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| OABC > SEC Filings for OABC > Form 10-Q on 3-Aug-2012 | All Recent SEC Filings |
3-Aug-2012
Quarterly Report
• statements regarding our business plans, prospects, growth, and operating strategies;
• statements regarding the asset quality of our loan and investment portfolios; and
• estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.
The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements:
• general economic conditions, either nationally or in our market areas,
that are worse than expected;
• competition among depository and other financial institutions;
• inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
• adverse changes in the securities markets;
• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to successfully integrate acquired entities, if any;
• changes in consumer spending, borrowing, and savings habits;
• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission, and the Public Company Accounting Oversight Board;
• inability of borrowers and/or third-party providers to perform their obligations to us;
• the effect of developments in the secondary market affecting our loan pricing;
• changes in our organization, compensation, and benefit plans;
• changes in our financial condition or results of operations that reduce capital available to pay dividends;
• changes in the financial condition or future prospects of issuers of securities that we own;
• changes resulting from intense compliance and regulatory cost associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"); and
• changes in our regulatory capital resulting from compliance with the proposed Basel III capital rules.
Because of these and a wide variety of other uncertainties, our actual future
results may be materially different from the results indicated by these
forward-looking statements. For a more detailed discussion of these and other
factors that may affect our business, see the discussion under the caption "Risk
Factors" in our Annual Report on Form 10-K and the discussion in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
General
OmniAmerican Bancorp, Inc. (referred to herein as "we," "us," "our," or the
"Company") is the Maryland corporation that owns all of the outstanding shares
of common stock of OmniAmerican Bank (the "Bank") following the January 20, 2010
completion of the mutual-to-stock conversion of the Bank and initial public
stock offering of the Company. The Company has no significant assets other than
all of the outstanding shares of common stock of the Bank and the net proceeds
that we retained in connection with the offering.
The Bank is a federally chartered savings bank headquartered in Fort Worth,
Texas. The Bank was originally chartered in 1956 as a federal credit union
serving the active and retired military personnel of Carswell Air Force Base.
The Bank converted from a Texas credit union charter to a federal mutual savings
bank charter on January 1, 2006. The objective of the charter conversion was to
convert to a savings bank charter in order to carry out our business strategy of
broadening our banking services into residential real estate and commercial
lending, selling loans, and servicing loans for others. Broadening the services
offered has allowed the Bank to better serve the needs of its customers and the
local community.
Our principal business consists primarily of accepting deposits from the general
public and investing those deposits, together with funds generated from
operations and borrowings, in mortgage loans secured by residential real estate,
consumer
loans, consisting primarily of indirect automobile loans (automobile loans
referred to us by automobile dealerships), and to a lesser extent, commercial
real estate, real estate construction, commercial business, and direct
automobile loans. Since we completed our conversion from a credit union to a
savings bank, we have increased our residential real estate, real estate
construction, commercial real estate and commercial business lending while
deemphasizing our consumer lending activities. Loans are originated from our
main office in Fort Worth, Texas, and from our branch network in the Dallas-Fort
Worth Metroplex and surrounding communities in North Texas. We retain in our
portfolio all adjustable-rate loans that we originate, as well as fixed-rate
one- to four-family residential mortgage loans with terms less than 15 years. We
generally sell the long-term, fixed-rate one- to four-family residential
mortgage loans (terms 15 years or greater) that we originate either to the
Federal National Mortgage Association on a servicing-retained basis or into the
secondary mortgage market on a servicing-released basis, in order to generate
fee income and for interest rate risk management purposes.
In addition to loans, we invest in a variety of investments, primarily
government sponsored mortgage-backed securities and government sponsored
collateralized mortgage obligations, and to a lesser extent equity securities.
At June 30, 2012, our investment securities portfolio had an amortized cost of
$455.2 million.
We attract retail deposits from the general public in the areas surrounding our
main office and our branch offices. We offer a variety of deposit accounts,
including noninterest-bearing and interest-bearing demand accounts, savings
accounts, money market accounts, and certificates of deposit.
Our revenues are derived primarily from interest on loans, mortgage-backed
securities, and other investment securities. We also generate revenues from fees
and service charges. Our primary sources of funds are deposits, principal and
interest payments on securities and loans, and borrowings.
The SEC's Division of Corporation Finance staff issued disclosure guidance that
summarizes its observations about Management's Discussion and Analysis ("MD&A")
and accounting policy disclosures of smaller financial institutions. The focus
of the guidance is on asset quality and loan accounting issues. Please refer to
Note 4 of our unaudited interim financial statements for our detailed
disclosures related to asset quality and loan accounting issues.
Proposed Change to Regulatory Capital
On June 7, 2012, the Federal Reserve approved proposed rules that would
substantially amend the regulatory risk-based capital rules applicable to us and
the Bank. The Federal Deposit Insurance Corporation ("FDIC") and the Office of
the Comptroller of the Currency ("OCC") subsequently approved these proposed
rules on June 12, 2012. The proposed rules implement Basel III regulatory
capital reforms and changes required by the Dodd-Frank Act. Public comments on
the three proposed rules are requested by September 7, 2012. After the comment
period is closed the banking agencies will review the comments and publish final
rules, which may vary substantially from the proposed rules. Management is
monitoring these regulatory capital changes closely.
The proposed rules include new risk-based capital and leverage ratios, which
would be phased in from 2013 to 2019, and would refine the definition of what
constitutes "capital" for purposes of calculating those ratios. The proposed new
minimum capital level requirements applicable to us and the Bank under the
proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a
Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of
8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for
all institutions.
The proposed rules also implement revisions and clarifications consistent with
Basel III regarding the various components of Tier 1 capital, including common
equity, unrealized gains and losses, as well as certain instruments that will no
longer qualify as Tier 1 capital, some of which would be phased out over time.
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in
our Annual Report on Form 10-K filed with the Securities and Exchange Commission
on March 2, 2012.
Comparison of Financial Condition at June 30, 2012 and December 31, 2011 Assets. Total assets remained stable at $1.34 billion at both June 30, 2012 and December 31, 2011, reflecting an increase of $7.7 million, or 0.6%. The increase was primarily the result of increases in loans, net of the allowance for loan losses and deferred fees and discounts, of $64.1 million and bank-owned life insurance of $10.6 million, partially offset by decreases in securities available for sale of $61.9 million, loans held for sale of $1.9 million, and total cash and cash equivalents of $1.5 million.
Cash and Cash Equivalents. Total cash and cash equivalents decreased $1.5
million, or 7.1%, to $19.7 million at June 30, 2012 from $21.2 million at
December 31, 2011. The decrease in total cash and cash equivalents reflects
$202.4 million in cash used to originate loans, $31.1 million in cash used to
purchase securities classified as available for sale, and $10.0 million in cash
used to purchase bank-owned life insurance. These decreases were partially
offset by $116.7 million in cash received from loan principal repayments, $64.8
million in proceeds from principal repayments and maturities of securities,
$26.6 million in proceeds from the sales of securities, and $20.6 million of
proceeds from the sales of loans. The sales of loans consisted primarily of
longer term (greater than 15 years) one- to four-family residential real estate
loans during the six months ended June 30, 2012.
Securities. Securities classified as available for sale decreased $61.9 million,
or 11.7%, to $468.0 million at June 30, 2012 from $529.9 million at December 31,
2011. The decrease in securities classified as available for sale reflected
principal repayments and maturities of $64.8 million, sales of investment
securities of $26.6 million, and amortization of net premiums on investments of
$2.4 million. The decrease was partially offset by purchases of $31.1 million
during the six months ended June 30, 2012. At June 30, 2012, securities
classified as available for sale consisted primarily of government sponsored
mortgage-backed securities, government sponsored collateralized mortgage
obligations, and other equity securities.
Loans. Loans, net of the allowance for loan losses and deferred fees and
discounts, increased $64.1 million, or 9.4%, to $747.6 million at June 30, 2012
from $683.5 million at December 31, 2011. Automobile loans (consisting of direct
and indirect loans) increased $40.3 million, or 19.4%, to $247.7 million at
June 30, 2012 from $207.4 million at December 31, 2011, related primarily to our
refocused sales initiatives and competitive rate structure. Real estate
construction loans increased $11.9 million, or 24.7%, to $60.0 million at
June 30, 2012 from $48.1 million at December 31, 2011, as new construction
borrowing demand increased in our market area. Commercial business loans
increased $9.7 million, or 26.5%, to $46.3 million at June 30, 2012 from $36.6
million at December 31, 2011. The increase in commercial business loans was
primarily due to the stabilization of our commercial lending team and our
marketing efforts to grow the business. One- to four-family residential real
estate loans increased $5.8 million, or 2.1%, to $276.2 million at June 30, 2012
from $270.4 million at December 31, 2011. The increase in one- to four-family
residential real estate loans was primarily due to an increase in refinancing
demand resulting from lower mortgage interest rates. Commercial real estate
loans decreased $4.5 million, or 5.1%, to $83.2 million at June 30, 2012 from
$87.7 million at December 31, 2011, related primarily to principal repayments on
loans classified as troubled debt restructuring, partially offset by an increase
in new borrowing demand in our market area. Home equity loans decreased $1.3
million, or 5.9%, to $20.8 million at June 30, 2012 from $22.1 million at
December 31, 2011, as these loans are maturing and paying off. We continue to
monitor the composition of our loan portfolio and seek to obtain a reasonable
return while containing the potential for risk of loss.
Allowance for Loan Losses. The allowance for loan losses decreased $752,000, or
9.5%, to $7.2 million at June 30, 2012 from $7.9 million at December 31, 2011.
The allowance for loan losses represented 0.95% and 1.15% of total loans at
June 30, 2012 and December 31, 2011, respectively. The decreases in the
allowance for loan losses was primarily attributable to decreases in the
allowance related to commercial real estate, commercial business, automobile,
and one- to four-family loans. Included in the allowance for loan losses at
June 30, 2012 were specific reserves of $831,000 related to four impaired loans
with balances totaling $7.1 million. Impaired loans with balances totaling $15.9
million did not require specific reserves at June 30, 2012. The allowance for
loan losses at December 31, 2011 included specific reserves of $1.4 million
related to five impaired loans with balances totaling $11.2 million. Impaired
loans with balances totaling $21.7 million did not require specific reserves at
December 31, 2011. The balance of unimpaired loans increased $72.0 million, or
11.0%, to $728.8 million at June 30, 2012 from $656.8 million at December 31,
2011. The allowance for loan losses related to unimpaired loans decreased
$217,000, or 3.3%, to $6.3 million at June 30, 2012 from $6.5 million at
December 31, 2011.
The significant changes in the amount of the allowance for loan losses during
the six months ended June 30, 2012 related to: (i) a $222,000 decrease in the
allowance for loan losses attributable to commercial real estate loans resulting
primarily from a decrease of $5.3 million, or 4.5%, in impaired commercial real
estate loans to $6.6 million at June 30, 2012 from $11.9 million at December 31,
2011; and (ii) a $202,000 decrease in the allowance for loan losses attributable
to commercial business loans resulting primarily from a $193,000 decrease in the
specific reserve for commercial business loans to $515,000 at June 30, 2012 from
$718,000 at December 31, 2011, due to principal repayments on four impaired
loans. Management also considered local economic factors and unemployment as
well as the higher risk profile of commercial real estate loans when evaluating
the adequacy of the allowance for loan losses as it pertains to these types of
loans.
Bank-Owned Life Insurance. Bank-owned life insurance increased $10.6 million, or
50.5% to $31.6 million at June 30, 2012 from $21.0 million at December 31, 2011.
The increase in bank-owned life insurance primarily reflects purchases of $10.0
million of life insurance policies on certain key employees to help offset costs
associated with the Company's compensation and benefits programs and to generate
competitive investment yields.
Deposits. Deposits increased $6.8 million, or 0.8%, to $814.4 million at
June 30, 2012 from $807.6 million at December 31, 2011. The increase in deposits
was primarily attributable to increases in money market deposits, non-interest
bearing demand deposits, and interest-bearing demand deposits, partially offset
by a decrease in savings deposits and certificates of deposits. Money market
deposits increased $79.2 million, or 52.3%, to $230.6 million at June 30, 2012
from $151.4 million at December 31, 2011. Noninterest-bearing demand deposits
increased $6.6 million, or 19.8%, to $39.9 million at June 30, 2012 from $33.3
million at December 31, 2011. Interest-bearing demand deposits increased $4.3
million, or 3.2%, to $140.1 million at June 30, 2012 from $135.8 million at
December 31, 2011. Savings deposits decreased $62.4 million, or 37.1%, to $106.0
million at June 30, 2012 from $168.4 million at December 31, 2011. The changes
in the balances of our money market deposits, demand deposits, and savings
deposits were primarily the result of the redesign of our transaction account
products in the first quarter of 2012. Certificates of deposit decreased $20.9
million, or 6.6%, to $297.8 million at June 30, 2012 from $318.7 million at
December 31, 2011. The decrease in certificates of deposits resulted from
certificates of deposit that matured and were not renewed.
Borrowings. Federal Home Loan Bank advances decreased $7.5 million, or 2.9%, to
$254.5 million at June 30, 2012 from $262.0 million at December 31, 2011. The
decrease in Federal Home Loan Bank advances was attributable to scheduled
maturities of $170.0 million, partially offset by advances of $162.5 million
during the six months ended June 30, 2012. Other secured borrowings increased
$4.5 million, or 7.8%, to $62.5 million at June 30, 2012 from $58.0 million at
December 31, 2011, due to $4.5 million in federal funds purchased at June 30,
2012.
Stockholders' Equity. At June 30, 2012, our stockholders' equity was $202.0
million, an increase of $3.0 million, or 1.5%, from $199.0 million at
December 31, 2011. This increase was primarily attributable to net income of
$2.2 million for the six months ended June 30, 2012, the amortization of
$610,000 of share-based compensation, an increase of $485,000 in accumulated
other comprehensive income to $6.4 million at June 30, 2012 compared to $5.9
million at December 31, 2011, and $365,000 of ESOP compensation expense. These
increases were partially offset by a decrease due to the purchase of 42,500
shares of our common stock at a cost of $893,000 during the six months ended
June 30, 2012.
Comparison of Operating Results for the Three Months Ended June 30, 2012 and
2011
General. Net income increased $223,000, or 18.6%, to $1.4 million for the three
months ended June 30, 2012 from $1.2 million for the prior year period. The
increase in net income for the three months ended June 30, 2012 reflected a
decrease in the provision for loan losses of $600,000, a decrease in noninterest
expense of $481,000 and an increase in noninterest income of $167,000, partially
offset by a decrease in net interest income of $888,000 and an increase in
income tax expense of $137,000.
Interest Income. Interest income decreased $1.3 million, or 9.2%, to $12.9
million for the three months ended June 30, 2012 from $14.2 million for the
three months ended June 30, 2011. The decrease resulted primarily from a
decrease in the average yield on interest-earning assets of 48 basis points to
4.11% for the three months ended June 30, 2012 from 4.59% for the three months
ended June 30, 2011. Partially offsetting the decrease in the average yield on
interest-earning assets was an increase of $21.1 million, or 1.7%, in the
average balance of interest-earning assets to $1.26 billion for the three months
ended June 30, 2012 from $1.24 billion for the three months ended June 30, 2011.
The decrease in our average yield on interest-earning assets during the three
months ended June 30, 2012 as compared to the prior year period was due to the
sustained low short-term market interest rate environment.
Interest income on loans decreased $72,000, or 0.7%, to $9.7 million for the
three months ended June 30, 2012 from $9.8 million for the three months ended
June 30, 2011. The decrease resulted primarily from a decrease in the average
yield on our loan portfolio of 57 basis points to 5.30% for the three months
ended June 30, 2012 from 5.87% for the three months ended June 30, 2011,
partially offset by an increase in the average balance of loans of $66.6
million, or 10.0%, to $733.0 million for the three months ended June 30, 2012
from $666.4 million for the three months ended June 30, 2011.
Interest income on investment securities decreased $1.2 million, or 27.3%, to
$3.2 million for the three months ended June 30, 2012 from $4.4 million for the
three months ended June 30, 2011. The decrease resulted primarily from a
decrease in the average yield on our securities portfolio of 68 basis points to
2.51% for the three months ended June 30, 2012 from 3.19% for the three months
ended June 30, 2011. In addition to the decrease in the average yield of our
securities portfolio was a $43.9 million, or 8.0%, decrease in the average
balance of our securities portfolio to $507.4 million for the three months ended
June 30, 2012 from $551.3 million for the three months ended June 30, 2011, due
to maturities and sales of securities, primarily U.S. government sponsored
mortgage-backed securities and collateralized mortgage obligations.
Interest Expense. Interest expense decreased by $380,000, or 11.2%, to $3.0
million for the three months ended June 30, 2012 from $3.4 million for the three
months ended June 30, 2011. The decrease resulted primarily from a decrease in
interest expense on deposits of $283,000 and interest expense on borrowed funds
of $97,000. The decrease in interest expense on
deposits resulted primarily from a decrease in the average rate we paid on
deposits. The average rate we paid on deposits decreased 21 basis points to
0.81% for the three months ended June 30, 2012 from 1.02% for the three months
ended June 30, 2011. The average balance of deposits increased primarily due to
increases in the average balance of money market deposits and interest-bearing
demand deposits, partially offset by decreases in the average balance of savings
deposits and certificates of deposits.
Interest expense on certificates of deposit decreased $187,000, or 11.7%, to
$1.4 million for the three months ended June 30, 2012 from $1.6 million for the
three months ended June 30, 2011. The average balance of certificates of deposit
decreased $23.5 million, or 7.2%, to $303.6 million for the three months ended
June 30, 2012 from $327.1 million for the three months ended June 30, 2011. In
addition, the average rate paid on certificates of deposit decreased 10 basis
points to 1.83% for the three months ended June 30, 2012 from 1.93% for the
three months ended June 30, 2011, reflecting the continuing low market interest
rate environment.
Interest expense on borrowed funds decreased by $97,000, or 6.5%, to $1.4
million for the three months ended June 30, 2012 from $1.5 million for the prior
year period, primarily due to a decrease in the average rate paid on borrowed
funds of 17 basis points to 1.75% for the three months ended June 30, 2012 from
1.92% for the three months ended June 30, 2011. Partially offsetting the
decrease in the average yield of borrowed funds was an increase of $9.7 million,
or 3.0%, in the average balance of borrowed funds to $330.4 million for the
three months ended June 30, 2012 from $320.7 million for the three months ended
June 30, 2011.
Net Interest Income. Net interest income decreased by $888,000, or 8.2%, to $9.9
million for the three months ended June 30, 2012 from $10.8 million for the
prior year period. Our net interest margin decreased 34 basis points to 3.15%
for the three months ended June 30, 2012 from 3.49% for the three months ended
June 30, 2011. Our interest rate spread decreased 27 basis points to 3.02% for
the three months ended June 30, 2012 from 3.29% for the three months ended
June 30, 2011. These decreases in the net interest margin and the interest rate
spread were primarily attributable to lower loan and investment rates.
Provision for Loan Losses. We did not record a provision for loan losses in the
three months ended June 30, 2012 primarily as a result of improvements in asset
quality. We recorded a provision for loan losses of $600,000 for the three
months ended June 30, 2011. The provision for loan losses is charged to
operations to bring the allowance for loan losses to a level that reflects
management's best estimate of the losses inherent in the portfolio. An
evaluation of the loan portfolio, current economic conditions and other factors
is performed at each balance sheet date. Net charge-offs decreased $215,000, to
$577,000 for the three months ended June 30, 2012 from $792,000 for the three
months ended June 30, 2011. Net charge-offs as a percentage of average loans
outstanding was 0.31% for the three months ended June 30, 2012 compared to 0.48%
for the three months ended June 30, 2011. The allowance for loan losses to total
loans receivable decreased to 0.95% at June 30, 2012 from 1.29% at June 30,
2011. Total substandard loans decreased $18.3 million, or 51.4%, to $17.3
million at June 30, 2012 from $35.6 million at June 30, 2011. Total impaired
loans decreased $14.0 million, or 37.7%, to $23.1 million at June 30, 2012 from
$37.1 million at June 30, 2011. Total loans increased $83.4 million, or 12.5%,
to $751.8 million at June 30, 2012 from $668.4 million at June 30, 2011.
Non-performing loans include loans on non-accrual status or loans delinquent
90 days or greater and still accruing interest. None of our loans were
delinquent 90 days or greater and still accruing interest at either June 30,
2012 or June 30, 2011. At June 30, 2012, non-performing loans totaled $8.9
million, or 1.18% of total loans, compared to $13.6 million, or 2.03% of total
loans, at June 30, 2011. The allowance for loan losses as a percentage of
non-performing loans increased to 80.65% at June 30, 2012 from 63.60% at
June 30, 2011.
Noninterest Income. Noninterest income increased $167,000, or 5.2%, to $3.3
million for the three months ended June 30, 2012 from $3.2 million for the three
months ended June 30, 2011. The increase was primarily attributable to a
$491,000 increase in net gains on the sales of loans, primarily due to
improvements in the pricing of one- to four-family residential mortgage loans
sold in the secondary market and greater efforts to sell these loans to reduce
our exposure to interest rate risk, and a $146,000 increase in commissions,
primarily due to increases in sales of investment products. Partially offsetting
these increases in noninterest income was a $519,000 decrease in service charges
and other fees, primarily attributable to the impairment of the mortgage
servicing rights asset, a decrease in non-sufficient funds fee income and a
decrease in debit card interchange income.
Noninterest Expense. Noninterest expense decreased $481,000, or 4.1%, to $11.1
million for the three months ended June 30, 2012 from $11.6 million for the
three months ended June 30, 2011. The decrease was primarily attributable to a
$617,000 decrease in net loss on the write-down of other real estate owned, a
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