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OABC > SEC Filings for OABC > Form 10-Q on 3-May-2013All Recent SEC Filings

Show all filings for OMNIAMERICAN BANCORP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for OMNIAMERICAN BANCORP, INC.


3-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Information This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," "may," and words of similar meaning. These forward-looking statements include, but are not limited to:
statements of our goals, intentions, and expectations;

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 costs 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.


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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 municipal obligations, agency bonds and equity securities. At March 31, 2013, our investment securities portfolio had an amortized cost of $393.4 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. 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 11, 2013.


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Comparison of Financial Condition at March 31, 2013 and December 31, 2012 Assets. Total assets increased $19.2 million, or 1.5%, to $1.28 billion at March 31, 2013 from $1.26 billion at December 31, 2012. The increase was primarily the result of increases in securities available for sale of $17.3 million, bank-owned life insurance of $10.3 million, and loans, net of the allowance for loan losses and deferred fees and discounts of $5.2 million, partially offset by decreases in total cash and cash equivalents of $6.9 million and loans held for sale of $6.7 million.
Cash and Cash Equivalents. Total cash and cash equivalents decreased $6.9 million, or 28.7%, to $17.0 million at March 31, 2013 from $23.9 million at December 31, 2012. The decrease in total cash and cash equivalents reflects $98.0 million in cash used to purchase securities classified as available for sale, $96.6 million in cash used to originate loans, $17.0 million in cash used to repay other borrowings, and $10.0 million in cash used to purchase bank-owned life insurance. These decreases were partially offset by $71.3 million in cash received from loan principal repayments, $46.2 million in proceeds from the sales of securities available for sale, $32.1 million in proceeds from principal repayments and maturities of securities, $26.9 million of proceeds from the sales of loans, a $25.0 million net increase in FHLB advances and a $10.4 million increase in deposits. The loans sold during the three months ended March 31, 2013, consisted of one- to four-family residential real estate loans with terms 15 years or greater. These loans were sold in order to manage our interest rate risk.
Loans held for sale. Loans held for sale decreased $6.7 million, or 75.8%, to $2.1 million at March 31, 2013 from $8.8 million at December 31, 2012. The decrease in loans held for sale was primarily related to reduced processing time of loan sales which resulted in $26.3 million in sales partially offset by originations of $19.6 million during the three months ended March 31, 2013. Securities. Securities classified as available for sale increased $17.3 million, or 4.5%, to $401.2 million at March 31, 2013 from $383.9 million at December 31, 2012. The increase in securities classified as available for sale reflected purchases of $98.0 million of securities during the three months ended March 31, 2013. The increase was partially offset by sales of investment securities of $44.5 million, principal repayments and maturities of $32.1 million, and amortization of net premiums on investments of $934,000. At March 31, 2013, securities classified as available for sale consisted of government sponsored mortgage-backed securities, government sponsored collateralized mortgage obligations, agency bonds, municipal obligations, and other equity securities. Loans. Loans, net of the allowance for loan losses and deferred fees and discounts, increased $5.2 million, or 0.7%, to $740.5 million at March 31, 2013 from $735.3 million at December 31, 2012.

                                                                December 31,     Dollar       Percent
                                              March 31, 2013        2012         change        change
                                                        (Dollars in thousands)
One- to four-family                          $      247,923     $  251,756     $  (3,833 )      (1.5 )%
Home equity                                          20,728         20,863          (135 )      (0.6 )
Commercial real estate                               83,427         84,783        (1,356 )      (1.6 )
Real estate construction                             55,215         52,245         2,970         5.7
Commercial business                                  62,753         63,390          (637 )      (1.0 )
Automobile, indirect                                229,161        221,907         7,254         3.3
Automobile, direct                                   28,669         27,433         1,236         4.5
Other consumer                                       16,164         16,707          (543 )      (3.3 )
Total loans                                         744,040        739,084         4,956         0.7
Other items:
Unearned fees and discounts, net                      3,340          3,087           253         8.2
Allowance for loan losses                            (6,922 )       (6,900 )         (22 )       0.3
Total loans, net                             $      740,458     $  735,271     $   5,187         0.7  %

Automobile loans (consisting of direct and indirect loans) increased $8.5 million, or 3.4%, to $257.8 million at March 31, 2013 from $249.3 million at December 31, 2012, related primarily to our refocused sales initiatives and competitive rate structure. Real estate construction loans increased $3.0 million, or 5.7%, to $55.2 million at March 31, 2013 from $52.2 million at December 31, 2012, as new construction borrowing demand increased in our market area. One- to four-family residential real estate loans decreased $3.8 million, or 1.5%, to $247.9 million at March 31, 2013 from $251.8 million at December 31, 2012. The decrease in one- to four-family residential real estate loans was primarily due to repayments of $14.1 million,


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partially offset by originations of $10.3 million. Commercial real estate loans decreased $1.4 million, or 1.6%, to $83.4 million and home equity loans decreased $135,000, or 0.6%, to $20.7 million at March 31, 2013, as these loans are maturing and paying off. Commercial business loans decreased $637,000, or 1.0%, to $62.8 million at March 31, 2013 from $63.4 million at December 31, 2012. The decrease in commercial business loans was primarily due to a $12.2 million decrease in our participating interest in a mortgage warehouse line of credit with another financial institution. This decrease was offset by increases due to $10.0 million of loan originations and $4.9 million of increases in lines of credit, partially offset by loan repayments of $3.3 million during the three months ended March 31, 2013. 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 remained relatively unchanged at $6.9 million at March 31, 2013 and December 31, 2012, reflecting an increase of $22,000, or 0.3%, while total loans increased $4.9 million, or 0.7% to $744.0 million at March 31, 2013 from $739.1 million at December 31, 2012. The allowance for loan losses represented 0.93% of total loans both at March 31, 2013 and December 31, 2012. The increase in the allowance for loan losses was attributable to an increase in specific reserves for loan losses. Included in the allowance for loan losses at March 31, 2013 were specific reserves of $317,000 related to four impaired loans with balances totaling $3.7 million. Impaired loans with balances totaling $18.5 million did not require specific reserves at March 31, 2013. The allowance for loan losses at December 31, 2012 included specific reserves of $278,000 related to three impaired loans with balances totaling $981,000. Impaired loans with balances totaling $19.5 million did not require specific reserves at December 31, 2012. The balance of unimpaired loans increased $3.2 million, or 0.4%, to $721.8 million at March 31, 2013 from $718.6 million at December 31, 2012. The allowance for loan losses related to unimpaired loans remained unchanged at $6.6 million at March 31, 2013 and December 31, 2012.
The significant changes in the amount of the allowance for loan losses during the three months ended March 31, 2013 related to: (i) a $168,000 increase in the allowance for loan losses attributable to impaired real estate construction loans resulting from a specific reserve on one loan that was identified as impaired during the three months ended March 31, 2013 and (ii) a $129,000 decrease in the allowance for loan losses attributable to impaired commercial business loans resulting from a decrease in the specific reserve on one impaired loan. The decrease in the specific reserve reflected an increase in anticipated cash flow due to improvements in the borrower's financial standing during the three months ended March 31, 2013. Management also considered local economic factors and unemployment as well as the higher risk profile of real estate construction and commercial business 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 $10.3 million, or 32.1%, to $42.5 million at March 31, 2013 from $32.2 million at December 31, 2012. The increase in bank-owned life insurance is primarily due to 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 $10.4 million, or 1.3%, to $826.7 million at March 31, 2013 from $816.3 million at December 31, 2012.

                                              March 31,                               Dollar
                                                 2013         December 31, 2012       change       Percent change
                                                           (Dollars in thousands)
Noninterest-bearing demand                   $   53,504     $            47,331     $   6,173           13.0  %
Interest-bearing demand                         148,068                 139,976         8,092            5.8
Savings                                         106,753                 105,946           807            0.8
Money market                                    225,974                 229,537        (3,563 )         (1.6 )
Certificates of deposit                         292,424                 293,512        (1,088 )         (0.4 )
Total deposits                               $  826,723     $           816,302     $  10,421            1.3  %

The increase in deposits was primarily attributable to increases in interest-bearing demand deposits of $8.1 million, non-interest bearing demand deposits of $6.2 million, and savings deposits of $807,000, partially offset by a decrease in money market deposits of $3.6 million and certificates of deposits of $1.1 million. The increase in demand deposits was primarily due to increases in the average balances in our consumer deposit accounts. The decrease in certificates of deposits resulted from certificates of deposit that matured and were not renewed.


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Borrowings. Federal Home Loan Bank advances increased $25.0 million, or 12.1%, to $232.0 million at March 31, 2013 from $207.0 million at December 31, 2012. The increase in Federal Home Loan Bank advances was attributable to advances of $105.0 million, partially offset by scheduled maturities of $80.0 million during the three months ended March 31, 2013. Other borrowings decreased $17.0 million, or 89.5%, to $2.0 million at March 31, 2013 from $19.0 million at December 31, 2012, due to the repayment of $11.0 million of overnight borrowings and the maturity and repayment of $6.0 million of repurchase agreements. Stockholders' Equity. At March 31, 2013, our stockholders' equity was $206.1 million, an increase of $513,000, or 0.2%, from $205.6 million at December 31, 2012.

                                                                                         Dollar
                                              March 31, 2013     December 31, 2012       change       Percent change
                                                             (Dollars in thousands)
Common stock                                 $          114     $             114     $         -              -  %
Additional paid-in capital                          107,225               106,684             541            0.5  %
Unallocated ESOP shares                              (8,284 )              (8,379 )            95           (1.1 )%
Retained earnings                                   103,810               101,877           1,933            1.9  %
Accumulated other comprehensive income                3,226                 5,282          (2,056 )        (38.9 )%
Total stockholders' equity                   $      206,091     $         205,578     $       513            0.2  %

This increase was primarily attributable to net income of $1.9 million for the three months ended March 31, 2013, share-based compensation expense of $395,000, and ESOP compensation expense of $242,000. These increases were partially offset by other comprehensive losses of $2.1 million primarily due to the sale of $44.5 million in investment securities that resulted in a realized gain of $1.7 million for the three months ended March 31, 2013.
Comparison of Operating Results for the Three Months Ended March 31, 2013 and 2012
General. Net income increased $1.1 million, or 140.7%, to $1.9 million for the three months ended March 31, 2013 from $803,000 for the prior year period. The increase in net income for the three months ended March 31, 2013 reflected an increase in noninterest income of $2.4 million and a decrease in the provision for loan losses of $900,000, partially offset by a decrease in net interest income of $995,000, an increase in income tax expense of $708,000, and an increase in noninterest expense of $445,000.
Interest Income. Interest income decreased $2.0 million, or 15.3%, to $11.1 million for the three months ended March 31, 2013 from $13.1 million for the three months ended March 31, 2012. The decrease resulted primarily from a decrease in the average yield on interest-earning assets of 35 basis points to 3.83% for the three months ended March 31, 2013 from 4.18% for the three months ended March 31, 2012. The decrease in our average yield on interest-earning assets during the three months ended March 31, 2013 as compared to the prior year period was due to the purchase of investment securities and the origination of new loans at lower current market rates. In addition, the average balance of interest-earning assets decreased $93.8 million, or 7.5%, to $1.16 billion for the three months ended March 31, 2013 from $1.25 billion for the three months ended March 31, 2012.

                         Three months ended
                             March 31,             Dollar
                          2013         2012        change     Percent change
                             (Dollars in thousands)
Interest income:
Loans, including fees $     8,901    $  9,673    $   (772 )         (8.0 )%
Securities-taxable          2,163       3,383      (1,220 )        (36.1 )
Total interest income $    11,064    $ 13,056    $ (1,992 )        (15.3 )%

The decrease in interest income on loans of $772,000 resulted primarily from a decrease in the average yield on our loan portfolio of 72 basis points to 4.77% for the three months ended March 31, 2013 from 5.49% for the three months ended March 31, 2012, partially offset by an increase in the average balance of loans of $42.1 million, or 6.0%, to $746.7 million for the three months ended March 31, 2013 from $704.6 million for the three months ended March 31, 2012.


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The decrease in interest income on investment securities of $1.2 million resulted primarily from a $131.0 million, or 25.1%, decrease in the average balance of our securities portfolio to $391.3 million for the three months ended March 31, 2013 from $522.3 million for the three months ended March 31, 2012, primarily due to sales, principal repayments and maturities of securities. In addition to the decrease in the average balance of our securities portfolio was a decrease in the average yield on our securities portfolio of 38 basis points to 2.19% for the three months ended March 31, 2013 from 2.57% for the three months ended March 31, 2012.
Interest Expense. Interest expense decreased by $997,000, or 32.4%, to $2.1 million for the three months ended March 31, 2013 from $3.1 million for the three months ended March 31, 2012.

                           Three months ended
                                March 31,             Dollar
                             2013           2012      change    Percent change
                               (Dollars in thousands)
Interest expense:
Deposits               $    1,457         $ 1,672    $ (215 )        (12.9 )%
Borrowed funds                623           1,405      (782 )        (55.7 )
Total interest expense $    2,080         $ 3,077    $ (997 )        (32.4 )%

The decrease in interest expense on deposits of $215,000 resulted primarily from a decrease in the average rate we paid on deposits of 11 basis points to 0.76% for the three months ended March 31, 2013 from 0.87% for the three months ended March 31, 2012, as we were able to reprice our deposits lower as market interest rates declined. The average balance of interest-bearing deposits decreased $7.1 million, or 0.9%, to $763.2 million for the three months ended March 31, 2013 from $770.3 million for the three months ended March 31, 2012. The decrease in the average balance of our interest-bearing deposits was primarily due to decreases in the average balances of our savings accounts and certificates of deposit, partially offset by increases in the average balances of our interest-bearing demand accounts and money market accounts.
Interest expense on certificates of deposit decreased $185,000, or 12.7%, to $1.3 million for the three months ended March 31, 2013 from $1.5 million for the three months ended March 31, 2012. The average balance of certificates of deposit decreased $21.5 million, or 6.8%, to $293.2 million for the three months ended March 31, 2013 from $314.7 million for the three months ended March 31, 2012. In addition, the average rate paid on certificates of deposit decreased 11 basis points to 1.74% for the three months ended March 31, 2013 from 1.85% for the three months ended March 31, 2012, reflecting the continuing low market interest rate environment.
The decrease in interest expense on borrowed funds of $782,000 resulted primarily from a decrease of $90.0 million, or 27.8%, in the average balance of borrowed funds to $233.3 million for the three months ended March 31, 2013 from $323.3 million for the three months ended March 31, 2012. In addition, the average rate paid on borrowed funds decreased 67 basis points to 1.07% for the three months ended March 31, 2013 from 1.74% for the three months ended March 31, 2012.
Net Interest Income. Net interest income decreased by $995,000, or 10.0%, to $9.0 million for the three months ended March 31, 2013 from $10.0 million for the prior year period. Our net interest margin decreased 9 basis points to 3.11% for the three months ended March 31, 2013 from 3.20% for the three months ended March 31, 2012. Our interest rate spread decreased 5 basis points to 3.00% for the three months ended March 31, 2013 from 3.05% for the three months ended March 31, 2012. These decreases in the net interest margin and the interest rate spread resulted primarily from a decrease in the average yield on interest-earning assets.
Provision for Loan Losses. We recorded a provision for loan losses of $500,000 for the three months ended March 31, 2013 compared to a provision for loan losses of $1.4 million for the three months ended March 31, 2012. The provision for loan losses is charged to operations to bring the allowance for loan losses . . .

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