With the proceeds the Company loaned its employee stock ownership plan $9,284 to enable it to buy 8% (928,395 shares) of the shares issued in the offering to persons other than the MHC. The loan to the employee stock ownership plan will be repaid primarily from ViewPoint Bank's contributions to the employee stock ownership plan over a period of ten years. The interest rate for the loan is 5.21%. ViewPoint Financial Group may, in any plan year, make additional discretionary contributions for the benefit of plan participants.

3. Earnings per Common Share

Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period, reduced for unallocated ESOP shares. 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 unvested stock options and stock awards, if any.

The factors used in the earnings per common share computation follow:

4. Dividends

On January 23, 2007, the Company's Board of Directors declared a quarterly cash dividend of $0.05 per share. The dividend was payable on February 20, 2007, to shareholders of record as of February 7, 2007. ViewPoint MHC, which owns 55% of the common stock of ViewPoint Financial Group, elected to waive this dividend after filing a notice with and receiving no objection from the Office of Thrift Supervision.

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands)

5. Loans

Loans consist of the following:

Activity in the allowance for loan losses was as follows:

6. Recent Accounting Developments

Statement of Financial Accounting Standard ("FAS") No. 123, Revised, requires companies to record compensation cost for stock options provided to employees in return for employment service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employment service period, which is normally the vesting period of the options. This will apply to awards granted or modified in fiscal years beginning in 2006. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods provided, and so cannot currently be predicted. Any income tax benefit for the exercise of stock options in excess of income tax expense for financial reporting purposes will be classified as a cash inflow for financing activities and a cash outflow for operating activities in the statement of cash flows. For this reporting period we do not have stock-based compensation programs. We are considering such a plan which will be voted on by the shareholders during the current quarter.

VIEWPOINT FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in thousands)

In March 2006, the FASB issued Statement No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140. This Statement provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity's exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. This standard is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006, with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. We will continue to carry the mortgage servicing asset at lower of cost or market, reviewing it quarterly for impairment.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement applies whenever other standards require or permit that assets or liabilities be measured at fair value. The Statement does not require new fair value measurements, but rather provides a definition and framework for measuring fair value which will result in greater consistency and comparability among financial statements prepared under accounting principles generally accepted in the United States of America. The standard is effective for fiscal years beginning after November 15, 2007. The Company is presently assessing the impact that the Statement may have on financial reporting, but no determination has been made at this time.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. It is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Company has decided not to early adopt SFAS 159 and is currently evaluating the impact of the adoption with respect to its current practice of measuring fair value and disclosure in its financial statements.

The Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), as of January 1, 2007. 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 adoption had no affect on the Company's financial statements.

The Company and its subsidiary are subject to U.S. federal income tax as well as income tax of the state of Texas. The Company is not subject to examination by taxing authorities for years before 2006, as we were not a taxable entity prior to that date. The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not have any amounts accrued for interest and penalties at January 1, 2007.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation

Private Securities Litigation Reform Act Safe Harbor Statement

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

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

Overview

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

On September 29, 2006, we reorganized into the mutual holding company form of organization.  As part of the reorganization, ViewPoint Bank (i) converted to a stock savings bank as the successor to the bank in its mutual form; (ii) organized ViewPoint Financial Group, which owns 100% of the common stock of ViewPoint Bank; and (iii) organized ViewPoint MHC, which owns 55% of the common stock of ViewPoint Financial Group. ViewPoint Bank succeeded to the business and operations of the bank in its mutual form and ViewPoint Financial Group sold a minority interest in its common stock in a public stock offering.

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

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

First Quarter Highlights

• Earnings before tax have increased by $1.3 million, from $425,000 for the three months ended March 31, 2006, to $1.8 million for the three months ended March 31, 2007.
• Total assets increased by $76.0 million from December 31, 2006, to March 31, 2007.
• Total deposits increased by $68.7 million from December 31, 2006, to March 31, 2007.
• Basic and diluted earnings per share for the first quarter of 2007 were $0.04 per share.

Critical Accounting Policies

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

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

Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income.

Deferred Income Taxes. After converting to a federally chartered savings bank, effective January 1, 2006, ViewPoint Bank became a taxable organization. The Internal Revenue Code and applicable regulations are subject to interpretation with respect to the determination of the tax basis of assets and liabilities for credit unions that convert charters and become a taxable organization. Since our transition to a federally chartered savings bank, ViewPoint Bank has recorded income tax expense based upon management's interpretation of the applicable tax regulations. On January 1, 2006, a net deferred tax asset of $6.6 million was established as a result of timing differences for certain items, including depreciation of premises and equipment, bad debt deductions, and mortgage servicing rights.

Positions taken by the Company in preparing our federal and state tax returns are subject to the review of taxing authorities, and this review could result in a material adjustment to our financial statements.

Business Strategy

Historically, we were a Texas-chartered, community credit union. We concentrated our lending efforts on the origination of direct and indirect automobile lending and other general consumer lending. In recent years, we have expanded our one- to four-family and commercial real estate mortgage lending and commercial business lending while de-emphasizing our automobile lending, and, in particular, our indirect automobile lending.

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

• Controlling operating expenses while continuing to provide quality personal service to our customers;
• Growing and diversifying our loan portfolio by emphasizing the origination of one- to four-family residential mortgage loans, commercial real estate loans and secured business loans, and de-emphasizing indirect automobile lending;
• Selectively emphasizing products and services to provide diversification of revenue sources and to capture our customers' full relationship. We intend to continue to expand our business by cross selling our loan and deposit products and services to our customers;
• Expanding our banking network by de novo branches, and by selectively acquiring branch offices and other financial institutions;
• Enhancing our focus on core retail and business deposits, including savings and checking accounts;
• Borrowing from the Federal Home Loan Bank of Dallas for interest rate risk management purposes; and
• Maintaining a high level of asset quality.

Comparison of Financial Condition at March 31, 2007, and December 31, 2006

General. Total assets increased by $76.0 million, or 5.0%, to $1.61 billion at March 31, 2007, from $1.53 billion at December 31, 2006. The increase was primarily a result of growth in investment securities of $116.6 million, which was partially offset by decreases in net loans of $14.9 million and cash and cash equivalents of $24.5 million.

Loans. Our net loan portfolio decreased $14.9 million, or 1.5%, from $968.7 million at December 31, 2006, to $953.7 million at March 31, 2007. This continued decline in the portfolio is attributable to our lending strategy to reorganize the loan portfolio. The decline in loans has slowed from the three months ended March 31, 2006, during which our net loan portfolio declined by $27.3 million. We continue to emphasize the origination of residential mortgage loans and decrease originations of consumer loans, particularly indirect automobile loans. In addition, we are focused on commercial lending, primarily commercial real estate lending. As consumer loan balances decline, the funds are invested into securities until these funds can be redeployed into loans. The consumer loan portfolio, including automobile loans, declined $52.9 million, or 13.0%, while real estate and commercial business loans increased a combined $36.5 million, or 6.5%. We are currently seeing the most growth in our one-to four-family loans, which increased $39.1 million, or 13.8%, from December 31, 2006 due to the purchase of $41.8 million in one-to four-family real estate loans from Countrywide Home Loans, Inc, and ABN Amro Mortgage Group. These purchased loans meet our underwriting guidelines.

We sold one- to four-family real estate loans in the aggregate amounts of $3.6 million and $3.8 million during the three month periods ended March 31, 2007, and 2006, respectively. We sell loans that do not fit our underwriting guidelines for portfolio loans outlined in our asset/liability management policy. Additionally, sales of whole real estate loans can be beneficial to us since these sales generally generate fee income at the time of sale, produce future servicing income on loans where servicing is retained, provide availability of funds for additional lending and other investments, and increase liquidity. We have a mortgage servicing rights asset in the amount of $1.7 million at March 31, 2007, and $1.8 million at December 31, 2006, related to the loans we previously sold that we are currently servicing for others.

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

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

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

The Company is continuing to decrease its portfolio in consumer loans, especially indirect automobile loans which historically have higher loss percentages. These intentional decreases in the consumer loan portfolio and in the overall portfolio have led to a lower required balance in the allowance for loan losses. For the three months ended March 31, 2007, net charge-offs totaled $1.2 million, as compared to $1.3 million for the three months ending December 31, 2006, with the highest number of charge-offs in the indirect automobile and consumer lines of credit portfolios.

Our allowance for loan losses at March 31, 2007, was $6.3 million, or 0.66% of loans, compared to $6.5 million, or 0.67% of loans, at December 31, 2006. The decline in the allowance for loan losses resulted from the continued decline of our consumer lending portfolio as we focus on growing our real estate and commercial loan portfolios. Nonperforming loans increased from $3.0 million at December 31, 2006, to $4.2 million at March 31, 2007, increasing our nonperforming loans to total loans ratio from 0.31% at December 31, 2006, to 0.44% at March 31, 2007. The increase in nonperforming loans is primarily attributable to one $1.0 million commercial real estate loan that was placed on nonaccrual status in March 2007 due to delinquency. We do not anticipate a loss on this loan.

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

Nonperforming loans were as follows:

Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. At March 31, 2007, nonperforming loans consisted of 39.1% commercial real estate, 38.8% automobile, and 18.2% residential real estate loans (primarily made up of purchased loans), with the remainder in other consumer and nonresidential commercial loans.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $24.5 million, or 15.7%, from $155.9 million at December 31, 2006, to $131.4 million at March 31, 2007. This decrease primarily resulted from movement of funds from depository accounts into higher yielding investment securities.

Securities. The securities portfolio increased $116.6 million, or 34.7%, to $452.4 million at March 31, 2007, from $335.8 million at December 31, 2006. As the consumer loan portfolio has declined, available funds have been reinvested into securities until the demand for loans matches the Company's growth in available funding. During the three months ended March 31, 2007, we purchased $135.0 million of securities with a weighted average yield of 5.76%, which assisted in increasing the yield on earning assets from 4.99% for the three months ended March 31, 2006 to 5.47% for the three months ended March 31, 2007. Purchases had a weighted average life of 4.25 years and were a mix of collateralized mortgage obligations (63%), hybrid mortgage-backed securities (35%), and trust preferred securities (2%).

Deposits. Total deposits increased by $68.7 million, or 5.6%, to $1.30 billion at March 31, 2007, as compared to $1.23 billion at December 31, 2006. Time deposits increased by $65.7 million primarily due to $61.0 million in new public fund certificates opened in the first quarter of 2007. Demand accounts and savings and money market accounts increased by $425,000 and $2.7 million, respectively. We are currently focusing on building our business account products and offering consumer accounts that offer a wide range of services to best meet our customers' banking needs.

Borrowings. Federal Home Loan Bank advances increased $6.1 million, or 10.9%, to $61.8 million at March 31, 2007, from $55.8 million at December 31, 2006. As of March 31, 2007, the current balance of settled advances had a weighted average rate of 4.71%. The Company continues to borrow to match current real estate loan production in the portfolio as an asset/liability management tool. The Company was eligible to borrow an additional $488.2 million as of March 31, 2007.

Equity. Total equity increased by $1.8 million, or 0.82%, to $216.5 million at March 31, 2007, from $214.8 million at December 31, 2006. A gain in accumulated other comprehensive income of $860,000, compared to a loss of $69,000 at December 31, 2006, associated with the unrealized gain on available for sale securities contributed to the increase in equity. The gain was partially offset by the payment of dividends of $580,000 in February 2007.

Comparison of Results of Operation for the Three Months Ended March 31, 2007, and 2006

General. The Company realized earnings of $1.1 million for the three months ended March 31, 2007, compared to earnings of $6.4 million for the three months ended March 31, 2006. Net income for the quarter ended March 31, 2006, included a $6.1 million tax benefit due to the Company's change in tax status at the beginning of 2006. Income before income tax expense (benefit) for the three months ended March 31, 2007, was $1.8 million, an increase of $1.3 million from $425,000 for the three months ended March 31, 2006. The increase in income before income tax expense (benefit) resulted from higher interest income of $3.3 million, or 20.1%, higher noninterest income of $364,000, or 6.5%, and lower noninterest expense of $810,000, or 5.5%. These amounts were partially offset by an increase in the provision for loan losses of $622,000, or 168.1%, and higher interest expense of $2.6 million, or 37.2%.

Interest Income. Interest income increased by $3.3 million, or 20.1%, to $19.9 million for the three months ended March 31, 2007, from $16.6 million for the three months ended March 31, 2006. The increase in interest income was primarily related to increases in the interest earned on collateralized mortgage obligations and mortgage-backed securities of $2.8 million and $795,000, respectively, due to increases in the volume and the yield on these types of securities. Interest earned on deposits at other financial institutions increased by $387,000 due to both an increase in balances being held in these accounts and the rate earned.

The weighted average yield on loans increased from 5.37% for the three months ended March 31, 2006, to 5.67% for the three months ended March 31, 2007. As loans with lower rates matured, the proceeds were reinvested in loans with higher yields, leading to this increase. We anticipate this trend to continue as we emphasize one- to four-family real estate, commercial real estate and business lending.

Interest Expense. Interest expense increased $2.6 million, or 37.2%, to $9.4 million for the three months ended March 31, 2007, from $6.8 million for the three months ended March 31, 2006. The increase in interest expense was primarily due to the rising interest rate environment and the repricing of deposit accounts to those higher interest rates. Also, increased volume and higher rates in our time accounts contributed to the increase in interest expense, as average balances in time accounts increased by $140.4 million compared to the first quarter of 2006. Our weighted average yield on interest-bearing liabilities was 3.35% for the three months ended March 31, 2007, compared to 2.52% for the same time period in 2006.

Interest expense on Federal Home Loan Bank advances increased $172,000, or 32.5%, to $702,000 for the three months ended March 31, 2007, from $530,000 for the three months ended March 31, 2006. The increase resulted from growth of $12.6 million in the average balance of outstanding Federal Home Loan Bank advances from $47.0 million for the quarter ended March 31, 2006, to $59.6 million for the quarter ended March 31, 2007. In addition, the cost of Federal Home Loan Bank advances increased from 4.52% in the 2006 period to 4.71% in the 2007 period.

Net Interest Income. Net interest income increased $795,000, or 8.1%, to $10.6 million for the three months ended March 31, 2007, from $9.8 million at March 31, 2006, as growth in the balances of interest-earning assets more than offset balance increases of interest-bearing liabilities. Our net interest rate spread was 2.12% for the three months ended March 31, 2007, compared to 2.47% for the three months ended March 31, 2006. The decline in the net interest rate spread resulted from an increase in the cost of funds caused by the continually rising interest rate environment.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to earnings, at a level required to reflect probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers' ability to repay, estimated value of any underlying collateral, peer group data, prevailing economic conditions, and current factors. Large groups of smaller balance homogeneous loans, such as residential real estate, small commercial real estate, home equity and consumer loans, are evaluated in the aggregate using historical loss factors adjusted for current economic conditions and other relevant data.

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

Based on management's evaluation, provisions of $992,000 and $370,000 were made during the three months ended March 31, 2007, and March 31, 2006, respectively. This increase was due to subjective factors based on economic trends in the market. The Bank does not have any subprime lending programs.

Noninterest Income. Noninterest income increased $364,000 to $6.0 million for the three months ended March 31, 2007, from $5.6 million for the three months ended March 31, 2006, an increase of 6.5%. The Company's implementation of charging non-sufficient funds fees for debit card transactions led to a $565,000 growth in service charges and fees. This increase was partially offset by $97,000 in title fee income for the three months ended March 31, 2006, with no corresponding income in 2007 due to the closure of Community Title, L.L.C. Also, a decrease in income earned on deferred compensation accounts caused other noninterest income to decline by $86,000.

Noninterest Expense. Noninterest expense decreased $810,000, or 5.5%, to $13.8 million for the three months ended March 31, 2007, compared to $14.6 million for the three months ended March 31, 2006. The decrease in noninterest expense was primarily due to decreases of $1.0 million in salaries and employee benefits caused by staffing adjustments to improve overall efficiency and $205,000 in advertising. Outside professional services expense increased by $857,000 due the use of consulting firms to help streamline our processes, boost noninterest income, and ensure compliance with new regulations following our charter conversion. Also, supervision fees, which are included in outside professional services expense, increased by $214,000 due to the new regulatory environment associated with our conversion from a credit union to a bank.

Income Tax Expense. Effective January 1, 2006, we became subject to income taxes. In the three months ended March 31, 2007, we incurred income tax expense of $673,000 on our pre-tax income compared to an income tax benefit of $5.9 million, net of the $6.1 million tax benefit due to our change in tax status, for the three months ended March 31, 2006.

Analysis of Net Interest Income - Three Months Ended March 31, 2007, and 2006

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

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

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Also presented are the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread. All average balances are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield. Management does not believe that the use of monthly average balances rather than daily average balances has caused any material difference in the information presented.

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 that due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the later period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

The net interest spread for the three months ended March 31, 2007, decreased to 2.12% from 2.47% for the same three month period in 2006. There was a 9.6% increase in average total interest-earning assets to $1.46 billion from $1.33 billion for the same time period last year. Although the net interest spread decreased, the increase in average interest-earning assets caused the net interest margin to decline by only four basis points compared to the prior year. The yield on average interest-earning assets for the three month period ended March 31, 2007, increased to 5.47% from 4.99% during the same period in 2006 due to higher yielding loans and investments. Average interest-bearing liabilities increased 3.1% to $1.12 billion in 2007 from $1.08 billion for the same period last year as a result of adding $61.0 million in public funds at a weighted average rate of 5.25%. The cost of average interest-bearing liabilities increased to 3.35% during 2007 from 2.52% for 2006; this reduction in the spread is partially due to the inverted yield curve as we added more time accounts at a higher rate.

Liquidity

Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. ViewPoint Bank relies on a number of different sources in order to meet its potential liquidity demands. The primary sources are increases in deposit accounts and cash flows from loan payments and the securities portfolio.

In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of March 31, 2007, ViewPoint Bank had an additional borrowing capacity of $488.2 million with the Federal Home Loan Bank of Dallas. Additionally, ViewPoint Bank has classified 97.9% of its securities portfolio as available for sale, providing an additional source of liquidity. Management believes that our security portfolio is of high quality and the securities would therefore be marketable. In addition, we have historically sold mortgage loans in the secondary market to reduce interest rate risk and to create still another source of liquidity.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities. Participation loans sold include commercial real estate loans. These participations are sold to manage borrower concentration risk as well as interest rate risk. ViewPoint Bank uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. It is management's policy to manage deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with ViewPoint Bank.

During the three months ended March 31, 2007, cash and cash equivalents decreased $24.5 million, or 15.7%, from $155.9 million as of December 31, 2006, to $131.4 million as of March 31, 2007. Cash outflows from investing activities of $100.5 million was greater than cash from operating activities of $1.8 million and cash inflows from financing activities of $74.2 million for the three months ended March 31, 2007. Primary sources of cash for the three months ended March 31, 2007, included an increase in deposits of $68.7 million, a decrease in loans of $58.1 million, and maturities, prepayments, and calls of available-for-sale securities of $18.2 million. Primary uses of cash included purchases of securities available for sale of $135.0 million, purchases of loans of $43.0 million, and a funding of loans originated for sale of $5.8 million.

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

Contractual Obligations and Commitments

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

Capital Resources

Effective January 1, 2006, ViewPoint Bank became subject to minimum capital requirements imposed by the Office of Thrift Supervision. Based on its capital levels at March 31, 2007, ViewPoint Bank exceeded these requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for ViewPoint Bank to maintain a "well-capitalized" status under the capital categories of the Office of Thrift Supervision. Based on capital levels at March 31, 2007, ViewPoint Bank was considered to be well-capitalized.

At March 31, 2007, ViewPoint Bank's equity totaled $161.0 million. Management monitors the capital levels of ViewPoint Bank to provide for current and future business opportunities and to meet regulatory guidelines for "well capitalized" institutions. At March 31, 2007, and December 31, 2006, actual capital levels and minimum required capital levels for the Bank were as follows:

Impact of Inflation

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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

ViewPoint Bank is subject to interest rate risk to the extent that its interest-bearing liabilities, which are primarily deposits and Federal Home Loan Bank advances, reprice more rapidly or at different rates than its interest-earning assets. In order to minimize the potential for adverse effects of material prolonged increases or decreases in interest rates on our results of operations, we have adopted an asset and liability management policy. The board of directors sets the asset and liability policy for ViewPoint Bank, which is implemented by the asset/liability committee.

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

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

A key element of ViewPoint Bank's asset/liability management plan is to protect net earnings by managing the maturity or repricing mismatch between its interest-earning assets and rate-sensitive liabilities. We seek to reduce exposure to earnings by extending funding maturities through the use of Federal Home Loan Bank advances, through the use of adjustable rate loans and through the sale of certain fixed rate loans in the secondary market.

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

ViewPoint Bank's asset/liability management strategy dictates acceptable limits on the amounts of change in given changes in interest rates. For interest rate increases of 100, 200, and 300 basis points, our policy dictates that our NPV ratio should not fall below 8.00%, 7.00%, and 6.00%, respectively. As illustrated in the table below, we are in compliance with this aspect of our asset/liability management policy.

The tables presented below, as of March 31, 2007, and December 31, 2006, are internal analyses of our interest rate risk as measured by changes in NPV for instantaneous and sustained parallel shifts in the yield curve, in 100 basis point increments, up and down 300 basis points.

As illustrated in the tables below, we would benefit from a decrease in market rates of interest. Our NPV would be negatively impacted by an increase in interest rates.

An increase in rates would negatively impact our NPV as a result of deposit accounts and Federal Home Loan Bank borrowings repricing more rapidly than loans and securities due to the fixed rate nature of a large portion of our loan and security portfolios. As rates rise, the market value of fixed rate assets declines due to both the rate increases and slowing prepayments.

In response to the rising rate environment, we are in the process of changing our mix of loans and investments to include higher yielding assets. We are also extending the term to maturity of our liabilities with increased certificates of deposit and Federal Home Loan Bank borrowings.

ViewPoint Bank's NPV was $153.2 million, or 9.60%, of the market value of portfolio assets as of March 31, 2007, as compared to $151.5 million, or 9.97%, of the market value of portfolio assets as of December 31, 2006. Based upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in a $29.4 million decrease in our NPV at March 31, 2007, an increase from $28.6 million at December 31, 2006, and would result in a 153 basis point decrease in our NPV ratio to 8.07% at March 31, 2007, as compared to a 158 basis point decrease to 8.39% at December 31, 2006. An immediate 200 basis point decrease in market interest rates would result in a $28.0 million increase in our NPV at March 31, 2007, an increase from $24.5 million at December 31, 2006, and would result in a 141 basis point increase in our NPV ratio to 11.01% at March 31, 2007, as compared to a 128 basis point increase in our NPV ratio to 11.25% at December 31, 2006.

In addition to monitoring selected measures of NPV, management also monitors effects on net interest income resulting from increases or decrease in rates.

This process is used in conjunction with NPV measures to identify excessive interest rate risk. In managing our assets/liability mix, depending on the relationship between long and short term interest rates, market conditions and consumer preference, we may place somewhat greater emphasis on maximizing our net interest margin than on strictly matching the interest rate sensitivity of our assets and liabilities.

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

In evaluating ViewPoint Bank's exposure to interest rate movements, certain shortcomings inherent in the method of analysis presented in the foregoing table must be considered. For example, although certain assets and liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in interest rates. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed above. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. ViewPoint Bank considers all of these factors in monitoring its exposure to interest rate risk.

The board of directors and management of ViewPoint Bank believe that certain factors afford ViewPoint Bank the ability to operate successfully despite its exposure to interest rate risk. ViewPoint Bank manages its interest rate risk by originating and retaining adjustable rate loans in its portfolio, by borrowing from the Federal Home Loan Bank to match the duration of our funding to the duration of originated fixed rated one- to four-family real estate loans held in portfolio and by selling on an ongoing basis certain currently originated fixed rate one- to four-family real estate loans. By borrowing to match real estate production, ViewPoint Bank locks in a favorable interest rate spread. While the rate on unmatched loans increases as the interest rate spread declines, the rate on loans matched with borrowings remains constant. The sale of certain real estate loans manages the concentration of long term loans held in portfolio and grows the portfolio at laddered rates, as opposed to increasing the loan portfolio with loans that are all held at the same rate.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2007. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. There has been no change in the Company's internal controls over financial reporting during the quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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

PART 2 - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1.A. Risk Factors

No material changes to risk factors as previously disclosed in the Company's 2006 Annual Report on Form 10-K.

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

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

SIGNATURES

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

EXHIBIT INDEX