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OABC > SEC Filings for OABC > Form 10-Q on 1-Nov-2013All Recent SEC Filings

Show all filings for OMNIAMERICAN BANCORP, INC.

Form 10-Q for OMNIAMERICAN BANCORP, INC.


1-Nov-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 final 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 loans and investments. Our lending activity has focused primarily on 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. In recent years, we have increased our residential real estate, real estate construction, commercial real estate and commercial business lending while deemphasizing our consumer lending activities.
On October 9, 2013, the Company announced its plan to discontinue the purchase of auto loans originated through auto dealerships in order to further strengthen the Company's focus on its commercial, direct retail and mortgage lending strategies. In addition, the Company eliminated 24 positions in the auto lending and administrative functions, or approximately eight percent of its total workforce. The Company expects to record employee separation expense of approximately $800,000 during the fourth quarter of 2013 as a result of the workforce reduction.
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 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. 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. 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 September 30, 2013, our investment securities portfolio had an amortized cost of $451.3 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 Securities and Exchange Commission's Division of Corporation Finance staff issued disclosure guidance that summarizes its observations about Management's Discussion and Analysis of Financial Condition and Results of Operations 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.


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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.

Comparison of Financial Condition at September 30, 2013 and December 31, 2012 Assets. Total assets increased $191.0 million, or 15.2%, to $1.45 billion at September 30, 2013 from $1.26 billion at December 31, 2012. The increase was primarily the result of increases in loans, net of the allowance for loan losses and deferred fees and discounts, of $127.4 million, securities available for sale of $68.6 million, bank-owned life insurance of $11.0 million, and the net deferred tax asset of $2.7 million, partially offset by decreases in cash and cash equivalents of $9.8 million, loans held for sale of $7.5 million, and other real estate owned of $3.8 million.
Cash and Cash Equivalents. Total cash and cash equivalents decreased $9.8 million, or 41.1%, to $14.1 million at September 30, 2013 from $23.9 million at December 31, 2012. The decrease in total cash and cash equivalents reflects $398.4 million in cash used to originate loans, $210.0 million in cash used to purchase securities classified as available for sale, a $14.3 million net decrease in deposits, $10.0 million in cash used to purchase bank-owned life insurance, and $10.0 million in cash used to repay other borrowings. These decreases were partially offset by $225.7 million in cash received from loan principal repayments, a $210.0 million net increase in Federal Home Loan Bank advances, $84.7 million in proceeds from principal repayments and maturities of securities, $54.2 million of proceeds from the sales of loans, and $46.2 million in proceeds from the sales of securities available for sale. The loans sold during the nine months ended September 30, 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 $7.5 million, or 84.8%, to $1.3 million at September 30, 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 $53.0 million in sales, partially offset by originations of $45.5 million during the nine months ended September 30, 2013. Securities. Securities classified as available for sale increased $68.6 million, or 17.9%, to $452.5 million at September 30, 2013 from $383.9 million at December 31, 2012. The increase was primarily due to purchases of $210.0 million in securities classified as available for sale, partially offset by principal repayments and maturities of $84.7 million, sales of investment securities of $44.5 million, a decrease in unrealized gains of $9.7 million, and amortization of net premiums on investments of $2.5 million. At September 30, 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.


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Loans. Loans, net of the allowance for loan losses and deferred fees and discounts, increased $127.4 million, or 17.3%, to $862.7 million at September 30, 2013 from $735.3 million at December 31, 2012.

                                              September 30,     December 31,     Dollar       Percent
                                                   2013             2012         change        change
                                                        (Dollars in thousands)
One- to four-family                          $      258,793     $  251,756     $   7,037         2.8  %
Home equity                                          19,338         20,863        (1,525 )      (7.3 )
Commercial real estate                              104,847         84,783        20,064        23.7
Real estate construction                             69,229         52,245        16,984        32.5
Commercial business                                  76,294         63,390        12,904        20.4
Automobile, indirect                                287,893        221,907        65,986        29.7
Automobile, direct                                   32,005         27,433         4,572        16.7
Other consumer                                       15,587         16,707        (1,120 )      (6.7 )
Total loans                                         863,986        739,084       124,902        16.9
Other items:
Unearned fees and discounts, net                      5,358          3,087         2,271        73.6
Allowance for loan losses                            (6,690 )       (6,900 )         210        (3.0 )
Total loans, net                             $      862,654     $  735,271     $ 127,383        17.3  %

The increase in automobile loans (consisting of direct and indirect loans) of $70.6 million, or 28.3%, to $319.9 million at September 30, 2013 from $249.3 million at December 31, 2012, related primarily to our competitive rate structure. Commercial real estate loans increased $20.0 million, or 23.7%, to $104.8 million at September 30, 2013 from $84.8 million at December 31, 2012. The increase in commercial real estate loans was primarily due to $33.2 million of loan originations, partially offset by loan repayments of $13.2 million during the nine months ended September 30, 2013. Real estate construction loans increased $17.0 million, or 32.5%, to $69.2 million at September 30, 2013 from $52.2 million at December 31, 2012, as new construction borrowing demand increased in our market area. Commercial business loans increased $12.9 million, or 20.4%, to $76.3 million at September 30, 2013 from $63.4 million at December 31, 2012. The increase in commercial business loans was primarily due to $41.4 million of loan originations and $12.9 million of increases in lines of credit, partially offset by loan repayments of $40.0 million and a $1.4 million decrease in our participating interest in mortgage warehouse lines of credit with another financial institution during the nine months ended September 30, 2013. One- to four-family residential real estate loans increased $7.0 million, or 2.8%, to $258.8 million at September 30, 2013 from $251.8 million at December 31, 2012. The increase in one- to four-family residential real estate loans was primarily due to originations of $50.5 million, partially offset by repayments of $43.3 million. These increases were partially offset by decreases in home equity loans of $1.5 million, and decreases in other consumer loans of $1.1 million, 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 $210,000, or 3.0%, to $6.7 million at September 30, 2013 from $6.9 million at December 31, 2012. The allowance for loan losses represented 0.77% and 0.93% of total loans at September 30, 2013 and December 31, 2012, respectively. Included in the allowance for loan losses at September 30, 2013 were specific reserves of $209,000 related to four impaired loans with balances totaling $1.1 million. Impaired loans with balances totaling $14.1 million did not require specific reserves at September 30, 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 $130.1 million, or 18.1%, to $848.7 million at September 30, 2013 from $718.6 million at December 31, 2012. The allowance for loan losses related to unimpaired loans decreased $140,000, or 2.1%, to $6.5 million at September 30, 2013 from $6.6 million at December 31, 2012. The significant changes in the amount of the allowance for loan losses during the nine months ended September 30, 2013 related to: (i) a $633,000 decrease in the allowance for loan losses attributable to unimpaired commercial loans resulting from improvement in loan quality within the commercial portfolio at September 30, 2013 as compared to December 31, 2012 and (ii) a $491,000 increase in the allowance for loan losses attributable to unimpaired consumer loans resulting from a $69.4 million, or 26.1%, increase in unimpaired consumer loans outstanding at September 30, 2013 from December 31, 2012. 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.


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Bank-Owned Life Insurance. Bank-owned life insurance increased $11.0 million, or 34.3%, to $43.2 million at September 30, 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 decreased $14.3 million, or 1.7%, to $802.0 million at September 30, 2013 from $816.3 million at December 31, 2012.

                                               September 30,                               Dollar
                                                   2013            December 31, 2012       change       Percent change
                                                             (Dollars in thousands)
Noninterest-bearing demand                   $        51,209     $            47,331     $   3,878            8.2  %
Interest-bearing demand                              140,796                 139,976           820            0.6
Savings                                              105,108                 105,946          (838 )         (0.8 )
Money market                                         232,144                 229,537         2,607            1.1
Certificates of deposit                              272,760                 293,512       (20,752 )         (7.1 )
Total deposits                               $       802,017     $           816,302     $ (14,285 )         (1.7 )%

The decrease in deposits was primarily attributable to a decrease in certificates of deposits of $20.8 million, partially offset by increases in noninterest-bearing demand deposits of $3.9 million and money market deposits of $2.6 million. The decrease in certificates of deposits resulted from certificates of deposit that matured and were not renewed. The increase in noninterest-bearing demand deposits was primarily related to growth in commercial deposits. The increase in money market deposits was primarily attributable to increased sales of a cash sweep product.
Borrowings. Federal Home Loan Bank advances increased $210.0 million, or 101.4%, to $417.0 million at September 30, 2013 from $207.0 million at December 31, 2012. The increase in Federal Home Loan Bank advances was attributable to advances of $335.0 million, partially offset by scheduled maturities of $125.0 million during the nine months ended September 30, 2013. Other borrowings decreased $10.0 million, or 52.6%, to $9.0 million at September 30, 2013 from $19.0 million at December 31, 2012, due to the maturity and repayment of $6.0 million of repurchase agreements that occurred in January 2013 and a decrease in overnight borrowings of $4.0 million.
Stockholders' Equity. At September 30, 2013, our stockholders' equity was $206.3 million, an increase of $725,000, or 0.4%, from $205.6 million at December 31, 2012.

                                               September 30,                              Dollar
                                                    2013          December 31, 2012       change        Percent change
                                                              (Dollars in thousands)
Common stock                                  $          115     $             114     $         1             0.9  %
Additional paid-in capital                           108,741               106,684           2,057             1.9  %
Unallocated ESOP shares                               (8,094 )              (8,379 )           285            (3.4 )%
Retained earnings                                    106,680               101,877           4,803             4.7  %
Accumulated other comprehensive (loss) income         (1,139 )               5,282          (6,421 )        (121.6 )%
Total stockholders' equity                    $      206,303     $         205,578     $       725             0.4  %

The increase in stockholders' equity was primarily due to net income of $4.8 million for the nine months ended September 30, 2013, share-based compensation expense of $1.5 million, and ESOP compensation expense of $685,000 during the nine months ended September 30, 2013. This increase was partially offset by other comprehensive losses resulting from a decrease in unrealized gains on available for sale securities of $6.4 million after tax, partially due to the sale of $44.5 million in investment securities that resulted in a realized gain of $1.7 million for the nine months ended September 30, 2013.
Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012
General. Net income decreased $100,000, or 4.4%, to $2.2 million for the three months ended September 30, 2013 from $2.3 million for the prior year period. The decrease in net income reflected an increase in noninterest expense of $1.2 million and a decrease in noninterest income of $907,000, partially offset by an increase in net interest income of $1.6 million and a decrease in the provision for loan losses of $350,000.


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Interest Income. Interest income increased $937,000, or 7.5%, to $13.4 million for the three months ended September 30, 2013 from $12.5 million for the three months ended September 30, 2012. The increase resulted primarily from the recognition of $1.3 million of interest income on a non-performing loan that paid off in July 2013. Excluding this $1.3 million of interest income, total interest income decreased $320,000, primarily due to a 29 basis point decrease in the average yield on interest-earning assets, to 3.84% for the three months ended September 30, 2013 from 4.13% for the three months ended September 30, 2012, partially offset by an increase in the average balance of interest-earning assets of $56.5 million, or 4.7%, to $1.27 billion for the three months ended September 30, 2013 from $1.21 billion for the three months ended September 30, 2012. The increase in our average balance of interest-earning assets during the three months ended September 30, 2013 as compared to the prior year period was due to an increase in the volume of originations of new loans.

                         Three Months Ended
                           September 30,          Dollar
                          2013         2012       change     Percent change
                             (Dollars in thousands)
Interest income:
Loans, including fees $    11,097    $  9,753    $ 1,344           13.8  %
Securities-taxable          2,335       2,742       (407 )        (14.8 )
Securities-nontaxable           -           -          -              -
Total interest income $    13,432    $ 12,495    $   937            7.5  %

The increase in interest income on loans of $1.3 million was primarily due to the recognition of $1.3 million of interest income on a non-performing loan that was paid off in July 2013. Excluding this $1.3 million of interest income, interest income on loans increased $87,000 for the three months ended September 30, 2013 compared to the prior year period. The increase in interest income on loans was due to an increase in the average balance of our loan portfolio of $90.8 million, or 12.1%, to $841.9 million for the three months ended September 30, 2013 from $751.1 million for the three months ended September 30, 2012, partially offset by a decrease in the average yield on our loan portfolio of 51 basis points to 4.68% for the three months ended September 30, 2013 from 5.19% for the three months ended September 30, 2012. The decrease in interest income on investment securities of $407,000 resulted primarily from a $35.6 million, or 8.1%, decrease in the average balance of our securities portfolio to $404.0 million for the three months ended September 30, 2013 from $439.6 million for the three months ended September 30, 2012, primarily due to sales, principal repayments, and maturities of securities. In addition to the decrease in the average balance of our securities portfolio, the average yield on our securities portfolio decreased 18 basis points to 2.29% for the three months ended September 30, 2013 from 2.47% for the three months ended September 30, 2012.
Interest Expense. Interest expense decreased by $684,000, or 27.2%, to $1.8 million for the three months ended September 30, 2013 from $2.5 million for the three months ended September 30, 2012.

                           Three Months Ended
                              September 30,           Dollar
                             2013           2012      change    Percent change
                               (Dollars in thousands)
Interest expense:
Deposits               $    1,181         $ 1,530    $ (349 )        (22.8 )%
Borrowed funds                646             981      (335 )        (34.1 )
Total interest expense $    1,827         $ 2,511    $ (684 )        (27.2 )%

The decrease in interest expense on deposits of $349,000 resulted from a decrease in the average rate we paid on deposits and a decrease in the average balance of interest-bearing deposits. The average rate we paid decreased 17 basis points to 0.63% for the three months ended September 30, 2013 from 0.80% for the three months ended September 30, 2012, as we were able to reprice our deposits lower as market interest rates declined. The average balance of interest-bearing deposits decreased $12.7 million, or 1.7%, to $751.0 million for the three months ended September 30, 2013 from $763.7 million for the three months ended September 30, 2012. The decrease in the average balance of our interest-bearing deposits was primarily due to decreases in the average balances of our certificates of deposit, partially offset by increases in the average balances of our interest-bearing demand accounts and savings accounts.


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Interest expense on certificates of deposit decreased $329,000, or 24.4%, to $1.0 million for the three months ended September 30, 2013 from $1.3 million for the three months ended September 30, 2012. The average balance of certificates of deposit decreased $19.4 million, or 6.6%, to $276.8 million for the three . . .

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