced acquisition of LegacyTexas Group, Inc. which automatically triggered termination of the Company’s trading plan with Sandler O’Neill & Partners, LP. Prior to termination on November 25, 2013, 83,800 shares were repurchased during 2013 at a weighted average price per share of $18.55 . There were no repurchases of common stock in 2012 or during the quarter ended December 31, 2013.

Table of Contents

Equity Compensation Plans

Set forth below is information, at December 31, 2013, regarding the Company's equity compensation plans, both of which were approved by the Company's shareholders.



	Number of Securities to be Issued upon Exercise of Outstanding Options	Weighted Average Exercise Price		Number of Securities Remaining Available for Issuance under Plans ¹
2007 Equity Incentive Plan	1,173,618	$	18.16	198,945
2012 Equity Incentive Plan	—	—		1,998,350
Total	1,173,618	$	18.16	2,197,295

¹ Includes 6,389 shares under the 2007 Equity Incentive Plan and 253,000 shares under the 2012 Equity Incentive Plan that may be awarded as restricted stock

Shareholder Return Performance Graph Presentation

The line graph below compares the cumulative total shareholder return on the Company’s common stock to the cumulative total return of a broad index of the NASDAQ Stock Market, a savings and loan industry index (Morningstar Savings and Cooperative Banks Index) and a regional banking index (Morningstar Banks - Regional - US) for the period December 31, 2008 through December 31, 2013. In order to provide an index that more closely resembles the Company's commercial banking strategy, we have included the Morningstar Banks - Regional - US index, which includes approximately 1,000 banks throughout the United States with a commercial banking focus.

The information presented below assumes $100 was invested on December 31, 2008, in the Company’s common stock and in each of the indices and assumes the reinvestment of all dividends. Historical stock price performance is not necessarily indicative of future stock price performance.

Table of Contents



		12/31/2008	12/31/2009		12/31/2010	12/31/2011		12/31/2012	12/31/2013
ViewPoint Financial Group, Inc.	Return %		(8.57	)	15.37	13.03		64.49	33.12
	Cum $	100.00	91.43		105.49	119.23		196.12	261.07
NASDAQ Composite-Total Returns	Return %		45.34		18.13	(0.79	)	17.75	40.17
	Cum $	100.00	145.34		171.70	170.34		200.57	281.14
Morningstar Savings & Cooperative Banks	Return %		(4.03	)	8.34	(19.40	)	26.50	35.09
	Cum $	100.00	95.97		103.97	83.81		106.01	143.21
Morningstar Banks - Regional - US	Return %		(11.56	)	21.95	(9.60	)	19.16	38.84
	Cum $	100.00	88.44		107.86	97.50		116.18	161.31

Table of Contents



Item 6.	Selected Financial Data

The summary information presented below under “Selected Financial Condition Data” and “Selected Operations Data” for each of the years ended December 31 is derived from our audited consolidated financial statements. The following information is only a summary and you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this report and “Financial Statements and Supplementary Data” under Item 8 of this report below.



	At and For the Year Ended December 31,
	2013			2012		2011		2010		2009
	(Dollars in thousands)
Selected Financial Condition Data:
Total assets	$	3,525,232		$	3,663,058	$	3,180,578	$	2,941,995	$	2,379,504
Warehouse Purchase Program loans	673,470			1,060,720		800,935		460,912		311,374
Loans receivable, excluding Warehouse Purchase Program loans, net	2,029,277			1,673,204		1,211,057		1,092,114		1,108,159
Loans held for sale (ViewPoint Mortgage)	—			—		33,417		31,073		30,057
Securities available for sale, at fair value	248,012			287,034		433,745		717,497		484,058
Securities held to maturity, at amortized cost	294,583			360,554		500,488		432,519		254,724
FHLB and Federal Reserve Bank stock	34,883			45,025		37,590		20,569		14,147
Bank-owned life insurance	35,565			34,916		29,007		28,501		28,117
Deposits	2,264,639			2,177,806		1,963,491		2,017,550		1,796,665
Borrowings	664,096			917,208		771,398		496,219		347,504
Shareholders' equity	544,460			520,871		406,309		396,589		205,682

Selected Operations Data:
Total interest income	$	137,089		$	137,992	$	116,224	$	115,385	$	107,906
Total interest expense	18,869			22,169		33,646		44,153		49,286
Net interest income	118,220			115,823		82,578		71,232		58,620
Provision for loan losses	3,199			3,139		3,970		5,119		7,652
Net interest income after provision for loan losses	115,021			112,684		78,608		66,113		50,968
Service charges and fees	17,778			19,512		18,556		18,505		18,954
Net gain on sale of loans	—			5,436		7,639		13,041		16,591
Impairment of collateralized debt obligations	—			—		—		—		(12,246		)
Gain (loss) on sale of available for sale securities	(177		)	1,014		6,268		—		2,377
Other non-interest income	4,232			3,594		2,085		1,918		1,523
Total non-interest income	21,833			29,556		34,548		33,464		27,199
Total non-interest expense	88,877			87,690		75,240		73,146		74,537
Income before income tax expense	47,977			54,550		37,916		26,431		3,630
Income tax expense	16,289			19,309		11,588		8,632		960
Net income	$	31,688		$	35,241	$	26,328	$	17,799	$	2,670

Table of Contents



	At and For the Year Ended December 31,
	2013		2012		2011		2010		2009
Selected Financial Ratios and Other Data (Unaudited):
Performance Ratios:
Return on assets (ratio of net income to average total assets)	0.94	%	1.04	%	0.89	%	0.66	%	0.12	%
Return on equity (ratio of net income to average equity)	5.92		7.23		6.45		5.69		1.34
Interest rate spread:
Average during period	3.51		3.43		2.65		2.49		2.37
End of period	3.36		3.18		2.48		2.20		2.29
Net interest margin	3.71		3.61		2.91		2.80		2.72
Non-interest income to operating revenue	13.74		17.64		22.91		22.48		20.13
Operating expense to average total assets	2.64		2.59		2.54		2.71		3.26
Efficiency ratio ¹	63.41		58.12		67.37		69.53		78.38
Average interest earning assets to average interest bearing liabilities	133.61		126.13		121.99		118.11		115.14
Dividend payout ratio ²	40.33		43.84		26.28		21.70		92.58
Asset Quality Ratios:
Non-performing assets to total assets at end of period	0.64		0.79		0.80		0.69		0.66
Non-performing loans to total loans held for investment, excluding Warehouse Purchase Program loans ³	1.08		1.61		1.88		1.59		1.04
Non-performing loans to total loans held for investment ³	0.81		0.99		1.14		1.12		0.81
Allowance for loan losses to non-performing loans	87.50		66.36		75.71		84.22		105.44
Allowance for loan losses to total loans held for investment, excluding Warehouse Purchase Program loans ³	0.94		1.07		1.42		1.34		1.10
Allowance for loan losses to total loans held for investment ³	0.71		0.66		0.86		0.95		0.86
Capital Ratios:
Equity to total assets at end of period	15.44		14.22		12.77		13.48		8.64
Average equity to average assets	15.88		14.40		13.76		11.59		8.73
Other Data:
Number of branches ⁴	31		31		25		23		23
Number of loan production offices	1		1		8		14		15

¹ Calculated by dividing total non-interest expense by net interest income plus non-interest income, excluding gain (loss) on sale of foreclosed assets, impairment of goodwill, gains from securities transactions and other nonrecurring items.

² 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 In 2009, we opened three new full-service community bank offices in Grapevine, Frisco and Wylie. On January 2, 2009, we announced plans to expand our community banking network by opening more free-standing, full-service community bank offices and transition away from limited-service grocery store banking centers. As a result, we closed ten in-store banking centers located in Carrollton, Dallas, Garland, Plano, McKinney, Frisco and Wylie in 2009.

Table of Contents



Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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, 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, we have an active program with mortgage banking companies that allows them 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 (the “Warehouse Purchase Program”). The Company purchases a 100% participation interest in the loans originated by our mortgage banking company customers, which are then held as one- to four- family mortgage loans. The mortgage banking company has no obligation to offer and we have no obligation to purchase these participation interests. The mortgage banking company closes mortgage loans consistent with underwriting standards established by approved investors and once the loan closes, the mortgage banking company delivers the loan to a third party investor.

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.

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 this report.

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, one- to four-family residential mortgage lending has a lower risk profile compared to consumer lending (such as automobile or personal line of credit loans). Commercial real estate and commercial and industrial lending, however, have higher risk profiles than consumer and one- to four- family residential mortgage loans due to these loans being larger in amount and non-homogenous in structure and term. 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 our best estimate of inherent credit losses in the loan portfolio as of December 31, 2013.

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.

Table of Contents

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, 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 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.

Business Strategy

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. Our Board of Directors has sought to accomplish this objective through the adoption of a strategy designed to maintain efficient, growing profitability, strong capital adequacy and high asset quality. Please see Part I, Item 1 - "Business Strategies" for more information.

Comparison of Financial Condition at December 31, 2013 and December 31, 2012

General . Total assets decreased by $137.8 million , or 3.8% , to $3.53 billion at December 31, 2013 , from $3.66 billion at December 31, 2012 , primarily due to a $387.3 million , or 36.5% , decrease in Warehouse Purchase Program loans and a $105.0 million , or 16.2% , decrease in securities, partially offset by a $439.8 million , or 39.3% , increase in total commercial loans. The decrease in Warehouse Purchase Program loans was primarily due a decrease in refinancing activity due to a 126 basis point increase in the 10-year U.S. Treasury rate during the year, to 3.04% at December 31, 2013, from 1.78% at December 31, 2012. The decline in our securities portfolio resulted primarily from maturities, paydowns and sales of securities that were not consistent with our portfolio strategy. The proceeds from the securities paydowns and sales were re-deployed to support commercial loan growth and to build liquidity in preparation for the merger with LegacyTexas Group expected to close in the second quarter of 2014.

Loans. Gross loans, excluding Warehouse Purchase Program loans, increased by $359.1 million , or 21.2% , to $2.05 billion at December 31, 2013, from $1.69 billion at December 31, 2012.



	December 31, 2013		December 31, 2012		Dollar Change			Percent Change
	(Dollars in thousands)
Commercial real estate	$	1,091,200	$	825,340	$	265,860		32.21	%
Commercial and industrial loans:
Commercial	425,030		245,799		179,231			72.92
Warehouse lines of credit	14,400		32,726		(18,326		)	(56.00	)
Total commercial and industrial loans	439,430		278,525		160,905			57.77
Construction and land loans
Commercial construction and land	27,619		14,568		13,051			89.59
Consumer construction and land	2,628		6,614		(3,986		)	(60.27	)
Total construction and land loans	30,247		21,182		9,065			42.80
Consumer:
Consumer real estate	441,226		506,642		(65,416		)	(12.91	)
Other consumer	47,799		59,080		(11,281		)	(19.09	)
Total consumer loans	489,025		565,722		(76,697		)	(13.56	)
Gross loans held for investment, excluding Warehouse Purchase Program loans	2,049,902		1,690,769		359,133			21.24
Warehouse Purchase Program loans	673,470		1,060,720		(387,250		)	(36.51	)
Gross loans held for investment	$	2,723,372	$	2,751,489	$	(28,117	)	(1.02	)%

The commercial real estate portfolio, including commercial construction and land loans, increased by $278.9 million , or 33.2% , to $1.12 billion at December 31, 2013, from $839.9 million at December 31, 2012. Our commercial real estate

Table of Contents

portfolio consists almost exclusively of loans secured by existing, multi-tenanted commercial real estate. 91% of our commercial real estate loan balances are secured by properties located in Texas.

Commercial and industrial (“C&I”) loans increased by $160.9 million , or 57.8% , to $439.4 million at December 31, 2013, from $278.5 million at December 31, 2012. The Highlands acquisition in 2012 accelerated our transition to a commercial bank. In 2013, we continued this focus, adding experienced lenders and treasury management staff and in May 2013, the Company formed the Energy Finance group. This new 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 against oil and gas reserves, and acquisitions of oil and gas reserves. The group's offerings also include the Bank's full array of commercial services, including Treasury Management and Letters of Credit. At December 31, 2013, the Company had $165.7 million in energy (oil and gas) loans outstanding. Warehouse lines of credit decreased by $18.3 million , or 56.0% , to $14.4 million at December 31, 2013, from $32.7 million at December 31, 2012.

Warehouse Purchase Program loans decreased by $387.3 million , or 36.5% , to $673.5 million at December 31, 2013, from $1.06 billion at December 31, 2012. The Company purchases a 100% participation interest in the loans originated by our mortgage banking company customers, which are then held as one- to four- family mortgage loans. The mortgage banking company has no obligation to offer to sell to us and we have no obligation to purchase these participation interests. The mortgage banking company closes mortgage loans consistent with underwriting standards established by approved investors and once the loan closes, 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 2013 consisted of 57% conforming and 43% government, with properties located in 49 states (all states except New York).

The Company previously reported the Warehouse Purchase Program loans as held for sale as the Company believed that was the most meaningful presentation to our financial statement users, given the collection of the loan was based on sale of the loan. The Company has now concluded that under US GAAP these loans should be accounted for as held for investment. This correction changes the accounting for the warehouse loans from a lower of cost or market accounting method to accounting for loans under ASC 310 with any credit losses incurred as 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 does adjust the statement of cash flows by moving cash flows associated with the Warehouse Purchase Program from operating cash flows to investing cash flows.

Pertinent information regarding the Warehouse Purchase Program is reflected below:



	At and For the Year Ended December 31,
	2013			2012
	(Dollars in thousands)
Fee income generated for the year	$	4,033		$	4,453
Interest income generated for the year	26,304			31,521
Average outstanding balance per client	17,190			28,500
Number of clients	45			43
Range of approved maximum borrowing amounts	$5 million to $55 million			$10 million to $45 million
Average utilization	43		%	65		%

Consumer loans decreased by $76.7 million , or 13.6% , to $489.0 million at December 31, 2013, from $565.7 million at December 31, 2012.

Allowance for Loan Losses . The allowance for loan losses is maintained to cover losses that are estimated in accordance with U.S. generally accepted accounting principles. 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.

Table of Contents

Allowance for Loan Loss Committee sets and adjusts qualitative loss factors by reviewing changes in 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 periodically to account for the potential impact of external economic factors, including the unemployment rate, housing price, vacancy rates and inventory levels specific to our primary market area.

Loans acquired from Highlands were initially recorded at fair value, which included an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses was recorded for these loans at acquisition. 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.

Purchased credit impaired (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 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.

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 by the Company that would not otherwise be considered for a borrower or collateral 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 a 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. At December 31, 2013, the Company had $12.3 million in TDRs, $971,000 were accruing interest and $11.4 million were classified as nonaccrual. Nonaccrual TDRs included $5.9 million attributable to two commercial real estate loans, both of which were performing in accordance with their restructured terms at December 31, 2013.

Our non-performing loans to total loans held for investment ratio, including Warehouse Purchase Program loans, at December 31, 2013, was 0.81% , compared to 0.99% at December 31, 2012. Non-performing loans decreased by $5.1 million to $22.1 million at December 31, 2013, from $27.2 million at December 31, 2012.

Securities . Our securities portfolio decreased by $105.0 million , or 16.2% , to $ 542.6 million at December 31, 2013, from $647.6 million at December 31, 2012. The decrease in our securities portfolio primarily resulted from paydowns and maturities totaling $ 1,291.7 million and sales of $ 10.6 million , which were partially offset by purchases totaling $ 1,206.8 million . The majority of these purchases were done for tax strategy purposes. The decline in the balances in our securities portfolio over the past year was primarily due to normal paydowns and the sale of securities that were not consistent with our portfolio strategy. The proceeds from the securities paydowns and sales were re-deployed to support commercial loan growth and to build liquidity in preparation for the merger with LegacyTexas Group expected to close in the second quarter of 2014.

Table of Contents

Deposits. Total deposits increased by $86.8 million , or 4.0% , to $ 2.26 billion at December 31, 2013, from $2.18 billion at December 31, 2012.



	December 31, 2013		December 31, 2012		Dollar Change			Percent Change
	(Dollars in thousands)
Non-interest-bearing demand	$	410,933	$	357,800	$	53,133		14.8	%
Interest-bearing demand	474,515		488,748		(14,233		)	(2.9	)
Savings and money market	904,576		880,924		23,652			2.7
Time	474,615		450,334		24,281			5.4
Total deposits	$	2,264,639	$	2,177,806	$	86,833		4.0	%

Total deposits reflect increases in all deposit categories except for interest bearing demand deposits. Non-interest-bearing demand deposits increased $53.1 million , or 14.8% , while time deposits increased $24.3 million , or 5.4% , and savings and money market deposits increased $23.7 million , or 2.7% , compared to December 31, 2012. Non-interest-bearing demand deposits totaled $410.9 million , or 18.1%, of total deposits at December 31, 2013, reaching a new high for the category. Interest -bearing demand deposits declined $14.2 million , or 2.9% , compared to December 31, 2012. The decline in interest-bearing demand deposits included a $4.7 million decline in Absolute Checking deposits. Our deposits have grown due, in part, to the continued success the Company has experienced in executing our commercial banking strategy.

Borrowings . FHLB advances, net of a $2.2 million restructuring prepayment penalty, decreased by $253.1 million , or 28.4% , to $ 639.1 million at December 31, 2013, from $892.2 million at December 31, 2012. The outstanding balance of FHLB advances decreased due to reduced need as a result of lower Warehouse Purchase Program balances at December 31, 2013. At December 31, 2013, the Company was eligible to borrow an additional $333.9 million from the FHLB. Additionally, the Company was eligible to borrow $68.7 million from the Federal Reserve Bank discount window and has available federal funds lines of credit from multiple correspondent banks totaling $125.0 million . In addition to FHLB advances, at December 31, 2013, the Company had a $ 25.0 million outstanding repurchase agreement with Credit Suisse.

The below table shows FHLB advances by maturity and weighted average rate at the end of the period:



	Balance			Weighted Average Rate
	(Dollars in thousands)
Less than 90 days	$	451,354		0.17	%
90 days to less than one year	32,162			2.64
One to three years	124,042			3.10
After three to five years	28,300			4.42
After five years	5,409			5.49
	641,267			1.09	%
Restructuring prepayment penalty	(2,171		)
Total	$	639,096

Table of Contents

Shareholders’ Equity . Total shareholders' equity increased by $23.6 million , or 4.5% , to $ 544.5 million at December 31, 2013, from $520.9 million at December 31, 2012.



	December 31, 2013			December 31, 2012			Dollar Change			Percent Change
	(Dollars in thousands)
Common stock	$	399		$	396		$	3		0.8	%
Additional paid-in capital	377,657			372,168			5,489			1.5
Retained earnings	183,236			164,328			18,908			11.5
Accumulated other comprehensive income (loss)	(383		)	1,895			(2,278		)	(120.2	)
Unearned ESOP shares	(16,449		)	(17,916		)	1,467			(8.2	)
Total shareholders’ equity	$	544,460		$	520,871		$	23,589		4.5	%

The increase in shareholders' equity was primarily due to net income of $31.7 million recognized during 2013, partially offset by the payment of three quarterly dividends totaling $0.32 per common share and the repurchase of $1.6 million of common stock. The first quarter 2013 dividend of $0.10 per common share was paid in December 2012. The dividends reduced retained earnings by $12.8 million . 83,800 shares of common stock were repurchased during the year at an average price of $18.55 per share, resulting in reductions to common stock and additional paid-in capital.

Comparison of Results of Operation for the Years Ended December 31, 2013 and 2012

General. Net income for the year ended December 31, 2013 was $31.7 million , a decrease of $3.6 million , or 10.1% , from net income of $35.2 million for the year ended December 31, 2012. The decrease in net income was primarily driven by a $7.7 million decrease in in non-interest income and a $1.2 million increase in non-interest expense, partially offset by a $2.4 million increase in net interest income. Basic and diluted earnings per share for the year ended December 31, 2013, were $0.83 , a $0.15 decrease from $0.98 for the year ended December 31, 2012.

Interest Income. Interest income decreased by $903,000 , or 0.7% , to $137.1 million for the year ended December 31, 2013 from $138.0 million for the year ended December 31, 2012.



	Year Ended December 31,				Dollar			Percent
	2013		2012		Change			Change
	(Dollars in thousands)
Interest and dividend income
Loans, including fees	$	124,522	$	120,596	$	3,926		3.3	%
Securities	11,913		16,741		(4,828		)	(28.8	)
Interest-bearing deposits in other financial institutions	126		117		9			7.7
FHLB and Federal Reserve Bank stock	528		538		(10		)	(1.9	)
	$	137,089	$	137,992	$	(903	)	(0.7	)%

The decrease in interest income for the year ended December 31, 2013, compared to the year ended December 31, 2012, was primarily due to a $4.8 million , or 28.8% , decrease in interest income earned on securities, partially offset by a $3.9 million , or 3.3% , increase in interest income on loans. The decline in interest income earned on securities was primarily due to the sale of securities and normal paydowns, reducing the average balance of securities for the comparable periods. Overall, the average balance of securities fell $242.0 million to $612.3 million during the twelve months ended December 31, 2013, while the average yield on securities decreased one basis point to 1.95% for the year ended December 31, 2013, from 1.96% for the year ended December 31, 2012.

Growth in the commercial loan portfolio, which includes commercial real estate, commercial and industrial loans, and commercial construction loans, drove the increase in interest income on loans as the average balances of commercial loans increased $400.4 million to $1.30 billion during the year ended December 31, 2013 compared to average balances of $904.3 million during 2012. The growth in commercial lending was partially offset by a $91.8 million decline in the average balance of Warehouse Purchase Program loans to $680.0 million for year ended December 31, 2013 compared to average balances of $771.8 million for the same period in 2012. Average yields on the commercial loan portfolio fell 71 basis points, to 5.43%,

Table of Contents

while yields on the Warehouse Purchase Program declined 21 basis points, to 3.87%. Accretion associated with the Highlands acquisition contributed $3.1 million in interest income during the year ended December 31, 2013 compared to $3.8 million during 2012. The average balance of commercial real estate loans increased by $252.9 million during the year ended December 31, 2013, compared to the year ended December 31, 2012, contributing to a $9.8 million increase in interest income. The average balance of C&I loans for the year ended December 31, 2013, increased by $147.5 million from 2012, contributing to a $5.5 million increase in interest income.

Interest Expense. Interest expense decreased by $3.3 million , or 14.9% , to $18.9 million for the year ended December 31, 2013, from $22.2 million for the year ended December 31, 2012.



	Year Ended December 31,				Dollar			Percent
	2013		2012		Change			Change
	(Dollars in thousands)
Interest expense
Deposits	$	9,545	$	11,453	$	(1,908	)	(16.7	)%
FHLB advances	8,503		9,807		(1,304		)	(13.3	)
Repurchase agreement	816		876		(60		)	(6.8	)
Other borrowings	5		33		(28		)	(84.8	)
	$	18,869	$	22,169	$	(3,300	)	(14.9	)%

The decrease was primarily caused by a $1.9 million , or 16.7% , decrease in the interest expense paid on deposits. The decrease in interest expense on deposits was partially due to a $1.6 million decrease in interest expense on interest-bearing demand deposit accounts, as a result of a 31 basis point decline in the average rate to 0.40%, as well as, a $22.0 million decline in the average balances during the year ended December 31, 2013, compared to the year ended December 31, 2012. Additionally, interest expense on time deposits declined by $426,000 , primarily due to a $27.5 million decrease in average balances to $459.5 million for the year ended December 31, 2013, as well as, a two basis point decline in the average rate, to 1.15% for the year ended December 31, 2013, from 1.17% for the year ended December 31, 2012. Deposit costs have continued to decline due to rate reductions in Absolute Checking and other interest-bearing accounts. Interest expense on FHLB advances decreased by $1.3 million , or 13.3% , primarily due to lower average balances of FHLB advances resulting from lower average Warehouse Purchase Program balances during the 2013 period, of which a portion was strategically funded with short-term advances.

Net Interest Income. Net interest income increased by $2.4 million , or 2.1% , to $118.2 million for the year ended December 31, 2013, from $115.8 million for the year ended December 31, 2012. The net interest margin increased 10 basis points to 3.71% for the year ended December 31, 2013, from 3.61% for the same period last year. The net interest rate spread increased eight basis points to 3.51% for the year ended December 31, 2013, from 3.43% for the same period last year. The increase in the net interest rate margin and spread was primarily attributable to changes in the earning asset mix, lower deposit rates and the impact of the Highlands acquisition. Net of the impact of the Highlands acquisition, the net interest margin for the year ended December 31, 2013 and December 31, 2012, would have been 3.62% and 3.50%, respectively.

Provision for Loan Losses. The provision for loan losses was $3.2 million for the year ended December 31, 2013, an increase of $60,000 , or 1.9% , from $3.1 million for the year ended December 31, 2012. Our credit quality has improved due to continued improvement in economic conditions in our market area, greater oversight on loan underwriting, as well as the addition of highly experienced commercial lending staff over the last few years, both through the Highlands acquisition and new hires. Net charge-offs decreased by $683,000, to $1.9 million, during the year ended December 31, 2013, compared to $2.6 million for the same period in 2012. The slight increase in the provision for loan losses during 2013, despite improved credit quality, was a result of the increase in our total loan portfolio and, in particular, our commercial loan portfolio. Our allowance for loan losses to non-performing loans ratio was 87.5% at December 31, 2013 and 66.4% at December 31, 2012.

Table of Contents

Non-interest Income. Non-interest income decreased by $7.7 million , or 26.1% , to $21.8 million for the year ended December 31, 2013, from $29.6 million for the year ended December 31, 2012.



	Year Ended December 31,						Dollar			Percent
	2013			2012			Change			Change
	(Dollars in thousands)
Non-interest income
Service charges and fees	$	17,778		$	19,512		$	(1,734	)	(8.9	)%
Other charges and fees	937			579			358			61.8
Net gain on sale of mortgage loans	—			5,436			(5,436		)	(100.0	)
Bank-owned life insurance income	649			699			(50		)	(7.2	)
Gain (loss) on sale of available for sale securities	(177		)	1,014			(1,191		)	(117.5	)
Gain (loss )on sale and disposition of assets	835			(191		)	1,026			(537.2	)
Impairment of goodwill	—			(818		)	818			(100.0	)
Other	1,811			3,325			(1,514		)	(45.5	)
	$	21,833		$	29,556		$	(7,723	)	(26.1	)%

The decrease in non-interest income included a $5.4 million decrease in net gain on sale of mortgage loans recorded during the year ended December 31, 2012, with no comparable gain recorded in the 2013 year. Additionally, service charges and fees declined $1.7 million and other non-interest income declined $1.5 million for the comparable twelve month periods ended December 31, 2013 and 2012. Service charges and fees decreased from the year ended December 31, 2012 driven by a $474,000 decline in debit card income, a $420,000 decline in Warehouse Purchase Program fees primarily due to fewer total loans funded during the 2013 period, and $334,000 in commercial loan prepayment penalty fees collected during 2012 with lower fees collected during 2013. The decrease in other non-interest income for the comparable twelve month periods was primarily due to $1.3 million in higher gains on investments in community development-oriented private equity funds used for Community Reinvestment Act purposes experienced during the year ended December 31, 2012 compared to the year ended December 31, 2013. Due to the sale of ViewPoint Mortgage ("VPM") in the third quarter of 2012, the Company recorded an $818,000 goodwill impairment charge in 2012 and no longer sells one- to four-family real estate loans.

Non-interest Expense. Non-interest expense increased by $1.2 million , or 1.4% , to $88.9 million for the year ended December 31, 2013, from $87.7 million for the year ended December 31, 2012.



	Year Ended December 31,				Dollar			Percent
	2013		2012		Change			Change
	(Dollars in thousands)
Non-interest expense
Salaries and employee benefits	$	53,328	$	51,719	$	1,609		3.1	%
Merger and acquisition costs	663		4,127		(3,464		)	(83.9	)
Advertising	2,690		1,753		937			53.5
Occupancy and equipment	7,675		7,365		310			4.2
Outside professional services	2,760		2,320		440			19.0
Regulatory assessments	2,477		2,534		(57		)	(2.2	)
Data processing	6,727		6,109		618			10.1
Office operations	6,783		7,144		(361		)	(5.1	)
Other	5,774		4,619		1,155			25.0
	$	88,877	$	87,690	$	1,187		1.4	%

Non-interest expense increased $1.2 million for the comparable one-year periods, primarily due to a $1.6 million increase in salaries and employee benefits, a $1.2 million increase in other non-interest expense and a $937,000 increase in advertising expense, partially offset by a $3.5 million decrease in merger and acquisition costs. Salaries and employee benefits increased during the twelve months ended December 31, 2013 when compared to 2012, primarily due to successful recruiting of high level producers and treasury management personnel which led to increased loan production and higher incentive-based

Table of Contents

pay. The continued appreciation of the Company's stock price during 2013 resulted in higher equity compensation costs.

Other non-interest expense increased primarily due to $400,000 in director retirement payments made during the 2013 year, which are reflected in other non-interest expense, and nominal increases in numerous non-interest expense categories incurred during 2013. Additionally, the increases in advertising for the year ended December 31, 2013, compared to the same period in 2012, were incurred as the Company continues to make investments in its infrastructure to support its commercial banking strategy.

The decrease in merger and acquisition costs for the comparable year periods was due to the timing of the acquisition of Highlands announced in December 2011 and completed during 2012, partially offset by the costs associated with the merger of the Company with LegacyTexas Group announced in November 2013, and expected to be completed in the second quarter of 2014.

Income Tax Expense. During the year ended December 31 2013, we recognized income tax expense of $16.3 million on our pre-tax income, which was an effective tax rate of 34.0% , compared to income tax expense of $19.3 million , which was an effective tax rate of 35.4% , for the year ended December 31, 2012. The decrease in the effective tax rate was primarily due to various individually immaterial adjustments to income tax expense recorded during the period.

Comparison of Results of Operation for the Years Ended December 31, 2012 and 2011

General. Net income for the year ended December 31, 2012 was $35.2 million, an increase of $8.9 million, or 33.9%, from net income of $26.3 million for the year ended December 31, 2011. The increase in net income was driven by an increase in net interest income of $33.2 million, partially offset by a $12.5 million increase in non-interest expense and a $4.9 million decrease in non-interest income. The increased non-interest expenses included acquisition costs of $4.1 million related to the Highlands acquisition, $129,000 in costs related to the sale of VPM, $755,000 in severance costs, and $308,000 in stock awarded to the Company's newly appointed CEO. Basic and diluted earnings per share for the year ended December 31, 2012, were $0.98, a $0.17 increase from $0.81 for the year ended December 31, 2011.

Interest Income. Interest income increased by $21.8 million, or 18.7%, to $138.0 million for the year ended December 31, 2012 from $116.2 million for the year ended December 31, 2011.



	Year Ended December 31,				Dollar			Percent
	2012		2011		Change			Change
	(Dollars in thousands)
Interest and dividend income
Loans, including fees	$	120,596	$	88,238	$	32,358		36.7	%
Securities	16,741		27,722		(10,981		)	(39.6	)
Interest bearing deposits in other financial institutions	117		170		(53		)	(31.2	)
FHLB stock	538		94		444			472.3
	$	137,992	$	116,224	$	21,768		18.7	%

The increase in interest income for the year ended December 31, 2012, compared to the year ended December 31, 2011, was primarily due to a $32.4 million, or 36.7%, increase in interest income on loans. Accretion associated with the Highlands acquisition contributed $3.8 million to the increase for the comparable periods. Interest income on Warehouse Purchase Program loans increased $13.3 million, as the average balance increased by $356.4 million for the comparable years ended December 31, 2012 and 2011. Additionally, the average balance of commercial real estate loans increased by $201.6 million during the year ended December 31, 2012, compared to the year ended December 31, 2011, contributing an $11.1 million increase in interest income. The average balance of C&I loans for the year ended December 31, 2012, increased by $141.6 million from the same period in 2011, contributing a $7.4 million increase in interest income.

These increases were partially offset by an $11.0 million, or 39.6%, decline in interest on securities, which resulted primarily from the sale of securities and normal paydowns as well as a reduction in the yield on securities. Overall, the yield on interest-earning assets increased by 20 basis points, to 4.30% for the year ended December 31, 2012, from 4.10% for the year ended December 31, 2011, as a result of the shift of funds from lower yielding securities to higher yielding loans.

Table of Contents

Interest Expense. Interest expense decreased by $11.4 million, or 34.1%, to $22.2 million for the year ended December 31, 2012, from $33.6 million for the year ended December 31, 2011.



	Year Ended December 31,				Dollar			Percent
	2012		2011		Change			Change
	(Dollars in thousands)
Interest expense
Deposits	$	11,453	$	22,474	$	(11,021	)	(49.0	)%
FHLB advances	9,807		9,882		(75		)	(0.8	)
Repurchase agreement	876		816		60			7.4
Other borrowings	33		474		(441		)	(93.0	)
	$	22,169	$	33,646	$	(11,477	)	(34.1	)%

The decrease was primarily caused by an $11.0 million, or 49.0%, decrease in the interest expense paid on deposits. The decrease in interest expense on deposits was partially due to a $5.0 million decrease in interest expense on time accounts, as a result of a $140.7 million decline in the average balance during the year ended December 31, 2012, compared to the year ended December 31, 2011, and a 53 basis point decline in the average rate for the same periods. Additionally, interest expense on interest-bearing demand deposits declined by $4.9 million, due to a 106 basis point decline in the average rate, from 1.77% for the year ended December 31, 2011, to 0.71% for the year ended December 31, 2012. Deposit costs have continued to decline due to rate reductions in Absolute Checking and other interest-bearing accounts. Interest expense on other borrowings decreased by $441,000, or 93.0%, due to the prepayment in October 2011 of four promissory notes totaling $10.0 million. Each of the four promissory notes had an interest rate of 6% per annum.

Net Interest Income. Net interest income increased by $33.2 million, or 40.3%, to $115.8 million for the year ended December 31, 2012, from $82.6 million for the year ended December 31, 2011. The net interest margin increased 70 basis points to 3.61% for the year ended December 31, 2012, from 2.91% for the same period last year. The net interest rate spread increased 78 basis points to 3.43% for the year ended December 31, 2012, from 2.65% for the same period last year. The increase in the net interest rate margin and spread was primarily attributable to changes in the earning asset mix, lower deposit and borrowing rates, and the impact of the Highlands acquisition. Net of the impact of the Highlands acquisition, the net interest margin for the year ended December 31, 2012 was 3.50%.

Provision for Loan Losses. The provision for loan losses was $3.1 million for the year ended December 31, 2012, a decrease of $831,000, or 20.9%, from $4.0 million for the year ended December 31, 2011. Our credit quality has improved due to continued improvement in economic conditions in our market area, enhancements in loan underwriting and oversight, as well as the addition of highly experienced commercial lending staff over the past year, both through the Highlands acquisition and new hires. Net charge-offs increased by $1.2 million during the year ended December 31, 2012, compared to the same period in 2011, primarily related to legacy Highlands loans (initially recorded at fair value), which had additional credit deterioration after acquisition.

Table of Contents

Non-interest Income. Non-interest income decreased by $4.9 million, or 14.4%, to $29.6 million for the year ended December 31, 2012, from $34.5 million for the year ended December 31, 2011.



	Year Ended December 31,						Dollar			Percent
	2012			2011			Change			Change
	(Dollars in thousands)
Non-interest income
Service charges and fees	$	19,512		$	18,556		$	956		5.2	%
Other charges and fees	579			723			(144		)	(19.9	)
Net gain on sale of mortgage loans	5,436			7,639			(2,203		)	(28.8	)
Bank-owned life insurance income	699			506			193			38.1
Gain on sale of available for sale securities	1,014			6,268			(5,254		)	(83.8	)
Loss on sale and disposition of assets	(191		)	(798		)	607			(76.1	)
Impairment of goodwill	(818		)	(271		)	(547		)	201.8
Other	3,325			1,925			1,400			72.7
	$	29,556		$	34,548		$	(4,992	)	(14.4	)%

The decrease in non-interest income for the year ended December 31, 2012, compared to the year ended December 31, 2011, was primarily attributable to a $6.3 million gain on the sale of available for sale securities in 2011, compared to a gain of $1.0 million during the comparable period in 2012. This decrease was partially offset by a $1.4 million increase in other non-interest income, related to a $2.2 million increase in the value of an equity investment in a community development-oriented private equity fund used for Community Reinvestment Act purposes in 2012, compared to a value increase of $941,000 during the comparable period in 2011.

Net gain on the sale of mortgage loans decreased by $2.2 million, or 28.8%, as we closed out the pipeline from the sale of VPM, selling $179.2 million in loans during the year ended December 31 2012, compared to $268.8 million during the year ended December 31, 2011. Loss on sale and disposition of assets improved $607,000, primarily due to a decline in the value of a foreclosed commercial property in 2011 that was not repeated in 2012. The decrease in non-interest income was also a result of $1.1 million in losses associated with the sale of VPM, including the full impairment of VPM's remaining goodwill of $818,000 and $223,000 from fixed asset disposals.

Service charges and fees increased by $956,000, primarily due to a $1.5 million increase in Warehouse Purchase Program fee income and a $299,000 increase in commercial loan prepayment fees. These fee income increases were partially offset by a $681,000 decrease in non-sufficient funds fees, as less items were returned in 2012 compared to 2011, as well as a $444,000 decrease in debit card interchange income. On October 1, 2012, the Company began refunding all ATM fees charged to customers with an Absolute Checking account, which will decrease future fee income. In the fourth quarter of 2012, $87,000 in ATM fees were refunded.

Table of Contents

Non-interest Expense. Non-interest expense increased by $12.5 million, or 16.5%, to $87.7 million for the year ended December 31, 2012, from $75.2 million for the year ended December 31, 2011.



	Year Ended December 31,				Dollar			Percent
	2012		2011		Change			Change ¹
	(Dollars in thousands)
Non-interest expense
Salaries and employee benefits	$	51,719	$	47,360	$	4,359		9.2	%
Merger/Acquisition cost	4,127		—		4,127			N/M
Advertising	1,753		1,519		234			15.4
Occupancy and equipment	7,365		5,966		1,399			23.4
Outside professional services	2,320		2,644		(324		)	(12.3	)
Regulatory assessments	2,534		2,401		133			5.5
Data processing	6,109		4,648		1,461			31.4
Office operations	7,144		5,972		1,172			19.6
Other	4,619		4,730		(111		)	(2.3	)
	$	87,690	$	75,240	$	12,450		16.5	%

¹ N/M - not meaningful

The increased non-interest expenses included Highlands-related acquisition costs of $4.1 million and $226,000 in severance costs (reported in salaries and employee benefits expense) related to the Highlands acquisition and the sale of VPM, as well as $529,000 in severance and benefit costs paid for the departures of our General Counsel and our Chief Operating Officer. Salaries and employee benefits expense increased by $4.4 million, or 9.2%, primarily due to the addition of employees from the Highlands acquisition, as well as adding three new ViewPoint Bank locations in mid to late 2011. This increase was partially offset by salary and benefit savings from the sale of VPM.

Occupancy and equipment expense increased $1.4 million, of which $1.0 million was due to the addition of the rent for buildings acquired in the Highlands acquisition. Data processing expenses increased $1.5 million, of which $433,000 was related to the Highlands acquisition, as well as increased software renewal costs. $475,000 of the increase in office operations expense was related to the Highlands acquisition and $598,000 was attributable to an ATM servicing project. Although VPM was sold in July 2012, $6.7 million in operating expenses were incurred during the year ended December 31, 2012, as the Company worked all loans in the pipeline until the loans were purchased by an investor or the Bank.

Income Tax Expense. During the year ended December 31 2012, we recognized income tax expense of $19.3 million on our pre-tax income, which was an effective tax rate of 35.4%, compared to income tax expense of $11.6 million, which was an effective tax rate of 30.6%, for the year ended December 31, 2011. The increase in the effective tax rate was primarily due to various individually immaterial adjustments to income tax expense recorded during the period.

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

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, expressed both in dollars and rates. Also presented are the weighted average 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.

Table of Contents



	Year Ended December 31,
	2013							2012							2011
	Average Outstanding Balance			Interest Earned/Paid		Yield/ Rate		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	$	972,088		$	55,210	5.68	%	$	719,181		$	45,429	6.32	%	$	517,592		$	34,320	6.63	%
Warehouse Purchase Program	679,986			26,304		3.87		771,767			31,522		4.08		415,334			18,243		4.39
Commercial and industrial	332,600			15,583		4.69		185,101			10,112		5.46		43,512			2,760		6.34
Consumer real estate	468,998			24,250		5.17		540,577			29,243		5.41		519,291			28,130		5.42
Other consumer	52,859			3,175		6.01		59,120			3,610		6.11		54,756			3,622		6.61
ViewPoint Mortgage loans held for sale	—			—		—		13,383			680		5.08		24,199			1,163		4.81
Less: deferred fees and allowance for loan loss	(18,727		)	—		—		(18,269		)	—		—		(15,697		)	—		—
Loans receivable ¹	2,487,804			124,522		5.01		2,270,860			120,596		5.31		1,558,987			88,238		5.66
Agency mortgage-backed securities	301,916			6,156		2.04		331,308			7,833		2.36		455,552			12,583		2.76
Agency collateralized mortgage obligations	242,171			3,545		1.46		466,394			6,909		1.48		666,861			12,940		1.94
Investment securities	68,208			2,212		3.24		56,603			1,999		3.53		62,410			2,199		3.52
FHLB and FRB stock	34,426			528		1.53		39,548			538		1.36		21,468			94		0.44
Interest earning deposit accounts	54,771			126		0.23		43,669			117		0.27		68,007			170		0.25
Total interest-earning assets	3,189,296			137,089		4.30		3,208,382			137,992		4.30		2,833,285			116,224		4.10
Non-interest-earning assets	182,229							177,717							134,562
Total assets	$	3,371,525						$	3,386,099						$	2,967,847
Interest-bearing liabilities:
Interest-bearing demand	$	457,210		1,811		0.40		$	479,209		3,391		0.71		$	469,715		8,309		1.77
Savings and money market	888,969			2,438		0.27		859,119			2,340		0.27		738,503			3,466		0.47
Time	459,538			5,296		1.15		487,040			5,722		1.17		627,736			10,699		1.70
Borrowings	581,293			9,324		1.60		718,265			10,716		1.49		486,519			11,172		2.30
Total interest-bearing liabilities	2,387,010			18,869		0.79		2,543,633			22,169		0.87		2,322,473			33,646		1.45
Non-interest-bearing demand	392,752							306,788							195,278
Non-interest-bearing liabilities	56,437							48,076							41,832
Total liabilities	2,836,199							2,898,497							2,559,583
Total shareholders’ equity	535,326							487,602							408,264
Total liabilities and shareholders’ equity	$	3,371,525						$	3,386,099						$	2,967,847
Net interest income and margin				$	118,220	3.71	%				$	115,823	3.61	%				$	82,578	2.91	%
Net interest income and margin (tax-equivalent basis) ²				$	118,980	3.73	%				$	116,510	3.63	%				$	83,273	2.94	%
Net interest rate spread						3.51	%						3.43	%						2.65	%
Net earning assets	$	802,286						$	664,749						$	510,812
Average interest-earning assets to average interest-bearing liabilities	133.61		%					126.13		%					121.99		%



¹	Calculated net of deferred fees, loan discounts, loans in process and allowance for loan losses. Construction loans have been included in the commercial real estate and consumer real estate line items, as appropriate.

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 2013, 2012 and 2011. Tax-exempt investments and loans had an average balance of $63.1 million, $52.3 million and $52.6 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Table of Contents

Rate/Volume Analysis

The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the 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.



	Year Ended December 31,
	2013 versus 2012									2012 versus 2011
	Increase (Decrease) Due to						Total Increase			Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	(Dollars in thousands)
Interest-earning assets:
Commercial real estate	$	14,723		$	(4,942	)	$	9,781		$	12,803		$	(1,694	)	$	11,109
Warehouse Purchase Program	(3,611		)	(1,607		)	(5,218		)	14,641			(1,362		)	13,279
Commercial and industrial	7,085			(1,614		)	5,471			7,786			(434		)	7,352
Consumer real estate	(3,744		)	(1,249		)	(4,993		)	1,152			(39		)	1,113
Other consumer	(377		)	(58		)	(435		)	277			(289		)	(12		)
ViewPoint Mortgage loans held for sale	(680		)	—			(680		)	(546		)	63			(483		)
Loans receivable ¹	13,396			(9,470		)	3,926			36,113			(3,755		)	32,358
Agency mortgage-backed securities	(657		)	(1,020		)	(1,677		)	(3,108		)	(1,642		)	(4,750		)
Agency collateralized mortgage obligations	(3,283		)	(81		)	(3,364		)	(3,375		)	(2,656		)	(6,031		)
Investment securities	386			(173		)	213			(205		)	5			(200		)
FHLB and FRB stock	(74		)	64			(10		)	127			317			444
Interest earning deposit accounts	27			(18		)	9			(64		)	11			(53		)
Total interest-earning assets	9,795			(10,698		)	(903		)	29,488			(7,720		)	21,768
Interest-bearing liabilities:
Interest-bearing demand	(149		)	(1,431		)	(1,580		)	165			(5,083		)	(4,918		)
Savings and money market	82			16			98			500			(1,626		)	(1,126		)
Time	(319		)	(107		)	(426		)	(2,086		)	(2,891		)	(4,977		)
Borrowings	(2,154		)	762			(1,392		)	4,247			(4,703		)	(456		)
Total interest bearing liabilities	(2,540		)	(760		)	(3,300		)	2,826			(14,303		)	(11,477		)
Net interest income	$	12,335		$	(9,938	)	$	2,397		$	26,662		$	6,583		$	33,245

¹ Construction loans have been included in the commercial real estate and consumer real estate line items, as appropriate.

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.

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 meets monthly to monitor liquidity positions and projections, and adds liquidity contingency planning to the process by focusing on possible scenarios that would stress liquidity beyond the Bank's normal business

Table of Contents

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.

In addition to the primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of December 31, 2013, the Company had an additional borrowing capacity of $333.9 million with the FHLB. Also, at December 31, 2013, 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. As of December 31, 2013, securities pledged had a collateral value of $68.7 million .

As of December 31, 2013, the Company had classified 45.7% 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 deposit accounts with correspondent banks. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities.

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's primary source of funds consists of the net proceeds retained by the Company from our initial public offering in 2006 and our “second-step” offering in July 2010. We also have 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. In 2013, the Bank paid the Company dividends in the amount of $12.8 million. At December 31, 2013, the Company (on an unconsolidated basis) had liquid assets of $46.9 million .

The Company uses its sources of funds primarily to meet its ongoing commitments, 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 $988.7 million and $500.2 million at December 31, 2013, and December 31, 2012, 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 December 31, 2013 totaled $268.4 million with a weighted average rate of 0.75% .

During 2013, cash and cash equivalents increased by $19.3 million , or 28.1% , to $88.0 million as of December 31, 2013, from $68.7 million as of December 31, 2012. Cash provided by investing activities and operating activities of $133.0 million and $65.6 million , respectively, offset cash used by financing activities of $179.3 million . Primary sources of cash for the year ended December 31, 2013 included proceeds from pay-offs of Warehouse Purchase Program loans totaling $14.49 billion , maturities, prepayments and calls of available-for-sale securities of $1.19 billion and proceeds from FHLB advances of $447.0 million . Primary uses of cash for the year ended December 31, 2013, included originations of Warehouse Purchase Program loans totaling $14.11 billion , purchases of available-for-sale securities of $1.17 billion and repayments on FHLB advances of $700.1 million .

During 2012, cash and cash equivalents increased by $22.3 million, or 48.2%, to $68.7 million as of December 31, 2012, from $46.3 million as of December 31, 2011. Cash provided by operating activities and investing activities of $92.0 million and $24.1 million, respectively, offset cash used by financing activities of $93.8 million. Primary sources of cash for the year ended December 31, 2012 included proceeds from pay-offs of Warehouse Purchase Program loans totaling $12.35 billion , proceeds from FHLB advances of $634.0 million and maturities, prepayments and calls of available-for-sale securities totaling $614.4 million. Primary uses of cash for the year ended December 31, 2012, included originations of Warehouse Purchase Program loans totaling $12.61 billion , purchases of available-for-sale securities totaling $516.1 million and repayments on FHLB advances of $488.2 million.

Please see Item 1A (Risk Factors) under Part 1 of this Form 10-K for information regarding liquidity risk.

Table of Contents

Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

The following table presents our contractual obligations and commitments to make future payments as of December 31, 2013 . Commitments to extend credit to our borrowers are shown 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 $87.8 million at December 31, 2013 .



	December 31, 2013
	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	$	1,790,024	$	—	$	—	$	—	$	1,790,024
Certificates of deposit	268,441		187,252		17,021		1,901		474,615
FHLB advances (gross of restructuring prepayment penalty of $2,171)	483,516		124,042		28,300		5,409		641,267
Repurchase agreement	—		—		25,000		—		25,000
Private equity fund for Community Reinvestment Act purposes	1,780		—		—		—		1,780
Operating leases (premises)	2,447		4,799		2,100		5,166		14,512
Total contractual obligations	$	2,546,208	$	316,093	$	72,421	$	12,476	2,947,198
Off-balance sheet loan commitments: ¹
Unused commitments to extend credit	$	185,659	$	89,234	$	96,657	$	53,774	425,324
Unused capacity on Warehouse Purchase Program loans ²	549,166		12,864		—		—		562,030
Standby letters of credit	878		176		—		300		1,354
Total loan commitments	$	735,703	$	102,274	$	96,657	$	54,074	988,708
Total contractual obligations and loan commitments									$	3,935,906

¹ Loans having no stated maturity are reported in the “Less than One Year” category.

² In regards to unused capacity on Warehouse Purchase Program loans, the Company has established a maximum purchase facility amount, but reserves the right, at any time, to refuse to buy any mortgage loans offered for sale by its mortgage banking company customers for any reason in the Company's sole and absolute discretion.

Table of Contents

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 December 31, 2013 and 2012, the Bank and the Company were considered to be well-capitalized. See “How We Are Regulated - Regulatory Capital Requirements.” Beginning with the March 2013 reporting cycle, the capital ratios presented below reflect a risk weighting change from 50% to 100% on our Warehouse Purchase Program loans. In April 2013, the Federal Financial Institutions Examination Council issued Supplemental Instructions for the March 31, 2013 Call Report, which clarified the regulators' position on the risk-weighting of these types of loans.

At December 31, 2013, the Bank's equity totaled $442.6 million . The Company's consolidated equity totaled $544.5 million , or 15.4% of total assets, at December 31, 2013.



	Actual				Required for Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2013	(Dollars in Thousands)
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

December 31, 2012
Total risk-based capital
the Company	$	505,566	22.47	%	$	179,957	8.00	%	$	224,947	10.00	%
the Bank	404,562		18.00		179,847		8.00		224,809		10.00
Tier 1 risk-based capital
the Company	487,515		21.67		89,979		4.00		134,968		6.00
the Bank	386,511		17.19		89,923		4.00		134,885		6.00
Tier 1 leverage
the Company	487,515		13.97		139,620		4.00		174,525		5.00
the Bank	386,511		11.08		139,595		4.00		174,493		5.00

Impact of Inflation

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

Recent Accounting Pronouncements

Table of Contents

For discussion of Recent Accounting Pronouncements, please see Note 1 — Adoption of New Accounting Standards and Note 1 — Effect of Newly Issued But Not Yet Effective Accounting Standards of the Notes to Consolidated Financial Statements under Item 8 of this report.



Item 7A.	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. In addition, two outside members of the Board of Directors are on the Asset/Liability Management Committee. 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 determine whether the Bank's interest rate exposure is within the limits established by the Board of Directors.

Table of Contents

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 December 31, 2013 , and 2012 , 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 December 31, 2013, 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.



December 31, 2013
Change in Interest Rates in Basis Points		Economic Value of Equity						Earnings at Risk (12 months)
Change in Interest Rates in Basis Points		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	)



December 31, 2012
Change in Interest Rates in Basis Points		Economic Value of Equity						Earnings at Risk (12 months)
Change in Interest Rates in Basis Points		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		534,416	18,473		3.58		15.40	140,514	11,608		9.01
300		541,071	25,128		4.87		15.31	134,215	5,309		4.12
200		541,636	25,693		4.98		15.07	127,916	(990	)	(0.77	)
100		534,009	18,066		3.50		14.62	125,333	(3,573	)	(2.77	)
—		515,943	—		—		13.94	128,906	—		—
(100	)	493,055	(22,888	)	(4.44	)	13.15	127,524	(1,382	)	(1.07	)

The Bank's EVE was $ 601.8 million, or 16.92% , of the market value of portfolio assets as of December 31, 2013 , an $85.9 million increase from $515.9 million, or 13.94% , of the market value of portfolio assets as of December 31, 2012 . Based

Table of Contents

upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in a $21.6 million decrease in our EVE at December 31, 2013 , compared to a $25.7 million increase at December 31, 2012 , and would result in a four basis point increase in our EVE ratio to 16.96% at December 31, 2013 , as compared to a 113 basis point increase to 15.07% at December 31, 2012 . An immediate 100 basis point decrease in market interest rates would result in a $2.7 million increase in our EVE at December 31, 2013 , compared to $22.9 million decrease at December 31, 2012 , and would result in a 25 basis point decrease in our EVE ratio to 16.67% at December 31, 2013, as compared to a 79 basis point decrease in our EVE ratio to 13.15% at December 31, 2012 .

A research study of the bank’s non-maturity deposit accounts has been completed and was updated in the second quarter of 2013. In this study, decay rates, repricing betas, and customer behavior were analyzed over time on an individual account level basis. The results were aggregated by product, with recommendations which were subsequently implemented. The recommendations were based on internal analysis of historical customer behavior in a rising rate environment. The results of this analysis and prospective assumptions are faster decay rates and higher betas for some non-maturity deposit products. Implementing these changes resulted in a shift in EVE impact for a parallel, instantaneous, and sustained change in market rates, from an increase in market rates positively impacting EVE to an increase having a negative impact. The change in EVE sensitivity for December 31, 2013, is primarily due to the updated assumptions for decay rates and betas of non-maturity deposits.

The Bank's projected EAR for the twelve months ending December 31, 2014 is measured at $122.5 million , compared to $128.9 million for the twelve months ending December 31, 2013 . Based on the assumptions utilized, an immediate 200 basis point increase in market rates would result in a $2.2 million , or 1.84% , increase in net interest income for the twelve months ending December 31, 2014, compared to a $1.0 million , or 0.77% , decrease for the twelve months ending December 31, 2013 . An immediate 100 basis point decrease in market rates would result in a $2.0 million decrease in net interest income for the twelve months ending December 31, 2014, compared to a $1.4 million decrease for the twelve months ending December 31, 2013 .

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. 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

Table of Contents

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.

Table of Contents



Item 8.	Financial Statements and Supplementary Data

VIEWPOINT FINANCIAL GROUP, INC.

FINANCIAL STATEMENTS

December 31, 2013 , 2012 , and 2011

INDEX



	Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	65

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets	66

Consolidated Statements of Income	67

Consolidated Statements of Comprehensive Income	69

Consolidated Statements of Changes in Shareholders’ Equity	70

Consolidated Statements of Cash Flows	71

Notes to Consolidated Financial Statements	73

Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

ViewPoint Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of ViewPoint Financial Group, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ViewPoint Financial Group, Inc. at December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ViewPoint Financial Group, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 26, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, Texas

February 26, 2014

Table of Contents

CONSOLIDATED BALANCE SHEETS

Years ended December 31,

(Dollar amounts in thousands, except per share data)



	2013			2012
ASSETS
Cash and due from financial institutions	$	30,012		$	34,227
Short-term interest-bearing deposits in other financial institutions	57,962			34,469
Total cash and cash equivalents	87,974			68,696
Securities available for sale, at fair value	248,012			287,034
Securities held to maturity (fair value: December 31, 2013 — $301,739, December 31, 2012— $376,153)	294,583			360,554
Loans held for investment:
Loans held for investment (net of allowance for loan losses of $19,358 at December 31, 2013 and $18,051 at December 31, 2012)	2,029,277			1,673,204
Loans held for investment - Warehouse Purchase Program	673,470			1,060,720
Total loans held for investment	2,702,747			2,733,924
FHLB and Federal Reserve Bank stock, at cost	34,883			45,025
Bank-owned life insurance	35,565			34,916
Premises and equipment, net	53,272			53,160
Goodwill	29,650			29,650
Other assets	38,546			50,099
Total assets	$	3,525,232		$	3,663,058
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest-bearing demand	$	410,933		$	357,800
Interest-bearing demand	474,515			488,748
Savings and money market	904,576			880,924
Time	474,615			450,334
Total deposits	2,264,639			2,177,806
FHLB advances	639,096			892,208
Repurchase agreement	25,000			25,000
Other liabilities	52,037			47,173
Total liabilities	2,980,772			3,142,187
Commitments and contingent liabilities	—			—
Shareholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized; 0 shares issued — December 31, 2013 and December 31, 2012	—			—
Common stock, $.01 par value; 90,000,000 shares authorized; 39,938,816 shares issued — December 31, 2013 and 39,612,911 shares issued — December 31, 2012	399			396
Additional paid-in capital	377,657			372,168
Retained earnings	183,236			164,328
Accumulated other comprehensive income (loss), net	(383		)	1,895
Unearned Employee Stock Ownership Plan (ESOP) shares; 1,733,845 shares at December 31, 2013 and 1,918,039 shares at December 31, 2012	(16,449		)	(17,916		)
Total shareholders’ equity	544,460			520,871
Total liabilities and shareholders’ equity	$	3,525,232		$	3,663,058

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31,

(Dollar amounts in thousands, except per share data)



	2013			2012			2011
Interest and dividend income
Loans, including fees	$	124,522		$	120,596		$	88,238
Taxable securities	9,780			14,850			25,830
Nontaxable securities	2,133			1,891			1,892
Interest-bearing deposits in other financial institutions	126			117			170
FHLB and Federal Reserve Bank stock	528			538			94
	137,089			137,992			116,224
Interest expense
Deposits	9,545			11,453			22,474
FHLB advances	8,503			9,807			9,882
Repurchase agreement	816			876			816
Other borrowings	5			33			474
	18,869			22,169			33,646
Net interest income	118,220			115,823			82,578
Provision for loan losses	3,199			3,139			3,970
Net interest income after provision for loan losses	115,021			112,684			78,608
Non-interest income
Service charges and fees	17,778			19,512			18,556
Other charges and fees	937			579			723
Net gain on sale of mortgage loans	—			5,436			7,639
Bank-owned life insurance income	649			699			506
Gain (loss) on sale of available for sale securities (reclassified from accumulated other comprehensive income for unrealized gains (losses) on available-for-sale securities)	(177		)	1,014			6,268
Gain (loss) on sale and disposition of assets	835			(191		)	(798		)
Impairment of goodwill	—			(818		)	(271		)
Other	1,811			3,325			1,925
	21,833			29,556			34,548
Non-interest expense
Salaries and employee benefits	53,328			51,719			47,360
Merger/acquisition costs	663			4,127			—
Advertising	2,690			1,753			1,519
Occupancy and equipment	7,675			7,365			5,966
Outside professional services	2,760			2,320			2,644
Regulatory assessments	2,477			2,534			2,401
Data processing	6,727			6,109			4,648
Office operations	6,783			7,144			5,972
Other	5,774			4,619			4,730
	88,877			87,690			75,240
Income before income tax expense	47,977			54,550			37,916
Income tax expense (items reclassified from accumulated other comprehensive income include an income tax benefit of $62 for the twelve months ended December 31, 2013, and income tax expense of $355 and $2,194 for the twelve months ended December 31, 2012 and 2011, respectively)	16,289			19,309			11,588
Net income	$	31,688		$	35,241		$	26,328
Earnings per share:

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (Continued)

Years ended December 31,

(Dollar amounts in thousands, except per share data)



Basic	$	0.83	$	0.98	$	0.81
Diluted	$	0.83	$	0.98	$	0.81
Dividends declared per share	$	0.32	$	0.40	$	0.20

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31,

(Dollar amounts in thousands)



	2013			2012			2011
Net income	$	31,688		$	35,241		$	26,328
Change in unrealized gains (losses) on securities available for sale	(3,713		)	1,867			4,673
Reclassification of amount realized through sale of securities	177			(1,014		)	(6,268		)
Tax effect	1,258			(305		)	569
Other comprehensive income (loss), net of tax	(2,278		)	548			(1,026		)
Comprehensive income	$	29,410		$	35,789		$	25,302

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years ended December 31,

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



	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income, Net			Unearned ESOP Shares			Total Shareholders’ Equity
Balance at December 31, 2010	$	349		$	289,591		$	125,125		$	2,373		$	(20,849	)	$	396,589
Net Income	—			—			26,328			—			—			26,328
Other comprehensive income, net of tax	—			—			—			(1,026		)	—			(1,026		)
Dividends declared ($0.20 per share)	—			—			(6,918		)	—			—			(6,918		)
ESOP shares earned, 184,194 shares	—			1,331			—			—			1,466			2,797
Share-based compensation expense	—			1,551			—			—			—			1,551
Share repurchase, 1,100,100 shares	(12		)	(13,000		)	—			—			—			(13,012		)
Balance at December 31, 2011	337			279,473			144,535			1,347			(19,383		)	406,309
Net Income	—			—			35,241			—			—			35,241
Other comprehensive income, net of tax	—			—			—			548			—			548
Dividends declared ($0.40 per share)	—			—			(15,448		)	—			—			(15,448		)
ESOP shares earned, 184,195 shares	—			2,526			—			—			1,467			3,993
Share-based compensation expense	—			1,878			—			—			—			1,878
Net issuance of common stock under employee stock plans, 399,451 shares	4			2,232			—			—			—			2,236
Acquisition of Highlands Bancshares, Inc.	55			86,059			—			—			—			86,114
Balance at December 31, 2012	396			372,168			164,328			1,895			(17,916		)	520,871
Net Income	—			—			31,688			—			—			31,688
Other comprehensive income, net of tax	—			—			—			(2,278		)	—			(2,278		)
Dividends declared ($0.32 per share)	—			—			(12,780		)	—			—			(12,780		)
ESOP shares earned, 184,194 shares	—			3,048			—			—			1,467			4,515
Share-based compensation expense	—			2,669			—			—			—			2,669
Net issuance of common stock under employee stock plans, 409,705 shares	4			1,325			—			—			—			1,329
Share repurchase, 83,800 shares	(1		)	(1,553		)	—			—			—			(1,554		)
Balance at December 31, 2013	$	399		$	377,657		$	183,236		$	(383	)	$	(16,449	)	$	544,460
See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31,

(Dollar amounts in thousands)



	2013			2012			2011
Cash flows from operating activities
Net income	$	31,688		$	35,241		$	26,328
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses	3,199			3,139			3,970
Depreciation and amortization	4,503			3,971			3,515
Deferred tax expense	2,293			5,262			204
Premium amortization and accretion of securities, net	5,828			6,424			4,515
Accretion related to acquired loans	(3,148		)	(3,784		)	—
(Gain) loss on sale of available for sale securities	177			(1,014		)	(6,268		)
ESOP compensation expense	4,515			3,993			2,797
Share-based compensation expense	2,669			1,878			1,551
Net gain on loans held for sale	—			(5,436		)	(7,639		)
Loans originated or purchased for sale	—			(145,819		)	(271,107		)
Proceeds from sale of loans held for sale	—			184,672			276,402
FHLB stock dividends	(115		)	(121		)	(84		)
Bank-owned life insurance (BOLI) income	(649		)	(699		)	(506		)
(Gain) loss on sale and disposition of assets	(835		)	191			652
Impairment of goodwill	—			818			271
Net change in deferred loan fees	1,753			30			(589		)
Net change in accrued interest receivable	(4		)	793			266
Net change in other assets	7,570			(1,871		)	3,277
Net change in other liabilities	6,122			4,371			8,311
Net cash used in operating activities	65,566			92,039			45,866
Cash flows from investing activities
Available-for-sale securities:
Maturities, prepayments and calls	1,187,611			614,361			551,204
Purchases	(1,165,941		)	(516,139		)	(544,232		)
Proceeds from sale of AFS securities	10,614			133,595			279,420
Held-to-maturity securities:
Maturities, prepayments and calls	104,058			136,606			113,687
Purchases	(40,890		)	—			(184,137		)
Originations of Warehouse Purchase Program loans	(14,107,219		)	(12,609,934		)	(7,601,620		)
Proceeds from pay-offs of Warehouse Purchase Program loans	14,494,469			12,350,149			7,261,597
Net change in loans held for investment, excluding Warehouse Purchase Program	(359,488		)	(182,658		)	(123,995		)
Purchase of FHLB and Federal Reserve Bank stock	10,257			(4,845		)	(16,937		)
Cash and cash equivalents from acquisition	—			98,469			—
Purchases of premises and equipment	(4,257		)	(2,272		)	(5,213		)
Proceeds from sale of assets	3,782			6,740			868
Net cash provided by (used in) investing activities	132,996			24,072			(269,358		)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years ended December 31,

(Dollar amounts in thousands)



Cash flows from financing activities
Net change in deposits	86,833			(164,149		)	(54,059		)
Proceeds from FHLB advances	447,000			634,000			502,500
Repayments on FHLB advances	(700,112		)	(488,190		)	(217,321		)
Share repurchase	(1,554		)	—			(13,012		)
Repayments of other borrowings	—			(62,212		)	(10,000		)
Payment of dividends	(12,780		)	(15,448		)	(6,918		)
Proceeds from stock option exercises	1,329			2,236			—
Net cash provided by (used in) financing activities	(179,284		)	(93,763		)	201,190
Net change in cash and cash equivalents	19,278			22,348			(22,302		)
Beginning cash and cash equivalents	68,696			46,348			68,650
Ending cash and cash equivalents	$	87,974		$	68,696		$	46,348
Supplemental cash flow information:
Interest paid	$	19,019		$	22,173		$	33,967
Income taxes paid	9,513			17,490			12,780
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	1,611			4,507			1,671
Net noncash liabilities assumed in stock acquisition of Highlands Bancshares, Inc.	—			12,355			—

See accompanying notes to consolidated financial statements.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation : The consolidated financial statements include ViewPoint Financial Group, Inc. (the “Company”), whose business currently consists of the operations of its wholly-owned subsidiary, ViewPoint Bank, N.A. (the “Bank”). Prior to its sale in the third quarter of 2012, the Bank's operations included its wholly-owned subsidiary, ViewPoint Bankers Mortgage, Inc. (doing business as ViewPoint Mortgage) ("VPM"). Intercompany transactions and balances are eliminated in consolidation.

The Company provides financial services through 31 full-service branches and one commercial loan production office. Its primary deposit products are demand, savings and term certificate accounts, and its primary lending products are commercial real estate, commercial and industrial and consumer lending, including one- to four-family real estate loans. Most loans are secured by specific items of collateral, including business assets, commercial and residential real estate and consumer assets. Commercial loans are expected to be repaid from cash flow from operations of businesses.

Use of Estimates : To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses, valuation of other real estate owned, other-than-temporary impairment of securities, realization of deferred tax assets, and fair values of financial instruments are subject to change.

Cash Flows : Cash and cash equivalents include cash, deposits with other financial institutions with maturities less than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other financial institutions, federal funds purchased and repurchase agreements.

Restrictions on Cash : The Company maintains deposits with other financial institutions in amounts that exceed federal deposit insurance coverage. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Company is not exposed to any significant credit risks on cash and cash equivalents. Cash balances equaling or exceeding escrow amounts are maintained at correspondent banks.

Securities : Securities that the Company has both the positive intent and ability to hold to maturity are classified as held to maturity and are carried at amortized cost. Securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity, are classified as available for sale and are carried at fair value. Unrealized gains and losses on securities classified as available for sale have been accounted for as accumulated other comprehensive income (loss), net of taxes.

Gains and losses on the sale of securities classified as available for sale are recorded on the trade date using the specific-identification method. Amortization of premiums and discounts are recognized in interest income over the period to maturity. Premiums and discounts on securities are amortized using the level-yield method without anticipating prepayment, except for mortgage-backed securities where prepayments are anticipated.

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

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For periods in which other-than-temporary impairment of a debt security is recognized, the credit portion of the amount is determined by subtracting the present value of the stream of estimated cash flows as calculated in a discounted cash flow model and discounted at book yield from the prior period’s ending carrying value. The non-credit portion of the amount is determined by subtracting the credit portion of the impairment from the difference between the book value and fair value of the security. The credit related portion of the impairment is charged against income and the non-credit related portion is charged to equity as a component of accumulated other comprehensive income.

Repurchase/Resell Agreements: The Company sells certain securities under agreements to repurchase. The securities sold under these agreements are treated as collateralized borrowings and are recorded at amounts equal to the cash received. The contractual terms of the agreements to repurchase may require the Company to provide additional collateral if the fair value of the securities underlying the borrowings declines during the term of the agreement.

Warehouse Purchase Program Loans : The Company previously reported the Warehouse Purchase Program loans as held for sale as the Company believed that was the most meaningful presentation to our financial statement users, given the collection of the loan was based on sale of the loan. The Company has now concluded that under US GAAP these loans should be accounted for as held for investment. This correction changes the accounting for the warehouse loans from a lower of cost or market accounting method to accounting for 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 does adjust the statement of cash flows by moving cash flows associated with the Warehouse Purchase Program from operating cash flows to investing cash flows.

Loans : Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, purchase premiums and discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Past due status is based on the contractual terms of the loan. Loans that are past due 30 days or greater 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 individually classified impaired loans. For other consumer loans, credit exposure is monitored by payment history of the loans.

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.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Acquired Loans : Loans acquired through the completion of a transfer, including loans acquired in a business combination, that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payment receivable are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows, including prepayments, subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received). Revolving loans, including lines of credit, are excluded from acquired credit impaired loan accounting.

For acquired loans not deemed credit-impaired at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. Subsequent to the acquisition date, methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans; however, a provision for loan losses will be recorded only to the extent the required allowance exceeds any remaining credit discounts.

Concentration of Credit Risk : Most of the Company’s business activity is with customers located within the North Texas region. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy of the North Texas area.

Allowance for Loan Losses : 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 or personal line of credit loans). Commercial real estate and commercial and industrial lending, however, can have higher risk profiles than consumer and one- to four- family residential real estate 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 U.S. generally accepted accounting principles. 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 price, vacancy rates and inventory levels specific to our primary market area.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For the specific component, the allowance for loan losses on individually analyzed impaired loans includes loans where management has concerns about the borrower's ability to repay. All troubled debt restructurings are considered to be impaired. Loss estimates include the negative difference, if any, between the 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.

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 by the Company that would not otherwise be considered for a borrower or collateral 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. Accordingly, the Company does not separately identify consumer real estate loans less than $417 or individual consumer loans for impairment disclosures.

Transfers of Financial Assets : Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Foreclosed Assets, net : Assets acquired through loan foreclosure are initially recorded at the lower of the recorded investment in the loan at the time of foreclosure or the fair value less costs to sell, establishing a new cost basis. Any write-down in the carrying value of a property at the time of acquisition is charged-off to the allowance for loan losses. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Premises and Equipment : Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are generally depreciated using the straight-line method with useful lives ranging from 10 to 30 years. Furniture, fixtures and equipment are generally depreciated using the straight-line method with useful lives ranging from 3 to 7 years. The cost of leasehold improvements is amortized over the shorter of the lease term or useful life using the straight-line method.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank stock: FHLB and Federal Reserve Bank stock is carried at cost, classified as restricted securities and periodically evaluated for impairment based on the ultimate recoverability of the par value. Both cash and stock dividends are reported as interest income.

Bank-Owned Life Insurance : The Company has purchased life insurance policies on certain key employees. The purchase of these life insurance policies allows the Company to use tax-advantaged rates of return. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Goodwill : Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. Goodwill is evaluated for impairment on an annual basis at December 31. According to ASC 350-20, "Intangibles- Goodwill and Other", goodwill shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount. Deterioration in economic market conditions, changes in key personnel, increased estimates of the effects of recent regulatory or legislative changes, or additional regulatory or legislative changes may result in declines in projected business performance beyond management's current expectations. Such declines in business performance could cause the estimated fair value of goodwill to decline, which could result in an impairment charge to earnings in a future period related to goodwill.

The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining the need to perform the two-step test for goodwill impairment (the qualitative method.)

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

If the qualitative method cannot be used, the Company uses the two-step test. Under the two-step test, the Company compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step Two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit's goodwill, an impairment loss is recognized in an amount equal to that excess. Additional information regarding goodwill and impairment testing can be found in Note 8.

Identifiable Intangibles : Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. The Company's intangible assets relate to core deposits and customer relationships. Intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life. Intangible assets, premises and equipment and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Brokerage Fee Income : Acting as an agent, the Company earns brokerage income by buying and selling securities on behalf of its customers through an independent third party and earning fees on the transactions. These fees are recorded on the trade date.

Advertising Expense : The Company expenses all advertising costs as they are incurred.

Income Taxes : Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company did not have any amount accrued with respect to uncertainty in income taxes at December 31, 2013 and 2012.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense and did not have any amounts accrued for interest and penalties for the years ended December 31, 2013 and 2012. The Company files a consolidated income tax return with its subsidiaries. Federal income tax expense or benefit has been allocated to subsidiaries on a separate return basis.

Share-Based Compensation : Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. For awards with performance-based vesting conditions, compensation cost is recognized when the achievement of the performance condition is considered probable of achievement. If a performance condition is subsequently determined to be improbable of achievement, compensation cost is reversed.

Retirement Plans: Employee 401(k) and profit sharing plan expense is the amount of matching contributions as determined by formula. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

On March 6, 2013, the Company entered into a Director's Agreement with certain directors regarding their retirement from the Company and Bank's Board of Directors. Each Director's Agreement provides for: (i) a cash separation benefit payable, at the director's election, in a lump sum or four equal annual installments; and (ii) a restricted stock award on the director's retirement date under the Company's 2012 Equity Incentive Plan, vesting in one-third annual increments beginning on the first anniversary of the award date, with vesting subject to continuous service as an advisory director. The retirement stock-based awards are expensed based upon the closing stock price as quoted on the NASDAQ Stock Market on the date of vesting. Until the final

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 on the last business day of each calendar quarter end.

Comprehensive Income (Loss) : Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, net of taxes, which are also recognized as a separate component of equity.

Loss Contingencies : Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Earnings (loss) per common share : The Company calculated earnings (loss) per common share in accordance with ASC Topic 260, “Earnings Per Share,” which provides that unvested share-based payment 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. The Company has determined that its outstanding non-vested stock awards/stock units and deferred stock units are participating securities. Accordingly, earnings per common share is computed using the two-class method prescribed under ASC Topic 260.

Under the two-class method, basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 4 - Earnings Per Common Share.

Employee stock ownership plan (ESOP) : The Company accounts for its ESOP in accordance with ASC 718-40, "Employee Stock Ownership Plans". Accordingly, since the Company sponsors the ESOP with an employer loan, neither the ESOP’s loan payable nor the Company’s loan receivable are reported in the Company’s consolidated balance sheet. Likewise, the Company does not recognize interest income or interest cost on the loan.

Unallocated shares held by the ESOP are recorded as unearned ESOP shares in the consolidated statement of changes in shareholders’ equity. As shares are committed to be released for allocation, the Company recognizes compensation expense equal to the average market price of the shares for the period. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest.

Dividend Restriction : Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to shareholders.

Fair Value of Financial Instruments : In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.

Operating Segments: The reportable segments are determined by the products and services offered, primarily distinguished between banking and mortgage banking. Loans, investments and deposits generate the revenues in the banking segment; secondary marketing sales generate the revenue in the mortgage banking segment. Segment performance is evaluated using segment profit (loss). As explained in Note 22 - Segment Information, the Company sold substantially all the assets of VPM, the Company's mortgage banking subsidiary in the third quarter of 2012.

Loan Commitments and Related Financial Instruments : Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Reclassifications : Some items in the prior year financial statements were reclassified to conform to the current presentation.

Adoption of New Accounting Standards :

In July 2012, the FASB issued ASU 2012-02, Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. Under the guidance in this ASU, an entity has the option to bypass the qualitative assessment outlined in ASU 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment , for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of this ASU did not have a significant impact to the Company's financial statements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires companies to report information about significant amounts reclassified out of accumulated other comprehensive income either on the face of the financial statements or in the notes. If an entity is unable to identify the line item of net income affected by any significant amount reclassified out of accumulated other comprehensive income during a reporting period (including when all reclassifications for the period are not to net income in their entirety), a company must present information about items reclassified out of accumulated other comprehensive income in the notes. Companies that qualify for and present information about significant items reclassified out of accumulated other comprehensive income on the face of the statement where net income is presented must present parenthetically: 1). the effect of significant reclassification items on the respective line items of net income by component of other comprehensive income and 2.) the aggregate tax effect of all significant reclassifications on the line item for income tax benefit/expense in the statement where net income is presented. For public entities, the amendments are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. Early adoption is permitted. The Company adopted this ASU in the first quarterly filing as of March 31, 2013, and has included the required disclosures in the Consolidated Statements of Income included in this Form 10-K.

Effect of Newly Issued But Not Yet Effective Accounting Standards

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU includes explicit guidance for the presentation of an unrecognized tax benefit, or a portion thereof, when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. For public entities, the amendments are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on the Company's financial statements.

NOTE 2 - ADJUSTMENTS TO FINANCIAL STATEMENTS

The Company previously reported the Warehouse Purchase Program loans as held for sale as the Company believed that was the most meaningful presentation to our financial statement users, given the collection of the loan was based on sale of the loan. The Company has now concluded that under US GAAP these loans should be accounted for as held for investment. This correction changes the accounting for the warehouse loans from a lower of cost or market accounting method to accounting for 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 does adjust the statement of cash flows by moving cash flows associated with the Warehouse Purchase Program from operating cash flows to investing cash flows.

The tables below illustrate the impact of this change on the Company's Consolidated Balance Sheets for December 31, 2012 and on the Consolidated Statement of Cash Flows for the year ended December 31, 2012. There was no impact to the Company's Consolidated Statements of Income for the year ended December 31, 2012.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



Impact to the Consolidated Balance Sheets
December 31, 2012	As Originally Presented		As Adjusted
Loans held for sale - Warehouse Purchase Program	$	1,060,720	N/A
Loans held for investment:
Loans held for investment, net of allowance for loan losses	1,673,204		1,673,204
Loans held for investment - Warehouse Purchase Program	N/A		1,060,720
Total loans held for investment	1,673,204		2,733,924



Impact to the Consolidated Statements of Cash Flows
	Year ended December 31, 2012						Year ended December 31, 2011
	As Originally Presented			As Adjusted			As Originally Presented			As Adjusted
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Loans originated or purchased for sale	$	(12,755,753	)	$	(145,819	)	$	(7,872,727	)	$	(271,107	)
Proceeds from sale of loans held for sale	12,534,821			184,672			7,537,999			276,402
Net cash provided by (used in) operating activities	(167,746		)	92,039			(294,157		)	45,866
Cash flows from investing activities
Originations of Warehouse Purchase Program loans	N/A			(12,609,934		)	N/A			(7,601,620		)
Proceeds from pay-offs of Warehouse Purchase Program loans	N/A			12,350,149			N/A			7,261,597
Net change in loans held for investment, excluding Warehouse Purchase Program	(182,658		)	(182,658		)	(123,995		)	(123,995		)
Net cash provided by (used in) investing activities	283,857			24,072			70,665			(269,358		)
Cash flows from financing activities
Net cash provided by (used in) financing activities	(93,763		)	(93,763		)	201,190			201,190
Net change in cash and cash equivalents	22,348			22,348			(22,302		)	(22,302		)
Beginning cash and cash equivalents	46,348			46,348			68,650			68,650
Ending cash and cash equivalents	$	68,696		$	68,696		$	46,348		$	46,348

NOTE 3 - SHARE TRANSACTIONS

On April 2, 2012, the Company completed its acquisition of Highlands Bancshares, Inc. (“Highlands”), parent company of The First National Bank of Jacksboro, which operated in Dallas under the name Highlands Bank. In this stock-for-stock transaction, Highlands' shareholders received 0.6636 shares of the Company's common stock in exchange for each share of Highlands' common stock. As a result, the Company issued 5,513,061 common shares with an acquisition date fair value of total consideration paid of $86,114 , based on the Company's closing stock price of $15.62 on April 2, 2012 including an insignificant amount of cash paid in lieu of fractional shares.

On August 26, 2011, the Company announced its intention to repurchase up to 5% of its total common shares outstanding, or approximately 1,741,975 shares of its common stock, in the open market at prevailing market prices over a period beginning on August 30, 2011 , and continuing until the earlier of the completion of the repurchase or the next twelve months, depending upon market conditions. Prior to termination on December 19, 2011, 1,100,100 shares were repurchased at an average price of $11.83 . The share repurchases under the plan were halted as a result of the Company’s announced acquisition of Highlands

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Bancshares, Inc., which automatically triggered termination of the Company’s trading plan with Sandler O’Neill & Partners, LP.

On August 22, 2012 , the Company announced its intention to repurchase up to 5% of its total common shares outstanding, or approximately 1,978,871 shares. The stock repurchase program, which is open-ended, commenced on August 27, 2012, and allows the Company to repurchase its shares from time to time in the open market and in negotiated transactions, depending upon market conditions. The Board of Directors of the Company also authorized management to enter into a trading plan with Sandler O'Neill & Partners, LP in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, to facilitate repurchases of its common stock pursuant to the above- mentioned stock repurchase program. The share repurchases under the plan were halted as a result of the Company’s announced acquisition of LegacyTexas Group, Inc. which automatically triggered termination of the Company’s trading plan with Sandler O’Neill & Partners, LP. Prior to termination on November 25, 2013, 83,800 shares were repurchased during 2013 at a weighted average price per share of $18.55 . There were no repurchases of common stock in 2012.

NOTE 4 — 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-averag e number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock, or resulted in the issuance of common stock that then shared in the Company’s earnings. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and 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. 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. A reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation for 2013 , 2012 , and 2011 was as follows:

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



	Years Ended December 31,
	2013			2012			2011
Basic earnings per share:
Numerator:
Net income	$	31,688		$	35,241		$	26,328
Distributed and undistributed earnings to participating securities	(394		)	(106		)	(123		)
Income available to common shareholders	$	31,294		$	35,135		$	26,205
Denominator:
Weighted average common shares outstanding	39,895,321			38,004,897			34,571,991
Less: Average unallocated ESOP shares	(1,832,713		)	(2,017,098		)	(2,201,101		)
Average unvested restricted stock awards	(473,060		)	(108,095		)	(151,049		)
Average shares for basic earnings per share	37,589,548			35,879,704			32,219,841
Basic earnings per common share	$	0.83		$	0.98		0.81
Diluted earnings per share:
Numerator:
Income available to common shareholders	$	31,294		$	35,135		$	26,205
Denominator:
Average shares for basic earnings per share	37,589,548			35,879,704			32,219,841
Dilutive effect of share-based compensation plan	155,238			118,641			63,266
Average shares for diluted earnings per share	37,744,786			35,998,345			32,283,107
Diluted earnings per common share	$	0.83		0.98			0.81
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 anti-dilutive.	1,219,350			363,013			392,508

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5 - SECURITIES

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



	Amortized		Gross Unrealized		Gross Unrealized
December 31, 2013	Cost		Gains		Losses		Fair Value
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
SBA pools	2,652		76		—		2,728
Total securities	$	248,602	$	1,821	$	2,411	$	248,012

December 31, 2012
Agency residential mortgage-backed securities ¹	$	164,023	$	2,195	$	118	$	166,100
Agency residential collateralized mortgage obligations ²	116,723		996		233		117,486
SBA pools	3,342		106		—		3,448
Total securities	$	284,088	$	3,297	$	351	$	287,034

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:



	Amortized		Gross Unrealized		Gross Unrealized
December 31, 2013	Cost		Gains		Losses		Fair Value
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

December 31, 2012
Agency residential mortgage-backed securities ¹	$	114,388	$	6,324	$	—	$	120,712
Agency commercial mortgage-backed securities ²	9,243		1,303		—		10,546
Agency residential collateralized mortgage obligations ³	186,467		3,129		173		189,423
Municipal bonds	50,456		5,018		2		55,472
Total securities	$	360,554	$	15,774	$	175	$	376,153

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.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The carrying amount and fair value of held to maturity debt securities and the fair value of available for sale debt securities at year end 2013 by contractual maturity were as follows. Securities with contractual payments not due at a single maturity date, including mortgage backed securities and collateralized mortgage obligations, are shown separately.



					Available
	Held to maturity				for sale
	Carrying Amount		Fair Value		Fair Value
Due in one year or less	$	—	$	—	$	—
Due after one to five years	7,139		7,595		2,728
Due after five to ten years	20,359		21,303		—
Due after ten years	40,323		39,808		—
Agency residential mortgage-backed securities ¹	83,177		86,570		174,709
Agency commercial mortgage-backed securities ²	24,828		25,041		—
Agency residential collateralized mortgage obligations ³	118,757		121,422		70,575
Total	$	294,583	$	301,739	$	248,012

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:



	December 31, 2013		December 31, 2012
Public fund certificates of deposit	$	156,731	$	134,846
Public fund demand deposit accounts	15,068		19,972
Commercial demand deposit accounts	4,439		4,318
Repurchase agreements	25,000		25,000
Federal Reserve Bank primary credit - collateral value	68,686		105,807
Carrying value of securities pledged on above funds	308,652		309,225

At year end 2013 and 2012 , there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies or U.S. Government Sponsored Enterprises, in an amount greater than 10% of shareholders’ equity.

Sales activity of securities for the years ended December 31, 2013 , 2012 , and 2011 was as follows:



	December 31,
	2013		2012		2011
Proceeds	$	10,614	$	133,595	$	279,420
Gross gains	—		1,142		6,338
Gross losses	177		128		70

The tax benefit related to the net realized loss in December 31, 2013 was $62 . The tax provision related to the net realized gains for the years ended December 31, 2012 and 2011 was $355 , and $2,194 , respectively.

Securities with unrealized losses at year‑end 2013 and 2012 , aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



AFS	Less than 12 Months					12 Months or More					Total
December 31, 2013	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number
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

December 31, 2012
Agency residential mortgage-backed securities ¹	$	24,462	$	118	4	$	—	$	—	—	$	24,462	$	118	4
Agency residential collateralized mortgage obligations ²	2		—		1	16,912		233		6	16,914		233		7
Total temporarily impaired	$	24,464	$	118	5	$	16,912	$	233	6	$	41,376	$	351	11

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
December 31, 2013	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number	Fair Value		Unrealized Loss		Number
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

December 31, 2012
Agency residential collateralized mortgage obligations ¹	19,311		62		5	4,972		111		4	$	24,283	$	173	9
Municipal bonds	281		2		1	—		—		—	281		2		1
Total temporarily impaired	$	19,592	$	64	6	$	4,972	$	111	4	$	24,564	$	175	10

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 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 to be other-than-temporary.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 6 - LOANS

Loans held for investment consist of the following:



	December 31, 2013			December 31, 2012
Commercial real estate	$	1,091,200		$	825,340
Commercial and industrial loans:
Commercial	425,030			245,799
Warehouse lines of credit	14,400			32,726
Total commercial and industrial loans	439,430			278,525
Construction and land loans
Commercial construction and land	27,619			14,568
Consumer construction and land	2,628			6,614
Total construction and land loans	30,247			21,182
Consumer:
Consumer real estate	441,226			506,642
Other consumer loans	47,799			59,080
Total consumer	489,025			565,722
Gross loans held for investment, excluding Warehouse Purchase Program	2,049,902			1,690,769
Net of:
Deferred fees and discounts, net	(1,267		)	486
Allowance for loan losses	(19,358		)	(18,051		)
Net loans held for investment, excluding Warehouse Purchase Program	2,029,277			1,673,204
Warehouse Purchase Program	673,470			1,060,720
Total loans held for investment	$	2,702,747		$	2,733,924

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Activity in the allowance for loan losses for the years ended December 31, 2013 , 2012 and 2011 , segregated by portfolio segment and evaluation for impairment, was as follows. All Warehouse Purchase Program loans are collectively evaluated for impairment. All Warehouse Purchase Program loans are purchased under several contractual requirements, which provide safeguards to the bank, including the requirement that our mortgage company customers have a takeout commitment for each loan and multiple investors identified for purchases. As a result of these safeguards the bank has never experienced a loss on these loans and no allowance for loan losses has been allocated to them. The portion of the allowance for loan losses individually evaluated for impairment allocated to purchased credit impaired ("PCI") loans was $202 , $148 , and $0 at December 31, 2013 , 2012 and 2011 , respectively.



December 31, 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		)	(607		)	(31		)	(416		)	(621		)	(2,481		)
Recoveries	—			124			—			77			388			589
Provision expense	568			2,445			94			91			1			3,199
Ending balance - December 31, 2013	$	10,944		$	4,536		$	212		$	3,280		$	386		$	19,358
Allowance ending balance:
Individually evaluated for impairment	$	987		$	1,730		$	6		$	197		$	3		$	2,923
Collectively evaluated for impairment	9,957			2,806			206			3,083			383			16,435
Loans:
Individually evaluated for impairment	7,605			5,325			2			4,812			550			18,294
Collectively evaluated for impairment	1,079,343			433,908			28,625			435,288			47,078			2,024,242
PCI Loans	4,252			197			1,620			1,126			171			7,366
Ending balance	$	1,091,200		$	439,430		$	30,247		$	441,226		$	47,799		$	2,049,902

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



December 31, 2012	Commercial Real Estate			Commercial and Industrial			Construction and land		Consumer Real Estate			Other Consumer			Total
Allowance for loan losses:
Beginning balance - January 1, 2012	$	10,597		$	2,090		$	103	$	3,991		$	706		$	17,487
Charge-offs	(187		)	(1,178		)	—		(798		)	(1,039		)	(3,202		)
Recoveries	—			114			—		70			443			627
Provision expense	772			1,548			46		265			508			3,139
Ending balance - December 31, 2012	$	11,182		$	2,574		$	149	$	3,528		$	618		$	18,051
Allowance ending balance:
Individually evaluated for impairment	$	2,880		$	647		$	—	$	967		$	23		$	4,517
Collectively evaluated for impairment	8,302			1,927			149		2,561			595			13,534
Loans:
Individually evaluated for impairment	16,950			5,609			139		8,392			329			31,419
Collectively evaluated for impairment	801,940			270,843			18,115		497,090			58,554			1,646,542
PCI Loans	6,450			2,073			2,928		1,160			197			12,808
Ending balance	$	825,340		$	278,525		$	21,182	$	506,642		$	59,080		$	1,690,769



December 31, 2011	Commercial Real Estate			Commercial and Industrial			Construction and land			Consumer Real Estate			Other Consumer			Total
Allowance for loan losses:
Beginning balance - January 1, 2011	$	7,940		$	1,652		$	123		$	4,129		$	1,003		$	14,847
Charge-offs	(15		)	(470		)	—			(487		)	(850		)	(1,822		)
Recoveries	29			38			—			60			365			492
Provision expense (benefit)	2,643			870			(20		)	289			188			3,970
Ending balance - December 31, 2011	$	10,597		$	2,090		$	103		$	3,991		$	706		$	17,487
Allowance ending balance:
Individually evaluated for impairment	$	2,358		$	87		—			$	1,040		$	13		$	3,498
Collectively evaluated for impairment	8,239			2,003			103			2,951			693			13,989
Loans:
Individually evaluated for impairment	18,936			456			7			6,802			168			26,369
Collectively evaluated for impairment	564,551			70,164			11,845			504,097			51,002			1,201,659
Ending balance	$	583,487		$	70,620		$	11,852		$	510,899		$	51,170		$	1,228,028

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Impaired loans at December 31, 2013 , and 2012 , were as follows ¹ :



December 31, 2013	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial real estate	$	8,328	$	3,619	$	3,986	$	7,605	$	2,016
Commercial and industrial	6,058		539		4,786		5,325		550
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
December 31, 2012
Commercial real estate	$	17,726	$	4,341	$	12,609	$	16,950	$	2,756
Commercial and industrial	7,632		3,284		2,325		5,609		630
Construction and land	140		139		—		139		—
Consumer:
Consumer real estate	8,574		5,194		3,198		8,392		960
Other consumer	338		28		301		329		23
Total	$	34,410	$	12,986	$	18,433	$	31,419	$	4,369

¹ No Warehouse Purchase Program loans were impaired at December 31, 2013 or 2012 . Loans reported do not include PCI loans.

Income on impaired loans at December 31, 2013 , 2012 and 2011 was as follows ^1:



	December 31, 2013				December 31, 2012				December 31, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate	$	11,614	$	124	$	18,900	$	332	$	12,299	$	625
Commercial and industrial	6,072		12		2,297		9		384		14
Construction and land	41		—		22		—		5		—
Consumer:
Consumer real estate	6,835		57		6,846		48		6,280		139
Other consumer	470		—		235		2		191		—
Total	$	25,032	$	193	$	28,300	$	391	$	19,159	$	778

¹ Loans reported do not include PCI loans

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Loans past due over 90 days that were still accruing interest totaled $266 and $593 at December 31, 2013 and 2012 , which consisted entirely of PCI loans. At December 31, 2013 , there were no PCI loans that were considered non-performing loans, while $4,201 of purchased performing loans were considered non-performing at December 31, 2013 , including $1,698 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 December 31, 2013 or 2012 . Non-performing (nonaccrual) loans were as follows:



	December 31,
	2013		2012
Commercial real estate	$	7,604	$	13,567
Commercial and industrial	5,141		5,401
Construction and land	—		134
Consumer:
Consumer real estate	8,812		7,839
Other consumer	567		262
Total	$	22,124	$	27,203

For the years ended December 31, 2013 , 2012 and 2011 , gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $1,391 , $1,421 and $1,531 respectively. The amount that was included in interest income on these loans for the years ended December 31, 2013 , 2012 and 2011 was $0 , $11 and $473 , respectively.

The outstanding balances of troubled debt restructurings ("TDRs") are shown below:



	December 31,
TDRs	2013		2012
Nonaccrual TDRs	$	11,368	$	13,760
Performing TDRs ⁽¹⁾	971		4,216
Total	$	12,339	$	17,976
Specific reserves on TDRs	$	1,191	$	2,643
Outstanding commitments to lend additional funds to borrowers with TDR loans	—		—

¹ 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.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table provides the recorded balances of loans modified as a TDR during the years ended December 31, 2013 , 2012 , and 2011 .



December 31, 2013	Loan Bifurcation		Principal Deferrals ¹		Combination - Rate Reduction & Principal Deferral		Other		Total
Commercial real estate	$	—	$	59	$	—	$	—	$	59
Commercial and industrial	—		164		73		83		320
Consumer real estate	—		280		488		475		1,243
Other consumer	—		263		165		8		436
Total	$	—	$	766	$	726	$	566	$	2,058
December 31, 2012
Commercial real estate	$	5,876	$	—	$	—	$	—	$	5,876
Commercial and industrial	—		26		—		76		102
Consumer real estate	—		959		717		291		1,967
Other consumer	—		99		37		17		153
Total	$	5,876	$	1,084	$	754	$	384	$	8,098
December 31, 2011
Consumer real estate	$	—	$	6	$	149	$	261	$	416
Other consumer	—		19		—		—		19
Total	$	—	$	25	$	149	$	261	$	435

¹ Beginning in September 2012, 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 twelve-month periods ended December 31, 2013 , 2012 , and 2011 , which experienced a subsequent default during the periods are shown below. A payment default is defined as a loan that was 90 days or more past due.



	Years Ended December 31,
	2013		2012		2011
Consumer real estate	$	—	$	288	91

In connection with the acquisition of Highlands Bancshares, Inc., the Company acquired loans both with and without evidence of credit deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable the Company would not be able to collect all contractual amounts due were accounted for as purchased credit-impaired (“PCI”). The Company individually reviewed the acquired PCI loans and the portfolio was accounted for at estimated fair value on the acquisition date as follows:



	Acquired PCI loans
Contractually required principal and interest ¹	$	29,408
Expected cash flows	24,042
Fair value at acquisition	14,720

¹ Excludes loans fully charge off prior to acquisition date with no expectation of future cash flows.

The carrying amount of acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at December 31, 2013 and 2012 were as follows. The outstanding balance represents the total amount owed as of December 31, 2013 and 2012 including accrued but unpaid interest and any amounts previously charged off.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



	December 31, 2013		December 31, 2012
Acquired PCI loans
Carrying amount ¹	$	7,164	$	12,660
Outstanding balance	9,226		16,296

¹ The carrying amounts are net of allowance of $202 and $148 as of December 31, 2013 , and 2012 .

Changes in the accretable yield for acquired PCI loans for the years ended December 31, 2013 , and 2012 were as follows:



	December 31,
	2013			2012
Balance at beginning of period	$	6,431		$	—
Additions	—			9,322
Reclassifications (to) from nonaccretable	902			556
Disposals	(1,299		)	(2,006		)
Accretion	(1,353		)	(1,441		)
Balance at end of period	$	4,681		$	6,431

Below is an analysis of the age of recorded investment in loans that were past due at December 31, 2013 and 2012 . No Warehouse Purchase Program loans were delinquent at December 31, 2013 or 2012 .



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

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



December 31, 2012	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	$	2,243	$	1,150	$	1,118	$	4,511	$	820,829	$	825,340
Commercial and industrial	2,066		530		2,867		5,463		273,062		278,525
Construction and land	770		32		10		812		20,370		21,182
Consumer loans:
Consumer real estate	7,375		1,974		4,469		13,818		492,824		506,642
Other consumer	563		151		49		763		58,317		59,080
Total	$	13,017	$	3,837	$	8,513	$	25,367	$	1,665,402	$	1,690,769

¹ Includes acquired PCI loans with a total carrying value of $5,218 and $11,206 at December 31, 2013 and 2012 , respectively.

The recorded investment in loans by credit quality indicators at December 31, 2013 and 2012 , was as follows.

Real Estate and Commercial and Industrial Credit Exposure

Credit Risk Profile by Internally Assigned Grade



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



December 31, 2012	Commercial Real Estate		Commercial and Industrial		Construction and Land		Consumer Real Estate
Grade: ¹
Pass	$	781,909	$	264,528	$	18,120	$	491,225
Special Mention	17,504		645		—		2,617
Substandard	24,741		13,227		2,928		8,942
Doubtful	1,186		125		134		3,858
Total	$	825,340	$	278,525	$	21,182	$	506,642

¹ PCI loans are included in the substandard or doubtful categories.

Warehouse Purchase Program Credit Exposure

All Warehouse Purchase Program loans were graded pass as of December 31, 2013 and 2012 .

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity



	December 31, 2013		December 31, 2012
Performing	$	47,232	$	58,818
Non-performing	567		262
Total	$	47,799	$	59,080

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - 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 obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). When matrix pricing is used, it is obtained from a third-party, industry recognized source.

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 9 - Derivative Financial Instruments for more information.

The Company elected the fair value option for certain residential mortgage loans held for sale at ViewPoint Mortgage ("VPM") in accordance with ASC 820. This election allowed for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under ASC 815, “Derivatives and Hedging.”

Prior to the Company's sale of VPM in the third quarter of 2012, mortgage loans held for sale for which the fair value option was elected were typically pooled together and sold into the mortgage market, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. These mortgage loans held for sale were valued predominantly using quoted market prices for similar instruments. Therefore, the Company classified these valuations as Level 2 in the fair value disclosures. A net gain of $1,060 resulting from changes in fair value of these loans was recorded in mortgage income during the year ended December 31, 2012 . That gain was offset by economic hedging losses in the amount of $869 for the same time period.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Assets and Liabilities Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below. There were no liabilities measured at fair value on a recurring basis as of December 31, 2012 .



December 31, 2013	Fair Value Measurements Using Significant Other Observable Inputs (Level 2)
Assets:
Agency residential mortgage-backed securities	$	174,709
Agency residential collateralized mortgage obligations	70,575
SBA pools	2,728
Total securities available for sale	$	248,012
Derivative asset ¹	$	33
Derivative liability ¹	$	33



December 31, 2012	Fair Value Measurements Using Significant Other Observable Inputs (Level 2)
Assets:
Agency residential mortgage-backed securities	$	166,100
Agency residential collateralized mortgage obligations	117,486
SBA pools	3,448
Total securities available for sale	$	287,034

¹ Derivative assets and liabilities are measured at fair value on a recurring basis, generally quarterly. Please see Note 9 - Derivative Financial Instruments for more information.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities 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 as of December 31, 2013 or 2012 .



			Fair Value Measurements Using
	December 31, 2013			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans	$	7,138		$	—	$	7,138
Other real estate owned	480			—		480



			Fair Value Measurements Using
	December 31, 2012		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans	$	14,064	$	—	$	14,064
Other real estate owned	1,886		416		1,470

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 December 31, 2013 , impaired loans secured by real estate had an average discount of 7% applied to the appraised value of the

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

collateral, and impaired loans secured by receivables or inventory had discounts ranging from 20% to 60% . Impaired loans that are not collateral dependent are measured for impairment by a discounted cash flow analysis using a net present value calculation that utilizes data from the loan file before and after the modification.

Other real estate owned 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 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 market value discounts on other real estate owned at December 31, 2013 , ranged from 8% to 70% , with an average of 14% .

The Credit Administration department evaluates the valuations on impaired loans and other real estate owned at least monthly. These valuations are reviewed at least monthly by the Allowance for Loan Loss Committee and are considered in the calculation of the allowance for loan losses. Unobservable inputs are monitored and adjusted if market conditions change.

Carrying amount and fair value information of financial instruments at December 31, 2013 and 2012 , were as follows:



			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 available for sale	248,012		—		248,012		—
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		—		—
Derivative asset	33		—		33		—
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		—		—
Derivative liability	33		—		33		—

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



			Fair Value
December 31, 2012	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	$	68,696	$	68,696	$	—	$	—
Securities available for sale	287,034		—		287,034		—
Securities held to maturity	360,554		—		376,153		—
Loans held for investment, net	1,673,204		—		—		1,696,060
Loans held for investment - Warehouse Purchase Program	1,060,720		—		—		1,061,334
FHLB and Federal Reserve Bank stock	45,025		—		45,025		—
Accrued interest receivable	9,900		9,900		—		—
Financial liabilities
Deposits	$	2,177,806	$	—	$	—	$	2,097,063
FHLB advances	892,208		—		—		912,817
Repurchase agreement	25,000		—		—		28,501
Accrued interest payable	1,216		1,216		—		—

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

Carrying amount for cash and cash equivalents, accrued interest receivable and payable approximates fair value. For loans, 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. 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.

NOTE 8 - GOODWILL AND CORE DEPOSIT INTANGIBLES

Goodwill and other intangible assets are presented in the table below. The increases in goodwill and core deposit intangible assets were related to the Highlands acquisition on April 2, 2012. Changes in the carrying amount of the Company's goodwill and core deposit intangibles (“CDI”) for year ended December 31, 2013 and 2012 , were as follows:



	Goodwill					Core Deposit
	Bank		VPM			Intangible - Bank
Balance as of December 31, 2011	$	—	$	818		$	—
Impairment	—		(818		)	—
Highlands acquisition	29,650		—			1,745
Amortization	—		—			(360		)
Balance as of December 31, 2012	29,650		—			1,385
Amortization	—		—			(423		)
Balance as of December 31, 2013	$	29,650	$	—		$	962

Management performs an evaluation annually, and more frequently if a triggering event occurs, of whether any impairment of the goodwill or other intangibles has occurred. If any such impairment is determined, a write-down is recorded. As a result of

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

the execution of an agreement to sell substantially all of the assets of VPM in the second quarter of 2012, VPM recognized an impairment charge of $818 that brought its goodwill balance to $0 .

CDI are amortized on an accelerated basis over their estimated lives, which the Company believes is seven years. The estimated aggregate future amortization expense for intangible assets remaining as of December 31, 2013 is as follows:



2014	$	346
2015	270
2016	193
2017	116
2018	34
Thereafter	3

NOTE 9 — DERIVATIVE FINANCIAL INSTRUMENTS

Prior to the sale of VPM in the third quarter of 2012, the Company entered into interest rate lock commitments (“IRLCs”) with prospective residential mortgage borrowers whereby the interest rate on the loan was determined prior to funding and the borrowers had locked into that interest rate. These commitments were carried at fair value in accordance with ASC 815, Derivatives and Hedging . The estimated fair values of IRLCs were based on quoted market values and were recorded in other assets in the consolidated balance sheets. The initial and subsequent changes in the fair value of IRLCs were a component of net gain on sale of loans.

The Company managed the risk profiles of its IRLCs and mortgage loans held for sale on a daily basis. To manage the price risk associated with IRLCs, the Company entered into forward sales of mortgage-backed securities in an amount similar to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, the Company entered into forward sales of mortgage-backed securities to deliver mortgage loan inventory to investors. The estimated fair values of forward sales of mortgage-backed securities and forward sale commitments were based on quoted market values and were recorded as another asset or an accrued liability in the consolidated balance sheets.

The initial and subsequent changes in value on forward sales of mortgage-backed securities were a component of net gain on sale of loans.

There were no IRLC's outstanding at December 31, 2013 or December 31, 2012. The following table provides the recorded gains (losses) during the year ended December 31, 2012 .



	Recorded
December 31, 2012	Gains/(Losses)
IRLCs	$	(90	)
Loan sale commitments	1,077
Forward mortgage-backed securities trades	(795		)

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.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The notional amounts and estimated fair values of interest rate derivative positions outstanding and weighted-average receive and pay interest rates at December 31, 2013 are presented in the following table. There were no derivative positions outstanding at December 31, 2012 .



	Outstanding Notional Amount			Estimated Fair Value			Weighted-Average Interest Rate
December 31, 2013	Outstanding Notional Amount			Estimated Fair Value			Received		Paid
Non-hedging interest rate contracts - commercial loan interest rate swaps
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 such cases collateral may be required from the counterparties involved if the net value of the swaps exceeds a nominal amount considered to be immaterial. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. Our cash collateral at December 31, 2013 of $150 pledged for these derivatives and included in our interest-bearing deposits, is in excess of our credit exposure.

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 10 - LOAN SALES AND SERVICING

Loans held for sale activity relating to VPM, which was disposed of during 2012 was as follows. There were no loans held for sale at December 31, 2013:



	Year Ended December 31,
	2012
Balance at January 1	$	33,417
Loans originated for sale	145,819
Proceeds from sale of loans held for sale	(184,672		)
Net gain on sale of loans held for sale	5,436
Loans held for sale, net at December 31	$	—

Mortgage loans serviced for others are not included in the Company's balance sheet, although there is a servicing asset associated with loans serviced for a third party. The principal balances of these loans at year-end are as follows:



	December 31,
	2013		2012		2011
Serviced loans	$	50,794	$	67,936	$	89,248
Subserviced loans	88,378		93,932		127,004
Total mortgage loans serviced for others	$	139,172	$	161,868	$	216,252

Escrows on real estate loans totaled $27,430 and $27,235 at December 31, 2013 and 2012 , respectively, and are reported in "Other Liabilities" on the consolidated balance sheets. Cash balances equaling or exceeding escrow amounts are maintained at correspondent banks.

100

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 11 — PREMISES AND EQUIPMENT

Premises and equipment were as follows:



	December 31,
	2013			2012
Land	$	17,076		$	17,076
Buildings	49,622			48,475
Furniture, fixtures and equipment	27,710			26,557
Leasehold improvements	4,700			4,634
	99,108			96,742
Less: accumulated depreciation	(45,836		)	(43,582		)
Total	$	53,272		$	53,160

Depreciation expense was $4,081 , $3,936 , and $3,515 for 2013 , 2012 , and 2011 , respectively.

Operating Leases : The Company leases certain bank or loan production office properties and equipment under operating leases. Certain leases contain renewal options that may be exercised. Rent expense was $2,312 , $2,157 and $1,468 for 2013 , 2012 and 2011 , respectively.

Rent commitments, before considering applicable renewal options, as of December 31, 2013 , were as follows:



2014	$	2,447
2015	2,409
2016	2,390
2017	1,198
2018	902
Thereafter	5,166
Total	$	14,512

At December 31, 2013 , the Company had no commitments for future locations and held two parcels of land for future development.

101

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 12 - DEPOSITS

Time deposits of $100 or more were $371,932 and $337,242 at year‑end 2013 and 2012 , respectively. The $ 250 FDIC insurance coverage limit applies per depositor, per insured depository institution, for each account ownership category.

At December 31, 2013 and 2012 , we had $131,458 and $88,513 in reciprocal deposits, respectively. This consisted entirely of certificates of deposit made under our participation in the Certificate of Deposit Account Registry Service® (CDARS®) and our Insured Cash Sweep (ICS) money market product. Through CDARS®, the Company can provide a depositor the ability to place up to $50,000 on deposit with the Company while receiving FDIC insurance on the entire deposit by placing customer funds in excess of the FDIC deposit limits with other financial institutions in the CDARS® network. In return, these financial institutions place customer funds with the Company on a reciprocal basis. Similarly, customer funds in our ICS money market product are swept from a transaction account at the Company into money market accounts at multiple banks to allow access to FDIC insurance coverage through multiple accounts. Regulators consider reciprocal deposits to be brokered deposits.

At December 31, 2013 , scheduled maturities of time deposits for the next five years with the weighted average rate at the end of the period were as follows:



	Balance		Weighted Average Rate
2014	$	268,441	0.75	%
2015	164,188		0.76
2016	23,064		1.47
2017	10,498		1.21
2018 and thereafter	8,424		1.70
Total	$	474,615	0.82	%

At December 31, 2013 and 2012 , the Company's deposits included public funds totaling $217,392 and $186,508 respectively. At December 31, 2013 and 2012 , overdrawn deposits of $441 and $552 were reclassified as unsecured consumer loans.

Interest expense on deposits is summarized as follows:



	Years Ended December 31,
	2013		2012		2011
Interest bearing demand	$	1,811	$	3,391	$	8,309
Savings and money market	2,438		2,340		3,466
Time	5,296		5,722		10,699
Total	$	9,545	$	11,453	$	22,474

102

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 13 - REPURCHASE AGREEMENT

In April 2008, the Company entered into a 10 -year term structured repurchase callable agreement with Credit Suisse Securities (U.S.A.) LLC for $25,000 to leverage the balance sheet and increase liquidity. The interest rate was fixed at 1.62% for the first year of the agreement. The interest rate now adjusts quarterly to 6.25% less the 90 day LIBOR, subject to a lifetime cap of 3.22% . The rate was 3.22% at December 31, 2013 . At maturity, the securities underlying the agreement are returned to the Company. The fair value of these securities sold under agreements to repurchase was $34,498 at December 31, 2013 and $32,522 at December 31, 2012 . The Company retains the right to substitute securities under the terms of the agreements.

As part of the Highlands acquisition, the Company acquired $40,000 in repurchase agreements with JP Morgan Chase Bank, N.A. and a $10,000 repurchase agreement with CitiGroup Global Markets, Inc. The Company recognized a $95 gain on the unwinding of the JP Morgan Chase Bank, N.A. repurchase agreements in May 2012. The CitiGroup Global Markets, Inc. repurchase agreement matured in August 2012 and was not renewed.

NOTE 14 — BORROWINGS

Federal Home Loan Bank ("FHLB") Advances

At December 31, 2013 , advances from the FHLB totaled $639,096 , net of a restructuring prepayment penalty of $2,171 , and had interest rates ranging from 0.05% to 6.00% with a weighted average rate of 1.09% . At December 31, 2012 , advances from the FHLB totaled $892,208 , net of a restructuring penalty of $3,193 , and had interest rates ranging from 0.04% to 5.99% with a weighted average rate of 0.95% . At December 31, 2013 and 2012 , the Company had no variable rate FHLB advances, all FHLB advances had fixed rates.

In November 2010, $91,644 in fixed-rate FHLB advances were modified. The early repayment of the debt resulted in a prepayment penalty of $5,421 , which is being amortized to interest expense as an adjustment to the cost of the new FHLB advances. The prepayment penalty balance, net of accumulated amortization, was $2,171 at December 31, 2013 .

Each advance is payable according to its terms, which may include the amortization, or pay down, of a portion of the balance prior to its maturity date and is subject to prepayment penalties. The advances were collateralized by mortgage and commercial loans with FHLB collateral values of $787,821 and $1,272,330 under a blanket lien arrangement at December 31, 2013 and 2012 , respectively. The FHLB no longer includes the Warehouse Purchase Program loans under the blanket lien as of the June 30, 2013 Call report. In addition, securities safekept at FHLB are used as collateral for advances. Based on this collateral, the Company was eligible to borrow an additional $333,907 and $682,984 at year-end 2013 and 2012 , respectively.

FHLB stock also secures debts to the FHLB. The current agreement provided for a maximum borrowing amount of approximately $975,173 and $1,578,509 at December 31, 2013 and 2012 , respectively.

At December 31, 2013 the advances were structured to contractually pay down as follows:



	Balance			Weighted Average Rate
2014	$	483,516		0.33%
2015	61,742			3.66
2016	62,300			2.55
2017	15,546			4.33
2018	12,754			4.53
Thereafter	5,409			5.49
	641,267			1.09%
Restructuring prepayment penalty	(2,171		)
Total	$	639,096

Other Borrowings

103

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At December 31, 2013 and December 31, 2012 , the Company had borrowing availability representing the collateral value assigned to the securities pledged to the discount window through the Federal Reserve Bank of $68,686 and $105,807 , respectively. Additionally, uncommitted, unsecured Fed Fund lines of credit totaling $125,000 and $140,000 were available at December 31, 2013 and December 31, 2012 , respectively, from multiple correspondent banks.

NOTE 15 — BENEFITS

401(k) Plan : The Company offers a KSOP plan with a 401(k) match. Employees are eligible for the match if they have one year of service with 1000 hours worked and become eligible each quarter once they meet the eligibility requirements. Employees may participate on their own without meeting the service requirements; however, in this case, employee contributions do not qualify for the match. Employees may contribute between 2% and 75% of their compensation subject to certain limitations. A matching contribution will be paid to eligible employees' accounts, which is equal to 100% of first 5% of the employee's contribution up to a maximum of 5% of the employee's qualifying compensation. Matching expense for 2013 , 2012 and 2011 was $1,198 , $1,105 and $846 , respectively.

Deferred Compensation Plan : The Company has entered into certain non-qualified deferred compensation agreements with members of the executive management team, directors and certain employees. These agreements, which are subject to the rules of section 409(a) of the Internal Revenue Code, relate to the voluntary deferral of compensation received and do not have an employer contribution. The accrued liability as of December 31, 2013 and 2012 was $1,154 and $1,414 , respectively.

The Company had an existing deferred compensation agreement with the former President and Chief Executive Officer of the Company that provided benefits payable based on specified terms of the agreement. The accrued liability as of December 31, 2012 was approximately $451 . Per the terms of the agreement, a final payment of $449 was paid in 2013. The expense for this deferred compensation agreement was $(2) , $41 and $139 for the years ended December 31, 2013 , 2012 and 2011 , respectively.

Included in other assets is a universal life insurance policy as well as variable and fixed annuity contracts totaling $1,332 and $2,039 at December 31, 2013 and 2012 , respectively. The Company is the owner and beneficiary of the policy. The policy pays interest on the funds invested. The life insurance is recorded at the net cash surrender value, or the amount that can be realized. Interest income on the investment is included in the statements of income.

Bank-Owned Life Insurance : In 2007, the Company purchased and provided those who agreed to be insured under a separate account bank-owned life insurance plan with a share of the death benefit while they remain actively employed with the Company or serve on it's board. The benefit will equal 200% of each participating employee's base salary at the time of plan implementation and 200% of each participating director's annual base fees. In the event of death while actively employed with the Company, the deceased employee's or director's designated beneficiary will receive an income tax free death benefit paid.

In conjunction with the acquisition of Highlands in April 2012, the Company acquired an existing hybrid account bank-owned life insurance that provides certain executive officers who agreed to be insured under the plan with a share of the death benefit while they remain employed with the Company. The benefit is dependent upon the executive's most recent officer title and ranges from $75 to $150 . No benefit will be paid if the executive reaches normal retirement age or, while disabled, obtains gainful employment with an entity other than the Company.

The total balance of the bank-owned life insurance policies, reported as an asset, at December 31, 2013 and 2012 totaled $35,565 and $34,916 , and income for 2013 , 2012 and 2011 totaled $649 , $699 and $506 , respectively.

104

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 16 — ESOP PLAN

In connection with the 2006 minority stock offering, the Company established an Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees. The ESOP purchased 928,395 shares of common stock with proceeds from a 10 year note in the amount of $9,284 from the Company. In 2010, the ESOP purchased 1,588,587 shares of common stock with proceeds from a 30 year note in the amount of $15,886 from the Company. The Company's Board of Directors determines the amount of contribution to the ESOP annually but is required to make contributions sufficient to service the ESOP's debt. Shares are released for allocation to employees as the ESOP debt is repaid. Eligible employees receive an allocation of released shares at the end of the calendar year on a relative compensation basis. Employees are eligible if they meet the minimum service and eligibility requirements. The dividends paid on allocated shares are paid to employee accounts. Dividends on unallocated shares held by the ESOP are applied to the ESOP note payable. Contributions to the ESOP during 2013 , 2012 and 2011 were $2,060 each, and expense was $3,901 , $3,152 and $2,340 for December 31, 2013 , 2012 and 2011 , respectively.

Shares purchased by the ESOP were categorized as follows:



	2013		2012
Allocated to participants	1,154,495		970,301
Unearned	1,733,845		1,918,039
Total ESOP shares	2,888,340		2,888,340
Fair value of unearned shares at December 31	$	47,594	$	40,164

105

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 17 - SHARE-BASED COMPENSATION

The Company has shareholder approved share-based compensation plans that are accounted for under ASC 718, Compensation - Stock Compensation , which requires companies to record compensation cost for share-based payment transactions with employees in return for employment service. Under the plans, 3,370,040 options to purchase shares of common stock and 1,348,016 restricted shares of common stock were made available. The plans allow for the Company to grant restricted stock and stock options to directors, advisory directors, officers and other employees. Shares issued in connection with stock compensation awards are issued from available authorized shares. Compensation cost charged to income for share-based compensation is presented below:



	Years ended December 31,
	2013		2012		2011
Restricted stock	$	1,699	$	1,512	$	1,102
Stock options	949		365		449

Income tax benefit	927		657		543

A combined summary of changes in the nonvested shares for the Company's stock plans for 2013 , 2012 and 2011 follows:



	2013
	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 January 1	185,296		$	17.60	—		$	—
Granted	278,500		20.55		110,500		20.85
Vested	(49,798	)	17.73		—		—
Forfeited	(32,596	)	17.41		(28,100	)	25.68
Non-vested at December 31	381,402		$	20.39	82,400		$	27.45

	2012				2011
	Shares		Weighted- Average Grant Date Fair Value		Shares		Weighted- Average Grant Date Fair Value
Non-vested at January 1	71,603		$	13.08	218,393		$	13.14
Granted	222,336		17.56		—		—
Vested	(108,643	)	14.54		(107,798	)	13.15
Forfeited	—		—		(38,992	)	13.19
Non-vested at December 31	185,296		$	17.60	71,603		$	13.08

¹ For 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 and restricted stock awards to non-employees, 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 on the last business day of each calendar quarter end.

106

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of December 31, 2013 , there was $8,721 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 3.84 years. The total fair value of shares vested during the year ended December 31, 2013 , was $883 . Total restricted shares available for future issuance under the plans totaled 259,389 at year-end 2013 and 1,213,624 shares have been issued under the plans through December 31, 2013 .

Under the terms of the stock option plans, stock options may not be granted with an exercise price less than the fair market value of the Company’s common stock on the date the option is granted and may not be exercised later than ten years after the grant date. The fair market value is the closing stock price as quoted on the NASDAQ Stock Market on the date of grant and options typically vest evenly over a five year period.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. The risk-free interest rate is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the stock option in effect at the time of the grant. Although the contractual term of the stock options granted is ten years, the expected term of the stock is less because option restrictions do not permit recipients to sell or hedge their options, and therefore, we believe, encourage exercise of the option before the end of the contractual term. The expected term of stock options is based on employees' actual vesting behavior and expected volatilities are based on historical volatilities of the Company’s common stock. Expected dividends are the estimated dividend rate over the expected term of the stock options. For awards with performance-based vesting conditions, compensation cost is recognized when the achievement of the performance condition is considered probable of achievement. If a performance condition is subsequently determined to be improbable of achievement, compensation cost is reversed.

The weighted average fair value of stock options granted during 2013 , 2012 and 2011 was $5.70 , $5.11 and $4.30 , respectively. The fair value of options granted was determined using the following weighted-average assumptions as of grant date:



	2013		2012		2011
Risk-free interest rate	1.42	%	1.25	%	2.45	%
Expected term of stock options (years)	6.28		6.6		7.5
Expected stock price volatility	32.90	%	34.43	%	33.20	%
Expected dividends	1.75	%	1.39	%	1.42	%

107

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of activity in the stock option portion of the plans for 2013 , 2012 and 2011 was as follows:



			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2011	457,555		$	12.01	7.6	$	170
Granted	108,500		12.72		10	31
Exercised	—		—		—	—
Forfeited	(30,671	)	11.61		—	44
Outstanding at December 31, 2011	535,384		12.17		7.1	483
Granted	185,700		16.61		10.0	—
Exercised	(177,115	)	12.62		—	858
Forfeited	(43,920	)	11.68		—	—
Outstanding at December 31, 2012	500,049		13.70		7.6	3,619
Granted	810,000		20.33		10.0	—
Exercised	(81,401	)	12.06		—	883
Forfeited	(55,030	)	18.62		—	—
Outstanding at December 31, 2013	1,173,618		$	18.16	8.42	$	10,903
Fully vested and expected to vest	1,157,439		$	18.15	8.42	$	10,766
Exercisable at December 31, 2013	161,666		$	12.92	5.4	$	2,349

No stock options were exercised in 2011 . As of December 31, 2013 , there was $4,455 of total unrecognized compensation expense related to non-vested stock options. That expense is expected to be recognized over a weighted-average period of 3.34 years . At December 31, 2013 , the Company applied an estimated forfeiture rate of 5% based on historical activity. The intrinsic value for stock options is calculated based on the difference between the exercise price of the underlying awards and the market price of our common stock as of the reporting date.

The Compensation Committee may grant stock appreciation rights, which give the recipient of the award the right to receive the excess of the market value of the shares represented by the stock appreciation rights on the date exercised over the exercise price. As of December 31, 2013 , the Company has not granted any stock appreciation rights.

NOTE 18 — INCOME TAXES

The Company's pre-tax income is subject to federal income tax and state margin tax at a combined rate of 36% for 2013 , 2012 and 2011 . Income tax expense for 2013 , 2012 and 2011 , was as follows:



	2013		2012		2011
Current expense	$	13,996	$	14,047	$	11,384
Deferred expense	2,293		5,262		204
Total income tax expense	$	16,289	$	19,309	$	11,588

108

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At December 31, 2013 and 2012 , deferred tax assets and liabilities were due to the following:



	December 31,
	2013			2012
Deferred tax assets:
Allowance for loan losses	$	6,775		$	6,330
Other real estate owned	28			20
Depreciation	—			192
Deferred compensation arrangements	656			705
Self-funded health insurance	114			93
Non-accrual interest	271			303
Restricted stock and stock options	1,069			623
NOL carryforward from acquisition	1,398			3,023
Intangible assets	577			733
Fair value mark on purchased loans	1,222			2,962
Net unrealized loss on securities available for sale	207			—
Other	1,367			1,073
	13,684			16,057
Deferred tax liabilities:
Mortgage servicing assets	(97		)	(94		)
Depreciation	(265		)	—
Net unrealized gain on securities available for sale	—			(1,050		)
Partnerships — CRA-purposed private equity funds	(980		)	(809		)
Other	(22		)	(78		)
	(1,364		)	(2,031		)
Net deferred tax asset	$	12,320		$	14,026

The net deferred tax asset is recorded on the consolidated balance sheets under “other assets.” Management performed an analysis related to the Company's deferred tax asset for each of the years ended December 31, 2013 and 2012 and, based upon these analyses, no valuation allowance was deemed necessary as of December 31, 2013 or 2012 .

109

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Effective tax rates differ from the federal statutory rate of 35% in 2013 , 2012 and 2011 , applied to income before income taxes due to the following:



	At and for the Year Ended December 31,
	2013			2012			2011
Federal statutory rate times financial statement income	$	16,792		$	19,093		$	13,271
Effect of:
State taxes, net of federal benefit	80			87			56
Tax credit on CRA-purposed private equity fund	(125		)	(192		)	(192		)
Bank-owned life insurance income	(227		)	(245		)	(151		)
Municipal interest income	(738		)	(662		)	(740		)
Other	507			1,228			(656		)
Total income tax expense	$	16,289		$	19,309		$	11,588
Effective Tax Rate	33.95		%	35.40		%	30.56		%

The Company files income tax returns in the U.S. federal jurisdiction and several U.S. state jurisdictions. The Company is generally no longer subject to U.S. federal income tax examinations for tax years prior to 2010.

NOTE 19 — RELATED PARTY TRANSACTIONS

Loans to executive officers, directors, and their affiliates during 2013 were as follows:



Beginning balance	$	1,067
New loans	—
Effect of changes in composition of related parties	(764		)
Repayments	(42		)
Ending balance	$	261

None of the above loans were considered non-performing or potential problem loans. These loans are made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated persons and do not involve more than normal risk of collectability. Deposits from executive officers, directors, and their affiliates at year‑end 2013 and 2012 were $2,663 and $2,960 , respectively.

110

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 20 — REGULATORY CAPITAL MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off‑balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is adequately capitalized, regulatory approval is required to accept brokered deposits. If an institution is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year‑end 2013 and 2012 , the most recent regulatory notification categorized the Bank and the Company as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. Management believes that, at December 31, 2013 , the Bank and the Company met all capital adequacy requirements to which it is subject. Regulatory capital levels and ratios are calculated according to Form FFIEC 041 instructions.

Beginning with the March 2013 reporting cycle, the capital ratios presented below reflect a risk weighting change from 50% to 100% on our Warehouse Purchase Program loans. In April 2013, the Federal Financial Institutions Examination Council issued Supplemental Instructions for the March 31, 2013 Call Report, which clarified the regulators' position on the risk-weighting of these types of loans.



									To Be Well-Capitalized
					Required for Capital				Under Prompt Corrective
	Actual				Adequacy Purposes				Action Regulations
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of 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
As of December 31, 2012
Total risk-based capital
the Company	$	505,566	22.47	%	$	179,957	8.00	%	$	224,947	10.00	%
the Bank	404,562		18.00		179,847		8.00		224,809		10.00
Tier 1 risk-based capital
the Company	487,515		21.67		89,979		4.00		134,968		6.00
the Bank	386,511		17.19		89,923		4.00		134,885		6.00
Tier 1 leverage
the Company	487,515		13.97		139,620		4.00		174,525		5.00
the Bank	386,511		11.08		139,595		4.00		174,493		5.00

111

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following is a reconciliation of the Company and Bank’s equity under US GAAP to regulatory capital (as defined by the OCC and FRB):



	December 31, 2013						December 31, 2012
	Company			Bank			Company			Bank
GAAP equity	$	544,460		$	442,636		$	520,871		$	419,867
Deduction for nonfinancial equity investments	(568		)	(568		)	(516		)	(516		)
Disallowed goodwill and intangible assets	(30,367		)	(30,367		)	(30,945		)	(30,945		)
Unrealized loss (gain) on securities available for sale	383			383			(1,895		)	(1,895		)
Tier 1 capital	513,908			412,084			487,515			386,511
Allowance for loan losses	19,358			19,358			18,051			18,051
Total capital	$	533,266		$	431,442		$	505,566		$	404,562

Dividend Restrictions and Information— Banking regulations limit the amount of dividends that may be paid by the Bank to the Company without prior approval of regulatory agencies. The Bank may pay dividends to the Company within the limitations of the regulations. Under OCC regulations, limitations have been imposed upon all “capital distributions” by national banks, including cash dividend payments by an institution to its holding company for any purpose, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. As a subsidiary of a bank holding company, the Bank may make a capital distribution with 30 -days prior notice to the OCC, provided that the following criteria are met:


•	The Bank has a regulatory rating in the top two categories.


•	The Bank is not of supervisory concern, and would remain well-capitalized or adequately-capitalized, as defined in the OCC prompt corrective action regulations, following the proposed distribution.


•	The proposed distribution, combined with dividends already paid for the year, does not exceed its net income for the calendar year-to-date plus retained net income for the previous two years.

Should the Bank not meet the above stated requirements, it must file an application with the OCC before making the distribution.

112

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 21 - LOAN COMMITTMENTS, CONTINGENT LIABILITIES AND OTHER RELATED ACTIVITIES

In the normal course of business, the Company enters into various transactions, which, in accordance with generally accepted accounting principles 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 risk and interest rate risk. Credit losses up to the face amount of these instruments could result, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at 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 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 be entitled to seek recovery from the customer. 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 Company considers the fees collected in connection with the issuance of standby letters of credit to be representative of the fair value of its obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, the Company defers fees collected in connection with the issuance of standby letters of credit. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement.

The contractual amounts of financial instruments with off‑balance sheet risk at year-end were as follows:



	At December 31,
	2013		2012
Unused commitments to extend credit	$	425,324	$	219,284
Unused capacity on Warehouse Purchase Program loans	562,030		278,780
Standby letters of credit	1,354		2,155
Total unused commitments/capacity	$	988,708	$	500,219

Credit Card Guarantees: During 2013, the Company began a program where the Company would guarantee the credit card debt of certain customers to the merchant bank that issues the cards. At December 31, 2013 , the guarantees totaled $1,307 .

In addition to the commitments above, the Company had overdraft protection available in the amounts of $87,772 and $79,416 for December 31, 2013 and 2012 , respectively.

In regards to unused capacity on Warehouse Purchase Program loans, the Company has established a maximum purchase facility amount, but reserves the right, at any time, to refuse to buy any mortgage loans offered for sale by its mortgage banking company customers for any reason in the Company's sole and absolute discretion.

In October 2013, the Board of Directors of the Bank approved a $2,000 investment in a community development -oriented private equity fund used for Community Reinvestment Act purposes. The investment is structured as a limited partnership and has applied to the SBA to be a Small Business Investment Corporation. At December 31, 2013, $1,800 of the commitment was unfunded.

Liability for Mortgage Loan Repurchase Losses

Prior to VPM's sale in July 2012, the Company sold whole residential real estate loans to private investors, such as other banks and mortgage companies. The agreements under which the Company sold mortgage loans contained provisions that included various representations and warranties regarding the origination and characteristics of the mortgage loans. Although the specific

113

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

representations and warranties varied among investor agreements, they typically covered ownership of the loan, compliance with loan criteria set forth in the applicable agreement, validity of the lien securing the loan, absence of delinquent taxes or liens against the property securing the loan, compliance with applicable origination laws, and other matters. The Company may be required to repurchase mortgage loans, indemnify the investor or insurer, or reimburse the investor or insurer for credit losses incurred on loans in the event of a breach of such contractual representations or warranties that is not remedied within the time period specified in the applicable agreement after we receive notice of the breach. Typically, it is a condition to repurchase or indemnify a loan that the breach must have had a material and adverse effect on the value of the mortgage loan or to the interests of the security holders in the mortgage loan. Agreements under which the Company sold mortgage loans required the delivery of various documents to the investor, and the Company may be obligated to repurchase or indemnify any mortgage loan as to which the required documents were not delivered or were defective. Upon receipt of a repurchase or indemnification request, the Company works with investors to arrive at a mutually agreeable resolution. These demands are typically reviewed on a loan by loan basis to validate the claims made by the investor and determine if a contractual event occurred. The Company managed the risk associated with potential repurchases or other forms of settlement through underwriting and quality assurance practices.

The Company has established a mortgage repurchase liability that reflects management's estimate of losses for loans for which the Company could have repurchase obligations based on historical investor repurchase and indemnification demands and historical loss ratios. Although investors may demand repurchase at any time, the Company's historical demands have occurred within 12 months of the investor purchase. The Company had no repurchases and one indemnification in 2013. In 2012, there were no repurchases and two indemnifications. Actual losses were $5 and $22 during the years ended December 31, 2013 and 2012, respectively.

The liability, included in “Other Liabilities” in the consolidated balance sheet, was $106 at December 31, 2013. Additions to the liability reduced net gains on mortgage loan origination/sales. The mortgage repurchase liability represents the Company's best estimate of the loss that may be incurred for various representations and warranties in the contractual provisions of sales of mortgage loans. There may be a range of reasonably possible losses in excess of the estimated liability that cannot be estimated with confidence. Because the level of mortgage loan repurchase losses are dependent on economic factors, investor demand strategies and other external conditions that may change over the life of the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment.

114

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 22- SEGMENT INFORMATION

On June 5, 2012, the Bank and VPM, our former mortgage banking subsidiary, entered into a definitive agreement (the “Agreement”) with Highlands Residential Mortgage, Ltd. (“HRM”) to sell substantially all of the assets of VPM to HRM, subject to certain closing conditions. The terms of the Agreement provided for HRM to, subject to certain conditions contained in the Agreement, (i) purchase VPM's loan pipeline and all of VPM's existing construction loan portfolio, together with certain furniture, fixtures and equipment, (ii) assume substantially all of VPM's loan production office leases and its equipment leases, (iii) hire no less than 95% of the current VPM employees and satisfactorily release VPM from certain employment contracts, and (iv) make additional earn out payments to VPM. Following completion of the sale, the Agreement provided an opportunity for the Bank to partner with HRM to continue providing the Bank's customers with residential mortgage services.

The transaction closed in the third quarter of 2012. As a result of the execution of the Agreement, in the second quarter of 2012, VPM recognized $1,190 in one-time write-offs and expenses relating to the sale, including $818 of goodwill that was impaired to $0 and $250 in fixed asset losses.

The reportable segments are determined by the products and services offered, primarily distinguished between banking and VPM, our former mortgage banking subsidiary. Loans, investments and deposits generate the revenues in the banking segment; secondary marketing sales generated the revenue in the VPM segment. Segment performance is evaluated using segment profit (loss). Information reported internally for performance assessment for years ended December 31, 2012 and 2011 was as follows:



	Year Ended December 31, 2012
	Banking			VPM			Eliminations and Adjustments ¹			Total Segments (Consolidated Total)
Results of Operations:
Total interest income	$	137,974		$	994		$	(976	)	$	137,992
Total interest expense	22,906			975			(1,712		)	22,169
Provision (benefit) for loan losses	3,212			(73		)	—			3,139
Net interest income after provision for loan losses	111,856			92			736			112,684
Other revenue	24,769			(1,040		)	391			24,120
Net gain (loss) on sale of loans	(1,578		)	7,014			—			5,436
Total non-interest expense	78,673			6,687			2,330			87,690
Income before income tax expense (benefit)	56,374			(621		)	(1,203		)	54,550
Income tax expense (benefit)	19,973			(204		)	(460		)	19,309
Net income (loss)	$	36,401		$	(417	)	$	(743	)	$	35,241
Segment assets	$	3,661,677		$	—		$	1,381		$	3,663,058
Noncash items:
Net gain (loss) on sale of loans	(1,578		)	7,014			—			5,436
Depreciation	3,783			153			—			3,936
Provision (benefit) for loan losses	3,212			(73		)	—			3,139

115

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



	Year Ended December 31, 2011
	Banking			VPM			Eliminations and Adjustments ¹			Total Segments (Consolidated Total)
Results of Operations:
Total interest income	$	116,032		$	1,698		$	(1,506	)	$	116,224
Total interest expense	33,992			1,506			(1,852		)	33,646
Provision for loan losses	3,962			8			—			3,970
Net interest income after provision for loan losses	78,078			184			346			78,608
Other revenue	25,394			(306		)	1,821			26,909
Net gain (loss) on sale of loans	(2,158		)	9,797			—			7,639
Total non-interest expense	61,231			12,464			1,545			75,240
Income (loss) before income tax expense (benefit)	40,083			(2,789		)	622			37,916
Income tax expense (benefit)	12,905			(916		)	(401		)	11,588
Net income (loss)	$	27,178		$	(1,873	)	$	1,023		$	26,328
Segment assets	$	3,180,291		$	52,568		$	(52,281	)	$	3,180,578
Noncash items:
Net gain (loss) on sale of loans	(2,158		)	9,797			—			7,639
Depreciation	3,223			292			—			3,515
Provision for loan losses	3,962			8			—			3,970

¹ Includes eliminating entries for intercompany transactions and stand-alone expenses of the Company.

116

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 23 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of ViewPoint Financial Group, Inc. follows:

CONDENSED BALANCE SHEETS

December 31,



	2013		2012
ASSETS
Cash on deposit at subsidiary	$	46,859	$	47,559
Investment in banking subsidiary	442,636		419,867
Receivable from banking subsidiary	35,821		33,174
ESOP note receivable and other assets	19,508		20,271
Total assets	$	544,824	$	520,871
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	364	$	—
Shareholders’ equity	544,460		520,871
Total liabilities and shareholders’ equity	$	544,824	$	520,871

CONDENSED STATEMENTS OF INCOME

December 31,



	2013		2012		2011
Cash dividends from subsidiary	$	12,780	$	—	$	—
Excess of earnings over dividend from subsidiary	20,537		36,401		27,176
Interest income on ESOP loan	698		762		819
	34,015		37,163		27,995
Interest expense	—		27		473
Operating expenses	3,154		2,355		1,595
Earnings before income tax benefit	30,861		34,781		25,927
Income tax benefit	827		460		401
Net income	$	31,688	$	35,241	$	26,328

117

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED STATEMENTS OF CASH FLOWS

December 31,



	2013			2012			2011
Cash flows from operating activities
Net income	$	31,688		$	35,241		$	26,328
Adjustments to reconcile net income to net cash from operating activities:
Excess of earnings over dividend from subsidiary	(20,537		)	(36,401		)	(27,176		)
Vesting of restricted stock	(89		)	1,805			1,327
Net change in intercompany receivable	111			(31,946		)	—
Net change in other assets	(594		)	(665		)	(402		)
Net change in other liabilities	364			(325		)	200
Net cash from operating activities	10,943			(32,291		)	277
Cash flows from investing activities
Capital contribution to subsidiary	—			29,007			—
Cash and cash equivalents acquired from acquisition	—			599			—
Payments received on ESOP notes receivable	1,362			1,298			1,241
Net cash from investing activities	1,362			30,904			1,241
Cash flows from financing activities
Share repurchase	(1,554		)	—			(13,012		)
Proceeds (repayments) from borrowing	—			—			(10,000		)
Net issuance of common stock under employee stock plans	1,329			2,236			—
Payment of dividends	(12,780		)	(15,448		)	(6,918		)
Net cash from financing activities	(13,005		)	(13,212		)	(29,930		)
Net change in cash and cash equivalents	(700		)	(14,599		)	(28,412		)
Beginning cash and cash equivalents	47,559			62,158			90,570
Ending cash and cash equivalents	$	46,859		$	47,559		$	62,158

118

Table of Contents

VIEWPOINT FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 24 - QUARTERLY FINANCIAL DATA (Unaudited)



					Net Interest Income		Provision (Benefit) for Loan Losses			Securities Gains and (Losses)					Earnings per Share
	Interest Income		Interest Expense		Net Interest Income		Provision (Benefit) for Loan Losses			Securities Gains and (Losses)			Net Income		Basic	Diluted
2013
First quarter	$	33,419	$	4,894	$	28,525	$	883		$	(177	)	$	8,058	0.21	0.21
Second quarter	35,296		4,858		30,438		1,858			—			8,174		0.21	0.21
Third quarter	33,875		4,687		29,188		(158		)	—			8,212		0.22	0.21
Fourth quarter	34,499		4,430		30,069		616			—			7,244		0.19	0.19
2012
First quarter	$	29,376	$	5,886	$	23,490	$	895		$	—		$	7,072	0.22	0.22
Second quarter ¹	35,127		5,941		29,186		1,447			116			6,492		0.17	0.17
Third quarter	37,008		5,389		31,619		814			898			11,316		0.30	0.30
Fourth quarter	36,481		4,953		31,528		(17		)	—			10,361		0.28	0.27

¹ Net income includes a goodwill impairment charge of $818 during the second quarter of 2012.

NOTE 25 — SUBSEQUENT EVENTS

The Company evaluated events from the date of the consolidated financial statements on December 31, 2013 through the issuance of those consolidated financial statements included in this Annual Report on Form 10-K dated February 26, 2014. No additional events were identified requiring recognition in and/or disclosures in the consolidated financial statements.

On November 25, 2013, the Company entered into a definitive agreement with LegacyTexas Group, Inc. (“LegacyTexas”), pursuant to which LegacyTexas will be merged with and into the Company (the “Merger”). The Agreement provides, that upon the terms and subject to the conditions set forth therein, the Company’s articles of incorporation and bylaws will be amended as of the effective time of the Merger (the "Effective Time") to change its name to “LegacyTexas Financial Group, Inc.” Immediately following the Merger, the Bank will be merged with and into LegacyTexas’ subsidiary bank, LegacyTexas Bank. The Board of Directors of the Bank will serve as the Board of Directors of LegacyTexas Bank at the effective time of the Bank Merger. George Fisk, Vice Chairman and CEO of LegacyTexas, and Greg Wilkinson, each current LegacyTexas board members, will join the Board of Directors of the Company at the Effective Time and will continue to serve on the Board of LegacyTexas Bank following the Merger.

Under the terms of the Merger Agreement, LegacyTexas shareholders will be entitled to elect to receive, for each share of LegacyTexas common stock they hold, either $126.124 in cash or 6.006 shares of the Company’s common stock, with cash paid in lieu of fractional shares. It is expected that the Company will issue 7.85 million shares of common stock in the Merger.

In the event the Agreement is terminated under certain specified circumstances in connection with a competing transaction, LegacyTexas will be required to pay the Company a termination fee of $8.4 million in cash.

Mays Davenport, Executive Vice President of LegacyTexas Bank, will become Executive Vice President / Chief Financial Officer of the Company effective upon the closing of the Merger. The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the Agreement by the shareholders of LegacyTexas, and is expected to be completed during the second quarter of 2014. All of the directors of LegacyTexas have agreed to vote their shares of LegacyTexas common stock in favor of approval of the Agreement.

119

Table of Contents



Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.



Item 9A.	Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures : An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”)) as of December 31, 2013, was carried out under the supervision and with the participation of our Chief Executive Officer, Principal Financial Officer and several other members of our senior management. Our Chief Executive Officer and Principal Financial Officer concluded that, as of December 31, 2013, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Principal Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)

Management’s Report on Internal Control Over Financial Reporting : Management of the Company is responsible for establishing and maintaining an effective system of internal control over financial reporting. The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the Company’s systems of internal control over financial reporting as of December 31, 2013. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework). Based on this assessment, management believes that, as of December 31, 2013, the Company maintained effective internal control over financial reporting based on those criteria. The Company’s independent registered public accounting firm that audited the financial statements included in this annual report on Form 10-K has issued an attestation report on the Company’s internal control over financial reporting. The attestation report of Ernst & Young LLP appears below.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

ViewPoint Financial Group, Inc.

We have audited ViewPoint Financial Group, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). ViewPoint Financial Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

120

Table of Contents

company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements..

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ViewPoint Financial Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013 of ViewPoint Financial Group, Inc. and our report dated February 26, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young

Dallas, Texas

February 26, 2014


(c)	Changes in Internal Control Over Financial Reporting : During the quarter ended December 31, 2013, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




Item 9B.		Other Information

Not applicable.

121

Table of Contents

PART III



Item 10.	Directors, Executive Officers and Corporate Governance

The Company's Board of Directors is currently composed of seven members, each of whom is also a director of the Bank. One-third of the directors are elected annually. Directors of the Company are elected to serve for a three-year term or until their respective successors are elected and qualified.

Effective May 19, 2014, the date of the Company's annual meeting of shareholders, directors James McCarley and Keith Sockwell will retire from the Board of Directors of the Company and the size of the Company's board of directors will reduce to five. Messrs. McCarley and Sockwell also will retire as directors of the Bank, effective May 19, 2014. The Board of Directors wishes to thank Messrs. McCarley and Sockwell for their dedicated service to the Company and the Bank.

On November 25, 2013, the Company entered into an agreement to acquire LegacyTexas Group, Inc. (“LegacyTexas”). The transaction is expected to close during the second quarter of 2014 (but following the Company's annual meeting of shareholders), subject to customary closing conditions, including receipt of required regulatory approvals and approval of the merger agreement by the shareholders of LegacyTexas. In accordance with the terms of the merger agreement, simultaneously with the closing of the transaction, two LegacyTexas directors will be appointed to the Board of Directors of the Company and its wholly owned bank subsidiary. At such time, the size of the Company's board will be expanded to seven members to accommodate the appointment of the two LegacyTexas directors.

The following table sets forth certain information regarding the composition of the Company's Board of Directors, including each director's term of office. The Board of Directors, acting on the recommendation of the Governance and Nominating Committee, has recommended and approved the nomination of James Brian McCall and Karen H. O’Shea to serve as directors for a term of three years to expire at the annual meeting of shareholders to be held in 2017. Except as disclosed in this Form 10-K statement, there are no arrangements or understandings between the nominee and any other person pursuant to which the nominee was selected.



Name	Age	Position(s) Held in the Company	Director Since	Term of Office to Expire
Nominee
James Brian McCall, Ph.D.	55	Director	2009	2017
Karen H. O’Shea	63	Director	1998	2017

Directors Remaining in Office
Kevin J. Hanigan	57	Director, President and CEO	2012	2015
Anthony J. LeVecchio	67	Vice Chairman of the Board	2006	2015
Bruce W. Hunt	55	Director	2012	2016
James B. McCarley ¹	70	Chairman of the Board	1992	2014
V. Keith Sockwell ¹	71	Director	1987	2015

¹ To retire effective as of the May 19, 2014 annual meeting of shareholders

The business experience for at least the past five years of each director, director nominee and persons chosen to become directors is set forth below.

James Brian McCall, Ph.D. Brian McCall has served on the Board of Directors of the Company since 2011 and of the Bank since 2009. McCall is Chairman of the Legislative, ALCO, and Enterprise Risk Committees and is a member of the Audit Committee. McCall is chancellor of the Texas State University System, the oldest and third-largest university system in Texas, comprising eight institutions with more than 80,000 students and 15,000 faculty and staff. He previously served in the Texas House of Representatives, first elected in 1991 to represent the areas of North Dallas, Frisco, Allen, and Plano. As a representative, McCall served as chairman of the House Calendars Committee and as a member of the Higher Education Committee. Texas Monthly named him one of the "10 Best" legislators of the 2009 session. McCall was President of Westminster Capital Corporation, an investment firm focused on acquisitions primarily in software and technology. A long-time civic and community volunteer, McCall is founder and chairman of the board of The Empowerment Project, a non-profit organization which has sent more than $10 million worth of math and science books to disadvantaged schools in the Republic of South Africa, and helped construct a library in Vietnam through the Libraries of Love organization. McCall's management

122

Table of Contents

and legislative expertise, as well as his civic and community involvement, give him a broad range of experience and knowledge which he draws upon for service on our Board and his assigned committees.

Karen H. O'Shea. M s. O'Shea has served on the Board of Directors of the Company (including its predecessor entity) since its inception in 2006 and of the Bank (including its predecessor entity) since 1998. Ms. O'Shea chairs the Compensation Committee and is also a member of the Governance and Nominating, Enterprise Risk and Executive Committees. Prior to her retirement in 2008, she was Vice President of Communications and Public Relations for Lennox International Inc., a NYSE-listed manufacturer of heating and air conditioning equipment. During her 25 years at Lennox, Ms. O'Shea's responsibilities included media relations, corporate communications, investor relations and human resources, including compensation and employee development. Prior to her tenure at Lennox, she was a teacher, an owner and manager of a retail business, and an editor for a major Texas metropolitan newspaper. She also served on the Board of Directors of Richardson Regional Medical Center for eight years, including a term as Vice-Chairman. Ms. O'Shea's expertise in corporate communications for a NYSE-listed company and her experience in human resources, employee development and compensation, as well as her experience on the boards of both a large regional medical institution and a publicly traded financial institution, give her a broad range of experience she draws upon for her service on our board and her assigned committees.

Kevin J. Hanigan . Mr. Hanigan is a Director and Chief Executive Officer of the Company and the Bank, positions he has held since the completion of the Highlands Bank acquisition with and into the Company in April 2012. Prior to joining the Company, Mr. Hanigan was the Chairman and Chief Executive Officer of Highlands Bank, serving in those roles since 2010. Prior to joining Highlands Bank, Mr. Hanigan was employed by Guaranty Bank starting in 1996, serving in numerous capacities including Chief Lending Officer, Executive in charge of Retail Banking, and finally as Chairman and Chief Executive Officer of Guaranty Bank and its parent company, Guaranty Financial Group, Inc., which filed for bankruptcy in 2009. Mr. Hanigan began his career with Bank of the Southwest in Houston in June 1980. Mr. Hanigan earned his undergraduate degree and Master of Business Administration from Arizona State University. With more than 30 years of experience working in the banking industry in Texas and serving as chief executive officer of several institutions, Mr. Hanigan brings outstanding leadership skills and a deep understanding of the local banking market and issues facing the banking industry.

Anthony J. LeVecchio. Mr. LeVecchio joined the Board of Directors of the Company (including its predecessor entity) and the Bank in September 2006. Mr. LeVecchio serves as Chairman of the Audit Committee and is also a member of the Compensation, Executive, Enterprise Risk and Lending Committees. Mr. LeVecchio is President and Principal of The James Group, Inc., a Plano, Texas-based consulting group that focuses on providing executive support to businesses throughout the United States. Prior to founding The James Group, Mr. LeVecchio served as Senior Vice President and Chief Financial Officer of VHA Southwest Inc., a regional health care system comprised of not-for-profit hospitals in Texas. Before VHA Southwest, Mr. LeVecchio served in various senior financial management capacities with Phillips Information Systems, Exxon Office Systems and Xerox Corporation. Mr. LeVecchio currently serves on the boards of directors of Ascendant Solutions (a privately-owned value-oriented investment firm based in Dallas) and UniPixel (a publicly traded technology company based in The Woodlands, Texas). Mr. LeVecchio also served on the boards of directors of DG Fast Channel (a publicly traded technology company based in Dallas, Texas) until July 2011and Microtune, Inc. (a former publicly traded radio frequency silicon and systems company based in Plano, Texas) until November 2010. Mr. LeVecchio, who serves as our audit committee financial expert, holds a Bachelor of Economics and an M.B.A. in Finance from Rollins College where he serves on the Board of Trustees. Mr. LeVecchio is a lecturing professor for financial statement analysis classes in the undergraduate and MBA programs at the University of Texas, Dallas. His broad experience serving on the boards of publicly traded companies, together with his expertise and extensive experience in accounting and finance and his sharp focus on the financial efficiency and profitability of the institution, have contributed significantly to our efforts since he joined the Board in 2006.

Bruce W. Hu nt. Mr. Hunt joined the Board of Directors of the Company and of the Bank in 2012, following completion of the merger of Highlands Bancshares, Inc. with and into the Company. Mr. Hunt is President of Petro-Hunt, L.L.C., an independent oil and gas production company headquartered in Dallas, Texas. Mr. Hunt is a graduate of the University of Texas with a BBA in Petroleum Land Management. He currently serves on the Board of Directors of Hornbeck Offshore Services, Inc. (NYSE: HOS) and is the independent lead director for that company. Mr. Hunt is active in a number of industry and professional organizations such as the American Petroleum Institute (API), Independent Producers Association of America (IPAA), National Ocean Industries Association (NOIA), and All-American Wildcatters. Mr. Hunt serves on the Board of Trustees at Texas Christian University (TCU) and is a past member of the International Board of Visitors at TCU's Neeley School of Business. Mr. Hunt is an experienced business leader. The depth and breadth of his general business knowledge, coupled with the experience he has gained as a director of Highlands Bancshares and as the lead independent director for another publicly held company makes Mr. Hunt a valuable addition to the Board.

123

Table of Contents

James B. McCarley. Mr. McCarley has served on the Board of Directors of the Company (including its predecessor entity) since its inception in 2006 and of the Bank (including its predecessor entity) since 1992. He has served as Chairman of the Board since 1999. Mr. McCarley serves as Chairman of the Executive Committee and is also a member of the Compensation, Legislative and Governance and Nominating Committees. Since January 1996, Mr. McCarley has served as President of James McCarley Consultants, a governmental affairs consulting company. He served as Executive Director of the Dallas Regional Mobility Coalition (DRMC) on a contract basis from 1996 until his retirement in 2007. DRMC is a voluntary coalition of five counties and 27 cities in the Texas Department of Transportation Dallas District that promotes mobility issues, projects and programs for transportation improvements. During his service with the DRMC, he served as interim Executive Director of the North Texas Tollway Authority, a Regional Tollway Authority comprised of four counties in North Texas. His service there included responsibility for development of Tollway facilities through public revenue bond funding for various projects over $2 billion and operation of the Regional Agency. From February 1987 through January 1996, Mr. McCarley served as the Assistant City Manager-Director of Public Safety for the City of Plano, Texas. During a portion of his service with the City of Plano he had oversight of the Finance Department and Tax Department along with Budget Planning and Audit. Prior to 1987, Mr. McCarley spent 23 years in law enforcement, including serving nearly 11 years as the Chief of Police for the City of Plano, Texas. Mr. McCarley was also a founding director of and equity investor in the Town and Country Savings and Loan (State Chartered) in McKinney and served on the Loan Committee of that entity prior to its sale to another institution in the early eighties.

With 29 years of combined experience serving on the boards of directors of two different financial institutions, 20 years of senior executive experience with public entities and 14 years as the owner-operator of a successful legislative relations business, Mr. McCarley has a diverse and well-rounded background for his role as Chairman of the Board of Directors. Additionally, his personal and professional relationships with a litany of local, state and federal elected officials, and his extensive network of professional contacts within our business area, have regularly proven to be valuable to the Bank.

V. Keith Sockwell. Mr. Sockwell has served on the Board of Directors of the Company (including its predecessor entity) since its inception in 2006 and of the Bank (including its predecessor entity) since 1987. Mr. Sockwell serves as Chairman of the Governance and Nominating Committee and is also a member of the Legislative, Executive, Compensation and Audit Committees. He served as the President and CEO of Cambridge Strategics until July 2011. He retired in March 2013 as a partner of N2 Learning LLC, a consulting firm located in Plano, Texas. Mr. Sockwell retired after 40 years in public education where he served as Deputy Superintendent of the Plano Independent School District and Superintendent of the Northwest Independent School District. He is a member of the Texas Association of School Administrators. He served on the Executive Committees for the Texas School Coalition and the Fast Growth Coalition of Texas Public Schools and also served as a director on the State Board of Educator Certification. Mr. Sockwell's years of executive management with large public educational organizations provided him extensive experience in budgeting, financial management and human resources that prove valuable in his role as a board member. In addition, his 23 years of service on our Board of Directors gives him an important historical perspective on our business.

On November 25, 2013, the Company entered into a definitive agreement (the “Agreement”) with LegacyTexas Group, Inc. (“LegacyTexas”), pursuant to which LegacyTexas will be merged with and into the Company (the “Merger”). The Agreement provides that George Fisk, Chief Executive Officer and vice chairman of LegacyTexas, and Greg Wilkinson, board member of LegacyTexas, will join the Company's board of directors.

George A. Fisk , age 65, has served as Chief Executive Officer and Vice Chairman of LegacyTexas since 2004. Between 2001 and 2004, Mr. Fisk served as partner at McGladrey and Pullen, an independent accounting and consulting firm. Prior to that, Mr. Fisk served as a shareholder of Fisk & Robinson, P.C., which merged with McGladrey and Pullen in 2001. He has worked in the financial services sector for more than 40 years. He currently serves as a board member of the Independent Bankers Financial Corporation, the Freeman Companies and Jesuit College Preparatory School Foundation. He is a member of the Chief Executives Round Table. He is a former director of the Federal Reserve Bank of Dallas and former advisory board member of College of Business of the University of North Texas and the Texas Tech University Graduate School of Banking. Mr. Fisk holds a B.A. in government from Texas Tech University, and an M.B.A. in banking and finance from the University of North Texas. Mr. Fisk is a Certified Public Accountant.

Greg Wilkinson , age 67, has served on the Board of Directors of LegacyTexas since 2007. Mr. Wilkinson has served in various capacities at Hill & Wilkinson General Contractors since 1985, where he is currently Co-Chairman. Prior to that, he served as the Vice President and General Manager of the regional division of a worldwide general contractor. He has over 40 years experience in the construction industry. Mr. Wilkinson serves on the Board of Directors of the National Center for Policy Analysis, and is a member of the Salesmanship Club of Dallas. He is a past Board member of The Real Estate Council (TREC) and Circle Ten Council of Boy Scouts of America and serves on the YMCA of Metropolitan Dallas Properties Committee. Mr. Wilkinson earned a B.S. in Mechanical Engineering from Southern Methodist University, and completed advanced management education programs at both Southern Methodist University and Penn State University.

124

Table of Contents

Other than with respect to Mr. Fisk and Mr. Wilkinson, there are no arrangements or understandings between the Company and any person pursuant to which such person has been or will be elected as a director.

Executive Officers

Information about our executive officers is contained under the caption "Executive Officers" in Part I of this Form 10-K and is incorporated herein by this reference.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of the Company's common stock, to report their initial ownership of the Company's common stock and any subsequent changes in that ownership to the SEC. Specific due dates for these reports have been established by the SEC, and the Company is required to disclose in this Form 10-K any late filings or failure to file.

The Company believes that, based solely on a review of the copies of such reports furnished to it and written representations that no other reports were required during the fiscal year ended December 31, 2013, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with during fiscal 2013.

Corporate Governance

Nominating Procedures. There have been no material changes to the procedures by which shareholders may recommend nominees to our Board of Directors since last disclosed to shareholders.

Audit Committee and Audit Committee Financial Expert. The Audit Committee operates under a formal written charter adopted by the Board of Directors. The Audit Committee is appointed by the Board of Directors to provide assistance to the Board in fulfilling its oversight responsibility relating to the integrity of our consolidated financial statements, our financial reporting processes, our systems of internal accounting and financial controls, our compliance with legal and regulatory requirements, the annual independent audit of our consolidated financial statements, the independent auditors' qualifications and independence, the performance of our internal audit function and independent auditors and any other areas of potential financial risk to the Company specified by its Board of Directors. The Audit Committee also is responsible for the appointment, retention and oversight of our independent auditors, including pre-approval of all audit and non-audit services to be performed by the independent auditors.

The current members of the Audit Committee are Directors LeVecchio (Chair), Sockwell and McCall. All members of the Audit Committee are able to read and understand fundamental financial statements, including our balance sheet, income statement, and cash flow statement. Additionally, Mr. LeVecchio has had past employment experience in finance or accounting and/or requisite professional certification in accounting that results in his financial expertise. The Board of Directors has determined that Mr. LeVecchio meets the requirements adopted by the SEC for qualification as an “audit committee financial expert.”

Code of Business Conduct and Ethics

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, and to all of our other employees and our directors. A copy of our code of ethics is available on our Internet website address, www.viewpointfinancialgroup.com .



Item 11.	Executive Compensation

Company Performance Summary

The Company enjoyed another milestone year in 2013, making significant progress towards its goal of becoming a premier core-funded, commercially-oriented community bank. We announced the largest acquisition in Company history, added to our roster of talented and experienced commercial bankers, continued our earning asset diversification plan, with commercial interest income now accounting for 52% of earning asset revenue - up from 16% in 2007, and improved deposit gathering and retention performance. Below are some highlights from 2013:

125

Table of Contents


•	Merger with LegacyTexas Group announced November 2013; the merger will result in us being one of the largest independent banks in the state of Texas, with 51 branches and pro forma assets of over $5 billion


•	Continued execution of commercial banking strategy with commercial loan portfolio growing 39.3% to a total of $1.6 billion


•	Successfully formed a new energy lending group in May 2013, increasing to $166.5 million at December 31, 2013


•	Net interest margin expanded to 3.71% for the year compared to 3.61% for 2012


•	Non-performing assets of $22.6 million, or 0.64% of total assets, at December 31, 2013, represents lowest level in nine quarters


•	Increased the quarterly cash dividend of $0.12 per share in both the third and fourth quarters of 2013, up 20% from the $0.10 per share declared for the four prior quarterly dividends periods

The Objectives of our Executive Compensation Program

Our Compensation Committee is responsible for establishing and administering our policies governing the compensation for our named executive officers ("NEOs"). NEOs consist of the chief executive officer, chief financial officer and the other three most highly-compensated executive officers. The Compensation Committee is composed entirely of independent directors as defined by NASDAQ listing requirements.

Our executive compensation programs are designed to achieve the following objectives:


•	Ensure mutual understanding of key business strategies and goals by executives and Board members;


•	Focus executives on the achievement of annual and long-range results;


•	Promote and build teamwork, aligning team and individual efforts toward accomplishing key business priorities;


•	Reward outstanding short- and long-term performance by providing competitive incentive awards consistent with actual results;


•	Align executive with shareholder interests through stock ownership;


•	Ensure focus on share value appreciation, while providing a balanced view of performance and rewards with the time horizon of risk.

The Compensation Committee approves the compensation of our NEOs and annually analyzes our chief executive officer's performance to determine his base salary and bonus award payout. Annual performance reviews and any other information that the Compensation Committee may deem relevant are considered by the Compensation Committee when making decisions on setting base salaries and award plan targets and payments for our NEOs. When making decisions on setting base salary and award plan targets and payments for new NEOs, the Compensation Committee considers the importance of the position to the Company, the past salary history of the executive officer and future contributions to be made by the executive officer. The Compensation Committee modifies (as appropriate) and seeks advice from the compensation consultants, who are selected by the Compensation Committee.

Compensation Philosophy

The goal of our compensation philosophy is to attract and retain executives with the ability and experience necessary to lead us and deliver strong performance. We strive to provide a total compensation package that is competitive with total compensation provided by industry peer groups.

Our compensation package consists of three main components: base salary, short-term incentives ("STI"), and long-term incentives ("LTI"). We generally target base salaries to be at or near the 50 ^th percentile of our peer group for each position, adjusted for marketplace demands, needs of our organization, individual experience and competitive market data surveys. The STI is a cash award, based on our performance compared to company goals and an individual performance assessment. The LTI, which is an equity based incentive, rewards executives for driving long-term, sustained performance, aligns executives with shareholder interests through stock ownership and ensures focus on share value appreciation, while providing a balanced view of performance and rewards with the time horizon of risk.

The 2013 total compensation package was determined by the Compensation Committee using our peer group information, which was reviewed and updated with the assistance of Pearl Meyer & Partners (“PM&P”). The following selection criteria was utilized: (1) similar in size to the Company ($1.8B to $7.2B total assets; approximately $3.6B median total assets), (2) locations in the Midwest and Southwest states, generally, and (3) established commercial banks with similar business models. The selection process eliminated companies outside of approximately 0.5 times to 2 times the Company's asset size, banks outside the region and breadth of operations due to different business challenges, and banks with unique

126

Table of Contents

business models or too large/small market caps that exhibit different financial performance characteristics and, accordingly, different compensation programs. Based on these criteria, the companies selected for the 2013 peer group are set forth below. We may also use other publicly traded banks in our market area as a reference point to measure our performance. The Compensation Committee reviews the peer group annually to ensure continued appropriateness.



Company Name	Trading Symbol	State
Park National Corporation	PRK	OH
First Financial Bancorp	FFBC	OH
BancFirst Corporation	BANF	OK
Chemical Financial Corporation	CHFC	MI
National Bank Holdings Corporation	NBHC	CO
Heartland Financial USA, Inc.	HTLF	IA
1st Source Corporation	SRCE	IN
First Financial Bankshares, Inc.	FFIN	TX
First Merchants Corporation	FRME	IN
Great Southern Bancorp, Inc.	GSBC	MO
Home BancShares, Inc.	HOMB	AR
Bank of the Ozarks, Inc.	OZRK	AR
Community Trust Bancorp, Inc.	CTBI	KY
First Busey Corporation	BUSE	IL
Republic Bancorp, Inc.	RBCAA	KY
Simmons First National Corporation	SFNC	AR
Southside Bancshares, Inc.	SBSI	TX
Lakeland Financial Corporation	LKFN	IN
First Financial Corporation	THFF	IN
CoBiz Financial Inc.	COBZ	CO
Southwest Bancorp, Inc.	OKSB	OK
S.Y. Bancorp, Inc.	SYBT	KY

Compensation Governance Programs

Our executive compensation programs and principles are based on a strong pay for performance philosophy and a commitment to balanced performance metrics and sound governance.

Stock Ownership Guidelines . The Company’s stock ownership guidelines require that NEOs and Board members have a significant stake in the Company's results and share value through holding a suitable amount of Company common stock. The requirement aligns the interests of our executives and Board with the interests of our shareholders. For purposes of the stock ownership guidelines, stock ownership includes:


•	All shares owned, but excluding stock options and unvested shares of restricted stock or restricted stock units;


•	Shares held in trust where the NEO or Board member retains beneficial ownership; and


•	Any shares accumulated through employee benefit plans.

The stock ownership guidelines are summarized below.



Level	Guideline
President and CEO	3.0 times base salary
Other NEOs	2.0 times base salary
Board members	10,000 shares

NEOs and Board members have five years from the date they join the Company or the date they are promoted into a covered position to be in compliance with the stock ownership guidelines. Compliance with these guidelines is reviewed annually.

127

Table of Contents

Shareholder “Say on Pay”. We are required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to include a non-binding, advisory, “say on pay” vote in our annual meeting proxy statement at least once every three years and at least once every six years a non-binding, advisory vote on the frequency of future say-on-pay votes. In 2011, shareholders voted on the frequency of future say-on-pay votes, with the most votes cast in favor of a frequency of every year. Our Board of Directors determined, in light of those results, that the Company will include a say-on-pay vote in its annual meeting proxy materials every year until the next required frequency vote is held. See “Proposal II - Advisory Vote on Executive Compensation.” At our 2013 annual meeting of shareholders, over 98% of the shares voted were in support of the compensation of the NEOs. Accordingly, the Board of Directors has continued to apply the same principles and philosophy it has used in prior years in determining executive compensation and will continue to consider shareholder feedback when determining executive compensation.

Clawback. Our Board adopted a policy related to the recoupment of compensation that provides that following an accounting restatement due to material noncompliance with any financial reporting requirements under securities laws, the Company must seek repayment from any current or former executive officer of any incentive-based compensation paid during the three-year period preceding the date that the Company is required to prepare the accounting restatement that was based on the erroneous data. The clawback is calculated as the excess amount paid on the basis of the restated results. This recoupment policy is in addition to the clawback provisions of the Sarbanes-Oxley Act of 2002 and any shareholder-approved equity incentive plan.

Roles of the Compensation Committee, Compensation Consultant and Management. The Compensation Committee is comprised solely of independent directors and is responsible for determining the compensation of our NEOs. The Committee has the sole authority to retain and terminate a compensation consultant and to approve the consultant's fees and all other terms of the engagement. The Committee has direct access to outside advisors and consultants throughout the year as they relate to executive compensation. The Committee has direct access to and meets periodically with the compensation consultant independently of management.

The Compensation Committee receives assistance from independent consulting firms. PM&P was engaged by and served as the independent consulting firm to the Compensation Committee for 2013. The engagement partner assigned as PM&P’s liaison to the Compensation Committee transferred in 2014 to Meridian Compensation Partners, LLP (“Meridian”). Beginning in 2014 Meridian will serve as the independent consulting firm to the Compensation Committee. Neither PM&P nor Meridian provide any additional service to the Company beyond those provided to the Compensation Committee. The Compensation Committee has reviewed and concluded that both PM&P and Meridian are independent consulting firms, based on the independence factors enumerated by the SEC and by NASDAQ with regards to compensation advisor independence. The Compensation Committee will continue to monitor this compliance on an ongoing basis. Although the Compensation Committee makes independent decisions on all matters related to compensation of the NEOs, certain members of management may be requested to attend or provide input to the Compensation Committee. Management's input ensures the Compensation Committee has the information and perspective it needs to carry out its duties. The Compensation Committee meets regularly in executive session without management present.

Our Executive Compensation Programs

Overall, our executive compensation programs are designed to be consistent with the objectives and principles set forth above and include:


•	Base salary


•	STI (cash awards) and discretionary bonuses


•	LTI (equity awards)

Base Salary. Base salaries are intended to provide fixed compensation related to each executive's role. As discussed in "Compensation Philosophy," 2013 base salaries are targeted to be at or near the 50th percentile of our peer group for each position, adjusted for marketplace demands, needs of our organization, an individual's experience and overall relationship to competitive market data surveys.

Salaries for the NEOs are typically reviewed in the first quarter during the annual performance review process. Adjustments to base salary, if any, are made based on individual performance and market competitiveness while maintaining fixed costs at an appropriate level. On occasion, factors such as promotion, change in job duties, performance and market competitiveness may support an adjustment outside of the annual performance review. The Compensation Committee independently establishes the base salary for the CEO, and the CEO makes recommendations to the Compensation Committee for salary adjustments for the other NEOs.

128

Table of Contents

For the CEO's base salary in 2013, the Compensation Committee reviewed Mr. Hanigan's experience and performance, and determined to adjust his base salary upward to approximately the 65th percentile, which was verified against the peer group. A similar increase was approved for other NEOs. On recommendation by the CEO, the Compensation Committee approved a “team approach” to base salaries for Non-CEO NEOs summarized below. The current base salary for each NEO is provided below. The actual compensation amounts earned by, or paid to, the NEOs during 2013 are disclosed in the "2013 Summary Compensation Table".



Name	2014		2013		Approximate % Increase
Kevin J. Hanigan	$	549,450	$	535,000	2.7	%
Kari J. Anderson ¹	195,150		190,000		2.7
Pathie E. McKee ²	—		270,000		—
Charles D. Eikenberg	277,300		270,000		2.7
Scott A. Almy	277,300		270,000		2.7
Thomas S. Swiley	277,300		270,000		2.7

¹ Ms. Anderson was appointed to the position of Chief Accounting Officer and Interim Principal Financial Officer on July 31, 2013, following the resignation of Ms. McKee as the Company's Chief Financial Officer. In connection with Ms. Anderson's promotion, her annual base salary was adjusted $30,660 to $190,000 for her additional responsibilities as principal accounting officer and she received an additional $6,000 per month for her service as interim principal financial officer.

² Ms. McKee's resigned as Chief Financial Officer of the Company effective July 31, 2013, and was retained by the Company as a consultant through the end of 2013 in order to ensure an orderly transition of her duties.

STI. In 2013, the Compensation Committee approved a new Executive Incentive Plan (“2013 EIP”) which is designed to provide variable compensation based on achievement of annual corporate and individual performance results. The plan focuses on the financial measures that are critical to the Company's growth and profitability. Each participant has a target award (expressed as a percentage of base earnings) and range that defines their incentive opportunity. Actual awards are assessed at the end of the performance year and can vary from 0% to 170% of target incentive opportunity.



2013 Annual Incentive Targets
Role	Below Threshold		Threshold (50%)		Target (100%)		Maximum (170%)
CEO	0	%	25	%	50	%	85	%
Executive VPs	0		20		40		68

The threshold "gate" for participation in the 2013 EIP was 85% of budgeted net income. Once the gate is achieved, the plan is "turned on" and payouts are then determined based on performance against four defined performance measures. The four performance goals were 1) net interest margin, 2) efficiency ratio, 3) return on assets and 4) non-performing assets to average total assets (please see table below). Performance of these metrics is measured on a relative basis against the SNL Small Cap U.S. Banks Index, excluding non-exchange traded banks (e.g. OTCBB, Pink Sheet). In addition to the performance measures relative to the SNL Small Cap U.S. Bank Index, a portion of the incentive will reflect an assessment of accomplishments towards the strategic plan of the Company relating to three core initiatives: increasing household penetration, shifting the Bank's asset mix and deposit growth.



Performance Measures	Performance Goals			Weight
Performance Measures	Threshold	Target	Stretch	Weight
Net interest margin	35th Percentile	50th Percentile	75th Percentile	20	%
Efficiency Ratio				20
Return on assets				20
NPAs/Average Assets				20
Strategic Achievement and Progress	Assessment of strategic achievement and progress against three core initiatives: household penetration, deposit growth and shifting asset mix			20
Total				100	%

Performance is assessed at the end of the fiscal year. Eighty percent of an NEO's award is calculated formulaically, while 20% of the award is based on a qualitative assessment of progress towards the strategic initiatives. Due to financial data availability, the index financials are measured based on a trailing twelve months as of September 30 for the reporting year, while the Company's financials are be measured as of fiscal year end. Payouts are made in cash at the completion of the annual performance period.

129

Table of Contents

The Compensation Committee also approved a clawback provision for the 2013 EIP that is applicable to all participants in the 2013 EIP. Under this provision, any payment made under the 2013 EIP which was based upon materially inaccurate financial statements and requires a restatement may be subject to repayment, in whole or in part, at the discretion of the Compensation Committee.

The Compensation Committee reserves the right to apply positive or negative discretion to the 2013 EIP as needed to reflect business environment, market conditions that may affect the Bank's performance and incentive plan funding as well as overall risk and regulatory issues. The Compensation Committee also reserves the right to amend, modify and adjust payouts as necessary. Although the threshold “gate” for participation in the 2013 EIP was not met, the Company’s net interest margin, efficiency ratio, return on assets, and NPAs/Average Assets metrics were in line with or better than peers. In addition, the Company achieved numerous strategic goals, including deploying capital opportunistically through the announced merger with LegacyTexas, exceeding loan growth targets, implementing a successful oil and gas loan program, improving household retention and growth, implementing back-office initiatives designed to support future growth, and the increase of the Company’s stock price by 33% in 2013. In view of these findings, the Compensation Committee used its discretion and determined to approve short-term cash incentive payments for 2013.

In 2011 and 2012 short-term incentive bonuses were paid 50% in cash and 50% in phantom stock, with the phantom stock mirroring the Company's common stock price. As described in the Company’s Schedule 14A filed with the SEC on April 10, 2013, the Compensation Committee discontinued the use of phantom stock in the 2013 EIP. In view of 1) the previously described discontinuation of the phantom stock program, 2) the Company's continued progress on key strategic initiatives, and 3) the Company's desire to increase administrative efficiencies in tracking short-term incentive awards, the Compensation Committee decide d to distribute the outstanding phantom stock awards in January 2014.

All incentive payments were made subject to a clawback provision. The short-term cash incentive payments, as well as the phantom stock payments in January 2014 were as follows:



Name	Incentive Earned		Phantom Stock Paid
Kevin J. Hanigan	$	260,010	$	162,642
Kari J. Anderson	50,000		—
Charles D. Eikenberg	104,976		47,436
Scott A. Almy	104,976		47,436
Thomas S. Swiley	104,976		47,436

LTI - Equity Awards. The Company has a shareholder approved equity based compensation plans that is used to promote the long-term success of the Company and increase shareholder value by attracting, encouraging and retaining executives and directors. Equity based compensation aligns the interests of executives and directors with Company shareholders, encouraging share value appreciation. The plans allow the Company to grant stock options, stock appreciation rights, restricted stock and restricted stock units to directors, advisory directors, officers and other employees of the Company or the Bank.

In determining share-based compensation awards in 2013, the Compensation Committee considered that most of the current NEOs joined the Company after the mutual holding company conversion in 2010, and therefore did not participate in the grants allocated by the Company to management at that time. The Committee then determined that shareholders consider the Company as a conversion bank and are therefore expecting to see significant alignment between executive and shareholder equity interests. The Committee established several objectives in considering equity awards for 2013 and determined that any such award should:


•	reward executives for driving long-term, sustained performance,


•	align executive and shareholder interests through stock value appreciation,


•	ensure compliance with executive equity ownership guidelines,


•	enable the Company to attract and retain top talent,


•	provide a balanced view of performance and aligning rewards with the time horizon of risk,


•	recognize the progress made in 2012 and 2013, and


•	provide equity grants consistent with other second step conversions.

130

Table of Contents

Employing these objectives, in February 2013, the Compensation Committee recommended, and the Board of Directors approved, the award of 221,000 restricted stock awards and 342,000 stock options to NEOs. The Committee determined to make these awards using a mix between time-based restricted shares and options, and performance-based restricted shares. Those portions of the performance-based restricted shares and options awarded in 2013 and scheduled to vest in 2014 were forfeited at December 31, 2013 when certain performance criteria were not met. See the Grants of Plan-Based Awards table and Outstanding Equity Awards table below for more information concerning 2013 plan-based awards made to NEOs.

Impact of Accounting and Tax Treatments of Compensation

The accounting and tax treatment of compensation generally has not been a factor in determining the amounts of compensation for our executive officers. However, the Compensation Committee and management have considered the accounting and tax impact of various program designs to balance the potential cost to the Company with the benefit to the executive.

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual non-performance based compensation over $1.0 million paid to their named executive officers. To maintain flexibility in compensating our executive officers in a manner designed to promote varying corporate goals, it is not a policy of the Compensation Committee that all executive compensation must be tax-deductible. In 2013, none of our executive officers rec eived non-performance based compensation in excess of $1.0 million. The shareholder approved share-based compensation plans permit the award of stock options, stock appreciation rights and other equity awards that may be fully deductible subject to the limitations under Code Section 162(m).

131

Table of Contents

Summary Compensation

The following table sets forth information concerning the annual compensation for services provided by our Chief Executive Officer, our Interim Principal Financial Officer and our three other most highly compensated executive officers who were serving at the end of the fiscal year ended December 31, 2013, as well as Pathie E. McKee, our former EVP/Chief Financial Officer.



Name and Principal Position	Year	Salary		Bonus ¹		Stock Awards ²		Option Awards ³		Non-Equity Incentive Plan Compensation ⁴		All Other Compensation ⁵		Total

Kevin J. Hanigan, President/CEO ⁶	2013	$	535,000	$	—	$	1,712,400	$	713,796	$	422,652	$	138,854	$	3,522,702
Kevin J. Hanigan, President/CEO ⁶	2012	347,115		307,842		732,652		—		130,839		49,770		1,568,218
Kari J. Anderson, SVP, Chief Accounting Officer and Interim Principal Financial Officer ⁹	2013	204,670		—		—		31,647		50,000		48,875		335,192
Charles D. Eikenberg, EVP, Community Banking ⁶	2013	270,000		—		684,960		297,415		152,412		75,149		1,479,936
Charles D. Eikenberg, EVP, Community Banking ⁶	2012	169,692		121,770		318,770		—		38,160		13,593		661,985
Scott A. Almy, EVP, Chief Risk Officer & General Counsel ⁷	2013	270,000		—		684,960		297,415		152,412		36,977		1,441,764
Scott A. Almy, EVP, Chief Risk Officer & General Counsel ⁷	2012	106,154		61,770		337,850		—		38,160		4,760		548,694
Thomas S. Swiley, EVP, Chief Lending Officer ⁷	2013	270,000		—		684,960		297,715		152,412		45,016		1,450,103
Thomas S. Swiley, EVP, Chief Lending Officer ⁷	2012	106,154		61,770		337,850		—		38,160		4,760		548,694
Pathie E. McKee, former EVP, Chief Financial Officer ⁸	2013	181,731		—		—		—		98,165		14,194		294,090
	2012	244,256		—		129,290		—		38,837		61,231		473,614
	2011	237,142		—		—		—		35,838		45,624		318,604

¹ Reflects discretionary bonuses consisting of cash and immediately vested stock awards. In May 2012, Mr. Hanigan was awarded 19,496 immediately vested stock awards with a grant date fair value of $15.79 per share. In December 2012, Mr. Eikenberg, Mr. Almy and Mr. Swiley received the following bonuses with a grant date fair value of $20.59 per share: Mr. Eikenberg - 3,000 shares and $60,000 cash; Mr. Almy - 3,000 shares; and Mr. Swiley - 3,000 shares.

² The amounts in this column are calculated using the grant date fair values of the awards under FASB ASC Topic 718, based on the number of restricted shares awarded and the fair market value of the Company's common stock on the date the award was made. The assumptions used in the calculation of this amount are included in Note 17 ^. of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC. These stock awards, which are earned over three or five

132

Table of Contents

years depending on the term of the underlying grant, are subject to both performance and time-based vesting criteria - see "Outstanding Equity Awards at Fiscal Year-End" for additional information. Also see "Grants of Plan-Based Awards" below for additional information concerning restricted stock grants.

³ The amounts in this column are calculated using the grant date fair values of the awards under FASB ASC Topic 718, based on the fair value of the stock option awards, as estimated using the Black-Scholes option-pricing model. The assumptions used in the calculation of these amounts are included in Note 17 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC. These option awards, which are earned over five years, are subject to time-based vesting criteria - see "Outstanding Equity Awards at Fiscal Year-End" for additional information.

⁴ Reflects STIs awarded for performance under the EOIP. All 2011 and 2012 short-term incentive bonuses were paid 50% in cash and 50% in phantom stock, with the phantom stock mirroring the Company's common stock price. As described in "Our Compensation Programs", the Compensation Committee discontinued the use of phantom stock in the 2013 EIP. Applying its right to amend, modify and adjust payouts, the Compensation Committee determined that short-term incentive bonuses held by the Company in phantom stock be distributed in January 2014 along with incentive payments made at the same time under the 2013 EIP.

⁵ The amounts reported for 2013 are listed in the below table (perquisites totaling less than $10,000 were excluded).

⁶ Mr. Hanigan and Mr. Eikenberg joined the Company in April 2012 as part of the Highlands acquisition.

⁷ Mr. Almy and Mr. Swiley were hired in July 2012.

⁸ Ms. McKee resigned from the Company on July 31, 2013. The Company paid Ms. McKee the cash value of the remaining unvested portion of her 2011 and 2012 Non-Equity Incentive Plan Compensation (“NEIPC”), comprised of 4,552 shares of phantom stock of the Company based on the closing price for the Company's common stock of $21.57 on July 31, 2013 totaling $98,187, which was reported in the NEIPC column. Following her resignation, Ms. McKee served as a paid consultant to the Company to ensure a smooth transition of her responsibilities within the organization to her successor. See "Loans and Related Transactions with Executive Officers and Directors."

⁹ Ms. Anderson was promoted to the position of Chief Accounting Officer and interim principal financial officer on July 31, 2013. Ms. Anderson received a $30,660 increase in her base salary to $190,000 for her additional responsibilities as principal accounting officer, and an additional $6,000 per month for service as interim principal financial officer, which amounts are reflected in the salary column.

133

The amounts reported as "All Other Compensation" for 2013 are listed below.



Name	Benefit Type	Amount Received
Kevin J. Hanigan	401(k) matching	$	12,750
	ESOP allocation	50,601
	Dividends paid on restricted stock	38,279
	Bank-owned life insurance ¹	239
	Perquisites and other personal benefits:
	Benefit allowance	35,000
	Other	1,985
	Total	$	138,854

Kari J. Anderson	401(k) matching	$	8,187
	ESOP allocation	40,614
	Dividends paid on restricted stock	—
	Bank-owned life insurance ¹	74
	Other perquisites and other personal benefits	—
	Total	$	48,875

Charles D. Eikenberg	401(k) matching	$	12,750
	ESOP allocation	41,946
	Dividends paid on restricted stock	15,512
	Bank-owned life insurance ¹	141
	Other perquisites and other personal benefits	4,800
	Total	$	75,149

Scott A. Almy	401(k) matching	$	1,984
	ESOP allocation	14,681
	Dividends paid on restricted stock	15,512
	Bank-owned life insurance ¹	—
	Other perquisites and other personal benefits	4,800
	Total	$	36,977

Thomas S. Swiley	401(k) matching	$	3,702
	ESOP allocation	15,002
	Dividends paid on restricted stock	15,512
	Bank-owned life insurance ¹	—
	Other perquisites and other personal benefits	10,800
	Total	$	45,016

Pathie E. McKee	401(k) matching	$	9,225
	Dividends paid on restricted stock	2,200
	Bank-owned life insurance ¹	—
	Other perquisites and other personal benefits	2,769
	Total	$	14,194

¹ Represent insurance premiums paid on the death benefit portion of bank-owned life insurance. Under the terms of the bank-owned life insurance, each insured employee was provided the opportunity to designate a beneficiary to receive a death benefit equal to two times the insured employee's base salary on the date of purchase if the insured dies while employed at the Bank.

134

Grants of Plan-Based Awards

The following table provides information concerning 2013 plan-based awards made to NEOs.



			Estimated Future Payouts Under Non-Equity Annual Cash Incentive Plan Awards (STI) ¹						All Other Stock Awards: Number of Shares of Stock ²	All Other Option Awards: Number of Underlying Options ²	Exercise or Base Price of Option Awards		Grant Date Fair Value of Stock Awards ³
Name	Award Type	Grant Date	Threshold		Target		Maximum		All Other Stock Awards: Number of Shares of Stock ²	All Other Option Awards: Number of Underlying Options ²	Exercise or Base Price of Option Awards		Grant Date Fair Value of Stock Awards ³
Kevin J. Hanigan	cash incentive		$	133,750	$	267,500	$	454,750
	restricted stock	2/28/2013							40,000				$	834,000
	performance based restricted stock	2/28/2013							32,000				878,400
	stock option	2/28/2013								120,000	$	20.85	713,796
Kari J. Anderson	cash incentive		38,000		76,000		129,200
	stock option	5/20/2013								6,000	19.44		31,647
Charles D. Eikenberg	cash incentive		54,000		108,000		183,600
	restricted stock	2/28/2013							16,000				333,600
	performance based restricted stock	2/28/2013							12,800				351,360
	stock option	2/28/2013								50,000	20.85		297,415
Scott A. Almy	cash incentive
	restricted stock	2/28/2013	54,000		108,000		183,600		16,000				333,600
	performance based restricted stock	2/28/2013							12,800				351,360
	stock option	2/28/2013								50,000	20.85		297,415
Thomas S. Swiley	cash incentive		54,000		108,000		183,600
	restricted stock	2/28/2013							16,000				333,600
	performance based restricted stock	2/28/2013							12,800				351,360
	stock option	2/28/2013								50,000	20.85		297,415

¹ For each NEO, the amounts reported above represent the threshold, target and maximum amounts that were potentially payable for the year ended December 31, 2013 under the Company's 2013 EOIP if all performance criteria met the required level. If some, but not all, performance criteria met or exceeded the threshold level, a pro-rata portion of the incentive award could still be earned. For 2013, the following amounts were earned.

135



Name		Incentive Earned
Kevin J. Hanigan	260,010	260,010
Kari J. Anderson	50,000	50,000
Charles D. Eikenberg	104,976	104,976
Scott A. Almy	104,976	104,976
Thomas S. Swiley	104,976	104,976

For additional information regarding the EOIP, see “Compensation Discussion and Analysis - Equity Officer Incentive Plan.”

² All stock and option awards were granted under shareholder approved equity incentive plans.

³ The amounts in this column are calculated using the grant date fair values of the awards under FASB ASC Topic 718, based on the number of restricted shares awarded and the fair market value of the Company's common stock on the date the award was made, except for the performance-based stock awards, which are valued based upon the closing stock price of $27.45 per share of the Company's common stock on December 31, 2013. The assumptions used in the calculation of this amount are included in Note 17 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC. See "Outstanding Equity Awards at Fiscal Year End" table below for additional information concerning restricted stock grants.

136

Outstanding Equity Awards at Fiscal Year-End

The following table provides information regarding the unexercised stock options and outstanding stock awards held by NEOs as of December 31, 2013.



	Option Awards					Stock Awards
						Time-Vested Shares			Performance-Based Shares
Name	Number of securities underlying unexercised options (#) exercisable	Number of securities underlying unexercised options (#) unexercisable	Option exercise price		Option expiration date	Number of unearned shares or units of stock that have not vested (#)	Market value of unearned shares or units of stock that have not vested ⁶		Number of unearned shares or units of stock that have not vested (#)	Market value of unearned shares or units of stock that have not vested
Kevin J. Hanigan ¹	—	120,000	$	20.85	2/28/2023	55,334	$	1,518,918	32,000	$	878,400
Kari J. Anderson ²	840	—	11.66		5/15/2018	—	—		—	—
	840	840	10.74		5/19/2019	—	—		—	—
	980	1,960	11.08		5/25/2020	—	—		—	—
	700	2,100	12.72		5/24/2021	—	—		—	—
	1,000	4,000	15.79		5/23/2022	—	—		—	—
	—	6,000	19.44		5/20/2023	—	—		—	—
Charles D. Eikenberg ³	—	50,000	20.85		2/28/2023	30,267	830,829		12,800	351,360
Scott A. Almy ⁴	—	50,000	20.85		2/28/2023	30,267	830,829		12,800	351,360
Thomas S. Swiley ⁵	—	50,000	20.85		2/28/2023	30,267	830,829		12,800	351,360

¹ Mr. Hanigan's stock options vest 20% annually over a period of five years. His unvested restricted stock consists of 32,000 shares that vest if certain performance criteria for fiscal years 2015 through 2018 are met, 15,334 shares that vest in two equal annual installments beginning August 20, 2014 and 40,000 shares that vest 20% annually over a period of five years beginning February 28, 2014. Mr. Hanigan had 27,496 shares that were forfeited at December 31, 2013 due to the Company not meeting certain performance criteria.

² Ms. Anderson's stock options vest 20% annually over a period of five years. The first vesting occurred on May 15, 2009. 8,260 stock options are subject to certain performance-based vesting conditions each year.

³ Mr. Eikenberg's stock options vest 20% annually over a period of five years. His unvested restricted stock consists of 12,800 shares that vest if certain performance criteria for fiscal years 2015 through 2018 are met, 9,600 shares that vest in four equal annual installments beginning May 23, 2014, 4,667 shares that vest in two equal annual installments beginning August 20, 2014 and 16,000 shares that vest 20% annually over a period of five years beginning February 28, 2014. Mr. Eikenberg had 3,200 shares that were forfeited at December 31, 2013 due to the Company not meeting certain performance criteria.

⁴ Mr. Almy's stock options vest 20% annually over a period of five years. His unvested restricted stock consists of 12,800 shares that vest if certain performance criteria for fiscal years 2015 through 2018 are met, 9,600 shares that vest in four equal annual installments beginning July 16, 2014, 4,667 shares that vest in two equal annual installments beginning August 20, 2014 and 16,000 shares that vest 20% annually over a period of five years beginning February 28, 2014. Mr. Almy had 3,200 shares that were forfeited at December 31, 2013 due to the Company not meeting certain performance criteria.

⁵ Mr. Swiley's stock options vest 20% annually over a period of five years. His unvested restricted stock consists of 12,800 shares that vest if certain performance criteria for fiscal years 2015 through 2018 are met, 9,600 shares that vest in four equal annual installments beginning July 16, 2014, 4,667 shares that vest in two equal annual installments beginning August 20, 2014 and 16,000 shares that vest 20% annually over a period of five years beginning February 28, 2014. Mr. Swiley had 3,200 shares that were forfeited at December 31, 2013 due to the Company not meeting certain performance criteria.

⁶ Based on the closing price of $27.45 per share of the Company's common stock on December 31, 2013

137

Option Exercises and Stock Vested

The following table provides information concerning the options awards and the restricted stock awards that were exercised or vested during 2013 with respect to the NEOs.



	Option Awards			Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ¹		Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ²
Kevin J. Hanigan	—	$	—	7,666	$	163,286
Kari J. Anderson	3,640	36,395		—	—
Charles D. Eikenberg	—	—		4,733	95,797
Scott A. Almy	—	—		4,733	101,605
Thomas S. Swiley	—	—		4,733	101,605
Pathie E. McKee	—	—		1,400	30,198

¹ Represents amount realized upon exercise of stock options based on difference between the market value of the shares acquired at the time of exercise and the exercise price.

² Represents the value realized upon vesting of restricted stock awards based on the market value of shares on the vesting date.

Non-qualified Deferred Compensation

The following table sets forth information about the non-qualified deferred compensation activity during 2013 for the NEOs participating in the deferred compensation plan.



Name	Plan	Executive Contributions in Last FY ¹		Company's Contributions in Last FY		Aggregate Earnings in Last FY ²		Aggregate Withdrawals/ Distributions		Aggregate Balance at Last FYE ³
Kevin J. Hanigan	Deferred Compensation Plan	$	26,751	$	—	$	4	$	—	$	44,293
Pathie E. McKee	Deferred Compensation Plan	9,173		—		8,812		20,800		52,331

¹ All amounts are reported as compensation for 2013 in the Summary Compensation Table under the “Salary” column.

² None of the amounts shown are reported as compensation in the Summary Compensation Table, as these amounts do not constitute above-market or preferential earnings as defined in the rules of the Securities and Exchange Commission.

³ Of the aggregate balances shown, the following amounts were reported as compensation earned by the NEOs in the Company's Summary Compensation Table for 2013 and for prior years: Mr. Hanigan - $44,289; Ms. McKee - $9,173 .

See the discussion under “Description of Our Material Compensation Plans and Arrangements - Supplemental Executive Retirement Plan” and “Deferred Compensation Plan” for additional information regarding our non-qualified deferred compensation arrangements.

Post-Termination Payments and Benefits

The following table summarizes the value of the termination payments and benefits that the NEOs would have received if their employment had been terminated on December 31, 2013, under the circumstances shown. The table also reflects termination payments made to Ms. McKee.

138



Benefit	Retirement		Death		Disability		Involuntary or Good Reason termination (not in connection with change in control)		Involuntary or Good Reason termination (in connection with change in control)
Kevin J. Hanigan
Salary Continuance ^{1, 2}	$	—	$	500,000	$	—	$	802,500	$	1,605,000
Restricted stock award ³	—		2,397,318		2,397,318		—		2,397,318
Stock Options ⁴	—		792,000		792,000		—		792,000
BOLI ⁵	—		150,000		—		—		—
Outplacement and Healthcare ⁶	—		—		—		11,449		11,449
Kari J. Anderson
Salary Continuance ¹	—		380,000		—		—		—
Restricted stock award ³	—		—		—		—		—
Stock Options ⁴	—		237,069		237,069		—		237,069
BOLI ⁵	—		190,000		—		—		—
Charles D. Eikenberg
Salary Continuance ^{1, 2}	—		500,000		—		270,000		540,000
Restricted stock award ³	—		1,182,189		1,182,189		—		1,182,189
Stock Options ⁴	—		330,000		330,000		—		330,000
BOLI ⁵	—		100,000		—		—		—
Outplacement and Healthcare ⁶	—		—		—		10,561		10,561
Scott A. Almy
Salary Continuance ^{1, 2}	—		500,000		—		270,000		540,000
Restricted stock award ³	—		1,182,189		1,182,189		—		1,182,189
Stock Options ⁴	—		330,000		330,000		—		330,000
Outplacement and Healthcare ⁶	—		—		—		11,376		11,376
Thomas S. Swiley
Salary Continuance ^{1, 2}	—		500,000		—		270,000		540,000
Restricted stock award ³	—		1,182,189		1,182,189		—		1,182,189
Stock Options ⁴	—		330,000		330,000		—		330,000
Outplacement and Healthcare ⁶	—		—		—		10,000		10,000

¹ Amount for payment upon death represents two times annual base salary up to $500,000, which is a benefit available to all employees.

² For termination not in connection with a change in control, the amount reflects the annual base salary for 18 months, or if the termination occurs in connection with or following a change in control, the annual base salary reflects 24 months. Mr. Hanigan may receive up to 36 months of annual base salary in the event the Company’s Board of Directors in good faith determines that the change in control occurred during such time as the Bank and the Company are at least “adequately capitalized” (within the meaning of 12 U.S.C. § 1831o(b)). See "Description of our Material Compensation Plans and Arrangements - Employment Agreement with Kevin J. Hanigan."

³ Represents the value of the accelerated restricted shares of the Company's common stock granted based on a closing price of $27.45 per share on December 31, 2013. Acceleration and vesting occurs upon death, disability, and change in control.

⁴ Represents the value of the accelerated stock options calculated using the difference between the closing price of $27.45 per share on December 31, 2013 and the option exercise price. Acceleration and vesting occurs upon death, disability, and change in control.

⁵ Represents the death benefit portion of bank-owned life insurance paid to a designated beneficiary if the insured dies while employed at the Bank.

⁶ Amount represents the estimated cost of outplacement services and the hospitalization, medical, dental, prescription drug and other health benefits required to be provided under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time that will be provided to the executive in the event of involuntary or good reason terminations.

139

Separation Agreement

We entered into a Resignation, Release and Consulting Agreement (the "Agreement") with Ms. McKee on July 3, 2013 for her resignation from the Company which was effective on July 31, 2013. Under the Agreement, Ms. McKee served as a consultant to the Company and the Bank until December 31, 2013 (the “Consulting Period”), to ensure a smooth transition of her responsibilities within the organization and to her successor. In connection with Ms. McKee's resignation, and in accordance with the Transition Agreement, for a period of five months beginning August 1, 2013 the Bank paid her a monthly consulting fee of $30,000 and a one-time payment of $120,000 on January 2, 2014. The Company agreed to provide the hospitalization, medical, dental, prescription drug and other health benefits required to be provided under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time. Additionally, the Company paid Ms. McKee the cash value of the remaining unvested portion of her 2011 and 2012 phantom stock, comprised of 4,552 shares based on the closing price for the Company's common stock on July 31, 2013. Ms. McKee was also eligible to receive 1,400 shares of previously granted Company restricted stock scheduled to vest on August 20, 2013. The vesting of these shares was accelerated to July 31, 2013.

Description of Our Material Compensation Plans and Arrangements

General. We currently provide health and welfare benefits to our employees, including hospitalization, comprehensive medical insurance, and life and long-term disability insurance, subject to certain deductibles and co-payments by employees. We also provide certain retirement benefits. See Notes 15 and 16 of the Notes to Consolidated Financial Statements under Part II, Item 8 of the Annual Report on Form 10-K.

Employment Agreement of Kevin J. Hanigan. On December 2, 2013, the Company entered into an Amended and Restated Executive Employment Agreement with Mr. Hanigan, which amends the prior employment agreement entered into with the Executive. The agreement is for an initial term expiring February 28, 2015, unless further extended or sooner terminated as provided in the agreement. On February 28, 2015, the agreement will be automatically renewed for one additional year on the last calendar day of February of each year, provided that the Company has not given notice to Mr. Hanigan or Mr. Hanigan has not given notice to the Company, in writing at least 60 days prior to such automatic extension date that the term of the agreement shall not be extended further. Under the terms of the agreement, in the event of Mr. Hanigan’s termination by the Company not for cause or by Mr. Hanigan for good reason and unrelated to a change of control, the Company will (i) continue to pay Mr. Hanigan’s base salary, as in effect on the termination date for the longer of the remainder of the term or 18 months and (ii) pay the pro rata portion of any earned but unpaid target bonus and (iii) provide to the executive, group health coverage substantially similar to the Company’s group health coverage in which Mr. Hanigan was participating immediately prior to his termination. Such coverage shall continue until the earlier of two years following the date of termination, or the date on which Mr. Hanigan is or becomes eligible for comparable coverage under the group health plan of a subsequent employer. If, during the period that begins six months before a change in control and ending 12 months following such change in control, Mr. Hanigan’s employment is terminated by action of him for good reason or by action of the Company not for cause, the Company shall pay and provide Mr. Hanigan (i) a lump sum cash payment equal to two times his highest annual base salary for the three-year period ending on the date of termination, (ii) pay a lump sum cash payment in an amount equal to two times the greater of the average annual bonus paid for the three full fiscal years immediately preceding the date of termination, or the target bonus for the fiscal year in which the date of termination occurs, (iii) provide group health coverage substantially similar to the Company’s group health coverage in which he was participating immediately prior to his termination. Such coverage shall continue until the earlier of two years following the change in control, or the date on which Mr. Hanigan is or becomes eligible for comparable coverage under the group health plan of a subsequent employer. In the event the Company’s Board of Directors in good faith determines that the change in control occurred during such time as the Company and the Bank are at least adequately capitalized, then the phrase “two times” shall be replaced with the phrase “three times” as it relates to the change in control section of the agreement. Additionally, each long-term equity-based incentive compensation award held by Mr. Hanigan and outstanding immediately prior to such change in control (including without limitation, restricted stock, stock options, restricted stock units, performance share units, and phantom stock) shall fully vest upon the change in control. The agreement includes a 24 month non-competition agreement and non-solicitation covenants effective following termination.

140

Change in Control and Severance Benefits Agreements with NEOs. On December 2, 2013, the Company entered into Change In Control and Severance Benefits Agreements with Messrs. Almy, Eikenberg, and Swiley, superseding the prior salary continuation agreements with these individuals. The agreements are for a term expiring one year from the effective date. On the first anniversary of the effective date, and on each anniversary thereafter, the term of the agreements will be extended for a period of one year, provided that the Company has not given notice in writing at least 90 days prior to such anniversary date that the term of the agreements shall not be extended further. Under the terms of the agreements, in the event of the executive's involuntary termination unrelated to a change of control, the Company will (i) continue to pay the executive’s base salary, as in effect on the termination date for one year and (ii) provide to the executive, the hospitalization, medical, dental, prescription drug and other health benefits required to be provided under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time. The executive also shall be provided with reasonable outplacement services following an involuntary termination. In the event of the executive’s involuntary termination related to a change of control, the Company will (i) pay executive a lump sum cash payment equal to two times the executive’s average annual base salary for the three-year period ending on the date of termination, (ii) pay a lump sum cash payment in an amount equal to two times the greater of (A) the average annual bonus paid for the three full fiscal years immediately preceding the date of termination, or (B) the target bonus for the fiscal year in which the date of termination occurs, (iii) provide group health coverage until the earlier of (A) two years following termination, or (B) the date on which executive becomes eligible for comparable coverage of a subsequent employer. In the either event, the executive also shall be provided with reasonable outplacement services for one year.

The severance payments are subject to the executive executing a general release. Amounts received by an executive with respect to services performed by the executive for others during the one year period following termination shall reduce the amounts payable by the Bank under the terms of the severance agreement.

Deferred Compensation Plan. We also maintain a non-qualified deferred compensation plan that allows selected management and highly compensated employees and directors to defer a portion of their current base salary, annual cash incentive plan award, or director's compensation into the plan until his or her termination of service, disability or a change in control. There is no limit regarding how much of a participant's compensation may be deferred. All funds deferred by participants are deposited into a brokerage account owned by the Bank, but each participant controls the investment decision with respect to his or her account. All participants are 100% vested in their deferrals and the earnings thereon. A participant may elect to receive his or her account on a specified date that is at least five years from when the deferral amount is contributed to the plan, or to have his or her account distributed upon either the earlier or later of the specified payout date or the participant's termination of service. All distributions under the plan can be made in a cash lump sum equal to the value of the participant's deferred compensation plan account at the time of distribution or in annual payments, pursuant to the participant's initial elections. Payments may also be made on account of an unforeseeable financial emergency.

141

COMPENSATION OF DIRECTORS

Non-Employee Director Compensation

The following table sets forth a summary of the compensation paid to the Company's non-employee directors during 2013, each of whom is also a director of the Bank. Compensation is paid to directors for service on the Bank Board of Directors. No additional compensation is paid for service on the Company's Board.



Name	Fees Earned or Paid in Cash ¹		Stock Awards ²		Option Awards ³		All Other Compensation ⁴		Total

James B. McCarley ⁵	$	99,750	$	104,250	$	44,612	$	3,194	$	251,806
Anthony J. LeVecchio	104,750		521,250		223,061		9,563		858,624
Bruce Hunt	45,000		521,250		223,061		9,470		798,781
Brian McCall	55,250		521,250		223,061		9,470		809,031
Karen H. O'Shea	67,250		521,250		223,061		9,533		821,094
V. Keith Sockwell ⁵	59,750		104,250		44,612		3,206		211,818
Gary D. Basham ⁵	25,750		291,150		—		204,894		521,794
Jack D. Ersman ⁵	26,500		291,150		—		204,906		522,556

¹ Directors may defer all or any part of their director's fees, which pursuant to the non-qualified deferred compensation plan are invested in independent third-party mutual funds.

² The amounts in this column are calculated using the grant date fair values of the awards under FASB ASC Topic 718, based on the number of shares awarded and the fair market value of the Company's common stock on the date the award was made. The assumptions used in the calculation of this amount are included in Note 17 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC. The awards are earned over three or five years depending on the term of the underlying grant. As of December 31, 2013, total shares underlying stock awards held by the directors were as follows: Mr. McCarley - 8,500 shares; Mr. LeVecchio - 28,500 shares; Mr. Hunt - 28,500 shares; Mr. McCall - 28,500 shares; Ms. O'Shea - 28,500 shares; Mr. Sockwell - 8,500 shares; Mr. Basham - 18,500 shares; Mr. Ersman - 18,500 shares.

³ The amounts in this column are earned over five years and calculated using the grant date fair values of the awards under FASB ASC Topic 718, based on the fair value of the stock option awards, as estimated using the Black-Scholes option-pricing model. The assumptions used in the calculation of these amounts are included in Note 17 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC. As of December 31, 2013, total shares underlying stock options held by the directors were as follows: Mr. McCarley - 7,500 shares; Mr. LeVecchio - 37,500 shares; Mr. Hunt - 37,500 shares; Mr. McCall - 37,500 shares; Ms. O'Shea - 37,500 shares; Mr. Sockwell - 7,500 shares.

⁴ All other compensation for the current board members includes dividends paid on restricted stock and premiums on life insurance.

⁵ On March 6, 2013, the Company entered into a Director's Agreement with Messrs. McCarley, Basham, Ersman and Sockwell. Messrs. Basham and Ersman retired from the Board of Directors at Company's 2013 annual meeting of shareholders on May 16, 2013. Messrs. McCarley and Sockwell will retire from the Board of Directors at the Company's annual meeting of shareholders on May 19, 2014. Each Director's Agreement provides for: (i) a cash separation benefit ($200,000 for each of Messrs. Basham and Ersman and $180,000 for each of Messrs. McCarley and Sockwell), payable, at the director's election, in a lump sum or four equal annual installments; and (ii) a restricted stock award on the director's retirement date under the Company's 2012 Equity Incentive Plan (15,000 shares for each of Messrs. Basham and Ersman and 10,000 shares for each of Messrs. McCarley and Sockwell), vesting in one-third annual increments beginning on the first anniversary of the award date, with vesting subject to continuous service as an advisory director.

During 2013, each non-employee director received (i) a $20,000 annual retainer; (ii) $1,000 per board meeting attended and (iii) $750 per committee meeting attended. In addition, the Chairman of the Board received an additional $30,000 per year fee, the Audit Committee Chair received an additional $7,500 per year fee and the Compensation Committee Chair received an additional $5,000 per year fee. These same retainers and fees are projected for 2014. Directors may elect to defer receipt of all or any part of their directors' fees pursuant to a non-qualified deferred compensation plan. All funds deferred by participants are deposited into a brokerage account owned by the Bank, but each participant controls the investment decision with respect to his or her account. We also pay premiums for a life insurance policy and accidental death and dismemberment policy for the benefit of each non-employee director. Under the terms of the Bank Owned Life Insurance, each director was provided a death benefit of $40,000 if the insured dies while a director at the Bank. If the director leaves the service of the Company for any reason other than death, all rights to any such benefit cease.

Directors are provided or reimbursed for travel and lodging (including for spouse) and are reimbursed for other customary out-of-pocket expenses incurred in attending out-of-town board and committee meetings, as well as industry conferences and continuing education seminars. We also pay the premiums on directors' and officers' liability insurance. We also pay the premiums on a $50,000 term life insurance policy covering each director, and on Bank-owned life insurance.

142

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, or CD&A, contained in this Form 10-K with management. Based on the Compensation Committee's review of and discussion with management with respect to the CD&A, the Compensation Committee has recommended to the Board of Directors of the Company that the CD&A be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, for filing with the SEC.

The foregoing report is provided by the Compensation Committee of the Board of Directors:

Karen H. O'Shea (Chair)

Anthony J. LeVecchio

James B. McCarley

V. Keith Sockwell



Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The following table presents information regarding the beneficial ownership of ViewPoint Financial Group, Inc. common stock, as of December 31, 2013, by:

• Shareholders known by management to beneficially own more than five percent of the outstanding common stock of ViewPoint Financial Group, Inc.;

• each of our directors and director nominees for election;

• each of our executive officers named in the “Summary Compensation Table” set forth under Part III, Item 11 of this form 10-K; and

• all of the executive officers, directors and director nominees as a group.

The persons named in the following table have sole voting and investment powers for all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and except as indicated in the footnotes to this table. The address of each of the beneficial owners, except where otherwise indicated, is the same address as that of the Company. An asterisk (*) in the table indicates that an individual beneficially owns less than one percent of the outstanding common stock of the Company. Beneficial ownership is determined in accordance with the rules of the SEC. As of December 31, 2013, there were 39,938,816 shares of ViewPoint Financial Group, Inc. common stock outstanding.

143

Table of Contents



Name of Beneficial Owner	Beneficial Ownership		Percentage of Common Stock Outstanding
5% and Greater Shareholders:
BlackRock, Inc. 40 East 52nd Street New York, NY 10022	2,826,691	¹	7.1	%
Neuberger Berman Group LLC 605 Third Avenue New York, NY 10158	2,748,148	²	6.9
Keeley Asset Management Corp. and John L. Keeley, Jr. 111 West Jackson Boulevard, Suite 810 Chicago, IL 60604	2,714,572	³	6.8
Trust for Employee Stock Ownership Plan Portion of ViewPoint Bank 401(k) Employee Stock Ownership Plan	2,647,487	⁴	6.6
The Vanguard Group, Inc. 100 Vanguard Boulevard Malvern, PA 19355	2,308,126	⁵	5.8
Directors, Director nominees and Named Executive Officers:
James B. McCarley, Chairman of the Board	81,201	^{6, 7}	*
Anthony J. LeVecchio, Vice Chairman of the Board	73,490	⁶	*
Bruce W. Hunt, Director	305,621	^{6, 8}	*
James Brian McCall, Director/Director Nominee	62,844	⁶	*
Karen H. O'Shea, Director/Director Nominee	86,226	^{6, 9}	*
V. Keith Sockwell, Director	41,520	^{6, 7, 10}	*
Kevin J. Hanigan, President, CEO and Director	163,747	⁶	*
Charles D. Eikenberg, EVP, Community Banking	62,328	⁶	*
Scott A. Almy, EVP, Chief Risk Officer & General Counsel	62,687	⁶	*
Thomas S. Swiley, EVP, Chief Lending Officer	67,347	⁶	*
Kari J. Anderson, SVP, Chief Accounting Officer and Interim Principal Financial Officer	11,682	⁶	*
Pathie E. McKee, former EVP and CFO	66,139	^{6, 11}	*
Directors, director nominee and executive officers of the Company as a group (12 persons)	1,084,832	¹²	2.7

¹ As reported by BlackRock, Inc. in a Schedule 13G/A filed with the SEC on January 31, 2014, which reported sole voting power with respect to 2,678,983 shares beneficially owned and sole dispositive power with respect to 2,826,691 shares beneficially owned.

² As reported by Neuberger Berman Group LLC, Neuberger Berman LLC, Neuberger Berman Management LLC, and Neuberger Berman Equity Funds in a Schedule 13G filed with the SEC on February 12, 2014, which reported shared voting power with respect to 2,736,648 shares beneficially owned and shared dispositive power with respect to 2,748,148 shares beneficially owned.

³ As reported by Keeley Asset Management Corp. and John L. Keeley, Jr. in a Schedule 13G/A filed with the SEC on February 7, 2014, which reported sole voting power with respect to 2,550,152 shares beneficially owned and sole dispositive power with respect to 2,714,572 shares beneficially owned.

⁴ As reported by the Trust for the Employee Stock Ownership Plan Portion of ViewPoint Bank 401(k) Employee Stock Ownership Plan in a Schedule 13G/A filed with the SEC on February 7, 2014, which reported shared voting and dispositive power with respect to all shares beneficially owned.

⁵ As reported by The Vanguard Group in a Schedule 13G filed with the SEC on February 12, 2014, which reported sole voting power with respect to 57,996 shares beneficially owned, sole dispositive power with respect to 2,253,230 shares beneficially owned, and shared dispositive power with respect to 54,896 shares beneficially owned.

⁶ Includes restricted stock, stock options and Employee Stock Ownership ("ESOP") shares awarded to the individuals referenced under shareholder approved equity incentive plans, as follows. Individuals have sole voting but no dispositive power over restricted stock and ESOP shares and have no voting or dispositive power over stock options. Stock options are currently exercisable or will become exercisable within 60 days after December 31, 2013.

144

Table of Contents



		Restricted Stock	ESOP	Stock Options
James B. McCarley		8,500	—	1,500
Anthony J. LeVecchio		28,500	—	7,500
Bruce W. Hunt		28,500	—	7,500
James Brian McCall		28,500	—	7,500
Karen H. O'Shea		28,500	—	7,500
V. Keith Sockwell		8,500	—	1,500
Kevin J. Hanigan		87,334	1,843	24,000
Charles D. Eikenberg		43,067	1,528	10,000
Scott A. Almy		43,067	535	10,000
Thomas S. Swiley		43,067	547	10,000
Kari J. Anderson		—	6,902	4,360
Pathie E. McKee	—	—	12,412	—

⁷ Messrs. McCarley and Sockwell will retire effective as of the Company's 2014 annual meeting of shareholders on May 19, 2014.

⁸ Includes 1,105 shares owned by Mr. Hunt's spouse and 245,531 shares held in trusts for which Mr. Hunt is the trustee.

⁹ Includes 10,771 shares held by Ms. O'Shea's spouse.

¹⁰ Includes 12,760 shares owned by Mr. Sockwell's spouse.

¹¹ Ms. McKee resigned from the Company on July 31, 2013. Prior to her resignation, she served as EVP/CFO.

¹² Includes shares held directly, as well as shares held by and jointly with certain family members, shares held in retirement accounts, shares held by trusts of which the individual or group member is a trustee or substantial beneficiary, or shares held in another fiduciary capacity with respect to which shares the individual or group member may be deemed to have sole or shared voting and/or investment powers.

Equity Compensation Plans

Information concerning our equity compensation plans is incorporated herein by reference from Part II, Item 5 of this Form 10-K.



Item 13.	Certain Relationships and Related Transactions, and Director Independence

Director Independence. The Board of Directors of the Company has determined that all of its directors, with the exception of Kevin J. Hanigan, the Company's President and Chief Executive Officer, are “independent directors” as that term is defined by applicable listing standards of the Marketplace Rules of the NASDAQ Global Select Market and by the Securities and Exchange Commission, including the more stringent independence requirements for Audit and Compensation Committee membership. These independent directors are Bruce W. Hunt, Anthony J. LeVecchio, James Brian McCall, James B. McCarley, Karen H. O'Shea and V. Keith Sockwell. Messrs. McCarley and Sockwell will retire from the Board effective as of the May 19, 2014 annual meeting of shareholders.

Loans and related transactions with executive officers and directors. The Bank has followed a policy of granting loans to officers and directors. These loans are made in the ordinary course of business and on the same terms and conditions as those of comparable transactions with persons not related to the Bank, in accordance with our underwriting guidelines, and do not involve more than the normal risk of collectability or present other unfavorable features. All loans that the Bank makes to directors and executive officers are subject to regulations of the Office of the Comptroller of the Currency restricting loans and other transactions with affiliated persons of the Bank. Loans to all directors and executive officers and their associates totaled approximately $261 thousand at December 31, 2013, which was 0.05% of our consolidated equity at that date. All loans to directors and executive officers were performing in accordance with their terms at December 31, 2013.

145

Under our Code of Business Conduct and Ethics, all business transactions between the Company (and its subsidiaries) and any of its directors, executive officers and/or their related interests shall be entered into only under the following conditions:


(1)	The terms, conditions and means of compensation shall be no less favorable to the Company than other similar business transactions previously entered into by it or which may be entered into with persons who are not directors or executive officers of the Company, or their related interests.

(2)

All related party transactions between our directors and executive officers and/or their related interests and the Company shall require the prior review and approval of a majority of the disinterested independent directors (as defined under the NASDAQ Stock Market listing standards) of the Board of Directors, with the interested director abstaining from participating either directly or indirectly in the voting and discussion on the proposed business transaction. For these purposes, the term “related party transactions” shall refer to transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404.


(3)	The minutes of any Board meeting at which a business transaction between the Company and a director or executive officer, or his or her related interest, is approved or denied shall include the nature and source of all information used to establish the reasonableness and comparable nature of the terms, conditions and means of compensation, with copies thereof attached as appropriate.

On July 3, 2013, the Company entered into a Resignation, Release and Consulting Agreement (the "Agreement") with Ms. McKee for her resignation from the Company which was effective on July 31, 2013. Under the Agreement, Ms. McKee served as a consultant to the Company and the Bank until December 31, 2013 (the “Consulting Period”), to ensure a smooth transition of her responsibilities within the organization and to her successor. In connection with Ms. McKee's resignation, and in accordance with the Transition Agreement, for a period of five months beginning August 1, 2013 the Bank paid her a monthly consulting fee of $30,000 and a one-time payment of $120,000 on January 2, 2014. During 2013, there were no other related party transactions between the Company and any of its directors, executive officers and/or their related interests, except for the loans and deposits discussed above.



Item 14.	Principal Accountant Fees and Services

For the fiscal years ended December 31, 2013 and 2012, Ernst & Young LLP provided various audit, audit related and other services to the Company. Set forth below are the aggregate fees billed for these services:



	2013		2012
Audit Fees	$	605,320	$	531,378
Audit-Related Fees	22,680		21,600
Tax Fees	59,000		89,028
All Other Fees	—		—
	$	687,000	$	642,006

(a)

Audit Fees include aggregate fees billed for professional services rendered for the audit of the Company's annual financial statements, for the audit pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, for the review of financial statements included in the Company's Quarterly Reports on Form 10-Q, for statutory and regulatory audits, for the financial statements for the U.S. Department of Housing and Urban Development and for consents.


(b)	Audit-Related Fees include aggregate fees billed for professional services rendered related to the audits of retirement and employee benefit plans and agreed-upon procedures engagements.


(c)	Tax Fees include aggregate fees billed for professional services rendered related to tax return preparation and tax consultations.


(d)	No fees were billed for professional services rendered for services or products other than those listed under the captions “Audit Fees,” “Audit-Related Fees,” and “Tax Fees” for 2013 and 2012.

The Audit Committee has determined that the services provided by Ernst & Young LLP as set forth herein are compatible with maintaining Ernst & Young LLP's independence.

146

Pursuant to the terms of its charter, the Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the registered public accounting firm. The Audit Committee must pre-approve the engagement letters and the fees to be paid to the registered public accounting firm for all audit and permissible non-audit services to be provided by the registered public accounting firm and consider the possible effect that any non-audit services could have on the independence of the auditors. The Audit Committee may establish pre-approval policies and procedures, as permitted by applicable law and SEC regulations and consistent with its charter, for the engagement of the registered public accounting firm to render permissible non-audit services to the Company, provided that any pre-approvals delegated to one or more members of the committee are reported to the committee at its next scheduled meeting. At this time, the Audit Committee has not adopted any pre-approval policies.

147

Table of Contents

PART IV



Item 15.	Exhibits, Financial Statement Schedules



(a)(1)	Financial Statements: See Part II—Item 8. Financial Statements and Supplementary Data.

(a)(2)	Financial Statement Schedules: All financial statement schedules have been omitted as the information is included in the notes to the consolidated financial statements or is not required under the related instructions or is not applicable.

(a)(3)	Exhibits: See below.

(b)	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 ViewPoint Financial Group, Inc. (“ViewPoint”) 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 ViewPoint Financial Group, Inc. (“ViewPoint”) and LegacyTexas Group, Inc.

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))

148



Exhibit
Number			Description

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))

10.9			Change in Control and Severance Benefits Agreement entered into between ViewPoint and Mays Davenport (incorporated herein by reference to Exhibit 10.1 to ViewPoint’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 Company 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 ViewPoint’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 Company on December 2, 2013 with Kevin J. Hanigan (incorporated herein by reference to Exhibit 10.2 to ViewPoint’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 4 of the Notes to Consolidated Financial Statements included in this Form 10-K).

21			Subsidiaries of the Registrant (incorporated herein by reference to Exhibit 21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on February 20, 2013 (File No. 001-34737))

23			Consent of Independent Registered Public Accounting Firm

24			Power of Attorney (on signature page)

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+++			The following materials from the ViewPoint Financial Group, Inc. Annual Report on Form 10-K for the year ended December 31, 2013, 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, (vi) the Consolidated Statements of Cash Flows and (vii) related notes.



⁺		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.

149

EXHIBIT INDEX



Exhibits:

2.3		Amendment No. One to the Agreement and Plan of Merger

23		Consent of Independent Registered Public Accounting Firm

31.1		Certification of the Chief Executive Officer

31.2		Certification of the Principal Financial Officer

32		Section 1350 Certifications

150

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



	VIEWPOINT FINANCIAL GROUP, INC. (Registrant)
Date: February 24, 2014	By:	/s/ Kevin J. Hanigan
		Kevin J. Hanigan
		President and Chief Executive Officer (Principal Executive Officer)

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Kevin J. Hanigan and Kari J. Anderson his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any amendment to ViewPoint Financial Group Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming said attorney-in-fact and agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



/s/ James B. McCarley		Date: February 24, 2014
James B. McCarley, Chairman of the Board and Director

/s/ Anthony J. LeVecchio		Date: February 24, 2014
Anthony J. LeVecchio, Vice Chairman of the Board and Director

/s/ James Brian McCall		Date: February 24, 2014
James Brian McCall, Director

/s/ V. Keith Sockwell		Date: February 24, 2014
V. Keith Sockwell, Director

/s/ Karen H. O'Shea		Date: February 24, 2014
Karen H. O'Shea, Director

/s/ Bruce W. Hunt		Date: February 24, 2014
Bruce W. Hunt, Director

/s/ Kari J. Anderson		Date: February 24, 2014
Kari J. Anderson, Chief Accounting Officer (Interim Principal Financial Officer)

151

Exhibit 2.3

AMENDMENT TO AGREEMENT AND PLAN OF MERGER

THIS AMENDMENT (this “Amendment”), dated as of February 19, 2014, to the Agreement and Plan of Merger, dated as of November 25, 2013 (the “Agreement”), is entered into by and between VIEWPOINT FINANCIAL GROUP, INC., a Maryland corporation (“ViewPoint”) and LEGACYTEXAS GROUP, INC., a Texas corporation (“Legacy”). ViewPoint and Legacy are sometimes referred to herein collectively as the “Parties” and individually as a “Party.” Capitalized terms used but not defined herein have the meanings set forth in the Agreement.

WHEREAS, pursuant to Section 8.3 of the Agreement, this Amendment requires the written consent of the Parties; and

WHEREAS, the Parties desire to enter into this Amendment for the purpose of amending the Agreement as provided herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

1. Amendment to Section 2.1(c) . Section 2.1(c) of the Agreement shall be amended in its entirety to read as follows:

Notwithstanding any other provision of this Agreement, no fractional shares of ViewPoint Common Stock shall be issued in the Merger and, in lieu thereof, holders of shares of Legacy Common Stock who would otherwise be entitled to a fractional share interest (after taking into account all shares of Legacy Common Stock held by such holder) shall be paid an amount in cash (without interest) equal to the product of such fractional share interest and the average, rounded to the nearest thousandth of a cent, of the closing sale prices of ViewPoint Common Stock on Nasdaq as reported by The Wall Street Journal for the five trading days immediately preceding the date of the Effective Time. No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share.

2. Amendment . This Amendment may only be amended, modified, waived or supplemented in the same manner as the Agreement may be amended, modified, waived or supplemented pursuant to Section 8.3 of the Agreement.

3. Successors and Assigns . This Amendment is binding on and inures to the benefit of the parties hereto and their respective successors and permitted assigns under the Agreement.

4. Agreement Affirmed . Except as expressly modified and superseded by this Amendment, all terms and provisions of the Agreement shall remain unchanged and in full force and effect without modification, and nothing herein shall operate as a waiver of any party’s rights, powers or privileges under the Agreement.

5. Counterparts . This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts together shall constitute but one and the same instrument.

***

Exhibit 2.3

IN WITNESS WHEREOF, the parties have caused this Amendment to be signed, sealed and delivered through their respective authorized signatories the day and year first above written.

VIEWPOINT FINANCIAL GROUP, INC. LEGACYTEXAS GROUP, INC.

By: /s/ Kevin J. Hanigan By: /s/ George A. Fisk

Name: Kevin J. Hanigan Name: George A. Fisk

Title: President and CEO Title: Vice Chairman and CEO

Exhibit 2.3

[SIGNATURE PAGE TO AMENDMENT TO AGREEMENT AND PLAN OF MERGER]

Exhibit 2.3

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-172615) pertaining to the ViewPoint Financial Group 2007 Equity Incentive Plan and (Form S-8 No. 333-182122) pertaining to the ViewPoint Financial Group, Inc. 2012 Equity Incentive Plan of ViewPoint Financial Group, Inc. of our reports dated February 26, 2014, with respect to the consolidated financial statements of ViewPoint Financial Group, Inc., and the effectiveness of internal control over financial reporting of ViewPoint Financial Group, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2013.

/s/ Ernst & Young LLP

Dallas, Texas

February 26, 2014

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Kevin J. Hanigan, certify that:


1.	I have reviewed this Annual Report on Form 10-K of ViewPoint Financial Group, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	February 26, 2014	By:	/s/ Kevin J. Hanigan
			Kevin J. Hanigan,
			President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF CHIEF ACCOUNTING OFFICER

I, Kari J. Anderson, certify that:


1.	I have reviewed this Annual Report on Form 10-K of ViewPoint Financial Group, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	February 26, 2014	By:	/s/ Kari J. Anderson
			Kari J. Anderson,
			Chief Accounting Officer and Interim Principal Financial Officer

EXHIBIT 32

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Annual Report of ViewPoint Financial Group, Inc. on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Kevin J. Hanigan, President and Chief Executive Officer of the Company, and Kari J. Anderson, Chief Accounting Officer and Interim Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



	1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
	2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of the dates and for the periods presented in the financial statements included in such Report.



Date:	February 26, 2014	By:	/s/ Kevin J. Hanigan
			Kevin J. Hanigan,
			President and Chief Executive Officer

Date:	February 26, 2014	By:	/s/ Kari J. Anderson
			Kari J. Anderson,
			Chief Accounting Officer and Interim Principal Financial Officer